<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 26, 1996
FILE NO. 333-02185
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- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
(Check appropriate box or boxes)
/ / REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/X/ PRE-EFFECTIVE AMENDMENT NO. 1
/ / 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(c)
/ / 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
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
OFFERING PRICE AGGREGATE
TITLE OF SECURITIES AMOUNT BEING PER OFFERING AMOUNT OF
BEING REGISTERED REGISTERED SHARE PRICE REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.0001 par value... 722,410 shares $14.625 (1) $10,565,246.25(1) $ 3,643.19(2)
Common Stock, $0.0001 par value... 835 shares $14.5625(3) $ 12,159.69(3) $ 100.00
</TABLE>
- --------------------------------------------------------------------------------
(1) Estimated for purposes of calculating the registration fee pursuant to Rule
457(c) 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.
(2) Previously paid.
(3) Estimated for purposes of calculating the registration fee pursuant to Rule
457(c) and the 1933 Act based on the average of the high and low prices per
share on April 23, 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.
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<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
<C> <S> <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;
Securities Description of 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 Information Additional Information
<CAPTION>
PART B: INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
<C> <S> <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 [Prospectus:] 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 [Prospectus:] The Company
22. Tax Status Tax Status
23. Financial Statements [Prospectus:] Financial Statements
<CAPTION>
PART C: OTHER INFORMATION
<C> <S> <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 Adviser Investment Adviser
31. Location of Accounts and Records Locations of Accounts and Records
32. Management Services Management Services
33. Undertakings Undertakings
</TABLE>
<PAGE> 3
PROSPECTUS
628,909 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 April 26, 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 628,909 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 94,336 Shares, for an aggregate
total of 723,245 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 16. 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 11. 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;
therefore shares held by Allied I on the Record Date have not been included in
the calculation of the Shares registered for the Offer.
THE OFFER WILL COMMENCE ON MAY 6, 1996 AND WILL EXPIRE AT 5:00 P.M. EASTERN
TIME, ON JUNE 4, 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." The Company is a small business lending company
("SBLC") licensed 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--RISKS OF LEVERAGE,"
PAGE 22.
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 including the Statement
of Additional Information, 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 of Advisers 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 27 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 ESTIMATED ESTIMATED
SUBSCRIPTION SALES PROCEEDS TO
PRICE(1) LOAD(2) THE COMPANY(3)(4)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................. $14.64 $0.3660 $14.27
- -----------------------------------------------------------------------------------------------------------------
Total(5)................................... $9,207,228 $230,181 $8,977,047
=================================================================================================================
</TABLE>
(Footnotes on the following page)
The date of this Prospectus and of the Statement of Additional Information is
April 29, 1996.
<PAGE> 4
(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 the Nasdaq
National Market on April 25, 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 13.
(3) Before deduction of offering costs incurred related to this offering,
payable by the Company, estimated at $181,701.
(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 offered 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 $10,588,306, $264,708 and
$10,323,598, respectively.
2
<PAGE> 5
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 management investment company which has
elected to be regulated as a business development company
("BDC") and is managed by Allied Capital Advisers, Inc.
("Advisers"). See "Management--Investment Adviser" page
24. 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. See "The Company,"
page 18.
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 17.
INVESTMENT
CONSIDERATIONS As a BDC, the Company's consolidated portfolio includes
loans to small privately held companies that involve a
high degree of business and financial risk. A large
number of entities compete for the same kinds of small
business lending opportunities as the Company. 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. In addition, because the
Company and the Subsidiary borrow funds, the Company is
exposed to the risks of leverage, which may be considered
a speculative investment technique. See "The
Company--Risk Factors," page 20.
SUBSCRIPTION RIGHTS AND
PRIMARY SUBSCRIPTION The Company is offering to stockholders of record as of
the close of business on April 26, 1996 (the "Record
Date") the right to subscribe for an aggregate of 628,909
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 May 6, 1996
and ends at 5:00 p.m., Eastern Time, on June 4, 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." See "The
Offer--Terms of the Offer," page 11.
OVER-SUBSCRIPTION
PRIVILEGE AND POSSIBLE
INCREASE IN SHARES
OFFERED Any stockholder who fully exercises all Subscription
Rights is entitled to subscribe for Shares that were not
otherwise subscribed for pursuant to the Primary
Subscription (the "Over-Subscription Privilege"). Shares
acquired through the Over-Subscription Privilege are
subject to allotment. The Company may, in its sole
discretion, issue up to an additional 15% of the Shares
available in the Primary Subscription. See "The
Offer--Over-Subscription Privilege and Possible Increase
in Shares Offered," page 11.
DILUTIVE EFFECT The Primary Subscription will dilute the ownership
interest and voting power of stockholders who do not
fully exercise their Subscription Rights. Stockholders
who do not fully exercise their Subscription Rights
should expect, upon comple-
3
<PAGE> 6
tion of the Offer, to own a smaller proportional interest
in the Company than before the Offer. The
Over-Subscription Privilege and the Company's
discretionary ability to increase by up to 15% the number
of Shares offered will likely result in further dilution
to stockholders, including those who fully exercise their
Subscription Rights to subscribe for Shares pursuant to
the Primary Subscription. See "The Offer--Dilutive
Effects," page 13.
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 13.
IMPORTANT DATES TO REMEMBER
<TABLE>
<CAPTION>
EVENT DATE
- --------------------------------------------------------------------------------------------
<S> <C>
Record Date............................................................... April 26, 1996
Subscription Period....................................................... May 6-June 4, 1996*
Expiration Date of the Offer.............................................. June 4, 1996*
Pricing Date.............................................................. June 4, 1996*
Subscription Forms and payment for Shares due+............................ June 4, 1996*
Notices of Guaranteed Delivery due+....................................... June 4, 1996*
Subscription Forms pursuant to Notices of Guaranteed Delivery due......... June 7, 1996*
Confirmation to participants.............................................. June 14, 1996*
Payment pursuant to Notices of Guaranteed Delivery due.................... June 28, 1996*
Final collections or rebates for Shares due............................... June 28, 1996*
</TABLE>
- ---------------
* Unless the Offer is extended to a date not later than June 7, 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 may
SUBSEQUENT TO THE offer and sell Shares not sold pursuant to the Offer to
OFFER other investors. See "The Offer--Sales of Shares
Subsequent to the Offer," page 16.
PRINCIPAL TRADING Nasdaq National Market under the symbol "ALCL." See
MARKET "Public Trading and Net Asset Value Information," page
10.
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....................................................... 3.58%(4)
Interest Payments on Borrowed Funds............................................ 4.40%(5)
Other Expenses................................................................. 1.14%(6)
-----
Total Annual Expenses.................................................. 9.12%(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
4
<PAGE> 7
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 March 31, 1996 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 24) 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 March 31, 1996 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 March 31, 1996 and December 31, 1995, approximately 2% and
5%, respectively, 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 18.
(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 $16 million at March 31, 1996 will remain
outstanding for the full year and additional borrowings will be made
throughout the remainder of 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 22.
(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 $16 million at March 31, 1996, 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 6.36% of
consolidated total assets on a pro forma basis after giving effect to the
anticipated net proceeds of the Offer.
<TABLE>
<CAPTION>
10
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 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 Total Annual Expenses of 6.36% (as a
percentage of consolidated total assets)................... $114 $ 288 $ 458 $ 863
</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.
5
<PAGE> 8
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 27.
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 condensed consolidated financial
information as of and for the years ended December 31, 1991, 1992, 1993, 1994
and 1995 has been audited by the firm of Matthews, Carter and Boyce, independent
accountants, whose opinion thereon appears at page F-14. See also "Management's
Discussion and Analysis of Financial Condition and Results of Operations," page
27.
SUMMARY BALANCE SHEET INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------- MARCH 31,
1991 1992 1993 1994 1995(5) 1996(6)
------- ------- ------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments, at value................... $10,509 $12,241 $21,793 $32,771 $47,147 $44,356
Cash and cash equivalents............... 444 2,654 10,998 1,297 3,020 1,237
Excess servicing asset.................. 1,328 1,372 1,605 2,700 3,828 4,230
Other assets............................ 2,646 1,153 557 851 1,485 1,341
------- ------- ------- ------- ------- -------
Total assets........................ $14,927 $17,420 $34,953 $37,619 $55,480 $51,164
======= ======= ======= ======= ======= =======
LIABILITIES
Notes payable, bank..................... $ -- $ -- $ -- $ 3,130 $18,914 $16,008
Note payable, parent.................... 4,292 7,860 -- -- -- --
Repurchase Agreements................... 2,761 -- -- -- -- --
Investment advisory fee payable......... -- -- 67 230 330 314
Other liabilities....................... 2,274 4,055 1,931 1,471 3,352 1,877
------- ------- ------- ------- ------- -------
Total liabilities................... 9,327 11,915 1,998 4,831 22,596 18,199
------- ------- ------- ------- ------- -------
SHAREHOLDERS' EQUITY
Common stock and additional paid-in
capital............................... 5,500 5,500 33,048 33,069 33,252 33,331
Net unrealized depreciation on
investments........................... (355) (180) (112) (164) (155) (176)
Undistributed (distributions in excess
of) accumulated earnings.............. 455 185 19 (117) (213) (190)
------- ------- ------- ------- ------- -------
Total shareholders' equity.......... 5,600 5,505 32,955 32,788 32,884 32,965
------- ------- ------- ------- ------- -------
Total liabilities and shareholders'
equity........................... $14,927 $17,420 $34,953 $37,619 $55,480 $51,164
======= ======= ======= ======= ======= =======
</TABLE>
6
<PAGE> 9
SUMMARY INCOME STATEMENT INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------- -----------------
1991(1) 1992(1) 1993 1994 1995(5) 1995(6) 1996(6)
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest............................... $4,738 $1,380 $ 2,260 $ 3,716 $5,966 $1,222 $1,591
Premium income......................... 3,205 1,958 2,196 2,349 2,090 605 662
------ ------ ------ ------ ------ ------ ------
Total investment income............ 7,943 3,338 4,456 6,065 8,056 1,827 2,253
------ ------ ------ ------ ------ ------ ------
OPERATING EXPENSES
Investment advisory fee................ -- -- 572 811 1,140 224 314
Interest expense....................... 2,645 414 707 75 959 74 396
Other operating expenses............... 967 913 233 301 519 135 132
------ ------ ------ ------ ------ ------ ------
Total expenses..................... 3,612 1,327 1,512 1,187 2,618 433 842
------ ------ ------ ------ ------ ------ ------
Net investment income.............. 4,331 2,011 2,944 4,878 5,438 1,394 1,411
Net realized gain (loss) on
investments.......................... (85) (217) (338) (295) (195) 10 (60)
------ ------ ------ ------ ------ ------ ------
Net investment income before net
unrealized appreciation
(depreciation) on investments... 4,246 1,794 2,606 4,583 5,243 1,404 1,351
Net unrealized appreciation
(depreciation) on investments........ (111) 174 68 (52) 9 (59) (21)
------ ------ ------ ------ ------ ------ ------
Net increase in net assets
resulting from operations....... $4,135 $1,968 $ 2,674 $ 4,531 $5,252 $1,345 $1,330
====== ====== ====== ====== ====== ====== ======
PER SHARE AMOUNTS
Net investment income.................. $ 1.82 $ 0.84 $ 1.14 $ 1.12 $ 1.24 $ 0.32 $ 0.32
Net realized gain (loss) and net
unrealized appreciation
(depreciation) on investments........ $(0.08) $(0.01) $ (0.11) $ (0.08) $(0.04) $(0.01) $(0.02)
Net increase in net assets resulting
from operations...................... $ 1.74 $ 0.83 $ 1.03 $ 1.04 $ 1.20 $ 0.31 $ 0.30
Net asset value........................ $ 2.35 $ 2.31 $ 7.54 $ 7.50 $ 7.50 $ 7.55 $ 7.51
Dividends declared (prior to Initial
Public Offering)(4).................. $ 1.50 (2) $ 0.87 $ 1.02(2) $ -- $ -- $ -- $ --
Dividends declared (subsequent to
Initial Public Offering)(4).......... $ -- $ -- $ 0.08(3) $ 1.08 $ 1.22 $ 0.27 $ 0.30
</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 ("former Parent"), and the Company's board of directors approved
an increase in the authorized shares and a stock split effected in the form
of a stock dividend to the former 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.
(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 Subsidiary beginning in 1995.
(6) In the opinion of management, the unaudited condensed consolidated financial
information of the Company contains all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the Company's
consolidated financial position as of March 31, 1996 and the results of
operations for the three months ended March 31, 1995 and 1996. The results
of operations for the three months ended March 31, 1996 are not necessarily
indicative of the operating results to be expected for the year ending
December 31, 1996.
7
<PAGE> 10
QUARTERLY FINANCIAL HIGHLIGHTS
(IN THOUSANDS)
(unaudited)
<TABLE>
<CAPTION>
1994 1995 1996
------------------------------------ ------------------------------------ ------
QTR 1 QTR 2 QTR 3 QTR 4 QTR 1 QTR 2 QTR 3 QTR 4 QTR 1
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <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 $2,253
Net investment income....... $ 873 $1,213 $1,242 $1,550 $1,394 $1,231 $1,580 $1,233 $1,411
Net increase in net assets
resulting from
operations................ $ 856 $1,228 $1,306 $1,141 $1,345 $1,248 $1,402 $1,257 $1,330
Per share................... $ 0.20 $ 0.28 $ 0.30 $ 0.26 $ 0.31 $ 0.29 $ 0.32 $ 0.29 $ 0.30
</TABLE>
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.
<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
</TABLE>
8
<PAGE> 11
<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>
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>
- ---------------
(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.
The Company has been advised by the Staff of the Commission that these
reverse repurchase agreements are not considered a class of senior security
representing indebtedness and thus are not subject to the asset coverage
requirements of the Investment Company Act of 1940, as amended (the "1940
Act").
9
<PAGE> 12
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
TO AVERAGE
AVERAGE NET NET ASSET VALUE
ASSET PER COMMON SHARE
BID PRICE RANGE VALUE PER 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....................... $13.25 $12.00 $ 7.55 75% 59%
3rd Quarter....................... $13.00 $12.00 $ 7.57 72% 59%
4th Quarter....................... $13.25 $12.00 $ 7.55 76% 59%
1996
1st Quarter....................... $14.50 $12.63 $ 7.51 93% 68%
</TABLE>
The last sale price for a share of the Company's common stock on Nasdaq on
April 25, 1996 was $14.375.
10
<PAGE> 13
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 May 6, 1996, and ends as of 5:00 p.m., Eastern Time, on June 4,
1996 (the "Expiration Date"), unless extended by the Company until 5:00 p.m.
Eastern Time on a date no later than June 7, 1996.
In addition, any stockholder who fully exercises all Subscription Rights
issued to him or a stockholder who has less than five (5) Subscription Rights
and therefore cannot participate in the Primary Subscription is entitled to
subscribe for Shares which were not otherwise subscribed for in 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 AND POSSIBLE INCREASE IN SHARES OFFERED
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
or a stockholder who has less than five (5) Subscription Rights and therefore
cannot participate in the Primary Subscription 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 in the Primary Subscription 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.
11
<PAGE> 14
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 common stock on the Nasdaq National
Market 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 $14.64 per Share. See "Confirmation of Purchase," page 15.
SUBSCRIPTION PERIOD
The Offer commences on May 6, 1996 and expires at 5:00 p.m., Eastern Time,
on June 4, 1996, unless extended by the Company until 5:00 p.m. Eastern Time on
a date no later than June 7, 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 American
Stock Transfer & Trust Company ("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 March 31, 1996 was $7.51. 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 lending 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, 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 Board of Directors has voted 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. These three
directors, plus one other director who voted to authorize the Offer, are
"interested persons" of the Company within the meaning of the 1940 Act. Four
other directors, constituting a majority of the directors who are not
"interested persons" of the Company, also voted to authorize the Offer. Advisers
may 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 24. 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.
12
<PAGE> 15
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.
DILUTIVE EFFECTS
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 10.
Any stockholder who chooses not to participate in the Offer, should expect
to own a smaller proportional interest in the Company upon completion of the
Offer. The Primary Subscription will dilute the ownership interest and voting
power of stockholders who do not fully exercise their Subscription Rights. The
Over-Subscription Privilege and the Company's discretionary ability to increase
by up to 15% the number of Shares offered will likely result in further dilution
to stockholders, including those who fully exercise their Subscription Rights to
subscribe for Shares pursuant to the Primary Subscription. See "Sales of Shares
Subsequent to the Offer," page 16.
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 16.
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 $35,000 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.
13
<PAGE> 16
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 $5,000; for acting as Offering Coordinator, SCC will receive a
fee of $35,000. 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 $14.64 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, 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.
14
<PAGE> 17
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 METHOD (2) DESCRIBED ABOVE IS USED, EACH SUBSCRIPTION FORM MUST BE
ACCOMPANIED BY FULL PAYMENT IN ORDER TO BE ACCEPTED.
CONFIRMATION OF PURCHASE
Within eight (8) 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
but 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.
A SAMPLE CALCULATION OF A SUBSCRIPTION
Assume, for example, that you own 1,002 shares of the Company's common
stock as of the Record Date. Dividing that number by 5 and dropping the
fraction, if any, 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, Part I, enter 200 Shares and fill in the total estimated
subscription price for the Shares, which is 200
15
<PAGE> 18
multiplied by $14.64, the Estimated Subscription Price per Share, which totals
$2,928. If you choose to subscribe for additional Shares pursuant to the
Over-Subscription Privilege or if you are a stockholder who has less than five
(5) Subscription Rights, enter the number of 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 Shares by $14.64. Assuming you
decide to purchase 100 Shares pursuant to the Over-Subscription Privilege, enter
100 Shares and $1,464 on the second line. Then enter the total amount due,
$4,392, on the third line of the Subscription 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 200 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 100 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 $14.64 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 method described under "Payment for Shares," page 14. 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 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,
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<PAGE> 19
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") licensed 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 under
an investment advisory agreement.
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 agreed 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 an extra distribution to
stockholders 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 subsequently made or declared any other distributions 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 March 31,
1996.
The Company is anticipating a reorganization of its corporate structure and
is in the process of seeking exemptive relief from the Commission and permission
from the SBA for the new structure. Under this proposed new structure, the
Company would 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 related assets to Subsidiary
II in return for 100% of its stock. Simultaneous 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. The Company believes the new structure will provide the Company
and its proposed Subsidiaries with greater flexibility to operate within certain
regulatory constraints and further improve its ability to generate loans.
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<PAGE> 20
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. The Company also generates companion
loans to accompany the Section 7(a) loans.
The Section 7(a) Guaranteed 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 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
Section 7(a) loans without SBA credit approval, thus simplifying the process of
loan approval and disbursements. As of December 31, 1995, the Company was a
Preferred Lender in the Washington, 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 servicing fee is recorded as
an excess servicing asset. At March 31, 1996, the Company was servicing
approximately $145 million aggregate principal amount of loans, of which
approximately 70% had been sold to investors.
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 a $20 million line of credit with a commercial bank that expires
December 31, 1996. See "The Company -- Risk Factors -- Bank Loans" page 22.
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<PAGE> 21
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; and 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 generally does not intend to concentrate its loans
in any industry. At March 31, 1996, 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
During 1995, as part of the Company's efforts to diversify its lending
activities, the Company 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.
During 1995, through its Subsidiary, the Company also began providing
companion or "piggyback" loans ("companion loans") in conjunction with
traditional Section 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 Section 504 loans and companion loans with two
lines of credit that the Subsidiary has with an investment bank and a commercial
bank. The line of credit with the investment bank has a $20 million borrowing
capacity and expires September 27, 1996. In addition, the Company's Subsidiary
entered into a new line of credit with a commercial bank in April 1996 to borrow
up to $15 million which expires May 31, 1997. See "Risk Factors -- Bank Loans,"
page 22.
Loan Generation
The Company has made arrangements with certain financial consulting
organizations, or "regional associates," to refer to the Company potential
lending opportunities 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
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<PAGE> 22
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" or certain non-investment operating assets unless, at the time the
acquisition is made, Qualifying Assets represent at least 70% of the value of
the Company's total investment assets (the "70% test"). 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 generally
as any issuer that is organized and has its principal place of business
in the United States, that is not an investment company, 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 borrowers by
the loan officers of Advisers who manage the Company's investments. Each
portfolio company is assigned for monitoring purposes to a loan 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 each class of senior security representing indebtedness 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.
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
Section 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.
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<PAGE> 23
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 by the SBA 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 an
economic interest in the unguaranteed portions of the Section 7(a) loans made by
them until maturity. 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 market 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 (non-bank lenders) as well as a
large number of banks that participate in the SBA Section 7(a) 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.
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 each class of senior security 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.
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<PAGE> 24
Market price disparities. Shares of closed-end investment companies
frequently trade at a discount from net asset value, but shares of some
closed-end investment companies, including the Company, as well as Allied I and
Allied Capital Corporation II which are also managed by Advisers, 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 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 its 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 a class of senior security
representing indebtedness declines to less than 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.
The Company had outstanding the following sources of financing as of March
31, 1996:
<TABLE>
<CAPTION>
ANNUAL RATE OF
INTEREST PAYMENTS ANNUAL PORTFOLIO
AMOUNT ------------------------------------- RETURN TO COVER
CLASS OUTSTANDING INITIAL AS OF MARCH 31, 1996 INTEREST PAYMENTS(1)
- ----------------------------- ----------- ------------- -------------------- ---------------------
<S> <C> <C> <C> <C>
Unsecured line of credit..... $ 775,000 9% 8.50% 0.39%
Secured lines of credit...... $15,233,000 7.875%-8.122% 7.44%-7.51% 3.77%
</TABLE>
- ---------------
(1) The "Annual Portfolio Return to Cover Interest Payments" is calculated as
estimated 1996 annual interest payments per class of senior security,
divided by total assets at March 31, 1996. The "Annual Portfolio Return to
Cover Interest Payments" on all senior securities outstanding as of March
31, 1996 combined is 4.16%.
Bank Loans. At March 31, 1996, the Company had an unsecured revolving line
of credit agreement with a commercial bank which permitted the Company to borrow
up to $2 million with interest payable monthly at a variable rate equal to The
Wall Street Journal prime rate plus 0.25% per annum and required payment of a
quarterly facility fee of 0.375% per annum on the unused portion of the line.
This unsecured line of credit was canceled in April 1996.
At March 31, 1996, the Company had a secured revolving line of credit
agreement with the same commercial bank which permits the Company to borrow up
to $19 million with interest payable monthly at one-month LIBOR plus 2.2% per
annum. The agreement requires payment of a quarterly facility fee of
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<PAGE> 25
0.375% per annum on the unused portion of the line, and expires December 31,
1996. Principal payments are not required until the loan's maturity. This
secured line of credit agreement was amended in April 1996 to increase maximum
borrowings to $20 million. No other terms were amended.
The financial covenants of these line of credit agreements require the
Company to have net worth at least equal to total liabilities. The Company may
not permit total intangible assets (i.e., excess servicing asset) to exceed $5
million. Also, the Company must maintain a minimum interest coverage ratio (as
defined in the agreement) of at least 1.5 to 1.
At March 31, 1996, 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 line of credit agreement require the
Company and its Subsidiary to maintain a consolidated debt to total assets 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 Company and its Subsidiary must maintain a
consolidated debt coverage ratio (as defined in the agreement) of at least 2 to
1.
In addition, the Company's Subsidiary entered into a new secured revolving
line of credit with a bank in April 1996 to borrow up to $15 million at
one-month LIBOR plus 2.7%. The agreement requires payment of a quarterly
facility fee of 0.375% per annum on the unused portion of the line and expires
May 31, 1997. This line of credit will also be used to finance the Subsidiary's
loans closed under the Section 504 program and companion loans closed in
conjunction with Section 7(a) guaranteed loans.
The financial convents of this line of credit agreement require the Company
to have net worth at least equal to total liabilities. The Company may not
permit total intangible assets (i.e., excess servicing asset) to exceed $5
million. The Company must maintain a minimum interest coverage ratio (as defined
in the agreement) of at least 1.5 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........ -24.23% -21.12% -13.36% -5.60% 2.16% 9.92% 13.02%
</TABLE>
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.
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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 other Board
members are not "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 loans 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
466,626 options were outstanding, a total of 286,638 options were exercisable,
and a total of 38,234 options were available for grant at March 31, 1996. 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 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 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 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.
Katherine C. Marien is the Company's portfolio manager, a position she has
held since 1992. She was a Financial Consultant with Wilks & Schwartz
Broadcasting from 1991 to 1992; a Financial Consultant to USA Mobil
Communications, Inc. from 1991 to 1992.
24
<PAGE> 27
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 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.
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 March
31, 1996:
<TABLE>
<CAPTION>
(4)
(3) AMOUNT OUTSTANDING
(2) AMOUNT HELD BY EXCLUSIVE OF
(1) AMOUNT REGISTRANT OR FOR AMOUNTS SHOWN
TITLE OF CLASS AUTHORIZED ITS ACCOUNT UNDER(3)
- -------------------------------------------------- ---------- ----------------- ------------------
<S> <C> <C> <C>
THE COMPANY:
Common Stock.................................... 20,000,000 0 4,389,461
THE SUBSIDIARY (ACLC LIMITED PARTNERSHIP)(a):
Limited Partnership Interests................... 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 4,389,461 shares were
25
<PAGE> 28
outstanding as of March 31, 1996. 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 March 31, 1996. 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. A quarterly dividend was declared in
February 1996 and paid on March 29, 1996 at a rate of $0.30 per share. 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 December 1995 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.
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.
DIVIDEND 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
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 price on such date. The price in the case of shares bought in the market
will be the average actual cost of such
26
<PAGE> 29
shares, including any brokerage commissions. There are no other charges payable
by stockholders 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 was 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 Riggs
Bank N.A. 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.
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CHANGE OF NAME....................................................................... B-2
MANAGEMENT........................................................................... B-2
Directors and Certain Officers..................................................... B-2
Compensation....................................................................... B-5
Stock Options...................................................................... B-7
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.................................. B-7
INVESTMENT ADVISORY AND OTHER SERVICES............................................... B-8
Investment Advisory Agreement...................................................... B-8
Custodian Services................................................................. B-9
Accounting Services................................................................ B-9
TAX STATUS........................................................................... B-10
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
In 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 Section 7(a) guaranteed
loans.
27
<PAGE> 30
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 $6.5 million in new loans during the first quarter
of 1996. Net of loan sales, repayments and changes in portfolio valuation, the
Company's total loans to small businesses decreased by $2.8 million to $44.4
million at March 31, 1996 as compared to December 31, 1995. At March 31, 1996,
loans to small businesses totaled 87% of the Company's total assets, compared to
85% at December 31, 1995.
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 lines of credit.
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 one-month LIBOR plus 2.2%
per annum. As of March 31, 1996 and December 31, 1995, the Company was paying an
interest rate of 7.51% and 7.95% per annum, respectively, as compared to an
interest rate of 8.5% per annum at December 31, 1994. The secured line of credit
expires December 31, 1996. The Company had total borrowings under this facility
equal to $8.9 million at March 31, 1996. In April 1996, this line of credit was
amended to increase the borrowing limit to $20 million. This line of credit is
used to finance loans made under the Section 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% per annum. As of March
31, 1996 and December 31, 1995, the Company was paying an interest rate of 8.50%
and 8.75% per annum, respectively, and had total borrowings under the facility
equal to $0.8 million at March 31, 1996. In April 1996, the Company canceled
this unsecured line of credit.
During September 1995, the Company, through its subsidiary, entered into a
credit agreement with an investment bank 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 one-month LIBOR plus 2% per annum and expires in
September 1996. As of March 31, 1996 and December 31, 1995, the Company was
paying interest of 7.44% and ranging from 7.75% to 7.93% per annum,
respectively. The Company had total borrowings under this agreement equal to
$6.3 million at March 31, 1996.
In addition, the Company's subsidiary entered into a new line of credit
with a bank in April 1996 to borrow up to $15 million at one-month LIBOR plus
2.7% which expires May 31, 1997. This line of credit will also be used to
finance the Subsidiary's loans closed under the Section 504 program and
companion loans closed in conjunction with guaranteed loans.
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, debt financings, or loan sales. 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
throughout 1996.
The Company is anticipating a reorganization of its corporate structure and
is in the process of seeking exemptive relief from the Commission and permission
from the SBA for the new structure. Under the
28
<PAGE> 31
proposed new structure the Company would 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 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. The Company believes the new structure will
provide the Company and its proposed subsidiaries with greater flexibility to
operate within certain regulatory constraints and further increase its ability
to generate loans.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended March 31, 1996 to March 31, 1995
For the three months ended March 31, 1996, the net increase in net assets
resulting from operations was $1.3 million, or $0.30 per share, which was even
with $1.3 million, or $0.31 per share, for the same period for 1995.
Investment income increased $426,000, or 23%, over the comparative three
months in 1995 to $2.3 million. This increase was due to the net increase in
loans of $12.5 million from March 31, 1995, which increased interest income
earned by the Company. Premium income from the sales of the guaranteed portion
of the Section 7(a) guaranteed loans was $662,000 in the three months ended
March 31, 1996 as compared to $605,000 for the three months ended March 31,
1995.
Investment advisory fees increased from $314,000 for the three months ended
March 31, 1996, a 40% increase over $224,000 for the three months ended March
31, 1995. This increase is a result of an increase in invested and other assets
on which the advisory fee is based. Interest expense was $396,000 for the three
months ended March 31, 1996 as compared to $74,000 for the same period in 1995.
This increase is due to the Company and its Subsidiary financing its new
investments in loans by using leverage, which resulted in an increase in notes
payable outstanding of $16 million at March 31, 1996 compared to $2.4 million at
March 31, 1995. All other expenses of $132,000 for the three months ended March
31, 1996 were constant with $135,000 for the same period of 1995.
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%.
29
<PAGE> 32
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.
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.
30
<PAGE> 33
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> 34
ALLIED CAPITAL LENDING CORPORATION AND SUBSIDIARY
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheet--March 31, 1996 (unaudited) and December 31, 1995 and
1994............................................................................... F-2
Consolidated Statement of Operations--For the Three Months Ended March 31, 1996 and
1995 (unaudited) and the Years Ended December 31, 1995, 1994 and 1993.............. F-3
Consolidated Statement of Changes in Net Assets--For the Three Months Ended March 31,
1996 and 1995 (unaudited) and the Years Ended December 31, 1995, 1994 and 1993..... F-4
Consolidated Statement of Cash Flows--For the Three Months Ended March 31, 1996 and
1995 (unaudited) and the Years Ended December 31, 1995, 1994 and 1993.............. F-5
Consolidated Statement of Investments in Small Business Concerns--March 31, 1996
(unaudited) and December 31, 1995 and 1994......................................... F-6
Notes to Consolidated Financial Statements........................................... F-7
Report of Independent Accountants.................................................... F-13
</TABLE>
F-1
<PAGE> 35
ALLIED CAPITAL LENDING CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
MARCH 31, ----------- -----------
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
Assets
Investments at Value:
Loans receivable (cost: 1996-$43,946; 1995-$46,451;
1994-$32,935)............................................. $43,730 $ 46,223 $ 32,771
Loans held for sale (cost: 1996-$586; 1995-$851; 1994-$0).... 626 924 --
------- ------- --------
Total investments......................................... 44,356 47,147 32,771
Cash and cash equivalents...................................... 1,237 3,020 1,297
Accrued interest receivable.................................... 703 732 451
Excess servicing asset......................................... 4,230 3,828 2,700
Other assets................................................... 638 753 400
------- ------- --------
Total assets.............................................. $51,164 $ 55,480 $ 37,619
======= ======= ========
Liabilities and Shareholders' Equity
Liabilities:
Notes payable................................................ $16,008 $ 18,914 $ 3,130
Dividends and distributions payable.......................... -- 340 262
Accounts payable and accrued expenses........................ 1,877 3,012 1,209
Investment advisory fee payable.............................. 314 330 230
------- ------- --------
Total liabilities......................................... 18,199 22,596 4,831
------- ------- --------
Commitments and Contingencies
Shareholders' Equity:
Common stock, $.0001 par value, 20,000,000 shares authorized;
4,389,461, 4,384,921 and 4,370,400 shares issued and
outstanding at March 31, 1996, December 31, 1995 and
1994...................................................... -- -- --
Additional paid-in capital................................... 33,318 33,252 33,069
Net unrealized depreciation on investments................... (176) (155) (164)
Distributions in excess of accumulated earnings.............. (177) (213) (117)
------- ------- --------
Total shareholders' equity................................ 32,965 32,884 32,788
------- ------- --------
Total liabilities and shareholders' equity................ $51,164 $ 55,480 $ 37,619
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE> 36
ALLIED CAPITAL LENDING CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS FOR THE YEARS ENDED
ENDED MARCH 31, DECEMBER 31,
---------------- --------------------------
1996 1995 1995 1994 1993
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Investment Income:
Interest.......................................... $1,591 $1,222 $5,966 $3,716 $2,260
Premium income.................................... 662 605 2,090 2,349 2,196
------ ------ ------ ------ ------
Total investment income........................ 2,253 1,827 8,056 6,065 4,456
------ ------ ------ ------ ------
Operating Expenses:
Investment advisory fee........................... 314 224 1,140 811 572
Interest expense.................................. 396 74 959 75 707
Legal and accounting fees......................... 74 38 170 131 124
Stockholder services.............................. 18 46 148 54 --
Other operating expenses.......................... 40 51 201 116 109
------ ------ ------ ------ ------
Total expenses................................. 842 433 2,618 1,187 1,512
------ ------ ------ ------ ------
Net investment income............................... 1,411 1,394 5,438 4,878 2,944
Net realized gain (loss) on investments............. (60) 10 (195) (295) (338)
------ ------ ------ ------ ------
Net investment income before net unrealized
appreciation (depreciation) on investments........ 1,351 1,404 5,243 4,583 2,606
Net unrealized appreciation (depreciation) on
investments....................................... (21) (59) 9 (52) 68
------ ------ ------ ------ ------
Net increase in net assets resulting from
operations........................................ $1,330 $1,345 $5,252 $4,531 $2,674
====== ====== ====== ====== ======
Earnings per share.................................. $ 0.30 $ 0.31 $ 1.20 $ 1.04 $ 1.03
====== ====== ====== ====== ======
Weighted average number of shares and share
equivalents outstanding........................... 4,386 4,370 4,376 4,368 2,587
====== ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 37
ALLIED CAPITAL LENDING CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS FOR THE YEARS ENDED
ENDED MARCH 31, DECEMBER 31,
------------------ -----------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Increase in Net Assets Resulting from
Operations:
Net investment income........................ $ 1,411 $ 1,394 $ 5,438 $ 4,878 $ 2,944
Net realized gain (loss) on investments...... (60) 10 (195) (295) (338)
Net unrealized appreciation (depreciation) on
investments............................... (21) (59) 9 (52) 68
------- ------- ------- ------ ------
Net increase in net assets resulting from
operations.............................. 1,330 1,345 5,252 4,531 2,674
------- ------- ------- ------ ------
Distributions to Stockholders from:
Net investment income........................ (1,315) (1,179) (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............................. 66 43 183 20 --
------- ------- ------- ------ ------
Net increase in net assets resulting from
capital share transactions.............. 66 43 183 20 27,548
------- ------- ------- ------ ------
Total increase (decrease) in net assets........ 81 209 96 (167) 27,450
Net assets at beginning of period.............. 32,884 32,788 32,788 32,955 5,505
------- ------- ------- ------ ------
Net assets at end of period.................... $32,965 $32,997 $32,884 $32,788 $32,955
======= ======= ======= ====== ======
Net asset value per share...................... $ 7.51 $ 7.55 $ 7.50 $ 7.50 $ 7.54
======= ======= ======= ====== ======
Shares outstanding at end of period............ 4,389 4,373 4,385 4,370 4,368
======= ======= ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 38
ALLIED CAPITAL LENDING CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS FOR THE YEARS ENDED
ENDED MARCH 31, DECEMBER 31,
------------------ --------------------------------
1996 1995 1995 1994 1993
------- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net increase in net assets resulting from
operations....................................... $ 1,330 $ 1,345 $ 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................................... (662) (605) (2,090) (2,349) (2,196)
Amortization of loan discounts and fees.......... (100) (110) (286) (362) (188)
Net realized (gain) loss on investments.......... 60 (10) 195 295 338
Net unrealized (appreciation) depreciation on
investments.................................... 21 59 (9) 52 (68)
Changes in assets and liabilities:
Accrued interest receivable...................... 29 (156) (281) (227) (8)
Excess servicing asset........................... (402) (256) (1,128) (1,094) (233)
Other assets..................................... 115 267 (353) (67) 604
Accounts payable and accrued expenses............ (1,135) 111 1,803 (372) (411)
Investment advisory fee payable.................. (16) (5) 100 163 67
-------- -------- -------- -------- --------
Net cash provided by (used in) operating
activities.................................. (760) 640 3,203 570 579
-------- -------- -------- -------- --------
Cash Flows from Investing Activities:
Loan originations.................................. (6,509) (8,917) (48,213) (43,853) (30,482)
Proceeds from the sale of loans.................... 8,080 9,981 31,816 32,509 20,992
Collection of principal............................ 1,901 566 4,211 2,728 1,702
-------- -------- -------- -------- --------
Net cash provided by (used in) investing
activities.................................. 3,472 1,630 (12,186) (8,616) (7,788)
-------- -------- -------- -------- --------
Cash Flows from Financing Activities:
Dividends and distributions paid................... (1,589) (1,398) (5,078) (4,785) (4,135)
Proceeds from issuance of common stock............. -- -- -- -- 27,548
Payment of long term debt.......................... -- -- -- -- (7,860)
Net borrowings (repayments) under revolving lines
of credit........................................ (2,906) (735) 15,784 3,130 --
-------- -------- -------- -------- --------
Net cash provided by (used in) financing
activities.................................. (4,495) (2,133) 10,706 (1,655) 15,553
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents...................................... (1,783) 137 1,723 (9,701) 8,344
Cash and cash equivalents, beginning of period..... 3,020 1,297 1,297 10,998 2,654
-------- -------- -------- -------- --------
Cash and cash equivalents, end of period........... $ 1,237 $ 1,434 $ 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.................................... $ 66 $ 43 $ 183 $ 20 $ --
======== ======== ======== ======== ========
Interest paid........................................ $ 421 $ 57 $ 849 $ 70 $ 744
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 39
ALLIED CAPITAL LENDING CORPORATION
CONSOLIDATED STATEMENT OF INVESTMENTS IN SMALL BUSINESS CONCERNS
(IN THOUSANDS, EXCEPT NUMBER OF LOANS AND PERCENTAGES)
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
NUMBER PERCENT OF ------------------ ------------------ ------------------
TYPE OF BUSINESS OF LOANS(a) PORTFOLIO(a) COST VALUE COST VALUE COST VALUE
- ---------------------------- ----------- ------------ ------- ------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Autoexhaust Repair.......... 39 1 $ 279 $ 242 $ 237 $ 215 $ 330 $ 307
Automotive Repair........... 29 2 785 785 819 819 483 483
Bakeries.................... 5 * 109 89 88 88 159 159
Car Washes.................. 4 1 622 622 621 621 256 256
Contractors................. 5 1 434 434 439 439 -- --
Day Care Centers............ 7 4 1,594 1,594 1,710 1,710 -- --
Food Stores................. 12 4 1,949 1,944 1,849 1,844 2,087 2,037
Gasoline Stations........... 22 16 6,996 6,996 8,530 8,530 1,739 1,739
Hobbies and Games........... 9 * 40 40 41 41 49 49
Home Furnishings............ 14 1 517 517 532 532 473 473
Hotels and Motels........... 46 27 12,135 12,135 11,559 11,559 6,020 6,020
Laundries and Cleaners...... 58 1 598 598 480 473 586 586
Manufacturing............... 54 12 5,511 5,538 5,596 5,583 5,744 5,744
Personal Services........... 13 2 747 747 1,125 1,162 172 172
Professional Services....... 16 2 702 702 779 779 3,255 3,202
Restaurants................. 62 8 3,649 3,558 3,935 3,874 5,294 5,256
Retail Shops................ 32 3 1,493 1,460 2,225 2,222 1,321 1,321
Wholesalers................. 6 2 901 901 952 951 -- --
Miscellaneous Businesses.... 83 12 5,471 5,454 5,785 5,705 4,967 4,967
--
--- ------- ------- ------- ------- ------- -------
TOTAL LOANS............. 516 $44,532 $44,356 $47,302 $47,147 $32,935 $32,771
=== ======= ======= ======= ======= ======= =======
</TABLE>
- ---------------
* Less than 1%.
(a) Number of loans and percent of portfolio are as of March 31, 1996.
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 40
ALLIED CAPITAL LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 March 31, 1996 and 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.
In the opinion of management, the unaudited consolidated financial
statements of the Company presented contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the Company's
consolidated financial position as of March 31, 1996 and the results of
operations, changes in net assets and cash flows for the three months ended
March 31, 1996 and 1995. The results of operations, changes in net assets and
cash flows for the three months ended March 31, 1996 are not necessarily
indicative of the operating results to be expected for the year ending December
31, 1996.
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 a 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.
F-7
<PAGE> 41
ALLIED CAPITAL LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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. Cash and cash equivalents
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------------
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash........................................................... $ 166 $ 214 $ --
Repurchase agreements.......................................... 1,071 2,806 1,297
------ ------
Total..................................................... $ 1,237 $ 3,020 $ 1,297
====== ======
</TABLE>
On March 31, 1996 and December 31, 1995, the Company had purchased
$1,071,000 and $2,806,000, respectively, of overnight repurchase agreements
collateralized by U.S. government securities under agreements to resell on April
1, 1996 and January 2, 1996, respectively.
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 1995,
1994 and 1993 financial statements to conform with the 1996 financial statement
presentation.
NOTE 3. INVESTMENTS
The Company and its Subsidiary originate loans to qualified small
businesses in conjunction with the SBA Section 7(a) and SBA Section 504 loan
programs, respectively.
Under the Section 7(a) loan 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 8.25 percent at March
31, 1996 and 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 was
approximately $101,000,000, $97,000,000 and $82,000,000 at March 31, 1996,
December 31, 1995 and 1994, respectively.
F-8
<PAGE> 42
ALLIED CAPITAL LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Subsidiary originates real estate loans to qualified small businesses
pursuant to the Section 504 loan program and originates companion loans to
Section 7(a) guaranteed loans. Under the Section 504 loan program, small
businesses can purchase or build real estate with very favorable long-term debt.
Loans the Subsidiary finances through the Section 504 loan 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 Section 7(a) guaranteed loans. The companion
loan is similar in terms to the Section 7(a) guaranteed loan with the exception
that the companion loan is senior in debt priority to the Section 7(a)
guaranteed loan, and carries no government guarantee.
At March 31, 1996, December 31, 1995 and 1994, loans with a cost basis of
$1,723,000, $3,835,000 and $979,000, respectively, were not performing and were
not accruing interest.
Total investments consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------------
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
At amortized cost:
Guaranteed portion under Section 7(a) program............. $ 5,403 $ 10,275 $ 11,808
Unguaranteed portion under Section 7(a) program........... 26,789 33,223 21,127
Section 504 program and companion loans................... 12,340 3,804 --
------- ------- --------
Total.................................................. $44,532 $ 47,302 $ 32,935
======= ======= ========
At value:
Guaranteed portion under Section 7(a) program............. $ 5,403 $ 10,275 $ 11,808
Unguaranteed portion under Section 7(a) program........... 26,613 33,068 20,963
Section 504 program and companion loans................... 12,340 3,804 --
------- ------- --------
Total.................................................. $44,356 $ 47,147 $ 32,771
======= ======= ========
</TABLE>
For federal income tax purposes the unrealized depreciation for all
securities, based on cost, and the aggregate cost of total investments as of
March 31, 1996 were $176,000 and $44,532,000, respectively, and 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 Section 7(a) loan it has
originated 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.
F-9
<PAGE> 43
ALLIED CAPITAL LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 a dividend
of $0.30 per share for the first quarter of 1996. 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 December 1995 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 first quarter 1996 distribution of $0.30 per share was comprised of
cash payments and issuance of the Company's shares pursuant to the Company's
dividend reinvestment plan in the amounts of $0.29 and $0.01, per share,
respectively. 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-10
<PAGE> 44
ALLIED CAPITAL LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. NOTES PAYABLE
The Company has a $19,000,000 secured line of credit with a bank which
expires December 31, 1996. The interest rate associated with this line of credit
is equal to one-month LIBOR plus 2.2 percent per annum, payable monthly. As of
March 31, 1996, December 31, 1995 and 1994, the Company was paying interest at
7.51 percent, 7.95 percent and 8.50 percent per annum, respectively, on the
amounts 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 March 31, 1996 and December 31, 1995, the Company had outstanding
borrowings under the secured line of credit equal to $8,950,000 and $13,335,000,
respectively.
The Company had a $2,000,000 unsecured line of credit with a bank, which
charged interest at The Wall Street Journal prime rate plus 0.25 percent per
annum, payable monthly, and expired April 24, 1996. As of March 31, 1996,
December 31, 1995 and 1994, the Company was paying interest at 8.50 percent,
8.75 percent and 8.75 percent per annum, respectively, on the amounts
outstanding under this line. The line of credit required a quarterly facility
fee of 0.375 percent per annum on the unused portion of the line of credit. As
of March 31, 1996 and December 31, 1995, the Company had outstanding borrowings
under the unsecured line of credit equal to $775,000 and $1,055,000,
respectively.
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 one-month LIBOR plus 2
percent per annum, payable monthly, and expires on September 27, 1996. As of
March 31, 1996 and December 31, 1995, the subsidiary was paying interest of 7.44
percent and ranging from 7.75 to 7.93 percent per annum, respectively, on the
amounts 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 March 31,
1996 and December 31, 1995, the Subsidiary had outstanding borrowings under this
agreement equal to $6,283,000 and $4,524,000, respectively.
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 ISO 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 March 31, 1996,
December 31, 1995 or 1994.
F-11
<PAGE> 45
ALLIED CAPITAL LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of the activity in the ISO plan is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1995 1994 1993
THREE MONTHS --------------- --------------- ---------------
ENDED MARCH 31,
1996
---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Options outstanding at beginning of period......... 493,290 283,310 266,640 --
Options granted.................................... -- 266,646 50,000 266,640
Options exercised.................................. -- -- -- --
Options canceled................................... (26,664) (56,666) (33,330) --
------- ------- ------- --------
Options outstanding at end of period............... 466,626 493,290 283,310 266,640
======= ======= ======= ========
Options available for grant........................ 38,234 11,570 221,550 26,860
Options exercisable................................ 286,638 259,974 153,318 79,992
Option prices per share:
Granted.......................................... $ -- $ 15.00 $ 15.00 $ 15.00
Exercised........................................ $ -- $ -- $ -- $ --
Canceled......................................... $ 15.00 $ 15.00 $ 15.00 $ --
</TABLE>
NOTE 9. COMMITMENTS AND CONTINGENCIES
The Company had total loan commitments outstanding at March 31, 1996 and
December 31, 1995 to various qualified small businesses totaling $45,000,000 and
$33,000,000, respectively.
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 its Subsidiary place their cash in financial institutions
and at times, cash held in checking accounts may be in excess of the FDIC
insurance limit.
F-12
<PAGE> 46
ALLIED CAPITAL LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. QUARTERLY FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
1995
------------------------------------
QTR 1 QTR 2 QTR 3 QTR 4
------ ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<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
<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-13
<PAGE> 47
REPORT OF INDEPENDENT ACCOUNTANTS
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
1994 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-14
<PAGE> 48
- ------------------------------------------------------
- ------------------------------------------------------
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............................... 3
Fees and Expenses..................... 4
Available Information................. 6
Financial Highlights.................. 6
Public Trading and Net Asset Value
Information......................... 10
The Offer............................. 11
Use of Proceeds....................... 17
The Company........................... 17
Management............................ 24
Authorized Classes of Securities...... 25
Description of Common Stock........... 25
Reports and Independent Public
Accountants......................... 27
Custodian, Transfer and Dividend
Paying Agent and Registrar.......... 27
Table of Contents of Statement of
Additional Information.............. 27
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 27
Financial Statements.................. F-1
</TABLE>
628,909 SHARES
ALLIED CAPITAL
LENDING CORPORATION
COMMON STOCK
---------------------------
PROSPECTUS
APRIL 29, 1996
---------------------------
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 49
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 50
628,909 SHARES
ALLIED CAPITAL LENDING CORPORATION
COMMON STOCK
------------------------
STATEMENT OF ADDITIONAL INFORMATION
APRIL 29, 1996
This Statement of Additional Information is not a prospectus. It should be
read with the prospectus dated April 29, 1996 relating to this offering (the
"Prospectus"), which may be obtained by calling the Company at (202) 973-6343
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> <C>
CHANGE OF NAME...................................................... B-2 --
MANAGEMENT.......................................................... B-2 24
Directors and Certain Officers.................................... B-2 --
Compensation...................................................... B-5 --
Stock Options..................................................... B-7 --
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES................. B-7 --
INVESTMENT ADVISORY AND OTHER SERVICES.............................. B-8 --
Investment Advisory Agreement..................................... B-8 24-25
Custodian Services................................................ B-9 27
Accounting Services............................................... B-9 27
TAX STATUS.......................................................... B-10 26
</TABLE>
B-1
<PAGE> 51
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 as of April 26, 1996 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 PRINCIPAL OCCUPATION(S) DURING PAST FIVE
NAME, ADDRESS(1) AND AGE WITH THE COMPANY (5) YEARS
- -------------------------- ------------------------- -----------------------------------------
<S> <C> <C>
David Gladstone* Chairman of the Board & Employed by Allied Capital Corporation
(Age 53) Chief Executive ("Allied I") or Allied Capital Advisers,
Officer(2) Inc. ("Advisers") since 1974; Chairman
and Chief Executive Officer of Allied I,
Allied Capital Corporation II ("Allied
II"), Allied Capital Commercial
Corporation ("Allied Commercial"), Allied
Capital Mortgage Corporation ("Allied
Mortgage"); and Advisers; Director,
President, and Chief Executive Officer of
Business Mortgage Investors, Inc.
("BMI"); Director of The Riggs National
Corporation; Trustee of The George
Washington University. He has served as a
director of the Company since 1976.
George C. Williams*(3) Vice Chairman of the Employed by the Allied I or Advisers
(Age 69) Board(2) since 1959; Vice Chairman of Allied I,
Allied II, Allied Commercial, and
Advisers; Chairman of BMI. He has served
as a director of the Company since 1976.
Katherine C. Marien* Director, President & Employed by Advisers since 1992;
(Age 47) Chief Operating Officer Executive Vice President of Allied I,
Allied II, Allied Commercial, BMI, Allied
Mortgage 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. She
has served as a director of the Company
since 1995.
Jon W. Barker Director Associate with Grubb & Ellis (commercial
(Age 52) real estate firm) since 1993; Vice
President of Shannon & Luchs Company
(commercial real estate firm) from 1979
to 1993. He has served as a director of
the Company since 1993.
</TABLE>
B-2
<PAGE> 52
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S) DURING PAST FIVE
NAME, ADDRESS(1) AND AGE WITH THE COMPANY (5) YEARS
- -------------------------- ------------------------- -----------------------------------------
<S> <C> <C>
Eleanor Deane Bierbower Director(2) Financial consultant since 1992; Managing
(Age 39) Partner of Deane 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.
Robert V. Fleming II Director(2) Principal of Hoskinson Davis & Fleming
(Age 42) (real estate firm) since 1984; Member of
the Board of Consultants of The Riggs
National Bank of Washington, DC; 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
(Age 39) Inc., since 1985; Director of Allied
Commercial. He has served as a director
of the Company since 1993.
Arthur H. Keeney III Director President, Chief Executive Officer,
(Age 52) Chairman of the 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)(4) Vice President and Chief Financial
(Age 51) Officer, Overseas Private 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. He has
served as a director of the Company since
1993.
G. Cabell Williams III(3) Executive Vice President Employed by Advisers since 1981;
(Age 41) Director, Chief Operating Officer and
President of Allied I; Executive Vice
President of Allied II, Allied
Commercial, Advisers, Allied Mortgage and
BMI.
Jon A. DeLuca Executive Vice President, Employed by Advisers since 1994;
(Age 33) Treasurer, & Chief Executive Vice President, Treasurer, and
Financial Officer Chief Financial Officer of Allied I,
Allied II, Allied Commercial, BMI, Allied
Mortgage and Advisers. Manager of
Entrepreneurial Services at Coopers &
Lybrand from 1986 to 1994.
</TABLE>
B-3
<PAGE> 53
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S) DURING PAST FIVE
NAME, ADDRESS(1) AND AGE WITH THE COMPANY (5) YEARS
- -------------------------- ------------------------- -----------------------------------------
<S> <C> <C>
Thomas R. Salley Secretary Partner, Andrews & Kurth, L.L.P. since
(Age 38) April 1996; Secretary of Allied I, Allied
II, Allied Commercial, BMI, Allied
Mortgage and Advisers; General Counsel of
Allied I, Allied II, Allied Commercial,
BMI, Allied Mortgage and Advisers since
1988 or inception to April 1996.
Joan M. Sweeney Executive Vice President Employed by Advisers since 1993;
(Age 36) President and Chief Operating Officer of
Advisers; Executive Vice President of
Allied I, Allied II, Allied Commercial,
Allied Mortgage and BMI; Senior Manager
at Ernst & Young from 1990 to 1993.
</TABLE>
- ---------------
* These directors are "interested persons" as defined in the 1940 Act.
(1) Unless otherwise indicated, the address of directors and 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.
(4) Frank L. Langhammer is not standing for re-election to the Board of
Directors and will no longer be a director of the Company after May 13,
1996.
B-4
<PAGE> 54
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
and $500 for each committee meeting held on the same day as a Board meeting. The
same fees will be paid in 1996. In addition, on December 26, 1995 each
non-officer director (Ms. Bierbower and Messrs. Barker, Fleming, Garcia,
Langhammer and Keeney) received a one-time grant of options to purchase 10,000
shares at $15.00 per share pursuant to the Company's Stock Option Plan. The
exercise price of those grants was the minimum 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 investment companies to which the Company may deemed related.
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR ESTIMATED TOTAL COMPENSATION
AGGREGATE RETIREMENT BENEFITS ANNUAL FROM COMPANY AND
COMPENSATION FROM ACCRUED AS PART OF BENEFITS UPON RELATED COMPANIES
NAME AND POSITION THE COMPANY(1) COMPANY EXPENSES RETIREMENT PAID TO DIRECTORS(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) Comprised solely of amounts paid as compensation to directors by Allied I
and Allied II.
B-5
<PAGE> 55
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
----------------------------
SECURITIES PAYOUTS
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
Katherine C. Marien............................... 1993 $0 66,660 $0
President and Chief 1994 0 0 0
Operating Officer 1995 0 33,330 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-6
<PAGE> 56
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 VALUE AT
ASSUMED ANNUAL
RATES OF STOCK
PERCENT OF PRICE APPRECIATION
NUMBER OF TOTAL OPTIONS OVER 10-YEAR
SECURITIES GRANTED TO EXERCISE 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
Katherine C. Marien............ 33,330 16.1% $ 15.00 02/15/05 $97,252 $450,994
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 April 26, 1996, there were 4,389,461 shares of the Company's common
stock outstanding. The following table sets forth certain information as of
April 26, 1996 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 directors and executive officers
as a group:
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF PERCENTAGE
OF BENEFICIAL OWNER SHARES OWNED OF CLASS
- ---------------------------------------------------------------------- ------------ ----------
<S> <C> <C>
Allied Capital Corporation (Maryland)(1).............................. 1,244,914(2) 28.4%
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 as a group (13 in number)(4)..... 195,574 4.5%
</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
April 26, 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-7
<PAGE> 57
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-six (36) investment and other professionals,
as well as thirty-eight (38) other employees. David Gladstone and George C.
Williams have 60 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 Advisers, including David
Gladstone, George C. Williams, and Katherine C. Marien. Additionally, the Board
of Directors reviews and approves all loans 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. Some of
the directors and officers of Advisers are also directors and officers of the
Company.
B-8
<PAGE> 58
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.
CUSTODIAN SERVICES
Under a Custodian Agreement, Riggs Bank N.A., 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. Its 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, 1995,
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 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 which
the latter aggregated 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.
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<PAGE> 59
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 and net short-term capital gains, 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 or if the Company does not
distribute at least 98% of its net investment income and net capital gains. 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. 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.
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.
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
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<PAGE> 60
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.
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.
B-11
<PAGE> 61
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-12
<PAGE> 62
PART C
OTHER INFORMATION
<PAGE> 63
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 -- March 31, 1996 (unaudited) and December 31,
1995 and 1994
Consolidated Statement of Operations -- For the Three Months Ended March
31, 1996 and 1995 (unaudited) and the Years Ended December 31, 1995, 1994
and 1993
Consolidated Statement of Changes in Net Assets -- For the Three Months
Ended March 31, 1996 and 1995 (unaudited) and the Years Ended December 31,
1995, 1994 and 1993
Consolidated Statement of Cash Flows -- For the Three Months Ended March
31, 1996 and 1995 (unaudited) and the Years Ended December 31, 1995, 1994
and 1993
Consolidated Statement of Investments in Small Business Concerns -- March
31, 1996 (unaudited) and December 31, 1995 and 1994
Notes to Consolidated Financial Statements
Report of Independent Accountants
2. EXHIBITS
<TABLE>
<S> <C>
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 $0.0001, 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)
j. Custodian Agreement between The Riggs National Bank of Washington, D.C., and the
Registrant, dated February 27, 1989(4)
k.1. Tax Indemnification Agreement dated November 12, 1993 between the Registrant and
Allied Capital Corporation(3)
k.2. Amended and Restated Line of Credit, Security and Pledge Agreement, dated February
26, 1996 and as amended April 18, 1996, and Promissory Note dated February 26, 1996,
between the Company and Riggs Bank N.A. (formerly known as The Riggs National Bank
of Washington, D.C.)*
k.3.A. Promissory Note, dated September 27, 1995, between ACLC Limited Partnership and
Lehman Commercial Paper, Inc.(7)
k.3.B. Loan and Security Agreement, dated September 25, 1995, between ACLC Limited
Partnership and Lehman Commercial Paper Inc.*
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*
</TABLE>
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<PAGE> 64
<TABLE>
<S> <C>
k.6. Form of Subscription Agency Agreement between the Registrant and American Stock
Transfer & Trust Company*
k.7. Line of Credit, Security and Pledge Agreement and Promissory Note, dated April 18,
1996, between ACLC Limited Partnership and Riggs Bank N.A.*
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(8)
</TABLE>
- ---------------
* Filed herewith.
(1) Incorporated by reference to an exhibit of the same number to the Company's
registration statement on Form N-2 (File No. 33-68836).
(2) Incorporated by reference to Exhibit A to the Company's definitive proxy
statement relating to its annual meeting of stockholders held on May 9, 1995
(File No. 0-22832).
(3) Incorporated by reference to Exhibit 10(c) to the Form 10-K filed by Allied
Capital Corporation for the year ended December 31, 1993 (File No. 814-97).
(4) Incorporated by reference to an exhibit to Amendment No. 1 to the Company's
registration statement on Form N-2 (File No. 33-68836).
(5) Incorporated by reference to Exhibit B to the Company's definitive proxy
statement relating to its annual meeting of stockholders held on May 20,
1994 (File No. 0-22832).
(6) Incorporated by reference to Exhibit 3(ii) filed with the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 (File No. 0-22832).
(7) Incorporated by reference to Exhibit 10(e) filed with the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 (File No. 0-22832).
(8) Incorporated by reference to an exhibit of same number to the Company's
initial registration statement on Form N-2 (File No. 333-02185), as filed
with the Commission on April 2, 1996.
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............... $ 3,743
NASD Filing Fee................................................... 1,058
Blue Sky Fees and Expenses........................................ 2,800
Information Agent's Fees and Expenses............................. 53,000
Transfer Agent's and Registrar's Fees and Expenses................ 38,000
Expenses of Nominees.............................................. 20,000
Printing and Conversion Expenses.................................. 40,000
Legal Fees and Expenses........................................... 20,000
Accountant's Fees and Expenses.................................... 3,100
--------
Total................................................... $181,701
========
</TABLE>
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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%
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 April 26, 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 March 31, 1996:
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
--------------------------------------------------------------- --------------
<S> <C>
Common Stock................................................... 1,700*
Prime + 0.25% Unsecured Revolving Line of Credit............... 1
LIBOR + 2.2% Secured Revolving Lines of Credit (The Company)... 1
LIBOR + 2.0% Secured Revolving Line of Credit
(ACLC Limited Partnership)................................... 1
</TABLE>
* Estimate. The Company estimates that there are a total of 7,800
beneficial owners of its common stock.
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<PAGE> 66
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, 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
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executive officer of Allied Capital Advisers, Inc., at any time during the past
two fiscal years ended December 31, 1995 is set forth below:
<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, 2121 I Street, N.W.,
Washington, DC 20052.
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.
</TABLE>
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<PAGE> 68
<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>
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.
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.
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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.
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.
C-7
<PAGE> 70
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 26th 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
- ------------------------------------- --------------------------------------- ---------------
<C> <S> <C>
/s/ David Gladstone Chairman of the Board and Chief April 26, 1996
- ------------------------------------- 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
- ------------------------------------- Chief Financial Officer (Principal
Jon A. DeLuca Financial Officer and Principal
Accounting Officer)
* By: /s/ David Gladstone
- -------------------------------------
</TABLE>
David Gladstone, Attorney-in-Fact and Agent, on the 26th 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.
<PAGE> 71
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ------
<S> <C>
d.1. Specimen certificate of Registrant's Common Stock, par value $0.0001, 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*
h. Form of Soliciting Dealer Agreement between the Registrant and Dealers*
k.2. Amended and Restated Line of Credit, Security and Pledge Agreement, dated February
26, 1996 and as amended April 18, 1996, and Promissory Note dated February 26, 1996,
between the Company and Riggs Bank N.A. (formerly known as The Riggs National Bank
of Washington, D.C.)*
k.3.B. Loan and Security Agreement, dated September 25, 1995, between ACLC Limited
Partnership and Lehman Commercial Paper Inc.*
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*
k.7. Promissory note, dated April 18, 1996, between the ACLC Limited Partnership and
Riggs Bank N.A.*
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*
n. Consent of Matthews, Carter and Boyce, independent accountants*
r. Financial Data Schedule*
</TABLE>
- ---------------
* Filed herewith.
<PAGE> 1
EXHIBIT d.1
NUMBER SHARES
CL
ALLIED CAPITAL LENDING CORPORATION
<TABLE>
<S> <C>
COMMON COMMON
INCORPORATED UNDER THE LAWS CUSIP 019042 10 0
OF THE STATE OF MARYLAND SEE REVERSE FOR CERTAIN DEFINITIONS
</TABLE>
This certifies that
is the owner of
FULL PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $0.0001 EACH OF THE
COMMON STOCK OF
ALLIED CAPITAL LENDING CORPORATION
CERTIFICATE OF STOCK
transferable on the books of the Corporation by the holder hereof in person
or by duly authorized attorney upon surrender of this Cerfiticate
properly endorsed.
This Certificate is not valid unless countersigned and registered by the
Transfer Agent and Register.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
[SIG] [SIG]
SECRETARY [ALLIED CAPITAL LENDING CORPORATION SEAL] CHAIRMAN OF THE BOARD
[SIG]
PRESIDENT
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, N.Y.)
BY TRANSFER AGENT AND REGISTRAR
AUTHORIZED SIGNATURE
<PAGE> 2
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM-as tenants in common UNIF GIFT MIN ACT-...........Custodian................
TEN ENT-as tenants by the entireties (Cust) (Minor)
JT TEN -as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act.................................
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received,_____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
------------------------------
------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
________________________________________________________________________ shares
of the capital stock represented by the within Certificate, and do herey
irrevocably constitute and appoint
______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated______________________
SIGNATURE(S) GUARANTEED
By
-----------------------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION,
(Banks, Stockbrokers, Savings and Loan Associations and Credit Unions) WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM PURSUANT TO
S.E.C. RULE 17Ad-15.
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CNANGE WHATEVER.
<PAGE> 1
EXHIBIT d.2
THIS OFFER EXPIRES AT 5:00 PM EASTERN TIME ON JUNE 4, 1996*
ALLIED CAPITAL LENDING CORPORATION
RIGHTS OFFERING
Subscription Form
Dear Stockholder:
As a stockholder of Allied Capital Lending Corporation on April 26, 1996, the
Record Date for the Company's rights offering, you have been issued Subscription
Rights equal to the number of shares of common stock held by you on the Record
Date. Pursuant to the Primary Subscription, you are entitled to exercise your
Subscription Rights to purchase one (1) additional share of Allied Capital
Lending Corporation for every five (5) Subscription Rights held at an Estimated
Price of $14.64 per share and according to the terms and conditions set forth
in the Company's Prospectus dated April 29, 1996. The terms and conditions of
the rights offering (the "Offer") set forth in the Prospectus are incorporated
herein by reference. Capitalized terms not defined herein have the meanings
attributed to them in the Prospectus.
In accordance with the Over-Subscription Privilege, as a Record Date
stockholder, you are also entitled to subscribe for additional Shares if, after
all Primary Subscriptions have been fulfilled and Shares are available, you
have fully exercised all Subscription Rights issued to you or are a stockholder
who has less than five (5) Subscription Rights and therefore cannot participate
in the Primary Subscription. If there are insufficient Shares remaining to
satisfy all requests pursuant to the Over-Subscription Privilege, the available
shares will be allocated in proportion to the number of Subscription Rights
originally issued to you. The Company may also, at its sole discretion, elect
to increase the number of Shares available in the Offer by up to 15% in order
to satisfy requests for additional Shares pursuant to the Over-Subscription
Privilege.
SAMPLE CALCULATION OF PRIMARY SUBSCRIPTION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Estimated Subscription Price is
Number of shares of Number of Subscription Rights divided by $14.64 per Share. In this example, if
Allied Capital Lending Number of 5 = number of Shares available to you the full Primary Subscription was
Corporation owned on Subscription Rights under Primary Subscription exercised, the total Estimated Subscription
the Record Date: issued: (any fractions will be ignored): Price would be:
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1,002 1,002 200 $2,928
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
HOW TO EXERCISE SUBSCRIPTION RIGHTS
In order to Exercise your Subscription Rights, you must either (a) complete and
sign this Subscription Form and return it together with payment of the
Estimated Subscription Price for the shares, or (b) present a properly
completed Notice of Guaranteed Delivery, in either case to the Subscription
Agent, American Stock Transfer & Trust Company, before 5:00 pm, Eastern
Time, on June 4, 1996 * (the "Expiration Date").
By Mail or Express Mail, Overnight Courier or by Hand
-----------------------------------------------------
American Stock Transfer & Trust Company
Corporate Reorganization Department
40 Wall Street, 46th Floor
New York, NY 10005
FULL PAYMENT OF THE ESTIMATED SUBSCRIPTION PRICE PER SHARE FOR ALL SHARES
SUBSCRIBED FOR PURSUANT TO BOTH THE PRIMARY SUBSCRIPTION AND THE
OVER-SUBSCRIPTION PRIVILEGE MUST ACCOMPANY THIS SUBSCRIPTION FORM AND MUST BE
MADE PAYABLE IN UNITED STATES DOLLARS BY MONEY ORDER OR CHECK DRAWN ON A BANK
LOCATED IN THE UNITED STATES AND MADE PAYABLE TO ALLIED CAPITAL LENDING
CORPORATION. ALTERNATIVELY, IF A NOTICE OF GUARANTEED DELIVERY IS USED, A
PROPERLY COMPLETED AND EXECUTED SUBSCRIPTION FORM MUST BE RECEIVED BY THE
SUBSCRIPTION AGENT NO LATER THAN THE CLOSE OF BUSINESS ON THE THIRD (3RD)
BUSINESS DAY FOLLOWING THE EXPIRATION DATE AND FULL PAYMENT, AS DESCRIBED IN THE
NOTICE OF GUARANTEED DELIVERY, IS RECEIVED NO LATER THAN THE TENTH (10TH)
BUSINESS DAY FOLLOWING THE CONFIRMATION DATE. PLEASE SEE "PAYMENT FOR SHARES"
IN THE PROSPECTUS FOR ADDITIONAL INFORMATION.
Delivery of shares subscribed to pursuant to the Primary Subscription and
Over-Subscription Privilege will be made within thirty (30) days following the
Expiration Date of the Offer. See "Delivery of Shares" in the Prospectus for
additional information.
THESE SUBSCRIPTION RIGHTS ARE NON-TRANSFERABLE.
* UNLESS EXTENDED.
<PAGE> 2
In order to exercise your Subscription Rights, you must complete Part 1 and
Part 2 below. Complete Part 3 only if applicable.
PART 1: If you choose to subscribe for Shares, please complete the following:
/ / I wish to subscribe for the following number of shares pursuant to the
Primary Subscription:
<TABLE>
<S> <C>
_________________________ X $14.64 (*) per Share = $____________
Number of shares
</TABLE>
/ / I wish to exercise my Over-Subscription Privilege (**):
<TABLE>
<S> <C>
_________________________ X $14.64 (*) per Share = $____________
Number of additional shares
AMOUNT ENCLOSED $____________
</TABLE>
(*) This is an estimated price only. The Subscription Price will be
determined on June 4, 1996, the Pricing Date (which is the same
date as the Expiration Date), and could be higher or lower depending on
changes in the share price of the common stock as quoted on the Nasdaq National
Market.
(**) You can over-subscribe if you have fully exercised your Primary
Subscription or are a stockholder who has less than five (5) Subscription Rights
and therefore cannot participate in the Primary Subscription. There is no limit
as to the number of Shares you may subscribe for pursuant to the
Over-Subscription Priviledge. If there are insufficient Shares available to
satisfy all requests, the Shares will be allocated in proportion to the number
of Subscription Rights originally issued to you.
If your Primary Subscription was exercised and delivered through the facilities
of the Depository Trust Company, you must also complete the "DTC Participant
Over-Subscription Form."
- -------------------------------------------------------------------------------
PART 2: I acknowledge that I have received the Prospectus for this Offer and I
hereby irrevocably subscribe for the number of Shares indicated above on the
terms and conditions set out in the Prospectus. I understand and agree that I
will be obligated to pay an additional amount to the Company if the
Subscription Price as determined on the Pricing Date is in excess of the
Estimated Subscription Price per share.
I hereby agree that if I fail to pay in full for the shares for which I have
subscribed, the Company may exercise any of the remedies provided for in the
Prospectus.
Signature of stockholder(s):
-----------------------------------------
Printed Name: Telephone number:( )
-------------------------- ---- ------
Please note that all stock certificates and refund checks, if any, will be
delivered to the address of record, which is the address to which the materials
for this offering were delivered. If you wish to change the address of record,
please provide separate written instructions, sign the instructions, and
deliver them to the Subscription Agent.
- -------------------------------------------------------------------------------
PART 3: The following broker-dealer is hereby designated as having been
instrumental in the exercise of the rights hereby exercised:
FIRM:
-----------------------------------------------------------------
REPRESENTATIVE NAME:
--------------------------------------------------
REPRESENTATIVE NUMBER:
------------------------------------------------
<PAGE> 1
EXHIBIT h
ALLIED CAPITAL LENDING CORPORATION
RIGHTS OFFERING
Soliciting Dealer Agreement
THE OFFER WILL EXPIRE AT 5:00 PM, EASTERN TIME, ON JUNE 4, 1996,
UNLESS EXTENDED.
To Securities Brokers and Dealers:
Allied Capital Lending Corporation (the "Company") is issuing to its
stockholders of record as of the close of business on April 26, 1996 (the
"Record Date") subscription rights ("Subscription Rights") to subscribe for an
aggregate of 628,909 shares (the "Shares") of common stock, par value $0.0001
per share, of the Company upon the terms and subject to the conditions set
forth in the Company's Prospectus dated April 29, 1996 (the "Offer"). Each
stockholder of record on the Record Date is being issued one Subscription Right
for each full share of common stock owned on the Record Date. No fractional
Subscription Rights will be issued. The Subscription Rights are
non-transferable and will not be quoted for trading on the Nasdaq National
Market System ("Nasdaq") or on any other exchange. The Subscription Rights
entitle stockholders to acquire at the Subscription Price (as hereinafter
defined) one Share for each five Subscription Rights held in the Primary
Subscription. The Subscription Price per Share will be 95% of the average of
the last reported sale price of a share of the Company's common stock on Nasdaq
on the date of expiration of the Offer (the "Pricing Date") and on the four
preceding business days. The Subscription Period commences on May 6, 1996
and ends at 5:00 pm, Eastern Time, on June 4, 1996 (the "Expiration Date"),
unless extended by the Company at its sole discretion. Any stockholder who
fully exercises all Subscription Rights issued to him is entitled to subscribe
for Shares which were not otherwise subscribed for by others in the Primary
Subscription (the "Over-Subscription Privilege"). Shares acquired pursuant to
the Over-Subscription Privilege are subject to increase and allotment, as more
fully discussed in the Prospectus.
The Company will pay Soliciting Fees (as hereinafter defined) to any qualified
broker or dealer who solicits the exercise of Subscription Rights in connection
with the Offer and who complies with the procedures described below (each such
broker or dealer, a "Soliciting Dealer"). Upon timely delivery to American
Stock Transfer and Trust Company, the Company's subscription agent for the
Offer (the "Subscription Agent") of payment for Shares purchased pursuant to
the exercise of Subscription Rights and of properly completed and executed
documentation as set forth in this Soliciting Dealer Agreement, a Soliciting
Dealer hereunder will be entitled to receive fees equal to 2.5% of the
Subscription Price per Share purchased pursuant to exercise of the Subscription
Rights by such Soliciting Dealer's customers (the "Soliciting Fees"). A
qualified broker or dealer is a broker or dealer that is a member of a
registered national securities exchange in the United States or the National
Association of Securities Dealers, Inc. ("NASD") or otherwise eligible to
participate under the NASD Rules.
The Company hereby agrees to pay the Soliciting Fees payable to each such
Soliciting Dealer. Solicitation and other activities by Soliciting Dealers may
be undertaken only in accordance with the applicable rules and regulations of
the Securities and Exchange Commission and the NASD, including but not limited
to Sections 8, 24, 25 and 36 of Article III of the NASD Rules of Fair Practice,
or any other applicable self-regulatory organization and only in those states
and other jurisdictions where those solicitations and other activities may be
undertaken in accordance with the laws in those states and other jurisdictions.
Compensation will not be paid for solicitations in any state or jurisdiction in
which, in the opinion of counsel to the Company, compensation may not be
lawfully paid. No Soliciting Dealer will be paid Soliciting Fees with respect
to Shares purchased pursuant to an exercise of Subscription Rights for its own
account or for the account of any affiliate of the Solicitor Dealer. No
Soliciting Dealer or any other person is authorized by the Company to give any
information or make any representations in connection with the Offer other than
those contained in the Prospectus and other authorized solicitation material
furnished by the Company through the Company's Information Agent and Offering
Coordinator, Shareholder Communications Corporation. No Soliciting Dealer is
authorized to act as agent of the Company in any connection or transaction. In
addition, nothing contained in this Soliciting Dealer Agreement will cause the
Soliciting Dealer to become a partner with the Company or create any other
association between the Soliciting Dealer and the Company, or will render the
Company liable for the obligations of any Soliciting Dealer. The Company will
be under no liability to make any payment to any Soliciting Dealer except as
otherwise set forth herein.
<PAGE> 2
In order for a Soliciting Dealer to receive Soliciting Fees: (i) Shareholder
Communications Corporation, the Company's Information Agent and Offering
Coordinator, must have received from that Soliciting Dealer, no later
than 5:00 pm, Eastern Time, on the Expiration Date, a properly completed and
duly executed Soliciting Dealer Agreement, (ii) American Stock Transfer and
Trust Company, the Company's Subscription Agent, must have received a
Beneficial Owner Certification (in the form provided by the
Company) (or a facsimile thereof), and (iii) Subscription Rights must be
exercised and Shares must be paid for as and when set forth in the Prospectus.
All questions as to the form, validity and eligibility (including time of
receipt) of the Soliciting Dealer Agreement will be determined by Shareholder
Communication Corporation, the Company's Information Agent and Offering
Coordinator, in its sole discretion, which determination will be final and
binding. Unless waived, any irregularities in connection with a Soliciting
Dealer Agreement must be cured within such time as the Company may determine.
None of the Company, Shareholder Communications Corporation, the Company's
Subscription Agent, or any other person will be under any duty to give
notification of any defects or irregularities in any Soliciting Dealer
Agreement or incur any liability for failure to give that notification.
Execution and delivery of this Soliciting Dealer Agreement and the acceptance
of Soliciting Fees from the Company by a Soliciting Dealer constitute a
representation and warranty by that Soliciting Dealer to the Company that: (i)
it has received and reviewed the Prospectus; (ii) in soliciting purchases of
Shares pursuant to the exercise of the Subscription Rights, it has complied
with the applicable requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the applicable rules and regulations thereunder,
any applicable securities laws of any state or other jurisdiction where such
solicitations may lawfully be made and the applicable rules and regulations of
any self-regulatory organization or registered national securities exchange;
(iii) in soliciting purchases of Shares pursuant to the exercise of the
Subscription Rights, it has not published, circulated or used any soliciting
materials other than the Prospectus and any other authorized solicitation
material furnished by the Company through Shareholder Communications
Corporation;(iv) it has not purported to act as agent of the Company in any
connection or transaction relating the Offer; (v) the information contained in
this Soliciting Dealer Agreement is, to its best knowledge, true and complete;
(vi) it is not affiliated with the Company; (vii) the Soliciting Fees being
paid are not being paid with respect to Shares purchased by it or an affiliate
pursuant to an exercise of Subscription Rights for its own or the affiliates
account; (viii) it will not remit, directly or indirectly, any part of the
Soliciting Fees paid by the Company pursuant to the terms of this Soliciting
Dealer Agreement to any beneficial owner of Shares purchased pursuant to the
Offer; and (ix) it has agreed to the amount of the Soliciting Fees and the
terms and conditions set forth in this Soliciting Dealer Agreement with respect
to receiving those Soliciting Fees. By returning a Soliciting Dealer Agreement
and accepting Soliciting Fees, a Soliciting Dealer agrees to indemnify the
Company against losses, claims, damages and liabilities to which the Company
may become subject as a result of the breach of that Soliciting Dealer's
representations and warranties made in this Soliciting Dealer Agreement and
described above. In making the foregoing representations and warranties,
Soliciting Dealers are reminded of the possible applicability of Rule 10b-6
under the Exchange Act if they have bought, sold, dealt in or traded in any
shares of the common stock of the Company for their own account since the
commencement of the Offer.
The Company agrees to indemnify and hold harmless each of the Soliciting
Dealers and each person, if any, who controls a Soliciting Dealer within the
meaning of either Section 15 of the Securities Act of 1933, as amended (the
"Securities Act"), or Section 20 of the Exchange Act (a "controlling person")
from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably incurred
by such Selected Dealer or any such controlling person in connection with
defending or investigating any such action or claim) caused by any untrue
statement of a material fact contained in the Registration Statement of the
Company on Form N-2 under the Securities Act covering the Shares or any
amendment thereof or the Prospectus (as amended or supplemented if the Company
has furnished any amendments or supplements thereto), or any other soliciting
materials furnished by the Company through Shareholder Communications
Corporation, or caused by any omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which such statements were made,not misleading.
Soliciting Fees due to an eligible Soliciting Dealer will be paid promptly
after the Company's receipt of payment for the Shares issued upon the exercise
of Subscription Rights as a result of the Soliciting Dealer's soliciting effort
and upon verification by Shareholder Communications Corporation that the
documentation has been received in good form.
<PAGE> 3
This Soliciting Dealer Agreement may be signed in two or more counterparts,
each of which will be an original, with the same effect as if the signatures
were upon the same instrument.
This Soliciting Dealer Agreement will be governed by the internal laws of the
State of Maryland.
Please execute this Soliciting Dealer Agreement below, accepting the terms and
conditions set forth in this Soliciting Dealer Agreement and confirming that
you are a member firm of a registered national securities exchange or of the
NASD or a foreign broker or dealer not eligible for membership who has
conformed to the Rules of Fair Practice of the NASD in making solicitations of
the type being undertake pursuant to the Offer in the United States to the same
extent as if you were a member of the NASD, and certifying that you have
solicited the purchase of the Shares pursuant to exercise of the Rights, all as
described above, in accordance with the terms and conditions set forth in this
Soliciting Dealer Agreement.
/s/ DAVID GLADSTONE
----------------------------------
Chairman of the Board
Allied Capital Lending Corporation
ACCEPTED AND CONFIRMED
- ----------------------------- ---------------------------------
Printed Firm Name Address
- ----------------------------- ---------------------------------
Authorized Signature City State Zip Code
- ----------------------------- ---------------------------------
Name Area Code Telephone Number
- -----------------------------
Title
Dated:
------------------------
ALL QUESTIONS CONCERNING
SOLICITING DEALER AGREEMENTS SHOULD BE DIRECTED TO:
SHAREHOLDER COMMUNICATIONS CORPORATION
toll free at 800-221-5724, extension 331
ALL SOLICITING DEALER AGREEMENTS SHOULD BE RETURNED TO:
SHAREHOLDER COMMUNICATIONS CORPORATION
by facsimile (telecopier) at 800-733-1885.
Facsimile transmissions may be confirmed by calling 212-805-7113.
ALL BENEFICIAL OWNERSHIP CERTIFICATIONS
SHOULD BE RETURNED TO:
American Stock Transfer & Trust Company
by facsimile (telecopier) at (718) 234-5001
Facsimile transmission may be confirmed by calling (718) 921-8238.
<PAGE> 1
EXHIBIT k.2
AMENDED AND RESTATED
LINE OF CREDIT,
SECURITY AND PLEDGE AGREEMENT
THIS AMENDED AND RESTATED LINE OF CREDIT, SECURITY AND PLEDGE
AGREEMENT, dated as of the 26th day of February, 1996, is made by and between
ALLIED CAPITAL LENDING CORPORATION, a Maryland corporation (the "Borrower"),
and THE RIGGS NATIONAL BANK OF WASHINGTON, D.C., a national banking association
(the "Bank").
WHEREAS, The Bank and The Borrower entered into that certain Line of Credit,
Security and Pledge Agreement dated July 7, 1994, which agreement has been
amended from time to time;
WHEREAS, The Bank and The Borrower desire to further amend such agreement and
to restate in its entirety all of its terms and conditions;
NOW THEREFORE, The Bank has agreed to extend credit to the Borrower and the
Borrower has agreed to obtain credit from the Bank on the terms and conditions
set forth in this Agreement. Accordingly, for good and valuable consideration,
the receipt and sufficiency of which are acknowledged, the Bank and the
Borrower agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. DEFINITIONS. As used in this Agreement, the
following terms shall have the meanings assigned to them below, which meanings
shall be equally applicable to the singular and plural forms of the terms
defined.
"Affiliate" means with respect to any specified Person, any
other Person which, directly or indirectly, through one or more intermediaries,
controls or is controlled by, or is under common control with, such specified
Person. The term "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of management and policies of a
Person, whether through ownership of common stock, by contract or otherwise.
"Agreement" means this Line of Credit, Security and Pledge
Agreement, as the same may be amended, modified or supplemented from time to
time.
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks are authorized or required to close under
the laws of the District of Columbia.
"Collateral" means all of Borrower's S.B.A. Guaranteed Loans,
and all UCC Collateral, and Deeds of Trust relating to such S.B.A. Guaranteed
Loans, and the proceeds of any them, and any payments received by Borrower
related to any of the foregoing, including all income related to the servicing
of S.B.A. Guaranteed Loans, all whether now existing or hereafter arising.
"Deed of Trust" means a deed of trust or mortgage on real
property.
"Default" means any event which with the giving of notice, the
lapse of time, or both, would constitute an Event of Default.
<PAGE> 2
"Eligible S.B.A. Guaranteed Loan" means an S.B.A. Guaranteed
Loan which (i) has been made by the Borrower, (ii) for which there is in effect
an S.B.A. Guaranty between 70% and 90% of the amount of such Loan, (iii)
conforms to the requirements of the S.B.A. Guaranty Authorization, (iv) is not
more than 60 days past due, (v) for which the original S.B.A. Guaranteed Note
is in the possession of the Bank or its nominee or bailee, (vi) if any Loan is
made hereunder with respect to the Unguaranteed Portion thereof, is secured by
a first Deed of Trust on real property located in the United States and on the
improvements thereon or a first priority security interest on machinery and
equipment located in the United States, and (vii) is acceptable to the Bank in
its sole discretion.
"Event of Default" means any of the events specified as an
"Event of Default" under this Agreement, provided that any requirement for the
giving of notice, the lapse of time, or both, or any other condition, has been
satisfied.
"GAAP" means generally accepted accounting principles
consistently applied.
"Guaranteed Portion" means the amount of an Eligible S.B.A.
Guaranteed Loan multiplied by the percentage amount of the S.B.A. Guaranty
applicable thereto.
"Indebtedness" means (i) indebtedness or liability for
borrowed money; (ii) obligations evidenced by bonds, debentures, notes, or
other similar instruments; (iii) obligations for the deferred purchase price of
property or services (including trade obligations); (iv) obligations as lessee
under capital leases; (v) current liabilities in respect of unfunded vested
benefits under Plans covered by the Employee Retirement Income Security Act of
1974 as amended, and regulations promulgated thereunder; (vi) obligations under
letters of credit; (vii) obligations under acceptance facilities; (viii) all
guaranties, endorsements (other than for collection or deposit in the ordinary
course of business), and other contingent obligations to purchase, to provide
funds for payment, to supply funds to invest in any Person, or otherwise to
assure a creditor against loss; and (ix) obligations secured by any Lien,
whether or not the obligations have been assumed.
"Intangible Assets" means all assets which, in accordance with
GAAP, are classified as intangible assets and as reported in the financial
statements required to be delivered hereunder.
"Investments" means all debt or equity securities or share,
participation, or other interest in any Person, which is, or is of a type,
dealt in or traded on financial markets, or which is recognized in any area in
which it is issued or dealt in as a medium for investment.
"Lien" means any mortgage, deed of trust, pledge, security
interest, hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), or preference, priority, or other security agreement or
preferential arrangement, charge, or encumbrance of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of any financing statement under
the Uniform Commercial Code or comparable law of any jurisdiction to evidence
any of the foregoing).
"Loan Documents" means this Agreement, the Note and any other
document now or hereafter executed or delivered in connection with the
Obligations in evidence thereof or as
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security therefor, including, without limitation, any life insurance
assignment, pledge agreement, security agreement, deed of trust, mortgage,
promissory note or subordination agreement.
"Loan" or "Loans" means individually, any loan, and
collectively, all of the loans to be made to the Borrower by the Bank pursuant
to this Agreement.
"Maximum Amount" means the lesser of (i) (a) until such time
as the Bank sells a $4,000,000.00 participation in the Loan upon terms and
conditions acceptable to the Bank, twenty-one million and no/100 dollars
(21,000,000.00), and (b) after the sale of such participation, twenty-five
million and no/100 dollars ($25,000,000.00), or (ii) the sum of the principal
amount of the Guaranteed Portion, plus fifty percent (50%) of the principal
amount of Unguaranteed Portion. The Maximum Amount may be reduced by the
Borrower pursuant to Section 2.01 (g) hereof.
"Maximum Program Amount" means (i) with respect to an S.B.A.
Guaranteed Loan, the maximum loan amount permitted by the S.B.A. under its
section 7(a) program at the time such Loan is made, and (ii) with respect to
the Guaranteed Portion of an S.B.A. Guaranteed Loan, the maximum amount which
the S.B.A. will guarantee under its section 7(a) program at the time it issues
its S.B.A. Guaranty; provided, however, that no increase in the Maximum Program
Amount with respect to either (i) or (ii) above shall become effective for
purposes hereof without the written consent of the Bank.
"Net Income" means income after deduction of all expenses,
taxes and other proper charges, determined in accordance with GAAP and shall
exclude all unrealized appreciation or depreciation on Investments.
"Net Worth" means, at any date, all amounts which in
accordance with GAAP, would be included under stockholders' equity on the
balance sheet of the Borrower at such time; provided that, in any event, such
amounts are to be net of amounts carried on the books of the Borrower for (a)
treasury stock; (b) unamortized debt discount expense; and (c) loans or
advances to any affiliate or Subsidiary of the Borrower, or directors,
officers, employees or shareholders of the Borrower, any affiliate of the
Borrower or any Subsidiary.
"Note" means a promissory note, in form and substance
satisfactory to the Bank, in the original principal amount of $25,000,000.00,
and evidencing the obligation of the Borrower to pay the principal amount of
the Loans, together with interest on the Loans, as the same may be amended,
modified or supplemented from time to time. The term "Note" also shall include
any promissory note executed and delivered by the Borrower in connection with
an extension of the Termination Date, an increase in the Maximum Amount or any
other amendment to this Agreement.
"Obligations" means the Loans, the Note, all Indebtedness and
obligations of the Borrower under this Agreement and the other Loan Documents,
as well as all other Indebtedness of the Borrower to the Bank, now existing or
hereafter arising, of every kind and description, whether or not evidenced by
notes or other instruments, and whether such Indebtedness is direct or
indirect, fixed or contingent, liquidated or unliquidated, due or to become
due, secured or unsecured, joint, several or joint and several, related or
unrelated to the Loans, similar or dissimilar to the Indebtedness arising out
of this Agreement, of the same or a different class of Indebtedness as the
Indebtedness arising out of this Agreement, including, without limitation, any
overdrafts in any deposit account maintained by the Borrower with the Bank, all
obligations of
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the Borrower with respect to letters of credit issued by the Bank for the
account of the Borrower, any Indebtedness of the Borrower that is assigned to
the Bank and any Indebtedness of the Borrower to any assignee of this
Agreement.
"Person" means an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated association, joint
venture, governmental authority or other entity of whatever nature.
"S.B.A." means the Small Business Administration.
"S.B.A. Guaranty" means an effective, in force, guaranty of an
S.B.A. Guaranteed Loan issued by the S.B.A. under its section 7(a) program in
the form of S.B.A. Form 529B.
"S.B.A. Guaranty Authorization" means, as to each S.B.A.
Guaranteed Loan, an original signed copy received by the Borrower of the
Authorization and Loan Agreement (Guaranty Loan).
"S.B.A. Guaranteed Loan" means a loan made by the Borrower
evidenced by an S.B.A. Guaranteed Note, and guaranteed by an S.B.A. Guaranty.
"S.B.A. Guaranteed Loan Borrower" means, collectively, as to
each S.B.A. Guaranteed Loan or S.B.A. Guaranteed Note, all persons who are
obligated thereon or thereunder.
"S.B.A. Guaranteed Note" means a note, bond or other evidence
of an S.B.A. Guaranteed Loan.
"Subsidiary" means an entity of which shares of stock or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other managers of such entity are at the time owned, or
the management of which is otherwise controlled, directly or indirectly,
through one or more intermediaries, or both, by any Person.
"Termination Date" means December 31, 1996, and any extension
or extensions thereof granted by the Bank in its sole discretion.
"Total Interest Expense" means, for any period with respect to
any Person, the aggregate amount of interest required to be paid during such
period on all Indebtedness of such Person outstanding during all or any part of
such period, including any payments consisting of fees in connection with such
Indebtedness, but excluding any interest the payment of which is deferred or
that is to be added to the principal amount of the Indebtedness to which such
interest relates, rather than paid at regular intervals.
"Total Liabilities" means, with respect to any Person, the
aggregate amount of all liabilities of such Person (including tax and other
proper accruals), computed in accordance with GAAP.
"Unguaranteed Portion" means the amount of an Eligible S.B.A.
Guaranteed Loan less the Guaranteed Portion.
"UCC" means the Uniform Commercial Code as adopted in the
District of Columbia, and all amendments thereto.
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"UCC Collateral" means collectively and includes all of the
following, whether now owned or hereafter acquired by the Borrower: any item or
property included within the definition of "accounts," "chattel paper,"
"documents," "general intangibles," or "instruments" set forth in the UCC;
provided, however that if the related Guaranteed Portion has been purchased by
a Person who is not an affiliate of the Borrower and the Loan made in relation
to such Guaranteed Portion has been repaid, then such Guaranteed Portion and
such items and property limited exclusively to such Guaranteed Portion shall
not be considered UCC Collateral for purposes of this Agreement.
SECTION 1.02. ACCOUNTING TERMS. All accounting terms used
herein which are not otherwise expressly defined in this Agreement shall have
the meanings respectively given to them in accordance with GAAP in effect on
the date of this Agreement. Except as otherwise provided herein, all financial
computations made pursuant to this Agreement shall be made in accordance with
GAAP and all balance sheets and other financial statements shall be prepared in
accordance with GAAP. Except as otherwise provided herein, whenever reference
is made in any provision of this Agreement to a balance sheet or other
financial statement or financial computation with respect to the Borrower, such
terms shall mean a consolidated balance sheet or other financial statement or
financial computation, as the case may be.
ARTICLE 2
LOANS
SECTION 2.01. AMOUNT AND BORROWING PROCEDURE.
(a) Subject to the terms and conditions of this
Agreement, the Borrower may, from time to time, until the Termination Date,
request Loans from the Bank as provided herein (and the Bank may, in its sole
discretion, and with no obligation so to do, agree to make any such Loan) in an
aggregate principal amount not to exceed at any one time outstanding the
Maximum Amount; provided, however, in no event shall (i) the principal amount
attributable to any single Guaranteed Portion exceed the Maximum Program
Amount, nor (ii) the principal amount attributable to any single Unguaranteed
Portion exceed the lesser of (y) fifty percent (50%) of such Unguaranteed
Portion, or (z) one-eighth (1/8) of the Maximum Program Amount, nor (iii) the
aggregate principal amount attributable to the Unguaranteed Portion exceed
$12,500,000.00 at any one time. Up to the Maximum Amount, the Borrower may
borrow, repay without penalty and re-borrow hereunder from the date of this
Agreement until the Termination Date.
(b) The amount of each Loan shall not exceed the lesser of
(i) the Maximum Program Amount, or (ii) the sum of the Guaranteed Portion, plus
fifty percent (50%) of the Unguaranteed Portion applicable thereto.
(c) The proceeds of each Loan shall be used for Borrower's
general corporate purposes, including making Eligible S.B.A. Guaranteed Loans,
funding construction loans for ACLC Limited Partnership ("ACLC") and
subordinated loans to ACLC, paying dividends, and meeting short-term capital
needs, and for no other purpose.
(d) The unpaid principal balance of the Loans shall bear
interest as provided in the Note.
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(e) The obligation of the Borrower to repay the Loans,
together with interest thereon, shall be evidenced by the Note. The unpaid
principal balance of the Note shall be payable on the Termination Date together
with all interest accrued and unpaid.
(f) Each loan with respect to the Guaranteed Portion shall be
repaid in full within one hundred twenty (120) days after it is advanced or,
if the related Eligible S.B.A. Guaranteed Loan is a construction loan, within
one hundred twenty (120) days following the expiration of the construction
period, which construction period shall not exceed one hundred eighty (180)
days. If no related Loan with respect to the Unguaranteed Portion has been
made or is outstanding, upon receipt of the foregoing repayment the Bank will,
at the request of Borrower, return to the Borrower all original documents
related to the Eligible S.B.A. Guaranteed Loan as designated by Borrower.
(g) The Borower may terminate or reduce the credit facility
provided for in Section 2.01(a) of this Agreement in whole or in part by
giving at least 15 Business Days' prior written notice of such termination or
reduction to the Bank. The termination or reduction of the credit facility
provided for in Section 2.01(a) of this Agreement shall not affect the rights
of the Bank with respect to any Obligations arising prior or subsequent to such
termination or reduction and the provisions of this Agreement shall remain in
full force and effect until the Obligations have been fully and completely paid
and discharged.
(h) The Borrower and the Bank from time to time may agree to
extend the Termination Date or increase the amount of credit to be provided
under this Agreement, or both. During any such periods of extension, the
remaining terms and conditions of this Agreement shall remain in full force and
effect, and the Borrower shall execute and deliver any amendments or
modifications to the Loan Documents as the Bank may require in connection with
any such extension or increase. Nothing in this Section 2.01(h) shall
obligate the Bank to grant such extensions or to increase the amount of credit
provided under this Agreement.
SECTION 2.02. FACILITY FEE. The Borrower agrees to pay to the
Bank in consideration of the Loans, on the last Business Day of March, June,
September and December of each year, commencing with the first such date after
the date of this Agreement, and on the Termination Date, a facility fee of
three-eighths of one percent (0.375%) per annum of the average daily amount of
the difference between the Maximum Amount and the aggregate unpaid principal
amount of the Loans outstanding on each day during the preceding calendar
quarter or portion thereof. The fee shall commence to accrue as of the date of
this Agreement and shall cease to accrue on the Termination Date.
SECTION 2.03. PAYMENTS AND COMPUTATIONS. All payments due
under this Agreement (including any payment or prepayment of principal,
interest, fees and other charges) or with respect to the Note or the Loans
shall be made in lawful money of the United States of America, in immediately
available funds, to the Bank at its office at 808 17th Street, N.W.,
Washington, D.C. 20006, or at such other place as the Bank may designate, and
shall be applied first to accrued fees, next to accrued late charges, next to
accrued interest and then to principal. If any payment of principal, interest
or fees is not due on a Business Day, then the due date will be extended to the
next succeeding full Business Day and interest and fees will be payable with
respect to the extension. If any payment of principal, interest or fees is not
made within ten days of its due date, the Borrower agrees to pay to the Bank a
late charge equal to 5% of the amount of the payment. Upon the occurrence of
an Event of Default and during the continuation of such Event
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of Default, interest shall accrue on the Loans at a per annum rate as provided
in the Note for such event. The Bank may, but shall not be obligated to, debit
the amount of any payment due under this Agreement to any deposit account of
the Borrower maintained with the Bank.
SECTION 2.04. LOAN ADVANCE PROCEDURES. The Borrower may at
any time or from time to time request a Loan provided that after such amount is
loaned the aggregate amount of all Loans shall not exceed the Maximum Amount.
Such request shall state the date in which the Loan is to be made which shall
be not less than one (1) Business Day after the receipt of such request by Bank
and shall identify the proposed collateral applicable thereto with a degree of
specificity acceptable to the Bank and shall be accompanied by the S.B.A.
Guaranty Authorization and an assignment thereof and copies of such other
documents relating to such S.B.A. Guaranteed Loan as the Bank shall reasonably
request. Such request may be made orally, but must be confirmed in writing
prior to the closing of such Loan.
SECTION 2.05. SUBSTITUTION OF LOANS. Provided that no event
of Default has occurred and is continuing, Borrower may substitute for any
Eligible S.B.A. Guaranteed Loan, an S.B.A. Guaranteed Loan satisfying the
requirements of an Eligible S.B.A. Guaranteed Loan and of equal or greater
value at any time or from time to time.
SECTION 2.06. USE OF PROCEEDS. The proceeds of the Loans
hereunder shall be used by the Borrower for general corporate purposes. The
Borrower will not, directly or indirectly, use any part of such proceeds for
the purpose of purchasing or carrying any margin stock within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System or to
extend credit to any Person for the purpose of purchasing or carrying any such
margin stock, or for any purpose which violates, or is inconsistent with,
Regulation X of such Board of Governors.
ARTICLE 3
CONDITIONS PRECEDENT
The making of the Loans shall be subject to the following conditions:
SECTION 3.01. CONDITIONS PRECEDENT TO INITIAL LOAN. The
obligation of the Bank to make the initial Loan to the Borrower is subject to
the condition precedent that the Bank shall have received on or before the day
of such Loan each of the following, in form and substance satisfactory to the
Bank and its counsel:
(a) NOTE. The Note duly executed by the Borrower;
(b) EVIDENCE OF ALL CORPORATE ACTION BY THE BORROWER.
Certified copies of all corporate action taken by the Borrower, including
resolutions of its Board of Directors, authorizing the execution, delivery, and
performance of the Loan Documents to which it is a party and each other
document to be delivered pursuant to this Agreement;
(c) INCUMBENCY AND SIGNATURE CERTIFICATE OF THE BORROWER. A
certificate (dated as of the date of this Agreement) of the Secretary of the
Borrower certifying the names and true signatures of the officers of the
Borrower authorized to sign the Loan Documents to which it is a party and the
other documents to be delivered by the Borrower under this Agreement; and
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(d) OPINION OF COUNSEL FOR THE BORROWER. A favorable opinion
of counsel for the Borrower as to such matters as the Bank may reasonably
request.
SECTION 3.02. CONDITIONS PRECEDENT TO ALL LOANS. The
obligation of the Bank to make each Loan (including the initial Loan) shall be
subject to the further conditions precedent that on the date of such Loan:
(a) STATEMENTS TRUE. The following statements shall be true
and the Borrower's request for a Loan shall be deemed a statement by such
Borrower dated the date of such Loan, that:
(i) The representations and warranties contained in
Article IV of this Agreement are correct on and as
of the date of such Loan as though made on and as
of such date; and
(ii) No Default or Event of Default has occurred and is
continuing, or would result from such Loan; and
(b) OTHER DOCUMENTS. The Bank shall have received such other
approvals, opinions, or documents as the Bank may reasonably request.
(c) REQUEST FOR LOAN. Bank shall have received a request for
a Loan in form acceptable to Bank and such other documents as the Banks may
reasonably request to include but not be limited to:
(i) A statement of the purpose for which the Loan
will be used and a description of the S.B.A. Guaranteed
Loan to be funded with the proceed of such Loans, if
applicable; and
(ii) (A) The original of each S.B.A. Guaranteed Note
which is being pledged at the time the Loan is made, if
any, (B) an original of the S.B.A. Guaranty
Authorization related to each such S.B.A. Guaranteed
Note, (C) such other documents or instruments relating to
such Eligible S.B.A. Guaranteed Loan as the Bank may
reasonably request (provided, however, that the failure
of the Bank to request any document or instrument at the
time of or prior to the delivery of a Note to it shall
not limit its right to request such document or
instrument at a later time).
ARTICLE 4
COVENANTS, REPRESENTATIONS AND OTHER TERMS REGARDING COLLATERAL
SECTION 4.01. SECURITY INTEREST, PLEDGE. The Borrower grants
to the Bank, its successors and assigns, a security interest in the Collateral,
all additions and accessions thereto and replacements thereof, all proceeds and
products thereof, all books of account and records relating to the Collateral,
including all computer software relating thereto, pledges to the Bank each
Eligible S.B.A. Guaranteed Loan and the S.B.A. Guaranteed Note and all other
instruments related thereto, and assigns to the Bank any rights it may have to
collateral therefor or under any guarantee or commitment related thereto, all
of which shall secure the Obligations.
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SECTION 4.02. DEFENSE OF COLLATERAL. The Borrower, at its
expense, will defend the Collateral against any claims or demands adverse to
the Bank's security interest and will promptly pay, when due, all taxes or
assessments levied against the Borrower on the Collateral.
SECTION 4.03. INFORMATION REGARDING COLLATERAL. The Borrower
shall provide the Bank such information as the Bank may from time to time
reasonably request with respect to the Collateral, including, without
limitation, statements describing, designating, identifying and evaluating all
Collateral.
SECTION 4.04. PERFECTION OF SECURITY INTEREST. The Borrower
shall perform any and all steps in all relevant or appropriate jurisdictions as
may be necessary or reasonably requested by the Bank to perfect, maintain and
protect the Bank's security interest in the Collateral or which the Bank
otherwise determines to be prudent or advisable. The Borrower shall pay the
taxes and costs of, or incidental to, any recording or filing of any financing
statements concerning the Collateral. The Borrower agrees that a carbon,
photographic, photostatic or other reproduction of this Agreement or of a
financing statement is sufficient as a financing statement.
SECTION 4.05. LIMITATIONS ON OBLIGATIONS. It is expressly
agreed by the Borrower that, notwithstanding any other provision of this
Agreement, the Borrower shall remain liable to observe and perform all the
conditions and obligations to be observed and performed by the Borrower in
accordance with and pursuant to the terms and provisions of each Eligible
S.B.A. Guaranteed Loan, S.B.A. Guaranty and S.B.A. Guaranty Authorization.
The Bank shall not have any obligation or liability under any Eligible S.B.A.
Guaranteed Loan, S.B.A. Guaranty and S.B.A. Guaranty Authorization or any other
document, instrument or agreement related to any Eligible S.B.A. Guaranteed
Loan by reason of or arising out of this Agreement or the assignment of such
Eligible S.B.A. Guaranteed Loan to the Bank or the receipt by the Bank of any
payment relating to such Eligible S.B.A. Guaranteed Loan pursuant to this
Agreement, nor shall the Bank be required or obligated in any manner to perform
or fulfill any of the obligations of the Borrower under or pursuant to any
Eligible S.B.A. Guaranteed Loan, S.B.A. Guaranty and S.B.A. Guaranty
Authorization or to make any payment, or to make any inquiry as to the nature
or the sufficiency of any payment received by it or the sufficiency of any
performance by any party under any such Eligible S.B.A. Guaranteed Loan, S.B.A.
Guaranty and S.B.A. Guaranty Authorization or to present or file any claim, or
to take any action to collect or enforce any performance or the payment of any
amounts which may have been assigned to it or to which it may be entitled at
any time or times.
SECTION 4.06. INDEMNIFICATION. In any suit, proceeding or
action brought by or against the Bank relating to the Collateral, the Borrower
will save, indemnify and keep the Bank harmless from and against all expense,
loss or damage suffered by reason of any defense, setoff, counterclaim,
recoupment or reduction of liability whatsoever of any obligor thereunder,
arising out of a breach by the Borrower of any obligation thereunder or arising
out of any other agreement, Indebtedness or liability at any time owing to or
in favor of such obligor or its successors from the Borrower, and all such
obligations of the Borrower shall be and remain enforceable against and only
against the Borrower and shall not be enforceable against the Bank. The
foregoing obligation of the Borrower to indemnify the Bank shall not extend to
any suit, proceeding or action arising out of the Bank's gross negligence or
willful misconduct.
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 5.01. INCORPORATION, GOOD STANDING AND DUE
QUALIFICATION. The Borrower has no Subsidiaries except ARLC Limited
Partnership, which is wholly owned by Borrower. Borrower (a) is a corporation
duly organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation; (b) has the corporate power and authority to
own its assets and to transact the business in which it is now engaged or in
which it is proposed to be engaged; and (c) is duly qualified as a foreign
corporation and in good standing under the laws of each other jurisdiction in
which such qualification is required, except in such instances which would not,
in any one case or in the aggregate, materially and adversely affect the
financial condition, operations, properties or business of the Borrower.
SECTION 5.02. CORPORATE POWER AND AUTHORITY. The execution,
delivery and performance by the Borrower of the Loan Documents to which each is
a party have been duly authorized by all necessary corporate action and do not
and will not (a) require any consent or approval of, or filing or registration
with, any governmental agency or authority or the stockholders of such
corporation; (b) contravene such corporation's charter or bylaws; (c) result in
a breach of or constitute a default under any agreement or instrument to which
such corporation is a party or by which it or its properties may be bound or
affected; (d) result in, or require, the creation or imposition of any lien
upon or with respect to any of the properties now owned or hereafter acquired
by such corporation; or (e) cause such corporation to be in default under any
law, rule, regulation, order, writ, judgment, injunction, decree, determination
or award applicable to such corporation.
SECTION 5.03. LEGALLY ENFORCEABLE AGREEMENT. This Agreement
is, and each of the other Loan Documents when delivered under this Agreement
will be, legal, valid and binding obligations of the Borrower enforceable
against the Borrower in accordance with their respective terms.
SECTION 5.04. FINANCIAL STATEMENTS. The most recent financial
statements of the Borrower which have been furnished to the Bank in connection
with this Agreement are complete and correct and fairly present the financial
condition of the Borrower as at the dates of such statements. Since the dates
of such statements, there has been no material adverse change in the condition
(financial or otherwise), business or operations of the Borrower.
SECTION 5.05. LITIGATION. There is no pending or threatened
action or proceeding against or affecting the Borrower, before any court,
governmental agency or arbitrator, which may, in any one case or in the
aggregate, materially adversely affect the financial condition, operations,
properties or business of the Borrower.
SECTION 5.06. OTHER AGREEMENTS. The Borrower is not a party
to any indenture, loan, or credit agreement, or to any lease or other agreement
or instrument, or subject to any charter or corporate restriction which has a
material adverse effect on the business, properties, assets, operations, or
conditions, financial or otherwise, of the Borrower, or the ability of the
Borrower to carry out its obligations under the Loan Documents to which it is a
party. The Borrower is not in default in any respect in the performance,
observance, or fulfillment of any of the obligations,
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covenants, or conditions contained in any agreement or instrument material to
its business to which it is a party.
SECTION 5.07. NO DEFAULTS ON OUTSTANDING JUDGMENTS OR ORDERS.
The Borrower has satisfied all judgments and is not in default with respect to
any judgment, writ, injunction, decree, rule, or regulation of any court,
arbitrator, or federal, state, municipal, or other governmental authority,
commission, board, bureau, agency or instrumentality, domestic or foreign.
SECTION 5.08. OWNERSHIP AND LIENS. The Borrower has title to,
or valid leasehold interests in, all of its properties and assets, real and
personal, Including the properties and assets and leasehold interests reflected
in the financial statements referred to in Section 5.04 (other than any
properties or assets disposed of in the ordinary course of business), and none
of the properties and assets owned by the Borrower and none of its leasehold
interests is subject to any Lien, except such as may be permitted pursuant to
Section 7.01 of this Agreement.
SECTION 5.09. OPERATION OF BUSINESS. The Borrower possesses
all licenses, permits, franchises, patents, copyrights, trademarks, and trade
names, or rights thereto, to conduct its respective businesses substantially as
now conducted and as presently proposed to be conducted, and is not in
violation of any valid rights of others with respect to any of the foregoing.
SECTION 5.10. TAXES. The Borrower has filed all tax returns
(federal, state, and local) required to be filed and has paid all taxes,
assessments, and governmental charges and levies thereon to be due, including
interest and penalties.
SECTION 5.11. ENVIRONMENT. The Borrower has not received
notice of, nor knows of, or suspects facts which might constitute any
violations of any federal, state, or local environmental, health, or safety
laws, codes or ordinances, and any rules or regulations promulgated thereunder
with respect to its businesses, operations, assets, equipment, property,
leaseholds, or other facilities.
ARTICLE 6
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that:
SECTION 6.01. MAINTENANCE OF EXISTENCE. The Borrower will
preserve and maintain, its corporate existence and good standing in the
jurisdiction of its incorporation, and qualify and remain qualified as a
foreign corporation in each jurisdiction in which such qualification is
required, except if the failure to so qualify would have, in any one case or in
the aggregate, a material and adverse effect on the financial condition,
operations, properties or business of the Borrower.
SECTION 6.02. COMPLIANCE WITH RELATED AGREEMENTS. The
Borrower shall comply with the terms of each S.B.A. Guaranty and S.B.A.
Guaranty Authorization which relates to an Eligible S.B.A. Guaranteed Loan.
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SECTION 6.03. RIGHT OF INSPECTION. At any reasonable time and
from time to time, the Borrower will permit the Bank or any agent or
representative of the Bank to audit and verify the Collateral, examine and make
copies of and abstracts from the records and books of account of, and visit the
properties of, the Borrower, and to discuss the affairs, finances and accounts
of the Borrower with any of its officers and directors and the Borrower's
independent accountants.
SECTION 6.04. MAINTENANCE OF RECORDS. The Borrower will keep
adequate records and books of account, in which complete entries will be made
in accordance with GAAP, reflecting all financial transactions of the Borrower.
The principal records and books of account, including these concerning the
Collateral, shall be kept at the chief executive office of the Borrower's
investment advisor at 1666 K Street, N.W., Suite 901, Washington, D.C. 20006.
The Borrower will not move such records and books of account or change such
chief executive office or the name under which it does business without (a)
giving the Bank at least 30 days' prior written notice, and (b) executing and
delivering financing statements satisfactory to the Bank prior to such move or
change.
SECTION 6.05. MAINTENANCE OF PROPERTIES. The Borrower will
maintain, keep, and preserve all of its properties (tangible and intangible)
necessary or useful in the proper conduct of its business in good working order
and condition, ordinary wear and tear excepted.
SECTION 6.06. CONDUCT OF BUSINESS. The Borrower will continue
to engage in an efficient and economical manner in a business of the same
general type as conducted by it on the date of this Agreement.
SECTION 6.07. COMPLIANCE WITH LAWS. The Borrower will comply
in all respects with all applicable laws, rules, regulations and orders
(including, without limitation, the Employee Retirement Income Security Act, as
amended from time to time), such compliance to include, without limitation,
paying, before the same become delinquent, all duly imposed taxes, assessments
and governmental charges imposed upon it or upon its property.
SECTION 6.08. MAINTENANCE OF INSURANCE. The Borrower will
maintain insurance with financially sound and reputable insurance companies or
associations in such amounts and covering such risks as are usually carried by
companies engaged in the same or a similar business and similarly situated.
SECTION 6.09. REPORTING REQUIREMENTS. The Borrower will
furnish to the Bank:
(a) QUARTERLY FINANCIAL STATEMENTS. As soon as available
and, in any event, within 45 days after the end of each of the quarters of each
fiscal year of the Borrower (i) unaudited consolidated financial statements
consisting of statements of financial position of the Borrower, as of the end
of such quarter and statements of operations and of changes in assets of the
Borrower for the period commencing at the end of the previous fiscal year and
ending with the end of such quarter, all in reasonable detail and stating in
comparative form the respective consolidated figures for the corresponding date
and period in the previous fiscal year and all prepared in accordance with
GAAP, and (ii) a certificate detailing a calculation of each of the ratios and
amounts referred to in the financial covenants of the Borrower set forth in
Article 8 hereof. Such financial statements and certificate shall be certified
to be accurate by the chief financial officer of the Borrower (subject to
year-end adjustments);
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(b) ANNUAL FINANCIAL STATEMENTS. As soon as available and,
in any event, within 90 days after the end of each fiscal year of the Borrower
audited consolidated financial statements consisting of statements of financial
position of the Borrower as of the end of such fiscal year, statements of
operations, changes in net assets, and cash flows of the Borrower for such
fiscal year, all in reasonable detail and stating in comparative form the
respective consolidated figures for the corresponding date and period in the
prior fiscal year and all prepared in accordance with GAAP. The consolidated
financial statements shall be accompanied by an opinion thereon acceptable to
the Bank of an independent certified public accounting firm selected by the
Borrower and acceptable to the Bank;
(c) MANAGEMENT LETTERS. Promptly upon receipt thereof,
copies of any reports submitted to the Borrower by independent certified public
accountants in connection with an audit of the financial statements of the
Borrower made by such accountants;
(d) NOTICE OF LITIGATION. Promptly after the commencement
thereof, notice of all actions, suits and proceedings before any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, affecting the Borrower, which, if determined adversely to
the Borrower could have a material adverse effect on the financial condition,
properties or operations of the Borrower;
(e) NOTICE OF DEFAULTS AND EVENTS OF DEFAULT. As soon as
possible and, in any event, within 15 days after the occurrence of each Default
and Event of Default, a written notice setting forth the details of such
Default or Event of Default and the action which is proposed to be taken by the
Borrower with respect thereto;
(f) PROXY STATEMENTS, ETC. Promptly after the sending or
filing thereof, copies of all proxy statements, financial statements and
reports which the Borrower sends to its stockholders, and copies of all
regular, periodic and special reports, and all material registration statements
which the Borrower files with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or with any national
securities exchange;
(g) GENERAL INFORMATION. Such other information respecting
the condition or operations, financial or otherwise, of the Borrower or any
Subsidiary as the Bank may from time to time reasonably request.
(h) OPINION ON ASSIGNMENTS. In the event that the Bank
determines in good faith that it is necessary or advisable to obtain a legal
opinion on the effectiveness or priority of any assignment or transfer of a
Deed of Trust securing any Eligible S.B.A. Guaranteed Loan or the procedures
necessary or advisable to assure the effectiveness or priority of an assignment
or transfer of Deeds of Trust in jurisdictions where the collateral for an
Eligible S.B.A. Guaranteed Loan is located, Borrower shall obtain such an
opinion addressed to the Bank from counsel acceptable to Bank within 15 days of
its receipt of a request to do so.
SECTION 6.10. ENVIRONMENT. The Borrower will be and remain in
compliance with the provisions of all federal, state, and local environmental,
health, and safety laws, codes and ordinances, and all rules and regulations
issued thereunder.
SECTION 6.11. INVESTMENT ADVISER. Allied Capital Advisers,
Inc. will remain the investment adviser for the Borrower.
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ARTICLE 7
NEGATIVE COVENANTS
The Borrower agrees that, without first obtaining the prior written consent of
the Bank:
SECTION 7.01. LIENS. The Borrower will not create, incur,
assume or permit to exist any Lien upon or with respect to any of its
properties or assets, now owned or hereafter acquired, except: (a) Liens in
favor of the Bank; (b) Liens which are incidental to the conduct of the
business of the Borrower, are not incurred in connection with the obtaining of
credit and do not materially impair the value or use of assets of the Borrower;
(c) Liens on equipment in existence on the date of this Agreement and disclosed
in writing to the Bank, and (d) Liens on promissory notes owned by Borrower
which are pledged as collateral for loans or advance of funds to the Borrower
by the pledge of such note contemporaneously with the loan by Borrower
represented by such note (provided, however, that no S.B.A. Guaranteed Loan
under the S.B.A.'s section 7 (a) program may be pledged under such agreement).
SECTION 7.02. INDEBTEDNESS. The Borrower will not create,
incur, assume or permit to exist any Indebtedness except (a) the Obligations;
(b) Indebtedness in existence on the date of this Agreement and disclosed in
writing to the Bank; (c) Indebtedness of the Borrower subordinated to the
Obligations on terms satisfactory to the Bank; (d) Indebtedness of any
Subsidiary to the Borrower or another Subsidiary; (e) ordinary trade accounts
payable; and (f) Indebtedness of Borrower secured by a pledge of a Promissory
Note or other Lien which is permitted by this Agreement.
SECTION 7.03. MERGERS, ETC. The Borrower will not merge or
consolidate with any Person and will not permit any Subsidiary to merge with
any person except that Borrower may merge with a Subsidiary and any Subsidiary
may merge with another Subsidiary.
SECTION 7.04. SALE AND LEASEBACK. The Borrower will not sell,
transfer or otherwise dispose of any real or personal property to any Person
and thereafter, in connection therewith, directly or indirectly, lease back the
same or similar property.
SECTION 7.05. SALE OF ASSETS. The Borrower will not sell,
lease, assign, transfer or otherwise dispose of any of its now owned or
hereafter acquired assets except: (a) for assets disposed of in the ordinary
course of business and (b) the sale or other disposition of assets no longer
used or useful in the conduct of its business and provided, that nothing herein
shall be construed as prohibiting the sale or other transfer of any promissory
note held by Borrower other than a promissory note which is at the time of such
sale and included in the Collateral.
SECTION 7.06. GUARANTIES, ETC. The Borrower will not assume,
guarantee, endorse or otherwise be or become directly or contingently
responsible or liable (including, but not limited to, any liability arising out
of any agreement to purchase any obligation, stock, assets, goods or services,
or to supply or advance any funds, assets, goods or services, or to maintain or
cause such Person to maintain a minimum working capital or net worth or
otherwise to assure the creditors of any Person against loss) for obligations
of any Person, or permit any such guaranties or liabilities to exist, except
(a) guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business, and (b)
guaranties in existence on the date of this Agreement and disclosed in writing
to the Bank.
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<PAGE> 15
SECTION 7.07. ACQUISITIONS. The Borrower will not purchase or
acquire (a) all or substantially all of the assets of any Person, or (b) any
capital stock of or ownership interest in any other Person.
SECTION 7.08. TRANSACTIONS WITH AFFILIATES. The Borrower will
not enter into any transaction, including, without limitation, the purchase,
sale or exchange of property or the rendering of any service, with any
Affiliate, except in the ordinary course of and pursuant to the reasonable
requirements of the Borrower's business and upon fair and reasonable terms no
less favorable to the Borrower than would be applicable in a comparable
arm's-length transaction with a Person not an Affiliate (provided that the
investment advisory agreement between Borrower and Allied Capital Advisers,
Inc. shall not be deemed to violate this provision).
ARTICLE 8
FINANCIAL COVENANTS
So long as the Note shall remain unpaid or the Bank shall have
any Commitment under this Agreement:
SECTION 8.01. LEVERAGE RATIO. Borrower will not permit its
Total Liabilities to exceed its Net Worth at any time.
SECTION 8.02. MAXIMUM INTANGIBLE ASSETS. Borrower will not
permit its Intangible Assets to exceed five million dollars ($5,000,000.00) at
any time.
SECTION 8.03. MINIMUM INTEREST COVERAGE. Borrower will
maintain a ratio of (a) Net Income plus Total Interest Expense to (b) Total
Interest Expense of not less than 1.5 to 1 as of the end of each calendar
quarter for the previous four quarters.
ARTICLE 9
DEFAULT
SECTION 9.01. EVENTS OF DEFAULT. Each of the following shall
constitute an Event of Default under this Agreement:
(a) Failure of the Borrower to pay any Obligation to the
Bank, including, without limitation, the principal of or interest on the Note
or any of the Loans, when the same shall become due and payable, whether at
maturity, as a result of the Bank's demand for payment or otherwise, and such
failure shall continue for a period of 5 days; or
(b) If the Borrower refuses to permit the Bank to inspect,
examine, verify or audit the Collateral in accordance with the provisions of
this Agreement; or
(c) Failure of the Borrower to perform or observe any
covenant set forth in this Agreement (except any such failure resulting in the
occurrence of another Event of Default described in this section), or to
perform or observe any other term, condition, covenant, warranty, agreement or
15
<PAGE> 16
other provision contained in this Agreement within 30 days after receipt of
notice from the Bank specifying such failure; or
(d) Discovery that any representation or warranty by the
Borrower in this Agreement or any statement or representation made in any
certificate, report or opinion delivered pursuant to this Agreement or in
connection with any Loan under this Agreement was materially untrue in any
material respect provided, however, the Bank shall take no action based on a
default under this paragraph unless the Borrower shall have been provided a
reasonable opportunity to render such misrepresentation or untruth immaterial;
or
(e) If, as a result of default, any other obligation of the
Borrower for the payment of any debt in excess of $500,000.00 becomes or is
declared to be due and payable prior to the expressed maturity thereof, unless
and to the extent that the declaration is being contested in good faith in a
court of appropriate jurisdiction; or
(f) The Borrower makes an assignment for the benefit of
creditors, files a petition in bankruptcy, petitions or applies to any tribunal
for any receiver or any trustee of the Borrower or any substantial part of its
property, or commences any proceeding relating to the Borrower under any
reorganization, arrangement, readjustments of debt, dissolution or liquidation
law or statute of any jurisdiction, whether now or hereafter in effect; or
(g) If, within 30 days after the filing of a bankruptcy
petition or the commencement of any proceeding against the Borrower seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, the proceeding shall not have been dismissed, or, if, within 30
days after the appointment, without the consent or acquiescence of the
Borrower, of any trustee, receiver or liquidator of the Borrower or of all or
any substantial part of the properties of the Borrower, the appointment shall
not have been vacated; or
(h) Any judgment against the Borrower in excess of
$250,000.00 or any attachment in excess of $250,000.00 against any property of
the Borrower that remains unpaid, undischarged, unbonded or undismissed for a
period of 30 days, unless and to the extent that the judgment or attachment is
appealed in good faith in a court of higher jurisdiction and the appeal remains
pending; or
(i) Twenty-one (21) days or more shall elapse from the date
of shipment or delivery of any S.B.A. Guaranteed Note which evidences an
Eligible S.B.A. Guaranteed Loan for the purpose of the sale of such Note or the
Guaranteed Portion thereof without the Banks' having received repayment of the
related Loan; or
(j) The occurrence of an event of default (and the expiration
of any applicable cure period) under any other Loan Document.
SECTION 9.02. REMEDIES UPON DEFAULT. Upon the occurrence of
an Event of Default, the following provisions shall be applicable:
(a) The Bank may, at its option, terminate its obligation to
make Loans under this Agreement and declare all Obligations, whether incurred
prior to, contemporaneous with or subsequent to the date of this Agreement, and
whether represented in writing or otherwise,
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<PAGE> 17
immediately due and payable and may exercise all of it rights and remedies
against the Borrower and any Collateral.
(b) The Bank may foreclose its lien and security interest in
the Collateral in any way permitted by law (or regulation applicable to such
collateral including any S.B.A. regulation) and shall have, without limitation,
the remedies of a secured party under the UCC. The Bank may enter the
Borrower's premises without legal process but upon prior notice during business
hours and without incurring liability to the Borrower and remove the Collateral
to such place or places as the Bank may deem advisable, or the Bank may require
the Borrower to assemble the collateral and make the Collateral available to
the Bank at a convenient place and, with or without having the Collateral at
the time or place of sale, the Bank may sell or otherwise dispose of all or any
part of the Collateral whether in its then condition or after further
preparation or processing, either at public or private sale or at any broker's
board, in lots or in bulk, for cash or for credit, at any time or place, in one
or more sales and upon such terms and conditions as the Bank may elect. The
Bank shall give not less than 30 Business Days' prior written notice to the
Borrower of the time and place of any public sale of the Collateral or the time
after which the Collateral may be sold in a private sale, which the Borrower
agrees constitutes commercially reasonable notice. At any such sale the Bank
may be the purchaser, subject to the applicable provisions of the UCC.
Notwithstanding the foregoing, any sale of an S.B.A. Guaranteed Note must be
approved by and be on terms and conditions acceptable to the S.B.A.
(c) Communicate with and notify the S.B.A. Guaranteed Loan
Borrowers of Borrower's assignments hereunder, and note any such assignment on
Borrower's records; and
(d) Take over the exclusive right to collect the Collateral
at the sole expense of the Borrower, without any obligation to preserve rights
against prior parties. For any acts done or not done incident to such
collection or liquidation, the Bank shall not be liable in any manner. The
Bank shall have the right to settle, compromise, or adjust Collateral and the
claims or rights of Borrower thereunder and accept return of the real estate
involved, and in turn sell and dispose of all said real estate without notice
to or approval of Borrower. The Bank may employ agents and attorneys to
collect or liquidate any Collateral, and the Bank shall not be liable for such
Collateral or defaults of any such agents and attorneys; and
(e) Open any mail addressed to Borrower in connection with
any Collateral or any Loan hereunder, and as attorney in fact for Borrower,
sign the Borrower's name to any receipts, checks, notes, agreements,
assignments or other instruments or letters, in order to collect, sell or
liquidate the Collateral; and
(f) The proceeds from any sale of the Collateral by the Bank
shall first be applied to any costs and expenses in securing possession of the
Collateral and to any expenses in connection with the sale. The net proceeds
will be applied toward the payment of the Obligations. Application of the net
proceeds as to particular Obligations or as to principal or interest shall be
in the Bank's absolute discretion. Any deficiency will be paid to the Bank
forthwith upon demand, and any surplus will be paid to the Borrower if the
Borrower is not otherwise indebted to the Bank.
(g) To the extent that the Obligations are now or hereafter
secured by property other than the Collateral described herein or by the
guarantee, endorsement or property of any other Person, the Bank shall have the
right to proceed against such other property, guarantee or
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endorsement upon the occurrence of an Event of Default, and the Bank shall have
the right, in its sole discretion, to determine which rights, security, liens,
security interests or remedies the Bank shall at any time pursue, relinquish,
subordinate, modify or take any other action with respect thereto, without in
any way modifying or affecting any of them or any of the Bank's rights
hereunder.
(h) The Bank is hereby authorized at any time or from time to
time, without notice to the Borrower (any such notice being expressly waived by
the Borrower), to setoff and apply any deposit (general or special, time or
demand, provisional or final) at any time held, including any certificate of
deposit, and other indebtedness at any time owed by the Bank, whether or not
any such deposit or indebtedness is then due, to or for the credit of account
of the Borrower against any and all of the Obligations.
(i) THE BORROWER, HAVING KNOWLEDGE THAT IT MAY BE
ENTITLED TO NOTICE AND A HEARING PRIOR TO REPOSSESSION OF THE COLLATERAL,
WAIVES ANY RIGHT THAT IT MAY HAVE UNDER EXISTING OR FUTURE LAW TO ANY HEARING
THAT MAY BE HELD RELATING TO FORECLOSURE OR ANY OTHER SUCH ACTS, AND TO ANY
NOTICE THAT MAY BE REQUIRED TO BE GIVEN BY THE Bank PRIOR TO SUCH HEARING. THE
BORROWER EXPRESSLY WAIVES ITS RIGHT TO A TRIAL BY JURY WITH RESPECT TO ANY
LITHGATION RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.
(j) The Bank may itself perform or comply, or otherwise cause
performance or compliance, with the obligations of the Borrower contained in
this Agreement, including, without limitation, the obligations of the Borrower
to defend and insure the Collateral. The reasonable expenses of the Bank
incurred in connection with such performance or compliance shall be payable by
the Borrower to the Bank on demand and shall constitute Obligations.
ARTICLE 10
MISCELLANEOUS
SECTION 10.01. COLLECTION COSTS. The Borrower shall pay all
of the reasonable costs and expenses incurred by the Bank in connection with
the enforcement of this Agreement and the other Loan Documents, including,
without limitation, reasonable attorneys' fees and expenses.
SECTION 10.02. MODIFICATION AND WAIVER. Except for the other
documents expressly referred to in this Agreement, this Agreement contains the
entire agreement between the parties and supersedes all prior agreements
between the Bank and the Borrower concerning the line of credit and the Loans
hereunder. No modification or waiver of any provision of the Note or this
Agreement and no consent by the Bank to any departure therefrom by the Borrower
shall be effective unless such modification or waiver shall be in writing and
signed by an officer of the Bank with a title of vice president or any higher
office, and the same shall then be effective only for the period and on the
conditions and for the specific instances and purposes specified in such
writing. No notice to or demand on the Borrower in any case shall entitle the
Borrower to any other or further notice or demand in similar or other
circumstances. No failure or delay by the Bank in exercising any right, power
or privilege hereunder shall operate as a waiver thereof; nor shall any single
or partial exercise thereof preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The rights and remedies
of the Bank
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contained in this Agreement are cumulative and not exclusive of any rights or
remedies otherwise provided by law.
SECTION 10.03. NOTICES. All notices, requests, demands or
other communications provided for in this Agreement shall be in writing and
shall be delivered by hand, sent prepaid by Federal Express (or a comparable
overnight delivery service) or sent by the United States mail, certified,
postage prepaid, return receipt requested, to the Bank, at 808 17th Street,
N.W., Washington, D.C. 20006 Attention: Commercial Lending, or to the Borrower
at 1666 K Street, N.W., Suite 901, Washington, D.C. 20006, Attention: Chief
Financial Officer. Any notice, request, demand or other communication delivered
or sent in the foregoing manner shall be deemed given or made (as the case may
be) upon the earliest of (a) the date it is actually received, (b) on the
business day after the day on which it is properly delivered to Federal Express
(or a comparable overnight delivery service), or (c) on the third business day
after the day on which it is deposited in the United States mail. The Borrower
or the Bank may change its address by notifying the other party of the new
address in any manner permitted by this Section.
SECTION 10.04. CAPTIONS. The captions of the various sections
and paragraphs of this Agreement have been inserted only for the purposes of
convenience; such captions are not a part of this Agreement and shall not be
deemed in any manner to modify, explain, enlarge or restrict any of the
provisions of this Agreement.
SECTION 10.05. SURVIVAL OF AGREEMENTS. All agreements,
representations and warranties made herein shall survive the delivery of this
Agreement and the making and renewal of the Loans hereunder.
SECTION 10.06. FEES AND EXPENSES. Whether or not any Loans
are made hereunder, the Borrower shall pay on demand all reasonable
out-of-pocket costs and expenses incurred by the Bank in connection with the
preparation, negotiation, execution, delivery, filing, recording and
administration of any of the documents and instruments executed or delivered in
connection herewith, including, without limitation, the reasonable fees and
expenses of counsel to the Bank (including, the reasonable fees of salaried
counsel employed by the Bank or its affiliates), and local counsel who may be
retained by the Bank, with respect to such documents and any amendments thereof
or of this Agreement and any amendment hereof and with respect to advising the
Bank as to its rights and responsibilities hereunder or thereunder, provided,
however, that the Bank shall use its reasonable efforts to notify the Borrower
prior to incurring any costs or expenses chargeable to Borrower under this
section, unless the Bank shall have determined in good faith, but at its sole
and unfettered discretion, that a delay or such notice may impair or adversely
impact the rights, remedies, claims or other interest of the Bank or the
collectibility of the Loans.
SECTION 10.07. USE OF DEFINED TERMS. All terms defined in
this Agreement shall have the defined meanings when used in certificates,
reports or other documents made or delivered pursuant to this Agreement, unless
the context shall otherwise require.
SECTION 10.08. SUCCESSORS AND ASSIGNS. This Agreement shall
inure to the benefit of and bind the respective parties hereto and their
successors and assigns; provided, however, that the Borrower may not assign its
rights hereunder without the prior written consent of the Bank.
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SECTION 10.09. INTERPRETATION. This Agreement and the rights
and obligations of the parties hereunder shall be construed and interpreted in
accordance with the laws of the District of Columbia, without reference to
conflicts of law principles.
IN WITNESS WHEREOF, the Borrower and the Bank have caused this
Agreement to be signed by their duly authorized representatives all as of the
day and year first above written.
ALLIED CAPITAL LENDING THE RIGGS NATIONAL BANK OF
CORPORATION WASHINGTON, D.C., a national banking
a Maryland corporation. association.
BY: /s/ KATHERINE C. MARIEN By: /s/ DAVID H. OLSON
------------------------ -------------------
Name: Katherine C. Marien Name: David H. Olson
---------------------- -----------------
Title: President Title: Vice President
--------------------- ----------------
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EXHIBIT k.2
FIRST AMENDMENT TO AMENDED AND RESTATED LINE OF CREDIT,
SECURITY AND PLEDGE AGREEMENT
This First Amendment to Amended and Restated Line of Credit, Security
and Pledge Agreement ("Amendment") dated as of April 18, 1996 is entered into
by ALLIED CAPITAL LENDING CORPORATION (the "Borrower") and RIGGS BANK N.A.,
formerly known as The Riggs National Bank of Washington, D.C. (the "Lender").
WHEREAS, the Borrower and the Lender entered into that certain Amended
and Restated Line of Credit, Security and Pledge Agreement dated February 26,
1996, (the "Agreement"); and
WHEREAS, the Lender and an affiliate of the Borrower have entered into
a credit agreement which provides for a temporary waiver of certain
limitations, a condition of which is that the Maximum Amount under the
Agreement be reduced for the duration of the temporary waiver; and
WHEREAS, the Borrower and the Lender wish to amend the Agreement as
provided herein to evidence the reduction;
NOW THEREFORE, the Lender and the Borrower agree as follows:
1. The Agreement is amended to delete the existing definition of
"Maximum Amount" in Section 1.01 of the Agreement in its entirety and to add
new definition in appropriate alphabetical order reading as follows:
"Maximum Amount" means the lesser of (i) (a) until such time
as the Bank sells a $4,000,000.00 participation in the Loan upon terms
and conditions acceptable to the Bank, sixteen million and no/100
dollars (16,000,000.00), and (b) after the sale of such participation,
twenty million and no/100 dollars ($20,000,000.00), or (ii) the sum of
the principal amount of the Guaranteed Portion, plus fifty percent
(50%) of the principal amount of Unguaranteed Portion. The Maximum
Amount may be reduced by the Borrower pursuant to Section 2.01 (g)
hereof.
2. Borrower hereby reaffirms the Agreement as amended hereby and
agrees that in all respects except as explicitly modified by the terms of this
Amendment that the Agreement shall remain in full force and effect.
3. In consideration of the Amendment contained herein, Borrower
represents, warrants and agrees that (i) there are no claims, defenses or
set-offs with respect to the Agreement, any Loan or any Note, or with respect
to the indebtedness evidenced or secured thereby or with respect to the
collection or enforcement of any of them or with respect to the collateral,
(and to the extent any claim, set-off or defense exists they are each hereby
waived and relinquished in their entirety), (ii) no Event of Default, as
defined in the Agreement, the Note or any other Loan Document, and no event
which with the lapse of time or the giving of notice or both would constitute
such an Event of Default, has occurred; (iii) Lender has made no
representations or commitments, oral or written, or undertaken any obligations
other than as expressly set forth in the Agreement, the Loan Documents and this
Amendment, (iv) except as otherwise previously disclosed in writing to the
Lender, each of the representations and warranties contained in the
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<PAGE> 22
Agreement are true and correct as of the date hereof and shall be deemed to be
restated and remade as of the date of this Amendment as if set out herein in
their entirety; and (v) the making, delivery and performance by the Borrower of
this Amendment and all instruments, documents and notes executed
contemporaneously herewith, have been duly authorized by all necessary
corporate action, and constitute the valid and binding obligations of the
Borrower enforceable in accordance with their terms.
4. All capitalized terms not otherwise defined in this Amendment
shall have the meanings ascribed thereto in the Agreement. Each and every of
the terms and provisions of this Amendment shall be binding upon and shall
inure to the benefit of the parties hereto and their respective heirs,
successors, personal representatives and assigns.
BORROWER EXPRESSLY REPRESENTS AND WARRANTS TO HOLDER THAT IT (A) HAS
READ EACH AND EVERY PROVISION OF THIS INSTRUMENT; (B) HAS BEEN GIVEN THE
OPPORTUNITY TO HAVE THIS INSTRUMENT REVIEWED BY COMPETENT LEGAL COUNSEL OF ITS
OWN CHOOSING; AND (C) UNDERSTANDS, AGREES TO AND ACCEPTS THE PROVISIONS HEREOF.
IN WITNESS WHEREOF, the Borrower and the Lender have executed this
Amendment as of the date first above written.
ALLIED CAPITAL LENDING CORPORATION
By:/s/ KATHERINE C. MARIEN
---------------------------------------------
Name: Katherine C. Marien
Title: President
RIGGS BANK N.A.
By: /s/ DAVID H OLSON
---------------------------------------------
Name: David H. Olson
Title: Vice President
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<PAGE> 23
EXHIBIT k.2
PROMISSORY NOTE
$25,000,000.00 February 26, 1996
ALLIED CAPITAL LENDING CORPORATION, a corporation organized under the
laws of Maryland (the "Borrower"), for value received, hereby promises to pay
to the order of THE RIGGS NATIONAL BANK OF WASHINGTON, D.C. (the "Bank") at its
office, 800 17th Street, N.W., Washington, D.C. 20006, in lawful money of the
United States and in immediately available funds the principal sum of
Twenty-Five Million and no/100 Dollars ($25,000,000.00) or, if less, the
aggregate unpaid principal amount of all loans advanced or re-advanced by the
Bank to the Borrower hereunder.
1. Payment of Principal and Interest; Prepayment; Etc.
(a) Principal Payments. The principal amount of each loan
hereunder shall be due and payable on the Termination Date (as defined
in the Credit Agreement, hereinafter defined).
(b) Interest Rate; Interest Payments. Except as otherwise
provided hereinafter, each borrowing under this Note shall bear interest on the
unpaid principal amount of such borrowing from time to time at a floating rate
per annum equal to LIBOR plus two and two tenths of one percent (2.20%) (the
"LIBOR Rate"). Each change in the LIBOR Rate hereunder shall be effective
without notice to the Borrower on the effective date of each change in LIBOR.
Interest shall be payable on the first of each calendar month commencing on the
first such date after each borrowing hereunder and at the Termination Date or
earlier maturity hereof. NOTICE: Under no circumstances will the interest
rate on this Note be more than the maximum rate allowed by applicable law. As
used herein:
"LIBOR" means the rate per annum (rounded upwards, if necessary, to the
next higher 1/100 of 1%) which is the average of interbank offered rates
for U.S. dollar deposits in the London interbank market for a period of
one month, as reported to the Bank on an On-Line Information Service at
approximately 10:00 a.m. (Washington, D.C. time)(the "Index") on each
Business Day. If for any reason on any Business Day the Bank is unable
to access the Index or LIBOR is not reported by the Index, then LIBOR
shall be the London interbank offered rate for U.S. dollars deposits for
a period of one month as reported in The Wall Street Journal on such
Business Day. If LIBOR is not available, the Bank shall use the most
comparable rate at its sole discretion or may use the average of the
rates for the next shortest and next longest maturities. The Borrower
acknowledges and agrees that the determination by the Bank of LIBOR
shall be conclusive and binding on the Borrower in the absence of
manifest error. LIBOR is not necessarily the rate at which the Bank
offers or receives U.S. dollar deposits in the London interbank market
or elsewhere, and is not necessarily the lowest rate charged by the Bank
on loans.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the District of Columbia are generally
authorized to close.
"On-Line Information Service" means a textline or other on-line
information service provided to the Bank by any of Reuters Information
Services, Inc., Knight-Ridder
<PAGE> 24
Financial/Americas, Dow Jones Telerate Inc. or Bloomberg Financial
Markets News Services.
(c) Post-Maturity Interest. After maturity, whether by
acceleration or otherwise, this Note shall bear interest payable on demand at a
variable rate per annum equal to 2% in excess of the LIBOR Rate. To the extent
permitted by law, any payment of interest on this Note not made when due shall
bear interest from the date when due until payment is made payable on demand,
at a rate per annum equal to 2% in excess of the LIBOR Rate.
(d) Prepayment. This Note may be prepaid in whole at any time
or in part from time to time without premium or penalty. This Note shall
immediately be prepaid to the extent that the principal amount hereof at any
time exceeds the Maximum Amount (as defined in the Credit Agreement).
(e) Advances; Evidence of Amounts Due. This Note is held by the
Bank as a master note against which loans may be advanced in lesser amount(s)
than the principal amount. The Borrower shall give the Bank a written or
telexed request or a telephonic request (to be promptly confirmed in writing)
no later than 1:00 p.m. (Washington, D.C. time) on at least one Business Day
before the day of the desired borrowing, specifying: (i) the Business Day of
the desired borrowing, and (ii) the amount of such borrowing. The Bank shall,
promptly upon request, notify the Borrower telephonically of the LIBOR Rate.
The Borrower shall be liable only for so much of the principal amount as shall
be equal to the total of the amounts advanced or re-advanced against this Note
to or for the Borrower by the Bank from time to time, less all payments made by
or for the Borrower and applied by the Bank to principal. The Borrower shall
also be liable for interest on each such advance or re-advance as shown on the
Bank's books and records, provided that the rate of such interest is in
accordance with the applicable rate or rates specified in this Note. The
Borrower acknowledges that a statement signed by an officer of the Bank setting
forth the amount of principal and interest owed hereon as reflected in such
books and records shall be presumptive evidence of the facts stated therein and
shall, absent manifest error, be conclusive and binding. Any statement of
account delivered to the Borrower shall be deemed correct and accepted unless a
written statement of exceptions thereto is delivered to the Bank within thirty
(30) days after mailing of such statement of account. In making any advance or
re-advance hereunder, the Bank shall be entitled to rely upon any notice of
borrowing or other instructions, whether oral, written or by any form of
telecommunication, purporting to be made by a person designated to the Bank by
the Borrower as an Authorized Representative of the Borrower, and deposit of
the proceeds of an advance or re-advance hereunder in a deposit account in the
name of the Borrower or the remittance of any proceeds to persons designated in
such instructions shall conclusively establish that such loan was duly made
hereunder.
(f) Payments Due on Non-Business Days. If any installment of
principal on this Note becomes due and payable on a day which is not a Business
Day, the maturity thereof shall be extended to the next succeeding Business
Day, and interest shall be payable thereon at the rate herein specified during
such extension. If any payment of interest on any loan evidenced by this Note
becomes due and payable on a day which is not a Business Day, such payment
shall be made on the next succeeding Business Day, together with interest
accrued during such extension.
2
<PAGE> 25
2. Use of Loans. The loans made hereunder shall be used for the
purpose of carrying on a business or commercial activity within the meaning of
the District of Columbia Code Sections 28-3301(d)(1)(B).
3. Events of Default, Remedies. The occurrence of any Event of Default
under the Credit Agreement shall constitute an Event of Default hereunder.
Upon the occurrence of an Event of Default, the Bank is entitled to exercise
the remedies set forth in the Credit Agreement.
4. Expenses. The Borrower agrees to pay all reasonable out-of-pocket
charges and expenses incurred by the Bank, including the reasonable fees and
expenses of its legal counsel (including the cost of the Bank's in-house
counsel as determined by the Bank) in connection with the negotiation,
preparation and execution of this Note and any amendments, waivers,
modifications or supplements hereto, and the enforcement of any provision of
this Note or any amendment, waiver, modification or supplement hereto and the
collection of this Note.
5. Additional Costs. In the event that at any time the Bank shall be
required to maintain reserves against "Eurocurrency Liabilities" under
Regulation D of the Board of Governors of the Federal Reserve System or in the
event that there shall occur any change in applicable law or regulation or in
the interpretation thereof by any governmental authority charged with the
administration thereof or the introduction of any law or regulation subjects
the Bank to any tax or governmental charge of any kind whatsoever with respect
to this Note, loans hereunder or U.S. dollar deposits held by the Bank, or
changes the basis of taxation of payments to the Bank of principal of or
interest payable with respect to this Note (except for changes in the rate of
tax based solely on the overall net income of the Bank) or imposes, modifies or
deems applicable any reserve, special deposit, capital ratio or similar
requirement against assets held by or deposits in or for the account of, or
loans by, the Bank or imposes on the Bank, directly or indirectly, any other
conditions affecting this Note or the cost of U.S. dollar deposits obtained by
the Bank in the domestic market or the London interbank market, and the result
of any of the foregoing is to increase the cost to the Bank of making or
maintaining loans hereunder, then the Bank shall notify the Borrower in writing
of the additional amount or amounts necessary to compensate the Bank for such
additional costs. A certificate of an officer of the Bank setting forth the
calculation of such costs shall be conclusive and binding, absent manifest
error. In the event the Borrower is unwilling to pay such additional costs,
during the thirty days following the receipt of such notice, the Bank and the
Borrower shall negotiate in good faith with a view toward modifying this Note
to provide a substitute basis for the interest rate provided above which is
financially a substantial equivalent of such rate. If, within such thirty-day
period, the Bank and the Borrower shall agree in writing upon such substitute
rate, then such substitute rate shall be retroactive to, and effective from,
the date of the aforesaid notice. If, within such thirty-day period, the Bank
and the Borrower shall fail to agree in writing upon such substitute rate, the
Borrower agrees that this Note shall bear interest retroactive to, and
effective from, the date of the aforesaid notice at a rate equal to the rate
reported by The Wall Street Journal in its column "Money Rates" as the prime
rate (the "Prime Rate"). If more than one rate or a range of rates is
reported, the Prime Rate shall be the higher or highest such rate. In the
event The Wall Street Journal fails to report a prime rate, the Prime Rate
shall mean that rate announced from time to time by the Bank as its prime rate
of interest. The Prime Rate, determined in either manner, is not necessarily
the lowest rate charged by the Bank on loans.
3
<PAGE> 26
6. Right of Setoff. Unless this Note be paid at its maturity, or
when otherwise due, as herein provided, the Bank shall have all setoff rights
provided by law.
7. Waivers and Consents. Except as otherwise expressly set forth
herein, the Borrower and all endorsers, guarantors, and sureties of this Note
(collectively the "Obligors") severally (a) waive all applicable exemption
rights, whether under the laws of the District of Columbia or otherwise, and
also waive, presentment for payment, protest, notice of protest, and diligence
in collecting this Note, (b) agree to the release of any party primarily or
secondarily liable hereon and agree that it will not be necessary for any
holder hereof, in order to enforce payment of this Note by any party, to first
institute suit against any other Obligor, and (c) consent to any one or more
extensions or postponements of time of payment of this Note on any terms or any
other indulgences with respect thereto. THE RIGHT OF THE BORROWER AND ANY
OBLIGOR TO TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING IN CONNECTION
HEREWITH, IS HEREBY EXPRESSLY WAIVED.
8. Governing Law, Jurisdiction, Notice, Etc. This Note is deemed to be
a contract under the laws of the District of Columbia (except for the conflict
of law provisions thereof) and shall be governed by, and construed in
accordance with, the laws of such jurisdiction. Wherever possible each
provision of this Note shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this Note shall be
prohibited by or invalid under such law, such provision shall be ineffective to
the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Note. If any
action arising out of this Note is commenced in any District of Columbia or
Federal court located in the District of Columbia, each party signatory hereto
hereby consents to the jurisdiction of any such court in any such action and to
the laying of venue in the District of Columbia. Any process in such action
shall be duly served if mailed by registered mail, postage prepaid, to the
Borrower at its address given herein or its last known business address, or if
otherwise served in acceptance with law. Any other notice or demand hereunder
may be made by hand delivery or certified or registered mail, return receipt
requested, to such address, with the same effect as if delivered in person.
9. Incorporated Provisions. This Note is the Note referred to in a
Line of Credit, Security and Pledge Agreement dated as of February 26, 1996,
between the Borrower and the Bank (the "Credit Agreement"), is subject to
payment and acceleration upon the terms specified therein, and hereby
incorporates by reference all of the provisions thereof.
ALLIED CAPITAL LENDING CORPORATION
By:/s/ KATHERINE C. MARIEN
-----------------------------------
Name: Katherine C. Marien
Title: President
4
<PAGE> 1
EXHIBIT k.3.B
-------------------------------------------
LOAN AND SECURITY AGREEMENT
-----------------------
DATED AS OF SEPTEMBER 27, L995
----------------------
AMONG
ACLC LIMITED PARTNERSHIP
BORROWER
AND
THE LENDERS
AND
LEHMAN COMMERCIAL PAPER INC.
INDIVIDUALLY AND AS AGENT FOR THE LENDERS
-------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Section 1. Definitions and Accounting Matters . . . . . . . . . . . . . . . . . . . . . . 1
1.01 Certain Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Other Definitional Provisions; Financial Calculations . . . . . . . . . . . . 19
Section 2. Commitments, Loans, Note and Prepayments . . . . . . . . . . . . . . . . . . . 19
2.01 Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.02 Procedure for Borrowing. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.03 Maximum Number of LIBOR Tranches . . . . . . . . . . . . . . . . . . . . . . 21
2.04 Changes of Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.05 Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.06 Note. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.07 Continuation of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.08 Optional Prepayments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.09 Mandatory Prepayments; Pledge of Additional Collateral;
Substitutions of Collateral;
and Releases of Security Interest. . . . . . . . . . . . . . . . 23
2.10 Extension of Commitment Termination Date. . . . . . . . . . . . . . . . . . . 27
2.11 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.12 Compliance With Commitment . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.13 Requirements of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.15 Inability to Determine Interest Rate . . . . . . . . . . . . . . . . . . . . 32
Section 3. Payments of Principal and Interest;
Computations, etc. . . . . . . . . . . . . . . . . . . . . . . . . 32
3.01 Repayment of Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.02 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.03 Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
3.04 Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
3.05 Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 4. Collateral Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.01 Collateral; Security Interest . . . . . . . . . . . . . . . . . . . . . . . . 35
4.02 Further Documentation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.03 Right of Inspection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.04 Changes in Locations, Name, etc. . . . . . . . . . . . . . . . . . . . . . . . 36
4.05 Agent's Appointment as Attorney-in-Fact. . . . . . . . . . . . . . . . . . . . 36
4.06 Performance by Agent of the Borrower's
Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
4.07 Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
4.08 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.09 Limitation on Duties Regarding
Presentation of Collateral. . . . . . . . . . . . . . . . . . . . . . 39
4.10 Powers Coupled with an Interest. . . . . . . . . . . . . . . . . . . . . . . . 40
4.11 Release of Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
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<TABLE>
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Section 5. Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.01 Initial Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.02 Initial and Subsequent Loans. . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 6. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . 44
6.01 Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.02 Financial Condition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.03 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.04 No Breach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.05 Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.06 Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.07 Title to Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.08 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.09 Compliance with Laws and other Agreements. . . . . . . . . . . . . . . . . . . 46
6.10 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.11 True and Complete Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . 46
6.12 SBA Approved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.13 Collateral Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.14 Chief Executive Office. . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.15 Location of Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . 47
6.16 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 7. Covenants of the Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.01 Financial Statements, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.02 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.03 Existence, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.04 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
7.05 Prohibition of Fundamental Changes. . . . . . . . . . . . . . . . . . . . . . 52
7.06 Borrower Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.07 Servicer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.08 Lines of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.09 Transactions with Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . 52
7.10 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.11 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.12 Servicing Agreement; Investment Adviser Undertaking . . . . . . . . . . . . . 53
7.13 Maintenance of Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.14 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.15 Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.16 Notice of Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.17 SBA Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.18 No Secondary Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.19 Borrower Certification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.20 Notice of Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.21 Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.22 Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.23 Reports to the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.24 Property in Maryland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
</TABLE>
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<TABLE>
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Section 8. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.01 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 9. The Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
9.01 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
9.02 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.03 Exculpatory Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.04 Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.05 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.06 Non-Reliance on Agent and Other Lenders . . . . . . . . . . . . . . . . . . . 59
9.07 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
9.08 Agent in Its Individual Capacity . . . . . . . . . . . . . . . . . . . . . . . 60
9.09 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 10. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
10.01 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
10.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
10.03 Expenses, Taxes; Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . 61
10.04 Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
10.05 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . 64
10.06 Successors and Assigns; Participations;
Purchasing Lenders . . . . . . . . . . . . . . . . . . . . . . . . . 65
10.07 Adjustments; Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
10.08 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
10.09 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
10.10 Submission To Jurisdiction Waivers . . . . . . . . . . . . . . . . . . . . . 69
10.11 Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
10.12 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
10.13 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
10.14 Right of First Refusal . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
10.15 Joint and Several Liability . . . . . . . . . . . . . . . . . . . . . . . . 71
</TABLE>
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<TABLE>
<CAPTION>
Schedules
- ---------
<S> <C>
Schedule 1 Duties of the Servicer with Respect to the SBA Loans
Schedule 2 Representations and Warranties of the Borrower
with respect to the SBA Loans
Schedule 3 Compliance with Laws and Other Agreements
Schedule 4 Loan Closing Conditions
Schedule 5 Loan Eligibility Requirements
Schedule 6 Filings, Registrations and Recordings
Schedule 7 Consents, Licenses, Approvals
<CAPTION>
Exhibits
- --------
<S> <C>
Exhibit A Form of Promissory Note
Exhibit B Form of Borrowing Base Certificate
Exhibit C-1 Form of Borrowing Request
Exhibit C-2 Form of Closing Date Certificate
Exhibit D Form of Collateral Maintenance Certificate
Exhibit E Form of Collateral Value Assessment
Exhibit F Form of Commitment Transfer Supplement
Exhibit G-1 Form of Notice Requesting Short Interest Period
Exhibit G-2 Confirmation of Short Interest Period
Exhibit H Form of Preliminary Collateral Value Assessment
Exhibit I [RESERVED]
Exhibit J Form of Notice of Voluntary Reduction of Commitment Amount
Exhibit K Form of Notice of Voluntary Prepayment
Exhibit L-1 Form of Request for Extension of Commitment Termination Date
Exhibit L-2 Form of Consent to Extension of Commitment Termination Date
</TABLE>
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<PAGE> 6
LOAN AND SECURITY AGREEMENT, dated as of September 27, 1995,
among (i) ACLC LIMITED PARTNERSHIP, a Maryland limited partnership (the
"Borrower"), (ii) the lenders parties to this Agreement (collectively, the
"Lenders"; individually, a "Lender"), and (iii) LEHMAN COMMERCIAL PAPER INC., a
New York corporation ("Lehman"), individually and as agent for the Lenders
hereunder (in such capacity, the "Agent").
RECITALS
WHEREAS, the Borrower has requested that the Lenders from time
to time make loans to the Borrower in an aggregate principal amount not
exceeding $20,000,000 at any one time outstanding to finance certain Qualifying
SBA Loans and to provide the Borrower with working capital, and the Lenders are
prepared to make such loans upon the terms and subject to the conditions
hereof.
NOW THEREFORE, the parties hereto agree as follows:
Section 1. Definitions and Accounting Matters.
1.01 Certain Defined Terms. As used herein, the following
terms shall have the following meanings (all terms defined in this Section 1.01
or in other provisions of this Agreement in the singular to have the same
meanings when used in the plural and vice versa unless otherwise defined):
"Accepted Servicing Practices" shall mean, with respect to any
SBA Loans, the requirements and loan servicing practices set forth on Schedule
1 hereto.
"Additional Commitment Lender" shall have the meaning ascribed
thereto in Section 2.10(b).
"Affiliate" shall mean any Person that directly or indirectly
controls, or is under common control with, or is controlled by, the Borrower.
As used in this definition, "control" (including, with its correlative
meanings, "controlled by" and "under common control with") shall mean (a) in
the case of a corporation, ownership, directly or through ownership of other
entities, of at least ten percent (10%) of all the voting stock (exclusive of
stock which is voting only as required by applicable law or in the event of
nonpayment of dividends and pays dividends only on a nonparticipating basis at
a fixed or floating rate), and (b) in the case of any other entity, ownership,
directly or through ownership of other entities, of at least ten percent (10%)
of all of the beneficial equity interests therein (calculated by a method that
excludes from equity interests, ownership interests that are nonvoting (except
as required by
<PAGE> 7
applicable law or in the event of nonpayment of dividends or distributions) and
pay dividends or distributions only on a non-participating basis at a fixed or
floating rate) or, in any case, (c) the power directly or indirectly, to direct
or control, or cause the direction of, the management policies of another
Person, whether through the ownership of voting securities, general partnership
interests, common directors, trustees, officers by contract or otherwise.
"Agreement" shall mean this Loan and Security Agreement, as
the same shall be modified and supplemented and in effect from time to time.
"Amortization Trigger" shall mean the time at which the
aggregate outstanding principal balance of the Loans outstanding equals or
exceeds the difference equal to the Borrowing Base minus $1,000,000.
"Applicable Collateral Funding Percentage" shall mean:
(a) for each Qualifying SBA Loan that is an SBA 504
Program Real Property Loan:
(i) which is a first lien on the related Pledged
Property and unguaranteed by the SBA, 85% of the Collateral
Value;
(ii) which is a second lien on the related Pledged
Property and is in compliance with the terms and provisions of the
related SBA Authorization and Debenture Guaranty, 90% of the unpaid
principal balance of such Qualifying SBA Loan for the first six months
from the date such SBA Loan is initially pledged to the Agent for
benefit of the Lenders and 50% of the Collateral Value thereafter;
provided such SBA Loan shall remain and continue to be in compliance
with the terms and provisions of the related SBA Authorization and
Debenture Guaranty and otherwise continues to qualify as a Qualifying
SBA Loan, and nothing has occurred with respect to such SBA Loan which
would preclude the Borrower from receiving proceeds in respect thereof
from the sale of 504 Program Debentures by a Certified Development
Company.
(b) for each Qualifying SBA Loan that is an SBA Companion
Program Loan which is a secured by first lien on the related Pledged
Property and unguaranteed by the SBA, 85% of the Collateral Value;
provided that, during the Interim Funding Period the Applicable
Collateral Funding Percentage shall be as follows:
(i) for each Qualifying SBA Loan in compliance
with the terms and provisions of the related SBA Authorization
and Debenture Guaranty which is secured by a second lien on
the related Pledged Property (and is a SBA 504 Program Real
Property Loan), 90% of the unpaid principal balance of such
Qualifying SBA Loan for the first six months from the date
such SBA Loan is
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<PAGE> 8
initially pledged hereunder, and 40% of the preliminary
estimated Collateral Value (as described on the Preliminary
Collateral Value Assessment) thereafter;
(ii) for each Qualifying SBA Loan that is an SBA
504 Program Real Property Loan which is secured by a first
lien on the related Pledged Property and is unguaranteed by
the SBA, 50% of the Agent's preliminary estimated Collateral
Value as described on the Preliminary Collateral Value
Assessment; and
(iii) for each Qualifying SBA Loan that is an SBA
Companion Loan, that is a first lien on the related Pledged
Property and is unguaranteed by the SBA, 50% of the Agent's
preliminary estimated Collateral Value as described on the
Preliminary Collateral Value Assessment.
(c) Notwithstanding the foregoing, the Applicable
Collateral Funding Percentage of any Qualifying SBA Loan which fails
to meet all applicable Loan Eligibility Requirements but is
specifically approved by the Agent in writing shall be as determined
by the Agent in its sole discretion.
"Appraisal" shall mean an appraisal prepared materially in accordance with the
requirements of FIRREA, prepared by an independent third party appraiser
holding an MAI designation, who is state licensed or state certified if
required under the laws of the state where the applicable Pledged Property is
located, who meets the requirements of FIRREA and who has at least ten (10)
years real estate experience appraising properties of a similar nature and type
as the applicable Pledged Property and who is otherwise satisfactory to Lender.
"Appraised Value" shall mean with respect to all Pledged
Property that is the primary commercial real estate Collateral securing an SBA
Loan (excluding land value in the case of a leasehold mortgage), the least of
(i) the reconciled value determined in an Appraisal commissioned by the
Borrower and acceptable to the Agent, (ii) in the case of an SBA Loan
originated in connection with the acquisition of some or all of the Pledged
Property, the purchase price of such Pledged Property, or (iii) in the case of
an SBA Loan originated in connection with the construction of some or all of
the Pledged Property, the construction cost of such Pledged Property, except as
otherwise approved by the Agent and the Required Lenders. With respect to the
other Collateral (excluding land in the case of a leasehold mortgage),
"Appraised Value" shall mean the liquidation value of such Collateral
determined in an Appraisal or by the Borrower's internal valuation acceptable
to the Agent.
"Bankruptcy Code" shall mean the U.S. Bankruptcy Code of 1978,
as amended from time to time.
"Basic Documents" shall mean, collectively, this Agreement,
any Note, the Custodial Agreement, the Servicing Agreement, the Letter
Agreement, the Investment Adviser Undertaking, the Guarantee and the
Sideletter.
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<PAGE> 9
"Borrower" shall have meaning assigned thereto in the heading
hereto.
"Borrowing Base" shall mean individually with respect to a
Qualifying SBA Loan or, in the aggregate with respect to all Qualifying SBA
Loans, the sum of the Collateral Values multiplied by the Applicable Collateral
Funding Percentages of all Qualifying SBA Loans as to which the Custodian has
issued a Collateral Receipt or Final Certification; provided that:
(a) in no event shall that portion of the Borrowing Base
attributable to Qualifying SBA Loans that have been released by the
Custodian pursuant to a Request for Release and Receipt for servicing
exceed two (to the extent that such Qualifying SBA Loans exceed two,
any Qualifying SBA Loans so released in excess of two shall be removed
from the Borrowing Base in the order in which they were released to
the Servicer;
(b) in no event shall the Borrowing Base include an SBA
Loan in respect of which the SBA Note and/or Security Agreement has
been extinguished under relevant state law in connection with a
judgment of foreclosure or foreclosure sale or otherwise;
(c) in no event shall the Borrowing Base include an SBA
Loan in respect of which the representations and warranties set forth
on Schedule 2 hereto are not true and correct, and any Qualifying SBA
Loan initially included in the Borrowing Base as to which the
representations and warranties set forth in Schedule 2 become false or
incorrect shall thereupon be excluded from the Borrowing Base;
(d) in no event shall the Borrowing Base include any SBA
Loan that fails to meet the applicable Loan Eligibility Requirements
or the Loan Closing Conditions, unless otherwise permitted by the
Agent and the Required Lenders;
(e) in no event shall the Borrowing Base include any SBA
Loan for which a payment due is in excess of 59 days delinquent
thereunder;
(f) in no event shall the Borrowing Base include any SBA
Loan with respect for which the SBA challenges, repudiates or
otherwise calls into question its obligations under the related SBA
Authorization and Debenture Guaranty, and
(g) to the extent that an uninsured or under insured loss
occurs with respect to any Pledged Property the Agent may, in its sole
discretion, remove the related SBA Loan from the Borrowing Base.
"Borrowing Base Certificate" shall mean the statement
delivered by the Agent from time to time, but no less frequently than
monthly, to the Borrower and the Lenders specifying the Borrowing Base
as of the delivery thereof, substantially in the form of Exhibit B
hereto.
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<PAGE> 10
"Business Day" shall mean (i) for all purposes other than as
covered by clause (ii) below, any day excluding Saturday, Sunday and
any day which shall be in New York City a legal holiday or a day on
which any Lender, the Agent, or banking institutions are authorized or
required by law or other government actions to close, and (ii) with
respect to all notices and determinations in connection with, and
payments of principal and interest on, Loans that bear interest by
reference in the LIBOR Rate, any day which is a Business Day described
in clause (i) and which is also a day for trading by and between banks
for U.S. dollar deposits in the London interbank market.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act, or any successor statute thereto.
"Certified Development Company" shall mean a company certified
by the SBA as a "503 company" under 13 C.F.R. Section 108.503 et. seq., as
amended from time to time.
"Closing Date" shall mean September 27, 1995.
"Collateral" shall have the meaning assigned thereto in
Section 4.01(b).
"Collateral Insurance Requirements" shall have the meaning
assigned thereto in Section 7.04(b).
"Collateral Maintenance Percentage" shall mean:
(a) for each Qualifying SBA Loan that is an SBA 504
Program Real Property Loan:
(i) that is secured by a first lien on the
related Pledged Property and unguaranteed by the SBA, 89% of
the Collateral Value;
(ii) that is secured by a second lien on the
related Pledged Property and is in compliance with the terms
and provisions of the related SBA Authorization and Debenture
Guaranty, 90% of the unpaid principal balance of such
Qualifying SBA Loan for the first six months from the date
such SBA Loan is initially pledged to the Agent for the
benefit of the Lender and 52% of the Collateral Value
thereafter, provided such SBA Loan shall remain and continue
to be in compliance with the terms and provisions of the
related SBA Authorization and Debenture Guaranty and otherwise
continues to qualify as a Qualifying SBA Loan, and nothing has
occurred with respect to such SBA Loan which would preclude
the Borrower from receiving proceeds in respect thereof from
the sale of 504 Program Debentures by a Certified Development
Company.
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<PAGE> 11
(b) for each Qualifying SBA Loan that is an SBA Companion
Program Loan that is secured by a first lien on the related Pledged
Property and unguaranteed by the SBA, 89% of the Collateral Value;
provided that, during the Interim Funding Period the Collateral
Maintenance Percentage with respect to each related Qualifying SBA
Loan, shall be as follows:
(i) for each Qualifying SBA Loan that is an SBA
504 Program Real Property Loan and is (A) in compliance with
the terms and provisions of the related SBA Authorization and
Debenture Guaranty and (B) secured by a second lien on the
related Pledged Property, 90% of the unpaid principal balance
of such Qualifying SBA Loan, or if the Interim Funding Period
shall extend beyond the first six months from the date such
SBA Loan is initially pledged to the Agent for the benefit of
the Lenders 42% of the Collateral Value thereafter;
(ii) for each Qualifying SBA Loan that is an SBA
504 Program Real Property Loan, and is secured by a first lien
on the related Pledged Property and unguaranteed by the SBA,
54% of the Agent's preliminary estimated Collateral Value as
described on the Preliminary Collateral Value Assessment; and
(iii) for each Qualifying SBA Loan that is an SBA
Companion Loan, which is secured by a first lien on the
related Pledged Property and unguaranteed by the SBA, 54% of
the Agent's preliminary estimated Collateral Value as
described on the Preliminary Collateral Value Assessment.
(c) Notwithstanding the foregoing, the Collateral
Maintenence Percentage of any Qualifying SBA Loan which fails to meet
all applicable Loan Eligibility Requirements but is specifically
approved by the Agent in writing shall be as determined by the Agent
in its sole discretion.
"Collateral Maintenance Amount" shall mean the sum of the
Collateral Values multiplied by the Collateral Maintenance Percentages of all
Qualifying SBA Loans as to which the Custodian has issued a Collateral Receipt
or Final Certification and which Qualifying SBA Loans are not otherwise
excluded under the definition of the Borrowing Base.
"Collateral Maintenance Certificate" shall mean the statement
delivered by the Agent from time to time, but no less frequently than monthly,
to the Borrower and the Lenders specifying the Collateral Maintenance Amount
and the excess to be repaid by the Borrower pursuant to Section 2.02 (f),
substantially in the form of Exhibit D hereto.
"Collateral Value Assessment" shall mean a determination of
the Collateral Value of one or more Qualifying SBA Loans delivered by the Agent
to the Lender(s) and the Borrower after review of such Qualifying SBA Loan
files and Collateral Submission Summary as discussed in Section 2.02(f),
substantially in the form of Exhibit E hereto.
"Collateral Pledge Certificate" shall have the meaning
assigned thereto in the Custodial Agreement.
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<PAGE> 12
"Collateral Receipt" shall have the meaning assigned thereto
in the Custodial Agreement.
"Collateral Submission Summary" shall have the meaning
assigned thereto in the Custodial Agreement.
"Collateral Value" shall mean: (a) with respect to each Qualifying SBA Loan
pledged to the Agent for the benefit of the Lenders, the lesser of the
following:
(i) the unpaid principal balance of such
Qualifying SBA Loan; and
(ii) the Market Value of such Qualifying SBA Loan
(determined as provided in the definition of Applicable
Collateral Funding Percentage), as determined by the Agent in
good faith and notified to the Borrower on any Business Day;
and
(b) with respect to any cash or cash equivalents
acceptable to the Agent and pledged as additional Collateral pursuant
to Section 2.02(f), the amount thereof.
"Commitment" shall mean, with respect to each Lender, its
obligation to make Loans hereunder, subject to the terms and conditions hereof,
in an amount equal to the Commitment Percentage multiplied by the Facility
Amount, as such amount may be reduced from time to time pursuant to this
Agreement; and "Commitments" shall mean the obligations of all the Lenders,
collectively, to make Loans hereunder, subject to the terms and conditions
hereof, in an aggregate amount not to exceed the Facility Amount, at any time
outstanding, as such amount may be reduced pursuant to this Agreement.
"Commitment Percentage" shall mean, as to any Lender, the
percentage of the Facility Amount for which such Lender is obligated to make
Loans available to the Borrower hereunder, and set forth opposite such Lender's
name on its signature page hereto under the heading "Commitment Percentage".
"Commitment Termination Date" shall mean the date which is one
year from the date of this Agreement (or if such day is not a Business Day, the
immediately preceding Business Day) or such other date on which the Commitment
shall terminate in accordance with the provisions of Section 2.10 hereof or by
operation of law.
"Commitment Transfer Supplement" shall mean a Commitment
Transfer Supplement substantially in the form of Exhibit F hereto.
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<PAGE> 13
"Condemnation Proceeds" shall mean all awards or settlements
in respect of a Pledged Property whether permanent or temporary, partial or
entire, by exercise of the power of eminent domain or condemnation, to the
extent not required to be released to a Pledgor in accordance with the terms of
the related SBA Loan Documents.
"Consent Date" shall have the meaning assigned thereto in
Section 2.10(a) hereof.
"Continue", "Continuation" and "Continued" shall refer to the
continuation of a Loan bearing interest based upon the LIBOR Rate from one
Interest Period to the next Interest Period.
"Credit Change Memoranda" shall have the meaning set forth in Section 7.01(a).
"Custodial Agreement" shall mean the Custodial Agreement,
dated as of the date hereof, among the Borrower, the Servicer, the Custodian,
and the Agent, as the same may be amended, modified, or supplemented from time
to time.
"Custodian" shall mean Riggs National Bank of Washington, D.C.
in its capacity as custodian under the Custodial Agreement, or its successors
and permitted assigns.
"Custodian's SBA Loan File" shall have the meaning assigned
thereto in the Custodial Agreement.
"Determination Date" shall mean the 22nd day of each calendar
month, or if such day is not a Business Day, the next succeeding Business Day.
"Default" shall mean an Event of Default or an event that with
notice or lapse of time or both would become an Event of Default.
"Distribution" shall mean any dividends (other than dividend
payable solely in common stock), distributions, return of capital to any
stockholders, general or limited partners or members, other payments,
distributions or delivery of property or cash to stockholders, general or
limited partners or members, or any redemption, retirement, purchase or other
acquisition, directly or indirectly, of any shares of any class of capital
stock now or hereafter outstanding (or any options or warrants issued with
respect to capital stock) general or limited partnership interest, or the
setting aside of any funds for the foregoing.
"Dollars" and "$" shall mean lawful money of the United States
of America.
"Due Period" shall mean, with respect to each Interest Payment
Date, the period commencing on the day following the Determination Date in the
second month prior to
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<PAGE> 14
such Interest Payment Date and ending on the Determination Date in the month
prior to the month in which the related Interest Payment Date.
"Environmental Laws": any applicable foreign, Federal, state,
local or municipal laws, rules, orders, regulations, statut es, ordinances,
codes, decrees, legally binding requirements of any Governmental Authority or
other Requirements of Law (including common law) regulating, relating to or
imposing liability or standards of conduct concerning protection of human
health or the environment, as now or may at any time hereafter be in effect.
"Escrow Payments" shall mean, with respect to any SBA Loan,
the amounts, as applicable, constituting ground rents, taxes, assessments,
water rates, sewer rents, municipal charges, mortgage insurance premiums, fire
and hazard insurance premiums, condominium charges, and any other payments
required to be escrowed by the Pledgor with the pledgee pursuant to the
Security Agreement or any other document.
"Event of Default" shall have the meaning assigned to such
term in Section 8 hereof.
"Existing Commitment Termination Date" shall have the meaning
assigned to such term in Section 2.10(a) hereof.
"Facility Amount" shall mean the maximum aggregate amount of
all Loans available to the Borrower, subject to the terms of the Agreement,
which shall be $20,000,000.
"Facility Fee" shall mean the fee required to be paid by the
Borrower to the Agent for the ratable benefit of the Lenders pursuant to
Section 2.05 of this Agreement.
"Facility Fee Due Date" shall mean the date which is five (5)
Business Days after the date Lender has furnished the Borrower with an invoice
(which invoice shall be delivered quarterly) showing the amount of the Facility
Fee and a detailed calculation of the same.
"FHLMC" shall mean the Federal Home Loan Mortgage Corporation.
"Final Certification" shall have the meaning assigned thereto
in the Custodial Agreement.
"FIRREA" means the Financial Institutions Reform, Recovery and
Enforcement Act of 1989, as amended from time to time.
"504 Program Debentures" shall mean debentures issued by a
Certified Development Company which are guaranteed by the SBA, pursuant and
subject to Section 503 of the Small Business Investment Act, as amended,
codified at 15 U.S.C. Section 697.
"FNMA" shall mean the Federal National Mortgage Association.
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<PAGE> 15
"Funding Date" shall mean any date on which a Loan is made
hereunder.
"GAAP" shall mean generally accepted accounting principles as
in effect from time to time in the United States during the term of this
Agreement, and consistent with those utilized in the preparation of the
Borrower's financial statements referred to in Section 7.01(c).
"Governmental Authority" shall mean any nation or government,
any state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government having
jurisdiction over any party to this Agreement.
"Guarantee" shall mean that certain Guarantee, dated as of the date hereof,
made by the Guarantor in favor of the Agent, as amended, supplemented or
otherwise modified from time to time.
"Guarantor" shall mean Allied Capital Lending Corporation, a Maryland
corporation, its successors and permitted assigns.
"Indebtedness" shall mean, for any Person: (a) obligations
created, issued or incurred by such Person for borrowed money (whether by loan,
the issuance and sale of debt securities or the sale of Property to another
Person subject to an understanding or agreement, contingent or otherwise, to
repurchase such Property from such Person); (b) obligations of such Person to
pay the deferred purchase or acquisition price of Property or services, other
than trade accounts payable (other than for borrowed money) arising, and
accrued expenses incurred, in the ordinary course of business so long as such
trade accounts payable are payable within 90 days of the date the respective
goods are delivered or the respective services are rendered; (c) indebtedness
of others secured by a Lien on the Property of such Person, whether or not the
respective indebtedness so secured has been assumed by such Person; (d)
obligations of such Person in respect of letters of credit or similar
instruments issued or accepted by banks and other financial institutions for
account of such Person; (e) obligations of such Person under leases which, in
accordance with GAAP, would be capitalized on the balance sheet of such Person;
and (f) indebtedness of others guaranteed by such Person.
"Indemnified Party" shall have the meaning set forth in
Section 10.03(a) hereof.
"Interest Payment Date" as to any Loan, shall mean the last
day of the Interest Period in respect thereof.
"Interest Period" shall mean with respect to any Loan:
(a) initially for any Loan, the borrowing date with
respect to which is not the first Business Day of a month, the period
commencing on the borrowing date with respect to such Loan and ending on the
first Business Day of the next succeeding month; and
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<PAGE> 16
(b) thereafter, each period commencing on the first
Business Day of a month and ending on the first Business Day of the next
succeeding month;
provided that, the foregoing provisions relating to Interest Periods are
subject to the provision that any Interest Period that would otherwise extend
beyond the Commitment Termination Date shall end on the Commitment Termination
Date or such date of final payment, as the case may be.
Notwithstanding the foregoing, in the event that the last day
of an Interest Period occurs within the thirty (30) day period ending on a
voluntary or mandatory prepayment date or the Commitment Termination Date, the
Borrower may upon three (3) Business Days notice to the Agent, which notice
shall be in the form annexed hereto as Exhibit G-1, request an Interest Period
for all or a portion of such expiring LIBOR Tranche that commences on the date
that the next preceding Interest Period expires and that expires on the
voluntary or mandatory prepayment dates or the Commitment Termination Date (the
"Short Interest Period"). The Agent shall notify the Lenders no later than one
(1) Business Day after receipt of such notice of the Short Interest Period and
of the requested LIBOR Tranche amount. If all the Lenders notify the Agent no
later than one (1) Business Day thereafter that they are willing to make or
Continue the requested LIBOR Tranche amount for the proposed Short Interest
Period at the Short Interest Period Rate applicable thereto, the Agent shall
notify the Borrower, either orally or in writing, prior to 10:00 a.m. New York
City time, on the date on which the Short Interest Period is to begin, of the
Short Interest Period Rate, the LIBOR Tranche amount, and the length of the
Short Interest Period agreed to by the Lenders. The Borrower shall orally
confirm its acceptance of such Short Interest Period Rate at or prior to 11:00
a.m. New York City time and shall deliver written confirmation of such
acceptance to Lender at or prior to 2:00 p.m. New York City time on such date,
which confirmation shall be in the form of Exhibit G-2. If such confirmation
differs in any respect with the commencement date, the LIBOR Tranche amount,
length of the Short Interest Period or the Short Interest Period Rate, the
Lenders shall be under no obligation to create such LIBOR Tranche, and such
LIBOR Tranche shall be continued in accordance with Section 2.07.
If upon the expiration of any Interest Period, the Borrower
has failed to elect a Short Interest Period as provided herein, the Borrower
shall be deemed to have elected to Continue such Loans for an Interest Period
of one month (or, if at such time Continuations of Loans bearing interest upon
the LIBOR Rate are not available pursuant to Section 2.15, the Borrower shall
be deemed to have elected to convert such Loan into a Loan bearing interest at
the Prime Rate plus 50 basis points) effective as of the expiration date of
such current Interest Period.
"Interim Funding Period" shall mean, with respect to each
Qualifying SBA Loan, the period of time commencing upon the applicable Funding
Date for such Qualifying
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<PAGE> 17
SBA Loan and terminating upon the delivery by the Agent to the Borrower of an
initial Collateral Value Assessment with respect to such Qualifying SBA Loan.
"Investment Adviser" shall mean Allied Capital Advisers, Inc.,
or its successor in interest or assigns.
"Investment Adviser Agreement" shall mean that certain
Investment Adviser Agreement, dated as of November 12, 1993, between the
Borrower and the Investment Adviser, as amended, supplemented or otherwise
modified from time to time in accordance with the terms hereof and thereof.
"Investment Adviser Undertaking" shall mean that certain
Investment Adviser Undertaking, dated as of September 27, 1995, between the
Borrower and the Investment Adviser, as amended, supplemented or otherwise
modified from time to time.
"Lender" shall have the meaning assigned thereto in the
heading hereto and shall include the Additional Commitment Lenders pursuant to
Section 2.10(b).
"Lending Office" shall mean, for each Lender, the "Lending
Office" of such Lender (or of an affiliate of such Lender) designated on the
signature pages hereof or such other office of such Lender (or of an affiliate
of such Lender) as such Lender may from time to time specify to the Agent and
the Borrower as the office by which its Loans are to be made and maintained.
"Letter Agreement" shall mean that certain letter agreement,
dated as of September 27, 1995, between the Agent and the Borrower.
"LIBOR Base Rate" shall mean, with respect to each day during
each Interest Period pertaining to a Loan, a rate per annum equal to the rate
appearing at page 3750 of the Telerate Screen as one-month LIBOR at or about
11:00 a.m., New York City time, on the first day of such Interest Period (and
if such rate shall not be so quoted, the rate per annum at which deposits in
Dollars are offered by a prime bank in the London interbank market designated
by the Agent) at approximately 11:00 a.m. (London, England time) on the first
day of such Interest Period for the number of days comprised therein and in an
amount comparable to the amount of the Loan to be outstanding during such
Interest Period. The determination of the LIBOR Base Rate by the Agent shall
be conclusive absent manifest error.
"LIBOR Rate" shall mean with respect to each day during each Interest Period
pertaining to a Loan, a rate per annum determined for such Interest Period in
accordance with the following formula (rounded upwards to the nearest 1/16th of
one percent):
LIBOR Base Rate
-----------------------------------
1.00 - LIBOR Reserve Requirements
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<PAGE> 18
"LIBOR Reserve Requirements" shall mean, for any day, the
aggregate (without duplication) of the rates (expressed as a decimal fraction)
of reserve requirements in effect on such day (including, without limitation,
basic, supplemental, marginal and emergency reserves under any regulations of
the Board of Governors of the Federal Reserve System or other Governmental
Authority having jurisdiction with respect thereto), dealing with reserve
requirements prescribed for eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of such Board) maintained by a
member bank of such System.
"LIBOR Tranche" shall be the collective reference to Loans
the Interest Periods with respect to which begin on the same date and end on
the same later date (whether or not such Loans shall originally have been made
on the same day) and for which the rate of interest is calculated by reference
to the LIBOR Rate or the Short Interest Period Rate in accordance with Section
3.02(a) hereof.
"Lien" shall mean, with respect to any Property, any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind in respect
of such Property. For purposes of this Agreement and the other Basic
Documents, a Person shall be deemed to own subject to a Lien any Property that
it has acquired or holds subject to the interest of a vendor or lessor under
any conditional sale agreement, capital lease or other title retention
agreement (other than an operating lease) relating to such Property.
"Liquidation Proceeds" shall mean cash received in connection
with the liquidation of any SBA Loan constituting Collateral, including,
without limitation, payoff proceeds, insurance proceeds or Condemnation
Proceeds.
"Loan" shall have the meaning assigned thereto in Section
2.01.
"Loan Closing Conditions" shall mean the documentation
requirements set forth in Schedule 4 hereto for satisfaction with respect to
the related SBA Loan.
"Loan Eligibility Requirements" shall mean the requirements
set forth in Schedule 5 hereto for satisfaction with respect to the related SBA
Loan under the applicable program.
"Loan Percentage" shall mean, as to any Lender on any Business
Day, the decimal equivalent of a fraction, the numerator of which is the
aggregate outstanding amount of Loans made by such Lender, and the denominator
of which is an amount equal to the aggregate of the outstanding amounts of
Loans made by all the Lenders.
"Market Value" shall mean, with respect to any SBA Loan, the
price at which such SBA Loan could readily be sold as determi ned by the Agent
in its sole reasonable discretion, taking into account (to the extent available
in accordance with Section 2.02(f)) such factors, including but not limited to,
as the results of the Agent's due diligence review, the ongoing availability of
current due diligence information, the seasoning of the SBA Loan, and
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current interest rates and spreads (assuming, a debt service coverage ratio
after the impact of an assumed increase in the Loan interest rate equal to 200
basis points over the SBA Loan Interest Rate.) Market Value shall be assessed
by the Agent and indicated on the Collateral Value Assessment or Preliminary
Collateral Value Assessment, as applicable, at least monthly and may be
assessed by the Agent as frequently as on a daily basis to account for interest
rate fluctuations.
"Material Adverse Effect" shall mean a material adverse effect
on (a) the Property, business, operations or financial condition of the
Borrower or the Investment Adviser, (b) the ability of the Borrower or the
Investment Adviser to perform its obligations under any of the Basic Documents
to which it is a party, (c) the validity or enforceability of any of the Basic
Documents, (d) the rights and remedies of a Lender or the Agent under any of
the Basic Documents, (e) the ability of the Borrower to make timely payment of
the principal of or interest on the Loans or other amounts payable in
connection therewith or (f) any of the Collateral.
"Net Investment Income" with respect to any Person for any
period, the sum of the consolidated Net Investment Income before Net Unrealized
Appreciation (Depreciation) in Investments of such Person and its Subsidiaries
as reported in such Person's financial statements determined in accordance with
GAAP, consistently applied, for such period plus, to the extent deducted in
computing such consolidated net investment income, the sum of (i) income tax
expense, (ii) interest expense and (iii) depreciation and amortization expense;
provided however, that Net Investment Income shall exclude operating income and
expenses resulting from (A) cumulative changes in accounting practices, (B)
extraordinary items, (C) net income of an entity acquired in a pooling interest
transaction for the period prior to the acquisition, (D) net income of a
Subsidiary that is unavailable to the Borrower, and (E) net income from
corporations, partnerships, associations, joint ventures or other entities in
which the Borrower or a Subsidiary has a minority interest and in which the
Borrower does not have control as utilized in the definition of Affiliate,
except to the extent actually received.
"Net Outstandings" shall mean the outstanding principal
amounts of the Loans after giving effect to any then pending voluntary
prepayment request.
"Non-Extending Lender" shall have the meaning assigned thereto
in Section 2.10(a).
"Note" shall mean any one of the promissory notes provided for
by Section 2.06 and all promissory notes delivered in substitution or exchange
therefor, as the same shall be modified and supplemented and in effect from
time to time.
"Participants" shall have the meaning set forth in Section
10.06(b).
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"Person" shall mean any individual, corporation, company,
voluntary association, partnership, limited liability company, joint venture,
trust, unincorporated association or government (or any agency, instrumentality
or political subdivision thereof).
"Pledged Property" shall mean (i) real property (including all
improvements, buildings, fixtures, building equipment and personal property
thereon and all additions, alterations and replacements made at any time with
respect to the foregoing and/or (ii) any machinery or equipment (and all
additions, alterations and replacements made at any time with respect to the
foregoing) and (iii) all other collateral, in any case, securing repayment of
the debt evidenced by an SBA Note.
"Pledgor" shall mean any obligor on an SBA Note, whether the
original obligor, or whether by assumption or otherwise.
"Preliminary Collateral Value Assessment" shall mean a preliminary
estimate of Collateral Value of one or more Qualifying SBA Loans substantially
in the form of Exhibit H hereto delivered by the Agent to Lenders and the
Borrower, upon receipt and analysis (excluding review of such Qualifying SBA
Loan file as discussed in Section 2.02(f)) of the Collateral Submission Summary
from the Borrower and the Collateral Receipt or Final Certification from the
Custodian.
"Prime Rate" shall mean, at any particular date, a rate per annum equal to the
rate of interest published in The Wall Street Journal (Northeast Edition) as
the "prime rate", as in effect on such day, with any change in the prime rate
resulting from a change in said prime rate to be effective as of the date of
the relevant change in said prime rate; provided, however, that if more than
one prime rate is published in The Wall Street Journal (Northeast Edition) for
a day, the average of the Prime Rates shall be used; provided, further,
however, that the Prime Rate (or the average of the prime rates) will be
rounded to the nearest 1/16 of 1% or, if there is no nearest 1/16 of 1%, to the
next higher 1/16 of 1%. In the event that The Wall Street Journal (Northeast
Edition) should cease or temporarily interrupt publication, then the Prime Rate
shall mean the daily average prime rate published in another business
newspaper, or business section of a newspaper, of national standing chosen by
Lender. If The Wall Street Journal resumes publication, the substitute index
will immediately be replaced by the prime rate published in The Wall Street
Journal (Northeast Edition). In the event that a prime rate is no longer
generally published or is limited, regulated or administered by a governmental
or quasi-governmental body, then Lender shall select a comparable interest rate
index which is readily available to the Borrower and verifiable by the Borrower
but is beyond the control of Lender. Lender shall give the Borrower prompt
written notice of its choice of a substitute index and when the change became
effective. Such substitute index will also be rounded to the nearest 1/16 of
1% or, if there is no nearest 1/16 of 1%, to the next higher 1/16 of 1%.
"Property" shall mean any right or interest in or to property
of any kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
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"Purchasing Lenders" shall have the meaning assigned thereto
in Section 10.06(c) hereof.
"Qualifying SBA Loan" shall mean any SBA Loan which meets all
applicable Loan Eligibility Requirements, unless specifically otherwise
approved by the Agent in writing, and currently pledged to the Agent for the
benefit of the Lenders, and which is not otherwise excluded under the
definition of the Borrowing Base.
"Register" shall have the meaning assigned thereto in Section
10.06(d)
"Renewal Fee" shall have meaning assigned thereto in the
Letter Agreement.
"Request for Release" shall have the meaning assigned hereto
in Section 2.09(d)(iii)(B) and in the Custodial Agreement.
"Request for Release and Receipt" shall have the meaning
assigned thereto in the Custodial Agreement.
"Request for Release - Overcollateralization" shall have the
meaning assigned thereto in the Custodial Agreement.
"Requirement of Law" shall mean, as to any Person, the
articles of incorporation or certificate of incorporation and by-laws or other
organizational documents of such Person, and any law, treaty, rule or
regulation or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of its
Property or to which such Person or any of its Property is subject.
"Required Lenders" shall mean, subject to the last paragraph
of Section 10.04 hereof, Lenders having at least 66 2/3% of the aggregate
amount of the Commitments or, if the Commitments shall have terminated, Lenders
holding at least 66 2/3% of the aggregate unpaid principal amount of the Loans.
"Responsible Officer" shall mean, as to any Person, the chief
executive officer or president or, with respect to financial matters, the chief
financial officer, of such Person.
"SBA" shall mean the United States Small Business
Administration, an agency of the United States government.
"SBA Authorization and Debenture Guaranty" shall mean the
Authorization and Debenture Guaranty for 504 Program Debentures (SBA Form 1248
or other comparable form) issued with respect to an SBA 504 Program Real
Property Loan which is secured by a second lien on Pledged Property between the
SBA, the Pledgor and the applicable Certified Development Company originating
the related SBA Loan.
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"SBA Companion Program Loan" shall mean any SBA Loan
originated in accordance with the SBA Rules and Regulations governing the
origination of SBA 7(a) Program Real Property Loans, provided that such SBA
Companion Program Loan shall be secured by a first lien unguaranteed by the
SBA.
"SBA 504 Program Real Property Loan" as used herein, shall
mean any SBA Loan originated pursuant to Section 504 of the Small Business
Investment Act, as amended, codified at 15 U.S.C. 661 et. seq. which loan is
either a first lien or a second lien not guaranteed by the SBA, for which the
underlying Pledged Property securing such loan is primarily commercial real
estate.
"SBA Loan" shall mean any loan which is originated in
accordance with the SBA Rules and Regulations and which is an SBA 504 Program
Real Property Loan, or an SBA Companion Program Loan secured by a first lien on
Pledged Property, which SBA Loan includes, without limitation, (i) a promissory
note and related mortgage (or deed of trust) and Security Agreements; (ii) all
guaranties and insurance policies, including, without limitation, all mortgage
and title insurance policies and all fire and extended coverage insurance
policies and rights of the Borrower premiums or payments with respect thereto;
and (iii) all right, title and interest of the Borrower in the Pledged Property
covered by said mortgage (or deed of trust) or Security Agreement.
"SBA Loan Collateral Tape" shall have the meaning specified in
Section 7.01(a) hereof.
"SBA Loan Documents" shall mean, with respect to an SBA Loan,
the documents comprising the Custodian's SBA Loan File for such SBA Loan.
"SBA Loan Interest Rate" shall mean the annual rate of
interest, as determined from time to time, borne on an SBA Note.
"SBA Loan Schedule" shall have the meaning assigned thereto in
the Custodial Agreement.
"SBA Note" shall mean the promissory note or other evidence of
the indebtedness of a Pledgor with respect to an SBA Loan.
"SBA 7(a) Program Real Property Loan" shall mean any SBA Loan
originated pursuant to Section 7(a) of the Small Business Act, as amended,
codified at 15 U.S.C. 631 et. seq. which loan is a first or second lien
partially guaranteed by the SBA, for which the underlying Pledged Property
securing such loan is primarily commercial real estate.
"SBA Rules and Regulations" shall mean the Small Business Act,
as amended, codified at 15 U.S.C. 631 et. seq., and the Small Business
Investment Act, as amended,
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codified at 15 U.S.C. 661 et. seq., all rules and regulations promulgated from
time to time thereunder.
"Secured Obligations" shall have the meaning assigned thereto
in Section 4.01(c).
"Security Agreement" shall mean the mortgage, deed of trust,
assignment of leases and rents or other instrument or security agreement
securing obligations with respect to an SBA Loan, which creates a Lien on a
Pledged Property securing the SBA Note.
"Servicer" shall mean Allied Capital Lending Corporation, or a
replacement servicer substituted with the consent of Required Lenders and the
SBA, which consent may be withheld in the Required Lenders' or the SBA's sole
discretion.
"Servicing Agreement" shall mean the Servicing Agreement,
dated as of September 27, 1995, between the Servicer, the Borrower and the
Agent, as amended, supplemented or otherwise modified from time to time.
"Short Interest Period Rate" shall mean, for the initial
Interest Period in connection with the initial funding of a Loan or if the
Borrower elects a Short Interest Period pursuant to the terms of this
Agreement, the sum of (a) an interpolated rate per annum for such Interest
Period, based on such rate appearing on Telerate Page 314 as of 10:00 a.m. New
York City time the first Business Day of such Interest Period and most closely
approximating the Short Interest Period (which rate shall be adjusted for LIBOR
Reserve Requirement consistent with the determination of the LIBOR Rate) plus
(b) 2%. The determination of the Short Interest Period Rate by Agent shall be
conclusive, absent manifest error.
"Sideletter" shall mean that certain post-closing letter
agreement, dated as of the date hereof, between the Borrower and the Agent.
"Shortfall Amount" shall have the meaning assigned thereto in
Section 2.02(f).
"Subsidiary" of any Person shall mean and include (i) any
corporation controlled by (as used in the definition of "Affiliate") such
Person, directly or indirectly through one or more intermediaries, and (ii) any
partnership, association, joint venture or other entity controlled by (as used
in the definition of "Affiliate") such Person, directly or indirectly through
one or more intermediaries.
"Substitute SBA Loan" shall have the meaning assigned thereto
in Section 2.09(f)(i).
"Total Debt" with respect to any Person at any time, all
Indebtedness of such Person and its Subsidiaries as determined on a
consolidated basis in accordance with GAAP.
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"Transferee" shall have the meaning assigned thereto in
Section 10.07(f) hereof.
"Triggering Indebtedness" shall have the meaning assigned
thereto in Section 8.01(b).
"Uniform Commercial Code" shall mean, unless otherwise
specified, the Uniform Commercial Code as in effect in the State of New York.
1.02 Other Definitional Provisions; Financial
Calculations.
(a) Unless otherwise specified therein, all terms defined
in this Agreement shall have the defined meanings when used in the other Basic
Documents or any certificate or other document made or delivered pursuant
hereto or thereto.
(b) As used herein and in any Notes, and any certificate
or other document made or delivered pursuant hereto, accounting terms relating
to the Borrower and its Subsidiaries not defined in subsection 1.1. and
accounting terms partly defined in Section 1.01, to the extent not defined,
shall have the respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of the Agreement, and
Section, Subsection, Schedule and Exhibit references are to this Agreement
unless otherwise specified.
(d) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural of such terms.
(e) Notwithstanding anything to the contrary herein, for
purposes of making all calculations in connection with the covenants contained
in Section 7.06, all accounting terms used herein shall be interpreted and all
accounting determinations hereunder shall be made in accordance with GAAP
consistently applied as in effect on the date of this Agreement. In the event
of any material difference at any time between GAAP in effect on the date of
this Agreement and GAAP from time to time in effect, a Responsible Officer
shall provide a reconciliation of the calculations required by this Agreement
with the financial statements being delivered hereunder.
Section 2. Commitments, Loans, Note and Prepayments.
2.01 Loans.
Each Lender severally (but not jointly) agrees, on the terms
and conditions of this Agreement, to make loans (each, a "Loan"; collectively,
the "Loans") to the Borrower in Dollars during the period from and including
the Closing Date to but excluding the
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Commitment Termination Date in an amount not to exceed the Commitment of such
Lender. Subject to the terms and conditions of this Agreement, during such
period the Borrower may borrow, repay and reborrow amounts not to exceed the
lesser of the Borrowing Base and the Facility Amount. All outstanding Loans
shall mature and shall be due and payable in full on the Commitment Termination
Date.
2.02 Procedure for Borrowing.
(a) The Borrower shall give the Agent, irrevocable notice
in the form of Exhibit C-1 hereto (which notice must be received by the Agent
prior to 2:00 p.m., New York City time) no later than four (4) Business Days
prior to the related Funding Date, specifying (i) the amount of the borrowing
requested, which shall not exceed the lesser of the Borrowing Base and the
Facility Amount and (ii) the Funding Date. Upon receipt of such notice, the
Agent shall promptly notify the Lenders thereof.
(b) If such notice shall include a request to pledge
additional SBA Loans under the terms of this Agreement, pursuant to the terms
of the Custodial Agreement, Borrower shall concurrently deliver a Collateral
Submission Summary, Collateral Pledge Certificate and all required attachments
as required per the Custodial Agreement. Pursuant to the terms of the
Custodial Agreement, the Custodian shall deliver a Collateral Receipt and Loan
Exception Report to the Agent no later than 2:00 p.m. (New York City time), two
(2) Business Days prior to such Funding Date. Delivery of the Collateral
Receipt and Loan Exception Report by the Custodian shall not constitute
acknowledgment by the Agent or the Lenders that such SBA Loan is a Qualifying
SBA Loan. Upon receipt thereof and review of the Collateral Submission Summary
and Collateral Pledge Certificate (whether or not in connection with a
concurrent Borrowing request), the Agent shall prepare a Preliminary Collateral
Value Assessment with respect to the SBA Loans to be pledged on such Funding
Date accompanied by a Borrowing Base Certificate and Collateral Maintenance
Certificate, each of which shall be prepared after giving effect to the
contemplated additional collateral pledge. The Agent shall promptly notify the
Borrower, the Custodian and the Lenders of any SBA Loans which the Agent
determines are not Qualifying SBA Loans. If the Borrowing Base Certificate
reflects that, after giving effect to the requested Loan, the aggregate
principal amount of all Loans then outstanding would exceed the Borrowing Base,
the Borrower's request for a Loan shall be deemed to be reduced by the amount
of such excess. Upon receipt of the Collateral Receipt Final Loan Exception
Report and preparation of the Preliminary Collateral Value Assessment, the
Borrowing Base Certificate and the Collateral Maintenance Certificate, and
calculation of reductions, if any, in the amount of the Borrower's request for
a Loan in accordance with this Subsection 2.02(b), the Agent shall deliver such
schedules to the Lenders and the Borrower but in no event later than 2:00 p.m.
(New York City time) one (1) Business Day prior to such Funding Date (or if not
in connection with a Funding Date, by 2:00 p.m. (New York City time), within
two (2) Business Days of the later of receipt of the Collateral Receipt or the
Final Loan Exception Report from the Custodian).
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(c) Upon receipt of the notice of the Loan amount to be
funded on the Funding Date from the Agent pursuant to Section 2.02(b), each
Lender shall make the amount of such Lender's pro rata share of the borrowing
available to the Agent at the office of the Agent specified in Section 10.02
prior to 10:00 a.m. (New York City time), on the Funding Date, in Dollars and
in funds immediately available to the Agent.
(d) The Agent will transfer the aggregate amounts made
available pursuant to Section 2.02(c) and any other amounts made available by
the Agent pursuant to Section 2.12 to the Borrower's account prior to 2:00 p.m.
(New York City time) on the Funding Date requested by the Borrower in funds
immediately available to the Borrower, if the conditions to the making of such
Loan pursuant to Section 5 hereunder are otherwise satisfied.
(e) Notwithstanding the foregoing, no Loan shall be made
unless such Loan equals or exceeds an aggregate principal amount of not less
than $500,000, and in additional increments of $100,000 thereafter.
(f) During the Interim Funding Period, for each
Qualifying SBA Loan pledged to the Agent for the benefit of the Lenders, the
Agent shall conduct a due diligence review of the applicable Qualifying SBA
Loan, including but not limited to, a review of the origination and servicing
files with respect to such Qualifying SBA Loan, and upon completion of its
review shall indicate to the Borrower and the Lenders the estimated Collateral
Value of such SBA Loan by delivering to the Borrower and the Lenders, a
Collateral Value Assessment with respect to such Loans and a revised Borrowing
Base Certificate and Collateral Maintenance Certificate. If at any time the
Collateral Maintenance Certificate establishes that the aggregate principal
amount of all Loans then outstanding would exceed the Collateral Maintenance
Amount (the "Shortfall Amount"), either (i) the Loans shall promptly be repaid
by the Borrower in immediately available funds by 2:00 p.m. (New York City
time) within one (1) Business Day of such notice in the amount of such
Shortfall Amount, together with accrued interest to such date and the amounts
due pursuant to Sections 2.11 (if the date of such payment is a date which is
not an Interest Payment Date) 2.13 and 2.14 and, upon receipt of such amount by
the Agent, the Agent shall promptly remit such amount pro rata to the Lenders
in accordance with Section 3.04, or (ii) the Borrower shall pledge to the Agent
additional Collateral having a Collateral Value of not less than the Shortfall
Amount.
(g) In connection with this Section 2.02, the Agent will
have no obligation to conduct a due diligence review, unless and until the
Qualifying SBA Loans pledged to the Lenders hereunder and not yet reviewed by
the Agent aggregate at least $5,000,000. Upon receipt of notice from the Agent
that it intends to conduct such review, the Borrower shall make available to
the Agent at the Borrower's sole cost and expense all origination and servicing
files related to such Qualifying SBA Loan.
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2.03 Maximum Number of LIBOR Tranches. All borrowings,
and all selections of Interest Periods hereunder shall be made so that after
giving effect thereto, no more than four LIBOR Tranches shall be in effect at
any one time.
2.04 Changes of Commitments.
(a) The aggregate amount of the Facility Amount shall be
automatically reduced to zero on the Commitment Termination Date.
(b) The Borrower shall have the right, upon not less than
three (3) Business Days' irrevocable notice to the Agent in the form of Exhibit
J hereto, to reduce the Facility Amount. Any such reduction shall be in an
amount of $5,000,000, or increments of $1,000,000 in excess thereof, and shall
reduce permanently the Facility Amount then in effect. Notwithstanding the
foregoing the Facility Amount shall not be reduced below $10,000,000 unless all
Commitments are terminated in their entirety. Upon receipt of such notice, the
Agent shall promptly notify each Lender thereof and shall notify each Lender of
its revised Commitment.
(c) The Facility Amount once terminated or reduced may
not be reinstated.
2.05 Facility Fee.
The Borrower agrees to pay to the Agent, for the ratable
benefit of the Lenders, a Facility Fee from and including the Closing Date to
the Commitment Termination Date, and thereafter from each Existing Commitment
Termination to the next succeeding Existing Commitment Termination Date,
computed at the rate of 0.15% per annum of the average daily unutilized portion
of the Facility Amount, payable quarterly in arrears on the Facility Fee Due
Date, such payment to be made in Dollars, in immediately available funds,
without deduction, set-off or counterclaim to the Agent at Citibank NYC; ABA
No. 021-0000-89; Account Name: LCPI; Account No.: 406-15-659.
2.06 Note.
(a) Each Lender's initial Commitment shall be evidenced
by a single promissory note of the Borrower payable to such Lender
substantially in the form of Exhibit A hereto, with appropriate insertions
therein as to the amount, the date, the state of incorporation of the payee,
and the address of the payee, payable to the order of the appropriate Lender
and representing the obligation of the Borrower to pay the amount up to the
amount of the Commitment plus interest thereon as provided herein.
(b) Each Lender is hereby authorized to record the date,
amount, and interest rate of such Lender's pro rata share of each Loan made by
such Lender to the Borrower and each payment made on account of the principal
thereof on the books of such Lender and to endorse the date, amount and
interest rate of such Lender's pro rata share of
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each Loan on the schedule attached to such Note or any continuation thereof,
and any such recordation shall be conclusive evidence of the accuracy of the
information so recorded, absent manifest error; provided that the failure of a
Lender to make any such recordation or endorsement shall not affect the
obligations of the Borrower to make a payment when due of any amount owing
hereunder or under any of its Notes in respect of the Loans.
2.07 Continuation of Loans. Any Loans bearing interest
based upon the LIBOR Rate shall be Continued as such upon the expiration of an
Interest Period with respect thereto in accordance with the provisions of the
term "Interest Period" set forth in Section 1.01; provided, that no Loan may be
Continued as such (i) when any Default or Event of Default has occurred and is
continuing, or (ii) if after giving effect thereto, Section 2.03 would be
contravened and provided further, that if such Continuation is not permitted
pursuant to the preceding provision, such Loans shall automatically begin to
bear interest in accordance with Section 3.02, on the last day of the then
expiring Interest Period with respect thereto.
2.08 Optional Prepayments. The Borrower may prepay the
Loans, in whole or in part, without premium or penalty, upon two (2) Business
Days irrevocable notice in the form of Exhibit K, to the Agent given no later
than 2:00 p.m., New York City time, specifying the date and the amount of
prepayment. Upon receipt of such notice, the Agent shall promptly notify each
Lender thereof. If such notice is given, the amount specified in such notice
shall be due and payable prior to 12:00 noon (New York City time) on the date
specified therein to the Agent for the benefit of the Lenders, together with
accrued interest to such date on the amount prepaid, and if the date of such
prepayment is on a date which is not an Interest Payment Date the amount due
pursuant to Section 2.11. Partial prepayments pursuant to this Section 2.08
shall be in an aggregate principal amount of not less than $500,000 or
increments of $100,000 in excess thereof. The Agent shall promptly remit the
pro rata percentage due each Lender per Section 3.04 prior to 4:00 p.m. (New
York City time) on the date of prepayment. To the extent that a prepayment is
accompanied by a Request for Release from the Borrower, the Borrower and Agent
shall follow the procedures set forth in Section 2.09(d).
2.09 Mandatory Prepayments; Pledge of Additional
Collateral; Substitutions of Collateral; and Releases of Security Interest.
(a) Collateral Maintenance Amount. If at any time the
Collateral Maintenance Amount shall be less than the unpaid principal amount of
all Loans outstanding at such time, the Borrower either (i) shall repay the
Shortfall Amount in immediately available funds by 2:00 p.m. (New York City
time) within one (1) Business Day of notice from the Agent thereof together
with accrued interest to such date on the amount repaid and the amounts due
pursuant to Sections 2.11 (if the date of such payment is on a date which is
not an Interest Payment Date), 2.13 and 2.14 or (ii) pledge additional
Qualifying SBA Loans or cash to the Agent for the benefit of the Lenders
pursuant to the terms of this Agreement in an amount sufficient so that, after
giving effect thereto, the Collateral Maintenance Amount is not
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less than the unpaid principal amount of all Loans, no later than one (1)
Business Day following the date on which such Collateral Maintenance Amount
deficiency is determined. In the event the Borrower elects to pledge
additional Qualifying SBA Loans to the Agent for the benefit of the Lenders,
the Borrower shall promptly deliver to the Agent and the Custodian a Collateral
Submission Summary and shall deliver to the Agent a Collateral Pledge
Certificate and such other items in accordance with Section 4.01 and the
Custodial Agreement.
(b) Borrowing Base. If at any time the Borrowing Base
shall be less than the unpaid principal amount of all Loans, the Borrower may
not borrow hereunder. Further, if at any time the Amortization Trigger shall
have been met, the Borrower shall remit to the Agent, for the benefit of the
Lenders on or prior to 12:00 noon (New York City time) on each Interest Payment
Date, an amount equal to the aggregate of all principal payments received from
any Pledgor during the related Due Period with respect to all Qualifying SBA
Loans which constitute Collateral. The Agent shall promptly remit the pro rata
percentage due each Lender per Section 3.04 prior to 4:00 p.m. (New York City
time) on the Interest Payment Date.
(c) Prepayments Received by Borrower from Pledgors on
Qualifying SBA Loans. The Borrower shall remit to the Agent for the benefit of
the Lenders, prior to 12:00 noon (New York City time) on each Interest Payment
Date, an amount equal to the aggregate of all principal prepayments received
(whether full or partial, provided that partial prepayments shall be in excess
of 10% of the then outstanding principal balance of such Qualifying SBA Loans)
from any Pledgor during the related Due Period with respect to all Qualifying
SBA Loans. The Borrower shall deliver a schedule specifying such amounts to
the Agent no later than 2:00 p.m. (New York City time) on the date which is two
(2) Business Days prior to the Interest Payment Date. The Agent shall promptly
remit the pro rata percentage due each Lender per Section 3.04 prior to 4:00
p.m. (New York City time) on the Interest Payment Date.
(d) Releases.
(i) Provided no Default or Event of Default has occurred
hereunder, upon the payment in full with respect to any Qualifying SBA Loan
pledged hereunder to the Agent of an amount equal to the Borrowing Base of such
Qualifying SBA Loan and delivery to the Custodian by the Borrower of a Request
for Release and Receipt in the form of Annex 6 to the Custodial Agreement no
later than 2:00 p.m. (New York City time) two (2) Business Days prior to the
requested release date, (which Request for Release and Receipt shall be
approved by the Agent no later than 4:00 p.m. one (1) Business Day prior to the
requested release date, provided that the Borrowing Base shall be greater than
the aggregate outstanding principal balance of the Loans then outstanding after
giving effect to the release of the Qualifying SBA Loan to be released pursuant
to this Section), the Custodian shall promptly and permanently release the
related Custodian's SBA Loan File to the Borrower or the Servicer, as specified
by the Borrower and shall take the actions set forth in the Custodial Agreement
and the Lien of
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the Lenders with respect to such SBA Loan shall be released. If a Default or
an Event of Default has occurred and is continuing, the Agent shall be required
to approve the request for Release and Receipt only upon concurrent receipt
from the Borrower of 100% of the then outstanding balance of such Qualifying
SBA Loan (without modification except as expressly agreed to by the Agent,
which consent may be withheld in the Agent's sole discretion).
(ii) Upon termination or expiration of this Agreement and
payment to the Agent for the ratable benefit of the Lenders of all amounts
owing to it hereunder, the Agent shall notify the Custodian of such termination
or expiration and the Custodian shall thereafter deliver any Custodian's SBA
Loan Files in its possession as the Borrower shall direct and shall take
actions set forth in the Custodial Agreement and the Lien of the Agent with
respect to the Qualifying SBA Loan shall be released.
(iii) On any day on which the Borrowing Base exceeds the
aggregate outstanding principal amount of the Loans, so long as no Default or
Event of Default has occurred and is continuing:
(A) The Borrower may prepare a Request for
Release of Qualifying SBA Loan in the form of Annex 5 to the Custodial
Agreement no later than 2:00 p.m. two (2) Business Days prior to the
requested release date ("Request for Release-Overcollateralization"),
specifying (1) the Qualifying SBA Loans to be released and the
requested release date, (2) the Borrowing Base with respect to such
Qualifying SBA Loans pledged hereunder, (3) the remaining Borrowing
Base after giving effect to the release of the Qualifying SBA Loans to
be released, (4) the unpaid principal balance of the Loans, (5) the
Net Outstandings, and (6) a certification from the Borrower that, upon
release of the Qualifying SBA Loans to be released, the Borrowing Base
would be equal to or greater than the Net Outstandings.
(B) The Borrower shall transmit the Request for
Release-Overcollateralization by facsimile transmission to the Agent.
Upon confirming that the Request for Release-Overcollateralization
correctly reflects the information set forth in Section
2.09(d)(iii)(A) and that, after giving effect to the requested release
the amount of the Borrowing Base would be equal to or greater than the
Net Outstandings, the Agent shall countersign the Request for Release-
Overcollateralization and transmit the countersigned Request for
Release-Overcollateralization to the Custodian (the Agent agreeing to
take such action no later than 4:00 p.m. one (1) Business Day prior to
the requested release date. In the event that the Agent's assessment
of the Borrowing Base would alter the information set forth in any
Request for Release, the Agent shall promptly deliver to the Borrower
and the Lenders a Borrowing Base Certificate reflecting same.
(C) Upon receipt of the countersigned Request
for Release-Overcollateralization and upon approval of the Request for
Release-
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Overcollateralization by the Agent, the Custodian shall take the
actions set forth in the Custodial Agreement with respect to the
Qualifying SBA Loan to be released.
(D) The Agent shall not be obligated to
countersign a Request for Release- Overcollateralization (1) which the
Agent determines is based on erroneous information or would result in
a release of Collateral other than in accordance with the terms of
this Agreement, (2) or which does not reflect the Agent's current
Borrowing Base Certificate.
(e) Application of Prepayments. The Agent shall apply all
prepayments received pursuant to this Section 2.09 or Section 2.08 to the
unpaid principal balance of the Loans designated by the Borrower on a pro-rata
basis. In the event that the Loans and all other obligations hereunder are
repaid in full, any amounts erroneously transmitted to the Agent shall promptly
be remitted by the Agent to the Borrower, such payment to be made by the Agent
without setoff or counterclaim.
(f) Substitutions of Collateral. The Borrower may from
time to time substitute certain SBA Loans, for Qualifying SBA Loans subject to
the Lender's Lien, with the Agent's consent, (which may be granted or withheld
in the sole discretion of the Agent) as follows:
(i) So long as no Default or Event of Default has
occurred and is continuing, the Borrower may, in accordance with the provisions
of this Section 2.09(f), substitute for one or more Qualifying SBA Loans
constituting Collateral hereunder for one or more other Qualifying SBA Loans
("Substitute SBA Loans"); provided that (A) the aggregate Collateral Value of
the Substitute SBA Loans is not less than the Collateral Value of the
Qualifying SBA Loans being substituted for and (B) after giving effect to the
requested substitution, the aggregate principal balance of the Loans then
outstanding would not exceed the Borrowing Base. In connection with any such
substitution, the Borrower will provide notice to the Custodian and the Agent
in accordance with the provisions and requirements of Section 13(d) of the
Custodial Agreement. Each such substitution notice shall be deemed to be a
representation and warranty by the Borrower that the Substitute SBA Loans will
qualify as Qualifying SBA Loans.
(ii) Notwithstanding the foregoing, so long as no Default
or Event of Default has occurred and is continuing, the Borrower may, in
accordance with the provisions of this Section 2.09(f)(ii), with the consent of
the Agent, substitute for one or more Qualifying SBA Loans constituting
Collateral hereunder, one or more Substitute SBA Loans having an aggregate
Collateral Value less than the Collateral Value of the Qualifying SBA Loans
being substituted for; provided that, after giving effect to such substitution,
the outstanding principal balance of the Loans then outstanding shall not
exceed the Borrowing Base and all other provisions set forth in Section
2.09(f)(i) above are met to the satisfaction of the Agent.
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(g) Release of Security Interest. In connection with
releases or substitutions of Qualifying SBA Loans, pursuant to this Section
2.09, the Agent shall release its security interest in any Collateral no longer
included in the Borrowing Base, such release to be effected in accordance with
Section 4.11.
2.10 Extension of Commitment Termination Date.
(a) The Borrower may, by written notice in substantially
the form of Exhibit L-1 to the Agent accompanied by the Renewal Fee (as defined
in the Letter Agreement) (which notice Agent shall promptly deliver a copy to
the Lenders as well as such Lender's ratable portion of the renewal fee in
accordance with Section 3.04 of this Agreement) not less than 90 days and not
more than 120 days prior to the Commitment Termination Date as then in effect
(the "Existing Commitment Termination Date"), request that the Lenders extend
the Commitment Termination Date for an additional year from the Existing
Commitment Termination Date. Each Lender, acting in its sole discretion,
shall, by notice to the Agent in substantially the form of Exhibit L-2 and
given no later than the date occurring 60 days prior to the Existing Commitment
Termination Date (such date, the "Consent Date"), advise the Borrower whether
such Lender agrees to such extension; provided that each Lender that determines
not to extend the Commitment Termination Date (a "Non-Extending Lender") shall
notify the Agent (which shall promptly notify the Borrower) of such fact
promptly after such determination (but in any event no later than the Consent
Date) and any Lender that does not advise the Agent on or before the Consent
Date shall be deemed to be a Non-Extending Lender. The election of any Lender
to agree to such an extension shall not obligate any other Lender so to agree.
In the event that any Lender fails to agree to such extension, then such Lender
shall refund to the Borrower within three (3) Business Days the portion of the
Renewal Fee remitted to such Lender net of any out-of-pocket costs or expenses
incurred by such Lender or Agent in evaluating the renewal request.
(b) The Borrower shall have the right on or before the
Existing Commitment Termination Date as then in effect to replace each
Non-Extending Lender with, and otherwise add to this Agreement, one or more
other lenders (which may include any Lender), each prior to the Existing
Commitment Termination Date then in effect (each, an "Additional Commitment
Lender") with the approval of the Agent (which approval shall not be
unreasonably withheld), each of which Additional Commitment Lenders shall have
entered into an agreement in form and substance satisfactory to the Borrower
and the Agent pursuant to which such Additional Commitment Lender shall,
effective as of the Existing Commitment Termination Date then in effect,
undertake a Commitment specified therein and otherwise become obligated as a
Lender hereunder (if any such Additional Commitment Lender is a Lender, its
Commitment shall be in addition to such Lender's Commitment hereunder on such
date). Any portion of the Renewal Fee previously refunded to the Borrower in
accordance with Section 2.10(a) above shall be paid to the Agent by the
Borrower for the benefit of any Additional Commitment Lenders (which amount
shall promptly be remitted to such Additional
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Commitment Lenders by the Agent) prior to the Existing Commitment Termination
Date and as a condition to the addition of the Additional Commitment Lender.
(c) If (and only if) at least two Lenders (if there is
more than one Lender) holding Commitments that, together with the additional
Commitments of the Additional Commitment Lenders that will become effective on
the Existing Commitment Termination Date then in effect, aggregate at least 66
2/3% of the aggregate amount of the Commitments (not including the additional
Commitments of the Additional Commitment Lenders) shall have agreed to extend
the Existing Commitment Termination Date then in effect, in accordance with
Section 2.10(a), then, effective as of the Existing Commitment Termination Date
then in effect, the Existing Commitment Termination Date then in effect shall
be extended to the date which is one year after the Existing Commitment
Termination Date (provided, if such date is not a Business Day, then such
Commitment Termination Date as so extended shall be the next preceding Business
Day) and each Additional Commitment Lender shall thereupon become a "Lender"
with a Commitment for all purposes of this Agreement.
Notwithstanding the foregoing, the extension of the Commitment
Termination Date shall not be effective with respect to any Lender unless:
(i) no Default or Event of Default shall have
occurred and be continuing on each of the date of the notice
requesting such extension, the Consent Date or the Existing Commitment
Termination Date then in effect;
(ii) each of the representations and warranties of
the Borrower in Section 6 hereof and in the other Basic Documents
shall be true and correct on and as of each of the date of the notice
requesting such extension, the Consent Date and the Existing
Commitment Termination Date then in effect with the same force and
effect as if made on and as of each such date;
(iii) each Non-Extending Lender shall have been
paid in full by or on behalf of the Borrower on or before the Existing
Commitment Termination Date then in effect all amounts owing to such
Lender hereunder; and
(iv) the Renewal Fee payable to the Agent for the
ratable benefit of the Lenders (including the Additional Commitment
Lenders) pursuant to Sections 2.10(a) and 2.10(b) shall have been
paid.
Notwithstanding any extension of the Existing Commitment Termination Date as
aforesaid, the Commitment of each Non-Extending Lender shall terminate on the
Existing Commitment Termination Date in effect immediately prior to the
effectiveness of any such extension.
(d) If the Borrower shall have requested an extension of
the Existing Commitment Termination Date pursuant to this Section 2.10, the
Agent shall, within 10 Business Days after the Consent Date, notify each Lender
as to whether or not the Existing
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Commitment Termination Date in effect immediately prior to such Consent Date
shall have been so extended, and specifying the aggregate amount of the
Commitments (not including the additional Commitments of the Additional
Commitment Lenders) of the Lenders agreeing to such extension.
2.11 Indemnity. The Borrower agrees to indemnify the
Agent and each Lender and to hold the Agent and each Lender harmless from any
loss or expense which the Agent or such Lender may sustain or incur as a
consequence of (a) default by the Borrower in payment when due of the principal
amount of or interest on any Loans, (b) default by the Borrower in making a
borrowing after the Borrower has given notice of borrowing in accordance with
Section 2.02(a), (c) default by the Borrower in making any prepayment after the
Borrower has given a notice in accordance with Section 2.10 on the prepayment
date specified in such notice or (d) a prepayment of a Loan on a day which is
not an Interest Payment Date, such payment to include, without limitation, in
each case, any such loss or expense arising from the reemployment of funds
obtained by such Lender to maintain its Loans hereunder or from fees payable to
terminate the deposits from which such funds were obtained. Calculation of all
amounts payable to Lender under this Section 2.11 shall be made on the
assumption that Lender, has funded its relevant pro rata portion of any Loan
through (i) the purchase of a LIBOR deposit bearing interest at the LIBOR Rate
in an amount equal to the amount of such pro rata portion of any Loan with a
maturity equivalent to the maturity applicable to such pro rata portion of any
Loan, and (ii) the transfer of such LIBOR deposit from an offshore office of
Lender to a domestic office of Lender in the United States of America, provided
that Lender may fund its pro rata portion of any Loan in any manner that it in
its sole discretion chooses and the foregoing assumption shall only be made in
order to calculate amounts payable under this Section 2.11. The covenant shall
survive termination of this Agreement and payment of all amounts outstanding
under the Notes.
2.12 Compliance With Commitment. Unless the Agent shall
have been notified in writing by any Lender prior to 10:00 a.m. (New York City
time) on a Funding Date that such Lender will not make the amount which would
constitute its Commitment Percentage of the Loan to be advanced on such date to
the Agent, the Agent may assume that such Lender has made such amount available
to the Agent on such Funding Date, and the Agent may, in reliance upon such
assumption, make available to the Borrower a corresponding amount in
accordance with the provisions of Section 2.02. If such amount is made
available to the Agent after 5:00 p.m. (New York City time) on such Funding
Date, such Lender shall pay to the Agent on demand an amount equal to the
product of (a) the daily average rate during such period, as quoted by the
Agent, equal to the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by federal
funds brokers, as published the next succeeding Business Day by the Federal
Reserve Bank of New York or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for the date of such
transaction received by the Agent from three federal funds brokers of
recognized standing selected by it, multiplied by (b) the amount of such
Lender's Commitment Percentage of such Loan, multiplied by (c) a fraction the
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numerator of which is the number of days that elapse from and including such
Funding Date to the date on which such Lender's Commitment Percentage of such
Loan shall have become immediately available to the Agent (but in no event less
than one day) and the denominator of which is 360. A certificate of the Agent
submitted to any Lender with respect to any amounts owing under Section 2.02(c)
shall be conclusive, absent manifest error. If such Lender's Commitment
Percentage of such Loan is not in fact made available to the Agent by such
Lender within three Business Days following such Funding Date, the Agent shall
be entitled to recover such amount with interest thereon at the rate per annum
applicable to the Loans hereunder, on demand, from the Borrower. Nothing in
this Section 2.12 shall be deemed to limit any rights which the Borrower may
have against such Lender.
2.13 Requirements of Law.
(a) In the event that, from and after the date hereof,
any change in any Requirement of Law or in the interpretation or application
thereof or compliance by any Lender with any request or directive (whether or
not having the force of law) from any central bank or other Governmental
Authority made subsequent to the date hereof:
(i) shall subject any Lender to any tax of any
kind whatsoever with respect to this Agreement, any Note or any Loans
made by it, or change the basis of taxation of payments to such Lender
in respect thereof (except for changes in the rate of tax on the
overall net income of such Lender);
(ii) shall impose, modify or hold applicable any
reserve, special deposit, compulsory loan or similar requirement
against assets held by, deposits or other liabilities in or for the
account of, advances, loans or other extensions of credit by, or any
other acquisition of funds by, any office of such Lender which are not
otherwise included in the determination of the LIBOR Rate; or
(iii) shall impose on such Lender any other
condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by any amount which such Lender deems to be material, of making or maintaining
Loans or to reduce any amount receivable hereunder in respect thereof then, in
any such case, the Borrower shall promptly pay such Lender, upon its demand,
any additional amounts necessary to compensate such Lender for such additional
cost or reduced amount receivable. If a Lender becomes entitled to claim any
additional amounts pursuant to this Section, it shall promptly notify the
Borrower, through the Agent, of the event by reason of which it has become so
entitled. A certificate as to any additional amounts payable pursuant to the
foregoing sentence submitted by such Lender, through the Agent, to the Borrower
shall be conclusive in the absence of manifest error. This covenant shall
survive the termination of this Agreement and payment of the amounts
outstanding under the Notes and all other amounts payable hereunder.
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(b) In the event that any Lender shall have determined
that any change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any central bank
or Governmental Authority made subsequent to the date hereof does or shall have
the effect of reducing the rate of return on such Lender's or such
corporation's capital as a consequence of its obligations hereunder to a level
below that which such Lender or such corporation could have achieved but for
such change or compliance (taking into consideration such Lender's or such
corporation's policies with respect to capital adequacy) by an amount deemed by
such Lender to be material, then from time to time, after submission by such
Lender, through the Agent, to the Borrower of a written request therefor
(including calculations of any such additional amounts in reasonable detail),
the Borrower shall pay to such Lender such additional amount or amounts as will
compensate such Lender for such reduction.
2.14 Taxes.
(a) All payments made by the Borrower under this
Agreement and the Notes shall be made free and clear of, and without deduction
or withholding for or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees, deductions or
withholdings, now or hereafter imposed, levied, collected, withheld or assessed
by any Governmental Authority, excluding, in the case of the Agent and each
Lender, net income taxes and franchise taxes (imposed in lieu of net income
taxes) imposed on the Agent or such Lender, as the case may be, as a result of
a present or former connection between the jurisdiction of the government or
taxing authority imposing such tax and the Agent or such Lender (excluding a
connection arising solely from the Agent or such Lender having executed,
delivered or performed its obligations or received a payment under, or
enforced, this Agreement or the Notes) or any political subdivision or taxing
authority thereof or therein (all such non-excluded taxes, levies, imposts,
duties, charges, fee, deductions and withholdings being hereinafter called
"Taxes"). If any Taxes are required to be withheld from any amounts payable to
the Agent or any Lender hereunder or under the Notes, the amounts so payable to
the Agent or such Lender shall be increased to the extent necessary to yield to
the Agent or such Lender (after payment of all Taxes) interest or any such
other amounts payable hereunder at the rates or in the amounts specified in
this Agreement and the Notes. Whenever any Taxes are payable by the Borrower,
as promptly as possible thereafter the Borrower shall send to the Agent for its
own account or for the account of such Lender, as the case may be, a certified
copy of an original official receipt received by the Borrower showing payment
thereof. If the Borrower fails to pay any Taxes when due to the appropriate
taxing authority or fail to remit to the Agent the required receipts or other
required documentary evidence, the Borrower shall indemnify the Agent and the
Lenders for any incremental taxes, interest or penalties that may become
payable by the Agent or any Lender as a result of any such failure. The
agreements in this Section shall survive the termination of this Agreement and
the payment of the Notes and all other amounts payable hereunder.
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(b) Each Lender that is not incorporated under the laws
of the United States of America or a state thereof agrees that it will deliver
to the Borrower and the Agent (i) two duly completed copies of United States
Internal Revenue Service Form 1001 or 4224 or successor applicable form, as the
case may be, and (ii) an Internal Revenue Service Form W-8 or W-9 or successor
applicable form. Each such Lender also agrees to deliver to the Borrower and
the Agent two further copies of the said Form 1001 or 4224 and Form W-8 or W-9,
or successor applicable form or other manner of certification, as the case may
be, on or before the date that any such form expires or becomes obsolete or
after the occurrence of any event requiring a change in the most recent form
previously delivered by it to the Borrower, and such extensions or renewals
thereof as may reasonably be requested by the Borrower or the Agent, unless in
any such case an event (including, without limitation, any change in treaty,
law or regulation) has occurred prior to the date on which any such delivery
would otherwise be required which renders all such forms inapplicable or which
would prevent such Lender from duly completing and delivering any such form
with respect to it and such Lender so advises the Borrower and the Agent. Such
Lender shall certify (i) in the case of a Form 1001 or 4224, that it is
entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes and (ii) in the case of a
Form W-8 or W-9, that it is entitled to an exemption from United States backup
withholding tax.
2.15 Inability to Determine Interest Rate. In the event that prior to the
first day of any Interest Period the Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower) that, by
reason of circumstances affecting the relevant market, adequate and reasonable
means do not exist for ascertaining the LIBOR Rate for such requested Interest
Period, the Agent shall forthwith give telecopy or telephonic notice of such
determination to the Borrower and the Lenders as soon as practicable
thereafter. If such notice is given (x) any LIBOR Rate Loans requested to be
made on the first day of such Interest Period shall be made as Loans bearing
interest based upon the Prime Rate plus 50 basis points and (y) any outstanding
LIBOR Rate Loans that were to have been Continued as LIBOR Rate Loans on the
first day of such Interest Period shall be converted, on the first day of such
Interest Period, to bearing interest based upon the Prime Rate plus 50 basis
points. Until such notice has been withdrawn by the Agent, no further LIBOR
Rate Loans shall be made, nor shall the Borrower have the right to convert such
Loans back to LIBOR Rate Loans.
Section 3. Payments of Principal and Interest;
Computations, etc.
3.01 Repayment of Loans. The Borrower shall repay in full
on the Commitment Termination Date the then aggregate outstanding principal
amount of the Loans.
3.02 Interest.
(a) The Borrower shall pay to the Agent for account of
each Lender interest on the unpaid principal amount of each Loan made by such
Lender for the period from and
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including the date of such Loan to but excluding the date such Loan shall be
paid in full, at a rate per annum equal to the LIBOR Rate plus 2%; provided,
that for any Loan the borrowing date with respect to which is not the first
Business Day of a month, such Loan shall bear interest from such borrowing date
until the first Business Day of the next succeeding month at the Short Interest
Period Rate, and thereafter shall bear interest as set forth above. In the
event that LIBOR based rates are no longer available, the interest rate on such
Loan shall equal the Prime Rate plus 50 basis points. Interest accrued on the
Loan shall be payable monthly on each Interest Payment Date or in the case of
the Loans bearing interest at a rate equal to the Prime Rate and 50 basis
points, on the first Business Day of each month, and upon the payment or
prepayment on any Loan or portion thereof, except that interest payable on any
amount not paid in full when due shall be payable from time to time on demand.
(b) Notwithstanding the foregoing, if an Event of Default
shall have occurred and be continuing the Borrower shall pay to the Agent for
account of each Lender interest at a rate per annum equal to the lesser of (i)
the higher of (A) 5% above the rate otherwise payable under the first sentence
of Section 3.02(a) and (B) 4% above the Prime Rate, and (ii) the maximum
nonusurious interest rate permitted by law, on any principal of any Loan made
by such Lender and on any other amount payable by the Borrower hereunder or
under a Note. Promptly after the determination of any interest rate provided
for herein or any change therein, the Agent shall give notice thereof to the
Borrower.
In the event that, and for so long as, any Event of Default
shall have occurred and be continuing, the outstanding principal amount of the
Loan and, to the extent permitted by law, overdue interest in respect of the
Loan, shall bear interest at the rate determined in accordance with this
Section 3.02(b) calculated from the date such payment was due without regard to
any grace or cure periods contained herein.
3.03 Payments.
(a) Except to the extent otherwise provided herein, all
payments of principal, interest and other amounts to be made by the Borrower
under this Agreement and the Notes, and, except to the extent otherwise
provided therein, all payments to be made by the Borrower under any other
Basic Document, shall be made in Dollars, in immediately available funds,
without deduction, set-off or counterclaim, to the Agent at an account
maintained by the Agent with Citibank NYC; ABA 021-0000-89; Account Name: LCPI;
Account No.: 406-15-659, not later than 12:00 noon, New York City time, on the
date on which such payment shall become due (each such payment made after such
time on such due date to be deemed to have been made on the next succeeding
Business Day);
(b) Any Lender for whose account any such payment is to
be made may (but shall not be obligated to) debit the amount of any such
payment that is not made by such time to any ordinary deposit account of the
Borrower with such Lender (with notice to the Borrower and the Agent).
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(c) The Borrower shall, at the time of making each
payment under this Agreement or the Notes for account of any Lender, specify to
the Agent (which shall so notify the intended recipient(s) thereof) the Loans
or other amounts payable by the Borrower hereunder to which such payment is to
be applied (and in the event that the Borrower fails to so specify, or if an
Event of Default has occurred and is continuing, the Agent may distribute such
payment to the Lenders for application in such manner as it may determine to be
appropriate).
(d) Each payment received by the Agent under this
Agreement or the Notes for account of any Lender shall be paid by the Agent
promptly to such Lender, in immediately available funds, for account of such
Lender's Lending Office for the Loan or other obligation in respect of which
such payment is made.
(e) Except to the extent otherwise expressly provided
herein if the due date of any payment under this Agreement or the Notes would
otherwise fall on a day that is not a Business Day, such date shall be extended
to the next succeeding Business Day, and interest shall be payable for any
principal so extended for the period of such extension.
3.04 Pro Rata Treatment.
Except to the extent otherwise expressly provided herein:
(a) Each borrowing from the Lenders under Section 2.02
shall be made pro rata from the Lenders according to their Commitment
Percentages of such borrowing, and each reduction of the Facility
Amount under Section 2.04 shall be applied to the respective
Commitments of the Lenders, pro rata according to the amounts of their
respective Commitments.
(b) Each payment or prepayment of principal of Loans by
the Borrower shall be made for account of the Lenders pro rata in
accordance with the respective unpaid principal amounts of the Loans
held by them; provided that if immediately prior to giving effect to
any such payment in respect of any Loans the outstanding principal
amount of the Loans shall not be held by the Lenders pro rata in
accordance with their respective Commitment Percentages, including,
without limitation, by reason of a failure of a Lender to make a Loan
hereunder, then such payment shall be applied to the Loans in such
manner as shall result, as nearly as is practicable, in the
outstanding principal amount of the Loans being held by the Lenders
pro rata in accordance with their respective Loan Percentages.
3.05 Computations. Interest on Loans shall be computed on
the basis of a year of 360 days and actual days elapsed (including the first
day but excluding the last day) occurring in the period for which payable. The
Agent shall notify the Borrower of each determination of the LIBOR Rate on the
Interest Payment Date. Any change in the interest rate on a Loan resulting
from a change in the LIBOR Reserve Requirements shall become effective as of
the opening of business on the day on which such change in the LIBOR Reserve
Requirements shall become
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effective as of the opening of business on the day on which such change in the
LIBOR Reserve Requirements shall become effective. The Agent shall as soon as
practicable notify the Borrower of the amount of each such change.
Section 4. Collateral Security.
4.01 Collateral; Security Interest.
(a) In connection with the Loans, the Borrower shall
cause the Servicer to deliver, or heretofore has caused the Servicer to
deliver, to the Custodian on behalf of the Agent, the documents and instruments
listed in Section 3 of the Custodial Agreement, as and to the extent required
to be delivered to the Custodian pursuant to the Custodial Agreement. Pursuant
to the terms and requirements of the Custodial Agreement, the Custodian shall
hold the SBA Loan Documents as agent, custodian and bailee for the Lenders from
and after the applicable Funding Date or such date of acceptance of the pledge
by the Agent as specified in the Custodial Agreement.
(b) All SBA Loans listed on each Collateral Receipt
delivered to Agent which the Agent has notified the Lenders, the Custodian and
the Borrower of its acceptance of the pledge of such SBA Loan for the ratable
benefit of the Lenders in accordance with the terms of the Custodial Agreement;
all SBA Loan Documents relating to such SBA Loans, together with all computer
records and tapes or other books and records relating thereto, including
records maintained by the Servicer or the Investment Adviser with respect to
such SBA Loans; any document evidencing the SBA guaranteed takeout (through 504
Program Debentures) of the SBA 504 Program Real Property Loan secured by a
second lien on the Pledged Property pledged to the Agent hereunder and all
claims and payments thereunder; the Servicing Agreement; all General
Intangibles (as defined in the Uniform Commercial Code) relating to or
constituting any and all of the foregoing; all title and other insurance
policies and insurance proceeds relating to any such SBA Loan or Pledged
Property; all Condemnation Proceeds or Liquidation Proceeds; any cash or cash
equivalents acceptable by the Agent deposited with the Agent as additional
Collateral pursuant to Section 2.02(f) or 2.09(a); and any and all
replacements, substitutions, distributions on or proceeds of any and all of the
foregoing are hereinafter referred to as the "Collateral".
(c) The Borrower hereby pledges and grants a security
interest to the Agent, for the ratable benefit of the Lenders, in all of its
right, title and interest in, to and under all Collateral, whether now owned or
hereafter acquired, now existing or hereafter created and wherever located to
secure the repayment of principal of and interest on all Loans and all other
amounts owing to the Lenders hereunder and under the Notes and the other Basic
Documents (collectively, the "Secured Obligations"). The Borrower agrees to
mark its computer records and tapes to evidence the security interests granted
hereunder to the Agent, for the ratable benefit of the Lenders.
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4.02 Further Documentation. At any time and from time to
time, upon the written request of the Agent, and at the sole expense of the
Borrower, the Borrower will promptly and duly execute and deliver, and will
promptly direct the Servicer to execute and deliver, such further instruments
and documents and take such further action as the Agent may reasonably request
for the purpose of obtaining or preserving the full benefits of this Agreement
and of the rights and powers herein granted, including, without limitation, the
filing of any financing or continuation statements under the Uniform Commercial
Code in effect in any jurisdiction with respect to the Liens created hereby.
The Borrower also hereby authorizes the Agent to file any such financing or
continuation statement without the signature of the Borrower to the extent
permitted by applicable law. A carbon, photographic or other reproduction of
this Agreement shall be sufficient as a financing statement for filing in any
jurisdiction.
4.03 Right of Inspection. The Agent and the Lenders
shall, on reasonable notice, have full and free access during normal business
hours to all the books, correspondence and records of the Borrower, the
Investment Adviser, and of the Servicer (in the case of the Investment Adviser
or the Servicer to the extent relating to the Collateral), and the Agent or the
Lenders or their representatives may examine the same, take extracts therefrom
and make photocopies thereof, and the Borrower agrees to render to the Agent
and the Lenders, at the Borrower's cost and expense, such clerical and other
assistance as may be reasonably requested with regard thereto.
4.04 Changes in Locations, Name, etc. The Borrower will
not (a) change the location of its chief executive office/chief place of
business from that specified in Section 6.14 hereof, nor (b) change its name,
identity or corporate structure or change the location where it maintains its
records with respect to the Collateral unless it shall have given the Agent at
least 30 days prior written notice thereof and shall have delivered to the
Agent all Uniform Commercial Code financing statements and amendments thereto
as the Agent shall request and taken all other actions deemed necessary by the
Agent to continue the perfected status in the Collateral with the same or
better priority.
4.05. Agent's Appointment as Attorney-in-Fact.
(a) Powers. The Borrower hereby irrevocably constitutes
and appoints the Agent and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of the Borrower and in the name of
the Borrower or in its own name, from time to time in the Agent's discretion,
for the purpose of carrying out the terms of this Agreement, to take any and
all appropriate action and to execute any and all documents and instruments
which may be necessary or desirable to accomplish the purposes of this
Agreement, and, without limiting the generality of the foregoing, the Borrower
hereby gives the Agent the power and right, on behalf of the Borrower, without
notice to or assent by the Borrower, to do the following:
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(i) if an Event of Default shall have occurred and be
continuing, in the name of the Borrower or its own name, or otherwise,
to take possession of and endorse and collect any checks, drafts,
notes, acceptances or other instruments for the payment of moneys due
under any Qualifying SBA Loan or with respect to any other Collateral,
to execute and file any financial statements or continuations with
respect to any Qualifying SBA Loan or other Collateral and to file any
claim or to take any other action or proceeding in any court of law or
equity or otherwise deemed appropriate by the Agent for the purpose of
collecting any and all such moneys due under any such Qualifying SBA
Loan or with respect to any other Collateral whenever payable;
(ii) to pay or discharge taxes and Liens levied or placed
on or threatened against the Collateral; and
(iii) if an Event of Default shall have occurred and be
continuing (A) to direct any Pledgor or other party liable for any
payment under any Collateral to make payment of any and all moneys due
or to become due thereunder directly to the Agent or as the Agent
shall direct; (B) to ask or demand for, collect, receive payment of
and receipt for, any and all moneys, claims and other amounts due or
to become due at any time in respect of or arising out of any
Collateral; (C) to sign and endorse any invoices, assignments,
verifications, notices and other documents in connection with any of
the Collateral; (D) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction
to collect the Collateral or any thereof and to enforce any other
right in respect of any Collateral; (E) to defend any suit, action or
proceeding brought against the Borrower with respect to any
Collateral; (F) to settle, compromise or adjust any suit, action or
proceeding described in clause (E) above and, in connection therewith,
to give such discharges or releases as the Agent may deem appropriate;
(G) to give directions to the Servicer under the Servicing Agreement
or to terminate the Servicer or a successor servicer as the Servicer
thereunder and hereunder and appoint an affiliate of the Agent or
another Person as the Servicer thereunder; and (H) generally, to sell,
transfer, pledge and make any agreement with respect to or otherwise
deal with any of the Collateral as fully and completely as though the
Agent were the absolute owner thereof for all purposes, and to do, at
the Agent's option and the Borrower's expense, at any time, or from
time to time, all acts and things which the Agent deems necessary to
protect, preserve or realize upon the Collateral and the Agent's and
the Lenders' Liens thereon and to effect the intent of this Agreement,
all as fully and effectively as the Borrower might do.
The Borrower hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable.
(b) Other Powers. (i) The Borrower also authorizes the
Agent, at any time and from time to time, to execute, in connection with the
sale provided for in Section 4.08,
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any endorsements, assignments or other instruments of conveyance or transfer
with respect to the Collateral; provided that, so long as no Event of Default
has occurred and is continuing, the Agent will not change the Servicer, indorse
any SBA Note or file any Assignment of Mortgage without the Borrower's prior
written consent. (ii) The Borrower authorizes the Agent, at any time and from
time to time, to determine the Market Value of the Qualifying SBA Loans pledged
as Collateral hereunder. In connection with the foregoing, the Agent shall
have no liability to the Borrower or any Lender for its determination of Market
Value, including but not limited to, its exercise of discretion in connection
therewith and errors in judgment related thereto.
(c) No Duty on Agent's or Lenders' Part. The powers
conferred on the Agent and the Lenders are solely to protect the Agent's and
the Lenders' interests in the Collateral and shall not impose any duty upon the
Agent or any Lender to exercise any such powers. The Agent and the Lenders
shall be accountable only for amounts that they actually receive as a result of
the exercise of such powers, and neither they nor any of their officers,
directors, employees or agents shall be responsible to the Borrower for any act
or failure to act hereunder, except for their own gross negligence or willful
misconduct.
4.06. Performance by Agent of the Borrower's Obligations.
If the Borrower fails to perform or comply with any of its agreements contained
herein or in the Basic Loan Documents, and the Agent, as provided for by the
terms of this Agreement or in the Basic Loan Documents, shall itself perform or
comply, or otherwise cause performance or compliance, with such agreement, the
expenses of the Agent incurred in connection with such performance or
compliance, together with interest thereon in accordance with Section 3.02(b)
hereof, shall be payable by the Borrower to the Agent on demand and shall
constitute Secured Obligations secured hereby.
4.07. Proceeds. If an Event of Default shall occur and be
continuing (a) all proceeds of Collateral received by the Borrower consisting
of cash, checks and other near-cash items shall be held by the Borrower in
trust for the Agent and the Lenders, segregated from other funds of the
Borrower and the Servicer, and shall, forthwith upon receipt by the Borrower or
the Servicer, be turned over to the Agent in the exact form received by the
Borrower or the Servicer (duly endorsed by the Borrower to the Agent, if
required), and (b) any and all such proceeds received by the Agent (whether
from the Borrower or otherwise) may, in the sole discretion of the Agent, be
held by the Agent for the ratable benefit of the Lenders as collateral security
for, and/or then or at any time thereafter may be applied by the Agent against
the Secured Obligations (whether matured or unmatured), such application to be
in such order as the Agent shall elect. Any balance of such proceeds remaining
after the Secured Obligations shall have been paid in full and the Commitment
shall have been terminated shall be paid over to the Borrower or to whomsoever
may be lawfully entitled to receive the same.
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4.08. Remedies. If an Event of Default shall occur and be
continuing, the Agent, on behalf of the Lenders, may exercise, in addition to
all other rights and remedies granted to it in this Agreement, the Basic Loan
Documents, and in any other instrument or agreement securing, evidencing or
relating to the Secured Obligations, all rights and remedies of a secured party
under the Uniform Commercial Code. Without limiting the generality of the
foregoing, the Agent, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon the Borrower or any other Person
(all and each of which demands, defenses, advertisements and notices are hereby
waived), may in such circumstances forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
lease, assign, give an option or options to purchase, or otherwise dispose of
and deliver the Collateral or any part thereof (or contract to do any of the
foregoing), in one or more parcels or as an entirety at public or private sale
or sales, at any exchange, broker's board or office of the Agent or any Lender
or elsewhere upon such terms and conditions as it may deem advisable and at
such prices as it may deem best, for cash or on credit or for future delivery
without assumption of any credit risk. The Agent or any Lender shall have the
right upon any such public sale or sales, and, to the extent permitted by law,
upon any such private sale or sales, to purchase the whole or any part of the
Collateral so sold, free of any right or equity of redemption in the Borrower,
which right or equity is hereby waived or released. The Borrower further
agrees, at the Agent's request, to assemble the Collateral and make it
available to the Agent at places which the Agent shall reasonably select,
whether at the Borrower's premises or elsewhere. The Agent shall apply the net
proceeds of any such collection, recovery, receipt, appropriation, realization
or sale, after deducting all reasonable costs and expenses of every kind
incurred therein or incidental to the care or safekeeping of any of the
Collateral or in any way relating to the Collateral or the rights of the Agent
and the Lenders hereunder, including, without limitation, reasonable attorneys'
fees and disbursements, to the payment in whole or in part of the Secured
Obligations, in such order as the Agent may elect, and only after such
application and after the payment by the Agent of any other amount required or
permitted by any provision of law, including, without limitation, Section
9-504(1)(c) of the Uniform Commercial Code, need the Agent account for the
surplus, if any, to the Borrower. To the extent permitted by applicable law,
the Borrower waives all claims, damages and demands it may acquire against the
Agent or any Lender arising out of the exercise by the Agent or any Lender of
any of its rights hereunder. If any notice of a proposed sale or other
disposition of Collateral shall be required by law, such notice shall be deemed
reasonable and proper if given at least 10 days before such sale or other
disposition. The Borrower shall remain liable for any deficiency if the
proceeds of any sale or other disposition of the Collateral are insufficient
to pay the Secured Obligations and the fees and disbursements of any attorneys
employed by the Agent or any Lender to collect such deficiency.
4.09. Limitation on Duties Regarding Presentation of
Collateral. The Agent's sole duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession, under Section 9-207
of the Uniform Commercial Code or otherwise, shall be
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to deal with it in the same manner as the Agent deals with similar property for
its own account. Neither the Agent, any Lender nor any of their respective
directors, officers, employees or agents shall be liable for failure to demand,
collect or realize upon all or any part of the Collateral or for any delay in
doing so or shall be under any obligation to sell or otherwise dispose of any
Collateral upon the request of the Borrower or otherwise.
4.10. Powers Coupled with an Interest. All authorizations
and agencies herein contained with respect to the Collateral are irrevocable
and powers coupled with an interest.
4.11 Release of Security Interest.
(a) In the event the Agent agrees to release its Lien
with respect to any Collateral pledged hereunder, whether pursuant to Section
2.09 or otherwise, it shall take or cause to be taken the actions contemplated
by the Custodial Agreement with respect to the Collateral the Lien on which is
to be so released.
(b) Upon termination of the Commitment and repayment to
the Agent and the Lenders of all amounts owing to them hereunder and under the
Custodial Agreement, the Agent shall take the actions described in the
preceding clause (a) with respect to all remaining Qualifying SBA Loans held
pursuant to the Custodial Agreement.
Section 5. Conditions Precedent.
5.01 Initial Loan. The agreement of each of the Lenders
to make the initial Loan extended hereunder is subject to the conditions
precedent that the Agent shall have received (with a copy for each Lender) the
following items, each of which shall be satisfactory to the Lenders in form and
substance:
(a) Notes. The Notes, duly completed and executed by the
Borrower.
(b) Custodial Agreement. The Custodial Agreement, duly
executed by each of the parties thereto.
(c) Servicing Agreement. The Servicing Agreement, which
shall require, inter alia, the Servicer to perform its duties
thereunder in accordance with Accepted Servicing Practices, duly
executed and delivered by the parties thereto.
(d) Filings, Registrations and Recordings. Evidence,
including, without limitation, the results of a search of the records
of state and local recording offices responsible for the retention of
filed financing statements in the state in which the Borrower was
organized, that all filings, registrations and recordings required to
be filed under this Agreement in order to create, in favor of the
Agent on behalf of the Lenders, a perfected first-priority security
interest in the Collateral hereunder with respect to which a security
interest may be perfected by filing under the Uniform
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Commercial Code as then in effect in any applicable jurisdiction,
shall have been properly filed in each office in each jurisdiction
listed in Schedule 6 hereto, or tendered to the Agent for filing,
which filings shall be the only filings required under the Uniform
Commercial Code or otherwise in order to create in favor of the Agent
for the ratable benefit of the Lenders a perfected first priority Lien
on such Collateral.
(e) Corporate Documents. Good standing certificates and
certified copies of the charter and by laws (or equivalent documents)
of the Borrower, the Investment Adviser, and the Servicer and of all
authority for the Borrower, the Investment Adviser, and the Servicer
(including, without limitation, resolutions and incumbency
certificates with respect to authorized officers) with respect to the
execution, delivery and performance of the Basic Documents to which it
is a party and each other document to be delivered by the Borrower,
the Investment Adviser, and the Servicer from time to time in
connection herewith and the Loans hereunder (and the Agent may
conclusively rely on such certificate until it receives notice in
writing from the Borrower to the contrary).
(f) Opinions of Counsel. An opinion letter, dated the
Closing Date, of counsel to the Borrower, Servicer and Investment
Adviser reasonably satisfactory to the Agent, including without
limitation an opinion that, (i) the Basic Documents have been duly
authorized, executed and delivered by the Borrower, the Investment
Adviser, and the Servicer, as the case may be and are valid and
enforceable in accordance with their terms, subject to bankruptcy and
equitable principles, (ii) the Borrower is qualified to do business
and is in good standing under the laws of the jurisdiction where
required to conduct its business, (iii) the Basic Documents shall not
cause a breach by the Borrower, the Servicer, or the Investment
Adviser as the case may be of, or a default under, any document to
which such Person is a party and will not violate any law, rule, or
regulations to which such Person is subject, (iv) all consents and
approvals necessary for the execution, delivery and performance of the
Basic Documents by the Borrower, the Servicer, the Investment Adviser
as the case may be have been delivered, (v) all actions required to
grant, perfect and protect the Agent's first priority perfected
security interest in the Collateral for the benefit of the Lenders
pursuant to this Agreement have been complied with, (vi) the Borrower
is qualified to originate SBA Loans and is in compliance with SBA
eligibility requirements, and (vii) this Facility does not violate
usury laws.
(g) [Intentionally Omitted].
(h) Closing Date Certificate. A Closing Date
Certificate, substantially in the form of Exhibit C-2 hereto, executed
and delivered by a Responsible Officer of the Borrower, certifying
that the conditions precedent to the effectiveness of this Agreement
have been satisfied.
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(i) [Intentionally Omitted].
(j) Evidence of SBA Approval. Evidence satisfactory to
the Agent that (i) the Borrower is qualified to originate SBA Loans
and is in compliance with SBA eligibility requirements, (ii) the
Servicer is a small business lending company, and (iii) the Investment
Adviser is a registered investment advisor under the Investment
Advisers Act of 1940, as amended.
(k) Insurance. Original certificates and copies of
policies of insurance for the Borrower, the Servicer and Custodian as
required by and satisfactory to the Agent under the terms and
conditions required hereunder or in the Basic Loan Documents, and, if
required by the Agent, a report from the Agent's insurance consultant
with respect thereto.
(l) Financial Statements. The most recent quarterly
unaudited and annual audited financial statements of each of the
Servicer and the Investment Adviser and the most recent quarterly and
annual unaudited financial statements of the Borrower; provided,
however, that prior to year end December 31, 1995 the delivery of
inception to date unaudited financial statements of the Borrower shall
be acceptable in lieu of unaudited annual financial statements
therefor.
(m) Comfort Letter. A comfort letter satisfactory to the
Agent delivered by Matthews, Carter and Boyce or such other
nationally-recognized independent certified public accounting firm
acceptable to the Agent regarding the matters set forth in Section
7.06.
(n) Letter Agreement. The Letter Agreement duly executed
by each of the parties thereto.
(o) Investment Adviser Agreement. A copy of the
Investment Adviser Agreement, certified by a Responsible Officer as
true and correct and in full force and effect on the Closing Date.
(p) Sideletter. The Sideletter, duly executed by the
Borrower.
(q) Investment Adviser Undertaking. The Investment
Adviser Undertaking, duly executed by each of the parties thereto.
(r) Guarantee. The Guarantee, duly executed and
delivered by the Guarantor.
(s) Resolutions. Resolutions of the Borrower, Servicer
and Investment Adviser authorizing the execution of, and performance
under, this Agreement and the applicable Basic Documents.
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(t) Consents, Licenses, Approvals, etc. Agent shall have
received certified copies of all consents, licenses and approvals, if
any, required in connection with the execution, delivery and
performance by the Borrower, and the validity and enforceability of
the Basic Documents, and such consents, licenses and approvals shall
be in full force and effect.
(u) Other Documents. Such other documents or opinions of
counsel, including, without limitation, copies of charter documents,
incumbency certificates and good standing certificates, as the Agent
or counsel to the Agent may reasonably request from the Borrower,
Investment Adviser, Servicer or the Custodian, which shall be
satisfactory in form and substance to the Agent.
The obligation of each Lender to make its initial Loan hereunder is also
subject to the payment by the Borrower of such fees as the Borrower shall have
agreed to pay or deliver to the Agent in connection herewith prior to the
Closing Date, including, but not limited to, the fees and expenses of
Cadwalader, Wickersham & Taft, counsel to the Agent.
5.02 Initial and Subsequent Loans. The obligation of each
Lender to make any Loan to the Borrower upon the occasion of each borrowing
hereunder (including the initial borrowing) is subject to the further
conditions precedent that, both immediately prior to the making of such Loan
and also after giving effect thereto and to the intended use thereof:
(a) no Default or Event of Default shall have occurred
and be continuing;
(b) the representations and warranties made by the
Borrower in Section 6, and by the Borrower and the Servicer in each of
the other Basic Documents shall be true and complete on and as of the
date of the making of such Loan with the same force and effect as if
made on and as of such date (or, if any such representation or
warranty is expressly stated to have been made as of a specific date,
as of such specific date);
(c) all of the provisions of Section 2.02 shall have been
complied with;
(d) (i) the aggregate unpaid principal amount of all
Loans outstanding on the date on which such Loan is to be made, after
giving effect to the making of such Loan, shall not exceed the lesser
of the Borrowing Base or the Facility Amount, and the Agent shall have
received a Collateral Receipt satisfactory to the Agent covering all
Qualifying SBA Loans included in the Borrowing Base; and (ii) the
Agent shall not have delivered a Borrowing Base Certificate which
would reflect that the outstanding principal amount of all Loans on
the date on which such Loan is made, after giving affect to the making
of such Loan exceeds the Borrowing Base as reflected in such Borrowing
Base Certificate;
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(e) the Agent shall have received releases satisfactory
to the Agent from all lenders who may have security interests in any
Collateral not covered by a prior release; and
(f) such other documents as the Agent or counsel to the
Agent may reasonably request.
Each notice of borrowing by the Borrower hereunder shall
constitute a certification by the Borrower to the effect set forth in the
preceding sentence (both as of the date of such notice, request or confirmation
and, unless the Borrower otherwise notify the Agent prior to the date of such
borrowing, as of the date of such borrowing).
Section 6. Representations and Warranties. In order to
induce the Lenders to enter into this Agreement and to make the Loans herein
provided for, Borrower hereby represents and warrants to the Agent and each
Lender as follows:
6.01 Existence. Each of the Investment Adviser, the
Servicer and the Borrower (a) is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization; (b) has all
requisite power, and has all material governmental licenses, authorizations,
consents and approvals, necessary to own its assets and carry on its business
as now being or as proposed to be conducted; and (c) is qualified to do
business and is in good standing in all other jurisdictions in which the nature
of the business conducted by it makes such qualification necessary and where
failure so to qualify could (either individually or in the aggregate) have a
Material Adverse Effect.
6.02 Financial Condition. The Borrower has heretofore
furnished to the Agent a copy of its unaudited inception to July 31, 1995
financials and most recent quarterly unaudited balance sheet and related
statements of income and cash flows of the Borrower. Such pro forma balance
sheet and related statements of income and cash flows is complete and correct
and fairly presents the financial condition of the Borrower on said date, all
in accordance with GAAP applied on a consistent basis (except that notes
thereto have not been prepared). The Borrower does not have on the date hereof
any material contingent liabilities, liabilities for taxes, unusual forward or
long-term commitments or unrealized or anticipated losses from any unfavorable
commitments, except as referred to or reflected or provided for in said balance
sheet and related statements of income and cash flows as at said dates. Since
the Closing Date, there has been no material adverse change in the business,
operations, financial condition or properties of the Borrower.
6.03 Litigation. There are no actions, suits,
arbitrations, investigations or proceedings pending or, to its knowledge,
threatened against the Borrower or affecting any of its Property before any
Governmental Authority, (i) as to which individually or in the aggregate there
is a reasonable likelihood of an adverse decision which would have a Material
Adverse Effect or (ii) which questions the validity or enforceability of this
Agreement or any of the Basic Documents or any action to be taken in connection
with the transactions
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contemplated hereby or thereby; there are no judgments, decrees, or orders of
any kind against the Borrower unpaid of record which would materially or
adversely affect the ability of the Borrower to comply with its obligations
under the Loans or this Agreement in a timely manner. There are no federal tax
claims or liens assessed or filed against the Borrower or any related entity,
or any principal thereof, and there are no material judgments against the
Borrower unsatisfied of record or docketed in any court of the States in which
the collateral is located or in any other court located in the United States
and no petition in bankruptcy or similar insolvency proceeding has ever been
filed by or against the Borrower, and the Borrower has not ever made any
assignment for the benefit of creditors or taken advantage of any insolvency
act or any act for the benefit of debtors.
6.04 No Breach. Except for those consents obtained by the
Borrower on or prior to the Closing Date, none of the execution and delivery of
this Agreement and the Notes and the other Basic Documents, the consummation
of the transactions herein and therein contemplated or compliance with the
terms and provisions hereof and thereof will conflict with or result in a
breach of, or require any consent under, the organizational documents of the
Borrower or any applicable law, rule or regulation, or any order, writ,
injunction or decree of any Governmental Authority, or any agreement or
instrument to which the Borrower is a party or by which the Borrower or any of
the Borrower's Property is bound or to which either of them is subject, or
constitute a default under any such agreement or instrument, or (except for the
Liens created pursuant to this Agreement) result in the creation or imposition
of any Lien upon any Property of the Borrower pursuant to the terms of any such
agreement or instrument.
6.05 Action. Each of the Investment Adviser, Servicer and
the Borrower has all necessary corporate power, authority and legal right to
execute, deliver and perform its obligations hereunder and under each of the
Basic Documents to which it is a party; the execution, delivery and performance
by each of the Investment Adviser, Servicer and the Borrower of this Agreement
and each of the Basic Documents to which it is a party have been duly
authorized by all necessary action on its part; this Agreement has been duly
and validly executed and delivered by the Borrower and constitutes, and the
Notes and the other Basic Documents when executed and delivered will
constitute, its legal, valid and binding obligations, enforceable against each
of the Investment Adviser, Servicer and the Borrower, as applicable and in
accordance with their respective terms.
6.06 Approvals. No authorizations, approvals or consents
of, and no filings or registrations with, any Governmental Authority, including
the SBA, and no consents of any other Person, are necessary for the execution,
delivery or performance by each of the Investment Adviser, Servicer and the
Borrower of this Agreement or the Basic Documents to which it is a party or for
the legality, validity or enforceability hereof or thereof, except for filings
and recordings in respect of the Liens created pursuant hereto set forth in
Schedule 6 hereto and the Consents set forth on Schedule 8 hereto, which have
been obtained and are in full force and effect.
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6.07 Title to Properties. The Borrower has good and
marketable title to all of its Properties, title to which is material to this
Agreement or listed as an asset on its financial statements.
6.08 Compliance. The execution, delivery and performance
by the Borrower of this Agreement, the Notes and the other Basic Documents and
each other agreement, instrument and document referenced or provided for herein
or therein to which the Borrower is or is to be a party, and the other
transactions contemplated hereby and thereby, do not (a) contravene any of the
investment policies or investment restrictions of the Borrower, (b) violate any
law (including, without limitation, the Securities Act of 1933, the Securities
Exchange Act of 1934, applicable state blue sky laws, the Investment Company
Act of 1940 and the Racketeer Influenced and Corrupt Organizations Chapter of
the Organized Crime Control Act of 1940, as amended), rule, regulation
(including, without limitation, Regulations U and X of the Board of Governors
of the Federal Reserve System or the regulations promulgated under the
Investment Company Act of 1940, as amended) .
6.09 Compliance with Laws and other Agreements. Except as
set forth on Schedule 3 with respect to the Investment Adviser, each of the
Investment Adviser, Servicer and the Borrower is not in default with respect to
any order, writ, injunction or decree of any Governmental Authority or, to the
knowledge of each of the Investment Adviser, Servicer and the Borrower, in
violation of any law, statute, rule or regulation to which the Borrower or any
Property of the Borrower is subject, including but not limited to, the SBA
Rules and Regulations, which default or violation individually or in the
aggregate could reasonably be expected to have a Material Adverse Effect. Each
of the Investment Adviser, Servicer and the Borrower is not in default in the
payment or performance of any of its obligations or in the performance of any
mortgage, indenture, lease, contract or other agreement to which it is a party
or by which it or any of its Property is bound, which default individually or
in the aggregate could reasonably be expected to have a Material Adverse
Effect.
6.10 Subsidiaries. The Borrower does not have
Subsidiaries; the Guarantor is the sole general partner and the 98% limited
partner of the Borrower.
6.11 True and Complete Disclosure. The information,
reports, financial statements, exhibits and schedules furnished in writing by
or on behalf of the Borrower to the Agent or any Lender in connection with the
negotiation, preparation or delivery of this Agreement and the other Basic
Documents or included herein or therein or delivered pursuant hereto or
thereto, when taken as a whole, do not contain any untrue statement of material
fact or omit to state any material fact necessary to make the statements herein
or therein, in light of the circumstances under which they were made at the
time they were made, not misleading. All written information furnished after
the date hereof by the Borrower to the Agent or any Lender in connection with
this Agreement and the other Basic Documents and the transactions contemplated
hereby and thereby will be true, complete and accurate in every material
respect, or (in the case of projections) based on reasonable estimates, on the
date as of which such
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information is stated or certified. There is no fact known to a Responsible
Officer of the Borrower that, after due inquiry, could reasonably be expected
to have a Material Adverse Effect that has not been disclosed herein, in the
other Basic Documents or in a report, financial statement, exhibit, schedule,
disclosure letter or other writing furnished to the Agent and any Lender for
use in connection with the transactions contemplated hereby or thereby.
6.12 SBA Approved. The Borrower is qualified to originate
mortgage loans for the SBA, and no event has occurred, which would make the
Borrower unable to comply with SBA eligibility requirements or which would
require notification to the SBA.
6.13 Collateral Security.
(a) The provisions of this Agreement are effective to
create in favor of the Agent for the ratable benefit of the Lenders a valid
security interest in all right, title and interest of the Borrower in the
Collateral.
(b) (i) When the financing statements described in Schedule 6
hereto have been filed in the offices in the jurisdictions listed in Schedule 6
hereto, the security interests created under this Agreement shall constitute
fully perfected first liens on, and security interests in, all right, title and
interest of the Borrower in the Collateral which can be perfected by filing a
financing statement under the Uniform Commercial Code in any jurisdiction in
the United States.
(ii) Upon receipt by the Custodian of the
Collateral with respect to any Qualifying SBA Loan and for so
long as the Custodian maintains actual physical possession of
such Collateral pursuant to the terms of the Custodial
Agreement, the Agent shall have a fully-perfected first
priority security interest in such Collateral for the ratable
benefit of the Lenders.
6.14 Chief Executive Office. The Borrower's chief
executive office is located at 5422 Albia Road, Bethesda, Maryland 20816.
6.15 Location of Books and Records. The location where
the Borrower keeps its books and records, including all computer tapes and
records relating to the Collateral, is c/o the Guarantor, 1666 K Street, N.W.,
Suite 901, Washington, D.C. 20006.
6.16 Employees. The Borrower has no employees.
Section 7. Covenants of the Borrower. The Borrower
covenants and agrees with the Agent and each Lender that, so long as the
Commitment or any Loan is outstanding and until payment in full of all amounts
payable by the Borrower hereunder:
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7.01 Financial Statements, Etc. The Borrower shall
deliver to the Agent and each Lender:
Monthly Financial Statements.
(a) Monthly, on or before 25 days after the end
of each calendar month, (i) a schedule in computer readable
form, containing such information specified on Annex A to
Schedule 1 of this Agreement (the "SBA Loan Collateral Tape")
(ii) Borrower approved credit change memoranda or similar
documentation relating to a proposed modification or amendment
of the requirements, terms, provisions or conditions of an SBA
Loan ("Credit Change Memoranda") with respect to each
Qualifying SBA Loan; provided, however, that if the aggregate
outstanding principal balance of all Loans then outstanding
exceeds the Borrowing Base less $2,000,000 or Credit Change
Memoranda not previously delivered to the Agent affect
Qualifying SBA Loans with an outstanding principal balance of
greater than or equal to $2,000,000, all such Credit Change
Memoranda shall be delivered to the Agent prior to approval by
the Borrower.
(b) Quarterly Financial Statements.
(i) Beginning with the fiscal quarter ending
September 30, 1995, as soon as available and in any event
within fifty calendar days after the end of each fiscal
quarter of each fiscal year, its consolidated financial
statements, consisting of a balance sheet as of the end of
such fiscal quarter and related statements of income and cash
flows for the quarter then ended and the fiscal year through
that date, all in reasonable detail and certified (subject to
normal year-end or inception to date, as the case may be,
adjustments and the absence of footnotes) by a Responsible
Officer of the Borrower as having been prepared in accordance
with GAAP consistently applied, and setting forth, in
comparative form the respective financial statements for the
corresponding date and period for the previous fiscal year.
(ii) Beginning with the fiscal quarter ending
September 30, 1995, as soon as available and in any event
within fifty calendar days after the end of each fiscal
quarter of each fiscal year of the Investment Adviser and
Servicer, as applicable, financial statements of the
Investment Adviser and Servicer, as applicable, and consisting
of a balance sheet as of the end of such fiscal quarter and
related statements of income, and cash flows for the quarter
then ended and the fiscal year through that date, all in
reasonable detail and certified (subject to normal year-end
adjustments and the absence of footnotes) by a Responsible
Officer of the Investment Adviser and Servicer, as applicable,
as having been prepared in accordance with GAAP consistently
applied, and setting forth, in
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comparative form the respective financial statements for the
corresponding date and period for the previous fiscal year.
(c) Annual Financial Statements.
(i) As soon as available and in any event within
ninety-five days after the end of each of its fiscal year, its
consolidated financial statements, including the financial
operations of the Guarantor, consisting of a balance sheet as
of the end of such fiscal year, and related statements of
income and cash flows, as well as consolidating schedules
detailing the separate financial position of the Borrower on
an unconsolidated basis, for the fiscal year then ended (or
inception to fiscal year end, as the case may be), all in
reasonable detail and setting forth in comparative form the
financial statements as of the end of and for the preceding
fiscal year (if any), audited by Matthews, Carter and Boyce or
such other nationally-recognized independent certified public
accounting firm satisfactory to the Agent. The report of
accountants shall be free of qualifications and shall not
indicate the occurrence or existence of any event, condition
or contingency which would materially impair the prospect of
payment or performance of any covenant agreement or duty of
the Borrower, hereunder, and shall be accompanied by a letter
of such accountants substantially to the effect that, based
upon their ordinary and customary examination of the affairs
of the Borrower, performed in connection with the preparation
of such consolidated financial statements, and in accordance
with generally accepted auditing standards, they are not aware
of the existence of any condition or event which constitutes a
Default or Event of Default or, if they are aware of such
condition or event, stating the nature thereof, and confirming
the Borrower's calculations with respect to the provisions of
Section 7.06.
(ii) As soon as available and in any event within
ninety-five days after the end of each fiscal ear of the
Investment Adviser and Servicer, financial statements of the
Investment Adviser and Servicer consisting of a balance sheet
as of the end of such fiscal year, and related statements of
income, and cash flows for the fiscal year then ended, all in
reasonable detail and setting forth in comparative form the
financial statements as of the end of and for the preceding
fiscal year, audited by independent certified public
accountants of nationally recognized standing satisfactory to
the Agent. The report of accountants shall be free of
qualifications and the financial statements shall not indicate
the occurrence or existence of any event, condition or
contingency which would materially impair the performance of
any covenant, agreement or duty of the Investment Adviser
and/or the Servicer under the Servicing Agreement, Investment
Adviser Undertaking, or Custodial Agreement, as applicable.
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(d) Additional Information. Deliver concurrently
to the Agent copies of all other quarterly and annual filings
of the Borrower, Servicer and the Investment Adviser with the
Securities and Exchange Commission and other publicity
released information. From time to time such other
information regarding the financial condition, operations,
business or prospects of the Borrower, Servicer or the
Investment Adviser as the Agent may reasonably request.
The Borrower will furnish to each Lender, at the time it furnishes each set of
financial statements pursuant to paragraph (a) or (b) above, a certificate of a
Responsible Officer of the Borrower , (i) to the effect that no Default or
Event of Default has occurred and is continuing (or, if any Default or Event of
Default has occurred and is continuing, describing the same in reasonable
detail and describing the action that the Borrower has taken or proposes to
take with respect thereto), (ii) setting forth in reasonable detail the
computations necessary to determine whether the Borrower is in compliance with
Section 7.06 and whether an Event of Default has occurred under Section 8.01(n)
and the basis for such determination, in each case as of the end of the
respective quarterly fiscal period or fiscal year and (iii) stating that since
the date of the prior financial statements delivered pursuant to this Section
7.01 no change has occurred in the financial position of the Borrower, which
change could result in a Material Adverse Effect.
7.02 Litigation. The Borrower will (a) promptly, and in
any event within 5 days of a good faith determination of a Responsible Officer,
give to each Lender notice of all legal or arbitral proceedings affecting the
Borrower that could (either individually or in the aggregate) be reasonably
expected to have a Material Adverse Effect and (b) promptly, and in any event
within 5 days after service of process on any of the following, give to the
Agent notice of all legal or arbitral proceedings affecting it that questions
or challenges the validity or enforceability of this Agreement or any of the
Basic Documents and, to the extent permitted by law, it shall in each case
include with such notice a copy of all documents served on it relating to any
such legal or arbitral proceeding. Without limiting the foregoing, it will
give prompt notice to the Agent of any material proceeding or investigation by
or before any Governmental Authority. Each notice pursuant to this Section
7.02 shall be accompanied by a certificate from a Responsible Officer of the
Borrower setting forth the details of the occurrence referred to therein and
describing the actions the Borrower proposes to take with respect thereto.
7.03 Existence, Etc. The Borrower will:
(a) preserve and maintain its legal existence and all of
its material rights, privileges, licenses and franchises;
(b) comply with the requirements of all applicable laws,
rules, regulations and orders of Governmental Authorities (including,
without limitation, all environmental laws);
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(c) pay and discharge all taxes, assessments and
governmental charges or levies imposed on it or on its income or
profits or on any of its Property prior to the date on which penalties
attach thereto, except for any such tax, assessment, charge or levy
the payment of which is being contested in good faith and by proper
proceedings and against which adequate reserves are being maintained;
(d) maintain all of its Properties used or useful in its
business in good working order and condition, ordinary wear and tear
excepted;
(e) keep adequate records and books of account, in which
complete entries will be made in accordance with GAAP consistently
applied; and
(f) permit the Agent, any Lenders or any representative
of the Agent or any Lender during normal business hours, to examine,
copy and make extracts from its, the Servicer's and the Investment
Adviser's books and records (in the case of the Servicer and the
Investment Adviser, relating to the Collateral only), to inspect any
of its Property (in the case of the Servicer and the Investment
Adviser, relating to the Collateral only), and to discuss its business
and affairs with its officers, partners and employees, all to the
extent reasonably requested by the Lender.
7.04 Insurance.
(a) The Borrower will maintain insurance with respect to
its Property and SBA Loans covering such risks of a character usually
maintained by Persons engaged in the same or similar business similarly
situated, against loss, damage and liability of the kinds and in the amounts
customarily maintained by such Persons. In addition to the foregoing, the
Borrower, Servicer and Investment Adviser shall maintain a fidelity bond and an
errors and omissions insurance policy which affords coverage to all directors,
officers and employees of the Borrower, Servicer and Investment Adviser in
amounts which satisfy the requirement of the SBA and FNMA or FHLMC with respect
to any servicer of mortgage loans, in such form as is customary for servicers
of commercial loans.
(b) The Borrower shall cause insurance to be maintained
on the Pledged Property securing each SBA Note in accordance with the
requirements of item 25 in Schedule 2 (the "Collateral Insurance
Requirements"). In the event that the Borrower shall obtain and maintain a
blanket policy (which policy and insurer shall be acceptable to the Agent)
insuring against losses arising from fire and hazards covered under extended
coverage on all of the Pledged Property, then, to the extent such policy
provides coverage in an amount equal to the amount required pursuant to the
Collateral Insurance Requirements and otherwise complies with the Collateral
Insurance Requirements, it shall conclusively be deemed to have satisfied its
obligations as set forth in this Section 7.04(b). Upon request of the Agent,
the Borrower shall cause to be delivered to the Agent a certified true copy of
such policy and a statement from the insurer thereunder that such policy shall
in no event be terminated or materially modified without 30 day's prior written
notice to the Agent.
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(c) All insurance carriers must be fully licensed in the
applicable jurisdiction(s) and otherwise be acceptable to the Agent. Currently
the Agent's standards require the insurance carriers to be "A" rated for claims
paying ability by Moody's Investors Service, Inc., Standard & Poors Ratings
Group, Fitch Investors Service, or Duff & Phelps Ratings Group. If not rated
by these rating agencies, each insurer is required to have a minimum policy
rating of "A" and a minimum financial class of "VIII" by A.M. Best Co.
7.05 Prohibition of Fundamental Changes. The Borrower
will not enter into any transaction of merger or consolidation or amalgamation,
or liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution) or sell all or substantially all of its assets, without the prior
written consent of the Required Lenders.
7.06 Borrower Financial Covenants. (a) The ACLCLP and the
ACLC shall maintain on a consolidated basis at all times on the last day of
each calendar month a ratio of Total Debt to total assets (both computed in
accordance with GAAP) not to exceed 70%;
(b) The Guarantor shall maintain at all times the market
value of its then issued and outstanding shares of stock calculated on
the basis of the closing quotation published on the NASDAQ National
Market System of at least $38,200,000;
(c) The Borrower and the Guarantor shall maintain on a
consolidated basis at all times on the last day of each calendar month
a ratio of Net Investment Income of the Borrower and the Guarantor for
the immediately preceeding three-month period, after deduction for a
reasonable loan loss reserve as determined by the Agent, to Total Debt
Service of the Borrower and the Guarantor for such period of 2 to 1.
For purposes of this calculation, Total Debt shall exclude scheduled
balloon maturity payments unless past due, however, such debt service
amount shall be calculated assuming the related debt had been
refinanced on the same terms.
7.07 Servicer. Unless otherwise instructed by the Agent,
the Borrower shall cause all SBA Loans pledged as Collateral hereunder to be
serviced only by the Servicer under the Servicing Agreement.
7.08 Lines of Business. The Borrower will not engage in
any line or lines of business activity other than the business now carried on
by it or a line of business related to the business now carried on by it.
7.09 Transactions with Affiliates. The Borrower will not
directly or indirectly enter into any transaction or transactions with an
Affiliate or Affiliates (a) unless such transaction is otherwise permitted
under this Agreement or the other Basic Documents or is in the ordinary course
of its business and is upon fair and reasonable terms no less favorable to it
than it would obtain in a comparable arm's-length transaction with a Person not
an Affiliate or (b) if the terms and conditions thereof, individually or in the
aggregate, could
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reasonably be expected to have a Material Adverse Effect or (c) unless such
transaction is approved by the Agent and the Required Lenders.
7.10 Use of Proceeds. The Borrower will use the proceeds
of the Loans solely to originate SBA Loans or for general partnership purposes
and shall not use any portion of the Loan for making any Distribution.
7.11 Liens. The Borrower shall not create, incur, assume
or suffer to exist any Lien upon any of the Collateral except as contemplated
by this Agreement.
7.12 Servicing Agreement; Investment Adviser Undertaking.
The Borrower will not amend, modify or supplement the Servicing Agreement or
the Investment Adviser Undertaking without the prior written consent of the
Agent and Required Lenders.
7.13 Maintenance of Status. The Borrower shall maintain
its qualification to originate SBA Loans and remain in compliance with SBA
eligibility requirements.
7.14 Notice of Default. Promptly after it knows or has
reason to believe that any Default has occurred, the Borrower shall deliver to
the Agent and each Lender a notice from a Responsible Officer of such Default
describing the same in reasonable detail and, together with such notice or as
soon thereafter as possible, a description of the action that the Borrower has
taken or proposes to take with respect thereto.
7.15 Material Adverse Effect. Promptly after it knows or
has reason to believe that a Material Adverse Effect has occurred, the Borrower
shall deliver to the Agent and each Lender a notice from a Responsible Officer
of the circumstances of such Material Adverse Effect describing the same in
reasonable detail and, together with such notice or as soon thereafter as
possible, a description of the action that the Borrower has taken or proposes
to take with respect thereto.
7.16 Notice of Breach. Promptly after it knows or has
reason to believe that any representation or warranty on Schedule 2 hereto is
untrue or incorrect with respect to a Qualifying SBA Loan included in the
Borrowing Base, the Borrower shall deliver to the Agent a notice to that
effect. Upon receipt of such notice, the Agent shall determine whether such
SBA Loan shall continue to be a Qualifying SBA Loan and included in the
Borrowing Base. The Agent shall promptly notify the Borrower and the Lenders
of its determination thereof.
7.17 SBA Compliance. No later than 120 days after the end
of each calender year, the Borrower shall cause Servicer to deliver to the
Agent an officer's certificate of the Servicer stating that the Servicer has
complied with all obligations under the Servicing Agreement and the SBA Rules
and Regulations. In addition, the Borrower shall deliver to the Agent promptly
the results of all SBA compliance audits and any correspondence received or
sent by either the Borrower or the Servicer with respect to the Qualifying SBA
Loans.
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7.18 No Secondary Financing. The Borrower shall not
obtain or permit any secondary financing using any portion of the Collateral or
any other Liens on any portion of the Collateral.
7.19 Borrower Certification. The Borrower shall certify
and demonstrate compliance reasonably satisfactory to Agent on a quarterly
basis, no later than 45 days following the end of each quarter (a) each of the
covenants in this Section 7 has been and continues to be complied with (b) the
outstanding principal balance of the Loans does not exceed the lesser of the
Collateral Maintenance Amount and the Facility Amount.
7.20 Notice of Judgments. The Borrower shall promptly
notify the Agent of any final judgment for the payment of money equal to an
aggregate 1% or more of the book value of the Borrower's and the Guarantor's
consolidated equity (as reported on the Borrower's and the Guarantor's GAAP
financial statements) rendered against the Borrower or the Guarantor by a
court, administrative tribunal or other body having jurisdiction over it.
7.21 Employees. The Borrower shall not hire, have or
maintain any employees.
7.22 Corporate Structure. Allied Capital Lending
corporation shall continue to be the sole general partner with a 1% ownership
interest, and a 98% limited partner of the Borrower.
7.23 Reports to the Agent. The Borrower shall cause the
Servicer to comply with the requirements of Section 5 of Schedule 1 hereto.
7.24 Property in Maryland. The Borrower shall not bring,
or suffer to be brought, into the State of Maryland any property which would
cause a recordation tax to become due and owing to the Maryland Department of
Assessments and Taxation in connection with the filing of a financing statement
describing such property.Section 8. Events of Default.
8.01 Events of Default. If one or more of the following
events (herein called "Events of Default") shall occur and be continuing:
(a) The Borrower shall (i) default in the payment
of any principal of any Loan when due (whether at stated maturity,
upon acceleration or at mandatory or optional prepayment); or (ii)
default in the payment of any interest on any Loan, any fee or any
other amount payable by it hereunder or under any other Basic Document
when due and such default shall have continued unremedied for three
Business Days; or
(b) The Borrower or the Guarantor shall default
in the payment when due of any principal of or interest on any of its
other Indebtedness in excess of
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$250,000 ("Triggering Indebtedness"); or any event specified in any
note, agreement, indenture or other document evidencing or relating to
any such Triggering Indebtedness shall occur if the effect of such
event is to cause such Triggering Indebtedness to become due, or to be
prepaid in full (whether by redemption, purchase, offer to purchase or
otherwise), prior to its stated maturity or to have the interest rate
thereon reset to a level so that securities evidencing such
Triggering Indebtedness trade at a level specified in relation to the
par value thereof; or
(c) Any representation, warranty or certification
made or deemed made herein (other than in Schedule 2 hereto) or in any
other Basic Document by the Borrower, or any certificate furnished to
the Agent or any Lender pursuant to the provisions hereof or thereof,
shall prove to have been false or misleading as of the time made or
furnished in any material respect; or
(d) The Borrower shall default in the performance
of any of its obligations under any of Section 7; or the Borrower
shall default in the performance of any of its obligations under
Section 2.09(a) and such default shall continue unremedied for a
period of one Business Day or more; or the Borrower shall default in
the performance of any of its other obligations in the Sideletter, and
such default shall continue unremedied for a period of five Business
Days; or the Borrower shall default in the performance of any of its
other obligations in this Agreement or any other Basic Document to
which it is a party, other than the Sideletter, and such default shall
continue unremedied for a period of 30 or more days; or
(e) The Borrower or the Guarantor shall admit in
writing its inability to, or be generally unable to, pay its debts as
such debts become due; or
(f) The Borrower or the Guarantor shall (i) apply
for or consent to the appointment of, or the taking of possession by,
a receiver, custodian, trustee, examiner or liquidator of itself or
of all or a substantial part of its Property, (ii) make a general
assignment for the benefit of its creditors, (iii) commence a
voluntary case under the Bankruptcy Code, (iv) file a petition seeking
to take advantage of any other law relating to bankruptcy, insolvency,
reorganization, liquidation, dissolution, arrangement or winding-up,
or composition or readjustment of debts, (v) fail to controvert in a
timely and appropriate manner, or acquiesce in writing to, any
petition filed against it in an involuntary case under the Bankruptcy
Code or (vi) take any action for the purpose of effecting any of the
foregoing; or
(g) A proceeding or case shall be commenced,
without the application or consent of the Borrower or the Guarantor,
in any court of competent jurisdiction, seeking (i) its or his
reorganization, liquidation, dissolution, arrangement or winding-up,
or the composition or readjustment of its or his debts, (ii) the
appointment of a receiver, custodian, trustee, examiner, liquidator or
the like of the
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Borrower or the Guarantor, or of all or any substantial part of its or
his Property, or (iii) similar relief in respect of the Borrower or
the Guarantor, under any law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of debts, and
such proceeding or case shall continue undismissed, or an order,
judgment or decree approving or ordering any of the foregoing shall be
entered and continue unstayed and in effect, for a period of 30 or
more days; or an order for relief against the Borrower or the
Guarantor, shall be entered in an involuntary case under the
Bankruptcy Code; or
(h) A final judgment or judgments for the payment
of money equal to an aggregate 2% or more of the book value of the
Borrower's and the Guarantor's consolidated book equity (as reported
on the Borrower's and the Guarantor's GAAP consolidated financial
statements) from the date hereof shall be rendered against the
Borrower or the Guarantor, by one or more courts, administrative
tribunals or other bodies having jurisdiction over them and the same
shall not be discharged (or provision shall not be made for such
discharge) or bonded, or a stay of execution thereof shall not be
procured, within 30 days from the date of entry thereof and the
Borrower or Guarantor, as the case may be, shall not, within said
period of 30 days, or such longer period during which execution of the
same shall have been stayed or bonded, appeal therefrom and cause the
execution thereof to be stayed during such appeal; or
(i) The Servicer shall fail to service the
Qualifying SBA Loans in accordance with Accepted Servicing Practices
or shall fail to comply with the terms of the Servicing Agreement in
any material respect, or there shall occur a default or event of
default on the part of the Servicer under the Servicing Agreement; or
(j) The Liens granted hereunder shall for
whatever reason be terminated or fail to be first priority Liens or
cease to be in full force and effect, or the enforceability thereof
shall be contested by the Borrower; or
(k) Any of the Custodial Agreement, the Servicing
Agreement, the Investment Adviser Agreement or the Investment Adviser
Undertaking ceases to be in full force and effect, or any party
thereto so asserts in writing; or
(l) The occurrence of any event, including
without limitation, an amendment or modification of the SBA Rules and
Regulations, which would reasonably be likely to materially and
adversely affect Lender's or the Borrower's rights or ability to
receive the proceeds from any 504 Program Debenture offerings with
respect to SBA 504 Program Real Property Loans in compliance with the
terms and conditions of the related SBA Authorization and Debenture
Guaranty or which would preclude the Borrower from receiving the
proceeds of any SBA Loan pledged hereunder; or
(m) any of Katherine C. Marien, the President of
the Servicer and the Guarantor, or Joan Sweeney, the President of the
Investment Adviser, ceases to be
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employed by its respective institution in her current position or in a
position of equal or greater responsibility with such institution, and
a replacement reasonably satisfactory to the Agent and the Required
Lenders has not been hired to replace such person within 60 days of
the date such employment ceases; or
(n) Fifteen percent or more of the aggregate
outstanding principal balance of the Borrower's SBA Loan inventory is
in excess of 59 days delinquent.
THEREUPON: (i) if such event is an Event of Default specified in clause (f) or
(g) of this Section 8.01, automatically the Commitments shall immediately
terminate and the Loans hereunder (with accrued interest thereon) and all other
amounts owing under this Agreement and the Notes shall immediately become due
and payable, and (ii) if such event is any other Event of Default, either or
both of the following actions may be taken: (A) with the consent of the
Required Lenders, the Agent may, or upon the request of the Required Lenders,
the Agent shall, by notice to the Borrower declare the Commitments to be
terminated forthwith, whereupon the Commitments shall immediately terminate;
and (B) with the consent of the Required Lenders, the Agent may, or upon the
request of the Required Lenders, the Agent shall, by notice of default to the
Borrower, declare the Loans hereunder (with accrued interest thereon) and all
other amounts owing under this Agreement and the Notes to be due and payable
forthwith, whereupon the same shall immediately become due and payable. Except
as expressly provided above in this Section, presentment, demand, protest and
all other notices of any kind are hereby expressly waived.
Section 9. The Agent.
9.01 Appointment.
(a) Each Lender hereby irrevocably designates and
appoints Lehman as the Agent of such Lender under this Agreement, and each such
Lender irrevocably authorizes Lehman, as the Agent for such Lender, to take
such action on its behalf under the provisions of this Agreement and to
exercise such powers and perform such duties as are expressly delegated to the
Agent by the terms of this Agreement, together with such other powers as are
reasonably incidental thereto. Each Lender and the Agent hereby irrevocably
designates and appoints Riggs National Bank of Washington, D.C. as the agent,
custodian and bailee of such Lender and the Agent with respect to the
Collateral for the exclusive benefit of the Secured Parties, to take such
action on its behalf under the provisions of the Custodial Agreement and to
exercise such powers and perform such duties as are expressly delegated to the
Custodian by the terms of the Custodial Agreement, together with such other
powers as are reasonably incidental thereto. Notwithstanding any provision to
the contrary elsewhere in this Agreement, neither the Agent nor the Custodian
shall not have any duties or responsibilities, except those expressly set forth
herein, or any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities
shall be read into this Agreement or otherwise exist against the Agent.
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(b) All Collateral shall be held or administered by the
Agent for the ratable benefit of the Lenders. Any proceeds received by the
Agent from the foreclosure, sale, lease, or other disposition of any of the
Collateral and any other proceeds received pursuant to the terms this Agreement
or of the Basic Documents shall be applied, first, to the cost of any such
foreclosure, sale, lease or other disposition and, second, to the payment in
full of the remaining Loans or other obligations under this Agreement or the
Basic Documents.
9.02 Delegation of Duties. The Agent may execute any of
its duties under this Agreement by or through agents or attorneys-in-fact and
shall be entitled to advice of counsel concerning all matters pertaining to
such duties. The Agent shall not be responsible for the negligence or
misconduct of any agents or attorneys-in-fact selected by it with reasonable
care.
9.03 Exculpatory Provisions. Neither the Agent nor any of
its officers, directors, employees, agents, attorneys-in-fact or Affiliates
shall be (i) liable for any action lawfully taken or omitted to be taken by it
or such Person under or in connection with this Agreement (except for its or
such Person's own gross negligence or willful or criminal misconduct), or (ii)
responsible in any manner to any of the Lenders for any recitals, statements,
representations or warranties made by the Borrower or any officer thereof
contained in this Agreement or in any certificate, report, statement or other
document referred to or provided for in, or received by the Agent under or in
connection with, this Agreement or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or the Notes or
for any failure of the Borrower to perform its obligations hereunder. The Agent
shall not be under any obligation to any Lender to ascertain or to inquire as
to the observance or performance of any of the agreements contained in, or
conditions of, this Agreement, or to inspect the properties, books or records
of the Borrower.
9.04 Reliance by Agent. The Agent shall be entitled to
rely, and shall be fully protected in relying upon the Notes, writing,
resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document or conversation believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including, without limitation, counsel to the
Borrower), independent accountants and other experts selected by the Agent.
The Agent may deem and treat the payee of any Note as the owner thereof for all
purposes unless a written notice of assignment, negotiation or transfer thereof
shall have been filed with the Agent. The Agent shall be fully justified in
failing or refusing to take any action under this Agreement unless it shall
first receive such advice or concurrence of the Required Lenders as it deems
appropriate or it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Agent shall in all cases
be fully protected in acting, or in refraining from acting, under this
Agreement and the Notes in accordance with a request of the Required Lenders,
and such request and any action taken or
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failure to act pursuant thereto shall be binding upon all the Lenders and all
future holders of the Notes.
9.05 Notice of Default. The Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent has received notice from a Lender or the Borrower
referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a "notice of default". In the event that the Agent
receives such a notice, the Agent shall give notice thereof to the Lenders.
The Agent shall take such action with respect to such Default or Event of
Default as shall be reasonably directed by the Required Lenders; provided that
unless and until the Agent shall have received such directions, the Agent may
(but shall not be obligated to) take such action, or refrain from taking such
action, with respect to such Default or Event of Default as it shall deem
advisable in the best interests of the Lenders.
9.06 Non-Reliance on Agent and Other Lenders. Each Lender
expressly acknowledges that neither the Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or Affiliates has made any
representations or warranties to it and that no act by the Agent hereinafter
taken, including any review of the affairs of the Borrower, shall be deemed to
constitute any representation or warranty by the Agent to any Lender. Each
Lender represents to the Agent that it has, independently and without reliance
upon the Agent or any other Lender, and based on such documents and information
as it has deemed appropriate, made its own appraisal of and investigation into
the business, operations, property, financial and other condition and
creditworthiness of the Borrower and made its own decision to make its Loans
hereunder and enter into this Agreement. Each Lender also represents that it
will, independently and without reliance upon the Agent or any other Lender,
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Borrower. Except for notices, reports and other documents expressly required to
be furnished to the Lenders by the Agent hereunder, the Agent shall not have
any duty or responsibility to provide any Lender with any credit or other
information concerning the business, operations, property, financial and other
condition or creditworthiness of the Borrower which may come into the
possession of the Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates.
9.07 Indemnification. The Lenders agree to indemnify the
Agent in its capacity as such (to the extent not reimbursed by the Borrower and
without limiting the obligation of the Borrower to do so), ratably according to
their respective Loan Percentages, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind whatsoever which may at any time
(including without limitation at any time following the payment of the Notes)
be imposed on, incurred by or asserted against the Agent in any way relating to
or arising out of this
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Agreement, or any documents contemplated by or referred to herein or the
transactions contemplated hereby or any action taken or omitted by the Agent
under or in connection with any of the foregoing; provided that no Lender be
liable for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting solely from the Agent's gross negligence or willful misconduct. The
agreements in this Section shall survive the payment of the Notes and all other
amounts payable hereunder.
9.08 Agent in Its Individual Capacity. The Agent and its
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the Borrower as though the Agent were not the Agent
hereunder. With respect to its Loans made or renewed by it and any Note issued
to it, the Agent shall have the same rights and powers under this Agreement as
any Lender and may exercise the same as though it were not the Agent, and the
terms "Lender" and "Lenders" shall include the Agent in its individual
capacity.
9.09 Successor Agent. The Agent may resign as Agent upon
10 days' notice to the Lenders. If the Agent shall resign as Agent under this
Agreement and the other Basic Documents, then the Required Lenders shall
appoint from among the Lenders a successor agent for the Lenders, whereupon
such successor agent shall succeed to the rights, powers and duties of the
Agent, and the term "Agent" shall mean such successor agent effective upon its
appointment, and the former Agent's rights, powers and duties as Agent shall be
terminated, without any other or further act or deed on the part of such former
Agent or any of the parties to this Agreement or any holders of the Notes.
After any retiring Agent's resignation hereunder as Agent, the provisions of
this Section 9.09 shall inure to its benefit as to any actions taken or omitted
to be taken by it while it was Agent under this Agreement and the other of the
Basic Documents.
Section 10. Miscellaneous.
10.01 Waiver. No failure to exercise and no delay in
exercising, on the part of the Agent or any Lender, any right, remedy, power or
privilege hereunder, shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right,
remedy, power or privilege. The rights, remedies, powers and privileges herein
provided are cumulative and not exclusive of any rights, remedies, powers and
privileges provided by law.
10.02 Notices. Except as otherwise expressly permitted by
this Agreement, all notices, requests and demands to or upon the respective
parties hereto to be effective shall be in writing (including by telecopy),
and, unless otherwise expressly provided herein, shall be deemed to have been
duly given or made when delivered by hand, or three Business Days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice,
when sent,
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receipt electronically confirmed, addressed as follows in the case of the
Borrower and the Agent, and as set forth in the signature pages hereto or any
Commitment Transfer Supplement in the case of the other parties hereto, or to
such other address as may be hereafter notified by the respective parties
hereto and any future holders of the Notes:
<TABLE>
<S> <C>
The Borrower: ACLC Limited Partnership
1666 K Street, 9th Floor
Washington, D.C. 20006
Attention: Katherine C. Marien
Telephone: 202-331-1112
Telecopy: 202-653-2053
The Agent: Lehman Commercial Paper Inc.
World Financial Center
200 Vesey Street, 9th Floor
New York, NY 10285
Attention: Mr. Frank Gilhool
Telecopier No.: 212-528-9284
Telephone No.: 212-526-6970
with a copy to: Lehman Commercial Paper Inc.
World Financial Center
200 Vesey Street, 29th Floor
New York, NY 10285
Attention: Mr. Donald Petrow
Telecopier No.: 212-528-9696/9697
Telephone No.: 212-526-3140
</TABLE>
provided that any notice, request or demand to or upon the Agent or the Lenders
pursuant to Section 2 shall not be effective until received.
10.03 Expenses, Taxes; Indemnity.
(a) The Borrower agrees (i) to pay or reimburse the Agent
for all its reasonable out-of-pocket costs and expenses incurred in connection
with the development, preparation and execution of, this Agreement and any
other Basic Document and any other documents prepared in connection herewith,
and the consummation of the transactions contemplated hereby and thereby,
including, without limitation, the reasonable fees and disbursements of
Cadwalader, Wickersham & Taft, counsel to the Agent; provided, however, such
legal fees of Cadwalader, Wickersham & Taft, incurred in connection with the
negotiation, preparation, execution and delivery of (A) this Agreement and the
other Basic Documents and the making of the Loans hereunder and the perfection
of security interests under the security provisions of this Agreement, and (B)
the Loan and Security Agreement to be entered into between Allied Capital
Lending Corporation, certain lenders and Lehman
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Commercial Paper Inc., individually and as agent thereunder and all documents
to be entered into therewith and transactions contemplated therein, shall not
exceed $90,000 in the aggregate and shall be payable on the initial Funding
Date; (ii) to pay or reimburse each Lender and the Agent for all their costs
and expenses incurred in connection with the amendment, supplement,
modification, enforcement or preservation of any rights under this Agreement
and any other Basic Document, including, without limitation, reasonable fees
and disbursements of counsel to the Agent and to the several Lenders (iii) to
pay Agent's out-of-pocket due diligence review costs including, without
limitation, the Agent's costs of the due diligence review pursuant to Section
2.02(f), (iv) to pay, indemnify, and hold each Lender and the Agent (each, an
"Indemnified Party"; collectively, the "Indemnified Parties") harmless from,
any and all recording and filing fees and any and all liabilities with respect
to, or resulting from any delay in paying, stamp, excise and other taxes, if
any, which may be payable or determined to be payable in connection with the
execution and delivery of, or consummation of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any waiver
or consent under or in respect of, this Agreement and any other Basic Document,
and (v) except to the extent limited or excluded above, to pay, indemnify, and
hold each Lender, the officers, directors, agents and attorneys of each Lender,
the Agent, and the officers, directors, agents and attorneys of the Agent
harmless against, any and all losses, liabilities, claims, damages or expenses
incurred by it in connection with, or in any way relating to or arising out of,
this Agreement or any other Basic Document or any other documents contemplated
by or referred to herein or therein or the transactions contemplated hereby or
thereby, or the performance by each of the Indemnified Parties of their
obligations hereunder or thereunder or in the enforcement of any of the terms
hereof or thereof, including any loss, liability, claim, damage or expense
arising out of or by reason of any investigation or litigation or other
proceedings (including any threatened investigation or litigation or other
proceedings) or otherwise relating to the Loans hereunder or any actual or
proposed use by the Borrower or any of its Affiliates of the proceeds of any of
the Loans hereunder, including, but not limited to, the reasonable fees and
disbursements of counsel incurred in connection with any such investigation or
litigation or other proceedings (but excluding any such losses, liabilities,
claims, damages or expenses incurred by reason of the gross negligence or
willful misconduct of an Indemnified Party). In connection with the foregoing,
the Borrower shall reimburse any Indemnified Party promptly upon request for
any legal or other expenses reasonably incurred by it in connection with
investigating, preparing to defend or defending, or providing evidence in or
preparing to serve or serving as a witness with respect to, any lawsuits,
investigations, claims or other proceedings with respect to which the Borrower
are indemnifying such Indemnified Party hereunder. Any request for
reimbursement shall contain reasonable detail for the Borrower to verify the
propriety of such request.
(b) The Borrower shall defend, indemnify and hold
harmless the Agent and the Lenders, and their respective employees, agents,
officers, directors and controlling persons, from and against any all claims,
demands, penalties, fines, liabilities, settlements, damages, costs and
expenses of whatever kind or nature known or unknown, contingent or otherwise,
arising out of, or in any way relating to the violation of, noncompliance with
or
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liability under, any Environmental Law applicable to the operations of the
Borrower, any of its Subsidiaries, the Collateral or any of its Properties, or
any orders, requirements or demands of Governmental Authorities related
thereto, including, without limitation, reasonable attorney's and consultant's
fees, investigation and laboratory fees, response costs, court costs and
litigation expenses, except to the extent that any of the foregoing arise out
of or relate to the gross negligence or willful misconduct of, or any
post-foreclosure actions not taken in the ordinary course of business
consistent with past practices of, the party seeking indemnification therefor.
The agreements in this paragraph shall survive repayment of all Loans and all
other amounts payable hereunder.
(c) The Borrower agrees that the indemnification and
reimbursement commitments set forth in this Section 10.03 shall apply whether
or not any Indemnified Party is a formal party to any such lawsuits, claims or
other proceedings and that such commitments shall extend upon the terms set
forth in this Section 10.03 to any controlling person, affiliate, director,
officer, employee or agent of such Indemnified Party. The Borrower further
agrees that, without such Indemnified Party's prior written consent it will not
enter into any settlement of a lawsuit, claim or other proceeding arising out
of the transactions contemplated by the this Agreement. If indemnification is
to be sought hereunder by an Indemnified Party, then such Indemnified Party
shall notify the Borrower of the commencement of any action or proceeding with
respect thereto; provided, however, that the failure so to notify the Borrower
shall not relieve the Borrower from any liability that they may have to such
Indemnified Party pursuant to this Section 10.03, except to the extent that the
Borrower has been prejudiced in any material respect by such failure, or from
any liability it may have to such Indemnified Party other than pursuant to this
Section 10.03. Following such notification, the Borrower may elect in writing
to assume the defense of such action or proceeding, and, upon such election, it
shall not be liable for any legal costs subsequently incurred by such
Indemnified Party in connection therewith, unless (i) the Borrower has failed
to provide counsel satisfactory to such Indemnified Party in a timely manner,
(ii) counsel which has been provided by the Borrower determines that its
representation of such Indemnified Party would present it with a conflict of
interest or (iii) the Indemnified Party determines that there may be legal
defenses available to it which are different from or in addition to those
available to the Borrower.
(d) The Loans and the obligations set forth herein shall
be full recourse to the Borrower and the Guarantor, jointly and severally.
Notwithstanding anything herein to the contrary, the Borrower's obligations
under this Section 10.03 shall be satisfied, out of the assets, properties or
funds of the Borrower and the Guarantor, and in no event shall the direct or
indirect partners of the Borrower and the Guarantor or any of their respective
officers, directors, trustees, employees, shareholders, or agents have any
personal liability respecting this Agreement or the obligations to be performed
hereunder, unless (i) any such party is a "potentially responsible party" under
CERCLA or otherwise liable under other Environmental Laws or (ii) any such
party's actions constitute willful misconduct or gross negligence.
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10.04 Amendments, Etc.
(a) Except as otherwise expressly provided in this
Agreement, any provision of this Agreement may be modified or supplemented only
by an instrument in writing signed by the Borrower and the Required Lenders, or
by the Borrower and the Agent acting with the consent of the Required Lenders,
and any provision of this Agreement may be waived by the Required Lenders or by
the Agent acting with the consent of the Required Lenders; provided that: (i)
no modification, supplement or waiver shall, unless by an instrument signed by
all of the Lenders or by the Agent acting with the written consent of all of
the Lenders: (A) increase, or extend the term of the Commitments, or extend
the time or waive any requirement for the reduction or termination of the
Commitments, (B) extend the date fixed for the payment of principal of or
interest on any Loan or any fee hereunder, (C) reduce the amount of any such
payment of principal, (D) reduce the rate at which interest is payable thereon
or any fee is payable hereunder, (E) alter the rights or obligations of the
Borrower to prepay Loans, (F) alter the terms of this Section 10.04, (G) modify
the definition of the term "Required Lenders" or modify in any other manner the
number or percentage of the Lenders required to make any determinations or
waive any rights hereunder or to modify any provision hereof, or (H) waive any
of the conditions precedent set forth in Section 5; and (ii) any modification
or supplement of Section 10 shall require the consent of the Agent.
(b) Anything in this Agreement to the contrary
notwithstanding, if at a time when the conditions precedent set forth in
Section 5 to any Loan hereunder are, in the opinion of the Required Lenders,
satisfied, any Lender shall fail to fulfill its obligations to make such Loan
then, for so long as such failure shall continue, such Lender shall (unless the
Required Lender, determined as if such Lender were not a "Lender" hereunder,
shall otherwise consent in writing) be deemed for all purposes relating to
amendments, modifications, waivers or consents under this Agreement or any of
the other Basic Documents (including, without limitation, under this Section
10.04) to have no Loans or Commitments, shall not be treated as a "Lender"
hereunder when performing the computation of Required Lenders, and shall have
no rights under the preceding paragraph of this Section 10.04; provided that
any action taken by the other Lenders with respect to the matters referred to
in clause (i) of the preceding paragraph shall not be effective as against such
Lender.
10.05 Survival of Representations and Warranties. All
representations and warranties made hereunder and in any document, certificate
or statement delivered pursuant hereto or in connection herewith shall survive
the execution and delivery of this Agreement, the Basic Documents, the Notes
and each Funding Date.
10.06 Successors and Assigns; Participations; Purchasing
Lenders.
(a) This Agreement shall be binding upon and inure to the
benefit of the Borrower, the Lenders, the Agent, all future holders of the
Notes and their respective
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successors and assigns, except that the Borrower may not assign nor transfer
any of its rights or obligations under this Agreement without the prior written
consent of each Lender.
(b) Any Lender may, in the ordinary course of its
business and in accordance with applicable law, at any time sell to one or more
lenders or other entities ("Participants") participating interests in any Loan
owing to such Lender, any Note held by such Lender, any Commitment of such
Lender or any other interest of such Lender hereunder and under the other Basic
Documents, provided, that, prior to an Event of Default or the Commitment
Termination Date, after giving effect to all such sales and any assignments by
Lehman pursuant to Section 10.06(c) the Commitment of Lehman not subject to a
participation shall be not less than 10% of the aggregate Commitments
hereunder. In no event shall a Lender that sells a participation agree with
the Participant to take or refrain from taking any action hereunder or under
any other Basic Document, except that such Lender may agree with the
Participant that it will not, without the consent of the Participant, agree to
(i) reduce the rate at which interest is payable on the Loan of such Lender,
(ii) alter or amend any obligation of the Borrower to provide or maintain
Collateral under this Agreement or any of the other Basic Documents except in a
manner that could be reasonably expected to provide greater security for such
Loan, (iii) increase or reduce the term, or extend or reduce the time or waive
any requirement for the reduction or termination, of such Lender's related
Commitment, (iv) extend the date fixed for the payment of principal of or
interest on the related Loans or any portion of any fee hereunder, (v) release
any Collateral from a Lien established in connection with this Agreement or any
of the other Basic Documents except as provided herein, (vi) release the
Borrower or any other party obligated hereunder from the obligation to repay
such Loan or otherwise reduce the amount of any payment of principal or
interest due hereunder, (vii) forbear from exercising any right of such Lender
hereunder to receive payments or to enforce a claim when due, (viii) accelerate
the maturity date of such Loan, (ix) foreclose on any Collateral or otherwise
acquire Collateral through foreclosure, or (x) manage or otherwise supervise
Collateral or the disposition thereof in connection with a foreclosure on such
Collateral by such Lender in connection with this Agreement. In the event of
any such sale by a Lender of participating interests to a Participant, such
Lender's obligations under this Agreement to the other parties to this
Agreement shall remain unchanged, such Lender shall remain solely responsible
for the performance thereof, such Lender shall remain the holder of any such
Note for all purposes under this Agreement and the other Basic Documents, and
the Borrower and the Agent shall, subject to Section 10.06(g), continue to deal
solely and directly with such Lender in connection with such Lender's rights
and obligations under this Agreement and the other Basic Documents. The
Borrower agrees that if amounts outstanding under this Agreement and the Notes
are due or unpaid, or shall have been declared or shall have become due and
payable upon the occurrence of an Event of Default, each Participant shall be
deemed to have the right of set-off in respect of its participating interest in
amounts owing under this Agreement and any Note to the same extent as if the
amount of its participating interest were owing directly to it as a Lender
under this Agreement or any Note, provided that such Participant shall only be
entitled to such right of set-off if it shall have agreed in the agreement
pursuant to which it shall have acquired its participating interest to
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share with the Lenders the proceeds thereof as provided in Section 10.07. The
Borrower also agree that each Participant shall be entitled to the benefits of
Sections 2.11, 2.13, 2.14 and 10.03 with respect to its participation in the
Commitments and the Loans outstanding from time to time; provided, that no
Participant shall be entitled to receive any greater amount pursuant to such
Sections than the transferor Lender would have been entitled to receive in
respect of the amount of the participation transferee by such transferor Lender
to such Participant had no such transfer occurred.
(c) Any Lender may, in the ordinary course of its lending
or investment business and in accordance with applicable law, with the prior
written consent of the Agent and the Borrower (which consent shall not be
unreasonably withheld), at any time sell to any Lender or any affiliate thereof
or to one or more additional lenders or other financial institutions with a
rating assigned by Standard & Poor's Ratings Group or Moody's Investors
Service, Inc. equal to or greater than the rating assigned to the Agent as at
the Closing Date ("Purchasing Lenders") all or any part of its rights and
obligations under this Agreement and the Notes pursuant to a Commitment
Transfer Supplement executed by such Purchasing Lender, such transferor Lender
(and, in the case of a Purchasing Lender that is not then a Lender or an
affiliate thereof, by the Borrower and the Agent) and delivered to the Agent
for its acceptance and recording in the Register, provided that after giving
effect to all such assignments and any sales by Lehman pursuant to Section
10.06(b) hereof the Commitment of Lehman not subject to a participation shall
be, prior to the occurrence of an Event of Default or the Commitment
Termination Date not less than 10% of the aggregate Commitments hereunder.
Upon such execution, delivery, acceptance and recording, from and after the
Transfer Closing Date (as defined in such Commitment Transfer Supplement)
determined pursuant to such Commitment Transfer Supplement, (x) the Purchasing
Lender thereunder shall be party hereto and, to the extent provided in such
Commitment Transfer Supplement, have the rights and obligations of a Lender
hereunder with a Commitment as set forth therein, and (y) the transferor Lender
thereunder shall, to the extent provided in such Commitment Transfer
Supplement, be released from its obligations under this Agreement (and, in the
case of a Commitment Transfer Supplement covering all or the remaining portion
of a transferor Lender's rights and obligations under this Agreement, such
transferor Lender shall cease to be a party hereto). Such Commitment Transfer
Supplement shall be deemed to amend this Agreement to the extent, and only to
the extent, necessary to reflect the addition of such Purchasing Lender and the
resulting adjustment of Commitment Percentages arising from the purchase by
such Purchasing Lender of all or portion of the rights and obligations of such
transferor Lender under this Agreement and the Notes. On or prior to the
Transfer Closing Date determined pursuant to such Commitment Transfer
Supplement, the Borrower at their own expense, shall execute and deliver to the
Agent in exchange for the surrendered Note a new Note to the order of such
Purchasing Lender in an amount equal to the Commitment assumed by it pursuant
to such Commitment Transfer Supplement and, if the transferor Lender has
retained a Commitment hereunder, new Notes to the order of the transferor
Lender in an amount equal to the Commitment retained by it hereunder. Such new
Notes shall be dated the Closing Date and shall otherwise be in the form of the
Notes replaced thereby. The Notes
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surrendered by the transferor Lender shall be returned by the Agent to the
Borrower marked "canceled".
(d) The Agent shall maintain at its address referred to
in Section 10.02 a copy of each Commitment Transfer Supplement delivered to it
and a register (the "Register") for the recordation of the names and addresses
of the Lenders and the Commitment of, and principal amount of the Loans owing
to, each Lender from time to time. The entries in the Register shall be
conclusive, in the absence of manifest error, and the Borrower, the Agent and
the Lenders may treat each Person whose name is recorded in the Register as the
owner of the Loan recorded therein for all purposes of this Agreement. The
Register shall be available for inspection by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
(e) Upon its receipt of a Commitment Transfer Supplement
executed by a transferor Lender and Purchasing Lender (and, in the case of a
Purchasing Lender that is not then a Lender or an affiliate thereof, by the
Borrower and the Agent) together with payment to the Agent of a registration
and processing fee of $4,000, the Agent shall (i) subject to its consent as
provided for in this Section, promptly accept such Commitment Transfer
Supplement and (ii) on the Transfer Closing Date determined pursuant thereto
record the information contained therein in the Register and give notice of
such acceptance and recordation to the Lenders and the Borrower.
(f) The Borrower authorizes each Lender to disclose to
any Participant or Purchasing Lender (each, a "Transferee") and any prospective
Transferee any and all financial information in such Lender's possession
concerning the Borrower and their affiliates which has been delivered to such
Lender by or on behalf of the Borrower pursuant to this Agreement or which has
been delivered to such Lender by or on behalf of the Borrower in connection
with such Lender's credit evaluation of the Borrower and their affiliates prior
to becoming a party to this Agreement, provided that prior to disclosing any
such information to a Transferee or prospective Transferee, such prospective
Transferee shall agree in writing to be bound by the provisions of Section
10.13 of this Agreement.
(g) If, pursuant to this Section, any interest in this
Agreement or any Note is transferred to any Transferee which is organized under
the laws of any jurisdiction other than the United States or any state thereof,
the transferor Lender shall cause such Transferee, concurrently with the
effectiveness of such transfer, (i) to represent to the transferor Lender (for
the benefit of the transferor Lender, the Agent and the Borrower) that under
applicable law and treaties no taxes will be required to be withheld by the
Agent, the Borrower or the transferor Lender with respect to any payments to be
made to such Transferee in respect of the Loans, (ii) to furnish to the
transferor Lender (and, in the case of any Purchasing Lender registered in the
Register, the Agent and the Borrower) either U.S. Internal Revenue Service Form
4224 or U.S. Internal Revenue Service Form 1001 (wherein such Transferee claims
entitlement to complete exemption from U.S. federal withholding tax on all
interest payments
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hereunder) and (iii) to agree (for the benefit of the transferor Lender, the
Agent and the Borrower) to provide the transferor Lender (and, in the case of
any Purchasing Lender registered in the Register, the Agent and the Borrower) a
new Form 4224 or Form 1001 upon the expiration or obsolescence of any
previously delivered form and comparable statements in accordance with
applicable U.S. laws and regulations and amendments duly executed and completed
by such Transferee, and to comply from time to time with all applicable U.S.
laws and regulations with regard to such withholding tax exemption.
(h) Nothing herein shall prohibit any Lender from
pledging or assigning any Note to any Federal Reserve Bank in accordance with
applicable law.
10.07 Adjustments; Set-off.
(a) If any Lender (a "benefited Lender") shall at any
time receive any payment of all or part of its Loans, or interest thereon, or
receive any collateral in respect thereof (whether voluntarily or
involuntarily, by set-off, pursuant to events or proceedings of the nature
referred to in Section 8.01(b), or otherwise) in a greater proportion than any
such payment to and collateral received by any other Lender, if any, in respect
of such other Lender's Loans, or interest thereon, such benefited Lender shall
purchase for cash from the other Lenders such portion of each such other
Lender's Loan, or shall provide such other Lenders with the benefits of any
such collateral, or the proceeds thereof, as shall be necessary to cause such
benefited Lender to share the excess payment or benefits of such collateral or
proceeds ratably with each of the Lenders; provided, however, that if all or
any portion of such excess payment or benefits is thereafter recovered from
such benefited Lender, such purchase shall be rescinded, and the purchase price
and benefits returned, to the extent of such recovery, but without interest.
The Borrower agrees that each Lender so purchasing a portion of another
Lender's Loan may exercise all rights of payment (including, without
limitation, rights of set-off) with respect to such portion as fully as if such
Lender were the direct holder of such portion.
(b) In addition to any rights and remedies of the Lenders
provided by law, each Lender shall have the right, without prior notice to the
Borrower, any such notice being expressly waived by the Borrower to the extent
permitted by applicable law, upon the filing of a petition under any of the
provisions of the federal bankruptcy act or amendments thereto by or against;
the making of an assignment for the benefit of creditors by; the application
for the appointment, or the appointment, of any receiver of, or of any of the
property of; the issuance of any execution against any of the property of; the
issuance of a subpoena or order, in supplementary proceedings, against or with
respect to any of the property of; or the issuance of a warrant of attachment
against any of the property of; the Borrower, to set-off and apply against any
indebtedness, whether matured or unmatured, of the Borrower to such Lender, any
amount owing from such Lender to the Borrower, at or at any time after, the
happening of any of the above mentioned events, and the aforesaid right of
set-off may be exercised by such Lender against the Borrower or against any
trustee in bankruptcy, debtor in possession,
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assignee for the benefit of creditors, receiver or execution, judgment or
attachment creditor of the Borrower, or against anyone else claiming through or
against the Borrower or such trustee in bankruptcy, debtor in possession,
assignee for the benefit of creditors, receiver, or execution, judgment or
attachment creditor, notwithstanding the fact that such right of set-off shall
not have been exercised by such Lender prior to the making, filing or issuance,
or service upon such Lender of, or of notice of, any such petition; assignment
for the benefit of creditors; appointment or application for the appointment of
a receiver; or issuance of execution, subpoena, order or warrant. Each Lender
agrees promptly to notify the Borrower and the Agent after any such set-off and
application made by such Lender, provided that the failure to give such notice
shall not affect the validity of such set-off and application.
10.08 Counterparts. This Agreement may be executed by one
or more of the parties to this Agreement on any number of separate counterparts
and all of said counterparts taken together shall be deemed to constitute one
and the same instrument. A set of the copies of this Agreement signed by all
the parties shall be lodged with the Borrower and the Agent.
10.09 Governing Law. This Agreement and the Notes and the
rights and obligations of the parties under this Agreement and the Notes shall
be governed by, and construed and interpreted in accordance with, the law of
the State of New York.
10.10 Submission To Jurisdiction Waivers. The Borrower
hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal
action or proceeding relating to this Agreement and the other Basic
Documents to which it is a party, or for recognition and enforcement
of any judgment in respect thereof, to the non-exclusive general
jurisdiction of the Courts of the State of New York, the courts of the
United States of America for the Southern District of New York, and
appellate courts from any thereof;
(b) consents that any such action or proceeding may be
brought in such courts and waives any objection that it may now or
hereafter have to the venue of any such action or proceeding in any
such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to the Borrower at its address set forth in Section 10.02 or
at such other address of which the Agent shall have been notified
pursuant thereto;
(d) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or
shall limited the right to sue in any other jurisdiction; and
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(e) waives, to the maximum extent not prohibited by law,
any right it may have to claim or recover in any legal action or
proceeding referred to in this Section any special, exemplary,
punitive or consequential damages.
10.11 Acknowledgments. The Borrower hereby acknowledges
that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement, the Notes and the other
Basic Documents;
(b) neither the Agent nor any Lender has any fiduciary
relationship to the Borrower, and the relationship between Agent and
Lenders, on one hand, and the Borrower, on the other hand, is solely
that of debtor and creditors; and
(c) no joint venture exists among the Lenders or among
the Borrower, the Agent and/or and the Lenders.
10.12 WAIVER OF JURY TRIAL. THE BORROWER, THE AGENT AND
THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY
LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, THE NOTES OR ANY OTHER
BASIC DOCUMENTS AND FOR ANY COUNTERCLAIM THEREIN.
10.13 Confidentiality.
(a) The Lenders shall hold all non-public information
obtained pursuant to the requirements of this Agreement which has been
identified as such by the Borrower in accordance with its customary procedures
for handling confidential information of this nature and in accordance with
safe and sound lending practices and may, subject to Section 10.06(f), make
disclosure reasonably required by a bona fide Transferee in connection with the
contemplated transfer of any Note or participation therein or as required or
requested by any Governmental Authority (including the SBA) or representative
thereof or pursuant to legal process or as requested by the Custodian, the
Servicer or the Investment Adviser. The Borrower agrees that the Agent and the
Lenders have the right, to place advertisements in financial and other
newspapers and journals at its own expense describing its services to the
Borrower hereunder, provided the Agent will submit a copy of any such
advertisements to the Borrower for their approval, which approval shall not be
unreasonably withheld.
(b) The Borrower shall hold (i) all non-public
information obtained pursuant to the requirements of this Agreement which has
been identified as such by the Agent or the Lenders and (ii) this Agreement and
any Commitment related thereto, in accordance with its customary procedures for
handling confidential information of this nature and in accordance with safe
and sound lending practices and may, make disclosure reasonably required or
requested by any Governmental Authority (including the SBA) or representative
thereof or
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pursuant to legal process or as requested by the Custodian, the Servicer or the
Investment Adviser.
10.14 Right of First Refusal.
The Borrower (a) will not contract with any prospective
parties for a financing of any of its SBA Loans originated from and after the
closing of the Facility unless the Borrower shall have first requested to
pledge such hereinafter originated SBA Loans as Collateral to the Facility and
such request has been denied by the Agent in writing; and (b) shall make
available to the Agent all information concerning the business, assets,
operations and financial condition of the Borrower and the assets thereof which
the Agent reasonably requests in connection with the Facility and all such
information provided by the Borrower to the Agent shall be complete and
accurate and not materially misleading, and the Agent may rely upon the
completeness and accuracy of all such information without independent
verification.
10.15 Joint and Several Liability.
The Borrower and the Guarantor hereunder are jointly and
severally liable for the payment in full of the Loans and all other amounts
owing under this Agreement, any Note and any other Basic Document.
[SIGNATURE PAGES FOLLOW]
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<PAGE> 77
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
THE BORROWER
ACLC LIMITED PARTNERSHIP
By: Allied Capital Lending Corporation
Its: General Partner
By:/s/ KATHERINE C. MARIEN
-----------------------
Name: Katherine C. Marien
Title: Priesident
<PAGE> 78
THE LENDERS
COMMITMENT LEHMAN COMMERCIAL PAPER INC.
$20,000,000 By:/s/ FRANCIS X. GILHOOL
-------------------------------
Name:Francis X. Gilhool
Title:Authorized Signatory
Lending Office for all Loans:
Lehman Commercial Paper Inc.
World Financial Center
200 Vesey Street, 9th Floor
New York, NY 10285
Attention: Mr. Frank Gilhool
Telecopier No.: 212-528-9284
Telephone No.: 212-526-6970
<PAGE> 79
THE AGENT
LEHMAN COMMERCIAL PAPER INC., as Agent
By:/s/ FRANCIS X. GILHOOL
-----------------------------------
Name:Francis X. Gilhool
Title:Authorized Signatory
<PAGE> 80
SCHEDULE 1 TO THE LOAN
AND SECURITY AGREEMENT - ACLC
DUTIES OF THE SERVICER WITH RESPECT TO THE SBA LOANS
NOTE: THE SERVICER SHALL BE OBLIGATED TO SERVICE THE COLLATERAL IN ACCORDANCE
WITH THE SERVICING AGREEMENT, DATED AS OF SEPTEMBER 27, 1995 (THE
"SERVICING AGREEMENT"), BETWEEN THE BORROWER, THE AGENT AND THE SERVICER
WHICH SERVICING AGREEMENT SHALL BE ACCEPTABLE TO THE AGENT. THE
SERVICING AGREEMENT WILL INCORPORATE BY REFERENCE THE SERVICER'S LOAN
CLOSING AND SERVICING MANUAL (THE "MANUAL"), WHICH MANUAL SHALL BE
SATISFACTORY TO THE AGENT AND INCLUDE THE SPECIFIC PROCEDURES TO BE
PERFORMED BY THE SERVICER. THE INVESTMENT ADVISER AGREES THAT, PURSUANT
TO THE AGREEMENT OF INVESTMENT ADVISER UNDERTAKING, IF THE INVESTMENT
ADVISER PERFORMS ANY OF THE SERVICING FUNCTIONS WITH RESPECT TO THE
QUALIFYING SBA LOANS ON BEHALF OF THE SERVICER OR THE BORROWER, IT WILL
COMPLY WITH THE TERMS OF THE SERVICING AGREEMENT. CAPITALIZED TERMS
USED AND NOT OTHERWISE DEFINED HEREIN SHALL HAVE THE RESPECTIVE MEANINGS
ASCRIBED THERETO IN THE LOAN AND SECURITY AGREEMENT, DATED AS OF
SEPTEMBER 27, 1995, AMONG THE BORROWER, THE LENDERS AND THE AGENT (THE
"LOAN AND SECURITY AGREEMENT"), OF IF NOT SO DEFINED THEREIN, THEN IN
THE CUSTODIAL AGREEMENT.
1. Accepted Servicing Standards
The Servicer shall employ customary and usual standards of prudent
institutional commercial loan servicers with the objective of maximizing the
timely recovery of interest and principal, regardless of (a) relationship of
the Servicer to the related mortgagor, or (b) the Servicer's right to receive
compensation for its services. Such procedures shall be subject to (in the
priority set forth herein) and in compliance with applicable law, SBA Rules and
Regulations, the terms of the Servicing Agreement, accepted servicing standards
and the Manual, and shall be acceptable to the Agent.
The Servicer shall cause all financing statements, continuation
statements and other instruments to be executed and delivered, and take such
other actions as required or advisable to maintain, preserve and protect the
Borrower's interest and the Agent's security interest in the Collateral for the
benefit of the Lenders.
2. Documents, Records and Funds in Possession of the Servicer to be Held
in Trust
The Servicer shall maintain a servicing file for each Qualifying SBA
Loan held as Collateral. Further, the Borrower will grant a security interest
in all rights relating to such mortgage servicing files to the Agent for the
ratable benefit of the Lenders. Upon termination of the Servicer's activities
with respect to any Collateral, the Servicer shall promptly deliver the related
servicing file to the successor servicer as directed by the Agent.
<PAGE> 81
All documents and funds collected by, held by, or under the control of
the Servicer in respect of any Qualifying SBA Loan, shall be held by the
Servicer for and on behalf of the Agent, as secured party for the benefit of
the Lenders, and shall remain the sole and exclusive property of the Borrower
subject to the Lien of the Agent.
3. Release of Mortgage Files
Upon becoming aware of the payment in full of any Qualifying SBA Loan,
the Servicer shall immediately notify the Agent, the Borrower and the Custodian
thereof and shall request delivery to the Borrower of the related Custodian's
SBA Loan File. Upon such payment in full, the Custodian is authorized to give,
as agent, bailee and custodian for the Agent, an instrument of satisfaction
regarding the Pledged Property subject to the security interest created under
the related Security Agreement to the person(s) entitled to such instrument.
The release of the Custodian's SBA Loan File shall also be done consistently
with the SBA Rules and Regulations.
4. Tax Reporting
The Servicer shall comply with all tax reporting requirements of the
Pledgor with respect to the Qualifying SBA Loans.
5. Reports to the Agent
The Servicer shall furnish to the Agent on behalf of the Borrower, 25
days after the end of each calendar month, in hard copy and on a computer
readable magnetic medium, in form reasonable satisfactory to the Agent, the
payment history and collateral tape (substantially in the form of Annex A
attached hereto). In addition, the Servicer shall provide on behalf of the
Borrower copies of all approved Credit Change Memoranda not previously
submitted to the Agent with respect to the Qualifying SBA Loans on such date.
Notwithstanding the foregoing, Credit Change Memoranda will be required prior
to approval of Borrower if (i) the aggregate principal balance of all Loans
then outstanding equals or exceeds the Borrowing Base less $2,000,000, or (ii)
such memoranda affect Collateral with an outstanding principal balance of
greater than or equal to $2,000,000 (either individually or in aggregate) and
have not been previously provided to the Agent.
In addition, the Servicer shall maintain all operating statements,
rent rolls and financial statements of the Pledgor and provide such statements
to the Agent upon request (or otherwise provide the Agent or any Lender access
to such statements upon reasonable notice). The Servicer shall promptly
perform an updated calculation of the debt service coverage ratio with respect
to the Pledged Property covered by the operating statements, incorporate the
results of such analysis in the payment history and collateral tape, and
provide access to or copies of such analysis to the Agent or any Lender
promptly upon request. The Servicer shall diligently pursue receipt of all
financial information required from the Pledgor.
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6. Reports of the Servicer
Financial Reports
So long as the Servicing Agreement is in effect, the Servicer shall
deliver to the Agent a copy of the annual consolidated financial statements of
the Servicer within 95 days after the end of the Servicer's fiscal year. Such
financial statements shall be prepared by a nationally recognized firm of
independent certified public accountants reasonably acceptable to the Agent
that and certify (i) the statements were examined and consistently prepared in
accordance with GAAP and (ii) the statements present fairly the financial
condition of the Servicer at the end of such fiscal year.
Annual Officer's Certificate
The Servicer will deliver to the Agent an "Officer's Certificate"
executed by a Responsible Officer by April 30th of each year certifying
compliance by the Servicer with the Servicing Agreement in the prior calendar
year.
Independent Review of Servicer's Operations
Upon the request of the Agent, the Servicer shall cause a nationally
recognized firm of independent certified public accountants to furnish a
statement to the Agent to the effect that such firm has examined certain
records and documents relating to the Servicer's performance of its servicing
obligations under the Servicing Agreement with respect to the Qualifying SBA
Loans and that, on the basis of such examination, such servicing has been
conducted in compliance with the Servicing Agreement. Such request shall be
made no more frequently than annually. The cost of such report shall be borne
by the Agent, unless such report indicates that the Servicer has not serviced
the Qualifying SBA Loans in accordance with the terms of the Servicing
Agreement. If the report so indicates, the report shall be at the sole cost
and expense of the Borrower.
7. Fidelity Bond, Errors and Omissions Policy and Mortgage Impairment
Insurance
The Servicer shall maintain, at its sole cost and expense, a fidelity
bond and an errors and omissions insurance policy which affords coverage to
all directors, officers and employees. Such policy shall be in a form and in
the amount that would meet the requirements of the SBA (as appropriate) and
FNMA or FHLMC if either FNMA or FHLMC were the purchaser of the Qualifying SBA
Loans, and in such form as is customary for servicers of commercial loans. The
Servicer shall immediately report in writing to the Agent any material changes
which may occur in such policy. Further, the Servicer shall immediately report
to the Agent any embezzlement, fraud or irregularities relating to the
servicing of the Qualifying SBA Loans.
The Servicer shall cause insurance to be maintained on the Pledged
Property securing the SBA Loans in accordance with the Collateral Insurance
Requirements. In the event that the Servicer shall obtain and maintain a
blanket policy (which policy and insurer shall be
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acceptable to the Agent) insuring against losses arising from fire and hazards
covered under extended coverage on all of the Pledged Property securing the
Qualifying SBA Loans, then, to the extent such policy provides coverage in an
amount equal to the amount required pursuant the Collateral Insurance
Requirements and otherwise complies with the Collateral Insurance Requirements,
it shall conclusively be deemed to have satisfied its obligations as set forth
in this paragraph. Upon request of the Agent, the Servicer shall cause to be
delivered to the Agent a certified true copy of such policy and a statement
from the insurer thereunder that such policy shall in no event be terminated or
materially modified without 30 days' prior written notice to the Agent.
All insurance carriers with respect to the Collateral Insurance
Requirements must be fully licensed in the applicable jurisdiction(s) and
otherwise be acceptable to the Agent. Currently, the Agent's standards require
the insurance carriers to be "A" rated for claims paying ability by Moody's
Investors Service, Standard & Poor's Ratings Group, Fitch Investors Service
L.P., or Duff & Phelps Credit Rating Co. If not rated by these rating
agencies, each insurer is required to have a minimum policy rating of "A" and a
minimum financial class of "VIII" by A.M. Best Co.
8. Resignation
The Servicer shall not resign from the duties and obligations as
servicer.
9. Assignment
Except as expressly provided in the Servicing Agreement, the Servicer
shall not assign or transfer any its rights, benefits or privileges as servicer
to any other person, or delegate to or subcontract with, or authorize or
appoint any other person to perform any of the duties, covenants or obligations
to be performed by the Servicer.
10. Representation and Warranties
The Servicer shall represent and warrant as of the Closing Date that:
(i) the Servicer is duly organized, validly existing and in good
standing under the laws of the United States and is, and shall
remain, in compliance with the laws of each state in which any
Pledged Property is located to the extent necessary to perform
its obligations under the Servicing Agreement, including the
Servicer's compliance with SBA Rules and Regulations, and the
Servicer's requirement to continue to qualify and remain
regulated as an SBA approved small business lending company;
(ii) the Servicer has the full power and authority to enter into and
consummate all transactions and obligations contemplated by the
Servicing Agreement; the Servicing Agreement shall evidence the
valid and binding obligation of the Servicer enforceable against
the Servicer in accordance with its terms, subject only to
bankruptcy law and general principles of equity;
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(iii) neither the execution and delivery of the Servicing Agreement,
the consummation of the transaction contemplated in the
Servicing Agreement, nor the fulfillment of or compliance with
the terms and conditions of the Servicing Agreement will (A)
conflict with or result in a breach of any of the terms of the
Servicer's certificate of incorporation, charter or by-laws or
any legal restriction or any agreement or instrument to which
the Servicer is now a party or by which it is bound, or
constitute a default or result in an acceleration under any of
the foregoing or, (B) result in the violation of any law, rule,
regulation, order, judgment, or decree to which the Servicer or
its Property is subject;
(iv) the Servicer holds all material licenses, certificates and
permits from all Government Authorities necessary for conducting
its business as it is presently conducted. The Servicer shall
take all steps necessary to remain subject to supervision and
examination by any state or federal authorities and shall take
all steps necessary to do business in each state in which the
Pledged Properties are located;
(v) the Servicer does not have any cause or reason to believe that
it cannot perform each and every covenant and obligation under
the Servicing Agreement;
(vi) there is no action, suit, proceeding or investigation pending or
threatened against the Servicer which would draw into question
the validity of the Servicing Agreement or of any action to be
taken under the Servicing Agreement, or which would be likely to
impair materially the ability of the Servicer to perform under
the terms of the Servicing Agreement;
(vii) the Servicer is not in default with respect to any order or
decree of any court or any order, regulation or demand of any
federal, state, municipal or governmental agency, which default
would materially and adversely affect its performance under the
Servicing Agreement;
(ix) the Servicer is not, and, with the passage of time, does not
expect to become insolvent or bankrupt; and
(ix) the consummation of the transaction contemplated by the
Servicing Agreement is in the ordinary course of business of the
Servicer.
11. Termination
The obligations and responsibilities of the Servicer shall terminate
on the date which is 30 days following the date on which the Agent gives
written notice to the Servicer that the Servicing Agreement is terminated.
Notwithstanding the foregoing, the Agent may also terminate the
Servicing Agreement, immediately upon notice to the Servicer, in the event that
(i) the Servicer has materially breached any obligation under the Servicing
Agreement, (ii) the Servicer has made one or
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<PAGE> 85
more materially false or misleading representations or warranties, (iii) the
Servicer enters into any bankruptcy proceeding, (iv) the Servicer has executed
an assignment for the benefit of creditors, (v) a substantial change in
financial or organizational structure of the Servicer occurs that, in the
reasonable opinion of the Agent, result in a Material Adverse Effect, (vi) the
Servicer fails to remain a qualified SBA approved loan servicer, and (vii) upon
a Default or an Event of Default under the Loan and Security Agreement and any
of the Basic Documents. Termination for any of the reasons contained in the
foregoing clauses (i) through (vii) shall become effective on the date
specified in the written notice of termination.
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ANNEX A TO SCHEDULE 1 OF THE
LOAN AND SECURITY AGREEMENT
FORM OF SBA LOAN COLLATERAL TAPE
ACLC LIMITED PARTNERSHIP
Loan ID #:
SBA Program:
Loan Position re: Primary Collateral (i.e. 1st, 2nd):
Related Loan ID # (if in pool):
Related Loan Current Balance (if in pool):
Number of Borrowers:
BORROWER # 1:
Borrower Name:
Borrower Address:
Borrower City:
Borrower State:
Borrower Zip Code:
BORROWER # 2 :
Borrower Name:
Borrower Address:
Borrower City:
Borrower State:
Borrower Zip Code:
<PAGE> 87
Guaranteed?:
Aggregate Percent Guaranteed:
Number of Guarantors:
GUARANTOR # 1:
Guarantor Name:
Guarantor Address:
Guarantor City:
Guarantor State:
Guarantor Zip Code:
Percent Guaranteed:
Business Ownership %:
GUARANTOR # 2:
Guarantor Name:
Guarantor Address:
Guarantor City:
Guarantor State:
Guarantor Zip Code:
Percent Guaranteed:
Business Ownership %:
GUARANTOR # 3:
Guarantor Name:
Guarantor Address:
Guarantor City:
Guarantor State:
Guarantor Zip Code:
Percent Guaranteed:
Business Ownership %:
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<PAGE> 88
Loan Purpose (list specific fixed asset purchase, etc.):
Original Principal Balance:
Note Date:
Maturity Date:
Amortization Term:
Loan Type (e.g. fixed/ARM):
Current Principal Balance:
Current Interest Rate (per annum):
Paid to Date:
Annual P&I (if ARM, assume fixed at current interest rate):
Next Payment Due Amount:
Next Payment Due Date:
P&I Payment Frequency:
Index:
Spread/Margin:
Life Cap:
Life Floor:
Interest Calculation Method (e.g. actual/365):
Interest Paid in Advance or Arrears:
Interest Rate Adjustment Frequency:
Payment Adjustment Frequency:
First Interest Rate Adjustment Date:
First Payment Adjustment Date:
Next Interest Rate Adjustment Date:
Next Payment Adjustment Date:
First P&I payment Due Date:
Prepayment Notice Period:
Negative Amortization Allowed?:
Negative Amortization Cap:
Prohibition on Additional Debt:
Prohibition on Dividends and Distributions:
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COLLATERAL # 1 (Primary):
Collateral Type:
Fee/Leasehold?:
Property Name:
Property Address:
Property City:
Property State:
Property Zip Code:
Property Units:
Property Square Feet:
Year Built:
Year Renovated:
Lien Position:
Senior Debt Current Balance:
Senior Debt Balance as of Date:
Senior Debt Current Interest Rate:
Senior Debt Annual P&I:
Senior Debt Maturity Date:
Senior Debt Lender:
Junior Debt Current Balance:
Junior Debt Balance as of Date:
Junior Debt Current Interest Rate:
Junior Debt Annual P&I:
Junior Debt Maturity Date:
Junior Debt Lender:
Underwritten NOI:
Latest Full Year NOI:
Latest Full Year NOI Date:
Current Year Partial Period NOI Received? (Y or N):
Original Appraisal/ Market Value:
Original Appraisal/ Market Value Date:
Original Estimated Liquidation Value:
Most Recent Appraisal Value:
Most Recent Appraisal Date:
Acquisition Cost:
Acquisition Date:
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<PAGE> 90
COLLATERAL # 2:
Collateral Type:
Fee/Leasehold?:
Property Name:
Property Address:
Property City:
Property State:
Property Zip Code:
Property Units:
Property Square Feet:
Year Built:
Year Renovated:
Lien Position?
Senior Debt Current Balance:
Senior Debt Balance as of Date:
Senior Debt Current Interest Rate:
Senior Debt Annual P&I:
Senior Debt Maturity Date:
Senior Debt Lender:
Junior Debt Current Balance:
Junior Debt Balance as of Date:
Junior Debt Current Interest Rate:
Junior Debt Annual P&I:
Junior Debt Maturity Date:
Junior Debt Lender:
Underwritten NOI:
Latest Full Year NOI:
Latest Full Year NOI Date:
Current Year Partial Period NOI Received? (Y or N):
Original Appraisal/ Market Value:
Original Appraisal/ Market Value Date:
Original Estimated Liquidation Value:
Most Recent Appraisal Value:
Most Recent Appraisal Date:
Acquisition Cost:
Acquisition Date:
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COLLATERAL # 3:
Collateral Type:
Fee/Leasehold?:
Property Name:
Property Address:
Property City:
Property State:
Property Zip Code:
Property Units:
Property Square Feet:
Year Built:
Year Renovated:
Lien Position?
Senior Debt Current Balance:
Senior Debt Balance as of Date:
Senior Debt Current Interest Rate:
Senior Debt Annual P&I:
Senior Debt Maturity Date:
Senior Debt Lender:
Junior Debt Current Balance:
Junior Debt Balance as of Date:
Junior Debt Current Interest Rate:
Junior Debt Annual P&I:
Junior Debt Maturity Date:
Junior Debt Lender:
Underwritten NOI:
Latest Full Year NOI:
Latest Full Year NOI Date:
Current Year Partial Period NOI Received? (Y or N):
Original Appraisal/ Market Value:
Original Appraisal/ Market Value Date:
Original Estimated Liquidation Value:
Most Recent Appraisal Value:
Most Recent Appraisal Date:
Acquisition Cost:
Acquisition Date:
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COLLATERAL # 4:
Collateral Type:
Fee/Leasehold:
Property Name:
Property Address:
Property City:
Property State:
Property Zip Code:
Property Units:
Property Square Feet:
Year Built:
Year Renovated:
Lien Position:
Senior Debt Current Balance:
Senior Debt Balance as of Date:
Senior Debt Current Interest Rate:
Senior Debt Annual P&I:
Senior Debt Maturity Date:
Senior Debt Lender:
Junior Debt Current Balance:
Junior Debt Balance as of date:
Junior Debt Current Interest Rate:
Junior Debt Annual P&I:
Junior Debt Maturity Date:
Junior Debt Lender:
Underwritten NOI:
Latest Full Year NOI:
Latest Full Year NOI Date:
Current Year Partial Period NOI Received? (Y or N):
Original Appraisal/ Market Value:
Original Appraisal/ Market Value Date:
Original Estimated Liquidation Value:
Most Recent Appraisal Value:
Most Recent Appraisal Date:
Acquisition Cost:
Acquisition Date:
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<PAGE> 93
COLLATERAL # 5 - LIFE INSURANCE POLICY:
Life Insurance Policy #:
Life Insurance Policy Amount (Aggregate):
Life Insurance Company:
Name Insureds:
Additional Insured:
Loss Payee:
Life Insurance Paid Through Date:
Aggregate Underwritten NOI:
Aggregate Underwritten DSCR (combined if not first lien):
Aggregate Latest Full Year NOI:
Aggregate Latest Partial Period NOI:
Aggregate Acquisition Cost:
Aggregate Appraisal Value:
Aggregate Senior Liens Current Balance:
Aggregate Junior Liens Current Balance:
Taxes Paid through Date:
Aggregate Amount Insured - Hazard:
Aggregate Amount Insured - Flood:
Insurance Paid through Date:
Number of Times 30 Days Late in Last 12 Months:
Number of Times 60 Days Late in Last 12 Months:
Number of Times 90 Days Late in Last 12 Months:
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<PAGE> 94
SCHEDULE 2 TO THE LOAN
AND SECURITY AGREEMENT
REPRESENTATIONS AND WARRANTIES OF THE BORROWER WITH RESPECT TO THE SBA LOANS
The Borrower shall be deemed to have made the following
representations and warranties to the Agent with respect to each SBA
Loan as of the Funding Date relating thereto:
(1) The Borrower is the sole owner and holder of such SBA
Loan subject to no liens, charges, mortgages encumbrances or rights of
others;
(2) The Borrower has the full right and authority to
sell, assign, pledge and transfer such SBA Loan;
(3) Other than if such SBA Loan is an SBA Companion
Program Loan or an SBA 504 Program Real Property Loan, such SBA Loan
is not cross-collateralized with other Pledged Properties, not pledged
as collateral, and contains no equity participation by the Borrower;
none of the SBA Notes or Security Agreements provide for any
contingent or additional interest in the form of participation in the
cash flow of the Pledged Property or a sharing in the appreciation of
the value of the Pledged Property. The indebtedness evidenced by the
SBA Note is not convertible to an ownership interest in the Pledged
Property or the Pledgor; and the Borrower has not financed nor does it
own, directly, any equity of any form in the Pledged Property or the
Pledgor;
(4) Such SBA Loan was closed in accordance with the
commitment letter between the Borrower and the Pledgor and the
requirements of the SBA Authorization and Loan Agreement or the SBA
Authorization and Debenture Guaranty, as applicable, either referred
to herein as the "ALA"), as such commitment letter and ALA may have
been modified in writing by the Borrower and the SBA. The proceeds of
the SBA Loan have been fully disbursed and there is no requirement for
future advances thereunder and any and all requirements stated in such
closing instructions, commitment letter and the ALA to the completion
of any on-site or off-site improvements and as to the release of any
escrow funds have been complied with. Further, any future advances
made prior to the date such SBA Loan was delivered to the Custodian
and pledged pursuant to the terms of the Loan and Security Agreement
have been consolidated with all outstanding amounts secured by the
related Security Agreement and Pledged Property, as consolidated, has
a single interest rate and single repayment term;
<PAGE> 95
(5) The origination and servicing practices used by the
Borrower with respect to such SBA Loan have been in all respects
legal, proper and prudent, and have met (a) customary standards
utilized by lenders in their commercial loan origination and servicing
business, (b) the Loan Closing Conditions (except that no
representation is made as to the Agent's satisfaction), (c) the SBA
Rules and Regulations and (d) all requirements of the Servicing
Agreement;
(6) Such SBA Loan was originated by the Borrower on the
date of the related SBA Note date and complies with all the terms,
conditions and requirements of the underwriting policies of the
Borrower, the SBA, the ALA as well as the Loan Eligibility
Requirements prescribed by the Agent as in effect at the time of
origination;
(7) Such SBA Loan, and all parties involved in the
origination and servicing of the SBA Loan, complied as of the date of
origination with or are exempt from, applicable laws and regulations
of any Government Authority, including, without limitation, usury,
equal credit opportunity, disclosure and recording laws, and the SBA
Rules and Regulations;
(8) With respect to such SBA Loan, each of the SBA Note,
the Security Agreement and other agreements executed in connection
therewith is the legal, valid and binding obligation of the maker
thereof, enforceable in accordance with its terms, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization
or other similar laws affecting the enforcement of creditors' rights
generally, and by general principles of equity (regardless of whether
such enforcement is considered in a proceeding in equity or at law).
All parties to the Security Agreement, the SBA Note and all other
documents evidencing, securing and guaranteeing such SBA Loan had
legal capacity to enter into such documents;
(9) The assignment of the Security Agreement, the
assignment of the assignment of leases and rents, if any, and the UCC
financing statement naming the Agent as assignee executed by the
Borrower with respect to such SBA Loan are in recordable form and
constitute the legal, valid and binding assignments of such Security
Agreement, assignment of leases and rents, and UCC financing
statements by the Borrower;
(10) The Security Agreement relating to such SBA Loan is a
valid and enforceable lien on the related Pledged Property, which
Pledged Property is free and clear of all Liens having priority over
the lien of the Security Agreement, except for (a) liens for real
estate taxes and special assessments not yet due and payable, (b)
covenants, conditions and restrictions, rights of way, easements and
other matters of public record as of the date of recording of such
Security Agreement, such exceptions appearing of record being
acceptable to mortgage lending institutions generally, (c) other
matters to which like properties are commonly subject which do not,
individually or in the aggregate, materially interfere with the
benefits of the security intended to be provided by such Security
Agreement, and (d) such other Liens as permitted by the
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<PAGE> 96
Agent in writing. If such SBA Loan is not a first priority Lien (a
"Second Lien Loan"), either (x) no consent for the SBA Loan is
required by the holder of the related prior Lien or (y) such consent
has been obtained, and:
(i) The Second Lien Loan is not a home equity loan or a "wrap around
mortgage loan";
(ii) The first priority Lien related thereto is in full force and
effect; there is no default, breach, violation or event of
acceleration existing under the first priority Security
Agreement or the note relating thereto; and no event which, with
the passage of time or with notice and the expiration of any
grace or cure period, would constitute a default, breach,
violation or event of acceleration thereunder;
(iii) The first priority Security Agreement contains a provision which
allows the pledgee/mortgagee under the Second Lien Loan to cure
any default under the Security Agreement creating the first
priority Lien; and
(iv) The combined loan-to-value ratio of the first Lien and the
second Lien is no greater than the amount specified for such SBA
Loan in the Loan Eligibility Requirements, and, with respect to
such SBA Loan, if such SBA Loan is an SBA 504 Program Real
Property Loan, 100%.
(11) The terms of the SBA Note relating to such SBA Loan
and the related Security Agreement have not been waived, modified,
altered, satisfied, canceled or subordinated in any respect or
rescinded, and the related Pledged Property has not been released from
the Lien of the Borrower, nor has the Pledgor been released from its
obligations under the Security Agreement, in whole or in any part, in
a manner which materially interferes with the benefits of the security
intended to be provided by the Security Agreement or the use,
enjoyment, value or marketability of such Pledged Property, nor has
any instrument been executed that would effect any such cancellation,
subordination, rescission or release, with the exception of the
written instruments which have been recorded in order to protect the
interest of the Lenders and the Agent and are part of the Custodian's
SBA Loan File;
(12) Such SBA Loan is not subject to any right of
rescission, setoff, counterclaim or defense, including without
limitation the defense of usury, nor will the operation of any of the
terms of the SBA Note or the Security Agreement relating thereto, or
the exercise of any right thereunder, render either the related SBA
Note or such Security Agreement unenforceable, in whole or in part, or
subject to any right of rescission, setoff, counterclaim, or defense,
including without limitation the defense of usury, and no such right
of rescission, setoff, counterclaim or defense has been asserted with
respect thereto;
(13) Such Pledged Property consists of a fee simple estate
in real property and improvements thereon and the SBA Loan is either
(a) not secured by a ground
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<PAGE> 97
lease; or (b) if the Pledged Property is a leasehold estate and the
fee owner does not encumber its fee interest with the related Security
Agreement (i.e., does not execute the Security Agreement or
"subordinate" its fee interest), the ground lease is a "financeable"
ground lease and provides, among other things (1) for a remaining term
of no less than 10 years from the maturity of the related SBA Loan,
(2) that the lease will not be terminated until the Pledgor has
received notice of a default and has had a reasonable opportunity to
cure or complete foreclosure, and fails to do so, (3) for a new lease
on the same terms to the Pledgor as tenant if the ground lease is
terminated for any reason, (4) for non-merger of fee and leasehold
interests, and (5) that Insurance Proceeds and Condemnation Proceeds
(from the fee interest as well as the leasehold interest) will be
applied pursuant to the terms of the Security Agreement). In
addition, an estoppel and/or subordination and attornment agreement
executed by the fee owner and satisfactory to the Agent has also been
obtained (unless specifically waived in writing by the Agent);
(14) There are no defaults in complying with the terms of
the Security Agreement with respect to such SBA Loan, and all taxes,
governmental assessments, insurance premiums, water, sewer and
municipal charges which previously became due and owing with respect
to the related Pledged Property have been paid. The Borrower has not
advanced funds, or induced, solicited or knowingly received any
advance of funds by a party other than the Pledgor, directly or
indirectly, for the payment of any amount required under the SBA Loan,
except for interest accruing from the date of the related SBA Note or
date of disbursement of the SBA Loan proceeds, whichever is later, to
the day which precedes by one month the due date of the first
installment of principal and interest on such SBA Note;
(15) All escrow deposits and payments relating to such SBA
Loan, as applicable, are in the possession, or under the control, of
the Borrower or its agent or bailee (with notice of the interest of
the Borrower) and there are no deficiencies in connection therewith;
(16) The information set forth in the Collateral Pledge
Certificate (a form of which is included as Annex 2a to Annex 2 to the
Custodial Agreement), the SBA Loan Schedule and the completed SBA Loan
Collateral Tape, (a form of which is attached as Annex A to Schedule 1
of the Loan and Security Agreement,) is true and correct in all
material respects;
(17) There is no proceeding pending for the total or
partial condemnation of the Pledged Property relating to such SBA
Loan. Such Pledged Property is being used for the purpose set forth
in the Pledgor's loan application, or such other documents that the
Borrower required at origination, and it is in good repair and free
and clear of any damage that would affect materially and adversely the
value of the Pledged Property as security for the SBA Loan or the use
for which the premises were intended;
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<PAGE> 98
(18) The Pledged Property relating to such SBA Loan is
free and clear of any mechanics' and material-men's liens in the
nature thereof, and no rights are outstanding that under law could
give rise to any such liens, any of which liens are or may be prior
to, or equal with, the Lien of the Borrower, except those which are
insured against by the Borrower's title insurance policy referred to
in paragraph (24) below;
(19) The Custodian's SBA Loan File and/or the files
maintained by the Borrower relating to such SBA Loan contains a title
survey, certified to Borrower, its successors and assigns, or the
title insurance company, in accordance with minimum standards for
title surveys as determined by ALTA/ASCM, with the signature and seal
of a licensed engineer or surveyor affixed thereto; provided, however,
that such requirement shall be waived if the title insurance company
provides an affirmative endorsement over all survey issues. None of
the improvements which are included for the purpose of determining the
appraised value of the Pledged Property at the time of the origination
of the SBA Loan lies outside of the boundaries and building
restriction lines of such Pledged Property, no improvements on
adjoining properties materially encroach upon such Pledged Property,
and no improvement located on or forming part of the Pledged Property
is in violation of any applicable zoning and building laws or
ordinances;
(20) The Pledgor was, at the time of origination of such
SBA Loan in possession of all licenses, permits and other
authorizations necessary and required by applicable law for the
conduct of its business. All such licenses, permits and
authorizations are valid and in full force and effect. All conditions
on the Pledgor's part to be fulfilled under the terms of any lease of
the Pledged Property have been satisfied;
(21) The Pledged Property relating to such SBA Loan is in
compliance with and lawfully used and occupied by the owner thereof
and/or by tenants under leases under any applicable zoning, building
or environmental law or regulation and all inspections, licenses and
certificates required, whether by law, regulation or insurance
standards to be made or issued with respect to such Pledged Property
and with respect to the use and occupancy of the same, including but
not limited to certificates of occupancy and fire underwriter
certificates, have been made by or issued by the appropriate
Governmental Authorities having jurisdiction over the Pledged
Property. The Borrower has not received notification from any
Governmental Authority that the Pledged Property is in material
non-compliance with such laws or regulations, is being used, operated
or occupied unlawfully or has failed to have or obtain such
inspection, licenses or certificates, as the case may be. The
Borrower has not received notice of any violation or failure to
conform with any such law, ordinance, regulation, standard, license or
certificate;
(22) The Pledgor is the owner and holder of the landlord's
interest under any lease for use and occupancy of all or any portion
of the Pledged Property, as
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<PAGE> 99
applicable. Each Security Agreement relating thereto provides for the
appointment of a receiver for rents in the event of default or allows
the mortgagee thereunder to enter into possession to collect the
rents. Neither the Borrower nor the Pledgor has made any assignments
of the landlord's interest in any such lease or any portion of the
rents, additional rents, charges, issues or profits due and payable or
to become due and payable under any such lease, which assignments are
presently outstanding and have priority over such Security Agreement
or any assignment of leases, rents and profits given in connection
with the origination of the SBA Loan, other than as may be disclosed
in the Borrower's title insurance policy referred to in paragraph (24)
below. An assignment of leases and/or rents and any security
agreement, chattel mortgage or equivalent document related to and
delivered in connection with the SBA Loan establishes and creates a
valid and enforceable (a) Lien with the priority set forth on the SBA
Loan Schedule and (b) security interest on the Pledged Property
described therein; except as enforceability may be limited by
bankruptcy or other laws affecting creditor's rights generally or by
the application of the rules of equity. If the Pledged Property is
located in a jurisdiction in which the Security Agreement relating
thereto cannot cover furniture, fixtures, equipment or personal
property, in accordance with practices which are customary among
prudent mortgage lenders, the Borrower has filed and/or recorded all
necessary financing statements to create a valid Lien (with the
priority set forth on the SBA Loan Schedule) against such Property;
(23) To the extent required under applicable law, as of
the Funding Date, each holder of the SBA Note relating to such SBA
Loan was authorized to transact and do business in the jurisdiction in
which the Pledged Property is located;
(24) The related Pledged Property is covered by a lender's
title insurance policy, insuring that the related Security Agreement
is a valid Lien on such Pledged Property with the priority set forth
on the SBA Loan Schedule, subject only to the exceptions stated
therein. Such title insurance policy is in full force and effect, is
freely assignable and will inure to the benefit of the owner of the
SBA Loan. Such title insurance policy insures the Pledged Property
for the original principal amount of the SBA Loan after all advances
of principal. The title policy does not contain any special
exceptions (other than the standard exclusions) for zoning and uses
and has either deleted the standard survey exception or has been
marked to replace the standard survey exception with a specific survey
reading. No person has done any act, either by commission or
omission, and the Borrower has no knowledge of any fact, which would
materially impair the coverage of any such title insurance policy.
The title policy has been marked to delete the intervening lien
exception. The Borrower, its successors or assigns shall be the only
named insured of such lender's title insurance policy;
(25) The Pledged Property relating to such SBA Loan is
insured by a fire and extended perils insurance policy issued by a
generally acceptable carrier, providing coverage against loss or
damage sustained by reason of fire, lightning, windstorm, hail,
explosion, riot attending a strike, civil commotion, aircraft,
vehicles and smoke, and,
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<PAGE> 100
to the extent required as of the date of origination by the Borrower
consistent with their normal lending practices and as required by the
SBA against other risks insured against by persons operating like
properties in the locality of the Pledged Property, in an amount not
less than the amount required by the SBA. The Pledgor shall also
maintain (a) business interruption and rental continuation coverage
and (b) ordinance and law coverage as required pursuant to the ALA or
otherwise as reasonably required by the Agent. If the SBA Loan is
secured by an interest in real property and any portion of such
Pledged Property is in an area identified in the Federal Register by
the Flood Emergency Management Agency as having special flood hazards,
and flood insurance is available, a flood insurance policy meeting the
requirements of the current guidelines of the Federal Insurance
Administration is in effect with a generally acceptable insurance
carrier, in an amount representing coverage not less than the least of
(w) the outstanding principal balance of the SBA Loan, (x) the full
insurable value of the Pledged Property, and (y) the maximum amount of
insurance available under the National Flood Insurance Act of 1968, as
amended, but a least (z) the amount required by the SBA. All such
insurance policies (each, a "Hazard Insurance Policy") shall contain a
standard "New York" mortgagee clause naming the Borrower, its
successors and assigns (including without limitation, subsequent
owners of such SBA Loan), as mortgagee. All premiums on any Hazard
Insurance Policy have been paid. Each Hazard Insurance Policy
requires prior notice to the insured of termination or cancellation,
and no such notice has been received. The Security Agreement relating
to such SBA Loan obligates the related Pledgor to maintain all such
insurance at the Pledgor's sole cost and expense. There have been no
acts or omissions that would impair the coverage of any such Hazard
Insurance Policy or the benefits of the to the Security Agreement or
any Hazard Insurance Policy endorsement;
(26) To the Borrower's best knowledge, there are no
circumstances or conditions with respect to any Security Agreement,
the Pledged Property, the Pledgor, any tenant of the Pledged Property
(as applicable), any space lease of the Pledged Property (as
applicable) relating to such SBA Loan, or the Pledgor's or any
commercial tenant's (as applicable) credit standing or pending
litigation or other legal proceedings involving the Pledgor that can
reasonably be expected to adversely affect the current value or
marketability of such Pledged Property or the SBA Loan, or cause
private institutional investors to regard the SBA Loan as an
unacceptable investment, or cause the SBA Loan to become delinquent;
(27) If such SBA Loan is secured by Pledged Property which
is primarily real property and is leased to tenants;
(a) The Pledged Property is not subject to any
leases other than the leases described in the
rent roll contained in the SBA Loan Documents
(the "Leases"), and no Person has any possessory
interest in the Pledged Property or right to
occupy the same except under and pursuant to the
provisions of the Leases. No Lease
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<PAGE> 101
contains any option to purchase, a right of
first refusal or any other similar provisions
which adversely affects such SBA Loan or which
might adversely affect the rights of any holder
of the related SBA Note. Each Lease of all or
any portion of the Pledged Property is
subordinate to the related Security Agreement,
unless otherwise approved by the Agent in
writing; and
(b) With respect to any Lease having the benefit of
a non-disturbance or similar recognition
agreement, there are no circumstances or
conditions with respect to the related Security
Agreement, the Pledged Property, the Pledgor,
any tenant (alone or considered with other
tenants) of the Pledged Property, or the
Pledgor's or any tenant's credit standing that
would cause prudent mortgage lenders making
loans similar to such SBA Loan in the area in
which the Pledged Property is located to refuse
to grant such non-disturbance or similar
recognition agreement; and
(c) (i) There are no prior recorded assignments of
the Leases or of any portion of the rents,
additional rents, charges, issues or profits due
and payable or to become due and payable
thereunder (the "Rents") which are now
outstanding and have priority over the
assignment of leases contained in the documents
relating to such SBA Loan and given in
connection with such SBA Loan, and (ii) the
Leases are in full force and effect;
(28) Except as expressly previously disclosed to the
Agent, the proceeds of such SBA Loan shall be used only in accordance
with the requirements of the ALA and as indicated in the settlement
report and the certificate of the Pledgor as borrower under the SBA
Loan. Except as expressly previously disclosed to the Agent, the
proceeds of the SBA Loan have not been used to satisfy, in whole or in
part, any debt owed or owing by the Pledgor to the Borrower other than
for the purchase of the Pledged Property; provided, however, that the
SBA Loan may provide permanent financing for a construction loan with
respect to the Pledged Property;
(29) There is no default, breach, violation or event of
acceleration existing under the Security Agreement or the SBA Note
relating to such SBA Loan and no event (other than payments due but
not yet delinquent) which, with the passage of time or with notice and
the expiration of any grace or cure period, would constitute such a
default, breach, violation or event of acceleration. Neither the
Borrower nor any other Person has waived any material default, breach,
violation or event of acceleration of any of the foregoing, and,
pursuant to the terms of the SBA Loan, such Security Agreement or such
SBA Note, no Person other than the holder of such SBA Note may declare
an event of default or accelerate the indebtedness under the SBA Loan,
the
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<PAGE> 102
Security Agreement or the SBA Note. The Pledgor is not in default on
any debt obligation owed or owing to the Borrower;
(30) All SBA Loan Documents relating to such SBA Loan are
on the SBA's standard forms (as applicable) or such loan document
forms as agreed to among the Borrower and the Agent, and any
modifications were approved in writing by the SBA and the Agent, as
applicable. The SBA Note and the related Security Agreement contain
customary and enforceable provisions such as to render the rights and
remedies of the holder thereof or the secured party thereunder
adequate for the realization against the Pledged Property of the
benefits of such security, including but not limited to the following:
(a) if such Security Agreement is a deed of trust, by trustee's sale,
including the power of sale; and/or (b) by judicial or, if applicable,
non-judicial foreclosure, and there is no exemption available to the
Pledgor which would interfere with such right to foreclose. The SBA
Note has a stated maturity and an amortized maturity. The Security
Agreement provides for the appointment of a receiver for rents in the
event of an institution of foreclosure proceedings, or allows the
pledgee thereunder to enter into possession to collect rents;
(31) The Borrower has inspected or has caused to be
inspected the related Pledged Property in connection with the
origination of such SBA Loan no earlier than 12 months prior to the
initial Funding Date;
(32) The Borrower has no knowledge, nor has it received
any notice, that any Pledgor is a debtor in any state or federal
bankruptcy or insolvency proceeding or, if the Borrower has such
knowledge or received such a notice, such fact was disclosed to the
Agent in writing prior to the Agent's acceptance of such SBA Loan and
the origination and funding of the SBA Loan shall have caused the
dismissal of any such bankruptcy or insolvency proceeding;
(33) At the time of the origination of such SBA Loan, (a)
all amenities, access routes or other items crucial to the appraised
value of the Pledged Property were under the direct control of the
Pledgor or are public property, and (b) the Pledged Property was
contiguous to a physically open, dedicated all-weather public street,
had all necessary permits and approvals for ingress and egress, was
adequately serviced by public water, sewer systems and utilities and
was on a separate tax parcel, separate and apart from any other
Property owned by the Pledgor or any other person. The Pledged
Property has all necessary access by public road or by easements or
ground leases which in each case are not terminable and are not
subordinated to any mortgage, deed of trust, or other security
agreement other than the Security Agreement entered into by the
Borrower;
(34) If the Security Agreement relating to such SBA Loan
is a deed of trust, a trustee, duly qualified under applicable law to
serve as such, has either been properly designated and currently so
serves or may be substituted in accordance with applicable
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<PAGE> 103
law. Except in connection with a trustee's sale after default by the
Pledgor, no fees or expenses are payable by the Borrower or the Agent
to such trustee;
(35) The Pledged Property relating to such SBA Loan is
free from any and all toxic or hazardous substances and there exists
no violation of any local, state or federal environmental law, rule or
regulation;
(36) The Security Agreement relating to such SBA Loan
contains an enforceable provision for the acceleration of the payment
of the unpaid principal balance of the SBA Loan in the event that the
Pledged Property relating thereto is sold or transferred without the
prior written consent of the mortgagee or pledgee thereunder;
(37) The Custodian's SBA Loan File contains an appraisal
of the Pledged Property relating to such SBA Loan signed prior to the
approval of the SBA Loan by a qualified appraiser, duly appointed by
the Borrower, who had no interest, direct or indirect in such Pledged
Property or in any loan made on the security thereof, and whose
compensation is not affected by the approval or disapproval of the SBA
Loan, and the appraisal and appraiser both satisfy the requirements of
Title XI of the Financial Institutions Reform Recovery and Enforcement
Act of 1989, as amended, and the regulations promulgated thereunder,
all as in effect on the date the SBA Loan was originated.
(38) If such SBA Loan is secured by Pledged Property which
is primarily real property occupied by commercial tenants under
Leases, each such tenant is conducting business only in that portion
of the Pledged Property covered by its Lease. No such leases contain
any option to purchase, a right of first refusal to Lease or purchase,
any right to terminate the Lease or vacate the premises prior to
expiration of the Lease term, or any other similar provisions which
adversely affect the SBA Loan or the related Pledged Property or which
might adversely affect the rights of any holder of the SBA Note, and
(iii) no commercial tenant has the benefit of a non-disturbance or
similar recognition agreement, or if such agreement exists, there are
no circumstances or conditions with respect to such tenant or the
applicable lease that could cause a prudent lender to refuse to grant
such agreement;
(39) As of the Funding Date, such Qualifying SBA Loan has
no more than two monthly payments delinquent (i.e., no single monthly
payment was more than 59 days past due);
(40) The SBA Note, the Security Agreement, the Assignment
of Security Agreement, if any, and any other documents required to be
delivered with respect to such SBA Loan pursuant to the Custodial
Agreement, have been or shall be delivered to the Custodian all in
compliance with the specific requirements of the Custodial Agreement;
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<PAGE> 104
(41) (a) The ratio of net income available for debt
service on the Pledged Property is (i) equal to or more than the
amount specified for such SBA Loan in the Loan Eligibility
Requirements, and (ii) if such SBA Loan is an SBA 504 Program Real
Property Loan constituting a second lien, 1.10 to 1.0; and (b) the
loan-to-value ratio of such SBA Loan does not exceed (i) the amount
specified for such loan in the related Loan Eligibility Requirements,
and (ii) if such SBA Loan is and an SBA 504 Program Real Property Loan
constituting a second lien, 100%; and
(42) No selection procedures have been utilized in
selecting such SBA Loan from the Borrower's portfolio which at the
time of selection were adverse to the interests of the Agent or any
Lender.
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<PAGE> 105
SCHEDULE 3 TO THE LOAN
AND SECURITY AGREEMENT
[RESERVED]
<PAGE> 106
SCHEDULE 4 TO THE LOAN
AND SECURITY AGREEMENT
LOAN CLOSING CONDITIONS
In addition to the terms and conditions of the Loan and
Security Agreement, dated as of September 27, 1995 (the "Loan and Security
Agreement"), among ACLC Limited Partnership (the "Borrower"), the lenders
parties thereto (the "Lenders") and Lehman Commercial Paper Inc., individually
as a Lender and as agent for the Lenders (in such capacity, the "Agent") and
the Loan Eligibility Requirements, the following conditions must be satisfied
and evidence thereof must be delivered to the Agent or the Custodian or be
maintained by the Borrower, as required by the Agent, with respect to each SBA
Loan prior to the making of any Loan. Capitalized terms used and not otherwise
defined herein shall have the respective meanings ascribed thereto in the Loan
and Security Agreement:
A. Payment of all expenses in connection with the closing of each Loan
including, but not limited to, legal fees, appraisal fees, engineering
fees, environmental consultant fees, title insurance premiums, survey
charges, mortgage and documentary stamp taxes (if any), note
intangible taxes (if any), recording charges, brokerage fees and
commissions, SBA guaranty fees and custodial fees.
B. Delivery by the Borrower of fully executed SBA Loan Documents required
by the SBA per the ALA and/or the CDC (as such terms are defined in
Schedule 5 to the Loan and Security Agreement), as applicable.
C. Delivery by the Borrower of evidence reasonably satisfactory to the
Borrower and it's counsel (which evidence may include an opinion of
each Pledgor's counsel) that (1) the SBA Loan Documents by which the
Pledged Properties will be encumbered have been duly authorized,
executed and delivered by each related Pledgor and are valid and
enforceable in accordance with their terms, subject to bankruptcy and
equitable principles, (2) the Pledgors are qualified to do business
and are in good standing under applicable law, (3) the encumbrance of
each Pledged Property pursuant to the terms of the Loan and Security
Agreement will not cause a breach of, or a default under, any document
to which a related Pledgor is a party or which it or any of its
Properties are bound or affected (the Agent acknowledges that, absent
evidence to the contrary, this requirement may be met by such Pledgor
providing the Borrower a representation and covenant with respect to
this matter; provided such representation and covenant are otherwise
satisfactory to the Borrower and it's counsel), (4) the Borrower has
valid and perfected liens on the Pledged Property, and (5) each SBA
Loan does not violate usury laws.
<PAGE> 107
D. Delivery by the Borrower of evidence satisfactory to the Borrower and
it's counsel that the Pledged Properties are fully licensed, and are
open and operational for their intended purpose; in connection
therewith the Borrower shall review all necessary permits, approvals,
authorizations and certifications, including, without limitation,
franchise agreements, licensing agreements and business permits, which
could have a material adverse effect on the value or cash flow of the
any Pledged Property unless such authorizations or certifications were
obtained contemporaneously with the making of the related SBA Loan or
are currently valid and effective.
E. Procurement and delivery by the Borrower of an Appraisal, reasonably
acceptable to the Agent, (1) of the market value of each Pledged
Property, or element thereof, that is the primary real estate
collateral; and (2) of the liquidated asset value of any Pledged
Property, or element thereof, that is not the primary real estate
collateral.
F. For each Pledged Property that is real estate, maintenance by the
Borrower of a title insurance policy issued by a title insurance
company satisfactory to the Agent (1) insuring the Borrower that the
related Security Agreement is a valid and enforceable lien on the good
and marketable fee simple title of the Pledgor of such Pledged
Property, (2) in an amount equal to the outstanding principal balance
of the related SBA Loan and (3) the exceptions of which are consistent
with Item 24 in Schedule 2 to the Loan and Security Agreement and are
otherwise acceptable to Borrower and its counsel.
G. Delivery by the Borrower of evidence satisfactory to Borrower and its
counsel of proper zoning of each of the Pledged Properties and, in
connection therewith, compliance with all laws, rules and regulations.
Such evidence may include an appropriate zoning endorsement to the
title insurance policy, a letter from the applicable municipality or
the zoning authority or a zoning opinion.
H. Delivery by the Borrower of (1) an environmental questionnaire
prepared by each Pledgor of Property that is real estate and
acceptable to the Borrower and the Agent or (2) a report by an
independent licensed engineer or a qualified independent environmental
consultant, prepared in accordance with the standards of the American
Society of Testing and Materials ("ASTM") for the preparation of
environmental reports (the "Environmental Report"); each such
questionnaire or report dated no more than 12 months prior to the
applicable closing date for any SBA Loan, and stating that the
relevant Pledged Property does not contain any asbestos or hazardous
substances or risk of contamination from off-site hazardous
substances. Notwithstanding the foregoing, an Environmental Report
shall be required for each Pledged Property subject to a first or
second mortgage in favor of the Borrower which is generally used to
store or contains hazardous substances.
I. Procurement and delivery by the Borrower of an ALTA/ACSM survey of
each of the Pledged Properties dated and certified to Borrower, no
earlier than 60 days prior to closing of each SBA Loan, prepared by a
land surveyor licensed in the state where the
-2-
<PAGE> 108
applicable Pledged Property is located prepared in accordance with the
"1992 ALTA/ACSM Minimum Standard Requirements Detail for Land Title
Surveys" and meeting the requirements of an "Urban Survey" thereunder,
or prepared in accordance with such other equivalent standards, and
which survey is otherwise reasonably satisfactory to the Borrower and
it's counsel. Notwithstanding the foregoing, a survey shall not be
required if Lender's title insurance company provides an affirmative
endorsement over all survey issues.
J. Filing by, or on behalf of, the Borrower of all UCC financing
statements and Security Agreements necessary to grant and perfect the
Borrower's first or, in case of SBA Loans that are SBA 504 Program
Real Property Loans or SBA Companion Program Loans that are second
liens, the Borrower's second priority lien on and security interest in
all of the Pledged Property.
K. Delivery by the Borrower of evidence that the Pledged Property is in
good condition and repair and free of damage or waste, which may
include a property inspection report, dated no more than 12 months
prior to the applicable closing date of any SBA Loan with respect to
such Pledged Property, prepared by the Borrower, its agent, or an
independent licensed engineer and acceptable to the Agent.
L. Preparation and delivery of annual operating statements and occupancy
statements for each Pledged Property and the related Pledgor for the
most recent fiscal year and the prior two fiscal years, as available,
as well as current occupancy, year-to-date operating statements and,
if required by the Borrower in its normal underwriting and origination
process, operating and capital budgets or projections for the current
fiscal year.
M. Delivery by the Borrower of original certificates and copies of
policies of insurance from insurers satisfactory to the Agent, for
each Pledged Property and "key-man" life insurance.
N. Delivery by the Borrower of a certified copy of the organizational
documents of each Pledgor and satisfactory evidence of each Pledgor's
due organization, existence and good standing in their respective
states of organization and in the states where the Pledged Property of
the related Pledgor is located.
O. Procurement and delivery of credit reports, reasonably satisfactory to
Borrower, for each Pledgor.
P. Procurement and delivery by the Borrower of such other evidence the
Borrower and it's counsel deems reasonably necessary to indicate
compliance with all requirements of applicable laws that may affect
the Pledged Properties, including environmental and building laws.
-3-
<PAGE> 109
Q. Procurement of and delivery by the Borrower of certified copies of all
contracts and agreements relating to the management, leasing and
operation of each Pledged Property, including, without limitation,
franchise and license agreements (as applicable).
R. Procurement by, or on behalf of, the Borrower of the results of
searching for the name of each Pledgor in the records of the office of
the Secretary of State and the county office responsible for
maintaining records of financing statements in all states and counties
necessary to perfect the Borrower's security interest in the
respective Pledged Property, which searches show no Liens prior in
right to the liens of the Borrower in such Pledged Property, except as
otherwise approved by the Borrower.
S. Procurement of and delivery by the Borrower of certified copy of
resolutions of the board of directors or other authoritative
managerial personnel for each Pledgor approving the applicable SBA
Loan Documents and the transactions contemplated thereby.
T. Evidence of the approval of the SBA, the CDC (as required) and the
Borrower's credit committee and board of directors to make each SBA
Loan.
U. Satisfaction by the Borrower of all other conditions as required
pursuant to the ALA or as required by the CDC.
V. Procurement of and delivery by the Borrower of such other opinions of
counsel and certificates as the Agent or its counsel may reasonably
require.
-4-
<PAGE> 110
SCHEDULE 5 TO THE LOAN
AND SECURITY AGREEMENT
LOAN ELIGIBILITY REQUIREMENTS
In order for an SBA Loan to be considered a Qualifying SBA
Loan, such SBA Loan must meet all of the Loan Eligibility Requirements
applicable to such SBA Loan, as specified below, and must otherwise comply with
the terms of the Loan and Security Agreement, dated as of September 27, 1995
(the "Loan and Security Agreement"), among ACLC Limited Partnership (the
"Borrower"), the lenders parties thereto (the "Lenders"), and Lehman Commercial
Paper Inc., individually as a Lender and as agent for the Lenders, (in such
capacity, the "Agent"). Capitalized terms used but not otherwise defined
herein shall have the respective meanings ascribed thereto in the Loan and
Security Agreement or, if not so defined therein then, in the Custodial
Agreement.
I. UNGUARANTEED FIRST MORTGAGE LOANS (SBA 504 PROGRAM REAL PROPERTY LOANS
AND COMPANION PROGRAM LOANS):
<TABLE>
<S> <C>
PLEDGOR: Meets the requirements of SBA Rules and Regulations for a small business concern.
LOAN SIZE AND PURPOSE: $100,000 to $1,250,000. The purpose of the SBA Loan shall be in conformity with the requirements
of the related program of the SBA. In addition, the SBA Loan shall have been fully funded.
INTEREST RATE: Minimum interest rate equal to one month LIBOR plus 450 basis points per annum or the Prime Rate
at the time such SBA Loan was made plus 225 basis points per annum, adjusted monthly (the
"Approved Interest Rate"). LIBOR shall be calculated based on the actual
days elapsed in a 360 day year, with a two day lookback period. The prime rate will be based on
the actual days elapsed in a 365 day year. Further, the Approved Interest Rate shall not be
subject to any periodic caps or floors, lookback periods or rounding factors.
LOAN/AMORTIZATION TERM: 15 - 25 years, self amortizing
LOAN PAYMENT TERMS: Principal and interest paid monthly. Interest paid monthly in arrears.
PREPAYMENT TERMS: Loan may be prepaid in partor in full at any time without penalty upon three weeks prior written
notice.
</TABLE>
<PAGE> 111
<TABLE>
<S> <C>
RELEASE/DUE ON SALE/DUE
ON TRANSFER/ASSUMABILITY: Releases of collateral are subject to the continued maintenance of the loan-to-value ratio and the
debt service coverage ratio specified herein and otherwise subject to the approval of the
Borrower. The Borrower shall promptly notify the Agent of any such "release" and the Agent shall
have the right to review such transaction to determine whether, in the Agent's sole and reasonable
discretion such loan continues to meet the Loan Eligibility Requirements applicable thereto.
LOAN - TO - VALUE: Up to 50%, based on Appraised Value.
For purposes of determining whether a loan satisfies the applicable Loan Eligibility Requirements,
the Appraised Value with respect to the other Collateral shall be "counted" in the determination
of loan-to- value up to the amount which does not exceed 10% of the aggregate Appraised Value.
DEBT SERVICE COVERAGE
RATIO: Minimum 1.75x, based on the current Approved Interest Rate. The calculation of debt service
coverage ratio shall be after a deduction for capital expenditures and a reasonable owner's draw.
Further, the calculation shall be based on historical (prior year) operations, if available, or
projected year 1 cash flow (for startup loans) from the operation of the Collateral and shall
exclude non-recurring revenues and expense items.
PERIODIC REPORTING: Annual from the Pledgor and guarantor, (if any),financial statements and, collateral operating
statements for the Pledged Property and rent rolls (if applicable and as received) due no later
than 90 days after calendar year-end. For SBA Loans with an outstanding balance of $500,000 or
more, semi-annual interim operating statements for the related Pledged Property and rent rolls due
within 60 days of the end of the mid-year period. To the extent additional financial reporting is
required pursuant to the SBA Authorization and Debenture Agreement or the SBA Authorization and
Loan Agreement (the "ALA"), such statements shall be due as determined therein. The Borrower and
the Servicer shall diligently request and pursue receipt of the financial information required
from the Pledgor.
COLLATERAL: Secured primarily by commercial real estate assets. Additionally, "key-man" life insurance equal
to/ aggregating 100% of the outstanding SBA Loan amount is required.
</TABLE>
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<PAGE> 112
<TABLE>
<S> <C>
RECOURSE: Full recourse to Pledgor and otherwise consistent with all SBA Rules and Regulations in respect of
the related second mortgage.
SECONDARY FINANCING: Pursuant to the provisions of Section 504 and Section 7(a) of the Small Business Act, as amended,
codified at 15 U.S.C. 631 et. seq., and approval of the SBA and the Certified Development Company
(the "CDC") (as applicable) as may be required.
OWNER OCCUPANCY: Subject to SBA Rules and Regulations.
MINIMUM APPROVED
LOAN COVENANTS: Each SBA Loan must meet the following minimum covenant criteria:
1. Preserve corporate existence (if applicable), rights and franchises;
2. Compliance with laws and regulations, including zoning, fire safety and building
requirements, and environmental laws;
3. Application and financial information is true and correct;
4. Full disclosure;
5. No material environmental matters;
6. Payment of taxes and insurance premiums when due;
7. SBA Loan is valid and binding and does not contravene any other documents or agreements to
which any Pledgor or guarantor is bound;
8. Pledged Properties are in good condition and must be repaired and continuously maintained;
9. Maintain insurance coverage consistent with all SBA Rules and Regulations relating to SBA
504 Program Real Property Loans or SBA Companion Program Loans (subject further to the
provisions included in the "Post Closing Loan Requirements" see below);
10. No change in control of Pledgor or change in conduct of business;
11. Limitation on dividends and distributions of Pledgor or to owners of Pledgor without prior
approval of the Borrower (excluding reasonable compensation);
12. Ability to inspect and appraise Pledged Property;
13. No material alterations to Pledged Property without prior written consent of the Borrower;
14. The Borrower's approval required of all material contracts relating to the management,
leasing and operation of the Pledged Property;
15. Maintain proper books and record;
</TABLE>
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<PAGE> 113
<TABLE>
<S> <C>
16. No right of rescission, set-off, counterclaim, or defense.
CLOSING REQUIREMENTS: See Scheduled 4 to the Loan and Security Agreement for Loan Closing Conditions.
LOAN DOCUMENTS: 1. SBA Note
2. Perfected first priority security interest and assignment of leases and rents (an
"Assignment of Rents") each cross-defaulted and cross-collateralized, if applicable, on
fully operational commercial real estate properties;
3. Assignment of Rents with respect to the applicable Pledged Properties;
4. Collateral assignment of all maintenance, management or service contracts with respect to
the applicable Pledged Properties, including but not limited to the franchise agreements (if
applicable);
5. Security Agreement and UCC financing statements filed with appropriate jurisdiction ("UCC
Filings") covering (i) all tangible and intangible personal property and fixtures owned by
the Pledgor and used in connection with or related to the Pledged Properties, and (ii) all
non-commercial real estate collateral. With respect to Pledged Property that is hospitality
property, the Security Agreement and UCC Filings shall be obtained with respect to hotel
revenues and accounts receivable for each such Pledged Property;
6. Collateral assignment of "key-man" life insurance policy (see above);
7. Guaranty agreement from all guarantors, if any;
8. All other documentation as required by the SBA or the CDC (as applicable) pursuant to the
SBA Authorization and Debenture Agreement and the SBA Loan and Authorization Agreement, as
the case may be;
9. All other reasonable documentation and/or information that the Agent and/or its counsel may
deem necessary to perfect a first priority security interest in the Pledged Property, or
otherwise.
The form of such Loan Documents, to the extent not otherwise dictated by the SBA, shall be
acceptable to the Agent.
POST CLOSING LOAN
REQUIREMENTS: If such SBA Loan is a Qualifying SBA Loan, in order to remain a Qualifying SBA Loan after the
Funding Date, the SBA Loan
</TABLE>
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<PAGE> 114
<TABLE>
<S> <C>
may be no more than 59 days past due on any payments, no default or event of default shall have
occurred and be continuing with respect to the SBA Loan, and the SBA Loan shall otherwise continue
to meet the Loan Eligibility Requirements. In addition, the Borrower or the Servicer shall
inspect the Pledged Property within the first anniversary of the funding of such SBA Loan and such
other times as determined necessary under the Servicing Agreement, or otherwise, and provide or
otherwise make available the results of such visits to the Agent promptly upon request. Further,
the Agent and each Lender shall have the right to inspect the Custodian's SBA Loan Files and the
Pledged Property at any time upon reasonable notice to the Borrower while such SBA Loan is pledged
as Collateral under the Loan and Security Agreement. Further, without limitation to the
foregoing, to the extent an uninsured or underinsured loss occurs with respect to the SBA Loan,
the Agent may, in its sole discretion require such Qualifying SBA Loan be removed as Collateral or
adjust the Market Value as deemed appropriate.
</TABLE>
II. GUARANTEED SECOND LIEN SBA 504 PROGRAM REAL PROPERTY LOANS:
Subject to the provisions and requirements of the SBA and the
CDC as set forth in the related SBA Authorized and Debenture Agreement.
Further, the form of such Loan Documents, to the extent not otherwise dictated
by the SBA, shall be acceptable to the Agent.
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<PAGE> 115
SCHEDULE 6 TO THE LOAN
AND SECURITY AGREEMENT
FILINGS, REGISTRATIONS AND RECORDINGS
Filing locations for UCC-1 financing statements with "ACLC Limited
Partnership", as "Debtor", and "Lehman Commercial Paper Inc., as Agent", as
"Secured Party", are (i) the offices of the Secretary of State or other central
filing office and (ii) the county filing offices, as applicable, in the
following jurisdictions:
Maryland
District of Columbia
<PAGE> 116
EXHIBIT A TO THE LOAN
AND SECURITY AGREEMENT
FORM OF PROMISSORY NOTE
$20,000,000 September __, 1995
New York, New York
FOR VALUE RECEIVED, ACLC LIMITED PARTNERSHIP, a Maryland
limited partnership (the "Borrower"), hereby promises to pay to the order of
[Insert Name of Payee], a [Insert State of Incorporation of Payee] corporation,
whose address is [Insert Address of Payee] (the "Lender"), in lawful money of
the United States of America, the lesser of (a) TWENTY MILLION DOLLARS
($20,000,000) and (b) the outstanding principal amount of the Loan (as defined
in the Agreement hereinafter referred to) made by the Lender to the undersigned
pursuant to that certain Loan and Security Agreement, dated as of September 27,
1995 (as amended or otherwise modified from time to time, the "Agreement"),
among the undersigned, the lenders parties thereto (the "Lenders"), and Lehman
Commercial Paper Inc., as agent for the Lenders, plus interest thereon from the
date of each such Loan as provided in the Agreement. All such payment
obligations (whether in respect of the aggregate principal amount of
outstanding Loans made, interest thereon, or other payment obligations of the
Borrower under the Agreement) shall be made in lawful money of the United
States of America, in immediately available funds, on the dates and in the
amounts, specified in, or determined in accordance with, the Agreement.
The holder of this Note is authorized to record the date and
amount of each Loan, and the date and amount of each repayment of principal
thereof, on the schedule annexed hereto, and any such recordation shall be
conclusive evidence of the accuracy of the amounts so recorded (absent manifest
error); provided that the failure of the holder hereof to make such recordation
(or any error in such recordation) shall not affect the obligations of the
Borrower hereunder or under the Agreement.
It is intended that the rate of interest herein shall never
exceed the maximum rate, if any, which may be legally charged on the loan
evidenced by this Note (the "Maximum Rate"), and if the provisions for interest
contained in this Note would result in a rate higher than the Maximum Rate,
interest shall nevertheless be limited to the Maximum Rate, and any amounts
which may be paid toward interest in excess of the Maximum Rate shall be
applied to the reduction of principal, or, at the option of the Lender,
returned to the Borrower.
Capitalized terms not otherwise defined herein shall have the
respective meanings ascribed to them in the Agreement. Notwithstanding the
pledge of the Collateral, the Borrower hereby acknowledges, admits and agrees
that the Borrower's obligations under
<PAGE> 117
this Note are recourse obligations of such Borrower to which such Borrower
pledges its full faith and credit.
The Borrower, and any endorsers or guarantors hereof, (a)
severally waive diligence, presentment, protest and demand and also notice of
protest, demand, dishonor and nonpayments of this Note, (b) expressly agree
that this Note, or any payment hereunder, may be extended from time to time,
and consent to the acceptance of further Collateral, the release of any
Collateral for this Note, the release of any party primarily or secondarily
liable hereon, and (c) expressly agree that it will not be necessary for the
Lender, in order to enforce payment of this Note, to first institute or exhaust
the Lender's remedies against the Borrower or any other party liable hereon or
against any Collateral for this Note. No extension of time for the payment of
this Note, or any installment hereof, made by agreement by the Lender with any
person now or hereafter liable for the payment of this Note, shall affect the
liability under this Note of the Borrower, even if the Borrower is not a party
to such agreement; provided, however, that the Lender and the Borrower, by
written agreement between them, may affect the liability of the Borrower.
Any reference herein to the Lender shall be deemed to include
and apply to every subsequent holder of this Note.
Reference is made to the Agreement for provisions concerning
mandatory principal prepayments, Collateral, acceleration and other material
terms affecting this Note.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF
THE STATE OF NEW YORK.
ACLC LIMITED PARTNERSHIP,
By:
------------------------
Its General Partner
By:
-------------------
Its:
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<PAGE> 118
SCHEDULE TO
PROMISSORY NOTE
Schedule of Loans
<TABLE>
<CAPTION>
Amount Amount of Total
of Principal Interest Principal
Date Loan Repaid Rate Outstanding
<S> <C> <C> <C> <C>
$ $ $ $
- -------------- --------------------- --------------------- --------------------- ------------------
$ $ $ $
- -------------- --------------------- --------------------- --------------------- ------------------
$ $ $ $
- -------------- --------------------- --------------------- --------------------- ------------------
$ $ $ $
- -------------- --------------------- --------------------- --------------------- ------------------
$ $ $ $
- -------------- --------------------- --------------------- --------------------- ------------------
$ $ $ $
- -------------- --------------------- --------------------- --------------------- ------------------
$ $ $ $
- -------------- --------------------- --------------------- --------------------- ------------------
$ $ $ $
- -------------- --------------------- --------------------- --------------------- ------------------
$ $ $ $
- -------------- --------------------- --------------------- --------------------- ------------------
$ $ $ $
- -------------- --------------------- --------------------- --------------------- ------------------
$ $ $ $
- -------------- --------------------- --------------------- --------------------- ------------------
</TABLE>
<PAGE> 119
EXHIBIT B TO THE LOAN
AND SECURITY AGREEMENT
FORM OF BORROWING BASE CERTIFICATE
[TO BE PROVIDED]
<PAGE> 120
EXHIBIT C-1 TO THE LOAN
AND SECURITY AGREEMENT
FORM OF BORROWING REQUEST
Lehman Commercial Paper Inc., as Agent
3 World Financial Center
New York, New York 10285
Attention: Mr. Frank Gilhool
Re: Loan and Security Agreement, dated as of September
27, 1995 (the "Loan and Security Agreement"), among
the Borrower, the Lenders and the Agent
Ladies and Gentlemen:
In accordance with Section 2.02 of the Loan and Security
Agreement, we hereby request that you make a Loan to us in the amount of
[$____________] on [insert Funding Date] (the "Funding Date") and that you
remit the proceeds of the Loan to [specify account].
[We [will/will not] be pledging additional Qualifying SBA
Loans in connection with the making of the Loan as identified on the Collateral
Submission Summary attached hereto and, to our best knowledge the aggregate
outstanding principal amount, after giving effect to the making of such Loan,
shall not exceed the lesser of the Facility Amount and the Borrowing Base.]
[We have previously pledged Qualifying SBA Loans as Collateral
in connection with the making of prior Loans and to our best knowledge and the
aggregate outstanding principal amount, after giving effect to the making of
this Loan shall not exceed the lesser of the Facility Amount and the Borrowing
Base.]
The undersigned hereby affirms that as of the date hereof, the
undersigned has no knowledge of any breach or the inaccuracy of any warranty,
covenant or representation under the Loan and Security Agreement any of the
Basic Documents nor of the representations and warranties with respect to each
Qualifying SBA Loan[, including, without limitation, the additional SBA Loans
identified on the Collateral Submission Summary].
<PAGE> 121
Capitalized terms used and not otherwise defined herein shall
have the meanings assigned thereto in the Loan and Security Agreement.
Sincerely yours,
ACLC LIMITED PARTNERSHIP,
By:
------------------------
Its General Partner
By:
-------------------
Its:
cc: Allied Capital Lending Corporation, as Servicer
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<PAGE> 122
EXHIBIT C-2 TO THE LOAN
AND SECURITY AGREEMENT
FORM OF CLOSING DATE CERTIFICATE
Pursuant to Section 5.01(h) of the Loan and Security
Agreement, dated as of September 27, 1995 (the "Loan and Security Agreement";
capitalized terms used but not otherwise defined herein shall have the meanings
given them in the Loan and Security Agreement), among ACLC Limited Partnership
(the "Borrower"), the lenders parties thereto (the "Lenders") and Lehman
Commercial Paper Inc., individually and as agent for the Lenders (in such
capacity, the "Agent"), the undersigned hereby certifies to the Agent that (a)
as of the date hereof, (i) each of the conditions precedent set forth in
Section 5 of the Loan and Security Agreement has been satisfied, (ii) all of
the representations and warranties set forth on Schedule 3 to the Loan and
Security Agreement are true and correct with respect to each Qualifying SBA
Loan pledged to the Agent for the benefit of the Lenders on the date hereof,
and (iii) no Default or Event of Default has occurred and is continuing, and
(b) since July 31, 1995, there has been no material adverse change in the
business, operations, financial condition or properties of the Borrower which
was not previously disclosed in the Borrower's general partner's most recent
quarterly report on form 10-Q filed with the Securities and Exchange Commission
(a copy of which has been provided to the Agent).
Duly executed this ___ day of September, 1995 by:
ACLC LIMITED PARTNERSHIP
By:
------------------------
Its General Partner
By:
-------------------
Its:
<PAGE> 123
EXHIBIT D TO THE LOAN
AND SECURITY AGREEMENT
FORM OF COLLATERAL MAINTENANCE CERTIFICATE
[TO BE PROVIDED]
<PAGE> 124
EXHIBIT E TO THE LOAN
AND SECURITY AGREEMENT
FORM OF COLLATERAL VALUE ASSESSMENT
[TO BE PROVIDED]
<PAGE> 125
EXHIBIT F TO THE LOAN
AND SECURITY AGREEMENT
FORM OF COMMITMENT TRANSFER SUPPLEMENT
COMMITMENT TRANSFER SUPPLEMENT, dated as of the date set forth
in Item 1 of Schedule I hereto, among the Transferor Lender set forth in Item 2
of Schedule I hereto (the "Transferor Lender"), each Purchasing Lender set
forth in Item 3 of Schedule I hereto (each, a "Purchasing Lender"), and Lehman
Commercial Paper Inc., as agent for the Lenders under the Loan and Security
Agreement described below (in such capacity, the "Agent").
W I T N E S S E T H :
WHEREAS, this Commitment Transfer Supplement is being executed
and delivered in accordance with Section 10.07(c) of the Loan and Security
Agreement, dated as of September 27, 1995, among ACLC Limited Partnership (the
"Borrower"), the Transferor Lender and the other Lenders parties thereto and
the Agent (as from time to time amended, supplemented or otherwise modified in
accordance with the terms thereof, the "Loan and Security Agreement"; terms
defined therein being used herein as therein defined);
WHEREAS, each Purchasing Lender (if it is not already a Lender
party to the Loan and Security Agreement) wishes to become a Lender party to
the Loan and Security Agreement; and
WHEREAS, the Transferor Lender is selling and assigning to
each Purchasing Lender, rights, obligations and commitments under the Loan and
Security Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Upon receipt by the Agent of ___ counterparts of this
Commitment Transfer Supplement, to each of which is attached a fully completed
Schedule I and Schedule II, and each of which has been executed by the
Transferor Lender, each Purchasing Lender (and any other person required by the
Loan and Security Agreement to execute this Commitment Transfer Supplement),
the Agent will transmit to the Borrower, the Transferor Lender and each
Purchasing Lender a Transfer Effective Notice, substantially in the form of
Schedule III to this Commitment Transfer Supplement (a "Transfer Effective
Notice"). Such Transfer Effective Notice shall set forth, inter alia, the date
on which the transfer effected by this Commitment Transfer Supplement shall
become effective (the "Transfer Effective Date"), which date shall be the fifth
Business Day following the date of such Transfer Effective
<PAGE> 126
Notice. From and after the Transfer Effective Date, each Purchasing Lender
shall be a Lender party to the Loan and Security Agreement for all purposes
thereof.
2. At or before 12:00 Noon, local time of the Transferor
Lender, on the Transfer Effective Date, each Purchasing Lender shall pay to the
Transferor Lender, in immediately available funds, an amount equal to the
purchase price, as agreed between the Transferor Lender and such Purchasing
Lender (the "Purchase Price"), of the portion being purchased by such
Purchasing Lender (such Purchasing Lender's "Purchased Percentage") of the
outstanding Loans and other amounts owing to the Transferor Lender under the
Loan and Security Agreement and the Transferor Lender's Note. Effective upon
receipt by the Transferor Lender of the Purchase Price from a Purchasing
Lender, the Transferor Lender hereby irrevocably sells, assigns and transfers
to such Purchasing Lender, without recourse, representation or warranty, and
each Purchasing Lender hereby irrevocably purchases, takes and assumes from the
Transferor Lender, such Purchasing Lender's Purchased Percentage of the
Commitments and the presently outstanding Loans and other amounts owing to the
Transferor Lender under the Loan and Security Agreement and the Transferor
Lender's Note, together with all instruments, documents and collateral security
pertaining thereto.
3. The Transferor Lender has made arrangements with each
Purchasing Lender with respect to (i) the portion, if any, to be paid, and the
date or dates for payment, by the Transferor Lender to such Purchasing Lender
of any fees heretofore received by the Transferor Lender pursuant to the Loan
and Security Agreement prior to the Transfer Effective Date and (ii) the
portion, if any, to be paid, and the date or dates for payment, by such
Purchasing Lender to the Transferor Lender of fees or interest received by such
Purchasing Lender pursuant to the Loan and Security Agreement from and after
the Transfer Effective Date.
4. (a) All principal payments that would otherwise be
payable from and after the Transfer Effective Date to or for the account of the
Transferor Lender pursuant to the Loan and Security Agreement and the
Transferor Lender's Note shall, instead, be payable to or for the account of
the Transferor Lender and the Purchasing Lenders, as the case may be, in
accordance with their respective interests as reflected in this Commitment
Transfer Supplement.
(b) All interest, fees and other amounts that would
otherwise accrue for the account of the Transferor Lender from and after the
Transfer Effective Date pursuant to the Loan and Security Agreement and the
Transferor Lender's Note shall, instead, accrue for the account of, and be
payable to, the Transferor Lender and the Purchasing Lenders, as the case may
be, in accordance with their respective interests as reflected in this
Commitment Transfer Supplement. In the event that any amount of interest, fees
or other amounts accruing prior to the Transfer Effective Date was included in
the Purchase Price paid by any Purchasing Lender, the Transferor Lender and
each Purchasing Lender will make appropriate arrangements for payment by the
Transferor Lender to such Purchasing Lender of such amount upon receipt thereof
from the Borrower.
-3-
<PAGE> 127
5. On or prior to the Transfer Effective Date, the
Transferor Lender will deliver to the Agent its Note. On or prior to the
Transfer Effective Date, the Borrower will deliver to the Agent a Note for each
Purchasing Lender and the Transferor Lender, in each case in principal amounts
reflecting, in accordance with the Loan and Security Agreement, their
Commitments (as adjusted pursuant to this Commitment Transfer Supplement).
Each such new Note shall be dated the Closing Date. Promptly after the
Transfer Effective Date, the Agent will send to each of the Transferor Lender
and the Purchasing Lenders its new Note and will send to the Borrower the
superseded Transferor Lender's Note of the Borrower marked "Canceled" or if
such Note cannot be located by such Transferee Lender, a lost note
indemnification agreement in form and substance reasonably acceptable to the
Borrower.
6. Concurrently with the execution and delivery hereof,
the Transferor Lender will provide to each Purchasing Lender (if it is not
already a Lender party to the Loan and Security Agreement) conformed copies of
all documents delivered to such Transferor Lender on the Closing Date in
satisfaction of the conditions precedent set forth in the Loan and Security
Agreement and all written amendments and waivers thereto through the date of
execution and delivery hereof.
7. Each of the parties to this Commitment Transfer
Supplement agrees that at any time and from time to time upon the written
request of any other party, it will execute and deliver such further documents
and do such further acts and things as such other party may reasonably request
in order to effect the purposes of this Commitment Transfer Supplement.
8. By executing and delivering this Commitment Transfer
Supplement, the Transferor Lender and each Purchasing Lender confirm to and
agree with each other and the Agent and the Lenders, and in the case of the
following clause (vi), the Purchasing Lender agrees for the benefit of the
Borrower, as follows: (i) other than the representation and warranty that it
is the legal and beneficial owner of the interest being assigned hereby free
and clear of any adverse claim, the Transferor Lender makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Loan and
Security Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Loan and Security Agreement or any
other SBA Loan Document or any other instrument or document furnished pursuant
thereto; (ii) the Transferor Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Borrower or the performance or observance by the Borrower of any of its
obligations under the Agreement or any other loan document or any other
instrument or document furnished pursuant hereto; (iii) each Purchasing Lender
confirms that it has received a copy of the Loan and Security Agreement,
together with copies of the financial statements referred to in Section
5.01(l), the financial statements delivered pursuant to Section 7.01 if any,
and such other documents and information as it has deemed appropriate to make
its own credit analysis and decision to enter into this Commitment Transfer
Supplement; (iv) each Purchasing Lender will, independently and without
reliance upon the Agent, the Transferor Lender or any other Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions
-4-
<PAGE> 128
in taking or not taking action under the Loan and Security Agreement; (v) each
Purchasing Lender appoints and authorizes the Agent to take such action as
agent on its behalf and to exercise such powers under the Agreement as are
delegated to the Agent by the terms thereof, together with such powers as are
reasonably incidental thereto, all in accordance with Section 9 of the Loan and
Security Agreement; and (vi) each Purchasing Lender agrees that it will perform
in accordance with their terms all of the obligations which by the terms of the
Loan and Security Agreement are required to be performed by it as a Lender.
9. Each party hereto represents and warrants to and
agrees with the Agent that it is aware of and will comply with the provision of
Section 10.06(g) of the Loan and Security Agreement.
10. Schedule II hereto sets forth the revised Commitments
and Commitment Percentages of the Transferor Lender and each Purchasing Lender
as well as administrative information with respect to each Purchasing Lender.
11. This Commitment Transfer Supplement shall be governed
by, and construed in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this
Commitment Transfer Supplement to be executed by their respective duly
authorized officers on Schedule I hereto as of the date set forth in Item 1 of
Schedule I hereto.
-5-
<PAGE> 129
SCHEDULE I
TO COMMITMENT
TRANSFER
SUPPLEMENT
COMPLETION OF INFORMATION AND
SIGNATURES FOR COMMITMENT
TRANSFER SUPPLEMENT
Re: Loan and Security Agreement, dated as of September 27, 1995, among
ACLC Limited Partnership, the Lenders parties thereto, and Lehman
Commercial Paper Inc., individually and as Agent.
<TABLE>
<S> <C> <C>
Item 1 (Date of Commitment [Insert date of Commitment Transfer
Supplement): Transfer Supplement]
Item 2 (Transferor Lender): [Insert name of Transferor
Lender]
Item 3 (Purchasing Lender[s]): [Insert name[s] of
Purchasing Lender[s]]
Item 4 (Signatures of Parties
to Commitment Transfer
Supplement):
__________________________, as
Transferor Lender
By:
----------------------------
Name:
Title:
________________________, as a
Purchasing Lender
By:
----------------------------
Name:
Title:
</TABLE>
ACCEPTED FOR RECORDATION IN REGISTER:
LEHMAN COMMERCIAL PAPER INC., as Agent
By:
----------------------------
Name:
Title:
<PAGE> 130
SCHEDULE II
TO COMMITMENT
TRANSFER
SUPPLEMENT
LIST OF LENDING OFFICES, ADDRESSES
FOR NOTICES AND COMMITMENT AMOUNTS
<TABLE>
<S> <C>
[Name of Transferor Lender]
$_______ Revised Commitment Amounts:
--------------------------
- -------- Revised Commitment Percentage:
-----------------------------
[Name of Purchasing Lender]
$_______ New Commitment Amounts:
----------------------
Address for Notices:
- -------------------
- --------- New Commitment Percentage:
-------------------------
[Address]
Attention:
Telex:
Answerback:
Telephone:
Telecopier:
Lending Office:
- --------------
- --------------------------
- --------------------------
- --------------------------
</TABLE>
<PAGE> 131
SCHEDULE III
TO COMMITMENT
TRANSFER
SUPPLEMENT
[Form of Transfer Effective Notice]
To: ACLC LIMITED PARTNERSHIP
[TRANSFEROR LENDER]
[PURCHASING LENDER]
The undersigned, as Agent under the Loan and Security
Agreement, dated as of September 27, 1995, among ACLC Limited Partnership, the
several Lenders and parties thereto and Lehman Commercial Paper Inc., as Agent,
acknowledges receipt of five executed counterparts of a completed Commitment
Transfer Supplement, as described in Schedule I hereto. [Note: attach copy of
Schedule I from Commitment Transfer Supplement.] Terms defined in such
Commitment Transfer Supplement are used herein as therein defined.
1. Pursuant to such Commitment Transfer Supplement, you
are advised that the Transfer Effective Date will be ____________ [Insert fifth
business day following date of Transfer Effective Notice]
2. Pursuant to such Commitment Transfer Supplement, the
Transferor Lender is required to deliver to the Agent on or before the Transfer
Effective Date its Note[s] or a lost note indemnification agreement reasonably
acceptable to the Borrower.
3. Pursuant to such Commitment Transfer Supplement, the
Borrower is required to deliver to the Agent on or before the Transfer
Effective Date the following Note[s], each dated _____________ [Insert Closing
Date]
[Describe each new Note for Transferor Lender and Purchasing
Lender as to principal amount and payee.]
4. Pursuant to such Commitment Transfer Supplement each
Purchasing Lender is required to pay its Purchase Price to the Transferor
Lender at or before 12:00 Noon on the Transfer Effective Date in immediately
available funds.
Very truly yours,
LEHMAN COMMERCIAL PAPER INC.,
as Agent
By:
------------------
Name:
Title:
<PAGE> 132
EXHIBIT G-1 TO THE LOAN
AND SECURITY AGREEMENT
FORM OF NOTICE REQUESTING SHORT INTEREST PERIOD
ACLC LIMITED PARTNERSHIP
______________________, 19__
Lehman Commercial Paper Inc., as Agent
3 World Financial Center
New York, New York 10285-0800
Attention: Frank Gilhool
Ladies and Gentlemen:
We refer to that certain Loan and Security Agreement dated as
of September 27, 1995 between ACLC Limited Partnership and Lehman Commercial
Paper Inc. (the "Agreement"). This certificate is delivered to you pursuant to
Section 1.01 of the Agreement. All capitalized terms used herein shall have
the same meanings herein as they have in the Agreement.
In order to induce you to accept the Short Interest Period
requested herein, we hereby represent and certify as follows:
1. No Default or Event of Default has
occurred and is continuing under the Agreement or any other
Basic Document or would result from the selection of the Short
Interest Period described herein.
2. Each of the representations and
warranties set forth in the Agreement and all other Basic
Documents are true and correct as of the date hereof (other
than such representations and warranties that by their terms
refer to a date other than the date of commencement of such
Short Interest Period).
<PAGE> 133
The undersigned hereby requests that Lender provide the
Eurodollar Base Rate that would be applicable for a Short Interest period
commencing on ____________ and ending on __________, with respect to the LIBOR
Tranche of $_________ with an Interest Period ending on ____________.
ACLC LIMITED PARTNERSHIP
By:
------------------
Name:
Title:
-2-
<PAGE> 134
EXHIBIT G-2 TO THE LOAN
AND SECURITY AGREEMENT
CONFIRMATION OF SHORT INTEREST PERIOD
ACLC LIMITED PARTNERSHIP
_____________________, 19__
Lehman Commercial Paper Inc., as Agent
3 World Financial Center
New York, New York 10285-0800
Attention: Frank Gilhool
Ladies and Gentlemen:
We refer to that certain Loan and Security Agreement dated as
of September 27, 1995 between ACLC Limited Partnership and Lehman Commercial
Paper Inc. (the "Agreement") and to that certain Notice Requesting Short
Interest Period dated __________. This confirmation is delivered to you
pursuant to Section 1.01 of the Agreement. All capitalized terms used herein
shall have the same meanings herein as they have in the Agreement.
We hereby represent and certify as follows:
1. No Default or Event of Default has occurred
and is continuing under the Agreement or any other Basic
Document or would result from the selection of the Short
Interest Period described herein.
2. Each of the representations and warranties
set forth in the Agreement and all other Basic Documents are
true and correct as of the date hereof (other than such
representations and warranties that by their terms refer to a
date other than the date of such commencement of Short
Interest Period).
The undersigned hereby confirms that the LIBOR Tranche of
$_________ with an Interest Period ending on ________________, shall been
interest at a rate per annum equal to __% for the Short Interest Period
commencing on _________ and ending on ________.
ACLC LIMITED PARTNERSHIP
By:
------------------
Name:
Title:
<PAGE> 135
EXHIBIT H TO THE LOAN
AND SECURITY AGREEMENT
FORM OF PRELIMINARY COLLATERAL VALUE ASSESSMENT
[TO BE PROVIDED]
<PAGE> 136
EXHIBIT I TO THE LOAN
AND SECURITY AGREEMENT
[RESERVED]
<PAGE> 137
EXHIBIT J TO THE LOAN
AND SECURITY AGREEMENT
FORM OF NOTICE OF VOLUNTARY REDUCTION OF FACILITY AMOUNT
[BORROWER]
______________________, 19_____
Lehman Capital, a division of
Lehman Brothers Holdings Inc.
3 World Financial Center
New York, New York 10285-0800
Attention: Frank Gilhool
Ladies and Gentlemen:
We refer to that certain Loan and Security Agreement dated as of
September 27, 1995 among ACLC Limited Partnership, the Lenders parties thereto
and you, individually and as agent (the "Loan Agreement"). This certificate is
delivered to you pursuant to Section 2.04(b) of the Loan Agreement. All
capitalized terms used herein shall have the same meanings herein as they have
in the Loan Agreement.
In order to induce you to irrevocably reduce the Facility Amount, we
hereby represent and certify as follows:
1. No Default or Event of Default has occurred and is
continuing under the Loan Agreement or any other Basic Documents or
would result from the reduction of the Facility Amount described
herein.
2. Each of the representations and warranties set forth
in the Loan Agreement and all other Basic Documents are true and
correct as of the date hereof (other than such representations and
warranties that by their terms refer to a date other than the date of
such reduction).
3. The aggregate principal amount outstanding under the
Loans is $_______________. The Facility Amount will equal or exceed
such amount, after giving effect to the reduction. We hereby
acknowledge that if the Facility Amount is reduced below the Borrowing
Base, the Borrowing Base shall be reduced to equal the Facility
Amount.
<PAGE> 138
The undersigned hereby notifies you that it has elected to irrevocably
reduce the Facility Amount to $_______________ effective ___________. As a
result of such a reduction, the Facility Amount is $_____________.
ACLC LIMITED PARTNERSHIP
By:
------------------------
Its General Partner
By:
-------------------
Its:
<PAGE> 139
EXHIBIT K TO THE LOAN
AND SECURITY AGREEMENT
FORM OF NOTICE OF VOLUNTARY PREPAYMENT
[BORROWER]
______________________, 19_____
Lehman Capital, a division of
Lehman Brothers Holdings Inc.
3 World Financial Center
New York, New York 10285-0800
Attention: Frank Gilhool
Ladies and Gentlemen:
We refer to that certain Loan and Security Agreement dated as of September 27.
1995 among ACLC Limited Partnership, the Lenders parties thereto and you,
individually and as Agent (the "Loan Agreement"). This certificate is
delivered to you pursuant to Section 2.08 of the Loan Agreement. All
capitalized terms used herein shall have the same meanings herein as they have
in the Loan Agreement.
In order to induce you to accept this prepayment, we hereby
represent and certify as follows:
1. No Default or Event of Default has occurred and is
continuing under the Loan Agreement or any other Basic Documents
or would result from the prepayment described herein.
2. Each of the representations and warranties set forth
in the Loan Agreement and all other Basic Documents are true and
correct as of the date hereof (other than such representations
and warranties that by their terms refer to a date other than
the date of such prepayment).
The undersigned hereby notifies you that it has elected to
prepay $______________ from LIBOR Tranche [____________].
ACLC LIMITED PARTNERSHIP
By:
------------------------
Its General Partner
By:
-------------------
Its:
<PAGE> 140
EXHIBIT L-1 TO THE LOAN
AND SECURITY AGREEMENT
FORM OF REQUEST FOR EXTENSION OF
COMMITMENT TERMINATION DATE
__________ __, 19__
Lehman Commercial Paper Inc., as Agent
3 World Financial Center
New York, New York 10285
Attention: Mr. Frank Gilhool
Ladies and Gentlemen:
We refer to Section 2.10 of the Loan and Security Agreement,
dated as of September 27, 1995, among the undersigned, the lenders parties
thereto (the "Lenders"), and Lehman Commercial Paper Inc., individually and as
agent for the Lenders, and hereby request that the Lenders extend the
Commitment Termination Date (as defined therein) to __________ , 199_.
ACLC LIMITED PARTNERSHIP
By:
------------------------
Its General Partner
By:
-------------------
Its:
<PAGE> 141
EXHIBIT L-2 TO THE LOAN
AND SECURITY AGREEMENT
FORM OF CONSENT TO EXTENSION OF
COMMITMENT TERMINATION DATE
__________ __, 19__
Lehman Commercial Paper Inc., as Agent
3 World Financial Center
New York, New York 10285
Attention: Ms. Allyson Bailey
Ladies and Gentlemen:
We refer to Section 2.08 of the Loan and Security Agreement
dated as of September 27, 1995 (the "Loan and Security Agreement"), among ACLC
Limited Partnership, (the "Borrower"), the lenders parties thereto (the
"Lenders") and Lehman Commercial Paper Inc., individually and as agent for the
Lenders (the "Agent"), and the request of the Borrower delivered to the Agent
that the Lenders extend the Commitment Termination Date (as defined in the Loan
and Security Agreement) to ___________, 199__. We hereby consent to such
request.
Very truly yours,
[NAME OF LENDER]
By:
-----------------
Name:
Title:
<PAGE> 142
SCHEDULE I
<PAGE> 143
PROMISSORY NOTE
$20,000,000 September 27, 1995
New York, New York
FOR VALUE RECEIVED, ACLC LIMITED PARTNERSHIP, a Maryland limited
partnership (the "Borrower"), hereby promises to pay to the order of LEHMAN
COMMERCIAL PAPER INC., a New York corporation, whose address is 3 World
Financial Center, 200 Vesey Street, 9th Floor, New York, New York, 10285 (the
"Lender"), in lawful money of the United States of America, the lesser of (a)
TWENTY MILLION DOLLARS ($20,000,000) and (b) the outstanding principal amount
of the Loan (as defined in the Agreement hereinafter referred to) made by
the Lender to the undersigned pursuant to that certain Loan and Security
Agreement, dated as of September 27, 1995 (as amended or otherwise
modified from time to time, the "Agreement"), among the undersigned, the
lenders parties thereto (the "Lenders"), and Lehman Commercial Paper Inc., as
agent for the Lenders, plus interest thereon from the date of each such
Loan as provided in the Agreement. All such payment obligations (whether in
respect of the aggregate principal amount of outstanding Loans made,
interest thereon, of other payment obligations of the Borrower under the
Agreement) shall be made in lawful money of the United States of America, in
immediately available funds, on the dates and in the amounts, specified in, or
determined in accordance with, the Agreement.
The holder of the Note is authorized to record the amount of each
Loan, and the date and amount of each repayment of principal thereof, on
the schedule annexed hereto, and any such recordation shall be conclusive
evidence of the accuracy of the amounts so recorded (absent manifest error);
provided that the failure of the holder hereof to make such recordation (or
any error in such recordation) shall not affect the obligation of the Borrower
hereunder or under the Agreement.
It is intended that the rate of interest herein shall never exceed the
maximum rate, if any, which may be legally charged on the loan evidenced by
this Note (the "Maximum Rate"), and if the provisions for interest contained
in this Note would result in a rate higher than the Maximum Rate, interest
shall nevertheless be limited to the Maximum Rate, and any amounts which may
be paid toward interest in excess of the Maximum Rate shall be applied to the
reduction of principal, or, at the option of the Lender, returned to the
Borrower.
Capitalized terms not otherwise defined herein shall have the
respective meanings ascribed to them in the Agreement. Notwithstanding
the pledge of the Collateral, the Borrower hereby acknowledges, admits and
agrees that the Borrower's obligations under this Note are recourse
obligations of such Borrower to which such Borrower pledges its full faith
and credit.
The Borrower, and any endorsers or guarantors hereof, (a) severally
waive diligence, presentment, protest and demand and also notice of protest,
demand, dishonor and nonpayments of
<PAGE> 144
this Note, (b) expressly agree that this Note, or any payment hereunder,
may be extended from time to time, and consent to the acceptance of further
Collateral, the release of any Collateral for this Note, the release of any
party primarily of secondarily liable hereon, and (c) expressly agree that
it will not be necessary for the Lender, in order to enforce payment of
this Note, to first institute or exhaust the Lender's remedies against the
Borrower or any other party liable hereon or against any Collateral for
this Note. No extension of time for the payment of this Note, or any
installment hereof, made by agreement by the Lender with any person now or
hereafter liable for the payment of this Note, shall affect the liability
under this Note of the Borrower, even if the Borrower is not a party to such
agreement; provided, however, that the Lender and the Borrower, by written
agreement between them, may affect the liability of the Borrower.
Any reference herein to the Lender shall be deemed to include and
apply to every subsequent holder of this Note.
Reference is made to the Agreement for provisions concerning mandatory
principal prepayments, Collateral, acceleration and other material terms
affecting this Note.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF THE STATE
OF NEW YORK.
ACLC LIMITED PARTNERSHIP,
By:/s/ ALLIED CAPITAL LENDING CORPORATION
--------------------------------------
Its General Partner
By: /s/ KATHERINE C. MARIEN
----------------------------------
Its: President
-3-
<PAGE> 145
SCHEDULE TO
PROMISSORY NOTE
Schedule of loans
<TABLE>
Amount Amount of Total
of Principal Interest Principal
Date Loan Repaid Rate Outstanding
<S> <C> <C> <C> <C>
____________ $_________ $___________ $_________ $__________
____________ $_________ $___________ $_________ $__________
____________ $_________ $___________ $_________ $__________
____________ $_________ $___________ $_________ $__________
____________ $_________ $___________ $_________ $__________
____________ $_________ $___________ $_________ $__________
____________ $_________ $___________ $_________ $__________
____________ $_________ $___________ $_________ $__________
____________ $_________ $___________ $_________ $__________
____________ $_________ $___________ $_________ $__________
____________ $_________ $___________ $_________ $__________
</TABLE>
-4-
<PAGE> 146
-------------------------------------------
CUSTODIAL AGREEMENT
------------------------------
DATED AS OF SEPTEMBER 27, L995
------------------------------
AMONG
LEHMAN COMMERCIAL PAPER INC.
AGENT
AND
RIGGS NATIONAL BANK OF WASHINGTON, D.C.
CUSTODIAN
AND
ACLC LIMITED PARTNERSHIP
BORROWER
AND
ALLIED CAPITAL LENDING CORPORATION
SERVICER
-------------------------------------------
<PAGE> 147
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Appointment of Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. Delivery of Custodian's SBA Loan Files . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4. Initial Certification; Deficiencies in Custodian's SBA Loan Files; Loan Exception Report . . . . . 8
5. Final Certification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6. Obligations of the Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7. Further Obligations of the Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8. Release of Custodian's SBA Loan File . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9. Limitation on Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
10. Periodic Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
11. Copy of Mortgage Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
12. No Adverse Interest of Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
13. Release of Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
14. Fees and Expenses of the Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
15. Examination of Custodian's SBA Loan Files . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
16. Insurance of the Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
17. Resignation By and Removal Of the Custodian: Successor Custodian . . . . . . . . . . . . . . . . . . 14
16. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
19. Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
20. Term of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
21. Authorized Representatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
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<TABLE>
<S> <C>
22. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
23. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
24. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
25. Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
26. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
27. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
Schedules
Schedule 1 Form of SBA Loan Schedule
Annexes
Annex 1 Form of Collateral Receipt
Annex 2 Form of Collateral Submission Summary
Annex 2A Form of Collateral Pledge Certificate
Annex 3 Custodian's Review Procedures
Annex 4 Form of Final Certification
Annex 5 Form of Request for Release - Overcollateralization
Annex 6 Form of Request for Release and Receipt of Documents
Annex 7 Form of Notice of Release of Lien
Annex 8 Form of Lost Note Affidavit
Annex 9 Authorized Representatives
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CUSTODIAL AGREEMENT
CUSTODIAL AGREEMENT, dated as of September 27, 1995, among
LEHMAN COMMERCIAL PAPER INC., a New York corporation, as agent (in such
capacity the "Agent") for the lenders parties to the Loan and Security
Agreement referred to below (the "Lenders"), RIGGS NATIONAL BANK OF WASHINGTON,
D.C., a national banking corporation (the "Custodian"), ACLC LIMITED
PARTNERSHIP, a Maryland corporation, in its capacity as borrower under the Loan
and Security Agreement referred to below (the "Borrower") and ALLIED CAPITAL
LENDING CORPORATION, in its capacity as servicer under the Servicing Agreement
referred to below (together with its successors or assigns, the "Servicer").
RECITALS
Pursuant to the Loan and Security Agreement, dated as of the
date hereof (as amended, supplemented or otherwise modified from time to time,
the "Loan and Security Agreement") among the Borrower, the Lenders and the
Agent, SBA Loans (as defined in the Loan and Security Agreement) are being
pledged to the Agent for the ratable benefit of the Lenders as Collateral (as
defined in the Loan and Security Agreement), inter alia, for the repayment of
certain Loans made by the Lenders to the Borrower thereunder.
The Agent desires to have the Custodian take possession of the
Custodian's SBA Loan Files (as hereinafter defined) relating to such SBA Loans
along with certain other documents specified herein, as the custodian for the
Agent, in accordance with the terms and conditions hereof.
NOW, THEREFORE, the parties, intending to be legally bound,
hereby agree as follows:
1. Definitions.
Capitalized terms used but not otherwise defined herein shall
have the meanings assigned to them in the Loan and Security Agreement. In
addition, unless otherwise defined in this Custodial Agreement, the following
terms shall have the following meanings when used in this Agreement:
"Agreement" shall mean this Custodial Agreement, as it may be
amended, supplemented or otherwise modified from time to time.
"Assignment of Assignment of Leases and Rents" means, with
respect to any SBA Loans secured in whole or in part by commercial property, an
assignment of the Assignment of Leases and Rents or equivalent instrument in
recordable form, sufficient under the laws of the jurisdiction wherein the
related real property is located to reflect the transfer of
<PAGE> 150
the Assignment of Leases and Rents by the Borrower in blank, together with
unrecorded assignments (on Form UCC-2 or UCC-3, as applicable) of all existing
UCC-1 financing statements.
"Assignment of Leases and Rents" shall mean with respect to
any SBA Loan, an assignment of leases and rents agreement or similar agreement
which assigns all of the leases and rents with respect to the related Pledged
Property to the secured party thereunder.
"Assignment of Security Agreement" shall mean, (i) with
respect to the SBA Loans secured primarily by real property, an assignment of
the Security Agreement (as defined in the Loan and Security Agreement), notice
of transfer or equivalent instrument in recordable form, sufficient under the
laws of the jurisdiction wherein the related real property is located to
reflect the transfer of the Security Agreement by the Borrower in blank and
(ii) with respect to the SBA Loans secured primarily by machinery and
equipment, an assignment of the Security Agreement, notice of transfer or
equivalent instrument in recordable form, sufficient under the laws of the
jurisdiction wherein filing or recordation would be required to reflect the
transfer of the Security Agreement by the Borrower to the Agent, together with
unrecorded assignments (on Form UCC-2 or UCC-3, as applicable) of all existing
UCC-1 financing statements.
"Authorized Representative" shall have the meaning specified
in Section 21 hereof.
"Business Day" shall mean any day excluding Saturday, Sunday
and any day which shall be in New York City a legal holiday or a day on which
Lender, the Agent or banking institutions are authorized or required by law or
other government actions to close.
"Collateral Receipt" shall mean a certificate of the Custodian
in substantially the form of Annex 1 hereto.
"Collateral Pledge Certificate" shall mean a document
certified by the Borrower and submitted to the Agent with each delivery of each
SBA Loan, including all required attachments thereto, in the form of Annex 2A
attached hereto.
"Collateral Submission Summary" shall mean a document
certified by the Borrower as submitted to the Custodian and the Agent with each
delivery of SBA Loans, which contains a summary of all items of collateral
submitted therewith, in the form of Annex 2 attached hereto.
"Custodian's SBA Loan File" shall mean, with respect to an SBA
Loan, (a) the documents specified on Schedule 1 to the applicable Collateral
Submission Summary, including, without limitation, those documents listed in
Section 3 of this Agreement that are so delivered to the Custodian, and (b) all
other documents subsequently delivered to the Custodian with respect to such
SBA Loan pursuant to Section 3 hereof.
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"Deficiency" shall mean (i) the failure of information in a
document to correspond to the information with respect to such document
contained in an SBA Loan Schedule, (ii) the failure of a document to satisfy
the relevant criteria for such document set forth on Annex 3 attached hereto,
or (iii) the absence of a required document with respect to any SBA Loan from
the Custodian's SBA Loan File for such SBA Loan.
"Final Certification" shall mean a certificate of the
Custodian in substantially the form of Annex 4 hereto.
"Final Loan Exception Report" shall mean the Loan Exception
Report issued by the Custodian in accordance with Section 4(b) hereof.
"Loan and Security Agreement" shall have the meaning specified
in the Recitals hereto.
"Loan Exception Report" shall mean a list of Deficiencies
attached to a Collateral Receipt or Final Certification for the Custodian's SBA
Loan Files in respect of which such Collateral Receipt or Final Certification
is delivered.
"Losses" shall have the meaning specified in Section 18(b)
hereof.
"Pledged SBA Loans" shall mean, at any time, those SBA Loans
listed on a Collateral Receipt or Final Certification and approved by the Agent
other than any such SBA Loans with respect to which the Agent has subsequently
released its Lien pursuant to Section 13 hereof.
"Request for Release and Receipt" shall have the meaning
specified in Section 8 hereof.
"Request for Release-Overcollateralization" shall mean a
written request of the Borrower to release certain Pledged SBA Loans the Lien
in the form of Annex 5.
"Requests for Release" shall be the collective reference to a
Request for Release and Receipt and a Request for
Release-Overcollateralization; individually, a "Request for Release".
"SBA Loan Schedule" shall mean each schedule, provided by the
Borrower to the Custodian and the Agent, of SBA Loans to be pledged to the
Agent for the ratable benefit of the Lenders and held by the Custodian, which
SBA Loan Schedule shall be in writing and in computer readable form, containing
the information set forth on Schedule 1 hereto for each SBA Loan delivered to
the Custodian pursuant hereto.
"Servicer" shall have the meaning specified in the Recitals
hereto.
"Servicing Agreement" shall mean that certain servicing
agreement, dated as of the date hereof among the Servicer, the Agent and the
Borrower.
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"Substitute SBA Loan" shall have the meaning specified in
Section 13(d) hereof.
2. Appointment of Custodian.
By executing and delivering this Custodial Agreement, the
Lenders and the Agent (collectively, the "Secured Parties"), have appointed the
Custodian to act as agent, custodian and bailee for the exclusive benefit of
Secured Parties with respect to the Collateral (as defined in the Loan and
Security Agreement). The Custodian hereby accepts such appointment and agrees
to maintain and hold all Collateral at any time delivered to it as agent,
bailee and custodian for the exclusive benefit of such Secured Parties. The
Custodian acknowledges and agrees that the Custodian is acting and will act
with respect to the Collateral for the exclusive benefit of the Secured Parties
and is not, and shall not at any time in the future be, subject with respect to
the Collateral, in any manner or to any extent, to the direction or control of
the Borrower except as expressly permitted hereby. The Custodian agrees to act
in accordance with this Agreement and in accordance with any written
instructions from the Agent delivered pursuant hereto consistent herewith.
Under no circumstances shall the Custodian deliver possession of Collateral to
the Borrower or any Person other than the Agent except in accordance with the
express terms of this Agreement or otherwise upon the written instruction of
the Agent. No Lender other than the Agent may act individually to instruct the
Custodian in any manner or to take any action hereunder; the Lenders may act
with respect to the Collateral or this Agreement solely through the Agent as
set forth in the Loan and Security Agreement.
3. Delivery of Custodian's SBA Loan Files.
The Borrower shall deliver and release to the Custodian no
later than 2:00 p.m. (New York City time) concurrently with an irrevocable
Collateral Submission Summary delivered to the Agent and the Custodian no later
than four (4) Business Days prior to each Funding Date and at any time as
required under Section 13 hereof the following original documents pertaining to
each SBA Loan (as identified in the SBA Loan Schedule) to be pledged to the
Agent for the ratable benefit of the Lenders, and such other documents as may
be identified as Schedule 1 to such Collateral Submission Summary:
(a) the original SBA Note, bearing all intervening endorsements to
establish the chain of title to the Borrower, and providing
for a final endorsement in the following form: "Pay to the
order of ___________________, without recourse" in the name of
the Borrower. If the SBA Loan was acquired by the Borrower in
a merger, the endorsement must be by "[Borrower], successor by
merger to [name of predecessor]". If the SBA Loan was
acquired or originated by the Borrower while doing business
under another name, the endorsement must be by "[Borrower],
formerly known as [previous name]"; In the case of such
merger or name change, supporting corporate documentation
shall be provided;
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(b) the original of any guarantee executed by the Pledgor or any
Affiliate thereof in connection with the SBA Note, if any;
(c) the original Security Agreement with evidence of recording
thereon. If in connection with any SBA Loan, the Borrower
cannot deliver or cause to be delivered the original Security
Agreement with evidence of recording thereon because of a
delay caused by the public recording office or such Security
Agreement was recently sent for filing where such Security
Agreement has been delivered for recordation or because such
Security Agreement has been lost or because such public
recording office retains the original recorded Security
Agreement, the Borrower must deliver or cause to be delivered
to the Custodian, a photocopy of such Security Agreement,
together with either (i) in the case of a delay caused by the
public recording office or such Security Agreement was
recently sent for filing, an officer's certificate of the
Borrower (which certificate may be in the form of a stamp on
such photocopy with a manual signature of an Authorized
Representative of the Borrower) stating that such Security
Agreement has been dispatched to the appropriate public
recording office for recordation and that the original
recorded Security Agreement or a copy of such Security
Agreement certified by such public recording office to be a
true and complete copy of the original recorded Security
Agreement will be promptly delivered to the Custodian upon
receipt thereof by the Borrower; or (ii) in the case of a
Security Agreement where a public recording office retains the
original recorded Security Agreement or in the case where a
Security Agreement is lost after recordation in a public
recording office, a copy of such Security Agreement certified
by such public recording office to be a true and complete copy
of the original recorded Security Agreement;
(d) the originals of all assumption, modification, consolidation
or extension agreement relating to the Security Agreements,
with evidence of recording thereon, if any, together with
certified copies of any payment plan agreements or certified
copies of the recorded copies of such documents, if recorded;
(e) an original Assignment of Security Agreement for each SBA
Loan, in form and substance acceptable for recording, executed
by the Borrower and delivered in blank. If the SBA Loan was
acquired by the Borrower in a merger, the Assignment of
Security Agreement must be executed by the Borrower as
"[Borrower], successor by merger to [name of predecessor]".
If the SBA Loan was acquired or originated by the Borrower
while doing business under another name, the Assignment of
Security Agreement must be executed by the Borrower as
"[Borrower], formerly known as [previous name]". In the case
of such merger or name change, supporting corporate
documentation shall be provided;
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(f) if applicable, an original Assignment of Rents and Leases for
each SBA Loan, in form and substance acceptable for recording,
executed by the Borrower and delivered in blank. If the SBA
Loan was acquired by the Borrower in a merger, the Assignment
of Rents and Leases must be executed by the Borrower as
"[Borrower], successor by merger to [name of predecessor]".
If the SBA Loan was acquired or originated by the Borrower
while doing business under another name, the Assignment of
Rents and Leases must be executed by the Borrower as
"[Borrower], formerly known as [previous name]". In the case
of such merger or name change, supporting corporate
documentation shall be provided; if in connection with any SBA
Loan, the Borrower cannot deliver or cause to be delivered the
original Assignment of Leases and Rents with evidence of
recording thereon because of a delay caused by the public
recording office or such Assignment of Leases and Rents was
recently sent for filing where such Assignment of Leases and
Rents has been delivered for recordation or because such
Assignment of Leases and Rents has been lost or because such
public recording office retains the original recorded
Assignment of Leases and Rents, the Borrower must deliver or
cause to be delivered to the Custodian, a photocopy of such
Assignment of Leases and Rents, together with either (i) in
the case of a delay caused by the public recording office or
such Assignment of Leases and Rents was recently sent for
filing, an officer's certificate of the Borrower (which
certificate may be in the form of a stamp on such photocopy
with a manual signature of an Authorized Representative of the
Borrower) stating that such Assignment of Leases and Rents has
been dispatched to the appropriate public recording office for
recordation and that the original recorded Assignment of
Leases and Rents or a copy of such Assignment of Leases and
Rents certified by such public recording office to be a true
and complete copy of the original recorded Assignment of
Leases and Rents will be promptly delivered to the Custodian
upon receipt thereof by the Borrower; or (ii) in the case of
an Assignment of Leases and Rents where a public recording
office retains the original recorded Assignment of Leases and
Rents or in the case where an Assignment of Leases and Rents
is lost after recordation in a public recording office, a copy
of such Assignment of Leases and Rents certified by such
public recording office to be a true and complete copy of the
original recorded Assignment of Leases and Rents;
(g) if applicable, an original Assignment of Assignment of Rents
and Leases for each SBA Loan, in form and substance acceptable
for recording, executed by the Borrower and delivered in
blank. If the SBA Loan was acquired by the Borrower in a
merger, the Assignment of Assignment of Rents and Leases must
be executed by the Borrower as "[Borrower], successor by
merger to [name of predecessor]". If the SBA Loan was
acquired or originated by the Borrower while doing business
under another name, the Assignment of Rents and Leases must be
executed by the Borrower as "[Borrower], formerly known as
[previous name]". In the case of such merger or name change,
supporting corporate documentation shall be provided;
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(h) the originals of all intervening Assignments of Security
Agreement with evidence of recording thereon, if recording is
required, or if any such intervening assignment has not been
returned from the applicable recording office or has been lost
or if such public recording office retains the original
recorded assignments of security agreement, the Borrower shall
deliver or cause to be delivered to the Custodian a photocopy
of such intervening assignment, together with (i) in the case
of a delay caused by the public recording office, an officer's
certificate (which certificate may be in the form of a stamp
on such photocopy with a manual signature of an Authorized
Representative of the Borrower) of the Borrower stating that
such intervening security agreement assignment has been
dispatched to the appropriate public recording office for
recordation and that such original recorded intervening
security agreement assignment or a copy of such intervening
security agreement assignment certified by the appropriate
public recording office to be a true and complete copy of the
original recorded intervening security agreement assignment
will be promptly delivered to the Custodian upon receipt
thereof by the Borrower; or (ii) in the case where a public
recording office retains the original recorded intervening
assignment or in the case where an intervening assignment is
lost after recordation in a public recording office, a copy of
such intervening assignment certified by such public recording
office to be a true and complete copy of the original recorded
intervening assignment;
(i) certified copies of all UCC-1 financing statements of record
naming the Borrower as secured party with respect to the
obligations under such SBA Loan;
(j) a certified copy of the SBA Authorization and Debenture
Guaranty relating to such SBA Loan, if applicable;
(k) with respect to each SBA Loan secured primarily by real
estate, the original mortgagee title insurance policy (or
marked title commitment) or attorney's opinion of title and
abstract of title; and
(l) such other documents as may be reasonably requested by the
Agent and as are specified on Schedule 1 to the Collateral
Submission Summary.
From time to time, the Borrower shall forward to the Custodian for inclusion in
the appropriate Custodian's SBA Loan File additional original documents
evidencing an assumption, modification, consolidation or extension of such
Pledged SBA Loan.
Borrower shall also deliver to the Agent, concurrent with the
delivery of such Collateral Submission Summary, the Collateral Pledge
Certificate for each SBA Loan and all related attachments required thereto.
The Custodian hereby acknowledges that from the date of
receipt of any documents included in a Custodian's SBA Loan File until the
issuance by the Custodian to the
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Agent and the Borrower of a Collateral Receipt with respect to such Custodian's
SBA Loan File, the Custodian shall act as agent, bailee and custodian for the
Borrower, shall hold any and all such documents included in a Custodian's SBA
Loan File for the exclusive use and benefit of the Borrower, and shall make
disposition thereof only in accordance with the terms of this Agreement.
4. Initial Certification; Deficiencies in Custodian's SBA
Loan Files; Loan Exception Report.
The Custodian shall, upon receipt of each Custodian's SBA Loan
File and Collateral Submission Summary, ascertain that all documents noted on
Schedule 1 to the Collateral Submission Summary (including, without limitation,
the documents referred to in Section 3 of this Agreement) are in its
possession, and that such documents are complete on their face and that each
document purporting to be an original appears to be so on its face, and whether
each such document purporting to be a certified photocopy or conformed copy
appears on its face to be a true copy of its original. Such review will be
performed by the Custodian in accordance with the procedures set forth in Annex
3 hereto. No later than 2:00 p.m. (New York City time) two Business Days prior
to a Funding Date or if not in connection with a Funding Date, no later than
2:00 p.m. (New York City time) five (5) Business Days following the Custodian's
receipt of the Collateral Submission Summary from the Borrower, the Custodian
shall deliver to the Borrower and the Agent a Collateral Receipt with respect
to such documents for SBA Loans to be pledged to the Agent for the ratable
benefit of the Lenders on such Funding Date (or date of acceptance of pledge by
the Agent as provided herein). Custodian shall notify the Borrower and the
Agent of any deficiencies in a Loan Exception Report attached to the Collateral
Receipt. The Borrower shall promptly cure such deficiencies noted by the
Custodian.
(a) If a Loan Exception Report is attached to a
Collateral Receipt and the Custodian receives additional documents in respect
of a Custodian's SBA Loan File prior to 12:00 p.m. (New York City time) one
Business Day prior to the related Funding Date or if not in connection with a
Funding Date, prior to 2:00 p.m. (New York City time) three (3) Business Days
following delivery of the Collateral Receipt, the Custodian shall review such
documents in accordance with the requirements of Section 3 hereof and the
procedures set forth in Annex 3 attached hereto and revise the Loan Exception
Report and resubmit the Collateral Receipt promptly upon completion of its
review but in no event later than 4:00 p.m. one Business Day prior to the
related Funding Date or if not in connection with a Funding Date, by 2:00 p.m.
(New York City time) within one (1) Business Day of receipt of the additional
documents.
(b) If the Borrower fails to either (i) deliver to the
Custodian the missing documents noted in a Loan Exception Report, or (ii) cure
any other Deficiencies noted in the Loan Exception Report, no later than 12:00
p.m. (New York City time) one Business Day prior to the related Funding Date or
if not in connection with a Funding Date prior to 2:00 p.m. (New York City
time) three (3) Business Days following delivery of the Collateral Receipt, the
Custodian shall notify the Borrower and the Agent of such failure by issuing a
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Final Loan Exception Report. Upon receipt of such notice, the Agent shall
promptly notify the Lenders thereof. Delivery of the Collateral Receipt by the
Custodian shall not constitute acknowledgement by the Agent or the Lender that
such SBA Loan shall be accepted as a Pledged SBA Loan. The Agent shall notify
the Custodian and the Borrower whether such SBA Loan shall be accepted as a
Pledged SBA Loan based upon its review of the Collateral Receipt, the Final
Loan Exception Report, the Collateral Submission Summary and the related
attachments thereto, such determination to be made by the Agent in its sole
discretion no later than 10:00 a.m. (New York City time) on the Funding Date or
if not in connection with a Funding Date, by 2:00 p.m. (New York City time)
within two (2) Business Days of the later of the receipt of the Collateral
Receipt by the Custodian or the delivery by the Custodian of the Final Loan
Exception Report. If not accepted by the Agent, the Custodian shall hold such
deficient Custodian's SBA Loan File for the Borrower and the related SBA Loan
shall not be included as a Pledged SBA Loan.
5. Final Certification.
(a) No later than 2:00 p.m. (New York City time) on the
second Business Day after a Funding Date or notification by the Agent that such
SBA Loan has been accepted as a Pledged SBA Loan, the Custodian shall deliver
to the Agent and the Borrower a Final Certification (including a revised Loan
Exception Report in respect of any remaining missing documents or other
Deficiencies in a Custodian's SBA Loan File) for the Pledged SBA Loans included
on the related Collateral Receipt. The Final Certification shall list the
Pledged SBA Loans and any Custodian's SBA Loan File that is held by the
Custodian for the Borrower in accordance with Section 4(b) above.
6. Obligations of the Custodian.
(a) The Custodian shall segregate and maintain continuous
custody of all items constituting the Custodian's SBA Loan Files with respect
to the Pledged SBA Loans in secure and fire retardant facilities in accordance
with customary standards for such custody. The Custodian shall segregate and
maintain custody of all items constituting the Custodian's SBA Loan Files with
respect to other SBA Loans (i.e., not Pledged SBA Loans) in accordance with
instructions from the Borrower.
(b) In the event that (i) the Agent, any Lender, the
Borrower, the Custodian or the Servicer shall be served by a third party with
any type of levy, attachment, writ or court order with respect to any
Custodian's SBA Loan File or a document included within a Custodian's SBA Loan
File or (ii) a third party shall institute any court proceeding by which any
Custodian's SBA Loan File or a document included within a Custodian's SBA Loan
File shall be required to be delivered otherwise than in accordance with the
provisions of this Agreement, the party receiving such service shall promptly
deliver or cause to be delivered to the other parties to this Agreement copies
of all court papers, orders, documents and other materials concerning such
proceedings. Unless the Agent shall otherwise consent, which consent may be
withheld in its sole and absolute discretion, the Custodian shall continue to
hold and maintain all the Custodian's SBA Loan Files that are the subject of
such proceedings pending a final, nonappealable order of a court of competent
jurisdiction permitting or
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directing disposition thereof. Upon final determination of such court, the
Custodian shall dispose of such Custodian's SBA Loan File or a document
included within such Custodian's SBA Loan File as directed by such
determination or, if no such determination is made, at the direction of the
Agent in accordance with the provisions of this Agreement. Expenses of the
Custodian incurred as a result of such proceedings shall be borne by the
Borrower.
7. Further Obligations of the Custodian .
The Custodian shall promptly notify the Agent if the Custodian
has actual knowledge that any mortgage, pledge, lien, security interest or
other charge or encumbrance (other than to the Agent for the ratable benefit of
the Lenders) has been placed on any account maintained by the Borrower with the
Custodian or on the documents contained in the Custodian's SBA Loan Files with
respect to any Pledged SBA Loan.
The Custodian shall use reasonable care and due diligence in
the performance of its duties hereunder, and shall maintain a fidelity bond
plus document hazard insurance in a sufficient amount to cover any losses which
could be sustained by the Borrower, the Agent or the Lenders in the event of
the destruction, loss or theft of the Custodian's SBA Loan File.
The Custodian hereby represents and warrants to the Agent and
the Lenders that the Custodian is not controlled by, under common control with
or otherwise affiliated with the Borrower, and covenants and agrees with the
Agent and the Lenders that prior to any such affiliation in the future,
Custodian shall notify Agent.
The Custodian hereby represents and warrants to the Agent and
the Lenders that this Agreement has been duly authorized, executed and
delivered by the Custodian and constitutes the legal, valid and binding
obligation of the Custodian enforceable in accordance with its terms.
During the term of this Agreement, if the Custodian discovers
any defect with respect to a Custodian's SBA Loan File, the Custodian shall
give written specification of such defect to the Borrower and the Agent.
8. Release of Custodian's SBA Loan File.
From time to time, so long as no Default has occurred and is
continuing and as appropriate for the servicing of any of the SBA Loans, the
Custodian is hereby authorized, upon no later than two Business Days' prior
notice (prior to 2:00 p.m. New York City time) of the Borrower or the Servicer,
in substantially the form annexed hereto as Annex 6 (a "Request for Release and
Receipt"), subject to Section 9 hereof, to permit the temporary withdrawal of
certain or all documents contained in the related Custodian's SBA Loan File as
set forth in such Request for Release and Receipt. All documents so released
shall be released to the Servicer and shall be held by the Servicer in trust
for the benefit of the Agent. The Servicer shall return to the Custodian each
document previously released from the Custodian's SBA Loan File within 15
calendar days of receipt thereof. The Agent agrees to respond, within two
Business Days of receipt, to any Request for Release and Receipt properly
completed and submitted by the Borrower or the Servicer. Upon the redelivery
of any
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Custodian's SBA Loan File or any documents therein previously delivered to the
Servicer in accordance with the terms and provisions of this Agreement, the
Custodian shall promptly accept redelivery of the related Custodian's SBA Loan
File from the Servicer and indicate the receipt thereof. A release to the
Servicer under this Section 8 shall not constitute a release of the Lenders'
Lien on any Collateral so delivered.
9. Limitation on Release.
The provisions in Section 8 hereof respecting release to the
Servicer of the Custodian's SBA Loan Files and documents by the Custodian upon
request by the Borrower or the Servicer shall be operative only to the extent
that at any time the Custodian shall not have released to the Servicer active
Custodian's SBA Loan Files or documents (including those requested) in respect
of more than two Pledged SBA Loans at the time being held by the Custodian
under this Agreement. Any additional Custodian's SBA Loan Files or documents
requested to be released by the Borrower or the Servicer may be released only
upon written authorization of the Agent. If the Agent approves the requested
release in accordance with the provisions of the Loan and Security Agreement,
the Agent will promptly so notify the Custodian by countersigning the Request
for Release and Receipt submitted by the Borrower in connection therewith, and
the Custodian will effect the requested release no later than 4:00 p.m. (New
York City time) on or prior to the requested release date.
10. Periodic Statements.
No later than the second Business Day of each month, or upon
the request of the Agent at any other time, the Custodian shall provide to the
Agent a list of all the Pledged SBA Loans for which the Custodian holds a
Custodian's SBA Loan File pursuant to this Agreement. Such list may be in the
form of a copy of the SBA Loan Schedule with manual additions and/or deletions
to specifically denote any SBA Loans substituted, added, paid off or otherwise
removed from this Agreement since the date of this Agreement. Further, upon
request from the Agent, the Custodian shall provide an inventory of the
documents then comprising each Custodian's SBA Loan File with respect to the
Pledged SBA Loans.
11. Copies of Mortgage Documents.
Upon the request of the Agent and at the cost and expense of
the Agent, the Custodian shall provide the Agent with copies of the SBA Notes,
Security Agreements, Assignments of Security Instruments and other documents
contained in the Custodian's SBA Loan Files relating to one or more of the
Pledged SBA Loans.
12. No Adverse Interest of Custodian.
By execution of this Agreement, the Custodian represents and
warrants that it currently holds, and during the existence of this Agreement
shall hold, no adverse interest, by way of security or otherwise, in any
Pledged SBA Loan, and hereby waives and releases any such interest which it may
have in any Pledged SBA Loan as of the date hereof.
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13. Release of Security Interest.
(a) So long as no Default has occurred and is continuing,
upon the payment in full of any Pledged SBA Loan, which shall be evidenced by
the delivery to the Custodian by the Borrower of a Request for Release and
Receipt and approval by the Agent of such Request for Release and Receipt,
which shall not be unreasonably withheld or delayed (provided that the
Borrowing Base shall be greater than the aggregate outstanding principal
balance of the Loans then outstanding after giving effect to the Pledged SBA
Loan to be released pursuant to this Section), the Custodian shall promptly and
permanently release the related Custodian's SBA Loan File to the Borrower or
the Servicer, as specified by the Borrower and shall take the actions set forth
in this Section 13(f) and the Lien of the Agent with respect to such Pledged
SBA Loan shall be released. If a Default or an Event of Default has occurred
and is continuing, the Agent shall be required to grant the Request for Release
and Receipt only upon receipt from the Borrower of 100% of the then outstanding
balance of the Pledged SBA Loan (without modification except as expressly
agreed to by the Agent, which consent may be withheld in the Agent's sole
discretion).
(b) Upon termination or expiration of the Loan and
Security Agreement and payment to the Agent for the ratable benefit of the
Lenders of all amounts owing to it thereunder and hereunder, the Agent shall
notify the Custodian of such termination or expiration and the Custodian shall
thereafter deliver any Custodian's SBA Loan Files in its possession as the
Borrower shall direct and shall take the actions set forth in Section 13(f) and
the Lien of the Agent with respect to the Pledged SBA Loan shall be released.
(c) So long as no Default has occurred and is continuing,
upon receipt of the countersigned Request for Release-Overcollateralization and
upon approval of the Request for Release-Overcollateralization by the Agent,
the Custodian shall take the actions set forth in Section 13(f) hereof with
respect to the SBA Loan to be released.
(d) So long as no Default has occurred and is continuing,
the Borrower may, in accordance with the provisions of the Loan and Security
Agreement, substitute for one or more Pledged SBA Loans constituting Collateral
hereunder one or more other Qualifying SBA Loans ("Substitute SBA Loans"). In
connection with any such substitution, the Borrower will provide an irrevocable
Collateral Submission Summary to the Custodian and the Agent no later than 2:00
p.m. (New York City time) four (4) Business Days prior to the date of such
substitution, specifying the Pledged SBA Loans to be substituted and the
Substitute SBA Loans to be pledged hereunder in substitution therefor, and
shall deliver with such notice Annex 2A attached hereto for each Substitute SBA
Loan. The Custodian shall release the security interest of the Agent in the
Pledged SBA Loans being released upon written approval of such notice by the
Agent and after the Custodian has issued a Collateral Receipt to the Agent in
accordance with Section 13(e) with respect to the Substitute SBA Loans.
(e) In connection with any substitution of Pledged SBA
Loans pursuant to the Loan and Security Agreement, the Custodian will deliver
to the Borrower and the Agent, a Collateral Receipt (including an Exception
Report) in respect of the related SBA Loans
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pledged hereunder in accordance with the requirements set forth in Section 4
hereof. If approved by the Agent in accordance with Section 4 hereof, no later
than 2:00 p.m. (New York City time) on the second Business Day after the date
of substitution, the Custodian shall deliver to the Borrower and the Agent a
Final Certification (including a revised Loan Exception Report) in accordance
with Section 5 hereof.
(f) In connection with the return of any Custodian's SBA
Loan File to the Borrower pursuant to this Section 13, the Custodian shall
execute, on behalf of the Agent, a "notice of release of lien" in the form of
Annex 7 hereto for the benefit of Borrower or any financial institution
providing financing to the Borrower, as notified by the Borrower to the
Custodian and the Agent, and promptly deliver such notice to the Agent. The
Agent shall promptly thereafter cause to be filed a UCC-3 financing statement
amending the UCC-1 financing statement of record naming the Borrower as
"debtor" and "Lehman Commercial Paper Inc., as Agent" as "secured party" and
substituting the most recent schedule of Pledged SBA Loans provided by the
Custodian for the schedule previously of record.
14. Fees and Expenses of the Custodian.
(a) The Borrower agrees to pay to the Custodian a
custodial fee of $3,000 per year, billed quarterly, for the performance of
Custodian's duties under this Agreement.
(b) The Borrower additionally agrees, upon execution of
this Agreement, to reimburse the Custodian for all out-of-pocket costs,
including copying costs, and disbursements (including fees and disbursements of
the Custodian's counsel and other persons whose services are used by the
Custodian in fulfilling its duties and obligations hereunder but who are not
regularly in its employ) incurred or made by the Custodian in connection with
the negotiation, execution and performance of, and the enforcement of its
rights under this Agreement, except as expressly otherwise provided herein or
in the Loan and Security Agreement to be paid by the Agent. The foregoing
obligations shall survive the resignation or removal of the Custodian and the
termination of this Agreement and is for the benefit of and enforceable by
Custodian and its successors and assigns.
15. Examination of Custodian's SBA Loan Files.
Upon reasonable (but no less than one Business Day's) prior
written notice to the Custodian, the Agent, any Lender and their respective
agents will be permitted during normal business hours to examine the
Custodian's SBA Loan Files, documents, records and other papers in the
possession, or under the control, of the Custodian relating to any or all of
the Pledged SBA Loans. Agent, any Lender and their auditors, agents and
counsel shall have the right during Custodian's business hours, upon reasonable
(but no less than one Business Day's) prior notice, to inspect, make copies of,
and make extracts of any Custodian's SBA Loan Files and any and all documents,
records, agreements, instruments or information relating to such Custodian's
SBA Loan Files. Such examination shall take place at the premises of
Custodian, and the Borrower shall be responsible for all reasonable expenses
related thereto.
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16. Insurance of the Custodian.
The Custodian shall, at its own expense, maintain at all times
during the existence of this Agreement and keep in full force and effect (a)
fidelity insurance, (b) theft of documents insurance, (c) forgery insurance and
(d) errors and omissions insurance. All such insurance shall be in amounts,
with standard coverage and subject to deductibles, as are customary for
insurance typically maintained by banks which act as custodian in similar
transactions and with insurance companies and in an amount reasonably
acceptable to the Agent. A certificate of the respective insurer as to each
such policy shall be furnished to the Agent, upon request, containing the
insurer's statement or endorsement that such insurance shall not be materially
altered or terminated prior to receipt by the Agent, by registered mail, of 10
days notice thereof. Notwithstanding the foregoing, the Custodian may elect to
self-insure in lieu of providing the insurance coverage specified in items (b),
(c), and (d) above. In the event that the Custodian shall have elected to
self-insure as herein permitted and the unsecured long-term debt obligations of
the bank holding company with which the Custodian is affiliated are no longer
rated by a nationally recognized statistical rating organization in one of its
three highest rating categories, the Custodian shall provide the Agent promptly
with written notice thereof. At any time following receipt of such
notification the Agent may request the Custodian to obtain insurance coverage
for any or all of such items with respect to which it has elected to
self-insure and to deliver to the Agent a certificate of each respective
insurer. The Custodian's failure to comply with such request shall entitle the
Agent to terminate the Custodian's rights and obligations under this Agreement
and discharge the Custodian pursuant to the provisions of Section 17.
17. Resignation by and Removal of the Custodian: Successor
Custodian.
(a) The Custodian may at any time resign and terminate
its obligations under this Agreement upon at least 90 days prior written notice
to the Borrower and the Agent. Promptly after receipt of notice of the
Custodian's resignation, the Agent shall appoint, by written instrument, a
successor custodian, subject to written approval by the Borrower. One original
counterpart of such instrument of appointment shall be delivered to the
Borrower and the successor custodian.
(b) The Agent, with or without cause, upon at least 30
days prior written notice to the Custodian and the Borrower, may remove and
discharge the Custodian (or any successor custodian thereafter appointed) from
the performance of its obligations under this Agreement. Promptly after the
Agent gives notice of removal of the Custodian, the Agent shall appoint, by
written instrument, a successor custodian, which successor Custodian shall be
approved by the Borrower. One original counterpart of such instrument of
appointment shall be delivered to each of the Borrower and the successor
custodian.
(c) In the event of any such resignation or removal, the
Custodian shall promptly transfer to the successor custodian, as directed in
writing by the Agent, all the Custodian's SBA Loan Files being administered
under this Agreement. Other than resignation or removal for cause of the
Custodian, the expenses of any such transfer shall be borne by the
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Borrower. If Custodian shall resign or be removed for cause, the expenses of
such transfer shall be borne by the Custodian. The payment of the successor
custodian's fees and expenses shall be solely the obligation of the Borrower.
18. Indemnity.
(a) The Borrower agrees to reimburse, indemnify, defend
and hold harmless the Custodian and its directors, officers, agents and
employees, its and their successors and assigns, from and against any and all
claims, liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever (including, without limitation, reasonable attorneys' fees and
disbursements, court costs, and costs of investigation) which may be imposed
upon, incurred by or asserted against the Custodian or its directors, officers,
agents or employees in any way relating to, or arising out of the Custodian's
execution or performance of this Agreement, including, but not limited to, the
claims of any third parties (including any assignee) or by reason of any action
taken or not taken by it or them hereunder unless such claims, liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements were imposed upon, incurred by or asserted against
the Custodian and/or its directors, officers, agents and employees as a result
of or attributable to the negligence or willful misconduct on the part of the
Custodian or any of its directors, officers, agents or employees.
Notwithstanding the foregoing, the Custodian shall have the right to settle any
claims which are indemnified against hereunder upon reasonable notice to the
Borrower specifying the terms of any settlement, provided that such settlement
does not materially and adversely affect the Borrower's operations. The
foregoing indemnification shall survive any termination of this Agreement and
is for the benefit of the Custodian and its successors and assigns. Any
successor to the Borrower shall be bound by this indemnity without entering
into an express assumption agreement.
(b) The Custodian agrees to indemnify and hold the
Borrower, Agent and Lenders harmless against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever, including
reasonable attorney's fees (collectively, the "Losses"), that may be imposed
on, incurred by, or asserted against it in any way relating to or arising out
of the breach by the Custodian of its obligations under this Agreement, or the
negligence, lack of good faith or willful misconduct on the part of the
Custodian or any of its directors, officers, agents or employees. The
foregoing indemnification shall survive any termination or assignment of this
Custodial Agreement.
(c) Without limiting the generality of, and in addition
to, the foregoing, in the event that the Custodian fails to produce a SBA Note,
Assignment of Security Agreement or any other document related to a SBA Loan
within two (2) Business Days after required or requested by the Agent, the
Borrower or the Servicer, and provided that (i) the Custodian previously
delivered to the Agent a signed Collateral Receipt with respect to such SBA
Note and/or
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Assignment of Security Agreement; (ii) such SBA Note and/or Assignment of
Security is not outstanding pursuant to a Request for Release; and (iii) such
SBA Note and/or Assignment of Security Agreement was pledged to the Agent, then
the Custodian shall (a) with respect to any missing SBA Note, promptly deliver
to such Agent upon request, a lost note affidavit with indemnity substantially
in the form of Annex 8 hereto and (b) with respect to any missing document
related to such SBA Loan, (1) indemnify the Borrower, Agent and Lenders for any
Losses in any way relating to or arising out of the Custodian's failure to
produce such missing document and, at the Agent's option, (2) obtain and
maintain an insurance bond in the name of the Agent, and its successors in
interest and assigns, insuring against any losses associated with the loss of
such document, in an amount equal to the then outstanding principal balance of
the SBA Loan or such lesser amount requested by the Agent in the Agent's sole
discretion.
(d) The Custodian agrees to indemnify and hold the Agent,
the Lenders and their designees harmless against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever, including
reasonable attorney's fees, that may be imposed on, incurred by, or asserted
against it or them in any way relating to or arising out of such failure to
provide the requested documents. The foregoing indemnification shall survive
any termination or assignment of this Agreement.
19. Limitation of Liability.
(a) The Custodian is a bailee for hire pursuant to the
terms of this Agreement. The obligations of the Custodian shall be determined
solely by the express provisions of this Agreement. No representation,
warranty, covenant, agreement, obligation or duty of the Custodian shall be
implied with respect to this Agreement or the Custodian's services hereunder.
The Custodian shall not be bound in any way by any agreement or contract other
than this Agreement and any other agreement to which it is a party with respect
to the subject matter set forth herein. Neither the Custodian, nor any of its
directors, officers, agents or employees shall be liable to Borrower, Servicer
or any other person, for any error of judgment, any mistake of fact or any
action taken or omitted to be taken by it or them hereunder or in connection
herewith, believed by it or them to be within the purview of this Agreement,
except for its or their own negligence or willful misconduct.
(b) In the Custodian's review of documents pursuant to
Section 4 of this Agreement, the Custodian shall be under no duty or obligation
to inspect, review or examine the Custodian's SBA Loan Files to determine that
the contents thereof are genuine, enforceable or appropriate for the
represented purpose or that they have been actually recorded or that they are
other than what they purport to be on their face.
(c) The Custodian may conclusively rely, and shall be
protected in acting or refraining to act, upon and need not verify the accuracy
of, any (i) oral instructions from any persons the Custodian believes to be
authorized to give such instructions, who shall only be, with respect to the
Borrower and to the Agent, persons the Custodian believes in good faith to be
Authorized Representatives, and (ii) any written instruction, notice, order,
request, direction, certificate, opinion or other instrument or document
believed by the Custodian to be
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genuine and to have been signed or presented by the proper party or parties,
which, with respect to the Borrower and to the Agent, shall mean signature and
presentation by Authorized Representatives.
(d) No provision of this Agreement shall require the
Custodian to expend or risk its own funds or otherwise incur financial
liability in the performance of its duties under this Agreement if it shall
have reasonable grounds for believing that repayment of such funds or adequate
indemnity is not reasonably assured to it.
(e) The Custodian shall not be responsible or liable for,
and makes no representation or warranty with respect to, the validity,
legality, enforceability, recordability genuineness, collectability,
insurability, effectiveness, suitability, adequacy or perfection of any
document comprising part of the Custodian's SBA Loan Files or any lien upon, or
security interest in, any SBA Loans or Custodian's SBA Loan Files purported to
be granted at any time to the Agent or any other person.
(f) Anything in this Agreement to the contrary
notwithstanding, in no event shall Custodian be liable hereunder to Borrower,
Servicer, or any other person for special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to loss of profits),
even if Custodian has been advised of the likelihood of such loss or damage and
regardless of the form of action.
20. Term of Agreement.
Promptly after written notice from the Agent of the
termination of the Loan and Security Agreement and payment in full of all
amounts owing to the Agent thereunder, the Custodian shall deliver all
documents remaining in the Custodian's SBA Loan Files as the Borrower shall
direct, and this Agreement shall thereupon terminate.
21. Authorized Representatives.
The names of the officers, partners or employees of the
Borrower, the Servicer and of the Agent who are authorized to give and receive
notices, requests and instructions and to deliver certificates and documents in
connection with this Agreement on behalf of the Borrower, the Servicer and the
Agent, respectively ("Authorized Representatives") are set forth on Annex 9,
along with the specimen signature of each such officer, partner or employee.
From time to time, the Borrower, the Servicer and the Agent may, by delivering
to the Custodian a revised Annex 9, change the information previously given,
but the Custodian shall be entitled to rely conclusively on the last Annex 9
until receipt of a superseding Annex 9.
22. Notices.
All demands, notices and communications relating to this
Agreement shall be in writing, shall be sent by mail (postage prepaid),
telecopy or overnight courier service and shall be deemed to have been duly
given when delivered to the other party or parties at the
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address shown below or such other address as may hereafter be furnished to the
other party or parties by like notice.
If to the Borrower:
ACLC Limited Partnership
1666 K Street Northwest, Suite 901
Washington, D.C. 20006
Attention: Katherine C. Marien
Telephone: (202) 331-1112
Telecopy: (202) 659-2053
If to the Servicer:
Allied Capital Lending Corporation
1666 K Street Northwest, Suite 901
Washington, D.C. 20006
Attention:Katherine C. Marien, President
Telephone: (202) 331-1112
Telecopy: (202) 659-2053
If to the Custodian:
Riggs National Bank of Washington, D.C.
1120 Vermont Avenue, N.W.
Mail Code A-7001
Washington, D.C. 20005
Attention: Ms. Barbara Luke
Telephone: (202) 835-6626
Telecopy: (202) 835-6951
If to the Agent:
Lehman Commercial Paper Inc., as Agent
200 Vesey Street, 9th Floor
World Financial Center
New York, New York 10285
Attention: Mr. Frank Gilhool
Telephone: (212) 526-6970
Telecopy: (212) 528-9284
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with a copy to:
Lehman Commercial Paper Inc.
World Financial Center
200 Vesey Street, 29th Floor
Attention: Mr. Donald Petrow
New York, NY 10285
Telecopier No.: 212-528-9696
212-528-9697
Telephone No.: 212-526-3140
23. Governing Law.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.
Each of the Borrower and the Servicer hereby absolutely and
irrevocably consents and submits to the jurisdiction of the courts of the State
of New York and of any federal court located in said State in connection with
any actions or proceedings brought against the Borrower or the Servicer by the
Agent or the Custodian arising out of or relating to this Agreement. In any
such action or proceeding, each of the Borrower and the Servicer hereby
absolutely and irrevocably agrees that service of any summons, complaint,
declaration or other process may be made by certified or registered first-class
mail directed to the Borrower or the Servicer at its respective address in
accordance with Section 22 hereof.
24. Assignment.
No party to this Agreement may assign its rights or delegate
its obligations under this Agreement without the express written consent of the
other parties, except as otherwise set forth in this Agreement; provided that
the Agent may assign its rights and obligations hereunder to (a) any affiliate
of the Agent or (b) in connection with any assignment by the Agent of its
rights and obligations under the Loan and Security Agreement as allowed under
Section 10.07 of the Loan and Security Agreement upon written notice thereof to
the Borrower and the Custodian.
25. Power of Attorney.
The Agent hereby constitutes and appoints the Custodian and
any officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of the Agent and in the name of the Agent or in its own name, from
time to time, for the purpose of executing and delivering taking the actions to
be taken by the Custodian on behalf of the Agent pursuant to Section 13(f)
hereunder. Notwithstanding the Custodian's appointment as attorney-in-fact,
the Custodian shall have no liability to any person for actions taken by the
Custodian in the
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Lender's name pursuant to the terms of this Agreement and shall be indemnified
by the Agent for any actions taken by the Custodian in the Lender's name in
accordance with the terms of this Agreement. This power of attorney may be
revoked by the Agent upon written notice to the Custodian.
26. Counterparts.
For the purpose of facilitating the execution of this
Agreement and for other purposes, this Agreement may be executed simultaneously
in any number of counterparts, each of which shall be deemed to be an original,
and together shall constitute and be one and the same instrument.
27. Headings.
The Section headings are not part of this Agreement and shall
not be used in its interpretation.
[Signature pages follow]
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IN WITNESS WHEREOF, the parties have executed this Agreement
the day and year first above written.
LEHMAN COMMERCIAL PAPER INC.,
as Agent
By: /s/ FRANCE X. GILHOOL
--------------------------
Name: France X. Gilhool
Title: Authorized Signatory
RIGGS NATIONAL BANK OF
WASHINGTON, D.C.,
Custodian
By:/s/ ALBERT L BEHAR
--------------------------
Name: Albert L. Behar
Title: Vice President & Trust Officer
ATTEST:
By: /s/ EUGENIA M. THATCHER
--------------------------
Name: EUGENIA M. THATCHER
Title: SENIOR TRUST OFFICER
ACLC LIMITED PARTNERSHIP,
Borrower
By: Allied Capital Lending Corporation
Its: general partner
By: /s/ KATHERINE C. MARIEN
--------------------------
Name:
Title:
ALLIED CAPITAL LENDING CORPORATION,
Servicer
By: /s/ KATHERINE C. MARIEN
--------------------------
Name:
Title:
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SCHEDULE 1 TO THE
CUSTODIAL AGREEMENT
FORM OF SBA LOAN SCHEDULE
For each SBA Loan, the Borrower shall provide the following
information:
(a) the SBA Loan identifying number;
(b) each Pledgor's name;
(c) the location of the Pledged Property (street address,
city, state and zip code);
(d) the origination date of the SBA Loan;
(e) the original balance;
(f) the original amortization term;
(g) the original Security Agreement interest rate;
(h) the current principal balance;
(i) the current interest rate;
(j) the due date for the oldest unpaid scheduled payment
of principal and interest;
(k) the date and frequency on which payment of debt
service is due on the SBA Loan; and
(l) the maturity date of the SBA Loan.
<PAGE> 171
ANNEX 1 TO THE
CUSTODIAL AGREEMENT
COLLATERAL RECEIPT
Lehman Commercial Paper Inc., as Agent
Three World Financial Center
200 Vesey Street, 9th Floor
New York, NY 10285
Attention: Frank Gilhool
ACLC Limited Partnership
1666 K Street Northwest, Suite 901
Washington, D.C. 20006
Attention: Katherine C. Marien
Reference is made to the Custodial Agreement, dated as of
September 27, 1995 (the "Custodial Agreement"), among Lehman Commercial Paper
Inc., as Agent, Riggs National Bank of Washington, D.C., as Custodian, ACLC
Limited Partnership, as Borrower, and Allied Capital Lending Corporation, as
Servicer. Capitalized terms used and not otherwise defined herein shall have
the respective meanings ascribed thereto in the Custodial Agreement or, if not
so defined therein, then in the Loan and Security Agreement referred to
therein.
The Custodian hereby certifies that, as to each SBA Loan
listed on the Mortgage Loan Schedule attached hereto, (i) it has reviewed all
the documents in the related Custodian's SBA Loan File delivered to it by the
Borrower as more fully described on Schedule 1 of Collateral Submission Summary
No. _____, (ii) it has received a complete Custodian's SBA Loan File with
respect to each such SBA Loan, (iii) the documents in the related Custodian's
SBA Loan File have been reviewed in accordance with the procedures set forth in
Annex 3 to the Custodial Agreement and conform to the requirements of Section 3
of the Custodial Agreement, (iv) it has been advised of the security interest
to be granted to the Agent for the ratable benefit of the Lenders in each such
SBA Loan and all Collateral included in or otherwise relating to the
Custodian's SBA Loan File related thereto, (v) it will hold the documents in
the related Custodian's SBA Loan File as exclusive agent, bailee and custodian
for the Agent and its successors and assigns as secured party pursuant to the
Custodial Agreement until otherwise instructed by the Agent or as otherwise
provided in the Custodial Agreement, and (vi) it has not received notice of any
interest of any other Person in any Collateral included in the Custodian's SBA
Loan Files other than the interests described herein.
RIGGS NATIONAL BANK OF
WASHINGTON, D.C., as Custodian
<PAGE> 172
By:
----------------------------------
Name:
Title:
Date:
---------------------------------
<PAGE> 173
SCHEDULE 1 TO THE
COLLATERAL RECEIPT
LIST OF SBA LOANS
<PAGE> 174
ANNEX 2 TO THE
CUSTODIAL AGREEMENT
FORM OF COLLATERAL SUBMISSION SUMMARY
ACLC LIMITED PARTNERSHIP
COLLATERAL SUBMISSION SUMMARY NO. ___
Lehman Commercial Paper Inc.
3 World financial Center
200 Vesey Street, 9th Floor
New York, New York 10285
Attention: Mr. Frank Gilhool
Facsimile (212) 528-9284
Riggs National Bank of Washington, D.C.
1120 Vermont Avenue, N.W.
Mail Code A-7001
Washington, D.C. 20005
Attention: Ms. Barbara Luke
Telephone: (202) 835-6626
Telecopy: (202) 835-6951
1. Reference is made to the Custodial Agreement, dated
as of September 27, 1995 (the "Custodial Agreement") among the undersigned
("Borrower"), Riggs National Bank of Washington, D.C., as Custodian, and Lehman
Commercial Paper Inc., as Agent. Capitalized terms not defined herein have the
respective meanings assigned thereto in the Custodial Agreement, or, if not so
defined herein, then in the Loan and Security Agreement referred to therein.
2. Certification of Borrower. In consideration of the
Lenders making advances secured by a pledge of the SBA Loans more fully
described on the SBA Loan Schedule and Annex 2A attached hereto, the
undersigned duly authorized officer of the Borrower states that:
(a) with respect to each SBA Loan listed on the SBA Loan
Schedule, except as noted on the schedule of exceptions attached
hereto, all of the documents listed in Schedule 1 attached hereto, are
submitted to the Custodian pursuant to the Custodial Agreement;
(b) all other documents related to such SBA Loan (including
but not limited to mortgages, insurance policies, loan applications
and appraisals) have been or will be created and held by the Borrower
in trust for the Agent for the ratable benefit of the Lenders;
<PAGE> 175
(c) all documents related to such SBA Loans which are pledged
to the Agent for the ratable benefit of the Lenders which are
withdrawn from the Custodian shall be held in trust by the Borrower or
the Servicer for the Agent for the ratable benefit of the Lenders and
the Borrower will not attempt to pledge or otherwise hypothecate such
SBA Loan to any other party until the Lien related thereto has been
released by the Agent;
(d) the SBA Loan Schedule is true and correct;
(e) all information contained in Annex 2A and the related
attachments thereto with respect to each SBA Loans is true and
correct as of the date hereof;
(f) except as set forth on Schedule 2 to this Collateral
Submission Summary, each of the representations and warranties set
forth in the Loan and Security Agreement and all other Basic
Documents, and the representations and warranties as specified in
Schedule 2 to the Loan and Security Agreement with respect to each SBA
Loan more fully described on the SBA Loan Schedule attached hereto,
are true and correct as of the date hereof (other than such
representations and warranties that by their terms refer to a date
other than the date hereof); and
(g) except as set forth on Schedule 2 to this Collateral
Submission Summary, each of the SBA Loans more fully described on the
SBA Loan Schedule attached hereto meets all applicable Loan
Eligibility Requirements (as defined in the Loan and Security
Agreement).
[3. This Collateral Submission Summary relates to the
pledge of SBA Loans to the Agent hereunder in substitution of the following
Pledged SBA Loans requested to be released:
<TABLE>
<CAPTION>
CURRENT
SBA LOAN PLEDGED PROPERTY BALANCE AS OF BORROWING
NUMBER PLEDGOR NAME ADDRESS / / BASE
--------
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
</TABLE>
-2-
<PAGE> 176
- --------------------------------------------------------------------------------
]
Date: , 199
----------- --
ACLC LIMITED PARTNERSHIP
By:
------------------------------------
Name:
Title
CONSENTED TO BY [Required if SBA Loan is requested by Borrower to be released
for Substitute SBA Loan]
LEHMAN COMMERCIAL PAPER INC., as Agent
By:
--------------------------
Name:
Title:
-3-
<PAGE> 177
SCHEDULE 1 TO
COLLATERAL
SUBMISSION SUMMARY
LISTS OF DOCUMENTS IN SBA LOAN FILES
<PAGE> 178
ANNEX 2A TO THE FORM
OF COLLATERAL
SUBMISSION SUMMARY
FORM OF COLLATERAL PLEDGE CERTIFICATE
<TABLE>
- -------------------------------------------------------------------------------------
<S> <C> <C>
I. Loan ID #:
SBA #:
SBA Program:
Loan Closing Date:
- -------------------------------------------------------------------------------------
II. Original Loan Balance: Current Loan Balance:
Loan Current (Y/N): Paid to Date:
- -------------------------------------------------------------------------------------
III. Original Interest Rate: Current P&I (monthly):
Fixed/ARM First P&I Payment Date:
Index: Amortization Term:
Spread: Maturity Date:
Current Interest Rate:
- -------------------------------------------------------------------------------------
IV. Borrower's Name: Amount of Guaranty:
Borrower's Address: % of Guaranty:
Borrower's City: # of Guarantors:
Borrower's State: Primary Guarantor Name:
Borrower's Zip Code: Secondary Guarantor Name:
Borrower Type:
# of Other Borrowers:
- -------------------------------------------------------------------------------------
</TABLE>
LOAN PURPOSE (CHECK ALL THAT APPLY):
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
_____ Refinance _____ New Construction _____ Renovation _____ Other
(Explain)
_____ Acquisition _____ Working Capital
</TABLE>
-1-
<PAGE> 179
<TABLE>
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
V. Primary Collateral
-------------------
Type: # of Sq. Ft.:
Name: Total Sq. Ft. Occupied:
Address: Occupancy %:
City: Underwritten NOI:
State: Appraised Market Value:
Zip: Appraisal Date:
Fee/Leasehold: LTV (combined if not 1st lien):
Sr. Lien Current Balance: Liquidation Value;
Sr. Lien Annual P&I: LTV (Liquidation) (combined if not 1st lien):
Sr. Lien Maturity Date: Loan/SF:
Sr. Lien Interest Rate: Hazard Insurance Amount:
Sr. Lien Lender:
Jr. Lien Current Balance:
Jr. Lien Annual P&I
Jr. Lien Maturity Date:
Jr. Lien Interest Rate
Jr. Lien Lender:
- -----------------------------------------------------------------------------------------------------------
</TABLE>
-2-
<PAGE> 180
VI. Secondary Collateral
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) Total
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Type:
- -----------------------------------------------------------------------------------------------------
Name:
- -----------------------------------------------------------------------------------------------------
Address:
- -----------------------------------------------------------------------------------------------------
City:
- -----------------------------------------------------------------------------------------------------
State:
- -----------------------------------------------------------------------------------------------------
Zip Code:
- -----------------------------------------------------------------------------------------------------
Fee/Leasehold:
- -----------------------------------------------------------------------------------------------------
Lien Position:
- -----------------------------------------------------------------------------------------------------
Sr. Lien Current Balance:
- -----------------------------------------------------------------------------------------------------
Sr. Lien Annual P&I:
- -----------------------------------------------------------------------------------------------------
Sr. Lien Maturity Date:
- -----------------------------------------------------------------------------------------------------
Sr. Lien Interest Rate:
- -----------------------------------------------------------------------------------------------------
Sr. Lien Lender:
- -----------------------------------------------------------------------------------------------------
Jr. Lien Current Balance:
- -----------------------------------------------------------------------------------------------------
Jr. Lien Annual P&I:
- -----------------------------------------------------------------------------------------------------
Jr. Lien Maturity Date:
- -----------------------------------------------------------------------------------------------------
Jr. Lien Interest Rate:
- -----------------------------------------------------------------------------------------------------
Jr. Lien Lender:
- -----------------------------------------------------------------------------------------------------
# of Units:
- -----------------------------------------------------------------------------------------------------
# of Sq. Ft.
- -----------------------------------------------------------------------------------------------------
Occupancy %:
- -----------------------------------------------------------------------------------------------------
Underwritten NOI:
- -----------------------------------------------------------------------------------------------------
Market Value:
- -----------------------------------------------------------------------------------------------------
Market Value Date:
- -----------------------------------------------------------------------------------------------------
Market Value Source:
- -----------------------------------------------------------------------------------------------------
Liquidation Value:
- -----------------------------------------------------------------------------------------------------
Hazard Insurance Amount:
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Aggregate Underwrite NOI: Aggregate Underwritten DSCR
(combined if not first lien):
Aggregate Collateral Market Value: Aggregate Collateral LTV (Market Value)
(combined if not first lien):
Aggregate Collateral LTV (Market Value of
Primary
Collateral and Liquidation Value of Secondary
Collateral) (combined if not first lien):
Aggregate Liquidation Value: Aggregate Collateral LTV (Liquidation) (combined if not first lien):
</TABLE>
-3-
<PAGE> 181
VII. Special
Hazard Insurance Paid Through Date:
Real Estate Tax Paid Date:
Escrow:
Environmental Report Form (Phase I, Questionnaire, Phase II):
Frequency of Financial Statements:
Borrower Compensation/Distribution Limitation:
VIII. Certification:
The undersigned hereby certifies that all of the information contained in
this Collateral Pledge Certificate and all Attachments hereto are true and
correct as of the date hereof:
ACLC LIMITED PARTNERSHIP
By:
-------------------------
Name:
Title:
Date:
----------------
ATTACHMENTS:
I. Final loan approval memo of the Borrower.
II. Protocol checklist of the Borrower or a Lawyers' Closing Checklist.
III. Copy of SBA Authorization and Debenture Guaranty (or SBA Authorization
and Loan Agreement for SBA Companion Program Loans).
IV. "Lawyer's Closing Letter" stating that loan was closed in conformity
with all SBA requirements.
V. Site inspection form (or appraisal) (with an adequate number of photos
of exterior and interior of subject property and surroundings, and
additional collateral, if possible).
-4-
<PAGE> 182
ANNEX 3 TO THE
CUSTODIAL AGREEMENT
CUSTODIAN'S REVIEW PROCEDURES
This Annex sets forth the Custodian's review procedures for
the Custodian's SBA Loan Files delivered by the Borrower pursuant to the
Custodial Agreement, dated as of September 27, 1995 (the "Custodial Agreement")
among Lehman Commercial Paper Inc., as Agent, Riggs National Bank of
Washington, D.C., as Custodian, ACLC Limited Partnership, as Borrower, and
Allied Capital Lending Corporation, as Servicer, to which this Annex is
attached. Capitalized terms used and not otherwise defined herein shall have
the respective meanings ascribed thereto in the Custodial Agreement or, if not
so defined therein, then in the Loan and Security Agreement referred to
therein.
As used in this Annex, the term "Related Security Agreement"
shall mean, collectively, the Security Agreement related to the relevant SBA
Note and any modification or assumption agreement executed in connection with
such mortgage. In addition, as used in this Annex, the term "Certified Copy"
shall mean a copy of the relevant document that is stamped as a certified true
and correct copy of the original document and is signed by an Authorized
Representative of the Servicer and/or is accompanied by a certificate signed by
an Authorized Representative of the Servicer, in either case, to the effect
that the relevant document is a true and correct copy of the original document.
The Custodian shall review the Custodian's SBA Loan Files
delivered to the Custodian by the Borrower, pursuant to Section 3 of the
Custodial Agreement, to verify whether (a) they are complete on their face; (b)
each document therein purporting to be an original appears to be so on its
face; and (c) (i) the SBA Loan identifying number, (ii) the name of each
Pledgor, (iii) the location of the Pledged Property (street address, city,
state and zip code), (iv) the origination date of the SBA Loan; (v) the
original balance; (vi) the original term; (vii) the original interest rate; and
(vii) the maturity date of the SBA Loan, for each such Custodian's SBA Loan
File corresponds to the relevant information set forth in the SBA Loan
Schedule.
I. Specific Custodian's Review Procedures
A. Original SBA Note
1. At least one maker of the SBA Note must have signed
the Related Security Agreement.
2. The amount of the SBA Note must be the same as the
amount specified on the Related Security Agreement.
3. Original signatures of all makers of the SBA Note
must be present.
<PAGE> 183
4. An endorsement in blank without recourse must be
present and signed by the Borrower. If the SBA Note
was originally payable to another party, there must
also be an endorsement (or endorsements) showing a
complete chain of ownership from such party to the
Borrower in the form specified in Section 3 of the
Custodial Agreement.
NOTE: Obvious alterations to the SBA Note must be
initialed by the maker.
NOTE: If there are any non-conformities with the standards
set forth in paragraph I.A. above, these
non-conformities shall be marked as Deficiencies in
the related Certification.
B. Copy of the Related Security Agreement
1. At least one Pledgor must have signed the SBA Note.
2. The pledgee/mortgagee under the Related Security
Agreement must be the same as the payee on the SBA
Note.
3. The amount of the Related Security Agreement must be
verified with the SBA Note and, if written out, must
be the same amount as such amount expressed in
numbers.
4. The Related Security Agreement must contain a legal
description other than address, city and state on the
first page. (If description references a schedule
for such information, such schedule must be attached
thereto.)
5. The original or a Certified Copy of the Related
Security Agreement (with evidence of recordation
thereon) must be in the Custodian's SBA Loan File and
must conform to the requirements of Section 3 of the
Custodial Agreement.
6. The notary section (acknowledgment) must be present
and attached to the Related Security Agreement and
must be signed.
7. All riders indicated in the Related Security
Agreement, must be present and must be signed by all
parties to the related mortgage.
NOTE: Obvious alterations to the Related Security
Agreement must be initialed.
NOTE: If there are any non-conformities with the standards
set forth in paragraph I.B. above, these
non-conformities shall be marked as Deficiencies in
the related Certification.
C. Intervening Assignments
NOTE: These documents will only be required if the
original pledgee/mortgagee is a person or entity
other than the Borrower. These documents should
-2-
<PAGE> 184
evidence a complete chain of assignment and transfer
of the Related Security Agreement from the
originating person or entity to the Borrower (with
evidence of recording thereon).
1. If present, the amount set forth in each intervening
assignment of the Security Agreement must agree with
the amount on the SBA Note and Related Security
Agreement transferred to the Borrower.
2. The assignor(s) names must be exactly the same as
those on the Related Security Agreement (i.e., as the
pledgee/mortgagee on such Related Security Agreement)
or the immediately preceding assignment (i.e., as the
assignee on such preceding assignment), as the case
may be, and the signatures for such assignor(s) must
be of the person(s) who are, or an officer or
authorized individual representing, such assignor(s).
All names must be typed exactly as they appear on the
Related Security Agreement or the immediately
preceding assignment, as the case may be, including
middle initial and/or title, such as Jr. or Sr.
3. The date of each intervening assignment must be on or
after the date of the Related Security Agreement
and/or the immediately preceding assignment, as the
case may be.
4. The signature of the pledgee/mortgagee specified on
the Related Security Agreement or the prior
intervening assignee must be present.
5. The original or a Certified Copy of each original
intervening assignment (with evidence of recordation
thereon).
6. The notary section (acknowledgment) must be present
and attached to each intervening assignment and must
be signed.
NOTE: If there are any non-conformities with the standards
set forth in paragraph I.C. above, these
non-conformities shall be marked as Deficiencies in
the related Certification.
D. Assignment in Blank
1. This document shall be an original signed by an
Authorized Representative of the Servicer in the
manner specified in Section 3 of the Custodial
Agreement.
2. If present, the amount specified in such assignment
must agree with the amount on the SBA Note, Related
Security Agreement and, if applicable, each
intervening assignment (each as modified by any
modification agreement).
-3-
<PAGE> 185
3. The assignor(s) names must be exactly the same as
those on the Related Security Agreement (i.e., as the
pledgee/mortgagee on such Related Security Agreement)
or the immediately preceding assignment (i.e., as the
assignee on such preceding assignment), as the case
may be, and the signatures for such assignor(s) must
be of the person(s) who are, or an officer or
authorized individual representing, such assignor(s).
All names must be typed exactly as they appear on the
Related Security Agreement or the immediately
preceding assignment, as the case may be, including
middle initial and/or title, such as Jr. or Sr.
4. The date of such assignment must be on or after the
date of the Related Security Agreement and any
intervening assignment.
5. The notary section (acknowledgment) must be present
and attached to such assignment and must be signed.
6. The Borrower's corporate seal must be affixed to such
assignment.
NOTE: If there are any non-conformities with the standards
set forth in paragraph I.D. above, these
non-conformities shall be marked as Deficiencies in
the related Certification.
E. Miscellaneous
1. For all power of attorney signatures (i.e., John
Smith as attorney-in-fact for Mary Smith), the
following must be provided:
a. An original or Certified Copy of the actual
power of attorney; or
b. A signed, notarized affidavit certifying that
the power of attorney exists.
2. In the event that an original document (other than
the SBA Note which must be an original in all cases)
with evidence of recording thereon is not present in
the Custodian's SBA File because such original
document has been sent to, and has not yet returned
from, the recording office, the Custodian may accept
a copy thereof; provided that such copy is a
Certified Copy.
3. Determine that the following information corresponds
to the SBA Note and Related Security Agreement:
a. SBA Loan Identifying Number
b. Name of Pledgor
c. Location of Pledged Property
-4-
<PAGE> 186
d. Original date, original balance, original
amortization term, original interest rate
and maturity date
e. Title policy relates to property described in
Related Security Agreement and is for an
amount not less than SBA Note
4. Determine that SBA Authorization and Debenture
Guaranty, if applicable (including all amendments
thereto) is a certified true copy from the Borrower
and is signed by the SBA, CDC and the Pledgor.
a. Determine that the note amount and collateral
description referred to in the SBA
Authorization and Debenture Guaranty conform
to the amount of SBA Note and description of
collateral in the Related Security Agreement.
5. Determine that each UCC-1 financing statement lists
the Borrower as the "secured party" thereunder.
II. Document Deficiencies
If any documents in a Custodian's SBA Loan File have any
non-conformities with the standards set forth in this Annex,
or if any documents are missing, these non-conformities and
missing documents shall be marked as Deficiencies in the Loan
Exception Report attached to related Certification.
III. Follow-up Review Procedures
If there is a Deficiency in a Custodian's SBA Loan File and
the Borrower attempts to cure such Deficiency, then the
Custodian shall apply the procedures of this Annex to review,
as applicable, (a) any missing documents delivered thereafter
by the Borrower, (b) any substitute or replacement documents
delivered thereafter by the Borrower.
-5-
<PAGE> 187
ANNEX 4 TO THE
CUSTODIAL AGREEMENT
FINAL CERTIFICATION
Lehman Commercial Paper Inc., as Agent
200 Vesey Street, 9th Floor
World Financial Center
New York, New York 10285
Attn: Frank Gilhool
ACLC Limited Partnership
1666 K Street Northwest, Suite 901
Washington, D.C. 20006
Attention: Katherine C. Marien
Re: Custodial Agreement, dated as of September 27, 1995
(the "Custodial Agreement"), among Lehman Commercial
Paper Inc., as Agent, Riggs National Bank of
Washington, D.C., as Custodian, ACLC Limited
Partnership, as Borrower, and Allied Capital Lending
Corporation, as Servicer
Ladies and Gentlemen:
Capitalized terms used and not otherwise defined herein shall
have the respective meanings ascribed thereto in the Custodial Agreement or, if
not so defined therein, then in the Loan and Security Agreement referred to
therein.
In accordance with the provisions of Section 5 of the
Custodial Agreement, the undersigned, as Custodian, hereby certifies that
except as noted in the Loan Exception Report attached hereto as Exhibit A, it
has received a Custodian's SBA Loan File with respect to each Pledged SBA Loan
identified on the SBA Loan Schedule and such SBA Loan File contains all
documents as described in Schedule 1 of the Collateral Submission Summary
No.___. The attached Loan Exception Report indicates the document exceptions
for each SBA Loan. The undersigned has made no independent examination of any
documents contained in each Custodian's SBA Loan File beyond the review
specifically required by Section 4 of the Custodial Agreement in accordance
with the review procedures set forth in Annex 3 to the Custodial Agreement
referred to therein.
<PAGE> 188
RIGGS NATIONAL BANK OF
WASHINGTON, D.C., as Custodian
By:
-------------------------
Name:
Title:
-2-
<PAGE> 189
EXHIBIT A TO
THE
CERTIFICATION
LOAN EXCEPTION REPORT
<PAGE> 190
ANNEX 5 TO THE
CUSTODIAL AGREEMENT
REQUEST FOR RELEASE - OVERCOLLATERALIZATION
Riggs National Bank of Washington, D.C.
1120 Vermont Avenue, N.W.
Mail Code A-7001
Washington, D.C. 20005
Attention: Ms. Barbara Luke
Telephone: (202) 835-6626
Telecopy: (202) 835-6951
Re: Custodial Agreement, dated as of September 27, 1995
(the "Custodial Agreement"), among Lehman Commercial
Paper Inc., as Agent, Riggs National Bank of
Washington, D.C., as Custodian, ACLC Limited
Partnership, as Borrower, and Allied Capital Lending
Corporation, as Servicer
Capitalized terms used and not otherwise defined herein shall
have the respective meanings ascribed thereto in the Custodial Agreement or, if
not so defined therein, then in the Loan and Security Agreement referred to
therein.
In connection with the administration of the SBA Loans held by
you as the Custodian for the Agent, in accordance with Section 13 of the
Custodial Agreement we request the release of the Custodian's SBA Loan File for
the Pledged SBA Loan described below in connection with the release of excess
Collateral, as follows:
<TABLE>
<S> <C>
Pledgor's Name:
------------------------------------
Pledged Property Address
(including Zip Code) ------------------------------------
------------------------------------
------------------------------------
SBA Loan Number:
-------------------
Borrowing Base of Pledged SBA Loan
requested to be released: $
------------------
Aggregate Borrowing Base, as
reported on most recent Borrowing
Base Certificate dated $
____________, ------------------
</TABLE>
<PAGE> 191
<TABLE>
<S> <C>
Unpaid Principal Balance of SBA
Loans as of date hereof
$__________________
</TABLE>
This Request for Release - Overcollateralization is dated __________.
ACLC LIMITED PARTNERSHIP,
Borrower
By:
-----------------------------------
Name:
Title:
RELEASE CONSENTED TO:
LEHMAN COMMERCIAL PAPER INC., as Agent
By:
-----------------------
Name:
Title:
Date:
----------------------
ACKNOWLEDGMENT OF RELEASE BY CUSTODIAN:
RIGGS NATIONAL BANK OF WASHINGTON, D.C.
By:
------------------------
Name:
Title:
Date:
----------------------
Upon release, submit the original to the Agent and a copy to the Borrower and
the Servicer.
-2-
<PAGE> 192
ANNEX 6 TO THE
CUSTODIAL AGREEMENT
FORM OF REQUEST FOR RELEASE AND RECEIPT OF DOCUMENTS
Riggs National Bank of Washington, D.C.
1120 Vermont Avenue, N.W.
Mail Code A-7001
Washington, D.C. 20005
Attention: Ms. Barbara Luke
Telephone: (202) 835-6626
Telecopy: (202) 835-6951
Re: Custodial Agreement, dated as of September 27, 1995
(the "Custodial Agreement"), among Lehman Commercial
Paper Inc., as Agent, Riggs National Bank of
Washington, D.C., as Custodian, ACLC Limited
Partnership, as Borrower, and Allied Capital Lending
Corporation, as Servicer
Capitalized terms used and not otherwise defined herein shall
have the respective meanings ascribed thereto in the Custodial Agreement or, if
not so defined therein, then in the Loan and Security Agreement referred to
therein.
In connection with the administration of the Pledged SBA Loans
held by you as the Custodian for the Agent, we request the release of the
(Custodian's SBA Loan File/specify documents) for the Pledged SBA Loan
described below, for the reason indicated.
Pledgor's Name, Address & Zip Code:
- ----------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
Pledged SBA Loan Number:
Reason for Requesting Documents(check one)
_____ 1. Pledged SBA Loan Paid in Full.
_____ 2. Pledged SBA Loan Required for Servicing.
<PAGE> 193
ACLC LIMITED PARTNERSHIP,
as Borrower
By:
-------------------------------
Name:
Title:
ALLIED CAPITAL LENDING CORPORATION,
as Servicer
By:
-------------------------------
Name:
Title:
Date:
------------------------------
If item 1 is checked or if item 2 is checked or Custodian's SBA Loan Files or
portions thereof with respect to more than two Pledged SBA Loans would be
released after giving effect to the required release (excluding previously
Pledged SBA Loans whereby the Lender's Lien has been previously released by the
Agent), the consent of the Agent is required.
CONSENTED TO:
LEHMAN COMMERCIAL PAPER INC., as Agent
By:
-------------------------
Name:
Title:
Date:
------------------------
ACKNOWLEDGMENT OF RELEASE BY CUSTODIAN:
RIGGS NATIONAL BANK OF WASHINGTON, D.C.
By:
-------------------------
Name:
Title:
-2-
<PAGE> 194
Date:
-------------------------
Aggregate number of Custodian's SBA Loan Files (or portions thereof) released
to the Servicer or the Borrower (excluding previously Pledged SBA Loans whereby
the Lender's Lien has been previously released by the Agent:
________.
Upon release, submit the original to the Agent and a copy to the Borrower and
the Servicer.
-3-
<PAGE> 195
ANNEX 7 TO THE
CUSTODIAL AGREEMENT
NOTICE OF RELEASE OF LIEN
[LETTERHEAD OF CUSTODIAN]
________ __, 19__
[BORROWER]
[NAME OF FINANCIAL INSTITUTION]
[ADDRESS]
Re: Custodial Agreement, dated as of September 27, 1995
(the "Custodial Agreement"), among Lehman Commercial
Paper Inc., as Agent, Riggs National Bank of
Washington, D.C., as Custodian, ACLC Limited
Partnership, as Borrower, and Allied Capital Lending
Corporation, as Servicer
Dear Sir or Madam:
Please refer to the above-referenced Custodial Agreement.
Capitalized terms used and not otherwise defined herein shall have the
respective meanings ascribed thereto in the Custodial Agreement or, if not so
defined, then in the Loan and Security Agreement referred to therein.
Pursuant to Section 13 of the Custodial Agreement, you are
hereby advised that the security interest in the Pledged SBA Loans listed on
Schedule A attached hereto granted to the Agent for the ratable benefit of the
Lenders pursuant to the Loan and Security Agreement has been released.
Sincerely yours,
RIGGS NATIONAL BANK OF
WASHINGTON, D.C.
By:
-------------------------
Name:
Title:
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<PAGE> 196
SCHEDULE A TO THE
NOTICE OF RELEASE OF LIEN
LIST OF RELEASED SBA LOANS
<PAGE> 197
ANNEX 8 TO THE
CUSTODIAL AGREEMENT
FORM OF LOST NOTE AFFIDAVIT
I, as [TITLE] of Riggs National Bank of Washington, D.C. (the
"Custodian"), am authorized to make this Affidavit on behalf of the Custodian.
Reference is made to the Custodial Agreement, dated as of September 27, 1995
(the "Custodial Agreement"), among Lehman Commercial Paper Inc., as Agent, the
Custodian, ACLC Limited Partnership, as Borrower, and Allied Capital Lending
Corporation, as Servicer. Capitalized terms not defined herein have the
respective meanings assigned thereto in, or by reference in, the Custodial
Agreement, or, if not defined therein, in the Loan and Security Agreement
referred to therein. In connection with the administration of the SBA Loans
held by the Custodian as Custodian on behalf of the Agent, the undersigned
(hereinafter called "Deponent"), being duly sworn, deposes and says that:
1. The Custodian's address is:
[CUSTODIAN'S Address]
2. The Custodian previously delivered to the Agent a
signed [Collateral Receipt/Final Certification] with respect to the documents
in the Custodian's SBA Loan File listed on Exhibit A hereto (the "Missing
Documents").
3. The Missing Documents were assigned to the Agent by
the Borrower pursuant to the terms and provisions of the Loan and Security
Agreement.
4. The Missing Documents are not outstanding pursuant to
a Request for Release of Documents.
5. The Missing Documents have been lost.
6. Deponent has made or has caused to be made diligent
search for the Missing Documents and has been unable to find or recover same.
7. Deponent was the Custodian of the Missing Documents
at the time of loss.
8. Deponent agrees that, if the Missing Documents should
ever come into Custodian's possession, custody or power, the Custodian will
immediately and without consideration surrender the Missing Documents to the
Transferee.
9. Attached hereto is a true and correct copy of the
Missing Documents.
10. Deponent hereby agrees that the Custodian (a) shall
indemnify and hold harmless the Agent and the Borrower, and their respective
successors, and assigns, against any
<PAGE> 198
loss, liability or damage, including reasonable attorney's fees, resulting from
the unavailability of any Missing Documents, including but not limited to any
loss, liability or damage arising from (i) any false statement contained in
this Affidavit, (ii) any claim of any party that it has already purchased a
mortgage loan evidenced by the Missing Documents or any interest in such
mortgage loan, (iii) any claim of any Pledgor with respect to the existence of
terms of an SBA Loan evidenced by the Missing Documents, (iv) the issuance of
new instrument in lieu thereof and (v) any claim whether or not based upon or
arising from honoring or refusing to honor the original when presented by
anyone (items (i) through (v) above are hereinafter referred to as the
"Losses") and (b) if required by a rating agency in connection with placing the
SBA Loan with such Missing Documents into a securitization vehicle, shall
obtain a surety bond from an insurer acceptable to the applicable rating agency
in an amount acceptable to such rating agency to cover any Losses with respect
to such Missing Documents.
11. This Affidavit is intended to be relied on by the
Agent and the Borrower and their respective successors, and assigns and the
Custodian represents and warrants that it has the authority to perform its
obligations under this Affidavit.
EXECUTED THIS______ day of_______, 199__,
on behalf of the Custodian by:
--------------------------------------
Signature
--------------------------------------
Typed Name
On this ___ day of ____, 199__, before me being duly sworn did
say that she/he is the _____________ of Riggs National Bank of Washington,
D.C., and that said Affidavit of Lost Note was signed and sealed on behalf of
such corporation and said _______________ acknowledged this instrument to be
the free act and deed of said corporation.
- ---------------------------------------
Notary Public in and for the
State of
---------------------------------
My commission expires:
--------------------
-2-
<PAGE> 199
EXHIBIT A
MISSING DOCUMENTS
[Copies attached]
-3-
<PAGE> 200
ANNEX 9 TO THE
CUSTODIAL AGREEMENT
AUTHORIZED REPRESENTATIVES
ACLC LIMITED PARTNERSHIP, BORROWER
<TABLE>
<CAPTION>
Name Specimen Signature
---- ------------------
<S> <C>
1. ______________ ____________________________________
2. ______________ ____________________________________
3. ______________ ____________________________________
4. ______________ ____________________________________
</TABLE>
ALLIED CAPITAL LENDING CORPORATION, SERVICER
<TABLE>
<CAPTION>
Name Specimen Signature
---- ------------------
<S> <C>
1. ______________ ____________________________________
2. ______________ ____________________________________
3. ______________ ____________________________________
4. ______________ ____________________________________
</TABLE>
LEHMAN COMMERCIAL PAPER INC., AGENT
<TABLE>
<CAPTION>
Name Specimen Signature
---- ------------------
<S> <C>
1. Allyson Bailey /s/ ALLYSON BAILEY
------------------------------------
2. Jonathan Epstein /s/ JONATHAN EPSTEIN
------------------------------------
3. Frank Gilhool /s/ FRANK GILHOOL
------------------------------------
4. Theodore Gregory
------------------------------------
5. Stephen Patriarco
------------------------------------
</TABLE>
<PAGE> 201
GUARANTEE
GUARANTEE, dated as of September 27, 1995 (as amended,
supplemented, or otherwise modified from time to time, this "Guarantee"), made
by ALLIED CAPITAL LENDING CORPORATION, a Maryland corporation (the
"Guarantor"), in favor of LEHMAN COMMERCIAL PAPER INC., a New York corporation,
as agent for the Lenders parties to the Loan Agreement referred to below (in
such capacity, the "Agent"; the Agent and the Lenders, collectively, the
"Secured Parties").
RECITALS
Pursuant to the Loan and Security Agreement, dated as of the
date hereof (as amended, supplemented or otherwise modified from time to time,
the "Loan Agreement"), among ACLC Limited Partnership (the "Borrower"), the
Lenders parties thereto (the "Lenders") and the Agent, the Lenders have
severally agreed to make loans to the Borrower from time to time upon the terms
and subject to the conditions set forth therein, to be evidenced by the Notes
referred to therein. It is a condition precedent to the obligation of the
Lenders to make their respective loans to the Borrower under the Loan Agreement
that the Guarantor shall have executed and delivered this Guarantee to the
Secured Parties.
NOW, THEREFORE, in consideration of the premises and to induce
the Secured Parties to enter into the Loan Agreement and to induce the Lenders
to make their respective loans to the Borrower under the Loan Agreement, the
Guarantor hereby agrees with the Secured Parties as follows:
1. Defined Terms. Unless otherwise defined herein, terms
which are defined in the Loan Agreement and used herein are so used as so
defined. As used herein, "Obligations" shall mean the unpaid principal of and
interest on the Notes and all other obligations and liabilities of the Borrower
to the Secured Parties, whether direct or indirect, absolute or contingent, due
or to become due, or now existing or hereafter incurred, which may arise under,
out of, or in connection with, the Loan Agreement, the Notes, the other Basic
Documents and any other documents made, delivered or given in connection
therewith whether on account of principal, interest, reimbursement obligations,
fees, indemnities (including, without limitation, environmental indemnities),
costs, expenses (including, without limitation, all fees and disbursements of
counsel to the Secured Parties) or otherwise.
2. Guarantee. The Guarantor hereby unconditionally and
irrevocably guarantees to the Secured Parties the prompt and complete payment
and performance by the Borrower when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations.
<PAGE> 202
3. Right of Set-off. Upon the occurrence of any Event of
Default specified in the Loan Agreement, each Secured Party is hereby
irrevocably authorized at any time and from time to time without notice to the
Guarantor, any such notice being hereby waived by the Guarantor, to set off and
appropriate and apply any and all deposits (general or special, time or demand,
provisional or final), in any currency, and any other credits, indebtedness or
claims, in any currency, in each case whether direct or indirect, absolute or
contingent, matured or unmatured, at any time held or owing by such Secured
Party to or for the credit or the account of the Guarantor, or any part thereof
in such amounts as such Secured Party may elect, on account of the liabilities
of the Guarantor hereunder and claims of every nature and description of such
Secured Party against the Guarantor, in any currency, whether arising
hereunder, under the Loan Agreement, the Notes or otherwise, as such Secured
Party may elect, whether or not such Secured Party has made any demand for
payment and although such liabilities and claims may be contingent or
unmatured. Each Secured Party shall notify the Guarantor promptly of any such
set-off and the application made by such Secured Party, provided that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of each Secured Party under this paragraph are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) which such Secured Party may have.
4. Subrogation. Upon making any payment hereunder, or any
set-off or application of funds of the Guarantor by any Secured Party, the
Guarantor shall be subrogated to any of the rights of the Secured Parties
against the Borrower and the Collateral with respect to such payment; provided
that the Guarantor shall not seek to enforce any right or receive any payment
by way of subrogation until all of the Obligations have been paid in full and
the Loan Agreement has been terminated.
5. Amendments, etc. with Respect to the Obligations. The
Guarantor shall remain obligated hereunder notwithstanding that, without any
reservation of rights against the Guarantor, and without notice to or further
assent by the Guarantor, any demand for payment of any of the Obligations made
by the Secured Parties may be rescinded by the Secured Parties, and any of the
Obligations continued, and the Obligations, or the liability of any other party
upon or for any part thereof, or any collateral security or guarantee therefor
or right of offset with respect thereto, may, from time to time, in whole or in
part, be renewed, extended, amended, modified, accelerated, compromised,
waived, surrendered or released by the Secured Parties, and the Loan Agreement,
the Notes, the other Basic Documents and any other document in connection
therewith may be amended, modified, supplemented or terminated, in whole or in
part, as the Secured Parties may deem advisable from time to time, and any
collateral security, guarantee or right of offset at any time held by the
Secured Parties for the payment of the Obligations may be sold, exchanged,
waived, surrendered or released. The Secured Parties shall have no obligation
to protect, secure, perfect or insure any Lien at any time held as security for
the Obligations or for this Guarantee or any property subject thereto.
6. Guarantee Absolute and Unconditional. The Guarantor waives
any and all notice of the creation, renewal, extension or accrual of any of the
Obligations and notice of or
-2-
<PAGE> 203
proof of reliance by the Secured Parties upon this Guarantee or acceptance of
this Guarantee; the Obligations, and any of them, shall conclusively be deemed
to have been created, contracted or incurred in reliance upon this Guarantee;
and all dealings between the Borrower or the Guarantor, on the one hand, and
the Secured Parties, on the other, shall likewise be conclusively presumed to
have been had or consummated in reliance upon this Guarantee. The Guarantor
waives diligence, presentment, protest, demand for payment and notice of
default or nonpayment to or upon the Borrower or the Guarantor with respect to
the Obligations. This Guarantee shall be construed as a continuing, absolute
and unconditional guarantee of payment without regard to (a) the validity or
enforceability of the Loan Agreement, the Notes, the other Basic Documents, any
of the Obligations or any collateral security therefor or guarantee or right of
offset with respect thereto at any time or from time to time held by any
Secured Party, (b) any defense, set-off or counterclaim (other than a defense
of payment or performance) which may at any time be available to or be asserted
by the Borrower against any Secured Party, or (c) any other circumstance
whatsoever (with or without notice to or knowledge of the Borrower or the
Guarantor) which constitutes, or might be construed to constitute, an equitable
or legal discharge of the Borrower for the Obligations, or of the Guarantor
under this Guarantee, in bankruptcy or in any other instance. When pursuing
their rights and remedies hereunder against the Guarantor, the Secured Parties
may, but shall be under no obligation, to pursue such rights and remedies that
they may have against the Borrower or any other Person or against any
collateral security or guarantee for the Obligations or any right of offset
with respect thereto, and any failure by the Secured Parties to pursue such
other rights or remedies or to collect any payments from the Borrower or any
such other Person or to realize upon any such collateral security or guarantee
or to exercise any such right of offset, or any release of the Borrower or any
such other Person or any such collateral security, guarantee or right of
offset, shall not relieve the Guarantor of any liability hereunder, and shall
not impair or affect the rights and remedies, whether express, implied or
available as a matter of law, of the Secured Parties against the Guarantor.
7. Reinstatement. This Guarantee shall continue to be
effective, or be reinstated, as the case may be, if at any time payment, or any
part thereof, of any of the Obligations is rescinded or must otherwise be
restored or returned by any Secured Party upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Borrower or upon or as a
result of the appointment of a receiver, intervenor or conservator of, or
trustee or similar officer for, the Borrower or any substantial part of its
property, or otherwise, all as though such payments had not been made.
8. Payments. The Guarantor hereby agrees that the
Obligations will be paid to the Agent for the benefit of the Secured Parties
without set-off or counterclaim in U.S. Dollars at its office set forth in the
Loan Agreement; provided, that nothing in this sentence shall limit the right
of the Guarantor to assert any counterclaim or defense it may have in respect
of the Obligations in a separate action or by way of compulsory counterclaim.
-3-
<PAGE> 204
9. Representations and Warranties. The Guarantor represents
and warrants that:
(a) the Guarantor has the corporate power and authority
and the legal right to execute and deliver, and to perform its
obligations under, this Guarantee, and has taken all necessary
corporate action to authorize its execution, delivery and performance
of this Guarantee;
(b) no consent or authorization of, filing with, or other
act by or in respect of, any Governmental Authority and no consent of
any other Person (including, without limitation, any stockholder or
creditor of the Guarantor) is required in connection with the
execution, delivery, performance, validity or enforceability of this
Guarantee;
(c) this Guarantee has been duly executed and delivered
on behalf of the Guarantor and constitutes a legal, valid and binding
obligation of the Guarantor enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by general principles of equity
(whether enforcement is sought in proceedings in equity or at law);
(d) the execution, delivery and performance of this
Guarantee will not violate any provision of its articles of
incorporation or by-laws, or any law, rule or regulation applicable to
the Guarantor, or any contractual obligation of the Guarantor, and
will not result in or require the creation or imposition of any Lien
on any of the properties or revenues of the Guarantor pursuant to any
requirement of law or contractual obligation of the Guarantor;
(e) there are no actions, suits, arbitrations,
investigations or proceedings pending or, to its knowledge, threatened
against the Guarantor or affecting any of its Property before any
Governmental Authority, (i) as to which individually or in the
aggregate there is a reasonable likelihood of an adverse decision
which would have a Material Adverse Effect or (ii) which questions the
validity or enforceability of this Guarantee or any of the Basic
Documents or any action to be taken in connection with the
transactions contemplated hereby or thereby; and
(f) The Guarantor is the sole general partner and the 98%
limited partner of the Borrower.
10. Severability. Any provision of this Guarantee which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
-4-
<PAGE> 205
11. Paragraph Headings. The paragraph headings used in this
Guarantee are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation
hereof.
12. No Waiver; Cumulative Remedies. The Secured Parties
shall not by any act (except by a written instrument pursuant to paragraph 13
hereof), delay, indulgence, omission or otherwise be deemed to have waived any
right or remedy hereunder or to have acquiesced in any Default or Event of
Default or in any breach of any of the terms and conditions hereof. No failure
to exercise, nor any delay in exercising, on the part of any Secured Party, any
right, power or privilege hereunder shall operate as a waiver thereof. No
single or partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. A waiver by any Secured Party of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which any Secured Party would otherwise have on any future
occasion. The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any rights or
remedies provided by law.
13. Waivers and Amendments; Successors and Assigns; Governing
Law. None of the terms or provisions of this Guarantee may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by
the Guarantor and the Secured Parties, provided that any provision of this
Guarantee may be waived by the Secured Parties in a letter or agreement
executed by the Secured Parties or by telex or facsimile transmission from the
Secured Parties. This Guarantee shall be binding upon the successors and
assigns of the Guarantor and shall inure to the benefit of the Secured Parties
and their respective successors and assigns. THIS GUARANTEE SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK, WITHOUT REFERENCE TO THE CHOICE OF LAW PROVISIONS THEREOF.
14. Notices. Notices by the Secured Parties to the Guarantor
may be given by mail, or by telecopy transmission, addressed to the Guarantor
at its address or telecopy transmission number set forth under its signature
below and shall be effective (a) in the case of mail, five days after deposit
in the postal system, first class certified mail and postage pre-paid, (b) one
Business Day following timely delivery to a nationally recognized overnight
courier service and (c) in the case of telecopy transmissions, when sent,
transmission electronically confirmed. The Guarantor may change its address
and telecopy transmission numbers by written notice to the Secured Parties.
15. Submission To Jurisdiction; Waivers. The Guarantor
hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal
action or proceeding relating to this Guarantee and the other Basic
Documents to which it is a party, or for recognition and enforcement
of any judgment in respect thereof, to the non-exclusive
-5-
<PAGE> 206
general jurisdiction of the courts of the State of New York, the
courts of the United States of America for the Southern District of
New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding
may be brought in such courts and waives any objection that it may now
or hereafter have to the venue of any such action or proceeding in any
such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
(c) agrees that service of process in any such
action or proceeding may be effected by mailing a copy thereof by
registered or certified mail (or any substantially similar form of
mail), postage prepaid, to the Guarantor at its address set forth
under its signature below or at such other address of which the
Secured Parties shall have been notified; and
(d) agrees that nothing herein shall affect the
right to effect service of process in any other manner permitted by
law or shall limit the right to sue in any other jurisdiction.
16. Acknowledgements. The Guarantor hereby acknowledges
that:
(a) it has been advised by counsel in the
negotiation, execution and delivery of this Guarantee and the other
Basic Documents;
(b) no Secured Party has any fiduciary
relationship to the Guarantor, and the relationship between the
Secured Parties and the Guarantor is solely that of guarantor and
creditors; and
(c) no joint venture exists between the Secured
Parties and the Guarantor or among the Secured Parties, the Borrower
and the Guarantor.
17. WAIVER OF JURY TRIAL. THE GUARANTOR HEREBY IRREVOCABLY
AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS GUARANTEE OR ANY OTHER BASIC DOCUMENT AND FOR ANY COUNTERCLAIM
THEREIN.
[SIGNATURE PAGE FOLLOWS]
-6-
<PAGE> 207
IN WITNESS WHEREOF, the undersigned has caused this Guarantee
to be duly executed and delivered as of the date first above written.
ALLIED CAPITAL LENDING CORPORATION
By /s/ KATHERINE C. MARIEN
------------------------
Name: Katherine C. Marien
Title: President
Address for Notices:
1666 K Street, N.W., Suite 901
Washington, D.C. 20006
Attention: Ms. Katherine C. Marien
Telephone: (202) 331-1112
Telecopy: (202) 659-2053
<PAGE> 208
INVESTMENT ADVISER UNDERTAKING
September 27, 1995
ACLC Limited Partnership
1666 K Street, N.W., Suite 901
Washington, D.C. 20006
Ladies and Gentlemen:
Reference is made to the Loan and Security Agreement, dated as
of September 27, 1995 (the "Loan Agreement"), among ACLC Limited Partnership
("ACLC"), the Lenders parties thereto, and Lehman Commercial Paper Inc., as
Agent. Capitalized terms used but not otherwise defined herein shall have the
meanings given them in the Loan Agreement.
The undersigned, as an affiliate of ACLC and an affiliate and
the Investment Adviser of the Guarantor and the initial Servicer, hereby agrees
that it will (i) take all action reasonably necessary to, and will provide all
services to ACLC and the initial Servicer to, enable ACLC and the initial
Servicer to perform all of their respective obligations under the Loan
Agreement (including, without limitation, Schedule 1 thereof), the Servicing
Agreement, the Custodial Agreement and the documents executed in connection
therewith relating to the conduct and administration of the business of the
Borrower; and (ii) deliver to the Agent an "Officer's Certificate" executed by
a Responsible Officer by April 30th of each year certifying compliance herewith
in the prior calendar year.
The undersigned acknowledges that the Lenders parties to the
Loan Agreement are making loans thereunder in reliance on the undersigned's
agreement contained herein. This Investment Adviser Undertaking shall not be
deemed to be a guarantee of payment.
Very truly yours,
ALLIED CAPITAL ADVISERS, INC.
By: /s/ JOAN M. SWEENEY
----------------------------------
Name: Joan M. Sweeney
Title: President
[continued]
<PAGE> 209
- 2 -
ACKNOWLEDGED AND AGREED:
ACLC LIMITED PARTNERSHIP
By: /s/ KATHERINE C. MARIEN
--------------------------
Name: Katherine C. Marien
Title: President
ALLIED CAPITAL LENDING CORPORATION,
as Guarantor and Servicer
By: /s/ KATHERINE C. MARIEN
--------------------------
Name: Katherine C. Marien
Title: President
<PAGE> 210
LETTER AGREEMENT
September 27, 1995
Lehman Commercial Paper Inc.
World Financial Center
200 Vesey Street, 9th Floor
New York, NY 10285
Ladies and Gentlemen:
Reference is made to that certain Loan and Security Agreement,
dated as of the date hereof (the "Loan Agreement"), among ACLC Limited
Partnership (the "Borrower"), certain Lenders and Lehman Commercial Paper Inc.,
as Agent (the "Agent"). Capitalized terms used but not otherwise defined
herein shall have the meanings given them in the Loan Agreement.
In connection with the Loan Agreement, the undersigned agrees
to pay to the Agent a facility fee concurrent with Borrower's submission of the
notice requesting an extension of the Existing Commitment Termination Date,
computed at the rate of 0.60% per annum on the Commitment as consideration for
and as a condition precedent to the consent of the Lenders' to the extension of
the Existing Commitment Termination Date (the "Renewal Fee"), such payment to
be made in Dollars, in immediately available funds, without deduction, set-off
or counterclaim to the Agent at Citibank NYC; ABA No. 021-0000-89; Account
Name: LCPI; Account No.: 406-15-659.
The undersigned also agrees that, so long as the Commitment or
any Loan is outstanding and until payment in full of all amounts payable by the
Borrower under the Loan Agreement, the Agent or its designee shall have the
option and right of first refusal, but not the obligation, to serve or act as
as lead-managing underwriter or placement agent for any debt or equity offering
(including, without limitation, any securitization of the Collateral and/or
other loans owned from time to time by the Borrower), on customary market
compensation and terms mutually acceptable to the Borrower and the Agent or its
designee.
Very truly yours,
ACLC LIMITED PARTNERSHIP
By: Allied Capital Lending Corporation
Its: general partner
By /s/ KATHERINE C. MARIEN
------------------------------
Name: Katherine C. Marien
Title: President
ACKNOWLEDGED AND AGREED:
LEHMAN COMMERCIAL PAPER INC.
By /s/ FRANCIS X. GILHOOL
----------------------------
Name: Francis X. Gilhool
Title: Authorized Signatory
<PAGE> 211
POST-CLOSING SIDELETTER
September 27, 1995
ACLC Limited Partnership
1666 K Street, 9th Floor
Washington, D.C. 20006
Ladies and Gentlemen:
Reference is made to that certain Loan and Security Agreement,
dated as of the date hereof (the "Loan Agreement"), among ACLC Limited
Partnership (the "Borrower"), certain lenders parties thereto (the "Lenders")
and Lehman Commercial Paper Inc., as agent for the Lenders (in such capacity,
the "Agent"). Capitalized terms used but not otherwise defined herein shall
have the meanings given them in the Loan Agreement.
In consideration of the Lenders making their inital Loan to
the Borrower on the date hereof, you agree as follows:
i. Notwithstanding anything to the contrary in the Loan
Agreement, until such time as you have been notified by
the Agent in writing to the contrary, (a) the Facility
Amount shall be $5,000,000, and (b) unless each Lender
otherwise agrees in writing, no Loan shall be made until
the Agent shall have completed its due diligence review
(in accordance with Section 2.02(f) of the Loan Agreement)
of the related Qualifying SBA Loan(s) to be pledged to the
Agent for the benefit of the Lenders.
ii. The Custodial Agreement requires that certain final
assignments in blank must be delivered in form and
substance acceptable for recording. You have indicated
that on the date hereof, a title company is reviewing the
assignments you have prepared to confirm that they are in
form and substance acceptable for recording in each
relevant jurisdiction. You agree that, no later than
Friday, October 6, 1995, you will either (a) execute and
deliver to the Custodian, to replace those assignments in
blank which are found to be inadequate by such title
company, replacement assignments in blank in form and
substance acceptable for recording, or (b) provide
evidence satisfactory to the Agent that such replacements
are not necessary.
<PAGE> 212
iii. Section 5.01(e) of the Loan Agreement requires, among
other things, that you deliver to the Agent, as a
condition precedent to the initial Loan, good
standing certificates and resolutions of the
Borrower, the Investment Adviser and the Servicer.
You agree that (a) no later than Friday, October 6,
1995, you will provide such good standing
certificates to the Agent, and (b) no later than
Friday, November 17, 1995, you will provide such
resolutions to the Agent.
iv. Section 5.01(m) of the Loan Agreement requires that you
deliver to the Agent, as a condition precedent to the
initial Loan, a accountant's comfort letter satisfactory
to the Agent regarding matters set forth in Section
7.06 of the Loan Agreement. You agree that, no later than
Friday, November 17, 1995, you will provide such
accountant's comfort letter to the Agent.
Please note that, unless each of the matters that you agree to
undertake as set forth in this letter are completed no later than the
applicable date specified above, a Default will have occurred under the Loan
Agreement.
Please confirm your acknowledgement of, and agreement to, the
foregoing by signing the enclosed copy of this letter where indicated below.
Sincerely,
LEHMAN COMMERCIAL PAPER INC.
By: /s/ FRANCIS X. GILHOOL
-------------------------------
Name: Francis X. Gilhool
Title: Authorized Signatory
ACKNOWLEDGED AND AGREED:
ACLC LIMITED PARTNERSHIP
By: Allied Capital Lending Corporation
Its: general partner
By /s/ KATHERINE C. MARIEN
--------------------------------
Name: Katherine C. Marien
Title: For Its General Partner
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<PAGE> 213
FIRST AMENDMENT TO LOAN AND
SECURITY AGREEMENT
FIRST AMENDMENT, dated as of November 17, 1995 (this "First
Amendment"), between (i) ACLC LIMITED PARTNERSHIP, a Maryland limited
partnership (the "Borrower"), (ii) the lenders parties to the Existing
Agreement referred to below (collectively, the "Lenders"), and (iii) LEHMAN
COMMERCIAL PAPER INC., a New York Corporation ("Lehman"), individually and as
agent for the Lenders (in such capacity, the "Agent") to the Existing Agreement
referred to below.
RECITALS
The Borrower, the Lenders and the Agent are parties to that
certain Loan and Security Agreement, dated as of September 27, 1995 (as
heretofore amended, the "Existing Agreement"; as amended by this First
Amendment, the "Agreement").
Under the Existing Agreement, the Lenders from time to time
make loans to the Borrower in an aggregate principal amount not exceeding
$20,000,000 at any one time outstanding to finance certain Qualifying SBA Loans
(as defined in the Existing Agreement) and to provide the Borrower with working
capital.
The Borrower has requested that the Existing Agreement be
amended as provided herein and the Lenders and the Agent are willing to so
amend the Existing Agreement.
Accordingly, in consideration of the premises, the Borrower,
the Lenders and the Agent hereby agree that the Existing Agreement is hereby
amended as follows:
SECTION 1. Definitions. Section 1.01 of the Existing
Agreement is hereby amended by adding the following definition in proper
alphabetical order therein:
"'Total Fixed Charges': with respect to any Person for any
period, the sum of (i) the amounts deducted for interest expense in
determining Net Investment Income for such period, and (ii) the amount
of scheduled payments of principal of Indebtedness during such
period."
<PAGE> 214
SECTION 2. Covenants of the Borrower. Section 7.06 of the
Existing Agreement is hereby amended by deleting paragraph (c) thereof and
adding in lieu thereof the following paragraph (c):
"(c) The Borrower and the Guarantor shall maintain on a
consolidated basis on the last day of each calendar month a ratio of
Net Investment Income of the Borrower and the Guarantor for the
three-month period ending on such day, after deduction for a
reasonable loan loss reserve as determined by the Agent, to Total
Fixed Charges of the Borrower and the Guarantor for such period, of 2
to 1. For purposes of this Section 7.06(c), Total Fixed Charges shall
be calculated by treating scheduled balloon maturity payments, unless
past due, as though the related debt had been refinanced and continued
on the same terms then applicable to such debt."
SECTION 3. Conditions Precedent. This First Amendment shall
become effective on the date on which the Lender shall have received the
following documents, each of which shall be satisfactory to the Lender in form
and substance:
(a) this First Amendment, executed and delivered by a
duly authorized officer of the Borrowers; and
(b) such other documents, certificates or opinions as the
Lender may reasonably request.
SECTION 4. Limited Effect. Except as expressly amended and
modified by this First Amendment, the Existing Agreement shall continue to be,
and shall remain, in full force and effect in accordance with its terms.
SECTION 5. Definitions In Existing Agreement. Unless
otherwise defined in this First Amendment, terms defined in the Existing
Agreement shall have their defined meanings when used herein.
SECTION 6. Counterparts. This First Amendment may be
executed by one or more of the parties hereto on any number of separate
counterparts, each of which shall be an original and all of which taken
together shall constitute one and the same instrument.
SECTION 7. GOVERNING LAW. THIS FIRST AMENDMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW
YORK.
[SIGNATURE PAGE FOLLOWS]
-2-
<PAGE> 215
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed and delivered in New York, New York by their
proper and duly authorized officers as of the day and year first above written.
THE BORROWER
ACLC LIMITED PARTNERSHIP
By: Allied Capital Lending Corporation
Its: General Partner
By: /s/ KATHERINE C. MARIEN
-------------------------------
Name: Katherine C. Marien
Title: President
THE LENDERS
LEHMAN COMMERCIAL PAPER INC.
By: /s/ EILEEN A. BRENNAN
-------------------------------------
Name: Eileen A. Brennan
Title: Vice President
THE AGENT
LEHMAN COMMERCIAL PAPER INC., as
Agent
By: /s/ EILEEN A. BRENNAN
-------------------------------------
Name: Eileen A. Brennan
Title: Vice President
-3-
<PAGE> 1
EXHIBIT k.5
SHAREHOLDER
--------------------------
COMMUNICATIONS CORPORATION
OFFERING COORDINATOR/INFORMATION AGENT AGREEMENT
This document will constitute the agreement between ALLIED CAPITAL
LENDING CORPORATION ("the FUND"), with its principal executive offices at 1666 K
Street, N.W.-9th Floor, Washington, DC 20006 and SHAREHOLDER COMMUNICATIONS
CORPORATION ("SCC"), with its principal executive offices at 17 State Street,
New York, NY 10005, relating to a Rights Offering (the "OFFER") of the Fund.
The services to be provided by SCC will be as follows:
I. OFFERING COORDINATOR
As the "offering coordinator", SCC will provide several services to the
FUND in connection with the OFFER, which will include, but may not be limited
to:
A. Coordinating and maintaining contact with those registered
broker/dealers who will directly solicit shareholders, who are
their customers, and serve as the intermediary between the issuer
and each such broker/dealer.
B. Distributing relevant offering material to all syndicate
departments, including prospectus and any solicitation
agreements.
C. Offering input as to the feasibility of the offering's general
structure including pricing, market timing, transferability,
oversubscription allotments, offering extensions and solicitation
payouts.
D. Assisting in drafting all documents including letters to
shareholders, warning letters, exercise forms, solicitation
agreements and any broker related soliciting summaries.
E. Providing extensive reporting beginning one week prior to
expiration or any extensions thereafter, which will measure
shareholder participation and the offering's general progress.
This reporting will be based solely on previously established
contacts within the reorganization departments of participating
broker/dealers.
II. INFORMATION AGENT
A. INDIVIDUAL HOLDERS OF RECORD AND BENEFICIAL OWNERS
1. Target Group. SCC estimates that it may call between
1,300 to 2,100 of the approximately 9,700 outstanding
beneficial and record shareholders. The estimate number
is subject to adjustment and SCC may actually call more
or less shareholders depending on the response to the
OFFER or at the FUND's direction.
<PAGE> 2
SHAREHOLDER
--------------------------
COMMUNICATIONS CORPORATION
2. Telephone Number Lookups. SCC will obtain the needed
telephone numbers from various types of telephone
directories.
3. Initial Telephone Calls to Provide Information. SCC will
begin telephone calls to the target group as soon as
practical. Most calls will be made during 10:00 A.M. to
9:00 P.M. on business days and only during 10:00 A.M. to
5:00 P.M. on Saturdays. No calls will be received by any
shareholder after 9:00 P.M. on any day, in any time zone,
unless specifically requested by the shareholder. SCC
will maintain "800" lines for shareholders to call with
questions about the OFFER. The "800" lines will be
staffed Monday through Friday between 9:00 a.m. and
9:00 p.m.
4. Remails. SCC will coordinate remails of offering
materials to the shareholders who advise us that they
have discarded or misplaced the originally mailed
materials.
5. Reminder/Extension Mailing. SCC will help to coordinate
any targeted or broad-based reminder mailing at the
request of the FUND. SCC will mail only materials
supplied by the FUND or approved by the Fund in advance
in writing.
B. BANK/BROKER SERVICING
SCC will contact all banks, brokers and other nominee
shareholders ("intermediaries") holding stock as shown on
appropriate portions of the shareholder lists to ascertain
quantities of offering materials needed for forwarding to
beneficial owners.
SCC will deliver offering materials by messenger to New York City
based intermediaries and by Federal Express or other means to
non-New York City based intermediaries. SCC will also follow-up
by telephone with each intermediary to ensure receipt of the
offering materials and to confirm timely remailing of materials
to the beneficial owners.
SCC will maintain frequent contact with intermediaries to monitor
shareholder response and to ensure that all liaison procedures
are proceeding satisfactorily. In addition, SCC will contact
beneficial holders directly, if possible, and do whatever may be
appropriate or necessary to provide information regarding the
OFFER to this group.
SCC will, as frequently as practicable, report to the Fund with
response from intermediaries.
<PAGE> 3
SHAREHOLDER
--------------------------
COMMUNICATIONS CORPORATION
III. PROJECT FEES
In consideration for acting as Offering Coordinator, SCC will
receive a flat project fee of $35,000 which is not tied in any way to
the performance of the offering. In consideration for acting as
Information Agent, SCC will receive a project fee of $5,000. The fees
are payable by Allied Capital Lending Corporation for both services.
IV. ESTIMATED EXPENSES (Offering Coordinator)
SCC will be reimbursed by the FUND for its reasonable
out-of-pocket expenses incurred provided that SCC submits to the
FUND an expense report, itemizing such expenses and providing copies
of all supporting bills in respect of such expenses. If the actual
expenses incurred are less than the portion of the estimated high
range expenses paid in advance by the FUND, the FUND will receive
from SCC a check payable in the amount of the difference at the time
that SCC sends its final invoice for the second half of the project
fee.
SCC's expenses are estimated as set forth below and the estimates
are based largely on data provided to SCC by the FUND. In the
course of the OFFER the expenses and expense categories may
change due to changes in the OFFER schedule or due to events beyond
SCC's control, such as delays in receiving offering material and
related items. In the event of significant change or new expenses
not originally contemplated, SCC will notify the FUND by phone
and/or by letter for approval of such expenses.
<TABLE>
<CAPTION>
Estimated Expenses Low Range High Range
------------------ --------- ----------
<S> <C> <C>
Distribution Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,500 $ 4,500
Telephone # look up
2,300 to 4,100 @ $.50 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,150 2,050
Outgoing telephone 1,300 to 2,100
initial outgoing telephone calls @ $3.25 . . . . . . . . . . . . . . . . . . . . . . . . . 4,225 6,825
Incoming "800" calls
250 to 500 @ $3.25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 812 1,625
Miscellaneous, data processing, postage, deliveries
Federal Express and mailgrams . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750 1,500
------ -------
Total Estimated Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,437 $16,500
====== =======
</TABLE>
V. PERFORMANCE
SCC will use its best efforts to achieve the goals of the FUND
but SCC is not guaranteeing a minimum success rate. SCC's Project
Fee as outlined in Section III or Expenses as outlined in Section IV
are not contingent on success or failure of the OFFER.
<PAGE> 4
SHAREHOLDER
--------------------------
COMMUNICATIONS CORPORATION
SCC's strategies revolve around a telephone information campaign.
The purpose of the telephone information campaign is to raise the
overall awareness among shareholders of the OFFER and help
shareholders better understand the transaction. This in turn may
result in a higher overall response.
VI. COMPLIANCE
The FUND will be responsible for compliance with any regulations
required by the Securities and Exchange Commission, National
Association of Securities Dealers or any applicable federal or state
agencies.
In rendering the services contemplated by this Agreement, SCC
agrees not to make any representations, oral or written, to any
shareholders or prospective shareholders of the FUND or any
broker/dealer that are not contained in the FUND's Prospectus, unless
previously authorized to do so in writing by the FUND.
Further, in the role of "offering coordinator", SCC will not
undertake any broker/dealer activities including but not limited to
executing securities transactions, soliciting shareholders in an
effort to exercise rights, or offer advice to shareholders regarding
their decisions to exercise or reject rights.
VII. PAYMENT
Payment for one half the project fees ($20,000) and one half the
estimated high range expenses ($8,250) for a total of $28,250 will
be made at the signing of this contract. The balance, if any, will
be paid by the FUND due thirty days after SCC sends its final
invoice.
VIII. MISCELLANEOUS
SCC will hold in confidence and will not use nor disclose to
third parties information we receive from the FUND, or information
developed by SCC based upon such information we receive, except for
information which was public at the time of disclosure or becomes
part of the public domain without disclosure by SCC or information
which we learn from a third party which does not have an obligation
of confidentiality to the FUND.
In the event the project is cancelled for an indefinite period
of time after the signing of this contract and before the expiration
of the OFFER, SCC will be reimbursed by the FUND for any expenses
incurred and not less than 50% of the project fees.
<PAGE> 5
SHAREHOLDER
--------------------------
COMMUNICATIONS CORPORATION
The FUND agrees to indemnify, hold harmless, reimburse and
defend SCC, and its officers, agents and employees, against all
claims or threatened claims, costs, expenses, liabilities,
obligations, losses or damages (including reasonable legal fees and
expenses) of any nature, incurred by or imposed upon SCC, or any of
its officers, agents or employees, which results, arises out of or is
based upon services rendered to the FUND in accordance with the
provisions of to this AGREEMENT, provided that such services are
rendered to the FUND without any negligence, willful misconduct, bad
faith or reckless disregard on the part of SCC, or its officers,
agents and employees.
SCC agrees to indemnify, hold harmless, reimburse and defend
Allied Capital Lending Corporation and its officers, agents
and employees, against all claims or threatened claims, costs,
liabilities, obligations, losses or damages (including reasonable
legal fees and expenses) of any nature, incurred by or imposed upon
the Fund or any of its officers, agents or employees which results,
arises out of or is based upon services rendered to the Fund by SCC,
provided that such services are rendered to the Fund with
negligence, willful misconduct, bad faith or reckless disregard on
the part of SCC or its officers, agents or employees.
This agreement will be governed by and construed in accordance with the
laws of the State of New York. This AGREEMENT sets forth the entire
AGREEMENT between SCC and the FUND with respect to the agreement herein and
cannot be modified except in writing by both parties.
IN WITNESS WHEREOF, the parties have signed this
AGREEMENT this 17th day of April 1996.
ALLIED CAPITAL LENDING CORPORATION SHAREHOLDER COMMUNICATIONS
CORPORATION
By /s/ SUZANNE V. SPARROW By /s/ ROBERT S. BRENNAN
-------------------------- ---------------------------
Suzanne V. Sparrow Robert S. Brennan
Vice President Senior Account Executive
<PAGE> 1
EXHIBIT k.6
SUBSCRIPTION AGENCY AGREEMENT
Between
ALLIED CAPITAL LENDING CORPORATION
AND
AMERICAN STOCK TRANSFER & TRUST COMPANY
THIS AGREEMENT is made this 17th day of April, 1996, by and between Allied
Capital Lending Corporation, a Maryland corporation, (the "Company") and
American Stock Transfer & Trust Company, a New York corporation ("AST").
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows:
SECTION 1. Purpose of Agreement. This agreement sets forth the rights and
obligations of the Company and AST in connection with the provision of
subscription agency services for the Company by AST relating to the offering of
shares of common stock of the Company through the rights offering to existing
stockholders described in a registration statement filed with the Securities
and Exchange Commission on April 2, 1995, and as subsequently amended (the
"Registration Statement").
SECTION 2. Reliance on Prospectus.
(A) It is understood that terms of the prospectus that is a part
of the Registration Statement as declared effective by the
Securities and Exchange Commission (the "Prospectus") shall
govern the activities of AST in connection with the Offering
to the extent not covered by or inconsistent with any of the
terms of this Agreement.
(B) Terms not otherwise defined herein shall have the meaning
ascribed to them in the Prospectus.
SECTION 3. Appointment of Subscription Agent. The Company hereby appoints AST
to serve as the Company's Subscription Agent in connection with the rights
offering described in the Registration Statement (the "Offering") in accordance
with the terms set forth in this Agreement, and AST hereby accepts such
appointment.
SECTION 4. Issuing of Securities.
(A) The Company will provide to AST a form of subscription (the
"Subscription Form"), and AST will deliver such Subscription
Form to holders of record of shares of common stock of the
Company as of the close of business on April 26, 1996 (the
"Record Date") evidencing non-
<PAGE> 2
transferable subscription rights to purchase such shares,
together with a copy of the Prospectus, no later than four
business days following the date upon which the Registration
Statement is declared effective and in accordance with the
terms of the Prospectus.
(B) No physical rights will be issued; the Subscription Form will
evidence the number of shares available for purchase by each
stockholder of record as of the record date ("Record Date
Stockholder") in accordance with the terms of the Prospectus.
(C) The Company has authorized the issuance of the common stock
underlying the subscription rights with respect to the shares
of the Company's common stock to be offered ("Subscription
Rights"), and upon the valid exercise of such Subscription
Rights, the Company will instruct AST to issue such shares to
Record Date Stockholders in accordance with the terms of the
Prospectus.
SECTION 5. Duties of AST. AST will be responsible for providing certain
services required to effect the Offering, including but not necessarily limited
to:
(A) Mailing the Prospectus, the Subscription Form, and all other
necessary documents to all Record Date Stockholders whose
shares are held directly and not in nominee name.
(B) Accepting Subscription Forms, payment for shares and other
documentation pursuant to the Offering from all subscribing
stockholders, including both direct and nominee holders.
(C) Identifying and researching any problems arising in connection
with the Offering and communicating with all subscribing
stockholders or any other persons as necessary to cure such
problems.
(D) Allocating shares as necessary in connection with the Offering
and in accordance with the terms of the Prospectus.
(E) Refunding payments, as required, to subscribing stockholders,
in accordance with the terms of the Prospectus.
(F) Taking all reasonable steps necessary to obtain payments due
from subscribing stockholders including but not limited to the
sending of notices of payment due.
2
<PAGE> 3
(G) Sending confirmations of purchase to every subscribing
stockholder once the number of shares to be sold to each
subscribing stockholder has been determined.
(H) Reporting to the Company on a daily basis concerning responses
to the Offering and working with the Company's Information
Agent and Offering Coordinator, Shareholder Communications
Corporation, to assure the accuracy of the daily reports.
(I) Collecting all required paperwork from all subscribing
stockholders, including follow-up on Notices of Guaranteed
Delivery, Subscription Forms, payment for shares, and notices
of payment due.
(J) Providing an accounting of all offering proceeds (including
interest due on the segregated account described below) to the
Company following the conclusion of the Offer, allocation of
shares, and collection of all payments due.
(K) Issuing certificates to stockholders of record representing
purchases pursuant to the Offer; allocating shares to the
dividend reinvestment plan accounts of those who participated
in the Offer and who are participants in the Company's dividend
reinvestment plan; and allocating to all street name accounts
the shares purchased by nominees pursuant to the Offer.
SECTION 6. Certain Terms of the Offering.
(A) The "Subscription Price" shall be determined according to the
formula described in the Prospectus, and will be provided to
AST on the Expiration Date. An Estimated Subscription Price
will be determined prior to the date on which Prospectuses are
delivered to shareholders according to the formula set forth
in the Prospectus. Subscribing stockholders will remit
payments for shares to be purchased pursuant to the Offering
based upon such Estimated Subscription Price. If the
Subscription Price is LESS than the Estimated Subscription
Price, AST will refund appropriate amounts to all subscribing
stockholders who paid other than pursuant to a Notice of
Guaranteed Delivery. If the Subscription Price is MORE than
the Estimated Subscription Price, then AST will issue notices
for payment due to all subscribing stockholders.
(B) If an exercising stockholder has not indicated the number of
Subscription Rights being exercised, or if the Subscription
Price payment forwarded by such stockholder to AST, after
notice of payment due is
3
<PAGE> 4
sent, is not sufficient to purchase the number of shares
subscribed for, AST will apply all payments 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. To the extent that the Subscription Price payment
exceeds the number of shares to be purchased on the
Subscription Form, the stockholder will be deemed to have
exercised his Over-Subscription Privilege to the extent that
additional whole shares may be purchased, and any excess
amount will be refunded to the stockholder.
(C) Funds received by AST in payment of the Subscription Price for
shares subscribed for pursuant to the Offering shall be held
in a segregated, interest-bearing account pending allocation
and eventual distribution to the Company. All interest and
gains earned on such funds shall be paid to the Company. If a
Subscription Rights holder exercising the Over-Subscription
Privilege is allocated less than all of the shares of common
stock which such holder subscribed for pursuant to the
Over-Subscription Privilege, AST, within ten business days of
the Confirmation Date, shall send via first class mail to such
stockholder the amount paid by such holder which was over and
above that which was required to be paid for the number of
shares that were subscribed for and purchased, without
interest or deduction.
(D) AST is authorized to accept only Subscription Forms (other
than those delivered in accordance with the procedure set
forth in the Prospectus for guaranteed deliveries) received
prior to 5:00 p.m., Eastern Time, on the Expiration Date.
(E) Subscription Rights, once exercised, are irrevocable.
However, amounts paid in connection with Subscription Rights
that have been exercised may be returned to exercising
stockholders if the Company is required to do so pursuant to
the terms of any of the undertakings it has made in the
Registration Statement.
SECTION 7. Delivery of Stock Certificates. Within ten business days
following the Confirmation Date, AST will issue certificates or otherwise
deliver the total number of shares subscribed for in the Offering according to
the terms of the Prospectus.
SECTION 8. Fractional Subscription Rights and Shares.
4
<PAGE> 5
(A) The Company will not issue fractional Subscription Rights nor
shall AST distribute Subscription Forms which evidence
fractional Subscription Rights. The number of Subscription
Rights issued to each holder will be rounded down to the
nearest whole number.
(B) The Company shall not issue fractional shares of common stock
to exercising Subscription Rights holders upon exercise and
acceptance of Subscription Rights. The number of shares of
common stock that each Subscription Rights holder shall be
entitled to purchase pursuant to the Over Subscription
Privilege shall be rounded up or down as required to reach the
nearest whole share.
SECTION 9. Reports. AST shall coordinate with the Company's Information
Agent and Offering Coordinator to provide daily reports to the Company during
the Subscription Period regarding the number of Subscription Rights exercised,
the number of shares purchased, the level of participation both in the Primary
Subscription and the Over-Subscription Privilege.
SECTION 10. Future Instructions and Interpretation.
(A) All questions as to the timeliness, validity, form and
eligibility of any exercise of Subscription Rights will be
resolved by the Company, whose determinations shall be final
and binding. The Company in its sole discretion may waive any
defect or irregularity, permit a defect or irregularity to be
corrected within such time as it may determine or reject the
purported exercise of any Subscription Right. Subscriptions
will not be deemed to have been received or accepted until all
irregularities have been cured or waived within such time as
the Company determines in its sole discretion. Neither the
Company nor AST shall be under any duty to give notification
of any defect or irregularity in connection with the
submission of Subscription Rights or incur any liability for
failure to give such notification.
(B) AST is hereby authorized and directed to accept instructions
with respect to the performance of its duties hereunder from
an authorized officer of the Company, and to apply to such
officers for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or
omitted to be taken by it in good faith in accordance with
instructions of any such officer.
SECTION 11. Compensation of AST.The Company agrees to pay AST compensation
in the amount of thirty-five thousand dollars ($35,000) for all services
rendered by it hereunder and for its
5
<PAGE> 6
reasonable out-of-pocket expenses, including but not limited to disbursements
for printing, postage and delivery. Such fee and out-of-pocket expenses will be
paid following the conclusion of the Offering and upon written invoice.
SECTION 12. Indemnification and Other Matters
(A) The Company agrees to indemnify AST for, and to hold it
harmless against, any loss, liability, or expense incurred
without negligence or bad faith on the part of AST for
anything done or omitted by AST in connection with the
acceptance and administration of this Agreement, including the
costs and expenses of defending against any claim of liability
in the premises, provided that AST shall have provided the
Company with notice of any such claim promptly after such
claim became known to AST, and provided further that the
Company shall have the right to assume the defense of any such
claim upon receipt of written notice thereof from AST. If the
Company assumes the defense of any such claim, AST shall be
entitled to participate in (but not control) the defense of
any such claim at its own expense. The Company shall not
indemnify AST with respect to any claim or action settled
without its consent, which consent shall not be unreasonably
withheld.
(B) AST agrees to indemnify the Company for, and to hold it
harmless against, any loss, liability, or expense incurred
without negligence or bad faith on the part of the Company
arising from anything done or omitted by the Company in
connection with the Company's performance of its obligations
and duties under this Agreement, including the costs and
expenses of defending against any claim of liability in the
premises, provided that the Company shall have provided AST
with notice of any such claim promptly after such claim became
known to the Company, and provided further that AST shall have
the right to assume the defense of any such claim upon receipt
of written notice thereof from the Company. If AST assumes the
defense of any such claim, the Company shall be entitled to
participate in (but not control) the defense of any such claim
at its own expense. AST shall not indemnify the Company with
respect to any claim or action settled without its consent,
which consent shall not be unreasonably withheld.
(C) AST shall be protected and shall incur no liability for or in
respect of any action taken, suffered or omitted by it in
connection with its administration of this Agreement in
reliance upon any Subscription Right,
6
<PAGE> 7
instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent,
certificate statement or other paper or document reasonably
believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged by the proper person
or persons.
SECTION 13. Miscellaneous Matters. AST undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions,
by all of which the Company and the holders of Subscription Rights by their
acceptance thereof shall be bound:
(A) AST may consult with legal counsel (who may be, but is not
required to be, legal counsel for the Company), and the
opinion of such counsel shall be full and complete
authorization and protection to AST as to any actions taken or
omitted by it in good faith and in accordance with such
opinion.
(B) Whenever in the performance of its duties under this Agreement
AST shall deem it necessary or desirable that any fact or
matter be proved or established by the Company prior to taking
or suffering any action hereunder, such fact or matter (unless
other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and
established by a certificate signed by an officer of the
Company and delivered to AST; and such certificate shall be
full authorization to AST for any action taken or omitted in
good faith by it under the provisions of this Agreement in
reliance upon such certificate.
(C) AST shall be liable hereunder only for its own negligence or
willful misconduct.
(D) AST shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or
in the Prospectus or be required to verify the same, but all
such statements and recitals are and shall be deemed to have
been made by the Company only.
(E) The Company agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged
and delivered all such further and other acts, instruments and
assurances as may reasonably be required by AST for the
carrying out or performing by AST of the provisions of this
Agreement.
7
<PAGE> 8
(F) Nothing herein shall preclude AST from acting in any other
capacity for the Company.
SECTION 14. Governing Law. This Agreement shall be governed by the laws
of the State of Maryland.
SECTION 15. Captions. The captions included in this Agreement are
included for convenience of reference only and in no way define or limit any of
the provisions hereof or otherwise affect the construction or effect.
SECTION 16. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, but all such counterparts shall together constitute one and the
same instrument.
IN WITNESS WHEREOF the undersigned have caused this Subscription Agency
Agreement to be executed by their duly authorized representative as of the date
first above written.
ALLIED CAPITAL LENDING CORPORATION
By: /s/ SUZANNE V. SPARROW
----------------------------
Name: Suzanne V. Sparrow
Title: Vice President
AMERICAN STOCK TRANSFER & TRUST COMPANY
By: /s/ HERBERT LEMMER
----------------------------
Name: Herbert Lemmer, Esq.
Title: General Counsel
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EXHIBIT k.7
LINE OF CREDIT,
SECURITY AND PLEDGE AGREEMENT
THIS LINE OF CREDIT, SECURITY AND PLEDGE AGREEMENT, dated as of the
18 day of April, 1996, is made by and between ACLC LIMITED PARTNERSHIP, a
Maryland limited partnership (the "Borrower"), and RIGGS BANK N.A., a national
banking association (the "Bank").
The Bank has agreed to extend credit to the Borrower and the Borrower
has agreed to obtain credit from the Bank on the terms and conditions set forth
in this Agreement. Accordingly, for good and valuable consideration, the
receipt and sufficiency of which are acknowledged, the Bank and the Borrower
agree as follows:
ARTICLE 1
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings assigned to them below, which meanings shall be
equally applicable to the singular and plural forms of the terms defined.
"Affiliate" means with respect to any specified Person, any other
Person which, directly or indirectly, through one or more intermediaries,
controls or is controlled by, or is under common control with, such specified
Person. The term "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of management and policies of a
Person, whether through ownership of common stock, by contract or otherwise.
"Agreement" means this Line of Credit, Security and Pledge Agreement,
as the same may be amended, modified or supplemented from time to time.
"Allied" means Allied Capital Lending Corporation, a Maryland
corporation.
"Borrowing Base Application and Compliance Certificate" means a
certificate in the form of Exhibit "A" hereto, with appropriate insertions, to
be executed and delivered by the Borrower from time to time pursuant to
Sections 3.02 (c) (iii) and 6.09 (c) hereof.
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks are authorized or required to close under the
laws of the District of Columbia.
"Collateral" means any Third-Party Loan for which the original
Third-Party Note evidencing such loan has been delivered to the Bank, all
accounts, chattel paper, documents, general intangibles and instruments
relating to such loan, and all proceeds of the foregoing.
"Default" means any event which with the giving of notice, the lapse
of time, or both, would constitute an Event of Default.
"Eligible Third-Party Loan" means an Third-Party Loan (i) for which
the original Third-Party Note is in the possession of the Bank, (ii) which is
fully funded, (iii) which is not more than 60 days past due, (iv) which is not
a construction loan, (v) for which, if a Second Mortgage 504
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Loan, there is in effect an S.B.A. Authorization and Debenture Guaranty, and
(vi) which is acceptable to the Bank in its sole discretion.
"Event of Default" means any of the events specified as an "Event of
Default" under this Agreement, provided that any requirement for the giving of
notice, the lapse of time, or both, or any other condition, has been satisfied.
"GAAP" means generally accepted accounting principles consistently
applied.
"Guaranty" means the guaranty agreement from Allied unconditionally
guaranteeing to the Bank the full repayment of the Loans and all other
obligations of the Borrower hereunder, as the same may be amended, modified or
supplemented from time to time.
"Indebtedness" means (i) indebtedness or liability for borrowed money;
(ii) obligations evidenced by bonds, debentures, notes, or other similar
instruments; (iii) obligations for the deferred purchase price of property or
services (including trade obligations); (iv) obligations as lessee under
capital leases; (v) current liabilities in respect of unfunded vested benefits
under Plans covered by the Employee Retirement Income Security Act of 1974 as
amended, and regulations promulgated thereunder; (vi) obligations under letters
of credit; (vii) obligations under acceptance facilities; (viii) all
guaranties, endorsements (other than for collection or deposit in the ordinary
course of business), and other contingent obligations to purchase, to provide
funds for payment, to supply funds to invest in any Person, or otherwise to
assure a creditor against loss; and (ix) obligations secured by any Lien,
whether or not the obligations have been assumed.
"Intangible Assets" means all assets which, in accordance with GAAP,
are classified as intangible assets and as reported in the financial statements
of Allied.
"Investments" means all debt or equity securities or share,
participation, or other interest in any Person, which is, or is of a type,
dealt in or traded on financial markets, or which is recognized in any area in
which it is issued or dealt in as a medium for investment.
"Lien" means any mortgage, deed of trust, pledge, security interest,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), or preference, priority, or other security agreement or preferential
arrangement, charge, or encumbrance of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement, any financing lease having substantially the same economic effect as
any of the foregoing, and the filing of any financing statement under the
Uniform Commercial Code or comparable law of any jurisdiction to evidence any
of the foregoing).
"Loan Documents" means this Agreement, the Note, the Guaranty and any
other document now or hereafter executed or delivered in connection with the
Obligations in evidence thereof or as security therefor, including, without
limitation, any life insurance assignment, pledge agreement, security
agreement, deed of trust, mortgage, promissory note or subordination agreement.
"Loan" or "Loans" means individually, any loan, and collectively, all
of the loans to be made to the Borrower by the Bank pursuant to this Agreement.
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"Maximum Amount" means the lesser of (i) ten million and no/100
dollars ($10,000,000.00), or (ii) the sum of ninety percent (90%) of the
principal amount of Second Mortgage 504 Loans, plus fifty percent (50%) of the
principal amount of First Mortgage 504 Loans and Companion Loans. The Maximum
Amount may be reduced by the Borrower pursuant to Section 2.01 (d) hereof.
"Net Income" means, with respect to any Person, income after deduction
of all expenses, taxes and other proper charges, determined in accordance with
GAAP and shall exclude all unrealized appreciation or depreciation on
Investments.
"Net Worth" means, with respect to any Person, at any date, all
amounts which in accordance with GAAP, would be included under stockholders'
equity on the balance sheet of such Person at such time; provided that, in any
event, such amounts are to be net of amounts carried on the books of such
Person for (a) treasury stock; (b) unamortized debt discount expense; and (c)
loans or advances to any affiliate or Subsidiary of such Person, or directors,
officers, employees or shareholders of such Person, any affiliate of such
Person or any Subsidiary.
"Note" means a promissory note, in form and substance satisfactory to
the Bank, in the original principal amount of $10,000,000.00, and evidencing
the obligation of the Borrower to pay the principal amount of the Loans,
together with interest on the Loans, as the same may be amended, modified or
supplemented from time to time. The term "Note" also shall include any
promissory note executed and delivered by the Borrower in connection with an
extension of the Termination Date, an increase in the Maximum Amount or any
other amendment to this Agreement.
"Obligations" means the Loans, the Note, all Indebtedness and
obligations of the Borrower under this Agreement and the other Loan Documents,
as well as all other Indebtedness of the Borrower to the Bank, now existing or
hereafter arising, of every kind and description, whether or not evidenced by
notes or other instruments, and whether such Indebtedness is direct or
indirect, fixed or contingent, liquidated or unliquidated, due or to become
due, secured or unsecured, joint, several or joint and several, related or
unrelated to the Loans, similar or dissimilar to the Indebtedness arising out
of this Agreement, of the same or a different class of Indebtedness as the
Indebtedness arising out of this Agreement, including, without limitation, any
overdrafts in any deposit account maintained by the Borrower with the Bank, all
obligations of the Borrower with respect to letters of credit issued by the
Bank for the account of the Borrower, any Indebtedness of the Borrower that is
assigned to the Bank and any Indebtedness of the Borrower to any assignee of
this Agreement.
"Person" means an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint venture,
governmental authority or other entity of whatever nature.
"S.B.A." means the Small Business Administration.
"S.B.A. Authorization and Debenture Guaranty" means an effective, in
force, authorization and debenture guaranty issued by the S.B.A. to a
certified development company and relating to a Second Mortgage 504 Loan.
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"Subsidiary" means an entity of which shares of stock or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other managers of such entity are at the time owned, or
the management of which is otherwise controlled, directly or indirectly,
through one or more intermediaries, or both, by any Person.
"Termination Date" means May 31, 1997, and any extension or extensions
thereof granted by the Bank in its sole discretion.
"Third-Party Loan" means a loan made by the Borrower, evidenced by a
Third-Party Note, guaranteed by an S.B.A. Authorization and Debenture Guaranty,
if applicable, and constituting (i) an unguaranteed first mortgage loan under
the S.B.A.'s section 504 program ("First Mortgage 504 Loan"), or (ii) a
fully-guaranteed second mortgage loan under the S.B.A.'s section 504 program,
("Second Mortgage 504 Loan"), or (ii) an unguaranteed first mortgage loan made
as a companion loan senior to a second mortgage loan under the S.B.A.'s section
7(a) program ("Companion Loan").
"Third-Party Note" means a note, bond or other evidence of a
Third-Party Loan.
"Total Interest Expense" means, for any period with respect to any
Person, the aggregate amount of interest required to be paid during such period
on all Indebtedness of such Person outstanding during all or any part of such
period, including any payments consisting of fees in connection with such
Indebtedness, but excluding any interest the payment of which is deferred or
that is to be added to the principal amount of the Indebtedness to which such
interest relates, rather than paid at regular intervals.
"Total Liabilities" means, with respect to any Person, the aggregate
amount of all liabilities of such Person (including tax and other proper
accruals), computed in accordance with GAAP.
"UCC" means the Uniform Commercial Code as adopted in the District of
Columbia, and all amendments thereto.
SECTION 1.02. ACCOUNTING TERMS. All accounting terms used herein
which are not otherwise expressly defined in this Agreement shall have the
meanings respectively given to them in accordance with GAAP in effect on the
date of this Agreement. Except as otherwise provided herein, all financial
computations made pursuant to this Agreement shall be made in accordance with
GAAP and all balance sheets and other financial statements shall be prepared in
accordance with GAAP. Except as otherwise provided herein, whenever reference
is made in any provision of this Agreement to a balance sheet or other
financial statement or financial computation with respect to Allied, such terms
shall mean a consolidated balance sheet or other financial statement or
financial computation, as the case may be.
ARTICLE 2
LOANS
SECTION 2.01. AMOUNT AND BORROWING PROCEDURE.
(a) Subject to the terms and conditions of this Agreement, the
Borrower may, from time to time, until the Termination Date, request Loans from
the Bank as provided herein (and
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the Bank may, in its sole discretion, and with no obligation so to do, agree to
make any such Loan) in an aggregate principal amount not to exceed at any one
time outstanding the Maximum Amount. Up to the Maximum Amount, the Borrower
may borrow, repay without penalty and re-borrow hereunder from the date of this
Agreement until the Termination Date.
(b) The obligation of the Borrower to repay the Loans, together with
interest thereon as provided in the Note, shall be evidenced by the Note and
guaranteed by the Guaranty. The unpaid principal balance of the Note shall be
payable on the Termination Date together with all interest accrued and unpaid.
(c) Each Loan shall be repaid in full within one hundred twenty (120)
days after it is advanced.
(d) The Borrower may terminate or reduce the credit facility provided
for in Section 2.01(a) of this Agreement in whole or in part by giving at least
15 Business Days' prior written notice of such termination or reduction to the
Bank. The termination or reduction of the credit facility provided for in
Section 2.01(a) of this Agreement shall not affect the rights of the Bank with
respect to any Obligations arising prior or subsequent to such termination or
reduction and the provisions of this Agreement shall remain in full force and
effect until the Obligations have been fully and completely paid and
discharged.
(e) The Borrower and the Bank from time to time may agree to extend
the Termination Date or increase the amount of credit to be provided under this
Agreement, or both. During any such periods of extension, the remaining terms
and conditions of this Agreement shall remain in full force and effect, and the
Borrower shall execute and deliver any amendments or modifications to the Loan
Documents as the Bank may require in connection with any such extension or
increase. Nothing in this Section 2.01(e) shall obligate the Bank to grant
such extensions or to increase the amount of credit provided under this
Agreement.
SECTION 2.02. FACILITY FEE. The Borrower agrees to pay to the Bank in
consideration of the Loans, on the last Business Day of March, June, September
and December of each year, commencing with the first such date after the date
of this Agreement, and on the Termination Date, a facility fee of three-eighths
of one percent (0.375%) per annum of the average daily amount of the difference
between the Maximum Amount and the aggregate unpaid principal amount of the
Loans outstanding on each day during the preceding calendar quarter or portion
thereof. The fee shall commence to accrue as of the date of this Agreement and
shall cease to accrue on the Termination Date.
SECTION 2.03. PAYMENTS AND COMPUTATIONS. All payments due under this
Agreement (including any payment or prepayment of principal, interest, fees and
other charges) or with respect to the Note or the Loans shall be made in lawful
money of the United States of America, in immediately available funds, to the
Bank at its office at 808 17th Street, N.W., Washington, D.C. 20006, or at such
other place as the Bank may designate, and shall be applied first to accrued
fees, next to accrued late charges, next to accrued interest and then to
principal. If any payment of principal, interest or fees is not due on a
Business Day, then the due date will be extended to the next succeeding full
Business Day and interest and fees will be payable with respect to the
extension. If any payment of principal, interest or fees is not made within
ten days of its due date, the Borrower agrees to pay to the Bank a late charge
equal to 5% of the amount of the payment. Upon the occurrence of an Event of
Default and during the continuation of such Event
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of Default, interest shall accrue on the Loans at a per annum rate as provided
in the Note for such event. The Bank may, but shall not be obligated to, debit
the amount of any payment due under this Agreement to any deposit account of
the Borrower maintained with the Bank.
SECTION 2.04. LOAN ADVANCE PROCEDURES. The Borrower may at any time
or from time to time request a Loan provided that after such amount is loaned
the aggregate amount of all Loans shall not exceed the Maximum Amount. Such
request shall state the date in which the Loan is to be made which shall be not
less than one (1) Business Day after the receipt of such request by Bank and
shall satisfy the requirements of Section 3.02 (c) hereof. Such request may be
made orally, but must be confirmed in writing prior to the closing of such
Loan.
SECTION 2.05. USE OF PROCEEDS. The proceeds of the Loans hereunder
shall be used by the Borrower for funding an Eligible Third-Party Loan made by
Borrower essentially contemporaneously with such Loan, and for no other
purpose. The Borrower will not, directly or indirectly, use any part of such
proceeds for the purpose of purchasing or carrying any margin stock within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System
or to extend credit to any Person for the purpose of purchasing or carrying any
such margin stock, or for any purpose which violates, or is inconsistent with,
Regulation X of such Board of Governors.
ARTICLE 3
CONDITIONS PRECEDENT
The making of the Loans shall be subject to the following conditions:
SECTION 3.01. CONDITIONS PRECEDENT TO INITIAL LOAN. The obligation of
the Bank to make the initial Loan to the Borrower is subject to the condition
precedent that the Bank shall have received on or before the day of such Loan
each of the following, in form and substance satisfactory to the Bank and its
counsel:
(a) NOTE. The Note duly executed by the Borrower;
(b) GUARANTY. The Guaranty duly executed by Allied;
(c) EVIDENCE OF ALL CORPORATE ACTION BY THE BORROWER. Certified
copies of all partnership action taken by the Borrower, authorizing (or, if
delivered after the date hereof, ratifying) the execution, delivery, and
performance of the Loan Documents to which it is a party and each other
document to be delivered pursuant to this Agreement;
(d) INCUMBENCY AND SIGNATURE CERTIFICATE OF THE BORROWER. A
certificate (dated as of the date of this Agreement) of the general partner of
the Borrower certifying the names and true signatures of the person(s)
authorized to sign the Loan Documents to which it is a party and the other
documents to be delivered by the Borrower under this Agreement; and
(e) OPINION OF COUNSEL FOR THE BORROWER. A favorable opinion of
counsel for the Borrower as to such matters as the Bank may reasonably request,
which may be delivered after the date hereof.
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SECTION 3.02. CONDITIONS PRECEDENT TO ALL LOANS. The obligation of
the Bank to make each Loan (including the initial Loan) shall be subject to the
further conditions precedent that on the date of such Loan:
(a) STATEMENTS TRUE. The following statements shall be true and
the Borrower's request for a Loan shall be deemed a statement by such Borrower
dated the date of such Loan, that:
(i) The representations and warranties contained in
Article IV of this Agreement are correct on and as of
the date of such Loan as though made on and as of
such date; and
(ii) No Default or Event of Default has occurred and is
continuing, or would result from such Loan; and
(b) OTHER DOCUMENTS. The Bank shall have received such other
approvals, opinions, or documents as the Bank may reasonably request.
(c) REQUEST FOR LOAN. Bank shall have received a request for a
Loan in form acceptable to Bank and such other documents as the Banks may
reasonably request to include but not be limited to:
(i) A description of the Third-Party Loan to be funded with
the proceeds of such Loan;
(ii) (A) The original of each Third-Party Note which is being
pledged at the time the Loan is made, (B) a certified copy of
the S.B.A. Authorization and Debenture Guaranty related to
each such Third-Party Note, if applicable, (C) such other
documents or instruments relating to such Eligible Third-Party
Loan as the Bank may reasonably request (provided, however,
that the failure of the Bank to request any document or
instrument at the time of or prior to the delivery of a Note
to it shall not limit its right to request such document or
instrument at a later time); and
(iii) A current Borrowing Base Application and Compliance
Certificate acceptable to the Bank and demonstrating that the
Loan, when advanced, will not cause the outstanding amount of
all Loans to exceed the Maximum Amount.
ARTICLE 4
COVENANTS, REPRESENTATIONS AND OTHER TERMS REGARDING COLLATERAL
SECTION 4.01. SECURITY INTEREST, PLEDGE. The Borrower grants to the
Bank, its successors and assigns, a security interest in the Collateral, all
additions and accessions thereto and replacements thereof, all proceeds and
products thereof, all books of account and records relating to the Collateral,
including all computer software relating thereto, pledges to the Bank each
Eligible Third-Party Loan and the Third-Party Note and all other instruments
related thereto, and assigns to the Bank any rights it may have to collateral
therefor or under any guarantee or commitment related thereto, all of which
shall secure the Obligations.
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SECTION 4.02. DEFENSE OF COLLATERAL. The Borrower, at its expense,
will defend the Collateral against any claims or demands adverse to the Bank's
security interest and will promptly pay, when due, all taxes or assessments
levied against the Borrower on the Collateral.
SECTION 4.03. INFORMATION REGARDING COLLATERAL. The Borrower shall
provide the Bank such information as the Bank may from time to time reasonably
request with respect to the Collateral, including, without limitation,
statements describing, designating, identifying and evaluating all Collateral.
SECTION 4.04. PERFECTION OF SECURITY INTEREST. The Borrower shall
perform any and all steps in all relevant or appropriate jurisdictions as may
be necessary or reasonably requested by the Bank to perfect, maintain and
protect the Bank's security interest in the Collateral or which the Bank
otherwise determines to be prudent or advisable. The Borrower shall pay the
taxes and costs of, or incidental to, any recording or filing of any financing
statements concerning the Collateral. The Borrower agrees that a carbon,
photographic, photostatic or other reproduction of this Agreement or of a
financing statement is sufficient as a financing statement.
SECTION 4.05. LIMITATIONS ON OBLIGATIONS. It is expressly agreed by
the Borrower that, notwithstanding any other provision of this Agreement, the
Borrower shall remain liable to observe and perform all the conditions and
obligations to be observed and performed by the Borrower in accordance with and
pursuant to the terms and provisions of each Eligible Third-Party Loan, and
S.B.A. Authorization and Debenture Guaranty. The Bank shall not have any
obligation or liability under any Eligible Third-Party Loan, and S.B.A.
Authorization and Debenture Guaranty or any other document, instrument or
agreement related to any Eligible Third-Party Loan by reason of or arising out
of this Agreement or the assignment of such Eligible Third-Party Loan to the
Bank or the receipt by the Bank of any payment relating to such Eligible
Third-Party Loan pursuant to this Agreement, nor shall the Bank be required or
obligated in any manner to perform or fulfill any of the obligations of the
Borrower under or pursuant to any Eligible Third-Party Loan, and S.B.A.
Authorization and Debenture Guaranty or to make any payment, or to make any
inquiry as to the nature or the sufficiency of any payment received by it or
the sufficiency of any performance by any party under any such Eligible
Third-Party Loan, and S.B.A. Authorization and Debenture Guaranty or to present
or file any claim, or to take any action to collect or enforce any performance
or the payment of any amounts which may have been assigned to it or to which it
may be entitled at any time or times.
SECTION 4.06. INDEMNIFICATION. In any suit, proceeding or action
brought by or against the Bank relating to the Collateral, the Borrower will
save, indemnify and keep the Bank harmless from and against all expense, loss
or damage suffered by reason of any defense, setoff, counterclaim, recoupment
or reduction of liability whatsoever of any obligor thereunder, arising out of
a breach by the Borrower of any obligation thereunder or arising out of any
other agreement, Indebtedness or liability at any time owing to or in favor of
such obligor or its successors from the Borrower, and all such obligations of
the Borrower shall be and remain enforceable against and only against the
Borrower and shall not be enforceable against the Bank. The foregoing
obligation of the Borrower to indemnify the Bank shall not extend to any suit,
proceeding or action arising out of the Bank's gross negligence or willful
misconduct.
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 5.01. ORGANIZATION, GOOD STANDING AND DUE QUALIFICATION. The
Borrower has no Subsidiaries. Borrower (a) is a limited partnership duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its formation; (b) has the power and authority to own its
assets and to transact the business in which it is now engaged or in which it
is proposed to be engaged; and (c) is duly qualified as a foreign partnership
and in good standing under the laws of each other jurisdiction in which such
qualification is required, except in such instances which would not, in any one
case or in the aggregate, materially and adversely affect the financial
condition, operations, properties or business of the Borrower. Allied is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation.
SECTION 5.02. POWER AND AUTHORITY. The execution, delivery and
performance by the Borrower of the Loan Documents to which each is a party have
been duly authorized by all necessary partnership action and do not and will
not (a) require any consent or approval of, or filing or registration with, any
governmental agency or authority or the partners of such partnership; (b)
contravene such partnership's partnership agreement or certificate of limited
partnership (c) result in a breach of or constitute a default under any
agreement or instrument to which such partnership is a party or by which it or
its properties may be bound or affected; (d) result in, or require, the
creation or imposition of any lien upon or with respect to any of the
properties now owned or hereafter acquired by such partnership; or (e) cause
such partnership to be in default under any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award applicable to such
partnership.
SECTION 5.03. LEGALLY ENFORCEABLE AGREEMENT. This Agreement is, and
each of the other Loan Documents when delivered under this Agreement will be,
legal, valid and binding obligations of the Borrower or Allied, as the case may
be, enforceable against the Borrower or Allied, as the case may be, in
accordance with their respective terms.
SECTION 5.04. FINANCIAL STATEMENTS. The most recent financial
statements of the Borrower which have been furnished to the Bank in connection
with this Agreement are complete and correct and fairly present the financial
condition of the Borrower as at the dates of such statements. Since the dates
of such statements, there has been no material adverse change in the condition
(financial or otherwise), business or operations of the Borrower.
SECTION 5.05. LITIGATION. There is no pending or threatened action or
proceeding against or affecting the Borrower, before any court, governmental
agency or arbitrator, which may, in any one case or in the aggregate,
materially adversely affect the financial condition, operations, properties or
business of the Borrower.
SECTION 5.06. OTHER AGREEMENTS. The Borrower is not a party to any
indenture, loan, or credit agreement, or to any lease or other agreement or
instrument, or subject to any charter or corporate restriction which has a
material adverse effect on the business, properties, assets, operations, or
conditions, financial or otherwise, of the Borrower, or the ability of the
Borrower to carry out its obligations under the Loan Documents to which it is a
party. The Borrower is not
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in default in any respect in the performance, observance, or fulfillment of any
of the obligations, covenants, or conditions contained in any agreement or
instrument material to its business to which it is a party.
SECTION 5.07. NO DEFAULTS ON OUTSTANDING JUDGMENTS OR ORDERS. The
Borrower has satisfied all judgments and is not in default with respect to any
judgment, writ, injunction, decree, rule, or regulation of any court,
arbitrator, or federal, state, municipal, or other governmental authority,
commission, board, bureau, agency or instrumentality, domestic or foreign.
SECTION 5.08. OWNERSHIP AND LIENS. The Borrower has title to, or
valid leasehold interests in, all of its properties and assets, real and
personal, including the properties and assets and leasehold interests reflected
in the financial statements referred to in Section 5.04 (other than any
properties or assets disposed of in the ordinary course of business), and none
of the properties and assets owned by the Borrower and none of its leasehold
interests is subject to any Lien, except such as may be permitted pursuant to
Section 7.01 of this Agreement.
SECTION 5.09. OPERATION OF BUSINESS. The Borrower possesses all
licenses, permits, franchises, patents, copyrights, trademarks, and trade
names, or rights thereto, to conduct its respective businesses substantially as
now conducted and as presently proposed to be conducted, and is not in
violation of any valid rights of others with respect to any of the foregoing.
SECTION 5.10. TAXES. The Borrower has filed all tax returns (federal,
state, and local) required to be filed and has paid all taxes, assessments, and
governmental charges and levies thereon to be due, including interest and
penalties.
SECTION 5.11. ENVIRONMENT. The Borrower has not received notice of,
nor knows of, or suspects facts which might constitute any violations of any
federal, state, or local environmental, health, or safety laws, codes or
ordinances, and any rules or regulations promulgated thereunder with respect to
its businesses, operations, assets, equipment, property, leaseholds, or other
facilities.
ARTICLE 6
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that:
SECTION 6.01. MAINTENANCE OF EXISTENCE. The Borrower will preserve and
maintain its existence and good standing in the jurisdiction of its formation,
and qualify and remain qualified as a foreign partnership in each jurisdiction
in which such qualification is required, except if the failure to so qualify
would have, in any one case or in the aggregate, a material and adverse effect
on the financial condition, operations, properties or business of the Borrower.
SECTION 6.02. COMPLIANCE WITH RELATED AGREEMENTS. The Borrower shall
comply with the terms of each S.B.A. Authorization and Debenture Guaranty which
relates to an Eligible Third-Party Loan.
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SECTION 6.03. RIGHT OF INSPECTION. At any reasonable time and from
time to time, the Borrower will permit the Bank or any agent or representative
of the Bank to audit and verify the Collateral, examine and make copies of and
abstracts from the records and books of account of, and visit the properties
of, the Borrower, and to discuss the affairs, finances and accounts of the
Borrower with any of its officers and directors and the Borrower's independent
accountants.
SECTION 6.04. MAINTENANCE OF RECORDS. The Borrower will keep adequate
records and books of account, in which complete entries will be made in
accordance with GAAP, reflecting all financial transactions of the Borrower.
The principal records and books of account, including these concerning the
Collateral, shall be kept at the chief executive office of the Borrower's
investment advisor at 1666 K Street, N.W., Suite 901, Washington, D.C. 20006.
The Borrower will not move such records and books of account or change such
chief executive office or the name under which it does business without (a)
giving the Bank at least 30 days' prior written notice, and (b) executing and
delivering financing statements satisfactory to the Bank prior to such move or
change.
SECTION 6.05. MAINTENANCE OF PROPERTIES. The Borrower will maintain,
keep, and preserve all of its properties (tangible and intangible) necessary or
useful in the proper conduct of its business in good working order and
condition, ordinary wear and tear excepted.
SECTION 6.06. CONDUCT OF BUSINESS. The Borrower will continue to
engage in an efficient and economical manner in a business of the same general
type as conducted by it on the date of this Agreement.
SECTION 6.07. COMPLIANCE WITH LAWS. The Borrower will comply in all
respects with all applicable laws, rules, regulations and orders (including,
without limitation, the Employee Retirement Income Security Act, as amended
from time to time), such compliance to include, without limitation, paying,
before the same become delinquent, all duly imposed taxes, assessments and
governmental charges imposed upon it or upon its property.
SECTION 6.08. MAINTENANCE OF INSURANCE. The Borrower will maintain
insurance with financially sound and reputable insurance companies or
associations in such amounts and covering such risks as are usually carried by
companies engaged in the same or a similar business and similarly situated.
SECTION 6.09. REPORTING REQUIREMENTS. The Borrower will furnish to the
Bank:
(a) QUARTERLY FINANCIAL STATEMENTS. As soon as available and, in any
event, within 45 days after the end of each of the quarters of each fiscal year
of the Borrower (i) unaudited consolidated and consolidating financial
statements consisting of statements of financial position of the Borrower and
Allied, as of the end of such quarter and statements of operations and of
changes in assets of the Borrower and Allied for the period commencing at the
end of the previous fiscal year and ending with the end of such quarter, all in
reasonable detail and stating in comparative form the respective consolidated
and consolidating figures for the corresponding date and period in the previous
fiscal year and all prepared in accordance with GAAP, and (ii) a certificate
detailing a calculation of each of the ratios and amounts referred to in the
financial covenants relating to Allied set forth in Article 8 hereof. Such
financial statements and certificate shall be certified to be accurate by the
chief financial officer of the Borrower (subject to year-end adjustments);
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(b) ANNUAL FINANCIAL STATEMENTS. As soon as available and, in any
event, within 90 days after the end of each fiscal year of the Borrower audited
consolidated and consolidating financial statements consisting of statements of
financial position of the Borrower and Allied as of the end of such fiscal
year, statements of operations, changes in net assets, and cash flows of the
Borrower and Allied for such fiscal year, all in reasonable detail and stating
in comparative form the respective consolidated and consolidating figures for
the corresponding date and period in the prior fiscal year and all prepared in
accordance with GAAP. The consolidated and consolidating financial statements
shall be accompanied by an opinion as to the consolidated statements acceptable
to the Bank of an independent certified public accounting firm selected by the
Borrower and acceptable to the Bank;
(c) QUARTERLY BORROWING BASE COMPLIANCE CERTIFICATE. As soon as
available and, in any event, within 45 days after the end of each of the
quarters of each fiscal year of the Borrower, a Borrowing Base Application and
Compliance Certificate as of the end of such quarter.
(d) MANAGEMENT LETTERS. Promptly upon receipt thereof, copies of any
reports submitted to the Borrower by independent certified public accountants
in connection with an audit of the financial statements of the Borrower made by
such accountants;
(e) NOTICE OF LITIGATION. Promptly after the commencement thereof,
notice of all actions, suits and proceedings before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, affecting the Borrower, which, if determined adversely to the Borrower
could have a material adverse effect on the financial condition, properties or
operations of the Borrower;
(f) NOTICE OF DEFAULTS AND EVENTS OF DEFAULT. As soon as possible and,
in any event, within 15 days after the occurrence of each Default and Event of
Default, a written notice setting forth the details of such Default or Event of
Default and the action which is proposed to be taken by the Borrower with
respect thereto;
(g) STATEMENTS, ETC. Promptly after the sending or filing thereof,
copies of all statements, financial statements and reports which the Borrower
sends to its members, and copies of all regular, periodic and special reports,
and all material registration statements which the Borrower files with the
Securities and Exchange Commission or any governmental authority which may be
substituted therefor, or with any national securities exchange;
(h) GENERAL INFORMATION. Such other information respecting the
condition or operations, financial or otherwise, of the Borrower as the Bank
may from time to time reasonably request.
(i) OPINION ON ASSIGNMENTS. In the event that the Bank determines in
good faith that it is necessary or advisable to obtain a legal opinion on the
effectiveness or priority of any assignment or transfer of a deed of trust or
mortgage securing any Eligible Third-Party Loan or the procedures necessary or
advisable to assure the effectiveness or priority of an assignment or transfer
of deeds of trust or mortgages in jurisdictions where the collateral for an
Eligible Third-Party Loan is located, Borrower shall obtain such an opinion
addressed to the Bank from counsel acceptable to Bank within 15 days of its
receipt of a request to do so.
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SECTION 6.10. ENVIRONMENT. The Borrower will be and remain in
compliance with the provisions of all federal, state, and local environmental,
health, and safety laws, codes and ordinances, and all rules and regulations
issued thereunder.
SECTION 6.11. INVESTMENT ADVISER. Allied Capital Advisers, Inc. will
remain the investment adviser for Allied.
ARTICLE 7
NEGATIVE COVENANTS
The Borrower agrees that, without first obtaining the prior written consent of
the Bank:
SECTION 7.01. LIENS. The Borrower will not create, incur, assume or
permit to exist any Lien upon or with respect to any of its properties or
assets, now owned or hereafter acquired, except: (a) Liens in favor of the
Bank; (b) Liens which are incidental to the conduct of the business of the
Borrower, are not incurred in connection with the obtaining of credit and do
not materially impair the value or use of assets of the Borrower; (c) Liens on
equipment in existence on the date of this Agreement and disclosed in writing
to the Bank, and (d) Liens on promissory notes owned by Borrower which are
pledged as collateral for loans or advance of funds to the Borrower by the
pledge of such note contemporaneously with the loan by Borrower represented by
such note.
SECTION 7.02. INDEBTEDNESS. The Borrower will not create, incur,
assume or permit to exist any Indebtedness except (a) the Obligations; (b)
Indebtedness in existence on the date of this Agreement and disclosed in
writing to the Bank; (c) Indebtedness of the Borrower subordinated to the
Obligations on terms satisfactory to the Bank; (d) ordinary trade accounts
payable; and (d) Indebtedness of Borrower secured by a pledge of a Promissory
Note or other Lien which is permitted by this Agreement.
SECTION 7.03. MERGERS, ETC. The Borrower will not merge or consolidate
with any Person and will not acquire or form any Subsidiary.
SECTION 7.04. SALE AND LEASEBACK. The Borrower will not sell, transfer
or otherwise dispose of any real or personal property to any Person and
thereafter, in connection therewith, directly or indirectly, lease back the
same or similar property.
SECTION 7.05. SALE OF ASSETS. The Borrower will not sell, lease,
assign, transfer or otherwise dispose of any of its now owned or hereafter
acquired assets except: (a) for assets disposed of in the ordinary course of
business and (b) the sale or other disposition of assets no longer used or
useful in the conduct of its business; provided that nothing herein shall be
construed as prohibiting the sale or other transfer of any promissory note held
by Borrower which is not at the time of such sale included in the Collateral.
SECTION 7.06. GUARANTIES, ETC. The Borrower will not assume,
guarantee, endorse or otherwise be or become directly or contingently
responsible or liable (including, but not limited to, any liability arising out
of any agreement to purchase any obligation, stock, assets, goods or services,
or to supply or advance any funds, assets, goods or services, or to maintain or
cause any Person to maintain a minimum working capital or net worth or
otherwise to assure the
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creditors of any Person against loss) for obligations of any Person, or permit
any such guaranties or liabilities to exist, except guaranties by endorsement
of negotiable instruments for deposit or collection or similar transactions in
the ordinary course of business.
SECTION 7.07. ACQUISITIONS. The Borrower will not purchase or acquire
(a) all or substantially all of the assets of any Person, or (b) any capital
stock of or ownership interest in any other Person.
SECTION 7.08. TRANSACTIONS WITH AFFILIATES. The Borrower will not
enter into any transaction, including, without limitation, the purchase, sale
or exchange of property or the rendering of any service, with any Affiliate,
except in the ordinary course of and pursuant to the reasonable requirements of
the Borrower's business and upon fair and reasonable terms no less favorable to
the Borrower than would be applicable in a comparable arm's-length transaction
with a Person not an Affiliate (provided that the investment advisory agreement
between Allied and Allied Capital Advisers, Inc. shall not be deemed to violate
this provision).
ARTICLE 8
FINANCIAL COVENANTS
So long as the Note shall remain unpaid or the Bank shall have any
Commitment under this Agreement:
SECTION 8.01. LEVERAGE RATIO. Borrower will not permit Allied's Total
Liabilities to exceed its Net Worth at any time.
SECTION 8.02. MAXIMUM INTANGIBLE ASSETS. Borrower will not permit
Allied's Intangible Assets to exceed five million dollars ($5,000,000.00) at
any time.
SECTION 8.03. MINIMUM INTEREST COVERAGE. Borrower will cause Allied
to maintain a ratio of (a) Net Income plus Total Interest Expense to (b) Total
Interest Expense of not less than 1.5 to 1 as of the end of each calendar
quarter for the previous four quarters.
ARTICLE 9
DEFAULT
SECTION 9.01. EVENTS OF DEFAULT. Each of the following shall
constitute an Event of Default under this Agreement:
(a) Failure of the Borrower to pay any Obligation to the Bank,
including, without limitation, the principal of or interest on the Note or any
of the Loans, when the same shall become due and payable, whether at maturity,
as a result of the Bank's demand for payment or otherwise, and such failure
shall continue for a period of 5 days; or
(b) If the Borrower refuses to permit the Bank to inspect, examine,
verify or audit the Collateral in accordance with the provisions of this
Agreement; or
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(c) Failure of the Borrower to perform or observe any covenant set
forth in this Agreement (except any such failure resulting in the occurrence of
another Event of Default described in this section), or to perform or observe
any other term, condition, covenant, warranty, agreement or other provision
contained in this Agreement within 30 days after receipt of notice from the
Bank specifying such failure; or
(d) Discovery that any representation or warranty by the Borrower in
this Agreement or any statement or representation made in any certificate,
report or opinion delivered pursuant to this Agreement or in connection with
any Loan under this Agreement was materially untrue in any material respect
provided, however, the Bank shall take no action based on a default under this
paragraph unless the Borrower shall have been provided a reasonable opportunity
to render such misrepresentation or untruth immaterial; or
(e) If, as a result of default, any other obligation of the Borrower
or Allied on a consolidated basis for the payment of any debt in excess of
$500,000 becomes or is declared to be due and payable prior to the expressed
maturity thereof, unless and to the extent that the declaration is being
contested in good faith in a court of appropriate jurisdiction; or
(f) The Borrower makes an assignment for the benefit of creditors,
files a petition in bankruptcy, petitions or applies to any tribunal for any
receiver or any trustee of the Borrower or any substantial part of its
property, or commences any proceeding relating to the Borrower under any
reorganization, arrangement, readjustments of debt, dissolution or liquidation
law or statute of any jurisdiction, whether now or hereafter in effect; or
(g) If, within 30 days after the filing of a bankruptcy petition or
the commencement of any proceeding against the Borrower seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, the proceeding shall not have been dismissed, or, if, within 30
days after the appointment, without the consent or acquiescence of the
Borrower, of any trustee, receiver or liquidator of the Borrower or of all or
any substantial part of the properties of the Borrower, the appointment shall
not have been vacated; or
(h) Any judgment against the Borrower or Allied on a consolidated
basis in excess of $250,000 or any attachment in excess of $250,000 against any
property of the Borrower or Allied on a consolidated basis that remains unpaid,
undischarged, unbonded or undismissed for a period of 30 days, unless and to
the extent that the judgment or attachment is appealed in good faith in a court
of higher jurisdiction and the appeal remains pending; or
(i) The occurrence of an event of default (and the expiration of any
applicable cure period) under any other Loan Document.
SECTION 9.02. REMEDIES UPON DEFAULT. Upon the occurrence of an Event
of Default, the following provisions shall be applicable:
(a) The Bank may, at its option, terminate its obligation to make
Loans under this Agreement and declare all Obligations, whether incurred prior
to, contemporaneous with or subsequent to the date of this Agreement, and
whether represented in writing or otherwise, immediately due and payable and
may exercise all of it rights and remedies against the Borrower and any
Collateral.
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(b) The Bank may foreclose its lien and security interest in the
Collateral in any way permitted by law, and shall have, without limitation, the
remedies of a secured party under the UCC. The Bank may enter the Borrower's
premises without legal process but upon prior notice during business hours and
without incurring liability to the Borrower and remove the Collateral to such
place or places as the Bank may deem advisable, or the Bank may require the
Borrower to assemble the collateral and make the Collateral available to the
Bank at a convenient place and, with or without having the Collateral at the
time or place of sale, the Bank may sell or otherwise dispose of all or any
part of the Collateral whether in its then condition or after further
preparation or processing, either at public or private sale or at any broker's
board, in lots or in bulk, for cash or for credit, at any time or place, in one
or more sales and upon such terms and conditions as the Bank may elect. The
Bank shall give not less than 30 Business Days' prior written notice to the
Borrower of the time and place of any public sale of the Collateral or the time
after which the Collateral may be sold in a private sale, which the Borrower
agrees constitutes commercially reasonable notice. At any such sale the Bank
may be the purchaser, subject to the applicable provisions of the UCC.
(c) Communicate with and notify any party obligated under an Eligible
Third-Party Loan of Borrower's assignments hereunder, and note any such
assignment on Borrower's records; and
(d) Take over the exclusive right to collect the Collateral at the
sole expense of the Borrower, without any obligation to preserve rights against
prior parties. For any acts done or not done incident to such collection or
liquidation, the Bank shall not be liable in any manner. The Bank shall have
the right to settle, compromise, or adjust Collateral and the claims or rights
of Borrower thereunder and accept return of the real estate involved, and in
turn sell and dispose of all said real estate without notice to or approval of
Borrower. The Bank may employ agents and attorneys to collect or liquidate any
Collateral, and the Bank shall not be liable for such Collateral or defaults of
any such agents and attorneys; and
(e) Open any mail addressed to Borrower in connection with any
Collateral or any Loan hereunder, and as attorney in fact for Borrower, sign
the Borrower's name to any receipts, checks, notes, agreements, assignments or
other instruments or letters, in order to collect, sell or liquidate the
Collateral; and
(f) The proceeds from any sale of the Collateral by the Bank shall
first be applied to any costs and expenses in securing possession of the
Collateral and to any expenses in connection with the sale. The net proceeds
will be applied toward the payment of the Obligations. Application of the net
proceeds as to particular Obligations or as to principal or interest shall be
in the Bank's absolute discretion. Any deficiency will be paid to the Bank
forthwith upon demand, and any surplus will be paid to the Borrower if the
Borrower is not otherwise indebted to the Bank.
(g) To the extent that the Obligations are now or hereafter secured by
property other than the Collateral described herein or by the guarantee,
endorsement or property of any other Person, the Bank shall have the right to
proceed against such other property, guarantee or endorsement upon the
occurrence of an Event of Default, and the Bank shall have the right, in its
sole discretion, to determine which rights, security, liens, security interests
or remedies the Bank shall at any time pursue, relinquish, subordinate, modify
or take any other action with respect thereto, without in any way modifying or
affecting any of them or any of the Bank's rights hereunder.
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(h) The Bank is hereby authorized at any time or from time to time,
without notice to the Borrower (any such notice being expressly waived by the
Borrower), to setoff and apply any deposit (general or special, time or demand,
provisional or final) at any time held, including any certificate of deposit,
and other indebtedness at any time owed by the Bank, whether or not any such
deposit or indebtedness is then due, to or for the credit of account of the
Borrower against any and all of the Obligations.
(i) THE BORROWER, HAVING KNOWLEDGE THAT IT MAY BE ENTITLED TO NOTICE
AND A HEARING PRIOR TO REPOSSESSION OF THE COLLATERAL, WAIVES ANY RIGHT THAT IT
MAY HAVE UNDER EXISTING OR FUTURE LAW TO ANY HEARING THAT MAY BE HELD RELATING
TO FORECLOSURE OR ANY OTHER SUCH ACTS, AND TO ANY NOTICE THAT MAY BE REQUIRED
TO BE GIVEN BY THE Bank PRIOR TO SUCH HEARING. THE BORROWER EXPRESSLY WAIVES
ITS RIGHT TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION RELATING TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT.
(j) The Bank may itself perform or comply, or otherwise cause
performance or compliance, with the obligations of the Borrower contained in
this Agreement, including, without limitation, the obligations of the Borrower
to defend and insure the Collateral. The reasonable expenses of the Bank
incurred in connection with such performance or compliance shall be payable by
the Borrower to the Bank on demand and shall constitute Obligations.
ARTICLE 10
MISCELLANEOUS
SECTION 10.01. COLLECTION COSTS. The Borrower shall pay all of the
reasonable costs and expenses incurred by the Bank in connection with the
enforcement of this Agreement and the other Loan Documents, including, without
limitation, reasonable attorneys' fees and expenses.
SECTION 10.02. MODIFICATION AND WAIVER. Except for the other documents
expressly referred to in this Agreement, this Agreement contains the entire
agreement between the parties and supersedes all prior agreements between the
Bank and the Borrower concerning the line of credit and the Loans hereunder.
No modification or waiver of any provision of the Note or this Agreement and no
consent by the Bank to any departure therefrom by the Borrower shall be
effective unless such modification or waiver shall be in writing and signed by
an officer of the Bank with a title of vice president or any higher office, and
the same shall then be effective only for the period and on the conditions and
for the specific instances and purposes specified in such writing. No notice
to or demand on the Borrower in any case shall entitle the Borrower to any
other or further notice or demand in similar or other circumstances. No
failure or delay by the Bank in exercising any right, power or privilege
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies of the Bank
contained in this Agreement are cumulative and not exclusive of any rights or
remedies otherwise provided by law.
SECTION 10.03. NOTICES. All notices, requests, demands or other
communications provided for in this Agreement shall be in writing and shall be
delivered by hand, sent prepaid by Federal Express (or a comparable overnight
delivery service) or sent by the United States mail, certified,
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postage prepaid, return receipt requested, to the Bank, at 808 17th Street,
N.W., Washington, D.C. 20006 Attention: Commercial Lending, or to the Borrower
at 1666 K Street, N.W., Suite 901, Washington, D.C. 20006, Attention: Chief
Financial Officer. Any notice, request, demand or other communication
delivered or sent in the foregoing manner shall be deemed given or made (as the
case may be) upon the earliest of (a) the date it is actually received, (b) on
the business day after the day on which it is properly delivered to Federal
Express (or a comparable overnight delivery service), or (c) on the third
business day after the day on which it is deposited in the United States mail.
The Borrower or the Bank may change its address by notifying the other party of
the new address in any manner permitted by this Section.
SECTION 10.04. CAPTIONS. The captions of the various sections and
paragraphs of this Agreement have been inserted only for the purposes of
convenience; such captions are not a part of this Agreement and shall not be
deemed in any manner to modify, explain, enlarge or restrict any of the
provisions of this Agreement.
SECTION 10.05. SURVIVAL OF AGREEMENTS. All agreements, representations
and warranties made herein shall survive the delivery of this Agreement and the
making and renewal of the Loans hereunder.
SECTION 10.06. FEES AND EXPENSES. Whether or not any Loans are made
hereunder, the Borrower shall pay on demand all reasonable out-of-pocket costs
and expenses incurred by the Bank in connection with the preparation,
negotiation, execution, delivery, filing, recording and administration of any
of the documents and instruments executed or delivered in connection herewith,
including, without limitation, the reasonable fees and expenses of counsel to
the Bank (including, the reasonable fees of salaried counsel employed by the
Bank or its affiliates), and local counsel who may be retained by the Bank,
with respect to such documents and any amendments thereof or of this Agreement
and any amendment hereof and with respect to advising the Bank as to its rights
and responsibilities hereunder or thereunder, provided, however, that the Bank
shall use its reasonable efforts to notify the Borrower prior to incurring any
costs or expenses chargeable to Borrower under this section, unless the Bank
shall have determined in good faith, but at its sole and unfettered discretion,
that a delay or such notice may impair or adversely impact the rights,
remedies, claims or other interest of the Bank or the collectibility of the
Loans.
SECTION 10.07. USE OF DEFINED TERMS. All terms defined in this
Agreement shall have the defined meanings when used in certificates, reports or
other documents made or delivered pursuant to this Agreement, unless the
context shall otherwise require.
SECTION 10.08. SUCCESSORS AND ASSIGNS. This Agreement shall inure to
the benefit of and bind the respective parties hereto and their successors and
assigns; provided, however, that the Borrower may not assign its rights
hereunder without the prior written consent of the Bank.
SECTION 10.09. INTERPRETATION. This Agreement and the rights and
obligations of the parties hereunder shall be construed and interpreted in
accordance with the laws of the District of Columbia, without reference to
conflicts of law principles.
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ARTICLE 11
TEMPORARY BRIDGE FACILITY
SECTION 11.01. APPLICABILITY. The Borrower and the Bank have agreed
to temporarily alter some of the terms and conditions of the above portions of
this Agreement to address certain temporary needs of the Borrower. The
provisions of this Article 11 shall apply during the Bridge Period; and upon
the Bridge Termination Date, except for Section 11.03 (a) and as otherwise
provided in Sections 11.01 and 11.04, the provisions of this Article 11 shall
automatically expire without notice and shall thereafter be null and void.
SECTION 11.02. TEMPORARY DEFINITIONS. During the Bridge Period, the
following terms shall have the meanings assigned to them below, which meanings
shall be equally applicable to the singular and plural forms of the terms
defined, and if any such terms are also defined in Article 1 hereof, the
meanings below shall supersede and replace the meanings set forth in Article 1,
but only during the Bridge Period (except that the term "Note" below shall
continue in effect as long as any Loans remain outstanding under such Note and
no replacement note has been given); all other definitions used in this
Agreement shall remain unchanged during the Bridge Period:
"Bridge Period" means the period commencing on the date hereof and
ending on the Bridge Termination Date.
"Bridge Termination Date" means the date which is the six-month
anniversary of the date of this Agreement.
"Eligible Third-Party Loan" means a Third-Party Loan (i) for which the
original Third-Party Note is in the possession of the Bank, (ii) which, if not
a construction loan, is fully funded, (iii) which is not more than 60 days past
due, (iv) for which, if a Second Mortgage 504 Loan, there is in effect an
S.B.A. Authorization and Debenture Guaranty, and (iv) which is acceptable to
the Bank in its sole discretion.
"Maximum Amount" means the lesser of (i) fifteen million and no/100
dollars ($15,000,000.00), or (ii) the sum of the principal amount of Second
Mortgage 504 Loans, First Mortgage 504 Loans and Companion Loans. The Maximum
Amount may be reduced by the Borrower pursuant to Section 2.01 (d) hereof.
"Note" means a promissory note, in form and substance satisfactory to
the Bank, in the original principal amount of $15,000,000.00, and evidencing
the obligation of the Borrower to pay the principal amount of the Loans,
together with interest on the Loans, as the same may be amended, modified or
supplemented from time to time.
SECTION 11.03. TEMPORARY WAIVER OF CONDITIONS PRECEDENT.
(a) GUARANTY. During the Bridge Period, the Bank shall waive the
condition precedent set forth in Section 3.01 (b) hereof for the delivery of
the Guaranty; provided, however, that at the Bridge Termination Date, such
condition shall be immediately satisfied by the delivery of the Guaranty to the
Bank. The parties hereto acknowledge and agree that the delivery of the
Guaranty on the Bridge Termination Date is a material condition for the
continuance of the Loans after such date, and the failure to satisfy such
condition shall constitute an Event of Default
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without any notice to the Borrower from the Bank or 30-day opportunity to cure
such default as specified in Section 9.01 (c) hereof.
(b) 120-DAY REPAYMENT. During the Bridge Period, the Bank shall waive
the requirement set forth in Section 2.01 (c) hereof that each Loan be repaid
within 120 days after it is advanced.
SECTION 11.04. TEMPORARY CONDITIONS AND AFFIRMATIVE COVENANTS.
(a) UNENCUMBERED ASSETS. During the Bridge Period and until the
Guaranty shall have been delivered to the Bank, the Borrower will cause Allied
to maintain at all times tangible assets not subject to any Lien in an amount,
as reported in the financial statements of Allied, equal to no less than one
hundred and fifty percent (150%) of the amount by which outstanding Loans
exceed the Maximum Amount as defined in Section 1.01 hereof (and not as defined
in Section 11.01 hereof). The obligation of the Bank to make each Loan shall
be subject to the further condition precedent that on or before the date of
such Loan, the Borrower shall have delivered to the Bank a certificate
acceptable to the Bank and signed by the Borrower demonstrating that the Loan,
when advanced, will not cause the outstanding amount of all Loans to violate
the above 150% requirement. In addition, the Borrower shall deliver as soon as
available and, in any event, within 45 days after the end of each of the
quarters of each fiscal year of the Borrower, a certificate acceptable to the
Bank and signed by the Borrower demonstrating that the above 150% requirement
was satisfied as of the end of such quarter.
(b) PAYOFF OF LINE. During the Bridge Period and until the Guaranty
shall have been delivered to the Bank, the Borrower will cause Allied to pay
off its $20 million line of credit from Lehman Brothers and not to borrow any
amount under such line of credit.
(c) NO LIENS OR INDEBTEDNESS. During the Bridge Period and until the
Guaranty shall have been delivered to the Bank, the Borrower will not, and will
not permit Allied to, (i) create, incur, assume or permit to exist any Lien
upon or with respect to any of its properties or assets, now owned or hereafter
acquired, except: (a) Liens in favor of the Bank; and (b) Liens which are
incidental to the conduct of its business, are not incurred in connection with
the obtaining of credit and do not materially impair the value or use of its
assets; or (ii) create, incur, assume or permit to exist any Indebtedness
except (a) the Obligations; (b) Indebtedness in existence on the date of this
Agreement and disclosed in writing to the Bank.
(d) REDUCTION OF OTHER FACILITY. During the Bridge Period and until
the Guaranty shall have been delivered to the Bank, the Borrower will cause
Allied to reduce its $25 million secured facility with the Bank to $20 million.
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IN WITNESS WHEREOF, the Borrower and the Bank have caused this
Agreement to be signed by their duly authorized representatives all as of the
day and year first above written.
ACLC LIMITED PARTNERSHIP, a Maryland limited partnership
By: Allied Capital Lending Corporation, a Maryland corporation, its
general partner
By: /s/ KATHERINE C MARIEN
----------------------------------------------
Name: KATHERINE C MARIEN
----------------------------------------------
Title: President
----------------------------------------------
RIGGS BANK N.A., a national banking association.
By: /s/ DAVID H. OLSON
-----------------------------------------------
Name: DAVID H. OLSON
-----------------------------------------------
Title: Vice President
-----------------------------------------------
21
<PAGE> 22
EXHIBIT "A"
BORROWING BASE APPLICATION AND COMPLIANCE CERTIFICATE
TO Riggs Bank N.A.
FROM: ACLC Limited Partnership ("Borrower")
DATE: ________________, 199___
RE: Line of Credit, Security and Pledge Agreement
This is a (check one)
(____) Borrowing application delivered to you pursuant to the above
Agreement as a condition precedent to an advance to Borrower
under the Agreement
(____) Borrowing compliance certificate delivered to you pursuant to
the Agreement as a certification as of the quarter ending
_________________________________.
All capitalized terms used herein shall have the meaning as defined in the
Agreement. All Third-Party Loans referred to below are Eligible Third-Party
Loans.
1. First Mortgage 504 Loans
A. Aggregate principal amount $
---------
B. Advance rate 50%
C. Available Loan(s) against above $
---------
II. Second Mortgage 504 Loans
A. Aggregate principal amount $
---------
B. Advance Rate 90%
C. Available Loan(s) against above $
---------
III. Companion Loans
A. Aggregate principal amount $
---------
22
<PAGE> 23
B. Advance Rate 50%
C. Available Loan(s) against above $
---------
IV. Total Availability (sum of above) $
---------
Total outstanding amount of Loans $
---------
Excess availability or (overdraw) $
---------
Loan advance request (use for
Loan application only) $
---------
The undersigned hereby certifies that as of the date hereof, the
representations and warranties contained in the Agreement or in any other Loan
Document or otherwise made in writing in connection therewith or herewith are
true and correct in all material respects, and no Default or Event of Default
has occurred and is continuing. If this instrument is a Loan application, the
undersigned, further certifies that all conditions precedent to the advance
being requested hereby have been satisfied.
ACLC LIMITED PARTNERSHIP, a Maryland limited partnership
By: Allied Capital Lending Corporation, a Maryland
corporation, its general partner
By:
-----------------------------------------
Name:
-------------------------------------------
Title:
-----------------------------------------
23
<PAGE> 24
PROMISSORY NOTE
$15,000,000.00 April 18, 1996
ACLC LIMITED PARTNERSHIP, a Maryland limited partnership (the
"Borrower"), for value received, hereby promises to pay to the order of RIGGS
BANK N.A. (the "Bank") at its office, 800 17th Street, N.W., Washington, D.C.
20006, in lawful money of the United States and in immediately available funds
the principal sum of Fifteen Million and no/100 Dollars ($15,000,000.00) or, if
less, the aggregate unpaid principal amount of all loans advanced or
re-advanced by the Bank to the Borrower hereunder.
1. Payment of Principal and Interest; Prepayment; Etc.
(a) Principal Payments. The principal amount of each loan
hereunder shall be due and payable on the Bridge Termination Date (as defined
in the Credit Agreement, hereinafter defined).
(b) Interest Rate; Interest Payments. Except as otherwise
provided hereinafter, each borrowing under this Note shall bear interest on the
unpaid principal amount of such borrowing from time to time at a floating rate
per annum equal to LIBOR plus two and seven tenths of one percent (2.70%) (the
"LIBOR Rate"). Each change in the LIBOR Rate hereunder shall be effective
without notice to the Borrower on the effective date of each change in LIBOR.
Interest shall be payable on the first of each calendar month commencing on the
first such date after each borrowing hereunder and at the Termination Date or
earlier maturity hereof. NOTICE: Under no circumstances will the interest
rate on this Note be more than the maximum rate allowed by applicable law. As
used herein:
"LIBOR" means the rate per annum (rounded upwards, if necessary, to
the next higher 1/100 of 1%) which is the average of interbank offered
rates for U.S. dollar deposits in the London interbank market for a
period of one month, as reported to the Bank on an On-Line Information
Service at approximately 10:00 a.m. (Washington, D.C. time)(the
"Index") on each Business Day. If for any reason on any Business Day
the Bank is unable to access the Index or LIBOR is not reported by the
Index, then LIBOR shall be the London interbank offered rate for U.S.
dollars deposits for a period of one month as reported in The Wall
Street Journal on such Business Day. If LIBOR is not available, the
Bank shall use the most comparable rate at its sole discretion or may
use the average of the rates for the next shortest and next longest
maturities. The Borrower acknowledges and agrees that the
determination by the Bank of LIBOR shall be conclusive and binding on
the Borrower in the absence of manifest error. LIBOR is not
necessarily the rate at which the Bank offers or receives U.S. dollar
deposits in the London interbank market or elsewhere, and is not
necessarily the lowest rate charged by the Bank on loans.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the District of Columbia are generally
authorized to close.
"On-Line Information Service" means a textline or other on-line
information service provided to the Bank by any of Reuters Information
Services, Inc., Knight-Ridder
<PAGE> 25
Financial/Americas, Dow Jones Telerate Inc. or Bloomberg Financial
Markets News Services.
(c) Post-Maturity Interest. After maturity, whether by
acceleration or otherwise, this Note shall bear interest payable on demand at a
variable rate per annum equal to 2% in excess of the LIBOR Rate. To the extent
permitted by law, any payment of interest on this Note not made when due shall
bear interest from the date when due until payment is made payable on demand,
at a rate per annum equal to 2% in excess of the LIBOR Rate.
(d) Prepayment. This Note may be prepaid in whole at any
time or in part from time to time without premium or penalty. This Note shall
immediately be prepaid to the extent that the principal amount hereof at any
time exceeds the Maximum Amount (as defined in the Credit Agreement).
(e) Advances; Evidence of Amounts Due. This Note is held by
the Bank as a master note against which loans may be advanced in lesser
amount(s) than the principal amount. The Borrower shall give the Bank a
written or telexed request or a telephonic request (to be promptly confirmed in
writing) no later than 1:00 p.m. (Washington, D.C. time) on at least one
Business Day before the day of the desired borrowing, specifying: (i) the
Business Day of the desired borrowing, and (ii) the amount of such borrowing.
The Bank shall, promptly upon request, notify the Borrower telephonically of
the LIBOR Rate. The Borrower shall be liable only for so much of the principal
amount as shall be equal to the total of the amounts advanced or re-advanced
against this Note to or for the Borrower by the Bank from time to time, less
all payments made by or for the Borrower and applied by the Bank to principal.
The Borrower shall also be liable for interest on each such advance or
re-advance as shown on the Bank's books and records, provided that the rate of
such interest is in accordance with the applicable rate or rates specified in
this Note. The Borrower acknowledges that a statement signed by an officer of
the Bank setting forth the amount of principal and interest owed hereon as
reflected in such books and records shall be presumptive evidence of the facts
stated therein and shall, absent manifest error, be conclusive and binding.
Any statement of account delivered to the Borrower shall be deemed correct and
accepted unless a written statement of exceptions thereto is delivered to the
Bank within thirty (30) days after mailing of such statement of account. In
making any advance or re-advance hereunder, the Bank shall be entitled to rely
upon any notice of borrowing or other instructions, whether oral, written or by
any form of telecommunication, purporting to be made by a person designated to
the Bank by the Borrower as an Authorized Representative of the Borrower, and
deposit of the proceeds of an advance or re-advance hereunder in a deposit
account in the name of the Borrower or the remittance of any proceeds to
persons designated in such instructions shall conclusively establish that such
loan was duly made hereunder.
(f) Payments Due on Non-Business Days. If any installment of
principal on this Note becomes due and payable on a day which is not a Business
Day, the maturity thereof shall be extended to the next succeeding Business
Day, and interest shall be payable thereon at the rate herein specified during
such extension. If any payment of interest on any loan evidenced by this Note
becomes due and payable on a day which is not a Business Day, such payment
shall be made on the next succeeding Business Day, together with interest
accrued during such extension.
2
<PAGE> 26
2. Use of Loans. The loans made hereunder shall be used for the
purpose of carrying on a business or commercial activity within the meaning of
the District of Columbia Code Sections 28-3301(d)(1)(B).
3. Events of Default, Remedies. The occurrence of any Event of
Default under the Credit Agreement shall constitute an Event of Default
hereunder. Upon the occurrence of an Event of Default, the Bank is entitled to
exercise the remedies set forth in the Credit Agreement.
4. Expenses. The Borrower agrees to pay all reasonable out-of-pocket
charges and expenses incurred by the Bank, including the reasonable fees and
expenses of its legal counsel (including the cost of the Bank's in-house
counsel as determined by the Bank) in connection with the negotiation,
preparation and execution of this Note and any amendments, waivers,
modifications or supplements hereto, and the enforcement of any provision of
this Note or any amendment, waiver, modification or supplement hereto and the
collection of this Note.
5. Additional Costs. In the event that at any time the Bank shall be
required to maintain reserves against "Eurocurrency Liabilities" under
Regulation D of the Board of Governors of the Federal Reserve System or in the
event that there shall occur any change in applicable law or regulation or in
the interpretation thereof by any governmental authority charged with the
administration thereof or the introduction of any law or regulation subjects
the Bank to any tax or governmental charge of any kind whatsoever with respect
to this Note, loans hereunder or U.S. dollar deposits held by the Bank, or
changes the basis of taxation of payments to the Bank of principal of or
interest payable with respect to this Note (except for changes in the rate of
tax based solely on the overall net income of the Bank) or imposes, modifies or
deems applicable any reserve, special deposit, capital ratio or similar
requirement against assets held by or deposits in or for the account of, or
loans by, the Bank or imposes on the Bank, directly or indirectly, any other
conditions affecting this Note or the cost of U.S. dollar deposits obtained by
the Bank in the domestic market or the London interbank market, and the result
of any of the foregoing is to increase the cost to the Bank of making or
maintaining loans hereunder, then the Bank shall notify the Borrower in writing
of the additional amount or amounts necessary to compensate the Bank for such
additional costs. A certificate of an officer of the Bank setting forth the
calculation of such costs shall be conclusive and binding, absent manifest
error. In the event the Borrower is unwilling to pay such additional costs,
during the thirty days following the receipt of such notice, the Bank and the
Borrower shall negotiate in good faith with a view toward modifying this Note
to provide a substitute basis for the interest rate provided above which is
financially a substantial equivalent of such rate. If, within such thirty-day
period, the Bank and the Borrower shall agree in writing upon such substitute
rate, then such substitute rate shall be retroactive to, and effective from,
the date of the aforesaid notice. If, within such thirty-day period, the Bank
and the Borrower shall fail to agree in writing upon such substitute rate, the
Borrower agrees that this Note shall bear interest retroactive to, and
effective from, the date of the aforesaid notice at a rate equal to the rate
reported by The Wall Street Journal in its column "Money Rates" as the prime
rate (the "Prime Rate"). If more than one rate or a range of rates is
reported, the Prime Rate shall be the higher or highest such rate. In the
event The Wall Street Journal fails to report a prime rate, the Prime Rate
shall mean that rate announced from time to time by the Bank as its prime rate
of interest. The Prime Rate, determined in either manner, is not necessarily
the lowest rate charged by the Bank on loans.
3
<PAGE> 27
6. Right of Setoff. Unless this Note be paid at its maturity, or
when otherwise due, as herein provided, the Bank shall have all setoff rights
provided by law.
7. Waivers and Consents. Except as otherwise expressly set forth
herein, the Borrower and all endorsers, guarantors, and sureties of this Note
(collectively the "Obligors") severally (a) waive all applicable exemption
rights, whether under the laws of the District of Columbia or otherwise, and
also waive, presentment for payment, protest, notice of protest, and diligence
in collecting this Note, (b) agree to the release of any party primarily or
secondarily liable hereon and agree that it will not be necessary for any
holder hereof, in order to enforce payment of this Note by any party, to first
institute suit against any other Obligor, and (c) consent to any one or more
extensions or postponements of time of payment of this Note on any terms or any
other indulgences with respect thereto. THE RIGHT OF THE BORROWER AND ANY
OBLIGOR TO TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING IN CONNECTION
HEREWITH, IS HEREBY EXPRESSLY WAIVED.
8. Governing Law, Jurisdiction, Notice, Etc. This Note is deemed to
be a contract under the laws of the District of Columbia (except for the
conflict of law provisions thereof) and shall be governed by, and construed in
accordance with, the laws of such jurisdiction. Wherever possible each
provision of this Note shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this Note shall be
prohibited by or invalid under such law, such provision shall be ineffective to
the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Note. If any
action arising out of this Note is commenced in any District of Columbia or
Federal court located in the District of Columbia, each party signatory hereto
hereby consents to the jurisdiction of any such court in any such action and to
the laying of venue in the District of Columbia. Any process in such action
shall be duly served if mailed by registered mail, postage prepaid, to the
Borrower at its address given herein or its last known business address, or if
otherwise served in acceptance with law. Any other notice or demand hereunder
may be made by hand delivery or certified or registered mail, return receipt
requested, to such address, with the same effect as if delivered in person.
9. Incorporated Provisions. This Note is the Note referred to in a
Line of Credit, Security and Pledge Agreement dated as of April 8, 1996,
between the Borrower and the Bank (the "Credit Agreement"), is subject to
payment and acceleration upon the terms specified therein, and hereby
incorporates by reference all of the provisions thereof.
ACLC LIMITED PARTNERSHIP, a Maryland limited partnership
By: Allied Capital Lending Corporation, a
Maryland corporation, its general partner
By: /s/ KATHERINE C. MARIEN
--------------------------------
Name: Katherine C. Marien
Title: President
4
<PAGE> 1
EXHIBIT l
SUTHERLAND, ASBILL & BRENNAN
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
STEVEN B. BOEHM TEL: (202) 383-0100
DIRECT LINE: (202) 383-0176 FAX: (202) 637-3593
April 25, 1996
Allied Capital Lending Corporation
c/o Allied Capital Advisers, Inc.
1666 K Street, N.W., Ninth Floor
Washington, D.C. 20006-2803
Ladies and Gentlemen:
We have acted as counsel to Allied Capital Lending
Corporation, a Maryland corporation (the "Company"), in connection with the
registration with the Securities and Exchange Commission of the Company's
proposed offering of shares of the Company's common stock (the "Shares")
pursuant to a registration statement on Form N-2, as amended (File No.
333-02185) (the "Registration Statement"). The Shares are being offered through
the issuance of nontransferable rights to existing holders of the Company's
common stock, and any Shares not subscribed for pursuant to such rights may be
offered to other persons, in each case as described in the Registration
Statement.
We have participated in the preparation of the Registration
Statement and have examined originals or copies, certified or otherwise
identified to our satisfaction by public officials or officers of the Company
as authentic copies of originals, of (i) the Company's Articles of
Incorporation and its Bylaws, (ii) resolutions of the board of directors of the
Company approving the offer and the issuance of the Shares, and (iii) such
other documents as in our judgment were necessary to enable us to render the
opinions expressed below. In our review and examination of all such documents,
we have assumed the legal capacity of all natural persons, the genuineness of
all signatures, the authenticity of all documents and records submitted to us
as originals, and the conformity with authentic originals of all documents and
records submitted to us as copies. To the extent we have deemed appropriate,
we have relied upon certificates of public officials and certificates and
statements of corporate officers of the Company as to certain factual matters.
This opinion is limited to the laws of the State of Maryland,
and we express no opinion with respect to the laws of any other jurisdiction.
We do not hold ourselves out as experts in the laws of the State of Maryland,
and we have not consulted with Maryland counsel with respect to this opinion
letter. The
<PAGE> 2
Allied Capital Lending Corporation
April 25, 1996
Page 2
opinions expressed in this letter are based on our review of the Maryland
Corporation Law, with which we are familiar.
Based upon and subject to the foregoing and our investigation
of such matters of law as we have considered advisable, we are of the opinion
that:
1. The Company is a corporation duly incorporated,
validly existing and in good standing under the laws
of the State of Maryland.
2. Upon the consummation of sale of Shares and the
payment of the consideration therefor in the manner
described above and in the Registration Statement,
the Shares will be duly authorized, validly issued,
fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement. We do not admit by giving this consent that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN
By: /s/ Steven B. Boehm
-------------------------
Steven B. Boehm
<PAGE> 1
EXHIBIT n
[MATTHEWS, CARTER AND BOYCE LETTERHEAD]
Allied Capital Lending Corporation
Washington, DC 20006
We hereby consent to the use in the Prospectus constituting part of
this Registration Statement on Form N-2, in the form in which it becomes
effective, of our report dated February 2, 1996 relating to the financial
statements of Allied Capital Lending Corporation for the years ended December
31, 1995, 1994 and 1993, which appear in such Prospectus. We also consent to
the reference to us under the headings "Financial Highlights" and "Reports and
Independent Accountants" in such Prospectus.
/s/ MATTHEWS, CARTER AND BOYCE
McLean, Virginia
April 25, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY UNAUDITED FINANCIAL INFORMATION EXTRACTED FROM
ALLIED CAPITAL LENDING CORPORATION AND SUBSIDIARY'S CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1996 AND CONSOLIDATED STATEMENTS OF OPERATIONS, CHANGES IN NET
ASSETS AND CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED
IN THIS REGISTRATION STATEMENT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 44,532
<INVESTMENTS-AT-VALUE> 44,356
<RECEIVABLES> 703
<ASSETS-OTHER> 638
<OTHER-ITEMS-ASSETS> 5,467
<TOTAL-ASSETS> 51,164
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 18,199
<TOTAL-LIABILITIES> 18,199
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 33,318
<SHARES-COMMON-STOCK> 4,389
<SHARES-COMMON-PRIOR> 4,385
<ACCUMULATED-NII-CURRENT> (177)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (176)
<NET-ASSETS> 32,965
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,591
<OTHER-INCOME> 662
<EXPENSES-NET> 842
<NET-INVESTMENT-INCOME> 1,411
<REALIZED-GAINS-CURRENT> (60)
<APPREC-INCREASE-CURRENT> (21)
<NET-CHANGE-FROM-OPS> 1,330
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,315
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 4
<NET-CHANGE-IN-ASSETS> 81
<ACCUMULATED-NII-PRIOR> (213)
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 314
<INTEREST-EXPENSE> 396
<GROSS-EXPENSE> 842
<AVERAGE-NET-ASSETS> 32,925
<PER-SHARE-NAV-BEGIN> 7.50
<PER-SHARE-NII> 0.32
<PER-SHARE-GAIN-APPREC> (0.02)
<PER-SHARE-DIVIDEND> 0.30
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.51
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 17,461
<AVG-DEBT-PER-SHARE> 3.98
</TABLE>
