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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-22832
ALLIED CAPITAL CORPORATION
(Exact Name of Registrant as specified in its Charter)
MARYLAND 52-1081052
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation) Identification No.)
1666 K STREET, NW, NINTH FLOOR
WASHINGTON, D.C. 20006
(Address of Principal Executive (Zip Code)
Office)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (202) 331-1112
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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NONE NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.0001 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's common stock held by
non-affiliates of the registrant as of March 19, 1998 was approximately
$1,259,935,369 based upon the average bid and asked prices for the registrant's
common stock on that date. As of March 20, 1998 there were 52,072,606 shares of
the registrant's common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Shareholders for the year ended
December 31, 1997 are incorporated by reference into Parts II and IV of this
Report. Portions of the registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on May 14, 1998 are incorporated by reference
into Part III of this Report.
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PART I
ITEM 1. BUSINESS OF THE COMPANY
Allied Capital Corporation, a Maryland corporation, is a closed-end management
investment company that has elected to be regulated as a business development
company ("BDC") under the Investment Company Act of 1940 ("1940 Act"). Allied
Capital Corporation has three wholly owned subsidiaries that have also elected
to be regulated as BDCs, as well as other subsidiaries. ACC is traded on the
Nasdaq Stock Market under the symbol "ALLC."
THE MERGER
On December 31, 1997, Allied Capital Corporation ("Allied I"), Allied Capital
Corporation II ("Allied II"), Allied Capital Commercial Corporation ("Allied
Commercial"), and Allied Capital Advisers, Inc. ("Advisers"), (each an "Acquired
Company" and collectively the "Acquired Companies") merged with and into Allied
Capital Lending Corporation ("Allied Lending") pursuant to an Agreement and Plan
of Merger, dated as of August 14, 1997, as amended and restated as of September
19, 1997 in a stock-for-stock exchange (the "Merger"). The five parties to the
Merger are sometimes referred to herein, either singularly or collectively, as
the "Predecessor Company" or "Predecessor Companies." Immediately following the
Merger, Allied Lending changed its name to Allied Capital Corporation ("ACC" or
the "Company").
The Merger, which was approved by shareholders of each Predecessor Company at a
Special Meeting of Stockholders on November 26, 1997, was effected through a
conversion of each share of Acquired Company common stock into the number of
shares of Allied Lending common stock determined pursuant to the following
exchange ratios: Allied I - 1.07 shares; Allied II - 1.40 shares; Allied
Commercial - 1.60 shares; and Advisers - 0.31 shares. Allied Lending's common
stock outstanding prior to the Merger continues to be outstanding, and was not
converted or changed in the Merger. On December 31, 1997, subsequent to the
exchange of shares, the Company had 52,047,318 shares outstanding.
To facilitate the Merger, Allied Lending's charter was amended primarily to
effect: (a) an increase in the number of authorized shares of common stock, par
value one-tenth of one mil ($0.0001) per share, from 20,000,000 shares to
100,000,000 shares; and (b) a change in Allied Lending's name to "Allied Capital
Corporation."
THE COMPANY
The merged company is in substance a new entity, and together with its
subsidiaries is an amalgamation of the Predecessor Companies and their
respective subsidiaries, with an investment objective and investment policies
that encompass substantially similar objectives and/or policies of Allied
Lending and each Acquired Company. In short, the range of investment
opportunities and advisory services previously offered by the Predecessor
Companies has been distilled into ACC. Portions of the narrative below that
discuss ACC's historical operations actually reflect the historical operations
of the relevant Predecessor Company or Predecessor Companies.
The investment objective of ACC is to achieve current income and capital gains.
ACC seeks to achieve its investment objective by investing primarily in private,
growing businesses in a variety of industries and in diverse geographic
locations (primarily in the United States). ACC operates its portfolio in four
parts: mezzanine finance, commercial real estate finance, 7(a) lending and
investment advisory services. ACC's investment portfolio, resulting from the
merger of the portfolios and businesses of Allied I, Allied II, Allied
Commercial and Allied Lending, consists of small senior loans, small and
medium-sized subordinated loans with equity features, and small and medium-sized
commercial mortgage loans. At December 31, 1997, ACC's investment portfolio
totaled $697 million representing 819 borrower relationships.
MEZZANINE FINANCE
As successor to the businesses and portfolios of Allied I and Allied II, ACC and
several of its wholly owned subsidiaries provide debt, mezzanine, and equity
financing in private transactions for small and medium-sized, primarily private,
growth companies. Investments of this type (made by Allied I and Allied II) have
historically ranged in size between $2 million and $10 million for the purposes
of growth or acquisition capital. ACC will continue to originate investments of
this size, however, additional asset growth is
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anticipated from seeking larger sized transactions ranging from $10 million to
$20 million. Because of an improved capital structure resulting from the Merger,
ACC has been able to lower its pricing, which should increase loan originations.
ACC provides financing for growth, leveraged buyouts of small companies, note
purchases, loan restructurings, acquisitions, recapitalizations, and bridge
financings for small businesses. At December 31, 1997, ACC's mezzanine loan
portfolio totaled $168 million; equity interests at December 31, 1997 were
valued at $40 million.
ACC generally invests in small, private companies and may, from time to
time, invest in small, thinly traded public companies that lack access to
capital and whose securities are generally not marginable. In general, such
companies would have been in business for at least one year, have a
commercially proven product or service, and seek capital to finance expansion
or ownership changes. ACC generally requires that its portfolio companies
demonstrate sales growth, positive cash flow, and profitability. In choosing
investment opportunities, ACC emphasizes the quality of management and seeks
experienced entrepreneurs with a management track record and relevant industry
experience (see "--Underwriting Procedures"). Upon consummation of the Merger,
ACC succeeded to the existing mezzanine loan portfolios of Allied I and Allied
II, which included investments in, among other industries, manufacturing,
broadcasting, retail and service companies. ACC's mezzanine portfolio is not
concentrated in any particular geographical area or region, and is diverse in
terms of the specific industries represented. The following tables show the
industry and geographic composition of ACC's mezzanine portfolio.
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ACC'S MEZZANINE PORTFOLIO BY INDUSTRY AND GEOGRAPHIC REGION at DECEMBER 31, 1997
INDUSTRY GEOGRAPHIC REGION
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Industrial/Manufacturing 43% Mid-Atlantic 29%
Broadcasting/Communications 26% Southeast 27%
Retail/Wholesale 15% Midwest 17%
Services 12% West 13%
Other 4% Northeast 8%
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100% International 6%
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100%
================================================================================
ACC's mezzanine investments are generally structured as debt securities that
carry a relatively high fixed rate of interest, which may be combined with
equity features, such as conversion privileges, warrants or options to purchase
a portion of a portfolio company's common equity at a nominal price. Such an
investment generally carries a fixed interest rate, typically having a maturity
of seven years, with interest-only payments in the early years and payments of
both principal and interest in the later years, although loan maturities and
principal amortization schedules vary. ACC makes senior loans without equity
features, and such loans generally bear interest at a fixed rate. At December
31, 1997, 98% of the mezzanine portfolio had fixed rates of interest.
ACC's current income from its mezzanine portfolio is derived primarily from
interest earned on its debt securities. Historically, ACC has structured its
mezzanine investments so that approximately one-half of ACC's potential return
was earned in the form of current interest payments, and the balance was derived
from capital gains that arise from the sale of ACC's equity interest in the
portfolio company. During 1997, and it is anticipated for future years, ACC
began originating larger mezzanine transactions where the majority of the
investment return is expected from current interest with a lesser amount of the
return expected from capital gains.
Generally, long-term growth in net asset value and realized capital gains, if
any, are achieved through the equity portion of its mezzanine investments. The
Company's equity investments consist primarily of
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securities issued by privately owned companies, and may be subject to
restrictions on their resale or are otherwise illiquid. Equity securities
generally do not produce a current return, but are held for investment
appreciation and ultimate gain on sale.
Historically, all of the investments of the Company have been made in
domestic small businesses. In 1995, Allied I established a $20 million credit
facility with the Overseas Private Investment Corporation ("OPIC"), pursuant to
which Allied I began making investments in businesses that engage, in whole or
in part, in overseas operations, usually in countries representing the world's
emerging markets. OPIC's purpose is to promote economic growth in developing
countries by encouraging U.S. private investment in those nations. Under OPIC
regulations, investments generally may be made only in companies that have some
affiliation with a U.S.-based business entity. ACC is not actively pursuing
OPIC-qualifying investments. At December 31, 1997, ACC had OPIC-qualifying
investments at value equal to $10 million.
SBIC SUBSIDIARY. ACC has a wholly owned subsidiary, Allied Investment
Corporation ("Allied Investment") which is licensed by the U.S. Small Business
Administration ("SBA") as a small business investment company ("SBIC") under
Section 301(c) of the Small Business Investment Act of 1958, as amended (the
"1958 Act"), and has also elected to be regulated as a BDC. Allied Investment's
portfolio was formed as a result of the merger between Allied Investment and
Allied Investment Corporation II ("Investment II"), which, prior to the Merger,
were subsidiaries of Allied I and Allied II, respectively. The investment
objective of Allied Investment is to achieve both long-term growth in the value
of its net assets and current income by providing debt, mezzanine, and equity
financing for small, privately owned growth companies. Allied Investment's
investments are substantially similar in form to those made by Allied I and
Allied II.
As an SBIC, Allied Investment provides capital to privately owned small
businesses primarily through subordinated debt investments with equity
features. Equity features include loan conversion privileges, warrants or
options to purchase a portion of a portfolio company's common equity at a
nominal price. Wherever possible, Allied Investment seeks collateral for its
respective loans, but its security interests in such loans are usually
subordinated to the security interests of other institutional lenders.
SBICs are authorized to stimulate the flow of private equity capital to eligible
small businesses. Under present SBA regulations, eligible small businesses
include businesses that have a net worth not exceeding $18 million and have
average annual fully-taxed profits not exceeding $6 million for the most recent
two fiscal years. In addition, an SBIC must devote 20% of its investment
activity to "smaller" concerns as defined by the SBA. A smaller concern is one
that has a net worth not exceeding $6 million and has average annual fully-taxed
profits not exceeding $2 million for the most recent two fiscal years. SBA
regulations also provide alternative size standard criteria to determine
eligibility which depend on the industry in which the business is engaged and
are based on such factors as the number of employees and gross sales. According
to SBA regulations, SBICs may make long-term loans to small businesses, invest
in the equity securities of such businesses, and provide them with consulting
and advisory services. Allied Investment provides long-term loans to qualifying
small businesses; equity investments and consulting and advisory services are
typically provided only in connection with such loans.
SSBIC SUBSIDIARY. ACC also has a wholly owned subsidiary, Allied
Capital Financial Corporation ("Allied Financial"), which is licensed as a
specialized small business investment company under Section 301(d) of the 1958
Act ("SSBIC"), and has also elected to be regulated as a BDC. Allied
Financial's portfolio was formed as a result of the merger between Allied
Financial and Allied Financial Corporation II ("Financial II"), which, prior to
the Merger, were subsidiaries of Allied I and Allied II, respectively. The
investment objective of Allied Financial is to achieve both long-term growth in
the value of its net assets and current income by providing debt, mezzanine and
equity financing for small, privately owned growth companies that are at least
50% owned, controlled, and managed by a socially or economically disadvantaged
person, as defined by the SBA. ACC has determined that, given certain
regulatory requirements of the SSBIC program, it is no longer economical to
operate Allied Financial as an SSBIC. As a result, ACC is currently working
with the SBA to restructure its SBIC and SSBIC licenses.
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SBA FINANCING. Allied Investment and Allied Financial have the
opportunity to sell to the SBA preferred stock and subordinated debentures with
a maturity of up to ten years, up to an aggregate principal amount calculated
by a formula which applies a multiple to its private capital, but not in excess
of $101 million (the "$101 million limit"). The $101 million limit generally
applies to all financial assistance provided by the SBA to any licensee and its
"associates," as that term is defined in SBA regulations. For this purpose,
Allied Investment and Allied Financial would be deemed to be "associates" of
one another. As a group, Allied Investment and Allied Financial have received
$54.3 million of subordinated debentures and $7 million of preferred stock
investments from the SBA as of December 31, 1997; as a result, the combined
ability to apply for additional financing from the SBA will be limited.
Interest rates on the SBA debentures currently outstanding range from
6.9% to 9.8%.
COMMERCIAL REAL ESTATE FINANCE
As successor to the business and portfolio of Allied Commercial, ACC invests in
commercial loans to small businesses secured by liens or mortgages on real
estate ("commercial mortgage loans"). Such loans are purchased or originated by
ACC in accordance with certain underwriting criteria discussed below. ACC
focuses on "enterprise value" commercial real estate lending, meaning that the
value of the investment is based on the ongoing value of the commercial
enterprise to which a loan is made, and not just on the underlying real estate
collateral. The Company believes that it competes successfully in the commercial
mortgage finance market due to the creativity and flexibility of its loan terms
and because it specializes in mortgage loan financing for entrepreneurs whose
business is a source of revenue in addition to the real estate collateral
itself. As of December 31, 1997, the commercial real estate portfolio totaled
approximately $446 million.
ACC derives income from interest on its commercial mortgage loans and
from discounts on its portfolio of purchased commercial mortgage loans.
Commercial mortgage loans purchased or originated by ACC are not concentrated
in any particular geographical area or region, and are secured by various
properties, including hotels, motels and resorts, office buildings, retail
establishments, industrial/manufacturing facilities and other property types.
The following tables show the composition of ACC's commercial mortgage loan
portfolio by property type and geographic region:
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ACC'S COMMERCIAL MORTGAGE LOAN PORTFOLIO BY PROPERTY TYPE AND
GEOGRAPHIC REGION AT DECEMBER 31, 1997
INDUSTRY GEOGRAPHIC REGION
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Hospitality 33% Mid-Atlantic 38%
Office 31% Midwest 18%
Retail 14% West 18%
Industrial/Manufacturing 6% Souteast 14%
Other 16% Northeast 12%
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100% 100%
================================================================================
ACC's existing portfolio contains loans that were purchased from the Resolution
Trust Corporation, the Federal Deposit Insurance Corporation, and other third
party sellers including life insurance companies and banks. These loans were
generally purchased at a discount from the face amount of the notes. In 1994,
the Predecessor Company shifted its focus to loan origination from loan
purchases in order to meet growing market demand and to supplement declining
loan purchase opportunities. ACC continues to originate and purchase mortgage
loans, with a primary focus on loan originations ranging in size from $1 million
to $20 million. Subsequent to the Merger, ACC also provides other long-term
financing to businesses, such as subordinated real estate loans and
sale-leaseback financing.
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At December 31, 1997, approximately 73% of the Company's portfolio of commercial
mortgage loans carried a fixed rate of interest and approximately 27% had
adjustable rates of interest tied to various indices. Commercial mortgage loans
originated by ACC generally have a maturity of five to ten years. Occasionally,
these loans may require payments of interest only or level payments of principal
and interest calculated to amortize principal on a 10- to 30-year basis with a
balloon payment at maturity. At December 31, 1997, the effective yield on ACC's
portfolio of commercial mortgage loans was approximately 11.4%, which reflects
amortization of discounts on loans over the expected life of the loan and the
stated interest rate. ACC generally prices its commercial mortgage loans at
interest rates ranging from 200 to 500 basis points over comparable term U.S.
Treasury rates.
The Company experienced a high rate of commercial mortgage loan repayments in
1997 as many loans that had been purchased in earlier years, and originated
without substantial prepayment prohibitions, repaid due to a favorable interest
rate environment. The Company now generally originates its commercial real
estate loans to require prepayment premiums, which generally take the form of a
fixed percentage of the loan amount that declines as the loan matures. At
December 31, 1997, 53% of the commercial real estate portfolio required payment
of some premium upon early repayment, or prohibited repayment for a specified
period of time.
Certain of the loans to which ACC has succeeded were acquired or originated in
conjunction with Business Mortgage Investors, Inc. ("BMI"), a company privately
owned by institutional and other accredited investors. As the successor to
Advisers, ACC serves as investment adviser to BMI. From January 1993 until
January 1, 1997, Allied Commercial generally participated in all loan purchases
and originations with BMI on a pro rata basis according to each entity's total
equity. Allied Commercial's participation in each loan varied over this period,
ranging from 77% to 78%. Effective January 1, 1997, BMI discontinued purchasing
or originating mortgage loans, and by the terms of its formation, is currently
in liquidation.
ASSET SECURITIZATION. One of ACC's business strategies is to securitize a
portion of its commercial real estate portfolio. Through asset securitization,
ACC effectively sells senior tranches of its mortgage loans to investors while
retaining a subordinated interest in the loans sold. Securitization provides
increased investment leverage for ACC and enhances the returns on the Company's
invested equity capital. Mortgage loans originated for future securitization
must meet certain additional investment criteria.
On January 30, 1998, the Company, in conjunction with BMI, completed an
asset securitization transaction whereby $239 million in commercial
mortgage-backed bonds were issued by Allied Capital Commercial Mortgage Trust
1998-1. The bonds were sold in a private placement of three bond classes rated
"AAA," "AA" and "A" by Standard & Poor's Rating Services and Fitch IBCA, Inc.
The Company and BMI sold loans with an aggregate balance of $310 million to
secure the bonds. The Company contributed approximately 95%, or $295 million,
of the total loans sold. The Company retained a trust certificate representing
the difference between the assets sold and the bond proceeds received, or
approximately 23% of the assets sold. The mortgage loans sold had an
approximate weighted average stated interest rate of 9.6%. The three bond
classes have an aggregate weighted average interest rate of approximately
6.38%. The Company will continue to service 100% of the loans sold. The Company
will account for the sale in accordance with FASB 125.
ACC believes that asset securitization is an effective means of financing its
commercial real estate finance operations and increasing its returns on the
assets retained. ACC intends to continue the practice of asset securitization
for its commercial real estate loans.
7(a) LENDING
As successor to the business and portfolio of Allied Lending, ACC,
through a wholly owned subsidiary, Allied Capital SBLC Corporation ("Allied
SBLC"), participates in the SBA's Section 7(a) Guaranteed Loan Program as a
small business lending company ("SBLC") pursuant to Section 7(a) of the Small
Business Act (1958), as amended (the "Small Business Act"). As a Section 7(a)
lender, ACC makes loans that are partially guaranteed by the SBA to small
businesses. The SBA is no longer issuing SBLC licenses and there are only
fourteen non-bank SBLCs operating in the United States. Allied SBLC, previously
a subsidiary of Allied Lending, survived the Merger as a subsidiary of ACC and
continues to hold the SBLC license, and all of
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ACC's 7(a) loans are originated by Allied SBLC. As of December 31, 1997, the
7(a) loan portfolio totaled approximately $41 million.
The Company's 7(a) loans typically range in size from $200,000 to $1 million.
Pursuant to Section 7(a) of the Small Business Act, the SBA will guarantee 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.
Allied Lending has historically charged, and ACC will continue to
charge, interest on 7(a) loans at a variable rate, typically 1.75% to 2.75% per
annum above the prime rate, as published in The Wall Street Journal or other
financial newspaper, adjusted monthly. Approximately 92% of the Company's 7(a)
loan portfolio had variable interest rates as of December 31, 1997. Generally
loans are payable in equal monthly installments of principal and interest on
the first day of the month following the month in which the loan is funded,
until maturity. ACC's new capital structure has afforded the Company the
opportunity to lower its 7(a) loan pricing so that it may compete more
effectively in the marketplace, increase deal flow, and improve the credit
quality of its assets. In addition, ACC intends to streamline its credit
approval process for 7(a) loans, and refine its network of Regional Associates,
who are the primary source for new 7(a) loan referrals. (See "--Loan
Sourcing.")
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.
ACC generally does not make unsecured working capital loans or equipment loans.
Generally, ACC's 7(a) loans are secured by real estate assets. In all
cases, the principals of the small businesses must personally guarantee the
payment of interest on and principal of the loans.
ACC has in its 7(a) portfolio, or is servicing loans to, among others, hotels
and motels, automotive shops and gas stations, broadcasting and communications
companies, restaurants, manufacturers, service providers, retail shops, and
other small businesses. The following tables shows ACC's 7(a) loan portfolio by
industry and geographic region.
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ACC'S 7(a) LENDING PORTFOLIO BY INDUSTRY AND GEOGRAPHIC REGION AT
DECEMBER 31, 1997
INDUSTRY GEOGRAPHIC REGION
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Hospitality 25% Midwest 36%
Automotive Services 21% Mid-Atlantic 29%
Broadcasting/Communications 10% Southeast 18%
Restaurant/Food Services 9% Northeast 10%
Industrial/Manufacturing 7% West 7%
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Services 6% 100%
Retail/Wholesale 6%
Other 16%
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100%
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Premium income results primarily from the cash gain on the sale of the
guaranteed portion of the Company's 7(a) loans into the secondary market, less
the costs associated with originating the loans sold. Typically, the Company
receives cash premiums on loan sales, net of origination costs, ranging from 4%
to 6% of the face amount of each loan sold. Effective January 1, 1998, the
Company is no longer required to
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hold the guaranteed portion of its 7(a) loans for 90 days before selling, and
now sells the guaranteed portion shortly after funding the loan. This change has
lowered ACC's costs associated with the 7(a) loan origination program. The SBA
is entitled to a fee of 50% of any cash premium in excess of 10% received on
loan sales. The Company, through Allied SBLC, continues to service 100% of its
loans sold 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
accrued as an excess servicing asset.
ACC also provides companion or "piggyback" loans in conjunction with traditional
7(a) loans (i.e., the 7(a) Companion Loans). For this type of financing, ACC
provides an unguaranteed first mortgage loan for up to 60% of the real estate
value and a second mortgage loan through the 7(a) 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. From time to time, ACC may partner 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 7(a) Companion Loans are included in ACC's commerical
real estate finance portfolio.
The SBA designates certain participants in the Section 7(a) Loan Program as
"Preferred Lenders" in certain designated markets. This designation allows a
lender to make 7(a) loans in the designated region without SBA credit
approval, thus simplifying and expediting the process of loan approval and
disbursements. At December 31, 1997, Allied SBLC was identified as a Preferred
Lender in a number of regional markets.
As successor to all of Allied Lending's operations, ACC also participates in the
SBA Section 504 Loan Program; these loans are included in ACC's commercial real
estate finance portfolio.
INVESTMENT ADVISORY SERVICES
As successor to Advisers, ACC is internally managed and is registered with the
Securities and Exchange Commission (the "Commission") as an investment adviser
under the Investment Advisers Act of 1940, as amended (the "Advisers Act"). ACC
also provides investment advisory and related services to other entities,
including certain entities previously managed by Advisers that were not parties
to the Merger. More particularly, these entities include BMI, and two small
investment partnerships, which, like BMI, are also in liquidation. Each of these
entities focuses primarily on investments in small growing entrepreneurial
companies, and specializes in providing financing through senior or subordinated
debt and combinations of debt and equity or, in the case of BMI, in commercial
mortgage loans collateralized by real estate. All entities managed by ACC
are privately held, primarily by large institutional investors or other
accredited investors.
As the investment adviser to these private funds, ACC is responsible for
sourcing, originating, monitoring, servicing and liquidating investments in
their portfolios. ACC is compensated for its services, generally in the form of
asset-based or commitment-based fees, and performance incentive fees.
ACC is able to participate as an investor in, as well as a manager to, private
funds, which should afford ACC an advantage in competing for future advisory
contracts. In January 1998, the Company entered into an investment advisory
agreement with Kreditanstalt fur Wiederaufbau (KfW), the state-owned public
development bank of Germany, to manage a fund of approximately DM 160 million.
For its services related to sourcing, structuring, investing, monitoring and
disposing of its investments in small, German businesses, ACC will receive a 3%
per annum fee on total committed capital, payable quarterly. ACC will also
co-invest with the fund for an aggregate co-investment of DM 40 million.
OTHER INVESTMENTS
At December 31, 1997, the Company had $81.5 million in cash and government
securities. Pending investments in growing businesses, ACC invests otherwise
uninvested cash in U.S. government or agency-issued or guaranteed securities
that are backed by the full faith and credit of the United States, or in high
quality, short-term repurchase agreements fully collateralized by such
securities. See "Management's Discussion and Analysis" included in the Company's
1997 Annual Report as well as the Company's 1997 Consolidated Financial
Statements and the Notes thereto.
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LOAN SOURCING
To identify and pursue mezzanine investments, commercial mortgage loans and 7(a)
loans, ACC works with regional and boutique investment banks, mezzanine and
venture capital investors, and other intermediaries, including business and
mortgage brokers, national retail financial services companies, banks, law firms
and accountants for loan referrals. During 1997, ACC opened two regional offices
in Chicago and San Francisco to increase the scope of its loan sourcing
activity.
In addition, for its 7(a) lending operations, ACC has arrangements with
certain financial consultants, or "Regional Associates," who refer to the
Company potential loans to small businesses located in designated areas. If and
when a loan referred by a Regional Associate is closed, the Regional Associate
is compensated by an origination fee calculated using a formula agreed upon by
the Company and the Regional Associate. The origination fees currently paid by
the Company to Regional Associates range from 0.5% to 5.0% of the principal
amount of each loan made that was referred by the respective Regional
Associate. The Regional Associates from time to time may assist ACC in
monitoring any loans referred by them or otherwise made in their areas. At
December 31, 1997, ACC had eleven Regional Associates located throughout the
United States.
UNDERWRITING PROCEDURES
ACC historically has focused on the quality of assets in its portfolio, and it
continues to maintain a rigorous credit policy which is based upon:
- - - - - - - - - - - - - - The committee process. All credit approval is obtained through a committee
review process; no one individual has the ability to approve a credit.
- - - - - - - - - - - - - - Due diligence. Investment opportunities are subjected to a rigorous due
diligence process, including research on the industry, competition,
pricing and market share positioning of the company and its products;
personal and professional references for members of management as well as
vendor and supplier references; business plan modeling and study of the
projected growth of the portfolio company; and for real estate financings,
appraisals and other third-party reports, as necessary, to assess risks
related to engineering, environmental, seismic, or structural issues.
- - - - - - - - - - - - - - Investment Committee. Upon the completion of due diligence, each
transaction is presented to the Investment Committee, which is comprised
of nine of the most senior investment professionals in the Company,
including William Walton (CEO), John M. Scheurer (Managing Director, Real
Estate and 7(a) lending), and Cabell Williams (Managing Director,
Mezzanine Finance). In certain instances where risk/return characteristics
warrant, the Executive Committee of the Board of Directors will also
approve such investment transactions.
The following table highlights general underwriting criteria for each product
type. The Company uses these criteria as general guidelines for investing only,
and the characteristics of individual investments may vary significantly
depending upon each unique investment opportunity.
<TABLE>
<CAPTION>
MEZZANINE REAL ESTATE/
7(a) LENDING
- - - - - - - - - - - - - -----------------------------------------------------------------------
<S> <C> <C>
Industry/Property Manufacturing, Full service
type: service, media, hotels, office
telecommunications, buildings,
retail, services manufacturing
and other facilities,
businesses warehouses, retail
facilities,
healthcare
facilities,
convenience stores
and gas stations,
and other
"hard-to-finance"
properties
Investment stable, growing amortization, 100%
Criteria: companies, strong collateral coverage,
cash flow, 120% cash flow coverage
later-stage,
strong management
</TABLE>
9
<PAGE> 10
<TABLE>
<S> <C> <C>
Loan Size: $5 million to $20 million $0.2 million to $20 million
Term: 7 to 10 years 1 to 30 years
Collateral: second lien on first lien on real
assets, if estate, second lien
available, on real estate,
personal personal guarantees
guarantees
</TABLE>
LOAN UNDERWRITING PROCEDURES AND CRITERIA--MEZZANINE FINANCING
The Company usually invests in privately held companies, and may, from
time to time, invest in small public companies that are thinly traded and
generally lack access to capital. These companies generally have been in
business for at least one year, have a commercially proven product or service,
and seek capital to finance expansion or ownership changes. The Company
generally requires that the companies in which it invests demonstrate strong
market position, sales growth, positive cash flow, and profitability, although
turnaround situations are occasionally considered. The Company generally
invests in businesses operating in a variety of different industries, such as
broadcasting, manufacturing, wholesale distribution, and retail operations. The
Company emphasizes the quality of management of the companies in which it
invests, and seeks experienced entrepreneurs with a management track record and
relevant industry experience.
LOAN UNDERWRITING PROCEDURES AND CRITERIA--COMMERCIAL REAL ESTATE
When the Company evaluates mortgage loans for origination or purchase it
generally receives an initial package of information that typically includes
underwriting information that was developed by the borrower or seller. Typical
underwriting information required from potential borrowers in order to conduct
appropriate due diligence includes financial statements of the borrower,
appraisals, rent rolls and lease information, environmental reports, structural
and engineering reports, and any other information deemed appropriate under the
circumstances. In the case of purchased loans the seller will generally provide
financial statements of the borrower, property appraisals and any other original
underwriting information. The seller also generally will provide loan documents
and payment histories. In connection with the origination or purchase of the
mortgage loans, ACC generally considers a variety of other factors, including
the borrower's estimated current cash flow coverage, the creditworthiness of the
borrower, net worth and financial strength of the borrower, the estimated
current liquidation value of the related mortgaged property and trends in the
borrower's industry and in real estate values in the borrower's geographic
region. The property is inspected by the loan officer during the
due diligence process, and the property is valued by the loan officer using
internally developed valuation analyses.
LOAN UNDERWRITING PROCEDURES AND CRITERIA--7(a) LENDING
Section 7(a) loans made to qualifying small businesses are generally secured by
a mortgage and other liens on the assets of the borrower and, frequently, of its
principals. The principals of the borrower must personally guarantee the
payment of interest and principal on the loans.
The SBA has established certain financial ratios and guidelines that generally
govern 7(a) loans. Factors to be considered include the debt service coverage
ratio, value of the collateral, and the net worth of the borrower.
COMPETITION
A large number of entities and individuals compete for the opportunity to make
the kinds of investments made by the Company. Many of these entities and
individuals have greater financial resources than the combined resources of the
Company. As a result of this competition, the Company may from time to time be
precluded from making otherwise attractive investments on terms considered to be
prudent in light of the risks to be assumed. In the market for providing
mezzanine financing, ACC competes against a broad array of financial
institutions including commercial banks, insurance companies, specialized
mezzanine and private equity funds, and investment banks. The real estate
financing market is equally competitive and includes commercial banks, niche
funds and investment banks, real estate conduits, equity and mortgage REITs and
other non-bank lenders. Competitors in the SBA lending arena include commercial
banks, and other SBLCs.
10
<PAGE> 11
CERTAIN GOVERNMENT REGULATIONS
The Company operates in a highly regulated environment. The following discussion
generally summarizes certain regulations.
BUSINESS DEVELOPMENT COMPANY ("BDC")
As a BDC, ACC may not acquire any asset other than "Qualifying Assets" unless,
at the time the acquisition is made, Qualifying Assets represent at least 70% of
the value of ACC's total investment assets (the "70% test"). The principal
categories of Qualifying Assets relevant to the business of ACC are the
following:
(1) Securities purchased in transactions not involving any public
offering, the issuer of which is an eligible portfolio company. An
eligible portfolio company is defined to include any issuer that (a)
is organized and has its principal place of business in the United
States, (b) is not an investment company other than an SBIC wholly
owned by the BDC (ACC's investments in and advances to Allied
Investment, Allied Financial, Allied SBLC and certain other
subsidiaries generally would be Qualifying Assets), and (c) does not
have any class of publicly traded securities with respect to which a
broker may extend margin credit;
(2) Securities received in exchange for or distributed with respect to
securities described in (1) above, or pursuant to the exercise of
options, warrants, or rights relating to such securities; and
(3) Cash, cash items, government securities, or high quality debt
securities (within the meaning of the 1940 Act), maturing in one
year or less from the time of investment.
To include certain securities described in (1) and (2) above as Qualifying
Assets 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, (i) 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, or (ii) in the case of an SBIC, making loans to a portfolio
company. Each portfolio company is assigned for monitoring purposes to an
investment officer, and its principals are contacted and counseled if the
portfolio company appears to be encountering business or financial difficulties.
ACC would provide managerial assistance on a continuing basis to any portfolio
company that requests it, whether or not difficulties are perceived.
ACC 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 of the
outstanding voting securities," as defined in the 1940 Act, of ACC shares. Since
ACC made its BDC election, it has not made any substantial change in the nature
of its business.
As a BDC, ACC is entitled to issue senior securities in the form of stock or
senior securities representing indebtedness, as long as each class of senior
security has an asset coverage of at least 200% immediately after each such
issuance. This limitation is not applicable to borrowings by ACC's SBIC, SSBIC
or SBLC subsidiaries. See "--Risk Factors - Risks of Leverage."
11
<PAGE> 12
REGULATED INVESTMENT COMPANY ("RIC")
In order to qualify as a RIC for federal income tax purposes, the Company must,
among other things: (i) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale of
stock or other securities or other income derived with respect to its business
of investing in such stock or securities; (ii) diversify its holdings so
that (a) at least 50% of the value of the Company's assets consists of cash,
cash items, government securities and other securities if such other securities
of any one issuer do not represent more than 5% of the Company's assets and 10%
of the outstanding voting securities of the issuer, and (b) no more than 25% of
the value of the Company's assets are invested in securities of one issuer
(other than U.S. government securities), or of two or more issuers that are
controlled by the Company and are engaged in the same or similar or related
trades or businesses; and (iii) distribute at least 90% of its "investment
company taxable income" each tax year.
If a RIC, within the meaning of Subchapter M, Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code") distributes to its
stockholders in a timely manner at least 90% of its "investment company taxable
income," as defined in the Code, each year, it will not be subject to federal
income tax on the portion of its "investment company taxable income" it
distributes to stockholders. In addition, if a RIC distributes in a timely
manner (or treats as "deemed distributed") 98% of its capital gain net income
for each one year period ending on December 31 (pursuant to Section
4982(e)(4)(A) of the Code), and distributes 98% of its ordinary income for each
calendar year, it will not be subject to the 4% nondeductible federal excise
tax on certain undistributed income of RICs.
SBA REGULATIONS
Allied Investment and Allied Financial are licensed to operate as an SBIC and an
SSBIC, respectively, and each are subject to regulation by the SBA. Both Allied
Investment and Allied Financial are subject to periodic examinations by the SBA
staff for purposes of determining compliance with SBA regulations. Furthermore,
both entities have received financial assistance from the SBA through the SBA's
purchase of certain debentures from Allied Investment and SBA's purchase of
preferred stock and/or debentures from Allied Financial. See "The Company -
Mezzanine Finance - SBIC Subsidiary, SSBIC Subsidiary and SBA Financing."
Allied SBLC is licensed to operate as an SBLC and is subject to regulation and
periodic examinations by the SBA staff for purposes of determing compliance with
SBA regulations, including its participation in the Preferred Lender Program.
See "The Company - 7(a) Lending."
EMPLOYEES
The Company currently employs 87 individuals including investment professionals,
operations professionals and administrative staff. All individuals are located
in the Washington, DC office, except for four individuals in the Chicago office,
and six in the San Francisco office.
FORWARD-LOOKING STATEMENTS
The information contained herein should be read in conjunction with the
Company's 1997 Consolidated Financial Statements and Notes thereto contained in
the Company's 1997 Annual Report to Shareholders. The 1997 Annual Report to
Shareholders and this Form 10-K contain certain forward-looking statements.
These statements include the plans and objectives of management for future
operations and financial objectives, loan portfolio growth and availability of
funds. These forward-looking statements are subject to the inherent
uncertainties in predicting future results and conditions. Certain factors that
could cause actual results and conditions to differ materially from those
projected in these forward-looking statements are set forth below in the Risk
Factors section. Other factors that could cause actual results to differ
materially
12
<PAGE> 13
include the uncertainties of economic, competitive and market conditions, and
future business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Although the
Company believes that the assumptions underlying the forward-looking statements
included or incorporated by reference herein are reasonable, any of the
assumptions could be inaccurate and therefore, there can be no assurance that
the forward-looking statements included or incorporated by reference herein will
prove to be accurate. Therefore, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
RISK FACTORS
RISKS OF DEFAULT. ACC invests in and lends to small businesses. Loans to small
businesses involve a high risk of default, and generally are not rated by any
nationally recognized statistical rating organization. Small businesses usually
have narrower product lines and smaller market shares than larger companies and
therefore may be more vulnerable to competitors' actions and market conditions,
as well as general economic downturns. 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 flows resulting from adverse competitive developments,
a shift in customer preferences or an economic downturn can severely affect the
return on, or the recovery of, the Company's investments in such businesses.
LOSS OF PASS-THROUGH TAX TREATMENT. The Company would cease to qualify for
pass-through tax treatment under Subchapter M if it is unable to comply with the
diversification or distribution requirements contained in Subchapter M of the
Code, or if it ceases to qualify as a BDC under the Code. The Company also could
be subject to a 4% excise tax (and, in certain cases, corporate level income
tax) if it fails to make certain distributions. The lack of Subchapter M tax
treatment could have a material adverse effect on the total return, if any,
obtainable from an investment in the Company.
RISKS OF LEVERAGE. ACC borrows funds from, and issues senior debt securities to,
banks and other lenders. Lenders of these senior securities have fixed dollar
claims on the Company's consolidated assets which are superior to the claims of
the Company's shareholders. If the value of the Company's consolidated assets
increases, then such leveraging techniques would cause the net asset value
attributable to the Company's common stock to increase more sharply than it
would have had the techniques not been utilized. Conversely, a decrease in the
value of the Company's consolidated assets would cause net asset value to
decline more sharply than it otherwise would if the senior funds had not been
borrowed. Similarly, any increase in the Company's consolidated income in excess
of consolidated interest payable on the borrowed funds would cause its net
income to increase more than it would without the leverage, while any decrease
in its consolidated income would cause net income to decline more sharply than
it would had the funds not been borrowed. Such a decline could negatively affect
the Company's ability to make common stock dividend payments, and, 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 is disadvantageous to do so. Leverage is generally considered a
speculative investment technique. The ability of the Company to achieve its
investment objective may depend in part on its continued ability to maintain a
leveraged capital structure by borrowing from banks or other lenders on
favorable terms, and there can be no assurance that such leverage can be
maintained.
COMPETITION. Many entities and individuals compete for investments similar to
those made by the Company, some of whom have greater resources than ACC.
Increased competition would make it more difficult for the Company to purchase
or originate loans at attractive prices. As a result of this competition, ACC
may from time to time be precluded from making otherwise attractive investments
on terms considered to be prudent in light of the risks assumed.
LONG-TERM CHARACTER OF INVESTMENTS. It is expected that generally mezzanine
loans will yield a current return from the time they are made, but also will
generally produce a realized gain from an accompanying equity feature after
approximately three to eight years. There can be no assurance that capital gains
will actually be achieved.
13
<PAGE> 14
ILLIQUIDITY OF INVESTMENTS. The Company acquires securities directly from
issuers in private transactions, and the major portion of such investments is
subject to restrictions on resale or is otherwise illiquid. In particular, there
is usually no established trading market in which such securities could be sold.
In addition, equity securities generally cannot be sold to the public without
registration under the Securities Act of 1933, which involves delay, uncertainty
and expense.
GOVERNMENT REGULATIONS. The Company is subject to regulation by the Commission
and the SBA. In addition, the Company's business may be significantly impacted
by changes in the laws or regulations that govern BDCs, RICs, REITs, SBICs,
SSBICs and SBLCs. Laws and regulations may be changed from time to time and the
interpretations of the relevant law and regulations also are subject to change.
Any change in the laws or regulations that govern the Company could have a
material impact on the Company or its operations.
ITEM 2. PROPERTIES
The Company's principal offices are located on the ninth floor of 1666 K Street,
NW, Washington, D.C., a modern office building in the heart of Washington's
business and financial district. The Company leases approximately 22,000 square
feet of office space at that location under a lease that currently expires in
1998. The office is equipped with a network of personal computers for word
processing, financial analysis and accounting. Effective August 1998, upon the
expiration of its current lease at 1666 K Street, the Company will relocate its
principal offices to 1919 Pennsylvania Avenue, N.W., Washington, D.C. The
Company also maintains smaller offices in Chicago, San Francisco and Frankfurt,
Germany.
ITEM 3. LEGAL PROCEEDINGS
The Company is party to certain lawsuits arising in the normal course of its
business. While the outcome of these legal proceedings cannot at this time be
predicted with certainty, management does not expect that these actions will
have a material effect upon the Company's financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 26, 1997, Allied Lending held a Special Meeting of Stockholders in
Bethesda, Maryland. Shareholders voted on two matters; the substance of these
matters and the results of the voting of such matters are described below.
1. Approval of Merger Agreement: Shareholders of the Company approved
the Agreement and Plan of Merger, dated as of August 14, 1997 and
amended and restated as of September 19, 1997, by and among the
Company, Allied I, Allied II, Allied Commercial and Allied Advisers.
Votes were cast as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN BROKER NON-VOTES
--- ------- ------- ----------------
<S> <C> <C> <C> <C>
4,020,276 40,843 30,566 0
</TABLE>
2. Approval of Stock Option Plan: Shareholders of the Company approved
the proposal to adopt a new Stock Option Plan.
Votes were cast as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN BROKER NON-VOTES
--- ------- ------- ----------------
<S> <C> <C> <C>
3,825,332 168,417 97,930 0
</TABLE>
14
<PAGE> 15
ADDITIONAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth the names, ages and positions of the executive
officers of the Company as of March 20, 1998, as well as certain other
information with respect to those persons:
<TABLE>
<CAPTION>
POSITIONS CURRENTLY
HELD WITH THE PRINCIPAL OCCUPATIONS
NAME AGE COMPANY DURING PAST FIVE YEARS(1)
- - - - - - - - - - - - - ---- --- ------- -----------------------
<S> <C> <C> <C>
William L. Walton 49 President, Chairman Employed by the Company
and Chief Executive since 1997; Chairman of
Officer BMI; CEO of Success Lab,
Inc. (children's
educational services) from
1993 to 1996; CEO of
Language Odyssey
(educational publishing and
services) from 1992 to
1996; Managing Director of
Butler Capital Corporation
from 1987 to 1991.
Joan M. Sweeney 38 Managing Director Employed by the Company
since 1993; Managing
Director of BMI; Senior
Manager at Ernst & Young
from 1990 to 1993.
G. Cabell Williams III 43 Managing Director Employed by the Company
since 1981; Managing
Director of BMI.
John M. Scheurer 45 Managing Director Employed by the Company
since 1991; President of
BMI.
Jon A. DeLuca 35 Principal and Chief Employed by the Company
Financial Officer since 1994; Principal
and Chief Financial Officer
of BMI; Manager at Coopers
& Lybrand from 1986 to
1994.
</TABLE>
- - - - - - - - - - - - - -------------------------------------------
(1) Periods of employment by the Company include periods of employment by
Advisers prior to the Merger.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Information in response to this Item is incorporated herein by
reference to the "Shareholder Information" and to the "Selected Consolidated
Financial Data" section of the Company's Annual Report to Shareholders for the
year ended December 31, 1997 (the "1997 Annual Report") as well at Note 15,
"Dividends and Distributions" from the Company's 1997 Notes to the Consolidated
Financial Statements. The quarterly stock prices quoted represent interdealer
quotations and do not include markups, markdowns, or commissions and may not
necessarily represent actual transactions. During the fourth quarter of 1997,
ACC issued a total of 61,738 shares pursuant to a dividend reinvestment plan.
This plan is not registered and relies on an exemption from registration in the
Securities Act of 1933.
15
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA.
Information in response to this Item is incorporated herein by reference to the
table in the "Selected Consolidated Financial Data" section of the 1997 Annual
Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Information in response to this Item is incorporated herein by reference to the
"Management's Discussion and Analysis" section of the 1997 Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information in response to this Item is incorporated by reference to the
Consolidated Financial Statements, Notes thereto, and Report of Independent
Public Accountants thereon contained in the 1997 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
The Company disclosed its change of accountants on a Form 8-K filed with the
Commission on December 16, 1997.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information in response to this Item is incorporated by reference to the
identification of directors and nominees contained in the "Election of
Directors" section and the subsection captioned "Compliance with Reporting
Requirements of Section 16(a) of the Securities Exchange Act of 1934" of the
Company's definitive proxy statement in connection with its 1998 Annual Meeting
of Shareholders, scheduled to be held on May 14, 1998 (the "1998 Proxy
Statement"), and from "Additional Item" in Part I.
ITEM 11. EXECUTIVE COMPENSATION.
Information in response to this Item is incorporated by reference to the
subsections captioned "Compensation of Executive Officers and Directors" of the
1998 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information in response to this Item is incorporated by reference to the
subsection captioned "Security Ownership of Management and Certain Beneficial
Owners" in the 1998 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information in response to this Item is incorporated by reference to the section
captioned "Certain Transactions" of the 1998 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
16
<PAGE> 17
(a) Documents filed as part of this Report:
<TABLE>
<CAPTION>
<S> <C> <C>
1. A. The following Financial Statements of ACC are incorporated herein by
reference to the following indicated pages of the 1997 Annual Report and
are filed herewith: Page
----
Consolidated Balance Sheet as of December 31, 1997 and 1996. 25
Consolidated Statement of Operations for the years ended December 31,
1997, 1996 and 1995. 26
Consolidated Statement of Changes in Net Assets for the years ended
December 31, 1997, 1996 and 1995. 27
Consolidated Statement of Cash Flows for the years ended December 31,
1997, 1996 and 1995. 28
Consolidated Statement of Investments as of December 31, 1997 29
Notes to Consolidated Financial Statements. 33-43
B. There is filed herewith the Report of Independent Public Accountants
from Arthur Andersen LLP with respect to the financial statements listed
in A. above.
2. No financial statement schedules are filed herewith because (i) such
schedules are not required or (ii) the information required has been
presented in the aforementioned financial statements.
3. The following exhibits are filed herewith or incorporated by reference
as set forth below:
</TABLE>
Exhibit Number Description
- - - - - - - - - - - - - -------------- -----------
3(i)(1) Articles of Amendment and Restatement of the Articles of
Incorporation
3(ii)(2) Articles of Merger
3(iii)* By-laws
4.1 Instruments defining the rights of security holders. See
Exhibits 3(i); 3(ii) and 3(iii).
4.2(3) Form of debenture between certain subsidiaries of
ACC and the U.S. Small Business Administration.
10.1* Credit Agreement dated as of January 8, 1998 (the "1998 Credit
Agreement") between the Company and Allied Capital SBLC
Corporation, as Borrowers, each of the financial institutions
initially a signatory thereto, as Lenders, and BankBoston,
N.A., as disbursing agent, First Union National Bank, as
syndication agent and Riggs Bank N.A., as managing agent.
10.2(4) Note Agreement between Allied I and certain subsidiaries and
Massachusetts Mutual Life Insurance Company, as amended, dated
April 30, 1992. The Company has received confirmation
of the assignment of Note Agreement from Allied I to the
Company.
10.3(9)* Loan Agreement between Allied I and Overseas Private
Investment Corporation, dated April 10, 1995. Letter dated
December 11, 1997 evidencing assignment of Loan Agreement from
Allied I to the Company filed herewith.
10.4* Amended and Restated Master Repurchase Agreement dated March
22, 1996, among Allied Commercial, BMI, and Merrill Lynch
Mortgage Capital Inc. Letter evidencing the assignment of
this facility to the Company dated November 6, 1997.
17
<PAGE> 18
10.5* Master Loan & Security Agreement dated August 21,
1997 among Allied Commercial, BMI and Morgan
Stanley Mortgage Capital, Inc.
10.6(5)* Investment Management Agreement among Allied Advisers,
Mitchell Hutchins Institutional Investors Inc. and BMI, dated
January 4, 1993 (the "MH Management Agreement"). Assignment of
the MH Agreement from Mitchell Hutchins Institutional
Investors Inc. to Siguler Guff & Company LLC on August 8,
1995. Waiver dated December 31, 1997 evidencing assignment of
MH Management Agreement from Allied Advisers to the Company
filed herewith.
10.7(5)* Agreement between the Company and Mitchell Hutchins
Institutional Investors Inc., dated January 4, 1993 ("MH
Agreement") Assignment of MH Agreement from Mitchell Hutchins
Institutional Investors, Inc. to Siguler Guff & Company LLC on
August 8, 1995. Assignment of MH Management Agreement from
Allied Advisers to the Company on December 31, 1997. Consent
to assign MH Agreement to the Company filed herewith.
10.8(6)* Lease Agreement between 1620 K Street Associates Limited
Partnership and Allied Advisers dated February 17, 1993 (the
"1620 K Street Lease Agreement"). Assignment of Lease and
Landlord's consent to Assignment dated January 5, 1998
evidencing assignment of the 1620 K Street Lease Agreement
from Allied Advisers to the Company is filed herewith.
10.9* Employee Stock Ownership Plan, as amended on December 31,
1997.
10.10* Deferred Compensation Plan, as amended on January 1, 1998
10.11(7) Stock Option Plan
10.12* Dividend Reinvestment Plan.
10.13(8) Agreement and Plan of Merger, dated as of August 14, 1997
and amended and restated as of September 19, 1997.
10.14* Form of Regional Associate Agreement.
11 Statement regarding computation of per share earnings is
incorporated by reference to Note 9 to the Company's Notes to
the 1997 Consolidated Financial Statements filed herein as
part of Exhibit 13.
13* Excerpts from the 1997 Annual Report to Shareholders.
21 Subsidiaries of the Company and jurisdiction of incorporation/
organization:
Allied Capital SBLC Corporation Maryland
Allied Investment Corporation Maryland
Allied Capital Financial Corporation Maryland
Allied Capital Property LLC Delaware
Allied Capital Holdings LLC Delaware
Allied Capital Equity LLC Delaware
23* Consent of Arthur Andersen LLP, independent public
accountants.
27* Financial Data Schedule
- - - - - - - - - - - - - ---------------------
18
<PAGE> 19
* Filed herewith.
(1) Incorporated by reference to Exhibit 3(i) with Allied Lending's Annual
Report on Form 10-K for the year ended December 31, 1996 (File No. 0-22832).
(2) Incorporated by reference from Appendix B to the Company's registration
statement on Form N-14 filed on the Company's behalf with the Commission on
September 26, 1997 (File No. 333-36459).
(3) Incorporated by reference to Exhibit 4.2 filed with Allied I's Annual Report
on Form 10-K for the year ended December 31, 1996 (File No. 811-00907).
(4) Incorporated by reference to Exhibit (4)(D)(i) filed with Allied I's Annual
Report on Form 10-K for the year ended December 31, 1992. Amendments thereto
are incorporated by reference to Exhibits (4)(D)(ii), (4)(D)(iii) and
(4)(D)(iv) to Allied I's Form 8-K filed on December 9, 1993 (File No.
811-00907).
(5) Incorporated by reference to the exhibit of the same name to Allied
Advisers' Report on Form 10-K for the year ended December 31, 1992 for
Agreements. Incorporated by reference to the exhibit of the same name to
Allied Advisers Report on Form 10-K for the year ended December 31, 1995 for
Assignments. (File No. 0-18826). Waiver and consent to assign to the Company
is filed herewith.
(6) Incorporated by reference to an exhibit of the same name filed with the
Company's Annual Report on Form 10-K for the year ended December 31, 1994
(File No. 0-22832).
(7) Incorporated by reference to Exhibit 4 of the Allied Capital Corporation
Stock Option Plan registration statement on Form S-8, filed on behalf of
such Plan on February 3, 1998 (File No. 333-45525).
(8) Incorporated by reference from Appendix A to the Company's registration
statement on Form N-14 filed on the Company's behalf with the Commission on
September 26, 1997 (File No. 333-36459).
(9) Incorporated by reference to Exhibit 10.2 of Allied I's Pre-Effective
Amendment No. 2 filed with the registration statement on Form N-2 on
January 24, 1996 (File No. 33-64629). Assignment to the Company is filed
herewith.
(b) Reports on Form 8-K.
During the three months ended December 31, 1997, the Company filed a total
of two (2) Reports Pursuant to Section 13 or 15(d) of the Securities Act
of 1934 on Form 8-K ("Report on Form 8-K"). On October 1, 1997, the Company
filed a report on Form 8-K in order to incorporated by reference into the
Company's current report on Form 8-K certain documents that are set forth in
such Form. These documents were incorporated by reference into the Company's
registration statement on Form N-14 that was filed with the Commission on
September 26, 1997 in connection with the merger of Allied I, Allied II, Allied
Commercial and Advisers with and into Allied Lending.
On December 16, 1997, the Company filed a report on Form 8-K to report that on
December 12, 1997, the Company's board of directors accepted the resignation of
Matthews, Carter and Boyce, P.C. as the independent accountant to the Company
and its subsidiaries, subject to the consummation of the Merger. The Company
also reported that on December 12, 1997, the board of directors voted to engage
the firm of Arthur Andersen LLP as the independent accountant of the Company and
its subsidiaries for the year ending December 31, 1997, subject to the
consummation of the Merger.
In addition, on January 12, 1998, the Company filed a report on Form 8-K to
report that the Merger had been consummated and to report certain details of the
Merger, including the exchange ratios utilized in the Merger.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized on March 20, 1998.
ALLIED CAPITAL CORPORATION
By: /s/ William L. Walton
--------------------------
William L. Walton
Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Title
Signature (Capacity) Date
- - - - - - - - - - - - - --------- ---------- ----
<S> <C> <C>
/s/ William L. Walton Chairman, President, and March 20, 1998
- - - - - - - - - - - - - ------------------------------- Chief Executive Officer
William L. Walton
/s/ Jon W. Barker Director March 20, 1998
- - - - - - - - - - - - - -------------------------------
Jon W. Barker
/s/ Eleanor Deane Bierbower Director March 20, 1998
- - - - - - - - - - - - - -------------------------------
Eleanor Deane Bierbower
/s/ Brooks H. Browne Director March 20, 1998
- - - - - - - - - - - - - -------------------------------
Brooks H. Browne
/s/ Joseph A. Clorety III Director March 20, 1998
- - - - - - - - - - - - - -------------------------------
Joseph A. Clorety III
/s/ Swep T. Davis Director March 20, 1998
- - - - - - - - - - - - - -------------------------------
Swep T. Davis
/s/ John D. Firestone Director March 20, 1998
- - - - - - - - - - - - - -------------------------------
John D. Firestone
/s/ Robert V. Fleming II Director March 20, 1998
- - - - - - - - - - - - - -------------------------------
Robert V. Fleming II
/s/ Michael I. Gallie Director March 20, 1998
- - - - - - - - - - - - - -------------------------------
Michael I. Gallie
/s/ Anthony T. Garcia Director March 20, 1998
- - - - - - - - - - - - - -------------------------------
Anthony T. Garcia
/s/ Lawrence I. Hebert Director March 20, 1998
- - - - - - - - - - - - - -------------------------------
Lawrence I. Hebert
/s/ Arthur H. Keeney III Director March 20, 1998
- - - - - - - - - - - - - -------------------------------
Arthur H. Keeney III
</TABLE>
20
<PAGE> 21
<TABLE>
<S> <C> <C>
/s/ John I. Leahy Director March 20, 1998
- - - - - - - - - - - - - -------------------------------
John I. Leahy
/s/ Robert E. Long Director March 20, 1998
- - - - - - - - - - - - - -------------------------------
Robert E. Long
/s/ Robin B. Martin Director March 20, 1998
- - - - - - - - - - - - - -------------------------------
Robin B. Martin
/s/ Warren K. Montouri Director March 20, 1998
- - - - - - - - - - - - - -------------------------------
Warren K. Montouri
/s/John D. Reilly Director March 20, 1998
- - - - - - - - - - - - - -------------------------------
John D. Reilly
/s/ Guy T. Steuart II Director March 20, 1998
- - - - - - - - - - - - - -------------------------------
Guy T. Steuart II
/s/ T. Murray Toomey Director March 20, 1998
- - - - - - - - - - - - - ------------------------------
T. Murray Toomey
/s/ Laura W. van Roijen Director March 20, 1998
- - - - - - - - - - - - - ------------------------------
Laura W. van Roijen
/s/ George C. Williams Director March 20, 1998
- - - - - - - - - - - - - -----------------------------
George C. Williams
/s/ Smith T. Wood Director March 20, 1998
- - - - - - - - - - - - - --------------------------------
Smith T. Wood
/s/ Jon A. DeLuca Principal and March 20, 1998
- - - - - - - - - - - - - ------------------------- Chief Financial
Jon A. DeLuca Officer (Principal
Financial and Accounting
Officer)
</TABLE>
21
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- - - - - - - - - - - - - ------ -----------
<S> <C>
3(iii) By-laws of the Company dated January 8, 1998
10.1 Credit Agreement between the Company and BankBoston, NA, First
Union National Bank, and Riggs Bank, N.A.
10.3 Letter evidencing assignment of the OPIC Note to the Company
10.4 Amended and Restated Master Repurchase Agreement among Allied
Commercial, BMI and Merrill Lynch Mortgage Capital, Inc., and
letter evidencing assignment of the Master Repurchase Agreement
to the Company
10.5 Master Loan & Security Agreement among Allied Commercial, BMI
and Morgan Stanley Mortgage Capital, Inc.
10.6 Waiver evidencing assignment of MH Management Agreement to the
Company
10.7 Consent to assign MH Agreement to the Company
10.8 Letter evidencing assignment of 1666 K Street lease to the
Company
10.9 Employee Stock Ownership Plan
10.10 Deferred Compensation Plan
10.12 Dividend Reinvestment Plan
10.14 Form of Regional Associate Agreement
13 Excerpts from the 1997 Annual Report to Shareholders.
23 Consent of Arthur Andersen LLP, independent public accountants.
27 Financial Data Schedule
</TABLE>
22
<PAGE> 1
EXHIBIT 3(ii)
---------------------------------
ALLIED CAPITAL CORPORATION
(a Maryland corporation)
-------------
BYLAWS
-------------
As adopted by the Sole Director on September 12, 1990,
as amended by the Sole Stockholder on August 8, 1991 and March 24, 1992,
and as amended by the Board of Directors on November 12, 1993, August 12, 1994,
November 9, 1995, May 12, 1997, August 14, 1997, December 12, 1997 and
January 8, 1998.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I. OFFICES............................................................. 1
Section 1. Office..........................................................1
------
Section 2. Additional Offices..............................................1
------------------
ARTICLE II. MEETINGS OF STOCKHOLDERS.............................................1
Section 1. Time and Place..................................................1
--------------
Section 2. Annual Meeting..................................................1
--------------
Section 3. Notice of Annual Meeting........................................1
------------------------
Section 4. Special Meetings................................................1
----------------
Section 5. Notice of Special Meeting.......................................2
-------------------------
Section 6. Presiding Officer...............................................2
-----------------
Section 7. Quorum. Adjournments...........................................2
---------------------
Section 8. Voting..........................................................3
------
Section 9. Action by Consent...............................................3
-----------------
ARTICLE III. DIRECTORS...........................................................3
Section 1. General Powers; Number; Tenure..................................3
------------------------------
Section 2. Matters for Which Action of the Entire Board is Required........4
--------------------------------------------------------
Section 3. Vacancies.......................................................4
---------
Section 4. Removal; Resignation............................................5
--------------------
Section 5. Place of Meetings...............................................5
-----------------
Section 6. Annual Meeting..................................................5
--------------
Section 7. Regular Meetings................................................5
----------------
Section 8. Special Meetings................................................5
----------------
Section 9. Quorum; Adjournments............................................5
--------------------
Section 10. Compensation....................................................6
------------
Section 11. Action by Consent...............................................6
-----------------
Section 12. Meetings by Telephone or Similar Communications.................6
-----------------------------------------------
ARTICLE IV. COMMITTEES 6
Section 1. Executive Committee.............................................6
-------------------
Section 2. Nominating Committee............................................6
--------------------
Section 3. Compensation Committee..........................................7
----------------------
Section 4. Audit Committee.................................................7
---------------
Section 5. Advisory Committee..............................................7
------------------
Section 6. Other Committees................................................8
----------------
Section 7. Procedure; Notice; Meetings.....................................8
---------------------------
Section 8. Quorum; Vote....................................................8
------------
Section 9. Appointments; Vacancies; Changes; Discharges....................8
--------------------------------------------
Section 10. Tenure..........................................................8
------
Section 11. Compensation....................................................9
------------
Section 12. Action by Consent...............................................9
-----------------
Section 13. Meetings by Telephone or Similar Communications.................9
-----------------------------------------------
ARTICLE V. NOTICES.............................................................9
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 1. Form; Delivery..................................................9
--------------
Section 2. Waiver..........................................................9
------
ARTICLE VI. OFFICERS...........................................................10
Section 1. Designations...................................................10
------------
Section 2. Term of Office; Removal........................................10
-----------------------
Section 3. Compensation...................................................10
------------
Section 4. The Chairman of the Board......................................11
-------------------------
Section 5. The President..................................................11
-------------
Section 6. The Managing Directors.........................................11
----------------------
Section 7. Principals.....................................................12
----------
Section 8. Vice Presidents................................................12
---------------
Section 9. The Secretary..................................................12
-------------
Section 10. The Assistant Secretary........................................12
-----------------------
Section 11. Associates.....................................................12
----------
Section 12. The Treasurer..................................................13
-------------
Section 13. The Assistant Treasurer........................................13
-----------------------
ARTICLE VII. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS.....13
Section 1. Generally......................................................13
---------
Section 2. Limitation for Disabling Conduct...............................14
--------------------------------
Section 3. Advisory Committee Members.....................................15
--------------------------
ARTICLE VIII. STOCK CERTIFICATES...............................................16
Section 1. Form of Signatures; Statements.................................16
------------------------------
Section 2. Registration of Transfer.......................................17
------------------------
Section 3. Registered Stockholders........................................17
-----------------------
Section 4. Location of Stock Ledger.......................................18
------------------------
Section 5. Record Date....................................................18
-----------
Section 6. Lost, Stolen or Destroyed Certificates.........................18
--------------------------------------
ARTICLE IX. GENERAL PROVISIONS.................................................18
Section 1. Dividends......................................................18
---------
Section 2. Reserves.......................................................18
--------
Section 3. Fiscal Year....................................................19
-----------
Section 4. Seal...........................................................19
----
ARTICLE X. AMENDMENTS..........................................................19
CERTIFICATE.....................................................................20
</TABLE>
ii
<PAGE> 4
BYLAWS
ARTICLE I
OFFICES
Section 1. Office. The principal office of the Corporation shall be
the offices of The Prentice-Hall Corporation System, Maryland, which is located
at 11 East Chase Street, Baltimore, Maryland 21202. The Corporation also shall
have an office at 1666 K Street, N.W., Washington, D.C. 20006-2803.
Section 2. Additional Offices. The Corporation may also have offices
at such other places, both within and without the State of Maryland, as the
Board of Directors may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Time and Place. Meetings of stockholders for any purpose
may be held at such time and place in the United States as the Board of
Directors may fix from time to time and as shall be stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meeting. Annual meetings of stockholders shall be
held during the month of May in each year on a date and at the time set by the
Board of Directors. At the Annual Meeting, the stockholders shall elect a
Board of Directors and transact such other business as may properly be brought
before the meeting.
Section 3. Notice of Annual Meeting. Written notice of the annual
meeting, stating the place, date and time thereof, shall be given by the
Secretary of the Corporation to each stockholder entitled to vote at such
meeting or to notice thereof not less than 10 (unless a longer period is
required by law) nor more than 90 days prior to the meeting.
Section 4. Special Meetings. Special meetings of the stockholders,
for any purpose or purposes, unless otherwise prescribed by statute or by the
Articles of Incorporation, may be called by the Chairman of the Board or the
President and shall be called by the Chairman of the Board, the President or
the Secretary at the request in writing of a majority of the Board of
Directors. Unless otherwise prescribed by statute or by the Articles of
Incorporation, and except as expressly set forth below, the Secretary shall
call a Special Meeting at the request in writing of stockholders entitled to
cast not less than a majority of all the votes entitled to be cast at such
meeting. Such request by stockholders shall state the purpose or purposes of
such meeting and
1
<PAGE> 5
the matters to be acted on thereat. If the request is made by a majority of
the stockholders entitled to cast votes at a meeting, the Secretary shall
inform such stockholders of the reasonably estimated cost of preparing and
mailing such notice of the meeting, and, upon payment to the Corporation of
such costs by such stockholders, the Secretary shall give notice stating the
purpose or purposes of the meeting, as required by these Bylaws, to all
stockholders entitled to notice of such meeting.
Section 5. Notice of Special Meeting. Written notice of a special
meeting, stating the place, date and time thereof and the purpose or purposes
for which the meeting is called, shall be given to each stockholder entitled to
vote at such meeting or to notice thereof not less than 10 (unless a longer
period is required by law) nor more than 90 days prior to the meeting.
Section 6. Presiding Officer. Meetings of stockholders shall be
presided over by the Chairman of the Board or, if he or she is not present, by
the President, or, if he or she is not present, by a Vice President, or, if he
or she is not present, by such person as may have been chosen by the Board of
Directors, or if none of such persons is present, by a chairman to be chosen by
the stockholders owning a majority of the shares of capital stock of the
Corporation issued and outstanding and entitled to vote at the meeting and who
are present in person or represented by proxy. The Secretary of the
Corporation, or, if he or she is not present, an Assistant Secretary, or, if he
or she is not present, such person as may be chosen by the Board of Directors,
or if none of such persons is present, then such person as may be chosen by the
stockholders owning a majority of the shares of capital stock of the
Corporation issued and outstanding and entitled to vote at the meeting and who
are present in person or represented by proxy shall act as secretary of the
meeting.
Section 7. Quorum. Adjournments. The presence in person or by proxy
of stockholders entitled to cast a majority of the votes thereat shall be
necessary to, and shall constitute a quorum for, the transaction of business at
all meetings of the stockholders, except as otherwise provided by statute or by
the Articles of Incorporation. If, however, a quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have the power
to adjourn the meeting from time to time, without notice of the adjourned
meeting if the time and place thereof are announced at the meeting at which the
adjournment is taken, until a quorum shall be present or represented. Even if
a quorum shall be present or represented at any meeting of the stockholders,
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have the power to adjourn the meeting from time to time for good
cause, without notice of the adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken, until a date
which is not more than 30 days after the date of the original meeting. At any
such adjourned meeting, at which a quorum shall be present in person or
represented by proxy, any business may be transacted which might have been
transacted at the meeting as originally called. If the adjournment is for more
than 30 days, or, if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting or entitled to notice
thereof.
2
<PAGE> 6
Section 8. Voting.
(a) At any meeting of stockholders, every stockholder
having the right to vote shall be entitled to vote in person or by proxy.
Except as otherwise provided by law or the Articles of Incorporation, each
stockholder of record shall be entitled to one vote for each share of capital
stock registered in his, her or its name on the books of the Corporation, on
each matter submitted to a vote at a meeting of stockholders, except that no
stockholder shall be entitled to vote in respect of any shares of capital stock
if any installment payable thereon is overdue and unpaid.
(b) Except as otherwise provided by law or the Articles
of Incorporation, a majority of the votes cast at a meeting of stockholders at
which a quorum is present, shall be sufficient to take or authorize action upon
any matter which may properly come before such meeting.
Section 9. Action by Consent. Any action required or permitted to be
taken by law or the Articles of Incorporation at any meeting of stockholders
may be taken without a meeting, without prior notice and without a vote, if a
written consent, setting forth such action, is signed by all the stockholders
entitled to vote on the subject matter thereof and any other stockholders
entitled to notice of a meeting of stockholders (but not to vote thereat) have
waived in writing any rights which they may have to dissent from such action,
and such consent and waiver are filed with the records of stockholders'
meetings.
ARTICLE III
DIRECTORS
Section 1. General Powers; Number; Tenure. The business and affairs
of the Corporation shall be managed under the direction of its Board of
Directors, which may exercise all powers of the Corporation and perform all
lawful acts and things which are not by law, the Articles of Incorporation or
these Bylaws directed or required to be exercised or performed by, or are
conferred upon or reserved to, the stockholders. The number of directors shall
be that provided in the Articles of Incorporation until increased or decreased
pursuant to the following provisions, but shall never be greater than twenty
five or fewer than three unless otherwise permitted by law. A majority of the
entire Board of Directors may, at any time and from time to time, increase or
decrease the number of directors of the Corporation as set forth in the
Articles of Incorporation or these Bylaws, subject to the foregoing limitation.
The tenure of office of a director shall not be affected by any decrease in the
number of directors so made by the Board. The directors shall be elected by a
majority of all the votes cast at the annual meeting of the stockholders,
except as provided in Section 3 of this Article. The directors elected at the
1998 annual meeting of the stockholders, and thereafter, other than those who
may be elected by the holders of any series of preferred stock of the
Corporation, shall be classified, with respect to the
3
<PAGE> 7
term for which they severally hold office, into three classes, as nearly equal
in number as possible. The initial Class I directors shall hold office for a
term expiring at the annual meeting of the stockholders held in the first year
following the year of their election. The initial Class II directors shall
hold office for a term expiring at the annual meeting of the stockholders held
in the second year following the year of their election. The initial Class III
directors shall hold office for a term expiring at the annual meeting of the
stockholders held in the third year following the year of their election. At
each annual meeting of the stockholders commencing with the 1999 annual
meeting, the successor or successors of the class of directors whose term
expires at that meeting (other than directors elected by the holders of any
series of preferred stock) shall hold office for a term expiring at the annual
meeting of the stockholders held in the third year following the year of their
election. The directors elected to each class (other than directors elected by
any series of preferred stock) shall hold office until their successors are
duly elected and qualify or until their earlier resignation or removal.
Directors need not be stockholders.
Section 2. Matters for Which Action of the Entire Board is Required.
Notwithstanding anything to the contrary in these Bylaws, the following actions
shall require the approval by the affirmative vote of a majority of the entire
Board of Directors:
(a) appointing any director to a committee of the Board
of Directors pursuant to Article IV of these Bylaws;
(b) appointing any employee, officer, or director of the
Corporation, or any person who is to become an employee, officer, or director
of the Corporation, to serve as an officer at the level of principal or above;
and
(c) altering, amending or repealing these Bylaws or
adopting new bylaws.
Section 3. Vacancies. Any vacancy occurring in the Board of
Directors for any cause other than by reason of an increase in the number of
directors may, unless otherwise provided in these Bylaws, be filled by a
majority of the remaining members of the Board of Directors, although such
majority is less than a quorum. Any vacancy occurring by reason of an increase
in the number of the directors may, unless otherwise provided in these Bylaws,
be filled by action of a majority of the directors constituting the entire
Board of Directors. A director elected by the Board of Directors to fill a
vacancy shall be elected to hold office until the next annual meeting of the
stockholders or until his or her successor is elected and shall qualify. If
there are no directors in office, any officer or stockholder may call a special
meeting of stockholders in accordance with the provisions of the Articles of
Incorporation or these Bylaws, at which meeting such vacancies shall be filled.
4
<PAGE> 8
Section 4. Removal; Resignation.
(a) Except as otherwise provided by law or the Articles
of Incorporation, at any meeting of stockholders at which a quorum is present,
the stockholders may, by the affirmative vote of the holders of a majority of
the votes entitled to be cast thereon, remove any director or directors from
office with or without cause and may elect a successor or successors to fill
any resulting vacancy or vacancies for the unexpired terms of any removed
director or directors.
(b) Any director may resign at any time by giving written
notice to the Board of Directors, the Chairman of the Board, the President or
the Secretary of the Corporation. Unless otherwise specified in such written
notice, a resignation shall take effect upon delivery thereof to the Board of
Directors or the designated officer. It shall not be necessary for a
resignation to be accepted before it becomes effective.
Section 5. Place of Meetings. The Board of Directors may hold
meetings, annual, regular or special, either within or without the State of
Maryland.
Section 6. Annual Meeting. The annual meeting of each newly elected
Board of Directors shall be held immediately following the annual meeting of
stockholders, and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present.
Section 7. Regular Meetings. Additional regular meetings of the
Board of Directors may be held without notice, at such time and place as may
from time to time be determined by the Board of Directors.
Section 8. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the President on at
least two days' notice to each director, if such notice is delivered personally
or sent by messenger, telegram, telecopy, facsimile transmission, or mail.
Special meetings shall be called by the Chairman of the Board, the President or
the Secretary in like manner and on like notice on the written request of two
or more of the number of directors then in office. Except as otherwise
provided by law, the Articles of Incorporation or Article X of these Bylaws,
any such notice need not state the purpose or purposes of such meeting.
Section 9. Quorum; Adjournments. At all meetings of the Board of
Directors, a majority of the number of directors then in office shall
constitute a quorum for the transaction of business, and the act of a majority
of the directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors, except as may be otherwise specifically provided
by law, the Articles of Incorporation or these Bylaws. If a quorum is not
present at any meeting of the Board of Directors, the directors present may
adjourn the meeting from time to time until a quorum
5
<PAGE> 9
shall be present, provided that an announcement is made at such meeting, and
notice is provided to any directors not present at such meeting, of the time
and place of the next meeting.
Section 10. Compensation. Directors shall be entitled to such
compensation for their services as directors and to such reimbursement for any
reasonable expenses incurred in attending directors' meetings as may from time
to time be fixed by the Board of Directors. The compensation of directors (if
any) may be on such basis as is determined by the Board of Directors. Any
director may waive compensation for any meeting. Any director receiving
compensation under these provisions shall not be barred from serving the
Corporation in any other capacity and receiving compensation and reimbursement
for reasonable expenses for such other services.
Section 11. Action by Consent. Any action required or permitted to
be taken at any meeting of the Board of Directors may be taken without a
meeting if a written consent to such action is signed by all members of the
Board of Directors and such written consent is filed with the minutes of the
proceedings of the Board (except for those instances where the Investment
Company Act of 1940 (the "1940 Act") requires action be taken by the
Corporation's Board of Directors in person, including without limitation the
selection of independent auditors and the approval of an Investment
Agreement.).
Section 12. Meetings by Telephone or Similar Communications. The
Board of Directors may participate in a meeting by means of a conference
telephone or similar communications equipment by means of which all directors
participating in the meeting can hear each other at the same time, and
participation by such means shall be conclusively deemed to constitute presence
in person at such meeting (except for those instances where the 1940 Act
requires actions be taken by the Corporation's Board of Directors in person,
including without limitation the selection of independent auditors and the
approval of an Investment Agreement.).
ARTICLE IV
COMMITTEES
Section 1. Executive Committee. The Board of Directors may appoint
an Executive Committee consisting of not fewer than three members, one of whom
shall be designated as Chairman of the Executive Committee. The Chairman of
the Board and the President shall be elected members of the Executive
Committee. The Executive Committee shall have and may exercise those rights,
powers and authority of the Board of Directors as may from time to time be
granted to it by the Board of Directors subject to any limitations imposed by
law and may authorize the seal of the Corporation to be affixed to all papers
which may require the same.
Section 2. Nominating Committee. The Board of Directors shall
appoint a Nominating Committee consisting of not fewer than three members, one
of whom shall be designated as
6
<PAGE> 10
Chairman of the Nominating Committee. A majority of members of the Nominating
Committee shall not be officers of the Corporation. The Nominating Committee
shall have and may exercise those rights, powers and authority of the Board of
Directors as may from time to time be granted to it by the Board of Directors;
provided, however, that in addition to any such rights, powers or authority,
the Nominating Committee shall have the exclusive right to recommend candidates
for election as directors to the Board of Directors.
Section 3. Compensation Committee. The Board of Directors may
appoint from its membership a Compensation Committee consisting of not fewer
than three members, one of whom shall be designated as Chairman of the
Compensation Committee. None of the members of the Compensation Committee
shall be officers of the Corporation. The Compensation Committee shall have
and may exercise those rights, powers and authority of the Board of Directors
as may from time to time be granted to it by the Board of Directors.
Section 4. Audit Committee. The Board of Directors may appoint from
its membership an Audit Committee consisting of not fewer than three members,
one of whom shall be designated as Chairman of the Audit Committee. A majority
of members of the Audit Committee shall not be officers of the Corporation.
The Audit Committee shall have and may exercise those rights, powers and
authority of the Board of Directors as may from time to time be granted to it
by the Board of Directors; provided, however, that in addition to any such
rights, powers or authority, the Audit Committee shall: (i) issue instructions
to and receive reports from outside accounting firms and to serve as the
liaison between the Corporation and the said firms; and (ii) review all
potential conflict-of-interest situations arising in respect of the
Corporation's affairs and involving the Corporation's affiliates or employees,
and to make a report, verbal or written, to the full Board of Directors with
recommendations for their resolutions.
Section 5. Advisory Committee.
(a) The Board of Directors may appoint individuals of its
selection to an Advisory Committee to assist the Board of Directors in the
conduct of its duties and responsibilities. The Advisory Committee may meet in
conjunction with meetings of the Board of Directors and shall serve as advisers
and counselors to the Board of Directors as the members thereof shall determine
best serves the Corporation's interests.
(b) The Board of Directors, by resolutions adopted by a
majority of the whole Board, may appoint an Advisory Committee complying with
the terms of Section 2(a)(1) of the 1940 Act and the regulations promulgated
thereunder, to provide advice and counsel in respect to investment and loan
transactions entered or contemplated by the Corporation or its subsidiaries.
The Advisory Committee may be composed of up to five persons, who shall not be
directors, officers, employees or agents of the Corporation or any subsidiary
or investment adviser thereof. Advisory Committee members shall be entitled to
indemnification under Article VII below. The Advisory Committee and its
members will have no voting power and no authority, as agent or otherwise, to
act on behalf of the Corporation, in respect of any matter; and directors shall
be
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under no obligation to accept or reject any particular item of advice or
counsel provided thereby. The Advisory Committee may be invited to hold
meetings jointly with meetings of directors. Any one or more members of the
Advisory Committee may be invited to attend meetings of the directors and may
be offered access to the same information and materials otherwise provided only
to directors. The Advisory Committee may render its advice in written or
verbal form, and the same may or may not be recorded.
Section 6. Other Committees. The Board of Directors, by resolutions
adopted by a majority of the entire Board, may appoint a committee or
committees, as it shall deem advisable and impose upon such committee or
committees such functions and duties, and grant such rights, powers and
authority, as the Board of Directors shall prescribe (except the power to
declare dividends or distributions on stock, to issue stock except to the
extent permitted by law, to recommend to stockholders any action requiring
stockholders' approval, to amend these Bylaws or to approve any merger or share
exchange which does not require stockholders' approval).
Section 7. Procedure; Notice; Meetings. Each committee shall fix its
own rules of procedure and shall meet at such times and at such place or places
as may be provided by such rules or as the members of such committee shall
provide. Committee meetings may be called by the Chairman of the Board, the
President, the Chairman of the Committee, if any, or any two or more committee
members on at least twenty-four (24) hours notice, if such notice is delivered
personally or sent by messenger, telegram, telecopy, facsimile transmission, or
mail. Each committee shall keep regular minutes of its meetings and deliver
such minutes to the Board of Directors. The Chairman of each committee, or, in
his or her absence, a member of such committee chosen by a majority of the
members of such committee present, shall preside at the meetings of such
committee, and another member thereof, or any other person, chosen by such
committee shall act as Secretary of such committee, or in the capacity of
Secretary for purposes of such meeting.
Section 8. Quorum; Vote. With respect to each committee, a majority
of its members shall constitute a quorum for the transaction of business, and
the affirmative vote of a majority of the members thereof shall be required for
any action of such committee.
Section 9. Appointments; Vacancies; Changes; Discharges. The Board
of Directors shall have the exclusive power at any time, through the approval
by the affirmative vote of a majority of the entire Board of Directors, to
appoint directors to, fill vacancies in, change the membership of, or discharge
any committee.
Section 10. Tenure. Each member of a committee shall continue as a
member thereof until the expiration of his or her term as a director, or his or
her earlier resignation as a member of such committee or as a director, unless
sooner removed as a member of such committee by a vote of a majority of the
entire Board of Directors or as a director in accordance with these Bylaws.
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Section 11. Compensation. Members of any committee shall be entitled
to such compensation for their services as members of any such committee and to
such reimbursement for any reasonable expenses incurred in attending committee
meetings as may from time to time be fixed by the Board of Directors. The
compensation (if any) of members of any committee may be on such basis as is
determined by the Board of Directors. Any member may waive compensation for
any meeting. Any committee member receiving compensation under these
provisions shall not be barred from serving the Corporation in any other
capacity and from receiving compensation and reimbursement of reasonable
expenses for such other services.
Section 12. Action by Consent. Any action required or permitted to
be taken at any meeting of any committee of the Board of Directors may be taken
without a meeting if a written consent to such action is signed by all members
of the committee and such written consent is filed with the minutes of its
proceedings.
Section 13. Meetings by Telephone or Similar Communications. The
members of any committee which is designated by the Board of Directors may
participate in a meeting of such committee by means of a conference telephone
or similar communications equipment by means of which all members participating
in the meeting can hear each other at the same time, and participation by such
means shall be conclusively deemed to constitute presence in person at such
meeting.
ARTICLE V
NOTICES
Section 1. Form; Delivery. Whenever, under the provisions of law,
the Articles of Incorporation or these Bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean exclusively
personal notice unless otherwise specifically provided, but such notice may be
given in writing, by mail, addressed to such director or stockholder, provided,
in the case of a stockholder, such notice is addressed to his, her or its post
office address as such address appears on the records of the Corporation, with
postage thereon prepaid. Any such notice shall be deemed to have been given at
the time it is deposited in the United States mail. Notice to a director also
may be given personally or sent by messenger, telegram, telecopy or facsimile
transmission.
Section 2. Waiver. Whenever any notice is required to be given under
the provisions of law, the Articles of Incorporation or these Bylaws, a written
waiver thereof, signed by the person or persons entitled to said notice and
filed with the records of the meeting, whether before or after the time stated
therein, shall be conclusively deemed to be equivalent to such notice. In
addition, any stockholder who attends a meeting of stockholders in person, or
is represented at such meeting by proxy, without protesting at the commencement
of the meeting the lack of notice thereof to him or her, or any director who
attends a meeting of the Board of Directors
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without protesting at the commencement of the meeting such lack of notice,
shall be conclusively deemed to have waived notice of such meeting.
ARTICLE VI
OFFICERS
Section 1. Designations. From and after the date of adoption of
these Bylaws, the officers of the Corporation shall be a Chairman of the Board,
President, Secretary and Treasurer. The officers of the Corporation also may
include one or more Managing Directors, Principals, Vice Presidents, Associates
and such other officers and/or agents as deemed necessary or appropriate,
provided, however, that a person may hold the position of Associate without
being designated an officer of the Corporation. All officers of the
Corporation shall exercise such powers and perform such duties as shall from
time to time be determined by the Board of Directors and permitted by law or
these Bylaws. Any number of offices may be held by the same person, unless the
Articles of Incorporation or these Bylaws otherwise provide, and no person
shall execute, acknowledge or verify any instrument in more than one capacity,
if such instrument is required by law, the Articles of Incorporation or these
Bylaws to be executed, acknowledged or verified by two or more officers. The
offices of President and Secretary shall not be held by the same person.
Section 2. Term of Office; Removal. The Board of Directors shall
choose a Chairman of the Board, President and one or more Managing Directors.
The Chairman, President and any Managing Director shall have the authority to
appoint a Secretary, Treasurer, and one or more Principals, Vice Presidents
and/or Associates who are officers of the Corporation, and such other officers
and agents as they shall deem necessary or appropriate. The officers of the
Corporation shall hold office until their successors are chosen and shall
qualify or until any such officer's resignation. Any officer elected or
appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the directors then in office when, in their
judgment, the best interests of the Corporation will be served thereby. Any
officer appointed other than by the Board of Directors may be removed by the
Board of Directors or the Chairman of the Board at any time. Such removal by
the Board or by the Chairman shall not prejudice the contractual rights, if
any, of the person so removed. Any vacancy occurring in any office of the
Corporation may be filled for the unexpired portion of the term by the Board of
Directors, where such office was held by an officer elected or appointed by the
Board, or by the Chairman, the President and any Managing Director, where such
office was held by their appointee.
Section 3. Compensation. The salaries of all officers of the
Corporation (if any) shall be fixed from time to time by the Board of Directors
and no officer shall be prevented from receiving such salary by reason of the
fact that he or she is also a director of the Corporation.
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Section 4. The Chairman of the Board. The Chairman of the Board
shall be the chief executive officer of the Corporation and shall be
responsible for the overall strategic direction of the Corporation and, subject
to the direction of the Board of Directors, shall perform such executive,
supervisory and management functions and duties as may be assigned to him or
her from time to time by the Board. He or she shall, if present, preside at
all meetings of the stockholders and of the Board of Directors. The Chairman
of the Board shall execute in the corporate name all appropriate deeds,
mortgages, bonds, contracts or other instruments requiring a seal, under the
Seal of the Corporation, except in cases where such execution shall be
expressly delegated to another by the Board of Directors. The Chairman of the
Board shall be a member of the Executive Committee and an ex-officio member of
each standing committee.
Section 5. The President. The President, subject to the direction of
the Board of Directors and reporting to the Chairman of the Board, shall have
general charge of the business, affairs and property of the Corporation and
general supervision over its officers and agents. In general, he or she shall
perform all duties incident to the office of President, and shall see that all
orders and resolutions of the Board of Directors are carried into effect. In
the absence of the Chairman of the Board, the President shall preside at all
meetings of the stockholders and of the Board of Directors. The President shall
be a member of the Executive Committee and an ex-officio member of each standing
committee. Unless otherwise prescribed by the Board of Directors, the President
shall have full power and authority on behalf of the Corporation to attend, act
and vote at any meeting of stockholders of other corporations in which the
Corporation may hold securities. At such meeting, the President shall possess
and may exercise any and all rights and powers incident to the ownership of such
securities which the Corporation might have possessed and exercised if it had
been present. The President shall execute in the corporate name all appropriate
deeds, mortgages, bonds, contracts or other instruments requiring a seal of the
Corporation, except in cases in which the signing or execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the Corporation. The Board of Directors may from time to time confer like
powers and authority upon any other person or persons.
Section 6. The Managing Directors. The Managing Directors, subject
to the direction of the Board of Directors and reporting to the Chairman of the
Board and President, shall assist in the general charge of the business of the
Corporation and general supervision over its officers and agents. In the
absence of the Chairman of the Board or President, at the direction of the
Board of Directors, a Managing Director may preside at all meetings of the
stockholders and of the Board of Directors. Unless otherwise prescribed by
the Chairman of the Board or President, the Managing Directors shall have full
power and authority on behalf of the Corporation to attend, act and vote at any
meeting of stockholders of other corporations in which the Corporation may hold
securities. At such meeting, the Managing Director shall possess and may
exercise any and all rights and powers incident to the ownership of such
securities which the Corporation might have possessed and exercised if it had
been present. At the direction of the Chairman of the Board or the President,
a Managing Director may execute in the corporate name all appropriate deeds,
mortgages, bonds, contracts or other instruments requiring a seal of the
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Corporation, except in cases in which the signing or execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the Corporation. The Board of Directors may from time to time confer like
powers and authority upon any other person or persons.
Section 7. Principals. The Principals, if any, shall, in the absence
of the President and all Managing Directors or in the event of the disabilities
of all such persons, perform the duties and exercise the powers of the
President or a Managing Director and shall generally assist the President and
any and all Managing Directors and perform such other duties and have such
other powers as may from time to time be prescribed by the Board of Directors.
Section 8. Vice Presidents. The Vice Presidents, if any, shall
generally assist the President and any and all Managing Directors and/or the
Principals as directed by such officers and perform such other duties and have
such other powers as may from time to time be prescribed by the Board of
Directors.
Section 9. The Secretary. The Secretary shall attend all meetings of
the Board of Directors and meetings of the stockholders and record all votes
and the proceedings of the meetings in a book to be kept for that purpose and
shall perform like duties for the Executive Committee or other committees, if
required. He or she shall give, or cause to be given, notice of all meetings
of stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may from time to time be prescribed by the Board
of Directors, Chairman of the Board or the President, under whose supervision
he or she shall act; provided, however, that in addition to any such duties,
the Secretary shall: (i) provide each director with a copy of the Bylaws of the
Corporation upon his or her election as a director; and (ii) upon any amendment
to these Bylaws, provide each director with a copy of the Bylaws, as amended,
promptly after such Bylaws have been approved by the Board of Directors. The
Secretary shall have custody of the seal of the Corporation, and he or she, or
an Assistant Secretary, shall have authority to affix the same to any
instrument requiring it, and, when so affixed, the seal may be attested by his
or her signature or by the signature of such Assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the Corporation and to attest the affixing thereof by his or her signature.
Section 10. The Assistant Secretary. The Assistant Secretary, if any
(or, in the event there be more than one, the Assistant Secretaries in the
order designated, or, in the absence of any designation, in the order of their
election), shall, in the absence of the Secretary or in the event of his or her
disability, perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as may from time to
time be prescribed by the Board of Directors.
Section 11. Associates. The Associates who are designated officers
of the Corporation, if any, shall assist the President, any and all Managing
Directors, Principals, and Vice Presidents
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of the Corporation as directed by such officers and perform such other duties
and have such other powers as may from time to time be prescribed by the Board
of Directors.
Section 12. The Treasurer. The Treasurer shall have the custody of
the corporate funds and other valuable effects, including securities, and shall
keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories
as may from time to time be designated by the Board of Directors. He or she
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the Chairman of the Board, the President and the Board of Directors, at regular
meetings of the Board of Directors, or whenever the Board of Directors may
require it, an account of all his or her transactions as Treasurer and of the
financial condition of the Corporation.
Section 13. The Assistant Treasurer. The Assistant Treasurer, if any
(or in the event there shall be more than one, the Assistant Treasurers in the
order designated, or, in the absence of any designation, in the order of their
election), shall, in the absence of the Treasurer or in the event of his or her
disability, perform the duties and exercise the powers of the Treasurer and
shall perform such other duties and have such other powers as may from time to
time be prescribed by the Board of Directors.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
Section 1. Generally. Reference is made to Section 2-418 (and any
other relevant provisions) of the Corporations and Associations Article of the
Annotated Code of Maryland (1993), as amended. Particular reference is made to
the class of persons (hereinafter called "Indemnitees") who may be indemnified
by a Maryland corporation pursuant to the provisions of such Section 2-418,
namely, any entity (including the Corporation's investment adviser) or person
(or the heirs, executors or administrators of such person) who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that such person is or was a director,
officer, employee or agent of such corporation, or is or was serving at the
request of such corporation as a director, manager, partner, officer, trustee,
employee, agent or any similar title of another corporation, partnership, joint
venture, trust or other enterprise or employee benefit plan.
(a) The Corporation shall (and is hereby obligated to)
indemnify the Indemnitees, and each of them, in each and every situation where
the Corporation is obligated to make such indemnification pursuant to the
aforesaid statutory provisions or pursuant to the Articles of Incorporation.
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(b) The Corporation shall indemnify the Indemnitees, and
each of them, in each and every situation where, under the aforesaid statutory
provisions, the Corporation is not obligated, but is nevertheless permitted or
empowered, to make such indemnification, if the Board of Directors determines
that such Indemnitee acted in good faith and in a manner such Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, in the case of any criminal action or proceeding, that such
Indemnitee had no reasonable cause to believe that such Indemnitee's conduct
was unlawful.
Section 2. Limitation for Disabling Conduct.
(a) Notwithstanding anything to the contrary in Section 1
hereof, the Corporation may not indemnify any director or officer of the
Corporation against any liability, nor shall any director or officer of the
Corporation be exculpated from any liability, to the Corporation or its
stockholders to which such director or officer might otherwise be subject by
reason of "disabling conduct," as hereinafter defined. Accordingly, each
determination with respect to the permissibility of indemnification of a
director or officer of the Corporation because such director or officer has met
the applicable standard of conduct shall include a determination that the
liability for which such indemnification is sought did not arise by reason of
such person's disabling conduct. The determination required by this Subsection
2(a) may be based on:
(i) a final decision on the merits by a court or
other body before whom the action, suit or proceeding was brought that the
person to be indemnified was not liable by reason of disabling conduct, or
(ii) in the absence of such a decision, a
reasonable determination, based on a review of the facts, that the person to be
indemnified was not liable by reason of such person's disabling conduct by: (A)
the vote of a majority of a quorum of directors who are disinterested,
non-party directors; or (B) an independent legal counsel in a written opinion.
In making such determination, such disinterested, non-party directors or
independent legal counsel, as the case may be, may deem the dismissal for
insufficiency of evidence of any disabling conduct of either a court action or
an administrative proceeding against a person to be indemnified to provide
reasonable assurance that such person was not liable by reason of disabling
conduct.
(b) For the purpose of this Section:
(i) "disabling conduct" of a director or officer
shall mean such person's willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the office or any
other conduct prohibited under Section 17(h) of the 1940 Act or any other
applicable securities laws;
(ii) "disinterested, non-party director" shall
mean a director of the Corporation who is neither an "interested person" of the
Corporation as defined in Section
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2(a)(19) of the 1940 Act nor a party to the action, suit or proceeding in
connection with which indemnification is sought;
(iii) "independent legal counsel" shall mean a
member of the Bar of the State of Maryland who is not, and for at least two (2)
years prior to his or her engagement to render the opinion in question has not
been, employed or retained by the Corporation, by any investment adviser to or
principal underwriter for the Corporation, or by any person affiliated with any
of the foregoing; and
(iv) "the Corporation" shall include, in addition
to the resulting Corporation, any constituent Corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, employees or agents.
(c) The Corporation may purchase insurance to cover the
payment of costs incurred in performing the Corporation's obligations under
Section 1 hereof, but it is understood that no insurance may be obtained for
the purpose of indemnifying any disabling conduct.
(d) The Corporation may advance legal fees and other
expenses pursuant to the indemnification rights set forth in Section 1 hereof
so long as, in addition to the other requirements therefor, the Corporation
either:
(i) obtains security for the advance from the
Indemnitee;
(ii) obtains insurance against losses arising by
reason of lawful advances; or
(iii) it shall be determined, pursuant to the means
set forth in Section 2(a)(ii) hereof, that there is reason to believe that the
Indemnitee ultimately will be found entitled to indemnification.
Section 3. Advisory Committee Members. The Corporation shall
indemnify any person appointed to any Advisory Committee pursuant to Article
IV, Section 5 hereof (or the heirs, executors, or administrators of such
person) who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person is or was a member of the Advisory Committee of this Corporation, if the
Board of Directors determines that such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interest of the Corporation, and in the case of any criminal action or
proceeding, that such person had no reasonable cause to believe that such
person's conduct was unlawful.
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ARTICLE VIII
STOCK CERTIFICATES
Section 1. Form of Signatures; Statements.
(a) Except as provided in Section 1(b) of this Article,
shares of the Corporation's capital stock shall be issued without certificates.
At the time of issuance or transfer of such uncertificated shares, the
Corporation shall send the stockholder a written statement identifying: (1) the
Corporation as the issuer of the stock; (2) the name of the stockholder or
other person to whom it is issued; and (3) the class of stock and the number of
shares represented by such statement. If the Corporation has authority at the
time of such issuance or transfer to issue stock of more than one class, the
written statement shall also include a full statement or summary of: (1) the
designations and any preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption of the stock of each class which the Corporation is
authorized to issue; and (2) if the Corporation is authorized at the time of
such issuance or transfer to issue any preferred or special class in series,
(i) the differences in the relative rights and preferences between the shares
of each series to the extent they have been set, and (ii) the authority of the
Board of Directors to set the relative rights and preferences of subsequent
series. Notwithstanding the immediately preceding sentence, the written
statement may, in lieu of including the information referred to therein, state
that the Corporation will furnish a full statement of such information to any
stockholder on request and without charge. If the Corporation imposes a
restriction on transferability of such uncertificated shares, the written
statement shall also: (1) contain a full statement of the restriction; or (2)
state that the Corporation will furnish information about the restriction to
the stockholder on request and without charge.
(b) Notwithstanding Section 1(a) of this Article, every
stockholder in the Corporation shall, upon request duly made to the Corporation
or any transfer agent of the Corporation, be entitled to have a certificate,
signed by the Chairman of the Board or the President or a Managing Director or
a Principal and countersigned by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the Corporation, exhibiting the number
and class (and series, if any) of shares owned by him, her or it, and bearing
the seal of the Corporation. Such signatures and seal may be facsimile
transmission. In case any officer who has signed, or whose facsimile signature
was placed on, a certificate shall have ceased to be such officer before such
certificate is issued, it may nevertheless be issued by the Corporation with
the same effect as if he or she were such officer at the date of its issue.
(c) Every certificate representing stock issued by the
Corporation, if it is authorized to issue stock of more than one class, shall
set forth upon the face or back of the certificate, a full statement or summary
of the designations and any preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications, and terms
and
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conditions of redemptions of the stock of each class which the Corporation is
authorized to issue and, if the Corporation is authorized to issue any
preferred or special class of stock in series, the differences in the relative
rights and preferences between the shares of each series to the extent they
have been set and the authority of the Board of Directors to set the relative
rights and preferences of subsequent series. In lieu of such full statement or
summary, there may be set forth upon the face or back of each certificate a
statement that the Corporation will furnish to the stockholder, upon request
and without charge, a full statement of such information.
(d) Every certificate representing shares which are
restricted as to transferability by the Corporation shall either (i) set forth
on the face or back of the certificate a full statement of such restriction or
(ii) state that the Corporation will furnish to the stockholder, upon request
and without charge, information about the restriction.
Section 2. Registration of Transfer. Upon surrender to the
Corporation or any transfer agent of the Corporation of a certificate for
shares duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, or upon presentation to the Corporation or
any transfer agent of the Corporation of an instruction with a request to
register transfer of uncertificated shares, it shall be the duty of the
Corporation or its transfer agent, if it is satisfied that all terms and
conditions of the Articles of Incorporation, of the Bylaws and of applicable
law regarding the transfer of shares have been fulfilled, to record the
transaction upon its books, to issue a new certificate to the person entitled
thereto upon request for such certificate, and to cancel the old certificate,
if any.
Section 3. Registered Stockholders.
(a) Except as otherwise provided by law, the Corporation
shall be entitled to recognize the exclusive right of a person who is
registered on its books as the owner of shares of its capital stock to receive
dividends or other distributions, to vote as such owner, and to hold liable for
calls and assessments a person who is registered on its books as the owner of
shares of its capital stock. The Corporation shall not be bound to recognize
any equitable or legal claim to or interest in such shares on the part of any
other person except that the Board of Directors may adopt by resolution a
procedure by which a stockholder may certify in writing to the Corporation that
any shares of its capital stock registered in the name of such stockholder are
held for the account of a specified person other than such stockholder are held
for the account of a specified person other than such stockholder.
(b) If a stockholder desires that notices and/or
dividends shall be sent to a name or address other than the name or address
appearing on the stock ledger maintained by the Corporation (or by the transfer
agent or registrar, if any), such stockholder shall have the duty to notify the
Corporation (or the transfer agent or registrar, if any), in writing, of such
desire. Such written notice shall specify the alternate name or address to be
used.
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Section 4. Location of Stock Ledger. A copy of the Corporation's
stock ledger containing (i) the name and address of each stockholder, and (ii)
the number and shares of stock of each class which the stockholder holds shall
be maintained at the Corporation's office located at 1666 K Street, N.W.,
Washington, DC 20006-2803.
Section 5. Record Date. In order that the Corporation may determine
the stockholders of record who are entitled to notice of or to vote at any
meeting of stockholders or any adjournment thereof, or entitled to receive
payment of any dividend or the allotment of any rights, or to make a
determination with respect to stockholders of record for any other proper
purpose, the Board of Directors may, in advance, fix a date as the record date
for any such determination or meeting. Such date shall not be more than 90 nor
less than 10 days before the date of any such meeting, nor more than 90 days
prior to the date any other determination is made with respect to stockholders.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting taken
pursuant to Section 7 of Article II; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
Section 6. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct that a new certificate be issued in place of any
certificate theretofore issued by the Corporation which is claimed to have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate to be lost, stolen or destroyed. When
authorizing such issuance of a new certificate, the Board of Directors may, in
its discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed certificate to advertise the same
in such manner as it shall require and/or to give the Corporation a bond in
such sum or other security in such form, as it may direct as indemnity against
any claim that may be made against the Corporation with respect to the
certificate claimed to have been lost, stolen or destroyed.
ARTICLE IX
GENERAL PROVISIONS
Section 1. Dividends. Except as otherwise provided by law or the
Articles of Incorporation, dividends upon the outstanding capital stock of the
Corporation may be declared by the Board of Directors at any annual, regular or
special meeting, and may be paid in cash, in property or in shares of the
Corporation's capital stock.
Section 2. Reserves. The Board of Directors shall have full power,
subject to the provisions of law and the Articles of Incorporation, to
determine whether any, and, if so, what part, of the funds legally available
for the payment of dividends shall be declared as dividends and paid to the
stockholders of the Corporation. The Board of Directors, in its sole
discretion, may fix a sum which may be set aside or reserved over and above the
paid-in capital of the
18
<PAGE> 22
Corporation for working capital or as a reserve for any proper purpose, and
may, from time to time, increase, diminish or vary such fund or funds.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be
as determined from time to time by the Board of Directors.
Section 4. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its incorporation and the words "Corporate
Seal" and "Maryland."
ARTICLE X
AMENDMENTS
The Board of Directors shall have the power to make, alter, amend and
repeal these Bylaws, and to adopt new bylaws, by an affirmative vote of a
majority of the entire Board of Directors, provided that notice of the proposal
to make, alter, amend or repeal these Bylaws, or to adopt new bylaws, was
included in the notice of the meeting of the Board of Directors at which such
action takes place.
19
<PAGE> 23
CERTIFICATE
We, WILLIAM L. WALTON and TRICIA BENZ DANIELS, Chairman and Secretary,
respectively, of ALLIED CAPITAL CORPORATION (the "Corporation"), a Maryland
corporation, DO HEREBY CERTIFY that the foregoing is a true and correct copy of
the Corporation's Bylaws as amended and in effect the date hereof.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the
corporate seal of the Corporation this 8th day of January, 1998.
/s/ William L. Walton
---------------------------------
William L. Walton, Chairman
/s/ Tricia Benz Daniels
---------------------------------
Tricia Benz Daniels, Secretary
[Corporate Seal]
20
<PAGE> 1
EXHIBIT 10.1
================================================================================
CREDIT AGREEMENT
Dated as of January 8, 1998
by and among
ALLIED CAPITAL CORPORATION
and
ALLIED CAPITAL SBLC CORPORATION
as Borrowers,
THE FINANCIAL INSTITUTIONS PARTY HERETO
AND THEIR ASSIGNEES UNDER SECTION 12.5(a),
as Lenders,
RIGGS BANK N.A.,
as Managing Agent,
BANKBOSTON, N.A.,
as Disbursing Agent,
and
FIRST UNION NATIONAL BANK,
as Syndication Agent
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 DEFINITIONS.............................................................................................1
Section 1.1. Definitions.................................................................................1
Section 1.2. General; References to Times...............................................................16
ARTICLE 2 CREDIT FACILITY........................................................................................17
Section 2.1. Loans......................................................................................17
Section 2.2. Rates and Payment of Interest on Loans.....................................................18
Section 2.3. Number of Interest Periods.................................................................19
Section 2.4. Repayment of Loans.........................................................................19
Section 2.5. Prepayments................................................................................19
Section 2.6. Continuation...............................................................................19
Section 2.7. Conversion.................................................................................20
Section 2.8. Note.......................................................................................20
Section 2.9. Voluntary Reductions of the Commitment.....................................................21
ARTICLE 3 PAYMENTS, FEES AND OTHER GENERAL PROVISIONS............................................................21
Section 3.1. Payments...................................................................................21
Section 3.2. Pro Rata Treatment.........................................................................21
Section 3.3. Sharing of Payments, Etc...................................................................22
Section 3.4. Several Obligations........................................................................23
Section 3.5. Minimum Amounts............................................................................23
Section 3.6. Fees.......................................................................................23
Section 3.7. Computations...............................................................................23
Section 3.8. Usury......................................................................................24
Section 3.9. Agreement Regarding Interest and Charges...................................................24
Section 3.10. Statements of Account.....................................................................24
Section 3.11. Defaulting Lenders........................................................................24
Section 3.12. Taxes.....................................................................................26
ARTICLE 4 YIELD PROTECTION, ETC..................................................................................27
Section 4.1. Additional Costs; Capital Adequacy.........................................................27
Section 4.2. Suspension of LIBOR Loans..................................................................28
Section 4.3. Illegality.................................................................................28
Section 4.4. Compensation...............................................................................29
Section 4.5. Treatment of Affected Loans................................................................29
Section 4.6. Change of Lending Office...................................................................30
Section 4.7. Assumptions Concerning Funding of LIBOR Loans..............................................30
</TABLE>
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<TABLE>
<S> <C>
ARTICLE 5 CONDITIONS PRECEDENT...................................................................................30
Section 5.1. Initial Conditions Precedent...............................................................30
Section 5.2. Conditions Precedent to All Loans..........................................................32
ARTICLE 6 REPRESENTATIONS AND WARRANTIES.........................................................................33
Section 6.1. Representations and Warranties.............................................................33
Section 6.2. Survival of Representations and Warranties, Etc............................................38
ARTICLE 7 AFFIRMATIVE COVENANTS..................................................................................39
Section 7.1. Preservation of Existence and Similar Matters..............................................39
Section 7.2. Compliance with Applicable Law and Material Contracts......................................39
Section 7.3. Maintenance of Property....................................................................39
Section 7.4. Conduct of Business........................................................................40
Section 7.5. Insurance..................................................................................40
Section 7.6. Payment of Taxes and Claims................................................................40
Section 7.7. Visits and Inspections.....................................................................40
Section 7.8. Use of Proceeds............................................................................41
Section 7.9. Environmental Matters......................................................................41
Section 7.10. Books and Records.........................................................................41
Section 7.11. Status of RIC and BDC.....................................................................41
Section 7.12. ERISA Exemptions..........................................................................41
Section 7.13. Further Assistance........................................................................42
Section 7.14. Borrowing Subsidiaries....................................................................42
Section 7.15. Consents and Waivers from Lenders.........................................................42
ARTICLE 8 INFORMATION............................................................................................42
Section 8.1. Quarterly Financial Statements.............................................................43
Section 8.2. Year-End Statements........................................................................43
Section 8.3. Compliance Certificate; Borrowing Base Certificate.........................................43
Section 8.4. Other Information..........................................................................44
ARTICLE 9 NEGATIVE COVENANTS.....................................................................................46
Section 9.1. Financial Covenants........................................................................46
Section 9.2. Indebtedness...............................................................................47
Section 9.3. Contingent Obligations.....................................................................48
Section 9.4. Investments................................................................................48
Section 9.5. Liens; Agreements Regarding Liens; Other Matters...........................................49
Section 9.6. Distributions to Shareholders..............................................................49
Section 9.7. Merger, Consolidation and Sales of Assets..................................................50
Section 9.8. Fiscal Year................................................................................50
Section 9.9. Modifications to Material Contracts........................................................50
</TABLE>
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<TABLE>
<S> <C>
Section 9.10. Transactions with Affiliates..............................................................51
ARTICLE 10 DEFAULT...............................................................................................51
Section 10.1. Events of Default.........................................................................51
Section 10.2. Remedies Upon Event of Default............................................................54
Section 10.3. Remedies Upon Certain Defaults............................................................55
Section 10.4. Allocation of Proceeds....................................................................55
Section 10.5. Performance by Agent......................................................................56
Section 10.6. Rights Cumulative.........................................................................56
ARTICLE 11 THE AGENTS............................................................................................56
Section 11.1. Authorization and Action..................................................................56
Section 11.2. Agent's Reliance, Etc.....................................................................57
Section 11.3. Defaults..................................................................................57
Section 11.4. Agent as Lender...........................................................................58
Section 11.5. Approvals of Lenders......................................................................58
Section 11.6. Lender Credit Decision, Etc...............................................................58
Section 11.7. Indemnification of Agent..................................................................59
Section 11.8. Successor Agent...........................................................................60
Section 11.9. Syndication Agent.........................................................................60
ARTICLE 12 MISCELLANEOUS.........................................................................................61
Section 12.1. Notices...................................................................................61
Section 12.2. Expenses..................................................................................62
Section 12.3. Setoff....................................................................................63
Section 12.4. Jurisdiction; Consent to Service of Process; Waiver of Jury Trial.........................63
Section 12.5. Successors and Assigns....................................................................64
Section 12.6. Removal of Lenders........................................................................66
Section 12.7. Amendments................................................................................67
Section 12.8. Nonliability of Agent and Lenders.........................................................68
Section 12.9. Confidentiality...........................................................................68
Section 12.10. Indemnification..........................................................................68
Section 12.11. Termination; Survival....................................................................70
Section 12.12. Severability of Provisions...............................................................70
Section 12.13. Governing Law............................................................................70
Section 12.14. Counterparts.............................................................................71
Section 12.15. Limitation of Liability..................................................................71
Section 12.16. Entire Agreement.........................................................................71
Section 12.17. Construction.............................................................................71
</TABLE>
SCHEDULE 6.1(b) Ownership Structure
SCHEDULE 6.1(g) Indebtedness and Liens
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<PAGE> 5
SCHEDULE 6.1(h) Material Contracts
SCHEDULE 9.3 Contingent Obligations
EXHIBIT A Form of Assignment and Acceptance Agreement
EXHIBIT B Form of Guaranty
EXHIBIT C Form of Notice of Borrowing
EXHIBIT D Form of Notice of Continuation
EXHIBIT E Form of Notice of Conversion
EXHIBIT F Form of Note
EXHIBIT G Form of Opinion of Counsel
EXHIBIT H Form of Compliance Certificate
EXHIBIT I-1 Form of Borrowing Base Certificate of Company
EXHIBIT I-2 Form of Borrowing Base Certificate of SBLC
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<PAGE> 6
THIS CREDIT AGREEMENT dated as of January 8, 1998, by and among ALLIED
CAPITAL CORPORATION, a corporation organized under the laws of the State of
Maryland (the "Company"), ALLIED CAPITAL SBLC CORPORATION, a Maryland
corporation ("SBLC," and together with the Company, collectively, the
"Borrowers" and individually, a "Borrower"), each of the financial institutions
initially a signatory hereto together with their assignees pursuant to Section
12.5(d) (the "Lenders"), BANKBOSTON, N.A., a national banking association, as
Disbursing Agent (the "Disbursing Agent"), FIRST UNION NATIONAL BANK, a national
banking association, as Syndication Agent (the "Syndication Agent"), and RIGGS
BANK N.A., a national banking association, as Managing Agent (the "Managing
Agent").
WHEREAS, the Lenders desire to make available to the Company a
$150,000,000 revolving credit facility (which includes a $30,000,000
sub-facility for SBLC) on the terms and conditions contained herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1. DEFINITIONS.
In addition to terms defined elsewhere herein, the following terms
shall have the following meanings for the purposes of this Agreement:
"ADDITIONAL COSTS" has the meaning given that term in Section 4.1.
"ADJUSTED DEBT" means at any time on a consolidated basis for the
Company and its Subsidiaries, all Indebtedness other than non-recourse
Indebtedness of the Company or a Subsidiary arising out of an asset
securitization where the liability of the Company or the Subsidiary is limited
to breach of representations and warranties related to assets that are the
subject of such securitization.
"ADJUSTED EBIT" means, for any period with respect to the Company and
its Subsidiaries on a consolidated basis, income after deduction of all expenses
and other proper charges other than taxes and Interest Expense, including
realized gains and losses, but excluding gain income related to asset
securitization transactions, unrealized gains and losses on Investments and the
amortization of market discount income related to Investments acquired at less
than face value, all as determined in accordance with GAAP.
"ADJUSTED EURODOLLAR RATE" means, with respect to each Interest Period
for any LIBOR Loan, the rate obtained by dividing (a) LIBOR for such Interest
Period by (b) a percentage equal to one minus the stated maximum rate (stated as
a decimal) of all reserves, if any, required to be maintained against
"Eurocurrency liabilities" as specified in Regulation D of the Board of
Governors of the Federal Reserve System (or against any other category of
liabilities which
<PAGE> 7
includes deposits by reference to which the interest rate on LIBOR Loans is
determined or any category of extensions of credit or other assets which
includes loans by an office of any Lender outside of the United States of
America to residents of the United States of America).
"AFFILIATE" means any Person (other than an Agent or any Lender): (a)
directly or indirectly controlling, controlled by, or under common control with,
the Company; (b) directly or indirectly owning or holding five percent (5.0%) or
more of any equity interest in the Company; or (c) five percent (5.0%) or more
of whose voting stock or other equity interest is directly or indirectly owned
or held by the Company. For purposes of this definition, "control" (including
with correlative meanings, the terms "controlling," "controlled by" and "under
common control with") means the possession directly or indirectly of the power
to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities or by contract or otherwise,
other than by investment advisory contracts entered into in the ordinary course
of business of the Company or a Subsidiary of the Company.
"AGENTS" means the Disbursing Agent, the Syndication Agent and the
Managing Agent, individually and collectively.
"AGREEMENT DATE" means the date as of which this Agreement is dated.
"APPLICABLE LAW" means all applicable provisions of constitutions,
statutes, rules, regulations and orders of all governmental bodies and all
orders and decrees of all courts, tribunals and arbitrators.
"ASSIGNEE" has the meaning given that term in Section l2.5(d).
"ASSIGNMENT AND ACCEPTANCE AGREEMENT" means an Assignment and
Acceptance Agreement among a Lender, an Assignee and each Agent, substantially
in the form of Exhibit A or such other form as may be agreed to by such Lender,
such Assignee and each Agent.
"BANKBOSTON RATE" means the rate of interest per annum announced
publicly by the Disbursing Agent as its base rate from time to time. The
BankBoston Rate is not necessarily the best or the lowest rate of interest
offered by the Disbursing Agent or any Lender.
"BASE RATE" means the per annum rate of interest equal to the greater
of (a) the BankBoston Rate or (b) the Federal Funds Rate plus one-half of one
percent (0.5%). Any change in the Base Rate resulting from a change in the
BankBoston Rate or the Federal Funds Rate shall become effective as of 12:01
a.m. on the Business Day on which each such change occurs. The Base Rate is a
reference rate used by the Disbursing Agent in determining interest rates on
certain loans and is not intended to be the lowest rate of interest charged by
the Disbursing Agent or any Lender on any extension of credit to any debtor.
"BASE RATE LOAN" means a Loan bearing interest at a rate based on the
Base Rate.
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<PAGE> 8
"BENEFIT ARRANGEMENT" means at any time an employee benefit plan within
the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan
and which is maintained or otherwise contributed to by any member of the ERISA
Group.
"BORROWER" has the meaning set forth in the introductory paragraph
hereof and shall include each Borrower's successors and assigns.
"BORROWING BASE" means, at any time, with respect to a Borrower and
without duplication, (a) 100% of cash and Cash Equivalents owned by such
Borrower, free and clear of all Liens, plus (b) 50% of any other Eligible Assets
owned by such Borrower (or in the case of the Borrowing Base of the Company, the
Subordinated CMBS Tranches may be owned by the QRS), provided that: (1) not more
than 50% of the Borrowing Base of the Company shall be derived from Commercial
Mortgage Loans (excluding those made pursuant to Section 504 of the SBA Act)
owned by the Company; (2) not more than 50% of the Borrowing Base of the Company
shall be derived from Mezzanine Loans owned by the Company; (3) not more than
20% of the Borrowing Base of the Company shall be derived from Subordinated CMBS
Tranches owned by the QRS; (4) not more than 15% of the Borrowing Base of the
Company shall be derived from Equity Investments owned by the Company, and (5)
not more than 25% of the Borrowing Base of the Company shall be derived from
Loans made pursuant to Sections 7(a) and 504 of the SBA Act, minus (c) all
Unsecured Indebtedness and Contingent Obligations of such Borrower. For the
purpose of determining the Borrowing Base, the value of Eligible Assets shall be
determined in accordance with the market valuation method pursuant to GAAP,
provided that (i) in no event shall a debt security be valued at more than the
outstanding principal balance thereof, and (ii) the market valuation method used
by the Company and the corresponding values of Eligible Assets must be
acceptable to the Managing Agent in its reasonable discretion.
"BORROWING BASE ASSETS" means, at any time, Eligible Assets included in
the Borrowing Base with respect to which Loans are outstanding.
"BORROWING BASE CERTIFICATE" has the meaning given such term in Section
8.3.
"BUSINESS DAY" means (a) any day other than a Saturday, Sunday or other
day on which banks in New York City, New York, are authorized or required to
close and (b) with reference to a LIBOR Loan, any such day that is also a day on
which dealings in Dollar deposits are carried out in the London interbank
market.
"CAPITALIZED LEASE OBLIGATION" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP, and the amount of such Indebtedness
shall be the capitalized amount of such obligations determined in accordance
with such principles.
"CASH EQUIVALENTS" means: (a) securities issued, guaranteed or insured
by the United States of America or any of its agencies with maturities of not
more than one year from the date acquired; (b) certificates of deposit with
maturities of not more than one year from the date acquired issued by a United
States federal or state chartered commercial bank of recognized
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<PAGE> 9
standing, which has capital and unimpaired surplus in excess of $500,000,000.00
and which bank or its holding company has a short-term commercial paper rating
of at least A-1 or the equivalent by Standard & Poor's Rating Group, a division
of McGraw-Hill, Inc. ("S&P") or at least P-1 or the equivalent by Moody's
Investors Services, Inc. ("Moody's"); (c) reverse repurchase agreements with
terms of not more than seven days from the date acquired, for securities of the
type described in clause (a) above and entered into only with commercial banks
having the qualifications described in clause (b) above; (d) commercial paper
issued by any Person incorporated under the laws of the United States of America
or any State thereof and rated at least A-1 or the equivalent thereof by S&P or
at least P-1 or the equivalent thereof by Moody's, in each case with maturities
of not more than one year from the date acquired; and (e) investments in money
market funds registered under the Investment Company Act of 1940, which have net
assets of at least $500,000,000.00 and at least 85% of whose assets consist of
securities and other obligations of the type described in clauses (a) through
(d) above.
"CMBS" means any security that entitles the holder thereof to receive
all or a specified portion of, or to receive payments based upon payments
received on, the proceeds of Commercial Mortgage Loans, either fixed or
revolving.
"COMMERCIAL MORTGAGE LOAN" means a loan secured by a Lien on improved
real estate used for commercial purposes and occupied by the applicable Obligor.
"COMMITMENT" means, as to each Lender, such Lender's obligation to make
Loans pursuant to Section 2.1 in an amount up to, but not exceeding, the amount
set forth for such Lender on its signature page hereto as such Lender's "Initial
Commitment Amount" or as set forth in the applicable Assignment and Acceptance
Agreement, as the same may be reduced from time to time pursuant to Section 2.9
or as appropriate to reflect any assignments to or by such Lender effected in
accordance with Section 12.5.
"COMMITMENT PERCENTAGE" means, as to each Lender, the ratio, expressed
as a percentage, of (a) the amount of such Lender's Commitment to (b) the sum of
the aggregate amount of the Commitments of all Lenders hereunder; provided,
however, that if at the time of determination the Commitments have terminated or
been reduced to zero, the "Commitment Percentage" of each Lender shall be the
Commitment Percentage of such Lender in effect immediately prior to such
termination or reduction.
"COMPLIANCE CERTIFICATE" has the meaning given such term in Section
8.3.
"CONTINGENT OBLIGATION" as applied to any Person, means any direct or
indirect liability, contingent or otherwise, of that Person: (a) with respect to
any indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto; (b) with
respect to any letter of credit issued for the account of that Person or as to
which that Person is otherwise liable for reimbursement of drawings; (c) under
Interest Rate Agreements; or (d) under any foreign exchange contract, currency
swap agreement or other
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<PAGE> 10
similar agreement or arrangement designed to protect that Person against
fluctuations in currency values. Contingent Obligations shall include (i) the
direct or indirect guaranty, endorsement (other than for collection or deposit
in the ordinary course of business), comaking, discounting with recourse or sale
with recourse by such Person of the obligation of another, (ii) the obligation
to make take or pay or similar payments if required regardless of nonperformance
by any other party or parties to an agreement, and (iii) any liability of such
Person for the obligations of another through any agreement to purchase,
repurchase or otherwise acquire such obligation or any property constituting
security therefor, to provide funds for the payment or discharge of such
obligation or to maintain the solvency, financial condition or any balance sheet
item or level of income of another. The amount of any Contingent Obligation
shall be equal to the amount of the obligation so guaranteed or otherwise
supported or, if not a fixed and determined amount, the maximum amount so
guaranteed.
"CONTINUE," "CONTINUATION" AND "CONTINUED" each refers to the
continuation of a LIBOR Loan from one Interest Period to another Interest Period
pursuant to Section 2.6.
"CONVERT," "CONVERSION" AND "CONVERTED" each refers to the conversion
of a Loan of one Type into a Loan of another Type pursuant to Section 2.7.
"CREDIT EVENT" MEANS any of the following: (a) the making (or deemed
making) of any Loan and (b) the Conversion of a Loan.
"CREDIT RATING" means, at any time as to any Person, the lowest rating
assigned by a Rating Agency to each series of rated senior unsecured long term
indebtedness of such Person.
"DEFAULT" means any of the events specified in Section 10.1, whether or
not there has been satisfied any requirement for the giving of notice, the lapse
of time or both.
"DEFAULTING LENDER" has the meaning set forth in Section 3.l1.
"DISBURSING AGENT" means BankBoston, N.A., in its capacity as
contractual representative of the Lenders under the terms of this Agreement, and
any of its successors.
"DOLLARS" or "$" means the lawful currency of the United States of
America.
"EFFECTIVE DATE" means the later of: (a) the Agreement Date; and (b)
the date on which all of the conditions precedent set forth in Section 5.1.
shall have been fulfilled.
"ELIGIBLE ASSETS" means any of the following Investments that satisfy
all of the Eligibility Requirements: (a) cash and Cash Equivalents, (b)
Commercial Mortgage Loans; (c) Subordinated CMBS Tranches; (d) Mezzanine Loans;
(e) Commercial Mortgage Loans made pursuant to Section 504 of the SBA Act; (f)
loans made pursuant to Section 7(a) of the SBA Act, and (g) Equity Investments.
"ELIGIBLE ASSIGNEE" means any Person who is: (i) currently a Lender;
(ii) a commercial bank, trust company, insurance company, investment bank or
pension fund organized under the
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<PAGE> 11
laws of the United States of America, or any state thereof, and having total
assets in excess of $5,000,000,000; (iii) a savings and loan association or
savings bank organized under the laws of the United States of America, or any
state thereof, and having a tangible net worth of at least $500,000,000; or (iv)
a commercial bank organized under the laws of any other country which is a
member of the Organization for Economic Cooperation and Development ("OECD"), or
a political subdivision of any such country, and having total assets in excess
of $10,000,000,000, provided that such bank is acting through a branch or agency
located in the United States of America. If such Person is not currently a
Lender, such Person's senior unsecured long term indebtedness must be rated BBB
or higher by S&P, Baa2 or higher by Moody's, or the equivalent or higher of
either such rating by another Rating Agency acceptable to the Managing Agent.
Notwithstanding the foregoing, if an Event of Default shall have occurred and be
continuing under Section 10.1.(a) or (b), the "Eligible Assignee" shall mean any
Person that is not an individual.
"ELIGIBILITY REQUIREMENTS" means, for any Eligible Asset, that at all
times the following statements are accurate and complete:
(a) No Obligor on the Eligible Asset is an Affiliate of a Borrower;
(b) The Eligible Asset is owned by a Borrower, or, in the case of
Subordinated CMBS Tranches, by the QRS;
(c) The Eligible Asset is a legal, valid and binding obligation of each
Obligor thereon, enforceable in accordance with its terms;
(d) No payment on the Eligible Asset is more than 45 days past due, nor
has such Eligible Asset been restructured during the most recently ended
12-month period in connection with the inability of the Obligor to perform its
obligations as they existed prior to such restructuring;
(e) The Eligible Asset is free and clear of all Liens, other than Liens
described in clause (a) of the definition of Permitted Liens;
(f) The Eligible Asset complies with all Applicable Laws;
(g) Each Obligor on the Eligible Asset is a United States citizen or
corporation, partnership, limited liability company or other entity organized
and existing under the laws of one of the states of the United States.;
(h) The Eligible Asset is not owned by SBIC or SSBIC;
(i) The Eligible Asset is not secured by real or personal property
located outside of the United States; and
(j) The Eligible Asset does not arise out of a sale and leaseback
transaction or a real estate equity participation.
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<PAGE> 12
"ENVIRONMENTAL LAWS" means any Applicable Law relating to environmental
protection or the manufacture, storage, disposal or clean-up of Hazardous
Materials including, without limitation, the following: Clean Air Act, 42 U.S.C.
7401 et seq.; Federal Water Pollution Control Act, 33 U.S.C. 1251 et seq.; Solid
Waste Disposal Act, 42 U.S.C. 6901 et seq.; Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. 9601 et seq.; National
Environmental Policy Act, 42 U.S.C. 4321 et seq.; regulations of the
Environmental Protection Agency and any applicable rule of common law and any
judicial interpretation thereof relating primarily to the environment or
Hazardous Materials.
"EQUITY INVESTMENT" means an Investment by the Company in an Equity
Issuance of a Person that is an operating business that sells goods or services.
"EQUITY ISSUANCE" means any issuance or sale by a Person of its capital
stock or other similar equity security, or any warrants, options or similar
rights to acquire, or securities convertible into or exchangeable for, such
capital stock or other similar equity security.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
in effect from time to time.
"ERISA GROUP" means the Company, any Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Company or any
Subsidiary, are treated as a single employer under Section 414 of the Internal
Revenue Code.
"EVENT OF DEFAULT" means any of the events specified in Section 10.1,
provided that any requirement for notice or lapse of time or any other condition
has been satisfied.
"FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded
upward to the nearest l/l00th of 1%) 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 on such day, as published by the
Federal Reserve Bank of New York on the Business Day next succeeding such day,
provided that (a) if such day is not a Business Day, the Federal Funds Rate for
such day shall be such rate on such transactions for the next preceding Business
Day, and (b) if no such rate is so published on such next succeeding Business
Day, the Federal Funds Rate for such day shall be the average rate quoted to the
Disbursing Agent by federal funds dealers selected by the Disbursing Agent on
such day on such transaction as determined by the Disbursing Agent.
"FEES" means the fees and commissions provided for or referred to in
Section 3.6 and any other fees payable by the Company hereunder or under any
other Loan Document.
"FOREIGN LENDER" means any Lender organized under the laws of a
jurisdiction other than the United States of America.
"GAAP" means accounting principles as promulgated from time to time in
statements, opinions and pronouncements by the American Institute of Certified
Public Accountants and the
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Financial Accounting Standards Board and in such statements, opinions and
pronouncements of such other entities with respect to financial accounting of
for-profit entities as shall be accepted by a substantial segment of the
accounting profession in the United States.
"GOVERNMENTAL APPROVALS" means all authorizations, consents, approvals,
licenses and exemptions of, registrations and filings with, and reports to, all
Governmental Authorities.
"GOVERNMENTAL AUTHORITY" means any national, state or local government
(whether domestic or foreign), any political subdivision thereof or any other
governmental, quasi-governmental, judicial, public or statutory instrumentality,
authority, body, agency, bureau or entity (including, without limitation, the
Federal Deposit Insurance Corporation, the Comptroller of the Currency or the
Federal Reserve Board, any central bank or any comparable authority) or any
arbitrator with authority to bind a party at law.
"GUARANTOR" means any Subsidiary that is required to execute and
deliver a Guaranty.
"GUARANTY" means a Guaranty executed by any Subsidiary and
substantially in the form of Exhibit B.
"HAZARDOUS MATERIALS" means all or any of the following: (a) substances
that are defined or listed in, or otherwise classified pursuant to, any
applicable Environmental Laws as "hazardous substances," "hazardous materials,"
"hazardous wastes," "toxic substances" or any other formulation intended to
define, list or classify substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity,
"TLCP" toxicity, or "EP toxicity"; (b) oil, petroleum or petroleum derived
substances, natural gas, natural gas liquids or synthetic gas and drilling
fluids, produced waters and other wastes associated with the exploration,
development or production of crude oil, natural gas or geothermal resources; (c)
any flammable substances or explosives or any radioactive materials; (d)
asbestos in any form; or (e) electrical equipment which contains any oil or
dielectric fluid containing levels of polychlorinated biphenyls in excess of
fifty parts per million.
"INDEBTEDNESS" means, with respect to a Person, at the time of
computation thereof, all of the following (without duplication): (a) obligations
of such Person in respect of money borrowed; (b) obligations of such Person
(other than trade debt incurred in the ordinary course of business), whether or
not for money borrowed (i) represented by notes payable, or drafts accepted, in
each case representing extensions of credit, (ii) evidenced by bonds,
debentures, notes or similar instruments, (iii) consisting of repurchase
agreements, whether on a recourse or a non-recourse basis, (iv) constituting
purchase money indebtedness, conditional sales contracts, title retention debt
instruments or other similar instruments, upon which interest charges are
customarily paid or that are issued or assumed as full or partial payment for
property, or (v) arising out of an asset securitization where the liability of
such Person is limited to the breach of representations and warranties related
to the assets that are the subject of such securitization; (c) Capitalized Lease
Obligations of such Person; (d) all reimbursement obligations of such Person
under any letters of credit or acceptances (whether or not the same have been
presented for payment), and all obligations of such Person as the issuer of any
letters of credit or acceptances (whether or not the same have been presented
for payment); and (e) all Indebtedness
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of other Persons which (i) such Person has guaranteed or which is otherwise
recourse to such Person or (ii) are secured by a Lien on any property of such
Person.
"INTELLECTUAL PROPERTY" has the meaning given that term in Section
6.1(r).
"INTEREST EXPENSE" means, with respect to a Person and for any period,
the total consolidated interest expense (including, without limitation,
capitalized interest expense and interest expense attributable to Capitalized
Lease Obligations) of such Person and in any event shall include all interest
expense with respect to any Indebtedness in respect of which such Person is
wholly or partially liable.
"INTEREST PERIOD" means, with respect to any LIBOR Loan, each period
commencing on the date such LIBOR Loan is made or the last day of the next
preceding Interest Period for such Loan and ending on the numerically
corresponding day in the first, second, or third calendar month thereafter, as
the Company may select in a Notice of Borrowing, Notice of Continuation or
Notice of Conversion, as the case may be, except that each Interest Period for a
LIBOR Loan that commences on the last Business Day of a calendar month (or on
any day for which there is no numerically corresponding day in the appropriate
subsequent calendar month) shall end on the last Business Day of the appropriate
subsequent calendar month. Notwithstanding the foregoing: (i) if any Interest
Period would otherwise end after the Termination Date, such Interest Period
shall end on the Termination Date, (ii) each Interest Period that would
otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day (or, if such next succeeding Business Day falls in the
next succeeding calendar month, on the next preceding Business Day); and (iii)
notwithstanding the immediately preceding clause (i), no Interest Period for any
LIBOR Loan shall have a duration of less than one month and, if the Interest
Period for any LIBOR Loan would otherwise be a shorter period, such Loan shall
not be available hereunder for such period.
"INTEREST RATE AGREEMENT" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or other similar
contractual agreement or arrangement entered into with a nationally recognized
financial institution then having an Investment Grade Rating for the purpose of
protecting against fluctuations in interest rates.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended.
"INVESTMENT" means, with respect to any Person and whether or not such
investment constitutes a controlling interest in such Person (a) the purchase or
other acquisition of any share of capital stock, evidence of Indebtedness or
other security issued by any other Person; (b) any loan, advance or extension of
credit to, or contribution (in the form of money or goods) to the capital of,
any other Person; (c) any guaranty of the Indebtedness of any other Person; (d)
any other investment in any other Person; and (e) any commitment or option to
make an Investment in any other Person.
"INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, as
amended.
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"INVESTMENT GRADE RATING" means a Credit Rating of BBB- or higher by
S&P, Baa3 or higher by Moody's, or the equivalent or higher of either such
rating by another Rating Agency.
"LENDER" means each financial institution from time to time party
hereto as a "Lender," together with its respective successors and assigns.
"LENDING OFFICE" means, for each Lender and for each Type of Loan, the
office of such Lender specified as such on its signature page hereto or in the
applicable Assignment and Acceptance Agreement, or such other office of such
Lender as such Lender may notify the Disbursing Agent in writing from time to
time.
"LIBOR" means, for any LIBOR Loan for any Interest Period therefor, the
rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
appearing on Telerate Page 3750 (or any successor page) as the London interbank
offered rate for deposits in Dollars at approximately 11 :00 a.m. (London time)
two Business Days prior to the first day of such Interest Period. If for any
reason such rate is not available, the term "LIBOR" shall mean, for any LIBOR
Loan for any Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as
the London interbank offered rate for deposits in Dollars at approximately 11:00
a.m. (London time) two Business Days prior to the first day of such Interest
Period for a term comparable to such Interest Period, provided, however, if more
than one rate is specified on Reuters Screen LIBO Page, the applicable rate
shall be the arithmetic mean of all such rates.
"LIBOR LOAN" means a Loan bearing interest at a rate based on LIBOR.
"LIEN" as applied to the property of any Person means: (a) any security
interest, encumbrance, mortgage, deed to secure debt, deed of trust, pledge,
lien, charge, ground lease or lease constituting a Capitalized Lease Obligation,
conditional sale or other title retention agreement, or other security title or
encumbrance of any kind in respect of any property of such Person, or upon the
income or profits therefrom; (b) any arrangement, express or implied, under
which any property of such Person is transferred, sequestered or otherwise
identified for the purpose of subjecting the same to the payment of Indebtedness
or performance of any other obligation in priority to the payment of the
general, unsecured creditors of such Person; (c) the filing of any financing
statement under the Uniform Commercial Code or its equivalent in any
jurisdiction; and (d) any agreement by such Person to grant, give, or otherwise
convey any of the foregoing.
"LOAN" means a loan made by Lender to the Company pursuant to Section
2.1.
"LOAN DOCUMENT" means this Agreement, each Note, each Guaranty and each
other document or instrument now or hereafter executed and delivered by a
Borrower or any Subsidiary in connection with, pursuant to or relating to this
Agreement.
"MANAGING AGENT" means Riggs Bank N.A., in its capacity as contractual
representative of the Lenders under the terms of this Agreement, and any of its
successors.
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"MASS MUTUAL" means Massachusetts Mutual Life Insurance Company.
"MASS MUTUAL AGREEMENT" means the Note Agreement, dated as of April 30,
1992, as amended on September 1, 1992, among Mass Mutual, Allied Capital
Corporation, Allied Investment Corporation and Allied Financial Services
Corporation, which has been assumed by the Company in connection with the merger
described in the Proxy.
"MATERIAL ADVERSE EFFECT" means a materially adverse effect on (a) the
business, assets, liabilities, financial condition, results of operations or
business prospects of the Company and its Subsidiaries taken as a whole, (b) the
ability of the Company to perform its obligations under any Loan Document to
which it is a party which does not result from a material adverse effect on the
items described in the immediate preceding clause (a), (c) the validity or
enforceability of any of the Loan Documents, (d) the rights and remedies of the
Lenders and the Agents under any of such Loan Documents or (e) the timely
payment of the principal of or interest on the Loans or other amounts payable in
connection therewith. Except with respect to representations made or deemed made
by the Company or any Subsidiary in any of the other Loan Documents to which it
is a party, all determinations of materiality shall be made by the Requisite
Lenders in their reasonable judgment unless expressly provided otherwise.
"MATERIAL CONTRACT" means any contract or other arrangement (other than
Loan Documents), whether written or oral, to which the Company or any Subsidiary
is a party as to which the breach, nonperformance, cancellation or failure to
renew by any party thereto could have a Material Adverse Effect.
"MATERIAL PLAN" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $5,000,000.
"MATERIAL SUBSIDIARY" means, as of the date of any determination
thereof, any Subsidiary which has total assets having a value (determined in
accordance with the market valuation method pursuant to GAAP) greater than or
equal to $20,000,000.
"MERRILL LYNCH" means Merrill Lynch Mortgage Capital, Inc.
"MERRILL LYNCH AGREEMENT" means, individually and collectively, (a) the
Amended and Restated Master Repurchase Agreement, dated as of March 22, 1996, as
amended on November 11, 1996, and July 30, 1997, among Merrill Lynch, Allied
Capital Commercial Corporation and Business Mortgage Investors, Inc., and (b)
the Master Repurchase Agreement, dated as of March 22, 1996, as amended on
November 11, 1996, between Merrill Lynch and Allied Capital Commercial
Corporation, each of which has been assumed by the Company in connection with
the merger described in the Proxy.
"MEZZANINE LOANS" means loans that are not loans made pursuant to the
SBA Act and that are made to businesses for acquisitions, growth, working
capital and other business purposes, which may be combined with rights to
acquire equity interests in such businesses.
"MOODY'S" means Moody's Investors Services, Inc.
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"MORGAN STANLEY" means Morgan Stanley Mortgage Capital, Inc.
"MORGAN STANLEY AGREEMENT" means the Master Loan and Security
Agreement, dated as of August 21, 1997, among Morgan Stanley, Allied Capital
Commercial Corporation and Business Mortgage Investors, Inc., which has been
assumed by the Company in connection with the merger described in the Proxy.
"MULTIEMPLOYER PLAN" means at any time an employee pension benefit plan
within the meaning of Section 4001(a)(3) of ERISA to which any member of the
ERISA Group is then making or accruing an obligation to make contributions or
has within the preceding five plan years made contributions, including for these
purposes any Person which ceased to be a member of the ERISA Group during such
five year period.
"NET PROCEEDS" means, with respect to an Equity Issuance by a Person,
the aggregate amount of all cash received by such Person in respect of such
Equity Issuance net of investment banking fees, legal fees, accountants fees,
underwriting discounts and commissions and other customary fees and expenses
actually incurred by such Person in connection with such Equity Issuance.
"NOTE" has the meaning given such term in Section 2.8.
"NOTICE OF BORROWING" means a notice in the form of Exhibit C to be
delivered to the Disbursing Agent pursuant to Section 2.1(b) evidencing a
Borrower's request for a borrowing of Loans.
"NOTICE OF CONTINUATION" means a notice in the form of Exhibit D to be
delivered to the Disbursing Agent pursuant to Section 2.6 evidencing a
Borrower's request for the Continuation of a LIBOR Loan.
"NOTICE OF CONVERSION" means a notice in the form of Exhibit E to be
delivered to the Disbursing Agent pursuant to Section 2.7 evidencing a
Borrower's request for the Conversion of a Loan from one Type to another Type.
"OBLIGATIONS" means, individually and collectively: (a) the aggregate
principal balance of and all accrued and unpaid interest on, all Loans and (b)
all other indebtedness, liabilities, obligations, covenants and duties of the
Borrowers owing to the Agents or any Lender of every kind, nature and
description, under or in respect of this Agreement or any of the other Loan
Documents, including, without limitation, all Fees and indemnification
obligations, whether direct or indirect, absolute or contingent, due or not due,
contractual or tortious, liquidated or unliquidated, and whether or not
evidenced by any promissory note.
"OBLIGOR" means each maker, endorser, guarantor and issuer of an
Eligible Asset.
"OPIC" means Overseas Private Investment Corporation.
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"OPIC AGREEMENT" means the Loan Agreement, dated as of April 10, 1995,
between OPIC and Allied Capital Corporation.
"OTHER RELEVANT SUBSIDIARY" means any Subsidiary, individually or
together with other Subsidiaries, the occurrence of any of the events described
in Sections 10.1(f) or 10.1(g) with respect to which could reasonably be
expected to have a Material Adverse Effect.
"PARTICIPANT" has the meaning given that term in Section 12.5(c).
"PBGC" means the Pension Benefit Guaranty Corporation and any successor
agency.
"PERMITTED LIENS" means, as to any Person: (a) Liens securing taxes,
assessments and other charges or levies imposed by any Governmental Authority
(excluding any Lien imposed pursuant to any of the provisions of ERISA) or the
claims of materialmen, mechanics, carriers, warehousemen or landlords for labor,
materials, supplies or rentals incurred in the ordinary course of business,
which are not at the time required to be paid or discharged under Section 7.6;
(b) Liens consisting of deposits or pledges made, in the ordinary course of
business, in connection with, or to secure payment of, obligations under
workmen's compensation, unemployment insurance or similar Applicable Laws; (c)
Liens in favor of the Managing Agent for the benefit of the Lenders.
"PERSON" means an individual, corporation, partnership, limited
liability company, association, trust or unincorporated organization, or a
government or any agency or political subdivision thereof.
"PLAN" means at any time an employee pension benefit plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person which
was at such time a member of the ERISA Group for employees of any Person which
was at such time a member of the ERISA Group.
"PORTFOLIO INVESTMENT" means any Investment of a Borrower made or
acquired in the ordinary course of business in an eligible portfolio company
(within the meaning of the Investment Company Act) or in any other Person,
provided that, in each case, such Investment may be classified as a portfolio
Investment in accordance with GAAP and such classification is acceptable to the
Managing Agent in its reasonable discretion.
"POST-DEFAULT RATE" means, in respect of any principal of any Loan or
any other Obligation that is not paid when due (whether at stated maturity, by
acceleration, by optional or mandatory prepayment or otherwise), a rate per
annum equal to two percent (2.0%) plus the Base Rate as in effect from time to
time.
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"PRINCIPAL OFFICE" means the office of the Disbursing Agent located at
100 Federal Street, Boston, Massachusetts, or such other office of the
Disbursing Agent as the Disbursing Agent may designate from time to time.
"PRO FORMA DEBT SERVICE" means at any time for the Company and its
Subsidiaries on a consolidated basis the sum of principal payments of
Indebtedness scheduled to be repaid during the next succeeding 12-month period
(excluding principal payments with respect to the Loans) plus estimated Interest
Expense for such 12-month period, as determined by the Managing Agent in good
faith using reasonable assumptions of outstanding Indebtedness and interest
rates applicable thereto.
"PROXY" means the Joint Proxy Statement/Prospectus, dated October 9,
1997, furnished to the stockholders of Allied Capital Corporation, Allied
Capital Corporation II, Allied Capital Commercial Corporation, Allied Capital
Lending Corporation and Allied Capital Advisers, Inc.
"QUARTERLY DATE" MEANS the last Business Day of March, June, September
and December in each year, the first of which shall be March 31, 1998.
"QRS" means a Wholly Owned Subsidiary of REIT that is a qualified real
estate investment trust subsidiary within the meaning of the Internal Revenue
Code.
"RATING AGENCY" means S&P, Moody's or any other nationally recognized
securities rating agency selected by the Borrower and acceptable to the
Requisite Lenders.
"REGISTER" has the meaning given that term in Section 12.5(e).
"REGULATORY CHANGE" means, with respect to any Lender, any change
effective after the Agreement Date in Applicable Law (including without
limitation, Regulation D of the Board of Governors of the Federal Reserve
System) or the adoption or making after such date of any interpretation,
directive or request applying to a class of banks, including such Lender, of or
under any Applicable Law (whether or not having the force of law and whether or
not failure to comply therewith would be unlawful) by any Governmental Authority
or monetary authority charged with the interpretation or administration thereof
or compliance by any Lender with any request or directive made or issued after
the Agreement Date regarding capital adequacy.
"REIT" means Allied Capital REIT, Inc., a Maryland corporation.
"REQUISITE LENDERS" means, as of any date, (a) when there are three or
fewer Lenders, all Lenders, and (b) when there are more than three Lenders,
Lenders having at least 66 2/3% of the aggregate amount of the Commitments, or
if the Commitments have been terminated or reduced to zero, Lenders holding at
least 66 2/3% of the principal amount of the Loans.
"RIC" means a Person qualifying for treatment as a "regulated
investment company" under the Internal Revenue Code.
"SBA" means the Small Business Administration.
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"SBA ACT" means the Small Business Investment Act of 1958, as amended.
"SBIC" means Allied Investment Corporation, a Maryland corporation.
"SECURED INDEBTEDNESS" means, with respect to any Person, any
Indebtedness of such Person that is secured in any manner by any Lien, and shall
include such Person's pro rata share of the Secured Indebtedness of any of such
Person's Unconsolidated Affiliates.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time
to time, together with all rules and regulations issued thereunder.
"SOLVENT" means, when used with respect to any Person, that (a) the
fair value and the fair salable value of its assets (excluding any Indebtedness
due from any affiliate of such Person) are each in excess of the fair valuation
of its total liabilities (including all contingent liabilities); and (b) such
Person is able to pay its debts or other obligations in the ordinary course as
they mature and (c) that the Person has capital not unreasonably small to carry
on its business and all business in which it proposes to be engaged.
"S&P" means Standard & Poor's Rating Group, a division of McGraw-Hill
Companies, Inc.
"SSBIC" means Allied Capital Financial Corporation, a Maryland
corporation.
"SUBORDINATED CMBS TRANCHE" means the series of a CMBS issuance that is
junior to all CMBS in such issuance that carry a rating of a Rating Agency and
is senior to any other CMBS of such issuance.
"SUBORDINATED DEBT" means Indebtedness of the Company or any of its
Subsidiaries that is subordinated in right of payment and otherwise to the Loans
and the other Obligations in a manner satisfactory to the Managing Agent and the
Requisite Lenders in their sole and absolute discretion.
"SUBSIDIARY" means, for any Person, any corporation, partnership,
limited liability company or other entity of which at least a majority of the
securities or other ownership interests having by the terms thereof ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions of such corporation, partnership or other entity
(without regard to the occurrence of any contingency) is at the time directly or
indirectly owned or controlled by such Person or one or more Subsidiaries of
such Person or by such Person and one or more Subsidiaries of such Person.
"MAJORITY OWNED SUBSIDIARY" means any such corporation, partnership, limited
liability company or other entity of which greater than 50% of the equity
securities or other ownership interests are so owned or controlled. "WHOLLY
OWNED SUBSIDIARY" means any such corporation, partnership, limited liability
company or other entity of which all of the equity securities or other ownership
interests (other than, in the case of a corporation, directors' qualifying
shares) are so owned or controlled. Notwithstanding the foregoing, a Portfolio
Investment of a Borrower or a Subsidiary shall not be a Subsidiary of such
Borrower or such Subsidiary.
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"SYNDICATION AGENT" means First Union National Bank, in its capacity as
contractual representative of the Lenders under this Agreement, and any of its
successors.
"TANGIBLE NET WORTH" means, for any Person and as of a given date, such
Person's total stockholder's equity minus (to the extent reflected in
determining stockholders' equity of such Person): (a) the amount of any net
write-up in the book value of any assets contained in any balance sheet of such
Person resulting from revaluation thereof or any net write-up in excess of the
cost of such assets acquired and (b) the aggregate of all amounts appearing on
the assets side of any such balance sheet for franchises, licenses, permits,
patents, patent applications, copyrights, trademarks, trade names, goodwill,
treasury stock, experimental or organizational expenses and other like assets
which would be properly classified as intangible assets under GAAP.
"TAXES" has the meaning given that term in Section 3.12.
"TERMINATION DATE" means June 30, 1999.
"TYPE" with respect to any Loan, refers to whether such Loan is a LIBOR
Loan or Base Rate Loan.
"UNCONSOLIDATED AFFILIATE" shall mean, with respect to any Person, any
other Person in whom such Person holds an Investment, which Investment is
accounted for in the financial statements of such Person on an equity basis of
accounting and whose financial results would not be consolidated under GAAP with
the financial results of such Person on the consolidated financial statements of
such Person.
"UNFUNDED LIABILITIES" means, with respect to any Plan at any time, the
amount (if any) by which (a) the value of all benefit liabilities under such
Plan, determined on a plan termination basis using the assumptions prescribed by
the PBGC for purposes of Section 4044 of ERISA, exceeds (b) the fair market
value of all Plan assets allocable to such liabilities under Title IV of ERISA
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"UNSECURED INDEBTEDNESS" means, with respect to a Person, all
Indebtedness of such Person that is not Secured Indebtedness.
SECTION 1.2. GENERAL; REFERENCES TO TIMES.
Unless otherwise indicated, all accounting terms, ratios and
measurements shall be interpreted or determined in accordance with GAAP in
effect as of the Agreement Date. References in this Agreement to "Sections,"
"Articles," "Exhibits" and "Schedules" are to sections, articles, exhibits and
schedules herein and hereto unless otherwise indicated. References in this
Agreement to any document, instrument or agreement (a) shall include all
exhibits, schedules and other attachments thereto, (b) shall include all
documents, instruments or
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agreements issued or executed in replacement thereof, to the extent permitted
hereby and (c) shall mean such document, instrument or agreement, or replacement
or predecessor thereto, as amended, supplemented, restated or otherwise modified
from time to time to the extent permitted hereby and in effect at any given
time. Wherever from the context it appears appropriate, each term stated in
either the singular or plural shall include the singular and plural, and
pronouns stated in the masculine, feminine or neuter gender shall include the
masculine, the feminine and the neuter. Unless explicitly set forth to the
contrary, a reference to "Subsidiary" means a Subsidiary of the Company or a
Subsidiary of such Subsidiary and a reference to an "Affiliate" means a
reference to an Affiliate of the Company. Titles and captions of Articles,
Sections, subsections and clauses in this Agreement are for convenience only,
and neither limit nor amplify the provisions of this Agreement. Unless otherwise
indicated, all references to time are references to Boston, Massachusetts, time.
ARTICLE 2
CREDIT FACILITY
SECTION 2.1. LOANS.
(a ) Generally. Subject to the terms and conditions hereof, during
the period from the Effective Date to but excluding the Termination Date, each
Lender severally and not jointly agrees to make Loans to the Borrowers in an
aggregate principal amount at any one time outstanding up to, but not exceeding,
the amount of such Lender's Commitment, provided, however, that in no event
shall (1) the aggregate principal amount of all outstanding Loans to the Company
exceed the lesser of (i) the Borrowing Base of the Company, and (ii) the
aggregate amount of the Commitments as in effect from time to time, and (2) the
aggregate principal amount of Loans to SBLC exceed the lesser of (i) the
Borrowing Base of SBLC, and (ii) $30,000,000, and (3) the aggregate principal
amount of all outstanding Loans exceed the aggregate amount of the Commitments
as in effect from time to time. Subject to the terms and conditions of this
Agreement, during the period from the Effective Date to but excluding the
Termination Date, the Borrowers may borrow, repay and reborrow Loans hereunder.
(b ) Requesting Loans. The Company shall give the Disbursing Agent
notice pursuant to a Notice of Borrowing or telephonic notice of each borrowing
of Loans. Each Notice of Borrowing shall be delivered to the Disbursing Agent
before 12:00 noon (a) in the case of LIBOR Loans, on the date two Business Days
prior to the proposed date of such borrowing and (b) in the case of Base Rate
Loans, on the proposed date of such borrowing. Any such telephonic notice shall
include all information to be specified in a written Notice of Borrowing and
shall be promptly confirmed in writing by the Company pursuant to a Notice of
Borrowing sent to the Disbursing Agent by telecopy on the same day of the giving
of such telephonic notice. The Disbursing Agent will transmit by telecopy the
Notice of Borrowing (or the information contained in such Notice of Borrowing)
to each Lender promptly upon receipt by the Disbursing Agent (but in any event
not later than 1:00 p.m. on the date of receipt thereof). Each Notice of
Borrowing or telephonic notice of each borrowing shall be irrevocable once given
and binding on the applicable Borrower specified therein.
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(c ) Disbursements of Loan Proceeds. No later than 3:00 p.m. on the
date specified in the Notice of Borrowing, each Lender will make available for
the account of its applicable Lending Office to the Disbursing Agent at the
Principal Office, in immediately available funds, the proceeds of the Loan to be
made by such Lender. With respect to Loans to be made after the Effective Date,
unless the Disbursing Agent shall have been notified by any Lender prior to the
specified date of borrowing that such Lender does not intend to make available
to the Disbursing Agent the Loan to be made by such Lender on such date, the
Disbursing Agent may assume that such Lender will make the proceeds of such Loan
available to the Disbursing Agent on the date of the requested borrowing as set
forth in the Notice of Borrowing and the Disbursing Agent may (but shall not be
obligated to), in reliance upon such assumption, make available to the
applicable Borrower the amount of such Loan to be provided by such Lender.
Subject to satisfaction of the applicable conditions set forth in Article 5 for
such borrowing, the Disbursing Agent will make the proceeds of such borrowing
available to the applicable Borrower no later than 4:00 p.m. on the date and at
the account specified by the Company in such Notice of Borrowing.
SECTION 2.2. RATES AND PAYMENT OF INTEREST ON LOANS.
(a ) Rates. Each Borrower severally promises to pay to the Disbursing
Agent for account of each Lender interest on the unpaid principal amount of each
Loan made by such Lender to such Borrower for the period from and including the
date of the making of such Loan to but excluding the date such Loan shall be
paid in full, at the following per annum rates:
(1) during such periods as such Loan is a Base Rate Loan,
at the Base Rate (as in effect from time to time); and
(2) during such periods as such Loan is a LIBOR Loan, at
the Adjusted Eurodollar Rate for such Loan for the Interest Period
therefor, plus 1.25%.
Notwithstanding the foregoing, (i) during the continuance of an Event of
Default, and prior to maturity or acceleration of the Obligations, each Borrower
hereby promises to pay to the Disbursing Agent for account of each Lender
interest at 2% per annum in excess of the rates otherwise payable hereunder on
the aggregate outstanding principal of all Loans made by such Lender to such
Borrower and on any other amount payable by such Borrower hereunder or under the
Notes held by such Lender (including without limitation, overdue accrued but
unpaid interest to the extent permitted under Applicable Law), and (ii) upon the
maturity or acceleration of the Obligations in accordance with the terms hereof,
each Borrower promises to pay to the Disbursing Agent for the account of each
Lender interest at the Post-Default Rate on such amounts.
(b ) Payment of Interest. Accrued interest on each Loan shall be
payable as provided in each of the following clauses which apply to such Loan:
(i) in the case of a Base Rate Loan, monthly on the last Business Day of each
calendar month, (ii) in the case of a LIBOR Loan, on the last day of each
Interest Period therefor, (iii) in the case of a LIBOR Loan, upon the payment,
prepayment or Continuation thereof or the Conversion of such Loan to a Loan of
another Type (but only on the principal amount so paid, prepaid or Converted),
and (iv) in the case of any Base Rate Loan, upon the payment or prepayment
thereof in full. Interest payable during the
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continuance of an Event of Default but prior to maturity or acceleration of the
Obligations shall be payable in accordance with the immediately preceding
sentence. Interest payable at the Post-Default Rate shall be payable from time
to time on demand. Promptly after the determination of any interest rate
provided for herein or any change therein, the Disbursing Agent shall give
notice thereof to the Lenders to which such interest is payable and to the
Company. All determinations by the Disbursing Agent of an interest rate
hereunder shall be conclusive and binding on the Lenders and the Borrowers for
all purposes, absent manifest error.
SECTION 2.3. NUMBER OF INTEREST PERIODS.
There may be no more than five (5) different Interest Periods for LIBOR
Loans outstanding at the same time.
SECTION 2.4. REPAYMENT OF LOANS.
Each Borrower shall repay the entire outstanding principal amount of,
and all accrued but unpaid interest on, the Loans made to it on the Termination
Date.
SECTION 2.5. PREPAYMENTS.
(a ) Optional. Subject to Section 4.4, a Borrower may prepay any
Loan made to it at any time without premium or penalty.
(b ) Mandatory. If at any time either (i) the aggregate principal
amount of all outstanding Loans, exceeds the aggregate amount of the Commitments
in effect at such time, or (ii) the aggregate principal amount of all
outstanding Loans to the Company exceeds the Borrowing Base of the Company in
effect at such time, or (iii) the aggregate principal amount of all outstanding
Loans to SBLC exceeds the Borrowing Base of SBLC in effect at such time, then in
any such case the applicable Borrower shall immediately pay to the Disbursing
Agent for the accounts of the Lenders the amount of such excess. If the
applicable Borrower is required to pay any outstanding LIBOR Loans by reason of
this Section prior to the end of the applicable Interest Period therefor, such
Borrower shall pay all amounts due under Section 4.4.
SECTION 2.6. CONTINUATION.
So long as no Default or Event of Default shall have occurred and be
continuing, the Company may on any Business Day, with respect to any LIBOR Loan,
elect to maintain such LIBOR Loan or any portion thereof as a LIBOR Loan, as
applicable, by selecting a new Interest Period for such Loan. Each new Interest
Period selected under this Section shall commence on the last day of the
immediately preceding Interest Period. Each selection of a new Interest Period
shall be made by the Company giving to the Disbursing Agent a Notice of
Continuation not later than 12:00 noon on the second Business Day prior to the
date of any such Continuation. Such notice by the Company of a Continuation
shall be by telephone or telecopy, confirmed immediately in writing if by
telephone, in the form of a Notice of Continuation, specifying (a) the proposed
date of such Continuation, (b) the LIBOR Loan, and portion thereof subject to
such Continuation and (c) the duration of the selected Interest Period, all of
which shall be
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specified in such manner as is necessary to comply with all limitations on Loans
outstanding hereunder. Each Notice of Continuation shall be irrevocable by and
binding on the applicable Borrower once given. Promptly after receipt of a
Notice of Continuation (and in any event not later than 1:00 p.m. on the date of
receipt thereof), the Disbursing Agent shall notify each Lender by telex or
telecopy, or other similar form of transmission of the proposed Continuation. If
the Company shall fail to select in a timely manner a new Interest Period for
any LIBOR Loan in accordance with this Section, such Loan will automatically, on
the last day of the current Interest Period therefor, Convert into a Base Rate
Loan.
SECTION 2.7. CONVERSION.
So long as no Default or Event of Default shall have occurred and be
continuing, the Company may on any Business Day, upon the Company's giving of a
Notice of Conversion to the Disbursing Agent, Convert all or a portion of a Loan
of one Type into a Loan of another Type. Any Conversion of a LIBOR Loan into a
Base Rate Loan shall be made on, and only on, the last day of an Interest Period
for such LIBOR Loan. Each such Notice of Conversion shall be given by the
Company not later than 12:00 noon (a) on the Business Day prior to the date of
any proposed Conversion into Base Rate Loans or (b) on the second Business Day
prior to the date of any proposed Conversion into LIBOR Loans. Promptly upon
receipt of a Notice of Conversion (and in any event not later than 1:00 p.m. on
the date of receipt thereof), the Disbursing Agent shall notify each Lender by
telecopy or other similar form of transmission of the proposed Conversion.
Subject to the restrictions specified above, each Notice of Conversion shall be
by telephone or telecopy confirmed immediately in writing if by telephone, in
the form of a Notice of Conversion specifying (1) the requested date of such
Conversion, (2) the Type of Loan to be Converted, (3) the portion of such Type
of Loan to be Converted, (4) the Type of Loan such Loan is to be Converted into
and (5) if such Conversion is into a LIBOR Loan, the requested duration of the
Interest Period of such Loan. Each Notice of Conversion shall be irrevocable by
and binding on the applicable Borrower once given.
SECTION 2.8. NOTE.
(a ) Note. The Loans made by each Lender shall, in addition to this
Agreement, also be evidenced by a promissory note of the applicable Borrower
substantially in the form of Exhibit F (each a "Note"), payable to the order of
such Lender. The Note issued by the Company to each Lender shall be in a
principal amount equal to the amount of such Lender's Commitment as originally
in effect. The Note issued by SBLC to each Lender shall be in a principal amount
equal to such Lender's pro rata share of $30,000,000.
(b ) Records; Endorsement on Transfer. The date, amount, interest
rate, Type and duration of Interest Periods (if applicable) of each Loan made by
each Lender to each Borrower, and each payment made on account of the principal
thereof, shall be recorded by such Lender on its books and such entries shall be
prima facie evidence of such matters. Prior to the transfer of any Note, the
Lender shall endorse such items on such Note or any allonge thereof; provided
that the failure of such Lender to make any such recordation or endorsement
shall not affect the
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obligations of such Borrower to make a payment when due of any amount owing
hereunder or under such Note in respect of the Loans evidenced by such Note.
SECTION 2.9. VOLUNTARY REDUCTIONS OF THE COMMITMENT.
The Company shall have the right to terminate or reduce the aggregate
unused amount of the Commitments at any time and from time to time without
penalty or premium upon not less than five Business Days prior written notice to
the Disbursing Agent of each such termination or reduction, which notice shall
specify the effective date thereof and the amount of any such reduction and
shall be irrevocable once given and effective only upon receipt by the
Disbursing Agent. The Disbursing Agent will promptly transmit such notice to
each Lender. The Commitments, once terminated or reduced may not be increased or
reinstated.
ARTICLE 3
PAYMENTS, FEES AND OTHER GENERAL PROVISIONS
SECTION 3.1. PAYMENTS.
Except to the extent otherwise provided herein, all payments of
principal, interest and other amounts to be made by the Borrowers under this
Agreement or any other Loan Document shall be made in Dollars, in immediately
available funds, without deduction, set-off or counterclaim, to the Disbursing
Agent at its Principal Office, not later than 2:00 p.m. 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).
Prior to making any such payment, the Company shall give the Disbursing Agent
notice of such payment. Subject to Sections 3.2 and 3.3, the Disbursing Agent,
or any Lender for whose account any such payment is made, may (but shall not be
obligated to) debit the amount of any such payment which is not made by such
time from any special or general deposit account of the applicable Borrower with
the Disbursing Agent or such Lender, as the case may be (with notice to the
Company, the other Lenders and the Disbursing Agent). The Company shall, at the
time of making each payment under this Agreement or any Note, specify to the
Disbursing Agent the amounts payable by the applicable Borrower hereunder to
which such payment is to be applied. Each payment received by the Disbursing
Agent for the account of a Lender under this Agreement or any Note shall be paid
to such Lender at the applicable Lending Office of such Lender no later than
5:00 p.m. on the date of receipt. If the Disbursing Agent fails to pay such
amount to a Lender as provided in the previous sentence, the Disbursing Agent
shall pay interest on such amount until paid at a rate per annum equal to the
Federal Funds Rate from time to time in effect. If the due date of any payment
under this Agreement or any other Loan Document would otherwise fall on a day
which is not a Business Day such date shall be extended to the next succeeding
Business Day and interest shall be payable for the period of such extension.
SECTION 3.2. PRO RATA TREATMENT.
Except to the extent otherwise provided herein: (a) each borrowing from
the Lenders under Section 2.1(a) shall be made from the Lenders, each payment of
the Fees under Section 3.6(a) shall be made for account of the Lenders, and each
termination or reduction of the
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amount of the Commitments under Section 2.9 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
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 Commitments in effect at the time
such Loans were made, 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 Commitments; (c) each payment of interest on Loans shall
be made for account of the Lenders pro rata in accordance with the amounts of
interest on such Loans then due and payable to the respective Lenders; and (d)
the making, Conversion and Continuation of Loans of a particular Type (other
than Conversions provided for by Section 4.5) shall be made pro rata among the
Lenders according to the amounts of their respective Commitments (in the case of
making of Loans) or their respective Loans (in the case of Conversions and
Continuations of Loans) and the then current Interest Period for each Lender's
portion of each Loan of such Type shall be coterminous.
SECTION 3.3. SHARING OF PAYMENTS, ETC.
Each Borrower agrees that, in addition to (and without limitation of)
any right of set-off, banker's lien or counterclaim a Lender or an Agent may
otherwise have, each Lender and each Agent shall be entitled, at its option, to
offset balances held by it for the account of such Borrower at any of such
Lender's (or an Agent's) offices, in Dollars or in any other currency, against
any principal of, or interest on, any of such Lender's Loans to such Borrower
hereunder (or other Obligations of such Borrower owing to such Lender or an
Agent hereunder) which is not paid when due (regardless of whether such balances
are then due to such Borrower), in which case such Lender shall promptly notify
the Company, all other Lenders and the each Agent thereof; provided, however,
such Lender's failure to give such notice shall not affect the validity of such
offset. If a Lender shall obtain payment of any principal of, or interest on,
any Loan made by it to a Borrower under this Agreement, or shall obtain payment
on any other Obligation owing by a Borrower through the exercise of any right of
set-off, banker's lien or counterclaim or similar right or otherwise or through
voluntary prepayments directly to a Lender or other payments made by a Borrower
to a Lender not in accordance with the terms of this Agreement and such payment
should be distributed to the Lenders pro rata in accordance with Section 3.2 or
Section 10.4, as applicable, such Lender shall promptly pay such amounts to the
other Lenders and make such other adjustments from time to time as shall be
equitable, to the end that all the Lenders shall share the benefit of such
payment (net of any reasonable expenses which may be incurred by such Lender in
obtaining or preserving such benefit) pro rata in accordance with Section 3.2 or
Section 10.4. To such end, all the Lenders shall make appropriate adjustments
among themselves (by the resale of participations sold or otherwise) if such
payment is rescinded or must otherwise be restored. Nothing contained herein
shall require any Lender to exercise any such right or shall affect the right of
any Lender to exercise, and retain the benefits of exercising, any such right
with respect to any other indebtedness or obligation of the Borrowers.
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SECTION 3.4. SEVERAL OBLIGATIONS.
No Lender shall be responsible for the failure of any other Lender to
make a Loan or to perform any other obligation to be made or performed by such
other Lender hereunder, and the failure of any Lender to make a Loan or to
perform any other obligation to be made or performed by it hereunder shall not
relieve the obligation of any other Lender to make any Loan or to perform any
other obligation to be made or performed by such other Lender.
SECTION 3.5. MINIMUM AMOUNTS.
(a ) Borrowings and Conversions. Each borrowing of Base Rate Loans
shall be in an aggregate minimum amount of $1,000,000 and integral multiples of
$1,000,000 in excess thereof. Each borrowing of LIBOR Loans, and each Conversion
of Loans to LIBOR Loans shall be in an aggregate minimum amount of $1,000,000
and integral multiples of $1,000,000 in excess of that amount.
(b ) Prepayments. Each voluntary prepayment of Loans shall be in an
aggregate minimum amount of $1,000,000.
(c ) Reductions of Commitments. Each reduction of the Commitments
under Section 2.9 shall be in an aggregate minimum amount of $5,000,000 and
integral multiples of $1,000,000 in excess thereof.
SECTION 3.6. FEES.
(a ) Commitment Fee. The Company agrees to pay to the Disbursing
Agent for the account of the Lenders a commitment fee in respect of the
Commitments (whether or not utilized) at the rate of two-tenths of one percent
(0.20%) per annum for the period from and including the Agreement Date to but
excluding the Termination Date. Such commitment fee shall be payable quarterly
in arrears on each Quarterly Date and on the Termination Date.
(b ) Facility Fee. The Borrower agrees to pay to the Disbursing Agent
for the account of the Lenders on the Agreement Date a facility fee in the
amount of 0.15% of the aggregate Commitments.
(c ) Administrative and Other Fees. The Borrower agrees to pay the
administrative and other fees of each Agent as may be agreed to in writing from
time to time.
SECTION 3.7. COMPUTATIONS.
Unless otherwise expressly set forth herein, any accrued interest on
any Loan, any Fees or other Obligations due hereunder shall be computed on the
basis of a year of 360 days and the actual number of days elapsed.
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SECTION 3.8. USURY.
In no event shall the amount of interest due or payable on the Loans or
other Obligations exceed the maximum rate of interest allowed by Applicable Law
and, if any such payment is paid by a Borrower or received by any Lender, then
such excess sum shall be credited as a payment of principal, unless such
Borrower shall notify the respective Lender in writing that such Borrower elects
to have such excess sum returned to it forthwith. It is the express intent of
the parties hereto that the Borrowers not pay and the Lenders not receive,
directly or indirectly, in any manner whatsoever, interest in excess of that
which may be lawfully paid by the Borrowers under Applicable Law.
SECTION 3.9. AGREEMENT REGARDING INTEREST AND CHARGES.
The parties hereto hereby agree and stipulate that the only charge
imposed upon the Borrowers for the use of money in connection with this
Agreement is and shall be the interest specifically described in Section 2.2(a).
Notwithstanding the foregoing, the parties hereto further agree and stipulate
that all agency fees, syndication fees, facility fees, underwriting fees,
default charges, late charges, funding or "breakage" charges, increased cost
charges, attorneys' fees and reimbursement for costs and expenses paid by the
Disbursing Agent or any Lender to third parties or for damages incurred by the
Disbursing Agent or any Lender, are charges made to compensate the Disbursing
Agent or any such Lender for underwriting or administrative services and costs
or losses performed or incurred, and to be performed or incurred, by the
Disbursing Agent and the Lenders in connection with this Agreement and shall
under no circumstances be deemed to be charges for the use of money.
SECTION 3.10. STATEMENTS OF ACCOUNT.
The Disbursing Agent will account to the Company monthly with a
statement of Loans, accrued interest and Fees, charges and payments made
pursuant to this Agreement and the other Loan Documents, and such account
rendered by the Disbursing Agent shall be deemed prima facie evidence of such
matters. The failure of the Disbursing Agent to deliver such a statement of
accounts shall not relieve or discharge a Borrower from any of its Obligations
hereunder.
SECTION 3.11. DEFAULTING LENDERS.
(a ) Generally. If for any reason any Lender (a "Defaulting Lender")
shall fail or refuse to perform any of its obligations under this Agreement or
any other Loan Document to which it is a party within the time period specified
for performance of such obligation or, if no time period is specified, if such
failure or refusal continues for a period of two Business Days after notice from
the Disbursing Agent, then, in addition to the rights and remedies that may be
available to the Disbursing Agent or the Borrowers under this Agreement or
Applicable Law, such Defaulting Lender's right to participate in the
administration of the Loans, this Agreement and the other Loan Documents,
including without limitation, any right to vote in respect of, to consent to or
to direct any action or inaction of the Disbursing Agent or to be taken into
account in the calculation of the Requisite Lenders, shall be suspended during
the pendency of such failure or refusal. If a Lender is a Defaulting Lender
because it has failed to make timely
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payment to the Disbursing Agent of any amount required to be paid to the
Disbursing Agent hereunder (without giving effect to any notice or cure
periods), in addition to other rights and remedies which the Disbursing Agent or
the Borrowers may have under the immediately preceding provisions or otherwise,
the Disbursing Agent shall be entitled (i) to collect interest from such
Defaulting Lender on such delinquent payment for the period from the date on
which the payment was due until the date on which the payment is made at the
Federal Funds Rate, and (ii) to withhold or setoff and to apply in satisfaction
of the defaulted payment and any related interest, any amounts otherwise payable
to such Defaulting Lender under this Agreement or any other Loan Document. Any
amounts received by the Disbursing Agent in respect of a Defaulting Lender's
Loans shall not be paid to such Defaulting Lender and shall be held uninvested
by the Disbursing Agent and either applied against the purchase price of such
Loans under the following subsection (b) or paid to such Defaulting Lender upon
the Defaulting Lender's curing of its default. Neither Borrower shall have any
liability in respect of such action by the Disbursing Agent.
(b ) Purchase of Defaulting Lender's Commitment. Any Lender who is
not a Defaulting Lender shall have the right, but not the obligation, in its
sole discretion, to acquire all of a Defaulting Lender's Commitment. Any Lender
desiring to exercise such right shall give written notice thereof to the
Disbursing Agent no sooner than 2 Business Days and not later than 10 Business
Days after such Defaulting Lender became a Defaulting Lender. If more than one
Lender exercises such right, each such Lender shall have the right to acquire an
amount of such Defaulting Lender's Commitment in proportion to the Commitments
of the other Lenders exercising such right. Upon any such purchase, the
Defaulting Lender's interest in the Loans and its rights hereunder (but not its
liability in respect thereof or under the Loan Documents or this Agreement to
the extent the same relate to the period prior to the effective date of the
purchase) shall terminate on the date of purchase, and the Defaulting Lender
shall promptly execute all documents reasonably requested to surrender and
transfer such interest to the purchaser thereof including an appropriate
Assignment and Acceptance Agreement and, notwithstanding Section 12.5(d), shall
pay to the Syndication Agent an assignment fee in the amount of $3,000. The
purchase price for the Commitment of a Defaulting Lender shall be equal to the
amount of the principal balance of the Loans outstanding and owed by the
Borrowers to the Defaulting Lender. Prior to payment of such purchase price to a
Defaulting Lender, the Disbursing Agent shall apply against such purchase price
any amounts retained by the Disbursing Agent pursuant to the last sentence of
the immediately preceding subsection (a). The Defaulting Lender shall be
entitled to receive amounts owed to it by the Borrowers under the Loan Documents
which accrued prior to the date of the default by the Defaulting Lender, to the
extent the same are received by the Disbursing Agent from or on behalf of the
Borrowers. There shall be no recourse against any Lender or the Disbursing Agent
for the payment of such sums except to the extent of the receipt of payments
from any other party or in respect of the Loans. If, prior to a Lender's
acquisition of a Defaulting Lender's Commitment pursuant to this subsection,
such Defaulting Lender shall cure the event or condition which caused it to
become a Defaulting Lender and shall have paid all amounts owing by it hereunder
as a result thereof, then such Lender shall no longer have the right to acquire
such Defaulting Lender's Commitment.
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SECTION 3.12. TAXES.
(a ) Taxes Generally. All payments by each Borrower of principal of,
and interest on, the Loans and all other Obligations shall be made free and
clear of and without deduction for any present or future excise, stamp or other
taxes, fees, duties, levies, imposts, charges, deductions, withholdings or other
charges of any nature whatsoever imposed by any taxing authority in the United
States of America, but excluding (i) franchise taxes, (ii) any taxes (other than
withholding taxes that do not constitute back-up withholding taxes) that would
not be imposed but for a connection between the Disbursing Agent or a Lender and
the jurisdiction imposing such taxes (other than a connection arising solely by
virtue of the activities of the Disbursing Agent or such Lender pursuant to or
in respect of this Agreement or any other Loan Document), (iii) any withholding
taxes payable with respect to payments hereunder or under any other Loan
Document under Applicable Law in effect on the Agreement Date, (iv) any taxes
imposed on or measured by any Lender's assets, net income, receipts or branch
profits and (v) any taxes arising after the Agreement Date solely as a result of
or attributable to a Lender changing its designated Lending Office after the
date such Lender becomes a party hereto (such non-excluded items being
collectively called "Taxes"). If any withholding or deduction from any payment
to be made by a Borrower hereunder is required in respect of any Taxes pursuant
to any Applicable Law, then such Borrower will:
(i) pay directly to the relevant Governmental Authority the
full amount required to be so withheld or deducted;
(ii) promptly forward to the Disbursing Agent an official
receipt or other documentation reasonably satisfactory to the
Disbursing Agent evidencing such payment to such Governmental
Authority; and
(iii) pay to the Disbursing Agent for its account or the
account of the applicable Lender, as the case may be, such additional
amount or amounts as is necessary to ensure that the net amount
actually received by the Disbursing Agent or such Lender will equal the
full amount that the Disbursing Agent or such Lender would have
received had no such withholding or deduction been required.
(b ) Tax Indemnification. If a Borrower fails to pay any Taxes when
due to the appropriate Governmental Authority or fails to remit to the
Disbursing Agent, for its account or the account of the respective Lender, as
the case may be, the receipts or other documentary evidence described in
subsection (a)(ii) above, such Borrower shall indemnify the Disbursing Agent and
the Lenders for any incremental Taxes, interest or penalties that may become
payable by the Disbursing Agent or any Lender as a result of any such failure.
For purposes of this Section, a distribution hereunder by the Disbursing Agent
or any Lender to or for the account of any Lender shall be deemed a payment by
the applicable Borrower.
(c ) Tax Forms. Prior to the date that any Lender or Participant
organized under the laws of a jurisdiction outside the United States of America
becomes a party hereto, such Person shall deliver to the Company and the
Disbursing Agent such certificates, documents or other evidence, as required by
the Internal Revenue Code or Treasury Regulations issued pursuant
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thereto (including Internal Revenue Service Forms W-8, 4224 or 1001, as
applicable, or appropriate successor forms), properly completed, currently
effective and duly executed by such Lender or Participant establishing that
payments to it hereunder and under the Notes are (i) not subject to United
States Federal backup withholding tax and (ii) not subject to United States
Federal withholding tax under the Code because such payment is either
effectively connected with the conduct by such Lender or Participant of a trade
or business in the United States or totally exempt from United States Federal
withholding tax by reason of the application of the provisions of a treaty to
which the United States is a party or such Lender or Participant is otherwise
exempt.
ARTICLE 4
YIELD PROTECTION, ETC.
SECTION 4.1. ADDITIONAL COSTS; CAPITAL ADEQUACY.
(a ) Additional Costs. Each Borrower shall promptly pay to the
Disbursing Agent for the account of a Lender from time to time such amounts
(without duplication of amounts payable under Section 3.12) as such Lender may
determine to be necessary to compensate such Lender for any costs incurred by
such Lender that it determines are attributable to its making or maintaining of
any LIBOR Loans to such Borrower or its obligation to make any LIBOR Loans to
such Borrower hereunder, any reduction in any amount receivable by such Lender
under this Agreement or any of the other Loan Documents in respect of any of
such Loans or such obligation or the maintenance by such Lender of capital in
respect of its Loans or its Commitments (such increases in costs and reductions
in amounts receivable being herein called "Additional Costs"), resulting from
any Regulatory Change (other than those applying solely to a Lender by reason of
a formal determination by the applicable regulator to be in a financially
troubled condition) that: (i) changes the basis of taxation of any amounts
payable to such Lender under this Agreement or any of the other Loan Documents
in respect of any of such Loans or its Commitments (other than taxes imposed on
or measured by the overall net income of such Lender or of its Lending Office
for any of such Loans by the jurisdiction in which such Lender has its principal
office or such Lending Office), or (ii) imposes or modifies any reserve, special
deposit or similar requirements (other than Regulation D of the Board of
Governors of the Federal Reserve System or other reserve requirement utilized in
the determination of the Adjusted Eurodollar Rate for such Loan) relating to any
extensions of credit or other assets of, or any deposits with or other
liabilities of, such Lender, or any commitment of such Lender (including,
without limitation, the Commitments of such Lender hereunder); or (iii) has or
would have the effect of reducing the rate of return on capital of such Lender
to a level below that which such Lender could have achieved but for such
Regulatory Change (taking into consideration such Lender's policies with respect
to capital adequacy).
(b ) Lender's Suspension of LIBOR Loans. Without limiting the effect
of the provisions of the immediately preceding subsection (a), if by reason of
any Regulatory Change, any Lender either (i) incurs Additional Costs based on or
measured by the excess above a specified level of the amount of a category of
deposits or other liabilities of such Lender that includes deposits by reference
to which the interest rate on LIBOR Loans is determined as
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provided in this Agreement or a category of extensions of credit or other assets
of such Lender that includes LIBOR Loans or (ii) becomes subject to restrictions
on the amount of such a category of liabilities or assets that it may hold,
then, if such Lender so elects by notice to the Company (with a copy to the
Disbursing Agent), the obligation of such Lender to make or Continue, or to
Convert any other Type of Loan into LIBOR Loans hereunder shall be suspended
until such Regulatory Change ceases to be in effect (in which case the
provisions of Section 4.5 shall apply).
(c ) Notification and Determination of Additional Costs. Each of the
Disbursing Agent and each Lender agrees to notify the Company of any event
occurring after the Agreement Date entitling the Disbursing Agent or such Lender
to compensation under any of the preceding subsections of this Section as
promptly as practicable; provided, however, the failure of the Disbursing Agent
or any Lender to give such notice shall not release a Borrower from any of its
obligations hereunder. The Disbursing Agent and or such Lender agrees to furnish
to the Company a certificate setting forth the basis and amount of each request
by the Disbursing Agent or such Lender for compensation under this Section.
Determinations by the Disbursing Agent or any Lender of the effect of any
Regulatory Change shall be conclusive, provided that such determinations are
made on a reasonable basis and in good faith.
SECTION 4.2. SUSPENSION OF LIBOR LOANS.
Anything herein to the contrary notwithstanding, if, on or prior to the
determination of any Adjusted Eurodollar Rate for any Interest Period:
(a ) the Disbursing Agent reasonably determines (which determination
shall be conclusive) that by reason of circumstances affecting the relevant
market, adequate and reasonable means do not exist for ascertaining the Adjusted
Eurodollar Rate for such Interest Period, or
(b ) the Disbursing Agent reasonably determines (which determination
shall be conclusive) that the Adjusted Eurodollar Rate will not adequately and
fairly reflect the cost to the Lenders of making or maintaining LIBOR Loans for
such Interest Period;
then the Disbursing Agent shall give the Company and each Lender prompt notice
thereof and, so long as such condition remains in effect, the Lenders shall be
under no obligation to, and shall not, make additional LIBOR Loans, Continue
LIBOR Loans, or Convert Loans into LIBOR Loans, as the case may be, and each
Borrower shall, on the last day of each current Interest Period for each
affected outstanding LIBOR Loan, either repay such Loan or Convert such Loan
into a Base Rate Loan.
SECTION 4.3. ILLEGALITY.
Notwithstanding any other provision of this Agreement, if it becomes
unlawful for any Lender to honor its obligation to make or maintain LIBOR Loans
hereunder, then such Lender shall promptly notify the Company thereof (with a
copy to the Disbursing Agent) and such Lender's obligation to make or Continue,
or to Convert Loans of any other Type into, LIBOR
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Loans shall be suspended until such time as such Lender may again make and
maintain LIBOR Loans (in which case the provisions of Section 4.5 shall be
applicable).
SECTION 4.4. COMPENSATION.
Each Borrower shall pay to the Disbursing Agent for account of each
Lender, upon the request of such Lender through the Disbursing Agent, such
amount or amounts as shall be sufficient (in the reasonable opinion of such
Lender) to compensate it for any loss, cost or expense that such Lender
determines is attributable to:
(a ) any payment or prepayment (whether mandatory or optional) of a
LIBOR Loan, or Conversion of a LIBOR Loan, made by such Lender to such Borrower
for any reason (including, without limitation, acceleration) on a date other
than the last day of the Interest Period for such Loan; or
(b ) any failure by such Borrower for any reason (including, without
limitation, the failure of any of the applicable conditions precedent specified
in Article 5 to be satisfied) to borrow a LIBOR Loan from such Lender on the
date for such borrowing, or to Convert a Loan of another Type into a LIBOR Loan
or Continue a LIBOR Loan on the requested date of such Conversion or
Continuation.
SECTION 4.5. TREATMENT OF AFFECTED LOANS.
If the obligation of any Lender to make LIBOR Loans or to Continue, or
to Convert Loans into, LIBOR Loans shall be suspended pursuant to Section
4.1(b), Section 4.2 or Section 4.3, then such Lender's affected LIBOR Loans
shall be automatically Converted into Base Rate Loans on the last day(s) of the
then current Interest Period(s) for such LIBOR Loans (or, in the case of a
Conversion required by Section 4.1(b) or 4.3, on such earlier date as such
Lender may specify to the Company with a copy to the Disbursing Agent) and,
unless and until such Lender gives notice as provided below that the
circumstances specified in Section 4.1, 4.2 or 4.3 that gave rise to such
Conversion no longer exist:
(a ) to the extent that such Lender's LIBOR Loans have been so
Converted, all payments and prepayments of principal that would otherwise be
applied to such Lender's LIBOR Loans shall be applied instead to its Base Rate
Loans; and
(b ) all Loans that would otherwise be made or Continued by such
Lender as LIBOR Loans shall be made or Continued instead as Base Rate Loans, and
all Base Rate Loans of such Lender that would otherwise be Converted into LIBOR
Loans shall remain as Base Rate Loans.
If such Lender gives notice to the Company (with a copy to the Disbursing Agent)
that the circumstances specified in Section 4.1 or 4.3 that gave rise to the
Conversion of such Lender's LIBOR Loans pursuant to this Section no longer exist
(which such Lender agrees to do promptly upon such circumstances ceasing to
exist) at a time when LIBOR Loans made by other Lenders are outstanding, then
such Lender's Base Rate Loans shall be automatically Converted, on the first
day(s) of the next succeeding Interest Period(s) for such outstanding LIBOR
Loans, to the
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extent necessary so that, after giving effect thereto, all Loans held by the
Lenders holding LIBOR Loans and by such Lender are held pro rata (as to
principal amounts, Types and Interest Periods) in accordance with their
respective Commitments.
SECTION 4.6. CHANGE OF LENDING OFFICE.
Each Lender agrees that it will use reasonable efforts to designate an
alternate Lending Office with respect to any of its Loans affected by the
matters or circumstances described in Sections 3.12, 4.l or 4.3 to reduce the
liability of the Borrowers or avoid the results provided thereunder, so long as
such designation is not disadvantageous to such Lender as determined by such
Lender in its sole discretion, except that such Lender shall have no obligation
to designate a Lending Office located in the United States of America.
SECTION 4.7. ASSUMPTIONS CONCERNING FUNDING OF LIBOR LOANS.
Calculation of all amounts payable to a Lender under this Article 4
shall be made as though such Lender had actually funded LIBOR Loans through the
purchase of deposits in the relevant market bearing interest at the rate
applicable to such LIBOR Loans in an amount equal to the amount of the LIBOR
Loans and having a maturity comparable to the relevant Interest Period provided,
however, that each Lender may fund each of its LIBOR Loans in any manner it sees
fit and the foregoing assumption shall be used only for calculation of amounts
payable under this Article 4.
ARTICLE 5
CONDITIONS PRECEDENT
SECTION 5.1. INITIAL CONDITIONS PRECEDENT.
The obligation of the Lenders to effect the occurrence of the first
Credit Event hereunder is subject to the following conditions precedent:
(a ) The Managing Agent shall have received each of the following, in
form and substance satisfactory to the Lenders:
(i) Counterparts of this Agreement executed by each of the
parties hereto;
(ii) Notes executed by each Borrower, payable to each Lender
and complying with the terms of Section 2.8(a);
(iii) An opinion of Sutherland, Asbill & Brennan LLP, counsel
to the Borrower, addressed to the Managing Agent and the Lenders, in
substantially the form of Exhibit G;
(iv) The Articles of Incorporation of each Borrower
certified as of a recent date by the Secretary of State of the State of
Maryland;
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(v) A good standing certificate with respect to each
Borrower issued as of a recent date by the Secretary of State of the
State of Maryland;
(vi) A certificate of incumbency signed by the Secretary or
Assistant Secretary of each Borrower with respect to each of the
officers of such Borrower authorized to execute and deliver the Loan
Documents to which such Borrower is a party and the officers of such
Borrower then authorized to deliver Notices of Borrowing, Notices of
Continuation and Notices of Conversion;
(vii) Copies (certified by the Secretary or Assistant
Secretary of such Borrower) of the bylaws of such Borrower and of all
corporate action taken by such Borrower to authorize the execution,
delivery and performance of the Loan Documents to which it is a party;
(viii) The articles of incorporation, articles of
organization, certificate of limited partnership or other comparable
organizational instrument of each of SBIC and SSBIC certified as of a
recent date by the Secretary of State of the State of formation of such
Subsidiary;
(ix) A certificate of good standing or certificate of
similar meaning with respect to each of SBIC and SSBIC issued as of a
recent date by the Secretary of State of the State of formation of each
such Subsidiary;
(x) Copies certified by the Secretary or Assistant
Secretary of each of SBIC and SSBIC (or other individual performing
similar functions) of the by-laws of each of SBIC and SSBIC;
(xi) A copy of each of the documents, instruments and
agreements evidencing any of the Indebtedness described on Schedule
6.1(g) (other than the Indebtedness to Riggs Bank N.A.) and a copy of
each Material Contract, certified as true, correct and complete by the
chief financial officer of the Company;
(xii) Evidence that all insurance required to be maintained
by the Company and the Subsidiaries under the terms of the Loan
Documents is in effect, or a certificate of an officer of the Company
to such effect;
(xiii) The Fees then due under Section 3.6;
(xiv) Evidence that the merger described in the Proxy has
been completed as described in the Proxy without any change from the
description thereof contained in the Proxy, unless such change is
consented to by the Lenders;
(xv) Subordination agreements with respect to any
intercompany Indebtedness of a Borrower or a Guarantor permitted by
Section 9.2(a)(4);
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(xvi) A pro-forma Compliance Certificate and a pro-forma
Borrowing Base Certificate of each Borrower, each calculated as of the
fiscal quarter ending December 31, 1997; and
(xvii) Such other documents, agreements and instruments as the
Managing Agent on behalf of the Lenders may reasonably request; and
(b) All Indebtedness of the Company and its Subsidiaries to Riggs
Bank N.A. (other than under the Loan Documents) shall be simultaneously paid in
full and all commitments of Riggs Bank N.A. to extend such Indebtedness shall be
simultaneously terminated; and
(c ) In the good faith judgment of the Managing Agent and the
Lenders:
(i) There shall not have occurred or become known to the
Managing Agent or the Lenders any event, condition, situation or status
since the date of the information contained in the financial and
business projections, budgets, pro forma data and forecasts concerning
the Company and its Subsidiaries delivered to the Managing Agent and
the Lenders prior to the Agreement Date that has had or could
reasonably be expected to result in a Material Adverse Effect;
(ii) No litigation, action, suit, investigation or other
arbitral, administrative or judicial proceeding shall be pending or
threatened which could reasonably be expected to (1) result in a
Material Adverse Effect or (2) restrain or enjoin, impose materially
burdensome conditions on, or otherwise materially and adversely affect
the ability of a Borrower to fulfill its obligations under the Loan
Documents;
(iii) The Company and its Subsidiaries shall have received
all approvals, consents and waivers, and shall have made or given all
necessary filings and notices as shall be required to consummate the
transactions contemplated hereby without the occurrence of any default
under, conflict with or violation of (1) any Applicable Law or (2) any
agreement, document or instrument to which the Company or any
Subsidiary is a party or by which any of them or their respective
properties is bound, except for such approvals, consents, waivers,
filings and notices the receipt, making or giving of which would not
reasonably be likely to (A) have a Material Adverse Effect, or (B)
restrain or enjoin, impose materially burdensome conditions on, or
otherwise materially and adversely affect the ability of a Borrower to
fulfill its obligations under the Loan Documents; and
(iv) There shall not have occurred or exist any other
material disruption of financial or capital markets that could
reasonably be expected to materially and adversely affect the
transactions contemplated by the Loan Documents.
SECTION 5.2. CONDITIONS PRECEDENT TO ALL LOANS.
The obligation of the Lenders to make any Loans is subject to the
further condition precedent that: (a) no Default or Event of Default shall have
occurred and be continuing as of
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the date of the making of such Loan or would exist immediately after giving
effect thereto; (b) the representations and warranties made or deemed made by
the Company and its Subsidiaries in the Loan Documents to which any of them is a
party, shall be true and correct 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 except to
the extent that such representations and warranties expressly relate solely to
an earlier date (in which case such representations and warranties shall have
been true and accurate on and as of such earlier date) and except for changes in
factual circumstances specifically and expressly permitted hereunder; and (c) in
the case of the borrowing of Loans, the Disbursing Agent shall have received a
timely Notice of Borrowing. Each Credit Event shall constitute a certification
by the Company to the effect set forth in the preceding sentence (both as of the
date of the giving of notice relating to such Credit Event and, unless the
Company otherwise notifies the Managing Agent prior to the date of such Credit
Event, as of the date of the occurrence of such Credit Event). In addition, if
such Credit Event is the making of a Loan, the Company shall be deemed to have
represented to the Managing Agent and the Lenders at the time such Loan is made
that all conditions to the making of such Loan contained in Article 5 have been
satisfied.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
SECTION 6.1. REPRESENTATIONS AND WARRANTIES.
In order to induce the Agents and each Lender to enter into this
Agreement and to make Loans, each Borrower represents and warrants to the Agents
and each Lender as follows:
(a ) Organization; Power; Qualification. Each of the Borrowers and
its Subsidiaries is a corporation, partnership or other legal entity, duly
organized or formed, validly existing and in good standing under the
jurisdiction of its incorporation or formation, has the power and authority to
own or lease its respective properties and to carry on its respective business
as now being and hereafter proposed to be conducted and (i) is duly qualified
and is in good standing as a foreign corporation, partnership or other legal
entity, and authorized to do business, in each jurisdiction in which the
character of its properties or the nature of its business requires such
qualification or authorization and where the failure to be so qualified or
authorized would have, in each instance a Material Adverse Effect, or (ii) in
the case of the Company, to the extent that it is not so qualified or authorized
on the Agreement Date in jurisdictions in which it is required to be so
qualified or authorized as a result of the merger described in the Proxy, it is
diligently pursuing such qualification and authorization.
(b ) Ownership Structure. As of the Agreement Date, Schedule 6.1(b)
correctly sets forth the corporate structure and ownership interests of the
Subsidiaries including the correct legal name of each Subsidiary, its
jurisdiction of formation, the Persons holding equity interests in such
Subsidiary, and their percentage equity or voting interest in such Subsidiary.
As of the Agreement Date, SBLC, SBIC and SSBIC are the only Material
Subsidiaries and REIT has not yet been capitalized, and the QRS has not yet been
formed. Except as set forth in such Schedule, and except for preferred stock of
REIT to be issued to approximately 125 shareholders:
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(i) no Subsidiary has issued to any third party any
securities convertible into such Subsidiary's capital stock or other
equity interests or any options, warrants or other rights to acquire
any securities convertible into such capital stock or other equity
interests, and
(ii) the outstanding capital stock of, or other equity
interests in, each such Subsidiary are owned by the Company and its
Subsidiaries indicated on such Schedule free and clear of all Liens,
warrants, options and rights of others of any kind whatsoever. All such
outstanding capital stock and other equity interests have been validly
issued and, in the case of capital stock, are fully paid and
nonassessable.
(c ) Authorization of Agreement, Notes, Loan Documents and
Borrowings. Each Borrower has the right and power, and has taken all necessary
action to authorize it, to borrow hereunder. Each Borrower has the right and
power, and has taken all necessary action to authorize it to execute, deliver
and perform each of the Loan Documents to which it is a party in accordance with
their respective terms and to consummate the transactions contemplated hereby
and thereby. The Loan Documents to which each Borrower is a party have been duly
executed and delivered by the duly authorized officers of such Borrower, as
applicable, and each is a legal, valid and binding obligation of such Borrower,
as applicable, enforceable against it in accordance with its respective terms.
(d ) Compliance of Agreement, Notes, Loan Documents and Borrowing
with Laws, etc. The execution, delivery and performance of this Agreement, the
Notes and the other Loan Documents to which each Borrower is a party in
accordance with their respective terms and the borrowings hereunder do not and
will not, by the passage of time, the giving of notice, or otherwise: (i)
require any Governmental Approval, other than such as have been obtained and are
in full force and effect, or violate any Applicable Law (including all
Environmental Laws) relating to such Borrower or any Subsidiary; (ii) conflict
with, result in a breach of or constitute a default under the articles of
incorporation or the bylaws of such Borrower or the organizational documents of
any Subsidiary, or any indenture, agreement or other instrument to which such
Borrower or any Subsidiary is a party or by which it or any of its respective
properties may be bound; or (iii) result in or require the creation or
imposition of any Lien upon or with respect to any property now owned or
hereafter acquired by such Borrower or any Subsidiary.
(e ) Compliance with Law; Governmental Approvals. Each Borrower and
each Subsidiary is in compliance with each Governmental Approval applicable to
it and in compliance with all other Applicable Law relating to it, except for
noncompliances which, and Governmental Approvals the failure to possess which,
would not, individually or in the aggregate, cause a Default or Event of Default
or have a Material Adverse Effect.
(f ) Ownership of Assets; Liens. Each Borrower has (or in the case of
Subordinated CMBS Tranches, the QRS will have) good title to all of its Eligible
Assets. There are no Liens against any of such Eligible Assets except for
Permitted Liens described in clause (a) of the definition of such term.
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(g ) Indebtedness. Schedule 6.1(g) is, as of the Agreement Date, a
complete and correct listing of all Indebtedness of the Company and its
Subsidiaries, including all guaranties of the Company and its Subsidiaries and
all letters of credit and acceptance facilities extended to the Company or any
Subsidiary.
(h ) Material Contracts. Schedule 6.1(h) is a true, correct and
complete listing of all Material Contracts as of Agreement Date.
(i ) Litigation. There are no actions, suits or proceedings pending
(nor, to the knowledge of the Company or any Subsidiary, are there any actions,
suits or proceedings threatened, nor is there any basis therefor) against or in
any other way relating adversely to or affecting the Company or any Subsidiary
or any of its respective property in any court or before any arbitrator of any
kind or before or by any other Governmental Authority which is reasonably likely
to be adversely determined and result in a Material Adverse Effect, and there
are no strikes, slow downs, work stoppages or walkouts or other labor disputes
in progress or threatened relating to the Company or any Subsidiary.
(j ) Taxes. All federal, state and other tax returns of the Company
and its Subsidiaries required by Applicable Law to be filed have been duly
filed, and all federal, state and other taxes, assessments and other
governmental charges or levies upon the Company and any of its Subsidiaries and
their respective properties, income, profits and assets which are due and
payable have been paid, except any such nonpayment which is at the time
permitted under Section 7.6. None of the United States income tax returns of the
Company and its Subsidiaries are under audit as of Agreement Date. All charges,
accruals and reserves on the books of the Company and each of its Subsidiaries
in respect of any taxes or other governmental charges are in accordance with
GAAP.
(k ) Financial Statements: No Material Adverse Change. The Company
has furnished to each Lender copies of (i) the audited consolidated balance
sheets of the predecessors to the Company and its consolidated Subsidiaries for
the fiscal year ending December 31, 1996, and the related consolidated
statements of income, retained earnings and cash flow for the fiscal year ending
on such date, with the opinions thereon of Matthews, Carter & Boyce, P.C., and
Arthur Andersen, LLP, and (ii) the unaudited consolidated balance sheets of the
predecessors to the Company and its consolidated Subsidiaries for the fiscal
quarter ending September 30, 1997, and the related consolidated statements of
income, retained earnings and cash flow of such predecessors for the fiscal
quarter period ending on such date. Such balance sheets and statements
(including in each case related schedules and notes) present fairly, in
accordance with GAAP consistently applied throughout the periods involved, the
consolidated financial position of such predecessors as at their respective
dates and the results of operations and the cash flow for such periods (subject,
as to interim statements, to changes resulting from normal year-end audit
adjustments). Neither the Company nor any of its Subsidiaries has on the
Agreement Date any material contingent liabilities, liabilities, liabilities for
taxes, unusual or long-term commitments or unrealized or forward anticipated
losses from any unfavorable commitments, except as referred to or reflected or
provided for in said financial statements. Since December 31, 1996, there has
been no material adverse change in the consolidated financial
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condition, results of operations, business or prospects of the Company and its
Subsidiaries taken as a whole. Each of the Company and its Subsidiaries is
Solvent.
(l ) ERISA. Each member of the ERISA Group has fulfilled its
obligations under the minimum funding standards of ERISA and the Internal
Revenue Code with respect to each Plan and is in compliance with the presently
applicable provisions of ERISA and the Internal Revenue Code with respect to
each Plan except for noncompliances which would not, individually or in the
aggregate, cause a Default or an Event of Default or have a Material Adverse
Effect. No member of the ERISA Group has (i) sought a waiver of the minimum
funding standard under Section 412 of the Internal Revenue Code in respect of
any Plan, (ii) failed to make any contribution or payment to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement, or made any
amendment to any Plan or Benefit Arrangement, which has resulted or could result
in the imposition of a Lien or the posting of a bond or other security under
ERISA or the Internal Revenue Code or (iii) incurred any liability under Title
IV of ERISA other than a liability to the PBGC for premiums under Section 4007
of ERISA.
(m ) Absence of Defaults. Except as described in Section 7.15 of this
Agreement, neither the Company nor any Material Subsidiary is in default under
its articles of incorporation, bylaws, partnership agreement or other similar
organizational documents, and no event has occurred, which has not been
remedied, cured or waived: (i) which constitutes a Default or an Event of
Default; or (ii) which constitutes, or which with the passage of time, the
giving of notice, a determination of materiality, the satisfaction of any
condition, or any combination of the foregoing, would constitute, a default or
event of default by the Company or any Subsidiary under any Indebtedness,
Material Contract, any other agreement (other than this Agreement) or judgment,
decree or order to which the Company or any Subsidiary is a party or by which
the Company or any Subsidiary or any of their respective properties may be bound
where such default or event of default could, individually or in the aggregate,
have a Material Adverse Effect.
(n ) Environmental Laws. The Company and its Subsidiaries have
obtained all Governmental Approvals which are required under Environmental Laws,
and are in compliance with all terms and conditions of such Governmental
Approvals, which the failure to obtain or to comply with could reasonably be
expected to have a Material Adverse Effect. Each of the Company and its
Subsidiaries is also in compliance with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules, and
timetables contained in the Environmental Laws the failure with which to comply
could have a Material Adverse Effect. Neither the Company nor any Subsidiary is
aware of, or has received notice of, any past, present, or future events,
conditions, circumstances, activities, practices, incidents, actions, or plans
which, with respect to the Company or any of its Subsidiaries may interfere with
or prevent compliance or continued compliance with Environmental Laws, or may
give rise to any common-law or legal liability, or otherwise form the basis of
any claim, action, demand, suit, proceeding, hearing, study, or investigation,
based on or related to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling or the emission, discharge,
release or threatened release into the environment, of any pollutant,
contaminant, chemical, or industrial, toxic, or other Hazardous Material that
could be reasonably expected to
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have a Material Adverse Effect; and there is no civil, criminal, or
administrative action, suit, demand, claim, hearing, notice, or demand letter,
notice of violation, investigation, or proceeding pending or, to the knowledge
of the Company or any Subsidiary, after due inquiry, threatened, against the
Company or any of its Subsidiaries relating in any way to Environmental Laws
that could be reasonably expected to have a Material Adverse Effect.
(o ) Investment Company; Public Utility Holding Company. Each
Borrower is a "business development company" within the meaning of the
Investment Company Act. Neither the Company nor any Subsidiary is (i) a "holding
company" or a "subsidiary company" of a "holding company," or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding company," within
the meaning of the Public Utility Holding Company Act of 1935, as amended, or
(ii) except for other Subsidiaries that are business development companies,
subject to any other Applicable Law which purports to regulate or restrict its
ability to borrow money or to consummate the transactions contemplated by this
Agreement or to perform its obligations under any Loan Document to which it is a
party.
(p ) Margin Stock. Neither the Company nor any Subsidiary is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose, whether immediate, incidental or ultimate, of buying or
carrying "margin stock" within the meaning of Regulations G and U of the Board
of Governors of the Federal Reserve System.
(q ) Affiliate Transactions. Except as permitted by Section 9.10,
neither the Company nor any Subsidiary is a party to or bound by any agreement
or arrangement (whether oral or written) to which any Affiliate of the Company
or any Subsidiary is a party. Neither the Company nor any Subsidiary is a party
to any agreement or arrangement which restricts or prohibits the payment of
dividends or the repayment of inter-company loans by a Subsidiary to the
Company, except for SBA approval of dividends paid by SBIC and SSBIC, which the
Company has no reason to believe will not be granted by the SBA.
(r ) Intellectual Property. The Company and each Subsidiary owns or
has the right to use, under valid license agreements or otherwise, all patents,
licenses, franchises, trademarks, trademark rights, trade names, trade name
rights, trade secrets and copyrights (collectively, "Intellectual Property")
used in the conduct of its businesses as now conducted and as contemplated by
the Loan Documents, which the failure to own or have the right to use could
reasonably be expected to have a Material Adverse Effect, without known conflict
with any patent, license, franchise, trademark, trade secret, trade name,
copyright, or other proprietary right of any other Person.
(s ) Accuracy and Completeness of Information. All written
information, reports and other papers and data furnished to the Managing Agent
or any Lender by, on behalf of, or at the direction of, the Company or any
Subsidiary were, at the time the same were so furnished, complete and correct in
all material respects, to the extent necessary to give the recipient a true and
accurate knowledge of the subject matter, or, in the case of financial
statements, present fairly, in accordance with GAAP consistently applied
throughout the periods involved, the financial position of the Persons involved
as at the date thereof and the results of operations for
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such periods. As of the Agreement Date, no fact is known to the Company or any
Subsidiary which has had, or may in the future have (so far as the Company or
any Subsidiary can reasonably foresee), a Material Adverse Effect which has not
been set forth in the financial statements referred to in Section 6.1(k) or in
such information, reports or other papers or data or otherwise disclosed in
writing to the Managing Agent and the Lenders prior to the Effective Date. No
document furnished or written statement made to the Managing Agent or any Lender
in connection with the negotiation, preparation of execution of this Agreement
or any of the other Loan Documents contains or will contain any untrue statement
of a fact material to the creditworthiness of the Company or any Subsidiary or
omits or will omit to state a material fact necessary in order to make the
statements contained therein not misleading. Notwithstanding the first and third
sentences of this Section 6.1(s), as to projected financial information, each
Borrower represents and warrants only that such information, at the time
furnished to the Managing Agent or any Lender, was prepared in good faith based
on reasonable assumptions under the circumstances.
(t ) RIC Status. The Company is a RIC.
(u ) Not Plan Assets. The assets of the Company or any Subsidiary do
not and will not constitute "plan assets," within the meaning of ERISA, the
Internal Revenue Code and the respective regulations promulgated thereunder. The
execution, delivery and performance of this Agreement, and the borrowing and
repayment of amounts hereunder, do not and will not constitute "prohibited
transactions" under ERISA or the Internal Revenue Code.
(v ) Business. As of the Agreement Date, the Company and its
Subsidiaries are substantially engaged in the businesses described in the Proxy.
(w ) Borrowing Base Assets. At the time it is initially included in a
Borrowing Base, each Borrowing Base Asset:
(i) is owned by a Borrower, or in the case of Subordinated
CMBS Tranches, by the QRS, free and clear of all Liens;
(ii) represents the valid, binding and enforceable
obligation of each Obligor with respect thereto;
(iii) complies in all material aspects with all Applicable
Laws relating thereto;
(iv) is not subject to any restriction or prohibition on the
assignment, pledge or transfer thereof; and
(v) satisfies all Eligibility Requirements.
SECTION 6.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC.
All statements contained in any certificate, financial statement or
other instrument delivered by or on behalf of the Company or any Subsidiary to
an Agent or any Lender pursuant
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to or in connection with this Agreement or any of the other Loan Documents
(including, but not limited to, any such statement made in or in connection with
any amendment thereto or any statement contained in any certificate, financial
statement or other instrument delivered by or on behalf of the Company or SBLC
prior to the Agreement Date and delivered to an Agent or any Lender in
connection with closing the transactions contemplated hereby) shall constitute
representations and warranties made by the Borrowers under this Agreement. All
representations and warranties made under this Agreement and the other Loan
Documents shall be deemed to be made at and as of the Agreement Date, the
Effective Date and at and as of the date of the occurrence of any Credit Event,
except to the extent that such representations and warranties expressly relate
solely to an earlier date (in which case such representations and warranties
shall have been true and accurate on and as of such earlier date) and except for
changes in factual circumstances specifically permitted hereunder. All such
representations and warranties shall survive the effectiveness of this
Agreement, the execution and delivery of the Loan Documents and the making of
the Loans.
ARTICLE 7
AFFIRMATIVE COVENANTS
For so long as this Agreement is in effect, unless the Requisite
Lenders (or, if required pursuant to Section 12.7, all of the Lenders) shall
otherwise consent in the manner provided for in Section 12.7, each Borrower
shall:
SECTION 7.1. PRESERVATION OF EXISTENCE AND SIMILAR MATTERS.
Except as otherwise permitted under Section 9.7, preserve and maintain,
and the Company shall cause each Material Subsidiary to preserve and maintain,
its respective existence, rights, franchises, licenses and privileges in the
jurisdiction of its incorporation or formation and qualify and remain qualified
and authorized to do business in each jurisdiction in which the character of its
properties or the nature of its business requires such qualification and
authorization and where the failure to be so authorized and qualified could have
a Material Adverse Effect, and Company shall provide good standing and
qualification certificates for the Borrowers and the Material Subsidiaries
evidencing such qualification to the Managing Agent not later than January 31,
1998.
SECTION 7.2. COMPLIANCE WITH APPLICABLE LAW AND MATERIAL CONTRACTS.
Comply, and the Company shall cause each Material Subsidiary to comply,
with (a) all Applicable Law, including the obtaining of all Governmental
Approvals, the failure with which to comply could have a Material Adverse
Effect, and (b) all terms and conditions of all Material Contracts to which it
is a party.
SECTION 7.3. MAINTENANCE OF PROPERTY.
In addition to the requirements of any of the other Loan Documents, (a)
protect and preserve, and the Company shall cause each Material Subsidiary to
protect and preserve, all of its material properties, including, but not limited
to, all Intellectual Property, and maintain in good
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repair, working order and condition all tangible properties, ordinary wear and
tear excepted, and (b) from time to time make or cause to be made all needed and
appropriate repairs, renewals, replacements and additions to such properties, so
that the business carried on in connection therewith may be properly and
effectively conducted at all times.
SECTION 7.4. CONDUCT OF BUSINESS.
Together with its Subsidiaries, at all times carry on their business
described in the Proxy.
SECTION 7.5. INSURANCE.
In addition to the requirements of any of the other Loan Documents,
maintain, and the Company shall cause each Material Subsidiary to maintain,
insurance with financially sound and reputable insurance companies against such
risks and in such amounts as is customarily maintained by Persons engaged in
similar businesses or as may be required by Applicable Law.
SECTION 7.6. PAYMENT OF TAXES AND CLAIMS.
Pay or discharge, and the Company shall cause each Material Subsidiary
to pay and discharge, when due (a) all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits or upon any
properties belonging to it, and (b) all lawful claims of materialmen, mechanics,
carriers, warehousemen and landlords for labor, materials, supplies and rentals
which, if unpaid, might become a Lien on any properties of such Person;
provided, however, that this Section shall not require the payment or discharge
of any such tax, assessment, charge, levy or claim which is being contested in
good faith by appropriate proceedings which operate to suspend the collection
thereof and for which adequate reserves have been established on the books of
such Borrower or such Subsidiary, as applicable, in accordance with GAAP.
SECTION 7.7. VISITS AND INSPECTIONS.
Permit, and the Company shall cause each Material Subsidiary to permit,
representatives or agents of the Managing Agent or any Lender, from time to
time, as often as may be reasonably requested and at the expense of the Managing
Agent (unless an Event of Default shall be continuing in which case the exercise
by the Managing Agent of its rights under this Section shall be at the expense
of the Company) or such Lender, but only during normal business hours, to: (a)
visit and inspect all properties of such Borrower and each Material Subsidiary;
(b) inspect and make extracts from their respective books and records, including
but not limited to management letters prepared by independent accountants; and
(c) discuss with its principal officers, and its independent accountants, its
business, assets, liabilities, financial conditions, results of operations and
business prospects. If requested by the Managing Agent, the Company shall
execute an authorization letter addressed to its accountants authorizing the
Managing Agent or any Lender to discuss the financial affairs of the Company and
any Material Subsidiary with its accountants.
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SECTION 7.8. USE OF PROCEEDS.
Use the proceeds of Loans for working capital and general corporate
purposes, including without limitation, the origination and interim warehousing
of Eligible Assets. The Borrowers shall not, and the Company shall not permit
any Subsidiary to, use any part of such proceeds to purchase or carry, or to
reduce or retire or refinance any credit incurred to purchase or carry, any
margin stock (within the meaning of Regulations U and X of the Board of
Governors of the Federal Reserve System) or to extend credit to others for the
purpose of purchasing or carrying any such margin stock.
SECTION 7.9. ENVIRONMENTAL MATTERS.
Comply, and the Company shall cause all of its Subsidiaries to comply,
with all Environmental Laws, the failure with which to comply could have a
Material Adverse Effect. If a Borrower or any Subsidiary shall (a) receive
notice that any violation of any Environmental Law may have been committed or is
about to be committed by such Person, (b) receive notice that any administrative
or judicial complaint or order has been filed or is about to be filed against a
Borrower or any Subsidiary alleging violations of any Environmental Law or
requiring the Borrower or any Subsidiary to take any action in connection with
the release of Hazardous Materials, or (c) receive any notice from a
Governmental Authority or private party alleging that a Borrower or any
Subsidiary may be liable or responsible for costs associated with a response to
or cleanup of a release of a Hazardous Materials or any damages caused thereby,
and such notices, individually or in the aggregate, could have a Material
Adverse Effect, such Borrower shall provide the Managing Agent with a copy of
such notice within 10 days after the receipt thereof by such Borrower or any of
the Subsidiaries. The Borrowers and the Subsidiaries shall promptly take all
actions necessary to prevent the imposition of any Liens on any of their
respective properties arising out of or related to any Environmental Laws.
SECTION 7.10. BOOKS AND RECORDS.
Maintain, and the Company shall cause each of the Subsidiaries to
maintain, books and records pertaining to its business operations in such
detail, form and scope as is consistent with good business practice in
accordance with GAAP.
SECTION 7.11. STATUS OF RIC AND BDC.
At all times maintain its status as a RIC under the Internal Revenue
Code and as a "business development company" under the Investment Company Act.
SECTION 7.12. ERISA EXEMPTIONS.
Not, and the Company shall not permit any Subsidiary to, permit any of
its respective assets to become or be deemed to be "plan assets" within the
meaning of ERISA, the Internal Revenue Code and the respective regulations
promulgated thereunder.
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SECTION 7.13. FURTHER ASSISTANCE.
At the Company's cost and expense, upon the request of the Managing
Agent, duly execute and deliver or cause to be duly executed and delivered, to
the Managing Agent and the Lenders such further instruments, documents and
certificates, and do and cause to be done such further acts that may be
necessary or advisable in the opinion of the Managing Agent to carry out more
effectively the provisions and purposes of this Agreement and the other Loan
Documents.
SECTION 7.14. BORROWING SUBSIDIARIES.
If SBLC, SBIC or SSBIC obtains a loan or advance from the Company after
the Agreement Date (which loan or advance shall be in compliance with the
limitations set forth in Sections 9.2(a) or 9.2(b), as applicable), within three
Business Days after receiving such loan or advance (or in the case of a loan or
advance made to SBLC under Section 9.2(b)(4), within 60 days after the Effective
Date if such loan or advance has not been repaid within such period), deliver to
the Managing Agent each of the following in form and substance satisfactory to
the Managing Agent: (a) a Guaranty executed by such Subsidiary in the amount of
its borrowing from the Company and (b) the items that would have been delivered
under Sections 5.l(a)(iii) through (vii) if such Subsidiary had been a Borrower
on the Agreement Date.
SECTION 7.15. CONSENTS AND WAIVERS FROM LENDERS.
(a ) Use reasonable efforts to amend the Mass Mutual Agreement and
the OPIC Agrement to delete the negative pledge covenant contained therein or to
modify such covenant to reflect terms acceptable to the Requisite Lenders; and
(b ) Within 45 days after the Effective Date, deliver to the Lenders
copies of (1) written consents and waivers from Mass Mutual and OPIC with
respect to the merger described in the Proxy and the violations of the negative
pledge covenants contained in the Mass Mutual Agreement and the OPIC Agreement
arising out of the Company's assumption of the Merrill Lynch Agreement and the
Morgan Stanley Agreement, (2) the written waivers from Morgan Stanley and
Merrill Lynch with respect to any breach of the representations contained in
Section 6.04 of the Morgan Stanley Agreement and in Section 10 of each Merrill
Lynch Agreement arising out of the violations of the Mass Mutual Agreement and
the OPIC Agreement described in the preceding clause (2) of this Section
7.15(b), and (3) the written consent and waiver from Merrill Lynch with respect
to the merger described in the Proxy.
ARTICLE 8
INFORMATION
For so long as this Agreement is in effect, unless the Requisite
Lenders (or, if required pursuant to Section 12.7, all of the Lenders) shall
otherwise consent in the manner set forth in Section 12.7, the Company shall
furnish to each Lender (or to the Managing Agent if so provided below) at its
Lending Office:
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SECTION 8.1. QUARTERLY FINANCIAL STATEMENTS.
As soon as available and in any event within 45 days after the close of
each of the first, second and third fiscal quarters of the Company, the
consolidated and consolidating balance sheets of the Company and its
Subsidiaries as at the end of such period and the related consolidated and
consolidating statements of income, retained earnings and cash flows of the
Company and its Subsidiaries for such period, setting forth in each case in
comparative form the figures for the corresponding periods of the previous
fiscal year, all of which shall be certified by the chief financial officer of
the Company, in his or her opinion, to present fairly, in accordance with GAAP,
the consolidated financial position of the Company and its Subsidiaries as at
the date thereof and the results of operations for such period (subject to
normal year-end audit adjustments).
SECTION 8.2. YEAR-END STATEMENTS.
As soon as available and in any event within 90 days after the end of
each fiscal year of the Company, the consolidated and consolidating balance
sheets of the Company and its Subsidiaries as at the end of such fiscal year and
the related consolidated and consolidating statements of income, retained
earnings and cash flows of the Company and its Subsidiaries for such fiscal
year, setting forth in comparative form the figures as at the end of and for the
previous fiscal year, all of which shall be certified by (a) the chief financial
officer of the Company, in his or her opinion, to present fairly, in accordance
with GAAP, the financial position of the Company and its Subsidiaries as at the
date thereof and the result of operations for such period and (b) independent
certified public accountants of recognized national standing acceptable to the
Requisite Lenders, whose certificate shall be unqualified and in scope and
substance satisfactory to the Requisite Lenders and who shall have authorized
the Company to deliver such financial statements and certification thereof to
the Managing Agent and the Lenders pursuant to this Agreement.
SECTION 8.3. COMPLIANCE CERTIFICATE; BORROWING BASE CERTIFICATE.
(a ) At the time the financial statements are furnished pursuant to
Sections 8.1 and 8.2, a certificate in the form of Exhibit H (a "Compliance
Certificate") executed by the chief financial officer of the Company: (a)
setting forth in reasonable detail as at the end of such quarterly accounting
period or fiscal year, as the case may be, the calculations required to
establish whether or not the Company, and its Subsidiaries, were in compliance
with the covenants contained in Sections 9.1, 9.2(a)(4), 9.2(b)(3), 9.2(b)(4),
and 9.4(d), (b) stating that, to the best of his or her knowledge, information
and belief, no Default or Event of Default exists, or, if such is not the case,
specifying such Default or Event of Default and its nature, when it occurred and
whether it is continuing and the steps being taken by the Company with respect
to such event, condition or failure. At the time the financial statements are
furnished pursuant to Section 8.2, the Company will deliver to the Lenders a
certificate of the independent accountants performing the audit of such
financial statements to the effect that, in making such audit, nothing came to
their attention that caused them to believe that any Borrower or its
Subsidiaries failed to comply with any of the terms, covenants, provisions or
conditions contained in this Agreement insofar as they relate to financial
matters. Such
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accountants, however, shall not be liable to any Person by reason of their
failure to obtain knowledge of any Event of Default or Default which would not
be disclosed in the course of an audit conducted in accordance with GAAP.
(b ) Within 15 days after the end of each calendar month,
certificates of the Company and SBLC, in the forms of Exhibits I-1 and I-2,
respectively (each a "Borrowing Base Certificate"), executed by the chief
financial officer of the Company, and setting forth a calculation of the
Borrowing Base of each such Borrower as of the end of such calendar month, and
accompanied by an asset listing and a past due report with respect to the
Eligible Assets, in form and scope acceptable to the Requisite Lenders.
(c ) Within 45 days after the end of each fiscal quarter, a schedule
of gains and losses and a valuation report with respect to the Eligible Assets,
as of the end of such fiscal quarter, in form and scope acceptable to the
Requisite Lenders.
SECTION 8.4. OTHER INFORMATION.
(a ) Not later than 90 days prior to the last day of each fiscal year
of the Company, pro forma projected consolidated and consolidating financial
statements for the Company and its Subsidiaries reflecting the forecasted
financial condition and results of operations of the Company and its
Subsidiaries on a quarterly basis for the next succeeding year, accompanied by
calculations establishing whether or not the Company would be in compliance on a
pro forma basis with the covenants contained in Section 9.1, in each case in
form and detail reasonably acceptable to the Requisite Lenders;
(b ) promptly upon receipt thereof, copies of all reports, if any,
submitted to the Company or its Board of Directors by its independent public
accountants including, without limitation, any management report;
(c ) within five Business Days of the filing thereof, copies of all
registration statements (other than the exhibits thereto and any registration
statements on Form S-8 or its equivalent), reports on Forms 10-K, 10-Q and 8-K
(or their equivalents) and all other periodic reports which the Company shall
file with the Securities and Exchange Commission (or any Governmental Authority
substituted therefor) or any national securities exchange;
(d ) promptly upon the mailing thereof to the shareholders of the
Company generally, copies of all financial statements, reports and proxy
statements so mailed and promptly upon the issuance thereof copies of all press
releases issued by the Company;
(e ) if and when any member of the ERISA Group (i) gives or is
required to give notice to the PBGC of any "reportable event" (as defined in
Section 4043 of ERISA) with respect to any Plan which might constitute grounds
for a termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Plan has given or is required to give notice of any such
reportable event, a copy of the notice of such reportable event given or
required to be given to the PBGC; (ii) receives notice of complete or partial
withdrawal liability under Title IV of ERISA or notice that any Multiemployer
Plan is in reorganization, is insolvent or has been
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terminated, a copy of such notice; (iii) receives notice from the PBGC under
Title IV of ERISA of an intent to terminate, impose liability (other than for
premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to
administer any Plan, a copy of such notice; (iv) applies for a waiver of the
minimum funding standard under Section 412 of the Internal Revenue Code, a copy
of such application; (v) gives notice of intent to terminate any Plan under
Section 4041(c) of ERISA, a copy of such notice and other information filed with
the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063
of ERISA, a copy of such notice; or (vii) fails to make any payment or
contribution to any Plan or Multiemployer Plan or in respect of any Benefit
Arrangement or makes any amendment to any Plan or Benefit Arrangement which has
resulted or could result in the imposition of a Lien or the posting of a bond or
other security, a certificate of the controller of the Company setting forth
details as to such occurrence and action, if any, which the Company or
applicable member of the ERISA Group is required or proposes to take;
(f ) to the extent the Company or any Subsidiary is aware of the
same, prompt notice of the commencement of any proceeding or investigation by or
before any Governmental Authority and any action or proceeding in any court or
other tribunal or before any arbitrator against or in any other way relating
adversely to, or adversely affecting, the Company or any Subsidiary or any of
their respective properties, assets or businesses which, if determined or
resolved adversely to such Person, could have a Material Adverse Effect, and
prompt notice of the receipt of notice that any United States income tax returns
of the Company or any of its Subsidiaries are being audited;
(g ) to the extent not previously delivered hereunder, a copy of the
articles of incorporation, bylaws, partnership agreement or other similar
organizational documents of the Company, REIT, the QRS, or any Material
Subsidiary, and any amendment thereto, in each case within five Business Days of
the effectiveness thereof;
(h ) prompt notice of any change in the business, assets,
liabilities, financial condition, results of operations or business prospects of
the Company or any Subsidiary which has had or may have Material Adverse Effect,
(i ) prompt notice of the occurrence of any Default or Event of
Default or any event which constitutes or which with the passage of time, the
giving of notice, or otherwise, would constitute a default or event of default
by the Company or any Subsidiary under any Material Contract to which any such
Person is a party or by which any such Person or any of its respective
properties may be bound;
(j ) prompt notice of any order, judgment or decree in excess of
$5,000,000 having been entered against the Company or any Subsidiary or any of
their respective properties or assets;
(k ) prompt notice of the acquisition, incorporation or other
creation of any Subsidiary, the purpose for such Subsidiary, the nature of the
assets and liabilities thereof and whether such Subsidiary is a Material
Subsidiary;
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(l ) notice of any Person becoming a Material Subsidiary within two
Business Days of the determination thereof;
(m ) prompt notice of any strikes, slow downs, work stoppages or
walkouts or other labor disputes in progress or threatened relating to the
Company or any Subsidiary;
(n ) promptly upon entering into any Material Contract after the
Agreement Date, a copy to the Managing Agent of such Material Contract; and
(o ) from time to time and promptly upon each request, such data,
certificates, reports, statements, opinions of counsel, documents or further
information regarding the business, assets, liabilities, financial condition,
results of operations or business prospects of the Company or any of its
Material Subsidiaries as the Managing Agent or any Lender may reasonably
request.
ARTICLE 9
NEGATIVE COVENANTS
For so long as this Agreement is in effect, unless the Requisite
Lenders (or, if required pursuant to Section 12.7, all of the Lenders) shall
otherwise consent in the manner set forth in Section 12.7, the Borrowers shall
not, directly or indirectly:
SECTION 9.1. FINANCIAL COVENANTS.
Permit:
(a ) Ratio of Adjusted Debt to Tangible Net Worth. The ratio of (i)
the Adjusted Debt to (ii) Tangible Net Worth, to exceed 1.00 to 1.00 at the end
of any fiscal quarter.
(b ) Ratio of Indebtedness to Tangible Net Worth. The ratio of (i)
the Indebtedness of the Company and its Subsidiaries determined on a
consolidated basis to (ii) Tangible Net Worth, to exceed 2.00 to 1.00 at the end
of any fiscal quarter.
(c ) Minimum Tangible Net Worth. The Tangible Net Worth of the
Company and its Subsidiaries determined on a consolidated basis to be less than
(i) $375,000,000 plus (ii) 75% of the Net Proceeds of all Equity Issuance
effected by the Company or any of its Subsidiaries at any time after the
Agreement Date (excluding the Net Proceeds of any Equity Issuance by a
Subsidiary to a Subsidiary or to the Company).
(d ) Ratio of Adjusted EBIT to Interest Expense. The ratio of (i) the
Adjusted EBIT as of the end of each fiscal quarter to (ii) Interest Expense of
the Company and its Subsidiaries determined on a consolidated basis for such
fiscal quarter, to be less than 1.50 to 1.00 at the end of such fiscal quarter.
(e ) Ratio of Adjusted EBIT to Pro Forma Debt Service. The ratio of
(i) Adjusted EBIT of the Company and its Subsidiaries determined on a
consolidated basis for the 12-month period ending as of the fiscal quarter most
recently ending to (ii) Pro Forma Debt Service for the next succeeding 12-month
period, to be less than 1.25 to 1.00 at the end of such fiscal quarter.
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SECTION 9.2. INDEBTEDNESS.
(a) Create, incur, assume, or permit or suffer to exist, or permit
any Subsidiary other than SBLC or the REIT to create incur, assume, or permit or
suffer to exist, any Indebtedness other than the following:
(1) the Obligations;
(2) Indebtedness set forth on Schedule 6.1(g), provided
that the terms of any such Indebtedness shall not be amended to provide
for covenants or borrowing base limitations that are more restrictive
than those contained in this Agreement, except that Secured
Indebtedness may be subject to more restrictive covenants concerning
the collateral therefor;
(3) Subordinated Debt;
(4) intercompany Indebtedness among the Company and such
Subsidiaries; provided however, that (i) the obligations of each
Borrower and Guarantor with respect to such intercompany Indebtedness
shall be subordinate to the Obligations on terms acceptable to the
Requisite Lenders in their sole discretion; (ii) the obligations of
SBIC and SSBIC to the Company (excluding those set forth on Schedule
6.1(g)) shall not exceed $10,000,000 in the aggregate at any one time
outstanding; (iii) the Company shall comply with the provisions of
Section 7.14; and (iv) the obligations of any such Subsidiary other
than SBLC, SBIC, and SSBIC shall be evidenced by promissory notes,
which shall have been pledged to the Managing Agent, for the benefit of
the Lenders, as security for the Obligations;
(5) Indebtedness arising as a result of Contingent
Obligations permitted under Section 9.3 or purchase money Indebtedness
permitted under Section 9.5; and
(6) other Indebtedness incurred or assumed after the
Agreement Date in the ordinary course of business to purchase, carry,
acquire or refinance Investments so long as immediately prior to the
incurring or assumption thereof, and immediately thereafter and after
giving effect thereto, (i) no Default or Event of Default is or would
be in existence, including without limitation, a Default or Event of
Default resulting from a violation of any of the covenants contained in
Section 9.1, and (ii) such Indebtedness of a Borrower or a Guarantor
shall not be subject to any covenants or borrowing base limitations
that are more restrictive than those contained in this Agreement,
provided that Secured Indebtedness may be subject to more restrictive
covenants concerning the collateral therefor.
(b) Permit REIT or SBLC to create, incur, assume or permit to
suffer or exist any Indebtedness, other than (1) Indebtedness set forth on
Schedule 6.1(g), (2) Indebtedness under the Loan Documents, (3) loans or
advances from the Company to SBLC, for general corporate purposes, not to exceed
$10,000,000 in the aggregate at any time outstanding, subordinated to the
Obligations on terms acceptable to the Requisite Lenders, and the Company shall
comply
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with the provisions of Section 7.14 with regard to such loans or advances to
SBLC, (4) for a period of up to 60 days after the Effective Date, loans or
advances from the Company to SBLC, to provide funding for SBLC's obligations
under Section 2.5(b), not to exceed $10,000,000 in the aggregate at any time
outstanding, subordinated to the Obligations on terms acceptable to the
Requisite Lenders, and the Company shall comply with the provisions of Section
7.14 with respect to any such loans or advances that are not repaid within 60
days after the Effective Date, and (5) Indebtedness of the Company secured by
Commercial Mortgage Loans transferred by the Company to the REIT and assumed by
the REIT in contemplation of a securitization transaction, provided that such
Indebtedness is repaid within 21 days of such assumption with the proceeds of
such securitization transaction.
SECTION 9.3. CONTINGENT OBLIGATIONS.
Become or remain liable, or permit any Subsidiary to become or remain
liable, on or under any Contingent Obligation other than the following:
(a ) Contingent Obligations in existence as of the Agreement Date and
set forth in Schedule 9.3;
(b ) Contingent Obligations resulting from endorsement of negotiable
instruments for collection in the ordinary course of business;
(c ) Contingent Obligations under Interest Rate Agreements (i) with
respect to the Loans and (ii) indexed to interest rates or yields on United
States Treasury Bills or Notes with respect to other Indebtedness incurred or
anticipated to be incurred by the Borrower or any of its Subsidiaries;
(d ) Contingent Obligations incurred in the ordinary course of
business with respect to surety and appeal bonds, performance and
return-of-money bonds and other similar obligations;
(e ) Contingent Obligations under letters of credit issued for
customers in the ordinary course of business; and
(f ) Contingent Obligations incurred in the ordinary course of
business under foreign currency swap agreements for net Investments in foreign
Persons.
SECTION 9.4. INVESTMENTS.
Acquire, make or purchase after the Agreement Date any Investment other
than the following:
(a ) intercompany Indebtedness among the Company and its
Subsidiaries provided that such Indebtedness is permitted by the terms
of Section 9.2;
(b ) the transfer of Commercial Mortgage Loans to REIT in
connection with a securitization transaction;
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(c ) Portfolio Investments; and
(d ) other Investments not to exceed $74,000,000 in the
aggregate at any one time outstanding.
SECTION 9.5. LIENS; AGREEMENTS REGARDING LIENS; OTHER MATTERS.
(a ) Create, assume, or incur, or permit or suffer to exist, or
permit any Material Subsidiary to create, incur, assume or permit or suffer to
exist, any Lien upon any of its assets, including, without limitation, the
equity interests of the Company in its Subsidiaries, other than:
(1) the Permitted Liens;
(2) Liens arising in connection with purchase money
Indebtedness, conditional sale agreements and Capitalized Lease
Obligations incurred for the acquisition of furniture, fixtures,
equipment or leasehold improvements in the ordinary course of business;
(3) Liens in existence on the date hereof and securing the
Indebtedness described as being secured on Schedule 6.1(g);
(4) Liens permitted by Section 9.2(b)(5); and
(5) Liens on assets other than the Borrowing Base Assets
and equity interests in Subsidiaries to secure Indebtedness permitted
by Section 9.2(a).
(b ) Enter into, assume or otherwise be bound by, or permit any
Subsidiary to enter into, assume or otherwise be bound by, any agreement (other
than the Loan Documents and the Mass Mutual Agreement) prohibiting the creation
or assumption of any Lien upon Borrowing Base Assets; or
(c ) Except for SBA consents that may be required for SBIC and SSBIC,
create or otherwise cause or suffer to exist or become effective, or permit any
Subsidiary to create or otherwise cause or suffer to exist or become effective,
any consensual encumbrance or restriction of any kind on the ability of any
Subsidiary to: (i) pay dividends or make any other distribution on any of such
Subsidiary's capital stock or other equity interests owned by the Company or any
other Subsidiary of the Company; (ii) pay any Indebtedness owed to the Company
or any other Subsidiary; (iii) make loans or advances to the Company or any
other Subsidiary; or (iv) transfer any of its property or assets to the Company
or any other Subsidiary.
SECTION 9.6. DISTRIBUTIONS TO SHAREHOLDERS.
If an Event of Default specified in Section 10.1(a) or Section 10.1(b)
occurs and is not cured within ten (10) Business Days thereafter, if a Default
or an Event of Default specified in Section 10.1(f) or Section 10.1(g) shall
have occurred and be continuing, or if as a result of the occurrence of any
other Event of Default the Obligations have been accelerated pursuant to Section
10.2(a), the Company shall not, and shall not permit any Borrower or Guarantor
to, make
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(a) any dividend or other distribution on account of any capital stock or other
equity interest of a Borrower or a Guarantor; (b) any acquisition for value of
any capital stock or other equity interest of a Borrower or a Guarantor; or (c)
any payment made to retire, or to obtain the surrender of, any outstanding
warrants, options or other rights to acquire any capital stock or other equity
interest of a Borrower or a Guarantor.
SECTION 9.7. MERGER, CONSOLIDATION AND SALES OF ASSETS.
(a ) Enter into, or permit any Material Subsidiary to enter into, any
transaction of merger or consolidation; (b) liquidate, wind-up or dissolve
itself (or suffer any liquidation or dissolution) or permit any Material
Subsidiary to do any of the foregoing; or (c) convey, sell, lease, sublease,
transfer or otherwise dispose of, in one transaction or a series of
transactions, all or any substantial part of its business or assets, or the
capital stock of or other equity interests in any of its Material Subsidiaries,
whether now owned or hereafter acquired or permit any Material Subsidiary to do
any of the foregoing; provided, however, that:
(i) any Subsidiary of the Company may merge or consolidate
with (A) the Company, so long as the Company shall be the surviving
entity or (B) a Subsidiary of the Company;
(ii) a Subsidiary may sell, transfer or dispose of its
assets to the Company or a Wholly Owned Subsidiary of the Company;
(iii) a Subsidiary may liquidate provided that immediately
prior to such liquidation and immediately thereafter and after giving
effect thereto, no Default or Event of Default is or would be in
existence;
(iv) the Company or any Subsidiary may merge or consolidate
with any other corporation, provided that (A) the Company or such
Subsidiary shall be the continuing or surviving corporation and (B)
immediately prior to such merger or consolidation and immediately
thereafter and after giving effect thereto, no Default or Event of
Default is or would be in existence; and
(v) the Company may transfer Commercial Mortgage Loans to
REIT in connection with a securitization transaction, and such
Commercial Mortgage Loans may be transferred or sold to any direct or
indirect Wholly Owned Subsidiary of the REIT.
SECTION 9.8. FISCAL YEAR.
Change its fiscal year from that in effect as of the Agreement Date.
SECTION 9.9. MODIFICATIONS TO MATERIAL CONTRACTS.
Enter into, or permit any Subsidiary to enter into, any amendment or
modification to any Material Contract which could have a Material Adverse Effect
or default in the performance of
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any obligations of the Company or any Subsidiary under any Material Contract or
permit any Material Contract to be canceled or terminated prior to its stated
maturity.
SECTION 9.10. TRANSACTIONS WITH AFFILIATES.
Permit to exist or enter into, and will not permit any of its
Subsidiaries to permit to exist or enter into, any transaction (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate of the Company or with any director, officer or
employee of the Company, any Subsidiary or any other Affiliate, except (i)
transactions involving consideration in aggregate amount for all such
transactions not in excess of $5,000,000 per fiscal year, (ii) Investments
permitted by Section 9.4, and (iii) transactions in the ordinary course of, and
pursuant to the reasonable requirements of the, business of the Company or any
of its Subsidiaries and upon fair and reasonable terms which are no less
favorable to the Company or such Subsidiary than would be obtained in a
comparable arm's length transaction with a Person that is not an Affiliate.
ARTICLE 10
DEFAULT
SECTION 10.1. EVENTS OF DEFAULT.
Each of the following shall constitute an Event of Default, whatever
the reason for such event and whether it shall be voluntary or involuntary or be
effected by operation of Applicable Law or pursuant to any judgment or order of
any Governmental Authority:
(a ) Default in Payment of Principal. A Borrower shall fail to pay
when due (whether upon demand, at maturity, by reason of acceleration or
otherwise) the principal of any of the Loans.
(b ) Default in Payment of Other Amounts. A Borrower shall fail to
pay when due any interest on any of the Loans or any of the other payment
Obligations (other than the principal of any Loan) owing by such Borrower under
this Agreement or any other Loan Document and such failure shall continue for a
period of three Business Days after the earlier of (i) the date upon which such
Borrower or any Subsidiary obtains knowledge of such failure or (ii) the date
upon which the Company has received written notice of such failure from the
Managing Agent.
(c ) Default in Performance. (i) A Borrower or any Subsidiary shall
fail to perform or observe any term, covenant, condition or agreement on its
part to be performed or observed contained in Sections 7.11, 7.12, 7.15(b) or
8.4(i) or in Article 9 or (ii) a Borrower or any Subsidiary shall fail to
perform or observe any term, covenant, condition or agreement contained in this
Agreement or any other Loan Document to which it is a party and not otherwise
mentioned in this Section and in the case of this clause (ii) such failure shall
continue for a period of 30 days after the earlier of (x) the date upon which a
Borrower obtains knowledge of such failure or (y) the date upon which the
Borrower has received written notice of such failure from the Managing Agent.
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(d ) Misrepresentations. Any written statement, representation or
warranty made or deemed made by or on behalf of a Borrower or any Subsidiary
under this Agreement or under any other Loan Document, or any amendment hereto
or thereto, or in any other writing or statement at any time furnished or made
or deemed made by or on behalf of a Borrower or any Subsidiary to an Agent or
any Lender in connection with this Agreement or the other Loan Documents, shall
at any time prove to have been incorrect or misleading in any material respect
when furnished or made.
(e ) Indebtedness Cross-Default.
(i) A Borrower or any Subsidiary shall fail to pay when due
and payable the principal of, or interest on, any Indebtedness (other
than the Loans) or any Contingent Obligations having an aggregate
outstanding principal amount of $5,000,000 or more, or
(ii) the maturity of any Indebtedness (other than the Loans)
of a Borrower or any Subsidiary having an aggregate outstanding
principal amount of $5,000,000 or more shall have (x) been accelerated
in accordance with the provisions of any indenture, contract or
instrument evidencing, providing for the creation of or otherwise
concerning such Indebtedness or (y) been required to be prepaid prior
to the stated maturity thereof; or
(iii) any other event (other than the events described in
Section 7.15(b)) shall have occurred and be continuing with respect to
any Indebtedness (other than the Loans) of a Borrower or any Subsidiary
having an aggregate outstanding principal amount of $10,000,000 or more
which, with or without the passage of time, the giving of notice, or
otherwise, would permit any holder or holders of such Indebtedness, any
trustee or agent acting on behalf of such holder or holders or any
other Person, to accelerate the maturity of any such Indebtedness or
require any such Indebtedness to be prepaid prior to its stated
maturity.
(f ) Voluntary Bankruptcy Proceeding. A Borrower, any Material
Subsidiary or any Other Relevant Subsidiary shall: (i) commence a voluntary case
under the Bankruptcy Code of 1978, as amended or other federal bankruptcy laws
(as now or hereafter in effect); (ii) file a petition seeking to take advantage
of any other Applicable Laws, domestic or foreign, relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or adjustment of debts;
(iii) consent to, or fail to contest in a timely and appropriate manner, any
petition filed against it in an involuntary case under such bankruptcy laws or
other Applicable Laws or consent to any proceeding or action described in the
immediately following subsection; (iv) apply for or consent to, or fail to
contest in a timely and appropriate manner, the appointment of, or the taking of
possession by, a receiver, custodian, trustee, or liquidator of itself or of a
substantial part of its property, domestic or foreign; (v) admit in writing its
inability to pay its debts as they become due; (vi) make a general assignment
for the benefit of creditors; (vii) make a conveyance fraudulent as to creditors
under any Applicable Law; or (viii) take any corporate or similar action for the
purpose of effecting any of the foregoing.
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(g ) Involuntary Bankruptcy Proceeding. A case or other proceeding
shall be commenced against a Borrower, any Material Subsidiary or any Other
Relevant Subsidiary, in any court of competent jurisdiction seeking: (i) relief
under the Bankruptcy Code of 1978, as amended or other federal bankruptcy laws
(as now or hereafter in effect) or under any other Applicable Laws, domestic or
foreign, relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or adjustment of debts; or (ii) the appointment of a trustee,
receiver custodian, liquidator or the like of such Person, or of all or any
substantial part of the assets domestic or foreign, of such Person, and such
case or proceeding is not dismissed within 60 days after it is commenced.
(h ) Contest of Loan Documents. A Borrower or any Subsidiary shall
disavow, revoke or terminate any Loan Document to which it is a party or shall
otherwise challenge or contest in any action, suit or proceeding in any court or
before any Governmental Authority the validity or enforceability of this
Agreement, any Note or any other Loan Document.
(i ) Judgment. A judgment or order for the payment of money shall be
entered against a Borrower or any Subsidiary by any court or other tribunal
which exceeds, individually or together with all other such judgments or orders
entered against such Borrower and its Subsidiaries, $5,000,000 in amount (or
which shall otherwise have a Material Adverse Effect) and such judgment or order
shall continue unpaid for a period of 30 days without being stayed or dismissed
through appropriate appellate proceedings.
(j ) Attachment. A warrant, writ of attachment, execution or similar
process shall be issued against any property of a Borrower or any Subsidiary
which exceeds, individually or together with all other such warrants, writs,
executions and processes, $5,000,000 in amount and such warrant, writ, execution
or process shall not be discharged, vacated, stayed or bonded for a period of 30
days; provided, however, that if a bond has been issued in favor of the claimant
or other Person obtaining such warrant, writ, execution or process, the issuer
of such bond shall execute a waiver or subordination agreement in form and
substance satisfactory to the Managing Agent pursuant to which the issuer of
such bond subordinates its right of reimbursement, contribution or subrogation
to the Obligations and waives or subordinates any Lien it may have on the assets
of such Borrower or any of its Subsidiaries.
(k ) ERISA. Any member of the ERISA Group shall fail to pay when due
an amount or amounts aggregating in excess of $5,000,000 which it shall have
become liable to pay under Title IV of ERISA; or notice of intent to terminate a
Material Plan shall be filed under Title IV of ERISA by any member of the ERISA
Group, any plan administrator or any combination of the foregoing; or the PBGC
shall institute proceedings under Title IV of ERISA to terminate, to impose
liability (other than for premiums under Section 4007 of ERISA) in respect of,
or to cause a trustee to be appointed to administer any Material Plan; or a
condition shall exist by reason of which the PBGC would be entitled to obtain a
decree adjudicating that any Material Plan must be terminated; or there shall
occur a complete or partial withdrawal from, or a default, within the meaning of
Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans
which could cause one or more members of the ERISA Group to incur a current
payment obligation in excess of $5,000,000.
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(l ) Loan Documents. An Event of Default (as defined therein) shall
occur under any of the other Loan Documents.
(m ) Change of Control.
(i) Any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a
Person will be deemed to have "beneficial ownership" of all securities
that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 25% of the total voting power of the then
outstanding voting stock of the Company; or
(ii) During any twelve-month period (commencing on or after
the Agreement Date), a majority of the Board of Directors of the
Company shall no longer be composed of individuals (A) who were members
of such Board of Directors on the first date of such period, (B) whose
election or nomination to such Board of Directors was approved by
individuals referred to in clause (A) above constituting at the time of
such election or nomination at least a majority of such Board of
Directors or (C) whose election or nomination to such Board of
Directors was approved by individuals referred to in clauses (A) and
(B) above constituting at the time of such election or nomination at
least a majority of such Board of Directors.
(n ) Dissolution. Any order, judgment or decree is entered against a
Borrower, any Material Subsidiary or any Other Relevant Subsidiary decreeing the
dissolution or split up of such Person and such order remains undischarged or
unstayed for a period in excess of 30 days.
SECTION 10.2. REMEDIES UPON EVENT OF DEFAULT.
Upon the occurrence of an Event of Default the following provisions
shall apply:
(a ) Acceleration; Termination of Facilities.
(i) Automatic. Upon the occurrence of an Event of Default
specified in Sections 10.1(f) or 10.1(g), (A)(i) the principal of, and
all accrued interest on, the Loans and the Notes at the time
outstanding and (ii) all of the other Obligations of the Borrowers,
including, but not limited to, the other amounts owed to the Lenders
and the Managing Agent under this Agreement, the Notes or any of the
other Loan Documents shall become immediately and automatically due and
payable by the Borrowers without presentment, demand, protest, or other
notice of any kind, all of which are expressly waived by the Borrowers
and (B) each of the Commitments and the obligation of the Lenders to
make Loans shall immediately and automatically terminate;
(ii) Optional. If any other Event of Default shall have
occurred and be continuing, the Managing Agent may, and at the
direction of the Requisite Lenders shall: (I) declare (l) the principal
of, and accrued interest on, the Loans and the Notes at the time
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outstanding and (2) all of the other Obligations, including, but not
limited to, the other amounts owed to the Lenders and the Managing
Agent under this Agreement, the Notes or any of the other Loan
Documents to be forthwith due and payable, whereupon the same shall
immediately become due and payable without presentment, demand, protest
or other notice of any kind, all of which are expressly waived by the
Borrower and (II) terminate the Commitments and the obligation of the
Lenders to make Loans hereunder.
(b ) Loan Documents. The Requisite Lenders may direct the Managing
Agent to, and the Managing Agent if so directed shall, exercise any and all of
its rights under any and all of the other Loan Documents.
(c ) Applicable Law. The Requisite Lenders may direct the Managing
Agent to, and the Managing Agent if so directed shall, exercise all other rights
and remedies it may have under any Applicable Law.
SECTION 10.3. REMEDIES UPON CERTAIN DEFAULTS.
Upon the occurrence of a Default specified in Sections 10.1(f) or
10.1(g), the Commitments shall immediately and automatically terminate.
SECTION 10.4. ALLOCATION OF PROCEEDS.
If an Event of Default shall have occurred and be continuing and the
maturity of the Notes has been accelerated, all payments received by an Agent
under any of the Loan Documents, in respect of any principal of or interest on
the Obligations or any other amounts payable by the Borrowers hereunder or
thereunder, shall be applied by the Agents in the following order and priority:
(a ) amounts due to the Agents and the Lenders in respect of Fees and
expenses due under Section 12.2;
(b ) payments of interest on the Loans, to be applied for the ratable
benefit of the Lenders;
(c ) payments of principal of Loans, to be applied for the ratable
benefit of the Lenders;
(d ) amounts due to the Agents and the Lenders pursuant to Section
12.10;
(e ) payments of all other amounts due under any of the Loan
Documents, if any, to be applied for the ratable benefit of the Lenders; and
(f ) any amount remaining after application as provided above, shall
be paid to the Borrower or whomever else may be legally entitled thereto.
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SECTION 10.5. PERFORMANCE BY AGENT.
If a Borrower shall fail to perform any covenant, duty or agreement
contained in any of the Loan Documents, an Agent may perform or attempt to
perform such covenant, duty or agreement on behalf of such Borrower after the
expiration of any cure or grace periods set forth herein. In such event, such
Borrower shall, at the request of such Agent, promptly pay any amount reasonably
expended by such Agent in such performance or attempted performance to such
Agent, together with interest thereon at the applicable Post-Default Rate from
the date of such expenditure until paid. Notwithstanding the foregoing, neither
such Agent nor any Lender shall have any liability or responsibility whatsoever
for the performance of any obligation of the Borrowers under this Agreement or
any other Loan Document.
SECTION 10.6. RIGHTS CUMULATIVE.
The rights and remedies of the Agents and the Lenders under this
Agreement and each of the other Loan Documents shall be cumulative and not
exclusive of any rights or remedies which any of them may otherwise have under
Applicable Law. In exercising their respective rights and remedies the Agents
and the Lenders may be selective and no failure or delay by the Agents or any of
the Lenders in exercising any right shall operate as a waiver of it, nor shall
any single or partial exercise of any power or right preclude its other or
further exercise or the exercise of any other power or right.
ARTICLE 11
THE AGENTS
SECTION 11.1. AUTHORIZATION AND ACTION.
Each Lender hereby appoints and authorizes each Agent to take such
action as agent on such Lender's behalf and to exercise such powers under this
Agreement and the other Loan Documents as are specifically delegated to such
Agent by the terms and thereof, together with such powers as are reasonably
incidental thereto. Each Agent shall administer the Loans in the same manner
that such Agent administers loans made for its own account. The relationship
between each Agent and the Lenders shall be that of principal and agent only and
nothing herein shall be construed to deem an Agent a trustee or fiduciary for
any Lender nor to impose on the Agent duties or obligations other than those
expressly provided for herein. At the request of a Lender, each Agent will
forward to each Lender copies or, where appropriate, originals of the documents
delivered to such Agent pursuant to this Agreement or the other Loan Documents.
Each Agent will also furnish to any Lender, upon the request of such Lender, a
copy of any certificate or notice furnished to such Agent by a Borrower or any
other Affiliate of a Borrower, pursuant to this Agreement or any other Loan
Document not already delivered to such Lender pursuant to the terms of this
Agreement or any such other Loan Document. As to any matters not expressly
provided for by the Loan Documents (including, without limitation, enforcement
or collection of any of the Obligations), the Agents shall not be required to
exercise any discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Requisite Lenders (or all of the
Lenders if explicitly required under any other provision of this Agreement), and
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such instructions shall be binding upon all Lenders and all holders of any of
the Obligations, provided, however, that, notwithstanding anything in this
Agreement to the contrary, the Agents shall not be required to take any action
which is contrary to this Agreement or any other Loan Document or Applicable
Law. Not in limitation of the foregoing, an Agent shall not exercise any right
or remedy it or the Lenders may have under any Loan Document upon the occurrence
of a Default or an Event of Default unless the Requisite Lenders have so
directed such Agent to exercise such right or remedy.
SECTION 11.2. AGENT'S RELIANCE, ETC.
Notwithstanding any other provision of any Loan Document, including
without limitation the second sentence of Section 11.1, neither an Agent nor any
of its directors, officers, agents, employees or counsel shall be liable for any
action taken or omitted to be taken by it or them under or in connection with
this Agreement, except for its or their own gross negligence or willful
misconduct. Without limiting the generality of the foregoing, an Agent: (a) may
treat the payee of any Note as the holder thereof until such Agent receives
written notice of the assignment or transfer thereof signed by such payee and in
form satisfactory to such Agent; (b) may consult with legal counsel (including
its own counsel or counsel for the Borrowers), independent public accountants
and other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts; (c) makes no warranty or representation to any
Lender or any other Person and shall not be responsible to any Lender or any
other Person for any statements, warranties or representations made by any
Person in or in connection with this Agreement or any other Loan Document; (d)
shall not have any duty to ascertain or to inquire as to the performance or
observance of any of the terms, covenants or conditions of any of this Agreement
or any other Loan Document or the satisfaction of any conditions precedent under
this Agreement or any Loan Document on the part of the Borrowers or other
Persons or inspect the property, books or records of the Borrowers or any other
Person; (e) shall not be responsible to any Lender for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement or any other Loan Document, any other instrument or document furnished
pursuant thereto or any collateral covered thereby or the perfection or priority
of any Lien in favor of such Agent on behalf of the Lenders in any such
collateral; and (f) shall incur no liability under or in respect of this
Agreement or any other Loan Document by acting upon any notice, consent,
certificate or other instrument or writing (which may be by telephone or
telecopy) believed by it to be genuine and signed, sent or given by the proper
party or parties.
SECTION 11.3. DEFAULTS.
An Agent shall not be deemed to have knowledge or notice of the
occurrence of a Default or Event of Default unless such Agent has received
notice from a Lender or a Borrower referring to this Agreement, describing with
reasonable specificity such Default or Event of Default and stating that such
notice is a "notice of default." If any Lender becomes aware of any Default or
Event of Default, it shall promptly send to the Managing Agent such a "notice of
default" Further, if an Agent receives such a "notice of default," such Agent
shall give prompt notice thereof to the Lenders.
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SECTION 11.4. AGENT AS LENDER.
Each Agent, as a Lender, shall have the same rights and powers under
this Agreement and any other Loan Document as any other Lender and may exercise
the same as though it were not an Agent; and the term "Lender" or "Lenders"
shall, unless otherwise expressly indicated, include each Agent in each case in
its individual capacity. Each Agent and its affiliates may each accept deposits
from, maintain deposits or credit balances for, invest in, lend money to, act as
trustee under indentures of, serve as financial advisor to, and generally engage
in any kind of business with a Borrower, any Subsidiary or any other Affiliate
thereof as if it were any other bank and without any duty to account therefor to
the other Lenders. Further, each Agent and any affiliate may accept fees and
other consideration from a Borrower for services in connection with this
Agreement and otherwise without having to account for the same to the other
Lenders.
SECTION 11.5. APPROVALS OF LENDERS.
All communications from an Agent to any Lender requesting such Lender's
determination, consent, approval or disapproval (a) shall be given in the form
of a written notice to such Lender, (b) shall be accompanied by a description of
the matter or issue as to which such determination, approval, consent or
disapproval is requested, or shall advise such Lender where information, if any,
regarding such matter or issue may be inspected, or shall otherwise describe the
matter or issue to be resolved, (c) shall include, if reasonably requested by
such Lender and to the extent not previously provided to such Lender, written
materials and a summary of all oral information provided to such Agent by a
Borrower in respect of the matter or issue to be resolved, and (d) shall include
such Agent's recommended course of action or determination in respect thereof.
Each Lender shall reply promptly, but in any event within ten Business Days (or
such lesser period as may be required under the Loan Documents for such Agent to
respond). Unless a Lender shall give written notice to such Agent that it
objects to the recommendation or determination of such Agent (together with a
written explanation of the reasons behind such objection) within the applicable
time period for reply, such Lender shall be deemed to have conclusively approved
of or consented to such recommendation or determination.
SECTION 11.6. LENDER CREDIT DECISION, ETC.
Each Lender expressly acknowledges and agrees that neither an Agent nor
any of its officers, directors, employees, agents, counsel, attorneys-in-fact or
other affiliates has made any representations or warranties as to the financial
condition, operations, creditworthiness, solvency or other information
concerning the business or affairs of the Borrowers, any Subsidiary or other
Person to such Lender and that no act by an Agent hereinafter taken, including
any review of the affairs of the Borrowers, shall be deemed to constitute any
such representation or warranty by such Agent to any Lender. Each Lender
acknowledges that it has, independently and without reliance upon the Agents,
any other Lender or counsel to the Agents, or any of their respective officers,
directors, employees and agents, and based on the financial statements of the
Borrowers, the Subsidiaries or any other Affiliate thereof, and inquiries of
such Persons, its independent due diligence of the business and affairs of the
Borrowers, the Subsidiaries and other Persons, its review of the Loan Documents,
the legal opinions required to be delivered to it hereunder, the
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advice of its own counsel and such other documents and information as it has
deemed appropriate, made its own credit and legal analysis and decision to enter
into this Agreement and the transaction contemplated hereby. Each Lender also
acknowledges that it will, independently and without reliance upon an Agent, any
other Lender or counsel to an Agent or any of their respective officers,
directors, employees and agents, and based on such review, advice, documents and
information as it shall deem appropriate at the time, continue to make its own
decisions in taking or not taking action under the Loan Documents. Except for
notices, reports and other documents and information expressly required to be
furnished to the Lenders by an Agent under this Agreement or any of the other
Loan Documents, the Agents shall have no 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 Borrowers,
any Subsidiary or any other Affiliate thereof which may come into possession of
an Agent or any of its officers, directors, employees, agents, attorneys-in-fact
or other affiliates. Each Lender acknowledges that the Managing Agent's legal
counsel in connection with the transactions contemplated by this Agreement is
only acting as counsel to the Managing Agent and is not acting as counsel to
such Lender.
SECTION 11.7. INDEMNIFICATION OF AGENT.
Each Lender agrees to indemnify each Agent (to the extent not
reimbursed by the Borrower and without limiting the obligation of the Borrowers
to do so) pro rata in accordance with such Lender's respective Commitment
Percentage, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever which may at any time be imposed on, incurred
by, or asserted against such Agent (in its capacity as "Agent" but not as a
"Lender") in any way relating to or arising out of the Loan Documents, any
transaction contemplated hereby or thereby or any action taken or omitted by
such Agent under the Loan Documents (collectively, "Indemnifiable Amounts");
provided, however, that no Lender shall be liable for any portion of such
Indemnifiable Amounts to the extent resulting from such Agent's gross negligence
or willful misconduct or if such Agent fails to follow the written direction of
the Requisite Lenders unless such failure is pursuant to the advice of counsel
that following such written direction would likely violate Applicable Law or the
terms of the Loan Documents and of which the Lenders have received notice.
Without limiting the generality of the foregoing, each Lender agrees to
reimburse each Agent promptly upon demand for its ratable share of any
out-of-pocket expenses (including reasonable counsel fees of the counsel(s) of
such Agent's own choosing) reasonably incurred by each Agent in connection with
the preparation, execution, administration, or enforcement of, or legal advice
with respect to the rights or responsibilities of the parties under, the Loan
Documents, any suit or action brought by such Agent to enforce the terms of the
Loan Documents and/or collect any Obligations, any "lender liability" suit or
claim brought against such Agent and/or the Lenders, and any claim or suit
brought against such Agent and/or the Lenders arising under any Environmental
Laws, to the extent that such Agent is not reimbursed for such expenses by the
Borrowers. Such out-of-pocket expenses (including counsel fees) shall be
advanced by the Lenders on the request of such Agent notwithstanding any claim
or assertion that the Agent is not entitled to indemnification hereunder (other
than any claim or assertion that such Agent is not entitled to such
out-of-pocket expenses as a result of its gross
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negligence or willful misconduct or failure to follow the written direction of
the Requisite Lenders in the absence of the advice of counsel referred to above)
upon receipt of an undertaking by such Agent that such Agent will reimburse the
Lenders if it is actually and finally determined by a court of competent
jurisdiction that such Agent is not so entitled to indemnification. The
agreements in this Section shall survive the payment of the Loans and all other
amounts payable hereunder or under the other Loan Documents and the termination
of this Agreement. If a Borrower shall reimburse an Agent for any Indemnifiable
Amount following payment by any Lender to such Agent in respect of such
Indemnifiable Amount pursuant to this Section, such Agent shall share such
reimbursement on a ratable basis with each Lender making any such payment.
SECTION 11.8. SUCCESSOR AGENT.
Each Agent may resign at any time as Agent under the Loan Documents by
giving at least 30 days' prior written notice thereof to the Lenders and the
Company. In the event of a material breach of its duties hereunder, an Agent may
be removed as Agent under the Loan Documents at any time by the Requisite
Lenders upon 30-days' prior notice. Upon any such resignation or removal, the
Requisite Lenders shall have the right to appoint a successor Agent which
appointment shall, provided no Default or Event of Default shall have occurred
and be continuing, be subject to the Company's approval, which approval shall
not be unreasonably withheld or delayed (except that Company shall, in all
events, be deemed to have approved each Lender as a successor Agent). If no
successor Agent shall have been so appointed by the Requisite Lenders, and shall
have accepted such appointment, within thirty days after the resigning Agent's
giving of notice of resignation or the Requisite Lenders' removal of the
resigning Agent, then the resigning or removed Agent may, on behalf of the
Lenders, appoint a successor Agent, which shall be a Lender, if any Lender shall
be willing to serve, and otherwise shall be a commercial bank having total
combined assets of at least $50,000,000,000. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the resigning Agent, and the retiring Agent shall be discharged
from its duties and obligations under the Loan Documents arising or accruing
thereafter. After any resigning Agent's resignation or removal hereunder as
Agent, the provisions of this Article 11 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under the Loan
Documents.
SECTION 11.9. SYNDICATION AGENT.
The Syndication Agent in such capacity does not assume any
responsibility or obligation hereunder, including, without limitation, for
servicing, enforcement or collection of any of the Loans, nor any duties as an
agent hereunder for the Lenders, except for the maintenance of the Register in
accordance with Section 12.5(e). The title of "Syndication Agent" implies no
fiduciary responsibility on the part of the Syndication Agent, in its capacity
as such, to the Agents, the Borrowers or any Lender and the use of such titles
does not impose on the Syndication Agent any duties or obligations greater than
those of any other Lender or entitle the Syndication Agent to any rights other
than those to which any other Lender is entitled.
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ARTICLE 12
MISCELLANEOUS
SECTION 12.1. NOTICES.
Unless otherwise provided herein, communications provided for hereunder
shall be in writing and shall be mailed, telecopied or delivered as follows:
If to the Borrowers:
Allied Capital Corporation
1666 K Street, NW
9th Floor
Washington, DC 20006
Attention: Joan M. Sweeney, Managing Director
Telecopy Number: (202) 659-2053
Telephone Number: (202) 973-6381
If to the Disbursing Agent:
BankBoston, N.A.
100 Federal Street
Boston, MA 02110
Mail Code: 01-10-08
Attention: Deirdre M. Holland, Vice President
Telecopy Number: (617) 434-1537
Telephone Number: (617) 434-0419
If to the Managing Agent:
Riggs Bank N.A.
808 17th Street, N.W.
10th Floor
Washington, D.C. 20006
Attention: David H. Olson, Vice President
Telecopy Number: (202) 835-5977
Telephone Number: (202) 835-5105
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If to the Syndication Agent:
First Union Capital Markets Group
One First Union Center
Charlotte, NC 28288-0735
Attention: Allison C. Zollicoffer, Director
Telecopier: (704) 383-7611
Telephone: (704) 374-4891
If to a Lender:
To such Lender's address or telecopy number, as applicable,
set forth on its signature page hereto or in the applicable
Assignment and Acceptance Agreement.
or, as to each party at such other address as shall be designated by such party
in a written notice to the other parties delivered in compliance with this
Section 12.1. All such notices and other communications shall be effective (i)
if mailed, when received; (ii) if telecopied, when transmitted; or (iii) if hand
delivered, when delivered. Notwithstanding the immediately preceding sentence,
all notices or communications to an Agent or any Lender under Article 2 shall be
effective only when actually received. Neither an Agent nor any Lender shall
incur any liability to the Borrowers (nor shall an Agent incur any liability to
the Lenders) for acting upon any telephonic notice referred to in this Agreement
which such Agent or such Lender, as the case may be, believes in good faith to
have been given by a Person authorized to deliver such notice or for otherwise
acting in good faith under hereunder, except in the case of gross negligence or
willful misconduct.
SECTION 12.2. EXPENSES.
The Company agrees (a) to pay or reimburse the Managing Agent for all
of its reasonable out-of-pocket costs and expenses incurred in connection with
the preparation, negotiation and execution of, and any amendment, supplement or
modification to, any of the Loan Documents (including due diligence expenses and
travel expenses relating to closing), and the consummation of the transactions
contemplated thereby, including the reasonable fees (not to exceed $30,000) and
disbursements (which are in addition to such fee limitation) of counsel to the
Managing Agent, (b) to pay or reimburse each Agent and the Lenders for all their
costs and expenses incurred in connection with the enforcement or preservation
of any rights under the Loan Documents, including the reasonable fees and
disbursements of their respective counsel (including the reasonably allocated
fees and expenses of in-house counsel) and any payments in indemnification or
otherwise payable by the Lenders to the Agents pursuant to the Loan Documents,
(c) to pay, indemnify and hold each Agent and the Lenders harmless from any and
all recording and filing fees and any and all liabilities with respect to, or
resulting from any failure to pay or delay in paying, documentary, stamp, excise
and other similar taxes, if any, which may be payable or determined to be
payable in connection with the execution and delivery of any of the Loan
Documents, or consummation of any amendment, supplement or modification of, or
any waiver or consent under or in respect of, any Loan Document, and (d) to the
extent not
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already covered by any of the preceding subsections, to pay or reimburse the
Agents and the Lenders for all their costs and expenses incurred in connection
with any bankruptcy or other proceeding of the type described in Sections
10.1(f) or 10.1(g), including the reasonable fees and disbursements of counsel
to the Agents and any Lender, whether such fees and expenses are incurred prior
to, during or after the commencement of such proceeding or the confirmation or
conclusion of any such proceeding.
SECTION 12.3. SETOFF.
Subject to Section 3.3 and in addition to any rights now or hereafter
granted under Applicable Law and not by way of limitation of any such rights,
each Agent, each Lender and each Participant is hereby authorized by each
Borrower, at any time or from time to time, without notice to such Borrower or
to any other Person, any such notice being hereby expressly waived, to set-off
and to appropriate and to apply any and all deposits (general or special,
including, but not limited to, indebtedness evidenced by certificates of
deposit, whether matured or unmatured) and any other indebtedness at any time
held or owing by such Agent, such Lender or any affiliate of such Agent or such
Lender, to or for the credit or the account of such Borrower against and on
account of any of the Obligations or such Borrower, irrespective of whether or
not any or all of the Loans and all other Obligations have been declared to be
due and payable as permitted by Section 10 2, and although such obligations
shall be contingent or unmatured.
SECTION 12.4. JURISDICTION; CONSENT TO SERVICE OF PROCESS; WAIVER OF JURY
TRIAL.
(a ) Each Borrower hereby irrevocably and unconditionally submits,
for itself and its property, to the nonexclusive jurisdiction of any New York
State court or Federal court of the United States of America sitting in New York
City, and any appellate court from any thereof, in any action or proceeding
arising out of or relating to this Agreement or the other Loan Documents, or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in such New York State
court or, to the extent permitted by law, in such Federal court. Each of the
parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement shall
affect any right that any Agent or any Lender may otherwise have to bring any
action or proceeding relating to this Agreement or the other Loan Documents
against a Borrower or its properties in the courts of any jurisdiction.
(b ) Each Borrower hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this agreement or the other Loan
Documents in any New York State or Federal court. Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by law, the defense
of an inconvenient forum to the maintenance of such action or proceeding in any
such court.
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(c ) Each Borrower and each other party hereto consents to service of
process in the manner provided for notices in Section 12.1. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
(d ) EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. EACH PARTY HERETO (1)
CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (2) ACKNOWLEDGES
THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS,
THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 12.5. SUCCESSORS AND ASSIGNS.
(a ) The provisions of this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns, except that no Borrower may assign or otherwise transfer any of its
rights under this Agreement without the prior written consent of all Lenders.
(b ) Any Lender may make, carry or transfer Loans at, to or for the
account of, any of its branch offices or the office of an affiliate of such
Lender except to the extent such transfer would result in increased costs to a
Borrower.
(c ) Any Lender may at any time grant to one or more banks or other
financial institutions (each such bank or financial institution, a
"Participant") participating interests in its Commitment or the Obligations
owing to such Lender; provided however, (i) any such participating interest must
be for a constant and not a varying percentage interest, (ii) no Lender may
grant a participating interest in its Commitment, or if the Commitments have
been terminated, the aggregate outstanding principal balance of Notes held by
it, in an amount less than $10,000,000, and (iii) after giving effect to any
such participation by a Lender, the amount of its Commitment, or if the
Commitments have been terminated, the aggregate outstanding principal balance of
Notes held by it, in which it has not granted any participating interests must
be at least $10,000,000. No Participant shall have any rights or benefits under
this Agreement or any other Loan Document, except (1) as provided in Section
12.3, and (2) a Participant shall be entitled to the benefits of the cost
protection provisions contained in Section 3.12 and Article 4 to the same extent
as if it were a Lender but not in excess of the cost protections to which the
Lender from which it purchased its participation would be entitled. In the event
of any such grant by a Lender of a participating interest to a Participant, such
Lender shall remain responsible for the performance of its obligations
hereunder, and the Borrowers and the Agents shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
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obligations under this Agreement. Any agreement pursuant to which any Lender may
grant such a participating interest shall provide that such Lender shall retain
the sole right and responsibility to enforce the obligations of the Borrowers
hereunder including, without limitation, the right to approve any amendment,
modification or waiver of any provision of this Agreement; provided, however,
such Lender may agree with the Participant that it will not, without the consent
of the Participant, agree to (i) increase, or extend the term or extend the time
or waive any requirement for the reduction or termination of, such Lender's
Commitment, (ii) extend the date fixed for the payment of principal of or
interest on the Loans or portions thereof owing to such Lender, (iii) reduce the
amount of any such payment of principal, or (iv) reduce the rate at which
interest is payable thereon. An assignment or other transfer which is not
permitted by subsection (d) or (e) below shall be given effect for purposes of
this Agreement only to the extent of a participating interest granted in
accordance with this subsection (c). The selling Lender shall notify the Agents
and the Company of the sale of any participation hereunder and the terms
thereof.
(d ) Any Lender may with the prior written consent of each Agent and,
so long as no Default or Event of Default shall have occurred and be continuing,
the Company (which consent, in the case of the Agents and the Company, shall not
be unreasonably withheld) assign to one or more Eligible Assignees (each an
"Assignee") all or a portion of its Commitment and its other rights and
obligations under this Agreement and the Notes; provided, however, (i) no such
consent by the Company or the Agents shall be required in the case of any
assignment to another Lender or any affiliate of such Lender (subject to Section
12.5(b) above) or another Lender; (ii) any partial assignment shall be in an
amount at least equal to $10,000,000 and after giving effect to such assignment
the assigning Lender retains a Commitment, or if the Commitments have been
terminated, holds Notes having an aggregate outstanding principal balance, of at
least $10,000,000; (iii) each such assignment shall be effected by means of an
Assignment and Acceptance Agreement; and (iv) each Agent, in its capacity as a
Lender, shall not effect any assignment of its Commitment, if after giving
effect thereto, the amount of such Commitment would be less than the amount of
any other Lender's Commitment. Upon execution and delivery of such instrument
and payment by such Assignee to such transferor Lender of an amount equal to the
purchase price agreed between such transferor Lender and such Assignee, such
Assignee shall be deemed to be a Lender party to this Agreement as of the
effective date of the Assignment and Acceptance Agreement and shall have all the
rights and obligations of a Lender with a Commitment as set forth in such
Assignment and Acceptance Agreement, and the transferor Lender shall be released
from its obligations hereunder to a corresponding extent, and no further consent
or action by any party shall be required. Upon the consummation of any
assignment pursuant to this subsection (d), the transferor Lender, the Agents
and each Company shall make appropriate arrangements so that new Notes are
issued to the Assignee and such transferor Lender, as appropriate. In connection
with any such assignment, the transferor Lender shall pay to the Syndication
Agent an administrative fee for processing such assignment in the amount of
$3,000 provided, however, such fee shall not be payable in connection with the
first assignment of all or any portion of the Commitment of any Lender initially
a party to this Agreement to an affiliate of such Lender.
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(e ) The Syndication Agent shall maintain at the Principal Office a
copy of each Assignment and Acceptance Agreement delivered to and accepted by it
and a register for the recordation of the names and addresses of the Lenders and
the Commitment of each Lender from time to time (the "Register"). The
Syndication Agent shall give each Lender and the Company notice of the
assignment by any Lender of its rights as contemplated by this Section. The
Company, each Agent and the Lenders may treat each Person whose name is recorded
in the Register as a Lender hereunder for all purposes of this Agreement. The
Register and copies of each Assignment and Acceptance Agreement shall be
available for inspection by the Company or any Lender at any reasonable time and
from time to time upon reasonable prior notice to the Syndication Agent. Upon
its receipt of an Assignment and Acceptance Agreement executed by an assigning
Lender, together with each Note subject to such assignment (the "Surrendered
Note"), the Syndication Agent shall, if such Assignment and Acceptance Agreement
has been completed and if the Syndication Agent receives the processing and
recording fee described in subsection (d) above, (i) accept such Assignment and
Acceptance Agreement, (ii) record the information contained therein in the
Register, and (iii) give prompt notice thereof to the Company.
(f ) In addition to the assignments and participations permitted
under the foregoing provisions of this Section, any Lender may assign and pledge
all or any portion of its Loans and its Notes to any federal Reserve Bank as
collateral security pursuant to Regulation A and any Operating Circular issued
by such Federal Reserve Bank, and such Loans and Notes shall be fully
transferable as provided therein. No such assignment shall release the assigning
Lender from its obligations hereunder.
(g ) A Lender may furnish any information concerning a Borrower or
any Subsidiaries in the possession of such Lender from time to time to Assignees
and Participants (including prospective Assignees and Participants) subject to
compliance with Section 12.9.
(h ) Anything in this Section to the contrary notwithstanding, no
Lender may assign or participate any interest in any Loan held by it hereunder
to a Borrower or any Subsidiary or Affiliate of a Borrower.
(i ) Each Lender agrees that, without the prior written consent of
the Company and the Agents, it will not make any assignment hereunder in any
manner or under any circumstances that would require registration or
qualification of, or filings in respect of, any Loan or Note under the
Securities Act or any other securities laws United States of America or of any
other jurisdiction.
SECTION 12.6. REMOVAL OF LENDERS.
If (a) a Lender or a Participant requests compensation pursuant to
Section 3.12 or Section 4.l and the Requisite Lenders are not also doing the
same, or (b) the obligation of a Lender to make LIBOR Loans or to Continue, or
to Convert Loans into LIBOR Loans shall be suspended pursuant to Section 4.1(b),
Section 4.2 or Section 4.3 but the obligation of the Requisite Lenders shall not
have been suspended under such Sections, the Company may either (A) demand that
such Lender or Participant (the "Affected Lender"), and upon such demand the
Affected Lender
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shall promptly, assign its Commitment and all of its Loans to an Eligible
Assignee subject to and in accordance with the provisions of Section 12.5(d) for
a purchase price equal to the aggregate principal balance of Loans then owing to
the Affected Lender plus any accrued but unpaid interest thereon, accrued but
unpaid Fees owing to the Affected Lender and any amounts owing the Affected
Lender under Section 4.4, or (B) pay to the Affected Lender the aggregate
principal balance of Loans then owing to the Affected Lender plus any accrued
but unpaid interest thereon, accrued but unpaid Fees owing to the Affected
Lender and any amounts owing the Affected Lender under Section 4.4, whereupon
the Affected Lender shall no longer be a party hereto or have any rights or
obligations hereunder or under any of the other Loan Documents. Each of the
Agents and the Affected Lender shall reasonably cooperate in effectuating the
replacement of an Affected Lender under this Section, but at no time shall the
Agents, the Affected Lender or any other Lender be obligated in any way
whatsoever to initiate any such replacement or to assist in finding an Eligible
Assignee. The exercise by the Company of its rights under this Section shall be
at the Company's sole cost and expenses and at no cost or expense to the Agents,
the Affected Lender or any of the other Lenders. The terms of this Section shall
not in any way limit each Borrower's obligation to pay to any Affected Lender
compensation owing to such Affected Lender pursuant to Section 3.12 or Section
4.1.
SECTION 12.7. AMENDMENTS.
Except as otherwise expressly provided in this Agreement, any consent
or approval required or permitted by this Agreement or in any Loan Document to
be given by the Lenders may be given, and any term of this Agreement or of any
other Loan Document may be amended, and the performance or observance by each
Borrower or any Subsidiary of any terms of this Agreement or such other Loan
Document or the continuance of any Default or Event of Default may be waived
(either generally or in a particular instance and either retroactively or
prospectively) with, but only with, the written consent of the Requisite Lenders
(and, in the case of an amendment to any Loan Document, the written consent of
each Borrower). Notwithstanding the foregoing, no amendment, waiver or consent
shall, unless in writing, and signed by all of the Lenders (or the Managing
Agent at the written direction of all of the Lenders), do any of the following:
(i) increase the Commitments of the Lenders or subject the Lenders to any
additional obligations; (ii) reduce the principal of, or interest rates that
have accrued or that will be charged on the outstanding principal amount of, any
Loans or other Obligations; (iii) reduce the amount of any Fees payable
hereunder; (iv) postpone any date fixed for any payment of any principal of,
interest on, or Fees with respect to, any Loans or any other Obligations; (v)
change the Commitment Percentages; (vi) amend this Section or amend the
definitions of the terms used in this Agreement or the other Loan Documents
insofar as such definitions affect the substance of this Section; (vii) release
any Subsidiary from its obligations under a Guaranty; (viii) modify the
definition of the term "Requisite 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 (ix) amend the
definitions of "Borrowing Base" or "Eligible Assets." Further, no amendment,
waiver or consent unless in writing and signed by the Agents, in addition to the
Lenders required above to take such action, shall affect the rights or duties of
the Agents under this Agreement or any of the other Loan Documents. No waiver
shall extend to or affect any obligation not expressly waived or impair
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any right consequent thereon and any amendment, waiver or consent shall be
effective only in the specific instance and for the specific purpose set forth
therein. No course of dealing or delay or omission on the part of the Agents or
any Lender in exercising any right shall operate as a waiver thereof or
otherwise be prejudicial thereto. Except as otherwise explicitly provided for
herein or in any other Loan Document, no notice to or demand upon a Borrower
shall entitle such Borrower to other or further notice or demand in similar or
other circumstances.
SECTION 12.8. NONLIABILITY OF AGENT AND LENDERS.
The relationship between the Borrowers and the Lenders and the Agents
shall be solely that of borrower and lender. Neither the Agents nor any Lender
shall have any fiduciary responsibilities to a Borrower and no provision in this
Agreement or in any of the other Loan Documents, and no course of dealing
between or among any of the parties hereto, shall be deemed to create any
fiduciary duty owing by the Agents or any Lender to any Lender, a Borrower or
any Subsidiary. Neither the Agents nor any Lender undertakes any responsibility
to a Borrower to review or inform such Borrower of any matter in connection with
any phase of such Borrower's business or operations.
SECTION 12.9. CONFIDENTIALITY.
Except as otherwise provided by Applicable Law, each Agent and each
Lender shall utilize all non-public information obtained pursuant to the
requirements of this Agreement which has been identified as confidential or
proprietary by the Borrowers in accordance with its customary procedure for
handling confidential information of this nature and in accordance with safe and
sound banking practices but in any event may make disclosure: (a) to any of
their respective affiliates (provided they shall agree to keep such information
confidential in accordance with the terms of this Section), (b) as reasonably
required by any bona fide Assignee, Participant or other transferee in
connection with the contemplated transfer of any Commitment or participations
therein as permitted hereunder (provided they shall agree to keep such
information confidential in accordance with the terms of this Section); (c) as
required by any Governmental Authority or representative thereof or pursuant to
legal process; (d) to such Agent's or such Lender's independent auditors and
other professional advisors (provided they shall be notified of the confidential
nature of the information); and (e) after the happening and during the
continuance of an Event of Default, to any other Person, in connection with the
exercise by the Agents or the Lenders of rights hereunder or under any of the
other Loan Documents.
SECTION 12.10. INDEMNIFICATION.
(a ) Each Borrower shall and hereby agrees to indemnify, defend and
hold harmless each Agent, any affiliate of each Agent and each of the Lenders
and their respective directors, officers, shareholders, agents, employees and
counsel (each referred to herein as an "Indemnified Party") from and against any
and all losses, costs, claims, damages, liabilities, deficiencies, judgments or
expenses of every kind and nature (including, without limitation, amounts paid
in settlement, court costs and the fees and disbursements of counsel incurred in
connection with any litigation, investigation, claim or proceeding or any advice
rendered in connection therewith) (the
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foregoing items referred to herein as "Claims and Expenses") incurred by an
Indemnified Party in connection with, arising out of, or by reason of, any suit,
cause of action, claim, arbitration, investigation or settlement, consent decree
or other proceeding (the foregoing referred to herein as an "Indemnity
Proceeding") arising out of: (i) this Agreement or any other Loan Document or
the transactions contemplated thereby, (ii) the making of any Loans hereunder;
(iii) any actual or proposed use by a Borrower of the proceeds of the Loans;
(iv) an Agent's or any Lender's entering into this Agreement; (v) the fact that
the Agents and the Lenders have established the credit facility evidenced hereby
in favor of the Borrowers; (vi) the fact that the Agents and the Lenders are
creditors of the Borrowers and have or are alleged to have information regarding
the financial condition, strategic plans or business operations of the Borrowers
and the Subsidiaries; (vii) the fact that the Agents and the Lenders are
material creditors of the Borrowers and are alleged to influence directly or
indirectly the business decisions or affairs of the Borrowers and the
Subsidiaries or their financial condition; (viii) the exercise of any right or
remedy the Agents or the Lenders may have under this Agreement or the other Loan
Documents; provided, however, that the Borrower shall not be obligated to
indemnify any Indemnified Party for any acts or omissions of such Indemnified
Party in connection with matters described in this clause (viii) that constitute
gross negligence or willful misconduct; (ix) any violation or non-compliance by
a Borrower or any Subsidiary of any Applicable Law (including any Environmental
Law) including, but not limited to, any Indemnity Proceeding commenced by (A)
the Internal Revenue Service or state taxing authority or (B) any Governmental
Authority or other Person under any Environmental Law, including any Indemnity
Proceeding commenced by a Governmental Authority or other Person seeking
remedial or other action to cause a Borrower or its Subsidiaries (or its
respective properties) (or the Agents and/or the Lenders as successors to the
Borrower) to be in compliance with such Environmental Laws.
(b ) Each Borrower's indemnification obligations under this Section
shall apply to all Indemnity Proceedings arising out of, or related to, the
foregoing whether or not an Indemnified Party is a named party in such Indemnity
Proceeding. In this connection, this indemnification shall cover all costs and
expenses of any Indemnified Party in connection with any deposition of any
Indemnified Party or compliance with any subpoena (including any subpoena
requesting the production of documents). This indemnification shall, among other
things, apply to any Indemnity Proceeding commenced by other creditors of a
Borrower or any Subsidiary, any shareholder of a Borrower or any Subsidiary
(whether such shareholder(s) are prosecuting such Indemnity Proceeding in their
individual capacity or derivatively on behalf of a Borrower), any account debtor
of a Borrower or any Subsidiary or by any Governmental Authority. This
indemnification shall apply to any Indemnity Proceeding arising during the
pendency of any bankruptcy proceeding filed by or against a Borrower and/or any
Subsidiary.
(c ) All out-of-pocket fees and expenses of, and all amounts paid to
third-persons by, an Indemnified Party shall be advanced by the Borrowers at the
request of such Indemnified Party notwithstanding any claim or assertion by the
Borrowers that such Indemnified Party is not entitled to indemnification
hereunder upon receipt of an undertaking by such Indemnified Party that such
Indemnified Party will reimburse the Borrowers if it is actually and finally
determined by a court of competent jurisdiction that such Indemnified Party is
not so entitled to indemnification hereunder.
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(d ) An Indemnified Party may conduct its own investigation and
defense of, and may formulate its own strategy with respect to, any Indemnified
Proceeding covered by this Section and, as provided above, all costs and
expenses incurred by the Indemnified Party shall be reimbursed by the Borrowers.
No action taken by legal counsel chosen by an Indemnified Party in investigating
or defending against any such Indemnified Proceeding shall vitiate or in any way
impair the obligations and duties of the Borrowers hereunder to indemnify and
hold harmless each such Indemnified Party, provided, however, that (i) if a
Borrower is required to indemnify an Indemnified Party pursuant hereto and (ii)
such Borrower has provided evidence reasonably satisfactory to such Indemnified
Party that such Borrower has the financial wherewithal to reimburse such
Indemnified Party for any amount paid by such Indemnified Party with respect to
such Indemnified Proceeding, such Indemnified Party shall not settle or
compromise any such Indemnified Proceeding without the prior written consent of
such Borrower (which consent shall not be unreasonably withheld or delayed).
(e ) If and to the extent that the obligations of a Borrower
hereunder are unenforceable for any reason, such Borrower hereby agrees to make
the maximum contribution to the payment and satisfaction of such obligations
which is permissible under Applicable Law. Each Borrower's obligations hereunder
shall survive any termination of this Agreement and the other Loan Documents and
the payment in full of the Obligations, and are in addition to, and not in
substitution of, any other of their obligations set forth in this Agreement or
any other Loan Document to which it is a party.
SECTION 12.11. TERMINATION; SURVIVAL.
At such time as (a) all of the Commitments have been terminated, (b)
none of the Lenders is obligated any longer under this Agreement to make any
Loans and (c) all Obligations (other than obligations which survive as provided
in the following sentence) have been paid and satisfied in full, this Agreement
shall terminate. Notwithstanding any termination of this Agreement, or of the
other Loan Documents, the indemnities to which the Agents and the Lenders are
entitled under the provisions of Sections 11.7, 12.2 and 12.10 and any other
provision of this Agreement and the other Loan Documents, and the waivers of
jury trial and submission to jurisdiction contained in Section 12.4, shall
continue in full force and effect and shall protect the Agents and the Lenders
against events arising after such termination as well as before.
SECTION 12.12. SEVERABILITY OF PROVISIONS.
Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective only to the
extent of such prohibition or unenforceability without invalidating the
remainder of such provision or the remaining provisions or affecting the
validity or enforceability of such provision in any other jurisdiction.
SECTION 12.13. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
H-70
<PAGE> 76
CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH STATE, AND WITHOUT
REFERENCE TO CONFLICTS OF LAWS PRINCIPLES OR PROVISIONS.
SECTION 12.14. COUNTERPARTS.
This Agreement and any amendments, waivers, consents or supplements may
be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed an original, but all of which counterparts together shall constitute but
one and the same instrument.
SECTION 12.15. LIMITATION OF LIABILITY.
Neither an Agent nor any Lender, nor any affiliate, officer, director,
employee, attorney, or agent of an Agent or any Lender shall have any liability
with respect to, and each Borrower hereby waives, releases, and agrees not to
sue any of them upon, any claim for any special, indirect, incidental, or
consequential damages suffered or incurred by a Borrower in connection with,
arising out of, or in any way related to, this Agreement or any of the other
Loan Documents, or any of the transactions contemplated by this Agreement or any
of the other Loan Documents. Each Borrower hereby waives, releases, and agrees
not to sue an Agent or any Lender or any of an Agent's or any Lender's
affiliates, officers, directors, employees, attorneys, or agents for punitive
damages in respect of any claim in connection with, arising out of, or in any
way related to, this Agreement or any of the other Loan Documents, or any of the
transactions contemplated by this Agreement or financed hereby.
SECTION 12.16. ENTIRE AGREEMENT.
This Agreement, the Notes, and the other Loan Documents embody the
final, entire agreement among the parties hereto and supersede any and all prior
commitments, agreements, representations, and understandings, whether written or
oral, relating to the subject matter hereof and may not be contradicted or
varied by evidence of prior, contemporaneous, or subsequent oral agreements or
discussions of the parties hereto.
SECTION 12.17. CONSTRUCTION.
The Agents, each Borrower and each Lender acknowledge that each of them
has had the benefit of legal counsel of its own choice and has been afforded an
opportunity to review this Agreement and the other Loan Documents with its legal
counsel and that this Agreement and the other Loan Documents shall be construed
as if jointly drafted by the Agents, the Borrowers and each Lender.
[Signatures on Following Pages]
H-71
<PAGE> 77
IN WITNESS WHEREOF, the parties hereto have caused this Credit
Agreement to be executed by their authorized officers all as of the day and year
first above written.
BORROWERS:
ALLIED CAPITAL CORPORATION
By: /s/ Jon A. DeLuca
----------------------------------------------
Name: Jon A. DeLuca
--------------------------------------------
Title: Principal & Chief Financial Officer
-------------------------------------------
ALLIED CAPITAL SBLC CORPORATION
By: /s/ Jon A. DeLuca
----------------------------------------------
Name: Jon A. DeLuca
--------------------------------------------
Title: Principal & Chief Financial Officer
-------------------------------------------
[Signatures Continued on Next Page]
H-72
<PAGE> 78
[SIGNATURE PAGE TO CREDIT AGREEMENT DATED AS OF
JANUARY 8, 1998, WITH ALLIED CAPITAL CORPORATION
AND ALLIED CAPITAL SBLC CORPORATION]
BANKBOSTON, N.A.,
AS DISBURSING AGENT AND AS A LENDER
By: /s/ Deirdre M. Holland
----------------------------------------------
Name: Deirdre H. Holland
--------------------------------------------
Title: Vice President
-------------------------------------------
INITIAL COMMITMENT AMOUNT:
$ 50,000,000.00
---------------------------------
LENDING OFFICE (ALL TYPES OF LOANS):
100 Federal Street 01-10-08
-------------------------------------------------
Boston, MA 02110
-------------------------------------------------
Attn: D. M. Holland
--------------------------------------------
Telecopier: (617) 434-1537
--------------------------------------
Telephone: (617) 434-0419
---------------------------------------
[Signatures Continued on Next Page]
H-73
<PAGE> 79
[SIGNATURE PAGE TO CREDIT AGREEMENT DATED AS OF
JANUARY 8, 1998, WITH ALLIED CAPITAL CORPORATION
AND ALLIED CAPITAL SBLC CORPORATION]
RIGGS BANK N.A.,
AS MANAGING AGENT AND AS A LENDER
By: /s/ David H. Olson
----------------------------------------------
Name: David H. Olson
--------------------------------------------
Title: Vice President
-------------------------------------------
INITIAL COMMITMENT AMOUNT:
$ 50,000,000.00
-------------------------------------------------
LENDING OFFICE (ALL TYPES OF LOANS):
808 17th Street, NW, 10th floor
-------------------------------------------------
Washington, DC 20006
-------------------------------------------------
Attn: Dave Olson
--------------------------------------------
Telecopier: (202) 835-5977
--------------------------------------
Telephone: (202) 835-5105
---------------------------------------
[Signatures Continued on Next Page]
H-74
<PAGE> 80
[SIGNATURE PAGE TO CREDIT AGREEMENT DATED AS OF
JANUARY 8, 1998, WITH ALLIED CAPITAL CORPORATION
AND ALLIED CAPITAL SBLC CORPORATION]
FIRST UNION NATIONAL BANK,
AS SYNDICATION AGENT AND AS A LENDER
By: /s/ Jane W. Workman
----------------------------------------------
Name: Jane W. Workman
--------------------------------------------
Title: Senior Vice President
-------------------------------------------
INITIAL COMMITMENT AMOUNT:
$ 50,000,000.00
-------------------------------------------------
LENDING OFFICE (ALL TYPES OF LOANS):
One First Union Center
-------------------------------------------------
Charlotte, NC 28288-0735
-------------------------------------------------
Attn: Lisa Mowery
--------------------------------------------
Telecopier: (704) 383-7611
--------------------------------------
Telephone: (704) 383-0558
---------------------------------------
H-75
<PAGE> 1
EXHIBIT 10.3
[OPIC LETTERHEAD]
December 11, 1997
Mr. Jon A. DeLuca
Chief Financial Officer
Allied Capital Corporation
1666 K Street, N.W.
9th Floor
Washington, DC 20006
Dear Jon:
Per your request dated December 5, 1997, the Overseas Private
Investment Corporation (OPIC) has reviewed your request to allow Allied Capital
Corporation (ACC) to merge with and into Allied Capital Lending Corporation on
December 31, 1997 (Merger). Under Section 7.04(c) of the Loan Agreement between
ACC and OPIC dated April 10, 1995, ACC is prohibited from merging with any other
Person.
Upon review of the Merger transaction, OPIC is granting permission to
ACC to merge with and into Allied Capital Lending Corporation effective December
31, 1997. OPIC will further review the Loan Agreement to determine if other
changes are required in light of the Merger.
Yours sincerely,
/s/ AUSTIN J. BELTON
Austin J. Belton
Investment Funds Manager
<PAGE> 1
Exhibit 10.4
[Executive Copy]
AMENDMENT NO. 2
TO
MASTER REPURCHASE AGREEMENT
THIS AMENDMENT NO. 2, made as of July 30, 1997 ("Amendment No. 2"), by and
among MERRILL LYNCH MORTGAGE CAPITAL INC. ("MLMCI") and ALLIED CAPITAL
COMMERCIAL CORPORATION ("ALCC") and BUSINESS MORTGAGE INVESTORS, INC. ("BMI").
R E C I T A L S
WHEREAS, MLMCI and the Obligors have previously entered into a Master
Repurchase Agreement (including the Supplemental Terms set forth in Annex I
thereto) dated as of March 22, 1996, as amended by Amendment No. 1 thereto dated
as of November 11, 1996 (collectively, the "Agreement"); and
WHEREAS, MLMCI and the Obligors desire to make certain modifications to the
Agreement as described herein and to confirm their understanding that
Transactions representing a portion of the maximum permitted outstanding
Purchase Price under the Agreement shall be at the sole discretion of MLMCI;
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
Section 1. Definitions. a. Capitalized terms used herein and not otherwise
defined shall have the meanings assigned in the Agreement. Capitalized terms
used in the Agreement whose definitions are modified in Amendment No. 2 shall,
for all purposes of the Agreement, be deemed to have such modified definitions.
b. The definition of "Indebtedness" is hereby amended and restated as
follows:
"Indebtedness" as used herein, whether or not capitalized, shall mean, as
to any Person, all items of indebtedness which, in accordance with GAAP and
the practices thereof, would be included in determining liabilities as
shown on the liability side of a statement of condition of such Person as
of the date as of which indebtedness is to be determined, including,
without limitation, all obligations for money borrowed
<PAGE> 2
and capitalized lease obligations, and shall also include all indebtedness and
liabilities of others assumed or guaranteed by such Person or in respect of
which such Person is secondarily or contingently liable (other than by
endorsement of instruments in the course of collection) whether by reason of any
agreement to acquire such indebtedness or to supply or advance sums or
otherwise, but shall exclude any non-recourse indebtedness.
Section 2. Representations, Warranties and Covenants.
a. Paragraph 9(b) of the Supplemental Terms is hereby amended by adding the
following clause at the end thereof:
"(x) The Custodian is not controlled by, an affiliate of or under common
control with an Obligor."
b. Paragraph 9(d)(ix) of the Supplemental Terms is hereby amended by deleting
such clause in its entirety and substituting the following therefor:
"(ix) As of any date of determination, the aggregate outstanding Repurchase
Price attributable to Transactions involving Category IV Loans shall
not exceed the lesser of (1) 15% of the aggregate outstanding
Repurchase Price attributable to all Transactions involving Mortgage
Loans and (2) $10,000,000."
c. Paragraph 9(d) of the Supplemental Terms is hereby amended by adding the
following clause at the end thereof:
"(x) The Custodian shall not at any time be controlled by, an affiliate of
or under common control with an Obligor."
Section 3. Additional Events of Termination. Paragraph 11(i) of
the Supplemental Terms is hereby deleted in its entirety and replaced with the
following:
"(i) The ratio of (i) total Indebtedness of an Obligor to (ii) Book Net
Worth of such Obligor shall exceed 3 to 1;"
Section 4. Termination. Paragraph 20 of the Supplemental Terms is hereby
deleted in its entirety and replaced with the following:
2
<PAGE> 3
Notwithstanding any provisions of Paragraph 15 of the Master Repurchase
Agreement to the contrary, the Agreement, as amended hereby, and all
Transactions outstanding hereunder shall terminate automatically without
any requirement for notice on the date occurring eighteen (18) calendar
months after the date as of which Amendment No. 2 to the Agreement is
entered into; provided, however, that the Agreement, as amended hereby, and
any Transaction outstanding hereunder may be extended by mutual agreement
of MLMCI and the Obligors; and provided further, however, that neither
MLMCI nor the Obligors shall be obligated to agree to such an extension.
Section 5. Maximum Transaction Amount. Paragraph 21 of the Supplemental
Terms is hereby deleted in its entirety and replaced with the following:
21. MAXIMUM TRANSACTION AMOUNT. The aggregate outstanding Repurchase Price
for the Purchased Securities subject to this Agreement as of any date of
determination shall not exceed (i) $250,000,000 less (ii) all outstanding
indebtedness of ALCC under the ALCC Master Repurchase Agreement.
Section 6. Certain Transactions Optional.
a. Notwithstanding any agreement between an Obligor and MLMCI or among
the Obligors, MLMCI and any third party, whether written or oral,
MLMCI may reject any Mortgage Loan or any other asset from inclusion
in a Transaction hereunder if it reasonably believes that such
Mortgage Loan or other asset does not conform to the requirements for
financing set forth herein. Each Obligor shall provide any
documentation or other information requested by MLMCI in connection
with the evaluation of any Mortgage Loan or other asset promptly upon
request by MLMCI.
b. Notwithstanding any agreement between an Obligor and MLMCI or among
the Obligors, MLMCI and any third party, whether written or oral, and
any provision of the Agreement, as amended hereby, to the contrary
notwithstanding, the entering into any Transaction hereunder that
would cause the aggregate outstanding Purchase Price to be in excess
of $100,000,000 shall be discretionary on the part of MLMCI.
Section 7. Expenses. The Obligors shall be jointly and severally liable
for the payment of their own expenses and all reasonable out-of-pocket costs
and expenses (including fees and disbursements of counsel) of MLMCI: (1)
incident to the
3
<PAGE> 4
preparation and negotiation of the Agreement as amended hereby, the Custodial
Agreement and any documents relating thereto; (2) incident to the preparation
and negotiation of any amendments or waivers thereto, and the protection of the
rights of MLMCI thereunder; and (3) incident to the enforcement of payment of
amounts due under the Agreement as amended hereby or the Custodial Agreement,
whether by judicial proceedings or otherwise, including, without limitation, in
connection with bankruptcy, insolvency, liquidation, reorganization, moratorium
or other similar proceedings involving an Obligor. Notwithstanding any
provision hereof to the contrary, the obligations of the Obligors to pay
MLMCI's expenses as set forth herein shall be effective and enforceable whether
or not any Transaction remains outstanding and shall survive payment of all
other obligations owed by an Obligor to MLMCI.
Section 8. Controlling Law. This Amendment No. 2 shall be governed and
construed in accordance with the laws of the State of New York applicable to
agreements made and entirely performed therein.
Section 9. Interpretation. The provisions of the Agreement shall be read
so as to give effect to the provisions of this Amendment No. 2.
Section 10. Counterparts. This Amendment No. 2 may be executed in any
number of counterparts, each of which counterparts shall be deemed to be an
original, and such counterparts shall constitute but one and the same
instrument.
Section 11. Ratification and Confirmation. As amended by this Amendment
No. 2, the Agreement is hereby in all respects ratified and confirmed, and the
Agreement as amended by this Amendment No. 2 shall be read, taken and construed
as one and the same instrument.
4
<PAGE> 5
IN WITNESS WHEREOF, MLMCI and ALCC have caused their names to be signed
hereto by their respective officers thereunto duly authorized, all as of the
date first above written.
MERRILL LYNCH MORTGAGE CAPITAL INC.
By: /s/ Michael Blum
Name: Michael Blum
Title: Director
ALLIED CAPITAL COMMERCIAL CORPORATION
By: /s/ John Scheurer
Name: John Scheurer
Title: President
BUSINESS MORTGAGE INVESTORS, INC.
By: /s/ John Scheurer
Name: John Scheurer
Title: President
5
<PAGE> 6
[Merrill Lynch Letterhead]
As of July 30, 1997
Allied Capital Commercial Corporation
Business Mortgage Investors, Inc.
1666 K Street, N.W., Suite 901
Washington, DC 20006
Re: Amended and Restated Master Repurchase Agreement
among Merrill Lynch Mortgage Capital Inc.,
Allied Capital Commercial Corporation and
Business Mortgage Investors, Inc.
-----------------------------------------------
Gentlemen:
Reference is made to the letter agreement, dated March 11, 1995, as
supplemented and amended prior to the date hereof (the "Letter Agreement"),
among Merrill Lynch Mortgage Capital Inc. ("MLMCI"), Allied Capital Commercial
Corporation ("ALCC") and Business Mortgage Investors, Inc. ("BMI") (ALCC and
BMI collectively, the "Obligors"). MLMCI and the Obligors have entered into
Amended and Restated Master Repurchase Agreement to be dated as of March 22,
1996, as amended by Amendment No. 1 thereto, dated as of November 11, 1996,
and Amendment No. 2 thereto, dated as of July 30, 1997 (collectively, the
"Amended and Restated Master Repurchase Agreement"). Capitalized terms used
herein and not otherwise defined herein shall have the meanings ascribed in the
Amended and Restated Master Repurchase Agreement.
MLMCI hereby agrees that it will be obligated to enter into Transactions
with the Obligor under the Amended and Restated Master Repurchase Agreement
having a maximum aggregate Repurchase Price of $100,000,000 (the "Committed
Amount") at any one time for an eighteen month period commencing on July 30,
1997 so long as the terms and conditions of the Amended and Restated Master
Repurchase Agreement and the related Custody Agreement are fully satisfied and
no Event of Default or event of termination thereunder has occurred and upon
(i) the payment by the Obligors to MLMCI of a fee (the "Commitment Fee") in the
amount of $250,000.00 and (ii) the acceptance of this offer by the Obligors in
the manner contemplated below. Any provision of this letter agreement to the
contrary notwithstanding, no portion of the Committed Amount shall apply to
Category IV Loans and MLMCI is under no obligation to enter into Transactions
involving Category IV Loans.
<PAGE> 7
The Commitment Fee shall be in addition to any prior fee paid by the
Obligors to MLMCI for committed financing and will not be refunded for any
reason including, without limitation, the Obligors' election not to engage in
any Transactions under the Amended and Restated Master Repurchase Agreement.
Payment of the Commitment Fee will be made by wire transfer in immediately
available funds to the following account:
Bankers NYC
Acct.: MLMCI Matched Book
Acct. No.: 00812914
ABA No.: 021 001 033
The parties hereto hereby confirm that the Pricing Rate at which the Price
Differential will be calculated will be a per annum percentage (i) in the case
of Category I Loans, 112.5 basis points in excess of LIBOR (or such lesser
number of basis points as MLMCI may determine in its sole discretion) and (ii)
in the case of Category II Loans and Category III Loans, 125 basis points in
excess of LIBOR (or such lesser number of basis points as MLMCI may determine in
its sole discretion). As used herein, "LIBOR" shall mean the London Interbank
Offered Rate for one-month United States Dollar deposits as set forth on page
8695 of Knight-Ridder as of 8:00 a.m., New York time, on the date of
determination. The Pricing Rate initially will be set on the Purchase Date for
each specific Transaction and will reset monthly on the last business day of
each calendar month. All calculations will be made on the basis of a 360-day
year and the actual number of days elapsed.
The parties hereto hereby confirm that for all Transactions involving
Mortgage Loans, the percentage used to calculate the Buyer's Margin Amount shall
reflect an advance rate of (i) ninety percent (90%) in the case of Category I
Loans or (ii) seventy-five percent (75%) in the case of Category II Loans and
Category III Loans.
The Obligors acknowledge that this confirmation letter, the Amended
and Restated Master Repurchase Agreement, the Custody Agreement, and all
documents relating thereto and transactions contemplated thereby are
confidential in nature and the Obligors agree that, unless otherwise directed
by a court of competent jurisdiction, each shall limit the distribution of such
documents and the discussion of such transactions to such of its officers,
employees, attorneys, accountants and agents as is required in order to fulfill
its obligations under such documents and with respect to such transactions.
Notwithstanding the foregoing, however, the Obligors may file such of the
aforementioned documents with the Securities and Exchange Commission as they
reasonably deem to be required by applicable law and may issue such press
releases concerning the matters contemplated hereby as MLMCI may approve in its
reasonable discretion; provided, however, that no such press release may refer
to the Pricing Rate, the Buyer's or Seller's Margin or the Commitment Fee. Any
2
<PAGE> 8
press release so approved may be repeated by the Obligors to any person or
entity making inquiry with respect thereto.
Please confirm our mutual agreement as set forth herein and acknowledge
receipt of this confirmation letter by executing the enclosed copy of this
letter and returning it to Merrill Lynch Mortgage Capital Inc., Merrill Lynch
World Headquarters, World Financial Center, North Tower, 8th Floor, New York,
New York 10281, Attention: Timothy M. Loughlin (telecopy number (212)
449-6673). If you have any questions concerning this matter, please contact the
undersigned at (212) 449-5939.
Very truly yours,
MERRILL LYNCH MORTGAGE CAPITAL INC.
By: /s/ Michael A. Blum
--------------------------------
Name: Michael A. Blum
------------------------------
Title: Director
-----------------------------
ACCEPTED, CONFIRMED AND ACKNOWLEDGED:
ALLIED CAPITAL COMMERCIAL CORPORATION
By: /s/ John Scheurer
----------------------------------
Name: John Scheurer
--------------------------------
Title: President
-------------------------------
Date as of: July 30, 1997
BUSINESS MORTGAGE INVESTORS, INC.
By: /s/ John Scheurer
----------------------------------
Name: John Scheurer
--------------------------------
Title: President
-------------------------------
Dated as of: JULY 30, 1997
3
<PAGE> 9
[Merrill Lynch Letterhead]
June 25, 1997
Allied Capital Commercial Corporation
Business Mortgage Investors, Inc.
1666 K Street, N.W., Suite 901
Washington, DC 20006
Re: Amended and Restated Master Repurchase Agreement
among Merrill Lynch Mortgage Capital Inc.,
Allied Capital Commercial Corporation and
Business Mortgage Investors, Inc.
and
Master Repurchase Agreement between
Merrill Lynch Mortgage Capital Inc. and
Allied Capital Commercial Corporation
------------------------------------------------
Gentlemen:
Reference is made to the Amended and Restated Master Repurchase
Agreement, dated as of March 22, 1996 the ("ACCC/BMI Agreement"), among Merrill
Lynch Mortgage Capital Inc. ("MLMCI"), Allied Capital Commercial Corporation
("ACCC") and Business Mortgage Investors, Inc. (together with ACCC, the
"Obligors") and the Master Repurchase Agreement, dated as of March 22, 1996
(the "ACCC Agreement"), between MLMCI and ACCC. Reference is further made to
the letter agreement, dated March 21, 1997, as amended by the letter agreements
dated April 25, 1997 and May 22, 1997, each among MLMCI and the Obligors
extending the terms of the ACCC/BMI Agreement and the ACCC Agreement until June
30, 1997 pursuant to the terms of such letter agreement.
This letter is to confirm that MLMCI and the Obligors have agreed to
extend the terms of the ACCC/BMI Agreement and the ACCC Agreement for a period
of approximately one month on an uncommitted basis such that the termination
date for each such agreement is extended to July 31, 1997. Any provision of the
ACCC/BMI Agreement or the ACCC Agreement or any other document relating thereto
to the contrary notwithstanding, MLMCI may in its discretion, but is not
required to, enter into Transactions
<PAGE> 10
under the ACCC/BMI Agreement and the ACCC Agreement from the date hereof to the
Revised Termination date.
Please confirm our mutual agreement as set forth herein and
acknowledge receipt of this confirmation letter by executing the enclosed copy
of this letter and returning it to Merrill Lynch Mortgage Capital Inc., Merrill
Lynch Work Headquarters, World Financial Center, North Tower, 8th Floor, New
York, New York 10281, Attention: Timothy M. Loughlin (telecopy number (212)
449-6673). If you have any questions concerning this matter, please contact Mr.
Loughlin at (212) 449-5939.
Very truly yours,
MERRILL LYNCH MORTGAGE CAPITAL
INC.
By: /S/ Daniel G Kramer
Name: Daniel G. Kramer
Title: Managing Director
ACCEPTED, CONFIRMED AND ACKNOWLEDGED:
ALLIED CAPITAL COMMERCIAL CORPORATION
by: /s/ John Scheurer
Name: John Scheurer
Title: President
Dated: June 25, 1997
BUSINESS MORTGAGE INVESTORS, INC.
By: /s/ John Scheurer
Name: John Scheurer
Title: President
Dated: June 25, 1997
2
<PAGE> 11
[MERRILL LYNCH LETTERHEAD]
May 22, 1997
Allied Capital Commercial Corporation
Business Mortgage Investors, Inc.
1666 K Street, N.W., Suite 901
Washington, DC 20006
Re: Amended and Restated Master Repurchase Agreement
among Merrill Lynch Mortgage Capital Inc.,
Allied Capital Commercial Corporation and
Business Mortgage Investors,
Inc.
and
Master Repurchase Agreement between
Merrill Lynch Mortgage Capital Inc. and
Allied Capital Commercial Corporation
----------------------------------------------------------------------
Gentlemen:
Reference is made to the Amended and Restated Master Repurchase Agreement,
dated as of March 22, 1996 (the "ACCC/BMI Agreement"), among Merrill Lynch
Mortgage Capital Inc. ("MLMCI"), Allied Capital Commercial Corporation ("ACCC")
and Business Mortgage Investors, Inc. (together with ACCC, the "Obligors") and
the Master Repurchase Agreement, dated as of March 22, 1996 (the "ACCC
Agreement"), between MLMCI and ACCC. Reference is further made to the letter
agreement, dated March 21, 1997, as amended by the letter agreement dated April
25, 1997, each among MLMCI and the Obligors extending the terms of the ACCC/BMI
Agreement and the ACCC Agreement until May 31, 1997 pursuant to the terms of
such letter agreement.
This letter is to confirm that MLMCI and the Obligors have agreed to extend
the terms of the ACCC/BMI Agreement and the ACCC Agreement for a period of
approximately one month on an uncommitted basis such that the termination date
for each such agreement is extended to June 30, 1997. Any provision of the
ACCC/BMI Agreement or the ACCC Agreement or any other document relating thereto
to the contrary notwithstanding, MLMCI may in
<PAGE> 12
its discretion, but is not required to, enter into Transactions under the
ACCC/BMI Agreement and the ACCC Agreement from the date hereof to the Revised
Termination date.
Please confirm our mutual agreement as set forth herein and acknowledge
receipt of this confirmation letter by executing the enclosed copy of this
letter and returning it to Merrill Lynch Mortgage Capital Inc., Merrill Lynch
Work Headquarters, World Financial Center, North Tower, 8th Floor, New York,
New York 10281, Attention: Timothy M. Loughlin (telecopy number (212)
449-6673). If you have any questions concerning this matter, please contact Mr.
Loughlin at (212) 449-5939.
Very truly yours,
MERRILL LYNCH MORTGAGE CAPITAL
INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
ACCEPTED, CONFIRMED AND ACKNOWLEDGED:
ALLIED CAPITAL COMMERCIAL CORPORATION
By: /s/ John Scheurer
----------------------------------
Name: John Scheurer
--------------------------------
Title: President
-------------------------------
Dated: May 22, 1997
BUSINESS MORTGAGE INVESTORS, INC.
By: /s/ John Scheurer
----------------------------------
Name: John Scheurer
--------------------------------
Title: President
-------------------------------
Dated: May 22, 1997
2
<PAGE> 13
[Merrill Lynch Letterhead]
May 22, 1997
Allied Capital Commercial Corporation
Business Mortgage Investors, Inc.
1666 K Street, N.W., Suite 901
Washington, DC 20006
Re: Amended and Restated Master Repurchase Agreement
among Merrill Lynch Mortgage Capital Inc.,
Allied Capital Commercial Corporation and
Business Mortgage Investors, Inc.
and
Master Repurchase Agreement between
Merrill Lynch Mortgage Capital Inc. and
Allied Capital Commercial Corporation
------------------------------------------------
Gentlemen:
Reference is made to the Amended and Restated Master Repurchase
Agreement, dated as of March 22, 1996 (the "ACCC/BMI Agreement"), among Merrill
Lynch Mortgage Capital Inc. ("MLMCI"), Allied Capital Commercial Corporation
("ACCC") and Business Mortgage Investors, Inc. (together with ACCC, the
"Obligors") and the Master Repurchase Agreement, dated as of March 22, 1996 (the
"ACCC Agreement"), between MLMCI and ACCC. Reference is further made to the
letter agreement, dated March 21, 1997, as amended by the letter agreement dated
April 25, 1997, each among MLMCI and the Obligors extending the terms of the
ACCC/BMI Agreement and the ACCC Agreement until May 31, 1997 pursuant to the
terms of such letter agreement.
This letter is to confirm that MLMCI and the Obligors have agreed to
extend the terms of the ACCC/BMI Agreement and the ACCC Agreement for a period
of approximately one month on an uncommitted basis such that the termination
date for each such agreement is extended to June 30, 1997. Any provision of the
ACCC/BMI Agreement or the ACCC Agreement or any other document relating thereto
to the contrary notwithstanding, MLMCI may in
<PAGE> 14
its discretion, but is not required to, enter into Transactions under the
ACCC/BMI Agreement and the ACCC Agreement from the date hereof to the Revised
Termination date.
Please confirm our mutual agreement as set forth herein and acknowledge
receipt of this confirmation letter by executing the enclosed copy of this
letter and returning it to Merrill Lynch Mortgage Capital Inc., Merrill Lynch
Work Headquarters, World Financial Center, North Tower, 8th Floor, New York,
New York 10281, Attention: Timothy M. Loughlin (telecopy number (212)
449-6673). If you have any questions concerning this matter, please contact Mr.
Loughlin at (212) 449-5939.
Very truly yours,
MERRILL LYNCH MORTGAGE CAPITAL
INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
ACCEPTED, CONFIRMED AND ACKNOWLEDGED:
ALLIED CAPITAL COMMERCIAL CORPORATION
By: /s/ John Scheurer
----------------------------------
Name: John Scheurer
--------------------------------
Title: President
-------------------------------
Dated: May 22, 1997
BUSINESS MORTGAGE INVESTORS, INC.
By: /s/ John Scheurer
----------------------------------
Name: John Scheurer
--------------------------------
Title: President
-------------------------------
Dated: May 22, 1997
2
<PAGE> 15
April 25, 1997
Allied Capital Commercial Corporation
Business Mortgage Investors, Inc.
1666 K Street, N.W., Suite 901
Washington, DC 20006
Re: Amended and Restated Master Repurchase Agreement among Merrill Lynch
Mortgage Capital Inc., Allied Capital Commercial Corporation and
Business Mortgage Investors, Inc.
and
Master Repurchase Agreement between Merrill Lynch Mortgage Capital
Inc. and Allied Capital Commercial Corporation
----------------------------------------------------------------------
Gentlemen:
Reference is made to the Amended and Restated Master Repurchase Agreement,
dated as of March 22, 1996 the "ACCC/BMI Agreement"), among Merrill Lynch
Mortgage Capital Inc. ("MLMCI"), Allied Capital Commercial Corporation ("ACCC")
and Business Mortgage Investors, Inc. (together with ACCC, the "Obligors") and
the Master Repurchase Agreement, dated as of March 22, 1996 (the "ACCC
Agreement"), between MLMCI and ACCC. Reference is further made to the letter
agreement, dated March 21, 1997, among MLMCI and the Obligors extending the
terms of the ACCC/BMI Agreement and the ACCC Agreement until April 30, 1997
pursuant to the terms of such letter agreement.
This letter is to confirm that MLMCI and the Obligors have agreed to extend
the terms of the ACCC/BMI Agreement and the ACCC Agreement for a period of
approximately one month on an uncommitted basis such that the termination date
for each such agreement is extended to May 31, 1997. Any provision of the
ACCC/BMI Agreement or the ACCC Agreement or any other document relating thereto
to the contrary notwithstanding, MLMCI may in its discretion, but is not
required to, enter into Transactions under the ACCC/BMI Agreement and the ACCC
Agreement from the date hereof to the Revised Termination date.
<PAGE> 16
Please confirm our mutual agreement as set forth herein and acknowledge
receipt of this confirmation letter by executing the enclosed copy of this
letter and returning it to Merrill Lynch Mortgage Capital Inc., Merrill Lynch
Work Headquarters, World Financial Center, North Tower, 8th Floor, New York,
New York 10281, Attention: Timothy M. Loughlin (telecopy number (212)
449-6673). If you have any questions concerning this matter, please contact Mr.
Loughlin at (212) 449-5939.
Very truly yours,
MERRILL LYNCH MORTGAGE CAPITAL
INC.
By: /s/ Michael Blum
----------------------------------
Name: Michael Blum
--------------------------------
Title: Director
-------------------------------
ACCEPTED, CONFIRMED AND ACKNOWLEDGED:
ALLIED CAPITAL COMMERCIAL CORPORATION
By: /s/ John Scheurer
----------------------------------
Name: John Scheurer
--------------------------------
Title: President
-------------------------------
Dated: April 25, 1997
BUSINESS MORTGAGE INVESTORS, INC.
By: /s/ John Scheurer
----------------------------------
Name: John Scheurer
--------------------------------
Title: President
-------------------------------
Dated: April 25, 1997
2
<PAGE> 17
March 21, 1997
Allied Capital Commercial Corporation
Business Mortgage Investors, Inc.
1666 K Street, N.W., Suite 901
Washington, DC 20006
Re: Amended and Restated Master Repurchase Agreement among Merrill Lynch
Mortgage Capital Inc., Allied Capital Commercial Corporation and
Business Mortgage Investors, Inc.
and
Master Repurchase Agreement between Merrill Lynch Mortgage Capital
Inc. and Allied Capital Commercial Corporation
----------------------------------------------------------------------
Gentlemen:
Reference is made to the Amended and Restated Master Repurchase Agreement,
dated as of March 22, 1996 the "ACCC/BMI Agreement"), among Merrill Lynch
Mortgage Capital Inc. ("MLMCI"), Allied Capital Commercial Corporation ("ACCC")
and Business Mortgage Investors, Inc. (together with ACCC, the "Obligors") and
the Master Repurchase Agreement, dated as of March 22, 1996 (the "ACCC
Agreement"), between MLMCI and ACCC.
This letter is to confirm that MLMCI and the Obligors have agreed to extend
the terms of the ACCC/BMI Agreement and the ACCC Agreement for a period of
approximately one month on an uncommitted basis such that the termination date
for each such agreement is extended to April 30, 1997. Any provision of the
ACCC/BMI Agreement or the ACCC Agreement or any other document relating thereto
to the contrary notwithstanding, MLMCI may in its discretion, but is not
required to, enter into Transactions under the ACCC/BMI Agreement and the ACCC
Agreement from the date hereof to the Revised Termination date.
Please confirm our mutual agreement as set forth herein and acknowledge
receipt of this confirmation letter by executing the enclosed copy of this
letter and returning it to Merrill
<PAGE> 18
Lynch Mortgage Capital Inc., Merrill Lynch Work Headquarters, World Financial
Center, North Tower, 8th Floor, New York, New York 10281, Attention: Timothy M.
Loughlin (telecopy number (212) 449-6673). If you have any questions concerning
this matter, please contact Mr. Loughlin at (212) 449-5939.
Very truly yours,
MERRILL LYNCH MORTGAGE CAPITAL
INC.
By: /s/ Daniel G. Kramer
----------------------------------
Name: Daniel G. Kramer
--------------------------------
Title: Vice President
-------------------------------
ACCEPTED, CONFIRMED AND ACKNOWLEDGED:
ALLIED CAPITAL COMMERCIAL CORPORATION
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Dated: March 21, 1997
BUSINESS MORTGAGE INVESTORS, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Dated: March 21, 1997
2
<PAGE> 19
Lynch Mortgage Capital Inc., Merrill Lynch Work Headquarters, World Financial
Center, North Tower, 8th Floor, New York, New York 10281, Attention: Timothy M.
Loughlin (telecopy number (212) 449-6673). If you have any questions concerning
this matter, please contact Mr. Loughlin at (212) 449-5939.
Very truly yours,
MERRILL LYNCH MORTGAGE CAPITAL
INC.
By:
-------------------------------
Name:
---------------------------
Title:
-------------------------
ACCEPTED, CONFIRMED AND ACKNOWLEDGED:
ALLIED CAPITAL COMMERCIAL CORPORATION
By: /s/ John Scheurer
----------------------------------
Name: John Scheurer
--------------------------------
Title: President
-------------------------------
Dated: March 21, 1997
BUSINESS MORTGAGE INVESTORS, INC.
By: /s/ John Scheurer
----------------------------------
Name: John Scheurer
--------------------------------
Title: President
-------------------------------
Dated: March 21, 1997
2
<PAGE> 20
November 11, 1996
Allied Capital Commercial Corporation
Business Mortgage Investors, Inc.
1666 K Street, N.W., Suite 901
Washington, DC 20006
Re: Amended and Restated Master Repurchase Agreement among Merrill Lynch
Mortgage Capital Inc., Allied Capital Commercial Corporation and
Business Mortgage Investors, Inc.
and
Master Repurchase Agreement between Merrill Lynch Mortgage Capital
Inc. and Allied Capital Commercial Corporation
----------------------------------------------------------------------
Gentlemen:
Reference is made to the letter agreement, dated January 11, 1995, among
Merrill Lynch Mortgage Capital Inc. ("MLMCI"), Allied Capital Commercial
Corporation ("ALCC") and Business Mortgage Investors, Inc. ("BMI") (ALCC and BMI
collectively, the "Obligors"), a copy of which is attached hereto as Exhibit A.
MLMCI and the Obligors intend to amend the Amended and Restated Master
Repurchase Agreement dated as of March 22, 1996, pursuant to Amendment No. 1
thereto dated as of November 11, 1996 (as so amended, the "Obligors Master
Repurchase Agreement"). Certain documents relating to the Mortgage Loans will
continue to be held for the beneficial owner thereof by the Riggs National Bank
of Washington D.C. ("Riggs Bank") in its capacity as bailee and custodian under
the Tri-Party Custody Agreement, dated as of January 11, 1995 (the "Obligors
Custody Agreement"), among ALCC, BMI, MLMCI and Riggs Bank as custodian. In
addition, MLMCI and ALCC intend to amend the Master Repurchase Agreement dated
as of March 22, 1996, pursuant to Amendment No. 1 thereto dated as of November
11, 1996 (as so amended, the "ALCC Master Repurchase Agreement") pursuant to
which ALCC, acting individually, will enter into repurchase transactions with
MLMCI whereby ALCC will from time to time sell to MLMCI, and simultaneously
agree to
<PAGE> 21
repurchase on a specific date, certain Mortgage Loans described therein.
Certain documents relating to the Mortgage Loans will be held for the
beneficial owner thereof by Riggs Bank in its capacity as bailee and custodian
under the Tri-Party Custody Agreement, dated as of March 22, 1996 (the "ALCC
Custody Agreement"), among ALCC, MLMCI and Riggs Bank as custodian. Capitalized
terms used herein and not otherwise defined herein shall have the meanings
ascribed in the Obligors Master Repurchase Agreement and the ALCC Master
Repurchase Agreement, as applicable.
MLMCI hereby agrees that, upon the payment by ALCC and BMI to MLMCI of a
fee (the "Commitment Fee") in the amount of $510,000.00 (of which $500,000 has
been paid previously) and the acceptance of this offer by ALCC and BMI in the
manner contemplated below, it will be obligated to enter into Transactions (i)
with the Obligors Master Repurchase Agreement having at any one time a maximum
aggregate Repurchase Price equal to the excess of $150,000,000 over the sum of
all outstanding indebtedness of ALCC under the ALCC Master Repurchase Agreement
for the period form the date hereof to March 21, 1997 so long as the terms and
conditions of the Obligors Master Repurchase Agreement and the Obligors Custody
Agreement are fully satisfied and no Event of Default or event of termination
thereunder has occurred and (ii) with ALCC under the ALCC Master Repurchase
Agreement having at any one time a maximum aggregate Repurchase Price equal to
the excess of $150,000,000 over the sum of all outstanding indebtedness of the
Obligors under the Obligors Master Repurchase Agreement for the period form the
dated hereof to March 21, 1997 so long as the terms and conditions of the ALCC
Master Repurchase Agreement, the ALCC Custody Agreement, the Obligors Master
Repurchase Agreement and the Obligors Custody Agreement are fully satisfied and
no Event of Default or event of termination thereunder has occurred.
The Commitment Fee will not be refunded for any reason including, without
limitation, the election by ALCC or BMI not to engage in any Transactions under
the Obligors Master Repurchase Agreement or the ALCC Master Repurchase
Agreement, as applicable. Payment of the Commitment Fee will be made by wire
transfer in immediately available funds to the following account:
Bankers NYC
Acct.: MLMCI Matched Book
Acct. No.: 00812914
ABA No.: 021 001 033
The parties hereto hereby confirm that the Pricing Rate at which the Price
Differential will be calculated will be a per annum percentage (i) in the case
of Category I Loans, 112.5 basis points in excess of LIBOR (or such lesser
number of basis points as MLMCI may determine in its sole discretion, (ii) in
the case
2
<PAGE> 22
of Category II Loans and Category III Loans, 125 basis points in excess of LIBOR
(or such lesser number of basis points as MLMCI may determine in its sole
discretion) and (iii) in the case of Category IV Loans, 150 basis points in
excess of LIBOR (or such lesser number of basis points in excess of LIBOR as
MLMCI may determine in its sole discretion). As used herein, "LIBOR" shall mean
the London Interbank Offered Rate for one-month United States Dollar deposits
as set forth on page 4833 of Telerate as of 8:00 a.m., New York time, on the
date of determination. The Pricing Rate initially will be set on the Purchase
Date for each Pricing Rate initially will be set on the Purchase Date for each
specific Transaction and will reset monthly on the last business day of each
calendar month. All calculations will be made on the basis of a 360-day year
and the actual number of days elapsed.
The parties hereto hereby confirm that for all Transactions involving
Mortgage Loans, the percentage used to calculate the Buyer's Margin Amount
shall be (i) in the case of Category I Loans, one hundred eighteen percent
(118%), reflecting an advance rate of 85% on the Market Value thereof, (ii) in
the case of Category II Loans and Category III Loans, one hundred thirty-three
percent (133%), reflecting and advance rate of approximately 75% on the Market
Value thereof, or (iii) in the case of Category IV, one hundred forty-three
percent (143%), reflecting an advance rate of approximately 70% on the Market
Value thereof.
The Obligors, with respect to the Obligors Master Repurchase Agreement, and
ALCC, with respect to the ALCC Master Repurchase Agreement, may, on or after
November 1, 1996, request in writing that MLMCI extend its obligations under
this confirmation letter from March 21, 1997 to March 21, 1998. MLMCI will use
its best efforts to respond within one month of receiving any such written
request. Such response will include whether or not MLMCI would be willing to so
extend its obligations hereunder, the terms of any such extension and the fees
payable in connection therewith. Nothing contained herein shall be deemed to
limit the right of MLMCI, in its sole discretion, to decline to enter into any
such extension or to agree to any such extension on terms different from those
set forth in this confirmation letter. Any such extension will be evidenced
only by a written agreement among the parties amending this confirmation letter.
ALCC and BMI acknowledge that this confirmation letter, the Obligors Master
Repurchase Agreement, the Obligors Custody Agreement, the ALCC Master Repurchase
Agreement, the ALCC Custody Agreement and all documents relating thereto and
transactions contemplated thereby are confidential in nature and ALCC and BMI
agree that, unless otherwise directed by a court of competent jurisdiction, each
shall limit the distribution of such documents and the discussion of such
transactions to such of its officers, employees, attorneys, accountants and
agents as is required in order to fulfill its obligations under such documents
and with respect to such transactions. Notwithstanding the foregoing,
3
<PAGE> 23
however, ALCC and BMI may file such of the aforementioned documents with the
Securities and Exchange Commission as they reasonably deem to be required by
applicable law and may issue such press releases concerning the matters
contemplated hereby as MLMCI may approve in its reasonable discretion;
provided, however, that no such press release may refer to any Pricing Rate,
the Buyer's or Seller's Margin or the Commitment Fee. Any press releases so
approved may be repeated by ALCC and BMI to any person or entity making inquiry
with respect thereto.
Please confirm our mutual agreement as set forth herein and acknowledge
receipt of this confirmation letter by executing the enclosed copy of this
letter and returning it to Merrill Lynch Mortgage Capital Inc., Merrill Lynch
World Headquarters, World Financial Center, North Tower, 8th Floor, New York,
New York 10281, Attention: Timothy M. Loughlin (telecopy number (212) 449-6673).
If you have any questions concerning this matter, please contact the undersigned
at (212) 449-5939.
Very truly yours,
MERRILL LYNCH MORTGAGE CAPITAL
INC.
By: /s/ Michael Blum
-------------------------------
Name: Michael Blum
-----------------------------
Title: Director
----------------------------
ACCEPTED, CONFIRMED AND ACKNOWLEDGED:
ALLIED CAPITAL COMMERCIAL CORPORATION
By: /s/ John Scheurer
----------------------------------
Name: John Scheurer
--------------------------------
Title: President
-------------------------------
Dated: November 11, 1996
BUSINESS MORTGAGE INVESTORS, INC.
By: /s/ John Scheurer
----------------------------------
Name: John Scheurer
--------------------------------
Title: Executive Vice President
-------------------------------
Dated: November 11, 1996
4
<PAGE> 24
Section 2. Maximum Transaction Amount. Paragraph 22 of the Supplemental
Terms is hereby deleted in its entirety and replaced as follows:
22. MAXIMUM TRANSACTION AMOUNT.
The aggregate outstanding Repurchase Price for the Purchased Securities
subject to this Agreement as of any date of determination shall not exceed
the excess of (i) $150,000,000 over (ii) the sum of all outstanding
indebtedness of ALCC under the ALCC Master Repurchase Agreement.
Section 3. Expenses. Each party hereto shall pay its own expenses in
connection with this Amendment No. 1.
Section 4. Controlling Law. This Amendment No. 1 shall be governed and
construed in accordance with the laws of the State of New York applicable to
agreements made and entirely performed therein.
Section 5. Interpretation. The provisions of the Agreement shall be read
so as to give effect to the provisions of this Amendment No. 1.
Section 6. Counterparts. This Amendment No. 1 may be executed in any
number of counterparts, each of which counterparts shall be deemed to be an
original, and such counterparts shall constitute but one and the same
instrument.
Section 7. Ratification and Confirmation. As amended by this Amendment No.
1, the Agreement is hereby in all respects ratified and confirmed, and the
Agreement as amended by this Amendment No. 1 shall be read, taken and construed
as one and the same instrument.
2
<PAGE> 25
IN WITNESS WHEREOF, MLMCI, ALCC, and BMI have caused their names to be
signed hereto by their respective officers thereunto duly authorized, all as of
the date first above written.
MERRILL LYNCH MORTGAGE CAPITAL INC.
By: /s/ Michael Blum
---------------------------
Name: Michael Blum
-------------------------
Title: Director
------------------------
ALLIED CAPITAL COMMERCIAL CORPORATION
By: /s/ John Scheurer
---------------------------
Name: John Scheurer
-------------------------
Title: President
------------------------
BUSINESS MORTGAGE INVESTORS, INC.
By: /s/ John Scheurer
---------------------------
Name: John Scheurer
-------------------------
Title: Executive Vice President
------------------------
3
<PAGE> 26
[EXECUTION]
AMENDMENT NO. 1
TO
MASTER REPURCHASE AGREEMENT
THIS AMENDMENT NO. 1, made as of November 11, 1996 ("Amendment No. 1"), by
and between MERRILL LYNCH MORTGAGE CAPITAL INC. ("MLMCI") and ALLIED CAPITAL
COMMERCIAL CORPORATION ("ALCC").
R E C I T A L S
- - - - - - - -
WHEREAS, MLMCI and the Obligor have previously entered into a Master
Repurchase Agreement (including the Supplemental Terms set forth in Annex I
thereto) dated as of March 22, 1996 (the "Agreement"); and
WHEREAS, MLMCI and the Obligor desire to make certain modifications to the
Agreement as described herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
Section 1. Definitions. (a) Capitalized terms used herein and not
otherwise defined shall have the meanings assigned in the Agreement.
Capitalized terms used in the Agreement whose definitions are modified in
Amendment No. 1 shall, for all purposes of the Agreement, be deemed to have
such modified definitions.
(b) The definition of "Category I Loan" is hereby amended and restated as
follows:
"Category I Loan" shall mean an Eligible Mortgage Loan that (i)(A) was
originated or purchased by the Obligor within the last sixty (60) days on
standardized loan documentation with standardized underwiting, (B) has a
debt service coverage ratio greater than 1.25:1 and (C) has a loan-to-value
ratio of less than 75% or (ii) that is otherwise acceptable to MLMCI for
inclusion herein as a "Category I Loan".
<PAGE> 27
Section 2. Maximum Transaction Amount. Paragraph 21 of the Supplemental
Terms is hereby deleted in its entirety and replaced as follows:
21. MAXIMUM TRANSACTION AMOUNT. The aggregate outstanding Repurchase Price
for the Purchased Securities subject to this Agreement as of any date of
determination shall not exceed the excess of (i) $150,000,000 over (ii) all
outstanding indebtedness of the Obligor and Business Mortgage Investors,
Inc. under the ALCC/BMI Master Repurchase Agreement.
Section 3. Expenses. Each party hereto shall pay its own expenses in
connection with this Amendment No. 1.
Section 4. Controlling Law. This Amendment No. 1 shall be governed and
construed in accordance with the laws of the State of New York applicable to
agreements made and entirely performed therein.
Section 5. Interpretation. The provisions of the Agreement shall be read
so as to give effect to the provisions of this Amendment No. 1.
Section 6. Counterparts. This Amendment No. 1 may be executed in any
number of counterparts, each of which counterparts shall be deemed to be an
original, and such counterparts shall constitute but one and the same
instrument.
Section 7. Ratification and Confirmation. As amended by this Amendment No.
1, the Agreement is hereby in all respects ratified and confirmed, and the
Agreement as amended by this Amendment No. 1 shall be read, taken and construed
as one and the same instrument.
IN WITNESS WHEREOF, MLMCI and ALCC have caused their names to be signed
hereto by their respective officers thereunto duly authorized, all as of the
date first above written.
MERRILL LYNCH MORTGAGE CAPITAL INC.
By: /s/ Michael Blum
----------------------------------
Name: Michael Blum
--------------------------------
Title: Director
-------------------------------
ALLIED CAPITAL COMMERCIAL CORPORATION
By: /s/ John Scheurer
----------------------------------
Name: John Scheurer
--------------------------------
Title: President
-------------------------------
2
<PAGE> 28
[MERRILL LYNCH LETTERHEAD]
March 22, 1996
Allied Capital Commercial Corporation
Business Mortgage Investors, Inc.
1666 K Street, N.W., Suite 901
Washington, DC 20006
Re: Amended and Restated Master Repurchase Agreement
among Merrill Lynch Mortgage Capital Inc.,
Allied Capital Commercial Corporation and
Business Mortgage Investors, Inc.
and
Master Repurchase Agreement between
Merrill Lynch Mortgage Capital Inc. and
Allied Capital Commercial Corporation
-------------------------------------------------
Gentlemen:
Reference is made to the letter Agreement dated January 11, 1995, among
Merrill Lynch Mortgage Capital Inc. ("MLMCI"), Allied Capital Commercial
Corporation ("ALCC") and Business Mortgage Investors, Inc. ("BMI") (ALCC and BMI
collectively, the "Obligors"), a copy of which is attached hereto as Exhibit A.
MLMCI and the Obligors intend to enter into an Amended and Restated Master
Repurchase Agreement to be dated as of March 22, 1996, pursuant to Amendment No.
1 thereto dated as of November 11, 1996 (the "Obligors Master Repurchase
Agreement"). Certain documents relating to the Mortgage Loans will continue to
be held for the beneficial owner thereof by the Riggs National Bank of
Washington, D.C. ("Riggs Bank") in its capacity as bailee and custodian under
the Tri-Party Custody Agreement, dated as of January 11, 1995 (the "Obligors
Custody Agreement"), among ALCC, BMI, MLMCI and Riggs Bank as custodian. In
addition, MLMCI and ALCC intend to enter into a Master Repurchase Agreement,
dated as of March 22, 1996, (the "ALCC Master Repurchase Agreement") pursuant to
which ALCC, acting individually, will enter into repurchase transactions with
MLMCI whereby ALCC will from time to time sell to MLMCI, and simultaneously
agree to repurchase on a specific date, certain Mortgage Loans described
therein. Certain documents relating to the Mortgage Loans will be held for
<PAGE> 29
the beneficial owner thereof by Riggs Bank in its capacity as bailee and
custodian under the Tri-Party Custody Agreement, dated as of March 22, 1996 (the
"ALCC Custody Agreement"), among ALCC, MLMCI and Riggs Bank as custodian.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings ascribed in the Obligors Master Repurchase Agreement and the ALCC
Master Repurchase Agreement, as applicable.
MLMCI hereby agrees that, upon the payment by ALCC and BMI to MLMCI of a
fee (the "Commitment Fee") in the amount of $500,000.00 and the acceptance of
this offer by ALCC and BMI in the manner contemplated below, it will be
obligated to enter into Transactions (i) with the Obligors under the Obligors
Master Repurchase Agreement having at any one time a maximum aggregate
Repurchase Price equal to the excess of $80,000,000 over the sum of all
outstanding indebtedness of ALCC under the ALCC Master Repurchase Agreement for
the period from the date hereof to March 21,1997 so long as the terms and
conditions of the Obligors Master Repurchase Agreement and the Obligors Custody
Agreement are fully satisfied and no Event of Default or event of termination
thereunder has occurred and (ii) with ALCC under the ALCC Master Repurchase
Agreement having at any one time a maximum aggregate Repurchase Price equal to
the excess of $80,000,000 over the sum of all outstanding indebtedness of the
Obligors under the Obligors Master Repurchase Agreement for the period from the
date hereof to March 21, 1997 so long as the terms and conditions of the ALCC
Master Repurchase Agreement, the ALCC Custody Agreement, the Obligors Master
Repurchase Agreement and the Obligors Custody Agreement are fully satisfied and
no Event of Default or event of termination thereunder has occurred.
The Commitment Fee will not be refunded for any reason including, without
limitation, the election by ALCC or BMI not to engage in any Transactions under
the Obligors Master Repurchase Agreement or the ALCC Master Repurchase
Agreement, as applicable. Payment of the Commitment Fee will be made by wire
transfer in immediately available funds to the following account:
Bankers NYC
Acct.: MLMCI Matched Book
Acct. No.: 00812914
ABA No.: 021 001 033
The parties hereto hereby confirm that the Pricing Rate at which the Price
Differential will be calculated will be a per annum percentage (i) in the case
of Category I Loans, Category II Loans, and Category III Loans, 170 basis points
in excess of LIBOR (or such lesser of basis points as MLMCI may determine in its
sole discretion) and (ii) in the case of Category IV Loans, 190 basis points in
excess of LIBOR (or such lesser number of basis points in excess of LIBOR as
MLMCI may determine in its sole discretion). As used herein, "LIBOR" shall mean
the London
2
<PAGE> 30
Interbank Offered Rate for one-month United States Dollar deposits as set forth
on page 4833 of Telerate as of 8:00 a.m., New York time, on the date of
determination. The Pricing Rate initially will be set on the Purchase Date for
each specific Transaction and will reset monthly on the last business day of
each calendar month. All calculations will be made on the basis of a 360-day
year and the actual number of days elapsed.
The parties hereto hereby confirm that for all Transactions involving
Mortgage Loans, the percentage used to calculate the Buyer's Margin Amount
shall be (i) in the case of Category I Loans, one hundred twenty-five percent
(125%), reflecting an advance rate of 80% on the Market Value thereof, (ii) in
the case of Category II Loans and Category III Loans, one hundred thirty-three
percent (133%), reflecting and advance rate of approximately 75% on the Market
Value thereof, or (iii) in the case of Category IV, one hundred forty-three
percent (143%), reflecting an advance rate of approximately 70% on the Market
Value thereof.
The Obligors, with respect to the Obligors Master Repurchase Agreement, and
ALCC, with respect to the ALCC Master Repurchase Agreement, may, on or after
November 1, 1996, request in writing that MLMCI extend its obligations under
this confirmation letter from March 21, 1997 to March 21, 1998. MLMCI will use
its best efforts to respond within one month of receiving any such written
request. Such response will include whether or not MLMCI would be willing to so
extend its obligations hereunder, the terms of any such extension and the fees
payable in connection therewith. Nothing contained herein shall be deemed to
limit the right of MLMCI, in its sole discretion, to decline to enter into any
such extension or to agree to any such extension on terms different from those
set forth in this confirmation letter. Any such extension will be evidenced
only by a written agreement among the parties amending this confirmation letter.
ALCC and BMI acknowledge that this confirmation letter, the Obligors Master
Repurchase Agreement, the Obligors Custody Agreement, the ALCC Master Repurchase
Agreement, the ALCC Custody Agreement and all documents relating thereto and
transactions contemplated thereby are confidential in nature and ALCC and BMI
agree that, unless otherwise directed by a court of competent jurisdiction, each
shall limit the distribution of such documents and the discussion of such
transactions to such of its officers, employees, attorneys, accountants and
agents as is required in order to fulfill its obligations under such documents
and with respect to such transactions. Notwithstanding the foregoing, however,
ALCC and BMI may file such of the aforementioned documents with the Securities
and Exchange Commission as they reasonably deem to be required by applicable law
and may issue such press releases concerning the matters contemplated hereby as
MLMCI may approve in its reasonable discretion; provided, however, that no such
press release may refer to any Pricing
3
<PAGE> 31
the Buyer's or Seller's Margin or the Commitment Fee. Any press
releases so approved may be repeated by ALCC and BMI to any person or entity
making inquiry with respect thereto.
Please confirm our mutual agreement as set forth herein and acknowledge
receipt of this confirmation letter by executing the enclosed copy of this
letter and returning it to Merrill Lynch Mortgage Capital Inc., Merrill Lynch
World Headquarters, World Financial Center, North Tower, 8th Floor, New York,
New York 10281, Attention: Timothy M. Loughlin (telecopy number (212)
449-6673). If you have any questions concerning this matter, please contact the
undersigned at (212) 449-5939.
Very truly yours,
MERRILL LYNCH MORTGAGE CAPITAL INC.
By: /s/ Timothy M. Loughlin
-------------------------------
Name: Timothy M. Loughlin
Title: Vice President
ACCEPTED, CONFIRMED AND ACKNOWLEDGED:
ALLIED CAPITAL COMMERCIAL CORPORATION
By: -----------------------------
Name: -----------------------------
Title: -----------------------------
Dated: March 22, 1996
BUSINESS MORTGAGE INVESTORS, INC.
By: -----------------------------
Name: -----------------------------
Title: -----------------------------
Dated: March 22, 1996
4
<PAGE> 32
[PSA Letterhead]
[EXECUTION COPY]
MASTER REPURCHASE AGREEMENT
Dated as of March 22, 1996
Between:
Allied Capital Commercial Corporation
and
Merrill Lynch Mortgage Capital Inc.
1. Applicability
From time to time the parties hereto may enter into transactions in which
one party ("Seller") agrees to transfer to the other ("Buyer") securities or
financial instruments ("Securities") against the transfer of funds by Buyer,
with a simultaneous agreement by Buyer to transfer to Seller such Securities at
a date certain or on demand, against the transfer of funds by Seller. Each such
transaction shall be referred to herein as a "Transaction" and shall be governed
by this Agreement, including any supplemental terms or conditions contained in
Annex I hereto, unless otherwise agreed in writing.
2. Definitions
(a) "Act of Insolvency", with respect to any party, (i) the commencement by
such party as debtor of any case or proceeding under any bankruptcy, Insolvency,
reorganization, liquidation, dissolution or similar law, or such party seeking
the appointment of a receiver, trustee, custodian or similar official for such
party or any substantial party of its property, or (ii) the commencement of any
such case or proceeding against such party, or another seeking such an
appointment, or the filing against a party of an application for a protective
decree under the provisions of the Securities Investor Protection Act of 1970,
which (A) in consented to or not timely contested by such party, (B) results in
the entry of an order for relief, such an appointment, the issuance of such a
protective decree or the entry of an order-having a similar effect, or (C) is
not dismissed within 15 days,(iii) the making by a party of a general assignment
for the benefit of creditors, or (iv) the admission in writing by a party of
such party's inability to pay such party's debts as they become due;
(b) "Additional Purchased Securities", Securities provided by Seller to
Buyer pursuant to Paragraph 4(a) hereof:
(c) "Buyer's Margin Amount", with respect to any Transaction as of any
date, the amount obtained by application of percentage (which may be equal to
the percentage that is agreed to as the Seller's Margin Amount under
subparagraph (q) of this Paragraph), agreed to by Buyer and Seller prior to
entering into the Transaction, to the Repurchase Price for such Transaction as
of such date:
(d) "Confirmation", the meaning specified in Paragraph 3(b) hereof:
(e) "Income", with respect to any Security at any time, any principal
thereof then payable and all interest, dividends or other distributions
thereon;
(f) "Margin Deficit" , the meaning specified in Paragraph 4(a) hereof;
(g) "Margin Excess", the meaning specified in Paragraph 4(b) hereof;
(h) "Market Value", with respect to any Securities as of any date, the
price for such Securities on such date obtained from a generally recognized
source agreed to by the parties or the most recent closing bid quotation from
such a source, plus accrued income to the extent not included therein (other
than any income credited or transferred to, or applied to the obligations of,
Seller pursuant to Paragraph 5 hereof) as of such date (unless contrary to
market practice for such Securities):
(i) "Price Differential", with respect to any Transaction hereunder as of
any date, the aggregate amount obtained by daily application of the Pricing
Rate for such Transaction to the Purchase Price for such Transaction on a 360
day per year basis for the actual number of days during the period commencing
on (and including) the Purchase Date for such Transaction and ending on (but
excluding) the date of determination (reduced by any amount of such Price
Differential previously paid by Seller to Buyer with respect to such
Transaction);
<PAGE> 33
(j) "Pricing Rate", the per annum percentage rate for determination of the
Price Differential;
(k) "Prime Rate", the prime rate of U.S. money center commercial banks as
published in The Wall Street Journal;
(l) "Purchase Date", the date on which Purchased Securities are
transferred by Seller to Buyer;
(m) "Purchase Price", (i) on the Purchase Date, the price at which
Purchased Securities are transferred by Seller to Buyer, and (ii) thereafter,
such price increased by the amount of any cash transferred by Buyer to Seller
pursuant to Paragraph 4(b) hereof and decreased by the amount of any cash
transferred by Seller to Buyer pursuant to Paragraph 4(a) hereof or applied to
reduce Seller's obligations under clause (ii) of Paragraph 5 hereof;
(n) "Purchased Securities", the Securities transferred by Seller to Buyer
in a Transaction hereunder, and any Securities substituted therefor in
accordance with Paragraph 9 hereof. The term "Purchased Securities" with
respect to any Transaction at any time also shall include Additional Purchased
Securities delivered pursuant to Paragraph 4(a) and shall exclude Securities
returned pursuant to Paragraph 4(b);
(o) "Repurchase Date", the date on which Seller is to repurchase the
Purchased Securities from Buyer, including any date determined by application
of the provisions of Paragraphs 3(c) or 11 hereof;
(p) "Repurchase Price", the price at which Purchased Securities are to be
transferred from Buyer to Seller upon termination of a Transaction, which will
be determined in each case (including Transactions terminable upon demand) as
the sum of the Purchase Price and the Price Differential as of the date of such
determination, increased by any amount determined by the application of the
provisions of Paragraph 11 hereof;
(q) "Seller's Margin Amount", with respect to any Transaction as of any
date, the amount obtained by application of a percentage (which may be equal to
the percentage that is agreed to as the Buyer's Margin Amount under
subparagraph (c) of this Paragraph), agreed to by Buyer and Seller prior to
entering into the Transaction, to the Repurchase Price for such Transaction as
of such date.
3. Initiation; Confirmation; Termination
(a) An agreement to enter into a Transaction may be made orally or in
writing at the initiation of either Buyer or Seller. On the Purchase Date for
the Transaction, the Purchased Securities shall be transferred to Buyer or its
agent against the transfer of the Purchase Price to an account of Seller.
(b) Upon agreeing to enter into a Transaction hereunder, Buyer or Seller
(or both), as shall be agreed, shall promptly deliver to the other party a
written confirmation of each Transaction (a "Confirmation"). The Confirmation
shall describe the Purchased Securities (including CUSIP number, if any),
Identify Buyer and Seller and set forth (i) the Purchase Date, (ii) the
Purchase Price, (iii) the Repurchase Date, unless the Transaction is to be
terminable on demand, (iv) the Pricing Rate or Repurchase Price applicable to
the Transaction, and (v) any additional terms or conditions of the Transaction
no inconsistent with this Agreement. The Confirmation, together with this
Agreement, shall constitute conclusive evidence of the terms agreed between
Buyer and Seller with respect to the Transaction to which the Confirmation
relates, unless with respect to the Confirmation specific objection is made
promptly after receipt thereof. In the event of any conflict between the terms
of such Confirmation and this Agreement, this Agreement shall prevail.
(c) In the case of Transactions terminable upon demand, such demand shall
be made by Buyer or Seller, no later than such time as is customary in
accordance with market practice, by telephone or otherwise on or prior to the
business day on which such termination will be effective. On the date specified
in such demand, or on the date fixed for termination in the case of Transactions
having a fixed term, termination of the Transaction will be effected by
transfer to Seller or its agent of the Purchased Securities and any Income in
respect thereof received by Buyer (and not previously credited or transferred
to, or applied to the obligations of, Seller pursuant to Paragraph 5 hereof)
against the transfer of the Repurchase Price to an account of Buyer.
4. Margin Maintenance
(a)) If at any time the aggregate Market Value of all Purchased Securities
subject to all Transactions in which a particular party hereto is acting as
Buyer is less than the aggregate Buyer's Margin Amount for all such Transactions
(a "Margin Deficit"), then Buyer may by notice to Seller require Seller in such
Transactions, at Seller's option, to transfer to Buyer cash or additional
Securities reasonably acceptable to Buyer ("Additional Purchased Securities"),
so that the cash and aggregate Market Value of the Purchased Securities,
including any such Additional Purchased Securities, will thereupon equal or
exceed such aggregate Buyer's Margin Amount (decreased by the amount of any
Margin Deficit as of such date arising from any Transactions in which such Buyer
is acting as Seller).
(b) If at any time the aggregate Market Value of all Purchased Securities
subject to all Transactions in which a particular party hereto is acting as
Seller exceeds the aggregate Seller's Margin Amount for all such Transactions at
such time (a "Margin Excess"), then Seller may by notice to Buyer require Buyer
in such Transactions, at Buyer's option, to transfer cash or Purchased
Securities to Seller, so that the aggregate Market Value of the Purchased
Securities, after deduction of any such cash or any Purchased Securities so
transferred, will thereupon not exceed such aggregate Seller's Margin Amount
(increased by the amount of any Margin Excess as of such date arising from any
Transactions in which such Seller is acting as Buyer).
(c) Any cash transferred pursuant to this Paragraph shall be attributed
to such Transactions as shall be approved by Buyer and Seller.
<PAGE> 34
(d) Seller and Buyer may agree, with respect to any or all
Transactions hereunder, that the respective rights of Buyer or Seller (or both)
under subparagraphs (a) and (b) of this Paragraph may be exercised only where a
Margin Deficit or Margin Excess exceeds a specified dollar amount or a specified
percentage of the Repurchase Prices for such Transactions (which amount or
percentage shall be agreed to by Buyer and Seller prior to entering into any
such Transactions).
(e) Seller and Buyer may agree, with respect to any or all
Transactions hereunder, that the respective rights of Buyer and Seller under
subparagraphs (a) and (b) of this Paragraph to require the elimination of a
Margin Deficit or a Margin Excess, as the case may be, may be exercised whenever
such a Margin Deficit or Margin Excess exists with respect to any single
Transaction hereunder (calculated without regard to any other Transaction
outstanding under this Agreement).
5. Income Payments
Where a particular Transaction's term extends over an Income payment
date on the Securities subject to that Transaction, Buyer shall, as the parties
may agree with respect to such Transaction (or, in the absence of any
agreement, as Buyer shall reasonably determine in its discretion), on the date
such Income is payable either (i) transfer to or credit to the account of
Seller an amount equal to such Income payment or payments with respect to any
Purchased Securities subject to such Transaction or (ii) apply the Income
payment or payments to reduce the amount to be transferred to Buyer by Seller
upon termination of the Transaction. Buyer shall not be obligated to take any
action pursuant to the preceding sentence to the extent that such action would
result in the creation of a Margin Deficit, unless prior thereto or
simultaneously therewith Seller transfers to Buyer cash or Additional Purchased
Securities sufficient to eliminate such Margin Deficit.
6. Security Interest
Although the parties intend that all Transactions hereunder be sales
and purchases and not loans, in the event any such Transactions are deemed to
be loans, Seller shall be deemed to have pledged to Buyer as security for the
performance by Seller of its obligations under each such Transaction, and shall
be deemed to have granted to Buyer a security interest in, all of the Purchased
Securities with respect to all Transactions hereunder and all proceeds thereof.
7. Payment and Transfer
Unless otherwise mutually agreed, all transfers of funds hereunder
shall be in immediately available funds. All Securities transferred by one
party hereto to the other party (i) shall be in suitable form for transfer or
shall be accompanied by duly executed instruments of transfer or assignment in
blank and such other documentation as the party receiving possession may
reasonably request, (ii) shall be transferred on the book-entry system of a
Federal Reserve Bank, or (iii) shall be transferred by any other method
mutually acceptable to Seller and Buyer. As used herein with respect to
Securities, "transfer" is intended to have the same meaning as when used in
Section 8-313 of the New York Uniform Commercial Code or, where applicable, in
any federal regulation governing transfers of the Securities.
8. Segregation of Purchased Securities
To the extent required by applicable law, all Purchased Securities in
the possession of Seller shall be segregated from other securities in its
possession and shall be identified as subject to this Agreement. Segregation
may be accomplished by appropriate identification on the books and records of
the holder, including a financial intermediary or a clearing corporation. Title
to all Purchased Securities shall pass to Buyer and, unless otherwise agreed by
Buyer and Seller, nothing in this Agreement shall preclude Buyer from engaging
in repurchase transactions with the Purchased Securities or otherwise pledging
or hypothecating the Purchased Securities, but no such transaction shall
relieve Buyer of its obligations to transfer Purchased Securities to Seller
pursuant to Paragraphs 3, 4 or 11 hereof, or of Buyer's obligation to credit or
pay Income to, or apply Income to the obligations of, Seller pursuant to
Paragraph 5 hereof.
- - - - - - - - - - - - - --------------------------------------------------------------------------------
Required Disclosure for Transactions in Which the Seller Retains
Custody of the Purchased Securities
Seller is not permitted to substitute other securities for those
subject to this Agreement and therefore must keep Buyer's securities
segregated at all times, unless in this Agreement Buyer grants Seller
the right to substitute other securities. If Buyer grants the right to
substitute, this means that Buyer's securities will likely be
commingled with Seller's own securities during the trading day. Buyer
is advised that, during any trading day that Buyer's securities are
commingled with Seller's securities, they [will]* [may]** be subject
to liens granted by Seller to [its clearing bank]* [third parties]**
and may be used by Seller for deliveries on other securities
transactions. Whenever the securities are commingled, Seller's ability
to resegregate substitute securities for Buyer will be subject to
Seller's ability to satisfy [the clearing]* [any]** lien or to obtain
substitute securities.
- - - - - - - - - - - - - --------------------------------------------------------------------------------
* Language to be used under 17 C.F.R. Section 403.4(e) if Seller is a
government securities broker or dealer other than a financial institution.
** Language to be used under 17 C.F.R. Section 403.5(d) if Seller is a
financial institution.
<PAGE> 35
9. Substitution
(a) Seller may, subject to agreement with and acceptance by Buyer,
substitute other Securities for any Purchased Securities. Such substitution
shall be made by transfer to Buyer of such other Securities and transfer to
Seller of such Purchased Securities. After substitution, the substituted
Securities shall be deemed to be Purchased Securities.
(b) In Transactions in which the Seller retains custody of Purchased
Securities, the parties expressly agree that Buyer shall be deemed, for purposes
of subparagraph (a) of this Paragraph, to have agreed to and accepted in this
Agreement substitution by Seller of other Securities for Purchased Securities;
provided, however, that such other Securities shall have a Market Value at least
equal to the Market Value of the Purchased Securities for which they are
substituted.
10. Representations
Each of Buyer and Seller represents and warrants to the other that (i) it
is duly authorized to execute and deliver this Agreement, to enter into the
Transactions contemplated hereunder and to perform its obligations hereunder and
has taken all necessary action to authorize such execution, delivery and
performance, (ii) it will engage in such Transactions as principal (or, if
agreed in writing in advance of any Transaction by the other party hereto, as
agent for a disclosed principal), (iii) the person signing this Agreement on its
behalf is duly authorized to do so on its behalf (or on behalf of any such
disclosed principal), (iv) it has obtained all authorizations of any
governmental body required in connection with this Agreement and the
Transactions hereunder and such authorizations are in full force and effect and
(v) the execution, delivery and performance of this Agreement and the
Transactions hereunder will not violate any law, ordinance, charter, by-law or
rule applicable to it or any agreement by which it is bound or by which any of
its assets are affected. On the Purchase Date for any Transaction Buyer and
Seller shall each be deemed to repeat all the foregoing representations made by
it.
11. Events of Default
In the event that (i) Seller fails to repurchase or Buyer fails to transfer
Purchased Securities upon the applicable Repurchase Date, (ii) Seller or Buyer
fails, after one business day's notice, to comply with Paragraph 4 hereof, (iii)
Buyer fails to comply with Paragraph 5 hereof, (iv) an Act of Insolvency occurs
with respect to Seller or Buyer, (v) any representation made by Seller or Buyer
shall have been incorrect or untrue in any material respect when made or
repeated or deemed to have been made or repeated, or (vi) Seller or Buyer shall
admit to the other its inability to, or its intention not to, perform any of its
obligations hereunder (each an "Event of Default"):
(a) At the option of the nondefaulting party, exercised by written notice
to the defaulting party (which option shall be deemed to have been exercised,
even if no notice is given, immediately upon the occurrence of an Act of
Insolvency), the Repurchase Date for each Transaction hereunder shall be deemed
immediately to occur.
(b) In all Transactions in which the defaulting party is acting as Seller,
if the nondefaulting party exercises or is deemed to have exercised the option
referred to in subparagraph (a) of this Paragraph, (i) the defaulting party's
obligations hereunder to repurchase all Purchased Securities in such
Transactions shall thereupon become immediately due and payable, (ii) to the
extent permitted by applicable law, the Repurchase Price with respect to each
such Transaction shall be increased by the aggregate amount obtained by daily
application of (x) the greater of the Pricing Rate for such Transaction or the
Prime Rate to (y) the Repurchase Price for such Transaction as of the
Repurchase Date as determined pursuant to subparagraph (a) of this Paragraph
(decreased as of any day by (A) any amounts retained by the nondefaulting party
with respect to such Repurchase Price pursuant to clause (iii) of this
subparagraph, (B) any proceeds from the sale of Purchased Securities pursuant to
subparagraph (d)(i) of this Paragraph, and (C) any amounts credited to the
account of the defaulting party pursuant to subparagraph (e) of this Paragraph)
on a 360 day per year basis for the actual number of days during the period
from and including the date of the Event of Default giving rise to such option
to but excluding the date of payment of the Repurchase Price as so increased,
(iii) all Income paid after such exercise or deemed exercise shall be retained
by the nondefaulting party and applied to the aggregate unpaid Repurchase
Prices owned by the defaulting party, and (iv) the defaulting party shall
immediately deliver to the nondefaulting party any Purchased Securities
subject to such Transactions then in the defaulting party's possession.
(c) In all Transactions in which the defaulting party is acting as Buyer,
upon tender by the nondefaulting party of payment of the aggregate Repurchase
Prices for all such Transactions, the defaulting party's right, title and
interest in all Purchased Securities subject to such Transactions shall be
deemed transferred to the nondefaulting party, and the defaulting party
shall deliver all such Purchased Securities to the nondefaulting party.
(d) After one business day's notice to the defaulting party (which notice
need not be given if an Act of Insolvency shall have occurred, and which may be
the notice given under subparagraph (a) of this Paragraph or the notice
referred to in clause (ii) of the first sentence of this Paragraph), the
nondefaulting party may:
(i) as to Transactions in which the defaulting party is acting as
Seller, (A) immediately sell, in a recognized market at such price or
prices as the nondefaulting party may reasonably deem satisfactory, any or
all Purchased Securities subject to such Transactions and apply the
proceeds thereof to the aggregate unpaid Repurchase Prices and any other
amounts owing by the defaulting party hereunder
<PAGE> 36
or (B) in its sole discretion, elect, in lieu of selling all or a portion
of such Purchased Securities, to give the defaulting party credit for such
Purchased Securities in an amount equal to the price therefor on such date,
obtained from a generally recognized source or the most recent closing bid
quotation from such a source, against the aggregate unpaid Repurchase
Prices and any other amounts owing by the defaulting party hereunder; and
(ii) as to Transactions in which the defaulting party is acting as
Buyer, (A) purchase securities ("Replacement Securities") of the same class
and amount as any Purchased Securities that are not delivered by the
defaulting party to the nondefaulting party as required hereunder or (B) in
its sole discretion elect, in lieu of purchasing Replacement Securities, to
be deemed to have purchased Replacement Securities at the price therefor on
such date, obtained from a generally recognized source or the most recent
closing bid quotation from such a source.
(e) As to Transactions in which the defaulting party is acting as Buyer;
the defaulting party shall be liable to the nondefaulting party (i) with respect
to Purchased Securities (other than Additional Purchased Securities), for any
excess of the price paid (or deemed paid) by the nondefaulting party for
Replacement Securities therefor over the Repurchase Price for such Purchased
Securities and (ii) with respect to Additional Purchased Securities, for the
price paid (or deemed paid) by the nondefaulting party for the Replacement
Securities therefor. In addition, the defaulting party shall be liable to the
nondefaulting party for interest on such remaining liability with respect to
each such purchase (or deemed purchase) of Replacement Securities from the date
of such purchase (or deemed purchase) until paid in full by Buyer. Such interest
shall be at a rate equal to the greater of the Pricing Rate for such Transaction
or the Prime Rate.
(f) For purposes of this Paragraph 11, the Repurchase Price for each
Transaction hereunder in respect of which the defaulting party is acting as
Buyer shall not increase above the amount of such Repurchase Price for such
Transaction determined as of the date of the exercise or deemed exercise by the
nondefaulting party of its option under subparagraph (a) of this Paragraph.
(g) The defaulting party shall be liable to the nondefaulting party for the
amount of all reasonable legal or other expenses incurred by the nondefaulting
party in connection with or as a consequence of an Event of Default, together
with interest thereon at a rate equal to the greater of the Pricing Rate for the
relevant Transaction or the Prime Rate.
(h) The nondefaulting party shall have, in addition to its rights
hereunder, any rights otherwise available to it under any other agreement or
applicable law.
12. Single Agreement
Buyer and Seller acknowledge that, and have entered hereinto and will enter
into such Transaction hereunder in consideration of and in reliance upon the
fact that, all Transactions hereunder constitute a single business and
contractual relationship and have been made in consideration of each other.
Accordingly, each of Buyer and Seller agrees (i) to perform all of its
obligations in respect of each Transaction hereunder, and that a default in the
performance of any such obligations shall constitute a default by it in respect
of all Transactions hereunder, (ii) that each of them shall be entitled to set
off claims and apply property held by them in respect of any Transaction
against obligations owing to them in respect of any other Transactions hereunder
and (iii) that payments, deliveries and other transfers made by either of them
in respect of any Transaction shall be deemed to have been made in
consideration of payments, deliveries and other transfers in respect of any
other Transactions hereunder, and the obligations to make any such payments,
deliveries and other transfers may be applied against each other and netted.
13. Notices and Other Communications
Unless another address is specified in writing by the respective party to
whom any notice or other communication is to be given hereunder, all such
notices or communications shall be in writing or confirmed in writing and
delivered at the respective addresses set forth in Annex II attached hereto.
14. Entire Agreement; Severability
This Agreement shall supersede any existing agreements between the parties
containing general terms and conditions for repurchase transactions. Each
provision and agreement herein shall be treated as separate and independent
from any other provision or agreement herein and shall be enforceable
notwithstanding the unenforceability of any such other provision or agreement.
15. Non-Assignability; Termination
The rights and obligations of the parties under this Agreement and under
any Transaction shall not be assigned by either party without the prior written
consent of the other party. Subject to the foregoing, this Agreement and any
Transactions shall be binding upon and shall inure to the benefit of the
parties and their respective successors and assigns. This Agreement may be
cancelled by either party upon giving written notice to the other, except that
this Agreement shall, notwithstanding such notice, remain applicable to any
Transactions then outstanding.
<PAGE> 37
16. Governing Law
This Agreement shall be governed by the State of New York without giving
effect to the conflict of law principles thereof.
17. No Waivers, Etc.
No express or implied waiver of any Event of Default by either party shall
constitute a waiver of any other Event of Default and no exercise of any remedy
hereunder by any party shall constitute a waiver of its right to exercise any
other remedy hereunder. No modification or waiver of any provision of this
Agreement and no consent by any party to a departure herefrom shall be
effective unless and until such shall be in writing and duly executed by both
of the parties hereto. Without limitation on any of the foregoing, the failure
to give a notice pursuant to subparagraphs 4(a) or 4(b) hereof will not
constitute a waiver of any right to do so at a later date.
18. Use of Employee Plan Assets
(a) If assets of an employee benefit plan subject to any provision of the
Employee Retirement Income Security Act of 1974 ("ERISA") are intended to be
used by either party hereto (the "Plan Party") in a Transaction, the Plan Party
shall so notify the other party prior to the Transaction. The Plan Party shall
represent in writing to the other party that the Transaction does not
constitute a prohibited transaction under ERISA or is otherwise exempt
therefrom, and the other party may proceed in reliance thereon but shall not
be required so to proceed.
(b) Subject to the last sentence of subparagraph (a) of this Paragraph any
such Transaction shall proceed only if Seller furnishes or has furnished to
Buyer its most recent available audited statement of its financial condition
and its most recent subsequent unaudited statement of its financial condition.
(c) By entering into a Transaction pursuant to this Paragraph, Seller
shall be deemed (i) to represent to Buyer that since the date of Seller's
latest such financial statements, there has been no material adverse change in
Seller's financial condition which Seller has not disclosed to Buyer, and (ii)
to agree to provide Buyer with future audited and unaudited statements of its
financial condition as they are issued, so long as it is a Seller in any
outstanding Transaction involving a Plan Party.
19. Intent
(a) The parties recognize that each Transaction is a "repurchase
agreement" as that term is defined in Section 101 of Title 11 of the United
States Code, as amended (except insofar as the type of Securities subject to
such Transaction or the term of such Transaction would render such definition
inapplicable), and a "securities contract" as that term is defined in Section
741 of Title 11 of the United States Code, as amended.
(b) It is understood that either party's right to liquidate Securities
delivered to it in connection with Transactions hereunder or to exercise any
other remedies pursuant to Paragraph 11 hereof, is a contractual right to
liquidate such Transaction as described in Sections 555 and 559 of Title 11 of
the United States Code, as amended.
20. Disclosure Relating to Certain Federal Protections
The parties acknowledge that they have been advised that:
(a) in the case of Transactions in which one of the parties is a
broker or dealer registered with the Securities and Exchange Commission
("SEC") under Section 15 of the Securities Exchange Act of 1934 ("1934
Act"), the Securities Investor Protection Corporation has taken the
position that the provisions of the Securities Investor Protection Act of
1970 ("SIPA") do not protect the other party with respect to any
Transaction hereunder;
(b) in the case of Transactions in which one of the parties is a
government securities broker or a government securities dealer registered
with the SEC under Section 15C of the 1934 Act, SIPA will not provide
protection to the other party with respect to any Transaction hereunder;
and
(c) in the case of Transactions in which one of the parties is a
financial institution, funds held by the financial institution pursuant to
a Transaction hereunder are not a deposit and therefore are not insured by
the Federal Deposit Insurance Corporation, the Federal Savings and Loan
Insurance Corporation or the National Credit Union Share Insurance Fund, as
applicable.
Merrill Lynch Mortgage Capital Inc. Allied Capital Commercial Corporation
By_________________________________ By___________________________________
Title______________________________ Title________________________________
Date_______________________________ Date_________________________________
6
<PAGE> 38
EXHIBIT 10.4
[ALLIED CAPITAL LETTERHEAD]
November 6, 1997
Mr. Timothy M. Loughlin
Merrill Lynch Mortgage Capital Inc.
World Financial Center
North Tower, 8th Floor
New York, NY 10281
Re: Amended and Restated Master Repurchase Agreement among Merrill Lynch
Mortgage Capital Inc., Allied Capital Commercial Corporation and
Business Mortgage Investors, Inc.
And
Master Repurchase Agreement between Merrill Lynch Mortgage Capital
Inc. and Allied Capital Commercial Corporation
Dear Tim:
As we discussed, the boards of directors of each of the publicly traded Allied
Capital entities have agreed to merge together. Set forth in the following
paragraphs is a brief summary of the proposed consolidation (the "Merger") of
the Allied Capital entities.
The entities involved in the proposed Merger transaction include Allied Capital
Corporation ("Allied I"), and its three wholly-owned subsidiaries, Allied
Investment Corporation, Allied Capital Financial Corporation and Allied
Development Corporation; Allied Capital Corporation II ("Allied II"), and its
two wholly-owned subsidiaries, Allied Investment Corporation II and Allied
Financial Corporation II; Allied Capital Lending Corporation ("Allied
Lending"), and its two wholly-owned subsidiaries, Allied Capital SBLC
Corporation and Allied Capital Credit Corporation; Allied Capital Commercial
Corporation ("Allied Commercial"), and its three qualified REIT subsidiaries,
ALCC Acceptance Corporation, ALCC Holdings, Inc. and ALCC Equity, Inc.; and
Allied Capital Advisers, Inc. ("Advisers"), and its one wholly owned
subsidiary, Allied Capital Property Corporation.
If the Merger is consummated, each of Allied I, Allied II, Allied Commercial
and Advisers would merge with and into Allied Lending to form an internally
managed investment fund that would operate as a business development company.
It is intended that the Merger will be treated as a tax-free reorganization
under Section 368 (a)(1)(C) of the Internal Revenue Code of 1986, as amended
(the "Code"). Following the Merger, all of the officers and employees of
Advisers will become officers and employees, respectively, of Allied Lending.
<PAGE> 39
[ALLIED CAPITAL LETTERHEAD]
November 6, 1997
Page 2
The Merger would be effected through a conversion of the respective shares of
Allied I, Allied II, Allied Commercial and Advisers into shares of Allied
Lending and would be structured as a "statutory merger" pursuant to Section
3-102 of the General Corporation law of the State of Maryland and the Merger is
contemplated to close on December 31, 1997 for a number of tax and financial
disclosure reasons. The name of the surviving corporation would be changed to
Allied Capital Corporation ("ACC"). Allied Investment Corporation and Allied
Capital Financial Corporation would be wholly-owned subsidiaries of ACC.
Pursuant to Item 11.(e) of ANNEX I - SUPPLEMENTAL TERMS AND CONDITIONS TO MASTER
REPURCHASE AGREEMENT, DATED AS OF MARCH 22,1996, BY AND BETWEEN ALLIED CAPITAL
COMMERCIAL CORPORATION AND MERRILL LYNCH MORTGAGE CAPITAL INC. and the
documents referred to above, the Obligor (Allied Capital Commerical
Corporation) and Co-Obligor (Business Mortgage Investors, Inc.) cannot merge or
consolidate into any entity unless the surviving or resulting entity shell be
acceptable to Merrill Lynch Mortgage Capital Inc. Allied Capital Commerical
Corporation hereby requests that Merrill Lynch Mortgage Capital Inc. consent to
Allied Capital Commercial Corporation merge into Allied Capital Lending
Corporation, and allow Allied Capital Lending Corporation to assume the
performance of all of the Obligor's duties and obligations. Business Mortgage
Investors, Inc. is not merging and will continue to be operated as a
stand-alone company.
The merged entity on a pro forma basis would have approximately $802 million in
total assets and approximately $422 million in shareholders' equity. The pro
forma debt to equity ratio equals 0.85:1; however, this ratio would equal
approximately 0.20:1 by the end of January 31, 1998 due to a planned
securitization of certain commercial mortgages.
I have enclosed a copy of the joint prospectus that has been filed with the
Securities and Exchange Commission for you review that describes the proposed
Merger transaction in detail. If you have any questions on the proposed merger
or our requests, please call me at (202) 331-2430.
Sincerely,
/s/ JON A. DELUCA
Jon A. DeLuca
Principal & Chief Financial Officer
Enclosure
JAD/jvt
Approved: /s/ TIMOTHY M. LOUGHLIN, JR.
----------------------------------------------
TIMOTHY M. LOUGHLIN, JR.
VICE PRESIDENT
<PAGE> 1
Exhibit 10.5
===============================================================================
MASTER LOAN AND SECURITY AGREEMENT
-----------------------
Dated as of August 21, 1997
-----------------------
ALLIED CAPITAL COMMERCIAL CORPORATION,
as a Borrower
and
BUSINESS MORTGAGE INVESTORS, INC.
as a Borrower
Collectively, the Borrowers
and
MORGAN STANLEY MORTGAGE CAPITAL INC.
as Lender
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
RECITALS 1
<S> <C> <C>
SECTION 1. DEFINITIONS AND ACCOUNTING MATTERS ...............................1
1.01 Certain Defined Terms ............................................1
1.02 Accounting Terms and Determinations ..............................8
SECTION 2. LOANS, NOTE AND PREPAYMENTS ......................................8
2.01 Loans ............................................................8
2.02 Notes ............................................................9
2.03 Procedure for Borrowing ..........................................9
2.04 Limitation on Types of Loans; Illegality ........................10
2.05 Repayment of Loans; Interest ....................................11
2.06 Mandatory Prepayments or Pledge .................................11
2.07 Indemnity .......................................................11
SECTION 3. PAYMENTS; COMPUTATIONS; ETC .....................................12
3.01 Payments ........................................................12
3.02 Computations ....................................................12
3.03 Unutilized Credit Fee ...........................................12
SECTION 4. COLLATERAL SECURITY .............................................12
4.01 Collateral; Security Interest ...................................12
4.02 Further Documentation ...........................................13
4.03 Changes in Locations, Name, etc. ................................13
4.04 Lender's Appointment as Attorney-in-Fact ........................14
4.05 Performance by Lender of Borrower's Obligations .................15
4.06 Proceeds ........................................................15
4.07 Remedies ........................................................15
4.08 Limitation on Duties Regarding Presentation of Collateral .......16
4.09 Powers Coupled with an Interest .................................16
4.10 Release of Security Interest ....................................16
SECTION 5. CONDITIONS PRECEDENT ............................................16
5.01 Initial Loan ....................................................16
5.02 Initial and Subsequent Loans ....................................17
SECTION 6. REPRESENTATIONS AND WARRANTIES ..................................18
6.01 Existence .......................................................19
6.02 Financial Condition .............................................19
6.03 Litigation ......................................................19
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
6.04 No Breach .........................................................19
6.05 Action ............................................................19
6.06 Approvals .........................................................20
6.07 Margin Regulations ................................................20
6.08 Taxes .............................................................20
6.09 Investment Company Act ............................................20
6.10 Collateral; Collateral Security ...................................20
6.11 Chief Executive Office ............................................21
6.12 Location of Books and Records .....................................21
6.13 Hedging ...........................................................21
6.14 True and Complete Disclosure ......................................21
6.15 Tangible Net Worth ................................................21
SECTION 7. COVENANTS OF THE BORROWER ....................................21
7.01 Financial Statements ..............................................21
7.02 Litigation ........................................................22
7.03 Existence, etc. ...................................................22
7.04 Prohibition of Fundamental Changes ................................23
7.05 Borrowing Base Deficiency .........................................23
7.06 Notices ...........................................................23
7.07 Hedging ...........................................................23
7.08 Reports ...........................................................24
7.09 Underwriting Guidelines ...........................................24
7.10 Transactions with Affiliates ......................................24
7.11 Limitation on Liens ...............................................24
7.12 Limitation on Distributions .......................................24
7.13 Maintenance of Tangible Net Worth .................................24
7.14 Maintenance of Ratio of Total Indebtedness to Tangible Net Worth ..24
7.15 Maintenance of Profitability ......................................24
7.16 Servicing Tape ....................................................25
7.17 Interest Rate Protection Agreements ...............................25
SECTION 8. EVENTS OF DEFAULT ............................................25
SECTION 9. REMEDIES UPON DEFAULT ........................................26
SECTION 10. NO DUTY OF LENDER ............................................27
SECTION 11. MISCELLANEOUS ................................................27
11.01 Waiver ............................................................27
11.02 Notices ...........................................................27
11.03 Indemnification and Expenses ......................................27
11.04 Amendments ........................................................28
11.05 Successors and Assigns ............................................28
11.06 Survival ..........................................................28
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
11.07 Captions ..........................................................28
11.08 Counterparts ......................................................28
11.09 Loan Agreement Constitutes Security Agreement; Governing Law ......28
11.10 Submission to Jurisdiction; Waivers ...............................28
11.11 Waiver of Jury Trial ..............................................29
11.12 Acknowledgments ...................................................29
11.13 Hypothecation or Pledge of Loans ..................................29
11.14 Servicing .........................................................30
11.15 Periodic Due Diligence Review .....................................31
11.16 Intent ............................................................31
11.17 Joint and Several Liability .......................................31
SCHEDULES
SCHEDULE 1 Representations and Warranties re: Mortgage Loans
SCHEDULE 2 Filing Jurisdictions and Offices
EXHIBITS
EXHIBIT A Form of Promissory Note
EXHIBIT B Form of Custodial Agreement
EXHIBIT C Form of Opinion of Counsel to Borrower
EXHIBIT D Form of Request for Borrowing
EXHIBIT E-1 Form of Borrower's Release Letter
EXHIBIT E-2 Form of Warehouse Lender's Release Letter
EXHIBIT F Underwriting Guidelines
</TABLE>
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<PAGE> 5
MASTER LOAN AND SECURITY AGREEMENT
MASTER LOAN AND SECURITY AGREEMENT, dated as of August 21, 1997, among
ALLIED CAPITAL COMMERCIAL CORPORATION, a Maryland corporation, as a Borrower
and BUSINESS MORTGAGE INVESTORS, INC., a Maryland corporation, as a Borrower
(each a "Borrower" collectively, the "Borrowers") and MORGAN STANLEY MORTGAGE
CAPITAL INC., a Delaware corporation (the "Lender").
RECITALS
Each Borrower has requested that the Lender from time to time make
revolving credit loans to it to finance certain multifamily and commercial
mortgage loans owned by such Borrower, and the Lender is prepared to make such
loans upon the terms and conditions hereof. Accordingly, 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 Loan Agreement in the singular to have the same meanings
when used in the plural and vice versa):
"Affiliate" shall mean, (i) with respect to the Lender, Morgan Stanley
Group Inc. and MS & Co. and (ii) with respect to each Borrower, any
"affiliate" of such Borrower as such term is defined in the United States
Bankruptcy Code in effect from time to time.
"Allied" shall mean Allied Capital Commercial Corporation.
"Applicable Collateral Percentage" shall mean (a) with respect to all
Eligible Mortgage Loans that can be readily deposited in a Standard
Securitization Transaction, 85% to 88%, as determined by the Lender and (b)
with respect to all Eligible Mortgage Loans that are not readily deposited in a
Standard Securitization Transaction, as determined by the Lender on a
case-by-case basis.
"Applicable Margin" shall mean 100 basis points (1%).
"Bailee Agreement" shall mean a Bailee Agreement, among the Borrower, the
Lender and a Settlement Agent, in form and substance acceptable to the Lender.
"Bankruptcy Code" shall mean the United States Bankruptcy Code of 1978, as
amended from time to time.
"Borrower" or "Borrowers" shall have the meaning provided in the heading
hereof.
"Borrowing Base" shall mean the aggregate Collateral Value of all Eligible
Mortgage Loans.
"Borrowing Base Deficiency" shall have the meaning provided in Section
2.06 hereof.
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<PAGE> 6
"Business Day" shall mean any day other than (i) a Saturday or Sunday or
(ii) a day on which the New York Stock Exchange, the Federal Reserve Bank of
New York or the Custodian is authorized or obligated by law or executive order
to be closed.
"Capital Expenditures" shall mean, as to any Person for any period, the
aggregate amount paid or accrued by such Person and its Affiliates for the
rental, lease, purchase (including by way of the acquisition of securities of
any Person), construction or use of any Property during such period, the value
or cost of which, in accordance with GAAP, would appear on such Person's
consolidated balance sheet in the category of property, plant or equipment at
the end of such period.
"Capital Lease Obligations" shall mean, for any Person, all obligations of
such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) Property to the extent such obligations are
required to be classified and accounted for as a capital lease on a balance
sheet of such Person under GAAP, and, for purposes of this Loan Agreement, the
amount of such obligations shall be the capitalized amount thereof, determined
in accordance with GAAP.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Collateral" shall have the meaning provided in Section 4.01(b) hereof.
"Collateral Value" shall mean, with respect to each Mortgage Loan, the
lesser of (a) the Applicable Collateral Percentage of the Market Value of such
Mortgage Loan, and (b) the outstanding principal balance of such Mortgage Loan;
provided, that:
(i) the Collateral Value shall be deemed to be zero with respect to each
Mortgage Loan (1) in respect of which there is a breach of a representation and
warranty set forth on Schedule 1 (assuming each representation and warranty is
made as of the date Collateral Value is determined), (2) in respect of which
there is a delinquency in the payment of principal and/or interest which
continues for a period 60 days or more (without regard to any applicable grace
periods), (3) which remains pledged to the Lender hereunder later than 365 days
after the date on which it is first included in the Collateral, unless otherwise
waived by the Lender, (4) which has been released from the possession of the
Custodian under the Custodial Agreement to the Borrower for a period in excess
of 14 days; or (5) a Wet-Ink Mortgage Loan for which the Custodian has failed to
receive the original Mortgage Loan Documents by 10:00 a.m., New York time on the
fourth Business Day following the applicable Funding Date;
(ii) subject to clause (i)(2) above, the Collateral Value of Mortgage
Loans in respect of which there is a delinquency in the payment of principal
and/or interest which continuous unremedied for a period of 30 days or more may
not exceed 10% of the Maximum Credit; and
(iii) the aggregate Collateral Value of Eligible Mortgage Loans which are
Wet-Ink Mortgage Loans may not exceed $30,000,000, unless otherwise approved by
the Lender in its sole discretion.
"Committed Loan" shall have the meaning assigned thereto in Section
2.01(a) hereof.
"Custodial Agreement" shall mean the Custodial Agreement, dated as of the
date hereof, among the Borrowers, the Custodian and the Lender, substantially
in the form of Exhibit B hereto, as the same shall be modified and supplemented
and in effect from time to time.
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<PAGE> 7
"Custodian" shall mean LaSalle National Bank, as custodian under the
Custodial Agreement, and its successors and permitted assigns thereunder.
"Default" shall mean an Event of Default or an event that with notice or
lapse of time or both would become an Event of Default.
"Dollars" and "$" shall mean lawful money of the United States of America.
"Due Diligence Fee" shall have the meaning provided in Section 5.01(h)
hereof.
"Due Diligence Review" shall mean the performance by the Lender of any or
all of the reviews permitted under Section 11.15 hereof with respect to any or
all of the Mortgage Loans, as desired by the Lender from time to time.
"Effective date" shall mean the date upon which the conditions precedent
forth in Section 5.01 shall have been satisfied.
"Eligible Mortgage Loans" shall mean the collective reference to (a) any
Mortgage Loan secured by a first mortgage lien on a retail, office, hotel or
other commercial property and (b) any Mortgage Loan secured by a first mortgage
lien on a five-or-more family residential property; provided, however, that, in
each case, with respect to each Mortgage Loan either (A) (i) the
representations and warranties in Section 6.10 and Part I of Schedule 1 hereof
are correct in all material respects (ii) each Mortgage Loan is underwritten in
accordance with the Borrowers' Underwriting Guidelines and (iii) each Mortgage
Loan is eligible for inclusion in a Standard Securitized Transaction or (B)
each Mortgage Loan is otherwise expressly approved as an Eligible Mortgage Loan
by the Lender in writing.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" shall mean any corporation or trade or business that is
a member of any group of organizations (i) described in Section 414(b) or (c)
of the Code of which either Borrower is a member and (ii) solely for purposes
of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11)
of the Code and the lien created under Section 302(f) of ERISA and Section
412(n) of the Code, described in Section 414(m) or (o) of the Code of which
either Borrower is a member.
"Eurodollar Rate" shall mean with respect to each day during each Interest
Period pertaining to such Loan, the rate per annum equal to the rate appearing
at page 5 of the Telerate Screen, on the first day of such Interest Period, for
the one-month term, as applicable, corresponding to such Interest Period, and
if such rate shall not be so quoted, the rate per annum at which the Lender is
offered Dollar deposits at or about 10:00 A.M., New York City time, on the
first day of such Interest Period, by prime banks in the interbank eurodollar
market where the eurodollar and foreign currency and exchange operations in
respect of its Loans are then being conducted for delivery 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 Loans to be outstanding during such Interest
Period.
"Federal Funds Rate" shall mean, for any day, 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 on 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
-3-
<PAGE> 8
quotations for the day of such transactions received by the Lender from three
federal funds brokers of recognized standing selected by it.
"Funding Date" shall mean the 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.
"Governmental Authority" shall mean any nation or government, any state or
other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government and any court or arbitrator having jurisdiction over either
Borrower, any of its Subsidiaries or any of its properties.
"Guarantee" shall mean, as to any Person, any obligation of such Person
directly or indirectly guaranteeing any Indebtedness of any other Person or in
any manner providing for the payment of any Indebtedness of any other Person or
otherwise protecting the holder of such Indebtedness against loss (whether by
virtue of partnership arrangements, by agreement to keep-well, to purchase
assets, goods, securities or services, or to take-or-pay or otherwise);
provided that the term "Guarantee" shall not include (i) endorsements for
collection or deposit in the ordinary course of business, or (ii) obligations
to make servicing advances for delinquent taxes and insurance or other
obligations in respect of a Mortgaged Property, to the extent required by the
Lender. The amount of any Guarantee of a Person shall be deemed to be an amount
equal to the stated or determinable amount of the primary obligation in respect
of which such Guarantee is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof as determined by such
Person in good faith. The terms "Guarantee" and "Guaranteed" used as verbs
shall have correlative meanings.
"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, other than the respective
Indebtedness so secured that has not been assumed by such Person; (d)
obligations (contingent or otherwise) 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) Capital Lease Obligations of such
Person; (f) obligations of such Person under repurchase agreements or like
arrangements; (g) Indebtedness of other Guaranteed by such Person; (h) all
obligations of such Person incurred in connection with the acquisition or
carrying of fixed assets by such Person; and (i) Indebtedness of general
partnerships of which such Person is a general partner.
"Interest Period" shall mean, with respect to any Loan, (a) initially, the
period commencing on the applicable Funding Date to but excluding the first
Payment Date; and (b) thereafter, each period commencing on a Payment Date to
but excluding the next Payment Date; provided that, notwithstanding the
foregoing, (i) an Interest Period may be for a term of fewer days as mutually
agreed upon between the Borrower and the Lender and (ii) no Interest Period may
end after the Termination Date.
-4-
<PAGE> 9
"Interest Rate Protection Agreement" shall mean, any interest rate swap,
cap or collar agreement or similar arrangements providing for protection against
fluctuations in interest rates or the exchange of nominal interest obligations,
either generally or under specific contingencies, entered into by either
Borrower and reasonably acceptable to the Lender.
"Lender" shall have the meaning provided in the heading hereto.
"Lien" shall mean any mortgage, lien, pledge, charge, security interest or
similar encumbrance.
"Loan" shall mean any Committed Loan or Uncommitted Loan, as applicable,
and collectively "Loans" shall mean the sum of all Committed Loans and
Uncommitted Loans.
"Loan Agreement" shall mean this Master Loan and Security Agreement, as
the same may be amended, supplemented or otherwise modified from time to time.
"Loan Documents" shall mean, collectively, this Loan Agreement, the Note
and the Custodial Agreement.
"Market Value" shall mean, as of any date in respect of an Eligible
Mortgage Loan, the price at which such Eligible Mortgage Loan could readily be
sold as determined in good faith by the Lender, which price may be determined
to be zero. The Lender's determination of Market Value shall be conclusive upon
the parties absent manifest error on the part of the Lender.
"Material Adverse Effect" shall mean a material adverse effect on (a) the
Property, business, operations, financial condition or prospects of either
Borrower, (b) the ability of either Borrower to perform its obligations under
any of the Loan Documents to which it is a party, (c) the validity or
enforceability of any of the Loan Documents, (d) the rights and remedies of the
Lender under any of the Loan Documents, (e) the timely payment of the principal
of or interest on the Loans or other amounts payable in connection therewith or
(f) the Collateral.
"Maximum Committed Amount" shall mean $100,000,000.
"Maximum Credit" shall mean the sum of the Maximum Committed Amount and
the Maximum Uncommitted Amount, which shall equal $250,000,000.
"Maximum Uncommitted Amount" shall mean $150,000,000.
"Mortgage" shall mean the mortgage, deed of trust or other instrument
securing a Mortgage Note, which creates a first lien on the fee in real
property securing the Mortgage Note and the assignment of rents and leases
related thereto.
"Mortgage File" shall have the meaning assigned thereto in the Custodial
Agreement.
"Mortgage Loan" shall mean a mortgage loan which the Custodian has been
instructed to hold for the Lender pursuant to the Custodial Agreement, and
which Mortgage Loan includes, without limitation, (i) a Mortgage Note and
related Mortgage and (ii) all right, title and interest of the Borrower in and
to the Mortgaged Property covered by such Mortgage.
-5-
<PAGE> 10
"Mortgage Loan Documents" shall mean, with respect to a Mortgage Loan, the
documents comprising the Mortgage File for such Mortgage Loan.
"Mortgage Loan Schedule" shall have the meaning assigned thereto in the
Custodial Agreement.
"Mortgage Loan Schedule and Exception Report" shall mean the mortgage loan
schedule and exception report prepared by the Custodian pursuant to the
Custodial Agreement.
"Mortgage Loan Tape" shall mean a computer-readable magnetic tape with
respect to each Mortgage Loan, to be delivered by each Borrower to the Lender
pursuant to Section 2.03(a) hereof, containing tape fields as shall be mutually
agreed upon by each Borrower and the Lender.
"Mortgage Note" shall mean the original executed promissory note or other
evidence of the indebtedness of a mortgagor/borrower with respect to a Mortgage
Loan.
"Mortgaged Property" shall mean the 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 all other collateral securing repayment of the
debt evidenced by a Mortgage Note.
"Mortgagor" shall mean the obligor on a Mortgage Note.
"MS & Co." shall mean Morgan Stanley & Co. Incorporated, a registered
broker-dealer.
"Multiemployer Plan" shall mean a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been or are required to be
made by either Borrower or any ERISA Affiliate and that is covered by Title IV
of ERISA.
"Net Income" shall mean, for any period, the net income of each Borrower
for such period as determined in accordance with GAAP.
"Note" shall mean the promissory note provided for by Section 2.02(a)
hereof for Loans and any promissory note delivered in substitution or exchange
therefor, in each case as the same shall be modified and supplemented and in
effect from time to time.
"Payment Date" shall mean (a) the first Business day of each calendar
month, commencing with the first Business Day of the month following the month
in which the first Funding Date occurs, and (b) the Termination Date.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" shall mean any individual, corporation, company, voluntary
association, partnership, joint venture, limited liability company, trust,
unincorporated association or government (or any agency), instrumentality or
political subdivision thereof).
"Plan" shall mean an employee benefit or other plan established or
maintained by the Borrower or any ERISA Affiliate and covered by Title IV of
ERISA, other than a Multiemployer Plan.
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<PAGE> 11
"Post-Default Rate" shall mean, in respect of any principal of any Loan or
any other amount under this Loan Agreement, the Note or any other Loan Document
that is not paid when due to the Lender (whether at stated maturity, by
acceleration, by optional or mandatory prepayment or otherwise), a rate per
annum during the period from and including the due date to but excluding the
date on which such amount is paid in full equal to 2% per annum plus the Prime
Rate.
"Prime Rate" shall mean the prime rate announced to be in effect from time
to time, as published as the average rate in The Wall Street Journal.
"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.
"Regulation G,T,U and X" shall mean Regulations G,T,U and X of the Board of
Governors of the Federal Reserve System (or any successor), as the same may be
modified and supplemented and in effect from time to time.
"Responsible Officer" shall mean, as to any Person, the chief executive
officer or managing director or with respect to financial matters, the chief
financial officer of such Person.
"Secured Obligations" shall have the meaning provided in Section 4.01(c)
hereof.
"Servicer" shall have the meaning provided in Section 11.14(c) hereof.
"Servicing Agreement" shall have the meaning provided in Section 11.14(c)
hereof.
"Servicing Records" shall have the meaning provided in Section 11.14(b)
hereof.
"Settlement Agent" shall mean, with respect to any Loan, the entity
approved by the Lender, in its sole good-faith discretion (which may be a title
company, escrow company or attorney in accordance with local law and practice in
the jurisdiction where the related Wet-Ink Mortgage Loan is being originated) to
which the proceeds of such Loan are to be wired pursuant to the instructions of
the Lender.
"Standard Securitization Transaction" shall mean a securitization
transaction baked by Mortgage loans underwritten or placed on behalf of either
Borrower which transaction has received an investment grade rating from any
nationally-recognized rating agency and otherwise conforms to the current
standards of institutional securitization applicable to mortgage loans
substantially similar in nature to the Mortgage Loans.
"Subsidiary" shall mean, with respect to any Person, any corporation,
partnership or other entity of which at least a majority of the securities or
other ownership interests having by the terms thereof ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions of such corporation, partnership or other entity (irrespective of
whether or not at the time securities or other ownership interests of any other
class or classes of such corporation, partnership or other entity shall have or
might have voting power by reason of the happening of any contingency) is at the
time directly or indirectly owned or controlled by such Person or one or more
Subsidiaries of such Person or by such Person and one or more Subsidiaries of
such Person.
<PAGE> 12
"Tangible Net Worth" shall mean, as of particular date,
(a) all amounts which would be included under capital on a balance sheet
of either Borrower at such date, determined in accordance with GAAP,
less
(b) (i) amounts owing to such Borrower from Affiliates in excess of
$10,000,000 in the aggregate and (ii) intangible assets.
"Termination Date" shall mean August 21, 1998 or such earlier date on which
this Loan Agreement shall terminate in accordance with the provisions hereof or
by operation of law.
"Test Period" shall have the meaning provided in Section 7.15 hereof.
"Total Indebtedness" shall mean, for any period, the aggregate
Indebtedness of the Borrower during such period less the amount of any
nonspecific balance sheet reserves maintained in accordance with GAAP.
"Uncommitted Loan" shall have the meaning assigned thereto in Section
2.01(b) hereof.
"Underwriting Guidelines" shall mean the underwriting guidelines attached
as Exhibit E hereto.
"Uniform Commercial Code" shall mean the Uniform Commercial Code as in
effect on the date hereof in the State of New York; provided that if by reason
of mandatory provisions of law, the perfection or the effect of perfection or
non-perfection of the security interest in any Collateral is governed by the
Uniform Commercial Code as in effect in a jurisdiction other than New York,
"Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect in
such other jurisdiction for purposes of the provisions hereof relating to such
perfection or effect of perfection or non-perfection.
"Wet-Ink Mortgage Loan" shall mean a Mortgage Loan which is pledged to the
Lender simultaneously with the origination thereof by either Borrower, which
origination is financed in part or in whole with proceeds of Loans advanced
directly to a Settlement Agent and which Wet-Ink Mortgage Loan is held by the
Settlement Agent pursuant to a Bailee Agreement.
102. Accounting Terms and Determinations. Except as otherwise expressly
provided herein, all accounting terms used herein shall be interpreted, and all
financial statements and certificates and reports as to financial matters
required to be delivered to the Lender hereunder shall be prepared, in
accordance with GAAP.
Section 2. Loans, Note and Prepayments.
2.01 Loans.
(a) Subject to the fulfillment of the conditions precedent set forth in
Sections 5.01 and 5.02 hereof, and provided that no Default shall have occurred
and be continuing hereunder, the Lender agrees, from time to time, on the terms
and conditions of this Loan Agreement, to make loans (individually, a "Committed
Loan" and, collectively, the "Committed Loans") to the Borrower in Dollars, from
and including the Effective Date to and including the Termination Date in an
aggregate
<PAGE> 13
principal amount at any one time outstanding up to but not exceeding the
Maximum Committed Amount as in effect from time to time. To the extent that a
Mortgage Loan is an Eligible Loan solely as a result of clause (B) of the
definition thereof, the Lender may make Loans secured by such Eligible Mortgage
Loans, in its sole discretion and on an uncommitted basis.
(b) In addition to the foregoing, the Lender may from time to time in
its sole discretion, on the terms and conditions of this Loan Agreement, make
loans (individually, an "Uncommitted Loan"; collectively, the "Uncommitted
Loans") to the Borrower in Dollars during the period from and including the
Effective Date to and including the Termination Date in an aggregate principal
amount at any one time outstanding up to but not exceeding the Maximum
Uncommitted Amount as in effect from time to time. In determining whether Loans
outstanding secured by Eligible Mortgage Loans are Committed Loans or
Uncommitted Loans, such Loans shall first be deemed Committed Loans up to the
Maximum Committed Amount, and then the remainder shall be deemed Uncommitted
Loans.
(c) Subject to the terms and conditions of this loan Agreement, during
such period the Borrower may borrow, repay and reborrow hereunder.
(d) In no event shall a Loan be made when any Default or Event
of Default has occurred and is continuing.
2.02 Notes.
(a) The Loans made by the Lenders shall be evidenced by a single
promissory note of the Borrowers substantially in the form of Exhibit A hereto
(the "Note"), dated the date hereof, payable to the Lender in a principal
amount equal to the amount of the Maximum Credit as originally in effect and
otherwise duly completed. The Lender shall have the right to have its Note
subdivided, by exchange for promissory notes of lesser denominations or
otherwise.
(b) The date, amount and interest rate of each Loan made by the Lender
to the Borrowers, and each payment made on account of the principal thereof,
shall be recorded by the Lender on its books and, prior to any transfer of the
Note, endorsed by the Lender on the schedule attached to the Note or any
continuation thereof; provided that the failure of the Lender to make any such
recordation or endorsement shall not affect the obligations of the Borrowers to
make payment when due of any amount owing hereunder, or under the Note in
Respect of the Loans.
2.03 Procedure for Borrowing.
(a) The Borrowers may request a borrowing hereunder, on any Business
Day during the period from and including the Effective Date to and including
the Termination Date, by delivering to the Lender, with a copy to the
Custodian, an irrevocable written request for borrowing, substantially in the
form of Exhibit D attached hereto, which request must be received by the Lender
prior to 11:00 a.m. New York City time, one (1) Business Day prior to the
requested Funding Date. Such request for borrowing shall (i) attach a schedule
identifying the Eligible Mortgage Loans that the Borrower proposes to pledge to
the Lender and to be included in the Borrowing Base in connection with such
borrowing, (ii) specify the requested Funding Date and the requested Loan
amount, (iii) include a Mortgage Loan Tape containing information with respect
to the Eligible Mortgage Loans that the applicable Borrower proposes to pledge
to the Lender and to be included in the Borrowing Base in
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connection with such borrowing, and (iv) attach an officer's certificate signed
by a Responsible Officer of the respective Borrower as required by Section
5.02(b) hereof.
(b) Upon the Borrower's request for a borrowing pursuant to Section
2.03(a), the Lender shall, assuming all conditions precedent set forth in
Section 5.01 and 5.02 have been met and provided no Default shall have occurred
and be continuing, make a Committed Loan to the Borrower on the requested
Funding Date, in the amount so requested.
(c) Upon the Borrower's request for a borrowing pursuant to Section
2.03(a), the Lender may at its sole option, assuming all conditions precedent
set forth in Section 5.01 and 5.02 have been met and provided no Default shall
have occurred and be continuing, make an Uncommitted Loan to the Borrower on the
requested Funding Date, in the amount so requested.
(d) The requesting Borrower shall release to the Custodian no later
than 12:00 p.m., New York time, one (1) Business Day prior to the requested
Funding Date, the Mortgage File pertaining to each Eligible Mortgage Loan to be
pledged to the Lender and included in the Borrower Base on such requested
Funding Date, in accordance with terms and conditions of the Custodial
Agreement.
(e) Pursuant to the Custodial Agreement, the Custodian shall deliver
to the Lender and the Borrowers, no later than 11:00 a.m. on a Funding Date, a
Trust Receipt (as defined in the Custodial Agreement) in respect of all
Eligible Mortgage Loans (other than a Wet-Ink Mortgage Loan) pledged to the
Lender on such Funding Date, and a Mortgage Loan Schedule and Exception Report.
Subject to Section 5 hereof, such borrowing will then be made available to the
Borrowers by the Lender transferring, via wire transfer, with respect to Loans
secured by Mortgage Loans other than Wet-Ink Mortgage Loans, to the following
account of the Borrowers: Nationsbank ABA 052-001633 Acct# 393-340-6260, and,
with respect to Loans secured by Wet-Ink Mortgage Loans, to the Settlement
Agent in accordance with the Borrower's instructions.
2.04 Limitation on Types of Loans; Illegality. Anything herein to the
contrary notwithstanding, if, on or prior to determination of any Eurodollar
Rate:
(a) the Lender determines, which determination shall be conclusive,
that quotations of interest rates for the relevant deposits referred to in the
definition of "Eurodollar Rate" in Section 1.01 hereof are not being provided
in the relevant amounts or for the relevant maturities for purposes of
determining rates of interest for Loans as provided herein; or
(b) the Lender determines, which determination shall be conclusive,
that the relevant rate of interest referred to in the definition of
"Eurodollar Rate" in Section 1.01 hereof upon the basis of which the rate of
interest for Loans is to be determined is not likely adequately to cover the
cost to the Lender of making or maintaining Loans; or
(c) it becomes unlawful for the Lender to honor its obligation to make
or maintain Loans hereunder using a Eurodollar Rate;
then the Lender shall give the Borrowers prompt notice thereof and, so
long as such condition remains in effect, the Lender shall be under no
obligation to make additional Loans (provided that the Borrowers and the Lender
will use their best efforts to mutually agree upon an interest rate for future
Loans, and upon such agreement, the Lender shall be obligated to make such
additional Loans
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<PAGE> 15
hereunder bearing such interest rate), and the Borrowers shall at Borrowers'
option, either prepay all such Loans as may be outstanding, without penalty or
premium, or pay interest on such Loans at a rate per annum equal to the Federal
Funds Rate plus 1.5%.
2.05 Repayment of Loans; Interest.
(a) The Borrowers hereby promise to repay in full on the Termination Date
the then aggregate outstanding principal amount of the Loans. Prepayment on one
or more of the Mortgage Loans may occur at any time and from time to time
without penalty or premium.
(b) The Borrowers hereby promise to pay to the Lender interest on the
unpaid principal amount of each Loan for the period from and 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 Eurodollar Rate plus the Applicable Margin.
Notwithstanding the foregoing, the Borrowers hereby promise to pay to the
Lender interest at the applicable Post-Default Rate on any principal of any
Loan and on any other amount payable by the Borrowers hereunder or under the
Note that shall not be paid in full when due (whether at stated maturity, by
acceleration or by mandatory prepayment or otherwise) for the period from and
including the due date thereof to but excluding the date the same is paid in
full. Accrued interest on each Loan shall be payable on each Payment Date,
except that interest payable at the Post-Default Rate shall be payable upon
such accrual. Promptly after the determination of any interest rate provided
for herein or any change therein, the Lender shall give notice thereof to the
Borrowers.
(c) It is understood and agreed that, unless and until a Default shall
have occurred and be continuing, the Borrowers shall be entitled to the
proceeds of the Mortgage Loans, including interest and principal payments
thereunder and proceeds from the sale thereof, pledged to the Lender hereunder.
2.06 Mandatory Prepayments or Pledge.
If at any time the aggregate outstanding principal amount of Loans
exceeds the Borrowing Base (a "Borrowing Base Deficiency"), as determined by
the Lender and notified to the Borrowers on any Business Day, the Borrowers
shall no later than one (1) Business Day after receipt of such notice, either
prepay the Loans in part or in whole or pledge additional Eligible Mortgage
Loans (which Collateral shall be in all respects acceptable to the Lender) to
the Lender, such that after giving effect to such prepayment or pledge the
aggregate outstanding principal amount of the Loans does not exceed the
Borrowing Base.
2.07 Indemnity. If either Borrower makes a prepayment of the Loans on any
day which is not a Payment Date, the Borrower shall indemnify the Lender and
hold the Lender harmless from any actual loss or expense which the Lender may
sustain or incur arising from the reemployment of funds obtained by the Lender
to maintain the Loans hereunder or from fees payable to terminate the deposits
from which such funds were obtained. This Section 2.07 shall survive termination
of this Agreement and payment of the Note.
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<PAGE> 16
Section 3. Payments: Computations; Etc.
3.01 Payments.
(a) Except to the extent otherwise provided herein, all payments of
principal, interest and other amounts to be made by the Borrowers under this
Loan Agreement and the Note, shall be made in Dollars, in immediately available
funds, without deduction, set-off or counterclaim, to the Lender at the
following account maintained by the Lender: Account No. 40615114, for the A/C
of MSMCI, Citibank, N.A., ABA #021000089, not later than 1:00 p.m., New York
City time, on the date on which such payment shall become due (and each such
payment made after such time on such due date shall be deemed to have been made
on the next succeeding Business Day). The Borrowers acknowledge that it has no
rights of withdrawal from the foregoing account.
(b) Except to the extent otherwise expressly provided herein, if the due
date of any payment under this Loan Agreement or the Note 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.
3.02 Computations. Interest on the Loans shall be computed on the basis of
a 360-day year for the actual days elapsed (including the first day but not
excluding the last day) occurring in the period for which payable.
3.03 Unutilized Credit Fee. The Borrowers agree to pay to the Lender a
commitment fee from and including the Effective Date to the Termination Date,
computed at the rate of 15 basis points (0.15%) per annum on the average daily
amount of the unutilized portion of the Maximum Committed Amount during the
period for which payment is made, in each case payable quarterly in arrears on
the last day of each September, December, March and June and on the Termination
Date, commencing on September 30, 1997; provided that in the event that the
Lender is no longer obligated to make Loans hereunder pursuant to Section
5.02(g) hereof (the date of such event, the "Commitment Termination Date"),
then the Borrower shall not be required to pay any Commitment Fee accruing from
the Commitment Termination Date.
Section 4. Collateral Security.
4.01 Collateral; Security Interest.
(a) Pursuant to the Custodial Agreement, the Custodian shall hold the
Mortgage Loan Documents as exclusive bailee and agent for the Lender pursuant
to terms of the Custodial Agreement and shall deliver to the Lender Trust
Receipts (as defined in the Custodial Agreement) each to the effect that it has
reviewed such Mortgage Loan Documents in the manner and to the extent required
by the Custodial Agreement and identifying any deficiencies in such Mortgage
Loan Documents as so reviewed.
(b) All of each Borrower's right, title and interest in, to and under
each of the following items of property, whether now owned or hereafter
acquired, now existing or hereafter created and wherever located, is
hereinafter referred to as the "Collateral";
(i) all Mortgage Loans;
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<PAGE> 17
(ii) all Mortgage Loan Documents, including without limitation
all promissory notes, and all Servicing Records (as defined in Section
11.14(b) below), servicing agreements and any other collateral pledged
or otherwise relating to such Mortgage Loans, together with all files,
documents, instruments, surveys, certificates, correspondence,
appraisals, computer programs, computer storage media, accounting
records and other books and records relating thereto;
(iii) all mortgage guaranties and insurance (issued by
governmental agencies or otherwise) and any mortgage insurance
certificate or other document evidencing such mortgage guaranties or
insurance relating to any Mortgage Loan and all claims and payments
thereunder;
(iv) all other insurance policies and insurance proceeds
relating to any Mortgage Loan or the related Mortgaged Property;
(v) all "general intangibles" as defined in the Uniform
Commercial Code relating to or constituting any and all of the
foregoing; and
(vi) any and all replacements, substitutions, distributions on
or proceeds of any and all of the foregoing.
(c) Each Borrower hereby assigns, pledges and grants a
security interest in all of its right,title and interest in, to and under the
Collateral to the Lender to secure the repayment of principal of and interest
on all Loans and all other amounts owing to the Lender hereunder, under the Note
and under the other Loan Documents (collectively, the "Secured Obligations").
Each Borrower agrees to mark its computer records and tapes to evidence the
interests granted to the Lender hereunder.
4.02 Further Documentation. At any time and from time to time,
upon the written request of the Lender, and at the sole expense of the
Borrowers, the Borrowers will promptly and duly execute and deliver, or will
promptly cause to be executed and delivered, such further instruments and
documents and take such further action as the Lender may reasonably request for
the purpose of obtaining or preserving the full benefits of this Loan 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.
Each Borrower also hereby authorizes the Lender to file any such financing or
continuation statement without the signature of Borrower to the extent permitted
by applicable law. A carbon, photographic or other reproduction of this Loan
Agreement shall be sufficient as a financing statement for filing in any
jurisdiction.
4.03 Changes in Locations, Name, etc. No Borrower shall (a)
change the location of its chief executive office/chief place of business from
that specified in Section 6 hereof or (b) change its name, identity or
corporate structure (or the equivalent) or change the location where it
maintains its record with respect to the Collateral unless it shall have given
the Lender at least 30 days prior written notice thereof and shall have
delivered to the Lender all Uniform Commercial Code financing statements and
amendments thereto as the Lender shall request and taken all other actions
deemed necessary by the Lender to continue its perfected status in the
Collateral with the same or better priority.
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<PAGE> 18
4.04 Lender's Appointment as Attorney-in-Fact.
(a) Each Borrower hereby irrevocably constitutes and appoints
the Lender 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 such Borrower and in the name of such Borrower or in
its own name, from time to time during the continuance of an Event of Default in
the Lender's discretion, for the purpose of carrying out the terms of this Loan
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 Loan Agreement, and, without limiting the generality of the
foregoing, each Borrower hereby gives the Lender the power and right, on behalf
of the Borrower, without assent by, but with notice to, such Borrower, if an
Event of Default shall have occurred and be continuing, to do the following:
(i) in the name of such 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 mortgage insurance or with respect to
any 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 Lender for the purpose of collecting any and all
such moneys due under any such mortgage insurance 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) (A) to direct any party liable for any payment any
Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Lender or as the Lender shall direct; (B)
to ask or demand for, collect, receive payment of and receipt for, 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 such
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 Lender may deem appropriate; and (G) 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 Lender
were absolute owner thereof for all purposes, and to do, and the
Lender's option and such Borrowers' expense, at any time, and from time
to time, all acts and things which the Lender deems necessary to
protect, preserve or realize upon the Collateral and the Lender's
Liens thereon and to effect the intent of this Loan Agreement, all as
fully and effectively as such 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) The Borrowers also authorizes the Lender, at any time and
from time to time, to execute, in connection with any sale provided for in
Section 4.07 hereof, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral.
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<PAGE> 19
(c) The powers conferred on the Lender are solely to protect the Lender's
interests in the Collateral and shall not impose any duty upon the Lender to
exercise any such powers. The Lender shall be accountable only for amounts that
it actually receives as a result of the exercise of such powers, and neither the
Lender nor any of its officers, directors, or employees shall be responsible to
either Borrower for any act or failure to act hereunder, except for its own
gross negligence or willful misconduct.
4.05 Performance by Lender of Borrowers' Obligations. If either Borrower
fails to perform or comply with any of its agreements contained in the Loan
Documents, upon ten (10) days prior to notice to such Borrower and the Lender
may itself perform or comply, or otherwise cause performance or compliance, with
such agreement, the expenses of the Lender incurred in connection with such
performance or compliance, together with interest thereon at a rate per annum
equal to the Post-Default Rate, shall be payable, subject to Section 11.17
hereof, by the Borrowers to the Lender on demand and shall constitute Secured
Obligations.
4.06 Proceeds. If an Event of Default shall occur and be continuing, (a)
all proceeds of Collateral received by either Borrower consisting of cash,
checks and other near-cash items shall be held by such Borrower in trust for the
Lender, segregated from other funds of such Borrower, and shall forthwith upon
receipt by such Borrower be turned over to the Lender in the exact form received
by the Borrower (duly endorsed by such Borrower to the Lender, if required) and
(b) any and all such proceeds received by the Lender (whether from a Borrower or
otherwise) may, in the sole discretion of the Lender, be held by the Lender as
collateral security for, and/or then or at any item thereafter may be applied by
the Lender against, the Secured Obligations (whether matured or unmatured), such
application to be in such order as the Lender shall elect. Any balance of such
proceeds remaining after the Secured Obligations shall have been paid in full
and this Loan Agreement shall have been terminated shall be paid over to the
Borrowers or to whomsoever may be lawfully entitled to receive the same. For
purposes hereof, proceeds shall include, but not be limited to, all principal
and interest payments, all prepayments and payoffs, insurance claims,
condemnation awards, sale proceeds, real estate owned rents and any other income
and all other amounts received with respect to the Collateral.
4.07 Remedies. If an Event of Default shall occur and be continuing, the
Lender may exercise, in addition to all other rights and remedies granted to it
in this Loan Agreement 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 Lender 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 Borrowers or any other Person
(each and all of which demands, presentments, protests, 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 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
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 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 Borrowers, which right or
equity is hereby waived or released. The Borrowers further agree, at the
Lender's request, to assemble the Collateral and make it available to the Lender
at places which the Lender shall reasonably select, whether at the Borrowers'
premises or elsewhere. The
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<PAGE> 20
Lender shall apply the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, after deducting all reasonable costs and
expenses 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 Lender
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 Lender may elect, and only after such application and after
the payment by the Lender 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 Lender account for the surplus, if any, to the
Borrowers. To the extent permitted by applicable law, the Borrowers waive all
claims, damages and demands they may acquire against the Lender arising out of
the exercise by the Lender of any of its rights hereunder, other than those
claims, damages and demands arising from the gross negligence or willful
misconduct of the Lender. 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
Borrowers shall remain liable for any deficiency (plus accrued interest thereon
as contemplated pursuant to Section 2.05(b) hereof) if the proceeds of any sale
or other disposition of the Collateral are insufficient to pay the Secured
Obligations and fees and disbursements of any attorneys employed by the Lender
to collect such deficiency
4.08. Limitation on Duties Regarding Presentation of Collateral. The
Lender's 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 to deal with it in the same manner as the
Lender deals with similar property for its own account. Neither the Lender nor
any of its directors, officers or employees 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 either Borrower or otherwise.
4.09. Powers Coupled with an Interest. All authorizations and agencies
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.
4.10 Release of Security Interest. Upon termination of this Loan Agreement
and repayment to the Lender of all Secured Obligations and the performance of
all obligations under the Loan Documents the Lender shall release its security
interest in any remaining Collateral.
Section 5. Conditions Precedent.
5.01 Initial Loan. The obligation of the Lender to make its initial Loan
hereunder is subject to the satisfaction, immediately prior to or concurrently
with the making of such Loan, of the condition precedent that the Lender shall
have received all of the following, each of which shall be reasonably
satisfactory to the Lender and its counsel in form and substance:
(a) Loan Documents.
(i) Note. The Note, duly completed and executed;
(ii) Custodial Agreement. The Custodial Agreement, duly executed and
delivered by the Borrower and the Custodian. In addition, the Borrower shall
have taken such other action as the Lender shall have requested in order to
perfect the security interests created pursuant to the Loan Agreement;
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(b) Organizational Documents. A good standing certificate and certified
copies of the charter and by-laws (or equivalent documents) of each Borrower
and of all corporate or other authority for each Borrower with respect to the
execution, delivery and performance of the Loan Documents and each other
document to be delivered by each Borrower from time to time in connection
herewith (and the Lender may conclusively rely on such certificate until it
receives notice in writing from each Borrower to the contrary);
(c) Legal Opinion. A legal opinion of counsel to the Borrowers,
substantially in the form attached hereto as Exhibit C;
(d) Mortgage Loan Schedule and Exception Report. A Mortgage Loan Schedule
and Exception Report, dated the Effective Date, from the Custodian, duly
completed;
(e) Servicing Agreement(s). Any Servicing Agreement, certified as a true,
correct and complete copy of the original, with the letter of the applicable
Servicer consenting to termination of such Servicing Agreement upon the
occurrence of an Event of Default attached; and
(f) Securitization Letter. A letter agreement between the Borrowers and
MS & Co. granting MS & Co. the option to act as underwriter or placement agent,
subject to the terms set forth therein, in connection with any debt or equity
offering made by the Borrowers with respect to the Mortgage Loans, duly
executed and delivered by the Borrowers and MS & Co.;
(g) Other Documents. Such other documents as the Lender may reasonably
request.
(h) Due Diligence Fee. The Borrower shall have paid to the Lender a
one-time due diligence fee (the "Due Diligence Fee") equal to $50,000 to be
paid by wire transfer to the Lender at the account set forth in Section 3.01(a)
hereof.
5.02 Initial and Subsequent Loans. The making of each Loan to the
Borrowers (including the initial Loan) on any Business Day is subject to the
satisfaction of the following further conditions precedent, 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) both immediately prior to the making of such Loan and also after
giving effect thereto and to the intended use thereof, the representations and
warranties made by the Borrowers in Section 6 hereof, and elsewhere in each of
the Loan Documents, shall be true and complete on and as of the date of the
making of such Loan in all material respects (in the case of the
representations and warranties in Section 6.10 and Schedule 1, solely with
respect to Mortgage Loans included in the Borrowing Base) 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). The Lender shall have received an officer's certificate
signed by a Responsible Officer of each Borrower certifying as to the truth and
accuracy of the above, which certificate shall specifically include a statement
that such
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Borrower is in compliance with all governmental licenses and
authorizations and is qualified to do business and in good standing in all
required jurisdictions.
(c) the aggregate outstanding principal amount of the Loans
shall not exceed the Borrowing Base;
(d) subject to the Lender's right to perform one or more Due
Diligence Reviews pursuant to Section 11.15 hereof, the Lender shall
have completed its due diligence review of the Mortgage Loan Documents
for each Loan and such other documents, records, agreements,
instruments, mortgaged properties or information relating to such Loans
as the Lender in its sole discretion deems appropriate to review and
such review shall be satisfactory to the Lender in its sole discretion;
(e) the Lender shall have received from the Custodian a Trust
Receipt with exceptions as are acceptable to the Lender in its sole
discretion in respect of Eligible Mortgage Loans to be pledged
hereunder on such Business Day and a Mortgage Loan Schedule and
Exception Report, in each case dated such Business Day and duly
completed;
(f) the Lender shall have received from the Borrower a
Warehouse Lender's Release Letter substantially in the form of Exhibit
E-2 hereto (or such other form acceptable to the Lender) or a Seller's
Release Letter substantially in the form of Exhibit E-1 hereto (or such
other form acceptable to the Lender) covering each Mortgage Loan to be
pledged to the Lender;
(g) none of the following shall have occurred and/or be
continuing:
(i) an event or events hall have occurred resulting in the
effective absence of a "repo market" or comparable "lending market" for
financing debt obligations secured by mortgage loans or securities for
a period of (or reasonably expected to be) at least 30 consecutive days
or an event or events shall have occurred resulting in the Lender not
being able to finance any Mortgage Loans through the "repo market" or
"lending market" with traditional counterparties at rates which would
have been reasonable prior to the occurrence of such event or events;
(ii) an event or events shall have occurred resulting in the
effective absence of a "securities market" for securities backed by
mortgage loans for a period of (or reasonably expected to be) at least
30 consecutive days or an event or events shall have occurred resulting
in the Lender not being able to sell securities backed by mortgage
loans at prices which would have been reasonable prior to such event
or events; or
(iii) the Lender shall have been downgraded to a rating of
"BB" or lower by either Moody's Investors Service, Inc. or Standard & Poor's.
Each request for a borrowing by the Borrowers hereunder shall constitute a
certification by the Borrowers that all the conditions set forth in this
Section 5 (other than Sections 5(d) and 5(g)) have been satisfied (both as of
the date of such notice, request or confirmation and as of the date of such
borrowing).
Section 6. Representations and Warranties. The Borrowers
represent and warrant to the Lender that throughout the term of this Loan
Agreement:
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6.01 Existence. Each Borrower (a) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, (b) has all requisite corporate or other power, and has all
governmental licenses, authorization, consents and approvals necessary to own
its assets and carry on its business as now being or as proposed to be
conducted, except where the lack of such licenses, authorizations, consents and
approvals would not be reasonably likely to have a material adverse effect on
its Property, business or financial condition or prospectus; 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, except where failure so to qualify would not be reasonably likely
(either individually or in the aggregate) to have a material adverse effect on
its Property, business or financial condition or prospects.
6.02 Financial Condition. Each Borrower has heretofore furnished to the
Lender a copy of (a) its consolidated balance sheet for the first two quarterly
fiscal periods of the fiscal year of such Borrower ended December 31, 1997 and
the related consolidated statements of income and retained earnings and of cash
flows for such Borrower for such quarterly fiscal periods, setting forth in each
case in comparative form the figures for the previous year, (b) its consolidated
balance sheet for the 1996 fiscal year and the related consolidated statements
of income and retained earnings and of cash flows for such Borrower for such
fiscal year, setting forth in each case in comparative form the figures for the
previous year, with the opinion thereon of Arthur Andersen LLP and (c) its
consolidated balance sheet for the quarterly fiscal period of such Borrower
ended March 31, 1997 and the related consolidated statements of income and
retained earnings and of cash flows for such Borrower for such quarterly fiscal
period, setting forth in each case in comparative form the figures for the
previous year. All such financial statements are complete and correct and fairly
present, in all material respects, the consolidated financial condition of each
Borrower and its Subsidiaries and the consolidated results of its operations as
at such dates and for such fiscal periods, all in accordance with GAAP applied
on a consistent basis. Since June 30, 1997, there has been no material adverse
change in the consolidated business, operations or financial condition of the
Borrowers from that set forth in said financial statements.
6.03 Litigation. There are no actions, suits, arbitrations, investigations
or proceedings pending or, to its knowledge, threatened against the Borrowers or
any of its Subsidiaries or affecting any of the Property of any of them before
any Governmental Authority (i) as to which individually or in the aggregate
there is a reasonable likelihood of an adverse decision which would be
reasonably likely to have a material adverse effect on their Property, business
or financial condition or prospects or (ii) which questions the validity or
enforceability of any of the Loan Documents or any action to be taken in
connection with the transactions contemplated hereby.
6.04 No Breach. Neither (a) the execution and delivery of the Loan
Documents nor (b) the consummation of the transactions therein contemplated in
compliance with the terms and provisions thereof will conflict with or result in
a breach of the charter or by-laws of either Borrower, or any applicable law,
rule or regulation, or any order, writ, injunction or decree of any Governmental
Authority, or any Servicing Agreement or other material agreement or instrument
to which either Borrower is a party or by which either Borrower or any of its
Property is bound or to which it is subject, or constitute a default under any
such material agreement or instrument or result in the creation or imposition of
any Lien (except for the Liens created pursuant to this Loan Agreement) upon any
Property of the Borrower pursuant to the terms of any such agreement or
instrument.
6.05 Action. Each Borrower has all necessary corporate or other power,
authority and legal right to execute, deliver and perform its obligations under
each of the Loan Documents; the
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<PAGE> 24
execution, delivery and performance by such Borrower of each of the Loan
Documents have been duly authorized by all necessary corporate or other action
on its part; and each Loan Document has been duly and validly executed and
delivered by such Borrower and constitutes a legal, valid and binding obligation
of such Borrower, enforceable against such Borrower in accordance with its terms
subject to bankruptcy laws and other similar laws of general application
affecting rights of creditors and subject to the rules of equity including those
respecting the availability of specific performance.
6.06 Approvals. No authorizations, approvals or consents of, and no filings
or registrations with, any Governmental Authority or any securities exchange are
necessary for the execution, delivery or performance by either Borrower of the
Loan Documents or for the legality, validity or enforceability thereof, except
for filings and recordings in respect of the Liens created pursuant to this Loan
Agreement.
6.07 Margin Regulations. Neither the making of any Loan hereunder, nor the
use of the proceeds thereof, will violate or be inconsistent with the provisions
of Regulation G, T, U or X.
6.08 Taxes. Each Borrower has filed all Federal income tax returns and all
other material tax returns or necessary extensions that are required to be filed
by it and have paid all taxes due pursuant to such returns or pursuant to any
assessment received by it, except for any such taxes as are being appropriately
contested in good faith by appropriate proceedings diligently conducted and with
respect to which adequate reserves have been provided. The charges, accruals and
reserves on the books of each Borrower in respect of taxes and other
governmental charges are, in the opinion of such Borrower, adequate.
6.09 Investment Company Act. Neither Borrower nor any of its Subsidiaries
is an "investment company", or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
6.10 Collateral; Collateral Security.
(a) Neither Borrower has assigned, pledged, or otherwise conveyed or
encumbered any Mortgage Loan to any other Person, and immediately prior to the
pledge of such Mortgage Loan to the Lender, each Borrower was the sole owner of
such Mortgage Loan and had good and marketable title thereto, free and clear of
all Liens, in each case except for Liens to be released simultaneously with the
Liens granted in favor of the Lender hereunder. No Mortgage Loan pledged to the
Lender hereunder was acquired by either Borrower from an Affiliate of such
Borrower, other than the acquisition of one or more Mortgage Loans by one
Borrower from the other Borrower, or such other acquisition approved in writing
by the Lender at the Lender's sole discretion.
(b) The provisions of this Loan Agreement are effective to create in favor
of the Lender a valid security interest in all right, title and interest of each
Borrower in, to and under the Collateral.
(c) Upon receipt by the Custodian of each Mortgage Note, endorsed in blank
by a duly authorized officer of each Borrower, the Lender shall have a fully
perfected first priority security interest therein, in the Mortgage Loan
evidenced thereby and in such Borrower's interest in the related Mortgaged
Property.
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(d) Upon the filing of financing statements on Form UCC-1 naming the
Lender as "Secured Party" and each Borrower as "Debtor", and describing the
Collateral, in the jurisdictions and recording offices listed on Schedule 2
attached hereto, the security interests granted hereunder in the Collateral
will constitute fully perfected first priority security interests under the
Uniform Commercial Code in all right, title and interest of the Borrower in, to
and under such Collateral which can be perfected by filing under the Uniform
Commercial Code.
6.11 Chief Executive Office. Each Borrower's chief executive office on the
Effective Date is located at c/o Allied Capital Advisers, Inc., 1666 K Street,
N.W., Washington, D.C. 20006.
6.12 Location of Books and Records. The location where each Borrower keeps
its books and records, including all computer tapes and records relating to the
Collateral is its chief executive office.
6.13 Hedging. Allied has entered into Interest Rate Protection Agreements
pursuant to Allied's variable rate debt having terms with respect to protection
against fluctuations in interest rates pursuant to Allied's policies and
procedures reasonably acceptable to the Lender.
6.14 True and Complete Disclosure. All written information furnished after
the date hereof by or on behalf of each Borrower to the Lender in connection
with this Loan Agreement and the other Loan 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 information is stated or certified.
There is no fact known to a Responsible Officer of either Borrower, after due
inquiry, that could reasonably be expected to have a Material Adverse Effect
that has not been disclosed herein, in the other Loan Documents or in a report,
financial statement, exhibit, schedule, disclosure letter or other writing
furnished to the Lender for use in connection with the transactions
contemplated hereby or thereby.
6.15 Tangible Net Worth. On the Effective Date, the Tangible Net Worth of
Allied is not less than $175,000,000.
Section 7. Covenants of the Borrower. Each Borrower covenants and agrees
with the Lender that, so long as any Loan is outstanding and until payment in
full of all Secured Obligations:
7.01 Financial Statements. The Borrowers shall deliver to the Lender:
(a) as soon as available and in any event within 45 days after the end of
each of the first three quarterly fiscal periods of each fiscal year of the
Borrowers, the unaudited consolidated balance sheets of each Borrower as at the
end of such period and the related unaudited consolidated statements of income
and retained earnings and of cash flows for such Borrower for such period and
the portion of the fiscal year through the end of such period,setting forth in
each case in comparative form the figures for the previous year, accompanied by
a certificate of a Responsible Officer of such Borrower, which certificate
shall state that said consolidated financial statements fairly present the
consolidated financial condition and results of operations of such Borrower in
accordance with GAAP, consistently applied, as at the end of, and for, such
period (subject to normal year-end audit adjustments);
(b) as soon as available and in any event within 120 days after the end of
each fiscal year of the Borrowers, the consolidated balance sheets of each
Borrower at the end of
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<PAGE> 26
such fiscal year and the related consolidated statements of income and
retained earnings and of cash flows for such Borrower for such year,
setting forth in each case in comparative form the figures for the
previous year, accompanied by an opinion thereon of independent
certified public accountants of recognized national standing, which
opinion shall not be qualified as to scope of audit or going concern
and shall state that said consolidated financial statements fairly
present the consolidated financial condition and results of operations
of such Borrower as at the end of, and for, such fiscal year in
accordance with GAAP;
(c) from time to time such other information regarding the
financial condition, operations, or business of the Borrowers as the
Lender may reasonably request; and
Each Borrower will furnish to the Lender, at the time it furnishes each set of
financial statements pursuant to paragraphs (a) and (b) above, a certificate of
a Responsible Officer of such Borrower to the effect that, to the best of such
Responsible Officer's knowledge, such Borrower during such fiscal period or
year has observed or performed all of its covenants and other agreements, and
satisfied every condition, contained in this Loan Agreement and the other Loan
Documents to be observed, performed or satisfied by it, and that such
Responsible Officer has obtained no knowledge of any Default or Event of
Default except as specified in such certificate (and, if any Default or Event
of Default has occurred and is continuing, describing the same in reasonable
detail and describing the action such Borrower has taken or proposes to take
with respect thereto).
7.02 Litigation. Each Borrower will, within 10 days after service
of process on any of the following, give to the Lender notice of all legal or
arbitrable proceedings affecting such Borrower or any of its Subsidiaries that
questions or challenges the validity or enforceability of any of the Loan
Documents or as to which there is a reasonable likelihood of adverse
determination which would result in a Material Adverse Effect.
7.03 Existence, etc. The Borrower will:
(a) preserve and maintain its legal existence and all of its
material rights, privileges, licenses and franchises (provided that
nothing in this Section 7.03(a) shall prohibit any transaction
expressly permitted under Section 7.04 hereof):
(b) comply with the requirements of all applicable laws, rules,
regulations and orders of Governmental Authorities (including, without
limitation, all environmental laws) if failure to comply with such
requirements would be reasonably likely (either individually or in the
aggregate) to have a material adverse effect on its Property, business
or financial condition, or prospects;
(c) keep adequate records and books of account, in which complete
entries will be made in accordance with GAAP consistently applied;
(d) not move its chief executive office from the address referred
to in Section 6.11 unless it shall have provided the Lender 30 days'
prior written notice of such change;
(e) 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
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<PAGE> 27
which is being contested in good faith and by proper proceedings and
against which adequate reserves are being maintained; and
(f) permit representatives of the Lender, during normal business
hours and upon reasonable advance notice, to examine, copy and make
extracts from its books and records, to inspect any of its Properties, and
to discuss its business and affairs with its officers, all to the extent
reasonably requested by the Lender.
7.04 Prohibition of Fundamental Changes. Allied shall not enter into
any transaction of merger or consolidation or amalgamation, or liquidate, wind
up or dissolve itself (or suffer any liquidation, winding up or dissolution) or
sell all or substantially all of its assets; provided, that either Borrower may
merge or consolidate with (a) any wholly owned subsidiary of such Borrower, or
(b) any other Person if the Borrower is the surviving corporation; and provided
further, that if after giving effect thereto, no Default would exist hereunder.
Notwithstanding anything to the contrary contained in this Section 7.04, Allied
may merge or consolidate with Allied Capital Lending Corporation, as
contemplated in that certain Allied Capital News Release dated August 14, 1997.
7.05 Borrowing Base Deficiency. If at any time there exists a
Borrowing Base Deficiency the Borrowers shall cure same in accordance with
Section 2.06 hereof.
7.06 Notices. The Borrowers shall give notice to the Lender:
(a) promptly upon receipt of notice or knowledge of the occurrence of
any Default or Event of Default;
(b) with respect to any Mortgage Loan pledged to the Lender
hereunder, within two Business Days upon receipt of any principal
prepayment other than scheduled payments (in full or partial) of such
pledged Mortgage Loan;
(c) with respect to any Mortgage Loan pledged to the Lender
hereunder, immediately upon receipt of notice or knowledge that the
underlying Mortgaged Property has been damaged by waste, fire, earthquake
or earth movement, windstorm, flood, tornado or other casualty, or
otherwise damaged so as to affect adversely the Collateral Value of such
pledged Mortgage Loan; and
(d) promptly upon receipt of notice or knowledge of (i) any default
related to any Collateral, (ii) any Lien or security interest (other than
security interests created hereby or by the other Loan Documents) on, or
claim asserted against, any of the Collateral or (iii) any event or change
in circumstances which could reasonably be expected to have a material
adverse effect on the Property, business or financial condition or
prospects of either Borrower.
Each notice pursuant to this Section shall be accompanied by a statement of a
Responsible Officer of such Borrower setting forth details of the occurrence
referred to therein and stating what action such Borrower has taken or proposes
to take with respect thereto.
7.07 Hedging. Allied shall at all times maintain Interest Rate
Protection Agreements, pursuant to Allied's variable rate debt having terms
with respect to protection against fluctuations in interest rates pursuant to
Allied's policies and procedures reasonably acceptable to the Lender. Allied
shall deliver to the Lender quarterly (unless requested more frequently by the
Lender), a written summary of the notional amount of all outstanding Interest
Rate Protection Agreements.
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7.08 Reports. Each Borrower shall provide the Lender with a quarterly
report, which report shall include, among other items, a summary of such
Borrower's delinquency and loss experience with respect to mortgage loans
serviced by such Borrower, any Servicer or any designee of either, plus any
such additional reports as the Lender may reasonably request with respect to
such Borrower's or any Servicer's servicing portfolio or pending originations
of mortgage loans. Each Borrower shall provide the Lender with information,
promptly upon such Borrower's receipt, with respect to each Mortgaged Property
related to each Mortgage Loan pledged to the Lender hereunder, including
without limitation, the operating statements, rent roll (if applicable and
which may be provided on a quarterly basis if not available on a monthly basis)
and occupancy status of such Mortgaged Property and property level information.
7.09 Underwriting Guidelines. Without the prior written consent of
the Lender, neither Borrower shall amend materially or otherwise modify
materially the Underwriting Guidelines.
7.10 Transactions with Affiliates. Neither Borrower will enter into
any transaction, including without limitation any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transaction is (a) otherwise permitted under this Loan Agreement, (b) in
the ordinary course of such Borrower's business and (c) upon fair and
reasonable terms no less favorable to such Borrower than it would obtain in a
comparable arm's length transaction with a Person which is not an Affiliate, or
make a payment that is not otherwise permitted by this Section 7.10 to any
Affiliate. In no event shall either Borrower pledge to the Lender hereunder any
Mortgage Loan acquired by such Borrower from an Affiliate of such Borrower
other than acquisitions by one Borrower from the other Borrower, or such other
acquisition approved in writing by the Lender at the Lender's sole discretion.
7.11 Limitation on Liens. Each Borrower will defend the Collateral
against, and will take such other action as is necessary to remove, any Lien,
security interest or claim on or to the Collateral, other than the security
interests created under this Loan Agreement, and each Borrower will defend the
right, title and interest of the Lender in and to any of the Collateral against
the claims and demands of all persons whomsoever.
7.12 Limitation on Distributions. After the occurrence and during the
continuation of any Event of Default, the Borrowers shall not make any payment
on account of, or set apart assets for a sinking or other analogous fund for
the purchase, redemption, defeasance, retirement or other acquisition of any
equity or partnership interest of the Borrower, whether now or hereafter
outstanding, or make any other distribution in respect thereof, either directly
or indirectly, whether in cash or property or in obligations of the Borrowers
except as, required by the Internal Revenue Code of 1986 (as amended from time
to time) to preserve the Borrowers' "REIT" status.
7.13 Maintenance of Tangible Net Worth. Allied shall not permit
Tangible Net Worth at any time to be less than $175,000,000.
7.14 Maintenance of Ratio of Total Indebtedness to Tangible Net
Worth. Allied shall not permit the ratio of Total Indebtedness with respect to
recourse obligations to Tangible Net Worth at any time to be greater than 3:1.
7.15 Maintenance of Profitability. The Borrowers shall not permit,
for any period of three consecutive fiscal quarters (each such period, a "Test
Period"), Net Income for such Test Period,
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<PAGE> 29
before income taxes for such Test Period and distributions made during such
Test Period, to be less than $1.00.
7.16 Servicing Tape. Each Borrower shall provide to the Lender on a
monthly basis a computer readable magnetic tape containing servicing
information, including without limitation those fields specified by the Lender
from time to time, on a loan-by-loan basis and in the aggregate, with respect
to the Mortgage Loans serviced hereunder by such Borrower or any Servicer.
7.17 Interest Rate Protection Agreements. The Borrower shall not
pledge, hypothecate, encumber or permit any Lien to exist on any Interest Rate
Protection Agreement.
Section 8. Events of Default. Each of the following events shall
constitute an event of default (an "Event of Default") hereunder:
(a) the Borrowers shall default in the payment of any principal of or
interest on any Loan when due (whether at stated maturity, upon
acceleration or at mandatory or optional prepayment); or
(b) the Borrowers shall default in the payment of any other amount
payable by it hereunder or under any other Loan Document after notification
by the Lender of such default, and such default shall have continued
unremedied for five Business Days; or
(c) any representation, warranty or certification made or deemed made
herein or in any other Loan Document by either Borrower or any certificate
furnished to the Lender pursuant to the provisions hereof or thereof shall
prove to have been false or misleading in any material respect as of the
time made or furnished (other than the representations and warranties set
forth in Schedule 1, which shall be considered solely for the purpose of
determining the Collateral Value of the Mortgage Loans; unless the
applicable Borrower shall have made any such representations and warranties
with knowledge that they were materially false or misleading at the time
made); or
(d) either Borrower shall fail to comply with the requirements of
Section 7.03(a), Section 7.04, Section 7.06, or Sections 7.09 through 7.16
hereof; or either Borrower shall default in the performance of its
obligations under Section 7.05 hereof and such default shall continue
unremedied for a period of one (1) Business Day; or the Borrower shall
otherwise fail to comply with the requirements of Section 7.03 hereof and
such default shall continue unremedied for a period of five Business Days;
or either Borrower shall fail to observe or perform any other covenant or
agreement contained in this Loan Agreement or any other Loan Document and
such failure to observe or perform shall continue unremedied for a period
of seven Business Days; or
(e) a final judgment or judgments for the payment of money in excess
of $20,000,000 in the aggregate shall be rendered against either Borrower
by one or more courts, administrative tribunals or other bodies having
jurisdiction 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 60 days from the date of entry thereof, and the
applicable Borrower shall not, within said period of 60 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
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(f) either Borrower shall admit in writing its inability to pay its
debts as such debts become due; or
(g) either Borrower shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian,
trustee, examiner or liquidator or the like 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 corporate or other action
for the purpose of effecting any of the foregoing; or
(h) a proceeding or case shall be commenced, without the
application or consent of either Borrower or any of its Subsidiaries, in
any court of competent jurisdiction, seeking (i) its reorganization,
liquidation, dissolution, arrangement or winding-up, or the composition or
readjustment of its debts, (ii) the appointment of, or the taking of
possession by, a receiver, custodian, trustee, examiner, liquidator or the
like of either Borrower or any such Subsidiary or of all or any
substantial part of its property, or (iii) similar relief in respect of
either Borrower or any such Subsidiary under any law relating to
bankruptcy, insolvency, reorganization, liquidation, dissolution,
arrangement or 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 60 or more days; or an
order for relief against either Borrower or any such Subsidiary shall be
entered in an involuntary case under the Bankruptcy Code; or
(i) the Custodial Agreement or any Loan Document shall for whatever
reason by terminated or cease to be in full force and effect, or the
enforceability thereof shall be contested by either Borrower; or
(j) either Borrower shall grant, or suffer to exist, any Lien on
any Collateral except the Liens contemplated hereby; or the Liens
contemplated hereby shall cease to be first priority perfected Liens on
the Collateral in favor of the Lender or shall be Liens in favor of any
Person other than the Lender.
Section 9. Remedies Upon Default.
---------------------
(a) Upon the occurence of one or more Events of Default other than
those referred to in Section 8(g) or (h), the Lender may immediately declare
the principal amount of the Loans then outstanding under the Note to be
immediately due and payable, together with all interest thereon and fees and
expenses accruing under this Loan Agreement. Upon the occurrence of an Event of
Default referred to in Sections 8(g) or (h), such amounts shall immediately and
automatically become due and payable without any further action by any Person.
Upon such declaration or such automatic acceleration, the balance then
outstanding on the Note shall become immediately due and payable, without
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by the Borrowers.
(b) Upon the occurence of one or more Events of Default, the
Lender shall have the right to obtain physical possession of the Servicing
Records and all other files of the Borrower
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<PAGE> 31
relating to the Collateral and all documents relating to the Collateral which
are then or may thereafter come in to the possession of either Borrower or any
third party acting for either Borrower and either Borrower shall deliver to the
Lender such assignments as the Lender shall request. The Lender shall be
entitled to specific performance of all agreements of the Borrowers contained
in this Loan Agreement.
Section 10. No Duty of Lender. The powers conferred on the Lender
hereunder are solely to protect the Lender's interests in the Collateral and
shall not impose any duty upon it to exercise any such powers. The Lender shall
be accountable only for amounts that it actually receives as a result of the
exercise of such powers, and neither it nor any of its officers, directors,
employees or agents shall be responsible to the Borrowers for any act or
failure to act hereunder, except for its or their own gross negligence or
willful misconduct.
Section 11. Miscellaneous.
11.01 Waiver. No failure on the part of the Lender to exercise and
no delay in exercising, and no course of dealing with respect to, any right,
power or privilege under any Loan Document shall operate as a waiver thereof,
nor shall any single or partial exercise of any right, power or privilege under
any Loan Document preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The remedies provided herein
are cumulative and not exclusive of any remedies provided by law.
11.02 Notices. Except as otherwise expressly permitted by this Loan
Agreement, all notices, requests and other communications provided for herein
and under the Custodial Agreement (including without limitation any
modifications of, or waivers, requests or consents under, this Loan Agreement)
shall be given or made in writing (including without limitation by telex or
telecopy) delivered to the intended recipient at the "Address for Notices"
specified below its name on the signature pages hereof or thereof); or, as to
any party, at such other address as shall be designated by such party in a
written notice to each other party, by overnight courier, personal delivery,
telecopy or certified mail return receipt requested. All notices, requests and
other communications shall be deemed to have been duly given, upon receipt, in
each case given or addressed as aforesaid.
11.03 Indemnification and Expenses.
(a) Each Borrower agrees to hold the Lender harmless from and
indemnify the Lender against all liabilities, losses, damages, judgments, costs
and expenses of any kind which may be imposed on, incurred by or asserted
against the Lender (collectively, the "Costs") relating to or arising out of
this Loan Agreement, the Note, any other Loan Document or any transaction
contemplated hereby or thereby, or any amendment, supplement or modification
of, or any waiver or consent under or in respect of, this Loan Agreement, the
Note, any other Loan Document or any transaction contemplated hereby or
thereby, that, in each case, results from anything other than the Lender's
gross negligence or willful misconduct. Without limiting the generality of the
foregoing, the Borrowers agree to hold the Lender harmless from and indemnify
the Lender against all Costs with respect to (i) Wet-Ink Mortgage Loans
relating to or arising out of any breach, violation or alleged breach or
violation of any consumer credit laws, including without limitation the Truth
in Lending Act and/or the Real Estate Settlement Procedures Act and (ii) all
Mortgage Loans relating to or arising out of any violation or alleged
violation of any environmental law, rule or regulation that, in each case,
results from anything other than the Lender's gross negligence or willful
misconduct. In any suit, proceeding or action brought by the Lender in
connection with any Mortgage Loan for any sum owing thereunder, or to enforce
any provisions of any Mortgage Loan, the Borrowers will save, indemnify and
hold the
-27-
<PAGE> 32
Lender harmless from and against all expense, loss or damage suffered by reason
of any defense, set-off, counterclaim, recoupment or reduction or liability
whatsoever of the account debtor or obligor thereunder, arising out of a breach
by either 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
account debtor or obligor or its successors from the Borrowers. The Borrowers
also agree to reimburse the Lender as and when billed by the Lender for all the
Lender's costs and expenses incurred in connection with the enforcement or the
preservation of the Lender's rights under this Loan Agreement, the Note, any
other Loan Document or any transaction contemplated hereby or thereby,
including without limitation the reasonable fees and disbursements of its
counsel. The Borrowers hereby acknowledge that, notwithstanding the fact that
the Note is secured by the Collateral, the obligation of the Borrowers under
the Note is a recourse obligation of the Borrowers.
(b) The Borrower agrees to pay as and when billed by the Lender all
of the out-of-pocket costs and expenses incurred by the Lender in connection
with the development, preparation and execution of, and any amendment,
supplement or modification to, this Loan Agreement, the Note, any other Loan
Document or any other documents prepared in connection herewith or therewith
(up to the amount of $50,000).
11.04 Amendments. Except as otherwise expressly provided in this Loan
Agreement, any provision of this Loan Agreement may be modified or supplemented
only by an instrument in writing signed by each Borrower and the Lender and
any provision of this Loan Agreement may be waived by the Lender.
11.05 Successors and Assigns. This Loan Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
11.06 Survival. The obligations of each Borrower under Section 11.03
hereof shall survive the repayment of the Loans and the termination of this
Loan Agreement. In addition, each representation and warranty made or deemed to
be made by a request for a borrowing, herein or pursuant hereto shall survive
the making of such representation and warranty, and the Lender shall not be
deemed to have waived, by reason of making any Loan, any Default that may arise
because any such representation or warranty shall have proved to be false or
misleading, notwithstanding that the Lender may have had notice or knowledge or
reason to believe that such representation or warranty was false or misleading
at the time such Loan was made.
11.07 Captions. The table of contents and captions and section
headings appearing herein are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this Loan
Agreement.
11.08 Counterparts. This Loan Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Loan Agreement by
signing any such counterpart.
11.09 Loan Agreement Constitutes Security Agreement; Governing Law.
This Loan Agreement shall be governed by New York law without reference to
choice of law doctrine, and shall constitute a security agreement within the
meaning of the Uniform Commercial Code.
11.10 SUBMISSION TO JURISDICTION; WAIVERS. LENDER AND EACH BORROWER
HEREBY IRREVOCABLY AND UNCONDITIONALLY:
-28-
<PAGE> 33
(A) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS LOAN AGREEMENT, THE NOTE AND THE OTHER LOAN
DOCUMENTS, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT
THEREOF, TO THE NONEXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE
STATE OF NEW YORK, THE FEDERAL 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, TO THE EXTENT PERMITTED BY LAW, 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 ITS
ADDRESS SET FORTH UNDER ITS SIGNATURE BELOW OR AT SUCH OTHER ADDRESS OF
WHICH THE LENDER 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.
11.11 WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE LENDER HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS LOAN AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY.
11.12 Acknowledgments. Each Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Loan Agreement, the Note and the other Loan Documents;
(b) the Lender has no fiduciary relationship to the Borrowers, and the
relationship between the Borrowers and the Lender is solely that of debtor
and creditor; and
(c) no joint venture exists between the Lender and the Borrowers.
11.13 Hypothecation or Pledge of Loans. The Lender shall have free
and unrestricted use of all Collateral and nothing in this Loan Agreement shall
preclude the Lender form engaging in repurchase transactions with the Collateral
or otherwise pledging, repledging, transferring, hypothecating, or
rehypothecating the Collateral. Nothing contained in this Loan Agreement shall
obligate the Lender to segregate any Collateral delivered to the Lender by the
Borrowers, however the
- 29 -
<PAGE> 34
Lender shall be obligated to deliver the Collateral back to the Borrowers in
accordance with, and subject to, the provisions of this Loan Agreement.
11.14 Servicing.
---------
(a) Each Borrower covenants to maintain or cause the servicing of the
Mortgage Loans to be maintained in conformity with accepted and prudent
servicing practices in the industry for the same type of mortgage loans as the
Mortgage Loans and in a manner at least equal in quality to the servicing such
Borrower provides for mortgage loans which it owns. In the event that the
preceding language is interpreted as constituting one or more servicing
contracts, each such servicing contract shall terminate automatically upon the
earliest of (i) an Event of Default, (ii) the date on which all the Secured
Obligations have been paid in full or (iii) the transfer of servicing approved
by the Borrower.
(b) If the Mortgage Loans are serviced by either Borrower, (i) such
Borrower agrees that the Lender is the collateral assignee of all servicing
records, including but not limited to any and all servicing agreements, files,
documents, records, data bases, computer tapes, copies of computer tapes, proof
of insurance coverage, insurance policies, appraisals, other closing
documentation, payment history records, and any other records relating to or
evidencing the servicing of Mortgage Loans (the "Servicing Records"), and
(ii) such Borrower grants the Lender a security interest in all servicing fees
and rights relating to the Mortgage Loans and all Servicing Records to secure
the obligation of such Borrower or its designee to service in conformity with
this Section and any other obligation of such Borrower to the Lender. Each
Borrower covenants to safeguard such Servicing Records and to deliver them
promptly to the Lender or its designee (including the Custodian) at the
Lender's request.
(c) If the Mortgage Loans are serviced by a third party servicer (such
third party servicer, the "Servicer"), such Borrower (i) shall provide a copy
of the servicing agreement to the Lender, which shall be in form and substance
acceptable to the Lender (the "Servicing Agreement"); and (ii) hereby
irrevocably assigns to the Lender and the Lender's successors and assigns all
right, title, interest of such Borrower in, to and under, and the benefits of,
any Servicing Agreement with respect to the Mortgage Loans.
(d) If the servicer of the Mortgage Loans is either Borrower or the
Servicer is an Affiliate of such Borrower, such Borrower shall provide to the
Lender a letter from such Borrower or the Servicer, as the case may be, to the
effect that upon the occurrence of an Event of Default and acceleration of the
debt outstanding pursuant to Section 9 hereof, the Lender may terminate any
Servicing Agreement and transfer servicing to its designee, at no cost or
expense to the Lender, it being agreed that such Borrower will pay any and all
fees required to terminate the Servicing Agreement and to effectuate the
transfer of servicing to the designee of the Lender.
(e) After the Funding Date, until the pledge of any Mortgage Loan is
relinquished by the Custodian, the Borrowers will have no right to modify or
alter the terms of such Mortgage Loan and the Borrowers will have no obligation
or right to repossess such Mortgage Loan or substitute another Mortgage Loan,
except as provided in the Custodial Agreement.
(f) In the event either Borrower or its Affiliate is servicing the
Mortgage Loans, such Borrower shall permit the Lender to inspect such
Borrower's or its Affiliate's servicing facilities, as the case may be, for the
purpose of satisfying the Lender that such Borrower or its Affiliate, as the
case may be, has the ability to service the Mortgage Loans as provided in this
Loan Agreement.
-30-
<PAGE> 35
11.15 Periodic Due Diligence Review. Each Borrower acknowledges that the
Lender has the right to perform continuing due diligence reviews with respect to
the Mortgage Loans, for purposes of verifying compliance with the
representations, warranties and specifications made hereunder, or otherwise, and
each Borrower agrees that upon reasonable (but no less than five Business Days
prior notice, unless a Default shall have occurred, in which case no notice
shall be required) to either Borrower, the Lender or its authorized
representatives will be permitted during normal business hours to examine,
inspect, and make copies and extracts of, the Mortgage Files and any and all
documents, records, agreements, instruments or information relating to such
Mortgage Loans in the possession or under the control of the Borrower and/or the
Custodian. The Borrowers also shall make available to the Lender, on a
reasonable basis, a knowledgeable financial or accounting officer for the
purpose of answering questions respecting the Mortgage Files and the Mortgage
Loans. Without limiting the generality of the foregoing, each Borrower
acknowledges that the Lender may make Loans to such Borrower based solely upon
the information provided by such Borrower to the Lender in the Mortgage Loan
Tape and the representations, warranties and covenants contained herein, and
that the Lender, at its option, has the right at any time to conduct a partial
or complete due diligence review on some or all of the Mortgage Loans securing
such Loan, including without limitation ordering new credit reports and new
appraisals on the related Mortgaged Properties and otherwise re-generating the
information used to originate such Mortgage Loans. The Lender may underwrite
such Mortgage Loans itself or engage a mutually agreed upon third party
underwriter to perform such underwriting. Each Borrower agrees to cooperate with
the Lender and any third party underwriter in connection with such underwriting,
including, but not limited to, providing the Lender and any third party
underwriter with access to any and all documents, records, agreements,
instruments or information relating to such Mortgage Loans in the possession,or
under the control, of such Borrower. Each Borrower further agrees that if a
Default shall have occurred, the Borrowers shall reimburse the Lender for any
and all out-of-pocket costs and expenses incurred by the Lender in connection
with the Lender's activities pursuant to this Section 11.15 performed following
such Default.
11.16 Intent. The parties recognize that each Loan is a "securities
contract" as that term is defined in Section 741 of Title 11 of the United
States Code, as amended.
11.17 Joint and Several Liability. Allied hereby acknowledges and agrees
that it shall be jointly and severally liable for all representations,
warranties, covenants, obligations and indemnities of the Borrowers hereunder.
Business Mortgage Investors, Inc. hereby acknowledges and agrees that it shall
be liable for all representations, warranties, covenants, obligations and
indemnities of the Borrowers hereunder only to the extent of its pro rata
portion of the Secured Obligations.
[SIGNATURE PAGE FOLLOWS]
-31-
<PAGE> 36
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to
be duly executed and delivered as of the day and year first above written.
BORROWERS
ALLIED CAPITAL COMMERCIAL CORPORATION
By /s/ Jon A. DeLuca
------------------------------------
Name: Jon A. DeLuca
Title: Chief Financial Officer
Address for Notices:
1666 K. Street, N.W.
9th Floor
Washington, D.C. 20006
Attention: Mr. John M. Scheurer
Telecopier No.: (202) 659-2053
Telephone No: (202) 973-6332
BUSINESS MORTGAGE INVESTORS, INC.
By /s/ Jon A. DeLuca
------------------------------------
Name: Jon A. DeLuca
Title: Chief Financial Officer
Address for Notices:
1666 K. Street, N.W.
9th Floor
Washington, D.C. 20006
Attention: Mr. John M. Scheurer
Telecopier No.: (202) 659-2053
Telephone No: (202) 973-6332
<PAGE> 37
LENDER
MORGAN STANLEY MORTGAGE CAPITAL INC.
By /s/ Marc Flamino
---------------------------------
Name: Marc Flamino
Title: Vice President
Address for Notices:
1585 Broadway
New York, New York 10036
Attention: Mr. Peter Mozer
Telecopier No.: 212-761-0570
Telephone No.: 212-761-2408
<PAGE> 1
EXHIBIT 10.6 AND 10.7
[ALLIED CAPITAL LETTERHEAD]
WAIVER AND CONSENT
This Waiver and Consent is made as of the 31st day of December, 1997, by
BUSINESS MORTGAGE INVESTORS, INC. (the "Fund"), a Maryland corporation, ALLIED
CAPITAL ADVISERS, INC. ("Advisers"), a Maryland corporation, and SIGULER GUFF
ADVISERS, LLC ("Siguler Guff"), a Delaware limited liability company.
WHEREAS, pursuant to an Investment Management Agreement dated as of January 4,
1993 (the "Management Agreement"), Advisers, as an original party to the
Management Agreement, and Siguler Guff, as an assignee of Mitchell Hutchins
Asset Management pursuant to an Assignment of Management Agreement dated August
8, 1995, provide investment advisory and management services to the Fund; and
WHEREAS, Section 9(a) of the Management Agreement provides, in part, that it
will terminate automatically as to Advisers upon its assignment, as defined in
the Investment Advisers Act of 1940, as amended (the "Act"), by Advisers; and
WHEREAS, Advisers has entered into an agreement and plan of merger with Allied
Capital Corporation, Allied Capital Corporation II, and Allied Capital
Commercial Corporation to merge with and into Allied Capital Lending
Corporation, with Allied Capital Lending Corporation as the surviving entity
(the "Merger"); and
WHEREAS, the Merger may be deemed to cause an assignment, as defined in the
Act, of the Management Agreement by Advisers to Allied Capital Lending
Corporation, as Advisers' successor by operation of law; and
WHEREAS, the undersigned, being all of the parties to the Management Agreement,
wish to waive their rights under Section 9(a) of the Management Agreement to
the extent that such section would cause the Management Agreement to terminate
automatically as to Advisers if the Merger were deemed to cause an assignment
by Advisers thereof;
NOW, THEREFORE, each of the undersigned hereby acknowledges that the Merger may
be deemed to cause an assignment of the Management Agreement by Advisers; and
FURTHER, insofar as the Merger is deemed to cause an assignment of the
Management Agreement, each of the undersigned hereby consents to such
assignment and waives any and all rights such party may have under Section 9(a)
of the Management Agreement relating to such assignment; and
FURTHER, each of the undersigned hereby consents to the continuation of the
Management Agreement following the effective date of the Merger, with Allied
Capital Lending Corporation, as successor to Advisers, as a party thereto.
<PAGE> 2
IN WITNESS WHEREOF, each of the undersigned has caused this waiver and consent
to be executed by the officer designated below as of the day and year first
above written.
BUSINESS MORTGAGE INVESTORS, INC.
By: /s/ JOHN M. SCHEURER
----------------------------------
Name: John M. Scheurer
Title: President
ALLIED CAPITAL ADVISERS, INC.
By: /s/ JOAN M. SWEENEY
----------------------------------
Name: Joan M. Sweeney
Title: Managing Director
SIGULER GUFF ADVISERS, LLC
By: /s/ DONALD P. SPENCER
----------------------------------
Name: Donald P. Spencer
Title: Managing Director
<PAGE> 1
EXHIBIT 10.6 AND 10.7
[ALLIED CAPITAL LETTERHEAD]
WAIVER AND CONSENT
This Waiver and Consent is made as of the 31st day of December, 1997, by
BUSINESS MORTGAGE INVESTORS, INC. (the "Fund"), a Maryland corporation, ALLIED
CAPITAL ADVISERS, INC. ("Advisers"), a Maryland corporation, and SIGULER GUFF
ADVISERS, LLC ("Siguler Guff"), a Delaware limited liability company.
WHEREAS, pursuant to an Investment Management Agreement dated as of January 4,
1993 (the "Management Agreement"), Advisers, as an original party to the
Management Agreement, and Siguler Guff, as an assignee of Mitchell Hutchins
Asset Management pursuant to an Assignment of Management Agreement dated August
8, 1995, provide investment advisory and management services to the Fund; and
WHEREAS, Section 9(a) of the Management Agreement provides, in part, that it
will terminate automatically as to Advisers upon its assignment, as defined in
the Investment Advisers Act of 1940, as amended (the "Act"), by Advisers; and
WHEREAS, Advisers has entered into an agreement and plan of merger with Allied
Capital Corporation, Allied Capital Corporation II, and Allied Capital
Commercial Corporation to merge with and into Allied Capital Lending
Corporation, with Allied Capital Lending Corporation as the surviving entity
(the "Merger"); and
WHEREAS, the Merger may be deemed to cause an assignment, as defined in the
Act, of the Management Agreement by Advisers to Allied Capital Lending
Corporation, as Advisers' successor by operation of law; and
WHEREAS, the undersigned, being all of the parties to the Management Agreement,
wish to waive their rights under Section 9(a) of the Management Agreement to
the extent that such section would cause the Management Agreement to terminate
automatically as to Advisers if the Merger were deemed to cause an assignment
by Advisers thereof;
NOW, THEREFORE, each of the undersigned hereby acknowledges that the Merger may
be deemed to cause an assignment of the Management Agreement by Advisers; and
FURTHER, insofar as the Merger is deemed to cause an assignment of the
Management Agreement, each of the undersigned hereby consents to such
assignment and waives any and all rights such party may have under Section 9(a)
of the Management Agreement relating to such assignment; and
FURTHER, each of the undersigned hereby consents to the continuation of the
Management Agreement following the effective date of the Merger, with Allied
Capital Lending Corporation, as successor to Advisers, as a party thereto.
<PAGE> 2
IN WITNESS WHEREOF, each of the undersigned has caused this waiver and consent
to be executed by the officer designated below as of the day and year first
above written.
BUSINESS MORTGAGE INVESTORS, INC.
By: /s/ JOHN M. SCHEURER
----------------------------------
Name: John M. Scheurer
Title: President
ALLIED CAPITAL ADVISERS, INC.
By: /s/ JOAN M. SWEENEY
----------------------------------
Name: Joan M. Sweeney
Title: Managing Director
SIGULER GUFF ADVISERS, LLC
By: /s/ DONALD P. SPENCER
----------------------------------
Name: Donald P. Spencer
Title: Managing Director
<PAGE> 1
EXHIBIT 10.8
ASSIGNMENT OF LEASE
AND
LANDLORD'S CONSENT TO ASSIGNMENT
THIS ASSIGNMENT OF LEASE is made on January 5, 1998, among 1620 K STREET
ASSOCIATES LIMITED PARTNERSHIP, a District of Columbia limited partnership
(hereinafter "Landlord"), ALLIED CAPITAL ADVISERS, INC., a Maryland corporation
(hereinafter "Assignor"), and ALLIED CAPITAL CORPORATION, a Maryland corporation
(hereinafter "Assignee"), who agree as follows:
Recitals. This Assignment of Lease is made with reference to the
following facts and objectives:
a. Landlord and Allied Capital Advisers, Inc., as Tenant,
entered into a written lease dated February 7, 1993 (the "Lease"), in which
Landlord leased to Tenant and Tenant leased from Landlord office space known as
Suite 900, containing approximately 22,773 square feet of office space in the
building known as 1666 K Street, N.W., Washington, D.C. (the "Premises"), for a
term expiring August 31, 1998.
b. Assignor desires to assign all its right, title and
interest in the Lease to the above referenced Assignee; and
c. Landlord consents to the proposed Assignment on the
conditions set forth in this Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Effective Date of Assignment. The Assignment of said Lease
shall be effective as of December 31, 1997 (the "Effective Date").
2. Assignment and Assumption. Assignor assigns and transfers
to Assignee all of its right, title and interest in the Lease, and Assignee
accepts the Assignment and assumes and agrees to perform, from the Effective
Date, as a direct obligation to Landlord, all the provisions of the Lease.
3. Landlord's Consent. Landlord consents to this Assignment,
expressly without waiver of the restriction concerning further assignment, and
Assignee explicitly agrees not to assign, transfer, convey or hypothecate any
interest of Assignee under the Lease without Landlord's express, written, prior
consent, which Landlord, in its sole discretion, may give or withhold. Any
assignment or transfer without Landlord's consent shall be null, void and of no
force or effect.
4. Assignor's Liability. Assignor shall remain liable for the
performance of the provisions of the Lease, as assigned, just as though
Landlord's consent had not been given.
5. Default of Lease; Notice to Assignor.
a) Notice to Assignor. Landlord will send to Assignor any
notice of default that Landlord send to Assignee.
b) Right to Cure. If Assignee is in default of the Lease,
before Landlord will exercise any of the rights available to Landlord by reason
of any default, Assignor shall have the right for a period of five (5) days
after the period expires for curing rent defaults and ten (10) days after the
period for curing non-rent defaults, in which to cure any default of Assignee.
If any default, other than non-payment of rent, cannot reasonably be cured
within the additional ten (10) day period, the commencement of the cure of the
default within the ten (10) day period shall be deemed to cure the default,
provided the cure is diligently pursued to completion.
c) Remedies of Assignor. Assignee expressly agrees to hold
Assignor harmless from any and all claims that may arise from Assignee's breach
of the Lease, as assigned, and in connection therewith, Assignee agrees to
reimburse Assignor all attorneys' fees, costs and expenses in connection
therewith, and Assignee waives all rights of exemption.
<PAGE> 2
ASSIGNMENT OF LEASE
LANDLORD'S CONSENT TO ASSIGNMENT
PAGE TWO
6. Amendment of Lease. If Landlord and Assignee enter into any
agreement that amends the Lease to increase the financial obligation of the
Tenant without Assignor's consent, then any such amendment of the Lease shall be
of no force or effect as to Assignor, who shall nevertheless remain obligated
under the original terms of the Lease.
7. Miscellaneous.
a) Notice. Any notice, demand, request, consent, approval
or communication that either party desires, or is required to give to the other
party or any other person shall be in writing and either served personally or
sent by pre-paid U.S. Certified or Express Mail.
Notices to Assignee shall be given at:
1666 K Street, N.W.
Suite 900
Washington, D.C. 20006
b) Successors. This Assignment shall be binding upon, and
inure to the benefit of the parties and their successors.
8. Security Deposit. The parties hereto expressly acknowledge
and agree that the remainder of the security deposit, if any, currently held by
Landlord pursuant to the terms of the Lease shall be assigned and transferred by
Assignor to the credit of Assignee, and shall continue to be held by Landlord
pursuant to terms of the Lease
9. Fee. Upon execution hereof, Assignor agrees to pay Charles
E. Smith Management, Inc., a fee in the amount of One Thousand and 00/100
Dollars ($1,000.00).
IN WITNESS WHEREOF, Landlord has caused these presents to be signed and
sealed by one or more of its general partners or authorized agents, Assignor has
caused these presents to be signed in its corporate name by its duly authorized
office and its corporate seal to be hereto affixed and duly attested by its
secretary, and Assignee has caused these presents to be signed in its corporate
name by its duly authorized office and its corporate seal to be hereto affixed
and duly attested by its secretary.
WITNESS: LANDLORD: 1620 K STREET ASSOCIATES
LIMITED PARTNERSHIP
/s/ KIMBERLY HOLSTEN BY /s/ BERNIE GEWIRZ (SEAL)
- - - - - - - - - - - - - --------------------------------- ---------------------------------
ATTEST: ASSIGNOR: ALLIED CAPITAL ADVISERS,
INC.
/s/ TRICIA BENZ DANIELS BY /s/ JOAN M. SWEENEY (SEAL)
- - - - - - - - - - - - - --------------------------------- ---------------------------------
Seal Secretary Name:
Title: Managing Director
ATTEST: ASSIGNEE: ALLIED CAPITAL
CORPORATION
/s/ TRICIA BENZ DANIELS BY /s/ JOAN M. SWEENEY (SEAL)
- - - - - - - - - - - - - --------------------------------- ---------------------------------
Seal Secretary Name:
Title: Managing Director
<PAGE> 1
EXHIBIT 10.9
ALLIED EMPLOYEE STOCK OWNERSHIP
PLAN AND TRUST AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
ARTICLE II
ADMINISTRATION
<TABLE>
<S> <C>
2.1 POWERS AND RESPONSIBILITIES OF THE EMPLOYER ........... 14
2.2 DESIGNATION OF ADMINISTRATIVE AUTHORITY ............... 15
2.3 ALLOCATION AND DELEGATION OF RESPONSIBILITIES.......... 16
2.4 POWERS AND DUTIES OF THE ADMINISTRATOR ................ 16
2.5 RECORDS AND REPORTS ................................... 17
2.6 APPOINTMENT OF ADVISERS ............................... 17
2.7 PAYMENT OF EXPENSES ................................... 18
2.8 CLAIMS PROCEDURE ...................................... 18
2.9 CLAIMS REVIEW PROCEDURE ............................... 18
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY ............................. 19
3.2 EFFECTIVE DATE OF PARTICIPATION ....................... 19
3.3 DETERMINATION OF ELIGIBILITY .......................... 19
3.4 TERMINATION OF ELIGIBILITY ............................ 19
3.5 OMISSION OF ELIGIBLE EMPLOYEE ......................... 20
3.6 INCLUSION OF INELIGIBLE EMPLOYEE ...................... 20
3.7 ELECTION NOT TO PARTICIPATE ........................... 20
</TABLE>
<PAGE> 3
ARTICLE IV
CONTRIBUTION AND ALLOCATION
<TABLE>
<S> <C>
4.1 FORMULA FOR DETERMINING EMPLOYER CONTRIBUTION.......... 20
4.2 TIME OF PAYMENT OF EMPLOYER CONTRIBUTION .............. 21
4.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND
EARNINGS .............................................. 21
4.4 MAXIMUM ANNUAL ADDITIONS .............................. 25
4.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS ............. 28
4.6 TRANSFERS FROM QUALIFIED PLANS ........................ 29
4.7 DIRECTED INVESTMENT ACCOUNT ........................... 31
4.8 QUALIFIED VOLUNTARY EMPLOYEE CONTRIBUTIONS ............ 32
ARTICLE V
FUNDING AND INVESTMENT POLICY
5.1 INVESTMENT POLICY ..................................... 33
5.2 APPLICATION OF CASH ................................... 33
5.3 TRANSACTIONS INVOLVING COMPANY STOCK .................. 34
5.4 LOANS TO THE TRUST .................................... 35
ARTICLE VI
VALUATIONS
6.1 VALUATION OF THE TRUST FUND ........................... 36
6.2 METHOD OF VALUATION ................................... 36
ARTICLE VII
DETERMINATION AND DISTRIBUTION OF BENEFITS
7.1 DETERMINATION OF BENEFITS UPON RETIREMENT ............. 37
7.2 DETERMINATION OF BENEFITS UPON DEATH .................. 37
</TABLE>
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<TABLE>
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7.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY .. 39
7.4 DETERMINATION OF BENEFITS UPON TERMINATION ..... .. 39
7.5 DISTRIBUTION OF BENEFITS .......................... 43
7.6 HOW PLAN BENEFIT WILL BE DISTRIBUTED .............. 47
7.7 DISTRIBUTION FOR MINOR BENEFICIARY ................ 48
7.8 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN .... 48
7.9 RIGHT OF FIRST REFUSALS ........................... 48
7.10 STOCK CERTIFICATE LEGEND .......................... 50
7.11 PUT OPTION ........................................ 50
7.12 NONTERMINABLE PROTECTIONS AND RIGHTS .............. 52
7.13 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION .. 53
ARTICLE VIII
TRUSTEE
8.1 BASIC RESPONSIBILITIES OF THE TRUSTEE ............. 53
8.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE ....... 54
8.3 OTHER POWERS OF THE TRUSTEE ....................... 55
8.4 LOANS TO PARTICIPANTS ............................. 58
8.5 VOTING COMPANY STOCK .............................. 60
8.6 DUTIES OF THE TRUSTEE REGARDING PAYMENTS .......... 60
8.7 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES ..... 61
8.8 ANNUAL REPORT OF THE TRUSTEE ...................... 62
8.9 AUDIT ............................................. 62
8.10 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE .... 63
8.11 TRANSFER OF INTEREST .............................. 64
8.12 DIRECT ROLLOVER ................................... 64
</TABLE>
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ARTICLE IX
AMENDMENT, TERMINATION AND MERGERS
<TABLE>
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9.1 AMENDMENT ........................................... 65
9.2 TERMINATION ......................................... 66
9.3 MERGER OR CONSOLIDATION ............................. 67
ARTICLE X
TOP HEAVY
10.1 TOP HEAVY PLAN REQUIREMENTS ......................... 67
10.2 DETERMINATION OF TOP HEAVY STATUS ................... 67
ARTICLE XI
MISCELLANEOUS
11.1 PARTICIPANT'S RIGHTS ................................ 71
11.2 ALIENATION .......................................... 71
11.3 CONSTRUCTION OF PLAN ................................ 72
11.4 GENDER AND NUMBER ................................... 72
11.5 LEGAL ACTION ........................................ 72
11.6 PROHIBITION AGAINST DIVERSION OF FUNDS .............. 73
11.7 BONDING ............................................. 73
11.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE .......... 73
11.9 INSURER'S PROTECTIVE CLAUSE ......................... 74
11.10 RECEIPT AND RELEASE FOR PAYMENTS .................... 74
11.11 ACTION BY THE EMPLOYER .............................. 74
11.12 NAMED FIDUCIARIES AND ALLOCATION OF
RESPONSIBILITY ...................................... 74
11.13 HEADINGS ............................................ 75
11.14 APPROVAL BY INTERNAL REVENUE SERVICE ................ 75
</TABLE>
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<TABLE>
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11.15 UNIFORMITY .......................................... 76
11.16 WAIVER OF FUNDING ................................... 76
11.17 SECURITIES AND EXCHANGE COMMISSION APPROVAL ......... 77
ARTICLE XII
PARTICIPATING EMPLOYERS
12.1 ADOPTION BY OTHER EMPLOYERS ......................... 77
12.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS ............. 77
12.3 DESIGNATION OF AGENT ................................ 78
12.4 EMPLOYEE TRANSFERS .................................. 78
12.5 PARTICIPATING EMPLOYER CONTRIBUTION ................. 79
12.6 AMENDMENT ........................................... 79
12.7 DISCONTINUANCE OF PARTICIPATION ..................... 79
12.8 ADMINISTRATOR'S AUTHORITY ........................... 80
</TABLE>
<PAGE> 7
ALLIED EMPLOYEE STOCK OWNERSHIP
PLAN AND TRUST AGREEMENT
THIS AGREEMENT, hereby made and entered into this 31 day of
December, 1997, by and between Allied Capital Corporation (herein referred to as
the "Employer") and William L. Walton and G. Cabell Williams III (herein
referred to as the "Trustee").
W I T N E S S E T H:
WHEREAS, the Employer heretofore established an Employee Stock
Ownership Plan and Trust effective January 1, 1990 (hereinafter called the
"Effective Date"), known as Allied Employee Stock Ownership Plan and Trust
Agreement (herein referred to as the "Plan") in recognition of the contribution
made to its successful operation by its employees and for the exclusive benefit
of its eligible employees; and
WHEREAS, under the terms of the Plan, the Employer has the ability to
amend the Plan, provided the Trustee joins in such amendment if the provisions
of the Plan affecting the Trustee are amended; and
WHEREAS, contributions to the Plan will be made by the Employer and
such contributions made to the trust will be invested primarily in the capital
stock of the Employer;
NOW, THEREFORE, effective January 1, 1998, except as otherwise
provided, the Employer and the Trustee in accordance with the provisions of the
Plan pertaining to amendments thereof, hereby amend the Plan in its entirety and
restate the Plan to provide as follows:
ARTICLE I
DEFINITIONS
1.1 "Act" means the Employee Retirement Income Security Act of 1974,
as it may be amended from time to time.
1.2 "Administrator" means the Employer unless another person or
entity has been designated by the Employer pursuant to Section 2.2 to administer
the Plan on behalf of the Employer.
1.3 "Affiliated Employer" means any corporation which is a member of
a controlled group of corporations (as defined in Code Section 414 (b)) which
includes the Employer; any trade or business (whether or not incorporated) which
is under common control (as defined in Code Section 414 (c)) with the Employer;
any organization (whether or not incorporated) which is a member of an
affiliated service group (as defined in Code Section 414 (m)) which includes the
Employer; and any other entity required to be aggregated with the Employer
pursuant to Regulations under Code Section 414(o).
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1.4 "Aggregate Account" means, with respect to each Participant, the value
of all accounts maintained on behalf of a Participant, whether attributable to
Employer or Employee contributions, subject to the provisions of Section 10.2.
1.5 "Anniversary Date" means December 31st.
1.6 "Beneficiary" means the person to whom the share of a
deceased Participant's total account is payable, subject to the restrictions of
Sections 7.2 and 7.5.
1.7 "Code" means the Internal Revenue Code of 1986, as amended or replaced
from time to time.
1.8 "Company Stock" means common stock issued by the Employer (or by a
corporation which is a member of the controlled group of corporations of which
the Employer is a member) which is readily tradeable on an established
securities market. If there is no common stock which meets the foregoing
requirement, the term "Company Stock" means common stock issued by the Employer
(or by a corporation which is a member of the same controlled group) having a
combination of voting power and dividend rights equal to or in excess of: (A)
that class of common stock of the Employer (or of any other such corporation)
having the greatest voting power, and (B) that class of common stock of the
Employer (or of any other such corporation) having the greatest dividend rights.
Noncallable preferred stock shall be deemed to be "Company Stock" if such stock
is convertible at any time into stock which constitutes "Company Stock"
hereunder and if such conversion is at a conversion price which (as of the date
of the acquisition by the Trust) is reasonable. For purposes of the preceding
sentence, pursuant to Regulations, preferred stock shall be treated as
noncallable if after the call there will be a reasonable opportunity for a
conversion which meets the requirements of the preceding sentence.
1.9 "Company Stock Account" means the account of a Participant which is
credited with the shares of Company Stock purchased and paid for by the Trust
Fund or contributed to the Trust Fund.
A separate accounting shall be maintained with respect to that portion
of the Company Stock Account attributable to the Money Purchase Pension Plan
and the Stock Bonus Plan.
1.10 "Compensation" with respect to any Participant means such
Participant's wages for the Plan Year within the meaning of Code Section 3401(a)
(for the purposes of income tax withholding at the source) but determined
without regard to any rules that limit the remuneration included in wages based
on the nature or location of the employment or the services performed (such as
the exception for agricultural labor in Code Section 3401(a)(2)).
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<PAGE> 9
For purposes of this Section, the determination of Compensation shall be
made by:
(a) including amounts which are contributed by the Employer
pursuant to a salary reduction agreement and which are not includible in
the gross income of the Participant under Code Sections 125, 402(e)(3),
402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in
Code Section 414(h)(2) that are treated as Employer contributions.
For a Participant's initial year of participation, Compensation shall be
recognized for the entire Plan Year.
Compensation in excess of $150,000 shall be disregarded. Such amount
shall be adjusted for increases in the cost of living in accordance with Code
Section 401(a)(17), except that the dollar increase in effect on January 1 of
any calendar year shall be effective for the Plan Year beginning with or within
such calendar year. For any short Plan Year the Compensation limit shall be an
amount equal to the Compensation limit for the calendar year in which the Plan
Year begins multiplied by the ratio obtained by dividing the number of full
months in the short Plan Year by twelve (12).
For purposes of this Section, if the Plan is a plan described in Code
Section 413(c) or 414(f) (a plan maintained by more than one Employer), the
limitation applies separately with respect to the Compensation of any
Participant from each Employer maintaining the Plan.
If, in connection with the adoption of this amendment and restatement,
the definition of Compensation has been modified, then, for Plan Years prior to
the Plan Year which includes the adoption date of this amendment and
restatement, Compensation means compensation determined pursuant to the Plan
then in effect.
1.11 "Contract" or "Policy" means any life insurance policy, retirement
income or annuity policy, or annuity contract (group or individual) issued
pursuant to the terms of the Plan.
1.12 "Current Obligations" means Trust obligations arising from extension of
credit to the Trust and payable in cash within (1) year from the date an
Employer contribution is due.
1.13 "Early Retirement Date." This Plan does not provide for a retirement
date prior to Normal Retirement Date.
1.14 "Eligible Employee" means any Employee.
Employees of Affiliated Employers shall not be eligible to participate
in this Plan unless such Affiliated Employers have specifically adopted this
Plan in writing.
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<PAGE> 10
1.15 "Employee" means any person who is employed by the Employer or
Affiliated Employer. Employee shall include Leased Employees within the meaning
of Code Sections 414(n)(2) and 414(o)(2) unless such Leased Employees are
covered by a plan described in Code Section 414(n)(5) and such Leased
Employees do not constitute more than 20% of the recipient's non-highly
compensated work force.
1.16 "Employer" means Allied Capital Corporation and any successor which
shall maintain this Plan; and any predecessor which has maintained this Plan.
The Employer is a corporation with principal offices in the District of
Columbia. In addition, where appropriate, the term Employer shall include any
Participating Employer (as defined in Section 12.1) which shall adopt this Plan.
1.17 "ESOP" means an employee stock ownership plan that meets the
requirements of Code Section 4975 (e)(7) and Regulation 54.4975-11.
1.18 "Exempt Loan" means a loan made to the Plan by a disqualified person or
a loan to the Plan which is guaranteed by a disqualified person and which
satisfies the requirements of Section 2550.408b-3 of the Department of Labor
Regulations, Section 54.4975-7(b) of the Treasury Regulations and Section 5.4
hereof.
1.19 "Family Member" means, with respect to an affected Participant, such
Participant's spouse and such Participant's lineal descendants and ascendants
and their spouses, all as described in Code Section 414(q)(6)(B).
1.20 "Fiduciary" means any person who (a) exercises any discretionary
authority or discretionary control respecting management of the Plan or
exercises any authority or control respecting management or disposition of its
assets, (b) renders investment advice for a fee or other compensation, direct or
indirect, with respect to any monies or other property of the Plan or has any
authority or responsibility to do so, or (c) has any discretionary authority or
discretionary responsibility in the administration of the Plan, including, but
not limited to, the Trustee, the Employer and its representative body, and the
Administrator.
1.21 "Fiscal Year" means the Employer's accounting year of 12 months
commencing on January 1st of each year and ending the following December 31st.
1.22 "Forfeiture" means that portion of a Participant's Account that is not
Vested, and occurs on the earlier of:
(a) the distribution of the entire Vested portion of a
Terminated Participant's Account, or
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<PAGE> 11
(b) the last day of the Plan Year in which the Participant
incurs five (5) consecutive 1-Year Breaks in Service.
Furthermore, for purposes of paragraph (a) above, in the case of a
Terminated Participant whose Vested benefit is zero, such Terminated
Participant shall be deemed to have received a distribution of his Vested
benefit upon his termination of employment. Restoration of such amounts shall
occur pursuant to Section 7.4(f)(2). In addition, the term Forfeiture shall also
include amounts deemed to be Forfeitures pursuant to any other provision of this
Plan.
1.23 "Former Participant" means a person who has been a Participant, but who
has ceased to be a Participant for any reason.
1.24 "415 Compensation" with respect to any Participant means such
Participant's wages for the Plan Year within the meaning of Code Section
3401(a) (for the purposes of income tax withholding at the source) but
determined without regard to any rules that limit the remuneration included in
wages based on the nature or location of the employment or the services
performed (such as the exception for agricultural labor in Code Section
3401(a)(2)).
For Plan Years beginning after December 31, 1997, for purposes of this
Section, the determination of "415 Compensation" shall be made by including
amounts which are contributed by the Employer pursuant to a salary reduction
agreement and which are not includible in the gross income of the Participant
under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and
Employee contributions described in Code Section 414(h)(2) that are treated as
Employer contributions.
If, in connection with the adoption of this amendment and restatement,
the definition of "415 Compensation" has been modified, then, for Plan Years
prior to the Plan Year which includes the adoption date of this amendment and
restatement, "415 Compensation" means compensation determined pursuant to the
Plan then in effect.
1.25 "Highly Compensated Employee" means an Employee described in Code
Section 414(q) and the Regulations thereunder, and generally means an Employee
who performed services for the Employer during the "determination year" and is
in one or more of the following groups:
(a) Employees who at any time during the "determination year" or
"look-back year" were "five percent owners" as defined in Section
1.30(c).
(b) Employees who received "415 Compensation" during the
"look-back year" from the Employer in excess of $80,000 and were in the
Top Paid Group of Employees during the "look-back year."
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<PAGE> 12
The "determination year" shall be the Plan Year for which testing is
being performed, and the "look-back year" shall be the immediately preceding
twelve-month period.
Notwithstanding the above, for the first Plan Year beginning after
December 31, 1996, the "look-back year" shall be the calendar year ending with
or within the Plan Year for which testing is being performed, and the
"determination year" (if applicable) shall be the period of time, if any, which
extends beyond the "look-back year" and ends on the last day of the Plan Year
for which testing is being performed (the "lag period").
For purposes of this Section, the determination of "415 Compensation"
shall be made by including amounts which are contributed by the Employer
pursuant to a salary reduction agreement and which are not includible in the
gross income of the Participant under Code Sections 125, 402(e)(3),
402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code
Section 414(h)(2) that are treated as Employer contributions. Additionally,
the dollar threshold amount specified in (b) above shall be adjusted at such
time and in the same manner as under Code Section 415(d), except that the base
period shall be the calendar quarter ending September 30, 1996. In the case of
such an adjustment, the dollar limit which shall be applied is the limit for the
calendar year in which the "look-back year" begins.
In determining who is a Highly Compensated Employee, Employees who are
non-resident aliens and who received no earned income (within the meaning of
Code Section 911(d)(2)) from the Employer constituting United States source
income within the meaning of Code Section 861(a)(3) shall not be treated as
Employees. Additionally, all Affiliated Employers shall be taken into account as
a single employer and Leased Employees within the meaning of Code Sections
414(n)(2) and 414(o)(2) shall be considered Employees unless such Leased
Employees are covered by a plan described in Code Section 414(n)(5) and are
not covered in any qualified plan maintained by the Employer. The exclusion of
Leased Employees for this purpose shall be applied on a uniform and consistent
basis for all of the Employer's retirement plans. Highly Compensated Former
Employees shall be treated as Highly Compensated Employees without regard to
whether they performed services during the "determination year."
1.26 "Highly Compensated Former Employee" means a former Employee who had a
separation year prior to the "determination year" and was a Highly Compensated
Employee in the year of separation from service or in any "determination year"
after attaining age 55. Notwithstanding the foregoing, an Employee who separated
from service prior to 1987 will be treated as a Highly Compensated Former
Employee only if during the separation year (or year preceding the separation
year) or any year after the Employee attains age 55 (or the last year ending
before the Employee's 55th birthday), the Employee either received "415
Compensation" in excess of $50,000 or was a "five percent owner." For purposes
of
6
<PAGE> 13
this Section, "determination year," "415 Compensation" and "five percent owner"
shall be determined in accordance with Section 1.25. Highly Compensated Former
Employees shall be treated as Highly Compensated Employees. The method set forth
in this Section for determining who is a "Highly Compensated Former Employee"
shall be applied on a uniform and consistent basis for all purposes for which
the Code Section 414(q) definition is applicable.
1.27 "Highly Compensated Participant" means any Highly Compensated Employee
who is eligible to participate in the Plan.
1.28 "Hour of Service" means (1) each hour for which an Employee is
directly or indirectly compensated or entitled to compensation by the Employer
for the performance of duties (these hours will be credited to the Employee for
the computation period in which the duties are performed); (2) each hour for
which an Employee is directly or indirectly compensated or entitled to
compensation by the Employer (irrespective of whether the employment
relationship has terminated) for reasons other than performance of duties (such
as vacation, holidays, sickness, jury duty, disability, lay-off, military duty
or leave of absence) during the applicable computation period (these hours will
be calculated and credited pursuant to Department of Labor regulation
2530.200b-2 which is incorporated herein by reference); (3) each hour for which
back pay is awarded or agreed to by the Employer without regard to mitigation
of damages (these hours will be credited to the Employee for the computation
period or periods to which the award or agreement pertains rather than the
computation period in which the award, agreement or payment is made). The same
Hours of Service shall not be credited both under (1) or (2), as the case may
be, and under (3).
Notwithstanding the above, (i) no more than 501 Hours of Service are
required to be credited to an Employee on account of any single continuous
period during which the Employee performs no duties (whether or not such period
occurs in a single computation period); (ii) an hour for which an Employee is
directly or indirectly paid, or entitled to payment, on account of a period
during which no duties are performed is not required to be credited to the
Employee if such payment is made or due under a plan maintained solely for the
purpose of complying with applicable worker's compensation, or unemployment
compensation or disability insurance laws; and (iii) Hours of Service are not
required to be credited for a payment which solely reimburses an Employee for
medical or medically related expenses incurred by the Employee.
For purposes of this Section, a payment shall be deemed to be made by or
due from the Employer regardless of whether such payment is made by or due from
the Employer directly, or indirectly through, among others, a trust fund, or
insurer, to which the Employer contributes or pays premiums and regardless of
whether contributions made or due to the trust fund, insurer, or other entity
are for the benefit of particular Employees or are on behalf of a group of
Employees in the aggregate.
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<PAGE> 14
For purposes of this Section, Hours of Service will be credited for
employment with other Affiliated Employers. The provisions of Department of
Labor regulations 2530.200b-2(b) and (c) are incorporated herein by reference.
1.29 "Investment Manager" means an entity that (a) has the power to manage,
acquire, or dispose of Plan assets and (b) acknowledges fiduciary responsibility
to the Plan in writing. Such entity must be a person, firm, or corporation
registered as an investment adviser under the Investment Advisers Act of 1940, a
bank, or an insurance company.
1.30 "Key Employee" means an Employee as defined in Code Section 416(i) and
the Regulations thereunder. Generally, any Employee or former Employee (as well
as each of his Beneficiaries) is considered a Key Employee if he, at any time
during the Plan Year that contains the "Determination Date" or any of the
preceding four (4) Plan Years, has been included in one of the following
categories:
(a) an officer of the Employer (as that term is defined within
the meaning of the Regulations under Code Section 416) having annual
"415 Compensation" greater than 50 percent of the amount in effect under
Code Section 415(b)(1)(A) for any such Plan Year.
(b) one of the ten employees having annual "415 Compensation"
from the Employer for a Plan Year greater than the dollar limitation in
effect under Code Section 415(c)(1)(A) for the calendar year in which
such Plan Year ends and owning (or considered as owning within the
meaning of Code Section 318) both more than one-half percent interest
and the largest interests in the Employer.
(c) a "five percent owner" of the Employer. "Five percent owner"
means any person who owns (or is considered as owning within the meaning
of Code Section 318) more than five percent (5%) of the outstanding
stock of the Employer or stock possessing more than five percent (5%) of
the total combined voting power of all stock of the Employer or, in the
case of an unincorporated business, any person who owns more than five
percent (5%) of the capital or profits interest in the Employer. In
determining percentage ownership hereunder, employers that would
otherwise be aggregated under Code Sections 414(b), (c), (m) and (o)
shall be treated as separate employers.
(d) a "one percent owner" of the Employer having an annual "415
Compensation" from the Employer of more than $150,000. "One percent
owner" means any person who owns (or is considered as owning within the
meaning of Code Section 318) more than one percent (1%) of the
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<PAGE> 15
outstanding stock of the Employer or stock possessing more than one
percent (1%) of the total combined voting power of all stock of the
Employer or, in the case of an unincorporated business, any person who
owns more than one percent (1%) of the capital or profits interest in
the Employer. In determining percentage ownership hereunder, employers
that would otherwise be aggregated under Code Sections 414(b), (c), (m)
and (o) shall be treated as separate employers. However, in determining
whether an individual has "415 Compensation" of more than $150,000,
"415 Compensation" from each employer required to be aggregated under
Code Sections 414(b), (c), (m) and (o) shall be taken into account.
For purposes of this Section, the determination of "415 Compensation"
shall be made by including amounts which are contributed by the Employer
pursuant to a salary reduction agreement and which are not includible in the
gross income of the Participant under Code Sections 125, 402(e)(3), 402(h)(1)
(B), 403(b) or 457(b), and Employee contributions described in Code Section
414(h)(2) that are treated as Employer contributions.
1.31 "Late Retirement Date" means the first day of the month coinciding with
or next following a Participant's actual Retirement Date after having reached
his Normal Retirement Date.
1.32 "Leased Employee" means any person (other than an Employee of the
recipient) who pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the recipient (or
for the recipient and related persons determined in accordance with Code Section
414(n)(6)) on a substantially full time basis for a period of at least one
year, and such services are performed under primary direction or control by
the recipient. Contributions or benefits provided a Leased Employee by the
leasing organization which are attributable to services performed for the
recipient employer shall be treated as provided by the recipient employer. A
Leased Employee shall not be considered an Employee of the recipient:
(a) if such employee is covered by a money purchase pension plan
providing:
(1) a non-integrated employer contribution rate of at least 10% of
compensation, as defined in Code Section 415(c)(3), but including
amounts which are contributed by the Employer pursuant to a salary
reduction agreement and which are not includible in the gross income of
the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403
(b) or 457(b), and Employee contributions described in Code Section 414
(h)(2) that are treated as Employer contributions.
(2) immediate participation; and
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(3) full and immediate vesting; and
(b) if Leased Employees do not constitute more than 20% of the
recipient's non-highly compensated work force.
1.33 "Money Purchase Pension Plan" means the portion of the Plan that is
designed to qualify as such pursuant to Code Section 401(a).
1.34 "Non-Highly Compensated Participant" means any Participant who is
neither a Highly Compensated Employee nor a Family Member.
1.35 "Non-Key Employee" means any Employee or former Employee (and his
Beneficiaries) who is not a Key Employee.
1.36 "Normal Retirement Age" means the Participant's 60th birthday. A
Participant shall become fully Vested in his Participant's Account upon
attaining his Normal Retirement Age.
1.37 "Normal Retirement Date" means the first day of the month coinciding
with or next following the Participant's Normal Retirement Age.
1.38 "1-Year Break in Service" means the applicable computation period during
which an Employee has not completed more than 500 Hours of Service with the
Employer. Further, solely for the purpose of determining whether a Participant
has incurred a 1-Year Break in Service, Hours of Service shall be recognized for
"authorized leaves of absence" and "maternity and paternity leaves of absence."
Years of Service and 1-Year Breaks in Service shall be measured on the same
computation period.
"Authorized leave of absence" means an unpaid, temporary cessation from
active employment with the Employer pursuant to an established nondiscriminatory
policy, whether occasioned by illness, military service, or any other reason.
A "maternity or paternity leave of absence" means, for Plan Years
beginning after December 31, 1984, an absence from work for any period by reason
of the Employee's pregnancy, birth of the Employee's child, placement of a child
with the Employee in connection with the adoption of such child, or any absence
for the purpose of caring for such child for a period immediately following such
birth or placement. For this purpose, Hours of Service shall be credited for the
computation period in which the absence from work begins, only if credit
therefore is necessary to prevent the Employee from incurring a 1-Year Break in
Service, or, in any other case, in the immediately following computation period.
The Hours of Service credited for a "maternity or paternity leave of absence"
shall be those which would normally have been credited but for such absence, or,
in any case in which the Administrator is unable to determine such hours
normally credited, eight (8) Hours of Service
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per day. The total Hours of Service required to be credited for a "maternity or
paternity leave of absence" shall not exceed 501.
1.39 "Other Investments Account" means the account of a Participant which is
credited with his share of the net gain (or loss) of the Plan, Forfeitures and
Employer contributions in other than Company Stock and which is debited with
payments made to pay for Company Stock.
A separate accounting shall be maintained with respect to that portion
of the Other Investments Account attributable to the Money Purchase Pension Plan
and the Stock Bonus Plan.
1.40 "Participant" means any Eligible Employee who participates in the Plan
and has not for any reason become ineligible to participate further in the Plan.
1.41 "Participant's Account" means the account established and maintained by
the Administrator for each Participant with respect to his total interest in the
Plan and Trust resulting from the Employer contributions.
1.42 "Plan" means this instrument, including all amendments thereto.
1.43 "Plan Year" means the Plan's accounting year of twelve (12) months
commencing on January 1st of each year and ending the following December 31st.
1.44 "Qualified Voluntary Employee Contribution Account" means the account
established and maintained by the Administrator for each Participant with
respect to his total interest in the Plan and Trust resulting from the
Participant's tax deductible qualified voluntary employee contributions made
pursuant to Section 4.8.
1.45 "Regulation" means the Income Tax Regulations as promulgated by the
Secretary of the Treasury or his delegate, and as amended from time to time.
1.46 "Retired Participant" means a person who has been a Participant, but who
has become entitled to retirement benefits under the Plan.
1.47 "Retirement Date" means the date as of which a Participant retires for
reasons other than Total and Permanent Disability, whether such retirement
occurs on a Participant's Normal Retirement Date or Late Retirement Date (see
Section 7.1).
1.48 "Stock Bonus Plan" means the portion of the Plan that is designed to
qualify as such pursuant to Code Section 401(a).
1.49 "Super Top Heavy Plan" means a plan described in Section 10.2(b).
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1.50 "Terminated Participant" means a person who has been a Participant, but
whose employment has been terminated other than by death, Total and Permanent
Disability or retirement.
1.51 "Top Heavy Plan" means a plan described in Section 10.2(a).
1.52 "Top Heavy Plan Year" means a Plan Year during which the Plan is a Top
Heavy Plan.
1.53 "Top Paid Group" means the top 20 percent of Employees who performed
services for the Employer during the applicable year, ranked according to the
amount of "415 Compensation" (determined for this purpose in accordance with
Section 1.25) received from the Employer during such year. All Affiliated
Employers shall be taken into account as a single employer, and Leased Employees
within the meaning of Code Sections 414(n)(2) and 414(o)(2) shall be
considered Employees unless such Leased Employees are covered by a plan
described in Code Section 414(n)(5) and are not covered in any qualified plan
maintained by the Employer. Employees who are non-resident aliens and who
received no earned income (within the meaning of Code Section 911(d)(2)) from
the Employer constituting United States source income within the meaning of Code
Section 861(a)(3) shall not be treated as Employees. Additionally, for the
purpose of determining the number of active Employees in any year, the following
additional Employees shall also be excluded; however, such Employees shall still
be considered for the purpose of identifying the particular Employees in the Top
Paid Group:
(a) Employees with less than six (6) months of service;
(b) Employees who normally work less than 17 1/2 hours per week;
(c) Employees who normally work less than six (6) months during a
year; and
(d) Employees who have not yet attained age 21.
In addition, if 90 percent or more of the Employees of the Employer are
covered under agreements the Secretary of Labor finds to be collective
bargaining agreements between Employee representatives and the Employer, and the
Plan covers only Employees who are not covered under such agreements, then
Employees covered by such agreements shall be excluded from both the total
number of active Employees as well as from the identification of particular
Employees in the Top Paid Group.
The foregoing exclusions set forth in this Section shall be applied on a
uniform and consistent basis for all purposes for which the Code Section 414(q)
definition is applicable.
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1.54 "Total and Permanent Disability" means a physical or mental condition of
a Participant resulting from bodily injury, disease, or mental disorder which
renders him incapable of continuing his usual and customary employment with the
Employer. The disability of a Participant shall be determined by a licensed
physician chosen by the Administrator. The determination shall be applied
uniformly to all Participants.
1.55 "Trustee" means the person or entity named as trustee herein or in any
separate trust forming a part of this Plan, and any successors.
1.56 "Trust Fund" means the assets of the Plan and Trust as the same shall
exist from time to time.
1.57 "Unallocated Company Stock Suspense Account" means an account containing
Company Stock acquired with the proceeds of an Exempt Loan and which has not
been released from such account and allocated to the Participants' Company Stock
Accounts.
1.58 "USERRA" means the Uniformed Services Employment and Reemployment Rights
Act of 1994. Notwithstanding any provision of this Plan to the contrary,
contributions, benefits and service credit with respect to qualified military
service will be provided in accordance with Code Section 414(u).
1.59 "Valuation Date" means June 30th and December 31st and such other date
or dates deemed necessary by the Administrator. The Valuation Date may include
any day during the Plan Year that the Trustee, any transfer agent appointed by
the Trustee or the Employer and any stock exchange used by such agent are open
for business.
1.60 "Vested" means the nonforfeitable portion of any account maintained on
behalf of a Participant.
1.61 "Year of Service" means the computation period of twelve (12)
consecutive months, herein set forth, during which an Employee has at least
1000 Hours of Service.
An Eligible Employee shall be treated as meeting the one (1) Year of Service
requirement of Section 3.1 as of the end of the first Plan Year in which the
Eligible Employee first performs an Hour of Service if the Eligible Employee has
completed at least 1,000 Hours of Service in such first Plan Year.
For purposes of eligibility for participation, the initial computation
period shall begin with the date on which the Employee first performs an Hour of
Service. The participation computation period beginning after a 1-Year Break in
Service shall be measured from the date on which an Employee again performs an
Hour of Service. The participation computation period shall shift to the Plan
Year which includes the anniversary of the date on which the Employee first
performed an Hour of Service. An Employee
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<PAGE> 20
who is credited with the required Hours of Service in both the initial
computation period (or the computation period beginning after a 1-Year Break in
Service) and the Plan Year which includes the anniversary of the date on which
the Employee first performed an Hour of Service, shall be credited with two (2)
Years of Service for purposes of eligibility to participate.
For vesting purposes, the computation periods shall be the Plan Year,
including periods prior to the Effective Date of the Plan.
The computation period shall be the Plan Year if not otherwise set forth
herein.
Notwithstanding the foregoing, for any short Plan Year, the
determination of whether an Employee has completed a Year of Service shall be
made in accordance with Department of Labor regulation 2530.203-2(c). However,
in determining whether an Employee has completed a Year of Service for benefit
accrual purposes in the short Plan Year, the number of the Hours of Service
required shall be proportionately reduced based on the number of full months in
the short Plan Year.
Years of Service with Allied Capital Corporation, Allied Capital Lending
Corporation, including: Allied Capital Corporation II, Allied Capital Advisors,
Inc., or Allied Capital Commercial Corporation shall be recognized.
Years of Service with any Affiliated Employer shall be recognized.
ARTICLE II
ADMINISTRATION
2.1 POWERS AND RESPONSIBILITIES OF THE EMPLOYER
(a) In addition to the general powers and responsibilities
otherwise provided for in this Plan, the Employer shall be empowered
to appoint and remove the Trustee and the Administrator from time to
time as it deems necessary for the proper administration of the Plan
to ensure that the Plan is being operated for the exclusive benefit
of the Participants and their Beneficiaries in accordance with the
terms of the Plan, the Code, and the Act. The Employer may appoint
counsel, specialists, advisers, agents (including any nonfiduciary
agent) and other persons as the Employer deems necessary or
desirable in connection with the exercise of its fiduciary duties
under this Plan. The Employer may compensate such agents or advisers
from the assets of the Plan as fiduciary expenses (but not including
any business (settlor) expenses of the Employer), to the extent not
paid by the Employer.
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(b) The Employer may, by written agreement or designation,
appoint at its option an Investment Manager (qualified under the
Investment Company Act of 1940 as amended), investment adviser, or
other agent to provide direction to the Trustee with respect to any
or all of the Plan assets. Such appointment shall be given by the
Employer in writing in a form acceptable to the Trustee and shall
specifically identify the Plan assets with respect to which the
Investment Manager or other agent shall have authority to direct the
investment.
(c) The Employer shall establish a "funding policy and method,"
i.e., it shall determine whether the Plan has a short run need for
liquidity (e.g., to pay benefits) or whether liquidity is a long run
goal and investment growth (and stability of same) is a more current
need, or shall appoint a qualified person to do so. The Employer or
its delegate shall communicate such needs and goals to the Trustee,
who shall coordinate such Plan needs with its investment policy. The
communication of such a "funding policy and method" shall not,
however, constitute a directive to the Trustee as to investment of
the Trust Funds. Such "funding policy and method" shall be
consistent with the objectives of this Plan and with the
requirements of Title I of the Act.
(d) The Employer shall periodically review the performance of any
Fiduciary or other person to whom duties have been delegated or
allocated by it under the provisions of this Plan or pursuant to
procedures established hereunder. This requirement may be satisfied
by formal periodic review by the Employer or by a qualified person
specifically designated by the Employer, through day-to-day conduct
and evaluation, or through other appropriate ways.
(e) The Employer will furnish Plan Fiduciaries and Participants
with notices and information statements when voting rights must be
exercised pursuant to Section 8.5.
2.2 DESIGNATION OF ADMINISTRATIVE AUTHORITY
The Employer shall be the Administrator. The Employer may appoint any
person, including, but not limited to, the Employees of the Employer, to perform
the duties of the Administrator. Any person so appointed shall signify his
acceptance by filing written acceptance with the Employer. Upon the resignation
or removal of any individual performing the duties of the Administrator, the
Employer may designate a successor.
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2.3 ALLOCATION AND DELEGATION OF RESPONSIBILITIES
If more than one person is appointed as Administrator, the
responsibilities of each Administrator may be specified by the Employer and
accepted in writing by each Administrator. In the event that no such
delegation is made by the Employer, the Administrators may allocate the
responsibilities among themselves, in which event the Administrators shall
notify the Employer and the Trustee in writing of such action and specify the
responsibilities of each Administrator. The Trustee thereafter shall accept
and rely upon any documents executed by the appropriate Administrator until
such time as the Employer or the Administrators file with the Trustee a
written revocation of such designation.
2.4 POWERS AND DUTIES OF THE ADMINISTRATOR
The primary responsibility of the Administrator is to administer
the Plan for the exclusive benefit of the Participants and their
Beneficiaries, subject to the specific terms of the Plan. The Administrator
shall administer the Plan in accordance with its terms and shall have the
power and discretion to construe the terms of the Plan and to determine all
questions arising in connection with the administration, interpretation, and
application of the Plan. Any such determination by the Administrator shall be
conclusive and binding upon all persons. The Administrator may establish
procedures, correct any defect, supply any information, or reconcile any
inconsistency in such manner and to such extent as shall be deemed necessary
or advisable to carry out the purpose of the Plan; provided, however, that any
procedure, discretionary act, interpretation or construction shall be done in
a nondiscriminatory manner based upon uniform principles consistently applied
and shall be consistent with the intent that the Plan shall continue to be
deemed a qualified plan under the terms of Code Section 401 (a), and shall
comply with the terms of the Act and all regulations issued pursuant thereto.
The Administrator shall have all powers necessary or appropriate to accomplish
his duties under this Plan.
The Administrator shall be charged with the duties of the general
administration of the Plan, including, but not limited to, the following:
(a) the discretion to determine all questions relating to
the eligibility of Employees to participate or remain a Participant
hereunder and to receive benefits under the Plan;
(b) to compute, certify, and direct the Trustee with
respect to the amount and the kind of benefits to which any
Participant shall be entitled hereunder;
(c) to authorize and direct the Trustee with respect to
all nondiscretionary or otherwise directed disbursements from the
Trust;
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(d) to maintain all necessary records for the
administration of the Plan;
(e) to interpret the provisions of the Plan and to make
and publish such rules for regulation of the Plan as are consistent
with the terms hereof;
(f) to determine the size and type of any Contract to be
purchased from any insurer, and to designate the insurer from which
such Contract shall be purchased;
(g) to compute and certify to the Employer and to the
Trustee from time to time the sums of money necessary or desirable
to be contributed to the Plan;
(h) to consult with the Employer and the Trustee regarding
the short and long-term liquidity needs of the Plan in order that
the Trustee can exercise any investment discretion in a manner
designed to accomplish specific objectives;
(i) to establish and communicate to Participants a procedure
for allowing each Participant to direct the Trustee as to the
distribution of his Company Stock Account pursuant to Section 4.7;
(j) to establish and communicate to Participants a
procedure and method to insure that each Participant will vote
Company Stock allocated to such Participant's Company Stock Account
pursuant to Section 8.5;
(k) to assist any Participant regarding his rights,
benefits, or elections available under the Plan.
2.5 RECORDS AND REPORTS
The Administrator shall keep a record of all actions taken and
shall keep all other books of account, records, policies, and other data that
may be necessary for proper administration of the Plan and shall be
responsible for supplying all information and reports to the Internal Revenue
Service, Department of Labor, Participants, Beneficiaries and others as
required by law.
2.6 APPOINTMENT OF ADVISERS
The Administrator, or the Trustee with the consent of the
Administrator, may appoint counsel, specialists, advisers, agents (including
nonfiduciary agents) and other persons as the Administrator or the Trustee
deems necessary or desirable in connection with the administration of this
Plan, including but not limited to agents and advisers to assist with the
administration and management of the Plan, and thereby to provide, among such
other duties as the Administrator may appoint, assistance with
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<PAGE> 24
maintaining Plan records and the providing of investment information to the
Plan's investment fiduciaries.
2.7 PAYMENT OF EXPENSES
All expenses of administration may be paid out of the Trust Fund
unless paid by the Employer. Such expenses shall include any expenses
incident to the functioning of the Administrator, or any person or persons
retained or appointed by any Named Fiduciary incident to the exercise of their
duties under the Plan, including, but not limited to, fees of accountants,
counsel, Investment Managers, and other specialists and their agents, and
other costs of administering the Plan. Until paid, the expenses shall
constitute a liability of the Trust Fund.
2.8 CLAIMS PROCEDURE
Claims for benefits under the Plan may be filed in writing with the
Administrator. Written notice of the disposition of a claim shall be
furnished to the claimant within 90 days after the application is filed. In
the event the claim is denied, the reasons for the denial shall be
specifically set forth in the notice in language calculated to be understood
by the claimant, pertinent provisions of the Plan shall be cited, and, where
appropriate, an explanation as to how the claimant can perfect the claim
will be provided. In addition, the claimant shall be furnished with an
explanation of the Plan's claims review procedure.
2.9 CLAIMS REVIEW PROCEDURE
Any Employee, former Employee, or Beneficiary of either, who has
been denied a benefit by a decision of the Administrator pursuant to Section
2.8 shall be entitled to request the Administrator to give further
consideration to his claim by filing with the Administrator (on a form which
may be obtained from the Administrator) a request for a hearing. Such
request, together with a written statement of the reasons why the claimant
believes his claim should be allowed, shall be filed with the Administrator no
later than 60 days after receipt of the written notification provided for in
Section 2.8. The Administrator shall then conduct a hearing within the next 60
days, at which the claimant may be represented by an attorney or any other
representative of his choosing and at which the claimant shall have an
opportunity to submit written and oral evidence and arguments in support of
his claim. At the hearing (or prior thereto upon 5 business days written
notice to the Administrator) the claimant or his representative shall have an
opportunity to review all documents in the possession of the Administrator
which are pertinent to the claim at issue and its disallowance. Either the
claimant or the Administrator may cause a court reporter to attend the hearing
and record the proceedings. In such event, a complete written transcript of
the proceedings shall be furnished to both parties by the court reporter. The
full expense of any such court reporter and
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<PAGE> 25
such transcripts shall be borne by the party causing the court reporter to
attend the hearing. A final decision as to the allowance of the claim shall
be made by the Administrator within 60 days of receipt of the appeal (unless
there has been an extension of 60 days due to special circumstances, provided
the delay and the special circumstances occasioning it are communicated to the
claimant within the 60 day period). Such communication shall be written in a
manner calculated to be understood by the claimant and shall include specific
reasons for the decision and specific references to the pertinent Plan
provisions on which the decision is based.
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY
Any Eligible Employee who has completed one (1) Year of Service and
has attained age 21 shall be eligible to participate hereunder as of the date
he has satisfied such requirements. However, any Employee who was a
Participant in the Plan prior to the effective date of this amendment and
restatement shall continue to participate in the Plan.
3.2 EFFECTIVE DATE OF PARTICIPATION
An Eligible Employee shall become a Participant effective as of the
first day of the Plan Year in which such Employee met the eligibility
requirements of Section 3.1.
3.3 DETERMINATION OF ELIGIBILITY
The Administrator shall determine the eligibility of each Employee
for participation in the Plan based upon information furnished by the
Employer. Such determination shall be conclusive and binding upon all
persons, as long as the same is made pursuant to the Plan and the Act. Such
determination shall be subject to review per Section 2.9.
3.4 TERMINATION OF ELIGIBILITY
(a) In the event a Participant shall go from a
classification of an Eligible Employee to an ineligible Employee,
such Former Participant shall continue to vest in his interest in
the Plan for each Year of Service completed while a noneligible
Employee, until such time as his Participant's Account shall be
forfeited or distributed pursuant to the terms of the Plan.
Additionally, his interest in the Plan shall continue to share in
the earnings of the Trust Fund.
(b) In the event a Participant is no longer a member of an
eligible class of Employees and becomes ineligible to participate
but has not incurred a 1-Year
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Break in Service, such Employee will participate immediately upon
returning to an eligible class of Employees. If such Participant
incurs a 1-Year Break in Service, eligibility will be determined
under the break in service rules of the Plan.
3.5 OMISSION OF ELIGIBLE EMPLOYEE
If, in any Plan Year, any Employee who should be included as a
Participant in the Plan is erroneously omitted and discovery of such omission
is not made until after a contribution by his Employer for the year has been
made, the Employer shall make a subsequent contribution with respect to the
omitted Employee in the amount which the said Employer would have contributed
with respect to him had he not been omitted. Such contribution shall be made
regardless of whether or not it is deductible in whole or in part in any
taxable year under applicable provisions of the Code.
3.6 INCLUSION OF INELIGIBLE EMPLOYEE
If, in any Plan Year, any person who should not have been included
as a Participant in the Plan is erroneously included and discovery of such
incorrect inclusion is not made until after a contribution for the year has
been made, the Employer shall not be entitled to recover the contribution made
with respect to the ineligible person regardless of whether or not a deduction
is allowable with respect to such contribution. In such event, the amount
contributed with respect to the ineligible person shall constitute a
Forfeiture for the Plan Year in which the discovery is made.
3.7 ELECTION NOT TO PARTICIPATE
An Employee may, subject to the approval of the Employer, elect
voluntarily not to participate in the Plan. The election not to participate
must be communicated to the Employer, in writing, at least thirty (30) days
before the beginning of a Plan Year.
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER CONTRIBUTION
(a) For each Plan Year, the Employer shall contribute to
the Stock Bonus Plan such amount as shall be determined by the
Employer.
(b) The Employer shall make contributions to the Money
Purchase Pension Plan over such period of years as the Employer
may determine on the following basis. On behalf of each
Participant eligible to share in allocations, for each year of his
participation in this Plan, the Employer shall contribute 5% of
his annual Compensation.
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Only Participants who have completed a Year of Service
during the Plan Year shall be eligible to share in the Employer
contribution to the Money Purchase Pension Plan for the year.
(c) The Employer contribution shall not be limited to
years in which the Employer has current or accumulated net
profit. Additionally, to the extent necessary, the Employer shall
contribute to the Plan the amount necessary to provide the top
heavy minimum contribution. All contributions by the Employer
shall be made in cash or in such property as is acceptable to the
Trustee.
(d) Should the Employer, for any reason, fail to make a
contribution to the Money Purchase Pension Plan as provided for
herein, then such deficiency shall be made up in subsequent years
pursuant to Section 11.16.
4.2 TIME OF PAYMENT OF EMPLOYER CONTRIBUTION
Employer contributions will be paid in cash, Company Stock or
other property as the Employer may from time to time determine. Company Stock
and other property will be valued at their then fair market value. The
Employer shall pay to the Trustee its contribution to the Plan for each Plan
Year within the time prescribed by law, including extensions of time, for the
filing of the Employer federal income tax return for the Fiscal Year.
4.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS
(a) The Administrator shall establish and maintain an
account in the name of each Participant to which the Administrator
shall credit as of each Anniversary Date all amounts allocated to
each such Participant as set forth herein.
(b) The Employer shall provide the Administrator with all
information required by the Administrator to make a proper
allocation of the Employer Stock Bonus Plan contributions for each
Plan Year. Within a reasonable period of time after the date of
receipt by the Administrator of such information, the
Administrator shall allocate such contribution to each
Participant's Account in the same proportion that each such
Participant's Compensation for the year bears to the total
Compensation of all Participants for such year.
Only Participants who have completed a Year of Service
during the Plan Year shall be eligible to share in the
discretionary contribution for the year.
(c) The Employer shall provide the Administrator with all
information required by the Administrator to make a proper
allocation of the Employer Money Purchase
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<PAGE> 28
Pension Plan contributions for each Plan Year. Within a
reasonable period of time after the date of receipt by the
Administrator of such information, the Administrator shall
allocate such contribution to each eligible Participant's Account
in accordance with Section 4.1.
(d) The Company Stock Account of each Participant shall be
credited as of each Anniversary Date with Forfeitures of Company
Stock and his allocable share of Company Stock (including
fractional shares) purchased and paid for by the Plan or
contributed in kind by the Employer. Stock dividends on Company
Stock held in his Company Stock Account shall be credited to his
Company Stock Account when paid. Cash dividends on Company Stock
held in his Company Stock Account shall, in the sole discretion of
the Administrator, either be credited to his Other Investments
Account when paid or be used to repay an Exempt Loan; provided,
however, that when cash dividends are used to repay an Exempt
Loan, Company Stock shall be released from the Unallocated Company
Stock Suspense Account and allocated to the Participant's Company
Stock Account pursuant to Section 4.3(g) and, provided further,
that Company Stock allocated to the Participant's Company Stock
Account shall have a fair market value not less than the amount of
cash dividends which would have been allocated to such
Participant's Other Investments Account for the year.
Company Stock acquired by the Plan with the proceeds
of an Exempt Loan shall only be allocated to each Participant's
Company Stock Account upon release from the Unallocated Company
Stock Suspense Account as provided in Section 4.3(g) herein.
Company Stock acquired with the proceeds of an Exempt Loan shall
be an asset of the Trust Fund and maintained in the Unallocated
Company Stock Suspense Account.
(e) As of each Valuation Date, before the current
valuation period allocation of Employer contributions and
Forfeitures, any earnings or losses (net appreciation or net
depreciation) of the Trust Fund shall be allocated in the same
proportion that each Participant's and Former Participant's
nonsegregated accounts (other than each Participant's Company
Stock Account) bear to the total of all Participants' and Former
Participants' nonsegregated accounts (other than Participants'
Company Stock Accounts) as of such date.
Earnings or losses do not include the interest paid
under any installment contract for the purchase of Company Stock
by the Trust Fund or on any loan used by the Trust Fund to
purchase Company Stock, nor does it include income received by the
Trust Fund with respect to Company Stock acquired with the
proceeds of an Exempt
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<PAGE> 29
Loan; all income received by the Trust Fund from Company Stock
acquired with the proceeds of an Exempt Loan may, at the
discretion of the Administrator, be used to repay such loan.
Participants' transfers from other qualified plans
deposited in the general Trust Fund shall share in any earnings
and losses (net appreciation or net depreciation) of the Trust Fund
in the same manner provided above. Each segregated account
maintained on behalf of a Participant shall be credited or charged
with its separate earnings and losses.
(f) Participants' accounts shall be debited for any
insurance or annuity premiums paid, if any, and credited with any
dividends received on insurance contracts.
(g) All Company Stock acquired by the Plan with the
proceeds of an Exempt Loan must be added to and maintained in the
Unallocated Company Stock Suspense Account. Such Company Stock
shall be released and withdrawn from that account as if all
Company Stock in that account were encumbered. For each Plan Year
during the duration of the loan, the number of shares of Company
Stock released shall equal the number of encumbered shares held
immediately before release for the current Plan Year multiplied by
a fraction, the numerator of which is the amount of principal and
interest paid for the Plan Year and the denominator of which is
the sum of the numerator plus the principal and interest to be
paid for all future Plan Years. As of each Anniversary Date, the
Plan must consistently allocate to each Participant's Account, in
the same manner as Employer discretionary contributions pursuant
to Section 4.1(a) are allocated, non-monetary units (shares and
fractional shares of Company Stock) representing each
Participant's interest in Company Stock withdrawn from the
Unallocated Company Stock Suspense Account. However, Company
Stock released from the Unallocated Company Stock Suspense Account
with cash dividends pursuant to Section 4.3(d) shall be allocated
to each Participant's Company Stock Account in the same proportion
that each such Participant's number of shares of Company Stock
sharing in such cash dividends bears to the total number of shares
of all Participants' Company Stock sharing in such cash
dividends. Income earned with respect to Company Stock in the
Unallocated Company Stock Suspense Account shall be used, at the
discretion of the Administrator, to repay the Exempt Loan used to
purchase such Company Stock. Company Stock released from the
Unallocated Company Stock Suspense Account with such income, and
any income which is not so used, shall be allocated as of each
Anniversary Date in the same proportion that each Participant's
and Former
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Participant's nonsegregated accounts after the allocation of any
earnings or losses pursuant to Section 4.3(e) bear to the total
of all Participants' and Former Participants' nonsegregated
accounts after the allocation of any earnings or losses pursuant
to Section 4.3(e).
(h) As of each Anniversary Date any amounts which became
Forfeitures since the last Anniversary Date shall first be made
available to reinstate previously forfeited account balances of
Former Participants, if any, in accordance with Section 7.4(f)(2).
The remaining Forfeitures, if any, shall be added to any Employer
discretionary contribution made pursuant to Section 4.1(a) and for
the Plan Year in which such Forfeitures occur allocated among the
Participants' Accounts in the same manner as any Employer
discretionary contribution for the current year.
Provided, however, that in the event the allocation of
Forfeitures provided herein shall cause the "annual addition" (as
defined in Section 4.4) to any Participant's Account to exceed the
amount allowable by the Code, the excess shall be reallocated in
accordance with Section 4.5.
(i) For any Top Heavy Plan Year, Non-Key Employees not
otherwise eligible to share in the allocation of contributions and
Forfeitures as provided above, shall receive the minimum
allocation provided for in Section 4.3(k) if eligible pursuant to
the provisions of Section 4.3(m).
(j) Notwithstanding the foregoing, Participants who are
not actively employed on the last day of the Plan Year due to
Retirement (Normal or Late), Total and Permanent Disability or
death shall share in the allocation of contributions and
Forfeitures for that Plan Year.
(k) Minimum Allocations Required for Top Heavy Plan Years:
Notwithstanding the foregoing, for any Top Heavy Plan Year, the
sum of the Employer contributions and Forfeitures allocated to the
Participant's Account of each Non-Key Employee shall be equal to
at least three percent (3%) of such Non-Key Employee's 415
Compensation" (reduced by contributions and forfeitures, if any,
allocated to each Non-Key Employee in any defined contribution
plan included with this plan in a Required Aggregation Group).
However, if (1) the sum of the Employer contributions and
Forfeitures allocated to the Participant's Account of each Key
Employee for such Top Heavy Plan Year is less than three percent
(3%) of each Key Employee's "415 Compensation" and (2) this Plan
is not required to be included in an Aggregation Group to
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<PAGE> 31
enable a defined benefit plan to meet the requirements of Code
Section 401(a)(4) or 410, the sum of the Employer contributions
and Forfeitures allocated to the Participant's Account of each
Non-Key Employee shall be equal to the largest percentage
allocated to the Participant's Account of any Key Employee.
(1) For purposes of the minimum allocations set forth
above, the percentage allocated to the Participant's Account of
any Key Employee shall be equal to the ratio of the sum of the
Employer contributions and Forfeitures allocated on behalf of such
Key Employee divided by the "415 Compensation" for such Key
Employee.
(m) For any Top Heavy Plan Year, the minimum allocations
set forth above shall be allocated to the Participant's Account of
all Non-Key Employees who are Participants and who are employed by
the Employer on the last day of the Plan Year, including Non-Key
Employees who have (1) failed to complete a Year of Service; and
(2) declined to make mandatory contributions (if required) to the
Plan.
(n) For the purposes of this Section, "415 Compensation"
shall be limited to $150,000. Such amount shall be adjusted for
increases in the cost of living in accordance with Code Section
401(a)(17), except that the dollar increase in effect on January
1 of any calendar year shall be effective for the Plan Year
beginning with or within such calendar year. For any short Plan
Year the 415 Compensation" limit shall be an amount equal to the
"415 Compensation" limit for the calendar year in which the Plan
Year begins multiplied by the ratio obtained by dividing the
number of full months in the short Plan Year by twelve (12).
(o) If a Former Participant is reemployed after five (5)
consecutive 1-Year Breaks in Service, then separate accounts shall
be maintained as follows:
(1) one account for nonforfeitable benefits attributable
to pre-break service; and
(2) one account representing his status in the Plan
attributable to post-break service.
4.4 MAXIMUM ANNUAL ADDITIONS
(a) Notwithstanding the foregoing, the maximum "annual
additions" credited to a Participant's accounts for any
"limitation year" shall equal the lesser of: (1) $30,000
adjusted annually as provided in Code Section 415(d) pursuant to
the Regulations, or (2) twenty-five percent (25%) of the
Participant's "415 Compensation" for
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such "limitation year." For any short "limitation year," the
dollar limitation in (1) above shall be reduced by a fraction, the
numerator of which is the number of full months in the short
"limitation year" and the denominator of which is twelve (12).
(b) For purposes of applying the limitations of Code
Section 415, "annual additions" means the sum credited to a
Participant's accounts for any "limitation year" of (1) Employer
contributions, (2) Employee contributions, (3) forfeitures, (4)
amounts allocated, after March 31, 1984, to an individual medical
account, as defined in Code Section 415(l)(2) which is part of a
pension or annuity plan maintained by the Employer and (5) amounts
derived from contributions paid or accrued after December 31,
1985, in taxable years ending after such date, which are
attributable to post-retirement medical benefits allocated to the
separate account of a key employee (as defined in Code Section
419A(d)(3)) under a welfare benefit plan (as defined in Code
Section 419(e)) maintained by the Employer. Except, however, the
"415 Compensation" percentage limitation referred to in paragraph
(a)(2) above shall not apply to: (1) any contribution for medical
benefits (within the meaning of Code Section 419A(f)(2)) after
separation from service which is otherwise treated as an "annual
addition," or (2) any amount otherwise treated as an "annual
addition" under Code Section-415(l)(1).
(c) For purposes of applying the limitations of Code
Section 415, the following are not "annual additions": (1) the
transfer of funds from one qualified plan to another and (2)
provided no more than one-third of the Employer contributions for
the year are allocated to Highly Compensated Participants,
Forfeitures of Company Stock purchased with the proceeds of an
Exempt Loan and Employer contributions applied to the payment of
interest on an Exempt Loan. In addition, the following are not
Employee contributions for the purposes of Section 4.4(b)(2):
(1) rollover contributions (as defined in Code Sections 402(a)
(5), 403(a)(4), 403(b)(8) and 408(d)(3)); (2) repayments
of loans made to a Participant from the Plan; (3) repayments of
distributions received by an Employee pursuant to Code Section 411
(a)(7)(B) (cash-outs); (4) repayments of distributions received
by an Employee pursuant to Code Section 411(a)(3)(D) (mandatory
contributions); and (5) Employee contributions to a simplified
employee pension excludable from gross income under Code Section
408(k)(6).
(d) For purposes of applying the limitations of Code
Section 415, the "limitation year" shall be the Plan Year.
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(e) For the purpose of this Section, all qualified defined
contribution plans (whether terminated or not) ever maintained by
the Employer shall be treated as one defined contribution plan.
(f) For the purpose of this Section, if the Employer is a
member of a controlled group of corporations, trades or businesses
under common control (as defined by Code Section 1563(a) or Code
Section 414(b) and (c) as modified by Code Section 415(h)), is a
member of an affiliated service group (as defined by Code Section
414(m)), or is a member of a group of entities required to be
aggregated pursuant to Regulations under Code Section 414(o), all
Employees of such Employers shall be considered to be employed by
a single Employer.
(g) For the purpose of this Section, if this Plan is a
Code Section 413(c) plan, each Employer who maintains this Plan
will be considered to be a separate Employer.
(h)(1) If a Participant participates in more than one
defined contribution plan maintained by the Employer which have
different Anniversary Dates, the maximum "annual additions" under
this Plan shall equal the maximum "annual additions" for the
"limitation year" minus any "annual additions" previously
credited to such Participant's accounts during the "limitation
year."
(2) If a Participant participates in both a defined
contribution plan subject to Code Section 412 and a defined
contribution plan not subject to Code Section 412
maintained by the Employer which have the same Anniversary
Date, "annual additions" will be credited to the
Participant's accounts under the defined contribution plan
subject to Code Section 412 prior to crediting "annual
additions" to the Participant's accounts under the defined
contribution plan not subject to Code Section 412.
(3) If a Participant participates in more than one defined
contribution plan not subject to Code Section 412
maintained by the Employer which have the same Anniversary
Date, the maximum "annual additions" under this Stock Bonus
Plan shall equal the product of (A) the maximum "annual
additions" for the "limitation year" minus any "annual
additions" previously credited under subparagraphs
(1) or (2) above, multiplied by (B) a fraction
(i) the numerator of which is the "annual
additions" which would be credited to such Participant's
accounts under this Stock Bonus Plan
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without regard to the limitations of Code Section 415 and
(ii) the denominator of which is such "annual additions"
for all plans described in this subparagraph.
(i) Notwithstanding anything contained in this Section to
the contrary, the limitations, adjustments and other requirements
prescribed in this Section shall at all times comply with the
provisions of Code Section 415 and the Regulations thereunder, the
terms of which are specifically incorporated herein by reference.
4.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS
(a) If, as a result of the allocation of Forfeitures, a
reasonable error in estimating a Participant's Compensation, a
reasonable error in determining the amount of elective deferrals
(within the meaning of Code Section 402(g)(3)) that may be made
with respect to any Participant under the limits of Section 4.4 or
other facts and circumstances to which Regulation 1. 415-6(b)(6)
shall be applicable, the "annual additions" under this Plan would
cause the maximum "annual additions" to be exceeded for any
Participant, the Administrator shall (1) distribute any elective
deferrals (within the meaning of Code Section 402(g)(3)) or return
any Employee contributions (whether voluntary or mandatory),
and for the distribution of gains attributable to those elective
deferrals and Employee contributions, to the extent that the
distribution or return would reduce the "excess amount" in the
Participant's accounts (2) hold any "excess amount" remaining
after the return of any elective deferrals or voluntary Employee
contributions in a "Section 415 suspense account" (3) allocate and
reallocate the "Section 415 suspense account" in the next
"limitation year" (and succeeding "limitation years" if necessary)
to all Participants in the Plan before any Employer or Employee
contributions which would constitute "annual additions" are made to
the Plan for such "limitation year" (4) reduce Employer
contributions to the Plan for such "limitation year" by the amount
of the "Section 415 suspense account" allocated and reallocated
during such "limitation year."
(b) For purposes of this Article, "excess amount" for any
Participant for a "limitation year" shall mean the excess, if any,
of (1) the "annual additions" which would be credited to his
account under the terms of the Plan without regard to the
limitations of Code Section 415 over (2) the maximum "annual
additions" determined pursuant to Section 4.4.
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(c) For purposes of this Section, "Section 415 suspense
account" shall mean an unallocated account equal to the sum of
"excess amounts" for all Participants in the Plan during the
"limitation year." The "Section 415 suspense account" shall not
share in any earnings or losses of the Trust Fund.
(d) The Plan may not distribute or return "excess amounts,"
other than elective deferrals (within the meaning of Code
Section 402(g)(3)) or Employee contributions (whether voluntary or
mandatory) and gains attributable to such elective deferrals and
Employee contributions, to Participants or Former Participants.
4.6 TRANSFERS FROM QUALIFIED PLANS
(a) With the consent of the Administrator, amounts may be
transferred from other qualified plans by Participants, provided
that the trust from which such funds are transferred permits the
transfer to be made and the transfer will not jeopardize the tax
exempt status of the Plan or Trust or create adverse tax
consequences for the Employer. The amounts transferred shall be
set up in a separate account herein referred to as a "Participant's
Rollover Account." Such account shall be fully Vested at all times
and shall not be subject to Forfeiture for any reason.
(b) Amounts in a Participant's Rollover Account shall be
held by the Trustee pursuant to the provisions of this Plan and may
not be withdrawn by, or distributed to the Participant, in whole or
in part, except as provided in paragraphs (c) and (d) of this
Section.
(c) Except as permitted by Regulations (including
Regulation 1.411(d)-4), amounts attributable to elective
contributions (as defined in Regulation 1.401(k)-1(g)(3)),
including amounts treated as elective contributions, which are
transferred from another qualified plan in a plan-to-plan transfer
shall be subject to the distribution limitations provided for in
Regulation 1.401(k)-l(d).
(d) The Administrator, at the election of the Participant,
shall direct the Trustee to distribute all or a portion of the
amount credited to the Participant's Rollover Account. Any
distributions of amounts held in a Participant's Rollover Account
shall be made in a manner which is consistent with and satisfies
the provisions of Section 7.5, including, but not limited to, all
notice and consent requirements of Code Section 411(a)(11) and the
Regulations thereunder. Furthermore, such amounts shall be
considered as part of a Participant's benefit in
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determining whether an involuntary cash-out of benefits without
Participant consent may be made.
(e) The Administrator may direct that employee transfers
made after a valuation date be segregated into a separate account
for each Participant in a federally insured savings account,
certificate of deposit in a bank or savings and loan association,
money market certificate, or other short term debt security
acceptable to the Trustee until such time as the allocations
pursuant to this Plan have been made, at which time they may
remain segregated or be invested as part of the general Trust
Fund, to be determined by the Administrator.
(f) For purposes of this Section, the term "qualified
plan" shall mean any tax qualified plan under Code Section
401(a). The term "amounts transferred from other qualified plans"
shall mean: (i) amounts transferred to this Plan directly from
another qualified plan; (ii) distributions from another qualified
plan which are eligible rollover distributions and which are
either transferred by the Employee to this Plan within sixty (60)
days following his receipt thereof or are transferred pursuant to
a direct rollover; (iii) amounts transferred to this Plan from a
conduit individual retirement account provided that the conduit
individual retirement account has no assets other than assets
which (A) were previously distributed to the Employee by another
qualified plan as a lump-sum distribution (B) were eligible for
tax-free rollover to a qualified plan and (C) were deposited in
such conduit individual retirement account within sixty (60) days
of receipt thereof and other than earnings on said assets; and
(iv) amounts distributed to the Employee from a conduit individual
retirement account meeting the requirements of clause (iii) above,
and transferred by the Employee to this Plan within sixty (60)
days of his receipt thereof from such conduit individual
retirement account.
(g) Prior to accepting any transfers to which this Section
applies, the Administrator may require the Employee to establish
that the amounts to be transferred to this Plan meet the
requirements of this Section and may also require the Employee to
provide an opinion of counsel satisfactory to the Employer that
the amounts to be transferred meet the requirements of this
Section.
(h) This Plan shall not accept any direct or indirect
transfers (as that term is defined and interpreted under Code
Section 401(a)(11) and the Regulations thereunder) from a
defined benefit plan, money purchase plan (including a target
benefit plan), stock bonus or profit sharing plan which would
otherwise
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have provided for a life annuity form of payment to the Participant.
(i) Notwithstanding anything herein to the contrary, a
transfer directly to this Plan from another qualified plan (or a
transaction having the effect of such a transfer) shall only be
permitted if it will not result in the elimination or reduction of
any "Section 411(d)(6) protected benefit" as described in Section
9.1.
4.7 DIRECTED INVESTMENT ACCOUNT
(a) Each "Qualified Participant" may elect within ninety
(90) days after the close of each Plan Year during the "Qualified
Election Period" to direct the Trustee in writing as to the
distribution in cash and/or Company Stock of 25 percent of the
total number of shares of Company Stock acquired by or contributed
to the Plan that have ever been allocated to such "Qualified
Participant's" Company Stock Account (reduced by the number of
shares of Company Stock previously distributed in cash and/or
Company Stock pursuant to a prior election). In the case of the
election year in which the Participant can make his last election,
the preceding sentence shall be applied by substituting "50
percent" for "25 percent." If the "Qualified Participant" elects to
direct the Trustee as to the distribution of his Company Stock
Account, such direction shall be effective no later than 180 days
after the close of the Plan Year to which such direction applies.
Any such distribution of Company Stock shall be subject to Section
7.11.
Notwithstanding the above, if the fair market value
(determined pursuant to Section 6.1 at the Plan Valuation Date
immediately preceding the first day on which a "Qualified
Participant" is eligible to make an election) of Company Stock
acquired by or contributed to the Plan and allocated to a
"Qualified Participant's" Company Stock Account is $500 or less,
then such Company Stock shall not be subject to this paragraph.
For purposes of determining whether the fair market value exceeds
$500, Company Stock held in accounts of all employee stock
ownership plans (as defined in Code Section 4975(e)(7)) and tax
credit employee stock ownership plans (as defined in Code Section
409(a)) maintained by the Employer or any Affiliated Employer shall
be considered as held by the Plan.
(b) For the purposes of this Section the following
definitions shall apply:
(1) "Qualified Participant" means any Participant or
Former Participant who has completed ten (10)
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Years of Service as a Participant and has attained age 55.
(2) "Qualified Election Period" means the six (6) Plan
Year period beginning with the later of (i) the first Plan
Year in which the Participant first became a "Qualified
Participant," or (ii) the first Plan Year beginning after
December 31, 1986.
4.8 QUALIFIED VOLUNTARY EMPLOYEE CONTRIBUTIONS
(a) Any voluntary employee contribution made in cash after
December 31, 1981 attributable to taxable years ending before
January 1, 1987, shall be treated as a "Qualified Voluntary
Employee Contribution" within the meaning of Code Section 219(e)(2)
as it existed prior to the enactment of the Tax Reform Act of
1986, and held in a separate Qualified Voluntary Employee
Contribution Account.
(b) The balance in each Participant's Qualified Voluntary
Employee Contribution Account shall be fully Vested at all times
and shall not be subject to Forfeiture for any reason.
(c) A Participant may, upon written request delivered to
the Administrator, make withdrawals from his Qualified Voluntary
Employee Contribution Account. Any distribution shall be made in
a manner which is consistent with and satisfies the provisions of
Section 7.5, including, but not limited to, all notice and consent
requirements of Code Section 411(a)(11) and the Regulations
thereunder.
(d) At Normal Retirement Date, or such other date when the
Participant or his Beneficiary shall be entitled to receive
benefits, the fair market value of the Qualified Voluntary
Employee Contribution Account shall be used to provide additional
benefits to the Participant or his Beneficiary.
(e) Unless the Administrator directs Qualified Voluntary
Employee Contributions made pursuant to this Section be segregated
into a separate account for each Participant in a federally
insured savings account, certificate of deposit in a bank or
savings and loan association, money market certificate or other
short term debt security acceptable to the Trustee, they shall be
invested as part of the general Trust Fund and share in earnings
and losses.
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ARTICLE V
FUNDING AND INVESTMENT POLICY
5.1 INVESTMENT POLICY
(a) The Plan is designed to invest primarily in Company
Stock.
(b) With due regard to subparagraph (a) above, the
Administrator may also direct the Trustee to invest funds under
the Plan in other property described in the Trust or in life
insurance policies to the extent permitted by subparagraph (c)
below, or the Trustee may hold such funds in cash or cash
equivalents.
(c) With due regard to subparagraph (a) above, the
Administrator may also direct the Trustee to invest funds under
the Plan in insurance policies on the life of any "keyman"
Employee. The proceeds of a "keyman" insurance policy may not be
used for the repayment of any indebtedness owed by the Plan which
is secured by Company Stock. In the event any "keyman" insurance
is purchased by the Trustee, the premiums paid thereon during any
Plan Year, net of any policy dividends and increases in cash
surrender values, shall be treated as the cost of Plan investment
and any death benefit or cash surrender value received shall be
treated as proceeds from an investment of the Plan.
(d) The Plan may not obligate itself to acquire Company
Stock from a particular holder thereof at an indefinite time
determined upon the happening of an event such as the death of the
holder.
(e) The Plan may not obligate itself to acquire Company
Stock under a put option binding upon the Plan. However, at the
time a put option is exercised, the Plan may be given an option to
assume the rights and obligations of the Employer under a put
option binding upon the Employer.
(f) All purchases of Company Stock shall be made at a
price which, in the judgment of the Administrator, does not exceed
the fair market value thereof. All sales of Company Stock shall
be made at a price which, in the judgment of the Administrator, is
not less than the fair market value thereof. The valuation rules
set forth in Article VI shall be applicable.
5.2 APPLICATION OF CASH
Employer contributions in cash and other cash received by the
Trust Fund shall first be applied to pay any Current obligations of the Trust
Fund.
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5.3 TRANSACTIONS INVOLVING COMPANY STOCK
(a) No portion of the Trust Fund attributable to (or
allocable in lieu of) Company Stock acquired by the Plan in a sale
to which Code Section 1042 applies may accrue or be allocated
directly or indirectly under any plan maintained by the Employer
meeting the requirements of Code Section 401(a):
(1) during the "Nonallocation Period," for the benefit of
(i) any taxpayer who makes an election under Code
Section 1042 (a) with respect to Company Stock,
(ii) any individual who is related to the
taxpayer (within the meaning of Code Section 267(b)),
or
(2) for the benefit of any other person who owns (after
application of Code Section 318(a) applied without regard to
the employee trust exception in Code Section 318(a)(2)(B)
(i)) more than 25 percent of
(i) any class of outstanding stock of the Employer
or Affiliated Employer which issued such Company
Stock, or
(ii) the total value of any class of outstanding
stock of the Employer or Affiliated Employer.
(b) Except, however, subparagraph (a)(1)(ii) above shall
not apply to lineal descendants of the taxpayer, provided that the
aggregate amount allocated to the benefit of all such lineal
descendants during the "Nonallocation Period" does not exceed more
than five (5) percent of the Company Stock (or amounts allocated
in lieu thereof) held by the Plan which are attributable to a sale
to the Plan by any person related to such descendants (within the
meaning of Code Section 267(c)(4)) in a transaction to which Code
Section 1042 is applied.
(c) A person shall be treated as failing to meet the stock
ownership limitation under paragraph (a)(2) above if such person
fails such limitation:
(1) at any time during the one (1) year period ending on
the date of sale of Company Stock to the Plan, or
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<PAGE> 41
(2) on the date as of which Company Stock is allocated to
Participants in the Plan.
(d) For purposes of this Section, "Nonallocation Period"
means the period beginning on the date of the sale of the Company
Stock and ending on the later of:
(1) the date which is ten (10) years after the date
of sale, or
(2) the date of the Plan allocation attributable to the
final payment of the Exempt Loan incurred in connection with
such sale.
5.4 LOANS TO THE TRUST
(a) The Plan may borrow money for any lawful purpose,
provided the proceeds of an Exempt Loan are used within a reasonable
time after receipt only for any or all of the following purposes:
(1) To acquire Company Stock.
(2) To repay such loan.
(3) To repay a prior Exempt Loan.
(b) All loans to the Trust which are made or guaranteed by
a disqualified person must satisfy all requirements applicable to
Exempt Loans including but not limited to the following:
(1) The loan must be at a reasonable rate of interest;
(2) Any collateral pledged to the creditor by the Plan shall
consist only of the Company Stock purchased with the borrowed
funds;
(3) Under the terms of the loan, any pledge of Company
Stock shall provide for the release of shares so pledged on a
pro-rata basis pursuant to Section 4.3(g);
(4) Under the terms of the loan, the creditor shall have no
recourse against the Plan except with respect to such
collateral, earnings attributable to such collateral, Employer
contributions (other than contributions of Company Stock) that
are made to meet Current Obligations and earnings attributable
to such contributions;
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(5) The loan must be for a specific term and may not be
payable at the demand of any person, except in the case of
default;
(6) In the event of default upon an Exempt Loan, the value
of the Trust Fund transferred in satisfaction of the Exempt
Loan shall not exceed the amount of default. If the lender
is a disqualified person, an Exempt Loan shall provide for a
transfer of Trust Funds upon default only upon and to the
extent of the failure of the Plan to meet the payment
schedule of the Exempt Loan;
(7) Exempt Loan payments during a Plan Year must not
exceed an amount equal to: (A) the sum, over all Plan Years,
of all contributions and cash dividends paid by the Employer
to the Plan with respect to such Exempt Loan and earnings on
such Employer contributions and cash dividends, less (B) the
sum of the Exempt Loan payments in all preceding Plan
Years. A separate accounting shall be maintained for such
Employer contributions, cash dividends and earnings until
the Exempt Loan is repaid.
(c) For purposes of this Section, the term "disqualified
person" means a person who is a Fiduciary, a person providing
services to the Plan, an Employer any of whose Employees are
covered by the Plan, an employee organization any of whose members
are covered by the Plan, an owner, direct or indirect, of 50% or
more of the total combined voting power of all classes of voting
stock or of the total value of all classes of the stock, or an
officer, director, 10% or more shareholder, or a highly compensated
Employee.
ARTICLE VI
VALUATIONS
6.1 VALUATION OF THE TRUST FUND
The Administrator shall direct the Trustee, as of each Valuation
Date, to determine the net worth of the assets comprising the Trust Fund as it
exists on the Valuation Date. In determining such net worth, the Trustee
shall value the assets comprising the Trust Fund at their fair market value as
of the Valuation Date and shall deduct all expenses for which the Trustee has
not yet obtained reimbursement from the Employer or the Trust Fund.
6.2 METHOD OF VALUATION
Valuations must be made in good faith and based on all relevant
factors for determining the fair market value of securities. In the case of a
transaction between a Plan and a
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disqualified person, value must be determined as of the date of the
transaction. For all other Plan purposes, value must be determined as of the
most recent Valuation Date under the Plan. An independent appraisal will not
in itself be a good faith determination of value in the case of a transaction
between the Plan and a disqualified person. However, in other cases, a
determination of fair market value based on at least an annual appraisal
independently arrived at by a person who customarily makes such appraisals and
who is independent of any party to the transaction will be deemed to be a good
faith determination of value. Company Stock not readily tradeable on an
established securities market shall be valued by an independent appraiser
meeting requirements similar to the requirements of the Regulations prescribed
under Code Section 170(a)(1).
ARTICLE VII
DETERMINATION AND DISTRIBUTION OF BENEFITS
7.1 DETERMINATION OF BENEFITS UPON RETIREMENT
Every Participant may terminate his employment with the Employer
and retire for the purposes hereof on his Normal Retirement Date. However, a
Participant may postpone the termination of his employment with the Employer
to a later date, in which event the participation of such Participant in the
Plan, including the right to receive allocations pursuant to Section 4.3,
shall continue until his Late Retirement Date. Upon a Participant's
Retirement Date or attainment of his Normal Retirement Date without
termination of employment with the Employer, or as soon thereafter as is
practicable, the Trustee shall, at the election of the Participant, distribute
all amounts credited to such Participant's Account in accordance with Sections
7.5 and 7.6.
7.2 DETERMINATION OF BENEFITS UPON DEATH
(a) Upon the death of a Participant before his Retirement
Date or other termination of his employment, all amounts credited
to such Participant's Account shall become fully Vested. If
elected, distribution of the Participant's Account shall commence
not later than one (1) year after the close of the Plan Year in
which such Participant's death occurs. The Administrator shall
direct the Trustee, in accordance with the provisions of Sections
7.5 and 7.6, to distribute the value of the deceased Participant's
accounts to the Participant's Beneficiary.
(b) Upon the death of a Former Participant, the
Administrator shall direct the Trustee, in accordance with the
provisions of Sections 7.5 and 7.6, to distribute any remaining
Vested amounts credited to the accounts of a deceased Former
Participant to such Former Participant's Beneficiary.
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(c) Any security interest held by the Plan by reason of an
outstanding loan to the Participant or Former Participant shall be taken
into account in determining the amount of the death benefit.
(d) The Administrator may require such proper proof of death and
such evidence of the right of any person to receive payment of the value
of the account of a deceased Participant or Former Participant as the
Administrator may deem desirable. The Administrator's determination of
death and of the right of any person to receive payment shall be
conclusive.
(e) The Beneficiary of the death benefit payable pursuant to
this Section shall be the Participant's spouse. Except, however, the
Participant may designate a Beneficiary other than his spouse if:
(1) the spouse has waived the right to be the Participant's
Beneficiary, or
(2) the Participant is legally separated or has been abandoned
(within the meaning of local law) and the Participant has a court
order to such effect (and there is no "qualified domestic
relations order" as defined in Code Section 414(p) which provides
otherwise), or
(3) the Participant has no spouse, or
(4) the spouse cannot be located.
In such event, the designation of a Beneficiary shall be
made on a form satisfactory to the Administrator. A Participant may at
any time revoke his designation of a Beneficiary or change his
Beneficiary by filing written notice of such revocation or change with
the Administrator. However, the Participant's spouse must again
consent in writing to any change in Beneficiary unless the original
consent acknowledged that the spouse had the right to limit consent only
to a specific Beneficiary and that the spouse voluntarily elected to
relinquish such right. In the event no valid designation of Beneficiary
exists at the time of the Participant's death, the death benefit shall
be payable to his estate.
(f) Any consent by the Participant's spouse to waive any rights
to the death benefit must be in writing, must acknowledge the effect of
such waiver, and be witnessed by a Plan representative or a notary
public. Further, the spouse's consent must be irrevocable and must
acknowledge the specific nonspouse Beneficiary.
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7.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY
In the event of a Participant's Total and Permanent Disability
prior to his Retirement Date or other termination of his employment, all
amounts credited to such Participant's Account shall become fully Vested. In
the event of a Participant's Total and Permanent Disability, the Trustee, in
accordance with the provisions of Sections 7.5 and 7.6, shall distribute to
such Participant all amounts credited to such Participant's Account as though
he had retired. If such Participant elects, distribution shall commence not
later than one (1) year after the close of the Plan Year in which Total and
Permanent Disability occurs.
7.4 DETERMINATION OF BENEFITS UPON TERMINATION
(a) If a Participant's employment with the Employer is
terminated for any reason other than death, Total and Permanent
Disability or retirement, such Participant shall be entitled to
such benefits as are provided hereinafter pursuant to this Section
7.4.
If a portion of a Participant's Account is forfeited,
Company Stock allocated to the Participant's Company Stock Account
must be forfeited only after the Participant's Other Investments
Account has been depleted. If interest in more than one class of
Company Stock has been allocated to a Participant's Account, the
Participant must be treated as forfeiting the same proportion of
each such class.
In the event that the amount of the Vested portion of
the Terminated Participant's Account equals or exceeds the fair
market value of any insurance Contracts, the Trustee, when so
directed by the Administrator and agreed to by the Terminated
Participant, shall assign, transfer, and set over to such
Terminated Participant all Contracts on his life in such form or
with such endorsements so that the settlement options and forms of
payment are consistent with the provisions of Section 7.5. In the
event that the Terminated Participant's Vested portion does not at
least equal the fair market value of the Contracts, if any, the
Terminated Participant may pay over to the Trustee the sum needed
to make the distribution equal to the value of the Contracts being
assigned or transferred, or the Trustee, pursuant to the
Participant's election, may borrow the cash value of the Contracts
from the insurer so that the value of the Contracts is equal to the
Vested portion of the Terminated Participant's Account and then
assign the Contracts to the Terminated Participant.
Distribution of the funds due to a Terminated
Participant shall be made on the occurrence of an event which would
result in the distribution had the Terminated
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<PAGE> 46
Participant remained in the employ of the Employer (upon the Participant's
death, Total and Permanent Disability or Normal Retirement). However, at the
election of the Participant, the Administrator shall direct the Trustee to
cause the entire Vested portion of the Terminated Participant's Account to be
payable to such Terminated Participant as soon as practicable but in no event
later than in the case of a Participant, Former Participant, or Beneficiary
(as the case may be) who requests a distribution in accordance with this
Article on or after January 1 but before June 30 of a Plan Year, 180 days
after such June 30 provided that the Participant or Former Participant has not
completed 1,000 or more Hours of Service during the Plan Year in which the
request is made; or in the case of any other Participant, Former Participant,
or Beneficiary (as the case may be) who requests a distribution in accordance
with this Article, 180 days after the close of the Plan Year in which the
request is made. Any distribution under this paragraph shall be made in a
manner which is consistent with and satisfies the provisions of Sections 7.5
and 7.6, including, but not limited to, all notice and consent requirements of
Code Section 411(a)(11) and the Regulations thereunder.
If the value of a Terminated Participant's Vested benefit derived
from Employer and Employee contributions (including accumulated Qualified
Voluntary Employee Contributions) does not exceed $3,500 ($5,000 for Plan
Years beginning after August 5, 1997) and has never exceeded $3,500 or
$5,000, whichever is applicable, at the time of any prior distribution, the
Administrator shall direct the Trustee to cause the entire Vested benefit to
be paid to such Participant in a single lump sum.
For purposes of this Section 7.4, if the value of a Terminated
Participant's Vested benefit is zero, the Terminated Participant shall be
deemed to have received a distribution of such Vested benefit.
(b) The Vested portion of any Participant's Account for any
Participant who terminated employment prior to January 1, 1995 shall be a
percentage of the total amount credited to his Participant's Account
determined on the basis of the Participant's number of Years of Service
according to the following schedule:
40
<PAGE> 47
<TABLE>
<CAPTION>
Vesting Schedule
Years of Service Percentage
<S> <C>
Less than 2 0 %
2 20 %
3 40 %
4 60 %
5 80 %
6 100 %
</TABLE>
Effective January 1, 1995, a Participant shall become fully vested
in his Participant's Account upon completion of two (2) Years of Service.
(c) Notwithstanding the vesting schedule above, the Vested percentage
of a Participant's Account shall not be less than the Vested percentage
attained as of the later of the effective date or adoption date of this
amendment and restatement.
(d) Notwithstanding the vesting schedule above, upon the complete
discontinuance of the Employer contributions to the Plan or upon any full or
partial termination of the Plan, all amounts credited to the account of any
affected Participant shall become 100% Vested and shall not thereafter be
subject to Forfeiture.
(e) The computation of a Participant's nonforfeitable percentage of
his interest in the Plan shall not be reduced as the result of any direct or
indirect amendment to this Plan. For this purpose, the Plan shall be treated
as having been amended if the Plan provides for an automatic change in vesting
due to a change in top heavy status. In the event that the Plan is amended to
change or modify any vesting schedule, a Participant with at least three (3)
Years of Service as of the expiration date of the election period may elect to
have his nonforfeitable percentage computed under the Plan without regard to
such amendment. If a Participant fails to make such election, then such
Participant shall be subject to the new vesting schedule. The Participant's
election period shall commence on the adoption date of the amendment and shall
end 60 days after the latest of:
(1) the adoption date of the amendment,
(2) the effective date of the amendment, or
(3) the date the Participant receives written notice of the amendment
from the Employer or Administrator.
(f)(1) If any Former Participant shall be reemployed by Employer
before a 1-Year Break in
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<PAGE> 48
Service occurs, he shall continue to participate in the Plan in the same
manner as if such termination had not occurred.
(2) If any Former Participant shall be reemployed by the Employer
before five (5) consecutive 1-Year Breaks in Service, and such Former
Participant had received, or was deemed to have received, a
distribution of his entire Vested interest prior to his reemployment,
his forfeited account shall be reinstated only if he repays the full
amount distributed to him before the earlier of five (5) years after
the first date on which the Participant is subsequently reemployed by
the Employer or the close of the first period of five (5) consecutive
1-Year Breaks in Service commencing after the distribution, or in the
event of a deemed distribution, upon the reemployment of such Former
Participant. In the event the Former Participant does repay the full
amount distributed to him, or in the event of a deemed distribution,
the undistributed portion of the Participant's Account must be restored
in full, unadjusted by any gains or losses occurring subsequent to the
Valuation Date coinciding with or preceding his termination. The
source for such reinstatement shall first be any Forfeitures occurring
during the year. If such source is insufficient, then the Employer
shall contribute an amount which is sufficient to restore any such
forfeited Accounts provided, however, that if a discretionary
contribution is made for such year, such contribution shall first be
applied to restore any such Accounts and the remainder shall be
allocated in accordance with Section 4.3.
(3) If any Former Participant is reemployed after a 1-Year Break in
Service has occurred, Years of Service shall include Years of Service
prior to his 1-Year Break in Service subject to the following rules:
(i) If a Former Participant has a 1-Year Break in Service, his
pre-break and post-break service shall be used for computing
Years of Service for eligibility and for vesting purposes only
after he has been employed for one (1) Year of Service following
the date of his reemployment with the Employer;
(ii) Any Former Participant who under the Plan does not have a
nonforfeitable right to any interest in the Plan resulting from
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<PAGE> 49
Employer contributions shall lose credits otherwise
allowable under (i) above if his consecutive 1-Year
Breaks in Service equal or exceed the greater of (A)
five (5) or (B) the aggregate number of his pre-break
Years of Service;
(iii) After five (5) consecutive 1-Year Breaks in
Service, a Former Participant's Vested Account balance
attributable to pre-break service shall not be
increased as a result of post-break service;
(iv) If a Former Participant who has not had his
Years of Service before a 1-Year Break in Service
disregarded pursuant to (ii) above completes a Year of
Service for eligibility purposes following his
reemployment with the Employer, he shall participate in
the Plan retroactively from his date of reemployment;
(v) If a Former Participant who has not had his
Years of Service before a 1-Year Break in Service
disregarded pursuant to (ii) above completes a Year of
Service (a 1-Year Break in Service previously occurred,
but employment had not terminated), he shall
participate in the Plan retroactively from the first
day on which he is credited with an Hour of Service
after the first eligibility computation period in which
he incurs a 1-Year Break in Service.
(g) In determining Years of Service for purposes of
vesting under the Plan, Years of Service prior to the vesting
computation period in which an Employee attained his eighteenth
birthday shall be excluded.
7.5 DISTRIBUTION OF BENEFITS
(a) The Administrator, pursuant to the election of the
Participant (or if no election has been made prior to the
Participant's death, by his Beneficiary), shall direct the Trustee
to distribute to a Participant or his Beneficiary any amount to
which he is entitled under the Plan in one lump-sum payment.
(b) Any distribution to a Participant who has a benefit
which exceeds, or has ever exceeded, $3,500 ($5, 000 for Plan
Years beginning after August 5, 1997) at the time of any prior
distribution shall require such Participant's consent if such
distribution occurs prior
43
<PAGE> 50
to the later of his Normal Retirement Age or age 62. With regard to this
required consent:
(1) The Participant must be informed of his right to defer receipt of
the distribution. If a Participant fails to consent, it shall be
deemed an election to defer the distribution of any benefit. However,
any election to defer the receipt of benefits shall not apply with
respect to distributions which are required under Section 7.5(e).
(2) Notice of the rights specified under this paragraph shall be
provided no less than 30 days and no more than 90 days before the date
the distribution commences.
(3) Written consent of the Participant to the distribution must not be
made before the Participant receives the notice and must not be made
more than 90 days before the date the distribution commences.
(4) No consent shall be valid if a significant detriment is imposed
under the Plan on any Participant who does not consent to the
distribution.
Any such distribution may commence less than 30 days after the notice
required under Regulation 1.411(a)-11(c) is given, provided that: (1) the
Administrator clearly informs the Participant that the Participant has a right
to a period of at least 30 days after receiving the notice to consider the
decision of whether or not to elect a distribution (and, if applicable, a
particular distribution option), and (2) the Participant, after receiving the
notice, affirmatively elects a distribution.
(c) Notwithstanding anything herein to the contrary, the
Administrator, in his sole discretion, may direct that cash dividends on
shares of Company Stock allocable to Participants' or Former Participants'
Company Stock Accounts be distributed to such Participants or Former
Participants within 90 days after the close of the Plan Year in which the
dividends are paid.
(d) Any part of a Participant's benefit which is retained in the Plan
after the Anniversary Date on which his participation ends will continue to be
treated as a Company Stock Account or as an Other Investments Account (subject
to Section 7.4(a)) as provided in Article IV.
44
<PAGE> 51
However, neither account will be credited with any further Employer
contributions or Forfeitures.
(e) Notwithstanding any provision in the Plan to the contrary, the
distribution of a Participant's benefits shall be made in accordance with the
following requirements and shall otherwise comply with Code Section 401(a)(9)
and the Regulations thereunder (including Regulation 1.401(a)(9)-2), the
provisions of which are incorporated herein by reference:
(1) A Participant's benefits shall be distributed or must begin to be
distributed to him not later than April 1st of the calendar year
following the later of (i) the calendar year in which the Participant
attains age 70 1/2 or (ii) the calendar year in which the Participant
retires, provided, however, that this clause (ii) shall not apply in
the case of a Participant who is a "five (5) percent owner" at any time
during the five (5) Plan Year period ending in the calendar year in
which he attains age 70 1/2 or, in the case of a Participant who
becomes a "five (5) percent owner" during any subsequent Plan Year,
clause (ii) shall no longer apply and the required beginning date shall
be the April 1st of the calendar year following the calendar year in
which such subsequent Plan Year ends. Such distributions shall be
equal to or greater than any required distribution.
(2) Distributions to a Participant and his Beneficiaries shall only be
made in accordance with the incidental death benefit requirements of
Code Section 401(a)(9)(G) and the Regulations thereunder.
(f) Notwithstanding any provision in the Plan to the contrary,
distributions upon the death of a Participant shall be made in accordance
with the following requirements and shall otherwise comply with Code Section
401 (a) (9) and the Regulations thereunder. If it is determined pursuant to
Regulations that the distribution of a Participant's interest has begun and
the Participant dies before his entire interest has been distributed to him,
the remaining portion of such interest shall be distributed at least as
rapidly as under the method of distribution selected pursuant to Section 7.5
as of his date of death. If a Participant dies before he has begun to
receive any distributions of his interest under the Plan or before
distributions are deemed to have begun pursuant to Regulations, then his
death benefit shall be distributed to his Beneficiaries
45
<PAGE> 52
by December 31st of the calendar year in which the fifth anniversary of his
date of death occurs.
However, in the event that the Participant's spouse (determined as
of the date of the Participant's death) is his Beneficiary, then in lieu of
the preceding rules, distributions must be made over a period not extending
beyond the life expectancy of the spouse and must commence on or before the
later of: (1) December 31st of the calendar year immediately following the
calendar year in which the Participant died; or (2) December 31st of the
calendar year in which the Participant would have attained age 70 1/2. If the
surviving spouse dies before distributions to such spouse begin, then the
5-year distribution requirement of this Section shall apply as if the spouse
was the Participant.
(g) For purposes of this Section, the life expectancy of a Participant
and a Participant's spouse may, at the election of the Participant or the
Participant's spouse, be redetermined in accordance with Regulations. The
election, once made, shall be irrevocable. If no election is made by the time
distributions must commence, then the life expectancy of the Participant and
the Participant's spouse shall not be subject to recalculation.
Life expectancy and joint and last survivor expectancy shall be computed using
the return multiples in Tables V and VI of Regulation 1.72-9.
(h) Except as limited by Sections 7.5 and 7.6, whenever the Trustee is
to make a distribution, the distribution may be made as soon as is
practicable. However, unless a Former Participant elects in writing to defer
the receipt of benefits (such election may not result in a death benefit that
is more than incidental), the payment of benefits shall occur not later than
the 60th day after the close of the Plan Year in which the latest of the
following events occurs:
(1) the date on which the Participant attains the earlier of age 65 or
the Normal Retirement Age specified herein;
(2) the 10th anniversary of the year in which the Participant
commenced participation in the Plan; or
(3) the date the Participant terminates his service with the Employer.
(i) If a distribution is made at a time when a Participant is not
fully Vested in his Participant's Account and the Participant may increase the
Vested percentage in such account:
46
<PAGE> 53
(1) a separate account shall be established for the
Participant's interest in the Plan as of the time of the
distribution; and
(2) at any relevant time, the Participant's Vested portion
of the separate account shall be equal to an amount ("X")
determined by the formula:
X equals P(AB plus (R x D)) - (R x D)
For purposes of applying the formula: P is the Vested
percentage at the relevant time, AB is the account balance
at the relevant time, D is the amount of distribution, and R
is the ratio of the account balance at the relevant time to
the account balance after distribution.
7.6 HOW PLAN BENEFIT WILL BE DISTRIBUTED
(a) Distribution of a Participant's Is benefit may be made
in cash or Company Stock or both, provided, however, that if a
Participant or Beneficiary so demands, such benefit shall be
distributed only in the form of Company Stock. Prior to making a
distribution of benefits, the Administrator shall advise the
Participant or his Beneficiary, in writing, of the right to demand
that benefits be distributed solely in Company Stock.
(b) If a Participant or Beneficiary demands that benefits
be distributed solely in Company Stock, distribution of a
Participant's benefit will be made entirely in whole shares or
other units of Company Stock. Any balance in a Participant's
other Investments Account will be applied to acquire for
distribution the maximum number of whole shares or other units of
Company Stock at the then fair market value. Any fractional unit
value unexpended will be distributed in cash. If Company Stock is
not available for purchase by the Trustee, then the Trustee shall
hold such balance until Company Stock is acquired and then make
such distribution, subject to Sections 7.5(h) and 7.5(e).
(c) The Trustee will make distribution from the
Trust only on instructions from the Administrator.
(d) Notwithstanding anything contained herein to
the contrary, if the Employer charter or by-laws restrict
ownership of substantially all shares of Company Stock to
Employees and the Trust Fund, as described in Code Section
409(h)(2), the Administrator shall distribute a Participant's
Account entirely in cash without granting the Participant the
right to demand distribution in shares of Company Stock.
47
<PAGE> 54
(e) Except as otherwise provided herein, Company Stock
distributed by the Trustee may be restricted as to sale or transfer
by the by-laws or articles of incorporation of the Employer,
provided restrictions are applicable to all Company Stock of the
same class. If a Participant is required to offer the sale of his
Company Stock to the Employer before offering to sell his Company
Stock to a third party, in no event may the Employer pay a price
less than that offered to the distributee by another potential
buyer making a bona fide offer and in no event shall the Trustee
pay a price less than the fair market value of the Company Stock.
(f) If Company Stock acquired with the proceeds of an
Exempt Loan (described in Section 5.4 hereof) is available for
distribution and consists of more than one class, a Participant or
his Beneficiary must receive substantially the same proportion of
each such class.
7.7 DISTRIBUTION FOR MINOR BENEFICIARY
In the event a distribution is to be made to a minor, then the
Administrator may direct that such distribution be paid to the legal guardian,
or if none, to a parent of such Beneficiary or a responsible adult with whom
the Beneficiary maintains his residence, or to the custodian for such
Beneficiary under the Uniform Gift to Minors Act or Gift to Minors Act, if
such is permitted by the laws of the state in which said Beneficiary resides.
Such a payment to the legal guardian, custodian or parent of a minor
Beneficiary shall fully discharge the Trustee, Employer, and Plan from further
liability on account thereof.
7.8 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the distribution payable
to a Participant or his Beneficiary hereunder shall, at the later of the
Participant's attainment of age 62 or his Normal Retirement Age, remain unpaid
solely by reason of the inability of the Administrator, after sending a
registered letter, return receipt requested, to the last known address, and
after further diligent effort, to ascertain the whereabouts of such
Participant or his Beneficiary, the amount so distributable shall be treated
as a Forfeiture pursuant to the Plan. In the event a Participant or
Beneficiary is located subsequent to his benefit being reallocated, such
benefit shall be restored unadjusted for earnings or losses.
7.9 RIGHT OF FIRST REFUSALS
(a) If any Participant, his Beneficiary or any other
person to whom shares of Company Stock are distributed from the
Plan (the "Selling Participant") shall, at any time, desire to
sell some or all of such shares (the "Offered Shares") to a third
party (the
48
<PAGE> 55
"Third Party"), the Selling Participant shall give written notice of such
desire to the Employer and the Administrator, which notice shall contain the
number of shares offered for sale, the proposed terms of the sale and the
names and addresses of both the Selling Participant and Third Party. Both
the Trust Fund and the Employer shall each have the right of first refusal
for a period of fourteen (14) days from the date the Selling Participant
gives such written notice to the Employer and the Administrator (such
fourteen (14) day period to run concurrently against the Trust Fund and the
Employer) to acquire the offered Shares. As between the Trust Fund and the
Employer, the Trust Fund shall have priority to acquire the shares pursuant
to the right of first refusal. The selling price and terms shall be the same
as offered by the Third Party.
(b) If the Trust Fund and the Employer do not exercise their right of
first refusal within the required fourteen (14) day period provided above,
the Selling Participant shall have the right, at any time following the
expiration of such fourteen (14) day period, to dispose of the Offered Shares
to the Third Party; provided, however, that (i) no disposition shall be made
to the Third Party on terms more favorable to the Third Party than those set
forth in the written notice delivered by the Selling Participant above, and
(ii) if such disposition shall not be made to a third party on the terms
offered to the Employer and the Trust Fund, the offered Shares shall again be
subject to the right of first refusal set forth above.
(c) The closing pursuant to the exercise of the right of first refusal
under Section 7.9(a) above shall take place at such place agreed upon between
the Administrator and the Selling Participant, but not later than ten (10)
days after the Employer or the Trust Fund shall have notified the Selling
Participant of the exercise of the right of first refusal. At such closing,
the Selling Participant shall deliver certificates representing the Offered
Shares duly endorsed in blank for transfer, or with stock powers attached
duly executed in blank with all required transfer tax stamps attached or
provided for, and the Employer or the Trust Fund shall deliver the purchase
price, or an appropriate portion thereof, to the Selling Participant.
(d) Except as provided in this paragraph (d), no Company Stock
acquired with the proceeds of an Exempt Loan complying with the requirements
of Section 5.4 hereof shall be subject to a right of first refusal. Company
Stock acquired with the proceeds of an Exempt Loan, which is distributed to a
Participant or Beneficiary, shall be subject to the right of first
49
<PAGE> 56
refusal provided for in paragraph (a) of this Section only so long
as the Company Stock is not publicly traded. The term "publicly
traded" refers to a securities exchange registered under Section 6
of the Securities Exchange Act of 1934 (15 U.S.C. 78f) or that is
quoted on a system sponsored by a national securities association
registered under Section 15A(b) of the Securities Exchange Act (15
U.S.C. 780). In addition, in the case of Company Stock which was
acquired with the proceeds of a loan described in Section 5.4, the
selling price and other terms under the right must not be less
favorable to the seller than the greater of the value of the
security determined under Section 6.2, or the purchase price and
other terms offered by a buyer (other than the Employer or the
Trust Fund), making a good faith offer to purchase the security.
The right of first refusal must lapse no later than fourteen (14)
days after the security holder gives notice to the holder of the
right that an offer by a third party to purchase the security has
been made. The right of first refusal shall comply with the
provisions of paragraphs (a), (b) and (c) of this Section, except
to the extent those provisions may conflict with the provisions of
this paragraph.
7.10 STOCK CERTIFICATE LEGEND
Certificates for shares distributed pursuant to the Plan shall
contain the following legend:
"The shares represented by this certificate are transferable only
upon compliance with the terms of ALLIED EMPLOYEE STOCK OWNERSHIP PLAN AND
TRUST AGREEMENT effective as of January 1, 1998, which grants to Allied
Capital Corporation a right of first refusal, a copy of said Plan being on
file in the office of the Company."
7.11 PUT OPTION
(a) If Company Stock which was not acquired with the
proceeds of an Exempt Loan is distributed to a Participant and
such Company Stock is not readily tradeable on an established
securities market, a Participant has a right to require the
Employer to repurchase the Company Stock distributed to such
Participant under a fair valuation formula. Such Stock shall be
subject to the provisions of Section 7.11(c).
(b) Company Stock which is acquired with the proceeds of
an Exempt Loan and which is not publicly traded when distributed,
or if it is subject to a trading limitation when distributed, must
be subject to a put option. For purposes of this paragraph, a
"trading limitation" on a Company Stock is a restriction under any
Federal or State securities law or any regulation
50
<PAGE> 57
thereunder, or an agreement (not prohibited by Section 7.12) affecting the
Company Stock which would make the Company Stock not as freely tradeable as
stock not subject to such restriction.
(c) The put option must be exercisable only by a Participant, by the
Participant's donees, or by a person (including an estate or its distributee)
to whom the Company Stock passes by reason of a Participant's death. (Under
this paragraph Participant or Former Participant means a Participant or
Former Participant and the beneficiaries of the Participant or Former
Participant under the Plan.) The put option must permit a Participant to put
the Company Stock to the Employer. Under no circumstances may the put option
bind the Plan. However, it shall grant the Plan an option to assume the
rights and obligations of the Employer at the time that the put option is
exercised. If it is known at the time a loan is made that Federal or State
law will be violated by the Employer honoring such put option, the put option
must permit the Company Stock to be put, in a manner consistent with such
law, to a third party (e.g., an affiliate of the Employer or a shareholder
other than the Plan) that has substantial net worth at the time the loan is
made and whose net worth is reasonably expected to remain substantial.
The put option shall commence as of the day following the date
the Company Stock is distributed to the Former Participant and end 60 days
thereafter and if not exercised within such 60-day period, an additional
60-day option shall commence on the first day of the fifth month of the Plan
Year next following the date the stock was distributed to the Former
Participant (or such other 60-day period as provided in Regulations).
However, in the case of Company Stock that is publicly traded without
restrictions when distributed but ceases to be so traded within either of the
60-day periods described herein after distribution, the Employer must notify
each holder of such Company Stock in writing on or before the tenth day after
the date the Company Stock ceases to be so traded that for the remainder of
the applicable 60-day period the Company Stock is subject to the put option.
The number of days between the tenth day and the date on which notice is
actually given, if later than the tenth day, must be added to the duration of
the put option. The notice must inform distributees of the term of the put
options that they are to hold. The terms must satisfy the requirements of
this paragraph.
The put option is exercised by the holder notifying the Employer
in writing that the put option is being exercised; the notice shall state the
name and address of the holder and the number of shares to be
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<PAGE> 58
sold. The period during which a put option is exercisable does not
include any time when a distributee is unable to exercise it
because the party bound by the put option is prohibited from
honoring it by applicable Federal or State law. The price at which
a put option must be exercisable is the value of the Company Stock
determined in accordance with Section 6.2. Payment under the put
option involving a "Total Distribution" shall be paid in
substantially equal monthly, quarterly, semiannual or annual
installments over a period certain beginning not later than thirty
(30) days after the exercise of the put option and not extending
beyond (5) years. The deferral of payment is reasonable if
adequate security and a reasonable interest rate on the unpaid
amounts are provided. The amount to be paid under the put option
involving installment distributions must be paid not later than
thirty (30) days after the exercise of the put option. Payment
under a put option must not be restricted by the provisions of a
loan or any other arrangement, including the terms of the Employer
articles of incorporation, unless so required by applicable state
law.
For purposes of this Section, "Total Distribution"
means a distribution to a Participant or his Beneficiary within
one taxable year of the entire Vested Participant's Account.
(d) An arrangement involving the Plan that creates a put
option must not provide for the issuance of put options other than
as provided under this Section. The Plan (and the Trust Fund) must
not otherwise obligate itself to acquire Company Stock from a
particular holder thereof at an indefinite time determined upon the
happening of an event such as the death of the holder.
7.12 NONTERMINABLE PROTECTIONS AND RIGHTS
No Company Stock, except as provided in Section 7.10 and Section
7.11(b), acquired with the proceeds of a loan described in Section 5.4 hereof
may be subject to a put, call, or other option, or buy-sell or similar
arrangement when held by and when distributed from the Trust Fund, whether or
not the Plan is then an ESOP. The protections and rights granted in this
Section are nonterminable, and such protections and rights shall continue to
exist under the terms of this Plan so long as any Company Stock acquired with
the proceeds of a loan described in Section 5.4 hereof is held by the Trust
Fund or by any Participant or other person for whose benefit such protections
and rights have been created, and neither the repayment of such loan nor the
failure of the Plan to be an ESOP, nor an amendment of the Plan shall cause a
termination of said protections and rights.
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<PAGE> 59
7.13 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION
All rights and benefits, including elections, provided to a
Participant in this Plan shall be subject to the rights afforded to any
"alternate payee" under a "qualified domestic relations order." Furthermore, a
distribution to an "alternate payee" shall be permitted if such distribution is
authorized by a "qualified domestic relations order," even if the affected
Participant has not separated from service and has not reached the "earliest
retirement age" under the Plan. For the purposes of this Section, "alternate
payee," "qualified domestic relations order" and "earliest retirement age" shall
have the meaning set forth under Code Section 414(p).
ARTICLE VIII
TRUSTEE
8.1 BASIC RESPONSIBILITIES OF THE TRUSTEE
(a) The Trustee shall have the following categories
of responsibilities:
(1) Consistent with the "funding policy and method"
determined by the Employer, to invest, manage, and
control the Plan assets subject, however, to the
direction of the Employer or an Investment Manager
appointed by the Employer or any agent of the
Employer;
(2) At the direction of the Administrator, to pay
benefits required under the Plan to be paid to
Participants, or, in the event of their death, to
their Beneficiaries; and
(3) To maintain records of receipts and
disbursements and furnish to the Employer and/or
Administrator for each Plan Year a written annual
report per Section 8.8.
(b) In the event that the Trustee shall be directed
by the Employer, or an Investment Manager or other agent
appointed by the Employer with respect to the investment of
any or all Plan assets, the Trustee shall have no liability
with respect to the investment of such assets, but shall be
responsible only to execute such investment instructions as so
directed.
(1) The Trustee shall be entitled to rely fully on
the written instructions of the Employer, or any
Fiduciary or nonfiduciary agent of the Employer, in
the discharge of such duties, and shall not be liable
for any loss or other liability, resulting from such
direction (or lack
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of direction) of the investment of any part of the
Plan assets.
(2) The Trustee may delegate the duty to execute
such instructions to any nonfiduciary agent, which may
be an affiliate of the Trustee or any Plan
representative.
(c) If there shall be more than one Trustee, they
shall act by a majority of their number, but may authorize one
or more of them to sign papers on their behalf.
8.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE
(a) The Trustee shall invest and reinvest the Trust
Fund to keep the Trust Fund invested without distinction
between principal and income and in such securities or
property, real or personal, wherever situated, as the Trustee
shall deem advisable, including, but not limited to, stocks,
common or preferred, bonds and other evidences of indebtedness
or ownership, and real estate or any interest therein. The
Trustee shall at all times in making investments of the Trust
Fund consider, among other factors, the short and long-term
financial needs of the Plan on the basis of information
furnished by the Employer. In making such investments, the
Trustee shall not be restricted to securities or other
property of the character expressly authorized by the
applicable law for trust investments; however, the Trustee
shall give due regard to any limitations imposed by the Code
or the Act so that at all times the Plan may qualify as an
Employee Stock Ownership Plan and Trust.
(b) The Trustee may employ a bank or trust company
pursuant to the terms of its usual and customary bank agency
agreement, under which the duties of such bank or trust
company shall be of a custodial, clerical and record-keeping
nature.
(c) In the event the Trustee invests any part of the
Trust Fund, pursuant to the directions of the Administrator,
in any shares of stock issued by the Employer, and the
Administrator thereafter directs the Trustee to dispose of
such investment, or any part thereof, under circumstances
which, in the opinion of counsel for the Trustee, require
registration of the securities under the Securities Act of
1933 and/or qualification of the securities under the Blue Sky
laws of any state or states, then the Employer at its own
expense, will take or cause to be taken any and all such
action as may be necessary or appropriate to effect such
registration and/or qualification.
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(d) The Trustee, at the direction of the
Administrator, shall ratably apply for, own, and pay premiums
on Contracts on the lives of the Participants. If a life
insurance policy is to be purchased for a Participant, the
aggregate premium for ordinary life insurance for each
Participant must be less than 50% of the aggregate of the
contributions and Forfeitures to the credit of the Participant
at any particular time. If term insurance is purchased with
such contributions, the aggregate premium must be less than
25% of the aggregate contributions and Forfeitures allocated
to a Participant's Account. If both term insurance and
ordinary life insurance are purchased with such contributions,
the amount expended for term insurance plus one-half of the
premium for ordinary life insurance may not in the aggregate
exceed 25% of the aggregate contributions and Forfeitures
allocated to a Participant's Account. The Trustee must convert
the entire value of the life insurance contracts at or before
retirement into cash or provide for a periodic income so that
no portion of such value may be used to continue life
insurance protection beyond retirement, or distribute the
Contracts to the Participant. In the event of any conflict
between the terms of this Plan and the terms of any insurance
Contract purchased hereunder, the Plan provisions shall
control. Notwithstanding anything hereinabove to the contrary,
amounts credited to a Participant's Qualified Voluntary
Employee Contribution Account shall not be applied to the
purchase of life insurance contracts.
8.3 OTHER POWERS OF THE TRUSTEE
The Trustee, in addition to all powers and authorities under
common law, statutory authority, including the Act, and other provisions of the
Plan, shall have the following powers and authorities, to be exercised in the
Trustee's sole discretion:
(a) To purchase, or subscribe for, any securities or
other property and to retain the same. In conjunction with the
purchase of securities, margin accounts may be opened and
maintained;
(b) To sell, exchange, convey, transfer, grant
options to purchase, or otherwise dispose of any securities or
other property held by the Trustee, by private contract or at
public auction. No person dealing with the Trustee shall be
bound to see to the application of the purchase money or to
inquire into the validity, expediency, or propriety of any
such sale or other disposition, with or without advertisement;
(c) To vote upon any stocks, bonds, or other
securities; to give general or special proxies or powers
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of attorney with or without power of substitution; to exercise
any conversion privileges, subscription rights or other
options, and to make any payments incidental thereto; to
oppose, or to consent to, or otherwise participate in,
corporate reorganizations or other changes affecting corporate
securities, and to delegate discretionary powers, and to pay
any assessments or charges in connection therewith; and
generally to exercise any of the powers of an owner with
respect to stocks, bonds, securities, or other property.
However, the Trustee shall not vote proxies relating to
securities for which it has not been assigned full investment
management responsibilities. In those cases where another
party has such investment authority or discretion, the Trustee
will deliver all proxies to said party who will then have full
responsibility for voting those proxies;
(d) To cause any securities or other property to be
registered in the Trustee's own name or in the name of one or
more of the Trustee's nominees, and to hold any investments in
bearer form, but the books and records of the Trustee shall at
all times show that all such investments are part of the Trust
Fund;
(e) To borrow or raise money for the purposes of the
Plan in such amount, and upon such terms and conditions, as
the Trustee shall deem advisable; and for any sum so borrowed,
to issue a promissory note as Trustee, and to secure the
repayment thereof by pledging all, or any part, of the Trust
Fund; and no person lending money to the Trustee shall be
bound to see to the application of the money lent or to
inquire into the validity, expediency, or propriety of any
borrowing;
(f) To keep such portion of the Trust Fund in cash
or cash balances as the Trustee may, from time to time, deem
to be in the best interests of the Plan, without liability for
interest thereon;
(g) To accept and retain for such time as the
Trustee may deem advisable any securities or other property
received or acquired as Trustee hereunder, whether or not such
securities or other property would normally be purchased as
investments hereunder;
(h) To make, execute, acknowledge, and deliver any
and all documents of transfer and conveyance and any and all
other instruments that may be necessary or appropriate to
carry out the powers herein granted;
(i) To settle, compromise, or submit to arbitration
any claims, debts, or damages due or owing to or from the
Plan, to commence or defend suits or legal or
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administrative proceedings, and to represent the Plan in all
suits and legal and administrative proceedings;
(j) To employ suitable agents and counsel and to pay
their reasonable expenses and compensation, and such agent or
counsel may or may not be agent or counsel for the Employer;
(k) To apply for and procure from responsible
insurance companies, to be selected by the Administrator, as
an investment of the Trust Fund such annuity, or other
Contracts (on the life of any Participant) as the
Administrator shall deem proper; to exercise, at any time or
from time to time, whatever rights and privileges may be
granted under such annuity, or other Contracts; to collect,
receive, and settle for the proceeds of all such annuity or
other Contracts as and when entitled to do so under the
provisions thereof;
(l) To invest funds of the Trust in time deposits or
savings accounts bearing a reasonable rate of interest in the
Trustee's bank;
(m) To invest in Treasury Bills and other forms of
United States government obligations;
(n) To invest in shares of investment companies
registered under the Investment Company Act of 1940;
(o) To deposit monies in federally insured savings
accounts or certificates of deposit in banks or savings and
loan associations;
(p) To vote Company Stock as provided in Section
8.5;
(q) To consent to or otherwise participate in
reorganizations, recapitalizations, consolidations, mergers
and similar transactions with respect to Company Stock or any
other securities and to pay any assessments or charges in
connection therewith;
(r) To deposit such Company Stock (but only if such
deposit does not violate the provisions of Section 8.5 hereof)
or other securities in any voting trust, or with any
protective or like committee, or with a trustee or with
depositories designated thereby;
(s) To sell or exercise any options, subscription
rights and conversion privileges and to make any payments
incidental thereto;
(t) To exercise any of the powers of an owner, with
respect to such Company Stock and other securities
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or other property comprising the Trust Fund. The
Administrator, with the Trustee's approval, may authorize the
Trustee to act on any administrative matter or class of
matters with respect to which direction or instruction to the
Trustee by the Administrator is called for hereunder without
specific direction or other instruction from the
Administrator;
(u) To sell, purchase and acquire put or call
options if the options are traded on and purchased through a
national securities exchange registered under the Securities
Exchange Act of 1934, as amended, or, if the options are not
traded on a national securities exchange, are guaranteed by a
member firm of the New York Stock Exchange;
(v) To do all such acts and exercise all such
rights and privileges, although not specifically mentioned
herein, as the Trustee may deem necessary to carry out the
purposes of the Plan.
8.4 LOANS TO PARTICIPANTS
(a) The Trustee may, in the Trustee's discretion,
make loans to Participants and Beneficiaries under the
following circumstances: (1) loans shall be made available to
all Participants and Beneficiaries on a reasonably equivalent
basis; (2) loans shall not be made available to Highly
Compensated Employees in an amount greater than the amount
made available to other Participants and Beneficiaries; (3)
loans shall bear a reasonable rate of interest; (4) loans
shall be adequately secured; and (5) shall provide for
repayment over a reasonable period of time.
(b) No Participant loan shall take into account the
present value of such Participant's Qualified Voluntary
Employee Contribution Account.
(c) Loans made pursuant to this Section (when added
to the outstanding balance of all other loans made by the Plan
to the Participant) shall be limited to the lesser of:
(1) $50,000 reduced by the excess (if any) of the
highest outstanding balance of loans from the Plan
to the Participant during the one year period
ending on the day before the date on which such
loan is made, over the outstanding balance of loans
from the Plan to the Participant on the date on
which such loan was made, or
(2) the greater of (A) one-half (1/2) of the
present value of the non-forfeitable accrued
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benefit of the Participant under the Plan, or (B)
$10,000.
For purposes of this limit, all plans of the
Employer shall be considered one plan.
(d) Loans shall provide for level amortization with
payments to be made not less frequently than quarterly over a
period not to exceed five (5) years. However, loans used to
acquire any dwelling unit which, within a reasonable time, is
to be used (determined at the time the loan is made) as a
principal residence of the Participant shall provide for
periodic repayment over a reasonable period of time that may
exceed five (5) years. For this purpose, a principal residence
has the same meaning as a principal residence under Code
Section 1034. Loan repayments will be suspended under this
Plan as permitted under Code Section 414(u)(4).
(e) Any loans granted or renewed shall be made
pursuant to a Participant loan program. Such loan program
shall be established in writing and must include, but need not
be limited to, the following:
(1) the identity of the person or positions
authorized to administer the Participant loan program;
(2) a procedure for applying for loans;
(3) the basis on which loans will be approved or
denied;
(4) limitations, if any, on the types and amounts of
loans offered;
(5) the procedure under the program for determining
a reasonable rate of interest;
(6) the types of collateral which may secure a
Participant loan; and
(7) the events constituting default and the steps
that will be taken to preserve Plan assets.
Such Participant loan program shall be contained
in a separate written document which, when properly executed,
is hereby incorporated by reference and made a part of the
Plan. Furthermore, such Participant loan program may be
modified or amended in writing from time to time without the
necessity of amending this Section.
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8.5 VOTING COMPANY STOCK
The Trustee shall vote all Company Stock held by it as part of
the Plan assets. Provided, however, that if any agreement entered into by the
Trust provides for voting of any shares of Company Stock pledged as security for
any obligation of the Plan, then such shares of Company Stock shall be voted in
accordance with such agreement. If the Trustee does not timely receive voting
directions from a Participant or Beneficiary with respect to any Company Stock
allocated to that Participant's or Beneficiary's Company Stock Account,
the Trustee shall vote such Company Stock.
Notwithstanding the foregoing, if the Employer has a
registration-type class of securities or, with respect to Company Stock acquired
by, or transferred to, the Plan in connection with a securities acquisition loan
(as defined in Code Section 133(b)) after July 10, 1989, each Participant or
Beneficiary shall be entitled to direct the Trustee as to the manner in which
the Company Stock which is entitled to vote and which is allocated to the
Company Stock Account of such Participant or Beneficiary is to be voted. If the
Employer does not have a registration-type class of securities, with respect to
Company Stock other than Company Stock acquired by, or transferred to, the Plan
in connection with a securities acquisition loan (as defined in Code Section
133(b)) after July 10, 1989, each Participant or Beneficiary in the Plan shall
be entitled to direct the Trustee as to the manner in which voting rights on
shares of Company Stock which are allocated to the Company Stock Account of such
Participant or Beneficiary are to be exercised with respect to any corporate
matter which involves the voting of such shares with respect to the approval or
disapproval of any corporate merger or consolidation, recapitalization,
reclassification, liquidation, dissolution, sale of substantially all assets of
a trade or business, or such similar transaction as prescribed in Regulations.
For purposes of this Section the term "registration-type class of securities"
means: (A) a class of securities required to be registered under Section 12 of
the Securities Exchange Act of 1934; and (B) a class of securities which would
be required to be so registered except for the exemption from registration
provided in subsection (g) (2) (H) of such Section 12.
If the Employer does not have a registration-type class of
securities and the by-laws of the Employer require the Plan to vote an issue in
a manner that reflects a one-man, one-vote philosophy, each Participant or
Beneficiary shall be entitled to cast one vote on an issue and the Trustee shall
vote the shares held by the Plan in proportion to the results of the votes cast
on the issue by the Participants and Beneficiaries.
8.6 DUTIES OF THE TRUSTEE REGARDING PAYMENTS
(a) The Trustee shall make distributions from the
Trust Fund at such times and in such numbers of shares or
other units of Company Stock and amounts of cash to or
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for the benefit of the person entitled thereto under the Plan
as the Administrator directs in writing. Any undistributed
part of a Participant's interest in his accounts shall be
retained in the Trust Fund until the Administrator directs its
distribution. Where distribution is directed in Company Stock,
the Trustee shall cause an appropriate certificate to be
issued to the person entitled thereto and mailed to the
address furnished it by the Administrator. Any portion of a
Participant's Account to be distributed in cash shall be paid
by the Trustee mailing its check to the same person at the
same address. If a dispute arises as to who is entitled to or
should receive any benefit or payment, the Trustee may
withhold or cause to be withheld such payment until the
dispute has been resolved.
(b) As directed by the Administrator, the Trustee
shall make payments out of the Trust Fund. Such directions or
instructions need not specify the purpose of the payments so
directed and the Trustee shall not be responsible in any way
respecting the purpose or propriety of such payments except as
mandated by the Act.
(c) In the event that any distribution or payment
directed by the Administrator shall be mailed by the Trustee
to the person specified in such direction at the latest
address of such person filed with the Administrator, and shall
be returned to the Trustee because such person cannot be
located at such address, the Trustee shall promptly notify the
Administrator of such return. Upon the expiration of sixty
(60) days after such notification, such direction shall become
void and unless and until a further direction by the
Administrator is received by the Trustee with respect to such
distribution or payment, the Trustee shall thereafter continue
to administer the Trust as if such direction had not been made
by the Administrator. The Trustee shall not be obligated to
search for or ascertain the whereabouts of any such person.
8.7 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES
The Trustee shall be paid such reasonable compensation as
shall from time to time be agreed upon in writing by the Employer and the
Trustee. An individual serving as Trustee who already receives full-time pay
from the Employer shall not receive compensation from the Plan. In addition, the
Trustee shall be reimbursed for any reasonable expenses, including reasonable
counsel fees incurred by it as Trustee. Such compensation and expenses shall be
paid from the Trust Fund unless paid or advanced by the Employer. All taxes of
any kind and all kinds whatsoever that may be levied or assessed under existing
or future laws upon, or in respect of, the Trust Fund or the income thereof,
shall be paid from the Trust Fund.
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8.8 ANNUAL REPORT OF THE TRUSTEE
Within a reasonable period of time after the later of the
Anniversary Date or receipt of the Employer contribution for each Plan Year, the
Trustee shall furnish to the Employer and Administrator a written statement of
account with respect to the Plan Year for which such contribution was made
setting forth:
(a) the net income, or loss, of the Trust Fund;
(b) the gains, or losses, realized by the Trust
Fund upon sales or other disposition of the assets;
(c) the increase, or decrease, in the value of the
Trust Fund;
(d) all payments and distributions made from the
Trust Fund; and
(e) such further information as the Trustee and/or
Administrator deems appropriate. The Employer, forthwith upon
its receipt of each such statement of account, shall
acknowledge receipt thereof in writing and advise the Trustee
and/or Administrator of its approval or disapproval thereof.
Failure by the Employer to disapprove any such statement of
account within thirty (30) days after its receipt thereof
shall be deemed an approval thereof. The approval by the
Employer of any statement of account shall be binding as to
all matters embraced therein as between the Employer and the
Trustee to the same extent as if the account of the Trustee
had been settled by judgment or decree in an action for a
judicial settlement of its account in a court of competent
jurisdiction in which the Trustee, the Employer and all
persons having or claiming an interest in the Plan were
parties; provided, however, that nothing herein contained
shall deprive the Trustee of its right to have its accounts
judicially settled if the Trustee so desires.
8.9 AUDIT
(a) If an audit of the Plan's records shall be
required by the Act and the regulations thereunder for any
Plan Year, the Administrator shall direct the Trustee to
engage on behalf of all Participants an independent qualified
public accountant for that purpose. Such accountant shall,
after an audit of the books and records of the Plan in
accordance with generally accepted auditing standards, within
a reasonable period after the close of the Plan Year, furnish
to the Administrator and the Trustee a report of his audit
setting forth his opinion as to whether any statements,
schedules or lists that are required by Act Section 103 or the
Secretary of
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Labor to be filed with the Plan's annual report, are presented
fairly in conformity with generally accepted accounting
principles applied consistently. All auditing and accounting
fees shall be an expense of and may, at the election of the
Administrator, be paid from the Trust Fund.
(b) If some or all of the information necessary to
enable the Administrator to comply with Act Section 103 is
maintained by a bank, insurance company, or similar
institution, regulated and supervised and subject to periodic
examination by a state or federal agency, it shall transmit
and certify the accuracy of that information to the
Administrator as provided in Act Section 103(b) within one
hundred twenty (120) days after the end of the Plan Year or
by such other date as may be prescribed under regulations of
the Secretary of Labor.
8.10 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE
(a) The Trustee may resign at any time by delivering
to the Employer, at least thirty (30) days before its
effective date, a written notice of his resignation.
(b) The Employer may remove the Trustee by mailing
by registered or certified mail, addressed to such Trustee at
his last known address, at least thirty (30) days before its
effective date, a written notice of his removal.
(c) Upon the death, resignation, incapacity, or
removal of any Trustee, a successor may be appointed by the
Employer; and such successor, upon accepting such appointment
in writing and delivering same to the Employer, shall, without
further act, become vested with all the estate, rights,
powers, discretions, and duties of his predecessor with like
respect as if he were originally named as a Trustee herein.
Until such a successor is appointed, the remaining Trustee or
Trustees shall have full authority to act under the terms of
the Plan.
(d) The Employer may designate one or more
successors prior to the death, resignation, incapacity, or
removal of a Trustee. In the event a successor is so
designated by the Employer and accepts such designation, the
successor shall, without further act, become vested with all
the estate, rights, powers, discretions, and duties of his
predecessor with the like effect as if he were originally
named as Trustee herein immediately upon the death,
resignation, incapacity, or removal of his predecessor.
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(e) Whenever any Trustee hereunder ceases to serve
as such, he shall furnish to the Employer and Administrator a
written statement of account with respect to the portion of
the Plan Year during which he served as Trustee. This
statement shall be either (i) included as part of the annual
statement of account for the Plan Year required under Section
8.8 or (ii) set forth in a special statement. Any such special
statement of account should be rendered to the Employer no
later than the due date of the annual statement of account for
the Plan Year. The procedures set forth in Section 8.8 for the
approval by the Employer of annual statements of account shall
apply to any special statement of account rendered hereunder
and approval by the Employer of any such special statement in
the manner provided in Section 8.8 shall have the same effect
upon the statement as the Employer's approval of an annual
statement of account. No successor to the Trustee shall have
any duty or responsibility to investigate the acts or
transactions of any predecessor who has rendered all
statements of account required by Section 8.8 and this
subparagraph.
8.11 TRANSFER OF INTEREST
Notwithstanding any other provision contained in this Plan,
the Trustee at the direction of the Administrator shall transfer the Vested
interest, if any, of such Participant in his account to another trust forming
part of a pension, profit sharing or stock bonus plan maintained by such
Participant's new employer and represented by said employer in writing as
meeting the requirements of Code Section 401(a), provided that the trust to
which such transfers are made permits the transfer to be made.
8.12 DIRECT ROLLOVER
(a) Notwithstanding any provision of the Plan to
the contrary that would otherwise limit a distributee's
election under this Section, a distributee may elect, at the
time and in the manner prescribed by the Administrator, to
have any portion of an eligible rollover distribution that is
equal to at least $500 paid directly to an eligible retirement
plan specified by the distributee in a direct rollover.
(b) For purposes of this Section the following
definitions shall apply:
(1) An eligible rollover distribution is any
distribution of all or any portion of the balance
to the credit of the distributee, except that an
eligible rollover distribution does not include:
any distribution that is one of a series of
substantially equal periodic payments (not less
frequently than annually) made for the life (or
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life expectancy) of the distributee or the joint
lives (or joint life expectancies) of the distributee
and the distributee's designated beneficiary, or for
a specified period of ten years or more; any
distribution to the extent such distribution is
required under Code Section 401(a)(9); the portion of
any other distribution that is not includible in
gross income (determined without regard to the
exclusion for net unrealized appreciation with
respect to employer securities); and any other
distribution that is reasonably expected to total
less than $200 during a year.
(2) An eligible retirement plan is an individual
retirement account described in Code Section 408(a),
an individual retirement annuity described in Code
Section 408(b), an annuity plan described in Code
Section 403(a), or a qualified trust described in
Code Section 401(a), that accepts the distributee's
eligible rollover distribution. However, in the case
of an eligible rollover distribution to the surviving
spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity.
(3) A distributee includes an Employee or former
Employee. In addition, the Employee's or former
Employee's surviving spouse and the Employee's or
former Employee's spouse or former spouse who is the
alternate payee under a qualified domestic relations
order, as defined in Code Section 414(p), are
distributees with regard to the interest of the
spouse or former spouse.
(4) A direct rollover is a payment by the Plan to
the eligible retirement plan specified by the
distributee.
ARTICLE IX
AMENDMENT, TERMINATION AND MERGERS
9.1 AMENDMENT
(a) The Employer shall have the right at any time to
amend the Plan, subject to the limitations of this Section.
However, any amendment which affects the rights, duties or
responsibilities of the Trustee and Administrator, other than
an amendment to remove the Trustee or Administrator, may only
be made with the Trustee's and Administrator's written
consent. Any such amendment shall become effective as provided
therein upon its execution. The Trustee shall not be required
to
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execute any such amendment unless the Trust provisions
contained herein are a part of the Plan and the amendment
affects the duties of the Trustee hereunder.
(b) No amendment to the Plan shall be effective if
it authorizes or permits any part of the Trust Fund (other
than such part as is required to pay taxes and administration
expenses) to be used for or diverted to any purpose other than
for the exclusive benefit of the Participants or their
Beneficiaries or estates; or causes any reduction in the
amount credited to the account of any Participant; or causes
or permits any portion of the Trust Fund to revert to or
become property of the Employer.
(c) Except as permitted by Regulations, no Plan
amendment or transaction having the effect of a Plan amendment
(such as a merger, plan transfer or similar transaction) shall
be effective to the extent it eliminates or reduces any
"Section 411(d)(6) protected benefit" or adds or modifies
conditions relating to "Section 411(d)(6) protected benefits"
the result of which is a further restriction on such benefit
unless such protected benefits are preserved with respect to
benefits accrued as of the later of the adoption date or
effective date of the amendment. "Section 411(d)(6)
protected benefits" are benefits described in Code Section
411(d)(6)(A), early retirement benefits and retirement-type
subsidies, and optional forms of benefit.
In addition, no such amendment shall have the
effect of terminating the protections and rights set forth in
Section 7.12, unless such termination shall then be permitted
under the applicable provisions of the Code and Regulations;
such a termination is currently expressly prohibited by
Regulation 54.4975-11(a)(3)(ii).
9.2 TERMINATION
(a) The Employer shall have the right at any time to
terminate the Plan by delivering to the Trustee and
Administrator written notice of such termination. Upon any
full or partial termination, all amounts credited to the
affected Participants' Accounts shall become 100% Vested as
provided in Section 7.4 and shall not thereafter be subject to
forfeiture, and all unallocated amounts shall be allocated to
the accounts of all Participants in accordance with the
provisions hereof.
(b) Upon the full termination of the Plan, the
Employer shall direct the distribution of the assets of the
Trust Fund to Participants in a manner which is consistent
with and satisfies the provisions of Sections 7.5 and 7.6.
Except as permitted by Regulations, the
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termination of the Plan shall not result in the reduction of
"Section 411(d)(6) protected benefits" in accordance with
Section 9.1(c).
9.3 MERGER OR CONSOLIDATION
This Plan and Trust may be merged or consolidated with, or its
assets and/or liabilities may be transferred to any other plan and trust only if
the benefits which would be received by a Participant of this Plan, in the event
of a termination of the plan immediately after such transfer, merger or
consolidation, are at least equal to the benefits the Participant would have
received if the Plan had terminated immediately before the transfer, merger or
consolidation, and such transfer, merger or consolidation does not otherwise
result in the elimination or reduction of any "Section 411(d)(6) protected
benefits" in accordance with Section 9.1(c).
ARTICLE X
TOP HEAVY
10.1 TOP HEAVY PLAN REQUIREMENTS
For any Top Heavy Plan Year, the Plan shall provide the
special vesting requirements of Code Section 416(b) pursuant to Section 7.4 of
the Plan and the special minimum allocation requirements of Code Section 416(c)
pursuant to Section 4.3 of the Plan.
10.2 DETERMINATION OF TOP HEAVY STATUS
(a) This Plan shall be a Top Heavy Plan for any Plan
Year in which, as of the Determination Date, (1) the Present
Value of Accrued Benefits of Key Employees and (2) the sum of
the Aggregate Accounts of Key Employees under this Plan and
all plans of an Aggregation Group, exceeds sixty percent (60%)
of the Present Value of Accrued Benefits and the Aggregate
Accounts of all Key and Non-Key Employees under this Plan and
all plans of an Aggregation Group.
If any Participant is a Non-Key Employee for
any Plan Year, but such Participant was a Key Employee for any
prior Plan Year, such Participant's Present Value of Accrued
Benefit and/or Aggregate Account balance shall not be taken
into account for purposes of determining whether this Plan is
a Top Heavy or Super Top Heavy Plan (or whether any
Aggregation Group which includes this Plan is a Top Heavy
Group). In addition, if a Participant or Former Participant
has not performed any services for any Employer maintaining
the Plan at any time during the five year period ending on the
Determination Date, any accrued benefit for such Participant
or Former Participant shall not be taken into account for the
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purposes of determining whether this Plan is a Top Heavy or
Super Top Heavy Plan.
(b) This Plan shall be a Super Top Heavy Plan for
any Plan Year in which, as of the Determination Date, (1) the
Present Value of Accrued Benefits of Key Employees and (2) the
sum of the Aggregate Accounts of Key Employees under this Plan
and all plans of an Aggregation Group, exceeds ninety percent
(90%) of the Present Value of Accrued Benefits and the
Aggregate Accounts of all Key and Non-Key Employees under this
Plan and all plans of an Aggregation Group.
(c) Aggregate Account: A Participant's Aggregate
Account as of the Determination Date is the sum of:
(1) his Participant's Account balance as of the
most recent valuation occurring within a twelve
(12) month period ending on the Determination Date;
(2) an adjustment for any contributions due as of
the Determination Date. Such adjustment shall be the
amount of any contributions actually made after the
Valuation Date but due on or before the Determination
Date, except for the first Plan Year when such
adjustment shall also reflect the amount of any
contributions made after the Determination Date that
are allocated as of a date in that first Plan Year.
(3) any Plan distributions made within the Plan Year
that includes the Determination Date or within the
four (4) preceding Plan Years. However, in the case of
distributions made after the Valuation Date and prior
to the Determination Date, such distributions are
not included as distributions for top heavy purposes
to the extent that such distributions are already
included in the Participant's Aggregate Account
balance as of the Valuation Date. Notwithstanding
anything herein to the contrary, all distributions,
including distributions under a terminated plan
which if it had not been terminated would have been
required to be included in an Aggregation Group, will
be counted. Further, distributions from the Plan
(including the cash value of life insurance policies)
of a Participant's account balance because of death
shall be treated as a distribution for the purposes of
this paragraph.
(4) any Employee contributions, whether voluntary or
mandatory. However, amounts attributable to tax
deductible qualified voluntary employee
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contributions shall not be considered to be a part of
the Participant's Aggregate Account balance.
(5) with respect to unrelated rollovers and
plan-to-plan transfers (ones which are both initiated
by the Employee and made from a plan maintained by
one employer to a plan maintained by another
employer), if this Plan provides the rollovers or
plan-to-plan transfers, it shall always consider such
rollovers or plan-to-plan transfers as a distribution
for the purposes of this Section. If this Plan is the
plan accepting such rollovers or plan-to-plan
transfers, it shall not consider such rollovers or
plan-to-plan transfers as part of the Participant's
Aggregate Account balance.
(6) with respect to related rollovers and
plan-to-plan transfers (ones either not initiated by
the Employee or made to a plan maintained by the same
employer), if this Plan provides the rollover or
plan-to-plan transfer, it shall not be counted as a
distribution for purposes of this Section. If this
Plan is the plan accepting such rollover or
plan-to-plan transfer, it shall consider such
rollover or plan-to-plan transfer as part of the
Participant's Aggregate Account balance, irrespective
of the date on which such rollover or plan-to-plan
transfer is accepted.
(7) For the purposes of determining whether two
employers are to be treated as the same employer in
(5) and (6) above, all employers aggregated under
Code Section 414(b), (c), (m) and (o) are treated as
the same employer.
(d) "Aggregation Group" means either a Required
Aggregation Group or a Permissive Aggregation Group as
hereinafter determined.
(1) Required Aggregation Group: In determining a
Required Aggregation Group hereunder, each plan of
the Employer in which a Key Employee is a participant
in the Plan Year containing the Determination Date or
any of the four preceding Plan Years, and each other
plan of the Employer which enables any plan in which
a Key Employee participates to meet the requirements
of Code Sections 401(a)(4) or 410, will be required
to be aggregated. Such group shall be known as a
Required Aggregation Group.
In the case of a Required Aggregation Group, each
plan in the group will be considered a Top Heavy
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Plan if the Required Aggregation Group is a Top Heavy
Group. No plan in the Required Aggregation Group will
be considered a Top Heavy Plan if the Required
Aggregation Group is not a Top Heavy Group.
(2) Permissive Aggregation Group: The Employer may
also include any other plan not required to be
included in the Required Aggregation Group, provided
the resulting group, taken as a whole, would continue
to satisfy the provisions of Code Sections 401(a)(4)
and 410. Such group shall be known as a Permissive
Aggregation Group.
In the case of a Permissive Aggregation Group, only a
plan that is part of the Required Aggregation Group
will be considered a Top Heavy Plan if the Permissive
Aggregation Group is a Top Heavy Group. No plan in
the Permissive Aggregation Group will be considered a
Top Heavy Plan if the Permissive Aggregation Group is
not a Top Heavy Group.
(3) Only those plans of the Employer in which the
Determination Dates fall within the same calendar
year shall be aggregated in order to determine
whether such plans are Top Heavy Plans.
(4) An Aggregation Group shall include any
terminated plan of the Employer if it was maintained
within the last five (5) years ending on the
Determination Date.
(e) "Determination Date means (a) the last day of
the preceding Plan Year, or (b) in the case of the first Plan
Year, the last day of such Plan Year.
(f) Present Value of Accrued Benefit: In the case of
a defined benefit plan, the Present Value of Accrued Benefit
for a Participant other than a Key Employee, shall be as
determined using the single accrual method used for all plans
of the Employer and Affiliated Employers, or if no such single
method exists, using a method which results in benefits
accruing not more rapidly than the slowest accrual rate
permitted under Code Section 411(b)(1)(C). The determination
of the Present Value of Accrued Benefit shall be determined as
of the most recent Valuation Date that falls within or ends
with the 12-month period ending on the Determination Date
except as provided in Code Section 416 and the Regulations
thereunder for the first and second plan years of a defined
benefit plan.
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(g) "Top Heavy Group" means an Aggregation Group in
which, as of the Determination Date, the sum of:
(1) the Present Value of Accrued Benefits of Key
Employees under all defined benefit plans included in
the group, and
(2) the Aggregate Accounts of Key Employees under
all defined contribution plans included in the group,
exceeds sixty percent (60%) of a similar sum
determined for all Participants.
ARTICLE XI
MISCELLANEOUS
11.1 PARTICIPANT'S RIGHTS
This Plan shall not be deemed to constitute a contract between
the Employer and any Participant or to be a consideration or an inducement for
the employment of any Participant or Employee. Nothing contained in this Plan
shall be deemed to give any Participant or Employee the right to be retained in
the service of the Employer or to interfere with the right of the Employer to
discharge any Participant or Employee at any time regardless of the effect which
such discharge shall have upon him as a Participant of this Plan.
11.2 ALIENATION
(a) Subject to the exceptions provided below, no
benefit which shall be payable out of the Trust Fund to any
person (including a Participant or his Beneficiary) shall be
subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, or charge, and any
attempt to anticipate, alienate, sell, transfer, assign,
pledge, encumber, or charge the same shall be void; and no
such benefit shall in any manner be liable for, or subject to,
the debts, contracts, liabilities, engagements, or torts of
any such person, nor shall it be subject to attachment or
legal process for or against such person, and the same shall
not be recognized by the Trustee, except to such extent as may
be required by law.
(b) This provision shall not apply to the extent a
Participant or Beneficiary is indebted to the Plan, as a
result of a loan from the Plan. At the time a distribution is
to be made to or for a Participant's or Beneficiary's benefit,
such proportion of the amount distributed as shall equal such
loan indebtedness shall be paid by the Trustee to the Trustee
or the Administrator, at the direction of the Administrator,
to
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apply against or discharge such loan indebtedness. Prior to
making a payment, however, the Participant or Beneficiary must
be given written notice by the Administrator that such loan
indebtedness is to be so paid in whole or part from his
Participant's Account. If the Participant or Beneficiary does
not agree that the loan indebtedness is a valid claim against
his Vested Participant's Account, he shall be entitled to a
review of the validity of the claim in accordance with
procedures provided in Sections 2.8 and 2.9.
(c) This provision shall not apply to a "qualified
domestic relations order" defined in Code Section 414(p),
and those other domestic relations orders permitted to be so
treated by the Administrator under the provisions of the
Retirement Equity Act of 1984. The Administrator shall
establish a written procedure to determine the qualified
status of domestic relations orders and to administer
distributions under such qualified orders. Further, to the
extent provided under a "qualified domestic relations order,"
a former spouse of a Participant shall be treated as the
spouse or surviving spouse for all purposes under the Plan.
11.3 CONSTRUCTION OF PLAN
This Plan and Trust shall be construed and enforced according
to the Act and the laws of the District of Columbia, other than its laws
respecting choice of law, to the extent not preempted by the Act.
11.4 GENDER AND NUMBER
Wherever any words are used herein in the masculine, feminine
or neuter gender, they shall be construed as though they were also used in
another gender in all cases where they would so apply, and whenever any words
are used herein in the singular or plural form, they shall be construed as
though they were also used in the other form in all cases where they would so
apply.
11.5 LEGAL ACTION
In the event any claim, suit, or proceeding is brought
regarding the Trust and/or Plan established hereunder to which the Trustee, the
Employer or the Administrator may be a party, and such claim, suit, or
proceeding is resolved in favor of the Trustee, the Employer or the
Administrator, they shall be entitled to be reimbursed from the Trust Fund for
any and all costs, attorney's fees, and other expenses pertaining thereto
incurred by them for which they shall have become liable.
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11.6 PROHIBITION AGAINST DIVERSION OF FUNDS
(a) Except as provided below and otherwise
specifically permitted by law, it shall be impossible by
operation of the Plan or of the Trust, by termination of
either, by power of revocation or amendment, by the happening
of any contingency, by collateral arrangement or by any other
means, for any part of the corpus or income of any trust fund
maintained pursuant to the Plan or any funds contributed
thereto to be used for, or diverted to, purposes other than
the exclusive benefit of Participants, Retired Participants,
or their Beneficiaries.
(b) In the event the Employer shall make an
excessive contribution under a mistake of fact pursuant to Act
Section 403(c)(2)(A), the Employer may demand repayment of
such excessive contribution at any time within one (1) year
following the time of payment and the Trustees shall return
such amount to the Employer within the one (1) year period.
Earnings of the Plan attributable to the excess contributions
may not be returned to the Employer but any losses
attributable thereto must reduce the amount so returned.
11.7 BONDING
Every Fiduciary, except a bank or an insurance company, unless
exempted by the Act and regulations thereunder, shall be bonded in an amount not
less than 10% of the amount of the funds such Fiduciary handles; provided,
however, that the minimum bond shall be $1,000 and the maximum bond, $500,000.
The amount of funds handled shall be determined at the beginning of each Plan
Year by the amount of funds handled by such person, group, or class to be
covered and their predecessors, if any, during the preceding Plan Year, or if
there is no preceding Plan Year, then by the amount of the funds to be handled
during the then current year. The bond shall provide protection to the Plan
against any loss by reason of acts of fraud or dishonesty by the Fiduciary alone
or in connivance with others. The surety shall be a corporate surety company (as
such term is used in Act Section 412(a)(2)), and the bond shall be in a form
approved by the Secretary of Labor. Notwithstanding anything in the Plan to the
contrary, the cost of such bonds shall be an expense of and may, at the election
of the Administrator, be paid from the Trust Fund or by the Employer.
11.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE
Neither the Employer, the Administrator, nor the Trustee, nor
their successors shall be responsible for the validity of any Contract issued
hereunder or for the failure on the part of the insurer to make payments
provided by any such Contract, or for the action of any person which may delay
payment or render a Contract null and void or unenforceable in whole or in part.
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11.9 INSURER'S PROTECTIVE CLAUSE
Any insurer who shall issue Contracts hereunder shall not have
any responsibility for the validity of this Plan or for the tax or legal aspects
of this Plan. The insurer shall be protected and held harmless in acting in
accordance with any written direction of the Trustee, and shall have no duty to
see to the application of any funds paid to the Trustee, nor be required to
question any actions directed by the Trustee. Regardless of any provision of
this Plan, the insurer shall not be required to take or permit any action or
allow any benefit or privilege contrary to the terms of any Contract which it
issues hereunder, or the rules of the insurer.
11.10 RECEIPT AND RELEASE FOR PAYMENTS
Any payment to any Participant, his legal representative,
Beneficiary, or to any guardian or committee appointed for such Participant or
Beneficiary in accordance with the provisions of the Plan, shall, to the extent
thereof, be in full satisfaction of all claims hereunder against the Trustee and
the Employer, either of whom may require such Participant, legal representative,
Beneficiary, guardian or committee, as a condition precedent to such payment, to
execute a receipt and release thereof in such form as shall be determined by the
Trustee or Employer.
11.11 ACTION BY THE EMPLOYER
Whenever the Employer under the terms of the Plan is permitted
or required to do or perform any act or matter or thing, it shall be done and
performed by a person duly authorized by its legally constituted authority.
11.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
The "named Fiduciaries" of this Plan are (1) the Employer, (2)
the Administrator and (3) the Trustee. The named Fiduciaries shall have only
those specific powers, duties, responsibilities, and obligations as are
specifically given them under the Plan or as accepted by or assigned to them
pursuant to any procedure provided under the Plan, including but not limited to
any agreement allocating or delegating their responsibilities, the terms of
which are incorporated herein by reference. In general, unless otherwise
indicated herein or pursuant to such agreements, the Employer shall have the
duties specified in Article II hereof, as the same may be allocated or delegated
thereunder, including but not limited to the responsibility for making the
contributions provided for under Section 4.1; and shall have the authority to
appoint and remove the Trustee and the Administrator; to formulate the Plan's
"funding policy and method"; and to amend or terminate, in whole or in part, the
Plan. The Administrator shall have the responsibility for the administration of
the Plan, including but not limited to the items specified at Article II of the
Plan, as the same may be allocated or delegated thereunder. The Trustee
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shall have the responsibility of management and control of the assets held under
the Trust, except to the extent directed pursuant to Article II or with respect
to those assets, the management of which has been assigned to an Investment
Manager, who shall be solely responsible for the management of the assets
assigned to it, all as specifically provided in the Plan and any agreement with
the Trustee. Each named Fiduciary warrants that any directions given,
information furnished, or action taken by it shall be in accordance with the
provisions of the Plan, authorizing or providing for such direction, information
or action. Furthermore, each named Fiduciary may rely upon any such direction,
information or action of another named Fiduciary as being proper under the Plan,
and is not required under the Plan to inquire into the propriety of any such
direction, information or action. It is intended under the Plan that each named
Fiduciary shall be responsible for the proper exercise of its own powers,
duties, responsibilities and obligations under the Plan as specified or
allocated herein. No named Fiduciary shall guarantee the Trust Fund in any
manner against investment loss or depreciation in asset value. Any person or
group may serve in more than one Fiduciary capacity. In the furtherance of their
responsibilities hereunder, the "named Fiduciaries" shall be empowered to
interpret the Plan and Trust and to resolve ambiguities, inconsistencies and
omissions, which findings shall be binding, final and conclusive.
11.13 HEADINGS
The headings and subheadings of this Plan have been inserted
for convenience of reference and are to be ignored in any construction of the
provisions hereof.
11.14 APPROVAL BY INTERNAL REVENUE SERVICE
(a) Notwithstanding anything herein to the
contrary, contributions to this Plan are conditioned upon the
initial qualification of the Plan under Code Section 401. If
the Plan receives an adverse determination with respect to its
initial qualification, then the Plan may return such
contributions to the Employer within one year after such
determination, provided the application for the determination
is made by the time prescribed by law for filing the
Employer's return for the taxable year in which the Plan was
adopted, or such later date as the Secretary of the Treasury
may prescribe.
(b) Notwithstanding any provisions to the contrary,
except Sections 3.5, 3.6, and 4.1(c), any contribution by the
Employer to the Trust Fund is conditioned upon the
deductibility of the contribution by the Employer under the
Code and, to the extent any such deduction is disallowed, the
Employer may, within one (1) year following the disallowance
of the deduction, demand repayment of such disallowed
contribution and the Trustee
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shall return such contribution within one (1) year following
the disallowance. Earnings of the Plan attributable to the
excess contribution may not be returned to the Employer, but
any losses attributable thereto must reduce the amount so
returned.
11.15 UNIFORMITY
All provisions of this Plan shall be interpreted and applied
in a uniform, nondiscriminatory manner. In the event of any conflict between the
terms of this Plan and any Contract purchased hereunder, the Plan provisions
shall control.
11.16 WAIVER OF FUNDING
(a) In the event that the minimum funding
requirement for a particular Plan Year has been waived in
whole or in part, then, an Adjusted Account Balance shall be
established for each Participant which shall reflect the
Account balance the Participant would have had, had the waived
amount been contributed. The Adjusted Account Balance shall
remain in effect until such time as the value of the
Participant's Account equals the value of the Participant's
Adjusted Account Balance:
(1) The excess of the value of each Participant's
Adjusted Account Balance over the value of the
Participant's Account balance will be credited with
earnings equal to 150 percent of the Federal mid-term
rate (as in effect under Code Section 1274 for the
first month of such Plan Year).
(2) The waiver payment to be made by the Employer in
the year after the waiver is granted shall at least
equal the amount necessary to amortize over 5 years,
at the appropriate interest rate, the excess of the
sum of the Adjusted Account Balances over the total
value of the Trust Fund attributable to Employer
contributions. In the next year, the excess for such
subsequent year, if any, is amortized over 4 years.
In each succeeding year the amortization period is
reduced by one year. The Employer may, however, make
such larger payments at any time as the Employer
shall deem appropriate.
(3) An unallocated Waiver Suspense Account shall be
created, to which shall be made all payments designed
to reduce the waived deficiency. If at the time of a
distribution, the nonforfeitable portion of a
Participant's Adjusted Account Balance exceeds that
Participant's actual Account balance, that
Participant will receive the larger
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amount to the extent that there are then funds in the
unallocated Waiver Suspense Account to cover the
excess. If at any time, a Participant may not be able
to receive a total distribution of the entire
nonforfeitable portion of his Adjusted Account
Balance, such Participant would receive subsequent
distributions derived from future waiver payments.
(b) When the total value of the Trust Fund equals
the sum of the Adjusted Account Balances, the Waiver Suspense
Account shall be allocated to the affected Participants so
that each Participant's actual Account balance equals that
Participant's Adjusted Account Balance.
11.17 SECURITIES AND EXCHANGE COMMISSION APPROVAL
The Employer may request an interpretative letter from the
Securities and Exchange Commission stating that the transfers of Company Stock
contemplated hereunder do not involve transactions requiring a registration of
such Company Stock under the Securities Act of 1933. In the event that a
favorable interpretative letter is not obtained, the Employer reserves the right
to amend the Plan and Trust retroactively to their Effective Dates in order to
obtain a favorable interpretative letter or to terminate the Plan.
ARTICLE XII
PARTICIPATING EMPLOYERS
12.1 ADOPTION BY OTHER EMPLOYERS
Notwithstanding anything herein to the contrary, with the
consent of the Employer and Trustee, any other corporation or entity, whether an
affiliate or subsidiary or not, may adopt this Plan and all of the provisions
hereof, and participate herein and be known as a Participating Employer, by a
properly executed document evidencing said intent and will of such Participating
Employer.
12.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS
(a) Each such Participating Employer shall be
required to use the same Trustee as provided in this Plan.
(b) The Trustee may, but shall not be required to,
commingle, hold and invest as one Trust Fund all contributions
made by Participating Employers, as well as all increments
thereof. However, the assets of the Plan shall, on an ongoing
basis, be available to pay benefits to all Participants and
Beneficiaries under the Plan without regard to the Employer or
Participating Employer who contributed such assets.
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(c) The transfer of any Participant from or to an
Employer participating in this Plan, whether he be an Employee
of the Employer or a Participating Employer, shall not affect
such Participant's rights under the Plan, and all amounts
credited to such Participant's Account as well as his
accumulated service time with the transferor or predecessor,
and his length of participation in the Plan, shall continue to
his credit.
(d) All rights and values forfeited by termination
of employment shall inure only to the benefit of the
Participants of the Employer or Participating Employer by
which the forfeiting Participant was employed, except if the
Forfeiture is for an Employee whose Employer is an Affiliated
Employer, then said Forfeiture shall be allocated to the
Participants employed by the Employer or Participating
Employers who are Affiliated Employers. Should an Employee of
one ("First") Employer be transferred to an associated
("Second") Employer which is an Affiliated Employer, such
transfer shall not cause his account balance (generated while
an Employee of "First" Employer) in any manner, or by any
amount to be forfeited. Such Employee's Participant Account
balance for all purposes of the Plan, including length of
service, shall be considered as though he had always been
employed by the "Second" Employer and as such had received
contributions, forfeitures, earnings or losses, and
appreciation or depreciation in value of assets totaling the
amount so transferred.
(e) Any expenses of the Trust which are to be paid
by the Employer or borne by the Trust Fund shall be paid by
each Participating Employer in the same proportion that the
total amount standing to the credit of all Participants
employed by such Employer bears to the total standing to the
credit of all Participants.
12.3 DESIGNATION OF AGENT
Each Participating Employer shall be deemed to be a party to
this Plan; provided, however, that with respect to all of its relations with the
Trustee and Administrator for the purpose of this Plan, each Participating
Employer shall be deemed to have designated irrevocably the Employer as its
agent. Unless the context of the Plan clearly indicates the contrary, the word
"Employer" shall be deemed to include each Participating Employer as related to
its adoption of the Plan.
12.4 EMPLOYEE TRANSFERS
It is anticipated that an Employee may be transferred between
Participating Employers, and in the event of any such transfer, the Employee
involved shall carry with him his accumulated service and eligibility. No such
transfer shall effect
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a termination of employment hereunder, and the Participating Employer to which
the Employee is transferred shall thereupon become obligated hereunder with
respect to such Employee in the same manner as was the Participating Employer
from whom the Employee was transferred.
12.5 PARTICIPATING EMPLOYER CONTRIBUTION
Any contribution subject to allocation during each Plan Year
shall be allocated only among those Participants of the Employer or
Participating Employer making the contribution, except if the contribution is
made by an Affiliated Employer, in which event such contribution shall be
allocated among all Participants of all Participating Employers who are
Affiliated Employers in accordance with the provisions of this Plan. On the
basis of the information furnished by the Administrator, the Trustee shall keep
separate books and records concerning the affairs of each Participating Employer
hereunder and as to the accounts and credits of the Employees of each
Participating Employer. The Trustee may, but need not, register Contracts so as
to evidence that a particular Participating Employer is the interested Employer
hereunder, but in the event of an Employee transfer from one Participating
Employer to another, the employing Employer shall immediately notify the Trustee
thereof.
12.6 AMENDMENT
Amendment of this Plan by the Employer at any time when there
shall be a Participating Employer hereunder shall only be by the written action
of each and every Participating Employer and with the consent of the Trustee
where such consent is necessary in accordance with the terms of this Plan.
12.7 DISCONTINUANCE OF PARTICIPATION
Any Participating Employer shall be permitted to discontinue
or revoke its participation in the Plan. At the time of any such discontinuance
or revocation, satisfactory evidence thereof and of any applicable conditions
imposed shall be delivered to the Trustee. The Trustee shall thereafter
transfer, deliver and assign Contracts and other Trust Fund assets allocable to
the Participants of such Participating Employer to such new Trustee as shall
have been designated by such Participating Employer, in the event that it has
established a separate pension plan for its Employees, provided however, that no
such transfer shall be made if the result is the elimination or reduction of any
"Section 411(d)(6) protected benefits" in accordance with Section 9.1(c). If
no successor is designated, the Trustee shall retain such assets for the
Employees of said Participating Employer pursuant to the provisions of Article
VII hereof. In no such event shall any part of the corpus or income of the Trust
as it relates to such Participating Employer be used for or diverted to purposes
other than for the exclusive benefit of the Employees of such Participating
Employer.
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12.8 ADMINISTRATOR'S AUTHORITY
The Administrator shall have authority to make any and all
necessary rules or regulations, binding upon all Participating Employers and all
Participants, to effectuate the purpose of this Article.
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IN WITNESS WHEREOF, this Plan has been executed the day and
year first above written.
Signed, sealed, and delivered
in the presence of:
Allied Capital Corporation
/s/ TRICIA BENZ DANIELS By /s/ JOAN SWEENEY
- - - - - - - - - - - - - --------------------------------- ---------------------------------
EMPLOYER
/s/ SUZANNE V. SPARROW
- - - - - - - - - - - - - ---------------------------------
WITNESSES AS TO EMPLOYER
ATTEST /s/ KRISTINE M. LANSING
-----------------------------
/s/ TRICIA BENZ DANIELS /s/ WILLIAM L. WALTON (SEAL)
- - - - - - - - - - - - - --------------------------------- -----------------------------
TRUSTEE
/s/ SUZANNE V. SPARROW
- - - - - - - - - - - - - ---------------------------------
WITNESSES AS TO TRUSTEE
/s/ TRICIA BEY DANIELS /s/ G. CABELL WILLIAMS III (SEAL)
- - - - - - - - - - - - - --------------------------------- -----------------------------
TRUSTEE
/s/ SUZANNE V. SPARROW
- - - - - - - - - - - - - ---------------------------------
WITNESSES AS TO TRUSTEE
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EXHIBIT 10.10
DEFERRED COMPENSATION PLAN FOR
[ALLIED CAPITAL LOGO]
Note: These documents have been prepared at the request of the management of
Allied Capital Corporation
Amended and Restated January 1, 1998
<PAGE> 2
THE ALLIED CAPITAL CORPORATION
DEFERRED COMPENSATION PLAN
Table of Contents
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ARTICLE I - GENERAL
Section 1.1 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
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Section 1.2 Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
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ARTICLE 11 - DEFINITIONS AND USAGE
Section 2.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
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Section 2.2 Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
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ARTICLE III - ELIGIBILITY AND PARTICIPATION
Section 3.1 Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
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Section 3.2 Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
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ARTICLE IV - PLAN BENEFIT
Section 4.1 Plan Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
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Section 4.2 Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
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Section 4.3 Multiple Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 7
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Section 4.4 Formula Award Accounts . . . . . . . . . . . . . . . . . . . . . . . 7
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Section 4.5 Participant's Deferral Election . . . . . . . . . . . . . . . . . . 7
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Section 4.6 Investment Procedure . . . . . . . . . . . . . . . . . . . . . . . . 8
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Section 4.7 Valuation of Accounts . . . . . . . . . . . . . . . . . . . . . . . 8
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ARTICLE V - VESTING AND DISTRIBUTION
Section 5.1 Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
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Section 5.2 Distributable Events . . . . . . . . . . . . . . . . . . . . . . . 10
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Section 5.3 Amount of Plan Benefits . . . . . . . . . . . . . . . . . . . . . 10
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Section 5.4 Plan Benefit Payment Options . . . . . . . . . . . . . . . . . . . 11
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Section 5.5 Commencement of Benefit Payments . . . . . . . . . . . . . . . . . 11
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Section 5.6 Form of Benefit Payments . . . . . . . . . . . . . . . . . . . . . 11
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Section 5.7 Age 60 and Age 65 Benefit Payment Distribution Options . . . . . . 11
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Section 5.8 Plan Benefit Payment Election Procedures . . . . . . . . . . . . . 12
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Section 5.9 Form of Benefit Payments Upon Death . . . . . . . . . . . . . . . 12
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Section 5.10 Designation of Beneficiary . . . . . . . . . . . . . . . . . . . . 13
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Section 5.11 Hardship Withdrawals of Elective Deferral and
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Employer Contributions . . . . . . . . . . . . . . . . . . . . . 13
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</TABLE>
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THE ALLIED CAPITAL CORPORATION
DEFERRED COMPENSATION PLAN
Table of Contents (continued)
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ARTICLE VI - ADMINISTRATION
Section 6.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
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Section 6.2 Administrative Rules . . . . . . . . . . . . . . . . . . . . . . . 14
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Section 6.3 Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
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Section 6.4 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
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ARTICLE VII - CLAIMS PROCEDURE
Section 7.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
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Section 7.2 Denials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
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Section 7.3 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
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Section 7.4 Appeals Procedure . . . . . . . . . . . . . . . . . . . . . . . . 16
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Section 7.5 Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
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ARTICLE VIII - CHANGE IN CONTROL
Section 8.1 In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
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Section 8.2 Definition of "Change in Control . . . . . . . . . . . . . . . . . 17
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ARTICLE IX - TRUST
Section 9.1 Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
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Section 9.2 Contributions and Expenses . . . . . . . . . . . . . . . . . . . . 18
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Section 9.3 Trustee Duties . . . . . . . . . . . . . . . . . . . . . . . . . . 18
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Section 9.4 Reversion to the Employer . . . . . . . . . . . . . . . . . . . . 18
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ARTICLE X - MISCELLANEOUS PROVISION
Section 10.1 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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Section 10.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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Section 10.3 No Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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Section 10.4 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . 19
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Section 10.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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Section 10.6 No Guarantee of Employment . . . . . . . . . . . . . . . . . . . . 19
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Section 10.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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Section 10.8 Notification of Addresses . . . . . . . . . . . . . . . . . . . . 19
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Section 10.9 Bonding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
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THE ALLIED CAPITAL CORPORATION
DEFERRED COMPENSATION PLAN
PREAMBLE
WHEREAS, the Employer recognizes the unique qualifications of its executive
employees or consultants and the valuable services that they have provided to
or for the Employer; and
WHEREAS, the Employer now desires to adopt the amended and restated Deferred
Compensation Agreement of Allied Capital Corporation.
NOW, THEREFORE, in consideration of the premises and of the provisions
hereinafter set forth, the Allied Capital Corporation Deferred Compensation
Plan (the "Plan") shall be and hereby is restated as follows:
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ARTICLE I
GENERAL
SECTION 1.1 Effective Date. The provisions of this Plan, as amended and
restated, shall be effective as of January 1, 1998. The rights, if any, of any
person whose status as an employee or consultant of the Employer has terminated
shall be determined pursuant to the Plan as in effect on the date such employee
or consultant terminated, unless a subsequently adopted provision of the Plan
is made specifically applicable to such person.
SECTION 1.2 Intent. The Plan is intended to be an unfunded plan for the
purpose of providing deferred compensation to a select group of management or
highly compensated employees as such group is described under Sections 201(2)
and 301(a)(3) of ERISA, and a select group of consultants. The Plan is not
intended to be a plan described in Section 401 (a)(1) of the Code.
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ARTICLE 11
DEFINITIONS AND USAGE
SECTION 2.1 Definitions. Wherever used in the Plan, the following words
and phrases shall have the meaning set forth below unless the context plainly
requires a different meaning:
"Account" means the account established on behalf of each Participant as
described in Section 4.2 of the Plan.
"Administrator" means the person or persons described in Article VI.
"Beneficiary" means those persons designated as a Beneficiary by the
Participant in the Participant Deferral Agreement.
"Board" means the Board of Directors of Allied Capital Corporation.
"Bonus" means any amount paid to an Employee which is designated by the
Employer as a bonus, or any amount paid to a Consultant.
"Bonus Deferral Election" means an election made pursuant to Section
4.5(b) of the Plan.
"Change in Control" of the Company shall be defined in accordance with
Section 8.2 of the Plan.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Compensation" means "Compensation" as defined under the Retirement
Plan. However, for purposes of this Plan "Compensation" shall not
include Bonuses and shall be determined without regard to the
limitations imposed by Code Section 401(a)(17).
"Compensation Deferral Election" means an election made pursuant to
Section 4.5(a) of the Plan.
"Consultant" means any individual providing services for the Employer in
a capacity other than as a common law employee of the Employer.
"Disability" means a physical or mental condition of a Participant
resulting from a bodily injury, disease, or mental disorder which
renders him incapable of continuing his usual and customary employment
with the Employer. The Disability of the Participant shall be
determined by a licensed physician chosen by
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the Administrator. The determination shall be applied uniformly to all
Participants.
"Employee" means any common law employee of the Employer.
"Employer" means Allied Capital Corporation, its successors and its
subsidiaries.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Formula Award" means the formula bonus award provided by the Employer
in conjunction with the merger of the Allied Capital Companies effective
December, 31, 1997 to compensate employees and consultants from the
point when the unvested options in the Allied Capital stock option plans
would cease to appreciate in value (the merger announcement date), up
until the time in which they would be able to receive option awards in
Allied Capital Corporation (after the merger becomes effective).
"Formula Award Account" means the account established on behalf of each
Participant as described in Section 4.4.
"Formula Award Deferral Election" means an election made pursuant to
Section 4.5(c) of the Plan.
"Insolvency" means the Employer (a) is unable to pay its debts as they
become due, or (b) is subject to a pending proceeding as a debtor under
the United States Bankruptcy Code.
"Normal Retirement Age" means age sixty (60).
"Participant" means an eligible Employee or Consultant of the Employer
designated by the Board for participation in the Plan, or a person who
was such a Participant at the time of retirement, death, disability or
resignation, or a Beneficiary who is presently entitled to benefits
under the Plan in accordance with its terms.
"Participant Deferral Agreement" means an agreement entered into between
a Participant and the Employer for the Purposes set forth in Articles IV
and V.
"Plan" means the Allied Capital Corporation Deferred Compensation Plan,
as amended from time to time.
"Plan Benefit" means the benefit of a Participant as determined under
Article IV of the Plan.
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"Plan Year" means the calendar year.
"Retirement" means the date on or after a Participant reaches Normal
Retirement Age on which such Participant retires from the Employer.
"Trust" means a trust which may be established by the Employer in
accordance with Article IX to provide the benefits described in this
Plan.
"Trustee" means the corporation or individual(s) selected by the
Employer to serve as trustee for the Trust.
SECTION 2.2 Usage. Except where otherwise indicated by the context, any
masculine terminology used herein shall also include the feminine and vice
versa, and the definition of any term herein in the singular shall also include
the plural and vice versa.
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ARTICLE III
ELIGIBILITY AND PARTICIPATION
SECTION 3.1 Eligibility. Any Employee or Consultant of the Employer shall
be eligible to participate in the Plan at such time and for such period as
designated by the Board.
SECTION 3.2 Participation. An Employee or Consultant who is eligible to
participate in the Plan pursuant to Section 3.1 shall become a Participant at
such time and for the period he is designated by the Board.
If, at any time, an Employee or Consultant is determined or reasonably
believed, based on a judicial or administrative determination or opinion of
counsel, not to qualify as "management" or a "highly compensated employee"
under ERISA Sections 201(2), 301 (a)(3), and 401 (a)(1), or as a select
consultant, the Employee or Consultant shall cease participation in the Plan as
of the date of that determination and the Plan Benefit to which he is entitled
will be distributed to him as soon as administratively possible in a single
lump-sum payment, notwithstanding any other provision of the Plan.
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ARTICLE IV
PLAN BENEFIT
SECTION 4.1 Plan Benefit. A Participant's Plan Benefit shall be equal to
the total amount credited to the Participant's Account under this Article IV.
Such Plan Benefit shall become nonforfeitable and payable to the Participant as
provided under Article V.
SECTION 4.2 Accounts. For each Participant, the Administrator shall
establish and maintain a Participant Account. All amounts which are credited
to the Account shall be credited solely for purposes of accounting and
computation, and shall remain assets of the Employer subject to the claims of
the Employer's general creditors. A Participant's Account shall be reduced by
an amount equal to any Plan Benefit previously distributed to him pursuant to
Article V. A Participant's Account shall include amounts credited under the
Plan for the Plan Year beginning January 1, 1997.
SECTION 4.3 Multiple Accounts. At the discretion of the Board, a
Participant may have more than one account, as in the case of a former Employee
who is now a Participant in his capacity as a Consultant. Contributions to
each such Account shall be determined by deferral elections made under separate
Participant Deferral Agreements, as described in Section 4.5 of the Plan. The
determination as to the period for the commencement of the distribution of Plan
Benefits under Article V of the Plan shall be made separately with respect to
each such Account.
SECTION 4.4 Formula Award Accounts. For each Participant, the
Administrator shall establish and maintain a separate record-keeping account
which contains both the vested and unvested balances of a Participant's Formula
Award.
SECTION 4.5 Participant's Deferral Elections. For each Plan Year, each
eligible Participant may make the following deferral elections:
(a) Compensation Deferral Election. Prior to the beginning of the
Plan Year, or prior to the date of entry as a Participant
under the Plan, an eligible Participant may authorize the
Employer to reduce his or her Compensation by any specific
amount or percentage as specified in a Participant Deferral
Agreement in effect for each Plan Year (in lieu of receiving
cash Compensation), and to have such amount credited to the
Participant's Account under this Article IV. The Participant
Deferral Agreement shall be effective only with respect to
Compensation earned after the agreement becomes effective. No
more than one Compensation Deferral Election may be made
during each Plan Year. However, a Participant may terminate
the election at any time with respect to Compensation not yet
earned.
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(b) Bonus Deferral Election. Prior to the end of the Plan Year in
which the Bonus is earned, an eligible Participant may
authorize the Employer to reduce his or her Bonus by any
specific amount or percentage as specified in a Participant
Deferral Agreement in effect for each Plan Year (in lieu of
receiving a cash Bonus), and to have such amount credited to
the Participant's Account under this Article IV.
(c) Formula Award Deferral Election. Participants deemed eligible
for the Formula Award by the Board of Directors of Allied
Capital Corporation, will received a Formula Award as of
December 31, 1997 that will be posted to a separate
record-keeping account maintained by the Trustee or other
designee ("the Formula Award Account"). Amounts funded by the
Employer to the Formula Award Account will vest over a
three-year period in equal installments on the anniversary of
December 31, 1997. Amounts funded in the Formula Award
Account will be used to purchase shares of Allied Capital
Corporation common stock in the open market, as directed by
the Administrator. Amounts funded or unfunded in the Formula
Award Account will vest immediately upon a change in control
as defined in Section 8.2.
SECTION 4.6 Investment Procedure. The Employer and each Employee or
Consultant who is eligible to participate in the Plan may, at the discretion of
the Employer, execute an agreement which reflects the deemed investment of the
portion of the Participant's Compensation and Bonus which shall be applied to
the payment of the Participant's Plan Benefit under the Plan. The
Administrator shall retain overriding discretion over the selection of
investment vehicles and the Administrator may change, alter or modify its
investment policy as it deems appropriate, from time to time, to maximize
benefits under the Plan. Any such change, alteration or modification shall be
communicated to the Participants under procedures adopted by the Administrator.
The Formula Award Account may only be invested in the common stock of Allied
Capital Corporation until such time as a distributable event (as listed in
section 5.2) occurs. At that time, the Participant may choose other Plan
investment options for the balance of his Account while he remains in
distribution status.
SECTION 4.7 Valuation of Accounts. The value of a Participant's Account
shall be determined from time to time by the Trustee in the following manner.
(a) During any period of time in which a Participant's Account is
deemed invested in whole or in part pursuant to the agreement
with the Participant (in the manner described in Section 4.6),
the income and expenses, gains and losses, both realized and
unrealized, from such deemed investments shall be determined
by the Trustee. The amount so determined shall be credited to
the Account of the Participant proportionately in accordance
with procedures established by the Administrator.
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(b) All benefits and deferrals on behalf of a Participant shall be
credited to the Account of the Participant in accordance with
this Article IV.
(c) Each Participant's Account shall be valued as of the last day
of each Plan Year or more frequently as determined by the
Administrator.
(d) All credits to a Participant's Account under this Section 4.7
shall be deemed to have been made on the applicable valuation
date in the order of priority set forth in this Section 4.7,
even though actually determined at a later date.
(e) Each Participant's Account shall include amounts previously
credited under the Plan prior to the effective date of this
amendment and restatement, January 1, 1998.
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ARTICLE V
VESTING AND DISTRIBUTION
SECTION 5.1 Vesting.
(a) Compensation and Bonus Deferral amounts credited under the
Plan shall at all times be 100% vested and nonforfeitable.
(b) Formula Award Deferral amounts shall, generally, be subject to
the three-year vesting period provided in Section 4.5(c).
(i) Upon termination of a Participant's Employee or
Consultant relationship with the Company for any reason
other than Death or Disability, the unvested balance of
a Participant's Formula Award Account shall be
forfeited.
(ii) In the event of the Death or Disability of a
Participant, the unvested balance of that Participant's
Formula Award Account shall become immediately vested.
SECTION 5.2 Distributable Events. Except as otherwise provided in Section
5.7, a Participant's Plan Benefit shall become distributable upon the
occurrence of one of the following events:
1. Separation from service (other than on account of Retirement,
death, or Disability)
2. Retirement
3. Disability
4. Death
5. Insolvency
6. Change in Control (as defined in Section 2.1)
7. Future determined date (at least 2 years from the signing date
of the Participant Deferral Agreement)
8. Termination of the Plan
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SECTION 5.3 Amount of Plan Benefits. A Participant's Plan Benefit shall
equal the total amount credited to the Participant's Account in accordance with
Article IV as of the date a distributable event occurs.
SECTION 5.4 Plan Benefit Payment Options. Subject to the provisions of
Section 5.8, upon the occurrence of a distributable event listed in Section
5.2, a Participant may elect one of the following Plan Benefit payment options:
(a) Lump-sum - A Participant may elect to receive his Plan Benefit
in a single lump sum distribution. This option shall not be
available with respect to a Participant's Formula Award
Account.
(b) Installments - Alternatively, a Participant may elect to
receive his Plan Benefit in equal annual installments over A
period of not less than three years and not greater than ten
years.
(c) Formula Award Account - With respect to the balance of their
Formula Award Account, a Participant must elect an installment
payment option over a period of not less than three years and
not greater than ten years.
SECTION 5.5 Commencement of Benefit Payments. At the election of the
Participant or Beneficiary, if applicable, the payment of Plan Benefits shall
commence no earlier than three months and no later than six months from the
expiration of the ninety-day election period provided for in Section 5.8. In
the event of a distribution on account of hardship, as defined in Section 5.11,
the payment of Plan Benefits shall commence as soon as administratively
feasible from the date the Administrator determines that a Participant is
entitled to a hardship distribution under the Plan.
SECTION 5.6 Form of Benefit Payments. At the discretion of the
Administrator, Plan Benefits will be paid in the form of cash or common stock
of Allied Capital Corporation equal to the value of Plan Benefit payable as of
the valuation date determined by the Administrator.
SECTION 5.7 Age 60 and Age 65 Benefit Payment Distribution Options.
(a) Upon the consent of the Employer, and subject to the
conditions prescribed in subparagraph (b) below, before the
end of the Plan Year beginning immediately prior to the Plan
Year in which an active Participant reaches age 60 or age 65,
such Participant can elect to begin receiving his or her Plan
Benefit determined, as of the end of such preceding Plan Year,
in monthly or annual installments (as such participant elects)
over a period of not less than three years and not longer than
ten years.
(b) If an active Participant does not affirmatively elect to begin
receiving his or her Plan Benefit under this paragraph or, if
the Employer does not
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consent to such an election, the Participant shall not be
eligible to begin receiving benefits until the earlier of a
distributable event described in Section 5.2, or in the case
of an active Participant who has not attained age 60, the Plan
year ending immediately prior to the Plan Year in which he
reaches age 65.
(c) In order to begin receiving Plan Benefits under this Section
5.7, a Participant must be an active Employee or Consultant on
the date such benefits are elected and on the date payment of
such benefits subsequently commence.
(d) If a Participant experiences a distributable event described
in Section 5.2 after an election is made and consent is given
by the Board under this Section 5.7, the Participant or
Beneficiary shall have the same distribution options provided
in Section 5.4, with the value of his Plan Benefit as of such
date decreased by amounts distributed under this Section 5.7.
(e) A Participant who begins receiving Plan Benefits under this
Section 5.7 shall continue to be eligible for future credits
under the Plan to the extent such Participant is otherwise
entitled to receive credits under the terms and operation of
the Plan.
(f) If a Participant elects to receive benefits under this Section
5.7 and the Employer consents to such election, the
distribution of the Participant's benefits will commence at a
time mutually agreed to between the Participant and the
Employer when the election is made and consent given under
this Section 5.7.
SECTION 5.8 Plan Benefit Payment Election Procedures. For purposes of
making the elections provided in Section 5.4, 5.5 and 5.7, each Participant and
Beneficiary, if applicable, shall be provided with an election form prepared by
the Administrator within a reasonable period of time after the Participant
experiences a distributable event or becomes eligible for the special Age 60 or
Age 65 Benefit Payment Distribution Options prescribed in Section 5.7. This
election form must be properly executed by the Participant on or before the
ninetieth day from the day such form is provided to the Participant. If an
election form is not properly executed as provided herein, the Participant will
be deemed (a) in the case of the elections provided in Section 5.4 and 5.5 to
have elected to receive his or her Plan Benefits in annual installments over a
three to ten year period commencing three months from the date the ninety-day
period provided herein expires; or (b) in the case of the elections provided in
Section 5.7 to have declined to begin receiving Plan Benefits under the special
Age 60 or Age 65 Benefit Payments Distribution Option provided in Section 5.7.
SECTION 5.9 Form of Benefit Payments Upon Death. Upon the death of a
Participant who has not yet begun to receive benefits under this Plan, the
Participant's Beneficiary or
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Beneficiaries may elect to receive the Plan Benefit in accordance with Section
5.4. Upon the death of a Participant who has already begun to receive his Plan
Benefit under this Plan in the form of installments, the Participant's
Beneficiaries will receive the remaining Plan Benefits in equal annual
installments in the same manner elected by the Participant.
SECTION 5.10 Designation of Beneficiary. A Participant may, in the
Participant Deferral Agreement, designate one or more primary and contingent
Beneficiaries to receive the Plan Benefit which may be payable hereunder
following the Participant's death, and may designate the proportions in which
such Beneficiaries are to receive such payments. A Participant may change
such designations from time to time, and the last written designation filed
with the Administrator prior to the Participant's death shall control. If a
Participant fails to specifically designate a Beneficiary or, if no designated
Beneficiary survives the Participant, payment shall be made to the
Participant's estate in a single lump-sum, notwithstanding any other provision
of this Plan.
SECTION 5.11 Hardship Withdrawals of Elective Deferral and Employer
Contributions. A distribution in an amount no greater than a Participant's
Account balance may be made to a Participant in the event of hardship. For
this purpose, a withdrawal will be considered to be required due to a hardship
only if, under uniform rules and policies, the Administrator determines that
the purpose of the withdrawal is to meet an immediate and heavy financial need.
The decision of the Administrator as to whether a hardship withdrawal shall be
permitted is final and conclusive.
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ARTICLE VI
ADMINISTRATION
SECTION 6.1 General. The Administrator shall be the Board, or such other
person or persons as designated by the Board. Except as otherwise specifically
provided in the Plan, the Administrator shall be responsible for administration
of the Plan. The Administrator shall be the "named fiduciary" within the
meaning of Section 402(c)(2) of ERISA.
SECTION 6.2 Administrative Rules. The Administrator may adopt such rules
of procedure as it deems desirable for the conduct of its affairs, except to
the extent that such rules conflict with the provisions of the Plan.
SECTION 6.3 Duties. The Administrator shall have the following rights,
powers and duties:
(a) The decision of the Administrator in matters within its
jurisdiction shall be final, binding and conclusive upon the
Employer and upon any other person affected by such decision,
subject to the claims procedure hereinafter set forth.
(b) The Administrator shall have the duty and authority to
interpret and construe the provisions of the Plan, to decide
any question which may arise regarding the rights of Employees
or Consultants, Participants, and Beneficiaries, and the
amount of their respective interests, to adopt such rules and
to exercise such powers as the Administrator may deem
necessary for the administration of the Plan, and to exercise
any other rights, powers or privileges granted to the
Administrator by the terms of the Plan.
(c) The Administrator shall maintain full and complete records of
its decisions. Its records shall contain all relevant data
pertaining to the Participant and his rights and duties under
the Plan. The Administrator shall have the duty to maintain
Account records of all Participants. The Administrator shall
also have the duty to report pertinent information regarding
Participant Accounts to Participants at least annually.
(d) The Administrator shall cause the principal provisions of the
Plan to be communicated to the Participants, and a copy of the
Plan and other documents shall be available at the principal
office of the Employer for inspection by the Participants at
reasonable times determined by the Administrator.
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(e) The Administrator shall periodically report to the Board with
respect to the status of the Plan.
SECTION 6.4 Fees. No fee or compensation shall be paid to any person for
services as the Administrator.
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ARTICLE VII
CLAIMS PROCEDURE
SECTION 7.1 General. Any claim for Plan Benefits under the Plan shall be
filed by the Participant or Beneficiary ("claimant") on the form prescribed for
such purpose with the Administrator.
SECTION 7.2 Denials. If a claim for Plan Benefits under the Plan is
wholly or partially denied, notice of the decision shall be furnished to the
claimant by the Administrator within sixty days after receipt of the claim by
the Administrator, unless special circumstances require an extension of time of
sixty days (for a total of 120 days).
SECTION 7.3 Notice. Any claimant who is denied a claim for Plan Benefits
shall be furnished written notice setting forth:
(a) the specific reason or reasons for the denial;
(b) specific reference to the pertinent provision of the Plan upon
which the denial is based;
(c) a description of any additional material or information
necessary for the claimant to perfect the claim; and
(d) an explanation of the claim review procedure under Section
7.5.
SECTION 7.4 Appeals Procedure. In order that a claimant may appeal a
denial of a claim, the claimant or the claimant's duly authorized
representative may:
(a) request a review by written application to the Administrator,
or its designate, no later than sixty days after receipt by
the claimant of written notification of denial of a claim;
(b) review pertinent documents; and
(c) submit issues and comments in writing.
SECTION 7.5 Review. A decision on review of a denied claim shall be made
not later than sixty days after receipt of a request for review, unless special
circumstances require an extension of time for processing, in which case a
decision shall be rendered within a reasonable period of time, but not later
than 120 days after receipt of a request for review. The decision on review
shall be in writing and shall include the specific reason(s) for the decision
and the specific reference(s) to the pertinent provisions of the Plan on which
the decision is based.
16
<PAGE> 20
ARTICLE VIII
CHANGE IN CONTROL
SECTION 8.1. In General. Unless otherwise set forth in the applicable
Award agreement, in the event of a "Change in Control" as defined in Section
8.2 of the Plan, all amounts in all Participant Accounts including the Formula
Award Account, will be 100% vested and will be immediately distributed to the
Participants.
SECTION 8.2. Definition of "Change in Control". For purposes of Section
8.1 of the Plan, a "Change in Control" means (i) the sale of all or
substantially all of the Employer's assets, (ii) the acquisition, whether
directly, indirectly, beneficially (within the meaning of Rule 13d-3 of the
1934 Act), or of record, or securities of the Company representing twenty-five
percent (25%) or more of the aggregate voting power of the Employer's
outstanding common stock by any person (within the meaning of Section 13(d)
and 14(d) of the 1934 Act), including any corporation or group of associated
persons acting in concert, other than (A) the Employer or its subsidiaries and/
or (B) any employee pension benefit plan (within the meaning of Section 3(2)
of the Employee Retirement Income Security Act of 1974) of the Employer or its
subsidiaries, including a trust established pursuant to any such plan, or (iii)
a merger or consolidation of the Employer with another entity unless the
Employer is the surviving company in such merger or consolidation. For
purposes of this Plan, a Change in Control shall not be deemed to occur upon
the merger of Allied Capital Corporation, Allied Capital Corporation II, Allied
Capital Commercial Corporation, and Allied Capital Advisers, Inc., with and
into Allied Capital Lending Corporation.
17
<PAGE> 21
ARTICLE IX
TRUST
SECTION 9.1 Trust. A trust to be known as the Allied Capital Corporation
Deferred Compensation Trust (the "Trust") has been established by the execution
of a Trust agreement with one or more Trustees and is intended to be maintained
as a "grantor trust" under Code Section 677. The assets of the Trust will be
held, invested and disposed of by the Trustee, in accordance with the terms of
the Trust, for the purpose of providing Plan Benefits for the Participants.
Notwithstanding any provision of the Plan or the Trust to the contrary, the
assets of the Trust shall at all times be subject to the claims of the
Employer's general creditors in the event of insolvency or bankruptcy.
SECTION 9.2 Contributions and Expenses. The Employer, in its sole
discretion, and from time to time, may make contributions to the Trust. All
Plan Benefits under the Plan and expenses chargeable to the Plan, to the extent
not paid directly by the Employer, shall be paid from the Trust.
SECTION 9.3 Trustee Duties. The powers, duties and responsibilities of
the Trustee shall be asset forth in the Trust agreement and nothing contained
in the Plan, either expressly orby implication, shall impose any additional
powers, duties or responsibilities upon the Trustee.
SECTION 9.4 Reversion to the Employer. The Employer shall have no
beneficial interest in the Trust and no part of the Trust shall ever revert or
be repaid to the Employer, directly or indirectly, except with respect to any
unvested amounts in a Participant's Formula Award Account, or as otherwise
provided in Section 8.1 or the Trust agreement.
18
<PAGE> 22
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1 Amendment. The Employer reserves the right to amend the Plan
in any manner that it deems advisable, by a resolution of the Board. No
amendment shall, without the Participant's consent, affect the amount of the
Participant's Plan Benefit at the time the amendment becomes effective or the
right of the Participant to receive a Plan Benefit.
SECTION 10.2 Termination. The Employer reserves the right to terminate the
Plan at any time by resolution of its Board. No termination shall, without the
Participant's consent, affect the amount of the Participant's Plan Benefit
prior to the termination or the right of the Participant to receive a Plan
Benefit.
SECTION 10.3 No Assignment. The Participant shall not have the power to
pledge, transfer, assign, anticipate, mortgage or otherwise encumber or dispose
of in advance any interest in amounts payable hereunder or any of the payments
provided for herein, nor shall any interest in amounts payable hereunder or in
any payments be subject to seizure for payments of any debts, judgments,
alimony or separate maintenance, or be reached or transferred by operation of
law in the event of bankruptcy, insolvency or otherwise.
SECTION 10.4 Successors and Assigns. The provisions of the Plan are
binding upon and inure to the benefit of the Employer, its successors and
assigns, and the Participant, his Beneficiaries, heirs, legal representatives
and assigns.
SECTION 10.5 Governing Law. The Plan shall be subject to and construed in
accordance with the laws of the Commonwealth of Virginia to the extent not
preempted by the provisions of ERISA.
SECTION 10.6 No Guarantee of Employment. Nothing contained in the Plan
shall be construed as a contract of employment or deemed to give any
Participant the right to be retained in the employ of an Employer or any equity
or other interest in the assets, business or affairs of the Employer. No
Participant hereunder shall have a security interest in assets of the Employer
used to make contributions or pay Plan Benefits.
SECTION 10.7 Severability. If any provision of the Plan shall be held
illegal or invalid for any reason, such illegality or invalidity shall not
affect the remaining provisions of the Plan, but the Plan shall be construed
and enforced as if such illegal or invalid provision had never been included
herein.
SECTION 10.8 Notification of Addresses. Each Participant and each
Beneficiary shall file with the Administrator, from time to time, in writing,
the post office address of the Participant, the post office address of each
Beneficiary, and each change of post office address. Any communication,
statement or notice addressed to the last post office
19
<PAGE> 23
address filed with the Administrator (or if no such address was filed with the
Administrator, then to the last post office address of the Participant or
Beneficiary as shown on the Employer's records) shall be binding on the
Participant and each Beneficiary for all purposes of the Plan and neither the
Administrator nor the Employer shall be obligated to search for or ascertain
the whereabouts of any Participant or Beneficiary.
SECTION 10.9 Bonding. The Administrator and all agents and advisors
employed by it shall not be required to be bonded, except as otherwise required
by ERISA.
The undersigned, pursuant to the approval of the Board, does hereby execute the
Allied Capital Corporation Deferred Compensation Plan on this 1st day of
January, 1998.
ALLIED CAPITAL CORPORATION
Attest:/s/ KELLY A. ANDERSON By: /s/ JOAN M. SWEENEY
------------------------------ -------------------------------
Signature) (Signature)
Kelly A. Anderson Joan M. Sweeney
------------------------------ -------------------------------
(Print Name) (Print Name)
20
<PAGE> 1
EXHIBIT 10.12
ALLIED CAPITAL CORPORATION
DIVIDEND REINVESTMENT PLAN
Investor Relations Department
Allied Capital Corporation
1666 K Street NW, 9th Floor
Washington, DC 20006
(888) 818-5298
(202) 331-1112
PLAN AGENT:
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
(800) 937-5449
The Dividend Reinvestment Plan (the "Plan") of Allied Capital Corporation (the
"Company") provides for reinvestment of Company distributions, which consist of
income dividends, capital gain distributions, and returns of capital paid by the
Company, on behalf of each Participant (as defined below), by the Company's
transfer agent (as set forth in Section 14 below, the "Plan Agent"), in
accordance with the following terms:
1. PURPOSE. The purpose of the Plan is to provide shareholders of
record of the Company's common stock, par value $0.0001 per share
(the "shares"), with a method of investing distributions in
additional shares at the current market price without charges for
record-keeping, custodial and reporting services.
2. DUTIES AND RESPONSIBILITIES OF THE PLAN AGENT. The Plan Agent shall
administer the Plan for Participants, keep records, send statements
of accounts to Participants, and perform such other duties relating
to the Plan as the Company and the Plan Agent, from time to time,
shall agree upon.
3. PARTICIPATION IN THE PLAN.
a. Shares Held by a Broker, Bank or Nominee. Any shares
held on the books of the Plan Agent in the name of a
broker, bank, or other nominee (a "nominee") may
participate in the Plan only to the extent that such
nominee participates on behalf of the beneficial owner
of such shares.
b. Automatic Participation. Each shareholder of record,
other than those shareholders who have elected in
writing not to participate in the Plan, shall be
automatically enrolled to participate in the Plan (each
participating shareholder, a "Participant"). The Plan
Agent shall automatically reinvest for each
Participant's Account (as defined in Section 5 below)
all distributions that may be declared and paid on such
Participant's shares.
<PAGE> 2
3. PARTICIPATION IN THE PLAN (CONTINUED).
c. Election of Complete Non-Participation. Any shareholder
may elect not to participate in the Plan at any time by
providing the Plan Agent with notice of such
shareholder's intention of complete non-participation.
With respect to any distribution, any election not to
participate in the Plan shall be effective only if
notice of such election shall have been received by the
Plan Agent before the record date of such distribution.
d. Election of Partial Participation. Any shareholder may
elect to partially participate in the Plan at any time
by providing the Plan Agent with notice of such
shareholder's intention for partial participation. The
notice of partial participation must be specific as to
the number of shares with respect to which distributions
shall not be reinvested pursuant to the Plan. With
respect to any distribution, any election of partial
participation in the Plan shall be effective only if
notice of such election shall have been received by the
Plan Agent before the record date of such distribution.
e. Reenrollment in the Plan. Any shareholder who has
previously elected complete non-participation in the
Plan (i.e., elected to receive distributions in cash on
all shares owned by such shareholder) and thus is not
participating in the Plan, may begin or resume
participation in the Plan at any time with notice to the
Plan Agent of such shareholder's intention to
participate. With respect to any distribution, any
election to participate in the Plan shall be effective
only if notice of such election shall have been received
by the Plan Agent before the record date of such
distribution.
f. Termination of Participation.
i. Any Participant may terminate participation
in the Plan at any time upon notice to the
Plan Agent. Within twenty days following
receipt of such notice by the Plan Agent and
according to such Participant's
instructions, the Plan Agent shall either:
(1) maintain all shares held by such
Participant in a Plan Account designated to
receive all future distributions in cash;
(2) issue certificates for the whole shares
credited to such Participant's Plan Account
and issue a check representing the value of
any fractional shares to such Participant;
or (3) sell the shares held in the Plan
Account and remit the proceeds of the sale,
less any brokerage commissions that may be
incurred, to such Participant at his or her
address of record at the time of such
liquidation. With respect to any
distribution, termination of participation
in the Plan shall be effective only if
notice of such termination shall have been
received by the Plan Agent before the record
date of such distribution.
ii. Participation in the Plan shall continue
with respect to all shares held in a
Participant's Plan Account, including shares
registered in such Participant's name on the
books of the Plan Agent ("Registered
Shares") and shares credited to such
Participant's Plan Account pursuant to the
Plan ("Plan Shares"), unless and until
termination of participation is specifically
requested by such Participant with respect
to such shares. For these purposes, the sale
or transfer of Registered Shares shall not
cause termination of participation in the
Plan with respect to Plan Shares and vice
versa.
<PAGE> 3
4. OPERATION OF THE PLAN.
a. Payment of Distributions. With respect to each
distribution, each Participant's Plan Account shall be
credited with the number of full and fractional shares
(computed to three decimal places) that could be
obtained, at the price determined in accordance with
paragraphs (b) and (c) below, with the cash equivalent
of such distribution, net of any applicable withholding
taxes. Each shareholder who has elected not to
participate in the Plan in accordance with Section 3(c)
above or who has terminated his or her participation in
the Plan in accordance with Section 3(f) above shall
receive each distribution in cash.
b. Allocations to Plan Accounts. Except under the
circumstances outlined in paragraph (c) below, the Plan
Agent shall purchase shares on the Nasdaq National
Market ("Nasdaq") or elsewhere beginning on or before
the payment date of the distribution until the Plan
Agent has expended for such purchases all of the cash
that would otherwise be payable to Participants. The
allocation of shares to the Participants' Plan Accounts
shall be based on the average cost of the shares so
purchased, including brokerage commissions. The Plan
Agent shall reinvest all distributions as soon as
practicable, but no later than 30 days after the payment
date of the distribution, except to the extent necessary
to comply with applicable provisions of the federal
securities laws.
c. Allocation of Newly Issued Shares to Plan Accounts.
i. If the shares sell in the market at a
substantial premium over their net asset
value, the Company's Board of Directors may
(but is not required to) declare a
distribution to be paid to Participants in
newly issued shares of the Company. In that
situation, the price of newly issued shares
issued to a Participant's Plan Account shall
be equal to the average of the closing sales
prices reported for the shares in the Nasdaq
listings in The Wall Street Journal for the
five days on which trading of shares takes
place immediately prior to the payment date
of such distribution (but not less than 95%
of the opening sales price on such date).
ii. If the Board of Directors has declared the
distribution to be payable to Plan
Participants in newly issued shares, the
Plan Agent shall be instructed not to credit
such newly issued shares, and instead to buy
shares in the market, if: (1) the price at
which newly issued shares are to be credited
does not exceed 110% of the last determined
net asset value of the shares; or (2) the
Company has advised the Plan Agent that
since such net asset value was last
determined, the Company has become aware of
events that indicate the possibility of a
material change in per share net asset value
as a result of which the net asset value of
the shares on the payment date might be
higher than the price at which the Plan
Agent would credit newly issued shares to
the Participant's Plan Accounts.
5. PLAN ACCOUNTS. The Plan Agent shall maintain a separate Plan Account
for each Participant. All shares issued to a Participant under the
Plan (i.e., Plan Shares) shall be credited to such Participant's
Plan Account. The Plan Agent will mail to each Participant a
statement confirming the issuance of Plan Shares within 15 days
after the allocation of such shares is made. Such statement will
show the amount of the distribution, the price at which such Plan
Shares were credited, the number of full and fractional Plan Shares
credited, the number of Plan Shares previously credited, and the
cumulative total of Plan Shares. The Statement will also reflect the
number of Registered Shares held in the Plan Account. In addition,
each Participant shall receive copies of the Company's annual and
quarterly reports to shareholders, proxy statements and dividend
income information for tax purposes. The proxy card received by each
Participant shall represent all shares held of record, including
Plan Shares held in the Plan Account.
<PAGE> 4
6. SHARE CERTIFICATES. Certificates for shares issued under the Plan
shall not be furnished to a Participant unless such Participant
requests in writing certificates for a specified number of shares
credited to such Participant's Plan Account. All requests for
certificates must be directed to the Plan Agent. No certificates for
fractional shares will be issued.
7. NAME OF PLAN ACCOUNTS AND ON CERTIFICATES. Plan Accounts are
maintained in the name in which share certificates of the
Participant were (or would have been, in the case of uncertificated
shares) registered at the time the Participant began participation
in the Plan. Certificates for shares issued at the request of a
Participant pursuant to Section 6 above will be similarly
registered.
8. STOCK DIVIDENDS AND STOCK SPLITS. Any stock dividends or split
shares distributed by the Company on shares held in a Plan Account
will be credited to the Participant's Plan Account.
9. SHARE SAFEKEEPING. Participants who wish to have their shares held
in safekeeping may deposit Allied Capital Corporation certificates
now or hereafter registered in their names for credit in their Plan
Account with the Plan Agent. There is no charge for such deposit and
by making such deposit the Participant will be relieved of the
responsibility for loss, theft or destruction of the certificate.
Because the Participant bears the risk of loss in sending stock
certificates to the Plan Agent, it is recommended that certificates
be sent to the Plan Agent by registered mail, return receipt
requested, and properly insured. Certificates should not be
endorsed, but must be accompanied by written instructions directing
the Plan Agent to hold the certificates for the Participant.
10. EXPENSES OF ADMINISTRATION. The Plan Agent's fees for administering
this Plan shall be included in the fees paid by the Company to the
Plan Agent for acting as its transfer agent, and shall not be
charged to Participants.
11. AMENDMENT OR TERMINATION OF THE PLAN. The Plan may be amended or
terminated by the Company or the Plan Agent upon 60 days' notice to
Plan Participants.
12. NOTICE. Any notice required hereunder must be provided in writing.
Notices to the Company should be directed to Allied Capital
Corporation, 1666 K Street, N.W., Washington, D.C. 20006. Notices to
the Plan Agent should be directed to the Plan Agent's address as set
forth in Section 14 below. Notices to any Participant must be
provided to such Participant at his or her address of record at the
time of such notice.
13. EFFECTIVE DATE. This Plan shall take effect on January 15, 1998 (the
"Effective Date") and shall remain in effect until its termination
hereunder.
14. PLAN AGENT. As of the Effective Date hereof, the Plan Agent shall be
American Stock Transfer & Trust Company, 40 Wall Street, New York,
N.Y. 10005. The Company shall notify Participants of any change in
the Plan Agent and/or the address to which notices to the Plan Agent
may be sent.
<PAGE> 5
ALLIED CAPITAL CORPORATION
DIVIDEND REINVESTMENT PLAN
ENROLLMENT STATUS FORM
The undersigned shareholder of record of Allied Capital Corporation elects one
of the following:
[ ] PLAN TERMINATION: Terminate enrollment in the Dividend Reinvestment
Plan and receive dividends and distributions in cash with respect to
all shares of Allied Capital Corporation held of record or credited
to the undersigned's Plan Account.
YOU MUST CHOOSE ONE OF THE FOLLOWING OPTIONS:
[ ] Liquidate all Plan Shares and remit proceeds.
[ ] Send certificate for whole Plan shares and liquidate any
fractional Plan Shares and deliver proceeds to the Plan
Participant at the address of record.
[ ] FULL PARTICIPATION: Participate in the Dividend Reinvestment Plan
and receive dividends and distributions in additional shares with
respect to ALL Allied Capital Corporation shares held of record or
credited to the undersigned's Plan Account.
[ ] PARTIAL PARTICIPATION: Participate in the Dividend Reinvestment Plan
and receive dividends and distributions in additional shares with
respect to all Allied Capital Corporation shares held of record,
including the shares subsequently credited to the undersigned's Plan
Account, EXCEPT __________ shares on which dividends and
distributions are to be paid in cash.
Termination and partial participation instructions will take effect on the
record date following receipt of this form by the Plan Agent. Enrollment
instructions will take effect on the record date following receipt of this form
by the Plan Agent.
- - - - - - - - - - - - - -------------------------------------------------------------------------
Type or print name(s) exactly as it appears on your stock certificate(s)
- - - - - - - - - - - - - ---------------------------------------------
Tax Identification Number or Social Security Number
- - - - - - - - - - - - - ------------------------------------ ------------------------------------
Signature Signature(if a joint account, both
signatures are required)
PLEASE RETURN FORM TO THE PLAN AGENT:
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
(800) 937-5449
<PAGE> 1
EXHIBIT 10.14
FORM OF
REGIONAL ASSOCIATE AGREEMENT
This Regional Associate Agreement (this "Agreement") is made between
Allied Capital Corporation, a Maryland corporation ("Allied"), and the person
identified in Schedule A hereto (the "RA").
Allied is a diversified financial services firm engaged in, among other
activities, the business of providing financing for commercial borrowers.
Allied desires to be introduced to prospective loan and other investment
opportunities, and the RA desires to submit such opportunities to Allied for
Allied's consideration.
In consideration of the foregoing, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto, intending to be legally and equitably bound, hereby agree
as set forth below.
SECTION 1. TERMS OF ENGAGEMENT.
(a) INTRODUCTION AND ACCEPTANCE OF INVESTMENT OPPORTUNITIES. The RA
shall introduce to Allied any loan or other investment opportunity that the
RA reasonably believes will satisfy Allied's established investment criteria
or designated product line (each such prospective loan or other investment
opportunity, an "Investment Opportunity") by timely delivery to Allied of a
written description of such Investment Opportunity in form and substance
acceptable to Allied.
(b) RIGHTS OF FIRST REFUSAL. The RA shall use its good faith best
efforts to refer to Allied all Investment Opportunities that the RA
reasonably believes will satisfy Allied's established investment criteria and
to assist Allied in completing the transaction. Within ten (10) business
days after receipt of a written description of an Investment Opportunity from
the RA, Allied will notify the RA as to whether or not Allied intends to
pursue the Investment Opportunity. If Allied so accepts the Investment
Opportunity, then the following terms of this Agreement shall control; if not
so accepted, then the RA may refer the Investment Opportunity to other
lenders.
(c) DUE DILIGENCE; DISCRETION. Allied will, to the extent it deems
necessary, perform its own due diligence investigation regarding each
Investment Opportunity, and Allied may enlist the RA's assistance in
gathering information about the Investment Opportunity and in preparing
transaction write-ups, in addition to that provided pursuant to Subsection
(a) above. Notwithstanding any other provisions of this Agreement, Allied
may, in its absolute discretion, refuse to consider any Investment
Opportunity.
(d) SUBLICENSE AGREEMENT. As a condition of Allied entering into this
Agreement, the RA shall enter into a Sublicense Agreement substantially in
the form attached hereto as Exhibit A granting the RA the non-exclusive right
to use certain of Allied's trade names, service marks, logos, emblems and
other indicia of origin.
(e) MARKET AREA FOR SBA 7(a) AND 504 LOAN PRODUCTS ONLY: The RA may
actively solicit new business using the licensed marks set forth in the
Sublicense Agreement attached hereto as Exhibit A in the Market Area as
defined in Schedule A.
The RA may not solicit Investment Opportunities or otherwise pursue new
business using the Licensed Marks outside the Marketing Area, but may be
compensated for each Investment Opportunity
-1-
<PAGE> 2
closed by Allied outside of the Marketing Area, if such Investment
Opportunity was introduced to Allied by the RA in accordance with the
procedures of Section 1(a) above. At Allied's sole discretion, Allied may
require that for Investment Opportunities introduced outside of the Marketing
Area, the assistance of another RA be enlisted for Due Diligence services as
described in Section 1(c) above. In that case, any compensation paid by
Allied pursuant to the Investment Opportunity will be shared by each RA, as
they shall mutually agree.
Allied reserves the right to develop relationships with other
organizations who are not RA's and do not license the Allied Capital Licensed
Marks for the purpose of referral of small business investment opportunities
("Referral Relationship"). If an Investment Opportunity is introduced to
Allied through a Referral Relationship, Allied may request the assistance of
another RA to be enlisted for Due Diligence services as described in Section
1(c) above. In that case, Allied will agree with the RA on the amount of
compensation to be shared with the Referral Relationship source, not to
exceed one percent (1%) of the loan amount.
Allied may have assigned other RA's that have sublicensed the Licensed
Marks to the Marketing Area as identified on Schedule A. These RA's may also
solicit within the Marketing Area. Allied will not assign any new RA that
has sublicensed the Licensed Marks other than those RA's named or to be named
as listed on Schedule A to the Marketing Area within the term of this
Agreement if the RA satisfies the Marketing Area Production Levels set forth
in Schedule A.
(f) MARKETING AREA FOR NON-SBA 7(a) AND 504 LOAN PRODUCTS: Allied has
not identified specific marketing areas for loan products other than SBA 7(a)
and 504 loan products, however, Allied reserves the right to restrict any
RA's solicitation activity using Licensed Marks to a specific geographic
location for non-SBA7(a) and 504 loan products at any time.
SECTION 2. COMPENSATION. For each Investment Opportunity Allied
accepts and thereafter actually closes and funds, Allied will pay to the RA
the amounts stated to be payable in accordance with the provisions set forth
in the Loan Fee Schedule, Payment Schedule and Rebate Provisions of Schedule
A. The RA shall not receive any commission, brokerage, finder's or other fee
or compensation from the borrower or other beneficiary in connection with any
such Investment Opportunity without Allied's prior written consent
SECTION 3. COVENANTS.
(a) STANDARDS OF OPERATION. The RA shall at all times during the term
of this Agreement operate the RA's business in compliance with all applicable
laws, rules and regulations and shall maintain all licenses or other
authorizations necessary for the operation of such business. The RA will not
knowingly operate the RA's business in any way which adversely reflects upon
Allied.
(b) NO TRANSFERS. Neither this Agreement nor the RA's rights and
duties hereunder may be sold, assigned or delegated by the RA without the
prior written consent of Allied.
(c) CONFIDENTIALITY. The RA shall at all times use and maintain in
confidence any proprietary information provided to the RA from Allied. For
this purpose, "proprietary information" means any information, oral or
written, that is not generally known outside of Allied that relates to its
marketing plans, customer lists, pricing methods, general financial
performance data, or to Allied's borrowers, but does not
-2-
<PAGE> 3
include proprietary information which is received by the RA from a third
party without restriction. The RA will receive and maintain all proprietary
information in confidence using all reasonable care and, except as provided
herein, shall not use proprietary information for the RA's benefit or
disclose it in whole or in part to any third party except as may be required
or contemplated in the course of the engagement hereunder. The RA agrees to
maintain the confidentiality of all proprietary information during the term
of the Agreement and for a period of two (2) years after its termination.
(d) INDEPENDENT STATUS. The RA shall at all times be an independent
contractor hereunder, rather than a co-venturer, agent, employee, franchisee
or representative of Allied. The RA shall work independently without
supervision by Allied, shall be responsible for its own taxes, shall not be
required to work on a continuing daily basis or on any specific work schedule
and shall not be provided with office space or administrative support by
Allied. Allied hereby acknowledges and agrees that the RA may engage in
other businesses and ventures.
(e) INDEMNIFICATION. Each of the RA and Allied shall indemnify,
defend and hold harmless the other from and against any and all losses
claims, damages, liabilities and expenses whatsoever, joint or several, as
incurred, as to which such other party may become subject under any
applicable federal or state law or otherwise, related to or arising out of or
based upon any act or omission of the RA or Allied, as the case may be, in
connection with a breach or misrepresentation or omission by such party of
such party's obligations hereunder or the representations contained herein or
in connection with any transactions contemplated hereby, and will reimburse
the other party for all legal or other expenses (including, without
limitation, attorneys' fees and expenses) as they are incurred in connection
with the investigation of, preparation for or defense of any pending or
threatened claim or any action or proceeding arising therefrom, whether or
not such other party is a named party in any such claim, action or
proceeding; provided, however, that no party shall have liability to the
other to the extent that any such loss, claim, damage, liability or expense
is found in a final judgment by a court of competent jurisdiction to have
resulted from such other party's willful misconduct or gross negligence.
SECTION 4. DURATION OF AGREEMENT.
(a) TERM. This Agreement shall take effect as of the date of
execution and shall remain in effect through December 31, 1998. Thereafter,
the term of this Agreement may be renewed for an additional one year period
if agreed to by both parties.
(b) TERMINATION. Notwithstanding any other provision hereof, Allied
may terminate this Agreement upon thirty days' prior written notice to the RA
on occurrence of any of one or more of the following events:
1. Unauthorized Loan Commitments RA indicates in any way that RA can
cause or commit ALLIED or any other entity now doing business using
name that includes words "Allied Capital", or any of their subsidiaries
or affiliates, to fund any loan or investment.
2. Non-Performance RA fails to perform or breaches any covenant,
obligation, term, condition, warranty or certification herein and fails
to cure such noncompliance within thirty (30) days after ALLIED gives
written notice thereof; provided, however, that such opportunity to
cure shall be limited to no more than two (2) such instances in any
twelve (12) month period.
-3-
<PAGE> 4
3. Falsehood RA knowingly makes, or has made, any materially false
statement or report to ALLIED in connection with this Agreement or
otherwise.
4. Breach of Covenants RA operates the business conducted hereunder in
a manner contrary to or inconsistent with the Licensed Marks or this
Agreement, and RA fails to cure such deficiency within thirty (30) days
after ALLIED gives written notice to cure.
5. Unauthorized Transfers RA attempts to transfer, in any way, this
Agreement in violation of the terms hereof.
6. Failure to Operate and Control RA abandons or surrenders control of
or fails to operate actively the business conducted under this
Agreement for seven (7) or more consecutive days, except for illness,
normal vacations and holidays.
7. Criminal Conviction RA or any person owning an interest in or any
key employee of RA is convicted of a felony, a crime of moral
turpitude, or any other crime or offense relating to the financial
services business.
8. Violation of Law RA fails, for a period of ten (10) days after
notification of non-compliance, to comply with any law or regulation
applicable to its financial services business, including without
limitation the Investment Company Act of 1940, as amended, the
Investment Advisers Act of 1940, as amended, and all other applicable
securities and broker-dealer laws.
This Agreement shall automatically terminate in the event of a material
breach of any terms of this Agreement. The RA's right to receive any
compensation pursuant to an Investment Opportunity presented by the RA and
duly accepted by Allied before such termination shall remain undiminished by
any such notice of termination.
SECTION 5. MISCELLANEOUS.
(a) NOTICES. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by certified or registered mail, return
receipt requested, first-class postage prepaid, if to the RA at the address
listed in Schedule A hereto, and if to Allied, to its office located at 1666
K Street, N.W., 9th Floor, Washington, DC 20006.
(b) GOVERNING LAW. This Agreement, including any exhibits hereto,
shall be construed in accordance with and governed by the laws of the State
of Maryland, without regard to its principles of conflicts of law. Venue for
any adjudication hereof shall be only in the courts of the State of Maryland
or the federal courts in the State of Maryland, the jurisdiction of which
courts both parties hereby consent to as the agreement of the parties, as not
inconvenient and as not subject to review by any court other than such courts
in Maryland. Both parties intend and agree that the courts of the
jurisdictions in which the RA conducts business should afford full faith and
credit to any judgment rendered by a court of the State of Maryland against
the RA, and should hold that the Maryland courts have jurisdiction to enter a
valid, in personam judgment against the RA. The RA agrees that service of
any summons and/or complaint, and other process which may be served in any
action, may be made by mailing via registered mail or delivering a copy of
such process to the RA at its address specified below, and the RA agrees that
this submission to jurisdiction to consent to service of process are
reasonable and made for the express benefit of Allied.
-4-
<PAGE> 5
(c) WAIVER OF JURY TRIAL. Each party to this Agreement agrees that any
suit, action or proceeding, whether claim or counterclaim, brought or
instituted by any party hereto or any successor or assign of any party on or
with respect to this Agreement which in any way relates, directly or
indirectly, to the subject matter hereof or any event, transaction or
occurrence arising out of or in any way connected with this Agreement or the
dealings of the parties with respect thereto, shall be tried only by a court
and not by a jury. EACH PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL
BY JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING. The RA acknowledges and
agrees that this Section is a specific and material aspect of this Agreement
between the parties and that Allied would not enter into this Agreement with
the RA if this waiver of jury trial section were not a part of this Agreement.
(d) ENTIRE AGREEMENT; MODIFICATIONS AND WAIVERS; SEVERABILITY. This
Agreement represents the entire agreement and understanding by and between
Allied and the RA with respect to the services herein referred to, and no
representations, promises, agreements or understandings, written or oral, not
herein contained shall be of any force or effect. No change or modification
hereof shall be valid or binding unless the same is in writing and signed by
the party against whom such waiver is sought to be enforced; moreover, no
valid waiver of any provision of this Agreement at any time shall be deemed a
waiver of any other provision of this Agreement at such time or will be
deemed a valid waiver of such provision at any other time. In the event any
provision contained herein shall be held to be invalid, illegal or
unenforceable, it shall not affect any other provision hereof, and this
Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein, unless to do so would cause this
Agreement to fail of its essential purpose.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
____________, 1998.
ALLIED CAPITAL CORPORATION
1666 K Street, N.W., 9th Floor, Washington, D.C. 20006
By:
------------------------------------------
---------------------------------------------
Name:
Title: Regional Associate
-5-
<PAGE> 1
EXHIBIT 13
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(in thousands, except per share amounts) 1997* 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
DIVIDENDS AND DISTRIBUTIONS
Total tax distributions $85,678 $57,398 $47,920 $39,947 $29,722
Total tax distributions per common share:
Ordinary income $0.79 $0.89 $0.86 $0.70 $0.44
Net capital gains 0.62 0.34 0.23 0.22 0.30
Return of capital 0.13 -- -- 0.02 --
Special undistributed earnings distribution 0.17 -- -- -- --
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
Total tax distributions per common share $1.71 $1.23 $1.09 $0.94 $0.74
=================================================================================================================================
OPERATIONS
Total interest and related portfolio income $97,405 $84,937 $68,817 $52,155 $37,668
Total expenses excluding merger expenses $46,180 $37,361 $27,274 $21,585 $18,004
Merger expenses $5,159 -- -- -- --
Portfolio income before realized and
unrealized gains (losses) $46,066 $47,576 $41,543 $30,570 $19,664
Net realized gains (losses) $10,704 $19,155 $12,000 $6,236 $(2,569)
Net unrealized gains (losses) $7,209 $(7,412) $9,266 $(2,244) $2,039
Total net realized and unrealized gains (losses) $17,913 $11,743 $21,266 $3,992 $(530)
Net increase in net assets resulting
from operations $61,304 $54,947 $60,479 $33,890 $18,963
Basic earnings per common share $1.24 $1.19 $1.38 $0.80 $0.46
Diluted earnings per common share $1.24 $1.17 $1.37 $0.79 $0.46
Basic earnings per common share excluding
merger expenses $1.35 $1.19 $1.38 $0.80 $0.46
Weighted average common shares outstanding 49,218 46,172 43,697 42,463 40,466
BALANCE SHEET
Portfolio at value $697,021 $607,368 $528,483 $443,316 $334,193
Portfolio at cost $690,720 $613,276 $526,979 $451,078 $339,711
Total assets $807,775 $713,360 $605,434 $501,817 $435,268
Total debt outstanding $347,663 $274,997 $200,339 $130,236 $69,800
Preferred stock issued to SBA $7,000 $7,000 $7,000 $7,000 $7,000
Shareholders' equity $420,060 $402,134 $367,192 $344,043 $342,904
Shareholders' equity per common share $8.07 $8.34 $8.26 $8.02 $8.11
Common share market value at end of year** $22.25 $15.25 $13.25 $10.38 $15.75
Common shares outstanding at end of year 52,047 48,238 44,479 42,890 42,306
</TABLE>
The Selected Consolidated Financial Data schedule reflects the operations of
the Company with all periods restated as if the Companies had merged as of the
beginning of the earliest period presented.
*IN 1997, ALLIED I DISTRIBUTED $0.34 PER COMMON SHARE REPRESENTING THE 844,914
SHARES OF ALLIED LENDING DISTRIBUTED IN CONJUNCTION WITH THE MERGER. THIS
DISTRIBUTION RESULTED IN A PARTIAL RETURN OF CAPITAL. ALSO IN CONJUNCTION
WITH THE MERGER, THE COMPANY DISTRIBUTED $0.17 PER SHARE REPRESENTING THE
UNDISTRIBUTED EARNINGS OF THE MERGED COMPANIES AT DECEMBER 31, 1997.
**THE STOCK PRICES INDICATED ARE THOSE OF ALLIED CAPITAL LENDING CORPORATION,
THE SURVIVING COMPANY IN THE MERGER OF THE FIVE ALLIED CAPITAL COMPANIES,
WHICH WAS COMPLETED ON DECEMBER 31, 1997.
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
The information contained in this section should be read in conjunction with
the Company's 1997 Consolidated Financial Statements and Notes thereto. In
addition, this Annual Report, which includes Management's Discussion and
Analysis, contains certain forward-looking statements. These statements include
the plans and objectives of management for future operations and financial
objectives, loan portfolio growth and availability of funds. These
forward-looking statements are subject to the inherent uncertainties in
predicting future results and conditions. Certain factors that could cause
actual results and conditions to differ materially from those projected in
these forward-looking statements are set forth below in the Investment
Considerations section. Other factors that could cause actual results to
differ materially include the uncertainties of economic, competitive and market
conditions, and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of
the Company. Although the Company believes that the assumptions underlying the
forward-looking statements included herein are reasonable, any of the
assumptions could be inaccurate and therefore, there can be no assurance that
the forward-looking statements included herein will prove to be accurate.
Therefore, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
THE MERGER
On December 31, 1997, Allied Capital Corporation ("Allied I"), Allied Capital
Corporation II ("Allied II"), Allied Capital Commercial Corporation ("Allied
Commercial"), and Allied Capital Advisers, Inc. ("Advisers"), (each an
"Acquired Company" and collectively the "Acquired Companies") merged with and
into Allied Capital Lending Corporation ("Allied Lending") (collectively with
the Acquired Companies, the "Companies") pursuant to an Agreement and Plan of
Merger, dated as of August 14, 1997, as amended and restated as of September
19, 1997 in a stock-for-stock exchange (the "Merger"). Immediately following
the Merger, Allied Lending changed its name to Allied Capital Corporation
("ACC" or the "Company").
The Merger was effected through a conversion of each share of Acquired
Company common stock into the number of shares of Allied Lending common stock
determined pursuant to the following exchange ratios: Allied I--1.07 shares;
Allied II--1.40 shares; Allied Commercial--1.60 shares; and Advisers--0.31
shares. Allied Lending's common stock outstanding prior to the Merger continues
to be outstanding, and was not converted or changed in the Merger. On December
31, 1997, subsequent to the exchange of shares, the Company had 52,047,318
shares outstanding.
The Merger was treated as a tax-free reorganization under Section 368
(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). For
federal income tax purposes, the Acquired Companies carried forward the
historical cost basis of their assets and liabilities to the surviving entity
(ACC). For financial reporting purposes, the Acquired Companies also carried
forward the historical cost basis of their respective assets and liabilities at
the time the Merger was effected. The consolidated financial statements reflect
the operations of ACC with all periods restated as if the Companies had merged
as of the beginning of the earliest period presented.
Prior to the Merger, Allied I owned approximately 16% of Allied Lending's
total shares outstanding. These shares were distributed to the Allied I
shareholders in a dividend immediately prior to the Merger at a rate of
0.107448 shares of Allied Lending for each share of Allied I held on the record
date. For financial reporting purposes, Allied I's ownership of Allied Lending
has been eliminated for all periods presented. The Company is now an internally
managed business development company, as defined in the Investment Company Act
of 1940, as amended, and is a registered investment adviser pursuant to the
Investment Advisers Act of 1940.
THE PORTFOLIO
The Company's primary business is investing in and lending to primarily private
small and medium-sized businesses using three types of financing: mezzanine
finance, commercial real
15
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
estate finance, and 7(a) lending. In addition, the Company also earns advisory
fees from the management of certain private funds.
The earnings of the Company depend primarily on the level of interest and
related portfolio income and net realized and unrealized gain income earned on
these three investment types after deducting interest paid on borrowed capital
and operating expenses. Interest income results from the stated interest rate
paid on a loan, the amortization of loan origination points, and the
amortization of any market discount arising from purchased loans. The level of
interest income is directly related to the balance of the investment portfolio
multiplied by the effective yield on the portfolio. The Company's ability to
generate interest income is dependent on economic, regulatory and competitive
factors that influence interest rates, loan originations, and the Company's
ability to secure financing for its investment activities.
The Company's portfolio is managed in three parts: mezzanine loans, debt
securities and equity interests; commercial mortgage loans; and 7(a) loans. The
graphs included in this section indicate for the past three years, the
composition of the portfolio, loan origination volume and loan repayment
history, and realized and unrealized gains (losses) arising from the portfolio.
The total portfolio at value was $697.0 million, $607.4 million, and $528.5
million at December 31, 1997, 1996, and 1995, respectively, which represented a
15% increase in the total portfolio for each of the years ended December 31,
1997 and 1996.
Mezzanine loans, debt securities and equity interests were $207.7 million,
$191.2 million and $205.2 million at December 31, 1997, 1996, and 1995,
respectively. The effective yield on the mezzanine portfolio was 12.6% and
13.2% at December 31, 1997 and 1996, respectively. Mezzanine loan originations
were $66.7 million and $66.2 million for 1997 and 1996, respectively. During
the two years ended December 31, 1997, mezzanine loan repayments and sales of
equity interests were approximately equal to originations, which kept the level
of the portfolio relatively constant. Prior to the Merger, mezzanine loan
originations were made through Allied I and Allied II, which originated small
($2 million - $9 million) mezzanine loans in order to maintain appropriate
portfolio diversity for regulated investment company purposes. Pursuant to the
terms of a Securities and Exchange Commission exemptive order, Allied I and
Allied II loan originations were made pursuant to a co-investment formula,
based on relative total assets, which required identical terms for each loan
originated. As a result, Allied I and Allied II were unable to originate larger
loans or price loans based on their own capital structures. These
inefficiencies limited the ability of Allied I and Allied II to compete
effectively in the marketplace.
<TABLE>
<CAPTION>
1997
<S> <C>
Commercial Mortgage Loans 56%
Mezzanine Investments 25%
7(a) Loans 5%
Cash and Other Assets 14%
</TABLE>
<TABLE>
<CAPTION>
1996
<S> <C>
Commercial Mortgage Loans 52%
Mezzanine Investments 27%
7(a) Loans 6%
Cash and Other Assets 15%
</TABLE>
<TABLE>
<CAPTION>
1995
<S> <C>
Commercial Mortgage Loans 46%
Mezzanine Investments 34%
7(a) Loans 7%
Cash and Other Assets 13%
</TABLE>
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
Subsequent to the Merger, the Company's larger overall portfolio size
enables the Company to compete for larger mezzanine loans while maintaining
adequate diversity within the portfolio. As a result, the Company is actively
pursuing mezzanine loans in sizes ranging from $5 million to $20 million. The
Company is also able to price its mezzanine loans using a single capital
structure, which should enable the Company to price its loans more
competitively. The Company believes that these post-Merger strategies will
enable the Company to increase mezzanine loan originations in 1998.
Commercial mortgage loans were $446.3 million, $373.7 million, and $277.3
million at December 31, 1997, 1996 and 1995, respectively, which represented a
19% and 35% increase in the total portfolio for the years ended December 31,
1997 and 1996. Commercial mortgage loan originations were $249.0 million and
$176.3 million for 1997 and 1996, respectively. Commercial mortgage loan
originations grew by 41% and 58% in 1997 and 1996, respectively. Commercial
mortgage loan repayments were $154.5 million and $87.5 million for 1997 and
1996, respectively. The weighted average current stated interest rate on the
commercial real estate portfolio at December 31, 1997 and 1996 was 9.6% and
10.3%, respectively. The weighted yield on the commercial real estate portfolio
was 11.4% and 13.4% at December 31, 1997 and 1996, respectively.
The Company experienced a high rate of commercial mortgage loan repayments
in 1997 as many loans that had been purchased in earlier years and originated
without substantial prepayment prohibitions, repaid due to a favorable interest
rate environment. The Company now generally originates its commercial real
estate loans to require prepayment premiums, which generally take the form of a
fixed percentage of the loan amount that declines as the loan matures. At
December 31, 1997, 53% of the commercial real estate portfolio required payment
of some premium upon early repayment, or prohibited repayment for a specified
period of time.
<TABLE>
<CAPTION>
Realized and Unrealized Gains (Losses)
(In Millions)
1995 1996 1997
<S> <C> <C> <C>
REALIZED GAINS $12.000 $19.155 $10.704
UNREALIZED GAINS (LOSSES) $9.266 $-7.412 $7.209
</TABLE>
<TABLE>
<CAPTION>
Investment Originations and Repayments
(In Millions)
1995 1996 1997
<S> <C> <C> <C>
ORIGINATIONS $216.2 $283.3 $364.9
REPAYMENTS $111.7 $179.3 $233.0
</TABLE>
The effective yield on the commercial mortgage loan portfolio is
higher than the stated interest rate due to the amortization of market discount
on purchased loans. At December 31, 1997 and 1996, unamortized market and
original issue discount was $28.0 million and $37.1 million, respectively. The
Company generally prices its commercial mortgage loans based on a fixed spread
over comparable U.S. Treasury rates given the term of the loan. During 1997,
interest rates on U.S. Treasury bonds declined significantly, and the spreads
charged by commercial real estate lenders in the marketplace narrowed. As a
result, the Company's pricing was affected. Because of the Company's defined
niche as an enterprise value real estate lender, however, ACC experienced only
a minimal decline in the overall interest rates on loans originated in 1997.
Commercial mortgage loans originated in 1997 had an average stated interest
rate of 9.6% as compared to 10.0% for loans originated in 1996.
17
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company will continue to aggressively originate commercial mortgage loans
but may increasingly sell loans that are originated at interest rates that do
not meet the Company's overall portfolio strategy.
The 7(a) loan portfolio was $40.7 million, $42.1 million, and $43.3 million
at December 31, 1997, 1996 and 1995, respectively. 7(a) loan originations were
$ 49.2 million and $40.8 million for 1997 and 1996, respectively. Sales of the
guaranteed portions of 7(a) loan originations were $43.4 million and $25.0
million for 1997 and 1996, respectively. 7(a) loans are originated with
variable interest rates priced at spreads ranging from 1.75% to 2.75% over the
prime lending rate.
Prior to the Merger, 7(a) loan originations were conducted through Allied
Lending, which had a consolidated equity base of approximately $40 million.
Because of its relatively small equity base, the Company's cost of debt capital
was expensive and required the Company to price its 7(a) loans at a level that
was, in many cases, above market. Because of the Company's increased equity
base, ACC has reevaluated its pricing strategy and can offer 7(a) loans at
lower prices, and believes that this should increase loan origination activity
in 1998. Also, effective January 1, 1998, the Company is no longer required to
hold the guaranteed portion of its 7(a) loans originated for 90 days before
selling, which also lowers its costs associated with this loan origination
program.
RESULTS OF OPERATIONS
Net increase in net assets resulting from operations ("NIA") was $61.3 million,
or $1.24 per share, $54.9 million, or $1.19 per share, and $60.5 million, or
$1.38 per share, for the years ended December 31, 1997, 1996, and 1995,
respectively. NIA results from total interest and related portfolio income
earned, less total expenses incurred in the operations of the Company, plus net
realized and unrealized gains or losses. For 1997, NIA was significantly
impacted by certain one-time, non-recurring expenses related to the Merger,
which totaled approximately $5.2 million. Without these one-time, merger
expenses, NIA would have been $66.5 million, or $1.35 per share, for 1997, a
13% increase over 1996 earnings per share.
Total interest and related portfolio income was $97.4 million, $84.9
million, and $68.8 million for the years ended December 31, 1997, 1996, and
1995, respectively. Total interest and related portfolio income is primarily a
function of the level of interest income earned and the balance of portfolio
assets. In addition, total interest and related portfolio income includes
premiums from loan sales, prepayment premiums, and advisory fee and other
income.
Interest income totaled $86.9 million, $77.5 million, and $61.6 million for
the years ended December 31, 1997, 1996 and 1995, respectively. Interest income
increased 12% and 26% for 1997 and 1996, respectively. The increase in interest
income earned results primarily from increases in the amount of loans
outstanding during the periods presented. The Company's loan portfolio
increased by 13% to $654.9 million at December 31, 1997 from $580.9 million at
December 31, 1996, and the loan portfolio increased by 17% in 1996 from $495.3
million at December 31, 1995. The Company's total loan originations of $364.9
million for 1997 represented a 29% increase over loan originations of $283.3
million for 1996, and a 31% increase of loan originations of $216.2 million for
1995. In addition, the weighted average yield on the total loan portfolio at
December 31, 1997 was 11.7%, as compared to 13.1% at December 31, 1996. The
Company also earns interest on cash and government securities which totaled
$81.5 million, $71.8 million, and $49.0 million at December 31, 1997, 1996 and
1995, respectively. The Company for the past three years has earned
approximately 4% to 5% on its temporary cash and government securities.
Net premiums from loan sales were $3.2 million, $2.6 million, and $2.1
million for the years ended December 31, 1997, 1996 and 1995, respectively.
This premium income results primarily from the cash gain on the sale of the
guaranteed portion of the Company's 7(a) loans into the secondary market, less
the costs associated with originating the loans sold. Typically, the Company
receives cash premiums on loan sales net of origination costs ranging from 4%
to 6% of the face amount of each loan sold.
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
Prepayment premiums were $4.0 million, $1.7 million, and $0.7 million for
the years ended December 31, 1997, 1996 and 1995, respectively. Commercial
mortgage loan repayments of $154.5 million in 1997 were primarily responsible
for the large level of prepayment premiums experienced in 1997. The expected
maturity of mezzanine or commercial real estate loans ranges from five to ten
years. While it is the Company's intention to retain its borrowers for the full
expected life of the loan, it is not unusual for ACC's borrowers to refinance
or pay off their debts to the Company ahead of schedule. Because the Company
seeks to finance primarily seasoned, performing companies, such companies at
times can secure lower cost financing as the borrower's balance sheet
strengthens, or as more favorable interest rates become available.
Investment advisory fees are received from the private funds managed by ACC.
Three of the Company's private managed funds are in liquidation, and are
actively distributing fund assets to their investors. In January 1998, the
Company entered into an investment advisory agreement with Kreditanstalt fur
Wiederaufbau (KfW), the state-owned public development bank of Germany, to
manage a fund of approximately DM 160 million. For its services related to
sourcing, structuring, investing, monitoring and disposing of its investments
in small, German businesses, ACC will receive a 3% per annum fee on total
committed capital, payable quarterly.
Other income, which was $2.3 million, $1.5 million and $2.5 million, for the
years ended December 31, 1997, 1996, and 1995, respectively, includes rental
income from the Company's fully leased commercial office building located in
northern Virginia and income from foreclosure properties.
Total expenses were $51.3 million ($46.1 million without Merger expenses),
$37.4 million, and $27.3 million for the years ended December 31, 1997, 1996,
and 1995, respectively. Operating expenses include interest on indebtedness,
salaries and employee benefits, legal and accounting expenses, and other
general and administrative expenses.
The Company's single largest expense is interest on indebtedness, which
totaled $26.9 million, $20.3 million, and $12.4 million for the years ended
December 31, 1997, 1996, and 1995, respectively. The increase in interest
expense was 33% and 64% for 1997 and 1996, respectively, and is attributable to
increased borrowings by the Company and its subsidiaries under various credit
facilities to fund new loan originations. The Company's total borrowings were
$347.7 million at December 31, 1997, $275.0 million at December 31, 1996, and
$200.3 million at December 31, 1995. Total borrowings increased by 26% and 37%
in 1997 and 1996, respectively. The Company's weighted average interest cost on
outstanding borrowings at December 31, 1997, 1996 and 1995 was 7.3%, 7.6%, and
7.6%, respectively.
Salaries and employee benefits totaled $10.3 million, $8.8 million, and $8.0
million for the years ended December 31, 1997, 1996, and 1995, respectively.
Total employees were 80, 66, and 74 at December 31, 1997, 1996 and 1995,
respectively. The increase in salaries and benefits reflects the increase in
total employees, combined with wage increases, and the experience level of
employees hired. The Company was an active recruiter in 1997 for experienced
investment and operational personnel and the Company will continue to actively
recruit and hire new professionals in 1998 to support anticipated portfolio
growth. In conjunction with the Merger, the Company established two award
programs. See Note 12 to the Company's 1997 Consolidated Financial Statements.
Legal and accounting expenses totaled $2.3 million, $1.6 million and $1.2
million for the years ended December 31, 1997, 1996, and 1995, respectively.
Legal and accounting expenses include the cost of corporate legal matters,
portfolio workout expenses, and routine accounting and auditing fees. The legal
and accounting expenses for 1997 include a one-time charge of $0.2 million
related to the settlement of a litigation matter associated with one portfolio
company. Legal and accounting expenses increased in 1997 because of this
one-time charge and various restructuring matters.
General and administrative expenses include the lease for the Company's
headquarters in Washington, DC, leases established in 1997 for the Company's
new offices in Chicago and San Francisco, travel costs, stock record expenses,
19
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
directors' fees, and various other expenses. General and administrative
expenses totaled $6.7 million, $6.7 million, and $5.7 million, respectively,
for the years ended December 31, 1997, 1996, and 1995. During 1997 and 1996,
the Company did not experience any significant increases in general and
administrative expenses. The Company intends to move its Washington, DC office
to larger office space in mid-1998. The Company is increasing the size of its
Washington, DC headquarters by approximately 10,000 square feet in order to
accommodate its recent and future anticipated increases in headcount. Annual
rent expense is expected to increase by approximately $0.6 million, annually.
Merger expenses totaled $5.2 million, and consisted primarily of investment
banking fees of $3.1 million, legal fees of $1.0 million, and costs associated
with the solicitation of proxies of approximately $0.6 million.
Total expenses excluding interest on indebtedness and merger expenses
represented approximately 2.5%, 2.6% and 2.7% of the Company's average assets
for the years ended December 31, 1997, 1996 and 1995, respectively.
Net realized gains were $10.7 million, $19.2 million, and $12.0 million for
the years ended December 31, 1997, 1996, and 1995, respectively. These gains
resulted from the sale of equity securities associated with certain mezzanine
loans and the realization of unamortized discount resulting from the payoff of
mezzanine and commercial mortgage loans, offset by losses on investments.
Realized gains totaled $15.8 million, $30.4 million and $16.7 million, and
realized losses totaled $5.1 million, $11.3 million, and $4.7 million for the
years ended December 31, 1997, 1996, and 1995, respectively. Realized gains
for 1997 resulted from the liquidation of securities from 83 portfolio
relationships, and ranged in size from less than $100 to $2.6 million, with an
average size of $188,000.
The Company recorded net unrealized gains of $7.2 million for the year ended
December 31, 1997, representing an increase in the Board of Directors'
valuation of the Company's assets over their aggregate cost as compared to the
prior period. Included as a component of the $7.2 million was a $5.0 million
write-down of interest rate swap agreements. For the year ended December 31,
1996, the Company recorded net unrealized losses of $7.4 million, as the
Company sold an unusual volume of equity securities that had previously been
recorded at appreciated values. When a sale is consummated, a realized gain is
recorded and a corresponding unrealized loss is also recorded to reflect that
the appreciated asset has been sold. For the year ended December 31, 1995, net
unrealized gains were $9.3 million.
The Company incurred income tax expense of $1.4 million, $1.9 million, and
$1.8 million, respectively, for the years ended December 31, 1997, 1996 and
1995 resulting from the operations of Advisers. In conjunction with the Merger,
Advisers' operations as an investment adviser to certain private funds were
assumed by the Company. Because ACC has elected to be taxed as a regulated
investment company ("RIC") under Subchapter M of the Code, the Company is not
taxed on its investment company taxable income and realized capital gains, to
the extent that such income and gains are distributed to shareholders. The
Company will be required to pay a tax on any assets previously owned by
Advisers that are subsequently sold.
In order to maintain its RIC status, the Company must, in general, (1)
derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities; (2) meet investment diversification requirements
as defined in the Code; and (3) distribute to shareholders at least 90% of its
investment company taxable income annually. The Company intends to take all
steps necessary to continue to meet the RIC qualifications. However, there can
be no assurance that the Company will continue to elect or qualify for such
treatment in future years.
During 1997, 1996 and 1995, Allied I, Allied II, Allied Commercial and
Allied Lending declared dividends to their shareholders representing all of
each companies' ordinary taxable income, taxable net capital gains, and in the
case of Allied I in 1997, a partial return of capital resulting from the
distribution of Allied I's ownership of Allied Lending's shares. Tax
distributions differ from NIA due to timing differences in the recognition of
income and expenses, returns of capital and unrealized appreciation which is
not included in
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
taxable income. Total tax distributions declared were $85.7 million, $57.4
million and $47.9 million for 1997, 1996 and 1995, respectively. On a per share
basis, exchange adjusted for the Merger and including exchange-adjusted shares
of Advisers for which no tax distributions had been declared, for the three
years ended December 31, 1997, 1996, and 1995, tax distributions were $1.71,
$1.23, and $1.09 respectively.
Included in 1997 tax distributions was $18 million, or $0.34 per share,
representing a non-cash dividend of the shares of Allied Lending held in Allied
I's portfolio. Allied I declared and paid a dividend equal to 0.107448 shares
of Allied Lending for each share of Allied I held on the record date for such
dividend. These shares had a market value of $21.25 per share on December 30,
1997, the distribution date.
Also included in 1997 tax distributions was a special, one-time dividend
equal to $8.8 million or $0.17 per share representing all of the retained
earnings and profits of the Acquired Companies at December 31, 1997. The
special dividend was declared in conjunction with the Merger in order for the
Company to maintain its RIC status.
Certain of the Company's credit facilities limit the Company's ability to
declare dividends if the Company has defaulted under certain provisions of the
credit agreement.
The weighted average common shares outstanding were 49.2 million, 46.2
million, and 43.7 million for the years ended December 31, 1997, 1996 and 1995,
respectively. The increases in the weighted average shares reflect the exercise
of employee stock options to purchase shares of the Company, the issuance of
shares pursuant to a dividend reinvestment plan, the issuance of new shares
pursuant to two separate rights offerings, and the exchange of shares pursuant
to the Merger. Allied I's ownership of Allied Lending during the periods
presented has been eliminated in the consolidation.
NIA, as a percentage of average shareholders' equity was 15%, 14%, and 17%
for 1997, 1996, and 1995, respectively. NIA, excluding Merger expenses, as a
percentage of average shareholders' equity for 1997 was 16%.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had $81.5 million in cash and government
securities. ACC invests otherwise uninvested cash in U.S. government or
agency-issued or guaranteed securities that are backed by the full faith and
credit of the United States, or in high quality, short term repurchase
agreements fully collateralized by such securities.
Prior to the Merger, certain of the Companies had excess cash resources
while other of the Companies were borrowers on credit facilities. In
conjunction with the Merger, the Company has used excess cash for new
investments and in its operations. The Company continues to maintain excess
cash in its SBIC and SSBIC licensed subsidiaries. This cash may not be
withdrawn from the subsidiaries because it supports the long-term borrowings of
those subsidiaries, and such borrowings carry substantial prepayment penalties.
The cash has not been invested due to a lack of quality investment
opportunities, primarily for the SSBIC subsidiary. The Company is currently
working with the SBA to restructure its SBIC and SSBIC licensees so that the
excess cash may be effectively used. There can be no assurance that this
restructuring will be achieved.
<TABLE>
<CAPTION>
Debt to Equity Ratios
(in Millions)
55% 68% 83%
1995 1996 1997
<S> <C> <C> <C>
DEBT $ 200.3 $ 275.0 $ 347.7
EQUITY $ 367.2 $ 402.1 $ 420.1
</TABLE>
21
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
CREDIT FACILITIES. At Merger, ACC and its subsidiaries had several credit
facilities with an aggregate borrowing capability of $674.3 million primarily
with banks, investment banks, the SBA and an insurance company. Amounts
outstanding under all of the credit facilities totaled $347.7 million, $275.0
million, and $200.3 million at December 31, 1997, 1996, and 1995, respectively.
The weighted average interest rate on these facilities was 7.3%, 7.6%, and
7.6% during 1997, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
Weighted Average Cost of Funds
<S> <C> <C>
7.63% 7.59% 7.32%
1995 1996 1997
</TABLE>
In January 1998, the Company began to restructure its credit facilities, and
obtained a committed $150 million unsecured revolving credit facility with
three banks. This facility has an 18-month term, a stated interest rate equal
to the 30-, 60- or 90-day LIBOR plus 125 basis points, and the amount borrowed
is tied to a borrowing base formula generally equal to 50% of the Company's
portfolio not securing other credit facilities. The Company is currently
negotiating to increase this facility to $200 million, but there can be no
assurance that such an increase will be achieved.
The Company maintains two secured credit facilities for the short-term
finance of its commercial mortgage loans with two investment banks. The
facilities provide for an aggregate availability of $500 million, of which $200
million is committed. The facilities expire in August 1998 and January 1999,
respectively. The facilities bear interest at an interest rate equal to 100 to
113 basis points over the 30-day LIBOR. The Company generally uses the
facilities to warehouse its commercial mortgage loans pending securitization or
sale.
Subsequent to year-end, including the commercial mortgage loan warehouse
facilities and the new $150 million unsecured line of credit, the Company has
$350 million in committed short-term credit facilities.
At December 31, 1997, through its SBIC and SSBIC subsidiaries, the Company
had $54.3 million in debentures issued to the SBA. These debentures have
interest rates ranging from 6.87% to 9.80% and mature over the next 8 years. In
addition, the Company's SSBIC subsidiary had $7.0 million in preferred stock
issued to the SBA, with a 3.1% stated dividend amount. During 1997, Congress
increased the maximum borrowing amount available to an SBIC to $101.0 million,
and the Company intends to continue to borrow under the SBIC program as the
situation warrants.
ASSET SECURITIZATION. Subsequent to year-end on January 28, 1998, the Company,
in conjunction with BMI, completed a $239 million commercial mortgage-backed
bond offering though Allied Capital Commercial Mortgage Trust 1998-1. The bonds
were sold in a private placement of three bond classes rated "AAA", "AA" and
"A" by Standard & Poor's Ratings Services and Fitch IBCA, Inc. The bonds are
secured by the issuer's direct and indirect interests in a pool of 97 mortgage
loans with an aggregate balance of $310 million. The Company contributed
approximately 95%, or $295 million, of the total assets securitized. The
Company retained the balance of the assets not sold, which approximated 23% of
the assets sold, and will recognize income from this residual over the life of
the pool. The mortgage loan pool had an approximate weighted average stated
interest rate of 9.6%. The three bond classes sold have an aggregate weighted
average interest rate of approximately 6.38%. The Company will account for the
sale in accordance with FASB 125.
FUTURE DEBT OR EQUITY OFFERINGS. The Company will continue to secure additional
debt and equity capital, and is in the process of obtaining unsecured long-term
debt to permanently finance its long-term lending operations. The terms of this
debt placement cannot yet be determined and will be dependent on interest rate
and other market conditions, and there can be no assurance that such long-term
debt may be available to the Company on terms it deems acceptable.
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company's cash flow from operations was $58.9 million, $45.2 million and
$47.3 million for 1997, 1996 and 1995, respectively. The Company plans to
maintain a strategy of financing its operations, dividend requirements and
future investments with cash from operations, long-term debt, asset
securitizations or through use of its equity capital. The Company will utilize
its short-term credit facilities only as a means to bridge to long-term
financing. The Company plans to hedge variable and short-term interest rate
exposure. The Company believes that it has access to capital sufficient to fund
its ongoing investment and operating activities, and from which to pay
dividends.
As a BDC, the Company is generally required to maintain a ratio of 200% of
total assets to total borrowings. As a result of this requirement, the Company
may complete, either in public or private transactions, one or more equity
offerings in 1998 and in future years. There can be no assurance that such
sales of equity, if undertaken, would be favorably received by the market.
YEAR 2000. The Company has reviewed its exposure to the risks associated with
the Year 2000 issue, and has determined that there is no material risk of
business interruption as a result of computer errors or inefficiencies. The
Company exclusively uses purchased software and has been informed by its
vendors that the software will be Year 2000 compatible; however, there is no
assurance that such software will indeed address all Year 2000 compatibility
issues. The Company is currently assessing the risk that its portfolio
companies may have regarding this issue. For all new loans originated, the
Company includes in its documentation a Year 2000 compatibility assessment,
and will monitor particular portfolio companies as needed.
FINANCIAL OBJECTIVES. The merged Company has set forth certain financial
objectives that it intends to use in allocating its resources and in selecting
new investment opportunities. Management's goal is to increase NIA annually by
15% to 20% and to provide for a ratio of NIA to average shareholders' equity of
18%. Management believes that the Company will be able to achieve these goals
over the next three to five years. Factors that may impede the achievement of
these objectives include those described in the Investment Considerations
section of this Management's Discussion and Analysis, and also include other
factors such as changes in the economy, competitive and market conditions, and
future business decisions.
NEW GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. Statement of Financial Accounting
Standards Nos. 130 and 131, "Reporting Comprehensive Income" and "Disclosures
about Segments of an Enterprise and Related Information," respectively, were
issued in June 1997. SFAS 130 requires that certain financial activity
typically disclosed in shareholders' equity be reported in the financial
statements as an adjustment to net income in determining comprehensive income.
SFAS 131 requires the reporting of selected segmented information in quarterly
and annual reports. The Company does not anticipate any material financial
impact from the implementation of SFAS Nos. 130 and 131.
INVESTMENT CONSIDERATIONS
Risks of Default. ACC invests in and lends to small businesses. Loans to small
businesses involve a high risk of default, and generally are not rated by any
nationally recognized statistical rating organization. Small businesses usually
have narrower product lines and smaller market shares than larger companies and
therefore may be more vulnerable to competitors' actions and market conditions,
as well as general economic downturns. 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 flows resulting from adverse competitive
developments, a shift in customer preferences or an economic downturn can
severely affect the return on, or the recovery of, the Company's investments in
such businesses.
23
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS
Loss of Pass-Through Tax Treatment. The Company would cease to qualify for
pass-through tax treatment under Subchapter M if it is unable to comply with
the diversification or distribution requirements contained in Subchapter M of
the Code, or if it ceases to qualify as a BDC. The Company also could be
subject to a 4% excise tax (and, in certain cases, corporate level income tax)
if it fails to make certain distributions. The lack of Subchapter M tax
treatment could have a material adverse effect on the total return, if any,
obtainable from an investment in the Company.
Risks of Leverage. ACC borrows funds from, and issues senior debt securities
to, banks and other lenders. Lenders of these senior securities have fixed
dollar claims on the Company's consolidated assets which are superior to the
claims of the Company's shareholders. If the value of the Company's
consolidated assets increases, then such leveraging techniques would cause the
net asset value attributable to the Company's common stock to increase more
sharply than it would have had the techniques not been utilized. Conversely, a
decrease in the value of the Company's consolidated assets would cause net
asset value to decline more sharply than it otherwise would if the senior funds
had not been borrowed. Similarly, any increase in the Company's consolidated
income in excess of consolidated interest payable on the borrowed funds would
cause its net income to increase more than it would without the leverage, while
any decrease in its consolidated income would cause net income to decline more
sharply than it would had the funds not been borrowed. Such a decline could
negatively affect the Company's ability to make common stock dividend payments,
and, 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 is disadvantageous to do so. Leverage is generally
considered a speculative investment technique. The ability of the Company to
achieve its investment objective may depend in part on its continued ability to
maintain a leveraged capital structure by borrowing from banks or other lenders
on favorable terms, and there can be no assurance that such leverage can be
maintained.
Competition. Many entities and individuals compete for investments similar
to those made by the Company, some of whom have greater resources than ACC.
Increased competition would make it more difficult for the Company to purchase
or originate loans at attractive prices. As a result of this competition, ACC
from time to time may be precluded from making otherwise attractive investments
on terms considered to be prudent in light of the risks assumed.
Long-Term Character of Investments. It is expected that mezzanine loans will
generally yield a current return from the time they are made, but also will
generally produce a realized gain from an accompanying equity feature after
approximately three to eight years. There can be no assurance that capital
gains will actually be achieved.
Illiquidity of Investments. The Company acquires securities directly from
issuers in private transactions, and the major portion of such investments is
subject to restrictions on resale or is otherwise illiquid. In particular,
there is usually no established trading market in which such securities could
be sold. In addition, equity securities generally cannot be sold to the public
without registration under the Securities Act of 1933 which involves delay,
uncertainty and expense.
Government Regulations. The Company is subject to regulation by the
Securities and Exchange Commission and the Small Business Administration. In
addition, the Company's business may be significantly impacted by changes in
the laws or regulations that govern BDCs, RICs, REITs, SBICs, SSBICs and SBLCs.
Laws and regulations may be changed from time to time and the interpretations
of the relevant law and regulations is also subject to change. Any change in
the laws or regulations that govern the Company could have a material impact on
the Company or its operations.
<PAGE> 12
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
(in thousands, except number of shares) 1997 1996
ASSETS
Portfolio at value:
<S> <C> <C>
Commercial mortgage loans (cost: 1997-$446,114; 1996-$373,378) $446,342 $373,695
Mezzanine loans and debt securities (cost: 1997-$181,184; 1996-$178,664) 167,842 165,086
Small Business Administration 7(a) loans: (cost: 1997-$41,103; 1996-$42,351) 40,709 42,131
Equity interests in portfolio companies (cost: 1997-$20,050; 1996-$18,521) 39,906 26,134
Other portfolio assets (cost: 1997-$2,269; 1996-$362) 2,222 322
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Total portfolio at value 697,021 607,368
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 70,437 71,841
U.S. government securities 11,091 --
Other assets 29,226 34,151
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Total assets $807,775 $713,360
===================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Debentures and notes payable $308,821 $229,898
Revolving lines of credit 38,842 45,099
Accounts payable and accrued expenses 18,189 14,662
Dividends and distributions payable 9,068 8,197
Other liabilities 5,795 6,370
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
380,715 304,226
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Preferred stock issued to Small Business Administration 7,000 7,000
Shareholders' equity:
Common stock, $0.0001 par value, 100,000,000 shares authorized;
52,047,318 and 48,237,621 issued and outstanding
at December 31, 1997 and 1996, respectively 5 5
Additional paid-in capital 451,044 417,670
Notes receivable from sale of common stock (29,611) (15,491)
Net unrealized appreciation (depreciation) on portfolio 1,301 (5,908)
Undistributed (distributions in excess of) earnings (2,679) 5,858
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 420,060 402,134
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $807,775 $713,360
===================================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
25
<PAGE> 13
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(in thousands, except per share amounts) 1997 1996 1995
INTEREST AND RELATED PORTFOLIO INCOME
<S> <C> <C> <C>
Interest $86,882 $77,541 $61,550
Net premiums from loan sales 3,241 2,563 2,090
Prepayment premiums 4,036 1,678 706
Investment advisory fees 993 1,667 2,009
Other income 2,253 1,488 2,462
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Total interest and related portfolio income 97,405 84,937 68,817
===================================================================================================================================
EXPENSES
Interest on indebtedness 26,952 20,298 12,355
Salaries and employee benefits 10,258 8,774 8,031
Legal and accounting 2,262 1,605 1,167
General and administrative 6,708 6,684 5,721
Merger 5,159 -- --
- - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 51,339 37,361 27,274
===================================================================================================================================
Portfolio income before realized and unrealized gains 46,066 47,576 41,543
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS
Net realized gains 10,704 19,155 12,000
Net unrealized gains (losses) 7,209 (7,412) 9,266
===================================================================================================================================
Total net realized and unrealized gains 17,913 11,743 21,266
===================================================================================================================================
Income before minority interests and income taxes 63,979 59,319 62,809
Minority interests 1,231 2,427 546
Income tax expense 1,444 1,945 1,784
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $61,304 $54,947 $60,479
===================================================================================================================================
Basic earnings per common share $1.24 $1.19 $1.38
===================================================================================================================================
Diluted earnings per common share $1.24 $1.17 $1.37
===================================================================================================================================
Weighted average common shares outstanding 49,218 46,172 43,697
===================================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE> 14
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(in thousands, except per share amounts) 1997 1996 1995
OPERATIONS
<S> <C> <C> <C>
Portfolio income before realized and unrealized gains $46,066 $47,576 $41,543
Net realized gains 10,704 19,155 12,000
Net unrealized gains (losses) 7,209 (7,412) 9,266
Minority interests and income tax expense (2,675) (4,372) (2,330)
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 61,304 54,947 60,479
===================================================================================================================================
SHAREHOLDER DISTRIBUTIONS
Portfolio income (38,751) (39,030) (37,296)
Excess of portfolio income (605) (2,533) (451)
Net capital gains (15,172) (11,546) (9,799)
Excess of net capital gains -- -- (374)
Return of capital (22,302) (4,289) --
Undistributed earnings (8,848) -- --
Preferred stock dividend (220) (220) (220)
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from
shareholder distributions (85,898) (57,618) (48,140)
===================================================================================================================================
CAPITAL SHARE TRANSACTIONS
Sale of common stock -- 22,365 1,156
Net increase in notes receivable from sale of common stock (14,120) (8,176) (3,526)
Issuance of common stock upon the exercise of stock options 28,426 12,176 5,310
Issuance of common stock in lieu of cash distributions 26,612 11,986 7,506
Other 1,602 (738) 364
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from
capital share transactions 42,520 37,613 10,810
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets $17,926 $34,942 $23,149
===================================================================================================================================
Net assets at beginning of year $402,134 $367,192 $344,043
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $420,060 $402,134 $367,192
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Net asset value per common share $8.07 $8.34 $8.26
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Common shares outstanding at end of year 52,047 48,238 44,479
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
27
<PAGE> 15
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(in thousands, except per share amounts) 1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net increase in net assets resulting from operations $61,304 $54,947 $60,479
Adjustments
Net unrealized (gains) losses (7,209) 7,412 (9,266)
Depreciation and amortization 450 393 319
Amortization of loan discounts and fees (10,804) (9,027) (6,841)
Deferred income taxes 1,087 (381) (174)
Minority interests 1,231 2,427 546
Amortization of deferred financing costs 957 693 72
Changes in other assets and liabilities 11,924 (11,299) 2,173
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 58,940 45,165 47,308
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in small business concerns (364,942) (283,295) (216,175)
Collections of investment principal 233,005 179,292 111,731
Proceeds from the sale of loans 53,912 27,715 29,726
Net (purchase) redemption of U.S. government securities (10,301) -- 35,061
Collections of notes receivable from sale of common stock 6,534 2,199 1,038
Other investing activities (182) 2,635 2,357
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (81,974) (71,454) (36,262)
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock 8,615 24,166 1,074
Common dividends and distributions paid (58,194) (47,089) (36,265)
Preferred stock dividends (220) (220) (220)
Net borrowings under (payments on) debentures
and notes payable 78,923 (35,202) 85,636
Net borrowings under (payments on) revolving
lines of credit (6,257) 110,460 (11,812)
Net payments on government securities available for sale -- -- (23,210)
Other financing activities (1,237) (3,029) 364
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 21,630 49,086 15,567
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents $(1,404) $22,797 $26,613
===================================================================================================================================
Cash and cash equivalents at beginning of year $71,841 $49,044 $22,431
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $70,437 $71,841 $49,044
- - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE> 16
CONSOLIDATED STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1997
PORTFOLIO COMPANY INVESTMENT (2) COST VALUE
(in thousands, except number of shares)
MEZZANINE LOANS AND DEBT SECURITIES AND EQUITY INTERESTS IN PORTFOLIO COMPANIES
<S> <C> <C>
Acme Paging, L.P. Debt Securities $5,993 $5,993
Equity Interest 1,456 2,600
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
AGPAL Broadcasting, Inc. Debt Securities 928 928
Warrants -- --
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
American Barbecue & Grill Loans 1,499 1,499
Debt Securities 2,250 2,250
Warrants 125 125
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Arnold Moving Co., Inc. Loans 713 713
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
ARS, Inc. Debt Securities 9,723 9,723
Warrants 171 171
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
ASW Holding Corporation Warrants 25 25
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Au Bon Pain Co., Inc. (1) Debt Securities 7,355 7,355
Warrants 227 234
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Brazos Sportswear, Inc. (1) Common Stock (342,938 shares) 330 1,547
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Broadcast Holdings, Inc. Debt Securities 2,696 2,696
Warrants -- 1,054
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Calendar Broadcasting, Inc. Debt Securities 3,780 3,780
Warrants 144 144
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Candlewood Hotel Company (1) Preferred Stock (3,250 shares) 3,250 3,250
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Celebrities, Inc. Debt Securities 365 365
Warrants 12 12
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
CeraTech Holdings Corporation Debt Securities 1,983 253
Warrants -- --
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Cherry Tree Toys, Inc. Debt Securities 1,776 1,776
Common Stock (220 shares) 1 --
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Chungsan Corporation Loan 78 78
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Convenience Corporation of America Loans 1,226 1,226
Debt Securities 8,370 6,245
Class A Preferred Stock (22,797 shares) 265 --
Warrants -- --
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Cooper Natural Resources, Inc. Debt Securities 3,440 3,440
Warrants -- --
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Csabai Canning Factory Rt. Debt Securities 3,140 3,140
Equity Interest 700 700
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
DEH Printed Circuits, Inc. Warrants 250 1,440
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
DeVlieg-Bullard, Inc. (1) Warrants 350 760
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Directory Investment Corporation Common Stock (470 shares) -- 83
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Directory Lending Corporation Series A Common Stock (1,031 shares) -- 862
Series B Common Stock (188 shares) 235 157
Series C Common Stock (292 shares) 656 245
Series A Preferred Stock (214 shares) 307 192
Series B Preferred Stock (175 shares) 931 158
Series C Preferred Stock (58 shares) 58 52
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
DMI Furniture, Inc. (1) Convertible Preferred Stock (199,920 shares) 500 982
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
ECM Enterprises Loan 36 4
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) PUBLIC COMPANY; (2) COMMON STOCK, PREFERRED STOCK, WARRANTS
AND EQUITY INTERESTS ARE GENERALLY NON-INCOME PRODUCING AND RESTRICTED
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
29
<PAGE> 17
CONSOLIDATED STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1997
PORTFOLIO COMPANY INVESTMENT (2) COST VALUE
(in thousands, except number of shares)
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EDM Consulting, LLC Loans $ 30 $ 30
Debt Securities 1,875 428
Equity Interest -- --
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
El Dorado Communications, Inc. Warrants -- 585
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Esquire Communications Ltd. (1) Warrants 6 1,000
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Everything Yogurt Loan 65 65
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Ex Terra Funding, LLC Loan 1,960 1,960
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Fairchild Industrial Products Company Debt Securities 5,653 5,653
Warrants 280 280
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
FHM Distributions, Inc. Loan 200 200
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Gibson Guitar Corp. Debt Securities 14,475 14,475
Warrants 525 525
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Golden Eagle/Satellite Archery, LLC Loans 550 550
Debt Securities 2,248 2,248
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Grant Broadcasting System II Warrants 139 3,600
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Grant Television, Inc. Debt Securities 7,866 7,866
Warrants -- --
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Han Hie Loan 518 518
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
H.B.N. Communications, Inc. Loan 262 262
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Herr-Voss Industries, Inc. Debt Securities 9,500 9,500
Common Stock (132,507 shares) 1,050 1,050
Warrants -- --
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
HFC Acquisition Sub I, Inc. Loans 232 232
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
In the Dough, Inc. Loan 2 --
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Jeff & Chris Mufflers, Inc. Loan 128 128
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
JR Industries, Inc. Debt Securities 2,343 2,343
Warrants 74 74
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Julius Koch USA, Inc. Debt Securities 4,630 4,630
Warrants 323 2,099
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Kirker Enterprises, Inc. Loans 800 800
Debt Securities 2,784 2,784
Warrants 348 2,350
Equity Interest 40 40
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Kirkland's, Inc. Debt Securities 6,250 6,250
Warrants 96 96
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Kjellberg's Incorporated Loan 3,146 3,146
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Kurlancheek Loan 311 311
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Labor Ready, Inc. (1) Common Stock (247,863 shares) 1,477 4,308
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Liberty-Pittsburgh Systems, Inc. Debt Securities 3,370 3,370
Common Stock (60,000 shares) 100 100
Warrants -- --
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Lingcomm, Inc. Loan 235 235
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Love Funding Corporation Series D Preferred Stock (26,000 shares) 360 214
Warrants 200 --
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
Magic Auto Loan 17 17
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
MidSouth Data Systems, Inc. Debt Securities 7,550 7,550
Warrants 348 348
- - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) PUBLIC COMPANY; (2) COMMON STOCK, PREFERRED STOCK, WARRANTS
AND EQUITY INTERESTS ARE GENERALLY NON-INCOME PRODUCING AND RESTRICTED
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE> 18
CONSOLIDATED STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1997
PORTFOLIO COMPANY INVESTMENT (2) COST VALUE
(in thousands, except number of shares)
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Midview Associates, L.P. Debt Securities $ 326 $ 326
Warrants -- --
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
Mihadas Loan 290 290
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
Mill-It Striping, Inc. Common Stock (18 shares) 250 --
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
MLX/SinterMet Corp. (1) Common Stock (5,835 shares) 241 109
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
Monitoring Solutions, Inc. Loans 33 33
Debt Securities 1,822 219
Common Stock (33,333 shares) -- --
Warrants -- --
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
Radio City Mobil Home Park Loan 1,361 1,361
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
Nobel Education Dynamics, Inc. (1) Preferred Stock (265,957 shares) 2,000 2,000
Warrants -- --
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
Norman's Yogurt, Inc. Loan 30 30
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
Northeast Broadcasting Group, L.P. Debt Securities 483 483
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
New York Donut Corporation Loan 106 106
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
Old Mill Holdings, Inc. Debt Securities 1,115 888
Warrants 77 --
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
OMA, Inc. Loans 1,931 1,931
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
PAL Liberty, Inc. Loan 323 323
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
Peerless Group, Inc. (1) Common Stock (379,475 shares) 17 1,405
Warrants 4 667
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
David Peters Loan 169 55
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
PIATL Holdings, Inc. Loans 107 107
Preferred Stock (276 shares) 160 175
Common Stock (36 shares) -- --
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
Pico Products, Inc. (1) Debt Securities 5,669 5,669
Common Stock (248,000 shares) 71 336
Warrants -- --
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
Quality Software Products Holdings, PLC (1) Common Stock (94,479 shares) 901 344
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
Radio One of Atlanta, Inc. Loans 341 341
Debt Securities 9,951 9,951
Common Stock (1,430 shares) -- --
Warrants -- --
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
Randhawa Brothers Enterprises, Inc. Loans 217 217
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
R-Tex Decoratives Company, Inc. Debt Securities 1,513 1,170
Warrants 58 --
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
R.L. Singletary Loan 112 112
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
Saturn Chemicals, Inc. Loan -- --
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
SerpCo., Inc. Loan 182 182
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
Spa Lending Corporation Series A Preferred Stock (5,826 shares) 420 322
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
SunStates Refrigerated Services, Inc. Loans 1,557 68
Debt Securities 4,262 1,486
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
Total Foam, Inc. Debt Securities 1,582 129
Common Stock (910 shares) 57 --
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
University Village Mobile Homes Loan 157 157
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
Vidon, Inc. Loans 262 262
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) PUBLIC COMPANY; (2) COMMON STOCK, PREFERRED STOCK, WARRANTS AND EQUITY
INTERESTS ARE GENERALLY NON-INCOME PRODUCING AND RESTRICTED
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
31
<PAGE> 19
CONSOLIDATED STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1997
PORTFOLIO COMPANY INVESTMENT (2) COST VALUE
(in thousands, except number of shares and investments)
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Waterview Limited Partnership Equity Interest $ -- $ 3,050
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
Weathertech Distributing Company, Inc. Loans 291 291
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
West Virginia Radio Corporation of Clarksburg, Inc. Debt Securities 962 962
Warrants 400 --
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
William R. Dye Loan 270 270
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
Williams Brothers Lumber Company Loans 720 720
Debt Securities 308 308
Warrants 24 24
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
Z-Spanish Radio Network, Inc. Loans 11,636 11,636
Debt Securities 750 750
Warrants 6 6
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
Total mezzanine loans and debt securities and
equity interests in portfolio companies (89 investments) $ 201,234 $ 207,748
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
INTEREST NUMBER OF
RATE RANGES INVESTMENTS COST VALUE
COMMERCIAL MORTGAGE LOANS
<S> <C> <C> <C> <C>
Up to 6.99% 6 $ 6,129 $ 6,129
7.00%-8.99% 49 108,313 108,313
9.00%-10.99% 156 259,203 259,221
11.00%-12.99% 72 61,681 61,891
13.00%-14.99% 7 7,294 7,294
15.00% and above 1 3,494 3,494
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
Total commercial mortgage loans 291 $ 446,114 $ 446,342
=================================================================================================================================
SMALL BUSINESS ADMINISTRATION 7(a) LOANS
Up to 6.99% 10 $ 111 $ 111
7.00-8.99% 16 192 107
9.00-10.99% 24 2,636 2,673
11.00-12.99% 378 38,072 37,739
13.00-14.99% 4 92 79
15.00% and above 0 0 0
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
Total Small Business Administration 7(a) loans 432 $ 41,103 $ 40,709
=================================================================================================================================
Other portfolio assets 7 $ 2,269 $ 2,222
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
Total portfolio at value 819 $ 690,720 $ 697,021
=================================================================================================================================
</TABLE>
(1) PUBLIC COMPANY; (2) COMMON STOCK, PREFERRED STOCK, WARRANTS
AND EQUITY INTERESTS ARE GENERALLY NON-INCOME PRODUCING AND RESTRICTED
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. MERGER
On December 31, 1997, Allied Capital Corporation ("Allied I"), Allied Capital
Corporation II ("Allied II"), Allied Capital Commercial Corporation ("Allied
Commercial"), and Allied Capital Advisers, Inc. ("Advisers"), (each an
"Acquired Company" and collectively the "Acquired Companies") merged with and
into Allied Capital Lending Corporation ("Allied Lending") pursuant to an
Agreement and Plan of Merger, dated as of August 14, 1997, as amended and
restated as of September 19, 1997 in a stock-for-stock exchange (the "Merger").
Immediately following the Merger, Allied Lending changed its name to Allied
Capital Corporation ("ACC" or the "Company").
The Merger was effected through a conversion of each share of Acquired
Company common stock into the number of shares of Allied Lending common stock
determined pursuant to the following exchange ratios: Allied I - 1.07 shares;
Allied II - 1.40 shares; Allied Commercial - 1.60 shares; and Advisers - 0.31
shares. Allied Lending's common stock outstanding prior to the Merger continues
to be outstanding, and was not converted or changed in the Merger. On December
31, 1997, subsequent to the exchange of shares, the Company had 52,047,318
shares outstanding.
The Merger was treated as a tax-free reorganization under Section 368
(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). For
federal income tax purposes, the Acquired Companies carried forward the
historical cost basis of their assets and liabilities to the surviving entity
(ACC). For financial reporting purposes, the Acquired Companies also carried
forward the historical cost basis of their respective assets and liabilities at
the time the Merger was effected. The consolidated financial statements reflect
the operations of ACC with all periods presented restated as if the Companies
had merged as of the beginning of the earliest period presented.
To facilitate the Merger, Allied Lending's charter was amended primarily to
effect: (a) an increase in the number of authorized shares of common stock, par
value one-tenth of one mil ($0.0001) per share, from 20,000,000 to 100,000,000
shares; and (b) a change in Allied Lending's name to "Allied Capital
Corporation."
Prior to the Merger, Allied I owned approximately 16 percent of Allied
Lending's total shares outstanding. These shares were distributed to the Allied
I shareholders in a dividend immediately prior to the Merger at a rate of
0.107448 shares of Allied Lending for each share of Allied I held on the record
date. For financial reporting purposes, Allied I's ownership of Allied Lending
has been eliminated for all periods presented.
NOTE 2. ORGANIZATION
Allied Capital Corporation, a Maryland corporation, is a closed-end management
investment company that has elected to be regulated as a business development
company ("BDC") under the Investment Company Act of 1940 ("1940 Act"). Allied
Capital Corporation has three wholly owned subsidiaries that have also elected
to be regulated as BDCs. Allied Investment Corporation ("Allied Investment")
and Allied Capital Financial Corporation ("Allied Financial") are licensed
under the Small Business Investment Act of 1958 as a Small Business Investment
Company and a Specialized Small Business Investment Company, respectively.
Allied Capital SBLC Corporation ("Allied SBLC") is licensed by the Small
Business Administration ("SBA") as a Small Business Lending Company and is a
participant in the SBA Section 7(a) Guaranteed Loan Program. In addition to
these wholly owned subsidiaries, Allied Capital Corporation has established
several single-member limited liability companies primarily to hold real estate
properties.
Allied Capital Corporation and its subsidiaries, collectively, are
hereinafter referred to as the "Company" or "ACC."
The investment objective of the Company is to achieve current income and
capital gains. In order to achieve this objective, the Company invests
primarily in private, growing businesses in a variety of industries and in
diverse geographic locations (primarily in the United States).
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The consolidated financial statements for the periods
presented have been restated to include the accounts of the Acquired Companies
and Allied Lending for all periods presented. Transaction fees and expenses
related to the Merger have been expensed in the 1997 results of operations. The
consolidated financial statements include the accounts of the Company or its
wholly
33
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
owned or majority owned subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.
VALUATION OF PORTFOLIO INVESTMENTS. Portfolio investments are carried at fair
value, as determined by the board of directors under the Company's valuation
policy.
The values of loans and debt securities are based on the board of directors'
evaluation of the financial condition of the borrowers and/or the underlying
collateral. The values assigned are considered to be amounts which could be
realized in the normal course of business which, generally, anticipates the
Company holding the loan to maturity and realizing the face value of the loan.
For debt securities and loans, value normally corresponds to cost unless the
borrower's condition or external factors lead to a determination of value at a
lower amount.
Equity interests in portfolio companies for which there is no public market
are valued based on various factors including history of positive cash flow
from operations, the market value of comparable publicly traded companies
(discounted for illiquidity), and other pertinent factors. The board of
directors also considers recent offers to purchase a portfolio company's
securities when valuing equity interests.
The Company's equity interests in public companies that carry certain
restrictions on sale are typically valued at a discount from the public market
value of the security at the balance sheet date. Other publicly traded stocks
may also be valued at a discount due to the investment size or market liquidity
concerns.
INTEREST INCOME. Interest income is recorded on the accrual basis to the extent
that such amounts are expected to be collected. Loan origination fees, original
issue discount, and market discount are amortized into interest income using
the effective interest method.
NET REALIZED AND UNREALIZED GAINS. Realized gains or losses are measured by
the difference between the net proceeds from the sale and the cost basis of the
investment without regard to unrealized gains or losses previously recognized,
and include investments charged off during the year, net of recoveries.
Unrealized gains or losses reflect the change in the valuation of the portfolio
investment during the reporting period.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions to shareholders are recorded on
the record date.
FEDERAL AND STATE INCOME TAXES. With the exception of Advisers, the Acquired
Companies qualified as regulated investment companies ("RIC") or a real estate
investment trust ("REIT"); however, Advisers was a corporation subject to
federal and state income taxes. Income tax expense reported on the
consolidated statement of operations relates to the operations of Advisers for
all periods presented.
The Company and its wholly owned subsidiaries intend to comply with the
requirements of the Code that are applicable to RICs. The Company and its
wholly owned subsidiaries intend to distribute annually all of their taxable
income to shareholders; therefore, the Company has made no provision for
deferred taxes.
DERIVATIVE FINANCIAL INSTRUMENTS. The Company uses derivative financial
instruments to reduce interest rate risk. The Company has established policies
and procedures for risk assessment and the approval, reporting and monitoring
of derivative financial instrument activities. The Company does not hold or
issue derivative financial instruments for trading purposes.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents include cash in banks and
all highly liquid investments with original maturities of three months or less.
DEFERRED FINANCING COSTS. Financing costs are based on actual costs incurred in
obtaining financing and are deferred and amortized as part of interest expense
over the term of the related debt instrument.
PER SHARE INFORMATION. Basic earnings per share is calculated using the
weighted average number of shares outstanding for the period presented. Diluted
earnings per share reflects the potential dilution that could occur if
securities to issue common stock were exercised into common stock.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from these estimates.
NOTE 4. PORTFOLIO
The Company lends and invests in growing businesses through three primary
products: commercial mortgage loans, mezzanine loans and debt and equity
securities, and 7(a) loans.
MEZZANINE FINANCE. Mezzanine investments are generally structured as loans
that carry a relatively high fixed rate of interest, which may be combined with
equity features, such as conversion privileges, warrants or options to purchase
a portion of the portfolio company's equity at a nominal price. Such an
investment would typically have a maturity of five to ten years, with
interest-only payments in the early years and payments of both principal and
interest in the later years, although loan maturities and principal
amortization schedules vary. At December 31, 1997, approximately 98 percent of
the Company's mezzanine loan portfolio was composed of fixed interest rate
loans. The weighted average yield on the mezzanine portfolio as of December 31,
1997 and 1996 equaled 12.6 percent and 13.2 percent, respectively. At December
31, 1997 and 1996, mezzanine loans and debt securities with a cost basis of
$13,661,000 and $16,648,000, respectively, were not accruing interest.
At December 31, 1997, approximately 29 percent, 27 percent, 17 percent, 13
percent and 8 percent of the Company's mezzanine portfolio was located in the
mid-atlantic, southeast, midwest, west, and northeast regions, respectively. In
addition, 6 percent of the mezzanine portfolio was located in other countries.
Loans to businesses in the industrial/manufacturing,
broadcasting/communications, retail/wholesale, and services industries equaled
approximately 43 percent, 26 percent, 15 percent, and 12 percent, respectively,
or 96 percent as of December 31, 1997.
Equity investments consist primarily of securities issued by privately owned
companies and may be subject to restrictions on their resale or otherwise
illiquid. Equity securities generally do not produce a current return, but are
held for investment appreciation and ultimate gain on sale.
COMMERCIAL REAL ESTATE FINANCE. The commercial real estate portfolio contains
loans that were originated by the Company or were purchased from the Resolution
Trust Corporation, the Federal Deposit Insurance Corporation and other third
party sellers including life insurance companies and banks.
At December 31, 1997, approximately 73 percent and 27 percent of the
Company's commercial mortgage loan portfolio was composed of fixed and
adjustable interest rate loans, respectively. At December 31, 1997,
approximately 38 percent, 18 percent, 18 percent, 14 percent and 12 percent of
the Company's commercial real estate portfolio was located in the mid-atlantic,
midwest, west, southeast, and northeast regions, respectively. In addition,
commercial mortgage loans secured by hospitality, office, retail,
industrial/manufacturing and other properties equaled approximately 33 percent,
31 percent, 14 percent, 6 percent and 16 percent, respectively, of the
Company's portfolio at December 31, 1997.
The weighted average yield on the real estate portfolio as of December 31,
1997 and 1996 equaled 11.4 percent and 13.4 percent, respectively. As of
December 31, 1997 and 1996, loans with a cost basis of $11,987,000 and
$10,978,000, respectively, were not accuring interest.
As of December 31, 1997 and 1996, unamortized discount related to the real
estate portfolio was $27,954,000 and $37,124,000, respectively. Unamortized
discounts are considered in determining the fair value and are amortized into
income over the life of the loan.
SMALL BUSINESS LENDING. The Company, through its wholly owned subsidiary,
Allied SBLC participates in the SBA's Section 7(a) Guaranteed Loan Program.
Pursuant to Section 7(a) of the Small Business Act of 1958, the SBA will
guarantee 80 percent of any qualified loan up to $100,000 regardless of
maturity, and 75 percent 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.
The Company charges interest on these loans at a variable rate, typically
1.75 percent to 2.75 percent 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 date
35
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
on which the loan was made to its maturity. As of December 31, 1997,
approximately 92 percent of the Company's portfolio of 7(a) loans were variable
interest rate loans.
As permitted by SBA regulations, the Company sells to investors, without
recourse, the guaranteed portion of its loans while retaining the right to
service 100 percent of such loans.
As of December 31, 1997 and 1996, 7(a) loans with a cost basis of $4,346,000
and $3,734,000, respectively, were not accruing interest.
At December 31, 1997, approximately 36 percent, 29 percent, 18 percent, 10
percent, and 7 percent of the Company's 7(a) loan portfolio was located in the
midwest, mid-atlantic, southeast, northeast, and west regions, respectively. In
addition, loans to businesses in the hospitality, automotive services,
broadcasting/communications, restaurant/food services,
industrial/manufacturing, services, and retail/wholesale industries equaled 25
percent, 21 percent, 10 percent, 9 percent, 7 percent, 6 percent and 6 percent,
respectively, or 84 percent of the Company's portfolio as of December 31, 1997.
NOTE 5. DEBT
At December 31, 1997 and 1996, ACC had the following available credit
facilities:
<TABLE>
<CAPTION>
INDEBTNESS, AS OF DECEMBER 31:
1997 1996
FACILITY AMOUNT FACILITY AMOUNT
(IN THOUSANDS) AMOUNT DRAWN AMOUNT DRAWN
<S> <C> <C> <C> <C>
Notes payable and debentures:
Master repurchase agreement $250,000 $202,705 $150,000 $85,775
Master loan and security agreement 250,000 23,116 -- --
Senior note payable 20,000 20,000 20,000 20,000
SBA debentures 54,300 54,300 61,300 61,300
OPIC loan 20,000 8,700 20,000 8,700
Bonds payable -- -- 54,123 54,123
- - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------
Total notes payable and debentures 594,300 308,821 305,423 229,898
==========================================================================================================
Revolving lines of credit 80,000 38,842 110,000 45,099
- - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------
Total Debt $674,300 $347,663 $415,423 $274,997
==========================================================================================================
</TABLE>
MASTER REPURCHASE AGREEMENT. The Company and Business Mortgage Investors, Inc.
("BMI"), a private real estate investment trust that is co-managed by the
Company and another investment adviser, can borrow up to $250,000,000, of which
$100,000,000 is committed, through repurchase agreements using its commercial
mortgage loans as collateral. The Company pledges commercial mortgage loans as
collateral for the facility such that the amount borrowed is approximately
equal to 75 percent to 80 percent of the value of the collateral pledged. The
terms of the master repurchase agreement require interest only payments with
all principal due at maturity. The master repurchase agreement bears interest
at the one-month London Inter Bank Overnight Rate ("LIBOR") plus 1.13 percent,
or 6.8 percent and 6.7 percent at December 31, 1997 and 1996, respectively.
Average debt outstanding, maximum amount borrowed, and weighted average
interest rate charged on the master repurchase agreement for the years ended
December 31, 1997 and 1996 were $166,362,000 and $51,767,000, $209,591,000 and
$85,775,000, and 6.6 percent and 7.3 percent, respectively. The master
repurchase agreement matures on January 31, 1999.
MASTER LOAN AND SECURITY AGREEMENT. During 1997, the Company, again in
conjunction with BMI, established a facility to borrow up to $250,000,000, of
which $100,000,000 is committed, using its commercial mortgage loans as
collateral under the agreement. At December 31, 1997, the Company's recorded
investment in these loans pledged as collateral totaled $29,193,000, which
approximated their market value. The agreement generally requires interest only
payments with all principal due at
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
maturity. The agreement bears interest at the one-month LIBOR plus 1.0 percent,
or 6.7 percent, at December 31, 1997. Average debt outstanding, maximum amount
borrowed, and weighted average interest rate charged on this facility for the
year ended December 31, 1997 was $17,899,000, $23,116,000, and 6.7 percent,
respectively. The agreement matures on August 21, 1998.
SENIOR NOTE PAYABLE. The Company has a $20,000,000 unsecured senior note
payable to an insurance company. This note bears interest at a fixed rate of
9.15 percent, payable semi-annually. The note is scheduled to mature over a
five-year period commencing in 1998 with annual principal payments of
$4,000,000. The senior note payable is subject to a prepayment penalty if paid
prior to maturity.
SBA DEBENTURES. The Company has debentures totaling $54,300,000 payable to the
SBA, at interest rates ranging from 6.87 percent to 9.80 percent, with
scheduled maturity dates as follows: 1998 - $6,650,000; 1999 - $0; 2000 -
$17,300,000; 2001 - $9,350,000; 2002 - $0; and $21,000,000 thereafter. The
debentures require semi-annual interest-only payments with all principal due
upon maturity.
BONDS PAYABLE. Allied Commercial, through one of its subsidiaries, issued
$98,810,000 of 6.92 percent series 1995-C1 Commercial Mortgage Collateralized
Bonds during November 1995. The bonds were rated "AA" by Fitch Investors
Service, L.P. The bonds were repaid in full in November 1997.
OVERSEAS PRIVATE INVESTMENT CORPORATION (OPIC) LOAN. The Company has a loan
agreement with OPIC under which the Company may borrow up to $20,000,000 (loan
commitment) to provide financing for international projects involving
qualifying U.S. small businesses. Loans under this agreement bear interest at
the U.S. Treasury rate plus 0.5 percent for the applicable period of the
borrowing. In addition, OPIC is entitled to receive from the Company a
contingent fee at maturity of the loan equal to 5 percent of the return
generated by the OPIC-related investments in excess of 7 percent. There are no
required principal payments until the OPIC loans mature in January 2006. The
loan commitment expires on the earlier of the first date on which the amount of
the loans equal $20,000,000 or April 10, 1998. As of December 31, 1997, the
Company had $11,300,000 available under the loan agreement.
REVOLVING LINES OF CREDIT. At December 31, 1997, the Company had several
revolving lines of credit totaling $80,000,000 under which the Company had
outstanding borrowings totaling $38,842,000. At December 31, 1996, the Company
had several revolving lines of credit totaling $110,000,000, under which the
Company had outstanding borrowings totaling $45,099,000. The lines of credit
bear interest at rates ranging from LIBOR plus 1.35 percent to 2.5 percent. At
December 31, 1997 and 1996 the weighted average interest rate on the facilities
was 7.7 percent and 7.8 percent, respectively. The lines required various
commitment and other fees equal to 0.39 percent of the outstanding borrowings
at December 31, 1997.
Average debt outstanding, maximum amount borrowed, and weighted average
interest rate charged on the revolving lines of credit for the years ended
December 31, 1997 and 1996 were $30,033,000 and $28,216,000, $45,759,000, and
$45,099,000, and 8.1 percent and 8.2 percent, respectively.
On January 12, 1998, the Company repaid all of its previous unsecured
revolving lines of credit and entered into a new $150,000,000 unsecured
revolving line of credit. The new facility bears interest at LIBOR plus 1.25
percent and requires a commitment fee equal to 0.2 percent of the committed
amount, and a facility fee equal to 0.15 percent of the initial commitment. The
new line expires 18-months from its inception. The new line of credit requires
monthly payments of interest and all principal is due upon its expiration. The
amount borrowed is based upon a borrowing base formula generally equal to 50
percent of the Company's portfolio investments not securing other credit
facilities.
NOTE 6. INCOME TAXES
For the years ended December 31, 1997, 1996 and 1995, the Company's effective
tax rate was 2.3 percent, 3.5 percent and 2.9 percent, respectively.
The Company's income subject to federal and state taxes relates to the
income generated by the pre-Merger operations of Advisers. The income
generated by Allied Lending and the Acquired Companies (except Advisers) is not
subject to federal and state income taxes because these companies qualified as
regulated investment companies or a real estate investment trust.
37
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. PREFERRED STOCK
As of December 31, 1997, Allied Financial had outstanding a total of 60,000
shares of $100 par value, 3 percent cumulative preferred stock and 10,000
shares of $100 par value, 4 percent redeemable cumulative preferred stock
issued to the SBA pursuant to Section 303(c) of the Small Business Investment
Act of 1958, as amended. The 3 percent cumulative preferred stock does not have
a required redemption date. Allied Financial has the option to redeem in whole
or in part the preferred stock by paying the SBA the par value of such
securities and any dividends accumulated and unpaid to the date of redemption.
The 4 percent redeemable cumulative preferred stock has a required redemption
date of June 4, 2005.
NOTE 8. SHAREHOLDERS' EQUITY
In 1996, the Company completed two non-transferable subscription rights
offerings to common shareholders. The Company issued 1,433,414 shares of
common stock pursuant to these offerings raising net proceeds to the Company of
$17,147,000, after costs including a 2.5 percent fee paid to eligible
broker/dealers.
In 1996, the Company also sold 400,000 shares of its common stock through an
underwriter in a registered offering for net proceeds of $5,218,000.
The Company has a dividend reinvestment plan, whereby the Company may buy
shares of its common stock in the open market or issue new shares in order to
satisfy dividend reinvestment requests. If the Company issues new shares, the
issue price is equal to the average of the closing sales prices reported for
the Company's common stock for the five days on which trading in the shares
takes place immediately prior to the dividend payment date. During 1997 and
1996, the Company issued 550,971 and 913,206 shares, respectively, at an
average price of $15.67 and $13.13 per share, respectively.
NOTE 9. EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) PER
COMMON
SHARE
1997 INCOME SHARES AMOUNT
<S> <C> <C> <C>
Net increase in net assets resulting from operations $61,304
Less: Preferred stock dividends (220)
-------
Income available to common shareholders $61,084
=======
BASIC EARNINGS PER COMMON SHARE 49,218 $ 1.24
=========
Options outstanding to officers 33
------
DILUTED EARNINGS PER COMMON SHARE 49,251 $ 1.24
====== =========
1996
Net increase in net assets resulting from operations $54,947
Less: Preferred stock dividends (220)
-------
Income available to common shareholders $54,727
=======
BASIC EARNINGS PER COMMON SHARE 46,172 $ 1.19
=========
Options outstanding to officers 561
------
DILUTED EARNINGS PER COMMON SHARE 46,733 $ 1.17
====== =========
1995
Net increase in net assets resulting from operations $60,479
Less: Preferred stock dividends (220)
-------
Income available to common shareholders $60,259
=======
BASIC EARNINGS PER COMMON SHARE 43,697 $ 1.38
=========
Options outstanding to officers 313
------
DILUTED EARNINGS PER COMMON SHARE 44,010 $ 1.37
====== =========
</TABLE>
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Basic earnings per common share was computed by dividing net increase in net
assets resulting from operations, after deducting preferred stock dividends, by
the weighted average number of common shares outstanding each year.
Diluted earnings per common share was computed by dividing net increase in
net assets resulting from operations, after deducting preferred stock
dividends, by the weighted average number of common shares outstanding plus
common shares issuable upon assumed exercise of stock options outstanding each
year.
NOTE 10. EMPLOYEE STOCK OWNERSHIP PLAN AND DEFERRED COMPENSATION PLAN
The Company has an employee stock ownership plan ("ESOP"). Pursuant to the
ESOP, the Company is obligated to contribute 5 percent of each eligible
participant's total cash compensation for the year to a plan account on the
participant's behalf, which vests over a two-year period. ESOP contributions
are used to purchase shares of ACC.
As of December 31, 1997, the ESOP held 433,047 shares of the Company's
common stock, all of which had been allocated to participants' accounts. The
plan is funded annually and the total ESOP contribution expense for the years
ended December 31, 1997, 1996 and 1995 was $351,000, $1,018,000 and $864,000
respectively, net of forfeitures of $0, $36,000 and $180,000 in 1997, 1996 and
1995, respectively.
The Company also has a deferred compensation plan (the "DC Plan"). Eligible
participants of the DC Plan may elect to defer some of their compensation and
have such compensation credited to a participant account. All amounts credited
to a participant's account shall be credited solely for purposes of accounting
and computation and shall remain assets of the Company and subject to the
claims of the Company's general creditors. Amounts credited to participants
under the DC Plan are at all times 100 percent vested and non-forfeitable
except for amounts credited to participants' accounts related to the Formula
Award (see Note 12). A participant's account shall become distributable upon
his or her separation from service, retirement, disability, death, or at a
future determined date. All DC Plan accounts will be distributed in the event
of a change of control of ACC or in the event of the Company's insolvency.
Amounts deferred by participants under the DC Plan are funded to a trust, the
trustee of which administers the DC Plan on behalf of the Company.
NOTE 11. STOCK OPTION PLAN
In conjunction with the Merger, all stock option plans that existed for Allied
Lending and the Acquired Companies before the Merger ("Existing Plans") were
cancelled on December 31, 1997, and at a special meeting of shareholders on
November 26, 1997, the Company's shareholders approved a new stock option plan
("ACC Plan") for the Company to be effected post-Merger.
THE ACC PLAN. The purpose of the ACC Plan is to provide officers and
non-officer directors of ACC with additional incentives. Options may be
granted from time to time on up to 6,250,000 shares which represents
approximately 12 percent of the outstanding shares as of December 31, 1997.
There were no options granted pursuant to the ACC Plan as of December 31, 1997.
Options will be exercisable at a price equal to the fair market value of the
shares on the day the option is granted. Each option will state the period or
periods of time within which the option may be exercised by the optionee, which
may not exceed ten years from the date the option is granted.
All rights to exercise options terminate 60 days after an optionee ceases to
be (i) a non-officer director, (ii) both an officer and a director, if such
optionee serves in both capacities, or (iii) an officer (if such officer is not
also a director) of ACC for any cause other than death or total and permanent
disability. If an optionee dies or becomes totally and permanently disabled
before expiration of the options without fully exercising it, he or she or the
executors or administrators or legatees or distributees of the estate shall, as
may be provided at the time of the grant, have the right, within one year after
the optionee's death or total and permanent disability, to exercise the options
in whole or in part before the expiration of its term. In the event of a change
of control of ACC, all outstanding options will become fully vested and
exercisable as of the change of control. Subsequent to December 31, 1997, the
Company's compensation committee granted a total of
39
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3,407,000 options to officers of the Company under the ACC Plan. The options
awarded to officers were generally non-qualified stock options that vest over a
five-year period from the grant date. The stock options granted had an exercise
price equal to $21.38 per share.
NOTES RECEIVABLE FROM THE SALE OF COMMON STOCK. The Company provides loans to
officers for the exercise of options. The loans have varying terms not
exceeding ten years, bear interest at the applicable federal interest rate in
effect at the date of issue and have been recorded as a reduction of
shareholders' equity. For the years ended December 31, 1997, 1996 and 1995, the
Company had outstanding loans to officers of $29,611,000, $15,491,000, and
$7,315,000, respectively. Officers with outstanding loans repaid principal of
$6,534,000, $2,199,000 and $1,038,000 for the years ended December 31, 1997,
1996 and 1995, respectively. The Company recognized interest income from these
loans of $1,031,000, $529,000 and $276,000, respectively, during these same
periods.
EXISTING PLAN ACTIVITY. During 1997, 1996 and 1995, Allied Lending and the
Acquired Companies granted 1,474,000, 866,000, and 1,505,000 options,
respectively, under the Existing Plans at exercise prices ranging from $9.53 to
$22.58 per share. Total shares issued pursuant to the exercise of stock options
totaled 2,395,000, 1,051,000, and 576,000 during 1997, 1996 and 1995,
respectively.
The Company accounts for the ACC Plan as required by the Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees," and
no compensation cost has been recognized. Had compensation cost for the plan
been determined consistent with SFAS No. 123 "Accounting for Stock Based
Compensation," the Company's net increase in net assets resulting from
operations and basic and diluted earnings per share would have been reduced to
the following pro forma amounts:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 1996 1995
<S> <C> <C> <C>
Net increase in net assets resulting from operations:
As reported $61,304 $54,947 $60,479
Pro forma $60,656 $53,372 $58,931
Basic earnings per common share:
As reported $1.24 $1.19 $1.38
Pro forma $1.23 $1.16 $1.35
Diluted earnings per common share:
As reported $1.24 $1.17 $1.37
Pro forma $1.23 $1.14 $1.34
==============================================================================================
</TABLE>
Pro forma expenses are based on the underlying value of the options granted by
the Company and the Acquired Companies. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option pricing model.
NOTE 12. CUT-OFF AWARD AND FORMULA AWARD
Allied Lending's and each Acquired Company's existing stock option plans were
canceled and the Company established a cut-off dollar amount for all existing,
but unvested options as of the date of the Merger (the "Cut-off Award"). The
Cut-off Award is computed for each unvested option as of the Merger date. The
Cut-off Award is equal to the difference between the market price on August 14,
1997 (the Merger announcement date) of the shares of stock underlying the
option less the exercise price of the option. The Cut-off Award is payable for
each unvested option upon the future vesting date of that option. The Cut-off
Award was designed to cap the appreciated value in unvested options at the
Merger announcement date, in order to set the foundation to balance option
awards upon the Merger. The Cut-off Award approximates $2.9 million in the
aggregate.
The Formula Award was established to compensate employees from the point
when their unvested options would cease to appreciate in value (the Merger
announcement date), up until the time at which they would be able to receive
option awards in ACC post-Merger. In the aggregate, the Formula Award equaled 6
percent of the difference between an amount equal to the combined aggregated
market capitalizations of Allied Lending and the Acquired Companies as of the
close of the market on the day before the Merger date (December 30, 1997), less
an amount equal to the
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
combined aggregate market capitalizations of Allied Lending and the Acquired
Companies as of the close of the market on the Merger announcement date (August
14, 1997). Advisers' compensation committee allocated the Formula Award to
individual officers on December 30, 1997. The amount of the Formula Award as
computed at December 30, 1997 approximated $19 million. The Formula Award will
vest equally in three installments on December 31, 1998, 1999 and 2000;
provided, however, that such Formula Award vests immediately upon a change in
control of the Company. The Formula Award will be expensed in each year in
which it vests.
NOTE 13. INVESTMENT ADVISOR SERVICES
The Company has investment advisory agreements to manage the assets of certain
private companies. The investment advisory agreements are generally annual
agreements, and may be terminated at any time on 60 days' notice, without
penalty, by the managed companies.
NOTE 14. INTEREST RATE SWAPS
The Company uses interest rate swap agreements to protect against fluctuation
in interest costs on its variable rate short-term credit facilities. Amounts
paid or received on the settlement of interest rate swap agreements are
recognized as an adjustment to interest expense. As of December 31, 1997, the
Company had interest swap agreements with an aggregate notional amount of
$145,000,000. Pursuant to the swap agreements, the Company pays a weighted
average fixed rate equal to 6.8 percent and receives payments with a weighted
average variable rate equal to the 30-day LIBOR. The swap agreements have a
remaining weighted average maturity of approximately four years from December
31, 1997. As of December 31, 1997, the Company recorded an unrealized loss of
$5,000,000 related to the swap agreements in connection with the January 1998
asset securitization transaction.
NOTE 15. DIVIDENDS AND DISTRIBUTIONS
For the years ended December 31, 1997, 1996, and 1995, the Company declared
the following distributions:
<TABLE>
<CAPTION>
1997 1996 1995
TOTAL TOTAL PER TOTAL TOTAL PER TOTAL TOTAL PER
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE
<S> <C> <C> <C> <C> <C> <C>
First quarter $14,347 $0.30 $11,158 $0.25 $8,855 $0.20
Second quarter 14,795 0.30 11,911 0.26 9,344 0.21
Third quarter 15,548 0.31 12,743 0.27 9,818 0.22
Fourth quarter 31,022 0.61 13,678 0.29 10,355 0.24
Annual extra distribution 1,118 0.02 7,908 0.16 9,548 0.22
Special undistributed earnings distribution 8,848 0.17 -- -- -- --
- - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------
Total distributions to common shareholders $85,678 $1.71 $57,398 $1.23 $47,920 $1.09
==================================================================================================================
</TABLE>
For income tax purposes, distributions for 1997, 1996, and 1995 were comprised
of the following:
<TABLE>
<CAPTION>
1997 1996 1995
TOTAL TOTAL PER TOTAL TOTAL PER TOTAL TOTAL PER
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) AMOUNT SHARE AMOUNT SHARE AMOUNT SHARE
<S> <C> <C> <C> <C> <C> <C>
Ordinary income $39,356 $0.79 $41,563 $0.89 $37,747 $0.86
Long-term capital gains 31,037 0.62 15,835 0.34 10,173 0.23
Return of capital (tax) 6,437 0.13 -- -- -- --
- - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------
Total distributions before special distribution 76,830 1.54 57,398 1.23 47,920 1.09
- - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------
Special undistributed earnings distribution 8,848 0.17 -- -- -- --
- - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------
Total distributions to common shareholders $85,678 $1.71 $57,398 $1.23 $47,920 $1.09
==================================================================================================================
</TABLE>
41
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the differences between taxable income and
financial reporting income for the years ended December 31, 1997, 1996 and
1995:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996 1995
<S> <C> <C> <C>
Financial statement net income $61,304 $54,947 $60,479
Adjustments
Amortization of discount (1,124) (2,779) (1,206)
Gains from disposition of portfolio assets 17,890 874 (904)
Net unrealized (gains) losses (7,209) 7,412 (9,266)
Expenses not deductible for tax:
Merger expenses 5,159 -- --
Other 853 2,306 1,176
Other (9,050) (1,372) 930
Income tax expense 1,444 1,945 1,784
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------
Taxable income $69,267 $63,333 $52,993
=============================================================================================
</TABLE>
NOTE 16. COMMITMENTS AND CONTINGENCIES
The Company had commitments to fund loans to various prospective and existing
portfolio companies totaling $105,065,000 at December 31, 1997.
The Company is party to certain lawsuits in connection with its
business. While the outcome of these legal proceedings cannot at this time be
predicted with certainty, management does not expect that these proceedings
will have a material effect upon the financial condition of the Company.
NOTE 17. CONCENTRATIONS OF CREDIT RISK
The Company places its cash with financial institutions and, at times, cash
held in checking accounts in financial institutions may be in excess of the
Federal Deposit Insurance Corporation insured limit. At December 31, cash and
cash equivalents consisted of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996
<S> <C> <C>
Cash and cash equivalents $76,791 $75,744
Less escrows held (6,354) (3,903)
- - - - - - - - - - - - - ------------------------------------------------
Total $70,437 $71,841
================================================
</TABLE>
NOTE 18. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
During 1997, 1996 and 1995, respectively, the Company paid $26,874,000,
$21,391,000 and $13,393,000 for interest and income taxes. During 1997, 1996
and 1995, respectively, the Company's non-cash financing activities totaled
$48,207,000, $22,361,000 and $15,756,000 related primarily to common stock
issuances resulting from stock option exercises and dividend reinvestment
shares issued. Additionally, during 1995, $18,062,000 in long-term debt was
consolidated from the minority interest in an asset securitization pool. During
1997, 1996 and 1995, respectively, the Company's non-cash investing activities
totaled $12,022,000, $2,004,000 and $23,490,000, relating to mortgage loans
consolidated from the minority interests in certain joint ventures.
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19. SELECTED QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
1997
QTR 1 QTR 2 QTR 3 QTR 4
<S> <C> <C> <C> <C>
Total interest and related portfolio income $21,399 $24,911 $25,111 $25,984
Portfolio income before realized and unrealized gains $11,968 $14,095 $12,093 $ 7,910
Net increase in net assets resulting from operations $12,646 $18,296 $17,146 $13,216
Basic earnings per common share $ 0.27 $ 0.35 $ 0.37 $ 0.25
Diluted earnings per common share $ 0.27 $ 0.35 $ 0.37 $ 0.25
</TABLE>
<TABLE>
<CAPTION>
1996
QTR 1 QTR 2 QTR 3 QTR 4
<S> <C> <C> <C> <C>
Total interest and related portfolio income $19,412 $20,866 $20,753 $23,906
Portfolio income before realized and unrealized gains $11,284 $11,665 $11,592 $13,035
Net increase in net assets resulting from operations $18,935 $11,090 $16,855 $ 8,067
Basic earnings per common share $ 0.42 $ 0.24 $ 0.35 $ 0.18
Diluted earnings per common share $ 0.42 $ 0.23 $ 0.34 $ 0.18
</TABLE>
NOTE 20. SUBSEQUENT EVENT
LOAN SECURITIZATION. On January 30, 1998, the Company, in conjunction with BMI,
completed an asset securitization transaction whereby $239 million in
commercial mortgage-backed bonds were issued by Allied Capital Commercial
Mortgage Trust 1998-1. The bonds were sold in a private placement of three bond
classes rated "AAA," "AA" and "A" by Standard & Poor's Rating Services and
Fitch IBCA, Inc. The Company and BMI sold loans with an aggregate balance of
$310 million to secure the bonds. The Company contributed approximately 95
percent, or $295 million, of the total loans sold. The Company retained a trust
certificate representing the difference between the assets sold and the bond
proceeds received, or approximately 23% of the assets sold. The mortgage loans
sold had an approximate weighted average stated interest rate of 9.6 percent.
The three bond classes have an aggregate weighted average interest rate of
approximately 6.38 percent. The Company will account for the sale in accordance
with FASB 125.
43
<PAGE> 31
CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
ALLIED ALLIED ALLIED
(IN THOUSANDS) ACC INVESTMENT FINANCIAL SBLC OTHERS
<S> <C> <C> <C> <C> <C>
ASSETS
Portfolio at value:
Commercial mortgage loans $446,342 $ -- $ -- $ -- $ --
Mezzanine loans and debt securities 89,707 64,486 13,649 -- --
Small Business Administration 7(a) loans -- -- -- 40,709 --
Equity interests in portfolio companies 16,836 21,814 1,256 -- --
Investments in subsidiaries 67,293 -- -- -- --
Other portfolio assets 8 -- -- 43 2,171
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------
Total portfolio at value 620,186 86,300 14,905 40,752 2,171
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 25,958 26,024 16,397 1,593 465
U.S. government securities -- -- 11,091 -- --
Intercompany notes and receivables 56,167 8 -- 1,386 --
Other assets 13,809 2,425 761 8,696 3,535
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------
Total assets $716,120 $114,757 $43,154 $52,427 $6,171
=====================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Debentures and notes payable $249,521 $40,183 $19,117 $ -- $ --
Revolving lines of credit 20,294 -- -- 18,548 --
Accounts payable and accrued expenses 12,040 3,961 152 1,828 208
Dividends and distributions payable 8,848 -- 220 -- --
Intercompany notes and payables 6,967 26,495 1,598 19,915 2,586
Other liabilities 4,591 816 226 162 --
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------
302,261 71,455 21,313 40,453 2,794
=====================================================================================================================
Commitments and Contingencies
Preferred stock issued to Small
Business Administration -- -- 7,000 -- --
Shareholders' equity:
Common stock 5 -- -- -- 1
Additional paid-in capital 451,044 22,374 12,134 12,564 1,437
Notes receivable from sale of common
stock (29,611) -- -- -- --
Net unrealized appreciation
(depreciation) on portfolio 1,301 4,689 299 (394) --
Undistributed (distributions in
excess of) earnings (8,880) 16,239 2,408 (196) 1,939
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 413,859 43,302 14,841 11,974 3,377
=====================================================================================================================
Total liabilities and
shareholders' equity $716,120 $114,757 $43,154 $52,427 $6,171
=====================================================================================================================
<CAPTION>
DECEMBER 31, 1997
CONSOLIDATED
(IN THOUSANDS) ELIMINATIONS TOTAL
<S> <C> <C>
ASSETS
Portfolio at value:
Commercial mortgage loans $ -- $446,342
Mezzanine loans and debt securities -- 167,842
Small Business Administration 7(a) loans -- 40,709
Equity interests in portfolio companies -- 39,906
Investments in subsidiaries (67,293) --
Other portfolio assets -- 2,222
- - - - - - - - - - - - - --------------------------------------------------------------------------
Total portfolio at value (67,293) 697,021
- - - - - - - - - - - - - --------------------------------------------------------------------------
Cash and cash equivalents -- 70,437
U.S. government securities -- 11,091
Intercompany notes and receivables (57,561) --
Other assets -- 29,226
- - - - - - - - - - - - - --------------------------------------------------------------------------
Total assets $(124,854) $807,775
==========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Debentures and notes payable $ -- $308,821
Revolving lines of credit -- 38,842
Accounts payable and accrued expenses -- 18,189
Dividends and distributions payable -- 9,068
Intercompany notes and payables (57,561) --
Other liabilities -- 5,795
- - - - - - - - - - - - - --------------------------------------------------------------------------
(57,561) 380,715
==========================================================================
Commitments and Contingencies
Preferred stock issued to Small
Business Administration -- 7,000
Shareholders' equity:
Common stock (1) 5
Additional paid-in capital (48,509) 451,044
Notes receivable from sale of common
stock -- (29,611)
Net unrealized appreciation
(depreciation) on portfolio (4,594) 1,301
Undistributed (distributions in
excess of) earnings (14,189) (2,679)
- - - - - - - - - - - - - --------------------------------------------------------------------------
Total shareholders' equity (67,293) 420,060
==========================================================================
Total liabilities and
shareholders' equity $(124,854) $807,775
==========================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE> 32
CONSOLIDATING STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
ALLIED ALLIED ALLIED CONSOLIDATED
(IN THOUSANDS) ACC INVESTMENT FINANCIAL SBLC OTHERS ELIMINATIONS TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST AND RELATED PORTFOLIO INCOME
Interest $57,067 $9,903 $3,637 $6,352 $9,923 $ -- $86,882
Interest income-intercompany 3,843 -- -- -- -- (3,843) --
Dividends from subsidiaries 22,960 -- -- -- -- (22,960) --
Net premiums from loan sales 170 -- -- 3,071 -- -- 3,241
Prepayment premiums 3,689 -- -- -- 347 -- 4,036
Investment advisory fees 15,439 -- -- -- -- (14,446) 993
Other income 663 107 -- -- 1,483 -- 2,253
- - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------
Total interest and related
portfolio income 103,831 10,010 3,637 9,423 11,753 (41,249) 97,405
==============================================================================================================================
EXPENSES
Interest on indebtedness 16,950 3,897 1,781 1,511 2,813 -- 26,952
Interest on indebtedness-intercompany -- 1,555 -- 1,749 539 (3,843) --
Salaries and employee benefits 10,258 -- -- -- -- -- 10,258
Investment advisory fees 14,130 -- -- -- 316 (14,446) --
Legal and accounting 1,850 200 94 118 -- -- 2,262
General and administrative 5,677 157 (45) 113 806 -- 6,708
Merger 5,159 -- -- -- -- -- 5,159
- - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------
Total expenses 54,024 5,809 1,830 3,491 4,474 (18,289) 51,339
==============================================================================================================================
Portfolio income before realized
and unrealized gains (losses) 49,807 4,201 1,807 5,932 7,279 (22,960) 46,066
==============================================================================================================================
NET REALIZED AND UNREALIZED GAINS
Net realized gains (losses) 6,777 3,104 (93) (132) 1,048 -- 10,704
Net unrealized gains (losses) 7,919 7,425 934 (711) -- (8,358) 7,209
- - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------
Total net realized and unrealized
gains (losses) 14,696 10,529 841 (843) 1,048 (8,358) 17,913
==============================================================================================================================
Income before minority interests and
income taxes 64,503 14,730 2,648 5,089 8,327 (31,318) 63,979
==============================================================================================================================
Minority interests -- -- -- -- 1,231 -- 1,231
Income tax expense 1,444 -- -- -- -- -- 1,444
==============================================================================================================================
Net increase in net assets resulting
from operations $63,059 $14,730 $2,648 $5,089 $7,096 $(31,318) $61,304
==============================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
45
<PAGE> 33
CONSOLIDATING STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
ALLIED ALLIED ALLIED
(IN THOUSANDS) ACC INVESTMENT FINANCIAL SBLC
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets resulting
from operations $63,060 $7,306 $1,714 $5,088
Adjustments
Net unrealized (gains) losses (7,920) -- -- 711
Depreciation and amortization 331 -- -- --
Amortization of loan discounts and fees (7,362) (314) (666) (505)
Deferred income taxes 1,087 -- -- --
Minority interests -- -- -- --
Amortization of deferred financing costs -- -- -- --
Changes in net assets and liabilities 656 3,475 658 (2,835)
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------
Net cash provided by
operating activities 49,852 10,467 1,706 2,459
=========================================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in small business concerns (284,563) (20,949) (257) (49,231)
Collections of investment principal 143,470 26,396 12,544 8,117
Proceeds from the sale of loans 10,546 -- -- 43,366
Net (purchase) redemption of
U.S. government securities -- 254 (10,555) --
Collections (advances) under
intercompany notes (990) 1,500 -- (10)
Collections of notes receivable from
sale of common stock 6,534 -- -- --
Other investing activities (182) -- -- --
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities (125,185) 7,201 1,732 2,242
=========================================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock 8,615 -- -- --
Purchase of common stock of subsidiaries (15,528) -- -- --
Common dividends and distributions paid (58,194) -- -- --
Dividends paid to parent company -- (6,321) (5,067) (5,995)
Preferred stock dividends -- -- (220) --
Net borrowings under (payments on) debentures
and notes payable 134,519 (5,000) (2,000) --
Net borrowings under revolving lines of credit (9,144) -- -- 2,887
Net payments on government securities
available for sale -- -- -- --
Other financing activities 10,800 -- -- --
- - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 71,068 (11,321) (7,287) (3,108)
=========================================================================================================
Net increase (decrease) in cash and cash
equivalents $ (4,265) $ 6,347 $ (3,849) $1,593
=========================================================================================================
Cash and cash equivalents at beginning of year $30,223 $19,677 $20,247 --
=========================================================================================================
Cash and cash equivalents at end of year $25,958 $26,024 $16,398 $1,593
=========================================================================================================
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
CONSOLIDATED
(IN THOUSANDS) OTHERS ELIMINATIONS TOTAL
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets resulting
from operations $7,096 $(22,960) $61,304
Adjustments
Net unrealized (gains) losses -- -- (7,209)
Depreciation and amortization 119 -- 450
Amortization of loan discounts and fees (1,957) -- (10,804)
Deferred income taxes -- -- 1,087
Minority interests 1,231 -- 1,231
Amortization of deferred financing costs 957 -- 957
Changes in net assets and liabilities 5,254 4,716 11,924
- - - - - - - - - - - - - -------------------------------------------------------------------------------------------
Net cash provided by
operating activities 12,700 (18,244) 58,940
===========================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in small business concerns (9,942) -- (364,942)
Collections of investment principal 42,478 -- 233,005
Proceeds from the sale of loans -- -- 53,912
Net (purchase) redemption of
U.S. government securities -- -- (10,301)
Collections (advances) under
intercompany notes (500) -- --
Collections of notes receivable from
sale of common stock -- -- 6,534
Other investing activities -- -- (182)
- - - - - - - - - - - - - -------------------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 32,036 -- (81,974)
===========================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock -- -- 8,615
Purchase of common stock of subsidiaries 15,528 -- --
Common dividends and distributions paid -- -- (58,194)
Dividends paid to parent company (861) 18,244 --
Preferred stock dividends -- -- (220)
Net borrowings under (payments on) debentures
and notes payable (48,596) -- 78,923
Net borrowings under revolving lines of credit -- -- (6,257)
Net payments on government securities
available for sale -- -- --
Other financing activities (12,037) -- (1,237)
- - - - - - - - - - - - - -------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities (45,966) 18,244 21,630
===========================================================================================
Net increase (decrease) in cash and cash
equivalents $(1,230) -- $(1,404)
===========================================================================================
Cash and cash equivalents at beginning of year $ 1,694 -- $71,841
===========================================================================================
Cash and cash equivalents at end of year $ 464 -- $70,437
===========================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE> 34
Report of Independent Public Accountants
To the Shareholders and Board of Directors
of Allied Capital Corporation and Subsidiaries:
We have audited the consolidated balance sheets of Allied Capital Corporation
and subsidiaries as of December 31, 1997 and 1996, including the consolidated
statement of investments as of December 31, 1997, 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, 1997. These consolidated financial
statements and supplementary consolidating financial information referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements and
supplementary consolidating financial information referred to below 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 are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. These
procedures included the confirmation and physical counts of investments. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Allied Capital
Corporation and subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations, changes in net assets and cash flows
for each of the three years in the period then ended in conformity with
generally accepted accounting principles.
As discussed in Note 3, the consolidated financial statements include
investments valued at $697,021,000 as of December 31, 1997 and $607,368,000 as
of December 31, 1996, (86 percent and 85 percent, 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
investments and have inspected the underlying documentation, and in the
circumstances we believe the procedures are reasonable and the documentation
appropriate. However, because of the inherent uncertainty of valuation, the
board of directors' estimate of values may differ significantly from the values
that would have been used had a ready market existed for the investments, and
the differences could be material.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The supplementary
consolidating balance sheet and related consolidating statements of operations
and cash flows are presented for purposes of additional analysis and are not a
required part of the basic financial statements. This information has been
subjected to the auditing procedures applied in our audit of the basic
consolidated financial statements and in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
/s/ ARTHUR ANDERSEN LLP
Vienna, Virginia
February 20, 1998
47
<PAGE> 35
SHAREHOLDER INFORMATION
CORPORATE OFFICES
WASHINGTON, DC--HEADQUARTERS
1666 K Street NW, 9th Floor
Washington, DC 20006
Telephone: 202.331.1112
Facsimile: 202.659.2053
Effective August 1998:
1919 Pennsylvania Avenue, NW
3rd Floor
Washington, DC 20006
CHICAGO
401 North Michigan Avenue, Suite 1620
Chicago, IL 60611
Telephone: 312.828.0330
Facsimile: 312.828.0909
SAN FRANCISCO
One Maritime Plaza, Suite 1750
San Francisco, CA 94111
Telephone: 415.399.2980
Facsimile: 415.986.8922
FRANKFURT, GERMANY
c/o Allied Capital Beteiligungsberatung GmbH
Ulmenstrasse 37
60325 Frankfurt
Telephone: +49 69 97 20 04 0
Facsimile: +49 69 97 20 04 15
STOCK TRANSFER AGENT AND REGISTRAR
Investors with questions concerning account information, issuing new
certificates, replacing lost or stolen certificates, transferring securities,
participating in the Dividend Reinvestment Plan, dividend payments, requesting
Direct Deposit information or processing a change of address should contact:
AMERICAN STOCK TRANSFER & TRUST COMPANY
40 Wall Street, 46th Floor
New York, NY 10005
Telephone: 800.937.5449
212.936.5100 (outside the U.S.)
INVESTOR RELATIONS
Investors requiring information about the Company should contact:
SUZANNE V. SPARROW
PRINCIPAL, INVESTOR RELATIONS
Telephone: 888.818.5298
Facsimile: 202.659.2053
E-mail: [email protected]
MARKET LISTING
ALLIED CAPITAL CORPORATION common stock is quoted on the Nasdaq Stock Market
under the trading symbol ALLC. The abbreviation often used in newspaper stock
listings is "AldCap." There were approximately 4,500 shareholders of record
and 32,500 beneficial shareholders of the Company as of December 31, 1997.
FORM 10-K
ALLIED CAPITAL CORPORATION'S Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission, will be furnished without charge to
shareholders upon written request to the Investor Relations Department at the
Company's corporate headquarters. This information is also available on the
Company's Internet site at www.alliedcapital.com.
INDEPENDENT PUBLIC ACCOUNTANTS
ARTHUR ANDERSEN LLP
Vienna, VA
CORPORATE COUNSEL
SUTHERLAND, ASBILL & BRENNAN LLP
Washington, DC
ANNUAL MEETING OF SHAREHOLDERS
The Company's Annual Meeting of Shareholders will be held at 9:00 AM on May 14,
1998 at the Sheraton Carlton Hotel, 629 16th Street, NW, Washington, DC. All
shareholders are welcome to attend.
ALLIED CAPITAL CORPORATION
Annual Report 1997
STOCK PRICE: QUARTERLY, 1997 & 1996
<TABLE>
<CAPTION>
1996 1997
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
<C> <C> <C> <C> <C> <C> <C> <C>
High $ 15.000 $ 15.000 $ 15.375 $15.875 $ 17.000 $ 16.625 $ 16.750 $ 22.750
Low $ 12.750 $ 12.703 $ 13.125 $14.000 $ 14.875 $ 13.875 $ 14.500 $ 15.750
Close $ 14.500 $ 13.125 $ 14.625 $15.250 $ 16.250 $ 14.750 $ 16.000 $ 22.250
</TABLE>
Quarterly Stock Price
The stock prices indicated are those of Allied Capital Lending Corporation, the
surviving company in the merger of the five Allied Capital companies, which was
completed on December 31, 1997.
<PAGE> 1
EXHIBIT 23
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 10-K of our report dated February 20, 1998 included in
Allied Capital Corporation's Annual Report to security holders. It should be
noted that we have not audited any financial statements of the company
subsequent to December 31, 1997 or performed any audit procedures subsequent to
the date of our report.
/s/ ARTHUR ANDERSEN LLP
Washington, D.C.
March 24, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ALLIED
CAPITAL CORPORATION AND SUBSIDIARIES' CONSOLIDATED BALANCE SHEET AND
CONSOLIDATED STATEMENTS OF OPERATIONS, CHANGES IN NET ASSETS AND CASH FLOW. IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
INCORPORATED BY REFERENCE IN FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 690,720
<INVESTMENTS-AT-VALUE> 697,021
<RECEIVABLES> 0
<ASSETS-OTHER> 29,226
<OTHER-ITEMS-ASSETS> 81,528
<TOTAL-ASSETS> 807,775
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 308,821
<OTHER-ITEMS-LIABILITIES> 71,894
<TOTAL-LIABILITIES> 380,715
<SENIOR-EQUITY> 5
<PAID-IN-CAPITAL-COMMON> 451,044
<SHARES-COMMON-STOCK> 52,047
<SHARES-COMMON-PRIOR> 48,238
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (2,679)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,301
<NET-ASSETS> 420,060
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 86,882
<OTHER-INCOME> 10,523
<EXPENSES-NET> 51,339
<NET-INVESTMENT-INCOME> 46,066
<REALIZED-GAINS-CURRENT> 10,704
<APPREC-INCREASE-CURRENT> 7,209
<NET-CHANGE-FROM-OPS> 61,304
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 39,576
<DISTRIBUTIONS-OF-GAINS> 15,172
<DISTRIBUTIONS-OTHER> 31,150
<NUMBER-OF-SHARES-SOLD> 3,289
<NUMBER-OF-SHARES-REDEEMED> 31
<SHARES-REINVESTED> 551
<NET-CHANGE-IN-ASSETS> 17,926
<ACCUMULATED-NII-PRIOR> 5,858
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 26,952
<GROSS-EXPENSE> 51,339
<AVERAGE-NET-ASSETS> 411,097
<PER-SHARE-NAV-BEGIN> 8.34
<PER-SHARE-NII> 0.94
<PER-SHARE-GAIN-APPREC> 0.36
<PER-SHARE-DIVIDEND> 1.41
<PER-SHARE-DISTRIBUTIONS> 0.17
<RETURNS-OF-CAPITAL> 0.13
<PER-SHARE-NAV-END> 8.07
<EXPENSE-RATIO> 2.5
<AVG-DEBT-OUTSTANDING> 311,330
<AVG-DEBT-PER-SHARE> 5.98
</TABLE>
