<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
FOR THE QUARTERLY PERIOD COMMISSION FILE NUMBER:
ENDED JUNE 30, 1998 0-22832
- ------------------------ -----------------------
</TABLE>
ALLIED CAPITAL CORPORATION
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
MARYLAND 52-1081052
- ------------------------------ -------------------
(STATE OR JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
1666 K STREET, NW
9TH FLOOR
WASHINGTON, DC 20006
----------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Registrant's telephone number, including area code: (202) 331-1112
--------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 12 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods as 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 [ ]
On August 4, 1998 there were 52,168,414 shares outstanding of the
Registrant's common stock, $0.0001 par value.
<PAGE> 2
ALLIED CAPITAL CORPORATION
FORM 10-Q INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of June 30, 1998 and
December 31, 1997..................................... 1
Consolidated Statement of Operations -- For the Three
and Six Months Ended June 30, 1998 and 1997........... 2
Consolidated Statement of Changes in Net Assets -- For
the Six Months Ended June 30, 1998 and 1997........... 3
Consolidated Statement of Cash Flows -- For the Six
Months Ended June 30, 1998 and 1997................... 4
Consolidated Statement of Investments as of June 30,
1998 and December 31, 1997............................ 5
Notes to Consolidated Financial Statements............. 15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 25
Item 3. Quantitative and Qualitative Disclosures
about Market Risk ..................................... 37
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................. 38
Item 2. Changes in Securities and Use of Proceeds ........ 38
Item 3. Defaults Upon Senior Securities................... 38
Item 4. Submission of Matters to a Vote of Security
Holders................................................ 38
Item 5. Other Information................................. 39
Item 6. Exhibits and Reports on Form 8-K.................. 39
Signatures................................................ 41
</TABLE>
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------- ---------------
1998 1997
----------- ---------------
(IN THOUSANDS, EXCEPT NUMBER OF SHARES) (UNAUDITED)
<S> <C> <C>
ASSETS
Portfolio at value:
Commercial mortgage loans (cost: 1998-$269,843;
1997-$447,016) ..................................... $268,966 $447,244
Mezzanine loans and debt securities (cost:
1998-$234,832; 1997-$181,184) ...................... 216,600 167,842
Small Business Administration 7(a) loans (cost:
1998-$49,279; 1997-$41,103) ........................ 47,850 40,709
Interest in securitization pool of commercial mortgage
loans (cost: 1998-$86,043; 1997-$0) ................ 86,043 --
Equity interests in portfolio companies (cost:
1998-$22,949; 1997-$20,050) ........................ 44,559 39,906
Other portfolio assets
(cost: 1998-$3,056; 1997-$1,367) ................... 3,009 1,320
-------- --------
Total portfolio at value.......................... 667,027 697,021
-------- --------
Cash and cash equivalents................................... 40,773 70,437
U.S. government securities.................................. -- 11,091
Other assets................................................ 33,004 29,226
-------- --------
Total assets...................................... $740,804 $807,775
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Debentures and notes payable.......................... $260,000 $308,821
Revolving lines of credit............................. 38,000 38,842
Accounts payable and other liabilities................ 17,539 23,984
Dividends and distributions payable................... -- 9,068
-------- --------
315,539 380,715
-------- --------
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; 52,166,066 and 52,047,318 issued and
outstanding at June 30, 1998 and December 31,
1997, respectively.................................. 5 5
Additional paid-in capital............................ 453,975 451,044
Common stock held in deferred compensation trust;
806,254 shares at June 30, 1998..................... (19,375) --
Notes receivable from sale of common stock............ (25,402) (29,611)
Net unrealized appreciation (depreciation) on
portfolio........................................... (20) 1,301
Undistributed (distributions in excess of) earnings... 9,082 (2,679)
-------- --------
Total shareholders' equity........................ 418,265 420,060
-------- --------
Total liabilities and shareholders' equity........ $740,804 $807,775
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE> 4
ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- -------------------
1998 1997 1998 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Interest and related portfolio income:
Interest.......................... $18,744 $21,115 $38,245 $40,745
Net premiums from loan
dispositions.................... 712 2,527 2,048 3,228
Net gain on securitization of
commercial mortgage loans....... -- -- 14,812 --
Investment advisory fees and other
income.......................... 1,865 1,269 3,113 2,337
------- ------- ------- -------
Total interest and related
portfolio income............ 21,321 24,911 58,218 46,310
------- ------- ------- -------
Expenses:
Interest on indebtedness.......... 4,232 6,551 8,830 12,339
Salaries and employee benefits.... 2,667 2,148 5,517 4,205
General and administrative........ 3,120 2,117 5,877 3,703
Merger............................ -- -- -- --
------- ------- ------- -------
Total operating expenses...... 10,019 10,816 20,224 20,247
Formula and cut-off awards........ 2,154 -- 3,926 --
------- ------- ------- -------
Portfolio income before realized and
unrealized gains..................... 9,148 14,095 34,068 26,063
------- ------- ------- -------
Net realized and unrealized gains:
Net realized gains................ 7,373 948 13,794 4,625
Net unrealized gains (losses)..... (2,045) 4,068 (1,321) 1,909
------- ------- ------- -------
Total net realized and
unrealized gains............ 5,328 5,016 12,473 6,534
------- ------- ------- -------
Income before minority interests and
income taxes......................... 14,476 19,111 46,541 32,597
Minority interests..................... -- 283 -- 589
Income tax expense..................... -- 532 -- 1,066
------- ------- ------- -------
Net increase in net assets resulting
from operations...................... $14,476 $18,296 $46,541 $30,942
======= ======= ======= =======
Basic earnings per common share........ $ 0.28 $ 0.38 $ 0.90 $ 0.64
======= ======= ======= =======
Diluted earnings per common share...... $ 0.28 $ 0.37 $ 0.89 $ 0.63
======= ======= ======= =======
Weighted average basic common shares
outstanding.......................... 51,329 48,586 51,570 48,465
======= ======= ======= =======
Weighted average diluted common shares
outstanding.......................... 51,866 49,088 51,988 49,055
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 5
ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
--------------------
1998 1997
--------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<S> <C> <C>
Operations:
Portfolio income before realized and
unrealized gains..................... $ 34,068 $ 26,063
Net realized gains..................... 13,794 4,625
Net unrealized gains (losses).......... (1,321) 1,909
Minority interests and income tax
expense.............................. -- (1,655)
-------- --------
Net increase in net assets
resulting from operations....... 46,541 30,942
-------- --------
Shareholder distributions:
Portfolio income....................... (36,468) (29,151)
Excess of portfolio income............. -- --
Net capital gains...................... -- --
Excess of net capital gains............ -- --
Return of capital...................... -- --
Undistributed earnings................. -- --
Preferred stock dividend............... (110) (110)
-------- --------
Net decrease in net assets
resulting from shareholder
distributions................... (36,578) (29,261)
-------- --------
Capital share transactions:
Sale of common stock................... -- --
Net decrease (increase) in notes
receivable from sale of common
stock................................ 4,209 2,657
Issuance of common stock upon the
exercise of stock options............ 173 2,223
Issuance of common stock in lieu of
cash distributions................... 2,758 4,751
Purchase of common stock by deferred
compensation trust................... (19,375) --
Other.................................. 477 (102)
-------- --------
Net (decrease) increase in net
assets resulting from capital
share transactions.............. (11,758) 9,529
-------- --------
Total (decrease) increase in net assets..... (1,795) 11,210
-------- --------
Net assets at beginning of period........... 420,060 402,134
-------- --------
Net assets at end of period................. $418,265 $413,344
======== ========
Net asset value per common share............ $ 8.14 $ 8.50
======== ========
Common shares outstanding at end of
period.................................... 51,360 48,614
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 6
ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
-------------------------
1998 1997
(IN THOUSANDS) ----------- -----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net increase in net assets resulting
from operations................... $ 46,541 $ 30,942
Adjustments
Net unrealized (gains) losses..... 1,321 (1,909)
Net gain on securitization of
commercial mortgage loans....... (14,812) --
Depreciation and amortization..... 391 236
Amortization of loan discounts and
fees............................ (1,689) (4,999)
Deferred income taxes............. -- (33)
Minority interests................ -- 588
Changes in other assets and
liabilities..................... (13,975) 5,785
--------- ---------
Net cash provided by operating
activities................... 17,777 30,610
--------- ---------
Cash flows from investing activities:
Investments in small business
concerns.......................... (248,799) (193,065)
Collections of investment
principal......................... 58,161 89,836
Proceeds from the sale of loans...... 21,539 25,405
Proceeds from securitization of
commercial mortgage loans......... 223,401 --
Net (purchase) redemption of U.S.
government securities............. 11,091 (28,794)
Collections of notes receivable from
sale of common stock.............. 4,209 3,756
Other investing activities........... -- (322)
--------- ---------
Net cash provided by (used in)
investing activities......... 69,602 (103,184)
--------- ---------
Cash flows from financing activities:
Sale of common stock................. 172 1,123
Purchase of common stock by deferred
compensation trust................ (19,375) --
Common dividends and distributions
paid.............................. (34,296) (32,364)
Special undistributed earnings
distribution paid................. (8,261) --
Preferred stock dividends............ (330) (220)
Net borrowings under (payments on)
debentures and notes payable...... (48,821) 79,568
Net borrowings under (payments on)
revolving lines of credit......... (842) 3,003
Net payments on government securities
available for sale................ -- --
Other financing activities........... (5,290) (949)
--------- ---------
Net cash provided by (used in)
financing activities......... (117,043) 50,161
--------- ---------
Net increase (decrease) in cash and
cash equivalents..................... $ (29,664) $ (22,413)
Cash and cash equivalents at beginning
of period............................ $ 70,437 $ 71,841
--------- ---------
Cash and cash equivalents at end of
period............................... $ 40,773 $ 49,428
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 7
ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
PORTFOLIO COMPANY JUNE 30, 1998
(IN THOUSANDS, EXCEPT NUMBER -------------------
OF SHARES) INVESTMENT(2) COST VALUE
- ----------------------------- --------------------------------------------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
MEZZANINE LOANS AND DEBT SECURITIES AND EQUITY INTERESTS IN PORTFOLIO COMPANIES
Acme Paging, L.P. Debt Securities $ 6,128 $ 6,128
Partnership Interests 1,456 2,600
- -------------------------------------------------------------------------------------------------------
AGPAL Broadcasting, Inc. Debt Securities 928 928
Warrants -- --
- -------------------------------------------------------------------------------------------------------
American Barbecue & Grill, Loans 1,611 1,611
Inc.
Debt Securities 2,281 2,281
Warrants 125 125
- -------------------------------------------------------------------------------------------------------
Arnold Moving Co., Inc. Loans 655 655
- -------------------------------------------------------------------------------------------------------
ARS, Inc. Debt Securities 9,732 9,732
Warrants 171 368
- -------------------------------------------------------------------------------------------------------
ASW Holding Corporation Warrants 25 25
- -------------------------------------------------------------------------------------------------------
Au Bon Pain Co., Inc.(1) Debt Securities 7,385 7,385
Warrants 227 746
- -------------------------------------------------------------------------------------------------------
Brazos Sportswear, Inc.(1) Common Stock (342,938 shares) 330 814
- -------------------------------------------------------------------------------------------------------
Calendar Broadcasting, Inc. Debt Securities 3,866 3,866
Warrants 150 150
- -------------------------------------------------------------------------------------------------------
Candlewood Hotel Company(1) Preferred Stock (3,250 shares) 3,250 3,250
- -------------------------------------------------------------------------------------------------------
Celebrities, Inc. Debt Securities 352 352
Warrants 12 12
- -------------------------------------------------------------------------------------------------------
CeraTech Holdings Corporation Debt Securities 1,988 270
Warrants -- --
- -------------------------------------------------------------------------------------------------------
Cherry Tree Toys, Inc. Debt Securities 1,657 1,657
Common Stock (220 shares) 1 --
- -------------------------------------------------------------------------------------------------------
Chungsan Corporation Loan 76 76
- -------------------------------------------------------------------------------------------------------
Convenience Corporation of Loans 1,226 1,226
America Debt Securities 8,383 2,774
Series A Preferred Stock (31,521 shares) 334 --
Warrants -- --
- -------------------------------------------------------------------------------------------------------
Cooper Natural Resources, Debt Securities 3,445 3,445
Inc.
Warrants -- 1,138
- -------------------------------------------------------------------------------------------------------
Cosmetic Manufacturing Debt Securities 2,944 2,944
Resources, LLC Options -- --
- -------------------------------------------------------------------------------------------------------
Coverall North America Loan 8,910 8,910
- -------------------------------------------------------------------------------------------------------
Csabai Canning Factory Rt. Hungarian Quotas (9.2%) 700 700
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) Public company.
(2) Common stock, preferred stock, warrants, options and equity interests are
generally non-income producing and restricted.
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 8
<TABLE>
<CAPTION>
PORTFOLIO COMPANY JUNE 30, 1998
(IN THOUSANDS, EXCEPT NUMBER -------------------
OF SHARES) INVESTMENT(2) COST VALUE
- ----------------------------- --------------------------------------------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
DEH Printed Circuits, Inc. Warrants $ 250 $ 950
- -------------------------------------------------------------------------------------------------------
DeVlieg-Bullard, Inc.(1) Warrants 350 497
- -------------------------------------------------------------------------------------------------------
Directory Investment Common Stock (470 shares) -- 172
Corporation
- -------------------------------------------------------------------------------------------------------
Directory Lending Corporation Series A Common Stock (1,031 shares) -- 879
Series B Common Stock (188 shares) 235 160
Series C Common Stock (292 shares) 656 249
Series A Preferred Stock (214 shares) 307 214
Series B Preferred Stock (175 shares) 931 175
Series C Preferred Stock (58 shares) 58 58
- -------------------------------------------------------------------------------------------------------
DMI Furniture, Inc.(1) Common Stock (399,840 shares) 500 1,035
- -------------------------------------------------------------------------------------------------------
ECM Enterprises Loan 34 4
- -------------------------------------------------------------------------------------------------------
EDM Consulting, LLC Loans 30 30
Debt Securities 1,875 431
Equity Interest -- --
- -------------------------------------------------------------------------------------------------------
El Dorado Communications, Loans 306 306
Inc.
- -------------------------------------------------------------------------------------------------------
Eparfin S.A. Loan 29 29
- -------------------------------------------------------------------------------------------------------
Esquire Communications Warrants 6 1,772
Ltd.(1)
- -------------------------------------------------------------------------------------------------------
Everything Yogurt Loan 50 50
- -------------------------------------------------------------------------------------------------------
Ex Terra Funding, LLC Series A Preferred Stock (500 shares) 497 497
Common Stock (2,500 shares) 3 3
Warrants -- --
- -------------------------------------------------------------------------------------------------------
Fairchild Industrial Products Debt Securities 5,678 5,678
Company Warrants 280 3,627
- -------------------------------------------------------------------------------------------------------
FHM Distributions, Inc. Loan 200 200
- -------------------------------------------------------------------------------------------------------
Gibson Guitar Corporation Debt Securities 14,751 14,751
Warrants 525 1,000
- -------------------------------------------------------------------------------------------------------
Ginsey Industries, Inc. Loans 5,000 5,000
Convertible Debentures 500 500
Warrants -- --
- -------------------------------------------------------------------------------------------------------
Golden Eagle/Satellite Loans 1,390 1,390
Archery,
LLC Convertible Debentures 2,248 2,242
- -------------------------------------------------------------------------------------------------------
Grant Broadcasting System II Warrants 139 3,600
- -------------------------------------------------------------------------------------------------------
Grant Television, Inc. Debt Securities 9,040 9,040
Warrants -- --
- -------------------------------------------------------------------------------------------------------
Han Hie Loan 514 514
- -------------------------------------------------------------------------------------------------------
H.B.N. Communications, Inc. Loan 248 248
- -------------------------------------------------------------------------------------------------------
Hotelevision Preferred Stock (1,000,000 shares) 1,000 1,000
- -------------------------------------------------------------------------------------------------------
In the Dough, Inc. Loan 2 2
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) Public company.
(2) Common stock, preferred stock, warrants, options and equity interests are
generally non-income producing and restricted.
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE> 9
<TABLE>
<CAPTION>
PORTFOLIO COMPANY JUNE 30, 1998
(IN THOUSANDS, EXCEPT NUMBER -------------------
OF SHARES) INVESTMENT(2) COST VALUE
- ----------------------------- --------------------------------------------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
IndeNet Corporation(1) Debt Securities $ 8,915 $ 8,915
Common Stock (487,500 shares) 986 986
Warrants -- --
- -------------------------------------------------------------------------------------------------------
Jeff & Chris Mufflers, Inc. Loan 111 111
- -------------------------------------------------------------------------------------------------------
JRI Industries, Inc. Debt Securities 2,356 2,356
Warrants 74 74
- -------------------------------------------------------------------------------------------------------
Julius Koch USA, Inc. Debt Securities 4,660 4,660
Warrants 324 2,100
- -------------------------------------------------------------------------------------------------------
Kirker Enterprises, Inc. Loans 3,735 3,735
Debt Securities 2,742 2,742
Warrants 348 2,350
Equity Interest 3 3
- -------------------------------------------------------------------------------------------------------
Kirkland's, Inc. Debt Securities 6,267 6,267
Warrants 96 2,850
- -------------------------------------------------------------------------------------------------------
KZSF Broadcasting, Inc. Loan 884 884
- -------------------------------------------------------------------------------------------------------
KZWC Broadcasting, Inc. Debt Securities 146 146
Warrants -- --
- -------------------------------------------------------------------------------------------------------
Liberty-Pittsburgh Systems, Debt Securities 3,386 3,386
Inc.
Common Stock (60,000 shares) 100 100
- -------------------------------------------------------------------------------------------------------
Lingcomm, Inc. Loan 235 235
- -------------------------------------------------------------------------------------------------------
Love Funding Corporation Series D Preferred Stock (26,000 shares) 359 213
Warrants 200 --
- -------------------------------------------------------------------------------------------------------
Magic Auto Loan 8 8
- -------------------------------------------------------------------------------------------------------
Meigher Communications Loan 2,928 2,928
- -------------------------------------------------------------------------------------------------------
Mid Atlantic Telcom Plus, LLC Loan 4,950 4,950
- -------------------------------------------------------------------------------------------------------
MidSouth Data Systems, Inc. Debt Securities 7,558 7,558
Warrants 348 348
- -------------------------------------------------------------------------------------------------------
Midview Associates, L.P. Debt Securities 289 289
Options -- --
- -------------------------------------------------------------------------------------------------------
Mihadas Loan 288 288
- -------------------------------------------------------------------------------------------------------
Mill-It Striping, Inc. Common Stock (18 shares) 250 --
- -------------------------------------------------------------------------------------------------------
MLX/Morton Industrial Common Stock (5,835 shares) 241 98
Group(1)
- -------------------------------------------------------------------------------------------------------
Monitoring Solutions, Inc. Loans 33 33
Debt Securities 1,823 219
Common Stock (33,333 shares) -- --
Warrants -- --
- -------------------------------------------------------------------------------------------------------
Nobel Education Dynamics, Debt Securities 9,250 9,250
Inc.(1) Series D Convertible Preferred Stock
(265,957 shares) 2,000 2,000
Warrants 750 750
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) Public company.
(2) Common stock, preferred stock, warrants, options and equity interests are
generally non-income producing and restricted.
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE> 10
<TABLE>
<CAPTION>
PORTFOLIO COMPANY JUNE 30, 1998
(IN THOUSANDS, EXCEPT NUMBER -------------------
OF SHARES) INVESTMENT(2) COST VALUE
- ----------------------------- --------------------------------------------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Norman's Yogurt, Inc. Loan $ 16 $ 16
- -------------------------------------------------------------------------------------------------------
Northeast Broadcasting Group, Debt Securities 426 426
L.P.
- -------------------------------------------------------------------------------------------------------
New York Donut Corporation Loan 84 84
- -------------------------------------------------------------------------------------------------------
Nursefinders, Inc. Debt Securities 7,502 7,502
Warrants 619 619
- -------------------------------------------------------------------------------------------------------
Old Mill Holdings, Inc. Debt Securities 587 435
Warrants 77 --
- -------------------------------------------------------------------------------------------------------
PAL Liberty, Inc. Loan 316 316
- -------------------------------------------------------------------------------------------------------
Peerless Group, Inc.(1) Common Stock (379,475 shares) 17 1,366
Warrants 4 649
- -------------------------------------------------------------------------------------------------------
David Peters Loan 167 55
- -------------------------------------------------------------------------------------------------------
PIATL Holdings, Inc. Loans 107 107
Preferred Stock (276 shares) 160 178
Common Stock (36 shares) -- --
- -------------------------------------------------------------------------------------------------------
Pico Products, Inc.(1) Debt Securities 5,481 5,481
Common Stock (248,000 shares) 60 126
Warrants -- --
- -------------------------------------------------------------------------------------------------------
Precision Industrial Co. Debt Securities 9,520 9,520
(formerly Herr-Voss Common Stock (132,507 shares) 1,050 1,616
Industries, Inc.) Warrants -- --
- -------------------------------------------------------------------------------------------------------
Progressive International Debt Securities 3,676 3,676
Corporation Preferred Stock (500 shares) 500 500
Warrants -- --
- -------------------------------------------------------------------------------------------------------
Quality Software Products Common Stock (94,479 shares) 901 783
Holdings, PLC(1)
- -------------------------------------------------------------------------------------------------------
Radio One of Atlanta, Inc. Loans 194 194
Debt Securities 9,964 9,964
Common Stock (1,430 shares) -- 500
- -------------------------------------------------------------------------------------------------------
Randhawa Brothers Loan 117 117
Enterprises, Inc.
- -------------------------------------------------------------------------------------------------------
R-Tex Decoratives Company, Debt Securities 1,523 500
Inc. Warrants 58 --
- -------------------------------------------------------------------------------------------------------
R.L. Singletary Loan 105 105
- -------------------------------------------------------------------------------------------------------
SerpCo., Inc. Loan 182 182
- -------------------------------------------------------------------------------------------------------
Spa Lending Corporation Preferred Stock (28,625 shares) 399 306
Common Stock (6,208 shares) 23 --
- -------------------------------------------------------------------------------------------------------
SunStates Refrigerated Loans 1,557 68
Services, Inc. Debt Securities 4,262 676
- -------------------------------------------------------------------------------------------------------
Total Foam, Inc. Debt Securities 1,571 113
Common Stock (910 shares) 57 --
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) Public company.
(2) Common stock, preferred stock, warrants, options and equity interests are
generally non-income producing and restricted.
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE> 11
<TABLE>
<CAPTION>
PORTFOLIO COMPANY JUNE 30, 1998
(IN THOUSANDS, EXCEPT NUMBER -------------------
OF SHARES AND INVESTMENTS) INVESTMENT(2) COST VALUE
- ----------------------------- --------------------------------------------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Vickar Industries, Inc. Loan $ 6,092 $ 6,092
- -------------------------------------------------------------------------------------------------------
Vidon, Inc. Loans 261 261
- -------------------------------------------------------------------------------------------------------
Weathertech Distributing Loans 138 138
Company, Inc.
- -------------------------------------------------------------------------------------------------------
West Virginia Radio Debt Securities 911 911
Corporation
of Clarksburg, Inc. Warrants 400 200
- -------------------------------------------------------------------------------------------------------
William R. Dye Loan 267 267
- -------------------------------------------------------------------------------------------------------
Williams Brothers Lumber Warrants 24 24
Company
- -------------------------------------------------------------------------------------------------------
Wilton Industries, Inc. Loan 12,000 12,000
- -------------------------------------------------------------------------------------------------------
WYCB Acquisition Corporation Loan 3,783 3,783
- -------------------------------------------------------------------------------------------------------
Total mezzanine loans and debt securities and equity
interests in portfolio companies (92 investments) $257,781 $261,159
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
INTEREST NUMBER OF -------------------
RATE RANGES INVESTMENTS COST VALUE
---------------- ----------- -------- --------
<S> <C> <C> <C> <C>
COMMERCIAL MORTGAGE LOANS
Up to 6.99% 8 $ 3,358 $ 2,724
7.00%- 8.99% 41 102,961 102,665
9.00%-10.99% 108 89,687 89,406
11.00%-12.99% 63 60,027 60,045
13.00%-14.99% 4 10,394 10,723
15.00% and above 1 3,416 3,403
- ------------------------------------------------------------------------------------------------
Total commercial mortgage loans 225 $269,843 $268,966
- ------------------------------------------------------------------------------------------------
SMALL BUSINESS ADMINISTRATION 7(A) LOANS
Up to 6.99% 10 $ 111 $ 109
7.00%- 8.99% 13 188 102
9.00%-10.99% 39 7,113 6,981
11.00%-12.99% 372 41,775 40,590
13.00%-14.99% 4 92 68
15.00% and above -- -- --
- ------------------------------------------------------------------------------------------------
Total Small Business Administration
7(a) loans 438 $ 49,279 $ 47,850
- ------------------------------------------------------------------------------------------------
Interest in securitization pool of
commercial mortgage loans 1 $ 86,043 $ 86,043
- ------------------------------------------------------------------------------------------------
Other portfolio assets 6 $ 3,056 $ 3,009
- ------------------------------------------------------------------------------------------------
Total portfolio 762 $666,002 $667,027
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) Public company.
(2) Common stock, preferred stock, warrants, options and equity interests are
generally non-income producing and restricted.
The accompanying notes are an integral part of these consolidated financial
statements.
9
<PAGE> 12
ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
PORTFOLIO COMPANY DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT NUMBER -------------------
OF SHARES) INVESTMENT(2) COST VALUE
- ----------------------------- --------------------------------------------------- -------- --------
MEZZANINE LOANS AND DEBT SECURITIES AND EQUITY INTERESTS IN PORTFOLIO COMPANIES
<S> <C> <C> <C>
Acme Paging, L.P. Debt Securities $ 5,993 $ 5,993
Partnership Interests 1,456 2,600
- -------------------------------------------------------------------------------------------------------
AGPAL Broadcasting, Inc. Debt Securities 928 928
Warrants -- --
- -------------------------------------------------------------------------------------------------------
American Barbecue & Grill, Loans 1,499 1,499
Inc. 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 Loans 1,226 1,226
America Debt Securities 8,370 6,245
Series A Preferred Stock (22,797 shares) 265 --
Warrants -- --
- -------------------------------------------------------------------------------------------------------
Cooper Natural Resources, Debt Securities 3,440 3,440
Inc. Warrants -- --
- -------------------------------------------------------------------------------------------------------
Csabai Canning Factory Rt. Debt Securities 3,140 3,140
Hungarian Quotas (9.2%) 700 700
- -------------------------------------------------------------------------------------------------------
DEH Printed Circuits, Inc. Warrants 250 1,440
- -------------------------------------------------------------------------------------------------------
DeVlieg-Bullard, Inc.(1) Warrants 350 760
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) Public company.
(2) Common stock, preferred stock, warrants, options and equity interests are
generally non-income producing and restricted.
The accompanying notes are an integral part of these consolidated financial
statements.
10
<PAGE> 13
<TABLE>
<CAPTION>
PORTFOLIO COMPANY DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT NUMBER -------------------
OF SHARES) INVESTMENT(2) COST VALUE
- ----------------------------- --------------------------------------------------- -------- --------
<S> <C> <C> <C>
Directory Investment Common Stock (470 shares) $ -- $ 83
Corporation
- -------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------
EDM Consulting, LLC Loans 30 30
Debt Securities 1,875 428
Equity Interest -- --
- -------------------------------------------------------------------------------------------------------
El Dorado Communications, Warrants -- 585
Inc.
- -------------------------------------------------------------------------------------------------------
Esquire Communications Warrants 6 1,000
Ltd.(1)
- -------------------------------------------------------------------------------------------------------
Everything Yogurt Loan 65 65
- -------------------------------------------------------------------------------------------------------
Ex Terra Funding, LLC Loan 1,960 1,960
- -------------------------------------------------------------------------------------------------------
Fairchild Industrial Products Debt Securities 5,653 5,653
Company Warrants 280 280
- -------------------------------------------------------------------------------------------------------
FHM Distributions, Inc. Loan 200 200
- -------------------------------------------------------------------------------------------------------
Gibson Guitar Corp. Debt Securities 14,475 14,475
Warrants 525 525
- -------------------------------------------------------------------------------------------------------
Golden Eagle/Satellite Loans 550 550
Archery,
LLC Convertible Debentures 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
- -------------------------------------------------------------------------------------------------------
JRI 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
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) Public company.
(2) Common stock, preferred stock, warrants, options and equity interests are
generally non-income producing and restricted.
The accompanying notes are an integral part of these consolidated financial
statements.
11
<PAGE> 14
<TABLE>
<CAPTION>
PORTFOLIO COMPANY DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT NUMBER -------------------
OF SHARES) INVESTMENT(2) COST VALUE
- ----------------------------- --------------------------------------------------- -------- --------
<S> <C> <C> <C>
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, Debt Securities 3,370 3,370
Inc. Common Stock (60,000 shares) 100 100
- -------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------
Midview Associates, L.P. Debt Securities 326 326
Options -- --
- -------------------------------------------------------------------------------------------------------
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, Series D Convertible Preferred Stock (265,957
Inc.(1) shares) 2,000 2,000
Warrants -- --
- -------------------------------------------------------------------------------------------------------
Norman's Yogurt, Inc. Loan 30 30
- -------------------------------------------------------------------------------------------------------
Northeast Broadcasting Group, Debt Securities 483 483
L.P.
- -------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) Public company.
(2) Common stock, preferred stock, warrants, options and equity interests are
generally non-income producing and restricted.
The accompanying notes are an integral part of these consolidated financial
statements.
12
<PAGE> 15
<TABLE>
<CAPTION>
PORTFOLIO COMPANY DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT NUMBER -------------------
OF SHARES) INVESTMENT(2) COST VALUE
- ----------------------------- --------------------------------------------------- -------- --------
<S> <C> <C> <C>
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 Common Stock (94,479 shares) 901 344
Holdings, PLC(1)
- -------------------------------------------------------------------------------------------------------
Radio One of Atlanta, Inc. Loans 341 341
Debt Securities 9,951 9,951
Common Stock (1,430 shares) -- --
- -------------------------------------------------------------------------------------------------------
Randhawa Brothers Loans 217 217
Enterprises, Inc.
- -------------------------------------------------------------------------------------------------------
R-Tex Decoratives Company, Debt Securities 1,513 1,170
Inc. Warrants 58 --
- -------------------------------------------------------------------------------------------------------
R.L. Singletary Loan 112 112
- -------------------------------------------------------------------------------------------------------
Saturn Chemicals, Inc. Loan -- --
- -------------------------------------------------------------------------------------------------------
SerpCo., Inc. Loan 182 182
- -------------------------------------------------------------------------------------------------------
Spa Lending Corporation Preferred Stock (28,625 shares) 398 322
Common Stock (6,208 shares) 22 --
- -------------------------------------------------------------------------------------------------------
SunStates Refrigerated Loans 1,557 68
Services,
Inc. Debt Securities 4,262 1,486
- -------------------------------------------------------------------------------------------------------
Total Foam, Inc. Debt Securities 1,582 129
Common Stock (910 shares) 57 --
- -------------------------------------------------------------------------------------------------------
University Village Mobile Loan 157 157
Homes
- -------------------------------------------------------------------------------------------------------
Vidon, Inc. Loans 262 262
- -------------------------------------------------------------------------------------------------------
Waterview Limited Partnership Option -- 3,050
- -------------------------------------------------------------------------------------------------------
Weathertech Distributing Loans 291 291
Company, Inc.
- -------------------------------------------------------------------------------------------------------
West Virginia Radio Debt Securities 962 962
Corporation
of Clarksburg, Inc. Warrants 400 --
- -------------------------------------------------------------------------------------------------------
William R. Dye Loan 270 270
- -------------------------------------------------------------------------------------------------------
Williams Brothers Lumber Loans 720 720
Company Debt Securities 308 308
Warrants 24 24
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) Public company.
(2) Common stock, preferred stock, warrants, options and equity interests are
generally non-income producing and restricted.
The accompanying notes are an integral part of these consolidated financial
statements.
13
<PAGE> 16
<TABLE>
<CAPTION>
PORTFOLIO COMPANY DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT NUMBER -------------------
OF SHARES AND INVESTMENTS) INVESTMENT(2) COST VALUE
- ----------------------------- --------------------------------------------------- -------- --------
<S> <C> <C> <C>
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>
DECEMBER 31, 1997
INTEREST NUMBER OF -------------------
RATE RANGES INVESTMENTS COST VALUE
---------------- ----------- -------- --------
<S> <C> <C> <C> <C>
COMMERCIAL MORTGAGE LOANS
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% 8 8,196 8,196
15.00% and above 1 3,494 3,494
- -------------------------------------------------------------------------------------------------
Total commercial mortgage loans 292 $447,016 $447,244
- -------------------------------------------------------------------------------------------------
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 -- -- --
- -------------------------------------------------------------------------------------------------
Total Small Business Administration
7(a) loans 432 $ 41,103 $ 40,709
- -------------------------------------------------------------------------------------------------
Other portfolio assets 6 $ 1,367 $ 1,320
- -------------------------------------------------------------------------------------------------
Total portfolio at value 819 $690,720 $697,021
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) Public company.
(2) Common stock, preferred stock, warrants, options and equity interests are
generally non-income producing and restricted.
The accompanying notes are an integral part of these consolidated financial
statements.
14
<PAGE> 17
ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
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"), merged
with and into Allied Capital Lending Corporation ("Allied Lending") (each a
"Predecessor Company" and collectively the "Predecessor 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 Predecessor
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 Predecessor Companies carried forward the
historical cost basis of their assets and liabilities to the surviving entity
(ACC). For financial reporting purposes, the Predecessor 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 Predecessor
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") is licensed under the Small Business Investment Act of 1958 as a
Small Business Investment Company ("SBIC"). Allied Capital Financial Corporation
("Allied Financial") was licensed as a Specialized Small Business Investment
Company until the second quarter of 1998 when it was granted permission from the
Small Business Administration ("SBA") to change its license to an SBIC license.
Allied Capital SBLC Corporation ("Allied SBLC") is licensed by the SBA as a
Small Business Lending Company and is a participant in the SBA Section 7(a)
Guaranteed Loan Program. In addition, the Company has also established a real
estate investment trust subsidiary, Allied Capital REIT, Inc. ("Allied REIT").
ACC also has several single-member limited liability companies established
primarily to hold real estate properties. Subsequent to June 30, 1998, the
Company merged Allied Investment with and into Allied Financial to form a single
SBIC subsidiary (the "SBIC Merger"). Allied Financial then changed its name to
Allied Investment Corporation.
15
<PAGE> 18
ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2. ORGANIZATION, CONTINUED
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. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements of the Company contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position
of the Company as of June 30, 1998 and the results of operations, changes in
net assets, and cash flows for the periods indicated. Certain information and
footnote disclosures normally included in the consolidated financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. The consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's December 31, 1997 Annual Report. The results of operations for the
six months ended June 30, 1998 are not necessarily indicative of the operating
results to be expected for the full year.
The consolidated financial statements for the periods presented have been
restated to include the accounts of the Predecessor Companies for all periods
presented. Transaction fees and expenses related to the Merger were expensed in
the fourth quarter of 1997. The consolidated financial statements include the
accounts of the Company or its wholly owned or majority owned subsidiaries. All
intercompany accounts and transactions have been eliminated in consolidation.
Certain reclassifications have been made to the 1997 balances to conform with
the 1998 financial statement presentation.
NOTE 4. PORTFOLIO
The Company lends and invests in growing businesses through three primary
products: mezzanine loans and debt and equity securities, commercial mortgage
loans, and SBA Section 7(a) loans.
16
<PAGE> 19
ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. PORTFOLIO, CONTINUED
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 June 30, 1998 and December 31, 1997, respectively, approximately 100 percent
and 98 percent of the Company's mezzanine loan portfolio was composed of fixed
interest rate loans. The weighted average yield (at value) on the mezzanine
portfolio at June 30, 1998 and December 31, 1997 equaled 13.6 percent and 12.6
percent, respectively. At June 30, 1998 and December 31, 1997, mezzanine loans
and debt securities with a cost basis of $26,471,000 and $13,661,000,
respectively, were not accruing interest.
At June 30, 1998 and December 31, 1997, approximately 33 percent and 29
percent, 26 percent and 27 percent, 21 percent and 17 percent, 10 percent and 13
percent, and 6 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, 4 percent and 6 percent, respectively, 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 and 43 percent, 16 percent
and 26 percent, 16 percent and 15 percent, and 20 percent and 12 percent,
respectively, or 95 percent and 96 percent of the Company's mezzanine portfolio
as of June 30, 1998 and December 31, 1997, respectively.
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 June 30, 1998 and December 31, 1997, approximately 65 percent and 35
percent, and 73 percent and 27 percent of the Company's commercial mortgage loan
portfolio was composed of fixed and adjustable interest rate loans,
respectively. At June 30, 1998 and December 31, 1997, approximately 37 percent
and 38 percent, 15 percent and 18 percent, 22 percent and 18 percent, 20 percent
and 14 percent, and 6 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, recreation and other properties equaled
approximately 32 percent and 33 percent, 31 percent and 31 percent, 10 percent
and 14 percent, 4 percent and 3 percent, and 23 percent and 19 percent,
respectively, of the Company's commercial real estate portfolio at June 30, 1998
and December 31, 1997, respectively.
The weighted average yield (at value) on the real estate portfolio as of
June 30, 1998 and December 31, 1997 equaled 10.6 percent and 11.4 percent,
respectively. As of June 30, 1998 and December 31, 1997, loans with a cost
basis of $9,076,000 and $11,987,000, respectively, were not accruing interest.
17
<PAGE> 20
ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. PORTFOLIO, CONTINUED
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 on
which the loan was made to its maturity. At June 30, 1998 and December 31, 1997,
approximately 96 percent and 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 June 30, 1998 and December 31, 1997, 7(a) loans with a cost basis
of $4,250,000 and $4,346,000, respectively, were not accruing interest.
At June 30, 1998 and December 31, 1997, approximately 39 percent and 36
percent, 33 percent and 29 percent, 13 percent and 18 percent, 7 percent and 10
percent, and 8 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 30
percent and 25 percent, 24 percent and 21 percent, 7 percent and 10 percent, 11
percent and 9 percent, 6 percent and 7 percent, 4 percent and 6 percent, and 3
percent and 6 percent, respectively, or 85 percent and 84 percent of the
Company's 7(a) loan portfolio as of June 30, 1998 and December 31, 1997.
INTEREST IN SECURITIZATION POOL OF COMMERCIAL MORTGAGE LOANS
On January 30, 1998, the Company in conjunction with Business Mortgage
Investors, Inc. ("BMI"), a private REIT managed by the Company, completed a $310
million asset securitization, whereby bonds totaling $239 million were sold in
three classes rated "AAA", "AA" and "A" by Standard & Poor's Rating Services and
Fitch IBCA, Inc. in a private placement. The Company and BMI sold a pool of 97
commercial mortgage loans totaling $310 million to a special purpose, bankruptcy
remote entity which transferred the assets to a trust which issued the bonds.
The Company contributed approximately 95%, or $295 million, of the total assets
securitized, and received cash proceeds, net of costs of approximately $223
million. The Company retained a trust certificate for its residual interest (the
"residual interest") in the loan pool sold, and will receive interest income
from this residual interest as well as receive the net spread of the interest
earned on the loans sold less the interest paid on the bonds over the life of
the bonds (the "residual securitization spread"). 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 accounted for the securitization in accordance with Statement
of Financial Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." As a result,
the Company recorded a gain of approximately $14.8 million net of the costs of
the securitization and the cost of settlement of interest rate swaps. The gain
arises from the difference between the carrying amount of the loans and the fair
market value of the assets received--cash, residual securitization
18
<PAGE> 21
ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. PORTFOLIO, CONTINUED
spread, residual interest and a servicing asset. The value of the residual
securitization spread, $17.0 million, was determined based on the future
expected cash flows, assuming a constant prepayment rate for the mortgage loan
pool of 10%, discounted at 16%. The value of the residual interest was
determined to be $66.5 million and was based on the future expected cash flows
less projected losses of approximately $3.0 million. The projected losses were
based upon the attributes of the portfolio sold and the underlying collateral
values. The weighted average loan to collateral value of the 97 loans sold was
68.3%. The expected future cash flow from the residual interest was discounted
at 9.6%. The servicing asset was valued at $227,000 assuming a net servicing fee
of 0.04% and was discounted at a rate of 10%.
The Company will continue to earn interest income from the residual
interest, and will receive the actual net spread from the portion of the loans
sold represented by the bonds issued. As the net spread is received, a portion
will be allocated to interest income with the remainder applied to reduce the
carrying amount of the residual securitization spread. The residual interest and
the residual securitization spread will be valued each quarter using updated
prepayment and loss estimates.
NOTE 5. DEBT
At June 30, 1998 and December 31, 1997, the Company had the following
available credit facilities:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------------- -------------------
FACILITY AMOUNT FACILITY AMOUNT
AMOUNT DRAWN AMOUNT DRAWN
-------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Debentures and notes payable:
Unsecured long-term notes
payable.................. $180,000 $180,000 $ -- $ --
Master repurchase
agreement................ 250,000 -- 250,000 202,705
Master loan and security
agreement................ 250,000 23,000 250,000 23,116
Senior note payable........ -- -- 20,000 20,000
OPIC loan.................. 5,700 5,700 20,000 8,700
SBA debentures............. 51,300 51,300 54,300 54,300
Bonds payable.............. -- -- -- --
-------- -------- -------- --------
Total debentures and
notes payable....... 737,000 260,000 594,300 308,821
-------- -------- -------- --------
Revolving lines of credit....... 200,000 38,000 80,000 38,842
-------- -------- -------- --------
Total debt............ $937,000 $298,000 $674,300 $347,663
======== ======== ======== ========
</TABLE>
UNSECURED LONG-TERM NOTES PAYABLE
In June 1998 the Company issued three classes of unsecured long-term notes
held by private institutional investors. The notes have terms of 5 or 7 years
with an aggregate principal balance of $180,000,000. The weighted average
interest rate on the notes is 7.2% and interest only is payable semi-annually
until maturity. The notes may be prepaid in whole or in part together with an
interest premium as stipulated in the note agreement.
19
<PAGE> 22
ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5. DEBT, CONTINUED
MASTER REPURCHASE AGREEMENT
The Company and Business Mortgage Investors, Inc. ("BMI") 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 Offered
Rate ("LIBOR") plus 1.13 percent, or 6.8 percent and 6.8 percent at June 30,
1998 and December 31, 1997, respectively. The facility requires an annual
commitment fee equal to 0.25 percent of the committed amount. The average debt
outstanding under the master repurchase agreement for the six months ended June
30, 1998 and the year ended December 31, 1997 was $31,764,000 and $166,362,000,
respectively. The maximum amount borrowed under this facility was $202,705,000
and $209,591,000 during the six months ended June 30, 1998 and the year ended
December 31, 1997, respectively. The weighted average interest rate for this
facility during the six months ended June 30, 1998 and the year ended December
31, 1997 was 6.8 percent and 6.6 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 June 30,
1998 and December 31, 1997, the Company's recorded investment in these loans
pledged as collateral totaled $54,000,000 and $29,193,000, which approximated
their market value. The agreement generally requires interest only payments with
all principal due at maturity. The agreement bears interest at the one-month
LIBOR plus 1.0 percent, or 6.7 percent, at June 30, 1998 and December 31, 1997.
The average debt outstanding under this facility for the six months ended June
30, 1998 and the year ended December 31, 1997 was $9,213,000 and $17,899,000,
respectively. The maximum amount borrowed under this facility was $30,000,000
during the six months ended June 30, 1998 and $23,116,000 for the year ended
December 31, 1997. The weighted average interest rate for this facility during
the six months ended June 30, 1998 and the year ended December 31, 1997 was 6.6
percent and 6.7 percent, respectively. The agreement matures on August 21, 1998.
SENIOR NOTE PAYABLE
At December 31, 1997 the Company had a $20,000,000 unsecured senior note
payable to an insurance company with interest at a fixed rate of 9.15 percent,
payable semi-annually.
OVERSEAS PRIVATE INVESTMENT CORPORATION (OPIC) LOAN
The Company has a loan agreement with OPIC 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, or 6.6 percent at June 30, 1998. 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.
20
<PAGE> 23
ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5. DEBT, CONTINUED
SBA DEBENTURES
At June 30, 1998, the Company had debentures totaling $51,300,000 payable
to the SBA at interest rates ranging from 6.9 percent to 9.6 percent, with
scheduled maturity dates as follows: 1998 -- $3,650,000; 1999 -- $0;
2000 -- $17,300,000; 2001 -- $9,350,000; 2002 -- $0; and $21,000,000 thereafter.
At December 31, 1997, the Company had outstanding debentures totaling
$54,300,000 at interest rates ranging from 6.9 percent to 9.8 percent. The
debentures require semi-annual interest-only payments with all principal due
upon maturity. The SBA debentures are subject to prepayment penalties if paid
prior to maturity.
REVOLVING LINES OF CREDIT
Subsequent to the Merger, the Company repaid all of its previous unsecured
revolving lines of credit and entered into a new $200,000,000 unsecured
revolving line of credit as amended and restated. The new facility bears
interest at LIBOR plus 1.25 percent, or 6.92 percent at June 30, 1998, 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 June 30, 1999. The new line of credit requires monthly payments of
interest and all principal is due upon its expiration.
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. The lines of credit charged interest at rates ranging
from LIBOR plus 1.35 percent to 2.5 percent. At December 31, 1997 the weighted
average interest rate on the facilities was 7.7 percent percent. The lines
required various commitment and other fees equal to 0.39 percent of the
outstanding borrowings at December 31, 1997.
The average debt outstanding on the revolving lines of credit was
$67,862,000 and $30,033,000 for the six months ended June 30, 1998 and the year
ended December 31, 1997, respectively. The maximum amount borrowed under these
facilities was $105,000,000 and $45,759,000 during the same periods,
respectively. The weighted average interest rate for these facilities during
the six months ended June 30, 1998 and the year ended December 31, 1997 was 6.9
percent and 8.1 percent, respectively.
21
<PAGE> 24
ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6. SHAREHOLDERS' EQUITY
On January 8, 1998, the Company's compensation committee granted a
total of 3,415,446 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. At June 30, 1998, options for
607,000 shares were exercisable into common stock. Options were exercised for
8,060 shares, and 23,646 shares were canceled during the six months ended June
30, 1998.
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. For the six months ended
June 30, 1998 and the year ended December 31, 1997, the Company issued
110,688 and 550,971, respectively, at an average price per share
of $24.92 and $15.67 per share, respectively.
NOTE 7. EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
PER COMMON
INCOME SHARES SHARE AMOUNT
-------- ------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
FOR THE THREE MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
Net increase in net assets resulting from operations... $14,476
Less: Preferred stock dividends........................ (55)
-------
Income available to common shareholders................ $14,421
=======
BASIC EARNINGS PER COMMON SHARE........................ 51,329 $0.28
=====
Options outstanding to officers........................ 537
------
DILUTED EARNINGS PER COMMON SHARE...................... 51,866 $0.28
====== =====
FOR THE THREE MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
Net increase in net assets resulting from operations... $18,296
Less: Preferred stock dividends........................ (55)
-------
Income available to common shareholders................ $18,241
=======
BASIC EARNINGS PER COMMON SHARE........................ 48,586 $0.38
=====
Options outstanding to officers........................ 502
------
DILUTED EARNINGS PER COMMON SHARE...................... 49,088 $0.37
====== =====
</TABLE>
22
<PAGE> 25
ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7. EARNINGS PER COMMON SHARE, CONTINUED
<TABLE>
<CAPTION>
PER COMMON
INCOME SHARES SHARE AMOUNT
-------- ------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
Net increase in net assets resulting from operations... $46,541
Less: Preferred stock dividends........................ (110)
-------
Income available to common shareholders................ $46,431
=======
BASIC EARNINGS PER COMMON SHARE........................ 51,570 $0.90
=====
Options outstanding to officers........................ 418
------
DILUTED EARNINGS PER COMMON SHARE...................... 51,988 $0.89
====== =====
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
Net increase in net assets resulting from operations... $30,942
Less: Preferred stock dividends........................ (110)
-------
Income available to common shareholders................ $30,832
=======
BASIC EARNINGS PER COMMON SHARE........................ 48,465 $0.64
=====
Options outstanding to officers........................ 590
------
DILUTED EARNINGS PER COMMON SHARE...................... 49,055 $0.63
====== =====
</TABLE>
Basic earnings per common share was computed by dividing the net increase
in net assets resulting from operations, after deducting preferred stock
dividends, by the weighted average number of common shares outstanding each
period.
Diluted earnings per common share was computed by dividing the 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
period.
NOTE 8. CUT-OFF AWARD AND FORMULA AWARD
The Predecessor Companies' 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
23
<PAGE> 26
ALLIED CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8. CUT-OFF AWARD AND FORMULA AWARD, CONTINUED
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 and will be expensed as the Cut-off
Award vests. For the six months ended June 30, 1998, $760,000 of the Cut-off
Award vested and $262,000 was forfeited.
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 the Predecessor Companies as of the close of the
market on the day before the Merger date (December 30, 1997), less an amount
equal to the combined aggregate market capitalizations of the Predecessor
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. For the six month period
ended June 30, 1998, the Company funded the DC Plan with approximately $19
million in cash in connection with the Formula Award. The Trustee of the DC Plan
will use those funds to acquire the Company's stock in the open market. As of
June 30, 1998, the Trustee had purchased 790,155 shares of the Company's stock
with an aggregate cost of $18,994,000. The purchase of these shares has been
reflected in shareholders' equity. 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. Formula Award
expense for the six months ended June 30, 1998 was $3,166,000.
NOTE 9. 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. In January 1998, the Company
settled its interest rate swap agreements in connection with the asset
securitization transaction which resulted in a loss of $5,767,000 which has been
recorded against the gain on the securitization of commercial mortgage loans in
the first quarter of 1998. 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 paid a weighted average fixed rate equal to 6.8
percent and received payments with a weighted average variable rate equal to the
30-day LIBOR. The swap agreements had a remaining weighted average maturity of
approximately four years from December 31, 1997. As of December 31, 1997, the
Company recorded an estimated unrealized loss of $5,000,000 related to the swap
agreements in connection with the January 1998 asset securitization transaction.
The estimated unrealized loss was subsequently reversed upon consummation of the
securitization.
NOTE 10. DIVIDENDS AND DISTRIBUTIONS
The Company's Board of Directors declared and the Company paid a $0.70 per
common share dividend, or $36,468,000, for the six months ended June 30, 1998.
NOTE 11. COMMITMENTS AND CONTINGENCIES
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.
24
<PAGE> 27
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following analysis of the financial condition and results of operations
of the Company should be read in conjunction with the Company's Consolidated
Financial Statements and the Notes thereto included herein. This 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 was treated as a tax-free reorganization under Section 368
(a)(1)(A) of the Code. For federal income tax purposes, the Predecessor
Companies carried forward the historical cost basis of their assets and
liabilities to the surviving entity (Allied Capital Corporation). For financial
reporting purposes, the Predecessor Companies also carried forward the
historical cost basis of their respective assets and liabilities at the time the
Merger was effected. For financial reporting purposes, Allied I's ownership of
Allied Lending has been eliminated for all periods presented. The financial
information reflects the operations of the Company with all periods restated as
if the Predecessor Companies had merged as of the beginning of the earliest
period presented.
OVERVIEW
The Company's primary business is investing in and lending to private small
and medium-sized businesses in three areas: mezzanine finance, commercial real
estate finance, and 7(a) lending. In addition, the Company earns advisory fees
from the management of private investment funds.
The Company's earnings 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 original issue
discount 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 financial results on a quarterly basis may fluctuate
significantly due to the timing of gain recognition and the timing of
securitization transactions, among other factors. As a result, quarterly
financial information may not be indicative of annual results.
The Company's portfolio is managed in three parts: mezzanine loans, debt
securities and equity interests; commercial mortgage loans; and 7(a) loans.
The total portfolio at value was $667.0 million, $697.0 million and $607.4
million at June 30, 1998, and December 31, 1997 and 1996, respectively. During
the six months ended June 30, 1998 the Company originated loans totaling $248.8
million and received repayments of $58.2 million. In addition in January 1998,
the Company completed an asset securitization of approximately $295 million in
commercial mortgage loans. As a result, the total portfolio decreased by 4%
from December 31, 1997 to June 30, 1998. The portfolio increased approximately
15% for the year ended December 31, 1997.
25
<PAGE> 28
A summary of the composition of the Company's total assets, including its
loan portfolios at June 30, 1998 and December 31, 1997 is shown in the
following table:
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
ASSET COMPOSITION 1998 1997
----------------- ----------- ----
<S> <C> <C>
Commercial mortgage loans(1)............................. 48% 56%
Mezzanine investments.................................... 35 25
7(a) loans............................................... 7 5
Cash and other assets.................................... 10 14
--- ---
100% 100%
=== ===
</TABLE>
- ---------------
(1) Includes residual interests in a securitized pool of mortgage loans and real
estate investments.
Mezzanine loans, debt securities and equity interests were $261.2 million,
$207.7 million and $191.2 million at June 30, 1998, and December 31, 1997 and
1996, respectively. The effective yield on the mezzanine portfolio was 13.6% and
12.6% at June 30, 1998 and December 31, 1997, respectively. Mezzanine loan
originations were $45.1 million for the quarter ended June 30, 1998 and $83.0
million for the first half of 1998. Mezzanine loan originations were $66.7
million for the year ended December 31, 1997. Mezzanine loan repayments were
$6.4 million for the quarter ended June 30, 1998 and $20.2 million for the first
half of 1998. During the year 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 - $10 million) mezzanine loans
in order to maintain appropriate portfolio diversity for regulated investment
company purposes. Pursuant to the terms of a 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.
Subsequent to the Merger, the Company's larger overall portfolio size
enables it 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 $25 million. The Company
also is able to price its mezzanine loans using a single capital structure,
which enables the Company to price its loans more competitively. The Company
believes that its post-Merger strategies will enable the Company to increase
mezzanine loan originations in 1998.
Commercial mortgage loans were $269.0 million, $447.2 million and $373.7
million at June 30, 1998, and December 31, 1997 and 1996, respectively. The
commercial mortgage loan portfolio declined by 40% during the first six months
of 1998 due to the sale through securitization of approximately $295 million in
commercial mortgage loans. The Company added to its commercial mortgage loan
portfolio during the second quarter of 1998 through the origination of new loans
and investments totaling $82.5 million and decreased its portfolio due to
repayments of loans totaling $19.7 million. For the six months ended June 30,
1998, the Company originated new commercial mortgage loans of $136.4 million and
received repayments of $35.9 million. The commercial mortgage loan portfolio
increased by 20% for the year ended December 31, 1997. Commercial mortgage loan
originations were $249.0 million and grew by 41% in 1997. Commercial mortgage
loan repayments were $154.5 million for 1997.
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 were repaid due to a favorable
interest rate environment. The Company now generally originates its commercial
real
26
<PAGE> 29
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.
The weighted average current stated interest rate on the commercial real
estate portfolio at June 30, 1998 and at December 31, 1997 was 9.5% and 9.6%,
respectively. The weighted average yield on the commercial real estate
portfolio was 10.6% and 11.4% at June 30, 1998 and December 31, 1997,
respectively.
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. 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. ACC has
experienced some decline in the overall interest rates on loans originated in
1997 and for the first half of 1998. Commercial mortgage loans originated during
the first half of 1998 had a weighted average stated interest rate of 9.0%.
Commercial mortgage loans originated in 1997 had a weighted average stated
interest rate of 9.6%.
The Company will continue to 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 $47.9 million, $40.7 million and $42.1 million
at June 30, 1998 and December 31, 1997 and 1996, respectively. 7(a) loan
originations were $13.7 million for the quarter ended June 30, 1998, $29.5
million for the first half of 1998, and $49.2 million for the year ended
December 31, 1997. Sales of the guaranteed portions of 7(a) loan originations
were $9.7 million in the second quarter of 1998, $19.4 for the six months ended
June 30, 1998, and $43.4 million for the year ended December 31, 1997. 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
Comparison of Six Months Ended June 30, 1998 and 1997
Net increase in net assets resulting from operations ("NIA") was $46.5
million, or $0.89 per share, and $30.9 million, or $0.63 per share, for the six
months ended June 30, 1998 and 1997, respectively. NIA results from total
interest and related portfolio income earned, less total expenses incurred, plus
net realized and unrealized gains or losses. The NIA for the six months ended
June 30, 1998 also includes a gain of $14.8 million, or $0.28 per share,
resulting from a commercial mortgage loan securitization transaction that was
completed in January 1998.
On January 30, 1998, the Company, in conjunction with Business Mortgage
Investors, Inc.("BMI"), a private REIT managed by the Company, completed a $310
million asset securitization, whereby bonds totaling $239 million were sold in
three classes rated "AAA", "AA" and "A" by Standard & Poor's Ratings Services
and Fitch IBCA, Inc. in a private placement. The Company and BMI sold a pool of
97 commercial mortgage loans totaling $310 million to a special purpose,
bankruptcy remote entity which transferred the assets to a trust which issued
the bonds. The Company contributed approximately 95%, or $295 million, of the
total assets securitized, and received cash proceeds, net of costs, of
approximately $223 million. The Company retained a trust certificate for its
residual interest (the "residual interest") in the loan pool sold, and will
27
<PAGE> 30
receive interest income from this residual interest as well as receive the net
spread of the interest earned on the loans sold less the interest paid on the
bonds over the life of the bonds (the "residual securitization spread"). 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 accounted for the securitization in accordance with Statement
of Financial Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." As a result,
the Company recorded a gain of approximately $14.8 million net of the costs of
the securitization and the cost of settlement of interest rate swaps. The gain
arises from the difference between the carrying amount of the loans and the fair
market value of the assets received -- cash, residual securitization spread,
residual interest and a servicing asset. The value of the residual
securitization spread, $17.0 million, was determined based on the future
expected cash flows, assuming a constant prepayment rate for the mortgage loan
pool of 10%, discounted at 16%. The value of the residual interest was
determined to be $66.5 million and was based on the future expected cash flows
less projected losses of approximately $3.0 million. The projected losses were
based upon the attributes of the portfolio sold and the underlying collateral
values. The weighted average loan to collateral value of the 97 loans sold was
68.3%. The expected future cash flow from the residual interest was discounted
at 9.6%. The servicing asset was valued at $0.2 million, assuming a net
servicing fee of 0.04%, and was discounted at a rate of 10%.
The Company will continue to earn interest income from the residual
interest, and will receive the actual net spread from the portion of the loans
sold represented by the bonds issued. As the net spread is received, a portion
will be allocated to interest income with the remainder applied to reduce the
carrying amount of the residual securitization spread. The residual interest and
the residual securitization spread will be valued each quarter using updated
prepayment, interest rate and loss estimates.
The Company believes that it may continue to use asset securitization as a
means to enhance its returns on assets as well as increase its liquidity, but in
any event does not expect to complete an asset securitization transaction more
frequently than annually. The Company may also sell commercial mortgage loans on
a whole loan basis to third parties to increase liquidity.
Interest income totaled $38.2 million and $40.7 million for the six months
ended June 30, 1998 and 1997, respectively. Interest income declined on a year
to year comparison because of the assets sold through securitization. The
Company's average loan portfolio was approximately $554.1 million and
approximately $608.5 million during the six months ended June 30, 1998 and 1997,
respectively. The weighted average yield on the total loan portfolio at June 30,
1998 and 1997 was approximately 11.8% and approximately 11.4%, respectively.
Net premiums from loan dispositions were $2.0 million and $3.2 million for
the six months ended June 30, 1998 and 1997, respectively. Net premiums from
loan dispositions include premiums on the sale of the guaranteed portion of the
Company's 7(a) loans into the secondary market of $1.4 million and $1.4 million
for the six months ended June 30, 1998 and 1997, respectively. The premiums
resulted from the Company's sale of 7(a) loans totaling $18.8 million and $15.6
million for the six months ended June 30, 1998 and 1997, respectively. Also
included in net premiums from loan dispositions were premiums, resulting from
the early repayment of loans, totaling $0.6 million and $1.7 million for the six
months ended June 30, 1998 and 1997, respectively.
Investment advisory fees and other income were $3.1 million and $2.3
million for the six months ended June 30, 1998 and 1997, respectively.
Investment advisory fees totaled $1.0 million and $0.5 million for the six
months ended June 30, 1998 and 1997, respectively. Three of the Company's
private managed funds are no longer making new investments and are actively
distributing fund assets to their investors. In January 1998, however, the
Company entered into a new agreement with Kreditanstalt fur Wiederaufbau (KfW),
the state-owned public development bank of Germany, to manage a fund of
approximately DM 160 million (approximately $88.5 million at June 30, 1998).
Advisory fees increased as new fees from the German fund offset the decline in
fees from liquidating funds.
28
<PAGE> 31
Total operating expenses were $20.2 million for the six month periods ended
June 30, 1998 and 1997, respectively. Operating expenses include interest on
indebtedness, salaries and employee benefits, and other general and
administrative expenses.
Interest expense on indebtedness totaled $8.8 million and $12.3 million for
the six months ended June 30, 1998 and 1997, respectively. The decrease in
interest expense is the result of the Company repaying amounts outstanding under
its short-term credit facilities with the proceeds received from the
securitization. Average outstanding indebtedness for the six months ended June
30, 1998 and 1997 was $224.4 million and $306.9 million, respectively. The
weighted average interest rate for the Company's combined indebtedness remained
relatively constant at 7.4% at June 30, 1998 and 1997.
Salaries and employee benefits totaled $5.5 million and $4.2 million for
the six months ended June 30, 1998 and 1997, respectively. At June 30, 1998 and
1997, total employees were approximately 93 and 78, 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 continues to actively recruit and hire new professionals to
support anticipated portfolio growth.
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, legal
and accounting fees, directors' fees and various other expenses. General and
administrative expenses totaled $5.9 million and $3.7 million, respectively, for
the six months ended June 30, 1998 and 1997. The approximate $2.2 million
increase was partially due to certain post-Merger integration expenses incurred
in the first quarter of 1998, totaling $0.2 million. These post-Merger
integration expenses included primarily the costs of legal and accounting advice
as well as the use of certain outside consultants. The remaining $2.0 million
increase in general and administrative expenses results from continued growth of
the Company, combined with differences that result from the timing of general
and administrative expenses recognized in 1997. The first six months of 1997
incurred a relatively low level of expense when compared to an expected average
quarterly expense based upon total 1997 actual expenses. General and
administrative expenses for the year ended December 31, 1997 in total were $9.0
million, which would imply an average estimated 1997 quarterly expense of $2.2
million, or $4.4 million for two quarters.
During the first quarter of 1998, the Company began to expense a portion of
the formula and cut-off awards that were established in connection with the
Merger. Prior to the Merger, each of the Predecessor Companies had a stock
option plan (the "Old Plans"). In preparation for the Merger, the Compensation
Committees of the Predecessor Companies determined that the Old Plans should be
terminated upon the Merger, so that the new merged Company would be able to
develop a new incentive compensation plan for all officers and directors with a
single equity security. The existence of the Old Plans had resulted in certain
inequities in option grants among the various officers of the Predecessor
Companies simply because of the differences in the underlying equity securities.
To balance stock option awards among the employees, and to account for the
deviations caused by the existence of five plans supported by five different
publicly traded stocks, Advisers developed two special awards to be granted in
lieu of options under the Old Plans that would be foregone upon the cancellation
of the Old Plans.
Cut-Off Award. The first award established a cut-off dollar amount as of
the date of the announcement of the Merger (August 14, 1997) that would be
computed for all outstanding, but unvested options that would be canceled as of
the date of the Merger. 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 was
designed to be equal to the difference between the market prices of the shares
of stock underlying the canceled options under the Old Plans at August 14, 1997,
less the exercise prices of the options. The cut-off award was computed to be
$2.9 million in the aggregate and will be payable for each canceled option as
the canceled options would have vested. The cut-off award will only be payable
if the award recipient is employed by the Company on a future vesting date. The
cut-off award totaled $760,000 during the first half of 1998 with approximately
$50,000 remaining to be vested during 1998.
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<PAGE> 32
Formula Award. The formula award was designed to compensate officers from
the point when their unvested options would cease to appreciate in value
pursuant to the mechanics of the cut-off award (i.e., August 14, 1997) up until
the time in which they would be able to receive option awards in the Company
after the Merger became effective. In the aggregate, the formula award equaled
six percent of the difference between the combined aggregate market
capitalizations of the Predecessor Companies as of the close of the market on
December 30, 1997, and the combined aggregate market capitalizations of the
Predecessor Companies on August 14, 1997.
The formula award was designed as a long-term incentive compensation
program that would replace canceled stock options and would balance share
ownership among key officers for past and prospective service.
The terms of the formula award require that the award be contributed to the
Company's deferred compensation plan, and be used to purchase shares of the
Company in the open market. The formula award will vest over a three-year
period, on the anniversary date of the Merger, beginning on December 31, 1998.
In the aggregate, the market capitalizations of the Predecessor Companies
increased by approximately $319 million from August 14, 1997 to December 30,
1997, and the total formula award was computed to be approximately $19 million.
Assuming all officers who received a formula award remain with the Company over
the vesting period, the Company will expense the formula award during 1998, 1999
and 2000 in an annual amount of approximately $6.4 million. The Company recorded
approximately $3.2 million during the first half of 1998.
The total expense recorded as a result of the cut-off and formula awards
during the first half of 1998 was $3.9 million or $0.08 per share.
Net realized gains were $13.8 million and $4.6 million for the six months
ended June 30, 1998 and 1997, respectively. The net 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 $13.9
million and $5.4 million for the six months ended June 30, 1998 and 1997,
respectively. Realized losses during the six months ended June 30, 1998 and 1997
totaled $0.1 million and $0.8 million, respectively. Net realized gains during
the first half of 1998 were largely due to the sale of securities of five
portfolio companies, Labor Ready, Inc. ($5.0 million), Broadcast Holdings, Inc.
($1.1 million), Waterview ($3.0 million), Z Spanish Radio Network, Inc. ($2.7
million) and El Dorado Communications, Inc. ($0.8 million). Gains resulting from
investments in these five companies totaled $12.6 million.
The Company will harvest gains when market conditions are favorable or
when dictated by other parties to the transaction. Therefore, the realization
of gains is unpredictable on a quarterly basis and quarterly results may not be
indicative of annual results.
The Company recorded net unrealized losses of $1.3 million for the six
months ended June 30, 1998 as a result of valuation changes resulting from the
board of directors' valuation of the Company's assets, the effect of valuation
of interest rate swap agreements and the effect of reversals of appreciation
resulting from realized gains. At June 30, 1998, net unrealized depreciation in
the portfolio totaled $20,000, and was composed of unrealized appreciation of
$26.75 million resulting primarily from appreciated equity interests in
portfolio companies, and unrealized depreciation of $26.77 million resulting
primarily from under-performing investments in the portfolio.
Grade 5 mezzanine investments, or those investments the Company has
identified as troubled assets, totaled $7.2 million at value at June 30, 1998,
or 1.1% of the Company's total portfolio based on the quarterly valuation of the
Board of Directors. The value of these grade 5 loans has been reduced from an
aggregate cost of $26.3 million in order to reflect the Company's estimate of
the realizable value of these investments upon disposition. This reduction in
value has been recorded previously as unrealized losses over time in the
Company's earnings. The Company continues to follow its historical practices of
working with a troubled portfolio company in order to recover the maximum amount
of the Company's investment, but records unrealized depreciation for a
substantial amount of the potential exposure when such exposure is identified.
Of the mezzanine grade 5 investments, three portfolio companies represent
approximately 73% of the total. The Company continues to work on recovery of
grade 5 credits, and believes that it has valued the grade 5 investments to
reflect estimated realizable value.
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<PAGE> 33
Commercial real estate grade 5 loans totaled $6.9 million at value at June
30, 1998. These loans are fully secured by real estate, and as a result, the
Company does not expect to incur any significant loss from these loans.
For the total portfolio, loans greater than 120 days delinquent were $19.5
million at value at June 30, 1998. Included in this category are loans valued at
$15.8 million which are secured by real estate. Loans greater than 120 days
delinquent generally do not accrue interest.
At June 30, 1997 grade 5 mezzanine investments totaled $5.2 million at
value, and grade 5 real estate loans totaled $6.7 million at value. At June 30,
1997, total loans greater than 120 days delinquent were $16.7 million at value
of which $11.6 million were secured by real estate.
The Company incurred income tax expense of $1.1 million for six months
ended June 30, 1997, which resulted from the operations of Advisers, prior to
the Merger. It is the Company's current intention to distribute all of its
taxable income, and therefore no provision for income taxes has been made for
the six months ended June 30, 1998.
The weighted average shares outstanding used to compute basic earnings per
share for the six months ended June 30, 1998 were 51.6 million as compared to
48.5 million for the six months ended June 30, 1997. The increase in weighted
average shares is primarily due to the exercise of stock options and new shares
issued in conjunction with the exchange of shares pursuant to the Merger. Total
shares outstanding at June 30, 1998 were 51.4 million. The weighted average
shares and the total shares outstanding are reduced by the approximately 0.8
million shares held in the Company's deferred compensation plan resulting
primarily from the formula award.
In January 1998, the Company granted 3.4 million new stock options to
certain of the Company's officers. The shares under option have been included in
the calculation of weighted average shares used to compute diluted earnings per
share. All per share amounts included in this management's discussion and
analysis have been computed using the weighted average shares used to compute
diluted earnings per share.
Comparison of Three Months Ended June 30, 1998 and 1997
Net increase in net assets resulting from operations ("NIA") was $14.5
million, or $0.28 per share, and $18.3 million, or $0.37 per share, for the
three months ended June 30, 1998 and 1997, respectively. NIA results from total
interest and related portfolio income earned, less total expenses incurred, plus
net realized and unrealized gains or losses.
Interest income totaled $18.7 million and $21.1 million for the three
months ended June 30, 1998 and 1997, respectively. The comparison of interest
income on a quarter to quarter basis is effected by the asset securitization
that took place in the first quarter of 1998. The weighted average loan
portfolio outstanding during the second quarter of 1997 was $623.5 million.
Subsequent to the securitization, the weighted average loan portfolio
outstanding during the second quarter of 1998 was $552.8 million. The Company
originated loans totaling $141.3 million in the second quarter of 1998 as
compared to $121.0 million during the second quarter of 1997, and received
repayments on its loan portfolio totaling $27.4 million and $64.7 million for
the quarters ended June 30, 1998 and 1997, respectively.
Net premiums from loan dispositions were $0.7 million and $2.5 million for
the three months ended June 30, 1998 and 1997, respectively. Net premiums in the
second quarter of 1997 included prepayment premiums of approximately $1.4
million from three mezzanine portfolio investments. Net premiums in the second
quarter of 1998 were also lower than premiums for the second quarter of 1997
because of timing of sales of 7(a) guaranteed loans.
Investment advisory fees and other income were $1.8 million and $1.3
million for the three months ended June 30, 1998 and 1997, respectively.
Advisory fees increased as new fees from the German fund offset the decline in
fees from liquidating funds.
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<PAGE> 34
Total operating expenses were $10.0 million and $10.8 million for the three
months ended June 30, 1998 and 1997, respectively. Operating expenses include
interest on indebtedness, salaries and employee benefits, and other general and
administrative expenses.
Interest expense on indebtedness totaled $4.2 million and $6.6 million for
the three months ended June 30, 1998 and 1997, respectively. The decrease in
interest expense is again due to the effect of the securitization which reduced
the Company's outstanding borrowings. Average outstanding indebtedness for the
quarters ended June 30, 1998 and 1997 was $227.9 million and $328.9 million,
respectively.
Salaries and employee benefits totaled $2.7 million and $2.1 million for
the three months ended June 30, 1998 and 1997, respectively. The increase in
salaries and benefits reflects the increase in total employees, combined with
wage increases, and the experience level of employees hired.
General and administrative expenses totaled $3.1 million and $2.1 million,
respectively, for the three months ended June 30, 1998 and 1997. The approximate
$1.0 million increase results from continued growth of the Company, combined
with differences that result from the timing of expenses recognized in 1997.
The total expense recorded as a result of the cut-off and formula awards
during the second quarter of 1998 was $2.2 million or $0.04 per share.
Net realized gains were $7.4 million and $0.9 million for the three months
ended June 30, 1998 and 1997, respectively. The net 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 $7.5
million and $0.9 million for the quarters ended June 30, 1998 and 1997,
respectively. Realized losses totaled $0.1 million and $16,000 for the quarters
ended June 30, 1998 and 1997. Net realized gains during the second quarter of
1998 were largely due to the sale of securities of three portfolio companies,
Waterview ($3.0 million), Z Spanish Radio Network, Inc. ($2.7 million) and El
Dorado Communications, Inc. ($0.8 million). Because these gains were realized,
the Company reversed previously recorded unrealized appreciation of $6.1
million. Upon completion of the company's second quarter portfolio valuation,
the company recorded additional unrealized appreciation related to equity
securities of $9.5 million, and depreciation of $5.5 million. In total, the
company recorded net unrealized depreciation of $2.1 million for the quarter
ended June 30, 1998. Unrealized depreciation is a non-cash charge to income
similar to a loan loss provision.
The Company will harvest gains when market conditions are favorable or
when dictated by other parties to the transaction. Therefore, the realization
of gains is unpredictable on a quarterly basis and quarterly results may not be
indicative of annual results.
The weighted average common shares outstanding used to compute basic
earnings per share for the quarter ended June 30, 1998 were 51.3 million as
compared to 48.6 million for the quarter ended June 30, 1997. The increase in
weighted average shares is primarily due to the exercise of stock options and
new shares issued in conjunction with the exchange of shares pursuant to the
Merger. The weighted average shares outstanding to compute diluted earnings per
share of 51.8 million and 49.1 million for the quarters ended June 30, 1998 and
1997, respectively, include the potential dilutive effect of outstanding stock
options. "See Note 7 to the Consolidated Financial Statements."
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<PAGE> 35
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash and Cash Equivalents
At June 30, 1998, the Company had $40.7 million in cash and cash
equivalents. 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 Predecessor Companies had excess cash
resources while other of the Predecessor Companies were borrowers on credit
facilities. Subsequent to the Merger, the Company has used excess cash for new
investments and in its operations; however, the Company continues to maintain
excess cash in its SBIC 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
its former SSBIC subsidiary. The Company has restructured its SBIC and SSBIC
licensees so that the excess cash may be effectively used by converting its
SSBIC license to an SBIC license, thus allowing its former SSBIC subsidiary to
make SBIC eligible investments. In addition, in July 1998, the Company merged
its former SSBIC subsidiary and SBIC subsidiary to form a single SBIC
subsidiary.
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<PAGE> 36
Indebtedness
The Company had outstanding indebtedness at June 30, 1998 (unaudited) as
follows:
<TABLE>
<CAPTION>
AMOUNT ANNUAL
CLASS OUTSTANDING INTEREST RATE(1)
----- -------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Debentures and notes payable:
Unsecured long-term notes payable..... $180,000 7.21%
Master loan and security agreement.... 23,000 6.67%
OPIC Loan............................. 5,700 6.57%
SBA debentures........................ 51,300 8.31%
-------- -----
Total debentures and notes
payable........................ $260,000 7.38%
======== =====
Revolving line of credit................... $ 38,000 7.51%
======== =====
</TABLE>
- ---------------
(1) The annual interest rate includes the cost of commitment fees and other
facility fees.
Unsecured Long-term Notes Payable. The Company obtained $180 million in
financing through the issuance of unsecured long-term notes with private
institutional lenders, primarily insurance companies. The terms of the notes
include five or seven year maturities, priced at approximately 7.2%. The notes
require payment of interest semiannually, and all principal is due upon
maturity.
Master Loan and Security Agreement. The Company, in conjunction with a
private REIT managed by the Company, has a facility to borrow up to $250
million, of which $100 million is committed, using its commercial mortgage loans
as collateral. The agreement generally requires interest-only payments with all
principal due at maturity. The agreement bears interest at one-month London
Inter Bank Offered Rate ("LIBOR") plus 1.0%. The facility matures on August 21,
1998, and the Company is currently working with the lender to renew this
facility for an additional one year period.
SBA Debentures. The Company, through its SBIC subsidiaries, has debentures
totaling $51.3 million payable to the SBA, at interest rates ranging from 6.9%
to 9.6% with scheduled maturity dates as follows: 1998 -- $3.7 million;
1999 -- $0; 2000 -- $17.3 million; 2001 -- $9.4 million; 2002 -- $0; and $21.0
million thereafter. The debentures require semi-annual interest-only payments
with all principal due upon maturity. During 1997, Congress increased the
maximum leverage available to an SBIC to $101.0 million, and the Company intends
to continue to borrow under the SBIC program as the situation warrants.
Revolving Line of Credit. The Company has a $200 million unsecured
revolving line of credit. The facility bears interest at LIBOR plus 1.25% and
requires a commitment fee equal to 0.2% of the committed unused amount. The
facility also has a facility fee equal to 0.15% of the initial commitment. The
line of credit requires monthly payments of interest, and all principal is due
upon maturity. The facility matures in June 30, 1999.
Master Repurchase Agreement. The Company and a private REIT managed by the
Company are co-borrowers under a master repurchase agreement whereby the two
entities can borrow up to $250 million, of which $100 million is committed,
through repurchase agreements using 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% to 80% 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 one-month LIBOR plus 1.13% and requires an annual
commitment fee of 0.25% of the amount committed. The master repurchase agreement
matures on January 31, 1999. The Company had no borrowings on the facility at
June 30, 1998.
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<PAGE> 37
FUTURE DEBT OR EQUITY OFFERINGS
The Company plans to secure additional debt and equity capital for
continued investment in growing businesses. Because the Company is a regulated
investment company, it distributes substantially all of its income and requires
external capital for growth. Because the Company is a business development
company, it is limited in the amount of debt capital it may use to fund its
growth, since it is generally required to maintain a ratio of 200% of total
assets to total borrowings.
The Company's cash flow from operations was $17.8 million for the six
months ended June 30, 1998 and $58.9 million for the year ended December 31,
1997. The Company plans to maintain a strategy of financing its operations,
dividend requirements and future investments with cash from operations,
long-term debt, asset sales or 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 evaluates its interest rate
exposure on an ongoing basis and may hedge variable and short-term interest
rate exposure through interest rate swaps, treasury locks and other techniques
when appropriate. The Company believes that it has access to capital sufficient
to fund its ongoing investment and operating activities, and from which to pay
dividends.
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 result in 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 under "Investment Considerations" and also include other
factors such as changes in the economy, competitive and market conditions, and
future business decisions.
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 errors or inefficiencies in the Company's internal
computer systems. 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 in the process of developing a series of
tests to validate its readiness for the Year 2000. The Company is also assessing
the viability of contingent courses of action if necessary including the
purchase of new hardware and software applications. At the present time, the
Company does not believe that it will be adversely affected by this issue. In
addition, the Company has not made significant expenditures in anticipation of
the Year 2000 issue outside of its routine information technology budget. 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
credit review a Year 2000 compatibility assessment, and will monitor particular
portfolio companies as needed.
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. SFAS No. 130 did not
materially impact the Company's financial statements, and the Company does not
anticipate any material financial impact from the implementation of SFAS 131.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
35
<PAGE> 38
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. SFAS No. 133
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. The Company does not
anticipate that the adoption of SFAS No. 133 will have any material impact to
the financial statements.
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. The
Company recently has begun originating larger loans, and as a result, any
individual event of default may have a more significant impact on the Company or
its operations.
LOSS OF PASS-THROUGH TAX TREATMENT
The Company qualifies as a regulated investment company ("RIC") under
Subchapter M of the Code and, provided it meets certain requirements under the
Code, qualifies for pass-through tax treatment. The Company would cease to
qualify for pass-through tax treatment 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 1940 Act. 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.
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 generally expected that mezzanine loans will yield a current return
from the time they are made, but also will produce a realized gain, if any, from
an accompanying equity feature after approximately three to eight years. There
can be no assurance that either a current return or 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 ordinarily 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, securities generally cannot be sold to the public without registration
under the Securities Act, 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, real estate investment trusts
("REITs"), small business investment companies ("SBICs"), and small business
lending companies ("SBLCs"). Laws and
36
<PAGE> 39
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.
INTEREST RATE RISK
The Company's income is materially dependent upon the "spread" between the
rate at which it borrows funds and the rate at which it loans these funds. The
Company anticipates using a combination of long-term and short-term borrowings
to finance its lending activities and may engage in interest rate risk
management techniques. At June 30, 1998, the Company's net interest spread was
4.4% (440 basis points), which represents the weighted average yield of the
combined portfolio less the weighted average cost of funds. There can be no
assurance that the Company will maintain this net interest spread or that a
significant change in market interest rates will not have a material adverse
effect on the Company's profitability.
LIMITED INFORMATION
Consistent with its operation as a BDC, the Company's portfolio is expected
to consist primarily of securities issued by small and developing privately held
companies. There is generally little or no publicly available information about
such companies, and the Company must rely on the diligence of its officers and
directors to obtain the information necessary for the Company's decision to
invest in them.
FLUCTUATIONS IN QUARTERLY RESULTS
The Company could experience fluctuations in quarterly operating results
due to a number of factors including, among others, the completion of a
securitization transaction in a particular calendar quarter, the interest rates
on the securities issued in connection with its securitization transactions,
variations in the volume of loans originated by the Company, variations in and
the timing of the recognition of realized and unrealized gains, the degree to
which the Company encounters competition in its markets and general economic
conditions. As a result of these factors, results for any one quarter should not
be relied upon as being indicative of performance in future quarters.
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. Leverage magnifies the potential for gain and loss on
amounts invested and, therefore, increases the risks associated with an
investment in the Company's securities. 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 amounts 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 have 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. As of June 30, 1998, the
Company's debt as a percentage of total liabilities and shareholders' equity was
40.2%. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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<PAGE> 40
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is party to certain lawsuits. 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 consolidated
financial position of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the first six months of 1998 and the years ended December 31, 1997
and 1996, ACC issued a total of 110,688, 550,971 and 913,206 shares,
respectively, pursuant to a dividend reinvestment plan. This plan is not
registered and relies on an exemption from registration in the Securities Act of
1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 14, 1998, the Company held its Annual Meeting of Shareholders in
Washington, DC. Shareholders voted on two matters; the substance of these
matters and the results of the voting of each such matter are described below.
There were no broker non-votes for these two matters.
1. Election of Directors: Shareholders elected twelve directors of the
Company, four of which will serve for one year, four of which will
serve for two years, and four of which will serve for three years,
or until their successors are elected and qualified. Votes were
cast as follows:
<TABLE>
<CAPTION>
FOR WITHHELD
---------- ---------
<S> <C> <C>
William L. Walton........................................... 46,148,134 775,398
George C. Williams.......................................... 46,138,028 1,105,160
Brooks H. Browne............................................ 46,148,134 775,398
John D. Firestone........................................... 46,147,593 255,692
Anthony T. Garcia........................................... 46,148,973 254,312
Lawrence I. Hebert.......................................... 46,145,910 257,368
John I. Leahy............................................... 46,139,417 262,884
Robert E. Long.............................................. 46,139,175 783,982
Warren K. Montouri.......................................... 46,138,080 264,221
Guy T. Stewart II .......................................... 46,139,417 262,884
T. Murray Toomey............................................ 46,137,027 1,106,162
Laura W. Van Roijen......................................... 46,148,973 254,312
</TABLE>
2. Ratification of the selection of Arthur Andersen LLP to serve as
independent public accountants for the year ended December 31,
1998:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--------------------- ------- -------
<S> <C> <C>
46,038,140 162,153 202,974
</TABLE>
38
<PAGE> 41
ITEM 5. OTHER INFORMATION
In accordance with recent amendments to the shareholder proposal rules set
forth in Rules 14a-4 and 14a-8 under the Securities and Exchange Act of 1934, as
amended, written notice of shareholder proposals submitted outside the processes
of Rule 14a-8 for consideration at the 1999 Annual Meeting of Shareholders must
be received by the Company on or before February 17, 1999, in order to be
considered timely for purposes of Rule 14a-4. The persons designated in the
Company's proxy statement shall be granted discretionary authority with respect
to any shareholder proposal of which the Company does not receive timely notice.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
3(i)(1) Articles of Amendment and Restatement of the Articles of
Incorporation.
3(ii)(2) Articles of Merger.
3(iii)(3) Bylaws.
4.1(10) Specimen certificate of the Company's Common Stock, par
value $0.0001, the rights of holders of which are defined in
Exhibits 3(i), 3(ii) and 3(iii).
4.2(4) Form of debenture between certain subsidiaries of ACC and
the U.S. Small Business Administration.
10.1* Second Amended and Restated Credit Agreement dated as of
June 4, 1998 (the "1998 Credit Agreement") between the
Company, as Borrower, 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 and
NationsBank of Texas, N.A., as Co-Agent.
10.2* Note Agreement dated as of April 30, 1998.
10.3(5) 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.
10.4(3) 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.
10.5(3) Master Loan & Security Agreement dated August 21, 1997 among
Allied Commercial, BMI and Morgan Stanley Mortgage Capital,
Inc.
10.6(9) Sale and Servicing Agreement dated, as of January 1, 1998,
among Allied Capital CMT, Inc., Allied Capital Commercial
Mortgage Trust 1998-1 and Allied Capital Corporation and
LaSalle National Bank and ABN AMRO Bank N.V.
10.7(9) Indenture dated as of January 1, 1998, between the Allied
Capital Commercial Mortgage Trust 1998-1 and LaSalle
National Bank.
10.8(9) Amended and Restated Trust Agreement, dated January 1, 1998
between Allied Capital CMT, LaSalle National Bank Inc. and
Wilmington Trust Company.
10.9(9) Guaranty dated as of January 1, 1998 by Allied Capital
Corporation.
10.10(3) Employee Stock Ownership Plan, as amended on December 31,
1997.
10.10a* First Amendment to the Allied Capital Corporation Employee
Stock Ownership Plan dated April 30, 1998.
10.11(3) Deferred Compensation Plan, as amended January 1, 1998.
10.11a* First Amendment to the Allied Capital Corporation Deferred
Compensation Plan dated April 30, 1998.
10.12(8) Stock Option Plan.
</TABLE>
39
<PAGE> 42
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.13(6) Investment Management Agreement among 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 Advisers to the Company.
10.14(6) 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 Advisers to the Company on December 31, 1997.
Consent to assign MH Agreement to the Company.
10.15(7) Lease Agreement between 1620 K Street Associates Limited
Partnership and 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 Advisers to the Company.
10.16(3) Form of Regional Associate Agreement.
10.17(3) Dividend Reinvestment Plan.
11 Statement regarding computation of per share earnings is
incorporated by reference to Note 7 to the Company's Notes
to the Consolidated Financial Statements filed herein as
Item 1.
27* Financial Data Schedule
</TABLE>
- ---------------
* 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 the exhibit of the same name filed with the
Company's report on Form 10-K for the year ended December 31, 1997 (File No.
0-22832).
(4) 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).
(5) 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 incorporated by
reference to Exhibit 10.3 of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997 (File No. 0-22832).
(6) Agreement incorporated by reference to the exhibit of the same name to
Advisers' Report on Form 10-K for the year ended December 31, 1992.
Assignment to the Company is incorporated by reference to the exhibit of the
same name filed with Advisers' Report on Form 10-K for the year ended
December 31, 1995. (File No. 0-18826). Waiver and consent to assign to the
Company for each agreement is incorporated by reference to the exhibit of
the same name filed with the Company's Annual Report on Form 10-K for the
year ended December 31, 1997 (File No. 0-22832).
(7) 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). Incorporated by reference to the exhibit of the same
name filed with the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 (File No. 0-22832).
(8) 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).
(9) Incorporated by reference to exhibit of the same description to the
Company's registration statement on Form N-2 filed on the Company's behalf
with the Commission on May 6, 1998.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended June 30,
1998.
40
<PAGE> 43
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
ALLIED CAPITAL CORPORATION
--------------------------
(Registrant)
Dated: August 12, 1998 /s/ Penni F. Roll
--------------- -----------------------------
Principal and Chief Financial
Officer
41
<PAGE> 1
==============================================================================
EXHIBIT 10.1
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
Dated as of June 4, 1998
by and among
ALLIED CAPITAL CORPORATION
as Borrower,
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,
FIRST UNION NATIONAL BANK,
as Syndication Agent,
and
NATIONSBANK, N.A.,
as Co-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. ............................................15
ARTICLE 2 CREDIT FACILITY ................................................................16
SECTION 2.1. LOANS.....................................................................16
SECTION 2.2. RATES AND PAYMENT OF INTEREST ON LOANS. ..................................17
SECTION 2.3. NUMBER OF INTEREST PERIODS. ..............................................18
SECTION 2.4. REPAYMENT OF LOANS. ......................................................18
SECTION 2.5. PREPAYMENTS...............................................................18
SECTION 2.6. CONTINUATION. ............................................................18
SECTION 2.7. CONVERSION. ..............................................................18
SECTION 2.8. NOTE. ....................................................................19
SECTION 2.9. VOLUNTARY REDUCTIONS OF THE COMMITMENT. ..................................19
ARTICLE 3 PAYMENTS, FEES AND OTHER GENERAL PROVISIONS ....................................20
SECTION 3.1. PAYMENTS. ................................................................20
SECTION 3.2. PRO RATA TREATMENT. ......................................................20
SECTION 3.3. SHARING OF PAYMENTS, ETC. ................................................21
SECTION 3.4. SEVERAL OBLIGATIONS.......................................................21
SECTION 3.5. MINIMUM AMOUNTS...........................................................21
SECTION 3.6. FEES. ....................................................................22
SECTION 3.7. COMPUTATIONS. ............................................................22
SECTION 3.8. USURY.....................................................................22
SECTION 3.9. AGREEMENT REGARDING INTEREST AND CHARGES. ................................22
SECTION 3.10. STATEMENTS OF ACCOUNT. ..................................................23
SECTION 3.11. DEFAULTING LENDERS.......................................................23
SECTION 3.12. TAXES. ..................................................................24
ARTICLE 4 YIELD PROTECTION, ETC...........................................................25
SECTION 4.1. ADDITIONAL COSTS; CAPITAL ADEQUACY. ......................................25
SECTION 4.2. SUSPENSION OF LIBOR LOANS.................................................26
SECTION 4.3. ILLEGALITY. ..............................................................27
SECTION 4.4. COMPENSATION. ............................................................27
SECTION 4.5. TREATMENT OF AFFECTED LOANS...............................................27
SECTION 4.6. CHANGE OF LENDING OFFICE. ................................................28
SECTION 4.7. ASSUMPTIONS CONCERNING FUNDING OF LIBOR LOANS.............................28
ARTICLE 5 CONDITIONS PRECEDENT............................................................28
SECTION 5.1. INITIAL CONDITIONS PRECEDENT. ............................................28
SECTION 5.2. CONDITIONS PRECEDENT TO ALL LOANS.........................................30
ARTICLE 6 REPRESENTATIONS AND WARRANTIES..................................................31
SECTION 6.1. REPRESENTATIONS AND WARRANTIES. ..........................................31
SECTION 6.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC...........................36
ARTICLE 7 AFFIRMATIVE COVENANTS ..........................................................36
SECTION 7.1. PRESERVATION OF EXISTENCE AND SIMILAR MATTERS.............................36
SECTION 7.2. COMPLIANCE WITH APPLICABLE LAW AND MATERIAL CONTRACTS.....................37
SECTION 7.3. MAINTENANCE OF PROPERTY...................................................37
SECTION 7.4. CONDUCT OF BUSINESS.......................................................37
SECTION 7.5. INSURANCE.................................................................37
SECTION 7.6. PAYMENT OF TAXES AND CLAIMS...............................................37
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
SECTION 7.7. VISITS AND INSPECTIONS. ..................................................37
SECTION 7.8. USE OF PROCEEDS...........................................................38
SECTION 7.9. ENVIRONMENTAL MATTERS.....................................................38
SECTION 7.10. BOOKS AND RECORDS. ......................................................38
SECTION 7.11. STATUS OF RIC AND BDC. ..................................................38
SECTION 7.12. ERISA EXEMPTIONS.........................................................39
SECTION 7.13. FURTHER ASSURANCES.......................................................39
SECTION 7.14. YEAR 2000 COMPLIANCE.....................................................39
ARTICLE 8 INFORMATION ....................................................................39
SECTION 8.1. QUARTERLY FINANCIAL STATEMENTS. ..........................................39
SECTION 8.2. YEAR-END STATEMENTS.......................................................39
SECTION 8.3. COMPLIANCE CERTIFICATE; ASSET REPORTS.....................................40
SECTION 8.4. OTHER INFORMATION.........................................................41
ARTICLE 9 NEGATIVE COVENANTS..............................................................43
SECTION 9.1. FINANCIAL COVENANTS.......................................................43
SECTION 9.2. SUBSIDIARY SENIOR NOTE GUARANTY...........................................43
SECTION 9.3. INTEREST RATE AGREEMENTS. ................................................43
SECTION 9.4. LIENS; AGREEMENTS REGARDING LIENS; OTHER MATTERS. ........................44
SECTION 9.5. DISTRIBUTIONS TO SHAREHOLDERS.............................................45
SECTION 9.6. MERGER, CONSOLIDATION AND SALES OF ASSETS.................................45
SECTION 9.7. FISCAL YEAR...............................................................45
SECTION 9.8. MODIFICATIONS TO MATERIAL CONTRACTS.......................................46
SECTION 9.9. TRANSACTIONS WITH AFFILIATES. ............................................46
ARTICLE 10 DEFAULT ......................................................................46
SECTION 10.1. EVENTS OF DEFAULT. ......................................................46
SECTION 10.2. REMEDIES UPON EVENT OF DEFAULT...........................................49
SECTION 10.3. REMEDIES UPON CERTAIN DEFAULTS...........................................50
SECTION 10.4. ALLOCATION OF PROCEEDS...................................................50
SECTION 10.5. PERFORMANCE BY AGENT.....................................................50
SECTION 10.6. RIGHTS CUMULATIVE. ......................................................51
ARTICLE 11 THE AGENTS ....................................................................51
SECTION 11.1. AUTHORIZATION AND ACTION.................................................51
SECTION 11.2. AGENT'S RELIANCE, ETC. ..................................................52
SECTION 11.3. DEFAULTS.................................................................52
SECTION 11.4. AGENT AS LENDER. ........................................................52
SECTION 11.5. APPROVALS OF LENDERS.....................................................53
SECTION 11.6. LENDER CREDIT DECISION, ETC. ............................................53
SECTION 11.7. INDEMNIFICATION OF AGENT.................................................54
SECTION 11.8. SUCCESSOR AGENT. ........................................................55
SECTION 11.9. SYNDICATION AGENT AND CO-AGENT...........................................55
ARTICLE 12 MISCELLANEOUS..................................................................55
SECTION 12.1. NOTICES. ................................................................55
SECTION 12.2. EXPENSES.................................................................57
SECTION 12.3. SETOFF...................................................................58
SECTION 12.4. JURISDICTION; CONSENT TO SERVICE OF PROCESS; WAIVER OF JURY TRIAL. ......58
SECTION 12.5. SUCCESSORS AND ASSIGNS...................................................59
SECTION 12.6. REMOVAL OF LENDERS.......................................................61
SECTION 12.7. AMENDMENTS...............................................................62
SECTION 12.8. NONLIABILITY OF AGENT AND LENDERS. ......................................62
SECTION 12.9. CONFIDENTIALITY. ........................................................63
SECTION 12.10. INDEMNIFICATION.........................................................63
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
SECTION 12.11. TERMINATION; SURVIVAL...................................................65
SECTION 12.12. SEVERABILITY OF PROVISIONS. ............................................65
SECTION 12.13. GOVERNING LAW...........................................................65
SECTION 12.14. COUNTERPARTS. ..........................................................65
SECTION 12.15. LIMITATION OF LIABILITY.................................................65
SECTION 12.16. ENTIRE AGREEMENT. ......................................................66
SECTION 12.17. CONSTRUCTION. ..........................................................66
</TABLE>
SCHEDULE 6.1(b) Ownership Structure
SCHEDULE 6.1(g) Indebtedness and Liens
SCHEDULE 6.1(h) Material Contracts
EXHIBIT A Form of Assignment and Acceptance Agreement
EXHIBIT B Form of Notice of Borrowing
EXHIBIT C Form Of Notice of Continuation
EXHIBIT D Form of Notice of Conversion
EXHIBIT E Form of Note
EXHIBIT F Form of Opinion of Counsel
EXHIBIT G Form of Compliance Certificate
-iii-
<PAGE> 5
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of June 4,
1998, by and among ALLIED CAPITAL CORPORATION, a corporation organized under
the laws of the State of Maryland (the "Company"), 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"), NATIONSBANK, N.A., a national banking association, as
Co-Agent (the "Co-Agent") and RIGGS BANK N.A., a national banking association,
as Managing Agent (the "Managing Agent").
RECITALS
Pursuant to the Amended and Restated Credit Agreement dated as of
April 20, 1998, among the Company, Allied Capital REIT, Inc. ("REIT"), Allied
Capital SBLC Corporation ("SBLC"), the Lenders, the Disbursing Agent, the
Syndication Agent, the Managing Agent and the Co-Agent (the "Existing Credit
Agreement"), the Lenders agreed to make available to the Company and REIT a
$200,000,000 revolving credit facility (which includes a $40,000,000
sub-facility for SBLC). The parties hereto wish to amend and restate the
Existing Credit Agreement to, among other things, remove REIT and SBLC as
borrowers, and amend certain covenants contained in the Existing Credit
Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
hereto agree that, effective as of the date hereof, the Existing Credit
Agreement shall be and hereby is amended to read in its entirety 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 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, 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 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).
-1-
<PAGE> 6
"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, the
Co-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.
"ASSET COVERAGE RATIO" shall mean on a consolidated basis for the
Company and its Consolidated Subsidiaries the ratio which the value of total
assets, less all liabilities and indebtedness not represented by senior
securities (all as determined pursuant to the Investment Company Act and any
orders of the Securities and Exchange Commission issued to the Company
thereunder), bears to the aggregate amount of senior securities representing
indebtedness of the Company and its Consolidated Subsidiaries.
"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.
-2-
<PAGE> 7
"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.
"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
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.
"COMMERCIAL MORTGAGE LOAN" means a loan secured by a Lien on improved
real estate used for commercial purposes.
"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
-3-
<PAGE> 8
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.
"CONSOLIDATED DEBT" shall mean as of the date of any determination
thereof, the aggregate unpaid amount of all Debt of the Company and its
Consolidated Subsidiaries determined on a consolidated basis in accordance with
GAAP.
"CONSOLIDATED SHAREHOLDERS' EQUITY," as of the date of determination
thereof, shall mean the total shareholders' equity of the Company and its
Consolidated Subsidiaries as the same would appear on a consolidated balance
sheet of the Company and its Consolidated Subsidiaries prepared as of such date
in accordance with GAAP, including, in any case, common stock of the Company
(valued at cost) held in the Allied Capital Corporation Deferred Compensation
Trust and Permitted Preferred Stock of the Company and its Consolidated
Subsidiaries but excluding any stock, common or preferred, not both issued and
outstanding.
"CONSOLIDATED SUBSIDIARIES" shall mean any Subsidiary which is
required to be consolidated on financial statements of the Company prepared in
accordance with GAAP.
"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 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. The
amount of any Contingent Obligation outstanding under clause (c) shall be
determined in accordance with the definition of Interest Rate Agreement. The
amount of any Contingent Obligation outstanding under clause (d) shall be the
net amount determined in good faith by the Managing Agent using any convention
or method used by the Managing Agent in quantifying its own exposure under such
agreements or arrangements.
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"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.
"DEBT" means, with respect to any Person, without duplication,
(a) its liabilities for borrowed money and under repurchase
agreements;
(b) its liabilities for the deferred purchase price of property
acquired by such Person (excluding accounts payable arising in the ordinary
course of business but including, without limitation, all liabilities created
or arising under any conditional sale or other title retention agreement with
respect to any such property);
(c) its Capitalized Lease Obligations;
(d) all liabilities for borrowed money secured by any Lien with
respect to any property owned by such Person (whether or not it has assumed or
otherwise become liable for such liabilities); and
(e) any Contingent Obligation of such Person with respect to
liabilities of a type described in any of clauses (a) through (d) hereof.
Debt of any Person shall include all obligations of such Person of the
character described in clauses (a) through (e) to the extent such Person
remains legally liable in respect thereof notwithstanding that any such
obligation is deemed to be extinguished under GAAP.
"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 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> 10
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.
"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 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
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<PAGE> 11
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 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.
"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, or
(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, (c) Capitalized Lease Obligations of such Person;
(d) all reimbursement obligations of such
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<PAGE> 12
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 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).
"INTERCREDITOR AGREEMENT" means an intercreditor agreement pursuant to
which the Lenders and the Senior Note Holders have agreed to share payments
made by any Consolidated Subsidiary under a Subsidiary Bank Guaranty or a
Subsidiary Senior Note Guaranty on an equal and ratable basis.
"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. For the purposes of this
Agreement, the amount of any obligation under any Interest Rate Agreement shall
be the amount determined in respect thereof as of the end of the most recently
ended fiscal quarter of such Person, based on the assumption that such Interest
Rate Agreement had terminated at the end of such fiscal quarter, and in making
such determination, if such Interest Rate Agreement provides for the netting of
amounts payable by and to such Person thereunder or if such Interest Rate
Agreement provides for the simultaneous payment of amounts by and to such
Person, then in each such case, the amount of such obligation shall be the net
amount so determined.
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<PAGE> 13
"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, or the acquisition of a Sale Leaseback Asset from and the lease thereof to,
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, and the rules and regulations promulgated thereunder.
"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
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<PAGE> 14
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, and each other
document or instrument now or hereafter executed and delivered by the Company
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.
"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.
"MOODY'S" means Moody's Investors Services, Inc.
"MORTGAGE REPURCHASE FACILITY" means financing agreements providing
for (i) the pledge and assignment of Commercial Mortgage Loans owned by the
Company and its Consolidated Subsidiaries as security for loans to the Company
and its Consolidated Subsidiaries, or (ii) the sale of such Commercial Mortgage
Loans to a commercial lender pursuant to an agreement under which such loans
shall be repurchased by the Company or a Consolidated Subsidiary at a future
date.
"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
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<PAGE> 15
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.
"NON-RECOURSE INDEBTEDNESS" means Indebtedness secured by Real Estate
Assets if recourse for the payment of such Indebtedness is limited to such Real
Estate Assets.
"NOTE" has the meaning given such term in Section 2.8.
"NOTICE OF BORROWING" means a notice in the form of Exhibit B to be
delivered to the Disbursing Agent pursuant to Section 2.1(b) evidencing the
Company's request for a borrowing of Loans.
"NOTICE OF CONTINUATION" means a notice in the form of Exhibit C to be
delivered to the Disbursing Agent pursuant to Section 2.6 evidencing the
Company's request for the Continuation of a LIBOR Loan.
"NOTICE OF CONVERSION" means a notice in the form of Exhibit D to be
delivered to the Disbursing Agent pursuant to Section 2.7 evidencing the
Company'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
Company 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.
"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
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<PAGE> 16
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; and (d) covenants,
restrictions, rights of way, easements and other matters of public record, and
other matters to which like properties are commonly subject, that singly or in
the aggregate do not materially and adversely affect the value or marketability
of, or materially interfere with the use or enjoyment of any asset of such
Person.
"PERMITTED PREFERRED STOCK" means (i) preferred stock that is issued
from time to time by a Subsidiary to the United States Small Business
Administration having an aggregate stated value not exceeding $7,000,000 at any
one time outstanding, or (ii) preferred stock that is issued from time to time
by a Subsidiary for the purpose of qualifying such Subsidiary as a real estate
investment trust under Sections 856 through 860 of the Internal Revenue Code
and having an aggregate stated value not exceeding $500,000 at any one time
outstanding, provided that in any event Permitted Preferred Stock shall not
include any Voting Stock.
"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.
"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.
"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.
"PRIORITY DEBT" means the sum of (i) all Secured Indebtedness of the
Company and its Consolidated Subsidiaries, and (ii) all unsecured Debt of
Consolidated Subsidiaries (excluding in each case, Debt owing to the Company or
another Consolidated Subsidiary).
"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 June 30, 1998.
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<PAGE> 17
"RATING AGENCY" means S&P, Moody's or any other nationally recognized
securities rating agency selected by the Company and acceptable to the
Requisite Lenders.
"REAL ESTATE" means fee ownership or co-ownership of, or leaseholds
of, land or improvements thereon.
"REAL ESTATE ASSETS" means (i) Real Estate securing Investments made
in the ordinary course of business, (ii) Commercial Mortgage Loans, and (iii)
Related Collateral.
"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.
"RELATED COLLATERAL" means, in respect of any Commercial Mortgage
Loan: (i) any and all documents, instruments, agreements, records or other
collateral of any kind evidencing, securing, guaranteeing or otherwise relating
to such Commercial Mortgage Loan, including without limitation all promissory
notes or other negotiable instruments, mortgages, deeds of trust or similar
instruments, assignments of leases or rents or other collateral assignments,
financing statements, guaranties, indemnities, servicing agreements, servicing
records, files, surveys, certificates, affidavits, title abstracts, title
insurance policies and commitments, correspondence, opinions, appraisals,
closing documents, computer programs, computer storage media, data bases,
accounting records and other books and records relating thereto, (ii) any and
all mortgage guaranties and insurance (issued by governmental agencies or
otherwise) and mortgage insurance certificates or other documents evidencing
such mortgage guaranties or insurance relating to any such Commercial Mortgage
Loan and all claims and payments thereunder, (iii) any and all other insurance
policies and insurance proceeds relating to such Commercial Mortgage Loan or
the related real property, (iv) all "general intangibles" as defined in the
Uniform Commercial Code relating to or constituting any and all of the
foregoing, and (v) any and all replacements, substitutions or distributions on
or proceeds of any and all of the foregoing.
"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.
"SBA ACT" means the Small Business Investment Act of 1958, as amended.
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<PAGE> 18
"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.
"SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time, together with all rules and regulations issued thereunder.
"SENIOR NOTE AGREEMENT" means the Note Agreement, dated as of April
30, 1998, and executed as of the Agreement Date, among the Company and the
purchasers parties thereto, pursuant to which the Company will issue its
$140,000,000 7.055% Senior Notes, Series A, due May 30, 2003, its $30,000,000
7.168% Senior Notes, Series B, due May 30, 2005, and its $10,000,000 9.530%
Senior Notes, Series C, due May 30, 2005.
"SENIOR NOTE HOLDER" means any registered holder of a note or notes
issued under the Senior Note Agreement.
"SENIOR NOTES" means the notes issued by the Company pursuant to the
Senior Note Agreement.
"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 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.
"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
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Investment of the Company or a Subsidiary shall not be a Subsidiary of the
Company or such Subsidiary.
"SUBSIDIARY BANK GUARANTY" means any agreement pursuant to which a
Consolidated Subsidiary has guaranteed the Debt of the Company under the Notes.
"SUBSIDIARY SENIOR NOTE GUARANTY" means any agreement pursuant to
which a Consolidated Subsidiary has guaranteed the Debt of the Company under
the Senior Notes.
"SYNDICATION AGENT" means First Union National Bank, in its capacity
as contractual representative of the Lenders under this Agreement, and any of
its successors.
"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.
"VOTING STOCK" shall mean securities of any class or classes, the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or Persons performing similar
functions).
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
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exhibits, schedules and other attachments thereto, (b) shall include all
documents, instruments or 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 Company 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 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 Company 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 Company.
(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
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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
Company 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 Company 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. The Company promises to pay to the Disbursing Agent for
the account of each Lender, interest on the unpaid principal amount of each
such Loan 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, the Company
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 and on any
other amount payable by the Company hereunder or under the Note 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, the
Company 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 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 Company for all purposes, absent manifest error.
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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.
The Company shall repay the entire outstanding principal amount of,
and all accrued but unpaid interest on, the Loans on the Termination Date.
SECTION 2.5. PREPAYMENTS.
(a) Optional. Subject to Section 4.4, the Company may prepay any
Loan made to it at any time without premium or penalty.
(b) Mandatory. If at any time the aggregate principal amount of
all outstanding Loans exceeds the aggregate amount of the Commitments in effect
at such time, then the Company shall immediately pay to the Disbursing Agent
for the accounts of the Lenders the amount of such excess. If the Company is
required to pay any outstanding LIBOR Loans by reason of this Section prior to
the end of the applicable Interest Period therefor, the Company 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 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 Company 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
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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 Company 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 Company
substantially in the form of Exhibit E (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.
(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, 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 obligations of the Company 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.
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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 Company 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 Company 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 Company 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 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
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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.
The Company 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 the Company 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 the Company
hereunder (or other Obligations of the Company owing to such Lender or an Agent
hereunder) which is not paid when due (regardless of whether such balances are
then due to the Company), 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 the Company under this Agreement, or shall obtain
payment on any other Obligation owing by the Company 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 the Company 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 Company.
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.
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(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 April 20, 1998, 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) Amendment Fee. The Company agrees to pay to the Disbursing
Agent for the account of the Lenders on the Agreement Date an amendment fee in
the amount of 0.025% of the Aggregate Commitments.
(c) Administrative and Other Fees. The Company 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.
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 the Company or received by any Lender,
then such excess sum shall be credited as a payment of principal, unless the
Company shall notify the respective Lender in writing that the Company elects
to have such excess sum returned to it forthwith. It is the express intent of
the parties hereto that the Company 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 Company 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 Company 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
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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 the Company 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 Company 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 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 Company 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. The Company shall not 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 two 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
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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 Company 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 Company 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
Company. 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.
SECTION 3.12. TAXES.
(a) Taxes Generally. All payments by the Company 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 the Company hereunder is required in
respect of any Taxes pursuant to any Applicable Law, then the Company will:
(i) pay directly to the relevant Governmental Authority
the full amount required to be so withheld or deducted;
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(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 the Company 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, the Company 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 Company.
(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 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. The Company 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 the Company or its obligation to make any LIBOR Loans to the
Company 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
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"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
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 the Company 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
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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 the
Company 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 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.
The Company 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 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 the Company 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
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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 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 Company 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:
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(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 the Company, payable to each Lender
and complying with the terms of Section 2.8(a);
(iii) Copies (certified by the Secretary or Assistant
Secretary of the Company) of the Articles of Incorporation and Bylaws
of the Company, or, if applicable, a certificate of such officer that
there have been no changes thereto from those delivered to the Lenders
pursuant to the Existing Credit Agreement;
(iv) An opinion of Sutherland, Asbill & Brennan LLP,
counsel to the Company, addressed to the Managing Agent and the
Lenders, in substantially the form of Exhibit F;
(v) A certificate of incumbency signed by the Secretary
or Assistant Secretary of the Company with respect to each of the
officers of the Company authorized to execute and deliver the Loan
Documents and the officers of the Company then authorized to deliver
Notices of Borrowing, Notices of Continuation and Notices of
Conversion;
(vi) Copies (certified by the Secretary or Assistant
Secretary of the Company) of all corporate action taken by the Company
to authorize the execution, delivery and performance of the Loan
Documents;
(vii) Unless provided to the Lenders in connection with the
Existing Credit Agreement, a copy of each of the documents,
instruments and agreements evidencing any of the Indebtedness
described on Schedule 6.1(g) and a copy of each Material Contract,
certified as true, correct and complete by the chief financial officer
of the Company;
(viii) The Fees then due under Section 3.6;
(ix) A pro-forma Compliance Certificate calculated as of
the Effective Date; and
(x) Such other documents, agreements and instruments as
the Managing Agent on behalf of the Lenders may reasonably request.
(b) 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;
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(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 the Company 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 the Company
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.
(c) The Company shall have closed the Senior Note Agreement.
(d) The loans outstanding under the Existing Credit Agreement
shall be paid in full simultaneously with the closing of the Senior Note
Agreement, with the proceeds of such closing, or with Loans made under this
Agreement, or with any combination thereof.
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 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
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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, the Company represents and warrants to the Agents
and each Lender as follows:
(a) Organization; Power; Qualification. Each of the Company 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 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.
(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, SSBIC, REIT, and Allied Capital CMT Inc.
are the only Material Subsidiaries. Except as set forth in such Schedule, and
except for preferred stock of REIT issued to 125 shareholders:
(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. The Company has the right and power, and has taken all necessary
action to authorize it, to borrow hereunder. The Company 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 have been duly executed and delivered
by the duly authorized officers of the Company, and each is a legal, valid and
binding obligation of the Company, enforceable against it in accordance with
its respective terms.
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(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 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 the Company
or any Subsidiary; (ii) conflict with, result in a breach of or constitute a
default under the articles of incorporation or the bylaws of the Company or the
organizational documents of any Subsidiary, or any indenture, agreement or
other instrument to which the Company 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 the Company or any Subsidiary.
(e) Compliance with Law; Governmental Approvals. The Company 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 of the Company and its
Subsidiaries has good title to all of its assets. There are no Liens against
any of such assets except for Liens permitted by Section 9.2.
(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
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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, 1997, 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 Company and its Consolidated Subsidiaries for the fiscal
quarter ending March 31, 1998, and the related consolidated statements of
income, retained earnings and cash flow 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
the Company 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, 1997, there has been no material
adverse change in the consolidated financial 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. 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
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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 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. The
Company 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.
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(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 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,
the Company 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) Year 2000 Compliance. The Company has (i) initiated a review
and assessment of all areas within its and each of its Subsidiaries' business
and operations (including those affected by suppliers and vendors) that could
be adversely affected by the "Year 2000 Problem" (that is, the risk that
computer applications used by the Company or any of its Subsidiaries (or
suppliers and vendors) may be unable to recognize and perform properly
date-sensitive functions
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involving certain dates prior to and any date after December 31, 1999), (ii)
developed a plan and timeline for addressing the Year 2000 Problem on a timely
basis, and (iii) to date, implemented that plan in accordance with that
timetable. The Company believes that all computer applications (including
those of its suppliers and vendors) that are material to its or any of its
Subsidiaries' business and operations will on a timely basis be able to perform
properly date-sensitive functions for all dates before and after January 1,
2000 (that is, be "Year 2000 compliant"), except to the extent that a failure
to do so could not reasonably be expected to have Material Adverse Effect.
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 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 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 Company 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, the Company
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.
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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 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 the Company 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 the Company and each
Material Subsidiary; (b) inspect
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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.
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 Investments of the Company and its Subsidiaries. The Company 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 the Company 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 the Company or any Subsidiary alleging violations of any
Environmental Law or requiring the Company 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 the Company
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, the Company shall provide the Managing Agent with a
copy of such notice within 10 days after the receipt thereof by the Company or
any of the Subsidiaries. The Company 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.
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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.
SECTION 7.13. FURTHER ASSURANCES.
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. YEAR 2000 COMPLIANCE.
The Company will promptly notify the Bank in the event the Company
discovers or determines that any computer application (including those of its
suppliers and vendors) that is material to its or any of its Subsidiaries'
business and operations will not be Year 2000 compliant, except to the extent
that such failure could not reasonably be expected to have a Material Adverse
Effect.
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:
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
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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; ASSET REPORTS.
(a) At the time the financial statements are furnished pursuant to
Sections 8.1 and 8.2, a certificate in the form of Exhibit G (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, (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 the Company 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 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 45 days after the end of each of the first three fiscal
quarters of each fiscal year, and within 90 days after the end of the last
fiscal quarter of each fiscal year, the following reports with respect to
Investments of the Company and its Consolidated Subsidiaries, as of the end of
such fiscal quarter, in substantially the forms delivered to the Lenders with
the Compliance Certificate, dated May 15, 1998, for the period ended on March
31, 1998, and otherwise in form and scope acceptable to the Requisite Lenders:
(1) a Consolidated Statement of Investments (with detail
as to cost versus value by company for mezzanine and portfolio
Investments and by rate brackets for Commercial Mortgage Loans and
small business loans) accompanied by a delinquency status report by
asset type;
(2) a report of Unrealized and Realized Gains (Losses)
(with detail as to unrealized gains and losses by company for
mezzanine and portfolio Investments); and
(3) a Delinquency Report: Loans Over 120 Days.
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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 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
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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 to the Lenders, a copy
of the articles of incorporation, bylaws, partnership agreement or other
similar organizational documents of the Company, 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;
(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.
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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 Company shall
not, directly or indirectly:
SECTION 9.1. FINANCIAL COVENANTS.
Permit:
(a) Ratio of Consolidated Debt to Consolidated Shareholders'
Equity. The ratio of Consolidated Debt to Consolidated Shareholders' Equity to
exceed 1.50 to 1.00 at the end of any fiscal quarter.
(b) Minimum Tangible Net Worth. Consolidated Shareholders' Equity
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 April 30, 1998 (excluding the Net Proceeds of any Equity Issuance by a
Subsidiary to a Subsidiary or to the Company).
(c) Ratio of Adjusted EBIT to Interest Expense. The ratio of the
Adjusted EBIT to Interest Expense of the Company and its Subsidiaries,
determined on a consolidated basis as of the last day of each fiscal quarter
for the period of four successive fiscal quarters ended on such day, to be less
than 1.80 to 1.00 at the end of such fiscal quarter.
(d) Priority Debt. The aggregate principal amount of Priority
Debt to exceed 25% of Consolidated Shareholders' Equity; provided that in the
case of any determination of Priority Debt made prior to April 30, 2001,
outstanding Indebtedness secured by Real Estate Assets in an aggregate
principal amount of up to $200,000,000 shall be excluded from Priority Debt.
(e) Asset Coverage Ratio. The Asset Coverage Ratio to be less
than 2 to 1.
SECTION 9.2. SUBSIDIARY SENIOR NOTE GUARANTY.
Permit any Consolidated Subsidiary to enter into any Subsidiary Senior
Note Guaranty, unless the Company shall first furnish to the Agent (a) an
unconditional Subsidiary Bank Guaranty, (b) an Intercreditor Agreement, and (c)
an opinion of counsel to the effect that such Subsidiary Bank Guaranty has been
duly authorized, executed and delivered by such Consolidated Subsidiary and
constitutes the legal, valid and binding obligation of such Consolidated
Subsidiary, enforceable against such Consolidated Subsidiary in accordance with
the terms thereof, and covering such other matters as the Requisite Lenders may
reasonably request.
SECTION 9.3. INTEREST RATE AGREEMENTS.
Enter into, or permit any Consolidated Subsidiary to enter into, any
Interest Rate Agreement except in the ordinary course of business pursuant to
bona fide hedging transactions and not for speculation.
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SECTION 9.4. 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 on Real Estate Assets securing Non-Recourse
Indebtedness, provided that such Non-Recourse Indebtedness shall be
permitted within the limitations of Section 9.1; and
(5) Liens securing Indebtedness under Mortgage Repurchase
Facilities or Interest Rate Agreements; provided that (i) the Lien of
any such Mortgage Repurchase Facility shall extend only to the
Commercial Mortgage Loans which are financed or refinanced under such
Mortgage Repurchase Facility and the Related Collateral, (ii) the
aggregate advances under such Mortgage Repurchase Facility shall not
exceed 80% of the aggregate unpaid principal amount of the Commercial
Mortgage Loans securing such Mortgage Repurchase Facility, (iii) the
Lien securing any Interest Rate Swap shall extend only to Commercial
Mortgage Loans and Related Collateral, and (iv) all such Indebtedness
shall be permitted within the limitations of Section 9.1.
(b) 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.
(c) Create, incur, assume or permit to exist, directly or
indirectly, or permit any Consolidated Subsidiary, directly or indirectly, to
create, incur, assume or permit to exist (upon the happening of a contingency
or otherwise) any Lien on or with respect to any property which secures Debt
outstanding under the Senior Notes or the Senior Note Agreement, unless the
Company makes, or causes to be made, effective provision whereby the Notes will
be equally and ratably secured with any and all other obligations thereby
secured; provided that such security is granted pursuant to an agreement
reasonably satisfactory to the Requisite Lenders.
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SECTION 9.5. 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), make (a) any dividend or other distribution on account of any
of its capital stock; (b) any acquisition for value of any capital stock of the
Company; 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 of
the Company.
SECTION 9.6. 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 9.7. FISCAL YEAR.
Change its fiscal year from that in effect as of the Agreement Date.
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SECTION 9.8. 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 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 9.9. 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
transactions involving consideration in aggregate amount for all such
transactions not in excess of $5,000,000 per fiscal year, and 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. The Company 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. The Company 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 the Company 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 the
Company 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) The Company 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, or
8.4(i) or in Article 9 or (ii) the Company 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 the Company obtains knowledge of such failure or (y) the date upon which
the Company 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 the Company 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 the Company 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) The Company 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 the Company 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 shall have occurred and be continuing
with respect to any Indebtedness (other than the Loans) of the Company
or any Subsidiary having an aggregate outstanding principal amount of
$5,000,000 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. The Company, 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.
(g) Involuntary Bankruptcy Proceeding. A case or other proceeding
shall be commenced against the Company, any Material Subsidiary or any Other
Relevant Subsidiary, in any court of competent jurisdiction seeking: (i)
relief under the Bankruptcy Code of 1978, as
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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. The Company 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 the Company or any Subsidiary by any court or other tribunal
which exceeds, individually or together with all other such judgments or orders
entered against the Company 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 the Company 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 the Company 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.
(l) Loan Documents. An Event of Default (as defined therein)
shall occur under any of the other Loan Documents.
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(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
the Company, 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 Company,
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 Company without presentment, demand, protest, or
other notice of any kind, all of which are expressly waived by the
Company 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 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
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other notice of any kind, all of which are expressly waived by the
Company 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 Company 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 Company or whomever else may be legally entitled thereto.
SECTION 10.5. PERFORMANCE BY AGENT.
If the Company 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 the Company after the
expiration of any cure or grace periods set forth herein. In such event, the
Company shall, at the request of such Agent, promptly pay any amount reasonably
expended by such Agent in such performance or attempted performance to
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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 Company 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 the
Company or any other Affiliate of the Company, 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 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.
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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 Company), 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 Company or other Persons or inspect the property,
books or records of the Company 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 the Company 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.
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 the Company, any Subsidiary or
any other Affiliate thereof as if it were any other
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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 the
Company 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 the Company 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
Company, 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 Company,
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 Company, the Subsidiaries or any other Affiliate
thereof, and inquiries of such Persons, its independent due diligence of the
business and affairs of the Company, the Subsidiaries and other Persons, its
review of the Loan Documents, the legal opinions required to be delivered to it
hereunder, the 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 Company,
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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 Company and without limiting the obligation of the Company 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 Company. 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 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
the Company 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.
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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 AND CO-AGENT.
The Syndication Agent and the Co-Agent in such capacities do 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 titles of "Syndication
Agent" and "Co-Agent" imply no fiduciary responsibility on the part of the
Syndication Agent or the Co-Agent, in their capacities as such, to the Agents,
the Company or any Lender and the use of such titles does not impose on the
Syndication Agent or the Co-Agent any duties or obligations greater than those
of any other Lender or entitle the Syndication Agent or the Co-Agent to any
rights other than those to which any other Lender is entitled.
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:
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If to the Company:
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
If to the Syndication Agent:
First Union Capital Markets Group
One First Union Center
Charlotte, NC 28288-0735
Attention: Mark Timperman
Telecopier: (704) 383-7611
Telephone: (704) 374-9432
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If to the Co-Agent:
NationsBank, N.A.
901 Main Street, 66th Floor
Dallas, Texas 75202
Attention: Shelly K. Harper
Telecopier: (214) 508-0604
Telephone: (214) 508-0567
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 Company (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 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
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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 the
Company, at any time or from time to time, without notice to the Company 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 the Company against and on
account of any of the Obligations or the Company, 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) The Company 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 the Company or its properties in the courts of any
jurisdiction.
(b) The Company 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.
(c) The Company 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.
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(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 the Company may not 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
the Company.
(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 Company and the Agents shall continue to deal
solely and directly with such Lender in connection with such Lender's rights
and 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 Company 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
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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.
(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
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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 the Company 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 the Company or any Subsidiary or Affiliate of the Company.
(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 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
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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 the Company'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 the
Company 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 the Company). 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; or (vii)
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.
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 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 the Company shall entitle the Company to other or further notice or
demand in similar or other circumstances.
SECTION 12.8. NONLIABILITY OF AGENT AND LENDERS.
The relationship between the Company 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 the Company 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, the
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Company or any Subsidiary. Neither the Agents nor any Lender undertakes any
responsibility to the Company to review or inform the Company of any matter in
connection with any phase of the Company'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 Company 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) The Company 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 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 the Company 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 Company; (vi) the fact that the Agents and the Lenders
are creditors of the Company and have or are alleged to have information
regarding the financial condition, strategic plans or business operations of
the Company and the Subsidiaries; (vii) the fact that the Agents and the
Lenders are material creditors of the Company and are alleged to influence
directly or indirectly the business decisions or affairs of the Company 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 Company shall not be obligated to
indemnify any Indemnified Party for any acts or
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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 the Company 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 the Company or its Subsidiaries (or its respective properties) (or the
Agents and/or the Lenders as successors to the Company) to be in compliance
with such Environmental Laws.
(b) The Company'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 the Company or any Subsidiary, any shareholder of the Company or
any Subsidiary (whether such shareholder(s) are prosecuting such Indemnity
Proceeding in their individual capacity or derivatively on behalf of the
Company), any account debtor of the Company 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 the Company 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 Company at
the request of such Indemnified Party notwithstanding any claim or assertion by
the Company 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 Company if it is actually and finally
determined by a court of competent jurisdiction that such Indemnified Party is
not so entitled to indemnification hereunder.
(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 Company.
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 Company
hereunder to indemnify and hold harmless each such Indemnified Party, provided,
however, that (i) if the Company is required to indemnify an Indemnified Party
pursuant hereto and (ii) the Company has provided evidence reasonably
satisfactory to such Indemnified Party that the Company 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 the Company (which consent shall not be
unreasonably withheld or delayed).
(e) If and to the extent that the obligations of the Company
hereunder are unenforceable for any reason, the Company hereby agrees to make
the maximum contribution to
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the payment and satisfaction of such obligations which is permissible under
Applicable Law. The Company'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 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 the Company 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 the Company in connection with,
arising out of, or in any way related to, this Agreement or any of the other
Loan
-65-
<PAGE> 70
Documents, or any of the transactions contemplated by this Agreement or any of
the other Loan Documents. The Company 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, the Company 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 Company and each Lender.
[Signatures on Following Pages]
-66-
<PAGE> 71
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.
COMPANY:
ALLIED CAPITAL CORPORATION
By: /s/ Kelly A. Anderson
---------------------------------------
Name:
-------------------------------------
Title: Principal & Treasurer
------------------------------------
CONSENT OF REIT AND SBLC
The undersigned hereby consent to the amendment and restatement of the Existing
Credit Agreement on the terms set forth above and acknowledge and agree that
they are no longer entitled to borrow from the Lenders under the Existing
Credit Agreement as amended and restated.
ALLIED CAPITAL REIT, INC.
By: /s/ Kelly A. Anderson
---------------------------------------
Name:
-------------------------------------
Title: Principal & Treasurer
------------------------------------
ALLIED CAPITAL SBLC CORPORATION
By: /s/ Kelly A. Anderson
---------------------------------------
Name:
-------------------------------------
Title: Principal & Treasurer
------------------------------------
<PAGE> 72
[SIGNATURE PAGE TO CREDIT AGREEMENT DATED AS OF
JUNE 4, 1998, WITH ALLIED CAPITAL CORPORATION]
BANKBOSTON, N.A.,
AS DISBURSING AGENT AND AS A LENDER
By: /s/ Deirdre M. Holland
---------------------------------------
Name:
-------------------------------------
Title: Vice President
------------------------------------
INITIAL COMMITMENT AMOUNT:
$50,000,000
LENDING OFFICE (ALL TYPES OF LOANS):
------------------------------------------
------------------------------------------
------------------------------------------
Attn:
----------------
Telecopier:
---------------
Telephone:
--------------
[Signatures Continued on Next Page]
<PAGE> 73
[SIGNATURE PAGE TO CREDIT AGREEMENT DATED AS OF
JUNE 4, 1998, WITH ALLIED CAPITAL CORPORATION]
RIGGS BANK N.A.,
AS MANAGING AGENT AND AS A LENDER
By: /s/ David H. Olson
---------------------------------------
Name:
-------------------------------------
Title: Vice President
------------------------------------
INITIAL COMMITMENT AMOUNT:
$50,000,000
LENDING OFFICE (ALL TYPES OF LOANS):
------------------------------------------
------------------------------------------
------------------------------------------
Attn:
----------------
Telecopier:
---------------
Telephone:
--------------
[Signatures Continued on Next Page]
<PAGE> 74
[SIGNATURE PAGE TO CREDIT AGREEMENT DATED AS OF
JUNE 4, 1998, WITH ALLIED CAPITAL CORPORATION]
FIRST UNION NATIONAL BANK,
AS SYNDICATION AGENT AND AS A LENDER
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
INITIAL COMMITMENT AMOUNT:
$50,000,000
LENDING OFFICE (ALL TYPES OF LOANS):
------------------------------------------
------------------------------------------
------------------------------------------
Attn:
----------------
Telecopier:
---------------
Telephone:
--------------
[Signatures Continued on Next Page]
<PAGE> 75
[SIGNATURE PAGE TO CREDIT AGREEMENT DATED AS OF
JUNE 4, 1998, WITH ALLIED CAPITAL CORPORATION]
NATIONSBANK, N.A.,
AS CO-AGENT AND AS A LENDER
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
INITIAL COMMITMENT AMOUNT:
$50,000,000
LENDING OFFICE (ALL TYPES OF LOANS):
------------------------------------------
------------------------------------------
------------------------------------------
Attn:
----------------
Telecopier:
---------------
Telephone:
--------------
<PAGE> 76
EXHIBIT A
FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT
THIS ASSIGNMENT AND ACCEPTANCE AGREEMENT dated as of ____________, 19___ (the
"Agreement"), by and among _________________________ (the "Assignor"),
_______________________, (the "Assignee"), ALLIED CAPITAL CORPORATION (the
"Company") and BANKBOSTON, N.A., FIRST UNION NATIONAL BANK, RIGGS BANK N.A.,
and NATIONSBANK, N.A., as Agents (the "Agents").
WHEREAS, the Assignor is a Lender under that certain Second Amended
and Restated Credit Agreement dated as of June 4, 1998 (as amended, restated,
supplemented or otherwise modified from time to time, the "Credit Agreement"),
by and among the Company, the financial institutions party thereto and their
assignees under Section 12.5(d) thereof (the "Lenders"), BankBoston, N.A., as
Disbursing Agent, Riggs Bank N.A., as Managing Agent, and First Union National
Bank, as Syndication Agent;
WHEREAS, the Assignor desires to assign to the Assignee all or a
portion of the Assignor's Commitment under the Credit Agreement, all on the
terms and conditions set forth herein;
WHEREAS, the Company and the Agents consent to such assignment on the
terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which hereby are acknowledged by the parties hereto, the parties
hereto hereby agree as follows:
Section l. Assignment.
(a) Subject to the terms and conditions of this Agreement and in
consideration of the payment to be made by the Assignee to the Assignor
pursuant to Section 2 of this Agreement, effective as of __________________
(the "Assignment Date"), the Assignor hereby irrevocably sells, transfers and
assigns to the Assignee, without recourse, a $______________ interest (such
interest being the "Assigned Commitment") in and to the Assignor's Commitment
and all of the other rights and obligations of the Assignor under the Credit
Agreement, such Assignor's Notes and the other Loan Documents (representing
_______% in respect of the aggregate amount of all Lenders' Commitments),
including without limitation, a principal amount of outstanding Loans equal to
$____________, all voting rights of the Assignor associated with the Assigned
Commitment, all rights to receive interest on such amount of Loans and all
commitment and other Fees with respect to the Assigned Commitment and other
rights of the Assignor under the Credit Agreement and the other Loan Documents
with respect to the Assigned Commitment, all as if the Assignee were an
original Lender under and signatory to the Credit Agreement having a Commitment
equal to such amount of the Assigned Commitment. The Assignee, subject to the
terms and conditions hereof, hereby assumes all obligations of the Assignor
with respect to the Assigned Commitment as if the Assignee were an original
Lender under and signatory to the Credit Agreement having a Commitment equal to
the Assigned Commitment, which obligations shall include, but shall not be
limited to, the obligation of the Assignor to make Loans to the
A-1
<PAGE> 77
Company with respect to the Assigned Commitment and the obligation to indemnify
the Agent as provided therein (the foregoing enumerated obligations, together
with all other similar obligations more particularly set forth in the Credit
Agreement and the other Loan Documents, shall be referred to hereinafter,
collectively, as the "Assigned Obligations"). The Assignor shall have no
further duties or obligations with respect to, and shall have no further
interest in, the Assigned Obligations or the Assigned Commitment from and after
the Assignment Date.
(b) The assignment by the Assignor to the Assignee hereunder is
without recourse to the Assignor. The Assignee makes and confirms to the
Agents, the Assignor, and the other Lenders all of the representations,
warranties and covenants of a Lender under Article 11 of the Credit Agreement.
Not in limitation of the foregoing, the Assignee acknowledges and agrees that,
except as set forth in Section 4 below, the Assignor is making no
representations or warranties with respect to, and the Assignee hereby releases
and discharges the Assignor for any responsibility or liability for: (i) the
present or future solvency or financial condition of the Company or any of its
Subsidiaries, (ii) any representations, warranties, statements or information
made or furnished by the Company or any of its Subsidiaries in connection with
the Credit Agreement or otherwise, (iii) the validity, efficacy, sufficiency,
or enforceability of the Credit Agreement, any Loan Document or any other
document or instrument executed in connection therewith, or the collectibility
of the Assigned Obligations, (iv) the perfection, priority or validity of any
Lien with respect to any collateral at any time securing the Obligations or the
Assigned Obligations under the Notes or the Credit Agreement and (v) the
performance or failure to perform by the Company or any of its Subsidiaries of
any obligation under the Credit Agreement or any other Loan Document. Further,
the Assignee acknowledges that it has, independently and without reliance upon
the Agents, or on any affiliate or subsidiary thereof, or any other Lender and
based on the financial statements supplied by the Company and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to become a Lender under the Credit Agreement. The
Assignee also acknowledges that it will, independently and without reliance
upon the Agents or any other Lender and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under the Credit Agreement or any Note
or pursuant to any other obligation. Except as expressly provided in the
Credit Agreement, the Agents shall have no duty or responsibility whatsoever,
either initially or on a continuing basis, to provide the Assignee with any
credit or other information with respect to the Company or any of its
Subsidiaries or to notify the Assignee of any Default or Event of Default. The
Assignee has not relied on the Agents as to any legal or factual matter in
connection therewith or in connection with the transactions contemplated
thereunder.
Section 2. Payment by Assignee. In consideration of the
assignment made pursuant to Section 1 of this Agreement, the Assignee agrees to
pay to the Assignor on the Assignment Date, an amount equal to $____________
representing the aggregate principal amount outstanding of the Loans owing to
the Assignor under the Credit Agreement and the other Loan Documents being
assigned hereby.
Section 3. Payments by Assignor. The Assignor agrees to pay to
the Syndication Agent on the Assignment Date the administration fee, if any,
payable under the applicable provisions of the Credit Agreement.
A-2
<PAGE> 78
Section 4. Representations and Warranties of Assignor. The
Assignor hereby represents and warrants to the Assignee that (a) as of the
Assignment Date (i) the Assignor is a Lender under the Credit Agreement having
a Commitment under the Credit Agreement (without reduction by any assignments
thereof which have not yet become effective), equal to $_________ and that the
Assignor is not in default of its obligations under the Credit Agreement; and
(ii) the outstanding balance of Loans owing to the Assignor (without reduction
by any assignments thereof which have not yet become effective) is
$____________; and (b) it is the legal and beneficial owner of the Assigned
Commitment which is free and clear of any adverse claim created by the
Assignor.
Section 5. Representations, Warranties and Agreements of
Assignee. The Assignee (a) represents and warrants that it is (i) legally
authorized to enter into this Agreement and (ii) an "accredited investor" (as
such term is used in Regulation D of the Securities Act) and an Eligible
Assignee; (b) confirms that it has received a copy of the Credit Agreement,
together with copies of the most recent financial statements delivered pursuant
thereto and such other documents and information (including without limitation
the Loan Documents) as it has deemed appropriate to make its own credit
analysis and decision to enter into this Agreement; (c) appoints and authorizes
each Agent to take such action as contractual representative on its behalf and
to exercise such powers under the Loan Documents as are delegated to such Agent
by the terms thereof together with such powers as are reasonably incidental
thereto; and (d) agrees that it will become a party to and shall be bound by
the Credit Agreement, the other Loan Documents to which the other Lenders are a
party on the Assignment Date and will perform in accordance therewith all of
the obligations which are required to be performed by it as a Lender.
Section 6. Recording and Acknowledgment by the Syndication
Agent. Following the execution of this Agreement, the Assignor will deliver to
the Syndication Agent (a) a duly executed copy of this Agreement for
acknowledgment and recording by such Agent and (b) the Assignor's Note. The
Company agrees to exchange such Note for a new Note as provided in Section
12.5(d) of the Credit Agreement. Upon such acknowledgment and recording, from
and after the Assignment Date, the Syndication Agent shall make all payments in
respect of the interest assigned hereby (including payments of principal,
interest, Fees and other amounts) to the Assignee. The Assignor and Assignee
shall make all appropriate adjustments in payments under the Credit Agreement
for periods prior to the Assignment Date directly between themselves.
[Include this Section only if Company's consent is required under
Section 12.5(d)]
Section 7. Agreements of the Company. The Company hereby agrees
that the Assignee shall be a Lender under the Credit Agreement having a
Commitment equal to the Assigned Commitment. The Company agrees that the
Assignee shall have all of the rights and remedies of a Lender under the Credit
Agreement and the other Loan Documents as if the Assignee were an original
Lender under and signatory to the Credit Agreement, including, but not limited
to, the right of a Lender to receive payments of principal and interest with
respect to the Assigned Obligations, and to the Loans made by the Lenders after
the date hereof and to receive the commitment and other Fees payable to the
Lenders as provided in the Credit Agreement. Further, the Assignee shall be
entitled to the indemnification provisions from the Company in favor of the
Lenders as provided in the Credit Agreement and the other Loan Documents. The
Company further agrees, upon the execution and delivery of this Agreement, to
A-3
<PAGE> 79
execute in favor of the Assignee a Note in an initial amount equal to the
Assigned Commitment. Further, the Company agrees that, upon the execution and
delivery of this Agreement, the Company shall owe the Assigned Obligations to
the Assignee as if the Assignee were the Lender originally making such Loans
and entering into such other obligations. Upon receipt by the Assignor of the
amounts due the Assignor under Section 2, the Assignor agrees to surrender to
the Company the Assignor's Note.
Section 8. Addresses. The Assignee specifies as its address for
notices and its Lending Office for all Loans, the offices set forth below:
<TABLE>
<S> <C>
Notice Address:
------------------------------------------
------------------------------------------
------------------------------------------
Telephone No.:
----------------------------
Telecopy No.:
-----------------------------
Domestic Lending Office:
------------------------------------------
------------------------------------------
------------------------------------------
Telephone No.:
----------------------------
Telecopy No.:
-----------------------------
LIBOR Lending Office:
------------------------------------------
------------------------------------------
------------------------------------------
Telephone No.:
----------------------------
Telecopy No.:
-----------------------------
</TABLE>
Section 9. Payment Instructions. All payments to be made to the
Assignee under this Agreement by the Assignor, and all payments to be made to
the Assignee under the Credit Agreement, shall be made as provided in the
Credit Agreement in accordance with the following instructions:
Section 10. Effectiveness of Assignment. This Agreement, and the
assignment and assumption contemplated herein, shall not be effective until (a)
this Agreement is executed and delivered by each of the Assignor, the Assignee,
the Agents, and if required under Section 12.5(d) of the Credit Agreement, the
Company, and (b) the payment to the Assignor of the amounts owing by the
Assignee pursuant to Section 2 hereof and (c) the payment to the Syndication
Agent of the amounts owing by the Assignor pursuant to Section 3 hereof. Upon
recording and acknowledgment of this Agreement by the Agents, from and after
the Assignment Date, (i) the Assignee shall be a party to the Credit Agreement
and, to the extent provided in this Agreement, have the rights and obligations
of a Lender thereunder and (ii) the Assignor shall, to the extent provided in
this Agreement, relinquish its rights and be released from its obligations
under the Credit Agreement; provided, however, that if the Assignor does not
assign its entire interest under the Loan Documents, it shall remain a Lender
entitled to all of the benefits and subject to all of the obligations
thereunder with respect to its Commitment.
A-4
<PAGE> 80
Section 11. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE
TO CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH STATE, AND WITHOUT
REFERENCE TO CONFLICT OF LAWS PRINCIPLES OR PROVISIONS.
Section 12. Counterparts. This Agreement may be executed in any
number of counterparts each of which, when taken together, shall constitute one
and the same agreement.
Section 13. Headings. Section headings have been inserted herein
for convenience only and shall not be construed to be a part hereof.
Section 14. Amendments; Waivers. This Agreement may not be
amended, changed, waived or modified except by a writing executed by the
Assignee and the Assignor; provided, however, any amendment, waiver or consent
which shall affect the rights or duties of the [Company or the] Agents under
this Agreement shall not be effective unless signed by the [Company or the]
Agents[, as applicable].
Section 15. Entire Agreement. This Agreement embodies the entire
agreement between the Assignor and the Assignee with respect to the subject
matter hereof and supersedes all other prior arrangements and understandings
relating to the subject matter hereof.
Section 16. Binding Effect. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
Section 17. Definitions. Terms not otherwise defined herein are
used herein with the respective meanings given them in the Credit Agreement.
[Signatures on Following Pages]
A-5
<PAGE> 81
IN WITNESS WHEREOF, the parties hereto have duly executed this
Assignment and Acceptance Agreement as of the date and year first written
above.
ASSIGNOR:
[NAME OF ASSIGNOR]
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
ASSIGNEE:
[NAME OF ASSIGNEE]
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
[Include signature of the Company
only if required under Section 12.5(d)
of the Credit Agreement]
Agreed and consented to as of the
date first written above.
COMPANY:
ALLIED CAPITAL CORPORATION
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
[Signatures Continued on Following Page]
A-6
<PAGE> 82
Accepted as of the date first written above.
AGENTS:
BankBoston, N.A., as Disbursing Agent
By:
------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------
First Union National Bank, as Syndication Agent
By:
------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------
NationsBank, N.A., as Co-Agent
By:
------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------
Riggs Bank N.A., as Managing Agent
By:
------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------
A-7
<PAGE> 83
EXHIBIT B
FORM OF NOTICE OF BORROWING
__________________, _____
BankBoston, N.A.
100 Federal Street
Boston, MA 02110
Mail Code: 01-10-08
Attention: Deirdre M. Holland, Vice President
Ladies and Gentlemen:
Reference is made to that certain Second Amended and Restated Credit
Agreement dated as of June 4, 1998 (as amended, restated, supplemented or
otherwise modified from time to time, the "Credit Agreement"), by and among
Allied Capital Corporation (the "Company"), the financial institutions
initially party thereto and their assignees under Section 12.5(d) thereof (the
"Lenders"), BankBoston, N.A., as Disbursing Agent, Riggs Bank N.A., as Managing
Agent, NationsBank, N.A., as Co-Agent, and First Union National Bank, as
Syndication Agent (the "Agents"). Capitalized terms used herein, and not
otherwise defined herein, have their respective meanings given them in the
Credit Agreement.
1. Pursuant to Section 2.1(b) of the Credit Agreement, the
Company hereby requests that the Lenders make Loans to the
Company in an aggregate amount equal to $__________________.
2. The Company requests that such Loans be made available
on ________________, ____.
3. The Company hereby requests that the requested Loans all be of
the following Type:
[CHECK ONE BOX ONLY]
[ ] Base Rate Loans
[ ] LIBOR Loans, each with an initial Interest Period
for a duration of:
[CHECK ONE BOX ONLY] [ ] one month
[ ] two months
[ ] three months
4. The proceeds of this borrowing of Loans will be used for the
following purpose:
5. The Company requests that the proceeds of this borrowing of
Loans be made available by:________________________
B-1
<PAGE> 84
The Company hereby certifies to the Disbursing Agent and the Lenders
that as of the date hereof and as of the date of the making of the requested
Loans and after giving effect thereto, (a) no Default or Event of Default has
or shall have occurred and be continuing, and (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, are and shall be true and correct,
except to the extent that such representations and warranties expressly relate
solely to an earlier date (in which case such representations and warranties
were true and accurate on and as of such earlier date) and except for changes
in factual circumstances specifically and expressly permitted under the Credit
Agreement. In addition, the Company certifies to the Disbursing Agent and the
Lenders that all conditions to the making of the requested Loans contained in
Article 5 of the Credit Agreement will have been satisfied at the time such
Loans are made.
If notice of the requested borrowing of Loans was previously given by
telephone, this notice is to be considered the written confirmation of such
telephone notice required by Section 2.1(b) of the Credit Agreement.
ALLIED CAPITAL CORPORATION
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
B-2
<PAGE> 85
EXHIBIT C
FORM OF NOTICE OF CONTINUATION
_________________, _____
BankBoston, N.A.
100 Federal Street
Boston, MA 02110
Mail Code: 01-10-08
Attention: Deirdre M. Holland, Vice President
Ladies and Gentlemen:
Reference is made to that certain Second Amended and Restated Credit
Agreement dated as of June 4, 1998 (as amended, restated, supplemented or
otherwise modified from time to time, the "Credit Agreement"), by and among
Allied Capital Corporation (the "Company"), the financial institutions
initially party thereto and their assignees under Section 12.5(d) thereof (the
"Lenders"), BankBoston, N.A., as Disbursing Agent, Riggs Bank N.A., as Managing
Agent, NationsBank, N.A., as Co-Agent, and First Union National Bank, as
Syndication Agent (the "Agents"). Capitalized terms used herein, and not
otherwise defined herein, have their respective meanings given them in the
Credit Agreement.
Pursuant to Section 2.6 of the Credit Agreement, the Company hereby
requests a Continuation of a borrowing of LIBOR Loans under the Credit
Agreement, and in that connection sets forth below the information relating to
such Continuation as required by such Section of the Credit Agreement:
1. The proposed date of such Continuation is _________________,
____.
2. The aggregate principal amount of LIBOR Loans subject to the
requested Continuation is $_______________ and was originally
borrowed by the Company on ________________, ____.
3. The portion of such principal amount subject to such
Continuation is $__________________.
4. The current Interest Period for each of the LIBOR Loans
subject to such Continuation ends on _________________, ____.
C-1
<PAGE> 86
5. The duration of the new Interest Period for each of such LIBOR
Loans or portion thereof subject to such Continuation is:
[CHECK ONE BOX ONLY] [ ] one month
[ ] two months
[ ] three months
The Company hereby certifies to the Agents and the Lenders that as of
the date hereof, as of the proposed date of the requested Continuation, and
after giving effect to such Continuation, no Default or Event of Default has or
shall have occurred and be continuing.
If notice of the requested Continuation was given previously by
telephone, this notice is to be considered the written confirmation of such
telephone notice required by Section 2.6 of the Credit Agreement.
ALLIED CAPITAL CORPORATION
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
C-2
<PAGE> 87
EXHIBIT D
FORM OF NOTICE OF CONVERSION
_________________, _____
BankBoston, N.A.
100 Federal Street
Boston, MA 02110
Mail Code: 01-10-08
Attention: Deirdre M. Holland, Vice President
Ladies and Gentlemen:
Reference is made to that certain Second Amended and Restated Credit
Agreement dated as of June 4, 1998 (as amended, restated, supplemented or
otherwise modified from time to time, the "Credit Agreement"), by and among
Allied Capital Corporation (the "Company"), the financial institutions
initially party thereto and their assignees under Section 12.5(d) thereof (the
"Lenders"), BankBoston, N.A., as Disbursing Agent, Riggs Bank N.A., as Managing
Agent, NationsBank, N.A., as Co-Agent, and First Union National Bank, as
Syndication Agent (the "Agents"). Capitalized terms used herein, and not
otherwise defined herein, have their respective meanings given them in the
Credit Agreement.
Pursuant to Section 2.7 of the Credit Agreement, the Company hereby
requests a Conversion of a borrowing of Loans of one Type into Loans of another
Type under the Credit Agreement, and in that connection sets forth below the
information relating to such Conversion as required by such Section of the
Credit Agreement:
l. The proposed date of such Conversion is _________________,
_____.
2. The Loans to be Converted pursuant hereto are currently:
[CHECK ONE BOX ONLY] [ ] Base Rate Loans
[ ] LIBOR Loans
3. The aggregate principal amount of Loans subject to the
requested Conversion is $____________ and was originally
borrowed by the Company on ____________, _____.
4. The portion of such principal amount subject to such
Conversion is $_________________.
D-1
<PAGE> 88
5. The amount of such Loans to be so Converted is to be converted
into Loans of the following Type:
[CHECK ONE BOX ONLY]
[ ] Base Rate Loans
[ ] LIBOR Loans, each with an initial Interest Period
for a duration of:
[CHECK ONE BOX ONLY] [ ] one month
[ ] two months
[ ] three months
The Company hereby certifies to the Agents and the Lenders that as of
the date hereof and as of the date of the requested Conversion and after giving
effect thereto, (a) no Default or Event of Default has or shall have occurred
and be continuing, and (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, are and shall be true and correct, except to the extent that
such representations and warranties expressly relate solely to an earlier date
(in which case such representations and warranties were true and accurate on
and as of such earlier date) and except for changes in factual circumstances
specifically and expressly permitted under the Credit Agreement.
If notice of the requested Conversion was given previously by
telephone, this notice is to be considered the written confirmation of such
telephone notice required by Section 2.7 of the Credit Agreement.
ALLIED CAPITAL CORPORATION
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
D-2
<PAGE> 89
EXHIBIT E
FORM OF NOTE
<TABLE>
<S> <C>
$_____________________ _________________, 19___
</TABLE>
FOR VALUE RECEIVED, the undersigned, ALLIED CAPITAL CORPORATION, a
Maryland corporation (the "Company"), hereby promises to pay to the order of
___________________________ (the "Lender"), in care of BankBoston, N.A., as
Disbursing Agent (the "Disbursing Agent") at _______________
__________________________________________, or at such other address as may be
specified by the Disbursing Agent to the Company, the principal sum of
_______________________ AND ___/100 DOLLARS (or such lesser amount as shall
equal the aggregate unpaid principal amount of Loans made by the Lender to the
Company under the Credit Agreement), on the dates and in the principal amounts
provided in the Credit Agreement, and to pay interest on the unpaid principal
amount owing hereunder, at the rates and on the dates provided in the Credit
Agreement.
The date, amount of each Loan made by the Lender to the Company, 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 this Note, endorsed by the
Lender on the schedule attached hereto or any continuation thereof, provided
that the failure of the Lender to made any such recordation or endorsement
shall not affect the obligations of the Company to make a payment when due of
any amount owing under the Credit Agreement or hereunder in respect of such
Loans made by the Lender.
This Note is one of the Notes referred to in the Second Amended and
Restated Credit Agreement dated as of June 4, 1998 (as amended, restated,
supplemented or otherwise modified from time to time in accordance with its
terms, the "Credit Agreement") among the Company, the financial institutions
initially party thereto and their assignees under Section 12.5(d) thereof,
BankBoston, N.A., as Disbursing Agent, Riggs Bank N.A., as Managing Agent,
NationsBank, N.A., as Co-Agent, and First Union National Bank, as Syndication
Agent, and evidences Loans made by the Lender thereunder. Terms used but not
otherwise defined in this Note have the respective meanings assigned to them in
the Credit Agreement.
The Credit Agreement provides for the acceleration of the maturity of
this Note upon the occurrence of certain events and for prepayments of Loans
upon the terms and conditions specified therein.
Except as permitted by Section 12.5(d) of the Credit Agreement, this
Note may not be assigned by the Lender to any other Person.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY
PERFORMED, IN SUCH STATE, AND WITHOUT REFERENCE TO CONFLICT OF LAWS PRINCIPLES
OR PROVISIONS.
E-1
<PAGE> 90
The Company hereby waives presentment for payment; demand, notice of
demand, notice of non-payment, protest, notice of protest and all other similar
notices.
Time is of the essence for this Note.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Note under seal as of the date first written above.
ALLIED CAPITAL CORPORATION
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
ATTEST:
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[CORPORATE SEAL]
E-2
<PAGE> 91
SCHEDULE OF LOANS
This Note evidences Loans made under the within-described Credit
Agreement to the Company, on the dates and in the principal amounts set forth
below, subject to the payments and prepayments of principal set forth below:
<TABLE>
<CAPTION>
DATE OF LOAN PRINCIPAL AMOUNT PAID UNPAID PRINCIPAL NOTATION
------------ --------- ----------- ---------------- --------
AMOUNT OF LOAN OR PREPAID AMOUNT MADE BY
-------------- ---------- ------ -------
<S> <C> <C> <C> <C>
</TABLE>
E-3
<PAGE> 92
EXHIBIT F
FORM OF OPINION OF COUNSEL
<PAGE> 93
EXHIBIT G
FORM OF COMPLIANCE CERTIFICATE
Riggs Bank N.A.
808 17th Street, N.W.
10th Floor
Washington, D.C. 20006
Attention: David H. Olson, Vice President
Each of the Lenders Party to the Credit
Agreement referred to below
Ladies and Gentlemen:
Reference is made to that certain Second Amended and Restated Credit
Agreement dated as of June 4, 1998 (as amended, restated, supplemented or
otherwise modified from time to time, the "Credit Agreement"), by and among
Allied Capital Corporation (the "Company"), the financial institutions
initially party thereto and their assignees under Section 12.5(d) thereof,
BankBoston, N.A., as Disbursing Agent, Riggs Bank N.A., as Managing Agent,
NationsBank, N.A., as Co-Agent, and First Union National Bank, as Syndication
Agent (the "Agents"). Capitalized terms not otherwise defined herein are used
herein with the respective meanings given them in the Credit Agreement.
Pursuant to Section 8.3 of the Credit Agreement, the undersigned
hereby certifies to the Lender as follows:
(l) The undersigned is the chief financial officer of the Company.
(2) The undersigned has examined the books and records of the
Company and has conducted such other examinations and investigations as are
reasonably necessary to provide this Compliance Certificate.
(3) To the best of the undersigned's knowledge, information and
belief, no Default or Event of Default exists [if such is not the case, specify
such Default or event of Default and its nature, when if occurred and whether
it is continuing and the steps being taken by the Company with respect to such
event, condition or failure.]
(4) To the best of the undersigned's knowledge, information and
belief, 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, are
true and correct on and as of the date hereof 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 under the Credit Agreement.
G-1
<PAGE> 94
(5) Attached hereto as Schedule l are the calculations required to
establish whether or not the Company and its Subsidiaries, were in compliance
with the covenants contained in Sections 9.1.
IN WITNESS WHEREOF, the undersigned has executed this certificate as
of the date first above written.
----------------------------------------------------
Title: of
--------------------------------------------
Allied Capital Corporation
G-2
<PAGE> 1
Exhibit 10.2
================================================================================
ALLIED CAPITAL CORPORATION
NOTE AGREEMENT
Dated as of April 30, 1998
Re: $140,000,000 7.055% Senior Notes, Series A, due May 30, 2003,
$30,000,000 7.168% Senior Notes, Series B, due May 30, 2005
and
$10,000,000 9.530% Senior Notes, Series C, due May 30, 2005
================================================================================
<PAGE> 2
TABLE OF CONTENTS
(Not a part of the Agreement)
SECTION HEADING PAGE
SECTION 1. DESCRIPTION OF NOTES AND COMMITMENT......................1
Section 1.1. Description of Notes.................................1
Section 1.2. Commitment, Closing Date.............................1
SECTION 2. PAYMENT OF NOTES.........................................2
Section 2.1. Required Payments....................................2
Section 2.2. Optional Prepayment with Premium.....................2
Section 2.3. Notice of Optional Prepayments.......................2
Section 2.4. Application of Prepayments...........................3
Section 2.5. Direct Payment.......................................3
SECTION 3. REPRESENTATIONS..........................................3
Section 3.1. Representations of the Company.......................3
Section 3.2. Representations of the Purchasers....................3
SECTION 4. CLOSING CONDITIONS.......................................5
Section 4.1. Conditions...........................................5
Section 4.2. Waiver of Conditions.................................6
SECTION 5. COVENANTS................................................6
Section 5.1. Corporate Existence, Etc.............................6
Section 5.2. Insurance............................................6
Section 5.3. Taxes, Claims for Labor and Materials, Compliance
with Laws..........................................6
Section 5.4. Maintenance, Etc.....................................7
Section 5.5. Nature of Business...................................7
Section 5.6. Capital Maintenance..................................7
Section 5.7. Interest Charges Coverage Ratio......................7
Section 5.8. Limitations on Debt..................................7
Section 5.9. Limitation on Liens..................................8
Section 5.10. Restricted Payments.................................10
Section 5.11. Mergers, Consolidations and Sales of Assets.........11
Section 5.12. Repurchase of Notes.................................13
Section 5.13. Transactions with Affiliates........................13
Section 5.14. Termination of Pension Plans........................13
Section 5.15. Reports and Rights of Inspection....................14
SECTION 6. EVENTS OF DEFAULT AND REMEDIES THEREFOR.................16
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<PAGE> 3
Section 6.1. Events of Default...................................16
Section 6.2. Notice to Holders...................................18
Section 6.3. Acceleration of Maturities..........................18
Section 6.4. Rescission of Acceleration..........................18
SECTION 7. AMENDMENTS, WAIVERS AND CONSENTS........................19
Section 7.1. Consent Required....................................19
Section 7.2. Solicitation of Holders.............................19
Section 7.3. Effect of Amendment or Waiver.......................19
SECTION 8. INTERPRETATION OF AGREEMENT; DEFINITIONS................20
Section 8.1. Definitions.........................................20
Section 8.2. Accounting Principles...............................29
Section 8.3. Directly or Indirectly..............................29
SECTION 9. MISCELLANEOUS...........................................29
Section 9.1. Registered Notes....................................29
Section 9.2. Exchange of Notes...................................30
Section 9.3. Loss, Theft, Etc. of Notes..........................30
Section 9.4. Expenses, Stamp Tax Indemnity.......................30
Section 9.5. Powers and Rights Not Waived; Remedies Cumulative...31
Section 9.6. Notices.............................................31
Section 9.7. Successors and Assigns..............................31
Section 9.8. Survival of Covenants and Representations...........31
Section 9.9. Severability........................................31
Section 9.10. Governing Law.......................................32
Section 9.11. Captions............................................32
Signature....................................................................33
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<PAGE> 4
ATTACHMENTS TO NOTE AGREEMENT:
Schedule I -- Name and Address of Purchasers and Amounts of Commitment
Exhibit A-1 -- Form of 7.055% Senior Note, Series A, due May 30, 2003
Exhibit A-2 -- Form of 7.168% Senior Note, Series B, due May 30, 2005
Exhibit A-3 -- Form of 9.530% Senior Note, Series C, due May 30, 2005
Exhibit B -- Representations and Warranties of the Company
Exhibit C -- Description of Special Counsel's Closing Opinion
Exhibit D -- Description of Closing Opinion of Counsel to the Company
-iii-
<PAGE> 5
ALLIED CAPITAL CORPORATION
NOTE AGREEMENT
Re: $140,000,000 7.055% Senior Notes, Series A, due May 30, 2003,
$30,000,000 7.168% Senior Notes, Series B, due May 30, 2005
and
$10,000,000 9.530% Senior Notes, Series C, due May 30, 2005
Dated as of
April 30, 1998
To the Purchasers named
on Schedule I to this Agreement
Ladies and Gentlemen:
The undersigned, ALLIED CAPITAL CORPORATION (the "Company"), a Maryland
corporation, hereby agrees with the Purchasers named on Schedule I to this
Agreement (the "Purchasers") as follows:
SECTION 1. DESCRIPTION OF NOTES AND COMMITMENT.
Section 1.1. Description of Notes. The Company will authorize the issue and
sale of (i) $140,000,000 7.055% Senior Notes, Series A, due May 30, 2003 (the
"Series A Notes"), (ii) $30,000,000 7.168% Senior Notes, Series B, due May 30,
2005 (the "Series B Notes"), and (iii) $10,000,000 9.530% Senior Notes, Series
C, due May 30, 2005 (the "Series C Notes") (the Series A Notes, the Series B
Notes and the Series C Notes are collectively referred to as the "Notes," such
term to include any such notes issued in substitution therefor pursuant to
Section 9 of this Agreement). The Series A Notes, the Series B Notes and the
Series C Notes shall be substantially in the form set out in Exhibits A-1, A-2
and A-3, respectively, with such changes therefrom, if any, as may be approved
by the Purchasers and the Company. Interest on the Notes shall be computed on
the basis of a 360-day year of twelve 30-day months. The Notes are not subject
to prepayment or redemption at the option of the Company prior to their
expressed maturity dates except on the terms and conditions and in the amounts
and with the premium, if any, set forth in Section 2 of this Agreement.
Section 1.2. Commitment, Closing Date. Subject to the terms and conditions
hereof and on the basis of the representations and warranties hereinafter set
forth, the Company agrees to issue and sell to each Purchaser, and such
Purchaser agrees to purchase from the Company, Notes of the Series and in the
principal amount set forth opposite such Purchaser's name on Schedule I hereto
at a price equal to the principal amount thereof on
<PAGE> 6
June 4, 1998 (the "Closing Date"); provided that the Closing Date may be
postponed to such other date (but not more than ten days after the originally
scheduled Closing Date) as shall mutually be agreed upon by the Company and the
Purchasers scheduled to purchase the Notes on the Closing Date. Delivery of the
Notes will be made at the offices of Chapman and Cutler, 111 West Monroe Street,
Chicago, Illinois 60603. On the Closing Date, the Company will deliver to each
Purchaser the Notes of the Series to be purchased by such Purchaser in the form
of a single Note (or such greater number of Notes in denominations of at least
$500,000 as such Purchaser may request) dated the Closing Date and registered in
such Purchaser's name (or in the name of such Purchaser's nominee), against
delivery by such Purchaser to the Company or its order of immediately available
funds in the amount of the purchase price therefor by wire transfer via Fedwire
of immediately available funds for the account of the Company to account number
3918973064 at Nations Bank, Bethesda, Maryland, (ABA #052-001-633).
SECTION 2. PAYMENT OF NOTES.
Section 2.1. Required Payments. (a) The entire principal amount of the
Series A Notes shall become due and payable on May 30, 2003.
(b) The entire principal amount of the Series B Notes shall become due
and payable on May 30, 2005.
(c) The entire principal amount of the Series C Notes shall become due
and payable on May 30, 2005.
Section 2.2. Optional Prepayment with Premium. In addition to the payments
required by Section 2.1, upon compliance with Section 2.3 the Company shall have
the privilege, at any time and from time to time, of prepaying the outstanding
Notes, either in whole or in part (but if in part then in a minimum principal
amount of $1,000,000) and ratably among the Series A Notes, Series B Notes and
the Series C Notes by payment of the principal amount of the Notes, or portion
thereof to be prepaid, and accrued interest thereon to the date of such
prepayment, together with a premium equal to the Make-Whole Amount, determined
as of two Business Days prior to the date of such prepayment pursuant to this
Section 2.2.
Section 2.3. Notice of Optional Prepayments. The Company will give notice
of any prepayment of the Notes pursuant to Section 2.2 to each holder thereof
not less than 30 days nor more than 60 days before the date fixed for such
optional prepayment specifying (i) such date, (ii) the principal amount of the
holder's Notes to be prepaid on such date, (iii) that a premium may be payable,
(iv) the date when such premium will be calculated, (v) the estimated premium
and (vi) the accrued interest applicable to the prepayment. Notice of prepayment
having been so given, the aggregate principal amount of the Notes specified in
such notice, together with accrued interest thereon and the premium, if any,
payable with respect thereto shall become due and payable on the prepayment date
specified in said notice. Not later than two Business Days prior to the
prepayment date specified in such notice, the Company shall provide each holder
of a Note written notice of the premium, if any, payable in connection with such
prepayment and, whether or not any premium is payable, a
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<PAGE> 7
reasonably detailed computation of the Make-Whole Amount (which calculation
shall be reasonably satisfactory to each Holder of the Notes to be prepaid).
Section 2.4. Application of Prepayments. All partial prepayments pursuant
to Section 2.2 shall be applied on all outstanding Notes ratably in accordance
with the unpaid principal amounts thereof.
Section 2.5. Direct Payment. Notwithstanding anything to the contrary
contained in this Agreement or the Notes, in the case of any Note owned by any
Holder that is a Purchaser or any other Institutional Holder which has given
written notice to the Company requesting that the provisions of this Section 2.5
shall apply, the Company will punctually pay when due the principal thereof,
interest thereon and premium, if any, due with respect to said principal,
without any presentment thereof, directly to such Holder at its address set
forth in Schedule I hereto or such other address as such Holder may from time to
time designate in writing to the Company or, if a bank account with a United
States bank is so designated for such Holder on Schedule I hereto the Company
will make such payments in immediately available funds to such bank account,
marked for attention as indicated, or in such other manner or to such other
account in any United States bank as such Holder may from time to time direct in
writing.
SECTION 3. REPRESENTATIONS.
Section 3.1. Representations of the Company. The Company represents and
warrants that all representations and warranties set forth in Exhibit B are true
and correct as of the date hereof and are incorporated herein by reference with
the same force and effect as though herein set forth in full.
Section 3.2. Representations of the Purchasers. Each Purchaser represents,
and in entering into this Agreement the Company understands, that such Purchaser
is acquiring the Notes in a private placement for the purpose of investment and
not with a view to the distribution thereof, and that such Purchaser has no
present intention of selling, negotiating or otherwise disposing of the Notes;
it being understood, however, that the disposition of such Purchaser's property
shall at all times be and remain within its control. Each Purchaser represents
that it is an institutional "accredited investor" within the meaning of Rule 501
of Regulation D as promulgated under the Securities Act of 1933 and at least one
of the following statements is an accurate representation as to each source of
funds (a "Source") to be used by it to pay the purchase price of the Notes to be
purchased by it hereunder:
(a) the Source is an "insurance company general account" within the
meaning of Department of Labor Prohibited Transaction Exemption ("PTE")
95-60 (issued July 12, 1995) and there is no employee benefit plan,
treating as a single plan all plans maintained by the same employer (or
affiliate thereof as defined in Section V(a)(1) of PTE 95-60) or employee
organization, with respect to which the amount of the general account
reserves and liabilities for all contracts held by or on behalf of such
plan exceeds ten percent (10%) of the total reserves and liabilities of
such general
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<PAGE> 8
account (exclusive of separate account liabilities) plus surplus, as set
forth in the NAIC Annual Statement filed with such Purchaser's state of
domicile; or
(b) the Source is either (i) an insurance company pooled separate
account, within the meaning of PTE 90-1 (issued January 29, 1990), or (ii)
a bank collective investment fund, within the meaning of the PTE 91-38
(issued July 12, 1991) and, except as such Purchaser has disclosed to the
Company in writing pursuant to this paragraph (b), no employee benefit plan
or group of plans maintained by the same employer or employee organization
beneficially owns more than 10% of all assets allocated to such pooled
separate account or collective investment fund; or
(c) the Source constitutes assets of an "investment fund" (within the
meaning of Part V of the QPAM Exemption) managed by a "qualified
professional asset manager" or "QPAM" (within the meaning of Part V of the
QPAM Exemption), no employee benefit plan's assets that are included in
such investment fund, when combined with the assets of all other employee
benefit plans established or maintained by the same employer or by an
affiliate (within the meaning of Section V(c)(1) of the QPAM Exemption) of
such employer or by the same employee organization and managed by such
QPAM, exceed 20% of the total client assets managed by such QPAM, the
conditions of Part I(c) and (g) of the QPAM Exemption are satisfied,
neither the QPAM nor a person controlling or controlled by the QPAM
(applying the definition of "control" in Section V(e) of the QPAM
Exemption) owns a 5% or more interest in the Company and (i) the identity
of such QPAM and (ii) the names of all employee benefit plans whose assets
are included in such investment fund have been disclosed to the Company in
writing pursuant to this paragraph (c); or
(d) the Source is a governmental plan; or
(e) the Source is one or more employee benefit plans, or a separate
account or trust fund comprised of one or more employee benefit plans, each
of which has been identified to the Company in writing pursuant to this
paragraph (e); or
(f) the Source does not include assets of any employee benefit plan,
other than a plan exempt from the coverage of ERISA.
If any Purchaser or any subsequent transferee of the Notes indicates that such
Purchaser or such transferee is relying on any representation contained in
paragraphs (b), (c) or (e) above, the Company shall deliver on the date of
Closing and on the date of any applicable transfer a certificate, which shall
either state that (i) it is neither a party in interest nor a "disqualified
person" (as defined in Section 4975(e)(2) of the Code), with respect to any plan
identified pursuant to paragraphs (b) or (e) above, or (ii) with respect to any
plan, identified pursuant to paragraph (c) above, neither it nor any "affiliate"
(as defined in Section V(c) of the QPAM Exemption) has at such time, and during
the immediately preceding one year, exercised the authority to appoint or
terminate said QPAM as manager of any plan identified in writing pursuant to
paragraph (c) above or to negotiate the terms of said QPAM's management
agreement on behalf of any such identified plan.
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<PAGE> 9
As used in this Section 3.2, the terms "employee benefit plan", "governmental
plan", "party in interest" and "separate account" shall have the respective
meanings assigned to such terms in Section 3 of ERISA.
SECTION 4. CLOSING CONDITIONS.
Section 4.1. Conditions. The obligation of each Purchaser to purchase the
Notes on the Closing Date shall be subject to the performance by the Company of
its agreements hereunder which by the terms hereof are to be performed at or
prior to the time of delivery of the Notes and to the following further
conditions precedent:
(a) Closing Certificates. On the Closing Date such Purchaser shall
have received a certificate dated the Closing Date, signed by the President
or a Managing Director or a Principal of the Company, the truth and
accuracy of which shall be a condition to such Purchaser's obligation to
purchase the Notes proposed to be sold to such Purchaser on the Closing
Date and to the effect that (i) the representations and warranties of the
Company set forth in Exhibit B hereto are true and correct on and with
respect to the Closing Date, (ii) the Company has performed all of its
obligations hereunder which are to be performed on or prior to the Closing
Date, and (iii) no Default or Event of Default has occurred and is
continuing.
(b) Legal Opinions. Such Purchaser shall have received from Chapman
and Cutler, who are acting as special counsel to the Purchasers in this
transaction, and from Sutherland, Asbill & Brennan LLP, counsel for the
Company, their respective opinions dated the Closing Date, in form and
substance satisfactory to such Purchaser, and covering the matters set
forth in Exhibits C and D, respectively, hereto.
(c) Purchase Permitted By Applicable Law, Etc. On the Closing Date,
each purchase of Notes shall (a) be permitted by the laws and regulations
of each jurisdiction to which such Purchaser is subject, without recourse
to provisions (such as Section 1405(a)(8) of the New York Insurance Law)
permitting limited investments by insurance companies without restriction
as to the character of the particular investment, (b) not violate any
applicable law or regulation (including, without limitation, Regulation U,
T or X of the Board of Governors of the Federal Reserve System) and (c) not
subject any Purchaser to any tax, penalty or liability under or pursuant to
any applicable law or regulation, which law or regulation was not in effect
on the date hereof. If requested by any Purchaser, such Purchaser shall
have received an officer's certificate certifying as to such matters of
fact as such Purchaser may reasonably specify to enable such Purchaser to
determine whether such purchase is so permitted.
(d) Sale of Other Notes. The Company shall have consummated the sale
of the entire principal amount of the Notes scheduled to be sold on the
Closing Date as specified in Schedule I.
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<PAGE> 10
(e) Private Placement Number. A Private Placement Number issued by
S&P's CUSIP Service Bureau (in cooperation with the Securities Valuation
Office of the National Association of Insurance Commissioners) shall have
been obtained for each Series of Notes.
(f) Satisfactory Proceedings. All proceedings taken in connection with
the transactions contemplated by this Agreement, and all documents
necessary to the consummation thereof, shall be satisfactory in form and
substance to such Purchaser and such Purchaser's special counsel, and such
Purchaser shall have received a copy (executed or certified as may be
appropriate) of all legal documents or proceedings taken in connection with
the consummation of said transactions.
Section 4.2. Waiver of Conditions. If on the Closing Date the Company fails
to tender to any Purchaser the Notes to be issued to such Purchaser on such date
or if the conditions specified in Section 4.1 have not been fulfilled, such
Purchaser may thereupon elect to be relieved of all further obligations under
this Agreement. Without limiting the foregoing, if the conditions specified in
Section 4.1 have not been fulfilled, such Purchaser may waive compliance by the
Company with any such condition to such extent as such Purchaser may in its sole
discretion determine. Nothing in this Section 4.2 shall operate to relieve the
Company of any of its obligations hereunder or to waive any Purchaser's rights
against the Company.
SECTION 5. COVENANTS.
From and after the Closing Date and continuing so long as any amount
remains unpaid on any Note:
Section 5.1. Corporate Existence, Etc. The Company will preserve and keep
in full force and effect, and will cause each Consolidated Subsidiary to keep in
full force and effect, its corporate existence and all registrations, licenses,
permits and governmental approvals necessary to the proper conduct of its
business; provided, however, that the foregoing shall not prevent any
transaction permitted by Section 5.11.
Section 5.2. Insurance. The Company will maintain, and will cause each
Consolidated Subsidiary to maintain, insurance coverage by financially sound and
reputable insurers in such forms and amounts and against such risks as are
customary for corporations of established reputation engaged in the same or a
similar business and owning and operating similar properties.
Section 5.3. Taxes, Claims for Labor and Materials, Compliance with Laws.
The Company will promptly pay and discharge, and will cause each Consolidated
Subsidiary to pay and discharge, all lawful taxes, assessments and governmental
charges or levies imposed upon the Company or such Consolidated Subsidiary,
respectively, or upon or in respect of all or any part of the property or
business of the Company or such Consolidated Subsidiary, all trade accounts
payable in accordance with usual and customary business terms, and all claims
for work, labor or materials, which if unpaid might become a Lien upon any
property of the Company or such Consolidated Subsidiary; provided, however, that
the
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<PAGE> 11
Company or such Consolidated Subsidiary shall not be required to pay any such
tax, assessment, charge, levy, account payable or claim if (i) the validity,
applicability or amount thereof is being contested in good faith by appropriate
actions or proceedings which will prevent the forfeiture or sale of any property
of the Company or such Consolidated Subsidiary or any material interference with
the use thereof by the Company or such Consolidated Subsidiary, and (ii) the
Company or such Consolidated Subsidiary shall set aside on its books, reserves
deemed by it to be adequate with respect thereto. The Company will promptly
comply and will cause each Subsidiary to promptly comply with all laws,
ordinances or governmental rules and regulations to which it is subject
including, without limitation, the Occupational Safety and Health Act of 1970,
as amended, ERISA and all laws, ordinances, governmental rules and regulations
relating to environmental protection in all applicable jurisdictions, the
violation of which could materially and adversely affect the properties,
business, prospects, profits or condition of the Company and its Consolidated
Subsidiaries or would result in any Lien not permitted under Section 5.9.
Section 5.4. Maintenance, Etc. The Company will maintain, preserve and
keep, and will cause each Consolidated Subsidiary to maintain, preserve and
keep, its properties which are used in the conduct of its business (whether
owned in fee or a leasehold interest) in good repair and working order, ordinary
wear and tear excepted, and from time to time will make all necessary repairs,
replacements and renewals as the Company may determine to be appropriate to the
conduct of its business.
Section 5.5. Nature of Business. Neither the Company nor any Consolidated
Subsidiary will engage in any business if, as a result, the general nature of
the business, taken on a consolidated basis, which would then be engaged in by
the Company and its Consolidated Subsidiaries would be substantially changed
from the general nature of the business engaged in by the Company and its
Consolidated Subsidiaries on the date of this Agreement as described in the
Memorandum.
Section 5.6. Capital Maintenance. The Company shall at all times maintain
Consolidated Shareholders Equity in an amount not 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 Consolidated Subsidiaries at any time after April 30, 1998
(excluding the Net Proceeds of any Equity Issuance by a Consolidated Subsidiary
to a Consolidated Subsidiary or to the Company).
Section 5.7. Interest Charges Coverage Ratio. The Company shall maintain
the ratio of Adjusted EBIT to Interest Expense of the Company and its
Consolidated Subsidiaries, determined on a consolidated basis as of the last day
of each fiscal quarter for the period of four consecutive fiscal quarters ending
on such day, at not less than 1.8 to 1.
Section 5.8. Limitations on Debt; Interest Rate Swaps. (a) The Company will
have on the last day of each quarterly fiscal period a ratio of Consolidated
Debt to Consolidated Shareholders' Equity not exceeding 1.5 to 1.
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<PAGE> 12
(b) The Company will not at any time permit the aggregate principal amount
of Priority Debt to exceed 25% of Consolidated Shareholders' Equity; provided
that in the case of any determination of Priority Debt made prior to April 30,
2001, outstanding Indebtedness secured by Real Estate Assets in an aggregate
principal amount of up to $200,000,000 shall be excluded from Priority Debt.
(c) The Company will not at any time permit the Asset Coverage Ratio to be
less than 2 to 1.
(d) The Company will not permit any Consolidated Subsidiary to enter into
any Subsidiary Bank Guaranty, unless the Company shall first furnish to each
Holder of the Notes (i) an unconditional Subsidiary Note Guaranty, (ii) an
Intercreditor Agreement, and (iii) an opinion of counsel to the effect that such
Subsidiary Note Guaranty has been duly authorized, executed and delivered by
such Consolidated Subsidiary and constitutes the legal, valid and binding
obligation of such Consolidated Subsidiary, enforceable against such
Consolidated Subsidiary in accordance with the terms thereof, and covering such
other matters as the Holders of 51% or more of the principal amount of the Notes
at the time outstanding may reasonably request.
(e) The Company will not and will not permit any Consolidated Subsidiary to
enter into any Interest Rate Swap except in the ordinary course of business
pursuant to bona fide hedging transactions and not for speculation.
Section 5.9. Limitation on Liens. The Company will not, and will not permit
any Consolidated Subsidiary to, create or incur, or suffer to be incurred or to
exist, any Lien on its or their property or assets, whether now owned or
hereafter acquired, or upon any income or profits therefrom, or transfer any
property for the purpose of subjecting the same to the payment of obligations in
priority to the payment of its or their general creditors, or acquire or agree
to acquire any property or assets upon conditional sales agreements or other
title retention devices, except:
(a) Liens for property taxes and assessments or governmental charges
or levies and Liens securing claims or demands of mechanics and
materialmen, provided payment thereof is not at the time required by
Section 5.3;
(b) Liens of or resulting from any judgment or award, the time for the
appeal or petition for rehearing of which shall not have expired, or in
respect of which the Company or a Consolidated Subsidiary shall at any time
in good faith be prosecuting an appeal or proceeding for a review and in
respect of which a stay of execution pending such appeal or proceeding for
review shall have been secured;
(c) Liens incidental to the conduct of business or the ownership of
properties and assets (including Liens in connection with the making of
loans to customers, worker's compensation, unemployment insurance and other
like laws, warehousemen's and attorneys' liens and statutory landlords'
liens) and Liens to secure the performance of bids, tenders or trade
contracts, or to secure statutory obligations,
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surety or appeal bonds or other Liens of like general nature incurred in
the ordinary course of business and not in connection with (i) the
borrowing of money or (ii) obligations pursuant to ERISA, provided in each
case, the obligation secured is not overdue or, if overdue, is being
contested in good faith by appropriate actions or proceedings;
(d) minor survey exceptions or minor encumbrances, easements or
reservations, or rights of others for rights-of-way, utilities and other
similar purposes, or zoning or other restrictions as to the use of real
properties, which are necessary for the conduct of the activities of the
Company and its Consolidated Subsidiaries or which customarily exist on
properties of corporations engaged in similar activities and similarly
situated and which do not in any event materially impair their use in the
operation of the business of the Company and its Consolidated Subsidiaries;
(e) Liens securing Indebtedness of a Consolidated Subsidiary to the
Company or to another Wholly-owned Consolidated Subsidiary;
(f) Liens existing as of April 30, 1998 and reflected on Annex B to
Exhibit B hereto;
(g) Liens incurred after the Closing Date given to secure the payment
of the purchase price or cost of construction incurred in connection with
the acquisition of, or improvements to, fixed assets useful and intended to
be used in carrying on the business of the Company or a Consolidated
Subsidiary, including Liens existing on such assets at the time of
acquisition thereof or at the time of acquisition by the Company or a
Consolidated Subsidiary of any business entity then owning such assets,
whether or not such existing Liens were given to secure the payment of the
purchase price of the assets to which they attach so long as they were not
incurred, extended or renewed in contemplation of such acquisition,
provided that (i) the Lien shall attach solely to the assets acquired or
purchased, (ii) the Lien (other than Liens that are existing on such assets
at the time of acquisition thereof and that are permitted as aforesaid)
shall have been created or incurred within 180 days of the date of
acquisition of such fixed assets, except in the case of construction or
acquisition of improvements to real estate, the land on which such
improvements are located shall not be required to have been acquired within
such 180 period; (iii) at the time of acquisition of such assets, the
aggregate amount remaining unpaid on all Indebtedness secured by Liens on
such assets whether or not assumed by the Company or a Consolidated
Subsidiary shall not exceed an amount equal to 80% (or 100% in the case of
Capitalized Leases) of the lesser of the total purchase price or fair
market value at the time of acquisition of such assets (as determined in
good faith by the Board of Directors of the Company), and (iv) all
Indebtedness secured by such Liens shall be permitted hereunder;
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(h) Liens on Real Estate Assets securing Non-Recourse Indebtedness;
provided that such Non-Recourse Indebtedness shall be permitted within the
limitations of Section 5.8; and
(i) Liens securing Indebtedness under Mortgage Repurchase Facilities
or Interest Rate Swaps; provided that (i) the Lien of any such Mortgage
Repurchase Facility shall extend only to the Commercial Mortgage Loans
which are financed or refinanced under such Mortgage Repurchase Facility
and the Related Collateral, (ii) the aggregate advances under such Mortgage
Repurchase Facility shall not exceed 80% of the aggregate unpaid principal
amount of the mortgage loans securing such Mortgage Repurchase Facility,
(iii) the Lien securing any Interest Rate Swap shall extend only to
Commercial Mortgage Loans and Related Collateral, and (iv) all such
Indebtedness shall be permitted within the limitations of Section 5.8.
The Company will not, and will not permit any Consolidated Subsidiary to,
directly or indirectly, create, incur, assume or permit to exist (upon the
happening of a contingency or otherwise) any Lien on or with respect to any
property which secures Debt outstanding under the Bank Credit Agreement, unless
the Company makes, or causes to be made, effective provision whereby the Notes
will be equally and ratably secured with any and all other obligations thereby
secured; provided that such security is granted pursuant to an agreement
reasonably satisfactory to the Holders of 51% or more of the principal amount of
the Notes at the time outstanding.
Section 5.10. Restricted Payments. The Company will not except as
hereinafter provided:
(a) Declare or pay any dividends, either in cash or property, on any
shares of its capital stock of any class (except dividends or other
distributions payable solely in shares of capital stock of the Company);
(b) Directly or indirectly, or through any Subsidiary, purchase,
redeem or retire any shares of its capital stock of any class or any
warrants, rights or options to purchase or acquire any shares of its
capital stock (other than in exchange for or out of the net cash proceeds
to the Company from the substantially concurrent issue or sale of other
shares of capital stock of the Company or warrants, rights or options to
purchase or acquire any shares of its capital stock); or
(c) Make any other payment or distribution, either directly or
indirectly or through any Subsidiary, in respect of its capital stock;
(such declarations or payments of dividends, purchases, redemptions or
retirements of capital stock and warrants, rights or options and all such other
payments or distributions being herein collectively called "Restricted
Payments"), if after giving effect thereto (i) an Event of Default described in
paragraph (a) or (b) of Section 6.1 shall exist, (ii) as the result of an
occurrence of any other Event of Default described in Section 6.1 the Notes
shall have been
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accelerated under Section 6.3 or (iii) the Company would not be in compliance
with the limitations of Section 5.8.
The Company will not declare any regular quarterly dividend which
constitutes a Restricted Payment payable more than 60 days after the date of
declaration thereof; provided that any year-end extra dividend which constitutes
a Restricted Payment shall not be payable more than 120 days after the date of
declaration thereof.
For the purposes of this Section 5.10, the amount of any Restricted Payment
declared, paid or distributed in property shall be deemed to be the greater of
the book value or fair market value (as determined in good faith by the Board of
Directors of the Company) of such property at the time of the making of the
Restricted Payment in question.
Section 5.11. Mergers, Consolidations and Sales of Assets. (a) The Company
will not, and will not permit any Consolidated Subsidiary to, consolidate with
or be a party to a merger with any other Person or dispose of all or a
substantial part of the assets of the Company and its Consolidated Subsidiaries;
provided that:
(1) any Consolidated Subsidiary may merge or consolidate with or into,
sell, lease or otherwise dispose of all or a substantial part of its assets
to the Company or any Wholly-owned Subsidiary so long as (A) (i) in any
merger or consolidation involving the Company, the Company shall be the
surviving or continuing corporation and (ii) in any merger or consolidation
involving a Wholly-owned Subsidiary (and not the Company), a Wholly-owned
Subsidiary shall be the surviving or continuing corporation, and (B) at the
time of such consolidation or merger and immediately after giving effect
thereto, no Default or Event of Default would exist;
(2) the Company may consolidate or merge with or into any other
corporation if (i) the corporation which results from such consolidation or
merger (the "surviving corporation") is organized under the laws of any
state of the United States or the District of Columbia, (ii) the due and
punctual payment of the principal of and premium, if any, and interest on
all of the Notes, according to their tenor, and the due and punctual
performance and observation of all of the covenants in the Notes and this
Agreement, to be performed or observed by the Company are expressly assumed
in writing by the surviving corporation and the surviving corporation shall
furnish to the holders of the Notes an opinion of counsel reasonably
satisfactory to the holder or holders of 51% or more of the principal
amount of the Notes at the time outstanding to the effect that the
instrument of assumption has been duly authorized, executed and delivered
and constitutes the legal, valid and binding contract and agreement of the
surviving corporation enforceable in accordance with its terms, except as
enforcement of such terms may be limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles, and (iii)
at the time of such consolidation or merger and immediately after giving
effect thereto and to the incurrence of any Debt assumed or incurred in
connection therewith, (x) the aggregate amount of outstanding Consolidated
Debt and Priority Debt of the surviving
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<PAGE> 16
corporation would be permitted by the terms of Section 5.8 as of the last
day of the fiscal quarter immediately preceding the date of such
consolidation or merger, and (y) no Default or Event of Default would
exist; and
(3) the Company and any Consolidated Subsidiary may, sell, transfer or
otherwise dispose of all or any part of its Investments in the ordinary
course of business including, without limitation, in securitization
transactions.
(b) The Company will not permit any Consolidated Subsidiary to issue any
Voting Stock of such Consolidated Subsidiary except to satisfy the rights of
minority shareholders to receive issuances of stock which are non-dilutive to
the Company and/or any Consolidated Subsidiary; provided that the foregoing
restrictions do not apply to issuances to the Company or to a Wholly-owned
Subsidiary or the issuance of directors' qualifying shares.
(c) The Company will not sell, transfer or otherwise dispose of stock or
Debt of any Consolidated Subsidiary (except issuance of directors' qualifying
shares and sales, transfers and dispositions of all the stock of a special
purpose Consolidated Subsidiary for consideration if (x) substantially all the
assets of such Consolidated Subsidiary constitute Investments and (y) the sale,
transfer or disposition of all such Investments for substantially the same
consideration would be permitted by Section 5.11(a)(3)) and will not permit any
ConsolidATED Subsidiary to sell, transfer or otherwise dispose of stock
(otherwise than by purchase or redemption of preferred stock) of a Consolidated
Subsidiary or Debt of any other Consolidated Subsidiary (except issuances to the
Company or to a Wholly-owned Subsidiary or issuance of directors' qualifying
shares); provided that the foregoing restrictions do not apply if the following
conditions are met:
(1) all shares of stock and all Debt of such Consolidated Subsidiary
held by the Company and its Subsidiaries shall be sold simultaneously;
(2) in the opinion of the Company's Board of Directors:
(i) such sale of stock or Debt is in the best interests of the
Company; and
(ii) the consideration paid for such stock and Debt is deemed
adequate and satisfactory.
(3) the Consolidated Subsidiary being disposed of shall not have any
continuing investment in the Company or any Consolidated Subsidiary that is
not being disposed of simultaneously; and
(4) such sale or disposition does not involve a substantial part of
assets of the Company and its Consolidated Subsidiaries.
As used in this Section 5.11, a sale of assets will be deemed a
"substantial part" of the assets of the Company and its Consolidated
Subsidiaries if (i) the book value of such assets sold in
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<PAGE> 17
a given fiscal year (except those sold in the ordinary course of business)
exceeds 15% of the Consolidated Total Assets of the Company and its Consolidated
Subsidiaries determined at the close of the immediately preceding fiscal year,
or (ii) the operations of such assets sold (except those sold in the ordinary
course of business) generated 15% or more of the consolidated operating profit
of the Company and its Consolidated Subsidiaries during the immediately
preceding fiscal year; provided, however, that for purposes of the foregoing
calculation, there shall not be included any assets if a portion of the proceeds
of such assets equal to the aggregate Book Value thereof immediately prior to
such sale was or is applied within 365 days of the date of sale of such assets
to either (A) the acquisition of Investments useful and intended to be used in
the operation of the business of the Company and its Consolidated Subsidiaries
and having a fair market value (as determined in good faith by the Board of
Directors of the Company) at least equal to the Book Value of the assets so
disposed of, or (B) the prepayment at any applicable prepayment premium, on a
pro rata basis, of Senior Funded Debt of the Company. It is understood and
agreed by the Company that any such proceeds paid and applied to the prepayment
of the Notes as hereinabove provided shall be prepaid as and to the extent
provided in Section 2.2.
Section 5.12. Repurchase of Notes. Neither the Company nor any Consolidated
Subsidiary or Affiliate, directly or indirectly, may repurchase or make any
offer to repurchase any Notes unless an offer has been made to repurchase Notes,
pro rata, from all holders of the Notes at the same time and upon the same
terms. In case the Company repurchases or otherwise acquires any Notes, such
Notes shall immediately thereafter be canceled and no Notes shall be issued in
substitution therefor. Without limiting the foregoing, upon the repurchase or
other acquisition of any Notes by the Company, any Consolidated Subsidiary or
any Affiliate, such Notes shall no longer be outstanding for purposes of any
section of this Agreement relating to the taking by the holders of the Notes of
any actions with respect hereto, including without limitation, Section 6.3,
Section 6.4 and Section 7.1.
Section 5.13. Transactions with Affiliates. The Company will not, and will
not permit any Consolidated Subsidiary to, enter into or be a party to any
transaction or arrangement with any Affiliate (including, without limitation,
the purchase from, sale to or exchange of property with, or the rendering of any
service by or for, any Affiliate), except transactions in the ordinary course of
and pursuant to the reasonable requirements of the Company's or such
Consolidated Subsidiary's business and upon fair and reasonable terms no less
favorable to the Company or such Consolidated Subsidiary than would obtain in a
comparable arm's-length transaction with a Person other than an Affiliate.
Section 5.14. Termination of Pension Plans. The Company will not, and will
not permit any Consolidated Subsidiary to, withdraw from any Multiemployer Plan
to which it may hereafter contribute or permit any employee benefit plan
hereafter maintained by it to be terminated if such withdrawal or termination
could result in withdrawal liability (as described in Part 1 of Subtitle E of
Title IV of ERISA) or the imposition of a Lien on any property of the Company or
any Subsidiary pursuant to Section 4068 of ERISA.
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Section 5.15. Reports and Rights of Inspection. The Company will keep, and
will cause each Consolidated Subsidiary to keep, proper books of record and
account in which full and correct entries will be made of all dealings or
transactions of, or in relation to, the business and affairs of the Company or
such Consolidated Subsidiary, in accordance with GAAP consistently applied
(except for changes disclosed in the financial statements furnished to the
Holders pursuant to this Section 5.15 and concurred in by the independent public
accountants referred to in Section 5.15(b) hereof), and will furnish to each
Institutional Holder of the then outstanding Notes (in duplicate if so specified
below or otherwise requested):
(a) Quarterly Statements. As soon as available and in any event within
45 days after the end of each quarterly fiscal period (except the last) of
each fiscal year, copies of:
(1) consolidated statements of financial position of the Company
and its Consolidated Subsidiaries as of the close of such quarterly
fiscal period, setting forth in comparative form the consolidated
figures for the fiscal year then most recently ended,
(2) consolidated statements of operations of the Company and its
Consolidated Subsidiaries for such quarterly fiscal period and for the
portion of the fiscal year ending with such quarterly fiscal period,
in each case setting forth in comparative form the consolidated
figures for the corresponding periods of the preceding fiscal year,
and
(3) consolidated statements of changes in net assets of the
Company and its Consolidated Subsidiaries for the portion of the
fiscal year ending with such quarterly fiscal period, setting forth in
comparative form the consolidated figures for the corresponding period
of the preceding fiscal year,
all in reasonable detail and certified as complete and correct by an
authorized financial officer of the Company;
(b) Annual Statements. As soon as available and in any event within 90
days after the close of each fiscal year, copies of:
(1) consolidated and consolidating statements of financial
position of the Company and its Consolidated Subsidiaries as of the
close of such fiscal year,
(2) consolidated and consolidating statements of operations,
changes in net assets and cash flows, and
(3) consolidated and consolidating statements of investments
setting forth in comparative form the consolidated figures for the
preceding fiscal year (except in the case of such statements of
investments) and in each case all in
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reasonable detail and accompanied by a report thereon of a firm of
independent public accountants of recognized national standing selected by
the Company to the effect that the consolidated financial statements
present fairly, in all material respects, the consolidated financial
position of the Company and its Consolidated Subsidiaries as of the end of
the fiscal year being reported on and the consolidated results of their
operations, changes in net assets and cash flows for said year in
conformity with GAAP and that the examination of such accountants in
connection with such financial statements has been conducted in accordance
with generally accepted auditing standards and included such tests of the
accounting records and such other auditing procedures as said accountants
deemed necessary in the circumstances;
(c) Audit Reports. Promptly upon receipt thereof, one copy of each
interim or special audit made by independent accountants of the books of
the Company or any Consolidated Subsidiary and any management letter
received from such accountants;
(d) SEC and Other Reports. Promptly upon their becoming available, one
copy of each financial statement, report, notice or proxy statement sent by
the Company to stockholders generally and of each regular or periodic
report, and any registration statement or prospectus filed by the Company
with any securities exchange or the Securities and Exchange Commission or
any successor agency, and copies of any orders in any proceedings to which
the Company or any Subsidiary is a party, issued by any governmental
agency, Federal or state, having jurisdiction over the Company or any of
its Subsidiaries;
(e) ERISA Reports. Promptly upon the occurrence thereof, written
notice of (i) a Reportable Event with respect to any Plan hereafter
maintained by the Company or any ERISA Affiliate; (ii) the institution of
any steps by the Company, any ERISA Affiliate, the PBGC or any other person
to terminate any such Plan; (iii) the institution of any steps by the
Company or any ERISA Affiliate to withdraw from any such Plan; (iv) a
non-exempt "prohibited transaction" within the meaning of Section 406 of
ERISA in connection with any such Plan; (v) any material contingent
liability of the Company or any Subsidiary with respect to any
post-retirement welfare liability hereafter existing; or (vi) the taking of
any action by, or the threatening of the taking of any action by, the
Internal Revenue Service, the Department of Labor or the PBGC with respect
to any of the foregoing;
(f) Officer's Certificates. Within the periods provided in paragraphs
(a) and (b) above, a certificate of an authorized financial officer of the
Company stating that such officer has reviewed the provisions of this
Agreement and setting forth: (i) the information and computations (in
sufficient detail) required in order to establish whether the Company was
in compliance with the requirements of Section 5.6 through Section 5.11 at
the end of the period covered by the financial statements then being
furnished and (ii) whether there existed as of the date of such financial
statements and whether, to the best of such officer's knowledge, there
exists on the date of the certificate or existed at any time during the
period covered by such financial statements any Default or Event of Default
and, if any such condition or event exists
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<PAGE> 20
on the date of the certificate, specifying the nature and period of
existence thereof and the action the Company is taking and proposes to take
with respect thereto;
(g) Accountant's Certificates. Within the period provided in paragraph
(b) above, a certificate of the accountants who render an opinion with
respect to such financial statements, stating that they have reviewed this
Agreement and stating further whether, in making their audit, such
accountants have become aware of any Default or Event of Default under any
of the terms or provisions of this Agreement insofar as any such terms or
provisions pertain to or involve accounting matters or determinations, and
if any such condition or event then exists, specifying the nature and
period of existence thereof; and
(h) Requested Information. With reasonable promptness, such other data
and information as any Holder or any such Institutional Holder may
reasonably request.
Without limiting the foregoing, the Company will permit each Institutional
Holder of the then outstanding Notes (or such Persons as such Holder may
designate), to visit and inspect, under the Company's guidance, any of the
properties of the Company or any Consolidated Subsidiary, to examine all of
their books of account, records, reports and other papers, to make copies and
extracts therefrom and to discuss their respective affairs, finances and
accounts with their respective officers, employees, and independent public
accountants (and by this provision the Company authorizes said accountants to
discuss with such Holder the finances and affairs of the Company and its
Consolidated Subsidiaries) all at such reasonable times and as often as may be
reasonably requested. Any visitation shall be at the sole expense of such
Institutional Holder, unless a Default or Event of Default shall have occurred
and be continuing or the Holder of any Note or of any other evidence of
Indebtedness of the Company or any Consolidated Subsidiary gives any written
notice or takes any other action with respect to a claimed default, in which
case, any such visitation or inspection shall be at the sole expense of the
Company.
SECTION 6. EVENTS OF DEFAULT AND REMEDIES THEREFOR.
Section 6.1. Events of Default. Any one or more of the following shall
constitute an "Event of Default" as such term is used herein:
(a) Default shall occur in the payment of interest on any Note when
the same shall have become due and such default shall continue for more
than five Business Days; or
(b) Default shall occur in the making of any payment of the principal
of any Note or premium, if any, thereon at the expressed or any accelerated
maturity date or at any date fixed for prepayment; or
(c) Default shall be made in the payment when due (whether by lapse of
time, by declaration, by call for redemption or otherwise) of the principal
of or interest on any Consolidated Debt (other than the Notes) of the
Company or any Consolidated
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Subsidiary having an aggregate unpaid principal amount in excess of
$5,000,000 and such default shall continue beyond the period of grace, if
any, allowed with respect thereto; or
(d) Default or the happening of any event shall occur under any
indenture, agreement or other instrument under which Consolidated Debt of
the Company or any Consolidated Subsidiary having an aggregate unpaid
principal amount in excess of $5,000,000 may be issued and such default or
event shall continue for a period of time sufficient to permit the
acceleration of the maturity of such Consolidated Debt or the Company or a
Consolidated Subsidiary has become obligated to purchase such Consolidated
Debt or one or more Persons have the right to require the Company or any
Consolidated Subsidiary to purchase such Consolidated Debt; or
(e) Default shall occur in the observance or performance of any
covenant or agreement contained in Section 5.6 through Section 5.11 and
such default shall continue for more than five Business Days; or
(f) Default shall occur in the observance or performance of any other
provision of this Agreement which is not remedied within 30 days after the
earlier of (i) the day on which a Senior Financial Officer first obtains
knowledge of such default, or (ii) the day on which written notice thereof
is given to the Company by the Holder of any Note; or
(g) Any representation or warranty made by the Company herein, or made
by the Company in any statement or certificate furnished by the Company in
connection with the consummation of the issuance and delivery of the Notes
or furnished by the Company pursuant hereto, is untrue in any material
respect as of the date of the issuance or making thereof; or
(h) Final judgment or final judgments for the payment of money
aggregating in excess of $5,000,000 is or are outstanding against the
Company or any Material Subsidiary or against any property or assets of the
Company or any Material Subsidiary and any such final judgment or final
judgments have remained unpaid, unvacated, unbonded or unstayed by appeal
or otherwise for a period of 60 days from the date of its entry; or
(i) A custodian, liquidator, receiver or similar official is appointed
for the Company or any Material Subsidiary or for the major part of its
property and is not discharged within 60 days after such appointment; or
(j) The Company or any Material Subsidiary becomes insolvent or
bankrupt, is generally not paying its debts as they become due or makes an
assignment for the benefit of creditors, or the Company or any Material
Subsidiary applies for or consents to the appointment of a custodian,
liquidator, trustee or receiver for the Company or such Material Subsidiary
or for the major part of its property; or
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<PAGE> 22
(k) Bankruptcy, reorganization, arrangement or insolvency proceedings,
or other proceedings for relief under any bankruptcy or similar law or laws
for the relief of debtors, are instituted by or against the Company or any
Material Subsidiary and, if instituted against the Company or such Material
Subsidiary, are consented to or are not dismissed within 60 days after such
institution.
Section 6.2. Notice to Holders. When any Event of Default described in the
foregoing Section 6.1 has occurred, or if the holder of any Note or of any other
evidence of Debt of the Company gives any notice or takes any other action with
respect to a claimed default, the Company agrees to give notice within three
Business Days of such event to all holders of the Notes then outstanding.
Section 6.3. Acceleration of Maturities. When any Event of Default
described in paragraph (a) or (b) of Section 6.1 has happened and is continuing,
any Holder of any Note may declare the entire principal and all interest accrued
on such Holder's Notes to be and such Notes shall thereupon become, forthwith
due and payable, without any presentment, demand, protest or other notice of any
kind, all of which are hereby waived. When any Event of Default described in
paragraphs (a) through (i), inclusive, of Section 6.1 has happened and is
continuing, the Holder or Holders of 51% or more of the principal amount of
Notes at the time outstanding may, by notice to the Company, declare the entire
principal and all interest accrued on all Notes to be, and all Notes shall
thereupon become, forthwith due and payable, without any presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived.
When any Event of Default described in paragraph (j) or (k) of Section 6.1 has
occurred, then all outstanDing Notes shall immediately become due and payable
without presentment, demand or notice of any kind. Upon any Note becoming due
and payable as a result of any Event of Default as aforesaid, the Company will
forthwith pay to the Holder of such Note the entire principal and interest
accrued on such Note and (to the extent permitted by applicable law) an amount
as liquidated damages for the loss of the bargain evidenced hereby (and not as a
penalty) equal to the Make-Whole Amount, determined as of the date on which such
Note shall so become due and payable. No course of dealing on the part of the
Holder or Holders of any Notes nor any delay or failure on the part of any
Holder of Notes to exercise any right shall operate as a waiver of such right or
otherwise prejudice such Holder's rights, powers and remedies. The Company
further agrees, to the extent permitted by law, to pay to the Holder or Holders
of the Notes all costs and expenses incurred by them in the collection of any
Notes upon any default hereunder or thereon, including reasonable compensation
to such Holder's or Holders' attorneys for all services rendered in connection
therewith.
Section 6.4. Rescission of Acceleration. The provisions of Section 6.3 are
subject to the condition that if the principal of and accrued interest on all or
any outstanding Notes have been declared immediately due and payable by reason
of the occurrence of any Event of Default described in paragraphs (a) through
(i), inclusive, of Section 6.1, the holders of 66-2/3% in aggregate principal
amount of the Notes then outstanding may, by written instrument filed with the
Company, rescind and annul such declaration and the consequences thereof,
provided that at the time such declaration is annulled and rescinded:
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(a) no judgment or decree has been entered for the payment of any
monies due pursuant to the Notes or this Agreement;
(b) all arrears of interest upon all the Notes and all other sums
payable under the Notes and under this Agreement (except any principal,
interest or premium on the Notes which has become due and payable solely by
reason of such declaration under Section 6.3) shall have been duly paid;
and
(c) each and every other Default and Event of Default shall have been
made good, cured or waived pursuant to Section 7.1;
and provided further, that no such rescission and annulment shall extend to or
affect any subsequent Default or Event of Default or impair any right consequent
thereto.
SECTION 7. AMENDMENTS, WAIVERS AND CONSENTS.
Section 7.1. Consent Required. Any term, covenant, agreement or condition
of this Agreement may, with the consent of the Company, be amended or compliance
therewith may be waived (either generally or in a particular instance and either
retroactively or prospectively), if the Company has obtained the consent in
writing of the Holders of at least 66-2/3% in aggregate principal amount of
outstanding Notes; provided that without the written consent of the Holders of
all of the Notes then outstanding, no such amendment or waiver shall be
effective (i) which will change the time of payment of the principal of or the
interest on any Note or change the principal amount thereof or change the rate
of interest thereon or the method of computation of the Make-Whole Amount, or
(ii) which will change any of the provisions with respect to optional
prepayments or (iii) which will change the percentage of holders of the Notes
required to consent to any such amendment or waiver of any of the provisions of
this Section 7 or Section 6.
Section 7.2. Solicitation of Holders. So long as there are any Notes
outstanding, the Company will not solicit, request or negotiate for or with
respect to any proposed waiver or amendment of any of the provisions of this
Agreement or the Notes unless each Holder of Notes (irrespective of the amount
of Notes then owned by it) shall be informed thereof by the Company and shall be
afforded the opportunity of considering the same and shall be supplied by the
Company with sufficient information to enable it to make an informed decision
with respect thereto. The Company will not, directly or indirectly, pay or cause
to be paid any remuneration, whether by way of supplemental or additional
interest, fee or otherwise, to any Holder of Notes as consideration for or as an
inducement to entering into by any holder of Notes of any waiver or amendment of
any of the terms and provisions of this Agreement or the Notes unless such
remuneration is concurrently paid on the same terms, ratably to each Holder of
Notes then outstanding even if such Holder did not consent to such waiver or
amendment.
Section 7.3. Effect of Amendment or Waiver. Any such amendment or waiver
shall apply equally to all of the Holders of the Notes and shall be binding upon
them, upon each future holder of any Note and upon the Company, whether or not
such Note shall have been
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marked to indicate such amendment or waiver. No such amendment or waiver shall
extend to or affect any obligation not expressly amended or waived or impair any
right consequent thereon.
SECTION 8. INTERPRETATION OF AGREEMENT; DEFINITIONS.
Section 8.1. Definitions. Unless the context otherwise requires, the terms
hereinafter set forth when used herein shall have the following meanings and the
following definitions shall be equally applicable to both the singular and
plural forms of any of the terms herein defined:
"Adjusted EBIT" means, for any period with respect to the Company and its
Consolidated Subsidiaries on a consolidated basis, income after deduction of all
expenses and other proper charges other than taxes and Interest Expense, all as
determined in accordance with GAAP.
"Affiliate" shall mean any Person (other than a Consolidated Subsidiary)
which (i) directly or indirectly, or through one or more intermediaries
controls, or is controlled by, or is under common control with, the Company,
(ii) which beneficially owns or holds 5% or more of any class of the Voting
Stock of the Company or (iii) 5% or more of the Voting Stock (or in the case of
a Person which is not a corporation, 5% or more of the equity interest) of which
is beneficially owned by the Company or a Subsidiary. The term "control" 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 Stock, by contract or otherwise.
"Asset Coverage Ratio" shall mean on a consolidated basis for the Company
and its Consolidated Subsidiaries the ratio which the value of total assets,
less all liabilities and indebtedness not represented by senior securities (all
as determined pursuant to the Investment Company Act and any orders of the
Securities and Exchange Commission issued to the Company thereunder), bears to
the aggregate amount of senior securities representing indebtedness of the
Company and its Consolidated Subsidiaries.
"Bank Credit Agreement" means the Second Amended and Restated Credit
Agreement between the Banks and the Company dated as of June 4, 1998, as amended
from time to time, pursuant to which the Banks have extended credit to the
Company, and any renewals, extensions or replacements thereof.
"Banks" means the banks or financial institutions which are party to the
Bank Credit Agreement from time to time.
"Business Day" shall mean (a) for the purposes of computation of the
Make-Whole Amount only, any day of the week (excluding Saturday or Sunday) on
which banks in New York, New York are not obligated by law to close, and (b) for
the purposes of any other provision of this Agreement any day of the week
(excluding Saturday or Sunday) on which banks in Washington, D.C. and New York,
New York are not obligated by law to close.
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"Book Value" means, with respect to any asset at any time, the cost
thereof as the same would be reflected on a consolidated balance sheet of the
Company and its Consolidated Subsidiaries as at such time prepared in accordance
with GAAP.
"Capitalized Lease" shall mean any lease the obligation for Rentals with
respect to which is required to be capitalized on a consolidated balance sheet
of the lessee and its subsidiaries in accordance with GAAP.
"Capitalized Rentals" of any Person shall mean as of the date of any
determination thereof the amount at which the aggregate Rentals due and to
become due under all Capitalized Leases under which such Person is a lessee
would be reflected as a liability on a consolidated balance sheet of such
Person.
"Code" shall mean the Internal Revenue Code of 1986, as amended and the
rules and regulations promulgated thereunder.
"Commercial Mortgage Loan" means a loan secured by a Lien on improved
real estate used for commercial purposes.
"Consolidated Debt" shall mean as of the date of any determination
thereof, the aggregate unpaid amount of all Debt of the Company and its
Consolidated Subsidiaries determined on a consolidated basis in accordance with
GAAP.
"Consolidated Shareholders' Equity" as of the date of determination
thereof, shall mean the total shareholders' equity of the Company and its
Consolidated Subsidiaries as the same would appear on a consolidated balance
sheet of the Company and its Consolidated Subsidiaries prepared as of such date
in accordance with GAAP, including, in any case, common stock of the Company
(valued at cost) held in the Allied Capital Corporation Deferred Compensation
Trust and Permitted Preferred Stock of the Company and its Consolidated
Subsidiaries but excluding any stock, common or preferred, not both issued and
outstanding.
"Consolidated Subsidiary" shall mean any Subsidiary which is required to
be consolidated on financial statements of the Company prepared in accordance
with GAAP.
"Consolidated Total Assets" shall mean total assets of the Company and
its Consolidated Subsidiaries on a consolidated basis.
"Debt" means, with respect to any Person, without duplication,
(a) its liabilities for borrowed money;
(b) its liabilities for the deferred purchase price of property
acquired by such Person (excluding accounts payable arising in the
ordinary course of business but including, without limitation, all
liabilities created or arising under any conditional sale or other
title retention agreement with respect to any such property);
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(c) its Capitalized Rentals;
(d) all liabilities for borrowed money secured by any Lien with
respect to any property owned by such Person (whether or not it has
assumed or otherwise become liable for such liabilities); and
(e) any Guaranty of such Person with respect to liabilities of a
type described in any of clauses (a) through (d) hereof.
Debt of any Person shall include all obligations of such Person of the character
described in clauses (a) through (e) to the extent such Person remains legally
liable in respect thereof notwithstanding that any such obligation is deemed to
be extinguished under GAAP.
"Default" shall mean any event or condition the occurrence of which
would, with the lapse of time or the giving of notice, or both, constitute an
Event of Default.
"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" shall mean the Employee Retirement Income Security Act of 1974,
as amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA shall be construed to also refer to any successor sections.
"ERISA Affiliate" shall mean any corporation, trade or business that is,
along with the Company, a member of a controlled group of corporations or a
controlled group of trades or businesses, as described in section 414(b) and
414(c), respectively, of the Code or Section 4001 of ERISA.
"Event of Default" shall have the meaning set forth in Section 6.1.
"GAAP" shall mean generally accepted accounting principles at the time in
the United States.
"Guaranties" by any Person shall mean all obligations (other than
endorsements in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing, or in effect guaranteeing,
any Indebtedness, dividend or other obligation of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, all obligations incurred through an agreement, contingent or
otherwise, by such Person: (i) to purchase such Indebtedness or obligation or
any property or assets constituting security therefor, (ii) to advance or supply
funds (x) for the purchase or payment of such Indebtedness or obligation, (y) to
maintain working capital or other balance sheet condition or otherwise to
advance or make available funds for the purchase or payment of such Indebtedness
or obligation, (iii) to lease property or to purchase Securities or other
property or services primarily for the purpose of assuring the
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owner of such Indebtedness or obligation of the ability of the primary obligor
to make payment of the Indebtedness or obligation, or (iv) otherwise to assure
the owner of the Indebtedness or obligation of the primary obligor against loss
in respect thereof. For the purposes of all computations made under this
Agreement, a Guaranty in respect of any Indebtedness for borrowed money shall be
deemed to be Indebtedness equal to the principal amount of such Indebtedness for
borrowed money which has been guaranteed, and a Guaranty in respect of any other
obligation or liability or any dividend shall be deemed to be Indebtedness equal
to the maximum aggregate amount of such obligation, liability or dividend.
"Holder" shall mean any Person which is, at the time of reference, the
registered Holder of any Note.
"Indebtedness" with respect to any Person means, at any time, without
duplication,
(a) its liabilities for borrowed money and its redemption
obligations in respect of mandatorily redeemable preferred stock;
(b) its liabilities for the deferred purchase price of property
acquired by such Person (excluding accounts payable arising in the
ordinary course of business but including all liabilities created or
arising under any conditional sale or other title retention agreement with
respect to any such property);
(c) all liabilities appearing on its balance sheet in accordance
with GAAP in respect of Capitalized Leases;
(d) all liabilities for borrowed money secured by any Lien with
respect to any property owned by such Person (whether or not it has
assumed or otherwise become liable for such liabilities);
(e) all its liabilities in respect of unreimbursed drawings under
letters of credit or instruments serving a similar function issued or
accepted for its account by banks and other financial institutions
(whether or not representing obligations for borrowed money);
(f) Interest Rate Swaps of such Person; and
(g) any Guaranty of such Person with respect to liabilities of a
type described in any of clauses (a) through (f) hereof.
Indebtedness of any Person shall include all obligations of such Person of
the character described in clauses (a) through (g) to the extent such Person
remains legally liable in respect thereof notwithstanding that any such
obligation is deemed to be extinguished under GAAP.
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"Institutional Holder" shall mean any insurance company, bank, savings and
loan association, trust company, investment company, charitable foundation,
employee benefit plan (as defined in ERISA) or other institutional investor or
financial institution which is not principally engaged, or as one of its
important activities, in the business of making small business investments of
the type made by the Company.
"Intercreditor Agreement" means an intercreditor agreement pursuant to
which the Banks and the Holders of the Notes have agreed to share payments made
by any Consolidated Subsidiary under a Subsidiary Note Guaranty or a Subsidiary
Bank Guaranty on an equal and ratable basis.
"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 Leases) of
such Person and in any event shall include all interest expense with respect to
any Debt in respect of which such Person is wholly or partially liable.
"Interest Rate Swap" means a currency swap, an interest rate swap or other
currency or interest rate hedge entered into by the Company or a Consolidated
Subsidiary. For the purposes of this Agreement, the amount of the obligation
under any Interest Rate Swap shall be the amount determined in respect thereof
as of the end of the then most recently ended fiscal quarter of such Person,
based on the assumption that such Interest Rate Swap had terminated at the end
of such fiscal quarter, and in making such determination, if any agreement
relating to such Interest Rate Swap provides for the netting of amounts payable
by and to such Person thereunder or if any such agreement provides for the
simultaneous payment of amounts by and to such Person, then in each such case,
the amount of such obligation shall be the net amount so determined.
"Investment Company Act" shall mean the Investment Company Act of 1940, as
amended, and all rules and regulations promulgated thereunder.
"Investments" shall mean all investments, in cash or by delivery of
property made, directly or indirectly in any Person, whether by acquisition of
shares of capital stock, Indebtedness or other obligations or Securities or by
loan, advance, capital contribution or otherwise.
"Lien" shall mean any interest in property securing an obligation owed to,
or a claim by, a Person other than the owner of the property, whether such
interest is based on the common law, statute or contract, and including but not
limited to the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes. The term "Lien" shall include reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances (including, with respect to
stock, stockholder agreements, voting trust agreements, buy-back agreements and
all similar arrangements) affecting property. For the purposes of this
Agreement, the Company or any Consolidated Subsidiary shall be deemed to be the
owner of any property which it has
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acquired or holds subject to a conditional sale agreement, Capitalized Lease or
other arrangement pursuant to which title to the property has been retained by
or vested in some other Person for security purposes and such retention or
vesting shall constitute a Lien.
"Make-Whole Amount" means, with respect to a Note of any series, an
amount equal to the excess, if any, of the Discounted Value of the Remaining
Scheduled Payments with respect to the Called Principal of the Note of such
series over the amount of such Called Principal, provided that the Make-Whole
Amount may in no event be less than zero. For the purposes of determining the
Make-Whole Amount, the following terms have the following meanings:
"Called Principal" means, with respect to a Note of any
Series, the principal of such Note that is to be prepaid pursuant to
Section 2.2 or has become or is declared to be immediately due and
payable pursuant to Section 6.3, as the context requires.
"Discounted Value" means, with respect to the Called Principal
of a Note of any Series, the amount obtained by discounting all
Remaining Scheduled Payments with respect to such Called Principal from
their respective scheduled due dates to the Settlement Date with
respect to such Called Principal, in accordance with accepted financial
practice and at a discount factor (applied on the same periodic basis
as that on which interest on the Notes is payable) equal to the
Reinvestment Yield with respect to such Called Principal.
"Reinvestment Yield" means, with respect to the Called
Principal of a Note of any Series, 0.50% over the yield to maturity
implied by (i) the yields reported, as of 10:00 A.M. (New York City
time) on the second Business Day preceding the Settlement Date with
respect to such Called Principal, on the display designated as "PX-1"
of the Bloomberg Financial Markets Services Screen (or such other
display as may replace PX-1 of the Bloomberg Financial Markets Services
Screen) for actively traded U.S. Treasury securities having a maturity
equal to the Remaining Average Life of such Called Principal as of such
Settlement Date, or (ii) if such yields are not reported as of such
time or the yields reported as of such time are not ascertainable
(including by way of interpolation), the Treasury Constant Maturity
Series Yields reported, for the latest day for which such yields have
been so reported as of the second Business Day preceding the Settlement
Date with respect to such Called Principal, in Federal Reserve
Statistical Release H.15 (519) (or any comparable successor
publication) for actively traded U.S. Treasury securities having a
constant maturity equal to the Remaining Average Life of such Called
Principal as of such Settlement Date. Such implied yield will be
determined, if necessary, by (a) converting U.S. Treasury bill
quotations to bond-equivalent yields in accordance with accepted
financial practice and (b) interpolating linearly between (1) the
actively traded U.S. Treasury security with the maturity closest to and
greater than the Remaining Average Life and (2) the actively traded
U.S. Treasury security with the maturity closest to and less than the
Remaining Average Life.
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"Remaining Average Life" means, with respect to any Called
Principal, the number of years (calculated to the nearest one-twelfth
year) obtained by dividing (i) such Called Principal into (ii) the sum
of the products obtained by multiplying (a) the principal component of
each Remaining Scheduled Payment with respect to such Called Principal
by (b) the number of years (calculated to the nearest one-twelfth year)
that will elapse between the Settlement Date with respect to such
Called Principal and the scheduled due date of such Remaining Scheduled
Payment.
"Remaining Scheduled Payments" means, with respect to the
Called Principal of a Note of any Series, all payments of such Called
Principal and interest thereon that would be due after the Settlement
Date with respect to such Called Principal if no payment of such Called
Principal were made prior to its scheduled due date, provided that if
such Settlement Date is not a date on which interest payments are due
to be made under the terms of the Notes of such Series, then the amount
of the next succeeding scheduled interest payment will be reduced by
the amount of interest accrued to such Settlement Date and required to
be paid on such Settlement Date pursuant to or Section 2.2 or
Section 6.3.
"Settlement Date" means, with respect to the Called Principal
of a Note of any Series, the date on which such Called Principal is to
be prepaid pursuant to Section 2.2 or has become or is declared to be
immediately due and payable pursuant to Section 6.3, as the context
requires.
"Material Subsidiary" shall mean any Consolidated 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.
"Memorandum" is described in paragraph 5 of Exhibit B hereto.
"Mortgage Repurchase Facility" means financing agreements providing for
(i) the pledge and assignment of Commercial Mortgage Loans owned by the Company
and its Consolidated Subsidiaries as security for loans to the Company and its
Consolidated Subsidiaries, or (ii) the sale of such Commercial Mortgage Loans to
a commercial lender pursuant to an agreement under which such loans shall be
repurchased by the Company or a Consolidated Subsidiary at a future date.
"Multiemployer Plan" shall have the same meaning as in ERISA.
"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.
"Non-Recourse Indebtedness" means Indebtedness secured by Real Estate
Assets if recourse for the payment of such Indebtedness is limited to such Real
Estate Assets.
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"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Permitted Preferred Stock" means (i) preferred stock that is issued
from time to time by a Subsidiary to the United States Small Business
Administration having an aggregate stated value not exceeding $7,000,000 at any
one time outstanding or (ii) preferred stock that is issued from time to time by
a Subsidiary for the purpose of qualifying such Subsidiary as a real estate
investment trust under Sections 856 through 860 of the Code and having an
aggregate stated value not exceeding $500,000 at any one time outstanding,
provided that in any event Permitted Preferred Stock shall not include any
Voting Stock.
"Person" shall mean an individual, partnership, limited liability
company, corporation, trust or unincorporated organization, and a government or
agency or political subdivision thereof.
"Plan" means a "pension plan," as such term is defined in ERISA,
established or maintained by the Company or any ERISA Affiliate or as to which
the Company or any ERISA Affiliate contributed or is a member or otherwise may
have any liability.
"Priority Debt" means the sum of (i) all Debt of the Company and its
Consolidated Subsidiaries secured by a Lien, and (ii) all unsecured Debt of
Consolidated Subsidiaries (excluding in each case, Debt owing to the Company or
another Consolidated Subsidiary).
"Purchaser" shall have the meaning set forth in Section 1.1.
"QPAM Exemption" means Prohibited Transaction Class Exemption 84-14
issued by the United States Department of Labor.
"Real Estate" means fee ownership or co-ownership of, or leaseholds of,
land or improvements thereon.
"Real Estate Assets" means (i) Real Estate securing Investments made in
the ordinary course of business, (ii) Commercial Mortgage Loans and (iii)
Related Collateral.
"Related Collateral" means, in respect of any Commercial Mortgage Loan:
(i) any and all documents, instruments, agreements, records or other collateral
of any kind evidencing, securing, guaranteeing or otherwise relating to such
Commercial Mortgage Loan, including without limitation all promissory notes or
other negotiable instruments, mortgages, deeds of trust or similar instruments,
assignments of leases or rents or other collateral assignments, financing
statements, guaranties, indemnities, servicing agreements, servicing records,
files, surveys, certificates, affidavits, title abstracts, title insurance
policies and commitments, correspondence, opinions, appraisals, closing
documents, computer programs, computer storage media, data bases, accounting
records and other books and records relating thereto, (ii) any and all mortgage
guaranties and insurance (issued by governmental agencies or otherwise) and
mortgage insurance certificates or other documents evidencing such mortgage
guaranties or insurance relating to any such Commercial
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Mortgage Loan and all claims and payments thereunder, (iii) any and all other
insurance policies and insurance proceeds relating to such Commercial Mortgage
Loan or the related real property, (iv) all "general intangibles" as defined in
the Uniform Commercial Code relating to or constituting any and all of the
foregoing, and (v) any and all replacements, substitutions or distributions on
or proceeds of any and all of the foregoing.
"Rentals" shall mean and include as of the date of any determination
thereof all fixed payments (including as such all payments which the lessee is
obligated to make to the lessor on termination of the lease or surrender of the
property) payable by the Company or any Consolidated Subsidiary, as lessee or
sublessee under a lease of real or personal property, but shall be exclusive of
any amounts required to be paid by the Company or any Consolidated Subsidiary
(whether or not designated as rents or additional rents) on account of
maintenance, repairs, insurance, taxes and similar charges. Fixed rents under
any so-called "percentage leases" shall be computed solely on the basis of the
minimum rents, if any, required to be paid by the lessee regardless of sales
volume or gross revenues.
"Reportable Event" shall have the same meaning as in ERISA.
"SBA" shall mean the United States Small Business Administration.
"Security" shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.
"Senior Financial Officer" means the chief financial officer, principal
accounting officer, treasurer or comptroller of the Company.
"Senior Funded Debt" means any Debt of the Company which is classified
as long term debt in accordance with GAAP other than Subordinated Debt.
"Subordinated Debt" means all unsecured Debt of the Company which shall
contain or have applicable thereto subordination provisions providing for the
subordination thereof to other Debt of the Company (including, without
limitation, the obligations of the Company under the Notes).
"Subsidiary" with respect to any Person shall mean (i) any corporation,
partnership, association or other business entity at least 50% of the
outstanding shares of Voting Stock or similar interests of which are owned,
directly or indirectly, by such Person (including, without limitation, any
limited partnership in which such Person, directly or indirectly, shall have at
least a 50% vote on matters as to which limited partners may vote), (ii) any
general or limited partnership of which such Person shall be a general partner
or as to which such Person otherwise shall have unlimited liability, (iii) any
general or limited partnership a general partner of which can be changed or
removed by such Person (other than removals that could be accomplished by
voluntary withdrawal of such general partner only), or (iv) any general or
limited partnership in which (x) the amount represented by such Person's capital
account shall be equal to at least 50% of the aggregate amount represented by
the total of all partners' capital accounts or (y) such Person shall be
allocated at least 50% of the
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profit (or loss) or distributable cash of the partnership; provided, however,
that the term "Subsidiary", when used in this Agreement without reference to any
particular Person, shall mean a Subsidiary of the Company.
"Subsidiary Bank Guaranty" means any agreement pursuant to which a
Consolidated Subsidiary has guaranteed the Debt of the Company under the Bank
Credit Agreement.
"Subsidiary Note Guaranty" means any agreement pursuant to which a
Consolidated Subsidiary has guaranteed the Debt of the Company under the Notes.
"Voting Stock" shall mean Securities of any class or classes, the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or Persons performing similar
functions).
"Wholly-owned" when used in connection with any Subsidiary shall mean a
Subsidiary of which all of the issued and outstanding shares of stock (except
shares required as directors' qualifying shares and Permitted Preferred Stock)
shall be owned by the Company and/or one or more of its Wholly-owned
Subsidiaries.
Section 8.2. Accounting Principles. Where the character or amount of any
asset or liability or item of income or expense is required to be determined or
any consolidation or other accounting computation is required to be made for the
purposes of this Agreement, the same shall be done in accordance with GAAP, to
the extent applicable, except where such principles are inconsistent with the
requirements of this Agreement.
Section 8.3. Directly or Indirectly. Where any provision in this Agreement
refers to action to be taken by any Person, or which such Person is prohibited
from taking, such provision shall be applicable whether the action in question
is taken directly or indirectly by such Person.
SECTION 9. MISCELLANEOUS.
Section 9.1. Registered Notes. The Company shall cause to be kept at the
principal office of the Company a register for the registration and transfer of
the Notes (hereinafter called the "Note Register") and the Company will register
or transfer or cause to be registered or transferred as hereinafter provided any
Note issued pursuant to this Agreement.
At any time and from time to time the registered holder of any Note which
has been duly registered as hereinabove provided may transfer such Note to
another Institutional Holder upon surrender thereof at the principal office of
the Company duly endorsed or accompanied by a written instrument of transfer
duly executed by the registered holder of such Note or its attorney duly
authorized in writing.
The Person in whose name any registered Note shall be registered shall be
deemed and treated as the owner and holder thereof for all purposes of this
Agreement. Payment of or
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on account of the principal, premium, if any, and interest on any registered
Note shall be made to or upon the written order of such registered holder.
Section 9.2. Exchange of Notes. At any time and from time to time, upon
not less than ten days' notice to that effect given by the holder of any Note
initially delivered or of any Note substituted therefor pursuant to Section 9.1,
this Section 9.2 or Section 9.3, and, upon surrender of such Note at its office,
the Company will deliver in exchange therefor, without expense to such holder,
except as set forth below, a Note for the same aggregate principal amount as the
then unpaid principal amount of the Note so surrendered, or Notes in the
denomination of $500,000 or any amount in excess thereof as such holder shall
specify, dated as of the date to which interest has been paid on the Note so
surrendered or, if such surrender is prior to the payment of any interest
thereon, then dated as of the date of issue, registered in the name of such one
or more Institutional Holders as may be designated by such holder, and otherwise
of the same form and tenor as the Notes so surrendered for exchange. The Company
may require the payment of a sum sufficient to cover any stamp tax or
governmental charge imposed upon such exchange or transfer.
Section 9.3. Loss, Theft, Etc. of Notes. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction of any
Note, and in the case of any such loss, theft or destruction upon delivery of a
bond of indemnity in such form and amount as shall be reasonably satisfactory to
the Company, or in the event of such mutilation upon surrender and cancellation
of the Note, the Company will make and deliver without expense to the holder
thereof, a new Note, of like tenor, in lieu of such lost, stolen, destroyed or
mutilated Note. If the Purchaser or any subsequent Institutional Holder is the
owner of any such lost, stolen or destroyed Note, then the affidavit of an
authorized officer of such owner, setting forth the fact of loss, theft or
destruction and of its ownership of such Note at the time of such loss, theft or
destruction shall be accepted as satisfactory evidence thereof and no further
indemnity shall be required as a condition to the execution and delivery of a
new Note other than the written agreement of such owner to indemnify the
Company.
Section 9.4. Expenses, Stamp Tax Indemnity. Whether or not the
transactions herein contemplated shall be consummated, the Company agrees to pay
directly all of the Purchasers' reasonable out-of-pocket expenses in connection
with the preparation, execution and delivery of this Agreement and the
transactions contemplated hereby, including but not limited to the reasonable
charges and disbursements of Chapman and Cutler, special counsel to the
Purchasers, duplicating and printing costs and charges for shipping the Notes,
adequately insured to each Purchaser's home office or at such other place as
such Purchaser may designate, the cost of obtaining a Private Placement Number
for the Notes from Standard & Poor's Corporation, and all such reasonable
expenses relating to any amendment, waivers or consents pursuant to the
provisions hereof, including, without limitation, any amendments, waivers, or
consents resulting from any work-out, renegotiation or restructuring relating to
the performance by the Company of its obligations under this Agreement and the
Notes. The Company also agrees that it will pay and save each Purchaser harmless
against any and all liability with respect to stamp and other taxes, if any,
which may be payable or which may be determined to be payable in connection with
the execution and delivery of this Agreement or the Notes, (other than as
specified in the last
-30-
<PAGE> 35
sentence of Section 9.2) whether or not any Notes are then outstanding. The
Company agrees to protect and indemnify each Purchaser against any liability for
any and all brokerage fees and commissions payable or claimed to be payable to
any Person in connection with the transactions contemplated by this Agreement.
Section 9.5. Powers and Rights Not Waived; Remedies Cumulative. No delay
or failure on the part of the holder of any Note in the exercise of any power or
right shall operate as a waiver thereof; nor shall any single or partial
exercise of the same preclude any other or further exercise thereof, or the
exercise of any other power or right, and the rights and remedies of the holder
of any Note are cumulative to, and are not exclusive of, any rights or remedies
any such holder would otherwise have.
Section 9.6. Notices. All communications provided for hereunder shall be
in writing and, if to a Holder, delivered or mailed prepaid by registered or
certified mail or overnight air courier, or by facsimile communication (with a
confirming copy of any such facsimile communication sent via overnight courier
service), in each case addressed to such Holder at its address appearing on
Schedule I to this Agreement or such other address as such Holder may designate
to the Company in writing, and if to the Company delivered or mailed by
registered or certified mail or overnight air courier, or by facsimile
communication, to the Company at 1666 K Street, N.W., Suite 901, Washington,
D.C. 20006, Attention: Joan M. Sweeney or to such other address as the Company
may in writing designate to the Holders; provided, however, that a notice to a
Holder by overnight air courier shall only be effective if delivered to such
Holder at a street address designated for such purpose in Schedule I, and a
notice to you by facsimile communication shall only be effective if made by
confirmed transmission to such Holder at a telephone number designated for such
purpose in Schedule I, or, in either case, as such Holder may designate to the
Company in writing.
Section 9.7. Successors and Assigns. This Agreement shall be binding upon
the Company and its successors and assigns and shall inure to the benefit of
each Purchaser and to the benefit of its successors and assigns, including each
successive Holder.
Section 9.8. Survival of Covenants and Representations. All covenants,
representations and warranties made by the Company herein and in any
certificates delivered pursuant hereto, whether or not in connection with the
Closing Date, shall survive the closing and the delivery of this Agreement and
the Notes and shall terminate upon payment in full of all amounts due under the
Notes and this Agreement.
Section 9.9. Severability. Should any part of this Agreement for any
reason be declared invalid or unenforceable, such decision shall not affect the
validity or enforceability of any remaining portion, which remaining portion
shall remain in force and effect as if this Agreement had been executed with the
invalid or unenforceable portion thereof eliminated and it is hereby declared
the intention of the parties hereto that they would have executed the remaining
portion of this Agreement without including therein any such part, parts or
portion which may, for any reason, be hereafter declared invalid or
unenforceable.
-31-
<PAGE> 36
Section 9.10. Governing Law. This Agreement and the Notes issued and sold
hereunder shall be governed by and construed in accordance with New York law.
Section 9.11. Captions. The descriptive headings of the various Sections
or parts of this Agreement are for convenience only and shall not affect the
meaning or construction of any of the provisions hereof.
-32-
<PAGE> 37
The execution hereof by you shall constitute a contract between us for
the uses and purposes hereinabove set forth, and this Agreement may be executed
in any number of counterparts, each executed counterpart constituting an
original but all together only one agreement.
ALLIED CAPITAL CORPORATION
By /s/ Jon A. DeLuca
---------------------------
Its Chief Financial Officer
<PAGE> 38
Accepted as of the first date written above:
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By /s/ John C. Litchfield Jr.
------------------------------------------
Name: JOHN C. LITCHFIELD JR.
Title: MANAGING DIRECTOR
<PAGE> 39
Accepted as of the first date written above:
SUNAMERICA LIFE INSURANCE COMPANY
By /s/ Christopher F. Ochs
------------------------------
Its Christopher F. Ochs
Authorized Agent
<PAGE> 40
Accepted as of the first date written above:
ANCHOR NATIONAL LIFE INSURANCE
COMPANY
By /s/ Christopher F. Ochs
---------------------------
Its Christopher F. Ochs
Authorized Agent
<PAGE> 41
Accepted as of the first date written above.
THE LINCOLN NATIONAL LIFE INSURANCE
COMPANY
By: Lincoln Investment Management, Inc.,
Its Attorney-In-Fact
By /s/ Brenda L. Buuck
-------------------------------------
Its: Brenda L. Buuck,
Second Vice President
<PAGE> 42
Accepted as of the first date written above.
ALLIED LIFE INSURANCE COMPANY
By: Lincoln Investment Management, Inc.,
Its Attorney-In-Fact
By /s/ Brenda L. Buuck
-------------------------------------
Its Brenda L. Buuck,
Second Vice President
<PAGE> 43
Accepted as of the first date written above.
LINCOLN NATIONAL HEALTH & CASUALTY
INSURANCE COMPANY
BY: Lincoln Investment Management, Inc.,
Its Attorney-In-Fact
By /s/ Brenda L. Buuck
____________________________________
Its Brenda L. Buuck, Second Vice President
<PAGE> 44
Accepted as of the first date written above.
LINCOLN NATIONAL REINSURANCE
COMPANY (BARBADOS) LTD.
By: Lincoln Investment Management, Inc.,
Its Attorney-In-Fact
By /s/ Brenda L. Buuck
-------------------------------------------
Its: Brenda L. Buuck, Second Vice President
<PAGE> 45
Accepted as of the first date written above.
SONS OF NORWAY
By: Lincoln Investment Management, Inc.,
Its Attorney-In-Fact
By /s/ Brenda L. Buuck
----------------------------------------
Its Brenda L. Buuck,
Second Vice President
<PAGE> 46
Accepted as of the first date written above:
ALLSTATE LIFE INSURANCE COMPANY
By /s/ Patricia W. Wilson
----------------------------------------
Name: PATRICIA W. WILSON
By /s/ Jerry O. Zinkula
----------------------------------------
Name: JERRY O. ZINKULA
Authorized Signatures
<PAGE> 47
Accepted as of the first date written above:
CM LIFE INSURANCE COMPANY
By /s/ Michael L. Klofas
----------------------------------------
Name: Michael L. Klofas
Title: Managing Director
<PAGE> 48
Accepted as of the first date written above:
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY
By /s/ Michael L. Klofas
---------------------------------
Name: Michael L. Klofas
Title: Managing Director
<PAGE> 49
Accepted as of the first date written above.
JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY
By /s/ Anthony J. Della Piana
-----------------------------------
Name: Anthony J. Della Piana
Title: Senior Investment Officer
<PAGE> 50
Accepted as of the first date written above.
JOHN HANCOCK VARIABLE LIFE INSURANCE
COMPANY
By /s/ Anthony J. Della Piana
--------------------------------
Name: Anthony J. Della Piana
Title: Authorized Officer
<PAGE> 51
Accepted as of the first date written above.
INVESTORS PARTNER LIFE INSURANCE
COMPANY
By Anthony J. Della Piana
--------------------------------
Name: Anthony J. Della Piana
Title: Senior Investment Officer
<PAGE> 52
Accepted as of the first date written above.
JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY, on behalf of the John Hancock
Separate Account Trust No. 86
By /s/ Anthony J. Della Piana
-------------------------------
Its Senior Investment Officer
<PAGE> 53
Accepted as of the first date written above.
SIGNATURE 1A (CAYMAN), LTD.
By: John Hancock Mutual Life Insurance
Company, Portfolio Advisor
By: /s/ Anthony J. Della Piana
----------------------------------------
Title: Senior Investment Officer
<PAGE> 54
Accepted as of the first date written above.
GE CAPITAL EDISON LIFE INSURANCE
COMPANY
By /s/ Michael C. Knebel
___________________________________
Its: Michael C. Knebel
Vice President & Investment Officer
<PAGE> 55
Accepted as of the first date written above.
GREAT NORTHERN INSURED ANNUITY
CORPORATION
By /s/ Michael C. Knebel
-----------------------------------------
Its: Michael C. Knebel
Vice President & Investment Officer
<PAGE> 56
Accepted as of the first date written above.
NATIONWIDE LIFE AND ANNUITY INSURANCE
COMPANY
By /s/ Mark W. Poeppelman
--------------------------------
Name: MARK W. POEPPELMAN
Title: INVESTMENT OFFICER
<PAGE> 57
Accepted as of the first date written above:
NATIONWIDE LIFE INSURANCE COMPANY
By /s/ MARK W. POEPPELMAN
-------------------------------
Name: MARK W. POEPPELMAN
Title: INVESTMENT OFFICER
<PAGE> 58
Accepted as of the first date written above.
AMERICAN GENERAL ANNUITY INSURANCE
COMPANY
AMERICAN GENERAL LIFE INSURANCE
COMPANY
THE OLD LINE LIFE INSURANCE COMPANY
OF AMERICA
AMERICAN GENERAL LIFE INSURANCE
COMPANY OF NEW YORK
By /s/ Julia S. Tucker
---------------------------------
Name: Julia S. Tucker
Title: Investment Officer
<PAGE> 59
PRINCIPAL AMOUNT
NAME AND ADDRESSES OF NOTES TO BE
OF PURCHASERS PURCHASED
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY
1295 State Street
Springfield, Massachusetts 01111
Attention: Securities Investment Division
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. #04-1590850
SCHEDULE I
(to Note Agreement)
<PAGE> 60
ALLIED CAPITAL CORPORATION
7.055% Senior Note, Series A
Due May 30, 2003
No. RA-
________________, ______
$
ALLIED CAPITAL CORPORATION, a Maryland corporation (the "Company"), for
value received, hereby promises to pay to
or registered assigns
on the thirtieth day of May, 2003
the principal amount of
DOLLARS ($____________)
and to pay interest (computed on the basis of a 360-day year of twelve 30-day
months) on the principal amount from time to time remaining unpaid hereon at the
rate of 7.055% per annum from the date hereof until maturity, payable
semiannually on the thirtieth day of each May and November in each year
(commencing on the first of such dates after the date hereof) and at maturity.
The Company agrees to pay interest on overdue principal (including any overdue
required or optional prepayment of principal) and premium, if any, and (to the
extent legally enforceable) on any overdue installment of interest, at the rate
of 9.055% per annum after the due date, whether by acceleration or otherwise,
until paid. Both the principal hereof and interest hereon are payable at the
principal office of the Company in Washington, D.C. in coin or currency of the
United States of America which at the time of payment shall be legal tender for
the payment of public and private debts.
This Note is one of the 7.055% Senior Notes, Series A, due May 30, 2003
(the "Series A Notes") of the Company in the aggregate principal amount of
$140,000,000 issued or to be issued together with the $30,000,000 aggregate
principal amount of 7.168% Senior Notes, Series B, due May 30, 2005 (the "Series
B Notes") and the $10,000,000 aggregate principal amount of 9.530% Senior Notes,
Series C, due May 30, 2005 (the "Series C Notes" and collectively with the
Series A Notes and the Series B Notes, the "Notes") of the Company, under and
pursuant to the terms and provisions of the Note Agreement, dated as of April
30, 1998 (the "Note Agreement"), entered into by the Company with the Purchasers
named therein and this Series A Note and the holder hereof are entitled with the
holders of all other Notes outstanding under the Note Agreement to all the
benefits provided for thereby or referred to therein to the extent provided in
the Note Agreement. Reference is hereby made to the Note Agreement for a
statement of such rights and benefits.
EXHIBIT A-1
(to Note Agreement)
<PAGE> 61
This Series A Note and the other Series A Notes outstanding under the
Note Agreement may be declared due prior to their expressed maturity dates in
the events, on the terms and in the manner and amounts as provided in the Note
Agreement.
The Series A Notes are not subject to prepayment or redemption at the
option of the Company prior to their expressed maturity dates except on the
terms and conditions and in the amounts and with the premium, if any, set forth
in the Note Agreement.
This Series A Note is registered on the books of the Company and is
transferable only by surrender thereof at the principal office of the Company
duly endorsed or accompanied by a written instrument of transfer duly executed
by the registered holder of this Series A Note or its attorney duly authorized
in writing. Payment of or on account of principal, premium, if any, and interest
on this Series A Note shall be made only to or upon the order in writing of the
registered holder.
ALLIED CAPITAL CORPORATION
By________________________
Its
A-1-2
<PAGE> 62
ALLIED CAPITAL CORPORATION
7.168% Senior Note, Series B
Due May 30, 2005
No. RB-
____________, ____
$
ALLIED CAPITAL CORPORATION, a Maryland corporation (the "Company"), for
value received, hereby promises to pay to
or registered assigns
on the thirtieth day of May, 2005
the principal amount of
DOLLARS ($____________)
and to pay interest (computed on the basis of a 360-day year of twelve 30-day
months) on the principal amount from time to time remaining unpaid hereon at the
rate of 7.168% per annum from the date hereof until maturity, payable
semiannually on the thirtieth day of each May and November in each year
(commencing on the first of such dates after the date hereof) and at maturity.
The Company agrees to pay interest on overdue principal (including any overdue
required or optional prepayment of principal) and premium, if any, and (to the
extent legally enforceable) on any overdue installment of interest, at the rate
of 9.168% per annum after the due date, whether by acceleration or otherwise,
until paid. Both the principal hereof and interest hereon are payable at the
principal office of the Company in Washington, D.C. in coin or currency of the
United States of America which at the time of payment shall be legal tender for
the payment of public and private debts.
This Note is one of the 7.168% Senior Notes, Series B, due May 30, 2005
(the "Series B Notes") of the Company in the aggregate principal amount of
$30,000,000 issued or to be issued together with the $140,000,000 aggregate
principal amount of 7.055% Senior Notes, Series A, due May 30, 2003 (the "Series
A Notes") and the $10,000,000 aggregate principal amount of the 9.530% Senior
Notes, Series C, due May 30, 2005 (the "Series C Notes" and collectively with
the Series A Notes and Series B Notes, the "Notes") of the Company, under and
pursuant to the terms and provisions of the Note Agreement, dated as of April
30, 1998 (the "Note Agreement"), entered into by the Company with the Purchasers
named therein and this Series B Note and the holder hereof are entitled with the
holders of all other Notes outstanding under the Note Agreement to all the
benefits provided for thereby or referred to therein to the extent provided in
the Note Agreement. Reference is hereby made to the Note Agreement for a
statement of such rights and benefits.
EXHIBIT A-2
(to Note Agreement)
<PAGE> 63
This Series B Note and the other Series B Notes outstanding under the
Note Agreement may be declared due prior to their expressed maturity dates all
in the events, on the terms and in the manner and amounts as provided in the
Note Agreement.
The Series B Notes are not subject to prepayment or redemption at the
option of the Company prior to their expressed maturity dates except on the
terms and conditions and in the amounts and with the premium, if any, set forth
in the Note Agreement.
This Series B Note is registered on the books of the Company and is
transferable only by surrender thereof at the principal office of the Company
duly endorsed or accompanied by a written instrument of transfer duly executed
by the registered holder of this Series B Note or its attorney duly authorized
in writing. Payment of or on account of principal, premium, if any, and interest
on this Series B Note shall be made only to or upon the order in writing of the
registered holder.
ALLIED CAPITAL CORPORATION
By________________________
Its
A-2-2
<PAGE> 64
ALLIED CAPITAL CORPORATION
9.530% Senior Note, Series C
Due May 30, 2005
No. RC-
____________, ____
$
ALLIED CAPITAL CORPORATION, a Maryland corporation (the "Company"), for
value received, hereby promises to pay to
or registered assigns
on the thirtieth day of May, 2005
the principal amount of
DOLLARS ($____________)
and to pay interest (computed on the basis of a 360-day year of twelve 30-day
months) on the principal amount from time to time remaining unpaid hereon at the
rate of 9.530% per annum from the date hereof until maturity, payable
semiannually on the thirtieth day of each May and November in each year
(commencing on the first of such dates after the date hereof) and at maturity.
The Company agrees to pay interest on overdue principal (including any overdue
required or optional prepayment of principal) and premium, if any, and (to the
extent legally enforceable) on any overdue installment of interest, at the rate
of 11.530% per annum after the due date, whether by acceleration or otherwise,
until paid. Both the principal hereof and interest hereon are payable at the
principal office of the Company in Washington, D.C. in coin or currency of the
United States of America which at the time of payment shall be legal tender for
the payment of public and private debts.
This Note is one of the 9.530% Senior Notes, Series C, due May 30, 2005
(the "Series C Notes") of the Company in the aggregate principal amount of
$10,000,000 issued or to be issued together with the $140,000,000 aggregate
principal amount of 7.055% Senior Notes, Series A, due May 30, 2003 (the "Series
A Notes") and the $30,000,000 aggregate principal amount of the 7.168% Senior
Notes, Series B, due May 30, 2005 (the "Series B Notes" and collectively with
the Series A Notes and Series C Notes, the "Notes") of the Company, under and
pursuant to the terms and provisions of the Note Agreement, dated as of April
30, 1998 (the "Note Agreement"), entered into by the Company with the Purchasers
named therein and this Series C Note and the holder hereof are entitled with the
holders of all other Notes outstanding under the Note Agreement to all the
benefits provided for thereby or referred to therein to the extent provided in
the Note Agreement. Reference is hereby made to the Note Agreement for a
statement of such rights and benefits.
EXHIBIT A-3
(to Note Agreement)
<PAGE> 65
This Series C Note and the other Series C Notes outstanding under the
Note Agreement may be declared due prior to their expressed maturity dates all
in the events, on the terms and in the manner and amounts as provided in the
Note Agreement.
The Series C Notes are not subject to prepayment or redemption at the
option of the Company prior to their expressed maturity dates except on the
terms and conditions and in the amounts and with the premium, if any, set forth
in the Note Agreement.
This Series C Note is registered on the books of the Company and is
transferable only by surrender thereof at the principal office of the Company
duly endorsed or accompanied by a written instrument of transfer duly executed
by the registered holder of this Series C Note or its attorney duly authorized
in writing. Payment of or on account of principal, premium, if any, and interest
on this Series C Note shall be made only to or upon the order in writing of the
registered holder.
ALLIED CAPITAL CORPORATION
By________________________
Its
A-3-2
<PAGE> 66
REPRESENTATIONS AND WARRANTIES
The Company represent and warrant to each Purchaser as follows:
1. Subsidiaries. Annex A attached hereto states the name of each of the
Company's Subsidiaries, its jurisdiction of incorporation and the percentage of
its Voting Stock owned by the Company and/or its Subsidiaries. Those
Subsidiaries listed in Section 1 of said Annex A constitute Consolidated
Subsidiaries. The Company and each Subsidiary has good and marketable title to
all of the shares it purports to own of the stock of each Subsidiary, free and
clear in each case of any Lien. All such shares have been duly issued and are
fully paid and non-assessable. The Company is a Business Development Company
under the Investment Company Act.
2. Corporate Organization and Authority. The Company and each
Consolidated Subsidiary,
(a) is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation;
(b) has all requisite power and authority and all necessary
licenses and permits to own and operate its properties and to carry on
its business as now conducted and as presently proposed to be
conducted; and
(c) is duly licensed or qualified and is in good standing as a
foreign corporation in each jurisdiction wherein the nature of the
business transacted by it or the nature of the property owned or leased
by it makes such licensing or qualification necessary.
3. Financial Statements. (a) The consolidated balance sheet at December
31, 1997 and 1996 and the consolidated statements of operations, changes in net
assets and cash flows of the Company for three years ended December 31, 1997,
each accompanied by a report thereon containing an opinion unqualified as to
scope limitations imposed by the Company and otherwise without qualification
except as therein noted, by Arthur Andersen LLP, have been prepared in
accordance with GAAP consistently applied except as therein noted, are correct
and complete and present fairly the financial position of the Company and its
Consolidated Subsidiaries as of such dates and the results of their operations
for such periods. The unaudited consolidated statement of financial position of
the Company and its Consolidated Subsidiaries as of March 31, 1998, and the
unaudited statements of operations and changes in net assets for the three month
period ended on said date prepared by the Company have been prepared in
accordance with GAAP consistently applied, are correct and complete and present
fairly the financial position of the Company and its Consolidated Subsidiaries
as of such date and the results of their operations and changes in their
financial position for such period.
(b) Since December 31, 1997, there has been no change in the condition,
financial or otherwise, of the Company and its Consolidated Subsidiaries as
shown on the consolidated
EXHIBIT B
(to Note Agreement)
<PAGE> 67
balance sheet as of such date except changes in the ordinary course of business,
none of which individually or in the aggregate has been materially adverse.
4. Debt. Annex B attached hereto correctly describes all Debt
(including, without limitation, Debt held by the SBA) and Capitalized Leases of
the Company and its Consolidated Subsidiaries outstanding on April 30, 1998
since which date there has been no material change in the amounts, interest
rates, sinking funds, installment payments or maturities of the Indebtedness of
the Company or its Consolidated Subsidiaries.
5. Full Disclosure. The Company, through its agent, NationsBanc
Montgomery Securities LLP, has delivered to each of you a copy of a Private
Placement Memorandum, dated April, 1998 (the "Memorandum"), relating to the
transactions contemplated hereby. The Memorandum fairly describes, in all
material respects, the general nature of the business and principal properties
of the Company and its Subsidiaries. Except as disclosed in this Agreement, the
Memorandum, the documents, certificates or other writings delivered to you by or
on behalf of the Company in connection with the transactions contemplated hereby
and the financial statements described in paragraph 3 hereof, taken as a whole,
do not contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading in light
of the circumstances under which they were made. Except as disclosed in the
Memorandum or in one of the documents, certificates or other writings identified
therein, or in the financial statements described in paragraph 3 hereof, since
December 31, 1997, there has been no change in the financial condition,
operations, business, properties or prospects of the Company or any Subsidiary
except changes that individually or in the aggregate could not reasonably be
expected to materially affect adversely the properties, business, prospects,
profits or condition (financial or otherwise) of the Company and its
Subsidiaries taken as a whole. There is no fact known to the Company that could
reasonably be expected to materially affect adversely the properties, business,
prospects, profits or condition (financial or otherwise) of the Company and its
Subsidiaries that has not been set forth herein or in the Memorandum or in the
other documents, certificates and other writings delivered to you by or on
behalf of the Company specifically for use in connection with the transactions
contemplated hereby, except matters of an economic or regulatory nature
generally affecting businesses of the type engaged in by the Company.
6. Pending Litigation. There are no actions, suits or proceedings
pending or, to the knowledge of the Company, threatened against or affecting the
Company or any Consolidated Subsidiary in any court or before any governmental
authority or arbitration board or tribunal which involve the possibility of
materially and adversely affecting the properties, business, profits or
condition (financial or otherwise) of the Company and its Consolidated
Subsidiaries, taken as a whole.
7. Title to Properties. The Company and each Consolidated Subsidiary
has good and marketable title in fee simple (or its equivalent under applicable
law) to all material parcels of real property and has good title to all the
other material items of property it purports to own, including that reflected in
the most recent balance sheet referred to in paragraph 3 hereof, except as sold
or otherwise disposed of in the ordinary course of
B-2
<PAGE> 68
business and except for Liens permitted by the Agreement. The Company and each
Consolidated Subsidiary has the right to, and does, enjoy peaceful and
undisturbed possession under all leases to which it is a party or under which it
is a party. All such leases are valid, subsisting and in full force and effect,
none of such leases is in default and no event has occurred and is continuing,
and no condition exists which, after the passage of time or giving of notice or
both could become an event of default under any such lease.
8. Patents and Trademarks. The Company and each Consolidated Subsidiary
owns or possesses all the patents, trademarks, trade names, service marks,
copyrights, licenses, permits, registrations, consents (governmental or other)
and rights with respect to the foregoing necessary for the present and planned
future conduct of its business, without any known conflict with the rights of
others.
9. Sale is Legal and Authorized. The sale of the Notes to the
Purchasers, compliance by the Company with all of the provisions of the Notes
and compliance by the Company with all of the provisions of the Agreement --
(a) are within the corporate powers of the Company;
(b) will not violate any provisions of any law or any order of
any court or governmental authority or agency and will not conflict
with or result in any breach of any of the terms, conditions or
provisions of, or constitute a default under the Articles of
Incorporation or By-laws of the Company or any indenture or other
agreement or instrument to which the Company is a party or by which it
may be bound or result in the imposition of any Liens or encumbrances
on any property of the Company; and
(c) have been duly authorized by proper corporate action on
the part of the Company (no action by the stockholders of the Company
being required by law, by the Articles of Incorporation or By-laws of
the Company or otherwise), the Agreement and the Notes have been
executed and delivered by the Company and upon payment of the purchase
price of the Notes by the Purchaser, the Notes and the Agreement
constitute the legal, valid and binding obligations, contracts and
agreements of the Company enforceable in accordance with their terms.
10. No Defaults. No Default or Event of Default has occurred and is
continuing. The Company is not in default in the payment of principal or
interest on any Debt and is not in default under any instrument or instruments
or agreements under and subject to which any Debt has been issued and no event
has occurred and is continuing under the provisions of any such instrument or
agreement which with the lapse of time or the giving of notice, or both, would
constitute an event of default thereunder.
11. Governmental Consent. No approval, consent or authorization of, or
registration, filing or declaration with or withholding of objection on the part
of, any regulatory body, state, Federal or local, is necessary in connection
with the execution and delivery by the Company of the Notes and the Agreement or
compliance by the Company with any of the provisions of the Agreement or the
Notes.
B-3
<PAGE> 69
12. Taxes. All tax returns required to be filed by the Company or any
Subsidiary in any jurisdiction have, in fact, been filed, and all taxes,
assessments, fees and other governmental charges upon the Company or any
Subsidiary or upon any of their respective properties, income or franchises,
which are shown to be due and payable in such returns have been paid. For all
taxable years ending on or before December 31, 1993, the Federal income tax
liability of the Company has been satisfied and either the period of limitations
on assessment of additional Federal income tax has expired or the Company has
entered into an agreement with the Internal Revenue Service closing conclusively
the total tax liability for the taxable year. The Company does not know of any
proposed additional tax assessment against it for which adequate provision has
not been made on its accounts, and no material controversy in respect of
additional Federal or state income taxes due since said date is pending or to
the knowledge of the Company threatened. The provisions for taxes on the books
of the Company and its Consolidated Subsidiaries are adequate for all open
years, and for its current fiscal period.
13. Use of Proceeds. The net proceeds from the sale of the Notes will
be used by the Company as follows: for general corporate purposes. None of the
transactions contemplated in the Agreement (including, without limitation
thereof, the use of proceeds from the issuance of the Notes) will violate or
result in a violation of Section 7 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or any regulation issued pursuant thereto,
including, without limitation, Regulations U, T and X of the Board of Governors
of the Federal Reserve System, 12 C.F.R., Chapter II. The Company is not engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying any "margin stock" within the
meaning of said Regulation U. None of the proceeds from the sale of the Notes
will be used to purchase, or refinance any borrowing the proceeds of which were
used to purchase, any such margin stock.
14. Private Offering. Neither the Company, directly or indirectly, nor
any agent on its behalf has offered or will offer the Notes or any similar
Security or has solicited or will solicit an offer to acquire the Notes or any
similar Security from or has otherwise approached or negotiated or will approach
or negotiate in respect of the Notes or any similar Security with any Person
other than such Purchaser and not more than 75 other institutional investors,
each of whom was offered a portion of the Notes at private sale for investment.
Neither the Company, directly or indirectly, nor any agent on its behalf has
offered or will offer the Notes or any similar Security or has solicited or will
solicit an offer to acquire the Notes or any similar Security from any Person so
as to bring the issuance and sale of the Notes within the provisions of Section
5 of the Securities Act of 1933, as amended. When issued the Notes will not be
of the same class as Securities listed on a national securities exchange
registered under Section 6 of the Securities Exchange Act of 1934, as amended,
or quoted in a U.S. automated inter-dealer quotation system, and will not be
convertible or exchangeable into any such Securities.
15. ERISA. The consummation of the transactions provided for in the
Agreement and compliance by the Company with the provisions thereof and of the
Notes issued thereunder will not involve any non-exempt prohibited transaction
within the meaning of
B-4
<PAGE> 70
Section 406(a) of ERISA or Sections 4975(c)(1)(A)-(D) of the Code. Neither the
Company nor any ERISA Affiliate has heretofore, is presently or presently
intends to, contribute to, maintain or establish, any Plan subject to the
minimum funding requirements of Section 302 of ERISA or Section 412 of the Code.
Neither the Company nor any ERISA Affiliate has any contingent liability with
respect to any post-retirement "welfare benefit plan" (as such term is defined
in ERISA) except as has been disclosed to the Purchaser. The representation by
the Company in the first sentence of this SECTION 15 is made in reliance upon
and subject to the accuracy of the representation in SECTION 3.2 as to the
sources of the funds used to pay the purchase price of the Notes to be purchased
by each Purchaser.
16. Compliance with Law. Neither the Company nor any Consolidated
Subsidiary (a) is in violation of any law, ordinance, franchise, governmental
rule or regulation to which it is subject; or (b) has failed to obtain any
license, permit, registration, consent, franchise or other governmental
authorization necessary to the ownership of its property or to the conduct of
its business, which violation or failure to obtain would materially adversely
affect the business, profits, properties or condition (financial or otherwise)
of the Company and its Consolidated Subsidiaries, taken as a whole, or impair
the ability of the Company to perform its obligations contained in the
Agreements or the Notes. Neither the Company nor any Consolidated Subsidiary is
in default with respect to any order of any court or governmental authority or
arbitration board or tribunal.
17. Compliance with Environmental Laws. The Company is not in violation
of any applicable Federal, state, or local laws, statutes, rules, regulations or
ordinances relating to public health, safety or the environment, including,
without limitation, relating to releases, discharges, emissions or disposals to
air, water, land or ground water, to the withdrawal or use of ground water, to
the use, handling or disposal of polychlorinated biphenyls (PCB's), asbestos or
urea formaldehyde, to the treatment, storage, disposal or management or
hazardous substances (including, without limitation, petroleum, crude oil or any
fraction thereof, or other hydrocarbons), pollutants or contaminants, or to
exposure to toxic, hazardous or other controlled, prohibited or regulated
substances, which violation could have a material adverse effect on the
business, profits, properties or condition (financial or otherwise) of the
Company and its Consolidated Subsidiaries, taken as a whole. The Company does
not know of any liability or class of liability of the Company or any Subsidiary
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended (42 U.S.C. Section 9601 et seq.), or the Resource
Conservation and Recovery Act of 1976, as amended (42 U.S.C. Section 6901 et
seq.).
18. Foreign Assets Control Regulations, etc. Neither the sale of the
Notes by the Company hereunder nor its use of the proceeds thereof will violate
the Trading with the Enemy Act, as amended, or any of the foreign assets control
regulations of the United States Treasury Department (31 CFR, Subtitle B,
Chapter V, as amended) or any enabling legislation or executive order relating
thereto.
B-5
<PAGE> 71
ALLIED CAPITAL CORPORATION
SUBSIDIARIES OF THE COMPANY
1. CONSOLIDATED SUBSIDIARIES
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING
STOCK OWNED BY COMPANY
JURISDICTION OF AND EACH OTHER
NAME OF SUBSIDIARY INCORPORATION SUBSIDIARY
<S> <C> <C>
Allied Investment Corporation Maryland 100%
Allied Capital Financial Corporation Maryland 100%
Allied Capital SBLC Corporation Maryland 100%
Allied Capital REIT Inc. Delaware 100%
Allied Capital Property LLC Delaware 100%
Allied Capital Equity LLC Delaware 100%
Allied Capital Holdings LLC Delaware 100%
9586 I-25 East Frontage Road, Longmont CO Delaware 100%
80504 LLC
8930 Stanford Boulevard LLC Delaware 100%
Allied Capital Beteiligungs Beratung GmbH Germany 100%
</TABLE>
2. UNCONSOLIDATED SUBSIDIARIES
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING
STOCK OWNED BY COMPANY
JURISDICTION OF AND EACH OTHER
NAME OF SUBSIDIARY INCORPORATION SUBSIDIARY
<S> <C> <C>
Allied Capital Germany Fund LLC Delaware 100%
Allied Capital CMT Inc. Delaware 100%
Allied Capital Commercial Mortgage
Trust 1998-1 Delaware 100%
</TABLE>
ANNEX B
(to Exhibit B)
<PAGE> 72
DESCRIPTION OF DEBT AND LEASES
<TABLE>
<CAPTION>
DEBT OF COMPANY AND OBLIGOR
CONSOLIDATED SUBSIDIARIES BALANCE COMPANIES COLLATERAL
<S> <C> <C> <C>
Revolving lines of credit $103,000,000 ACC None
Master repurchase agreement 3,243,057 ACC Commercial Mortgage Loans
Master loan and security agreement 9,000,000 ACC Commercial Mortgage Loans
Senior note payable 16,000,000* ACC, AIC, AFC None
OPIC loan 8,700,000 ACC None
------------
$139,943,057
============
DEBT OF CONSOLIDATED SUBSIDIARIES
SBA debentures $ 53,300,000 AIC, AFC None
ALCC Equity LLC
Mortgage Loan 2,749,920 Office Building
------------
$ 56,049,920
============
</TABLE>
- ----------
*To be paid in full on Closing Date.
ACC = the Company
AIC = Allied Investment Corporation
AFC = Allied Capital Financial Corporation
-2-
<PAGE> 73
DESCRIPTION OF SPECIAL COUNSEL'S CLOSING OPINION
The closing opinion of Chapman and Cutler, special counsel to the
Purchasers, called for by SECTION 4.1 of the Agreement, shall be dated the
Closing Date and addressed to the Purchasers, shall be satisfactory in form and
substance to the Purchasers and shall be to the effect that:
1. The Company is a corporation, validly existing and in good
standing under the laws of the State of Maryland and has the corporate
power and the corporate authority to execute and deliver the Agreement;
and the Company has the corporate power and the corporate authority to
issue the Notes.
2. The Agreement has been duly authorized by all necessary
corporate action on the part of the Company, has been duly executed and
delivered by the Company and constitutes the legal, valid and binding
obligation of the Company enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent conveyance or similar
laws affecting creditors' rights generally, and general principles of
equity (regardless of whether the application of such principles is
considered in a proceeding in equity or at law).
3. Each Series of Notes has been duly authorized by all
necessary corporate action on the part of the Company, has been duly
executed and delivered by the Company and constitutes the legal, valid
and binding obligation of the Company enforceable in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent conveyance or
similar laws affecting creditors' rights generally, and general
principles of equity (regardless of whether the application of such
principles is considered in a proceeding in equity or at law).
4. The issuance, sale and delivery of the Notes under the
circumstances contemplated by the Agreement do not, under existing law,
require the registration of the Notes under the Securities Act of 1933,
as amended, or the qualification of an indenture under the Trust
Indenture Act of 1939, as amended.
The opinion of Chapman and Cutler shall also state that the opinion of
Sutherland, Asbill & Brennan is satisfactory in scope and form to Chapman and
Cutler and that, in their opinion, the Purchaser is justified in relying
thereon.
In rendering the opinion set forth in paragraph 1 above, Chapman and
Cutler may rely solely upon an examination of the Articles of Incorporation
certified by, and a certificate of good standing of the Company from, the
Secretary of State of the State of Maryland and the By-laws of the Company.
With respect to matters of fact upon which such opinion is based,
Chapman and Cutler may rely on appropriate certificates of public officials and
officers of the Company.
EXHIBIT C
(to Note Agreement)
<PAGE> 74
DESCRIPTION OF CLOSING OPINION
OF COUNSEL FOR THE COMPANY
The closing opinion of Sutherland, Asbill & Brennan, LLP, counsel for
the Company, which is called for by SECTION 4.1 of the Agreement, shall be dated
the Closing Date and addressed to the Purchasers purchasing Notes on the Closing
Date, shall be satisfactory in scope and form to the Purchasers and shall be to
the effect that:
1. The Company is a corporation, duly incorporated, validly
existing and in good standing under the laws of the State of Maryland
and has the full corporate power and the corporate authority to conduct
the activities in which it is now engaged and is duly licensed or
qualified and is in good standing as a foreign corporation in the
States of California and Illinois and the District of Columbia.
2. The Company has the corporate power and the corporate
authority to execute and perform the Agreement and to issue the Notes.
3. The Agreement has been duly authorized by all necessary
corporate action on the part of the Company, has been duly executed and
delivered by the Company and constitutes the legal, valid and binding
obligation of the Company enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent conveyance or similar
laws affecting creditors' rights generally, and general principles of
equity (regardless of whether the application of such principles is
considered in a proceeding in equity or at law).
4. Each Series of Notes has been duly authorized by all
necessary corporate action on the part of the Company, has been duly
executed and delivered by the Company and constitutes the legal, valid
and binding obligation of the Company enforceable in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent conveyance or
similar laws affecting creditors' rights generally, and general
principles of equity (regardless of whether the application of such
principles is considered in a proceeding in equity or at law).
5. No other approval, consent or withholding of objection on
the part of, or filing, registration or qualification with, any
governmental body, Federal or state, is necessary in connection with
the execution and delivery of the Agreement or the Notes.
6. The issuance and sale of the Notes and the execution,
delivery and performance by the Company of the Agreement do not
conflict with or result in any breach of any of the provisions of or
constitute a default under or result in the creation or imposition of
any Lien upon any of the property of the Company pursuant to the
provisions of the Articles of Incorporation or By-laws of the Company
or any agreement or other instrument known to such counsel to which the
Company is a party or by which the Company may be bound.
EXHIBIT D
(to Note Agreement)
<PAGE> 75
7. The issuance, sale and delivery of the Notes under the
circumstances contemplated by the Agreement do not, under existing law,
require the registration of the Notes under the Securities Act of 1933,
as amended, or the qualification of an indenture under the Trust
Indenture Act of 1939, as amended.
In rendering the opinion set forth in paragraph 1 above, Sutherland,
Asbill & Brennan, LLP may rely solely upon an examination of the Charter of the
Company certified by, and a certificate of good standing of the Company from,
the State Department of Assessments and Taxation of the State of Maryland and
the By-laws of the Company.
The opinion of Sutherland, Asbill & Brennan, LLP shall cover such other
matters relating to the sale of the Notes as the Purchaser may reasonably
request. With respect to matters of fact on which such opinion is based, such
counsel shall be entitled to rely on appropriate certificates of public
officials and officers of the Company.
D-2
<PAGE> 1
EXHIBIT 10.10(a)
FIRST AMENDMENT
TO THE
ALLIED CAPITAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
WHEREAS, Allied Capital Corporation (hereinafter referred to as the "Employer")
maintains the Allied Capital Corporation Employee Stock Ownership Plan
(hereinafter referred to as the "Plan") as effective January 1, 1998; and,
WHEREAS, the Employer desires to amend the Plan to revise the definition of
Compensation under the Plan,
NOW THEREFORE, pursuant to Section 9.1 of the Plan and effective as of January
1, 1998, the Plan is hereby amended as follows:
FIRST: The following sentence shall replace the first sentence in Section
1.10 of the 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 purpose of income tax withholding at the source), not
including any cut-off awards or formula awards under any compensation,
incentive or bonus plan now in existence or hereafter executed by the
Employer, 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)).
SECOND: The Amendment contained herein shall not apply to contributions
allocated under the Plan based on Compensation earned prior to the
effective date of said Amendment. In all other respects, the Plan is
hereby confirmed, ratified and approved.
<PAGE> 2
IN WITNESS WHEREOF, the Employer has executed and adopted this First Amendment
on this 30 day of April 1998.
ALLIED CAPITAL CORPORATION
By: /s/ KELLY A. ANDERSON
----------------------------
Title: Principal and Treasurer
-------------------------
-2-
<PAGE> 1
EXHIBIT 10.11(a)
FIRST AMENDMENT
TO THE
ALLIED CAPITAL CORPORATION
DEFERRED COMPENSATION PLAN
WHEREAS, Allied Capital Corporation (hereinafter referred to as the "Employer")
maintains the Allied Capital Corporation Deferred Compensation Plan (hereinafter
referred to as the "Plan") as effective January 1, 1998; and,
WHEREAS, the Employer desires to amend the Plan to revise the terms and
conditions of the Plan.
NOW THEREFORE, pursuant to Section 10.1 of the Plan, the Plan is hereby amended
as follows:
FIRST: The following is added to the end of Section 4.5(c):
Effective 1/1/98, no dividend shall be allocated to a Formula Award
Account, established pursuant to Section 4.4, with respect to
Employer stock held in such account.
SECOND: The following section is added after Section 4.5(c):
(d) Investment in Employer Stock. With respect to Participant
Deferral Elections pursuant to Section 4.5 (a) and (b) which are
invested in Employer stock, effective 7/1/98, no dividend shall
be allocated to Employer Stock held in a Participant Account
established pursuant to Section 4.2 of the Plan. Any dividend
awarded prior to 7/1/98 with respect to Employer stock held in
such Participant Account shall be used exclusively to purchase
additional shares of Employer stock.
THIRD: The following shall be added to the end of Section 5.6:
Effective 7/1/98, with respect to Benefits payable from an Account
invested in Employer Stock, such Benefits shall be paid solely in
the form of common stock of Allied Capital Corporation.
<PAGE> 2
FOURTH: In all other respects, the Plan is hereby confirmed, ratified and
approved.
IN WITNESS WHEREOF, the Employer has executed and adopted this First Amendment
on this 30 day of April 1998.
ALLIED CAPITAL CORPORATION
By: /s/ KELLY A. ANDERSON
----------------------------
Title: Principal and Treasurer
-------------------------
-2-
<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 FLOWS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
INCORPORATED BY REFERENCE IN FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 666,002
<INVESTMENTS-AT-VALUE> 667,027
<RECEIVABLES> 0
<ASSETS-OTHER> 33,004
<OTHER-ITEMS-ASSETS> 40,773
<TOTAL-ASSETS> 740,804
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 260,000
<OTHER-ITEMS-LIABILITIES> 55,539
<TOTAL-LIABILITIES> 315,539
<SENIOR-EQUITY> 5
<PAID-IN-CAPITAL-COMMON> 453,975
<SHARES-COMMON-STOCK> 51,360
<SHARES-COMMON-PRIOR> 52,047
<ACCUMULATED-NII-CURRENT> 9,082
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (20)
<NET-ASSETS> 418,265
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 38,245
<OTHER-INCOME> 19,973
<EXPENSES-NET> 24,150
<NET-INVESTMENT-INCOME> 34,068
<REALIZED-GAINS-CURRENT> 13,794
<APPREC-INCREASE-CURRENT> (1,321)
<NET-CHANGE-FROM-OPS> 46,541
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 36,578
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8
<NUMBER-OF-SHARES-REDEEMED> 806
<SHARES-REINVESTED> 111
<NET-CHANGE-IN-ASSETS> (1,795)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 2,679
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,005
<INTEREST-EXPENSE> 8,830
<GROSS-EXPENSE> 24,150
<AVERAGE-NET-ASSETS> 419,163
<PER-SHARE-NAV-BEGIN> 8.07
<PER-SHARE-NII> 0.65
<PER-SHARE-GAIN-APPREC> 0.24
<PER-SHARE-DIVIDEND> 0.70
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 8.14
<EXPENSE-RATIO> 0.12
<AVG-DEBT-OUTSTANDING> 322,832
<AVG-DEBT-PER-SHARE> 6.28
</TABLE>
