<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [ x ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ x ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Allied Capital Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ x ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[ALLIED CAPITAL LOGO]
ALLIED CAPITAL CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders:
The 1999 Annual Meeting of Stockholders of Allied Capital Corporation (the
"Company") will be held in the Crystal Ballroom at The Carlton Hotel, 923
Sixteenth Street, NW, Washington, DC on May 11, 1999 at 10:00 a.m. (Eastern
Time) for the following purposes:
1. To elect four directors of the Company who will serve for three years,
or until their successors are elected and qualified.
2. To ratify the selection of Arthur Andersen LLP to serve as independent
public accountants for the Company for the year ending December 31, 1999.
3. To transact such other business as may properly come before the meeting.
You have the right to receive notice and to vote at the meeting if you were
a stockholder of record at the close of business on March 24, 1999. Shareholders
are urged to vote their proxy promptly, whether or not they expect to attend the
meeting. In the event there are not sufficient votes for a quorum or to approve
or ratify any of the foregoing proposals at the time of the annual meeting, the
annual meeting may be adjourned in order to permit further solicitation of the
proxies by the Company.
By order of the Board of Directors
[/s/ Suzanne Votaw Sparrow]
Suzanne Votaw Sparrow
Corporate Secretary
March 31, 1999
This is an important meeting. To ensure proper representation at the
meeting, please complete, sign, date and, return the proxy card in the
enclosed, self-addressed envelope. Even if you sign and return a proxy
card, you still may attend the meeting and vote your shares in person.
<PAGE> 3
ALLIED CAPITAL CORPORATION
1919 Pennsylvania Avenue, NW, Third Floor
Washington, DC 20006
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Allied Capital Corporation (the "Company")
for use at the Company's 1999 Annual Meeting of Stockholders (the "Meeting") to
be held on May 11, 1999 at 10:00 a.m. (Eastern Time) in the Crystal Ballroom at
The Carlton Hotel, 923 Sixteenth Street, NW, Washington, DC and at any
adjournments thereof. This Proxy Statement, the accompanying proxy card and the
Company's Annual Report to Stockholders for the year ended December 31, 1998 are
first being sent to stockholders on or about March 31, 1999.
We encourage you to vote your shares, either by voting in person at the
Meeting or by granting a proxy (i.e., authorizing someone to vote your shares).
If you properly sign and date the accompanying proxy card and we receive it in
time for the Meeting, the persons named as proxies will vote the shares
registered directly in your name in the manner that you specified. IF YOU GIVE
NO INSTRUCTIONS ON THE PROXY CARD, THE SHARES COVERED BY THE PROXY CARD WILL BE
VOTED FOR THE ELECTION OF THE NOMINEES AS DIRECTORS AND FOR THE OTHER MATTERS
LISTED IN THE ACCOMPANYING NOTICE OF ANNUAL MEETING OF STOCKHOLDERS.
If you are a "stockholder of record" (i.e., you hold shares directly in
your name), you may revoke a proxy at any time before it is exercised by
notifying the Secretary of the Company in writing at the above address, by
submitting a properly executed, later-dated proxy or by voting in person at the
Meeting. Any stockholder of record attending the Meeting may vote in person
whether or not he or she has previously executed and returned a proxy card. If
your shares are held for your account by a broker, bank or other institution or
nominee ("Broker Shares"), you may vote such shares at the Meeting only if you
obtain proper written authority from your institution or nominee and present it
at the Meeting.
PURPOSE OF MEETING
At the Meeting, you will be asked to vote on the following proposals:
1. To elect four directors of the Company who will serve for three years,
or until their successors are elected and qualified.
2. To ratify the selection of Arthur Andersen LLP to serve as independent
public accountants for the Company for the year ending December 31, 1999.
3. To transact such other business as may properly come before the meeting.
VOTING SECURITIES
You may vote your shares at the Meeting only if you were a stockholder of
record at the close of business on March 24, 1999 (the "Record Date"). On March
24, 1999, there were 58,765,691 shares of the Company's common stock
outstanding. Each share of the common stock is entitled to one vote.
If a majority of the shares entitled to vote are present at the Meeting,
then a quorum has been reached and the Meeting can commence. A share is present
for quorum purposes if it is represented in person or by proxy for any purpose
at the Meeting. Abstentions and
<PAGE> 4
Broker Shares that are voted on any matter at the Meeting are included in
determining the presence of a quorum for the transaction of business at the
commencement of the Meeting and on those matters for which the broker, nominee
or fiduciary has authority to vote.
If a quorum is not present at the Meeting, or if a quorum is present but
there are not enough votes to approve any of the proposals, the persons named as
proxies may propose one or more adjournments of the Meeting to permit further
solicitation of proxies. Any such adjournment will require the affirmative vote
of a majority of the shares represented at the Meeting in person or by proxy.
The persons named as proxies will vote those proxies for such adjournment,
unless marked to be voted against any proposal for which an adjournment is
sought, to permit further solicitation of proxies. A stockholder vote may be
taken on one or more of the proposals in this Proxy Statement prior to any such
adjournment if there are sufficient votes for approval on such proposal(s).
The Company's Employee Stock Ownership Plan (the "ESOP") owns a total of
282,520 shares, representing 0.5% of the Company's total outstanding shares of
common stock. Participants in the ESOP may direct the voting of these shares;
however, if a participant does not direct the voting, the co-trustees of the
ESOP, who are executive officers of the Company, will vote the shares on behalf
of that participant.
Each of the four nominees for election as directors who receives a majority
of the affirmative votes cast at the Meeting in person or by proxy in the
election of directors will be elected as a director. Stockholders do not have
cumulative voting rights. Votes that are withheld, abstentions and Broker Shares
that are not voted in the election of directors will not be included in
determining the number of votes cast, and will have no effect on the election of
directors.
INFORMATION REGARDING THIS SOLICITATION
The Company will bear the expense of the solicitation of proxies for the
Meeting, including the cost of preparing, printing and mailing this Proxy
Statement, the accompanying Notice of Annual Meeting of Stockholders, and proxy
card. The Company has requested that brokers, nominees, fiduciaries and other
persons holding shares in their names, or in the name of their nominees, which
are beneficially owned by others, forward the proxy materials to, and obtain
proxies from, such beneficial owners. The Company will reimburse such persons
for their reasonable expenses in so doing.
In addition to the solicitation of proxies by the use of the mails, proxies
may be solicited in person and by telephone, facsimile transmission or telegram
by directors, officers or regular employees of the Company, without special
compensation therefor.
2
<PAGE> 5
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of March 24, 1999, the beneficial
ownership of each current director, each nominee for director, the Chief
Executive Officer, the Company's executive officers, and the executive officers
and directors as a group. At this time, the Company is unaware of any
shareholder owning 5% or more of the outstanding shares of common stock of the
Company. Unless otherwise indicated, the Company believes that each beneficial
owner set forth in the table has sole voting and investment power.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
NAME OF OWNED PERCENTAGE
BENEFICIAL OWNER BENEFICIALLY OF CLASS 1
- ---------------- ------------ ----------
<S> <C> <C>
DIRECTORS:
William L. Walton......................................... 779,650(2,3) 1.3%
Brooks H. Browne.......................................... 40,056 *
John D. Firestone (7)..................................... 19,332 *
Anthony T. Garcia (7)..................................... 52,507 *
Lawrence I. Hebert (7).................................... 16,800 *
John I. Leahy............................................. 16,818 *
Robert E. Long............................................ 9,796 *
Warren K. Montouri........................................ 196,182 *
Guy T. Steuart II......................................... 317,180(4) *
T. Murray Toomey, Esq..................................... 32,666(5) *
Laura W. van Roijen (7)................................... 28,302 *
George C. Williams, Jr.................................... 380,277(2) *
EXECUTIVE OFFICERS:
Philip A. McNeill......................................... 196,038(2) *
Penni F. Roll............................................. 64,444(2) *
John M. Scheurer.......................................... 369,573(2) *
Joan M. Sweeney........................................... 319,933(2) *
G. Cabell Williams III.................................... 732,153(2,3) 1.2%
All directors and executive officers as a group (17 in
number)................................................. 3,252,237(6) 5.5%
</TABLE>
- ---------------
* Less than 1%
(1) Based on a total of 58,765,691 shares of the Company's common stock issued
and outstanding on March 24, 1999 and shares of the Company's common stock
issuable upon the exercise of immediately exercisable stock options held by
each individual executive officer. At this time, no options have been
granted to non-officer directors.
(2) Share ownership for the following directors and executive officers includes:
<TABLE>
<CAPTION>
OPTIONS
EXERCISABLE ALLOCATED
OWNED WITHIN 60 DAYS TO ESOP
DIRECTLY OF MARCH 24, 1999 ACCOUNT
-------- ------------------ ---------
<S> <C> <C> <C>
William L. Walton.............................. 261,566 235,564 547
George C. Williams, Jr......................... 284,346 95,931 -
Philip A. McNeill.............................. 112,337 76,677 7,024
Penni F. Roll.................................. 35,975 25,959 2,510
John M. Scheurer............................... 235,267 114,876 19,430
Joan M. Sweeney................................ 196,355 115,592 7,986
G. Cabell Williams III......................... 365,998 83,635 61,635
</TABLE>
(3) Includes 282,520 shares held by the ESOP, of which Messrs. Walton and
Williams III are co-trustees. Participants in the ESOP may direct the voting
of these shares; however, if a participant
3
<PAGE> 6
does not direct the voting, the co-trustees of the ESOP will vote the shares
on behalf of the participants. Messrs. Walton and Williams III disclaim
beneficial ownership of such shares. As of December 31, 1998, all shares
held in the ESOP had been allocated to participants.
(4) Includes 276,691 shares held by a corporation for which Mr. Steuart serves
as an executive officer.
(5) Shares are held by a trust for the benefit of Mr. Toomey and his wife.
(6) Includes a total of 748,234 shares underlying stock options exercisable
within 60 days of March 24, 1999, which are assumed to be outstanding for
the purpose of calculating the group's percentage ownership, and 282,520
shares held by the ESOP.
(7) Director is a nominee standing for election at this Meeting.
ELECTION OF DIRECTORS
Effective at the Annual Meeting of Stockholders held on May 14, 1998 (the
"1998 Meeting"), the Company's bylaws were amended to provide that directors of
the Company would be classified into three approximately equal classes, with
each class being elected initially for one, two or three year terms, with the
terms of office of only one of the three classes expiring each year. At the 1998
Meeting, Class I Directors were elected for one-year terms, Class II Directors
were elected for two-year terms, and Class III Directors were elected for full
three year terms. Thereafter, Class I Directors will be elected for full
three-year terms commencing with the 1999 Annual Meeting of stockholders and
Class II Directors will be elected for full three-year terms commencing with the
2000 Annual Meeting of stockholders. Directors serve until their successors are
elected and qualified.
The Class I Directors, Messrs. Firestone, Garcia, and Hebert, and Ms. van
Roijen, have been nominated for election for a three-year term expiring in 2002.
No person being nominated as a director is being proposed for election pursuant
to any agreement or understanding between any such person and the Company.
A stockholder using the enclosed proxy card can vote for or withhold his or
her vote from any or all of the nominees. IF THE PROXY CARD IS PROPERLY EXECUTED
BUT UNMARKED, IT IS THE INTENTION OF THE PERSONS NAMED AS PROXIES TO VOTE SUCH
PROXY FOR THE ELECTION OF ALL THE NOMINEES NAMED BELOW. IF ANY OF THE NOMINEES
SHOULD DECLINE OR BE UNABLE TO SERVE AS A DIRECTOR, IT IS INTENDED THAT THE
ENCLOSED PROXY WILL BE VOTED FOR THE ELECTION OF SUCH PERSON OR PERSONS AS ARE
NOMINATED AS REPLACEMENTS. The Board of Directors has no reason to believe that
any of the persons named will be unable or unwilling to serve.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE
NOMINEES NAMED IN THIS PROXY STATEMENT.
INFORMATION ABOUT THE NOMINEES AND DIRECTORS
Certain information, as of March 24, 1999, with respect to each of the four
nominees for election at the Meeting, as well as each of the Class II and Class
III Directors, is set forth below, including their names, ages, a brief
description of their recent business experience, including present occupations
and employment, certain directorships that each nominee holds, and the year in
which each nominee became a director of the Company or any of its predecessor
companies. The predecessor companies are discussed below under "Cut-Off Award
and Formula Award."
All the directors and nominees currently serve as directors of the
Company's direct subsidiaries, including Allied Investment Corporation and
Allied Capital SBLC Corporation.
The business address of each nominee and director listed below is 1919
Pennsylvania Avenue, NW, Washington, DC 20006.
4
<PAGE> 7
NOMINEES FOR CLASS I DIRECTORS
JOHN D. FIRESTONE
Age 55. Partner of Secor Group since 1978; Director of Business Mortgage
Investors, Inc. (an affiliate of the Company) and Security Storage Company of
Washington, DC; Senior Advisor to Gilbert Capital, Inc. He has served as a
director of the Company or one of its predecessors since 1993.
ANTHONY T. GARCIA
Age 42. General Manager of Breen Capital Group (investor in tax liens) since
1997; Senior Vice President of Lehman Brothers Inc. from 1985 to 1996. He has
served as a director of the Company or one of its predecessors since 1991.
LAWRENCE I. HEBERT
Age 52. Director, Riggs National Corporation since 1988; Director, Riggs
Investment Management Corporation (an indirect subsidiary of the Corporation);
Director, Riggs Bank Europe Limited (an indirect subsidiary of the Corporation);
President and Director, Perpetual Corporation (owner of Allbritton
Communications Company and Allnewsco, Inc.); Chairman and Chief Executive
Officer, Allbritton Communications Company (owner of television stations);
Director, Allnewsco, Inc. (news programming service); President, Westfield News
Advertiser, Inc. (owner of a television station and newspapers); Trustee, The
Allbritton Foundation; Vice President, University Bancshares, Inc. (a Texas bank
holding company) from 1975 to 1997. He has served as a director of the Company
or one of its predecessors since 1989.
LAURA W. VAN ROIJEN
Age 47. Private real estate investor since 1992. Chairman of CWV & Associates
(RTC qualified contracting firm) from 1991 to 1994; Director and Treasurer of
Black Possum Inc. (retail concern) from 1994 to 1996; President of Volta Place,
Inc. (real estate advisory firm) from 1991 to 1994; Vice President (from 1986 to
1991) and Market Director (from 1989 to 1991) of Citicorp Real Estate, Inc. She
has served as a director of the Company or one of its predecessors since 1992.
CLASS II DIRECTORS -- TERM EXPIRING 2000
JOHN I. LEAHY
Age 68. President of Management and Marketing Associates (a management
consulting firm) since 1986; President and Group Executive Officer, Western
Hemisphere of Black & Decker Corporation from 1982 to 1985. Director of Kar
Kraft Systems, Inc., Cavanaugh Capital, Inc., Acorn Products, Inc., The Wills
Group, Thulman-Eastern Company and Gallagher Fluid Seals, Inc. He has served as
a director of the Company or one of its predecessors since 1994.
WARREN K. MONTOURI
Age 69. Partner, Montouri & Roberson, (real estate investment firm) since 1980;
Director of Franklin National Bank since 1996; Director of C&S/Sovran Bank from
1970 to 1990; Director of Sovran Financial Corporation from 1989 to 1990;
Director of NationsBank, N.A. from 1990 to 1996; Trustee of Suburban Hospital
from 1991 to 1994; Trustee of
5
<PAGE> 8
Audubon Naturalist Society from 1979 to 1985. He has served as a director of the
Company or one of its predecessors since 1986.
GUY T. STEUART II
Age 67. Director and President of Steuart Investment Company (manages, operates,
and leases real and personal property and holds stock in operating subsidiaries
engaged in various businesses) since 1960; Trustee Emeritus of Washington and
Lee University. He has served as a director of the Company or one of its
predecessors since 1984.
T. MURRAY TOOMEY, ESQ.
Age 75. Attorney at law since 1949; Director of The National Capital Bank of
Washington and Federal Center Plaza Corporation; Trustee of The Catholic
University of America. He has served as a director of the Company or one of its
predecessors since 1959.
CLASS III DIRECTORS -- TERM EXPIRING 2001
WILLIAM L. WALTON*
Age 49. Chairman, Chief Executive Officer and President of the Company since
1997; President of Allied Capital Corporation II from 1996 to 1997; Chairman of
Business Mortgage Investors, Inc. (an affiliate of the Company); Director of
Nobel Learning Communities, Inc. (a portfolio company); Chief Executive Officer
of Success Lab, Inc. (children's educational services) from 1993 to 1996; Chief
Executive Officer of Language Odyssey (educational publishing and services) from
1992 to 1996; Managing Director of Butler Capital Corporation from 1987 to 1991;
Investment adviser to William S. Paley, founder and Chairman of CBS, from 1985
to 1987; Investment banker at Lehman Brothers Kuhn Loeb from 1982 to 1985. He
has served as a director of the Company or one of its predecessors since 1986.
GEORGE C. WILLIAMS, JR.*
Age 72. Chairman Emeritus of the Company; officer of the predecessor companies
from the later of 1959 or the inception of the relevant entity; President or
Chairman and Chief Executive Officer of the predecessor companies from the later
of 1964 or each entities' inception until 1991. Director of Business Mortgage
Investors, Inc. (an affiliate of the Company). He has served as a director of
the Company and its predecessor companies since the later of 1964 or each
entity's inception. Mr. Williams is the father of G. Cabell Williams III, an
executive officer of the Company.
BROOKS H. BROWNE
Age 49. President of Environmental Enterprises Assistance Fund since 1993;
President, Executive Vice President or Senior Vice President of Allied Capital
Advisers, Inc. from 1984 to 1993; Director of SEAF, Corporation Financiera
Ambiental (Panama), Empresas Ambientales de Centro America (Costa Rica) and
Yayasan Bina Usaha Lingkungan (Indonesia) (environmental non-profit or
investment funds). He has served as a director of the Company or one of its
predecessor companies since 1990.
- ---------------
* Messrs. Walton and Williams are "interested persons" of the Company, as
defined in the Investment Company Act of 1940, as amended, due to their
positions as officers of the Company.
6
<PAGE> 9
ROBERT E. LONG
Age 67. Managing Director of Goodwyn, Long & Black Investment Management, Inc.;
President and Chief Executive Officer of Business News Network, Inc. from 1995
to 1998; Chairman and Chief Executive Officer of Southern Starr Broadcasting
Group, Inc. from 1991 to 1995; Director and President of Potomac Asset
Management, Inc. from 1983 to 1991; Director of Ambase Inc., AHL Shipping
Company, Inc., CSC Scientific, Inc., and Global Travel, Inc. He has served as a
director of the Company or one of its predecessor companies since 1972.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors of the Company has established an Executive
Committee, an Audit Committee, a Nominating Committee and a Compensation
Committee. During 1998, the Board of Directors of the Company held eight board
meetings and 23 committee meetings. All directors attended at least 75% of the
aggregate number of meetings of the Board and of the respective committees on
which they served, except Mr. Browne.
The Executive Committee has and may exercise those rights, powers and
authority that the Board of Directors from time to time grants to it, except
where action by the full Board is required by statute, an order of the
Securities and Exchange Commission (the "Commission") or the Company's charter
or bylaws. In addition, the Executive Committee is authorized to approve all
investments over $10 million, or any investment that possesses unusual
risk/reward characteristics. The Executive Committee consists of Messrs. Walton,
Leahy, Long, Montouri, and Williams. The Executive Committee met sixteen times
during 1998.
The Audit Committee recommends the selection of independent public
accountants for the Company, reviews with such independent public accountants
the planning, scope and results of their audit of the Company's financial
statements and the fees for services performed, reviews with the independent
public accountants the adequacy of internal control systems, reviews the
Company's annual financial statements and receives the Company's audit reports
and financial statements. The Audit Committee consists of Messrs. Browne, Leahy
and Steuart. The Audit Committee met twice during 1998.
The Compensation Committee determines the compensation for the Company's
executive officers and the amount of salary and bonus to be included in the
compensation package for each of the Company's officers and employees. In
addition, the Compensation Committee approves stock option grants for the
Company's officers under the Company's Stock Option Plan. The Compensation
Committee consists of Messrs. Browne, Long, Firestone, and Garcia. The
Compensation Committee met four times during 1998.
The Nominating Committee recommends candidates for election as directors to
the Board of Directors. The Nominating Committee consists of Messrs. Walton,
Hebert, Toomey and Steuart, and Ms. van Roijen. The Nominating Committee met
once during 1998.
7
<PAGE> 10
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth compensation that the Company paid during
the year ended December 31, 1998 to all the directors, the Chief Executive
Officer, and the three highest paid executive officers of the Company
(collectively, the "Compensated Persons,") in each capacity in which each
Compensated Person served. Certain of the Compensated Persons served as both
officers and directors.
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR
AGGREGATE SECURITIES RETIREMENT BENEFITS DIRECTORS FEES
COMPENSATION FROM UNDERLYING ACCRUED AS PART OF PAID BY THE
NAME AND POSITION THE COMPANY(1) OPTIONS/SARS(4) COMPANY EXPENSES COMPANY(5)
----------------- ----------------- --------------- ------------------- --------------
<S> <C> <C> <C> <C>
William L. Walton, Chairman
and Chief Executive
Officer(2)................ $2,158,599 754,188 $ -- $17,667
Joan M. Sweeney, Managing
Director(2)............... 1,178,920 374,275 -- 0
G. Cabell Williams III,
Managing Director(2)...... 896,873 278,403 -- 0
Brooks H. Browne,
Director.................. 10,500 -- -- 10,500
John D. Firestone,
Director.................. 11,500 -- -- 11,500
Anthony T. Garcia,
Director.................. 12,500 -- -- 12,500
Lawrence I. Hebert,
Director.................. 8,500 -- -- 8,500
John I. Leahy, Director..... 17,167 -- -- 17,167
Robert E. Long, Director.... 18,667 -- -- 18,667
Warren K. Montouri,
Director.................. 15,667 -- -- 15,667
Guy T. Steuart II,
Director.................. 11,000 -- -- 11,000
T. Murray Toomey,
Director.................. 7,500 -- -- 7,500
Laura W. van Roijen,
Director.................. 8,500 -- -- 8,500
George C. Williams, Jr.
Director, Chairman
Emeritus(3)............... 626,206 151,395 -- 18,167
</TABLE>
- -------------------------
(1) There were no perquisites paid by the Company in excess of the lesser of
$50,000 or 10% of the Compensated Person's total salary and bonus for the
year.
(2) The following table provides detail for 1998 as to the aggregate
compensation of the three highest paid executive officers of the Company.
<TABLE>
<CAPTION>
VESTED DEFERRED
FORMULA CUT-OFF ESOP COMPENSATION DIRECTORS
SALARY BONUS AWARD AWARD CONTRIBUTION CONTRIBUTION FEES
-------- -------- ---------- -------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Mr. Walton........... $351,517 $525,000 $1,056,683 $170,156 $8,000 $29,576 $17,667
Ms. Sweeney.......... 222,191 275,000 619,154 38,965 8,000 15,610 --
Mr. Williams III..... 225,327 275,000 287,523 88,257 8,000 12,766 --
</TABLE>
The Formula Award, which totaled approximately $19 million in the aggregate,
vests in three equal installments on December 31, 1998, 1999, and 2000, and will
be expensed for financial reporting purposes similarly. The amount of the
Formula Award expensed in 1998 for financial reporting purposes for Mr. Walton,
Ms. Sweeney and Mr. Williams was $1,472,451, $862,761 and $400,664,
respectively. The amount expensed was based on the value of the Formula Award
contribution to the deferred compensation plan in January 1998. On January 4,
1999, the first vested installment of the Formula Award was generally
distributed to participants at the market value of the Company's common stock on
that day. The distribution amount for Mr. Walton, Ms. Sweeney and Mr. Williams
was $1,056,683, $619,154 and $287,523, respectively. The deferred compensation
plan trust distributed the vested shares to brokerage accounts for the
participants that restrict the sale of the vested shares.
8
<PAGE> 11
The Cut-Off Award, which totaled $2.9 million in the aggregate, will be paid
to individuals on the respective vesting date of any options under the Old Plans
which were canceled in connection with the merger. See "-- Cut-Off Award and
Formula Award."
(3) In addition to director's fees, Mr. Williams received $144,000 in consulting
fees, $32,686 in Cut-Off Award and $431,353 in vested Formula Award. The
amount of the Formula Award expensed in 1998 for Mr. Williams was $601,068.
(4) See "Stock Option Awards" for terms of options granted in 1998. The Company
does not maintain a restricted stock plan or a long-term incentive plan.
(5) Consists only of directors' fees paid by the Company during 1998. Such fees
are also included in the column titled "Aggregate Compensation from the
Company."
COMPENSATION OF DIRECTORS
During the first quarter of 1998, each director received a fee of $1,000
for each meeting of the board of directors or any separate committee meeting
attended, and $500 for each committee meeting attended on the same day as a
board of directors meeting. Beginning in April 1998, each director received
$1,000 for each board or committee meeting attended, except with respect to the
members of the Executive Committee, who each received an annual retainer of
$10,000 in lieu of fees paid for each Executive Committee meeting attended. For
1998, this annual retainer was prorated. Non-officer directors are eligible for
stock option awards under the Company's current stock option plan provided that
the Commission grants exemptive relief to permit such awards. No grants have
been made to non-officer directors under the Company's stock option plan. See
"--Stock Option Plan."
STOCK OPTION AWARDS
The following table sets forth the details relating to option grants in
1998 to Compensated Persons under the Company's Stock Option Plan, and the
potential realizable value of each grant, as prescribed to be calculated by the
Commission. See "Stock Option Plan."
OPTIONS GRANTS DURING 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES
SECURITIES PERCENT OF OF STOCK APPRECIATION
UNDERLYING TOTAL OPTIONS EXERCISE OVER 10-YEAR TERM(3)
OPTIONS GRANTED PRICE PER EXPIRATION ------------------------
NAME GRANTED(1) IN 1998(2) SHARE DATE 5% 10%
- ---- ---------- ------------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
William L. Walton............ 659,188 12.7% $21.375 1/8/08 $8,861,216 $22,456,060
95,000 1.8 17.875 12/8/08 1,067,942 2,706,374
Joan M. Sweeney.............. 319,275 6.2 21.375 1/8/08 4,291,893 10,876,500
55,000 1.1 17.875 12/8/08 618,282 1,566,848
G. Cabell Williams III....... 223,403 4.3 21.375 1/8/08 3,003,122 7,610,501
55,000 1.1 17.875 12/8/08 618,282 1,566,848
George C. Williams, Jr....... 141,395 2.7 21.375 1/8/08 1,900,720 4,816,797
10,000 0.2 17.875 12/8/08 112,415 284,881
</TABLE>
- ---------------
(1) Options granted in 1998 generally vest in six equal installments beginning
on the date of grant, with full vesting occurring on the fifth anniversary
of the grant date or change of control of the Company.
(2) In 1998, the Company granted options to purchase a total of 5,189,944
shares.
(3) Potential realizable value is calculated on 1998 options granted, and is net
of the option exercise price but before any tax liabilities that may be
incurred. These amounts represent certain assumed rates of appreciation, as
mandated by the Commission. Actual gains, if any, or stock option exercises
are dependent on the future performance of the shares, overall market
conditions, and the continued employment by the Company of the option
holder. The potential realizable value will not necessarily be realized.
9
<PAGE> 12
CUT-OFF AWARD AND FORMULA AWARD
On December 31, 1997, entities formerly known as Allied Capital
Corporation, Allied Capital Corporation II, Allied Capital Commercial
Corporation and Allied Capital Advisers, Inc. ("Advisers") merged with and into
the Company, which was then known as Allied Capital Lending Corporation ("Allied
Lending"). Each predecessor company (including the Company) is referred to
individually as a "predecessor company" and collectively as the "predecessor
companies."
Prior to the merger, each of the five predecessor companies had a stock
option plan (the "Old Plans"). Each predecessor company had granted options
under its respective Old Plans to various employees of Advisers who also were
officers of that predecessor company. In preparation for the merger, the
compensation committee of Advisers, in conjunction with the compensation
committees of the other predecessor companies, determined that the five Old
Plans should be terminated upon the merger, so that the new merged Company would
be able to develop a new plan that would incent 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 employees, and to account for the
deviations caused by the existence of five plans supported by five different
publicly traded stocks, two special awards were developed to be granted in lieu
of options under the Old Plans that were forgone upon the merger and 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 was computed
for all outstanding, but unvested options that were canceled as of the date of
the merger (the "Cut-Off Award"). 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, in the aggregate, was computed to be $2.9 million, and is equal to the
difference between the market price 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 is payable for each canceled option as
the canceled options would have vested and vests automatically in the event of a
change of control. The Cut-Off Award is payable if the award recipient is
employed by the Company on the future vesting date. The following table
indicates the Cut-Off Award for each Compensated Person, and the related vesting
schedule.
<TABLE>
<CAPTION>
CUT-OFF AWARD RECIPIENT 1998 1999 2000 2001 2002
- ----------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
William L. Walton......... $170,157 $170,157 $170,157 $ 0 $ 0
Joan M. Sweeney........... 38,964 37,678 36,602 2,026 0
G. Cabell Williams III.... 88,257 46,802 39,677 21,152 18,916
George C. Williams, Jr.... 32,686 4,688 52,373 0 0
</TABLE>
Formula Award. The second award (the "Formula Award") was designed to
compensate officers from the point when their unvested options ceased to
appreciate in value pursuant to the Cut-Off Award (i.e. August 14, 1997) up
until the time at 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 (6%) 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. In total, the combined aggregate
market capitalization of the predecessor companies increased by $319 million
from August 14, 1997 to December 30, 1997, and the aggregate Formula Award was
approximately $19 million.
10
<PAGE> 13
The Formula Award was designed as a long-term compensation program to be a
replacement for canceled stock options and to balance share ownership among key
officers for past and prospective service. The terms of the Formula Award
required 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. See
"Deferred Compensation Plan."
The Formula Award vests and accrues equally over a three-year period, on
the anniversary of the merger date (December 31, 1997), and vests automatically
in the event of a change of control of the Company. If an officer terminates
employment with the Company prior to the vesting of any part of the Formula
Award, that amount will be forfeited to the Company. Assuming all officers meet
the vesting requirement, the Company will accrue the Formula Award over the
three-year period in equal amounts of approximately $6.4 million, less any
forfeitures. For the year ended December 31, 1998, $6.2 million, net of
forfeitures of $0.3 million, was expensed for the Formula Award. The following
table indicates the Formula Award for each Compensated Person, and the related
vesting schedule.
<TABLE>
<CAPTION>
FORMULA AWARD RECIPIENT 1998 1999 2000
- ----------------------- ---------- ---------- ----------
<S> <C> <C> <C>
William L. Walton...................... $1,472,451 $1,472,451 $1,472,451
Joan M. Sweeney........................ 862,761 862,761 862,761
G. Cabell Williams III................. 400,664 400,664 400,664
George C. Williams, Jr................. 601,068 601,068 601,068
</TABLE>
On January 4, 1999, the portion of the Formula Award that vested on
December 31, 1998 was generally distributed to participants in the form of the
Company's common stock which had a value of $4,062,000. These shares are held in
restricted accounts at a brokerage firm and are included in the direct ownership
of executive officers.
STOCK OPTION PLAN
The Company's Stock Option Plan (the "Plan") is intended to encourage stock
ownership in the Company by officers, thus giving them a proprietary interest in
the Company's performance. The Company's shareholders approved the Plan at the
Special Meeting of Stockholders of Allied Lending held on November 26, 1997.
The Compensation Committee's principal objective in awarding stock options
to the Company's Chief Executive Officer and other eligible officers is to align
each of the officer's interests with the success of the Company and the
financial interests of its stockholders. The committee believes that the Plan
achieves its objective because it links a portion of such executive's
compensation with the performance of the Company's stock and the value delivered
to stockholders. The committee grants stock options under the Plan at a price
not less than the prevailing market value and such options will have value only
if the Company's stock price increases. The committee determines the amount and
features of the stock options, if any, to be awarded to the Company's officers.
Historically, when granting stock options, the committee evaluated a number of
criteria, including the recipient's current stock holdings, years of service,
position with the Company, and other factors. The committee has not applied a
formula assigning specific weights to any of these factors when making its
determination. The committee has granted options to executive officers under the
Plan, which generally vest over a five-year period. See "Stock Option Awards."
The Plan is designed to satisfy the conditions of Section 422 of the Code
so that options granted thereunder may qualify as "incentive stock options." To
qualify as "incentive stock options," options may not become exercisable for the
first time in any year to the extent that the number of incentive options first
exercisable in that year multiplied by the exercise price exceeds $100,000.
11
<PAGE> 14
The Plan contemplates discretionary stock option grants to non-officer
directors, but the ability to make such grants must be approved by the
Commission. An application is on file with the Commission, and, if approved,
would permit option grants to non-officer directors under the Plan.
EMPLOYEE STOCK OWNERSHIP PLAN
The Company maintains an Employee Stock Ownership Plan, or ESOP. All
eligible employees (i.e., employees with one (1) year of service who are at
least 21 years of age) of the Company are eligible participants in the ESOP.
Pursuant to this qualified plan, during 1998 the Company contributed 5% of each
eligible participant's total cash compensation for the year, up to $160,000, to
a plan account on the participant's behalf, which fully vests over a two-year
period. The contribution with respect to compensation in excess of $160,000 is
made to the deferred compensation plan. The ESOP has used substantially all of
these cash contributions to purchase shares of the Company, thus aligning every
employee's interest with those of the Company and its stockholders. At December
31, 1998, the ESOP held 0.5% of the outstanding shares of the Company, and all
of these shares had been allocated to participants' plan accounts. See "Voting
Securities."
DEFERRED COMPENSATION PLAN
The Company maintains a deferred compensation plan (the "Deferred
Compensation Plan"). The Deferred Compensation Plan is a funded plan that
provides for the deferral of compensation by the Company's employees and
consultants. Any employee or consultant of the Company is eligible to
participate in the plan at such time and for such period as designated by the
Board of Directors. The Deferred Compensation Plan is administered through a
trust, and the Company funds this plan through cash contributions. The Deferred
Compensation Plan holds the unvested shares of the Company's common stock
purchased in connection with the Formula Award. See "-- Formula Award."
CERTAIN TRANSACTIONS
Indebtedness of Management. The following table sets forth certain
information regarding indebtedness to the Company in excess of $60,000 of any
person serving as a director or executive officer of the Company and of any
nominee for election as a director at any time since January 1, 1998. All of
such indebtedness results from loans made by the Company to enable the exercise
of stock options. The interest rates charged generally reflect the applicable
federal rate on the date of the loan.
<TABLE>
<CAPTION>
HIGHEST AMOUNT AMOUNT
POSITION WITH OUTSTANDING RANGE OF OUTSTANDING AT
NAME THE COMPANY DURING 1998 INTEREST RATES MARCH 24, 1999
- ---- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
William L. Walton........ Chairman and $2,414,218 6.24% $2,414,218
Chief Executive
Officer
Philip A. McNeill........ Managing Director 1,113,865 5.79% -- 6.24% 1,113,865
Penni F. Roll............ Principal and 447,695 5.8% -- 6.24% 447,695
Chief Financial
Officer
John M. Scheurer......... Managing Director 2,389,417 5.25% -- 7.45% 2,369,806
Joan M. Sweeney.......... Managing Director 1,832,719 5.79% -- 6.63% 1,832,719
G. Cabell Williams III... Managing Director 3,322,977 4.92% -- 6.24% 3,322,977
George C. Williams, Director and
Jr..................... Chairman Emeritus 1,850,446 5.89% -- 6.24% 1,850,446
</TABLE>
12
<PAGE> 15
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16(a) of the Securities Exchange Act of 1934, the
Company's directors and executive officers, and any persons holding 10% or more
of its common stock, are required to report their beneficial ownership and any
changes therein to the Commission, the National Association of Securities
Dealers, Inc. and the Company. Specific due dates for those reports have been
established, and the Company is required to report herein any failure to file
such reports by those due dates. Based on the Company's review of Forms 3, 4 and
5 filed by such persons, the Company believes that during 1998 all Section 16(a)
filing requirements applicable to such persons were met in a timely manner.
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The disinterested members of the Board of Directors have selected Arthur
Andersen LLP as independent public accountants for the Company for the year
ending December 31, 1999. This selection is subject to ratification or rejection
by the stockholders of the Company. If the stockholders ratify the selection of
Arthur Andersen LLP as the Company's accountants, Arthur Andersen LLP also will
be the independent public accountants for all subsidiaries of the Company.
Prior to the year ended December 31, 1997, the Company's financial
statements were audited by Matthews, Carter and Boyce, P.C. On December 12,
1997, Matthews, Carter and Boyce, P.C. resigned, effective upon the consummation
of the merger, and Arthur Andersen LLP was engaged and continues as the
independent accountants of the Company. The decision to change accountants in
conjunction with the merger was recommended by the Audit Committee and was
approved by the Board of Directors and the shareholders of the Company.
For the year ended December 31, 1996 and up to the date of resignation of
Matthews, Carter and Boyce, P.C., there were no disagreements with Matthews,
Carter and Boyce, P.C. on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure which, if not
resolved to the satisfaction of Matthews, Carter and Boyce, P.C., would have
caused it to make reference to the subject matter of the disagreement in
connection with its report. The independent accountants' report on the 1996
financial statements did not contain an adverse opinion or a disclaimer of
opinion, and was not qualified or modified as to uncertainty, audit scope or
accounting principles.
Arthur Andersen LLP has advised the Company that neither the firm nor any
present member or associate of it has any material financial interest, direct or
indirect, in the Company or its subsidiaries. It is not expected that a
representative of Arthur Andersen LLP will be present, or available to answer
questions, at the Meeting, but a representative would have an opportunity to
make a statement if he or she chose to attend.
The expense recorded during the fiscal year ended December 31, 1998 for the
professional services provided to the Company by Arthur Andersen LLP consisted
of fees for audit services (which included examination of the financial
statements of the Company and review of the filings by the Company of reports
and registration statements) and for non-audit services. The non-audit services,
which were arranged for by management without prior consideration by the Board
of Directors, consisted of non-audit-related consultation and the preparation of
tax returns for the Company. UNLESS MARKED TO THE CONTRARY, THE SHARES
REPRESENTED BY THE ENCLOSED PROXY CARD WILL BE VOTED FOR RATIFICATION OF THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE INDEPENDENT PUBLIC ACCOUNTANTS OF THE
COMPANY.
13
<PAGE> 16
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE TO RATIFY THE SELECTION OF
ARTHUR ANDERSEN LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE COMPANY.
OTHER BUSINESS
The Board of Directors knows of no other business to be presented for
action at the Meeting. If any matters do come before the Meeting on which action
can properly be taken, it is intended that the proxies shall vote in accordance
with the judgment of the person or persons exercising the authority conferred by
the proxy at the Meeting. The submission of a proposal does not guarantee its
inclusion in the Company's proxy statement or presentation at the Meeting unless
certain securities law requirements are met.
2000 ANNUAL MEETING OF STOCKHOLDERS
The Company expects that the 2000 Annual Meeting of Stockholders will be
held in May 2000, but the exact date, time, and location of such meeting have
yet to be determined. A stockholder who intends to present a proposal at that
annual meeting must submit the proposal in writing to the Company at its address
in Washington, DC, and the Company must receive the proposal no later than
December 3, 1999, in order for the proposal to be considered for inclusion in
the Company's proxy statement for that meeting. The submission of a proposal
does not guarantee its inclusion in the Company's proxy statement or
presentation at the meeting.
Rule 14a-4 of the Securities and Exchange Commission's proxy rules allows a
company to use discretionary voting authority to vote on matters coming before
an annual meeting of stockholders, if the company does not have notice of the
matter at least 45 days before the date corresponding to the date on which the
company first mailed its proxy materials for the prior year's annual meeting of
stockholders or the date specified by an overriding advance notice provision in
the company's bylaws. The Company's bylaws do not contain such an advance notice
provision. Accordingly, for the Company's 2000 Annual Meeting of Stockholders,
stockholders must submit written notice to the Corporate Secretary on or before
February 16, 2000.
14
<PAGE> 17
ALLIED CAPITAL CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints WILLIAM L. WALTON, GEORGE C. WILLIAMS, JR. and
SUZANNE V. SPARROW, or any one of them, and each with full power of
substitution, to act as attorneys and proxies for the undersigned to vote all
the shares of common stock of the Company which the undersigned is entitled to
vote at the Annual Meeting of Stockholders of the Company to be held in the
Crystal Ballroom of The Carlton Hotel, 923 Sixteenth Street, NW, Washington, DC
on May 11, 1999 at 10:00 A.M. and at all adjournments thereof, as indicated on
this proxy.
1. FOR [ ] WITHHOLD AUTHORITY [ ]
The election of the following four persons (except as marked to the
contrary) as Class I Directors who will serve as directors of Allied
Capital Corporation until 2002, or until their successors are
elected and qualified.
Class I Directors
John D. Firestone
Anthony T. Garcia
Lawrence I. Hebert
Laura W. van Roijen
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL,
STRIKE A LINE THROUGH HIS OR HER NAME ON THE LIST ABOVE.
2. FOR [ ] AGAINST [ ] ABSTAIN [ ]
The ratification of the selection of Arthur Andersen LLP as
independent public accountants for Allied Capital Corporation for
the year ending December 31, 1999.
THIS PROXY IS REVOCABLE AND WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS
ARE SPECIFIED, THIS PROXY WILL BE VOTED "FOR" THE NOMINEES AND FOR THE PROPOSAL
LISTED. If any other business is presented at the meeting, this proxy will be
voted by the proxies in their best judgment, including a motion to adjourn or
postpone the meeting to another time and/or place for the purpose of soliciting
additional proxies. At the present time, the Board of Directors knows of no
other business to be presented at the meeting.
Please mark, sign and return this proxy in the enclosed envelope. The
undersigned acknowledges receipt from the Company prior to the execution of
this proxy of a Notice of Annual Meeting of Stockholders and a Proxy Statement.
Dated
----------------------------------------------------
Signature
-----------------------------------------------
Signature
-----------------------------------------------
Please sign your name(s) exactly as shown hereon and date
your proxy in the blank provided. For joint accounts, each
joint owner should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give
your full title as such. If the signer is a corporation or
partnership, please sign in full corporate or partnership
name by a duly authorized officer or partner.
