<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
For the quarterly period Commission file number:
ended SEPTEMBER 30, 1997 0-20352
------------------ -----------------------
ALLIED CAPITAL COMMERCIAL CORPORATION
--------------------------------------------------------------
(exact name of Registrant as specified in its charter)
MARYLAND 52-1777868
- ----------------------- ----------------------
(State or jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
C/O ALLIED CAPITAL ADVISERS, INC.
1666 K STREET, N.W.
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 November 4, 1997 there were 14,743,736 shares outstanding of the
Registrant's common stock, $0.0001 par value.
<PAGE> 2
ALLIED CAPITAL COMMERCIAL CORPORATION
FORM 10-Q INDEX
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of September 30, 1997 and December 31, 1996 . . . . . . . . . 1
Consolidated Statement of Income - For the Three and Nine Months Ended
September 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statement of Cash Flows - For the Nine Months Ended
September 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . 11
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
<PAGE> 3
PART I - Financial Information
ITEM 1. FINANCIAL STATEMENTS
ALLIED CAPITAL COMMERCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
(in thousands, except number of shares)
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
(unaudited)
<S> <C> <C>
Assets
Investments in real estate loans, net . . . . . . . . . . . . . . . . . . . $461,624 $355,461
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . 5,655 3,496
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,644 9,322
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . -- 2,025
--------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 468,923 $ 370,304
======== ========
Liabilities
Bonds payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,131 $ 54,123
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223,946 107,131
Investment management fee payable . . . . . . . . . . . . . . . . . . . . . 1,953 1,930
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 1,420
Accounts payable and other liabilities . . . . . . . . . . . . . . . . . . 7,748 2,213
Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,091 8,158
Commitments and Contingencies
Shareholders' Equity
Common stock, $0.0001 par value, 50,000,000 shares
authorized; 14,694,989 and 14,266,514 shares issued and
outstanding at 9/30/97 and 12/31/96 . . . . . . . . . . . . . . . . . . . 1 1
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 211,691 202,615
Notes receivable from sale of common stock . . . . . . . . . . . . . . . . (7,555) (6,345)
Retained earnings (accumulated distributions in excess of net income) . . (1,083) (942)
------- -------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . 203,054 195,329
------- -------
Total liabilities and shareholders' equity . . . . . . . . . . . . . . . $ 468,923 $ 370,304
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS
1
<PAGE> 4
ALLIED CAPITAL COMMERCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
September 30, September 30,
------------ ------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Investment income:
Interest from real estate loans:
Stated interest . . . . . . . . . . . . . . . . . . . . . . . . $ 12,094 $ 9,561 $ 32,749 $ 26,826
Discount amortization . . . . . . . . . . . . . . . . . . . . . 1,630 1,681 5,067 4,495
Other investment income . . . . . . . . . . . . . . . . . . . . 1,424 433 1,869 765
--------- ----- --------- -------
Total income from real estate loans . . . . . . . . . . . . 15,148 11,675 39,685 32,086
Interest on temporary investments . . . . . . . . . . . . . . . . 390 119 921 1,067
------ ------ ------- --------
Total investment income . . . . . . . . . . . . . . . . 15,538 11,794 40,606 33,153
------ ------ ------ ------
Interest and related expenses:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,896 3,045 12,184 7,853
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 100 416 718
------- --------- ------- -------
Net margin on investments . . . . . . . . . . . . . . . . . . . . . 10,485 8,649 28,006 24,582
------- ------ ------ ------
Operating expenses:
Investment management fees . . . . . . . . . . . . . . . . . . 1,956 1,808 5,826 5,335
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 472 525 924 1,023
----- ------ ------ ------
Income before gains and minority interests . . . . . . . . . . . . 8,057 6,316 21,256 18,224
Gains from dispositions of real estate loans, net . . . . . . . . . 1,297 528 2,087 4,588
------- ------ ------- ------
Income before minority interests . . . . . . . . . . . . . . . . . 9,354 6,844 23,343 22,812
Minority interests . . . . . . . . . . . . . . . . . . . . . . . . 361 452 949 1,883
------ ----- ------ ------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,993 $6,392 $22,394 $20,929
====== ====== ======= =======
Net income per share . . . . . . . . . . . . . . . . . . . . . . . $ 0.62 $ 0.45 $ 1.54 $ 1.49
====== ====== ====== ======
Weighted average number of shares and
share equivalents outstanding . . . . . . . . . . . . . . . . . . 14,616 14,118 14,508 13,957
------ ------ ------ ------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS
2
<PAGE> 5
ALLIED CAPITAL COMMERCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
---------------------------------------
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,394 $20,929
Adjustments to reconcile net income to net cash provided by operating
activities:
Discount amortization . . . . . . . . . . . . . . . . . . . . . . . . . . (5,067) (4,495)
Gains from disposition of loans . . . . . . . . . . . . . . . . . . . . . (2,087) (4,588)
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . -- 650
Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . 949 1,883
Amortization of debt issue costs . . . . . . . . . . . . . . . . . . . . 685 466
Changes in assets and liabilities . . . . . . . . . . . . . . . . . . . . 9,454 (1,815)
------ ------
Net cash provided by operating activities . . . . . . . . . . . . . . 26,328 13,030
------- ----------
Cash flows from investing activities:
Investment in loans . . . . . . . . . . . . . . . . . . . . . . . . . . . (174,858) (122,182)
Acquisition of real property . . . . . . . . . . . . . . . . . . . . . . 0 --
Collections of loan principal . . . . . . . . . . . . . . . . . . . . . . 77,134 64,170
Collections under note receivable from affiliate . . . . . . . . . . . . 203 4,751
--------- --------
Net cash used in investing activities . . . . . . . . . . . . . . . . (97,521) (53,261)
------- --------
Cash flows from financing activities
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19,504) (16,633)
Net borrowings under line of credit . . . . . . . . . . . . . . . . . . . 116,815 83,392
Payments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . (28,992) (37,746)
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . 947 738
Collections on notes receivable from sale of stock . . . . . . . . . . . 2,467 983
Minority interests distributions (2,565) (2,579)
------- -------
Net cash provided by financing activities . . . . . . . . . . . . . . 69,168 28,155
------ -------
Net decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . . (2,025) (12,076)
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . 2,025 12,668
------- ------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . $ -- $ 592
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS
3
<PAGE> 6
ALLIED CAPITAL COMMERCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
NOTE 1. GENERAL
In the opinion of management, the accompanying unaudited consolidated financial
statements of Allied Capital Commercial Corporation and its subsidiaries (the
Company) contain all adjustments (consisting of only recurring accruals)
necessary to present fairly the Company's consolidated financial position as of
September 30, 1997 and the results of operations, 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
consolidated financial statements and consolidated notes thereto included in
the Company's December 31, 1996 Annual Report. The results of operations for
the three and nine months ended September 30, 1997 are not necessarily
indicative of the operating results to be expected for the full year. Certain
reclassifications have been made to the 1996 consolidated financial statements
in order to conform to the 1997 presentation.
NOTE 2. INVESTMENT MANAGEMENT AGREEMENT
The Company has an investment management agreement with Allied Capital
Advisers, Inc. (Advisers). Advisers, under the supervision of the Company's
board of directors, identifies, evaluates, structures and closes the
investments to be made by the Company, arranges debt and equity capital for the
Company, and is responsible for monitoring the investments made by the Company,
including portfolio management and servicing. The investment management
agreement may be terminated at any time, without penalty, on sixty days notice
to Advisers if holders of two-thirds of the Company's shares vote to terminate
the agreement. In addition, the agreement will terminate automatically in the
event of its assignment.
Under the terms of its investment management agreement with Advisers, the
Company is obligated to pay fees on its consolidated invested assets at a rate
that approximates 2.5 percent per annum. However, in order for the Company to
provide loans to borrowers at lower interest rates and increase its
competitiveness in the marketplace, Advisers revised its fee schedule with the
Company in 1996, and revised its fee schedule again in January, 1997. The
revised fee schedule reflects different levels of management fee percentages
based upon certain characteristics of the outstanding loans held in the
Company's investment portfolio. The revised fees range from 0.5 percent of
invested assets to 3.5 percent of invested assets with a quarterly cap, at a
rate of 2.5 percent per annum, on the total management fees payable to
Advisers.
Management fees payable to Advisers with respect to the Company's holdings of
cash and interim investments have not been affected by these revisions to the
fee schedule. Management fees on cash and interim investments are payable
quarterly in arrears, at a rate of 0.5 percent per annum.
NOTE 3. INVESTMENTS IN REAL ESTATE LOANS
The Company's investments in loans consist of commercial real estate loans that
are either purchased from unrelated third parties or originated directly with
the borrower. As of September 30, 1997, approximately 66 percent of the
Company's portfolio of loans had fixed interest rates and 34 percent had
adjustable interest rates. As of September 30, 1997, approximately 17, 15 and
9 percent of the Company's portfolio was concentrated in California, Virginia
and Maryland, respectively. In addition, loans for hotels, office buildings,
retail and industrial warehouses equaled 36, 28, 11 and 10 percent,
respectively, or 85 percent of the Company's portfolio as of September 30,
1997.
4
<PAGE> 7
The Company generally defines impaired loans as those that are past due 120
days or more or loans that have other specifically identified credit issues. As
of September 30, 1997 and December 31, 1996, impaired loans equaled $6,848,000
and $10,978,000, respectively. Included in these totals are impaired loans
with specifically identified credit issues that equal $3,545,000 and $3,721,000
as of September 30, 1997 and December 31, 1996, respectively. The Company
maintains reserves for loan losses in order to absorb future losses in the
current portfolio. The reserve for loan losses is based on management's
assessment of existing conditions and reflects potential losses determined to
be probable and subject to reasonable estimation. The reserve balance totaled
$1,454,000 as of September 30, 1997 and December 31, 1996.
NOTE 4. BONDS AND NOTES PAYABLE
With respect to the bonds payable, the minimum required payment to the bond
holders on a monthly basis equals the sum of the total scheduled principal
payments for the loans in the underlying collateral pool of mortgage loans plus
the interest due on the bonds. The bonds stated interest rate is 6.92 percent
per annum, and the stated maturity for the bonds is February 25, 2003.
The Company and Business Mortgage Investors, Inc. (BMI) have a $40,000,000
revolving line of credit with a bank. The terms of the revolving line of credit
are interest only with all principal due at maturity. The revolving line of
credit bears interest at LIBOR plus 190 basis points, or 7.6 percent as of
September 30, 1997, and it expires in February, 1998. As of September 30,
1997, the Company had borrowings under this revolving line of credit of
$20,000,000.
The Company, again in conjunction with BMI, has an approved credit facility
with an investment bank, whereby the Company and BMI can borrow up to
$250,000,000 through repurchase agreements using their investments in loans as
collateral. The terms of the repurchase agreements are interest only with all
principal due at maturity. The repurchase agreements bear interest at LIBOR
plus 112 basis points, or 6.8 percent as of September 30, 1997, and the Company
had borrowed $203,920,000 as of that date. This credit facility expires in
January, 1999.
The Company uses interest rate swap agreements to manage its exposure to
fluctuations in interest rates in anticipation of a future long-term financing.
As of September 30, 1997, the Company had swap agreements with a notional
amount equal to $145 million. The Company pays third parties fixed rates
ranging from 6.7% to 7% and receives from these third parties a variable rate
based upon the short-term LIBOR. On September 30, 1997, the applicable LIBOR
rate for all agreements was 5.7%. These swap agreements have the effect of
hedging interest rate exposure on temporary variable rate credit facilities.
In addition, the swap agreements provide a hedge against changes in long-term
interest rates until such time as the loans in the portfolio are permanently
financed through securitization and the variable rate credit facilities are
repaid.
NOTE 5. DIVIDENDS
The Company's board of directors declared and the Company paid three dividends
to common shareholders totaling $1.56 per common share during the nine months
ended September 30, 1997. The Company paid quarterly dividends equal to $0.51,
$0.52 and $0.53 per common share for the three months ended March 31, 1997,
June 30, 1997 and September 30, 1997, respectively. In connection with these
dividends, the Company paid cash of $18.3 million and distributed new shares of
common stock to participants, through the dividend reinvestment plan, with a
value of $4.2 million for a total of $22.5 million.
The board of directors declares dividends based upon estimates of the Company's
taxable income (including ordinary investment income and capital gain income)
for the year. Taxable income and net income can differ substantially during a
taxable year due to differences in the timing of recognition of gains and
losses on the disposition of loans and due to different accounting methods used
for the amortization of purchased loan discounts.
NOTE 6. NET INCOME PER SHARE
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No.128, "Earnings per Share" (SFAS 128). SFAS
128 is effective for financial statements for both interim and annual periods
ending after December 15, 1997. SFAS 128 modifies the method of calculation of
net income per share and also requires a reconciliation between basic and
diluted per share amounts. Early adoption of the statement prior to the end of
1997 is not allowed.
5
<PAGE> 8
The following table (in thousands except per share data) presents the effect of
SFAS 128 on the Company's net income per share as if adopted for current period
disclosure:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income................................. $8,993 $6,392 $22,394 $20,929
====== ====== ======= =======
Basic average shares outstanding...... 14,523 13,995 14,394 13,874
====== ====== ====== ======
Basic net income per share ............. $0.62 $0.46 $1.56 $1.51
===== ===== ===== =====
Effect of dilutive securities:
Outstanding stock options........... 93 123 114 83
-- --- --- --
Diluted average shares 14,616 14,118 14,508 13,957
outstanding................................. ====== ====== ====== ======
Diluted net income per share............ $0.62 $0.45 $1.54 $1.50
===== ===== ===== =====
</TABLE>
NOTE 7. COMMITMENTS AND CONTINGENCIES
On September 30, 1997, the Company had outstanding loan commitments to invest
in various commercial real estate loans equal to $39 million.
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 financial
condition of the Company.
NOTE 8. CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk with respect to real estate loans in the
portfolio are limited due to a large base and geographic dispersion. The
Company makes investments across the nation and its loan portfolio can be
segregated into five regions: Northeast, Southeast, Central, Southwest and
West. As of September 30, 1997, the Company's loan concentration by these
regions was 17, 48, 7, 9 and 19 percent, respectively. This compares to the
Company's loan concentration by region as of December 31, 1996 of 20, 40, 5, 13
and 22 percent, respectively.
NOTE 9. MERGER
On August 14, 1997, the Company announced that it has entered into an Agreement
and Plan of Merger (the "Merger Agreement") with Allied Capital Corporation,
Allied Capital Corporation II, Allied Capital Lending Corporation and Allied
Capital Advisers, Inc. (collectively, the "Companies") pursuant to which the
Company and Allied Capital Corporation, Allied Capital Corporation II, and
Allied Capital Advisers, Inc. would merge with and into Allied Capital Lending
Corporation through a stock for stock exchange (the "Merger"). Pursuant to the
terms of the Merger Agreement, stockholders of the Company at the effective
time of the merger will receive 1.60 shares of the merged entity. The Merger
is subject to the approval by at least two-thirds of the stockholders of each
of the merging companies, as well as subject to certain regulatory approvals,
and other customary closing conditions. The Special Meetings of Stockholders
of the Companies to vote on the Merger and the other related transactions is
scheduled to be held on November 26, 1997. The Joint Proxy
Statement/Prospectus relating to the Merger was distributed to stockholders on
or about October 14, 1997.
Applications have been submitted by the Companies to the Securities and
Exchange Commission and the Small Business Administration seeking certain
exemptive relief and approvals in connection with the Merger. Such
applications are currently pending before such agencies. If all required
approvals are obtained, the Company anticipates the Merger would be effective
on December 31, 1997.
Upon approval of the Merger, the Company will change its method of accounting
for investments in loans from an amortized cost basis to a fair value method
determined by the board of directors.
The Company anticipates completing its planned securitization of certain loans
in the portfolio of investments in loans in the first quarter of fiscal year
1998. In conjunction with this planned transaction, the Company has identified
those loans to be securitized as held for sale. As of September 30, 1997, the
carrying cost of the loans approximates their fair value, and as a result no
adjustment is required to the assets' historical carrying cost.
6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and notes thereto included elsewhere in this report.
LOAN PORTFOLIO
The Company purchases or originates small business loans that are generally
secured by real estate and used in owner-operated or owner-managed small
businesses. The Company's loan terms include both fixed and variable interest
rate loans. As of September 30, 1997, the Company's loan portfolio consisted
of 66% fixed rate loans and 34% variable rate loans, as compared to 57% fixed
rate loans and 43% variable rate loans as of December 31, 1996. The Company
has financed and continues to finance many different property types including
hotels and motels, office buildings, retail and convenience stores, warehouses,
medical offices, nursing homes and factories.
The Company makes investments across the nation and its loan portfolio has been
segregated into five regions: Northeast, Southeast, Central, Southwest and
West. As of September 30, 1997, the Company's loan concentration by region was
17%, 48%, 7%, 9% and 19%, respectively. This compares to the Company's loan
concentration by region as of December 31, 1996 of 20%, 40%, 5%, 13% and 22%
for the Northeast, Southeast, Central, Southwest and West regions,
respectively. As of September 30, 1997, 36%, 28% and 11% of the Company's loan
portfolio was invested in properties secured by hotels and motels, office
buildings and retail space, respectively, as compared to 39%, 21% and 12% for
the same categories as of December 31, 1996.
The Company invested $175 million in commercial real estate loans during the
nine months of 1997. After considering normal principal payments and early
payoffs of certain loans, the net increase in the Company's loan portfolio was
$106 million for the nine months ended September 30, 1997.
Loans greater than 120 days past due or loans that have been specifically
identified are considered to be impaired. The Company does not accrue interest
on these loans. As of September 30, 1997, loans that were not accruing
interest totaled $6.8 million. The Company generally makes every effort to
work with the borrower in order to restore the loan to a performing status
before exercising other alternatives, such as foreclosure on the property. The
Company's loan loss reserve at September 30, 1997 and December 31, 1996 was
approximately $1.5 million.
RESULTS OF OPERATIONS
For The Three Months Ended September 30, 1997 and 1996
The Company's net income increased 41% to $9.0 million for the quarter ended
September 30, 1997 compared to $6.4 million for the same period last year, and
net income per share was $0.62 and $0.45 for these periods, respectively.
Total investment income for the quarter ended September 30, 1997 increased 32%
over the third quarter of 1996. The Company's net investments in mortgage
loans have increased $121.9 million or 36% to $461.6 million as of September
30, 1997 from $339.7 million at September 30, 1996. The Company has financed
its investments in mortgage loans through repayments of loans in the portfolio
and through additional borrowings on its lines of credit. The average yield on
the portfolio was 13% and 13.2% for the third quarter of 1997 and 1996,
respectively.
Net margin on investments after deducting interest expense was $10.5 million
for the quarter ended September 30, 1997 as compared to $8.6 million for the
quarter ended September 30, 1996, an increase of 21%. Net margin on
investments as a percentage of total investment income during the period was
67% and 73% for the third quarter of 1997 and 1996, respectively. Net margin
on investments as a percent of total income is expected to continue to decrease
as the Company leverages its equity capital with debt in order to finance the
growth in its loan portfolio. As the overall net margin on investments
increases, the return on equity and returns to shareholders should increase.
Average outstanding borrowings were $255 million and $145 million for the third
quarter of 1997 and 1996, respectively, and the average costs of borrowing was
7.7% and 8.2% for those same periods.
Investment management fees increased 8% or $150,000 to $1.95 million from $1.8
million as a result of growth in the Company's portfolio of investments in
mortgage loans; however, investment management fees as a percent of average
7
<PAGE> 10
total assets declined to 1.9% from 2.0%, when comparing the third quarters of
1997 and 1996. This decrease is due to the negotiated management fee schedule
modification in early 1997. Other expenses increased $233,000 to $472,000.
The increase in other operating expenses is primarily due to certain Merger
related expenses that were incurred in the third quarter.
The increase in the net income for the quarter ended September 30, 1997 as
compared to the comparable quarter of the prior year was also due to an
increase in the amount of realized gains recognized from the early repayment of
loans and related prepayment penalties. The Company received mortgage loan
repayments during the third quarter of 1997 totaling $31 million that resulted
in realized gains of $1.3 million, as compared to realized gains of $500,000 on
repayments of $27 million in the comparable period of last year. The Company
historically experiences significant fluctuations on a quarter-by-quarter basis
in the recognition of gains resulting from the repayment of loans. Quarterly
earnings are not necessarily indicative of expected annual results.
The Company's consolidated net income has been reduced by the minority interest
ownership in the net earnings of its consolidated subsidiaries. The minority
interest equaled $361,000 for the quarter ended September 30, 1997 as compared
to $452,000 in the same period of 1996.
For The Nine Months Ended September 30, 1997 and 1996
The Company's net income increased 7% to $22.4 million for the nine months
ended September 30, 1997 as compared to $20.9 million for the same period of
last year, and net income per share was $1.54 and $1.50 for these periods,
respectively.
The increase in net income for the nine months ended September 30, 1997 as
compared to the comparable period of the prior year is due primarily to an
increase in the amount of investment income resulting from the continued growth
of the Company's portfolio of commercial mortgage loans. The Company
originated or purchased loans totaling $175 million and $122 million for the
nine months ended September 30, 1997 and 1996, respectively. The Company
received mortgage loan repayments during the nine months ended September 30,
1997 and 1996 totaling $67 million and $56 million, respectively.
Total investment income for the nine months ended September 30, 1997 increased
22% over the corresponding period of the prior year. The average outstanding
portfolio balance for the nine months ended September 30, 1997 and 1996 was
$429 million and $339 million, respectively. The average yield earned on the
portfolio during 1997 and 1996 was 12.6% and 12.9%, respectively
Net margin on investments after deducting interest expense was $28 million for
the nine months ended September 30, 1997 as compared to $24.6 million for the
nine months ended September 30, 1996, an increase of 15%. Net margin on
investments as a percentage of total investment income during the period was
69% and 74% for 1997 and 1996, respectively. Net margin on investments as a
percent of total income is expected to continue to decrease as the Company
leverages its equity capital with debt in order to finance the growth in its
loan portfolio. As the overall net margin on investments increases, the return
on equity and returns to shareholders should increase. Average outstanding
borrowings during the nine months ended September 30, 1997 and 1996 were $213
million and $132 million, respectively. The average costs of borrowings were
7.6% and 7.8% for the same periods.
Total investment management fees increased 9.2% or $500,000 to $5.8 million
from $5.3 million for the nine months ended September 30, 1997 and 1996,
respectively. This increase in investment management fees is directly related
to the growth in the Company's portfolio of mortgage loans. Investment
management fees averaged 1.8% and 2.2% of average total assets for the nine
months ended September 30, 1997 and 1996, respectively. Other expenses
increased $138,000 to $924,000 primarily due to certain Merger related expenses
that were incurred in the third quarter of 1997.
The Company realized gains of $2.1 million during the nine months ended
September 30, 1997, as compared to realized gains of $4.6 million for the same
period last year. In addition, the Company has received prepayment penalties
of $1.5 million in 1997. The Company experiences significant fluctuations in
the recognition of gains resulting from the repayment of loans. Earnings for
the nine months ended September 30, 1997 are not indicative of expected annual
results.
8
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
The Company uses its cash from operations to provide working capital to pay its
operating expenses, interest expense on outstanding indebtedness and to pay
dividends to its shareholders. The Company funds new loans from loan
repayments and through borrowings on its credit facilities. The Company has
two credit facilities that it shares with Business Mortgage Investors, Inc.
(BMI). The first is a $40 million revolving line of credit with a bank (line
of credit). The second is a $250 million master repurchase agreement
(repurchase facility), with an investment bank. At September 30, 1997, the
Company had borrowed $20 million and $204 million under the line of credit and
repurchase facility, respectively. The Company uses the line of credit and the
repurchase facility to warehouse loans until they can be permanently financed
through asset securitization, or through other means. As of September 30, 1997
the bonds outstanding related to the Company's 1995 securitization transaction
totaled $25 million.
The Company uses interest rate swap agreements to manage its exposure to
fluctuations in interest rates in anticipation of a future long-term financing.
As of September 30, 1997, the Company had swap agreements with a notional
amount equal to $145 million. The Company pays third parties fixed rates
ranging from 6.7% to 7% and receives from these third parties a variable rate
based upon the 30 Day LIBOR. On September 30, 1997, the applicable LIBOR rate
for all agreements was 5.7%. These swap agreements have the effect of hedging
interest rate exposure on temporary variable rate warehouse facilities, and
they provide a hedge against changes in long-term interest rates until such
time as the loans in the portfolio are permanently financed and the variable
rate warehouse facilities are repaid. Management anticipates securing
additional long-term financing during early 1998.
The Company issued approximately 184,000 common shares at an average price of
$24.18 per share to existing shareholders who participated in the dividend
reinvestment plan in 1997. The Company also issued approximately 293,000
shares for approximately $5.5 million, through the exercise of stock options
for which the Company provided loans of approximately $4.6 million.
The Company plans to increase its outstanding indebtedness during the upcoming
year in order to finance new real estate loans. Management of the Company
believes that the cash flow from operations, and the availability under its
existing lines of credit and new credit facilities are sufficient to enable the
Company to meet its current and anticipated future liquidity requirements
including payment of dividends to its shareholders.
FACTORS AFFECTING THE COMPANY'S BUSINESS
Proposed Merger. On August 14, 1997, the Company announced that it has entered
into an Agreement and Plan of Merger (the "Merger Agreement") with Allied
Capital Corporation, Allied Capital Corporation II, Allied Capital Lending
Corporation and Allied Capital Advisers, Inc. (collectively, the "Companies")
pursuant to which the Company and Allied Capital Corporation, Allied Capital
Corporation II, and Allied Capital Advisers, Inc. would merge with and into
Allied Capital Lending Corporation through a stock for stock exchange (the
"Merger"). Pursuant to the terms of the Merger Agreement, stockholders of the
Company at the effective time of the merger will receive 1.60 shares of the
merged entity. The Merger is subject to the approval by at least two-thirds of
the stockholders of each of the merging companies, as well as subject to
certain regulatory approvals, and other customary closing conditions. The
Special Meetings of Stockholders of the Companies to vote on the Merger and
the other related transactions is scheduled to be held on November 26, 1997.
The Joint Proxy Statement/Prospectus relating to the Merger was distributed to
stockholders on or about October 14, 1997.
Applications have been submitted by the Companies to the Securities and
Exchange Commission and the Small Business Administration seeking certain
exemptive relief and approvals in connection with the Merger. Such
applications are currently pending before such agencies. If all required
approvals are obtained, the Company anticipates the Merger would be effective
on December 31, 1997.
Interest rate fluctuations. Loans with variable interest rates may become
unattractive to some borrowers as market interest rates increase. Substantial
changes in market interest rates could result in greater rates of prepayments
of or defaults on outstanding loans and may inhibit the expansion of the
Company's business and reduce its profitability. The Company also originates or
purchases loans with fixed rates of interest. Loans with fixed interest rates
that are financed with variable rate debt capital could expose the Company to
reduced net margins on its loans as interest rates increase. The Company
carefully monitors this exposure and endeavors to match fixed rate loans on a
long-term basis with fixed rate financing.
9
<PAGE> 12
Competition. A large number of entities and individuals compete for the
opportunity to make the kinds of investments made by the Company. Many of
these entities and individuals have greater financial resources than the
combined resources of the Company. As a result of this competition, the
Company may from time to time be precluded from making otherwise attractive
investments on terms considered to be prudent in light of the risks to be
assumed.
Statements included in this filing concerning the Company's future prospects
are forward looking statements under the Federal securities laws. There can be
no assurance that future results will be achieved and actual results could
differ materially from forecasts and estimates.
10
<PAGE> 13
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 financial condition of the Company.
Item 2. CHANGES IN SECURITIES
No material changes have occurred in the securities of the Registrant.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
3(ii) Bylaws
11 Statement of Computation of Earnings Per Share
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended September 30, 1997.
11
<PAGE> 14
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 COMMERCIAL CORPORATION
-------------------------------------
(Registrant)
/s/ Jon A. DeLuca
--------------------------------------
Date: November 13, 1997 Jon A. DeLuca
Principal and Chief Financial Officer
12
<PAGE> 1
--------------------------
ALLIED CAPITAL COMMERCIAL CORPORATION
(a Maryland corporation)
-------------
BYLAWS
-------------
As adopted by the Sole Director on September 12, 1990, as amended by the Sole
Stockholder on August 8, 1991 and March 24, 1992, and as amended by the
Board of Directors on November 12, 1993, August 12, 1994, November 9,
1995, May 13, 1997 and August 13, 1997.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
------
Section 2. Additional Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
------------------
ARTICLE II MEETINGS OF STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Time and Place . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
--------------
Section 2. Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
--------------
Section 3. Notice of Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
------------------------
Section 4. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
----------------
Section 5. Notice of Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
-------------------------
Section 6. Presiding Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
-----------------
Section 7. Quorum. Adjournments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
---------------------
Section 8. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
------
Section 9. Action by Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
-----------------
ARTICLE III DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1. General Powers; Number; Tenure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
------------------------------
Section 2. Matters for Which Action of the Entire Board is Required . . . . . . . . . . . . . . . 4
--------------------------------------------------------
Section 3. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
---------
Section 4. Removal; Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
--------------------
Section 5. Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
-----------------
Section 6. Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
--------------
Section 7. Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
----------------
Section 8. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
----------------
Section 9. Quorum; Adjournments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
--------------------
Section 10. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
------------
Section 11. Action by Consent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
-----------------
Section 12. Meetings by Telephone or Similar Communications. . . . . . . . . . . . . . . . . . . . 6
-----------------------------------------------
ARTICLE IV COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 1. Executive Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
-------------------
Section 2. Nominating Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
--------------------
Section 3. Compensation Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
----------------------
Section 4. Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
---------------
Section 5. Advisory Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
------------------
Section 6. Other Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
----------------
Section 7. Procedure; Notice; Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
---------------------------
Section 8. Quorum; Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
------------
Section 9. Appointments; Vacancies; Changes; Discharges . . . . . . . . . . . . . . . . . . . . . 8
--------------------------------------------
Section 10. Tenure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
------
Section 11. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
------------
Section 12. Action by Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
-----------------
Section 13. Meetings by Telephone or Similar Communications. . . . . . . . . . . . . . . . . . . . 8
-----------------------------------------------
ARTICLE V NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 1. Form; Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
--------------
Section 2. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
------
ARTICLE VI OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 1. Designations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
------------
Section 2. Term of Office; Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
-----------------------
Section 3. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
------------
Section 4. The Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
-------------------------
Section 5. The President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
-------------
Section 6. The Managing Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
----------------------
Section 7. Principals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
----------
Section 8. Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
---------------
Section 9. The Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
-------------
Section 10. The Assistant Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
-----------------------
Section 11. Associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
----------
Section 12. The Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
-------------
Section 13. The Assistant Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
-----------------------
ARTICLE VII INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS . . . . . . . . . . . . . . . 12
Section 1. Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
---------
Section 2. Limitation for Disabling Conduct . . . . . . . . . . . . . . . . . . . . . . . . . . 13
--------------------------------
Section 3. Advisory Committee Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
--------------------------
ARTICLE VIII STOCK CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 1. Form of Signatures; Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
------------------------------
Section 2. Registration of Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
------------------------
Section 3. Registered Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
-----------------------
Section 4. Location of Stock Ledger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
------------------------
Section 5. Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
-----------
Section 6. Lost, Stolen or Destroyed Certificates . . . . . . . . . . . . . . . . . . . . . . . 17
--------------------------------------
ARTICLE IX GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 1. Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
---------
Section 2. Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
--------
Section 3. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
-----------
Section 4. Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
----
ARTICLE X AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
- -----------
</TABLE>
ii
<PAGE> 4
BYLAWS
ARTICLE I
OFFICES
Section 1. Office. The principal office of the Corporation shall be
at the offices of The Prentice-Hall Corporation System, Maryland, which is
located at 11 East Chase Street, Baltimore, Maryland 21202. The Corporation
also shall have an office at 1666 K Street, N.W., Washington, D.C. 20006-2803.
Section 2. Additional Offices. The Corporation may also have offices
at such other places, both within and without the State of Maryland, as the
Board of Directors may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Time and Place. Meetings of stockholders for any purpose
may be held at such time and place in the United States as the Board of
Directors may fix from time to time and as shall be stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meeting. Annual meetings of stockholders shall be
held during the month of May in each year on a date and at the time set by the
Board of Directors. At the Annual Meeting, the stockholders shall elect a
Board of Directors and transact such other business as may properly be brought
before the meeting.
Section 3. Notice of Annual Meeting. Written notice of the annual
meeting, stating the place, date and time thereof, shall be given by the
Secretary of the Corporation to each stockholder entitled to vote at such
meeting or to notice thereof not less than 10 (unless a longer period is
required by law) nor more than 90 days prior to the meeting.
Section 4. Special Meetings. Special meetings of the stockholders,
for any purpose or purposes, unless otherwise prescribed by statute or by the
Articles of Incorporation, may be called by the Chairman of the Board or the
President and shall be called by the Chairman of the Board, the President or
the Secretary at the request in writing of a majority of the Board of
Directors. Unless otherwise prescribed by statute or by the Articles of
Incorporation, and except as expressly set forth below, the Secretary shall
call a Special Meeting at the request in writing of stockholders entitled to
cast not less than a majority of all the votes entitled to be cast at such
meeting. Such request by stockholders shall state the purpose or purposes of
such meeting and the matters to be acted on thereat. If the request is made by
a majority of the stockholders
1
<PAGE> 5
entitled to cast votes at a meeting, the Secretary shall inform such
stockholders of the reasonably estimated cost of preparing and mailing such
notice of the meeting, and, upon payment to the Corporation of such costs by
such stockholders, the Secretary shall give notice stating the purpose or
purposes of the meeting, as required by these Bylaws, to all stockholders
entitled to notice of such meeting.
Section 5. Notice of Special Meeting. Written notice of a special
meeting, stating the place, date and time thereof and the purpose or purposes
for which the meeting is called, shall be given to each stockholder entitled to
vote at such meeting or to notice thereof not less than 10 (unless a longer
period is required by law) nor more than 90 days prior to the meeting.
Section 6. Presiding Officer. Meetings of stockholders shall be
presided over by the Chairman of the Board or, if he or she is not present, by
the President, or, if he or she is not present, by a Vice President, or, if he
or she is not present, by such person as may have been chosen by the Board of
Directors, or if none of such persons is present, by a chairman to be chosen by
the stockholders owning a majority of the shares of capital stock of the
Corporation issued and outstanding and entitled to vote at the meeting and who
are present in person or represented by proxy. The Secretary of the
Corporation, or, if he or she is not present, an Assistant Secretary, or, if he
or she is not present, such person as may be chosen by the Board of Directors,
or if none of such persons is present, then such person as may be chosen by the
stockholders owning a majority of the shares of capital stock of the
Corporation issued and outstanding and entitled to vote at the meeting and who
are present in person or represented by proxy shall act as secretary of the
meeting.
Section 7. Quorum. Adjournments. The presence in person or by proxy
of stockholders entitled to cast a majority of the votes thereat shall be
necessary to, and shall constitute a quorum for, the transaction of business at
all meetings of the stockholders, except as otherwise provided by statute or by
the Articles of Incorporation. If, however, a quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have the power
to adjourn the meeting from time to time, without notice of the adjourned
meeting if the time and place thereof are announced at the meeting at which the
adjournment is taken, until a quorum shall be present or represented. Even if
a quorum shall be present or represented at any meeting of the stockholders,
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have the power to adjourn the meeting from time to time for good
cause, without notice of the adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken, until a date
which is not more than 30 days after the date of the original meeting. At any
such adjourned meeting, at which a quorum shall be present in person or
represented by proxy, any business may be transacted which might have been
transacted at the meeting as originally called. If the adjournment is for more
than 30 days, or, if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting or entitled to notice
thereof.
2
<PAGE> 6
Section 8. Voting.
(a) At any meeting of stockholders, every stockholder
having the right to vote shall be entitled to vote in person or by proxy.
Except as otherwise provided by law or the Articles of Incorporation, each
stockholder of record shall be entitled to one vote for each share of capital
stock registered in his, her or its name on the books of the Corporation, on
each matter submitted to a vote at a meeting of stockholders, except that no
stockholder shall be entitled to vote in respect of any shares of capital stock
if any installment payable thereon is overdue and unpaid.
(b) Except as otherwise provided by law or the Articles
of Incorporation, a majority of the votes cast at a meeting of stockholders at
which a quorum is present, shall be sufficient to take or authorize action upon
any matter which may properly come before such meeting.
Section 9. Action by Consent. Any action required or permitted to be
taken by law or the Articles of Incorporation at any meeting of stockholders
may be taken without a meeting, without prior notice and without a vote, if a
written consent, setting forth such action, is signed by all the stockholders
entitled to vote on the subject matter thereof and any other stockholders
entitled to notice of a meeting of stockholders (but not to vote thereat) have
waived in writing any rights which they may have to dissent from such action,
and such consent and waiver are filed with the records of stockholders'
meetings.
ARTICLE III
DIRECTORS
Section 1. General Powers; Number; Tenure. The business and affairs
of the Corporation shall be managed under the direction of its Board of
Directors, which may exercise all powers of the Corporation and perform all
lawful acts and things which are not by law, the Articles of Incorporation or
these Bylaws directed or required to be exercised or performed by, or are
conferred upon or reserved to, the stockholders. The number of directors shall
be that provided in the Articles of Incorporation until increased or decreased
pursuant to the following provisions, but shall never be greater than ten or
fewer than three unless otherwise permitted by law. A majority of the entire
Board of Directors may, at any time and from time to time, increase or decrease
the number of directors of the Corporation as set forth in the Articles of
Incorporation or these Bylaws, subject to the foregoing limitation. The tenure
of office of a director shall not be affected by any decrease in the number of
directors so made by the Board. The directors shall be elected, by a majority
of all the votes cast at the annual meeting of the stockholders, except as
provided in Section 3 of this Article, and each director elected shall hold
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office until the next succeeding annual meeting or until his or her successor
is elected and shall qualify. Directors need not be stockholders.
Section 2. Matters for Which Action of the Entire Board is Required.
Notwithstanding anything to the contrary in these Bylaws, the following actions
shall require the approval by the affirmative vote of a majority of the entire
Board of Directors:
(a) appointing any director to a committee of the Board
of Directors pursuant to Article IV of these Bylaws;
(b) appointing any employee, officer, or director of the
Corporation, or any person who is to become an employee, officer, or director
of the Corporation, to serve as an officer at the level of principal or above;
and
(c) altering, amending or repealing these Bylaws or
adopting new bylaws.
Section 3. Vacancies. Any vacancy occurring in the Board of
Directors for any cause other than by reason of an increase in the number of
directors may, unless otherwise provided in these Bylaws, be filled by a
majority of the remaining members of the Board of Directors, although such
majority is less than a quorum. Any vacancy occurring by reason of an increase
in the number of the directors may, unless otherwise provided in these Bylaws,
be filled by action of a majority of the directors constituting the entire
Board of Directors. A director elected by the Board of Directors to fill a
vacancy shall be elected to hold office until the next annual meeting of the
stockholders or until his or her successor is elected and shall qualify. If
there are no directors in office, any officer or stockholder may call a special
meeting of stockholders in accordance with the provisions of the Articles of
Incorporation or these Bylaws, at which meeting such vacancies shall be filled.
Section 4. Removal; Resignation.
(a) Except as otherwise provided by law or the Articles
of Incorporation, at any meeting of stockholders at which a quorum is present,
the stockholders may, by the affirmative vote of the holders of a majority of
the votes entitled to be cast thereon, remove any director or directors from
office with or without cause and may elect a successor or successors to fill
any resulting vacancy or vacancies for the unexpired terms of any removed
director or directors.
(b) Any director may resign at any time by giving written
notice to the Board of Directors, the Chairman of the Board, the President or
the Secretary of the Corporation. Unless otherwise specified in such written
notice, a resignation shall take effect upon delivery thereof to the Board of
Directors or the designated officer. It shall not be necessary for a
resignation to be accepted before it becomes effective.
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Section 5. Place of Meetings. The Board of Directors may hold
meetings, annual, regular or special, either within or without the State of
Maryland.
Section 6. Annual Meeting. The annual meeting of each newly elected
Board of Directors shall be held immediately following the annual meeting of
stockholders, and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present.
Section 7. Regular Meetings. Additional regular meetings of the
Board of Directors may be held without notice, at such time and place as may
from time to time be determined by the Board of Directors.
Section 8. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the President on at
least two days' notice to each director, if such notice is delivered personally
or sent by messenger, telegram, telecopy, facsimile transmission, or mail.
Special meetings shall be called by the Chairman of the Board, the President or
the Secretary in like manner and on like notice on the written request of two
or more of the number of directors then in office. Except as otherwise
provided by law, the Articles of Incorporation or Article X of these Bylaws,
any such notice need not state the purpose or purposes of such meeting.
Section 9. Quorum; Adjournments. At all meetings of the Board of
Directors, a majority of the number of directors then in office shall
constitute a quorum for the transaction of business, and the act of a majority
of the directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors, except as may be otherwise specifically provided
by law, the Articles of Incorporation or these Bylaws. If a quorum is not
present at any meeting of the Board of Directors, the directors present may
adjourn the meeting from time to time until a quorum shall be present, provided
that an announcement is made at such meeting, and notice is provided to any
directors not present at such meeting, of the time and place of the next
meeting.
Section 10. Compensation. Directors shall be entitled to such
compensation for their services as directors and to such reimbursement for any
reasonable expenses incurred in attending directors' meetings as may from time
to time be fixed by the Board of Directors. The compensation of directors (if
any) may be on such basis as is determined by the Board of Directors. Any
director may waive compensation for any meeting. Any director receiving
compensation under these provisions shall not be barred from serving the
Corporation in any other capacity and receiving compensation and reimbursement
for reasonable expenses for such other services.
Section 11. Action by Consent. Any action required or permitted to
be taken at any meeting of the Board of Directors may be taken without a
meeting if a written consent to such action is signed by all members of the
Board of Directors and such written consent is filed with the minutes of the
proceedings of the Board.
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Section 12. Meetings by Telephone or Similar Communications. The
Board of Directors may participate in a meeting by means of a conference
telephone or similar communications equipment by means of which all directors
participating in the meeting can hear each other at the same time, and
participation by such means shall be conclusively deemed to constitute presence
in person at such meeting.
ARTICLE IV
COMMITTEES
Section 1. Executive Committee. The Board of Directors may appoint
an Executive Committee consisting of not fewer than three members, one of whom
shall be designated as Chairman of the Executive Committee. The Chairman of
the Board and the President shall be elected members of the Executive
Committee. The Executive Committee shall have and may exercise those rights,
powers and authority of the Board of Directors as may from time to time be
granted to it by the Board of Directors subject to any limitations imposed by
law and may authorize the seal of the Corporation to be affixed to all papers
which may require the same.
Section 2. Nominating Committee. The Board of Directors shall
appoint a Nominating Committee consisting of not fewer than three members, one
of whom shall be designated as Chairman of the Nominating Committee. A
majority of members of the Nominating Committee shall not be officers of the
Corporation. The Nominating Committee shall have and may exercise those
rights, powers and authority of the Board of Directors as may from time to time
be granted to it by the Board of Directors; provided, however, that in addition
to any such rights, powers or authority, the Nominating Committee shall have
the exclusive right to recommend candidates for election as directors to the
Board of Directors.
Section 3. Compensation Committee. The Board of Directors may
appoint from its membership a Compensation Committee consisting of not fewer
than three members, one of whom shall be designated as Chairman of the
Compensation Committee. None of the members of the Compensation Committee
shall be officers of the Corporation. The Compensation Committee shall have
and may exercise those rights, powers and authority of the Board of Directors
as may from time to time be granted to it by the Board of Directors.
Section 4. Audit Committee. The Board of Directors may appoint from
its membership an Audit Committee consisting of not fewer than three members,
one of whom shall be designated as Chairman of the Audit Committee. A majority
of members of the Audit Committee shall not be officers of the Corporation.
The Audit Committee shall have and may exercise those rights, powers and
authority of the Board of Directors as may from time to time be granted to it
by the Board of Directors; provided, however, that in addition to any such
rights, powers or authority, the Audit Committee shall: (i) issue instructions
to and receive reports from outside accounting firms and to serve as the
liaison between the Corporation and the said firms;
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and (ii) review all potential conflict-of-interest situations arising in
respect of the Corporation's affairs and involving the Corporation's affiliates
or employees, and to make a report, verbal or written, to the full Board of
Directors with recommendations for their resolutions.
Section 5. Advisory Committee.
(a) The Board of Directors may appoint individuals of its
selection to an Advisory Committee to assist the Board of Directors in the
conduct of its duties and responsibilities. The Advisory Committee may meet in
conjunction with meetings of the Board of Directors and shall serve as advisers
and counselors to the Board of Directors as the members thereof shall determine
best serves the Corporation's interests.
(b) The Board of Directors, by resolutions adopted by a
majority of the whole Board, may appoint an Advisory Committee complying with
the terms of Section 2(a)(i) of the 1940 Act and the regulations promulgated
thereunder, to provide advice and counsel in respect to investment and loan
transactions entered or contemplated by the Corporation or its subsidiaries.
The Advisory Committee may be composed of up to five persons, who shall not be
directors, officers, employees or agents of the Corporation or any subsidiary
or investment adviser thereof. Advisory Committee members shall be entitled to
indemnification under Article VII below. The Advisory Committee and its
members will have no voting power and no authority, as agent or otherwise, to
act on behalf of the Corporation, in respect of any matter; and directors shall
be under no obligation to accept or reject any particular item of advice or
counsel provided thereby. The Advisory Committee may be invited to hold
meetings jointly with meetings of directors. Any one or more members of the
Advisory Committee may be invited to attend meetings of the directors and may
be offered access to the same information and materials otherwise provided only
to directors. The Advisory Committee may render its advice in written or
verbal form, and the same may or may not be recorded.
Section 6. Other Committees. The Board of Directors, by resolutions
adopted by a majority of the entire Board, may appoint a committee or
committees, as it shall deem advisable and impose upon such committee or
committees such functions and duties, and grant such rights, powers and
authority, as the Board of Directors shall prescribe (except the power to
declare dividends or distributions on stock, to issue stock except to the
extent permitted by law, to recommend to stockholders any action requiring
stockholders' approval, to amend these Bylaws or to approve any merger or share
exchange which does not require stockholders' approval).
Section 7. Procedure; Notice; Meetings. Each committee shall fix its
own rules of procedure and shall meet at such times and at such place or places
as may be provided by such rules or as the members of such committee shall
provide. Committee meetings may be called by the Chairman of the Board, the
President, the Chairman of the Committee, if any, or any two or more committee
members on at least twenty-four (24) hours notice, if such notice is delivered
personally or sent by messenger, telegram, telecopy, facsimile transmission, or
mail. Each committee shall keep regular minutes of its meetings and deliver
such minutes to the Board of
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Directors. The Chairman of each committee, or, in his or her absence, a member
of such committee chosen by a majority of the members of such committee
present, shall preside at the meetings of such committee, and another member
thereof, or any other person, chosen by such committee shall act as Secretary
of such committee, or in the capacity of Secretary for purposes of such
meeting.
Section 8. Quorum; Vote. With respect to each committee, a majority
of its members shall constitute a quorum for the transaction of business, and
the affirmative vote of a majority of the members thereof shall be required for
any action of such committee.
Section 9. Appointments; Vacancies; Changes; Discharges. The Board
of Directors shall have the exclusive power at any time, through the approval
by the affirmative vote of a majority of the entire Board of Directors, to
appoint directors to, fill vacancies in, change the membership of, or discharge
any committee.
Section 10. Tenure. Each member of a committee shall continue as a
member thereof until the expiration of his or her term as a director, or his or
her earlier resignation as a member of such committee or as a director, unless
sooner removed as a member of such committee by a vote of a majority of the
entire Board of Directors or as a director in accordance with these Bylaws.
Section 11. Compensation. Members of any committee shall be entitled
to such compensation for their services as members of any such committee and to
such reimbursement for any reasonable expenses incurred in attending committee
meetings as may from time to time be fixed by the Board of Directors. The
compensation (if any) of members of any committee may be on such basis as is
determined by the Board of Directors. Any member may waive compensation for
any meeting. Any committee member receiving compensation under these
provisions shall not be barred from serving the Corporation in any other
capacity and from receiving compensation and reimbursement of reasonable
expenses for such other services.
Section 12. Action by Consent. Any action required or permitted to
be taken at any meeting of any committee of the Board of Directors may be taken
without a meeting if a written consent to such action is signed by all members
of the committee and such written consent is filed with the minutes of its
proceedings.
Section 13. Meetings by Telephone or Similar Communications. The
members of any committee which is designated by the Board of Directors may
participate in a meeting of such committee by means of a conference telephone
or similar communications equipment by means of which all members participating
in the meeting can hear each other at the same time, and participation by such
means shall be conclusively deemed to constitute presence in person at such
meeting.
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ARTICLE V
NOTICES
Section 1. Form; Delivery. Whenever, under the provisions of law,
the Articles of Incorporation or these Bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean exclusively
personal notice unless otherwise specifically provided, but such notice may be
given in writing, by mail, addressed to such director or stockholder, provided,
in the case of a stockholder, such notice is addressed to his, her or its post
office address as such address appears on the records of the Corporation, with
postage thereon prepaid. Any such notice shall be deemed to have been given at
the time it is deposited in the United States mail. Notice to a director also
may be given personally or sent by messenger, telegram, telecopy or facsimile
transmission.
Section 2. Waiver. Whenever any notice is required to be given under
the provisions of law, the Articles of Incorporation or these Bylaws, a written
waiver thereof, signed by the person or persons entitled to said notice and
filed with the records of the meeting, whether before or after the time stated
therein, shall be conclusively deemed to be equivalent to such notice. In
addition, any stockholder who attends a meeting of stockholders in person, or
is represented at such meeting by proxy, without protesting at the commencement
of the meeting the lack of notice thereof to him or her, or any director who
attends a meeting of the Board of Directors without protesting at the
commencement of the meeting such lack of notice, shall be conclusively deemed
to have waived notice of such meeting.
ARTICLE VI
OFFICERS
Section 1. Designations. From and after the date of adoption of
these Bylaws, the officers of the Corporation shall be a Chairman of the Board,
President, Secretary and Treasurer. The officers of the Corporation also may
include one or more Managing Directors, Principals, Vice Presidents, Associates
and such other officers and/or agents as deemed necessary or appropriate,
provided, however, that a person may hold the position of Associate without
being designated an officer of the Corporation. All officers of the
Corporation shall exercise such powers and perform such duties as shall from
time to time be determined by the Board of Directors and permitted by law or
these Bylaws. Any number of offices may be held by the same person, unless the
Articles of Incorporation or these Bylaws otherwise provide, and no person
shall execute, acknowledge or verify any instrument in more than one capacity,
if such instrument is required by law, the Articles of Incorporation or these
Bylaws to be executed, acknowledged or verified by two or more officers.
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Section 2. Term of Office; Removal. The Board of Directors shall
choose a Chairman of the Board, President and one or more Managing Directors.
The Chairman, President and any Managing Director shall have the authority to
appoint a Secretary, Treasurer, and one or more Principals, Vice Presidents
and/or Associates who are officers of the Corporation, and such other officers
and agents as they shall deem necessary or appropriate. The officers of the
Corporation shall hold office until their successors are chosen and shall
qualify or until any such officer's resignation. Any officer elected or
appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the directors then in office when, in their
judgment, the best interests of the Corporation will be served thereby. Any
officer appointed other than by the Board of Directors may be removed by the
Board of Directors or the Chairman of the Board at any time. Such removal by
the Board or by the Chairman shall not prejudice the contractual rights, if
any, of the person so removed. Any vacancy occurring in any office of the
Corporation may be filled for the unexpired portion of the term by the Board of
Directors, where such office was held by an officer elected or appointed by the
Board, or by the Chairman, the President and any Managing Director, where such
office was held by their appointee.
Section 3. Compensation. The salaries of all officers of the
Corporation (if any) shall be fixed from time to time by the Board of Directors
and no officer shall be prevented from receiving such salary by reason of the
fact that he or she is also a director of the Corporation.
Section 4. The Chairman of the Board. The Chairman of the Board
shall be the chief executive officer of the Corporation and shall be
responsible for the overall strategic direction of the Corporation and, subject
to the direction of the Board of Directors, shall perform such executive,
supervisory and management functions and duties as may be assigned to him or
her from time to time by the Board. He or she shall, if present, preside at
all meetings of the stockholders and of the Board of Directors. The Chairman
of the Board shall execute in the corporate name all appropriate deeds,
mortgages, bonds, contracts or other instruments requiring a seal, under the
Seal of the Corporation, except in cases where such execution shall be
expressly delegated to another by the Board of Directors. The Chairman of the
Board shall be a member of the Executive Committee and an ex-officio member of
each standing committee.
Section 5. The President. The President, subject to the direction of
the Board of Directors and reporting to the Chairman of the Board, shall have
general charge of the business, affairs and property of the Corporation and
general supervision over its officers and agents. In general, he or she shall
perform all duties incident to the office of President, and shall see that all
orders and resolutions of the Board of Directors are carried into effect. In
the absence of the Chairman of the Board, the President shall preside at all
meetings of the stockholders and of the Board of Directors. The President
shall be a member of the Executive Committee and an ex-officio member of each
standing committee. Unless otherwise prescribed by the Board of Directors, the
President shall have full power and authority on behalf of the Corporation to
attend, act and vote at any meeting of stockholders of other corporations in
which the Corporation may hold securities. At such meeting, the President
shall possess and may exercise any and all rights and powers incident to the
ownership of such securities which the Corporation
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might have possessed and exercised if it had been present. The President shall
execute in the corporate name all appropriate deeds, mortgages, bonds,
contracts or other instruments requiring a seal of the Corporation, except in
cases in which the signing or execution thereof shall be expressly delegated by
the Board of Directors to some other officer or agent of the Corporation. The
Board of Directors may from time to time confer like powers and authority upon
any other person or persons.
Section 6. The Managing Directors. The Managing Directors, subject
to the direction of the Board of Directors and reporting to the Chairman of the
Board and President, shall assist in the general charge of the business of the
Corporation and general supervision over its officers and agents. In the
absence of the Chairman of the Board or President, at the direction of the
Board of Directors, a Managing Director may preside at all meetings of the
stockholders and of the Board of Directors. Unless otherwise prescribed by
the Chairman of the Board or President, the Managing Directors shall have full
power and authority on behalf of the Corporation to attend, act and vote at any
meeting of stockholders of other corporations in which the Corporation may hold
securities. At such meeting, the Managing Director shall possess and may
exercise any and all rights and powers incident to the ownership of such
securities which the Corporation might have possessed and exercised if it had
been present. At the direction of the Chairman of the Board or the President,
a Managing Director may execute in the corporate name all appropriate deeds,
mortgages, bonds, contracts or other instruments requiring a seal of the
Corporation, except in cases in which the signing or execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the Corporation. The Board of Directors may from time to time confer like
powers and authority upon any other person or persons.
Section 7. Principals. The Principals, if any, shall, in the absence
of the President and all Managing Directors or in the event of the disabilities
of all such persons, perform the duties and exercise the powers of the
President or a Managing Director and shall generally assist the President and
any and all Managing Directors and perform such other duties and have such
other powers as may from time to time be prescribed by the Board of Directors.
Section 8. Vice Presidents. The Vice Presidents, if any, shall
generally assist the President and any and all Managing Directors and/or the
Principals as directed by such officers and perform such other duties and have
such other powers as may from time to time be prescribed by the Board of
Directors.
Section 9. The Secretary. The Secretary shall attend all meetings of
the Board of Directors and meetings of the stockholders and record all votes
and the proceedings of the meetings in a book to be kept for that purpose and
shall perform like duties for the Executive Committee or other committees, if
required. He or she shall give, or cause to be given, notice of all meetings
of stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may from time to time be prescribed by the Board
of Directors, Chairman of the Board or the President, under whose supervision
he or she shall act; provided, however, that
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in addition to any such duties, the Secretary shall: (i) provide each director
with a copy of the Bylaws of the Corporation upon his or her election as a
director; and (ii) upon any amendment to these Bylaws, provide each director
with a copy of the Bylaws, as amended, promptly after such Bylaws have been
approved by the Board of Directors. The Secretary shall have custody of the
seal of the Corporation, and he or she, or an Assistant Secretary, shall have
authority to affix the same to any instrument requiring it, and, when so
affixed, the seal may be attested by his or her signature or by the signature
of such Assistant Secretary. The Board of Directors may give general authority
to any other officer to affix the seal of the Corporation and to attest the
affixing thereof by his or her signature.
Section 10. The Assistant Secretary. The Assistant Secretary, if any
(or, in the event there be more than one, the Assistant Secretaries in the
order designated, or, in the absence of any designation, in the order of their
election), shall, in the absence of the Secretary or in the event of his or her
disability, perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as may from time to
time be prescribed by the Board of Directors.
Section 11. Associates. The Associates who are designated officers of
the Corporation, if any, shall assist the President, any and all Managing
Directors, Principals, and Vice Presidents of the Corporation as directed by
such officers and perform such other duties and have such other powers as may
from time to time be prescribed by the Board of Directors.
Section 12. The Treasurer. The Treasurer shall have the custody of
the corporate funds and other valuable effects, including securities, and shall
keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories
as may from time to time be designated by the Board of Directors. He or she
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the Chairman of the Board, the President and the Board of Directors, at regular
meetings of the Board of Directors, or whenever the Board of Directors may
require it, an account of all his or her transactions as Treasurer and of the
financial condition of the Corporation.
Section 13. The Assistant Treasurer. The Assistant Treasurer, if any
(or in the event there shall be more than one, the Assistant Treasurers in the
order designated, or, in the absence of any designation, in the order of their
election), shall, in the absence of the Treasurer or in the event of his or her
disability, perform the duties and exercise the powers of the Treasurer and
shall perform such other duties and have such other powers as may from time to
time be prescribed by the Board of Directors.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
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Section 1. Generally. Reference is made to Section 2-418 (and any
other relevant provisions) of the Corporations and Associations Article of the
Annotated Code of Maryland (1993), as amended. Particular reference is made to
the class of persons (hereinafter called "Indemnitees") who may be indemnified
by a Maryland corporation pursuant to the provisions of such Section 2-418,
namely, any entity (including the Corporation's investment adviser) or person
(or the heirs, executors or administrators of such person) who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that such person is or was a director,
officer, employee or agent of such corporation, or is or was serving at the
request of such corporation as a director, manager, partner, officer, trustee,
employee, agent or any similar title of another corporation, partnership, joint
venture, trust or other enterprise or employee benefit plan.
(a) The Corporation shall (and is hereby obligated to)
indemnify the Indemnitees, and each of them, in each and every situation where
the Corporation is obligated to make such indemnification pursuant to the
aforesaid statutory provisions or pursuant to the Articles of Incorporation.
(b) The Corporation shall indemnify the Indemnitees, and
each of them, in each and every situation where, under the aforesaid statutory
provisions, the Corporation is not obligated, but is nevertheless permitted or
empowered, to make such indemnification, if the Board of Directors determines
that such Indemnitee acted in good faith and in a manner such Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, in the case of any criminal action or proceeding, that such
Indemnitee had no reasonable cause to believe that such Indemnitee's conduct
was unlawful.
Section 2. Limitation for Disabling Conduct.
(a) Notwithstanding anything to the contrary in Section 1
hereof, the Corporation may not indemnify any director or officer of the
Corporation against any liability, nor shall any director or officer of the
Corporation be exculpated from any liability, to the Corporation or its
stockholders to which such director or officer might otherwise be subject by
reason of "disabling conduct," as hereinafter defined. Accordingly, each
determination with respect to the permissibility of indemnification of a
director or officer of the Corporation because such director or officer has met
the applicable standard of conduct shall include a determination that the
liability for which such indemnification is sought did not arise by reason of
such person's disabling conduct. The determination required by this Subsection
2(a) may be based on:
(i) a final decision on the merits by a court or
other body before whom the action, suit or proceeding was brought that the
person to be indemnified was not liable by reason of disabling conduct, or
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(ii) in the absence of such a decision, a
reasonable determination, based on a review of the facts, that the person to be
indemnified was not liable by reason of such person's disabling conduct by: (A)
the vote of a majority of a quorum of directors who are disinterested,
non-party directors; or (B) an independent legal counsel in a written opinion.
In making such determination, such disinterested, non-party directors or
independent legal counsel, as the case may be, may deem the dismissal for
insufficiency of evidence of any disabling conduct of either a court action or
an administrative proceeding against a person to be indemnified to provide
reasonable assurance that such person was not liable by reason of disabling
conduct.
(b) For the purpose of this Section:
(i) "disabling conduct" of a director or officer
shall mean such person's willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the office or any
other conduct prohibited under Section 17(h) of the 1940 Act or any other
applicable securities laws;
(ii) "disinterested, non-party director" shall
mean a director of the Corporation who is neither an "interested person" of the
Corporation as defined in Section 2(a)(19) of the 1940 Act nor a party to the
action, suit or proceeding in connection with which indemnification is sought;
(iii) "independent legal counsel" shall mean a
member of the Bar of the State of Maryland who is not, and for at least two (2)
years prior to his or her engagement to render the opinion in question has not
been, employed or retained by the Corporation, by any investment adviser to or
principal underwriter for the Corporation, or by any person affiliated with any
of the foregoing; and
(iv) "the Corporation" shall include, in addition
to the resulting Corporation, any constituent Corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, employees or agents.
(c) The Corporation may purchase insurance to cover the
payment of costs incurred in performing the Corporation's obligations under
Section 1 hereof, but it is understood that no insurance may be obtained for
the purpose of indemnifying any disabling conduct.
(d) The Corporation may advance legal fees and other
expenses pursuant to the indemnification rights set forth in Section 1 hereof
so long as, in addition to the other requirements therefor, the Corporation
either:
(i) obtains security for the advance from the
Indemnitee;
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(ii) obtains insurance against losses arising by
reason of lawful advances; or
(iii) it shall be determined, pursuant to the means
set forth in Section 2 (a)(ii) hereof, that there is reason to believe that the
Indemnitee ultimately will be found entitled to indemnification.
Section 3. Advisory Committee Members. The Corporation shall
indemnify any person appointed to any Advisory Committee pursuant to Article
IV, Section 5 hereof (or the heirs, executors, or administrators of such
person) who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person is or was a member of the Advisory Committee of this Corporation, if the
Board of Directors determines that such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interest of the Corporation, and in the case of any criminal action or
proceeding, that such person had no reasonable cause to believe that such
person's conduct was unlawful.
ARTICLE VIII
STOCK CERTIFICATES
Section 1. Form of Signatures; Statements.
(a) Every stockholder in the Corporation shall be
entitled to have a certificate, signed by the Chairman of the Board or the
President or a Managing Director or a Principal and countersigned by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary
of the Corporation, exhibiting the number and class (and series, if any) of
shares owned by him, her or it, and bearing the seal of the Corporation. Such
signatures and seal may be facsimile transmission. In case any officer who has
signed, or whose facsimile signature was placed on, a certificate shall have
ceased to be such officer before such certificate is issued, it may
nevertheless be issued by the Corporation with the same effect as if he or she
were such officer at the date of its issue.
(b) Every certificate representing stock issued by the
Corporation, if it is authorized to issue stock of more than one class, shall
set forth upon the face or back of the certificate, a full statement or summary
of the designations and any preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications, and terms
and conditions of redemptions of the stock of each class which the Corporation
is authorized to issue and, if the Corporation is authorized to issue any
preferred or special class of stock in series, the differences in the relative
rights and preferences between the shares of each series to the extent they
have been set and the authority of the Board of Directors to set the relative
rights and preferences of subsequent series. In lieu of such full statement or
summary, there may be set
15
<PAGE> 19
forth upon the face or back of each certificate a statement that the
Corporation will furnish to the stockholder, upon request and without charge, a
full statement of such information.
(c) Every certificate representing shares which are
restricted as to transferability by the Corporation shall either (i) set forth
on the face or back of the certificate a full statement of such restriction or
(ii) state that the Corporation will furnish to the stockholder, upon request
and without charge, information about the restriction.
Section 2. Registration of Transfer. Upon surrender to the
Corporation or any transfer agent of the Corporation of a certificate for
shares duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, it shall be the duty of the Corporation or
its transfer agent to issue a new certificate to the person entitled thereto,
to cancel the old certificate and to record the transaction upon its books.
Section 3. Registered Stockholders.
(a) Except as otherwise provided by law, the Corporation
shall be entitled to recognize the exclusive right of a person who is
registered on its books as the owner of shares of its capital stock to receive
dividends or other distributions, to vote as such owner, and to hold liable for
calls and assessments a person who is registered on its books as the owner of
shares of its capital stock. The Corporation shall not be bound to recognize
any equitable or legal claim to or interest in such shares on the part of any
other person except that the Board of Directors may adopt by resolution a
procedure by which a stockholder may certify in writing to the Corporation that
any shares of its capital stock registered in the name of such stockholder are
held for the account of a specified person other than such stockholder are held
for the account of a specified person other than such stockholder.
(b) If a stockholder desires that notices and/or
dividends shall be sent to a name or address other than the name or address
appearing on the stock ledger maintained by the Corporation (or by the transfer
agent or registrar, if any), such stockholder shall have the duty to notify the
Corporation (or the transfer agent or registrar, if any), in writing, of such
desire. Such written notice shall specify the alternate name or address to be
used.
Section 4. Location of Stock Ledger. A copy of the Corporation's
stock ledger containing (i) the name and address of each stockholder, and (ii)
the number and shares of stock of each class which the stockholder holds shall
be maintained at the Corporation's office located at 1666 K Street, N.W.,
Washington, DC 20006-2803.
Section 5. Record Date. In order that the Corporation may determine
the stockholders of record who are entitled to notice of or to vote at any
meeting of stockholders or any adjournment thereof, or entitled to receive
payment of any dividend or the allotment of any rights, or to make a
determination with respect to stockholders of record for any other proper
purpose, the Board of Directors may, in advance, fix a date as the record date
for any such determination or meeting.
16
<PAGE> 20
Such date shall not be more than 90 nor less than 10 days before the date of
any such meeting, nor more than 90 days prior to the date any other
determination is made with respect to stockholders. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting taken pursuant to
Section 7 of Article II; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
Section 6. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct that a new certificate be issued in place of any
certificate theretofore issued by the Corporation which is claimed to have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate to be lost, stolen or destroyed. When
authorizing such issuance of a new certificate, the Board of Directors may, in
its discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed certificate to advertise the same
in such manner as it shall require and/or to give the Corporation a bond in
such sum or other security in such form, as it may direct as indemnity against
any claim that may be made against the Corporation with respect to the
certificate claimed to have been lost, stolen or destroyed.
ARTICLE IX
GENERAL PROVISIONS
Section 1. Dividends. Except as otherwise provided by law or the
Articles of Incorporation, dividends upon the outstanding capital stock of the
Corporation may be declared by the Board of Directors at any annual, regular or
special meeting, and may be paid in cash, in property or in shares of the
Corporation's capital stock.
Section 2. Reserves. The Board of Directors shall have full power,
subject to the provisions of law and the Articles of Incorporation, to
determine whether any, and, if so, what part, of the funds legally available
for the payment of dividends shall be declared as dividends and paid to the
stockholders of the Corporation. The Board of Directors, in its sole
discretion, may fix a sum which may be set aside or reserved over and above the
paid-in capital of the Corporation for working capital or as a reserve for any
proper purpose, and may, from time to time, increase, diminish or vary such
fund or funds.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be
as determined from time to time by the Board of Directors.
Section 4. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its incorporation and the words "Corporate
Seal" and "Maryland."
17
<PAGE> 21
ARTICLE X
AMENDMENTS
The Board of Directors shall have the power to make, alter, amend and
repeal these Bylaws, and to adopt new bylaws, by an affirmative vote of a
majority of the entire Board of Directors, provided that notice of the proposal
to make, alter, amend or repeal these Bylaws, or to adopt new bylaws, was
included in the notice of the meeting of the Board of Directors at which such
action takes place.
18
<PAGE> 22
CERTIFICATE
We, WILLIAM L. WALTON and TRICIA BENZ DANIELS, President and
Secretary, respectively, of ALLIED CAPITAL COMMERCIAL CORPORATION (the
"Corporation"), a Maryland corporation, DO HEREBY CERTIFY that the foregoing is
a true and correct copy of the Corporation's Bylaws as amended and in effect
the date hereof.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the
corporate seal of the Corporation this 13th day of August, 1997.
/s/ WILLIAM L. WALTON
-------------------------------------
William L. Walton,
Chairman
/s/ TRICIA BENZ DANIELS
-------------------------------------
Tricia Benz Daniels, Secretary
[Corporate Seal]
19
<PAGE> 1
Allied Capital Commercial Corporation
Exhibit 11 Statement of Computation of Earnings Per Common Share
Form 10-Q
September 30, 1997
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------------- ------------------------------
1997 1996 1997 1996
-------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Primary Earnings Per Common Share:
Net Income 8,993,000 6,397,000 22,394,000 20,929,000
================================ ==============================
Weighted average of common
shares outstanding 14,523,615 13,994,734 14,393,759 13,873,519
Weighted average of common
shares issuable on exercise
of outstanding stock options 92,709 123,236 114,399 83,287
-------------------------------- ------------------------------
Weighted average of common
shares outstanding, as adjusted 14,616,324 14,117,970 14,508,158 13,956,806
================================ ==============================
Net Income per share 0.62 0.45 1.54 1.50
================================ ==============================
Fully Diluted Earnings Per Common Share:
Net Income 8,993,000 6,397,000 22,394,000 20,929,000
================================ ==============================
Weighted average common
shares and common share
equivalents as computed for
primary earnings per share 14,616,324 14,117,970 14,508,158 13,956,806
Weighted average of additional
shares issuable on exercise
of outstanding stock options 12,084 9,703 7,845 52,858
-------------------------------- ------------------------------
Weighted average of common
shares outstanding, as adjusted 14,628,408 14,127,673 14,516,003 14,009,664
================================ ==============================
Net Income per share assuming full 0.61 0.45 1.54 1.49
================================ ==============================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet, statements of operations and cash flows and is
qualified in its entirety by reference to such form 10Q for the nine months
ended September 30, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 468,923
<ALLOWANCES> 1,454
<INVENTORY> 0
<CURRENT-ASSETS> 468,923
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 468,923
<CURRENT-LIABILITIES> 9,701
<BONDS> 249,077
0
0
<COMMON> 1
<OTHER-SE> 203,053
<TOTAL-LIABILITY-AND-EQUITY> 468,923
<SALES> 42,693
<TOTAL-REVENUES> 42,693
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,166
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,184
<INCOME-PRETAX> 22,394
<INCOME-TAX> 0
<INCOME-CONTINUING> 22,394
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,394
<EPS-PRIMARY> 1.54
<EPS-DILUTED> 1.54
</TABLE>
