-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OaeVzDpFTBpjz6tOpqR8Y1qXdJ58Z1esufiXwyU8X0NaBcoAoTqlnxbJLAThxlPP 72e/warQPvdK2nQF5wdDsQ== 0000950133-97-000938.txt : 19970325 0000950133-97-000938.hdr.sgml : 19970325 ACCESSION NUMBER: 0000950133-97-000938 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970501 FILED AS OF DATE: 19970324 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIED CAPITAL CORP CENTRAL INDEX KEY: 0000003845 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 530245085 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 811-00907 FILM NUMBER: 97561539 BUSINESS ADDRESS: STREET 1: 1666 K ST N W STE 901 CITY: WASHINGTON STATE: DC ZIP: 20006 BUSINESS PHONE: 2023311112 MAIL ADDRESS: STREET 2: 1666 K STREET NW 9TH FL CITY: WASHINGTON STATE: DC ZIP: 20006 DEF 14A 1 ALLIED CAPITAL CORPORATION PROXY STATEMENT. 1 SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ___) Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: Preliminary Proxy Statement Confidential, for Use of the Commission Only (as Permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement Definitive Additional Materials Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12 ALLIED CAPITAL CORPORATION -------------------------- (Name of Registrant as Specified in Its Charter) ---------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. 1) Title of each class of securities to which transaction applies: 2) Aggregate number of securities to which transaction applies: 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): 4) Proposed maximum aggregate value of transaction: 5) Total fee paid: [ ] Fee previously paid with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid: 2) Form, Schedule or Registration Statement No.: 3) Filing Party: 4) Date Filed: 2 [ALLIED CAPITAL LOGO] ALLIED CAPITAL CORPORATION NOTICE OF ANNUAL MEETING OF STOCKHOLDERS To the Stockholders: The 1997 Annual Meeting of Stockholders of Allied Capital Corporation (the "Company") will be held in the Montgomery Room at The Residence Inn by Marriott, 7335 Wisconsin Avenue, Bethesda, Maryland 20814 on May 1, 1997 at 10:00 a.m. for the following purposes: 1. To elect eight directors of the Company to serve until the next annual meeting of stockholders or until their successors are elected and qualified. 2. To ratify the selection of Matthews, Carter and Boyce, P.C. to serve as independent public accountants for the Company for the year ending December 31, 1997. 3. To consider and approve an amendment to the Company's Stock Option Plan (the "Plan"). 4. To transact such other business as may properly come before the meeting. The Board of Directors of the Company has fixed the close of business on March 13, 1997 as the record date for the determination of stockholders entitled to notice of, and to vote at, the meeting and any adjournment thereof. The Company's stock transfer books will not be closed. By order of the Board of Directors Tricia B. Daniels Secretary March 24, 1997 VOTING YOUR PROXY IS IMPORTANT THIS IS AN IMPORTANT MEETING. TO ENSURE PROPER REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE PROXY CARD IN THE ENCLOSED SELF-ADDRESSED ENVELOPE PROVIDED FOR THAT PURPOSE. STOCKHOLDERS WHO EXECUTE A PROXY CARD MAY ATTEND THE MEETING AND VOTE THEIR SHARES IN PERSON. 3 ALLIED CAPITAL CORPORATION C/O ALLIED CAPITAL ADVISERS, INC. 1666 K STREET, NW, NINTH FLOOR WASHINGTON, DC 20006 PROXY STATEMENT This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of Allied Capital Corporation (the "Company") for use at the Company's 1997 Annual Meeting of Stockholders (the "Meeting") to be held on May 1, 1997 at 10:00 a.m. in the Montgomery Room at The Residence Inn by Marriott, 7335 Wisconsin Avenue, Bethesda, Maryland 20814, and at any adjournments thereof. This Proxy Statement, the accompanying proxy card and the Company's Annual Report to Stockholders for the year ended December 31, 1996 are first being sent to stockholders on or about March 24, 1997. If the accompanying proxy card is properly signed and dated and is received in time for the Meeting, those shares held of record by you (e.g., those shares registered directly in your name) will be voted as specified on that proxy card. If no instructions are given on that proxy card, the shares covered thereby will be voted FOR the election of the nominees as directors and FOR the other matters listed in the accompanying Notice of Annual Meeting of Stockholders. Stockholders of record may revoke a proxy at any time before it is exercised by so notifying the Secretary of the Company in writing at the above address, by submitting a properly executed, later-dated proxy or by voting in person at the Meeting. Any stockholder of record attending the Meeting may vote in person whether or not he or she has previously executed and returned a proxy card. If your shares are held for your account by a broker, bank or other institution or nominee ("Broker Shares"), you may vote such shares at the Meeting only if you obtain proper written authority from your institution or nominee that you present at the Meeting. VOTING On March 13, 1997, there were 7,326,626 shares of the Company's common stock outstanding. The stockholders entitled to vote at the Meeting are those of record on that date. Each share of the Company's common stock is entitled to one vote. A majority of the shares entitled to vote at the Meeting constitutes a quorum. If a share is represented in person or by proxy for any purpose at the Meeting, it is deemed to be present for quorum purposes. Abstentions and Broker Shares that are voted on any matter at the Meeting are included in determining the presence of a quorum for the transaction of business at the commencement of the Meeting and on those matters for which the broker, nominee or fiduciary has authority to vote. In the event that a quorum is not present at the Meeting, or in the event that a quorum is present but sufficient votes to approve any of the proposals are not received, the persons named as proxies may propose one or more adjournments of the Meeting to permit further solicitation of proxies. Any such adjournment will require the affirmative vote of a majority of the shares represented at the Meeting in person or by proxy. The persons named as proxies will vote those proxies for such adjournment unless marked to be voted against any proposal for which an adjournment is sought to permit further solicitation of proxies. A stockholder vote may be taken on one or more of the proposals in this Proxy Statement prior to any such adjournment if sufficient votes have been received for approval. The eight nominees for election as directors who receive a plurality of the affirmative votes cast at the Meeting in person or by proxy in the election of directors will be so elected. Stockholders may not cumulate their votes. Votes that are withheld, abstentions and Broker Shares that are not voted in the election of directors will not be included in determining the number of votes cast, and will have no effect on the election of directors. The approval of the Plan requires the affirmative vote of the holders of a majority of the Company's outstanding shares present or represented at the Meeting or any adjournment thereof, if the holders of a majority of the shares entitled to vote at the Meeting are present or represented by proxy. Shares that are voted 4 as abstentions will be counted among those shares represented at the Meeting for the purpose of calculating whether a quorum is present, and will have the effect of a vote against the proposal, since they will not be counted in favor of the proposal. Those shares that are intentionally not voted will not be included for the purpose of establishing a quorum. Therefore, such non-voted shares could have the effect of giving additional weight to the shares of those shareholders who do choose to vote. INFORMATION REGARDING THIS SOLICITATION The expense of the Company's solicitation of proxies for the Meeting, including the cost of preparing, printing and mailing this Proxy Statement and the accompanying notice of the Meeting and proxy card will be borne by the Company. The Company will request that brokers, nominees, fiduciaries and other persons holding shares in their names for others forward this Proxy Statement and certain accompanying material to their principals and request authority for the execution of a proxy. The Company will reimburse such persons for their expenses in so doing. In addition to the solicitation of proxies by the use of the mails, proxies may be solicited in person and by telephone, facsimile transmission or telegram by directors or officers of the Company or by regular employees of Allied Capital Advisers, Inc. ("Advisers"), without special compensation therefor, or by a proxy solicitor. Advisers, the Company's investment adviser, has its offices at 1666 K Street, NW, Ninth Floor, Washington, DC 20006. The Company expects to retain Shareholder Communications Corporation to aid in the solicitation of proxies for the Meeting at an estimated fee of $3,500 plus reimbursement of out-of-pocket expenses. BENEFICIAL OWNERSHIP OF COMMON STOCK As of March 13, 1997, there were 7,326,626 shares outstanding. The Company knows of no person who owned beneficially more than 5% of its shares at that date. The following table sets forth certain information regarding the shares of the Company's common stock beneficially owned by: (i) each of the Company's directors, (ii) the four most highly compensated officers of Advisers ("named executive officers ") who are also officers of the Company; (iii) David Gladstone, who served as the Company's Chief Executive Officer during 1996; and (iv) all directors and executive officers as a group:
Number of Shares Name of Beneficial Owner (6) Owned Beneficially (1) Percentage of Class (1) - ------------------------ ------------------ ------------------- William L. Walton (2,3) 0 0 George C. Williams (3) 69,121 * T. Murray Toomey (3) 25,418 * Joseph A. Clorety III (3) 8,422 * Guy T. Steuart II (3,5) 171,296 2.3% Warren K. Montouri (3) 157,183 2.2% G. Cabell Williams III (2,3,4) 128,892 1.7% Michael I. Gallie (3) 7,066 * Joan M. Sweeney (2,4) 23,464 * John M. Scheurer (4) 17,136 * Katherine C. Marien (4) 8,080 * David Gladstone 99,895 1.4% Directors and executive officers 706,917 9.4% as a group (11 in number)
2 5 - ------------ * Less than 1 percent (1) Based on a total of 7,326,626 shares of the Company's common stock issued and outstanding as of March 13, 1997. For purposes of the calculation of beneficial ownership by a particular person, these numbers assume that shares of the Company's common stock issuable upon the exercise of immediately exercisable stock options held by such persons are outstanding. The shares issuable are as follows: 38,444 for Williams, 93,840 for Williams III, 8,080 for Sweeney, 9,056 for Scheurer, 8,080 for Marien, 6,666 for each of Messrs. Toomey, Clorety, Steuart, Montouri and Gallie and 46,846 for Gladstone; directors and executive officers as a group hold immediately exercisable stock options for a total of 228,620 shares. (2) Executive Officer (3) Director (4) "Named executive officer" for proxy reporting purposes (5) Includes 18,282 shares held directly by Mr. Steuart and 146,348 shares held by a corporation for which Mr. Steuart serves as an executive officer and for which he shares voting power. (6) All directors and executive officers' addresses are care of Advisers, 1666 K Street, NW, Ninth Floor, Washington, DC 20006. ELECTION OF DIRECTORS At the Meeting, stockholders will be asked to elect eight directors, constituting the entire membership of the Board of Directors of the Company, to serve until the next Annual Meeting of Stockholders or until their successors have been elected and qualified. All such nominees have consented to be named as such in this Proxy Statement and to serve as directors if elected. If they are elected as directors, it is expected that the Company will vote to cause all or some directors also to serve as directors of the Company's wholly owned subsidiaries, Allied Investment Corporation, Allied Capital Financial Corporation and Allied Development Corporation. A stockholder using the enclosed form of proxy can vote for or withhold his or her vote from any or all of the nominees. If the proxy card is properly executed but unmarked, it is the intention of the persons named as proxies to vote such proxy FOR the election of all the nominees named below. In the event that any of the nominees should decline or be unable to serve as a director, it is intended that the enclosed proxy will be voted for the election of such person or persons as are nominated as replacements. On February 1, 1997, David Gladstone, the Company's former Chairman and Chief Executive Officer stepped down from those positions. On February 12, 1997, the Board of Directors appointed William L. Walton as a director, and as Chairman and Chief Executive Officer. Mr. Gladstone resigned as a director on March 19, 1997 and will not stand for election to the Board of Directors. The director nominees, their ages and principal occupations are as follows: WILLIAM L. WALTON (1,2) Age 47. Chairman and Chief Executive Officer of the Company, and of Allied Capital Corporation II, Allied Capital Lending Corporation, Allied Capital Commercial Corporation and Advisers since February 1997; President of Allied Capital Corporation II since November 1996; Manager of Allied Capital Midwest LLC since December 1996; Chief Executive Officer of Success Lab, Inc. (children's educational services) from 1993 to 1996; Chief Executive Officer of Language Odyssey (educational publishing and services) from 1992 to 1996; and Managing Director of Butler Capital Corporation from 1987 to 1991. He has served as a director of Advisers since 1986, served as a director of the Company from 1986 until 1991, and has served as a director of the Company since February 1997. 3 6 G. CABELL WILLIAMS III (1,2,5) Age 42. President and Chief Operating Officer of the Company; Executive Vice President of Allied Capital Corporation II, Allied Capital Commercial Corporation, Allied Capital Lending Corporation, Business Mortgage Investors, Inc. and Advisers. He has held positions with the Company since 1981 and with Advisers, Allied Capital Corporation II, Allied Capital Commercial Corporation, Allied Capital Lending Corporation and Business Mortgage Investors, Inc. since the later of 1981 or the inception of the relevant entity. He has served as a director since 1993. GEORGE C. WILLIAMS (2,5) Age 70. Financial consultant since 1996; Director of Allied Capital Corporation II, Allied Capital Commercial Corporation, Allied Capital Lending Corporation, Business Mortgage Investors, Inc., and Advisers; Manager of Allied Capital Mortgage LLC. He has been affiliated with the Company since 1958 when it was founded. He served as President or Chairman and Chief Executive Officer of the Company from 1964 to 1991. He served as Vice Chairman until July 1996, and currently serves as a consultant to Advisers. He has served as a director of the Company since 1964. JOSEPH A. CLORETY III (3,4) Age 54. President of Clorety & Company, Inc. (registered investment adviser) since 1987. He has served as a director since 1984. MICHAEL I. GALLIE (1,3,4) Age 51. Principal of The Millennium Group Inc. (financial and management consulting firm) since 1991; Trustee and Chairman of The Investment Committee of the District of Columbia Retirement Board from 1991 to 1995. He has served as a director since 1994. WARREN K. MONTOURI (3,4) Age 67. Investor since 1958; Director of Franklin National Bank. He has served as a director since 1986. GUY T. STEUART II (1,3) Age 65. Director and President of Steuart Investment Company (manages, operates, and leases real and personal property and holds stock in operating subsidiaries engaged in various businesses) since 1960; Trustee Emeritus of Washington and Lee University. He has served as a director since 1984. T. MURRAY TOOMEY (1) Age 73. Attorney at Law since 1949; Director of The National Capital Bank of Washington; Director of Federal Center Plaza Corporation, and The Donohoe Companies, Inc.; Trustee of The Catholic University of America. He has served as a director since 1959. - --------- (1) Member of the Executive Committee (2) Messrs. Walton and Williams III, as officers of the Company and of Advisers, and Mr. Williams, as a shareholder of Advisers, are "interested persons" as defined in the Investment Company Act of 1940. (3) Member of the Compensation Committee (4) Member of the Audit Committee (5) George C. Williams is the father of G. Cabell Williams III. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE TO ELECT THE FOREGOING NOMINEES TO SERVE AS DIRECTORS OF THE COMPANY. 4 7 MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES The Board of Directors has established an Executive Committee, an Audit Committee and a Compensation Committee. During 1996, the Board of Directors held five regular meetings and six committee meetings. All directors attended at least 75% of the aggregate number of meetings of the Board and of the committees on which they served. The Executive Committee has 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, except where action by the Board is required by statute, an order of the Securities and Exchange Commission (the "Commission") or the Company's Articles of Incorporation or By-Laws. The Executive Committee met twice during 1996. The Audit Committee recommends the selection of independent public accountants for the Company, reviews with such independent public accountants the planning, scope and results of their audit of the Company's financial statements and the fees for services performed, reviews with the independent public accountants the adequacy of internal control systems, reviews the quarterly and annual financial statements of the Company and receives audit reports and financial statements of the Company. The Audit Committee met twice during 1996. The Compensation Committee determines and issues stock option grants for officers of the Company under the Company's Stock Option Plan, which is the only form of compensation paid by the Company to its officers for serving as such. The Compensation Committee met twice during 1996. COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS Under Commission rules applicable to business development companies, the Company is required to set forth certain information regarding its three most highly compensated executive officers who receive compensation from the Company in excess of $60,000. However, the Company has no employees and does not pay any cash compensation to any of its officers (other than directors' fees to those of its officers who are also directors). All of the Company's officers and staff are employed by Advisers, which pays all of their cash compensation. The Company, from time to time, grants stock options to its officers under the Company's Stock Option Plan. As described in "Compensation of Directors" below, the Company also has granted stock options to its non-officer directors under the Company's Stock Option Plan. INCENTIVE STOCK OPTIONS The following table sets forth as to (i) the named executive officers, (ii) George C. Williams, who ceased to be an officer of Advisers and the Company during 1996, but who would have been a named executive officer but for the fact that he resigned during the calendar year, and (iii) David Gladstone, who served as the Company's Chief Executive Officer during 1996, the details relating to option grants in 1996 and the potential realizable value of each grant, as prescribed to be calculated by the Commission. 5 8 OPTION GRANTS DURING 1996
Potential realizable Percent of value at assumed Number of total options annual rates of stock securities granted to Exercise price appreciation underlying officers in price per Expiration over 10-year term (1) Name Options granted 1996 share date 5% ($) 10% ($) ---- -------------- ---- ----- ---- ------ ------- G. Cabell Williams III 21,618 13.3% $13.625 5/6/06 $185,238 $469,429 John M. Scheurer 0 -- -- -- -- -- Joan M. Sweeney 0 -- -- -- -- -- Katherine C. Marien 0 -- -- -- -- -- George C. Williams 0 -- -- -- -- -- David Gladstone 14,412 8.9% 13.625 5/6/06 123,492 312,953
(1) Potential realizable value is net of the option exercise price but before any tax liabilities that may be incurred. These amounts represent certain assumed rates of appreciation, as mandated by the Commission. Actual gains, if any, or stock option exercises are dependent on the future performance of the shares, overall market conditions, and the continued employment by the Company of the option holder. The potential realizable value will not necessarily be realized. OPTION EXERCISES AND FISCAL YEAR END VALUES The following table sets forth the details of option exercises during 1996 and the values of those unexercised options at December 31, 1996.
Number of Securities Underlying Value of Unexercised In- Unexercised Option the-Money Options Shares as of 12/31/96 as of 12/31/96 (2) Acquired --------------- --------------- on Value Name Exercise Realized (1) Vested Unvested Vested Unvested ---- -------- -------- ------ -------- ------ -------- G. Cabell Williams III 8,309 $12,048 100,273 43,596 $230,931 $106,378 John M. Scheurer 8,080 28,280 9,056 0 21,404 0 Joan M. Sweeney 15,384 42,306 8,080 0 27,270 0 Katherine C. Marien 0 0 8,080 0 27,270 0 George C. Williams 8,309 14,125 38,444 0 35,651 0 David Gladstone 14,742 12,884 46,846 61,728 82,754 175,894
- --------- (1) Value realized is calculated as the closing market price on the date of exercise, net of option exercise price but before any tax liabilities or transaction costs. This is the deemed market value, which may actually be realized only if the shares are sold at that price. (2) Value of unexercised options is calculated as the closing market price on December 31, 1996 ($15.75), net of the option exercise price, but before any tax liabilities or transaction costs. "In-the-Money " Options are options with an exercise price that is less than the market price as of December 31, 1996. 6 9 COMPENSATION OF DIRECTORS During 1996, each director received a fee of $1,000 for each meeting of the Board of the Company and its wholly owned subsidiaries or each separate committee meeting attended and $500 for each committee meeting attended on the same day as a Board meeting. There is no duplication of directors' fees and expenses even though some directors also take action on behalf of the Company's wholly owned subsidiaries. Aggregate directors' fees for 1996 were $65,500. In addition, on December 26, 1995 each non-officer director (Messrs. Clorety, Steuart, Montouri, Toomey and Gallie) received a one-time grant of options to purchase 10,000 shares, which vest over a two year period in equal increments, at the then-current market price ($13.625) pursuant to the Company's Stock Option Plan. The following table sets forth certain details of compensation paid to directors during 1996, as well as compensation paid for serving as a director of the two other investment companies with which the Company may be deemed to be related. Mr. Walton was appointed Chairman in February 1997 and therefore received no directors' fees during 1996.
Pension or retirement Total compensation Aggregate benefits accrued from Company and compensation from as part of related companies Name and position the Company (1) Company expenses paid to directors (2) - ----------------- ----------- ----------------- ----------------- G. Cabell Williams III, Director, President and Chief $ 7,000 $0 $ 7,000 Operating Officer George C. Williams, Director $ 5,000 $0 $15,000 Joseph A. Clorety III, Director $ 8,000 $0 $ 8,000 Guy T. Steuart II, Director $ 9,000 $0 $ 9,000 Warren K. Montouri, Director $ 7,500 $0 $ 7,500 T. Murray Toomey, Director $ 7,000 $0 $ 7,000 Michael I. Gallie, Director $10,000 $0 $10,000 David Gladstone, former $ 7,000 $0 $20,000 Chairman of the Board and Chief Executive Officer
(1) Consists only of directors' fees. (2) Includes amounts paid as compensation to directors by Allied Capital Corporation II and Allied Capital Lending Corporation, which may be deemed to be related to the Company. CERTAIN TRANSACTIONS INVESTMENT ADVISORY AGREEMENT The Company is a party to an investment advisory agreement with Advisers. Pursuant to the investment advisory agreement, Advisers is entitled to be paid, on a quarterly basis, a fee equal to 0.625% (2.5% per annum) of the quarter-end value of the Company's invested assets, less the value of the shares of Allied Capital Lending Corporation owned by the Company, interim investments, cash and cash equivalents and 0.125% (0.5% per annum) of the quarter-end value of the Company's interim investments, cash and cash equivalents. For 1996, the Company paid $2.9 million in investment advisory fees to Advisers. 7 10 Messrs. Walton, Williams, and Williams III own shares of Advisers, and their beneficial ownership of Advisers shares as of March 15, 1997 represented approximately 0.2%, 3.4% and 3.9%, respectively, of Advisers' shares then outstanding or deemed to be outstanding, including shares allocated to their Employee Stock Option Plan ("ESOP") stock account through December 31, 1996. Mr. Walton, the Company's Chairman and Chief Executive Officer and a nominee for re-election as a director, is the Chairman and Chief Executive Officer of Advisers; Mr. Williams, the Company's former Vice Chairman of the Board and a nominee for re-election as a director, is also a director and former Vice Chairman of Advisers; Mr. Williams III, the Company's President and Chief Operating Officer and a nominee for re-election as a director, is an executive officer of Advisers. Each officer of the Company is also an officer of Advisers. INDEBTEDNESS OF MANAGEMENT The following table sets forth certain information regarding indebtedness to the Company in excess of $60,000 of any person serving as a director or executive officer of the Company and of any nominee for election as a director at any time since January 1, 1996. All of such indebtedness results from loans made by the Company to enable officers to exercise stock options. The interest rate charged generally reflects the applicable federal rate on the date of the loan.
Highest Amount Amount Capacity in Outstanding Interest Outstanding Name which Served in 1996 Rate at March 15, 1997 - ---- ------------ ------- ---- ----------------- Jon A. DeLuca Executive Vice President, $ 99,990 6.16% $ 99,990 Treasurer and Chief Financial Officer William F. Dunbar Former Executive Vice $665,772 5.71% $ 0 President David Gladstone Former Chairman of the $100,483 6.16% $100,483 Board and Chief Executive 200,000 5.34% 199,762 Officer 100,123 6.21% 99,984 Joan M. Sweeney Executive Vice President $199,992 6.16% $199,992 G. Cabell Williams, III Director, President and $100,123 6.21% $100,019 Chief Operating Officer 135,327 8.50% 0 37,475 8.32% 0 28,311 7.02% 0
COMPLIANCE WITH REPORTING REQUIREMENTS OF SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Pursuant to Section 16(a) of the Securities Exchange Act of 1934, the Company's directors, executive officers, directors of the Company's investment adviser, and any persons holding 10% or more of its common stock are required to report their beneficial ownership and any changes therein to the Commission, the National Association of Securities Dealers, Inc. and the Company. Specific due dates for those reports have been established, and the Company is required to report herein any failure to file such reports by those due dates. Based on the Company's review of Forms 3, 4 and 5 filed by such persons, the Company has identified no deficiencies in the filing of reports pursuant to Section 16(a) of the Securities Exchange Act of 1934 in its most recent fiscal year, except as to three reports. Mr. Montouri purchased 18,814 shares in the Company's non-transferable rights offering in March and reported this transaction in October; Mr. Walton sold 1,312 shares in May and reported the transaction in July; Mr. Swep Davis, as a newly appointed director of Advisers in November, delinquently filed a Form 3 showing he owned no shares of the Company. 8 11 RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS The disinterested members of the Board of Directors have selected Matthews, Carter and Boyce, P.C. as independent public accountants for the Company for the year ending December 31, 1997. This selection is subject to ratification or rejection by the stockholders of the Company. If the stockholders ratify the selection of Matthews, Carter and Boyce, P.C. as the Company's independent public accountants, they will also be the independent public accountants for the Company's subsidiaries, Allied Investment Corporation, Allied Capital Financial Corporation and Allied Development Corporation. This selection is subject to ratification or rejection by the stockholders of the Company pursuant to an undertaking by the Company to the Commission. Thus, stockholders who vote to ratify the selection of Matthews, Carter and Boyce, P.C. will, likewise, be voting to ratify their selection as independent public accountants for the Company's subsidiaries, Allied Investment Corporation, Allied Capital Financial Corporation and Allied Development Corporation. Matthews, Carter and Boyce, P.C., or its predecessor, has served as the Company's independent public accountants since its inception and has no financial interest in the Company. It is not expected that a representative of Matthews, Carter and Boyce, P.C. will be present, or available to answer questions, at the Meeting, but a representative would have an opportunity to make a statement if he or she chose to attend. The expense recorded during the fiscal year ended December 31, 1996 for the professional services provided to the Company by Matthews, Carter and Boyce, P.C. consisted of fees for audit services (which included examination of the consolidated financial statements of the Company and its subsidiaries and review of the filings by the Company of reports and registration statements) and for non-audit services, the fees for which aggregated approximately 23% of the fees for audit services. The non-audit services, which were arranged for by management without prior consideration by the Board of Directors, consisted of non-audit related consultation and the preparation of tax returns for the Company and its subsidiaries. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE TO RATIFY THE SELECTION OF MATTHEWS, CARTER AND BOYCE, P.C. AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE COMPANY. APPROVAL OF AN AMENDMENT TO THE STOCK OPTION PLAN The following discussion of the Stock Option Plan, as amended (the "Plan ") is qualified in its entirety by reference to the Plan, a copy of which is attached hereto as Exhibit A. On December 20, 1983, the Company's shareholders approved the Plan, under which an aggregate of 585,937 shares, as adjusted for the 3-for-2 stock split on February 28, 1986, the 5-for-4 stock split on January 30, 1987, the 5-for-4 stock split on October 14, 1988, and the distribution of shares of Advisers on December 31, 1990, were reserved for grant to officers of the Company. On May 17, 1990, the Company's shareholders approved an amendment to that plan to increase the number of shares available under the Plan to 708,909. On February 17, 1993, the Board adopted an amendment to increase the number of shares available under the Plan to 1,013,909 shares, which was approved by shareholders on May 6, 1993. On February 16, 1994, the Board unanimously adopted an amendment to the Plan to (a) allow grants of options to directors of the Company who are not officers of the Company or of the Company's investment adviser ("non-officer directors ") and (b) increase the number of shares available under the Plan to 1,350,000 shares. This amendment was approved by shareholders on May 5, 1994 and, with respect to the granting of options to non-officer directors, approved by the Commission on December 26, 1995. 9 12 The proposed Plan amendments now being considered would (a) increase the number of shares available under the Plan by 440,248 shares from 1,350,000 shares to 1,790,248 shares, and (b) provide for the automatic vesting of options granted under the Plan in the event of a change of control of the Company. These proposed Plan amendments were approved by the Board of Directors, subject to shareholder approval, on February 12, 1997 and May 6, 1996, respectively. As of March 13, 1997, options relating to 45,471 shares of the Company's common stock were available to be granted and a total of 612,063 shares underlying options were outstanding. As of this date, 7,326,626 shares of the Company's common stock were issued and outstanding. Based on that figure, if the Plan amendments are approved, the total number of shares on which options may be granted under the Plan would amount to approximately 15% of the outstanding shares on a fully diluted basis. In addition, all outstanding options granted under the Plan would become fully vested and immediately exercisable in the event of a change of control of the Company. For these purposes, a "change of control " is defined as the sale of substantially all of the Company's assets or the acquisition by any person, entity or group (excluding certain affiliates of the Company) of ownership (whether direct or indirect, beneficial or of record) of securities of the Company representing 20% or more of the voting power of the Company's then-outstanding common stock. The purpose of the Plan is to advance the interests of the Company by providing directors and officers who have substantial responsibility for the direction and management of the Company with additional incentives to exert their best efforts on behalf of the Company, to increase their proprietary interest in the success of the Company, to reward outstanding performance and to provide a means to attract and retain persons of outstanding ability to the service of the Company. The Company believes that it cannot attract or retain qualified officers and directors without this type of compensation. The Plan is administered by the Compensation Committee (the "Committee") consisting of two or more "disinterested" members of the Company's Board of Directors in accordance with the provisions of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended. The Committee determines and designates from time to time those key officers of the Company and those non-officer directors who are eligible to participate in the Plan. As of March 15, 1997, a total of 29 officers and non-officer directors were eligible to participate in the Plan. The Committee may award incentive stock options (within the meaning of section 422 of the Internal Revenue Code of 1986, as amended (the "Code")) or non-qualified stock options to participants under the Plan. Each non-officer director receives a one-time grant of non-qualified options to purchase 10,000 shares upon his or her election as a director of the Company, which vests over a period of two years; such non-officer directors may not receive any other award under the Plan. The Committee determines the number of shares to be offered from time to time to each optionee who is an officer of the Company. In making these determinations, the Committee takes into account the past service of the optionee to the Company, that officer's present and potential contributions to the success of the Company and such other factors as the Committee deems relevant in connection with accomplishing the purposes of the Plan. The options contain such terms and conditions as the Committee deems advisable, including but not limited to being exercisable only in such installments as the Committee may determine. Options granted to different optionees or at different times need not contain similar provisions. The price at which a share may be purchased upon the exercise of an option will generally be equal to the then-current fair market value of the shares at the time an option is granted. However, with respect to options granted to any holder of 10% or more of the Company's shares, the price may not be less than 110% of the then-current fair market value of the shares on the day of grant. The day on which the Committee approves the granting of an option is considered the date on which such option is granted. 10 13 The Committee determines, within limits, the period or periods of time within which the option may be exercised, in whole or in part, by the optionee. Accordingly, the option period of each option shall end, and the option shall cease to be exercisable, on the earliest of (i) the date specified in the option grant, (ii) ten years (or, in the case of incentive stock options awarded to a holder of 10% or more of the Company's shares, five years) from the date the option is granted, (iii) the last day of the two-month period beginning on the date on which the optionee ceases to be an officer or director of the Company for any cause other than death or total and permanent disability, or (iv) the first anniversary of the date on which the optionee ceases to be an officer or director of the Company as a result of the optionee's death or total and permanent disability. The time period during which an option may be exercised may be extended only upon the approval of the Committee but in no event shall an option term be extended beyond ten years from the date of the original grant (or five years, if such option has been awarded to a holder of 10% or more of the Company's shares). As noted above, if the amendments are approved, outstanding options will become fully vested and immediately exercisable in the event of a change of control of the Company, subject to certain limitations. CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following is a summary of certain federal income tax consequences of transactions under the Plan based on current federal income tax laws. This summary is not intended to be exhaustive and does not describe state, local or other tax consequences. INCENTIVE STOCK OPTIONS. In general, no income will be recognized by an optionee and no deduction will be allowed to the Company with respect to the grant or exercise of an incentive stock option granted under the Plan. The difference between the exercise price and the fair market value of the shares of common stock on the date the option is exercised is, however, an adjustment item for the participant for purposes of the alternative minimum tax. When the stock received upon exercise of the option is sold, provided that the stock is held for more than two years from the date of grant of the option and more than one year from the date of exercise, the participant will recognize long-term capital gain or loss equal to the difference between the amount realized and the exercise price of the option related to such stock. If the above mentioned holding period requirements of the Code are not satisfied, the subsequent sale of stock received upon exercise of an incentive stock option is treated as a "disqualifying disposition." In general, the participant will recognize taxable income at the time of such disqualifying disposition as follows: (i) ordinary income in an amount equal to the excess of (A) the lesser of the fair market value of the shares of common stock on the date the incentive stock option is exercised or the amount realized on such disqualifying disposition over (B) the exercise price and (ii) capital gain to the extent of any excess of the amount realized on such disqualifying disposition over the fair market value of the shares of common stock on the date the incentive stock option is exercised (or capital loss to the extent of any excess of the exercise price over the amount realized on disposition). Any capital gain or loss recognized by the participant will be long-term or short-term depending upon the holding period for the stock sold. The Company may claim a deduction at the time of the disqualifying disposition equal to the amount of ordinary income the participant recognizes. NON-QUALIFIED STOCK OPTIONS. The grant of a non-qualified stock option under the Plan will not result in the recognition of taxable income to the participant or in a deduction to the Company. In general, upon exercise, a participant will recognize ordinary income in an amount equal to the excess of the fair market value of the shares of common stock purchased over the exercise price. The Company is required to withhold tax on the amount of income so recognized, and is entitled to a tax deduction equal to the amount of such income. Gain or loss upon a subsequent sale of any shares of common stock received upon the exercise of a non-qualified stock option is taxed as capital gain or loss (long-term or short-term, depending upon the holding period of the stock sold). The approval of the amendments to the Plan requires the affirmative vote of the holders of a majority of the Company's outstanding shares present or represented at the Meeting or any adjournment thereof, if the holders of a majority of the shares entitled to vote at the Meeting are present or represented by proxy. Shares that are voted as abstentions will be counted among those shares represented at the Meeting for the purpose of 11 14 calculating whether a quorum is present, and will have the effect of a vote against the proposal, since they will not be counted in favor of the proposal. Those shares that are intentionally not voted will not be included for the purpose of establishing a quorum. Therefore, such non-voted shares could have the effect of giving additional weight to the shares of those shareholders who do choose to vote. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF THE STOCK OPTION PLAN, AS AMENDED. OTHER BUSINESS The Board of Directors knows of no other business to be presented for action at the Meeting. If any matters do come before the Meeting on which action can properly be taken, it is intended that the proxies shall vote in accordance with the judgment of the person or persons exercising the authority conferred by the proxy at the Meeting. 1998 ANNUAL MEETING OF STOCKHOLDERS The Company expects that the 1998 Annual Meeting of Stockholders will be held in May 1998, but the exact date, time, and location of such meeting have yet to be determined. A stockholder who intends to present a proposal at that annual meeting must submit the proposal in writing to the Company no later than December 10, 1997 in order for the proposal to be considered for inclusion in the Company's proxy statement for that meeting. The submission of a proposal does not guarantee its inclusion in the Company's proxy statement or presentation at the meeting. 12 15 EXHIBIT A ALLIED CAPITAL CORPORATION STOCK OPTION PLAN 1. PURPOSE OF THE PLAN The purpose of this Stock Option Plan (this "Plan") is to advance the interests of Allied Capital Corporation (the "Company") by providing to directors of the Company and to officers of the Company who have substantial responsibility for the direction and management of the Company with additional incentives to exert their best efforts on behalf of the Company, to increase their proprietary interest in the success of the Company, to reward outstanding performance and to provide a means to attract and retain persons of outstanding ability to the service of the Company. It is recognized that the Company cannot attract or retain these officers and directors without this compensation. Options granted under this Plan may qualify as "incentive stock options," as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 2. ADMINISTRATION This Plan shall be administered by a Compensation Committee (the "Committee") comprised of at least two (2) members of the Company's Board of Directors who each shall (a) be a "disinterested person," as defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, (b) have no financial interest in grants of stock options to officers of the Company under this Plan and (c) not be an "interested person," as defined in ss.2(a)(19) of the Investment Company Act of 1940, as amended (the "Act"), of the Company. The Committee shall interpret this Plan and, to the extent and in the manner contemplated herein, shall exercise the discretion reserved to it hereunder. The Committee may prescribe, amend and rescind rules and regulations relating to this Plan and to make all other determinations necessary for its administration. The decision of the Committee on any interpretation of this Plan or administration hereof, if in compliance with the provisions of the Act and regulations promulgated thereunder, shall be final and binding with respect to the Company, any optionee or any person claiming to have rights as, or on behalf of, any optionee. 3. SHARES SUBJECT TO THE PLAN The shares subject to option and the other provisions of this Plan shall be shares of the Company's common stock, par value $1.00 per share ("shares"). Subject to the provisions hereof concerning adjustment, the total number of shares which may be purchased upon the exercise or surrender of stock options granted under this Plan shall not exceed 1,790,248 shares, which includes all shares with respect to which options have been granted or surrendered for payment in cash or other consideration pursuant to this Plan or predecessor forms of this Plan. In the event any option shall cease to be exercisable in whole or in part for any reason, the shares which were covered by such option, but as to which the option had not been exercised, shall again be available under this Plan. Shares may be made available from authorized, unissued or reacquired stock or partly from each. 4. PARTICIPANTS (a) Officers. The Committee shall determine and designate from time to time those key officers of the Company who shall be eligible to participate in this Plan. The Committee shall also determine the number of shares to be offered from time to time to each optionee. In making these determinations, the Committee shall take into account the past service of each such officer to the Company, the present and potential contributions of such officer to the success of the Company and such other factors as the Committee shall deem relevant in connection with accomplishing the purposes of this Plan; provided that the Committee shall determine that each grant of options to an optionee, the number of shares offered thereby and the terms of such option are in the best interests of the Company and its shareholders. The date on which the Committee approves a grant of options to an officer of the Company shall be the date of issuance of such option; provided, however, that if (1) any such action by the Committee does not constitute approval thereof by both (A) a majority of the 13 16 Company's directors who each has no financial interest in such action and (B) a majority of the Company's directors who each is not an "interested person," as defined in ss.2(a)(19) of the Act, of the Company and (2) such approval is then required by ss.61(a)(3)(B)(I)(I) of the Act, the grant of any option by such action shall not be effective until there has been approval of such action by a majority of the Company's directors who each has no financial interest in such action and a majority of the Company's directors who each is not an "interested person" of the Company on the basis that such action is in the best interests of the Company and its shareholders, and the last date on which such required approval is obtained shall be the date of issuance of such option. The agreement documenting the award of any option granted pursuant to this paragraph 4(a) shall contain such terms and conditions as the Committee shall deem advisable, including but not limited to being exercisable only in such installments as the Committee may determine. (b) Non-Officer Directors. A one-time grant of options in accordance with the provisions of this paragraph (b) shall be made to each director of the Company who is not an officer of the Company or of the Company's investment adviser (a "non-officer director"). A one-time grant of options in accordance with the provisions of this paragraph shall be made to each non-officer director other than any non-officer director who received a grant pursuant to the first sentence of this paragraph (b) upon his or her initial election as a director of the Company. Each grant pursuant to this paragraph (b) shall award the non-officer director an option to purchase ten thousand (10,000) shares at a price equal to the current fair market value of the shares at the date of issuance of such option; provided, that if any non-officer director then holds ten percent (10%) or more of the outstanding shares, the exercise price of such option shall not be less than one hundred ten percent (110%) of such current fair market value. The agreement documenting the award of any option granted pursuant to this paragraph 4(b) shall contain such terms and conditions as the Committee shall deem advisable; provided, however, that any such option shall vest in three annual installments (so that the recipient can first exercise the option with respect to not more than 3,333 shares on or after the date of issuance of such option, can exercise the option with respect to not more than an additional 3,333 shares on or after the first anniversary of the date of issuance of such option and can exercise such option with respect to the all of the shares covered thereby on or after the second anniversary of the date of issuance of such option). (c) General. Agreements evidencing options granted to different optionees or at different times need not contain similar provisions. 5. OPTION PRICE Shares shall be optioned from time to time at a exercise price not less than the current fair market value, as defined in paragraph 15(d) of this Plan, of the shares at the date of issuance of an option; provided, that the exercise price of any option granted to a holder of 10% or more of the Company's shares shall not be less than 110% of such current fair market value. 6. OPTION PERIOD Each option agreement shall state the period or periods of time within which the subject option may be exercised, in whole or in part, by the optionee which shall be such period or periods of time as may be determined by the Committee; provided, that the option period shall not exceed ten years from the date of issuance of the option and shall not exceed five years if the option is granted to a holder of 10% or more of the Company's shares. 7. PAYMENT FOR SHARES Full payment for shares purchased shall be made at the time of exercising the option in whole or in part. Payment of the purchase price shall be made in cash (including check, bank draft or money order) or, if authorized pursuant to paragraph 9 hereof, by a loan from the Company in accordance with paragraph 9. 14 17 8. TRANSFERABILITY OF OPTIONS Options shall not be transferable other than by will or the laws of descent and distribution, and during an optionee's lifetime shall be exercisable only by the optionee. 9. LOANS BY THE COMPANY Upon the exercise of any option by an officer-optionee, the Company, at the request of the officer- optionee, and subject to the approval of both (a) a majority of the Company's directors who each has no financial interest in such loan and (b) a majority of the Company's directors who each is not an "interested person," as defined in ss.2(a)(19) of the Act, of the Company, on the basis that such loan is in the best interests of the Company and its stockholders (whether such approval is by the Committee or otherwise), may lend to such officer-optionee, as of the date of exercise, an amount equal to the exercise price of such option; provided, that such loan (a) shall have a term of not more than ten years, (b) shall become due within sixty days after the recipient of the loan ceases to be an officer of the Company, (c) shall bear interest at a rate no less than the prevailing rate applicable to 90-day United States Treasury bills at the time the loan is made, and (d) shall be fully collateralized at all times, which collateral may include securities issued by the Company. Loan terms and conditions may be changed by the Committee to comply with applicable IRS and SEC regulations. 10. TERMINATION OF OPTION All rights to exercise options shall terminate sixty days after any optionee ceases to be a director or an officer of the Company for any cause other than death or total and permanent disability. 11. RIGHTS IN THE EVENT OF TERMINATION OF SERVICE If an optionee's service as a director or officer is terminated for any reason other than death or total and permanent disability prior to expiration of his or her option and before such option is fully exercised, the optionee shall have the right to exercise the option during the balance of the 60-day period referred to in paragraph 10. 12. RIGHTS IN THE EVENT OF TOTAL AND PERMANENT DISABILITY OR DEATH If an optionee becomes totally and permanently disabled or dies prior to expiration of the option without having fully exercised it, he or the executors or administrators or legatees or distributees of the estate, as the case may be, shall, have the right, from time to time within one year after the optionee's total and permanent disability or death and prior to the expiration of the term of the option, to exercise the option in whole or in part, as provided in the respective option agreement. 13. EFFECT OF CHANGE IN STOCK SUBJECT TO THE PLAN Subject to any required action by the shareholders of the Company and the provisions of applicable corporate law, the number of shares represented by the unexercised portion of an option, the number of shares which has been authorized or reserved for issuance hereunder, and the number of shares covered by any applicable vesting schedule hereunder, as well as the exercise price of a share represented by the unexercised portion of an option, shall be proportionately adjusted for (a) a division, combination or reclassification of any of the shares of common stock of the Company or (b) a dividend payable in shares of common stock of the Company. 14. GENERAL RESTRICTION Each option shall be subject to the requirement that, if at any time the Board of Directors shall determine, at its discretion, that the listing, registration or qualification of the shares subject to such option upon any securities exchange or under any state or federal law, or the consent or approval of any government regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such option or the issue or purchase of the shares thereunder, such option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. Subject to the limitations of paragraph 6, no option shall expire 15 18 during any period when exercise of such option has been prohibited by the Board of Directors, but shall be extended for such further period so as to afford the optionee a reasonable opportunity to exercise his option. 15. MISCELLANEOUS PROVISIONS (a) No optionee shall have rights as a shareholder with respect to shares covered by his option until the date of exercise of his option. (b) The granting of any option shall not impose upon the Company any obligation to appoint or to continue to appoint as a director or officer any optionee, and the right of the Company to terminate the employment of any officer or other employee, or service of any director, shall not be diminished or affected by reason of the fact that an option has been granted to such optionee. (c) Options shall be evidenced by stock option agreements in such form and subject to the terms and conditions of this Plan as the Committee shall approve from time to time, consistent with the provisions of this Plan. Such stock option agreements may contain such other provisions as the Committee in its discretion may deem advisable. (d) For purposes of this Plan, the fair market value of the shares shall be the closing sales price of the stock as quoted on the National Association of Securities Dealers Automated Quotation System for the date of issuance of such option, as provided herein. If the Company's shares are traded on an exchange, the price shall be the closing price of the Company's stock as reported in The Wall Street Journal for such date of issuance of an option. (e) Any option issued hereunder before January 1, 1987 shall not be exercisable while there is outstanding any stock option which was granted before the granting of such option to the same optionee to purchase shares of the Company or of any corporation which (at the time of the granting of such option) was a parent or subsidiary corporation of the Company, or any predecessor of any of any such corporations. (f) (1) The aggregate fair market value (determined as of the date of issuance of an option) of the shares for which any optionee may be granted options before January 1, 1987 in any calendar year (under all incentive stock option plans of the Company and its parent and subsidiary corporations) shall not exceed $100,000 plus any unused limit carryover to such year, calculated in accordance with the provisions of Section 422A(c)(4) of the Code as it existed before enactment of the Tax Reform Act of 1986, P.L. No. 99-514. (f) (2) The aggregate fair market value (determined as of the date of issuance of an option) of the shares with respect to which an option, or portion thereof, intended to be an incentive stock option and granted after December 31, 1986 are exercisable for the first time by any optionee during any calendar year (under all incentive stock option plans of the Company and subsidiary corporations) shall not exceed $100,000. (g) All options issued pursuant to this Plan shall be granted within ten years from the earlier of the date of adoption of this Plan (or any amendment thereto requiring shareholder approval pursuant to the Code) or the date this Plan (or any amendment thereto requiring shareholder approval pursuant to the Code) is approved by the shareholders of the Company. (h) No option may be issued if exercise of all warrants, options and rights of the Company outstanding immediately after issuance of such option would result in the issuance of voting securities in excess of 20% of the Company's outstanding voting securities. (i) A leave of absence granted to an employee does not constitute an interruption in continuous employment for purposes of this Plan as long as the leave of absence does not extend beyond one year. 16 19 (j) Any notices given in writing shall be deemed given if delivered in person or by certified mail; if given to the Company at Allied Capital Corporation, 1666 K Street, N.W., 9th Floor, Washington, D.C. 20006; and, if to an optionee, in care of the optionee at his or her last known address. (k) This Plan and all actions taken by those acting under this Plan shall be governed by the substantive laws of Maryland without regard to any rules regarding conflict-of-law or choice-of-law. (l) All costs and expenses incurred in the operation and administration of this Plan shall be borne by the Company. 16. CHANGE OF CONTROL In the event of a Change of Control (as hereinafter defined), all then-outstanding options will become fully vested and exercisable as of the Change of Control. For purposes of the Plan, "Change of Control" means the sale of substantially all of the Company's assets or the acquisition, whether directly, indirectly, beneficially (within the meaning of Rule 13d-3 of the 1934 Act, or of record, of securities of the Company representing twenty percent (20%) or more in the aggregate voting power of the Company's then-outstanding Common Stock by any "person" (within the meaning of Sections 13(d) and 14(d) of the 1934 Act), including any corporation or group of associated persons acting in concert, other than (i) the Company or its subsidiaries and/or (ii) any employee pension benefit plan (within the meaning of Section 3(2) of the Employee Retirement Income Security Act of 1974) of the Company or its subsidiaries, including a trust established pursuant to any such plan. 17. AMENDMENT AND TERMINATION The Board of Directors may modify, revise or terminate this Plan at any time and from time to time; provided, however, that no modification or revision of any material provision of this Plan may be made without shareholder approval except for such modifications or revisions which are necessary in order to ensure the options issued as incentive stock options under this Plan comply with Section 422 or any successor provision of the Code, applicable provisions of the Act or any exemptive order therefrom issued to the Company in connection with this Plan, Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, or other applicable law. This Plan shall terminate when all shares reserved for issuance hereunder have been issued upon the exercise of options, by action of the Board of Directors pursuant to this paragraph, or on February 12, 2007, whichever shall first occur. 18. EFFECTIVE DATE OF THE PLAN This Plan shall become effective upon (1) adoption by the Board of Directors and (2) approval of this Plan by the shareholders of the Company. 17 20 PROXY ALLIED CAPITAL CORPORATION THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned stockholder of ALLIED CAPITAL CORPORATION (the "Company") appoints WILLIAM L. WALTON, GEORGE C. WILLIAMS and TRICIA B. DANIELS, or any of them, proxies with full power of substitution, to vote at the 1997 Annual Meeting of Stockholders of the Company to be held in the Montgomery Room of The Residence Inn by Marriott, 7335 Wisconsin Avenue, Bethesda, Maryland 20814 at 10:00 a.m., Thursday, May 1, 1997, and any adjournment or adjournments thereof, the shares of Common Stock of the Company that the undersigned is entitled to vote, on all matters that may properly come before that meeting 1. FOR ____ WITHHOLD AUTHORITY ____ the election of all the following nominees as directors for the ensuing year for Allied Capital Corporation: WILLIAM L. WALTON GEORGE C. WILLIAMS T. MURRAY TOOMEY JOSEPH A. CLORETY III GUY T. STEUART II WARREN K. MONTOURI G. CABELL WILLIAMS III MICHAEL I. GALLIE INSTRUCTION: To withhold your vote for one or more individual nominees, write the names of each nominee with respect to whom you choose to withhold authority to vote in the space provided below.) 2. To ratify the selection of Matthews, Carter and Boyce, P.C. to serve as independent public accountants for the Company for the year ending December 31, 1997. 3. To consider and approve an amendment to the Company's Stock Option Plan. 4. In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting. YOU ARE URGED TO CAST YOUR VOTE BY MARKING THE APPROPRIATE BOXES. PLEASE NOTE THAT, UNLESS A CONTRARY INSTRUCTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ELECTION OF ALL NOMINEES IDENTIFIED IN ITEM 1 AND FOR RATIFICATION OF THE SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS DESCRIBED IN ITEM 2 AND FOR APPROVAL OF AN AMENDMENT TO THE COMPANY'S STOCK OPTION PLAN DESCRIBED IN ITEM 3. (Please mark, sign and return this proxy in the enclosed envelope.) Signature Date Signature Date ------------------- ------- ------------------- -------- IF HELD JOINTLY Important: Please sign your name or names exactly as shown hereon and date your proxy in the blank space provided above. For joint accounts, each joint owner should sign. When signing as attorney, executor, administrator, trustee or guardian, please give your full title as such. If the signer is a corporation or partnership, please sign in full corporate or partnership name by duly authorized officer or partner. -----END PRIVACY-ENHANCED MESSAGE-----