-----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, F7oM9miTqcknr2O7kPp+0vVvQmB/8+1O01zlpH+eo4RQbYlATIMQI2hCWeh/zfkn GqleokI+0tKCiaMz6f0qBg== 0000950133-97-002906.txt : 19970815 0000950133-97-002906.hdr.sgml : 19970815 ACCESSION NUMBER: 0000950133-97-002906 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 811-00907 FILM NUMBER: 97660679 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 10-Q 1 FORM 10-Q 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 JUNE 30, 1997 814-97 ------------- ---------------------- ALLIED CAPITAL CORPORATION --------------------------------------------------- (exact name of Registrant as specified in its charter) MARYLAND 53-0245085 - ----------------------- ---------------------- (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 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods as the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- On August 8, 1997 there were 7,373,718 shares outstanding of the Registrant's common stock, $1 par value. 2 ALLIED CAPITAL CORPORATION AND SUBSIDIARIES FORM 10-Q INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheet as of June 30, 1997 and December 31, 1996 . . . . . . . . . . . . . . . . . . . . 1 Consolidated Statement of Operations - For the Three and Six Months Ended June 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Consolidated Statement of Changes in Net Assets - For the Six Months Ended June 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Consolidated Statement of Cash Flows - For the Six Months Ended June 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 PART II. OTHER INFORMATION Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
3 PART I - Financial Information Item 1. Financial Statements ALLIED CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (in thousands, except number of shares)
June 30, 1997 December 31, 1996 ------------- ----------------- (unaudited) ASSETS Investments at Value: Loans and debt securities (cost: 1997 - $103,938; 1996 - $ 97,229 $ 90,581 $97,805) . . . . . . . . . . . . . . . . . . . . . . Equity securities (cost: 1997 - $14,721; 1996 - $14,610) . . 27,579 25,896 Other investment assets (cost: 1997 - $107; 1996 - $123) . . 7 131 ------- ------- Total investments . . . . . . . . . . . . . . . . . . 124,815 116,608 Cash and cash equivalents . . . . . . . . . . . . . . . . . . . 22,205 44,915 U.S. government securities . . . . . . . . . . . . . . . . . . 18,256 - Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 3,655 4,228 ------- ------- Total assets . . . . . . . . . . . . . . . . . . . . . $168,931 $165,751 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Debentures and notes payable . . . . . . . . . . . . . . . . $ 92,950 $ 90,600 Revolving line of credit . . . . . . . . . . . . . . . . . . 2,500 - Dividends and distributions payable . . . . . . . . . . . . . 110 2,988 Other liabilities . . . . . . . . . . . . . . . . . . . . . . 2,834 2,843 ------- ------- 98,394 96,431 Redeemable preferred stock . . . . . . . . . . . . . . . . . . 1,000 1,000 Commitments and Contingencies Shareholders' Equity: Preferred stock of wholly owned subsidiary, $100 par value; 200,000 shares authorized, 60,000 shares issued and outstanding at 6/30/97 and 12/31/96 . . . . . . . . . . . . 6,000 6,000 Common stock, $1 par value; 10,000,000 shares authorized; 7,367,052 and 7,299,091 shares issued and outstanding at 6/30/97 and 12/31/96 . . . . . . 7,367 7,299 Additional paid-in capital . . . . . . . . . . . . . . . . . 55,367 54,440 Notes receivable from sale of common stock . . . . . . . . . (3,186) (3,759) Net unrealized appreciation on investments . . . . . . . . . 6,047 4,070 Undistributed (distributions in excess of) accumulated earnings . . . . . . . . . . . . . . . . . . . . . . . . . (2,058) 270 ------- ------- Total shareholders' equity . . . . . . . . . . . . . 69,537 68,320 ------- ------- Total liabilities and shareholders' equity . . . . . $168,931 $165,751 ======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 1 4 ALLIED CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (in thousands, except per share amounts) (unaudited)
For the Three Months Ended For the Six Months Ended June 30, June 30, ------- ------- 1997 1996 1997 1996 ---- ---- ---- ---- Investment income: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,696 $ 3,891 $ 7,038 $ 7,225 Dividends and other income . . . . . . . . . . . . . . . . . 438 412 830 830 ------ ----- ------ ------ Total investment income . . . . . . . . . . . . . . . . . . 4,134 4,303 7,868 8,055 ------ ----- ------ ------ Expenses: Interest expense . . . . . . . . . . . . . . . . . . . . . . 1,985 1,860 3,918 3,691 Investment advisory fee . . . . . . . . . . . . . . . . . . . 782 704 1,527 1,438 Other operating expenses . . . . . . . . . . . . . . . . . . 189 362 336 567 ------ ----- ------ ------ Total expenses . . . . . . . . . . . . . . . . . . . . . . 2,956 2,926 5,781 5,696 ------ ----- ------ ------ Net investment income . . . . . . . . . . . . . . . . . . . . . 1,178 1,377 2,087 2,359 Net realized gains on investments . . . . . . . . . . . . . . . 295 2,975 614 6,151 ------ ----- ------ ------ Net investment income before net unrealized appreciation (depreciation) on investments . . . . . . . . 1,473 4,352 2,701 8,510 Net unrealized appreciation (depreciation) on investments . . . 1,249 (4,718) 1,977 (4,434) ------ ----- ------ ------ Net increase (decrease) in net assets resulting from operations . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,722 $ (366) $ 4,678 $ 4,076 ====== ===== ====== ====== Earnings (loss) per common share . . . . . . . . . . . . . . . $ 0.36 $ (0.06) $ 0.62 $ 0.59 ====== ===== ====== ====== Weighted average number of common shares and common share equivalents outstanding . . . . . . . . . . . . 7,415 6,918 7,405 6,730 ====== ===== ====== ======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 2 5 ALLIED CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS (in thousands, except per share amounts) (unaudited)
For the Six Months Ended June 30, ------- 1997 1996 ---- ---- Increase in net assets resulting from operations: Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,087 $ 2,359 Net realized gains on investments . . . . . . . . . . . . . . . . . . . 614 6,151 Net unrealized appreciation (depreciation) on investments . . . . . . . 1,977 (4,434) ------- ------- Net increase in net assets resulting from operations . . . . . . . 4,678 4,076 ------- ------- Distributions to shareholders: Common stock dividend . . . . . . . . . . . . . . . . . . . . . . . . . (4,921) (3,668) Preferred stock dividend . . . . . . . . . . . . . . . . . . . . . . . (110) (110) ------- ------- Net decrease in net assets resulting from distributions to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . (5,031) (3,778) ------- ------- Capital share transactions: Net decrease (increase) in notes receivable from sale of common stock . 575 (172) Issuance of common stock upon the exercise of stock options . . . . . . 423 493 Issuance of common stock in lieu of cash distributions . . . . . . . . 572 852 Issuance of common stock in rights offering . . . . . . . . . . . . . . - 8,264 ------- ------- Net increase in net assets resulting from capital share transactions . . . . . . . . . . . . . . . . . . . . . . . . . 1,570 9,437 ------- ------- Net increase in net assets . . . . . . . . . . . . . . . . . . . . . . . 1,217 9,735 Net assets at beginning of period . . . . . . . . . . . . . . . . . . . . 68,320 57,181 ------- ------- Net assets at end of period . . . . . . . . . . . . . . . . . . . . . . . 69,537 66,916 Preferred stock of wholly owned subsidiary . . . . . . . . . . . . . . . (6,000) (6,000) ------- ------- Net asset value available to common shareholders . . . . . . . . . . . . $63,537 $60,916 ======= ======= Net asset value per common share . . . . . . . . . . . . . . . . . . . . $ 8.62 $ 8.75 ======= ======= Common shares outstanding at end of period . . . . . . . . . . . . . . . 7,367 6,963 ======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 3 6 ALLIED CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) (unaudited)
For the Six Months Ended June 30, ------- 1997 1996 ---- ---- Cash Flows From Operating Activities: Net increase in net assets resulting from operations . . . . . . . . . $ 4,678 $ 4,076 Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities: Net unrealized (appreciation) depreciation on investments . . . . . (1,977) 4,434 Net realized gains on investments . . . . . . . . . . . . . . . . . (614) (6,151) Amortization of loan discounts . . . . . . . . . . . . . . . . . . . (615) (762) Changes in assets and liabilities: Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 573 (837) Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . (9) (879) ------- ------- Net cash provided by (used in) operating activities . . . . . . 2,036 (119) ------- ------- Cash Flows From Investing Activities: Investments in small business concerns . . . . . . . . . . . . . . . (22,660) (8,661) Investments in US government securities . . . . . . . . . . . . . . (18,108) - Collections from loans and debt securities and other investment assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,423 10,031 Net proceeds from sale of equity securities . . . . . . . . . . . . 1,088 8,224 Collections from notes receivable from sale of common stock . . . . 673 28 ------- ------- Net cash (used in) provided by investing activities . . . . . . (22,584) 9,622 ------- ------- Cash Flows From Financing Activities: Sale of common stock . . . . . . . . . . . . . . . . . . . . . . . . 323 8,557 Common stock dividends and distributions . . . . . . . . . . . . . . (7,115) (6,404) Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . (220) (220) Net proceeds from the issuance of debentures and notes payable . . . 3,350 5,000 Repayment of debentures . . . . . . . . . . . . . . . . . . . . . . (1,000) - Net borrowings on revolving line of credit . . . . . . . . . . . . . 2,500 (1,500) ------- ------- Net cash (used in) provided by financing activities . . . . . . (2,162) 5,433 ------- ------- Net (decrease) increase in cash and cash equivalents . . . . . . . . . . (22,710) 14,936 Cash and cash equivalents, beginning of period . . . . . . . . . . . . . 44,915 22,743 ------- ------- Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . $22,205 $37,679 ======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 4 7 ALLIED CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997 (UNAUDITED) NOTE 1. GENERAL In the opinion of management, the accompanying unaudited consolidated financial statements of Allied Capital Corporation and its subsidiaries (the Company) contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position of the Company as of June 30, 1997 and the results of operations, changes in net assets, and cash flows for the periods indicated. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 1996 Annual Report. The results of operations for the three and six months ended June 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 financial statements in order to conform to the 1997 presentation. NOTE 2. DIVIDENDS The Company's board of directors declared and paid two dividends to common shareholders totaling $0.67 per common share during the six months ended June 30, 1997. The Company paid quarterly dividends equal to $0.33 per common share and $0.34 per common share for the three months ended March 31, 1997 and June 30, 1997, respectively. In connection with these dividends, the Company paid cash of $4.7 million and distributed new shares of common stock to participants in the dividend reinvestment plan with a value of $262,000 for a total of $4.9 million. NOTE 3. DEBT The Company had outstanding borrowings of $2,500,000 under its revolving line of credit agreement as of June 30, 1997. Borrowings under this facility bear interest at the 30-day LIBOR rate plus 2.5 percent per annum, or 8.2% per annum. This line of credit expires September 30, 1998. As of June 30, 1997, the Company also had outstanding borrowings equal to $3,950,000 from various commercial banks. The Company can only use the proceeds from the notes to fund loans or investments with qualifying businesses within the relevant commercial bank's Community Reinvestment Act assessment area. Each note bears interest at the 90-day treasury bill rate until the Company invests the proceeds in a qualifying business. After the investment is funded, the interest rate changes to a five-year treasury note rate. A separate calculation will be made of the profits derived from the loans and investments in qualified businesses funded from each note's proceeds. Such profits will be calculated net of losses, coupon interest payments, transaction costs and a 2.5% investment management fee. Then, 10% of the net amount will be paid to the holder of the note as "additional interest". The 10% additional interest will be calculated as of the end of each calendar year. As of June 30, 1997, none of the proceeds received have been invested in a qualifying business. NOTE 4. EARNINGS 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 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.
Three Months Ended Six Months Ended ------------------ ---------------- June 30, June 30, ------- -------- 1997 1996 1997 1996 ---- ---- ---- ---- Net income $2,722 $ (366) $4,678 $4,076 ====== ======= ====== ====== Basic average shares outstanding 7,351 6,918 7,334 6,692 ====== ======= ====== ====== Basic net income per share $ 0.36 $(0.06) $ 0.62 $0.59 ====== ======= ====== ====== Effect of dilutive securities: Outstanding stock options 64 0 71 38 ------ ------- ------ ------ Diluted average shares outstanding 7,415 6,918 7,405 6,730 ====== ======= ====== ====== Diluted net income per share $ 0.36 $(0.06) $ 0.62 $ 0.59 ====== ======= ====== ======
NOTE 5. COMMITMENTS AND CONTINGENCIES The Company had commitments outstanding of $4.6 million at June 30, 1997 to invest in various existing and prospective portfolio companies. The Company is party to certain lawsuits. While the outcome of these legal proceedings cannot at this time be predicted with certainty, management does not expect that these actions will have a material effect upon the consolidated financial position of the Company. NOTE 6. SUBSEQUENT EVENT On August 14, 1997, the Company announced that it has entered into an Agreement and Plan of Merger with Allied Capital Corporation II, Allied Capital Commerical Corporation, Allied Capital Lending Corporation and Allied Capital Advisers, Inc., pursuant to which the Company and Allied Capital Corporation II, Allied Capital Commerical Corporation, and Allied Capital Advisers, Inc. would merge with and into Allied Capital Lending Corporation through a stock for stock exchange. 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. If all required approvals are obtained, the Company anticipates the merger would be effective on December 31, 1997. Pursuant to the terms of the merger agreement, stockholders of the Company at the effective time of the merger will receive 1.07 shares of the merged entity. 6 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. RESULTS OF OPERATIONS For the Three Months Ended June 30, 1997 and 1996. For the three months ended June 30, 1997, net increase in net assets resulting from operations was $2.7 million, or $0.36 per common share as compared to a net decrease in net assets resulting from operations equal to $366,000, or $0.06 per common share for the first quarter of 1996. The comparison of earnings for the second quarter of 1997 to the same period in 1996 is significantly effected by the timing of recognizing realized gains and changes in valuations of portfolio investments, and therefore, quarterly earnings are not indicative of annual 1997 earnings. Realized gains and unrealized appreciation equaled $1.5 million for the three months ended June 30, 1997, of which $1.2 million was due to net increases in the carrying values of the Company's equity positions in certain portfolio companies (see Portfolio Changes). For the comparable period in 1996, realized gains and unrealized depreciation equaled a negative $1.7 million, of which, realized gains equaled $3.0 million and unrealized depreciation for the period equaled $4.7 million. Net investment income decreased approximately 14% to $1.2 million from $1.4 million for the three months ended June 30, 1997 and 1996, respectively. Total interest income decreased 5% to $3.7 million in the second quarter of 1997 from $3.9 million for the same period last year. The Company received significant repayments from portfolio companies during the last half of 1996 and the first half of 1997, and as a result, interest income during the first half of 1997 has decreased. In addition, the Company continues to see increased competition for quality investments in the market place, and the Company is cautiously approaching new investment activity to assure that the portfolio is receiving adequate compensation for new investments and is accepting the appropriate levels of risk. New investments in small business concerns totaled $22.7 million for the six months ended June 30, 1997. Total expenses were relatively constant during the second quarter 1997 as compared to the second quarter of 1996. Interest expense increased 7% during the second quarter of 1997 as compared to the same quarter of the previous year. The Company's outstanding borrowings increased to $95.5 million as of June 30, 1997 from $86.3 million at June 30, 1996. The Company's investment advisory fee increased $78,000 to $782,000 for the quarter ended June 30, 1997 from $704,000 in the second quarter of 1996. Assets invested in business concerns increased from $116 million at June 30, 1996 to $125 million at June 30, 1997. Other operating expenses decreased approximately 48% for the three months ended June 30, 1997 as compared to the same period in 1996. This decrease is primarily due to a reduction in legal and other portfolio related expenses during the past year. For the Six Months ended June 30, 1997 and 1996. Net increase in net assets resulting from operations was $4.7 million, or $0.62 per common share, for the six months ended June 30, 1997, compared to $4.1 million, or $0.59 per common share, for the same period in 1996. Net investment income decreased approximately 12% to $2.1 million for 1997 compared to $2.4 million in 1996. This decrease in net investment income results primarily from the same factors discussed above relating to interest income. Realized gains decreased $5.5 million for the first half of 1997 as compared to the same period in 1996. Unrealized appreciation for the six months ended June 30, 1997 was $2.0 million as compared to $4.4 million in unrealized depreciation for the six months ended June 30, 1996. As was described above, the Company can experience significant fluctuations in realized and unrealized gains on a quarter-to-quarter comparison basis, and as a result any one quarterly period is not indicative of expected annual earnings. Total expenses increased 1% to $5.8 million from $5.7 million for the six months ended June 30, 1997 and 1996, respectively. These increases were caused by the same factors discussed in the quarter-to-quarter comparison above. 7 10 LIQUIDITY AND CAPITAL RESOURCES Total assets increased $3.2 million to $168.9 million as of June 30, 1997 from $165.8 million as of December 31, 1996. Total investments as of June 30, 1997 increased $8.2 million from December 31, 1996 as new investments and net changes in investment valuations exceeded repayments during the first half of 1997. The Company purchased $18.1 million in U.S. government securities with maturities ranging from three months to one year in order to maximize returns on excess cash resources. Cash and cash equivalents decreased $22.7 million to $22.2 million as of June 30, 1997, primarily due to new investments in small business concerns and the purchase of the U.S. government securities. In order to fund its investments in small businesses, the Company has cash, a line of credit with a commercial bank, a commitment from the Overseas Private Investment Corporation (OPIC), a note with an insurance company, debentures from the U.S. Small Business Administration (SBA) and other sources. The Company had total cash, cash equivalents and U.S. government securities available at June 30, 1997 of $40.5 million and available credit facilities of $18.8 million. The Company's long term debentures and notes payable generally require significant prepayment penalties; therefore, the Company does not plan to repay this debt prior to the respective maturity dates. At June 30, 1997, outstanding commitments for future financings by the Company were $4.6 million. Given the balance of cash, cash equivalents, and U.S. government securities at June 30, 1997 and the available credit facilities, the Company believes that it has adequate capital to continue to satisfy its operating needs, commitments and other future investment opportunities that may arise throughout 1997. PORTFOLIO CHANGES For the six months ended June 30, 1997 the Company's portfolio appreciated, net of depreciation, by $2.0 million due to the change in market prices for public equity investments, and changes in value of certain private investments. The disposition of certain portfolio investments resulted in unrealized appreciation (depreciation) and the recognition of realized gains (losses) during the six months ended June 30, 1997 as follows:
Unrealized Realized Appreciation Gain (Depreciation) (Loss) -------------- ------ ASW Holding Corporation $(374,000) $715,000 ProAir Services, LP 0 126,000 Enviroplan, Inc. 341,000 (396,000) Contemporary Media, Inc. (58,000) 143,000 Kirker Enterprises, Inc. 0 26,000
The Company's public equity investments which appreciated (depreciated) in value during the six months ended June 30, 1997 were as follows:
Unrealized Appreciation (Depreciation) -------------- Allied Capital Lending Corporation $(311,000) Au Bon Pain Co., Inc. 45,000 Brazos Sportswear, Inc. 1,100,000 DeVlieg Bullard, Inc. 75,000 DMI Furniture, Inc. 31,000 Esquire Communications, Ltd. 424,000 Gulf South Medical Supply, Inc. (19,000) Labor Ready, Inc. (664,000) MLX/SinterMet Corporation 6,000 Nobel Education Dynamics, Inc. (227,000) The Peerless Group, Inc. 11,000 Quality Software Products Holdings, PLC 10,000
8 11 In addition, the Company's investments in the following private companies also had unrealized appreciation during the six months ended June 30, 1997: Julius Koch USA, Inc. - $1,066,000; and Grant Broadcasting Systems II - $672,000. The remaining depreciation was $128,000. FACTORS AFFECTING THE COMPANY'S BUSINESS Illiquidity. Most of the Company's investments consist of securities acquired directly from the issuers in private transactions. They are usually subject to restrictions on resale or otherwise illiquid. There is usually no established trading market for these securities. In addition, most of the securities are not eligible for sale to the public without registration which would involve delay and expense. 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. 9 12 Part II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS The Company is party to certain lawsuits. While the outcome of these legal proceedings cannot at this time be predicted with certainty, management does not expect that these actions will have a material effect upon the consolidated financial position of the Company. Item 2. CHANGES IN SECURITIES 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 On May 1, 1997, the Company held its Annual Meeting of Shareholders in Bethesda, Maryland. Shareholders voted on three matters; the substance of these matters and the results of the voting of each such matter are described below. 1. Election of Directors: Shareholders elected a total of eight directors, which comprised the entire Board, to serve for a one-year term. Votes were cast as follows:
FOR WITHHELD William Walton 6,547,451 74,359 George C. Williams 6,554,518 67,292 T. Murray Toomey 6,554,518 67,292 Joseph A. Clorety III 6,556,056 65,754 Guy T. Steuart II 6,556,056 65,754 Warren K. Montouri 6,554,951 66,859 G. Cabell Williams III 6,556,956 64,854 Michael I. Gallie 6,556,956 64,854
2. Ratification of the selection of Matthews, Carter & Boyce to serve as independent accountants for the year ended December 31, 1997:
FOR AGAINST ABSTAIN 6,530,705 29,930 61,076
3. Amend the Company's Stock Option Plan to increase the number of shares available under the plan and add a change of control provision:
FOR AGAINST ABSTAIN 3,926,173 646,528 131,862
Item 5. OTHER INFORMATION None. Item 6. EXHIBITS AND REPORTS ON FORM 8-K 3 Bylaws (a) List of Exhibits 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 June 30, 1997. 10 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunder duly authorized. ALLIED CAPITAL CORPORATION -------------------------- (Registrant) /s/ Jon A. DeLuca -------------------------------------- Date: August 14, 1997 Jon A. DeLuca --------------- Principal and Chief Financial Officer 11 EX-3 2 BYLAWS 1 ------------------------------------------------- ALLIED CAPITAL CORPORATION (a Maryland corporation) ------------------ BYLAWS ------------------ As adopted by the Board of Directors on December 21, 1990 and as amended by the Board of Directors on May 7, 1992, October 19, 1994, November 8, 1995 and May 1, 1997. 2 TABLE OF CONTENTS 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. General Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 -------------- Section 7. Presiding Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ----------------- Section 8. Quorum. Adjournments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 --------------------- Section 9. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ------ Section 10. 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ----------------- Section 12. Meetings by Telephone or Similar Communications . . . . . . . . . . . . . . . . . . . . 6 ----------------------------------------------- ARTICLE IV COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 1. Executive Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ------------------- Section 2. Nominating Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 -------------------- Section 3. Compensation Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ---------------------- Section 4. Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 --------------- Section 5. Advisory Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 ------------------ Section 6. Other Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 ---------------- Section 7. Procedure; Notice; Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 --------------------------- Section 8. Quorum; Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 ------------ Section 9. Appointments; Vacancies; Changes; Discharges . . . . . . . . . . . . . . . . . . . . . . 8 --------------------------------------------
i 3 Section 10. Tenure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 ------ Section 11. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 ------------ Section 12. Action by Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 ----------------- Section 13. Meetings by Telephone or Similar Communications . . . . . . . . . . . . . . . . . . . . 9 ----------------------------------------------- ARTICLE V NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 1. Form; Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 -------------- Section 2. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 ------ ARTICLE VI OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 1. Designations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 ------------ Section 2. Term of Office; Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 ----------------------- Section 3. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 ------------ Section 4. The Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 ------------------------- Section 5. The President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 ------------- Section 6. The Managing Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 ---------------------- Section 7. Principals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ---------- Section 8. Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 --------------- Section 9. The Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ------------- Section 10. The Assistant Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ----------------------- Section 11. Associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ---------- Section 12. The Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ------------- Section 13. The Assistant Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 ----------------------- ARTICLE VII INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 1. Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 --------- Section 2. Limitation for Disabling Conduct . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 -------------------------------- Section 3. Advisory Committee Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 -------------------------- ARTICLE VIII STOCK CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 ------------------------ Section 5. Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 ----------- Section 6. Lost, Stolen or Destroyed Certificates . . . . . . . . . . . . . . . . . . . . . . . . 17 -------------------------------------- ARTICLE IX GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 1. Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 --------- Section 2. Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 -------- Section 3. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ----------- Section 4. Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ----
ii 4 ARTICLE X AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
iii 5 BYLAWS ARTICLE I OFFICES Section 1. Office. The principal office of the Corporation shall be at: CSC-Lawyers Incorporating Service Company, 11 East Chase Street, Baltimore, Maryland 21202, in the City of Baltimore, County of Baltimore, State of Maryland. 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 stockholders 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 6 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. General Powers. The business and affairs of the Corporation shall be managed by its stockholders, which may exercise all powers of the Corporation and perform all lawful acts and things on behalf of the Corporation. Section 7. 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 8. 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. 2 7 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. Section 9. 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 10. 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 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, subject to the foregoing limitation. The tenure of office of a director shall not be affected by any decrease in 3 8 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 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 4 9 thereof to the Board of Directors or the designated officer. It shall not be necessary for a resignation to be accepted before it becomes effective. Section 5. Place of Meetings. The Board of Directors may hold meetings, annual, regular or special, either within or without the State of Maryland. Section 6. Annual Meeting. The annual meeting of each newly elected Board of Directors shall be held immediately following the annual meeting of stockholders, and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. Section 7. Regular Meetings. Additional regular meetings of the Board of Directors may be held without notice, at such time and place as may from time to time be determined by the Board of Directors. Section 8. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board or the President on at least two days' notice to each director, if such notice is delivered personally or sent by messenger, telegram, telecopy, facsimile transmission, or mail. Special meetings shall be called by the Chairman of the Board, the President or the Secretary in like manner and on like notice on the written request of two or more of the number of directors then in office. Except as otherwise provided by law, the Articles of Incorporation or Article X of these Bylaws, any such notice need not state the purpose or purposes of such meeting. Section 9. Quorum; Adjournments. At all meetings of the Board of Directors, a majority of the number of directors then in office shall constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by law, the Articles of Incorporation or these Bylaws. If a quorum is not present at any meeting of the Board of Directors, the directors present may adjourn the meeting from time to time until a quorum 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. 5 10 Section 11. Action by Consent. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if a written consent to such action is signed by all members of the Board of Directors and such written consent is filed with the minutes of the proceedings of the Board (except for those instances where the Investment Company Act of 1940 (the "1940 Act") requires actions be taken by the Corporation's Board of Directors in person, including without limitation the selection of independent auditors and the approval of an Investment Agreement.). Section 12. Meetings by Telephone or Similar Communications. The Board of Directors may participate in a meeting by means of a conference telephone or similar communications equipment by means of which all directors participating in the meeting can hear each other at the same time, and participation by such means shall be conclusively deemed to constitute presence in person at such meeting (except for those instances where the 1940 Act requires actions be taken by the Corporation's Board of Directors in person, including without limitation the selection of independent auditors and the approval of an Investment Agreement.). ARTICLE IV COMMITTEES Section 1. Executive Committee. The Board of Directors may appoint an Executive Committee consisting of not fewer than three members, one of whom shall be designated as Chairman of the Executive Committee. The Chairman of the Board and the President shall be elected members of the Executive Committee. The Executive Committee shall have and may exercise those rights, powers and authority of the Board of Directors as may from time to time be granted to it by the Board of Directors subject to any limitations imposed by law and may authorize the seal of the Corporation to be affixed to all papers which may require the same. Section 2. Nominating Committee. The Board of Directors shall appoint a Nominating Committee consisting of not fewer than three members, one of whom shall be designated as 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 6 11 Committee shall have and may exercise those rights, powers and authority of the Board of Directors as may from time to time be granted to it by the Board of Directors. Section 4. Audit Committee. The Board of Directors may appoint from its membership an Audit Committee consisting of not fewer than three members, one of whom shall be designated as Chairman of the Audit Committee. A majority of members of the Audit Committee shall not be officers of the Corporation. The Audit Committee shall have and may exercise those rights, powers and authority of the Board of Directors as may from time to time be granted to it by the Board of Directors; provided, however, that in addition to any such rights, powers or authority, the Audit Committee shall: (i) issue instructions to and receive reports from outside accounting firms and to serve as the liaison between the Corporation and the said firms; and (ii) review all potential conflict-of-interest situations arising in respect of the Corporation's affairs and involving the Corporation's affiliates or employees, and to make a report, verbal or written, to the full Board of Directors with recommendations for their resolutions. Section 5. Advisory Committee. (a) The Board of Directors may appoint individuals of its selection to an Advisory Committee to assist the Board of Directors in the conduct of its duties and responsibilities. The Advisory Committee may meet in conjunction with meetings of the Board of Directors and shall serve as advisers and counselors to the Board of Directors as the members thereof shall determine best serves the Corporation's interests. (b) The Board of Directors, by resolutions adopted by a majority of the whole Board, may appoint an Advisory Committee complying with the terms of Section 2(a)(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 7 12 dividends or distributions on stock, to issue stock except to the extent permitted by law, to recommend to stockholders any action requiring stockholders' approval, to amend these Bylaws or to approve any merger or share exchange which does not require stockholders' approval). Section 7. Procedure; Notice; Meetings. Each committee shall fix its own rules of procedure and shall meet at such times and at such place or places as may be provided by such rules or as the members of such committee shall provide. Committee meetings may be called by the Chairman of the Board, the President, the Chairman of the Committee, if any, or any two or more committee members on at least twenty-four (24) hours notice, if such notice is delivered personally or sent by messenger, telegram, telecopy, facsimile transmission, or mail. Each committee shall keep regular minutes of its meetings and deliver such minutes to the Board of Directors. The Chairman of each committee, or, in his or her absence, a member of such committee chosen by a majority of the members of such committee present, shall preside at the meetings of such committee, and another member thereof, or any other person, chosen by such committee shall act as Secretary of such committee, or in the capacity of Secretary for purposes of such meeting. Section 8. Quorum; Vote. With respect to each committee, a majority of its members shall constitute a quorum for the transaction of business, and the affirmative vote of a majority of the members thereof shall be required for any action of such committee. Section 9. Appointments; Vacancies; Changes; Discharges. The Board of Directors shall have the exclusive power at any time, through the approval by the affirmative vote of a majority of the entire Board of Directors, to appoint directors to, fill vacancies in, change the membership of, or discharge any committee. Section 10. Tenure. Each member of a committee shall continue as a member thereof until the expiration of his or her term as a director, or his or her earlier resignation as a member of such committee or as a director, unless sooner removed as a member of such committee by a vote of a majority of the entire Board of Directors or as a director in accordance with these Bylaws. 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 8 13 consent to such action is signed by all members of the committee and such written consent is filed with the minutes of its proceedings. Section 13. Meetings by Telephone or Similar Communications. The members of any committee which is designated by the Board of Directors may participate in a meeting of such committee by means of a conference telephone or similar communications equipment by means of which all members participating in the meeting can hear each other at the same time, and participation by such means shall be conclusively deemed to constitute presence in person at such meeting. ARTICLE V NOTICES Section 1. Form; Delivery. Whenever, under the provisions of law, the Articles of Incorporation or these Bylaws, notice is required to be given to any director or stockholder, it shall not be construed to mean exclusively personal notice unless otherwise specifically provided, but such notice may be given in writing, by mail, addressed to such director or stockholder, provided, in the case of a stockholder, such notice is addressed to his, her or its post office address as such address appears on the records of the Corporation, with postage thereon prepaid. Any such notice shall be deemed to have been given at the time it is deposited in the United States mail. Notice to a director also may be given personally or sent by messenger, telegram, telecopy or facsimile transmission. Section 2. Waiver. Whenever any notice is required to be given under the provisions of law, the Articles of Incorporation or these Bylaws, a written waiver thereof, signed by the person or persons entitled to said notice and filed with the records of the meeting, whether before or after the time stated therein, shall be conclusively deemed to be equivalent to such notice. In addition, any stockholder who attends a meeting of stockholders in person, or is represented at such meeting by proxy, without protesting at the commencement of the meeting the lack of notice thereof to him or her, or any director who attends a meeting of the Board of Directors 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 9 14 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. 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. 10 15 Section 5. The President. The President, subject to the direction of the Board of Directors and reporting to the Chairman of the Board, shall have general charge of the business, affairs and property of the Corporation and general supervision over its officers and agents. In general, he or she shall perform all duties incident to the office of President, and shall see that all orders and resolutions of the Board of Directors are carried into effect. In the absence of the Chairman of the Board, the President shall preside at all meetings of the stockholders and of the Board of Directors. The President shall be a member of the Executive Committee and an ex-officio member of each standing committee. Unless otherwise prescribed by the Board of Directors, the President shall have full power and authority on behalf of the Corporation to attend, act and vote at any meeting of stockholders of other corporations in which the Corporation may hold securities. At such meeting, the President shall possess and may exercise any and all rights and powers incident to the ownership of such securities which the Corporation might have possessed and exercised if it had been present. The President shall execute in the corporate name all appropriate deeds, mortgages, bonds, contracts or other instruments requiring a seal of the Corporation, except in cases in which the signing or execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. The Board of Directors may from time to time confer like powers and authority upon any other person or persons. Section 6. The Managing Directors. The Managing Directors, subject to the direction of the Board of Directors and reporting to the Chairman of the Board and President, shall assist in the general charge of the business of the Corporation and general supervision over its officers and agents. In the absence of the Chairman of the Board or President, at the direction of the Board of Directors, a Managing Director may preside at all meetings of the stockholders and of the Board of Directors. Unless otherwise prescribed by the Chairman of the Board or President, the Managing Directors shall have full power and authority on behalf of the Corporation to attend, act and vote at any meeting of stockholders of other corporations in which the Corporation may hold securities. At such meeting, the Managing Director shall possess and may exercise any and all rights and powers incident to the ownership of such securities which the Corporation might have possessed and exercised if it had been present. At the direction of the Chairman of the Board or the President, a Managing Director may execute in the corporate name all appropriate deeds, mortgages, bonds, contracts or other instruments requiring a seal of the 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. 11 16 Section 8. Vice Presidents. The Vice Presidents, if any, shall generally assist the President and any and all Managing Directors and/or the Principals as directed by such officers and perform such other duties and have such other powers as may from time to time be prescribed by the Board of Directors. Section 9. The Secretary. The Secretary shall attend all meetings of the Board of Directors and meetings of the stockholders and record all votes and the proceedings of the meetings in a book to be kept for that purpose and shall perform like duties for the Executive Committee or other committees, if required. He or she shall give, or cause to be given, notice of all meetings of stockholders and special meetings of the Board of Directors, and shall perform such other duties as may from time to time be prescribed by the Board of Directors, Chairman of the Board or the President, under whose supervision he or she shall act; provided, however, that in addition to any such duties, the Secretary shall: (i) provide each director with a copy of the Bylaws of the Corporation upon his or her election as a director; and (ii) upon any amendment to these Bylaws, provide each director with a copy of the Bylaws, as amended, promptly after such Bylaws have been approved by the Board of Directors. The Secretary shall have custody of the seal of the Corporation, and he or she, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it, and, when so affixed, the seal may be attested by his or her signature or by the signature of such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing thereof by his or her signature. Section 10. The Assistant Secretary. The Assistant Secretary, if any (or, in the event there be more than one, the Assistant Secretaries in the order designated, or, in the absence of any designation, in the order of their election), shall, in the absence of the Secretary or in the event of his or her disability, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as may from time to time be prescribed by the Board of Directors. Section 11. Associates. The Associates who are designated officers of the Corporation, if any, shall assist the President, any and all Managing Directors, Principals, and Vice Presidents 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 12 17 may require it, an account of all his or her transactions as Treasurer and of the financial condition of the Corporation. Section 13. The Assistant Treasurer. The Assistant Treasurer, if any (or in the event there shall be more than one, the Assistant Treasurers in the order designated, or, in the absence of any designation, in the order of their election), shall, in the absence of the Treasurer or in the event of his or her disability, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as may from time to time be prescribed by the Board of Directors. ARTICLE VII INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS Section 1. Generally. Reference is made to Section 2-418 (and any other relevant provisions) of the Corporations and Associations Article of the Annotated Code of Maryland (1993), as amended. Particular reference is made to the class of persons (hereinafter called "Indemnitees") who may be indemnified by a Maryland corporation pursuant to the provisions of such Section 2-418, namely, any entity (including the Corporation's investment adviser) or person (or the heirs, executors or administrators of such person) who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, manager, partner, officer, trustee, employee or 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. (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 limit any liability, or indemnify any director or officer of the Corporation 13 18 against 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 required by Section 1(b) hereof with respect to a director or officer of the Corporation shall include a determination that the liability for which such indemnification is sought did not arise by reason of such person's disabling conduct. Such determination may be based on: (i) a final decision on the merits by a court or other body before whom the action, suit or proceeding was brought that the person to be indemnified was not liable by reason of disabling conduct, or (ii) in the absence of such a decision, a reasonable determination, based on a review of the facts, that the person to be indemnified was not liable by reason of such person's disabling conduct by: (A) the vote of a majority of a quorum of directors who are disinterested, non-party directors; or (B) an independent legal counsel in a written opinion. In making such determination, such disinterested, non-party directors or independent legal counsel, as the case may be, may deem the dismissal for insufficiency of evidence of any disabling conduct of either a court action or an administrative proceeding against a person to be indemnified to provide reasonable assurance that such person was not liable by reason of disabling conduct. (b) For the purpose of this Section: (i) "disabling conduct" of a director or officer shall mean such person's willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the office or any other conduct prohibited under Section 17(h) of the 1940 Act or any other applicable securities laws; (ii) "disinterested, non-party director" shall mean a director of the Corporation who is neither an "interested person" of the Corporation as defined in Section 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 not 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 the 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. 14 19 (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, as defined in Section 2(b) hereof. (d) The Corporation may advance legal fees and other expenses pursuant to the indemnification rights set forth in Section 1 hereof so long as, in addition to the other requirements therefor, the Corporation either: (i) obtains security for the advance from the Indemnitee; (ii) obtains insurance against losses arising by reason of lawful advances; or (iii) it shall be determined, pursuant to the means set forth in Section 2 (a)(ii) hereof, that there is reason to believe that the Indemnitee ultimately will be found entitled to indemnification. Section 3. Advisory Committee Members. The Corporation shall indemnify any person appointed to any Advisory Committee pursuant to Article IV, Section 11 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. 15 20 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 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 16 21 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. 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 8 of Article III; 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. 17 22 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." 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 23 CERTIFICATE We, WILLIAM L. WALTON and TRICIA BENZ DANIELS, Chairman and Secretary, respectively, of ALLIED CAPITAL CORPORATION (the "Corporation"), a Maryland corporation, DO HEREBY CERTIFY that the foregoing is a true and correct copy of the Corporation's Bylaws as amended and in effect the date hereof. IN WITNESS WHEREOF, we have hereunto set our hands and affixed the corporate seal of the Corporation this 1st day of May, 1997. /s/ WILLIAM L. WALTON -------------------------------------------- William L. Walton, Chairman /s/ TRICIA BENZ DANIELS -------------------------------------------- Tricia Benz Daniels, Secretary [Corporate Seal] 19 EX-11 3 COMPUTATION OF EARNINGS 1 Allied Capital Corporation and Subsidiaries Exhibit 11 Statement of Computation of Earnings Per Common Share Form 10-Q June 30, 1997
For the Three Months Ended For the Six Months Ended June 30, June 30, -------------------------- -------------------------- 1997 1996 1997 1996 -------------------------- -------------------------- Primary Earnings Per Common Share: Net Increase in Net Assets Resulting from Operations $2,722,000 ($366,000) $4,678,000 $4,076,000 Less: Dividends for Preferred Stock (55,000) (55,000) (110,000) (110,000) -------------------------- -------------------------- Net Increase in Net Assets Resulting from Operations Available to Common Shareholders $2,667,000 ($421,000) $4,568,000 $3,966,000 ========================== ========================== Weighted average number of common shares outstanding 7,351,078 6,918,100 7,333,643 6,692,479 Weighted average number of common shares issuable on exercise of outstanding stock options 64,096 - 71,028 37,663 -------------------------- -------------------------- Weighted average number of common shares and common share equivalents outstanding 7,415,174 6,918,100 7,404,671 6,730,142 ========================== ========================== Earnings per Common Share $0.36 ($0.06) $0.62 $0.59 ========================== ========================== Fully Diluted Earnings Per Common Share: Net Increase in Net Assets Resulting from Operations $2,722,000 ($366,000) $4,678,000 $4,076,000 Less: Dividends for Preferred Stock (55,000) (55,000) (110,000) (110,000) -------------------------- -------------------------- Net Increase in Net Assets Resulting from Operations Available to Common Shareholders $2,667,000 ($421,000) $4,568,000 $3,966,000 ========================== ========================== Weighted average number of common shares and common share equivalents outstanding as computed for primary earnings per share 7,415,174 6,918,100 7,404,671 6,730,142 Weighted average of additional shares issuable on exercise of outstanding stock options 9,642 - 6,737 6,428 -------------------------- -------------------------- Weighted average number of common shares and common share equivalents outstanding, as adjusted 7,424,816 6,918,100 7,411,408 6,736,570 ========================== ========================== Earnings per Common Share $0.36 ($0.06) $0.62 $0.59 ========================== ==========================
EX-27 4 FINANCIAL DATA SCHEDULE
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ALLIED CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS, CHANGES IN NET ASSETS, AND CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997. 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 118,766 124,815 0 3,655 40,461 168,931 0 95,450 2,944 98,394 7,367 55,367 7,367 7,299 0 (2,058) 0 0 6,047 69,537 540 7,038 290 5,781 2,087 614 1,977 4,678 0 5,031 0 0 32 0 36 1,217 270 0 0 0 1,527 3,918 5,781 68,929 8.54 0.28 0.35 0.66 0.00 0.00 8.62 0.08 93,025 12.56
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