-----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, BdBD0dWmQ72smKLbvK63qSektT1tVxPAb2Ndphyd8rCrRClVmp/rmQCYllZXlb+x 5fVnIQgVJ7TXOy+sAgjDkQ== 0000950133-97-001141.txt : 19970401 0000950133-97-001141.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950133-97-001141 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIED CAPITAL ADVISERS INC CENTRAL INDEX KEY: 0000868207 STANDARD INDUSTRIAL CLASSIFICATION: INVESTMENT ADVICE [6282] IRS NUMBER: 520812307 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-18826 FILM NUMBER: 97569614 BUSINESS ADDRESS: STREET 1: 1666 K ST N W STE 901 CITY: WASHINGTON STATE: DC ZIP: 20006 BUSINESS PHONE: 2023311112 MAIL ADDRESS: STREET 1: 1666 K ST NW STREET 2: 9TH FL CITY: WASHINGTON STATE: DC ZIP: 20006 FORMER COMPANY: FORMER CONFORMED NAME: ALLIED ADVISORY INC /MD/ DATE OF NAME CHANGE: 19600201 10-K405 1 ALLIED CAPITAL ADVISERS FORM 10-K. 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. FORM 10-K ------ [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NO. 0-18826 ALLIED CAPITAL ADVISERS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) ------ MARYLAND 52-0812307 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION) IDENTIFICATION NO.) 1666 K STREET, NW, NINTH FLOOR WASHINGTON, D.C. 20006 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (202) 331-1112 ------ SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- ------------------- NONE NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $0.001 PAR VALUE (TITLE OF CLASS) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that 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 --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the registrant's common stock held by non-affiliates of the registrant as of March 19, 1997 was approximately $40,736,996 based upon the average bid and asked price for the registrant's common stock on that date. As of March 19, 1997 there were 9,010,460 shares of the registrant's common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Annual Report to Shareholders for the year ended December 31, 1996 are incorporated by reference into Parts II and IV of this Report. Portions of the registrant's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 16, 1997 are incorporated by reference into Part III of this Report. ================================================================================ 2 PART I Item 1. Business. Allied Capital Advisers, Inc. (the "Company") was incorporated under the laws of the District of Columbia in May 1964 and was reorganized as a Maryland corporation in September 1990. The Company is engaged primarily in the business of providing investment advice and related services to the investment funds comprising the Allied Capital family of funds (the "Allied Funds"). In 1989, the Company registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers Act"). Until late 1990, the Company was a wholly owned subsidiary of Allied Capital Corporation ("Allied I"); it thereafter became a public company upon the distribution of all of its then issued and outstanding shares to the stockholders of Allied I. The Allied Funds focus primarily on investments in small growing entrepreneurial companies. During 1996, the Company served as an investment adviser to Allied I, Allied Capital Corporation II ("Allied II"), Allied Capital Lending Corporation ("Allied Lending"), Allied Venture Partnership ("Allied Venture"), Allied Technology Partnership ("Allied Technology"), Allied Capital Mortgage LLC ("Allied Mortgage") and Allied Capital Midwest LLC ("Allied Midwest"), each of which specializes in financing for small, private businesses through senior or subordinated debt and combinations of debt and equity. During 1996, the Company also served as investment manager to Allied Capital Commercial Corporation ("Allied Commercial") and Business Mortgage Investors, Inc. ("BMI"), each of which is a real estate investment trust that specializes in small business loans collateralized by real estate. Allied I, Allied II, Allied Lending, and Allied Commercial are publicly owned investment funds, and BMI, Allied Venture, Allied Technology, Allied Mortgage and Allied Midwest are privately held. As the investment adviser or investment manager of the Allied Funds, the Company provides a variety of services in the management and servicing of those funds' portfolios of investments in small growth-oriented businesses. The Company generally searches for and recommends investment opportunities to the investment funds that it manages, services the portfolios under its management and provides significant managerial assistance to portfolio companies of certain of the funds that it manages. As the investments of its managed funds generally are in private companies, management and servicing of the funds' portfolios is labor intensive. Because the size of such investments generally is relatively small, the labor intensity of the Company's work is relatively high due to the number of investments comprising the portfolios of its managed funds. In addition, the Company is required to monitor the compliance of certain of the managed funds with regulations applicable to business development companies, small business lending corporations, small business investment companies, specialized small business investment companies and real estate investment trusts. The Company receives advisory and management fees as set forth in the various advisory or management agreements it has with the Allied Funds. The fees charged pursuant to these agreements generally approximate 2.5 percent on invested assets and 0.5 percent on interim investments, cash and cash equivalents on an annual basis. The Company receives payments of advisory and management fees quarterly in arrears. At December 31, 1996, 1995 and 1994, the Company managed assets of approximately $764 million, $670 million, and $569 million, respectively. Included in invested assets at December 31, 1996, 1995 and 1994, were approximately $53 million, $60 million, and $37 million, respectively, in assets of a company that is co-managed by another investment manager. The Company pays one-third of its fees received from this company to the co-manager. The Company from time to time will waive or adjust its advisory or management fees, given certain regulatory or economic circumstances. The Company believes that it is prudent to waive or adjust its fees when market conditions dictate such an adjustment, and such actions will enhance the Company's investment advisory and management performance overall. The Company has adjusted its fee schedule with Allied Commercial to provide a range of fees charged on new loans originated. The range of fees for loans originated in 1996 was from 1 percent to 3.5 percent and the range of fees for new loans originated beginning January 1, 1997 is from 0.5 percent to 3.0 percent. The Company maintains a quarterly cap on the fees for those assets of 2.5 percent on an annual basis. The weighted average advisory and management fees as a percent of average total assets under management equaled 2.2 percent, 2.3 percent, and 2.2 percent for the years ended December 31, 1996, 1995, and 1994, respectively. 1 3 At December 31, 1996, assets under the Company's management with respect to, and the invested assets of, its managed funds that each generate approximately 10% or more of the advisory fees paid to the Company were as follows:
(in millions) At December 31, 1996 At December 31, 1995 Total Invested Total Invested Name of Fund Assets Assets Assets Assets - ------------ --------------------------- ------------------------ Allied I $166 $109 $148 $111 Allied II 107 88 107 101 Allied Lending 68 67 55 52 Allied Commercial 370 345 298 281
The Company also provides advisory services to Allied Venture, Allied Technology, BMI, Allied Mortgage and Allied Midwest. Allied Midwest is a newly formed fund and is in the process of closing on investment subscriptions. Subscriptions for $50 million had been received by Allied Midwest as of March 1, 1997. With the exception of Allied Venture, Allied Technology, Allied Midwest and Allied Mortgage, all of the funds currently managed by the Company provide opportunities for growth through leverage. While the amount of leverage these funds are able to obtain will depend upon various factors, including market conditions and the cost of capital, none of the funds had exhausted its ability to obtain debt capital as of December 31, 1996, and the potential for growth in assets under management from debt capital remains. Services Provided to the Managed Funds As investment adviser or investment manager, the Company generally identifies potential investments for the managed funds, evaluates those potential investments for the specific fund, structures and closes all investments for each fund and monitors all investments and the performance of each portfolio company of each managed fund. The Company utilizes investment and loan officers, each of whom is responsible for certain portfolio companies of a managed fund. The Company's investment and loan officers servicing Allied I, Allied II and Allied Lending also provide management assistance and counseling to their portfolio companies upon the request of any portfolio company or when it appears that a portfolio company is encountering business or financial difficulties. At December 31, 1996, twenty-two of the Company's seventy employees were investment and loan officers. In addition to providing services as an investment adviser or investment manager, the Company provides accounting functions and investment and loan servicing functions for its managed funds. The Company's accounting staff is responsible for all internal and external financial reporting of the managed funds, including reports to stockholders and required reports to the U.S. Small Business Administration ("SBA"), the Securities and Exchange Commission ("SEC") and the Internal Revenue Service ("IRS"), and all record keeping regarding investments in and loans to portfolio companies. The investment and loan servicing staff processes monthly payments received from borrowers of the managed funds, processes escrow payments, monitors payment activity and responds to routine inquiries from borrowers. At December 31, 1996, seventeen of the Company's employees were involved in accounting and servicing functions. The Company also provides a compliance function for its managed funds and their subsidiaries. At December 31, 1996, nine of the managed funds, including subsidiary funds, were investment companies; of those nine managed funds and subsidiary funds, four are registered under the Investment Company Act of 1940, as amended (the "1940 Act"), five have elected to be regulated as business development companies, two are licensed small business investment companies, and two are licensed as specialized small business investment companies. Two of the managed funds are real estate investment trusts. The compliance function provided by the Company seeks to ensure compliance with the rules and regulations imposed by the SEC, SBA and IRS on the managed funds and their subsidiaries and reviews proposed investments or restructurings to assure compliance with applicable regulatory requirements. The Company also monitors its compliance with rules and regulations that govern its operation as an investment adviser under the Advisers Act. 2 4 Members of the Company's investor relations staff coordinate press releases, quarterly and annual reports and proxy statements by the Company and its managed funds and respond to inquiries from over 40,000 stockholders of the Company and its managed funds. At December 31, 1996, two of the Company's employees were involved in investor relations. Investment Adviser to Allied I, Allied II, and Allied Lending Each of Allied I, Allied II, and Allied Lending is a management investment company that has elected to be regulated as a business development company ("BDC") under the 1940 Act. Allied I and Allied II each has a subsidiary licensed by the SBA as a small business investment company ("SBIC"), and a subsidiary licensed by the SBA as a specialized small business investment company ("SSBIC"). Each SSBIC subsidiary may provide financing for socially or economically disadvantaged small businesses. Allied I and Allied II each seeks, either directly or through its subsidiaries, to make privately negotiated investments in small businesses, generally in the form of debt securities with options or warrants, for the purpose of financing growth, management buyouts, recapitalizations or special situations. Allied Lending is an SBA-approved small business lending company that makes loans to small businesses that may be guaranteed to the extent of 70% to 90% by the SBA. Allied Lending, either directly or indirectly through its subsidiaries, systematically sells to investors, without recourse, the guaranteed portion of its loans, which it continues to service. As BDCs, Allied I, Allied II, and Allied Lending offer and provide significant guidance and counseling to their portfolio companies concerning management, operations and business objectives and policies upon the request of any portfolio company or when it appears that a portfolio company is encountering business or financial difficulties. In accordance with the conditions of an exemptive order of the SEC permitting co-investments (the "co-investment guidelines"), most of the acquisitions and dispositions of investments by Allied I are made generally, pro rata based on total assets, in participation with Allied II, and vice versa, on the same terms, subject to the approval of each company's board of directors, including a majority of their respective independent directors. Allied I and Allied II also made investments in participation with Allied Venture and Allied Technology during the period in which Allied Venture and Allied Technology were making investments. The co-investment guidelines provide Allied I and Allied II with the opportunity to dispose of any securities in which the other or Allied Venture or Allied Technology have invested in proportion to their holdings of such securities. The Company has entered into a separate investment advisory agreement with each of Allied I, Allied II, and Allied Lending that continues in effect as long as such continuance is specifically approved at least annually by the board of directors of the respective company, including a majority of such company's directors who are not "interested" (within the meaning of the 1940 Act) or by vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the respective company. Each such agreement may be terminated at any time, without the payment of any penalty, by the board of directors of the respective company or by vote of a majority (as defined in the 1940 Act) of the outstand ing voting securities of such company. In accordance with the 1940 Act, each such agreement terminates automatically in the event of its assignment by the Company. Investment Manager to Allied Commercial and BMI Allied Commercial and BMI each are intended to qualify as a real estate investment trust ("REIT") for federal tax purposes. Allied Commercial is publicly owned, and seeks to purchase or originate commercial loans to small businesses secured by liens on real estate. BMI is privately owned by institutional and other accredited investors. Allied Commercial and BMI have participated in proportion to their respective capitalizations in most business loans purchased or originated by them through the end of 1996. The Company has entered into investment management agreements with Allied Commercial and BMI that remain in effect indefinitely unless terminated by an affirmative vote of the holders of at least two-thirds of the voting shares of Allied Commercial or BMI then outstanding. Allied Commercial will undertake to include in its proxy statement and shareholders will have the opportunity to consider and vote on a voluntary liquidation of the company in the years 2000, 2003, and 2006. Effective January 1, 1997, BMI is no longer making any new investments and has begun liquidation. In addition, the management agreement with BMI, which is co-managed by the Company and Siguler Guff & Company (the "Investment Managers"), may be terminated by a majority of independent directors as to either of the 3 5 Investment Managers if such Investment Manager becomes insolvent, its registration as an investment adviser is revoked or suspended or it is disqualified to serve as a fiduciary under the Employee Retirement Income Security Act of 1974. Under its current investment management agreement with BMI, the Company must remit one-third of the fee received from BMI to Siguler Guff & Company. During 1996, Allied Commercial and BMI, through a jointly owned corporation, Allied Capital Funding, LLC ("Funding") issued to the public bonds collateralized by mortgage loans. The Company is the mortgage servicer to Funding; however, because of its investment management agreements already in place with Allied Commercial and BMI, the Company has agreed to receive no incremental revenue for services provided to Funding. Investment Adviser to Allied Mortgage and Allied Midwest Allied Mortgage and Allied Midwest each is organized as a Delaware limited liability company ("LLC") and operates as an investment fund. Neither LLC is registered under the 1940 Act, but each may determine to register under, and thus become subject to, the 1940 Act in the future. The business of Allied Mortgage is to purchase non-performing loans from the Federal Deposit Insurance Corporation, banks and other sources. It is expected that many of these loans will involve first mortgages (or deeds of trust) on real estate, as well as first liens on the operating assets of small businesses. Once a loan is purchased, Allied Mortgage seeks to restore part of the non-performing loan to a performing status, and to reduce the remaining part of the loan to an equity ownership in the business or an equity ownership in the real estate asset underlying the loan. Allied Midwest seeks to achieve long-term growth in the value of its net assets, capital gains and current income primarily by providing equity and debt capital for small, privately owned businesses which are headquartered or have a major presence in the following Midwestern states: Michigan, Wisconsin, Illinois, Indiana and Ohio (the "Midwest"). The Company pursues this objective principally by utilizing equity and debt capital for the financing of small businesses across a broad range of industries in the Midwest which may have some difficulty in obtaining conventional financing from banks or other financial institutions. The Company has entered into separate investment advisory agreements with Allied Mortgage and Allied Midwest that continue in effect as long as such continuance is specifically approved at least annually by the board of managers of the respective LLC, including a majority of such LLC's managers who are not "interested" (within the meaning of the 1940 Act) or by vote of a majority (as defined in the 1940 Act) of the outstanding membership interests of the respective LLC. Each such agreement may be terminated at any time, without the payment of any penalty, by the board of managers of the respective LLC or by vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of such LLC. Each such agreement terminates automatically in the event of its assignment by the Company. Investment Adviser to Allied Venture and Allied Technology Allied Venture and Allied Technology are private venture capital partnerships in the business of making privately negotiated investments in small businesses for the purpose of financing growth or management buyouts, generally in the form of debt securities with options or warrants. The Company is the general partner of Allied Management Partners, which is the general partner of Allied Venture and Allied Technology. The limited partners of Allied Venture and Allied Technology include large insurance companies, pension funds and other institutions. The limited partnership agreements of Allied Venture and Allied Technology both provide that Allied Management Partners, as general partner, will be entitled to receive 20% of all proceeds of dispositions of investments after return of the total capital contribution made by each respective limited partner. One-half of the share of such proceeds received by Allied Management Partners will accrue to the Company as the general partner of Allied Management Partners and the other half will accrue to the limited partners of Allied Management Partners, which at this time includes Messrs. Williams, and Williams III, who are also directors and/or officers of the Company. At December 31, 1996, neither Allied Venture nor Allied Technology had returned the entire capital contributions to their respective limited partners. Allied Venture and Allied Technology have invested with Allied I or Allied II in portfolio companies, and the co-investment guidelines applicable to Allied I and Allied II provide Allied Venture and Allied Technology with the opportunity to dispose of any securities in which Allied I and Allied II have invested in proportion to their holdings of such securities. The Company's service as investment adviser to each of Allied Venture and Allied Technology continues in effect for the life of the respective partnership, subject to termination by their respective limited partners under certain 4 6 specified circumstances. Both Allied Venture and Allied Technology are in the process of liquidating their respective portfolios. As a result, it is likely that the Company will cease to receive advisory fees from these entities beginning in 1999. Other Revenue Sources From time to time, the Company may provide loan packaging and other investment banking-type services to third parties, for which it may be paid fees on a basis that is negotiated separately on each occasion with the third party involved. The Company's investment advisory agreements with its managed funds generally provide that fees collected by the Company in connection with any investment transaction entered into or proposed to be entered into by these companies will be treated as commitment fees or management fees and will be received by the respective company in proportion to its participation in such transaction. In September 1994, the Company's wholly owned subsidiary, Allied Capital Property Corporation, acquired for investment and for a potential future business location, an office building and land on which it was situated in Vienna, Virginia, a suburb of Washington, D.C. The building has approximately 58,000 rentable square feet and had an occupancy rate of approximately 84% at the time of the acquisition. As of December 31, 1996, the occupancy rate was 100%. See "Item 2. Properties," below. The Company received gross revenue from the operations of this building of $916,000 and $828,000 in 1996 and 1995, respectively. Net of operating expenses, incremental pre-tax profits generated by the building's operations were $410,000 and $342,000 in 1996 and 1995, respectively. Competition Various aspects of the operations of the Company are comparable to the operations of many professional money management companies, many of which (e.g. mutual funds) have substantially greater resources than the Company and greater access to public investors. Management of the Company believes that it is the only publicly owned investment adviser that specializes in small business investment management and that certain aspects of its operations are distinct from the operations and services provided by investment advisers that manage portfolios of publicly traded securities. Change of Chairman and Chief Executive Officer After 22 years with the Allied Capital companies, David Gladstone stepped down as Chairman and Chief Executive Officer of the Company in early 1997, and the Board appointed William L. Walton to be the Company's new Chairman and Chief Executive Officer. Mr. Gladstone also resigned as a director on March 19, 1997 and will not stand for election to the board of directors. Mr. Walton has been affiliated with the Allied Capital companies for more than ten years, both as a director of the Company and as a past director of Allied Capital Corporation. Mr. Walton's extensive experience in the investment industry combined with his performance as an entrepreneur provide an excellent mix of talent for the Company. He previously served as Managing Director of New York-based Butler Capital Corporation and was the personal venture capital advisor for William S. Paley, founder and Chairman of CBS. More recently, Mr. Walton founded two private companies dedicated to improving education for children with a focus on reading and languages. Mr. Walton has been a commercial banker, an investment banker with Lehman Brothers Kuhn Loeb, a private investor and an entrepreneur, and throughout his career has been involved in the growth and finance of small business. ITEM 2. PROPERTIES. The Company's principal offices are located on the ninth floor of 1666 K Street, NW, Washington, D.C., an office building in the heart of Washington's business and financial district. The Company leases approximately 22,000 square feet of office space at that location under a lease that currently expires in 1998. That office is equipped with a network of personal computers for word processing, financial analysis and accounting, which the Company believes is suitable for the Company's needs for the foreseeable future. The Company's wholly owned subsidiary, Allied Capital Property Corporation, owns an office building and land on which it is situated in Vienna, Virginia, a suburb of Washington, DC. The building has approximately 58,000 rentable square feet and had an occupancy rate of 100% as of December 31, 1996. The Company acquired that building for investment, as a hedge against rising leasing costs and tax rates in the District of Columbia and with the expectation that the Company will consider locating its operations to the building at some point in the future. 5 7 ITEM 3. LEGAL PROCEEDINGS The Company is party to certain lawsuits in connection with its business. While the outcome of these legal proceedings cannot at this time be predicted with certainty, management does not expect that these actions will have a material effect upon the Company's financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF THE REGISTRANT. The following table sets forth the names, ages and positions of the executive officers of the Company as of March 1, 1997, as well as certain other information with respect to those persons:
Positions Currently Held with the Principal Occupations Name Age Company During Past Five Years - ---- --- ------------------ ---------------------- William L. Walton 47 Chairman and Chief Employed by the Company since Executive Officer 1997; Chairman and Chief Executive Officer of Allied I, Allied II, Allied Commercial, and Allied Lending; Manager of Allied Midwest; Chief Executive Officer of Success Lab, Inc. (children's educational services) from 1993 to 1996; Chief Executive Officer of Language Odyssey (educational publishing and services) from 1992 to 1996; Managing Director of Butler Capital Corporation from 1987 to 1991. Joan M. Sweeney 37 President and Chief Operating Employed by the Company since Officer 1993; Executive Vice President of Allied I, Allied II, Allied Commercial, Allied Lending, BMI, Allied Mortgage and Allied Midwest; Executive Vice President of the Company from 1993 to 1994; Senior Manager at Ernst & Young from 1990 to 1993. G. Cabell Williams III 42 Executive Vice President Employed by Allied I or the Company since 1981; President and Chief Operating Officer of Allied I; Executive Vice President of Allied II, Allied Commercial, Allied Lending and BMI; Executive Vice President of Allied Midwest. He is the son of George C. Williams.
6 8 John M. Scheurer 44 Executive Vice President Employed by the Company since 1991; President and Chief Operating Officer of Allied Commercial; Executive Vice President of Allied I, Allied II, Allied Lending, Allied Mortgage and Allied Midwest; President of BMI. Katherine C. Marien 48 Executive Vice President Employed by the Company since 1992; President and Chief Operating Officer of Allied Lending; Executive Vice President of Allied I, Allied II, Allied Commercial, Allied Midwest and BMI; Financial Consultant with Wilks & Schwartz Broadcasting from 1990 to 1992. Jon A. DeLuca 34 Executive Vice President, Employed by the Company since Treasurer and Chief Financial 1994; Executive Vice President, Officer Treasurer and Chief Financial Officer of Allied I, Allied II, Allied Commercial, Allied Lending, BMI, Allied Mortgage and Allied Midwest; Manager of Entrepreneurial Services at Coopers & Lybrand from 1986 to 1994.
PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Information in response to this Item is incorporated by reference to the "Shareholder Information" and "Quarterly Stock Price" sections and to the "Selected Consolidated Financial Data" section of the Company's Annual Report to Shareholders for the year ended December 31, 1996 (the "1996 Annual Report"). ITEM 6. SELECTED FINANCIAL DATA. Information in response to this Item is incorporated by reference to the table in the "Selected Consolidated Financial Data" of the 1996 Annual Report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Information in response to this Item is incorporated by reference to the "Management's Discussion and Analysis" section of the 1996 Annual Report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Information in response to this Item is incorporated by reference to the Consolidated Financial Statements, notes thereto and Report of Independent Public Accountants thereon contained in the 1996 Annual Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 7 9 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information in response to this Item is incorporated by reference to the identification of directors and nominees contained in the "Election of Directors" section and the subsection captioned "Compliance with Reporting Requirements of Section 16(a) of the Securities Exchange Act of 1934" of the Company's definitive proxy statement in connection with its 1997 Annual Meeting of Stockholders, scheduled to be held on May 16, 1997 (the "1997 Proxy Statement"). Information in response to this Item also is included under the caption "Executive Officers of the Registrant" of this Report. ITEM 11. EXECUTIVE COMPENSATION. Information in response to this Item is incorporated by reference to the subsections captioned "Compensation of Directors and Executive Officers," "Stock Options" and "Compensation of Directors" of the 1997 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information in response to this Item is incorporated by reference to the subsection captioned "Beneficial Ownership of Common Stock" of the 1997 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information in response to this Item is incorporated by reference to the section captioned "Certain Transactions" of the 1997 Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as part of this Report: 1. A. The following financial statements are filed herewith: Consolidated Balance Sheet as of December 31, 1996 and 1995. Consolidated Statement of Income for the years ended December 31, 1996, 1995 and 1994. Consolidated Statement of Shareholders' Equity for the years ended December 31, 1996, 1995 and 1994. Consolidated Statement of Cash Flows for the years ended December 31, 1996, 1995 and 1994. Notes to Consolidated Financial Statements. B. There is filed herewith the Report of Independent Public Accountants with respect to the financial statements listed in A. above. 2. No financial statement schedules are filed herewith because (i) such schedules are not required or (ii) the information required has been presented in the aforementioned financial statements. 3. The following exhibits are filed herewith or incorporated by reference as set forth below: Exhibit Number Description 3(i)* Amended and Restated Articles of Incorporation 3(ii)* By-laws 4 Instruments defining the rights of security holders. See Exhibits 3(i) and 3(ii). 8 10 10.1(1) Investment Advisory Agreement between the Company and Allied Capital Corporation, dated May 4, 1995. 10.2(2) Investment Advisory Agreement between the Company and Allied Capital Corporation II, dated May 11, 1995. 10.3(3) Investment Management Agreement between the Company and Allied Capital Commercial Corporation, dated June 10, 1992. 10.3(a)(4) Revised fee schedule for Investment Management Agreement between the Company and Allied Capital Commercial Corporation, dated May 3, 1996. 10.3(b)(5) Revised fee schedule for Investment Management Agreement between the Company and Allied Capital Commercial Corporation, dated January 9, 1997. 10.4(6) Investment Management Agreement among the Company, Mitchell Hutchins Institutional Investors Inc. and Business Mortgage Investors, Inc., dated January 4, 1993. Assignment of Management Agreement from Mitchell Hutchins Institutional Investors Inc. to Siguler Guff & Company LLC on August 8, 1995. 10.5(6) Agreement between the Company and Mitchell Hutchins Institutional Investors Inc., dated January 4, 1993. Assignment of Agreement Between Investment Managers from Mitchell Hutchins Institutional Investors, Inc. to Siguler Guff & Company LLC on August 8, 1995. 10.7(7) Investment Advisory Agreement between the Company and Allied Capital Lending Corporation, dated May 9, 1995. 10.8(8) Lease Agreement between 1620 K Street Associates Limited Partnership and the Company dated February 17, 1993. 10.10* Deferred Compensation Plan 10.11* Stock Option Plan 11* Statement regarding computation of per share earnings. 13* Excerpts from the 1996 Annual Report to Shareholders. 21 Subsidiaries of the Company and jurisdiction of incorporation: Allied Capital Property Corporation Maryland 23* Consents of Arthur Andersen LLP, independent accountants. - ------------- * Filed herewith. (1) Incorporated by reference to Exhibit A to the definitive proxy statement of Allied Capital Corporation relating to its annual meeting of stockholders held on May 4, 1995. (2) Incorporated by reference to Exhibit A to the definitive proxy statement of Allied Capital Corporation II relating to its meeting of stockholders held on May 11, 1995. (3) Incorporated by reference to the exhibit of the same number to the Company's Report on Form 10-K for the year ended December 31, 1992. (4) Incorporated by reference to Form 8-K filed on May 3, 1996. 9 11 (5) Incorporated by reference to Form 8-K filed on February 7, 1997. (6) Incorporated by reference to the exhibit of the same name to the Company's Report on Form 10-K for the year ended December 31, 1992 for Agreements. Incorporated by reference to the exhibit of the same name to the Company's Report on Form 10-K for the year ended December 31, 1995 for Assignments. (7) Incorporated by reference to Exhibit A to the definitive proxy statement of Allied Capital Lending Corporation relating to its annual meeting of stockholders held on May 9, 1995. (8) Incorporated by reference to an exhibit of the same name filed with the Company's Annual Report on Form 10-K for the year ended December 31, 1994. (b) Reports on Form 8-K. No reports on Form 8-K have been filed for the three months ended December 31, 1996. 10 12 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on March 27, 1997. /s/ WILLIAM L. WALTON ----------------------------- William L. Walton Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Title Signature (Capacity) Date - --------- ---------- ---- /s/ WILLIAM L. WALTON - -------------------------------- Chairman and March 27, 1997 William L. Walton Chief Executive Officer (Principal Executive Officer) /s/ JOAN M. SWEENEY - -------------------------------- Director, President March 27, 1997 Joan M. Sweeney and Chief Operating Officer /s/ SWEP DAVIS - -------------------------------- Director March 27, 1997 Swep Davis /s/ BROOKS H. BROWNE - -------------------------------- Director March 27, 1997 Brooks H. Browne /s/ ROBERT E. LONG - -------------------------------- Director March 27, 1997 Robert E. Long and Chief Operating Officer /s/ GEORGE C. WILLIAMS - -------------------------------- Director March 27, 1997 George C. Williams /s/ JON A. DELUCA - -------------------------------- Executive Vice President March 27, 1997 Jon A. DeLuca and Chief Financial Officer (Principal Financial and Accounting Officer)
11 13 EXHIBIT INDEX Exhibit Number Description - ------ ----------- 3(i) Amended and Restated Articles of Incorporation 3(ii) By-laws 10.10 Deferred Compensation Plan 10.11 Stock Option Plan 11 Statement regarding computation of per share earnings. 13 Excerpts from the 1996 Annual Report to Shareholders. 23 Consents of Arthur Andersen LLP, independent accountants. 12 EX-3.I 2 AMENDED & RESTATED ARTICLES OF INCORPORATION. 1 EXHIBIT 3(i) AMENDED AND RESTATED ARTICLES OF INCORPORATION of ALLIED CAPITAL ADVISERS, INC. (a Maryland corporation) FIRST: The name of the corporation (hereinafter referred to as the "Corporation") is: Allied Capital Advisers, Inc. SECOND: The purposes for which the Corporation is organized are as follows: A. To render advice and consulting services to corporations, individuals, partnerships and other business entities; to enter into contracts with any of such entities for the purpose of carrying out such advisory and consulting services; to register as an investment adviser with such agencies and in such jurisdiction where such registration is deemed appropriate; and to do all such other acts as may be related or incidental to the purposes of an investment adviser, merchant bank or similar financial institution; B. To purchase, acquire, hold, own, improve, develop, sell, convey, assign, release, mortgage, encumber, use, lease, hire, manage, deal in and otherwise dispose of real property and personal property of every kind and nature or any interest therein, improved or otherwise, including stocks and securities of other corporations; to loan money; to take securities for the payment of all sums due the Corporation; to sell, assign and release such securities; C. To equip, furnish, improve, develop and manage any property, real or personal; to invest, trade and deal in any personal property; to encumber or dispose of any personal property at any time held or owned by the Corporation; D. To engage in, operate and acquire interests in any kind of business, of whatever nature, which may be permitted by law; E. To import, export, produce, buy, sell and otherwise deal in and with, good, wares and merchandise of every kind, class and description; F. To acquire all or any part of the good will, rights, property and business of any individual, association, partnership, joint venture, corporation or other legal entity; to hold, utilize, enjoy and in any manner dispose of the whole or any part of the rights, property and business so acquired; to assume in connection therewith any liabilities of any such individual, association, partnership, joint venture, corporation or other legal entity; G. To acquire, by purchase, subscription or in any other manner, take, receive, hold, use, employ, sell, assign, transfer, exchange, pledge, mortgage, lease, dispose of and otherwise deal in and with any shares of stock or other shares, voting trust certificates, bonds, debentures, notes, mortgages or other obligations, securities or evidences of indebtedness, and any certificates, receipts, warrants or other instruments evidencing rights or options to receive, purchase or subscribe for the same or representing any other rights or interests therein nor in any property or assets, issued or created by any individual, association, partnership, joint venture, corporation, government (or subdivision or agency thereof) or other legal entity, wherever organized and wherever doing business; to possess and exercise in respect thereof any and all of the rights, powers and privileges of individual holders including, without limitation, the right to vote any shares of stock so held or owned and, upon a distribution of the assets or a division of the profits of the Corporation, to distribute any such shares of stock or other shares, voting trust certificates, bonds or other obligations, securities or evidences of indebtedness (or the proceeds thereof) among the stockholders of the Corporation; 2 H. To erect commercial buildings and other buildings, private or public of all kinds, and to sell and rent the same; to contract, enlarge, repair, grade, pave, dedicate, remodel or otherwise engage in any work upon buildings of every nature, roads, avenues, highways, paths,s walks, parks, playgrounds and sidewalks; to engage in iron, steel, wood, brick, concrete, stone, cement, masonry, glass and earth construction; to execute contracts or to receive assignments of contract therefor or relating thereto; to manufacture and furnish the building materials and supplies connected therewith; I. To apply, for obtain, purchase or otherwise acquire any patents,s copyrights, licenses, trademarks, trade names, rights, processes, formulae and the like; to use, exercise, develop and grant licenses in respect of, sell and otherwise turn to account the same; J. To purchase (or otherwise acquire), hold, sell, retire, reissue or otherwise dispose of shares of its own stock of any class in any manner now or hereafter authorized or permitted by law, and to pay therefor, with cash or other property; K. To borrow or raise money and to issue bonds, debentures, notes or other obligations of any nature (and in any manner permitted by law) for money so borrowed or in payment for property purchased, or for any other lawful consideration, and to secure the payment thereof, and of the interest thereon, by mortgage upon, pledge, conveyance or assignment in trust of, the whole or any part of the property of the Corporation, real or personal, including contract rights, whether at the time owned or thereafter acquired; to sell, pledge, discount or otherwise dispose of such bonds, debentures, notes or other obligations of the Corporation; L. To aid, by loan, subsidy, guaranty or in any lawful manner whatsoever, any individual, association, partnership, joint venture, corporation or other legal entity whose stocks, bonds, notes, debentures or other obligations, securities or evidences of indebtedness are in any manner directly or indirectly held or guaranteed by the Corporation, or by any corporation in which the Corporation may have an interest directly or indirectly as stockholder, creditor, guarantor or otherwise, or whose shares or securities are owned by the Corporation; to do any and all lawful acts and things designed to protect, preserve, improve or enhance the value of any stocks, bonds, notes, debentures or other obligations, securities or evidences of indebtedness of any individual, association, partnership, joint venture, corporation or other legal entity in which the Corporation has an interest directly or indirectly as a stock holder, creditor, guarantor or otherwise, or whose shares or securities are owned by the Corporation, or to lend money with or without collateral security; M. To guarantee the payment of dividends upon any shares of stock of any other association or corporation; to guarantee the performance of any contract by any individual, association, partnership, joint venture, corporation or other legal entity; to endorse or otherwise guarantee the payment of principal and interest, or either, of any bonds, debentures, notes securities or other evidences of indebtedness created or issued by any such individual, association, partnership, joint venture, corporation or other legal entity, it not being necessary that any such guaranty or endorsement shall ben intended to result in any benefit to the Corporation (it being understood that in no way shall the corporation act as a surety company); N. To carry out all or any part of the purposes set forth herein as principal, broker, factor, agent, contractor or otherwise, either alone, through or in conjunction with any individual, association, partnership, corporation or other legal entity; to make, execute and perform any contracts or agreements and to do any other acts and things for the accomplishment of any of the purposes set forth herein or incidental to such purposes, or which at any time may appear conducive to or expedient for the accomplishment of any such purposes; O. To carry out all of the purposes set forth herein in any or all states, territories, districts, dependencies and possessions of the United States of America and any foreign country; to maintain offices and agencies in any or all states, territories, districts, dependencies and possessions of the United States of America and any foreign country; 2 3 P. To organize, incorporate, reorganize, liquidate and dissolve any association, partnership, joint venture, corporation (subsidiary, affiliated or other) or other legal entity for any purpose permitted by law; to invest in any manner in any association, partnership, joint venture, corporation (subsidiary, affiliated or other) or other legal entity; Q. To do any act or thing and exercise any power suitable, convenient or proper for the accomplishment of any of the purposes set forth herein or incidental to such purposes, or which at any time may appear conducive to or expedient for the accomplishment of any of such purposes; and R. To have and exercise any and all powers and privileges now or hereafter conferred by the general laws of the State of Maryland upon corporations formed under such laws. The foregoing enumeration of the purposes of the Corporation is made in furtherance and not in limitation of the powers conferred upon the Corporation by law. The mention of any particular purpose is not intended in any manner to limit or restrict the generality of any other purpose mentioned, or to limit or restrict any of the powers of the Corporation. The Corporation shall have, enjoy and exercise all of the powers and rights now or hereafter conferred by the laws of the State of Maryland upon corporations of a similar character, it being the intention that the purposes set forth in each of the paragraphs of this Article shall, except as otherwise expressly provided, in nowise be limited or restricted by reference to or inference from the terms of any other clause or paragraph of this or any other Article of these Articles of Incorporation, or of any amendment thereto, and shall each be regarded as independent, and construed as powers as well as purposes; provided, however, that nothing herein contained shall be deemed to authorize or permit the Corporation to carry on any business or exercise any power, or do any act which a corporation formed under the general laws of the State of Maryland may not at the time lawfully carry on or do. THIRD: The post office address of the principal office of the Corporation in the State of Maryland is: 5422 Albia Road, Bethesda, Maryland 20816. The name and post office address of the resident agent of the Corporation in the State of Maryland are: G. Cabell Williams, II1, 5422 Albia Road, Bethesda (Montgomery County), Maryland 20816. Said resident agent is a citizen of the State of Maryland and actually resides therein. FOURTH: A. The total number of shares of stock of all classes which the Corporation has authority to issue is twenty million (20,000,000) shares of capital stock, with a par value of One Mil ($0.001) per share, amounting in aggregate par value to Twenty Thousand Dollars ($20,000). All of such shares are initially classified as 'Common Stock'. The Board of Directors may classify and reclassify any unissued shares of capital stock by setting or changing in any one or more respects the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, terms or conditions of redemption or other rights of such shares of stock. B. The following is a description of the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption of the Common Stock of the Corporation: (1) Each share of Common Stock shall have one vote, and, except as otherwise provided in respect of any class of stock hereafter classified or reclassified, the exclusive voting power for all purposes shall he vested in the holders of the Common Stock; (2) Subject to the provisions of law and any preferences of any class of stock hereafter classified or reclassified, dividends, including dividends payable in shares of another class of the Corporation's stock, may be paid on the Common Stock of the Corporation at such time and in such amounts as the Board of Directors may deem advisable; and 3 4 (3) In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of the Common Stock shall be entitled, after payment or provision for payment of the debts and other liabilities of the Corporation and the amount to which the holders of any class of stock hereafter classified or reclassified having a preference on distributions in the liquidation, dissolution or winding up of the Corporation shall be entitled, together with the holders of any other class of stock hereafter classified or reclassified not having a preference on distributions in the liquidation, dissolution or winding up of the Corporation, to share ratably in the remaining net assets of the Corporation. C. Subject to the foregoing, the power of the Board of Directors to classify and reclassify any of the shares of capital stock shall include, without limitation, subject to the provisions of these Articles of Incorporation, as they may subsequently be amended, authority to classify or reclassify any unissued shares of such stock into a class or classes of preferred stock, preference stock, special stock or other stock, and to divide and classify shares of any class into one or more series of such class, by determining, fixing, or altering one or more of the following: (1) The distinctive designation of such class or series and the number of shares to constitute such class or series; provided that, unless otherwise prohibited by the terms of such or any other class or series, the number of shares of any class or series may be decreased by the Board of Directors in connection with any classification or reclassification of unissued shares and the number of shares of such class or series may be increased by the Board of Directors in connection with any such classification or reclassification, and any shares of any class or series which have been redeemed, purchased, otherwise acquired or converted into shares of Common Stock or any other class or series shall become part of the authorized capital stock and be subject to classification and reclassification as provided in this sub-paragraph; (2) Whether or not and, if so, the rates, amount and times at which, and the conditions under which, dividends shall be payable on shares of such class or series, whether any such dividends shall rank senior or junior to or on a parity with the dividends payable on any other class or series of stock, and the status of any such dividends as cumulative, cumulative to a limited extent, or non-cumulative and as participating or non-participating; (3) Whether or not shares of such class or series shall have voting rights, in addition to any voting rights provided by law and, if so, the terms of such voting rights; (4) Whether or not shares of such class or series shall have conversion or exchange privileges and, if so, the terms and conditions thereof, including provision for adjustment of the conversion or exchange rate in such events or at such times as the Board of Directors shall determine; (5) Whether or not shares of such class or series shall be subject to redemption and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable and the amount per share payable in caw of redemption, which amount may vary under different conditions and at different redemption dates; and whether or not there "I be any sinking fund or purchase account in respect thereof, and if so, the terms thereof; (6) The rights of the holders of shares of such class or series upon the liquidation, dissolution or winding up of the affairs of, or upon any distribution of assets of, the Corporation, which rights may vary depending upon whether such liquidation, dissolution or winding up is voluntary or involuntary and, if voluntary, may vary at different dates, and whether such rights shall rank senior or junior to or on a parity with such rights of any other class of series of stock; (7) Whether or not there shall be any limitations applicable, while shares of such class or series are outstanding, upon the payment of dividends or making of distributions on, or the acquisition of, or the 4 5 use of moneys for purchase or redemption of, any stock of the Corporation, or upon any other action of the Corporation, including action under this sub-paragraph, and, if so, the terms and conditions thereof; and (8) Any other preferences, rights, restrictions, including restrictions on transferability, and qualifications of shares of such class or series, not inconsistent with law and the Articles of Incorporation, as they may subsequently be amended. D. For the purposes hereof and of any Articles Supplementary to these Articles of Incorporation providing for the classification or reclassification of any shares of capital stock or of any other charter document of the Corporation (unless otherwise provided in any such articles or documents), any class or series of stock of the Corporation shall be deemed to rank: (1) prior to another class or series either as to dividends or upon liquidation, if the holders of such class or series shall be entitled to the receipt of dividends or of amounts distributable on liquidation, dissolution or winding up, as the case may be, in preference or priority to holders of such other class or series; (2) on a parity with another class or series either as to dividends or upon liquidation, whether or not the dividend rates, dividend payment dates or redemption or liquidation price per share thereof be different from those of such others, if the holders of such class or series of stock shall be entitled to receipt of dividends or amounts distributable upon liquidation, dissolution or winding up, as the case may be, in proportion to their respective dividend rates or redemption or liquidation prices, without preference or priority over the holders of such other class or series; and (3) junior to another class or series either as to dividends or upon liquidation, if the rights of the holders of such class or series shall be subject or subordinate to the rights of the holders of such other class or series in respect of the receipt of dividends or the amounts distributable upon liquidation, dissolution or winding up, as the case may be. FIFTH: The number of directors of the Corporation shall be in accordance with the provisions of the General Corporation Law of the State of Maryland, which number may be changed pursuant to the provisions set forth in the Bylaws of the Corporation, but shall never be less than the number permitted by law. SIXTH: The following provisions are hereby adopted for the purpose of defining, limiting and regulating the powers of the Corporation and of the Board of Directors and stockholders: A. The Board of Directors of the Corporation is hereby empowered to authorize and direct the issuance from time to time or at any time or times of the shares of stock of the Corporation of any class, now or hereafter authorized, any options or warrants for such shares permitted by law, any rights to subscribe to or purchase such shares and any other securities of the Corporation, for such consideration as the Board of Directors may deem advisable, subject to such limitations and restrictions, if any, as may be set forth in the Bylaws of the Corporation. B. Unless specifically provided elsewhere herein or in any Articles Supplementary, no holder of shares of stock of the Corporation of any class, now or hereafter authorized, shall have any preferential or preemptive right to subscribe for, purchase or receive (i) any shares of stock of the Corporation of any class, now or hereafter authorized, (ii) any options or warrants for any such preferential or preemptive shares, (iii) any rights to subscribe to or purchase any such shares, or (iv) any other securities of the Corporation which may at any time or from time to time be issued, sold or offered for sale by the Corporation. C. The Board of Directors of the Corporation is hereby empowered to adopt Bylaw provisions with respect to the indemnification of directors, officers, employees, agents and other persons and to make such 5 6 C. The Board of Directors of the Corporation is hereby empowered to adopt Bylaw provisions with respect to the indemnification of directors, officers, employees, agents and other persons and to make such other indemnification as it shall deem expedient and in the best interests of the Corporation to the extent permitted by law and Article SEVENTH hereof D. The provisions relating to certain special voting requirements set forth in Title 3, Subtitle 6 of the General Corporation Law of the State of Maryland and the provisions relating to certain control shares set forth in Title 3, Subtitle 7 of the General Corporation Law of the State of Maryland shall not be applicable, pursuant to Sections 3-603(e)(iii) and 3-702(b) thereof, respectively, to the shares of the Corporation which are owned by, or which shall in the future be issued to and owned by, any employee stock ownership plan, incentive stock ownership plan or other similar plan established now or in the future for the benefit of the Corporation's directors, officers, employees or affiliates, and, without limiting the foregoing, none of such shares owned by any such plan shall, for purposes of such subtitles, be aggregated with any shares owned individually by any beneficiaries of any such plan. E. The Board of Directors is expressly authorized to make, amend, alter, repeal or rescind the Bylaws of the Corporation. F. The Corporation reserves the right to amend these Articles of Incorporation in any way which alters the contract rights, as expressly set forth in these Articles of Incorporation, of any outstanding stock of the Corporation and substantially adversely affects any of the rights of any of the holders of any outstanding stock of the Corporation. SEVENTH: A. The Corporation shall indemnify (i) its directors and officers, whether serving the Corporation or, at its request, any other entity, to the full extent permitted by the general laws of the State of Maryland now or hereafter in force, including the advance of expenses under the procedures and to the full extent permitted by law and (ii) other employees and agents to such extent as shall be authorized by the Board of Directors or the Corporation's Bylaws and be permitted by law. The foregoing rights of indemnification shall not be exclusive of any other rights to which those seeking indemnification may be entitled. The Board of Directors may take such action as is necessary to carry out these indemnification provisions and is expressly empowered to adopt, approve and amend from time to time such Bylaws, resolutions or contracts implementing such provisions or such further indemnification arrangements as may be permitted by law. No amendment to or repeal of this Article SEVENTH shall limit or eliminate the right to indemnification provided hereunder with respect to acts or omissions occurring prior to such amendment or repeal. B. To the fullest extent permitted by Maryland statutory or decisional law, as amended or interpreted, no director or officer of this Corporation shall be personally liable to the Corporation or its stockholders for money damages. No amendment to or repeal of this Article SEVENTH shall limit or eliminate the benefits provided to directors and officers under this provision with respect to any act or omission which occurred prior to such amendment or repeal. EIGHTH: The duration of the Corporation shall be perpetual. 6 EX-3.II 3 BY-LAWS. 1 EXHIBIT 3(ii) ------------------------------------------------ ALLIED CAPITAL ADVISERS, INC. (a Maryland corporation) ------------------------ BYLAWS ------------------------ As adopted by the Board of Directors on August 7, 1990 and as amended by the Board of Directors on February 27, 1991, May 6, 1992, November 7, 1995 and February 3, 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. . . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 12. Meetings by Telephone or Similar Communications. . . . . . . . . . . 6 ARTICLE IV COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 1. Executive Committee . . . . . . . . . . . . . . . . . . . . . . . . . 6
i 3 Section 2. Nominating Committee. . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 3. Compensation Committee. . . . . . . . . . . . . . . . . . . . . . . . 6 Section 4. Audit Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 5. Other Committees. . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 6. Procedure; Notice; Meetings. . . . . . . . . . . . . . . . . . . . . . 7 Section 7. Quorum; Vote. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 8. Appointments; Vacancies; Changes; Discharges. . . . . . . . . . . . . 7 Section 9. Tenure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 10. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 11. Action by Consent. . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 12. Meetings by Telephone or Similar Communications. . . . . . . . . . . 8 ARTICLE V NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 1. Form; Delivery. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 2. Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE VI OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 1. Designations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 2. Term of Office; Removal. . . . . . . . . . . . . . . . . . . . . . . . 9 Section 3. Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 4. The Chairman of the Board. . . . . . . . . . . . . . . . . . . . . . . 9 Section 5. The President. . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 6. The Vice Presidents. . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 7. The Secretary. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 8. The Assistant Secretary. . . . . . . . . . . . . . . . . . . . . . . 11 Section 9. The Treasurer. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 10. The Assistant Treasurer. . . . . . . . . . . . . . . . . . . . . . 11 ARTICLE VII INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 1. Generally. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 2. Limitation for Disabling Conduct. . . . . . . . . . . . . . . . . . 12 ARTICLE VIII STOCK CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 1. Form of Signatures; Statements. . . . . . . . . . . . . . . . . . . 14
ii 4 Section 2. Registration of Transfer. . . . . . . . . . . . . . . . . . . . . . 14 Section 3. Registered Stockholders. . . . . . . . . . . . . . . . . . . . . . . 15 Section 4. Location of Stock Ledger. . . . . . . . . . . . . . . . . . . . . . 15 Section 5. Record Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 6. Lost, Stolen or Destroyed Certificates. . . . . . . . . . . . . . . 15 ARTICLE IX GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 1. Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 2. Reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 3. Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 4. Seal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 ARTICLE X AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
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 entitled to cast votes at 1 6 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. If the 2 7 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 the number 3 8 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) entering into or materially amending any contract pursuant to which the Corporation will provide investment advisory services; (b) appointing any director to a committee of the Board of Directors pursuant to Article IV of these Bylaws; (c) 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 executive vice president or above, or as a director, trustee, or manager, of any corporation, partnership, trust, association or other entity for which the Corporation provides investment advisory or any other services; and (d) 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. 4 9 (b) Any director may resign at any time by giving written notice to the Board of Directors, the Chairman of the Board, the President or the Secretary of the Corporation. Unless otherwise specified in such written notice, a resignation shall take effect upon delivery thereof to the Board of Directors or the designated officer. It shall not be necessary for a resignation to be accepted before it becomes effective. 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 5 10 other capacity and receiving compensation and reimbursement for reasonable expenses for such other services. Section 11. Action by Consent. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if a written consent to such action is signed by all members of the Board of Directors and such written consent is filed with the minutes of the proceedings of the Board. Section 12. Meetings by Telephone or Similar Communications. The Board of Directors may participate in a meeting by means of a conference telephone or similar communications equipment by means of which all directors participating in the meeting can hear each other at the same time, and participation by such means shall be conclusively deemed to constitute presence in person at such meeting. ARTICLE IV COMMITTEES Section 1. Executive Committee. The Board of Directors may appoint an Executive Committee consisting of not fewer than three members, one of whom shall be designated as Chairman of the Executive Committee. The Chairman of the Board and the President shall be elected members of the Executive Committee. The Executive Committee shall have and may exercise those rights, powers and authority of the Board of Directors as may from time to time be granted to it by the Board of Directors subject to any limitations imposed by law and may authorize the seal of the Corporation to be affixed to all papers which may require the same. Section 2. Nominating Committee. The Board of Directors shall appoint a Nominating Committee consisting of an odd number of, but 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 (i) have the exclusive right to recommend candidates for election as directors to the Board of Directors; and (ii) be responsible for recommending the initial members of the Board of Directors, Board of Trustees, Board of Managers, or any equivalent body of any investment fund established by the Corporation for which the Corporation will serve as the investment adviser or as provider of any other services. Section 3. Compensation Committee. The Board of Directors may appoint from its membership a Compensation Committee consisting of an odd number of, but 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 6 11 Compensation Committee shall have and may exercise those rights, powers and authority of the Board of Directors as may from time to time be granted to it by the Board of Directors; provided, however, that the Compensation Committee shall not have the authority to determine the salary for any officer of the Corporation holding a position of executive vice president or above, although such committee shall have the exclusive right to recommend a salary and bonuses for any such officer to the Board of Directors for its approval. Section 4. Audit Committee. The Board of Directors may appoint from its membership an Audit Committee consisting of an odd number of, but 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. Other Committees. The Board of Directors, by resolutions adopted by a majority of the entire Board, may appoint a committee or committees, as it shall deem advisable and impose upon such committee or committees such functions and duties, and grant such rights, powers and authority, as the Board of Directors shall prescribe (except the power to declare dividends or distributions on stock, to issue stock except to the extent permitted by law, to recommend to stockholders any action requiring stockholders' approval, to amend these Bylaws or to approve any merger or share exchange which does not require stockholders' approval). Section 6. 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. 7 12 Section 7. 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 8. 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 9. 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 10. 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 11. Action by Consent. Any action required or permitted to be taken at any meeting of any committee of the Board of Directors may be taken without a meeting if a written consent to such action is signed by all members of the committee and such written consent is filed with the minutes of its proceedings. Section 12. 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, 8 13 but such notice may be given in writing, by mail, addressed to such director or stockholder, provided, in the case of a stockholder, such notice is addressed to his, her or its post office address as such address appears on the records of the Corporation, with postage thereon prepaid. Any such notice shall be deemed to have been given at the time it is deposited in the United States mail. Notice to a director also may be given personally or sent by messenger, telegram, telecopy or facsimile transmission. Section 2. Waiver. Whenever any notice is required to be given under the provisions of law, the Articles of Incorporation or these Bylaws, a written waiver thereof, signed by the person or persons entitled to said notice and filed with the records of the meeting, whether before or after the time stated therein, shall be conclusively deemed to be equivalent to such notice. In addition, any stockholder who attends a meeting of stockholders in person, or is represented at such meeting by proxy, without protesting at the commencement of the meeting the lack of notice thereof to him or her, or any director who attends a meeting of the Board of Directors without protesting at the commencement of the meeting such lack of notice, shall be conclusively deemed to have waived notice of such meeting. ARTICLE VI OFFICERS Section 1. Designations. From and after the date of adoption of these Bylaws, the officers of the Corporation shall be a Chairman of the Board, President, Secretary and Treasurer. The officers of the Corporation also may include one or more Vice Presidents, Assistant Secretaries or Assistant Treasurers and such other officers and/or agents as deemed necessary or appropriate. 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, but no person shall serve concurrently as both President and Vice-President of the Corporation, 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 Executive Vice Presidents. The Chairman and the President shall have the authority to appoint a Secretary, Treasurer, Vice President or Vice Presidents, one or more Assistant Secretaries and/or Assistant Treasurers, 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 by the Chairman of the 9 14 Board and the President may be removed by them at any time. Such removal by the Board, or by the Chairman and the President, shall not prejudice to 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 and the President, 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. In the absence of the President, the Chairman of the Board shall have general supervision, direction and control over the business and affairs of the Corporation. The Chairman of the Board shall execute in the corporate name all appropriate deeds, mortgages, bonds, contracts or other instruments requiring a seal, under the Seal of the Corporation, except in cases where such execution shall be expressly delegated to another by the Board of Directors. The Chairman of the Board shall be a member of the Executive Committee and an ex-officio member of each standing committee. Section 5. The President. The President shall be the chief operating officer of the Corporation and, 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 other 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. 10 15 Section 6. The Vice Presidents. The Vice Presidents, if any (or in the event there is more than one, the Vice Presidents in the order designated, or, in the absence of any designation, in the order of their election), shall, in the absence of the President or in the event of his or her disability, perform the duties and exercise the powers of the President and shall generally assist the President and perform such other duties and have such other powers as may from time to time be prescribed by the Board of Directors. Section 7. 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 8. 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 9. The Treasurer. The Treasurer shall have the custody of the corporate funds and other valuable effects, including securities, and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may from time to time be designated by the Board of Directors. He or she shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chairman of the Board, the President and the Board of Directors, at regular meetings of the Board of Directors, or whenever the Board of Directors may require it, an account of all his or her transactions as Treasurer and of the financial condition of the Corporation. 11 16 Section 10. 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 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, partner, officer, trustee, employee or agent 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 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 12 17 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 Investment Company Act of 1940, as amended (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. (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. 13 18 (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. 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 Vice President 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 14 19 full statement of such restriction or (ii) state that the Corporation will furnish to the stockholder, upon request and without charge, information about the restriction. Section 2. Registration of Transfer. Upon surrender to the Corporation or any transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation or its transfer agent to issue a new certificate to the person entitled thereto, to cancel the old certificate and to record the transaction upon its books. Section 3. Registered Stockholders. (a) Except as otherwise provided by law, the Corporation shall be entitled to recognize the exclusive right of a person who is registered on its books as the owner of shares of its capital stock to receive dividends or other distributions, to vote as such owner, and to hold liable for calls and assessments a person who is registered on its books as the owner of shares of its capital stock. The Corporation shall not be bound to recognize any equitable or legal claim to or interest in such shares on the part of any other person except that the Board of Directors may adopt by resolution a procedure by which a stockholder may certify in writing to the Corporation that any shares of its capital stock registered in the name of such stockholder are held for the account of a specified person other than such stockholder are held for the account of a specified person other than such stockholder. (b) If a stockholder desires that notices and/or dividends shall be sent to a name or address other than the name or address appearing on the stock ledger maintained by the Corporation (or by the transfer agent or registrar, if any), such stockholder shall have the duty to notify the Corporation (or the transfer agent or registrar, if any), in writing, of such desire. Such written notice shall specify the alternate name or address to be used. Section 4. Location of Stock Ledger. A copy of the Corporation's stock ledger containing (i) the name and address of each stockholder, and (ii) the number and shares of stock of each class which the stockholder holds shall be maintained at the Corporation's office located at 1666 K Street, N.W., Washington, DC 20006-2803. Section 5. Record Date. In order that the Corporation may determine the stockholders of record who are entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or the allotment of any rights, or to make a determination with respect to stockholders of record for any other proper purpose, the Board of Directors may, in advance, fix a date as the record date for any such determination or meeting. 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 15 20 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. 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 16 21 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. 17 22 CERTIFICATE We, JOAN M. SWEENEY and TRICIA B. DANIELS, President and Secretary, respectively, of ALLIED CAPITAL ADVISERS, INC. (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 3rd day of February, 1997. /s/ JOAN M. SWEENEY ------------------------------- Joan M. Sweeney, President /s/ TRICIA B. DANIELS ------------------------------- Tricia B. Daniels, Secretary [Corporate Seal] 18 EX-10.10 4 DEFERRED COMPENSATION PLAN 1 EXHIBIT 10.10 THE ALLIED CAPITAL ADVISERS, INC. DEFERRED COMPENSATION PLAN Adopted January 1, 1997 2 THE ALLIED CAPITAL ADVISERS, INC. DEFERRED COMPENSATION PLAN Table of Contents
Page ---- ARTICLE I - GENERAL Section 1.1 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.2 Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE II - DEFINITIONS AND USAGE Section 2.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 2.2 Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE III - ELIGIBILITY AND PARTICIPATION Section 3.1 Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 3.2 Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE IV - PLAN BENEFIT Section 4.1 Plan Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 4.2 Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 4.3 Participant's Deferral Election . . . . . . . . . . . . . . . . . . . 7 Section 4.4 Investment Procedure . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 4.5 Valuation of Accounts . . . . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE V - VESTING AND DISTRIBUTION Section 5.1 Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 5.2 Distributable Events . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 5.3 Amount of Plan Benefits . . . . . . . . . . . . . . . . . . . . . . . 9 Section 5.4 Plan Benefit Payment Options . . . . . . . . . . . . . . . . . . . . 9 Section 5.5 Commencement of Benefit Payments . . . . . . . . . . . . . . . . . 10 Section 5.6 Form of Benefit Payments . . . . . . . . . . . . . . . . . . . . . 10 Section 5.7 Age 60 and Age 65 Benefit Payment Distribution Options . . . . . . 10 Section 5.8 Plan Benefit Payment Election Procedures . . . . . . . . . . . . . 11 Section 5.9 Form of Benefit Payments Upon Death . . . . . . . . . . . . . . . . 11 Section 5.10 Designation of Beneficiary . . . . . . . . . . . . . . . . . . . . 11 Section 5.11 Hardship Withdrawals of Elective Deferral and Employer Contributions . . . . . . . . . . . . . . . . . . . . . . 11
3 THE ALLIED CAPITAL ADVISERS, INC. DEFERRED COMPENSATION PLAN Table of Contents (continued)
Page ---- ARTICLE VI - ADMINISTRATION Section 6.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 6.2 Administrative Rules . . . . . . . . . . . . . . . . . . . . . . . 12 Section 6.3 Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 6.4 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 ARTICLE VII - CLAIMS PROCEDURE Section 7.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 7.2 Denials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 7.3 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 7.4 Appeals Procedure . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 7.5 Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 ARTICLE VIII - TRUST Section 8.1 Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 8.2 Contributions and Expenses . . . . . . . . . . . . . . . . . . . . 15 Section 8.3 Trustee Duties . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 8.4 Reversion to the Employer . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE IX - MISCELLANEOUS PROVISION Section 9.1 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 9.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 9.3 No Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 9.4 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . 16 Section 9.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 9.6 No Guarantee of Employment . . . . . . . . . . . . . . . . . . . . 16 Section 9.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 9.8 Notification of Addresses . . . . . . . . . . . . . . . . . . . . . 16 Section 9.9 Bonding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4 THE ALLIED CAPITAL ADVISERS, INC. DEFERRED COMPENSATION PLAN PREAMBLE WHEREAS, the Employer recognizes the unique qualifications of its executive employees and the valuable services that they have provided to or for the Employer; and WHEREAS, the Employer now desires to adopt the Deferred Compensation Agreement for Officers of Allied Capital Advisers, Inc., and to rename the plan the Allied Capital Advisers, Inc. Deferred Compensation Plan. NOW, THEREFORE, in consideration of the premises and of the provisions hereinafter set forth, the Allied Capital Advisers, Inc. Deferred Compensation Plan (the "Plan") shall be and hereby is established as follows: 1 5 ARTICLE I GENERAL SECTION 1.1 Effective Date. The provisions of this Plan, as amended and restated, shall be effective as of January 1, 1997. The rights, if any, of any person whose status as an employee of the Employer has terminated shall be determined pursuant to the Plan as in effect on the date such employee terminated, unless a subsequently adopted provision of the Plan is made specifically applicable to such person. SECTION 1.2 Intent. The Plan is intended to be an unfunded plan for the purpose of providing deferred compensation to a select group of management or highly compensated employees as such group is described under Sections 201(2) and 301(a)(3) of ERISA. The Plan is not intended to be a plan described in Section 401(a)(1) of the Code. 2 6 ARTICLE II DEFINITIONS AND USAGE SECTION 2.1 Definitions. Wherever used in the Plan, the following words and phrases shall have the meaning set forth below unless the context plainly requires a different meaning: "Account" means the account established on behalf of each Participant as described in Section 4.2. "Administrator" means the person or persons described in Article VI. "Beneficiary" means those persons designated as a Beneficiary by the Participant in the Participant Deferral Agreement. "Board" means the Board of Directors of Allied Capital Advisers, Inc. "Bonus" means any amount paid to an employee, which is designated by the Employer as a bonus. "Bonus Deferral Election" means an election made pursuant to Section 4.3(b) of the Plan. "Change in Control" means any change in control of the Employer as the result of (a) the acquisition by any individual, entity or group of persons, within the meaning of sections 13(d)(3) or 14(d) of the Securities Exchange Act of 1934, or any other comparable successor provisions, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934) of 25 percent or more of either the outstanding shares of common stock or the combined voting power of the Employer's then outstanding voting securities entitled to vote generally, or (b) the approval by the stockholders of the Employer of a reorganization, merger, or consolidation, in each case, with respect to which persons who were stockholders of the Employer immediately prior to such reorganization, merger or consolidation do not immediately thereafter own more than 25 percent of the combined voting power of the reorganized, merged, or consolidated Employer's then outstanding securities that are entitled to vote generally in the election of directors, or (c) the sale of substantially all of the Employer's assets, or (d) bankruptcy, which results in a change of beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934) of 25 percent or more of either the outstanding shares of common stock or the combined voting power of the Employer's then outstanding voting securities entitled to vote generally. "Code" means the Internal Revenue Code of 1986, as amended from time to time. 3 7 "Compensation" means "Compensation" as defined under the Retirement Plan. However, for purposes of this Plan "Compensation" shall not include Bonuses and shall be determined without regard to the limitations imposed by Code Section 401(a)(17). "Compensation Deferral Election" means an election made pursuant to Section 4.3(a) of the plan. "Disability" means a physical or mental condition of a Participant resulting from a bodily injury, disease, or mental disorder which renders him or her incapable of continuing in the employment of the Employer. Such Disability shall be determined by the Administrator, in its discretion, based upon appropriate medical advice and examination. "Employer" means Allied Capital Advisers, Inc., its successors and its subsidiaries. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "Insolvency" means the Employer (a) is unable to pay its debts as they become due, or (b) is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. "Normal Retirement Age" means age sixty (60). "Participant" means an eligible employee of the Employer designated by the Board for participation in the Plan, or a person who was such a Participant at the time of retirement, death, disability or resignation, or a Beneficiary who is presently entitled to benefits under the Plan in accordance with its terms. "Participant Deferral Agreement" means an agreement entered into between a Participant and the Employer for the Purposes set forth in Articles IV and V. "Plan" means the Allied Capital Advisers, Inc. Deferred Compensation Plan, as amended from time to time. "Plan Benefit" means the benefit of a Participant as determined under Article IV of the Plan. "Plan Year" means the calendar year. "Retirement" means the date on or after a Participant reaches Normal Retirement Age on which such Participant retires from the Employer. 4 8 "Trust" means a trust which may be established by the Employer in accordance with Article VIII to provide the benefits described in this Plan. "Trustee" means the corporation or individual(s) selected by the Employer to serve as trustee for the Trust. SECTION 2.2 Usage. Except where otherwise indicated by the context, any masculine terminology used herein shall also include the feminine and vice versa, and the definition of any term herein in the singular shall also include the plural and vice versa. 5 9 ARTICLE III ELIGIBILITY AND PARTICIPATION SECTION 3.1 Eligibility. Any officer of the Employer shall be eligible to participate in the Plan at such time and for such period as designated by the Board. SECTION 3.2 Participation. An employee who is eligible to participate in the Plan pursuant to Section 3.1 shall become a Participant at such time and for the period he is designated by the Board. If, at any time, an employee is determined or reasonably believed, based on a judicial or administrative determination or opinion of counsel, not to qualify as "management" or a "highly compensated employee" under ERISA Sections 201(2), 301(a)(3), and 401(a)(1), the employee shall cease participation in the Plan as of the date of that determination and the Plan Benefit to which he is entitled will be distributed to him as soon as administratively possible in a single lump-sum payment, notwithstanding any other provision of the Plan. 6 10 ARTICLE IV PLAN BENEFIT SECTION 4.1 Plan Benefit. A Participant's Plan Benefit shall be equal to the total amount credited to the Participant's Account under this Article IV. Such Plan Benefit shall become nonforfeitable and payable to the Participant as provided under Article V. SECTION 4.2 Accounts. For each Participant, the Administrator shall establish and maintain a Participant Account. All amounts which are credited to the Account shall be credited solely for purposes of accounting and computation, and shall remain assets of the Employer subject to the claims of the Employer's general creditors. A Participant's Account shall be reduced by an amount equal to any Plan Benefit previously distributed to him pursuant to Article V. A Participant's Account shall include amounts credited under the Plan for the Plan Year beginning January 1, 1997. SECTION 4.3 Participant's Deferral Elections. For each Plan Year, each eligible Participant may make the following deferral elections: (a) Compensation Deferral Election: Prior to the beginning of the Plan Year, or prior to the date of entry as a Participant under the Plan, an eligible Participant may authorize the Employer to reduce his or her Compensation by any specific amount or percentage as specified in a Participant Deferral Agreement in effect for each Plan Year (in lieu of receiving cash Compensation), and to have such amount credited to the Participant's Account under this Article IV. The Participant Deferral Agreement shall be effective only with respect to Compensation earned after the agreement becomes effective. No more than one Compensation Deferral Election may be made during each Plan Year. However, a Participant may terminate the election at any time with respect to Compensation not yet earned. (b) Bonus Deferral Election: Prior to the end of the Plan Year in which the Bonus is earned, an eligible Participant may authorize the Employer to reduce his or her Bonus by any specific amount or percentage as specified in a Participant Deferral Agreement in effect for each Plan Year (in lieu of receiving a cash Bonus), and to have such amount credited to the Participant's Account under this Article IV. 7 11 SECTION 4.4 Investment Procedure. The Employer and each employee who is eligible to participate in the Plan may, at the discretion of the Employer, execute an agreement which reflects the deemed investment of the portion of the Participant's Compensation and Bonus which shall be applied to the payment of the Participant's Plan Benefit under the Plan. The Administrator shall retain overriding discretion over the selection of investment vehicles and the Administrator may change, alter or modify its investment policy as it deems appropriate, from time to time, to maximize benefits under the Plan. Any such change, alteration or modification shall be communicated to the Participants under procedures adopted by the Administrator. SECTION 4.5 Valuation of Accounts. The value of a Participant's Account shall be determined from time to time by the Trustee in the following manner. (a) During any period of time in which a Participant's Account is deemed invested in whole or in part pursuant to the agreement with the Participant (in the manner described in Section 4.4), the income and expenses, gains and losses, both realized and unrealized, from such deemed investments shall be determined by the Trustee. The amount so determined shall be credited to the Account of the Participant proportionately in accordance with procedures established by the Administrator. (b) All benefits and deferrals on behalf of a Participant shall be credited to the Account of the Participant in accordance with this Article IV. (c) Each Participant's Account shall be valued as of the last day of each Plan Year or more frequently as determined by the Administrator. (d) All credits to a Participant's Account under this Section 4.5 shall be deemed to have been made on the applicable valuation date in the order of priority set forth in this Section 4.5, even though actually determined at a later date. (e) Each Participant's Account shall include amounts previously credited under the Plan prior to the effective date of this amendment and restatement, January 1, 1997. 8 12 ARTICLE V VESTING AND DISTRIBUTION SECTION 5.1 Vesting. Amounts credited under the Plan shall at all times be 100% vested and non-forfeitable. SECTION 5.2 Distributable Events. Except as otherwise provided in Section 5.7, a Participant's Plan Benefit shall become distributable upon the occurrence of one of the following events: 1. Separation from service (other than on account of Retirement, death, or Disability) 2. Retirement 3. Disability 4. Death 5. Insolvency 6. Change in Control (as defined in Section 2.1) 7. Future determined date (at least 2 years from the signing date of the Participant Deferral Agreement) 8. Termination of the Plan SECTION 5.3 Amount of Plan Benefits. A Participant's Plan Benefit shall equal the total amount credited to the Participant's Account in accordance with Article IV as of the date a distributable event occurs. SECTION 5.4 Plan Benefit Payment Options. Subject to the provisions of Section 5.9, upon the occurrence of a distributable event listed in Section 5.2, a Participant may elect one of the following Plan Benefit payment options: (a) Lump-sum - A Participant may elect to receive his Plan Benefit in a single lump sum distribution. (b) Installments - Alternatively, a Participant may elect to receive his Plan Benefit in equal annual installments over a period of not less than three years and not greater than ten years. 9 13 SECTION 5.5 Commencement of Benefit Payments. At the election of the Participant or Beneficiary, if applicable, the payment of Plan Benefits shall commence no earlier than three months and no later than six months from the expiration of the ninety-day election period provided for in Section 5.8. In the event of a distribution on account of hardship, the payment of Plan Benefits shall commence as soon as administratively feasible from the date the Administrator determines that a Participant is entitled to a hardship distribution under the Plan. SECTION 5.6 Form of Benefit Payments. At the discretion of the Administrator, Plan Benefits will be paid in the form of cash equal to the value of Plan Benefit payable on such benefit payment date. SECTION 5.7 Age 60 and Age 65 Benefit Payment Distribution Options. (a) Upon the consent of the Employer, and subject to the conditions prescribed in subparagraph (b) below, before the end of the Plan Year beginning immediately prior to the Plan Year in which an active Participant reaches age 60 or age 65, such Participant can elect to begin receiving his or her Plan Benefit determined, as of the end of such preceding Plan Year, in monthly or annual installments (as such participant elects) over a period of not less than three years and not longer than ten years. If inactive Participant does not affirmatively elect to begin receiving his or her Plan Benefit under this paragraph or, if the Employer does not consent to such an election, the Participant shall not be eligible to begin receiving benefits until the earlier of a distributable event described in Section 5.2, or in the case of an active Participant who has not attained age 60, the Plan year ending immediately prior to the Plan Year in which he reaches age 65. (b) In order to begin receiving Plan Benefits under this Section 5.7, a Participant must be an active employee on the date such benefits are elected and on the date payment of such benefits subsequently commence. (c) If a Participant experiences a distributable event described in Section 5.2 after an election is made and consent is given by the Board under this Section 5.7, the Participant or Beneficiary shall have the same distribution options provided in Section 5.4, with the value of his Plan Benefit as of such date decreased by amounts distributed under this Section 5.7. (d) A Participant who begins receiving Plan Benefits under this Section 5.7 shall continue to be eligible for future credits under the Plan to the extent such Participant is otherwise entitled to receive credits under the terms and operation of the Plan. 10 14 (e) If a Participant elects to receive benefits under this Section 5.7 and the Employer consents to such election, the distribution of the Participant's benefits will commence at a time mutually agreed to between the Participant and the Employer when the election is made and consent given under this Section 5.7. SECTION 5.8 Plan Benefit Payment Election Procedures. For purposes of making the elections provided in Section 5.4, 5.5 and 5.7, each Participant and Beneficiary, if applicable, shall be provided with an election form prepared by the Administrator within a reasonable period of time after the Participant experiences a distributable event or becomes eligible for the special Age 60 or Age 65 Benefit Payment Distribution Options prescribed in Section 5.7. This election form must be properly executed by the Participant on or before the ninetieth day from the day such form is provided to the Participant. If an election form is not properly executed as provided herein, the Participant will be deemed (a) in the case of the elections provided in Section 5.4 and 5.5 to have elected to receive his or her Plan Benefits in annual installments over a three to ten year period commencing three months from the date the ninety-day period provided herein expires; or (b) in the case of the elections provided in Section 5.7 to have declined to begin receiving Plan Benefits under the special Age 60 or Age 65 Benefit Payments Distribution Option provided in Section 5.7. SECTION 5.9 Form of Benefit Payments Upon Death. Upon the death of a Participant who has not yet begun to receive benefits under this Plan, the Participant's Beneficiary or Beneficiaries may elect to receive the Plan Benefit in accordance with Section 5.4. Upon the death of a Participant who has already begun to receive his Plan Benefit under this Plan in the form of installments, the Participant's Beneficiaries will receive the remaining Plan Benefits in equal annual installments in the same manner elected by the Participant. SECTION 5.10 Designation of Beneficiary. A Participant may, in the Participant Deferral Agreement, designate one or more primary and contingent Beneficiaries to receive the Plan Benefit which may be payable hereunder following the Participant's death, and may designate the proportions in which such Beneficiaries are to receive such payments. A Participant may change such designations from time to time, and the last written designation filed with the Administrator prior to the Participant's death shall control. If a Participant fails to specifically designate a Beneficiary or, if no designated Beneficiary survives the Participant, payment shall be made to the Participant's estate in a single lump-sum, notwithstanding any other provision of this Plan. SECTION 5.11 Hardship Withdrawals of Elective Deferral and Employer Contributions. A distribution in an amount no greater than to a Participant's Account balance may be made to a Participant in the event of hardship. For this purpose, a withdrawal will be considered to be required due to a hardship only if, under uniform rules and polices, the Administrator determines that the purpose of the withdrawal is to meet an immediate and heavy financial need. The decision of the Administrator as to whether a hardship withdrawal shall be permitted is final and conclusive. 11 15 ARTICLE VI ADMINISTRATION SECTION 6.1 General. The Administrator shall be the Board, or such other person or persons as designated by the Board. Except as otherwise specifically provided in the Plan, the Administrator shall be responsible for administration of the Plan. The Administrator shall be the "named fiduciary" within the meaning of Section 402(c)(2) of ERISA. SECTION 6.2 Administrative Rules. The Administrator may adopt such rules of procedure as it deems desirable for the conduct of its affairs, except to the extent that such rules conflict with the provisions of the Plan. SECTION 6.3 Duties. The Administrator shall have the following rights, powers and duties: (a) The decision of the Administrator in matters within its jurisdiction shall be final, binding and conclusive upon the Employer and upon any other person affected by such decision, subject to the claims procedure hereinafter set forth. (b) The Administrator shall have the duty and authority to interpret and construe the provisions of the Plan, to decide any question which may arise regarding the rights of employees, Participants, and Beneficiaries, and the amount of their respective interests, to adopt such rules and to exercise such powers as the Administrator may deem necessary for the administration of the Plan, and to exercise any other rights, powers or privileges granted to the Administrator by the terms of the Plan. (c) The Administrator shall maintain full and complete records of its decisions. Its records shall contain all relevant data pertaining to the Participant and his rights and duties under the Plan. The Administrator shall have the duty to maintain Account records of all Participants. The Administrator shall also have the duty to report pertinent information regarding Participant Accounts to Participants at least annually. (d) The Administrator shall cause the principal provisions of the Plan to be communicated to the Participants, and a copy of the Plan and other documents shall be available at the principal office of the Employer for inspection by the Participants at reasonable times determined by the Administrator. (e) The Administrator shall periodically report to the Board with respect to the status of the Plan. 12 16 SECTION 6.4 Fees. No fee or compensation shall be paid to any person for services as the Administrator. 13 17 ARTICLE VII CLAIMS PROCEDURE SECTION 7.1 General. Any claim for Plan Benefits under the Plan shall be filed by the Participant or Beneficiary ("claimant") on the form prescribed for such purpose with the Administrator. SECTION 7.2 Denials. If a claim for Plan Benefits under the Plan is wholly or partially denied, notice of the decision shall be furnished to the claimant by the Administrator within sixty days after receipt of the claim by the Administrator, unless special circumstances require an extension of time of sixty days (for a total of 120 days). SECTION 7.3 Notice. Any claimant who is denied a claim for Plan Benefits shall be furnished written notice setting forth: (a) the specific reason or reasons for the denial; (b) specific reference to the pertinent provision of the Plan upon which the denial is based; (c) a description of any additional material or information necessary for the claimant to perfect the claim; and (d) an explanation of the claim review procedure under Section 7.5. SECTION 7.4 Appeals Procedure. In order that a claimant may appeal a denial of a claim, the claimant or the claimant's duly authorized representative may: (a) request a review by written application to the Administrator, or its designate, no later than sixty days after receipt by the claimant of written notification of denial of a claim; (b) review pertinent documents; and (c) submit issues and comments in writing. SECTION 7.5 Review. A decision on review of a denied claim shall be made not later than sixty days after receipt of a request for review, unless special circumstances require an extension of time for processing, in which case a decision shall be rendered within a reasonable period of time, but not later than 120 days after receipt of a request for review. The decision on review shall be in writing and shall include the specific reason(s) for the decision and the specific reference(s) to the pertinent provisions of the Plan on which the decision is based. 14 18 ARTICLE VIII TRUST SECTION 8.1 Trust. A trust to be known as the Allied Capital Advisers, Inc. Deferred Compensation Trust (the "Trust") has been established by the execution of a Trust agreement with one or more Trustees and is intended to be maintained as a "grantor trust" under Code Section 677. The assets of the Trust will be held, invested and disposed of by the Trustee, in accordance with the terms of the Trust, for the purpose of providing Plan Benefits for the Participants. Notwithstanding any provision of the Plan or the Trust to the contrary, the assets of the Trust shall at all times be subject to the claims of the Employer's general creditors in the event of insolvency or bankruptcy. SECTION 8.2 Contributions and Expenses. The Employer, in its sole discretion, and from time to time, may make contributions to the Trust. All Plan Benefits under the Plan and expenses chargeable to the Plan, to the extent not paid directly by the Employer, shall be paid from the Trust. SECTION 8.3 Trustee Duties. The powers, duties and responsibilities of the Trustee shall be as set forth in the Trust agreement and nothing contained in the Plan, either expressly or by implication, shall impose any additional powers, duties or responsibilities upon the Trustee. SECTION 8.4 Reversion to the Employer. The Employer shall have no beneficial interest in the Trust and no part of the Trust shall ever revert or be repaid to the Employer, directly or indirectly, except as otherwise provided in Section 8.1 or the Trust agreement. 15 19 ARTICLE IX MISCELLANEOUS PROVISIONS SECTION 9.1 Amendment. The Employer reserves the right to amend the Plan in any manner that it deems advisable, by a resolution of the Board. No amendment shall, without the Participant's consent, affect the amount of the Participant's Plan Benefit at the time the amendment becomes effective or the right of the Participant to receive a Plan Benefit. SECTION 9.2 Termination. The Employer reserves the right to terminate the Plan at any time by resolution of its Board. No termination shall, without the Participant's consent, affect the amount of the Participant's Plan Benefit prior to the termination or the right of the Participant to receive a Plan Benefit. SECTION 9.3 No Assignment. The Participant shall not have the power to pledge, transfer, assign, anticipate, mortgage or otherwise encumber or dispose of in advance any interest in amounts payable hereunder or any of the payments provided for herein, nor shall any interest in amounts payable hereunder or in any payments be subject to seizure for payments of any debts, judgments, alimony or separate maintenance, or be reached or transferred by operation of law in the event of bankruptcy, insolvency or otherwise. SECTION 9.4 Successors and Assigns. The provisions of the Plan are binding upon and inure to the benefit of the Employer, its successors and assigns, and the Participant, his Beneficiaries, heirs, legal representatives and assigns. SECTION 9.5 Governing Law. The Plan shall be subject to and construed in accordance with the laws of the Commonwealth of Virginia to the extent not preempted by the provisions of ERISA. SECTION 9.6 No Guarantee of Employment. Nothing contained in the Plan shall be construed as a contract of employment or deemed to give any Participant the right to be retained in the employ of an Employer or any equity or other interest in the assets, business or affairs of the Employer. No Participant hereunder shall have a security interest in assets of the Employer used to make contributions or pay Plan Benefits. SECTION 9.7 Severability. If any provision of the Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of the Plan, but the Plan shall be construed and enforced as if such illegal or invalid provision had never been included herein. SECTION 9.8 Notification of Addresses. Each Participant and each Beneficiary shall file with the Administrator, from time to time, in writing, the post office address of the Participant, the post office address of each Beneficiary, and each change of post office address. Any communication, statement or notice addressed to the last post office address filed with the Administrator (or if no such address was filed with the Administrator, then to the last post office 16 20 address of the Participant or Beneficiary as shown on the Employer's records) shall be binding on the Participant and each Beneficiary for all purposes of the Plan and neither the Administrator nor the Employer shall be obligated to search for or ascertain the whereabouts of any Participant or Beneficiary. SECTION 9.9 Bonding. The Administrator and all agents and advisors employed by it shall not be required to be bonded, except as otherwise required by ERISA. The undersigned, pursuant to the approval of the Board, does hereby execute the Allied Capital Advisers, Inc. Deferred Compensation Plan on this 1st day of January, 1997. ALLIED CAPITAL ADVISERS, INC. Attest: /s/ SUZANNE V. SPARROW By: /s/ JOAN M. SWEENEY ------------------------- --------------------------------- (Signature) (Signature) Suzanne V. Sparrow Joan M. Sweeney ------------------------- --------------------------------- (Print Name) (Print Name) 17 EX-10.11 5 INCENTIVE STOCK OPTION PLAN. 1 EXHIBIT 10.11 ALLIED CAPITAL ADVISERS, INC. INCENTIVE STOCK OPTION PLAN 1. PURPOSE OF THE PLAN The purpose of this Incentive Stock Option Plan ("the Plan") is to advance the interests of Allied Capital Advisers, Inc. ("the Company") by providing directors and officers who have substantial responsibility for the direction and management of the Company with additional incentives to exert their best efforts on behalf of the Company, to increase their proprietary interest in the success of the Company, to reward outstanding performance and to provide a means to attract and retain persons of outstanding ability to the service of the Company. It is recognized that the Company cannot attract or retain these officers without this compensation. 2. EFFECTIVE DATE OF THE PLAN This Plan shall become effective upon (1) approval of the plan by the shareholders of the Company and (2) adoption by the Board of Directors. 3. ADMINISTRATION The Plan is administered by the Compensation Committee (the "Committee") consisting of two or more "disinterested" members of the Company's Board of Directors in accordance with the provisions of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the "1934 Act"). The Committee shall interpret the Plan, and to the extent and in the manner contemplated herein, it shall exercise the discretion reserved to it hereunder. The Committee may prescribe, amend and rescind rules and regulations relating to the Plan and make all other determinations necessary for its administration. The decision of the Committee on any matter affecting the Plan or the rights and obligations arising under the Plan or any option granted thereunder shall be final and binding upon all persons. 4. SHARES SUBJECT TO THE PLAN The shares subject to option and the other provisions of this Plan are shares of the Company's common stock, par value $.001 per share ("shares"). Subject to the provisions hereof concerning adjustment, the total number of shares that may be purchased upon the exercise or surrender of stock options granted under this Plan shall not exceed 1,999,580 shares, which amount includes 1,649,580 shares on which options previously have been granted. In the event any option shall cease to be exercisable in whole or in part for any reason, the shares which were covered by such option, but as to which the option had not been exercised, shall again be available under the Plan. Shares may be made available from authorized unissued or reacquired stock or partly from each. 5. PARTICIPANTS The Committee shall determine and designate from time to time those key officers of the Company, and those directors who are not officers of the Company or employees of the Company's investor adviser ("non-officer directors"), who shall be eligible to participate in the Plan. 6. AWARDS UNDER THE PLAN (a) Generally. The Committee may award at any time an incentive stock option (within the meaning of section 422 of the Internal Revenue Code of 1986, as amended (the "Code")) or a nonqualified stock option to a participant under the plan; provided, however, that only nonqualified stock options may beawarded to non-officer directors. (b) Awards to Officers. The Committee shall determine the number of shares to be offered from time to time to each optionee who is an officer of the Company. In making these determinations, the Committee shall take into account the past service of the optionee to the Company, that officer's present and potential contributions to the success of the Company and such other factors as the Committee shall deem relevant 2 in connection with accomplishing the purposes of the Plan. The options shall contain such terms and conditions as the Committee shall deem advisable, including but not limited to being exercisable only in such installments as the Committee may determine. Options granted to different optionees or at different times need not contain similar provisions. (c) Awards to Non-Officer Directors. Each non-officer director, upon his or her election as a director of the Company, shall receive a one-time grant of an option to purchase thirteen thousand three hundred and thirty three (13,333) shares. A non-officer director shall receive no other award under this Plan. (d) Option Price. The price at which a share may be purchased upon the exercise of an option shall be equal to the current fair market value of the shares at the time an option is granted; provided, however, that with respect to incentive stock options granted to any holder of 10% or more of the Company's shares, the price shall not be less than 110% of such current fair market value. The day on which the Committee approves the granting of an option shall be considered the date on which such option is granted. (e) Option Period. Each stock option shall state the period or periods of time within which the option may be exercised, in whole or in part, by the optionee, which shall be such period or periods of time as may be determined by the Committee. Notwithstanding the foregoing, the option period of each option shall end, and the option shall cease to be exercisable, on the earliest of (i) the date specified in the option grant, (ii) ten years (or, in the case of incentive stock options awarded to a holder of 10% or more of the Company's shares, five years) from the date the option is granted, (iii) the last day of the three-month period beginning on the date on which the optionee ceases to be an officer or director of the Company for any cause other than death or total and permanent disability, or (iv) the first anniversary of the date on which the optionee ceases to be an officer or director of the Company as a result of the optionee's death or total and permanent disability. (f) Payment for Shares. Full payment for shares purchased shall be made at the time of exercising the option in whole or in part. Payment of the purchase price shall be made in cash (including check, bank draft or money order) or, if authorized by the Committee pursuant to paragraph 6(h) hereof, by a loan from the Company in accordance with paragraph 6(h). (g) Transferability of Options. Options shall not be transferable other than by will or the laws of descent and distribution and during an optionee's lifetime shall be exercisable only by the optionee. (h) Loans by the Company. Upon the exercise of any option, the Company may, at the request of the officer-optionee and subject to the approval of the Board of Directors, lend to such officer-optionee, as of the date of exercise, an amount equal to the exercise price of such option, provided that such loan (i) has a term of not more than ten years, (ii) becomes due within sixty days after the recipient of the loan ceases to be an officer of the Company, (iii) bears interest at a rate no less than the prevailing applicable federal rate at the time the loan is made, and (iv) is fully collateralized at all times, which collateral may include securities issued by the Company. Loan terms and conditions may be changed by the Committee to comply with applicable Internal Revenue Service and Securities and Exchange Commission regulations. (i) Effect of Change in Shares subject to the Plan. In the event there is any change in the shares of the Company through the declaration of stock dividends, or through recapitalization resulting in stock splits, or combinations or exchanges of shares, or otherwise, the number of shares available for option and the shares subject to any option and the option prices shall be appropriately adjusted. (j) General Restriction. Each option shall be subject to the requirement that, if at any time the Committee shall determine, at its discretion, that the listing, registration or qualification of the shares subject to such option upon any securities exchange or under any state or federal law, or the consent or approval of any government regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such option or the issue or purchase of the shares thereunder, such option may not be 3 exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. Subject to the limitations of paragraph 6(e), no option shall expire during any period when the rights reserved hereby are invoked by the Committee, but shall be extended for such further period so as to afford the optionee a reasonable opportunity to exercise his option. 7. AMENDMENT AND TERMINATION The Committee may modify, revise or terminate this Plan at any time and from time to time provided, however, that no modification or revision of any material provision of the Plan may be made without shareholder approval except for such modifications or revisions which are necessary in order to ensure that the options issued as incentive stock options under the Plan comply with section 422 or any successor provision of the Code, or other applicable law. The Plan shall terminate when the total amount of shares with respect to which options may be granted shall have been issued upon the exercise of options or by action of the Board of Directors pursuant to this paragraph, or on May 23, 2006, whichever shall occur first. 8. MISCELLANEOUS PROVISIONS (a) No optionee shall have rights as a shareholder with respect to shares covered by his option until the date of exercise of his option. (b) The granting of any option shall not impose upon the Company any obligation to appoint or to continue to appoint as an officer any optionee, and the right of the Company to terminate the employment of any officer or other employee shall not be diminished or affected by reason of the fact that an option has been granted to such optionee. (c) Options shall be evidenced by stock option agreements in such form and subject to the terms and conditions of this Plan as the Committee shall approve from time to time. Such stock option agreements shall contain such other provisions as the Committee in its discretion may deem advisable. (d) For purposes of this Plan, the fair market value of the shares shall be the average between the closing Bid and Asked price of the shares as quoted on the Nasdaq National Market for the business day preceding the date on which the option is awarded. If the Company's shares are traded on a major exchange, the price shall be the closing price of the Company's shares as reported in The Wall Street Journal for the business day preceding the date on which the option is awarded. (e) All options issued pursuant to the Plan shall be granted within ten years from the earlier of the date the amended Plan is adopted by the Board of Directors and the date the amended Plan is approved by the shareholders of the Company. (f) The aggregate fair market value (determined at the time the option is granted) of the shares with respect to which incentive stock options are exercisable for the first time by any optionee during any calendar year (under all incentive stock option plans of the Company, its parent and subsidiary corporations) shall not exceed $100,000. (g) No option may be issued if exercise of all warrants, options and rights of the Company outstanding immediately after issuance of such option would result in the issuance of voting securities in excess of 20% of the Company's outstanding voting securities. (h) Any notices given in writing shall be deemed given if delivered in person or by certified mail; if given to the Company at Allied Capital Advisers, Inc., 1666 K Street, NW, 9th floor, Washington, DC 20006; and, if to an optionee, in care of the optionee at his or her last known address. (i) This plan and all actions taken by those acting for the Plan shall be governed by the laws of the State of 4 of Maryland. (j) If an incentive stock option is issued and does not meet the terms of this plan, then it shall continue as a stock option but it will be a non-qualified stock option. (k) A leave of absence granted to an employee does not constitute an interruption in continuous employment for purposes of the Plan as long as the leave of absence does not extend beyond one year. (l) All costs and expenses incurred in the operation and administration of the Plan shall be borne by the Company. 9. CHANGE OF CONTROL In the event of a Change of Control (as hereinafter defined), all then-outstanding options will become fully vested and exercisable as of the Change of Control. For purposes of the Plan, "Change of Control" means the sale of substantially all of the Company's assets or the acquisition, whether directly, indirectly, beneficially (within the meaning of Rule 13d-3 of the 1934 Act), or of record, of securities of the Company representing twenty percent (20%) or more in the aggregate voting power of the Company's then-outstanding Common Stock by any "person" (within the meaning of Sections 13(d) and 14(d) of the 1934 Act), including any corporation or group of associated persons acting in concert, other than (i) the Company or its subsidiaries and/or (ii) any employee pension benefit plan (within the meaning of Section 3(2) of the Employee Retirement Income Security Act of 1974) of the Company or its subsidiaries, including a trust established pursuant to any such plan. EX-11 6 COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 Allied Capital Advisers, Inc. Exhibit 11 Statement of Computation of Earnings Per Common Share Form 10-K For the Years Ended December 31, 1996, 1995 and 1994
For the Year Ended December 31, -------------------------------------------- 1996 1995 1994 -------------------------------------------- Primary Earnings Per Common Share: Net Income $2,802,000 $2,435,000 $1,294,000 ============================================ Weighted average of common shares outstanding 8,990,013 8,927,648 8,846,726 Weighted average of common shares issuable on exercise of outstanding stock options 867,600 748,674 680,537 -------------------------------------------- Weighted average of common shares outstanding, as adjusted 9,857,613 9,676,322 9,527,263 ============================================ Net Income per share $ 0.28 $ 0.25 $ 0.14 ============================================ Fully Diluted Earnings Per Common Share: Net Income $2,802,000 $2,435,000 $1,294,000 ============================================ Weighted average common shares and common share equivalents as computed for primary earnings per share 9,857,613 9,676,322 9,527,263 Weighted average of additional shares issuable on exercise of outstanding stock options -- 124,239 -- -------------------------------------------- Weighted average of common shares outstanding, as adjusted 9,857,613 9,800,561 9,527,263 ============================================ Net Income assuming full dilution $ 0.28 $ 0.25 $ 0.14 ============================================
EX-13 7 1996 ANNUAL REPORT EXCERPTS. 1 EXHIBIT 13 Allied Capital Advisers, Inc. SHAREHOLDER INFORMATION CORPORATE OFFICE Allied Capital Advisers, Inc. 1666 K Street, NW, 9th Floor Washington, DC 20006 Telephone: (202) 331-1112 Facsimile: (202) 659-2053 News-On-Demand: (888) 329-5519 Investor Relations: (202) 331-3334 Investor Relations E-mail: ir@alliedcapital.com Marketing: (202) 331-6439 Marketing E-mail: info@alliedcapital.com Internet Address: http://www.alliedcapital.com STOCK TRANSFER AGENT AND REGISTRAR Inquiries on transferring securities, replacing a lost or stolen certificate, or processing a change of address should be directed to: American Stock Transfer & Trust Company 40 Wall Street, 46th Floor New York, NY 10005 In the United States: (800) 937-5449 Outside the United States: (212) 936-5100 E-mail: info@amstock.com Internet Address: http://www.amstock.com FORM 10-K REPORT A copy of the Company's Annual Report on Form 10-K for the year ended December 31, 1996, as filed with the Securities and Exchange Commission, will be furnished without charge to shareholders upon written request to the Investor Relations Department at the Company's corporate office. This information is also available on Allied Capital's Internet site: http://www.alliedcapital.com 1997 ANNUAL MEETING OF SHAREHOLDERS NationsBank, N.A., 730 15th Street, NW, Washington, District of Columbia 20006 Friday, May 16, 1997 10 a.m. (EST) All shareholders are welcome to attend. INDEPENDENT ACCOUNTANTS Arthur Andersen LLP Washington, DC STOCK MARKET LISTING Allied Capital Advisers, Inc. common stock is quoted on the Nasdaq National Market under the ticker symbol ALLA. Most newspapers list the Company's stock as "AldCAdv." The Company has approximately 900 shareholders of record and 2,800 beneficial shareholders. STOCK PRICE
High Low Close ---- --- ----- 1995 Q1 4.00 3.25 4.00 Q2 5.00 3.63 4.63 Q3 5.38 4.63 5.06 Q4 5.38 5.00 5.31 1996 Q1 7.00 5.06 6.81 Q2 7.75 6.50 7.38 Q3 7.50 6.88 7.00 Q4 7.00 5.50 5.75
ASSETS UNDER MANAGEMENT (millions)
1991 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- ---- $ 236 $ 436 $ 493 $ 569 $ 670 $ 764
AVERAGE ANNUAL TOTAL RETURN
Value of of $10,000 Investment on January 1, 1991 ------------------------------------------------- Year-End Value -------- ----- 1991 $ 8,182 1992 10,000 1993 17,273 1994 13,636 1995 19,318 1996 20,909
*The Company was spun-off from Allied Capital Corporation on December 31, 1990 A $10,000 investment in Allied Capital Advisers, Inc. as of 1/1/91 was worth $20,909 at the end of 1996, a 13.1% average annual total return over this period. 2 Allied Capital Advisers, Inc. COMPANY PROFILE Allied Capital Advisers, Inc. is a registered investment adviser managing the assets of public and private investment entities dedicated to the finance of growing businesses. The Company's objective is to continue to increase its assets under management and deliver strong returns to its shareholders and its managed entities. FINANCIAL HIGHLIGHTS
December 31, (in thousands, except per share amounts) 1996 1995 - -------------------------------------------------------------------------- Total Revenue $ 17,070 $ 15,443 Net Income $ 2,802 $ 2,435 Earnings Per Share $ 0.28 $ 0.25 Total Assets $ 17,523 $ 14,776 Shareholders' Equity $ 11,051 $ 8,987 Weighted Average Number of Shares and Share Equivalents Outstanding 9,858 9,676 Assets Under Management $764,000 $670,000
Allied Capital Advisers, Inc. 1 3 Allied Capital Advisers, Inc. SELECTED CONSOLIDATED FINANCIAL DATA
- ------------------------------------------------------------------------------------------------------------------------ For the Years Ended December 31, (in thousands, except per share amounts) 1996 1995 1994 1993 1992(1) - ------------------------------------------------------------------------------------------------------------------------ OPERATIONS Total revenue $ 17,070 $ 15,443 $ 12,152 $ 8,358 $ 5,187 Income (loss) before income taxes $ 4,747 $ 4,219 $ 1,966 $ 314 $ (951) Per share $ 0.48 $ 0.44 $ 0.21 $ 0.03 $ (0.14) Net income (loss) $ 2,802 $ 2,435 $ 1,294 $ 143 $ (673) Per share $ 0.28 $ 0.25 $ 0.14 $ 0.02 $ (0.10) Assets under management $764,000 $670,000 $569,000 $493,000 $436,000 Weighted average number of shares and share equivalents outstanding 9,858 9,676 9,527 9,550 6,965 - ------------------------------------------------------------------------------------------------------------------------ FINANCIAL POSITION Total assets $ 17,523 $ 14,776 $ 10,841 $ 7,888 $ 6,369 Deferred compensation $ 2,658 $ 2,377 $ 1,950 $ 1,614 $ 1,359 Total liabilities $ 6,472 $ 5,789 $ 4,981 $ 3,349 $ 2,882 Shareholders' equity(2) $ 11,051 $ 8,987 $ 5,860 $ 4,539 $ 3,487 - ------------------------------------------------------------------------------------------------------------------------
(1) The financial statements prior to 1993 have been restated to reflect the adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." (2) The Company has not paid any dividends to shareholders. Allied Capital Advisers, Inc. 9 4 Allied Capital Advisers, Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS The following discussion should be read in conjunction with the financial statements and notes thereto included elsewhere in this report. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1996, Allied Capital Advisers, Inc. and its subsidiary (the Company) had $5.1 million in cash and cash equivalents. Current assets were $10.4 million compared to current liabilities of $3.8 million. The Company is a service company and does not have a significant budget for capital expenditures. Capital resources available at December 31, 1996 appear adequate to satisfy future operating needs. There are no known demands or uncertainties that might cause the Company to have an increased or decreased demand for liquidity. Capital expenditures for 1996 were $399,000 as compared to $390,000 in 1995, and have been largely due to the purchase of computer equipment. In 1994, the Company purchased an office building in Vienna, Virginia for $3.6 million. RESULTS OF OPERATIONS COMPARISON OF 1996 TO 1995 David Gladstone stepped down as Chairman and Chief Executive Officer in early 1997. Mr. Gladstone also resigned as a director of the Company in 1997 and will not stand for reelection at the Company's annual meeting of shareholders scheduled to be held in May 1997. The Company's board of directors appointed William L. Walton as the Company's new Chairman and Chief Executive Officer. Mr. Walton has been affiliated with the Allied Capital companies for more than ten years, both as a director of the Company and as a past director of Allied Capital Corporation. Net income increased 15% to $2.8 million or $0.28 per share in 1996 from $2.4 million or $0.25 per share in 1995. Investment advisory and management fee revenue increased to $15.8 million in 1996 compared to $14.4 million in 1995, representing a 10% increase. The increase in net income and investment advisory fee revenue resulted from the Company being able to continue to increase the assets of the various companies under its management. Total assets under management increased to approximately $764 million at the end of 1996 from approximately $670 million at December 31, 1995. This represents a 14% increase in assets under management. The investment advisory and management fees charged are pursuant to investment advisory and management agreements and the fees may vary depending upon the particular agreement, and such fees range from 0.5% to 3.0% on invested assets and are 0.5% on cash and temporary investments. During 1996 and 1995 investment advisory and management fees as a percent of total average assets under management was 2.2% and 2.3%, respectively. Included in invested assets under management at December 31, 1996 are approximately $53 million in assets of a company that is co-managed by another investment manager. The Company pays one-third of its management fees from this company to the co-manager. The Company from time to time will waive or adjust its investment advisory or management fee percentages depending upon the type of investments of a company under management. The Company and its managed fund will agree to a waiver or adjustment of advisory and management fees when particular regulatory or economic circumstances warrant. The Company believes that it is prudent to waive or adjust its fees when market conditions dictate, and such action will enhance the Company's investment advisory and management performance overall. Included in its assets under management at December 31, 1996 and 1995 was approximately $11.4 million and $20.0 million, respectively, from two private venture partnerships. These partnerships are no longer making new investments, and as a result, assets under management will decline as they liquidate their portfolios and make distributions to the partners. Rental and other income from the office building in Virginia increased because the building occupancy increased from 94% to 100% during 1996. The growth in other income is a result of interest income earned on a higher average balance of cash and temporary investments in 1996 when compared to 1995. Allied Capital Advisers, Inc. 10 5 Allied Capital Advisers, Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS Total expenses increased by approximately $1.1 million or 10% during 1996. Salaries and employee benefit expenses increased $0.7 million, or 9.3% compared to 1995 expenses. The salaries and employee benefit expenses include an accrual of $0.6 million relating to the resignation of the Company's former Chairman, David Gladstone. General and administrative expenses increased by $281,000 or 13% during 1996. The increase in general and administrative expenses was primarily due to the Company's participation in a competitive bid for two of its managed companies to purchase approximately $500 million in loans secured by real estate for which the Company incurred costs. These costs included a $125,000 nonrefundable bid deposit and approximately $50,000 related to site visits and due diligence costs, which would have been reimbursed by the managed companies involved if the bid had been accepted. Pre-tax income for 1996 increased by 12.5% or $528,000 over 1995 levels. This increase in income resulted in an increase in income tax expense of $161,000. The effective tax rate was 41% and 42% for 1996 and 1995, respectively. This rate approximates the combination of federal and local statutory income tax rates. RESULTS OF OPERATIONS COMPARISON OF 1995 TO 1994 Net income increased 88% to $2.4 million or $0.25 per share in 1995 from $1.3 million or $0.14 per share in 1994. Investment advisory and management fee revenue increased to $14.4 million in 1995 compared to $11.7 million in 1994, representing a 23% increase. The increase in net income and investment advisory and management fee revenue resulted from the Company being able to continue to increase the assets of the various companies under its management. Total assets under management increased to approximately $670 million at the end of 1995 from approximately $569 million at December 31, 1994. During 1995 and 1994 the advisory and management fees as a percent of total average assets under management was 2.3% and 2.2%, respectively. Invested assets under management at December 31, 1995, included approximately $60 million in assets of a company that is co-managed by another investment manager. The Company pays one-third of its management fees from this company to the co-manager. Rental and other income increased 150% to $1.1 million in 1995. This increase was due to earning a full year of rental income from operations of the office building purchased by the Company in September 1994. Total expenses increased by approximately $1 million or 10% during 1995. Salaries and employee benefit expenses increased $1.1 million, or 16% compared to 1994 expenses. This increase was the function of an increase in the number of employees, restaffing certain departments with more experienced personnel and salary and wage percentage increases. General and administrative expenses decreased by $171,000 or 7% during 1995 because of continuing implementation of cost control measures throughout the year. Pre-tax income for 1995 increased by 115% or $2.3 million over 1994 levels. This increase in income resulted in an increase of income tax expense of $1.1 million. The effective tax rate for 1995 was 42% which is higher than the 1994 effective tax rate of 34%. The 1995 effective tax rate approximated the combination of federal and local statutory income tax rates. The 1994 effective tax rate was lower than statutory rates due to a reduction in an allowance for deferred tax assets. Statements included in this report 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. Allied Capital Advisers, Inc. 11 6 Allied Capital Advisers, Inc. CONSOLIDATED BALANCE SHEET
- ----------------------------------------------------------------------------------------------------------------- December 31, (in thousands, except number of shares) 1996 1995 - ----------------------------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash and cash equivalents $ 5,060 $ 4,386 Investment advisory and management fees receivable 4,282 4,067 Due from affiliates 695 609 Other current assets 412 490 ---------------------------- Total current assets 10,449 9,552 Property and equipment, net 4,279 4,273 Deferred compensation trust 1,514 -- Deferred income taxes 1,087 706 Other assets 194 245 ---------------------------- Total assets $17,523 $14,776 ============================ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses $ 497 $ 436 Accrued salaries and bonuses 2,580 1,981 Accrued employee benefits 533 502 Due to affiliates 204 324 Income taxes payable -- 169 ---------------------------- Total current liabilities 3,814 3,412 Deferred compensation 2,658 2,377 ---------------------------- Total liabilities 6,472 5,789 ---------------------------- Contingencies Shareholders' Equity: Common stock; $0.001 par value; 20,000,000 shares authorized; 8,867,430 and 8,990,349 shares outstanding at December 31, 1996 and 1995, respectively 9 9 Additional paid-in capital 5,674 5,674 Retained earnings 6,106 3,304 Common stock held in deferred compensation trust (738) -- ---------------------------- Total shareholders' equity 11,051 8,987 ---------------------------- Total liabilities and shareholders' equity $17,523 $14,776 ============================
The accompanying notes are an integral part of these financial statements. Allied Capital Advisers, Inc. 12 7 Allied Capital Advisers, Inc. CONSOLIDATED STATEMENT OF INCOME
- ----------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, (in thousands, except per share amounts) 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------- Revenue: Investment advisory and management fees $15,827 $14,379 $11,727 Rental and other income 1,243 1,064 425 ----------------------------------------- Total revenue 17,070 15,443 12,152 ----------------------------------------- Expenses: Salaries and employee benefits 8,774 8,031 6,929 General and administrative 2,516 2,235 2,406 Rent 640 639 636 Depreciation and amortization 393 319 215 ----------------------------------------- Total expenses 12,323 11,224 10,186 ----------------------------------------- Income before income taxes 4,747 4,219 1,966 Income tax expense 1,945 1,784 672 ----------------------------------------- Net income $ 2,802 $ 2,435 $ 1,294 ========================================= Net income per share $ 0.28 $ 0.25 $ 0.14 ========================================= Weighted average number of shares and share equivalents outstanding 9,858 9,676 9,527 =========================================
The accompanying notes are an integral part of these financial statements. Allied Capital Advisers, Inc. 13 8 Allied Capital Advisers, Inc. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------ Number Common Additional Retained Note Deferred of Shares Stock at Paid-in Earnings Receivable Compensation (in thousands) Outstanding Par Value Capital (Deficit) from ESOP Trust Total - ------------------------------------------------------------------------------------------------------------------------------------ December 31, 1993 8,844 $ 9 $5,319 $ (425) $(364) $ -- $ 4,539 Net income -- -- -- 1,294 -- -- 1,294 Issuance of common stock 10 -- 27 -- -- -- 27 - ------------------------------------------------------------------------------------------------------------------------------------ December 31, 1994 8,854 9 5,346 869 (364) -- 5,860 Payments on note receivable from ESOP -- -- -- -- 364 -- 364 Net income -- -- -- 2,435 -- -- 2,435 Issuance of common stock 136 -- 328 -- -- -- 328 - ------------------------------------------------------------------------------------------------------------------------------------ December 31, 1995 8,990 9 5,674 3,304 -- -- 8,987 Net income -- -- -- 2,802 -- -- 2,802 Deferred compensation trust (123) -- -- - -- (738) (738) - ------------------------------------------------------------------------------------------------------------------------------------ December 31, 1996 8,867 $ 9 $5,674 $6,106 $ -- $(738) $11,051 ====================================================================================================================================
The accompanying notes are an integral part of these financial statements. Allied Capital Advisers, Inc. 14 9 Allied Capital Advisers, Inc. CONSOLIDATED STATEMENT OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------------------ For the Years Ended December 31, (in thousands) 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Cash Flows from Operating Activities: Net income $ 2,802 $2,435 $ 1,294 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 393 319 215 Deferred income taxes (381) (174) (279) Changes in assets and liabilities: Investment advisory and management fees receivable (215) (891) (1,105) Due to/from affiliates (206) (42) (301) Other assets 129 (130) 258 Accounts payable and accrued expenses 61 (80) 105 Accrued salaries and bonuses 599 442 555 Accrued employee benefits 31 (346) 848 Income taxes payable (169) 169 (229) Deferred compensation 281 427 336 --------------------------------------- Net cash provided by operating activities 3,325 2,129 1,697 --------------------------------------- Cash Flows from Investing Activities: Acquisition of investments in deferred compensation trust (1,514) -- -- Capital expenditures (399) (390) (210) Acquisition of real property -- -- (3,600) --------------------------------------- Net cash used in investing activities (1,913) (390) (3,810) --------------------------------------- Cash Flows from Financing Activities: Acquisition of common stock in deferred compensation trust (738) -- -- Payments under note receivable from ESOP -- 364 -- Proceeds from sale of common stock -- 328 27 --------------------------------------- Net cash (used in) provided by financing activities (738) 692 27 --------------------------------------- Net increase (decrease) in cash and cash equivalents 674 2,431 (2,086) Cash and cash equivalents, beginning of year 4,386 1,955 4,041 --------------------------------------- Cash and cash equivalents, end of year $ 5,060 $4,386 $ 1,955 ======================================= Supplemental Cash Flow Information: Cash paid for income taxes $ 2,513 $1,719 $ 1,334 =======================================
The accompanying notes are an integral part of these financial statements. Allied Capital Advisers, Inc. 15 10 Allied Capital Advisers, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION ORGANIZATION. Allied Capital Advisers, Inc. (the Company) was incorporated in the state of Maryland and is a registered investment adviser under the Investment Advisers Act of 1940. Its principal business is acting as investment adviser and manager to both public and private investment companies and real estate investment trusts that specialize in investing in and lending to growing businesses. The Company also generates rental income from an office building it owns, through its wholly owned subsidiary, Allied Capital Property Corporation (Allied Property). PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REVENUE RECOGNITION. Investment advisory and management fee revenue is recognized based upon the contractual terms of the investment advisory or management agreements in effect. The Company recognizes rental income based upon the terms of tenant leases. Minimum rents and the rental income for leases which contain rent abatements and contractual increases are recognized on a straight-line basis over the initial term of the related lease. CASH AND CASH EQUIVALENTS. The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. PROPERTY AND EQUIPMENT. Property and equipment are carried at cost. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the lives of the respective leases or the lives of the improvements, whichever is shorter. The estimated useful lives of the building and furniture and equipment is 30 and 3 to 7 years, respectively. DEFERRED COMPENSATION TRUST. This trust is comprised of various securities, including shares of the Company, money market funds, mutual funds and common stock of companies under management of the Company. These investments except for the common stock of the Company, which is treated as treasury stock, are accounted for as trading assets and accordingly these assets are recorded at their fair market value with any unrealized gains or losses recorded currently. INCOME TAXES. Deferred income taxes are determined using a liability approach which takes into consideration the future tax consequences associated with differences between the financial reporting and tax bases of assets and liabilities. These differences for the Company relate primarily to the recognition of depreciation and deferred compensation expenses. NET INCOME PER SHARE. Net income per share is calculated using the weighted average number of shares and share equivalents outstanding during each year. Share equivalents included in the computation represent shares issuable upon assumed exercise of stock options, which would have a dilutive effect in years in which there are earnings. STOCK BASED COMPENSATION. Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," encourages, but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. USE OF ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and the related notes. Actual results could differ from these estimates. Allied Capital Advisers, Inc. 16 11 Allied Capital Advisers, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS RECLASSIFICATIONS. Certain reclassifications have been made to the December 31, 1995 and 1994 financial statements in order to conform with the December 31, 1996 financial statement presentation. NOTE 3. INVESTMENT ADVISORY AND MANAGEMENT SERVICES The Company has investment advisory or management agreements to manage the assets of certain companies, the most significant of which include agreements with Allied Capital Corporation, Allied Capital Corporation II, Allied Capital Commercial Corporation, Business Mortgage Investors, Inc. and Allied Capital Lending Corporation. The investment advisory or management agreements are generally annual agreements and remain in effect as long as they continue to be approved by the board of directors of the companies under management. These agreements may be terminated at any time on sixty days' notice, without penalty, by the managed companies' board of directors or by a vote of the holders of a majority of the managed companies' outstanding shares, and these agreements will terminate automatically in the event of their assignment. The Company does not have an ownership interest in most of the companies it manages; however, certain officers and directors of the Company are also officers and directors of the companies managed, and therefore they may be considered affiliates. The Company manages the day-to-day activities of these companies pursuant to the investment advisory or management agreements and provides personnel, administrative services and assistance, facilities and other support. As set forth in the agreements, the Company pays certain operating expenses, including compensation of the companies' officers and other related personnel costs, office space, and equipment. The Company receives advisory and management fees as set forth in the various advisory or management agreements it has with the managed entities. The fees charged pursuant to these agreements generally approximate 2.5 percent on invested assets and 0.5 percent on interim investments, cash and cash equivalents on an annual basis. The Company receives payments of advisory and management fees quarterly in arrears. At December 31, 1996, 1995 and 1994, the Company managed assets of approximately $764,000,000, $670,000,000, and $569,000,000, respectively. Included in invested assets at December 31, 1996, 1995 and 1994, were approximately $53,000,000, $60,000,000, and $37,000,000, respectively, in assets of a company that is co-managed by another investment manager. The Company pays one-third of its fees received from this company to the co-manager. The Company from time to time will waive or adjust its advisory or management fees, given certain regulatory or economic circumstances. The Company believes that it is prudent to waive or adjust its fees when market conditions dictate such an adjustment, and such actions will enhance the Company's investment advisory and management performance overall. The Company has adjusted its fee schedule with Allied Capital Commercial Corporation to provide a range of fees charged on new loans originated. The range of fees for loans originated in 1996 was from 1 percent to 3.5 percent and the range of fees for new loans originated beginning January 1, 1997 is from 0.5 percent to 3.0 percent. The Company maintains a quarterly cap on the fees for those assets of 2.5 percent on an annual basis. The weighted average advisory and management fees as a percent of average total assets under management equaled 2.2 percent, 2.3 percent, and 2.2 percent for the years ended December 31, 1996, 1995, and 1994, respectively. Allied Capital Commercial Corporation and Business Mortgage Investors, Inc. are real estate investment trusts whose terms as corporations are perpetual; however, Allied Capital Commercial Corporation will undertake to include in its proxy statement, and stockholders will have the opportunity to consider and vote on a voluntary liquidation of Allied Capital Commercial Corporation in the years 2000, 2003 and 2006. Shareholders of Business Mortgage Investors, Inc. will have a similar opportunity to consider liquidation in the year 2000. Of its total assets under management at December 31, 1996, the combined assets of Allied Capital Commercial Corporation and Business Mortgage Investors, Inc. equaled 54 percent. The Company entered into a servicing agreement with Allied Capital Funding, L.L.C. (Funding) in 1995 to service certain mortgage loans. Funding is owned by Allied Capital Commercial Corporation and Business Mortgage Investors, Inc. Pursuant to the servicing agreement, the borrowers' payments due under the mortgages, including principal, Allied Capital Advisers, Inc. 17 12 Allied Capital Advisers, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS interest and escrow amounts, are forwarded to the Company and are held in trust accounts in the Company's name until remitted in accordance with the servicing agreement to the appropriate parties. The cash in the trust accounts as of December 31, 1996 and 1995 equaled $7,885,000 and $1,844,000, respectively, and is not reflected on the accompanying consolidated balance sheet. The Company receives no incremental revenue from this servicing arrangement as the Company receives investment management fees from Allied Capital Commercial Corporation and Business Mortgage Investors, Inc. The Company also manages two private investment partnerships that are no longer making investments and are in the process of liquidation. The combined assets of these partnerships at December 31, 1996 and 1995 represented 1.5 percent and 3 percent, respectively, of total assets under management. NOTE 4. REAL ESTATE OPERATIONS Allied Property acquired real property consisting of land and an office building located in Vienna, Virginia from an unrelated party in a cash transaction which was consummated on September 13, 1994 and was effective September 1, 1994. The $3,600,000 purchase price of the property was paid from cash and cash equivalents. The consolidated statement of income includes the revenue and expenses generated from the building operations for the four month period ended December 31, 1994 and for the years ended December 31, 1995 and 1996. The office building has approximately 58,000 rentable square feet and all rentable space was leased as of December 31, 1996. The tenants' leases are effective through various dates over the next several years and certain leases contain renewal options. Rental income for the years ended December 31, 1996 and 1995 was $916,000 and $828,000, respectively. Rental income for the four months ended December 31, 1994 was $270,000. Total expenses for the years ended December 31, 1996 and 1995 were $506,000 and $486,000, respectively. Total expenses for the four months ended December 31, 1994 were $122,000. These expenses have been included in general and administrative expenses on the accompanying consolidated statement of income. NOTE 5. PROPERTY AND EQUIPMENT Property and equipment as of December 31, 1996 and 1995 consisted of the following:
- ---------------------------------------------------------------------- (in thousands) 1996 1995 - ---------------------------------------------------------------------- Land $ 1,097 $ 1,097 Building and tenant improvements 2,585 2,513 Furniture and equipment 1,797 1,623 Leasehold improvements 406 318 ----------------------- 5,885 5,551 Accumulated depreciation and amortization (1,606) (1,278) ----------------------- Property and equipment, net $ 4,279 $ 4,273 ======================= - ----------------------------------------------------------------------
Maintenance and repairs are charged to expense as incurred. Major renewals and betterments which substantially extend the useful life of the property are capitalized. Upon sale or other disposition of assets, the cost and related accumulated depreciation and amortization are removed from the accounts and the resulting gain or loss, if any, is reflected in income. NOTE 6. DEFERRED COMPENSATION TRUST The Company established a "Rabbi" trust (Trust) for its deferred compensation plan in December 1996, and transferred $2,252,000 in cash to the Trust. The Trust has made investments in various securities, including 122,919 shares of the Company's common stock, which is accounted for as treasury stock in the amount of $738,000. The remaining investment portfolio consists of investments in money market funds, mutual funds and common stocks of which are under management of the Company, totaling $734,000, $288,000, and $492,000, respectively. Any increases or decreases in assets of the Trust are fully offset by changes in the liability for deferred compensation. All assets in the Trust are subject to the Company's general creditors in the event of bankruptcy or insolvency. Allied Capital Advisers, Inc. 18 13 Allied Capital Advisers, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7. DEBT The Company has a secured revolving line of credit agreement with a bank, whereby the Company can borrow up to $1,000,000 limited to 70 percent of the accrued advisory and management fees receivable. Borrowings under this agreement are subject to the bank's prime rate plus 25 basis points. This agreement expires May 31, 1997. The Company did not have any borrowings outstanding under this agreement as of December 31, 1996 and 1995. NOTE 8. INCOME TAXES The following is a summary of the components of income tax expense:
- --------------------------------------------------------------- For the Years Ended December 31, (in thousands) 1996 1995 1994 - --------------------------------------------------------------- Federal Current $1,760 $1,477 $ 726 Deferred (281) (146) (224) Local Current 565 481 246 Deferred (99) (28) (76) ------------------------------ Income tax expense $1,945 $1,784 $ 672 ============================== - ----------------------------------------------------------------
The differences between income tax expense computed using the statutory Federal income tax rate and that shown in the consolidated statement of income are summarized below:
- ------------------------------------------------------------------------- For the Years Ended December 31, 1996 1995 1994 - ------------------------------------------------------------------------- Computed tax expense at statutory rate 34.0% 34.0% 34.0% Local taxes, net of Federal tax benefit 6.6 6.5 7.1 Deferred tax asset valuation adjustment -- (0.6) (4.8) Other 0.4 2.4 (2.1) ---------------------------- Income tax expense 41.0% 42.3% 34.2% ============================ - -------------------------------------------------------------------------
The components of the net deferred tax asset as of December 31, 1996 and 1995 are as follows:
- --------------------------------------------------------------- (in thousands) 1996 1995 - --------------------------------------------------------------- Deferred compensation $ 899 $759 Compensation accrual 209 -- Other 69 37 Valuation allowance (90) (90) ------------------- Net total deferred tax asset $1,087 $706 =================== - ---------------------------------------------------------------
The largest component of the deferred tax asset is generated from accrued deferred compensation expense which is not deductible for tax purposes until paid. The Company believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize substantially all of the tax benefit of this deduction when the deferred compensation is paid; however, the Company evaluates the adequacy of the valuation allowance against the deferred tax asset on an ongoing basis. NOTE 9. EMPLOYEE BENEFIT PLANS EMPLOYEE STOCK OWNERSHIP PLAN. The Company has a qualified employee stock ownership plan (ESOP) available to all employees who meet the eligibility requirements. The plan contains a money purchase pension plan feature, which requires a defined contribution of 10 percent of the eligible employee's wages, and a stock bonus plan feature which allows the Company to make a discretionary contribution of up to an additional 15 percent of the eligible employee's wages. As of December 31, 1996 the ESOP held 1,396,948 shares of the Company's common stock all of which had been allocated to participants' accounts. The plan is funded annually and the total ESOP contribution expense for the years ended December 31, 1996, 1995, and 1994 was $1,018,000, $864,000, and $848,000, respectively, net of forfeitures of $36,000, $180,000, and $124,000 in 1996, 1995 and 1994, respectively. Allied Capital Advisers, Inc. 19 14 Allied Capital Advisers, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In connection with the Company's 1991 and 1992 rights offerings, the ESOP purchased a total of 1,960,763 shares of common stock for approximately $3,186,000 and the Company received $2,036,000 in cash and a note receivable from the ESOP in the amount of $1,150,000. During 1995, the ESOP paid the remaining outstanding balance due under the note to the Company. Effective January 1, 1997, the Company revised its compensation structure. The board of directors of the Company modified the mandatory contribution related to the money purchase pension plan of the ESOP from a 10 percent contribution to a 5 percent contribution for eligible employees. The board of directors has also decided not to continue the 15 percent contribution. The restructure is not anticipated to have any significant impact on total compensation expense as reductions to ESOP contributions are expected to be offset by increases in current cash wages. DEFERRED COMPENSATION PLAN. The Company has a deferred compensation plan. Participants in the plan and the determination of their benefits are at the discretion of the board of directors of the Company as of December 31, 1996. Total deferred compensation expense including interest allocated to the participants' accounts on the unfunded deferred compensation liabilities for the years ended December 31, 1996, 1995, and 1994 was $503,000, $460,000, and $336,000, respectively. Interest is payable on any unfunded deferred compensation liability. The interest rate for the years ended December 31, 1995 and 1994 and for the eight months ended August 31, 1996 was the prime interest rate. The interest rate for the four months ended December 31, 1996 was 5 percent. NOTE 10. NOTES RECEIVABLE The Company had outstanding loans totaling $40,000 as of December 31, 1996 and 1995, respectively, to officers of the Company. These loans mature in 2001 and bear interest at 6.7 percent annually. These notes are included in other assets on the accompanying consolidated balance sheet. NOTE 11. STOCK OPTIONS The shareholders approved an incentive stock option plan which provides for the granting of options on up to 1,999,580 shares of the Company's common stock. The vesting provisions for individual option grants are determined at issuance by the board of directors. Options may be granted to officers and directors at a price not less than the market value on the date of grant and are exercisable over a period of up to 10 years. Holders of 10 percent or more of the Company's stock must exercise their options within a period of up to five years. A summary of the activity in the plan for the years ended December 31, is as follows:
- -------------------------------------------------------------------------------------------------------------------------------- (shares in thousands) 1996 1995 1994 - -------------------------------------------------------------------------------------------------------------------------------- WEIGHTED-AVG. Weighted-Avg. Weighted-Avg. Options SHARES EXERCISE PRICE Shares Exercise Price Shares Exercise Price -------------------------------------------------------------------------------------- Outstanding at beginning of year 1,457 $2.23 1,593 $2.24 1,497 $2.12 Granted 350 7.00 1 3.63 106 4.06 Exercised -- -- (135) 2.41 (10) 2.75 -------------------------------------------------------------------------------------- Outstanding at end of year 1,807 3.15 1,457 2.23 1,593 2.24 =================================================================== Options exercisable at year-end 1,308 2.73 1,115 2.29 1,175 2.28 =================================================================== - --------------------------------------------------------------------------------------------------------------------------------
Allied Capital Advisers, Inc. 20 15 Allied Capital Advisers, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes information about fixed options outstanding at December 31, 1996:
- -------------------------------------------------------------------------------------------------------------------------------- (shares in thousands) Options Outstanding Options Exercisable Number Weighted Average Weighted Number Weighted Range of Outstanding Remaining Average Exercisable Average Exercise Prices As of 12/31/96 Contractual Life Exercise Price As of 12/31/96 Exercise Price - -------------------------------------------------------------------------------------------------------------------------------- $1.88-$1.88 1,030 5.7 years $1.88 763 $1.88 $2.75-$3.75 361 5.6 $2.86 361 $2.86 $4.25-$4.25 66 7.3 $4.25 66 $4.25 $7.00-$7.00 350 9.5 $7.00 118 $7.00 ----- ----- $1.88-$7.00 1,807 6.5 $3.15 1,308 $2.73 ===== ===== - --------------------------------------------------------------------------------------------------------------------------------
The Company accounts for this plan as required by the Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees," and no compensation cost has been recognized. Had compensation cost for the plan been determined consistent with SFAS No. 123, the Company's net income and net income per share would have been reduced to the following pro forma amounts:
- ----------------------------------------------------------- Year Ended December 31 1996 1995 - ----------------------------------------------------------- Net income: As reported $2,802 $2,435 Pro forma $2,262 $2,435 Net income per share: As reported $ 0.28 $0.25 Pro forma $ 0.23 $0.25 - -----------------------------------------------------------
Because the method of accounting required by SFAS No. 123 has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants; risk-free interest rate of 6 percent for both 1996 and 1995; expected dividend yield of zero percent for 1996 and 1995; expected life of 5 years for all options granted in 1996 and 1995; expected volatility of 42 percent for 1996 and 1995. NOTE 12. OPERATING LEASES The Company leases office space under a noncancelable operating lease that expires August 31, 1998. The minimum payments under this lease for the years ended December 31, 1997 and 1998 will be $657,000 and $449,000, respectively. In connection with the Company's building operations, future minimum rental receipts under noncancelable operating leases for the years ended December 31, are as follows:
- --------------------------------------------- Year Amount - --------------------------------------------- 1997 $918,000 1998 332,000 1999 90,000 2000 62,000 2001 20,000 Thereafter -- - ---------------------------------------------
Allied Capital Advisers, Inc. 21 16 Allied Capital Advisers, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13. CONCENTRATIONS OF CREDIT RISK The investment portfolio of the managed companies consist primarily of securities issued by small, privately held companies located throughout the United States. These types of investments, by their nature, carry a high degree of business and financial risk. The managed companies seek to achieve current income by providing debt, mezzanine and equity financing primarily for small, privately owned companies to compensate for these risks. The value of the investment portfolios of the managed companies directly impacts the level of advisory fees the Company recognizes. The Company's cash is held in financial institutions and, at times, cash amounts may be in excess of the federally insured limit. As of December 31, 1996 and 1995, the Company had purchased U.S. government securities from Signet Bank, N.A. under agreements to resell within seven business days of the purchase date. Cash and cash equivalents consisted of the following:
- -------------------------------------------------------- (in thousands) 1996 1995 - -------------------------------------------------------- Cash $ 545 $ 266 Repurchase agreements 4,515 4,120 ------------------ Total $5,060 $4,386 ================== - --------------------------------------------------------
NOTE 14. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Fair Value of Financial Instruments," requires disclosures about the fair value for all financial instruments. All of the Company's financial instruments are held or issued for purposes other than trading. The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practical to estimate that value: CASH AND CASH EQUIVALENTS AND OTHER SHORT-TERM INVESTMENTS. The carrying amount approximates fair value because of the short maturity of these instruments as of December 31, 1996. DEFERRED COMPENSATION TRUST. Investments held in the deferred compensation trust are carried at their fair market value. Fair market value is determined based upon the quoted market price as of the end of the reporting period. Investments in the trust as of December 31, 1996 consisted of the following:
- --------------------------------------------------------------------------- Investment Cost Value - --------------------------------------------------------------------------- Company Stock $ 738,000 $ 738,000 Allied Capital Corporation 123,000 123,000 Allied Capital Corporation II 123,000 123,000 Allied Capital Lending Corporation 123,000 123,000 Allied Capital Commercial Corporation 123,000 123,000 RIMCO Small Capital Stock Fund 188,000 188,000 RIMCO Stock Fund 100,000 100,000 RIMCO Money Market Fund 734,000 734,000 ------------------------------- $2,252,000 $2,252,000 ===============================
NOTE 15. CONTINGENCIES The Company is party to certain lawsuits in connection with its business. While the outcome of these legal proceedings cannot at this time be predicted with certainty, management does not expect that these actions will have a material effect upon the financial condition of the Company. Allied Capital Advisers, Inc. 22 17 Allied Capital Advisers, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16. QUARTERLY FINANCIAL HIGHLIGHTS (UNAUDITED)
- -------------------------------------------------------------------------------------- 1996 (in thousands, except per share amounts) QTR 1 QTR 2 QTR 3 QTR 4 - -------------------------------------------------------------------------------------- Total revenue $4,173 $4,194 $4,382 $4,321 Income before taxes $1,244 $1,354 $1,372 $ 777 Net income $ 732 $ 788 $ 807 $ 475 Net income per share $ 0.07 $ 0.08 $ 0.08 $ 0.05 - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- 1995 Qtr 1 Qtr 2 Qtr 3 Qtr 4 - -------------------------------------------------------------------------------------- Total revenue $3,580 $3,874 $3,889 $4,100 Income before taxes $ 890 $1,042 $1,147 $1,140 Net income $ 523 $ 611 $ 659 $ 642 Net income per share $ 0.06 $ 0.06 $ 0.07 $ 0.07 - --------------------------------------------------------------------------------------
Allied Capital Advisers, Inc. 23 18 Allied Capital Advisers, Inc. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Allied Capital Advisers, Inc. and Subsidiary: We have audited the accompanying consolidated balance sheets of Allied Capital Advisers, Inc. and subsidiary as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Allied Capital Advisers, Inc. and subsidiary as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP Washington, DC February 16, 1997 Allied Capital Advisers, Inc. 24 19 Allied Capital Advisers, Inc. DIRECTORS AND OFFICERS* DIRECTORS William L. Walton(1,4) G. Cabell Williams III Kristine M. Lansing Chairman of the Board & Executive Vice President Vice President & Assistant Secretary Chief Executive Officer Thomas H. Westbrook Robert M. Monk David Gladstone Executive Vice President Vice President Vice Chairman Arthur S. Cooper Pete Papas Joan M. Sweeney(1) Senior Vice President Vice President President & Chief Operating Officer Robert J. Corry Penni F. Roll Brooks H. Browne(3) Senior Vice President Vice President & Assistant Controller President, Environmental Enterprises Assistance Fund Tricia B. Daniels Ruth J. Semple Senior Vice President & Secretary Vice President Swep T. Davis(2) President, Tyone Partners LLP Richard E. Fearon, Jr. Julie E. Svoboda Senior Vice President Vice President & Assistant Controller Robert E. Long(2,3,4) President & Chief Executive Officer, Michael J. Grisius Gay S. Truscott Business News Network, Inc. Senior Vice President Vice President George C. Williams(1,2,4) John J. Hall, Jr. Donald L. Benfer Financial Consultant Senior Vice President Assistant Vice President (1) Executive Committee Philip A. McNeill Jeff E. Erhardt (2) Audit Committee Senior Vice President Assistant Vice President (3) Compensation Committee (4) Nominating Committee Mary E. Olson Peter C. Fisher Senior Vice President Assistant Vice President *As of March 1, 1997 Carr T. Preston Mohamoud M. Garad OFFICERS Senior Vice President Assistant Vice President William L. Walton Suzanne V. Sparrow Alexandra M. Johns Chairman of the Board & Senior Vice President, Investor Relations & Assistant Vice President Chief Executive Officer Assistant Secretary Donna B. Natale Joan M. Sweeney Kelly A. Anderson Assistant Vice President & President & Chief Operating Officer Vice President, Corporate Controller & Assistant Secretary Assistant Treasurer Jon A. DeLuca Peter M. Ramsey Executive Vice President, Treasurer & John W. Benton Assistant Vice President Chief Financial Officer Vice President Michael R. Sifers Katherine C. Marien Michael G. Carey Assistant Vice President Executive Vice President Vice President James P. Shevlin John M. Scheurer Christina L. DelDonna Assistant Vice President Executive Vice President Vice President, Controller & Assistant Treasurer Thomas R. Salley III George Stelljes III Assistant Secretary Executive Vice President
QUARTERLY STOCK PRICE The following table sets forth the high and low bid prices of the Company's common stock by calendar quarter during 1996 and 1995. The quotations represent interdealer quotations and do not include markups, markdowns or commissions and may not necessarily represent actual transactions.
- ---------------------------------------------------------------------------- 1996 1995 HIGH LOW High Low - ---------------------------------------------------------------------------- First Quarter $7.00 $5.06 $4.00 $3.25 Second Quarter $7.75 $6.50 $5.00 $3.63 Third Quarter $7.50 $6.88 $5.38 $4.63 Fourth Quarter $7.00 $5.50 $5.38 $5.00 - ----------------------------------------------------------------------------
EX-23 8 CONSENTS OF INDEPENDENT ACCOUNTANTS. 1 EXHIBIT 23 ARTHUR ANDERSEN LLP CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this Form 10-K of our report dated February 16, 1997 included in Allied Capital Advisers, Inc.'s Annual Report to security holders. It should be noted that we have not audited any financial statements of the company subsequent to December 31, 1996 or performed any audit procedures subsequent to the date of our report. /s/ ARTHUR ANDERSEN LLP Washington, D.C. March 27, 1997 2 ARTHUR ANDERSEN LLP CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants we hereby consent to the incorporation by reference in the registration statement on Form S-8 File No. 33-17885, of our report dated February 16, 1997 incorporated by reference in Allied Capital Advisers, Inc.'s Form 10-K for the year ended December 31, 1996 and to all references to our Firm included in such registration statement. /s/ ARTHUR ANDERSEN LLP Washington, D.C. March 27, 1997 EX-27 9 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated balance sheet, statement of operations and cash flows and is qualified in its entirety by reference to such Form 10-K for the year ended December 31, 1996. 1,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 5,060 0 4,282 0 0 10,449 5,885 1,606 17,523 3,814 0 0 0 9 11,042 17,523 0 17,070 0 0 12,323 0 0 4,747 1,945 2,802 0 0 0 2,802 0.28 0.28
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