-----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, VFFHicfNNvac6dBtoBf9LTqQUOPS3TtB0CBwiV4J3Xcr/wuXBYmhJ560iuoB5F1y 25Bu1BAfFdDtuZevduuF1w== 0000950133-97-003915.txt : 19971117 0000950133-97-003915.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950133-97-003915 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 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-Q SEC ACT: SEC FILE NUMBER: 000-18826 FILM NUMBER: 97717751 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-Q 1 ALLIED CAPITAL ADVISERS, INC. FORM 10-Q 1 Form 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period Commission file number: ended SEPTEMBER 30, 1997 0-18826 ------------------ ---------
ALLIED CAPITAL ADVISERS, INC. ------------------------------------------------------ (exact name of Registrant as specified in its charter) MARYLAND 52-0812307 - ------------------------- -------------------- (State or jurisdiction of (IRS Employer incorporation or organization) Identification No.)
1666 K STREET, N.W. 9TH FLOOR WASHINGTON, DC 20006 ---------------------------------------- (Address of principal executive offices) Registrant's telephone number, including area code: (202) 331-1112 -------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 12 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods as the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- On November 7, 1997 there were 9,648,185 shares outstanding of the Registrant's common stock, $0.001 par value. 2 ALLIED CAPITAL ADVISERS, INC. FORM 10-Q INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheet - As of September 30, 1997 and December 31, 1996................................................1 Consolidated Statement of Income - For the Three and Nine Months Ended September 30, 1997 and 1996....................2 Consolidated Statement of Cash Flows - For the Nine Months Ended September 30, 1997 and 1996....................3 Notes to the Consolidated Financial Statements...................4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................6 PART II. OTHER INFORMATION Item 1. Legal Proceedings..................................................8 Item 2. Changes in Securities..............................................8 Item 3. Defaults Upon Senior Securities....................................8 Item 4. Submission of Matters to a Vote of Security Holders................8 Item 5. Other Information..................................................8 Item 6. Exhibits and Reports on Form 8-K...................................8 Signatures...................................................................9 3 PART I - Financial Information Item 1. Financial Statements ALLIED CAPITAL ADVISERS, INC. CONSOLIDATED BALANCE SHEET (in thousands, except share amounts)
September 30, 1997 December 31, 1996 ------------------ ----------------- (unaudited) ASSETS Current assets: Cash and cash equivalents ..................................................... $ 5,745 $ 5,060 Investment advisory and management fees receivable ............................ 3,869 4,282 Other current assets .......................................................... 1,605 1,107 -------- -------- Total current assets ........................................................ 11,219 10,449 Property and equipment, net ..................................................... 4,431 4,279 Deferred compensation trust ..................................................... 1,359 1,514 Deferred income taxes ........................................................... 683 1,087 Other assets .................................................................... 113 194 -------- -------- Total assets ................................................................ $ 17,805 $ 17,523 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accrued salaries and employee benefits ........................................ $ 1,563 $ 3,113 Accounts payable and accrued expenses ......................................... 744 701 -------- -------- Total current liabilities ................................................... 2,307 3,814 Deferred compensation ........................................................... 1,359 2,658 -------- -------- Total liabilities ........................................................... 3,666 6,472 -------- -------- Contingencies Shareholders' Equity: Common stock, $0.001 par value; 20,000,000 shares authorized; 9,611,819 shares and 8,867,430 outstanding as of 9/30/97 and 12/31/96, respectively ........................ 9 9 Additional paid-in capital .................................................... 7,230 5,674 Common stock held in deferred compensation trust .............................. -- (738) Notes receivable from sale of common stock .................................... (1,138) -- Retained earnings ............................................................. 8,038 6,106 -------- -------- Total shareholders' equity .................................................. 14,139 11,051 -------- -------- Total liabilities and shareholders' equity .................................. $ 17,805 $ 17,523 ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 1 4 ALLIED CAPITAL ADVISERS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF INCOME (in thousands, except per share amounts) (unaudited)
For the Three Months Ended For the Nine Months Ended September 30, September 30, ------------------- ------------------- 1997 1996 1997 1996 ------- ------- ------- ------- Revenue: Investment advisory and management fees .................................. $ 3,835 $ 4,064 $11,804 $11,850 Rental and other income .................................................. 481 318 1,235 899 ------- ------- ------- ------- Total revenue .......................................................... 4,316 4,382 13,039 12,749 ------- ------- ------- ------- Expenses: Salary and employee benefit expenses ..................................... 2,302 2,010 6,508 6,277 Rent ..................................................................... 170 160 503 481 General and administrative ............................................... 1,046 840 2,666 2,021 ------- ------- ------- ------- Total Expenses ......................................................... 3,518 3,010 9,677 8,779 ------- ------- ------- ------- Income before income taxes ................................................. 798 1,372 3,362 3,970 Income tax expense ......................................................... 365 565 1,431 1,644 ------- ------- ------- ------- Net income ................................................................. $ 433 $ 807 $ 1,931 $ 2,326 ======= ======= ======= ======= Net income per share ....................................................... $ 0.05 $ 0.08 $ 0.20 $ 0.24 ======= ======= ======= ======= Weighted average number of shares and share equivalents outstanding .................................................. 9,606 9,913 9,595 9,877 ======= ======= ======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 2 5 ALLIED CAPITAL ADVISERS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) (unaudited)
For the Nine Months Ended September 30, --------------------------------------- 1997 1996 ------- ------- Cash Flows from Operating Activities: Net income ......................................................................... $ 1,931 $ 2,326 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization .................................................... 348 281 Deferred income taxes ............................................................ 404 (135) Changes in assets and liabilities ................................................ (1,190) (794) ------- ------- Net cash provided by operating activities .......................................... 1,493 1,678 ------- ------- Cash Flows from Investing Activities: Expenditures for property and equipment .......................................... (498) (328) Acquisition of investments in deferred compensation trust ........................ (608) -- ------- ------- Net cash used in investing activities .............................................. (1,106) (328) ------- ------- Cash Flows for Financing Activities: Acquisition of common stock in deferred compensation trust ....................... (102) -- Proceeds from sale of common stock ............................................... 400 -- ------- ------- Net cash provided by financing activities .......................................... 298 -- ------- ------- Net increase in cash and cash equivalents .......................................... 685 1,350 Cash and cash equivalents - beginning of period .................................... 5,060 4,386 ------- ------- Cash and cash equivalents - end of period .......................................... $ 5,745 $ 5,736 ======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 3 6 ALLIED CAPITAL ADVISERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 (UNAUDITED) NOTE 1. GENERAL In the opinion of management, the accompanying unaudited consolidated financial statements of Allied Capital Advisers, Inc. and Subsidiary (the Company) contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Company's financial position as of September 30, 1997 and the results of operations, and cash flows for the periods indicated. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 1996 Annual Report. The results of operations for the three and nine months ended September 30, 1997 are not necessarily indicative of the operating results to be expected for the full year. Certain reclassifications have been made to the 1996 financial statements in order to conform to the 1997 presentation. NOTE 2. INVESTMENT ADVISORY SERVICES The Company has investment advisory or management agreements to manage the assets of certain companies. 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. In addition, 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. At September 30, 1997 and December 31, 1996, the Company managed assets of approximately $872,000,000 and $764,000,000, respectively. Included in invested assets at September 30, 1997 and December 31, 1996, were approximately $41,000,000 and $53,000,000, 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 fees charged pursuant to these agreements generally approximate 2.5 percent on invested assets and 0.5 percent on interim investments and cash and cash equivalents on an annual basis. The Company receives payments of advisory and management fees quarterly in arrears. 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. To enhance Allied Capital Commercial Corporation's (Allied Commercial's) competitiveness in the market place, the Company revised its management fee structure with Allied Commercial. The fee schedule was first revised on May 3, 1996 and that scheduled applied to all loans originated or purchased on or after January 1, 1996. Advisers and Allied Commercial modified the fees again in January 1997 for loans originated or purchased on or after January 1, 1997. The revised fee schedule tiers the management fee payable to Advisers, based upon certain characteristics of the outstanding loans held in Allied Commercial's loan portfolio. The revised fee schedule is based upon credit quality and other factors associated with the loans, and fees range from approximately 0.5 percent per annum to 3.5 percent per annum. The revised fee schedule places a quarterly cap, at a rate of approximately 2.5 percent per annum, on the total management fees payable to Advisers with respect to Allied Commercial's portfolio. The new fee schedule does not alter the fees charged on cash, temporary investments or other assets. For the nine months ended September 30, 1997 and 1996, investment advisory and management fees as a percent of total average assets under management were 1.9% and 2.2%, respectively. 4 7 NOTE 3. DEFERRED COMPENSATION TRUST At September 30, 1997, investments made by the Trust included money market funds, mutual funds, and common stock of certain companies that are under the management of the Company. NOTE 4. REVOLVING LINE OF CREDIT AGREEMENT The Company did not renew its revolving line of credit agreement that expired on May 31, 1997. NOTE 5. NET INCOME PER SHARE In March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No.128, `Earnings per Share' (SFAS 128). SFAS 128 is effective for financial statements for both interim and annual periods ending after December 15, 1997. SFAS 128 modifies the method of calculation of net income per share and also requires a reconciliation between basic and diluted per share amounts. Early adoption of the statement prior to the end of 1997 is not allowed. The following table (in thousands except per share data) presents the effect of SFAS 128 on the Company's net income per share as if adopted for current period disclosure:
Three Months Ended September 30, Nine Months Ended September 30, -------------------------------- ------------------------------- 1997 1996 1997 1996 ---- ---- ---- ---- Net income....................................... $433 $807 $1,931 $2,326 ==== ==== ====== ====== Basic average shares outstanding................. 9,226 8,990 9,053 8,990 ===== ===== ===== ===== Basic net income per share....................... $0.05 $0.09 $0.21 $0.26 ===== ===== ===== ===== Effect of dilutive securities: Outstanding stock options ...................... 380 923 542 887 === === === === Diluted average shares outstanding............... 9,606 9,913 9,595 9,877 ===== ===== ===== ===== Diluted net income per share..................... $0.05 $0.08 $0.20 $0.24 ===== ===== ===== =====
NOTE 6. CONTINGENCIES The Company is party to certain lawsuits. While the outcome of these legal proceedings cannot at this time be predicted with certainty, management does not expect that these actions will have a material effect upon the financial condition of the Company. NOTE 7. MERGER On August 14, 1997, the Company announced that it has entered into an Agreement and Plan of Merger (the "Merger Agreement") with Allied Capital Corporation, Allied Capital Corporation II, Allied Capital Commercial Corporation and Allied Capital Lending Corporation (collectively, the "Companies") pursuant to which the Company and Allied Capital Corporation, Allied Capital Corporation II and Allied Capital Commercial Corporation would merge with and into Allied Capital Lending Corporation through a stock for stock exchange (the "Merger"). Pursuant to the terms of the Merger Agreement, stockholders of the Company at the effective time of the Merger will receive 0.31 shares of the merged entity. The Merger is subject to the approval by at least two-thirds of the stockholders of each of the merging companies, as well as subject to certain regulatory approvals, and other customary closing conditions. The Special Meetings of Stockholders of the Companies to vote on the Merger and the other related transactions is scheduled to be held on November 26, 1997. The Joint Proxy Statement/Prospectus relating to the Merger was distributed to stockholders on or about October 14, 1997. Applications have been submitted by the Companies to the Securities and Exchange Commission and the Small Business Administration seeking certain exemptive relief and approvals in connection with the Merger. Such applications are currently pending before such agencies. If all required approvals are obtained, the Company anticipates the Merger would be effective on December 31, 1997. 5 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the financial statements and notes thereto included elsewhere in this report. LIQUIDITY AND CAPITAL RESOURCES At September 30, 1997, Allied Capital Advisers, Inc. and its subsidiary had $5.7 million in cash and cash equivalents. Current assets were $11.2 million compared to current liabilities of $2.3 million. The Company is a service company and does not have a significant budget for capital expenditures. Capital expenditures during the first three quarters of 1997 were $498,000 and have been largely due to the purchase of computer-related equipment. Capital resources available at September 30, 1997 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. RESULTS OF OPERATIONS For the Three Months Ended September 30, 1997 and 1996 For the three months ended September 30, 1997, net income was $433,000, or $0.05 per share, as compared to $807,000 or $0.08 per share for the same quarter in 1996. This decrease in earnings is due to several factors, including a decline in investment advisory revenue, and an increase in operating expenses related to the Company's pending Merger. Investment advisory and management fees have declined approximately 6% or $229,000 even though total assets under management continue to increase. Total assets under management increased to approximately $872 million as of September 30, 1997 from approximately $755 million at September 30, 1996. This represents a 15% increase in managed assets. The investment advisory and management fee percentage pursuant to investment advisory agreements, however, decreased as a percent of total assets under management. For the third quarter of 1997 and 1996, investment advisory and management fees as a percent of total average assets under management were 1.8% and 2.2%, respectively. A significant portion of the increase in assets under management is attributable to the loan portfolio of Allied Commercial, and the new loans originated have a reduced advisory fee percentage. The Company believes that its decision to reduce its fees to Allied Commercial remains appropriate given the competitive nature of the commercial real estate finance market. Also, the Company agreed with its co-manager to reduce its management fees charged on the portfolio of Business Mortgage Investors, Inc. (BMI). BMI is no longer originating new loans. BMI's total assets were $41 million at September 30, 1997 which resulted in a net fee to the Company in the amount of $100,000 for the quarter. Rental and other income includes rental income generated from the office building in Northern Virginia, interest earned on cash and temporary investments, and earnings from the assets of the deferred compensation trust (realized and unrealized earnings). Rental and other income increased 51% to $481,000 for the three months ended September 30, 1997 from $318,000 for the same period in 1996. For the three months ended September 30, 1997 and 1996, the office building generated rental income of $231,000 and $226,000, respectively. Other income and interest income from cash and temporary investments was $131,000 and $92,000 for the third quarter ended September 30, 1997 and 1996, respectively. Earnings from the assets held in the deferred compensation trust equaled $119,000 for the quarter ended September 30, 1997. The first nine months of 1996 did not have earnings from the deferred compensation trust because it was not established until December 1996. Earnings in the deferred compensation trust include interest and dividend income and unrealized appreciation or depreciation on equity securities. Total expenses increased 17% to $3.5 million as compared to $3.0 million for the three months ended September 30, 1997 and 1996, respectively. Salary and employee benefit expenses increased because of increased staffing and due to the $119,000 in expenses associated with the deferred compensation trust assets discussed in the paragraph above. General and administrative expenses increased $206,000 to $1.0 million, or 25% for the three months ended September 30, 1997, as compared to the same period in 1996. The increase in general and administrative expenses is due to several factors including recruiting fees as the Company continues to recruit for permanent investment professionals, and the costs of opening offices in Chicago and San Francisco. During the third quarter of 1997, the Company incurred certain expenses related to the proposed Merger, announced to shareholders in August 1997. These expenses approximated $138,000 and included expenses related to investment bank fees and legal fees. 6 9 The Company has increased its costs of operations in anticipation of the Merger. Management believes that the merged entity will be positioned to grow its assets and earnings at a faster pace than could any of the merging companies on a stand-alone basis. In order to develop a platform to capture that growth, the Company has incurred additional operating costs, primarily the costs of new investment and other professionals. Management anticipates that the Company will continue to incur increased operating costs in the fourth quarter of 1997. Pre-tax income for the three months ended September 30, 1997 decreased $574,000 over the same period in 1996. The effective tax rate was 46% and 41% for the quarter ended September 30, 1997 and 1996, respectively. The increase is due to the merger expenses incurred during the third quarter of 1997. For the Nine Months Ended September 30, 1997 and 1996 Net income for the nine months ended September 30, 1997 decreased $395,000, as compared to the nine months ended September 30, 1996. As was discussed above, the growth in assets under management did not increase investment advisory fee revenue due to a reduction in the overall fee percentage charged on invested assets managed. Total revenue was $13.0 million for the nine months ended September 30, 1997 and $12.7 million for the nine months ended September 30, 1996, which is a 2% increase. The increase during the first nine months of the year was caused by the same factors discussed in the quarter-to-quarter comparison above. Rental and other income increased 37% to $1.2 million for the nine months ended September 30, 1997 from $899,000 for the same period in 1996. For the nine months ended September 30, 1997 and 1996, the office building generated rental income of $694,000 and $672,000, respectively. Other income and interest income from cash and temporary investments was $299,000 and $227,000 for the nine months ended September 30, 1997 and 1996, respectively. In addition, earnings from the assets held in the deferred compensation trust equaled $242,000 for the nine months ended September 30, 1997. The first nine months of 1996 did not have earnings from the deferred compensation trust because it was not established until December 1996. Total expenses were $9.7 million for the nine months ended September 30, 1997, an increase of 10% over the $8.8 million incurred in the same period of 1996. The increase in expenses during the first nine months of 1997 are attributable to the factors discussed in the quarter-to-quarter comparison above. Salary and benefit expenses included $242,000 in expenses associated with the deferred compensation trust assets discussed in the above paragraph. The increase in general and administrative expenses is attributable to the Company's use of investment consultants as management searched for permanent investment professionals. The opening of offices in Chicago and San Francisco during the third quarter of 1997 also increased operating expenses. As discussed in the quarter-to-quarter comparison, the Company incurred approximately $138,000 in expenses related to the proposed Merger it announced to shareholders in August 1997. Pre-tax income for the nine months ended September 30, 1997 decreased by $608,000 over 1996. The effective tax rate was 42.6% and 41.4% for the nine months ended September 30, 1997 and 1996, respectively. Statements included in this report concerning the Company's future prospect 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. 7 10 Part II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS The Company is party to certain lawsuits. While the outcome of these legal proceedings cannot at this time be predicted with certainty, management does not expect that these actions will have a material effect upon the financial condition of the Company. Item 2. CHANGES IN SECURITIES No material changes have occurred in the securities of the Registrant. Item 3. DEFAULTS UPON SENIOR SECURITIES Not applicable Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. Item 5. OTHER INFORMATION Not applicable Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) List of Exhibits 3(ii) Bylaws 10 Form of Employment Agreement 11 Statement of Computation of Earnings Per Share (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended September 30, 1997. 8 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunder duly authorized. ALLIED CAPITAL ADVISERS, INC. ----------------------------- (Registrant) /s/Jon A. DeLuca ----------------------------- Date: November 13, 1997 Jon A. DeLuca Principal and Chief Financial Officer 9 EX-3.II 2 BYLAWS 1 ---------------------------- 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, February 3, 1997, May 16, 1997 and August 11, 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. Presiding Officer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ---------------- Section 7. Quorum. Adjournments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 --------------------- Section 8. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ------ Section 9. Action by Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ----------------- ARTICLE III DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 1. General Powers; Number; Tenure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ------------------------------ Section 2. Matters for Which Action of the Entire Board is Required . . . . . . . . . . . . . . . . . . . . . . . . . 4 -------------------------------------------------------- Section 3. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 --------- Section 4. Removal; Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 -------------------- Section 5. Place of Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ----------------- Section 6. Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 -------------- Section 7. Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ---------------- Section 8. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ---------------- Section 9. Quorum; Adjournments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 -------------------- Section 10. Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ------------ Section 11. Action by Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ----------------- Section 12. Meetings by Telephone or Similar Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ----------------------------------------------- ARTICLE IV COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 1. Executive Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ------------------- Section 2. Nominating Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 -------------------- Section 3. Compensation Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ---------------------- Section 4. Audit Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 --------------- Section 5. Other Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 ---------------- Section 6. Procedure; Notice; Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 --------------------------- Section 7. Quorum; Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 ------------ Section 8. Appointments; Vacancies; Changes; Discharges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 -------------------------------------------- Section 9. Tenure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 ------ 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 --------------
i 3 Section 2. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 ------ ARTICLE VI OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 1. Designations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 ------------ Section 2. Term of Office; Removal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 ----------------------- Section 3. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 ------------ Section 4. The Chairman of the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 ------------------------- Section 5. The President. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 ------------- Section 6. The Managing Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 ---------------------- Section 7. Principals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 ---------- Section 8. Vice Presidents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 --------------- Section 9. The Secretary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 ------------- Section 10. The Assistant Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 ----------------------- Section 11. Associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 ---------- Section 12. The Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 ------------- Section 13. The Assistant Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 ----------------------- ARTICLE VII INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS . . . . . . . . . . . . . . . . . . . . . . . . .12 Section 1. Generally. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 --------- Section 2. Limitation for Disabling Conduct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 -------------------------------- ARTICLE VIII STOCK CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 Section 1. Form of Signatures; Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 ------------------------------ Section 2. Registration of Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 ------------------------ Section 3. Registered Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 ----------------------- Section 4. Location of Stock Ledger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 ------------------------ Section 5. Record Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 ----------- Section 6. Lost, Stolen or Destroyed Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 -------------------------------------- ARTICLE IX GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Section 1. Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 --------- Section 2. Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 -------- Section 3. Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 ----------- Section 4. Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 ---- ARTICLE X AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 CERTIFICATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 - -----------
ii 4 BYLAWS ARTICLE I OFFICES Section 1. Office. The principal office of the Corporation shall be at the offices of The Prentice-Hall Corporation System, Maryland, which is located at 11 East Chase Street, Baltimore, Maryland 21202. The Corporation also shall have an office at 1666 K Street, N.W., Washington, D.C. 20006-2803. Section 2. Additional Offices. The Corporation may also have offices at such other places, both within and without the State of Maryland, as the Board of Directors may from time to time determine or as the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Time and Place. Meetings of stockholders for any purpose may be held at such time and place in the United States as the Board of Directors may fix from time to time and as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual Meeting. Annual meetings of stockholders shall be held during the month of May in each year on a date and at the time set by the Board of Directors. At the Annual Meeting, the stockholders shall elect a Board of Directors and transact such other business as may properly be brought before the meeting. Section 3. Notice of Annual Meeting. Written notice of the annual meeting, stating the place, date and time thereof, shall be given by the Secretary of the Corporation to each stockholder entitled to vote at such meeting or to notice thereof not less than 10 (unless a longer period is required by law) nor more than 90 days prior to the meeting. Section 4. Special Meetings. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Articles of Incorporation, may be called by the Chairman of the Board or the President and shall be called by the Chairman of the Board, the President or the Secretary at the request in writing of a majority of the Board of Directors. Unless otherwise prescribed by statute or by the Articles of Incorporation, and except as expressly set forth below, the Secretary shall call a Special Meeting at the request in writing of stockholders entitled to cast not less than a majority of all the votes entitled to be cast at such meeting. Such request by stockholders shall state the purpose or purposes of such meeting and the matters to be acted on thereat. If the request is made by a majority of the stockholders 1 5 entitled to cast votes at a meeting, the Secretary shall inform such stockholders of the reasonably estimated cost of preparing and mailing such notice of the meeting, and, upon payment to the Corporation of such costs by such stockholders, the Secretary shall give notice stating the purpose or purposes of the meeting, as required by these Bylaws, to all stockholders entitled to notice of such meeting. Section 5. Notice of Special Meeting. Written notice of a special meeting, stating the place, date and time thereof and the purpose or purposes for which the meeting is called, shall be given to each stockholder entitled to vote at such meeting or to notice thereof not less than 10 (unless a longer period is required by law) nor more than 90 days prior to the meeting. Section 6. Presiding Officer. Meetings of stockholders shall be presided over by the Chairman of the Board or, if he or she is not present, by the President, or, if he or she is not present, by a Vice President, or, if he or she is not present, by such person as may have been chosen by the Board of Directors, or if none of such persons is present, by a chairman to be chosen by the stockholders owning a majority of the shares of capital stock of the Corporation issued and outstanding and entitled to vote at the meeting and who are present in person or represented by proxy. The Secretary of the Corporation, or, if he or she is not present, an Assistant Secretary, or, if he or she is not present, such person as may be chosen by the Board of Directors, or if none of such persons is present, then such person as may be chosen by the stockholders owning a majority of the shares of capital stock of the Corporation issued and outstanding and entitled to vote at the meeting and who are present in person or represented by proxy shall act as secretary of the meeting. Section 7. Quorum. Adjournments. The presence in person or by proxy of stockholders entitled to cast a majority of the votes thereat shall be necessary to, and shall constitute a quorum for, the transaction of business at all meetings of the stockholders, except as otherwise provided by statute or by the Articles of Incorporation. If, however, a quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time, without notice of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken, until a quorum shall be present or represented. Even if a quorum shall be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time for good cause, without notice of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken, until a date which is not more than 30 days after the date of the original meeting. At any such adjourned meeting, at which a quorum shall be present in person or represented by proxy, any business may be transacted which might have been transacted at the meeting as originally called. If the adjournment is for more than 30 days, or, if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting or entitled to notice thereof. 2 6 Section 8. Voting. (a) At any meeting of stockholders, every stockholder having the right to vote shall be entitled to vote in person or by proxy. Except as otherwise provided by law or the Articles of Incorporation, each stockholder of record shall be entitled to one vote for each share of capital stock registered in his, her or its name on the books of the Corporation, on each matter submitted to a vote at a meeting of stockholders, except that no stockholder shall be entitled to vote in respect of any shares of capital stock if any installment payable thereon is overdue and unpaid. (b) Except as otherwise provided by law or the Articles of Incorporation, a majority of the votes cast at a meeting of stockholders at which a quorum is present, shall be sufficient to take or authorize action upon any matter which may properly come before such meeting. Section 9. Action by Consent. Any action required or permitted to be taken by law or the Articles of Incorporation at any meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a written consent, setting forth such action, is signed by all the stockholders entitled to vote on the subject matter thereof and any other stockholders entitled to notice of a meeting of stockholders (but not to vote thereat) have waived in writing any rights which they may have to dissent from such action, and such consent and waiver are filed with the records of stockholders' meetings. ARTICLE III DIRECTORS Section 1. General Powers; Number; Tenure. The business and affairs of the Corporation shall be managed under the direction of its Board of Directors, which may exercise all powers of the Corporation and perform all lawful acts and things which are not by law, the Articles of Incorporation or these Bylaws directed or required to be exercised or performed by, or are conferred upon or reserved to, the stockholders. The number of directors shall be six until increased or decreased pursuant to the following provisions, but shall never be greater than ten or fewer than three unless otherwise permitted by law. A majority of the entire Board of Directors may, at any time and from time to time, increase or decrease the number of directors of the Corporation as set forth in the Articles of Incorporation or these Bylaws, subject to the foregoing limitation. The tenure of office of a director shall not be affected by any decrease in the number of directors so made by the Board. The directors shall be elected, by a majority of all the votes cast at the annual meeting of the stockholders, except as provided in Section 3 of this Article, and 3 7 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 principal 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 8 (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 9 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 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 not fewer than three members, one of whom shall be designated as Chairman of the Compensation Committee. None of the members of the Compensation Committee shall be officers of the Corporation. The Compensation 6 10 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 principal or above, although such committee shall have the exclusive right to recommend 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 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. 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. 7 11 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, 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 8 12 prepaid. Any such notice shall be deemed to have been given at the time it is deposited in the United States mail. Notice to a director also may be given personally or sent by messenger, telegram, telecopy or facsimile transmission. Section 2. Waiver. Whenever any notice is required to be given under the provisions of law, the Articles of Incorporation or these Bylaws, a written waiver thereof, signed by the person or persons entitled to said notice and filed with the records of the meeting, whether before or after the time stated therein, shall be conclusively deemed to be equivalent to such notice. In addition, any stockholder who attends a meeting of stockholders in person, or is represented at such meeting by proxy, without protesting at the commencement of the meeting the lack of notice thereof to him or her, or any director who attends a meeting of the Board of Directors without protesting at the commencement of the meeting such lack of notice, shall be conclusively deemed to have waived notice of such meeting. ARTICLE VI OFFICERS Section 1. Designations. From and after the date of adoption of these Bylaws, the officers of the Corporation shall be a Chairman of the Board, President, Secretary and Treasurer. The officers of the Corporation also may include one or more Managing Directors, Principals, Vice Presidents, Associates and such other officers and/or agents as deemed necessary or appropriate, provided, however, that a person may hold the position of Associate without being designated an officer of the Corporation. All officers of the Corporation shall exercise such powers and perform such duties as shall from time to time be determined by the Board of Directors and permitted by law or these Bylaws. Any number of offices may be held by the same person, unless the Articles of Incorporation or these Bylaws otherwise provide, and no person shall execute, acknowledge or verify any instrument in more than one capacity, if such instrument is required by law, the Articles of Incorporation or these Bylaws to be executed, acknowledged or verified by two or more officers. Section 2. Term of Office; Removal. The Board of Directors shall choose a Chairman of the Board, President and one or more Managing Directors. The Chairman, President and any Managing Director shall have the authority to appoint a Secretary, Treasurer, and one or more Principals, Vice Presidents and/or Associates who are officers of the Corporation, and such other officers and agents as they shall deem necessary or appropriate. The officers of the Corporation shall hold office until their successors are chosen and shall qualify or until any such officer's resignation. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the directors then in office when, in their judgment, the best interests of the Corporation will be served thereby. Any officer appointed other than by the Board of Directors may be removed by the Board of Directors or the Chairman of the Board at any time. Such removal by the Board or by the Chairman shall not prejudice the contractual 9 13 rights, if any, of the person so removed. Any vacancy occurring in any office of the Corporation may be filled for the unexpired portion of the term by the Board of Directors, where such office was held by an officer elected or appointed by the Board, or by the Chairman, the President and any Managing Director, where such office was held by their appointee. Section 3. Compensation. The salaries of all officers of the Corporation (if any) shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving such salary by reason of the fact that he or she is also a director of the Corporation. Section 4. The Chairman of the Board. The Chairman of the Board shall be the chief executive officer of the Corporation and shall be responsible for the overall strategic direction of the Corporation and, subject to the direction of the Board of Directors, shall perform such executive, supervisory and management functions and duties as may be assigned to him or her from time to time by the Board. He or she shall, if present, preside at all meetings of the stockholders and of the Board of Directors. The Chairman of the Board shall execute in the corporate name all appropriate deeds, mortgages, bonds, contracts or other instruments requiring a seal, under the Seal of the Corporation, except in cases where such execution shall be expressly delegated to another by the Board of Directors. The Chairman of the Board shall be a member of the Executive Committee and an ex-officio member of each standing committee. Section 5. The President. The President, subject to the direction of the Board of Directors and reporting to the Chairman of the Board, shall have general charge of the business, affairs and property of the Corporation and general supervision over its officers and agents. In general, he or she shall perform all duties incident to the office of President, and shall see that all orders and resolutions of the Board of Directors are carried into effect. In the absence of the Chairman of the Board, the President shall preside at all meetings of the stockholders and of the Board of Directors. The President shall be a member of the Executive Committee and an ex-officio member of each standing committee. Unless otherwise prescribed by the Board of Directors, the President shall have full power and authority on behalf of the Corporation to attend, act and vote at any meeting of stockholders of other corporations in which the Corporation may hold securities. At such meeting, the President shall possess and may exercise any and all rights and powers incident to the ownership of such securities which the Corporation might have possessed and exercised if it had been present. The President shall execute in the corporate name all appropriate deeds, mortgages, bonds, contracts or other instruments requiring a seal of the Corporation, except in cases in which the signing or execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. The Board of Directors may from time to time confer like powers and authority upon any other person or persons. Section 6. The Managing Directors. The Managing Directors, subject to the direction of the Board of Directors and reporting to the Chairman of the Board and President, shall assist in the general charge of the business of the Corporation and general supervision over its officers and agents. In the absence of the Chairman of the Board or President, at the direction of the 10 14 Board of Directors, a Managing Director may preside at all meetings of the stockholders and of the Board of Directors. Unless otherwise prescribed by the Chairman of the Board or President, the Managing Directors shall have full power and authority on behalf of the Corporation to attend, act and vote at any meeting of stockholders of other corporations in which the Corporation may hold securities. At such meeting, the Managing Director shall possess and may exercise any and all rights and powers incident to the ownership of such securities which the Corporation might have possessed and exercised if it had been present. At the direction of the Chairman of the Board or the President, a Managing Director may execute in the corporate name all appropriate deeds, mortgages, bonds, contracts or other instruments requiring a seal of the Corporation, except in cases in which the signing or execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. The Board of Directors may from time to time confer like powers and authority upon any other person or persons. Section 7. Principals. The Principals, if any, shall, in the absence of the President and all Managing Directors or in the event of the disabilities of all such persons, perform the duties and exercise the powers of the President or a Managing Director and shall generally assist the President and any and all Managing Directors and perform such other duties and have such other powers as may from time to time be prescribed by the Board of Directors. Section 8. Vice Presidents. The Vice Presidents, if any, shall generally assist the President and any and all Managing Directors and/or the Principals as directed by such officers and perform such other duties and have such other powers as may from time to time be prescribed by the Board of Directors. Section 9. The Secretary. The Secretary shall attend all meetings of the Board of Directors and meetings of the stockholders and record all votes and the proceedings of the meetings in a book to be kept for that purpose and shall perform like duties for the Executive Committee or other committees, if required. He or she shall give, or cause to be given, notice of all meetings of stockholders and special meetings of the Board of Directors, and shall perform such other duties as may from time to time be prescribed by the Board of Directors, Chairman of the Board or the President, under whose supervision he or she shall act; provided, however, that 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. 11 15 Section 10. The Assistant Secretary. The Assistant Secretary, if any (or, in the event there be more than one, the Assistant Secretaries in the order designated, or, in the absence of any designation, in the order of their election), shall, in the absence of the Secretary or in the event of his or her disability, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as may from time to time be prescribed by the Board of Directors. Section 11. Associates. The Associates who are designated officers of the Corporation, if any, shall assist the President, any and all Managing Directors, Principals, and Vice Presidents of the Corporation as directed by such officers and perform such other duties and have such other powers as may from time to time be prescribed by the Board of Directors. Section 12. The Treasurer. The Treasurer shall have the custody of the corporate funds and other valuable effects, including securities, and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may from time to time be designated by the Board of Directors. He or she shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chairman of the Board, the President and the Board of Directors, at regular meetings of the Board of Directors, or whenever the Board of Directors may require it, an account of all his or her transactions as Treasurer and of the financial condition of the Corporation. Section 13. The Assistant Treasurer. The Assistant Treasurer, if any (or in the event there shall be more than one, the Assistant Treasurers in the order designated, or, in the absence of any designation, in the order of their election), shall, in the absence of the Treasurer or in the event of his or her disability, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as may from time to time be prescribed by the Board of Directors. ARTICLE VII INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS 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 12 16 serving at the request of such corporation as a director, manager, partner, officer, trustee, employee, agent or similar title of another corporation, partnership, joint venture, trust or other enterprise or employee benefit plan. (a) The Corporation shall (and is hereby obligated to) indemnify the Indemnitees, and each of them, in each and every situation where the Corporation is obligated to make such indemnification pursuant to the aforesaid statutory provisions or pursuant to the Articles of Incorporation. (b) The Corporation shall indemnify the Indemnitees, and each of them, in each and every situation where, under the aforesaid statutory provisions, the Corporation is not obligated, but is nevertheless permitted or empowered, to make such indemnification, if the Board of Directors determines that such Indemnitee acted in good faith and in a manner such Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation, and, in the case of any criminal action or proceeding, that such Indemnitee had no reasonable cause to believe that such Indemnitee's conduct was unlawful. Section 2. Limitation for Disabling Conduct. (a) Notwithstanding anything to the contrary in Section 1 hereof, the Corporation may not indemnify any director or officer of the Corporation against any liability, nor shall any director or officer of the Corporation be exculpated from any liability, to the Corporation or its stockholders to which such director or officer might otherwise be subject by reason of "disabling conduct," as hereinafter defined. Accordingly, each determination with respect to the permissibility of the indemnification of a director or officer of the Corporation because such director or officer has met the applicable standard of conduct shall include a determination that the liability for which such indemnification is sought did not arise by reason of such person's disabling conduct. The determination required by this Subsection 2(a) may be based on: (i) a final decision on the merits by a court or other body before whom the action, suit or proceeding was brought that the person to be indemnified was not liable by reason of disabling conduct, or (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. 13 17 (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 for at least two (2) years prior to his or her engagement to render the opinion in question has not been, employed or retained by the Corporation, by any investment adviser to or principal underwriter for the Corporation, or by any person affiliated with any of the foregoing; and (iv) "the Corporation" shall include, in addition to the resulting Corporation, any constituent Corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents. (c) The Corporation may purchase insurance to cover the payment of costs incurred in performing the Corporation's obligations under Section 1 hereof, but it is understood that no insurance may be obtained for the purpose of indemnifying any disabling conduct. (d) The Corporation may advance legal fees and other expenses pursuant to the indemnification rights set forth in Section 1 hereof so long as, in addition to the other requirements therefor, the Corporation either: (i) obtains security for the advance from the Indemnitee; (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. 14 18 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 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 15 19 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 7 of Article II; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 6. Lost, Stolen or Destroyed Certificates. The Board of Directors may direct that a new certificate be issued in place of any certificate theretofore issued by the Corporation which is claimed to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed. When authorizing such issuance of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such sum or other security in such form, as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate claimed to have been lost, stolen or destroyed. 16 20 ARTICLE IX GENERAL PROVISIONS Section 1. Dividends. Except as otherwise provided by law or the Articles of Incorporation, dividends upon the outstanding capital stock of the Corporation may be declared by the Board of Directors at any annual, regular or special meeting, and may be paid in cash, in property or in shares of the Corporation's capital stock. Section 2. Reserves. The Board of Directors shall have full power, subject to the provisions of law and the Articles of Incorporation, to determine whether any, and, if so, what part, of the funds legally available for the payment of dividends shall be declared as dividends and paid to the stockholders of the Corporation. The Board of Directors, in its sole discretion, may fix a sum which may be set aside or reserved over and above the paid-in capital of the Corporation for working capital or as a reserve for any proper purpose, and may, from time to time, increase, diminish or vary such fund or funds. Section 3. Fiscal Year. The fiscal year of the Corporation shall be as determined from time to time by the Board of Directors. Section 4. Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its incorporation and the words "Corporate Seal" and "Maryland." ARTICLE X AMENDMENTS The Board of Directors shall have the power to make, alter, amend and repeal these Bylaws, and to adopt new bylaws, by an affirmative vote of a majority of the entire Board of Directors, provided that notice of the proposal to make, alter, amend or repeal these Bylaws, or to adopt new bylaws, was included in the notice of the meeting of the Board of Directors at which such action takes place. 17 21 CERTIFICATE We, WILLIAM L. WALTON and TRICIA BENZ 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 11th day of August, 1997. /s/ WILLIAM L. WALTON ------------------------------ William L. Walton, Chairman and President /s/ TRICIA BENZ DANIELS ------------------------------ Tricia Benz Daniels, Secretary [Corporate Seal] 18 EX-10 3 EMPLOYMENT AGREEMENT 1 EXHIBIT 10 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") dated July 14, 1997, is entered into between XXX ("Employee") and Allied Capital Advisers, Inc. (the "Company"). Whereas the Employee is employed by the Company in the position of XXX; and Whereas the parties wish to memorialize the terms and conditions of Employee's continued employment with the Company; Now, Therefore, in consideration of the mutual covenants set forth below, the parties agree as follows: 1. Duties. Employee, currently serving XXX of the Company, shall serve the Company on a full time basis with such powers and duties as may be assigned to him by his immediate supervisor. 2. Compensation. a. Salary. The Company shall pay Employee bi-weekly at the minimum rate of XXX dollars ($XXX) per year while employed pursuant to this Agreement. Employee's minimum salary may be adjusted, subject to annual review. b. Bonus. Employee shall be eligible for performance bonus compensation. Bonus compensation will be awarded annually by the Compensation Committee of the Board of Directors, subject to the approval by the Board of Directors. The amount of bonus compensation awarded will be based upon the Compensation Committee's assessment of Employee's overall contribution to the Company. 3. Benefits. a. Employee Stock Ownership Plan ("ESOP"). Employee shall be eligible for participation in the Company's ESOP, a retirement plan funded by employer contributions while employed pursuant to this Agreement. b. Health and Dental Insurance. Employee shall receive benefits equivalent to those currently provided by the Company's existing health and dental insurance policies for employees. c. Other Insurance. Employee shall be covered by the Company's various other benefits policies for Company employees, including, but not necessarily limited to, life insurance coverage and accident and disability coverage. Employee shall be entitled to the same coverage and benefits as other Company employees. 2 d. Vacation. Employee shall be entitled to 4 weeks of vacation per calendar year, accruing at the beginning of each calendar year. Such vacation may be taken at any time during the course of that calendar year, at Employee's discretion, as long as it does not interfere with the normal course of business. Employee's regular salary shall be paid during this vacation period. e. Paid Holidays. Employee shall be entitled to take the same paid holidays as other Company employees. 4. Severance Package. In the event that Employee's employment with the Company is terminated pursuant to either paragraph 5a or 5c of this Agreement, the Company shall provide Employee with the following benefits (the "Severance Package"): i. a lump sum payment equal to 9 months of Employee's then-current salary; ii. a lump sum payment for any unused accrued vacation days for that calendar year; and iii. continued coverage under the Company's existing health and benefit plans for a 6-month period from the date that written notice of termination is given. This period will be counted as part of the continuation period under COBRA. The Company will pay Employee the amounts specified in paragraphs i and ii above within two weeks after Employee's last day of employment. 5. Termination. Upon termination of the employment relationship under any circumstances Employee will not be eligible for any further compensation or benefits under paragraphs 2 and 3 of this Agreement, other than those that have already accrued. a. Company's Termination of Employment. The Company has the right to terminate Employee's employment with the Company at any time, with or without cause. If Employee's employment with the Company is terminated by the Company for any reason other than willful misconduct or gross negligence, Employee shall receive the Severance Package set forth on paragraph 4 above. b. Employee's Termination of Employment. Employee has the right to terminate employment with the Company at any time, with or without cause. Employee agrees to provide written notice of such termination to the Company. c. Change of Control, Change of Management. Immediately upon the occurrence of any of the following events Employee's employment with the Company will terminate and Employee shall receive the Severance Package set forth in paragraph 4 above. 3 i. any person or group of persons acting together acquires direct or indirect beneficial ownership of twenty five percent or more of the combined voting power of the then outstanding securities of the Company. ii. during any period of two consecutive years, the individuals who at the beginning of such period constitute the Board of Directors of the Company cease for any reason to constitute at least a majority thereof unless each new director was elected by, or on the recommendation of, a majority of the directors then still in office who were directors at the beginning of the period; or iii. the shareholders of the Company approve any one of the following transactions: (i) any consolidation or merger of the Company in which the Company is not the surviving corporation, other than a merger of the Company in which the holders of the common stock of the Company immediately prior to the merger have in excess of 50% of the combined voting power of the then outstanding securities of the combined then surviving corporation immediately after the merger; or (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company. iv. Any change in executive management whereby both of the following occur: William L. Walton ceases to hold the position of Chairman and Chief Executive Officer and George C. Williams ceases to be a director of the Company. Under the circumstances set forth in Attachment A, this paragraph will not be applicable and Employee's employment will not be affected and Employee will not be eligible for the Severance Package in paragraph 4. d. Other In addition to the above, any of the following events shall be deemed to constitute termination of employment by Employee, effective upon the occurrence of the event: i. Employee's death; or ii. A declaration of insanity or other judicial determination that Employee is of unsound mind; or iii. Employee is medically incapable of performing his obligations under this Agreement for a period of five (5) consecutive months. 6. Non-Competition. When Employee's employment with the Company terminates, Employee will be free to pursue any 4 professional opportunities Employee may have, except as follows: Employee agrees that for twenty-four months after Employee's employment with the Company terminates under any circumstances Employee will not, directly or indirectly, provide, solicit or seek to provide, or assist another in providing or soliciting or seeking to provide financial or investment advice or portfolio management for: (a) any entity for which the Company provided such services including any of the following entities or their subsidiaries including Allied Capital Corporation, Allied Capital Corporation II, Allied Capital Lending Corporation, Allied Capital Commercial Corporation, Allied Investment Corporation, Allied Capital Financial Corporation, Allied Development Corporation, Allied Investment Corporation II, Allied Financial Corporation II, Allied Capital Property Corporation, ACLC Limited Partnership, Allied Capital Credit Corporation, Allied Capital SBLC Corporation, ALCC Holdings, Inc., ALCC Acceptance Corporation, Allied Capital Funding, LLC, BMI Holdings, Inc., BMI Acceptance Corporation, Allied Venture Partnership, Allied Management Partners, Allied Directors Partners, Allied Capital Acquisition Corporation, Allied Capital Midwest,LLC, Allied Capital Mortgage Corporation, Allied Capital Mortgage, LLC, AIN Capital Corporation and Business Mortgage Investors, Inc. (the" Managed Entities"). (b) any material (e.g. more than 10% of any managed entity's portofolio)assets that were under the Company's management at any time during the twelve months before Employee's employment with the Company terminated. 7. Non-Solicitation. Employee further agrees that for twelve months after Employee's employment with the Company terminates under any circumstances that Employee will not, directly or indirectly, solicit to hire or hire, or assist in another in soliciting to hire or hiring any person who was employed by the Company within the last 12 months before Employee's employment with the Company terminated. Nothing in the foregoing shall prohibit employee from maintaining professional and personal contacts with other persons employed by the Company. 8. Confidential Information. Employee agrees to keep in confidence all Confidential Information of the Company and to not use or disclose Confidential Information. Employee may use or disclose Confidential Information only a. as authorized and necessary in performing Employee's job duties during his employment with the Company; b. with prior written approval of the Company; or c. if and when such information enters the public domain 5 in a manner unrelated to Employee. Confidential Information includes any information relating to the Company and its subsidiaries, and all entities managed by the Company which if disclosed, could result in competitive disadvantage to the Company or the companies it manages. Confidential Information includes: All non-public information related to investments by the Managed Entities; All non-public information related to prospective investments by the Managed Entities; All non-public financial information about the Company and its subsidiaries and the Managed Entities; All financial projections and pro forma financial information about the Company and its subsidiaries and the Managed Entities; and All non-public information concerning employees, including but not limited to compensation, performance information, positions held and personal information; all non-public contracts between either the Company, its subsidiaries and/or any of the Managed Entities, the third parties. Employee acknowledges that any breach of this paragraph would cause the Company harm. 9. Indemnification. The Company shall indemnify Employee in accordance with the Company's bylaws in effect at the time the claim arose or indemnification is sought, whichever provides the maximum indemnification. 10. Governing Law and Severability. Regardless of the choice of law provisions of the State of Maryland or any other jurisdiction, this Agreement shall be governed by and construed in accordance with the laws of the State of Maryland. In the event that any one or more of the provisions contained in this Agreement should for any reason be held to be unenforceable, such unenforceability shall not affect any other provisions, but the unenforceable provisions may be redrawn so as to give effect to the parties' intent to the maximum extent possible under the law. 11. Resolution of Disputes. Employee agrees to use the Company's Conflict Resolution Procedure ("Procedure") contained in the Employee Handbook to resolve any and all disputes with the Company, including any dispute arising out of or relating to this Agreement, or Employee's employment or termination of employment. This would include claims such as discrimination, harassment, retaliation or for violation of any other statutory 6 right or common law duty. To the extent there are any differences between the Procedure and this Agreement, the Agreement will control. Arbitration shall be the exclusive means of final and binding resolution of any dispute covered by this paragraph. This paragraph shall not apply to disputes arising under the workers' compensation or unemployment compensation statutes or involving an alleged breach of paragraphs 6, 7 and/or 8 of this Agreement. The arbitrator's fees shall be paid by the Company. If Employee is the prevailing party in any such arbitration, the Company shall pay the Employee's reasonable attorneys' fees actually incurred. 12. Notice. Any notice to Employee shall be made by certified mail return receipt requested to: XXX Any notice to the Company shall be made by certified mail return receipt requested: Mr. William L. Walton Chairman & CEO Allied Capital Advisers, Inc. 1666 K Street, NW Suite 900 Washington, DC 20006 13. Entire Agreement. This instrument contains the entire agreement of the parties. It may not be changed orally and may be amended or supplemented only by an agreement in writing signed by the parties, and in case of the Company, approved by its Board of Directors. 14. Assignment. This Agreement may not be assigned by either party hereto without the written consent of the other. 15. Effect of Agreement. This Agreement supersedes and cancels any and all previous agreements of whatever nature between the Company and Employee with respect to employment and compensation. This Agreement will remain in effect until amended or superseded by a subsequent written agreement signed by both parties. 16. Term. This Agreement shall expire and become void the sooner of the occurrence of the Phoenix Transaction as referenced in Exhibit A or June 30, 1998. 7 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. Company By ---------------------------- William L. Walton Its Chairman & CEO -------------- Employee ------------------------------ XXX 8 Attachment A - Description of Phoenix Transaction In the event Allied Capital Corporation, Allied Capital Corporation II, Allied Capital Lending Corporation, Allied Capital Commercial Corporation and Allied Capital Advisers, Inc. (the "Allied Capital Entities") merge into a single entity, thereby combining their assets, liabilities, equity and operations (the "Phoenix Transaction"), paragraph 5 of the Employment Agreement will not be applicable and Employee's employment will not be affected and Employee will not be eligible for the Severance Package in paragraph 4. Upon occurrence of the Phoenix Transaction, the Employment Agreement shall terminate, and the obligations therein shall be void and no longer effective. Notwithstanding the preceding sentence, the following shall occur: The current incentive stock option plans for the Allied Capital Entities will terminate. Prior to their termination, Employee will have the ability to exercise all of his or her vested but unexercised stock options. With respect to stock options that are not vested as of the date of termination of the option plan, if the Employee is still employed by the Company as of a scheduled future vesting date, the Company will pay to Employee a cash bonus on the scheduled future vesting dates, equal to the amount of the market value of the underlying shares at the opening of the market on the date of the public announcement of the Phoenix Transaction less the option exercise price multiplied by the number of shares vesting on the scheduled future vesting dates. EX-11 4 COMPUTATION OF PER SHARE EARNINGS 1 Allied Capital Advisers, Inc. Exhibit 11 Computation of Earnings Per Common Share Form 10-Q September 30, 1997
For the Three Months Ended For the Nine Months Ended September 30, September 30, ----------------------------- ----------------------------- 1997 1996 1997 1996 ----------------------------- ----------------------------- Primary Earnings Per Common Share: Net Income $ 433,000 $ 807,000 $1,931,000 $2,326,000 ============================= ============================= Weighted average of common shares outstanding 9,225,875 8,990,349 9,052,992 8,990,349 Weighted average of common shares issuable on exercise of outstanding stock options 379,734 922,612 541,622 886,370 ----------------------------- ----------------------------- Weighted average of common shares outstanding, as adjusted 9,605,609 9,912,961 9,594,614 9,876,719 ============================= ============================= Net Income per share $0.05 $0.08 $0.20 $0.24 ============================= ============================= Fully Diluted Earnings Per Common Share: Net Income $433,000 $ 807,000 $1,931,000 $2,326,000 ============================= ============================= Weighted average common shares and common share equivalents as computed for primary earnings per share 9,605,609 9,912,961 9,594,614 9,876,719 Weighted average of additional shares issuable on exercise of outstanding stock options 19,856 0 0 30,558 ----------------------------- ----------------------------- Weighted average of common shares outstanding, as adjusted 9,625,465 9,912,961 9,594,614 9,907,277 ============================= ============================= Net Income assuming full dilution $0.04 $0.08 $0.20 $0.23 ============================= =============================
EX-27 5 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-Q for the nine months ended September 30, 1997. 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 5,745 0 3,869 0 0 11,219 6,216 1,785 17,805 2,307 0 0 0 9 14,130 17,805 0 13,039 0 0 9,677 0 0 3,362 1,431 1,931 0 0 0 1,931 .20 .20
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