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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ALLIED CAPITAL MORTGAGE CORPORATION
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/X/ Fee paid previously with preliminary materials.
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/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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ALLIED CAPITAL MORTGAGE CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders:
The 1996 Annual Meeting of Stockholders of Allied Capital Mortgage
Corporation (the "Company") will be held at the offices of Allied Capital
Advisers, Inc. 1666 K Street, NW, Ninth Floor, Washington, DC, on April 15,
1996 at 4:00 p.m. for the following purposes:
1. To elect six directors of the Company to serve until the next
annual meeting of stockholders or until their successors are
elected and qualified.
2. To approve the adoption of an investment advisory agreement with
Allied Capital Advisers, Inc.
3. To approve the Company's Incentive Stock Option Plan (the
"Plan").
4. To ratify the selection of Matthews, Carter and Boyce to serve as
independent public accountants for the Company for the year
ending December 31, 1996.
5. To transact such other business as may properly come before the
meeting.
The Board of Directors of the Company has fixed the close of business on
March 20, 1996 as the record date for the determination of stockholders
entitled to notice of, and to vote at, the meeting and any adjournment thereof.
The Company's stock transfer books will not be closed.
By order of the Board of Directors
Thomas R. Salley
Secretary
April 13, 1996
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VOTING YOUR PROXY IS IMPORTANT
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THIS IS AN IMPORTANT MEETING. TO ENSURE PROPER
REPRESENTATION AT THE MEETING, YOU ARE REQUESTED
TO COMPLETE, DATE, SIGN AND RETURN THE PROXY CARD
IN THE ENCLOSED ENVELOPE PROVIDED FOR THAT
PURPOSE. STOCKHOLDERS WHO EXECUTE A PROXY CARD
MAY ATTEND THE MEETING AND VOTE THEIR SHARES IN
PERSON.
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ALLIED CAPITAL MORTGAGE CORPORATION
1666 K STREET, NW, NINTH FLOOR
WASHINGTON, D.C. 20006
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Allied Capital Mortgage Corporation (the
"Company") for use at the Company's 1996 Annual Meeting of Stockholders (the
"Meeting") to be held on April 15, 1996 at 10:00 a.m. at the offices of Allied
Capital Advisers, Inc. ("Advisers"), 1666 K Street, NW, Ninth Floor,
Washington, DC, and at any adjournments thereof. This Proxy Statement, the
accompanying proxy card and the Company's Annual Report to Stockholders for the
year ended December 31, 1995 are first being sent or given to stockholders on
or about April 13, 1996.
If the accompanying proxy card is properly signed and dated and is received in
time for the Meeting, those shares held of record by you (e.g., those shares
registered directly in your name) will be voted as specified on that proxy
card. If no instructions are given on that proxy card, the shares covered
thereby will be voted FOR the election of the nominees as Directors and FOR the
other matters listed in the accompanying Notice of Annual Meeting of
Stockholders. Stockholders of record may revoke a proxy at any time before it
is exercised by so notifying the Secretary of the Company in writing at the
above address, by submitting a properly executed, later-dated proxy or by
voting in person at the Meeting. Any stockholder of record attending the
Meeting may vote in person whether or not he or she has previously executed and
returned a proxy card. If your shares are held for your account by a broker,
bank or other institution or nominee ("Broker Shares"), you may vote such
shares at the Meeting only if you obtain proper written authority from your
institution or nominee that you present at the Meeting.
VOTING
On March 20, 1996, there were 70 shares of the Company's common stock
outstanding. The stockholders entitled to vote at the Meeting are those of
record on that date. Each share of the Company's common stock is entitled to
one vote. The Company has been informed that all shares will be voted FOR the
election of nominees as directors and FOR the other matters listed on the
accompanying Notice of Annual Meeting of Stockholders.
A majority of the shares entitled to vote at the Meeting constitutes a quorum.
If a share is represented in person or by proxy for any purpose at the Meeting,
it is deemed to be present for quorum purposes. Abstentions and Broker Shares
that are voted on any matter at the Meeting are included in determining the
presence of a quorum for the transaction of business at the commencement of the
Meeting and on those matters for which the broker, nominee or fiduciary has
authority to vote. In the event that a quorum is not present at the Meeting,
or in the event that a quorum is present but sufficient votes to approve any of
the proposals are not received, the persons named as proxies may propose one or
more adjournments of the Meeting to permit further solicitation of proxies.
Any such adjournment will require the affirmative vote of a majority of the
shares represented at the Meeting in person or by proxy. The persons named as
proxies will vote those proxies for such adjournment unless marked to be voted
against any proposal for which an adjournment is sought to permit further
solicitation of proxies. A stockholder vote may be taken on one or more of the
proposals in this Proxy Statement prior to any such adjournment if sufficient
votes have been received for approval.
The six nominees for election as directors who receive a plurality of the
affirmative votes cast at the Meeting in person or by proxy in the election of
directors will be so elected. Stockholders may not cumulate their votes.
Votes that are withheld, abstentions and Broker Shares that are not voted in
the election of Directors will not be included in determining the number of
votes cast, and will have no effect on the election of directors.
Approval of the new Investment Advisory Agreement between the Company and
Advisers requires the affirmative vote of the holders of at least 67% of the
shares represented at the Meeting, if more than 50% of the Company's
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outstanding shares are represented at the Meeting in person or by proxy, or the
affirmative vote of the holders of at least a majority of the shares entitled
to vote at the Meeting, whichever is less. The approval of the Plan requires
the affirmative vote of the holders of a majority of the Company's outstanding
shares present or represented at the meeting or any adjournment thereof, if the
holders of a majority of the shares entitled to vote at the Meeting are present
or represented by proxy.
In the absence of definitive authority under Maryland corporate law, votes
that are withheld, abstentions and Broker Shares which the broker, nominee or
fiduciary has no authority to vote on such matter will not be included in
determining the number of votes cast regarding such matter but may be included
in the shares represented at the Meeting if such shares were voted on other
matters, which may make it more difficult to obtain the requisite level of
stockholder approval of certain proposals, including approval of the new
Investment Advisory Agreement with Advisers and approval of the Plan.
INFORMATION REGARDING THIS SOLICITATION
The expense of the Company's solicitation of proxies for the Meeting, including
the cost of preparing, printing and mailing this Proxy Statement and the
accompanying notice of the Meeting and proxy card will be borne by the Company.
The Company will request that brokers, nominees, fiduciaries and other persons
holding shares in their names for others forward this Proxy Statement and
certain accompanying material to their principals and request authority for the
execution of a proxy. The Company will reimburse such persons for their
expenses in so doing.
In addition to the solicitation of proxies by the use of the mails, proxies may
be solicited in person and by telephone, facsimile transmission or telegram by
directors or officers of the Company or by employees of Advisers without
special compensation therefor, or by a proxy solicitor. Advisers has its
offices at 1666 K Street, NW, Ninth Floor, Washington, DC 20006.
BENEFICIAL OWNERSHIP OF COMMON STOCK
As of March 20, 1996, there were 70 shares of common stock outstanding. The
following table sets forth certain information regarding the shares of the
Company's common stock beneficially owned by the two persons, known to the
Company, who beneficially own more than 5% of the Company's common stock:
Name and Address Number of Shares Percentage
of Beneficial Owner Beneficially Owned Of Class
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David Gladstone (1) 35 50%
George C. Williams (1) 35 50%
(1) c/o Allied Capital Advisers, Inc., 1666 K Street, NW, Washington, DC
20006
The following table sets forth certain information regarding shares of the
Company's common stock owned by: (i) each of the Company's directors and named
executive officers; and (ii) all directors and executive officers as a group.
Because the Company does not pay any compensation to its officers (other than
directors fees to those officers who are also directors), the Company considers
its "named executive officers" to be its Chief Executive Officer and the four
highest paid executive officers of Advisers who are also officers of the
Company.
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Number of Shares Percentage
Name of Beneficial Owner Beneficially Owned Of Class
------------------------ ------------------ --------
David Gladstone (1) 35 50%
George C. Williams (1) 35 50%
Roger Machanic (2) -- --
Elizabeth Conahan (2) -- --
Landon Butler (2) -- --
Joseph Morningstar (2) -- --
John M. Scheurer (3) -- --
Joan M. Sweeney (3) -- --
Jon A. DeLuca (3) -- --
Thomas R. Salley (3) -- --
All Directors and executive officers 70 100%
as a group (10 in number)
(1) Director and executive officer
(2) Director
(3) Executive officer
ELECTION OF DIRECTORS
At the Meeting, stockholders will elect six directors, constituting the entire
membership of the Board of Directors of the Company, to serve until the next
Annual Meeting of Stockholders or until their successors have been elected and
qualified. All such nominees have consented to be named as such in this Proxy
Statement and to serve as Directors if elected.
A stockholder using the enclosed form of proxy can vote for or withhold his or
her vote from any or all of the nominees. If the proxy card is properly
executed but unmarked, it is the intention of the persons named as proxies to
vote such proxy FOR the election of all the nominees named below. In the event
that any of the nominees should decline or be unable to serve as a director, it
is intended that the enclosed proxy will be voted for the election of such
person or persons as are nominated as replacements. The nominees, their ages
and principal occupations are as follows:
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DAVID GLADSTONE (1,2)
Age 53. President and Chief Executive Officer of the Company, Allied Capital
Corporation, Allied Capital Corporation II, Allied Capital Lending
Corporation, Allied Capital Commercial Corporation and Advisers; Director,
President and Chief Executive Officer of Business Mortgage Investors, Inc.;
Director of The Riggs National Corporation; Trustee of The George Washington
University. He has held positions as an executive officer of the Company
since its inception and with Advisers, Allied Capital Corporation, Allied
Capital Corporation II, Allied Capital Lending Corporation, Allied Capital
Commercial Corporation, and Business Mortgage Investors, Inc. since the later
of 1976 or inception of the relevant entity. He has served as a director
since 1995.
GEORGE C. WILLIAMS (1,2,5)
Age 69. Chairman of the Board of the Company, Vice Chairman of the Board of
Allied Capital Corporation, Allied Capital Corporation II, Allied Capital
Lending Corporation, Allied Capital Commercial Corporation and Advisers;
Chairman of Business Mortgage Investors, Inc. He has held positions as an
executive officer of the Company since its inception and with Advisers,
Allied Capital Corporation, Allied Capital Corporation II, Allied Capital
Lending Corporation, Allied Capital Commercial Corporation and Business
Mortgage Investors, Inc. since the later of 1964 or inception of the relevant
entity. He has served as a director since 1995.
ROGER MACHANIC
Age 62. President, Montgomery Real Estate Corporation since 1991; Chairman,
MREC (1986-1991); Trustee Emeritus, George Mason University Foundation, Inc.
since 1995; Trustee and Treasurer, George Mason University Foundation, Inc.
since 1995; Trustee and Treasurer, George Mason University (1991-1994);
Advisory Board member, Virginia Commerce Bank since 1991. He has served as a
director since 1995.
ELIZABETH CONAHAN
Age 44. Senior Vice President, Walker & Dunlap since 1994; Senior Vice
President, NationsBank (1991-1994); Principal and Division Manager, AMRESCO
Institutional, Inc. (1991-1994); Senior Vice President, UST Corp.
(1988-1991); Member, Urban Land Institute; Member, Urban Development and
Mixed-Use Council; Vice Chairman, Inner-City Committee. She has served as a
director since 1995.
LANDON V. BUTLER
Age 54. President, Landon Butler Company since 1981; Member, Policy Board of
Multi-Employer Property Trust; Vice Chairman, Poland Partners Management
Company. He has served as a director since 1995.
JOSEPH MORNINGSTAR
Age 42. Managing Director and Partner, Rockwood Realty Associates, Inc.
since 1991; Vice President, afa Asset Services, Inc. (1982-1991). He has
served as a director since 1995.
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(1) Member of the Executive Committee of the Board of Directors.
(2) Messrs. Williams and Gladstone, as officers of the Company and
of the Company's investment adviser, are "interested persons"
as defined in the Investment Company Act of 1940.
(3) Member of the Audit Committee of the Board of Directors.
(4) Member of the Compensation Committee of the Board of Directors.
(5) George C. Williams is the father of G. Cabell Williams III, an
officer of the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE TO ELECT THE FOREGOING NOMINEES
TO SERVE AS DIRECTORS OF THE COMPANY.
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MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors has established an Executive Committee, an Audit
Committee and a Compensation Committee. The Board has not established a
nominating committee. During 1995, no meetings of the Board of Directors or of
any committees were held.
The Executive Committee is intended, during intervals between meetings of the
Board of Directors, to exercise all powers of the Board in the management and
direction of the business and affairs of the Company, except where action by
the Board is required by statute, an order of the Securities and Exchange
Commission (the "Commission") or the Company's Articles of Incorporation or
By-Laws.
The Audit Committee will recommend the selection of independent public
accountants for the Company, review with such independent public accountants
the planning, scope and results of their audit of the Company's financial
statements and the fees for services performed, review with the independent
public accountants the adequacy of internal control systems, review the annual
financial statements of the Company and receive audit reports and financial
statements of the Company.
The Compensation Committee will determine and issues stock option grants for
officers of the Company under the Company's Stock Option Plan, which is
expected to be the only form of compensation paid by the Company to its
officers for serving as such.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
COMPENSATION OF EXECUTIVE OFFICERS
Under Commission rules applicable to business development companies, the
Company is required to set forth certain information regarding its three most
highly compensated executive officers who receive compensation from the Company
in excess of $60,000. However, the Company has no employees and does not pay
any cash compensation to any of its officers (other than directors' fees to
those of its officers who are also directors). All of the Company's officers
and staff are employed by Advisers, which pays all of their cash compensation.
No cash or other form of remuneration was paid to any officer during 1995.
COMPENSATION OF DIRECTORS
During 1995, no director fees were paid. During 1996, each Director will
receive a fee of $1,000 for each meeting of the Board of Directors or each
separate committee meeting attended and $500 for each committee meeting held on
the same day as a Board meeting. The following table sets forth certain
details of compensation expected to be paid to directors during 1996, for
serving as a director of the three other investment companies with which the
Company may be deemed to be related.
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Estimated
Estimated Pension or Total Compensation
Aggregate Retirement Benefits from Company
Compensation Accrued as Part of and Related Companies
Name and Position from Company (1) Company Expenses Paid to Directors (2)
- ----------------- ---------------- ---------------- ---------------------
David Gladstone, Director, $4,000 * $0 $37,000 *
President, and Chief
Executive Officer
George C. Williams, Chairman $4,000 * $0 $36,000 *
of the Board
Roger Machanic, Director $4,000 * $0 $0
Elizabeth Conahan, Director $4,000 * $0 $0
Landon V. Butler, Director $4,000 * $0 $0
Joseph Morningstar, Director $4,000 * $0 $0
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* Estimated for 1996
(1) Consists only of directors' fees
(2) Includes amounts expected to be paid as compensation to directors by
Allied Capital Corporation, Allied Capital Corporation II and Allied
Capital Lending Corporation.
COMPLIANCE WITH REPORTING REQUIREMENTS OF SECTION 16(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Pursuant to Section 16(a) of the Securities Exchange Act of 1934, the Company's
directors, executive officers, directors of the Company's investment adviser,
and any persons holding ten percent or more of its common stock are required to
report their beneficial ownership and any changes therein to the Commission and
the Company. Specific due dates for those reports have been established, and
the Company is required to report herein any failure to file such reports by
those due dates. Based on the Company's review of Forms 3, 4 and 5 filed by
such persons, the Company has identified that, pursuant to Section 16(a) of the
Securities Exchange Act of 1934, in its most recent fiscal year, all of the
Company's directors and executive officers, as well as certain directors o the
Company's investment adviser were delinquent in filing their respective Form
3s, although only two individuals (David Gladstone and George C. Williams) own
shares of the Company.
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
On March 28, 1996, the disinterested directors of the Company approved an
Investment Advisory Agreement (the "Agreement") between the Company and
Advisers, subject to approval by the Company's stockholders and the first
closing of an investment by the Company. The Agreement, if approved by the
stockholders, will remain in effect from year to year as long as its
continuance is approved at least annually by the Board of Directors, including
a majority of the disinterested directors, or by the vote of the holders of a
majority, as defined in the Investment Company Act of 1940, of the outstanding
shares of the Company. The Agreement may, however, be terminated at any time
on 60 days' notice, without the payment of any penalty, by the Board of
Directors or by vote of the
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holders of a majority, as so defined, of the Company's outstanding shares, and
will terminate automatically in the event of its assignment.
Advisers is a publicly owned (Nasdaq symbol "ALLA") registered investment
adviser located at 1666 K Street, NW, 9th Floor, Washington, D.C. 20006,
telephone (202) 331-1112. Advisers is a party to investment advisory
agreements with Allied Capital Corporation ("Allied I") and Allied Capital
Corporation II ("Allied II"), each a business development company ("BDC")
which, directly or through Small Business Investment Company ("SBIC")
subsidiaries, specializes in loans with equity features to, and equity
investments in, small business concerns. Advisers is also the investment
adviser to two privately funded limited partnerships that engage in the same
business. All of these entities co-invest with one another. Advisers is party
to an investment advisory agreement with Allied Capital Lending Corporation
("Allied Lending"), also a BDC, that specializes in providing secured loans to
small businesses that may be partially guaranteed by the United States Small
Business Administration. In addition, Advisers is the investment manager of
Allied Capital Commercial Corporation ("Allied Commercial"), a publicly owned
held real estate investment trust, and co-manager of Business Mortgage
Investors, Inc. ("BMI"), a privately held real estate investment trust. Allied
Commercial and BMI participate with one another in buying, from the FDIC, banks
and other institutions, performing small business loans secured by real estate.
At December 31, 1995, total assets under Advisers' management were
approximately $670 million.
SUMMARY OF THE INVESTMENT ADVISORY AGREEMENT
If the Agreement is approved, Advisers will manage the investments of the
Company, subject to the supervision and control of the Company's Board of
Directors. Specifically, Advisers will identify, evaluate, structure, close
and monitor the investments made by the Company. Each loan or other investment
must be approved by a credit committee composed of the most senior investment
officers of Advisers, as well as by the Company's Board of Directors. The
Company will not make any investments that have not been recommended by
Advisers. Advisers is registered with the Commission under the Investment
Advisers Act of 1940.
Under the Agreement, the Company will be required to pay all of its operating
expenses, except those specifically required to be borne by Advisers by the
Agreement. The latter include the compensation of the Company's officers and
the cost of office space, equipment and other personnel required for the
Company's day-to-day operations. The Company will reimburse Advisers promptly,
against Advisers' voucher, for any expenses incurred by Advisers for the
Company's account. Without limitation, such expenses will include all expenses
of any offering and sale by the Company of its shares and all expenses of the
Company's operations; the fees and disbursements of the Company's counsel,
accountants, custodian, transfer agent and registrar; fees and expenses
incurred in producing and effecting filings with federal and state securities
administrators; costs of the Company's periodic reports to and other
communications with the Company's shareholders; costs of promoting the
Company's stock; fees and expenses of members of the Company's Board of
Directors who are not directors, officers or employees of Advisers or of any
entity affiliated with Advisers, and fees of directors who are such officers,
directors or employees; premiums for the fidelity bond maintained by the
Company; and all transaction costs incident to the acquisition and disposition
of securities by the Company, including, without limitation, legal and
accounting fees and other professional or technical fees and expenses (e.g.,
credit report, title search and delivery charges, costs of specialized
consultants such as accountants or industry-specific technical experts, and
deal-specific travel expenses) incurred in monitoring, negotiating and
working-out such investments, as well as responding to any litigation arising
therefrom. If the Company for its corporate purposes uses the services of
attorneys or paraprofessionals on the staff of Advisers in lieu of outside
counsel, the Company will reimburse Advisers for such services at hourly rates
calculated to cover the cost of such services, as well as for incidental
disbursements. The Company will reimburse Advisers promptly, against Advisers'
voucher, for (a) any origination fee with respect to any loan or investment
made by the Company that was identified or referred to the Company by any third
party with which the Company then has a written agreement or arrangement that
specifies the amount or rate of such fee or (b) any origination fee with
respect to any loan or investment made by the Company that was identified or
referred to the Company by any third party with which the Company or Advisers
then does not have a written agreement or arrangement. All such origination
fees reimbursed to Advisers will be reviewed as of the end of each calendar
quarter by the Company's Board of Directors.
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The Company will, during the term of the Agreement, pay to Advisers an
investment advisory fee equal to (a) 3.5% per year of the average of the
quarter-end values of the Company's consolidated total assets (less the
Company's Interim Investments, as defined below, and cash) for such year (the
"Base Fee"), and (b) 0.125% per quarter of the quarter-end values of the
Company's consolidated Interim Investments and cash. For this purpose "Interim
Investments" are defined as short-term securities issued or guaranteed by the
U.S. government or an agency or instrumentality thereof, or in repurchase
agreements fully collateralized by such securities.
Upon the completion of an annual audit at the end of each calendar year, the
Base Fee may be increased or decreased depending on the amount, if any, by
which the investment performance of the Company for such year is greater or
less than 13% for such year. At the end of each of the Company's fiscal years,
the net asset value per share will be calculated by the Company's auditors.
The investment return of the Company in a particular year will be the sum of:
(a) the change in its net asset value per share during such year; (b) the value
of its cash distributions per share during such year; and (c) the value of
capital gains taxes per share paid or payable, if any, on undistributed
realized long-term capital gains during such year. The investment performance
of the Company for such year will be its investment return expressed as a
percentage of its net asset value per share at the beginning of such year.
(For this purpose, the value of cash distributions per share and capital gains
taxes per share paid or payable on undistributed realized long-term capital
gains will be treated as reinvested in shares of the investment company at the
net asset value per share in effect at the close of business on the record date
for the payment of such distributions and the date on which provision is made
for such taxes, respectively, after giving effect to such distributions and
taxes.) To the extent the investment performance of the Company exceeds 13%
for that year, one-fifth of one percentage point will be added to the Base Fee
for every one percentage point of the difference between the investment
performance of the Company and 13%. The maximum amount added to the Base Fee
will be one percentage point, with the adjusted Base Fee not to exceed 4.5%.
To the extent the investment performance of the Company is less than 13% for
that year, one-fifth of one percentage point will be subtracted from the Base
Fee for every one percentage point of the difference between the investment
performance of the Company and 13%. The maximum amount subtracted from the
Base Fee will be one percentage point, with the adjusted Base Fee not to be
lower than 2.5% (the "Minimum Base Fee"). For purposes of calculating the
adjustment to the Base Fee, performance percentages will be rounded off to the
nearest whole percentage.
The Company will, during the term of the Agreement, pay to Advisers, quarterly,
the Minimum Base Fee equal to 0.625% per quarter (2.5% on an annualized basis)
of the quarter-end value of the Company's consolidated total assets (less the
Company's Interim Investments and cash). The Company will also pay 0.125% per
quarter (0.5% on an annualized basis) of the quarter-end value of the Company's
consolidated Interim Investments and cash.
For the purpose of calculating the investment advisory fee, the values of the
Company's assets will be determined as of the end of each calendar quarter by
the Board of Directors. The Company will pay the Minimum Base Fee and the fee
on Interim Investments and cash with respect to a calendar quarter as soon as
practicable after the values of the Company's assets have been determined for
such quarter. The Company will pay the difference between the Minimum Base Fee
and the Base Fee as soon as practicable after the values of the Company's
assets have been determined for the year-end. If the termination of Advisers'
services hereunder does not coincide with the last day of a calendar quarter or
the year-end, then the Minimum Base Fee determined in accordance with this
paragraph shall be multiplied by the ratio of the number of days in such
quarter during which Advisers rendered services to the total number of days in
such quarter, with corresponding treatment for calculating any adjustments to
the Base Fee.
The fees provided for in the Agreement are substantially higher than that paid
by most investment companies because of the efforts and resources devoted by
Advisers to identifying, structuring, closing and monitoring the types of
private non-performing investments in which the Company will specialize. Other
entities managed by Advisers, however, pay fees on comparable bases, and the
Company understands that the fees are not in excess of that frequently paid by
private investment funds engaged in similar types of investments, in addition
to the substantial participation in profits that such private funds also
typically allocate to management. Neither Advisers nor its directors and
officers will personally participate in any investments of the Company or
receive any profit-sharing interest therein except to the extent of their
ownership of shares of the Company and options thereon, if any.
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INFORMATION CONCERNING ALLIED CAPITAL ADVISERS, INC.
The shares of Advisers are traded on the Nasdaq National Market. At March 20,
1996, Advisers had 8,990,349 shares outstanding and the following persons are
known to own 10% or more of the outstanding shares of Advisers assuming that
stock options exercisable within 60 days of such date were fully exercised:
Name and Address of Number of Shares
Beneficial Owner Owned Beneficially Percent of Class
---------------- ------------------ ----------------
Allied Employee Stock Ownership Plan (1) 1,481,265 16.5%
1666 K Street, NW, 9th Floor
Washington, DC 20006
- --------------------
(1) The Allied Employee Stock Ownership Plan ("ESOP") is a qualified
retirement plan maintained for the benefit of all of the Advisers' employees,
only one of whom owns beneficially more than 5% of Advisers' outstanding
shares. David Gladstone and George C. Williams are co-trustees of the ESOP and
may be deemed to share voting power with respect to the ESOP shares that have
not been allocated to any stock account; however, as of December 31, 1995, all
shares held by the ESOP had been allocated to participant accounts.
David Gladstone and George C. Williams are nominees for election as directors
and are directors and officers of Advisers. Mr. Gladstone is the Chairman and
Chief Executive Officer of Advisers, Allied I, Allied II, Allied Commercial and
Allied Lending; he is the President and Chief Executive Officer of Business
Mortgage Investors, Inc. Mr. Williams is the Vice Chairman of Advisers, Allied
I, Allied II, Allied Lending and Allied Commercial; he is the Chairman of
Business Mortgage Investors, Inc. The business address of Messrs. Gladstone
and Williams is 1666 K Street, NW, Ninth Floor, Washington, D.C. 20006. In
addition to Messrs. Gladstone and Williams, the directors of Advisers, and
their business addresses, are Brooks H. Browne (1901 N. Moore Street, Suite
1004, Arlington, Virginia 22209), Robert E. Long (99 Canal Center Plaza, Suite
220, Alexandria, Virginia 22314) and William L. Walton (401 North Michigan,
Suite 330, Chicago, Illinois 60611). Messrs. Gladstone and Williams are
stockholders of Advisers, as set forth on the table below. Each officer of the
Company is an officer of Advisers as of March 20, 1996, as set forth in the
table below, which also shows each officer's beneficial ownership of shares of
Allied I, Allied II, Allied Commercial, Allied Lending and Advisers as of March
20, 1996, assuming that shares underlying stock options held by each person,
that are exercisable within 60 days of such date are outstanding. As of March
20, 1996, David Gladstone, George C. Williams and John M. Scheurer are the only
officers of the Company that own beneficially shares of Business Mortgage
Investors, Inc., and the shares owned beneficially by each constitute less than
0.01% of the shares of that company then outstanding.
9
12
=================================================================================================================================
Allied Allied
Officer Allied I Allied II Commercial Lending Advisers
of the Beneficial Beneficial Beneficial Beneficial Beneficial
Company Title with Advisers Ownership Ownership Ownership Ownership Ownership(1)
=================================================================================================================================
Kelly A. Anderson Corp. Controller and * * * -0- *
Asst. Sec.
- ---------------------------------------------------------------------------------------------------------------------------------
Arthur S. Cooper Senior Vice President * * * -0- *
- ---------------------------------------------------------------------------------------------------------------------------------
Jon A. DeLuca Vice Pres., CFO and * * * * -0-
Treasurer
- ---------------------------------------------------------------------------------------------------------------------------------
William F. Dunbar Executive Vice * 1.2% * * 2.6%
President
- ---------------------------------------------------------------------------------------------------------------------------------
Richard Fearon, Jr. Assistant Vice * * -0- -0- *
President
- ---------------------------------------------------------------------------------------------------------------------------------
Susan Gallagher Vice President * * -0- -0- *
- ---------------------------------------------------------------------------------------------------------------------------------
David Gladstone Chairman of the Board 1.4% * * * 9.7%
- ---------------------------------------------------------------------------------------------------------------------------------
Katherine C. Marien Executive Vice * * * * *
President
- ---------------------------------------------------------------------------------------------------------------------------------
Philip A. McNeill Vice President * * -0- -0- -0-
- ---------------------------------------------------------------------------------------------------------------------------------
Robert M. Monk Assistant Vice * * -0- -0- -0-
President
- ---------------------------------------------------------------------------------------------------------------------------------
Carr T. Preston Vice President * * -0- -0- -0-
- ---------------------------------------------------------------------------------------------------------------------------------
Donnel K. Pullum Assistant Vice * * -0- -0- *
President
- ---------------------------------------------------------------------------------------------------------------------------------
Thomas R. Salley General Counsel and * * * * 1.1%
Sec.
- ---------------------------------------------------------------------------------------------------------------------------------
John M. Scheurer Executive Vice * * * * *
President
- ---------------------------------------------------------------------------------------------------------------------------------
Erik A. Scott Vice President * * -0- -0- -0-
- ---------------------------------------------------------------------------------------------------------------------------------
Suzanne V. Sparrow Assistant Vice * * * * *
President
- ---------------------------------------------------------------------------------------------------------------------------------
George Stelljes III Executive Vice * * * * 1.0%
President
- ---------------------------------------------------------------------------------------------------------------------------------
Joan M. Sweeney Executive Vice * * * * *
President
- ---------------------------------------------------------------------------------------------------------------------------------
Gay S. Truscott Assistant Vice * * -0- -0- -0-
President
- ---------------------------------------------------------------------------------------------------------------------------------
Thomas Westbrook Senior Vice President * * * -0- *
- ---------------------------------------------------------------------------------------------------------------------------------
G. Cabell Williams III Executive Vice * * * * 3.7%
President
- ---------------------------------------------------------------------------------------------------------------------------------
George C. Williams Vice Chairman * * * * 3.4%
=================================================================================================================================
* Indicates less than 1%.
(1) Includes shares allocated to the ESOP stock accounts of the officers of
Advisers through December 31, 1993.
10
13
In determining to recommend that the Company's stockholders approve the
Agreement, the Board of Directors considered the quality, nature and scope of
services that Advisers has provided to the other Allied Funds. In this
regard, the Board placed particular emphasis on Advisers' experience in
providing the unique services related to identifying, evaluating, structuring,
closing and monitoring investments in small businesses. On the basis of its
review of the information and factors discussed above, the Board of Directors,
including a majority of the disinterested Directors, has concluded that it is
in the best interests of the Company and its stockholders to approve the
Agreement, thereby enabling the Company to receive investment advisory services
from Advisers.
A copy of investment advisory agreement is attached as Appendix A.
Approval of the new Investment Advisory Agreement between the Company and
Advisers requires the affirmative vote of the holders of at least 67% of the
shares represented at the Meeting, if more than 50% of the Company's
outstanding shares are represented at the Meeting in person or by proxy, or the
affirmative vote of the holders of at least a majority of the shares entitled
to vote at the Meeting, whichever is less.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE TO APPROVE THE NEW INVESTMENT
ADVISORY AGREEMENT WITH ALLIED CAPITAL ADVISERS, INC.
APPROVAL OF THE INCENTIVE STOCK OPTION PLAN
On March 28, 1996, the Company's Board of Directors, including its independent
directors, approved an Incentive Stock Option Plan (the "Plan"), subject to
shareholder approval, under which an aggregate of 400,000 shares of the
Company's common stock, par value $.0001 per share, were reserved for grant to
officers of the Company. As of March 1, 1996, 70 shares of the Company's
common stock were issued and outstanding. There currently is no market for the
Company's common stock.
The purpose of the Plan is to advance the interests of the Company by
providing officers who have substantial responsibility for the direction and
management of the Company with additional incentives to exert their best
efforts on behalf of the Company, to increase their proprietary interest in the
success of the Company, to reward outstanding performance and to provide a
means to attract and retain persons of outstanding ability to the service of
the Company. The Company believes that it cannot attract or retain qualified
officers without this type of compensation.
The Plan will be administered by the Compensation Committee (the
"Committee") consisting of two or more "disinterested" members of the Company's
Board of Directors in accordance with the provisions of Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended, which determines and
designates from time to time those key officers of the Company who are eligible
to participate in the Plan. As of March 1, 1996, a total of six officers were
eligible to participate in the Plan.
The Committee may award incentive stock options (within the meaning of section
422 of the Internal Revenue Code of 1986, as amended (the "Code")) or
nonqualified stock options to participants under the Plan. The Committee will
determine the number of shares to be offered from time to time to each optionee
who is an officer of the Company. In making these determinations, the
Committee will take into account the past service of the optionee to the
Company, that officer's present and potential contributions to the success of
the Company and such other factors as the Committee deems relevant in
connection with accomplishing the purposes of the Plan. The options will
contain such terms and conditions as the Committee deems advisable, including
but not limited to being exercisable only in such installments as the Committee
may determine. Options granted to different optionees or at different times
need not contain similar provisions.
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14
The price at which a share may be purchased upon the exercise of an
option will generally be equal to the then-current fair market value of the
shares at the time an option is granted if the shares are traded or listed for
trading on an exchange or, if the shares are not so traded or listed, as such
value may be determined in good faith by the Company's Board of Directors,
including a majority of the non-interested directors. However, with respect to
options granted to any holder of 10% or more of the Company's shares, the price
may not be less than 110% of the then-current fair market value of the shares
on the day of grant if the shares are traded or listed for trading on an
exchange, or, if such shares are not so listed or traded, as otherwise
determined by the Board of Directors in the manner described above. The day on
which the Committee approves the granting of an option is considered the date
on which such option is granted.
The Committee will determine, within limits, the period or periods of time
within which the option may be exercised, in whole or in part, by the optionee.
Accordingly, the option period of each option shall end, and the option shall
cease to be exercisable, on the earliest of (i) the date specified in the
option grant, (ii) ten years (or, in the case of stock options awarded to a
holder of 10% or more of the Company's shares, five years) from the date the
option is granted, (iii) the last day of the sixty-day period beginning on the
date on which the optionee ceases to be an officer or director of the Company
for any cause other than death or total and permanent disability, or (iv) the
first anniversary of the date on which the optionee ceases to be an officer or
director of the Company as a result of the optionee's death or total and
permanent disability. The time period during which an option may be exercised
may be extended only upon the approval of the Committee, but in no event shall
the option period for a particular option be longer than ten years (or, with
respect to a holder of 10% or more of the Company's shares, no longer than
five years).
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain federal income tax consequences of
transactions under the Plan based on current federal income tax laws. This
summary is not intended to be exhaustive and does not describe state, local or
other tax consequences.
NONQUALIFIED STOCK OPTIONS. The grant of a nonqualified stock option under the
Plan will not result in the recognition of taxable income to the participant or
in a deduction to the Company. In general, upon exercise, a participant will
recognize ordinary income in an amount equal to the excess of the fair market
value of the shares of common stock purchased over the exercise price. The
Company is required to withhold tax on the amount of income so recognized, and
is entitled to a tax deduction equal to the amount of such income. Gain or
loss upon a subsequent sale of any shares of common stock received upon the
exercise of a nonqualified stock option is taxed as capital gain or loss
(long-term or short-term, depending upon the holding period of the stock sold).
INCENTIVE STOCK OPTIONS. In general, no income will be recognized by an
optionee and no deduction will be allowed to the Company with respect to the
grant or exercise of an incentive stock option granted under the Plan, provided
that the option is exercised within three months after the termination of the
participant's employment (one year in the case of the participant's disability)
other than by reason of death. The difference between the exercise price and
the fair market value of the shares of common stock on the date the option is
exercised is, however, an adjustment item for the participant for purposes of
the alternative minimum tax. When the stock received upon exercise of the
option is sold, provided that the stock is held for more than two years from
the date of grant of the option and more than one year from the date of
exercise, the participant will recognize long-term capital gain or loss equal
to the difference between the amount realized and the exercise long-term
capital gain or loss equal to the difference between the amount realized and
the exercise price of the option related to such stock. If the above mentioned
holding period requirements of the Code are not satisfied, the subsequent sale
of stock received upon exercise of an incentive stock option is treated as a
"disqualifying disposition." In general, the participant will recognize
taxable income at the time of such disqualifying disposition as follows: (i)
ordinary income in an amount equal to the excess of (A) the lesser of the fair
market value of the shares of common stock on the date the incentive stock
option is exercised or the amount realized on such disqualifying disposition
over (B) the exercise price and (ii) capital gain to the extent of any excess
of the amount realized on such disqualifying disposition over the fair market
value of the shares of common stock on the date the incentive stock option is
exercised (or capital loss to the extent
12
15
of any excess of the exercise price over the amount realized on disposition).
Any capital gain or loss recognized by the participant will be long-term or
short-term depending upon the holding period for the stock sold. The Company
may claim a deduction at the time of the disqualifying disposition equal to the
amount of ordinary income the participant recognizes.
If a stock option is not exercised within three months after the termination of
the participant's employment (one year in the case of the disability of the
participant) other than by reason of death, it will be treated for federal
income tax purposes as a nonqualified stock option, as described above.
A copy of the Plan is attached as Appendix B.
The approval of the Plan requires the affirmative vote of the holders
of a majority of the Company's outstanding shares present or represented at the
meeting or any adjournment thereof, if the holders of a majority of the shares
entitled to vote at the meeting are present or represented by proxy.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSED
AMENDMENT TO THE STOCK OPTION PLAN.
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The disinterested members of the Board of Directors have selected Matthews,
Carter and Boyce as independent public accountants for the Company for the year
ending December 31, 1996. This selection is subject to ratification or
rejection by the stockholders of the Company.
Matthews, Carter and Boyce has served as the Company's independent public
accountants since its inception and have no financial interest in the Company.
It is not expected that a representative of Matthews, Carter and Boyce will be
present, or available to answer questions, at the Meeting, but a representative
would have an opportunity to make a statement if he or she chose to attend.
No expenses were recorded during the fiscal year ended December 31, 1995 for
any professional services provided to the Company by Matthews, Carter and
Boyce.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE TO RATIFY THE SELECTION OF
MATTHEWS, CARTER AND BOYCE AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE COMPANY.
OTHER BUSINESS
The Board of Directors knows of no other business to be presented for action at
the Meeting. If any matters do come before the Meeting on which action can
properly be taken, it is intended that the proxies shall vote in accordance
with the judgment of the person or persons exercising the authority conferred
by the proxy at the Meeting.
1997 ANNUAL MEETING OF STOCKHOLDERS
The Company expects that the 1997 Annual Meeting of Stockholders will be held
in May 1997, but the exact date, time, and location of such meeting have yet to
be determined. A stockholder who intends to present a proposal at that annual
meeting must submit the proposal in writing to the Company at its address in
Washington, DC no later
13
16
than December 1, 1996 in order for the proposal to be considered for inclusion
in the Company's proxy statement for that meeting. The submission of a
proposal does not guarantee its inclusion in the Company's proxy statement or
presentation at the meeting unless certain securities law requirements are met.
14
17
APPENDIX A
ALLIED CAPITAL MORTGAGE CORPORATION
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made by and between Allied Capital Mortgage
Corporation, a Maryland corporation (the "Company"), and Allied Capital
Advisers, Inc., a Maryland corporation (the "Adviser").
1. PURPOSE OF THE COMPANY.
The Company is organized under the laws of the State of Maryland as a
closed-end investment company registered as such under Investment Company Act
of 1940 (the "ICA").
2. THE INVESTMENT ADVISER.
The Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and has entered into this
Agreement with the Company to act as its investment adviser on the terms set
forth herein.
3. OBLIGATIONS OF THE ADVISER.
The Company hereby engages the Adviser's services as the Company's
investment adviser. As such, the Adviser will:
(a) advise the Company as to the acquisition and disposition of
securities, loans, real estate interests and other assets in accordance with
the Company's investment policies;
(b) make available and, if requested by entities in which the
Company has invested or is proposing to invest, render managerial assistance
to, and exercise management rights in, such entities;
(c) provide to the Company office space and facilities and
services to the extent required of the Adviser's officers and employees;
(d) maintain the Company's books of account and other records
and files;
(e) report to the Company's Board of Directors, or to any
committee or officer of the Company acting pursuant to the authority of the
Board, at such times and in such detail as the Board deems appropriate in order
to enable the Company to determine that its investment policies are being
observed and implemented and that the Adviser's obligations hereunder are being
fulfilled. Any investment program undertaken by the Adviser pursuant hereto
and any other activities undertaken by the Adviser on the Company's behalf
shall at all times be subject to any directives of the Company's Board of
Directors or any duly constituted committee or officer of the Company acting
pursuant to authority of the Company's Board of Directors; and
A-1
18
(f) subject to the Company's investment policies and any
specific directives from the Company's Board of Directors, effect acquisitions
and dispositions for the Company's account in the Adviser's discretion and to
arrange for the documents representing investments acquired to be delivered to
a custodian of the Company; and
(g) on a continuing basis, monitor, manage and service the
Company's loan and/or investment portfolio.
4. EXPENSES TO BE PAID BY THE ADVISER.
The Adviser will pay for its own account all expenses incurred by the
Adviser in rendering the services to be rendered by the Adviser hereunder.
Without limiting the generality of the foregoing, the Adviser will pay the
salaries and other employee benefits of the persons in its organization whom
the Adviser may engage to render such services, including without limitation
persons who may from time to time act as the Company's officers.
Notwithstanding the foregoing, the Board of Directors of the Company may, in
its sole discretion, award to such officers options to acquire shares of the
Company's common stock, which shall not be deemed part of their salaries or
other employee benefits for the purpose of this paragraph.
5. EXPENSES TO BE PAID BY THE COMPANY.
The Company will reimburse the Adviser promptly, against the
Adviser's voucher, for any expenses incurred by the Adviser for the Company's
account. Without limitation, such expenses shall include all expenses of any
offering and sale by the Company of its shares and, except as otherwise
specifically provided above, all expenses of the Company's operations; the fees
and disbursements of the Company's counsel, accountants, custodian, transfer
agent and registrar; the costs related to promoting the Company's stock; fees
and expenses incurred in producing and effecting filings with federal and state
securities administrators; costs of the Company's periodic reports to and other
communications with the Company's shareholders; fees and expenses of members of
the Company's Board of Directors who are not directors, officers or employees
of the Adviser or of any entity affiliated with the Adviser, and fees of
directors who are such officers, directors or employees; premiums for the
fidelity bond maintained by the Company pursuant to ICA Section 17; and all
transaction costs incident to the acquisition and disposition of securities by
the Company in proportion to the Company's participation therein, including,
without limitation, legal and accounting fees and other professional or
technical fees and expenses (e.g., credit report, title search and delivery
charges, costs of specialized consultants such as accountants or
industry-specific technical experts, and deal-specific travel expenses)
incurred in monitoring, negotiating and working-out such investments as well as
responding to any litigation arising therefrom. If the Company for its
corporate purposes uses the services of attorneys or paraprofessionals on the
staff of the Adviser in lieu of outside counsel, the Company will reimburse the
Adviser for such services at hourly rates calculated to cover the cost of such
services, as well as for incidental disbursements. The Company will reimburse
the Adviser promptly, against the Adviser's voucher, for (a) any origination
fee with respect to any loan or investment made by the Company that was
identified or referred to the Company by any third party with which the Company
or the Adviser then has a written agreement
A-2
19
or arrangement that specifies the amount or rate of such fee or (b) any
origination fee with respect to any loan or investment made by the Company that
was identified or referred to the Company by any third party with which the
Company or the Adviser then does not have a written agreement or arrangement.
All such origination fees reimbursed to the Adviser will be reviewed as of the
end of each calendar quarter by the Company's Board of Directors.
6. RECEIPT OF FEES.
All fees that may be paid by or for the account of an entity in which
the Company has invested or is proposing to invest in connection with an
investment transaction in which the Company participates or provides follow-on
managerial assistance will be treated as commitment fees or management fees and
will be received by the Company, pro rata to the Company's participation in
such transaction. Nevertheless, the Adviser will be entitled to retain for its
own account any fees paid to the Adviser by or for the account of any entity,
including an entity in which the Company may have invested, for special
investment banking or consulting work performed for the entity which is not
related to such transaction or follow-on managerial assistance. The Adviser
will report to the Company's Board of Directors not less often than quarterly
all fees received by the Adviser from any source and whether, in its opinion,
any such fee is one that the Adviser is entitled to retain under the provisions
of the paragraph. In the event that any member of the Company's Board of
Directors should disagree, the matter shall be conclusively resolved by a
majority of the Company's Board of Directors, including a majority of its
members who are not interested persons of the Company.
7. COMPENSATION TO THE ADVISER.
The Company will, during the term of this Agreement, pay to the
Adviser, an investment advisory fee equal to (a) 3.5% per year of the average
of the quarter-end values of the Company's consolidated total assets (less the
Company's Interim Investments, as defined below, and cash) for such year (the
"Base Fee"), and (b) 0.125% per quarter of the quarter-end values of the
Company's consolidated Interim Investments and cash. For this purpose "Interim
Investments" are defined as short-term securities issued or guaranteed by the
U.S. government or an agency or instrumentality thereof, or in repurchase
agreements fully collateralized by such securities.
Upon the completion of an annual audit at the end of each calendar
year, the Base Fee may be increased or decreased depending on the amount, if
any, by which the investment performance of the Company is greater or less than
13%. At the end of each of the Company's fiscal years, the net asset value per
share will be calculated by the Company's auditors. The investment return of
the Company in a particular year will be the sum of: (a) the change in its net
asset value per share during such year; (b) the value of its cash distributions
per share during such year; and (c) the value of capital gains taxes per share
paid or payable, if any, on undistributed realized long-term capital gains
during such year. The investment performance of the Company for such year will
be its investment return expressed as a percentage of its net asset value per
share at the beginning of such year. (For this purpose, the value of cash
distributions per share and capital gains taxes per share paid or payable on
undistributed realized long-term capital gains will be treated as reinvested in
shares of the Company at the net asset value per share in effect at the close
of business on the record date for the payment of such distributions and the
date on which provision is made for such taxes, respectively, after giving
effect to such distributions and taxes.) To the extent the investment
performance of the Company exceeds 13% for that year, one-fifth of one
percentage point will be added to the Base Fee for every
A-3
20
one percentage point of the difference between the investment performance of
the Company and 13%. The maximum amount added to the Base Fee will be one
percentage point, with the adjusted Base Fee not to exceed 4.5%. To the extent
the investment performance of the Company is less than 13% for that year,
one-fifth of one percentage point will be subtracted from the Base Fee for
every one percentage point of the difference between the investment performance
of the Company and 13%. The maximum amount subtracted from the Base Fee will
be one percentage point, with the adjusted Base Fee not to be lower than 2.5%
(the "Minimum Base Fee"). For purposes of calculating the adjustment to the
Base Fee, performance percentages will be rounded off to the nearest whole
percentage.
The Company will, during the term of this Agreement, pay to the
Adviser, quarterly, the Minimum Base Fee equal to 0.625% per quarter (2.5% on
an annualized basis) of the quarter-end value of the Company's consolidated
total assets (less the Company's Interim Investments and cash). The Company
will also pay 0.125% per quarter (0.5% on an annualized basis) of the
quarter-end value of the Company's consolidated Interim Investments and cash.
For the purpose of calculating the investment advisory fee, the
values of the Company's assets will be determined as of the end of each
calendar quarter by the Board of Directors. The Company will pay the Minimum
Base Fee and the fee on Interim Investments and cash with respect to a calendar
quarter as soon as practicable after the values of the Company's assets have
been determined for such quarter. The Company will pay the difference between
the Minimum Base Fee and the Base Fee as soon as practicable after the values
of the Company's assets have been determined for the year-end. If the
termination of the Adviser's services hereunder does not coincide with the last
day of a calendar quarter or the year-end, then the Minimum Base Fee determined
in accordance with this paragraph shall be multiplied by the ratio of the
number of days in such quarter during which the Adviser rendered services to
the total number of days in such quarter, with corresponding treatment for
calculating any adjustments to the Base Fee.
8. INDEMNIFICATION OF THE ADVISER.
The Company confirms that in performing services hereunder the
Adviser will be an agent of the Company for the purpose of the indemnification
provisions of the Company's Bylaws, subject, however, to the same limitations
as though the Adviser were a director or officer of the Company. The Adviser
shall not be liable to the Company, its shareholders or its creditors except
for violations of law or for conduct which would preclude the Adviser from
being indemnified under such provisions.
9. APPROVAL OF THE AGREEMENT.
The Company represents that the Company's Board of Directors,
including a majority of its members who are not interested persons of the
Company, approved this Agreement at a meeting held on March 28, 1996 at which a
quorum was personally present, and a majority, as defined in the ICA, of the
Company's shareholders approved it at a meeting held on the date hereof. This
Agreement shall continue in effect for two years from its effective date and
thereafter from year to year as long as such continuance is specifically
approved at least annually by the Company's Board of Directors, including a
majority of its members who are not interested persons of the Company, or by
vote of the holders of a majority, as defined in the ICA, of the Company's
outstanding voting securities.
A-4
21
10. TERMINATION OF THE AGREEMENT.
The foregoing notwithstanding, this Agreement may be terminated by
the Company at any time, without payment of any penalty, on sixty (60) days'
written notice to the Adviser if the decision to terminate has been made by the
Company's Board of Directors or by vote of the holders of a majority, as
defined in the ICA, of the Company's outstanding voting securities. This
Agreement will terminate automatically in the event of its assignment, as
defined in the ICA. The Adviser may also terminate this Agreement on sixty
(60) days' written notice to the Company provided; however, that the Adviser
may not terminate this Agreement unless another investment adviser has been
approved by the vote of a majority, as defined in the ICA, of the Company's
outstanding securities and by the Company's Board of Directors, including a
majority of its members who are not parties to such agreement or interested
persons of any such party.
11. JURISDICTION.
This Agreement shall be governed by the laws of the State of
Maryland.
IN WITNESS WHEREOF, the parties have executed this Agreement on and as of
_________ 1996.
ALLIED CAPITAL MORTGAGE CORPORATION
Attest: By:
----------------------- -----------------------------
T. R. Salley, Secretary David Gladstone, President
ALLIED CAPITAL ADVISERS, INC.
Attest: By:
----------------------- -----------------------------
T R. Salley, Secretary Joan M. Sweeney, President
A-5
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APPENDIX B
ALLIED CAPITAL MORTGAGE CORPORATION
INCENTIVE STOCK OPTION PLAN
1. PURPOSE OF THE PLAN
The purpose of this Incentive Stock Option Plan (this "Plan") is to
advance the interests of Allied Capital Mortgage Corporation (the "Company") by
providing to directors of the Company and to officers of the Company who have
substantial responsibility for the direction and management of the Company
additional incentives to exert their best efforts on behalf of the Company, to
increase their proprietary interest in the success of the Company, to reward
outstanding performance and to provide a means to attract and retain persons of
outstanding ability to the service of the Company. It is recognized that the
Company cannot attract or retain these officers and directors without this
compensation. Options granted under this Plan may qualify as "incentive stock
options," as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
2. ADMINISTRATION
This Plan shall be administered by a committee (the "Committee") comprised
of at least two (2) members of the Company's Board of Directors who each shall
(a) be a "disinterested person," as defined in Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended, (b) have no financial interest in
grants of stock options to officers of the Company under this Plan and (c) not
be an "interested person," as defined in Section 2(a)(19) of the Investment
Company Act of 1940, as amended (the "Act"), of the Company. The Committee
shall interpret this Plan and, to the extent and in the manner contemplated
herein, shall exercise the discretion reserved to it hereunder. The Committee
may prescribe, amend and rescind rules and regulations relating to this Plan
and to make all other determinations necessary for its administration. The
decision of the Committee on any interpretation of this Plan or administration
hereof, if in compliance with the provisions of the Act and regulations
promulgated thereunder, shall be final and binding with respect to the Company,
any optionee or any person claiming to have rights as, or on behalf of, any
optionee.
3. SHARES SUBJECT TO THE PLAN
The shares subject to option and the other provisions of this Plan shall
be shares of the Company's common stock, par value $.0001 per share ("shares").
Subject to the provisions hereof concerning adjustment, the total number of
shares which may be purchased upon the exercise or surrender of stock options
granted under this Plan shall not exceed four hundred thousand (400,000)
shares, which includes all shares with respect to which options have been
granted or surrendered for payment in cash or other consideration pursuant to
this Plan or predecessor forms of this Plan. In the event any option shall
cease to be exercisable in whole or in part for any reason, the shares which
were covered by such option, but as to which the option had not been exercised,
shall again be available under this Plan. Shares may be made available from
authorized, unissued or reacquired stock or partly from each.
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4. PARTICIPANTS
(a) Officers. The Committee shall determine and designate from time to
time those key officers of the Company who shall be eligible to participate in
this Plan. The Committee shall also determine the number of shares to be
offered from time to time to each optionee. In making these determinations,
the Committee shall take into account the past service of each such officer to
the Company, the present and potential contributions of such officer to the
success of the Company and such other factors as the Committee shall deem
relevant in connection with accomplishing the purposes of this Plan; provided
that the Committee shall determine that each grant of options to an optionee,
the number of shares offered thereby and the terms of such option are in the
best interests of the Company and its shareholders. The date on which the
Committee approves the grant of an option to an officer of the Company shall be
the date of issuance of such option; provided, however, that if (1) any such
action by the Committee does not constitute approval thereof by both (A) a
majority of the Company's directors, who each has no financial interest in such
action and in this Plan and (B) a majority of the Company directors who each is
not an "interested person" [as defined in Section 2(a)(19) of the Act] of the
Company and (2) such approval is then required by Section 61(a)(3)(B)(i)(I) of
the Act, then the grant of any option by such action shall not be effective,
and there shall be no issuance of such option, until there has been approval of
such action by (A) a majority of the Company's directors who each has no
financial interest in such action and in this Plan and (B) a majority of the
Company's directors who each is not an "interested person" of the Company, on
the basis that such action is in the best interests of the Company and its
shareholders, and the last date on which such required approval is obtained
shall be the date of issuance of such option. The agreement documenting the
award of any option granted pursuant to this paragraph 4(a) shall contain such
terms and conditions as the Committee shall deem advisable, including but not
limited to being exercisable only in such installments as the Committee may
determine.
(b) Non-Officer Directors. A one-time grant of options in accordance with
the provisions of this paragraph (b) shall be made to each director of the
Company who is not an officer of the Company or of the Company's investment
adviser (a "non-officer director") who is serving at the later of (i) the date
on which the proposal to make grants of options to non-officer directors is
approved by the shareholders of the Company or (ii) the date on which the
issuance of options pursuant to this Plan to non-officer directors is approved
by order of the Securities and Exchange Commission pursuant to Section
61(a)(3)(B)(i)(II) of the Act. After the later of such dates, a one-time grant
of options in accordance with the provisions of this paragraph (b) shall be
made to each non-officer director [other than any non-officer director who
received a grant pursuant to the first sentence of this paragraph (b)] upon his
or her initial election as a director of the Company. Each grant pursuant to
this paragraph (b) shall award the non-officer director an option to purchase
ten thousand (10,000) shares at a price equal to the current fair market value
of the shares at the date of issuance of such option; provided, that if any
non-officer director then holds ten percent (10%) or more of the outstanding
shares, the exercise price of such option shall not be less than one hundred
ten percent (110%) of such current fair market value. The agreement
documenting the award of any option granted pursuant to this paragraph 4(b)
shall contain such terms and conditions as the Committee shall deem advisable;
provided, however, that any such option shall vest in three annual installments
(so that the recipient can first exercise the option with respect to not more
than three thousand three hundred thirty-three (3,333) shares on or after the
date of issuance of such option, can exercise the option with respect to not
more than an additional three
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thousand three hundred thirty-three (3,333) shares on or after the first
anniversary of the date of issuance of such option and can exercise such option
with respect to the all of the shares covered thereby on or after the second
anniversary of the date of issuance of such option).
(c) General. Agreements evidencing options granted to different optionees
or at different times need not contain similar provisions.
5. OPTION PRICE
Shares shall be optioned from time to time at a exercise price not less
than the current fair market value [as defined in paragraph 15(d) of this Plan]
of the shares at the date of issuance of such option; provided, that the
exercise price of any option granted to a holder of 10% or more of the
Company's shares shall not be less than one hundred ten percent (110%) of such
current fair market value.
6. OPTION PERIOD
Each option agreement shall state the period or periods of time within
which the subject option may be exercised, in whole or in part, by the optionee
which shall be such period or periods of time as may be determined by the
Committee; provided, that the option period shall not exceed ten years from the
date of issuance of the option and shall not exceed five years if the option is
granted to a holder of ten percent (10%) or more of the Company's shares.
7. PAYMENT FOR SHARES
Full payment for shares purchased shall be made at the time of exercising
the option in whole or in part. Payment of the purchase price shall be made in
cash (including check, bank draft or money order) or, if authorized pursuant to
paragraph 9 hereof, by a loan from the Company in accordance with paragraph 9.
8. TRANSFERABILITY OF OPTIONS
Options shall not be transferable other than by will or the laws of
descent and distribution, and during an optionee's lifetime shall be
exercisable only by the optionee.
9. LOANS BY THE COMPANY
Upon the exercise of any option by an officer-optionee, the Company, at
the request of the officer-optionee, and subject to the approval of both (a) a
majority of the Company's directors who each has no financial interest in such
loan and (b) a majority of the Company's directors who each is not an
"interested person" [as defined in Section 2(a)(19) of the Act] of the Company
on the basis that such loan is in the best interests of the Company and its
stockholders (whether such approval is by the Committee or otherwise), may lend
to such officer-optionee, as of the date of exercise, an amount equal to the
exercise price of such option; provided, that such loan (a) shall have a term
of not more than ten years, (b) shall become due within sixty days after the
recipient of the loan ceases to be an officer of the Company, (c) shall bear
interest at a rate no less than the prevailing rate applicable to 90-day United
States Treasury bills at the time the loan is made, and
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(d) shall be fully collateralized at all times, which collateral may include
securities issued by the Company. Loan terms and conditions may be changed by
the Committee to comply with applicable IRS and SEC regulations.
10. TERMINATION OF OPTION
All rights to exercise options shall terminate sixty days after any
optionee ceases to be a director or an officer of the Company for any cause
other than death or total and permanent disability.
11. RIGHTS IN THE EVENT OF TERMINATION OF SERVICE
If an optionee's service as a director or officer is terminated for any
reason other than death or total and permanent disability prior to expiration
of his or her option and before such option is fully exercised, the optionee
shall have the right to exercise the option during the balance of the 60-day
period referred to in paragraph 10.
12. RIGHTS IN THE EVENT OF TOTAL AND PERMANENT DISABILITY OR DEATH
If an optionee becomes totally and permanently disabled or dies prior to
expiration of the option without having fully exercised it, he or the executors
or administrators or legatees or distributees of the estate, as the case may
be, shall, have the right, from time to time within one year after the
optionee's total and permanent disability or death and prior to the expiration
of the term of the option, to exercise the option in whole or in part, as
provided in the respective option agreement.
13. EFFECT OF CHANGE IN STOCK SUBJECT TO THE PLAN
Subject to any required action by the shareholders of the Company and the
provisions of applicable corporate law, the number of shares of represented by
the unexercised portion of an option, the number of shares which has been
authorized or reserved for issuance hereunder, and the number of shares covered
by any applicable vesting schedule hereunder, as well as the exercise price of
a share represented by the unexercised portion of an option, shall be
proportionately adjusted for (a) a division, combination or reclassification of
any of the shares of common stock of the Company or (b) a dividend payable in
shares of common stock of the Company.
14. GENERAL RESTRICTION
Each option shall be subject to the requirement that, if at any time the
Board of Directors shall determine, at its discretion, that the listing,
registration or qualification of the shares subject to such option upon any
securities exchange or under any state or federal law, or the consent or
approval of any government regulatory body, is necessary or desirable as a
condition of, or in connection with, the granting of such option or the issue
or purchase of the shares thereunder, such option may not be exercised in whole
or in part unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Company. Subject to the limitations of paragraph 6, no
option shall expire
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26
during any period when exercise of such option has been prohibited by the Board
of Directors, but shall be extended for such further period so as to afford the
optionee a reasonable opportunity to exercise his option.
15. MISCELLANEOUS PROVISIONS
(a) No optionee shall have rights as a shareholder with respect to shares
covered by his option until the date of exercise of his option.
(b) The granting of any option shall not impose upon the Company any
obligation to appoint or to continue to appoint as a director or officer any
optionee, and the right of the Company to terminate the employment of any
officer or other employee, or service of any director, shall not be diminished
or affected by reason of the fact that an option has been granted to such
optionee.
(c) Options shall be evidenced by stock option agreements in such form and
subject to the terms and conditions of this Plan as the Committee shall approve
from time to time, consistent with the provisions of this Plan. Such stock
option agreements may contain such other provisions as the Committee in its
discretion may deem advisable.
(d) For purposes of this Plan, the fair market value of the shares shall
be either: (i) the closing sales price of the stock as quoted on the National
Association of Securities Dealers Automated Quotation System for the date of
issuance of such option, as provided herein, (ii) if the Company's shares are
traded on an exchange, the price shall be the closing price of the Company's
stock as reported in The Wall Street Journal for such date of issuance of an
option, or (iii) if neither such condition exists, as determined in good faith
by the Company's Board of Directors, including a majority of the non-interested
directors.
(e) The aggregate fair market value (determined as of the date of issuance
of an option) of the shares with respect to which an option, or portion
thereof, intended to be an incentive stock option is exercisable for the first
time by any optionee during any calendar year (under all incentive stock option
plans of the Company and subsidiary corporations) shall not exceed One Hundred
Thousand Dollars ($100,000).
(f) All options issued pursuant to this Plan shall be granted within ten
years from the earlier of the date of adoption of this Plan (or any amendment
thereto requiring shareholder approval pursuant to the Code) or the date this
Plan (or any amendment thereto requiring shareholder approval pursuant to the
Code) is approved by the shareholders of the Company.
(g) No option may be issued if exercise of all warrants, options and
rights of the Company outstanding immediately after issuance of such option
would result in the issuance of voting securities in excess of twenty percent
(20%) of the Company's outstanding voting securities.
(h) A leave of absence granted to an employee does not constitute an
interruption in continuous employment for purposes of this Plan as long as the
leave of absence does not extend beyond one year.
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(i) Any notices given in writing shall be deemed given if delivered in
person or by certified mail; if given to the Company at Allied Capital Mortgage
Corporation, 1666 K Street, N.W., 9th Floor, Washington, D.C. 20006; and, if to
an optionee, in care of the optionee at his or her last known address.
(j) This Plan and all actions taken by those acting under this Plan shall
be governed by the substantive laws of Maryland without regard to any rules
regarding conflict-of-law or choice-of-law.
(k) All costs and expenses incurred in the operation and administration of
this Plan shall be borne by the Company.
16. CHANGE OF CONTROL
In the event of a Change of Control (as hereinafter defined), all
then-outstanding options will become fully vested and exercisable as of the
Change of Control. For purposes of the Plan, "Change of Control" means the sale
of substantially all of the Company's assets or the acquisition, whether
directly, indirectly, beneficially (within the meaning of Rule 13d-3 of the
1934Act), or of record, of securities of the Company representing twenty (20%)
or more in the aggregate voting power of the Company's then-outstanding Common
Stock by any "person" (within the meaning of Sections 13(d) and 14(d) of the
1934Act), including any corporation or group of associated persons acting in
concert, other than (i) the Company or its subsidiaries and/or (ii) any
employee pension benefit plan (within the meaning of Section 3(2) of the
Employee Retirement Income Security Act of 1974) of the Company or its
subsidiaries, including a trust established pursuant to any such plan.
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17. AMENDMENT AND TERMINATION
The Board of Directors may modify, revise or terminate this Plan at
any time and from time to time; provided, however, that no modification or
revision of any material provision of this Plan may be made without shareholder
approval except for such modifications or revisions which are necessary in
order to ensure the options issued as incentive stock options under this Plan
comply with Section 422 or any successor provision of the Code, applicable
provisions of the Act or any exemptive order therefrom issued to the Company in
connection with this Plan, Rule 16b-3 promulgated under the Securities Exchange
Act of 1934, as amended, or other applicable law. This Plan shall terminate
when all shares reserved for issuance hereunder have been issued upon the
exercise of options, by action of the Board of Directors pursuant to this
paragraph, or on that date which is ten (10) years after the date hereof (that
is March 28, 2006), whichever shall first occur.
18. EFFECTIVE DATE OF THE PLAN
This Plan shall become effective upon (1) adoption by the Board of
Directors and (2) approval of this Plan by the shareholders of the Company.
19. AMENDMENT HISTORY
Date of plan adoption by the Board of Directors March 28, 1996
Date of plan approval by Shareholders ______________
B-7
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PROXY
ALLIED CAPITAL MORTGAGE CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of ALLIED CAPITAL MORTGAGE CORPORATION (the
"Company") appoints Thomas R. Salley and Joan M. Sweeney, or any of them,
proxies, with full power of substitution, to vote at the 1996 Annual Meeting
of Stockholders of the Company to be held at the offices of Allied Capital
Advisers, Inc., 1666 K St, NW, Washington, DC 20006 at 4:00 p.m.,
Monday, April 15, 1996, and any adjournment or adjournments thereof, the
shares of Common Stock of the Company that the undersigned is entitled to vote,
on all matters that may properly come before that meeting.
(Continued on reverse side)
/X/ PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE
WITHHOLD
FOR all nominees AUTHORITY
listed to the right to vote for all
(except as marked nominees listed
to the contrary) to the right. NOMINEES: David Gladstone
George C. Williams
1. Election of six Roger Machanic
Directors for the / / / / Elizabeth Conahan
ensuing year Landon Butler
Joseph Morningstar
(INSTRUCTION: TO WITHHOLD YOUR VOTE FOR ONE OR MORE INDIVIDUAL NOMINEES, WRITE
THE NAMES OF EACH NOMINEE WITH RESPECT TO WHOM YOU CHOOSE TO WITHHOLD AUTHORITY
TO VOTE IN THE SPACE PROVIDED BELOW.)
- -------------------------------------
FOR AGAINST ABSTAIN
2. To approve the adoption of an investment / / / / / /
advisory agreement with Allied Capital
Advisers, Inc.
3. To approve the Company's Incentive / / / / / /
Stock Option Plan.
4. To ratify the selection of Matthews, / / / / / /
Carter and Boyce to serve as independent
public accountants for the Company for
the year ending December 31, 1996.
5. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
YOU ARE URGED TO CAST YOUR VOTE BY MARKING THE APPROPRIATE BOXES. PLEASE NOTE
THAT, UNLESS A CONTRARY INSTRUCTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
ELECTION OF ALL NOMINEES IDENTIFIED IN ITEM 1 AND FOR RATIFICATION OF THE
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS DESCRIBED IN ITEM 2.
(PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.)
SIGNATURE DATE
------------------------------ --------------------
SIGNATURE DATE
------------------------------ --------------------
IF HELD JOINTLY
IMPORTANT: Please sign your name or names exactly as shown hereon and date
your proxy in the blank space provided above. For joint accounts,
each joint owner should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give your full title as
such. If the signer is a corporation or partnership, please sign in
full corporate or partnership name by duly authorized officer or
partner.