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EXHIBIT 4
ALLIED CAPITAL CORPORATION II
STOCK OPTION PLAN
1. PURPOSE OF THE PLAN
The purpose of this Stock Option Plan (this "Plan") is to advance the
interests of Allied Capital Corporation II (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 $1.00 per share
("shares"). Subject to the provisions hereof concerning adjustment, the total
number of shares which may be purchased upon the exercise or surrender of stock
options granted under this Plan shall not exceed 1,614,213 shares, which
includes all shares with respect to which options have been granted or
surrendered for payment in cash or other consideration pursuant to this Plan or
predecessor forms of this Plan. In the event any option shall cease to be
exercisable in whole or in part for any reason, the shares which were covered
by such option, but as to which the option had not been exercised, shall again
be available under this Plan. Shares may be made available from authorized,
unissued or reacquired stock or partly from each.
4. PARTICIPANTS
(a) Officers. The Committee shall determine and designate from time to
time those key officers of the Company who shall be eligible to participate in
this Plan. The Committee shall also determine the number of shares to be
offered from time to time to each optionee. In making these determinations,
the Committee shall take into account the past service of each such officer to
the Company, the present and potential contributions of such officer to the
success of the Company and such other factors as the Committee shall deem
relevant in connection with accomplishing the purposes of this Plan; provided
that the Committee shall determine that each grant of options to an optionee,
the number of shares offered thereby and the terms of such option are in the
best interests of the Company and its shareholders. The date on which the
Committee approves the grant of an option to an officer of the Company shall be
the date of issuance of
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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 (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 (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 3,333 shares on or after the date of issuance of such option, can exercise
the option with respect to not more than an additional 3,333 shares on or after
the first anniversary of the date of issuance of such option and can exercise
such option with respect to the all of the shares covered thereby on or after
the second anniversary of the date of issuance of such option).
(c) General. Agreements evidencing options granted to different
optionees or at different times need not contain similar provisions.
5. OPTION PRICE
Shares shall be optioned from time to time at a exercise price not less
than the current fair market value as defined in paragraph 15(d) of this Plan
of the shares at the date of issuance of 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 110% of such current fair market value.
6. OPTION PERIOD
Each option agreement shall state the period or periods of time within
which the subject option may be exercised, in whole or in part, by the optionee
which shall be such period or periods of time as may be determined by the
Committee; provided, that the option period shall not exceed ten years from the
date of issuance of the option and shall not exceed five years if the option is
granted to a holder of 10% or more of the Company's shares.
7. PAYMENT FOR SHARES
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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 (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
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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 during any period when exercise of such option has been
prohibited by the Board of Directors, but shall be extended for such further
period so as to afford the optionee a reasonable opportunity to exercise his
option.
15. MISCELLANEOUS PROVISIONS
(a) No optionee shall have rights as a shareholder with respect to
shares covered by his option until the date of exercise of his option.
(b) The granting of any option shall not impose upon the Company any
obligation to appoint or to continue to appoint as a director or officer any
optionee, and the right of the Company to terminate the employment of any
officer or other employee, or service of any director, shall not be diminished
or affected by reason of the fact that an option has been granted to such
optionee.
(c) Options shall be evidenced by stock option agreements in such
form and subject to the terms and conditions of this Plan as the Committee
shall approve from time to time, consistent with the provisions of this Plan.
Such stock option agreements may contain such other provisions as the Committee
in its discretion may deem advisable.
(d) For purposes of this Plan, the fair market value of the shares
shall be the closing sales price of the stock as quoted on the National
Association of Securities Dealers Automated Quotation System for the date of
issuance of such option, as provided herein. If the Company's shares are
traded on an exchange, the price shall be the closing price of the Company's
stock as reported in The Wall Street Journal for such date of issuance of an
option.
(e) 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
$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 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.
(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
Corporation II, 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.
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(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
1934 Act, or of record, of securities of the Company representing twenty
percent (20%) or more in the aggregate voting power of the Company's
then-outstanding Common Stock by any "person" (within the meaning of Sections
13(d) and 14(d) of the 1934 Act), including any corporation or group of
associated persons acting in concert, other than (i) the Company or its
subsidiaries and/or (ii) any employee pension benefit plan (within the meaning
of Section 3(2) of the Employee Retirement Income Security Act of 1974) of the
Company or its subsidiaries, including a trust established pursuant to any such
plan.
17. AMENDMENT AND TERMINATION
The Board of Directors may modify, revise or terminate this Plan at
any time and from time to time; provided, however, that no modification or
revision of any material provision of this Plan may be made without shareholder
approval except for such modifications or revisions which are necessary in
order to ensure the options issued as incentive stock options under this Plan
comply with Section 422 or any successor provision of the Code, applicable
provisions of the Act or any exemptive order therefrom issued to the Company in
connection with this Plan, Rule 16b-3 promulgated under the Securities Exchange
Act of 1934, as amended, or other applicable law. This Plan shall terminate
when all shares reserved for issuance hereunder have been issued upon the
exercise of options, by action of the Board of Directors pursuant to this
paragraph, or on February 12, 2007, whichever shall first occur.
18. EFFECTIVE DATE OF THE PLAN
This Plan shall become effective upon (1) adoption by the Board of
Directors and (2) approval of this Plan by the shareholders of the Company.
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