EXHIBIT 10.10

DEFERRED COMPENSATION PLAN FOR

[ALLIED CAPITAL LOGO]

Note: These documents have been prepared at the request of the management of
Allied Capital Corporation

Amended and Restated January 1, 1998
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THE ALLIED CAPITAL CORPORATION
DEFERRED COMPENSATION PLAN

Table of Contents

Page
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ARTICLE I - GENERAL

Section 1.1 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
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Section 1.2 Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
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ARTICLE 11 - DEFINITIONS AND USAGE
Section 2.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
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Section 2.2 Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
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ARTICLE III - ELIGIBILITY AND PARTICIPATION
Section 3.1 Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
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Section 3.2 Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
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ARTICLE IV - PLAN BENEFIT
Section 4.1 Plan Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
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Section 4.2 Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
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Section 4.3 Multiple Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 7
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Section 4.4 Formula Award Accounts . . . . . . . . . . . . . . . . . . . . . . . 7
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Section 4.5 Participant's Deferral Election . . . . . . . . . . . . . . . . . . 7
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Section 4.6 Investment Procedure . . . . . . . . . . . . . . . . . . . . . . . . 8
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Section 4.7 Valuation of Accounts . . . . . . . . . . . . . . . . . . . . . . . 8
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ARTICLE V - VESTING AND DISTRIBUTION
Section 5.1 Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
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Section 5.2 Distributable Events . . . . . . . . . . . . . . . . . . . . . . . 10
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Section 5.3 Amount of Plan Benefits . . . . . . . . . . . . . . . . . . . . . 10
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Section 5.4 Plan Benefit Payment Options . . . . . . . . . . . . . . . . . . . 11
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Section 5.5 Commencement of Benefit Payments . . . . . . . . . . . . . . . . . 11
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Section 5.6 Form of Benefit Payments . . . . . . . . . . . . . . . . . . . . . 11
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Section 5.7 Age 60 and Age 65 Benefit Payment Distribution Options . . . . . . 11
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Section 5.8 Plan Benefit Payment Election Procedures . . . . . . . . . . . . . 12
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Section 5.9 Form of Benefit Payments Upon Death . . . . . . . . . . . . . . . 12
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Section 5.10 Designation of Beneficiary . . . . . . . . . . . . . . . . . . . . 13
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Section 5.11 Hardship Withdrawals of Elective Deferral and
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Employer Contributions . . . . . . . . . . . . . . . . . . . . . 13
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THE ALLIED CAPITAL CORPORATION
DEFERRED COMPENSATION PLAN

Table of Contents (continued)

Page
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ARTICLE VI - ADMINISTRATION
Section 6.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
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Section 6.2 Administrative Rules . . . . . . . . . . . . . . . . . . . . . . . 14
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Section 6.3 Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
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Section 6.4 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
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ARTICLE VII - CLAIMS PROCEDURE
Section 7.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
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Section 7.2 Denials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
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Section 7.3 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
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Section 7.4 Appeals Procedure . . . . . . . . . . . . . . . . . . . . . . . . 16
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Section 7.5 Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
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ARTICLE VIII - CHANGE IN CONTROL
Section 8.1 In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
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Section 8.2 Definition of "Change in Control . . . . . . . . . . . . . . . . . 17
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ARTICLE IX - TRUST
Section 9.1 Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
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Section 9.2 Contributions and Expenses . . . . . . . . . . . . . . . . . . . . 18
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Section 9.3 Trustee Duties . . . . . . . . . . . . . . . . . . . . . . . . . . 18
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Section 9.4 Reversion to the Employer . . . . . . . . . . . . . . . . . . . . 18
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ARTICLE X - MISCELLANEOUS PROVISION
Section 10.1 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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Section 10.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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Section 10.3 No Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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Section 10.4 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . 19
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Section 10.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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Section 10.6 No Guarantee of Employment . . . . . . . . . . . . . . . . . . . . 19
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Section 10.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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Section 10.8 Notification of Addresses . . . . . . . . . . . . . . . . . . . . 19
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Section 10.9 Bonding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
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THE ALLIED CAPITAL CORPORATION
DEFERRED COMPENSATION PLAN

PREAMBLE

WHEREAS, the Employer recognizes the unique qualifications of its executive
employees or consultants and the valuable services that they have provided to
or for the Employer; and

WHEREAS, the Employer now desires to adopt the amended and restated Deferred
Compensation Agreement of Allied Capital Corporation.

NOW, THEREFORE, in consideration of the premises and of the provisions
hereinafter set forth, the Allied Capital Corporation Deferred Compensation
Plan (the "Plan") shall be and hereby is restated as follows:

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ARTICLE I
GENERAL

SECTION 1.1 Effective Date. The provisions of this Plan, as amended and
restated, shall be effective as of January 1, 1998. The rights, if any, of any
person whose status as an employee or consultant of the Employer has terminated
shall be determined pursuant to the Plan as in effect on the date such employee
or consultant terminated, unless a subsequently adopted provision of the Plan
is made specifically applicable to such person.

SECTION 1.2 Intent. The Plan is intended to be an unfunded plan for the
purpose of providing deferred compensation to a select group of management or
highly compensated employees as such group is described under Sections 201(2)
and 301(a)(3) of ERISA, and a select group of consultants. The Plan is not
intended to be a plan described in Section 401 (a)(1) of the Code.

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ARTICLE 11
DEFINITIONS AND USAGE

SECTION 2.1 Definitions. Wherever used in the Plan, the following words
and phrases shall have the meaning set forth below unless the context plainly
requires a different meaning:

"Account" means the account established on behalf of each Participant as
described in Section 4.2 of the Plan.

"Administrator" means the person or persons described in Article VI.

"Beneficiary" means those persons designated as a Beneficiary by the
Participant in the Participant Deferral Agreement.

"Board" means the Board of Directors of Allied Capital Corporation.

"Bonus" means any amount paid to an Employee which is designated by the
Employer as a bonus, or any amount paid to a Consultant.

"Bonus Deferral Election" means an election made pursuant to Section
4.5(b) of the Plan.

"Change in Control" of the Company shall be defined in accordance with
Section 8.2 of the Plan.

"Code" means the Internal Revenue Code of 1986, as amended from time to
time.

"Compensation" means "Compensation" as defined under the Retirement
Plan. However, for purposes of this Plan "Compensation" shall not
include Bonuses and shall be determined without regard to the
limitations imposed by Code Section 401(a)(17).

"Compensation Deferral Election" means an election made pursuant to
Section 4.5(a) of the Plan.

"Consultant" means any individual providing services for the Employer in
a capacity other than as a common law employee of the Employer.

"Disability" means a physical or mental condition of a Participant
resulting from a bodily injury, disease, or mental disorder which
renders him incapable of continuing his usual and customary employment
with the Employer. The Disability of the Participant shall be
determined by a licensed physician chosen by

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the Administrator. The determination shall be applied uniformly to all
Participants.

"Employee" means any common law employee of the Employer.

"Employer" means Allied Capital Corporation, its successors and its
subsidiaries.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.

"Formula Award" means the formula bonus award provided by the Employer
in conjunction with the merger of the Allied Capital Companies effective
December, 31, 1997 to compensate employees and consultants from the
point when the unvested options in the Allied Capital stock option plans
would cease to appreciate in value (the merger announcement date), up
until the time in which they would be able to receive option awards in
Allied Capital Corporation (after the merger becomes effective).

"Formula Award Account" means the account established on behalf of each
Participant as described in Section 4.4.

"Formula Award Deferral Election" means an election made pursuant to
Section 4.5(c) of the Plan.

"Insolvency" means the Employer (a) is unable to pay its debts as they
become due, or (b) is subject to a pending proceeding as a debtor under
the United States Bankruptcy Code.

"Normal Retirement Age" means age sixty (60).

"Participant" means an eligible Employee or Consultant of the Employer
designated by the Board for participation in the Plan, or a person who
was such a Participant at the time of retirement, death, disability or
resignation, or a Beneficiary who is presently entitled to benefits
under the Plan in accordance with its terms.

"Participant Deferral Agreement" means an agreement entered into between
a Participant and the Employer for the Purposes set forth in Articles IV
and V.

"Plan" means the Allied Capital Corporation Deferred Compensation Plan,
as amended from time to time.

"Plan Benefit" means the benefit of a Participant as determined under
Article IV of the Plan.

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"Plan Year" means the calendar year.

"Retirement" means the date on or after a Participant reaches Normal
Retirement Age on which such Participant retires from the Employer.

"Trust" means a trust which may be established by the Employer in
accordance with Article IX to provide the benefits described in this
Plan.

"Trustee" means the corporation or individual(s) selected by the
Employer to serve as trustee for the Trust.

SECTION 2.2 Usage. Except where otherwise indicated by the context, any
masculine terminology used herein shall also include the feminine and vice
versa, and the definition of any term herein in the singular shall also include
the plural and vice versa.

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ARTICLE III
ELIGIBILITY AND PARTICIPATION

SECTION 3.1 Eligibility. Any Employee or Consultant of the Employer shall
be eligible to participate in the Plan at such time and for such period as
designated by the Board.

SECTION 3.2 Participation. An Employee or Consultant who is eligible to
participate in the Plan pursuant to Section 3.1 shall become a Participant at
such time and for the period he is designated by the Board.

If, at any time, an Employee or Consultant is determined or reasonably
believed, based on a judicial or administrative determination or opinion of
counsel, not to qualify as "management" or a "highly compensated employee"
under ERISA Sections 201(2), 301 (a)(3), and 401 (a)(1), or as a select
consultant, the Employee or Consultant shall cease participation in the Plan as
of the date of that determination and the Plan Benefit to which he is entitled
will be distributed to him as soon as administratively possible in a single
lump-sum payment, notwithstanding any other provision of the Plan.

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ARTICLE IV
PLAN BENEFIT

SECTION 4.1 Plan Benefit. A Participant's Plan Benefit shall be equal to
the total amount credited to the Participant's Account under this Article IV.
Such Plan Benefit shall become nonforfeitable and payable to the Participant as
provided under Article V.

SECTION 4.2 Accounts. For each Participant, the Administrator shall
establish and maintain a Participant Account. All amounts which are credited
to the Account shall be credited solely for purposes of accounting and
computation, and shall remain assets of the Employer subject to the claims of
the Employer's general creditors. A Participant's Account shall be reduced by
an amount equal to any Plan Benefit previously distributed to him pursuant to
Article V. A Participant's Account shall include amounts credited under the
Plan for the Plan Year beginning January 1, 1997.

SECTION 4.3 Multiple Accounts. At the discretion of the Board, a
Participant may have more than one account, as in the case of a former Employee
who is now a Participant in his capacity as a Consultant. Contributions to
each such Account shall be determined by deferral elections made under separate
Participant Deferral Agreements, as described in Section 4.5 of the Plan. The
determination as to the period for the commencement of the distribution of Plan
Benefits under Article V of the Plan shall be made separately with respect to
each such Account.

SECTION 4.4 Formula Award Accounts. For each Participant, the
Administrator shall establish and maintain a separate record-keeping account
which contains both the vested and unvested balances of a Participant's Formula
Award.

SECTION 4.5 Participant's Deferral Elections. For each Plan Year, each
eligible Participant may make the following deferral elections:

(a) Compensation Deferral Election. Prior to the beginning of the
Plan Year, or prior to the date of entry as a Participant
under the Plan, an eligible Participant may authorize the
Employer to reduce his or her Compensation by any specific
amount or percentage as specified in a Participant Deferral
Agreement in effect for each Plan Year (in lieu of receiving
cash Compensation), and to have such amount credited to the
Participant's Account under this Article IV. The Participant
Deferral Agreement shall be effective only with respect to
Compensation earned after the agreement becomes effective. No
more than one Compensation Deferral Election may be made
during each Plan Year. However, a Participant may terminate
the election at any time with respect to Compensation not yet
earned.

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(b) Bonus Deferral Election. Prior to the end of the Plan Year in
which the Bonus is earned, an eligible Participant may
authorize the Employer to reduce his or her Bonus by any
specific amount or percentage as specified in a Participant
Deferral Agreement in effect for each Plan Year (in lieu of
receiving a cash Bonus), and to have such amount credited to
the Participant's Account under this Article IV.

(c) Formula Award Deferral Election. Participants deemed eligible
for the Formula Award by the Board of Directors of Allied
Capital Corporation, will received a Formula Award as of
December 31, 1997 that will be posted to a separate
record-keeping account maintained by the Trustee or other
designee ("the Formula Award Account"). Amounts funded by the
Employer to the Formula Award Account will vest over a
three-year period in equal installments on the anniversary of
December 31, 1997. Amounts funded in the Formula Award
Account will be used to purchase shares of Allied Capital
Corporation common stock in the open market, as directed by
the Administrator. Amounts funded or unfunded in the Formula
Award Account will vest immediately upon a change in control
as defined in Section 8.2.

SECTION 4.6 Investment Procedure. The Employer and each Employee or
Consultant who is eligible to participate in the Plan may, at the discretion of
the Employer, execute an agreement which reflects the deemed investment of the
portion of the Participant's Compensation and Bonus which shall be applied to
the payment of the Participant's Plan Benefit under the Plan. The
Administrator shall retain overriding discretion over the selection of
investment vehicles and the Administrator may change, alter or modify its
investment policy as it deems appropriate, from time to time, to maximize
benefits under the Plan. Any such change, alteration or modification shall be
communicated to the Participants under procedures adopted by the Administrator.

The Formula Award Account may only be invested in the common stock of Allied
Capital Corporation until such time as a distributable event (as listed in
section 5.2) occurs. At that time, the Participant may choose other Plan
investment options for the balance of his Account while he remains in
distribution status.

SECTION 4.7 Valuation of Accounts. The value of a Participant's Account
shall be determined from time to time by the Trustee in the following manner.

(a) During any period of time in which a Participant's Account is
deemed invested in whole or in part pursuant to the agreement
with the Participant (in the manner described in Section 4.6),
the income and expenses, gains and losses, both realized and
unrealized, from such deemed investments shall be determined
by the Trustee. The amount so determined shall be credited to
the Account of the Participant proportionately in accordance
with procedures established by the Administrator.

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(b) All benefits and deferrals on behalf of a Participant shall be
credited to the Account of the Participant in accordance with
this Article IV.

(c) Each Participant's Account shall be valued as of the last day
of each Plan Year or more frequently as determined by the
Administrator.

(d) All credits to a Participant's Account under this Section 4.7
shall be deemed to have been made on the applicable valuation
date in the order of priority set forth in this Section 4.7,
even though actually determined at a later date.

(e) Each Participant's Account shall include amounts previously
credited under the Plan prior to the effective date of this
amendment and restatement, January 1, 1998.

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ARTICLE V
VESTING AND DISTRIBUTION

SECTION 5.1 Vesting.

(a) Compensation and Bonus Deferral amounts credited under the
Plan shall at all times be 100% vested and nonforfeitable.

(b) Formula Award Deferral amounts shall, generally, be subject to
the three-year vesting period provided in Section 4.5(c).

(i) Upon termination of a Participant's Employee or
Consultant relationship with the Company for any reason
other than Death or Disability, the unvested balance of
a Participant's Formula Award Account shall be
forfeited.

(ii) In the event of the Death or Disability of a
Participant, the unvested balance of that Participant's
Formula Award Account shall become immediately vested.

SECTION 5.2 Distributable Events. Except as otherwise provided in Section
5.7, a Participant's Plan Benefit shall become distributable upon the
occurrence of one of the following events:

1. Separation from service (other than on account of Retirement,
death, or Disability)

2. Retirement

3. Disability

4. Death

5. Insolvency

6. Change in Control (as defined in Section 2.1)

7. Future determined date (at least 2 years from the signing date
of the Participant Deferral Agreement)

8. Termination of the Plan

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SECTION 5.3 Amount of Plan Benefits. A Participant's Plan Benefit shall
equal the total amount credited to the Participant's Account in accordance with
Article IV as of the date a distributable event occurs.

SECTION 5.4 Plan Benefit Payment Options. Subject to the provisions of
Section 5.8, upon the occurrence of a distributable event listed in Section
5.2, a Participant may elect one of the following Plan Benefit payment options:

(a) Lump-sum - A Participant may elect to receive his Plan Benefit
in a single lump sum distribution. This option shall not be
available with respect to a Participant's Formula Award
Account.

(b) Installments - Alternatively, a Participant may elect to
receive his Plan Benefit in equal annual installments over A
period of not less than three years and not greater than ten
years.

(c) Formula Award Account - With respect to the balance of their
Formula Award Account, a Participant must elect an installment
payment option over a period of not less than three years and
not greater than ten years.

SECTION 5.5 Commencement of Benefit Payments. At the election of the
Participant or Beneficiary, if applicable, the payment of Plan Benefits shall
commence no earlier than three months and no later than six months from the
expiration of the ninety-day election period provided for in Section 5.8. In
the event of a distribution on account of hardship, as defined in Section 5.11,
the payment of Plan Benefits shall commence as soon as administratively
feasible from the date the Administrator determines that a Participant is
entitled to a hardship distribution under the Plan.

SECTION 5.6 Form of Benefit Payments. At the discretion of the
Administrator, Plan Benefits will be paid in the form of cash or common stock
of Allied Capital Corporation equal to the value of Plan Benefit payable as of
the valuation date determined by the Administrator.

SECTION 5.7 Age 60 and Age 65 Benefit Payment Distribution Options.

(a) Upon the consent of the Employer, and subject to the
conditions prescribed in subparagraph (b) below, before the
end of the Plan Year beginning immediately prior to the Plan
Year in which an active Participant reaches age 60 or age 65,
such Participant can elect to begin receiving his or her Plan
Benefit determined, as of the end of such preceding Plan Year,
in monthly or annual installments (as such participant elects)
over a period of not less than three years and not longer than
ten years.

(b) If an active Participant does not affirmatively elect to begin
receiving his or her Plan Benefit under this paragraph or, if
the Employer does not

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consent to such an election, the Participant shall not be
eligible to begin receiving benefits until the earlier of a
distributable event described in Section 5.2, or in the case
of an active Participant who has not attained age 60, the Plan
year ending immediately prior to the Plan Year in which he
reaches age 65.

(c) In order to begin receiving Plan Benefits under this Section
5.7, a Participant must be an active Employee or Consultant on
the date such benefits are elected and on the date payment of
such benefits subsequently commence.

(d) If a Participant experiences a distributable event described
in Section 5.2 after an election is made and consent is given
by the Board under this Section 5.7, the Participant or
Beneficiary shall have the same distribution options provided
in Section 5.4, with the value of his Plan Benefit as of such
date decreased by amounts distributed under this Section 5.7.

(e) A Participant who begins receiving Plan Benefits under this
Section 5.7 shall continue to be eligible for future credits
under the Plan to the extent such Participant is otherwise
entitled to receive credits under the terms and operation of
the Plan.

(f) If a Participant elects to receive benefits under this Section
5.7 and the Employer consents to such election, the
distribution of the Participant's benefits will commence at a
time mutually agreed to between the Participant and the
Employer when the election is made and consent given under
this Section 5.7.

SECTION 5.8 Plan Benefit Payment Election Procedures. For purposes of
making the elections provided in Section 5.4, 5.5 and 5.7, each Participant and
Beneficiary, if applicable, shall be provided with an election form prepared by
the Administrator within a reasonable period of time after the Participant
experiences a distributable event or becomes eligible for the special Age 60 or
Age 65 Benefit Payment Distribution Options prescribed in Section 5.7. This
election form must be properly executed by the Participant on or before the
ninetieth day from the day such form is provided to the Participant. If an
election form is not properly executed as provided herein, the Participant will
be deemed (a) in the case of the elections provided in Section 5.4 and 5.5 to
have elected to receive his or her Plan Benefits in annual installments over a
three to ten year period commencing three months from the date the ninety-day
period provided herein expires; or (b) in the case of the elections provided in
Section 5.7 to have declined to begin receiving Plan Benefits under the special
Age 60 or Age 65 Benefit Payments Distribution Option provided in Section 5.7.

SECTION 5.9 Form of Benefit Payments Upon Death. Upon the death of a
Participant who has not yet begun to receive benefits under this Plan, the
Participant's Beneficiary or

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Beneficiaries may elect to receive the Plan Benefit in accordance with Section
5.4. Upon the death of a Participant who has already begun to receive his Plan
Benefit under this Plan in the form of installments, the Participant's
Beneficiaries will receive the remaining Plan Benefits in equal annual
installments in the same manner elected by the Participant.

SECTION 5.10 Designation of Beneficiary. A Participant may, in the
Participant Deferral Agreement, designate one or more primary and contingent
Beneficiaries to receive the Plan Benefit which may be payable hereunder
following the Participant's death, and may designate the proportions in which
such Beneficiaries are to receive such payments. A Participant may change
such designations from time to time, and the last written designation filed
with the Administrator prior to the Participant's death shall control. If a
Participant fails to specifically designate a Beneficiary or, if no designated
Beneficiary survives the Participant, payment shall be made to the
Participant's estate in a single lump-sum, notwithstanding any other provision
of this Plan.

SECTION 5.11 Hardship Withdrawals of Elective Deferral and Employer
Contributions. A distribution in an amount no greater than a Participant's
Account balance may be made to a Participant in the event of hardship. For
this purpose, a withdrawal will be considered to be required due to a hardship
only if, under uniform rules and policies, the Administrator determines that
the purpose of the withdrawal is to meet an immediate and heavy financial need.
The decision of the Administrator as to whether a hardship withdrawal shall be
permitted is final and conclusive.

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ARTICLE VI
ADMINISTRATION

SECTION 6.1 General. The Administrator shall be the Board, or such other
person or persons as designated by the Board. Except as otherwise specifically
provided in the Plan, the Administrator shall be responsible for administration
of the Plan. The Administrator shall be the "named fiduciary" within the
meaning of Section 402(c)(2) of ERISA.

SECTION 6.2 Administrative Rules. The Administrator may adopt such rules
of procedure as it deems desirable for the conduct of its affairs, except to
the extent that such rules conflict with the provisions of the Plan.

SECTION 6.3 Duties. The Administrator shall have the following rights,
powers and duties:

(a) The decision of the Administrator in matters within its
jurisdiction shall be final, binding and conclusive upon the
Employer and upon any other person affected by such decision,
subject to the claims procedure hereinafter set forth.

(b) The Administrator shall have the duty and authority to
interpret and construe the provisions of the Plan, to decide
any question which may arise regarding the rights of Employees
or Consultants, Participants, and Beneficiaries, and the
amount of their respective interests, to adopt such rules and
to exercise such powers as the Administrator may deem
necessary for the administration of the Plan, and to exercise
any other rights, powers or privileges granted to the
Administrator by the terms of the Plan.

(c) The Administrator shall maintain full and complete records of
its decisions. Its records shall contain all relevant data
pertaining to the Participant and his rights and duties under
the Plan. The Administrator shall have the duty to maintain
Account records of all Participants. The Administrator shall
also have the duty to report pertinent information regarding
Participant Accounts to Participants at least annually.

(d) The Administrator shall cause the principal provisions of the
Plan to be communicated to the Participants, and a copy of the
Plan and other documents shall be available at the principal
office of the Employer for inspection by the Participants at
reasonable times determined by the Administrator.

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(e) The Administrator shall periodically report to the Board with
respect to the status of the Plan.

SECTION 6.4 Fees. No fee or compensation shall be paid to any person for
services as the Administrator.

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ARTICLE VII
CLAIMS PROCEDURE

SECTION 7.1 General. Any claim for Plan Benefits under the Plan shall be
filed by the Participant or Beneficiary ("claimant") on the form prescribed for
such purpose with the Administrator.

SECTION 7.2 Denials. If a claim for Plan Benefits under the Plan is
wholly or partially denied, notice of the decision shall be furnished to the
claimant by the Administrator within sixty days after receipt of the claim by
the Administrator, unless special circumstances require an extension of time of
sixty days (for a total of 120 days).

SECTION 7.3 Notice. Any claimant who is denied a claim for Plan Benefits
shall be furnished written notice setting forth:

(a) the specific reason or reasons for the denial;

(b) specific reference to the pertinent provision of the Plan upon
which the denial is based;

(d) an explanation of the claim review procedure under Section
7.5.

SECTION 7.4 Appeals Procedure. In order that a claimant may appeal a
denial of a claim, the claimant or the claimant's duly authorized
representative may:

(a) request a review by written application to the Administrator,
or its designate, no later than sixty days after receipt by
the claimant of written notification of denial of a claim;

(b) review pertinent documents; and

SECTION 7.5 Review. A decision on review of a denied claim shall be made
not later than sixty days after receipt of a request for review, unless special
circumstances require an extension of time for processing, in which case a
decision shall be rendered within a reasonable period of time, but not later
than 120 days after receipt of a request for review. The decision on review
shall be in writing and shall include the specific reason(s) for the decision
and the specific reference(s) to the pertinent provisions of the Plan on which
the decision is based.

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ARTICLE VIII
CHANGE IN CONTROL

SECTION 8.1. In General. Unless otherwise set forth in the applicable
Award agreement, in the event of a "Change in Control" as defined in Section
8.2 of the Plan, all amounts in all Participant Accounts including the Formula
Award Account, will be 100% vested and will be immediately distributed to the
Participants.

SECTION 8.2. Definition of "Change in Control". For purposes of Section
8.1 of the Plan, a "Change in Control" means (i) the sale of all or
substantially all of the Employer's assets, (ii) the acquisition, whether
directly, indirectly, beneficially (within the meaning of Rule 13d-3 of the
1934 Act), or of record, or securities of the Company representing twenty-five
percent (25%) or more of the aggregate voting power of the Employer's
outstanding common stock by any person (within the meaning of Section 13(d)
and 14(d) of the 1934 Act), including any corporation or group of associated
persons acting in concert, other than (A) the Employer or its subsidiaries and/
or (B) any employee pension benefit plan (within the meaning of Section 3(2)
of the Employee Retirement Income Security Act of 1974) of the Employer or its
subsidiaries, including a trust established pursuant to any such plan, or (iii)
a merger or consolidation of the Employer with another entity unless the
Employer is the surviving company in such merger or consolidation. For
purposes of this Plan, a Change in Control shall not be deemed to occur upon
the merger of Allied Capital Corporation, Allied Capital Corporation II, Allied
Capital Commercial Corporation, and Allied Capital Advisers, Inc., with and
into Allied Capital Lending Corporation.

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ARTICLE IX
TRUST

SECTION 9.1 Trust. A trust to be known as the Allied Capital Corporation
Deferred Compensation Trust (the "Trust") has been established by the execution
of a Trust agreement with one or more Trustees and is intended to be maintained
as a "grantor trust" under Code Section 677. The assets of the Trust will be
held, invested and disposed of by the Trustee, in accordance with the terms of
the Trust, for the purpose of providing Plan Benefits for the Participants.
Notwithstanding any provision of the Plan or the Trust to the contrary, the
assets of the Trust shall at all times be subject to the claims of the
Employer's general creditors in the event of insolvency or bankruptcy.

SECTION 9.2 Contributions and Expenses. The Employer, in its sole
discretion, and from time to time, may make contributions to the Trust. All
Plan Benefits under the Plan and expenses chargeable to the Plan, to the extent
not paid directly by the Employer, shall be paid from the Trust.

SECTION 9.3 Trustee Duties. The powers, duties and responsibilities of
the Trustee shall be asset forth in the Trust agreement and nothing contained
in the Plan, either expressly orby implication, shall impose any additional
powers, duties or responsibilities upon the Trustee.

SECTION 9.4 Reversion to the Employer. The Employer shall have no
beneficial interest in the Trust and no part of the Trust shall ever revert or
be repaid to the Employer, directly or indirectly, except with respect to any
unvested amounts in a Participant's Formula Award Account, or as otherwise
provided in Section 8.1 or the Trust agreement.

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ARTICLE X
MISCELLANEOUS PROVISIONS

SECTION 10.1 Amendment. The Employer reserves the right to amend the Plan
in any manner that it deems advisable, by a resolution of the Board. No
amendment shall, without the Participant's consent, affect the amount of the
Participant's Plan Benefit at the time the amendment becomes effective or the
right of the Participant to receive a Plan Benefit.

SECTION 10.2 Termination. The Employer reserves the right to terminate the
Plan at any time by resolution of its Board. No termination shall, without the
Participant's consent, affect the amount of the Participant's Plan Benefit
prior to the termination or the right of the Participant to receive a Plan
Benefit.

SECTION 10.3 No Assignment. The Participant shall not have the power to
pledge, transfer, assign, anticipate, mortgage or otherwise encumber or dispose
of in advance any interest in amounts payable hereunder or any of the payments
provided for herein, nor shall any interest in amounts payable hereunder or in
any payments be subject to seizure for payments of any debts, judgments,
alimony or separate maintenance, or be reached or transferred by operation of
law in the event of bankruptcy, insolvency or otherwise.

SECTION 10.4 Successors and Assigns. The provisions of the Plan are
binding upon and inure to the benefit of the Employer, its successors and
assigns, and the Participant, his Beneficiaries, heirs, legal representatives
and assigns.

SECTION 10.5 Governing Law. The Plan shall be subject to and construed in
accordance with the laws of the Commonwealth of Virginia to the extent not
preempted by the provisions of ERISA.

SECTION 10.6 No Guarantee of Employment. Nothing contained in the Plan
shall be construed as a contract of employment or deemed to give any
Participant the right to be retained in the employ of an Employer or any equity
or other interest in the assets, business or affairs of the Employer. No
Participant hereunder shall have a security interest in assets of the Employer
used to make contributions or pay Plan Benefits.

SECTION 10.7 Severability. If any provision of the Plan shall be held
illegal or invalid for any reason, such illegality or invalidity shall not
affect the remaining provisions of the Plan, but the Plan shall be construed
and enforced as if such illegal or invalid provision had never been included
herein.

SECTION 10.8 Notification of Addresses. Each Participant and each
Beneficiary shall file with the Administrator, from time to time, in writing,
the post office address of the Participant, the post office address of each
Beneficiary, and each change of post office address. Any communication,
statement or notice addressed to the last post office

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address filed with the Administrator (or if no such address was filed with the
Administrator, then to the last post office address of the Participant or
Beneficiary as shown on the Employer's records) shall be binding on the
Participant and each Beneficiary for all purposes of the Plan and neither the
Administrator nor the Employer shall be obligated to search for or ascertain
the whereabouts of any Participant or Beneficiary.

SECTION 10.9 Bonding. The Administrator and all agents and advisors
employed by it shall not be required to be bonded, except as otherwise required
by ERISA.

The undersigned, pursuant to the approval of the Board, does hereby execute the
Allied Capital Corporation Deferred Compensation Plan on this 1st day of
January, 1998.

ALLIED CAPITAL CORPORATION

Attest:/s/ KELLY A. ANDERSON By: /s/ JOAN M. SWEENEY
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Signature) (Signature)

Kelly A. Anderson Joan M. Sweeney
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(Print Name) (Print Name)