def14a
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. )
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Filed by the Registranto
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Filed by a Party other than the
Registranto
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Check the appropriate box:
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o Preliminary Proxy
Statement
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o Confidential, for Use
of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
þ Definitive Proxy
Statement
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o Definitive Additional
Materials
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o Soliciting Material
Pursuant to Rule 14a-11(c) or Rule 14a-12 |
Allied Capital Corporation
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
þ No
fee required.
o Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction
applies:
(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): |
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
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o |
Fee paid previously with
preliminary materials.
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o |
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.
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(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
Allied Capital
Corporation
Notice of Annual
Meeting of Stockholders
To the Stockholders:
The 2006 Annual Meeting of Stockholders of Allied Capital
Corporation (the Company) will be held at the
Madison Hotel, Fifteenth & M Streets, NW, Washington, DC on
May 16, 2006, at 10:00 a.m. (Eastern Time) for the
following purposes:
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1. To elect five directors of the Company who will serve
for three years, or until their successors are elected and
qualified; |
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2. To ratify the selection of KPMG LLP to serve as the
independent registered public accounting firm for the Company
for the year ending December 31, 2006; |
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3. To approve the issuance of up to 2,500,000 shares of
common stock in exchange for the cancellation of vested
in-the-money options granted to certain officers and directors
in connection with a stock ownership initiative; and |
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4. To transact such other business as may properly come
before the meeting and any adjournments or postponements thereof. |
You have the right to receive notice of and to vote at the
meeting if you were a stockholder of record at the close of
business on February 17, 2006. Whether or not you expect to
be present in person at the Meeting, please sign the enclosed
proxy and return it promptly in the envelope provided, or
register your vote by telephone or through the Internet.
Instructions are shown on the proxy card. In the event there are
not sufficient votes for a quorum or to approve or ratify any of
the foregoing proposals at the time of the Annual Meeting, the
Annual Meeting may be adjourned in order to permit further
solicitation of the proxies by the Company.
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By order of the Board of Directors, |
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![(-s- Suzanne V. Sparrow)](w18015dfsuspars1.gif) |
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Suzanne V. Sparrow |
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Executive Vice President and |
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Corporate Secretary |
Washington, DC
April 7, 2006
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This is an important meeting. To ensure proper representation at
the Meeting, please complete, sign, date and return the proxy
card in the enclosed, self-addressed envelope, vote your shares
by telephone, or vote via the Internet. Even if you vote your
shares prior to the Meeting, you still may attend the Meeting
and vote your shares in person. |
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Allied Capital
Corporation
1919 Pennsylvania Avenue, NW
Washington, DC 20006
PROXY STATEMENT
General
This Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Directors of Allied
Capital Corporation (the Company or Allied
Capital) for use at the Companys 2006 Annual Meeting
of Stockholders (the Meeting) to be held on
May 16, 2006, at 10:00 a.m. (Eastern Time) at the
Madison Hotel, Fifteenth & M Streets, NW, Washington, DC and
at any adjournments or postponements thereof. This Proxy
Statement, the accompanying proxy card, and the Companys
Annual Report to Stockholders for the year ended
December 31, 2005, are first being sent to stockholders on
or about April 7, 2006.
We encourage you to vote your shares, either by voting in person
at the Meeting or by granting a proxy (i.e., authorizing
someone to vote your shares). If you properly sign and date the
accompanying proxy card or otherwise provide voting
instructions, either via the Internet or the telephone, and the
Company receives it in time for the Meeting, the persons named
as proxies will vote the shares registered directly in your name
in the manner that you specified. If you give no instructions
on the proxy card, the shares covered by the proxy card 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.
If you are a stockholder of record (i.e., you
hold shares directly in your name), you may revoke a proxy at
any time before it is exercised by notifying the proxy
tabulator, Automatic Data Processing, Inc., in writing. Please
send your notification to Allied Capital Corporation, c/o ADP,
51 Mercedes Way, Edgewood, NY 11717, and submit a properly
executed, later-dated proxy or vote in person at the Meeting.
Any stockholder of record attending the Meeting may vote in
person whether or not he or she has previously voted his or her
shares. 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 and present it at the Meeting.
Stockholders of record may also vote either via the Internet or
by telephone. Specific instructions to be followed by
stockholders of record interested in voting via the Internet or
the telephone are shown on the enclosed proxy card. The Internet
and telephone voting procedures are designed to authenticate the
stockholders identity and to allow stockholders to vote
their shares and confirm that their instructions have been
properly recorded.
Annual Meeting Admission
If you plan to attend the Meeting, an admission ticket will be
required for admission to the Meeting. If you are a stockholder
of record, your ticket is attached to your proxy card. If your
shares are held in the name of a broker or other nominee and you
do not have an admission ticket, please bring with you a legal
proxy or letter from the broker, trustee, bank, or nominee
confirming your beneficial ownership of the shares as of the
record date, February 17, 2006.
Purpose of Meeting
At the Meeting, you will be asked to vote on the following
proposals:
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1. To elect five directors of the Company who will serve
for three years, or until their successors are elected and
qualified; |
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2. To ratify the selection of KPMG LLP to serve as the
independent registered public accounting firm for the Company
for the year ending December 31, 2006; |
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3. To approve the issuance of up to 2,500,000 shares of
common stock in exchange for the cancellation of vested
in-the-money options granted to certain officers and directors
in connection with a stock ownership initiative; and |
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4. To transact such other business as may properly come
before the Meeting and any adjournments or postponements thereof. |
Voting Securities
You may vote your shares at the Meeting only if you were a
stockholder of record at the close of business on
February 17, 2006 (the Record Date). On
February 17, 2006, there were 139,731,159 shares of the
Companys common stock outstanding. Each share of common
stock is entitled to one vote.
The Companys 401(k) Plan owns a total of 202,626 shares,
representing less than 1% of the Companys total
outstanding shares. The sub-trustees of the fund holding Company
shares within the 401(k) Plan, who are executive officers of the
Company, will vote the shares on behalf of the participants
pursuant to their instructions.
Quorum Required
A quorum must be present at the Meeting for any business to be
conducted. The presence at the Meeting, in person or by proxy,
of the holders of a majority of the shares of common stock
outstanding on the record date will constitute a quorum.
Abstentions will be treated as shares present for quorum
purposes. Broker Shares for which the nominee has not received
voting instructions from the record holder and does not have
discretionary authority to vote the shares on certain proposals
(which are considered Broker Non-Votes with respect
to such proposals) will be treated as shares present for quorum
purposes.
If a quorum is not present at the Meeting, the stockholders who
are represented may adjourn the Meeting until a quorum is
present. 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 the
further solicitation of proxies.
Vote Required
Election of Nominee Directors.
The affirmative vote of a majority of the votes cast at the
Meeting is required to elect the five nominees as directors.
Abstentions will not be included in determining the number of
votes cast and, as a result, will have no effect on this
proposal.
2
Ratification of Independent
Registered Public Accounting Firm. The affirmative vote of a
majority of the votes cast at the Meeting in person or by proxy
is required to ratify the appointment of KPMG LLP to serve as
the Companys independent registered public accounting
firm. Abstentions will not be included in determining the number
of votes cast and, as a result, will have no effect on this
proposal.
Approval of the issuance of up
to 2,500,000 shares of common stock in exchange for the
cancellation of vested in-the-money options granted to certain
officers and directors in connection with a stock ownership
initiative. The affirmative vote of a majority of the votes
cast at the Meeting in person or by proxy is required to approve
this proposal, provided that the total votes cast on this
proposal represents over 50% in interest of all shares entitled
to vote on the proposal. Abstentions and broker non-votes will
have the same effect as votes against the proposal, unless
holders of more than 50% of all securities entitled to vote on
the proposal cast votes, in which event abstentions and broker
non-votes will not have any effect on the result of the votes.
Additional Solicitation. If
there are not enough votes to approve any proposals at the
Meeting, the stockholders who are represented may adjourn the
Meeting to permit the further solicitation of proxies. 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 the further
solicitation of proxies. Those proxies voted against any
proposal for which an adjournment is sought will be voted
against such adjournment.
Also, a stockholder vote may be taken on one or more of the
proposals in this Proxy Statement prior to any such adjournment
if there are sufficient votes for approval of such proposal(s).
Information Regarding This Solicitation
The Company will bear the expense of the solicitation of proxies
for the Meeting, including the cost of preparing, printing, and
mailing this Proxy Statement, the accompanying Notice of Annual
Meeting of Stockholders, the proxy card, and admission tickets.
The Company has requested that brokers, nominees, fiduciaries,
and other persons holding shares in their names, or in the name
of their nominees, which are beneficially owned by others,
forward the proxy materials to, and obtain proxies from, such
beneficial owners. The Company will reimburse such persons for
their reasonable expenses in so doing.
In addition to the solicitation of proxies by mail, proxies may
be solicited in person and by telephone, facsimile transmission,
or telegram by directors, officers, or regular employees of the
Company (without special compensation therefor). The Company has
also retained Georgeson Shareholder Communications, Inc. to
assist in the solicitation of proxies for a fee of approximately
$7,000, plus out-of-pocket expenses. Any proxy given pursuant to
this solicitation may be revoked by notice from the person
giving the proxy at any time before it is exercised. Any such
notice of revocation should be provided in writing and signed by
the stockholder in the same manner as the proxy being revoked
and delivered to the Companys proxy tabulator.
3
Security Ownership of Management and Certain Beneficial
Owners
The following table sets forth, as of March 10, 2006, each
stockholder who owned more than 5% of the Companys
outstanding shares of common stock, each current director, each
nominee for director, the Chief Executive Officer, the
Companys executive officers, and the directors and
executive officers as a group. Unless otherwise indicated, the
Company believes that each beneficial owner set forth in the
table has sole voting and investment power.
The Companys directors are divided into two
groups interested directors and independent
directors. Interested directors are interested
persons as defined in the Investment Company Act of 1940.
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Dollar Range of | |
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Equity Securities | |
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Number of | |
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Beneficially | |
Name of |
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Shares Owned | |
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Percentage | |
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Owned by | |
Beneficial Owner |
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Beneficially(1) | |
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of Class(2) | |
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Directors(3) | |
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Capital Research and Management Company
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7,646,020 |
(4) |
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5.5 |
% |
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333 South Hope Street, 55th Floor
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Los Angeles, CA 90071-1447
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Interested Directors:
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William L. Walton
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3,463,419 |
(5,6,7) |
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2.4 |
% |
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over $100,000 |
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Joan M. Sweeney
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1,881,149 |
(5) |
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1.3 |
% |
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over $100,000 |
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Robert E. Long
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51,111 |
(8) |
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* |
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over $100,000 |
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Independent Directors:
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Ann Torre Bates
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23,500 |
(7,8) |
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* |
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over $100,000 |
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Brooks H. Browne
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83,713 |
(7,8) |
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* |
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over $100,000 |
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John D. Firestone
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72,426 |
(7,8) |
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* |
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over $100,000 |
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Anthony T. Garcia
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98,512 |
(8) |
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* |
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over $100,000 |
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Edwin L. Harper
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400 |
(15) |
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* |
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$10,000-$50,000 |
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Lawrence I. Hebert
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52,800 |
(8,14) |
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* |
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over $100,000 |
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John I. Leahy
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57,318 |
(8) |
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* |
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over $100,000 |
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Alex J. Pollock
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27,187 |
(7,8,9) |
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* |
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over $100,000 |
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Marc F. Racicot
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10,000 |
(8) |
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* |
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over $100,000 |
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Guy T. Steuart II
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364,144 |
(8,10) |
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* |
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over $100,000 |
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Laura W. van Roijen
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73,208 |
(7,8) |
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* |
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over $100,000 |
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Dollar Range of | |
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Equity Securities | |
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Number of | |
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Beneficially | |
Name of |
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Shares Owned | |
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Percentage | |
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Owned by | |
Beneficial Owner |
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Beneficially(1) | |
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of Class(2) | |
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Directors(3) | |
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Executive Officers:
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Kelly A. Anderson
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285,321 |
(5) |
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* |
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Scott S. Binder
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748,825 |
(5,7,11) |
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* |
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Michael J. Grisius
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636,497 |
(5,7) |
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* |
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Jeri J. Harman
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158,166 |
(5) |
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* |
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Thomas C. Lauer
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78,407 |
(5,7) |
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* |
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Robert D. Long
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857,032 |
(5,7,12) |
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* |
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Justin S. Maccarone
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138,186 |
(5) |
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* |
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Diane E. Murphy
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311,305 |
(5) |
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* |
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Penni F. Roll
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693,272 |
(5) |
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* |
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Daniel L. Russell
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309,085 |
(5) |
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* |
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John M. Scheurer
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1,295,240 |
(5) |
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* |
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John D. Shulman
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844,549 |
(5) |
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* |
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Suzanne V. Sparrow
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463,441 |
(5,6) |
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* |
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All directors and executive officers as a group (27 in
number)
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12,779,243 |
(13) |
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8.5 |
% |
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* Less than 1%
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(1) |
Beneficial ownership has been determined in accordance with
Rule 13d-3 of the
Securities Exchange Act of 1934. |
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(2) |
Based on a total of 139,825,334 shares of the Companys
common stock issued and outstanding on March 10, 2006, and
the number of shares of the Companys common stock issuable
upon the exercise of stock options exercisable within
60 days held by each executive officer and non-officer
director, which totals 9,957,230 in the aggregate. |
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(3) |
Beneficial ownership has been determined in accordance with
Rule 16a-1(a)(2)
of the Securities Exchange Act of 1934. |
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(4) |
Information regarding share ownership was obtained from the
Schedule 13F-HR
that Capital Research and Management Company filed with the SEC
on February 14, 2006. |
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(5) |
Share ownership for the following directors and executive
officers includes: |
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Owned | |
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Options | |
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Through | |
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Exercisable | |
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Deferred | |
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Within 60 Days | |
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Allocated | |
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Owned | |
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Compensation | |
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of March 10, | |
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to 401(k) | |
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Directly | |
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Plans (16) | |
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2006 | |
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Plan | |
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Interested Directors:
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William L. Walton
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466,264 |
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175,895 |
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2,618,634 |
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7,469 |
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Joan M. Sweeney
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298,966 |
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87,850 |
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1,478,220 |
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16,113 |
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Executive Officers:
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Kelly A. Anderson
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110,050 |
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8,356 |
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160,942 |
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5,973 |
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Scott S. Binder
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91,260 |
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42,043 |
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613,550 |
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1,972 |
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Michael J. Grisius
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55,610 |
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32,199 |
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530,026 |
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18,662 |
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Jeri J. Harman
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8,166 |
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150,000 |
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Thomas C. Lauer
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4,421 |
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2,268 |
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71,079 |
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639 |
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Robert D. Long
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21,000 |
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35,194 |
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797,354 |
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3,484 |
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Justin S. Maccarone
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4,852 |
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133,334 |
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Diane E. Murphy
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6,244 |
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17,006 |
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288,043 |
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12 |
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Penni F. Roll
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83,096 |
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27,848 |
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571,460 |
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10,868 |
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Daniel L. Russell
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1,060 |
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17,179 |
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290,846 |
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John M. Scheurer
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266,497 |
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66,452 |
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923,670 |
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38,621 |
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John D. Shulman
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4,799 |
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32,648 |
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807,102 |
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Suzanne V. Sparrow
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80,956 |
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8,389 |
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171,470 |
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26,405 |
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(6) |
Includes 202,626 shares held by the 401(k) Plan, of which
Mr. Walton and Ms. Sparrow are sub-trustees of the
fund holding the Companys shares. The sub-trustees
disclaim beneficial ownership of such shares. |
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(7) |
Includes certain shares held in IRA or Keogh accounts:
Walton 12,015 shares; Bates 3,500
shares; Browne 12,280 shares; Firestone
3,415 shares; Pollock 1,000 shares; van
Roijen 7,752 shares; Binder 273 shares;
Grisius 1,149 shares; Lauer 500 shares;
and R.D. Long 17,000 shares. |
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(8) |
Beneficial ownership for these non-officer directors includes
exercisable options to purchase 40,000 shares, except with
respect to Ms. Bates who has exercisable options to
purchase 20,000 shares, Mr. Leahy who has exercisable
options to purchase 37,500 shares, Mr. Pollock who has
exercisable options to purchase 9,000 shares, and
Mr. Racicot who has exercisable options to purchase 10,000
shares. |
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(9) |
Includes 3,987 shares held in the Deferred Compensation Plans
for Mr. Pollock. |
|
|
(10) |
Includes 276,691 shares held by a corporation for which
Mr. Steuart serves as an executive officer. |
|
(11) |
Includes 20,000 shares held in a charitable remainder trust. |
|
(12) |
Includes 4,000 shares held by a trust for the benefit of
Mr. Longs children. |
|
(13) |
Includes a total of 9,957,230 shares underlying stock options
exercisable within 60 days of March 10, 2006, which
are assumed to be outstanding for the purpose of calculating the
groups percentage ownership, and 202,626 shares held by
the 401(k) Plan. |
|
(14) |
Includes 9,000 shares held in a revocable trust. |
|
(15) |
Includes 400 shares held in a revocable trust. |
|
(16) |
See Individual Performance Award and The 2005
Deferred Compensation Award II for a discussion of shares
owned through the deferred compensation plans. |
6
PROPOSAL 1.
ELECTION OF DIRECTORS
Pursuant to the Companys bylaws, the Board of Directors
may modify the number of members of the Board provided that the
number of directors will not be fewer than three or greater than
fifteen, unless otherwise permitted by law. In accordance with
the bylaws, in March 2006, the Board of Directors expanded the
number of directors from thirteen to fourteen and appointed
Edwin L. Harper to fill the vacant position. Directors are
elected for a staggered term of three years each, with the term
of office of only one of the three classes of directors expiring
each year. Directors serve until their successors are elected
and qualified.
The Class II directors, Ms. Bates and
Messrs. Harper, Leahy, Pollock, and Steuart have been
nominated for election for a three-year term expiring in 2009.
Each Class II director has agreed to serve as a director if
elected and has consented to be named as a nominee. No person
being nominated as a director is being proposed for election
pursuant to any agreement or understanding between any such
person and the Company.
A stockholder can vote for or withhold his or her vote from any
or all of the nominees. In the absence of instructions to the
contrary, it is the intention of the persons named as proxies to
vote such proxy FOR the election of all the nominees named
below. If any of the nominees should decline or be unable to
serve as a director, it is intended that the proxy will be voted
for the election of such person or persons as are nominated as
replacements. The Board of Directors has no reason to
believe that any of the persons named will be unable or
unwilling to serve.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT
STOCKHOLDERS VOTE FOR THE ELECTION OF THE NOMINEES NAMED IN
THIS PROXY STATEMENT.
Information about the Directors
Certain information, as of March 10, 2006, with respect to
each of the five nominees for election at the Meeting, as well
as each of the current directors, is set forth below, including
their names, ages, a brief description of their recent business
experience, including present occupations and employment,
certain directorships that each nominee holds, and the year in
which each nominee became a director of the Company or any of
its predecessor companies.
The Board of Directors of each consolidated subsidiary will be
composed of all of the Companys directors. The business
address of each nominee and director listed below is 1919
Pennsylvania Avenue, NW, Washington, DC 20006.
7
Nominees for Class II Directors Term
Expiring 2009
All five Class II directors are independent directors
for purposes of the Investment Company Act of 1940.
Ann Torre Bates
Age 47. Ms. Bates has been a strategic and financial
consultant since 1997. From 1995 to 1997, Ms. Bates served
as Executive Vice President, CFO and Treasurer of NHP, Inc., a
national real estate services firm. From 1991 to 1995,
Ms. Bates was Vice President and Treasurer of US Airways.
She currently serves on the boards and audit committees of
Franklin Mutual Series and SLM Corporation (Sallie Mae). She has
served as a director of the Company since 2003.
Edwin L. Harper
Age 64. Mr. Harper has been an executive for Assurant,
Inc., a financial services and insurance provider, since 1998.
He currently serves as Senior Vice President, Public Affairs and
Government Relations and previously served as Chief Operating
Officer and Chief Financial Officer for Assurants largest
subsidiary. From 1992 to 1997, Mr. Harper served as
President and Chief Executive Officer of the Association of
American Railroads. He also spent five years with Campbell Soup
Company, serving as Chief Financial Officer from 1986 to 1991.
Earlier in his career, Mr. Harper served on the White House
staffs of both President Reagan and President Nixon.
Mr. Harper currently serves as Director for the Council for
Excellence in Government. He has served as a director of the
Company since March 2006.
John I. Leahy
Age 75. Mr. Leahy has been the President of Management and
Marketing Associates, a management consulting firm, since 1986.
Previously, Mr. Leahy spent 34 years of his career
with Black & Decker Corporation, where he served as
President and CEO of the United States subsidiary from 1979 to
1981 and President and Group Executive Officer of the Western
Hemisphere of Black & Decker Corporation from 1982 to
1985. Mr. Leahy is currently a director of B&L Sales,
Inc. and is Trustee Emeritus of the Sellinger School of
Business, Loyola College, Maryland. He has served as a director
of the Company or one of its predecessors since 1994.
Alex J. Pollock
Age 63. Mr. Pollock has been a Resident Fellow at the
American Enterprise Institute since 2004. He was President and
Chief Executive Officer of the Federal Home Loan Bank of Chicago
from 1991 to 2004. He currently serves as a director of the
Chicago Mercantile Exchange, Great Lakes Higher Education
Corporation, the Great Books Foundation, the Illinois Council on
Economic Education and the International Union for Housing
Finance. He has served as a director of the Company since 2003.
Guy T. Steuart II
Age 74. Mr. Steuart has been a director of Steuart
Investment Company, which manages, operates, and leases real and
personal property and holds stock in operating subsidiaries
engaged in various businesses, since 1960 where he served as
President until 2003 and currently serves as Chairman.
Mr. Steuart has served as Trustee Emeritus of Washington
and Lee University since 1992. He has served as a director of
the Company or one of its predecessors since 1984.
8
Class III Directors Term Expiring
2007
Messrs. Walton and Long and Ms. Sweeney are
interested persons, as defined in the Investment Company Act of
1940, in the cases of Mr. Walton and Ms. Sweeney, due
to their positions as officers of the Company and in the case of
Mr. Long, as the father of an executive officer of the
Company. Mr. Browne is an independent director.
William L. Walton
Age 56. Mr. Walton has been the Chairman, Chief Executive
Officer, and President of the Company since 1997.
Mr. Waltons previous experience includes serving as a
Managing Director of Butler Capital Corporation, a mezzanine
buyout firm, the personal investment advisor to William S.
Paley, founder of CBS, and a Senior Vice President in Lehman
Brothers Kuhn Loebs Merger and Acquisition Group. He also
founded two education service companies Language
Odyssey and Success Lab. Mr. Walton currently serves on the
Board of Directors for the National Foundation for Teaching
Entrepreneurship and the National Symphony Orchestra. He is a
member of the World Economic Forum and an Advisory Board member
for the Center for Strategic & International Studies.
Mr. Walton also serves on The Kelley School of Business
Board of Advisors at Indiana University. He has served as
director of the Company or one of its predecessors since 1986.
Joan M. Sweeney
Age 46. Ms. Sweeney is the Chief Operating Officer of the
Company and has been employed by the Company since 1993.
Ms. Sweeney oversees the Companys daily operations.
Prior to joining Allied Capital, Ms. Sweeney was employed
by Ernst & Young, Coopers & Lybrand, and the
Division of Enforcement of the Securities and Exchange
Commission. She has served as a director of the Company since
2004.
Brooks H. Browne
Age 56. Mr. Browne has been a private investor since 2002.
Mr. Browne was the President of Environmental Enterprises
Assistance Fund from 1993 to 2002 and served as a director from
1991 to 2005. He currently serves as Vice Chairman of the Board
for Winrock International, a non-profit organization. He has
served as a director of the Company or one of its predecessors
since 1990.
Robert E. Long
Age 74. Mr. Long has been the Chief Executive Officer and a
director of GLB Group, Inc., an investment management firm,
since 1997 and President of Ariba GLB Group, Inc., the parent
company of GLB Group, Inc., since 2005. He has been the
Chairman of Emerald City Radio Partners, LLC since 1997.
Mr. Long was the President of Business News Network, Inc.
from 1995 to 1998, the Chairman and Chief Executive Officer of
Southern Starr Broadcasting Group, Inc. from 1991 to 1995, and a
director and the President of Potomac Asset Management, Inc.
from 1983 to 1991. Mr. Long is a director of AmBase
Corporation, CSC Scientific, Inc., and Advanced Solutions
International, Inc. He has served as a director of the Company
or one of its predecessors since 1972. Mr. Long is the
father of Robert D. Long, an executive officer of the Company.
9
Class I Directors Term Expiring
2008
All five Class I directors are independent directors for
purposes of the Investment Company Act of 1940.
John D. Firestone
Age 62. Mr. Firestone has been a Partner of Secor Group, a
venture capital firm since 1978. Mr. Firestone has also
served as a director of Security Storage Company of Washington,
DC, since 1978. He is currently a director of Cuisine Solutions,
Inc., and four non-profit organizations, including the National
Rehabilitation Hospital, The Washington Ballet and the Tudor
Place Foundation of which he is the past president. From 1997 to
2001 he was a director of The Bryn Mawr Trust Corporation. He
has served as a director of the Company or one of its
predecessors since 1993.
Anthony T. Garcia
Age 49. Mr. Garcia has been a private investor since 2003.
Mr. Garcia was Vice President of Finance of Formity
Systems, Inc., a developer of software products for business
management of data networks, from January 2002 through 2003.
Mr. Garcia was a private investor from 2000 to 2001, the
General Manager of Breen Capital Group, an investor in tax
liens, from 1997 to 2000, and a Senior Vice President of Lehman
Brothers Inc. from 1985 to 1996. He has served as a director of
the Company or one of its predecessors since 1991.
Lawrence I. Hebert
Age 59. Mr. Hebert is Senior Advisor for PNC Bank, N.A.,
and was a director and President and Chief Executive Officer of
Riggs Bank N.A., a subsidiary of Riggs National Corporation,
from 2001 to 2005. Mr. Hebert also served as Chief
Executive Officer of Riggs National Corporation during 2005 and
served as a director of Riggs National Corporation from 1988 to
2005. Mr. Hebert served as a director of Riggs Investment
Advisors and Riggs Bank Europe Limited (both indirect
subsidiaries of Riggs National Corporation). Mr. Hebert
previously served as Vice Chairman from 1983 to 1998, President
from 1984 to 1998, and Chairman and Chief Executive Officer from
1998 to 2001 of Allbritton Communications Company. He has served
as a director of the Company or one of its predecessors since
1989.
Marc F. Racicot
Age 57. Mr. Racicot has served as President and Chief
Executive Officer of the American Insurance Association since
August 2005. Prior to that, he was an attorney at the law firm
of Bracewell & Giuliani, LLP from 2001 to 2005. He is a
former Governor (1993 to 2001) and Attorney General (1989 to
1993) of the State of Montana. Mr. Racicot was appointed by
President Bush to serve as the Chairman of the Republican
National Committee from 2002 to 2003 and he served as Chairman
of the Bush/ Cheney Re-election Committee from 2003 to 2004. He
presently serves on the Board of Directors for Burlington
Northern Santa Fe Corporation, Massachusetts Mutual Life
Insurance Company, Jobs for Americas Graduates, and the
Board of Visitors for the University of Montana School of Law.
He has served as a director of the Company since March 2005.
10
Laura W. van Roijen
Age 53. Ms. van Roijen has been a private investor since 1992.
Ms. van Roijen was a Vice President at Citicorp from 1982 to
1992. She has served as a director of the Company or one of its
predecessors since 1992.
Committees of the Board of Directors
The Board of Directors of the Company has established an
Executive Committee, an Audit Committee, a Compensation
Committee, and a Corporate Governance/ Nominating Committee. The
Audit Committee, Compensation Committee, and Corporate
Governance/ Nominating Committee each operate pursuant to a
committee charter. The charter of each Committee is available on
the Companys web site at www.alliedcapital.com in the
Investor Resources section and is also available in print to any
stockholder who requests a copy.
During 2005, the Board of Directors of the Company held 17 Board
meetings and 76 committee meetings. All directors attended at
least 75% of the aggregate number of meetings of the Board and
of the respective committees on which they served. Each director
makes a diligent effort to attend all Board and committee
meetings, as well as the Annual Meeting of Stockholders. Each of
the directors was present at the Companys 2005 Annual
Meeting of Stockholders.
The Company has designated the Chairman of the Corporate
Governance/ Nominating Committee as the Presiding Director to
preside at all executive sessions of non-management directors.
In his absence, the Chairman of the Audit Committee has been
designated to serve in such capacity. Executive sessions of
non-management directors are held regularly. Stockholders may
communicate with the Presiding Director by writing to Presiding
Director of the Board of Directors, Allied Capital Corporation,
c/o Corporate Secretary, 1919 Pennsylvania Avenue, NW,
Washington, DC 20006.
The Executive Committee. The Executive Committee has and
may exercise those rights, powers, and authority that the Board
of Directors from time to time grants to it, except where action
by the Board is required by statute, an order of the Securities
and Exchange Commission (the Commission), or the
Companys charter or bylaws. The Executive Committee has
been delegated authority from the Board to review and approve
certain investments. The Executive Committee met 42 times during
2005. The Executive Committee members currently are
Messrs. Walton, Harper, Hebert, Leahy, Long, Pollock and
Steuart. Messrs. Harper, Hebert, Leahy, Pollock and Steuart
are independent directors for purposes of the Investment Company
Act of 1940. Messrs. Walton and Long are interested persons
of the Company, as defined in the Investment Company Act of 1940.
The Audit Committee. The Audit Committee operates
pursuant to a charter approved by the Board of Directors. The
charter sets forth the responsibilities of the Audit Committee.
The primary function of the Audit Committee is to serve as an
independent and objective party to assist the Board of Directors
in fulfilling its responsibilities for overseeing and monitoring
the quality and integrity of the Companys financial
statements, the adequacy of the Companys system of
internal controls, the review of the independence,
qualifications and performance of the Companys independent
registered public accounting firm, and the performance of the
Companys internal audit function. The Audit Committee met
18 times during
11
2005. The Audit Committee is presently composed of four persons,
including Messrs. Browne (Chairman) and Garcia and Mmes.
Bates and van Roijen, all of whom are considered independent
under the rules promulgated by the New York Stock Exchange. The
Companys Board of Directors has determined that
Messrs. Browne and Garcia and Ms. Bates are
audit committee financial experts as defined under
Item 401 of
Regulation S-K of
the Securities Exchange Act of 1934, as each meets the current
independence and experience requirements of Rule 10A-3 of
the Exchange Act and, in addition, are not interested
persons of the Company as defined in Section 2(a)(19)
of the Investment Company Act of 1940.
The Compensation Committee. The Compensation Committee
approves managements recommendations for the compensation
of the Companys executive officers and reviews the amount
of salary and bonus for each of the Companys other
officers and employees. In addition, the Compensation Committee
approves stock option grants for the Companys officers
under the Companys Amended Stock Option Plan, determines
the Individual Performance Awards (IPA) and
Individual Performance Bonuses (IPB) for
participants and determines other compensation arrangements for
employees. The Compensation Committee met 11 times during 2005.
The Compensation Committee members currently are
Messrs. Leahy (Chairman), Browne, Firestone, Garcia, and
Racicot, each of whom is not an interested person as
defined in Section 2(a)(19) of the Investment Company Act
of 1940.
The Corporate Governance/ Nominating Committee. The
Corporate Governance/ Nominating Committee recommends candidates
for election as directors to the Board of Directors and makes
recommendations to the Board as to the Companys corporate
governance policies. The Corporate Governance/ Nominating
Committee met five times during 2005. The Corporate Governance/
Nominating Committee members currently are Messrs. Hebert
(Chairman), Firestone, Pollock, and Racicot, each of whom is not
an interested person as defined in
Section 2(a)(19) of the Investment Company Act of 1940.
The Corporate Governance/ Nominating Committee will consider
qualified director nominees recommended by stockholders when
such recommendations are submitted in accordance with the
Companys bylaws, Corporate Governance Policy, and any
other applicable law, rule or regulation regarding director
nominations. When submitting a nomination to the Company for
consideration, a stockholder must provide certain information
that would be required under applicable Commission rules,
including the following minimum information for each director
nominee: full name, age and address; principal occupation during
the past five years; current directorships on publicly held
companies and investment companies; number of shares of Company
common stock owned, if any; and, a written consent of the
individual to stand for election if nominated by the Board of
Directors and to serve if elected by the stockholders.
In evaluating director nominees, the Corporate Governance/
Nominating Committee considers the following factors:
|
|
|
|
|
the appropriate size and composition of the Companys Board
of Directors; |
|
|
|
whether or not the person is an interested person of
the Company as defined in Section 2(a)(19) of the Investment
Company Act of 1940; |
|
|
|
the needs of the Company with respect to the particular talents
and experience of its directors; |
12
|
|
|
|
|
the knowledge, skills, and experience of nominees in light of
prevailing business conditions and the knowledge, skills, and
experience already possessed by other members of the Board; |
|
|
|
familiarity with national and international business matters; |
|
|
|
experience with accounting rules and practices; |
|
|
|
appreciation of the relationship of the Companys business
to the changing needs of society; |
|
|
|
the capacity and desire to represent the balanced, best
interests of the stockholders as a whole and not a special
interest group or constituency; |
|
|
|
the desire to balance the considerable benefit of continuity
with the periodic injection of the fresh perspective provided by
new members; and |
|
|
|
all applicable laws, rules, regulations, and listing standards. |
The Corporate Governance/ Nominating Committees goal is to
assemble a Board of Directors that brings to the Company a
variety of perspectives and skills derived from high quality
business and professional experience.
Other than the foregoing, there are no stated minimum criteria
for director nominees, although the Corporate Governance/
Nominating Committee may also consider such other factors as it
may deem to be in the best interests of the Company and its
stockholders. The Corporate Governance/ Nominating Committee
also believes it appropriate for certain key members of the
Companys management to participate as members of the Board.
The Corporate Governance/ Nominating Committee identifies
nominees by first evaluating the current members of the Board of
Directors willing to continue in service. Current members of the
Board with skills and experience that are relevant to the
Companys business and who are willing to continue in
service are considered for re-nomination, balancing the value of
continuity of service by existing members of the Board with that
of obtaining a new perspective. If any member of the Board does
not wish to continue in service or if the Corporate Governance/
Nominating Committee or the Board decides not to re-nominate a
member for re-election, or if the Corporate Governance/
Nominating Committee recommends to expand the size of the Board
of Directors, the Corporate Governance/ Nominating Committee
identifies the desired skills and experience of a new nominee in
light of the criteria above. Current members of the Corporate
Governance/ Nominating Committee and the Board of Directors
provide suggestions as to individuals meeting the criteria of
the Corporate Governance/ Nominating Committee. Consultants may
also be engaged to assist in identifying qualified individuals.
Communication with the Board of Directors
Stockholders with questions about the Company are encouraged to
contact Allied Capitals Investor Relations department.
However, if stockholders feel their questions have not been
addressed, they may communicate with the Companys Board of
Directors by sending their communications to Allied Capital
Corporation Board of Directors, c/o Corporate Secretary, 1919
Pennsylvania Avenue, NW, Washington, DC 20006. All stockholder
communications received by the Companys
13
Corporate Secretary in this manner will be delivered to one or
more members of the Board of Directors.
Code of Business Conduct
Each executive officer as well as every employee of the Company
is subject to the Companys Code of Business Conduct, which
is available on the Companys website at
www.alliedcapital.com in the Investor Resources section and is
also available in print to any stockholder who requests a copy.
Corporate Governance Policy
The Companys Corporate Governance Policy is available on
the Companys website at www.alliedcapital.com in the
Investor Resources section and is available in print to any
stockholder who requests a copy.
Information about Executive Officers
The following information, as of March 10, 2006, pertains
to the Companys executive officers who are not directors
of the Company.
Kelly A. Anderson
Age 52. Ms. Anderson, Executive Vice President and
Treasurer, has been employed by the Company since 1987.
Ms. Anderson is responsible for the Companys
treasury, cash management and infrastructure operations.
Scott S. Binder
Age 51. Mr. Binder, Chief Valuation Officer, has been
employed by the Company since 1997. He has served as Chief
Valuation Officer since 2003. He served as a consultant to the
Company from 1991 until 1997. Prior to joining the Company,
Mr. Binder formed and was President of Overland
Communications Group. He also served as a board member and
financial consultant for a public affairs and lobbying firm in
Washington, DC. Mr. Binder founded Lonestar Cablevision in
1986, serving as President until 1991. In the early 1980s,
Mr. Binder worked for two firms specializing in leveraged lease
transactions. From 1976 to 1981, he was employed by
Coopers & Lybrand.
Michael J. Grisius
Age 42. Mr. Grisius, Managing Director, has been employed
by the Company since 1992. Prior to joining the Company,
Mr. Grisius worked in leveraged finance at Chemical Bank
from 1989 to 1992 and held senior accountant and consultant
positions with KPMG LLP from 1985 to 1988.
Jeri J. Harman
Age 48. Ms. Harman, Managing Director, has been employed by
the Company since 2004. Prior to joining the Company,
Ms. Harman served as a Managing Director and Principal for
American Capital Strategies, Ltd., a business development
company, from 2000 until 2004. She worked as a Managing Director
and Head of Private Placements for First Security Van Kasper
from 1996 to 2000 and a Managing Director
14
of Coopers & Lybrand from 1993 to 1996. From 1982 to 1993,
Ms. Harman held various senior level positions in the
private placement arm of The Prudential Insurance Company of
America. She has served on the Board of Directors for the
Association of Corporate Growth since 2000.
Thomas C. Lauer
Age 38. Mr. Lauer, Managing Director, has been employed by
the Company since 2004. Prior to joining the Company,
Mr. Lauer worked in GE Capitals sponsor finance group
from 2003 to 2004 and in the merchant banking and leveraged
finance groups of Wachovia Securities (previously First Union
Securities) from 1997 to 2003. He also held senior analyst
positions at Intel Corporation and served as a corporate lender
and credit analyst at National City Corporation.
Robert D. Long
Age 49. Mr. Long, Managing Director, has been employed by
the Company since 2002 and currently manages business
development activities. Prior to joining the Company,
Mr. Long was Managing Director and Head of Investment
Banking at C.E. Unterberg from 2001 to 2002, and Managing
Director at E*OFFERING/ Wit SoundView from 2000 to 2001. He also
held management positions at Bank of America (Montgomery
Securities) from 1996 to 2000, and Nomura Securities
International from 1992 to 1996, and prior to that he served as
a Managing Director at CS First Boston.
Justin S. Maccarone
Age 46. Mr. Maccarone, Managing Director, has been employed
by the Company since April 2005. Prior to joining the Company,
Mr. Maccarone served as a partner with UBS Capital
Americas, LLC, a private equity fund focused on middle market
investments from 1993 to 2005. Prior to that, Mr. Maccarone
served as a Senior Vice President at GE Capital specializing in
merchant banking and leveraged finance from 1989 to 1993 and
served as Vice President of the Leveraged Finance Group at HSBC/
Marine Midland Bank from 1981 to 1989.
Diane E. Murphy
Age 52. Ms. Murphy, Executive Vice President and Director
of Human Resources, has been employed by the Company since 2000.
Prior to joining the Company, Ms. Murphy was employed by
Allfirst Financial from 1982 to 1999 and served in several
capacities including head of the retail banking group in the
Greater Washington Metro Region from 1994 to 1996 and served as
the senior human resources executive from 1996 to 1999.
Penni F. Roll
Age 40. Ms. Roll, Chief Financial Officer, has been
employed by the Company since 1995. Ms. Roll is responsible
for the Companys financial operations. Prior to joining
the Company, Ms. Roll was employed by KPMG LLP in the
firms audit practice.
Daniel L. Russell
Age 41. Mr. Russell, Managing Director, has been employed
by the Company since 1998. Prior to joining the Company,
Mr. Russell was employed by KPMG LLP in the firms
financial services group.
15
John M. Scheurer
Age 53. Mr. Scheurer Managing Director, has been employed
by the Company since 1991. Earlier in his career,
Mr. Scheurer managed his own commercial real estate
company, served as executive vice president of Hunter Companies,
a full service commercial real estate leasing, investment and
management company, and spent seven years with First American
Bank in Washington DC. Mr. Scheurer is currently a member
of the Board of Governors of the Commercial Mortgage Securities
Association. He has also served as Chairman and as a Vice Chair
of the Capital Markets Committee for the Commercial Real Estate
Finance Committee of the Mortgage Bankers Association.
John D. Shulman
Age 43. Mr. Shulman, Managing Director, has been employed
by the Company since 2001. Prior to joining the Company,
Mr. Shulman served as the President and CEO of Onyx
International, LLC, a venture capital firm, from 1994 to 2001.
Prior to his involvement with Onyx, Mr. Shulman served as
Director of Development for the Tower Companies, a diversified
portfolio of private equity and real estate investments. He
currently serves as a director of ChemLink Laboratories LLC and
as a member of the investment committees of Taiwan Mezzanine
Fund and Greater China Private Equity Fund.
Suzanne V. Sparrow
Age 40. Ms. Sparrow, Executive Vice President, Chief
Compliance Officer and Corporate Secretary, has been employed by
the Company since 1987. Ms. Sparrow manages the
Companys compliance and corporate governance activities.
Compensation of Directors and Certain Executive Officers
The following table sets forth compensation that the Company
paid during the year ended December 31, 2005, to all of the
directors and the three highest paid executive officers of the
Company (collectively, the Compensated Persons) in
each capacity in which each Compensated Person served. Certain
of the Compensated Persons served as both officers and directors.
The Companys directors are divided into two
groups interested directors and independent
directors. Interested directors are interested
persons as defined in the Investment Company Act of 1940.
16
Compensation Table
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Pension or |
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Retirement |
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Benefits |
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Aggregate | |
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Securities | |
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Accrued as |
|
Directors | |
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|
Compensation | |
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Underlying | |
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Part of |
|
Fees Paid | |
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from the | |
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Options/ | |
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Company |
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by the | |
Name |
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Company (1,2) | |
|
SARs (3) | |
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Expenses (1) |
|
Company (4) | |
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| |
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Interested Directors:
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William L. Walton, Chairman & CEO
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$ |
7,381,605 |
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$ |
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$ |
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Joan M. Sweeney, Chief Operating Officer
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4,119,587 |
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Robert E. Long, Director
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84,000 |
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5,000 |
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84,000 |
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Independent Directors:
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Ann Torre Bates, Director
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88,500 |
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5,000 |
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88,500 |
|
Brooks H. Browne, Director
|
|
|
113,500 |
|
|
|
5,000 |
|
|
|
|
|
|
|
113,500 |
|
John D. Firestone, Director
|
|
|
66,000 |
|
|
|
5,000 |
|
|
|
|
|
|
|
66,000 |
|
Anthony T. Garcia, Director
|
|
|
107,000 |
|
|
|
5,000 |
|
|
|
|
|
|
|
107,000 |
|
Lawrence I. Hebert, Director
|
|
|
101,000 |
|
|
|
5,000 |
|
|
|
|
|
|
|
101,000 |
|
John I. Leahy, Director
|
|
|
112,500 |
|
|
|
5,000 |
|
|
|
|
|
|
|
112,500 |
|
Alex J. Pollock, Director
|
|
|
73,500 |
|
|
|
5,000 |
|
|
|
|
|
|
|
73,500 |
|
Marc F. Racicot, Director
|
|
|
50,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
50,000 |
|
Guy T. Steuart II, Director
|
|
|
83,500 |
|
|
|
5,000 |
|
|
|
|
|
|
|
83,500 |
|
Laura W. van Roijen, Director
|
|
|
92,000 |
|
|
|
5,000 |
|
|
|
|
|
|
|
92,000 |
|
Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John M. Scheurer, Managing Director
|
|
|
=4,167,568 |
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
The following table provides detail as to aggregate compensation
paid for 2005 to the three highest paid executive officers of
the Company, including the Chief Executive Officer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other | |
|
|
Salary | |
|
Bonus (5) | |
|
IPA | |
|
IPB | |
|
Benefits | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Mr. Walton
|
|
$ |
1,528,846 |
|
|
$ |
2,750,000 |
|
|
$ |
1,475,000 |
|
|
$ |
1,475,000 |
|
|
$ |
152,759 |
|
Ms. Sweeney
|
|
|
1,019,231 |
|
|
|
1,500,000 |
|
|
|
750,000 |
|
|
|
750,000 |
|
|
|
100,356 |
|
Mr. Scheurer
|
|
|
611,538 |
|
|
|
2,350,000 |
|
|
|
550,000 |
|
|
|
550,000 |
|
|
|
106,030 |
|
|
|
|
For 2005, the Company established individual performance awards
(IPA) and individual performance bonuses (IPB). See also
Individual Performance Award and Individual
Performance Bonus. Included for each executive officer in
Other Benefits is, among other things, an employer
contribution to the 401(k) Plan, a contribution to the Deferred
Compensation Plan I, amounts attributed to travel of
non-employee family members when they have accompanied a
Compensated Person on a business trip, and health and dental
insurance. See also Employment Agreements. |
|
|
(2) |
Messrs. Walton, Pollock and Scheurer and Ms. Sweeney
deferred $1.6 million, $28 thousand,
$0.6 million, and $0.8 million, respectively, of the
compensation earned during the year ended December 31, 2005. |
|
|
(3) |
See Stock Option Awards for terms of options granted
in 2005. |
|
|
(4) |
Consists only of directors fees paid by the Company for
2005. Such fees are also included in the column titled
Aggregate Compensation from the Company. |
|
|
(5) |
Mr. Scheurers 2005 bonus included two one-time lump
sum bonuses totaling $1,500,000. See Retention
Agreements for further discussion. |
Compensation of Non-Officer Directors
Each non-officer director receives an annual retainer of
$40,000. In addition, committee chairs receive an annual
retainer of $5,000. For each committee meeting
17
attended, Executive Committee members receive $1,500 per
meeting; Audit Committee members receive $3,000 per meeting; and
members of the Compensation and Corporate Governance/ Nominating
Committees receive $2,000 per meeting.
Directors may choose to defer such fees through the
Companys Deferred Compensation Plan, and may choose to
have invested such deferred income in shares of the
Companys common stock through a trust.
Non-officer directors are eligible for stock option awards under
the Companys Amended Stock Option Plan pursuant to an
exemptive order from the Commission. The terms of the order,
which was granted in September 1999, provided for a one-time
grant of 10,000 options to each non-officer director on the date
that the order was issued, or on the date that any new director
is elected by stockholders to the Board of Directors.
Thereafter, each non-officer director will receive 5,000 options
each year on the date of the Annual Meeting of Stockholders at
the fair market value on the date of grant. See Amended
Stock Option Plan.
18
Stock Option Awards
The following table sets forth the details relating to stock
option grants in 2005 to Compensated Persons under the
Companys Amended Stock Option Plan, and the potential
realizable value of each grant, as prescribed to be calculated
by the Commission. See Amended Stock Option Plan.
Options Granted During 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential Realizable | |
|
|
|
|
|
|
|
|
|
|
|
|
Value at Assumed | |
|
|
|
|
|
|
|
|
|
|
|
|
Annual Rates | |
|
|
Number of | |
|
|
|
|
|
|
|
|
|
of Stock Price | |
|
|
Securities | |
|
Percent of | |
|
|
|
|
|
|
|
Appreciation | |
|
|
Underlying | |
|
Total Options | |
|
Exercise | |
|
|
|
|
|
Over 10-Year Term (2) | |
|
|
Options | |
|
Granted in | |
|
Price Per | |
|
Market | |
|
Expiration | |
|
| |
Name |
|
Granted | |
|
2005 (1) | |
|
Share | |
|
Value | |
|
Date | |
|
5% | |
|
10% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Interested Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William L.
Walton(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joan M.
Sweeney(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert E.
Long(4)
|
|
|
5,000 |
|
|
|
0.07 |
% |
|
$ |
26.80 |
|
|
$ |
26.80 |
|
|
|
5/17/2015 |
|
|
$ |
84,272 |
|
|
$ |
213,561 |
|
Independent Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ann Torre
Bates(4)
|
|
|
5,000 |
|
|
|
0.07 |
|
|
|
26.80 |
|
|
|
26.80 |
|
|
|
5/17/2015 |
|
|
|
84,272 |
|
|
|
213,561 |
|
Brooks H.
Browne(4)
|
|
|
5,000 |
|
|
|
0.07 |
|
|
|
26.80 |
|
|
|
26.80 |
|
|
|
5/17/2015 |
|
|
|
84,272 |
|
|
|
213,561 |
|
John D.
Firestone(4)
|
|
|
5,000 |
|
|
|
0.07 |
|
|
|
26.80 |
|
|
|
26.80 |
|
|
|
5/17/2015 |
|
|
|
84,272 |
|
|
|
213,561 |
|
Anthony T.
Garcia(4)
|
|
|
5,000 |
|
|
|
0.07 |
|
|
|
26.80 |
|
|
|
26.80 |
|
|
|
5/17/2015 |
|
|
|
84,272 |
|
|
|
213,561 |
|
Lawrence I.
Hebert(4)
|
|
|
5,000 |
|
|
|
0.07 |
|
|
|
26.80 |
|
|
|
26.80 |
|
|
|
5/17/2015 |
|
|
|
84,272 |
|
|
|
213,561 |
|
John I.
Leahy(4)
|
|
|
5,000 |
|
|
|
0.07 |
|
|
|
26.80 |
|
|
|
26.80 |
|
|
|
5/17/2015 |
|
|
|
84,272 |
|
|
|
213,561 |
|
Alex J.
Pollock(4)
|
|
|
5,000 |
|
|
|
0.07 |
|
|
|
26.80 |
|
|
|
26.80 |
|
|
|
5/17/2015 |
|
|
|
84,272 |
|
|
|
213,561 |
|
Marc F.
Racicot(4)
|
|
|
10,000 |
|
|
|
0.15 |
|
|
|
26.80 |
|
|
|
26.80 |
|
|
|
5/17/2015 |
|
|
|
168,544 |
|
|
|
427,123 |
|
Guy T. Steuart,
II(4)
|
|
|
5,000 |
|
|
|
0.07 |
|
|
|
26.80 |
|
|
|
26.80 |
|
|
|
5/17/2015 |
|
|
|
84,272 |
|
|
|
213,561 |
|
Laura W. van
Roijen(4)
|
|
|
5,000 |
|
|
|
0.07 |
|
|
|
26.80 |
|
|
|
26.80 |
|
|
|
5/17/2015 |
|
|
|
84,272 |
|
|
|
213,561 |
|
Executive Officer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John M.
Scheurer(5)
|
|
|
50,000 |
|
|
|
0.73 |
|
|
|
27.51 |
|
|
|
27.51 |
|
|
|
8/3/2015 |
|
|
|
865,045 |
|
|
|
2,192,193 |
|
|
|
(1) |
In 2005, the Company granted stock options to purchase a total
of 6,815,000 shares. |
|
(2) |
Potential realizable value is calculated on 2005 stock options
granted, and is net of the option exercise price but before any
tax liabilities that may be incurred. These amounts represent
certain assumed rates of appreciation, as mandated by the
Commission. Actual gains, if any, on stock option exercises are
dependent on the future performance of the shares, overall
market conditions, and the continued employment by the Company
of the option holder. The potential realizable value will not
necessarily be realized. |
|
(3) |
In 2005, the Compensation Committee accepted
Mr. Waltons and Ms. Sweeneys voluntary
waiver to receive stock option grants for 2005 so that there
would be sufficient stock option reserves to make market
competitive stock option grants to other officers. |
|
(4) |
The options granted vest immediately. |
|
(5) |
The options granted vest ratably over a three-year period. In
the event of a change of control, all outstanding options will
become fully vested and exercisable as of the change of control. |
19
The following table sets forth the details of option exercises
by Compensated Persons during 2005 and the values of those
unexercised options at December 31, 2005.
Option Exercises and Year-End Option Values
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities | |
|
Value of Unexercised In-the- | |
|
|
|
|
|
|
Underlying Unexercised | |
|
Money Options as of | |
|
|
Shares | |
|
|
|
Options as of 12/31/05 | |
|
12/31/05 (2) | |
|
|
Acquired | |
|
Value | |
|
| |
|
| |
Name |
|
on Exercise | |
|
Realized (1) | |
|
Exercisable | |
|
Unexercisable | |
|
Exercisable | |
|
Unexercisable | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Interested Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William L. Walton
|
|
|
16,821 |
|
|
$ |
139,255 |
|
|
|
2,623,280 |
|
|
|
200,000 |
|
|
$ |
23,264,055 |
|
|
$ |
78,000 |
|
Joan M. Sweeney
|
|
|
0 |
|
|
|
0 |
|
|
|
1,478,220 |
|
|
|
150,000 |
|
|
|
12,304,665 |
|
|
|
58,500 |
|
Robert E. Long
|
|
|
5,000 |
|
|
|
48,650 |
|
|
|
35,000 |
|
|
|
0 |
|
|
|
199,270 |
|
|
|
0 |
|
Independent Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ann Torre Bates
|
|
|
0 |
|
|
|
0 |
|
|
|
20,000 |
|
|
|
0 |
|
|
|
115,000 |
|
|
|
0 |
|
Brooks H. Browne
|
|
|
0 |
|
|
|
0 |
|
|
|
40,000 |
|
|
|
0 |
|
|
|
258,620 |
|
|
|
0 |
|
John D. Firestone
|
|
|
0 |
|
|
|
0 |
|
|
|
40,000 |
|
|
|
0 |
|
|
|
258,620 |
|
|
|
0 |
|
Anthony T. Garcia
|
|
|
0 |
|
|
|
0 |
|
|
|
40,000 |
|
|
|
0 |
|
|
|
258,620 |
|
|
|
0 |
|
Lawrence I. Hebert
|
|
|
0 |
|
|
|
0 |
|
|
|
40,000 |
|
|
|
0 |
|
|
|
258,620 |
|
|
|
0 |
|
John I Leahy
|
|
|
2,500 |
|
|
|
25,125 |
|
|
|
37,500 |
|
|
|
0 |
|
|
|
228,945 |
|
|
|
0 |
|
Alex J. Pollock
|
|
|
1,000 |
|
|
|
4,380 |
|
|
|
9,000 |
|
|
|
0 |
|
|
|
32,570 |
|
|
|
0 |
|
Marc F. Racicot
|
|
|
0 |
|
|
|
0 |
|
|
|
10,000 |
|
|
|
0 |
|
|
|
25,700 |
|
|
|
0 |
|
Guy T. Steuart II
|
|
|
0 |
|
|
|
0 |
|
|
|
40,000 |
|
|
|
0 |
|
|
|
258,620 |
|
|
|
0 |
|
Laura W. van Roijen
|
|
|
0 |
|
|
|
0 |
|
|
|
40,000 |
|
|
|
0 |
|
|
|
258,620 |
|
|
|
0 |
|
Executive Officer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John M. Scheurer
|
|
|
109,393 |
|
|
|
1,152,293 |
|
|
|
923,670 |
|
|
|
125,000 |
|
|
|
6,890,617 |
|
|
|
122,250 |
|
|
|
(1) |
Value realized is calculated as the closing market price on the
preceding date prior to the date of exercise, net of option
exercise price, but before any tax liabilities or transaction
costs. This is the deemed market value, which may actually be
realized only if the shares are sold at that price.
Mr. Walton did not sell any of the shares he received upon
the exercise of stock options. |
|
|
(2) |
Value of unexercised options is calculated as the closing market
price on December 30, 2005, ($29.37), net of the option
exercise price, but before any tax liabilities or transaction
costs. In-the-Money Options are options with an
exercise price that is less than the market price as of
December 30, 2005. |
Report of the Compensation Committee on Executive
Compensation
The Compensation Committee is comprised entirely of independent
directors who are also non-employee directors as defined in
Rule 16b-3 under
the Securities Exchange Act of 1934 and independent directors as
defined by New York Stock Exchange rules.
Role of the Compensation Committee. The Compensation
Committee operates pursuant to a charter that sets forth the
mission of the Compensation Committee and its specific goals and
responsibilities. The Compensation Committees mission is
to evaluate the compensation of the executive officers of the
Company, and their performance relative to their compensation,
and to assure that they are compensated effectively in a manner
consistent with the stated compensation strategy of the Company,
internal equity considerations, competitive practice, and the
requirements of the appropriate regulatory bodies. In addition,
the Compensation Committee shall evaluate and make
recommendations to the Board regarding the compensation of the
directors, including their compensation for services on Board
committees.
20
The Compensation Committees charter reflects these goals
and responsibilities, and the Compensation Committee annually
reviews and revises its charter as necessary. To assist in
carrying out its responsibilities, the Compensation Committee
regularly receives reports and recommendations from management
and from an outside compensation consultant that it selects and
retains. The Compensation Committee may also, from time to time,
consult with legal, accounting or other advisors all in
accordance with the authority granted to the Compensation
Committee in its charter.
Overview of Compensation Program. The Compensation
Committee believes that the Companys compensation paid to
its executive officers should be aligned with the achievement of
certain corporate and executive performance objectives that have
been established to achieve long-term objectives of the Company.
The Compensation Committee also believes that the Companys
compensation structure should enable the Company to attract,
motivate, and retain key officers who will contribute to the
Companys future success.
Elements of Executive Compensation. The Compensation
Committee recognizes that the design and structure of the
Companys compensation program must align with the
requirements of the Investment Company Act of 1940 (the
1940 Act). The 1940 Act imposes certain limitations
on the structure of a BDCs compensation program. The 1940
Act prohibits a business development company from maintaining a
stock option plan and a profit sharing arrangement
simultaneously.
The Compensation Committee determined that the compensation
packages for 2005 for executive officers should generally
consist of the following five key components:
|
|
|
|
|
Annual base salary; |
|
|
|
Annual cash bonus, the amount of which is determined by the
Compensation Committee on a discretionary basis and is dependent
on the achievement of certain corporate and executive
performance objectives that have been established to achieve
long-term objectives of the Company; |
|
|
|
Individual Performance Award (IPA), which is a cash award that
is generally determined at the beginning of the year based upon
the individual performance of the officer, which is used
exclusively to purchase shares of the Companys common
stock in the market through a deferred compensation plan; |
|
|
|
Individual Performance Bonus (IPB), which is a cash award that
is generally determined at the beginning of the year based upon
the individual performance of the officer and is paid bi-weekly;
and |
|
|
|
Stock options, priced at the current market value. |
In addition, the Company provides certain benefits for all
employees, which include a 401(k) Plan contribution which
generally equals up to 5% of each employees annual base
salary and annual cash bonus. See 401(k) Plan below.
The Company also makes available to all employees health
insurance, dental insurance, and group life, disability, and
other insurance. The Company also provides certain limited
perquisites such as parking expenses for certain senior
officers. Prior to the
21
Sarbanes-Oxley Act of 2002, the Company provided split dollar
life insurance arrangements for certain senior officers. The
Company subsequently has terminated its obligations to pay
future installments with respect to existing split-dollar life
insurance arrangements.
The Company utilizes corporate aircraft for business use in an
effort to improve the efficiency of required business travel.
Compensated Persons receive imputed income reflected in their
aggregate compensation for income tax purposes for cases where
non-employee family members may accompany an employee on a
business trip.
Assessment of Peer Comparisons. The Compensation
Committee annually retains a third party compensation consultant
to assess the competitiveness of the current and proposed
compensation levels of its three highest paid executive
officers, or Named Executive Officers (NEOs) to competitive
market practices. As a part of this process, the Compensation
Committee and its consultant analyze NEO compensation
information relative to: (a) a peer group of publicly-traded
companies, including internally managed BDCs, deemed similar to
the Company in terms of industry segment and competitive market
for executive talent; (b) published survey data on
similarly-sized private equity firms; and (c) estimation of
aggregate compensation levels paid to employees of
externally-managed BDCs and a real estate investment trust.
Through this process, the Compensation Committee benchmarked the
Companys compensation for NEOs to the median (50th
percentile) through the 75th percentile of peer group
compensation levels and to approximately the median (50th
percentile) compensation levels of published survey compensation
data within the private equity industry.
Determination of 2005 Annual Cash Bonus, 2006 IPA and 2006
IPB for Named Executive Officers. During 2005, the Company
achieved several strategic investment and operational goals and
objectives, including the sale of the Companys CMBS and
CDO portfolio. In determining the 2005 annual cash bonuses for
the NEOs, the Compensation Committee considered the achievement
of certain corporate and executive performance objectives and
the long-term objectives of the company. The Compensation
Committee also evaluated other forms of compensation granted in
2005, including stock option grants. The Committee accepted
Mr. Waltons and Ms. Sweeneys voluntary
waiver to receive stock option grants so that the Company had
sufficient stock option reserves to make market competitive
stock option grants to key employees below the NEO level.
In determining the 2006 IPAs and 2006 IPBs the Compensation
Committee considered each NEOs individual contributions to
the Company as a whole. The 2006 IPAs for Mr. Walton,
Ms. Sweeney and Mr. Scheurer were determined to be
$1,475,000, $750,000, and $550,000, respectively. The 2006 IPBs
for Mr. Walton, Ms. Sweeney and Mr. Scheurer are
$1,475,000, $750,000, and $550,000, respectively. The 2006 IPAs
and IPBs for the NEOs were awarded with no increase over 2005
award amounts.
The IPAs are not paid to executive officers on a current basis.
Instead, IPAs are deposited in a deferred compensation trust in
approximately equal cash installments, on a quarterly basis, and
the cash is used to purchase shares of the Companys common
stock in the market on the New York Stock Exchange. See
The 2005 Deferred Compensation Plan II.
22
Determination of CEO Compensation. The compensation of
the Chief Executive Officer is determined based on criteria
described earlier in this Report of the Compensation Committee
on Executive Compensation. 2005 was a year of continued progress
and accomplishments in achieving certain corporate and executive
performance objectives, including the sale of the Companys
CMBS and CDO portfolio and other strategic investment and
operational goals important to the Company and its long-term
success. Under Mr. Waltons leadership in 2005, the
Company invested $1.5 billion in over 50 total
transactions, generated $273.5 million in net realized
gains, paid $314.5 million in dividends to stockholders,
raised $350 million in long-term debt and expanded its
organizational capabilities through a new business development
initiative and growth in investment talent in its Washington
office and three regional offices in New York, Chicago and Los
Angeles.
Mr. Walton is paid an annual base salary of $1,500,000, the
same rate that has been in effect since February 2004, and
Mr. Walton received an annual bonus for 2005 of $2,750,000
in recognition of the Companys performance discussed above
and his instrumental role in driving those results.
Mr. Walton also received a 2005 IPA of $1,475,000 and a
2005 IPB of $1,475,000. Mr. Walton voluntarily waived his
right to participate in stock option grants in 2005 to help
ensure that the Company had sufficient stock option reserves to
make market competitive stock option grants to key employees
below the NEO level.
The compensation amounts described above for Mr. Walton
place his compensation between the median (50th percentile) and
75th percentile of peer group compensation levels and
approximately the median (50th percentile) compensation levels
of published survey compensation data within the private equity
industry based on the latest available data.
Review of All Components of NEO Compensation. The
Compensation Committee reviews tally sheets that illustrate all
components of the compensation provided to the Companys
NEOs, including base salary, annual cash bonus, IPAs and IPBs,
stock option awards, perquisites and benefits, the accumulated
balance under non-qualified deferred compensation plans, and the
aggregate amounts that may be paid as the result of certain
events of termination under employment agreements including a
change of control. The Compensation Committee also provided a
full report of all compensation program components to the Board
of Directors.
The undersigned members of the Compensation Committee have
submitted this report to the Board of Directors and approved its
inclusion in the Companys proxy statement.
|
|
|
Compensation Committee |
|
John I. Leahy, Chairman |
|
Brooks H. Browne, Member |
|
John D. Firestone, Member |
|
Anthony T. Garcia, Member |
|
Marc F. Racicot, Member |
The information contained in the report above shall not be
deemed to be soliciting material or to be
filed with the Securities and Exchange Commission,
nor shall such information be incorporated by reference into any
future filing under the Securities Act of
23
1933, as amended, or the Securities Exchange Act of 1934, as
amended, except to the extent that the Company specifically
incorporates it by reference in such filing.
Amended Stock Option Plan
The Companys Amended Stock Option Plan is intended to
encourage stock ownership in the Company by officers and
directors, thus giving them a proprietary interest in the
Companys performance. The Amended Stock Option Plan was
most recently approved by stockholders on May 12, 2004.
The Compensation Committees principal objective in
awarding stock options to the eligible officers and directors of
the Company is to align each optionees interests with the
success of the Company and the financial interests of its
stockholders by linking a portion of such optionees
compensation with the performance of the Companys stock
and the value delivered to stockholders.
Stock options are granted under the Amended Stock Option Plan at
a price not less than the prevailing market value at the time of
the grant and will have realizable value only if the
Companys stock price increases. The Compensation Committee
determines the amount, if any, and features of the stock options
to be awarded to optionees. The Compensation Committee evaluates
a number of criteria, including the past service of each such
optionee to the Company, the present and potential contributions
of such optionee to the success of the Company, and such other
factors as the Compensation Committee shall deem relevant in
connection with accomplishing the purposes of the Amended Stock
Option Plan, including the recipients current stock
holdings, years of service, position with the Company, and other
factors. The Compensation Committee does not apply a formula
assigning specific weights to any of these factors when making
its determination. The Compensation Committee awards stock
options on a subjective basis and such awards depend in each
case on the performance of the officer under consideration, and
in the case of new hires, their potential performance.
The Amended Stock Option Plan is designed to satisfy the
conditions of Section 422 of the Code so that options
granted under the Amended Stock Option Plan may qualify as
incentive stock options. To qualify as
incentive stock options, options may not become
exercisable for the first time in any year if the number of
incentive options first exercisable in that year multiplied by
the exercise price exceeds $100,000.
The Company has received approval from the Commission to grant
non-qualified stock options under the Amended Stock Option Plan
to non-officer directors. Pursuant to the Commission order,
non-officer directors receive options to purchase 10,000 shares
upon election by stockholders to the Board of Directors, and
options to purchase 5,000 shares each year thereafter, on the
date of the Annual Meeting of Stockholders.
401(k) Plan
The Company maintains a 401(k) plan (the 401(k)
Plan). All full-time employees who are at least
21 years of age have the opportunity to contribute pre-tax
salary deferrals into the 401(k) Plan up to $15,000 annually for
the 2006 plan year, and to direct the investment of these
contributions. Plan participants who are
24
age 50 or older during the 2006 plan year are eligible to defer
an additional $5,000 during 2006. The 401(k) Plan allows
eligible participants to invest in shares of a Company Common
Stock Fund, consisting of Allied Capital common stock and cash,
among other investment options. In addition, during the 2006
plan year, the Company expects to contribute up to 5% of each
participants eligible compensation for the year, up to a
maximum compensation of $220,000, to each participants
plan account on the participants behalf, which fully vests
at the time of the contribution. The contribution with respect
to compensation in excess of $220,000 will be made to The 2005
Allied Capital Corporation Non-Qualified Deferred Compensation
Plan. See The 2005 Deferred Compensation Plan. On
March 10, 2006, the 401(k) Plan held less than 1% of the
outstanding shares of the Company. See Voting
Securities.
Individual Performance Award
The Compensation Committee has established a long-term incentive
compensation program whereby the Compensation Committee of the
Board of Directors determines an Individual Performance Award
(IPA) for certain officers annually, generally at
the beginning of each year. In determining the award for any one
officer, the Compensation Committee considers individual
performance factors, as well as the individuals
contribution to the returns generated for stockholders, among
other factors. The IPA for 2006 has been determined to be
approximately $6.8 million, however, the Compensation
Committee may adjust the IPA as needed. The IPAs are deposited
in a trust in approximately equal cash installments, on a
quarterly basis, and the cash is used to purchase shares of the
Companys common stock in the market. See The 2005
Deferred Compensation Plan II.
The following table presents the IPAs that have been awarded by
the Compensation Committee for 2006 to the Compensated Persons
as well as for all other participants as a group:
|
|
|
|
|
|
|
|
2006 | |
|
|
Individual | |
Name and Position |
|
Performance Award(1) | |
|
|
| |
William L. Walton, Chief Executive Officer
|
|
$ |
1,475,000 |
|
Joan M. Sweeney, Chief Operating Officer
|
|
|
750,000 |
|
John M. Scheurer, Managing Director
|
|
|
550,000 |
|
All Executive Officers as a Group (excluding the Compensated
Persons)
|
|
|
2,690,500 |
|
All Non-Executive Officers as a Group
|
|
|
1,330,000 |
|
|
|
|
|
|
Total
|
|
$ |
6,795,500 |
|
|
|
|
|
|
|
(1) |
Represents IPAs expected to be expensed for financial reporting
purposes for 2006 for these officers, assuming each participant
remains employed by the Company throughout the year. These
amounts are subject to change if there is a change in the
composition of the pool of award recipients during the year, or
if the Compensation Committee determines that a change to an
individual award is needed. |
Individual Performance Bonus
As a result of changes in regulation imposed by the Jobs
Creation Act of 2004 associated with deferred compensation
arrangements, as well as an increase in the competitive market
for recruiting and retaining top performers in private equity
firms, the Compensation Committee recommended to the Board and
the Board has approved that a portion of the IPA should be paid
as an Individual Performance Bonus (IPB) for 2006,
consistent with the practice for paying the IPB in 2005. The
25
IPB for 2006 has been determined to be approximately
$6.8 million, however, the Compensation Committee may
adjust the IPB as needed. The IPB will be distributed in cash to
award recipients in equal bi-weekly installments as long as each
recipient remains employed by the Company. If a recipient
terminates employment during the year, any remaining cash
payments under the IPB would be forfeited. The following table
presents the IPBs that have been awarded for 2006 for the
Compensated Persons, as well as for all other recipients as a
group:
|
|
|
|
|
|
|
|
2006 | |
|
|
Individual | |
Name and Position |
|
Performance Bonus(2) | |
|
|
| |
William L. Walton, Chief Executive Officer
|
|
$ |
1,475,000 |
|
Joan M. Sweeney, Chief Operating Officer
|
|
|
750,000 |
|
John M. Scheurer, Managing Director
|
|
|
550,000 |
|
All Executive Officers as a Group (excluding the Compensated
Persons)
|
|
|
2,690,500 |
|
All Non-Executive Officers as a Group
|
|
|
1,330,000 |
|
|
|
|
|
|
Total
|
|
$ |
6,795,500 |
|
|
|
|
|
|
|
(2) |
Represents IPBs expected to be expensed for financial reporting
purposes for 2006 for these officers, assuming each recipient
remains employed by the Company throughout the year. These
amounts are subject to change if there is a change in the
composition of the pool of award recipients during the year or
if the Compensation Committee determines that a change to an
individual award is needed. |
The 2005 Deferred Compensation Plan I
Pursuant to changes in regulation imposed by the Jobs Creation
Act of 2004 associated with deferred compensation arrangements,
in 2005, the Company restated and replaced its existing deferred
compensation plan (DCP I) with The 2005 Allied
Capital Corporation Non-Qualified Deferred Compensation Plan
(2005 DCP I). The 2005 DCP I is an unfunded plan, as
defined by the Code, that provides for the deferral of
compensation by directors, employees, and consultants of the
Company. Any director, senior officer, or consultant of the
Company is eligible to participate in the 2005 DCP I at such
time and for such period as designated by the Board of
Directors. The 2005 DCP I is administered through a trust, and
the Company funds this plan through cash contributions.
Directors may choose to defer directors fees through the
2005 DCP I, and may choose to have invested such deferred income
in shares of the Companys common stock through a trust. On
March 10, 2006, the trust related to the 2005 DCP I held
2,499 shares of the Companys common stock.
The Company continues to maintain DCP I and all deferrals made
to the DCP I (through December 31, 2004) shall be
distributed pursuant to the terms of that plan. In the event of
termination of employment, the participants deferral
account in DCP I will be immediately distributed, either in lump
sum or annual installments, as previously elected by the
participant. On March 10, 2006, the trust related to the DCP I
held 1,488 shares of the Companys common stock.
In the event of a change of control, all amounts in a
participants deferral account in DCP I will be immediately
distributed to the participant. For purposes of DCP I,
Change of Control prior to the Jobs Creation Act of
2004 (Pre-JCA) was defined as (i) the sale or
other disposition of all or substantially all of the
Companys assets; or (ii) the acquisition, whether
directly, indirectly, beneficially (within the meaning of
Rule 13d-3 of the
Securities Exchange Act of 1934), or of record, as a result of a
merger, consolidation or otherwise, of securities of the
26
Company representing fifteen percent (15%) or more of the
aggregate voting power of the Companys then outstanding
common stock by any person (within the meaning of
Section 13(d) and 14(d) of the 1934 Act), including, but
not limited to, any corporation or group of persons acting in
concert, other than (A) the Company 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 Company or its subsidiaries,
including a trust established pursuant to any such plan; or
(iii) the individuals who were members of the Board of
Directors as of the Effective Date (the Incumbent
Board) cease to constitute at least two-thirds (2/3) of
the Board; provided, however, that any director appointed by at
least two-thirds (2/3) of the then Incumbent Board or nominated
by at least two-thirds (2/3) of the Corporate Governance/
Nominating Committee of the Board of Directors (a majority of
the members of the Corporate Governance/ Nominating Committee
shall be members of the then Incumbent Board or appointees
thereof), other than any director appointed or nominated in
connection with, or as a result of, a threatened or actual proxy
or control contest, shall be deemed to constitute a member of
the Incumbent Board.
For 2005, all deferrals were made to the 2005 DCP I and shall be
distributed pursuant to the terms of this plan in compliance
with the Jobs Creation Act of 2004. In the event of termination
of employment, the participants deferral account in 2005
DCP I will be distributed either in lump sum or annual
installments, as previously elected by the participant, however,
in no event will the first payment be made earlier than six
months after the date of employment termination.
In the event of a change of control, all amounts in a
participants deferral account in 2005 DCP I will be
immediately distributed to the participant. For purposes of 2005
DCP I, Change of Control following the Jobs Creation
Act of 2004 (Post-JCA) is defined as (i) the
sale or other disposition of at least forty percent (40%) of the
Companys assets; or (ii) the acquisition, whether
directly, indirectly, beneficially (within the meaning of
Rule 13d-3 of the
1934 Act), or of record, as a result of a merger, consolidation
or otherwise, of securities of the Company representing fifty
percent (50%) or more of the aggregate voting power of the
Companys then outstanding common stock by any person
(within the meaning of Section 13(d) and 14(d) of the 1934
Act), including, but not limited to, any corporation or group of
persons acting in concert, other than (A) the Company 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 Company or its
subsidiaries, including a trust established pursuant to any such
plan; or (iii) the individuals who were members of the
Board of Directors as of the Effective Date (the Incumbent
Board) cease to constitute at least two-thirds (2/3) of
the Board of Directors; provided, however, that any director
appointed by at least two-thirds (2/3) of the then Incumbent
Board or nominated by at least two-thirds (2/3) of the Corporate
Governance/ Nominating Committee of the Board (if a majority of
the members of the Corporate Governance/ Nominating Committee
are members of the then Incumbent Board or appointees thereof),
other than any director appointed or nominated in connection
with, or as a result of, a threatened or actual proxy or control
contest, shall be deemed to constitute a member of the Incumbent
Board.
27
The Compensation Committee of the Companys Board of
Directors administers DCP I and 2005 DCP I. The Board of
Directors reserves the right to amend, terminate, or discontinue
DCP I and 2005 DCP I, provided that no such action will
adversely affect a participants rights under the plans
with respect to the amounts paid to his or her deferral accounts.
The 2005 Deferred Compensation Plan II
In conjunction with the IPA, the Company established a
non-qualified deferred compensation plan (DCP II) in
2004, which is administered through a trust by an independent
third-party trustee. In 2005 and pursuant to recent changes in
regulation imposed by the Jobs Creation Act of 2004 associated
with deferred compensation arrangements, the Company restated
and replaced DCP II with The 2005 Allied Capital Corporation
Non-Qualified Deferred Compensation Plan II (2005 DCP
II). All IPA contributions made for 2005 were made into
the 2005 DCP II.
The IPAs are generally deposited in the trust in equal
installments, on a quarterly basis, in the form of cash. The
Compensation Committee designed both DCP II and 2005 DCP II to
require the trustee to use the cash to purchase shares of the
Companys common stock in the market on the New York Stock
Exchange. A participant only vests in the award as it is
deposited into the trust. The Compensation Committee, in its
sole discretion, shall designate the senior officers who will
receive IPAs and participate in 2005 DCP II. During any period
of time in which a participant has an account in either DCP II
or 2005 DCP II, any dividends declared and paid on shares of
common stock allocated to the participants accounts shall
be reinvested by the trustee as soon as practicable in shares of
the Companys common stock purchased in the open market.
The Company continues to maintain DCP II and all contributions
made to DCP II (through December 31, 2004) shall be
distributed pursuant to the terms of that plan. In the event of
termination of employment, one-third of the participants
deferral account in DCP II will be immediately distributed, one
half of the then current remaining balance will be distributed
within 30 days of the first anniversary of his or her
employment termination date, and the remainder of the account
balance will be distributed within 30 days of the second
anniversary of the employment termination date. In the event of
a change of control (following the Pre-JCA definition for
Change in Control), all amounts in a
participants deferral account in DCP II will be
immediately distributed to the participant.
Contributions made to the 2005 DCP II shall be distributed
pursuant to the terms of this plan in compliance with the Jobs
Creation Act of 2004. In the event of termination of employment,
one-third of the participants deferral account in 2005 DCP
II will be distributed six months after the date of employment
termination, one half of the then current remaining balance will
be distributed within 30 days of the first anniversary of
his or her employment termination date, and the remainder of the
account balance will be distributed within 30 days of the
second anniversary of the employment termination date. In the
event of a change of control, (following the Post-JCA definition
for Change of Control), all amounts in a
participants deferral account in 2005 DCP II will be
immediately distributed to the participant.
A participant who violates certain non-solicitation covenants
contained in the DCP II and 2005 DCP II during the two years
after the termination of his or her
28
employment will forfeit back to the Company the remaining value
of his or her deferral accounts.
The aggregate maximum number of shares of the Companys
common stock that the trustee is authorized to purchase in the
open market for the purpose of investing the cash from IPAs in
DCP II and 2005 DCP II is 3,500,000 shares, subject to
appropriate adjustments in the event of a stock dividend, stock
split, or similar change in capitalization affecting the
Companys common stock. On March 10, 2006, the trust
related to the DCP II held 484,838 shares of the Companys
common stock and the trust related to the 2005 DCP II held
242,208 shares of the Companys common stock.
The Compensation Committee of the Companys Board of
Directors administers DCP II and 2005 DCP II. The Board of
Directors reserves the right to amend, terminate, or discontinue
DCP II and 2005 DCP II, provided that no such action will
adversely affect a participants rights under the plans
with respect to the amounts paid to his or her deferral accounts.
Employment Agreements
The Company entered into employment agreements in 2004 with
William L. Walton, the Companys Chairman and CEO, and Joan
M. Sweeney, the Companys Chief Operating Officer, each of
whom is a Compensated Person. The Company also entered into an
employment agreement in 2004 with Penni F. Roll, the
Companys Chief Financial Officer. Each of the agreements
provides for a three-year term that extends one day at the end
of every day during its length, unless either party provides
written notice of termination of such extension. In that case,
the agreement would terminate three years from such notification.
Each agreement specifies each executives base salary
compensation during the term of the agreement. The Compensation
Committee has the right to increase the base salary during the
term of the employment agreement. In addition, each employment
agreement states that the Compensation Committee may provide, at
their sole discretion, an annual cash bonus. This bonus is to be
determined with reference to each executives performance
in accordance with performance criteria to be determined by the
Compensation Committee in its sole discretion. Under each
agreement, each executive also is entitled to participate in the
Companys Amended Stock Option Plan, and to receive all
other awards and benefits previously granted to each executive,
including life insurance premiums.
The executive has the right to voluntarily terminate employment
at any time with 30 days notice, and in such case,
the employee will not receive any severance pay. Among other
things, the employment agreements prohibit the solicitation of
employees from the Company in the event of an executives
departure for a period of two years.
If employment is terminated with cause, the employee will not
receive any severance pay. If employment is terminated without
cause during the term of the agreement, or within 24 months
after a change in control, the executive shall be entitled to
severance pay for a period not to exceed 36 months.
Severance pay shall include three times the average base salary
for the preceding three years, plus three times the average
bonus compensation for the preceding three years, plus a lump
29
sum amount equal to $3,178,000 for Mr. Walton and
$2,831,000 for Ms. Sweeney. In the event of a change in
control, Mr. Walton and Ms. Sweeney would be entitled
to a tax equalization payment calculated in accordance with
Section 280G of the Code on distributions to which the employee
is entitled upon termination, and the Company would also provide
compensation to offset any applicable excise tax penalties
imposed on the executive under Section 4999 of the Code.
Such severance pay shall be paid in two installments: 75% of
such pay shall be paid at the time of separation, and 25% shall
be paid on the second anniversary of such separation. Stock
options would cease to vest during the severance period.
Under the employment agreements, a Change of Control
currently follows the Pre-JCA definition of change of control.
The Jobs Creation Act of 2004 mandates that a Change of
Control shall follow the Post-JCA definition for change in
control. While the Company has not amended the employment
agreements with its executives to reflect this, the executives
have acknowledged that payments will only be made pursuant to
the Change of Control provision if such change meets the
definition mandated by the Jobs Creation Act of 2004.
Retention Agreements
On October 27, 2005, the Company entered into a recission
of the retention agreement with John M. Scheurer, one of the
Companys managing directors. Pursuant to the terms of such
agreement, the Company agreed to terminate a retention agreement
it had entered into with Mr. Scheurer in March 2005. The
Company entered into the retention agreement with
Mr. Scheurer in connection with its consideration of
strategic alternatives for its commercial real estate investment
portfolio. In May 2005, the Company announced the completion of
a transaction regarding its CMBS and CDO portfolio. As a result,
Mr. Scheurer received a one-time lump sum bonus of $500,000
in accordance with the terms of the retention agreement.
Mr. Scheurers retention agreement also provided that
he would receive a payment of $1.8 million if the acquirer
of the Companys CMBS and CDO portfolio did not offer to
employ Mr. Scheurer at a base salary of at least $750,000
and he did not accept employment with the acquirer on other
terms. However, because the Company determined to retain
Mr. Scheurer as a managing director, it entered into the
recission of the retention agreement with Mr. Scheurer to
provide that the Company will only be obligated to pay
Mr. Scheurer the $1.8 million payment due under the
retention agreement if his employment with the Company is
terminated prior to July 1, 2006, for any reason other than
his voluntary resignation, his death or his termination by the
Company for cause.
In addition, the Company awarded a one-time lump sum transition
services bonus of $1,000,000 to Mr. Scheurer in connection
with the sale of its CMBS and CDO portfolio.
Indemnification Agreements
The Company has entered into indemnification agreements with its
directors and certain senior officers of the Company. The
indemnification agreements are intended to provide these
directors and senior officers the maximum indemnification
permitted under Maryland law and the 1940 Act. Each
indemnification agreement provides that
30
the Company shall indemnify the director or senior officer who
is a party to the agreement (an Indemnitee),
including the advancement of legal expenses, if, by reason of
his or her corporate status, the Indemnitee is, or is threatened
to be, made a party to or a witness in any threatened, pending,
or completed proceeding, other than a proceeding by or in the
right of the Company.
Certain Relationships and Related Transactions
The following table sets forth certain information, as of
March 10, 2006, regarding indebtedness to the Company in
excess of $60,000 of any person serving as a director or
executive officer of the Company and of any nominee for election
as a director at any time since January 1, 2005. All of
such indebtedness results from loans made by the Company to
enable the exercise of stock options. The loans are required to
be fully collateralized and are full recourse against the
borrower and have varying terms not exceeding ten years. The
interest rates charged generally reflect the applicable federal
rate on the date of the loan.
As a business development company under the 1940 Act, the
Company is entitled to provide and has provided loans to
officers of the Company in connection with the exercise of stock
options. However, as a result of provisions of the
Sarbanes-Oxley Act of 2002, the Company has been prohibited from
making new loans to its executive officers since July 30,
2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of | |
|
|
|
|
Highest Amount | |
|
Interest Rates | |
|
Amount | |
|
|
Outstanding | |
|
| |
|
Outstanding at | |
Name and Position with Company |
|
During 2005 | |
|
High | |
|
|
|
Low | |
|
March 10, 2006 | |
|
|
| |
|
| |
|
|
|
| |
|
| |
Executive Officers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kelly A. Anderson, Executive Vice President and Treasurer
|
|
$ |
496,225 |
|
|
|
5.96% |
|
|
|
|
|
3.91% |
|
|
$ |
496,225 |
|
Michael J. Grisius, Managing Director
|
|
|
230,727 |
|
|
|
4.68% |
|
|
|
|
|
3.91% |
|
|
|
230,727 |
|
Penni F. Roll, Chief Financial Officer
|
|
|
1,224,833 |
|
|
|
6.24% |
|
|
|
|
|
4.45% |
|
|
|
825,829 |
|
John M. Scheurer, Managing Director
|
|
|
167,453 |
|
|
|
4.73% |
|
|
|
|
|
4.73% |
|
|
|
|
|
John D. Shulman, Managing Director
|
|
|
99,991 |
|
|
|
2.85% |
|
|
|
|
|
2.85% |
|
|
|
|
|
Suzanne V. Sparrow, Executive Vice President and Secretary
|
|
|
626,309 |
|
|
|
6.18% |
|
|
|
|
|
4.45% |
|
|
|
476,998 |
|
Joan M. Sweeney, Chief Operating Officer and
Director(1)
|
|
|
399,962 |
|
|
|
4.45% |
|
|
|
|
|
4.45% |
|
|
|
399,962 |
|
|
|
(1) |
Ms. Sweeney is an interested director. Interested directors are
interested persons as defined by the Investment
Company Act of 1940. |
Section 16(a) Beneficial Ownership Reporting
Compliance
Pursuant to Section 16(a) of the Securities Exchange Act of
1934, the Companys directors and executive officers, and
any persons holding 10% 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 Companys review of Forms 3,
4, and 5 filed by such persons, the Company believes that during
2005 all Section 16(a) filing requirements applicable to
such persons were met in a timely manner.
31
PROPOSAL 2.
RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Audit Committee and the disinterested members of the Board
of Directors have appointed KPMG LLP as the Companys
independent registered public accounting firm for the year
ending December 31, 2006. If the stockholders ratify the
selection of KPMG LLP as the Companys accountants, KPMG
LLP also will be the independent registered public accounting
firm for the consolidated subsidiaries of the Company.
KPMG LLP has advised the Company that neither the firm nor any
present member or associate of it has any material financial
interest, direct or indirect, in the Company or its subsidiaries.
The Company expects that a representative of KPMG LLP will be
present at the Meeting and will have an opportunity to make a
statement if he or she so chooses and will be available to
respond to appropriate questions.
Unless marked to the contrary, the shares represented by the
enclosed proxy card will be voted for ratification of the
selection of KPMG LLP as the independent registered public
accounting firm of the Company.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT
STOCKHOLDERS VOTE TO RATIFY THE SELECTION OF KPMG LLP AS
THE
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM OF THE
COMPANY.
Fees Paid to KPMG LLP for 2005 and 2004
The following are aggregate fees billed to the Company by KPMG
LLP during 2005 and 2004.
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended | |
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Audit Fees
|
|
$ |
1,731,841 |
|
|
$ |
1,447,000 |
|
Audit-Related Fees
|
|
|
255,502 |
|
|
|
432,000 |
|
Tax Fees
|
|
|
79,000 |
|
|
|
58,500 |
|
All Other Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL FEES:
|
|
$ |
2,066,343 |
|
|
$ |
1,937,500 |
|
|
|
|
|
|
|
|
Audit Fees. Audit fees consist of fees billed for
professional services rendered for the audit of the
Companys year-end consolidated financial statements and
reviews of the interim consolidated financial statements
included in quarterly reports and services that are normally
provided by KPMG LLP in connection with statutory and regulatory
filings. These services for 2005 also include the audits of
managements assessment of the effectiveness and the
effectiveness of the Companys internal controls over
financial reporting.
Audit-Related Fees. Audit-related fees consist of fees
billed for assurance and related services that are reasonably
related to the performance of the audit or review of the
Companys consolidated financial statements and are not
reported under Audit Fees. These services include
attest services that are not required by statute or regulation,
consultations concerning financial accounting and reporting
standards, and
32
fees related to requests for documentation and information from
regulatory and other government agencies.
Tax Fees. Tax fees consist of fees billed for
professional services for tax compliance. These services include
assistance regarding federal, state, and local tax compliance.
All Other Fees. All other fees would include fees for
products and services other than the services reported above.
Report of the Audit Committee
As part of its oversight of the Companys financial
statements, the Audit Committee reviewed and discussed with both
management and the Companys independent registered public
accounting firm all of the Companys financial statements
filed with the Commission for each quarter during 2005 and as of
and for the year ended December 31, 2005. Management
advised the Audit Committee that all financial statements were
prepared in accordance with U.S. generally accepted accounting
principles (GAAP), and reviewed significant
accounting issues with the Audit Committee. The Audit Committee
also discussed with the independent registered public accounting
firm the matters required to be discussed by Statement on
Auditing Standards No. 61, Communication with Audit
Committees, as amended, by the Auditing Standards Board of
the American Institute of Certified Public Accountants.
The Audit Committee of the Board has established a pre-approval
policy that describes the permitted audit, audit-related, tax,
and other services to be provided by KPMG LLP, the
Companys independent registered public accounting firm.
The policy requires that the Audit Committee pre-approve the
audit and non-audit services performed by the independent
registered public accounting firm in order to assure that the
provision of such service does not impair the firms
independence.
Any requests for audit, audit-related, tax, and other services
that have not received general pre-approval must be submitted to
the Audit Committee for specific pre-approval, irrespective of
the amount, and cannot commence until such approval has been
granted. Normally, pre-approval is provided at regularly
scheduled meetings of the Audit Committee. However, the Audit
Committee may delegate pre-approval authority to one or more of
its members. The member or members to whom such authority is
delegated shall report any pre-approval decisions to the Audit
Committee at its next scheduled meeting. The Audit Committee
does not delegate its responsibilities to pre-approve services
performed by the independent registered public accounting firm
to management.
The Audit Committee received and reviewed the written
disclosures from the independent registered public accounting
firm required by Independence Standard No. 1,
Independence Discussions with Audit Committees, as
amended, by the Independence Standards Board, and has discussed
with the firm its independence. The Audit Committee has reviewed
the audit fees paid by the Company to the independent registered
public accounting firm. It has also reviewed non-audit services
and fees to assure compliance with the Companys and the
Audit Committees policies restricting the independent
registered public accounting firm from performing services that
might impair its independence. The Audit Committee also reviewed
the requirements and the Companys compliance with
Section 404 of
33
the Sarbanes-Oxley Act of 2002 including the Public Company
Accounting Oversight Boards Auditing Standard No. 2
regarding the audit of internal controls over financial
reporting.
Based on the reviews and discussions referred to above, the
Audit Committee recommended to the Board of Directors that the
financial statements as of and for the year ended
December 31, 2005, be included in the Companys Annual
Report on
Form 10-K for the
year ended December 31, 2005, for filing with the
Commission. The Audit Committee also recommended the selection
of KPMG LLP to serve as the independent registered public
accounting firm of the Company for the year ending
December 31, 2006.
|
|
|
Audit Committee |
|
Brooks H. Browne, Chairman |
|
Ann Torre Bates, Member |
|
Anthony T. Garcia, Member |
|
Laura W. van Roijen, Member |
PROPOSAL 3.
TO APPROVE THE ISSUANCE OF UP TO 2,500,000 SHARES OF COMMON
STOCK IN EXCHANGE
FOR THE CANCELLATION OF VESTED IN-THE-MONEY OPTIONS
GRANTED TO CERTAIN OFFICERS AND DIRECTORS
IN CONNECTION WITH A STOCK OWNERSHIP INITIATIVE
In an effort to encourage share ownership by the Companys
officers and directors, the Board of Directors has determined
that it would be in the best interests of the Company and its
stockholders to approve the issuance of up to
2,500,000 shares of the Companys common stock in
exchange for the cancellation of vested in-the-money
stock options granted to certain officers and directors.
Pursuant to a stock ownership initiative, which has been
reviewed and approved by the Companys Board of Directors,
all optionees who hold vested stock options with exercise prices
below the market value of the stock (or in-the-money
options), would be offered the opportunity to receive cash and
common stock in exchange for their voluntary cancellation of
their vested stock options. The sum of the cash and common stock
to be received by each optionee would equal the
in-the-money value of the stock option cancelled. As
part of the stock ownership initiative, the Board of Directors
is also considering the adoption of a target ownership structure
that would establish minimum ownership levels for Company senior
officers and continue to further align the interests of the
Companys officers with those of the Companys
stockholders.
Background
At March 10, 2006, there were 25,171,777 shares authorized
but unissued remaining under the Amended Stock Option Plan, or
approximately 18% of the Companys total shares
outstanding. The Company has issued options totaling 22,516,115
that have not yet been exercised. The Company would like to
encourage greater stock ownership among its officers and
directors and facilitate the conversion of stock option
positions into Company shares owned. In addition, pursuant to the
34
1940 Act, the Company is limited in the amount of stock options
that may be issued and outstanding at any point in time to 20%
of its total shares outstanding. The Company believes that
facilitating share ownership would decrease the amount of stock
options outstanding and create capacity for future stock option
grants under the Amended Stock Option Plan to attract new
employees and retain existing employees. The Company intends to
continue to use stock options as an important component of the
Companys total compensation package when attracting and
retaining its employees.
In order to increase share ownership among its officers and
directors and in order to increase the number of stock options
available for future grant under the Amended Stock Option Plan,
the Company proposes to offer all optionees under the Amended
Stock Option Plan the opportunity to voluntarily cancel some or
all of their vested in-the-money stock options in exchange for
an option cancellation payment (OCP) equal to the
in-the-money value, which would be paid one-half in cash and
one-half in shares of the Companys common stock by means
of a tender offer. An optionee who chooses to voluntarily cancel
his/her vested options pursuant to this initiative would not be
compensated for the value of the remaining life of the stock
option. No vesting would be accelerated as part of this
initiative.
The cash portion of the OCP would be paid to the optionee net of
required payroll and income tax withholding amounts. The Company
would elect to make one-half of the OCP payable in cash so that
officers and directors would not be required to sell shares of
the Companys common stock in order to satisfy income tax
liabilities resulting from the exchange. In addition, option
holders electing to participate in the initiative would not have
to pay brokerage or other transactional fees typically
associated with option exercises in the market. The Company
intends to use working capital to fund this initiative. The
Company does not believe that the issuance of shares of the
Companys common stock in exchange for the cancellation of
stock options would constitute the issuance of shares for
services, which is prohibited by the Investment Company Act of
1940.
The common stock to be issued as part of the OCP would not be
registered under the Securities Act of 1933 and the Company
would not be required to register such shares. Because the
shares have not been registered under the Securities Act of
1933, the optionee would not be able to transfer such shares
except pursuant to an effective registration statement under the
Securities Act of 1933 or pursuant to an applicable exemption
from the registration requirements of the Securities Act of
1933. In particular, the shares may be publicly resold if such
resales comply with Rule 144 under the Securities Act of
1933. In general, under Rule 144, if one year has elapsed since
the date of acquisition of the shares from the Company, the
holder of shares may publicly resell such shares subject to
certain limitations. If two years have elapsed since the date of
acquisition of the shares from the Company and the holder is not
one of the Companys affiliates at any time during the
three months preceding the proposed sale, such person may
publicly resell such shares without regard to the limitations
set forth in Rule 144.
By the terms of the Amended Stock Option Plan, stock options
that are cancelled in the plan without being exercised become
available for future grant. As a result, to the extent that
optionees choose to voluntarily cancel any of their vested
in-the-money options, such stock options would become available
for future grant without increasing the total number of shares
available under the Amended Stock Option Plan.
35
Details of the Stock Ownership Initiative
Officers and directors with vested stock options would be
offered the opportunity to receive the OCP in exchange for the
voluntary cancellation of vested in-the-money stock options. The
offer would be made by means of a tender offer on
Schedule TO, pursuant to the Securities Act of 1934 and the
1940 Act, which would be filed with the Commission and
distributed to all eligible optionees (the Tender
Offer). The election to receive the OCP in exchange for
option cancellation would be at the discretion of the individual
officer or director. Officers and directors could elect to
cancel some or all of their vested in-the-money options. The
Company would not require a minimum level of participation in
order to complete the Tender Offer.
In order to determine the market value of a share of the
Companys common stock for purposes of determining the OCP
and the number of shares that would be issued for stock options
cancelled, the Company intends to use the volume weighted
average price of the Companys common stock over the
fifteen trading days preceding the first day of the Tender Offer
period, however the market value may not be below net asset
value. The spread between the market value and the exercise
price of the vested stock option cancelled would represent the
value of the OCP. Thus, the value of the OCP is dependent on the
market value of the Companys common stock.
At March 10, 2006, there were 13,024,016 vested stock
options outstanding under the Amended Stock Option Plan.
Assuming a market stock price of $30.50 per share (the closing
price on March 10, 2006) and a weighted average exercise
price of $22.36, the aggregate OCP for all vested in-the-money
stock options would be approximately $106.0 million. Thus,
if option holders choose to cancel all vested in-the-money
options in exchange for the OCP, the Company would pay cash
totaling approximately $53.0 million and issue shares of
common stock with an approximate value of $53.0 million.
Total shares issued would be approximately 1.7 million
shares. The Board has authorized the issuance of up to 2,500,000
shares of common stock. The Company is unable to predict how
many optionees would participate in the Tender Offer and is
unable to predict the market price of its common stock or the
amount of the OCP. Thus, the actual OCP may differ substantially
from this example.
By electing to participate in the Tender Offer, officers and
directors would cancel their in-the-money stock options and
forego any value that may be attributed to the remaining stock
option term. As shown in the example above, 13,024,016 stock
options would be cancelled in exchange for approximately
1.7 million shares, thus substantially reducing the
leverage afforded by the options to officers and directors and
substantially reducing the potential dilution to stockholders.
The cash portion of the OCP would approximate the tax liability
that would have been associated with an exercise of the options,
thus the shares received by officers and directors would
approximate the net after tax in-the-money value of their vested
in-the-money options.
The details surrounding the stock ownership initiative may be
revised by the Board of Directors in order to comply with the
requirements of Schedule TO and any other regulatory
requirements. Stockholders are not being asked to approve the
stock ownership initiative. Stockholders are being asked to
approve the issuance of shares to satisfy the common stock
portion of the OCP. Should stockholders not approve the issuance
of shares, the Board of Directors may elect to revise the
composition of the OCP to an all cash payment.
36
Economic Effect on Stockholders
The economic benefit received by the option holder under the
stock ownership initiative is no more than the value that the
option holder was already entitled to pursuant to his/her option
previously granted under the Amended Stock Option Plan. In fact,
the economic cost of this initiative to stockholders is the same
as stock option exercises in the market. For example, the
economic cost of this initiative to the Company would be
approximately $106.0 million, assuming
13,024,016 vested outstanding options and a weighted
average in-the-money option spread based on the market price of
$30.50 (the closing price on March 10, 2006) and a weighted
average exercise price of $22.36. If all the holders of the
vested in-the-money options elected to conduct a cashless
exercise in the market, then the net dilution to stockholders
would also be approximately $106.0 million, which
represents the difference between the value of the stock sold in
the market and cash proceeds to the Company. Stock sales in the
market would be estimated to be $397.2 million, which is
based on the exercise of 13,024,016 options and subsequent
sale at the market price of $30.50. Cash proceeds to the Company
would be estimated to be $291.2 million, which is based on
the exercise of 13,024,016 options at the weighted average
exercise price of $22.36 at March 10, 2006.
The stock ownership initiative does not require the sales of
shares of the Companys common stock in the market. Based
on the Companys calculations using March 10, 2006
data, if all holders of vested-in-the-money stock options were
to exercise such options, it would result in approximately
$397.2 million or approximately 9.5% of the Companys
market capitalization to be sold in the market to effect
exercise. Specifically, if all holders of vested in-the-money
options exercised such options, then 13,024,016 shares of
the Companys common stock would be issued. Pursuant to the
initiative, assuming 100% participation from all holders of
vested in-the-money options, only approximately 1.7 million
shares of the Companys common stock would be issued,
representing approximately 1% of the Companys shares
outstanding.
Finally, this initiative results in stock ownership among the
Companys officers and directors. Under this initiative,
the cash portion of the OCP is largely used for taxes and
withholdings and the stock portion is retained by the option
holder. As a result, an option holder becomes a stockholder and
foregoes future potential upside for the remaining term of
his/her option. Without the initiative, an option holder that
elected to conduct a cashless exercise in the market would
receive a cash benefit. As shown in the example above, the
Company has estimated that the profit to option holders would be
approximately $106.0 million. After deducting an assumed
tax expense, estimated to be 50%, the option holders net
after-tax gain would be $53.0 million. Under the
initiative, option holders would receive the estimated net
after-tax value in the form of shares, rather than a cash
benefit, which would result in the issuance of approximately
1.7 million shares of the Companys common stock.
Considerations of the Board of Directors
The Companys Board of Directors determined that this stock
ownership initiative is in the best interest of the
Companys stockholders. In making its decision, the Board
of Directors considered: (i) the need for the Company to
attract and retain key officers and directors; (ii) the
desirability of promoting stock ownership among officers and
directors and thereby further aligning the interests of the
Companys
37
officers and directors with the interests of the Companys
stockholders; and (iii) the dilution of the pro rata
interests of the Companys stockholders.
Ability to Attract and Retain Key Officers and Directors.
In analyzing the need for the cancellation of stock options, the
Board of Directors noted that, although the Company is permitted
to issue options to its officers and directors, the number of
options the Company is permitted to issue is limited by the 1940
Act to 20% of the Companys total shares outstanding. Given
that the Company has 22,516,115 options outstanding at
March 10, 2006, which currently represent 16% of its shares
outstanding, the Board of Directors recognized that the Company
may not have sufficient options available to attract and retain
executive officers in the future.
Aligning the Interests of the Companys Officers and
Directors with the Interests of the Companys
Stockholders. Although the Board of Directors discussed a
variety of ways in which to increase the number of stock options
available for grant under the Amended Stock Option Plan, the
Board of Directors acknowledged that this stock ownership
initiative would promote direct stock ownership among the
Companys officers and directors. Specifically, the Board
of Directors noted that paying a portion of the OCP in stock
would further align the interests of the Companys officers
and directors with those of the Companys stockholders. The
initiative would allow the cancellation of options without the
sale of shares into the market. Without this initiative, the
Board of Directors recognized that option holders may exercise
such options in cashless exercises with brokers and such
activity could negatively affect the market price of the
Companys shares of common stock and potentially decrease
shareholder value. Through a stock option exercise, the option
holder could sell all shares received for cash in the market and
retain no additional shares of common stock. Under this
initiative the shares issued in exchange for the cancellation of
vested in-the-money options would not be registered and would be
issued pursuant to an exemption from the federal securities
laws. Therefore, participating option holders would be required
to retain ownership of the shares received in exchange for the
cancellation of their vested in-the-money options for a certain
period of time.
Dilution. After reviewing the economic effect on the
Companys stockholders, the Board of Directors determined
that this stock ownership initiative does not result in a
greater dilution of the interests of existing stockholders than
would result if the vested in-the-money options were exercised.
Accounting Treatment for the OCP and U.S. Federal Income Tax
Consequences
The value of the OCP would approximate the value an optionee
would receive had that optionee exercised his or her stock
options. Unlike the accounting treatment typically associated
with a stock option exercise, the OCP would be recorded as an
expense for financial reporting purposes, and the expense may be
significant. Using the assumptions set forth above, the OCP
would be approximately $106.0 million, if option holders
choose to cancel all vested
in-the-money options in
exchange for the OCP. If the stock options were exercised in the
market, the Company would not incur any expense for
financial reporting purposes.
Optionees who elect to participate in the stock ownership
program and receive the OCP in exchange for the cancellation of
stock options will recognize compensation for the amount of the
OCP and will be obligated to pay all required federal, state and
local income and employment taxes on such income.
38
For income tax purposes, the tax expense for the Company
resulting from the OCP would be similar to the tax expense that
would result from an exercise of stock options in the market.
Any tax deduction for the Company resulting from the OCP or an
exercise of stock options in the market would be limited by
Section 162(m) of the Code for persons subject to
Section 162(m).
Target Ownership Program
In conjunction with its stock ownership initiative, the Board of
Directors is considering a target ownership program to encourage
the Companys senior officers to achieve and retain a
prescribed level of ownership. The Board of Directors believes
that the shares issued pursuant to the OCP would facilitate the
achievement of target ownership for newer officers. Should
stockholders approve the proposal to issue the Companys
common stock in exchange for the cancellation of vested
in-the-money stock options, the Board of Directors
would implement a target ownership program to further enhance
its stock ownership initiative.
Many of the Companys senior officers already own a
substantial number of shares of the Company and few have chosen
to sell shares over their tenure with the Company. The Board of
Directors believes that it is in the best interest of
stockholders to encourage share ownership by the Companys
senior officers, so that the interests of officers and
stockholders are aligned.
The Board of Directors has determined proposed target ownership
levels for the Companys senior officers, as described
below. The Chief Executive Officer, the Chief Operating Officer
and the Chief Financial Officer would be required to achieve and
maintain the target ownership level immediately. Other officers
already holding a relevant title would be required to achieve
and maintain the target ownership level within five years of the
implementation of the target ownership program. Individuals who
are hired or promoted after the implementation of the target
ownership program would be required to achieve the target
ownership level within the later of five years from the date of
hire or three years from the date of promotion to the relevant
title.
Proposed Target Ownership Levels
|
|
|
|
|
|
|
|
|
|
|
Multiple of Base Salary | |
|
Minimum Share Ownership Range | |
|
|
| |
|
| |
Chief Executive Officer
|
|
|
5 |
|
|
|
250,000 |
|
Management Committee Members
|
|
|
4 |
|
|
|
55,000 130,000 |
|
Managing Directors and Executive Vice Presidents who are not on
the Management Committee
|
|
|
3 |
|
|
|
21,500 45,000 |
|
Principals
|
|
|
2 |
|
|
|
10,000 20,500 |
|
Target ownership amounts would represent the lesser of a
multiple of base salary or a specified number of shares. Minimum
share ownership requirements would be determined on an
individual basis and would be adjusted annually.
39
The Companys Named Executive Officers and certain other
executive officers currently meet the target ownership levels
set forth above. See Security Ownership of Management and
Certain Beneficial Owners.
Determination of Ownership under the Target Ownership
Program
For purposes of the target ownership program, shares owned
directly by the officer, shares owned by immediate family
members of the officer, as well as shares held in the
officers 401(k) Plan account, and shares deemed held in
DCP II and 2005 DCP II all would constitute ownership. Vested
stock options would not constitute ownership for purposes of the
target ownership program.
Annually, the Compensation Committee would receive a report
indicating each senior officers actual ownership. If an
officer does not achieve the required target ownership level
within the specified period of time, the Compensation Committee
would consider reducing the officers future compensation
awards, including the annual cash bonus, IPA, IPB, or future
grant of stock options.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT
STOCKHOLDERS VOTE TO APPROVE THE ISSUANCE OF UP TO 2,500,000
SHARES OF COMMON STOCK IN EXCHANGE FOR THE CANCELLATION OF
VESTED IN-THE-MONEY OPTIONS GRANTED TO CERTAIN OFFICERS AND
DIRECTORS.
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. The submission of a
proposal does not guarantee its inclusion in the Companys
Proxy Statement or presentation at the Meeting unless certain
requirements are met.
2007 ANNUAL MEETING OF STOCKHOLDERS
Any stockholder proposals submitted pursuant to the
Commissions Rule 14a-8 for inclusion in the Companys
proxy statement and form of proxy for the 2007 annual meeting of
stockholders must be received by the Company on or before
December 8, 2006. Such proposals must also comply with the
requirements as to form and substance established by the
Commission if such proposals are to be included in the proxy
statement and form of proxy. Any such proposal should be mailed
to: Allied Capital Corporation, 1919 Pennsylvania Avenue, N.W.,
Washington, D.C. 20006, Attention: Corporate Secretary.
Stockholder proposals or director nominations to be presented at
the 2007 annual meeting of stockholders, other than stockholder
proposals submitted pursuant to the Commissions
Rule 14a-8, must
be delivered to, or mailed and received at, the principal
executive offices of the Company not less than ninety
(90) days in advance of the one year anniversary of the
date the Companys proxy statement was released to
stockholders in connection with the previous years annual
meeting of stockholders. For the Companys 2007 annual
meeting of stockholders, the Company must
40
receive such proposals and nominations no later than
January 7, 2007. If the date of the annual meeting has been
changed by more than thirty (30) calendar days from the
date contemplated at the time of the previous years proxy
statement, stockholder proposals or director nominations must be
so received not later than the tenth day following the day on
which such notice of the date of the 2007 annual meeting of
stockholders or such public disclosure is made. Proposals must
also comply with the other requirements contained in the
Companys bylaws, including supporting documentation and
other information. Proxies solicited by the Company will confer
discretionary voting authority with respect to these proposals,
subject to Commission rules governing the exercise of this
authority.
41
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ALLIED
CAPITAL CORPORATION 1919
PENNSYLVANIA AVE. NWWASHINGTON,
DC 20006
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VOTE BY INTERNET www.proxyvote.com Use the Internet to transmit your voting instructions
and for electronic delivery of information up until
11:59 P.M. Eastern Time the day before the cut-off date or meeting
date. Have your proxy card in hand when you access the web
site and follow the instructions to obtain your records and
to create an electronic voting instruction form. |
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VOTE BY PHONE 1-800-690-6903 |
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Use any touch-tone telephone to transmit your
voting instructions |
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up until 11:59 P.M. Eastern Time the
day before the cut-off date |
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or meeting date. Have your proxy card in hand
when you call |
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and then follow the instructions. |
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VOTE BY MAIL |
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Mark, sign, and date your proxy card and return
it in the postage- |
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paid envelope we have provided or return it
to Allied Capital |
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Corporation, c/o ADP, 51 Mercedes Way, Edgewood,
NY 11717. |
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: þ
ALCAP1 KEEP THIS PORTION FOR YOUR RECORDS
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID
ONLY WHEN SIGNED AND DATED.
ALLIED CAPITAL CORPORATION
Election of Directors
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1.
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This election of the following five persons |
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(except as marked to the contrary) as Class |
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II Directors who will serve as directors of |
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For
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Withhold
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For All
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To withhold authority to vote, mark For All Except |
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Allied Capital Corporation until
2009, or until their successors are elected
and qualified.
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All
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All
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Except
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and write the nominees number on the line below. |
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NOMINEES: CLASS II DIRECTORS
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_____________________________________________ |
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01) Ann
Torre Bates |
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02) Edwin
L. Harper |
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03) John
I. Leahy |
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04) Alex
J. Pollock |
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05) Guy
T. Steuart II |
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Vote On Proposal |
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For |
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Against |
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Abstain |
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2.
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The ratification of the selection of KPMG LLP as independent registered
public accounting firm for Allied Capital Corporation for the year ending
December 31, 2006.
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3.
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To approve the issuance of up
to 2,500,000 shares of common stock in exchange for the cancellation of vested
in-the-money options granted to certain officers and directors in connection with a stock ownership initiative.
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4.
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To transact such other business as may properly come before the Meeting. |
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IMPORTANT: Please sign your name(s) exactly as shown hereon and date your proxy in
the blank provided. 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 a duly
authorized officer or partner.
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Yes
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No |
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Please indicate if you plan to attend this meeting in person.
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_____________________________________________
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__________________________________________ |
Signature [PLEASE SIGN WITHIN BOX] Date
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P10330 |
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Signature (Joint Owners) Date |
ALLIED CAPITAL CORPORATION
Annual Meeting of Stockholders
Admission Ticket
May 16, 2006
10:00 a.m.
The Madison Hotel
Fifteenth & M
Streets, NW
Washington, DC
If you plan to attend the
Annual Meeting of Stockholders on May 16th, please detach this card and bring it with you
for presentation at the Meeting. Please be sure to bring this ticket
with you, as you will need it to gain access to the Meeting.
The doors will open at
9:15 a.m.; a continental breakfast buffet will be served.
ALLIED CAPITAL CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The
undersigned hereby appoints WILLIAM L. WALTON, PENNI F. ROLL and SUZANNE V. SPARROW, or any
one of them, and each with full power of substitution, to act as attorneys and proxies for the undersigned
to vote all the shares of Common Stock of the Company which the undersigned is entitled to vote at the Annual
Meeting of Stockholders of the Company to be held at the Madison
Hotel, Fifteenth & M Streets, NW,
Washington, DC on May 16, 2006 at 10:00 A.M. [Eastern] and at all adjournments thereof, as indicated
on this proxy.
THIS PROXY IS REVOCABLE AND WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR THE NOMINEES AND FOR THE PROPOSAL LISTED. If any other business is presented
at the meeting, this proxy will be voted by the proxies in their best judgment,
including a motion to adjourn or postpone the meeting to another time and/or place for the purpose
of soliciting additional proxies. At the present time, the Board of Directors knows of no other business
to be presented at the meeting.
Please mark, sign and
return this proxy in the enclosed envelope. The undersigned acknowledges receipt
from the Company prior to the execution of this Proxy of a Notice of
Annual Meeting of Stockholders and a proxy statement.
(CONTINUED ON REVERSE SIDE)