Exhibit 10.3

 

EXECUTION COPY

 

AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT

 

THIS AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (such agreement as
amended, modified, waived, supplemented or restated from time to time, the
“Agreement”), dated as of June 13, 2003 by and among AMERICAN CAPITAL
STRATEGIES, LTD., as the seller (together with its successors and assigns in
such capacity, the “Seller”), a Delaware corporation, ACS FUNDING TRUST I, as
the buyer (together with its successors and assigns in such capacity, the
“Buyer”), and WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION (“Wells Fargo”),
as the escrow agent (together with its successors and assigns in such capacity,
the “Escrow Agent”).  Capitalized terms used but not defined herein shall have
the meanings given to such terms in the Purchase Agreement (as defined below)
and the principles of interpretation set forth therein.

 

W I T N E S S E T H

 

WHEREAS, concurrently with the execution of this Agreement, the Seller is
entering into the Amended and Restated Purchase and Sale Agreement, dated as of
June 13, 2003 by and between the Buyer and the Seller (such agreement as
amended, modified, waived, supplemented or restated from time to time, the
“Purchase Agreement”), pursuant to which the Seller has agreed to sell,
transfer, assign and set over and otherwise convey to the Buyer, from time to
time, certain Loans and the Related Property, Loan Documents, Supplemental
Interests, Collections, interest and Proceeds related thereto;

 

WHEREAS, the Seller has agreed to grant to the Buyer a first priority perfected
security interest in such Pledged Supplemental Interests (defined below) to
secure the Seller’s Secured Obligations;

 

NOW, THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, and
intending to be legally bound hereby, the Seller hereby covenants and agrees as
follows:

 

Section 1.                                          Grant of Security.  The
Seller hereby pledges and assigns to the Buyer, as security for the Secured
Obligations (as defined below), all of the Seller’s right, title and interest in
and to, whether now existing and/or hereafter arising and/or acquired, in any
Supplemental Interests related to any Purchased Assets sold to the Buyer under
the Purchase Agreement on a Purchase Date prior to the Closing Date
(collectively, the “Pledged Supplemental Interests”), all investment property
(as such term is defined in Article 9 of the UCC) relating to or arising out of
such Pledged Supplemental Interests and all proceeds of the foregoing
(collectively, the “Collateral”).

 

Section 2.                                          Continuing Security
Interest; Pledge Termination Date.  This Agreement hereby creates a continuing
security interest in the Collateral and shall (i) remain in full force and
effect until the Collection Date under (and as defined in) the Amended and
Restated Loan Funding and Servicing Agreement, dated as of the date hereof (such
agreement as amended, modified, waived, supplemented or restated from time to
time, the “Loan Funding

 

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Agreement”) between and among the Buyer, as the borrower, the Seller, as the
servicer, Variable Funding Capital Corporation, as the conduit lender, Wachovia
Securities, LLC, as the deal agent, Wachovia Bank, National Association, as the
swingline lender, and Wells Fargo, as collateral custodian and as backup
servicer; (ii) be binding upon the Seller, its successors and assigns, and (iii)
inure to the benefit of the Buyer and its successors, transferees and assigns. 
Upon the Collection Date, the security interest granted hereby shall terminate.

 

Section 3.                                          Secured Obligations.  This
Agreement is made and the security interest created hereby is granted to the
Buyer to secure the full and punctual performance of all of the Seller’s Secured
Obligations.  “Secured Obligations” shall mean the obligations, representations,
agreements, covenants and warranties on the part of the Seller under the
Transaction Documents.

 

Section 4.                                          Delivery of Pledged
Supplemental Interests.  Prior to the Collection Date, such certificates or
instruments shall be held by the Escrow Agent pursuant hereto and shall be in
suitable form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to the Escrow Agent and the Buyer.  All such certificate or
instruments shall be indorsed only to the Escrow Agent or in blank.  In
connection with the certificates and instruments evidencing the Pledged
Supplemental Interests delivered to the Escrow Agent:  (i) the Escrow Agent
shall act as a “securities intermediary” (as defined in Article 8 of the UCC)
for the Buyer, (ii) the Pledged Supplemental Interests and the certificates
and/or instruments evidencing the same shall be treated as “financial assets”
(as defined in and governed by Article 8 of the UCC), (iii) the Escrow Agent, as
such securities intermediary, shall establish and maintain on its records an
account in the name of the Buyer which shall be a “securities account” (as
defined in Article 8 of the UCC) to which the Escrow Agent by book entry shall
credit the Pledged Supplemental Interests delivered to the Escrow Agent as
described above, (iv) the Escrow Agent shall comply with “entitlement orders”
(as defined in Article 8 of the UCC) originated by the Buyer without further
consent of the Seller or any other party and shall not comply with entitlement
orders issued by the Buyer or any other party and (v) the Escrow Agent waives
and agrees not to assert or claim any interest, lien or other rights in or to
the Collateral.

 

If and to the extent of the certificates or instruments evidencing the Pledged
Supplemental Interests are not indorsed to the Escrow Agent or in blank and/or
are not credited to a securities account maintained by the Escrow Agent, the
Escrow Agent agrees and acknowledges that it is holding and will hold possession
of such certificates and instruments for the benefit of the Buyer as the agent
of and bailee for the Buyer.

 

Section 5.                                          Representation and
Warranties.

 

The Seller hereby represents and warrants as follows:

 

(a)                                  Organization and Good Standing.  The Seller
is a corporation duly organized and validly existing in good standing under the
laws of the jurisdiction of its formation and has full corporate power,
authority and legal right to own its properties and conduct its business as such
properties are presently owned and as such business is presently conducted and
to execute, deliver and perform its obligations under this Agreement and each
other document or instrument to be delivered by the Seller hereunder.

 

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(b)                                 Due Qualification.  The Seller is duly
qualified to do business and is in good standing as a foreign corporation (or is
exempt from such requirements), and has obtained all necessary licenses and
approvals, in each jurisdiction in which failure to so qualify or to obtain such
licenses and approvals would have a Material Adverse Effect on its ability to
perform its obligations hereunder.

 

(c)                                  Due Authorization.  The execution and
delivery of this Agreement, and the consummation of the transactions provided
for herein and therein have been duly authorized by the Seller by all necessary
corporate action on the part of the Seller.

 

(d)                                 No Conflict.  The execution and delivery of
this Agreement, the performance of the transactions contemplated hereby and the
fulfillment of the terms hereof, will not conflict with, result in any breach of
any of the material terms and provisions of, or constitute (with or without
notice or lapse of time or both) a material default under, any material
indenture, contract, agreement, mortgage, deed of trust, or other instrument to
which the Seller is a party or by which it or any of its property is bound.

 

(e)                                  No Violation.  The execution and delivery
of this Agreement, the performance of the transactions contemplated hereby and
the fulfillment of the terms hereof will not conflict with or violate, in any
material respect, any Applicable Law.

 

(f)                                    No Proceedings.  There are no proceedings
or investigations pending or, to the best knowledge of the Seller, threatened
against the Seller before any Governmental Authority (i) asserting the
invalidity of this Agreement, (ii) seeking to prevent the consummation of any of
the transactions contemplated by this Agreement, or (iii) seeking any
determination or ruling that could reasonably be expected to have a material
adverse effect on the business, condition (financial or otherwise), operations,
performance or prospects of the Seller.

 

(g)                                 All Consents Required.  All approvals,
authorizations, consents, orders or other actions of any Person or of any
Governmental Authority required in connection with the execution and delivery of
this Agreement, the performance of the transactions contemplated by this
Agreement and the fulfillment of or terms hereof, have been obtained.

 

(h)                                 Not an Investment Company.  The Seller is an
“investment company” within the meaning of the Investment Company Act of 1940,
as amended (the “1940 Act”), that has elected to be regulated as a business
development company under the 1940 Act.

 

(i)                                     Other Names.  The legal name of the
Seller is as set forth in this Agreement and within the preceding five years the
Seller has not used, and the Seller currently does not use, any tradenames,
fictitious names, assumed names or “doing business as” names.

 

(j)                                     Taxes.  The Seller has filed or caused
to be filed all tax returns which, to its knowledge, are required to be filed
and has paid all taxes shown to be due and payable on such returns or on any
assessments made against it or any of its property and all other taxes, fees or
other charges imposed on it or any of its property by any Governmental Authority
(other than any amount of tax due the validity of which is currently being
contested in good faith by appropriate proceedings and with respect to which
reserves in accordance with generally accepted accounting principles have been
provided on the books of the Seller); no tax lien has

 

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been filed and, to the Seller’s knowledge, no claim is being asserted, with
respect to any such tax, fee or other charge.

 

(k)                                  Place of Business.  The principal executive
offices of the Seller are at 2 Bethesda Metro Center, 14th Floor, Bethesda,
Maryland 20814.

 

(l)                                     No Liens.  The Seller, is, and at the
time of delivery of any Pledged Supplemental Interests pursuant to this
Agreement will be, the legal and beneficial owner of such Pledged Supplemental
Interests free and clear of any lien, security interest or encumbrance
whatsoever except for the lien and security interest created by this Agreement. 
No effective financing statement or other instrument similar in effect covering
any of the Pledged Supplemental Interests shall at any time be on file in any
recording office, except such as may be filed in favor of the Buyer, pursuant to
this Agreement.

 

(m)                               Security Interest.  Pursuant to Section 1
hereof, the Seller has granted a security interest (as defined in the UCC) to
the Buyer in the Pledged Supplemental Interests, which is enforceable in
accordance with the UCC upon execution and delivery of this Agreement.  Upon
delivery of the Pledged Supplemental Interests to the Escrow Agent and assuming
the Escrow Agent obtains and maintains “control” (within the meaning of the
UCC), the Seller shall have validly granted to the Buyer a first priority
perfected security interest in the Pledged Supplemental Interests.  All filings
(including, without limitation, such UCC filings) and other actions as are
necessary in any jurisdiction to perfect the interest of the Buyer, in the
Pledged Supplemental Interests have been (or prior to the execution of this
Agreement will be) made.

 

(n)                                 Margin Stock.  The Pledged Supplemental
Interests are not “margin stock” (as defined in Regulation U of the Federal
Reserve Board), and the pledge of the Pledged Supplemental Interests pursuant to
this Agreement does not violate Regulation T, U or X of the Federal Reserve
Board or Section 7 of the Securities Exchange Act of 1934, as amended.

 

(o)                                 Accuracy of Representations and Warranties. 
Each representation or warranty by the Seller contained herein or in any
certificate or other document furnished by the Seller pursuant hereto or in
connection herewith is true and correct in all material respects.

 

(p)                                 Pledged Supplemental Interests.  No Pledged
Supplemental Interest constitutes a “margin security,” as such term is defined
in Regulation U of the Federal Reserve Board as now and from time to time
hereafter in effect.

 

The representations and warranties set forth in this Section 5 shall survive the
grant of security interest in the Pledged Supplemental Interests to the Buyer. 
Upon discovery by the Buyer or the Seller of a breach of any of the foregoing
representations and warranties, the party discovering such breach shall give
prompt written notice thereof to the other immediately upon obtaining knowledge
of such breach.

 

Section 6.                                          Covenants of the Seller.

 

(a)                                  Transfers and other Liens.  The Seller
shall not (i) sell, assign or otherwise dispose of any of the Collateral, except
to or in favor of the Buyer and except as otherwise

 

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provided herein, or (ii) create or suffer to exist any lien upon or with respect
to any of the Collateral except for the security interest granted pursuant to
this Agreement.

 

(b)                                 Further Assurances.  The Seller agrees that
at any time and from time to time, at the expense of the Seller, it will
promptly execute and deliver all further instruments and documents, and take all
further action, that may be necessary or that the Escrow Agent or the Buyer, may
reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable the Escrow Agent or the
Buyer, to exercise and enforce its rights and remedies hereunder with respect to
the Collateral.

 

(c)                                  Additional Pledged Supplemental Interests. 
The Seller further agrees that it will promptly (and in any event within five
(5) Business Days following any Purchase Date prior to the Approval Date)
deliver to the Escrow Agent all Supplemental Interests, if any, related to the
Purchased Assets sold to the Buyer under the Purchase Agreement on such Purchase
Date, and take all other actions as may be reasonably necessary or requested by
the Escrow Agent or the Buyer in order to protect and perfect the security
interest granted hereby in such Supplemental Interests to the Buyer.  The Seller
hereby agrees that all Supplemental Interests so delivered to the Escrow Agent
after the date of this Agreement shall for all purposes hereunder be considered
Pledged Supplemental Interests.

 

Section 7.                                          Remedies.  If the Seller
shall fail to perform any Secured Obligation, the Buyer or its transferee or
assignee may exercise from time to time any and all rights and remedies
available to it as a secured party on default (under the UCC in the relevant
jurisdiction(s)) with respect to the Collateral.

 

Section 8.                                          Security Interest Absolute. 
All rights of the Escrow Agent and the Buyer, and the security interest granted
hereunder, and all of the obligations of the Seller hereunder, shall be absolute
and unconditional, irrespective of:

 

(a)                                  any lack of validity or enforceability of
the Purchase Agreement or other agreement or instrument relating thereto;

 

(b)                                 any change in any term of all or any of the
obligations of the Seller under the Purchase Agreement, or any other amendment
or waiver of or any consent to any departure from any provision of the Purchase
Agreement; or

 

(c)                                  any other circumstance which might
otherwise constitute a defense available to, or a discharge of, the Seller or
any third party.

 

Section 9.                                          Escrow Agent.  The Escrow
Agent shall be obligated, and shall have the right hereunder to make demands, to
give notices, to exercise or refrain from existing any rights, and to take or
refrain from taking action solely in accordance with this Agreement.  The Escrow
Agent may not resign, or be removed, except in accordance with the provisions of
Sections 7.10 and 7.21 of the Loan Funding Agreement.  Upon the acceptance of
any appointment as a Escrow Agent by a successor Escrow Agent by execution of an
instrument accepting the same and all obligations of a Escrow Agent hereunder,
that successor Escrow Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the predecessor Escrow Agent
under this Agreement, and the predecessor Escrow Agent shall thereupon be
discharged

 

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from its duties and obligations under this Agreement.  After any predecessor
Escrow Agent’s resignation or removal, the provisions of this Agreement shall
inure to its benefit as to any actions taken or omitted to be taken by it under
this Agreement while it was Escrow Agent.  Upon its resignation, any Escrow
Agent shall be entitled to payment by the Seller of all reasonable expenses
incurred by it in acting as Escrow Agent hereunder.  The Seller agrees to
execute and deliver to any successor Escrow Agent appointed hereunder all such
documents as may be necessary to preserve and protect the rights of the Buyer. 
Any corporation into which the Escrow Agent may be merged or with which it may
be consolidated or converted, or to which substantially all of its corporate
trust business may be transferred, shall automatically succeed to all of the
rights and obligations of its predecessor and shall become the Escrow Agent
hereunder without further action on the part of any of the parties hereto.  For
the purposes of this Agreement, the “jurisdiction” of the Escrow Agent with
respect to matters governed by the UCC shall be the State of Minnesota.

 

Section 10.                                   Indemnification.  The Seller
hereby agrees to indemnify Escrow Agent, and the Buyer (collectively, the
“Indemnified Parties”) for any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind and nature whatsoever that may be imposed on, incurred by or
asserted against the Indemnified Parties arising out of this Agreement or the
pledge of the Pledged Supplemental Interests pursuant to the Purchase Agreement;
provided, however, that the Seller shall not be liable for any of the foregoing
to the extent they arise from the gross negligence or willful misconduct of such
Indemnified Party.

 

Section 11.                                   Directions to Escrow Agent.  The
Escrow Agent shall take any action specified in Section 7 hereof only when so
requested in writing by the Buyer or its assignee.  In the absence of such
direction, the Escrow Agent will administer the Pledged Supplemental Interests
and take such action with respect thereto as it deems to be in the best interest
of the Buyer.

 

Section 12.                                   Amendments.  This Agreement and
the rights and obligations of the parties hereunder may not be amended, waived
or changed orally, but only with written consent of the Buyer and the Deal
Agent.

 

Section 13.                                   Governing Law.  THIS AGREEMENT
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK.  EACH OF THE PARTIES HERETO HEREBY AGREES TO THE JURISDICTION OF ANY
FEDERAL COURT LOCATED WITHIN THE STATE OF NEW YORK.  EACH OF THE PARTIES HERETO
HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION BASED ON
FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED
HEREUNDER IN ANY OF THE AFOREMENTIONED COURTS AND CONSENTS TO THE GRANTING OF
SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.

 

Section 14.                                   Notices.  All demands, notices and
communications hereunder shall be in writing and addressed or delivered to each
party at its address set forth under its name on the signature pages hereof.

 

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Section 15.                                   Expenses.  The Seller will pay
upon demand to the Escrow Agent the amount of any and all reasonable expenses,
including the reasonable fees and expenses of its counsel and of any experts and
agents, that the Escrow Agent may incur in connection with (a) the
administration of this Agreement, (b) the custody or preservation of, or the
sale of, collection from, or other realization upon, any of the Pledged
Supplemental Interests, (c) the exercise or enforcement of any of the rights of
the Escrow Agent or the Buyer, or (d) the failure of the Seller to perform or
observe any of the provisions hereof.

 

Section 16.                                   No Waiver; Cumulative Remedies.
 No failure to exercise and no delay in exercising, on the part of the Escrow
Agent or the Buyer, any right, remedy, power or privilege hereunder, shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or
privilege.  The rights, remedies, powers and privileges herein provided are
cumulative and not exhaustive of any rights, remedies, powers and privilege
provided by law.

 

Section 17.                                   Counterparts.  This Agreement may
be executed in two or more counterparts including telefax transmission thereof
(and by different parties on separate counterparts), each of which shall be an
original, but all of which together shall constitute one and the same
instrument.

 

Section 18.                                   Binding Effect; Assignment;
Third-Party Beneficiaries.  This Agreement shall inure to the benefit of and the
obligations thereunder shall be binding upon the parties hereto and their
respective successors and permitted assigns.  This Agreement is not assignable
by the Seller without the prior written consent of the Escrow Agent, the Buyer
and the Deal Agent.  Simultaneously with the execution and delivery of this
Agreement, the Buyer shall assign all of its right, title and interest herein to
the Deal Agent, as agent for the Secured Parties, under the Loan Funding
Agreement as provided in the Loan Funding Agreement, to which assignment the
Seller hereby expressly consents.  The Seller agrees that the Deal Agent, as
agent for the Secured Parties under the Loan Funding Agreement, shall be a
third-party beneficiary hereof.  The Deal Agent, as agent for the Secured
Parties under the Loan Funding Agreement, may enforce the provisions of this
Agreement, exercise the rights of the Buyer and enforce the obligations of the
Seller hereunder as provided in the Loan Funding Agreement.

 

Section 19.                                   Attorney-in-Fact.  The Seller
hereby irrevocably appoints the Escrow Agent, as the Seller’s attorney-in-fact,
with full authority in the place and stead of the Seller and in the name of the
Seller or otherwise, from time to time in Escrow Agent’s discretion, to take any
action and to execute any instrument that the Escrow Agent may deem necessary or
advisable to accomplish the purposes of this Agreement, including, without
limitation, to file any claims or take any action or institute any proceedings
that the Escrow Agent may deem necessary or desirable for the collection of any
of the Pledged Supplemental Interests.  It is understood and agreed that the
appointment of the Escrow Agent as attorney-in-fact of the Seller for the
purposes set forth above is coupled with an interest and is irrevocable.  With
respect to any action taken pursuant this Section, the Escrow Agent shall not be
liable for any acts of omission or commission nor for any misconduct other than
its gross negligence or willful misconduct.

 

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Section 20.                                   Waiver of Set-Off.  With respect
to any amounts payable by the Seller or the Buyer hereunder, Escrow Agent hereby
expressly waives any right to set-off that it may have (or to which it may
became entitled) against the Seller, the Buyer or any of their respective
assets.

 

[Remainder of Page Intentionally Left Blank.]

 

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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their respective officers thereunto duly authorized, as of the date first above
written.

 

 

AMERICAN CAPITAL STRATEGIES, LTD.

 

 

 

By

 

 

Name:  John Erickson

 

Title:  Executive Vice President, Chief Financial Officer and Secretary

 

 

 

 

 

2 Bethesda Metro Center, 14th Floor

 

Bethesda, Maryland 20814

 

Attention:  Compliance Officer

 

Facsimile No.:  (301) 654-6714

 

Confirmation No.:  (301) 951-6122

 

 

 

 

 

ACS FUNDING TRUST I

 

 

 

 

 

By

 

 

Name:  Malon Wilkus

 

Title:  Beneficiary Trustee

 

 

 

2 Bethesda Metro Center, 14th Floor

 

Bethesda, Maryland 20814

 

Attention:  Malon Wilkus, Beneficiary Trustee

 

Facsimile No.:  (301) 654-6714

 

Confirmation No.:  (301) 951-6122

 

[Signatures Continued on the Following Page.]

 

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WELLS FARGO BANK MINNESOTA,
NATIONAL ASSOCIATION

 

 

 

By

 

 

Name:

 

 

Title:

 

 

 

 

Sixth and Marquette Avenue

 

Minneapolis, MN 55479-0070

 

Attention:  Corporate Trust Services

 

Asset-Backed Administration

 

Facsimile No.:  (612) 667-3539

 

Confirmation No.:  (612) 667-8058

 

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