ALLIED CAPITAL CORPORATION
RETENTION AGREEMENT

This Retention Agreement (this “Agreement”) is entered into by and between
Allied Capital Corporation, a Maryland corporation (the “Company”) and       
(“Employee”) and will be effective as of March 3, 2009 (the “Effective Date”).

WHEREAS, the Employee is a valued employee of the Company; and

WHEREAS, the Company desires to provide Employee with additional incentive to
remain with the Company through 1) the issuance of a Stock Option Award; and 2)
the issuance of a Retention Award that would be paid in the event of a
Separation from Service (as defined in Section 409A of the Internal Revenue Code
of 1986, as amended (“Code”) and the regulations promulgated thereunder
(“Section 409A”)) from the Company and all entities with whom the Company would
be considered a single employer under Section 414(b) and (c) of the Code, within
a certain period prior to or after a Change of Control.

NOW THEREFORE, the Company and the Employee agree to the following:

1)   Term: The term of this Agreement shall commence on the Effective Date and
shall continue in effect until December 31, 2011. In addition, this Agreement
shall terminate upon the death of the Employee. However, if Employee dies after
he has become entitled to a Retention Award under this Agreement, but while any
amount of such award would still be payable to him had he continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of the Agreement to Employee’s estate.

2)   Stock Option Award: Employee has been granted an award of        stock
options on March 3, 2009, in accordance with the terms and conditions of the
Allied Capital Corporation Amended Stock Option Plan and the Notice of Grant of
Stock Options and Option Agreement (attached).

3)   Retention Award: If during the Term and within 90 days prior to a Change of
Control or within 18 months following a Change of Control, the Employee
experiences a Separation from Service due to (a) the termination of his
employment by the Company or its successor or assigns for any reason other than
Cause or (b) Employee’s termination of employment for Good Reason, Employee will
be eligible for the award described in this paragraph 3, subject to execution of
the Separation Agreement described in paragraph 4 herein. For the purposes of
this Agreement:

  a)   Company shall pay Employee the sum of $      (less withholdings required
by law), in a lump sum payment on the first business day following the six month
anniversary of the Termination Date.

  b)   Provided that Employee makes a timely election to continue health and
dental insurance benefits under the Company’s group health plans under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and the
regulations issued thereunder (COBRA), the Company will pay Employee’s COBRA
premiums as they become due for a period of up to 12 months or, if earlier,
until Employee begins employment with a new employer. These payments will be
made directly to the insurance carrier and shall begin no later than the date
that occurs 10 days after the Separation Agreement becomes effective. Employee
shall notify Employer upon acceptance of employment with a new employer.

4)   Release: Notwithstanding any provision herein to the contrary, the Company
shall not have any obligation to pay (or cause to be paid) any Retention Award
or portion of a Retention Award under this Agreement unless and until the
Executive executes a binding Separation Agreement, in such a form as the Company
may reasonably request. Such Separation Agreement shall release all claims
against the Company, its subsidiaries and other related parties relating to the
Employee’s employment and termination. In addition, it shall include, among
other things, certification that Employee has not disclosed and will not
disclose any confidential information, that Employee has returned all Company
property, and that Employee shall not disparage the Company, or its officers,
directors or employees.

5)   Definitions:

  a)   Cause: "Cause” shall mean that the Company has made a good faith
determination that Employee: (a) has continued to fail to substantially perform
duties or comply with Company policies after the Company has given Employee
written notice of such failure; (b) has engaged in gross misconduct, moral
turpitude, embezzlement, misappropriation of corporate assets, gross negligence
or violation of any laws with which the Company is required to comply; (c) has
become ineligible to serve as employee, officer or director of the Company
pursuant to Section 9 of the Investment Company Act of 1940, as amended; (d) has
committed, or pled “guilty” or “no contest” to any felony, or any crime
involving breach of trust or dishonesty; or (e) has materially breached
Employee’s fiduciary duty, duty of loyalty to the Company or duty not to
disclose confidential information.

  b)   Change of Control: “Change of Control” shall mean the occurrence of any
of the following events after the Effective Date of this Agreement: (a) the sale
or other disposition of all or substantially all of the Company’s assets;
(b) the acquisition, whether directly, indirectly, beneficially (within the
meaning of rule 13d-3 of the Securities Exchange Act of 1934, as amended (the
1934 Act)) or of record, as a result of a merger, consolidation or otherwise, of
securities of the Company representing 15% or more of the aggregate voting power
of the Company’s then-outstanding Common Stock by any “person” (within the
meaning of Sections 13(d) and 14(d) of the 1934 Act), including, but not limited
to, any corporation or group of persons acting in concert, other than (i) the
Company or its subsidiaries and/or (ii) any employee pension benefit plan
(within the meaning of Section 3(2) of the Employee Retirement Income Security
Act of 1974) of the Company or its subsidiaries, including a trust established
pursuant to any such plan; or (c)  the individuals who were members of the Board
as of the Effective Date (the “Incumbent Board”) cease to constitute at least
two-thirds of the Board; provided, however, that any director appointed by at
least two-thirds of the then Incumbent Board or nominated by at least two-thirds
of the Nominating Committee of the Board (a majority of the members of the
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.

  c)   Good Reason: “Good Reason” shall mean that without Employee’s consent:
(a) Employee’s office has been relocated by the Company to a location more than
40 miles from Employee’s then current principal office or (b) Employee’s base
compensation has been materially reduced. Employee’s termination for Good Reason
shall be deemed to be an involuntary termination provided that Employee gives
written notice to the Company of the existence of one of the Good Reason
conditions above within ninety days of the initial existence of the condition
and the Company is provided with a period of thirty days during which it may
remedy the condition and fails to do so.

  d)   Termination Date: “Termination Date” shall mean the date specified in a
written notice of termination to the other party. In the case of a termination
without Cause by the Company, such date shall be not less than thirty (30) days
from the date such notice is given. In the case of a termination by Employee for
Good Reason, such date shall be not less than seven (7) days or more than
fifteen (15) days following the expiration of the 30 day remedy period described
in Section 5(c) of this Agreement.

6)   In the event that payment of a Retention Award pursuant to this Agreement
would result in the imposition of a penalty tax pursuant to Section 280G(b)(3)
of the Code, and the regulations promulgated thereunder, such payments shall be
reduced to the maximum amount which may be paid under Section 280G without
exceeding such limits. Any reduction in payments necessary to comply with the
requirements of this Agreement relating to the limitation of Section 280G or
applicable regulatory limits shall be made in accordance with Section 409A of
the Code.

7)   Mitigation: Employee shall not be required to mitigate the amount of any
Retention Award payment provided for in this Agreement by seeking other
employment or otherwise, nor shall any amounts received from other employment or
otherwise by the Employee offset in any manner the obligations of the Company
hereunder except as provided otherwise herein.

8)   Binding Agreement: This Agreement shall bind any successor (whether direct
or indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business or assets of the Company, in the same manner
and to the same extent that the Company would be obligated under this Agreement
if no succession had taken place. In the case of any transaction in which a
successor would not, by the foregoing provision or by operation of law, be bound
by the Agreement, the Company shall require such successor expressly and
unconditionally to assume and agree to perform the obligations of the Company
under this Agreement, in the same manner and to the same extent that the Company
would be required to perform if no such succession had taken place. This
Agreement may not be assigned by Employee but shall inure to the benefit of
Employee, his heirs and personal representatives.

9)   Amendment of Agreement: This Agreement may not be modified or amended,
except by an instrument in writing signed by the parties hereto. Any such
modification or amendment shall be subject to Section 409A of the Code and the
regulations thereunder and any other applicable law.

10)   Knowing and Voluntary. Each party has read and fully understands this
Agreement and has consulted with counsel of its own choosing before entering
into this Agreement. Each party has had a reasonable time to consider this
Agreement and is entering into it knowingly and voluntarily, without any duress
or coercion.

11)   Construction. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties and no presumption or burden of proof shall arise favoring or
disfavoring either party by virtue of the authorship of any of the provisions of
this Agreement.

12)   Execution. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument. This Agreement may be executed by
facsimile signatures.

13)   Dispute Resolution: Any disputes between Employee and the Company or any
of its former, current or future parents, subsidiaries or affiliates (except
claims for injunctive relief necessary to prevent irreparable harm or under
either workers or unemployment compensation laws) shall be resolved in
accordance with the Federal Arbitration Act. Arbitration will be conducted
consistent with the American Arbitration Association’s National Rules for
Resolution of Employment Disputes that are in effect at the time of the
arbitration.

14)   Waiver. No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be estoppels against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver, unless specifically stated therein, and each waiver shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than the act specifically waived.

15)   Severability. If, for any reason, any provision of this Agreement is held
invalid, such invalidity shall not affect the other provisions of this Agreement
not held so invalid, and each such other provision shall, to the full extent
consistent with applicable law, continue in full force and effect.

16)   Headings. The headings of the paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.

17)   Governing Law; Regulatory Authority. This Agreement has been executed and
delivered in the State of Maryland and its validity, interpretation, performance
and enforcement shall be governed by the laws of the State of Maryland, except
to the extent that federal law is governing. If this Agreement conflicts with
any applicable federal law as now or hereafter in effect, then federal law shall
govern.

18)   Effect of Prior Agreements. This Agreement contains the entire
understanding between the parties hereto and supersedes any prior agreements,
except the Notice of Grant of Stock Options and Option Agreement and the
Indemnification Agreement, promises or arrangements, whether oral or written,
between the Company or any predecessor of the Company and the Employee with
respect to the subject matter contained herein. Any of Employee’s rights
hereunder shall be in addition to any rights under benefit plans or agreement of
the Company to which Employee is a party or in which Employee is a participant,
including, but not limited to any Company sponsored employee benefit plans,
indemnification agreements or stock option plans.

19)   Nothing in this Agreement changes the “at-will” nature of the Employee’s
employment and either the Employee or the Company may end the employment
relationship at any time without Cause or Good Reason.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first above written.

     
EMPLOYEE
  ALLIED CAPITAL CORPORATION
BY:
  BY:
 
   

John M. Scheurer Chief Executive Officer & President

Date: Date: