Exhibit 10.26
CUSTODIAN AGREEMENT
     This Agreement between Allied Capital Corporation, a corporation organized
and existing under the laws of the State of Maryland (the “Company”), and Chevy
Chase Trust, a Maryland trust company (the “Custodian”), is entered into this
9th day of March, 2006.
     WITNESSETH: that in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:

Section 1:   EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT

     The Company hereby employs the Custodian as the custodian of such of the
Company’s securities and similar investments that the Company desires to be held
by the Custodian (“Securities”). The Custodian agrees to accept from the Company
for custody pursuant to this Agreement such Securities that the Company shall
deliver to the Custodian for this purpose, and all payments of income or
principal received by it with respect to such Securities that have not, pursuant
to Proper Instructions (as defined in Section 3 of this Agreement), been removed
from such custody. The Custodian shall not be responsible for any property of
the Company held or received by the Company and not delivered to the Custodian.

Section 2:   DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE COMPANY
HELD BY THE CUSTODIAN

Section 2.1. Holding Securities:
     The Custodian shall hold and physically segregate for the account of the
Company all non-cash property to be held by it, including all documents,
certificates and other such instruments including any schedule of payments
(“Financing Documents”) as are received by the Custodian, and all securities
owned by the Company other than securities which are maintained pursuant to
Section 2.7 in a clearing agency which acts as a securities depository or in a
book-entry system authorized by the U.S. Department of the Treasury (each, a
“U.S. Securities System”).
Section 2.2 Delivery of Securities:
     The Custodian shall release and deliver securities owned by the Company
held by the Custodian or in a U.S. Securities System account of the Custodian
only upon receipt of Proper Instructions, which may be continuing instructions
when deemed appropriate by the parties, and only in the following cases:

  1.   Upon sale of such securities for the account of the Company and receipt
of payment therefor;     2.   Upon the receipt of payment in connection with any
repurchase agreement related to such securities entered into by the Company;    
3.   In the case of a sale effected through a U.S. Securities System, in
accordance with the provisions of Section 2.7 hereof;

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  4.   To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any such case,
the cash or other consideration is to be delivered to the Custodian;     5.  
Upon the sale of such securities for the account of the Company, to the broker
or its clearing agent, against a receipt, for examination in accordance with
“street delivery” custom; provided that in any such case, the Custodian shall
have no responsibility or liability for any loss arising from the delivery of
such securities prior to receiving payment for such securities except as may
arise from the Custodian’s own negligence or willful misconduct;     6.   For
exchange or conversion pursuant to any plan of merger, consolidation,
recapitalization, reorganization or readjustment of the securities of the issuer
of such securities, or pursuant to provisions for conversion contained in such
securities, or pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered to the Custodian;
    7.   For delivery as security in connection with any borrowing by the
Company requiring a pledge of assets by the Company, but only against receipt of
amounts borrowed; and     8.   For any other purpose, but only upon receipt of
Proper Instructions specifying the securities of the Company to be delivered and
naming the person or persons to whom delivery of such securities shall be made.

Section 2.3. Registration of Securities:
     Securities held by the Custodian (other than bearer securities) shall be
registered in the name of the Company or in the name of any nominee of the
Company or of any nominee of the Custodian which nominee shall be assigned
exclusively to the Company. All securities accepted by the Custodian on behalf
of the Company under the terms of this Agreement shall be in “street name” or
other good delivery form.
Section 2.4. Bank Accounts:
     The Custodian shall open and maintain a separate bank account or accounts
in the United States in the name of the Company, subject only to draft or order
by the Custodian acting pursuant to the terms of this Agreement, and shall hold
in such account or accounts, subject to the provisions hereof, all cash received
by it from or for the account of the Company, other than cash maintained by the
Company in a bank account established and used in accordance with Rule 17f-3
under the Investment Company Act of 1940, as amended (the “1940 Act”).
Section 2.5. Collection of Income:
     Subject to the provisions of Section 2.3 the Custodian shall collect on a
timely basis all income and other payments with respect to registered securities
held hereunder and payments with respect to Loans to which the Company shall be
entitled either by law or pursuant to custom in the securities business, and
shall collect on a timely basis all income and other payments with respect to
bearer securities if, on the date of payment by the issuer, such securities are
held by the Custodian or its agent thereof and shall credit such income, as
collected, to the Company’s

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custodian account. Without limiting the generality of the foregoing, the
Custodian shall detach and present for payment all coupons and other income
items requiring presentation as and when they become due and shall collect
interest when due on securities held hereunder. The Custodian will have no duty
or responsibility in connection therewith, other than to provide the Company
with such information or data as may be necessary to assist the Company in
arranging for the timely delivery to the Custodian of the income to which the
Company is properly entitled.
Section 2.6. Payment of Company Monies:
     Upon receipt of Proper Instructions, which may be continuing instructions
when deemed appropriate by the parties, the Custodian shall pay out monies of
the Company in the following cases only:

  1.   Upon the purchase of securities for the account of the Company but only
(a) against the delivery of such securities to the Custodian (or any bank,
banking firm or trust company doing business in the United States or abroad
which is qualified under the 1940 Act to act as a custodian and has been
designated by the Custodian as its agent for this purpose) registered in the
name of the Company or in the name of a nominee of the Custodian referred to in
Section 2.3 hereof or in proper form for transfer; (b) in the case of a purchase
effected through a U.S. Securities System, in accordance with the conditions set
forth in Section 2.8 hereof; (c) in the case of repurchase agreements entered
into between the Company and the Custodian, or another bank, or a broker-dealer
which is a member of NASD, (i) against delivery of the securities either in
certificate form or through an entry crediting the Custodian’s account at the
Federal Reserve Bank with such securities or (ii) against delivery of the
receipt evidencing purchase by the Company of securities owned by the Custodian
along with written evidence of the agreement by the Custodian to repurchase such
securities from the Company; or (d) for transfer to a time deposit account of
the Company in any bank, whether domestic or foreign; such transfer may be
effected prior to receipt of a confirmation from a broker and/or the applicable
bank pursuant to Proper Instructions from the Company as defined herein;     2.
  In connection with conversion, exchange or surrender of securities owned by
the Company as set forth in Section 2.2 hereof;     3.   For the payment of any
expense or liability incurred by the Company, as directed by Proper
Instructions;     4.   For any other purpose, but only upon receipt of Proper
Instructions specifying the amount of such payment and naming the person or
persons to whom such payment is to be made.

Section 2.7. Deposit of Company Assets in U.S. Securities Systems:
     The Custodian may deposit and/or maintain securities owned by the Company
in a U.S. Securities System in compliance with the conditions of Rule 17f-4 of
the 1940 Act, as amended from time to time.

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Section 2.8. Segregated Account:
     The Custodian shall, upon receipt of Proper Instructions, establish and
maintain a segregated account or accounts for and on behalf of the Company, into
which account or accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to Section 2.7
hereof, (i) in accordance with the provisions of any agreement among the
Company, the Custodian and a broker-dealer registered under the Exchange Act and
a member of the NASD, relating to compliance with the rules of any registered
national securities exchange (or the CFTC or any registered contract market), or
of any similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Company, , (ii) for the
purposes of compliance by the Company with the procedures required by Investment
Company Act Release No. 10666, or any subsequent release of the U.S. Securities
and Exchange Commission (the “SEC”), or interpretative opinion of the staff of
the SEC, relating to the maintenance of segregated accounts by registered
investment companies, and (iii) for any other purpose upon receipt of Proper
Instructions.
Section 2.9. Ownership Certificates for Tax Purposes:
     Upon the reasonable request of the Company, the Custodian shall execute
ownership and other certificates and affidavits for all federal and state tax
purposes in connection with receipt of income or other payments with respect to
domestic securities of the Company held by it and in connection with transfers
of securities.
Section 2.10. Proxies:
     The Custodian shall, with respect to the securities held hereunder, cause
to be promptly executed by the registered holder of such securities, if the
securities are registered otherwise than in the name of the Company or a nominee
of the Company, all proxies, without indication of the manner in which such
proxies are to be voted, and shall promptly deliver to the Company such proxies,
all proxy soliciting materials and all notices relating to such securities.
Section 2.11. Communications Relating to Company Securities:
     Subject to the provisions of Section 2.3, the Custodian shall transmit
promptly to the Company all written information (including, without limitation,
pendency of calls and maturities of securities and expirations of rights in
connection therewith ) received by the Custodian from issuers (which term, for
this purpose, includes sellers of Loans) of the securities being held for the
Company.

Section 3:   PROPER INSTRUCTIONS

     Proper Instructions, which may also be standing instructions, as used
throughout this Agreement shall mean instructions received by the Custodian from
an authorized person of the Company. The Company shall provide, and the
Custodian shall accept, a writing from the Company, signed by the Treasurer,
identifying those persons authorized to give such instructions to the Custodian.
Such instructions may be faxed, emailed or transmitted via hard copy in a
certified letter or overnight delivery service, provided that the Company has
followed any applicable security procedures agreed to from time to time by the
Company and the Custodian.

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     Oral instructions will be considered Proper Instructions if the Custodian
reasonably believes them to have been given by a person authorized to give such
instructions with respect to the transaction involved. The Company shall cause
all oral instructions to be confirmed in writing.
     The Company shall cause its duly authorized officer to certify to the
Custodian in writing the names and specimen signatures of persons authorized to
give Proper Instructions. The Custodian shall be entitled to rely upon the
identity and authority of such persons until it receives notice from the Company
to the contrary.
     The Custodian shall be held harmless in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the
Company.

Section 4:   ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY

     The Custodian may in its discretion, without express authority from the
Company:

  1)   Make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this Agreement,
provided that all such payments shall be accounted for to the Company;     2)  
Surrender securities in temporary form for securities in definitive form;     3)
  Endorse for collection, in the name of the Company, checks, drafts and other
negotiable instruments; and     4)   In general, attend to all non-discretionary
details in connection with the sale, exchange, substitution, purchase, transfer
and other dealings with the securities and property of the Company except as
otherwise directed by the Board.

Section 5:   RECORDS

     The Custodian shall create and maintain all records relating to its
activities and obligations under this Agreement in such manner as will meet the
obligations of the Company under the 1940 Act, with particular attention to
Section 31 and the applicable rules thereunder. To the extent that the
Custodian, in its sole opinion, is able to do so, the Custodian shall provide
assistance to the Company (at the Company’s reasonable request made from time to
time) by providing sub-certifications regarding certain of its services
performed hereunder to the Company in connection with the Company’s
Sarbanes-Oxley Act of 2002 certification requirements. All such records shall be
the property of the Company and shall at all times during the regular business
hours of the Custodian be open for inspection by duly authorized officers,
employees or agents of the Company and employees and agents of the SEC. The
Custodian shall, at the Company’s request, supply the Company with a tabulation
of securities owned by the Company and held by the Custodian and shall, when
requested to do so by the Company and

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for such compensation as shall be agreed upon between the Company and the
Custodian, include certificate numbers in such tabulations.

Section 6:   OPINION OF COMPANY’S INDEPENDENT ACCOUNTANT

     The Custodian shall take all reasonable action, as the Company may from
time to time request, to provide information to the Company’s independent
accountants with respect to its activities hereunder in connection with the
preparation of the Company’s Form N-2, and Forms 10-Q and 10-K or other reports
to the SEC and with respect to any other requirements thereof.

Section 7:   REPORTS TO COMPANY BY INDEPENDENT PUBLIC ACCOUNTANTS

     The Custodian shall provide the Company, at such times as the Company may
reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for safeguarding
securities, including securities deposited and/or maintained in a U.S.
Securities System, relating to the services provided by the Custodian under this
Agreement; such reports, shall be of sufficient scope and in sufficient detail,
as may reasonably be required by the Company to provide reasonable assurance
that any material inadequacies would be disclosed by such examination, and, if
there are no such inadequacies, the reports shall so state.

Section 8:   COMPENSATION OF CUSTODIAN

     The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time with the Company.

Section 9:   RESPONSIBILITY OF CUSTODIAN

     So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Agreement and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties. The Custodian shall
be held to the exercise of reasonable care in carrying out the provisions of
this Agreement, but shall be kept indemnified by and shall be without liability
to the Company for any action taken or omitted by it in good faith without
negligence, including, without limitation, acting in accordance with any Proper
Instruction. The Custodian shall be without liability to the Company for any
loss, liability, claim or expense resulting from or caused by any force majeure
event or any foreign country risk, including without limitation nationalization,
expropriation, currency restrictions, or acts of war, revolution, riots or
terrorism.
     Except as may arise from the Custodian’s own negligence, willful misconduct
or fraud, or the negligence, willful misconduct or fraud of an agent acting on
the behalf of the Custodian, the Custodian shall be without liability to the
Company for any loss, liability, claim or expense resulting from or caused by:
(i) events or circumstances beyond the reasonable control of the Custodian or
Securities System or any agent or nominee of any of the foregoing, including,
without limitation, the interruption, suspension or restriction of trading on or
the closure of any securities market, power or other mechanical or technological
failures or interruptions, computer

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viruses or communications disruptions, work stoppages, natural disasters, or
other similar events or acts; (ii) errors by the Company in its instructions to
the Custodian; provided such instructions have been in accordance with this
Agreement; (iii) the insolvency of or acts or omissions by a Securities System;
(iv) any delay or failure of any broker, agent or intermediary, central bank or
other commercially prevalent payment or clearing system to deliver to the
Custodian’s agent securities purchased or in the remittance or payment made in
connection with securities sold; (v) any delay or failure of any company,
corporation, or other body in charge of registering or transferring securities
in the name of the Custodian, the Company, the Company’s nominees or agents or
any consequential losses arising out of such delay or failure to transfer such
securities including non-receipt of interests, rights and other accretions or
benefits; (vi) delays or inability to perform its duties due to any disorder in
market infrastructure with respect to any particular security or Securities
System; and (vii) any provision of any present or future law or regulation or
order of the United States of America, or any state thereof, or any other
country, or political subdivision thereof or of any court of competent
jurisdiction.
     If the Company requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian being liable for the
payment of money or incurring liability of some other form, the Company, as a
prerequisite to requiring the Custodian to take such action, shall provide
indemnity to the Custodian in an amount and form satisfactory to the Custodian.
The Custodian shall take no action, nor act upon any instructions, that it
reasonably believes would result in the violation of any state or federal law.
     If the Company requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, foreign exchange contracts and assumed settlement) or
in the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Agreement, except such as may arise from its or its
nominee’s own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the Company shall be security
therefor and should the Company fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of the
Company’s assets to the extent necessary to obtain reimbursement.
     In no event shall the Custodian be liable for indirect, special or
consequential damages.

Section 10:   EFFECTIVE PERIOD, TERMINATION AND AMENDMENT

     This Agreement shall become effective as of its execution, shall continue
in full force and effect for an indefinite term (subject to the termination
provisions hereof), and may be amended at any time by mutual agreement of the
parties hereto and may be terminated by either party by an instrument in writing
delivered or sent by certified mail or sent overnight delivery to the other
party, such termination to take effect not sooner than sixty (60) days after the
date of such delivery or mailing; provided, however, that the Company shall not
amend or terminate this Agreement in contravention of any applicable federal or
state regulations, or any provision of the Company’s Articles of Incorporation,
and further provided, that the Company may at any time by action of its Board
(i) substitute another bank or trust company for the Custodian by giving notice
as described above to the Custodian, or (ii) immediately terminate this
Agreement in the

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event of the appointment of a conservator or receiver for the Custodian by the
principal regulator of the Custodian or upon the happening of a like event at
the direction of an appropriate regulatory agency or court of competent
jurisdiction.
     Upon termination of the Agreement, the Company shall pay to the Custodian
such compensation as may be due as of the date of such termination and shall
likewise reimburse the Custodian for its reasonable costs, expenses and
disbursements in accordance with the terms hereof.

Section 11:   SUCCESSOR CUSTODIAN

     If a successor custodian for the Company shall be appointed by the Board,
the Custodian shall, upon termination, deliver to such successor custodian at
the office of the Custodian, duly endorsed and in the form for transfer, all
securities of the Company then held by it hereunder and shall transfer to an
account of the successor custodian all of the securities of the Company held in
a Securities System.
     If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a Certified Resolution, deliver at the office of
the Custodian and transfer such securities, funds and other properties in
accordance with such resolution.
     In the event that no written order designating a successor custodian or
Certified Resolution shall have been delivered to the Custodian on or before the
date when such termination shall become effective, then the Custodian shall have
the right to deliver to a bank or trust company, which is a “bank” as defined in
the 1940 Act, having an aggregate capital, surplus, and undivided profits, as
may be required under the 1940 Act, all securities, funds and other properties
held by the Custodian hereunder and all instruments held by the Custodian
relative thereto and all other property held by it under this Agreement on
behalf of the Company, and to transfer to an account of such successor custodian
all of the Company’s securities held in any Securities System. Thereafter, such
bank or trust company shall be the successor of the Custodian under this
Agreement.
     In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Company to procure the Certified Resolution to appoint a
successor custodian, the Custodian shall be entitled to fair compensation for
its services during such period as the Custodian retains possession of such
securities, funds and other properties and the provisions of this Agreement
relating to the duties and obligations of the Custodian shall remain in full
force and effect.

Section 12:   INTERPRETIVE AND ADDITIONAL PROVISIONS

     In connection with the operation of this Agreement, the Custodian and the
Company may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Agreement as may in their joint opinion be
consistent with the general tenor of this Agreement. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the Company’s Articles

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of Incorporation. No interpretive or additional provisions made as provided in
the preceding sentence shall be deemed to be an amendment of this Agreement.

Section 13:   MARYLAND LAW TO APPLY

     This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with laws of the State of Maryland, excluding the
conflicts of laws principles thereof.

Section 14:   PRIOR AGREEMENTS

     This Agreement supersedes and terminates, as of the date hereof, all prior
agreements between the Company and the Custodian relating to the custody of the
Company’s assets.

Section 15:   NOTICES.

     Any notice, instruction or other instrument required to be given hereunder
may be delivered in person to the offices of the parties as set forth herein
during normal business hours or delivered prepaid registered mail or by telex,
cable or telecopy to the parties at the following addresses or contact
information or such other addresses or contact information as may be notified by
any party from time to time.

          To the Company:   ALLIED CAPITAL CORPORATION     1919 Pennsylvania
Avenue, NW     Washington, DC 20006
 
       
 
  Attention:   Kelly Anderson, Treasurer
 
  Telephone:   202-973-6328
 
  Telecopy:   202-659-2053
 
        To the Custodian:   CHEVY CHASE TRUST     7501 Wisconsin Avenue, 14th
Floor     Bethesda MD 20814
 
       
 
  Attention:    
 
       
 
  Telephone:    
 
       
 
  Telecopy:    
 
       

     Such notice, instruction or other instrument shall be deemed to have been
served in the case of a registered letter at the expiration of five business
days after posting, and, in the case of, fax or email on the business day after
the receipt thereof. Evidence that the notice was properly addressed, stamped
and put into the post shall be conclusive evidence of posting.

Section 16:   REPRODUCTION OF DOCUMENTS

     This Agreement and all schedules, addenda, exhibits, attachments and
amendments hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature

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photographic or other similar process. The parties hereto all/each agree that
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding, whether or not the original is in
existence and whether or not such reproduction was made by a party in the
regular course of business, and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.

Section 17:   COUNTERPARTS

     This Agreement may be executed in one or more counterparts, and by the
parties hereto on separate counterparts, each of which shall be deemed to be an
original but all of which together shall constitute but one and the same
instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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     IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of March 9, 2006.

              ALLIED CAPITAL CORPORATION   COMPANY SIGNATURE ATTESTED TO BY:
 
           
By:
  /s/ Kelly A. Anderson   By:   /s/ Suzanne V. Sparrow
 
           
 
           
Name:
  Kelly A. Anderson   Name:   Suzanne V. Sparrow
 
           
 
           
Title:
  Executive Vice President & Treasurer   Title:   Secretary
 
           
 
            CHEVY CHASE TRUST   SIGNATURE ATTESTED TO BY:
 
           
By:
  /s/ Lynn M. Panagos   By:   /s/ Chris Davis
 
           
 
           
Name:
  Lynn M. Panagos   Name:   Chris Davis
 
           
 
           
Title:
  Managing Director   Title:   Vice President
 
           

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