exv10w23



 





EXHIBIT 10.23


Execution Copy



EMPLOYMENT AGREEMENT



THIS EMPLOYMENT AGREEMENT (this “Agreement”) is entered into by and between Penelope F. Roll,
(“you”) and Allied Capital Corporation, a Maryland corporation (the “Company”), and will be
effective for all purposes and in all respects as of January 1, 2004 (the “Effective Date”)




     WHEREAS, the Company has hired you and desires to continue your employment based on your
particular qualifications, on the condition that you shall enter into this Agreement and shall
fully perform all the responsibilities and duties and strictly observe all of your obligations
hereunder; and



     WHEREAS, you are willing to continue your employment as Chief Financial Officer of the
Company, on the condition that the Company enter into this Agreement and shall fully perform and
strictly observe all of its obligations hereunder.



     NOW, THEREFORE, in consideration of your continued employment by the Company and the
compensation to be paid by the Company to you in connection therewith and for other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, you and the
Company, intending legally and equitably to be bound, hereby agree as follows:


1. Position and Responsibilities.




     (a) Position. The Company agrees to continue your employment as Chief Financial
Officer throughout the Term (as defined below). You shall report directly to the Chief Executive
Officer of the Company.



     (b) Responsibilities. You shall use your best efforts to further the interests of the
Company, to discharge diligently your duties and responsibilities to the Company under this
Agreement and to abide strictly by the policies of the Company. Subject to Section 5(b)(ii)
hereof, such duties shall be rendered at the principal office of the Company or at such other
places for minimal periods of time as the interests, needs, business or opportunity of the Company
shall require. During the Term, you shall devote your business time, attention and energies to the
Company’s business and shall not engage in any other business activity, whether or not such
business activity is pursued for gain, profit or other economic or financial advantage, except that
you may serve as a director of companies which do not directly or indirectly compete with the
Company with the prior consent of the Board of Directors of the Company (the “Board”) (which
consent shall not be unreasonably withheld) which companies are set forth in Exhibit A, attached
hereto and made a part hereof (as such Exhibit A may also be amended from time to time by mutual
agreement of you and the Board), and you may serve in charitable or philanthropic capacities or
positions so long as such activities do not conflict with the corporate objectives of the Company
and do not interfere with the performance of your duties hereunder. This Section 1 shall not be
construed to prevent or prohibit you from managing your personal assets or investments as long as
such activities do not interfere with the performance of your duties hereunder. You and the
Company agree that your position is essential to the Company’s success and that the highest level of performance is required from you. You represent that you are not a



 









 




party
to any agreement that subjects you to any legal obligations or restrictions that would prevent you
from or limit you in performing your responsibilities under this Agreement.



2. Term of Employment. Subject to the terms and conditions of this Agreement, the Company
agrees to continue your employment, and you agree to remain employed by the Company, from the
Effective Date until the day prior to the third anniversary of such date (the “Term”).
Notwithstanding the foregoing, commencing on the Effective Date, the Term shall extend one (1) day
at the end of every day during its length, and each such additional day shall, ipso facto, become
part of (and incorporated within any references to) the Term, unless either party sends a written
notice to the other party of such party’s desire to terminate such extensions in accordance with
Section 13(a) hereof (a “Non-renewal Notice”), in which case the Termination Date (as defined in
Section 5 hereof) shall be three (3) years from the date of the Non-renewal Notice unless, prior to
the expiration of such three (3)-year period, your employment is terminated pursuant to Section
5(a), (b) or (c) hereof. In the event of any termination of your employment pursuant to the terms
of Section 5(a), (b) or (c) hereof, the Term shall be deemed to have ended as of the applicable
Termination Date.



3. Compensation.




     (a) Base Compensation. You will be entitled to receive base compensation (“Base
Compensation”) during the Term. Your Base Compensation for the first year of the Term shall be at
the annual rate of Five Hundred Thousand Dollars ($500,000) per year. Your Base Compensation shall
be paid in equal biweekly installments, less deductions required by law. On or about February
1st of each year during the Term, the Compensation Committee of the Board (the
“Compensation Committee”) will review and increase (but not decrease) your Base Compensation in an
amount no less than the then-current Base Compensation multiplied by the percentage change in the
Consumer Price Index (“CPI”) of the calendar year prior to the calendar year in which such increase
shall take effect to January 1 of the current calendar year in which such increase shall take
effect, and your annual Base Compensation for the remainder of the Term shall not be less than any
such increased amount. Such review shall be in accordance with criteria to be determined in the
sole discretion of the Compensation Committee after consideration of the compensation levels of
executives at other similarly situated New York Stock Exchange-listed companies and appropriate
consultation with you.



     (b) Bonus Compensation. On an annual basis, you shall be entitled to receive an
additional cash payment (less deductions required by law) (“Bonus Compensation”) that shall be
determined by the Compensation Committee, after appropriate consultation with you and after an
evaluation of your contribution to the Company’s goals and objectives over the prior
twelve(12)-month period. For each year of the Term, your target Bonus Compensation will be equal
to fifty percent (50%) of your annualized Base Compensation for the applicable year of the Term
(“Target Bonus Compensation”). No later than January 31 of the year following each year of the
Term, all awards of Bonus Compensation for the prior year shall be determined by the Compensation
Committee and payment of your Bonus Compensation shall be made by the Company no later than thirty
(30) days after your award has been determined by the Compensation Committee. Your Bonus
Compensation may exceed your Base Compensation in any year. All decisions regarding the
performance criteria to be used to determine awards of Bonus Compensation and the actual amount of



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your
annual Bonus Compensation shall be made by the Compensation Committee, after appropriate
consultation with you. In the event of your termination that results in your Termination Date
being a date other than December 31 of the final year of the Term, your Bonus Compensation shall be
prorated for such year by multiplying your Bonus Compensation for the full year by a fraction, the
numerator of which is the number of calendar days that you were employed in such final year and the
denominator of which is 365.




     (c) The Company shall establish a grantor (or “rabbi”) trust for the benefit of you (the
“Trust”) into which you may elect to have deposited all or a portion of any compensation paid to
you under the terms of this Agreement or any other agreements between the Company and you that are
referenced herein, including, without limitation, any Base Compensation or Bonus Compensation
payable in cash; provided, however, that you make timely elections to have such funds deposited in
the Trust in accordance with applicable Federal tax deferral rules. The Trust shall be established
by the Company prior to date of the execution of this Agreement and shall contain terms
substantially similar to those set forth in Exhibit B attached hereto, except that the Company may
make any changes to the terms of the Trust reasonably necessary for its proper administration,
including, but not limited to, changes to assure the appropriate tax consequences to you and the
Company, provided such changes do not affect your rights thereunder in any materially adverse
manner.



     (d) The Committee shall determine annually the amount, if any, to be paid to you as an
individual performance award (the “Individual Performance Award”) in recognition of your
performance and your service to the Company. The Committee shall determine the amount of the
Individual Performance Award based on the criteria set forth in Exhibit C attached hereto.


4. Employee Benefits; Expenses.




     (a) During the Term, you shall be eligible for vacation and paid holidays in accordance with
Company policy and to participate in Company employee benefit plans, perquisites and executive
compensation programs at the highest levels that the Company provides to its senior executives,
including, but not limited to, the Company’s health and dental insurance plans (which include
family coverage at the Company’s sole expense), stock option plan, split dollar life insurance
plan, executive long term disability plan, deferred compensation and 401(k) plans (including the
Company’s agreement to (i) contribute the maximum permissible amount to your account under the
Company’s 401(k) plan subject to the applicable Federal limitations and subject to the generally
applicable terms and conditions of the Company’s 401(k) plan, which are subject to change at the
Company’s discretion at any time, and (ii) allocate to you under the Company’s deferred
compensation plan the amount necessary, if any, to provide that the sum of the amount contributed
by the Company to your account under the Company’s 401(k) plan and the amount allocated to you by
the Company under the Company’s deferred compensation plan shall equal five percent (5%) of the sum
of your Base Compensation plus Bonus Compensation before taxes), subject to the generally
applicable terms and conditions of the plan or program in question and to the determinations of the
Compensation Committee administering such plan or program.



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     (b) The Company shall reimburse you for all ordinary and reasonable business expenses paid by
you in connection with the performance of your duties in accordance with, and subject to, the
Company’s expense reimbursement policies then in effect for senior executives.


5. Termination of Employment. Subject to the provisions of Sections 7 and 8 hereof, any
stock option agreement(s) entered between the Company and you pursuant to a duly authorized stock
option plan of the Company (the “Stock Option Agreement(s)”), any deferred compensation agreements
entered into by the Company and you pursuant to a duly authorized deferred compensation plan (the
“Deferred Compensation Plan Agreement(s)”) and that certain Amended and Restated Allied Capital
Corporation Split Dollar Life Insurance Agreement, dated as of October 30, 2000, by and between the
Company and you (the “Split Dollar Life Insurance Agreement”), upon the effective date of
termination of your employment with the Company (the “Termination Date”), you will not be eligible
for further compensation, benefits or perquisites under Sections 3 and 4 of this Agreement, other
than those that have already accrued or vested (as result of accelerated vesting or otherwise) on
or before the Termination Date. Termination of your employment may occur under any of the
following circumstances:




     (a) Company’s Termination of Employment. Notwithstanding the terms of Section 2
hereof, subject to the provisions of this Section 5 and Sections 7 and 8 hereof, the Company has
the right to terminate your employment at any time, with or without Cause. For all purposes under
this Agreement, “Cause” shall mean:




	 	(i)	 	a willful failure by you substantially to perform your duties
under this Agreement, other than a failure resulting from your complete or
partial incapacity due to physical or mental illness or impairment, which
failure is materially injurious to the Company and which continues on an
uninterrupted basis for more than thirty (30) days after written notice by the
Company to you specifying in reasonable detail your claimed failure; provided,
however, that you shall have no authority to bind the Company during the thirty
(30) days after written notice is delivered hereunder;
	 
	 	(ii)	 	a willful act by you, which constitutes embezzlement or
criminal fraud and which is materially injurious to the Company;
	 
	 	(iii)	 	your ineligibility to serve as employee, officer or director
of the Company pursuant to Section 9 of the Investment Company Act of 1940, as
amended; or
	 
	 	(iv)	 	a breach by you of your duty of loyalty to the Company, which
breach is materially injurious to the Company and continues unremedied for more
than thirty (30) days after written notice by the Company to you specifying in
reasonable detail such breach; provided, however, that you shall have no
authority to bind the Company during the thirty (30) days after written notice
is delivered hereunder.




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No act, or failure to act, by you shall be considered “willful” if done in good faith and with a
reasonable belief that the act or omission was lawful and in the Company’s best interest. If the
Company terminates your employment for any reason other than for Cause or if the Company delivers a
Non-renewal Notice pursuant to Section 2 hereof, you shall receive the Severance Payments in
accordance with Section 7 hereof and, if applicable, Section 8 hereof. Any determination of Cause
under this Agreement shall be made by a resolution duly adopted by the affirmative vote of at least
two-thirds (2/3) of the members of the Board (not including you if you are a member of the Board)
at a meeting of the Board called and held for that purpose; provided, that you shall have been
given written notice of such meeting in accordance with Section 13(a) hereof at least ten (10)
business days prior to the meeting and shall have been given the opportunity to be heard by the
Board before any such resolution is passed. Any failure by the Company to follow the procedures
set forth in this Section 5(a) in connection with a termination of your employment shall result in
such termination being deemed to be a termination by the Company without Cause under this
Agreement.




     (b) Your Termination of Employment. Notwithstanding the terms of Section 2 hereof,
you have the right to terminate your employment with the Company at any time for any reason. If
you terminate your employment (other than (x) for Good Reason (as defined herein) or (y) due to
your death or Disability), you will not be entitled to any Severance Payments. “Good Reason” shall
mean that, within the sixty (60) days prior to your notice of termination (or, with respect to
clause (v) of this Section 5(b) only, the twenty-four (24) months after a Change of Control):




	 	(i)	 	you have been assigned duties that are materially inconsistent
with your position or have been given instructions that, if implemented by you,
would result in a breach of your fiduciary duties to the Company, which
inconsistent assigned duties or instructions shall have remained uncorrected
for a period of thirty (30) days after written notice by you to the Company
specifying in reasonable detail your dispute with such assigned duties or
instructions;
	 
	 	(ii)	 	your office has been relocated to a location more than fifteen
(15) miles from your current office;
	 
	 	(iii)	 	you are demoted from the position of Chief Financial Officer;
	 
	 	(iv)	 	you cease to be nominated to continue as a member of the Board;
	 
	 	(v)	 	a Change of Control (as defined in Section 6 hereof) has
occurred;
	 
	 	(vi)	 	the Company breaches any of its obligations to you under
Section 3 or 4 of this Agreement or breaches any material obligation under any
other agreement between the Company and you, including, but not limited to,
that certain Indemnification Agreement, dated as of even date herewith, by and
between the Company and you in the form attached hereto as Exhibit D (the
“Indemnification Agreement”), which breach continues for more than thirty (30)
days after written




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	 	 	 	notice by you to the Company specifying in reasonable detail such breach;






	 	(vii)	 	the Company fails to maintain its directors’ and officers’
liability insurance policy(ies) at levels commensurate with the Company’s past
practices and in accordance with standard industry practice for New York Stock
Exchange-listed companies of the same or similar type and with similar risk
factors as the Company, which failure continues for more than thirty (30) days
after written notice by you to the Company;
	 
	 	(viii)	 	your Base Compensation or the percentage of your Target Bonus Compensation in
relation to your Base Salary shall have been reduced or the criteria for
determining Individual Performance Awards, which criteria are set forth in
Exhibit C attached hereto, are materially modified; or
	 
	 	(ix)	 	William L. Walton ceases to be Chairman of the Board and Chief
Executive Officer of the Company other than due to his death or Disability.




Your continued employment after an event constituting Good Reason shall not constitute your consent
to, or a waiver by you of your rights with respect to, any circumstance constituting Good Reason,
unless you fail to give notice of your termination for Good Reason within the time limits set forth
above.




     (c) Death or Disability. Notwithstanding the terms of Section 2 hereof, your
employment shall be deemed to have been terminated by you upon your (i) death or (ii) inability to
perform your duties under this Agreement due to your physical or mental illness or impairment, even
with reasonable accommodation, for more than twenty-six (26) substantially consecutive weeks in any
twelve (12)-month period (“Disability”). For purposes of this Section 5(c), the Termination Date
will be the date of your death or on the date after the substantially consecutive 26th
week that you receive notice of Disability, as applicable.



     (d) Notice of Termination.




	 	(i)	 	You agree to provide the Company thirty (30) days’ prior
written notice of any termination by you. The Company may, in its sole
discretion, select any date prior to the end of such thirty (30)-day notice
period as the Termination Date.
	 
	 	(ii)	 	The Company agrees to provide thirty (30) days’ prior written
notice of its intention to terminate this Agreement without Cause pursuant to
this Section 5 and, unless otherwise agreed to by the parties, the Termination
Date shall become effective on the date that is thirty (30) days after such
notice. In the event that the Board undertakes a determination of whether
Cause exists pursuant to Section 5(a) hereof, the Company shall send written
notice to you no later than one (1) business day after the Board passes a
resolution finding that




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	 	 	 	Cause exists in accordance therewith and the Termination Date shall become
effective on the date that such resolution is passed by the Board.




6. 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 fifteen
percent (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 (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 Nominating Committee of the Board (a majority of the members of the
Nominating Committee shall be 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.


7. Severance Payments. If, during the Term, the Company terminates your employment for any
reason other than Cause, or you terminate your employment for Good Reason, or your employment is
terminated due to your death or Disability, or either party sends a Non-renewal Notice pursuant to
Section 2 hereof, you shall be entitled to receive the applicable payments and benefit coverage
described in this Section 7 (the “Severance Payments”); subject to your delivery of a release in
the form attached hereto as Exhibit E (the “Release”) within forty-five (45) days after your
Termination Date.




     (a) If, during the Term, the Company terminates your employment for any reason (other than
Cause or as a result of a Non-renewal Notice pursuant to Section 2 hereof) or you terminate your
employment for Good Reason, you shall be entitled to receive the sum of:




	 	(i)	 	an amount (less deductions required by law) equal to three
times (3x) the average of the sum of (A) your Base Compensation for the last
three (3) fiscal years of the Company (as reflected on the Company’s books for
such fiscal years), plus (B) your Bonus Compensation for the last three (3)
fiscal years of the Company (as reflected on the Company’s books for such
fiscal years); plus




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	 	(ii)	 	an amount (less deductions required by law) equal to One
Million Five Hundred Thousand Dollars ($1,500,000).




The Company shall pay the amounts set forth in this Section 7(a) as follows: (x) seventy-five
percent (75%) of such amounts shall be paid in a lump sum on the later of (A) thirty (30) days
following your Termination Date or (B) ten (10) days after you deliver to the Company the Release,
regardless of whether the Company has signed the Release and (y) the remaining twenty-five percent
(25%) of such amounts shall be paid on the second (2nd) anniversary of your Termination
Date.




     (b) If your employment terminates as a result of your death or Disability or either party has
sent a Non-renewal Notice pursuant to Section 2 hereof and this Agreement has not otherwise been
terminated pursuant to any other provision hereof prior to the three (3)-year period after the date
of any such Non-renewal Notice, you or your beneficiary, personal or legal representatives or
estate, as the case may be, shall be entitled to receive the sum of:




	 	(i)	 	an amount (less deductions required by law) equal to one times
(1x) the average of the sum of (A) your Base Compensation for the last three
(3) fiscal years of the Company (as reflected on the Company’s books for such
fiscal years), plus (B) your Bonus Compensation for the last three (3) fiscal
years of the Company (as reflected on the Company’s books for such fiscal
years); plus
	 
	 	(ii)	 	an amount (less deductions required by law) equal to One
Million Five Hundred Thousand Dollars ($1,500,000).




Notwithstanding the foregoing, in the event that a Non-renewal Notice has been given by the Company
prior to your death or Disability, in lieu of the one times (1x) multiple contained in Sections
7(b)(i) hereof, the multiple shall be the remaining number of years between the date of your death
or Disability and the third anniversary of the date of the Non-renewal Notice, but in no event less
than one (1) year. The Company shall pay the amounts set forth in this Section 7(b) as follows:
(x) seventy-five percent (75%) of such amounts shall be paid in a lump sum no later than sixty (60)
days following your Termination Date or, in the event of termination due to your Disability, on the
later of (A) sixty (60) days following your Termination Date or (B) ten (10) days after you (or in
the event of your death, your personal or legal representative) deliver to the Company the Release,
regardless of whether the Company has signed the Release and (y) the remaining twenty-five percent
(25%) of such amounts shall be paid on the first (1st) anniversary of your Termination
Date; provided, however, that one hundred percent (100%) of such amounts shall be paid to your
personal or legal representatives or your estate in accordance with time periods set forth herein
if your employment is terminated due to your death.




     (c) Benefits. Provided that you and your eligible family members make a timely
election to continue your 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 your COBRA premiums for the maximum
period of continuation coverage provided under COBRA, and pay the full cost for substantially
equivalent health and dental insurance



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benefits for six (6) months after such maximum continuation coverage period expires. These
payments will be made directly to the insurance carrier beginning on the first pay period following
your Termination Date. In addition, in the event that the Company terminates your employment
without Cause, or you terminate your employment for Good Reason or your employment terminates due
to your death or Disability, or the Term expires in accordance with this Agreement after the
delivery of a Non-renewal Notice by either party, you (or your personal or legal representatives)
shall receive the benefits (including, but not limited to, family health and dental insurance
coverage at the sole expense of the Company, stock option plan, split dollar life insurance plan,
executive long term disability plan, deferred compensation and 401(k) plans (including the
Company’s agreement to (i) contribute the maximum permissible amount to your account under the
Company’s 401(k) plan subject to the applicable Federal limitations and subject to the generally
applicable terms and conditions of the Company’s 401(k) plan, which are subject to change at the
Company’s discretion at any time, and (ii) allocate to you under the Company’s deferred
compensation plan the amount necessary, if any, to provide that the sum of the amount contributed
by the Company to your account under the Company’s 401(k) plan and the amount allocated to you by
the Company under the Company’s deferred compensation plan shall equal five percent (5%) of the sum
of your Base Compensation plus Bonus Compensation before taxes)) and other perquisites set forth in
Section 4(a) hereof (except to the extent that any such benefits are duplicative of the health and
dental insurance coverage set forth in the preceding sentence) for a period of one (1) year after
the Termination Date.




     (d) No Mitigation. You shall not be required to mitigate the amount of any payment or
benefits contemplated by this Section 7, nor shall any such payment or benefits be reduced by any
earnings that you may receive from any other source.


8. Tax Equalization Payment.




     In addition to the amounts payable under Section 7 hereof, the Company shall pay you a tax
equalization payment (“Tax Equalization Payment”) in accordance with this Section 8. The Tax
Equalization Payment shall be in an amount that, when added to the other amounts payable to you
under Section 7 and any other amounts to which you are entitled pursuant to the Stock Option
Agreement(s), the Deferred Compensation Plan Agreement(s) and the Split Dollar Life Insurance
Agreement, will place you in the same after-tax position as if all taxes payable on such amounts by
you, including, without limitation, Federal and state income and employment-related taxes and
payments (assuming the highest marginal Federal and state income tax rates then applicable to you)
and any excise taxes payable under Section 4999 of the Internal Revenue Code of 1986, as amended
(the “Code”), or any successor statute of similar import, did not apply to any of the amounts
payable under Section 7 and under and pursuant to the Stock Option Agreement(s), the Deferred
Compensation Plan Agreement(s) and the Split Dollar Life Insurance Agreement (including any amounts
paid under this Section 8). The amount of this Tax Equalization Payment shall be determined by the
Company’s independent accountants and shall be remitted to the applicable Federal, state and local
tax jurisdictions.




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9. Confidential Information and Non-Disparagement.




     (a) You shall not disclose or use any confidential information (“Confidential Information”)
(defined below) of the Company, whether patentable or not, which you learn as a result of your
employment with the Company, whether or not you developed such information. Confidential
Information shall include, without limitation, information regarding the Company’s, its customers’
or its business partners’ trade secrets and




	 	•	 	any information about existing and prospective investments;
	 
	 	•	 	financing information and sources;
	 
	 	•	 	patent applications, developmental or experimental work, formulas, test data,
prototypes, models, and product specifications;
	 
	 	•	 	financial information;
	 
	 	•	 	financial projections and pro forma financial information;
	 
	 	•	 	sales and marketing strategies, plans and programs and product development information;
	 
	 	•	 	employees’ and consultants’ benefits, perquisites, salaries, stock options,
compensation, formulas or bonuses, and their non-business addresses and telephone
numbers;
	 
	 	•	 	organizational structure and reporting relationships; and
	 
	 	•	 	business plans.




Information that is or later becomes publicly available in a manner wholly unrelated to any breach
of this Agreement by you (including, but not limited to, any and all information contained in any
public filing pursuant to Federal or state securities laws) shall not be considered Confidential
Information as of the date it enters the public domain. In addition, notwithstanding the
foregoing, any information, including, but not limited to, financing information and sources, which
is generally known within the financial industry will not be considered Confidential Information.
If you are uncertain whether something is Confidential Information, you should treat it as
Confidential Information until you receive clarification from the Company that it is not
Confidential Information. Confidential Information shall remain at all times the property of the
Company. You may use or disclose Confidential Information only:





	 	(i)	 	as authorized and necessary in performing your responsibilities
under this Agreement during your employment with the Company;
	 
	 	(ii)	 	with the Board’s prior written consent;
	 
	 	(iii)	 	in a legal proceeding between you and the Company to establish
the rights of either party under this Agreement; provided, that you




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	 	 	 	stipulate to a protective order to prevent any unnecessary use or
disclosure; or






	 	(iv)	 	subject to a compulsory legal process that requires disclosure
of such information; provided, that you have complied with the following
procedures to ensure that the Company has an adequate opportunity to protect
its legal interests in preventing disclosure.




Upon receipt of a subpoena that could possibly require disclosure of Confidential Information, you
shall provide a copy of the compulsory process and complete information regarding the circumstances
under which you received it to the Company by hand delivery within two (2) business days after such
receipt or as soon thereafter as is reasonably practicable. You will not make any disclosure until
the latest possible date for making such disclosure in accordance with the compulsory process
(“Latest Possible Date”), unless otherwise agreed to by a duly authorized representative of the
Company, which person need not be the Chairman of the Compensation Committee. If the Company seeks
to prevent disclosure in accordance with the applicable legal procedures, and provides you with
notice before the Latest Possible Date that it has initiated such procedures, you will not make
disclosures of any Confidential Information that is the subject of such procedures, until such
objections are withdrawn or ruled on or unless you are otherwise required to make such disclosure.



You hereby acknowledge that any breach of this Section 9(a) may cause the Company irreparable harm.




     (b) Non-Disparagement. During the Term, neither of the parties shall in any way,
manner or form, directly or indirectly, disparage or defame the other party and, in your case, any
director, officer or employee of the Company; provided, however, that this Section shall not
prohibit you from making a good faith assessment of the person’s performance of his or her duties
for the Company and where such assessment is necessary to fulfill your duties to the Company.
After the Term, neither of the parties shall in any way, manner or form, directly or indirectly,
disparage or defame the other party and, in your case, any directors, officers or employees of the
Company.


10. Non-Solicitation.




     (a) Commencing on the Effective Date and continuing for a period of two (2) years after the
Termination Date (if the Company terminates your employment with or without Cause or you terminate
your employment with or without Good Reason) or (ii) one (1) year after the Termination Date (if
your employment terminates due to your Disability or the Term expires in accordance with this
Agreement after the delivery of a Non-renewal Notice by either party) (“Restricted Period”), you
will not, directly or indirectly, individually or as a part of or on behalf of any other person,
company, employer or other entity:




	 	(i)	 	hire or attempt to solicit for hire (other than on behalf of
the Company), any person who is employed by the Company within six (6) months
prior to such action until at least six (6) months after the person’s
employment with the Company ends (“Covered Employee”); or




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	 	(ii)	 	solicit, encourage or attempt to persuade any consultant,
vendor, client or customer to terminate or adversely modify its existing
relationship with the Company, except during the Term where you are authorized
to do so and have a reasonable good faith belief that such termination or
modification is in the best interests of the Company.





     (b) If, during the Restricted Period, any Covered Employee accepts employment with any person,
company, employer or other entity of which you are an officer, director, employee, partner,
shareholder (other than of less than 5% of the stock in a publicly traded company) or joint
venturer, it will be presumed that the Covered Employee was hired in violation of this provision
(“Presumption”). This Presumption may be overcome by your showing by a preponderance of the
evidence that you were not directly or indirectly involved in soliciting or encouraging the Covered
Employee to leave employment with the Company.



     (c) You agree to notify any person or entity to which you provide services during the
Restricted Period of the terms of your obligations, if any, under this Section 10. The parties
agree that any breach of this Section 10 will entitle the Company to an injunction without bond
enforcing this Section 10 or for breaching Section 10(a) the Company shall be entitled to
liquidated damages equal to the amount of the annual total compensation of any person solicited or
hired in breach of Section 10(a). The parties are agreeing to liquidated damages as an option to
actual damages in recognition that the Company’s employees are among its most valuable assets, but
it is often difficult to prove the actual damages resulting from such breach.


11. Indemnification.




     Commencing on the Effective Date and at all times thereafter, you shall be indemnified by the
Company pursuant to the Indemnification Agreement. You shall be a beneficiary of a commercially
available directors’ and officers’ liability insurance policy maintained by the Company, on terms
and conditions deemed appropriate by the Board, with the advice of counsel, as long as you remain
an officer or director and any periods thereafter for acts relating to the period of time in which
you served as an officer and/or director.


12. Return of Property.




     Upon termination of your employment with the Company for any reason, you agree to return to
the Company or destroy (pursuant to the Company’s instructions) all property belonging to the
Company in your possession within not more than thirty (30) days. This includes without limitation
all equipment, materials, credit cards and all documents and other information prepared by you or
on your behalf or provided to you in connection with performing your responsibilities as set forth
in Section 1(b) of this Agreement, regardless of the form in which such documents or information
are maintained or stored, including computer, typed, written, imaged, audio, video, micro-fiche,
electronic or any other means of recording or storing documents or other information. You hereby
agree that you will not retain in any written, printed or electronic or similar form any such
document or other information or copies thereof; provided, however that you may retain a copy of
this



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Agreement and information describing any rights you may have after the Termination Date under any
employee benefit plan.


13. Miscellaneous Provisions.




     (a) Notices. Unless otherwise provided herein, any notice or other information to be
provided to the Company will be sent via nationally recognized overnight delivery service, with
acknowledgement of receipt requested, to:


Chairman of the Compensation Committee

Allied Capital Corporation

1919 Pennsylvania Avenue, N.W.

Suite 300

Washington, D.C. 20006





			
	               cc:	 	Sally D. Garr, Esq.

Patton Boggs LLP

2550 M Street, N.W.

Washington, D.C. 20037




Any notice or other information to be provided to you will be sent via nationally recognized
overnight delivery service, with acknowledgement of receipt requested, to:



Penelope F. Roll

3721 Pony Ridge Way

Oakton, Virginia 22124





			
	               cc:	 	Stefan F. Tucker, Esq.

Venable LLP

575 7th Street, N.W.

Washington, D.C. 20004




Documents sent via nationally recognized overnight delivery service will be deemed received on the
next business day following the day sent. The parties agree to provide notice of any change of
address.




     (b) Dispute Resolution. You and the Company agree that arbitration in accordance with
the Federal Arbitration Act (“FAA”) and the Dispute Resolution Procedures set forth in Attachment A
to this Agreement shall be the exclusive means for final resolution of any dispute between the
parties arising out of or relating to your employment or this Agreement, except (i) for workers’
compensation and unemployment claims; (ii) when injunctive relief is necessary to preserve the
status quo or to prevent irreparable injury, (iii) disputes relating to Sections 9 and 10 of this
Agreement or (iv) disputes relating to the Stock Option Agreement(s), the Deferred Compensation
Plan Agreement(s), the Split Dollar Life Insurance Agreement and the Indemnification Agreement.
Injunctive relief may be sought only from any court of competent jurisdiction located in the State
of Maryland and you consent to personal jurisdiction in such court.



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     (c) Company Claims; Prevailing Party. In the event that the Company alleges that you
breached any of your covenants contained in Sections 9, 10 and/or 12 hereof, the Company agrees
that it shall not offset or suspend any of its severance obligations pursuant to Section 7 hereof
or its obligations to make payments pursuant to Section 8 hereof, but instead shall be required to
maintain a separate action for damages relating to any such alleged breach. Subject to the
provisions of Section 13(b) hereof, the prevailing party in any dispute brought under this
Agreement shall be entitled to receive his or its attorneys’ fees and related costs associated with
resolving such dispute.



     (d) Nature of Agreement. This Agreement and the attachments hereto constitute the
entire agreement between you and the Company and supersede all prior agreements and understandings
between you and the Company, except for the Stock Option Agreement(s), the Deferred Compensation
Plan Agreement(s), the Split Dollar Life Insurance Agreement, the Indemnification Agreement, and
the terms and provisions of any employee benefit plans of the Company in which you are a
participant. No provision of this Agreement shall be modified, waived or discharged unless the
modification, waiver or discharge is agreed to in writing and signed by you and by the Chairman of
the Compensation Committee for the Company. No failure by either party to declare a default due to
any breach of any obligation under this Agreement by the other, nor failure by either party to act
quickly with regard thereto, shall be considered to be a waiver of any such obligation, or of any
future breach. This Agreement shall be interpreted, enforced and governed by the laws of the State
of Maryland, without regard to its choice-of-law or conflict-of-laws principles. This Agreement
shall be binding on the Company and its successors and assigns and on you, your heirs and personal
or legal representatives. Notwithstanding anything to the contrary contained herein, this
Agreement will continue in effect until all obligations under it are fulfilled. Neither party may
assign this Agreement, either voluntarily or involuntarily. The invalidity or unenforceability of
any provision or provisions of this Agreement shall not affect the validity or enforceability of
any other provision hereof, which shall remain in full force and effect, and this Agreement shall
be interpreted as if the unenforceable provision had not been included in it. This Agreement may
be executed in any number of counterparts each of which shall be an original, but all of which
together shall constitute one instrument. The headings in this Agreement are for convenience only
and shall not affect the interpretation of this Agreement. The parties further certify that they
fully understand the terms of this Agreement and have entered into it knowingly and voluntarily.



     IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the
Company by its authorized officer, effective as of the date and year set forth above.



	 	 	 	 	 	 	 	 	 
	 	 	 	 	ALLIED CAPITAL CORPORATION	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

PENELOPE F. ROLL

	 	 	 	 	 	 

John I. Leahy
	 	 
	 

	 	 	 	 	 	Compensation Committee Chair	 	 







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Attachment A




DISPUTE RESOLUTION PROCEDURES



The parties agree to make a good faith effort to resolve any dispute before submitting the dispute
to arbitration in accordance with the following procedures:





	 	(i)	 	The party claiming to be aggrieved shall furnish to the other a
written statement of the grievance, all persons whose testimony would support
the grievance, and the relief requested or proposed. The written statements
must be delivered to the other party within the time limits for bringing an
administrative or court action based on that claim.
	 
	 	(ii)	 	If the other party does not agree to furnish the relief
requested or proposed, or otherwise does not satisfy the demand of the party
claiming to be aggrieved within 30 days and the aggrieved party wishes to
pursue the issue, the aggrieved party shall by written notice demand that the
dispute be submitted to non-binding mediation before a mediator jointly
selected by the parties.
	 
	 	(iii)	 	If the mediation does not resolve the dispute to the
satisfaction of each of the parties and either party wishes to pursue the
issue, such party shall request arbitration of the dispute by giving written
notice to the other party within 30 days after the mediation. The parties will
attempt to agree on a mutually acceptable arbitrator and, if no agreement is
reached, the parties will request a list of nine arbitrators from the American
Arbitration Association and the arbitrator selected shall be the last
arbitrator remaining after each of the parties has alternately struck the name
of one arbitrator, beginning with the party who did not initiate the
arbitration proceeding. The arbitration will be conducted consistent with the
American Arbitration Association’s National Rules for Resolution of Employment
Disputes (“Rules”) that are in effect at the time of the arbitration. If there
is any conflict between those Rules and the terms of the Employment Agreement
(the “Agreement”), including all attachments thereto, the Agreement will
govern. In any such arbitration proceeding, any hearing must be transcribed by
a certified court reporter and any decision must be supported by written
findings of fact and conclusions of law. The arbitrator’s findings of fact
must be supported by substantial evidence on the record as a whole and the
conclusions of law and any remedy must be provided for by and consistent with
the laws of the State of Maryland and federal law. The arbitrator shall have
no authority to add to, modify, change or disregard any lawful term of the
Agreement. The Company will pay the arbitrator’s fee.




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	 	(iv)	 	Arbitration shall be the exclusive means for final resolution
of any dispute between the parties, except that injunctive relief may be sought
from any court of competent jurisdiction located in the State of Maryland when
injunctive relief is necessary to preserve the status quo or to prevent
irreparable injury, including for any claims concerning an alleged breach of
Section 9, 10 or 12 of the Agreement or other misuse of Confidential
Information.






The Company and you acknowledge and agree that, to the extent that the parties
dispute whether Cause or Good Reason exists under the Agreement or any other matter
relating to your termination, the foregoing procedures shall in no way affect or
delay the Company’s or your right to terminate your employment for any reason.




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