Document:

exv10w8

 

OPERATING AGREEMENT

OF IHR INVEST HOSPITALITY HOLDINGS, LLC

by and among

HOTEL INVEST DEUCE MM, LLC,

as Managing Member,

and

HOTEL INVEST DEUCE LP, LLC,

and

INTERSTATE INVEST, LLC,

as Non-Managing Members.

Dated as of September ___, 2007

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	Page
	ARTICLE 1 DEFINITIONS
	 	 	2	 
	 
	 	 	 	 
	ARTICLE 2 FORMATION OF COMPANY
	 	 	8	 
	 
	 	 	 	 
	2.01 Formation
	 	 	8	 
	2.02 Name
	 	 	9	 
	2.03 Principal Place of Business
	 	 	9	 
	2.04 Registered Office and Registered Agent
	 	 	9	 
	2.05 Term
	 	 	9	 
	 
	 	 	 	 
	ARTICLE 3 PURPOSE AND POWERS OF COMPANY

	 	 	9	 
	 
	 	 	 	 
	3.01 Purpose
	 	 	9	 
	3.02 Powers
	 	 	9	 
	 
	 	 	 	 
	ARTICLE 4 RIGHTS AND DUTIES OF MANAGING MEMBER AND THE
EXECUTIVE COMMITTEE
	 	 	10	 
	 
	 	 	 	 
	4.01 Management
	 	 	10	 
	4.02 Other Power and Authority
	 	 	13	 
	4.03 Liability for Certain Acts
	 	 	13	 
	4.04 No Exclusive Duty to Company
	 	 	14	 
	4.05 Bank Accounts
	 	 	15	 
	4.06 Indemnity of Managing Member, Employees and Other Agents
	 	 	15	 
	4.07 Resignation or Termination of Managing Member
	 	 	17	 
	4.08 Expenses
	 	 	17	 
	4.09 Exculpation
	 	 	18	 
	 
	 	 	 	 
	ARTICLE 5 RIGHTS AND OBLIGATIONS OF MEMBERS
	 	 	18	 
	 
	 	 	 	 
	5.01 Limitation of Liability
	 	 	18	 
	5.02 Company Debt Liability
	 	 	18	 
	5.03 List of Members
	 	 	19	 
	5.04 Company Books
	 	 	19	 
	5.05 Company Property; Nature of Interests in the Company
	 	 	19	 
	5.06 Priority
	 	 	19	 
	5.07 Liability of a Member to the Company
	 	 	19	 
	5.08 Exculpation
	 	 	19	 
	5.09 Loans
	 	 	19	 
	 
	 	 	 	 
	ARTICLE 6 CONTRIBUTIONS TO THE COMPANY, PERCENTAGE
INTERESTS AND CAPITAL ACCOUNTS
	 	 	19	 
	 
	 	 	 	 
	6.01 Members’ Capital Contributions
	 	 	19	 
	 
	 	 	 	 
	i

 

 

Table of Contents

(Continued)

	 	 	 	 	 
	 	 	Page
	6.02 Additional Contributions
	 	 	19	 
	6.03 Capital Accounts
	 	 	20	 
	6.04 Withdrawal or Reduction of Members’ Contributions to Capital
	 	 	21	 
	 
	 	 	 	 
	ARTICLE 7 REPRESENTATIONS, WARRANTIES AND COVENANTS
	 	 	21	 
	 
	 	 	 	 
	7.01 Representations and Warranties of the Members
	 	 	21	 
	7.02 Acknowledgment of the Partner Non-Managing Member
	 	 	22	 
	7.03 Partner Non-Managing Member Operating Agreement
	 	 	22	 
	7.04 Additional Representations and Warranties
	 	 	23	 
	 
	 	 	 	 
	ARTICLE 8
DISTRIBUTIONS, ALLOCATIONS, INCOME TAX, ELECTIONS AND REPORTS
	 	 	23	 
	 
	 	 	 	 
	8.01 Distributions
	 	 	23	 
	8.02 Limitation Upon Distributions
	 	 	24	 
	8.03 Allocations
	 	 	24	 
	8.04 Accounting Principles
	 	 	25	 
	8.05 Interest on and Return of Capital Contributions
	 	 	25	 
	8.06 Loans to Company
	 	 	25	 
	8.07 Accounting Period
	 	 	25	 
	8.08 Records, Audits and Reports
	 	 	25	 
	8.09 Tax Returns and Tax Elections
	 	 	25	 
	8.10 Tax Matters Member
	 	 	26	 
	 
	 	 	 	 
	ARTICLE 9 TRANSFERABILITY
	 	 	27	 
	 
	 	 	 	 
	9.01 General
	 	 	27	 
	9.02 Effect of Transfer
	 	 	27	 
	 
	 	 	 	 
	ARTICLE 10 DISSOLUTION AND TERMINATION
	 	 	28	 
	 
	 	 	 	 
	10.01 Dissolution
	 	 	28	 
	10.02 Winding-Up, Liquidation and Distribution of Assets
	 	 	28	 
	10.03 Articles of Dissolution
	 	 	29	 
	10.04 Effect of Filing of Articles of Dissolution
	 	 	29	 
	10.05 Return of Contribution Nonrecourse to Other Members
	 	 	29	 
	 
	 	 	 	 
	ARTICLE 11 RIGHT OF FIRST OFFER
	 	 	30	 
	 
	 	 	 	 
	11.01 First Offer Notice
	 	 	30	 
	 
	 	 	 	 
	ii

 

 

Table of Contents

(Continued)

	 	 	 	 	 
	 	 	Page
	11.02 Partner Non-Managing Member Election
	 	 	30	 
	11.03 Procedures
	 	 	30	 
	11.04 Remedies
	 	 	31	 
	 
	 	 	 	 
	ARTICLE 12 MISCELLANEOUS PROVISIONS
	 	 	32	 
	 
	 	 	 	 
	12.01 Notices
	 	 	32	 
	12.02 Governing Law
	 	 	33	 
	12.03 Waivers
	 	 	34	 
	12.04 Confidentiality
	 	 	34	 
	12.05 Amendments
	 	 	35	 
	12.06 Construction
	 	 	35	 
	12.07 Headings
	 	 	36	 
	12.08 Entirety; Waiver
	 	 	36	 
	12.09 Further Assurances
	 	 	36	 
	12.10 Consent
	 	 	36	 
	12.11 Severability
	 	 	36	 
	12.12 Heirs, Successors and Assigns
	 	 	36	 
	12.13 Waiver of Jury Trial
	 	 	37	 
	12.14 Creditors
	 	 	37	 
	12.15 Prevailing Party
	 	 	37	 
	12.16 Counterparts
	 	 	37	 
	 
	 	 	 	 
	iii

 

 

OPERATING AGREEMENT

     OPERATING AGREEMENT (this “Agreement”) of IHR INVEST HOSPITALITY HOLDINGS, LLC (the
“Company”), dated as of September ___, 2007, by and among HOTEL INVEST DEUCE MM, LLC, a Delaware
limited liability company, having an address at 280 Park Avenue, New York, New York 10017, as
managing member (the “III Manager” or the “Managing Member”), and HOTEL INVEST DEUCE LP, LLC, a
Delaware limited liability company, having an address at 280 Park Avenue, New York, New York 10017
(the “III Non-Managing Member”) and INTERSTATE INVEST, LLC, a Delaware limited liability company,
having an address at 4501 North Fairfax Drive, Suite 500, Arlington, Virginia 22203 (the “Partner
Non-Managing Member”), as non-managing members (the III Non-Managing Member and the Partner
Non-Managing Member are, collectively, the “Non-Managing Members”). (The Managing Member and the
Non-Managing Members are sometimes herein collectively referred to as the “Members”).

R E C I T A L S :

     A. Meles Madison, LLC (“Madison Purchaser”), Seelbach Louisville, LLC (“Seelbach Purchaser”),
and Interstate Columbia, LLC (“Columbia Purchaser, together with Seelbach Purchaser and Madison
Purchaser, collectively, the “Purchaser”), as purchasers, and Meristar Seelbach SPE, LLC, Madison
Motel Associates, LLC, and Meristar Columbia Owner SPE, LLC, as sellers, have entered into that
certain Agreement of Purchase and Sale, dated as of September ___, 2007 (as may be amended, modified
and/or supplemented, the “Contract”) with respect to certain improved and unimproved real property
as more particularly described on Exhibit “1” annexed hereto and made a part hereof.

     B. The Company intends, through the Project Entities (as hereinafter defined) to own, manage,
operate, develop (i) the full service hotel (the “Seelbach Property”) commonly known as the
“Seelbach Hilton” and located at 500 Fourth Avenue, Louisville, Kentucky, containing, among other
things, a 10 story hotel with 321 guest units (including, 27 guest suites), a leased parking
facility, a leased spa facility, a bar/lounge, restaurants, ballroom/meeting spaces and a gift shop
(including, without limitation, all additional facilities, amenities, common areas and parking
areas in connection therewith), and (ii) the full service hotel (the “Madison Property”) commonly
known as the “Crowne Plaza Madison” and located at 4402 East Washington Ave., Madison, Wisconsin,
containing, among other things, a 6 story hotel with 226 guest units (including, 34 guest suites),
a bar/lounge, restaurants, ballroom/meeting spaces, a swimming pool and a gift shop (including,
without limitation, all additional facilities, amenities, common areas and parking areas in
connection therewith) (the Seelbach Property and the Madison Property are herein collectively, the
“Project”); it being understood and agreed that neither the Company nor the Project Entities shall
own or shall have an interest in the Sheraton Property (as defined in the Contract).

     C. The Managing Member and the Non-Managing Members wish to form a limited liability company
under the laws of the State of Delaware for the purposes of, among other things, through the
Project Entities (i) indirectly acquire the Project, and (b) owning, holding,

 

 

developing, operating, selling, financing, converting to cooperative or condominium ownership
or otherwise dealing with and exercising all indices of ownership of the Project in accordance with
and subject to the terms of this Agreement.

     D. The Members wish to enter into this Agreement to set forth the terms and conditions that
will govern their relationship.

A G R E E M E N T :

     NOW, THEREFORE, in consideration of the premises, agreements and obligations set forth herein
and for other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Members hereby agree as follows:

ARTICLE 1

DEFINITIONS

     For the purposes of this Agreement, the following terms shall have the following meanings:

          “Act” shall mean the Delaware Limited Liability Company Act, 6 Del. C. §§
18-101, et seq., as amended from time to time.

          “Additional Capital Contributions” shall have the meaning set forth in Section 6.02
hereof.

          “Affiliate” shall mean, with reference to a Person, any other Person directly or
indirectly controlling or controlled by or under direct or indirect common control with such
Person. For the purposes of this Agreement, the term “control” (including “controlling”,
“controlled by” and “under common control with”) means either (i) the possession, direct or
indirect, of the power to direct or cause the direction of the management and the policies of a
Person, whether through the ownership of voting securities, by contract or otherwise, or (ii)
direct or indirect ownership of 25% or more of the outstanding voting interest of a Person.

          “Bankruptcy Action” shall mean, with respect to the affected Person: (i) the entry of
an Order for Relief under Title 11 of the United States Code (the “Bankruptcy Code”), as amended;
(ii) the admission by such Person of its inability to pay its debts as they mature; (iii) the
making by it of an assignment for the benefit of creditors; (iv) the filing by it of a petition in
bankruptcy or a petition for relief under the Bankruptcy Code or any other applicable federal or
state bankruptcy or insolvency statute or any similar law; (v) the expiration of sixty (60) days
after the filing of an involuntary petition under the Bankruptcy Code or an involuntary petition
seeking liquidation, reorganization, arrangement or readjustment of its debts under any other
federal or state insolvency law; provided, however, that the same shall not have
been vacated, set aside or stayed within such sixty (60)-day period; (vi) an application or
consenting to by such party for the appointment of a receiver or other similar official for the
assets of such party; or

 

 

(vii) the imposition of a judicial lien on all or a substantial part of its assets unless such
lien is discharged or vacated or the enforcement thereof stayed within thirty (30) days after its
effective date.

          “Business Plan” shall mean the business plan adopted by the Managing Member from time
to time for the operation and management of Company Property, including, without limitation, the
capital budget, and the operating budget for the operation of the Company Property for the next
calendar year, any proposed franchise agreement, any promotional and advertising materials relating
to the Company Property, the acquisition, lease, financing, restructuring or disposition of any
asset of the Company and/or any Project Entity, and the Company’s compliance with the terms of each
contract and agreement binding upon the Company and/or any Project Entity (a copy of the initial
Business Plan is annexed hereto and made a part hereof as Exhibit “2”).

          “Capital Contribution” shall mean, in the case of a Member, any cash or other property
contributed from time to time to the capital of the Company (including, without limitation, any
Additional Capital Contributions) by such Member.

          “Capital Expenditures” shall mean, for any given period, (a) other than expenditures
funded from Capital Reserves all cash expenditures by the Company and/or any Project Entity which
(i) under generally accepted accounting principles, consistently applied, or (ii) as otherwise
approved in writing by the Managing Member, constitute Capital Expenditures for such period in
connection with the ownership, operation and maintenance of the Company Property, and (b) all
Capital Reserves established during such period.

          “Capital Reserves” shall mean capital reserves from time to time as provided in the
Business Plan then in effect.

          “Capital Transaction” shall mean (a) the sale, transfer, assignment, financing or
refinancing of any Company Property, or any part thereof or interest therein, (b) any casualty,
condemnation or other event that causes the Company to receive any casualty insurance proceeds,
condemnation awards, or (c) any similar transaction which, in accordance with generally accepted
accounting principles, consistently applied, is attributable to capital.

          “Company” shall have the meaning set forth in the introductory paragraph hereof.

          “Company Interest” shall mean a Member’s interest in the Company, including such
Member’s right to profits, losses and distributions, and the right, if any, to participate in the
management of the business and affairs of the Company, in each case to the extent granted pursuant
to the terms of this Agreement, together with the obligation to comply with the terms of this
Agreement.

          “Company Percentage Interest” shall mean initially the percentage interests as set
forth on Exhibit “A” annexed hereto and made a part hereof, as the same may be adjusted
from time to time, such that as of any point in time, each Member’s Company Percentage Interest
shall be equal to a fraction, expressed as a percentage, the numerator of which shall be the
aggregate

 

 

amount of Capital Contributions made by such Member as of such point in time, and the
denominator of which shall be the aggregate amount of all Capital Contributions made by all of the
Members as of such point in time; provided, however, (a) upon the occurrence of the
First IRR Hurdle Event, the Members’ Company Percentage Interests shall be as follow: (i) III
Manager, 0.85%, (ii) III Non-Managing Member, 71.40%, and (iii) Partner Non-Managing Member, 27.75%
and (b) upon the occurrence of the Second IRR Hurdle Event, the Members’ Company Percentage
Interests shall be as follow: (i) III Manager, 0.80%, (ii) III Non-Managing Member, 67.20%, and
(iii) Partner Non-Managing Member, 32%.

          “Company Property” shall mean the Company’s 100% interest in the Project Entities,
which in turn own the Property, and any real estate asset or other property (real, personal or
mixed) owned, leased or licensed by the Company, including, without limitation, the Property.

          “Confidential Information” shall have the meaning set forth in Section 12.04(a)
hereof.

          “Consent” shall have the meaning set forth in Section 12.10 hereof.

          “Contract” shall have the meaning set forth in the Recitals hereof.

          “Contributing Member” shall have the meaning set forth in Section 6.02 hereof.

          “Courts” shall have the meaning set forth in Section 12.02 hereof.

          “Designated Price” shall have the meaning set forth in Section 11.01 hereof.

          “Distribution Amount” shall mean, as of any given point in time, an amount equal to
the aggregate of the Net Capital Proceeds and Net Operating Cash Flow that have been distributed by
the Company to the Members as of such point in time (excluding any amounts paid with respect to any
Shortfall Loan).

          “Election Notice” shall have the meaning set forth in Section 11.02 hereof.

          “First IRR Hurdle Event” shall mean that each Member has received, on an aggregate
cumulative basis, a 17.5% IRR on its aggregate Capital Contributions (including all Additional
Capital Contributions).

          “First Offer Notice” shall have the meaning set forth in Section 11.01 hereof.

          “Franchise Agreement” shall mean collectively those certain franchise agreements to be
executed and delivered at the Closing under the Contract , as the same may be amended, modified or
supplemented from time to time.

          “Gross Capital Proceeds” shall mean (a) in connection with the disposition of Company
Property or part thereof or any interest therein which is the subject of a Capital Transaction, the
gross cash proceeds received by the Company, and (b) as approved in writing by

 

 

the Managing Member, any Capital Reserves established in connection with such Capital
Transaction that are released but not applied to a Capital Expenditure.

          “Gross Operating Receipts” shall mean, for any given period, the sum of (a) any and
all cash receipts (other than Gross Capital Proceeds, any Capital Contribution and any unapplied
security deposits or other deposits with respect to any Property) received by the Company other
than in connection with a Capital Transaction, and (b) as approved in writing by the Managing
Member, Capital Reserves (which are not related to a Capital Transaction) and Operating Reserves
which are released but not applied to the item for which they were reserved.

          “III Manager” shall mean HOTEL INVEST DEUCE MM, LLC, a Delaware limited liability
company.

          “III Non-Managing Member” shall mean HOTEL INVEST DEUCE LP, LLC, a Delaware limited
liability company.

          “Indemnified Party” shall have the meaning set forth in Section 4.06 hereof.

          “Initial Members” shall mean the III Manager, the III Non-Managing Member and the
Partner Non-Managing Member.

          “Interstate” shall mean Interstate Hotels & Resorts, Inc., a Delaware corporation.

          “IRR” shall mean, with respect to any Member, the distribution of Distribution Amounts
to such Member equal to all of such Members’ Capital Contributions to the Company and an internal
rate of return (with reference to “XIRR” on Excel) on such Capital Contributions at the applicable
percentage per annum, compounded monthly, based on a 365 day year for the actual number of days
elapsed, commencing on the date or dates that each such Member’s applicable Capital Contribution is
received by the Company, taking into account the timing and amounts of all such distributions of
Distribution Amounts from the Company to such Member. IRR shall be computed by assuming that all
such Capital Contributions made by a Member, and all such distributions received by a Member, occur
on the day on which they are actually made or received.

          “IRR Hurdle Event” shall mean that each Member has received, on an aggregate
cumulative basis, a 17.5% IRR on its aggregate Capital Contributions (including all Additional
Capital Contributions).

          “Lender” shall mean the holder(s) of any loan(s) secured by all or any portion of the
Property.

          “Loan” shall mean any loan(s) secured by all or any portion of the Property.

          “Loan Documents” shall mean the documents and instruments executed and delivered in
connection with any Loan from time to time, as the same may be amended, modified or supplemented
from time to time.

 

 

          “Managing Member” shall mean the III Manager or any other Person who is admitted as a
Managing Member or otherwise engaged to serve as Managing Member of the Company in accordance with
the terms of this Agreement and applicable law.

          “Member” shall mean each of the Initial Members and any Person who is admitted as a
Member of the Company in accordance with the terms of this Agreement and applicable law.

          “Net Capital Proceeds” shall mean, with respect to each Capital Transaction, an amount
equal to the excess, if any, of the Gross Capital Proceeds in connection therewith, over the sum of
all payments or provisions for the payment, without duplication, of (a) all Capital Expenditures
with respect to such Capital Transaction incurred with respect to any Company Property, (b) if
appropriate, the application of the Gross Capital Proceeds to their intended use (e.g.,
capital leasehold improvements, repayment of accrued interest and/or principal of any existing
third-party indebtedness or application of any insurance proceeds or condemnation awards toward
restoration of the Property), (c) any and all costs and expenses incurred in connection with such
Capital Transaction, including, without limitation, attorneys’ fees and disbursements, brokerage
fees, transfer or similar taxes and any and all other reasonable and customary transaction costs,
and (d) as approved in writing by the Managing Member, any amounts to be maintained as Capital
Reserves or Operating Reserves on account of such Capital Transaction.

          “Net Operating Cash Flow” shall mean, for any given period, an amount equal to the
excess, if any, of the Gross Operating Receipts for such period over the sum of Operating Expenses
and Capital Expenditures which are not related to a Capital Transaction or satisfied by Capital
Contributions, for such period.

          “Non-Contributing Member” shall have the meaning set forth in Section 6.02(b) hereof.

          “Non-Managing Member” shall mean the III Non-Managing Member, the Partner Non-Managing
Member and/or any other Person who is admitted as a Non-Managing Member of the Company in
accordance with the terms of this Agreement and applicable law.

          “Operating Expenses” shall mean, for any given period, the sum, without duplication,
of (i) all cash expenses of the Company and/or any Project Entity during such period which
constitute operating expenses under generally accepted accounting principles (modified for a cash
method of accounting), consistently applied in connection with the ownership, operation,
administration, leasing and maintenance of any Company Property, including, without limitation,
regular periodic debt service under the Loan (including amortization) and under any Shortfall Loan,
real estate taxes, federal, state or local income taxes paid by the Company (excluding, however,
any such taxes paid with respect to a Capital Transaction), insurance premiums, utility charges,
maintenance expenses, any general and administrative expenses, and (ii) all Operating Reserves
during such period.

 

 

          “Operating Reserves” shall mean operating reserves from time to time as provided in
the Business Plan then in effect.

          “Partner Non-Managing Member” shall mean Interstate Invest, LLC, a Delaware limited
liability company.

          “Partner Termination Event” means if at any time any of the following events occur:

(i) Dissolution and termination of the organizational existence of the Partner Non-Managing
Member and/or Property Manager (as long as Property Manager is an Affiliate of Partner
Non-Managing Member), which is not reinstated within thirty (30) after written notice
thereof from the Managing Member;

(ii) Cessation of the conduct of business by the Partner Non-Managing Member and/or Property
Manager (as long as Property Manager is an Affiliate of Partner Non-Managing Member) which
continues for a period of thirty (30) consecutive days;

(iii) A Bankruptcy Action to which the Partner Non-Managing Member or Property Manager (as
long as Property Manager is an Affiliate of Partner Non-Managing Member) is a party (whether
voluntary or involuntary);

(iv) The termination of the Property Management Agreement by Owner (as defined in the
Property Management Agreement) due to an Event of Default (as defined in the Property
Management Agreement) by the Property Manager under Article XVII thereof (for avoidance of
doubt excluding any Change of Control (as defined in the Management Agreement) by the
Manager); or

(v) The Partner Non-Managing Member’s and/or Property Manager’s (as long as Property Manager
is an Affiliate of Partner Non-Managing Member) Chief Executive Officer, Chief Financial
Officer, Chief Investment Officer, General Counsel or Head of Operations, or if the General
Manager or the Director of Finance for Madison Property and/or the Seelbach Property shall
commit any act which constitutes fraud, theft, embezzlement or any gross misdemeanor or
greater crime or any similar criminal act involving dishonesty in the course of performing
his or her duties on behalf of the Partner Non-Managing Member and/or Property Manager.

          “Person” shall mean any individual, partnership, corporation, limited liability
company, trust or other entity.

          “Project” shall have the meaning set forth in the Recitals hereof.

          “Project Entities” shall mean collectively Meles Madison, LLC and Seelbach Louisville,
LLC, each a Delaware limited liability company, and IHR Invest Madison Corp, Inc. and IHR Invest
Louisville Corp, Inc., each a Delaware corporation.

 

 

          “Property” shall mean collectively the Seelbach Property, the Madison Property and any
other real or personal property acquired pursuant to the terms of the Contract, and any other
improved and unimproved real property acquired by the Company from time to time, and any other
property associated therewith.

          “Property Management Agreement” shall mean collectively those certain Hotel Management
Agreements with respect to the Seelbach Property and the Madison Property, as the same may be
amended, modified or supplemented from time to time.

          “Property Manager” shall mean Interstate Management Company, LLC, a Delaware limited
liability company, and its permitted successors and assigns.

          “Replacement Managing Member” shall have the meaning set forth in Section 4.07 hereof.

          “ROFO Price” shall have the meaning set forth in Section 11.03 hereof.

          “Second IRR Hurdle Event” shall mean that each Member has received, on an aggregate
cumulative basis, a 25% IRR on its aggregate Capital Contributions (including all Additional
Capital Contributions).

          “Shortfall Loan” shall have the meaning set forth in Section 6.02(b) hereof.

          “Tax Matters Member” shall have the meaning set forth in Section 8.10 hereof.

          “Transfer” shall have the meaning set forth in Section 9.01 hereof.

          “Withdrawal Event” shall have the meaning set forth in Section 10.01 hereof.

ARTICLE 2

FORMATION OF COMPANY

     2.01 Formation.

          (a) The Members hereby agree to form the Company as a limited liability company under and
pursuant to the provisions of the Act.

          (b) The Managing Member shall execute, deliver and file a certificate of formation and any
amendment thereto, and any and all certificates, documents and instruments, in each case with the
Delaware Secretary of State or otherwise as appropriate, and shall make such other filings as may
be required under the Act or the laws of any other jurisdiction in which the Company shall carry on
its business.

 

 

     2.02 Name. The name of the Company is “IHR INVEST HOSPITALITY HOLDINGS, LLC.” The
business of the Company may be conducted in compliance with all applicable laws under any other
name designated by the Managing Member from time to time.

     2.03 Principal Place of Business. The principal place of business of the Company
shall be c/o Investcorp International Inc., 280 Park Avenue, New York, New York 10017. From time
to time, upon ten (10) days’ notice to the Members, the Managing Member may change the location of
the Company’s principal place of business.

     2.04 Registered Office and Registered Agent. The Company’s registered agent and
office in Delaware shall be at 2711 Centreville Road, Suite 400, Wilmington, Delaware 19801, and
the name of the registered agent of the Company in the State of Delaware at such address is
Corporation Service Company. From time to time, the Managing Member may designate another
registered agent and/or registered office.

     2.05 Term. The term of the Company shall commence on the date of filing of the
Certificate with the Secretary of State of the State of Delaware, and shall continue until
dissolved in accordance with the terms of this Agreement.

ARTICLE 3

PURPOSE AND POWERS OF COMPANY

     3.01 Purpose. The purpose of the Company is to acquire, own, manage, develop,
operate, improve, build upon, rehabilitate, alter, lease, ground lease, license, repair, finance,
refinance, securitize, sell, convert to condominium or cooperative ownership and otherwise deal
with and dispose of Company Property, and to engage in any and all activities necessary,
appropriate, proper, advisable, incidental or convenient thereto.

     3.02 Powers. Except as otherwise set forth in this Agreement, the Company shall have
the power and authority to take any and all actions necessary, appropriate, proper, advisable,
incidental or convenient to, or for the furtherance of, the purpose set forth in Section 3.01
hereof, including, without limitation, the power:

          (a) To conduct its business, carry on its operations and have and exercise the powers granted
to a limited liability company by the Act in any state, territory, district or possession of the
United States, or in any foreign country that may be necessary, appropriate, proper, advisable,
incidental or convenient to the accomplishment of the purposes of the Company;

          (b) Directly, and/or through the Project Entities, to take any action or refrain from taking
any action under, pursuant to or in furtherance of the Contract;

          (c) Directly, and/or through the Project Entities, to enter into, take any action or refrain
from taking any action under, pursuant to, or in furtherance of any and all other contracts of any
kind, including, without limitation, contracts with any Member or any Affiliate

 

 

thereof, or any agent of the Company, in each case to the extent that such contracts are necessary, appropriate,
proper, advisable, incidental or convenient to the accomplishment of the purposes of the Company;

          (d) Directly, and/or through the Project Entities, to borrow money pursuant to the terms of
any Loan Documents;

          (e) Directly, and/or through the Project Entities, to invest and reinvest its funds to the
extent necessary, appropriate, proper, advisable, incidental or convenient to the accomplishment of
the purposes of the Company; and

          (f) To conduct all other activities determined by the Managing Member to be necessary,
appropriate, proper, advisable, incidental or convenient to the accomplishment of the purposes of
the Company.

ARTICLE 4

RIGHTS AND DUTIES OF MANAGING MEMBER AND THE

EXECUTIVE COMMITTEE

     4.01 Management.

          (a) The business, affairs and assets of the Company shall be managed by the Managing Member.
Except as expressly set forth herein, the Managing Member shall have full, complete and exclusive
authority, power and discretion to direct, manage and control the business, affairs and assets of
the Company, to exercise any of the powers of the Company, to make all decisions regarding those
matters, and to perform any and all other acts or activities it deems necessary, appropriate,
proper, advisable or convenient with respect thereto. The Managing Member shall exercise its
authority as such in its capacity as a Member of the Company. Except as expressly set forth
herein, none of the Members other than the Managing Member shall participate in the management or
control of the Company or have any right to approve, vote on or otherwise consent to any matter
relating to the business, affairs or assets of the Company (including, without limitation, the
sale, transfer, recapitalization, exchange or other disposition of all or substantially all of the
Company Property).

          (b) Supplementing the foregoing, the Members acknowledge and consent to the Properties being
managed by the Property Manager pursuant and subject to the terms and conditions set forth in the
Property Management Agreement. The Property Manager shall have the right, power and authority, on
behalf of and in the name of the Company and the Project Entities, to carry out the day-to-day
objectives and purposes of the Company and the Project Entities and to manage the Company Property
subject to and in accordance with the Property Management Agreement, the Franchise Agreement and in
all events subject to and in accordance with the Business Plan then in effect. The Partner
Non-Managing Member agrees that neither the Partner Non-Managing Member nor the Property Manager
shall take any action with respect
to the Company and the Project Entities or the Company Property to the extent that such action
is

 

 

(x) reserved to the Managing Member under this Agreement, and/or (y) is inconsistent with the
Business Plan then in effect.

     (c) Supplementing the terms of Section 4.01 hereof, the Managing Member’s full, complete and
exclusive power and authority shall include, without limitation, the right, on behalf of the
Company or any Project Entity:

          (1) To acquire the Property, and to enter into one or more Loans and execute and deliver Loan
Documents in connection therewith (including without limitation any Loans being obtained and/or
assumed at the Closing under the Contract), and to take any action, or refrain from taking any
action, under, pursuant to, or in furtherance thereof (including, without limitation, (x) requiring
contribution of Additional Capital Contributions, and (y) prepaying any Loan or borrowing
additional funds pursuant to the terms of any Loan Documents), provided, however,
that in connection with any Loans, the Partner Non-Managing Member shall not be required to provide
any guaranties or recourse obligations other than standard non-recourse carve-outs and/or
environmental indemnities without the Partner Non-Managing Member’s prior written consent (it being
understood and agreed that the Partner Non-Managing Member shall provide such standard non-recourse
carve-out guaranties and/or environmental indemnities either directly or pursuant to Section 4.06
hereof).

          (2) To approve, reject, amend, modify or supplement any Business Plan from time to time;

          (3) Directly or indirectly, to acquire by purchase, lease, contribution of property or
otherwise any real or personal property, with funds of the Company or any Project Entity, to the
extent permitted by the Company pursuant to this Agreement, provided, however, the
Managing Member shall not have the right to cause the Company to acquire real property (other than
real property that is incidental to the use, operation and ownership of the Property) that requires
Additional Capital Contributions without the Partner Non-Managing Member’s prior written consent
(it being understood and agreed that the Partner Non Managing Member hereby consents to the
acquisition of any of real or personal property pursuant to the Contract);

          (4) Directly or indirectly, to sell, exchange or otherwise dispose of all or any portion of
the Company Property (including any transaction structured as a sale of membership interests in a
Project Entity or a merger or consolidation of a Project Entity with an unrelated Person or a
transfer of a Project Entity’s interest in the Property);

          (5) Subject to Section 9.01 hereof, the proviso in clause 1 above and the proviso in clause 13
below, directly or indirectly, to take any action, refrain from taking any action, with respect to
the management (subject to the terms of the Property Management Agreement), sale, master lease
(including, without limitation, any restructure of, or additional payments under, any financing
arrangements affecting the Property), restructuring (including, without limitation, any restructure
of, or additional payments under, any financing arrangements affecting the Property),
recapitalization, ground lease, license, lease, transfer or other disposition, development,
improvement, rehabilitation, alteration, repair or completion of construction of any Company
Property;

 

 

          (6) To take any action or refrain from taking any action under, pursuant to, or in furtherance
of the Property Management Agreement (including, without limitation, waiving any rights of the
Company and/or any Project Entity or terminating the Property Management Agreement in accordance
with the terms thereof);

          (7) To purchase liability and other forms of insurance to protect the Company Property and any
business in connection therewith in such amounts as Managing Member shall determine;

          (8) To hold and own any Company Property in the name of the Company;

          (9) To invest any Company funds in any manner selected by the Managing Member to the extent
necessary, appropriate, proper, advisable, incidental or convenient to the accomplishment of the
purposes of the Company;

          (10) Subject to the provisos in clause (1) and clause (3) above, to make any expenditure or
incur any obligation by or on behalf of the Company;

          (11) To execute on behalf of the Company all instruments and documents, including, without
limitation, management agreements; sub-management agreements; checks; drafts; documents providing
for the disposition of Company Property; assignments; bills of sale; leases; partnership
agreements; operating agreements of other limited liability companies; and any other instruments or
documents which the Managing Member deems necessary, appropriate, advisable, incidental or
convenient to the accomplishment of the purposes of the Company;

          (12) Except as expressly prohibited hereunder without the consent of the Partner Non-Managing
Member, to take any action, or refrain from taking any action, with respect to any Project Entity;

          (13) To enter into agreements with Affiliates of the Company or the Managing Member;
provided, however, that the terms of any such agreement shall be arms-length and
shall be no less favorable to the Company than would be available in a contract between the Company
and a Person unaffiliated with the Company or the Managing Member;

          (14) To determine Net Operating Cash Flow and Net Capital Proceeds;

          (15) To employ, engage or retain (and dismiss) any Persons (including any Affiliate of any
Member) to act as brokers, accountants, attorneys, managers, employees, engineers or in such other
capacities as the Managing Member may determine are necessary, appropriate, proper, advisable,
incidental, or convenient to the accomplishment of the purposes of the Company (provided,
however, the Company shall have no paid employees), and the Managing Member shall be
entitled to rely in good faith upon the recommendations, reports and advice given by any such
Persons in the course of their professional engagement;

          (16) To (i) file any voluntary petition in bankruptcy on behalf of the Company or any Project
Entity, (ii) consent to the filing of any involuntary petition in bankruptcy against the Company or
any Project Entity, (iii) file any petition seeking, or consenting to,

 

 

reorganization or relief under any applicable federal or state law relating to bankruptcy or
insolvency with respect to the Company or any Project Entity, (iv) consent to the appointment
of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the
Company or any Project Entity or a substantial part of its property, (v) make any assignment for
the benefit of creditors of the Company or any Project Entity, (vi) admit in writing the inability
of the Company or any Project Entity to pay its debts generally as they come due, and (vii) take
any action on behalf of the Company or any Project Entity in furtherance of any such action;

          (17) To cause the voluntary dissolution of the Company or any Project Entity, and to take all
actions in connection with such dissolution, which dissolution shall not require the consent of any
other Member;

          (18) To institute any legal proceeding (including, without limitation, any tax protest
proceeding) in the name of the Company or any Project Entity, settle any legal proceeding against
the Company or any Project Entity and confess any judgment against the Company or Project Entity or
any Company Property;

          (19) To establish Operating Reserves or Capital Reserves which are not either required under
any agreement entered into by the Company or any Project Entity or contemplated by the Business
Plan then in effect;

          (20) To implement any capital improvement project with respect to Company Property;

          (21) To establish leasing guidelines and grant or withhold approval of any lease for space at
the Property which is outside of such approved leasing guidelines; and/or

          (22) To do and perform all other acts as the Managing Member may determine to be necessary,
appropriate, proper, advisable, incidental or convenient to implement the Business Plan then in
effect or otherwise to conduct the Company’s business.

     Notwithstanding anything contained herein to the contrary, without the consent of the Members,
the Managing Member shall not have the right to change any compensation or the timing or allocation
of distributions due to the Members in a manner which materially adversely affects the Members.

     4.02 Other Power and Authority. Unless authorized in writing to do so by this
Agreement or by the Managing Member, no attorney-in-fact, employee or other agent of the Company
shall have any power or authority to bind the Company in any way, to pledge its credit or to render
it liable pecuniarily for any purpose. No Member shall have any power or authority to bind the
Company unless the Member has been authorized in writing by the Managing Member to act as an agent
of the Company in accordance with the previous sentence.

     4.03 Liability for Certain Acts. The Managing Member shall devote such time to the
Company business as the Managing Member deems to be necessary or desirable in connection with its
respective duties and responsibilities hereunder. So long as the Managing Member is not grossly
negligent and does not engage in gross negligence, willful misconduct or fraud in

 

 

performing its duties, it shall have no liability by reason of being or having been the Managing Member of the Company. The Managing Member does
not, in any way, guarantee a profit for the Members from the operations of the Company. The
Managing Member shall not be liable to the Company or to any Member for any loss or damage
sustained by the Company or any Member (including, without limitation, as a result of any claim of
breach of fiduciary duty of the Managing Member), unless and only to the extent that the loss or
damage is primarily attributable to the direct gross negligence, willful misconduct or fraud of the
Managing Member.

     4.04 No Exclusive Duty to Company. (a) The Members recognize that the Members and
their respective officers, directors, shareholders, members, partners, employees and Affiliates
have or may have in the future other business interests, activities and investments, some of which
may be in conflict or competition with the business of the Company, and, subject to the terms of
clause (b) below, that the Members and their respective officers, directors, shareholders, members,
partners, employees and Affiliates are entitled to carry on such other business interests,
activities and investments. Subject to the terms of clause (b) below, the Members and their
respective officers, directors, shareholders, members, partners, employees and Affiliates may
engage in or possess an interest in any other business or venture of any kind, independently or
with others, including, without limitation, owning, financing, acquiring, leasing, promoting,
developing, improving, operating, managing and servicing real and personal property on its own
behalf or on behalf of other entities with which any Member is affiliated or otherwise. Subject to
the terms of clause (b) below, the Members and their respective officers, directors, shareholders,
members, partners, employees and Affiliates may engage in such activities, whether or not
competitive with the Company, without any obligation to offer any interest in such activities to
the Company or to the other Members. Subject to the terms of clause (b) below, neither the Company
nor any other Member shall have any right, by virtue of this Agreement or otherwise, in or to such
activities, or the income or profits derived therefrom, and the pursuit of such activities, even if
competitive with the business of the Company, shall not be deemed wrongful or improper.

     (b) As a material inducement to the III Manager and the III Non-Managing Member to execute and
delivery this Agreement, the Partner Non-Managing Member acknowledges and agrees that during the
term of this Agreement, neither the Partner Non-Managing Member, Property Manager nor any Affiliate
of the Partner Non-Managing Member or Property Manager shall, without prior written consent of the
III Manager, directly or indirectly (i) own, operate (other than ordinary property management) or
invest in (such that the Partner Non-Managing Member or Property Manager, is in possession, direct
or indirect, of the power to direct or cause the direction of the management and the policies of
such hotel (in a capacity other than a third party manager acting as an agent or independent
contractor of a hotel owner or lessee), whether through the ownership of voting securities, by
contract or otherwise) any hotel, including, without limitation, any residential condominium,
timeshare, interval or fractional ownership projects and/or “condominium hotels” located within the
area (the “Restricted Area”) delineated on Exhibit “4” annexed hereto and made a part
hereof (or enter into any agreement to do any of the foregoing activities within the Restricted
Area), (ii) solicit or otherwise attempt to persuade hotel occupants to book rooms or lease any
space in any hotel within the Restricted Area other than the Madison Property or the Seelbach
Property, as the case may be, and/or (iii) acquire all or any portion of any Loan.

 

 

     4.05 Bank Accounts. Subject to the terms of the Property Management Agreement, the
Franchise Agreement, and the Loan Documents, the Managing Member may from time to time open bank
accounts in the name of the Company, and the Managing Member shall be the sole signatory thereon,
unless the Managing Member determines otherwise.

     4.06 Indemnity of Managing Member, Employees and Other Agents.

     (a) The Company shall, to the fullest extent permitted by applicable law, indemnify and defend
the Managing Member and each direct or indirect member, shareholder, partner or other holder of any
direct or indirect equity interest in the Managing Member, or any manager, shareholder, employee,
officer, director, agent, representative or Affiliate or successor or assign of any of the
foregoing (each individually an “Indemnified Party”) and hold each Indemnified Party harmless from
and against all losses, claims, damages, liabilities and expenses (including, without limitation,
reasonable attorneys’ fees and expenses) which such Indemnified Party may suffer or incur or to
which such Indemnified Party may become subject, arising from or in connection with this Agreement
or the Company’s business or affairs, except for (and only to the extent that) any loss, claim,
damage, liability or expense attributable to the gross negligence or willful misconduct of such
Indemnified Party. If any Indemnified Party becomes involved in any capacity in any action,
proceeding or investigation in connection with any matter arising from or in connection with this
Agreement or the Company’s business or affairs, the Company shall reimburse such Indemnified Party
for its reasonable legal and other reasonable out-of-pocket expenses (including the cost of any
investigation and preparation) as and when they are incurred, provided that such Indemnified Party
shall promptly repay to the Company the amount of any such reimbursed expenses if it shall
ultimately be determined that such Indemnified Party was not entitled to be indemnified by the
Company in connection with such action, proceeding or investigation. If for any reason (other than
the gross negligence or willful misconduct of the Indemnified Party in question) the foregoing
indemnification is unavailable to the Indemnified Party in question or is insufficient to hold it
harmless, then the Company shall contribute to the amount paid or payable by the Indemnified Party
in question as a result of such loss, claim, damage, liability or expense, in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one hand and the
Indemnified Party in question on the other hand or, if such allocation is not permitted by
applicable law, to reflect not only the relative benefits referred to above but also any other
relevant equitable considerations.

     (b) Notwithstanding anything to the contrary contained in this Agreement, in the event that
any direct or indirect member, principal or affiliate of the Managing Member (individually and
collectively, the “III Guarantor”) shall incur any Losses arising from the III Guarantor’s
obligations with respect to any “bad boy” guaranty, environmental indemnity or non-recourse
guaranty executed by the III Guarantor in favor of any Lender (any such Losses being hereafter
referred to as “III Mortgage Loan Liability”), then, in any such event, the Partner Non-Managing
Member shall indemnify the III Guarantor for 15% of such III Mortgage Loan Liability;
provided, however, that (x) (i) if distributions of Distribution Amounts are being
made pursuant to Section 8.01(b)(III) hereof, then, in such event, the Partner Non-Managing Member
shall indemnify the III Guarantor for 27.75% of such III Mortgage Loan Liability incurred by the
III Guarantor to the extent of the funds the Partner Non-Managing Member has received
pursuant to Section 8.01(b)(III) hereof and then 15% of the remaining III Mortgage Loan

 

 

Liability, (ii) if distributions of Distribution Amounts are being made pursuant to Section
8.01(b)(IV) hereof, then, in such event, the Partner Non-Managing Member shall indemnify the III
Guarantor for 32% of such III Mortgage Loan Liability incurred by the III Guarantor to the extent
of the funds the Partner Non-Managing Member has received pursuant to Section 8.01(b)(IV) hereof
and then 15% of the remaining III Mortgage Loan Liability, (y) the Partner Non-Managing Member
shall have no such obligation to indemnify the III Guarantor if the III Guarantor incurs any III
Mortgage Loan Liability and (1) the act and/or omission giving rise to such III Mortgage Loan
Liability results from the gross negligence, willful misconduct or bad faith of the Managing Member
and/or its Affiliates, or (2) the act and/or omission giving rise to such III Mortgage Loan
Liability was taken or omitted by the Managing Member and/or its Affiliates in violation of the
terms of this Agreement or the Property Management Agreement, unless such act or omission was taken
or not taken with the prior written consent of the Partner Non-Managing Member or its Affiliates,
and (z) the Partner Non-Managing Member shall indemnify the III Guarantor for any and all III
Mortgage Loan Liability if the III Guarantor incurs any such III Mortgage Loan Liability and (1)
the act and/or omission giving rise to such III Mortgage Loan Liability results from the gross
negligence, willful misconduct or bad faith of the Partner Non-Managing Member and/or its
Affiliates, or (2) the act and/or omission giving rise to such III Mortgage Loan Liability was
taken or omitted by the Partner Non-Managing Member and/or its Affiliates in violation of the terms
of this Agreement or the Property Management Agreement, unless such act or omission was taken or
not taken with the prior written consent of the Managing Member.

     (c) Notwithstanding anything to the contrary contained in this Agreement, in the event that
any direct or indirect member, principal or affiliate of the Partner Non-Managing Member
(individually and collectively, the “Interstate Guarantor”) shall incur any Losses arising from the
Interstate Guarantor’s obligations with respect to any “bad boy” guaranty, environmental indemnity
or non-recourse guaranty executed by the Interstate Guarantor in favor of any Lender (any such
Losses being hereafter referred to as “Interstate Mortgage Loan Liability”), then, in any such
event, the III Non-Managing Member shall indemnify the Interstate Guarantor for 84% of such
Interstate Mortgage Loan Liability and the III Manager shall indemnify the Interstate Guarantor for
1% of such Interstate Mortgage Loan Liability; provided, however, that (x) (i) if
distributions of Distribution Amounts are being made pursuant to Section 8.01(b)(III) hereof, then,
in such event, (a) the III Non-Managing Member shall indemnify the Interstate Guarantor for 71.4%
of such Interstate Mortgage Loan Liability incurred by the Interstate Guarantor to the extent of
the funds the III Non-Managing Member has received pursuant to Section 8.01(b)(III) hereof and then
84% of the remaining Interstate Mortgage Loan Liability, and (b) the III Manager shall indemnify
the Interstate Guarantor for 0.85% of such Interstate Mortgage Loan Liability incurred by the
Interstate Guarantor to the extent of the funds the III Manager has received pursuant to Section
8.01(b)(III) hereof and then 1% of the remaining Interstate Mortgage Loan Liability, (ii) if
distributions of Distribution Amounts are being made pursuant to Section 8.01(b)(IV) hereof, then,
in such event, (a) the III Non-Managing Member shall indemnify the Interstate Guarantor for 67.20%
of such Interstate Mortgage Loan Liability incurred by the Interstate Guarantor to the extent of
the funds the III Non-Managing Member has received pursuant to Section 8.01(b)(IV) hereof and then
84% of the remaining Interstate Mortgage Loan Liability and (b) the III Manager shall indemnify the
Interstate

 

 

Guarantor for 0.80% of such Interstate Mortgage Loan Liability incurred by the
Interstate Guarantor to the extent of the funds the III Manager has received pursuant to Section
8.01(b)(IV) hereof and then 1% of the remaining Interstate Mortgage Loan Liability, (y) the III
Non-Managing Member and the III Manager shall have no such obligation to indemnify the Interstate
Guarantor if the Interstate Guarantor incurs any Interstate Mortgage Loan Liability and (1) the act
and/or omission giving rise to such Interstate Mortgage Loan Liability results from the gross
negligence, willful misconduct or bad faith of the Interstate Non-Managing Member and/or its
Affiliates, or (2) the act and/or omission giving rise to such Interstate Mortgage Loan Liability
was taken or omitted by the Partner Non-Managing Member, the Property Manager and/or their
Affiliates in violation of the terms of this Agreement or the Property Management Agreement, unless
such act or omission was taken or not taken with the prior written consent of the III Non-Managing
Member, the III Manager or its Affiliates, and (z) the III Non-Managing Member and/or the III
Manager shall indemnify the Interstate Guarantor for any and all Interstate Mortgage Loan Liability
if the Interstate Guarantor incurs any such Interstate Mortgage Loan Liability and (1) the act
and/or omission giving rise to such Interstate Mortgage Loan Liability results from the gross
negligence, willful misconduct or bad faith of the III Manager, the III Non-Managing Member and/or
its Affiliates, or (2) the act and/or omission giving rise to such Interstate Mortgage Loan
Liability was taken or omitted by the III Manager, III Non-Managing Member and/or its Affiliates in
violation of the terms of this Agreement or the Property Management Agreement, unless such act or
omission was taken or not taken with the prior written consent of the Partner Non-Managing Member
and/or the Property Manager.

     4.07 Resignation or Termination of Managing Member. The Managing Member may resign at
any time by giving written notice to the Members of the Company; provided, however,
that:

          (a) if the III Manager or a Replacement Managing Member resigns as the Managing Member at a
time when the III Non-Managing Member or an Affiliate thereof holds any Company Interest in the
Company, then, in such event, the III Non-Managing Member or any such Affiliate shall have the sole
right to appoint in its place a successor (a “Replacement Managing Member”) which is an Affiliate
of the III Non-Managing Member and controls, is controlled by or under common control with
Investcorp International Realty, Inc. (or its successor or assigns), and such Replacement Managing
Member shall thereafter hold all of the rights and obligations of the Managing Member hereunder;
and

          (b) if, at any time, the III Non-Managing Member disposes of its entire Company Interest in
the Company or the III Non-Managing Member elects to appoint a Replacement Managing Member which is
not an Affiliate of the III Non-Managing Member which controls, is controlled by or under common
control with Investcorp International Realty, Inc. (or its successors or assigns), then, at such
time as the III Manager or the Replacement Managing Member, as the case may be, shall cease to
serve as Managing Member, a successor Managing Member shall be, and any successor Managing Member
thereafter shall be, selected by the unanimous vote of the holders of the outstanding Company
Interests in the Company.

     4.08 Expenses.

 

 

          (a) Except as otherwise provided in this Agreement and only to the extent set forth on the
sources and uses set forth Exhibit “3” annexed hereto and made a part hereof, the
Company shall be responsible for paying, and shall pay, whether incurred before or after the
date hereof, all costs and expenses related to the organization of the Company and its Members, all
costs and expenses related to the business of the Company and of acquiring, holding, owning,
developing, servicing, collecting upon and operating any Company Property (including, without
limitation, the cost of any environmental, engineering or similar report(s), the cost of all
surveys obtained in connection with the acquisition of the Property, and any Loan, any title
insurance fees and premiums incurred in connection with the acquisition of the Property or any
Loan, legal fees and expenses incurred by the Company, its Members and affiliates in connection
with the acquisition of the Property, any Loan, the execution and delivery of the Contract, the
Property Management Agreement, the Franchise Agreement and all fees, expenses and costs (including,
without limitation, origination fees and legal fees and expenses of any Lender’s counsel) incurred
in connection with any Loan). In the event any such costs and expenses are or have been paid or
incurred by any Member, including legal expenses and other costs and expenses incurred by the
Managing Member prior to the formation of the Company, such Member shall be entitled to be
reimbursed for such payment so long as such payment is reasonably necessary for Company business or
operations and has been approved by the Managing Member or is set forth on Exhibit “3”
hereto. Notwithstanding the foregoing, in no event shall the Company have any obligation to pay or
reimburse any Member for any general overhead expense of such Member.

          (b) Supplementing the foregoing, the reasonable out-of-pocket expenses incurred after the date
hereof by the Managing Member from time to time hereunder shall be reimbursed by the Company upon
demand of the Managing Member.

     4.09 Exculpation. The Managing Member shall not be liable to the Company or to any
Member for damages (including, without limitation, consequential damages) for any losses, claims,
damages or liabilities arising from any act or omission performed or omitted by such party in
connection with this Agreement or the Company’s business or affairs (including, without limitation,
as a result of any claim of breach of fiduciary duty of the Managing Member), except for (and only
to the extent that) any such loss, claim, damage or liability is primarily attributable to direct
the gross negligence or willful misconduct of the Managing Member.

ARTICLE 5

RIGHTS AND OBLIGATIONS OF MEMBERS

     5.01 Limitation of Liability. Each Member’s liability shall be limited as set forth
in this Agreement and the Act.

     5.02 Company Debt Liability. A Member will not be personally liable for any debts or
losses of the Company beyond its respective Company Interest except as provided in Section 5.07
herein.

 

 

     5.03 List of Members. Upon written request of any Member, the Managing Member shall
provide a list showing the names, addresses and Company Interests of all Members.

     5.04 Company Books. The Managing Member shall maintain and preserve, during the term
of the Company, the accounts, books, and other relevant Company documents described in Section 8.08
hereof. Upon reasonable written request, each Member shall have the right, at a time during
ordinary business hours, to inspect and copy, at the requesting Member’s expense, the Company
documents which the Member, in its discretion, deems appropriate.

     5.05 Company Property; Nature of Interests in the Company. All property of the
Company shall be owned by the Company subject to the terms and provisions of this Agreement, and no
Member shall have any interest in any specific asset of the Company. The Company Interests and
percentage interests (whether vested or unvested) of all Members in the Company are personal
property.

     5.06 Priority. Except as may be expressly provided in Article 10 hereof and Section
8.01 hereof, no Member shall have priority over any other Member as to distributions,
provided, however, that this section shall not apply to loans which a Member has
made to the Company.

     5.07 Liability of a Member to the Company. A Member who receives a distribution from
the Company is liable to the Company only to the extent provided by the Act.

     5.08 Exculpation. No Member shall be liable to the Company or to any other Member for
damages (including, without limitation, consequential damages) for any losses, claims, damages or
liabilities arising from any act or omission performed or omitted by it in connection with this
Agreement or the Company’s business or affairs except for (and to the extent of) any such loss,
claim, damage or liability is attributable to the gross negligence or willful misconduct of such
Member.

     5.09 Loans. No Member shall be required nor entitled to guaranty or otherwise be
liable for any indebtedness of the Company.

ARTICLE 6

CONTRIBUTIONS TO THE COMPANY, PERCENTAGE INTERESTS

AND CAPITAL ACCOUNTS

     6.01 Members’ Capital Contributions. Each of the Members is contemporaneously with
its execution hereof making a Capital Contribution to the Company as set forth on Exhibit
“B” annexed hereto and made a part hereof.

     6.02 Additional Contributions.

          (a) If at any time (and from time to time) following the date hereof, the Managing Member
determines that additional capital contributions (“Additional Capital Contributions”) are required
to meet the obligations or needs of the Company, then, in any such

 

 

event, the Managing Member shall give written notice to each of the Members to contribute its
pro rata share (based on Company Percentage Interests) of the Additional Capital
Contributions. Upon the contribution of any Additional Capital Contributions by any Contributing
Member(s) and the continuing failure of any Non-Contributing Member(s) to make the required
contributions within ten (10) business days after written notice from the Managing Member that such
contributions are due, the Company Percentage Interests of the Contributing Member(s) and the
Non-Contributing Member(s) shall be adjusted to reflect such contributions and failure(s) to make
such contributions.

          (b) If any Member (a “Non-Contributing Member”) fails to contribute any portion of its
pro rata share of any Additional Capital Contributions, then, as their sole remedy
against a Non-Contributing Member for failing to make Additional Capital Contributions, each Member
who has contributed all of its pro rata share of such Additional Capital
Contribution (a “Contributing Member”) may, but shall not be required to, provide a loan (a
“Shortfall Loan”) to the Company for all or part of the amount of the Additional Capital
Contributions. If more than one Contributing Member elects to make a Shortfall Loan, then, in such
event, such Shortfall Loan shall be provided by such electing Contributing Members pro
rata based on their Company Interests or in such other proportion as they may agree. Each
Shortfall Loan shall bear interest and compound at the annual rate of twenty-five percent (25%).
Interest on each Shortfall Loan shall be payable monthly in arrears. Shortfall Loans, and interest
thereon, shall be repaid from Net Operating Cash Flow and Net Capital Proceeds prior to any
distributions to Members. Payments made in respect of Shortfall Loans shall be deemed first to be
repayment of interest accrued on such Shortfall Loans and then to be repayment of the principal
amount thereof.

          If any applicable law is ever judicially interpreted so as to deem any payment with respect to
a Shortfall Loan as being in excess of the maximum rate or amount of interest permitted by
applicable law, then it is the express intent of the Members and the Company that all amounts in
excess of the highest lawful rate or amount theretofore collected be credited against any other
distributions, contributions, payments or other amounts to be paid by the recipient of the excess
amount or refunded to the appropriate Person, and the provisions of this Agreement immediately be
deemed reformed, without the necessity of the execution of any new document, so as to comply with
the applicable law, but so as to permit the payment of the fullest amount otherwise required
hereunder. All sums paid or agreed to be paid that are judicially determined to be interest shall,
to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout
the term of such obligation so that the rate or amount of interest on account of such obligation
does not exceed the maximum rate or amount of interest permitted under applicable law.

     6.03 Capital Accounts.

          (a) Exhibit “C” annexed hereto and made a part hereof is a description of the
determination of the Members’ capital accounts and other provisions which the Company and the
Members have agreed shall govern the allocation of profits and losses and other tax compliance and
accounting matters.

 

 

          (b) No Member shall have any liability to restore all or any portion of a deficit balance in
such Member’s Capital Account.

     6.04 Withdrawal or Reduction of Members’ Contributions to Capital.

          (a) Except as provided in Section 10.02 hereof, a Member shall not receive out of Company
Property any part of its Capital Contribution until all liabilities of the Company, except
liabilities to Members on account of their Capital Contributions, have been paid or there remains
property of the Company sufficient to pay them.

          (b) Except as provided in Section 10.02 hereof, a Member, irrespective of the nature of its
Capital Contribution, has only the right to receive cash in return for its Capital Contribution.

     6.05 Return of Capital. No Member shall be liable for the return of the Capital
Contributions (or any portion thereof) of any other Member, it being expressly understood that any
such return shall be made solely from the assets of the Company.

ARTICLE 7

REPRESENTATIONS, WARRANTIES AND COVENANTS

     7.01 Representations and Warranties of the Members. Each Member hereby represents,
warrants and covenants to the other Members (and each Person admitted to the Company shall
represent, warrant and covenant as a condition to its admission) as follows:

          (a) It is duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, with all requisite power and authority to enter into and perform
this Agreement.

          (b) This Agreement has been duly authorized, executed and delivered by such Member and
constitutes the legal, valid and binding obligation of such Member, enforceable in accordance with
its terms.

          (c) No consents or approvals are required from any governmental authority or other Person for
such Member to enter into this Agreement and form the Company. All limited liability company,
corporate or partnership action on the part of such Member necessary for the authorization,
execution and delivery of this Agreement, and the consummation of the transactions contemplated
hereby, have been duly taken.

          (d) Neither the execution and delivery of this Agreement by such Member, nor the consummation
of the transactions contemplated hereby, conflict with or contravene the provisions of its organic
documents or any agreement or instrument by which it or its properties are bound, or any law, rule,
regulation, order or decree to which it or its properties are subject.

 

 

          (e) On behalf of itself and each assignee or transferee of it, that (i) the direct and
indirect ownership interests in such Member have been issued in compliance with all applicable
laws, orders, judgments, ordinances, rules, regulations and requirements of all federal,
state and local governmental and quasi-governmental authorities, agencies, departments,
commissions, bureaus and instrumentalities (including, without limitation, those promulgated by or
under the Securities Act of 1933 and the Securities Exchange Act of 1934), (ii) such Member is
acquiring its Company Interest for its own account for investment and not with a view to the
distribution or resale thereof, or with the present intention of distributing or reselling such
interest, and that it will not transfer or attempt to transfer its Company Interest in violation of
the Securities Act of 1933 (as amended, the “Securities Act”), the Securities Exchange Act of 1934
or any other applicable federal, state or local securities law, and (iii) each Member is an
accredited investor under Regulation D of the Securities Act. Nothing herein shall be construed to
create or impose on the Company or any Member an obligation to register any transfer of any Company
Interest or any portion thereof.

          (f) Neither it, nor any of its affiliates (or any of their respective principals, partners or
funding sources), is or will become (i) a Person designated by the U.S. Department of Treasury’s
Office of Foreign Asset Control as a “specially designated national or blocked person” or similar
status, (ii) a Person described in Section 1 of U.S. Executive Order 13224 issued on September 23,
2001; (iii) a Person otherwise identified by a governmental or legal authority as a Person with
whom the Company or any Member is prohibited from transacting business; (iv) directly or indirectly
owned or controlled by the government of any country that is subject to an embargo by the United
States government; or (v) a Person acting on behalf of a government of any country that is subject
to an embargo by the United States government. Such Member agrees that it will notify the Company
and each other Member in writing immediately upon the occurrence of any event which would render
the foregoing representations and warranties contained in this Section 7.01(f) incorrect.

     7.02 Acknowledgment of the Partner Non-Managing Member. The Partner Non-Managing
Member hereby represents and warrants that, as of the date hereof, its sole member is Interstate
Operating Company, L.P., a Delaware limited partnership. With respect to the obligations,
conditions and rights contemplated by the transaction described in this Agreement, no other person
has any right or option to acquire shares in the Partner Non-Managing Member. The Partner
Non-Managing Member represents and warrants that neither the Partner Non-Managing Member nor any
Affiliate of the Partner Non-Managing Member is a party to any agreement restricting, restraining
or preventing such Person from competing with any other Person or engaging in any lawful business
which such Person would breach or violate as a result of performing the obligations under this
Agreement or the Property Management Agreement.

     7.03 Partner Non-Managing Member Operating Agreement. The Partner Non-Managing Member
hereby represents, warrants and covenants to the other Members that (a) it has delivered a true,
correct and complete copy of the limited liability company agreement governing the Partner
Non-Managing Member, (b) there are no other documents or instruments governing or affecting the
formation, business and/or operation of the Partner Non-Managing Member, (c) Interstate Operating
Company, L.P. is, and until any Transfer (as hereinafter defined) of any or

 

 

all of its direct interests in the Partner Non-Managing Member as permitted under Section 9.01 hereof, shall be the
sole managing member of the Partner Non-Managing Member, (d) for so long as
Interstate Operating Company, L.P. is the sole member of the Partner Non-Managing Member, the
limited liability company agreement of the Partner Non-Managing Member shall not, without the prior
written consent of the Managing Member, be amended, modified or supplemented in any manner which
would have the effect of further limiting the ability of Interstate Operating Company, L.P. to act
as the sole member of the Partner Non-Managing Member (or increasing any percentage interest
necessary to approve or consent any matter), and (e) without the prior written consent of the
Managing Member, no Transfer shall occur with respect to any direct or indirect interest in the
Partner Non-Managing Member in violation of Section 9.01(d) hereof.

     7.04 Additional Representations and Warranties. In connection with any permitted sale
or other transfer of any direct or indirect interest in the Company, it shall be a condition to the
effectiveness of such sale or transfer that such sale or transfer (a) be exempt from registration
under or all applicable federal and state securities laws, (b) not require the Managing Member or
the Company to register as an Investment Company or an investment adviser under the Investment
Advisers Act of 1940, as amended, (c) not cause the Company to terminate for tax purposes,
including, without limitation, by reason of being taxable as a corporation or association, under
the Internal Revenue Code of 1986, as amended (the “Code”), and (d) not violate any laws, orders,
judgments, ordinances, rules, regulations or requirements, now or hereafter existing, of any
federal, state or local governmental or quasi-governmental authority, agency, department,
commission, bureau or instrumentality of any of them.

ARTICLE 8

DISTRIBUTIONS, ALLOCATIONS,

INCOME TAX, ELECTIONS AND REPORTS

     8.01 Distributions.

          (a) Except as provided in Section 10.02 hereof, a Member has no right to demand and receive
any distribution in any form other than cash. Subject to the terms of Section 8.02 hereof, the
Managing Member shall make distributions of Net Operating Cash Flow and Net Capital Proceeds after
payment in full of any Shortfall Loan, not less often than monthly within three (3) business days
after the end of each month.

          (b) Net Operating Cash Flow and Net Capital Proceeds available for distribution on each date
for distribution shall be distributed to the Members as follows:

               (I) first, to the payment of any Shortfall Loan, then,

               (II) second, to the Members (pro rata in accordance with their Company
Percentage Interests) until each of the Members has received, on an aggregate

 

 

cumulative basis, a 17.5% IRR on its aggregate Capital Contributions (including all Additional Capital Contributions),
then

               (III) third, (A) so long as a Partner Termination Event has not occurred and the
Property Manager has not received a Termination Fee (as defined in the
Property Management Agreement) under the Property Management Agreement, 15% to the Partner
Non-Managing Member, and 85% to the Managing Member, the III Non-Managing Member and the Partner
Non-Managing Member pro rata (in accordance with their Company Percentage
Interests) until each of the Members has received a 25% IRR on its aggregate Capital Contributions
(including all Additional Capital Contributions); and (B) in the event that a Partner Termination
Event occurs or the Property Manager receives a Termination Fee under the Property Management
Agreement, the terms of clause (A) of this clause (III) shall be disregarded and Net Operating Cash
Flow and Net Capital Proceeds shall be distributed to the Members pro rata in
accordance with their Company Percentage Interests.

               (IV) fourth, (A) so long as a Partner Termination Event has not occurred and the
Property Manager has not received a Termination Fee (as defined in the Property Management
Agreement) under the Property Management Agreement, 20% to the Partner Non-Managing Member, and 80%
to the Managing Member, the III Non-Managing Member and the Partner Non-Managing Member pro
rata (in accordance with their Company Percentage Interests); and (B) in the event that a
Partner Termination Event occurs or the Property Manager receives a Termination Fee under the
Property Management Agreement, the terms of clause (A) of this clause (IV) shall be disregarded and
Net Operating Cash Flow and Net Capital Proceeds shall be distributed to the Members pro
rata in accordance with their Company Percentage Interests.

     8.02 Limitation Upon Distributions.

          (a) No distribution or return of Capital Contribution shall be declared and paid if, after
such distribution or return is made:

               (i) the Company would be insolvent; or

               (ii) the net assets of the Company would be less than zero.

          (b) The Managing Member may base a determination that a distribution or return of Capital
Contribution may be made under Section 8.02(a) in good faith reliance upon a balance sheet and
profit and loss statement of the Company represented to be correct by the person having charge of
its books of account or certified by an independent public or certified public accountant or firm
of accountants to fairly reflect the financial condition of the Company.

     8.03 Allocations. Exhibit “C” hereto sets forth a description of certain tax
allocations by the Company.

 

 

     8.04 Accounting Principles. All decisions as to accounting principles for the Company
shall be made by the Managing Member subject to the terms of this Agreement.

     8.05 Interest on and Return of Capital Contributions. No Member shall be entitled to
interest on its Capital Contribution.

     8.06 Loans to Company. Nothing in this Agreement shall prevent any Member from making
secured or unsecured loans to the Company by agreement with the Company.

     8.07 Accounting Period. The Company’s accounting period shall be the calendar year.

     8.08 Records, Audits and Reports. At the expense of the Company, the Managing Member
shall maintain or cause to be maintained the books, records and accounts of all operations and
expenditures of the Company. At a minimum, the Company shall keep at its principal place of
business the following records:

          (a) a current list of the full name and last known address of each Member setting forth the
percentage interest (whether vested or unvested) and the amount of cash each Member has
contributed, a description and statement of the agreed value of the other property or services each
Member has contributed or has agreed to contribute in the future, and the date on which each became
a Member;

          (b) a copy of the certificate of formation of the Company, this Agreement and all amendments
thereto, together with executed copies of any powers of attorney pursuant to which any amendment
has been executed;

          (c) copies of any financial statements of the Company for the three (3) most recent years;

          (d) any written consents obtained from Members for actions taken by Members without a meeting;
and

          (e) a writing prepared by the Managing Member setting out the following:

               (i) the times at which or events on the happening of which any additional contributions
agreed to be made by each Member are to be made;

               (ii) any right of a Member to receive distributions that include a return of all or any
part of the Member’s Capital Contributions; and

               (iii) any power of a Member to grant the right to become an assignee of any part of the
Member’s interest, and the terms and conditions of the power.

     8.09 Tax Returns and Tax Elections.

          (a) The Managing Member shall cause to be prepared and filed, at the expense of the Company,
all required state and federal informational tax returns for the

 

Company on or before the date that such returns are due. The Company shall prepare and file (or
cause to be prepared and filed), and deliver to the Members on or prior to August 15th
of each calendar year during the term of this Agreement tax returns and K-1’s for each of the
Members and the Project Entities. All expenses incurred in connection with the above shall be borne
by the Company.

          (b) Except as otherwise expressly provided herein, the Managing Member shall make all
applicable elections, determinations and other decisions under the Code (or any other federal or
state law), including, without limitation, the deductibility of a particular item of expense and
the positions to be taken on the Company’s tax return, and shall approve the settlement or
compromise of all audit matters raised by the Internal Revenue Service or other taxing authority
affecting the Members generally. The Members each shall take reporting positions on their
respective federal, state and local income tax returns consistent with the positions determined for
the Company.

     8.10 Tax Matters Member.

          (a) The Managing Member is designated the “Tax Matters Partner” (as defined in Code Section
6231 and for purposes of this Agreement defined as the Tax Matters Member), and, subject to the
further terms of this Section 8.10, is authorized and required to represent the Company (at the
Company’s expense) in connection with all examinations of the Company’s affairs by tax authorities,
including, without limitation, administrative and judicial proceedings, subject to the further
terms of this Section 8.10, and to expend Company funds for professional services and costs
associated therewith. The Members agree to cooperate with each other and to do or refrain from
doing any and all things reasonably required to conduct such proceedings. All expenses incurred in
connection with any such audit and with any other tax investigation, settlement or review shall be
borne by the Company.

          (b) In the event that the Company shall be the subject of an audit by any federal, state or
local taxing authority, to the extent that the Company is treated as an entity for purposes of such
audit, including administrative settlement and judicial review, the Tax Matters Member shall be
authorized to act for, and its decision shall be final and binding upon, the Company and each
Member thereof; provided, however, that the Tax Matters Member shall (i) notify the
Members of any administrative proceeding with respect to the Company pursuant to Section 6223(c) of
the Code, (ii) furnish the Members with any material correspondence or communication relating to
the Company from the Internal Revenue Service received by the Tax Matters Member, (iii) consult
with the other Members prior to taking any material action relating to the tax affairs of the
Company, and (iv) make all decisions affecting the tax affairs of the Company in good faith using
its reasonable business judgment (it being understood and agreed that for the purposes of this
Agreement, the term “reasonable business judgment” shall refer to the “business judgment rule” as
the same would be applied under applicable law if the Person in question were a director of a
corporation).

          (c) The Company shall indemnify and reimburse the Tax Matters Member for all reasonable
expenses, including, without limitation, legal and accounting fees, claims,

 

 

liabilities, losses and damages incurred in connection with any administrative or judicial
proceeding with respect to the tax liability of the Members.

ARTICLE 9

TRANSFERABILITY

     9.01 General. No Member shall sell, assign, pledge, hypothecate, transfer, exchange
or otherwise transfer for consideration, or gift, bequeath or otherwise transfer for no
consideration (whether or not by operation of law) (a “Transfer”), directly or indirectly, all or
any portion of its Company Interest in the Company (including, without limitation, any right to
receive distribution, dividends or profits from the Company), except as permitted by this Section
9.01, it being understood and agreed that (a) to the extent that any Member or any owner of an
indirect ownership interest in the Company is an individual, a Transfer by such Member or such
holder of an indirect interest, as the case may be, to a trust or other entity established and
maintained solely for purposes of estate planning shall not be deemed a Transfer so long as the
Managing Member received prior written notice thereof and the sole beneficiaries of such transferee
(other than de minimis interests held by charitable organizations) are and continue to be such
Member’s or such interest holder’s, as the case may be, brothers and sisters, spouse, ancestors or
lineal descendants, (b) at any time and from time to time the members in the III Non-Managing
Member may Transfer any direct or indirect interest in the III Non-Managing Member so long as
Investcorp International Realty, Inc. or its Affiliates (or its successors or assigns) controls, is
controlled by or is under common control with the III Non-Managing Member, and subject to the terms
of the Loan Documents, (c) the Managing Member shall not consent to admit any new Member without
the prior written consent of the other Members, unless, subject to the terms of the Loan Documents,
if such new Member is an Affiliate of any then existing Member, then the Managing Member shall not
require the consent of the other Members to such admission, (d) direct or indirect interests in the
Partner Non-Manager Member may be Transferred without the prior written consent of the Managing
Member, so long as (x) such Transfer does not result in any default under the Loan Documents, (y)
Interstate at all times controls the Partner Non-Managing Member, and (z) in the case of a Transfer
of direct interests such Transfer is to a wholly owned subsidiary of Interstate and such Transfer
does not result in any tax or administrative consequences to the Company, the III Manager and/or
the III Non-Managing Member, and (e) except in connection with a Transfer of all of the Company
Interests of the III Non-Managing Member, the III Manager may Transfer all or any portion of its
Company Interests only to an Affiliate of the III Manager so long as Investcorp International
Realty, Inc. or its Affiliates (or its successors or assigns) controls, is controlled by or is
under common control the III Manager. Any Transfer made or attempted to be made in violation of
this Section 9.01 shall be null and void ab initio.

     9.02 Effect of Transfer. No new Member shall be entitled to any retroactive
allocation of losses, income or expense deductions incurred by the Company. The Managing Member
may, at its option, at the time a Member is admitted, close the Company books (as though the
Company’s tax year had ended) or make pro rata allocations of loss, income and
expense deductions to a new Member for that portion of the Company’s tax
year in which a Member was

 

 

admitted in accordance with the provisions of Section 706(d) of the
Code and the Treasury Regulations promulgated thereunder.

ARTICLE 10

DISSOLUTION AND TERMINATION

     10.01 Dissolution.

          (a) The Company shall be dissolved upon the determination of the Managing Member to
dissolve and wind up the Company.

          (b) The death, retirement, resignation, expulsion, withdrawal, bankruptcy or dissolution of a
Member or occurrence of any other event, which terminates, the continued interest of a Member in
the Company (a “Withdrawal Event”), shall not result in dissolution of the Company, and the
business of the Company shall continue without interruption despite the occurrence of any such
Withdrawal Event. Upon the occurrence of any event that causes the last remaining Member of the
Company to cease to be a Member of the Company, to the fullest extent permitted by law, the
personal representative of such Member is hereby authorized to, and shall, within 90 days after the
occurrence of the event that terminated the continued membership of such Member in the Company,
agree in writing (i) to continue the Company, and (ii) to the admission of the personal
representative or its nominee or designee, as the case may be, as a substitute Member of the
Company, effective as of the occurrence of the event that terminated the continued membership of
the last remaining Member of the Company in the Company.

     10.02 Winding-Up, Liquidation and Distribution of Assets.

          (a) Upon dissolution of the Company, an accounting shall be made by the Company’s independent
accountants of the accounts of the Company and of the Company’s assets, liabilities and operations,
from the date of the immediately preceding accounting until the date of dissolution. The Managing
Member shall immediately proceed to wind up the affairs of the Company.

          (b) If the Company is dissolved and its affairs are to be wound up, the Managing Member shall:

          (i) sell or otherwise liquidate all of the Company’s assets as promptly as practicable;

          (ii) allocate any profit or loss resulting from such sales to the Member’s Capital
Accounts in accordance with Exhibit “C” hereof;

          (iii) discharge all liabilities of the Company, including liabilities to Members who
are creditors, to the extent otherwise permitted by law, other than liabilities to Members
for distributions, and establish such reserves as may be reasonably
necessary to provide for contingent liabilities of the Company (for purposes of

 

 

          determining the Capital Accounts of Members, the amounts of such reserves shall be deemed to
be an expense of the Company); and

          (iv) distribute the remaining assets as follows:

          (x) to the Members in accordance with Article 8 hereof; and

          (y) if any assets of the Company are to be distributed in kind, such assets
shall be distributed by agreement of the Members. Such assets shall be deemed to
have been sold as of the date of dissolution for their fair market value, and the
Capital Accounts of the Members shall be adjusted pursuant to the provisions of
Article 8 hereof to reflect such deemed sale.

          (c) [Intentionally Blank.]

          (d) Upon completion of the winding-up, liquidation and distribution of the assets, the Company
shall be deemed terminated.

          (e) The Managing Member shall comply with any applicable requirements of applicable law
pertaining to the winding-up of the affairs of the Company and the final distribution of its
assets.

     10.03 Articles of Dissolution. When all debts, liabilities and obligations of the
Company have been paid and discharged or adequate provisions have been made therefor and all of the
remaining property and assets of the Company have been distributed, articles of dissolution as
required by the Act shall be executed and filed by the Managing Member with the Delaware Secretary
of State.

     10.04 Effect of Filing of Articles of Dissolution. Upon the filing of articles of
dissolution with the Delaware Secretary of State, the existence of the Company shall cease, except
for the purpose of suits, other proceedings and appropriate action as provided in the Act. The
Managing Member shall have authority to distribute any Company property discovered after
dissolution, to convey real estate and to take such other action as may be necessary on behalf of
and in the name of the Company.

     10.05 Return of Contribution Nonrecourse to Other Members. Except as provided by law
or as expressly provided in this Agreement, upon dissolution, each Member shall look solely to the
assets of the Company for the return of its Capital Contribution. If the Company property
remaining after the payment or discharge of the debts and liabilities of the Company is
insufficient to return the Capital Contribution of one or more Members, such Member or Members
shall have no recourse against any other Member.

 

 

ARTICLE 11

RIGHT OF FIRST OFFER

     11.01 First Offer Notice. If, at any time the Managing Member determines to sell,
assign or otherwise transfer the Madison Property and/or the Seelbach Property, as the case may be,
in its sole discretion, then, in such event, the III Member (as offeror) shall deliver to the
Partner Non-Managing Member (as offeree) a written notice (the “First Offer Notice”) of such
determination setting forth the offer price (the “Designated Price”) and all other material terms
and conditions, as the Managing Member may determine, of the proposed offer.

     11.02 Partner Non-Managing Member Election. Within 30 business days after receipt of
a First Offer Notice, time being of the essence, the Partner Non-Managing Member shall deliver a
notice to the III Member (the “Election Notice”) of the Partner Non-Managing Member’s intent to
either (i) elect to purchase the Madison Property and/or the Seelbach Property, as the case may be,
upon the terms and conditions set forth in the First Offer Notice, or (ii) elect not to purchase
the Madison Property and/or the Seelbach Property, as the case may be. If the Partner Non-Managing
Member elects to purchase the Madison Property and/or the Seelbach Property, as the case may be,
upon the terms and conditions set forth in the First Offer Notice by delivering timely the Election
Notice, then, in such event, the terms set forth in the First Offer Notice and Section 11.03 hereof
shall apply.

     If (I) the Partner Non-Managing Member elects not to purchase hereunder or if the Partner
Non-Managing Member fails to deliver the Election Notice within the required time period, time
being of the essence, or (II) the Partner Non-Managing Member fails to deposit a five percent
nonrefundable down payment pursuant to the terms of Section 11.03 hereof, then, in such event, the
Company, shall have the right to sell, assign or otherwise transfer the Madison Property and/or the
Seelbach Property, as the case may be, to a third party; provided, however, that if
(A) the offeror desires to sell, assign or otherwise transfer the Madison Property and/or the
Seelbach Property, as the case may be, to a third party for a purchase price which is less than 95%
of the Designated Price set forth in the First Offer Notice, (B) on material terms and conditions
that are less favorable to the Company than those set forth in the First Offer Notice, or (C) the
offeror desires to sell, assign or otherwise transfer the Madison Property and/or the Seelbach
Property, as the case may be, to a third party and a closing of such sale does not occur within 180
days following the date of the Election Notice, then, in such event, the terms of this Article 11
shall once again apply and the III Member shall be required to deliver another First Offer Notice
to the Partner Non-Managing Member prior to consummating a sale of the Madison Property and/or the
Seelbach Property, as the case may be.

     11.03 Procedures.

          (a) In order for the Election Notice to be effective, the Partner Non-Managing Member must
simultaneously deliver a nonrefundable deposit to the III Member, by wire -
transfer of immediately available federal funds, together with the Election Notice, in an
amount equal to 5% of the ROFO Price (as hereinafter defined).

 

 

          (b) The Members hereby agree that the parties shall use their reasonable efforts to minimize
the costs involved in such transaction, as well as to structure the purchase in such a way as to
minimize, to the extent possible, any taxes that will inure to any of the Members as a result of
such purchase.

          (c) The purchase price (the “ROFO Price”) for any transaction contemplated under this Article
11 shall be the amount which the III Manager and the III Non-Managing Member would have received if
the Madison Property and/or the Seelbach Property, as the case may be, had been sold at the
Designated Price (adjusted in the manner described below) on the closing date, and the Net Capital
Proceeds distributed to the Members pursuant to the provisions of Section 8.01 hereof;
provided, however, that at the closing, the Designated Price shall be adjusted by
prorations, in accordance with the applicable local custom where the Property is located, on and as
of the closing date, of operating expenses and operating revenue allocable to the Madison Property
and/or the Seelbach Property, as the case may be.

          (d) Notwithstanding anything contained herein, it shall be a condition precedent to any sale
under this Article 11 that all existing loans and guaranties made by the III Manager and/or an
Affiliate thereof, to or on behalf of the Company shall be repaid in full (with interest) and/or
discharged and released, as the case may be, on or prior to the closing date.

          (e) The closing of the purchase and sale contemplated by this Article 11 shall occur at the
time and on the date set forth in the First Offer Notice; provided, however, that
such date shall not be earlier than 60 days following the First Offer Notice.

          (f) At the closing, the Members shall execute and deliver all such documents and take such
further action as shall be reasonably necessary or appropriate to consummate the transactions
contemplated by this Article 11.

          (g) At the closing, Partner Non-Managing Member shall deliver to the III Manager and the III
Non-Managing Member by wire transfer of immediately available funds the balance of the that portion
of the ROFO Price which is to be paid.

          (h) Each Member shall pay its own legal fees in connection with any purchase and sale
hereunder. All other actual closing costs shall be allocated in accordance with local custom.

          (i) Partner Non-Managing Member shall assume the Property Management Agreement and neither the
Company, III Manager nor III Non-Managing Member shall be required to pay or otherwise be liable
for any termination fees under the Property Management Agreement.

     11.04 Remedies.

          (a) The parties acknowledge and agree that if the Partner Non-Managing Member fails to close
as provided in Article 11, then, in such event, (x) the III Manager and the III Non-Managing Member
may, as their sole and exclusive remedy, retain any down payment as liquidated and agreed upon
damages, and (y) the terms of this Article 11 shall no longer apply

 

 

and the III Manager shall not
be required to deliver another First Offer Notice to the Partner Non-Managing Member prior to
consummating a sale of the Madison Property and/or the Seelbach Property, as the case may be.

          (b) If the III Manager fails to close because of a default by the III Manager in any material
respect, then, in such event, the Partner Non-Managing Member, as its sole and exclusive remedy,
shall have the right to specific performance of the terms of this Article 11.

ARTICLE 12

MISCELLANEOUS PROVISIONS

     12.01 Notices.

          (a) All notices, demands, requests, consents and waivers under this Agreement shall be in
writing, shall refer to this Agreement and shall be (i) delivered personally, (ii) sent by
registered or certified mail, postage prepaid, return receipt requested, (iii) sent by a nationally
recognized overnight courier, or (iv) sent by telecopier, with written confirmation of the receipt
of such telecopy, addressed as set forth below. If delivered personally, any notice shall be
deemed to have been given on the first (1st) business day on or after the date delivered or
refused. If mailed, any notice shall be deemed to have been given on the earlier to occur of the
first (1st) business day on or after the date of delivery or the third (3rd) business day after
such notice has been deposited in the U.S. mail in accordance with this Section 12.01. If sent by
overnight courier, any notice shall be deemed to have been given on the first (1st) business day on
or after the date following the date such notice was delivered to or picked up by the courier. If
sent by telecopier, any notice shall be deemed to have been given (I) on the first (1st) business
day on or after the date sent, if confirmation of receipt hereof is given on or before 5:00 p.m.
(New York City time), or (II) on the next business day, if confirmation of receipt thereof is given
after 5:00 p.m. (New York City time). Copies of all notices shall be given in accordance with the
above as follows:

If to the Company, the III Manager or the III Non-Managing Member:

280 Park Avenue, 37th Floor

New York, New York 10017

Attention: John R. Fraser and Bradley S. Seiden

Telephone No.: 212-599-4700

Telecopier No.: 212-983-7073

 

 

and with a copy to:

Gibson, Dunn & Crutcher LLP

200 Park Avenue

New York, New York 10166

Attention: David J. Furman, Esq.

Telephone No.: 212-351-4000

Telecopier No.: 212-351-4035

If to the Partner Non-Managing Member:

c/o Interstate Hotel & Resorts, Inc.

4501 N. Fairfax Drive, Suite 500

Arlington, VA 22203

Attention: Executive Vice President and General Counsel

Telephone No.: (703)-387-3100

Telecopier No.: (703) 387-3389

and with a copy to:

Eckert Seamans Cherin & Mellott, LLC

600 Grant Street, 44th Floor

Pittsburgh, PA 15219

Attention: Timothy Q. Hudak, Esq.

Telephone No.: 412-566-2584

Telecopier No.: 412-566-6099

          (b) Any counsel designated above or any replacement counsel which may be designated
respectively by the Company, the III Manager, the III Non-Managing Member or Partner Non-Managing
Member or such counsel by written notice to the other parties is hereby authorized to give notices
hereunder on behalf of its respective client.

     12.02 Governing Law.

          (a) This Agreement shall be interpreted and enforced in accordance with (i) the provisions
hereof, without the aid of any canon, custom or rule of law requiring or suggesting construction
against the party drafting or causing the drafting of the provision in question, and (ii) the
internal laws of the State of Delaware, and specifically the Act, as the same may from time to time
exist, without giving effect to the principles of conflict of laws.

          (b) Each Member hereby irrevocably and unconditionally (i) submits itself and its property,
solely for the purposes of any legal action or proceeding relating to this Agreement or for
recognition and enforcement of any judgment in respect thereof, to the non-exclusive jurisdiction
of the Supreme Court of the State of New York located in New York

 

 

County, the courts of the United States of America for the Southern District of New York, and
appellate courts thereof (collectively, the “Courts”), (ii) consents to the bringing of any such
action or proceeding in the Courts and waives any objection that it may now or hereafter have to
the venue or any such action or proceeding in any such court, including, without limitation, any
objection that such action or proceeding was brought in an inconvenient court, and agrees not to
plead or otherwise assert the same, (iii) agrees to service upon it or him of any and all process
in any such action or proceeding at the address set forth in Section 12.01 hereof, (iv) agrees that
nothing herein shall affect the right to effect service of process in any other manner permitted by
law, and (v) agrees that a final judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by
law. The parties hereto agree that any legal action or proceeding relating to this Agreement shall
be brought in the Courts only; provided, however, that, if any Member breaches or
seeks to resist any term, covenant or condition set forth in this Section 12.02, the other Members
shall not be bound by the limitations of this sentence with respect to such Member’s breaching or
seeking to resist any term, covenant or condition of this Section 12.02.

     12.03 Waivers. Except as otherwise expressly provided herein, each Non-Managing
Member irrevocably waives during the term of the Company any right that it may have:

          (a) To cause the Company or any of its assets to be partitioned;

          (b) To cause the appointment of a receiver for all or any portion of the assets of the
Company;

          (c) To compel any sale of all or any portion of the assets of the Company pursuant to
applicable law; or

          (d) To file a complaint, or to institute any proceeding at law or in equity, or to cause the
termination, dissolution or liquidation of the Company.

     12.04 Confidentiality.

          (a) The terms of this Agreement, the identity of any Person with whom the Company may be
holding discussions with respect to any provision of services, investment, acquisition, disposition
or other transaction, and all other business, financial and other information relating to the
conduct of the business and affairs of the Company or the relative or absolute rights or interests
of any of the Members (collectively, “Confidential Information”) that (x) is not otherwise
available to the public, or (y) has not been disclosed pursuant to authorization by the Managing
Member is confidential and proprietary information of the Company, the disclosure of which would
cause irreparable harm to the Company and the Members. Accordingly, each Member represents that it
has not disclosed Confidential Information to any Person, and each Member agrees that it and its
Affiliates will not, and will direct its shareholders, partners, members, officers, directors,
agents and advisors not to, disclose Confidential Information to any Person or confirm any
statement made by any Person regarding Confidential Information unless and until the Company has
disclosed such Confidential
Information pursuant to authorization by the Members and the Managing Member and has

 

 

notified each Member that it has done so; provided, however, that any Member (or its
Affiliates) may disclose such Confidential Information if required by law (it being specifically
understood and agreed that anything set forth in a registration statement or any other document
filed pursuant to law will be deemed required by law) or if necessary for it to perform any of its
duties or obligations hereunder.

          (b) Subject to the provisions of Section 12.04(a), each Member agrees not to disclose any
Confidential Information to any Person (other than a Person providing consulting services to such
Member who agrees to maintain all Confidential Information in strict confidence, or a judge,
magistrate or referee in any action, suit or proceeding relating to or arising out of this
Agreement or otherwise) and to keep confidential all documents (including, without limitation,
responses to discovery requests) containing any Confidential Information. Each Member hereby
agrees not to contest any motion for any protective order brought by any other Member represented
as being intended by the movant to implement the purposes of this Section 12.04, provided
that, if a Member receives a request to disclose any Confidential Information under the terms of a
valid and effective order issued by a court or governmental agency and the order was not sought by
or on behalf of or consented to by such Members when such Member may disclose the Confidential
Information to the extent required if the Member as promptly as practicable (i) notifies each of
the other Members of the existence, terms and circumstances of the order, (ii) consults in good
faith with each of the other Members on the advisability of taking legally available steps to
resist or to narrow the order, and (iii) if disclosure of the Confidential Information is required,
exercises its best efforts to obtain a protective order or other reliable assurance that
confidential treatment will be accorded to the portion of the disclosed Confidential Information
that any other Member designates. The cost (including, without limitation, attorneys’ fees and
expenses) of obtaining a protective order covering Confidential Information designated by such
other Member will be borne by the Company.

          (c) Notwithstanding anything in the foregoing or anything else contained in this Agreement to
the contrary, each Member (and any employee, representative or other agent thereof) may disclose to
any and all persons, without limitation of any kind, the tax treatment and tax structure of the
offering and ownership of Company Interests and any transaction described in this Section 12.04 or
elsewhere in this Agreement and all materials of any kind (including opinions and other tax
analyses) that are provided to such Member relating to such tax treatment and tax structure. For
this purpose, “tax structure” means any facts relevant to the federal income tax treatment of the
offering and ownership of Company Interests and any transaction described in this Section 12.04 or
elsewhere in this Agreement.

          (d) The covenants contained in this Section 12.04 shall survive any transfer of a Company
Interest and the dissolution of the Company.

     12.05 Amendments. This Agreement may not be amended except in writing by a unanimous
written vote of the Members.

     12.06 Construction. Whenever the singular number is used in this Agreement and when
required by the context, the same shall include the
plural and vice versa, and the masculine gender shall include the feminine and neuter genders
and vice versa.

 

 

     12.07 Headings. The headings in this Agreement are inserted for convenience only and
are in no way intended to describe, interpret, define, or limit the scope, extent or intent of this
Agreement or any provision hereof.

     12.08 Entirety; Waiver.

          (a) This Agreement, together with the agreements and instruments delivered pursuant hereto,
contains the entire agreement between the parties and supersedes all prior agreements and
understandings related to the subject matter hereof. This Agreement may be amended or supplemented
only by an instrument in writing executed by the party against whom enforcement is sought.

          (b) Failure by any party to enforce against any other party any term or provision of this
Agreement shall not waive such party’s right to enforce against any other party the same or any
other term or provision. No waiver by any party hereto of any condition hereunder for its benefit
shall constitute a waiver of any other or further right, nor shall any single or partial exercise
of any right preclude any other or further exercise thereof or any other rights. The waiver of any
breach hereunder shall not be deemed to be a waiver of any other or subsequent breach hereof. No
extensions of time for the performance of any obligations shall be deemed or construed as an
extension of time for the performance of any other obligation.

     12.09 Further Assurances. Upon the written request of any party hereto, from time to
time, from and after the date hereof, the other party or parties shall do, execute, acknowledge and
deliver, at the sole cost and expense of the requesting party, such further acts, deeds,
conveyances, assignments, notices of assignment or transfer and assurances as the requesting party
may reasonably require in order to better assure, convey, grant, assign, transfer and confirm upon
the requesting party the rights now or hereafter intended to be granted under this Agreement or any
other instrument executed in connection with this Agreement; provided, however, no
party shall be obligated to provide any further assurance that would materially increase the
liabilities or obligations of such party hereunder or materially reduce the rights and benefits of
such party hereunder.

     12.10 Consent. Except as expressly provided herein that the Managing Member shall not
unreasonably withhold its Consent within a specified period of time, in any instance hereunder
where the Managing Member’s consent, approval, acceptance, satisfaction, determination, waiver or
other action or decision (collectively, “Consent”) is sought or required, such Consent may be
withheld, delayed or conditioned by the Managing Member in its sole and absolute discretion.

     12.11 Severability. If any provision of this Agreement or the application thereof to
any person or circumstance shall be invalid, illegal or unenforceable to any extent, the remainder
of this Agreement and the application thereof shall not be affected and shall be enforceable to the
fullest extent permitted by law.

     12.12 Heirs, Successors and Assigns. Each and all of the covenants, terms, provisions
and agreements herein contained shall be binding upon and inure to the benefit of the parties

 

 

hereto and, to the extent permitted by this Agreement, their respective heirs, legal
representatives, successors and assigns.

     12.13 Waiver of Jury Trial. EACH OF THE MEMBERS HEREBY WAIVES TRIAL BY JURY IN ANY
ACTION ARISING OUT OF MATTERS RELATED TO THIS AGREEMENT, WHICH WAIVER IS INFORMED AND VOLUNTARY.

     12.14 Creditors. None of the provisions of this Agreement shall be for the benefit
of, or enforceable by, any creditor of the Company.

     12.15 Prevailing Party. If any Member brings any action or suit against any other
Member or the Company by reason of any breach of any of the covenants, agreements or provisions of
this Agreement, then, in such event, the prevailing party, as determined in such action or suit,
shall be entitled to have and recover from the other party or parties all costs and expenses of
such action or suit, including, without limitation, reasonable attorneys’ fees and expenses
resulting therefrom, it being understood and agreed that the determination of the prevailing party
shall be included in the matters which are the subject of such action or suit.

     12.16 Counterparts. This Agreement may be executed in counterparts, each of which
shall be deemed an original but all of which shall constitute one and the same instrument.

     12.17 Intentionally Blank.

     12.18 Contract. Notwithstanding anything contained in this Agreement, including,
without limitation, Section 4.08, the provisions of this Section 12.18 shall apply until the
closing of the transactions contemplated by the Contract:

     a. Upon the execution of this Agreement, the III Non-Managing Member and the Managing Member
collectively shall fund an amount of $2,550,000 on account of the Deposit (as defined in the
Contract) under the Contract and Partner Non-Managing Member shall fund an amount of $450,000 on
account of the Deposit under the Contract; it being understood and agreed, that the Columbia
Purchaser shall fund all amounts due under the Contract on account of the Sheraton Property, as
more particularly set described in that certain side letter (the “Side Letter”) entered
into by the Seelbach Purchaser, the Madison Purchaser, the Columbia Purchaser, the Company, IHR,
the III Non-Managing Member, the Managing Member, and the Partner Non-Managing Member dated as of
the date hereof. In the event that the Managing Member elects, in its sole and absolute
discretion, to fund the Additional Deposit (as defined in Section 2.4 of the Contract), then, in
any such event, no later than one (1) business day following the delivery of a notice of any such
election from the Managing Member, the Partner Non-Managing Member shall contribute fifteen percent
(15%) of such Additional Deposit and the Managing
Member and the III Non-Managing Member collectively shall contribute eighty-five percent (85%)
of such Additional Deposit.

     b. The Members acknowledge and agree that for the convenience of the Members attached hereto
as Exhibit “3” is a putative “sources and uses” schedule reflecting, among other things,
capital contributions to be funded by the Members to the Company upon the closing of

 

 

the
Transaction and the uses of such capital contributions and other funds of the Company; it being
understood and agreed such putative “sources and uses” is for illustrative purposes only and is
subject to change. Subject to the remainder of this Section 12.18, in accordance with the terms of
Section 4.01(c)(1), the Members shall fund all remaining capital amounts required in connection
with the closing of the acquisition of the Seelbach Property and the Madison Property under the
Contract (the “Transaction”) as more particularly set forth on Exhibit “3” attached
hereto; it being understood and agreed the Columbia Purchaser shall be required to fund all amounts
due under the Contract relating to the Sheraton Property. In the event that either III
Non-Managing Member, the Managing Member or the Partner Non-Managing Member (the “Non-Funding
Member”) fails to fund any portion of the capital amounts required to be funded by such Member
in connection with the closing of the Transaction or in connection with the funding of the
Additional Deposit, (i) the other Members shall be permitted to fund such capital amounts in lieu
of the Non-Funding Member, (ii) the Non-Funding Member shall be deemed to have forfeited its
portion of the Deposit and any costs and expenses incurred, and (iii) the Non-Funding Member shall
be deemed to have immediately and automatically withdrawn as a Member under this Agreement and
shall have no further rights whatsoever under either this Agreement or the Property Management
Agreement. If the closing of the Transaction occurs with all Members funding their respective
required amounts, any costs and expenses paid or incurred by the Members shall be adjusted at the
closing of the Transaction in accordance with section 4.08 hereof.

     c. Notwithstanding anything in this Agreement, all elections and notices of the Company,
Purchaser and/or the Project Entities under the Contract (other than with respect to the Sheraton
Property (as defined in the Contract)) shall be made by and approved in writing in advance by
Managing Member. In the event that the Purchaser has a termination right under the Contract (a
“Termination Option”) and, prior to the expiration of the Termination Option, a Member
elects not to proceed with the Transaction in accordance with such Termination Option, such Member
(the “Electing Party”) shall deliver a written notice (the “Election Notice”) to
the other Members (the “Non-Electing Party”) that it does not elect to proceed with the
Transaction. On or before the earlier of (1) the date that is two (2) business days after receipt
of the Election Notice, or (2) the expiration of the applicable Termination Option, the
Non-Electing Party shall deliver written notice to the Electing Party stating that it elects
either: (x) not to proceed with the Transaction without the Electing Party, in which case, subject
to the further terms of this Agreement and the Side Letter, each party shall be responsible for (1)
the amount of the Deposit funded by such party, to the extent any portion of the Deposit is not
returned to the Purchaser under the Contract, and (2) its Proportionate Share (as hereinafter
defined) of the costs and expenses incurred by such party in connection with the Transaction, or
(y) to proceed with the Transaction without the Electing Party, in which case the Non-Electing
Party shall deliver to the Electing Party, within two (2) business days of the Non-Electing Party’s
election under this clause (y), by wire transfer of immediately available federal funds, an amount
equal to the
portion of the Deposit paid by the Electing Party, if any, plus any costs and expenses paid or
incurred by the Electing Party (and the Non-Electing Party shall assume responsibility to pay such
costs and expense). For purposes of this Section 12.18(c), “Proportionate Share” shall mean 15%
with respect to the Partner Non-Managing Member, 1% with respect to the Managing Member and 84%
with respect to the III Non-Managing Member.

 

 

     d. Notwithstanding anything to the contrary, in the event that both parties elect not to
proceed with the Transaction pursuant to Section 12.18(c)(x) above, but one party subsequently
elects, within 120 days after the date of the Election Notice, to proceed with the Transaction (or
a transaction on materially the same terms and conditions as the Transaction), then, in such event,
the party proceeding with the Transaction shall be deemed to have made the election provided for in
Section 12.18(c)(y) and shall be obligated to make the payments and reimbursements as provided
therein (it being understood and agreed that if the Contract has been terminated and the Deposit
has been retained by the seller thereunder or returned to the Purchaser in accordance with the
Contract, then, in such event, there shall be no reimbursement obligation under this clause (e)
with respect to the Deposit).

     e. The parties hereby acknowledge and agree that, except as set forth herein, each party shall
be responsible for its costs and expenses incurred, as of the date of the Election Notice, in
connection with the Transaction.

     f. If (i) there is a default or breach under the Contract which is attributable to any act or
omission of either III Non-Managing Member, the Managing Member or the Partner Non-Managing Member,
or (ii) either III Non-Managing Member, the Managing Member or the Partner Non-Managing Member
fails to fund any amounts required under Section 12.18(b) hereof, then, in such event, subject to
the terms and conditions of the Side Letter, the party to whom such act or omission is attributable
shall indemnify, defend and hold harmless the other party for any and all losses, costs,
liabilities, claims, damages (excluding, however, punitive or consequential damages) and expenses
arising out of or in connection with such default or breach. If the Non-Electing Party elects to
proceed with the Transaction pursuant to Section 12.18 (c) or 12.18(d) of this Agreement, then, in
such event, the Electing Party shall not be responsible for any costs, expenses, fees or
liabilities whatsoever arising from and after the date of the Election Notice in connection with
the Transaction, and the Non-Electing Party agrees to indemnify, defend and hold harmless the
Electing Party for any and all losses, costs, liabilities, claims, damages (excluding, however,
punitive or consequential damages) and expenses arising out of or in connection with the events or
actions with respect to the Transaction from and after the date of the Election Notice.

     g. Each Member hereby represents and warrants to the others that it has available funds
sufficient to fund any and all amounts required to be paid by it hereunder.

     h. The Members hereby consent to the execution and delivery of the Contract and any documents
in connection with the acquisition of any of real or personal property pursuant to the Contract and
hereby authorize John Fraser to execute such documents on behalf of the Company and the Project
Entities and to take any actions and execute any documents as they deem necessary and advisable to
effectuate the foregoing.

          12.19 Put/Call Provisions.

          a. Notwithstanding anything in this Agreement, the III Non-Managing Member hereby irrevocably
grants to the Partner Non-Managing Member an option (the “Partner Put Right”) to require the III
Non-Managing Member and the III Manager (pro rata based on

 

 

Company Percentage Interests) to purchase the Partner’s Non-Managing Member’s Company Interest exercisable in the
manner and on the terms set forth in this Section 12.19. If the Property Management Agreement is
terminated by owner thereunder for any reason other than due to (i) an Event of Default by Property
Manager under Article XVII of the Property Management Agreement, (ii) a Penetration Deficiency or
GOP Deficiency under Section 18.9 of the Property Management Agreement, (iii) sale of the Hotel
under Section 18.10 of the Property Management Agreement, or (iv) a Change of Control (as defined
in the Management Agreement), then, in such event, the Partner Non-Managing Member shall have the
right, but not the obligation, in its sole and absolute discretion, to deliver written notice (the
“Partner 100% Put Notice”) to the III Non-Managing Member and the III Manager requiring the III
Non-Managing Member and the III Manager (pro rata based on Company Percentage
Interests) to purchase the Partner Non-Managing Member’s Company Interest and the III Non-Managing
Member and the III Manager unconditionally agrees that the III Non-Managing Member and the III
Manager (pro rata based on Company Percentage Interests) shall purchase the Partner
Non-Managing Member’s Company Interest for a purchase price equal to the Partner 100% Put Price (as
hereinafter defined). If the Property Management Agreement is terminated by owner due to a
Penetration Deficiency or GOP Deficiency under Section 18.9 of the Property Management Agreement,
then, in such event, the Partner Non-Managing Member shall have the right, but not the obligation,
in its sole and absolute discretion, to deliver written notice (the “Partner 85% Put Notice”) to
the III Non-Managing Member and the III Manager requiring the III Non-Managing Member and the III
Manager (pro rata based on Company Percentage Interests) to purchase the Partner
Non-Managing Member’s Company Interest and the III Non-Managing Member and the III Manager
unconditionally agrees that the III Non-Managing Member and the III Manager (pro
rata based on Company Percentage Interests) shall purchase the Partner Non-Managing
Member’s Company Interest for a purchase price equal to the Partner 85% Put Price (as hereinafter
defined). Failure by the Partner Non-Managing Member to deliver the Partner 100% Put Notice or the
Partner 85% Put Notice, as the case may be, within ten (10) business days after termination of the
Property Management Agreement as provided above shall be deemed to be a waiver of the Partner 100%
Put Notice or the Partner 85% Put Notice, as the case may be.

          Notwithstanding anything in this Agreement, the Partner Non-Managing Member hereby irrevocably
grants to the III Non-Managing Member and the III Manager an option (the “III Call Right”) to
purchase the Partner Non-Managing Member’s Company Interest exercisable in the manner and on the
terms set forth in this 12.19. If the Property Management Agreement is terminated due to an Event
of Default by the Property Manager under Article XVII thereof, the III Non-Managing Member or the
III Manager shall have the right, but not the obligation, in its sole and absolute discretion, to
deliver written notice (the “III 85% Call Notice”) to the Partner Non-Managing Member to purchase
the Partner Non-Managing Member’s Company Interest and the Partner Non-Managing Member
unconditionally agrees that the III Non-Managing Member and the III Manager (pro
rata based on Company Percentage Interests) may purchase the Partner Non-Managing Member’s
Company Interest for a purchase price equal to the III 85% Call Price
(as hereinafter defined). If the Property Management Agreement is terminated due to a Change
of Control (as defined in the Property Management Agreement), the III Non-Managing Member or the
III Manager shall have the right, but not the obligation, in its sole and absolute discretion, to
deliver written notice (the “III 100% Call Notice”) to the Partner Non-Managing Member to

 

 

purchase the Partner Non-Managing Member’s Company Interest and the Partner Non-Managing Member
unconditionally agrees that the III Non-Managing Member and the III Manager (pro
rata based on Company Percentage Interests) may purchase the Partner Non-Managing Member’s
Company Interest for a purchase price equal to the III 100% Call Price (as hereinafter defined).

          The Members acknowledge and agree that in connection with the Partner 100% Put Notice, the
Partner 85% Put Notice, the III 100% Call Notice or the III 85% Call Notice no additional purchase
and sale contract shall be required to be executed and delivered, it being understood and agreed
that the terms of this 12.19 shall constitute a purchase and sale contract.

          For the purposes of this Agreement the term “Partner 100% Put Price” shall mean an amount
equal to the Fair Market Value (as hereinafter defined) of the Partner Non-Managing Member’s
Company Interest. For the purposes of this Agreement the term “Partner 85% Put Price” shall mean
an amount equal to eighty five percent (85%) the Fair Market Value of the Partner Non-Managing
Member’s Company Interest. For the purposes of this Agreement the term “III 85% Call Price” shall
mean an amount equal to eighty-five percent (85%) the Fair Market Value of the Partner’s
Non-Managing Member’s Company Interest. For the purposes of this Agreement the term “III 100% Call
Price” shall mean an amount equal to the Fair Market Value of the Partner’s Non-Managing Member’s
Company Interest.

          For the purposes of this Agreement, the term “Fair Market Value” shall mean the fair market
value of the Partner Non-Managing Member’s Company Interest. If the Partner Non-Managing Member
delivers the Partner 100% Put Notice or the Partner 85% Put Notice or the III Manager or the III
Non-Managing Member delivers the III 100% Call Notice or the III 85% Call Notice, as the case may
be, then, in any such event, promptly thereafter the Members shall meet to determine the Fair
Market Value. If the Members fail to reach agreement upon the Fair Market Value of the Partner
Non-Managing Member’s Company Interest within fifteen (15) days after delivery of the Partner 100%
Put Notice, the Partner 85% Put Notice, the III 100% Call Notice or the III 85% Call Notice, the
parties shall engage an Appraiser (as hereinafter defined) who shall determine the Fair Market
Value within thirty (30) days after such engagement by the Members. If the Members agree on a
single Appraiser, such Appraiser’s valuation shall be final and binding on the Company and the
Members. If (i) the Members cannot agree on Appraiser within fifteen (15) days after delivery of
the Partner 100% Put Notice, the Partner 85% Put Notice, the III 100% Call Notice or the III 85%
Call Notice, or (ii) the Appraiser selected by the Members fails to provide the valuation within
thirty (30) days after engagement, then, in any such event, each of the Partner Non-Managing Member
and the III Non-Managing Member or the III Manager shall each select an Appraiser, each of whom
shall determine the Fair Market Value within thirty (30) days after such engagement. If the dollar
amount of the Fair Market Value of the Partner’s Non-Managing Member’s Company Interest determined
by the Appraiser selected by the Partner Non-Managing Member and the Appraiser selected by the III
Non-Managing Member and/or the III Manager is within a 10% range, then, in such event, the
arithmetic average of such two amounts shall be the Fair Market Value, and such amount shall
be final and binding on the Company and the Members. If the dollar amounts are not within a
10% range, then the Appraiser selected by the Partner Non-Managing Member and the Appraiser
selected by the III Non-Managing Member and/or the III Manager shall jointly select a third
Appraiser who shall make his own independent determination of the Fair Market Value within

 

 

thirty (30) days of being appointed. If a third Appraiser is appointed, the Fair Market Value shall be
the amount determined by such Appraiser and shall be final and binding on the Company and the
Members.

          If there is a single Appraiser, the Partner Non-Managing Member and the III Non-Managing
Member and/or the III Manager shall each pay one-half of such Appraiser’s fees and expenses. If
there are three Appraisers, the Partner Non-Managing Member and the III Non-Managing Member and/or
the III Manager shall each pay the fees and expenses of the Appraiser selected by it, and shall
each pay one-half of the third Appraiser’s fees and expenses.

          For purposes of this Agreement, the term “Appraiser” shall mean independent third party
valuation consultant with at least ten (10) years experience in hospitality investment valuation.

          b. The following procedures shall apply to any Partner 100% Put Notice, the Partner 85% Put
Notice, III 100% Call Notice or the III 85% Call Notice:

          (i) At the closing, the Partner Non-Manager Member shall execute and deliver an
assignment of its Company Percentage Interest, with the representation that the Partner
Non-Manager Member owns its right, title and interest in and to the Company, free and clear
of all liens and encumbrances;

          (ii) The purchase and sale of the Company Interest of the Partner’s Non-Managing Member
shall be consummated (the “Put/Call Closing”) thirty (30) days after the later of (i)
receipt of the Partner 100% Put Notice, the Partner 85% Put Notice, the III 100% Call Notice
or the III 85% Call Notice, and (ii) determination of the Fair Market Value of the Partner’s
Non-Managing Member’s Company Interests in accordance with this Section 12.19;
provided, however, that the III Non-Manager Member shall have the right to
accelerate the date for closing; and

          (iii) If the Partner Non-Managing Member defaults in its obligations to close the
acquisition in accordance with the terms of this Section 12.19, time being of the essence,
then, in such event, (i) such default shall constitute an Partner Termination Event and the
Partner Non-Managing Member shall lose all of its voting, management and consent rights
under this Agreement and the III Non-Managing Member shall have the sole right to make all
decisions on behalf of the Company, and (ii) the III Non-Managing Member shall have any
right or remedy, at law, in equity or otherwise.

          (iv) The Partner 100% Put Price, the Partner 85% Put Price, the III 100% Call Price or
the III 85% Call Price, as the case may be, shall be paid by the III Non-Managing Member at
the Put/Call Closing by wire transfer of immediately available federal funds.

          12.20 Exculpation. Except to the extent set forth in the Joinder hereto, the
Side Letter and/or the Property Management Agreement, the Partner Non-Managing Member, the
III Manager and the III Non-Managing Member, as the case may be, for

 

 

itself and on behalf of its Affiliates (collectively, “Claiming Parties”), hereby agree that if the Claiming
Parties, together or individually, make any claim of any nature whatsoever, whether legal or
equitable, including claims based on federal or state law, against another Member or its
Affiliates arising out of or relating to this Agreement, the negotiations and
representations of the parties preceding or following the execution of this Agreement, any
alleged breach of this Agreement, or any proposed transactions described in this Agreement,
then any judgment against such Member or its Affiliates shall be enforceable against them
only to the extent of the interest of such Member in the Company Property.

 

 

     IN WITNESS WHEREOF, the parties have entered into this Agreement of Limited Company as of the
date first above written.

	 	 	 	 	 
	 	MEMBERS:

HOTEL INVEST DEUCE MM, LLC, 

a Delaware limited liability company

 	 
	 	By:  	/s/  John
R. Fraser 	 
	 	 	Name:  	John R. Fraser 	 
	 	 	Title:  	President 	 
	 
	 	HOTEL INVEST DEUCE LP, LLC,

a Delaware limited liability company

 	 
	 	By:  	/s/  John
R. Fraser 	 
	 	 	Name:  	John R. Fraser 	 
	 	 	Title:  	President 	 
	 
	 	INTERSTATE INVEST, LLC

a Delaware limited liability company

 	 
	 	By:  	/s/  James
A. Crolle III 	 
	 	 	Name:  	James
A. Crolle III 	 
	 	 	Title:  	Assistant General Counsel 	 
	 

 

 

JOINDER BY INTERSTATE HOTEL AND RESORTS, INC.

     INTERSTATE HOTELS & RESORTS, INC., a Delaware corporation (“IHR”) is executing this Agreement
for the purposes of guaranteeing the payment and performance of the terms of Section 4.06(b). IHR
hereby guarantees to the Company and the III Manager and the III Non-Managing Member the due and
punctual payment and performance of the Partner Non-Managing Member’s obligations under Section
4.06(b).

     The terms of this Joinder and IHR’s obligations hereunder are a continuing and irrevocable
obligation of IHR and shall remain in full force during the term of the Agreement until payment,
performance and/or observation in full of the obligations hereunder. IHR’s guaranty and liability
under this Joinder are absolute and unconditional and shall not be affected, released, terminated,
discharged or impaired, in whole or in part, by any or all of the following: (i) any lack of
genuineness, regularity, validity, legality or enforceability, or the voidability of, this
Agreement; (ii) the failure of the Company or any Member to exercise or to exhaust any right or
remedy or take any action against any Person or any collateral or other security available to it;
(iii) any amendment or modification of the terms of this Agreement; (iv) any failure or delay of
the Company or the Members to exercise, or any lack of diligence in exercising, any right or remedy
with respect to this Agreement; (v) any dealings or transactions between the Company and/or any of
the Members or any of their Affiliates relating to this Agreement, whether or not IHR shall be a
party to or cognizant of the same; (vi) the failure to give IHR notice of any breach; and/or (vii)
any other circumstance which might constitute a legal or equitable discharge or defense available
to the Partner Non-Managing Member, whether similar or dissimilar to the foregoing, other than the
defense of (a) payment and performance, or (b) the claim against the Partner Non-Managing Member is
not due and owing under the terms of this Agreement or that the Partner Non-Managing Member has
performed. IHR expressly waives the following: (a) notice of acceptance of this Agreement; (b)
any requirement of promptness, diligence, presentment, protest, notice of dishonor, notice of
demand and notice of acceptance; (c) the right to trial by jury in any action or proceeding of any
kind arising on, under, out of, or by reason of or relating, in any way, to its obligations under
this Joinder, or the interpretation, breach or enforcement of such obligations; and (d) all rights
of subrogation and any other claims that it may now or hereafter acquire against the Partner
Non-Managing Member or any insider that arise from the existence, payment, performance or
enforcement of IHR’s obligations under this Joinder until such time as IHR’s obligations under this
Joinder are performed and paid in full. IHR’s guaranty under this Joinder is a present guaranty of
payment and performance and not of collection. Notwithstanding anything to the contrary contained
herein, IHR’s liability shall extend to all amounts and performance of all of its obligations under
this Joinder notwithstanding the fact that this Agreement become unenforceable or not allowable due
to the existence of a bankruptcy, reorganization or similar proceeding.

     IHR hereby represents, warrants and certifies to the III Manager and the III Non-Managing
Member and the Company as follows: (i) the execution, delivery and performance under this Joinder
by IHR will not violate any provision of any law, regulation, order or decree of any governmental
authority, bureau or agency or of any court binding on IHR, or of any contract, undertaking or
agreement to which IHR is a party or which is binding on IHR, or of any contract, undertaking or
agreement to which IHR is a party or which is binding upon or any of its

 

 

property or assets, (ii) this Agreement, with respect to this Joinder, has been duly
authorized, executed and delivered by IHR and constitutes a legal, valid and binding obligation of
IHR, enforceable against IHR in accordance with its terms, subject as to enforcement of remedies to
any applicable bankruptcy, reorganization, moratorium or other laws affecting the enforcement of
creditors’ rights generally and doctrines of equity affecting the availability of specific
enforcement as a remedy; and (iii) all necessary resolutions, consents, licenses, approvals and
authorizations of any Person required in connection with the execution, delivery and performance of
this Joinder have been duly obtained and are in full force and effect.

	 	 	 	 	 
	 	INTERSTATE HOTELS & RESORTS, INC.

 	 
	 	By:  	/s/  James
A. Crolle III  	 
	 	 	Name:  	James
A. Crolle III 	 
	 	 	Title:  	Assistant General Counsel 	 
	 

 

 

JOINDER BY INVESTCORP PROPERTIES LIMITED

     INVESTCORP PROPERTIES LIMITED, a Delaware corporation (“IPL”) is executing this Agreement for
the purposes of guaranteeing the payment and performance of the terms of Section 4.06(c).
IPL hereby guarantees to the Company and the Partner Non-Managing Member the due and punctual
payment and performance of the obligations of the III Manager and the III Non-Managing Member
(collectively, the “Investcorp Member”) under Section 4.06(c).

     The terms of this Joinder and IPL’s obligations hereunder are a continuing and irrevocable
obligation of IPL and shall remain in full force during the term of the Agreement until payment,
performance and/or observation in full of the obligations hereunder. IPL’s guaranty and liability
under this Joinder are absolute and unconditional and shall not be affected, released, terminated,
discharged or impaired, in whole or in part, by any or all of the following: (i) any lack of
genuineness, regularity, validity, legality or enforceability, or the voidability of, this
Agreement; (ii) the failure of the Company or any Member to exercise or to exhaust any right or
remedy or take any action against any Person or any collateral or other security available to it;
(iii) any amendment or modification of the terms of this Agreement; (iv) any failure or delay of
the Company or the Members to exercise, or any lack of diligence in exercising, any right or remedy
with respect to this Agreement; (v) any dealings or transactions between the Company and/or any of
the Members or any of their Affiliates relating to this Agreement, whether or not IPL shall be a
party to or cognizant of the same; (vi) the failure to give IPL notice of any breach; and/or (vii)
any other circumstance which might constitute a legal or equitable discharge or defense available
to the Investcorp Member, whether similar or dissimilar to the foregoing, other than the defense of
(a) payment and performance, or (b) the claim against the Investcorp Member is not due and owing
under the terms of this Agreement or that the Investcorp Member has performed. IPL expressly
waives the following: (a) notice of acceptance of this Agreement; (b) any requirement of
promptness, diligence, presentment, protest, notice of dishonor, notice of demand and notice of
acceptance; (c) the right to trial by jury in any action or proceeding of any kind arising on,
under, out of, or by reason of or relating, in any way, to its obligations under this Joinder, or
the interpretation, breach or enforcement of such obligations; and (d) all rights of subrogation
and any other claims that it may now or hereafter acquire against the Investcorp Member or any
insider that arise from the existence, payment, performance or enforcement of IPL’s obligations
under this Joinder until such time as IPL’s obligations under this Joinder are performed and paid
in full. IPL’s guaranty under this Joinder is a present guaranty of payment and performance and
not of collection. Notwithstanding anything to the contrary contained herein, IPL’s liability
shall extend to all amounts and performance of all of its obligations under this Joinder
notwithstanding the fact that this Agreement become unenforceable or not allowable due to the
existence of a bankruptcy, reorganization or similar proceeding.

     IPL hereby represents, warrants and certifies to the Partner Non-Managing Member and the
Company as follows: (i) the execution, delivery and performance under this Joinder by IPL will not
violate any provision of any law, regulation, order or decree of any governmental authority, bureau
or agency or of any court binding on IPL, or of any contract, undertaking or agreement to which IPL
is a party or which is binding on IPL, or of any contract, undertaking or

 

 

agreement to which IPL is a party or which is binding upon or any of its property or assets, (ii) this Agreement, with respect to this Joinder, has been duly authorized, executed and delivered
by IPL and constitutes a legal, valid and binding obligation of IPL, enforceable against IPL in
accordance with its terms, subject as to enforcement of remedies to any applicable bankruptcy,
reorganization, moratorium or other laws affecting the enforcement of creditors’ rights generally
and doctrines of equity affecting the availability of specific enforcement as a remedy; and (iii)
all necessary resolutions, consents, licenses, approvals and authorizations of any Person required
in connection with the execution, delivery and performance of this Joinder have been duly obtained
and are in full force and effect.

	 	 	 	 	 
	 	INVESTCORP PROPERTIES LIMITED, a Delaware corporation

 	 
	 	By:  	/s/  John
R. Fraser 	 
	 	 	Name:  	John R. Fraser 	 
	 	 	Title:  	President 	 

 

 

	 	 	 	 	 

EXHIBIT “1”

PROPERTY DESCRIPTION

 

 

EXHIBIT “2”

INITIAL BUSINESS PLAN

 

 

EXHIBIT “3”

SOURCES AND USES

 

 

EXHIBIT “4”

RESTRICTED AREA

 

 

EXHIBIT “5”

[INTENTIONALLY BLANK]

 

 

EXHIBIT “A”

PERCENTAGE INTERESTS

	 	 	 	 	 
	Member	 	Percentage Interest	 
	HOTEL INVEST DEUCE LP, LLC
	 	 	84	%
	 
	 	 	 	 
	INTERSTATE INVEST, LLC
	 	 	15	%
	 
	 	 	 	 
	HOTEL INVEST DEUCE MM HOLDINGS, LLC
	 	 	1	%
	 
	 	 	 
	 
	 	 	 	 
	 
	 	 	100	%

 

 

EXHIBIT “B”

CAPITAL CONTRIBUTIONS

	 	 	 	 	 
	Member	 	Contribution	 
	HOTEL INVEST DEUCE LP, LLC
	 	$	24,328,343.01	 
	 
	 	 	 	 
	HOTEL INVEST DEUCE MM, LLC
	 	$	289,623.13	 
	 
	 	 	 	 
	INTERSTATE INVEST, LLC
	 	$	4,344,346.97	 
	 
	 	 	 
	 
	 	 	 	 
	TOTAL
	 	$	28,962,313.11	 

 

 

EXHIBIT “C”

TAX ALLOCATIONS

     Section 1. Allocations Of Profits And Losses.

     1.1 In General. For accounting and federal, state and local income tax purposes, all
Profits and Losses shall be determined and allocated with respect to each year of the Company as of
the end of such year and at such other times as the Manager shall determine. Subject to the other
provisions of this Agreement, an allocation to a Member of a share of Profits or Losses shall be
treated as an allocation of the same share of each item of income, gain, loss or deduction that is
taken into account in computing Profits or Losses.

     1.2 Allocations of Profits and Losses. After giving effect to the special allocations
set forth in Section 2 of this Exhibit C, Profits and Losses with respect to any
year shall be allocated to the Members as follows:

     1.2.1 First, Profits (or items thereof) shall be allocated to those Members having deficit
balances in their Capital Accounts (computed after taking into account all distributions with
respect to such taxable period and after adding back each Members’ share of Company Minimum Gain
and Member Minimum Gain) in proportion to such deficit balances until such deficit balances have
been eliminated;

     1.2.2 Second, any remaining Profits and Losses shall be allocated among the Members such that
each Member’s Capital Account balance (computed after taking into account all distributions with
respect to such taxable period and increased by such Members’ share of Company Minimum Gain and
Member Minimum Gain), would, as nearly as possible, be equal to the amount that each Member would
receive if all of the remaining assets of the Company were sold for their Book Basis, all
liabilities of the Company were satisfied (limited, with respect to nonrecourse liabilities, to the
Book Basis of the assets securing such liabilities) and the remaining assets were distributed
pursuant to Section 8.01 of the Agreement, all as of the last day of the period for which
the allocations are being made.

     1.3 Allocations in Anticipation of Liquidation. Notwithstanding Section 1.2,
in any year in which the Company sells substantially all of its assets or liquidates (or in any
prior open year if the Manager reasonably believes it necessary to accomplish the purposes of this
Section 1.3), each Member shall be allocated Profits or Losses (or items thereof) to the
extent necessary to cause its Capital Account balance to reflect the amount that will be
distributable to such Member in liquidation of the Company pursuant to the Agreement.

     Section 2. Regulatory Allocations.

     2.1 Minimum Gain Chargeback. The Manager shall allocate items of Company income and
gain among the Members at such times and in such amounts as necessary to satisfy the minimum gain
chargeback requirements of Regulation Sections 1.704-2(f) and 1.704-2(i)(4).

 

 

     2.2 Qualified Income Offset. The Manager shall specially allocate Losses and items of
income and gain when and to the extent required to satisfy the “qualified income offset”
requirement within the meaning of Regulation Section 1.704-1(b)(2)(ii)(d).

     2.3 Loss Allocations. No allocation of Losses, or items thereof, will be made to any
Member if such allocation would create or increase such Members’ Adjusted Capital Account Deficit.
Any such disallowed allocation will be made to the Members entitled to receive such allocation
under the Section 704(b) Regulations. Any Member that would have a deficit balance in its Capital
Account in excess of any amount such Member is obligated to restore, or is deemed obligated to
restore under Regulation Sections 1.704-2(g)(1) and 1.704-2(i)(5), will be specially allocated
items of income and gain to eliminate such deficit balance as quickly as possible.

     2.4 Nonrecourse Deductions. Nonrecourse Deductions (within the meaning of Regulation
Section 1.704-2) will be allocated (as nearly as possible) among the Members pro-rata in proportion
to their respective Percentage Interests.

     2.5 Member Nonrecourse Deductions. Member Nonrecourse Deductions, within the meaning
of Regulation Section 1.704-2(i), shall be allocated to the Member who has the economic risk of
loss in a manner consistent with requirements of Regulation Sections 1.704-2(i)(2) and
1.704-2(j)(l).

     2.6 Code Section 754 Adjustment. To the extent an adjustment to the tax basis of any
Company asset pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to
Regulation Section 1.704-l(b)(2)(iv)(m), to be taken into account in determining Capital Accounts,
the amount of the adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment decreases basis), and the
gain or loss shall be specially allocated to the Members in a manner consistent with the manner in
which their Capital Accounts are required to be adjusted pursuant to that Section of the
Regulations.

     2.7 Guaranteed Payments. To the extent any compensation paid to any Member by the
Company is determined by the Internal Revenue Service not to be a guaranteed payment under Code
Section 707(c) or is not paid to the Member other than in the Person’s capacity as a Member within
the meaning of Code Section 707(a), the Member shall be specially allocated gross income of the
Company in an amount equal to the amount of that compensation, and the Member’s Capital Account
shall be adjusted to reflect the payment of that compensation.

     Section 3. Special Rules.

     3.1. Tax Allocations. Except as provided in Section 3.2 hereof, for federal,
state and local income tax purposes, Company income, gain, loss, deduction or expense (or any item
thereof) for each year shall be allocated to and among the Members to reflect the allocations made
pursuant to the provisions of this Exhibit C for such year.

     3.2. Section 704(c) Compliance. In accordance with Section 704(c) of the Code and the
applicable Regulations thereunder, income, gain, loss, deduction and tax depreciation with

 

 

respect
to any property which has a Book Basis different than its adjusted tax basis, will, solely for
federal income tax purposes, be allocated among the Members in accordance with Section
704(c) of the Code and the Regulations thereunder to take into account such difference, using
any method selected in the reasonable determination of the Manager.

     3.3. Modifications. The Manager shall be authorized to make appropriate amendments to
the allocations of items pursuant to this Exhibit C if necessary in order to comply with
Section 704 of the Code or applicable Regulations thereunder; provided that no such change shall
have a material adverse effect upon the amount distributable to any Member hereunder.

     3.4 Allocations on Transfer of Interests. In the event there is any Transfer of a
Member’s Membership Interest during any year, Profits, Losses and other items shall be allocated
among the Members from time to time during such year in accordance with Code Section 706 using any
convention permitted by law and selected in the reasonable discretion of the Manager.

     Section 4. Capital Accounts.

     4.1. Establishment and Maintenance. A separate Capital Account will be maintained for
each Member pursuant to the requirements set forth in Regulation Section 1.704-1(b)(2)(iv). The
Capital Account of each Member will be determined and adjusted as follows:

          4.1.1. Each Member’s Capital Account will be credited with the fair market value of a Member’s
Capital Contributions, the Member’s distributive share of Profits, and the amount of any Company
liabilities that are assumed by the Member or secured by any Company property distributed to the
Member.

          4.1.2. Each Member’s Capital Account will be debited with the amount of cash and the Book
Basis of any Company property distributed to the Member under any provision of this Agreement, the
Member’s distributive share of Losses and the amount of any liabilities of the Member assumed by
the Company or which are secured by any property contributed by the Member to the Company.

          4.1.3. The Capital Account of the Member also shall be adjusted appropriately to reflect any
other adjustment required pursuant to Regulation Section 1.704-1 or 1.704-2, including, without
limitation, the requirements set forth in Regulation Sections 1.704-1(b)(2)(iv)(g) and
1.704-1(b)(2)(iv)(m).

          4.1.4. If any Membership Interest is transferred in accordance with the terms of the
Agreement, the transferee will succeed to the Capital Account of the transferor to the extent it
relates to the transferred interest.

     Section 5. Other Matters.

     5.1. Distributions in Kind. If any assets of the Company are distributed in kind
pursuant to this Agreement, the amount of Profit or Loss that would have been realized had such

 

 

assets been sold at their fair market value shall be allocated to the Capital Accounts of the
Members pursuant to this Exhibit C immediately prior to such distribution.

     5.2. Classification as a Partnership. The Manager shall not make an election to treat
the Company as an association pursuant to Regulation Section 301.7701-3 (and thus a corporation
under Regulation Section 301.7701-2(b)(2)).

     5.3. Fiscal Year. Except as otherwise required by the Code, the Fiscal Year of the
Company for tax and accounting purposes shall be the 12 month (or shorter) period ending on the
last day of December of each year.

     Section 6. Definitions.

     Unless otherwise defined in this Exhibit C, all capitalized terms shall have the
meanings ascribed to such terms in the Agreement or Exhibit A.

     “Adjusted Capital Account Deficit” means, with respect to any Member for any taxable
year, the deficit balance, if any, in such Member’s Capital Account as of the end of such taxable
year, as the same is specially computed to reflect the adjustments required or permitted to be
taken into account in applying Regulations Section 1.704-1(b)(2)(ii)(d) (including any amount such
Member is obligated to restore or is deemed obligated to restore under Regulation Section
1.704-2(g)(1) and 1.704-2(i)(5)).

     “Book Basis” means, with respect to any asset, the asset’s adjusted basis for federal
income tax purposes; provided, however, (a) if property is contributed to the Company, the initial
Book Basis of such Property will equal its fair market value on the date of contribution, and (b)
if the Capital Accounts of the Company are adjusted pursuant to Regulation Section 1.704-1(b) to
reflect the fair market value of any Company assets, the Book Basis of such assets will be adjusted
to equal its respective fair market value as of the time of such adjustment in accordance with such
Regulation. The Book Basis of all assets will be further adjusted thereafter by depreciation or
amortization as provided in Regulation Section 1.704-1(b)(2)(iv)(g).

     “Code” means the Internal Revenue Code of 1986, as amended from time to time.

     “Company Minimum Gain” means “partnership minimum gain” as defined in Regulation
Section 1.704-2(b)(2).

     “Member Minimum Gain” means “partner nonrecourse debt minimum gain” as defined in
Regulation Section 1.704-2(i)(2).

     “Member Nonrecourse Debt” means “partner nonrecourse debt” as defined in Regulation
Section 1.704-2(b)(4).

     “Profits” and “Losses” mean, for each taxable year or other period, an amount
equal to the Company’s taxable income or loss for the year or other period, determined in
accordance with Section 703(a) of the Code (including all items of income, gain, loss or deduction
required to be stated separately under Section 703(a)(1) of the Code), with the following
adjustments:

 

 

     (a) Any income of the Company that is exempt from federal income tax and not otherwise taken
into account in computing Profits or Losses will be added to taxable income or loss;

     (b) Any expenditures of the Company described in Section 705(a)(2)(B) of the Code or treated
as Section 705(a)(2)(B) expenditures under Regulation Section 1.704-1(b)(2)(iv)(i), and not
otherwise taken into account in computing Profits or Losses, will be subtracted from taxable income
or loss;

     (c) Gain or loss resulting from any disposition of Company property with respect to which gain
or loss is recognized for federal income tax purposes will be computed by reference to the Book
Basis of the property, notwithstanding that the adjusted tax basis of the property differs from its
Book Basis;

     (d) Any depreciation, amortization and other cost recovery deductions shall be subject to the
rules set forth in Regulations Section 1.704-1(b)(2)(iv)(g); and

     (e) Profits or Losses of the Company shall be computed without regard to the amount of any
items of gross income, gain, loss or deduction that are specially allocated under Section 2
hereof.

     “Regulations” means the regulations promulgated by the United States Department of the
Treasury pursuant to and in respect of provisions of the Code. All references herein to sections
of the Regulations shall include any corresponding provisions of succeeding, similar, substitute
proposed or final Regulations.exv10w20xhy

 

Exhibit 10.20(h)

ALLIED CAPITAL 401(K) PLAN

ADOPTION AGREEMENT #005

NONSTANDARDIZED 401(k) PROFIT SHARING PLAN

          The undersigned, Allied Capital Corporation (“Employer”), by executing this Adoption
Agreement, elects to establish a retirement plan and trust (“Plan”) under the Wachovia Bank,
National Association (basic plan document
# 01 ). The Employer, subject to the Employer’s Adoption Agreement elections, adopts fully the
Prototype Plan and Trust provisions. This Adoption Agreement, the basic plan document and any
attached appendices or addenda, constitute the Employer’s entire plan and trust document. All
section references within this Adoption Agreement are Adoption Agreement section references unless
the Adoption Agreement or the context indicate otherwise. All article references are basic plan
document and Adoption Agreement references as applicable. Numbers in parenthesis which follow
headings are references to basic plan document sections. The Employer makes the following elections
granted under the corresponding provisions of the basic plan document.

ARTICLE I

DEFINITIONS

	1.	 	PLAN (1.21). The name of the Plan as adopted by the Employer is Allied Capital 401(k) Plan.
	 
	2.	 	TRUSTEE (1.33). The Trustee executing this Adoption Agreement is: (Choose one of (a), (b) or
(c))
	 
	o	 	(a) A discretionary Trustee. See Plan Section 10.03[A].
	 
	þ	 	(b) A nondiscretionary Trustee. See Plan Section 10.03[B].
	 
	o	 	(c) A Trustee under a separate trust agreement. See Plan Section 10.03[G].

3.
      EMPLOYEE (1.11). The following Employees are not eligible to participate in the Plan: (Choose
(a) or one or more of (b) through (g) as applicable)

	o	 	(a) No exclusions.
	 
	þ	 	(b) Collective bargaining Employees.
	 
	þ	 	(c) Nonresident aliens.
	 
	þ	 	(d) Leased Employees.
	 
	þ	 	(e) Reclassified Employees.
	 
	o	 	(f) Classifications:          .
	 
	o	 	(g) Exclusions by types of contributions. The following classification(s) of Employees are
not eligible for the specified contributions:

Employee classification:          

Contribution type:          

4.       COMPENSATION (1.07). The Employer makes the following election(s) regarding the definition of
Compensation for purposes of the contribution allocation formula under Article III: (Choose one of
(a), (b) or (c))

	o	 	(a) W-2 wages increased by Elective Contributions.
	 
	o	 	(b) Code §3401(a) federal income tax withholding wages increased by Elective Contributions.
	 
	þ	 	(c) 415 compensation.

[Note: Each of the Compensation definitions in (a), (b) and (c) includes Elective Contributions.
See Plan Section 1.07(D). To exclude Elective Contributions, the Employer must elect (g).]

Compensation taken into account. For the Plan Year in which an Employee first becomes a
Participant, the Plan Administrator will determine the allocation of Employer contributions
(excluding deferral contributions) by taking into account: (Choose one of (d) or (e))

	o	 	(d) Plan Year. The Employee’s Compensation for the entire Plan Year.

© Copyright 2001 Wachovia Bank, National Association

 

 

Allied Capital 401(k) Plan

	þ	 	(e) Compensation while a Participant. The Employee’s Compensation only for the portion of the
Plan Year in which the Employee actually is a Participant.

Modifications to Compensation definition. The Employer elects to modify the Compensation definition
elected in (a), (b) or (c) as follows. (Choose one or more of (f) through (n) as applicable. If the
Employer elects to allocate its nonelective contribution under Plan Section 3.04 using permitted
disparity, (i), (j), (k) and (l) do not apply):

	o	 	(f) Fringe benefits. The Plan excludes all reimbursements or other expense allowances,
fringe benefits (cash and noncash), moving expenses, deferred compensation and welfare
benefits.
	 
	o	 	(g) Elective Contributions. The Plan excludes a Participant’s Elective Contributions. See
Plan Section 1.07(D).
	 
	o	 	(h) Exclusion. The Plan excludes Compensation in excess of:          .
	 
	o	 	(i) Bonuses. The Plan excludes bonuses.
	 
	o	 	(j) Overtime. The Plan excludes overtime.
	 
	o	 	(k) Commissions. The Plan excludes commissions.
	 
	o	 	(l) Nonelective contributions. The following modifications apply to the definition of
Compensation for nonelective contributions:          .
	 
	o	 	(m) Deferral contributions. The following modifications apply to the definition of
Compensation for deferral contributions:          .
	 
	o	 	(n) Matching contributions. The following modifications apply to the definition of
Compensation for matching contributions:          .

5.       PLAN YEAR/LIMITATION YEAR (1.24). Plan Year and Limitation Year mean the 12-consecutive month
period (except for a short Plan Year) ending every: (Choose (a) or (b). Choose (c) if applicable)

	þ	 	(a) December 31.
	 
	o	 	(b) Other:          .
	 
	o	 	(c) Short Plan Year: commencing on:           and ending on:          .

6.       EFFECTIVE DATE (1.10). The Employer’s adoption of the Plan is a: (Choose one of (a) or (b))

	o	 	(a) New Plan. The Effective Date of the Plan is:          .
	 
	þ	 	(b) Restated Plan. The restated Effective Date is: January 1, 2008.
	 
	 	 	This Plan is an amendment and restatement of an existing retirement plan(s) originally
established effective as of: Original Effective Date, September 1, 1999 .

7.       HOUR OF SERVICE/ELAPSED TIME METHOD (1.15). The crediting method for Hours of Service is:
(Choose one or more of (a) through (d) as applicable)

	þ	 	(a) Actual Method. See Plan Section 1.15(B).
	 
	o	 	(b) Equivalency Method. The Equivalency Method is:          . [Note: Insert “daily,” “weekly,”
“semi-monthly payroll periods” or “monthly.”] See Plan Section 1.15(C).
	 
	o	 	(c) Combination Method. In lieu of the Equivalency Method specified in (b), the Actual
Method applies for purposes of:          .

© Copyright 2001 Wachovia Bank, National Association

2

 

Allied Capital 401(k) Plan

	o	 	(d) Elapsed Time Method. In lieu of crediting Hours of Service, the Elapsed Time Method
applies for purposes of crediting Service for: (Choose one or more of (1), (2) or (3) as
applicable)

	 	o	 	(1) Eligibility under Article II.
	 
	 	o	 	(2) Vesting under Article V.
	 
	 	o	 	(3) Contribution allocations under Article III.

8.       PREDECESSOR EMPLOYER SERVICE (1.30). In addition to the predecessor service the Plan must credit
by reason of Section 1.30 of the Plan, the Plan credits as Service under this Plan, service with
the following predecessor employer(s): N/A .

[Note: If the Plan does not credit any additional predecessor service under this Section 1.30,
insert “N/A” in the blank line. The Employer also may elect to credit predecessor service with
specified Participating Employers only. See the Participation Agreement.] Service with the
designated predecessor employer(s) applies: (Choose one or more of (a) through (d) as applicable)

	o	 	(a) Eligibility. For eligibility under Article II. See Plan Section 1.30 for time of Plan entry.
	 
	o	 	(b) Vesting. For vesting under Article V.
	 
	o	 	(c) Contribution allocation. For contribution allocations under Article III.
	 
	o	 	(d) Exceptions. Except for the following Service:          .

ARTICLE II

ELIGIBILITY REQUIREMENTS

9.       ELIGIBILITY (2.01).

Eligibility conditions. To become a Participant in the Plan, an Employee must satisfy the following
eligibility conditions:
(Choose one or more of (a) through (e) as applicable) [Note: If the Employer does not elect (c),
the Employer’s elections under (a) and (b) apply to all types of contributions. The Employer as to
deferral contributions may not elect (b)(2) and may not elect more than 12 months in (b)(4) and
(b)(5).]

	þ	 	(a) Age. Attainment of age 21 (not to exceed age 21).
	 
	þ	 	(b) Service. Service requirement. (Choose one of (1) through (5))

	 	o	 	(1) One Year of Service.
	 
	 	o	 	(2) Two Years of Service, without an intervening Break in Service. See Plan Section 2.03(A).
	 
	 	þ	 	(3) One Hour of Service (immediate completion of Service requirement). The Employee
satisfies the Service requirement on his/her Employment Commencement Date.
	 
	 	o	 	(4)            months (not exceeding 24).
	 
	 	o	 	(5) An Employee must complete            Hours of Service within the            time period following the
Employee’s Employment Commencement Date. If an Employee does not complete the stated Hours
of Service during the specified time period (if any), the Employee is subject to the One
Year of Service requirement. [Note: The number of hours may not exceed 1,000 and the time
period may not exceed 24 months. If the Plan does not require the Employee to satisfy the
Hours of Service requirement within a specified time period, insert “N/A” in the second
blank line.]

	o	 	(c) Alternative 401(k)/401(m) eligibility conditions. In lieu of the elections in (a) and
(b), the Employer elects the following eligibility conditions for the following types of
contributions: (Choose (1) or (2) or both if the Employer wishes to impose less restrictive
eligibility conditions for deferral/Employee contributions or for matching contributions)

	 	(1)	o 	Deferral/Employee contributions: (Choose one of a. through d. Choose e. if
applicable)
	 
	 	a.	o 	One Year of Service
	 
	 	b.	o 	One Hour of Service (immediate completion of Service
requirement)
	 
	 	c.	o 	           months (not exceeding 12)

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Allied Capital 401(k) Plan

	 	d.	o 	An Employee must complete            Hours of Service within the            time period following an
Employee’s Employment Commencement Date. If an Employee does not complete the stated
Hours of Service during the specified time period (if any), the Employee is subject to
the One Year of Service requirement. [Note: The number of hours may not exceed 1,000
and the time period may not exceed 12 months. If the Plan does not require the Employee
to satisfy the Hours of Service requirement within a specified time period, insert
“N/A” in the second blank line.]
	 
	 	e.	o 	Age            (not exceeding age 21)
	 
	 	(2)	o 	Matching contributions: (Choose one of f. through i. Choose j. if applicable)
	 
	 	f.	o 	One Year of Service
	 
	 	g.	o 	One Hour of Service (immediate completion of Service
requirement)
	 
	 	h.	o 	           months (not exceeding 24)
	 
	 	i.	o 	An Employee must complete            Hours of
Service within the
           time period following an Employee’s Employment Commencement Date. If
an Employee does not complete the stated Hours of Service during the specified time
period (if any), the Employee is subject to the One Year of Service requirement. [Note:
The number of hours may not exceed 1,000 and the time period may not exceed 24 months.
If the Plan does not require the Employee to satisfy the Hours of Service requirement
within a specified time period, insert “N/A” in the second blank line.]
	 
	 	j.	o 	Age            (not exceeding age 21)

	o	 	(d) Service requirements:          .

[Note: Any Service requirement the Employer elects in (d) must be available under other
Adoption Agreement elections or a combination thereof.]
	 
	o	 	(e) Dual eligibility. The eligibility conditions of this Section 2.01 apply solely to an
Employee employed by the
Employer after           . If the Employee was employed by the Employer by the specified date, the
Employee will become a Participant on the latest of: (i) the Effective Date; (ii) the
restated Effective Date; (iii) the Employee’s Employment Commencement Date; or (iv) on the
date the Employee attains age            (not exceeding age 21).

Plan Entry Date. “Plan Entry Date” means the Effective Date and: (Choose one of (f) through (j).
Choose (k) if applicable) [Note: If the Employer does not elect (k), the elections under (f)
through (j) apply to all types of contributions. The Employer must elect at least one Entry Date
per Plan Year.]

	o	 	(f) Semi-annual Entry Dates. The first day of the Plan Year and the first day of the
seventh month of the Plan Year.
	 
	o	 	(g) The first day of the Plan Year.
	 
	þ	 	(h) Employment Commencement Date (immediate eligibility).
	 
	o	 	(i) The first day of each:            (e.g., “Plan Year quarter”).
	 
	o	 	(j) The following Plan Entry Dates:          .
	 
	o	 	(k) Alternative 401(k)/401(m) Plan Entry Date(s). For the alternative 401(k)/401(m)
eligibility conditions under (c),
Plan Entry Date means: (Choose (1) or (2) or both as applicable)

	 	(1)	 	o Deferral/Employee contributions

     (Choose one of a. through d.)

	 	a.	 	o Semi-annual Entry Dates
	 
	 	b.	 	o The first day of the Plan Year
	 
	 	c.	 	o Employment Commencement Date (immediate eligibility)
	 
	 	d.	 	o The first day of each:           

	 	(2)	 	o Matching contributions 

     (Choose one of e. through h.)

	 	e.	 	o Semi-annual Entry Dates
	 
	 	f.	 	o The first day of the Plan Year
	 
	 	g.	 	o Employment Commencement Date (immediate eligibility)
	 
	 	h.	 	o The first day of each:           

Time of participation. An Employee will become a Participant, unless excluded under Section 1.11,
on the Plan Entry Date (if employed on that date): (Choose one of (l), (m) or (n). Choose (o) if
applicable): [Note: If the Employer does not elect (o), the election under (l), (m) or (n) applies
to all types of contributions.]

	þ	 	(l) Immediately following or coincident with
	 
	o	 	(m) Immediately preceding or coincident with
	 
	o	 	(n) Nearest

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	o	 	(o) Alternative 401(k)/401(m) election(s): (Choose (1) or (2) or both as applicable)

	 	(1)	 	o Deferral contributions

	 	a.	 	o Immediately following or coincident with

	 	(2)	 	o Matching contributions 

     (Choose one of b., c. or d.)

	 	b.	 	o Immediately following or coincident with
	 
	 	c.	 	o Immediately preceding or coincident with
	 
	 	d.	 	o Nearest

the date the Employee completes the eligibility conditions described in this Section 2.01. [Note:
Unless otherwise excluded under Section 1.11, an Employee must become a Participant by the earlier
of: (1) the first day of the Plan Year beginning after the date the Employee completes the age and
service requirements of Code §410(a); or (2) 6 months after the date the Employee completes those
requirements.]

10.     YEAR OF SERVICE — ELIGIBILITY (2.02). (Choose (a) and (b) as applicable): [Note: If the
Employer does not elect a Year of Service condition or elects the Elapsed Time Method, the Employer
should not complete (a) or (b).]

	o	 	(a) Year of Service. An Employee must complete            Hour(s) of Service during an eligibility
computation period to receive credit for a Year of Service under Article II: [Note: The number
may not exceed 1,000. If left blank, the requirement is 1,000.]
	 
	o	 	(b) Eligibility computation period. After the initial eligibility computation period
described in Plan Section 2.02, the
Plan measures the eligibility computation period as: (Choose one of (1) or (2))

	 	o	 	(1) The Plan Year beginning with the Plan Year which includes the first anniversary
of the Employee’s Employment Commencement Date.
	 
	 	o	 	(2) The 12-consecutive month period beginning with each anniversary of the
Employee’s Employment Commencement Date.

11.     PARTICIPATION — BREAK IN SERVICE (2.03). The one year hold-out rule described in Plan Section
2.03(B):
(Choose one of (a), (b) or (c))

	þ	 	(a) Not applicable. Does not apply to the Plan.
	 
	o	 	(b) Applicable. Applies to the Plan and to all Participants.
	 
	o	 	(c) Limited application. Applies to the Plan, but only to a Participant who has incurred a
Separation from Service.

12.     ELECTION NOT TO PARTICIPATE (2.06). The Plan: (Choose one of (a) or (b))

	þ	 	(a) Election not permitted. Does not permit an eligible Employee to elect not to participate.
	 
	o	 	(b) Irrevocable election. Permits an Employee to elect not to participate if the Employee
makes a one-time irrevocable election prior to the Employee’s Plan Entry Date.

ARTICLE III

EMPLOYER CONTRIBUTIONS, DEFERRAL CONTRIBUTIONS AND FORFEITURES

13.     AMOUNT AND TYPE (3.01). The amount and type(s) of the Employer’s contribution to the Trust for
a Plan Year or other specified period will equal: (Choose one or more of (a) through (f) as
applicable)

	þ	 	(a) Deferral contributions (401(k) arrangement). The dollar or percentage amount by which each
Participant has elected to reduce his/her Compensation, as provided in the Participant’s salary
reduction agreement and in accordance with Section 3.02.
	 
	o	 	(b) Matching contributions (other than safe harbor matching contributions under Section
3.01(d)). The matching contributions made in accordance with Section 3.03.
	 
	o	 	(c) Nonelective contributions (profit sharing). The following nonelective contribution
(Choose (1) or (2) or both as applicable): [Note: The Employer may designate as a qualified
nonelective contribution, all or any portion of its nonelective contribution. See Plan Section
3.04(F).]

	 	o	 	(1) Discretionary. An amount the Employer in its sole discretion may determine.

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Allied Capital 401(k) Plan

	 	o	 	(2) Fixed. The following amount:           

	þ	 	(d) 401(k) safe harbor contributions. The following 401(k) safe harbor contributions described
in Plan Section
14.02(D): (Choose one of (1), (2) or (3). Choose (4), if applicable)

	 	o	 	(1) Safe harbor nonelective contribution. The safe harbor nonelective contribution
equals      % of a Participant’s Compensation [Note: the amount in the blank must be at least
3%.].
	 
	 	o	 	(2) Basic safe harbor matching contribution. A matching contribution equal to 100%
of each Participant’s deferral contributions not exceeding 3% of the Participant’s
Compensation, plus 50% of each Participant’s deferral contributions in excess of 3% but
not in excess of 5% of the Participant’s Compensation. For this purpose, “Compensation”
means Compensation for:          . [Note: The Employer must complete the blank line with the
applicable time period for computing the Employer’s basic safe harbor match, such as “each
payroll period,” “each month,” “each Plan Year quarter” or “the Plan Year”.]
	 
	 	þ	 	(3) Enhanced safe harbor matching contribution. (Choose one of a. or b.).

	 	þ	 	a. Uniform percentage. An amount equal to 100% of each Participant’s deferral
contributions not exceeding 4% of the Participant’s Compensation. For this purpose,
“Compensation” means Compensation for: the Plan Year. [See the Note in (d)(2).]
	 
	 	o	 	b. Tiered formula. An amount equal to the specified matching percentage for
the corresponding level of each Participant’s deferral contribution percentage. For
this purpose, “Compensation” means Compensation for:          . [See the Note in (d)(2).]

	 	 	 
	Deferral Contribution Percentage	 	Matching Percentage
	                    
	 	                    
	                    
	 	                    
	                    
	 	                    

[Note: The matching percentage may not increase as the deferral contribution percentage increases
and the enhanced matching formula otherwise must satisfy the requirements of Code
§§401(k)(12)(B)(ii) and (iii). If the Employer wishes to avoid ACP testing on its enhanced safe
harbor matching contribution, the Employer also must limit deferral contributions taken into
account (the “Deferral Contribution Percentage”) for the matching contribution to 6% of Plan Year
Compensation.]

	 	o	 	(4) Another plan. The Employer will satisfy the 401(k) safe harbor contribution in
the following plan:          .

	o	 	(e) Davis-Bacon contributions. The amount(s) specified for the applicable Plan Year or
other applicable period in the Employer’s Davis-Bacon contract(s). The Employer will make a
contribution only to Participants covered by the contract and only with respect to
Compensation paid under the contract. If the Participant accrues an allocation of nonelective
contributions (including forfeitures) under the Plan in addition to the Davis-Bacon
contribution, the Plan Administrator will: (Choose one of (1) or (2))

	 	o	 	(1) Not reduce the Participant’s nonelective contribution allocation by the Davis-Bacon contribution.
	 
	 	o	 	(2) Reduce the Participant’s nonelective contribution allocation by the Davis-Bacon contribution.

	o	 	(f) Frozen Plan. This Plan is a frozen Plan effective:          . For any period following the
specified date, the Employer will not contribute to the Plan, a Participant may not contribute
and an otherwise eligible Employee will not become a Participant in the Plan.

14. DEFERRAL CONTRIBUTIONS (3.02). The following limitations and terms apply to an Employee’s
deferral contributions: (If the Employer elects Section 3.01(a), the Employer must elect (a).
Choose (b) or (c) as applicable)

	þ	 	(a) Limitation on amount. An Employee’s deferral contributions are subject to the following
limitation(s) in addition to those imposed by the Code: (Choose (1), (2) or (3) as applicable)

	 	o	 	(1) Maximum deferral amount:          .
	 
	 	o	 	(2) Minimum deferral amount:          .
	 
	 	þ	 	(3) No limitations.

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Allied Capital 401(k) Plan

For the Plan Year in which an Employee first becomes a Participant, the Plan Administrator will
apply any percentage limitation the Employer elects in (1) or (2) to the Employee’s Compensation:
(Choose one of (4) or (5) unless the Employer elects (3))

	 	o	 	(4) Only for the portion of the Plan Year in which the Employee actually is a Participant.
	 
	 	o	 	(5) For the entire Plan Year.

	o	 	(b) Negative deferral election. The Employer will
withhold        % from the Participant’s
Compensation unless the Participant elects a lesser percentage (including zero) under his/her
salary reduction agreement. See Plan Section 14.02(C). The negative election will apply to:
(Choose one of (1) or (2))

	 	o	 	(1) All Participants who have not deferred at least the automatic deferral amount as of:          .
	 
	 	o	 	(2) Each Employee whose Plan Entry Date is on or following the negative election effective date.

	o	 	(c) Cash or deferred contributions. For each Plan Year for which the Employer makes a
designated cash or deferred contribution under Plan Section 14.02(B), a Participant may elect
to receive directly in cash not more than the following portion (or, if less, the 402(g)
limitation) of his/her proportionate share of that cash or deferred contribution:
(Choose one of (1) or (2))

	 	o	 	(1) All or any portion.
	 
	 	o	 	(2)      %.

Modification/revocation of salary reduction agreement. A Participant prospectively may modify or
revoke a salary reduction agreement, or may file a new salary reduction agreement following a prior
revocation, at least once per Plan Year or during any election period specified by the basic plan
document or required by the Internal Revenue Service. The Plan Administrator also may provide for
more frequent elections in the Plan’s salary reduction agreement form.

15.     MATCHING CONTRIBUTIONS (INCLUDING ADDITIONAL SAFE HARBOR MATCH UNDER PLAN SECTION 14.02(D)(3))
(3.03). The Employer matching contribution is: (If the Employer elects Section 3.01(b), the
Employer must elect one or more of (a), (b) or (c) as applicable. Choose (d) if applicable)

	o	 	(a) Fixed formula. An amount equal to      % of each Participant’s deferral contributions.
	 
	o	 	(b) Discretionary formula. An amount (or additional amount) equal to a matching percentage
the Employer from time to time may deem advisable of the Participant’s deferral contributions.
The Employer, in its sole discretion, may designate as a qualified matching contribution, all
or any portion of its discretionary matching contribution. The portion of the Employer’s
discretionary matching contribution for a Plan Year not designated as a qualified matching
contribution is a regular matching contribution.
	 
	o	 	(c) Multiple level formula. An amount equal to the following percentages for each level of
the Participant’s deferral contributions. [Note: The matching percentage only will apply to
deferral contributions in excess of the previous level and not in excess of the stated
deferral contribution percentage.]

	 	 	 
	Deferral Contributions	 	Matching Percentage
	                    
	 	                    
	                    
	 	                    
	                    
	 	                    

	o	 	(d) Related Employers. If two or more Related Employers contribute to this Plan, the Plan
Administrator will allocate matching contributions and matching contribution forfeitures only
to the Participants directly employed by the contributing Employer. The matching contribution
formula for the other Related Employer(s) is:          . [Note: If the Employer does not elect (d), the
Plan Administrator will allocate all matching contributions and matching forfeitures without
regard to which contributing Related Employer directly employs the Participant.]

Time period for matching contributions. The Employer will determine its matching contribution
based on deferral contributions made during each: (Choose one of (e) through (h))

	o	 	(e) Plan Year.
	 
	o	 	(f) Plan Year quarter.
	 
	o	 	(g) Payroll period.
	 
	o	 	(h) Alternative time period:          . [Note: Any alternative time period the Employer elects in
(h) must be the same for all Participants and may not exceed the Plan Year.]

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Allied Capital 401(k) Plan

Deferral contributions taken into account. In determining a Participant’s deferral contributions
taken into account for the above-specified time period under the matching contribution formula, the
following limitations apply: (Choose one of (i), (j) or (k))

	o	 	(i) All deferral contributions. The Plan Administrator will take into account all deferral
contributions.
	 
	o	 	(j) Specific limitation. The Plan Administrator will disregard deferral contributions
exceeding      % of the Participant’s Compensation. [Note: To avoid the ACP test in a safe harbor
401(k) plan, the Employer must limit deferrals and Employee contributions which are subject to
match to 6% of Plan Year Compensation.]
	 
	o	 	(k) Discretionary. The Plan Administrator will take into account the deferral contributions
as a percentage of the Participant’s Compensation as the Employer determines.

Other matching contribution requirements. The matching contribution formula is subject to the
following additional requirements: (Choose (l) or (m) or both if applicable)

	o	 	(l) Matching contribution limits. A Participant’s matching contributions may not exceed:
(Choose one of (1) or (2))

	 	o	 	(1)           . [Note: The Employer may elect (1) to place an overall dollar or percentage
limit on matching contributions.]
	 
	 	o	 	(2) 4% of a Participant’s Compensation for the Plan Year under the discretionary
matching contribution formula. [Note: The Employer must elect (2) if it elects a
discretionary matching formula with the safe harbor 401(k) contribution formula and wishes
to avoid the ACP test.]

	o	 	(m) Qualified matching contributions. The Plan Administrator will allocate as qualified
matching contributions, the matching contributions specified in Adoption Agreement Section:          .
The Plan Administrator will allocate all other matching contributions as regular matching
contributions. [Note: If the Employer elects two matching formulas, the Employer may use (m)
to designate one of the formulas as a qualified matching contribution.]

16.
    CONTRIBUTION ALLOCATION (3.04).

Employer nonelective contributions (3.04(A)).The Plan Administrator will allocate the Employer’s
nonelective contribution under the following contribution allocation formula: (Choose one of (a),
(b) or (c). Choose (d) if applicable)

	o	 	(a) Nonintegrated (pro rata) allocation formula.
	 
	o	 	(b) Permitted disparity. The following permitted disparity formula and definitions apply to
the Plan: (Choose one of
(1) or (2). Also choose (3))

	 	o	 	(1) Two-tiered allocation formula.
	 
	 	o	 	(2) Four-tiered allocation formula.
	 
	 	o	 	(3) For purposes of Section 3.04(b), “Excess Compensation” means Compensation in
excess of: (Choose one of a. or b.)

	 	o	 	a.      % of the taxable wage base in effect on the first day of the Plan Year,
rounded to the next highest $      (not exceeding the taxable wage base).
	 
	 	o	 	b. The following integration level:          .

[Note: The integration level cannot exceed the taxable wage base in effect for the
Plan Year for which this Adoption Agreement first is effective.]

	o	 	(c) Uniform points allocation formula. Under the uniform points allocation formula, a
Participant receives: (Choose
(1) or both (1) and (2) as applicable)

	 	o	 	(1)            point(s) for each Year of Service. Year of Service means:          .
	 
	 	o	 	(2) One point for each $     [not to exceed $200] increment of Plan Year Compensation.

	o	 	(d) Incorporation of contribution formula. The Plan Administrator will allocate the
Employer’s nonelective contribution under Section(s) 3.01(c)(2), (d)(1) or (e) in accordance
with the contribution formula adopted by the Employer under that Section.

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Allied Capital 401(k) Plan

Qualified nonelective contributions. (3.04(F)). The Plan Administrator will allocate the Employer’s
qualified nonelective contributions to: (Choose one of (e) or (f))

	o	 	(e) Nonhighly compensated Employees only.
	 
	þ	 	(f) All Participants.

Related Employers. (Choose (g) if applicable)

	o	 	(g) Allocate only to directly employed Participants. If two or more Related Employers adopt
this Plan, the Plan
Administrator will allocate all nonelective contributions and forfeitures attributable to
nonelective contributions only to the Participants directly employed by the contributing
Employer. If a Participant receives Compensation from more than one contributing Employer,
the Plan Administrator will determine the allocations under this Section 3.04 by prorating
the Participant’s Compensation between or among the participating Related Employers. [Note:
If the Employer does not elect 3.04(g), the Plan Administrator will allocate all
nonelective contributions and forfeitures without regard to which contributing Related
Employer directly employs the Participant. The Employer may not elect 3.04(g) under a safe
harbor 401(k) Plan.]

17.
    FORFEITURE ALLOCATION (3.05). The Plan Administrator will allocate a Participant forfeiture:
(Choose one or more of (a), (b) or (c) as applicable) [Note: Even if the Employer elects immediate
vesting, the Employer should complete Section 3.05. See Plan Section 9.11.]

	þ	 	(a) Matching contribution forfeitures. To the extent attributable to matching contributions:
(Choose one of (1) through (4))

	 	o	 	(1) As a discretionary matching
contribution.
	 
	 	þ	 	(2) To reduce matching
contributions.
	 
	 	o	 	(3) As a discretionary nonelective contribution.
	 
	 	o	 	(4) To reduce nonelective contributions.

	þ	 	(b) Nonelective contribution forfeitures. To the extent attributable to Employer nonelective
contributions: (Choose one of (1) through (4))

	 	o	 	(1) As a discretionary nonelective contribution.
	 
	 	o	 	(2) To reduce nonelective contributions.
	 
	 	o	 	(3) As a discretionary matching
contribution.
	 
	 	þ	 	(4) To reduce matching
contributions.

	þ	 	(c) Reduce administrative expenses. First to reduce the Plan’s ordinary and necessary
administrative expenses for the Plan Year and then allocate any remaining forfeitures in the manner
described in Sections 3.05(a) or (b) as applicable.

Timing of forfeiture allocation. The Plan Administrator will allocate forfeitures under Section
3.05 in the Plan Year: (Choose one of (d) or (e))

	o	 	(d) In which the forfeiture occurs.
	 
	þ	 	(e) Immediately following the Plan Year in which the forfeiture occurs.

18.     ALLOCATION CONDITIONS (3.06).

Allocation conditions. The Plan does not apply any allocation conditions to deferral contributions,
401(k) safe harbor contributions (under Section 3.01(d)) or to Davis-Bacon contributions (except as
the Davis-Bacon contract provides). To receive an allocation of matching contributions, nonelective
contributions, qualified nonelective contributions or Participant forfeitures, a Participant must
satisfy the following allocation condition(s): (Choose one or more of (a) through (i) as
applicable)

	o	 	(a) Hours of Service condition. The Participant must complete at least the specified number
of Hours of Service (not exceeding 1,000) during the Plan Year:          .

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Allied Capital 401(k) Plan

	 	 	 
	o

	 	(b) Employment condition. The Participant must be employed by the Employer on the last day of the                     
(designate time period).
	 
	 	 
	o

	 	(c) No allocation conditions.
	 
	 	 
	o

	 	(d) Elapsed Time Method. The Participant must complete at least the specified number (not
exceeding 182) of consecutive calendar days of employment with the Employer during the Plan
Year:                     .
	 
	 	 
	o

	 	(e) Termination of Service/501 Hours of Service coverage rule. The Participant either must be
employed by the Employer on the last day of the Plan Year or must complete at least 501 Hours of
Service during the Plan Year. If the Plan uses the Elapsed Time Method of crediting Service, the
Participant must complete at least 91 consecutive calendar days of employment with the Employer
during the Plan Year.
	 
	 	 
	o

	 	(f) Special allocation conditions for matching contributions. The Participant must complete at
least                      Hours of Service during the                      (designate time period) for the matching contributions made for
that time period.
	 
	 	 
	o

	 	(g) Death, Disability or Normal Retirement Age. Any condition specified in Section 3.06                      applies
if the Participant incurs a Separation from Service during the Plan Year on account of:                      (e.g.,
death, Disability or Normal Retirement Age).
	 
	 	 
	o

	 	(h) Suspension of allocation conditions for coverage. The suspension of allocation conditions
of Plan Section 3.06(E) applies to the Plan.
	 
	 	 
	o

	 	(i) Limited allocation conditions. The Plan does not impose an allocation condition for the
following types of contributions:                     . [Note: Any election to limit the Plan’s allocation conditions
to certain contributions must be the same for all Participants, be definitely determinable and not
discriminate in favor of Highly Compensated Employees.]

ARTICLE IV

PARTICIPANT CONTRIBUTIONS

19.     EMPLOYEE (AFTER TAX) CONTRIBUTIONS (4.02). The following elections apply to Employee
contributions:
(Choose one of (a) or (b). Choose (c) if applicable)

	 	 	 
	þ

	 	(a) Not permitted. The Plan does not permit Employee contributions.
	 
	 	 
	o

	 	(b) Permitted. The Plan permits Employee contributions subject to the following
limitations:                     .
	 

	 	[Note: Any designated limitation(s) must be the same for all Participants,
be definitely determinable and not discriminate in favor of Highly Compensated
Employees.]
	 
	 	 
	o

	 	(c) Matching contribution. For each Plan Year, the Employer’s matching contribution made
with respect to Employee contributions is:                      .

ARTICLE V

VESTING REQUIREMENTS

20.
    NORMAL/EARLY RETIREMENT AGE (5.01). A Participant attains Normal Retirement Age (or Early
Retirement Age, if applicable) under the Plan on the following date: (Choose one of (a) or (b).
Choose (c) if applicable)

	 	 	 
	þ

	 	(a) Specific age. The date the Participant attains age 65 . [Note: The age may not exceed age 65.]
	 
	 	 
	o

	 	(b) Age/participation. The later of the date the Participant attains                      years of age or the                     
anniversary of the first day of the Plan Year in which the Participant commenced participation in
the Plan. [Note: The age may not exceed age 65 and the anniversary may not exceed the 5th.]
	 
	 	 
	o

	 	(c) Early Retirement Age. Early Retirement Age is the later of: (i) the date a Participant
attains age        or
(ii) the date a Participant reaches his/her                      anniversary of the first day of the
Plan Year in which the Participant commenced participation in the Plan.

21.     PARTICIPANT’S DEATH OR DISABILITY (5.02). The 100% vesting rule under Plan Section 5.02 does
not apply to:
(Choose (a) or (b) or both as applicable)

	 	 	 
	o

	 	(a) Death.
	 
	 	 
	o

	 	(b) Disability.

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Allied Capital 401(k) Plan

22.     VESTING SCHEDULE (5.03). A Participant has a 100% Vested interest at all times in his/her
deferral contributions, qualified nonelective contributions, qualified matching contributions,
401(k) safe harbor contributions and Davis-Bacon contributions (unless otherwise indicated in (f)).
The following vesting schedule applies to Employer regular matching contributions and to Employer
nonelective contributions: (Choose (a) or choose one or more of (b) through (f) as applicable)

	 	 	 
	o

	 	(a) Immediate vesting. 100% Vested at all times. [Note: The Employer must elect (a) if the
Service condition under Section 2.01 exceeds One Year of Service or more than twelve months.]
	 
	 	 
	o

	 	(b) Top-heavy vesting schedules. [Note: The Employer must choose one of (b)(1), (2) or (3) if it
does not elect (a).]

	 	 	 
	o

	 	(1) 6-year graded as specified in the Plan.
	 
	 	 
	o

	 	(2) 3-year cliff as specified in the Plan.
	 
	 	 
	o

	 	(3) Modified top-heavy schedule

	 	 	 	 	 
	Years of	 	Vested
	Service	 	Percentage
	Less than 1
	 	 	                     	%
	1
	 	 	                     	%
	2
	 	 	                     	%
	3
	 	 	                     	%
	4
	 	 	                     	%
	5
	 	 	                     	%
	6 or more
	 	 	100	%

	 	 	 
	o

	 	(c) Non-top-heavy vesting
schedules. [Note: The Employer may elect one of (c)(1),
(2) or (3) in addition to (b).]

	 	 	 
	o

	 	(1) 7-year graded as specified in the Plan.
	 
	 	 
	o

	 	(2) 5-year cliff as specified in the Plan.
	 
	 	 
	o

	 	(3) Modified non-top-heavy schedule

	 	 	 	 	 
	Years of	 	Vested
	Service	 	Percentage
	Less than 1
	 	 	                     	%
	1
	 	 	                     	%
	2
	 	 	                     	%
	3
	 	 	                     	%
	4
	 	 	                     	%
	5
	 	 	                     	%
	6
	 	 	                     	%
	7 or more
	 	 	100	%

If the Employer does not elect (c), the vesting schedule elected in (b) applies to all Plan Years.
[Note: The modified top-heavy schedule of (b)(3) must satisfy Code §416. If the Employer elects
(c)(3), the modified non-top-heavy schedule must satisfy Code §411(a)(2).]

	 	 	 
	o

	 	(d) Separate vesting election for regular matching contributions. In lieu of the election
under (a), (b) or (c), the following vesting schedule applies to a Participant’s regular
matching contributions: (Choose one of (1) or (2))

	 	 	 
	o

	 	(1) 100% Vested at all times.

© Copyright 2001 Wachovia Bank, National Association

11

 

Allied Capital 401(k) Plan

	 	 	 
	o

	 	(2) Regular matching vesting schedule:                     .
	 

	 	[Note: The vesting schedule completed under (d)(2) must comply with Code §411(a)(4).]

	 	 	 
	o

	 	(e) Application of top-heavy schedule. The non-top-heavy schedule elected under (c) applies
in all Plan Years in which the Plan is not a top-heavy plan. [Note: If the Employer does not
elect (e), the top-heavy vesting schedule will apply for the first Plan Year in which the Plan
is top-heavy and then in all subsequent Plan Years.]
	 
	 	 
	o

	 	(f) Special vesting provisions:                     . [Note: Any special vesting provision must satisfy Code
§411(a). Any special vesting provision must be definitely determinable, not discriminate in
favor of Highly Compensated Employees and not violate Code §401(a)(4).]

23.      YEAR OF SERVICE — VESTING (5.06). (Choose (a) and (b)): [Note: If the Employer elects the
Elapsed Time Method or elects immediate vesting, the Employer should not complete (a) or (b).]

	 	 	 
	o

	 	(a) Year of Service. An
Employee must complete at least                      Hours of Service during a vesting
computation period to receive credit for a Year of Service under Article V. [Note: The number
may not exceed 1,000. If left blank, the requirement is 1,000.]
	 
	 	 
	o

	 	(b) Vesting computation period. The Plan measures a Year of Service on the basis of the
following 12-consecutive month period: (Choose one of (1) or (2))

	 	 	 
	o

	 	(1) Plan Year.
	 
	 	 
	o

	 	(2) Employment year (anniversary of Employment Commencement Date).

24.      EXCLUDED YEARS OF SERVICE — VESTING (5.08). The Plan excludes the following Years of Service
for purposes of vesting: (Choose (a) or choose one or more of (b) through (f) as applicable)

	 	 	 
	o

	 	(a) None. None other than as specified in Plan Section 5.08(a).
	 
	 	 
	o

	 	(b) Age 18. Any Year of Service before the Year of Service during which the Participant
attained the age of 18.
	 
	 	 
	o

	 	(c) Prior to Plan establishment. Any Year of Service during the period the Employer did not
maintain this Plan or a predecessor plan.
	 
	 	 
	o

	 	(d) Parity Break in Service. Any Year of Service excluded under the rule of parity. See
Plan Section 5.10.
	 
	 	 
	o

	 	(e) Prior Plan terms. Any Year of Service disregarded under the terms of the Plan as in
effect prior to this restated Plan.
	 
	 	 
	o

	 	(f) Additional exclusions. Any Year of Service before:                     .
	 

	 	[Note: Any exclusion specified under (f) must comply with Code §411(a)(4). Any exclusion
must be definitely determinable, not discriminate in favor of Highly Compensated Employees
and not violate Code §401(a)(4). If the Employer elects immediate vesting, the Employer
should not complete Section 5.08.]

ARTICLE VI

DISTRIBUTION OF ACCOUNT BALANCE

25.      TIME OF PAYMENT OF ACCOUNT BALANCE (6.01). The following time of distribution elections apply
to the Plan:

Separation from Service/Vested Account Balance not exceeding $5,000. Subject to the limitations of
Plan Section 6.01(A)(1), the Trustee will distribute in a lump sum (regardless of the Employer’s
election under Section 6.04) a separated Participant’s Vested Account Balance not exceeding $5,000:
(Choose one of (a) through (d))

	 	 	 
	þ

	 	(a) Immediate. As soon as administratively practicable following the Participant’s Separation
from Service.
	 
	 	 
	o

	 	(b) Designated Plan Year. As
soon as administratively practicable in the                      Plan Year
beginning after the Participant’s Separation from Service.
	 
	 	 
	o

	 	(c) Designated Plan Year
quarter. As soon as administratively practicable in the                      Plan Year
quarter beginning after the Participant’s Separation from Service.
	 
	 	 
	o

	 	(d) Designated distribution.
As soon as administratively practicable in the:                      following the
Participant’s Separation from Service. [Note: The designated distribution time must be the
same for all Participants, be definitely determinable, not discriminate in favor of Highly
Compensated Employees and not violate Code §401(a)(4).]

© Copyright 2001 Wachovia Bank, National Association

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Allied Capital 401(k) Plan

Separation from Service/Vested Account Balance exceeding $5,000. A separated Participant whose
Vested Account Balance exceeds $5,000 may elect to commence distribution of his/her Vested Account
Balance no earlier than: (Choose one of (e) through (i). Choose (j) if applicable)

	 	 	 
	þ

	 	(e) Immediate. As soon as administratively practicable following the Participant’s Separation
from Service.
	 
	 	 
	o

	 	(f) Designated Plan Year. As
soon as administratively practicable in the
           Plan Year
beginning after the Participant’s Separation from Service.
	 
	 	 
	o

	 	(g) Designated Plan Year
quarter. As soon as administratively practicable in the
           Plan Year
quarter following the Plan Year quarter in which the Participant elects to receive a
distribution.
	 
	 	 
	o

	 	(h) Normal Retirement Age. As soon as administratively practicable after the close of the
Plan Year in which the
Participant attains Normal Retirement Age and within the time required under Plan Section
6.01(A)(2).
	 
	 	 
	o

	 	(i) Designated distribution.
As soon as administratively practicable in the:
           following the
Participant’s Separation from Service. [Note: The designated distribution time must be the
same for all Participants, be definitely determinable, not discriminate in favor of Highly
Compensated Employees and not violate Code §401(a)(4).]
	 
	 	 
	o

	 	(j) Limitation on Participant’s right to delay distribution. A Participant may not elect to
delay commencement of distribution of his/her Vested Account Balance beyond the later of
attainment of age 62 or Normal Retirement Age.
	 

	 	[Note: If the Employer does not elect (j), the Plan permits a Participant who has Separated
from Service to delay distribution until his/her required beginning date. See Plan Section
6.01(A)(2).]

Participant elections prior to Separation from Service. A Participant, prior to Separation from
Service may elect any of the following distribution options in accordance with Plan Section
6.01(C). (Choose (k) or choose one or more of (l) through (o) as applicable). [Note: If the
Employer elects any in-service distributions option, a Participant may elect to receive one
in-service distribution per Plan Year unless the Plan’s in-service distribution form provides for
more frequent in-service distributions.]

	 	 	 
	o

	 	(k) None. A Participant does not have any distribution option prior to Separation from
Service, except as may be provided under Plan Section 6.01(C).
	 
	 	 
	þ

	 	(l) Deferral contributions. Distribution of all or any portion (as permitted by the Plan) of a
Participant’s Account
Balance attributable to deferral contributions if: (Choose one or more of (1), (2) or (3)
as applicable)

	 	 	 
	þ

	 	(1) Hardship (safe harbor hardship rule). The Participant has incurred a hardship in
accordance with Plan Sections 6.09 and 14.11(A).
	 
	 	 
	þ

	 	(2) Age. The Participant has attained age 59 1/2 (Must be at least age 59 1/2).
	 
	 	 
	þ

	 	(3) Disability. The Participant has incurred a Disability.

	 	 	 
	þ

	 	(m) Qualified nonelective contributions/qualified matching contributions/safe harbor
contributions. Distribution of all or any portion of a Participant’s Account Balance attributable
to qualified nonelective contributions, to qualified matching contributions, or to 401(k) safe
harbor contributions if: (Choose (1) or (2) or both as applicable)

	 	 	 
	þ

	 	(1) Age. The Participant has attained age 59 1/2 (Must be at least age 59 1/2).
	 
	 	 
	þ

	 	(2) Disability. The Participant has incurred a Disability.

	 	 	 
	þ

	 	(n) Nonelective contributions/regular matching contributions. Distribution of all or any
portion of a Participant’s Vested Account Balance attributable to nonelective contributions or to
regular matching contributions if: (Choose one or more of (1) through (5) as applicable)

	 	 	 
	þ

	 	(1) Age/Service conditions. (Choose one or more of a. through d. as applicable):

	 	 	 
	þ

	 	a. Age. The Participant has attained age 59 1/2 .
	 
	 	 
	o

	 	b. Two-year allocations. The Plan Administrator has allocated the
contributions to be distributed for a period of not less than                      Plan Years before the
distribution date. [Note: The minimum number of years is 2.]
	 
	 	 
	o

	 	c. Five years of participation. The Participant has participated in the
Plan for at least                      Plan Years. [Note: The minimum number of years is 5.]

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Allied Capital 401(k) Plan

	 	 	 
	o

	 	d. Vested. The Participant is                     % Vested in his/her Account Balance. See Plan
Section 5.03(A). [Note: If an Employer makes more than one election under Section
6.01(n)(1), a Participant must satisfy all conditions before the Participant is
eligible for the distribution.]

	 	 	 
	o

	 	(2) Hardship. The Participant has incurred a hardship in accordance with Plan
Section 6.09.
	 
	 	 
	þ

	 	(3) Hardship (safe harbor hardship rule). The Participant has incurred a hardship in
accordance with Plan
Sections 6.09 and 14.11(A).
	 
	 	 
	þ

	 	(4) Disability. The Participant has incurred a Disability.
	 
	 	 
	o

	 	(5) Designated condition. The Participant has satisfied the following condition(s):                     .
	 

	 	[Note: Any designated condition(s) must be the same for all Participants, be definitely
determinable and not discriminate in favor of Highly Compensated Employees.]

	 	 	 
	þ

	 	(o) Participant contributions. Distribution of all or any portion of a Participant’s Account
Balance attributable to the following Participant contributions
described in Plan Section 4.01: (Choose one of (1), (2) or (3))

	 	 	 
	o

	 	(1) All Participant contributions.
	 
	 	 
	o

	 	(2) Employee contributions only.
	 
	 	 
	þ

	 	(3) Rollover contributions only.

Participant loan default/offset. See Section 6.08 of the Plan.

26.       DISTRIBUTION METHOD (6.03). A separated Participant whose Vested Account Balance exceeds $5,000
may elect distribution under one of the following method(s) of distribution described in Plan
Section 6.03: (Choose one or more of (a) through (d) as applicable)

	 	 	 
	þ

	 	(a) Lump sum.
	 
	 	 
	o

	 	(b) Installments.
	 
	 	 
	o

	 	(c) Installments for required minimum distributions only.
	 
	 	 
	o

	 	(d) Annuity distribution option(s):                     .
	 

	 	[Note: Any optional method of distribution may not be subject to Employer, Plan Administrator
or Trustee discretion.]

27.       JOINT AND SURVIVOR ANNUITY REQUIREMENTS (6.04). The joint and survivor annuity distribution
requirements of Plan Section 6.04: (Choose one of (a) or (b))

	 	 	 
	þ

	 	(a) Profit sharing plan exception. Do not apply to a Participant, unless the Participant is a
Participant described in
Section 6.04(H) of the Plan.
	 
	 	 
	o

	 	(b) Applicable. Apply to all Participants.

ARTICLE IX

PLAN ADMINISTRATOR — DUTIES WITH RESPECT TO PARTICIPANTS’ ACCOUNTS

28.       ALLOCATION OF NET INCOME, GAIN OR LOSS (9.08). For each type of contribution provided under the
Plan, the Plan allocates net income, gain or loss using the following method: (Choose one or more
of (a) through (e) as applicable)

	 	 	 
	þ

	 	(a) Deferral contributions/Employee contributions. (Choose one or more of (1) through (5) as
applicable)

	 	 	 
	þ

	 	(1) Daily valuation method. Allocate on each business day of the Plan Year during which
Plan assets for which there is an established market are valued and the Trustee is conducting
business.
	 
	 	 
	o

	 	(2) Balance forward method. Allocate using the balance forward method.
	 
	 	 
	o

	 	(3) Weighted average method. Allocate using the weighted average method, based on
the following weighting period:                     . See Plan Section 14.12.

© Copyright 2001 Wachovia Bank, National Association

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Allied Capital 401(k) Plan

	 	 	 
	o

	 	(4) Balance forward method with adjustment. Allocate pursuant to the balance
forward method, except treat as part of the relevant Account at the beginning of the
valuation period                     % of the contributions made during the following valuation period:                     .
	 
	 	 
	o

	 	(5) Individual account method. Allocate using the individual account method. See
Plan Section 9.08.

	 	 	 
	þ

	 	(b) Matching contributions. (Choose one or more of (1) through (5) as applicable)

	 	 	 
	þ

	 	(1) Daily valuation method. Allocate on each business day of the Plan Year during which
Plan assets for which there is an established market are valued and the Trustee is conducting
business.
	 
	 	 
	o

	 	(2) Balance forward method. Allocate using the balance forward method.
	 
	 	 
	o

	 	(3) Weighted average method. Allocate using the weighted average method, based on
the following weighting period:                     . See Plan Section 14.12.
	 
	 	 
	o

	 	(4) Balance forward method with adjustment. Allocate pursuant to the balance
forward method, except treat as part of the relevant Account at the beginning of the
valuation period                     % of the contributions made during the following valuation period:                     .
	 
	 	 
	o

	 	(5) Individual account method. Allocate using the individual account method. See
Plan Section 9.08.

	 	 	 
	þ

	 	(c) Employer nonelective contributions. (Choose one or more of (1) through (5) as applicable)

	 	 	 
	þ

	 	(1) Daily valuation method. Allocate on each business day of the Plan Year during which
Plan assets for which there is an established market are valued and the Trustee is conducting
business.
	 
	 	 
	o

	 	(2) Balance forward method. Allocate using the balance forward method.
	 
	 	 
	o

	 	(3) Weighted average method. Allocate using the weighted average method, based on
the following weighting period:                     . See Plan Section 14.12.
	 
	 	 
	o

	 	(4) Balance forward method with adjustment. Allocate pursuant to the balance
forward method, except treat as part of the relevant Account at the beginning of the
valuation period                     % of the contributions made during the following valuation period:                     .
	 
	 	 
	o

	 	(5) Individual account method. Allocate using the individual account method. See
Plan Section 9.08.

	 	 	 
	o

	 	(d) Specified method. Allocate pursuant to the following method:                     .
	 

	 	[Note: The specified method must be a definite predetermined formula which is not based on
Compensation, which satisfies the nondiscrimination requirements of Treas. Reg.
§1.401(a)(4) and which is applied uniformly to all Participants.]
	 
	 	 
	o

	 	(e) Interest rate factor. In accordance with Plan Section 9.08(E), the Plan includes
interest at the following rate on distributions made more than 90 days after the most recent
valuation date:                     .

ARTICLE X

TRUSTEE AND CUSTODIAN, POWERS AND DUTIES

29.       INVESTMENT POWERS (10.03). The following additional investment options or limitations apply
under Plan Section 10.03: NA . [Note: Enter “N/A” if not applicable.]

30.       VALUATION OF TRUST (10.15). In addition to the last day of the Plan Year, the Trustee must
value the Trust Fund on the following valuation date(s): (Choose one of (a) through (d))

	 	 	 
	þ

	 	(a) Daily valuation dates. Each business day of the Plan Year on which Plan assets for which
there is an established market are valued and the Trustee is conducting business.
	 
	 	 
	o

	 	(b) Last day of a specified
period. The last day of each                      of the Plan Year.
	 
	 	 
	o

	 	(c) Specified dates:                     .
	 
	 	 
	o

	 	(d) No additional valuation dates.

© Copyright 2001 Wachovia Bank, National Association

15

 

Allied Capital 401(k) Plan

Execution Page

     The Trustee (and Custodian, if applicable), by executing this Adoption Agreement, accepts its
position and agrees to all of the obligations, responsibilities and duties imposed upon the Trustee
(or Custodian) under the Prototype Plan and Trust. The Employer hereby agrees to the provisions of
this Plan and Trust, and in witness of its agreement, the Employer by its duly authorized officers,
has executed this Adoption Agreement, and the Trustee (and Custodian, if applicable) has signified
its acceptance, on:                                                                               
  .

	 	 	 	 	 
	 	 	Name of Employer: Allied Capital Corporation
	 	 	Employer’s EIN: 52-1081052
	 	 	Signed:
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	[Name/Title]
	 
	 	 	 	 
	 	 	Name(s) of Trustee:
	 

	 	 	 	  Wachovia Bank, National Association
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	Trust EIN (Optional):
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	Signed:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	[Name/Title]
	 
	 	 	 	 
	 

	 	Signed:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	[Name/Title]
	 
	 	 	 	 
	 

	 	Signed:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	[Name/Title]
	 
	 	 	 	 
	 

	 	Signed:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	[Name/Title]
	 
	 	 	 	 
	 

	 	Signed:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	[Name/Title]
	 
	 	 	 	 
	 

	 	Signed:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	[Name/Title]
	 
	 	 	 	 
	 

	 	Signed:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	[Name/Title]
	 
	 	 	 	 
	 

	 	Signed:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	[Name/Title]

© Copyright 2001 Wachovia Bank, National Association

16

 

Allied Capital 401(k) Plan

	 	 	 	 	 
	 	 	Name of Custodian (Optional):
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	Signed:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	[Name/Title]

31. Plan Number. The 3-digit plan number the Employer assigns to this Plan for ERISA reporting
purposes (Form 5500 Series) is: 003.

Use of Adoption Agreement. Failure to complete properly the elections in this Adoption Agreement
may result in disqualification of the Employer’s Plan. The Employer only may use this Adoption
Agreement in conjunction with the basic plan document referenced by its document number on Adoption
Agreement page one.

Execution for Page Substitution Amendment Only. If this paragraph is completed, this Execution Page
documents an amendment to Adoption Agreement Section(s)                      effective                     , by substitute Adoption
Agreement page number(s)                     .

Prototype Plan Sponsor. The Prototype Plan Sponsor identified on the first page of the basic plan
document will notify all adopting employers of any amendment of this Prototype Plan or of any
abandonment or discontinuance by the Prototype Plan Sponsor of its maintenance of this Prototype
Plan. For inquiries regarding the adoption of the Prototype Plan, the Prototype Plan Sponsor’s
intended meaning of any Plan provisions or the effect of the opinion letter issued to the Prototype
Plan Sponsor, please contact the Prototype Plan Sponsor at the following address and telephone
number: 1525 West W.T. Harris Blvd., Charlotte, NC 28288, (800) 669-5812.

Reliance on Sponsor Opinion Letter. The Prototype Plan Sponsor has obtained from the IRS an opinion
letter specifying the form of this Adoption Agreement and the basic plan document satisfy, as of
the date of the opinion letter, Code §401. An adopting Employer may rely on the Prototype Sponsor’s
IRS opinion letter only to the extent provided in Announcement 2001-77, 2001-30 I.R.B. The Employer
may not rely on the opinion letter in certain other circumstances or with respect to certain
qualification requirements, which are specified in the opinion letter and in Announcement 2001-77.
In order to have reliance in such circumstances or with respect to such qualification requirements,
the Employer must apply for a determination letter to Employee Plans Determinations of the Internal
Revenue Service.

© Copyright 2001 Wachovia Bank, National Association

17

 

Allied Capital 401(k) Plan

PARTICIPATION AGREEMENT

o Check here if not applicable and do not complete this page.

     The undersigned Employer, by executing this Participation Agreement, elects to become a
Participating Employer in the Plan identified in Section 1.21 of the accompanying Adoption
Agreement, as if the Participating Employer were a signatory to that Adoption Agreement. The
Participating Employer accepts, and agrees to be bound by, all of the elections granted under the
provisions of the Prototype Plan as made by the Signatory Employer to the Execution Page of the
Adoption Agreement, except as otherwise provided in this Participation Agreement.

32. EFFECTIVE DATE (1.10). The Effective Date of the Plan for the Participating Employer is:
January 1, 2008.

33. NEW PLAN/RESTATEMENT. The Participating Employer’s adoption of this Plan constitutes: (Choose
one of (a) or (b))

	 	 	 
	o

	 	(a) The adoption of a new plan by the Participating Employer.
	 
	 	 
	þ

	 	(b) The adoption of an amendment and restatement of a plan currently maintained by the
Participating Employer, identified as: A.C. Corporation, and having
an original effective date of: May 1, 2001; however original effective date of Allied Capital 401(k) Plan is September, 1, 1999.

34. PREDECESSOR EMPLOYER SERVICE (1.30). In addition to the predecessor service credited by reason
of Section 1.30 of the Plan, the Plan credits as Service under this Plan, service with this
Participating Employer. (Choose one or more of (a) through (d) as applicable): [Note: If the Plan
does not credit any additional predecessor service under Section 1.30 for this Participating
Employer, do not complete this election.]

	 	 	 
	þ

	 	(a) Eligibility. For eligibility under Article II. See Plan Section 1.30 for time
of Plan entry.
	 
	 	 
	þ

	 	(b) Vesting. For vesting under Article V.
	 
	 	 
	þ

	 	(c) Contribution
allocation. For contribution allocations under Article III.
	 
	 	 
	o

	 	(d) Exceptions. Except for the following Service:                     .

	 	 	 	 	 
	Name of Plan:	 	Name of Participating Employer:
	 
	 	 	 	 
	Allied Capital 401(k) Plan	 	A.C. Corporation
	 
	 	 	 	 
	 

	 	Signed:	 	 
	 

	 	 	 	 
	 

	 	 	 	[Name/Title]
	 
	 	 	 	 
	 	 	 
	 

	 	 	 	[Date]
	 
	 	 	 	 
	 	 	Participating Employer’s EIN: 52-2316212

Acceptance by the Signatory Employer to the Execution Page of the Adoption Agreement and by the Trustee.

	 	 	 	 	 	 	 
	Name of Signatory Employer:	 	Name(s) of Trustee:
	Allied Capital Corporation	 	Wachovia Bank, National Association
	 
	 	 	 	 	 	 
	 	 	 
	 

	 	[Name/Title]
	 	 	 	[Name/Title]
	 
	 	 	 	 	 	 
	Signed:

	 	 	 	Signed:	 	 
	 

	 	 
	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	 
	 

	 	[Date]
	 	 	 	[Date]

[Note: Each Participating Employer must execute a separate Participation Agreement. If the Plan does not have a Participating
Employer, the Signatory Employer may delete this page from the Adoption Agreement.]

© Copyright 2001 Wachovia Bank, National Association

18

 

Allied Capital 401(k) Plan

APPENDIX A

TESTING ELECTIONS/EFFECTIVE DATE ADDENDUM

35. The following testing elections and special effective dates apply: (Choose one or more of (a)
through (n) as applicable)

	 	 	 
	o

	 	(a) Highly Compensated Employee (1.14). For Plan Years beginning after                     , the Employer makes
the following election(s) regarding the definition of Highly Compensated Employee:

	 	 	 
	 

	 	(1) o Top paid group election.
	 
	 	 
	 

	 	(2) o Calendar year data election (fiscal year plan).

	 	 	 
	o

	 	(b) 401(k) current year testing. The Employer will apply the current year testing method in
applying the ADP and
ACP tests effective for Plan Years beginning after:                     . [Note: For Plan Years beginning on or
after the
Employer’s execution of its “GUST” restatement, the Employer must use the same testing
method within the same Plan Year for both the ADP and ACP tests.]
	 
	 	 
	þ

	 	(c) Compensation. The Compensation definition under Section 1.07 will apply for Plan Years
beginning after: 12/31/2007.
	 
	 	 
	o

	 	(d) Election not to participate. The election not to participate under Section 2.06 is effective:                     .
	 
	 	 
	o

	 	(e) 401(k) safe harbor. The 401(k) safe harbor provisions under Section 3.01(d) are effective:                     .
	 
	 	 
	o

	 	(f) Negative election. The negative election provision under Section 3.02(b) is effective:                     .
	 
	 	 
	o

	 	(g) Contribution/allocation formula. The specified contribution(s) and allocation method(s)
under Sections 3.01 and
3.04 are effective:                     .
	 
	 	 
	o

	 	(h) Allocation conditions. The allocation conditions of Section 3.06 are effective:                    .
	 
	 	 
	þ

	 	(i) Benefit payment elections. The distribution elections of Section(s) 6.01, 6.03, 6.09 are
effective: 01/01/2008.
	 
	 	 
	o

	 	(j) Election to continue pre-SBJPA required beginning date. A Participant may not elect to
defer commencement of the distribution of his/her Vested Account Balance beyond the April 1
following the calendar year in which the Participant attains age 70 1/2. See Plan Section
6.02(A).
	 
	 	 
	o

	 	(k) Elimination of age 70 1/2 in-service distributions. The Plan eliminates a Participant’s
(other than a more than
5% owner) right to receive in-service distributions on April 1 of the calendar year
following the year in which the Participant attains age 70 1/2 for Plan Years beginning
after:                     .
	 
	 	 
	o

	 	(l) Allocation of earnings. The earnings allocation provisions under Section 9.08 are
effective:                     .
	 
	 	 
	þ

	 	(m) Elimination of optional forms of benefit. The Employer elects prospectively to eliminate
the following optional forms of benefit: (Choose one or more of (1), (2) and (3) as applicable)

	 	 	 
	o

	 	(1) QJSA and QPSA benefits as described in Plan Sections 6.04, 6.05 and 6.06
effective:                     .
	 
	 	 
	þ

	 	(2) Installment distributions as described in Section 6.03 effective: 1/1/2008.
	 
	 	 
	o

	 	(3) Other optional forms of benefit (Any election to eliminate must be consistent
with Treas. Reg. §1.411(d)-4):                     .

	 	 	 
	o

	 	(n) Special effective date(s):                     .

     For periods prior to the above-specified special effective date(s), the Plan terms in effect
prior to its restatement under this Adoption Agreement will control for purposes of the designated
provisions. A special effective date may not result in the delay of a Plan provision beyond the
permissible effective date under any applicable law.

© Copyright 2001 Wachovia Bank, National Association

19

 

Allied Capital 401(k) Plan

APPENDIX B

GUST Remedial Amendment Period Elections

36. The following GUST restatement elections apply: (Choose one or more of (a) through (j) as
applicable)

	 	 	 
	þ

	 	(a) Highly Compensated Employee elections. The Employer makes the following remedial amendment
period elections with respect to the Highly Compensated Employee definition:

	 	 	 	 	 	 	 	 	 
	(1) 1997:

	 	o
	 	Top paid group election.
	 	o
	 	Calendar year election.
	 

	 	o
	 	Calendar year data election.	 	 	 	 
	(2) 1998:

	 	o
	 	Top paid group election.
	 	o
	 	Calendar year data election.
	(3) 1999:

	 	o
	 	Top paid group election.
	 	o
	 	Calendar year data election.
	(4) 2000:

	 	o
	 	Top paid group election.
	 	o
	 	Calendar year data election.
	(5) 2001:

	 	o
	 	Top paid group election.
	 	o
	 	Calendar year data election.
	(6) 2002:

	 	þ
	 	Top paid group election.
	 	o
	 	Calendar year data election.

	 	 	 
	þ

	 	(b) 401(k) testing methods. The Employer makes the following remedial amendment period elections
with respect to the ADP test and the ACP test: [Note: The Employer may use a different testing
method for the ADP and ACP tests through the end of the Plan Year in which the Employer executes
its GUST restated Plan.]

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	ADP test	 	 	 	ACP test
	(1)

	 	1997:
	 	o
	 	prior year
	 	o
	 	current year
	 	1997:
	 	o
	 	prior year
	 	o
	 	current year
	(2)

	 	1998:
	 	o
	 	prior year
	 	o
	 	current year
	 	1998:
	 	o
	 	prior year
	 	o
	 	current year
	(3)

	 	1999:
	 	o
	 	prior year
	 	o
	 	current year
	 	1999:
	 	o
	 	prior year
	 	o
	 	current year
	(4)

	 	2000:
	 	o
	 	prior year
	 	o
	 	current year
	 	2000:
	 	o
	 	prior year
	 	o
	 	current year
	(5)

	 	2001:
	 	o
	 	prior year
	 	o
	 	current year
	 	2001:
	 	o
	 	prior year
	 	o
	 	current year
	(6)

	 	2002:
	 	þ
	 	prior year
	 	o
	 	current year
	 	2002:
	 	þ
	 	prior year
	 	o
	 	current year

	 	 	 
	o

	 	(c) Delayed application of SBJPA required beginning date. The Employer elects to delay the
effective date for the required beginning date provision of Plan Section 6.02 until Plan Years
beginning after:                     .
	 
	 	 
	o

	 	(d) Model Amendment for required minimum distributions. The Employer adopts the IRS Model
Amendment in
Plan Section 6.02(E) effective                     . [Note: The date must not be earlier than January 1, 2001.]

Defined Benefit Limitation

	 	 	 
	o

	 	(e) Code §415(e) repeal. The repeal of the Code §415(e) limitation is effective for
Limitation Years beginning after                     . [Note: If the Employer does not make an election under (e), the repeal is effective
for Limitation Years beginning after December 31, 1999.]

Code §415(e) limitation. To the extent necessary to satisfy the limitation under Plan Section 3.17
for Limitation Years beginning prior to the repeal of Code §415(e), the Employer will reduce:
(Choose one of (f) or (g))

	 	 	 
	o

	 	(f) The Participant’s projected annual benefit under the defined benefit plan.
	 
	 	 
	o

	 	(g) The Employer’s contribution or allocation on behalf of the Participant to the defined
contribution plan and then, if necessary, the Participant’s projected annual benefit under the
defined benefit plan.

Coordination with top-heavy minimum allocation. The Plan Administrator will apply the top-heavy
minimum allocation provisions of Article XII with the following modifications: (Choose (h) or
choose (i) or (j) or both as applicable)

	 	 	 
	o

	 	(h) No modifications.
	 
	 	 
	o

	 	(i) For Non-Key Employees participating only in this Plan, the top-heavy minimum allocation
is the minimum allocation determined by substituting
                    % (not less than 4%) for “3%,” except: (Choose one of (1) or (2))

	 	 	 
	o

	 	(1) No exceptions.
	 
	 	 
	o

	 	(2) Plan Years in which the top-heavy ratio exceeds 90%.

	 	 	 
	o

	 	(j) For Non-Key Employees also participating in the defined benefit plan, the top-heavy
minimum is: (Choose one of (1) or (2))

	 	 	 
	o

	 	(1) 5% of Compensation
irrespective of the contribution rate of any Key Employee: (Choose one of a. or b.)

	 	 	 
	o

	 	a. No exceptions.
	 
	 	 
	o

	 	b. Substituting “7 1/2%” for “5%” if the top-heavy ratio does not exceed 90%.

	 	 	 
	o

	 	(2) 0%. [Note: The defined benefit plan must satisfy the top-heavy minimum benefit
requirement for these Non-Key Employees.]

Actuarial assumptions for top-heavy calculation. To determine the top-heavy ratio, the Plan
Administrator will use the following interest rate and mortality assumptions to value accrued
benefits under a defined benefit plan:                     .

© Copyright 2001 Wachovia Bank, National Association

20

 

Allied Capital 401(k) Plan

CHECKLIST OF EMPLOYER INFORMATION 

AND
EMPLOYER ADMINISTRATIVE ELECTIONS

Commencing with the 2008 Plan Year

     The Prototype Plan permits the Employer to make certain administrative elections not reflected
in the Adoption Agreement. This form lists those administrative elections and provides a means of
recording the Employer’s elections. This checklist is not part of the Plan document.

	 	 	 	 	 
	37.

	 	Employer Information.	 	 
	 
	 	 	 	 
	 

	 	Allied Capital Corporation	 	 
	 	 	 
	 

	 	[Employer Name]	 	 
	 
	 	 	 	 
	 

	 	1919 Pennsylvania Ave, NW	 	 
	 	 	 
	 

	 	[Address]	 	 
	 
	 

	 	Washington, District of Columbia 20006-3434
	 	202-721-6100
	 

	 	 
	 	 
	 

	 	[City, State and Zip Code]
	 	[Telephone Number]
	 
	 	 	 	 
	38.

	 	Form of Business.	 	 
	 
	 

	 	(a) þ Corporation
	 	(b) o S Corporation
	 

	 	(c) o Limited Liability Company
	 	(d) o Sole Proprietorship
	 

	 	(e) o Partnership
	 	(f) o                     
	 
	 	 	 	 
	39.	 	Section 1.07(F)
- Nondiscriminatory definition of Compensation. When testing nondiscrimination
under the Plan, the
Plan permits the Employer to make elections regarding the definition of Compensation. [Note:
This election solely is for purposes of nondiscrimination testing. The election does not affect
the Employer’s elections under Section 1.07 which apply for purposes of allocating Employer
contributions and Participant forfeitures.]
	 
	 	 	 	 
	 	 	(a) þ The Plan will “gross up” Compensation for Elective Contributions.
	 
	 	 	 	 
	 	 	(b) o The Plan will exclude Elective Contributions.
	 
	 	 	 	 
	40.	 	Section 4.04 - Rollover contributions.
	 
	 	 	 	 
	 	 	(a) þ The Plan accepts rollover contributions.
	 
	 	 	 	 
	 	 	(b) o The Plan does not accept rollover contributions.
	 
	 	 	 	 
	41.	 	Section 8.06 - Participant direction of investment/404(c). The Plan authorizes Participant
direction of investment with
Trustee consent. If the Trustee permits Participant direction of investment, the Employer and
the Trustee should adopt a policy which establishes the applicable conditions and limitations,
including whether they intend the Plan to comply with ERISA §404(c).
	 
	 	 	 	 
	 	 	(a) þ The Plan permits Participant direction of investment and is a 404(c) plan.
	 
	 	 	 	 
	 	 	(b) o The Plan does not permit Participant direction of investment or is a non-404(c) plan.
	 
	 	 	 	 
	42.	 	Section 9.04[A] - Participant loans. The Plan authorizes the Plan Administrator to adopt a
written loan policy to permit
Participant loans.
	 
	 	 	 	 
	 	 	(a) þ The Plan permits Participant loans subject to the following conditions:
	 	 	     (1) þ Minimum loan amount: $ 1000 .
	 	 	     (2) þ Maximum number of outstanding loans: 2 .
	 	 	     (3) þ Reasons for which a Participant may request a loan:
	 	 	          a. þ Any purpose.
	 	 	          b. o Hardship events.
	 	 	          c. o Other:                     .
	 	 	     (4) þ Suspension of loan repayments:
	 	 	          a. o Not permitted.
	 	 	          b. þ Permitted for non-military leave of absence.
	 	 	          c. þ Permitted for military service leave of absence.
	 	 	      (5) o The Participant must be a party in interest.
	 
	 	 	 	 
	 	 	(b)
o The Plan does not permit Participant loans.
	 
	 	 	 	 
	43.	 	Section 11.01 - Life insurance. The Plan with Employer approval authorizes the Trustee to
acquire life insurance.
	 
	 	 	 	 
	 	 	(a) o The Plan will invest in life insurance contracts.
	 
	 	 	 	 
	 	 	(b) þ The Plan will not invest in life insurance contracts.
	 
	 	 	 	 
	44.	 	Surety bond company: St. Paul Travelers . Surety bond amount: $100000000.00

© Copyright 2001 Wachovia Bank, National Association

21

 

EGTRRA

AMENDMENT TO THE

ALLIED CAPITAL 401(K) PLAN

 

 

EGTRRA — Employer

ARTICLE I

PREAMBLE

	1.1	 	Adoption and effective date of amendment. This amendment of the plan is adopted to
reflect certain provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001
(“EGTRRA”). This amendment is intended as good faith compliance with the requirements of EGTRRA and
is to be construed in accordance with EGTRRA and guidance issued thereunder. Except as otherwise
provided, this amendment shall be effective as of the first day of the first plan year beginning
after December 31, 2001.
	 
	1.2	 	Supersession of inconsistent provisions. This amendment shall supersede the provisions
of the plan to the extent those provisions are inconsistent with the provisions of this amendment.

ARTICLE II

ADOPTION AGREEMENT ELECTIONS

The questions in this Article II only need to be completed in order to override the default
provisions set forth below. If all of the default provisions will apply, then these questions
should be skipped.

Unless the employer elects otherwise in this Article II, the following defaults apply:

	 	1)	 	The vesting schedule for matching contributions will be a 6 year graded schedule (if the
plan currently has a graded schedule that does not satisfy EGTRRA) or a 3 year cliff schedule
(if the plan currently has a cliff schedule that does not satisfy EGTRRA), and such schedule
will apply to all matching contributions (even those made prior to 2002).
	 
	 	2)	 	Rollovers are automatically excluded in determining whether the $5,000 threshold has been
exceeded for automatic cash-outs (if the plan is not subject to the qualified joint and
survivor annuity rules and provides for automatic cash-outs). This is applied to all
participants regardless of when the distributable event occurred.
	 
	 	3)	 	The suspension period after a hardship distribution is made will be 6 months and this
will only apply to hardship distributions made after 2001.
	 
	 	4)	 	Catch-up contributions will be allowed.
	 
	 	5)	 	For target benefit plans, the increased compensation limit of $200,000 will be applied
retroactively (i.e., to years prior to 2002).

	2.1	 	Vesting Schedule for Matching Contributions
	 
	 	 	If there are matching contributions subject to a vesting schedule that does not satisfy
EGTRRA, then unless otherwise elected below, for participants who complete an hour of
service in a plan year beginning after December 31, 2001, the following vesting schedule
will apply to all matching contributions subject to a vesting schedule:
	 
	 	 	If the plan has a graded vesting schedule (i.e., the vesting schedule includes a vested
percentage that is more than 0% and less than 100%) the following will apply:

	 	 	 
	Years of vesting service	 	Nonforfeitable percentage
	2
	 	20%
	3
	 	40%
	4
	 	60%
	5
	 	80%
	6
	 	100%

If the plan does not have a graded vesting schedule, then matching contributions will be
nonforfeitable upon the completion of 3 years of vesting service.

In lieu of the above vesting schedule, the employer elects the following schedule:

	 	 	 	 	 	 	 
	 

	 	a.
	 	o
	 	3 year cliff (a participant’s accrued benefit derived from employer matching contributions shall be
nonforfeitable upon the participant’s completion of three years of vesting service).
	 
	 	 	 	 	 	 
	 

	 	b.
	 	o
	 	6 year graded schedule (20% after 2 years of vesting service and an additional 20% for each year
thereafter).
	 
	 	 	 	 	 	 
	 

	 	c.
	 	o
	 	Other (must be at least as liberal as a. or the b. above):

© Copyright 2002 Wachovia Bank, National Association

1

 

EGTRRA — Employer

	 	 	 
	Years of vesting service	 	Nonforfeitable percentage
	                    
	 	                    %
	                    
	 	                    %
	                    
	 	                    %
	                    
	 	                    %
	                    
	 	                    %

The vesting schedule set forth herein shall only apply to participants who complete an hour of
service in a plan year beginning after December 31, 2001, and, unless the option below is
elected, shall apply to all matching contributions subject to a vesting schedule.

	 	 	 	 	 	 	 
	 

	 	d.
	 	o
	 	The vesting schedule will only apply to matching contributions made in plan years beginning after
December 31, 2001 (the prior schedule will apply to matching contributions made in prior plan years).

	2.2	 	Exclusion of Rollovers in Application of Involuntary Cash-out Provisions (for profit sharing
and 401(k) plans only). If the plan is not subject to the qualified joint and survivor annuity
rules and includes involuntary cash-out provisions, then unless one of the options below is
elected, effective for distributions made after December 31, 2001, rollover contributions will be
excluded in determining the value of the participant’s nonforfeitable account balance for purposes
of the plan’s involuntary cash-out rules.

	 	 	 	 	 	 	 
	 

	 	a.
	 	o
	 	Rollover contributions will not be excluded.
	 
	 	 	 	 	 	 
	 

	 	b.
	 	o
	 	Rollover contributions will be
excluded only with respect to distributions made after ___. (Enter a date
no earlier than December 31, 2001.)
	 
	 	 	 	 	 	 
	 

	 	c.
	 	þ
	 	Rollover contributions will only be excluded with respect to participants who separated from service after
December 31, 2001 . (Enter a date. The date may be earlier than December 31, 2001.)

	2.3	 	Suspension period of hardship distributions. If the plan provides for hardship distributions
upon satisfaction of the safe harbor (deemed) standards as set forth in Treas. Reg. Section
1.401(k)-1(d)(2)(iv), then, unless the option below is elected, the suspension period following a
hardship distribution shall only apply to hardship distributions made after December 31, 2001.

	 	 	 	 	 	 	 
	 

	 	 	 	o
	 	With regard to hardship distributions made during 2001, a participant shall
be prohibited from making elective deferrals and employee contributions under this and
all other plans until the later of January 1, 2002, or 6 months after receipt of the
distribution.

	2.4	 	Catch-up contributions (for 401(k) profit sharing plans only): The plan permits catch-up
contributions (Article VI) unless the option below is elected.

	 	 	 	 	 	 	 
	 

	 	 	 	o
	 	The plan does not permit catch-up contributions to be made.

	2.5	 	For target benefit plans only: The increased compensation limit ($200,000 limit) shall apply to
years prior to 2002 unless the option below is elected.

	 	 	 	 	 	 	 
	 

	 	 	 	o
	 	The increased compensation limit will not apply to years prior to 2002.

ARTICLE III

VESTING OF MATCHING CONTRIBUTIONS

	3.1	 	Applicability. This Article shall apply to participants who complete an Hour of Service
after December 31, 2001, with respect to accrued benefits derived from employer matching
contributions made in plan years beginning after December 31, 2001. Unless otherwise elected by the
employer in Section 2.1 above, this Article shall also apply to all such participants with respect
to accrued benefits derived from employer matching contributions made in plan years beginning prior
to January 1, 2002.
	 
	3.2	 	Vesting schedule. A participant’s accrued benefit derived from employer matching
contributions shall vest as provided in Section 2.1 of this amendment.

ARTICLE IV

INVOLUNTARY CASH-OUTS

	4.1	 	Applicability and effective date. If the plan provides for involuntary cash-outs of
amounts less than $5,000, then unless otherwise elected in Section 2.2 of this amendment, this
Article shall apply for distributions made after December 31, 2001, and shall apply to all
participants. However, regardless of the preceding, this Article shall not apply if the plan is
subject to the qualified joint and survivor annuity requirements of Sections 401(a)(11) and 417 of
the Code.
	 
	4.2	 	Rollovers disregarded in determining value of account balance for involuntary
distributions. For purposes of the Sections of the plan that provide for the involuntary
distribution of vested accrued benefits of $5,000 or less, the value of a participant’s
nonforfeitable account balance shall be determined without regard to that portion of the account

© Copyright 2002 Wachovia Bank, National Association

2

 

EGTRRA — Employer

balance that is attributable to rollover contributions (and earnings allocable thereto)
within the meaning of Sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and
457(e)(16) of the Code. If the value of the participant’s nonforfeitable account balance as
so determined is $5,000 or less, then the plan shall immediately distribute the
participant’s entire nonforfeitable account balance.

ARTICLE V

HARDSHIP DISTRIBUTIONS

	5.1	 	Applicability and effective date. If the plan provides for hardship distributions upon
satisfaction of the safe harbor (deemed) standards as set forth in Treas. Reg. Section
1.401(k)-1(d)(2)(iv), then this Article shall apply for calendar years beginning after 2001.
	 
	5.2	 	Suspension period following hardship distribution. A participant who receives a
distribution of elective deferrals after December 31, 2001, on account of hardship shall be
prohibited from making elective deferrals and employee contributions under this and all other plans
of the employer for 6 months after receipt of the distribution. Furthermore, if elected by the
employer in Section 2.3 of this amendment, a participant who receives a distribution of elective
deferrals in calendar year 2001 on account of hardship shall be prohibited from making elective
deferrals and employee contributions under this and all other plans until the later of January 1,
2002, or 6 months after receipt of the distribution.

ARTICLE VI

CATCH-UP CONTRIBUTIONS

Catch-up Contributions. Unless otherwise elected in Section 2.4 of this amendment, all
employees who are eligible to make elective deferrals under this plan and who have attained age 50
before the close of the plan year shall be eligible to make catch-up contributions in accordance
with, and subject to the limitations of, Section 414(v) of the Code. Such catch-up contributions
shall not be taken into account for purposes of the provisions of the plan implementing the
required limitations of Sections 402(g) and 415 of the Code. The plan shall not be treated as
failing to satisfy the provisions of the plan implementing the requirements of Section 401(k)(3),
401(k)(11), 401(k)(12), 410(b), or 416 of the Code, as applicable, by reason of the making of such
catch-up contributions.

ARTICLE VII

INCREASE IN COMPENSATION LIMIT

Increase in Compensation Limit. The annual compensation of each participant taken into
account in determining allocations for any plan year beginning after December 31, 2001, shall not
exceed $200,000, as adjusted for cost-of-living increases in accordance with Section 401(a)(17)(B)
of the Code. Annual compensation means compensation during the plan year or such other consecutive
12-month period over which compensation is otherwise determined under the plan (the determination
period). If this is a target benefit plan, then except as otherwise elected in Section 2.5 of this
amendment, for purposes of determining benefit accruals in a plan year beginning after December 31,
2001, compensation for any prior determination period shall be limited to $200,000. The
cost-of-living adjustment in effect for a calendar year applies to annual compensation for the
determination period that begins with or within such calendar year.

ARTICLE VIII

PLAN LOANS

Plan loans for owner-employees or shareholder-employees. If the plan permits loans to be
made to participants, then effective for plan loans made after December 31, 2001, plan provisions
prohibiting loans to any owner-employee or shareholder-employee shall cease to apply.

ARTICLE IX

LIMITATIONS ON CONTRIBUTIONS (IRC SECTION 415 LIMITS)

	9.1	 	Effective date. This Section shall be effective for limitation years beginning after
December 31, 2001.
	 
	9.2	 	Maximum annual addition. Except to the extent permitted under Article VI of this
amendment and Section 414(v) of the Code, if applicable, the annual addition that may be
contributed or allocated to a participant’s account under the plan for any limitation year shall
not exceed the lesser of:

	 	a.	 	$40,000, as adjusted for increases in the cost-of-living under Section 415(d) of the
Code, or
	 
	 	b.	 	100 percent of the participant’s compensation, within the meaning of Section 415(c)(3)
of the Code, for the limitation year.

© Copyright 2002 Wachovia Bank, National Association

3

 

EGTRRA — Employer

The compensation limit referred to in b. shall not apply to any contribution for medical
benefits after separation from service (within the meaning of Section 401(h) or Section
419A(f)(2) of the Code) which is otherwise treated as an annual addition.

ARTICLE X

MODIFICATION OF TOP-HEAVY RULES

	10.1	 	Effective date. This Article shall apply for purposes of determining whether the plan
is a top-heavy plan under Section 416(g) of the Code for plan years beginning after December 31,
2001, and whether the plan satisfies the minimum benefits requirements of Section 416(c) of the
Code for such years. This Article amends the top-heavy provisions of the plan.
	 
	10.2	 	Determination of top-heavy status. 
	 
	10.2.1	 	 Key employee. Key employee means any employee or former employee (including any
deceased employee) who at any time during the plan year that includes the determination date was an
officer of the employer having annual compensation greater than $130,000 (as adjusted under Section
416(i)(1) of the Code for plan years beginning after December 31, 2002), a 5-percent owner of the
employer, or a 1-percent owner of the employer having annual compensation of more than $150,000.
For this purpose, annual compensation means compensation within the meaning of Section 415(c)(3) of
the Code. The determination of who is a key employee will be made in accordance with Section
416(i)(1) of the Code and the applicable regulations and other guidance of general applicability
issued thereunder.
	 
	10.2.2	 	Determination of present values and amounts. This Section 10.2.2 shall apply for
purposes of determining the present values of accrued benefits and the amounts of account balances
of employees as of the determination date.

	 	a.	 	Distributions during year ending on the determination date. The present values
of accrued benefits and the amounts of account balances of an employee as of the
determination date shall be increased by the distributions made with respect to the
employee under the plan and any plan aggregated with the plan under Section 416(g)(2) of
the Code during the 1-year period ending on the determination date. The preceding sentence
shall also apply to distributions under a terminated plan which, had it not been
terminated, would have been aggregated with the plan under Section 416(g)(2)(A)(i) of the
Code. In the case of a distribution made for a reason other than separation from service,
death, or disability, this provision shall be applied by substituting “5-year period” for
“1-year period.”
	 
	 	b.	 	Employees not performing services during year ending on the determination date.
The accrued benefits and accounts of any individual who has not performed services for the
employer during the 1-year period ending on the determination date shall not be taken into
account.

	10.3	 	Minimum benefits.
	 
	10.3.1	 	Matching contributions. Employer matching contributions shall be taken into account
for purposes of satisfying the minimum contribution requirements of Section 416(c)(2) of the Code
and the plan. The preceding sentence shall apply with respect to matching contributions under the
plan or, if the plan provides that the minimum contribution requirement shall be met in another
plan, such other plan. Employer matching contributions that are used to satisfy the minimum
contribution requirements shall be treated as matching contributions for purposes of the actual
contribution percentage test and other requirements of Section 401(m) of the Code.
	 
	10.3.2	 	Contributions under other plans. The employer may provide, in an addendum to this
amendment, that the minimum benefit requirement shall be met in another plan (including another
plan that consists solely of a cash or deferred arrangement which meets the requirements of Section
401(k)(12) of the Code and matching contributions with respect to which the requirements of Section
401(m)(11) of the Code are met). The addendum should include the name of the other plan, the
minimum benefit that will be provided under such other plan, and the employees who will receive the
minimum benefit under such other plan.

ARTICLE XI

DIRECT ROLLOVERS

	11.1	 	Effective date. This Article shall apply to distributions made after December 31,
2001.
	 
	11.2	 	 Modification of definition of eligible retirement plan. For purposes of the direct
rollover provisions of the plan, an eligible retirement plan shall also mean an annuity contract
described in Section 403(b) of the Code and an eligible plan under Section 457(b) of the Code which
is maintained by a state, political subdivision of a state, or any agency or instrumentality of a
state or political subdivision of a state and which agrees to separately account for amounts
transferred into such plan from this plan. The definition of eligible retirement plan shall also
apply in the case of a

© Copyright 2002 Wachovia Bank, National Association

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EGTRRA — Employer

	 	 	distribution to a surviving spouse, or to a spouse or former spouse who is the alternate payee
under a qualified domestic relation order, as defined in Section 414(p) of the Code.
	 
	11.3	 	Modification of definition of eligible rollover distribution to exclude hardship
distributions. For purposes of the direct rollover provisions of the plan, any amount that is
distributed on account of hardship shall not be an eligible rollover distribution and the
distributee may not elect to have any portion of such a distribution paid directly to an eligible
retirement plan.
	 
	11.4	 	Modification of definition of eligible rollover distribution to include after-tax employee
contributions. For purposes of the direct rollover provisions in the plan, a portion of a
distribution shall not fail to be an eligible rollover distribution merely because the portion
consists of after-tax employee contributions which are not includible in gross income. However,
such portion may be transferred only to an individual retirement account or annuity described in
Section 408(a) or (b) of the Code, or to a qualified defined contribution plan described in Section
401(a) or 403(a) of the Code that agrees to separately account for amounts so transferred,
including separately accounting for the portion of such distribution which is includible in gross
income and the portion of such distribution which is not so includible.

ARTICLE XII

ROLLOVERS FROM OTHER PLANS

Rollovers from other plans. The employer, operationally and on a nondiscriminatory basis,
may limit the source of rollover contributions that may be accepted by this plan.

ARTICLE XIII

REPEAL OF MULTIPLE USE TEST

Repeal of Multiple Use Test. The multiple use test described in Treasury Regulation Section
1.401(m)-2 and the plan shall not apply for plan years beginning after December 31, 2001.

ARTICLE XIV

ELECTIVE DEFERRALS

	14.1	 	Elective Deferrals — Contribution Limitation. No participant shall be permitted to
have elective deferrals made under this plan, or any other qualified plan maintained by the
employer during any taxable year, in excess of the dollar limitation contained in Section 402(g) of
the Code in effect for such taxable year, except to the extent permitted under Article VI of this
amendment and Section 414(v) of the Code, if applicable.
	 
	14.2	 	Maximum Salary Reduction Contributions for SIMPLE plans. If this is a SIMPLE 401(k)
plan, then except to the extent permitted under Article VI of this amendment and Section 414(v) of
the Code, if applicable, the maximum salary reduction contribution that can be made to this plan is
the amount determined under Section 408(p)(2)(A)(ii) of the Code for the calendar year.

ARTICLE XV

SAFE HARBOR PLAN PROVISIONS

Modification of Top-Heavy Rules. The top-heavy requirements of Section 416 of the Code and
the plan shall not apply in any year beginning after December 31, 2001, in which the plan consists
solely of a cash or deferred arrangement which meets the requirements of Section 401(k)(12) of the
Code and matching contributions with respect to which the requirements of Section 401(m)(11) of the
Code are met.

ARTICLE XVI

DISTRIBUTION UPON SEVERANCE OF EMPLOYMENT

	16.1	 	 Effective date. This Article shall apply for distributions and transactions made after
December 31, 2001, regardless of when the severance of employment occurred.
	 
	16.2	 	New distributable event. A participant’s elective deferrals, qualified nonelective
contributions, qualified matching contributions, and earnings attributable to these contributions
shall be distributed on account of the participant’s severance from employment. However, such a
distribution shall be subject to the other provisions of the plan regarding distributions, other
than provisions that require a separation from service before such amounts may be distributed.

© Copyright 2002 Wachovia Bank, National Association

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EGTRRA — Employer

This amendment has been executed this                                         day of                         
                ,                     .

Name of Employer:      Allied Capital Corporation

By:      
               
               
              
           
              
             
        

     
               
               
  EMPLOYER

Name of Plan: Allied Capital 401(k) Plan

© Copyright 2002 Wachovia Bank, National Association

6

 

POST-EGTRRA

AMENDMENT TO THE

ALLIED CAPITAL 401(K) PLAN

 

 

POST-EGTRRA — Employer

ARTICLE I

PREAMBLE

	1.1	 	Adoption and effective date of amendment. This amendment of the plan is adopted to reflect
certain provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”), the
Job Creation and Worker Assistance Act of 2002, and other IRS guidance. This amendment is intended
as good faith compliance with the requirements of EGTRRA and is to be construed in accordance with
EGTRRA and guidance issued thereunder. Except as otherwise provided, this amendment shall be
effective as of the first day of the first plan year beginning after December 31, 2001.
	 
	1.2	 	Supersession of inconsistent provisions. This amendment shall supersede the provisions of the
plan to the extent those provisions are inconsistent with the provisions of this amendment.

ARTICLE II

ADOPTION AGREEMENT ELECTIONS

	 	 	 	The questions in this Article II only need to be completed in order to override the default
provisions set forth below. If all of the default provisions will apply, then these
questions should be skipped.
	 
	 	 	 	Unless the employer elects otherwise in this Article II, the following defaults apply:

	 	1.	 	If catch-up contributions are permitted, then the catch-up contributions are
treated like any other elective deferrals for purposes of determining matching
contributions under the plan.
	 
	 	2.	 	For plans subject to the qualified joint and survivor annuity rules,
rollovers are automatically excluded in determining whether the $5,000 threshold has
been exceeded for automatic cash-outs (if the plan provides for automatic cash-outs).
This is applied to all participants regardless of when the distributable event
occurred.
	 
	 	3.	 	Amounts that are “deemed 125 compensation” are not included in the definition
of compensation.

	2.1	 	Exclusion of Rollovers in Application of Involuntary Cash-out Provisions. If the plan is
subject to the joint and survivor annuity rules and includes involuntary cash-out provisions, then
unless one of the options below is elected, effective for distributions made after December 31,
2001, rollover contributions will be excluded in determining the value of a participant’s
nonforfeitable account balance for purposes of the plan’s involuntary cash-out rules.

	a.	o	 	 Rollover contributions will not be excluded.
	 
	b.	o	 	 Rollover contributions will be excluded only with respect to
distributions made after ___ (Enter
a date no earlier than December 31, 2001).
	 
	c.	þ	 	 Rollover contributions will only be excluded with respect to participants who separated from
service after December 31, 2001. (Enter a date. The date may be earlier than December 31, 2001.)

	2.2	 	Catch-up contributions (for 401(k) profit sharing plans only): The plan permits catch-up
contributions effective for calendar years beginning after December 31, 2001, (Article V) unless
otherwise elected below.

	a.	o	 	 The plan does not permit catch-up contributions to be made.
	 
	b.	o	 	 Catch-up contributions are permitted effective as
of: ___ (enter a date no earlier than
January 1, 2002).

	 	 	 	And, catch-up contributions will be taken into account in applying any matching
contribution under the Plan unless otherwise elected below.

	c.	o	 	 Catch-up contributions will not be taken into account in applying any matching
contribution under the Plan.

	2.3	 	Deemed 125 Compensation. Article VI of this amendment shall not apply unless otherwise elected
below.

	 	o	 	 Article VI of this amendment (Deemed 125 Compensation) shall apply
effective as of Plan Years and Limitation Years beginning on or
after ___ (insert the
later of January 1, 1998, or the first day of the first plan year the Plan used
this definition).

ARTICLE III

INVOLUNTARY CASH-OUTS

	3.1	 	Applicability and effective date. If the plan is subject to the qualified joint and survivor
annuity rules and provides for involuntary cash-outs of amounts less than $5,000, then unless
otherwise elected in Section 2.1 of this amendment, this Article shall apply for distributions made
after December 31, 2001, and shall apply to all participants.

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POST-EGTRRA — Employer

	3.2	 	Rollovers disregarded in determining value of account balance for involuntary distributions.
For purposes of the Sections of the plan that provide for the involuntary distribution of vested
accrued benefits of $5,000 or less, the value of a participant’s nonforfeitable account balance
shall be determined without regard to that portion of the account balance that is attributable to
rollover contributions (and earnings allocable thereto) within the meaning of Sections 402(c),
403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16) of the Code. If the value of the
participant’s nonforfeitable account balance as so determined is $5,000 or less, then the plan
shall immediately distribute the participant’s entire nonforfeitable account balance.

ARTICLE IV

HARDSHIP DISTRIBUTIONS

Reduction of Section 402(g) of the Code following hardship distribution. If the plan provides for
hardship distributions upon satisfaction of the safe harbor (deemed) standards as set forth in
Treas. Reg. Section 1.401(k)-1(d)(2)(iv), then effective as of the date the elective deferral
suspension period is reduced from 12 months to 6 months pursuant to EGTRRA, there shall be no
reduction in the maximum amount of elective deferrals that a Participant may make pursuant to
Section 402(g) of the Code solely because of a hardship distribution made by this plan or any other
plan of the Employer.

ARTICLE V

CATCH-UP CONTRIBUTIONS

Catch-up Contributions. Unless otherwise elected in Section 2.2 of this amendment, effective for
calendar years beginning after December 31, 2001, all employees who are eligible to make elective
deferrals under this plan and who have attained age 50 before the close of the calendar year shall
be eligible to make catch-up contributions in accordance with, and subject to the limitations of,
Section 414(v) of the Code. Such catch-up contributions shall not be taken into account for
purposes of the provisions of the plan implementing the required limitations of Sections 402(g) and
415 of the Code. The plan shall not be treated as failing to satisfy the provisions of the plan
implementing the requirements of Sections 401(k)(3), 401(k)(11), 401(k)(12), 410(b), or 416 of the
Code, as applicable, by reason of the making of such
catch-up contributions.

If elected in Section 2.2, catch-up contributions shall not be treated as elective deferrals for
purposes of applying any Employer matching contributions under the plan.

ARTICLE VI

DEEMED 125 COMPENSATION

If elected, this Article shall apply as of the effective date specified in Section 2.3 of this
amendment. For purposes of any definition of compensation under this Plan that includes a reference
to amounts under Section 125 of the Code, amounts under Section 125 of the Code include any amounts
not available to a Participant in cash in lieu of group health coverage because the Participant is
unable to certify that he or she has other health coverage. An amount will be treated as an amount
under Section 125 of the Code only if the Employer does not request or collect information
regarding the Participant’s other health coverage as part of the enrollment process for the health
plan.

This amendment has been executed this                                          day of                                                                                 ,                    .

Name of Plan: Allied Capital 401(k) Plan

Name of Employer: Allied Capital Corporation

	 	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

EMPLOYER
	 	 

©
Copyright 2003 Wachovia Bank, National Association

2

 

401(a)(9) MODEL

AMENDMENT TO THE

ALLIED CAPITAL 401(K) PLAN

 

 

401(a)(9) — Sponsor

MINIMUM DISTRIBUTION REQUIREMENTS AMENDMENT

ARTICLE I

GENERAL RULES

	1.1	 	Effective Date. Unless a later effective date is specified in Section 6.1 of this Amendment,
the provisions of this Amendment will apply for purposes of determining required minimum
distributions for calendar years beginning with the 2002 calendar year.
	 
	1.2	 	Coordination with Minimum Distribution Requirements Previously in Effect. If the effective date
of this Amendment is earlier than calendar years beginning with the 2003 calendar year, required
minimum distributions for 2002 under this Amendment will be determined as follows. If the total
amount of 2002 required minimum distributions under the Plan made to the distributee prior to the
effective date of this Amendment equals or exceeds the required minimum distributions determined
under this Amendment, then no additional distributions will be required to be made for 2002 on or
after such date to the distributee. If the total amount of 2002 required minimum distributions
under the Plan made to the distributee prior to the effective date of this Amendment is less than
the amount determined under this Amendment, then required minimum distributions for 2002 on and
after such date will be determined so that the total amount of required minimum distributions for
2002 made to the distributee will be the amount determined under this Amendment.
	 
	1.3	 	Precedence. The requirements of this Amendment will take precedence over any inconsistent
provisions of the Plan.
	 
	1.4	 	Requirements of Treasury Regulations Incorporated. All distributions required under this
Amendment will be
determined and made in accordance with the Treasury regulations under Section 401(a)(9) of the
Internal Revenue Code.
	 
	1.5	 	TEFRA Section 242(b)(2) Elections. Notwithstanding the other provisions of this Amendment,
distributions may be made under a designation made before January 1, 1984, in accordance with
Section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act (TEFRA) and the provisions of the
Plan that relate to Section 242(b)(2) of TEFRA.
	 
	1.6	 	Adoption by prototype sponsor. Except as otherwise provided herein, pursuant to Section 5.01 of
Revenue Procedure 2000-20, the sponsoring organization hereby adopts this amendment on behalf of
all adopting employers.

ARTICLE II

TIME AND MANNER OF DISTRIBUTION

	2.1	 	Required Beginning Date. The Participant’s entire interest will be distributed, or begin to be
distributed, to the Participant no later than the Participant’s required beginning date.
	 
	2.2	 	Death of Participant Before Distributions Begin. If the Participant dies before distributions
begin, the Participant’s entire interest will be distributed, or begin to be distributed, no later
than as follows:

(a) If the Participant’s surviving spouse is the Participant’s sole designated beneficiary,
then, except as provided in Article VI, distributions to the surviving spouse will begin by
December 31 of the calendar year immediately following the calendar year in which the
Participant died, or by December 31 of the calendar year in which the Participant would
have attained age 70 1/2, if later.

(b) If the Participant’s surviving spouse is not the Participant’s sole designated
beneficiary, then, except as provided in Article VI, distributions to the designated
beneficiary will begin by December 31 of the calendar year immediately following the
calendar year in which the Participant died.

(c) If there is no designated beneficiary as of September 30 of the year following the year
of the Participant’s death, the Participant’s entire interest will be distributed by
December 31 of the calendar year containing the fifth anniversary of the Participant’s
death.

(d) If the Participant’s surviving spouse is the Participant’s sole designated beneficiary
and the surviving spouse dies after the Participant but before distributions to the
surviving spouse begin, this Section 2.2, other than Section 2.2(a), will apply as if the
surviving spouse were the Participant.

©
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1

 

401(a)(9) — Sponsor

	 	 	For purposes of this Section 2.2 and Article IV, unless Section 2.2(d) applies,
distributions are considered to begin on the Participant’s required beginning date. If
Section 2.2(d) applies, distributions are considered to begin on the date distributions are
required to begin to the surviving spouse under Section 2.2(a). If distributions under an
annuity purchased from an insurance company irrevocably commence to the Participant before
the Participant’s required beginning date (or to the Participant’s surviving spouse before
the date distributions are required to begin to the surviving spouse under Section 2.2(a)),
the date distributions are considered to begin is the date distributions actually commence.
	 
	2.3	 	Forms of Distribution. Unless the Participant’s interest is distributed in the form of an
annuity purchased from an insurance company or in a single sum on or before the required beginning
date, as of the first distribution calendar year distributions will be made in accordance with
Articles III and IV of this Amendment. If the Participant’s interest is distributed in the form of
an annuity purchased from an insurance company, distributions thereunder will be made in accordance
with the requirements of Section 401(a)(9) of the Code and the Treasury regulations.

ARTICLE III

REQUIRED MINIMUM DISTRIBUTIONS DURING PARTICIPANT’S LIFETIME

	3.1	 	Amount of Required Minimum Distribution For Each Distribution Calendar Year. During the
Participant’s lifetime, the minimum amount that will be distributed for each distribution calendar
year is the lesser of:

(a) the quotient obtained by dividing the Participant’s account balance by the distribution
period in the Uniform Lifetime Table set forth in Section 1.401(a)(9)-9 of the Treasury
regulations, using the Participant’s age as of the Participant’s birthday in the
distribution calendar year; or

(b) if the Participant’s sole designated beneficiary for the distribution calendar year is
the Participant’s spouse, the quotient obtained by dividing the Participant’s account
balance by the number in the Joint and Last Survivor Table set forth in Section
1.401(a)(9)-9 of the Treasury regulations, using the Participant’s and spouse’s attained
ages as of the Participant’s and spouse’s birthdays in the distribution calendar year.

	3.2	 	Lifetime Required Minimum Distributions Continue Through Year of Participant’s Death. Required
minimum distributions will be determined under this Article 3 beginning with the first distribution
calendar year and up to and including the distribution calendar year that includes the
Participant’s date of death.

ARTICLE IV

REQUIRED MINIMUM DISTRIBUTIONS AFTER PARTICIPANT’S DEATH

	4.1	 	Death On or After Date Distributions Begin.

(a) Participant Survived by Designated Beneficiary. If the Participant dies on or after the
date distributions begin and there is a designated beneficiary, the minimum amount that
will be distributed for each distribution calendar year after the year of the Participant’s
death is the quotient obtained by dividing the Participant’s account balance by the longer
of the remaining life expectancy of the Participant or the remaining life expectancy of the
Participant’s designated beneficiary, determined as follows:

(1) The Participant’s remaining life expectancy is calculated using the age of the
Participant in the year of death, reduced by one for each subsequent year.

(2) If the Participant’s surviving spouse is the Participant’s sole designated
beneficiary, the remaining life expectancy of the surviving spouse is calculated for
each distribution calendar year after the year of the Participant’s death using the
surviving spouse’s age as of the spouse’s birthday in that year. For distribution
calendar years after the year of the surviving spouse’s death, the remaining life
expectancy of the surviving spouse is calculated using the age of the surviving spouse
as of the spouse’s birthday in the calendar year of the spouse’s death, reduced by one
for each subsequent calendar year.

(3) If the Participant’s surviving spouse is not the Participant’s sole designated
beneficiary, the designated beneficiary’s remaining life expectancy is calculated
using the age of the beneficiary in the year following the year of the Participant’s
death, reduced by one for each subsequent year.

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2

 

401(a)(9) — Sponsor

(b) No Designated Beneficiary. If the Participant dies on or after the date distributions
begin and there is no designated beneficiary as of September 30 of the year after the year
of the Participant’s death, the minimum amount that will be distributed for each
distribution calendar year after the year of the Participant’s death is the quotient
obtained by dividing the Participant’s account balance by the Participant’s remaining life
expectancy calculated using the age of the Participant in the year of death, reduced by one
for each subsequent year.

	4.2	 	Death Before Date Distributions Begin.

(a) Participant Survived by Designated Beneficiary. Except as provided in Article VI, if
the Participant dies before the date distributions begin and there is a designated
beneficiary, the minimum amount that will be distributed for each distribution calendar
year after the year of the Participant’s death is the quotient obtained by dividing the
Participant’s account balance by the remaining life expectancy of the Participant’s
designated beneficiary, determined as provided in Section 4.1.

(b) No Designated Beneficiary. If the Participant dies before the date distributions begin
and there is no designated beneficiary as of September 30 of the year following the year of
the Participant’s death, distribution of the Participant’s entire interest will be
completed by December 31 of the calendar year containing the fifth anniversary of the
Participant’s death.

(c) Death of Surviving Spouse Before Distributions to Surviving Spouse Are Required to
Begin. If the Participant dies before the date distributions begin, the Participant’s
surviving spouse is the Participant’s sole designated beneficiary, and if the surviving
spouse dies before distributions are required to begin to the surviving spouse under
Section 2.2(a), this Section 4.2 will apply as if the surviving spouse were the
Participant.

ARTICLE V

DEFINITIONS

	5.1	 	Designated beneficiary. The individual who is designated as the Beneficiary under the Plan and
is the designated beneficiary under Section 401(a)(9) of the Internal Revenue Code and Section
1.401(a)(9)-1, Q&A-4, of the Treasury regulations.
	 
	5.2	 	Distribution calendar year. A calendar year for which a minimum distribution is required. For
distributions beginning before the Participant’s death, the first distribution calendar year is the
calendar year immediately preceding the calendar year which contains the Participant’s required
beginning date. For distributions beginning after the Participant’s death, the first distribution
calendar year is the calendar year in which distributions are required to begin under Section 2.2.
The required minimum distribution for the Participant’s first distribution calendar year will be
made on or before the Participant’s required beginning date. The required minimum distribution for
other distribution calendar years, including the required minimum distribution for the distribution
calendar year in which the Participant’s required beginning date occurs, will be made on or before
December 31 of that distribution calendar year.
	 
	5.3	 	Life expectancy. Life expectancy as computed by use of the Single Life Table in Section
1.401(a)(9)-9 of the Treasury regulations.
	 
	5.4	 	Participant’s account balance. The account balance as of the last valuation date in the
calendar year immediately preceding the distribution calendar year (valuation calendar year)
increased by the amount of any contributions made and allocated or forfeitures allocated to the
account balance as of the dates in the valuation calendar year after the valuation date and
decreased by distributions made in the valuation calendar year after the valuation date. The
account balance for the valuation calendar year includes any amounts rolled over or transferred to
the Plan either in the valuation calendar year or in the distribution calendar year if distributed
or transferred in the valuation calendar year.
	 
	5.5	 	Required beginning date. The date specified in the Plan when distributions under Section
401(a)(9) of the Internal Revenue Code are required to begin.

ARTICLE VI

ADOPTION AGREEMENT ELECTIONS

The questions in this Article VI only need to be completed in order to override the default
provisions set forth below. If all of the default provisions will apply, then these questions
should be skipped.

Unless the employer elects otherwise in this Article VI, the following defaults apply:

	1)	 	The minimum distribution requirements are effective for distribution calendar years beginning
with the 2002

©
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3

 

401(a)(9) — Sponsor

	 	 	calendar year unless a later date is specified in Section 6.1 of this Amendment.
	 
	2)	 	Participants or beneficiaries may elect on an individual basis whether the 5-year rule or the
life expectancy rule in the Plan applies to distributions after the death of a Participant who
has a designated beneficiary.
	 
	6.1	 	Effective Date of Plan Amendment for Section 401(a)(9) Final and Temporary Treasury
Regulations.

	 	þ 	 	This Amendment applies for purposes of determining required minimum distributions for
distribution calendar years beginning with the 2003 calendar year, as well as required
minimum distributions for the 2002 distribution calendar year that
are made on or after ___
(leave blank if this Amendment does not apply to any minimum distributions for the 2002
distribution calendar year).

	6.2	 	Election to not permit Participants or Beneficiaries to Elect 5-Year Rule.

	 	Unless elected below, Participants or beneficiaries may elect on an individual basis
whether the 5-year rule or the life expectancy rule in Sections 2.2 and 4.2 of this
Amendment applies to distributions after the death of a Participant who has a designated
beneficiary. The election must be made no later than the earlier of September 30 of the
calendar year in which distribution would be required to begin under Section 2.2 of this
Amendment, or by September 30 of the calendar year which contains the fifth anniversary of
the Participant’s (or, if applicable, surviving spouse’s) death. If neither the Participant
nor beneficiary makes an election under this paragraph, distributions will be made in
accordance with Sections 2.2 and 4.2 of this Amendment and, if applicable, the elections in
Section 6.3 of this Amendment below.

	 	o	 	 The provision set forth above in this Section 6.2 shall not apply. Rather,
Sections 2.2 and 4.2 of this Amendment shall apply except as elected in Section 6.3 of
this Amendment below.

	6.3	 	Election to Apply 5-Year Rule to Distributions to Designated Beneficiaries.

	 	o	 	 If the Participant dies before distributions begin and there is a
designated beneficiary, distribution to the designated beneficiary is not required to
begin by the date specified in the Plan, but the Participant’s entire interest will be
distributed to the designated beneficiary by December 31 of the calendar year
containing the fifth anniversary of the Participant’s death. If the Participant’s
surviving spouse is the Participant’s sole designated beneficiary and the surviving
spouse dies after the Participant but before distributions to either the Participant
or the surviving spouse begin, this election will apply as if the surviving spouse
were the Participant.

	 	 	 	If the above is elected, then this election will apply to:

	 	o 	 	All distributions.
	 
	 	o	 	 The following distributions:___.

	6.4	 	Election to Allow Designated Beneficiary Receiving Distributions Under 5-Year Rule to Elect
Life Expectancy Distributions.

	 	o 	 	A designated beneficiary who is receiving payments under the 5-year rule
may make a new election to receive payments under the life expectancy rule until
December 31, 2003, provided that all amounts that would have been required to be
distributed under the life expectancy rule for all distribution calendar years before
2004 are distributed by the earlier of December 31, 2003 or the end of the 5-year
period.

Except with respect to any election made by the employer in Article VI, this amendment is hereby
adopted by the prototype

sponsoring organization on behalf of all adopting employers on:

[Sponsor’s signature and Adoption Date are on file with Sponsor]

NOTE: The employer only needs to execute this amendment if an election has been made in Article VI
of this amendment.

©
Copyright 2003 Wachovia Bank, National Association

4

 

401(a)(9) — Sponsor

This
amendment has been executed this                                          day of                                                                                 ,                     .

Name of Plan: Allied Capital 401(k) Plan

Name of Employer: Allied Capital Corporation

	 	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

EMPLOYER
	 	 

©
Copyright 2003 Wachovia Bank, National Association

5

 

Sponsor — lower cash-out threshold

MANDATORY DISTRIBUTION AMENDMENT

(Code Section 401(a)(31)(B))

ARTICLE I

APPLICATION OF AMENDMENT

	1.1	 	Effective Date. Unless a later effective date is specified in Article III of this
Amendment, the provisions of this Amendment will apply with respect to distributions made on or
after March 28, 2005.
	 
	1.2	 	Precedence. This Amendment supersedes any inconsistent provision of the Plan.
	 
	1.3	 	Adoption by prototype sponsor. Except as otherwise provided herein, pursuant to
authority granted by Section 5.01 of Revenue Procedure 2000-20, the sponsoring organization of
the prototype hereby adopts this amendment on behalf of all adopting employers.

ARTICLE II

DEFAULT PROVISION: LOWER MANDATORY CASH-OUT

THRESHOLD TO $1,000

Unless the Employer otherwise elects in Article III of this Amendment, the provisions of the Plan
for the mandatory distribution of amounts not exceeding $5,000, are amended as follows:

The $5,000 threshold in such provisions is reduced to $1,000 and the value of the Participant’s
interest in the Plan for such purpose shall include any rollover contributions (and earnings
thereon) within the meaning of Code Sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and
457(e)(16).

ARTICLE III

EMPLOYER’S ALTERNATIVE ELECTIONS

	3.1	 þ  	 Effective Date of Plan Amendment
	 
	 	 	This Amendment applies with respect to distributions made on or after 11/1/2005 (may be a
date later than March 28, 2005, only if the terms of the Plan already comply with Code
Section 401(a)(31)(B)).
	 
	3.2	 þ  	 Election to implement automatic IRA rollover rules

	 		
a. þ   	IRA rollover of amounts over $1,000. In lieu of the default
provision in Article II of this Amendment, the provisions of the Plan concerning
mandatory distributions of amounts not exceeding $5,000 are amended as follows:
	 
	 	 	 	In the event of a mandatory distribution greater than $1,000 that is made in
accordance with the provisions of the Plan providing for an automatic distribution
to a Participant without the Participant’s consent, if the Participant does not
elect to have such distribution paid directly to an “eligible retirement plan”
specified by the Participant in a direct rollover (in accordance with the direct
rollover provisions of the Plan) or to receive the distribution directly, then the
Administrator shall pay the distribution in a direct rollover to an individual
retirement plan designated by the Administrator.
	 
	 		b. o   	IRA rollover of amounts over and under $1,000. In lieu of the default
provision in Article II of this Amendment, the provisions of the Plan concerning mandatory distributions of amounts
not exceeding $5,000 are amended as follows:
	 
	 	 	 	In the event of a mandatory distribution that is made in accordance with the
provisions of the Plan providing for an automatic distribution to a Participant
without the Participant’s consent, if the Participant does not elect to have such
distribution paid directly to an “eligible retirement plan” specified by the
Participant in a direct rollover (in accordance with the direct rollover provisions
of
the Plan) or to receive the distribution directly, then the Administrator shall pay
the distribution in a direct rollover to an individual retirement plan designated
by the Administrator.

©
Copyright 2005 Wachovia Bank, National Association

1

 

Sponsor — lower cash-out threshold

	3.3 	o 	 Election to modify mandatory distribution threshold (may not be elected if 3.2 above is
elected)
	 
	 	 	In lieu of the default provision in Article II of this Amendment, the provisions of the
Plan that provide for the involuntary distribution of vested accrued benefits of $5,000 or
less, are modified as follows:

	a. 	o  	 No mandatory distributions. Participant consent to the distribution shall
now be required before the distribution may be made.
	 
	b. 	o  	 Reduction of threshold to amount less than $1,000. The $5,000 dollar
threshold in such provisions is reduced to $ ___ (enter an amount less than $1,000) and the
value of the Participant’s interest in the Plan for such purpose shall include any rollover
contributions (and earnings thereon) within the meaning of Code Sections 402(c), 403(a)(4),
403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16).

Except with respect to any election made by the employer in Article III, this amendment is hereby
adopted by the prototype sponsor on behalf of all adopting employers on:

[Sponsor’s signature and Adoption Date are on file with Sponsor]

NOTE: The employer only needs to execute this amendment if an election has been made in Article III
herein.

This amendment has been executed this                      day of                     ,       .

Name of Plan: Allied Capital 401(k) Plan

Name of Employer: Allied Capital Corporation

By:                                                             

                    EMPLOYER

©
Copyright 2005 Wachovia Bank, National Association

2

 

ROTH Amendment

ROTH 401(k) AMENDMENT

ARTICLE I

PREAMBLE

	1.1	 	Adoption and effective date of amendment. This amendment of the Plan is adopted to
reflect Code Section 402A, as enacted by the Economic Growth and Tax Relief Reconciliation Act of
2001 (“EGTRRA”). This amendment is intended as good faith compliance with the requirements of Code
Section 402A and guidance issued thereunder, and this amendment shall be interpreted in a manner
consistent with such guidance. This amendment shall be effective as of the date selected below.
	 
	1.2	 	Supersession of inconsistent provisions. This amendment shall supersede the
provisions of the Plan to the extent those provisions are inconsistent with the provisions of
this amendment.

ARTICLE II

ADOPTION AGREEMENT ELECTIONS

	2.1	 	Effective Date. Roth Elective Deferrals are permitted under the Plan as of 1/1/2008 (Enter a
date no earlier than January 1, 2006).
	 
	2.2	 	Hardship Distributions. If the Plan permits hardship distributions of Elective Deferrals, may a
Participant receive a hardship distribution of Roth Elective Deferrals?

	 	a. o	 	 N/A. The Plan does not permit hardship distributions of Elective Deferrals.
	 
	 	b. o	 	 No, Roth Elective Deferrals may not be withdrawn for a hardship.
	 
	 	c.
þ	 	 Yes, Roth Elective Deferrals may be withdrawn for a hardship subject to the same
conditions that apply to
Pre-tax Elective Deferrals.

	2.3	 	In-Service Distributions. If the Plan permits in-service distributions, other than hardship
distributions, may a
Participant receive an in-service distribution of the Participant’s Roth Elective Deferral
account?

	 	a. o 	 	 N/A. The Plan does not permit in-service distributions (other than hardship
distributions, if otherwise permitted).
	 
	 	b.  o  	 	 No, the Roth Elective Deferral account may not be withdrawn as part of an in-service
distribution.
	 
	 	c.
þ  	 	 Yes, a Participant may receive an in-service distribution from the Roth Elective
Deferral account subject to the following conditions (select only one):

	 	1. þ  	 	The distribution must satisfy the same conditions
that apply to in-service distributions from the Pre-tax Elective Deferral
account.
	 
	 	2. o  		 The distribution must satisfy the same conditions
that apply to in-service distributions from the Pre-tax Elective Deferral
account and the distribution must be a “qualified distribution” within the
meaning of Code Section 402A(d)(2).

ARTICLE III

ROTH ELECTIVE DEFERRALS

	3.1	 	Roth Elective Deferrals are permitted. The Plan’s definitions and terms shall be
amended as follows to allow for Roth
Elective Deferrals as of the effective date entered at 2.1. Roth Elective Deferrals shall
be treated in the same manner as Elective Deferrals for all Plan purposes except as
provided in Article II of this amendment. The Employer may, in operation, implement
deferral election procedures provided such procedures are communicated to Participants and
permit Participants to modify their elections at least once each Plan Year.
	 
	3.2	 	Elective Deferrals. For years beginning after 2005, the term “Elective Deferrals”
includes Pre-tax Elective Deferrals and Roth Elective Deferrals.
	 
	3.3	 	Pre-Tax Elective Deferrals. “Pre-Tax Elective Deferrals” means a Participant’s Elective
Deferrals which are not includible in the Participant’s gross income at the time deferred and have
been irrevocably designated as Pre-Tax Elective Deferrals by the Participant in his or her deferral
election. A Participant’s Pre-Tax Elective Deferrals will be separately accounted for, as will
gains and losses attributable to those Pre-Tax Elective Deferrals.
	 
	3.4	 	Roth Elective Deferrals. “Roth Elective Deferrals” means a Participant’s Elective
Deferrals that are includible in the Participant’s gross income at the time deferred and have been
irrevocably designated as Roth Elective Deferrals by the Participant in his or her deferral
election. A Participant’s Roth Elective Deferrals will be separately accounted for, as will gains
and losses attributable to those Roth Elective Deferrals, in a Roth Elective Deferral account.
However, forfeitures may not be allocated to such account. The Plan must also maintain a record of
a Participant’s investment in

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ROTH Amendment

	 	 	the contract (i.e., designated Roth contributions that have not been distributed). Roth
Elective Deferrals are not considered Employee Contributions for Plan purposes.
	 
	3.5	 	Ordering Rules for Distributions. The Administrator operationally may implement an
ordering rule procedure for withdrawals (including, but not limited to, hardship or other
in-service withdrawals) from a Participant’s accounts attributable to Pre-Tax Elective Deferrals or
Roth Elective Deferrals. Such ordering rules may specify whether the Pre-Tax Elective Deferrals or
Roth Elective Deferrals are distributed first. Furthermore, such procedure may permit the
Participant to elect which type of Elective Deferrals shall be distributed first.
	 
	3.6	 	Corrective distributions attributable to Roth Elective Deferrals. For any Plan Year in
which a Participant may make both Roth Elective Deferrals and Pre-Tax Elective Deferrals, the
Administrator operationally may implement an ordering rule procedure for the distribution of Excess
Deferrals (Code Section 402(g)), Excess Contributions (Code Section 401(k)), Excess Aggregate
Contributions (Code Section 401(m)), and Excess Annual Additions (Code Section 415). Such ordering
rules may specify whether the Pre-Tax Elective Deferrals or Roth Elective Deferrals are distributed
first, to the extent such type of Elective Deferrals was made for the year. Furthermore, such
procedure may permit the Participant to elect which type of Elective Deferrals shall be distributed
first.
	 
	3.7	 	Loans. If Participant loans are permitted under the Plan, then the Administrator may
modify the loan policy or program to provide limitations on the ability to borrow from, or use
as security, a Participant’s Roth Elective Deferral account. Similarly, the loan policy or
program may be modified to provide for an ordering rule with respect to the default of a loan
that is made from the Participant’s Roth Elective Deferral account and other accounts under
the Plan.
	 
	3.8	 	Rollovers. A direct rollover of a distribution from a Participant’s Roth Elective
Deferral account shall only be made to another Roth Elective Deferral account of an applicable
retirement plan as described in Code Section 402A(e)(1) or to a Roth IRA as described in Code
Section 408A, and only to the extent the rollover is permitted under the rules of Code Section
402(c).
	 
	 	 	3.8.1 The Plan shall accept a rollover contribution to a Participant’s Roth Elective
Deferral account only if it is a direct rollover from another Roth Elective Deferral
account of an applicable retirement plan as described in Code Section 402A(e)(1) and only
to the extent the rollover is permitted under the rules of Code Section 402(c). The
Employer, operationally and on a uniform and nondiscriminatory basis, may decide whether to
accept any such rollovers.
	 
	 	 	3.8.2 The Plan is not required to provide for a direct rollover (including an automatic
rollover) for distributions from a Participant’s Roth Elective Deferral account if the
amount of the distributions that are eligible rollover distributions are reasonably
expected to total less than $200 during a year. In addition, any distribution from a
Participant’s Roth Elective Deferral account are not taken into account in determining
whether distributions from a Participant’s other accounts are reasonably expected to total
less than $200 during a year. However, eligible rollover distributions from a Participant’s
Roth Elective Deferral account are taken into account in determining whether the total
amount of the Participant’s account balances under the Plan exceed the Plan’s limits for
purposes of mandatory distributions from the Plan.
	 
	 	 	3.8.3 The provisions of the Plan that allow a Participant to elect a direct rollover of
only a portion of an eligible rollover distribution (but only if the amount rolled over is
at least $500) may be applied by treating any amount distributed from a Participant’s Roth
Elective Deferral account as a separate distribution from any amount distributed from the
Participant’s other accounts in the plan, even if the amounts are distributed at the same
time.
	 
	3.9	 	Automatic Enrollment. If the Plan utilizes an automatic enrollment feature (i.e., in
the absence of an affirmative election by a Participant, a certain amount or percentage of
Compensation will automatically be contributed to the Plan as an Elective Deferral), then such
Elective Deferral shall be a Pre-Tax Elective Deferral.
	 
	3.10	 	Operational Compliance. The Plan Administrator will administer Roth Elective Deferrals
in accordance with applicable regulations or other binding authority not reflected in this
amendment. Any applicable regulations or other binding authority shall supersede any contrary
provisions of this amendment.

This amendment has been executed this                      day of                     ,      .

Name of Plan: Allied Capital 401(k) Plan

Name of Employer: Allied Capital Corporation

By:                                                                                 

                              EMPLOYER

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2

 

Final 401(k) Amendment — Sponsor

FINAL 401(k)/401(m) REGULATIONS AMENDMENT

ARTICLE I

PREAMBLE

	1.1	 	Adoption and effective date of amendment. The sponsor adopts this Amendment to the Plan
to reflect certain provisions of the Final Regulations under Code Sections 401(k) and 401(m) that
were published on December 29, 2004 (hereinafter referred to as the “Final 401(k) Regulations”).
The sponsor intends this Amendment as good faith compliance with the requirements of these
provisions. This Amendment shall be effective with respect to Plan Years beginning after December
31, 2005 unless the Employer otherwise elects in Section 2.1 below.
	 
	1.2	 	Supersession of inconsistent provisions. This Amendment shall supersede the provisions
of the Plan to the extent those provisions are inconsistent with the provisions of this Amendment.
	 
	1.3	 	Application of provisions. Certain provisions of this Amendment relate to elective
deferrals of a 401(k) plan; if the Plan to which this Amendment relates is not a 401(k) plan, then
those provisions of this Amendment do not apply. Certain provisions of this Amendment relate to
matching contributions and/or after-tax employee contributions subject to Code Section 401(m); if
the Plan to which this Amendment relates is not subject to Code Section 401(m), then those
provisions of this Amendment do not apply.
	 
	1.4	 	Adoption by prototype sponsor. Except as otherwise provided herein, pursuant to the
provisions of the Plan and Section 5.01 of Revenue Procedure 2005-16, the sponsor hereby adopts
this Amendment on behalf of all adopting employers.

ARTICLE II 

EMPLOYER ELECTIONS

	2.1	 	Effective Date. This Amendment is effective, and the Plan shall implement the provisions of the
Final 401(k) Regulations, with respect to Plan Years beginning after December 31, 2005 unless the
Employer elects an earlier effective date in either a. or b.:

	 	a. þ	 	  The Amendment is effective and the Final 401(k) Regulations apply to Plan Years
beginning after
December 31, 2004 (2005 and subsequent Plan Years).
	 
	 	b. o	 	  The Amendment is effective
and the Final 401(k) Regulations apply to Plan Years ending after December 29, 2004 (2004
and subsequent Plan Years).

	2.2	 	ACP Test Safe Harbor. Unless otherwise selected below, if this Plan uses the ADP Test Safe
Harbor provisions, then the provisions of Amendment Section 9.2(a) apply and all matching
contributions under the Plan will be applied without regard to any allocation conditions except as
provided in that Section.

	 	a. o	 	  The provisions of Amendment Section 9.2(b) apply. The allocation conditions
applicable to matching contributions under the Plan continue to apply (if selected, the
Plan is not an ACP Test Safe Harbor Plan).
	 
	 	b. o	 	  The provisions of Amendment Section 9.2(c) apply. All matching contributions
under the Plan will be applied without regard to any allocation conditions as of the
effective date of this Amendment.

ARTICLE III

GENERAL RULES

	3.1	 	Deferral elections. A cash or deferred arrangement (“CODA”) is an arrangement under
which eligible Employees may make elective deferral elections. Such elections cannot relate to
compensation that is currently available prior to the adoption or effective date of the CODA. In
addition, except for occasional, bona fide administrative considerations, contributions made
pursuant to such an election cannot precede the earlier of (1) the performance of services relating
to the contribution and (2) when the compensation that is subject to the election would be
currently available to the Employee in the absence of an election to defer.
	 
	3.2	 	Vesting provisions. Elective Contributions are always fully vested and nonforfeitable.
The Plan shall disregard Elective Contributions in applying the vesting provisions of the Plan to
other contributions or benefits under Code Section 411(a)(2). However, the Plan shall otherwise
take a Participant’s Elective Contributions into account in determining the Participant’s vested
benefits under the Plan. Thus, for example, the Plan shall take Elective Contributions into account
in determining whether a Participant has a nonforfeitable right to contributions under the
Plan for purposes of forfeitures, and for applying provisions permitting the repayment of
distributions to have forfeited amounts restored, and the provisions of Code Sections
410(a)(5)(D)(iii) and 411(a)(6)(D)(iii) permitting a plan to disregard certain service completed
prior to breaks-in-service (sometimes referred to as “the rule of parity”).

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Final 401(k) Amendment — Sponsor

ARTICLE IV

HARDSHIP DISTRIBUTIONS

	4.1	 	Applicability. The provisions of this Article IV apply if the Plan provides for
hardship distributions upon satisfaction of the deemed immediate and heavy financial need standards
set forth in Regulation Section 1.401(k)-1(d)(2)(iv)(A) as in effect prior to the issuance of the
Final 401(k) Regulations.
	 
	4.2	 	Hardship events. A distribution under the Plan is hereby deemed to be on account of an
immediate and heavy financial need of an Employee if the distribution is for one of the following
or any other item permitted under Regulation Section 1.401(k)-1(d)(3)(iii)(B):

	 	(a)	 	Expenses for (or necessary to obtain) medical care that would be deductible under Code
Section 213(d) (determined without regard to whether the expenses exceed 7.5% of adjusted
gross income);
	 
	 	(b)	 	Costs directly related to the purchase of a principal residence for the Employee
(excluding mortgage payments);
	 
	 	(c)	 	Payment of tuition, related educational fees, and room and board expenses, for up to
the next twelve (12) months of post-secondary education for the Employee, the Employee’s
spouse, children, or dependents (as defined in Code Section 152, and, for taxable years
beginning on or after January 1, 2005, without regard to Code Section 152(b)(1), (b)(2),
and (d)(1)(B));
	 
	 	(d)	 	Payments necessary to prevent the eviction of the Employee from the Employee’s
principal residence or foreclosure on the mortgage on that residence;
	 
	 	(e)	 	Payments for burial or funeral expenses for the Employee’s deceased parent, spouse,
children or dependents (as defined in Code Section 152, and, for taxable years beginning on
or after January 1, 2005, without regard to Code Section 152(d)(1)(B)); or
	 
	 	(f)	 	Expenses for the repair of damage to the Employee’s principal residence that would
qualify for the casualty deduction under Code Section 165 (determined without regard to
whether the loss exceeds 10% of adjusted gross income).

	4.3	 	Reduction of Code Section 402(g) limit following hardship distribution. If the Plan
provides for hardship distributions upon satisfaction of the safe harbor standards set forth in
Regulation Sections 1.401(k)-1(d)(3)(iii)(B) (deemed immediate and heavy financial need) and
1.401(k)-1(d)(3)(iv)(E) (deemed necessary to satisfy immediate need), then there shall be no
reduction in the maximum amount of elective deferrals that a Participant may make pursuant to Code
Section 402(g) solely because of a hardship distribution made by this Plan or any other plan of the
Employer.

ARTICLE V

ACTUAL DEFERRAL PERCENTAGE (ADP) TEST

	5.1	 	Targeted contribution limit. Qualified Nonelective Contributions (as defined in
Regulation Section 1.401(k)-6) cannot be taken into account in determining the Actual Deferral
Ratio (ADR) for a Plan Year for a Non-Highly Compensated Employee (NHCE) to the extent such
contributions exceed the product of that NHCE’s Code Section 414(s) compensation and the greater of
five percent (5%) or two (2) times the Plan’s “representative contribution rate.” Any Qualified
Nonelective Contribution taken into account under an Actual Contribution Percentage (ACP) test
under Regulation Section 1.401(m)-2(a)(6) (including the determination of the representative
contribution rate for purposes of Regulation Section 1.401(m)-2(a)(6)(v)(B)), is not permitted to
be taken into account for purposes of this Section (including the determination of the
“representative contribution rate” under this Section). For purposes of this Section:

	 	(a)	 	The Plan’s “representative contribution rate” is the lowest “applicable contribution
rate” of any eligible NHCE among a group of eligible NHCEs that consists of half of all
eligible NHCEs for the Plan Year (or, if greater, the lowest “applicable contribution rate”
of any eligible NHCE who is in the group of all eligible NHCEs for the Plan Year and who is
employed by the Employer on the last day of the Plan Year), and
	 
	 	(b)	 	The “applicable contribution rate” for an eligible NHCE is the sum of the Qualified
Matching Contributions (as defined in Regulation Section 1.401(k)-6) taken into account in
determining the ADR for the eligible NHCE for the Plan Year and the Qualified Nonelective
Contributions made for the eligible NHCE for the Plan Year, divided by the eligible NHCE’s
Code Section 414(s) compensation for the same period.

	 	 	Notwithstanding the above, Qualified Nonelective Contributions that are made in connection
with an Employer’s obligation to pay prevailing wages under the Davis-Bacon Act (46 Stat.
1494), Public Law 71-798, Service Contract Act of 1965 (79 Stat. 1965), Public Law 89-286,
or similar legislation can be taken into account for a Plan Year for an

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Final 401(k) Amendment — Sponsor

	 	 	NHCE to the extent such contributions do not exceed 10 percent (10%) of that NHCE’s Code
Section 414(s) compensation.
	 
	 	 	Qualified Matching Contributions may only be used to calculate an ADR to the extent that
such Qualified Matching Contributions are matching contributions that are not precluded
from being taken into account under the ACP test for the Plan Year under the rules of
Regulation Section 1.401(m)-2(a)(5)(ii) and as set forth in Section 7.1.
	 
	5.2	 	Limitation on QNECs and QMACs. Qualified Nonelective Contributions and Qualified
Matching Contributions cannot be taken into account to determine an ADR to the extent such
contributions are taken into account for purposes of satisfying any other ADP test, any ACP test,
or the requirements of Regulation Section 1.401(k)-3, 1.401(m)-3, or 1.401(k)-4. Thus, for example,
matching contributions that are made pursuant to Regulation Section 1.401(k)-3(c) cannot be taken
into account under the ADP test. Similarly, if a plan switches from the current year testing method
to the prior year testing method pursuant to Regulation Section 1.401(k)-2(c), Qualified
Nonelective Contributions that are taken into account under the current year testing method for a
year may not be taken into account under the prior year testing method for the next year.
	 
	5.3	 	ADR of HCE if multiple plans. The Actual Deferral Ratio (ADR) of any Participant who is
a Highly Compensated
Employee (HCE) for the Plan Year and who is eligible to have Elective Contributions (as
defined in Regulation Section 1.401(k)-6) (and Qualified Nonelective Contributions and/or
Qualified Matching Contributions, if treated as Elective Contributions for purposes of the
ADP test) allocated to such Participant’s accounts under two (2) or more cash or deferred
arrangements described in Code Section 401(k), that are maintained by the same Employer,
shall be determined as if such Elective Contributions (and, if applicable, such Qualified
Nonelective Contributions and/or Qualified Matching Contributions) were made under a single
arrangement. If an HCE participates in two or more cash or deferred arrangements of the
Employer that have different Plan Years, then all Elective Contributions made during the
Plan Year being tested under all such cash or deferred arrangements shall be aggregated,
without regard to the plan years of the other plans. However, for Plan Years beginning
before the effective date of this Amendment, if the plans have different Plan Years, then
all such cash or deferred arrangements ending with or within the same calendar year shall
be treated as a single cash or deferred arrangement. Notwithstanding the foregoing, certain
plans shall be treated as separate if mandatorily disaggregated under the Regulations of
Code Section 401(k).
	 
	5.4	 	Plans using different testing methods for the ADP and ACP test. Except as otherwise
provided in this Section, the Plan may use the current year testing method or prior year testing
method for the ADP test for a Plan Year without regard to whether the current year testing method
or prior year testing method is used for the ACP test for that Plan Year.
However, if different testing methods are used, then the Plan cannot use:

	 	(a)	 	The recharacterization method of Regulation Section 1.401(k)-2(b)(3) to correct excess
contributions for a Plan Year;
	 
	 	(b)	 	The rules of Regulation Section 1.401(m)-2(a)(6)(ii) to take Elective Contributions
into account under the ACP test (rather than the ADP test); or
	 
	 	(c)	 	The rules of Regulation Section 1.401(k)-2(a)(6)(v) to take Qualified Matching
Contributions into account under the ADP test (rather than the ACP test).

ARTICLE VI

ADJUSTMENT TO ADP TEST

	6.1	 	Distribution of Income attributable to Excess Contributions. Distributions of Excess
Contributions must be adjusted for income (gain or loss), including an adjustment for income for
the period between the end of the Plan Year and the date of the distribution (the “gap period”).
The Administrator has the discretion to determine and allocate income using any of the methods set
forth below:

	 	(a)	 	Reasonable method of allocating income. The Administrator may use any
reasonable method for computing the income allocable to Excess Contributions, provided that
the method does not violate Code Section 401(a)(4), is used consistently for all
Participants and for all corrective distributions under the Plan
for the Plan Year, and is used by the Plan for allocating income to Participant’s accounts.
A Plan will not fail to use a reasonable method for computing the income allocable to
Excess Contributions merely because the income allocable to Excess Contributions is
determined on a date that is no more than seven (7) days before the distribution.
	 
	 	(b)	 	Alternative method of allocating income. The Administrator may allocate income
to Excess Contributions for the Plan Year by multiplying the income for the Plan Year
allocable to the Elective Contributions and other amounts taken into account under the ADP
test (including contributions made for the Plan Year), by a fraction, the numerator of
which is the Excess Contributions for the Employee for the Plan Year, and the denominator
of which is the sum of the:

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Final 401(k) Amendment — Sponsor

	 	(1)	 	Account balance attributable to Elective Contributions and other amounts taken
into account under the ADP test as of the beginning of the Plan Year, and
	 
	 	(2)	 	Any additional amount of such contributions made for the Plan Year.

	 	(c)	 	Safe harbor method of allocating gap period income. The Administrator may use
the safe harbor method in this paragraph to determine income on Excess Contributions for
the gap period. Under this safe harbor method, income on Excess Contributions for the gap
period is equal to ten percent (10%) of the income allocable to Excess Contributions for
the Plan Year that would be determined under paragraph (b) above, multiplied by the number
of calendar months that have elapsed since the end of the Plan Year. For purposes of
calculating the number of calendar months that have elapsed under the safe harbor method, a
corrective distribution that is made on or before the fifteenth (15th) day of a month is
treated as made on the last day of the preceding month and a distribution made after the
fifteenth day of a month is treated as made on the last day of the month.
	 
	 	(d)	 	Alternative method for allocating Plan Year and gap period income. The
Administrator may determine the income for the aggregate of the Plan Year and the gap
period, by applying the alternative method provided by paragraph (b) above to this
aggregate period. This is accomplished by (1) substituting the income for the Plan Year and
the gap period, for the income for the Plan Year, and (2) substituting the amounts taken
into account under the ADP test for the Plan Year and the gap period, for the amounts taken
into account under the ADP test for the Plan Year in determining the fraction that is
multiplied by that income.

	6.2	 	Corrective contributions. If a failed ADP test is to be corrected by making an Employer
contribution, then the provisions of the Plan for the corrective contributions shall be applied by
limiting the contribution made on behalf of any NHCE pursuant to such provisions to an amount that
does not exceed the targeted contribution limits of Section 5.1 of this Amendment, or in the case
of a corrective contribution that is a Qualified Matching Contribution, the targeted contribution
limit of Section 7.1 of this Amendment.

ARTICLE VII

ACTUAL CONTRIBUTION PERCENTAGE (ACP) TEST

	7.1	 	Targeted matching contribution limit. A matching contribution with respect to an
Elective Contribution for a Plan Year is not taken into account under the Actual Contribution
Percentage (ACP) test for an NHCE to the extent it exceeds the greatest of:

	 	(a)	 	five percent (5%) of the NHCE’s Code Section 414(s) compensation for the Plan Year;
	 
	 	(b)	 	the NHCE’s Elective Contributions for the Plan Year; and
	 
	 	(c)	 	the product of two (2) times the Plan’s “representative matching rate” and the NHCE’s
Elective Contributions for the Plan Year.

	 	 	For purposes of this Section, the Plan’s “representative matching rate” is the lowest
“matching rate” for any eligible NHCE among a group of NHCEs that consists of half of all
eligible NHCEs in the Plan for the Plan Year who make Elective Contributions for the Plan
Year (or, if greater, the lowest “matching rate” for all eligible NHCEs in the Plan who are
employed by the Employer on the last day of the Plan Year and who make Elective
Contributions for the Plan Year).
	 
	 	 	For purposes of this Section, the “matching rate” for an Employee generally is the matching
contributions made for such Employee divided by the Employee’s Elective Contributions for
the Plan Year. If the matching rate is not the same for all levels of Elective
Contributions for an Employee, then the Employee’s “matching rate” is determined assuming
that an Employee’s Elective Contributions are equal to six percent (6%) of Code Section
414(s) compensation.
	 
	 	 	If the Plan provides a match with respect to the sum of the Employee’s after-tax Employee
contributions and Elective Contributions, then for purposes of this Section, that sum is
substituted for the amount of the Employee’s Elective Contributions in subsections (b) &
(c) above and in determining the “matching rate,” and Employees who make either after-tax
Employee contributions or Elective Contributions are taken into
account in determining the Plan’s “representative matching rate.” Similarly, if the Plan
provides a match with respect to the Employee’s after-tax Employee contributions, but not
Elective Contributions, then for purposes of this subsection, the Employee’s after-tax
Employee contributions are substituted for the amount of the Employee’s Elective
Contributions in subsections (b) & (c) above and in determining the “matching rate,” and
Employees who make after-tax Employee contributions are taken into account in determining
the Plan’s “representative matching rate.”

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Final 401(k) Amendment — Sponsor

	7.2	 	Targeted QNEC limit. Qualified Nonelective Contributions (as defined in Regulation
Section 1.401(k)-6) cannot be taken into account under the Actual Contribution Percentage (ACP)
test for a Plan Year for an NHCE to the extent such contributions exceed the product of that NHCE’s
Code Section 414(s) compensation and the greater of five percent (5%) or two (2) times the Plan’s
“representative contribution rate.” Any Qualified Nonelective Contribution taken into account under
an Actual Deferral Percentage (ADP) test under Regulation Section 1.401(k)-2(a)(6) (including the
determination of the “representative contribution rate” for purposes of Regulation Section
1.401(k)-2(a)(6)(iv)(B)) is not permitted to be taken into account for purposes of this Section
(including the determination of the “representative contribution rate” for purposes of subsection
(a) below). For purposes of this Section:

	 	(a)	 	The Plan’s “representative contribution rate” is the lowest “applicable contribution
rate” of any eligible NHCE among a group of eligible NHCEs that consists of half of all
eligible NHCEs for the Plan Year (or, if greater, the lowest “applicable contribution rate”
of any eligible NHCE who is in the group of all eligible NHCEs for the Plan Year and who is
employed by the Employer on the last day of the Plan Year), and
	 
	 	(b)	 	The “applicable contribution rate” for an eligible NHCE is the sum of the matching
contributions (as defined in Regulation Section 1.401(m)-1(a)(2)) taken into account in
determining the ACR for the eligible NHCE for the Plan Year and the Qualified Nonelective
Contributions made for that NHCE for the Plan Year, divided by that NHCE’s Code Section
414(s) compensation for the Plan Year.

	 	 	Notwithstanding the above, Qualified Nonelective Contributions that are made in connection
with an Employer’s obligation to pay prevailing wages under the Davis-Bacon Act (46 Stat.
1494), Public Law 71-798, Service Contract Act of 1965 (79 Stat. 1965), Public Law 89-286,
or similar legislation can be taken into account for a Plan Year for an NHCE to the extent
such contributions do not exceed 10 percent (10%) of that NHCE’s Code Section 414(s)
compensation.
	 
	7.3	 	ACR of HCE if multiple plans. The Actual Contribution Ratio (ACR) for any Participant
who is a Highly Compensated
Employee (HCE) and who is eligible to have matching contributions or after-tax Employee
contributions allocated to his or her account under two (2) or more plans described in Code
Section 401(a), or arrangements described in Code Section 401(k) that are maintained by the
same Employer, shall be determined as if the total of such contributions was made under
each plan and arrangement. If an HCE participates in two (2) or more such plans or
arrangements that have different plan years, then all matching contributions and after-tax
Employee contributions made during the Plan Year being tested under all such plans and
arrangements shall be aggregated, without regard to the plan years of the other plans. For
plan years beginning before the effective date of this Amendment, all such plans and
arrangements ending with or within the same calendar year shall be treated as a single plan
or arrangement. Notwithstanding the foregoing, certain plans shall be treated as separate
if mandatorily disaggregated under the Regulations of Code Section 401(m).
	 
	7.4	 	Plans using different testing methods for the ACP and ADP test. Except as otherwise
provided in this Section, the Plan may use the current year testing method or prior year testing
method for the ACP test for a Plan Year without regard to whether the current year testing method
or prior year testing method is used for the ADP test for that Plan Year.
However, if different testing methods are used, then the Plan cannot use:

	 	(a)	 	The recharacterization method of Regulation Section 1.401(k)-2(b)(3) to correct excess
contributions for a Plan Year;
	 
	 	(b)	 	The rules of Regulation Section 1.401(m)-2(a)(6)(ii) to take Elective Contributions
into account under the ACP test (rather than the ADP test); or
	 
	 	(c)	 	The rules of Regulation Section 1.401(k)-2(a)(6) to take Qualified Matching
Contributions into account under the ADP test (rather than the ACP test).

ARTICLE VIII

ADJUSTMENT TO ACP TEST

	8.1	 	Distribution of Income attributable to Excess Aggregate Contributions. Distributions of
Excess Aggregate
Contributions must be adjusted for income (gain or loss), including an adjustment for
income for the period between the end of the Plan Year and the date of the distribution
(the “gap period”). For the purpose of this Section, “income” shall be determined and
allocated in accordance with the provisions of Section 6.1 of this Amendment, except that
such Section shall be applied by substituting “Excess Contributions” with “Excess Aggregate
Contributions” and by substituting amounts taken into account under the ACP test for
amounts taken into account under the ADP test.
	 
	8.2	 	Corrective contributions. If a failed ACP test is to be corrected by making an Employer
contribution, then the provisions of the Plan for the corrective contributions shall be applied by
limiting the contribution made on behalf of any NHCE pursuant to such provisions to an amount that
does not exceed the targeted contribution limits of Sections 7.1 and 7.2 of this Amendment.

© Copyright 2006 Wachovia Bank, National Association

5

 

Final 401(k) Amendment — Sponsor

ARTICLE IX

SAFE HARBOR PLAN PROVISIONS

	9.1	 	Applicability. The provisions of this Article IX apply if the Plan uses the alternative
method of satisfying the Actual Deferral Percentage (ADP) test set forth in Code Section 401(k)(12)
(ADP Test Safe Harbor) and/or the Actual Contribution Percentage (ACP) test set forth in Code
Section 401(m)(11) (ACP Test Safe Harbor).
	 
	9.2	 	Elimination of conditions on matching contributions. Unless otherwise provided in
Section 2.2 of this Amendment, the provisions of subsection (a) below shall apply. However, if the
Employer so elects in Section 2.2 of this Amendment, then the provisions of subsection (b) or (c)
below shall apply.

	 	(a)	 	Default provision. If, prior to the date this Amendment has been executed, an
ADP Test Safe Harbor notice has been given for a Plan Year for which this Amendment is
effective (see Amendment Section 1.1) and such notice provides that there are no allocation
conditions imposed on any matching contributions under the Plan, then (1) the Plan will be
an ACP Test Safe Harbor plan, provided the ACP Test Safe Harbor requirements are met and
(2) the Plan will not impose any allocation conditions on matching contributions. However,
if, prior to the date this Amendment has been executed, an ADP Test Safe Harbor notice has
been given for a Plan Year for which this Amendment is effective and such notice provides
that there are allocation conditions imposed on any matching contributions under the Plan,
then the provisions of this Amendment do not modify any such allocation conditions or
provisions for that Plan Year and the Plan must satisfy the ACP Test for such Plan Year
using the current year testing method. With respect to any Plan Year beginning after the
date this Amendment has been executed, if the Plan uses the ADP Test Safe Harbor and
provides for matching contributions, then (1) the Plan will be an ACP Test Safe Harbor
plan, provided the ACP Test Safe Harbor requirements are met and (2) the Plan will not
impose any allocation conditions on matching contributions.
	 
	 	(b)	 	Retention of allocation conditions. If the Employer so elects in Section 2.2 of
this Amendment, then the Plan will retain any allocation conditions contained in the Plan
with regard to matching contributions for any Plan Year for which this Amendment is
effective. In that case, the Plan must satisfy the ACP Test for each such Plan Year.
	 
	 	(c)	 	Elimination of allocation conditions. If the Employer so elects in Section 2.2
of this Amendment, then (1) the Plan will be an ACP Test Safe Harbor plan, provided the ACP
Test Safe Harbor requirements are met, and (2) the Plan will not impose any allocation
conditions on matching contributions.

	9.3	 	Matching Catch-up contributions. If the Plan provides for ADP Test Safe Harbor matching
contributions or ACP Test Safe Harbor matching contributions, then catch-up contributions (as
defined in Code Section 414(v)) will be taken into account in applying such matching contributions
under the Plan.
	 
	9.4	 	Plan Year requirement. Except as provided in Regulation Sections 1.401(k)-3(e) and
1.401(k)-3(f), and below, the Plan will fail to satisfy the requirements of Code Section 401(k)(12)
and this Section for a Plan Year unless such provisions remain in effect for an entire twelve (12)
month Plan Year.
	 
	9.5	 	Change of Plan Year. If a Plan has a short Plan Year as a result of changing its Plan
Year, then the Plan will not fail to satisfy the requirements of Section 9.4 of this Amendment
merely because the Plan Year has less than twelve (12) months, provided that:

	 	(a)	 	The Plan satisfied the ADP Test Safe Harbor and/or ACP Test Safe Harbor requirements
for the immediately preceding Plan Year; and
	 
	 	(b)	 	The Plan satisfies the ADP Test Safe Harbor and/or ACP Test Safe Harbor requirements
(determined without regard to Regulation Section 1.401(k)-3(g)) for the immediately
following Plan Year (or for the immediately following twelve (12) months if the immediately
following Plan Year is less than twelve (12) months).

	9.6	 	Timing of matching contributions. If the ADP Test Safe Harbor contribution being made
to the Plan is a matching contribution (or any ACP Test Safe Harbor matching contribution) that is
made separately with respect to each payroll period (or with respect to all payroll periods ending
with or within each month or quarter of a Plan Year) taken into account under the Plan for the Plan
Year, then safe harbor matching contributions with respect to any
elective deferrals and/or after-tax employee contributions made during a Plan Year quarter must be
contributed to the Plan by the last day of the immediately following Plan Year quarter.
	 
	9.7	 	Exiting safe harbor matching. The Employer may amend the Plan during a Plan Year to
reduce or eliminate prospectively any or all matching contributions under the Plan (including any
ADP Test Safe Harbor matching contributions) provided: (a) the Plan Administrator provides a
supplemental notice to the Participants which explains the consequences of the amendment, specifies
the amendment’s effective date, and informs Participants that they will

© Copyright 2006 Wachovia Bank, National Association

6

 

Final 401(k) Amendment — Sponsor

	 	 	have a reasonable opportunity to modify their cash or deferred elections and, if
applicable, after-tax Employee contribution elections; (b) Participants have a reasonable
opportunity (including a reasonable period after receipt of the supplemental notice) prior
to the effective date of the amendment to modify their cash or deferred elections and, if
applicable, after-tax Employee contribution elections; and (c) the amendment is not
effective earlier than the later of: (i) thirty (30) days after the Plan Administrator
gives supplemental notice; or (ii) the date the Employer adopts the amendment. An Employer
which amends its Plan to eliminate or reduce any matching contribution under this Section,
effective during the Plan Year, must continue to apply all of the ADP Test Safe Harbor
and/or ACP Test Safe Harbor requirements of the Plan until the amendment becomes effective
and also must apply for the entire Plan Year, using current year testing, the ADP test and
the ACP test.

	9.8	 	Plan termination. An Employer may terminate the Plan during a Plan Year in accordance
with Plan termination provisions of the Plan and this Section.

	 	(a)	 	Acquisition/disposition or substantial business hardship. If the Employer
terminates the Plan resulting in a short Plan Year, and the termination is on account of an
acquisition or disposition transaction described in Code Section 410(b)(6)(C), or if the
termination is on account of the Employer’s substantial business hardship within the
meaning of Code Section 412(d), then the Plan remains an ADP Test Safe Harbor and/or ACP
Test Safe Harbor Plan provided that the Employer satisfies the ADP Test Safe Harbor and/or
ACP Test Safe Harbor provisions through the effective date of the Plan termination.
	 
	 	(b)	 	Other termination. If the Employer terminates the Plan for any reason other
than as described in Section 9.8(a) above, and the termination results in a short Plan
Year, the Employer must conduct the termination under the provisions of Section 9.7 above,
except that the Employer need not provide Participants with the right to change their cash
or deferred elections.

Except with respect to any election made by the employer in Article II, this amendment is hereby
adopted by the prototype sponsor on behalf of all adopting employers on:

[Sponsor’s signature and Adoption Date are on file with Sponsor]

NOTE: The Employer only needs to execute this Amendment if an election has been made in Article
II of this Amendment.

This amendment has been executed this                      day of                     ,      .

Name of Plan: Allied Capital 401(k) Plan

Name of Employer: Allied Capital Corporation

By:                                                             

                         EMPLOYER

© Copyright 2006 Wachovia Bank, National Association

7

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