Document:

<PAGE>
                                                               EXHIBIT 10.2

                               AMENDMENT NO. 1 TO
                          PLEDGE AND SECURITY AGREEMENT

         THIS AMENDMENT NO. 1 TO PLEDGE AND SECURITY AGREEMENT, dated as of
December 20, 2000 (this "AMENDMENT"), is entered into by and among ACS FUNDING
TRUST I ("BUYER"), as Buyer, AMERICAN CAPITAL STRATEGIES, LTD. ("SELLER"), as
Seller, and WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION (formerly known as
Norwest Bank Minnesota, National Association), as Escrow Agent. Capitalized
terms used and not otherwise defined herein are used as defined in the Agreement
(as defined below).

         WHEREAS, the parties hereto entered into that certain Pledge and
Security Agreement, dated as of March 31, 1999 (as amended, the "AGREEMENT");

         WHEREAS, the parties hereto desire to amend the Agreement in certain
respects as provided herein;

         NOW THEREFORE, in consideration of the premises and the other mutual
covenants contained herein, the parties hereto agree as follows:

         SECTION 1. AMENDMENTS.

         (a) SECTION 1.1 of the Agreement is hereby amended by adding the
following new definitions thereto:

             LIEN RELEASE DIVIDEND: Defined in the Purchase Agreement and
             the Loan Funding Agreement, respectively, as the same have
             been and are amended, modified, restated, supplemented or
             replaced from time to time.

             RELEASE: Defined in SECTION 20.

             RELATED SUPPLEMENTAL INTERESTS: Defined in SECTION 20.

         (b) The Agreement is hereby amended to add the following new SECTION
20:

             20. RELEASE OF SECURITY INTEREST IN CONNECTION WITH A LIEN
             RELEASE DIVIDEND.

             Section 2.17 LIEN RELEASE DIVIDEND.

             (a) Notwithstanding any provision contained in this Agreement to
             the contrary, in connection with Lien Release Dividends under the
             Purchase Agreement and the Loan Funding Agreement, and upon
             satisfaction of all

<PAGE>

             conditions precedent to and the consummation of the Lien
             Release Dividends under both Agreements, the Pledged
             Supplemental Interests relating to any Loans (but not any
             portions of such Loans) transferred in connection with such
             Lien Release Dividends (the "RELATED SUPPLEMENTAL INTERESTS")
             shall be released from the Lien of this Security Agreement
             (the "RELEASE").

             (b) The Seller hereby agrees to pay the reasonable legal fees and
             expenses of the Buyer, the Escrow Agent, the Deal Agent and the
             Secured Parties in connection with such Release.

             (c) In connection with the Release, on the related Lien Release
             Dividend Dates (or if such dates are different, on the Lien
             Release Dividend Date under the Purchase Agreement), the Buyer
             shall, at the expense of the Seller (i) execute such instruments
             of release with respect to the Related Supplemental Interests to
             be transferred to the Seller, in recordable form if necessary, in
             favor of the Seller as the Seller may reasonably request, (ii)
             deliver or cause the Escrow Agent to deliver any portion of the
             Related Supplemental Interests to be transferred to the Seller in
             their possession to the Seller and (iii) otherwise take such
             actions, and cause or permit the Escrow Agent to take such
             actions, as are necessary and appropriate to release the Lien of
             the Buyer on the Related Supplemental Interests to be transferred
             to the Seller and release and deliver to the Seller the Related
             Supplemental Interests to be transferred to the Seller.

         SECTION 2. AGREEMENT IN FULL FORCE AND EFFECT AS AMENDED.

         Except as specifically amended hereby, the Agreement shall remain in
full force and effect. All references to the Agreement shall be deemed to mean
the Agreement as modified hereby. This Amendment shall not constitute a novation
of the Agreement, but shall constitute an amendment thereof. The parties hereto
agree to be bound by the terms and conditions of the Agreement, as amended by
this Agreement, as though such terms and conditions were set forth herein.

         SECTION 3. REPRESENTATIONS.

         Each of the Buyer and Seller represent and warrant as of the date of
this Amendment as follows:

                  (i) it is duly incorporated or organized, validly existing and
         in good standing under the laws of its jurisdiction of incorporation or
         organization;

                  (ii) the execution, delivery and performance by it of this
         Amendment are within its powers, have been duly authorized, and do not
         contravene (A) its charter, by-laws, or other organizational documents,
         or (B) any Applicable Law;

                                       2
<PAGE>

                  (iii) no consent, license, permit, approval or authorization
         of, or registration, filing or declaration with any governmental
         authority, is required in connection with the execution, delivery,
         performance, validity or enforceability of this Amendment by or against
         it;

                  (iv) this Amendment has been duly executed and delivered by
         it;

                  (v) this Amendment constitutes its legal, valid and binding
         obligation enforceable against it in accordance with its terms, except
         as enforceability may be limited by applicable bankruptcy, insolvency,
         reorganization, moratorium or similar laws affecting the enforcement of
         creditors' rights generally or by general principles of equity;

                  (vi) it is not in default under the Agreement; and

                  (vii) there is no Termination Event, Unmatured Termination
         Event or Servicer Termination Event;

         SECTION 4. EXPENSES.

         In connection with the execution of this Amendment, the Borrower agrees
to pay all reasonable and actual costs and expenses (including without
limitation the reasonable fees and expenses of legal counsel) of VFCC and the
Escrow Agent incurred in connection with the review and negotiation of this
Amendment.

         SECTION 5. CONDITIONS PRECEDENT.

         The effectiveness of this Amendment is subject to the following
conditions precedent: (a) delivery to the Deal Agent of a copy of this Amendment
duly executed by each of the parties hereto; (b) delivery to the Deal Agent (in
a form acceptable to the Deal Agent) of (i) a due authorization, execution and
enforceability opinion with respect to this Amendment and (ii) updated true sale
and non-consolidation opinions; and (c) such other documents, agreements,
certifications, or legal opinions as the Deal Agent may reasonably require.

         SECTION 6. MISCELLANEOUS.

         (a) This Amendment may be executed in any number of counterparts
(including by facsimile), and by the different parties hereto on the same or
separate counterparts, each of which shall be deemed to be an original
instrument but all of which together shall constitute one and the same
agreement.

         (b) The descriptive headings of the various sections of this Amendment
are inserted for convenience of reference only and shall not be deemed to affect
the meaning or construction of any of the provisions hereof.

                                       3

<PAGE>

         (c) This Amendment may not be amended or otherwise modified except as
provided in the Agreement.

         (d) The failure or unenforceability of any provision hereof shall not
affect the other provisions of this Amendment.

         (e) Whenever the context and construction so require, all words used in
the singular number herein shall be deemed to have been used in the plural, and
vice versa, and the masculine gender shall include the feminine and neuter and
the neuter shall include the masculine and feminine.

         (f) This Amendment represents the final agreement between the parties
and may not be contradicted by evidence of prior, contemporaneous or subsequent
oral agreements between the parties. There are no unwritten oral agreements
between the parties.

         (g) THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER
THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO ITS CONFLICT OF LAWS
PROVISIONS.

                  [Remainder of Page Intentionally Left Blank]

                                       4

<PAGE>

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

THE BUYER:                    ACS FUNDING TRUST I

                              By:
                                 -----------------------------------------------
                              Name:
                                   ---------------------------------------------
                              Title:
                                    --------------------------------------------

                              ACS Funding Trust I
                              c/o American Capital Strategies, Ltd., as Servicer
                              2 Bethesda Metro Center, 14th Floor
                              Bethesda, Maryland  20814
                              Attention:  Compliance Officer
                              Facsimile No.:  (301) 654-6714
                              Confirmation No.:  (301) 951-6122

THE SELLER:                   AMERICAN CAPITAL STRATEGIES, LTD.

                              By:
                                 -----------------------------------------------
                              Name:
                                   ---------------------------------------------
                              Title:
                                    --------------------------------------------

                              American Capital Strategies, Ltd.
                              2 Bethesda Metro Center, 14th Floor
                              Bethesda, Maryland  20814
                              Attention:  Compliance Officer
                              Facsimile No.:  (301) 654-6714
                              Confirmation No.:  (301 951-6122

                    [SIGNATURES CONTINUED ON FOLLOWING PAGE]

                                      S-1

<PAGE>

THE ESCROW AGENT:             WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION
                              (FORMERLY KNOWN AS NORWEST BANK MINNESOTA,
                              NATIONAL ASSOCIATION)

                              By:
                                 -----------------------------------------------
                              Name:
                                   ---------------------------------------------
                              Title:
                                    --------------------------------------------

                              Wells Fargo Bank Minnesota, National Association
                              MAC N9311-161
                              Sixth Street and Marquette Avenue
                              Minneapolis, Minnesota  55479
                              Attention:  Corporate Trust Services
                                          Asset-Backed Administration
                              Facsimile No.:  (612) 667-3464
                              Confirmation No.:  (612) 667-8058

                                      S-2

<PAGE>

CONSENTED TO:

FIRST UNION SECURITIES, INC.
(successor-in-interest to First Union
Capital Markets Corp.), as Deal Agent, for
itself and on behalf of the Secured Parties

By:
   --------------------------------------------------
Name:
     ------------------------------------------------
Title:
      -----------------------------------------------

First Union Capital Markets Corp.
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attention:  Conduit Administration
Facsimile No.:  (704) 383-6036
Telephone No.:  (704) 383-9343

FIRST UNION NATIONAL BANK,
as Hedge Counterparty

By:
   --------------------------------------------------
Name:
     ------------------------------------------------
Title:
      -----------------------------------------------

First Union National Bank
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attention:  Capital Markets Credit Administration
Facsimile No.:  (704) 374-3254
Telephone No.:  (704) 374-4001

                                      S-3<PAGE>
                                                              EXHIBIT 10.3

                               AMENDMENT NO. 1 TO
                           PURCHASE AND SALE AGREEMENT

         THIS AMENDMENT NO. 1 TO PURCHASE AND SALE AGREEMENT, dated as of
December 20, 2000 (this "AMENDMENT"), is entered into by and among ACS FUNDING
TRUST I ("BUYER"), as Buyer, and AMERICAN CAPITAL STRATEGIES, LTD. ("SELLER"),
as Seller. Capitalized terms used and not otherwise defined herein are used as
defined in the Agreement (as defined below).

         WHEREAS, the parties hereto entered into that certain Purchase and Sale
Agreement, dated as of March 31, 1999 (as amended, the "AGREEMENT"); and

         WHEREAS, the parties hereto desire to amend the Agreement in certain
respects as provided herein.

         NOW THEREFORE, in consideration of the premises and the other mutual
covenants contained herein, the parties hereto agree as follows:

         SECTION 1. AMENDMENTS.

         (a) SECTION 1.1 of the Agreement is hereby amended by adding the
following new definitions thereto:

         LIEN RELEASE DIVIDEND:  Defined in SECTION 2.3.

         LIEN RELEASE DIVIDEND DATE: The date specified by the Buyer, which date
         may be any Business Day, provided notice is given in accordance with
         SECTION 2.3(a).

         (b) The Agreement is hereby amended by adding the following new SECTION
2.3:

         Section 2.3 LIEN RELEASE DIVIDENDS.

         (a) Notwithstanding any provision contained in this Agreement to the
         contrary, provided there is neither an Unmatured Termination Event, a
         Termination Event nor a Servicer Termination Event, on a Lien Release
         Dividend Date, the Buyer may dividend to the Seller a portion of the
         Loans or portions thereof (the "LIEN RELEASE DIVIDEND"), subject to the
         following terms and conditions:

                  (1) The Buyer shall have given the Seller and the Deal Agent,
                  as assignee, at least two (2) Business Days' prior written
                  notice of its intent

<PAGE>

                  to effect an Lien Release Dividend, unless such notice is
                  waived or reduced by the Seller and the Deal Agent;

                  (2) Any Lien Release Dividend shall be in connection with a
                  Permitted Securitization Transaction;

                  (3) After giving effect to the Lien Release Dividend and the
                  dividend to the Seller of the Loans or portions thereof on the
                  Lien Release Dividend Date, (A) the representations and
                  warranties contained in Sections 4.1 and 4.3 hereof shall
                  continue to be correct in all material respects, except to the
                  extent relating to an earlier date and (B) neither an
                  Unmatured Termination Event, a Termination Event nor a
                  Servicer Termination Event shall have resulted;

                  (4) Such Lien Release Dividend must be in compliance with
                  Applicable Law and may not (A) be made with the intent to
                  hinder, delay or defraud any creditor of the Buyer or (B)
                  leave the Buyer, immediately after giving effect to the Lien
                  Release Dividend, (i) insolvent, (ii) with insufficient funds
                  to pay its obligations as and when they become due or (iii)
                  with inadequate capital for its present and anticipated
                  business and transactions;

                  (5) On or prior to the Lien Release Dividend Date, the Buyer
                  shall have (A) delivered to the Seller a list specifying all
                  Loans or portions thereof to be transferred pursuant to such
                  Lien Release Dividend and the Seller shall have approved same
                  in its sole discretion and (B) obtained all authorizations,
                  consents and approvals required to effectuate the Lien Release
                  Dividend; and

                  (6) A portion of a Loan may be transferred pursuant to the
                  Lien Release Dividend provided that (A) such transfer does not
                  have an adverse effect on the portion of the Loan remaining as
                  a part of the Collateral under the Loan Funding Agreement, any
                  other Collateral under the Loan Funding Agreement, the
                  Lenders, the Secured Parties or the Deal Agent, (B) the Loan
                  Documents for such portion of the Loan remaining as a part of
                  the Collateral have been amended to contain pro rata sharing,
                  intercreditor and, if applicable, subordination, provisions
                  substantially the same as those contained in the form of
                  intercreditor and subordination agreement provided to and
                  reviewed by the Deal Agent and is attached as EXHIBIT U to the
                  Loan Funding Agreement, and (C) a new promissory note for the
                  portion of the Loan remaining as a part of the Collateral
                  under the Loan Funding Agreement has been executed by the
                  Obligor, and the original thereof has been endorsed to the
                  Deal Agent and delivered to the Collateral Custodian.

                                       2
<PAGE>

         (b) In connection with the Lien Release Dividend, there shall be
         assigned to the Seller, without recourse, representation or warranty,
         all of the right, title and interest of the Buyer in, to and under the
         Loans or portions thereof so retransferred (together with, in the case
         of the transfer of the Loans but not portions thereof, the related
         Collateral) and such Loans or portions thereof so retransferred
         (together with, in the case of the transfer of the Loans but not
         portions thereof, the related Collateral) shall be released from the
         Lien of this Agreement (subject to the requirements of clause (a)(3)
         above).

         (c) The Seller hereby agrees to pay the reasonable legal fees and
         expenses of the Buyer in connection with any Lien Release Dividend
         hereunder and under the Loan Funding Agreement (including, but not
         limited to, expenses incurred in connection with the release of the
         Liens of the Deal Agent, on behalf of the Secured Parties, the Buyer
         and any other party having an interest in the Loans in connection with
         such Lien Release Dividends).

         (d) In connection with any Lien Release Dividend, on the related Lien
         Release Dividend Date, the Buyer shall, at the expense of the Seller
         (1) execute such instruments of release with respect to the Loans or
         portions thereof to be transferred to the Seller (together with, in the
         case of the transfer of the Loans but not portions thereof, the related
         Collateral), in recordable form if necessary, in favor of the Seller as
         the Seller may reasonably request, (2) deliver any portion of the Loans
         or portions thereof to be transferred to the Seller (together with, in
         the case of the transfer of the Loans but not portions thereof, the
         related Collateral) in its possession to the Seller and (3) otherwise
         take such actions as are necessary and appropriate to release the Lien
         of the Buyer on the Loans or portions thereof to be transferred to the
         Seller (together with, in the case of the transfer of the Loans but not
         portions thereof, the related Collateral) and release and deliver to
         the Seller such Loans or portions thereof to be transferred to the
         Seller (together with, in the case of the transfer of the Loans but not
         portions thereof, the related Collateral).

         (c) The first sentence of SECTION 5.1(b) of the Agreement is hereby
amended and restated in its entirety to read as follows:

         "(b) Except for the transfers hereunder, the Seller will not sell,
         pledge, assign or transfer to any other Person, or grant, create,
         incur, assume or suffer to exist any lien on any Loan transferred
         hereunder or, except for Permitted Liens, on any Related Property or
         other Purchased Assets, whether now existing or hereafter transferred
         hereunder, or any interest therein, and Seller will not sell, pledge,
         assign or suffer to exist any lien on any Purchased Asset."

                                       3
<PAGE>

         SECTION 2. AGREEMENT IN FULL FORCE AND EFFECT AS AMENDED.

         Except as specifically amended hereby, the Agreement shall remain in
full force and effect. All references to the Agreement shall be deemed to mean
the Agreement as modified hereby. This Amendment shall not constitute a novation
of the Agreement, but shall constitute an amendment thereof. The parties hereto
agree to be bound by the terms and conditions of the Agreement, as amended by
this Agreement, as though such terms and conditions were set forth herein.

         SECTION 3. REPRESENTATIONS.

         Each of the Buyer and Seller represent and warrant as of the date of
this Amendment as follows:

                  (i) it is duly incorporated or organized, validly existing and
         in good standing under the laws of its jurisdiction of incorporation or
         organization;

                  (ii) the execution, delivery and performance by it of this
         Amendment are within its powers, have been duly authorized, and do not
         contravene (A) its charter, by-laws, or other organizational documents,
         or (B) any Applicable Law;

                  (iii) no consent, license, permit, approval or authorization
         of, or registration, filing or declaration with any governmental
         authority, is required in connection with the execution, delivery,
         performance, validity or enforceability of this Amendment by or against
         it;

                  (iv) this Amendment has been duly executed and delivered by
         it;

                  (v) this Amendment constitutes its legal, valid and binding
         obligation enforceable against it in accordance with its terms, except
         as enforceability may be limited by applicable bankruptcy, insolvency,
         reorganization, moratorium or similar laws affecting the enforcement of
         creditors' rights generally or by general principles of equity;

                  (vi) it is not in default under the Agreement; and

                  (vii) there is no Termination Event, Unmatured Termination
         Event or Servicer Termination Event;

         SECTION 4. EXPENSES.

         In connection with the execution of this Amendment, the Seller agrees
to pay all reasonable and actual costs and expenses (including without
limitation the reasonable fees and expenses of legal counsel) of VFCC, the
Collateral Custodian and the Backup Servicer incurred in connection with the
review and negotiation of this Amendment.

                                       4
<PAGE>

         SECTION 5. CONDITIONS PRECEDENT.

         The effectiveness of this Amendment is subject to the following
conditions precedent: (a) delivery to the Deal Agent of a copy of this Amendment
duly executed by each of the parties hereto; (b) delivery to the Deal Agent (in
a form acceptable to the Deal Agent) of (i) a due authorization, execution and
enforceability opinion with respect to this Amendment and (ii) updated true sale
and non-consolidation opinions; and (c) such other documents, agreements,
certifications, or legal opinions as the Deal Agent may reasonably require.

         SECTION 6. MISCELLANEOUS.

         (a) This Amendment may be executed in any number of counterparts
(including by facsimile), and by the different parties hereto on the same or
separate counterparts, each of which shall be deemed to be an original
instrument but all of which together shall constitute one and the same
agreement.

         (b) The descriptive headings of the various sections of this Amendment
are inserted for convenience of reference only and shall not be deemed to affect
the meaning or construction of any of the provisions hereof.

         (c) This Amendment may not be amended or otherwise modified except as
provided in the Agreement.

         (d) The failure or unenforceability of any provision hereof shall not
affect the other provisions of this Amendment.

         (e) Whenever the context and construction so require, all words used in
the singular number herein shall be deemed to have been used in the plural, and
vice versa, and the masculine gender shall include the feminine and neuter and
the neuter shall include the masculine and feminine.

         (f) This Amendment represents the final agreement between the parties
and may not be contradicted by evidence of prior, contemporaneous or subsequent
oral agreements between the parties. There are no unwritten oral agreements
between the parties.

         (g) THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER
THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO ITS CONFLICT OF LAWS
PROVISIONS.

                                       5
<PAGE>

         SECTION 7. DEAL AGENT'S CONSENT AND WAIVER.

         By its execution hereof, the Deal Agent, for itself and on behalf of
the Secured Parties, consents to this Amendment and waives any requirements for
notice with respect thereto.

                  [Remainder of Page Intentionally Left Blank]

                                       6

<PAGE>

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

THE BUYER:                    ACS FUNDING TRUST I

                              By:
                                 -----------------------------------------------
                              Name:
                                   ---------------------------------------------
                              Title:
                                    --------------------------------------------

                              ACS Funding Trust I
                              c/o American Capital Strategies, Ltd., as Servicer
                              2 Bethesda Metro Center, 14th Floor
                              Bethesda, Maryland  20814
                              Attention:  Compliance Officer
                              Facsimile No.:  (301) 654-6714
                              Confirmation No.:  (301) 951-6122

THE SELLER:                   AMERICAN CAPITAL STRATEGIES, LTD.

                              By:
                                 -----------------------------------------------
                              Name:
                                   ---------------------------------------------
                              Title:
                                    --------------------------------------------

                              American Capital Strategies, Ltd.
                              2 Bethesda Metro Center, 14th Floor
                              Bethesda, Maryland  20814
                              Attention:  Compliance Officer
                              Facsimile No.:  (301) 654-6714
                              Confirmation No.:  (301 951-6122

                    [SIGNATURES CONTINUED ON FOLLOWING PAGE]

                                      S-1

<PAGE>

CONSENTED TO:

FIRST UNION SECURITIES, INC.
(successor-in-interest to First Union
Capital Markets Corp.), as Deal Agent, for
itself and on behalf of the Secured Parties

By:
   --------------------------------------------------
Name:
     ------------------------------------------------
Title:
      -----------------------------------------------

First Union Capital Markets Corp.
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attention:  Conduit Administration
Facsimile No.:  (704) 383-6036
Telephone No.:  (704) 383-9343

FIRST UNION NATIONAL BANK,
  as Hedge Counterparty

By:
   --------------------------------------------------
Name:
     ------------------------------------------------
Title:
      -----------------------------------------------

First Union National Bank
One First Union Center, TW-9
Charlotte, North Carolina 28288
Attention:  Capital Markets Credit Administration
Facsimile No.:  (704) 374-3254
Telephone No.:  (704) 374-4001

                                      S-2

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