First Omnibus Waiver and Amendment to Note Agreements between Allied Capital Corporation and Noteholders (July 25, 2008)

EXHIBIT 10.40

Allied Capital Corporation

First Omnibus Waiver and Amendment to the Note Agreements

Dated as of July 25, 2008

Re:

Note Agreement dated as of May 14, 2003
$147,000,000 6.05% Senior Notes, Series B, due May 14, 2010
and
Note Agreement dated as of November 15, 2004
$252,500,000 5.53% Senior Notes, Series A, due November 15, 2009
$72,500,000 5.99% Senior Notes, Series B, due November 15, 2011
and
Note Agreement dated as of October 13, 2005
$261,000,000 6.15% Senior Notes, Series A, due October 13, 2010
$89,000,000 6.34% Senior Notes, Series B, due October 13, 2012
and
Note Agreement dated as of May 1, 2006
$50,000,000 6.75% Senior Notes due May 1, 2013
and
Note Agreement dated as of June 20, 2008
$140,500,000 7.82% Senior Notes, Series 2008-A, due June 20, 2013
$52,500,000 8.14% Senior Notes, Series 2008-B, due June 20, 2015

Allied Capital Corporation
1919 Pennsylvania Avenue, N.W.
Washington, DC 20006

First Omnibus Waiver and Amendment to the Note Agreements

Dated as of July 25, 2008

Re: Note Agreement dated as of May 14, 2003
$147,000,000 6.05% Senior Notes, Series B, due May 14, 2010
and
Note Agreement dated as of November 15, 2004
$252,500,000 5.53% Senior Notes, Series A, due November 15, 2009
$72,500,000 5.99% Senior Notes, Series B, due November 15, 2011
and
Note Agreement dated as of October 13, 2005
$261,000,000 6.15% Senior Notes, Series A, due October 13, 2010
$89,000,000 6.34% Senior Notes, Series B, due October 13, 2012
and
Note Agreement dated as of May 1, 2006
$50,000,000 6.75% Senior Notes due May 1, 2013
and
Note Agreement dated as of June 20, 2008
$140,500,000 7.82% Senior Notes, Series 2008-A, due June 20, 2013
$52,500,000 8.14% Senior Notes, Series 2008-B, due June 20, 2015

To each of the Noteholders
named in Schedule A attached hereto which are also
signatories to this First Omnibus Waiver and Amendment
to the Note Agreements (this “First Waiver and Amendment”).

Ladies and Gentlemen:

     Reference is made to (i) the Note Agreement dated as of May 14, 2003 (the “2003 Note Agreement”) under and pursuant to which the $147,000,000 6.05% Senior Notes, Series B, due May 14, 2010 (the “2003 Notes”) were originally issued and sold, (ii) the Note Agreement dated as of November 15, 2004 (the “2004 Note Agreement”) under and pursuant to which (a) the $252,500,000 5.53% Senior Notes, Series A, due November 15, 2009 (the “2004 Series A Notes”) and (b) the $72,500,000 5.99% Senior Notes, Series B, due November 15, 2011 (the “2004 Series B Notes”, and together with the 2004 Series A Notes, the “2004 Notes”) were originally issued and sold, (iii) the Note Agreement dated as of October 13, 2005 (the “2005 Note Agreement”) under and pursuant to which (a) the $261,000,000 6.15% Senior Notes, Series A, due October 13, 2010 (the “2005 Series A Notes”) and (b) the $89,000,000 6.34% Senior Notes, Series B, due October 13, 2012 (the “2005 Series B Notes”, and together with the 2005 Series A Notes, the “2005 Notes”) were originally issued and sold, (iv) the Note

Agreement dated as of May 1, 2006 (the “2006 Note Agreement”) under and pursuant to which the $50,000,000 6.75% Senior Notes due May 1, 2013 (the “2006 Notes”) were originally issued and sold, and (v) the Note Agreement dated as of June 20, 2008 (the “2008 Note Agreement”) under and pursuant to which (a) the $140,500,000 7.82% Senior Notes, Series 2008-A, due June 20, 2013 (the “2008 Series A Notes”) and (b) the $52,500,000 8.14% Senior Notes, Series 2008-B, due June 20, 2015 (the “2008 Series B Notes”, and together with the 2008 Series A Notes, the “2008 Notes”, and together with the 2003 Notes, the 2004 Notes, the 2005 Notes, and the 2006 Notes, the “Notes”) were originally issued and sold, each of which are by and among Allied Capital Corporation, a Maryland corporation (the “Company”), and the institutional investors named therein. The current holders of the Notes are named in Schedule A hereto and are collectively referred to as the “Noteholders” and individually as a “Noteholder”. The 2003 Note Agreement, the 2004 Note Agreement, the 2005 Note Agreement, the 2006 Note Agreement and the 2008 Note Agreement are collectively referred to as the “Note Agreements” and individually as a “Note Agreement”. Terms used but not otherwise defined herein shall have the meanings set forth in the Note Agreements.

     The Company has requested certain waivers and amendments to the Note Agreements and hereby agrees with you as follows:

Article 1.

Waiver of Defaults.

     Section 1.1. Waiver of Defaults. The Company has notified the Noteholders that it has declared certain dividends on its capital stock payable on dates that are more than the 60 days or 80 days, as the case may be, permitted by Section 5.10 of the Note Agreements. The Noteholders hereby waive any Event of Default arising under the Note Agreements solely on account of such declaration and payment (including any Event of Default arising under Section 6.1(d) or (g)) and the failure to give the notice required by Section 6.2 of the Note Agreements.

     Section 1.2. Limited Waivers; Reservation of Rights. The Company acknowledges and agrees that the waivers granted in this Section 1 are specific in intent and are valid only for the specific purposes for which they are being given, are waivers of known Events of Default only, shall not in any way obligate the Noteholders to agree to any additional waivers of the provisions of the Note Agreements, and shall not in any way be deemed to constitute or operate as a waiver of any Noteholder’s right under the Note Agreements to exercise remedies resulting from (i) existing and/or continuing Defaults or Events of Default of which such Noteholder is not actually aware or (ii) other future Defaults or Events of Default, whether or not of a similar nature and whether or not known to any Noteholder.

Article 2.

Amendment of the Note Agreements.

     Amendment of Section 5.10 (Restricted Payments). The second to last paragraph of Section 5.10 of each Note Agreement shall be and is hereby amended and restated in its entirety as follows:

The Company will not declare any dividend which constitutes a Restricted Payment payable more than 80 days after the date of declaration thereof; provided that dividends payable in the fourth quarter and any year-end extra dividend which constitute a Restricted Payment may be payable up to 120 days after the date of declaration thereof.

Article 3.

Representations and Warranties.

     The Company represents and warrants that as of the date hereof and after giving effect hereto:

     (a) The execution and delivery of this First Waiver and Amendment by the Company and compliance by the Company with all of the provisions of the Note Agreements, as amended by this First Waiver and Amendment—

     (i) are within the corporate power and authority of the Company; and

     (ii) will not violate any provisions of any law or any order of any court or governmental authority or agency, and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under the articles of incorporation or bylaws of the Company or any indenture or other agreement or instrument to which the Company is a party or by which the Company may be bound, or result in the imposition of any Liens or encumbrances on any property of the Company.

     (b) The execution and delivery of this First Waiver and Amendment has been duly authorized by all necessary corporate action on the part of the Company (no action by the stockholders of the Company being required by law, by the articles of incorporation or bylaws of the Company or otherwise, other than those actions which have been obtained or effected); and this First Waiver and Amendment has been duly executed and delivered by the Company, and each Note Agreement, as amended by this First Waiver and Amendment, constitutes the legal, valid and binding obligation, contract and agreement of the Company, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and similar laws affecting creditors’ rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law).

     (c) Upon the effectiveness of this First Waiver and Amendment no Default or Event of Default shall exist or be continuing.

Article 4.

Miscellaneous.

     Section 4.1. Ratification of the Note Agreements. Except as herein expressly amended, the Note Agreements are in all respects ratified and confirmed. If and to the extent that any of the terms or provisions of the Note Agreements are in conflict or inconsistent with any of the terms or provisions of this First Waiver and Amendment, this First Waiver and Amendment shall govern.

     Section 4.2. References to the Agreement. References in any Note Agreement or in any Note, certificate, instrument or other document related to or delivered in connection with the transactions contemplated by any Note Agreement shall be deemed to be references to such Note Agreement as amended hereby and as further amended from time to time.

     Section 4.3. Successors and Assigns. This First Waiver and Amendment shall be binding upon the Company and its successors and assigns and shall inure to the benefit of each Noteholder and such Noteholder’s successors and assigns, including each successive holder or holders of any Notes.

     Section 4.4. Requisite Approval; Expenses. This First Waiver and Amendment shall be effective as of the date first written above upon the satisfaction of the following conditions precedent: (a) the Company and the holders of at least 51% in aggregate principal amount of each of the 2003 Notes, the 2004 Notes, the 2005 Notes, the 2006 Notes and the 2008 Notes shall have executed this First Waiver and Amendment; (b) copies of the waiver to the Bank Credit Agreement shall have been delivered to the Noteholders, and shall be substantively similar to the waiver portion of this First Waiver and Amendment and in form reasonably satisfactory to the Noteholders; (c) the Company shall have paid a fee to each Noteholder in an amount equal to 10.0 basis points of the principal amount of Notes held by such Noteholder; and (d) the Company shall have paid the reasonable fees, expenses and disbursements of Chapman and Cutler LLP which are reflected in statements of such counsel rendered on or prior to the date of this First Waiver and Amendment.

     Section 4.5. Counterparts. This First Waiver and Amendment may be executed in any number of counterparts, each executed counterpart constituting an original but all together only one agreement.

     Section 4.6. Governing Law. This First Waiver and Amendment shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of New York excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State.

[Signature Pages Follow]

     IN WITNESS WHEREOF, the Company has executed this First Omnibus Waiver and Amendment to the Note Agreements as of the day and year first above written.

     In Witness Whereof, the Noteholders under the Note Agreements have executed this First Omnibus Waiver and Amendment to the Note Agreements as of the day and year first above written.