PETRA CAPITAL INC /DE/, N-2, 1998-06-09

PETRA CAPITAL INC /DE/
N-2, 1998-06-09

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PETRA CAPITAL, INC.
(Exact Name of Registrant as Specified in Charter)

172 SECOND AVENUE NORTH, SUITE 112
NASHVILLE, TENNESSEE 37201
(615) 313-5999
(Address and Telephone Number of Principal Executive Offices)

ROBERT G. SHULER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
172 SECOND AVENUE NORTH, SUITE 112
NASHVILLE, TENNESSEE 37201
(Name and Address of Agent For Service)
---------------------
COPIES OF INFORMATION TO:

<TABLE>
<S> <C>
JOHN D. CAPERS, JR. TODD H. BAKER
KING & SPALDING GIBSON, DUNN & CRUTCHER LLP
191 PEACHTREE STREET, N.E. ONE MONTGOMERY STREET, SUITE 3100
ATLANTA, GEORGIA 30303 SAN FRANCISCO, CALIFORNIA 94104-4505
(404) 572-4600 (415) 393-8200
</TABLE>

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the Registration Statement becomes effective.

If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

<TABLE>
<CAPTION>
================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
BEING REGISTERED REGISTERED(1) SHARE(2) PRICE REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock $.01 par share... 4,025,000 $20.00 $80,500,000 $23,748
================================================================================================================
</TABLE>

(1) Includes 525,000 shares subject to a 30-day over-allotment option granted to
the Underwriters by the Company.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) of the Securities Act of 1933.
---------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
================================================================================
<PAGE> 2

PETRA CAPITAL, INC.

CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY PARTS A AND B OF FORM N-2 REGISTRATION STATEMENT

<TABLE>
<CAPTION>
ITEM REGISTRATION STATEMENT CAPTION OR LOCATION
NUMBER ITEM AND HEADING IN PROSPECTUS
- ------ ---------------------- -------------------
<C> <S> <C>
1. Outside Front Cover....................... Outside front cover
2. Inside Front and Outside Back Cover
Page...................................... Inside front and outside back cover page
3. Fee Table and Synopsis.................... Prospectus Summary; Fees and Expenses;
Additional Information
4. Financial Highlights...................... Capitalization; Prospectus
Summary -- Selected Historical Financial
Data of Petra Capital, LLC; Prospectus
Summary -- Selected Historical Financial
Data of Petra Capital Management, LLC;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations
5. Plan of Distribution...................... Outside front cover; Certain Transactions;
Underwriting
6. Selling Stockholders...................... Not Applicable
7. Use of Proceeds........................... Use of Proceeds
8. General Description of Registrant......... Outside front cover, Prospectus Summary;
Risk Factors; Business; Investment
Objectives and Policies
9. Management................................ Management; Custodian, Transfer and
Dividend Paying Agent and Registrar
10. Capital Stock, Long-Term Debt, and Other
Securities................................ Distributions; Reinvestment Plan;
Description of Capital Stock
11. Defaults and Arrears on Senior
Securities................................ Investment Objectives and Policies; Tax
Status Regulation
12. Legal Proceedings......................... Not applicable
13. Table of Contents of the Statement of
Additional Information.................... Not applicable
14. Cover Page................................ Not applicable
15. Table of Contents......................... Not applicable
16. General Information and History........... Prospectus Summary -- The Company;
Business
17. Investment Objective and Policies......... Investment Objectives and Policies
18. Management................................ Management
19. Control Persons and Principal Holders of
Securities................................ Principal Stockholders; Risk Factors
20. Investment Advisory and Other Services.... Custodian, Transfer and Dividend Paying
Agent and Registrar; Independent Public
Accountants; Investment Objectives and
Policies
21. Brokerage Allocation and Other
Practices................................. Not applicable
22. Tax Status................................ Tax Status
23. Financial Statements...................... Index to Financial Statements
</TABLE>

- ---------------

* Pursuant to General Instruction on Form N-2, all information required to be
set forth in Part B: Statement of Additional Information has been included in
Part A: The Prospectus. All items required to be set forth in Part C are set
forth in Part C.
<PAGE> 3

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there by any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.

SUBJECT TO COMPLETION, DATED JUNE 9, 1998
3,500,000 SHARES

PETRA CAPITAL, INC.
COMMON STOCK

All of the 3,500,000 shares of common stock, $.01 par value per share (the
"Common Stock"), offered hereby (the "Offering"), are being sold by Petra
Capital, Inc. (the "Company"). The Company is a commercial finance company that
makes subordinated, secured term loans, accompanied by equity warrants, to
emerging, high growth companies. The Company has elected to be treated as a
business development company ("BDC") under the Investment Company Act of 1940,
as amended (the "1940 Act"), and will elect to be taxed as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as amended
(the "Code"). The Company's principal investment objective is to maximize its
total stockholder return through the realization of current interest and fee
income on its loans and long-term appreciation in the value of its warrant
portfolio. See "Business." No assurances can be given that the Company will
achieve these objectives.

Prior to the Offering, there has been no public market for the Common
Stock. See "Underwriting" for information relating to the factors considered in
determining the initial public offering price. It is currently estimated that
the initial public offering price per share will be between $ and $ .
The Company has applied for quotation of the Common Stock on the Nasdaq National
Market under the symbol "PTRA."

SHARES OF CLOSED-END INVESTMENT COMPANIES HAVE IN THE PAST FREQUENTLY
TRADED AT DISCOUNTS FROM THEIR NET ASSET VALUES AND INITIAL OFFERING PRICES. THE
RISK OF LOSS ASSOCIATED WITH THIS CHARACTERISTIC OF CLOSED-END INVESTMENT
COMPANIES MAY BE GREATER FOR INVESTORS EXPECTING TO SELL SHARES OF COMMON STOCK
PURCHASED IN THE OFFERING SOON AFTER COMPLETION OF THE OFFERING.

This Prospectus sets forth certain information about the Company that a
prospective purchaser of the Common Stock offered hereby should know before
investing. Additional information about the Company has been filed with the
Securities and Exchange Commission (the "Commission") and is available upon
written or oral request without charge. See "Additional Information."

SEE "RISK FACTORS" ON PAGES 8 THROUGH 13 OF THIS PROSPECTUS FOR MATTERS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
---------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
=======================================================================================================
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................................... $ $ $
- -------------------------------------------------------------------------------------------------------
Total(3).................................................... $ $ $
=======================================================================================================
</TABLE>

(1) See "Underwriting" for information relating to indemnification of the
Underwriters and other matters.
(2) Before deducting expenses of the Offering payable by the Company estimated
to be $1,050,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
525,000 additional shares of Common Stock on the same terms and conditions
set forth above, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discount and
Proceeds to Company will be $ , $ and $ , respectively. See
"Underwriting."

The shares of Common Stock are offered by any Underwriters named herein,
subject to receipt and acceptance by them, and subject to their right to reject
orders in whole or in part. It is expected that delivery of the certificates
representing such shares will be made against payment therefor at the offices of
NationsBanc Montgomery Securities LLC on or about , 1998.
---------------------

NationsBanc Montgomery Securities LLC
BancAmerica Robertson Stephens
Wheat First Union
Stephens Inc.

, 1998
<PAGE> 4

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

2
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the financial statements
including the notes thereto appearing elsewhere in this Prospectus. In
contemplation of this Offering, Petra Capital, Inc. was formed in June, 1998 to
succeed to the business of Petra Capital, LLC and Petra Capital Management, LLC
in a reorganization of such companies which will be completed prior to
consummation of the Offering (the "Reorganization"). Unless otherwise indicated,
all information in this Prospectus assumes that the Reorganization was effective
as of April 2, 1996, the date the Company commenced business. All references
herein to "the Company" shall mean Petra Capital, Inc. as successor to the
business of Petra Capital, LLC and Petra Capital Management, LLC. See
"Management -- Certain Transactions." Unless otherwise indicated, all
information in this Prospectus also assumes no exercise of the Underwriters'
over-allotment option. This Prospectus contains forward-looking statements,
including statements regarding the Company's strategies, plans, objectives,
expectations and intentions, which are subject to a variety of risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.
The cautionary statements made in this Prospectus should be read as being
applicable to all related forward-looking statements wherever they appear in
this Prospectus.

THE COMPANY

The Company is a commercial finance company that makes subordinated,
secured term loans, accompanied by equity warrants, to emerging, high growth
companies located throughout the United States. The Company's "mezzanine"
products allow its borrowers to finance internal growth and strategic
acquisitions at a relatively attractive cost of capital. The Company's borrowers
typically find bank loans to be either too operationally restrictive or
unavailable and seek to avoid the level of dilution associated with additional
rounds of private equity investment. The Company's principal investment
objective is to maximize its total stockholder return through the realization of
current interest and fee income on its loans and long-term appreciation in the
value of its warrant portfolio.

The Company seeks to lend to businesses that have experienced
entrepreneurial management, the potential for significant growth, a foreseeable
liquidity event within the loan term (such as an acquisition, initial public
offering or recapitalization), sophisticated equity investors and a well-defined
business plan focused on creating long-term shareholder value. In making its
credit decisions, the Company places greatest emphasis on its assessment of the
experience, character and financial commitment of management. As an "enterprise
value" lender, the Company relies more in making its credit decisions on the
current and projected equity value of borrowers than on traditional cash flow
analyses and collateral assessments. Management believes that this approach
allows the Company to be more flexible in structuring loan terms and covenants
than traditional lenders.

The Company's investment professionals market its products through a
network of referral sources, which provides the Company with a regular flow of
potential borrowers. These referral sources include investment bankers, venture
capitalists, commercial bankers, lawyers, accountants and existing portfolio
companies. The Company believes that a key to the development of its referral
network has been its prompt, professional and consistent responsiveness to
referrals and its ability to introduce existing portfolio companies
contemplating a corporate finance transaction to the Company's referral sources.

The Company maintains a proactive "partnership" with its portfolio
companies by offering strategic advice to management on a regular basis, while
actively monitoring and managing portfolio exposure. The Company also calls upon
its network of investment banking and venture capital contacts to assist
borrowers in locating sources of capital in the public and private markets.

3
<PAGE> 6

the principal amount of the loan are paid at loan closing. As part of the loan
transaction, the Company receives warrants to purchase an equity interest in the
borrower at a nominal exercise price. The amount of the warrants received varies
based upon borrower-specific valuation factors. The Company, unlike traditional
lenders, encourages prepayment of its loans by not imposing prepayment penalties
and by including "ratchet" provisions in its warrants that increase the
Company's warrant interest in a borrower the longer its loan remains
outstanding. Rapid loan turnover allows the Company to redeploy its funds while
retaining its warrant interests.

The Company has experienced rapid growth since its inception in April 1996.
Loan originations have grown from $17.0 million for the period from the
Company's inception through December 31, 1996 to $40.1 million for the year
ended December 31, 1997 and from $9.0 million for the three months ended March
31, 1997 to $14.5 million for the three months ended March 31, 1998. At March
31, 1998, the Company had 23 loans outstanding with a fair value of $57.3
million to 21 companies in eight states. The Company's net operating income for
the year ended December 31, 1997 was $3.2 million. For the quarter ended March
31, 1998, the Company's net operating income was $828,606, a 40.8% increase over
the same period of the prior year. Through March 31, 1998, five of the Company's
portfolio companies had repaid their loans as a result of various liquidity
events. The Company has retained warrant or equity interests in four of these
five companies and received cash for the remaining warrant.

The Company currently has a $70 million revolving credit facility from an
institutional lender secured by all of the Company's assets. At the closing of
the Offering, this facility will be replaced by a new $100 million warehouse
credit facility from a financial institution secured by the Company's loans and
associated warrants.

The Company is a non-diversified, closed-end investment company that has
elected to be treated as a BDC under the 1940 Act and that will elect to be
taxed as a RIC under the Code. As such, the Company must distribute at least 90%
of its net operating income other than net long-term capital gains to
stockholders on an annual basis. In addition, the Company currently intends to
distribute its net realized long-term capital gains to stockholders. See "Tax
Status" and "Regulation."

The Company was incorporated under the laws of the State of Delaware in
June 1998 to succeed to the business of Petra Capital, LLC. See
"Management -- Certain Transactions." The Company's principal executive offices
are located at 172 Second Avenue North, Suite 112, Nashville, Tennessee 37201,
and its telephone number is (615) 313-5999.

4
<PAGE> 7

THE OFFERING

Common Stock offered by the
Company.................. 3,500,000 shares

Common Stock to be
outstanding after the
Offering................. 10,500,000 shares(1)

Use of Proceeds............ The Company intends to use the net proceeds from the
Offering to repay outstanding indebtedness under a
$3.0 million subordinated note, to repay
outstanding indebtedness under the Company's
outstanding revolving credit facility ($35.6
million was outstanding at March 31, 1998) and to
fund new loans.

Proposed Nasdaq National
Market symbol............ PTRA

Distributions.............. The Company intends to distribute quarterly to its
stockholders at least 90% of its net operating
income and net short-term capital gains. In
addition, the Company currently intends to
distribute its net realized long-term capital
gains, if any. The first distribution is expected
to be declared in October 1998 for the period
ending September 30, 1998 and paid shortly
thereafter. See "Distributions."

Dividend Reinvestment
Plan..................... The Company has adopted a dividend reinvestment plan
("DRIP Plan"). If a stockholder elects to enroll
in the DRIP Plan, dividends paid to that
stockholder will be automatically reinvested in
additional shares of the Company's Common Stock by
First Union National Bank (the "Plan
Administrator"). Stockholders will be required to
register shares in their own name in order to
participate in the DRIP Plan. See "Reinvestment
Plan."

Risk Factors............... An investment in shares of the Common Stock involves
certain risks related to the structure and
investment objectives of the Company that should
be considered by prospective investors. Such risks
include the consequences of a payment default by a
borrower; the possible loss of RIC tax status; the
risks associated with lending to small, privately
owned companies; the uncertainties associated with
the valuation of the Company's portfolio; the
illiquidity of the Company's portfolio
investments; the Company's dependence on key
management; the long-term character of the
Company's investments; the control of the Company
by certain stockholders; interest rate and hedging
risks; leverage risks; the competitive market for
investment opportunities; the accounting
uncertainties associated with deferred taxes on
long-term capital gains; the impact and timing of
loan prepayments on portfolio composition and
interest rate spread; risks associated with
unavailability of funds; absence of a public
market; the number of shares eligible for future
sale; the limited operating history of the
Company; potential fluctuations in quarterly
results; the concentration of the Company's
investments; risks related to subordinated loans;
anti-takeover considerations; and the dilutive
effect of the Offering. See "Risk Factors."

- ---------------

(1) Does not include shares reserved for issuance pursuant to options to be
issued under the Petra Capital, Inc. 1998 Incentive Stock Plan. See
"Management -- Stock Option Plan," "Shares Eligible for Future Sale" and
"Underwriting."
5
<PAGE> 8

FEES AND EXPENSES

The purpose of the following table is to assist prospective purchasers of
the Common Stock offered hereby in understanding the various costs and expenses
that a stockholder of the Company will bear directly or indirectly.

<TABLE>
<S> <C>
STOCKHOLDER TRANSACTION EXPENSES
Sales load (as a percentage of offering price)............ 7.0%(1)
DRIP Plan fees............................................ None(2)
ANNUAL EXPENSES (AS A PERCENTAGE OF NET ASSETS
ATTRIBUTABLE TO COMMON SHARES)(3)
Interest payments on borrowed funds....................... 2.52%(4)
Other expenses............................................ 2.87%(5)
TOTAL ANNUAL EXPENSES (ESTIMATED)........................... 5.39%
</TABLE>

- ---------------

(1) The underwriting discount, which is a one-time fee paid by the Company to
the Underwriters in connection this Offering, is the only sales load paid in
connection with this Offering.
(2) The expenses of the DRIP Plan are included in stock record expenses, a
component of "Other expenses." The Company has no cash purchase plan. The
participants in the DRIP Plan will bear a pro rata share of brokerage
commissions incurred with respect to open market purchases.
(3) Assumes a net asset value of $94.3 million based upon the Company's
estimated stockholders' equity after giving effect to the Offering.
(4) Includes estimated interest expense for the year ended December 31, 1998.
Does not include extraordinary interest expense of $725,000, or 0.77% of net
assets, representing unamortized discount associated with prepayment of the
Company's outstanding obligations to an institutional lender. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations -- Liquidity and Capital Resources."
(5) Includes all estimated operating expenses of the Company other than interest
expenses for the year ended December 31, 1998.

EXAMPLE

The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in the Company. These amounts assume no additional
leverage and are based upon the payment by an investor of a 7.0% sales load (the
underwriting discount paid by the Company in connection with this Offering) and
the payment by the Company of operating expenses at the levels set forth in the
table above.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming a 5.0% annual return............... $50.13 $149.40 $247.36 $486.65
</TABLE>

This example should not be considered a representation of the future
expenses of the Company, and actual expenses may be greater or less than those
shown. Moreover, while the example assumes (as required by the Commission) a
5.0% annual return, the Company's performance will vary and may result in a
return greater or less than 5.0%.

6
<PAGE> 9

UNAUDITED SUMMARY PRO FORMA COMBINED FINANCIAL DATA OF
PETRA CAPITAL, LLC AND SUBSIDIARY AND PETRA CAPITAL MANAGEMENT, LLC

The following table sets forth the unaudited summary pro forma combined
financial data of Petra Capital, LLC and Subsidiary and Petra Capital
Management, LLC assuming that the Reorganization was consummated and accounted
for under a method of accounting similar to a pooling of interests. The pro
forma combined statement of operations data below assumes that the
Reorganization was consummated at the beginning of the periods presented and the
pro forma balance sheet data assumes that the Reorganization was consummated as
of the dates for which such data is presented. The pro forma data is presented
for illustrative purposes only and is not necessarily indicative of the
operating results or financial position that would have occurred if the
Reorganization had been consummated on the dates indicated, nor is it
necessarily indicative of future operating results or financial position. The
unaudited summary pro forma combined financial data has been derived from and
should be read in conjunction with the unaudited pro forma financial
information, including the notes thereto, appearing elsewhere in this
Prospectus. See "Unaudited Pro Forma Financial Information."

<TABLE>
<CAPTION>
APRIL 2, 1996 THREE MONTHS ENDED
(INCEPTION) TO YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -------------------------
1996 1997 1997 1998
-------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Operating income:
Interest on investments...................... $ 1,172,693 $ 3,705,537 $ 553,237 $ 1,675,170
Loan processing fees......................... 355,000 958,500 210,000 230,000
----------- ----------- ----------- -----------
Total operating income.................. 1,527,693 4,664,037 763,237 1,905,170
----------- ----------- ----------- -----------
Operating expenses:
Interest expense............................. -- 577,797 -- 691,780
Salaries and benefits........................ 301,792 499,265 105,702 227,007
Other operating expenses..................... 207,388 351,152 68,966 156,527
Management fee............................... -- 5,000 -- 1,250
----------- ----------- ----------- -----------
Total operating expenses................ 509,180 1,433,214 174,668 1,076,564
----------- ----------- ----------- -----------
Net operating income........................... 1,018,513 3,230,823 588,569 828,606
Realized gain on investments................... -- 1,072,193 -- --
Change in unrealized appreciation
(depreciation) of investments................ 608,169 3,402,606 (50,212) 1,121,999
State income tax on interest income............ (70,000) (111,902) (5,615) (10,258)
----------- ----------- ----------- -----------
Net increase in stockholders' equity resulting
from operations.............................. $ 1,556,682 $ 7,593,720 $ 532,742 $ 1,940,347
=========== =========== =========== ===========
</TABLE>

OPERATING STATISTICS:
Number of portfolio companies with loans
outstanding at period end.................... 4 16 7 21
Number of loans outstanding at period end...... 4 16 7 23
Principal amount of loans originated during
period....................................... $17,000,000 $40,130,000 $ 9,000,000 $14,500,000
Principal amount of loan repayments during
period....................................... 6,000,000 7,000,000 -- --
Loan portfolio at period end................... 10,774,308 43,176,180 19,471,454 57,279,063
Weighted average coupon of loans outstanding at
period end................................... 13.91% 13.45% 13.69% 13.38%
Loan processing fees as a percentage of loans
originated during period..................... 2.09% 2.39%(1) 2.33% 1.59%(1)
</TABLE>

- ------------------------

(1) Loan processing fees as a percentage of loans originated during the three
months ended March 31, 1998 reflects (i) origination of a $1.0 million loan
to an existing borrower without a fee, and (ii) the recognition of a $50,000
loan processing fee in December 1997 with respect to a loan which closed in
1997 but was funded in January 1998. Had the $50,000 fee been recognized in
January 1998, loan processing fees as a percentage of loans originated would
have been 1.93% for the three months ended March 31, 1998, and 2.26% for the
year ended December 31, 1997.

7
<PAGE> 10

RISK FACTORS

The purchase of Common Stock in the Offering involves a number of
significant risks and other factors relating to the structure and investment
objectives of the Company. As a result, there can be no assurance that the
Company will achieve its investment objectives. In addition to the other
information contained in this Prospectus, the following risk factors should be
carefully considered in evaluating an investment in the Common Stock.

RISK OF PAYMENT DEFAULT

The Company makes non-amortizing, five-year term loans with relatively high
fixed rates of interest to small, privately-owned companies that may have
limited financial resources and that may be unable to obtain financing from
traditional sources. The Company's borrowers generally do not meet net income,
cash flow and other coverage tests typically imposed by bank lenders. A
borrower's ability to repay its loan may be adversely affected by numerous
factors, including the failure to meet its business plan, a downturn in its
industry or negative economic conditions. A deterioration in a borrower's
financial condition and prospects usually will be accompanied by a deterioration
in the collateral for the loan. In most cases, the Company's lien on the
collateral is subordinate to the liens of the borrower's senior creditors. See
"Risks Related to Subordinated Loans." The Company also has the ability to make
unsecured loans or invest in equity securities, which may involve a higher
degree of risk.

POSSIBLE LOSS OF RIC TAX STATUS

The Company will elect to be taxed as a RIC under Subchapter M of the Code
and intends to remain qualified as a RIC. In any taxable year in which the
Company qualifies as a RIC, it generally will not be subject to federal income
tax on any net investment income that is distributed currently to its
stockholders. See "Tax Status -- Taxation of the Company as a RIC." To qualify
as a RIC, the Company must satisfy several requirements imposed under the Code
with respect to the nature of its gross income, the diversification of its
assets and the levels of its distributions to stockholders. These requirements
are discussed in detail below under the heading "Tax Status -- Requirements for
Qualification." There can be no assurance that the Company will be able to
satisfy all of the applicable requirements for maintaining its RIC status in any
particular taxable year. For example, at least 90% of the Company's gross income
in each taxable year must be derived from specific sources identified in the
Code as qualifying income. See "Tax Status -- Requirements for
Qualification -- 90% Gross Income Test." If loan processing fees earned by the
Company are determined not to constitute qualifying income, the Company will
have difficulty satisfying the 90% gross income test. The Company intends to
seek a ruling from the Internal Revenue Service ("IRS") that the loan processing
fees constitute qualifying income; however, if the IRS does not rule that the
Company's processing fees are qualifying income, the Company will change the
manner in which it is compensated by borrowers so that it will continue to
satisfy the 90% gross income test. Such changes could include deferral of loan
processing fees or other changes in the Company's fee recognition practices. Any
such action by the Company would have an adverse impact on the Company's
operating income. Another example is the requirement that the Company must
distribute at least 90% of its "investment company taxable income" (generally,
net operating income other than net realized long-term capital gains) to its
stockholders in each taxable year. In any particular taxable year, it is
possible that the Company would not have sufficient cash or liquid assets, and
would need to borrow funds, in order to meet the foregoing distribution
requirement. However, the asset coverage ratio requirements set forth in the
1940 Act could prevent the Company from borrowing sufficient amounts to satisfy
the distribution requirements necessary to maintain RIC status, in which case
the Company would be disqualified as a RIC. See "Regulation" and "Tax
Status -- Requirements for Qualification -- Distribution Requirements." No
relief provisions apply in the case of a failure to satisfy the RIC requirements
in a particular taxable year. Thus, if the Company does not satisfy the RIC
requirements for a taxable year, it will be disqualified as a RIC. If the
Company were to fail to qualify as a RIC, the Company would become subject to
federal income tax as if it were an ordinary corporation, which would result in
a substantial reduction in the Company's net assets and the amount of income
available for distribution to the Company's stockholders. See "Tax
Status -- Failure to Qualify."

8
<PAGE> 11

RISKS OF LENDING TO SMALL, PRIVATELY-OWNED COMPANIES

The portfolio of the Company consists primarily of loans to small,
privately-owned companies. There is generally no publicly available information
about such companies, and the Company must rely on the diligence of its
employees and agents to obtain information in connection with the Company's
investment decisions. Typically, small businesses depend on the management
talents and efforts of one person or a small group of persons for their success.
The death, disability or resignation of one or more of these persons could have
a material adverse impact on such a company. Moreover, small businesses
frequently have smaller product lines and market shares than their competition.
Small companies may be more vulnerable to economic downturns and often need
substantial additional capital to expand or compete. Such companies may also
experience substantial variations in operating results. Loans to small
businesses, therefore, involve a high degree of business and financial risk,
which can result in substantial losses and accordingly should be considered
speculative.

VALUATION OF PORTFOLIO

There is typically no public market for the loans and equity securities of
the small companies to which the Company makes loans. As a result, the valuation
of the loans and equity securities in the Company's portfolio is subject to the
good faith estimate of the Company's Board of Directors. See "Determination of
Net Asset Value." Unlike traditional lenders, the Company does not establish
reserves for anticipated loan losses, but adjusts quarterly the valuation of its
portfolio to reflect the good faith estimate of the Company's Board of Directors
as to the current realizable value of the loan portfolio. In absence of a
readily ascertainable market value, the estimated value of the Company's
portfolio of loans and equity securities may differ significantly from the
values that would be placed on the portfolio if a ready market for the loans and
equity securities existed, and the differences could be material. Any changes in
estimated net asset value are recorded in the Company's statement of operations
as "Change in unrealized appreciation (depreciation) of investments."

ILLIQUIDITY OF PORTFOLIO INVESTMENTS

Most of the investments of the Company are or will be loans and equity
securities acquired directly from small companies. The Company's portfolio of
loans and equity securities are and will usually be subject to restrictions on
resale or otherwise have no established trading market. The illiquidity of most
of the Company's portfolio of loans and equity securities may adversely affect
the ability of the Company to dispose of such loans and securities at times when
it may be advantageous for the Company to liquidate such investments.

DEPENDENCE ON KEY MANAGEMENT

The Company is dependent for the marketing, selection, structuring, closing
and monitoring of its loans and associated equity warrants on the diligence and
skill of management, particularly Robert G. Shuler, the loss of whose services
would have a material adverse effect on the operations of the Company. The
Company has entered into a three-year employment contract with Robert G. Shuler
and maintains key-man life insurance with respect to Robert G. Shuler. Certain
of the Company's officers have recently joined the Company, and certain of the
Company's officers do not have any prior experience in management of a public
company. The Company's ability to continue to grow is substantially dependent on
its ability to attract and retain additional highly-trained executive officers
and loan origination personnel.

LONG-TERM CHARACTER OF INVESTMENTS

The Company generally expects to make loans that will generate interest
income to the Company over the five-year term of the loans. In addition, the
Company expects to hold its equity warrants in portfolio companies until after
the maturity of the related loans. Therefore, an investor should not expect
realization events with respect to equity warrants to occur, if ever, for five
years or longer.

9
<PAGE> 12

CONTROL BY CERTAIN STOCKHOLDERS

Upon completion of this Offering, the Company's directors and officers will
beneficially own 66.6% of the outstanding shares of Common Stock. In particular,
Kellett Partners, L.P., a family partnership controlled by Stiles A. Kellett,
Jr., Chairman of the Board of Directors of the Company, will beneficially own
approximately 53.9% of the outstanding shares of Common Stock of the Company.
Therefore, Kellett Partners, L.P. would be able to control the election of all
directors of the Company and to determine the outcome of certain other corporate
matters regardless of how other stockholders of the Company may vote. This
concentration of ownership by Mr. Kellett and his family partnership and by
other executive officers and directors of the Company could also have the effect
of delaying or preventing a change in control of the Company. See "Principal
Stockholders."

INTEREST RATE RISK AND HEDGING

Because the Company borrows money to make investments, its income is
materially dependent upon the "spread" between the variable rate at which it
borrows funds and the fixed rate at which it loans these funds. In periods of
sharply rising interest rates, the Company's cost of funds would increase and
could reduce or eliminate the spread. The Company may utilize a combination of
long-term and short-term borrowings to finance its lending activities and will
engage in interest rate risk management techniques, in an effort to limit its
exposure to interest rate fluctuations, including various interest rate hedging
activities to the extent permitted by the 1940 Act. There can be no assurance,
however, that the Company can maintain a positive net interest spread or that a
significant change in market interest rates will not have a material adverse
effect on the financial condition and results of the Company.

LEVERAGE RISKS

The Company has borrowed funds from commercial banks and institutional
lenders secured by all of the Company's assets to fund new loans and, as a
result, the Company's assets are leveraged. Leverage magnifies the potential for
gain and loss on funds invested by the Company and, therefore, results in an
increase in the risks associated with an investment in the Company's Common
Stock. The Company's creditors have claims on its assets superior to the claims
of the Company's stockholders. At March 31, 1998, the Company's debt as a
percentage of total liabilities and stockholders' equity was 57.4%. In addition,
the ability of the Company to achieve its investment objectives may depend in
part on its ability to achieve leverage on favorable terms, and there can be no
assurance that such terms can be obtained.

The Company currently has a $70 million revolving credit facility from an
institutional lender. Amounts outstanding under the revolving credit facility
bear interest at variable rates based upon the one-month LIBOR plus 2.50% and
are secured by all of the Company's assets. As of March 31, 1998, there was
$35.6 million outstanding under this facility. In order for the Company to cover
annual interest payments on the Company's outstanding indebtedness, the Company
must achieve annual returns, net of expenses, of at least 7.5% on its portfolio.
The Company has a commitment for a new $100 million warehouse credit facility
that, subject to standard closing conditions and certain financial covenants,
will close on the effective date of this Offering. Amounts outstanding under the
new credit facility will bear interest at LIBOR plus 1.50% and will be secured
by an interest in certain of the Company's loans. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

Illustration. The purpose of the following table is to illustrate the
effect of leverage on returns to a stockholder on an investment in the Company's
Common Stock assuming various annual returns, net of expenses. The calculations
set forth in the table are hypothetical and actual returns may be greater or
less than those appearing below.

<TABLE>
<CAPTION>
ASSUMED RETURN ON THE COMPANY'S
PORTFOLIO (NET OF EXPENSES)
------------------------------------------------
-10% -5% 0% 5% 10%
------ ----- ----- ---- ----
<S> <C> <C> <C> <C> <C>
Corresponding return to
stockholder(1)....................... -12.30% -7.30% -2.30% 2.70% 7.70%
</TABLE>

- ---------------
(1) Assumes (i) $94.3 million in portfolio assets, (ii) an average cost of
funds of 7.2%, (iii) $30.4 million in average debt outstanding, and (iv)
$94.3 million of stockholders' equity.

10
<PAGE> 13

COMPETITIVE MARKET FOR INVESTMENT OPPORTUNITIES

A number of entities and individuals compete to provide financing to small,
privately-owned companies, including financing similar to the loans made by the
Company. Many of these entities and individuals have greater financial resources
than the Company. As a result of this competition, the Company may from time to
time be precluded from entering into attractive transactions. There can be no
assurance that the Company will be able to identify and complete loans which
satisfy the Company's investment objectives or that it will be able to invest
fully its available capital.

FINANCIAL ACCOUNTING FOR DEFERRED TAXES ON RETAINED LONG-TERM CAPITAL GAINS

For financial accounting purposes, the Company does not currently provide
for deferred taxes on the amount of unrealized appreciation of its equity
securities because of its intent to qualify as a RIC and to distribute any net
realized long-term capital gains to stockholders. If the Company fails to
qualify as a RIC, elects not to qualify as a RIC or elects not to distribute
substantially all of its realized gains as a matter of general practice, the
Company would provide for deferred taxes on the amount of unrealized gains in
its portfolio. In so doing, the Company would accrue a one time charge to
earnings and stockholders' equity for financial reporting purposes for taxes on
accumulated unrealized appreciation at that time, and thereafter would recognize
unrealized appreciation, net of long-term capital gains tax. See "Regulation."

IMPACT OF TIMING OF LOAN PREPAYMENTS ON PORTFOLIO COMPOSITION AND INTEREST
SPREAD

Since the Company's borrowers have the option to prepay their outstanding
loans without penalty, the composition of the Company's loan portfolio can
change significantly over a short period. Any such change could increase the
overall level of concentration risk in the portfolio or otherwise affect the
relative credit performance of the remaining portfolio. In the event that a
significant number of loans prepay at or about the same time, there can be no
assurance that the Company will be able to quickly find substitute borrowers
that satisfy its lending criteria. If the Company is unable to rapidly redeploy
funds from prepaid loans, the Company's interest "spread" could decline,
resulting in a reduction in net operating income until substitute loans are
made.

UNAVAILABILITY OF FUNDS

The Company has a continuing need for capital to fund loans. Historically,
the Company's capital needs have been met by borrowing from financial
institutions and through the private placement of equity securities. A reduction
in the availability of funds from financial institutions could have a material
adverse effect on the Company. The Company must distribute to its stockholders
at least 90% of its net operating income other than net realized long-term
capital gains to maintain its BDC and RIC status and currently intends to
distribute net realized long-term capital gains on an annual basis. As a result
such earnings will not be available to fund loan origination. See "Tax
Status -- Requirements for Qualification -- Distribution Requirements." The
Company expects to obtain capital to fund loans through borrowings from
financial institutions and the sale of its securities. As a BDC, the Company
will be generally required to maintain a ratio of not more than 200% of total
assets to total borrowings, which may restrict its ability to borrow in certain
circumstances. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources." A failure by the
Company to obtain funds from such sources or from other sources to fund its
loans could have a material adverse effect on the financial condition and
results of the Company.

ABSENCE OF A PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; MARKET PRICE
DISPARITIES

Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined
through negotiations between the Company and the Underwriters' representative.
See "Underwriting" for a discussion of factors to be considered in determining
the initial public offering price. There can be no assurance that a regular
trading market for the Common Stock will develop after this Offering or, if
developed, that a public trading market can be sustained. The initial public
offering

11
<PAGE> 14

price will not necessarily reflect, and may be higher than, the market price of
the Common Stock after the Offering.

Shares of closed-end investment companies frequently trade at a discount
from net asset value, but shares of some companies have historically traded at a
premium to net asset value. This characteristic of shares of closed-end
investment companies is separate and distinct from the risk that a company's net
asset value per share will decline. It is not possible to predict whether the
shares of Common Stock offered hereby will trade at, above, or below net asset
value.

SHARES ELIGIBLE FOR FUTURE SALE

Upon consummation of this Offering, the Company will have 10,500,000 shares
of Common Stock outstanding excluding shares subject to the Underwriters'
over-allotment option and shares subject to options granted under the Stock
Option Plan. The 3,500,000 shares offered hereby (plus any shares issued upon
exercise of the Underwriters' over-allotment option) will be freely tradable in
the public market without restriction. The holders of all of the remaining
7,000,000 shares of Common Stock that will be outstanding upon completion of
this Offering have agreed that they will not, except with the prior written
consent of NationsBanc Montgomery Securities LLC (which consent may be withheld
in its sole discretion) and subject to certain limited exceptions, directly or
indirectly, sell, offer, contract or grant any option to sell, make any short
sale, pledge, transfer, establish an open "put equivalent position" within the
meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose of any
shares of Common Stock, options or warrants to acquire Common Stock, or
securities exchangeable or exercisable for or convertible into Common Stock
currently owned either of record or beneficially by them or announce the
intention to do any of the foregoing, for a period commencing on the date of
this Prospectus and continuing to a date 180 days after such date (two years in
the case of Stiles A. Kellett, Jr.) (the "Lock-up Agreements"). Upon expiration
of the Lock-up Agreements, the 7,000,000 shares covered by the Lock-up
Agreements will be eligible for sale pursuant to Rule 144 under the Securities
Act of 1933 ("Rule 144") or pursuant to an effective registration statement of
the Company. Following the Offering, sales of substantial amounts of the Common
Stock in the public market pursuant to Rule 144 or otherwise, or the
availability of such shares for sale, could adversely affect the prevailing
market prices for the Common Stock and impair the Company's ability to raise
additional capital through the sale of equity securities should it desire to do
so. See "Shares Eligible for Future Sale."

LIMITED OPERATING HISTORY

Petra Capital, LLC and Petra Capital Management, LLC were formed in April
1996. Accordingly, the Company has only a limited operating history upon which
an evaluation of the Company and its prospects can be based and is subject to
all of the risks inherent in the establishment of a new business enterprise. In
particular, none of the Company's loans, which are non-amortizing and have a
five-year term, have reached maturity, and thus there is no indication whether,
or to what extent, any such loans which have not been prepaid will be repaid
when due. The Company's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stage of development. To address these risks, the Company must, among other
things, respond to competitive developments, continue to attract, retain and
motivate qualified personnel and upgrade and expand its systems, policies and
business procedures. There can be no assurance that the Company will be
successful in addressing such risks.

FLUCTUATIONS IN QUARTERLY FINANCIAL RESULTS

The Company could experience fluctuations in quarterly financial results
due to a number of factors including, among others, variations in the volume of
loans originated by the Company, variations in the timing of prepayments of
loans, and variations in the timing of the recognition of realized and
unrealized gains or losses, the degree to which the Company encounters
competition in its markets and its general economic conditions. As a result of
these factors, results for any one quarter should not be relied upon as being
indicative of performance in future quarters. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

12
<PAGE> 15

CONCENTRATION OF INVESTMENTS

At March 31, 1998, the Company had outstanding loans to only 21 portfolio
companies (in all cases accompanied by equity warrants) and warrants or equity
positions in four other companies. While no single portfolio company represented
more than 7.0% of the total dollars loaned to all portfolio companies as of
March 31, 1998, a default by a portfolio company in the payment of principal of
or interest on its loan, or a substantial write-down in the value of the
Company's equity interest in a portfolio company, could have a material adverse
effect on the financial condition and results of the Company. In addition, the
concentration of the Company's investments could make it difficult for the
Company to satisfy the asset diversification requirements for taxation as a RIC.
See "Tax Status -- Requirements for Qualification -- Asset Diversification
Tests."

RISKS RELATED TO SUBORDINATED LOANS

The Company's loans are typically secured by a lien on the borrower's
assets. However, in most cases, the Company's lien is subordinate to the lien of
the borrower's senior creditors. As a result, the Company's right to liquidate
the collateral in the event of a default by a borrower will be subject to the
superior rights of the senior creditors. There can be no assurance that the
collateral for a subordinated loan will be available to satisfy a borrower's
obligations to the Company or, if available, will be sufficient to satisfy such
obligations. See "Business -- Structure of Loan Products."

ANTI-TAKEOVER CONSIDERATIONS

Certain provisions of the Company's Certificate of Incorporation (the
"Company Certificate") and the Company's Bylaws (the "Company Bylaws") and the
Delaware General Corporation Law (the "DGCL") could delay or make more difficult
a merger, tender offer or proxy contest involving the Company. For example, the
Company's Board of Directors is divided into three classes with only one class
being elected each year, and directors may be removed only for cause, which
factors may also have the effect of delaying, deterring or preventing a change
of control of the Company. In addition, pursuant to the Company's Stock Option
Plan, the Board of Directors may, in its discretion, elect to cause stock
options granted to employees become automatically vested and exercisable upon
the occurrence of certain events leading up to a change of control. This vesting
and the dilutive effect that the exercise of a large number of options would
have on the Company's Common Stock may have the effect of delaying, deterring or
preventing a change of control of the Company. See "Description of Common Stock"
and "Management -- Stock Option Plan."

DILUTION

Purchasers of the Common Stock of the Company in this Offering will incur
immediate and substantial dilution in the net tangible book value per share of
Common Stock in the amount of $ per share, assuming an initial public
offering price of $ per share (after deduction of the underwriting discount
and estimated expenses of the Offering). To the extent that outstanding options
to purchase Common Stock are exercised, there will be further dilution. See
"Dilution."

USE OF PROCEEDS

The net proceeds to be received from the sale of 3,500,000 shares of Common
Stock being offered by the Company (at an estimated initial offering price of
$ per share, the mid-point of the range set forth on the cover of this
Prospectus) are estimated to be approximately $ million ($ million if
the Underwriters' over-allotment option is exercised in full), after deduction
of the underwriting discount and estimated offering expenses. The Company
intends to use the net proceeds to repay outstanding indebtedness under a $3.0
million subordinated loan, to repay all of the outstanding indebtedness under
its revolving credit facility ($35.6 million was outstanding under such credit
facility at March 31, 1998), which bears interest at the one-month LIBOR plus
2.50% per annum and matures on September 24, 2002, and to fund new loans to
emerging, high growth companies. All of the net proceeds will be applied as set
forth above within six months of the Offering. Pending such application, the
Company intends to invest the net proceeds of this Offering in time deposits and
income producing securities with maturities of thirteen months or less that are
issued or guaranteed by the federal government or agencies thereof. See
"Investment Objectives and Policies."

13
<PAGE> 16

DISTRIBUTIONS

The Company intends to distribute to its stockholders, on a quarterly
basis, at least 90% of its net operating income other than net long-term capital
gains, if any, and to declare the first distribution in October 1998 for the
period ending September 30, 1998. In addition, the Company currently intends to
distribute net realized long-term capital gains annually to stockholders as
"capital gain dividends." See "Tax Status."

REINVESTMENT PLAN

Pursuant to the Company's DRIP Plan, any stockholder who holds more than
100 shares of Common Stock and elects to participate in the DRIP Plan will have
all distributions reinvested automatically in additional shares by First Union
National Bank (the "Plan Administrator"). Stockholders whose shares are held in
the name of a broker or other nominee should contact the broker or nominee for
information on whether the broker or nominee will participate in the DRIP Plan
on the stockholder's behalf. A stockholder may terminate its participation in
the DRIP Plan at any time by delivering written notice to the Plan Administrator
before the record date of the next dividend or distribution.

When the Company declares a dividend, participants will have credited to
their plan accounts the number of full and fractional shares (computed to three
decimal places) that could be obtained with the cash, net of any applicable
withholding taxes, that would have been paid to them if they were not
participants. Such shares will be acquired for participants either (i) through
receipt of newly-issued shares of Common Stock from the Company or (ii) by
purchase of outstanding shares of Common Stock on the open market. If the market
price per share of Common Stock on the dividend payment date equals or exceeds
net asset value per share on that date, then the Company will issue new shares
of Common Stock to participants at the greater of net asset value or the then
current market price. If the market price per share of Common Stock on the
dividend payment date is less than the net asset value per share on that date,
then the Plan Administrator, as agent for participants, will make purchases of
Common Stock in the open market. If the market price exceeds the net asset value
of a share of Common Stock before the Plan Administrator has completed its
purchases, the average purchase price per share paid by the Plan Administrator
may exceed the net asset value of the Company's shares, resulting in the
acquisition of fewer shares than if the dividend had been in shares newly-
issued by the Company. For purposes of the DRIP Plan, market price as of the
dividend payment date will be determined by taking the average of the highest
and lowest quoted selling prices for the Company's Common Stock on the Nasdaq
National Market as of such date.

There is no charge to participants for reinvesting dividends and capital
gains distributions. The fees of the Plan Administrator for handling the
reinvestment of dividends and capital gains distributions will be included in
the fee to be paid by the Company to its transfer agent. There will be no
brokerage charges with respect to shares issued directly by the Company as a
result of dividends or capital gains distributions payable either in shares or
in cash. However, each participant will bear a pro rata share of brokerage
commissions incurred with respect to the Plan Administrator's open market
purchases in connection with the reinvestment of distributions.

The automatic reinvestment of distributions will not relieve participants
of any income tax which may be payable on distributions. See "Tax Status."

Experience under the DRIP Plan may indicate that changes are desirable.
Accordingly, the Company reserves the right to amend or terminate the DRIP Plan
as applied to any distribution paid subsequent to written notice of the change
sent to participants in the DRIP Plan at least 90 days before the record date
for the distribution. The DRIP Plan also may be amended or terminated by the
Plan Administrator with the Company's prior written consent, on at least 90
days' written notice to participants in the DRIP Plan. All correspondence
concerning the DRIP Plan should be directed to the Plan Administrator by mail at
1525 West W. T. Harris Blvd, 3C3, Charlotte, North Carolina 28288-1153, or by
telephone at (800) 829-8432.

14
<PAGE> 17

CAPITALIZATION

The following table sets forth (i) the pro forma capitalization of the
Company as of March 31, 1998 after giving effect to the Reorganization and (ii)
the pro forma capitalization of the Company as of March 31, 1998 as adjusted to
reflect (a) the sale of 3,500,000 shares of Common Stock of the Company offered
hereby at an assumed public offering price of $ per share (after
deduction of the underwriting discount and estimated expenses of the Offering)
and (b) the use of such proceeds to repay approximately $55.1 million of certain
indebtedness expected to be outstanding at the time of the Offering. See "Use of
Proceeds."

<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-----------------------
PRO PRO FORMA
FORMA AS ADJUSTED
----- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Debt
Subordinated note(1)...................................... $ 2,730 $ --
Revolving credit facility(1).............................. 35,420 --
------- -------
Total debt.................................................. 38,150 --
------- -------
Stockholders' equity
Common Stock, $0.01 par value per share; 50,000,000 shares
authorized; 7,000,000 shares issued and outstanding,
actual; 7,000,000 shares issued and outstanding, pro
forma; 10,500,000 shares issued and outstanding, as
adjusted(2)............................................... 20,774 --
Additional paid-in capital................................ 2,118 --
Unrealized appreciation of investments.................... 5,133 --
------- -------
Total stockholders' equity.................................. 28,025 --
------- -------
Total capitalization.............................. $66,175 $ --
======= =======
</TABLE>

- ---------------
(1) Net of original issue discount.
(2) Excludes 469,736 shares of Common Stock reserved for issuance pursuant to
stock options outstanding as of June 8, 1998.

15
<PAGE> 18

DILUTION

The pro forma net tangible book value of the Company as of March 31, 1998
was $28.0 million or $4.00 per share of Common Stock. "Pro forma net tangible
book value" per share represents (i) the amount of total tangible assets of the
Company, reduced by the amount of its total liabilities, (ii) divided by the
total number of shares of Common Stock outstanding. After giving effect of the
net proceeds from the sale of 3,500,000 shares of Common Stock offered by the
Company in this Offering, the "pro forma as adjusted net tangible book value" of
the Company as of March 31, 1998 would have been $ million or
$ per share. This represents an immediate increase in the pro forma net
tangible book value of $ per share to existing stockholders and an
immediate dilution of $ per share to new investors. The following table
illustrates the per share dilution and pro forma net tangible book value to new
investors:

<TABLE>
<S> <C>
Assumed initial public offering price per share............. $ --
Pro forma net tangible book value per share before the
Offering.................................................. 4.00
Increase per share attributable to new investors............ --
Pro forma as adjusted net tangible book value per share
after the Offering........................................ --
Dilution per share to new investors......................... --
</TABLE>

The following table summarizes, as of March 31, 1998, on a pro forma basis,
the differences in the total consideration paid and the average price per share
paid to the Company by existing stockholders and by new investors with respect
to the number of shares of Common Stock purchased from the Company.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................... 7,000,000 67.0% $20,770,000 --% $ 2.97
New investors........................... 3,500,000 33.0 -- -- --
---------- ----- ----------- -----
Total......................... 10,500,000 100.0% $ -- --%
========== ===== =========== =====
</TABLE>

16
<PAGE> 19

SELECTED HISTORICAL FINANCIAL DATA OF PETRA CAPITAL, LLC AND SUBSIDIARY

The following selected historical financial data of Petra Capital, LLC and
Subsidiary as of December 31, 1996 and December 31, 1997 and for the period from
April 2, 1996 (inception) to December 31, 1996 and the year ended December 31,
1997 was derived from the financial statements of Petra Capital, LLC and
Subsidiary audited by Arthur Andersen LLP, independent certified public
accountants. The financial statements of Petra Capital, LLC and Subsidiary as of
December 31, 1996 and December 31, 1997 and for the period from April 2, 1996
(inception) to December 31, 1996 and the year ended December 31, 1997, and the
report of Arthur Andersen LLP thereon, are included elsewhere in this
Prospectus. This selected financial data should be read in conjunction with the
financial statements of Petra Capital, LLC and Subsidiary and the related notes
thereto included elsewhere in this Prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Petra Capital, LLC
and Subsidiary." The following selected data as of March 31, 1997 and March 31,
1998 and for the three month periods ended March 31, 1997 and March 31, 1998 is
unaudited, but in the opinion of management, includes all adjustments
(consisting only of normal recurring accruals) necessary for a fair statement of
the results as of the dates and for the periods presented. The interim results
for the three month period ended March 31, 1998 are not necessarily indicative
of the results for the entire year.

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
----------------------------- -------------------------
1996 1997 1997 1998
-------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................... $ 393,740 $ 1,627,483 $ 531,805 $ 1,622,963
Loans............................................. 10,774,308 43,176,180 19,471,454 57,279,063
Common stock...................................... -- 694,829 -- 691,571
Warrants.......................................... 1,260,998 5,060,406 1,567,977 6,596,045
Total assets...................................... 12,578,984 50,801,468 21,637,437 66,536,537
Revolving credit facility and subordinated note... -- 23,625,000 -- 38,150,000
Total members' equity............................. 12,363,955 26,683,599 21,578,401 27,752,719
OPERATING STATISTICS:
Number of portfolio companies with loans
outstanding at period end....................... 4 16 7 21
Number of loans outstanding at period end......... 4 16 7 23
Principal amount of loans originated during
period.......................................... $17,000,000 $40,130,000 $ 9,000,000 $14,500,000
Principal amount of loan repayments during
period.......................................... 6,000,000 7,000,000 -- --
Loan portfolio at period end...................... 10,774,308 43,176,180 19,471,454 57,279,063
Weighted average coupon of loans outstanding at
period end...................................... 13.91% 13.45% 13.69% 13.38%
Loan processing fees as a percentage of loans
originated during period........................ 2.09% 2.39% 2.33% 1.59%
</TABLE>

17
<PAGE> 20

SELECTED HISTORICAL FINANCIAL DATA OF PETRA CAPITAL MANAGEMENT, LLC

The following selected historical financial data of Petra Capital
Management, LLC as of December 31, 1996 and December 31, 1997 and for the period
from April 2, 1996 (inception) to December 31, 1996 and the year ended December
31, 1997 was derived from the financial statements of Petra Capital Management,
LLC, audited by Arthur Andersen LLP, independent certified public accountants.
The financial statements of Petra Capital Management, LLC as of December 31,
1996 and December 31, 1997 and for the period from April 2, 1996 (inception) to
December 31, 1996 and the year ended December 31, 1997 are included elsewhere in
this Prospectus. The selected financial data should be read in conjunction with
the financial statements of Petra Capital Management, LLC and the related notes
thereto included elsewhere in this Prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operation of Petra Capital
Management, LLC." The selected financial data of Petra Capital Management, LLC
as of March 31, 1997 and March 31, 1998 and for the three month periods ended
March 31, 1997 and 1998 is unaudited, but in the opinion of management, includes
all adjustments (consisting of only minimal recurring accruals) necessary for a
fair statement of the results as of the dates and for the periods presented. The
interim results for the three month period ended March 31, 1998 are not
necessarily indicative of the results for the entire year.

<TABLE>
<CAPTION>
APRIL 2, 1996
(INCEPTION) THREE MONTHS ENDED
TO YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -------------------------
1996 1997 1997 1998
------------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Income:
Management fee............................. $375,000 $ 577,373 $123,750 $279,196
Distributions from Petra Capital, LLC...... 83,454 511,159 89,089 119,576
Interest income............................ 2,963 6,329 853 2,918
-------- ---------- -------- --------
Total income.......................... 461,417 1,094,861 213,692 401,690
-------- ---------- -------- --------
Expenses:
Salaries and benefits, excluding members... 106,092 187,599 27,785 47,140
Salaries and benefits, members............. -- -- -- 179,867
Rent....................................... 30,282 60,582 11,694 13,658
Travel and entertainment................... 42,104 58,454 1,728 34,788
Other...................................... 79,665 136,817 31,415 53,888
-------- ---------- -------- --------
Total expenses........................ 258,143 443,452 72,622 329,341
-------- ---------- -------- --------
Net income............................ $203,274 $ 651,409 $141,070 $ 72,349
======== ========== ======== ========
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
------------------- -------------------
1996 1997 1997 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................... $ -- $114,002 $ -- $168,483
Total assets........................................ 112,219 366,015 154,856 422,483
Total liabilities................................... 44,918 162,169 49,272 146,288
Total members' equity............................... 67,301 203,846 105,584 276,195
</TABLE>

18
<PAGE> 21

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

The Company is a commercial finance company that makes subordinated,
secured term loans, accompanied by equity warrants, to emerging, high growth
companies located throughout the United States. The Company's principal
investment objective is to maximize its total stockholder return through the
realization of current interest and fee income on its loans and long-term
appreciation in the value of its warrant portfolio.

The Company has experienced rapid growth since its inception in April 1996.
Management believes that this growth is primarily due to the development of its
referral network by the Company's management team. In addition, the growth is
attributable to the Company's increased market exposure resulting from its
expanding loan portfolio. At December 31, 1996, the Company had four loans
outstanding with an aggregate value of $10.8 million and at December 31, 1997,
had 16 loans outstanding with an aggregate value of $43.2 million. At March 31,
1998, the Company had 23 loans outstanding with an aggregate value of $57.3
million.

The Company has two primary sources of operating income: interest income
earned on its loans, including the accretion of original issue discount, and
loan processing fees. Loans are initially recorded at a discount from face value
equal to the estimated value of the warrants at the date of the loan. Face value
of the loans less the unamortized discount represents the loan cost while the
discount represents the warrant cost. The discount is accreted and recorded as
interest income over the life of the loan. Loan processing fees are recognized
as revenue upon loan closing. Furthermore, the Company's net realized gain on
and net unrealized appreciation of its loans and equity securities generated as
a result of its lending activity are recorded as changes in stockholders'
equity. Net realized gains will be distributed to stockholders on an annual
basis.

Loans, warrants and equity interests are stated at fair value as determined
by the Company's Board of Directors. The fair value of loans normally
corresponds to cost unless adverse factors lead to a determination of fair value
at a lower amount. Equity interests and warrants for which there is not a public
market are valued based on factors such as significant equity financing by
unrelated new investors, changes in cash flow from operations, the market value
of comparable publicly traded companies and other pertinent factors. This
analysis is also applied in allocating cost basis between loans and warrants at
origination. Equity interests and warrants of public companies are valued at the
bid quotation less a discount depending on certain liquidity and other issues.

Realized gains or losses are recorded upon disposition of assets based upon
the difference between the proceeds and the cost basis of the specific asset.
All other changes in valuation of assets are recorded as changes in unrealized
appreciation/depreciation of investments. Since inception, the Company has never
experienced a delinquency in an interest payment or a write down in the carrying
value of any loan.

The Company succeeded to the business of Petra Capital, LLC. From April
1996 until the Reorganization, Petra Capital Management, LLC served as manager
of Petra Capital, LLC by providing management and administrative services,
including loan origination and portfolio monitoring and servicing. Pursuant to
its operating agreement with Petra Capital, LLC, Petra Capital Management, LLC
was paid, on a quarterly basis, an annual management fee equal to 2.5% of the
greater of the aggregate purchase price of all portfolio company securities or
the average outstanding loan balance. Petra Capital Management, LLC paid (to the
extent not paid by portfolio companies) all third parties fees and expenses,
travel expenses and overhead costs incurred in connection with portfolio
investments, including office rent, professional salaries, clerical costs,

19
<PAGE> 22

telephone charges, etc. Because of its operating agreement with Petra Capital
Management, LLC, Petra Capital, LLC did not incur these expenses. In the
Reorganization, the operating agreement between Petra Capital, LLC and Petra
Capital Management, LLC was terminated at no cost to Petra Capital, LLC. As a
consequence, the Company will incur directly all operating expenses following
the Offering. See "Unaudited Pro Forma Financial Information."

Because of the growth in the Company's business, the Reorganization and
other factors, period-to-period comparisons of the results of operations of
Petra Capital, LLC may not be meaningful and the historical financial results of
Petra Capital, LLC may not necessarily be indicative of future results of the
Company.

RESULTS OF OPERATIONS OF PETRA CAPITAL, LLC

Comparison of Year Ended December 31, 1997 to Period from Inception Through
December 31, 1996

Interest on Investments. Interest on investments increased 216% to $3.7
million for the year ended December 31, 1997 from $1.2 million for the period
from inception to December 31, 1996. The increase in interest on investments is
attributable to an increase in loans outstanding during the year ended December
31, 1997. For the year ended December 31, 1997, interest on investments included
$222,529 of unamortized original issue discount associated with loans repaid
prior to maturity. For the period from inception to December 31, 1996, interest
on investments included $415,972 of unamortized original issue discount
associated with loans repaid prior to maturity. The Company had four outstanding
loans with an aggregate value of $10.8 million at December 31, 1996, and 16
outstanding loans with an aggregate value of $43.2 million at December 31, 1997.

Loan Processing Fees. Loan processing fees increased 170% to $958,500 for
the year ended December 31, 1997 from $355,000 for the period from inception to
December 31, 1996. This increase was attributable to the origination of 15 new
loans totaling $40.1 million during the year ended December 31, 1997 as compared
with six new loans totaling $17.0 million for the period from inception through
December 31, 1996. Loan processing fees decreased from 23.3% of total operating
income for the period from inception to December 31, 1996 to 20.6% of total
operating income for the year ended December 31, 1997. The decrease in loan
processing fees as a percentage of revenue was due to an increase in interest on
investments as a percentage of revenues resulting from the continued realization
of interest on loans originated during 1996.

Interest Expense. There was no interest expense incurred during the period
from inception to December 31, 1996. For the year ended December 31, 1997, Petra
Capital, LLC incurred interest expense of $577,797 as a result of borrowing
under outstanding credit facilities totaling $24.2 million at December 31, 1997.

Management Fees. Management fees paid to Petra Capital Management, LLC
increased 55.3% to $582,373 for the year ended December 31, 1997 from $375,000
for the period from inception to December 31, 1996. The increase in management
fees was attributable to the increase in the average outstanding loan balance
during 1997.

State Income Tax on Interest. For the year ended December 31, 1997, state
income tax on interest increased 59.9% to $111,902 from $70,000 for the period
from inception to December 31, 1996. Upon completion of the Reorganization, the
surviving company will be a taxable Delaware corporation and, as such, will not
be subject to the state tax on interest.

Realized Gain on Investments. Petra Capital, LLC realized gains on
investments of $1.1 million for the year ended December 31, 1997 compared to no
realized gains on investments for the period from inception to December 31,
1996. The realized gain for the year ended December 31, 1997 was the result of
the exercise of a warrant held in a portfolio company and the sale for cash of
the securities acquired.

Change in Unrealized Appreciation/Depreciation of Investments. For the
period ended December 31, 1997, net unrealized appreciation of investments
increased 459% to $3.4 million from $608,169 for the period from inception to
December 31, 1996. Net unrealized appreciation during both periods was a result
of increased valuation of warrants and equity securities held by the Company.

20
<PAGE> 23

Comparison of Three Months Ended March 31, 1998 and 1997

Interest on Investments. Interest on investments increased 203% to $1.7
million for the three months ended March 31, 1998 from $552,384 for the three
months ended March 31, 1997. The increase in interest on investments is
attributable to an increase in loans outstanding during the three months ended
March 31, 1998. At March 31, 1998, Petra Capital, LLC had 23 loans outstanding
with an aggregate value of $57.3 million compared to seven loans outstanding
with an aggregate value of $19.5 million at March 31, 1997.

Loan Processing Fees. Loan processing fees increased 9.5% to $230,000 for
the three months ended March 31, 1998 from $210,000 for the three months ended
March 31, 1997. The Company originated seven new loans totaling $14.5 million
for the three months ended March 31, 1998 compared to three loans totaling $9.0
million for the three months ended March 31, 1997. Loan processing fees did not
increase as much as originations during the period due to the timing of fee
recognition and one additional loan to an existing borrower that was made
without a fee. Loan processing fees decreased to 12.2% of total operating income
for the three months ended March 31, 1998 from 27.5% for the three months ended
March 31, 1998 as a result of continued realization of interest income on loans
originated during 1996 and 1997.

Interest Expense. For the three months ended March 31, 1998, Petra
Capital, LLC incurred interest expense of $689,523 as a result of borrowings
under credit facilities totaling $38.6 million outstanding at March 31, 1998.
Petra Capital, LLC incurred no interest expense for the three months ended March
31, 1997, and had no debt outstanding at March 31, 1997.

Management Fees. Management fees paid to Petra Capital Management, LLC
increased 124% to $280,446 for the three months ended March 31, 1998 from
$125,000 for the three months ended March 31, 1997. This increase was
attributable to the increase in the average outstanding loan balance during the
period.

Change in Unrealized Appreciation/Depreciation of Investments. For the
period ended March 31, 1998, net unrealized appreciation of investments was $1.1
million compared to net unrealized depreciation of investments of $50,212 for
the three months ended March 31, 1997. Net unrealized appreciation of
investments for the period ended March 31, 1998 was a result of increased
valuation of equity securities. Net unrealized depreciation of investments for
the period ended March 31, 1997 was a result of a decrease in the value of
publicly-traded securities held by the Company.

RESULTS OF OPERATIONS OF PETRA CAPITAL MANAGEMENT, LLC

Comparison of Year Ended December 31, 1997 to Period From Inception Through
December 31, 1996

Management fee income increased 54.0% to $577,373 for the year ended
December 31, 1997 from $375,000 for the period from inception to December 31,
1996. The increase in management fee income was attributable to an increase in
the average outstanding loan balance of Petra Capital, LLC during the year ended
December 31, 1997.

Operating expenses increased 71.8% to $443,452 for the year ended December
31, 1997 from $258,143 for the period from inception to December 31, 1996. The
increase in operating expenses was attributable to the hiring of additional
employees and expenses incurred in originating a greater number of loans.

Comparison of Three Months Ended March 31, 1998 and 1997

Management fee income increased 126% to $279,196 for the three months ended
March 31, 1998 from $123,750 for the three months ended March 31, 1997. The
increase in management fees was attributable to the increase in the average
outstanding loan balance during the three months ended March 31, 1998.

Operating expenses increased 354% to $329,341 for the three months ended
March 31, 1998 from $72,622 for the three months ended March 31, 1997.
Approximately $180,000 of the increase was attributable to salary and bonuses
paid to members and the remainder was attributable to the hiring of additional
employees and expenses incurred in originating a greater number of loans. In
1997, Petra Capital Management, LLC recorded all amounts distributed to its
members as a charge to undistributed earnings and

21
<PAGE> 24

recorded no salaries and benefits expense for the members. In 1998, Petra
Capital Management, LLC began charging distributions to its members as salary
and benefit expense.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, the Company has relied primarily on four sources of funds
to finance the growth of its loan portfolio: (i) private placements of equity;
(ii) borrowings under revolving and term credit facilities; (iii) loan
repayments; and (iv) cash flow from operations. From inception through March 31,
1998, the Company raised $20.2 million in a series of private equity
transactions. All of the equity raised was in the form of membership interests
in Petra Capital, LLC which will be converted into shares of Common Stock as a
result of the Reorganization.

The Company has a $70 million revolving credit facility with an
institutional lender bearing interest at a rate of one month LIBOR plus 2.50%,
and secured by all the Company's assets. As of March 31, 1998, the outstanding
balance on the revolving credit facility was $35.6 million. A $3.0 million
subordinated note to a financial institution was also outstanding. Amounts
outstanding under the revolving credit facility and subordinated note will be
repaid from the net proceeds of the Offering. See "Use of Proceeds."

In connection with the retirement of the subordinated note and the
outstanding indebtedness under the revolving credit facility, the Company
expects to recognize extraordinary expenses in the amount of $834,000
representing deferred origination costs and unamortized discount associated with
the indebtedness to be retired. To obtain the revolving credit facility and the
subordinated loan, the Company issued warrants to the lender. The Company
recorded a $200,000 discount on its revolving credit facility and a $300,000
discount on the subordinated loan to reflect the value of the warrants. Such
warrants have been purchased and exercised by Kellett Partners, L.P., an
existing stockholder of the Company.

The Company currently has a commitment for a new $100 million warehouse
credit facility from a financial institution, pursuant to which the Company's
loans and accompanying warrants will serve as collateral for an asset-backed
commercial paper program. The term of the facility is three years, and advances
will bear interest at one month LIBOR plus 1.50%. In addition, the Company will
pay a facility fee of 0.25% per annum on the unused portion of its line, and a
structuring fee of 0.75% upon loan closing. Subject to standard closing
conditions and certain financial covenants, the credit facility becomes
effective on the date of consummation of the Offering.

Because the Company will be a BDC, it will be limited in the amount of debt
capital that it will be able to use to fund its growth. The Company will be
generally required to maintain a ratio of 200% of total assets to total
borrowings. In addition, as a BDC and a RIC, the Company will be required to
distribute at least 90% of its net operating income other than net long-term
capital gains to stockholders on an annual basis. See "Regulation." The Company
currently intends to distribute net realized long-term capital gains to
stockholders on an annual basis. As a result of these requirements, the Company
expects to finance its operations, dividend requirements and future loans with
short-term and long-term debt and sales of its equity capital and, to a lesser
extent, from cash from operations. The Company will hedge its variable interest
rate exposure to the extent permitted by the 1940 Act.

The Company expects to incur additional operating expenses as its business
expands. These additional operating expenses may include salaries and other
compensation benefits for additional professionals and staff and expenses
related to the opening of new offices. The Company had no commitments at March
31, 1998 for any material capital expenditures.

The Company believes that it will have access to capital sufficient to fund
future loans to its customers, to fund operations and to pay dividends.

YEAR 2000

The Company has reviewed its exposure to risks associated with the Year
2000 issue and has determined that there is no material risk of business
interruption as a result of errors or inefficiencies in the Company's internal
computer systems. The Company exclusively uses software purchased from third
party vendors and
22
<PAGE> 25

has been informed by its vendors that the software will be Year 2000 compliant;
however, there can be no assurance that all of the Company's software will
permit the Company to operate without any business interruption or
inefficiencies.

The Company is currently assessing the Year 2000 risks associated with its
existing portfolio companies. For all new loans originated, the Company will
include in its credit review a Year 2000 compliance assessment and covenants
regarding Year 2000 compliance and will monitor particular portfolio companies
in appropriate circumstances.

NEW GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

In June 1997, Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income" was issued and is effective for fiscal years
beginning after December 15, 1997. SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components (revenues,
expenses, gains, losses) in a full set of general purpose financial statements.
SFAS No. 130 requires the disclosure of an amount that represents total
comprehensive income and the components of comprehensive income in a financial
statement. The adoption of SFAS No. 130 is not expected to have a material
impact on the financial statements of the Company.

In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" was issued and is effective for fiscal years beginning
after December 15, 1997. SFAS No. 131 establishes standards for determining an
entity's operating segments and the type and level of financial information to
be disclosed in both annual and interim financial statements. The adoption of
SFAS No. 131 is not expected to have a material impact on the financial
statements of the Company.

In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 ("SOP 98-5") effective for fiscal years
beginning after December 15, 1998. SOP 98-5 requires that all nongovernmental
entities expense the cost of start-up activities as those costs are incurred.
The statement also requires nongovernmental entities to write off any
unamortized start-up costs that remain on the balance sheet at the date of
adoption. The Company will adopt the provisions of SOP 98-5 effective January 1,
1999. Management does not expect the adoption to have a material impact on the
financial condition or results of the Company.

23
<PAGE> 26

BUSINESS

GENERAL

The Company's loans typically range between $1.0 and $5.0 million and are
structured as subordinated, secured term loans with a five-year bullet maturity.
The loans bear fixed interest rates with coupons currently ranging from 13% to
15% per annum. In addition, loan processing fees typically ranging between 2% to
3% of the principal amount of the loan are paid at loan closing. As part of the
loan transaction, the Company receives warrants to purchase an equity interest
in the borrower at a nominal exercise price. The amount of the warrants received
varies based upon borrower-specific valuation factors. The Company, unlike
traditional lenders, encourages prepayment of its loans by not imposing
prepayment penalties and by including "ratchet" provisions in its warrants that
increase the Company's warrant interest in a borrower the longer its loan
remains outstanding. Rapid loan turnover allows the Company to redeploy its
funds while retaining its warrant interests.

The Company has experienced rapid growth since its inception in April 1996.
Loan originations have grown from $17.0 million for the period from the
Company's inception through December 31, 1996 to $40.1 million for the year
ended December 31, 1997 and from $9.0 million for the three months ended March
31, 1997 to $14.5 million for the three months ended March 31, 1998. At March
31, 1998, the Company had 23 loans outstanding with a fair value of $57.3
million to 21 companies in eight states. The Company's net operating income for
the year ended December 31, 1997 was $3.1 million. For the quarter ended March
31, 1998, the Company's net operating income was $828,606, a 40.8% increase over
the same period of the prior year. Through March 31, 1998, five of the Company's
portfolio companies had repaid their loans as a result of various liquidity
events. The Company has retained its warrant or equity interests in four of
these five companies and received cash for the remaining warrant.
24
<PAGE> 27

CHARACTERISTICS OF TARGETED BORROWERS

The Company has identified certain common characteristics of potential
borrowers, which are described below, that it uses to guide its credit
decisions. Each borrower may not have all of these characteristics, and the
importance of these characteristics may vary depending on the relevant
circumstances.

Experienced Management Teams. The Company believes that the success or
failure of a borrower depends to a significant degree on the quality of the
borrower's management team. As a result, the Company places greatest emphasis on
its assessment of the experience, character and financial commitment of
management in making its credit decisions.

Growth. The Company seeks to make loans to borrowers that have or are
projected to have significant and sustainable growth in revenues or cash flow.
While no specific level of revenue or cash flow growth is required, the Company
targets borrowers with projected annual revenue growth of 20% or more.

Foreseeable Liquidity Event. Prior to making a loan to a borrower, the
Company analyzes not only the potential for the borrower to repay its loan but
also the likelihood of a liquidity event prior to the maturity of the loan.
Typical liquidity events include an initial public offering, a sale of the
borrower or a recapitalization. Liquidity events generally result in prepayment
of the Company's loan and can enhance the value of its warrant interest.

Sophisticated Equity Investors. The Company seeks to identify borrowers
that have sophisticated equity investors, such as venture capital funds and/or
strategic corporate partners. The Company believes that the involvement of such
investors increases the likelihood of a liquidity event and provides a potential
source of financial and managerial support to a portfolio company.

Enterprise Value. The Company focuses on potential borrowers that have a
well-defined business plan that focuses on increasing long-term shareholder
value. As an "enterprise value" lender, the Company relies more on the current
and projected equity value of borrowers than on traditional cash flow analyses
and collateral assessments.

UNDERWRITING PROCEDURES

The Company's underwriting process, described below, forms the basis of the
Company's decision to fund or reject a loan.

Preliminary Evaluation of Borrower. The Company's professionals review
business plans generated by the Company's referral network in order to identify
potential borrowers. After identifying an applicant that the Company believes
merits further investigation, the Company assigns a team of professionals to
evaluate the borrower in order to bring multiple perspectives to the
underwriting process. The Company's professionals meet with the borrower and
perform a preliminary investigation of the borrower's management, operations and
prospects. The Company's professionals generally consult with industry analysts
and other sources to assess the prospects of the borrower and its industry. If
the Company is satisfied with its preliminary investigation of
25
<PAGE> 28

the borrower's management, operations and prospects, the Company typically
issues a term sheet outlining a proposed transaction. After reaching an
agreement on the term sheet, the Company generally receives all or part of the
loan processing fee from the applicant and begins due diligence.

Due Diligence. The Company's due diligence initially focuses on an
in-depth study of the borrower's management team. This process includes on-site
visits to the borrower's headquarters and certain other facilities, interviews
with key management and board members, character references for senior
management, and discussions with industry research analysts, other industry
participants, customers and suppliers. The borrower also responds to a checklist
of information, including the history of the borrower, detailed historical and
projected financial statements (including receivables and payables aging
schedules and depreciation tables), a description of the borrower's market and
competitive landscape, and a description of operations (marketing and sales,
research and development, employee issues, etc.). The Company gathers and
reviews pertinent industry information from trade publications, the Internet and
other sources. Further, the Company generally analyzes various recession and
downside case scenarios and their potential impact on the borrower's future
earnings. Additional legal due diligence is performed by the Company's outside
attorneys and generally includes a review of the borrower's charter, capital
structure, subsidiaries, assets, liabilities, material contracts, employee
plans, litigation, environmental matters, tax matters and other relevant legal
documentation.

Loan Approval. Upon the completion of due diligence, the due diligence
team creates a borrower profile that summarizes the borrower's historical and
projected financial statements, its industry, its management, operations and
prospects, and its degree of conformity with the Company's preferred borrower
characteristics. The borrower's profile is then presented to the Company's loan
committee, whose members currently are Robert G. Shuler, Joseph D. O'Brien, III
and Michael W. Blackburn.

The Company's underwriting process, from start to finish, usually is
completed within a four to six week period. If the Company elects to approve a
loan, the Company seeks to close the loan within one week after loan approval.

PORTFOLIO MANAGEMENT

Loan Servicing. Following the closing of a loan, the Company monitors the
performance of the portfolio company and its compliance with the terms of the
loan. As part of the loan agreement, the portfolio company is required to
provide the Company with monthly financial statements, as well as year-end
financial statements and board presentation materials. In addition to reviewing
this information, the Company maintains regular telephonic contact with the
borrower and consults with the borrower on its financial performance and results
as well as the borrower's overall strategic plan. The Company generally
communicates with the outside equity investors in the borrower who also
typically monitor the borrower's operations. When necessary, representatives of
the Company attend portfolio company board meetings pursuant to board visitation
rights included in the Company's warrant documents. The Company believes that by
reviewing monthly financial statements, periodically observing board meetings
and communicating with the borrower and its outside equity investors, the
Company maintains an effective system for early detection of problem loans. To
help the Company monitor the performance of its loans as the Company's portfolio
expands, the Company is currently developing an on-line database of borrower
financial information and an electronic diary of all communications with a
borrower by any of the Company's employees.

Risk Ratings. To monitor the performance of its portfolio, the Company has
implemented a system which grades each loan on a scale of 1 to 6. The assigned
grade reflects the Company's assessment of the probability of a loan being
repaid. The loan committee evaluates each portfolio company based on several
financial factors including recent performance, availability of working capital
and payment of interest expense. Additionally, the loan committee considers the
following criteria related to each specific portfolio company in formulating the
grade: enterprise value, a pending or proposed merger or sale of assets, a
proposed initial public offering industry comparable valuations, recent
additional equity investments and market trends.

All new loans are assigned a grade 3 for a period of three months. After
the initial three months, loans are assigned a grade of 1 to 6. Thereafter, all
loans are formally reviewed and graded on a quarterly basis. Characteristics of
each grade are outlined below.
26
<PAGE> 29

Grade 1 -- Minimal Risk. The borrower is exceeding anticipated performance
or has a pending liquidity event which the Company believes is probable. The
Company also believes that the enterprise value supports repayment of loan. The
Company is monitoring performance on a monthly basis.

Grade 2 -- Better than average credit risk. The borrower is meeting
anticipated performance, or the Company believes that a liquidity event is
probable within the term of the loan. The Company also believes that enterprise
value supports repayment of loan. The Company is monitoring performance on a
monthly basis.

Grade 3 -- Acceptable level of risk. The borrower is meeting anticipated
performance within an acceptable variance, and the Company believes that the
probability of repayment remains good. This grade includes all new loans for at
least three months. The Company is monitoring performance on at least a monthly
basis.

Grade 4 -- Marginal level of risk. The borrower has performed below
expectations for an extended period of time or has experienced a recent negative
development. Enterprise value is at risk if a successful strategy is not
implemented in near future. The borrower may be in payment default (all loans in
payment default of less than 90 days are assigned a minimum risk rating of grade
4). At this stage, the Company intensifies its involvement with and monitoring
of the borrower.

Grade 5 -- Unacceptable level of risk. Includes all loans over 90 days past
due, along with any loans in which a significant negative event has recently
occurred which has jeopardized the quality of the credit of the borrower. At
this point, the Company generally will engage a workout specialist. The Company
will evaluate legal recourse in an effort to minimize its loss. See
"-- Non-performing loans" and "-- Workouts."

Grade 6 -- High risk. Generally, the Company expects to write-off part or
all of the loan. This grade includes all loans over 180 days past due along with
any loan in which borrower has declared bankruptcy, committed fraud and/or any
other highly detrimental event has occurred.

As of March 31, 1998, the Company had no loans that were graded 5 or 6 and
no loans with delinquent interest payments.

Non-performing loans. To date the Company has not experienced a payment
default on a portfolio loan, defined as an interest or principal payment not
received within five days of its due date. If a default were to occur, the
Company will take steps to assist defaulted borrowers. The Company will also
commence collection efforts upon default. The borrower will be contacted by an
officer of the Company who will discuss the expected timing of the payment. If
needed, the loan will be downgraded to a risk rating of grade 4.

After a borrower's interest payment is more than 90 days past due, the
Company will discontinue accruing interest and, if needed, will downgrade the
risk rating to a grade 5. At such time, the Company will determine the most
appropriate course of action and will consider whether any adjustment to the
fair value of the loan is appropriate. If borrower's interest payment is more
than 180 days past due and/or has a risk rating of grade 6, the Company will
write down the value of the loan by no less than 25% of the loan's outstanding
principal balance.

Workouts. All loans having a risk rating of a 5 or 6 will be classified as
a workout. The Company's approach to loan workouts will be to attempt to use its
position as a secured lender to the borrower to work with senior creditors along
with any institutional equity investors to rehabilitate, rather than liquidate,
defaulted loans. Workouts will be serviced by an officer of the Company and, if
necessary, an outside workout consultant with expertise in the relevant
industry. The Company believes that an industry specific workout specialist may
be better able to turn around a troubled portfolio company and secure repayment
of the Company's loan than a Company officer who is, by necessity, a generalist.
An assigned Company professional will select and monitor the work of any hired
specialist. The Company's primary objective at this stage will be to minimize
its loss on the loan.

STRUCTURE OF LOAN PRODUCTS

that the loans will be repaid at or prior to maturity and that the equity
portion of the investment will be liquidated for cash within five to ten years.

The Company's loans are typically secured by a lien on the borrower's
assets. In most cases, the Company's lien is subordinated to the lien of the
borrower's senior lenders. As a result, the Company's right to liquidate the
collateral for a loan upon a default is subject to the superior rights of the
senior creditors of the borrower. The Company's loan documents generally do not
contain extensive financial covenants, although the documentation usually
contains cross-default provisions linked to defaults under any senior debt of
the borrower. In addition, the Company's loan documents generally do not provide
for prepayment penalties.

Each loan that the Company makes is typically accompanied by a related five
to ten-year warrant to buy common stock of the borrower. Generally, these
warrants are exercisable at a nominal price (usually $.01 per share) and
represent 1% to 15% of a borrower's diluted equity at the date of origination.
In most cases, the warrants provide registration rights that entitle the Company
to sell the equity securities of the borrower in a registered public offering
under certain circumstances. Additionally, the warrants contain "ratchet"
provisions that increase the Company's warrant interest the longer a loan
remains outstanding.

At March 31, 1998, the Company held stock or warrants to purchase stock in
three publicly-traded companies. In accordance with the Company's valuation
policy, at March 31, 1998, these securities were carried on the Company's books
at a fair value of $2.0 million. The Company also converted one equity position
to cash during the third quarter of 1997 at a gain of $1.1 million. At March 31,
1998, the Company held warrant positions in 22 private companies that it carried
at a fair value of $5.3 million. The fair value of the Company's loans and
equity securities is determined in good faith by the Board of Directors in
accordance with the Company's valuation policy. For a discussion of the
Company's valuation policy, see "Determination of Net Asset Value" and the notes
to financial statements included elsewhere in this Prospectus.

MARKETING

The Company markets its products through a network of referral sources,
which provides the Company with a regular flow of potential borrowers. These
referral sources include investment bankers, venture capitalists, commercial
bankers, lawyers, accountants and existing portfolio companies. The Company
believes that a key to the development of its referral network has been its
prompt, professional and consistent responsiveness to referrals and its ability
to introduce existing portfolio companies contemplating a corporate finance
transaction to its referral sources.

The Company currently employs six professionals in Nashville, Tennessee who
work with referral sources and portfolio companies within defined geographic
territories. The Company anticipates that future growth will require additional
staff. The Company may selectively open additional offices when necessary to
service existing referral sources or to generate additional referral sources.

PORTFOLIO COMPANIES

The following table sets forth certain information as of March 31, 1998
regarding each portfolio company to which the Company had made a loan that was
outstanding on such date. Unless otherwise noted, the only relationship between
each portfolio company and the Company is the Company's loan and warrant or
stock position. No single investment in a portfolio company will represent 5% or
more of the Company's assets upon completion of the Offering. The amount and
general terms of all loans to portfolio companies are set forth on page F-13.

28
<PAGE> 31

<TABLE>
<CAPTION>
PERCENTAGE
NATURE OF ITS TITLE OF SECURITIES OWNED ON A
PRINCIPAL HELD BY THE DILUTED
NAME AND ADDRESS OF COMPANY BUSINESS COMPANY BASIS(1)
- --------------------------- ------------- ------------------- ----------
<S> <C> <C> <C>
Bit-by-Bit Computers, Inc..................... Computer Rental Warrant to 5.5%
2930 Chad Drive, Ste. 150 purchase Common
Eugene, OR 97408 Stock
Blue Chalk Cafe Corporation................... Restaurant Warrant to 3.6
360 University Avenue purchase Common
Palo Alto, CA 94301 Stock
BuildNet, Inc................................. Electronic Warrant to 2.0
P.O. Box 13893 Commerce purchase Common
RTP, NC 27709 Stock
Codman Research Group, Inc.................... Healthcare Warrant to 6.8
138 River Road Information purchase Common
Andover, MA 01810 Systems Stock
Ex Officio, Inc............................... Adventure Warrant to 5.8
1419 Elliott Avenue West Travel Wear purchase Common
Seattle, WA 98119 Stock
General Roofing Industries, Inc.(2)........... Commercial Warrant to 2.8
951 S. Andrews Avenue Roofing purchase Common
Pompano Beach, FL 33069 Stock
Healthgate Data Corporation................... On-line Warrant to 3.0
380 Pleasant Street, Ste. 230 Publisher purchase Common
Malden, MA 02148 Stock
Interactive Magic, Inc........................ Interactive Warrant to 4.0
P.O. Box 13491 Gaming purchase Common
RTP, NC 27709 Stock
International Radiology Group, LLC............ Healthcare Warrant to 3.0
Two Turtle Creek Village, Services purchase Common
Ste. 300 Stock
3838 Oak Lawn Avenue
Dallas, TX 75219
Men's Focus Health Centers, Inc............... Healthcare Warrant to 10.0
One Perimeter Park South Services purchase Common
Suite 315 North Stock
Birmingham, AL 35243
Mobile Information Systems Finance Company, Logistics Warrant to
Inc......................................... 3.4
1333 Bordeaux Drive Management purchase Common
Sunnyvale, CA 94089 Stock
New Energy Associates, LLC.................... Software/ Warrant to 3.3
400 Interstate North Parkway Consulting purchase Common
Suite 1400 Stock
Atlanta, GA 30339
OneCoast Network Corporation.................. Manufacturers' Warrant to 12.3
235 Peachtree Street, 21st Floor Representative purchase Common
Atlanta, GA 30303 Organization Stock
P(2)Holdings Corporation...................... Business Services Warrant to 2.9
627 McCormick Street purchase Common
San Leandro, CA 94577 Stock
Progressive System Technologies, Inc.......... Semiconductor Warrant to 1.5
11000 Mopac Expressway, Ste. 100 Equipment purchase Common
Austin, TX 78759 Stock
</TABLE>

29
<PAGE> 32

- ---------------

(1) Percentages shown for warrants and common stock held by the Company
represent the percentage of class of stock owned or to be owned upon
exercise of the warrant based upon information regarding issued and
outstanding securities made available to the Company by portfolio companies
as of March 31, 1998. Diluted basis includes equity securities issuable upon
the exercise or conversion of outstanding options, warrants, rights or
convertible securities. Percentages owned were calculated by the Company on
the basis of information provided by portfolio companies.
(2) Robert G. Shuler has agreed to serve as a member of the Board of Directors
of General Roofing Industries, Inc.

30
<PAGE> 33

GEOGRAPHIC DISTRIBUTION

The table below sets forth, as of March 31, 1998, for the eight states in
which the Company's borrowers maintain their principal place of business, the
number of borrowers and the percentage of the Company's total loan principal
balance at March 31, 1998 outstanding to borrowers located in such states.

<TABLE>
<CAPTION>
% OF TOTAL DOLLAR AMOUNT NUMBER
STATE OF LOAN BALANCES OF BORROWERS
- ----- ------------------------ ------------
<S> <C> <C>
California.................................................. 25.6% 5
Georgia..................................................... 17.1 4
North Carolina.............................................. 14.5 3
Massachusetts............................................... 13.7 3
Texas....................................................... 10.2 2
Florida..................................................... 10.2 2
Oregon...................................................... 5.1 1
Washington.................................................. 3.6 1
----- --
100.0% 21
===== ==
</TABLE>

PORTFOLIO TURNOVER

From inception to December 31, 1996, the Company made six loans totaling
approximately $17.0 million and experienced two repayments aggregating $6.0
million. During the year ended December 31, 1997, the Company made 15 loans
totaling $40.1 million and experienced three repayments aggregating $7.0
million. During the quarter ended March 31, 1998, the Company made seven loans
totaling $14.5 million and had no prepayments. Since the Company's borrowers
have the right to prepay loans without penalty, the Company will not be able to
control the timing of changes in its portfolio of investments. At March 31,
1998, the Company's portfolio of loans consisted of subordinated, secured loans
with an approximate average remaining maturity of four years, with the earliest
maturity of such loans being 2001, equity securities (including warrants) and
short-term U.S. government securities. See "Risk Factors -- Impact of Timing of
Loan Prepayments on Portfolio Composition and Interest Spread."

COMPETITION

The Company's primary competitors include financial institutions, venture
capital firms and nontraditional lenders that provide debt and/or equity
financing to emerging, high growth companies. Many of these entities have
greater financial and managerial resources than the Company. Currently, there
are only a few investment companies or other entities making subordinated,
secured debt investments under $5.0 million. The Company believes that it
competes effectively with these competitors based on quality of service,
flexibility, reputation, timely credit analysis and decision-making.

EMPLOYEES

As of June 8, 1998, the Company had ten employees. The Company believes its
relations with its employees are excellent.

INVESTMENT OBJECTIVES AND POLICIES

INVESTMENT POLICIES

The Company's principal investment objective is to maximize total
stockholder return through the realization of current interest and fee income on
its loans and long-term appreciation in the value of its warrant portfolio.
Except for the fundamental policies described below, the Company's investment
objectives may be changed by a majority vote of its Board of Directors.

31
<PAGE> 34

In making loans and managing its portfolio, the Company will adhere to the
following fundamental policies, which may not be changed without the approval of
the holders of the majority, as defined in the 1940 Act, of the Company's
outstanding shares of Common Stock. The percentage restrictions set forth below,
as well as those contained elsewhere in this Prospectus, apply at the time a
transaction is effected, and a subsequent change in a percentage resulting from
market fluctuations or any cause other than an action by the Company will not
require that the Company dispose of portfolio securities or take other action to
satisfy the percentage restriction.

- The Company will at all times conduct its business so as to retain its
status as a BDC. In order to retain that status, the Company currently
may not acquire any assets (other than non-investment assets necessary
and appropriate to its operations as a BDC) if, after giving effect to
such acquisition, the value of its "Qualifying Assets" amounts to less
than 70% of the value of its total assets. For a summary definition of
"Qualifying Assets," see "Regulation." The Company believes that the
securities that it has acquired and that it proposes to acquire, as well
as temporary investments that it makes with its idle funds, will
generally be Qualifying Assets. Securities of public companies, on the
other hand, are generally not Qualifying Assets unless they were acquired
in a distribution, in exchange for or upon the exercise of, a right
relating to securities that were Qualifying Assets.

- The Company may borrow funds to the extent permitted by the 1940 Act.
Currently, a BDC may borrow funds through the issuance of "Senior
Securities" if, immediately after such issuance, the securities will have
asset coverage of at least 200%. The Company has a $70 million revolving
credit facility which is secured by all of the Company's assets. As of
March 31, 1998, there was $35.6 million outstanding under the credit
facility. For the risks associated with the use of leverage, see "Risk
Factors -- Leverage."

- The Company will not acquire any securities (except upon the exercise of
a right related to previously acquired securities) if, as a result, 25%
or more of the value of its total assets consists of securities of
companies in the same industry.

- The Company will not (i) act as an underwriter of securities of other
issuers (except to the extent that it may be deemed an "underwriter" of
securities purchased by it that subsequently must be registered under the
Securities Act before they may be offered or sold to the public), (ii)
purchase or sell real estate or interests in real estate or real estate
investment trusts (except that the Company may purchase and sell real
estate or interests in real estate in connection with the orderly
liquidation of investments or the foreclosure of mortgages held by the
Company), (iii) sell securities short, (iv) purchase securities on margin
(except to the extent that it may purchase securities with borrowed
money), (v) write or buy put or call options (except to the extent of
warrants or conversion privileges obtained in connection with its loans,
and rights to require the issuers of such investments or their affiliates
to repurchase them under certain circumstances), (vi) engage in the
purchase or sale of commodities or commodity contracts, including futures
contracts (except where necessary in working out distressed loan or
investment situations), or (vii) acquire the voting stock of, or invest
in any securities issued by, any other investment company, except as they
may be acquired as part of a merger, consolidation or acquisition of
assets.

- The Company will offer to make available significant managerial
assistance to its portfolio companies to the extent required by the 1940
Act.

INVESTMENT ADVISOR

The Company has no investment advisor. The Company's loan portfolio is
managed by its officers under the supervision of its Board of Directors.

32
<PAGE> 35

PRINCIPAL STOCKHOLDERS

Immediately prior to the Offering, there will be 7,000,000 shares of Common
Stock outstanding and 13 record holders of the Company's Common Stock. The
Company has no other class of securities outstanding. The following table sets
forth certain ownership information as of June 8, 1998, as adjusted to reflect
the sale of the Common Stock offered hereby, with respect to the beneficial
ownership of the Common Stock for each person known to the Company to
beneficially own more than 5% or more of the Common Stock and all directors and
officers, as a group.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING(1) AFTER OFFERING(1)
-------------------- --------------------
NAME AND PRINCIPAL POSITION(2) NUMBER PERCENT NUMBER PERCENT
- ------------------------------ --------- ------- --------- -------
<S> <C> <C> <C> <C>
Stiles A. Kellett, Jr.(3)............................ 5,663,663 80.9% 5,663,663 53.9%
Robert G. Shuler(4).................................. 537,378 7.7 537,378 5.1
John E. Cunningham, IV(5)............................ 515,281 7.4 515,281 4.9
All directors and officers as a group (12 persons)... 6,994,327 99.9 6,994,327 66.6
</TABLE>

- ---------------

(1) Unless otherwise indicated, to the Company's knowledge, the named persons
and group have sole voting and investment power over the shares of Common
Stock indicated.
(2) Unless otherwise indicated, the address of each beneficial owner is 172
Second Avenue North, Suite 112, Nashville, Tennessee 37201.
(3) Includes 5,663,663 shares of Common Stock owned by Kellett Partners, L.P.
Kellett Partners, L.P. is a Georgia limited partnership whose address is 200
Galleria Parkway, Suite 1800, Atlanta, Georgia 30339. Stiles A. Kellett, Jr.
is the General Partner of Kellett Partners, L.P. Upon completion of the
Offering, Mr. Kellett will be the beneficial owner of 53.9% of the
outstanding shares of Common Stock of the Company. Therefore, Mr. Kellett
will be able to control the election of directors of the Company and to
determine the outcome of certain other corporate matters regardless of how
other stockholders may vote.
(4) Includes 107,476 shares of Common Stock owned by Shuler Family Partners,
L.P. Shuler Family Partners, L.P. is a Tennessee limited partnership whose
address is 172 Second Avenue North, Suite 112, Nashville, Tennessee 37201.
Robert G. Shuler and Kimberly H. Shuler are Co-General Partners of Shuler
Family Partners, L.P., and Robert G. Shuler is the Managing General Partner
of Shuler Family Partners, L.P.
(5) Includes 268,688 shares of Common Stock owned by Clear Fir Partners, L.P.
Clear Fir Partners, L.P. is a Washington limited partnership whose address
is 4303 54th Avenue NE, Seattle, Washington 98105. John E. Cunningham, IV is
the General Partner of Clear Fir Partners, L.P.

33
<PAGE> 36

MANAGEMENT

DIRECTORS AND OFFICERS

The Company's current directors are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION CLASS
- ---- --- -------- -----
<S> <C> <C> <C>
Stiles A. Kellett, Jr.*(1).................. 54 Director, Chairman of the Board III
Robert G. Shuler*........................... 34 Director, President and Chief III
Executive Officer
Max E. Bobbitt(1)........................... 53 Director II
John E. Cunningham, IV*..................... 40 Director III
Thompson S. Dent(2)......................... 48 Director I
Frank J. Lofaro............................. 43 Director I
Nicholas A. Merrick(2)...................... 35 Director II
</TABLE>

- ---------------

(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
* Interested person under Section 2(a)(19) of the 1940 Act.

Stiles A. Kellett, Jr. Mr. Kellett has served as Chairman of the Board of
Directors of the Company since June 1998. Mr. Kellett served as a member of the
Advisory Board of Petra Capital, LLC from its inception in April 1996 until June
1998. Since 1995, Mr. Kellett has served as Chairman and Chief Executive Officer
of Kellett Investment Corporation, a diversified, privately held investment
company that is engaged in a variety of businesses in several industries.
Kellett Investment Corporation was an initial investor in the Company. Mr.
Kellett also serves as a director of WorldCom, Inc., a global telecommunications
company; Frederica Bank & Trust Company, a commercial bank; and Mariner Health
Group, Inc., a long-term health care company. From 1978 to January 1996, Mr.
Kellett served as Chairman of the Board of Directors of Convalescent Services,
Inc., a long-term health care company that was sold to Mariner Health Group,
Inc.

Robert G. Shuler. Mr. Shuler has served as President, Chief Executive
Officer and a director of the Company since June 1998. Mr. Shuler co-founded
Petra Capital, LLC in April 1996 and served as Co-Managing Partner and a member
of the Advisory Board of Petra Capital, LLC from April 1996 to May 1998. From
1993 to 1996, Mr. Shuler was a Vice President and a Principal at Sirrom Capital
Corporation, a commercial finance company. From 1991 to 1993, Mr. Shuler served
as an investment banker at Equitable Securities Corporation. From 1987 to 1989,
Mr. Shuler was an investment banker at The Robinson-Humphrey Company, Inc. Mr.
Shuler is a director of General Roofing Services, a Florida-based consolidator
of commercial roofing services. Mr. Shuler earned an MBA from Duke University
and a BS in Business Administration from Auburn University.

Max E. Bobbitt. Mr. Bobbitt has served as a director of the Company since
June 1998. Mr. Bobbitt has served as President and Chief Executive Officer and a
director of Asian American Telecommunications Corporation (AAT) since January
1996 and of Metromedia China Corporation (MCC) since March 1, 1997. MCC acquired
AAT on March 1, 1997. In January 1995, Mr. Bobbitt retired from ALLTEL
Corporation, a New York Stock Exchange listed telecommunications and information
services company. During his 24 year career with ALLTEL Corporation, Mr. Bobbitt
served as a director and held various positions including President and Chief
Operating Officer and Executive Vice President and Chief Financial Officer. He
currently serves as a director of WorldCom, Inc.

John E. Cunningham, IV. Mr. Cunningham has served as a director of the
Company since June 1998. Mr. Cunningham served as the Chairman of the Advisory
Board of Petra Capital, LLC from its inception in April 1996 until May 1998. Mr.
Cunningham has served as the President of Kellett Investment Corporation since
1995. From February 1997 to December 1997, Mr. Cunningham was the interim Chief
Executive Officer of Real Time Data. From 1992 to 1994, Mr. Cunningham was
Chairman and Chief Executive Officer of RealCom Office Communications, a
privately held telecommunications company that merged with MFS Communications.

34
<PAGE> 37

Thompson S. Dent. Mr. Dent has served as a director of the Company since
June 1998. Since 1992, Mr. Dent has served as a director of PhyCor, Inc.
("PhyCor"), a Nashville-based physician practice management company. Mr. Dent
was PhyCor's Executive Vice President, Corporate Services from its inception
until 1997. Since 1997, Mr. Dent has served as an Executive Vice President of
PhyCor and as its Chief Operating Officer. From 1986 to 1988, Mr. Dent served as
Vice President of Development at EQUICOR. Prior to 1986, Mr. Dent served as
Director of Merger and Acquisitions for the Hospital Corporation of America. Mr.
Dent is also a director of Healthcare Realty Trust Incorporated, a publicly-
traded real estate investment trust.

Frank J. Lofaro. Mr. Lofaro has served as a director of the Company since
June 1998. Since 1994, Mr. Lofaro has served as the Executive Director for
Prison Fellowship International, a non-profit organization. From 1985 to 1992,
Mr. Lofaro was sole owner and President of Kenstan Lock and Hardware Company,
Inc., a showcase lock manufacturer. Prior to 1985, he was President of Tiffany
Cafes, Inc., a New York-based restaurant chain.

Nicholas A. Merrick. Mr. Merrick has served as a director of the Company
since June 1998. Mr. Merrick served as a member of the Advisory Board of Petra
Capital, LLC from its inception in April 1996 until May 1998. Since May 1998,
Mr. Merrick has served as a director of EXCEL Communications ("EXCEL"), a
publicly traded telecommunications company. In addition, Mr. Merrick has served
as the Chief Financial Officer and an Executive Vice President of EXCEL since
October 1997. From 1996 to 1997, Mr. Merrick was Chief Financial Officer of
Telco Communications Group, which was merged into EXCEL in 1997. From 1985 to
1988 and from 1990 to 1996, Mr. Merrick was an investment banker at The
Robinson-Humphrey Company, Inc.

The Company's current officers are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Robert G. Shuler....................... 34 Director, President and Chief Executive
Officer
Joseph D. O'Brien, III................. 33 Chief Financial Officer and Secretary
Michael W. Blackburn................... 34 Director of Investment -- Southeast
Ronald O. Pessner...................... 29 Vice President
Robert A. Smith........................ 26 Vice President
</TABLE>

Joseph D. O'Brien, III. Mr. O'Brien has served as Chief Financial Officer
and Secretary of the Company since June 1998. From August 1996 to May 1998, Mr.
O'Brien was a Vice President for The Goldman Sachs Trust Company and a Marketing
Director for its Boston Global Advisors Division, which serves as a securities
lending agent for institutional investors. From 1992 to 1996, Mr. O'Brien was a
professional in the Equities Division at Goldman, Sachs & Co., most recently as
a Vice President. From 1986 to 1990, Mr. O'Brien was an investment banker at The
Robinson-Humphrey Company, Inc. Mr. O'Brien earned an MBA from Harvard
University and a BS degree from the University of Virginia.

Michael W. Blackburn. Mr. Blackburn has served as Director of
Investments -- Southeast since May 1998 and is responsible for the marketing and
loan origination efforts in the Southeastern United States. Prior to joining the
Company, Mr. Blackburn served as a Venture Partner with Richland Ventures, a
Nashville-based venture capital firm, from its inception in March 1996 through
May 1998. From 1992 to 1996, Mr. Blackburn served as an Associate for Lawrence,
Tyrrell, Ortale and Smith, a private equity firm. From 1991 until 1992, Mr.
Blackburn was a commercial lending officer with SouthTrust Corporation. From
1986 until 1991, he served as a Vice President for First Tennessee Bank in its
commercial lending division. Mr. Blackburn holds an MBA from the Owen Graduate
School of Management at Vanderbilt University and a BA degree from Vanderbilt
University.

Robert A. Smith. Mr. Smith has served as a Principal and a Vice President
of the Company since May 1998. Mr. Smith is responsible for initiating,
screening and analyzing potential investments, performing due

35
<PAGE> 38

diligence and monitoring investments post closing. Mr. Smith served as an
associate and a Vice President of Petra Capital Management, LLC from April 1996
to May 1998. From January 1996 to April 1996, Mr. Smith served as an Associate
Portfolio Manager at Sirrom Capital Corporation. From 1994 to 1996, Mr. Smith
worked as an investment banker for Equitable Securities Corporation. Mr. Smith
holds a BS degree from the University of Virginia.

Ronald O. Pessner. Mr. Pessner has served as a Vice President since May
1998. Mr. Pessner's responsibilities include initiating, screening and analyzing
potential investments, performing due diligence and monitoring investments post
closing. From 1992 to 1996, Mr. Pessner served as an investment banker at CS
First Boston in New York and Singapore. Mr. Pessner earned an MBA from Harvard
University and a BA degree from the University of Virginia.

BOARD OF DIRECTORS

The Board of Directors consists of nine directors. Upon consummation of the
Reorganization, the Board of Directors will be divided into three classes, with
Class I directors to serve a one-year term that will expire at the annual
meeting of the Company's stockholders in 1999, Class II directors to serve a
two-year term to expire at the annual meeting of the Company's stockholders in
2000, and Class III directors to serve a three-year term to expire at the annual
meeting of the Company's stockholders in 2001. At the expiration of the initial
term of office of each class of directors, the nominees for election as
directors in each class will be elected for a three-year term.

The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee is responsible for reviewing and
making recommendations regarding the Company's independent auditors, the annual
audit of the Company's financial statements and the Company's internal
accounting practices and policies. The Compensation Committee approves
compensation arrangements for officers and key employees of the Company,
establishes general levels of compensation for all other employees of the
Company and administers the Company's Stock Option Plan.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During the year ended December 31, 1997, all matters concerning officer
compensation were addressed by the entire Advisory Board of Petra Capital, LLC,
whose members were John E. Cunningham, IV, Stiles A. Kellett, Jr., Robert G.
Shuler, John S. Stein, III and Nicholas A. Merrick. See "-- Certain
Transactions" for a description of certain transactions between the Company and
certain members of its Board of Directors.

DIRECTOR COMPENSATION

Except for grants of stock options, directors of the Company generally do
not receive compensation for services rendered as a director. The Company also
does not pay compensation for committee participation. Following the Offering,
each director will be reimbursed for out-of-pocket expenses incurred in
attending meetings of the Board of Directors and its committees. Directors who
are not employees of the Company ("Non-Employee Directors") will be entitled to
receive nondiscretionary awards of stock options under the Company's Stock
Option Plan.

36
<PAGE> 39

EXECUTIVE COMPENSATION

The following table sets forth for the fiscal year ended December 31, 1997,
the compensation paid to the three officers of the Company who earned salary and
bonus in excess of $60,000 during fiscal 1997. The Company does not have a
pension plan or other retirement benefits. No options were granted to any
officer or directors during fiscal 1997.

<TABLE>
<CAPTION>
CAPACITY IN WHICH AGGREGATE
NAME REMUNERATION RECEIVED(1) REMUNERATION
- ---- ------------------------ ------------
<S> <C> <C>
Robert G. Shuler.......................................... Co-Managing Partner $254,683(2)
John S. Stein, III........................................ Co-Managing Partner 260,180(3)
Robert A. Smith........................................... Vice President 100,000(4)
</TABLE>

- ---------------

(1) All compensation was paid by Petra Capital Management, LLC.
(2) Represents (i) $143,333 in salary; (ii) $106,647 in distributions treated as
compensation; and (iii) $4,883 in health benefit payments.
(3) Represents (i) $143,333 in salary; (ii) $106,767 in distributions treated as
compensation; and (iii) $10,080 in health benefit payments.
(4) Represents $100,000 in salary and bonus.

STOCK OPTION PLAN

In June 1998, the Company's Board of Directors adopted the Petra Capital,
Inc.'s 1998 Incentive Stock Plan (the "Stock Option Plan"). The purpose of the
Stock Option Plan is to further the interest of the Company by providing
eligible employees with additional incentive to increase the value of the
Company's Common Stock by granting such employees a stake in the future of the
Company. A total of 1,853,000 shares of Common Stock have been reserved for
issuance under the Stock Option Plan. The Stock Option Plan is administered by
the Compensation Committee of the Board of Directors. The Stock Option Plan
authorizes the Compensation Committee to grant, in its discretion, stock options
and stock appreciation rights in tandem with stock options.

Each stock option granted under the Stock Option Plan will entitled the
holder thereof to purchase the number of shares of the Company's Common Stock
specified in the grant at the purchase price stated therein. The terms and
conditions of each stock option granted under the Company's Stock Option Plan
will be determined by the Compensation Committee.

Stock options granted under the Stock Option Plan may be either incentive
stock options or nonqualified stock options. Stock options designated by the
Compensation Committee as incentive stock options will comply with Section 422
of the Code. The purchase price for shares subject to stock options granted
under the Stock Option Plan will not be less than 100% of the fair market value
of the Common Stock of the Company at the time of grant. No incentive stock
option may be granted to any employee of the Company who owns at the date of
grant shares of stock representing in excess of 10% of the voting power of all
classes of the Company's capital stock unless the exercise price for stock
subject to such option is at least equal to 110% of the fair market value of the
stock at the time of grant and the option term does not exceed five years.

The Compensation Committee may grant stock appreciation rights only in
tandem with stock options granted under the Stock Option Plan. Stock
appreciation rights will entitle the holder to receive the excess of the fair
market value of a share of Common Stock subject to a stock option over the
option price for such share of stock. Payment for a stock appreciation right may
be made in cash or stock, or a combination thereof, subject to certain
limitations under the 1940 Act.

Each employee who receives stock options or stock appreciation rights under
the Stock Option Plan is required to enter into a noncompetition agreement with
the Company. Among other things, each noncompetition agreement provides that,
for two years after ceasing to be an employee of the Company, each such employee
may not work for or have an interest in any business that competes directly with
the Company in the

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United States. In addition, during such period, each such employee must keep
confidential any confidential, nonpublic information of the Company and all
trade secrets of the Company.

If the Board of Directors determines that there has been a contract or
tender offer or other transaction or event which is likely to lead to a change
in control of the Company, the Stock Option Plan gives the board the right to
take such action with respect to outstanding stock options and stock
appreciation rights as the board determines to be appropriate. Such actions may
include causing all or any portion of the outstanding stock options and stock
appreciation rights for all or any employees to whom such stock options and
stock appreciation rights have been granted to become vested and exercisable
upon the occurrence of events leading up to a change in control.

NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

The Company's Stock Option Plan provides for the granting to non-employee
directors of non-qualified stock options to purchase 15,000 shares of Common
Stock on the date each such director takes office. Option exercise prices are
required to be the fair market value of the Company's Common Stock as determined
by the Board of Directors at the date of grant. Options with respect to 7,500
shares are exercisable one year after the date of grant, and options with
respect to the remaining 7,500 shares are exercisable two years after the date
of grant. All options have a ten-year term.

EMPLOYMENT AGREEMENTS

The Company has entered into Employment Agreements with Robert G. Shuler
and Joseph D. O'Brien, III (the "Employment Agreements") pursuant to which they
will be employed as Chief Executive Officer and Chief Financial Officer,
respectively, for a period of three years. Unless the Company or the employee
elects to terminate the Employment Agreement, the term of each Employment
Agreement will be extended automatically for an additional one year term until
the employee reaches 65. Each employee is entitled to a base salary, incentive
bonus compensation in accordance with the Company's incentive bonus plan and
other benefits as are made available to employees at his same level and to
reimbursement of all business travel and other out-of-pocket expenses incurred
in the performance of his services. Upon termination of his employment with the
Company because of death or disability, by the Company without good cause, by
the employee for good reason, or by the Company within one year following a
change of control of the Company, each employee (or his estate) is entitled to
one year's salary, incentive bonus compensation for the full fiscal year in
which the termination occurs (but not less than the prior year's bonus
compensation) and six months to exercise all stock options that are exercisable
on the termination date or that would have been exercisable at any time within a
period of 24 to 36 months after the termination date. Upon termination of his
employment for good cause, the employee will not be entitled to any severance
compensation or any other severance benefits. Each Employment Agreement includes
a three-year noncompetition covenant, a three-year covenant of the employee not
to solicit employees of the Company, and a three-year covenant of the employee
not to solicit customers of the Company and includes an agreement of the
employee to keep confidential all confidential, non-public information of the
Company and all trade secrets of the Company.

CERTAIN TRANSACTIONS

In contemplation of this Offering, Petra Capital, LLC and Petra Capital
Management, LLC have completed or will complete at the closing of this Offering
certain transactions described below which are referred to herein as the
"Reorganization."

Petra Capital, LLC was organized in April 1996 as a Georgia limited
liability company. The sole manager of Petra Capital, LLC was Petra Capital
Management, LLC, also a Georgia limited liability company. The initial members
of Petra Capital Management, LLC were Robert G. Shuler and John S. Stein III. In
December 1997, John S. Stein, III conveyed a portion of his interest in Petra
Capital Management, LLC to Stein Family Partners, L.P., and in January 1998,
Robert G. Shuler conveyed a portion of his interest in Petra Capital Management,
LLC to Shuler Family Partners, L.P. In January 1998, Petra Capital Management,
LLC admitted Robert A. Smith, an employee, as a member with a 5.9% ownership
interest.

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In September 1997, SunAmerica Life Insurance Company ("SunAmerica")
acquired options to acquire newly issued units in Petra Capital, LLC
representing approximately 10.0% of Petra Capital, LLC in connection with
providing a revolving credit facility and subordinated note to the Company. In
June 1998, Kellett Partners, L.P., a family partnership controlled by Stiles A.
Kellett, Jr., Chairman of the Board of Directors of the Company, exercised a
right to acquire such options from SunAmerica pursuant to a pre-existing
agreement for total consideration of $4.3 million in cash. In June 1998, Kellett
Partners, L.P. exercised these options.

In June 1998, Petra Capital Management, LLC was merged with and into Petra
Capital, LLC. Pursuant to this merger, Petra Capital, LLC was recapitalized so
that after the merger it had only one class of equity membership interest
represented by 7,000,000 outstanding units. As part of this merger, Petra
Capital, LLC's obligation to pay a management fee to Petra Capital Management,
LLC terminated, and Petra Capital, LLC obtained all of the assets of Petra
Capital Management, LLC, including its furniture, fixtures and equipment, as
well as its intangible assets.

In June 1998, John S. Stein, III and the Stein Family Partnership, L.P.
sold 432,331 units in Petra Capital, LLC to Kellett Partners, L.P., John E.
Cunningham, IV, Joseph D. O'Brien, III, Michael W. Blackburn, Max E. Bobbitt,
Nicholas A. Merrick, Thompson S. Dent, Robert A. Smith and Charles B. West for a
total of $5.8 million in cash and notes. Concurrently with such sale, the
remainder of the membership interests of John S. Stein, III and the Stein Family
Partnership, L.P. in Petra Capital Management, LLC were retired in settlement of
his obligations under an agreement with Petra Capital Management, LLC.

In addition, in June 1998, Petra Capital, LLC granted to Joseph D. O'Brien,
III an option to acquire 303,947 additional units in Petra Capital, LLC and
granted to Michael W. Blackburn an option to acquire 165,789 additional units in
Petra Capital, LLC at an exercise price of $16.15 per unit.

Simultaneously with the closing of this Offering, each member of Petra
Capital, LLC will contribute all units in Petra Capital, LLC that such member
owns to Petra Capital, Inc. (which previously was wholly-owned by Petra Capital,
LLC) in exchange for a like number of shares of Common Stock in the Company. In
addition, the options of Joseph D. O'Brien, III and Michael W. Blackburn to
acquire units in Petra Capital, LLC will be converted to options to acquire the
same number of shares of Common Stock of the Company at the same exercise price
under the Stock Option Plan. Immediately thereafter, Petra Capital, LLC will be
liquidated into the Company.

DETERMINATION OF NET ASSET VALUE

The net asset value per share of Common Stock will be determined quarterly,
as soon as practicable after and as of the end of each calendar quarter, by
dividing the value of total assets minus liabilities by the total number of
shares of Common Stock outstanding on a fully diluted basis at the date as of
which the determination is made.

Loans, warrants and equity interests are stated at fair value as determined
by the Company's Board of Directors. The fair value of loans normally
corresponds to cost unless adverse factors lead to a determination of fair value
at a lower amount. Equity interests and warrants for which there is not a public
market are valued based on factors such as significant equity financing by
unrelated new investors, changes in cash flow from operations, the market value
of comparable publicly traded companies and other pertinent factors. This
analysis is also applied allocating cost basis between loans and warrants at
origination. Equity interests and warrants of public companies are valued at the
bid quotation less a discount depending on certain liquidity and other issues.

Substantially all of the Company's assets consist of securities carried at
fair values determined by its Board of Directors. The Company's independent
public accountants review and express an opinion on the reasonableness of the
procedures used by the Board of Directors in determining the valuation of
investments, the adequacy of the procedures applied by the directors in valuing
such securities and the appropriateness of the underlying documentation.
However, determination of fair values involves subjective judgments not
susceptible to substantiation by auditing procedures. See "Risk Factors."
Accordingly, under current
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standards, the accountants' opinion on the financial statements of Petra
Capital, LLC included elsewhere in this Prospectus refers to the uncertainty
with respect to the possible effect on the financial statements of such
valuations.

DESCRIPTION OF CAPITAL STOCK

The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock and 20,000,000 shares of preferred stock, $.01 par value
("Preferred Stock"). Immediately prior to the Offering, there will be 7,000,000
shares of Common Stock outstanding. No shares of Preferred Stock are
outstanding. After giving effect to the sale of the shares in this Offering,
there will be 10,500,000 shares of Common Stock outstanding (11,025,000 shares
if the over-allotment option is exercised in full).

COMMON STOCK

The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by stockholders and are not entitled to cumulative voting
in the election of directors, which means that the holders of a majority of the
shares voting for the election of director can elect all of the directors then
standing for election by the holders of Common Stock. The holders of Common
Stock are entitled to share ratably in such dividends, if any, as may be
declared from time to time by the Board of Directors in its discretion out of
funds legally available therefor. The holders of Common Stock are entitled to
share ratably in any assets remaining after satisfaction of all prior claims
upon liquidation of the Company. The Company Certificate gives holders of Common
Stock no preemptive or other subscription or conversion rights, and there are no
redemption provisions with respect to such shares. All outstanding shares of
Common Stock are, and the shares offered hereby will be, when issued and paid
for, fully paid and nonassessable.

PREFERRED STOCK

The Board of Directors is authorized to issue shares of Preferred Stock at
any time and from time to time, in one or more series, and to fix or alter the
designations, preferences and relative participating, optional or other special
rights qualifications, limitations or restrictions of such shares of Preferred
Stock, including without limitation of the generality of the foregoing, dividend
rights, dividend rates, conversion rights, voting rights, rights and terms of
redemption (including sinking fund provisions), redemption price or prices and
liquidation preferences of any wholly unissued series of preferred shares and
the number of shares constituting any of such series and the designation
thereof, or any of them and to increase or decrease the number of shares of a
series.

ANTI-TAKEOVER MATTERS, LIMITED LIABILITY AND INDEMNIFICATION PROVISIONS

Certain provisions of the Company Certificate, the Company Bylaws and the
Stock Option Plan described below may have an anti-takeover effect and may
discourage takeover attempts not first approved by the Company's Board of
Directors. These provisions also could delay or frustrate the removal of
incumbent directors or the assumption of control by the Company's stockholders,
even if such removal or assumption would be beneficial to the Company's
stockholders. Additionally, these provisions could discourage or make more
difficult a merger, tender offer or proxy contest, even if such events might be
favorable to the Company's stockholders. The market price of the Company's
Common Stock could also potentially be depressed due to these provisions. The
Company's Board of Directors believes that these provisions are an appropriate
way to protect the interests of the Company and its stockholders, and the Board
of Directors has no present plans to adopt any other measures or provisions that
may potentially deter possible takeovers.

Classification of Directors. The Company Certificate provides for the
classification of the Company's Board of Directors into three classes, each
class to consist, as nearly as possible, of one-third of the number of directors
constituting the entire Board of Directors, as determined in the Company Bylaws.
These provisions of the Company Certificate are intended to ensure continuity of
Board membership and impede the ability of a third party to make sudden changes
in the Company's Board of Directors through a proxy contest or the acquisition
of a substantial stock interest.
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Removal of Directors. The Company Certificate provides that directors can
be removed from the position only for cause. "Cause" means a director's
participation in any transaction in which his or her financial interest
conflicts with those of the Company or its stockholders; any act or omission not
in good faith or involving intentional misconduct or violation of law; or the
participation by a director in any transaction from which he or she derived
improper personal benefit. The purpose of this provision is to impose a more
stringent standard generally for the removal of directors and also to prevent a
majority stockholder from circumventing the classified board structure by simply
voting to remove directors without cause.

Supermajority Voting. The Company Certificate requires the approval of the
holders of at least 66 2/3% of the Company's combined voting power to effect
certain amendments to the Company Certificate, including the provisions of the
Company Certificate relating to the classified board and removal of directors.
The Company Bylaws may be amended by either (a) a majority of the Board of
Directors or (b) the holders of at least 66 2/3% of the Company's combined
voting power. The requirement for an increased stockholder vote to amend these
provisions is intended to prevent a stockholder who controls a majority of the
voting shares (or possibly less than a majority) from avoiding the requirements
of the classified board and removal of directors provisions discussed above by
simply repealing such provisions.

Authorized But Unissued Capital Stock. The Company's authorized capital
stock consists of 50,000,000 shares of Common Stock and 20,000,000 shares of
Preferred Stock. No Preferred Stock will be designated upon consummation of this
Offering. The authorized but unissued (and in the case of Preferred Stock,
undesignated) stock may be issued by the Board of Directors in one or more
transactions. In this regard, the Company Certificate grants the Board of
Directors broad authority to establish the rights and preferences of authorized
and unissued Preferred Stock. The issuance of shares of Preferred Stock pursuant
to the authority of the Board of Directors described above could decrease the
amount of earnings and assets available for distribution to holders of Common
Stock and adversely effect the rights and powers, including voting rights, of
such holders and may have the effect of delaying, deferring or preventing a
change in control of the Company. The Board of Directors does not currently
intend to seek stockholder approval prior to any issuance of Preferred Stock,
unless otherwise required by law.

Special Meetings of Stockholders. The Company Certificate and the Company
Bylaws provide that special meetings of stockholders of the Company may only be
called by Board of Directors or by the Chairman of the Board of Directors. These
provisions prevent a stockholder from directly calling a special meeting of
stockholders and require that such stockholders request that the Company call
such a meeting.

No Stockholder Action by Written Consent. The Company Certificate and the
Company Bylaws provide that an action required or permitted to be taken at any
annual or special meeting of the stockholders of the Company may only be taken
at a duly called annual or special meeting of stockholders. This provision
prevents stockholders from initiating or effecting any action by written
consent, and thereby take actions opposed by the Board of Directors without a
meeting of the stockholders to consider such actions.

Notice Procedures. The Company Certificate and the Company Bylaws
establish advance notice procedures with regard to all stockholder proposals to
be brought before meetings of stockholders of the Company, including nominations
for director. These procedures provide that notice of such stockholder proposals
must be timely given in writing to the Secretary of the Company prior to the
meeting. Generally, to be timely, notice must be received by the Secretary of
the Company not less than 60 days nor more than 90 days prior to the meeting.
The notice must contain certain information specified in the Company Bylaws.

Limitation of Director Liability. The Company Certificate and the Company
Bylaws limit the liability of directors of the Company (in their capacity as
directors but not in their capacity of officers) to the Company or its
stockholders to the fullest extent permitted by Delaware law. Specifically,
directors of the Company will not be personally liable for monetary damages for
breach of a director's fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions, or (iv) for
any transaction from which the director derived an improper financial benefit.

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Indemnification Arrangements. The Company Bylaws provide that the
directors and officers of the Company will be indemnified and provide for the
advancement to them of expenses in connection with actual or threatened
procedures and claims arising out of their acts or omissions as officers or
directors of the Company, to the fullest extent permitted by the DGCL. Prior to
consummation of this Offering, the Company will enter into an indemnification
agreement which each of its directors and officers that will provide them with
rights to indemnification and expense advancement to the fullest extent
permitted under the DGCL.

Stock Option Plan. See "Management -- Stock Option Plan" for a discussion
of certain provisions of the Company's Stock Option Plan which may have the
effect of discouraging, delaying or preventing a change in control of the
Company or unsolicited acquisition proposals.

Section 203 of Delaware General Corporation Law. Section 203 of the DGCL
contains a business combination statute which is generally designed to deter
hostile takeovers by protecting minority stockholders in the second stage of a
"freeze-out merger." Freeze-out mergers occur when controlling stockholders
prevent minority stockholders from receiving any direct or indirect financial
return from the corporation to persuade the minority stockholders to liquidate
their investment in the corporation on terms favorable to the controlling
stockholders. The Delaware business combination statute generally regulates
transactions between a corporation and an "interested stockholder." Under the
DGCL, an "interested stockholder" is any person who beneficially owns at least
15% of the outstanding voting power of any class or series of a corporation's
stock or an affiliate or associate of the corporation that owned at least 15% of
the voting power of any class or series of a corporation's stock within the past
three years. During the three-year period after a person becomes an interested
stockholder, the DGCL generally prohibits certain "business combinations"
between the corporation and the interested stockholder, including a merger,
consolidation, asset transfer or any transaction that results in the transfer or
issuance of shares to the interested stockholder; however, such transactions are
permitted if (i) the corporation's board of directors pre-approved the
transaction or business combination by which the person became an interested
stockholder, (ii) upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the outstanding voting stock of the corporation, excluding from
the shares outstanding those shares held by persons who are both directors and
officers and the shares subject to certain types of employee stock plans or
(iii) the proposed business combination with the interested stockholder is
approved by the corporation's board of directors and two-thirds of the
outstanding voting stock not owned by the interested stockholder.

TAX STATUS

INTRODUCTORY NOTES

The following is a summary of federal income tax consequences that may be
relevant to a prospective holder of Common Stock in the Company. This discussion
is not exhaustive of all possible tax considerations and does not give a
detailed description of any state, local, or foreign tax considerations. It also
does not discuss all of the aspects of federal income taxation that may be
relevant to a prospective holder of Common Stock in light of his or her
particular circumstances or to certain types of holders (including insurance
companies, tax-exempt entities, financial institutions or broker-dealers,
foreign corporations and persons who are not citizens or residents of the United
States) who are subject to special treatment under the federal income tax laws.

The statements in this discussion are based on current provisions of the
Code, existing, temporary, and currently proposed Treasury Regulations
promulgated under the Code, the legislative history of the Code, existing
administrative rulings and practices of the IRS, and judicial decisions. There
can be no assurance that future legislative, judicial or administrative actions
or decisions will not affect the tax treatment of the Company or its
stockholders, possibly with retroactive effect.

EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE,
OWNERSHIP AND SALE OF SECURITIES IN AN ENTITY ELECTING TO BE TAXED AS A
REGULATED INVESTMENT COMPANY, INCLUDING THE FEDERAL, STATE,
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LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE,
AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.

TAXATION OF THE COMPANY AS A RIC

The Company will make an election to be taxed as a RIC under Subchapter M
of the Code commencing with its first taxable year ending on December 31, 1998.
If the Company qualifies as a RIC, it generally will not be subject to federal
corporate income tax on its net income that is distributed currently to its
stockholders. That treatment substantially eliminates the "double taxation"
(i.e., taxation at both the corporate and stockholder levels) that generally is
imposed on income earned by a corporation.

The Company's qualification and taxation as a RIC will depend upon the
Company's continuing to meet, through actual annual operating results and
distribution levels, the various qualification tests imposed under the Code
discussed below. The Company intends to operate in such as manner as to satisfy
these tests, but no assurance can be given that the Company will satisfy such
tests on a continuing basis. See "Failure to Qualify" below.

As noted above, as long as the Company qualifies for taxation as a RIC, it
generally will not be subject to federal corporate income tax on its net income
that is distributed currently to its stockholders. However, the Company will be
subject to tax in the following circumstances. First, the Company will be
subject to federal corporate income tax on any undistributed "investment company
taxable income" and on any undistributed net capital gain. Second, if the
Company constitutes a "personal holding company" under Section 542 of the Code,
the Company will be subject to a personal holding company tax equal to 39.6% of
its "undistributed personal holding company income." For this purpose,
"undistributed personal holding company income" does not include any net capital
gain. Third, if the Company fails to distribute at least the sum of (i) 98% of
its ordinary income for each calendar year, (ii) 98% of its "capital gain net
income" for each one-year period ending on October 31 (or December 31, if the
Company so elects) and (iii) any undistributed taxable income from prior
periods, it will be subject to a nondeductible 4% excise tax on the excess of
such required distribution over the amounts actually distributed. Fourth, under
certain circumstances, the Company may be subject to the "alternative minimum
tax" on items of tax preference, if any. Finally, if the Company acquires any
asset from a C corporation (i.e., a corporation generally subject to full
corporate-level tax) in a transaction in which the basis of the asset in the
Company's hands is determined by reference to the basis of the asset (or any
other property) in the hands of the C corporation, and the Company recognizes
gain on the disposition of such asset during the ten-year period beginning on
the date on which such asset was acquired by the Company, then, to the extent of
such property's "built-in" gain (the excess of the fair market value of such
property at the time of acquisition by the Company over the adjusted basis of
such property at such time), such gain will be subject to tax at the highest
corporate rate applicable (as provided in retroactive IRS regulations that were
announced in IRS Notice 88-19 but which have not yet been promulgated), provided
an election is made by the Company to apply the principles of Section 1374 of
the Code to such gain. The Company will not acquire any carry-over basis assets
from a C corporation in the Reorganization, nor does it expect to acquire any
such assets in the future.

REQUIREMENTS FOR QUALIFICATION

Section 851 of the Code defines a RIC as a domestic corporation which, at
all times during the taxable year, (i) is registered under the 1940 Act as a
management company or unit investment trust, or (ii) has in effect an election
under the 1940 Act to be treated as a BDC. In addition, a corporation will not
be treated as a RIC under the Code unless (i) it files with its federal income
tax return an election to be a RIC (or has made such election for a previous
taxable year which has not been revoked or terminated) and (ii) satisfies the
90% gross income test, asset diversification tests and distribution requirements
that are described below.

The Company is a domestic corporation that has elected under the 1940 Act
to be treated as a BDC, and the Company will file an election to be taxed as a
RIC with its federal income tax return for its taxable year ending on December
31, 1998. Accordingly, the Company will qualify as a RIC if it satisfies the 90%
gross income test, asset diversification tests and distribution requirements
that are described below.

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90% Gross Income Test. To qualify as a RIC, at least 90% of the Company's
gross income for each taxable year must consist of specific categories of
investment-type income, including dividends, interest, gains from the sale or
other disposition of stock, securities, or foreign currencies, and other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies.

Historically, Petra Capital, LLC has charged each prospective borrower a
loan processing fee that generally is payable when Petra Capital, LLC and the
prospective borrower agree on a term sheet. It is unclear whether these loan
processing fees will constitute qualifying income for purposes of the 90% gross
income test described above. In a revenue ruling published in 1968, the IRS
concluded that separately stated loan processing fees charged by a RIC to small
businesses in connection with the negotiation, preparation and consummation of
loan agreements did not constitute "interest" for purposes of the 90% gross
income test. In 1986, however, Congress expanded the 90% gross income test to
treat as qualifying income "other income" derived by a RIC with respect to its
business of investing in securities. The Company believes that the processing
fees should be treated as "other income" derived with respect to its business of
investing in securities and has submitted a request to the IRS for a ruling to
that effect. There can be no assurance that the Company will be successful in
obtaining such a ruling.

If these loan processing fees are determined not to constitute qualifying
income, the Company will have difficulty satisfying the 90% gross income test.
Therefore, if the IRS does not rule that the Company's processing fees are
qualifying income, the Company will modify the manner in which it is compensated
by borrowers so that it will continue to satisfy the 90% gross income test. Such
changes could include deferral of loan processing fees or other changes in the
Company's fee recognition process. Any such action by the Company would have an
adverse impact on the Company's operating income. No relief provisions apply in
the case of a failure to satisfy the 90% gross income test in a particular
taxable year. Thus, if the Company does not satisfy the 90% gross income test
for a taxable year, it will be disqualified as a RIC. See "Failure to Qualify"
below.

Asset Diversification Tests. At the close of each quarter of its taxable
year, the Company also must satisfy several tests relating to the nature of its
assets. First, at least 50% of the value of the Company's total assets must be
represented by (i) cash and cash items (including receivables), Government
securities, securities of other regulated investment companies, and (ii) other
securities. Of the "other securities" described in clause (ii) of the preceding
sentence, the value of any one issuer's securities owned by the Company will not
exceed 5% of the value of the Company's total assets, and the Company may not
own more than 10% of any one issuer's outstanding voting securities. Some of the
assets that the Company will own, including assets acquired from Petra Capital,
LLC, will not be qualifying assets for purposes of the 50% asset diversification
test. For example, the securities of a single issuer (including loans, warrants
and other securities) that the Company owns may exceed 5% of the value of the
Company's total assets. In addition, the 10% voting securities test may prevent
the Company from fully exercising certain warrants to acquire common stock of an
issuer, which could economically disadvantage the Company. The Company intends
to monitor its investments carefully to ensure that it complies with the 50%
asset diversification test at the end of each calendar quarter and may need to
hold relatively low yielding cash items in order to comply.

Second, not more than 25% of the value of the Company's total assets may be
invested in the securities (other than Government securities or the securities
of other regulated investment companies) of any one issuer, or of two or more
issuers which the Company "controls" and which are engaged in the same, similar,
or related trades or businesses. For this purpose, the Company will be
considered to "control" any corporation in which it owns 20% or more of the
total combined voting power of all classes of the corporation's stock entitled
to vote. Solely with respect to the 25% asset diversification test, the
investments of a subsidiary of the Company will be deemed to be owned by the
Company in proportion to the ratio of the value of the subsidiary's stock to the
value of all investments of the Company, provided that the subsidiary and the
Company are members of the same "controlled group." For this purpose, a
"controlled group" is defined as one or more chains of corporations connected
through stock ownership with the Company if (i) 20% or more of the total
combined voting power of all classes of stock entitled to vote of each of the
corporations (except the Company) is owned directly by one or more of the other
corporations and (ii) the Company owns directly
44
<PAGE> 47

20% or more of the total combined voting power of all classes of stock entitled
to vote of at least one of the other corporations. The Company will monitor its
investments in order to satisfy these requirements.

If the Company should fail to satisfy the asset diversification tests at
the end of a calendar quarter, such a failure would not cause it to lose its RIC
status if (i) it satisfied the asset tests at the close of the preceding
calendar quarter and (ii) the discrepancy between the value of the Company's
assets and the asset test requirements arose from changes in the market values
of its assets and was not wholly or partly caused by the acquisition of any
non-qualifying assets. If the condition described in clause (ii) of the
preceding sentence were not satisfied, the Company still could avoid
disqualification as a RIC by eliminating any discrepancy within 30 days after
the close of the calendar quarter in which it arose.

Distribution Requirements. To qualify as a RIC, the Company must
distribute with respect to each taxable year dividends (other than capital gain
dividends) to its stockholders in an aggregate amount at least equal to 90% of
its "investment company taxable income." The Company's "investment company
taxable income" includes both net ordinary investment income and net realized
short-term capital gains but does not include any net realized long-term capital
gains. These distributions must be paid in the taxable year to which they
relate, or in the following taxable year if declared before the Company timely
files its federal income tax return for such year and if paid on or before the
first regular dividend payment date after such declaration.

To the extent that the Company does not distribute all of its "investment
company taxable income" and net capital gains, it will be subject to federal
corporate income tax on such undistributed income and net capital gain.
Furthermore, if the Company fails to distribute during each calendar year (or,
in the case of distributions with declaration and record dates falling in the
last three months of the calendar year, by the end of January immediately
following such year) at least the sum of (i) 98% of its ordinary income for each
calendar year, (ii) 98% of its "capital gain net income" for each one-year
period ending on October 31 (or December 31, if the Company so elects) and (iii)
any undistributed taxable income from prior periods, it will be subject to a
nondeductible 4% excise tax on the excess of such required distribution over the
amounts actually distributed.

The Company intends to make timely distributions sufficient to maintain its
qualification as a RIC and, in addition, to distribute amounts necessary to
avoid the imposition of the 4% excise tax. The Company also currently intends to
distribute net realized long-term capital gains on an annual basis. It is
possible, however, that the Company from time to time may not have sufficient
cash or other liquid assets to meet the distribution requirements or to avoid
the excise tax. This could occur, for example, due to timing differences between
the actual receipt of income (or actual payment of expenses) and the inclusion
of such income (or deduction of such expenses) in computing the Company's
taxable income. It could also occur if the Company expended substantial amounts
for nondeductible items such as repayments of amounts borrowed. In such a case,
the Company may need to quickly dispose of certain investments in order to
prevent the loss of its RIC status. Alternatively, if permitted under the 1940
Act, the Company may arrange for short-term, or possibly long-term, borrowing to
permit the required distributions. However, the asset coverage ratio
requirements set forth in the 1940 Act could prevent the Company from borrowing
sufficient amounts to satisfy the distribution requirements necessary to
maintain RIC status, in which case the Company would be disqualified as a RIC.
See "Risk Factors -- Possible Loss of RIC Status" and "Regulation."

Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirements for a year by paying "deficiency
dividends" to its stockholders in a later year, which may be included in its
deduction for dividends paid for the earlier year. Although the Company may be
able to avoid being taxed on amounts distributed as deficiency dividends, it
will be required to pay the IRS interest, and possibly penalties, based upon the
amount of any deduction taken for deficiency dividends.

Recordkeeping Requirements. Pursuant to applicable Treasury Regulations,
the Company must maintain certain records and request on an annual basis certain
information from its stockholders designed to disclose the actual ownership of
its outstanding stock. The Company intends to comply with these requirements.

45
<PAGE> 48

FAILURE TO QUALIFY

If the Company fails to qualify for taxation as a RIC in any taxable year,
it will be subject to tax (including any applicable alternative minimum tax) on
its taxable income at regular corporate rates, which would substantially reduce
the cash available for distribution to stockholders. Distributions to
stockholders in any year in which the Company fails to qualify as a RIC will not
be deductible for federal income tax purposes. In such event, to the extent of
current and accumulated earnings and profits, all distributions to stockholders
(even if attributable to net long-term capital gains of the Company) will be
taxable as ordinary income.

OTHER TAX CONSEQUENCES

Tax Consequences of Disposition of Assets Acquired from Petra Capital,
LLC. Simultaneously with the consummation of the initial public offering of the
Common Stock, the members of Petra Capital, LLC will contribute their membership
interests to the Company in a tax-free exchange under Section 351 of the Code.
Immediately thereafter, Petra Capital, LLC will liquidate, distributing its
assets and liabilities to the Company. The Company's aggregate income tax basis
in the assets acquired from Petra Capital, LLC will be equal to the aggregate
basis of the members of Petra Capital, LLC in their membership interests. The
Company believes that the fair market value of the Company's portfolio of
securities exceeds its adjusted basis in those securities. Thus, if the Company
disposes of any assets acquired from Petra Capital, LLC in a taxable
transaction, the gain that the Company will recognize generally will be greater
than it would have been had the Company acquired the assets of Petra Capital,
LLC in a taxable transaction.

Tax Consequences to Stockholders of Purchasing Common Stock Prior to a
Distribution. Stockholders should consider carefully the tax implications of
buying shares of Common Stock shortly before the record date for a distribution.
To the extent that the stockholder's purchase price for the shares includes the
amount of the forthcoming distribution, the stockholder will be taxed upon
receipt of the distribution and will not be entitled to offset the distribution
against his or her tax basis in the shares. See below under the headings " --
Taxation of U.S. Stockholders" and "-- Taxation of Non-U.S. Stockholders" for a
discussion of how stockholders are taxed on distributions from the Company.

Tax Consequences if the Company Is a Personal Holding Company. It is
possible that the Company may be classified as a "personal holding company"
within the meaning of Section 542 of the Code, in which case the Company may be
subject to additional taxes. First, a RIC that is also a personal holding
company is subject to tax at the maximum corporate income tax rate on its
undistributed "investment company taxable income." By contrast, the
undistributed "investment company taxable income" of a RIC that is not a
personal holding company is subject to corporate income tax at regular,
graduated rates. Second, all personal holding companies are subject to a
"personal holding company tax" equal to 39.6% of their "undistributed personal
holding company income." "Undistributed personal holding company income" is
defined as the taxable income of a personal holding company, reduced by (among
other things) the company's net capital gain and the dividends paid deduction.
Thus, even if the Company is a personal holding company, it will not be subject
to the personal holding company tax on its net capital gain, nor will it be
subject to such tax on any ordinary income that is distributed to the Company's
stockholders. It is not anticipated that the amount of these taxes, if they
apply to the Company, will be material.

Foreign, State and Local Taxes. The Company may be subject to foreign,
state or local taxation in various jurisdictions, including those in which it
transacts business. The foreign, state and local tax treatment of the Company
(and its stockholders) may not conform to the federal income tax consequences
discussed herein. Consequently, prospective stockholders should consult their
own tax advisors regarding the effect of foreign, state and local tax laws on an
investment in the Common Stock.

TAXATION OF U.S. STOCKHOLDERS

As used herein, the term "U.S. Stockholder" means a holder of the Company's
Common Stock that, for United States federal income tax purposes, is (i) a
citizen or resident of the United States, (ii) a corporation, partnership or
other entity created or organized in or under the laws of the United States or
any political subdivision thereof, (iii) an estate the income of which is
subject to United States federal income taxation

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<PAGE> 49

regardless of its source, (iv) a trust if (A) a court within the United States
is able to exercise primary supervision over the administration of the trust,
and (B) one or more United States persons have the authority to control all
substantial decisions of the trust. The term "U.S. Stockholder" also includes
any stockholder whose income and gain with respect to the Common Stock is
treated as effectively connected with the conduct of a United States trade or
business.

As long as the Company qualifies as a RIC, distributions made to U.S.
Stockholders out of current or accumulated earnings and profits (and not
designated as capital gain dividends or deemed distributions of retained capital
gains) will be taken into account by such U.S. Stockholders as dividends, which
are taxable at ordinary income rates. Corporate U.S. Stockholders generally will
be entitled to take the dividends received deduction only with respect to the
portion of the ordinary income dividends designated by the Company as qualifying
for the dividends received deduction. The Company may make such a designation to
the extent that the aggregate dividends it receives would have been eligible for
the dividends received deduction if the Company were eligible to take such a
deduction. Even if the Company designates an ordinary income dividend as
qualifying for the dividends received deduction, corporate U.S. Stockholders
still must satisfy all applicable requirements for the dividends received
deduction at the stockholder level.

Distributions in excess of the Company's current and accumulated earnings
and profits will not be taxable to a U.S. Stockholder to the extent that they do
not exceed the adjusted basis of the U.S. Stockholder's shares of Common Stock,
but will reduce the adjusted basis of such shares. To the extent that such
distributions in excess of current and accumulated earnings and profits exceed
the adjusted basis of a U.S. Stockholder's shares of Common Stock, such
distributions will be included in income as capital gain, assuming that such
shares are capital assets in the hands of the U.S. Stockholder. The tax rate to
which such capital gain will be subject will depend on the U.S. Stockholder's
holding period for his or her shares. See "Capital Gains Rates" below. In
addition, any distribution declared by the Company in October, November or
December of any year and payable to a U.S. Stockholder of record on a specified
date in any such month shall be treated as both paid by the Company and received
by the U.S. Stockholder on December 31 of such year, provided that the
distribution is actually paid by the Company during January of the following
year.

The Company may designate distributions to stockholders as capital gain
dividends to the extent such distributions do not exceed the Company's actual
net capital gain for the taxable year. The amount of capital gain dividends
which may be designated by the Company with respect to a taxable year is
computed without regard to any net capital loss or net long-term capital loss
attributable to transactions after October 31 of such year, and any such net
capital loss or net long-term capital loss is treated as arising on the first
day of the next taxable year. Capital gain dividends will be taxed to the
Company's U.S. Stockholders as a long-term capital gain without regard to the
period for which the U.S. Stockholder has held his or her Common Stock. The tax
rate applicable to capital gain dividends received by U.S. Stockholders is
described under "Capital Gains Rates" below. Corporate U.S. Stockholders will
not be entitled to take the dividends received deduction with respect to capital
gain dividends.

A stockholder who acquires additional Common Stock with automatically
reinvested distributions pursuant to the Company's DRIP Plan will not be
relieved of any federal income tax which may be payable on such distributions.
Further information regarding the federal income tax consequences of
participating in the Company's DRIP Plan will be included in a separate
prospectus accompanying the DRIP Plan.

Although the Company anticipates that it will distribute capital gain
dividends as a matter of general practice, the Code permits the Company to elect
to treat all or part of its undistributed net capital gain as if it had been
distributed to the Company's stockholders (including for purposes of the 4%
excise tax on certain undistributed income). If the Company were to make this
election, each stockholder would be required to include in his or her income as
long-term capital gain his or her proportionate share of the Company's
undistributed net capital gain as designated by the Company. Each such
stockholder would be deemed to have paid his or her proportionate share of the
income tax imposed on the Company with respect to such undistributed net capital
gain, and this amount would be credited to the stockholder in determining the
stockholder's federal income tax liability (which may entitle the stockholder to
a refund if the credit exceeds the stockholder's tax liability). In addition,
the tax basis of the stockholder's stock would be increased by his or her
proportionate share of undistributed net capital gain included in his or her
income less his or her

47
<PAGE> 50

proportionate share of the income tax imposed on the Company with respect to
such gain. The tax rate applicable to U.S. Stockholders who receive deemed
distributions of retained capital gains is described under "Capital Gains Rates"
below.

U.S. Stockholders may not include in their individual income tax returns
any net operating losses or capital losses of the Company. Instead, such losses
would be carried over by the Company for potential offset against its future
income (subject to certain limitations). Taxable distributions from the Company
and gain from the disposition of the Common Stock will not be treated as passive
activity income and, therefore, U.S. Stockholders generally will not be able to
apply any "passive activity losses" (such as losses from certain types of
limited partnerships in which a stockholder is a limited partner) against such
income. In addition, taxable distributions from the Company generally will be
treated as investment income for purposes of the investment interest
limitations. Capital gains from the disposition of the Common Stock (or
distributions treated as such), however, will be treated as investment income
only if the U.S. Stockholder so elects, in which case such capital gains will be
taxed at ordinary income rates.

TAXATION OF U.S. STOCKHOLDERS ON THE DISPOSITION OF THE COMMON STOCK

In general, any gain or loss realized upon a taxable disposition of the
Common Stock by a U.S. Stockholder who is not a dealer in securities will be
treated as a capital gain or loss. Lower marginal tax rates for individuals may
apply in the case of capital gains, depending on the holding period for the
shares of Common Stock that are sold. See "Capital Gains Rates" below. However,
any loss upon a sale or exchange by a U.S. Stockholder who has held such shares
for six months or less (after applying certain holding period rules), will be
treated as a long-term capital loss to the extent of distributions from the
Company required to be treated by such U.S. Stockholder as long-term capital
gain. All or a portion of any loss realized upon a taxable disposition of the
Common Stock may be disallowed if other Company shares are purchased within 30
days before or after the disposition. In addition, capital losses not offset by
capital gains may be deducted from an individual's ordinary income only up to a
maximum of $3,000 per year. Unused capital losses may be carried forward by
individuals. A corporate taxpayer may deduct capital losses only to the extent
of capital gains, but may carry unused capital losses back three years and
forward five years.

CAPITAL GAINS RATES

For taxpayers other than corporations, the difference between the tax rates
applicable to capital gain and ordinary income may be significant. The highest
marginal income tax rate applicable to ordinary income recognized by a
non-corporate taxpayer is 39.6%. Any net capital gain recognized by a
non-corporate taxpayer generally will be taxed at a maximum rate of 20% with
respect to capital gain attributable to the sale or exchange of assets held for
more than 18 months, and generally will be taxed at a maximum rate of 28% with
respect to capital gain attributable to the sale or exchange of assets held for
more than one year but not more than 18 months. Gain attributable to the sale or
exchange of capital assets held for one year or less is short-term capital gain,
which is taxable as ordinary income. With respect to distributions designated by
a RIC as capital gain dividends (including deemed distributions of retained
capital gains), the RIC also may designate (subject to certain limits) whether
the dividend is taxable to stockholders as a 20% rate gain distribution or a 28%
rate gain distribution.

INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING

The Company will report to its U.S. Stockholders and to the IRS the amount
of distributions paid during each calendar year, and the amount of tax withheld,
if any. Under the backup withholding rules, a U.S. Stockholder may be subject to
backup withholding at the rate of 31% with respect to distributions paid unless
such Stockholder (i) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact or (ii) provides a
taxpayer identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with the applicable requirements of the
backup withholding rules. A U.S. Stockholder who does not provide the Company
with his or her correct taxpayer identification number also may be subject to
penalties imposed by the IRS. Any amount paid as backup withholding will be
creditable against the U.S. Stockholder's income tax liability. The Treasury
Department issued final regulations in October 1997 regarding the backup
withholding rules as applied to Non-U.S. Stockholders. The

48
<PAGE> 51

new regulations will alter the current system of backup withholding compliance
and generally will be effective for distributions made after December 31, 1998.
In March of 1998, the IRS issued a notice announcing that the Treasury
Department and the IRS will amend the new regulations so that they will not
apply until January 1, 2000. See "Taxation of Non-U.S. Stockholders" below.

TAXATION OF NON-U.S. STOCKHOLDERS

The rules governing United States federal income taxation of stockholders
other than U.S. Stockholders ("Non-U.S. Stockholders") are complex, and no
attempt will be made herein to provide more than a summary of such rules.
NON-U.S. STOCKHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE
THE IMPACT OF FEDERAL, STATE AND LOCAL INCOME TAX LAWS WITH REGARD TO AN
INVESTMENT IN THE COMMON STOCK, INCLUDING ANY REPORTING REQUIREMENTS.

Distributions to Non-U.S. Stockholders that are not designated by the
Company as either (i) capital gain dividends or (ii) deemed distributions of
retained capital gains will be treated as dividends of ordinary income to the
extent that they are made out of the Company's current or accumulated earnings
and profits. Such distributions ordinarily will be subject to a withholding tax
equal to 30% of the gross amount of the distribution unless an applicable tax
treaty reduces or eliminates that tax. The Company expects to withhold United
States income tax at the rate of 30% on the gross amount of any such
distributions made to a Non-U.S. Stockholder unless (i) a lower treaty rate
applies and any required form evidencing eligibility for that reduced rate is
filed with the Company or (ii) the Non-U.S. Stockholder files an IRS Form 4224
with the Company claiming that the distribution is effectively connected income.
The Treasury Department issued final regulations in October 1997 that will
modify the manner in which the Company complies with its obligations to withhold
against distributions to Non-U.S. Stockholders. The new regulations generally
will be effective for distributions made after December 31, 1998, subject to
certain transition rules. In March of 1998, the IRS issued a notice announcing
that the Treasury Department and the IRS will amend the new regulations so that
they will not apply until January 1, 2000. Prospective investors should consult
their own tax advisors as to the effect, if any, of the final regulations on
their purchase, ownership and disposition of the Common Stock.

Distributions in excess of current and accumulated earnings and profits of
the Company will not be taxable to a stockholder to the extent that such
distributions do not exceed the adjusted basis of the stockholder's shares of
Common Stock but rather will reduce the adjusted basis of such shares. To the
extent that distributions in excess of current and accumulated earnings and
profits exceed the adjusted basis of a Non-U.S. Stockholder's shares, such
distributions will give rise to tax liability only if the Non-U.S. Stockholder
otherwise would be subject to tax on any gain from the sale or disposition of
the Common Stock as described below. Because it generally cannot be determined
at the time a distribution is made whether or not such distribution will be in
excess of current and accumulated earnings and profits, the entire amount of any
distribution normally will be subject to withholding at the same rate as a
dividend. However, a Non-U.S. Stockholder may be entitled to a refund from the
IRS of amounts so withheld to the extent it is determined subsequently that such
distribution was, in fact, in excess of the payor's current and accumulated
earnings and profits.

In general, distributions to Non-U.S. Stockholders that the Company
designates as capital gain dividends (including deemed distributions of retained
capital gains) will not be subject to the 30% withholding tax that applies with
respect to ordinary income dividends. If the Company makes an election to treat
its undistributed net capital gain as if it had been distributed, each Non-U.S.
Stockholder would be deemed to have paid his or her proportionate share of the
income tax imposed on the Company with respect to such undistributed net capital
gain, and this amount would be credited to the stockholder in determining the
stockholder's federal income tax liability. A Non-U.S. Stockholder would have to
file a claim with the IRS to obtain a refund for the credited amount. In
addition, the tax basis of the stockholder's stock would be increased by his or
her proportionate share of undistributed net capital gain included in his or her
income less his or her proportionate share of the income tax imposed on the
Company with respect to such gain.

Gain recognized by a Non-U.S. Stockholder upon a sale of Common Stock
generally will not be subject to U.S. federal income tax, unless the Non-U.S.
Stockholder is a nonresident alien individual who was present

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<PAGE> 52

in the United States for 183 days or more during the taxable year and certain
other conditions apply, in which case the nonresident alien individual will be
subject to a 30% tax on the individual's capital gains.

REGULATION

The Company is a closed-end, non-diversified investment company that has
elected to be treated as a BDC and, as such, is subject to regulation as a BDC
under the 1940 Act. The 1940 Act contains prohibitions and restrictions relating
to transactions between a BDC and its affiliates, principal underwriters and
affiliates of those affiliates or underwriters and requires that a majority of
the directors be persons other than "interested persons," as defined in the 1940
Act. In addition, the 1940 Act provides that a BDC may not change the nature of
its business so as to cease to be, or to withdraw its election as, a BDC unless
so authorized by the vote of a majority, as defined in the 1940 Act, of its
outstanding voting securities.

A BDC is permitted, under specified conditions, to issue multiple classes
of indebtedness and one class of stock senior to the shares offered hereby
("Senior Securities") if its asset coverage of any Senior Security is at least
200% immediately after each such issuance. In addition, while Senior Securities
are outstanding, provisions must be made to prohibit any distribution to
stockholders or the repurchase of such securities or shares unless BDC meets the
applicable asset coverage ratios at the time of the distribution or repurchase.
A BDC may also borrow amounts up to 5.0% of the value of its total assets for
temporary or emergency purposes.

Under the 1940 Act, a BDC may not acquire any asset other than assets of
the type listed in Section 55(a) of the 1940 Act ("Qualifying Assets") unless,
at the time the acquisition is made, Qualifying Assets represent at least 70% of
the BDC's total assets. The principal categories of Qualifying Assets relevant
to the business of the Company are the following:

- Securities purchased in transactions not involving any public offering
from the issuer of such securities, which issuer is an eligible portfolio
company. An eligible portfolio company is defined in the 1940 Act as any
issuer which:

- is organized under the laws of, and has its principal place of business
in, the United States;

- is not an investment company other than a small business investment
company wholly owned by the BDC; and

- does not have any class of securities with respect to which a broker or
dealer may extend margin credit;

- Securities of any eligible portfolio company which is controlled by the
BDC;

- Securities received in exchange for or distributed on or with respect to
securities described above, or pursuant to the exercise of options,
warrants or rights relating to such securities; and

- Cash, cash items, government securities or high quality debt securities
maturing in one year or less from the time of investment.

A BDC must have been organized (and have its principal place of business)
in the United States for the purpose of making investments in the types of
securities described above. Additionally, in order to count securities as
Qualifying Assets for the purpose of the 70% test, the BDC must either control
the issuer of the securities or must offer to make available to the issuer of
the securities significant managerial assistance.

The Company makes and will continue to make available significant
managerial assistance to its portfolio companies generally consisting of
consulting regarding the portfolio company's capital structure, financial
condition and strategic initiatives. The Company also intends to offer advice to
its portfolio companies on potential corporate finance transactions and, through
the Company's referral network, may help its portfolio companies select a
partner to assist them in such corporate finance transactions.

The Company does not anticipate any material changes in its operations as a
result of electing BDC status.

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<PAGE> 53

SHARES ELIGIBLE FOR FUTURE SALE

Prior to the Offering, there has been no market for the Common Stock. No
prediction can be made as to the effect, if any, that market sales of shares or
the availability of shares for sale will have on the market price of the Common
Stock prevailing from time to time. Nevertheless, sales of substantial amounts
of Common Stock of the Company in the public market after the restrictions
described below lapse could adversely affect the prevailing market price and the
ability of the Company to raise equity capital in the future.

Upon completion of this Offering, the Company will have outstanding
10,500,000 shares of Common Stock. Of these shares, the 3,500,000 shares of
Common Stock sold in this Offering will be freely tradeable without restriction
or limitation under the Securities Act, except to the extent such shares are
subject to the agreement with the Representative of the Underwriters described
below, and except for any shares purchased by "affiliates," as that term is
deemed under the Securities Act, of the Company. The remaining 7,000,000 shares
are "restricted securities" within the meaning of Rule 144 adopted under the
Securities Act (the "Restricted Shares"). The Restricted Shares were issued by
the Company in the Reorganization in reliance upon an exemption from
registration under the Securities Act.

The Company's officers, directors and stockholders prior to this Offering
have agreed that they will not, except with the prior written consent of
NationsBanc Montgomery Securities LLC (which consent may be withheld in its sole
discretion) and subject to certain limited exceptions, directly or indirectly,
sell, offer, contract or grant any option to sell, make any short sale, pledge,
transfer, establish an open "put equivalent position" within the meaning of Rule
16 a-1(h) under the Exchange Act, or otherwise dispose of any shares of Common
Stock, options or warrants to acquire Common Stock, or securities exchangeable
or exercisable for or convertible into Common Stock currently owned either of
record or beneficially by them or announce the intention to do any of the
foregoing, for a period commencing on the date of this Prospectus and continuing
to a date 180 days after such date (two years in the case of Stiles A. Kellett,
Jr.). Upon the expiration of the Lock-up Agreements, these shares will be
eligible for sale in the public market pursuant to Rule 144 or pursuant to an
effective registration statement.

Upon completion of this Offering, the Company will have options outstanding
for the purchase of 563,236 shares of Common Stock pursuant to the Stock Option
Plan, and options for the purchase of 1,289,764 additional shares of Common
Stock remaining available for issuance under the Stock Option Plan. The Company
intends to file a Registration Statement on Form S-8 to register under the
Securities Act 1,853,000 shares of Common Stock that are issuable upon the
exercise of outstanding stock options and that may be subject to stock options
that are issuable in the future under the Stock Option Plan. This Registration
Statement is expected to be filed as soon as practicable after the expiration of
the Lock-up Period and is expected to become effective immediately upon filing.
Shares covered by this Registration Statement will be eligible for sale in the
public market after the effective date of the Form S-8 Registration Statement,
subject to Rule 144 limitations applicable to affiliates of the Company. See
"Management -- Stock Option Plan."

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<PAGE> 54

UNDERWRITING

The Underwriters, named below, represented by NationsBanc Montgomery
Securities LLC (the "Representative"), have severally agreed, subject to the
terms and conditions set forth in the Underwriting Agreement, to purchase from
the Company the number of shares of Common Stock indicated below opposite their
respective names at the initial public offering price less than underwriting
discount set forth on the cover of this Prospectus:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------ ---------
<S> <C>
NationsBanc Montgomery Securities LLC.......................
BancAmerica Robertson Stephens..............................
Wheat First Union, a division of Wheat First Securities,
Inc.......................................................
Stephens Inc................................................
---------
Total............................................. 3,500,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters are committed to purchase all of such shares if any are purchased.

The Representative has advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public on the terms set
forth on the cover page of this Prospectus. The Underwriters may allow to
selected dealers a concession of not more than $ per share, and the
Underwriters may allow, and such may reallow, a concession of not more than
$ per share to certain other dealers. After the Offering, the offering
price and other selling terms may be changed by the Representative. The shares
of Common Stock are offered subject to receipt and acceptance by the
Underwriters and to certain other conditions, including the right to reject
orders in whole or in part.

The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 525,000 additional shares of Common Stock to cover over-allotments, if any,
at the offering price less the underwriting discount set forth on the cover page
of this Prospectus. To the extent the Underwriters exercise this option, each of
the Underwriters will be committed, subject to certain conditions, to purchase
such additional shares in approximately the same proportion as set forth in the
above table. The Underwriters may purchase such shares only to cover
over-allotments made in connection with the Offering.

The Underwriting Agreement provides that the Company and certain of its
stockholders will indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act, or will contribute to payments
that the Underwriters may be required to make in respect thereof.

All of the Company's officers and directors and all of its other
stockholders have agreed that they will not, without the prior written consent
of NationsBanc Montgomery Securities LLC (which consent may be withheld in its
sole discretion) and subject to certain limited exceptions, directly or
indirectly, sell, offer, contract or grant any option to sell, make any short
sale, pledge, transfer, establish an open "put equivalent position" within the
meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose of any
shares of Common Stock, options or warrants to acquire Common Stock, or
securities exchangeable or exercisable for or convertible into Common Stock
currently owned either of record or beneficially by them or announce the
intention to do any of the foregoing, for a period commencing on the date of
this Prospectus and continuing to a date 180 days (two years in the case of
Stiles A. Kellett, Jr.) after such date. NationsBanc Montgomery Securities LLC
may, in its sole discretion and at any time without notice, release all or any
portion of the securities subject to these Lock-up Agreements. In addition, the
Company has agreed that, for a period of 180 days (two years in the case of
Stiles A. Kellett, Jr.) after the date of this Prospectus, it will not, without
the consent of NationsBanc Montgomery Securities LLC, issue, offer, sell or
grant options to purchase or otherwise dispose of any equity securities
convertible into or exchangeable for equity securities except for (i) the
issuance of shares of Common Stock offered hereby and (ii) the grant of options
to purchase shares of Common Stock pursuant to the Stock Option Plan and shares
of Common Stock issued pursuant to the
52
<PAGE> 55

exercise of such options, provided that such options shall not vest, or the
Company shall obtain the written consent of the grantee not to transfer such
shares, until the end of such 180-day period (or two year period in the case of
Stiles A. Kellett, Jr.). See "Management -- Stock Option Plan" and "Shares
Eligible for Future Sale."

Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price has been determined by
negotiations among the Company and the Representative. Among the factors
considered in such negotiations were the history of, and prospects for, the
Company and the industry in which it competes, an assessment of the Company's
management, its past and present operations and financial performance, the
prospects for further earnings of the Company, the present state of the
Company's development, the general condition of the securities markets at the
time of the Offering, the market prices of and demand for the publicly traded
common stock of comparable companies in recent periods and other factors deemed
relevant.

Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase the Common Stock. As an exception to these
rules, the Representative is permitted to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock. If the Underwriters create a short position in the Common Stock in
connection with the Offering (i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus), the Representative may
also elect to reduce any short position by exercising all or part of the
overallotment option described above. The Representative may also impose a
penalty bid on certain Underwriters and selling group members. This means that
if the Representative purchases shares of Common Stock in the open market to
reduce the Underwriters' short position or to stabilize the price of the Common
Stock, they may reclaim the amount of the selling concession from the
Underwriters and selling group members who sold those shares as part of the
Offering.

In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security. Neither the Company nor any of the
Underwriters makes any representation or predictions as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the Common Stock. In addition, neither the Company nor any of the
Underwriters makes any representation that the Representative will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.

The Representative has informed the Company that the Underwriters do not
expect to make sales to accounts over which they exercise discretionary
authority in excess of 5% of the number of shares of Common Stock offered
hereby.

The principal business address of the Representative is as follows:
NationsBanc Montgomery Securities LLC, 600 Montgomery Street, San Francisco, CA
94111.

The Company has received a commitment for a $100 million warehouse credit
facility from First Union National Bank, the proceeds of which will be available
to fund loan originations upon completion of the Offering and the satisfaction
of certain other conditions set forth in such agreement. Wheat First Union, one
of the Underwriters, is a division of Wheat First Securities, Inc. First Union
Corporation owns 100% of the capital stock of Wheat First Butcher Singer, Inc.,
a parent of Wheat First Securities, Inc., as well as 100% of the stock of First
Union National Bank.

LEGAL MATTERS

Certain legal matters with respect to the validity of the shares of Common
Stock offered hereby will be passed upon for the Company by King & Spalding,
Atlanta, Georgia. Certain legal matters will be passed upon for the Underwriters
by Gibson, Dunn & Crutcher LLP, San Francisco, California.

53
<PAGE> 56

CUSTODIAN, TRANSFER AND DIVIDEND PAYING AGENT AND REGISTRAR

The Company's securities are held under a Custodial Services Agreement with
First Union National Bank (the "Custodian"). The address of the Custodian is
1525 West W.T. Harris Blvd., 3C3, Charlotte, North Carolina 28262. The Company's
assets will be held under bank custodianship in compliance with the 1940 Act.
The Custodial Services Agreement with First Union National Bank provides for an
annual fee, payable monthly based on the number of loans originated and
outstanding. First Union National Bank (the "Registrar") will act as the
Company's transfer and dividend paying agent and registrar. The principal office
of the Registrar is 1525 West W.T. Harris Blvd., 3C3, Charlotte, North Carolina
28262.

REPORTS TO STOCKHOLDERS

The Company will furnish unaudited quarterly and audited annual reports to
the holders of its securities. The annual report will include a list of
investments held by the Company.

INDEPENDENT PUBLIC ACCOUNTANTS

The audited financial statements of Petra Capital, LLC and Subsidiary and
Petra Capital Management, LLC included in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports. The principal business address of Arthur Andersen LLP is 424
Church Street, Nashville, Tennessee 37219.

54
<PAGE> 57

UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma financial information gives effect to the
Reorganization by combining the operations of Petra Capital, LLC and Subsidiary
and Petra Capital Management, LLC. This pro forma combined financial information
is presented for illustrative purposes only and therefore is not necessarily
indicative of the operating results and financial position that might have been
achieved had the Reorganization occurred at an earlier date, nor is it
necessarily indicative of operating results and financial position which may
occur in the future.

The pro forma statements of operations data for the three months ended
March 31, 1998 and 1997, and pro forma balance sheet data for the periods then
ended have been prepared based on the unaudited financial statements of each
company. The pro forma statements of operations data for the year ended December
31, 1997 and the period from April 2, 1996 (inception) to December, 31 1996, and
pro forma balance sheet data for the years then ended have been prepared based
on the audited financial statements of operations of each company which appear
elsewhere in this Prospectus.

PRO FORMA STATEMENT OF OPERATIONS DATA
FOR THE PERIOD FROM APRIL 2, 1996 (INCEPTION) TO DECEMBER 31, 1996

<TABLE>
<CAPTION>
PETRA
CAPITAL, LLC PETRA CAPITAL PRO FORMA
AND SUBSIDIARY MANAGEMENT, LLC ADJUSTMENTS PRO FORMA
-------------- --------------- ----------- ----------
<S> <C> <C> <C> <C>
Operating Income:
Interest on investments............... $1,169,730 $ 2,963 $ -- $1,172,693
Loan processing fees.................. 355,000 -- -- 355,000
Management fee income................. -- 375,000 (375,000)(1) --
Distributions from Petra Capital,
LLC................................ -- 83,454 (83,454)(1) --
---------- -------- --------- ----------
Total operating income........ 1,524,730 461,417 (458,454) 1,527,693
---------- -------- --------- ----------
Operating Expenses:
Management fee........................ 375,000 -- (375,000)(1) --
State income tax on interest income... 70,000 -- (70,000)(3) --
Interest expense...................... -- -- -- --
Salaries and benefits................. -- 106,092 195,700(2) 301,792
Other operating expenses.............. 55,337 152,051 -- 207,388
---------- -------- --------- ----------
Total operating expenses...... 500,337 258,143 (249,300) 509,180
---------- -------- --------- ----------
Net operating income.................... 1,024,393 203,274 (209,154) 1,018,513
Change in unrealized appreciation of
investments........................... 608,169 -- -- 608,169
State income tax on interest income..... -- -- (70,000)(3) (70,000)
---------- -------- --------- ----------
Net increase in members'
equity resulting from
operations.................. $1,632,562 $203,274 $(279,154) $1,556,682
========== ======== ========= ==========
</TABLE>

- ---------------

(1) Eliminates transactions between Petra Capital, LLC and Subsidiary and Petra
Capital Management, LLC.
(2) Represents estimated salaries of $180,000 and benefits of $16,000 for the
members of Petra Capital Management, LLC.
(3) Reclassifies state income tax to reflect net operating income on a pre-tax
basis.

55
<PAGE> 58

PRO FORMA STATEMENT OF OPERATIONS DATA
FOR THE YEAR ENDING DECEMBER 31, 1997

<TABLE>
<CAPTION>
PETRA
CAPITAL, LLC PETRA CAPITAL PRO FORMA
AND SUBSIDIARY MANAGEMENT, LLC ADJUSTMENTS PRO FORMA
-------------- ---------------- ----------- ----------
<S> <C> <C> <C> <C>
Operating Income:
Interest on investments............. $3,699,208 $ 6,329 $ -- $3,705,537
Loan processing fees................ 958,500 -- -- 958,500
Management fee income............... -- 577,373 (577,373)(1) --
Distributions from Petra Capital,
LLC.............................. -- 511,159 (511,159)(1) --
---------- ---------- ----------- ----------
Total operating income...... 4,657,708 1,094,861 (1,088,532) 4,664,037
---------- ---------- ----------- ----------
Operating Expenses:
Management fee...................... 582,373 -- (577,373)(1) 5,000
State income tax on interest
income........................... 111,902 -- (111,902)(3) --
Interest expense.................... 577,797 -- -- 577,797
Salaries and benefits............... -- 187,599 311,666(2) 499,265
Other operating expenses............ 95,299 255,853 -- 351,152
---------- ---------- ----------- ----------
Total operating expenses.... 1,367,371 443,452 (377,609) 1,433,214
---------- ---------- ----------- ----------
Net operating income.................. 3,290,337 651,409 (710,923) 3,230,823
Realized gain on investments.......... 1,072,193 -- -- 1,072,193
Change in unrealized appreciation of
investments......................... 3,402,606 -- -- 3,402,606
State income tax on interest income... -- -- (111,902)(3) (111,902)
---------- ---------- ----------- ----------
Net increase in members' equity
resulting from operations........... $7,765,136 $ 651,409 $ (822,825) $7,593,720
========== ========== =========== ==========
</TABLE>

- ---------------

(1) Eliminates transactions between Petra Capital, LLC and Subsidiary and Petra
Capital Management, LLC.
(2) Represents estimated salaries of $286,666 and benefits of $25,000 for the
members of Petra Capital Management, LLC.
(3) Reclassifies state income taxes to reflect net operating income on a pre-tax
basis.

PRO FORMA STATEMENT OF OPERATIONS DATA
FOR THE THREE MONTHS ENDING MARCH 31, 1997

<TABLE>
<CAPTION>
PETRA
CAPITAL, LLC PETRA CAPITAL PRO FORMA
AND SUBSIDIARY MANAGEMENT, LLC ADJUSTMENTS PRO FORMA
-------------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
Operating Income:
Interest on investments................ $552,384 $ 853 $ -- $553,237
Loan processing fees................... 210,000 -- -- 210,000
Management fee income.................. -- 123,750 (123,750)(1) --
Distributions from Petra Capital,
LLC................................. -- 89,089 (89,089)(1) --
-------- -------- --------- --------
Total operating income......... 762,384 213,692 (212,839) 763,237
-------- -------- --------- --------
Operating Expenses:
Management fee......................... 125,000 -- (125,000)(1) --
State income tax on interest income.... 5,615 -- (5,615)(3) --
Interest expense....................... -- -- -- --
Salaries and benefits.................. -- 27,785 77,917(2) 105,702
</TABLE>

56
<PAGE> 59

<TABLE>
<CAPTION>
PETRA
CAPITAL, LLC PETRA CAPITAL PRO FORMA
AND SUBSIDIARY MANAGEMENT, LLC ADJUSTMENTS PRO FORMA
-------------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
Other operating expenses............... $ 24,129 $ 44,837 $ $ 68,966
-------- -------- --------- --------
Total operating expenses....... 154,744 72,622 (52,698) 174,668
-------- -------- --------- --------
Net operating income..................... 607,640 141,070 (160,141) 588,569
Change in unrealized depreciation of
investments............................ (50,212) -- -- (50,212)
State income tax on interest income...... -- -- (5,615)(3) (5,615)
-------- -------- --------- --------
Net increase in members' equity resulting
from operations........................ $557,428 $141,070 $(165,756) $532,742
======== ======== ========= ========
</TABLE>

- ---------------

(1) Eliminates transactions between Petra Capital, LLC and Subsidiary and Petra
Capital Management, LLC.
(2) Represents one fourth of the estimated annual salaries of $286,666 and
benefits of $25,000 for the members of Petra Capital Management, LLC.
(3) Reclassifies state income taxes to reflect net operating income on a pre-tax
basis.

PRO FORMA STATEMENT OF OPERATIONS DATA
FOR THE THREE MONTHS ENDING MARCH 31, 1998

<TABLE>
<CAPTION>
PETRA
CAPITAL, LLC PETRA CAPITAL PRO FORMA
AND SUBSIDIARY MANAGEMENT, LLC ADJUSTMENTS PRO FORMA
-------------- --------------- ----------- ----------
<S> <C> <C> <C> <C>
Operating Income:
Interest on investments.............. $1,672,252 $ 2,918 $ -- $1,675,170
Loan processing fees................. 230,000 -- -- 230,000
Management fee income................ -- 279,196 (279,196)(1) --
Distributions from Petra Capital,
LLC............................... -- 119,576 (119,576)(1) --
---------- -------- --------- ----------
Total operating income....... 1,902,252 401,690 (398,772) 1,905,170
---------- -------- --------- ----------
Operating Expenses:
Management fee....................... 280,446 -- (279,196)(1) 1,250
State income tax on interest
income............................ 10,258 -- (10,258)(2) --
Interest expense..................... 689,523 2,257 -- 691,780
Salaries and benefits................ -- 227,007 227,007
Other operating expenses............. 56,450 100,077 -- 156,527
---------- -------- --------- ----------
Total operating expenses..... 1,036,677 329,341 (289,454) 1,076,564
---------- -------- --------- ----------
Net operating income................... 865,575 72,349 (109,318) 828,606
Change in unrealized appreciation on
investments.......................... 1,121,999 -- -- 1,121,999
State income tax on interest income.... -- -- (10,258)(2) (10,258)
---------- -------- --------- ----------
Net increase in members' equity
resulting from operations............ $1,987,574 $ 72,349 $(119,576) $1,940,347
========== ======== ========= ==========
</TABLE>

- ---------------
(1) Eliminates transactions between Petra Capital, LLC and Subsidiary and Petra
Capital Management, LLC. Beginning in 1998, Petra Capital Management, LLC
began expensing members' salaries.
(2) Reclassifies state income taxes to reflect net operating income on a pre-tax
basis.

57
<PAGE> 60

PRO FORMA BALANCE SHEET DATA(1)

<TABLE>
<CAPTION>
AS OF DECEMBER 31, MARCH 31,
------------------------- -------------------------
1997 1998 1997 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investments................................. $12,035,306 $48,931,415 $21,039,431 $64,566,679
Cash and cash equivalents................... 393,740 1,741,485 531,805 1,791,446
Total assets................................ 12,687,203 51,163,483 21,792,293 66,955,020
Revolving credit facility and subordinated
note...................................... -- 23,625,000 -- 38,150,000
Total liabilities........................... 259,947 24,280,038 108,308 38,930,106
Total members' equity....................... 12,427,256 26,883,445 21,683,985 28,024,914
</TABLE>

- ---------------

(1) Pro forma adjustment for all periods presented consists of an elimination of
assets and members' equity totaling $4,000.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
N-2 (the "Registration Statement") under the Securities Act, with respect to the
shares of Common Stock offered by this Prospectus. This Prospectus, which is a
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement or the exhibits and schedules thereto. For
further information with respect to the Company and the Common Stock, reference
is made to the Registration Statement, including the exhibits and schedules
thereto.

The Registration Statement and the exhibits and schedules thereto filed
with the Commission may be inspected, without charge, at the public reference
facility maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
located at Seven World Trade Center, New York, New York 10048, and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Registration Statement, may also be accessed electronically through
the Commission's site on the World Wide Web. The Commission's Internet address
is http://www.sec.gov.

Statements made in this Prospectus as to the contents of any contract or
other document are intended to be summaries of such contract or document. With
regard to each such contract or other document that is filed as an exhibit to
the Registration Statement, reference is made to the exhibit for a more complete
description thereof, and each such statement herein shall be deemed qualified in
all respects by such reference.

58
<PAGE> 61

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PETRA CAPITAL, LLC AND SUBSIDIARY
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997
and March 31, 1998 (unaudited)............................ F-3
Consolidated Statements of Operations for the period from
April 2, 1996 (inception) to December 31, 1996, the year
ended December 31, 1997 and the three months ended March
31, 1997 and 1998 (unaudited)............................. F-4
Consolidated Statements of Changes in Members' Equity for
the period from April 2, 1996 (inception) to December 31,
1996, the year ended December 31, 1997 and the three
months ended March 31, 1998 (unaudited)................... F-5
Consolidated Statements of Cash Flows for the period from
April 2, 1996 (inception) to December 31, 1996, the year
ended December 31, 1997 and the three months ended March
31, 1997 and 1998 (unaudited)............................. F-6
Notes to Consolidated Financial Statements.................. F-7
Schedule of Investments..................................... F-11
As of December 31, 1996................................... F-11
As of December 31, 1997................................... F-12
As of March 31, 1998 (unaudited).......................... F-13

PETRA CAPITAL MANAGEMENT, LLC
Report of Independent Public Accountants.................... F-14
Balance Sheets as of December 31, 1996 and 1997 and March
31, 1998 (unaudited)...................................... F-15
Statements of Operations for the period from April 2, 1996
(inception) to December 31, 1996, the year ended December
31, 1997 and the three months ended March 31, 1997 and
1998 (unaudited).......................................... F-16
Statements of Changes in Members' Equity for the period from
April 2, 1996 (inception) to December 31, 1996, the year
ended December 31, 1997 and the three months ended March
31, 1998 (unaudited)...................................... F-17
Statements of Cash Flows for the period from April 2, 1996
(inception) to December 31, 1996, the year ended December
31, 1997 and the three months ended March 31, 1997 and
1998 (unaudited).......................................... F-18
Notes to Financial Statements............................... F-19
</TABLE>

F-1
<PAGE> 62

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Members of Petra Capital, LLC and Subsidiary:

We have audited the accompanying consolidated balance sheets of Petra
Capital, LLC (a Georgia limited liability company) and subsidiary, as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, changes in members' equity and cash flows for the year ending
December 31, 1997, and the period from April 2, 1996 (inception) to December 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

As discussed in Note 2, the consolidated financial statements include
investment securities valued at $48,931,415 (96% of total assets) and
$12,035,306 (96% of total assets) as of December 31, 1997 and 1996,
respectively, whose values have been estimated by the Manager of the Company in
the absence of readily ascertainable market values. However, because of the
inherent uncertainty of valuation, those estimated values may differ
significantly from the values that would have been used had a ready market
existed for the securities and the differences could be material.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Petra
Capital, LLC and subsidiary as of December 31, 1997 and 1996, and the results of
its operations and its cash flows for the year ending December 31, 1997, and the
period from April 2, 1996 (inception) to December 31, 1996 in conformity with
generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Nashville, Tennessee
February 25, 1998

F-2
<PAGE> 63

PETRA CAPITAL, LLC AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Assets:
Investments, at fair value:
Loans.............................................. $10,774,308 $43,176,180 $57,279,063
Warrants........................................... 1,260,998 5,060,406 6,596,045
Common stock....................................... -- 694,829 691,571
----------- ----------- -----------
Total investments (cost of $11,427,137,
$44,920,640 and $59,433,905 (unaudited),
respectively)............................... 12,035,306 48,931,415 64,566,679
Cash and cash equivalents............................. 393,740 1,627,483 1,622,963
Interest and fees receivable.......................... 132,938 38,083 133,058
Organization costs, net of amortization of $3,000,
$7,000 and $7,500 (unaudited), respectively........ 17,000 78,000 70,500
Debt financing costs, net of amortization of $0,
$13,515 and $33,149 (unaudited), respectively...... -- 126,487 143,337
----------- ----------- -----------
Total assets.................................. $12,578,984 $50,801,468 $66,536,537
=========== =========== ===========

LIABILITIES AND MEMBERS' EQUITY
Liabilities:
Revolving credit facility............................. $ -- $20,910,000 $35,420,000
Subordinated note..................................... -- 2,715,000 2,730,000
Accounts payable and accrued expenses................. 2,529 317,304 406,745
Unearned loan processing fees......................... 142,500 40,000 81,250
Accrued taxes payable................................. 70,000 135,565 145,823
----------- ----------- -----------
Total liabilities............................. 215,029 24,117,869 38,783,818
----------- ----------- -----------
Commitments
Members' Equity:
Contributed capital................................... 11,150,000 20,150,000 20,150,000
Membership options.................................... -- 620,000 620,000
Undistributed net realized earnings................... 605,786 1,902,824 1,849,945
Unrealized appreciation of investments................ 608,169 4,010,775 5,132,774
----------- ----------- -----------
Total members' equity......................... 12,363,955 26,683,599 27,752,719
----------- ----------- -----------
Total liabilities and members' equity......... $12,578,984 $50,801,468 $66,536,537
=========== =========== ===========
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these consolidated financial statements.

F-3
<PAGE> 64

PETRA CAPITAL, LLC AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes to consolidated financial statements
are an integral part of these consolidated financial statements.

F-4
<PAGE> 65

PETRA CAPITAL, LLC AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY

<TABLE>
<CAPTION>
UNREALIZED
UNDISTRIBUTED APPRECIATION TOTAL
CONTRIBUTED MEMBERSHIP NET REALIZED OF MEMBERS'
CAPITAL OPTIONS EARNINGS INVESTMENTS EQUITY
------------ ---------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Members' Equity at Inception (April
2, 1996)......................... $ -- $ -- $ -- $ -- $ --
Capital contributions............ 11,150,000 -- -- -- 11,150,000
Net increase in members' equity
from operations............... -- -- 1,024,393 608,169 1,632,562
Distribution of earnings......... -- -- (418,607) -- (418,607)
----------- -------- ---------- ---------- -----------
Members' Equity at December 31,
1996............................. 11,150,000 -- 605,786 608,169 12,363,955
Capital contributions............ 9,000,000 -- -- -- 9,000,000
Net increase in members' equity
from operations............... -- -- 4,362,530 3,402,606 7,765,136
Membership options issued........ -- 500,000 -- -- 500,000
Accretion of membership
options....................... -- 120,000 (120,000) -- --
Distribution of earnings......... -- -- (2,945,492) -- (2,945,492)
----------- -------- ---------- ---------- -----------
Members' Equity at December 31,
1997............................. 20,150,000 620,000 1,902,824 4,010,775 26,683,599
Net increase in members' equity
from operations............... -- -- 865,575 1,121,999 1,987,574
Distribution of earnings......... -- -- (918,454) -- (918,454)
----------- -------- ---------- ---------- -----------
Members' Equity at March 31, 1998
(unaudited)...................... $20,150,000 $620,000 $1,849,945 $5,132,774 $27,752,719
=========== ======== ========== ========== ===========
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these consolidated financial statements.

F-5
<PAGE> 66

PETRA CAPITAL, LLC AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
APRIL 2, 1996 THREE MONTHS ENDED
(INCEPTION) TO YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, --------------------------
1996 1997 1997 1998
-------------- ------------ ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Operating Activities:
Net increase in members' equity resulting
from operations................................ $ 1,632,562 $ 7,765,136 $ 557,428 $ 1,987,574
Adjustments to reconcile net increase to net cash
provided from operating activities:
Net unrealized appreciation (depreciation) of
investments.................................. (608,169) (3,402,606) 50,212 (1,121,999)
Realized gain on investments................... -- (1,072,193) -- --
Amortization of financing discounts............ -- 25,000 -- 25,000
Accretion of loan discounts.................... (427,137) (370,977) (24,338) (13,265)
Amortization of organization costs............. 3,000 4,000 1,000 7,500
Amortization of financing costs................ -- 13,515 -- 33,150
Decrease (increase) in interest and fees
receivable................................... (132,938) 94,855 82,738 (94,975)
Increase (decrease) in accounts payable and
accrued expenses............................. 2,529 314,775 (19,109) 89,441
(Decrease) increase in unearned loan processing
fees......................................... 142,500 (102,500) (142,500) 41,250
Increase in state income taxes payable......... 70,000 65,565 5,615 10,258
------------ ------------ ----------- ------------
Net cash provided by operating
activities.............................. 682,347 3,334,570 511,046 963,934
------------ ------------ ----------- ------------
Investing Activities:
Organizational costs............................. (20,000) (65,000) -- --
Investments originated and acquired.............. (17,000,000) (40,130,000) (9,030,000) (14,500,000)
Proceeds from repayment of loans................. 6,000,000 7,000,000 -- --
Proceeds from the sale of investments............ -- 1,079,667 -- --
------------ ------------ ----------- ------------
Net cash used in investing activities..... (11,020,000) (32,115,333) (9,030,000) (14,500,000)
------------ ------------ ----------- ------------
Financing Activities:
Repayment of revolving credit facility........... -- (6,000,000) -- --
Proceeds from draws on revolving credit
facility....................................... -- 26,900,000 -- 14,500,000
Proceeds from subordinated note.................. -- 2,700,000 -- --
Proceeds from membership options................. -- 500,000 -- --
Proceeds from capital contributions.............. 11,150,000 9,000,000 9,000,000 --
Distribution of earnings......................... (418,607) (2,945,492) (342,981) (918,454)
Increase in debt financing costs................. -- (140,002) -- (50,000)
------------ ------------ ----------- ------------
Net cash provided by financing
activities.............................. 10,731,393 30,014,506 8,657,019 13,531,546
------------ ------------ ----------- ------------
Increase (Decrease) in Cash and Cash Equivalents... 393,740 1,233,743 138,065 (4,520)
------------ ------------ ----------- ------------
Cash and Cash Equivalents, beginning of year....... -- 393,740 393,740 1,627,483
------------ ------------ ----------- ------------
Cash and Cash Equivalents, end of year............. $ 393,740 $ 1,627,483 $ 531,805 $ 1,622,963
============ ============ =========== ============
Supplemental Disclosure of Cash Flow Information:
Interest paid.................................... $ -- $ 394,861 $ -- $ 453,101
============ ============ =========== ============
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these consolidated financial statements.

F-6
<PAGE> 67

PETRA CAPITAL, LLC AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

Petra Capital, LLC and subsidiary (the "Company"), a Georgia limited
liability company, was formed in April 1996 and is a private investment firm
engaged in providing expansion capital for emerging, high-growth, privately-held
companies. Members entered into an Operating Agreement, as amended (the
"Agreement"), which designated Petra Capital Management, LLC (the "Manager") as
the manager of the Company. The Company incurs certain expenses such as
custodian fees, borrowing costs, accountants fees, legal fees and taxes while
other operating expenses are incurred and borne by the Manager. Income or losses
from operations and gains and losses from investing activities are allocated to
the members' capital accounts in accordance with the Agreement. The Agreement
provides for the dissolution of the Company in April 2006 or upon the occurrence
of a liquidating event as defined in the Agreement.

The Company's investments are generally structured as senior subordinated
secured loans of $1.0 million to $5.0 million, with warrants to purchase equity
securities of the borrower. The warrants are typically exercisable at a nominal
exercise price and may contain a ratchet provision that increases the Company's
equity position if the loan is not repaid in full. Loans provide current income
from interest and fees.

In September 1997, the Company formed Petra Special Purpose, LLC ("PSP"), a
wholly-owned, bankruptcy remote subsidiary of the Company. PSP is the borrower
under a revolving credit facility with SunAmerica Life Insurance Company
("SunAmerica"). In conjunction with the SunAmerica revolving credit facility,
the Company sold and/or contributed its entire investment portfolio to PSP.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and PSP. All intercompany accounts and transactions have been eliminated in the
consolidation.

COST OF INVESTMENTS

Loans originated when warrants are obtained are initially recorded at a
discount from face value equal to the estimated value of the warrants at the
date of investment. Face value of the loans less the unamortized discount
represents the loan cost, and the original discount represents the warrant cost.

VALUATION OF INVESTMENTS

Portfolio investments are stated at fair value as determined by the
Company's Manager. The fair values of loans to small business concerns are based
on the Manager's evaluation of the financial condition of the borrowers and/or
the underlying collateral. The fair values assigned are considered to be amounts
which could be realized in the normal course of business which anticipates the
Company holding the loan to maturity and realizing the face value of the loan.
The fair value of loans normally corresponds to cost unless adverse factors lead
to a determination of fair value at a lower amount.

Equity interests and warrants for which there is not a public market are
valued based on factors such as significant equity financing by unrelated new
investors, history of positive cash flow from operations, the market value of
comparable publicly traded companies (discounted for illiquidity) and other
pertinent factors.

The Company's investments in warrants of public companies are valued at the
bid quotation less a discount rate, depending on certain liquidity and other
issues. The Company may be subject to certain timing restrictions regarding the
exercise of these warrants.

F-7
<PAGE> 68
PETRA CAPITAL, LLC AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INTEREST INCOME

Interest income on loans is recorded on the accrual basis and includes
accretion of the loan discount using the straight line method. Generally
accepted accounting principles require the income to be recognized using the
effective interest method. However, any differences between the two methods is
immaterial. The amount of accretion included in interest income for the year
ending December 31, 1997 and the period from April 2, 1996 (inception) to
December 31, 1996, and was approximately $370,977 and $427,137, respectively, of
which $222,529 and $415,972, respectively, was attributable to accretion from
loan prepayments. The amount of accretion included in interest income for the
three months ended March 31, 1998 and March 31, 1997 totaled $13,265 (unaudited)
and $24,337 (unaudited), respectively.

REALIZED AND UNREALIZED GAIN OR LOSS ON INVESTMENTS

Realized gains or losses are recorded upon disposition of investments based
upon the difference between the proceeds and the cost basis determined using the
specific identification method. All other changes in the valuation of portfolio
investments are included as changes in the unrealized appreciation or
depreciation of investments in the statement of operations.

LOAN PROCESSING FEES

The Company recognizes loan processing fees upon loan closing. Loan
processing fees held on behalf of potential borrowers are earned upon closing of
the loan and totaled $40,000 and $142,500 at December 31, 1997 and 1996,
respectively. Processing fees held at March 31, 1998 totaled $81,250
(unaudited).

LOAN COSTS

Loan costs are reimbursed by the borrower upon closing.

ORGANIZATION COSTS

Organization costs are being amortized on a straight line basis over a
period of 60 months.

CASH AND CASH EQUIVALENTS

For the purpose of the consolidated statements of cash flows, the Company
has defined cash as including cash on hand, cash in the interest bearing
operating bank account and highly liquid investments such as time deposits with
an original maturity of three months or less. The Company invests its available
funds in short-term investment grade securities. At December 31, 1997, cash of
$771,000 was restricted for future use per the Operating Agreement. At March 31,
1998 cash of $771,000 (unaudited) was restricted per the Operating Agreement.

DEBT FINANCING COSTS

Financing costs related to the revolving credit facility and subordinated
note are amortized over the term of the credit agreement and the note,
respectively.

INCOME TAXES

The financial statements do not include a provision for federal income
taxes because members are taxed based on their respective share of Company
earnings. The Company is required to pay state income taxes on interest and has
expensed $111,902 and $70,000 for state income taxes for the year ended December
31, 1997 and the period ended 1996, respectively. For the three months ended
March 31, 1997 and 1998, the Company provided $5,615 and $10,258 for state
income taxes (unaudited).

F-8
<PAGE> 69
PETRA CAPITAL, LLC AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

RECENT ACCOUNTING PRONOUNCEMENTS

MANAGEMENT ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.

RECLASSIFICATIONS

Certain reclassifications have been made in the 1996 financial statements
to conform to the 1997 presentation.

3. INVESTMENTS

At December 31, 1997 and 1996, and March 31, 1998, the value of the
investment portfolio totaling $48,931,415, $12,035,306 and $64,566,679
(unaudited), was estimated by the Manager in the absence of readily
ascertainable market values. Because of the inherent uncertainty of the
valuations, the estimated fair values may differ significantly from the values
that would have been used had a ready market existed for the securities and the
differences could be material.

4. DISTRIBUTIONS

Net income received from operations, as defined in the Agreement, is
distributed to members on a quarterly basis. Proceeds from the sale of warrants
or other equity securities may be retained or distributed in accordance with the
Agreement. Amounts received as repayment of loan principal are retained by the
Company.

5. REVOLVING CREDIT FACILITY, SUBORDINATED LOAN AND MEMBERSHIP OPTIONS

In September 1997, PSP entered into a revolving credit facility with
SunAmerica that may allow PSP to obtain up to $50.0 million of credit. The
facility is funded by commercial paper sold by a commercial paper conduit of
SunAmerica and bears interest at the stated rate, which was 5.9% at December 31,
1997, plus 2.50%. In addition to this rate, the facility bears a liquidity fee
rate equal to 0.005% per annum on the first $51.0 million. The credit facility
allows PSP to borrow up to $50.0 million. All outstanding borrowings are due in
March 1999. All assets held by PSP are pledged as collateral under the facility.
Certain actions by PSP can

F-9
<PAGE> 70
PETRA CAPITAL, LLC AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

trigger an event of default under the credit facility which may result in
termination of further funding thereunder and the application of the collateral
pledged for repayment of the amounts outstanding thereunder.

In connection with the issuance of this revolving credit facility, the
Company granted to SunAmerica options to purchase up to a 4% membership interest
in the Company at a nominal exercise price through September 2002. A financing
discount of $200,000 has been recorded related to the options based upon the
Company's estimate of the fair market value of the options at the close of the
debt transaction. The discount is amortized using the straight line method over
the life of the debt. As of December 31, 1997, PSP's credit facility balance was
$20,910,000, net of the unamortized discount. As of March 31, 1998, PSP's credit
facility balance was $35,420,000 (unaudited), net of the unamortized discount.

In September 1997, the Company issued to SunAmerica a $3.0 million
subordinated note which bears interest at a fixed rate equal to 9.0% per annum.
In connection with the issuance of this subordinated note, the Company granted
to SunAmerica options to purchase up to a 6% membership interest at a nominal
exercise price through September 2002. A debt discount of $300,000 has been
recorded related to the warrants based upon the Company's estimate of the fair
market value of the options at the close of the debt transaction. The discount
is amortized using straight line method over the life of the debt. As of
December 31, 1997, the Company's discounted note balance was $2,715,000.

The options contain a put feature that allows SunAmerica to require the
Company to buy any unexercised options as of September 2002. The put price is
determined by applying the 10% ownership position to the fair value of the
Company less certain preferred equity contributions. Because of this put
feature, the Company estimates the value of the options at each year end and
accretes the initial amount recorded to the estimated value of the options at
year end. For the year ending December 31, 1997, the Company accreted the value
of the options from $500,000 to $620,000 by recording a direct charge to
undistributed net realized earnings.

As of March 31, 1998, $35,600,000 was outstanding under the revolving
credit facility (unaudited).

6. THE MANAGER AND MANAGEMENT FEES

The Manager operates solely as the manager of the Company. The Manager
incurs all salaries, rent, travel and other administrative expenses associated
with managing the Company. The Company pays the Manager an annual fee of 2.5% of
the purchase price of investments, as determined in accordance with the
Operating Agreement, which totaled $582,373 and $375,000 for the periods ending
1997 and 1996, respectively. Management fees for the three months ending March
31, 1998 and 1997 totaled $280,446 and $125,000, respectively (unaudited).

The Manager has a 16% ownership interest in the Company, and recorded
distributions from the Company totaling $511,159 and $83,454 in 1997 and 1996.
Distributions recorded for the three months ended March 31, 1998 and 1997
totaled $119,576 (unaudited) and $89,089 (unaudited).

7. COMMITMENTS

At December 31, 1997, the Company had a commitment to fund one loan
totaling $2,000,000.

F-10
<PAGE> 71

PETRA CAPITAL, LLC AND SUBSIDIARY

SCHEDULE OF INVESTMENTS DECEMBER 31, 1996

<TABLE>
<CAPTION>
COUPON
RATE MATURITY COST VALUE
------ -------- ----------- -----------
<S> <C> <C> <C> <C>
Loans:
Bit-By-Bit Computers, Inc....................... 15.00% 6/28/01 2,951,600 2,951,600
Canyon Cafe, Inc................................ 13.50 6/19/01 $ 1,966,386 $ 1,966,386
P(2) Holdings Corporation....................... 13.50 11/14/01 2,919,948 2,919,948
Superior Electronics Group, Inc................. 13.50 12/27/01 2,936,374 2,936,374
----------- -----------
Total loans............................. $10,774,308 $10,774,308
=========== ===========
</TABLE>

<TABLE>
<CAPTION>
NUMBER OF
SHARES COST VALUE
--------- ----------- -----------
<S> <C> <C> <C>
Warrants:
Bit-By-Bit Computers, Inc............................... 3,630 53,777 53,777
Canyon Cafe, Inc........................................ 81,652 37,350 37,350
Factory Card Outlet Corp................................ 76,223 264,010 480,205
P(2) Holdings Corporation............................... 41,052 82,104 82,104
Superior Electronics Group, Inc......................... 81 63,626 63,626
TALX Corporation........................................ 94,188 $ 151,962 $ 543,936
----------- -----------
Total warrants.................................. $ 652,829 $ 1,260,998
=========== ===========
</TABLE>

F-11
<PAGE> 72

PETRA CAPITAL, LLC AND SUBSIDIARY

SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997

<TABLE>
<CAPTION>
COUPON
RATE MATURITY COST VALUE
------ -------- ----------- -----------
<S> <C> <C> <C> <C>
Loans:
Ascent Logic Corporation....................... 13.50% 07/25/02 $ 2,815,567 $ 2,815,567
Bit-By-Bit Computers, Inc...................... 15.00 06/28/01 2,962,352 2,962,352
Blue Chalk Cafe Corporation.................... 13.00 09/01/02 2,954,194 2,954,194
BuildNet, Inc.................................. 13.50 10/09/02 1,951,645 1,951,645
Codman Research Group, Inc..................... 13.50 05/13/02 2,976,244 2,976,244
Ex Officio, Inc................................ 13.00 09/15/02 2,052,916 2,052,916
Interactive Magic, Inc......................... 13.50 03/24/02 2,897,335 2,897,335
International Radiology Group, LLC............. 13.00 11/19/02 2,939,792 2,939,792
Mobile Information Systems Finance Company,
Inc......................................... 13.25 02/13/02 2,901,000 2,901,000
New Energy Associates, LLC..................... 13.50 10/02/02 3,000,000 3,000,000
OneCoast Network Corporation................... 14.00 11/18/02 3,000,000 3,000,000
P(2) Holdings Corp............................. 13.50 11/14/01 2,936,365 2,936,365
Progressive System Technologies, Inc........... 13.00 12/25/02 2,923,776 2,923,776
RS Andrews Services, Inc....................... 13.00 11/14/02 966,448 966,448
Superior Electronics........................... 13.50 12/27/01 2,949,094 2,949,094
TRUE Software, Inc............................. 13.00 12/22/02 2,949,452 2,949,452
----------- -----------
Total loans............................ $43,176,180 $43,176,180
=========== ===========
</TABLE>

<TABLE>
<CAPTION>
NUMBER OF
SHARES COST VALUE
--------- ---------- ----------
<S> <C> <C> <C>
Warrants:
Private Company --
Ascent Logic Corporation............................... 255,489 $ 201,198 $ 201,198
Bit-By-Bit Computers, Inc.............................. 3,630 53,777 53,777
Blue Chalk Cafe Corporation............................ 25,763 49,078 49,078
BuildNet, Inc.......................................... 25,318 50,899 50,899
Codman Research Group, Inc............................. 20,033 27,147 27,147
Ex Officio, Inc........................................ 33 50,000 50,000
Interactive Magic, Inc................................. 492,534 120,782 1,344,654
International Radiology Group, LLC..................... 117 61,228 61,228
Mobile Information Systems, Inc........................ 282,318 120,000 1,600,000
New Energy Associates, LLC............................. 58,500 -- --
OneCoast Network Corporation........................... 458,200 -- --
P(2) Holdings Corp..................................... 41,052 82,104 82,104
Physician Health Corp.................................. 143,097 49,979 255,423
Progressive Systems Technologies, Inc.................. 273,053 76,224 76,224
RS Andrews Services, Inc............................... 10 34,708 34,708
Superior Electronics Group, Inc........................ 81 63,626 63,626
TRUE Software, Inc..................................... 895,958 50,547 50,547
Public Company --
Factory Card Outlet Corp............................... 76,223 264,010 528,797
TALX Corporation....................................... 100,188 181,962 530,996
---------- ----------
Total warrants.................................... $1,537,269 $5,060,406
========== ==========
Common Stock:
Public Company --
PetCo Animal Supplies, Inc............................. 36,189 207,191 694,829
---------- ----------
Total common stock................................ $ 207,191 $ 694,829
========== ==========
</TABLE>

F-12
<PAGE> 73

PETRA CAPITAL, LLC AND SUBSIDIARY

SCHEDULE OF INVESTMENTS
MARCH 31, 1998
(UNAUDITED)

<TABLE>
<CAPTION>
COUPON RATE MATURITY COST VALUE
----------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Loans:
Ascent Logic Corporation............................ 13.50% 07/25/02 $ 2,817,588 $ 2,817,588
Bit-By-Bit Computers, Inc. ......................... 15.00 06/28/01 2,959,786 2,959,786
Blue Chalk Cafe Corporation......................... 13.00 09/01/02 2,955,106 2,955,106
BuildNet, Inc. ..................................... 13.50 10/09/02 1,952,554 1,952,554
Codman Research Group, Inc. ........................ 13.50 05/13/02 2,976,481 2,976,481
Ex Officio, Inc. ................................... 13.00 09/15/02 2,054,247 2,054,247
General Roofing Industries, Inc. ................... 13.00 01/15/03 2,944,928 2,944,928
Healthgate Data Corporation......................... 13.00 03/26/03 1,983,162 1,983,162
Interactive Magic, Inc. ............................ 13.50 03/24/02 2,897,614 2,897,614
International Radiology Group, LLC.................. 13.00 11/19/02 2,941,934 2,941,934
Men's Focus Health Centers, Inc. ................... 13.50 12/28/02 1,940,486 1,940,486
Mobile Information Systems Finance Company, Inc. ... 13.25 02/13/02 2,900,552 2,900,552
New Energy Associates, LLC.......................... 13.50 10/02/02 3,000,000 3,000,000
OneCoast Network Corporation........................ 14.00 11/18/02 3,000,000 3,000,000
OneCoast Network Corporation........................ 13.33 09/03/03 1,000,000 1,000,000
P(2) Holdings Corp. ................................ 13.50 11/13/01 2,885,684 2,885,684
P(2) Holdings Corp. ................................ 13.50 11/13/01 1,000,000 1,000,000
Progressive System Technologies, Inc. .............. 13.00 12/25/02 2,926,532 2,926,532
Quicksilver Group, Inc. ............................ 13.00 03/05/03 1,823,447 1,823,447
RS Andrews Services, Inc. .......................... 13.00 11/14/02 967,209 967,209
Superior Electronics Group, Inc. ................... 13.50 12/27/01 2,948,653 2,948,653
TRUE Software....................................... 13.00 12/22/02 2,951,493 2,951,493
Virtus Corporation.................................. 13.00 03/30/03 3,451,607 3,451,607
----------- -----------
Total loans.................................. $57,279,063 $57,279,063
=========== ===========
</TABLE>

<TABLE>
<CAPTION>
NUMBER OF SHARES COST VALUE
---------------- ---------- ----------
<S> <C> <C> <C>
Warrants:
Private Company --
Ascent Logic Corporation................................ 255,489 $ 201,198 $ 201,198
Bit-By-Bit Computers, Inc. ............................. 3,630 53,777 53,777
Blue Chalk Cafe Corporation............................. 125,763 49,078 49,078
BuildNet, Inc. ......................................... 25,318 50,899 50,899
Codman Research Group, Inc. ............................ 34,091 27,147 27,147
Ex Officio, Inc. ....................................... 33 50,000 50,000
General Roofing Industries, Inc. ....................... 3 56,142 56,142
Healthgate Data Corporation............................. 1,720 16,838 16,838
Interactive Magic, Inc. ................................ 492,534 120,782 1,344,654
International RadiologyGroup, LLC....................... 117 61,228 300,000
Men's Focus Health Centers, Inc. ....................... 582,068 61,656 61,656
Mobile Information Systems, Inc. ....................... 282,318 120,000 1,600,000
New Energy Associates, LLC.............................. 58,500 -- --
OneCoast Network Corporation............................ 458,200 -- --
P(2) Holdings Corp. .................................... 41,052 131,104 131,104
Physician Health Corp. ................................. 143,097 49,979 255,423
Progressive System Technologies, Inc. .................. 273,053 76,224 76,224
Quicksilver Group, Inc. ................................ 307,965 178,353 178,353
RS Andrews Services, Inc. .............................. 10 34,708 34,708
Superior Electronics Group, Inc. ....................... 81 63,626 63,626
TRUE Software, Inc. .................................... 895,958 50,547 720,000
Virtus Corporation...................................... 181,835 48,393 48,393
Public Company --
Factory Card Outlet Corp. .............................. 76,223 264,010 886,092
TALX Corporation........................................ 100,188 181,962 390,733
---------- ----------
Total warrants..................................... $1,947,651 $6,596,045
========== ==========
Common Stock:
Public Company --
PetCo Animal Supplies, Inc. ............................ 32,570 $ 206,540 $ 635,115
PetCo -- restricted..................................... 3,619 651 56,456
---------- ----------
Total common stock................................. $ 207,191 $ 691,571
========== ==========
</TABLE>

F-13
<PAGE> 74

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Members of Petra Capital Management, LLC:

We have audited the accompanying balance sheet of Petra Capital Management,
LLC (a Georgia limited liability company), as of December 31, 1997 and 1996, and
the related statements of operations, changes in members' equity and cash flows
for the year ending December 31, 1997, and the period from April 2, 1996
(inception) to December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Petra Capital Management,
LLC and as of December 31, 1997 and 1996, and the results of its operations and
its cash flows for the year ending December 31, 1997, and the period from April
2, 1996 (inception) to December 31, 1996 in conformity with generally accepted
accounting principles.

ARTHUR ANDERSEN LLP

Nashville, Tennessee
May 22, 1998

F-14
<PAGE> 75

PETRA CAPITAL MANAGEMENT, LLC

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ -- $114,002 $168,483
Management fee receivable................................. 44,606 64,551 41,865
Other assets.............................................. 28,500 5,295 5,295
-------- -------- --------
Total current assets.............................. 73,106 183,848 215,643
Furniture And Equipment, at cost............................ 38,879 90,931 128,206
Less: accumulated depreciation............................ (3,766) (11,638) (16,124)
-------- -------- --------
Net furniture and equipment....................... 35,113 79,293 112,082
-------- -------- --------
Other Assets:
Prepaid rent.............................................. -- 98,874 90,758
Investment in Petra Capital, LLC.......................... 4,000 4,000 4,000
-------- -------- --------
Total assets...................................... $112,219 $366,015 $422,483
======== ======== ========

LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities.................. $ 44,918 $ 52,147 $ 64,690
Note payable.............................................. -- 110,022 81,598
-------- -------- --------
Total current liabilities......................... 44,918 162,169 146,288
-------- -------- --------
Commitments
Members' Equity:
Contributions............................................. 4,000 4,000 4,000
Undistributed earnings.................................... 63,301 199,846 272,195
-------- -------- --------
Total members' equity............................. 67,301 203,846 276,195
-------- -------- --------
Total liabilities and members' equity............. $112,219 $366,015 $422,483
======== ======== ========
</TABLE>

The accompanying notes to the financial statements are an integral part of these
financial statements.

F-15
<PAGE> 76

PETRA CAPITAL MANAGEMENT, LLC

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
APRIL 2, 1996 THREE MONTHS ENDED
(INCEPTION) TO YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, ---------------------------
1996 1997 1997 1998
-------------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Income:
Management fee.............................. $375,000 $ 577,373 $123,750 $279,196
Distributions from Petra Capital, LLC....... 83,454 511,159 89,089 119,576
Interest income............................. 2,963 6,329 853 2,918
-------- ---------- -------- --------
Total income........................ 461,417 1,094,861 213,692 401,690
-------- ---------- -------- --------
Expenses:
Salaries and benefits, excluding Members.... 106,092 187,599 27,785 47,140
Salaries and benefits for Members........... -- -- -- 179,867
Rent........................................ 30,282 60,582 11,694 13,658
Travel and entertainment.................... 42,104 58,454 1,728 34,788
Other....................................... 79,665 136,817 31,415 53,888
-------- ---------- -------- --------
Total expenses...................... 258,143 443,452 72,622 329,341
-------- ---------- -------- --------
Net Income.................................... $203,274 $ 651,409 $141,070 $ 72,349
======== ========== ======== ========
</TABLE>

The accompanying notes to the financial statements are an integral part of these
financial statements.

F-16
<PAGE> 77

PETRA CAPITAL MANAGEMENT, LLC

STATEMENTS OF CHANGES IN MEMBERS' EQUITY

<TABLE>
<CAPTION>
TOTAL
CONTRIBUTED UNDISTRIBUTED MEMBERS'
CAPITAL EARNINGS EQUITY
----------- ------------- ---------
<S> <C> <C> <C>
Members' Equity at Inception (April 2, 1996)
Contributed capital....................................... $4,000 $ -- $ 4,000
Member distributions...................................... -- (139,973) (139,973)
Net income................................................ -- 203,274 203,274
------ --------- ---------
Members' Equity at December 31, 1996........................ 4,000 63,301 67,301
Member distributions...................................... -- (514,864) (514,864)
Net income................................................ -- 651,409 651,409
------ --------- ---------
Members' Equity at December 31, 1997........................ 4,000 199,846 203,846
Net income (unaudited).................................... -- 72,349 72,349
------ --------- ---------
Members' Equity at March 31, 1998 (unaudited)............... $4,000 $ 272,195 $ 276,195
====== ========= =========
</TABLE>

The accompanying notes to the financial statements are an integral part of these
financial statements.

F-17
<PAGE> 78

PETRA CAPITAL MANAGEMENT, LLC

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
APRIL 2, 1996 THREE MONTHS ENDED
(INCEPTION) TO YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -------------------------
1996 1997 1997 1998
-------------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Operating Activities:
Net income.................................... $ 203,274 $ 651,409 $ 141,070 $ 72,349
Adjustments to reconcile net income to net
cash flows provided by operations:
Depreciation............................... 3,766 7,872 1,711 4,487
(Increase) decrease in management fee
receivable............................... (44,606) (19,945) (65,404) 22,686
(Increase) decrease in deposits............ (15,000) 9,705 15,000 --
(Increase) decrease in prepaid rent........ -- (98,874) -- 8,116
Increase in accounts payable............... 44,918 6,975 16,457 12,543
Increase in accrued interest............... -- 254 -- --
--------- --------- --------- --------
Net cash provided by operating
activities.......................... $ 192,352 $ 557,396 $ 108,834 $120,181
--------- --------- --------- --------
Investing Activities:
Purchase of investment........................ (13,500) -- (3,100) --
Proceeds from sale of investment.............. 13,500 -- --
Capital expenditures.......................... (38,879) (52,052) (1,234) (37,275)
Investment in Petra Capital, LLC.............. 4,000 -- -- --
--------- --------- --------- --------
Net cash used in investing
activities.......................... $ (48,379) $ (38,552) $ (4,334) $(37,275)
--------- --------- --------- --------
Financing Activities:
Distributions to Members...................... (139,973) (514,864) (104,500) --
Contribution to Petra Management, LLC......... (4,000) -- -- --
Proceeds from note payable.................... -- 150,000 -- --
Repayment of note payable..................... -- (39,978) -- (28,425)
--------- --------- --------- --------
Net cash used in financing
activities.......................... $(143,973) $(404,842) $(104,500) $(28,425)
--------- --------- --------- --------
Increase in Cash and Cash Equivalents........... -- 114,002 -- 54,481
--------- --------- --------- --------
Cash and Cash Equivalents, beginning of year.... -- -- -- 114,002
--------- --------- --------- --------
Cash and Cash Equivalents, end of year.......... $ -- $ 114,002 $ -- $168,483
========= ========= ========= ========
Supplemental Disclosure of Cash Flow
Information:
Interest paid................................. $ -- $ 5,022 $ -- $ 2,514
========= ========= ========= ========
</TABLE>

The accompanying notes to financial statements are an integral part of these
financial statements.

F-18
<PAGE> 79

PETRA CAPITAL MANAGEMENT, LLC

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION

Petra Capital Management, LLC, a Georgia limited liability Company (the
"Company") was formed in April 1996 for the sole purpose of acting as a member
and manager of Petra Capital, LLC (the "Fund"), in accordance with the Operating
Agreement of Petra Capital, LLC (the "Fund Agreement").

The Company's principal place of business is in Nashville, Tennessee.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

For the purpose of the statements of cash flows, the Company has defined
cash as including cash on hand, cash in the interest bearing operating bank
account and highly liquid investments such as time deposits with an original
maturity of three months or less.

INVESTMENT IN PETRA CAPITAL LLC

The Company accounts for its 16% ownership interest in Petra Capital, LLC
under the cost method. Distributions from the Fund are recorded as income when
the Fund elects to make cash distributions of realized earnings in accordance
with the Fund Agreement.

FURNITURE AND EQUIPMENT

Furniture and equipment is carried at cost and is depreciated using the
straight-line method over the estimated useful lives of the related assets
ranging from three to seven years.

INCOME TAXES

The financial statements do not include a provision for federal income
taxes because members are taxed individually based on their respective share of
Company earnings.

SALARIES AND BENEFITS

The Company records all amounts distributed to the Members as a charge to
undistributed earnings and has recorded no salaries and benefits expense for the
Members. In 1998, the Company began charging salaries and benefits expense for
distributions to the Members.

MANAGEMENT ESTIMATES

3. PREPAID RENT

The Company made improvements to its office space which is leased under an
operating lease. Because of such improvements, the Company's monthly rent
payments were reduced by an amount which approximated the total cost of the
improvements. As such, the Company recorded the improvement costs as prepaid
rent and is amortizing the amount to rent expense as rent payments are made.

F-19
<PAGE> 80
PETRA CAPITAL MANAGEMENT, LLC

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. NOTE PAYABLE

The Company has a note payable totaling $110,022 at December 31, 1997 that
bears interest at the lender's Base Rate plus .50% (9.0% at December 31, 1997).
Principal and interest payments of $5,000 are due each month through March 1998.
Beginning April 1998, six principal and interest payments of $20,939 are due
each month. The note is secured by guarantees of the individual Members.

5. MANAGEMENT FEE

The Company receives an annual management fee of 2.5% of the purchase price
of investment securities held by Petra Capital, LLC, as determined in accordance
with the Fund Agreement. The fee is payable quarterly in advance on the first
business day of each quarter. Beginning in April 1998, the annual fee was
reduced to 2.25%.

6. COMMITMENTS

The Company leases office space under an operating lease which expires in
March 2004. The Company may extend the term under renewal options. Rent expense
for the period ending 1997 and the year ending 1998 totaled $30,282 and $60,582,
respectively. Minimum lease payments for the office space and other operating
leases are as follows:

<TABLE>
<S> <C>
1999..................................................... $ 55,421
2000..................................................... 57,363
2001..................................................... 59,307
2002..................................................... 66,896
2003..................................................... 69,015
Thereafter.................................................. 29,125
--------
$337,127
========
</TABLE>

F-20
<PAGE> 81

======================================================

No dealer, salesperson or other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus in connection with the offer made in this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company or any of the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of any offer to buy any securities
other than the shares of Common Stock to which it relates or an offer to, or a
solicitation of, any person in any jurisdiction where such an offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication that
the information contained herein is correct as of any time subsequent to the
date hereof.

----------------------------------------

TABLE OF CONTENTS
----------------------------------------

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
Use of Proceeds....................... 13
Distributions......................... 14
Reinvestment Plan..................... 14
Capitalization........................ 15
Dilution.............................. 16
Selected Historical Financial Data of
Petra Capital, LLC and Subsidiary... 17
Selected Historical Financial Data of
Petra Capital Management, LLC....... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 24
Investment Objectives and Policies.... 31
Principal Stockholders................ 33
Management............................ 34
Determination of Net Asset Value...... 39
Description of Capital Stock.......... 40
Tax Status............................ 42
Regulation............................ 50
Shares Eligible for Future Sale....... 51
Underwriting.......................... 52
Legal Matters......................... 53
Custodian, Transfer and Dividend
Paying Agent and Registrar.......... 54
Reports to Stockholders............... 54
Independent Public Accountants........ 54
Unaudited Pro Forma Financial
Information......................... 55
Additional Information................ 58
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>

---------------------
Until , 1998 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Common Stock, whether or not participating in this
distribution, may be required to deliver a Prospectus. This is in addition to
the obligation of dealers to deliver a Prospectus when acting as Underwriters
and with respect to their unsold allotments or subscriptions.
======================================================
======================================================
3,500,000 SHARES

PETRA CAPITAL, INC.

COMMON STOCK
------------------------

PROSPECTUS
------------------------
NationsBanc Montgomery
Securities LLC

BancAmerica
Robertson Stephens

Wheat First Union

Stephens Inc.
, 1998
======================================================
<PAGE> 82

PART C

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

1. Financial Statements

Included in Parts A and B of the Registration Statement

PETRA CAPITAL, INC.

INDEX TO FINANCIAL STATEMENTS

The information contained under the heading "Index to Financial Statements"
on page F-1 of the Prospectus is incorporated herein by reference.

2. Exhibits

<TABLE>
<C> <C> <S>
a. -- Certificate of Incorporation of the Registrant*
b. -- Bylaws of the Registrant*
d. -- Specimen Stock Certificate*
e. -- Dividend Reinvestment Plan*
h. -- Form of Underwriting Agreement
i.1 -- Employment Agreement of Robert G. Shuler*
i.2 -- Employment Agreement of Joseph D. O'Brien, III*
i.3 -- 1998 Stock Incentive Plan*
i.4 -- Form of Non-Competition Agreement*
i.5 -- Form of Director Indemnification Agreement*
k. -- Warehouse Credit Facility*
l. -- Opinion and Consent of King & Spalding
n. -- Consent of Arthur Andersen, LLP
r. -- Financial Data Schedule (for SEC use only)
</TABLE>

- ---------------

* To be filed by Amendment

ITEM 25. MARKETING AGREEMENTS

The information contained under the heading "Underwriting" on pages 52
through 53 of the Prospectus and under the heading "Shares Eligible for Future
Sale" on pages 51 of the Prospectus is incorporated herein by reference.

ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

<TABLE>
<S> <C>
SEC registration fee........................................ $ 23,748
NASD fee.................................................... 8,550
Nasdaq National Market Filing fee........................... 50,000
Blue Sky fees and expenses.................................. 7,500
Accounting fees and expenses................................ 175,000
Legal fees and expenses..................................... 300,000
Printing and engraving...................................... 200,000
Registrar and transfer agent's fees......................... 10,000
Miscellaneous fees and expenses............................. 275,202
----------
Total............................................. $1,050,000
Note: All listed amounts are estimates
</TABLE>

C-1
<PAGE> 83

ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL

The information contained in footnote 3 to the table under the heading
"Principal Stockholders" on page 33 of the Prospectus is incorporated herein by
reference.

ITEM 28. NUMBER OF HOLDERS OF SECURITIES

<TABLE>
<CAPTION>
NUMBER OF RECORD HOLDERS
TITLE OF CLASS AS OF JUNE 8, 1998
- -------------- ------------------------
<S> <C>
Common Stock, par value $.01 per share............. 13
</TABLE>

ITEM 29. INDEMNIFICATION

The Company's Bylaws provide for indemnification of directors and officers
of the Company to the full extent permitted by Delaware law.

Section 145 of the General Corporation Law of the State of Delaware
provides generally that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at its request in
such capacity in another corporation or business association, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. In addition, pursuant to the authority of Delaware law,
the Certificate of Incorporation of the Company also eliminates the monetary
liability of directors to the fullest extent permitted by Delaware law.

ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR

Not applicable.

ITEM 31. LOCATION OF ACCOUNTS AND RECORDS

The Company will maintain physical possession of each account, book or
other document required to be maintained by Section 31(a) of the 1940 Act at its
principal offices located at 172 Second Avenue North, Suite 112, Nashville,
Tennessee 37201.

ITEM 32. MANAGEMENT SERVICES

Not applicable.

ITEM 33. UNDERTAKINGS

(a) The Registrant hereby undertakes:

(1) To suspend the offering of shares until the Prospectus is amended
if (i) subsequent to the effective date of this Registration Statement, its
net asset value declines more than 10% from its net asset value as of the
effective date of this Registration Statement or (ii) the net asset value
increases to an amount greater than its net proceeds as stated in this
Prospectus;

(2) That for the purpose of determining any liability under the
Securities Act of 1933, the information omitted from the form of Prospectus
filed a part of this Registration Statement in reliance upon Rule 430A and
contained in a form of Prospectus filed by the registrant under Rule 497(h)
under the Securities Act of 1933 shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and

C-2
<PAGE> 84

(3) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of the expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification is against public policy as expressed in the Securities Act
of 1933 and will be governed by the final adjudication of such issue.

C-3
<PAGE> 85

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Nashville, State of
Tennessee on the 9th day of June, 1998.

PETRA CAPITAL, INC.

By: /s/ ROBERT G. SHULER
------------------------------------
Robert G. Shuler
President, Chief Executive Officer,
and Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, each person whose signature appears below
hereby constitutes and appoints Robert G. Shuler and Joseph D. O'Brien, III, and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him or her and in his or her name,
place, and stead, in any and all capacities, to sign any and all amendments to
this Registration Statement (including post-effective amendments and amendments
thereto), and any registration statement relating to the same offering as this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, as amended, and to file the same, with
the Securities and Exchange Commission, granting unto said attorney's-in-fact
and agents full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated on June 9, 1998:

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>

/s/ STILES A. KELLETT, JR. Director and Chairman of the Board
- -------------------------------------------------
Stiles A. Kellett, Jr.

/s/ ROBERT G. SHULER Director, President and Chief Executive Officer
- ------------------------------------------------- (Principal Executive Officer)
Robert G. Shuler

/s/ JOSEPH D. O'BRIEN, III Chief Financial Officer and Secretary
- ------------------------------------------------- (Principal Financial and Accounting Officer)
Joseph D. O'Brien, III

/s/ MAX E. BOBBITT Director
- -------------------------------------------------
Max E. Bobbitt

/s/ JOHN E. CUNNINGHAM, IV Director
- -------------------------------------------------
John E. Cunningham, IV

/s/ THOMPSON S. DENT Director
- -------------------------------------------------
Thompson S. Dent
</TABLE>

C-4
<PAGE> 86

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>

/s/ FRANK J. LOFARO Director
- -------------------------------------------------
Frank J. Lofaro

/s/ NICHOLAS A. MERRICK Director
- -------------------------------------------------
Nicholas A. Merrick
</TABLE>

C-5

<PAGE> 1
EXHIBIT H

_______________ SHARES

PETRA CAPITAL, INC.

COMMON STOCK

UNDERWRITING AGREEMENT

DATED [___], 1998
<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<S> <C> <C>
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................................................2
Compliance with Registration Requirements.....................................................2
Offering Materials Furnished to Underwriters..................................................3
Distribution of Offering Material By the Company..............................................3
The Underwriting Agreement....................................................................3
Authorization of the Common Shares............................................................4
No Applicable Registration or Other Similar Rights............................................4
No Material Adverse Change....................................................................4
Independent Accountants.......................................................................4
Preparation of the Financial Statements.......................................................4
Incorporation and Good Standing of the Company and its Subsidiaries...........................5
Capitalization and Other Capital Stock Matters................................................5
Stock Exchange Listing........................................................................6
Non-Contravention of Existing Instruments; No Further Authorizations
or Approvals Required.....................................................................6
No Material Actions or Proceedings............................................................6
Intellectual Property Rights..................................................................7
All Necessary Permits, etc....................................................................7
Title to Properties...........................................................................7
Tax Law Compliance............................................................................7
1940 Act and Subchapter M Compliance..........................................................8
Insurance.....................................................................................8
No Price Stabilization or Manipulation........................................................8
Related Party Transactions....................................................................8
Company's Accounting System...................................................................8
Compliance with Environmental Laws............................................................9

SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES................................................9
THE FIRM COMMON SHARES.............................................................................9
THE FIRST CLOSING DATE.............................................................................9
The Optional Common Shares; the Second Closing Date..........................................10
Public Offering of the Common Shares.........................................................10
Payment for the Common Shares................................................................10
DELIVERY OF THE COMMON SHARES.....................................................................11
DELIVERY OF PROSPECTUS TO THE UNDERWRITERS........................................................11

SECTION 3. ADDITIONAL COVENANTS OF THE COMPANY............................................................11
Representatives' Review of Proposed Amendments and Supplements...............................11
Securities Act Compliance....................................................................12
Amendments and Supplements to the Prospectus and Other Securities
Act Matters..............................................................................12
Copies of any Amendments and Supplements to the Prospectus...................................12
Blue Sky Compliance..........................................................................12
Use of Proceeds..............................................................................13
Transfer Agent...............................................................................13
</TABLE>

i
<PAGE> 3

<TABLE>
<S> <C> <C>
Earnings Statement...........................................................................13
Periodic Reporting Obligations...............................................................13
Agreement Not To Offer or Sell Additional Securities.........................................13
1940 Act Compliance..........................................................................13
Nasdaq National Market Listing...............................................................14
Future Reports to the Representative.........................................................14

SECTION 4. PAYMENT OF EXPENSES............................................................................14

SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS..............................................14
Accountants' Comfort Letter..................................................................15
Compliance with Registration Requirements; No Stop Order; No
Objection from NASD......................................................................15
No Material Adverse Change or Ratings Agency Change.........................................15
Opinion of Counsel for the Company...........................................................16
Opinion of Counsel for the Underwriters......................................................16
Officers' Certificate........................................................................16
Bring-down Comfort Letter....................................................................16
Reorganization Consummated...................................................................16
Credit Facility Closed.......................................................................17
Policies and Procedures Adopted..............................................................17
Lock-Up Agreement from Certain Stockholders of the Company...................................17
Additional Documents.........................................................................17

SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES........................................................17

SECTION 7. RESERVED.......................................................................................18

SECTION 8. INDEMNIFICATION................................................................................18
Indemnification of the Underwriters..........................................................18
Indemnification of the Company, its Directors and Officers...................................19
Notifications and Other Indemnification Procedures...........................................20
Settlements..................................................................................21

SECTION 9. CONTRIBUTION...................................................................................21

SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS.............................................22

SECTION 11. TERMINATION OF THIS AGREEMENT..................................................................23

SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY............................................23

SECTION 13. NOTICES........................................................................................24

SECTION 15. PARTIAL UNENFORCEABILITY.......................................................................25

SECTION 17. GENERAL PROVISIONS.............................................................................25

SCHEDULE A..................................................................................................1
</TABLE>

ii
<PAGE> 4
UNDERWRITING AGREEMENT

_______, 1998

NATIONSBANC MONTGOMERY SECURITIES LLC
BANCAMERICA ROBERTSON STEPHENS
WHEAT FIRST UNION
STEPHENS INC.
As Representatives of the several Underwriters
c/o NATIONSBANC MONTGOMERY SECURITIES LLC
600 Montgomery Street
San Francisco, California 94111

Ladies and Gentlemen:

INTRODUCTORY. Petra Capital, Inc. a Delaware corporation (the
"Company), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") an aggregate of [___] shares (the "Firm Common
Shares") of its Common Stock, par value $[___] per share (the "Common Stock").
In addition, the Company has granted to the Underwriters an option to purchase
up to an additional [___] shares (the "Optional Common Shares") of Common Stock,
as provided in Section 2. The Firm Common Shares and, if and to the extent such
option is exercised, the Optional Common Shares are collectively called the
"Common Shares". NationsBanc Montgomery Securities LLC, BancAmerica Robertson
Stephens, Wheat First Union and Stephens Inc. have agreed to act as
representatives of the several Underwriters (in such capacity, the
"Representatives") in connection with the offering and sale of the Common
Shares.

The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form N-2 (File No.
333-[___]), which contains a form of prospectus to be used in connection with
the public offering and sale of the Common Shares. Such registration statement,
as amended, including the financial statements, exhibits and schedules thereto,
in the form in which it was declared effective by the Commission under the
Securities Act of 1933 and the rules and regulations promulgated thereunder
(collectively, the "Securities Act"), including any information deemed to be a
part thereof at the time of effectiveness pursuant to Rule 430A or Rule 434
under the Securities Act, is called the "Registration Statement". Any
registration statement filed by the Company pursuant to Rule 462(b) or Rule
497(h) under the Securities Act is called the "Rule 462(b) Registration
Statement", and from and after the date and time of filing of the Rule 462(b)
Registration Statement the term "Registration Statement" shall include the Rule
462(b) Registration Statement. Such prospectus, in the form first used by the
Underwriters to confirm sales of the Common Shares, is called the "Prospectus";
provided, however, if the Company has, with the consent of NationsBanc
Montgomery Securities LLC, elected to rely upon Rule 434 under the Securities
Act, the term "Prospectus" shall mean the Company's prospectus subject to
completion (each, a "preliminary prospectus") dated [___] (such preliminary
prospectus is called the "Rule 434 preliminary prospectus"), together with the
applicable term sheet (the "Term Sheet") prepared and filed by the Company with
the Commission under Rules 434 and 424(b) under the Securities Act and all
references in this Agreement to the date of the Prospectus shall mean the date
of the Term Sheet. All references in
<PAGE> 5
this Agreement to the Registration Statement, the Rule 462(b) Registration
Statement, a preliminary prospectus, the Prospectus or the Term Sheet, or any
amendments or supplements to any of the foregoing, shall include any copy
thereof filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval System ("EDGAR").

A Notification of Election to be Subject to Sections 55 through 65 of
the Investment Company Act of 1940, as amended (the "1940 Act") on Form N-54A
(the "Election") has been prepared in conformity with Section 54(a) of the 1940
Act and has been filed by the Company with the Commission under the 1940 Act,
and the Election remains in effect. A registration statement on Form 8-A with
respect to the Common Shares has been prepared by the Company in conformity with
Section 12(g) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations thereunder, and has been filed
with the Commission under the Exchange Act.

On or before the First Closing Date (as defined herein), the Company,
Petra Capital, LLC and Petra Capital Management, LLC will complete a
reorganization pursuant to an Agreement and Plan of Reorganization, whereby
Petra Capital Management, LLC will be merged with and into Petra Capital
Management, LLC, subsequent to which, each member of Petra Capital, LLC will
contribute all the units owned in Petra Capital, LLC by each such member in
exchange for a like number of shares of Common Stock of the Company pursuant to
a Reorganization Agreement (the "Reorganization"). On or before the First
Closing Date, the Company also will secure a $100 million credit facility with
First Union National Bank as described in the Prospectus (the "Credit Facility")
The Plan of Reorganization, the Reorganization Agreement and the Credit Facility
are sometimes referred to herein individually as an "Operative Document" and
collectively as the "Operative Documents." Petra Capital, LLC and Petra Capital
Management, LLC are sometimes referred to herein collectively as the
"Predecessor Entities." Unless otherwise specified, all references herein to the
Company shall mean the Company and the Predecessor Entities.

The Company hereby confirms its agreements with the Underwriters as
follows:

SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

The Company and Petra Capital, LLC hereby jointly and severally
represent, warrant and covenant to each Underwriter as follows:

(a) Compliance with Registration Requirements. The
Registration Statement and any Rule 462(b) Registration Statement have been
declared effective by the Commission under the Securities Act. To the knowledge
of the Company, the Company has complied to the Commission's satisfaction with
all requests of the Commission for additional or supplemental information. No
stop order suspending the effectiveness of the Registration Statement or any
Rule 462(b) Registration Statement is in effect and no proceedings for such
purpose have been instituted or are pending or, to the best knowledge of the
Company, are contemplated or threatened by the Commission.

2
<PAGE> 6
Each preliminary prospectus and the Prospectus when filed
complied in all material respects with the Securities Act and, if filed by
electronic transmission pursuant to EDGAR (except as may be permitted by
Regulation S-T under the Securities Act), was identical to the copy thereof
delivered to the Underwriters for use in connection with the offer and sale of
the Common Shares. Each of the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendment thereto, at the time it
became effective and at all subsequent times, complied and will comply in all
material respects with the Securities Act and the 1940 Act and did not and will
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading. The Prospectus, as amended or supplemented, as of its date and
at all subsequent times, did not and will not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The representations and warranties set forth in the two
immediately preceding sentences do not apply to statements in or omissions from
the Registration Statement, any Rule 462(b) Registration Statement, or any
post-effective amendment thereto, or the Prospectus, or any amendments or
supplements thereto, made in reliance upon and in conformity with information
relating to any Underwriter furnished to the Company in writing by the
Representatives expressly for use therein. There are no contracts or other
documents required to be described in the Prospectus or to be filed as exhibits
to the Registration Statement which have not been described or filed as
required. The Election and the Form 8-A registration statement at the time they
were filed complied in all material respects with the requirements of the
Securities Act, the 1940 Act, the Exchange Act and the rules and regulations of
the Commission under the Securities Act, the 1940 Act and the Exchange Act.

(b) Offering Materials Furnished to Underwriters. The Company
has delivered to the Representatives four complete manually signed copies of the
Registration Statement and of each consent and certificate of experts filed as a
part thereof, and conformed copies of the Registration Statement (without
exhibits) and preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as the Representatives have
reasonably requested for each of the Underwriters.

(c) Distribution of Offering Material By the Company. The
Company has not distributed and will not distribute, prior to the later of the
Second Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Common Shares, any offering material in connection with the
offering and sale of the Common Shares other than a preliminary prospectus, the
Prospectus or the Registration Statement.

(d) The Underwriting Agreement; the Operative Documents. Each
of this Agreement and the Operative Documents has been duly authorized, executed
and delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms, except as rights to indemnification
hereunder may be limited by applicable law and except as the enforcement hereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights and remedies of creditors or by
general equitable principles.

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<PAGE> 7
(e) Authorization of the Common Shares. The Common Shares to
be purchased by the Underwriters from the Company have been duly authorized for
issuance and sale pursuant to this Agreement and, when issued and delivered by
the Company pursuant to this Agreement, will be validly issued, fully paid and
nonassessable.

(f) No Applicable Registration or Other Similar Rights. There
are no persons with registration or other similar rights to have any equity or
debt securities registered for sale under the Registration Statement or included
in the offering contemplated by this Agreement, except for such rights as have
been duly waived.

(g) No Material Adverse Change. Except as otherwise disclosed
in the Prospectus, subsequent to the respective dates as of which information is
given in the Prospectus: (i) there has been no material adverse change, or any
development that could reasonably be expected to result in a material adverse
change, in the condition, financial or otherwise, or in the earnings, business,
operations or prospects, whether or not arising from transactions in the
ordinary course of business, of the Company and its subsidiaries, considered as
one entity (any such change is called a "Material Adverse Change"); (ii) the
Company and its subsidiaries, considered as one entity, have not incurred any
material liability or obligation, indirect, direct or contingent, not in the
ordinary course of business nor entered into any material transaction or
agreement not in the ordinary course of business; and (iii) there has been no
dividend or distribution of any kind declared, paid or made by the Company or,
except for dividends paid to the Company or other subsidiaries, any of its
subsidiaries on any class of capital stock or repurchase or redemption by the
Company or any of its subsidiaries of any class of capital stock.

(h) Independent Accountants. Arthur Andersen LLP, who have
expressed their opinion with respect to the financial statements (which term as
used in this Agreement includes the related notes thereto) and supporting
schedules filed with the Commission as a part of the Registration Statement and
included in the Prospectus, are independent public or certified public
accountants as required by the Securities Act.

(i) Preparation of the Financial Statements. The financial
statements filed with the Commission as part of the Registration Statement and
included in the Prospectus present fairly the financial position of Petra
Capital, LLC and Petra Capital Management, LLC as of and at the dates indicated
and the results of their operations for the periods specified. The supporting
schedules included in the Registration Statement present fairly the information
required to be stated therein. Such financial statements and supporting
schedules have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis throughout the periods involved, except
as may be expressly stated in the related notes thereto. The financial data set
forth in the Prospectus under the captions "Prospectus Summary -- Selected
Historial Financial Data of Petra Capital, LLC," "Prospectus Summary -- Selected
Historial Financial Data of Petra Capital Management, LLC," and "Prospectus
Summary -- Selected Pro Forma Combined Financial Data of Petra Capital, LLC and
Petra Capital Management, LLC," fairly present the information set forth therein
on a basis consistent with that of the financial statements of Petra Capital,
LLC and Petra Capital Management, LLC contained in the Registration Statement.
The pro forma combined financial statements of Petra Capital, LLC and Petra
Capital Management, LLC and the related notes thereto included in the Prospectus
and the Registration Statement

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<PAGE> 8
present fairly the information contained therein, have been prepared in
accordance with the Commission's rules and guidelines with respect to pro forma
financial statements and have been properly presented on the bases described
therein, and the assumptions used in the preparation thereof are reasonable and
the adjustments used therein are appropriate to give effect to the transactions
and circumstances referred to therein. No other financial statements or
supporting schedules (other than the financial data schedule included in the
Registration Statement) are required to be included in the Registration
Statement.

(j) Incorporation and Good Standing of the Company and its
Subsidiaries. Each of the Company and its subsidiaries has been duly
incorporated or formed, as the case may be, and is validly existing as a
corporation or limited liability company, as the case may be, in good standing
under the laws of the jurisdiction of its incorporation or formation and has
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus and, in the case of the
Company, to enter into and perform its obligations under this Agreement and the
Operative Documents. Each of the Company and each subsidiary is duly qualified
as a foreign corporation or limited liability company, as the case may be, to
transact business and is in good standing in the State of Tennessee and each
other jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except for such
jurisdictions (other than the State of Tennessee) where the failure to so
qualify or to be in good standing would not, individually or in the aggregate,
result in a Material Adverse Change. All of the issued and outstanding capital
stock of each subsidiary has been duly authorized and validly issued, is fully
paid and nonassessable and is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage, pledge, lien,
encumbrance or claim. The Company does not own or control, directly or
indirectly, any corporation, association or other entity other than the
subsidiaries listed in the Registration Statement.

(k) Capitalization and Other Capital Stock Matters. The
authorized, issued and outstanding capital stock of the Company is as set forth
in the Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options described in the Prospectus).
The Common Stock (including the Common Shares) conforms in all material respects
to the description thereof contained in the Prospectus. All of the issued and
outstanding shares of Common Stock have been duly authorized and validly issued,
are fully paid and nonassessable and have been issued in compliance with federal
and state securities laws. None of the outstanding shares of Common Stock were
issued in violation of any preemptive rights, rights of first refusal or other
similar rights to subscribe for or purchase securities of the Company. There are
no authorized or outstanding options, warrants, preemptive rights, rights of
first refusal or other rights to purchase, or equity or debt securities
convertible into or exchangeable or exercisable for, any capital stock of the
Company or any of its subsidiaries other than those accurately described in the
Prospectus. The description of the Company's stock option, stock bonus and other
stock plans or arrangements, and the options or other rights granted thereunder,
set forth in the Prospectus accurately and fairly presents in all material
respects the information required to be shown with respect to such plans,
arrangements, options and rights.

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<PAGE> 9
(l) Stock Exchange Listing. The Common Shares have been
approved for inclusion on the Nasdaq National Market, subject only to official
notice of issuance.

(m) Non-Contravention of Existing Instruments; No Further
Authorizations or Approvals Required. Neither the Company nor any of its
subsidiaries nor any Predecessor Entity is in violation of its charter or
by-laws or other organizational documents or is in default (or, with the giving
of notice or lapse of time, would be in default) ("Default") under any
indenture, mortgage, loan or credit agreement, note, contract, franchise, lease
or other instrument to which the Company or any of its subsidiaries is a party
or by which it or any of them may be bound (including, without limitation, the
revolving credit facility with SunAmerica Life Insurance Company, as lender), or
to which any of the property or assets of the Company or any of its subsidiaries
is subject (each, an "Existing Instrument"), except for such Defaults as would
not, individually or in the aggregate, result in a Material Adverse Change. The
Company's execution, delivery and performance of this Agreement and the
Operative Documents and consummation of the transactions contemplated hereby and
thereby and by the Prospectus (i) have been duly authorized by all necessary
corporate and limited liability company action and will not result in any
violation of the provisions of the charter or by-laws or organizational
documents of the Company or any subsidiary (ii) will not conflict with or
constitute a breach of, or Default or a Debt Repayment Triggering Event (as
defined below) under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any of its
subsidiaries, pursuant to, or require the consent of any other part to, any
Existing Instrument, except for such conflicts, breaches, Defaults, liens,
charges or encumbrances as would not, individually or in the aggregate, result
in a Material Adverse Change and (iii) will not result in any violation of any
law, administrative regulation or administrative or court decree applicable to
the Company or any subsidiary. No consent, approval, authorization or other
order of, or registration or filing with, any court or other governmental or
regulatory authority or agency, is required for the Company's execution,
delivery and performance of this Agreement and the Operative Documents and
consummation of the transactions contemplated hereby and thereby and by the
Prospectus, except such as have been obtained or made by the Company and are in
full force and effect under the Securities Act, the 1940 Act, the Exchange Act,
applicable state securities or blue sky laws and from the National Association
of Securities Dealers, Inc. (the "NASD"). As used herein, a "Debt Repayment
Triggering Event" means any event or condition which gives, or with the giving
of notice or lapse of time would give, the holder of any note, debenture or
other evidence of indebtedness (or any person acting on such holder's behalf)
the right to require the repurchase, redemption or repayment of all or a portion
of such indebtedness by the Company or any of its subsidiaries.

(n) No Material Actions or Proceedings. There are no legal or
governmental actions, suits or proceedings pending or, to the best of the
Company's knowledge, threatened (i) against or affecting the Company or any of
its subsidiaries, (ii) which has as the subject thereof any officer or director
of, or property owned or leased by, the Company or any of its subsidiaries or
(iii) relating to environmental or discrimination matters, where in any such
case (A) there is a reasonable possibility that such action, suit or proceeding
might be determined adversely to the Company or such subsidiary and (B) any such
action, suit or proceeding, if so determined adversely, would reasonably be
expected to result in a Material Adverse Change or adversely affect the
consummation of the transactions contemplated by this Agreement or the Operative

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<PAGE> 10
Documents. No material labor dispute with the employees of the Company or any of
its subsidiaries exists or, to the best of the Company's knowledge, is
threatened or imminent.

(o) Intellectual Property Rights. The Company and its
subsidiaries own or possess sufficient trademarks, trade names, patent rights,
copyrights, licenses, approvals, trade secrets and other similar rights
(collectively, "Intellectual Property Rights") reasonably necessary to conduct
their businesses as now conducted; and the expected expiration of any of such
Intellectual Property Rights would not result in a Material Adverse Change.
Neither the Company nor any of its subsidiaries has received any notice of
infringement or conflict with asserted Intellectual Property Rights of others,
which infringement or conflict, if the subject of an unfavorable decision, would
result in a Material Adverse Change.

(p) All Necessary Permits, etc. The Company and each
subsidiary possess such valid and current certificates, authorizations or
permits issued by the appropriate state, federal or foreign regulatory agencies
or bodies necessary to conduct their respective businesses as they are now
conducted or as they are proposed to be conducted, and neither the Company nor
any subsidiary has received any notice of proceedings relating to the revocation
or modification of, or non-compliance with, any such certificate, authorization
or permit which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, could result in a Material Adverse Change.

(q) Title to Properties. The Company and each of its
subsidiaries has good and marketable title to all the properties and assets
reflected as owned in the financial statements referred to in Section 1 above
(or elsewhere in the Prospectus), in each case free and clear of any security
interests, mortgages, liens, encumbrances, equities, claims and other defects,
except such as do not materially and adversely affect the value of such property
and do not materially interfere with the use made or proposed to be made of such
property by the Company or such subsidiary. The real property, improvements,
equipment and personal property held under lease by the Company or any
subsidiary are held under valid and enforceable leases (except as enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to or affecting the rights and remedies of creditors or by general
equitable principles), with such exceptions as are not material and do not
materially interfere with the use currently made of such real property,
improvements, equipment or personal property by the Company or such subsidiary.

(r) Tax Law Compliance. The Company and its subsidiaries have
filed all necessary federal, state and foreign income and franchise tax returns
required to be filed and have paid all taxes required to be paid by any of them
and, if due and payable, any related or similar assessment, fine or penalty
levied against any of them. The Company has made adequate charges, accruals and
reserves in the applicable financial statements referred to in Section 1 above
in accordance with generally accepted accounting principles in respect of all
federal, state and foreign income and franchise taxes for all periods as to
which the tax liability of the Company or any of its subsidiaries has not been
finally determined.

(s) 1940 Act and Subchapter M Compliance. The Election has
been prepared in conformity with Section 54(a) of the 1940 Act, has been filed
by the Company with the Commission under the 1940 Act, and is in full force and
effect. The Company has been advised

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<PAGE> 11
of the rules and requirements under the 1940 Act. By virtue of the Election, the
Company is not, and after receipt of payment for the Common Shares will not be,
an "investment company" which is required to register under the 1940 Act. The
Company's current business operations and investments and its contemplated
business operations and investments as described in the Prospectus constitute
permissible activities and investments for a "business development company"
under the 1940 Act and will allow the Company to maintain its qualification as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). No person is serving as an officer or director
of the Company except in compliance with the 1940 Act and the rules and
regulations of the Commission thereunder.

(t) Insurance. Each of the Company and its subsidiaries are
insured by recognized, financially sound and reputable institutions with
policies in such amounts and with such deductibles and covering such risks as
are generally deemed adequate and customary for their businesses including, but
not limited to, policies covering real and personal property material to the
business of the Company. The Company has no reason to believe that it or any
subsidiary will not be able (i) to renew its existing insurance coverage as and
when such policies expire or (ii) to obtain comparable coverage from similar
institutions as may be necessary or appropriate to conduct its business as now
conducted and at a cost that would not result in a Material Adverse Change.
Neither of the Company nor any subsidiary has been denied any insurance coverage
which it has sought or for which it has applied.

(u) No Price Stabilization or Manipulation. The Company has
not taken and will not take, directly or indirectly, any action designed to or
that might be reasonably expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Common Shares.

(v) Related Party Transactions. There are no business
relationships or related-party transactions involving the Company or any
subsidiary or any other person required to be described in the Prospectus (i)
which have not been described as required, or (ii) which are not in compliance
with applicable requirements of the 1940 Act and the rules and regulations
thereunder.

(w) Company's Accounting System. The Company maintains a
system of accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.

(x) Compliance with Environmental Laws. Except as otherwise
disclosed in the Prospectus (i) neither the Company nor any of its subsidiaries
is in violation of any federal, state, local or foreign law or regulation
relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata) or wildlife, including without limitation, laws
and regulations relating to

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<PAGE> 12
emissions, discharges, releases or threatened releases of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum and
petroleum products (collectively, "Materials of Environmental Concern"), or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Materials of Environment Concern
(collectively, "Environmental Laws"), which violation is reasonably likely to
result in a Material Adverse Change, nor has the Company or any of its
subsidiaries received any written communication, whether from a governmental
authority, citizens group, employee or otherwise, that alleges that the Company
or any of its subsidiaries is in violation of any Environmental Law, which
violation is reasonably likely to result in a Material Adverse Change; (ii)
there is no claim, action or cause of action filed with a court or governmental
authority, no investigation with respect to which the Company has received
written notice, and no written notice by any person or entity alleging potential
liability for investigatory costs, cleanup costs, governmental responses costs,
natural resources damages, property damages, personal injuries, attorneys' fees
or penalties arising out of, based on or resulting from the presence, or release
into the environment, of any Material of Environmental Concern at any location
owned, leased or operated by the Company or any of its subsidiaries, now or in
the past (collectively, "Environmental Claims"), pending or, to the best of the
Company's knowledge, threatened against the Company or any of its subsidiaries
which is reasonably likely to result in a Material Adverse Change; and (iii) to
the best of the Company's knowledge, there are no past or present actions,
activities, circumstances, conditions, events or incidents, including, without
limitation, the release, emission, discharge, presence or disposal of any
Material of Environmental Concern, that reasonably could result in a violation
of any Environmental Law or form the basis of a potential Environmental Claim
against the Company or any of its subsidiaries which are reasonably likely to
result in a Material Adverse Change.

Any certificate signed by an officer of the Company and
delivered to the Representatives or to counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company to each Underwriter as
to the matters set forth therein.

SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.

The Firm Common Shares. The Company agrees to issue and sell to the
several Underwriters the Firm Common Shares upon the terms herein set forth. On
the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the
Underwriters agree, severally and not jointly, to purchase from the Company the
respective number of Firm Common Shares set forth opposite their names on
Schedule A. The purchase price per Firm Common Share to be paid by the several
Underwriters to the Company shall be $[___] per share.

The First Closing Date. Delivery of certificates for the Firm Common
Shares to be purchased by the Underwriters and payment therefor shall be made at
the offices of NationsBanc Montgomery Securities LLC, 600 Montgomery Street, San
Francisco, California (or such other place as may be agreed to by the Company
and the Representative) at 6:00 a.m. San Francisco time, on [___], or such other
time and date not later than 10:30 a.m. San Francisco time, on [date that is ten
business days following the original contemplated First Closing Date] as the
Representatives shall designate by notice to the Company (the time and date of
such closing are

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<PAGE> 13
called the "First Closing Date"). The Company hereby acknowledges that
circumstances under which the Representatives may provide notice to postpone the
First Closing Date as originally scheduled include, but are in no way limited
to, any determination by the Company or the Representatives to recirculate to
the public copies of an amended or supplemented Prospectus or a delay as
contemplated by the provisions of Section 10.

The Optional Common Shares; the Second Closing Date. In addition, on
the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase, severally and
not jointly, up to an aggregate of [___] Optional Common Shares from the Company
at the purchase price per share to be paid by the Underwriters for the Firm
Common Shares. The option granted hereunder is for use by the Underwriters
solely in covering any over-allotments in connection with the sale and
distribution of the Firm Common Shares. The option granted hereunder may be
exercised at any time (but not more than once) upon notice by the
Representatives to the Company, which notice may be given at any time within 30
days from the date of this Agreement. Such notice shall set forth (i) the
aggregate number of Optional Common Shares as to which the Underwriters are
exercising the option, (ii) the names and denominations in which the
certificates for the Optional Common Shares are to be registered and (iii) the
time, date and place at which such certificates will be delivered (which time
and date may be simultaneous with, but not earlier than, the First Closing Date;
and in such case the term "First Closing Date" shall refer to the time and date
of delivery of certificates for the Firm Common Shares and the Optional Common
Shares). Such time and date of delivery, if subsequent to the First Closing
Date, is called the "Second Closing Date" and shall be determined by the
Representatives and shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. If any Optional Common
Shares are to be purchased, each Underwriter agrees, severally and not jointly,
to purchase the number of Optional Common Shares (subject to such adjustments to
eliminate fractional shares as the Representatives may determine) that bears the
same proportion to the total number of Optional Common Shares to be purchased as
the number of Firm Common Shares set forth on Schedule A opposite the name of
such Underwriter bears to the total number of Firm Common Shares.

Public Offering of the Common Shares. The Representatives hereby advise
the Company that the Underwriters intend to offer for sale to the public, as
described in the Prospectus, their respective portions of the Common Shares as
soon after this Agreement has been executed and the Registration Statement has
been declared effective as the Representatives, in their sole judgment, have
determined is advisable and practicable.

Payment for the Common Shares. Payment for the Common Shares shall be
made at the First Closing Date (and, if applicable, at the Second Closing Date)
by wire transfer of immediately available funds to the order of the Company.

It is understood that the Representatives have been authorized, for
their own accounts and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for, the
Firm Common Shares and any Optional Common Shares the Underwriters have agreed
to purchase. NationsBanc Montgomery Securities LLC, individually and not as the
Representatives of the Underwriters, may (but shall not be obligated to) make

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<PAGE> 14
payment for any Common Shares to be purchased by any Underwriter whose funds
shall not have been received by the Representatives by the First Closing Date or
the Second Closing Date, as the case may be, for the account of such
Underwriter, but any such payment shall not relieve such Underwriter from any of
its obligations under this Agreement.

Delivery of the Common Shares. The Company shall deliver, or cause to
be delivered, to the Representatives for the accounts of the several
Underwriters certificates for the Firm Common Shares at the First Closing Date,
against the irrevocable release of a wire transfer of immediately available
funds for the amount of the purchase price therefor. The Company shall also
deliver, or cause to be delivered, to the Representatives for the accounts of
the several Underwriters, certificates for the Optional Common Shares the
Underwriters have agreed to purchase at the First Closing Date or the Second
Closing Date, as the case may be, against the irrevocable release of a wire
transfer of immediately available funds for the amount of the purchase price
therefor. The certificates for the Common Shares shall be in definitive form and
registered in such names and denominations as the Representatives shall have
requested at least two full business days prior to the First Closing Date (or
the Second Closing Date, as the case may be) and shall be made available for
inspection on the business day preceding the First Closing Date (or the Second
Closing Date, as the case may be) at a location in New York City as the
Representatives may designate. Time shall be of the essence, and delivery at the
time and place specified in this Agreement is a further condition to the
obligations of the Underwriters.

Delivery of Prospectus to the Underwriters. Not later than 12:00 p.m.
on the second business day following the date of release of the Common Shares by
the Underwriters for sale to the public, the Company shall delivery or cause to
be delivered copies of the Prospectus in such quantities and at such places as
the Representatives shall reasonably request.

SECTION 3. ADDITIONAL COVENANTS OF THE COMPANY.

The Company further covenants and agrees with each Underwriter as
follows:

(a) Representatives' Review of Proposed Amendments and
Supplements. During such period beginning on the date hereof and ending on the
later of the First Closing Date or such date, as in the opinion of counsel for
the Underwriters, the Prospectus is no longer required by law to be delivered in
connection with sales by an Underwriter or dealer (the "Prospectus Delivery
Period"), prior to amending or supplementing the Registration Statement
(including any registration statement filed under Rule 462(b) or Rule 497(h)
under the Securities Act) or the Prospectus, the Company shall furnish to the
Representatives for review a copy of each such proposed amendment or supplement,
and the Company shall not file any such proposed amendment or supplement to
which the Representatives reasonably object.

(b) Securities Act Compliance. After the date of this
Agreement, the Company shall promptly advise the Representatives in writing (i)
of the receipt of any comments of, or requests for additional or supplemental
information from, the Commission, (ii) of the time and date of any filing of any
post-effective amendment to the Registration Statement or any amendment or
supplement to any preliminary prospectus or the Prospectus, (iii) of the time
and date that any post-effective amendment to the Registration Statement becomes
effective and

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<PAGE> 15
(iv) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or any post-effective amendment
thereto or of any order preventing or suspending the use of any preliminary
prospectus or the Prospectus, or of any proceedings to remove, suspend or
terminate from listing or quotation the Common Stock from any securities
exchange upon which the it is listed for trading or included or designated for
quotation, or of the threatening or initiation of any proceedings for any of
such purposes. If the Commission shall enter any such stop order at any time,
the Company will use its best efforts to obtain the lifting of such order at the
earliest possible moment. Additionally, the Company agrees that it shall comply
with the provisions of Rules 424(b), 497(h), 430A and 434, as applicable, under
the Securities Act and will use its reasonable efforts to confirm that any
filings made by the Company under such Rule 424(b) or Rule 497(h) were received
in a timely manner by the Commission.

(c) Amendments and Supplements to the Prospectus and Other
Securities Act Matters. If, during the Prospectus Delivery Period, any event
shall occur or condition exist as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein, in the light
of the circumstances when the Prospectus is delivered to a purchaser, not
misleading, or if in the opinion of the Representatives or counsel for the
Underwriters it is otherwise necessary to amend or supplement the Prospectus to
comply with law, the Company agrees to promptly prepare (subject to Section
3(A)(a) hereof), file with the Commission and furnish at its own expense to the
Underwriters and to dealers, amendments or supplements to the Prospectus so that
the statements in the Prospectus as so amended or supplemented will not, in the
light of the circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will comply
with law.

(d) Copies of any Amendments and Supplements to the
Prospectus. The Company agrees to furnish the Representatives, without charge,
during the Prospectus Delivery Period, as many copies of the Prospectus and any
amendments and supplements thereto as the Representatives may reasonably
request.

(e) Blue Sky Compliance. The Company shall cooperate with the
Representatives and counsel for the Underwriters to qualify or register the
Common Shares for sale under (or obtain exemptions from the application of) the
or state securities or blue sky laws or Canadian provincial securities laws of
those jurisdictions designated by the Representatives, shall comply with such
laws and shall continue such qualifications, registrations and exemptions in
effect so long as reasonably required for the distribution of the Common Shares.
The Company shall not be required to qualify as a foreign corporation or to take
any action that would subject it to general service of process in any such
jurisdiction where it is not presently qualified or where it would be subject to
taxation as a foreign corporation. The Company will advise the Representatives
promptly of the suspension of the qualification or registration of (or any such
exemption relating to) the Common Shares for offering, sale or trading in any
jurisdiction or any initiation or threat of any proceeding for any such purpose,
and in the event of the issuance of any order suspending such qualification,
registration or exemption, the Company shall use its best efforts to obtain the
withdrawal thereof at the earliest possible moment.

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<PAGE> 16
(f) Use of Proceeds. The Company shall apply the net proceeds
from the sale of the Common Shares sold by it in the manner described under the
caption "Use of Proceeds" in the Prospectus.

(g) Transfer Agent. The Company shall engage and maintain, at
its expense, a registrar and transfer agent for the Common Stock.

(h) Earnings Statement. As soon as practicable, the Company
will make generally available to its security holders and to the Representatives
an earnings statement (which need not be audited) covering the twelve-month
period ending September 30, 1999 that satisfies the provisions of Section 11(a)
of the Securities Act.

(j) Periodic Reporting Obligations. During the Prospectus
Delivery Period, the Company shall file, on a timely basis, with the Commission
and the Nasdaq National Market all reports and documents required to be filed
under the Exchange Act. Additionally, the Company shall file with the Commission
all reports as may be required under Rule 463 under the Securities Act.

(k) Agreement Not To Offer or Sell Additional Securities.
During the period of 180 days following the date of the Prospectus, the Company
will not, without the prior written consent of NationsBanc Montgomery Securities
LLC (which consent may be withheld at the sole discretion of NationsBanc
Montgomery Securities LLC), directly or indirectly, sell, offer, contract or
grant any option to sell, pledge, transfer or establish an open "put equivalent
position" within the meaning of Rule 16a-1(h) under the Exchange Act, or
otherwise dispose of or transfer, or announce the offering of, or file any
registration statement under the Securities Act in respect of, any shares of
Common Stock, options or warrants to acquire shares of the Common Stock or
securities exchangeable or exercisable for or convertible into shares of Common
Stock (other than as contemplated by this Agreement with respect to the Common
Shares); provided, however, that the Company may issue shares of its Common
Stock or options to purchase its Common Stock, or Common Stock upon exercise of
options, pursuant to any stock option, stock bonus or other stock plan or
arrangement described in the Prospectus, but only if the holders of such shares,
options, or shares issued upon exercise of such options, agree in writing not to
sell, offer, dispose of or otherwise transfer any such shares or options during
such 180 day period without the prior written consent of NationsBanc Montgomery
Securities LLC (which consent may be withheld at the sole discretion of
NationsBanc Montgomery Securities LLC).

(l) Subchapter M Compliance. The Company shall elect to be
treated as a "regulated investment company" within the meaning of such term
under Subchapter M of the Code and shall conduct its business as described in
the Prospectus.

(m) Nasdaq National Market Listing . The Company shall use its
best efforts to effect and maintain the quotation of the Common Shares on the
Nasdaq National Market and to comply with applicable rules and regulations of
the NASD with respect to such Common Shares.

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<PAGE> 17
(n) Future Reports to the Representative. During the period of
five years hereafter the Company will furnish to the Representatives, c/o
NationsBanc Montgomery Securities LLC at 600 Montgomery Street, San Francisco,
CA 94111 Attention: Kathy Smythe: (i) as soon as practicable after the end of
each fiscal year, copies of the Annual Report of the Company containing the
balance sheet of the Company as of the close of such fiscal year and statements
of income, stockholders' equity and cash flows for the year then ended and the
opinion thereon of the Company's independent public or certified public
accountants; (ii) as soon as practicable after the filing thereof, copies of
each proxy statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q,
Current Report on Form 8-K or other report filed by the Company with the
Commission, the NASD or any securities exchange; and (iii) as soon as available,
copies of any report or communication of the Company mailed generally to holders
of its capital stock.

SECTION 4. PAYMENT OF EXPENSES. The Company agrees to pay all costs,
fees and expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Common Shares to the Underwriters, (iv) all fees and expenses of
the Company's counsel, independent public or certified public accountants and
other advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each preliminary prospectus and the Prospectus, and
all amendments and supplements thereto, and this Agreement, (vi) all filing
fees, reasonable attorneys' fees and expenses incurred by the Company or the
Underwriters in connection with qualifying or registering (or obtaining
exemptions from the qualification or registration of) all or any part of the
Common Shares for offer and sale under the state securities or blue sky laws or
the provincial securities laws of Canada, and, if requested by the
Representatives, preparing and printing a "Blue Sky Survey" or memorandum, and
any supplements thereto, advising the Underwriters of such qualifications,
registrations and exemptions, (vii) the filing fees incident to, and the
reasonable fees and expenses of counsel for the Underwriters in connection with,
the NASD's review and approval of the Underwriters' participation in the
offering and distribution of the Common Shares, (viii) the fees and expenses
associated with including the Common Shares on the Nasdaq National Market, and
(ix) all other fees, costs and expenses referred to in the Registration
Statement. Except as provided in this Section 4, Section 6, Section 8 and
Section 9 hereof, the Underwriters shall pay their own expenses, including the
fees and disbursements of their counsel.

SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS.

The obligations of the several Underwriters to purchase and pay for the
Common Shares as provided herein on the First Closing Date and, with respect to
the Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company set
forth in Section 1 hereof as of the date hereof and as of the First Closing Date
as though then made and, with respect to the Optional Common Shares, as of the

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<PAGE> 18
Second Closing Date as though then made, to the timely performance by the
Company of its covenants and other obligations hereunder, and to each of the
following additional conditions:

(a) Accountants' Comfort Letter. On the date hereof, the
Representatives shall have received from Arthur Andersen LLC, independent public
or certified public accountants for the Company, a letter dated the date hereof
addressed to the Underwriters, in form and substance reasonably satisfactory to
the Representatives, containing statements and information of the type
ordinarily included in accountant's "comfort letters" to underwriters, delivered
according to Statement of Auditing Standards No. 72 (or any successor bulletin),
with respect to the audited and unaudited financial statements and certain
financial information contained in the Registration Statement and the Prospectus
(and the Representatives shall have received an additional four conformed copies
of such accountants' letter for each of the several Underwriters).

(b) Compliance with Registration Requirements; No Stop Order;
No Objection from NASD. For the period from and after effectiveness of this
Agreement and prior to the First Closing Date and, with respect to the Optional
Common Shares, the Second Closing Date:

(i) the Company shall have filed the Prospectus with
the Commission (including the information required by Rule 430A under the
Securities Act) in the manner and within the time period required by Rule 424(b)
or Rule 497(h) under the Securities Act; or the Company shall have filed a
post-effective amendment to the Registration Statement containing the
information required by such Rule 430A, and such post-effective amendment shall
have become effective; or, if the Company elected to rely upon Rule 434 under
the Securities Act and obtained the Representative's consent thereto, the
Company shall have filed a Term Sheet with the Commission in the manner and
within the time period required by such Rule 424(b) or Rule 497;

(ii) no stop order suspending the effectiveness of the
Registration Statement, any Rule 462(b) Registration Statement, or any
post-effective amendment to the Registration Statement, shall be in effect and
no proceedings for such purpose shall have been instituted or threatened by the
Commission; and

(iii) the NASD shall have raised no objection to the
fairness and reasonableness of the underwriting terms and arrangements.

(c) No Material Adverse Change or Ratings Agency Change. For
the period from and after the date of this Agreement and prior to the First
Closing Date and, with respect to the Optional Common Shares, the Second Closing
Date:

(i) in the judgment of the Representatives there
shall not have occurred any Material Adverse Change; and

(ii) there shall not have occurred any downgrading,
nor shall any notice have been given of any intended or potential downgrading or
of any review for a possible change that does not indicate the direction of the
possible change, in the rating accorded any securities of

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<PAGE> 19
the Company or any of its subsidiaries by any "nationally recognized statistical
rating organization" as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act.

(d) Opinion of Counsel for the Company. On each of the First
Closing Date and the Second Closing Date the Representatives shall have received
the favorable opinion of King & Spalding, counsel for the Company, dated as of
such Closing Date, the form of which is attached as Exhibit A (and the
Representatives shall have received an additional four conformed copies of such
counsel's legal opinion for each of the several Underwriters).

(e) Opinion of Counsel for the Underwriters. On each of the
First Closing Date and the Second Closing Date the Representatives shall have
received the favorable opinion of Gibson, Dunn & Crutcher LLC, counsel for the
Underwriters, dated as of such Closing Date, with respect to such matters as may
be reasonably requested (and the Representatives shall have received an
additional four conformed copies of such counsel's legal opinion for each of the
several Underwriters).

(f) Officers' Certificate. On each of the First Closing Date
and the Second Closing Date the Representatives shall have received a written
certificate executed by the Chairman of the Board, Chief Executive Officer or
President of the Company and the Chief Financial Officer or Chief Accounting
Officer of the Company, dated as of such Closing Date, to the effect set forth
in subsections (b)(ii) and (c)(ii) of this Section 5, and further to the effect
that:

(i) for the period from and after the date of this
Agreement and prior to such Closing Date, there has not occurred any Material
Adverse Change;

(ii) the representations, warranties and covenants of
the Company set forth in Section 1 of this Agreement are true and correct with
the same force and effect as though expressly made on and as of such Closing
Date; and

(iii) the Company has complied with all the agreements
and satisfied all the conditions on its part to be performed or satisfied at or
prior to such Closing Date.

(g) Bring-down Comfort Letter. On each of the First Closing
Date and the Second Closing Date the Representatives shall have received from
Arthur Andersen LLC, independent public or certified public accountants for the
Company, a letter dated such date, in form and substance satisfactory to the
Representatives, to the effect that they reaffirm the statements made in the
letter furnished by them pursuant to subsection (a) of this Section 5, except
that the specified date referred to therein for the carrying out of procedures
shall be no more than three business days prior to the First Closing Date or
Second Closing Date, as the case may be (and the Representatives shall have
received an additional four conformed copies of such accountants' letter for
each of the several Underwriters).

(h) Reorganization Consummated. The Reorganization shall have
been consummated.

(i) Credit Facility Closed. The Company shall have obtained
the Credit Facility and all agreements relating to the Credit Facility shall
have been duly authorized, executed

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<PAGE> 20
and delivered and all transactions relating to obtaining the Credit Facility
shall have been consummated and all conditions precedent to the effectiveness of
the Credit Facility shall have been satisfied.

(j) Policies and Procedures Adopted. The Company shall have
adopted the policies and procedures described in the Prospectus, including loan
underwriting and monitoring policies and procedures, fair valuation policies and
procedures, hedging policies and procedures and procedures related to the
Company's continuing qualification as a "business development company" under the
1940 Act and a "regulated investment company" under Subchapter M of the Code.

(k) Lock-Up Agreement from Certain Stockholders of the
Company. On the date hereof, the Company shall have furnished to the
Representatives an agreement in the form of Exhibit B hereto from Kellett
Partners, L.P. , and such agreement shall be in full force and effect on each of
the First Closing Date and the Second Closing Date. On the date hereof, the
Company shall have furnished to the Representatives an agreement in the form of
Exhibit C hereto from each director, officer and each beneficial owner of Common
Shares (as defined and determined according to Rule 13d-3 under the Exchange
Act, except that a one hundred eighty day period shall be used rather than the
sixty day period set forth therein) other than Kellett Partners, L.P., and each
such agreement shall be in full force and effect on each of the First Closing
Date and the Second Closing Date.

(l) Additional Documents. On or before each of the First
Closing Date and the Second Closing Date, the Representatives and counsel for
the Underwriters shall have received such information, documents and opinions as
they may reasonably require for the purposes of enabling them to pass upon the
issuance and sale of the Common Shares as contemplated herein, or in order to
evidence the accuracy of any of the representations and warranties, or the
satisfaction of any of the conditions or agreements, herein contained.

If any condition specified in this Section 5 is not satisfied
when and as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Optional Common Shares, at any time prior
to the Second Closing Date, which termination shall be without liability on the
part of any party to any other party, except that Section 4, Section 6, Section
8 and Section 9 shall at all times be effective and shall survive such
termination.

SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES.

If this Agreement is terminated by the Representatives pursuant to
Section 5 or Section 11, or if the sale to the Underwriters of the Common Shares
on the First Closing Date is not consummated because of any refusal, inability
or failure on the part of the Company to perform any agreement herein or to
comply with any provision hereof, the Company agrees to reimburse the
Representatives and the other Underwriters (or such Underwriters as have
terminated this Agreement with respect to themselves), severally, upon demand
for all out-of-pocket expenses that shall have been reasonably incurred by the
Representatives and the Underwriters in connection with the proposed purchase
and the offering and sale of the Common Shares,

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<PAGE> 21
including but not limited to reasonable fees and disbursements of counsel,
printing expenses, travel expenses, postage, facsimile and telephone charges.

SECTION 7. RESERVED

SECTION 8. INDEMNIFICATION.

(a) Indemnification of the Underwriters. The Company agrees to
indemnify and hold harmless each Underwriter, its officers and employees, and
each person, if any, who controls any Underwriter within the meaning of the
Securities Act and the Exchange Act against any loss, claim, damage, liability
or expense, as incurred, to which such Underwriter or such controlling person
may become subject, under the Securities Act, the Exchange Act or other federal
or state statutory law or regulation, or at common law or otherwise (including
in settlement of any litigation, if such settlement is effected with the written
consent of the Company), insofar as such loss, claim, damage, liability or
expense (or actions in respect thereof as contemplated below) arises out of or
is based (i) upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, or any amendment thereto,
including any information deemed to be a part thereof pursuant to Rule 430A or
Rule 434 under the Securities Act, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements therein not misleading; or (ii) upon any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto), or the omission or
alleged omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; or (iii) in whole or in part upon any inaccuracy in the
representations and warranties of the Company contained herein; or (iv) in whole
or in part upon any failure of the Company to perform its obligations hereunder
or under law; or (v) any act or failure to act or any alleged act or failure to
act by any Underwriter in connection with, or relating in any manner to, the
Common Stock or the offering contemplated hereby, and which is included as part
of or referred to in any loss, claim, damage, liability or action arising out of
or based upon any matter covered by clause (i) or (ii) above, provided that the
Company shall not be liable under this clause (v) (and such Underwriters shall
reimburse the Company for any expenses reimbursed to the Underwriters by the
Company pursuant to clause (v)) to the extent that a court of competent
jurisdiction shall have determined by a final judgment that such loss, claim,
damage, liability or action resulted directly from any such acts or failures to
act undertaken or omitted to be taken by such Underwriter through its bad faith
or willful misconduct; and to reimburse each Underwriter and each such
controlling person for any and all expenses (including the reasonable fees and
disbursements of counsel chosen by NationsBanc Montgomery Securities LLC) as
such expenses are reasonably incurred by such Underwriter or such controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action as such
expenses are incurred; provided, however, that the foregoing indemnity agreement
shall not apply to any loss, claim, damage, liability or expense to the extent,
but only to the extent, arising out of or based upon any untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with written information furnished to the Company by the
Representatives expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto); and
provided, further, that with respect to any

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<PAGE> 22
preliminary prospectus, the foregoing indemnity agreement shall not inure to the
benefit of any Underwriter from whom the person asserting any loss, claim,
damage, liability or expense purchased Common Shares, or any person controlling
such Underwriter, if copies of the Prospectus were timely delivered to the
Underwriter pursuant to Section 2 and a copy of the Prospectus (as then amended
or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such Underwriter
to such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the Common Shares to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage, liability or expense; provided, further, the
Company shall not be obligated to indemnify any Underwriter for any losses or
expenses which are incurred by an Underwriter in an action, proceeding or
investigation initiated by such Underwriter (other than any such action,
proceeding or investigation against the Company for a breach or threatened
breach of this Agreement), unless the Company consents in writing to the
initiation of such action, proceeding or investigation. The indemnity agreement
set forth in this Section 8(a) shall be in addition to any liabilities that the
Company may otherwise have.

(b) Indemnification of the Company, its Directors and Officers.
Each Underwriter agrees, severally and not jointly, to indemnify and hold
harmless the Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Securities Act or the Exchange Act, against any loss, claim,
damage, liability or expense, as incurred, to which the Company, or any such
director, officer or controlling person may become subject, under the Securities
Act, the Exchange Act, or other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter), insofar as
such loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or arises out of or is based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, any preliminary
prospectus, the Prospectus (or any amendment or supplement thereto), in reliance
upon and in conformity with written information furnished to the Company by the
Representatives expressly for use therein; and to reimburse the Company, or any
such director, officer or controlling person for any legal and other expense
reasonably incurred by the Company, or any such director, officer or controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action as such
expenses are incurred; provided that in no event shall any Underwriter be liable
for any consequential, indirect, incidental or special damages of any nature,
except to the extent that the Company is required to pay to any third party any
consequential, indirect, incidental or special damages resulting from the bad
faith or willful misconduct of such Underwriter. The Company hereby acknowledges
that the only information that the Underwriters have furnished to the Company
expressly for use in the Registration Statement, any preliminary prospectus or
the Prospectus (or any amendment or supplement

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<PAGE> 23
thereto) are the statements set forth (A) as the last [two] paragraphs on the
inside front cover page of the Prospectus concerning stabilization [and passive
market making] by the Underwriters and (B) in the table in the first paragraph
and as the second paragraph under the caption "Underwriting" in the Prospectus;
and the Underwriters confirm that such statements are correct. The indemnity
agreement set forth in this Section 8(b) shall be in addition to any liabilities
that each Underwriter may otherwise have.

(c) Notifications and Other Indemnification Procedures. Promptly
after receipt by an indemnified party under this Section 8 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 8, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party for indemnification, contribution or
expense reimbursement or otherwise under this Section 8 to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties; provided, further that
the indemnifying party will not be required to pay the fees and disbursements of
more than one separate counsel for all indemnified parties in connection with
any one such action, proceeding or investigation or separate but substantially
similar actions, proceedings or investigations arising out of the same general
allegations (and one separate local counsel). Upon receipt of notice from the
indemnifying party to such indemnified party of such indemnifying party's
election so to assume the defense of such action and approval by the indemnified
party of counsel, the indemnifying party will not be liable to such indemnified
party under this Section 8 for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with local counsel), approved by the indemnifying
party (Nationsbanc Montgomery Securities in the case of Section 8(b) and Section
9), representing the indemnified parties who are parties to such action) or (ii)
the indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of commencement of the action, in each of which cases the fees and
expenses of counsel shall be at the expense of the indemnifying party.

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<PAGE> 24
(d) Settlements. The indemnifying party under this Section 8 shall
not be liable for any settlement of any proceeding effected without its written
consent, but if settled with the consent of the indemnifying party or if there
be a final judgment for the plaintiff entered with the consent of the
indemnifying party, the indemnifying party agrees to indemnify the indemnified
party against any loss, claim, damage, liability or expense by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by Section
8(c) hereof, the indemnifying party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such indemnifying
party of the aforesaid request and (ii) such indemnifying party shall not have
reimbursed the indemnified party in accordance with Section 8(c) prior to the
date of such settlement. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement, compromise or consent
to the entry of judgment in any pending or threatened action, suit or proceeding
in respect of which any indemnified party is or could have been a party and
indemnity was or could have been sought hereunder by such indemnified party,
unless such settlement, compromise or consent includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such action, suit or proceeding.

SECTION 9. CONTRIBUTION.

If the indemnification provided for in Section 8 is for any reason
other than as a result of bad faith or wilful misconduct held to be unavailable
to or otherwise insufficient to hold harmless an indemnified party in respect of
any losses, claims, damages, liabilities or expenses referred to therein, then
each indemnifying party shall contribute to the aggregate amount paid or payable
by such indemnified party, as incurred, as a result of any losses, claims,
damages, liabilities or expenses referred to therein (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company, on the
one hand, and the Underwriters, on the other hand, from the offering of the
Common Shares pursuant to this Agreement or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company, on the one hand, and the
Underwriters, on the other hand, in connection with the statements or omissions
or inaccuracies in the representations and warranties herein which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative benefits received by the
Company, on the one hand, and the Underwriters, on the other hand, in connection
with the offering of the Common Shares pursuant to this Agreement shall be
deemed to be in the same respective proportions as the total net proceeds from
the offering of the Common Shares pursuant to this Agreement (before deducting
expenses) received by the Company, and the total underwriting discount and
commissions received by the Underwriters, in each case as set forth on the front
cover page of the Prospectus (or, if Rule 434 under the Securities Act is used,
the corresponding location on the Term Sheet) bear to the aggregate initial
public offering price of the Common Shares as set forth on such cover. The
relative fault of the Company, on the one hand, and the Underwriters, on the
other hand, shall be determined by reference to, among other things, whether any
such untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact or any such inaccurate or alleged
inaccurate representation or warranty relates to information supplied by

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<PAGE> 25
the Company, on the one hand, or the Underwriters, on the other hand, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.

The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 8(c), any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The provisions set forth in
Section 8(c) with respect to notice of commencement of any action shall apply if
a claim for contribution is to be made under this Section 9; provided, however,
that no additional notice shall be required with respect to any action for which
notice has been given under Section 8(c) for purposes of indemnification.

The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 9 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in this Section 9.

Notwithstanding the provisions of this Section 9, no Underwriter shall
be required to contribute any amount in excess of the underwriting commissions
received by such Underwriter in connection with the Common Shares underwritten
by it and distributed to the public. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 9 are several, and not joint, in proportion to their
respective underwriting commitments as set forth opposite their names in
Schedule A. For purposes of this Section 9, each officer and employee of an
Underwriter and each person, if any, who controls an Underwriter within the
meaning of the Securities Act and the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company with the meaning of the Securities Act and the Exchange
Act shall have the same rights to contribution as the Company.

SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS.

If, on the First Closing Date or the Second Closing Date, as the case
may be, any one or more of the several Underwriters shall fail or refuse to
purchase Common Shares that it or they have agreed to purchase hereunder on such
date, and the aggregate number of Common Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase does not
exceed 10% of the aggregate number of the Common Shares to be purchased on such
date, the other Underwriters shall be obligated, severally, in the proportions
that the number of Firm Common Shares set forth opposite their respective names
on Schedule A bears to the aggregate number of Firm Common Shares set forth
opposite the names of all such non-defaulting Underwriters, or in such other
proportions as may be specified by the Representatives with the consent of the
non-defaulting Underwriters, to purchase the Common Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date. If,

22
<PAGE> 26
on the First Closing Date or the Second Closing Date, as the case may be, any
one or more of the Underwriters shall fail or refuse to purchase Common Shares
and the aggregate number of Common Shares with respect to which such default
occurs exceeds 10% of the aggregate number of Common Shares to be purchased on
such date, and arrangements satisfactory to the Representatives and the Company
for the purchase of such Common Shares are not made within 48 hours after such
default, this Agreement shall terminate without liability of any party to any
other party except that the provisions of Section 4, Section 8 and Section 9
shall at all times be effective and shall survive such termination. In any such
case either the Representatives or the Company shall have the right to postpone
the First Closing Date or the Second Closing Date, as the case may be, but in no
event for longer than seven days in order that the required changes, if any, to
the Registration Statement and the Prospectus or any other documents or
arrangements may be effected.

As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
10. Any action taken under this Section 10 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.

SECTION 11. TERMINATION OF THIS AGREEMENT.

Prior to the First Closing Date this Agreement may be terminated by the
Representatives by notice given to the Company if at any time (i) trading or
quotation in any of the Company's securities shall have been suspended or
limited by the Commission or by the Nasdaq Stock Market, or trading in
securities generally on either the Nasdaq Stock Market or the New York Stock
Exchange shall have been suspended or limited, or minimum or maximum prices
shall have been generally established on any of such stock exchanges by the
Commission or the NASD; (ii) a general banking moratorium shall have been
declared by any of federal, New York, Delaware or California authorities; (iii)
there shall have occurred any outbreak or escalation of national or
international hostilities or any crisis or calamity, or any change in the United
States or international financial markets, or any substantial change or
development involving a prospective substantial change in United States' or
international political, financial or economic conditions, as in the judgment of
the Representatives is material and adverse and makes it impracticable to market
the Common Shares in the manner and on the terms described in the Prospectus or
to enforce contracts for the sale of securities; or (iv) in the judgment of the
Representatives there shall have occurred any Material Adverse Change. Any
termination pursuant to this Section 11 shall be without liability on the part
of (a) the Company to any Underwriter, except that the Company shall be
obligated to reimburse the expenses of the Representatives and the Underwriters
pursuant to Sections 4 and 6 hereof, (b) any Underwriter to the Company, or (c)
of any party hereto to any other party except that the provisions of Section 8
and Section 9 shall at all times be effective and shall survive such
termination.

SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY.

The respective indemnities, agreements, representations, warranties and
other statements of the Company, of its officers and of the several Underwriters
set forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on

23
<PAGE> 27
behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, as the case may be, and will
survive delivery of and payment for the Common Shares sold hereunder and any
termination of this Agreement.

SECTION 13. NOTICES.

All communications hereunder shall be in writing and shall be mailed,
hand delivered or telecopied and confirmed to the parties hereto as follows:

If to the Representatives:

NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: 415-249-5558
Attention: Richard A. Smith

with a copy to:

NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.

If to the Company:

Petra Capital, Inc.
172 Second Avenue North, Suite 112
Nashville, Tennessee 37219
Facsimile: (615) 313-5990
Attention: Robert G. Shuler

Any party hereto may change the address for receipt of communications by giving
written notice to the others.

SECTION 14. SUCCESSORS. This Agreement will inure to the benefit of
and be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 10 hereof, and to the extent provided in Sections 8 and 9
hereof, to the benefit of the employees, officers and directors and controlling
persons referred to in Section 8 and Section 9, and in each case their
respective successors, and no other person will have any right or obligation
hereunder. Petra Capital, Inc. shall be deemed the "successor" to the
Predecessor Entities following consummation of the Reorganization. The term
"successors" shall not include any purchaser of the Common Shares as such from
any of the Underwriters merely by reason of such purchase.

24
<PAGE> 28
SECTION 15. PARTIAL UNENFORCEABILITY.

The invalidity or unenforceability of any Section, paragraph or
provision of this Agreement shall not affect the validity or enforceability of
any other Section, paragraph or provision hereof. If any Section, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, there shall be deemed to be made such minor changes (and only
such minor changes) as are necessary to make it valid and enforceable.

SECTION 16. GOVERNING LAW PROVISIONS. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.

SECTION 17. GENERAL PROVISIONS.

This Agreement constitutes the entire agreement of the parties to this
Agreement and supersedes all prior written or oral and all contemporaneous oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may be executed in two or more counterparts, each one of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Agreement may not be amended or
modified unless in writing by all of the parties hereto, and no condition herein
(express or implied) may be waived unless waived in writing by each party whom
the condition is meant to benefit. The Table of Contents and the Section
headings herein are for the convenience of the parties only and shall not affect
the construction or interpretation of this Agreement.

Each of the parties hereto acknowledges that it is a sophisticated
business person who was adequately represented by counsel during negotiations
regarding the provisions hereof, including, without limitation, the
indemnification provisions of Section 8 and the contribution provisions of
Section 9, and is fully informed regarding said provisions. Each of the parties
hereto further acknowledges that the provisions of Sections 8 and 9 hereto
fairly allocate the risks in light of the ability of the parties to investigate
the Company, its affairs and its business in order to assure that adequate
disclosure has been made in the Registration Statement, any preliminary
prospectus and the Prospectus (and any amendments and supplements thereto), as
required by the Securities Act and the Exchange Act.

If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.

25
<PAGE> 29
Very truly yours,

PETRA CAPITAL, INC.

By:
--------------------------------
Robert G. Schuler
President and Chief Executive Officer

PETRA CAPITAL LLC

By:
--------------------------------
Rober G. Schuler
Co-Managing Partner

The foregoing Underwriting Agreement is hereby confirmed and accepted
by the Representatives in San Francisco, California as of the date first above
written.

NATIONSBANC MONTGOMERY SECURITIES LLC
BANCAMERICA ROBERTSON STEPHENS
WHEAT FIRST UNION
STEPHENS INC.

Acting as Representatives of the
several Underwriters named in
the attached Schedule A.

By: NATIONSBANC MONTGOMERY SECURITIES LLC

- --------------------------------
By: Richard A. Smith

26
<PAGE> 30
SCHEDULE A

<TABLE>
<CAPTION>
NUMBER OF FIRM
COMMON SHARES
UNDERWRITERS TO BE PURCHASED
<S> <C>
NationsBanc Montgomery Securities LLC............... [___]

BancAmerica Robertson Stephens...................... [___]

Wheat First Union................................... [___]

Stephens Inc. ...................................... [___]

[___] .............................................. [___]

Total............................................... [___]
</TABLE>

<PAGE> 31
EXHIBIT A

The final opinion in draft form should be attached as Exhibit A at the time this
Agreement is executed.

Opinion of counsel for the Company to be delivered pursuant to Section
5(e) of the Underwriting Agreement.

All capitalized terms shall have the meaning ascribed to such terms in
the Underwriting Agreement.

References to the Prospectus in this Exhibit A include any supplements
thereto at the Closing Date.

(i.) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware (such counsel being entitled to rely in respect of this opinion on
certificates of appropriate officials of the State of Delaware as to the good
standing of the Company in such state).

(ii.) The Company has corporate power and authority to own,
lease and operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the Underwriting
Agreement and the Operative Documents.

(iii.) The Company is duly qualified as a foreign
corporation to transact business and is in good standing in the State of
Tennessee and in each other jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or the
conduct of business, except for such other jurisdictions where the failure to so
qualify or to be in good standing would not, individually or in the aggregate,
result in a Material Adverse Change (such counsel being entitled to rely in
respect of this opinion on certificates of appropriate officials of such
jurisdictions and in respect of matters of fact upon certificates of officers of
the Company).

(iv.) Each significant subsidiary (as defined in Rule 405
under the Securities Act) has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and, to
the best knowledge of such counsel, is duly qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except for such jurisdictions where the
failure to so qualify or to be in good standing would not, individually or in
the aggregate, result in a Material Adverse Change (such counsel being entitled
to rely in respect of this opinion on certificates of appropriate officials of
such jurisdictions and in respect of matters of fact upon certificates of
officers of the Company).

(v.) All of the issued and outstanding capital stock of
each such significant subsidiary has been duly authorized and validly issued, is
fully paid and non-assessable and is owned by the Company, directly or through
subsidiaries, free and clear of any security interest,

A-1
<PAGE> 32
mortgage, pledge, lien, encumbrance or, to the best knowledge of such counsel,
any pending or threatened claim.

(vi.) The authorizedcapital of the Company consists of
50,000,000 shares of Common Stock and 20,000,000 shares of preferred stock, $.01
par value. All of the outstanding shares of Common Stock have been duly
authorized and validly issued, are fully paid and nonassessable and have been
issued in compliance with the registration and qualification requirements of
federal and state securities laws. The form of certificate used to evidence the
Common Stock is in due and proper form and complies with all applicable
requirements of the charter and by-laws of the Company and the General
Corporation Law of the State of Delaware. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the options or
other rights granted and exercised thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights.

(vii.) No stockholder of the Company or any other person has
any preemptive right, right of first refusal or other similar right to subscribe
for or purchase securities of the Company arising (i) by operation of the
charter or by-laws of the Company or the General Corporation Law of the State of
Delaware or (ii) to the best knowledge of such counsel, otherwise.

(viii.) Each of the Underwriting Agreement and the Operative
Documents has been duly authorized, executed and delivered by, and is a legal,
valid and binding obligation of, the Company and the Predecessor Entities, as
the case may be, enforceable in accordance with its terms, except as rights to
indemnification thereunder may be limited by applicable law and except as the
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles.

(ix.) The Common Shares to be purchased by the Underwriters
from the Company have been duly authorized for issuance and sale pursuant to the
Underwriting Agreement and, when issued and delivered by the Company pursuant to
the Underwriting Agreement against payment of the consideration set forth
therein, will be validly issued, fully paid and nonassessable.

(x.) Each of the Registration Statement and the Rule
462(b) Registration Statement, if any, has been declared effective by the
Commission under the Securities Act. To the best knowledge of such counsel, no
stop order suspending the effectiveness of either of the Registration Statement
or the Rule 462(b) Registration Statement, if any, has been issued under the
Securities Act and no proceedings for such purpose have been instituted or are
pending or are contemplated or threatened by the Commission. Any required filing
of the Prospectus and any supplement thereto pursuant to Rule 424(b) or Rule
497(h) under the Securities Act has been made in the manner and within the time
period required by such Rule 424(b) or Rule 497(h).

(xi.) The Registration Statement, including any Rule 462(b)
Registration Statement, the Prospectus, and each amendment or supplement to the
Registration Statement and

A-2
<PAGE> 33
the Prospectus, as of their respective effective or issue dates (other than the
financial statements and supporting schedules and other financial data included
therein or in exhibits to or excluded from the Registration Statement, as to
which no opinion need be rendered) comply as to form in all material respects
with the applicable requirements of the Securities Act.

(xii.) The Common Shares have been approved for listing on
the Nasdaq National Market.

(xiii.) The statements (i) in the Prospectus under the
captions "Risk Factors--Loss of RIC Tax Status," "Description of Capital Stock",
"Regulation," "Tax Status" and "Shares Eligible for Future Sale and (ii) in Item
29 of the Registration Statement, insofar as such statements constitute matters
of law, summaries of legal matters, the Company's charter or by-law provisions,
documents or legal proceedings, or legal conclusions, has been reviewed by such
counsel and fairly present and summarize, in all material respects, the matters
referred to therein.

(xiv.) To the best knowledge of such counsel, there are no
legal or governmental actions, suits or proceedings pending or threatened which
are required to be disclosed in the Registration Statement, other than those
disclosed therein.

(xv.) To the best knowledge of such counsel, there are no
Existing Instruments required to be filed as exhibits to the Registration
Statement thereto other than those filed as exhibits to the Registration
Statement; and the descriptions thereof in the Registration Statement are
correct in all material respects.

(xvi.) No consent, approval, authorization or other order
of, or registration or filing with, any court or other governmental authority or
agency, is required to be obtained by the Company or either of the Predecessor
Entities for the Company's or Petra Capital LLC's execution, delivery and
performance of the Underwriting Agreement or for the Company's and the
Predecessor Entities' execution, delivery and performance of the Operative
Agreements, except as required under the Securities Act, applicable state
securities or blue sky laws and from the NASD.

(xvii.) The execution and delivery of the Underwriting
Agreement and the Operative Documents by the Company and the performance by the
Company of its obligations thereunder (other than performance by the Company of
its obligations under the indemnification section of the Underwriting Agreement,
as to which no opinion need be rendered), and the execution and delivery of the
Operative Documents by each of the Predecessor Entities and the performance by
each of the Predecessor Entities of their respective obligations under the
Operative Documents (i) have been duly authorized by all necessary corporate
action on the part of the Company and the Predecessor Entities, as the case may
be; (ii) will not result in any violation of the provisions of the charter or
by-laws of the Company or any subsidiary or the organizational documents of the
Predecessor Entities, as the case may be; (iii) will not constitute a breach of,
or Default or a Debt Repayment Triggering Event under, or result in the creation
or imposition of any lien, charge or encumbrance upon any property or assets of
the Company or any of its subsidiaries or any Predecessor Entity pursuant to,
(A) the Credit Facility, or (B) to the knowledge of such counsel, any other
material Existing Instrument; or (iv) to the knowledge of such counsel, will not
result in any violation of any law, administrative regulation or

A-3
<PAGE> 34
administrative or court decree applicable to the Company or any subsidiary or to
any Predecessor Entity.

(xviii.) The Company meets all requirements to qualify as a
"business development company" as that term is defined in the 1940 Act and has
in effect a valid election as a "business development company" as provided for
in Sections 54 through 65 of the 1940 Act. By virtue of its election as a
"business development company," the Company is not an investment company
required to be registered under the 1940 Act.

(xix.) To the best knowledge of such counsel, there are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by the Underwriting Agreement, except for such rights
as have been duly waived.

(xx.) To the best knowledge of such counsel, neither the
Company nor any subsidiary nor any Predecessor Entity is in violation of its
charter or by-laws or other organizational document or any law, administrative
regulation or administrative or court decree applicable to the Company or any
subsidiary or any Predecessor Entity or is in Default in the performance or
observance of any obligation, agreement, covenant or condition contained in any
material Existing Instrument, except in each such case for such violations or
Defaults as would not, individually or in the aggregate, result in a Material
Adverse Change.

In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company,
representatives of the independent public or certified public accountants for
the Company and with representatives of the Underwriters at which the contents
of the Registration Statement and the Prospectus, and any supplements or
amendments thereto, and related matters were discussed. Although such counsel
has not independently verified, is not passing upon and does not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus (other than as
specified above), and any supplements or amendments thereto, on the basis of the
foregoing, no facts have come to their attention which would lead them to
believe that either the Registration Statement or any amendments thereto, at the
time the Registration Statement or such amendments became effective, contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading or that the Prospectus, as of its date or at the First Closing Date
or the Second Closing Date, as the case may be, contained an untrue statement of
a material fact or omitted to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading (it being understood that such counsel need express no
belief as to the financial statements or schedules or other financial or
statistical data contained in the Registration Statement or the Prospectus or
any amendments or supplements thereto).

In rendering such opinion, (A) such counsel need not express opinions
on the laws of any jurisdiction other than the General Corporation Law of the
State of Delaware, New York, Georgia or the federal law of the United States and
(B) as to matters of fact, to the extent they deem proper, on certificates of
responsible officers of the Company and public officials.

A-4
<PAGE> 35
EXHIBIT B

______, 1998

NationsBanc Montgomery Securities LLC
BancAmerica Robertson Stephens
Wheat First Union
Stephens Inc.
As Representatives of the Several Underwriters
c/o NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111

RE: Petra Capital, Inc. (the "Company")

Ladies & Gentlemen:

The undersigned is an owner of record or beneficially of certain shares of
Common Stock of the Company ("Common Stock") or securities convertible into or
exchangeable or exercisable for Common Stock. The Company proposes to carry out
a public offering of Common Stock (the "Offering") for which you will act as the
representatives of the underwriters. The undersigned recognizes that the
Offering will be of benefit to the undersigned and will benefit the Company by,
among other things, raising additional capital for its operations. The
undersigned acknowledges that you and the other underwriters are relying on the
representations and agreements of the undersigned contained in this letter in
carrying out the Offering and in entering into underwriting arrangements with
the Company with respect to the Offering.

In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not, without the prior written consent of NationsBanc
Montgomery Securities LLC (which consent may be withheld in its sole
discretion), directly or indirectly, sell, offer, contract or grant any option
to sell (including without limitation any short sale), pledge, transfer,
establish an open "put equivalent position" within the meaning of Rule 16a-1(h)
under the Securities Exchange Act of 1934, or otherwise dispose of any shares of
Common Stock, options or warrants to acquire shares of Common Stock, or
securities exchangeable or exercisable for or convertible into shares of Common
Stock currently or hereafter owned either of record or beneficially (as defined
in Rule 13d-3 under Securities Exchange Act of 1934, as amended) by the
undersigned, or publicly announce the undersigned's intention to do any of the
foregoing, for a period commencing on the date hereof and continuing through the
close of trading on the date that is two (2) years after the date of the
Prospectus; provided, however, that nothing contained herein shall be deemed to
prohibit a pledge by the undersigned of all or any portion of the Common Stock
to a financial institution as security for any financing made available to the
undersigned or any of its affiliates by such financial institution. The
undersigned also agrees and consents to the entry of stop transfer instructions
with the Company's transfer agent and registrar against the transfer of shares
of Common Stock or securities convertible into or exchangeable or exercisable
for Common Stock held by the undersigned except in compliance with the foregoing
restrictions.
<PAGE> 36
With respect to the Offering only, the undersigned waives any registration
rights relating to registration under the Securities Act of any Common Stock
owned either of record or beneficially by the undersigned, including any rights
to receive notice of the Offering.

This agreement is irrevocable and will be binding on the undersigned and the
respective successors, heirs, personal representatives, and assigns of the
undersigned.

Kellett Partners, L.P.

By:
-------------------------------------------
General Partner

By:
-------------------------------------
Signature

-----------------------------------------
Printed Name of Person Signing

(and indicate capacity of person signing if
signing as custodian, trustee, or on behalf
of an entity)

B-2
<PAGE> 37
EXHIBIT c

______, 1998

RE: Petra Capital, Inc. (the "Company")

Ladies & Gentlemen:

In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not, without the prior written consent of NationsBanc
Montgomery Securities LLC (which consent may be withheld in its sole
discretion), directly or indirectly, sell, offer, contract or grant any option
to sell (including without limitation any short sale), pledge, transfer,
establish an open "put equivalent position" within the meaning of Rule 16a-1(h)
under the Securities Exchange Act of 1934, or otherwise dispose of any shares of
Common Stock, options or warrants to acquire shares of Common Stock, or
securities exchangeable or exercisable for or convertible into shares of Common
Stock currently or hereafter owned either of record or beneficially (as defined
in Rule 13d-3 under Securities Exchange Act of 1934, as amended) by the
undersigned, or publicly announce the undersigned's intention to do any of the
foregoing, for a period commencing on the date hereof and continuing through the
close of trading on the date 180 days after the date of the Prospectus;
provided, however, that nothing contained herein shall be deemed to prohibit a
pledge by the undersigned of all or any portion of the Common Stock to a
financial institution as security for any financing made available to the
undersigned or any of its affiliates by such financial institution. The
undersigned also agrees and consents to the entry of stop transfer instructions
with the Company's transfer agent and registrar against the transfer of shares
of Common Stock or securities convertible into or exchangeable or exercisable
for Common Stock held by the undersigned except in compliance with the foregoing
restrictions.
<PAGE> 38
With respect to the Offering only, the undersigned waives any registration
rights relating to registration under the Securities Act of any Common Stock
owned either of record or beneficially by the undersigned, including any rights
to receive notice of the Offering.

This agreement is irrevocable and will be binding on the undersigned and the
respective successors, heirs, personal representatives, and assigns of the
undersigned.

- -----------------------------------------------
Printed Name of Holder

By:
--------------------------------------------
Signature

- -----------------------------------------------
Printed Name of Person Signing

(and indicate capacity of person signing if
signing as custodian, trustee, or on behalf
of an entity)

C-2

<PAGE> 1

EXHIBIT l

[LETTERHEAD OF KING & SPALDING]

June 9, 1998

Petra Capital, Inc.
172 Second Avenue North
Suite 112
Nashville, Tennessee 37201

Re: Registration Statement on Form N-2

Ladies and Gentlemen:

We have acted as counsel to Petra Capital, Inc., a Delaware corporation
(the "Company"), in connection with the filing of the above-referenced
Registration Statement (the "Registration Statement") with the Securities and
Exchange Commission (the "Commission") to register under the Securities Act of
1933, as amended (the "Act"), 3,500,000 shares of the Company's Common Stock,
par value $0.01 per share (the "Common Stock"), for issuance and sale by the
Company (the "Shares"). The Company intends, following the effectiveness of the
Registration Statement, to issue and sell the Shares to the several underwriters
(the "Underwriters") named in Schedule A to the Underwriting Agreement (the
"Underwriting Agreement") to be entered into by and among the Company and the
Underwriters.

We have examined originals of copies, certified or otherwise identified
to our satisfaction, of the Certificate of Incorporation of the Company, as
amended, the Bylaws of the Company, records of proceedings of the Board of
Directors, or committees thereof, and the stockholders of the Company deemed by
us to be relevant to this opinion letter, the Registration Statement and the
proposed form of Underwriting Agreement. We also have examined originals or
copies, certified or otherwise identified to our satisfaction, of such other
corporate records of the Company, such other agreements and instruments, such
certificates of public officials, officers of the Company and other persons, and
such other documents as we have deemed necessary or appropriate as a basis for
the opinions hereinafter expressed. In such examinations, we have assumed the
genuineness of all signatures, the legal capacity of all natural persons, the
authenticity and completeness of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified,
conformed, photostatic or facsimile copies, and the authenticity of the
originals of such copies, and we have assumed all certificates of public
officials to have been properly given and to be accurate.

<PAGE> 2

Petra Capital, Inc.
June 9, 1998
Page 2

As to factual matters relevant to this opinion letter, we have relied
upon the representations and warranties as to factual matters contained in
certificates and statements of officers of the Company and certain public
officials. Except to the extent expressly set forth herein, we have made no
independent investigations with regard thereto, and, accordingly, we do not
express any opinion as to matters that might have been disclosed by independent
verification.

On the basis of the foregoing, and subject to the limitations set forth
herein, we are of the opinion that, upon due execution and delivery of the
Underwriting Agreement by the parties thereto and upon issuance and delivery of
the Shares against payment therefor as provided in the Underwriting Agreement,
the Shares will be validly issued, fully paid and nonassessable by the Company.

Members of this firm are licensed to practice law in the State of
Georgia and before the federal courts having jurisdiction in the State of
Georgia, and we express no opinion with regard to any law other than the laws of
the State of Georgia and the General Corporation Law of the State of Delaware.

We consent to the filing of this opinion letter as an exhibit to the
Registration Statement and to any related registration statement subsequently
filed by the Company pursuant to Rule 462(b) of the Act and to the use of our
name under the heading "Legal Matters" in the Prospectus constituting a part
thereof. In giving such consent, we do not thereby admit that we are within the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Commission thereunder.

This opinion letter is being furnished by us to the Company and the
Commission solely for the benefit of the Company and the Commission in
connection with the Registration Statement and is not to be used, circulated,
quoted or otherwise relied upon by any other person, or by the Company or the
Commission for any other purposes, without our express written consent. The only
opinion rendered by us consists of those matters set forth in the fourth
paragraph hereof, and no opinion may be implied or inferred beyond those
expressly stated. This opinion letter is rendered as of the date hereof, and we
have no obligation to update this opinion letter.

Sincerely,

KING & SPALDING

<PAGE> 1

EXHIBIT n

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports on Petra Capital, LLC and Subsidiary and Petra Capital Management, LLC
dated February 25, 1998 and May 22, 1998, respectively, included in this
registration statement.

Arthur Andersen LLP

Nashville, Tennessee
June 9, 1998

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PETRA CAPITAL FOR THE YEAR ENDED DECEMBER 31, 1997, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 44,920,640
<INVESTMENTS-AT-VALUE> 48,931,415
<RECEIVABLES> 38,083
<ASSETS-OTHER> 1,831,970
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 50,801,468
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 23,625,000
<OTHER-ITEMS-LIABILITIES> 492,869
<TOTAL-LIABILITIES> 24,117,869
<SENIOR-EQUITY> 20,770,000
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 801,190
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,010,775
<NET-ASSETS> 26,683,599
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,699,208
<OTHER-INCOME> 958,500
<EXPENSES-NET> 1,367,371
<NET-INVESTMENT-INCOME> 3,290,337
<REALIZED-GAINS-CURRENT> 1,072,193
<APPREC-INCREASE-CURRENT> 3,402,606
<NET-CHANGE-FROM-OPS> 7,765,136
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,674,489
<DISTRIBUTIONS-OF-GAINS> 271,003
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 38,222,484
<ACCUMULATED-NII-PRIOR> 605,786
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 577,797
<GROSS-EXPENSE> 1,367,371
<AVERAGE-NET-ASSETS> 19,523,777
<PER-SHARE-NAV-BEGIN> 0<F1>
<PER-SHARE-NII> 0<F1>
<PER-SHARE-GAIN-APPREC> 0<F1>
<PER-SHARE-DIVIDEND> 0<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 0<F1>
<EXPENSE-RATIO> .07
<AVG-DEBT-OUTSTANDING> 11,812,500
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>SINCE PETRA CAPITAL LLC OPERATED AS A LLC, NO SHARES WERE OUTSTANDING.
</FN>

</TABLE>