<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 17, 1996
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
SIRROM CAPITAL CORPORATION
(Exact Name of Registrant as Specified in Charter)
500 CHURCH STREET, SUITE 200
NASHVILLE, TENNESSEE 37219
(615) 256-0701
(Address and Telephone Number of Principal Executive Offices)
CARL W. STRATTON
500 CHURCH STREET, SUITE 200
NASHVILLE, TENNESSEE 37219
(Name and Address of Agent For Service)
COPIES OF INFORMATION TO:
<TABLE>
<S> <C>
BOB F. THOMPSON DONALD I.N. MCKENZIE
BASS, BERRY & SIMS PLC SHERRARD & ROE, PLC
FIRST AMERICAN CENTER 424 CHURCH STREET
NASHVILLE, TENNESSEE 37238-2700 NASHVILLE, TENNESSEE 37219
(615) 742-6200 (615) 742-4200
</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. / /
/ / This Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration statement number of the earlier effective registration statement
for the same offering is 333-
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES BEING OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE FEE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value
per share.................. 2,300,000(2) $25.375 $58,362,500 $20,125
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to with Rule 457(c) on the basis of the average of the high and low sales
prices of the Common Stock on May 13, 1996, as reported on The Nasdaq Stock
Market's National Market.
(2) Includes 300,000 shares subject to a 30-day over-allotment option granted to
the Underwriters by the Company.
---------------------
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
SIRROM CAPITAL CORPORATION
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 ITEM AND CAPTION OR LOCATION
NUMBER 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................. Selected Financial Data; Management's Discussion
and Analysis of Financial Condition and Results
of Operations
5. Plan of Distribution................. Outside front cover; Certain Transactions;
Underwriting
6. Selling Shareholders................. Not Applicable
7. Use of Proceeds...................... Use of Proceeds
8. General Description of Registrant.... Outside front cover, Prospectus Summary;
Investment Objectives and Policies; The Company;
Business; Risk Factors; Distributions and
Price Range of Common Stock; Portfolio
Companies
9. Management........................... Management; Custodian, Transfer and Dividend
Paying Agent and Registrar
10. Capital Stock, Long-Term Debt, and
Other Securities..................... Description of Capital Stock; Distributions and
Price Range of Common Stock; Reinvestment Plan;
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...... The Company
17. Investment Objective and Policies.... Investment Objectives and Policies
18. Management........................... Management
19. Control Persons and Principal Holders
of Securities........................ Principal Shareholders; 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................. 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 BE 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 MAY 17, 1996
2,000,000 SHARES
SIRROM CAPITAL CORPORATION
COMMON STOCK
---------------------
The shares of common stock, no par value (the "Common Stock"), offered
hereby (the "Offering"), are being sold by Sirrom Capital Corporation ("Sirrom"
or the "Company"). The Company is a specialty finance company that makes loans
to small businesses and has elected to be treated as a business development
company (a "BDC") under the Investment Company Act of 1940, as amended (the
"1940 Act"). The Company's investment objectives are to achieve both a high
level of income from interest on loans and other fees and long-term growth in
the value of its shareholders' equity through the appreciation of the equity
interests in its portfolio companies. See "Business." No assurances can be given
that the Company will continue to achieve these objectives.
The Common Stock is traded on The Nasdaq Stock Market's National Market
(the "Nasdaq National Market") under the symbol "SROM." On May 16, 1996, the
last reported sale price for the Common Stock was $27.25.
This Prospectus sets forth concisely the information about the Company that
a prospective investor should know before investing and should be retained for
future reference. 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 9 THROUGH 12 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>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................... $ $ $
- -------------------------------------------------------------------------------------------------
Total(3).......................... $ $ $
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $ .
(3) The Company has granted the Underwriters a 30-day option to purchase up to
300,000 additional shares of Common Stock on the same terms and conditions
set forth above, solely to cover over-allotments, if any. See
"Underwriting." If such option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions, and Proceeds to the Company
will be $ , $ and $ , respectively.
---------------------
The Common Stock is offered by the Underwriters named herein, subject to
prior sale, when, as, and if received and accepted by them, subject to their
right to reject orders, in whole or in part, and to certain other conditions. It
is expected that delivery of the certificates representing the Common Stock will
be made on or about June , 1996.
THE ROBINSON-HUMPHREY COMPANY, INC.
J.C. BRADFORD & CO.
EQUITABLE SECURITIES CORPORATION
June , 1996
<PAGE> 4
SIRROM CAPITAL CORPORATION
The following map sets forth, as of March 31, 1996, the 22 states in which
the Company's borrowers maintain their principal place of business and the
number of borrowers in each state.
[SIRROM CAPITAL CORPORATION MAP]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL
MARKET IN ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED (THE "EXCHANGE ACT"). SEE "UNDERWRITING."
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 and
notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, all information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option.
THE COMPANY
Sirrom Capital Corporation is a specialty finance company that makes loans
to small businesses. The Company believes the market for small commercial loans
is underserved by traditional lending sources and that competitors generally are
burdened with an overhead and administrative structure that hinders them from
competing more effectively in this market. The Company's loans are typically
made in the form of secured debt with relatively high fixed interest rates and
with warrants to purchase an equity interest in the borrower. The objectives of
the Company are to achieve both a high level of current income from interest on
loans and other fees and long-term growth in the value of its shareholders'
equity through the appreciation of the equity interests in its portfolio
companies.
The Company, which was founded in May 1992, has experienced significant
growth in both the size and diversity of its loan portfolio. The Company's loan
portfolio balance at December 31, 1993, 1994 and 1995 was $42.4 million, $72.3
million and $144.9 million, respectively. At March 31, 1996, the Company had
loans outstanding with an aggregate principal balance of $166.9 million to 97
companies in a variety of industries located in 22 states. The average rate of
interest on the Company's loan portfolio at March 31, 1996, was 12.9%. The
Company's loans typically range from $500,000 to $4.0 million in size, are
non-amortizing, have a five-year maturity and are accompanied by warrants to
purchase an equity interest in the borrower at a nominal exercise price (usually
$.01 per share). The Company targets borrowers that it believes meet certain
criteria, including the potential for significant growth, adequate collateral
coverage, experienced management teams with a significant ownership interest in
the borrower, sophisticated outside equity investors and profitable operations.
To develop new lending opportunities, the Company markets to an extensive
referral network comprised of venture capitalists, investment bankers,
attorneys, accountants, commercial bankers and business brokers.
Sirrom, based in Nashville, Tennessee, is licensed as a small business
investment company ("SBIC") by the Small Business Administration ("SBA"). As an
SBIC, the Company is eligible to borrow up to $90.0 million from the SBA. As of
March 31, 1996, the Company had borrowed $83.3 million in debentures from the
SBA. The interest rate paid on the Company's long-term borrowings from the SBA
was 7.02% at March 31, 1996. The Company has supplemented its SBA borrowings
with equity capital and a $50.0 million revolving credit facility from First
Union National Bank of Tennessee and a syndicate of other banks (the "Revolving
Credit Facility"). The interest rate paid on the Revolving Credit Facility was
7.43% at March 31, 1996.
In order to provide the Company more flexibility in its financing
alternatives, the terms of the loans it originates and the nature of its
borrowers, the Company has requested permission from the Commission to create a
wholly-owned subsidiary for its SBIC activities. The Company intends to transfer
the majority of its assets, including its SBIC license, and all of its
liabilities, including its SBA debt and indebtedness under the Revolving Credit
Facility, to the new subsidiary. Following the transfer, the subsidiary would
carry on the Company's SBIC activities, and the Company would be able to engage
in a broader range of financing and other services to small businesses. In
contemplation of this corporate reorganization, the Company has signed an
engagement letter and preliminary term sheet with a financial institution to
establish a special purpose borrowing facility ("Special Purpose Facility") that
would provide up to $100.0 million in additional debt financing to support the
Company's future loan origination activities outside the SBIC subsidiary.
Assuming the Commission approves the reorganization, the Company anticipates the
reorganization to be effected during the second half of 1996.
In order to broaden the range of services offered to businesses in its
target market, the Company has entered into an acquisition agreement pursuant to
which, upon satisfaction of various conditions, it would acquire Harris Williams
& Co., L.P. ("Harris Williams"), a merger and acquisition advisory firm located
in
3
<PAGE> 6
Richmond, Virginia. Harris Williams provides advisory services with respect to
small and medium sized companies throughout the United States that are similar
in size to Sirrom's portfolio companies. Upon consummation of the acquisition,
the owners of Harris Williams would receive approximately 950,000 restricted
shares of the Company's Common Stock.
The Company is also a non-diversified, closed-end investment company that
has elected to be treated as a BDC under the 1940 Act. In addition, it has
elected to be treated for tax purposes as a regulated investment company ("RIC")
under Subchapter M of the Internal Revenue Code of 1986 (the "Code"). As such,
the Company must distribute at least 90% of its net investment income (net
interest income plus net realized short-term capital gains) to shareholders on a
quarterly basis. The Company may retain all or a portion of realized long-term
capital gains, net of applicable taxes, to supplement equity capital and to
support growth in its portfolio.
Since inception, the Company has realized $12.4 million in cash from the
sale of its equity positions in portfolio companies. At March 31, 1996, the
combined value of this cash realization from equity positions and the $15.2
million in unrealized appreciation of equity interests was $27.6 million. Since
inception, the Company has realized losses of $6.1 million on loans and equity
interests and at March 31, 1996, had provided for $3.5 million of unrealized
depreciation on loans.
THE OFFERING
Common Stock offered by the
Company.................. 2,000,000 shares
Common Stock to be
outstanding after the
Offering................. 11,153,836 shares
Nasdaq National
Market Symbol............ SROM
Use of Proceeds by
the Company.............. Origination of loans and investments and repayment
of amounts outstanding under the Revolving Credit
Facility. See "Use of Proceeds."
Distributions.............. The Company has distributed and currently intends
to continue to distribute quarterly to its
shareholders 90% of its net investment income. See
"Distributions."
Risk Factors............... Investment in shares of the Common Stock involves
certain risks relating to the structure and
investment objectives of the Company that should be
considered by purchasers of the Common Stock. See
"Risk Factors."
Risk of Unavailability of Funds. As the Company
grows, it will have a continuing need for long-term
capital to finance its lending activities.
Generally, the Company's capital needs have been
met by borrowings under SBA programs, from
commercial banks and through the sale of equity
securities. The maximum amount of funding available
to an SBIC from the SBA is $90.0 million. At April
30, 1996, the Company had outstanding borrowings of
$83.3 million from the SBA and anticipates that it
will request funding of the remaining $6.7 million
by the end of May 1996. No assurances can be made
that the Company will receive such funding from the
SBA. At April 30, 1996, the Company had outstanding
borrowings of $28.6 million under its $50.0 million
Revolving Credit Facility. The Company has signed
an engagement letter and preliminary term sheet
with another financial institution to establish the
Special Purpose Facility that would provide the
Company with additional funds in an amount of up to
$100.0 million that would be
4
<PAGE> 7
collateralized by certain of the Company's future
small business loans and the related equity
interests. There can be no assurances that the
Company will obtain this facility.
Risks Associated with Investments in Small,
Privately Owned Companies. The portfolio of the
Company consists primarily of loans to and
securities issued by privately owned small
businesses. 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. In addition,
there is typically no public market for securities
of privately owned companies. The Company's
portfolio 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 securities may
adversely affect the ability of the Company to
dispose of such securities in a timely matter and
at a fair price at times when the Company deems it
necessary or advantageous. The valuation of
securities in the Company's portfolio is determined
in good faith by the Company's Board of Directors.
Risk of Payment Default. The loans made by the
Company to small businesses carry a relatively high
fixed rate of interest. The small businesses may
have limited financial resources and may be unable
to obtain financing from traditional sources. In
addition, a small business' ability to repay its
loans 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
collateral for the loan including the likelihood of
realizing on any guarantees obtained from the
borrower's management. Investment in small
businesses, therefore, involves a high degree of
business and financial risk, which can result in
substantial losses and accordingly, should be
considered speculative.
Leverage Risks. The Company's use of leverage and
the result of required interest payments to its
funding sources tends to increase the amount of
risk associated with the Company's operations.
Leverage magnifies the potential for gain and loss
on monies invested and, therefore, results in an
increase in the risks associated with an investment
in the Company's securities.
Risk of Voluntary or Involuntary Termination of
Pass Through Tax Treatment. The Company has
qualified for and elected to be taxed as a RIC. In
any year in which the Company qualifies as a RIC,
it generally will not be subject to federal income
tax on net investment income and net capital gains
distributed to its shareholders. However, the
Company may retain part or all of its realized
long-term capital gains, in which case the Company
would be required to pay tax on such capital gains
and the shareholders would receive a deemed
distribution and a tax credit for their pro-rata
portion of the tax paid by the Company. However,
because the Company uses leverage, it is subject to
certain asset coverage ratio requirements set forth
in the 1940 Act and could, under certain
circumstances, be restricted from making
distributions necessary to qualify as a RIC under
Subchapter M of the Code. The election to qualify
as a RIC is made on an annual basis, and no
assurance can be given that the
5
<PAGE> 8
Company will continue to elect or to qualify for
such treatment. Furthermore, once the new
subsidiaries are created in connection with the
acquisition of Harris Williams and the corporate
reorganization of the Company, it is possible that
the Company and any of its subsidiaries may not
continue to meet the tests for qualification as a
RIC. Harris Williams will not qualify or be taxed
as a RIC and will therefore pay taxes at the
subsidiary level. If the Company were to fail to
qualify or elect not to qualify as a RIC and its
income became fully taxable, a substantial
reduction in the Company's net assets, the amount
of income available for distribution to the
Company's shareholders and the percentage of such
income actually distributed could result.
FEES AND EXPENSES
The purpose of the following table is to assist the investor in
understanding the various costs and expenses that an investor in the Company
will bear directly or indirectly.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales load (as a percentage of offering price)............................. 5.5%(1)
Reinvestment Plan fees..................................................... None(2)
ANNUAL EXPENSES (as a percentage of net assets attributable to common
shares)(3)
Operating expenses......................................................... 3.9%(4)
Interest payments on borrowed funds........................................ 5.1%
Total Annual Expenses (estimated)............................................ 9.0%
=====
</TABLE>
- ---------------
(1) The underwriting discount, which is a one-time fee paid by the Company to
the Underwriters in connection with this Offering, is the only sales load
paid in connection with this Offering.
(2) The expenses of the Company's Dividend Reinvestment Plan are included in
stock record expenses, a component of "Operating expenses." The Company has
no cash purchase plan. The participants in the Reinvestment Plan will bear a
pro rata share of brokerage commissions incurred with respect to open market
purchases.
(3) Assumes a net asset value of $141.4 million, which will be the Company's
estimated shareholders' equity upon completion of the Offering. Operating
expenses and interest payments are calculated on an annualized basis based
on the three months ended March 31, 1996.
(4) Operating expenses consist primarily of compensation and employee benefits,
travel and other marketing expenses, rent and other similar expenses.
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 5.5% 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................................ $ 144 $ 337 $549 $1,179
</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%. In addition, while the example assumes
reinvestment of all dividends and distributions at net asset value, participants
in the Company's Dividend Reinvestment Plan (the "Reinvestment Plan") may
receive shares purchased by First Union National Bank, as administrator of the
Reinvestment Plan (the "Reinvestment Plan Administrator") at the market price in
effect at the time, which may be at, above or below net asset value. See
"Reinvestment Plan."
6
<PAGE> 9
SUMMARY HISTORICAL FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FROM THREE MONTHS
INCEPTION YEAR ENDED ENDED
THROUGH DECEMBER 31, MARCH 31,
DECEMBER 31, ---------------------------- -------------------
1992 1993 1994 1995 1995 1996
------------ ------- ------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total operating income........ $ 918 $ 4,214 $ 8,238 $ 15,575 $ 2,965 $ 5,783
Interest expense.............. 128 1,427 3,123 4,771 999 1,790
General, administrative and
amortization expenses...... 217 928 1,313 2,702 703 1,404
------------ ------- ------- -------- ------- -------
Pretax operating income....... $ 573 $ 1,859 $ 3,802 $ 8,102 $ 1,263 $ 2,589
========== ======= ======= ======== ======= =======
Pretax operating income per
share...................... $ 0.22 $ 0.55 $ 0.88 $ 0.99 $ 0.19 $ 0.27
Dividends per share........... -- -- -- 0.89 0.14 0.24
Fully diluted weighted average
number of shares
outstanding................ 2,650 3,376 4,324 8,174 6,666 9,733
OTHER OPERATING DATA:
Number of portfolio companies
with loans outstanding at
period end................. 17 38 57 91 68 97
Number of new portfolio
companies.................. 17 24 25 44 12 10
Principal amount of loans
originated................. $ 14,639 $31,470 $40,785 $101,505 $27,792 $32,324
Principal amount of loan
repayments................. 0 2,013 7,585 14,414 1,560 4,775
Net interest spread(1)........ 5.6% 5.8% 5.5% 5.8% 5.6%(2) 5.8%(2)
General and administrative
expenses as a percentage of
assets..................... 1.5% 1.6% 1.3% 1.4% 2.3%(3) 2.4%(3)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------
ACTUAL AS ADJUSTED(4)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................................... $ 78 $ 22,162
Loans.............................................................. 166,936 166,936
Equity interests................................................... 22,549 22,549
Warrants........................................................... 11,199 11,199
Total assets....................................................... 206,206 228,290
Revolving Credit Facility.......................................... 24,916 --
Debentures payable to SBA.......................................... 83,260 83,260
Total shareholders' equity......................................... 94,406 141,406
</TABLE>
- ---------------
(1) Net interest spread represents the weighted average gross yield on the
Company's interest bearing investments less the weighted average cost of
long-term borrowed funds.
(2) Calculated on an annualized basis.
(3) Calculated on an annualized basis. Includes accrual and payment of annual
bonuses.
(4) Adjusted to reflect the sale by the Company of 2,000,000 shares of Common
Stock offered hereby by the Company at an offering price of $25.00 per share
and the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
7
<PAGE> 10
THE COMPANY
The Company was incorporated under the laws of the State of Tennessee in
November 1994. The Company's principal executive offices are located at 500
Church Street, Suite 200, Nashville, Tennessee 37219 and its telephone number is
(615) 256-0701.
The Company is the successor to Sirrom Capital, L.P., a Tennessee limited
partnership (the "Partnership"), which was organized under the laws of Tennessee
in 1991. Pursuant to a conversion (the "Conversion") consummated on February 1,
1995, all partners of the Partnership (the "Partners") transferred their
Partnership interests to the Company in exchange for the issuance of 5,050,116
shares of Common Stock. The Common Stock was received by each Partner in
proportion to the Partner's percentage interest in the Partnership. As a result
of this exchange, the Partnership was dissolved and liquidated by operation of
law, with all of the assets and liabilities of the Partnership (including the
SBIC license which was obtained by the Partnership in May 1992) being thereby
assigned and transferred to the Company. Unless otherwise indicated, all
references to the Company include the Partnership and its historical operations.
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 Company is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, files reports, proxy statements and other
information with the Commission. The Registration Statement and the exhibits and
schedules thereto filed with the Commission, as well as such reports, proxy
statements and other information, 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 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 Common Stock is listed on the Nasdaq National Market, and such
reports, proxy statements and other information can also be inspected at the
offices of the National Association of Securities Dealers, Inc., Corporate
Financing Department, 9513 Key West Avenue, 3rd Floor, Rockville, Maryland
20850.
8
<PAGE> 11
RISK FACTORS
The purchase of the shares offered by this Prospectus 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 continue to 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 UNAVAILABILITY OF FUNDS
The Company has a continuing need for capital to finance its lending
activities. Generally, the Company's capital needs have been met by borrowings
under SBA programs and from commercial banks, and through the sale of equity
securities. The maximum amount of funding available to an SBIC from the SBA is
$90.0 million. As of April 30, 1996, the Company had borrowed $83.3 million from
the SBA and anticipates that it will request funding of the remaining $6.7
million in May 1996; however, there is no assurance that the Company will be
able to obtain such funding. From the time the Company obtains such additional
SBA funding until repayment of the outstanding debentures, it will not be
eligible to borrow additional funds from the SBA. The Company also has the $50.0
million Revolving Credit Facility, which had an outstanding balance of $28.6
million on April 30, 1996. In addition, the Company has signed an engagement
letter and preliminary term sheet with a financial institution to establish the
Special Purpose Facility. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Financial Condition, Liquidity and
Capital Resources." The financial institution has not issued a commitment letter
for the Special Purpose Facility nor has definitive documentation with respect
thereto been executed, and no assurance can be given that such commitment or
definitive documentation will be negotiated on terms satisfactory to the
Company. Reductions in the availability of funds from commercial banks or other
sources on terms favorable to the Company could have a material adverse effect
on the Company. Furthermore, because the Company presently distributes to its
shareholders 90% of its investment company taxable income, such earnings are not
available to fund loan originations.
RISKS ASSOCIATED WITH INVESTMENTS IN SMALL, PRIVATELY OWNED COMPANIES
The portfolio of the Company consists primarily of loans to and securities
issued by small, privately owned businesses. 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 for their
success on the management talents and efforts of one person or a small group of
persons, and the death, disability or resignation of one or more of these
persons could have a material adverse impact on their 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. Investment in
small businesses therefore involves a high degree of business and financial
risk, which can result in substantial losses and accordingly should be
considered speculative. The Company's operating history is relatively limited
and it has not operated in recessionary economic periods during which the
operating results of small business companies such as those in the Company's
portfolio often are adversely affected. While the Company generally seeks to
make senior secured loans, its loans are often made on a subordinated basis,
which results in a higher degree of risk of collection. The Company also has the
ability to make unsecured loans or invest in equity securities which likewise
may involve a higher degree of risk.
RISK OF PAYMENT DEFAULT
The Company makes non-amortizing, five-year term loans with relatively high
fixed rates of interest to small companies that may have limited financial
resources and that may be unable to obtain financing from traditional sources.
These loans are generally secured by the assets of the borrower. 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
9
<PAGE> 12
and prospects usually will be accompanied by a deterioration in the collateral
for the loan, including the likelihood of realizing on any guaranties obtained
from the borrower's management. Although the Company seeks to be the senior,
secured lender to a borrower, the Company is not always the senior lender, and
its collateral for a loan may be subordinate to another lender's security
interest.
RISK OF LOAN LOSSES EXCEEDING CURRENT ESTIMATES
There is typically no public market for the debt or equity securities of
small, privately owned companies. As a result, the valuation of securities in
the Company's portfolio is subject to the good faith determination of the
Company's Board of Directors. See "Determination of Net Asset Value." Unlike
certain lending institutions, the Company does not establish reserves for loan
losses, but adjusts quarterly the valuation of its portfolio to reflect the
Company's estimate of the current realizable value of the loan portfolio. At
March 31, 1996, management's estimate of potential loan losses in its loan
portfolio was $3.5 million. There can be no assurance that this estimate
reflects the amounts that ultimately will be realized on these loans. See
"Business -- Operations."
RISK OF ILLIQUIDITY OF PORTFOLIO INVESTMENTS
Liquidity relates to the ability of the Company to sell either a debt or
equity security in a timely manner at a price that reflects the fair market
value of that security. Most of the investments of the Company are or will be
securities acquired directly from small, privately owned companies. The
Company's portfolio securities are and will usually be subject to restrictions
on resale or otherwise have no established trading market for such securities.
The illiquidity of most of the Company's portfolio securities may adversely
affect the ability of the Company to dispose of such securities in a timely
manner and at a fair price at times when the Company deems it necessary or
advantageous.
INTEREST RATE RISK
The Company's income is materially dependent upon the "spread" between the
rate at which it borrows funds and the rate at which it loans these funds. The
Company anticipates that it will utilize a combination of long-term and
short-term borrowings to finance its lending activities, and that it will engage
in interest rate risk management techniques, including various interest rate
hedging activities. Since inception the Company's net interest spread has
averaged 5.7% (570 basis points). There can be no assurance that the Company can
maintain this net interest spread or that a significant change in market
interest rates would not have a material adverse effect on the Company's
profitability.
LEVERAGE RISKS
The Company has borrowed funds from the SBA and pursuant to its Revolving
Credit Facility, and as a result, the Company is leveraged. Leverage magnifies
the potential for gain and loss on monies invested and, therefore, results in an
increase in the risks associated with an investment in the Company's securities.
The Company's creditors have claims on the Company's assets superior to the
claims of the Company's shareholders. At March 31, 1996, the Company's debt as a
percentage of total liabilities and shareholders' equity was 52.5%. 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.
On March 31, 1996, the Company had borrowed $83.3 million from the SBA
evidenced by debentures having a fixed rate of interest, a ten-year term and a
prepayment option after five years without penalty. These debentures have
maturities ranging from the years 2002 to 2006 and interest rates varying from
6.12% to 8.20% per annum. Amounts outstanding under the Revolving Credit
Facility bear interest at a variable rate based on LIBOR plus 1.75%
(approximately 7.19% at March 31, 1996) and are secured by all assets of the
Company. The Revolving Credit Facility matures on December 27, 1998. As of March
31, 1996, there was approximately $24.9 million outstanding under the Revolving
Credit Facility. The interest rate paid on the Revolving Credit Facility was
7.43% at March 31, 1996. In order for the Company to cover annual interest
payments on the debt described above, it must achieve annual returns of at least
3.1% on its portfolio.
10
<PAGE> 13
The purpose of the following table is to illustrate the effect of leverage
on returns to a shareholder 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 shareholder(1)................. -22.9% -14.2% -5.4% 3.3% 12.1%
</TABLE>
- ---------------
(1) Assumes (i) $247.6 million in investments, (ii) an average cost of funds of
7.10%, (iii) $108.2 million in debt outstanding and (iv) $141.4 million of
shareholders' equity.
POSSIBLE VOLUNTARY OR INVOLUNTARY TERMINATION OF PASS-THROUGH TAX TREATMENT
The Company historically has qualified for and elected to be taxed as a
RIC. To qualify, the Company must meet certain income distribution and
diversification requirements. However, because the Company uses leverage, it is
subject to certain asset coverage ratio requirements set forth in the 1940 Act
and could, under certain circumstances, be restricted from making distributions
necessary to qualify as a RIC under Subchapter M. See "Tax Status." In any year
in which the Company so qualifies, it generally will not be subjected to federal
income tax on net operating income and net capital gains distributed to its
shareholders. However, the Company may retain part or all of its realized
long-term capital gains, in which case the Company would be required to pay tax
on such capital gains and the shareholders would receive a deemed distribution
and a tax credit for their pro rata portion of the tax paid by the Company. The
election to qualify as a RIC is made on an annual basis, and no assurance can be
given that the Company will continue to elect or to qualify for such treatment.
See "Tax Status." Furthermore, following the creation of new subsidiaries in
connection with the acquisition of Harris Williams, the consummation of the
corporate reorganization of the Company and the establishment of the Special
Purpose Facility, it is possible that the Company and any of its subsidiaries
that currently intend to elect RIC status may not continue to meet the tests for
qualification as a RIC. Harris Williams will not qualify or be taxed as a RIC
and therefore, will pay tax at the subsidiary level. If the Company were to fail
to qualify or elect not to qualify under Subchapter M and its income became
fully taxable, a substantial reduction in the Company's net assets and the
amount of income available for distribution to the Company's shareholders and
the percentage of such income actually distributed could result. 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 the
uncertainty as to whether any long-term capital gain would be distributed to
shareholders. If the Company were to retain 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 shareholders' 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 "Tax Status" and "Regulation."
COMPETITIVE MARKET FOR INVESTMENT OPPORTUNITIES
A large number of entities and individuals compete for the types of
investments 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 investments which satisfy the Company's investment
objectives or that it will be able to invest fully its available capital.
CONTROL BY CERTAIN SHAREHOLDERS
Upon completion of this Offering, the Company's executive officers and
directors will beneficially own 28.6% of the outstanding shares of Common Stock.
Accordingly, these shareholders, through their stock ownership, control the
Company. See "Principal Shareholders."
11
<PAGE> 14
RISK OF FAILURE TO COMPLETE CORPORATE REORGANIZATION
The Company has filed an application with the Commission requesting
approval of a corporate reorganization of the Company that would allow the
Company to transfer its SBIC related assets and liabilities to a wholly-owned
subsidiary. The Commission's approval of the corporate reorganization must occur
prior to the creation of any new subsidiaries of the Company. In addition, a
new, bankruptcy remote subsidiary must be created in order to establish the
Special Purpose Facility. Therefore, failure to obtain approval of the corporate
reorganization will prevent the Company from establishing the Special Purpose
Facility.
RISK OF FINANCIAL ADVISORY BUSINESS
The Company has agreed to acquire Harris Williams, a company which provides
merger and acquisition financial advisory services with respect to small and
medium sized businesses. This business combination is subject to various
conditions, including approval by the Company's shareholders and receipt of an
exemption from the Commission with respect to certain provisions of the 1940
Act. Harris Williams' income is derived from fees received for its financial
advisory engagements, which typically provide for a monthly retainer and a
success fee contingent upon the closing of each transaction. If the acquisition
is consummated, there can be no assurance that Harris Williams' fee income will
continue at or exceed historical levels or levels anticipated by the Company in
entering into the acquisition agreement. See "Business -- Pending Acquisition."
DEPENDENCE ON MANAGEMENT
The Company is dependent for the selection, structuring, closing and
monitoring of its loans and investments on the diligence and skill of
management, particularly of George M. Miller, II, the loss of whose services
could have a material adverse effect on the operations of the Company. See
"Management." Under the Revolving Credit Facility, if either Mr. Miller or David
M. Resha ceases to be employed by the Company, the lenders have the ability to
accelerate the repayment of any amounts outstanding. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Financial Condition, Liquidity and Capital Resources."
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this Offering, the Company will have 11,153,836 shares
of Common Stock outstanding. 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 "Description of Capital Stock -- Registration Rights"
and "Shares Eligible for Future Sale."
12
<PAGE> 15
USE OF PROCEEDS
The net proceeds to be received from this Offering by the Company are
estimated to be approximately $ million. The Company intends to use the net
proceeds to temporarily repay approximately $ million outstanding under the
Revolving Credit Facility and to fund additional investments in small
businesses. The Company will then reborrow amounts available under the Revolving
Credit Facility to originate new loans. Amounts outstanding under the Revolving
Credit Facility bear interest at % per annum as of the date of this
Prospectus. The Revolving Credit Facility matures on December 27, 1998. The
Company believes that the net proceeds will be applied as set forth above within
three 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 15 months or less that are issued or guaranteed by
the federal government or agencies thereof. See "Investment Objectives and
Policies."
DISTRIBUTIONS AND PRICE RANGE OF COMMON STOCK
The Company has distributed and currently intends to continue to distribute
to its shareholders 90% of its net operating income and net realized short-term
capital gains, if any, on a quarterly basis. Net realized long-term capital
gains may be retained to supplement the Company's equity capital and support
growth in its portfolio, unless the Board of Directors determines in certain
cases to make a distribution. Pursuant to the Reinvestment Plan, a shareholder
whose shares are registered in his own name can elect to have all or a portion
of the distributions reinvested in additional shares of Common Stock by the
Reinvestment Plan Administrator, by letter to the Company received prior to the
corresponding record date. There is no assurance that the Company will achieve
investment results or maintain a tax status that will permit any specified level
of cash distributions or year-to-year increases in cash distributions. See
"Reinvestment Plan," "Regulation" and "Tax Status."
The Common Stock is quoted on the Nasdaq National Market under the symbol
SROM. On May 16, 1996, the last reported sale price of the Common Stock was
$27.25 per share (a 152% premium to net asset value per share on such date). The
following table sets forth the range of high and low closing sale prices of the
Common Stock as reported on the Nasdaq National Market, the net asset value per
share, the premium of high closing sale price to net asset value and the premium
of low closing sale price to net asset value for the period from February 6,
1995, when public trading of the Common Stock commenced, through May 16, 1996.
The Common Stock has historically traded at a premium to net asset value per
share.
<TABLE>
<CAPTION>
CLOSING SALE PREMIUM OF PREMIUM OF
PRICE NET ASSET HIGH CLOSING SALE LOW CLOSING SALE
----------------- VALUE PER PRICE TO NET PRICE TO NET DIVIDEND
HIGH LOW SHARE(1) ASSET VALUE ASSET VALUE DECLARED
------ ------ --------- ----------------- ---------------- --------
<S> <C> <C> <C> <C> <C> <C>
1995
First Quarter (beginning
February 6, 1995)....... $11.63 $10.75 $7.86 48% 37% $ 0.14
Second Quarter............. 13.75 11.13 8.05 71 38 0.26
Third Quarter.............. 18.75 13.25 10.11 85 31 0.23
Fourth Quarter............. 20.00 16.75 9.23 117 81 0.26
1996
First Quarter.............. 23.75 18.63 9.70 145 92 0.24
Second Quarter (through May
16, 1996)............... 27.25 22.63 10.80(2) 152(2) 110(2) N/A
</TABLE>
- ---------------
(1) Fully diluted net asset value per share is determined as of the last day in
the relevant quarter and therefore may not reflect the net asset value per
share on the date of the high and low sale price. Historically, the
Company's net assets have been highest at the end of the quarter.
(2) Net asset value is as of April 30, 1996.
13
<PAGE> 16
SELECTED FINANCIAL DATA
The following tables set forth selected financial data of the Company,
which should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and with the Company's
Financial Statements and Notes thereto included elsewhere in this Prospectus.
The selected financial data set forth below as of and for the period from
inception to December 31, 1992, and as of and for each of the three years in the
period ended December 31, 1995, have been derived, in part, from the financial
statements of the Company which have been audited by Arthur Andersen LLP,
independent public accountants, whose report for the period from inception to
December 31, 1992, and each of the three years in the period ended December 31,
1995, is included elsewhere in this Prospectus. Also included are unaudited
financial statements for the three months ended March 31, 1995 and 1996. The
selected financial data for the three months ended March 31, 1996, has been
derived from the unaudited financial statements of the Company which, in the
opinion of management, include all adjustments (which consist of only normal
recurring adjustments) necessary for a fair presentation of the financial
condition and results of operations of the Company for that period.
<TABLE>
<CAPTION>
FROM
INCEPTION THREE MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ------------------------------------ -----------------------
1992 1993 1994 1995 1995 1996
------------ ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Operating income:
Interest on investments..................... $ 636 $ 3,515 $ 7,337 $ 13,452 $ 2,424 $ 4,862
Loan processing fees........................ 282 699 901 1,900 541 921
Other income................................ -- -- -- 223 -- --
------------ ---------- ---------- ---------- ---------- ----------
Total operating income................ 918 4,214 8,238 15,575 2,965 5,783
Operating expenses:
Interest expense............................ 127 1,427 3,124 4,771 999 1,790
Salaries and benefits....................... -- -- -- 1,082 451 739
Management fees............................. 210 709 1,073 -- -- --
Other operating expenses.................... -- 166 122 1,412 222 477
State income tax on interest................ -- 231 457 109 52 --
Amortization expense........................ 8 54 118 208 30 188
------------ ---------- ---------- ---------- ---------- ----------
Total operating expenses.............. 345 2,587 4,894 7,582 1,754 3,194
------------ ---------- ---------- ---------- ---------- ----------
Net operating income.......................... 573 1,627 3,344 7,993 1,211 2,589
Realized gain (loss) on investments......... 198 (799) (538) 1,759 50 5,756
Change in unrealized appreciation
(depreciation) of investments............. 1,813 (50) 3,357 4,694 1,603 2,241
Provision for income taxes.................... -- -- -- (1,020) -- (2,135)
------------ ---------- ---------- ---------- ---------- ----------
Net increase in partners' capital and
shareholders' equity resulting from
operations.................................. $ 2,584 $ 778 $ 6,163 $ 13,426 $ 2,864 $ 8,451
============ ========= ========= ========= ========= =========
Per share:
Pretax operating income..................... $ 0.22 $ 0.55 $ 0.88 $ 0.99 $ 0.19 $ 0.27
Net increase in partners' capital and
shareholders' equity resulting from
operations................................ 0.98 0.23 1.43 1.64 0.43 0.87
Dividends................................... -- -- -- 0.89 0.14 0.24
Fully diluted weighted average shares
outstanding................................. 2,650,000 3,376,000 4,324,000 8,174,000 6,666,000 9,733,000
OPERATING STATISTICS:
Number of portfolio companies with loans
outstanding at period end................... 17 38 57 91 68 97
Number of new portfolio companies............. 17 24 25 44 12 10
Principal amount of loans originated.......... $ 14,639 $ 31,470 $ 40,785 $ 101,505 $ 27,792 $ 32,324
Principal amount of loan repayments........... -- 2,013 7,585 14,414 1,560 4,775
Loan portfolio at period end.................. 14,639 42,441 72,336 144,855 97,378 166,936
Average net interest spread at period end..... 5.6% 5.8% 5.5% 5.8% 5.6% 5.8%
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
DECEMBER 31, -----------------------
----------------------------------------- AS
1992 1993 1994 1995 ACTUAL ADJUSTED(1)
-------- -------- -------- -------- -------- -------------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 4,601 $ 1,633 $ 137 $ 195 $ 78 $ 22,162
Loans................................................. 14,639 42,441 72,336 144,855 166,936 166,936
Equity interests...................................... 4,233 3,591 7,577 15,912 22,549 22,549
Warrants.............................................. 951 4,219 7,549 11,513 11,199 11,199
Total assets.......................................... 24,850 53,289 90,969 177,030 206,206 228,290
Revolving credit facility............................. -- -- 6,389 13,200 24,916 --
Debentures payable to SBA............................. 10,000 34,000 51,000 73,260 83,260 83,260
Total shareholders' equity............................ 14,702 18,651 32,383 88,346 94,406 141,406
</TABLE>
- ---------------
(1) Adjusted to reflect the sale by the Company of 2,000,000 shares of Common
Stock offered hereby by the Company at an offering price of $25.00 per share
and the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
14
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis of the financial condition and results of operations
of the Company should be read in conjunction with the preceding "Selected
Financial Data," the Company's Financial Statements, the Notes thereto and the
other financial data included elsewhere in this Prospectus. The financial
information provided below has been rounded in order to simplify its
presentation. However, the ratios and percentages provided below are calculated
using the detailed financial information contained in the Financial Statements,
the Notes thereto and the financial data included elsewhere in this Prospectus.
Due to the limited operating results and history of the Company, there can be no
assurances that the Company's historical financial performance is indicative of
the Company's future results of operations.
RESULTS OF OPERATIONS
The Company's principal investment objectives are to achieve both a high
level of income from interest on loans and fees and long-term growth in its
shareholders' equity through the appreciation in value of equity interests in
its portfolio companies. Therefore, the Company's loans are typically made in
the form of secured debt with relatively high fixed interest rates and with
warrants to purchase equity securities of the borrower. In addition to interest
on investments, the Company also typically collects an up-front processing fee
on each loan it originates.
The Company's financial performance in the Statements of Operations is
composed of three primary elements. The first is "Net operating income," which
is the difference between the Company's income for interest, dividends and fees
and its total operating expenses, including interest expense. The second element
is "Realized gain (loss) on investments," which is the difference between the
proceeds received from the disposition of portfolio assets in the aggregate at
the end of the period and their stated costs at the beginning of the period. The
third element is the "Change in unrealized appreciation (depreciation) of
investments," which is the net change in the fair values of the Company's
portfolio assets compared with their fair values at the beginning of the period
or their stated costs, as appropriate. Generally, "Realized gain (loss) on
investments" and "Change in unrealized appreciation (depreciation) of
investments" are inversely related in that when an appreciated asset is sold to
realize a gain, a decrease in unrealized appreciation occurs when the gain
associated with the asset is transferred from the "unrealized" category to the
"realized" category. Conversely, when a loss is realized on a depreciated
portfolio asset, the reclassification of the loss from "unrealized" to
"realized" causes an increase in unrealized appreciation and an increase in
realized loss.
Three Months Ended March 31, 1996 and 1995
Net Operating Income. During the quarter ended March 31, 1996, interest on
investments was $4.9 million, a 104.2% increase over the $2.4 million earned in
the same quarter of 1995. During the first quarter of 1996, the Company
collected $921,000 in processing fees, a 70.2% increase over the $541,000
collected in the same quarter of 1995. This increase in interest income and
processing fees is a result of the increase both in the dollar amount of loans
outstanding during the quarter and of loans originated during the period and a
result of the recognition and collection of certain contingent processing fees
in the first quarter of 1996 for loans closed during the fourth quarter of 1995.
The Company's loan portfolio increased 71.4% to $166.9 million at March 31,
1996, from $97.4 million at March 31, 1995. The $32.3 million of loans
originated during the first quarter of 1996 was a 16.2% increase over the $27.8
million of loans originated in the same quarter of 1995. In addition, the
weighted average interest rate charged on the loan portfolio at March 31, 1996
was 12.9%, as compared to 12.6% at March 31, 1995.
The most significant portion of the Company's total operating expenses is
interest expense. The Company's interest expense, most of which is related to
the SBA-guaranteed debentures of the Company and the Revolving Credit Facility,
increased to $1.8 million in the first quarter of 1996, an 80.2% increase over
the $999,000 paid in the first quarter of 1995. The increase in interest expense
from 1995 to 1996 is primarily attributable to increased borrowings from the SBA
and establishment of and borrowing under the Revolving Credit Facility.
Borrowings from the SBA were $83.3 million on March 31, 1996, and $51.0 million
on
15
<PAGE> 18
March 31, 1995. Amounts outstanding under the Revolving Credit Facility at March
31, 1996, were $24.9 million.
The other significant components of total operating expenses are (i)
overhead, which relates to employee compensation, travel and marketing expenses,
office expenses and legal fees, (ii) amortization of borrowing costs and (iii)
state taxes. These expenses totaled $1.4 million in the first quarter of 1996,
an 85.4% increase over the $755,000 of such expenses in the same quarter of
1995. These increases can be largely attributed to the increase in the number of
employees from 10 in the first quarter of 1995 as compared to 16 in the first
quarter of 1996. Although the dollar amount of these expenses increased,
overhead expenses (or general and administrative expenses) as a percentage of
average assets decreased slightly from 2.6% to 2.5% from the first quarter of
1995 to the first quarter of 1996, respectively. The first quarter overhead
expenses for both years include the accrual and payment of annual bonuses, and
thus, first quarter overhead expenses have historically been higher as a
percentage of average assets than in other quarters.
For the quarter ended March 31, 1996, the Company paid dividends of $2.4
million from net operating income. The Company paid no dividends in the first
quarter of 1995.
For the quarter ended March 31, 1996, the Statements of Operations include
a provision for taxes totaling $2.1 million for federal income tax at a 35% rate
on realized gains not distributed to shareholders. The majority of this tax
related to the retained long-term capital gain of $6.3 million on the Company's
sale of half of its equity position in Premiere Technologies, Inc.
Realized Gain (Loss) on Investments. The Company's net realized gain on
investments was $5.8 million during the quarter ended March 31, 1996, largely
resulting from gains of $6.7 million on the sale of equity positions in Premiere
Technologies, Inc. and American Remedial Technologies, Inc., which were
partially offset by a $1.1 million loan write-off of Medical Associates of
America, Inc. The net realized gain for the first quarter of 1995 was $50,000,
primarily resulting from $560,000 in gains on the sale of equity positions in
Republic Automotive Parts, Inc. and American Retirement Corporation, which were
largely offset by a write-off of $515,000 of equity positions in Medical
Associates of America, Inc. Management does not attempt to maintain a comparable
level of realized gains from year to year, but instead attempts to maximize
total investment portfolio appreciation.
Change in Unrealized Appreciation (Depreciation) of Investments. For the
quarters ended March 31, 1996, and 1995, the Company recorded net increases in
unrealized appreciation of investments before income taxes of $2.2 million and
$1.6 million, respectively. These increases are the result of the Company's
quarterly revaluation of its portfolio in accordance with its Valuation Policy
to reflect the fair value of each of its portfolio assets.
Fiscal Years Ended December 31, 1995, 1994 and 1993
Net Operating Income. During the fiscal year ended December 31, 1995, the
Company earned interest on investments of $13.5 million, an 84.9% increase over
the $7.3 million earned in 1994, which was a 108.6% increase over the $3.5
million earned during fiscal 1993. In addition to interest on investments, the
Company also collects an up-front processing fee for each loan it originates.
During fiscal 1995, the Company collected $1.9 million in processing fees, a
110.9% increase over the $901,000 collected in 1994, which was a 28.9% increase
over the $699,000 collected in 1993. These increases in interest income and
processing fees are a result of increases in the dollar amount of loans
outstanding and originated during the applicable periods. The Company's loan
portfolio increased to $144.8 million at December 31, 1995, an increase of
100.3% from $72.3 million at December 31, 1994, which in turn was a 70.5%
increase from $42.4 million at December 31, 1993. The $101.5 million of loans
originated during fiscal 1995 was a 148.8% increase over the $40.8 million of
loans originated in 1994, which was a 29.5% increase over the $31.5 million
originated in 1993. In addition, the weighted average interest rate charged on
the loan portfolio at December 31, 1995 was 12.8%, as compared to 12.3% and
12.5% at December 31, 1994 and 1993, respectively. The Company also earned
income from miscellaneous sources in an amount equal to $223,000 in 1995,
primarily from interest paid on loans to employees made in connection with
purchases of equity in the Company.
16
<PAGE> 19
The Company's interest expense, most of which was related to the
SBA-guaranteed debentures of the Company, increased to $4.8 million in 1995, a
54.8% increase over the $3.1 million paid in 1994, which in turn was a 121.4%
increase over the $1.4 million of interest expense in 1993. The increase in
interest expense from 1993 to 1995 was primarily attributable to increased
borrowings from the SBA, which were $73.3 million on December 31, 1995, $51.0
million on December 31, 1994 and $34.0 million on December 31, 1993.
Overhead, amortization of borrowing costs and state taxes totaled $2.8
million in fiscal 1995, a 55.6% increase over the $1.8 million of such expenses
in 1994, which in turn was a 50.0% increase over the total of such expenses in
1993. These increases can be largely attributed to the increase in the number of
employees from four in 1993 to 13 in 1995 and the Company's relocation to new
office space in 1995. Although the dollar amount of these expenses increased
over the three-year period, overhead expenses as a percentage of total assets
remained fairly constant at 1.4%, 1.3% and 1.6% for fiscal 1995, 1994 and 1993,
respectively.
Beginning in February 1995, the Company elected to be taxed as a RIC under
Subchapter M of the Code. If the Company, as a RIC, satisfies certain
requirements relating to the source of its income, the diversification of its
assets and the distribution of its net income, the Company is generally taxed as
a pass through entity which acts as a partial conduit of income to its
shareholders. In order to maintain its RIC status, the Company must in general
derive at least 90% of its gross income from dividends, interest and gains from
the sale or disposition of securities; derive less than 30% of its gross income
from the sale or disposition of securities held for less than three months; meet
investment diversification requirements defined by the Code; and distribute to
shareholders 90% of its net income (other than long-term capital gains). The
Company presently intends to meet the RIC qualifications in 1996. However, no
assurance can be given that the Company will continue to elect or qualify for
such treatment after 1996.
During 1995, the Company paid dividends of $5.2 million, $4.0 million of
which was derived from net operating income and $1.2 million of which was
derived from realized capital gains. The Company also elected to designate $2.1
million of the undistributed realized capital gains as a "deemed" distribution
to shareholders of record as of the end of the year. Accordingly, $1.4 million,
net of taxes of $737,000, of this "deemed" distribution has been retained and
reclassified from undistributed net realized earnings to Common Stock.
For the years ended December 31, 1995, 1994 and 1993, the Statements of
Operations include a provision for state income taxes on interest totaling
$109,000, $457,000 and $231,000, respectively. For the year ended December
31,1995, the Company also provided for federal income tax at a 35% rate and
excise tax at a 4% rate on taxable net investment income and realized gains not
distributed to shareholders. The provision for income taxes includes the
$737,000 of tax related to the retained "deemed" distribution discussed above.
Realized Gain (Loss) on Investments. The Company's net realized gain on
investments was $1.8 million during the year ended December 31, 1995, largely
resulting from gains of $3.9 million on the sale of equity positions in American
Retirement Corporation, BiTec Southeast, Inc., Central Tennessee Broadcasting,
Inc., Patton Management Corporation, PMT Services, Inc., Termnet Merchant
Services, Inc., Truckload Management, Inc., One Stop Acquisitions, Inc. and
Republic Auto Parts, Inc., which were largely offset by a $515,000 write-off of
Medical Associates of America, Inc. equity positions and a $1.5 million
write-off of a loan to Quality Care Networks, Inc. The realized loss on
investments for 1994 was $538,000, primarily resulting from $1.6 million of
write-offs, including loans to ETC Peripherals, Inc., Stewart Foods, Inc. and
TCOM Systems, Inc., offset partially by approximately $1.1 million in gains on
the sale of equity positions in PMT Services, Inc. and Softkey International,
Inc. The realized loss on investments for 1993 was $799,000, primarily resulting
from a $1.0 million loan write-off of ETC Peripherals, Inc., offset slightly by
gains on the sale of equity positions in Anasazi, Inc. and Ideals Publications,
Inc. Management does not attempt to maintain a comparable level of realized
gains from year to year, but instead attempts to maximize total investment
portfolio appreciation.
Change in Unrealized Appreciation (Depreciation) of Investments. For the
years ended December 31, 1995 and 1994, the Company recorded net increases in
unrealized appreciation of investments before income taxes of $4.7 million and
$3.4 million, respectively, and a net decrease of $50,000 for the year ended
December 31, 1993. These increases are the result of the Company's quarterly
revaluation of its portfolio in accordance with its Valuation Policy to reflect
the fair value of each of its portfolio assets.
17
<PAGE> 20
A description of all of the Company's investments is included in the
Financial Statements that are presented in this Prospectus under the caption
"Portfolio of Investments as of December 31, 1995."
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had $78,000 in cash and cash equivalents,
and approximately $8.3 million of the Company's investment portfolio consisted
of publicly-traded securities, which have an ascertainable market value and
represent an additional source of liquidity. However, the Company's ability to
realize such values on a short-term basis is limited by market conditions and
various securities law restrictions. See "Summary of Significant Accounting
Policies" in the Notes to Financial Statements.
The Company's principal sources of capital to fund its portfolio growth
have been borrowings through the SBA sponsored SBIC debenture program, sales of
the Company's equity securities, both privately and publicly, and funds borrowed
from banking institutions. In February 1995, the Company consummated an initial
public offering of 2,645,000 shares of Common Stock resulting in net proceeds of
$26.5 million. In August 1995, the Company consummated a second public offering
of 1,500,000 shares of Common Stock generating net proceeds to the Company of
approximately $21.2 million. The Company used $32.6 million of these proceeds to
originate new loans and $15.1 million to repay indebtedness outstanding on the
Company's Revolving Credit Facility, which was subsequently reborrowed to
originate additional loans.
During the first quarter of 1996, the Company borrowed an additional $10.0
million from the SBA, bringing total SBA borrowings to $83.3 million at March
31, 1996. Each borrowing from the SBA has a term of ten years and can be prepaid
without penalty after five years. The interest rate on these borrowings was
7.02% as of March 31, 1996, and none of these borrowings mature prior to 2002.
Based on the Company's leverageable capital, it is eligible to borrow up to a
total of $90.0 million from the SBA, the maximum amount of SBA loans available
to an SBIC. The Company intends to request the remaining $6.7 million of SBA
funding available to it during May 1996. Given the increased demand for
borrowings under the SBA sponsored SBIC debenture program and concurrent
decrease in funds appropriated by Congress to the SBA, no assurances can be
given as to the amount of additional SBA borrowing that will be granted to the
Company.
As of March 31, 1996, the Company had $24.9 million outstanding under its
$50.0 million Revolving Credit Facility, which is secured by all of the
Company's assets. The interest rate on these borrowings was 7.43% at March 31,
1996. The Revolving Credit Facility matures on December 27, 1998. The Revolving
Credit Facility requires that the Company obtain the lenders' consent prior to,
among other things, encumbering its assets, merging or consolidating with
another entity and making investments other than those permitted by the SBA. In
addition, the Revolving Credit Facility provides that the repayment of any
amounts outstanding can be accelerated if either George M. Miller, II or David
M. Resha ceases to be employed by the Company.
In order to manage the interest rate risk associated with the variable
interest rate provided for under the Revolving Credit Facility, the Company
entered into an interest rate swap agreement that effectively converts the
variable rate on a portion of the Revolving Credit Facility to a fixed rate of
8.15% per annum. Under this agreement, the Company will convert $30.0 million to
this fixed rate in $3.0 million increments per month beginning April 1996.
The Company has signed an engagement letter and preliminary term sheet with
a financial institution to establish the Special Purpose Facility in the amount
of $100.0 million. The Special Purpose Facility would be collateralized by
certain of the Company's future small business loans and their related equity
interests. Under the Special Purpose Facility, it is anticipated that the
Company would form a special purpose, bankruptcy remote subsidiary ("Newco"),
that would buy new loans and the related warrants originated by the Company and
use the loans and warrants purchased as collateral to secure the issuance of
commercial paper by the financial institution. Newco would pay a spread to the
financial institution over the rate paid on the commercial paper issued, along
with other fees to originate and administer the Special Purpose Facility. It is
anticipated that Newco would enter into appropriate swap agreements to attempt
to hedge the interest rate risk inherent in the maturing and reissuing of
commercial paper at market rates. Based on current commercial paper rates, the
total cost of the debt is anticipated to be approximately 8.25%. The Special
Purpose Facility will require Newco to be capitalized with a minimum of $20.0
million in equity, so it is anticipated that some
18
<PAGE> 21
or all of the new loans originated from the proceeds of this Offering will be
contributed as equity to Newco. The financial institution has not issued a
commitment letter for the Special Purpose Facility nor has definitive
documentation with respect thereto been executed, and no assurance can be given
that such commitment or definitive documentation will be negotiated on terms
satisfactory to the Company.
The Company believes that the net proceeds of this Offering, anticipated
borrowings from the SBA and under the Revolving Credit Facility, together with
cash flow from operations (after distributions to shareholders), will be
adequate to fund the continuing growth of the Company's investment portfolio
through early 1997. In order to provide the funds necessary for the Company to
continue its growth strategy beyond that period, the Company expects to incur,
from time to time, additional short and long-term borrowings from the SBA (to
the extent allowed) and other sources, and to issue, in public or private
transactions, its equity and debt securities. The availability and terms of any
such borrowings will depend upon interest rate, market and other conditions.
There can be no assurance that such additional funding will be available on
terms acceptable to the Company.
19
<PAGE> 22
BUSINESS
Sirrom Capital Corporation is a specialty finance company that makes loans
to small businesses. The Company believes the market for small commercial loans
is underserved by traditional lending sources and that competitors generally are
burdened with an overhead and administrative structure that hinders them from
competing more effectively in this market. The Company's loans are typically
made in the form of secured debt with relatively high fixed interest rates and
with warrants to purchase an equity interest in the borrower. The objectives of
the Company are to achieve both a high level of current income from interest on
loans and other fees and long-term growth in the value of its shareholders'
equity through the appreciation of the equity interests in its portfolio
companies.
The Company, which was founded in May 1992, has experienced significant
growth in both the size and diversity of its loan portfolio. The Company's loan
portfolio balance at December 31, 1993, 1994 and 1995 was $42.4 million, $72.3
million and $144.9 million, respectively. At March 31, 1996, the Company had
loans outstanding with an aggregate principal balance of $166.9 million to 97
companies in a variety of industries located in 22 states. The rate of interest
on the Company's loan portfolio at March 31, 1996, was 12.9%. The Company's
loans typically range from $500,000 to $4.0 million in size, are non-amortizing,
have a five-year maturity and are accompanied by warrants to purchase an equity
interest in the borrower at a nominal exercise price (usually $.01 per share).
The Company targets borrowers that it believes meet certain criteria, including
the potential for significant growth, adequate collateral coverage, experienced
management teams with a significant ownership interest in the borrower,
sophisticated outside equity investors and profitable operations.
Sirrom, based in Nashville, Tennessee, is licensed as an SBIC by the SBA.
As an SBIC, the Company is eligible to borrow up to $90.0 million from the SBA.
As of March 31, 1996, the Company had borrowed $83.3 million in debentures from
the SBA and anticipates requesting the remaining $6.7 million by the end of May
1996. The average interest rate paid on the Company's long-term borrowings from
the SBA was 7.02% at March 31, 1996. The Company has supplemented its SBA
borrowings with equity capital and a $50.0 million Revolving Credit Facility.
The interest rate paid on the Revolving Credit Facility was 7.43% at March 31,
1996. In contemplation of the corporate reorganization described below under
"-- Proposed Corporate Reorganization," the Company has signed an engagement
letter and preliminary term sheet with a financial institution to establish a
Special Purpose Facility which would provide up to $100.0 million in additional
debt financing to support the Company's future loan origination activities
outside the SBIC subsidiary.
STRATEGY
The Company's strategic objective is to provide financial services to small
and medium sized growth businesses. The Company traditionally has focused and
will continue to focus on making loans with equity features to borrowers that
the Company believes meet certain criteria. In order to broaden the range of
services it offers to businesses in its target market, the Company recently
agreed to acquire Harris Williams, a merger and acquisition advisory firm
located in Richmond, Virginia. Harris Williams provides advisory services with
respect to small and medium sized companies throughout the United States that
are similar in size to Sirrom's portfolio companies. Sirrom's management
believes that the acquisition of Harris Williams provides the Company an
opportunity to obtain significant fee income and cross-sell services between the
two companies. See "-- Pending Acquisition."
The Company targets borrowers that it believes meet certain criteria,
including the potential for significant growth, adequate collateral coverage,
experienced management teams with a significant ownership interest in the
borrower, sophisticated outside equity investors and profitable operations. To
develop new lending opportunities, the Company markets to an extensive referral
network comprised of venture capitalists, investment bankers, attorneys,
accountants, commercial bankers and business brokers.
Generally, the Company's investments are structured as loans evidenced by
debt securities that are accompanied by warrants to acquire equity securities of
the borrower. These warrants usually have a nominal exercise price (usually $.01
per share). Typically, the loans are collateralized by a security interest in
assets of the borrower and are generally senior to the investments of
sophisticated equity investors. The personal guaranty of the major shareholder
of the borrower or other collateral may also be required. The debt securities
20
<PAGE> 23
issued to evidence the Company's loans generally carry a fixed rate of interest
and have a maturity of five years from their respective dates of issuance. In
most cases, the loans are structured to require the payment of interest only on
a monthly basis, with a single payment of principal at maturity. The Company
typically charges borrowers a processing fee of approximately 2.0% to 2.5% of
the amount of each loan. Unlike most lenders, the Company does not impose
prepayment penalties on borrowers that repay loans prior to maturity. Instead,
the Company's warrants typically contain a warrant "ratchet" provision that
increases the Company's equity position, by one to three percentage points per
year, until repayment of the loan in full. Although the Company's loans provide
for a five year maturity, the warrant "ratchet" may have the effect of
encouraging borrowers to repay loans as soon as possible. The Company benefits
from such repayments, because of the direct relationship that exists between the
Company's ability to generate asset turnover (i.e., redeploy capital) and the
return on equity to shareholders.
The Company seeks to maximize the difference, or "spread," between the rate
at which it borrows long-term funds from the SBA and other sources and the rate
at which it loans these funds to small companies. At March 31, 1996, the
weighted average coupon on the Company's loans outstanding was 12.9%, and its
weighted average cost of funds from the SBA and the Revolving Credit Facility
was 7.11%. On March 14, 1996, the Company borrowed $10.0 million from the SBA at
an annual interest rate of 7.08%.
The Company has also recently begun making debtor-in-possession ("DIP")
loans. The aggregate principal amount of loans to these borrowers at March 31,
1996, was $2.6 million, which constituted less than 2.0% of total loans
outstanding. It is the Company's intention to make DIP loans to borrowers who,
when emerging from bankruptcy, would generally meet the criteria applied to the
Company's other borrowers. The Company believes these DIP loans should involve
risks similar to those of other loans in its portfolio because the Company is
granted a super priority security interest in the assets of the DIP borrower
during bankruptcy. Additionally, the Company believes it has the potential for
greater returns on these loans, as the Company generally receives a larger
equity position in the borrower upon emergence from bankruptcy than it typically
receives for its other loans. All of the borrowers of the $2.6 million in DIP
loans had successfully emerged from bankruptcy as of March 31, 1996.
SELECTION OF LOAN AND INVESTMENT OPPORTUNITIES
Since inception, the Company has identified certain common characteristics
in lending to emerging growth businesses. These criteria, which are listed
below, are applied to all investment decisions, although all criteria may not be
met in every instance and their importance may vary depending on the relevant
circumstances.
Growth. In addition to generating sufficient cash flow to service the
prospective loan, the potential borrower typically must have an annual
projected growth rate of at least 20%. Anticipated growth is a key factor
in determining the potential valuation of warrants in the Company's equity
portfolio.
Liquidation Value of Assets. While the Company does not market itself
as an asset-based lender, the liquidation value of assets securing the
loans is an important component in the credit decision. Valuations include
both hard assets (accounts receivable, inventory, and property, plant and
equipment), as well as intangibles, such as customer lists, networks,
databases, and recurring revenue streams.
Sophisticated Equity Shareholders. Many of the borrowers in the
Company's portfolio have sophisticated equity investors whose equity
position is subordinate to the debt securities of the Company. These
investors allow the Company to maximize its resources by enhancing the due
diligence process and financial sophistication of the borrower, and by
providing increased controls and a source of potential additional follow-on
capital. The interest and support of sophisticated equity investors tends
to increase the Company's confidence in the borrower, its management team
and the potential long-term value of the borrower's business.
Experienced Management Teams. The Company seeks to identify potential
borrowers that have management teams that are experienced, have a
significant ownership interest in the borrower and include a chief
executive officer and chief financial officer who demonstrate the ability
to accomplish the objectives set forth in the borrower's business plan.
21
<PAGE> 24
Profitable Operations. The Company focuses on portfolio companies
that have positive earnings from operations (before interest, depreciation
and amortization). The Company does not typically lend to start-up
companies.
Exit Strategy. Prior to making an investment, the Company analyzes
the potential for the borrower to repay its loan and to experience a
liquidity event that would allow the Company to realize value for its
equity position. Liquidity events include, without limitation, an initial
public offering, a sale of the borrower and a repurchase by the borrower of
the Company's equity position.
LOAN REPAYMENT; VALUATION AND REALIZATION OF EQUITY INVESTMENTS
The Company's investments in small businesses are made with the intent of
having the loans repaid within five years and liquidating the equity portion of
the investments for cash within five to ten years. If an investment is
successful, not only will the loan made by the Company have been repaid with
interest, but the Company may be in a position to realize a gain on the equity
security obtained in connection with the loan. Although the Company expects to
dispose of an investment after a certain time, situations may arise in which it
may hold equity securities for a longer period. Since inception, $220.7 million
of loans have been originated and $28.8 million or 13.0% have been repaid.
Each loan the Company makes generally has a related five-year warrant to
buy common stock of the borrower. These warrants are exercisable at a nominal
price (usually $.01 per share) and typically represent 3% to 15% of a borrower's
fully diluted common stock. The warrants are generally structured to provide
both registration rights that entitle the Company to sell the equity securities
of the borrower in a public offering and a put option that requires the borrower
to repurchase the warrant after five years at the fair market value of the
shares issuable. As of March 31, 1996, the Company had four stock positions in
publicly traded companies that had a fair market value of $11.6 million on that
date. In accordance with the Company's valuation policy, the securities were
carried at a fair value of $8.3 million at March 31, 1996. In addition, at that
date, the Company owned common stock and preferred stock investments in 24
non-public companies with a fair value of approximately $14.3 million. The
Company has also converted 17 equity positions to cash since inception with
gains approximating $12.4 million. At March 31, 1996, the Company held warrant
positions in 94 companies that it carried at a fair value, as determined in good
faith by the Board of Directors in accordance with the Company's Valuation
Policy, of approximately $11.2 million. For a discussion of the Company's
Valuation Policy see "Summary of Significant Accounting Policies" in the Notes
to Financial Statements included elsewhere in this Prospectus.
TEMPORARY INVESTMENTS
Pending investment in the types of securities described above, the Company
will invest its otherwise uninvested cash in (i) federal government or agency
issued or guaranteed securities that mature in 15 months or less; (ii)
repurchase agreements with banks whose deposits are insured by the Federal
Deposit Insurance Corporation (the "FDIC") (an "insured bank"), with maturities
of seven days or less, the underlying instruments of which are securities issued
or guaranteed by the federal government; (iii) certificates of deposit in an
insured bank with maturities of one year or less, up to the amount of the
deposit insurance; (iv) deposit accounts in an insured bank subject to
withdrawal restrictions of one year or less, up to the amount of deposit
insurance; or (v) certificates of deposit or deposit accounts in an insured bank
in amounts in excess of the insured amount if the insured bank is deemed
"well-capitalized" by the FDIC.
OPERATIONS
Marketing. The Company currently employs four lending officers who cover
certain geographic territories. In order to originate loans, these lending
officers make use of an extensive referral network comprised of investment
bankers, venture capitalists, attorneys, accountants, commercial bankers and
business brokers. A lending officer typically receives between five and ten
informational packages per week from these sources. On average, each lending
officer closes one loan per month. In an effort to expand its geographic
presence, the Company has entered into a consulting arrangement with an
experienced small business finance professional located in northern California
who assists the Company in identifying potential borrowers and
22
<PAGE> 25
referral sources in the western United States and structuring loan and warrant
transactions with small businesses so identified. It is the Company's intention
to open an office in the San Francisco area and management is in the process of
locating office space for that purpose. The Company is also considering
expanding its presence into other geographic markets.
Loan Approval Process. The Company's lending officers review informational
packages in order to identify potential borrowers. After identifying applicants
that meet the Company's investment criteria, the loan officer, in conjunction
with the Chief Operating Officer, selects applicants that merit additional
consideration. See " -- Selection of Loan and Investment Opportunities." The
lending officer then conducts a more thorough investigation and analysis ("due
diligence") of the applicant. The due diligence process usually includes on-site
visits, review of historical and prospective financial information, interviews
with management, employees, customers and vendors of the applicant, background
checks and research on the applicant's product, service or particular industry.
Upon the completion of due diligence, the lending officer completes a
standard borrower profile that summarizes the borrower's historical financial
statements, its industry and management team, and its conformity to the
Company's investment criteria. The lending officer then presents the profile,
along with his due diligence findings, to a Loan Approval Committee comprised of
the Chief Executive Officer, Chief Operating Officer, the Company's Vice
President -- Workouts and the Chief Financial Officer, which committee evaluates
the merits and risks of each potential loan and must approve each loan.
Additional due diligence is conducted by the Company's attorneys prior to
funding the loan.
Loan Grading. In 1994, the Company implemented a system by which it graded
all loans on a scale of 1 to 6. The system was intended to reflect the
performance of the borrower's business as well as the collateral coverage of the
loan and other factors considered relevant. During late 1995, the system was
refined to reflect management's additional experience in monitoring its growing
loan portfolio. Each loan is evaluated by the respective lending officer and the
Chief Operating Officer based on the financial performance of the borrower and
other borrower-specific risk factors that may include management quality,
capitalization, collateral coverage, value of intangible assets and availability
of working capital. All new loans are assigned a grade 3 for a period of six
months in the absence of an extraordinary event during that period. After the
initial six months, loans are assigned a grade of 1 to 6. Thereafter, all loans
are reviewed and graded on at least a quarterly basis.
Management believes that loans with a grade 1 involve the least amount of
risk in the Company's portfolio, as the borrower is performing well above
expectations financially, and other risk factors are clearly favorable.
Management believes that loans with a grade 2 involve low risk relative to other
loans in the Company's portfolio, as the borrower is performing above
expectations financially and the majority of risk factors are favorable.
Management believes that loans with a grade 3 involve an acceptable risk, as the
borrower is performing as expected financially and the other risk factors are
generally favorable.
Management believes that loans with a grade 4, while still involving an
acceptable level of risk, require additional attention from the lender. A loan
with a grade 4 typically involves a borrower that is performing marginally below
expectations, and short term trends or negative events have occurred that have
created some concern. However, other risk factors are favorable. Loans in this
category require a proactive action plan to be executed by the borrower's
management that is monitored by the lender. A grade 4 is considered to be a
temporary rating (generally no longer than six months) that will result in
either an upgrade or downgrade. The loan is usually serviced by the lending
officer or a member of the workout area.
Management believes that loans with a grade 5 involve greater than an
acceptable level of risk. The borrower is performing substantially below
expectations financially and negative trends persist. Other risk factors are
marginal and the execution of an action plan is critical to the long term
viability of the borrower. The loan may be in default, and interest is probably
not being accrued, but Sirrom's management believes the borrower's management is
capable of executing a plan to return the borrower to an acceptable risk level.
Management believes that loans with a grade 6 involve an unacceptable level
of risk with substantial probability of loss. The borrower has grossly failed to
perform financially over an extended period and other
23
<PAGE> 26
unacceptable risk factors exist. Sirrom has or will most likely assume
management control of the borrower and will most likely be responsible for
executing an action plan to return the borrower to a satisfactory risk level or
to liquidate the borrower or its collateral. Interest is not being accrued and
the Company has or fully expects to charge off some part of the loan.
Loans graded 5 or 6 are placed on the Company's Credit Watch List and are
serviced by a member of the workout area. The workout area consists of two
officers of the Company. See "Business -- Delinquency and Collections."
Loan Portfolio. During the three months ended March 31, 1996, the Company
originated loans to 29 companies, including 10 new borrowers, in the aggregate
principal amount of approximately $32.3 million, in several industries. During
the same period, the Company realized $6.9 million in gains, $6.3 million of
which represented gains realized upon the sale of equity interests in Premiere
Technologies, Inc., and realized approximately $1.1 million in loan losses. The
following table sets forth, the amount of the Company's loans originated,
renewed and repaid for the periods indicated, as well as the realized and
unrealized gain on investments.
<TABLE>
<CAPTION>
FROM THREE MONTHS
INCEPTION ENDED
THROUGH YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ---------------------------- ------------------
1992 1993 1994 1995 1995 1996
------------ ------- ------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Loans originated.................... $ 14,639 $31,470 $40,785 $101,505 $27,792 $ 32,324
Loan repayments, including
renewals.......................... -- 2,013 7,585 14,414 1,560 4,775
Loan amounts converted to equity.... -- 500 2,150 3,751 -- 890
Realized (losses) on loans.......... -- (1,155) (1,155) (1,500) -- (1,100)
Loans receivable -- end of period... 14,639 42,441 72,336 144,855 97,378 166,936
Net realized gains on equity
investments....................... 198 355 617 3,260 50 6,856
Change in unrealized appreciation
(depreciation) of investments..... 1,813 (50) 3,356 4,694 1,603 2,241
</TABLE>
24
<PAGE> 27
The table below sets forth, as of March 31, 1996, the 22 states in which
the Company's borrowers maintain their principal place of business, the number
of borrowers and the percent of total loan principal balance outstanding to
borrowers located in such states.
<TABLE>
<CAPTION>
% OF TOTAL
LOAN PRINCIPAL
BALANCE NUMBER OF
STATE OUTSTANDING BORROWERS
--------------------------------------------- ----------------- ---------
<S> <C> <C>
Alabama...................................... 1.9% 2
California................................... 3.7 3
Connecticut.................................. 2.8 2
Florida...................................... 16.8 18
Georgia...................................... 10.4 9
Kentucky..................................... 6.3 4
Michigan..................................... 3.1 2
North Carolina............................... 8.0 9
New Jersey................................... 2.6 3
Ohio......................................... 2.7 3
South Carolina............................... 3.6 3
Tennessee.................................... 10.7 14
Texas........................................ 9.8 7
Virginia..................................... 7.2 9
*Other states(8)............................. 10.5 9
------ --
Total.............................. 100.0% 97
============= =======
</TABLE>
- ---------------
* The other states in which the Company has only a single borrower are Colorado,
Iowa, Illinois, Maryland, Mississippi, Oklahoma, Pennsylvania and Wisconsin.
The Company also has one borrower in Washington, D.C.
DELINQUENCY AND COLLECTIONS
When a borrower fails to make a required payment by the tenth of the month,
it is notified by telephone by the Company's Controller who discusses with the
borrower the expected timing of the payment. If the payment is delinquent more
than 30 days, the Chief Operating Officer and responsible lending officer
jointly determine an appropriate course of action on the account, which could
include transferring responsibility for the loan to the Company's workout area.
When a loan reaches 60 days past due, the Company normally discontinues accruing
interest, and all loans over 60 days past due become the responsibility of the
Company's workout area. Management determines the most appropriate course of
action given the particular circumstances with respect to protecting its
interest in a defaulted loan, which may involve, among other things, the sale of
the borrower or foreclosure proceedings.
At March 31, 1996, the Company had seven loans with an aggregate principal
balance of $11.3 million that were graded a 5 or 6 for which accrued interest
payments of $46,000 were delinquent for 60 days or more. Based on the particular
circumstances involved, the Board of Directors estimated the aggregate fair
value of these loans to be $7.8 million, and therefore provided for unrealized
depreciation of $3.5 million on these loans.
CUSTODIAL SERVICES
First American National Bank (Trust Department) acts as the custodian of
all the Company's portfolio assets pursuant to a Custodial Services Agreement
and in accordance with SBA Regulations and the 1940 Act.
25
<PAGE> 28
THE COMPANY'S OPERATIONS AS A BDC
As a BDC, the Company may not acquire any asset other than Qualifying
Assets unless, at the time the acquisition is made, Qualifying Assets represent
at least 70% of the value of the Company's total assets. The principal
categories of Qualifying Assets relevant to the business of the Company are the
following:
(i) 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 as any issuer
that (a) is organized and has its principal place of business in the United
States, (b) is not an investment company other than a SBIC wholly-owned by
the BDC and (c) does not have any class of publicly-traded securities with
respect to which a broker may extend margin credit;
(ii) securities received in exchange for or distributed with respect
to securities described above, or pursuant to the exercise of options,
warrants or rights relating to such securities; and
(iii) cash, cash items, Government securities, or high quality debt
securities maturing in one year or less from the time of investment.
The Company may not change the nature of its business so as to cease to be,
or withdraw its election as, a BDC unless authorized by vote of a majority, as
defined in the 1940 Act, of the Company's shares. Since the Company made its BDC
election, it has not made any substantial change in its structure or in the
nature of its business. The Company has requested permission from the Commission
to create a wholly-owned subsidiary into which it will transfer its SBIC
operations. Following this reorganization, the subsidiary will operate as an
investment company and an SBIC and the Company will continue to operate as a
BDC.
As a BDC, the Company is entitled to borrow money and issue senior
securities representing indebtedness as long as its indebtedness has asset
coverage to the extent of at least 200%. This limitation is not applicable to
borrowings made by the Company from the SBA, which totaled $83.3 million at
April 30, 1996. In December 1995, the Company obtained the $50.0 million
Revolving Credit Facility which is secured by all of the Company's assets. The
interest rate on amounts outstanding under the Revolving Credit Facility at
March 31, 1996, was 7.43%. The Revolving Credit Facility matures on December 27,
1998. At April 30, 1996, there were $28.6 million outstanding under the
Revolving Credit Facility. The Revolving Credit Facility requires that the
Company must obtain the lenders' consent prior to, among other things,
encumbering its assets, merging or consolidating with another entity and making
investments other than those permitted by the SBA.
In order to manage the interest rate risk associated with the variable
interest rate provided for under the Revolving Credit Facility, the Company
entered into an interest rate swap agreement that effectively converts the
variable rate on a portion of the Revolving Credit Facility to a fixed rate of
8.15% per annum. Under this agreement, the Company will convert up to $30.0
million borrowed under the Revolving Credit Facility to this fixed rate in $3.0
million increments per month, beginning in April 1996.
PROPOSED CORPORATE REORGANIZATION
The Company has filed an application under the 1940 Act for an order of the
Commission granting exceptions from certain sections of the 1940 Act (the
"Application") to permit the establishment and operation of a wholly-owned
subsidiary of the Company. As stated in the Application, the proposed
reorganization would permit the Company to engage in investment opportunities in
which SBICs cannot participate. The SBA has established specific criteria for
SBIC investments that take into account, among other things, the size of the
portfolio company and the terms of the investment. The Company believes that
there are many companies that offer good investment opportunities, but that do
not meet the SBA requirements for size or type of business or otherwise are not
within the terms specified by SBA regulations. In creating a parent-subsidiary
organization, the Company could continue to provide loans meeting the SBA
requirements through its SBIC subsidiary, but also would be able to take
advantage of the additional investment opportunities that exist beyond those
parameters. The proposed reorganization would allow the Company to seek debt
financing under the Special Purpose Facility, which it would be unable to do
under its current structure.
26
<PAGE> 29
In the proposed reorganization, the Company intends to transfer a majority
of its assets, including its license to operate as a SBIC, to a new wholly-owned
subsidiary, Sirrom Investments, Inc. ("Investments"). In return, Investments
would assume all of the Company's indebtedness outstanding to the SBA and under
the Revolving Credit Facility and issue to the Company all of its outstanding
capital stock. Following the transfer, Investments would carry on the SBIC
activities previously conducted by the Company and the Company would expand its
operations to include a broader range of financing and other services to small
businesses. The Company presently intends to keep Investments fully invested at
all times and to make loans through Investments when funds are available in that
subsidiary. Therefore, upon completion of the corporate reorganization, the
Company would continue to make loans through the SBIC subsidiary as long as
funds are available in that subsidiary to so do. At such time as Investments is
fully invested, the Company will begin making loans with funds available to it
under the Special Purpose Facility. In the event that funds thereafter become
available at the SBIC level through repayments, realized gains, etc., the SBIC
would make the next loan available from the Company's pipeline.
COMPETITION
The Company's principal competitors include financial institutions, venture
capital firms and other non-traditional lenders. Many of these entities have
greater financial and managerial resources than the Company. The Company
believes that it competes effectively with such entities primarily on the basis
of the quality of its service, its reputation, and the timely credit analysis
and decision-making processes it follows, and to a significantly lesser degree
on the interest rates, maturities and payment schedules it offers on the loans
to borrowers.
EMPLOYEES
The Company currently has 17 employees. The Company believes its relations
with its employees are excellent. The Company believes that it has maintained
low overhead as a percentage of its assets as a result of outsourcing all job
functions not directly related to the marketing or underwriting of small
business loans or the executive management of the Company.
PENDING ACQUISITION
The Company has entered into an acquisition agreement pursuant to which it
will acquire Harris Williams. Harris Williams is a merger and acquisition
advisory firm that currently focuses exclusively on providing advisory services
with respect to small and medium sized companies throughout the United States
that are similar in size to Sirrom's portfolio companies. Harris Williams'
clients have included divisions of large companies, portfolio companies of
professional investor groups, and privately owned businesses. The typical Harris
Williams engagement includes a monthly retainer and a success fee contingent
upon closing the transaction. The firm has consistently grown since inception
with the number of professionals increasing from two to nine over the past three
years, and Harris Williams anticipates adding an additional five professionals
by August 1996. Management believes that future growth of Harris Williams is
attainable through adding additional merger and acquisition professionals, by
gaining additional market share and by realizing the benefits of its rapidly
increasing client base, which should expand as a result of its relationship with
the Company. However, no assurance can be given that such growth can be
achieved.
27
<PAGE> 30
The following table sets forth selected financial and operating data for
Harris Williams for the years ended December 31, 1993, 1994 and 1995 and the
three months ended March 31, 1995 and 1996.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
-------------------------- ---------------
1993 1994 1995 1995 1996
---- ------ ------ ---- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues......................................... $569 $1,682 $2,578 $645 $1,392
Pretax operating income.......................... 207 553 812 194 795
Number of transactions closed.................... 4 5 8 1 3
</TABLE>
Consummation of the acquisition of Harris Williams is subject to certain
conditions, including (i) that the transaction will qualify for pooling of
interests accounting treatment, (ii) receipt of approval from the shareholders
of the Company, (iii) receipt by the Company of a fairness opinion that the
consideration being given by the Company in the acquisition is fair from a
financial point of view to the unaffiliated shareholders of the Company and (iv)
receipt of an exemptive order from the Commission required under the 1940 Act
because of the common ownership by John A. Morris, Jr., M.D., Chairman and a
director of the Company, in each of the Company and Harris Williams.
Subject to the satisfaction of such conditions, the Company will acquire
Harris Williams in exchange for 950,000 shares of the Company's Common Stock,
which amount shall be adjusted in the event the average bid price of the Common
Stock, as quoted on the Nasdaq National Market, for the 15 trading days
preceding the acquisition is less than $21.00 or greater than $26.00. The shares
to be issued by the Company will not be registered under the Securities Act and
therefore will not be immediately transferable. In connection with the
consummation of the acquisition, the two principals of Harris Williams will each
enter into a four-year employment agreement that will contain non-competition
provisions. After the acquisition, the Harris Williams professionals will be
eligible to participate in the Company's stock incentive plans.
The acquisition is currently expected to be effected through (i) the merger
of a wholly-owned subsidiary of the Company ("Acquisition Sub") with Harris
Williams & Co., a Virginia corporation ("HW Corp") that has elected to be
treated as an S corporation under the Code, and the general partner and holder
of 80% of the partnership interest of Harris Williams and (ii) an acquisition by
Acquisition Sub of the 20% limited partnership interests in Harris Williams
owned by Sirrom, Ltd., a Tennessee limited partnership, an affiliate of John A.
Morris, Jr., M.D., Chairman of the Company.
PRO FORMA FINANCIAL INFORMATION
HW Corp was formed in 1991 and Harris Williams was later formed in August
1994, upon investment of Sirrom Ltd. (the "Minority Interest"). At that time, HW
Corp began conducting all of its operations through Harris Williams. HW Corp's
operations after August 1994 consist solely of its investment in Harris
Williams.
The pro forma statement of operations data for the three months ended March
31, 1996, has been prepared based on unaudited statements of operations of each
of the respective companies. The pro forma statement of operations data for the
years ended December 31, 1995 and 1994 have been prepared based on audited
statements of operations of the Company and HW Corp, which are presented
elsewhere in this Prospectus. The minority interest deduction included in the HW
Corp financial statements is eliminated in the pro forma presentation because
the Company is acquiring the Minority Interest. The pro forma statement of
operations data may not be indicative of future results of operations or of the
actual results of operations had the acquisition described above been effective
on January 1 of each respective year.
28
<PAGE> 31
SIRROM CAPITAL CORPORATION
PRO FORMA STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
------------------------------------------------------------------
SIRROM
CAPITAL MINORITY
CORPORATION HW CORP INTEREST ADJUSTMENTS PRO FORMA
----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING INCOME:
Interest on investments.......... $ 4,862,463 $ -- $ -- $ -- $ 4,862,463
Advisory fees.................... -- 1,391,500 -- -- 1,391,500
Loan processing fees............. 921,250 -- -- -- 921,250
Other income..................... -- 17,142 -- -- 17,142
----------- ---------- ---------- ----------- -----------
Total operating income... 5,783,713 1,408,642 -- -- 7,192,355
OPERATING EXPENSES:
Interest expense................. 1,789,982 -- -- -- 1,789,982
Salaries and benefits............ 739,020 498,402 -- -- 1,237,422
Other operating expenses......... 477,064 114,822 -- -- 591,886
Amortization expense............. 188,397 -- -- -- 188,397
----------- ---------- ---------- ----------- -----------
Total operating
expenses............... 3,194,463 613,224 -- -- 3,807,687
----------- ---------- ---------- ----------- -----------
Net operating income............... 2,589,250 795,418 -- -- 3,384,668
Realized gain on investments....... 5,756,489 -- -- -- 5,756,489
Change in unrealized appreciation
of investments................... 2,240,559 -- -- -- 2,240,559
Provision for income taxes......... (2,134,960) -- -- (278,396)(1) (2,413,356)
Minority interest.................. -- (159,095) 159,095 -- --
----------- ---------- ---------- ----------- -----------
Net increase in shareholders'
equity resulting from
operations.................... $ 8,451,338 $ 636,323 $ 159,095 $ (278,396) $ 8,968,360
========= ========= ========= ========= ==========
Per share:
Pretax operating income............ $ 0.27 $ 0.32
Net increase resulting from
operations....................... 0.87 0.84
Fully diluted weighted average
shares outstanding............... 9,733,000 950,000(2) 10,683,000
</TABLE>
- ---------------
(1) Reflects the provision and accrual for federal income taxes on operations of
HW Corp and Minority Interest at statutory rates.
(2) Reflects the impact of the shares issued in connection with the proposed
acquisition.
29
<PAGE> 32
SIRROM CAPITAL CORPORATION
PRO FORMA STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------------------
SIRROM
CAPITAL MINORITY
CORPORATION HW CORP INTEREST ADJUSTMENTS PRO FORMA
----------- ---------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING INCOME:
Interest on investments............ $13,451,742 $ -- $ -- $ -- $13,451,742
Advisory fees...................... -- 2,577,841 -- -- 2,577,841
Loan processing fees............... 1,899,692 -- -- -- 1,899,692
Other income....................... 223,456 78,544 -- -- 302,000
----------- ---------- -------- ----------- -----------
Total operating income..... 15,574,890 2,656,385 -- -- 18,231,275
OPERATING EXPENSES:
Interest expense................... 4,771,131 -- -- -- 4,771,131
Salaries and benefits.............. 1,081,478 1,314,723 -- -- 2,396,201
Other operating expenses........... 1,412,358 530,052 -- -- 1,942,410
State income tax on interest....... 109,035 -- -- -- 109,035
Amortization expense............... 207,792 -- -- -- 207,792
----------- ---------- -------- ----------- -----------
Total operating expenses... 7,581,794 1,844,775 -- -- 9,426,569
----------- ---------- -------- ----------- -----------
Net operating income................. 7,993,096 811,610 -- -- 8,804,706
Realized gain on investments......... 1,759,513 -- -- -- 1,759,513
Change in unrealized appreciation of
investments........................ 4,693,544 -- -- -- 4,693,544
Provision for income taxes........... (1,020,321) -- -- (284,064)(1) (1,304,385)
Minority interest.................... -- (162,361) 162,361 -- --
----------- ---------- -------- ----------- -----------
Net increase in shareholders'
equity resulting from
operations...................... $13,425,832 $ 649,249 $162,361 $(284,064) $13,953,378
========== ========= ======== ========= ==========
Per share:
Pretax operating income.............. $ 0.99 $ 0.98
Net increase resulting from
operations......................... 1.64 1.53
Fully diluted weighted average shares
outstanding........................ 8,169,000 950,000(2) 9,119,000
</TABLE>
- ---------------
(1) Reflects the provision and accrual for federal income taxes on operations of
HW Corp and Minority Interest at statutory rates.
(2) Reflects the impact of the shares issued in connection with the proposed
acquisition.
30
<PAGE> 33
SIRROM CAPITAL CORPORATION
PRO FORMA STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
------------------------------------------------------------------
SIRROM
CAPITAL MINORITY
CORPORATION HW CORP INTEREST ADJUSTMENTS PRO FORMA
----------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING INCOME:
Interest on investments........... $ 7,336,816 $ -- $ -- $ -- $7,336,816
Advisory fees..................... -- 1,681,951 -- -- 1,681,951
Loan processing fees.............. 901,340 -- -- -- 901,340
Other income...................... -- 10,909 -- -- 10,909
----------- ---------- -------- ----------- ----------
Total operating income.... 8,238,156 1,692,860 -- -- 9,931,016
OPERATING EXPENSES:
Interest expense.................. 3,123,461 -- -- -- 3,123,461
Salaries and benefits............. -- 884,396 -- -- 884,396
Management fees................... 1,072,833 -- -- -- 1,072,833
Other operating expenses.......... 122,339 255,597 -- -- 377,936
State income tax on interest...... 457,035 -- -- -- 457,035
Amortization expense.............. 117,992 -- -- -- 117,992
----------- ---------- -------- ----------- ----------
Total operating
expenses................ 4,893,660 1,139,993 -- -- 6,033,653
----------- ---------- -------- ----------- ----------
Net operating income.............. 3,344,496 552,867 -- -- 3,897,363
Realized (loss) on investments...... (538,025) -- -- -- (538,025)
Change in unrealized appreciation of
investments....................... 3,356,316 -- -- 3,356,316
Provision for income taxes.......... -- -- -- (193,503)(1) (193,503)
Minority interest................... -- (25,468) 25,468 -- --
----------- ---------- -------- ----------- ----------
Net increase in shareholders'
equity resulting from
operations..................... $ 6,162,787 $ 527,399 $ 25,468 $(193,503) $6,522,151
----------- ---------- -------- ----------- ----------
Per share:
Pretax operating income............. $ 0.88 $ 0.83
Net increase resulting from
operations........................ 1.43 1.24
Fully diluted weighted average
shares outstanding................ 4,324,000 950,000(2) 5,274,000
</TABLE>
- ---------------
(1) Reflects the provision and accrual for federal income taxes on operations of
HW Corp and Minority Interest at statutory rates.
(2) Reflects the impact of the shares issued in connection with the acquisition.
31
<PAGE> 34
SIRROM CAPITAL CORPORATION
PRO FORMA BALANCE SHEET DATA
<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------------------------------------------------------
SIRROM CAPITAL MINORITY
CORPORATION HW CORP INTEREST ADJUSTMENTS PRO FORMA
-------------- ---------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments, at fair value:
Loans........................... $ 166,936,281 $ -- $ -- $ -- $166,936,281
Equity interests................ 22,548,818 -- -- -- 22,548,818
Warrants........................ 11,198,843 -- -- -- 11,198,843
-------------- ---------- --------- ----------- ------------
Total investments....... 200,683,942 -- -- -- 200,683,942
=========== ========= ========= ========= ===========
Cash and cash equivalents......... 78,283 1,782,594 -- (550,075)(1) 1,310,802
Interest receivable............... 2,534,774 -- -- -- 2,534,774
Debenture costs, net.............. 2,095,634 -- -- -- 2,095,634
Furniture and equipment, net...... 214,734 67,914 -- -- 282,648
Other assets...................... 598,473 149,885 -- -- 748,358
-------------- ---------- --------- ----------- ------------
Total assets............ $ 206,205,840 $2,000,393 $ -- $(550,075) $207,656,158
=========== ========= ========= ========= ===========
LIABILITIES
Debentures payable to SBA......... $ 83,260,000 $ -- $ -- $ -- $ 83,260,000
Revolving credit facility......... 24,916,000 -- -- -- 24,916,000
Interest payable.................. 1,281,333 -- -- -- 1,281,333
Accrued taxes payable............. 2,310,268 -- -- 278,396(1) 2,588,664
Accounts payable and accrued
expenses........................ 32,016 364,859 -- -- 396,875
-------------- ---------- --------- ----------- ------------
Total liabilities....... 111,799,617 364,859 -- 278,396 112,442,872
-------------- ---------- --------- ----------- ------------
Commitments and contingencies
Minority interest................. -- 610,262 (610,262) --
Shareholders' equity:
Common stock -- no par value,
50,000,000 shares authorized,
9,195,116 issued and
outstanding.................. 73,919,184 60,783 -- -- 73,979,967
Notes receivable from
employees.................... (1,980,000) -- -- -- (1,980,000)
Undistributed net realized
earnings..................... 10,413,179 964,489 610,262 (828,471)(1) 11,159,459
Unrealized appreciation of
investments.................. 12,053,860 -- -- -- 12,053,860
-------------- ---------- --------- ----------- ------------
Total shareholders'
equity................ 94,406,223 1,025,272 610,262 (828,471) 95,213,286
-------------- ---------- --------- ----------- ------------
Total liabilities, and
shareholders'
equity................ $ 206,205,840 $2,000,393 $ -- $(550,075) $207,656,158
=========== ========= ========= ========= ===========
</TABLE>
- ---------------
(1)Reflects the provision, accrual and payment of federal income taxes on
operations of HW Corp and Minority Interest at statutory rates.
32
<PAGE> 35
SIRROM CAPITAL CORPORATION
PRO FORMA BALANCE SHEET DATA
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------------------------
SIRROM
CAPITAL MINORITY
CORPORATION HW CORP INTEREST ADJUSTMENTS PRO FORMA
------------ -------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments, at fair value:
Loans.......................... $144,854,517 $ -- $ -- $ -- $144,854,517
Equity interests............... 15,912,467 -- -- -- 15,912,467
Warrants....................... 11,513,183 -- -- -- 11,513,183
------------ -------- -------- ----------- ------------
Total investments...... 172,280,167 -- -- -- 172,280,167
------------ -------- -------- ----------- ------------
Cash and cash equivalents........ 195,069 737,682 -- (266,011)(1) 666,740
Interest receivable.............. 2,119,567 -- -- -- 2,119,567
Debenture costs, net............. 2,020,030 -- -- -- 2,020,030
Furniture and equipment, net..... 203,860 72,421 -- -- 276,281
Other assets..................... 211,165 74,425 -- -- 285,590
------------ -------- -------- ----------- ------------
Total assets........... $177,029,858 $884,528 $ -- $(266,011)(1) $177,648,375
=========== ======== ======== ========= ===========
LIABILITIES
Debentures payable to SBA...... $ 73,260,000 $ -- $ -- $ -- $ 73,260,000
Revolving credit facility...... 13,200,000 -- -- -- 13,200,000
Interest payable............... 936,818 -- -- -- 936,818
Accrued taxes payable.......... 1,073,525 -- -- -- 1,073,525
Accounts payable and accrued
expenses.................... 213,901 44,418 -- 284,064(1) 542,383
------------ -------- -------- ----------- ------------
Total liabilities...... 88,684,244 44,418 -- 284,064 89,012,726
------------ -------- -------- ----------- ------------
Commitments and contingencies
Minority interest................ -- 451,161 (451,161) -- --
Shareholders' equity:
Common stock -- no par value,
50,000,000 shares
authorized, 9,195,116 issued
and outstanding............. 73,919,184 60,783 -- -- 73,979,967
Notes receivable from
employees................... (1,980,000) -- -- -- (1,980,000)
Undistributed net realized
earnings.................... 6,593,144 328,166 451,161 (550,075)(1) 6,822,396
Unrealized appreciation of
investments................. 9,813,286 -- -- -- 9,813,286
------------ -------- -------- ----------- ------------
Total shareholders'
equity............... 88,345,614 388,949 451,161 (550,075) 88,635,649
------------ -------- -------- ----------- ------------
Total liabilities and
shareholders'
equity............... $177,029,858 $884,528 $ $(266,011) $177,648,375
=========== ======== ======== ========= ===========
</TABLE>
- ---------------
(1)Reflects the provision and accrual for federal income taxes on operations of
HW Corp and Minority Interest at statutory rates.
33
<PAGE> 36
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT POLICIES
The Company's investment objectives are to achieve both a high level of
income from interest on loans and other fees and long-term growth in its
shareholders' equity through the appreciation of the equity interests in its
portfolio companies. Except for the fundamental policies described below, the
Company's investment objectives may be changed by a majority vote of its Board
of Directors.
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 the Company to dispose of portfolio securities or to take other action
to satisfy the percentage restriction.
1. 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 may not
acquire any assets (other than non-investment assets necessary and
appropriate to its operations as a business development company) 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 it has acquired and it proposes to acquire, as well as
temporary investments 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.
2. The Company may issue the maximum amount of SBA debentures
permitted by the Small Business Investment Act of 1958, as amended (the
"SBIA"), and the regulations promulgated thereunder (the "SBA
Regulations"). At March 31, 1996, the Company had borrowed $83.3 million
from the SBA evidenced by debentures that have a fixed rate of interest, a
ten year term and may be prepaid after five years without penalty. These
debentures have maturities ranging from 2002 to 2006 and interest rates
varying from 6.12% to 8.20% per annum. The maximum amount which the Company
may borrow from the SBA under the SBIA varies based upon the amount of the
Company's leverageable capital. The maximum amount the Company can borrow
is $90.0 million provided the Company's leverageable capital is at least
$45.0 million. The Company's leverageable capital was approximately $69.6
million at March 31, 1996, and accordingly the maximum amount the Company
can borrow from the SBA is currently $90.0 million. However, in determining
whether to approve a small business investment company's application to
issue SBA debentures, the SBA considers factors in addition to the amount
of its leverageable capital, such as the ratio of the applicant's
outstanding indebtedness that is senior to SBA debentures to its
leverageable capital.
3. The Company may borrow funds to the extent permitted by the 1940
Act. 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%. Indebtedness created by the sale of debentures to the SBA is
exempt from this restriction. At March 31, 1996, the Company had in place
the $50.0 million Revolving Credit Facility which is secured by all of the
Company's assets. The interest rate paid on the Revolving Credit Facility
was 7.43% at March 31, 1996. As of March 31, 1996, there were $24.9 million
outstanding under the Revolving Credit Facility. For the risks associated
with the use of leverage, see "Risk Factors -- Leverage." The Company may
be deemed to have received income on debt obligations, such as those that
were initially issued at a discount. The Company may borrow funds or sell
temporary investments or other assets to meet its distribution requirements
with regard to the interest income it will be deemed to have received on
these securities. See "Tax Status."
4. The Company will not concentrate its investments in any particular
industry or particular group of industries. Therefore, the Company will not
acquire any securities (except upon the exercise of a right
34
<PAGE> 37
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.
5. 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.
6. The Company may make loans and loans with equity features, as well
as investments in equity securities of small business concerns. It is
anticipated that substantially all of the Company's investments in small
business concerns will continue to be secured loans with warrants or other
equity features issued in connection therewith. The Company may also make
loans as permitted under its Amended and Restated 1994 Stock Option Plan
and its 1996 Incentive Stock Option Plan, as described in this Prospectus
under "Management -- Employee Stock Options".
The Company's policies with respect to the following matters are not
fundamental policies and may be changed, subject to the SBIA and SBA
Regulations, by the Company's Board of Directors without shareholder approval.
1. The Company may make investments in the form of loans, loans with
equity features and equity securities. At March 31, 1996, 79.0% of the
Company's total assets were invested in loans with related warrants, 16.4%
in equity securities, 1.9% in convertible debt and 2.7% in other assets.
The Company will not make loans to any single small business concern or its
affiliates that exceed 25% of the Company's regulatory capital. Under the
SBA Regulations, without prior SBA approval, loans to any single small
business concern and its affiliates may not exceed 20% of the Company's
regulatory capital.
2. The Company must invest funds that are not being used to make small
business concern loans in investments permitted by the SBA Regulations.
These permitted investments include direct obligations of, or obligations
guaranteed as to principal and interest by, the United States with a term
of 15 months or less and deposits maturing in one year or less issued by an
institution insured by the FDIC. The percentage of the Company's assets so
invested will depend on, among other things, loan demand, timing of equity
infusions and SBA funding and availability of funds under the Company's
credit facility.
PORTFOLIO TURNOVER
During the three months ended March 31, 1996, the Company made loans to 29
companies totaling approximately $32.3 million and received 6 repayments (either
partial or full) aggregating $4.8 million. During the year ended December 31,
1995, the Company made loans to 44 companies totaling approximately $101.5
million and received ten repayments (either partial or full) aggregating $14.4
million. During the year ended December 31, 1994, the Company made loans to 34
companies totaling approximately $40.8 million and received six repayments
aggregating approximately $7.6 million. During the year ended December 31, 1993,
the Company made loans to 31 companies totaling approximately $31.5 million and
received three repayments aggregating $2.0 million. Since inception, the Company
has originated $220.7 million in total loans and $28.8 million, or 13.0%, have
been repaid. The Company cannot control changes in its portfolio of investments,
as borrowers have the right to prepay loans made by the Company without penalty,
and the first loans made by the Company begin maturing May 1997.
35
<PAGE> 38
INVESTMENT ADVISOR
The Company has no investment advisor and is advised by its executive
officers under the supervision of its Board of Directors.
PORTFOLIO COMPANIES
The following table sets forth certain information as of March 31, 1996,
regarding each portfolio company in which the Company has an equity investment.
Unless otherwise noted, the only relationship between each portfolio company and
the Company is the Company's investment. As an SBIC, the Company is deemed to
make available significant managerial assistance to its portfolio companies. The
amount and general terms of all loans to portfolio companies is set forth on
pages F-28 and F-35.
<TABLE>
<CAPTION>
PERCENTAGE
NATURE OF ITS TITLE OF SECURITIES OF CLASS
NAME AND ADDRESS OF PORTFOLIO COMPANY PRINCIPAL BUSINESS HELD BY THE COMPANY HELD(1)
- ------------------------------------- ---------------------- ---------------------- ----------
<S> <C> <C> <C>
Affinity Corporation................. Telecommunications Warrant to purchase 8.6%
20975 Swenson Drive Common Stock
Suite 150
Waukesha, WI 53186
Amscot Holdings, Inc................. Check Cashing Service Warrant to purchase 17.5
8430 North Armenia Avenue Common Stock
Tampa, FL 33614
Ashe Industries, Inc................. Building Products Warrant to purchase 16.5
4505 Transport Drive Common Stock
Tampa, FL 33605
Associated Response Services, Inc.... Direct Mail Warrant to purchase 34.3
9900 Brookford Street Common Stock
Charlotte, NC 28273
Assured Power, Inc................... Environmental Warrant to purchase 16.0
4816 Sirus Lane Common Stock
Charlotte, NC 28208
Auto Rental Systems, Inc............. Auto Leasing Warrant to purchase 8.0
25 Century Blvd. Common Stock
Suite 204
Nashville, TN 37214
B&N Company, Inc..................... Software Warrant to purchase 4.0
3060 Peachtree Rd., NW, Suite 1460 Common Stock
Atlanta, GA 30305
BankCard Services Corporation........ Debit Card Warrant to purchase 24.0
3400 McClure Ridge Rd. Common Stock
Bldg. E, Ste. B
Duluth, GA 30136
BiTec Southeast, Inc................. Specialty Gas Warrant to purchase 10.0
8405-G Benjamin Rd. Common Stock
Tampa, FL 33634
</TABLE>
- ---------------
(1) Percentages shown for warrants held by the Company represent the percentage
of class of security to be owned upon
exercise of the warrant.
36
<PAGE> 39
<TABLE>
<CAPTION>
PERCENTAGE
NATURE OF ITS TITLE OF SECURITIES OF CLASS
NAME AND ADDRESS OF PORTFOLIO COMPANY PRINCIPAL BUSINESS HELD BY THE COMPANY HELD(1)
- ------------------------------------- ---------------------- ---------------------- ----------
<S> <C> <C> <C>
Caldwell/VSR Inc..................... Contract Manufacturing Warrant to purchase 15.9%
17151 Darwin Avenue Common Stock 100.0
Hesperia, CA 92345 Preferred Stock
Capital Network System, Inc.......... Telecommunications Warrant to purchase 3.5
600 Congress Avenue Common Stock
Suite 1400
Austin, TX 78701
Cardiac Control Systems, Inc......... Pacemaker Manufacturer Warrant to purchase 2.9
3 Commerce Blvd. Common Stock
Palm Coast, FL 32164
Carter Kaplan Holdings, L.L.C........ Investment Banking Membership interest in 24.0
629 East Main Street L.L.C.
Suite 1200
Richmond, VA 23219
CCS Technology Group, Inc............ Computer Systems Warrant to purchase 2.0
900 Winderly Place Design Common Stock
Maitland, FL 32751
CellCall, Inc........................ Radio/Telephone Warrant to purchase 1.2
103 Jerrico Drive Communications Common Stock
Suite 200
Lexington, KY 40509
CF Data Corp......................... Check Verification Warrant to purchase 20.5
9441 LBJ Freeway Common Stock
Dallas, TX 75243
Champion Glove Manufacturing Co., Sports Equipment Warrant to purchase 6.9
Inc................................ Common Stock
12121 E. 51st St. #102
Tulsa, OK 74146
C.J. Spirits, Inc.................... Distilled Spirits Warrant to purchase 10.0
2903 Pointer Place Common Stock
Seffner, FL 33584
Clearidge, Inc....................... Bottled Water Warrant to purchase 7.9
2710 Landers Avenue Common Stock
Nashville, TN 37211
CLS Corporation...................... Management Services Warrant to purchase 4.9
4 Century Parkway Common Stock
Suite 110
Blue Bell, PA 19422
Colonial Investments, Inc............ Retail Warrant to purchase 18.0
4530 Harding Rd. Common Stock
Nashville, TN 37205
Concept Technologies Group, Inc...... Professional Audio Common Stock 0.1
6632 Central Avenue Pike Equipment
Knoxville, TN 37912
</TABLE>
- ---------------
(1) Percentages shown for warrants held by the Company represent the percentage
of class of security to be owned upon
exercise of the warrant.
37
<PAGE> 40
<TABLE>
<CAPTION>
PERCENTAGE
NATURE OF ITS TITLE OF SECURITIES OF CLASS
NAME AND ADDRESS OF PORTFOLIO COMPANY PRINCIPAL BUSINESS HELD BY THE COMPANY HELD(1)
- ------------------------------------- ---------------------- ---------------------- ----------
<S> <C> <C> <C>
Consumat Systems, Inc................ Environmental Warrant to purchase 20.0%
P.O. Box 9379 Common Stock
Richmond, VA 23227
Consumer Credit Associates, Inc...... Credit Card Services Warrant to purchase 15.5
950 Thread Needle Common Stock
Houston, TX 77079-2903
Continental Diamond Cutting Jewelry Replacement Warrant to purchase 12.2
Company............................ Common Stock
4427 W. Kennedy Blvd.
Suite 300
Tampa, FL 33609
Corporate Flight Management, Inc..... FBO Airport Warrant to purchase 10.0
Smyrna Airport Common Stock
Hangar 625
Smyrna, TN 37167
Cougar Power Products, Inc........... Lawn Equipment Warrant to purchase 22.6
361 Dabbs House Road Common Stock
Richmond, VA 23223
Dalcon Technologies, Inc............. Computer Services Warrant to purchase 25.0
1321 Murfreesboro Road Common Stock 100.0
4th Floor Preferred Stock --
Nashville, TN 37217 Series B
Dalt's, Inc.......................... Restaurant Warrant to purchase 25.0
250 East Wilson Bridge Rd. Common Stock
Suite 190
Worthington, OH 43085
DentureCare, Inc..................... Dental Services Preferred Stock -- 2.6
3109 Poplarwood Court Series D 12.6
Suite 300 Warrant to purchase
Raleigh, NC 27604-1025 Common Stock
Eastern Food Group L.L.C............. Grocery Warrant to purchase 15.0
2400 S. Memorial Drive interest in L.L.C.
Greenville, NC 27834 Class B Preferred 100.0
Units
Educational Medical, Inc............. Technical Schools Warrant to purchase 8.0
1327 Northmeadow Parkway Common Stock
Suite 132
Roswell, GA 30076
Electronic Merchant Services......... Payment Processing Warrant to purchase 12.5
1401 Main Street Common Stock
Suite 850 Preferred Stock -- 100.0
Columbia, SC 29201 Series B
Emerald Pointe Waterpark, L.P........ Waterpark Warrant to purchase 10.0
P.O. Box 7949 Partnership Units
Greensboro, NC 27417
</TABLE>
- ---------------
(1) Percentages shown for warrants held by the Company represent the percentage
of class of security to be owned upon
exercise of the warrant.
38
<PAGE> 41
<TABLE>
<CAPTION>
PERCENTAGE
NATURE OF ITS TITLE OF SECURITIES OF CLASS
NAME AND ADDRESS OF PORTFOLIO COMPANY PRINCIPAL BUSINESS HELD BY THE COMPANY HELD(1)
- ------------------------------------- ---------------------- ---------------------- ----------
<S> <C> <C> <C>
Encore Orthopedics, Inc.............. Orthopedics Warrant to purchase 7.4%
8900 Shoal Creek Blvd., Bldg. 300 Common Stock
Austin, TX 78757
Express Shipping Centers, Inc........ Shipping Warrant to purchase 3.0
P.O. Box 1599 Common Stock
Fairfield, IA 52556
FCOA Acquisition Corp................ Retail Warrant to purchase 2.5
745 Birginal Drive Common Stock
Bensenville, IL 60106-2104
Front Royal, Inc..................... Environmental Common Stock 1.6
2200 Gateway Blvd. Insurance Warrant to purchase 3.6
Suite 205 Common Stock
Morrisville, NC 27560
Fycon Technologies, Inc.............. OEM Warrant to purchase 15.0
4100 Barringer Drive Common Stock
Charlotte, NC 28217 Preferred Stock -- 100.0
Series A
Gardner Wallcovering, Inc............ Wallcovering Warrant to purchase 2.0
3300 Canton Pike Common Stock
Hopkinsville, KY 42240
Gates Communications, L.P............ Publishing Warrant to purchase 47.0
P.O. Box 5181 Partnership Units
Richmond, VA 23220
Global Finance & Leasing, Inc........ Leasing Warrant to purchase 25.0
P.O. Box 9406 Common Stock
Wyoming, MI 49509
Gold Medal Products, Inc............. Manufacturing Warrant to purchase 30.0
1500 Commerce Rd. Common Stock
Richmond, VA 23214
Golf Corp. of America, Inc........... Golf Driving Ranges Common Stock 3.8
6950 Charlotte Pike Warrant to purchase 11.5
Nashville, TN 37209 Common Stock
Golf Video, Inc...................... Interactive Golf Video Warrant to purchase 49.5
6950 Charlotte Pike Common Stock
Nashville, TN 37209
Gulfstream International Airlines, Commuter Airline Warrant to purchase 21.0
Inc................................ Common Stock
P.O. Box 777
Miami Springs, FL 33266
Horizon Medical Products, Inc........ Medical Products Warrant to purchase 8.3
4200 Northside Pkwy., NW Common Stock
Atlanta, GA 30327
</TABLE>
- ---------------
(1) Percentages shown for warrants held by the Company represent the percentage
of class of security to be owned upon
exercise of the warrant.
39
<PAGE> 42
<TABLE>
<CAPTION>
PERCENTAGE
NATURE OF ITS TITLE OF SECURITIES OF CLASS
NAME AND ADDRESS OF PORTFOLIO COMPANY PRINCIPAL BUSINESS HELD BY THE COMPANY HELD(1)
- ------------------------------------- ---------------------- ---------------------- ----------
<S> <C> <C> <C>
Hoveround Corporation................ Wheelchairs Warrant to purchase 27.0%
8135 25th Court East Common Stock
Sarasota, FL 34243
HSA International.................... Discount Membership Warrant to purchase 12.0
100 N. Tampa St. Suite 2610
Tampa, FL 33602
Hunt Incorporated.................... Truck Dealer Warrant to purchase 10.0
8211 Adamo Drive Common Stock
Tampa, FL 33619
Hunt Leasing & Rental Corporation.... Truck Leasing Warrant to purchase 10.0
8211 Adamo Drive Common Stock
Tampa, FL 33619
I. Schneid Holdings, L.L.C........... Equipment Cleaning Warrant to purchase 11.0
1429 Fairmont Ave, NW interest in L.L.C.
Atlanta, GA 30318-4153
Innotech, Inc........................ Optical Products Warrant to purchase 0.7
5568 Airport Road Common Stock
Roanoke, VA 24012-1311
In Store Services, Inc............... Retail Services Warrant to purchase 12.5
9332 Forsyth Park Drive Common Stock
Charlotte, NC 28241
International Risk Control, Inc...... Computer Software Preferred Stock -- 0.8
636 Ramona Street Series A
Palo Alto, CA 94301-2546
InterMed Healthcare Systems, Inc..... Information Services Warrant to purchase 9.4
245 Peachtree Center Ave., NE Common Stock
Suite 350
Atlanta, GA 30303
Johnston County Cable L.P............ Entertainment Warrant to purchase 27.5
2444 Solomons Island Rd., Suite 202 L.P. interest 11.1
Annapolis, MD 21401 Class A interest in
L.P.
Juvenile Products, LLC............... Furniture Products Membership interest in 30.0
P.O. Box 2208 L.L.C.
113 Anderson Ct.
Dothan, AL 36302-2208
Kentucky Kingdom, Inc................ Amusement Park Common Stock 5.2
P.O. Box 9016
Louisville, KY 40209-9016
Kryptonics, Inc...................... In-Line Skates Warrant to purchase 9.0
740 South Pierce Ave. Common Stock
Louisville, CO 80027
</TABLE>
- ---------------
(1) Percentages shown for warrants held by the Company represent the percentage
of class of security to be owned upon
exercise of the warrant.
40
<PAGE> 43
<TABLE>
<CAPTION>
PERCENTAGE
NATURE OF ITS TITLE OF SECURITIES OF CLASS
NAME AND ADDRESS OF PORTFOLIO COMPANY PRINCIPAL BUSINESS HELD BY THE COMPANY HELD(1)
- ------------------------------------- ---------------------- ---------------------- ----------
<S> <C> <C> <C>
K.W.C. Management Corp............... Music Retail Warrant to purchase 24.4%
3390 Peachtree Rd., NE Common Stock
Suite 1132
Atlanta, GA 30326
Lovett's Buffet, Inc................. Restaurants Warrants to purchase 3.6
5118 Park Avenue Common Stock
Suite 127
Memphis, TN 38117
MBA Marketing Corporation............ Shoe Stores Warrant to purchase 4.0
6615 Dublin Center Drive Common Stock
Dublin, OH 43017
Medical Associates of America, Pharmacies Preferred Stock -- 8.0
Inc................................ Series A
One Bridge Plaza
Suite 290
Fort Lee, NJ 07024
Midbrook Acquisitions, Inc........... Industrial Warrant to purchase 3.7
2080 Brooklyn Rd. Equip./Cleaning Common Stock
Jackson, MI 49204
Midbrook Products, Inc............... Industrial Warrant to purchase 3.7
2080 Brooklyn Rd. Equip./Cleaning Common Stock
Jackson, MI 49204
Money Transfer Systems, Inc.......... Credit Card Services Warrant to purchase 4.0
600 Lakeview Rd., Suite A Common Stock
Clearwater, FL 34616
Moore Diversified Products, Inc...... Metal Fabrication Warrant to purchase 10.7
1441 Sunshine Lane Common Stock
Lexington, KY 40505
Moovies Inc.......................... Video Stores Common Stock 0.2
201 Brookfield Pkwy., Ste. 200 Warrant to purchase 1.8
Greenville, SC 29607 Common Stock
Multicom Publishing, Inc............. Software Publishing Warrant to purchase 6.0
1100 Olive Way, #125 Common Stock
Seattle, WA 98101
Multimedia Learning, Inc............. Employee Training Warrant to purchase 6.0
5215 North O'Connor Common Stock
Suite 760
Irving, TX 75039
National Recovery Technologies, Environmental Products Preferred Stock -- 6.0
Inc................................ Series A
566 Mainstream Drive
Nashville, TN 37228-1223
</TABLE>
- ---------------
(1) Percentages shown for warrants held by the Company represent the percentage
of class of security to be owned upon
exercise of the warrant.
41
<PAGE> 44
<TABLE>
<CAPTION>
PERCENTAGE
NATURE OF ITS TITLE OF SECURITIES OF CLASS
NAME AND ADDRESS OF PORTFOLIO COMPANY PRINCIPAL BUSINESS HELD BY THE COMPANY HELD(1)
- ------------------------------------- ---------------------- ---------------------- ----------
<S> <C> <C> <C>
National Vision Associates, Ltd...... Optical Stores Common Stock 1.0%
296 South Clayton Street
Lawrenceville, GA 30245
Nationwide Engine Supply, Inc........ Engine Rebuilding Warrant to purchase 16.2
609 N. Houston Common Stock
Fort Worth, TX 76106
NRI Service and Supply, L.P.......... Gas Pump Services Warrant to purchase 27.5
333 Ludlow Street L.P. Interests
Stamford, CT 06902
Novavision, Inc...................... Optical Products Warrant to purchase 6.1
2700-200 Gateway Center Common Stock
Morrisville, NC 27560 Preferred Stock -- 100.0
Series A
Orchid Manufacturing Group, Inc...... Manufacturing Warrant to purchase 4.5
100 Winners Circle Common Stock
Brentwood, TN 37027
P.A. Plymouth, Inc................... Retail Warrant to purchase 15.0
100 Corporate Drive Common Stock
Radford, VA 24141
Palco Telecom Services, Inc.......... Telephone Repair Warrant to purchase 5.0
2914 Green Cove Road Services Common Stock
Huntsville, AL 35803
Patton Management Corporation........ Communications Warrant to purchase 10.0
P.O. Box 491539 Common Stock
Atlanta, GA 30349
Pipeliner Systems, Inc............... Sewer Rehabilitation Warrant to purchase 20.6
4140 Tuller Road Common Stock 100.0
Suite 132 Preferred Stock --
Dublin, OH 43017 Series B
PFIC Corporation..................... Third Party Marketing Warrant to purchase 6.0
1749 Mallory Lane, Suite 120 Common Stock
Brentwood, TN 37027
Pharmaceutical Research Associates, Research Warrant to purchase 6.0
Inc................................ Common Stock
2400 Old Ivy Road Pfd. Stock Class F 38
Charlottesville, VA 22903-4826
The Potomac Group, Inc............... Healthcare Information Common Stock 2.2
P.O. Box 290037 Warrant to purchase 1.9
Nashville, TN 37229 Common Stock 83.2
Preferred Stock --
Series A
</TABLE>
- ---------------
(1) Percentages shown for warrants held by the Company represent the percentage
of class of security to be owned upon
exercise of the warrant.
42
<PAGE> 45
<TABLE>
<CAPTION>
PERCENTAGE
NATURE OF ITS TITLE OF SECURITIES OF CLASS
NAME AND ADDRESS OF PORTFOLIO COMPANY PRINCIPAL BUSINESS HELD BY THE COMPANY HELD(1)
- ------------------------------------- ---------------------- ---------------------- ----------
<S> <C> <C> <C>
Precision Fixtures & Graphics, Design/Construction Warrant to purchase 5.0%
Inc................................ Common Stock
4644 Cummings Park Dr.
Antioch, TN 37013
Precision Panel Products, Inc........ Cabinets Warrant to purchase 8.3
12440 73rd Court, North Common Stock
Largo, FL 34643
Premiere Technologies, Inc........... Telecommunications Common Stock 1.8
3399 Peachtree Road, NE
Suite 400
Atlanta, GA 30326
Pritchard Glass, Inc................. Auto Glass Warrant to purchase 25.0
140 Remount Road Common Stock
Charlotte, NC 28203
Quest Group International, Inc....... Telecommunications Warrant to purchase 10.0
242 Falcon Dr. Common Stock
Forest Park, GA 30050
Radio Systems Corporation............ Electrical Machinery Warrant to purchase 5.3
5008 National Drive Common Stock
Knoxville, TN 37914
The Ryland Company................... Clothing Warrant to purchase 20.5
104 New Era Drive Common Stock
S. Plainfield, NJ 07080
Skillsearch Corporation.............. Resume Database Common Stock 6.8
3354 Perimeter Hill Drive Warrant to purchase 7.2
Suite 235 Common Stock
Nashville, TN 37211-4129
Southern Specialty Brands, Inc....... Food Distributor Warrant to purchase 10.0
c/o Price Waterhouse Common Stock
4400 Harding Road
Nashville, TN 37205
The Summit Publishing Group, Inc..... Publishing Warrant to purchase 24.5
1112 E. Copeland Rd., Ste. 510 Common Stock
Arlington, TX 76011
Suncoast Medical Group Inc........... Optical Products Warrant to purchase 23.0
7401 114th Avenue, North Common Stock
Suite 503-A
Largo, FL 34643
Suprex Corporation................... Laboratory Analytical Warrant to purchase 3.9
125 William Pitt Way Instruments Common Stock
Pittsburgh, PA 15238
</TABLE>
- ---------------
(1) Percentages shown for warrants held by the Company represent the percentage
of class of security to be owned upon
exercise of the warrant.
43
<PAGE> 46
<TABLE>
<CAPTION>
PERCENTAGE
NATURE OF ITS TITLE OF SECURITIES OF CLASS
NAME AND ADDRESS OF PORTFOLIO COMPANY PRINCIPAL BUSINESS HELD BY THE COMPANY HELD(1)
- ------------------------------------- ---------------------- ---------------------- ----------
<S> <C> <C> <C>
Tower Environmental, Inc............. Environmental Services Warrant to purchase 10.1%
4830 W. Kennedy Blvd. Common Stock
Suite 930
Tampa, FL 33609-2574
Trade Am International, Inc.......... Retail Warrant to purchase 6.0
6580 Jimmy Carter Blvd. Common Stock
Norcross, GA 30071
Treasure Coast Pizza, Co............. Restaurant Warrant to purchase 10.0
19990 Princewood Drive Common Stock
Jupiter, FL 33458
Unique Electronics, Inc.............. Defense Electronics Warrant to purchase 20.0
1320 26th Street Common Stock
Orlando, FL 32805 Preferred Stock -- 100.0
Series A
Universal Marketing Corporation...... Sports Drinks Warrant to purchase 10.0
1409 Highway 45 South Common Stock
Columbus, MS 39701
Urethane Technologies, Inc........... Manufacturing Warrant to purchase 4.7
1202 East Wakeham Ave. Common Stock
Santa Ana, CA 92705
VDI Acquisition Company, L.L.C....... Watches Warrant to purchase 21.0
600 Sylvan Avenue Membership Units
Englewood Cliffs, NJ 07632
Viking Moorings Acquisition, LLC..... Yacht Charter Membership interest in 6.5
19345 U.S. Hwy. 19N, Suite 402 L.L.C.
Clearwater, FL 34624-3193
Virginia Gas Company................. Gas Warrant to purchase 6.0
P.O. Box 2407 Common Stock 100.0
Abingdon, VA 24212 Preferred Stock --
Series A
Voice FX Corporation................. Telecommunications Warrant to purchase 8.0
1100 E. Hector Street, Suite 416 Common Stock
Conshohocken, PA 19428
Zahren Alternative Power Converted Power Warrant to purchase 9.8
Corporation........................ Common Stock 5.9
40 Tower Lane Common Stock 4.9
Avon, CT 06001 Preferred Stock
</TABLE>
- ---------------
(1) Percentages shown for warrants held by the Company represent the percentage
of class of security to be owned upon exercise of the warrant.
44
<PAGE> 47
PRINCIPAL SHAREHOLDERS
Of the 50,000,000 shares of Common Stock, no par value, authorized, there
are 9,153,836 shares of Common Stock outstanding and approximately 2,550 holders
of the Company's Common Stock, including approximately 150 holders of record.
The Company has no other class of securities outstanding. The following table
sets forth certain ownership information as of May 1, 1996, with respect to the
Common Stock for (i) those persons who directly or indirectly own, control or
hold with the power to vote, 5% or more of the outstanding Common Stock and (ii)
all officers and directors, as a group.
<TABLE>
<CAPTION>
PERCENT OF SHARES
OUTSTANDING
---------------------
TYPE OF AMOUNT BEFORE AFTER
NAME AND ADDRESS OWNERSHIP OWNED OFFERING OFFERING
- ------------------------------------------------ ----------- ---------- -------- --------
<S> <C> <C> <C> <C>
John A. Morris, Jr., M.D........................ Beneficial 2,222,490(1) 24.2% 19.9%
243 Medical Center South
2100 Pierce Avenue
Nashville, TN 37212
Sirrom Partners, L.P............................ Record 2,035,148 22.1 18.2
500 Church Street
Suite 200
Nashville, TN 37219
Officers and directors, as a group (18
persons)...................................... Beneficial 2,693,363(2) 29.4 24.1
</TABLE>
- ---------------
(1) Includes 2,035,148 shares owned by Sirrom Partners, L.P., a limited
partnership owned by Dr. Morris and his family, and 187,350 shares owned by
Sirrom, Ltd., a limited partnership whose general partner is All Scarlet,
Inc., a corporation owned 50% by Dr. Morris and 50% by his brother. Dr.
Morris has shared voting power and shared investment power with respect to
all of these shares. Assuming consummation of the Harris Williams
acquisition through the issuance of 950,000 shares, Dr. Morris would
beneficially own 2,402,990 shares, or 23.8%, of the Company's outstanding
Common Stock before the Offering and 19.9% following the Offering.
(2) Includes 149,000 shares owned by officers of the Company, which are subject
to forfeiture, in a declining amount over time, in the event the respective
officer ceases to be employed by the Company.
45
<PAGE> 48
MANAGEMENT
The business and affairs of the Company are managed under the direction of
its Board of Directors. The Board of Directors has two committees, a
Compensation Committee comprised of Messrs. Eberle, Pirtle, and Wilson and an
Audit Committee comprised of Messrs. Duncan, McCabe and Mathias. All of the
Company's directors are subject to re-election at each annual meeting of
shareholders. The directors each receive $1,000 for each separate Board or
committee meeting attended and are reimbursed for expenses relating thereto. The
Board of Directors elects the Company's officers who serve at the pleasure of
the Board of Directors. Any new officer or director is subject to approval by
the SBA.
BOARD OF DIRECTORS
The following table sets forth certain information regarding the directors
of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --- -----------------------------------------------------------
<S> <C> <C>
John A. Morris, Jr.
M.D.(1)................... 49 Chairman of the Board and Director
George M. Miller, II(1)..... 36 President, Chief Executive Officer and Director
E. Townes Duncan............ 42 Director
William D. Eberle........... 72 Director
Edward J. Mathias........... 54 Director
Robert A. McCabe, Jr........ 44 Director
Raymond H. Pirtle, Jr.(1)... 54 Director
L. Edward Wilson, P.E....... 52 Director
</TABLE>
- ---------------
(1) "Interested Person" as defined in Section 2(a) (19) of the 1940 Act.
John A. Morris, Jr., M.D., co-founded the Company in August 1991. Dr.
Morris currently holds appointments of Associate Professor of Surgery and
Director of the Division of Trauma and Surgical Critical Care at the Vanderbilt
University School of Medicine, Medical Director of the LifeFlight Air Ambulance
Program at Vanderbilt University Hospital, and Associate in the Department of
Health Policy and Management at the Johns Hopkins University.
George M. Miller, II, co-founded the Company in August 1991. Prior to
August 1991, Mr. Miller worked for two years as a vice president in the
Investment Banking Group of Equitable Securities Corporation ("Equitable"). From
1987 to 1989, Mr. Miller worked as an associate in the Corporate Finance
department of J.C. Bradford & Co. Prior to that time, Mr. Miller spent four and
one-half years on active duty in the United States Marine Corps. Mr. Miller
holds a Masters in Business Administration from the University of North Carolina
at Chapel Hill and a Bachelor of Science degree from the University of
Tennessee.
E. Townes Duncan has been a director of Comptronix Corporation, a provider
of electronics contract manufacturing services, since April 1988, and has served
as its Chairman of the Board and Chief Executive Officer since November 1993.
Mr. Duncan was a Vice-President of Massey Burch Investment Group, Inc., a
Nashville venture capital firm, from 1985 to November 1993. Mr. Duncan is also a
director of Volunteer Capital Corporation, an owner and operator of restaurants
in six states.
William D. Eberle is chairman of Manchester Associates, Ltd., a venture
capital and international consulting firm, and is Of Counsel to the law firm of
Kaye, Scholer, Fierman, Hays & Handler. Mr. Eberle is also Chairman of America
Service Group Inc., a health care services company, and Showscan Entertainment,
Inc., a movie-based software and technology company, and is a director of
Ampco-Pittsburgh Corp., a steel fabrication equipment company, Fiberboard
Corporation, a timber manufacturer, Mitchell Energy and Development, a gas and
oil company, and Mid-States PLC, an autoparts distributor headquartered in
Nashville. Mr. Eberle is also the Vice Chairman of the U.S. Council of the
International Chamber of Commerce.
Edward J. Mathias has been a managing director of The Carlyle Group, a
Washington, D.C. based private merchant bank, since 1994. Mr. Mathias served as
a managing director of T. Rowe Price Associates, Inc., an investment management
firm, from 1971 to 1993. Mr. Mathias is also a director of U.S. Office Products,
a supplier of office products, and PathoGenesis Corporation, a biotechnology
company.
46
<PAGE> 49
Robert A. McCabe, Jr., has been the Vice Chairman of First American
Corporation, a bank holding company headquartered in Nashville, since 1993 and
the President of First American Enterprises, a division of First American
Corporation, since 1994. Prior to that time, Mr. McCabe served as President of
the General Bank and First American National Bank, subsidiaries of First
American Corporation. Mr. McCabe is also a director of First American
Corporation.
Raymond H. Pirtle, Jr., is a managing director and a member of the Board of
Directors of Equitable, having joined the firm in February 1989. Prior to that
date, Mr. Pirtle was a general partner of J.C. Bradford & Co.
L. Edward Wilson, P.E., is president of Sirrom Resource Texas, Inc.
("SRF"), the general partner of Sirrom Resource Funding, L.P., a privately owned
partnership that is not affiliated with the Company and provides capital to
environmental service firms. Prior to joining SRF, Mr. Wilson served as
president and chief executive officer of OSCO, Inc., a Nashville-based
environmental services company. Prior to that, Mr. Wilson served as executive
vice president of ERC Environmental & Energy Services, Inc. ("ERC"), where he
was in charge of all eastern regional operations of this publicly-traded
environmental services company. He joined ERC after it acquired the EDGe Group,
a company he founded in 1982.
OFFICERS
The following table sets forth certain information regarding officers of
the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
George M. Miller, II....................... 36 President, Chief Executive Officer and
Director
David M. Resha............................. 49 Chief Operating Officer
Peter T. Socha............................. 37 Vice President -- Workouts
Jeffrey D. Armstrong....................... 37 Vice President -- Workouts
Kathy Harris............................... 38 Vice President -- Lending
John C. Harrison........................... 39 Vice President -- Lending
John S. Scott.............................. 32 Vice President -- Lending
William A. Williamson, III................. 35 Assistant Vice President -- Lending
Carl W. Stratton........................... 37 Chief Financial Officer
Maria-Lisa Caldwell........................ 32 Secretary
Kimberly M. Stringfield.................... 26 Controller and Treasurer
</TABLE>
David M. Resha joined the Company in July 1995 and is responsible for the
day-to-day operations of the Company. His primary role is the oversight of risk
management associated with the loan portfolio of the Company, including loan
origination, portfolio management and workout activities. Mr. Resha is 25-year
veteran commercial banker. Most recently, he was Senior Vice President at First
Union National Bank of Tennessee where he managed the middle market/corporate
banking group. He held a similar position with Dominion Bank before it was
merged with First Union National Bank of Tennessee. Mr. Resha holds a Bachelor
of Business Administration degree from Loyola University in New Orleans and a
Master of International Management degree from American (Thunderbird) Graduate
School in Glendale, Arizona.
Peter T. Socha joined the Company in February 1994 and is responsible for
all workout activities. Mr. Socha oversees several of the Company's portfolio
companies, particularly those companies on the Credit Watch List. From 1992 to
1994, Mr. Socha served as president and chief operating officer of Stewart
Foods, Inc., a food distributor reorganized under Chapter 11. From 1991 to 1992,
Mr. Socha was an investment banker with Quest Capital Corporation, a private
investment company based in Atlanta, Georgia. From 1989 to 1991, Mr. Socha
served in a sales management position with Alliance America, a manufacturing
company based in Atlanta, Georgia. From 1986 to 1989, Mr. Socha worked as a
credit officer responsible for designing and implementing underwriting standards
and procedures with Veriens-und Westbank AG. Mr. Socha holds Bachelor of Science
and Master of Arts degrees from the University of Alabama.
Jeffrey D. Armstrong joined the Company in April 1996 and is responsible
for the workout activities of portfolio companies that are included on the
Credit Watch List. Mr. Armstrong has 13 years of experience in
47
<PAGE> 50
consulting, finance and operations from Aladdin Industries, Buccino &
Associates, Inc., and the Alpert Investment Corporation. Mr. Armstrong holds a
Master of Business Administration from the University of Texas at Austin and a
Bachelor of Science Degree from Stanford University.
Kathy Harris joined the Company in January 1996 and is responsible for
marketing and loan origination efforts in Georgia and Florida. In addition to
generating new loans, Ms. Harris oversees several of the Company's portfolio
companies. From 1985 to January 1996, Ms. Harris was in the Corporate Finance
Department at J.C. Bradford & Co. From 1980 to 1983, she was with KPMG Peat
Marwick and served as a senior auditor specializing in the firm's thrift
practice. Ms. Harris holds a Masters in Business Administration in Finance and
Human Resources Management from the Owen Graduate School of Management at
Vanderbilt University and a Bachelor of Science degree in Accounting from Murray
State University. Ms. Harris is a Certified Public Accountant.
John C. Harrison joined the Company in January 1994 and is responsible for
marketing and loan origination efforts in North and South Carolina and Virginia.
In addition to generating new loans, Mr. Harrison oversees several of the
Company's portfolio companies. From 1991 to 1993, Mr. Harrison served as a vice
president at First Union National Bank, and from 1987 to 1991, he worked for
First Tennessee Equipment Finance Corporation as a senior credit officer. From
1980 to 1987, Mr. Harrison held several positions with First American National
Bank. Mr. Harrison holds a Bachelor of Science degree from the University of
Tennessee.
John S. Scott joined the Company in November 1994 and is responsible for
marketing and loan origination efforts in Kentucky, Ohio and Indiana. In
addition to generating loans, Mr. Scott oversees several of the Company's
portfolio companies. From 1991 to 1994, Mr. Scott served as a vice president in
the Corporate Banking Group of Bank One. From 1985 to 1991, Mr. Scott was a
commercial lender with Ameritrust Corporation, Citizens Bank and Trust and First
American National Bank. Mr. Scott holds a Bachelor of Science degree from the
University of Kentucky.
William A. Williamson, III, joined the Company in April 1996 and is
responsible for marketing and loan origination efforts in Texas. Prior to
joining the Company, Mr. Williamson was vice president/partner of Bohannon
Brewing Company. From 1992 to 1994, Mr. Williamson was manager of Durr-Fillauer
Corporation's Nashville facility. From 1985 to 1991, Mr. Williamson was
assistant vice president of development for Jim Wilson Associates. From 1982 to
1984, Mr. Williamson was an investment banking analyst with E.F. Hutton in New
York. Mr. Williamson holds a Bachelor of Business Administration from Southern
Methodist University.
Carl W. Stratton joined the Company in October 1995 and has served as Chief
Financial Officer since April 1996. From October 1995 through April 1996, Mr.
Stratton held the position of Vice President - Workouts with the Company. From
1991 to 1995, Mr. Stratton was chief financial officer of International Citrus
Corporation, and from 1986 to 1991, Mr. Stratton was chief financial officer of
Dove Computer Corporation. From 1981 to 1985, Mr. Stratton held a variety of
engineering and manufacturing positions with E.I. du Pont de Nemours, Inc. &
Company, Incorporated. Mr. Stratton is also a director of International Citrus
Corporation. Mr. Stratton holds a Masters of Business Administration degree from
the University of North Carolina at Chapel Hill and a Bachelor of Science in
Chemical Engineering degree from Lafayette College.
Maria-Lisa Caldwell was appointed as the Secretary of the Company in April
1996. Ms. Caldwell is presently a principal in the law firm of Caldwell &
Caldwell, P.C. From 1991 to January 1996, Ms. Caldwell was an associate with the
law firm of Bass, Berry & Sims PLC. Prior to that time, Ms. Caldwell was an
associate with the law firm of Gibson, Dunn & Crutcher. Ms. Caldwell holds a
Juris Doctorate from Duke University School of Law and a Bachelor of Arts Degree
in Economics from Fairfield University.
Kimberly M. Stringfield joined the Company in December 1994 and serves as
the Company's Controller and Treasurer. From 1992 to 1994, Ms. Stringfield was a
credit analyst and commercial lender at NationsBank of Tennessee, N.A. Ms.
Stringfield holds a Bachelor of Science degree in Accounting from the University
of Alabama.
48
<PAGE> 51
COMPENSATION
The following table sets forth for the fiscal year ended December 31, 1995,
the compensation paid to the three most highly compensated executive officers of
the Company, and all executive officers and directors as a group. No director
received compensation in excess of $60,000 for fiscal 1995. The Company does not
have a pension plan or other retirement benefits. No options were granted to any
directors during the fiscal year ended December 31, 1995.
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDIVIDUAL OR IDENTITY OF CAPACITIES IN WHICH COMPENSATION WAS ------------------
GROUP RECEIVED SALARY BONUS
- ------------------------------------- ------------------------------------ -------- -------
<S> <C> <C> <C>
George M. Miller, II................. President and Chief Executive
Officer $175,000 $50,000
Peter T. Socha....................... Vice President -- Workouts 125,000 40,000
Carolyn W. Perrone................... Chief Financial Officer(1) 79,200 30,000
All officers and directors as a group
(18 persons)....................... 583,125 230,000
</TABLE>
- ---------------
(1) Carl W. Stratton assumed the office of Chief Financial Officer in April
1996. Ms. Perrone continues to serve as a financial advisor to the Company.
EMPLOYEE STOCK OPTIONS
For the purpose of providing employees who have substantial responsibility
for the management of the Company with additional incentives to exert their best
efforts on behalf of the Company, to increase their proprietary interest in the
success of the Company, to reward outstanding performance and to attract and
retain executive personnel of outstanding ability, the Company has adopted the
Amended and Restated 1994 Employee Stock Option Plan (the "1994 Employee Plan"),
and the 1996 Incentive Stock Option Plan (the "1996 Employee Plan"). The
following is a summary of certain provisions of the 1994 Employee Plan and the
1996 Employee Plan.
1994 Employee Plan. The total number of shares for which options may be
granted under the 1994 Employee Plan is 500,000, and options for the purchase of
500,000 shares of Common Stock have been granted. The 1994 Employee Plan is
administered by a committee of the Board of Directors, consisting of at least
two members who are not eligible for grants of options or other equity
securities under the 1994 Employee Plan or any other plan of the Company or any
of its affiliates. The committee determines the executive and other officers of
the Company who are eligible to participate in the 1994 Employee Plan and the
number of shares, if any, for which options may be granted to them. Seventeen
people are potentially eligible to participate in the 1994 Employee Plan.
Options granted under the 1994 Employee Plan are exercisable at a price equal to
the fair market value of the Common Stock on the date the option is granted. No
option may be exercised more than 10 years after the date of grant. Options
granted under the 1994 Employee Plan are not transferable other than by the laws
of descent and distribution and during the grantee's life may be exercised only
by the grantee. Rights to exercise options terminate after a grantee ceases to
be an employee for any reason, other than death, three months following the date
of termination of employment. If a grantee dies before expiration of the option,
his legal successors may exercise the option within one year of the employee's
death. Shares purchased upon exercise of options must be paid for in cash or by
the surrender of unrestricted shares of Common Stock or any combination thereof.
The Company may lend the grantee up to the exercise price of the option to be
exercised. Any such loan would be subject to certain terms set out in the Plan
and limitations imposed by the SBA. The 1994 Employee Plan will terminate when
options have been granted on the total number of shares authorized by it or by
action of the Board of Directors, but in no event later than November 18, 2004.
49
<PAGE> 52
The following table sets forth certain information as of April 30, 1996
with respect to options that have been granted under the 1994 Employee Plan:
<TABLE>
<CAPTION>
NUMBER OF SHARES
SUBJECT TO EXERCISE PRICE
NAME AND POSITION OPTION PER SHARE
------------------------------------------------------- ---------------- --------------
<S> <C> <C>
George M. Miller, II,.................................. 150,000 $11.00
President and Chief Executive Officer 56,966 18.50
Peter T. Socha,........................................ 20,000 18.50
Vice President-Workouts
Carolyn W. Perrone..................................... 20,000 18.50
Executive officers, as a group (4 persons)............. 150,000 11.00
125,000 13.50
96,966 18.50
Non-executive officer/employees, as a group............ 50,000 13.50
(7 persons) 25,000 17.88
20,000 18.50
33,034 18.63
</TABLE>
1996 Employee Plan. The 1996 Employee Plan authorizes the issuance of up
to 390,000 shares of the Company's Common Stock. As of April 30, 1996, options
for the purchase of 153,932 shares of the Common Stock have been granted. Awards
under the 1996 Employee Plan may be made to key employees and officers. The
number of people currently eligible for awards is 17. The 1996 Employee Plan is
administered by a committee of at least two disinterested individuals appointed
by the Board of Directors, which currently is the Compensation Committee (the
"Committee").
Incentive stock options ("ISO")and non-qualified stock options may be
granted as the Committee determines, subject to certain per person limitations
on awards. A stock option is exercisable at the times and subject to the terms
and conditions which the Committee determines. The option price for any ISO will
not be less than 100% (110% in the case of certain 10% shareholders) of the fair
market value of the Common Stock on the date of grant. Shares purchased upon
exercise of options must be paid for in cash or by surrender of unrestricted
shares of Common Stock or any combination thereof. The Board of Directors may
cause the Company to lend to the grantee up to the exercise price of the option
being exercised. Any such loan is subject to terms set out in the Plan,
including as to collateral and interest rate, and to other limitations imposed
by the SBA. Options granted under the 1996 Employee Plan cannot be assigned or
transferred except by will or by the laws of descent and distribution. During
the lifetime of an optionee, an option is exercisable only by the optionee. The
Committee determines the term of the option, which may not exceed 10 years. An
option may be exercised at any time or from time to time or only after a period
of time or in installments, as the Committee determines, except that options
granted to officers of the Company will not be exercisable for at least six
months after the date of grant. Upon termination of an option holder's
employment for Cause (as defined in the 1996 Employee Plan), that employee's
stock options will terminate. If employment is involuntarily terminated without
Cause, options (if exercisable) are exercisable for three months or until the
end of the option period, whichever is shorter. Upon death or disability of an
employee, exercisable stock options are exercisable by the deceased employee's
representative within the lesser of the remainder of the option period or one
year from the employee's death. In the event of certain extraordinary corporate
events, such as a sale of substantially all its assets or a merger or share
exchange in which the Company is not the surviving corporation, all outstanding
options under the 1996 Employee Plan shall immediately become fully exercisable.
The 1996 Employee Plan may be amended by the Board of Directors, except that the
approval of the Company's shareholders is required to increase the total number
of shares reserved for the 1996 Employee Plan or to materially increase the
benefits accruing to participants under the 1996 Employee Plan.
50
<PAGE> 53
The following table sets forth certain information with respect to options
that have been granted under the 1996 Employee Plan:
<TABLE>
<CAPTION>
NUMBER OF SHARES
SUBJECT TO EXERCISE PRICE
NAME AND POSITION OPTION PER SHARE
- ----------------------------------------------------------------- ---------------- --------------
<S> <C> <C>
George M. Miller, II,
President and Chief Executive Officer.......................... 36,966 $ 18.63
Executive officers, as a group (4 persons)....................... 36,966 18.63
Non-executive officer/employees, as a group (7 persons).......... 16,966 18.63
50,000 23.25
50,000 25.00
</TABLE>
NON-EMPLOYEE DIRECTOR STOCK OPTIONS
In order to retain and attract highly qualified directors, and to ensure
close identification of interests between non-employee directors and the
Company's shareholders, the Company adopted the 1995 Stock Option Plan for
Non-Employee Directors (the "Directors' Stock Option Plan"), which provides for
the automatic grant of options to directors of the Company that are not
employees or officers of the Company (other than John A. Morris, Jr., M.D.). In
accordance with the applicable provisions of the 1940 Act, the automatic grant
of options under the Directors' Stock Option Plan occurred on April 19, 1996,
the date of the approval of the plan by the Company's shareholders (the
"Approval Date").
Under the Directors' Stock Option Plan, eligible non-employee directors who
were directors of the Company before December 1, 1994, received options to
purchase 18,000 shares of Common Stock. Non-employee directors elected after
December 1, 1994, but before April 19, 1996, received options to purchase 12,000
shares of Common Stock. Any person who is initially elected a non-employee
director in the future will automatically receive, on the date of election, an
option to purchase 6,000 shares of Common Stock.
The total number of shares for which options may be granted under the
Directors' Stock Option Plan is 114,000, of which options to purchase 84,000
shares have been granted. The Directors' Stock Option Plan is administered by a
committee of the Board of Directors comprised of directors who are not eligible
to receive options under the Directors' Stock Option Plan. Options granted under
the Directors Stock Option Plan are exercisable at a price equal to the fair
market value of the Common Stock at the date of grant. No option may be
exercised more than 10 years after the date of grant. Shares purchased upon
exercise of options, must be paid for in cash, by surrender of unrestricted
shares of Common Stock or any combination thereof. Options granted under the
Directors' Stock Option Plan are not transferable other than by will or by the
laws of descent and distribution and during the grantee's life may be exercised
only by the grantee. If the grantee dies before expiration of the option, his
legal successors may exercise the option within one year of the grantee's death.
The Directors' Stock Option Plan may be terminated at any time by the Board of
Directors, and will terminate on April 19, 2006. No increase in the number of
shares authorized under the plan or material increase in the benefits to
participants under the plan may be made without shareholders' approval.
CERTAIN TRANSACTIONS
Raymond H. Pirtle, Jr., a director and shareholder of the Company, is a
managing director and a member of the board of directors of Equitable. Equitable
is one of the underwriters of this Offering and in connection therewith is
entitled to the compensation set forth under the heading "Underwriting."
Prior to the Conversion in February 1995, Messrs. Harrison and Socha, Ms.
Perrone, Jennifer K. Waugh and Kristen L. Garrison, employees of the Company,
were granted ownership interests in the Company. In connection therewith, each
such employee executed a promissory note for the purchase price of such interest
that bears interest at 7.25% per annum, payable annually, matures November 1,
2001, and is secured by a pledge of the Common Stock owned by each such
employee. As of the date hereof, the outstanding principal balance of such
promissory notes is as follows: Mr. Harrison, $440,142.16; Mr. Socha,
$513,072.72; Ms. Perrone, $440,142.16; Ms. Waugh, $102,678.51; and Ms. Garrison
$43,822.29.
51
<PAGE> 54
The Robinson-Humphrey Company, Inc. ("Robinson-Humphrey"), one of the
representatives of the underwriters in this offering, has been engaged by the
Company as its exclusive placing agent in connection with the obtaining and
placement of a senior debt facility for the Company. The engagement letter
provides that Robinson-Humphrey will receive a fee equal to 0.5% of the
aggregate debt commitment, of which one-half will be paid at closing and
one-half will be paid upon the earlier of the first initial draw under the debt
facility or June 30, 1997. In the event the Special Purpose Facility is
obtained, Robinson-Humphrey will be compensated under the terms of this
engagement. In addition, Sirrom agreed to indemnify Robinson-Humphrey with
respect to certain matters.
Sirrom, Ltd., a family-owned limited partnership, owns 20% of Harris
Williams that it purchased in 1994 for $500,000. The general partner of Sirrom,
Ltd. is All Scarlet, Inc., a corporation owned equally by John A. Morris, Jr.,
M.D., Chairman of the Company, and Mr. Morris' brother. If the acquisition of
Harris Williams is consummated at the base purchase price of 950,000 Company
shares, Sirrom, Ltd. would receive approximately 180,500 shares of the Company's
stock as part of the acquisition. See "Business -- Pending Acquisition."
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 outstanding on a fully diluted basis at the date as of which the
determination is made.
In making its valuation determination, the Board of Directors generally
adheres to a valuation policy approved by the SBA and adopted by the Board of
Directors. In calculating the value of the Company's total assets, securities
that are traded in the over-the-counter market or on a stock exchange are valued
at the average bid at close or closing price, as the case may be, for the
valuation date and the preceding two days, unless the investment is subject to a
restriction that requires a discount from such price, which is determined by the
Board of Directors. All other investments are valued at fair value as determined
in good faith by the Board of Directors. In making such determination, the Board
of Directors will value loans and nonconvertible debt securities for which there
exists no public trading market at cost plus amortized original issue discount,
if any, unless adverse factors lead to a determination of a lesser value, at
which time unrealized depreciation would be recognized. Convertible debt
securities and warrants are valued to reflect the value of the underlying equity
security less the conversion or exercise price. In valuing equity securities for
which there exists no public trading market, investment cost is presumed to
represent fair value except in cases where the valuation policy provides that
the Board of Directors may determine fair value on the basis of (i) financings
by unaffiliated investors, (ii) a history of positive cash flow from operations
for two years using a conservative financial measure such as earnings ratios or
cash flow multiples, (iii) the market value of comparable publicly traded
companies (discounted for illiquidity) and (iv) other pertinent factors. The
Board of Directors, at management's request, also has considered recent
operating results of a portfolio company or offers to purchase the portfolio
company's securities when valuing a warrant.
A substantial portion of the Company's assets will consist of securities
carried at fair values determined by its Board of Directors. The Company's
independent public accountants will review and express an opinion on the
reasonableness of the basis 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
judgment not susceptible to substantiation by auditing procedures. Accordingly,
under current standards, the accountants' opinion on the Company's financial
statements in its annual report refers to the uncertainty with respect to the
possible effect on the financial statements of such valuations.
52
<PAGE> 55
REINVESTMENT PLAN
Pursuant to the Reinvestment Plan a shareholder whose shares are registered
in his own name can have all distributions reinvested in additional shares of
Common Stock by the Reinvestment Plan Administrator if the shareholder enrolls
in the Reinvestment Plan by delivering an Authorization Form to the Reinvestment
Plan Administrator prior to the corresponding dividend declaration date. All
distributions to shareholders who do not participate in the Reinvestment Plan
will be paid by check mailed directly to the record holder by or under the
direction of the Reinvestment Plan Administrator. A shareholder may terminate
participation in the Reinvestment Plan by delivering a written letter to the
Reinvestment Plan Administrator before the record date of the next dividend or
distribution.
When the Company declares a dividend or distribution, shareholders who are
participants in the Reinvestment Plan will receive the equivalent of the amount
of the dividend or distribution in shares of the Company's Common Stock. The
Reinvestment Plan Administrator will buy shares in the open market, on the
Nasdaq National Market or elsewhere. The Reinvestment Plan Administrator will
apply all cash received on account of a dividend or distribution as soon as
practicable, but in no event later than 30 days, after the payment date of the
dividend or distribution except to the extent necessary to comply with
applicable provisions of the federal securities laws. The number of shares to be
received by the Reinvestment Plan participants on account of the dividend or
distribution will be calculated on the basis of the average price of all shares
purchased for that period, including brokerage commissions, and will be credited
to their accounts as of the payment date of the dividend or distribution.
The Reinvestment Plan Administrator will maintain all shareholder accounts
in the Reinvestment Plan and will furnish written confirmations of all
transactions in the account, including information needed by shareholders for
personal and tax records. Shares in the account of each Reinvestment Plan
participant will be held by the Reinvestment Plan Administrator in
non-certificated form in the name of the participant, and each shareholder's
proxy will include shares purchased pursuant to the Reinvestment Plan.
There is no charge to participants for reinvesting dividends and capital
gains distributions. The fees of the Reinvestment 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. However,
each participant will bear a pro rata share of brokerage commissions incurred
with respect to the Reinvestment Plan Administrator's open market purchases in
connection with the reinvestment of dividends and distributions.
THE REINVESTMENT OF DISTRIBUTIONS WILL NOT RELIEVE PARTICIPANTS OF ANY
INCOME TAX THAT MAY BE PAYABLE ON DISTRIBUTIONS. SEE "TAX STATUS."
The Company reserves the right to amend or terminate the Reinvestment Plan
as applied to any distribution paid subsequent to written notice of the change
sent to participants in the Reinvestment Plan. The Plan also may be amended or
terminated by the Reinvestment Plan Administrator with the Company's prior
written consent, on at least 90 days' written notice to participants in the
Reinvestment Plan. All correspondence concerning the Reinvestment Plan should be
directed to the Reinvestment Plan Administrator by mail at 230 South Tryon
Street, Charlotte, North Carolina 28288-1153 or by phone at 1-800-829-8432.
53
<PAGE> 56
TAX STATUS
THE FOLLOWING DISCUSSION IS A GENERAL SUMMARY OF THE MATERIAL FEDERAL TAX
CONSIDERATIONS APPLICABLE TO THE COMPANY AND TO AN INVESTMENT IN THE COMMON
STOCK AND DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF THE TAX
CONSIDERATIONS APPLICABLE TO SUCH AN INVESTMENT. PROSPECTIVE SHAREHOLDERS SHOULD
CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSIDERATIONS WHICH
PERTAIN TO THEIR PURCHASE OF THE COMMON STOCK. THIS SUMMARY DOES NOT DISCUSS ALL
ASPECTS OF FEDERAL INCOME TAXATION RELEVANT TO HOLDERS OF THE COMPANY'S COMMON
STOCK IN LIGHT OF THEIR PERSONAL CIRCUMSTANCES, OR TO CERTAIN TYPES OF HOLDERS
SUBJECT TO SPECIAL TREATMENT UNDER FEDERAL INCOME TAX LAWS, INCLUDING FOREIGN
TAXPAYERS. THIS SUMMARY DOES NOT DISCUSS ANY ASPECTS OF FOREIGN, STATE, OR LOCAL
TAX LAWS.
The Company has qualified for and elected to be treated as a RIC under
Subchapter M of the Code. If the Company continues to qualify as a RIC and
distributes to shareholders each year in a timely manner at least 90% of its
"investment company taxable income," as defined in the Code (in general, taxable
income excluding long-term capital gains), it will not be subject to federal
income tax on the portion of its taxable income and gains it distributes to
shareholders. In addition, if the Company distributes in a timely manner (or
treats as "deemed distributed" as described below) 98% of its capital gain net
income for each one year period ending on October 31 (or December 31, if so
elected by the Company), and distributes 98% of its ordinary income for each
calendar year (as well as any income not distributed in prior years), it will
not be subject to the 4% nondeductible federal excise tax on certain
undistributed income of RICs.
In order to continue to qualify as a RIC for federal income tax purposes,
the Company must, among other things, (a) derive in each taxable year at least
90% of its gross income from dividends, interest, payments with respect to
securities, loans, gains from the sale or other disposition of stock or
securities and other narrowly defined types of other income derived with respect
to its business of investing in such stock or securities; (b) derive in each
taxable year less than 30% of its gross income from the sale of stock or
securities held for less than three months; (c) diversify its holdings so that
at the end of each quarter of the taxable year (i) at least 50% of the value of
the Company's assets consists of cash, cash items, government securities, the
securities of other RICs and other securities if such other securities of any
one issuer do not represent more than 5% of the Company's total assets and 10%
of the outstanding voting securities of the issuer and (ii) no more than 25% of
the value of the Company's total assets are invested in the securities of one
issuer (other than U.S. government securities or the securities of other
regulated investment companies), or of two or more issuers that are controlled
by the Company and are engaged in the same or similar or related trades or
businesses; and (d) distribute at least 90% of its investment company taxable
income each taxable year.
There is no requirement that all of the corporations in a controlled group
that includes a RIC must qualify as RICs. As a general rule in the application
of the tests to qualify as a RIC, the parent corporation and each of its
subsidiaries are tested separately and cannot be consolidated. There is a
significant exception to this rule with regard to the 25% diversification test
described in the preceding paragraph. Solely for that test, the investments of a
subsidiary are deemed to be owned by the parent in proportion to the ratio of
the value of the subsidiary's stock to the value of all investments of the
parent, provided that the subsidiary and parent are in the same controlled group
(defined with reference to a chain of corporations with a 20% ownership
threshold). These rules regarding subsidiaries will be important upon the
creation of new subsidiaries for the acquisition of Harris Williams and the
corporate reorganization of the Company. See "Prospectus Summary." It is
possible that the existence and operation of these subsidiaries will cause the
Company or any of its subsidiaries that are intended to qualify as RICs not to
so qualify.
Certain types of income which are earned by the Company, such as processing
fees, do not qualify for purposes of satisfying the 90% of gross income test
mentioned above. For taxable year 1995, this test was satisfied by a small
margin. A failure to satisfy the 90% test cannot be corrected after the end of
the taxable year. In addition, each of the new subsidiaries that is intended to
qualify as a RIC, as well as the Company, must satisfy this 90% test on a stand
alone basis. Thus, even if the 90% test is satisfied on a consolidated basis, it
is possible that one or more of the subsidiaries, or the Company, may fail to
satisfy this test and lose its status as a RIC.
54
<PAGE> 57
If the Company or any subsidiary were to fail to qualify as a RIC, it would
not be entitled to a deduction for dividends paid. In this event, the corporate
income tax could be substantial and there would be a substantial reduction in
the Company's or subsidiary's net assets. Moreover, future distributions to the
Company's shareholders would be reduced because of the loss of any tax deduction
for payment of such dividends.
For any period during which the Company qualifies as a RIC for tax
purposes, dividends to shareholders of the Company's ordinary income (including
dividends, interest and original issue discount) and any distributions of net
short-term capital gains generally will be taxable as ordinary income to
shareholders to the extent of the Company's current or accumulated earnings and
profits. Corporate shareholders should consult their own tax advisers. In
addition, the Company may elect to relate back a dividend to the prior taxable
year for the purposes of (i) determining whether the 90% distribution
requirement is satisfied, (ii) computing investment company taxable income and
(iii) determining the amount of capital gain dividends paid during the prior
taxable year. Any such election will not alter the general rule that a
shareholder will be treated as receiving a dividend in the taxable year in which
the distribution is made. Any dividend declared by the Company in October,
November or December of any calendar year, payable to shareholders of record on
a specified date in such a month and actually paid during January of the
following year, will be treated as if it were paid by the Company and received
by the shareholders on December 31 of the previous year.
Shareholders should be careful to consider the tax implications of buying
shares just prior to the record date for a distribution. Even if the price of
the shares includes the amount of the forthcoming distribution the shareholder
will be taxed upon receipt of the distribution and will not be entitled to
offset the distribution against tax basis in the shares.
To the extent that the Company retains any net long-term capital gains, it
may designate them as "deemed distributions" and pay a tax thereon for the
benefit of its shareholders. In that event, the shareholders report their share
of retained realized capital gains on their individual tax returns as if it had
been received, and report a credit for the tax paid thereon by the Company. The
amount of the deemed distribution net of such tax is then added to the
shareholder's cost basis for his shares. Since the Company expects to pay tax on
long-term capital gains at the regular corporate tax rate of 34% and the maximum
rate payable by individuals on such gains is 28%, the amount of credit that
individual shareholders may report will exceed the amount of tax that they would
be required to pay on capital gains. Shareholders who are not subject to federal
income tax or tax on capital gains should be able to file a return on the
appropriate form or a claim for refund that allows them to recover the tax paid
on their behalf.
Distributions of the Company's net long-term capital gains (designated by
the Company as capital gain dividends) will be taxable to shareholders as
long-term capital gains regardless of the shareholder's holding period in his
shares.
The Budget Reconciliation Act of 1993 added Section 1202 of the Code, which
permits the exclusion, for federal income tax purposes, of 50% of any gain
(subject to certain limitations) realized upon the sale or exchange of
"qualified small business stock" held for more than five years. Generally,
qualified small business stock is stock of a small business corporation acquired
directly from the issuing corporation which must at the time of issuance and
immediately thereafter have assets of not more than $50.0 million and be
actively engaged in the conduct of a trade or business not excluded by law. The
amount of gain eligible for the 50 percent exclusion limit is limited, on a per
investor and per investment basis, to the greater of (i) ten times the
taxpayer's cost in the stock or (ii) $10.0 million. It is possible that in some
cases investments made by the Company will be in qualified small business stock,
that the Company will hold such stock for more than five years and that the
Company will ultimately dispose of such stock at a profit. If that were to
occur, each shareholder who held his shares at the time the Company purchased
the qualified small business stock and at all times thereafter until the
disposition of such stock by the Company would be entitled to exclude from his
taxable income 50% of such shareholders' share of such gain, whether distributed
or deemed distributed. One half of any amount so excluded would be treated as a
preference item for alternative minimum tax purposes.
A shareholder may recognize taxable gain or loss if the shareholder sells
or exchanges his shares. Any gain arising from (or, in the case of distributions
in excess of earnings and profits, treated as arising from) the
55
<PAGE> 58
sale or exchange of shares generally will be a capital gain or loss except in
the case of a dealer or a financial institution. This capital gain or loss will
be treated as a long-term capital gain or loss if the shareholder has held his
shares for more than one year. However, any capital loss arising from the sale
or exchange of shares sold for six months or less will be treated as a long-term
capital loss to the extent of the amount of capital gain dividends received with
respect to such shares; for this purpose, the special rules of Sections 246(c)
(3) and (4) of the Code generally apply in determining the holding period of
shares. Under current law applicable to individual taxpayers, capital gains are
taxed at the same rate as ordinary income, subject to a 28% cap for long-term
capital gains, but the deduction of capital losses is subject to limitations.
The Company may be required to withhold U.S. federal income tax at the rate
of 31% of all taxable dividends and distributions payable to shareholders who
fail to provide the Company with their correct taxpayer identification number or
to make required certifications or regarding whom the Company has been notified
by the Internal Revenue Service that they are subject to backup withholding.
Backup withholding is not an additional tax and any amounts withheld may be
credited against a shareholder's U.S. federal income tax liability.
Federal withholding taxes at a 30% rate (or a lesser treaty rate) may apply
to distributions to shareholders that are nonresident aliens or foreign
partnerships, trusts or corporations. Foreign shareholders should consult their
tax advisors with respect to the possible U.S. federal, state and local and
foreign tax consequences of an investment in the Company.
The Company will mail to each shareholder, as promptly as possible after
the end of each fiscal year, a notice detailing, on a per share and per
distribution basis, the amounts includable in such shareholder's taxable income
for such year as net investment income, as net realized capital gains (if
applicable), as "deemed" distributions of capital gains and as taxes paid by the
Company with respect thereto. In addition, the federal tax status of each year's
distributions will be reported to the Internal Revenue Service. Distributions
may also be subject to additional state, local and foreign taxes depending on
each shareholder's particular situation. Shareholders are advised to consult
their own tax advisers with respect to the particular tax consequences to them
of an investment in the Company.
Following the creation of new subsidiaries in connection with the
acquisition of Harris Williams, the corporate reorganization of the Company and
the Special Purpose Facility, it is possible that the Company and any of its
subsidiaries that intend to elect RIC status may not continue to meet the tests
for qualification as a RIC. Harris Williams will not qualify or be taxed as a
RIC and, therefore, will pay tax at the subsidiary level.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 50,000,000 shares of Common Stock. Of
the shares of Common Stock authorized for issuance, 9,153,836 are outstanding,
500,000 are reserved for issuance under the 1994 Employee Plan, 114,000 shares
are reserved for issuance under the Directors' Stock Option Plan and 390,000
shares are reserved under the 1996 Employee Plan.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by shareholders 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's Charter 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.
56
<PAGE> 59
REGISTRATION RIGHTS
In connection with the Company's private placement of securities in
November 1994, the holders of 391,805 shares of Common Stock obtained piggy-back
registration rights, subject to certain limitations, in the event the Company
proposes to register the sale of shares of Common Stock for its own account or
for the account of its shareholders. These registration rights expire on
November 1, 1996.
In addition, each shareholder of the Company receiving Common Stock in the
Conversion has piggyback registration rights, subject to certain limitations and
conditions, in the event that the Company proposes to register the sale of
shares of Common Stock for its own account or the account of another. These
registration rights expire February 1, 1997.
ANTI-TAKEOVER LEGISLATION
In addition to the restrictions on changes of control of an SBIC under the
SBIA and the SBA Regulations described under "Regulation," the Company is
subject to the Tennessee Business Combination Act (the "Combination Act"). The
Combination Act provides that any corporation to which it applies, including the
Company, shall not engage in any "business combination" with an "interested
shareholder" for a period of five years following the date that such shareholder
became an interested shareholder unless prior to such date the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the shareholder becoming an interested
shareholder.
The Combination Act defines "business combination," generally, to mean any
(i) merger or consolidation; (ii) share exchange; (iii) sale, lease, exchange,
pledge, mortgage or other transfer (in one transaction or a serial of
transactions) of uses representing 10% or more of (A) the market value of
consolidated assets, (B) the market value of the corporation's outstanding
shares or (C) the corporation's consolidated net income; (iv) issuance or
transfer of shares from the corporation to the interested shareholder, (v) plan
of liquidation; (vi) transaction in which the interested shareholder's
proportionate share of the outstanding shares of any clues of securities is
increased; or (vii) financing arrangements pursuant to which the interested
shareholder, directly or indirectly, receives a benefit except proportionately
as a shareholder.
The Combination Act defines "interested shareholder," generally, to mean
any person who is the beneficial owner, directly or indirectly, of 10% or more
of any class or series of the outstanding voting stock, or any affiliate or
associate of the corporation who has been the beneficial owner, directly or
indirectly, of 10% or more of the voting power of any class or series of the
corporation's stock at any time within the five year period preceding the date
in question. Consummation of a business combination that is subject to the
five-year moratorium is permitted after such period if the transaction (i)
complies with all applicable charter and bylaw requirements and applicable
Tennessee and (ii) is approved by at least two-thirds of the outstanding voting
stock not beneficially owned by the interested shareholder, or when the
transaction meets certain fair price criteria. The fair price criteria include,
among others, the requirement that the per share consideration received in any
such business combination by each of the shareholders is equal to the highest of
(i) the highest per share price paid by the interested shareholder during the
preceding five year period for shares of the same class or series plus interest
thereon from such date at a treasury bill rate less the aggregate amount of any
cash dividends paid and the market value of any dividends paid other than in
cash since such earliest date, up to the amount of such interest, (ii) the
highest preferential amount, if any, such class or series is entitled to receive
on liquidation, or (iii) the market value of the shares on either the date the
business combination is announced or the date when the interested shareholder
reaches the 10% threshold, whichever is higher, plus interest thereon less
dividends as noted above.
The Tennessee Greenmail Act (the "Greenmail Act") prohibits the Company
from purchasing or agreeing to purchase any of its securities, at a price in
excess of fair market value, from a holder of 3% or more of any class of such
securities who has beneficiary owned the securities for less than two years,
unless such purchase has been approved by a majority of the outstanding shares
of each class of voting stock issued by the Company or the Company makes an
offer of at least equal value per share to all holders of shares of such class.
57
<PAGE> 60
The effects of this legislation may be to render more difficult a change of
control of the Company by delaying, deferring or preventing a tender offer or
takeover attempt that a shareholder might consider to be in such shareholder's
best interest, including those attempts that might result in the payment of a
premium over the market price for the shares held by such shareholder, and may
promote the continuity of the Company's management by making it more difficult
for shareholders to remove or change the incumbent members of the Board of
Directors.
REGULATION
The Company is presently an SBIC and a BDC and as such is regulated under
the SBIA, the SBA Regulations and the 1940 Act. In the event the proposed
reorganization of the Company is consummated, the Company will continue to be a
BDC regulated under the 1940 Act, and its wholly-owned subsidiary will be an
SBIC and an investment company regulated under the SBIA, the SBA Regulations and
the 1940 Act.
As an SBIC, the Company may only make loans to or investments in "small
business concerns," as defined by the SBIA and the SBA Regulations. A "small
business concern," as defined in the SBIA and the SBA Regulations is a business
concern that is independently owned and operated and which is not dominant in
its field of operation. A small business concern must either (i) have a net
worth, together with any affiliates, of $18.0 million or less and an average net
income after federal income taxes for the preceding two years of $6.0 million or
less (average net income to be computed without benefit of any carryover loss)
or (ii) satisfy alternative criteria under the SBA Regulations that focus on the
industry in which the business is engaged and the number of persons employed by
the business or its gross revenues. In addition at the end of each fiscal year,
20% of the total amount of investments made since April 8, 1994 must be made to
concerns that (i) have a net worth of not more than $6.0 million and not more
than $2.0 million in average net income after federal income taxes for the
preceding two years, or (ii) satisfy alternative industry-related size criteria.
The SBA Regulations also prohibit an SBIC from providing funds to a small
business concern for certain purposes, such as relending and investment outside
the United States.
The amount of annual interest payments the Company may charge its borrowers
is limited by the SBA Regulations. Under these regulations, the maximum annual
financing costs (including interest) of loans with equity features to small
business concerns may not exceed the greater of 14% or 6 percentage points above
the "Debenture Rate." As defined in the SBA Regulations, the "Debenture Rate" is
the interest rate announced, from time to time, by the SBA on SBA debentures. As
of March 31, 1996, the maximum annual financing costs applicable to the Company
were 14.0%. The SBA Regulations also allow an SBIC to charge a processing fee of
up to 3%, which fee is not included in the financing cost calculation.
The SBA restricts the ability of an SBIC to repurchase its capital stock,
to retire its debentures and to lend money to its officers, directors and
employees or invest in affiliates thereof. The SBA also prohibits, without prior
SBA approval, a "change of control" or transfers which would result in any
person (or group of persons acting in concert) owning 10% or more of any class
of capital stock of an SBIC. A "change of control" is any event which would
result in the transfer of the power, direct or indirect, to direct the
management and policies of an SBIC, whether through ownership, contractual
arrangements or otherwise.
The Company is a closed-end, non-diversified investment company that has
elected to be treated as a BDC company and, as such, is subject to regulation
under the 1940 Act. The 1940 Act contains prohibitions and restrictions relating
to transactions between investment companies and their affiliates, principal
underwriters and affiliates of those affiliate 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 the Company may
not change the nature of its business so as to cease to be, or to withdraw its
election as, a business development company unless so authorized by the vote of
a majority, as defined in the 1940 Act, of its outstanding voting securities.
The Company is permitted, under specified conditions, to issue multiple
classes of indebtedness and one class of stock senior to the shares offered
hereby if its asset coverage of any Senior Security is at least 200% immediately
after each such issuance. Debt securities issued to the SBA are not subject to
this asset coverage
58
<PAGE> 61
test. In addition, while Senior Securities are outstanding, provisions must be
made to prohibit any distribution to shareholders or the repurchase of such
securities or shares unless the Company meets the applicable asset coverage
ratios at the time of the distribution or repurchase. The Company 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 business development company 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 company's total assets. The principal
categories of Qualifying Assets relevant to the proposed business of the Company
are the following:
(1) 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:
(a) is organized under the laws of, and has its principal place of
business in, the United States;
(b) is not an investment company other than a small business
investment company wholly-owned by the business development company,
and
(c) does not have any class of securities with respect to which a
broker or dealer may extend margin credit.
(2) Securities of any eligible portfolio company which is controlled by
the business development company.
(3) Securities received in exchange for or distributed on or with
respect to securities described in (1) or (2) above, or pursuant to the
exercise of options, warrants or rights relating to such securities.
(4) Cash, cash items, government securities, or high quality debt
securities maturing in one year or less from the time of investment.
In addition, a business development company 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 in (1) or (2) above.
However, in order to count the securities as Qualifying Assets for the purpose
of the 70% test, the business development company must either control the issuer
of the securities or must make available to the issuer of the securities
significant managerial assistance; except that, where the company purchases such
securities in conjunction with one or more other persons acting together, one of
the other persons in the group may make available such managerial assistance. By
the making of loans to small concerns, SBICs are deemed to provide significant
managerial assistance.
SHARES ELIGIBLE FOR FUTURE SALE
No prediction 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
11,153,836 shares of Common Stock. Of these shares, the 2,000,000 shares of
Common Stock sold in this Offering and the 5,520,000 shares sold in the
Company's prior public offerings 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 Representatives 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 3,633,836 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 Conversion in reliance upon an exemption from registration
under the Securities Act.
59
<PAGE> 62
UNDERWRITING
The Underwriters named below, for whom The Robinson-Humphrey Company, Inc.,
J.C. Bradford & Co., and Equitable Securities Corporation are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions set forth in the Underwriting Agreement entered into
between the Company and the Underwriters, to purchase from the Company, and the
Company has agreed to sell to the Underwriters, the respective number of shares
of Common Stock set forth opposite their respective names below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ---------------------------------------------------------------------------------- ---------
<S> <C>
The Robinson-Humphrey Company, Inc................................................
J.C. Bradford & Co................................................................
Equitable Securities Corporation..................................................
---------
Total................................................................... 2,000,000
========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligations is such that they are committed to purchase all shares of the Common
Stock offered hereby if any are purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the offering price set forth on the cover page of this Prospectus
and to certain dealers at such price less a concession not in excess of
$ per share. The Underwriters may allow, and such dealers may reallow,
a concession not in excess of $ per share in sales to certain other
dealers.
The Company has granted the Underwriters a 30-day option to purchase up to
an additional 300,000 shares of Common Stock at the offering price set forth on
the cover page of the Prospectus less the underwriting discounts and commissions
set forth on the cover page of this Prospectus to cover overallotments, if any.
If the Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by each of them as shown in the table above bears to the 2,000,000
shares of Common Stock offered hereby. The Underwriters may exercise such option
only to cover over-allotments in connection with the sale of the shares of
Common Stock offered hereby.
The Underwriters do not intend to confirm sales of shares of Common Stock
to any account over which they exercise discretionary authority.
The Company, its officers and directors have agreed not to offer, sell or
otherwise dispose of any shares of Common Stock of the Company for a period of
90 days from the date of this Prospectus without the prior written consent of
the Representatives.
The Company has agreed to indemnify the Underwriters against, and to
contribute to losses arising out of, certain liabilities, including liabilities
under the Securities Act.
The rules of the Commission generally prohibit the Underwriters from making
a market in the Common Stock during the two business day period prior to
commencement of sales in this Offering (the "Cooling Off Period"). The
Commission has, however, adopted Rule 10b-6A ("Rule 10b-6A") which provides an
exemption from such prohibition for certain passive market making transactions.
Such passive market making transactions must comply with applicable price and
volume limits and must be identified as passive market making transactions. In
general, pursuant to Rule 10b-6A, a passive market maker may display its bid for
a security at a price not in excess of the highest independent bid for the
security. If an independent bids are lowered below the passive market maker's
bid, however, such bid must then be lowered when certain purchase limits are
exceeded. Further, net purchases by a passive market maker on each day are
generally limited to a specified percentage of the passive market maker's
average daily trading volume in a security during a specified prior period and
must be discontinued when such limit is reached. Pursuant to the exemption
provided by Rule 10b-6A, certain of the Underwriters and selling group members
may engage in passive
60
<PAGE> 63
market making in the Common Stock during the Cooling Off Period. Passive market
making may stabilize the market price of the Common Stock at a level above that
which might otherwise prevail and if commenced, may be discontinued at any time.
Equitable is deemed to be an affiliated person of the Company as a result
of the relationship of Raymond H. Pirtle, Jr., as a director of the Company and
as a managing director and member of the Board of Directors of Equitable.
The principal business address of each of the Representatives is as
follows: The Robinson-Humphrey Company, Inc., 3333 Peachtree Road, N.E.,
Atlanta, Georgia 30326; J.C. Bradford & Co., 330 Commerce Street, Nashville,
Tennessee 37201; and Equitable Securities Corporation, 800 Nashville City
Center, 511 Union Street, Nashville, Tennessee 37219-1743.
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 Bass, Berry & Sims
PLC, Nashville, Tennessee. Certain legal matters related to the Offering will be
passed upon for the Underwriters by Sherrard & Roe, PLC, Nashville, Tennessee.
CUSTODIAN, TRANSFER AND DIVIDEND PAYING AGENT AND REGISTRAR
The Company's securities are held under a Custodial Services Agreement with
First American National Bank (Trust Department). The address of the custodian is
First American Center, Nashville, Tennessee 37237. The Company's assets are held
under bank custodianship in compliance with the 1940 Act. The Custodial Services
Agreement with First American Trust Company provides for an annual fee, payable
quarterly, equal to approximately 0.035% of the assets held pursuant to the
Custodial Services Agreement. First Union National Bank will act as the
Company's transfer and dividend paying agent and registrar. The principal
business address of First Union National Bank is 230 South Tryon Street,
Charlotte, North Carolina 28288-1153.
REPORTS TO SHAREHOLDERS
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 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.
61
<PAGE> 64
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SIRROM CAPITAL CORPORATION
Report of Independent Public Accountants.............................................. F-2
Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996 (unaudited)........ F-3
Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995 and for
the Three Months Ended March 31, 1995 and 1996 (unaudited).......................... F-4
Statements of Changes in Partners' Capital and Shareholders' Equity for the Years
Ended December 31, 1993, 1994 and 1995 and the Three Months Ended March 31, 1996
(unaudited)......................................................................... F-5
Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995 and the
Three Months Ended March 31, 1995 and 1996 (unaudited).............................. F-6
Financial Highlights
Per Share Data for the Year Ended December 31, 1995 and the Three Months Ended March
31, 1996 (unaudited)............................................................. F-7
Ratios/Supplemental Data for the Years Ended December 31, 1993, 1994 and 1995 and
the Three Months Ended March 31, 1996 (unaudited)................................ F-7
Notes to Financial Statements......................................................... F-8
Quarterly Financial Information for the Years 1994 and 1995 (unaudited)............... F-14
Portfolio of Investments
As of December 31, 1994............................................................. F-15
As of December 31, 1995............................................................. F-20
As of March 31, 1996 (unaudited).................................................... F-28
HARRIS WILLIAMS & CO. AND SUBSIDIARY
Report of Independent Public Accountants.............................................. F-36
Consolidated Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996
(unaudited)......................................................................... F-37
Consolidated Statements of Income for the Years Ended December 31, 1993, 1994 and 1995
and for the Three Months Ended March 31, 1995 and 1996 (unaudited).................. F-38
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
December 31, 1993, 1994 and 1995 and the Three Months Ended March 31, 1996
(unaudited)......................................................................... F-39
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and
1995 and the Three Months Ended March 31, 1995 and 1996 (unaudited)................. F-40
Notes to Consolidated Financial Statements............................................ F-41
</TABLE>
F-1
<PAGE> 65
SIRROM CAPITAL CORPORATION
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Sirrom Capital Corporation:
We have audited the accompanying balance sheets, including the portfolio of
investments of SIRROM CAPITAL CORPORATION (see Note 1) as of December 31, 1994
and 1995, and the related statements of operations, changes in Partners' capital
and shareholders' equity and cash flows for each of the years in the three year
period ended December 31, 1995 and financial highlights for the periods
indicated thereon. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sirrom Capital Corporation
at December 31, 1994 and 1995 and the results of its operations, the changes in
Partners' capital and shareholders' equity and its cash flows for each of the
three years in the period ended December 31, 1995 and financial highlights for
the periods indicated thereon, in conformity with generally accepted accounting
principles.
As explained in Note 2, the financial statements include investments valued
at $86,383,594 (95% of total assets) and $170,210,719 (96% of total assets) as
of December 31, 1994 and 1995, respectively, whose values have been estimated by
the Board of Directors in the absence of readily ascertainable market values. We
have reviewed the procedures used by the Board of Directors in arriving at its
estimate of value of such investments and have inspected underlying
documentation, and, in the circumstances, we believe the procedures are
reasonable and the documentation appropriate. However, the estimated values may
differ significantly from the values that would have been used had a ready
market for the securities existed, and the differences could be material.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
January 26, 1996
F-2
<PAGE> 66
SIRROM CAPITAL CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1994 1995 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Investments, at fair value:
Loans.............................................. $ 72,336,480 $144,854,517 $166,936,281
Equity interests................................... 7,576,613 15,912,467 22,548,818
Warrants........................................... 7,548,851 11,513,183 11,198,843
------------ ------------ ------------
Total investments (cost of $82,342,194,
$162,466,881, and $188,430,081,
respectively)............................ 87,461,944 172,280,167 200,683,942
Cash and cash equivalents............................ 137,247 195,069 78,283
Interest receivable.................................. 1,302,662 2,119,567 2,534,774
Debenture costs (less accumulated amortization of
$175,487, $383,279, and $570,175, respectively).... 1,049,408 2,020,030 2,095,634
Restricted investment................................ 1,000,000 -- --
Furniture and equipment (less accumulated
depreciation of $18,565 and $29,273,
respectively)...................................... -- 203,860 214,734
Other assets......................................... 18,000 211,165 598,473
------------ ------------ ------------
Total assets............................... $ 90,969,261 $177,029,858 $206,205,840
=========== =========== ===========
LIABILITIES, PARTNERS' CAPITAL AND SHAREHOLDERS' EQUITY
Liabilities:
Debentures payable to Small Business
Administration.................................. $ 51,000,000 $ 73,260,000 $ 83,260,000
Revolving credit facility.......................... 6,389,251 13,200,000 24,916,000
Interest payable................................... 681,008 936,818 1,281,333
Accrued taxes payable.............................. 487,794 1,073,525 2,310,268
Accounts payable and accrued expenses.............. 28,376 213,901 32,016
------------ ------------ ------------
Total liabilities.......................... 58,586,429 88,684,244 111,799,617
------------ ------------ ------------
Commitments and contingencies
Partners' capital and shareholders' equity (Note 1):
Partners' capital.................................. 24,837,736 -- --
Common stock -- No par value, 50,000,000 shares
authorized, 9,195,116 issued and outstanding.... -- 73,919,184 73,919,184
Notes receivable from employees.................... (1,980,000) (1,980,000) (1,980,000)
Undistributed net realized earnings................ 4,405,354 6,593,144 10,413,193
Unrealized appreciation of investments............. 5,119,742 9,813,286 12,053,846
------------ ------------ ------------
Total partners' capital and shareholders'
equity................................... 32,382,832 88,345,614 94,406,223
------------ ------------ ------------
Total liabilities, partners' capital and
shareholders' equity..................... $ 90,969,261 $177,029,858 $206,205,840
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 67
SIRROM CAPITAL CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
------------------------------------- MARCH 31,
1993 1994 1995 -------------------------
---------- ---------- ----------- 1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING INCOME:
Interest on Investments........... $3,514,564 $7,336,816 $13,451,742 $ 2,424,130 $ 4,862,463
Loan processing fees.............. 699,000 901,340 1,899,692 540,992 921,250
Other income...................... -- -- 223,456 -- --
---------- ---------- ----------- ----------- -----------
Total operating income.... 4,213,564 8,238,156 15,574,890 2,965,122 5,783,713
---------- ---------- ----------- ----------- -----------
OPERATING EXPENSES:
Interest expense.................. 1,427,386 3,123,461 4,771,131 998,871 1,789,982
Salaries and benefits............. -- -- 1,081,478 451,643 739,020
Management fees................... 708,999 1,072,833 -- -- --
Other operating expenses.......... 165,811 122,339 1,412,358 221,620 477,064
State income tax on interest...... 230,743 457,035 109,035 51,661 --
Amortization expense.............. 53,725 117,992 207,792 30,009 188,397
---------- ---------- ----------- ----------- -----------
Total operating
expenses................ 2,586,664 4,893,660 7,581,794 1,753,804 3,194,463
---------- ---------- ----------- ----------- -----------
Net operating income................ 1,626,900 3,344,496 7,993,096 1,211,318 2,589,250
Realized gain (loss) on
investments....................... (799,353) (538,025) 1,759,513 49,795 5,756,489
Change in unrealized appreciation
(depreciation) of investments..... (49,611) 3,356,316 4,693,544 1,602,920 2,240,559
Provision for income taxes.......... -- -- (1,020,321) -- (2,134,960)
---------- ---------- ----------- ----------- -----------
Net increase in partners' capital
and shareholders' equity resulting
from operations................... $ 777,936 $6,162,787 $13,425,832 $ 2,864,033 $ 8,451,338
========= ========= ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 68
SIRROM CAPITAL CORPORATION
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
COMMON STOCK UNDISTRIBUTED (DEPRECIATION)
PARTNERS' ---------------------- NOTES RECEIVABLE NET REALIZED OF
CAPITAL SHARES AMOUNT FROM EMPLOYEES EARNINGS INVESTMENTS TOTAL
---------------- --------- ----------- ---------------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
SIRROM CAPITAL, L.P.:
BALANCE, DECEMBER 31,
1992...................... $ 12,117,544 -- $ -- $ -- $ 771,336 $ 1,813,037 $14,701,917
Capital contributions..... 3,936,968 -- -- -- -- -- 3,936,968
Capital distributions..... (765,861) -- -- -- -- -- (765,861)
Net increase in partners'
capital resulting from
operations.............. -- -- -- -- 827,547 (49,611) 777,936
---------------- --------- ----------- ---------------- ------------- ------------ -----------
BALANCE, DECEMBER 31,
1993...................... 15,288,651 -- -- -- 1,598,883 1,763,426 18,650,960
Capital contributions..... 8,162,178 -- -- -- -- -- 8,162,178
Purchase of ownership in
partnership............. 1,980,000 -- -- (1,980,000) -- -- --
Capital distributions..... (593,093) -- -- -- -- -- (593,093)
Net increase in partners'
capital resulting from
operations.............. -- -- -- -- 2,806,471 3,356,316 6,162,787
---------------- --------- ----------- ---------------- ------------- ------------ -----------
BALANCE, DECEMBER 31,
1994...................... 24,837,736 -- -- (1,980,000) 4,405,354 5,119,742 32,382,832
SIRROM CAPITAL CORPORATION:
Effect of reorganization
(Note 1)................ (24,837,736) 5,050,116 24,837,736 -- -- -- --
Issuance of common
stock................... -- 4,145,000 47,712,029 -- -- -- 47,712,029
Net increase in
shareholders' equity
resulting from
operations.............. -- -- -- -- 8,732,288 4,693,544 13,425,832
Payment of dividends...... -- -- -- -- (3,974,079) -- (3,974,079)
Distribution of Capital
Gains................... -- -- -- -- (1,201,000) -- (1,201,000)
Designation of
undistributed capital
gains, net of tax (Note
13)..................... -- -- 1,369,419 -- (1,369,419) -- --
---------------- --------- ----------- ---------------- ------------- ------------ -----------
BALANCE, DECEMBER 31,
1995...................... -- 9,195,116 73,919,184 (1,980,000) 6,593,144 9,813,286 88,345,614
Payment of dividends
(unaudited)............. -- -- -- -- (2,390,730) (2,390,730)
Net increase in
shareholders' equity
resulting from
operations
(unaudited)............. -- -- -- 6,210,779 2,240,560 8,451,339
---------------- --------- ----------- ---------------- ------------- ------------ -----------
BALANCE, MARCH 31, 1996
(unaudited)............... $ -- 9,195,116 $73,919,184 $ (1,980,000) $10,413,193 $ 12,053,846 $94,406,225
============= ======== ========== ============= =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 69
SIRROM CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS
------------------------------------------- ENDED MARCH 31,
1993 1994 1995 ---------------------------
------------- ------------ ------------ 1995 1996
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net increase in partners' capital and
shareholders' equity resulting from
operations.................................. $ 777,936 $ 6,162,787 $ 13,425,832 $ 2,864,033 $ 8,451,338
Adjustments to reconcile net increase to net
cash provided by operating activities:
Net unrealized (appreciation) depreciation
of investments............................ 49,611 (3,356,316) (4,693,544) (1,602,920) (2,240,559)
Realized loss (gain) on investments......... 799,353 538,025 (1,759,513) (49,795) (5,756,488)
Amortization of debenture costs............. 53,725 117,992 207,792 28,509 186,897
Increase in interest receivable............. (608,947) (508,321) (816,905) (169,440) (415,185)
Decrease in prepaid management fee.......... 33,000 -- -- -- --
(Increase) decrease in accounts
receivable................................ (587,400) --
Increase (decrease) in accounts payable and
accrued expenses.......................... (36,654) 28,376 185,525 119,135 (181,886)
Amortization of organization costs.......... 6,000 6,000 6,000 1,500 1,500
Depreciation of fixed assets................ -- -- 18,565 1,622 10,709
Increase (decrease) in prepaid interest..... 12,350 (12,350) -- -- --
Increase in accrued taxes payable........... 205,515 282,279 585,731 (441,804) 1,236,743
Increase in interest payable................ 308,501 261,158 255,810 121,831 344,515
------------- ------------ ------------ ------------ ------------
Net cash provided by operating
activities............................ 1,600,390 3,519,630 7,415,293 285,271 1,637,584
------------- ------------ ------------ ------------ ------------
INVESTING ACTIVITIES:
Proceeds from sale of investments............. 2,355,147 9,769,378 27,303,888 4,162,187 12,506,905
Investments originated or acquired............ (33,632,035) (44,162,021) (105,669,054) (28,619,362) (32,714,000)
Purchase of fixed assets...................... -- -- (222,425) (45,976) (21,237)
(Increase) decrease in restricted
investments................................. -- (1,000,000) 1,000,000 -- --
Increase in other assets...................... -- -- (199,165) -- (588,808)
------------- ------------ ------------ ------------ ------------
Net cash used in investing activities... (31,276,888) (35,392,643) (77,786,756) (24,503,151) (20,817,140)
------------- ------------ ------------ ------------ ------------
FINANCING ACTIVITIES:
Proceeds from debentures payable to Small
Business Administration..................... 24,000,000 17,000,000 22,260,000 -- 10,000,000
Proceeds from revolving credit facilities..... 8,323,500 42,978,109 62,638,595 8,475,596 29,703,000
Repayment of line of credit borrowings........ (8,323,500) (36,588,858) (55,827,846) (10,820,847) (17,987,000)
Increase in debenture costs................... (462,900) (580,995) (1,178,414) 110,351 (262,500)
Proceeds from capital contributions........... 3,936,968 8,162,178 -- -- --
Distribution of capital....................... (765,861) (593,093) -- -- --
Issuance of common stock...................... -- -- 47,712,029 26,508,058 --
Payment of dividends.......................... -- -- (3,974,079) -- (2,390,730)
Distribution of Capital Gains................. -- -- (1,201,000) -- --
------------- ------------ ------------ ------------ ------------
Net cash provided by financing
activities............................ 26,708,207 30,377,341 70,429,285 24,273,158 19,062,770
------------- ------------ ------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... (2,968,291) (1,495,672) 57,822 55,278 (116,786)
CASH AND CASH EQUIVALENTS, beginning of year.... 4,601,210 1,632,919 137,247 137,247 195,069
------------- ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year.......... $ 1,632,919 $ 137,247 $ 195,069 $ 192,525 $ 78,283
============ =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid................................. $ 1,131,235 $ 2,707,488 $ 4,525,701 $ 877,041 $ 1,398,134
============ =========== =========== =========== ===========
Taxes paid.................................... $ 25,228 $ 174,756 $ 493,465 $ 591,322 $ 951,116
============ =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 70
SIRROM CAPITAL CORPORATION
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH
YEAR ENDED 31, 1996
PER SHARE DATA(1) DECEMBER 31, 1995 --------------
- ---------------------------------------------------------------- ----------------- (UNAUDITED)
<S> <C> <C>
Net asset value, beginning of year.............................. $ 6.41(2) $ 9.61
----------------- --------------
Net operating income............................................ 0.87 0.28
Net realized and unrealized gains or losses on investments...... 3.19(3) 0.64
----------------- --------------
Total from investment operations................................ 4.06 0.92
----------------- --------------
Less: Dividends on net investment income........................ 0.49 0.26
Distributions on realized capital gains................... 0.37(4) 0.00
----------------- --------------
Total Distributions................................... 0.86 0.26
----------------- --------------
Net asset value, end of period.................................. $ 9.61 $ 10.27
============= ===========
Per share market value, end of period........................... $ 18.875 $ 22.88
============= ===========
Shares outstanding, end of period............................... 9,195,116 9,195,116
============= ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
RATIOS/SUPPLEMENTAL DATA 1993 1994 1995
- --------------------------------------------------- ------- ------- ------- MARCH 31, 1996
--------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net assets, end of period (in thousands)........... $18,651 $32,383 $88,346 $ 94,406
Ratio of operating expenses to average net
assets........................................... 15.5% 19.2% 12.6% 13.9%(5)
Ratio of net operating income to average net
assets........................................... 9.7% 13.1% 13.2% 11.3%(5)
</TABLE>
- ---------------
(1) Prior to 1995 the Company operated as a partnership, therefore no per share
information is available.
(2) Net asset value at beginning of the period is calculated based on partners'
capital of $32,382,832 at December 31, 1994 and 5,050,116 shares of common
stock issued at conversion of the Partnership to the Company at February 1,
1995.
(3) Per share net realized and unrealized gains or losses includes the effect of
stock issuances at per share prices in excess of the Company's per share net
asset value.
(4) The per share amount includes distributions paid and realized capital gains
designated as distributed but retained by the Company. See Note 13.
(5) Represents annualized ratios based on the three months ended March 31, 1996.
The accompanying notes are an integral part of these statements.
F-7
<PAGE> 71
SIRROM CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Sirrom Capital Corporation (the "Company"), a Tennessee Corporation, was
formed in November 1994 and Sirrom Capital, L.P. (the "Partnership") became a
partnership under the laws of the State of Tennessee in November 1991. The
accompanying financial statements have been prepared on a basis appropriate for
investment companies as enumerated in the American Institute of Certified Public
Accountants' Audit and Accounting Guide on Audits of Investment Companies.
The Company is a non-diversified, closed-end investment company, which has
elected to be treated as a business development company under the Investment
Company Act of 1940. The Company is also a small business investment company
("SBIC") licensed under the Small Business Investment Act of 1958 (the "1958
Act"). The Company was licensed by the U.S. Small Business Administration (the
"SBA") on May 14, 1992. Under applicable SBA regulations, the Company is
restricted to investing only in qualified small business concerns in the manner
contemplated by the 1958 Act, as amended. Additionally, beginning in February
1995, the Company elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended.
The Company's objectives are to achieve both a high level of current income
from interest on loans and fees, as well as long-term growth in the value of its
net assets through equity interests primarily in small, privately owned
companies. The Company targets small businesses that meet certain criteria,
including the potential for significant growth, adequate collateral coverage,
experienced management teams, sophisticated outside equity investors and
profitable operations.
Effective February 1, 1995, the partners of the Partnership transferred, in
a tax free conversion, their partnership interests to the Company in exchange
for the issuance of 5,050,116 shares of common stock of the Company. The common
stock was received by each partner in proportion to the partner's percentage
interest in the Partnership. As a result of this exchange, the Partnership was
dissolved and liquidated, with all of the assets and liabilities of the
Partnership (including the SBIC license which was obtained by the Partnership in
May 1992) being thereby assigned and transferred to the Company. This
transaction was accounted for as a reorganization of entities under common
control, in a manner similar to a pooling of interests.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Valuation of Investments
Portfolio investments are stated at fair value as determined by the Board
of Directors.
Under the Company's valuation policy, the fair values of loans to small
business concerns are based on the Board of Director's evaluation of the
financial condition of the borrowers and/or the underlying collateral. The
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. Fair value normally
corresponds to cost unless the borrower's condition or external factors lead to
a determination of fair value at a higher or 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 sophisticated,
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 Board of Directors also considers
recent offers to purchase a portfolio company's securities when valuing
warrants.
The Company's investments in restricted stocks of public companies are
valued at the bid quotation less a discount rate of 30%. Unrestricted public
securities are valued at recently published market values.
F-8
<PAGE> 72
SIRROM CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1994 and 1995, the investment portfolio included
investments totaling $86,383,594 and $170,210,719, respectively, whose values
had been estimated by the Board of Directors in the absence of readily
ascertainable market values. At March 31, 1996, the investment portfolio
included investments totaling $192,409,978 (unaudited). 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 for
the securities existed, and the differences could be material.
Realized and Unrealized Gain or Loss on Investments
Realized gains or losses are recorded upon disposition of investments and
are calculated 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.
Description of Loans Terms
The loans to small business concerns included in investments bear interest
at rates ranging from 6.50% to 14.00% (12.91% at March 31, 1996, unaudited).
Interest is payable in monthly and quarterly installments over five years with
the entire principal amount due at maturity. These loans are generally
collateralized by the assets of the borrower, certain of which are subject to
prior liens, and/or guarantees.
Loan Processing Fees
The Company recognizes loan processing fees as income when received.
Cash and Cash Equivalents
The Company defines cash and cash equivalents as cash on hand, cash in
interest bearing and non-interest bearing operating bank accounts and highly
liquid investments such as time deposits with an original maturity of three
months or less.
Debenture Costs
Debenture costs are amortized over ten years which represents the term of
the ten (11 at March 31, 1996, unaudited) SBA debentures, as discussed in Note
5.
Income Taxes
The financial statements for 1993 and 1994 do not include a provision for
federal income taxes because the partners are taxed based on their respective
share of partnership earnings. During these years, the Company was subject to
state income taxes on interest.
Beginning in February 1995, the Company elected to be taxed as a regulated
investment company ("RIC") under Subchapter M of the Internal Revenue Code (the
"Code"). If the Company, as a RIC, satisfies certain requirements relating to
the source of its income, the diversification of its assets and the distribution
of its net income, the Company is generally taxed as a pass through entity which
acts as a partial conduit of income to its shareholders.
In order to maintain its RIC status, the Company must in general: a) derive
at least 90% of its gross income from dividends, interest and gains from the
sale or disposition of securities b) derive less than 30% of its gross income
from the sale or disposition of securities held for less than three months, c)
meet investment diversification requirements defined by the Code and d)
distribute to shareholders 90% of its net income (other than long-term capital
gains).
F-9
<PAGE> 73
SIRROM CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company intends to meet the RIC qualifications in future years.
Therefore, the Company has not provided for federal income taxes on the
unrealized appreciation of investments.
Partners' Capital/Shareholders' Equity
During 1993 and 1994, net operating income (loss), realized gains (losses)
and unrealized gains (losses) were allocated one percent (1%) and ninety-nine
percent (99%) to the General Partner and Limited Partners, respectively.
During November 1994, six employees were granted ownership interests in the
partnership at a purchase price equal to the approximate fair value of each
ownership interest. In connection therewith, each employee executed a promissory
note for the purchase price of such interest. The promissory notes bear interest
at 7.25% per annum with interest payable annually. All notes mature on November
1, 2001. As discussed in Note 1, the interests in the partnership were
subsequently exchanged for the Company's common stock. The Company's stock must
be resold to the Company if the employee is no longer employed by the Company
for a period of not less than three years from the date of purchase. The notes
receivable from employees were shown as a reduction in partners' capital and a
reduction to common stock in the amount of $1,980,000 at December 31, 1994 and
1995 and March 31, 1996 (unaudited).
3. 1995 WARRANT VALUATIONS
During 1995, the Company's Board of Directors approved warrant and stock
valuations totaling approximately $6,000,000 (the investments in Premiere
Technologies, Inc. attributed to 84% of this amount) that did not conform to the
valuation guidelines of the SBA. SBA guidelines state that increases to
investment valuations can be made after a significant equity financing occurs by
an unrelated, new investor, but not prior to such a transaction. The valuations
in question were based on impending public offerings, purchase offers and
private placements.
4. RESTRICTED INVESTMENT
The restricted investment of $1,000,000 at December 31, 1994 represented a
certificate of deposit that the Company pledged to a bank as collateral on
behalf of one of the Company's portfolio investments. The Company sold this
investment during 1995 and no longer pledges the collateral.
5. DEBENTURES PAYABLE TO SMALL BUSINESS ADMINISTRATION
As of December 31, 1995, the Company had ten debentures totaling
$73,260,000 payable to the SBA with semiannual interest only payments based upon
rates ranging from 6.12% to 8.20% per annum, with scheduled maturity dates as
follows:
<TABLE>
<CAPTION>
DATE AMOUNT
------------------------------------------------------------------------ -----------
<S> <C>
2002.................................................................... $10,000,000
2003.................................................................... 24,000,000
2004.................................................................... 17,000,000
2005.................................................................... 22,260,000
-----------
$73,260,000
==========
</TABLE>
As of March 31, 1996, the Company had eleven debentures payable to the SBA
totaling $83,260,000 (unaudited).
The debentures are subject to a prepayment penalty if paid prior to five
years from maturity. Interest expense related to these debentures for the
periods ended December 31, 1993, 1994 and 1995 totaled
F-10
<PAGE> 74
SIRROM CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
$1,385,896, $2,857,398 and $4,243,851, respectively. Interest expense on the
debentures for the three months ended March 31, 1996 totaled $1,317,446
(unaudited).
6. REVOLVING CREDIT FACILITY
During 1994 and 1995, the Company maintained a line of credit agreement
with a bank, whereby it could borrow up to $15,000,000 at the annual rate of
one-half percent per annum in excess of the bank's prime rate. As of December
31, 1994, $6,389,251 was outstanding. During December 1995, the Company entered
into a new revolving credit facility with a bank, whereby it may borrow up to
$50,000,000 at LIBOR plus 1.75% (7.5% at December 31, 1995). As of December 31,
1995, $13,200,000 were outstanding. This agreement expires on December 27, 1998.
As of March 31, 1996, $24,916,000 (unaudited) was outstanding.
Interest expense related to lines of credit for the period ended December
31, 1993, 1994 and 1995 was $41,490, $266,063 and $527,280, respectively.
Interest expense related to the line of credit for the period ended March 31,
1996 was $472,536 (unaudited).
The Company entered into an interest rate swap agreement that effectively
converts the variable rate on $30,000,000 of borrowings on the revolving credit
facility to a fixed rate of 8.15%. Under the agreement, the Company can exchange
the interest rate difference between the fixed and variable rates on incremental
amounts of $3,000,000 a month beginning in April 1996.
7. INCOME TAXES
For the years ended December 31, 1993, 1994 and 1995, the statements of
operations include a provision for state income taxes on interest totaling
$230,743 and $457,035 and $109,035, respectively. There is no provision for
state income taxes on interest for the three months ended March 31, 1996
(unaudited).
For the year ended December 31, 1995 the Company provided for federal
income tax at a 35% rate and excise taxes at a 4% rate on taxable net investment
income as defined by the Code and realized gains not distributed to
shareholders. The provision for income taxes includes $737,380 of tax provided
on the retained deemed distribution as discussed in Note 13. For the three
months ended March 31, 1996, the Company provided taxes totaling $2,134,960
(unaudited).
8. MANAGEMENT FEES AND OPERATING EXPENSES
During 1993 and 1994, the Company agreed to pay an annual management fee to
the General Partner of the partnership equal to the actual expenses incurred by
the General Partner of the partnership not to exceed two percent of the gross
value of the partnership's assets. The amount of the fee for the periods ended
December 31, 1993 and 1994 totaled $708,999 and $1,072,833, respectively. In
connection with the reorganization discussed in Note 1, the agreement with the
General Partner was terminated effective February 1, 1995 at which time the
Company began incurring expense for salaries and benefits and direct operating
expenses.
9. EMPLOYEE STOCK OPTION PLAN
During 1994, the Company adopted the Amended and Restated 1994 Employee
Stock Option Plan which permits the issuance of options to purchase the
Company's common stock to selected employees. The Plan reserves 500,000 shares
of common stock for grant and provides that the term of each award be determined
by a committee of the Board of Directors.
Under the terms of the Plan, the options' exercise price may not be less
than the fair market value of a share of common stock on the date of the grant.
During 1994, no stock options were granted.
During February 1995, the Company granted George M. Miller, II, President
and Chief Executive Officer, an option to purchase 150,000 shares at $11 per
share. This option becomes exercisable 25% in August 1997, 25% in August 1998
and 50% in August 1999. In addition, in July 1995, the Company granted to David
M. Resha, the Company's Chief Operating Officer, an option to purchase 125,000
shares at $13.50 per share, and granted John S. Scott, a Vice President of the
Company, an option to purchase 50,000 shares at
F-11
<PAGE> 75
SIRROM CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
$13.50 per share. The options granted to Resha and Scott each vest as to 20% of
the shares each year commencing upon their respective dates of employment by the
Company.
In October 1995, the Company granted to Kimberly M. Stringfield, the
Company's Controller, an option to purchase 25,000 shares at $17.88 per share.
Additionally, in December 1995, the Company granted the following options: an
option to purchase 56,966 shares to George M. Miller, II; an option to purchase
20,000 shares to Carolyn W. Perrone, the Company's Chief Financial Officer; an
option to purchase 20,000 shares to Robert G. Shuler, a Vice President of the
Company; and an option to purchase 20,000 shares to Peter T. Socha, a Vice
President of the Company. All of the options granted in December 1995 are to
purchase shares at $18.50 per share. The options granted to Stringfield, Miller,
Perrone, Shuler and Socha each vest as to 20% of the shares each year from the
date granted.
In February 1996, the Company granted to Mr. Miller and to Kathy Harris, a
Vice President of the Company, options to purchase 56,766 and 50,000 shares,
respectively, at $18.625 a share (unaudited). The options vest 20% each year
from the date granted (unaudited).
All of the above options are expressly conditioned upon shareholder
approval and the exercise price approximates the fair market value of a share of
common stock on the date of grant.
10. DIRECTORS STOCK OPTION PLAN
During 1995, the Company adopted a 1995 Stock Option Plan for Non Employee
Directors which permits the issuance of options to purchase the Company's common
stock to non employee directors. The Plan reserves 114,000 shares of common
stock for automatic grant. Upon shareholder approval of the plan, directors
elected prior to December 1, 1994 will receive options to purchase 18,000 shares
and directors elected after December 1, 1994 will receive options to purchase
12,000 shares. Upon the initial election of a future non employee director, an
option to acquire 6,000 shares of common stock will be issued to the director.
Under the terms of the Plan, the options' exercise price may not be less than
the fair market value of a share of common stock on date of grant.
11. PRIVATE PLACEMENT
During November 1994, the Company completed a private placement that
resulted in proceeds of approximately $3.6 million. In connection with the
conversion of partnership interests to common stock as discussed in Note 1, the
Company exchanged 441,921 shares of common stock for the partnership interests
of the private placement investors.
12. PUBLIC OFFERINGS
Initial Public Offering
In February 1995, the Company completed an initial public offering of
2,645,000 shares of common stock at a price of $11.00 per share. The net
proceeds of the offering, after underwriting commissions and expenses, were
approximately $26,498,029.
Secondary Offering
In August 1995, the Company completed a public offering of 2,500,000 shares
of common stock at a price of $15.25 per share of which 1,500,000 shares were
sold by the Company. The net proceeds to the Company of the offering, after
underwriting commissions and expenses, were approximately $21,214,000.
F-12
<PAGE> 76
SIRROM CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
13. DIVIDENDS AND DISTRIBUTIONS
During 1995, the Company paid dividends of $5,175,079 of which $3,974,079
and $1,201,000 were derived from net operating income and realized capital
gains, respectively. The Company also elected to designate $2,106,799 of the
undistributed realized capital gains as a "deemed" distribution to shareholders
on record as of the end of the year. Accordingly, $1,369,419, net of taxes of
$737,380, of this designated distribution has been retained and reclassified
from undistributed net realized earnings to common stock.
During the three months ending March 31, 1996, the Company paid dividends
of $2,390,730 (unaudited).
14. COMMITMENTS AND CONTINGENCIES
At March 31, 1996, the Company had agreed, subject to certain conditions,
to make an investment totaling $2,000,000 in a portfolio company.
The Company leases office space under a five year operating lease that
commenced August 1, 1995. Annual rent for 1996 totals $151,000, decreasing to
$132,000 for the years 1997 through 1999.
15. RECLASSIFICATIONS
Certain reclassifications have been made to the 1993 and 1994 financial
statements to conform to the 1995 presentation.
F-13
<PAGE> 77
SIRROM CAPITAL CORPORATION
QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
<TABLE>
<CAPTION>
1994
-------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total operating income........................................ $ 1,701 $ 1,935 $ 2,096 $ 2,506
Pre-tax operating income...................................... 744 970 954 1,132
Net increase in partners' capital resulting from operations... 383 3,564 (392) 2,608
Per share:
Pretax operating income..................................... $ 0.19 $ 0.24 $ 0.22 $ 0.24
Net increase in partners' capital resulting from
operations............................................... 0.10 0.87 (0.09) 0.55
Dividends................................................... -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
1995 1996
------------------------------------- -------
FIRST SECOND THIRD FOURTH FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Total operating income................................ $ 2,965 $ 3,544 $ 4,081 $ 4,984 5,784
Pretax operating income............................... 1,263 1,900 2,224 2,715 2,589
Net increase in partners' capital and shareholders'
equity resulting from operations.................... 2,864 2,492 4,243 3,826 8,451
Per share:
Pre-tax operating income............................ $ 0.19 $ 0.24 $ 0.26 $ 0.28 $ 0.27
Net increase in partners' capital and shareholders'
equity resulting from operations................. 0.43 0.32 0.49 0.40 0.87
Dividends........................................... 0.14 0.255 0.23 0.26 0.24
Market price of common stock:*
High................................................ $ 12 $13 3/4 $18 3/4 $ 20 $23 3/4
Low................................................. 10 3/4 10 3/4 13 1/4 16 3/4 18 5/8
</TABLE>
- ---------------
* No public market for the stock prior to February 6, 1995.
F-14
<PAGE> 78
SIRROM CAPITAL CORPORATION
PORTFOLIO OF INVESTMENTS
AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
LOAN COUPON
MATURITY INTEREST
LOANS DATE RATE COST FAIR VALUE
- -------------------------------------------------- -------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Affinity Fund, Inc................................ 06/29/98 12.50% $ 1,485,000 $ 1,490,930
Affinity Fund, Inc................................ 12/28/98 12.50 495,000 495,085
Alpha West Partners I, L.P........................ 12/31/97 12.50 771,308 774,558
Ashe Industries, Inc.............................. 12/28/97 12.50 990,000 994,174
Ashe Industries, Inc.............................. 03/25/99 12.50 445,500 446,250
Ashe Industries, Inc.............................. 05/18/99 12.50 544,500 545,236
Associated Response Services, Inc................. 06/20/99 12.50 1,386,000 1,387,631
Auto Rental Systems, Inc.......................... 10/31/97 12.50 742,500 745,875
Auto Rental Systems, Inc.......................... 06/30/98 13.50 200,000 200,000
BankCard Services Corporation..................... 01/21/98 13.00 297,000 298,200
Behavioral Healthcare Corporation................. 06/30/00 10.50 1,270,000 1,270,000
BiTec Southeast, Inc.............................. 11/03/97 12.50 445,500 447,450
BiTec Southeast, Inc.............................. 11/30/98 12.50 1,188,000 1,190,600
BiTec Southeast, Inc.............................. 11/03/97 12.50 445,500 446,400
BiTec Southeast, Inc.............................. 08/01/99 13.50 800,000 800,000
BiTec Southeast, Inc.............................. 08/01/99 13.50 171,321 171,321
C.J. Spirits, Inc................................. 05/01/97 13.50 742,500 446,375
Capital Network System, Inc....................... 11/30/98 12.50 990,000 992,338
Capital Network System, Inc....................... 01/31/99 12.50 990,000 992,004
CCS Technology Group, Inc......................... 05/01/97 13.00 990,000 995,284
CellCall, Inc..................................... 11/04/97 12.75 990,000 994,341
Central Tennessee Broadcasting, Inc............... 06/27/98 13.00 1,485,000 1,488,950
Central Tennessee Broadcasting, Inc............... 04/30/99 13.00 792,000 793,198
Central Tennessee Broadcasting, Inc............... 08/24/99 13.00 1,089,000 1,089,915
Clearidge, Inc.................................... 09/29/99 13.00 2,000,000 2,000,000
Continental Diamond Cutting Co.................... 10/28/99 13.00 1,500,000 1,500,000
Continental Diamond Cutting Co.................... 12/28/99 13.00 200,000 200,000
Corporate Flight Mgmt., Inc....................... 12/04/97 12.50 346,500 347,949
Cougar Power Products, Inc........................ 11/30/99 13.00 495,000 495,083
Dalcon International, Inc......................... 12/31/94 13.00 25,000 25,000
Dalcon International, Inc......................... 12/31/94 13.00 115,000 115,000
DentureCare, Inc.................................. 07/31/99 11.50 990,000 991,002
Earth Friendly Company............................ 07/29/99 13.00 990,000 990,834
Emerald Pointe Waterpark L.P...................... 05/03/99 12.50 594,000 594,800
Freshnut Food, Inc................................ 02/20/99 12.00 495,000 495,913
Freshnut Food, Inc................................ 11/20/99 13.00 199,000 199,034
Front Royal, Inc.................................. 10/01/99 13.00 1,550,000 1,550,000
Front Royal, Inc.................................. 12/27/99 13.00 675,000 675,000
Fycon Technologies, Inc........................... 03/14/98 13.00 1,010,000 815,500
Fycon Technologies, Inc........................... 09/30/94 13.00 17,500 17,500
Gates Communications, L.P......................... 12/31/98 12.50 990,000 992,171
Golf Corporation of America, Inc.................. 09/16/99 11.00 300,000 300,000
Gulfstream International Airlines Inc............. 07/29/99 13.00 1,490,000 1,492,505
Hoveround Corporation............................. 06/11/98 13.00 495,000 496,372
Hoveround Corporation............................. 11/08/99 13.50 250,000 250,000
Innotech, Inc..................................... 03/23/99 13.00 1,980,000 1,983,330
</TABLE>
F-15
<PAGE> 79
SIRROM CAPITAL CORPORATION
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
LOAN COUPON
MATURITY INTEREST
LOANS DATE RATE COST FAIR VALUE
- -------------------------------------------------- -------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Innotech, Inc..................................... 08/30/99 13.00% $ 660,330 $ 660,885
Intermed Healthcare Systems, Inc.................. 06/29/99 12.00 742,500 743,375
International Manufacturing and Trade, Inc........ 04/27/99 13.00 495,000 495,747
International Manufacturing and Trade, Inc........ 12/01/99 13.00 400,000 400,000
Kentucky Kingdom, Inc............................. 04/05/99 8.50 250,000 250,000
Kentucky Kingdom, Inc............................. 01/05/98 12.50 1,980,000 1,987,993
Kentucky Kingdom, Inc. (Convertible Debt)......... 09/23/99 10.50 1,200,000 1,200,000
Kentucky Kingdom, Inc............................. 02/11/95 10.00 720,000 720,000
MBA Marketing Corporation......................... 02/04/99 12.50 1,782,000 1,785,300
Medical Associates of America, Inc................ 11/01/97 12.50 1,485,000 891,000
Nationwide Engine Supply, Inc..................... 01/12/99 12.00 2,475,000 2,480,004
OcuTec Corporation................................ 12/31/97 13.50 990,000 794,197
OcuTec Corporation (Convertible Debt)............. 05/19/98 13.00 250,000 250,000
OcuTec Corporation................................ 01/14/99 13.00 354,816 355,536
OcuTec Corporation................................ 09/30/94 13.00 142,000 142,000
OcuTec Corporation................................ 01/31/95 13.00 306,580 306,580
One Stop Acquisitions, Inc........................ 04/01/99 13.00 1,584,000 1,586,403
One Stop Acquisitions, Inc........................ 05/18/99 13.00 198,000 198,264
Palco Telecom Service, Inc........................ 11/22/99 12.00 1,800,000 1,800,000
Pipeliner Systems, Inc............................ 09/30/98 13.00 980,000 985,328
Potomac Group, Inc................................ 02/11/98 12.00 1,500,000 1,500,000
Premiere Technologies, Inc........................ 05/01/97 12.50 990,000 995,341
Premiere Technologies, Inc........................ 12/23/98 12.00 990,000 992,171
Quality Care Networks............................. 05/19/98 13.00 1,485,000 889,958
Radio Systems Corporation......................... 12/27/99 13.00 905,725 907,296
Retail Marketing Concepts, Inc.................... 08/01/98 12.50 990,000 993,173
SkillSearch Corporation........................... 02/05/98 13.00 496,000 497,741
Stewart Foods, Inc................................ 05/01/97 12.50 22,665 25,000
Summit Publishing Group, Inc...................... 03/17/99 12.00 1,485,000 1,487,500
Suncoast Medical Group, Inc....................... 09/14/99 13.50 485,000 486,000
TCOM Systems, Inc................................. 02/05/98 13.00 673,136 673,761
TermNet MerchantServices, Inc..................... 04/01/99 13.00 1,237,500 1,239,372
Tower Environmental, Inc.......................... 11/30/98 10.00 2,440,000 2,448,993
Treasure Coast Pizza Company...................... 07/29/98 12.00 841,500 844,056
Truckload ManagementServices, Inc................. 03/14/98 13.00 495,000 496,826
Unique Electronics, Inc........................... 11/29/99 10.70 600,000 600,000
WWR Technology, Inc............................... 11/01/97 13.00 524,700 527,072
Zahren Alternative Power Corp..................... 11/27/99 13.00 1,980,000 1,980,666
Zortec Holdings, Inc.............................. 05/01/97 8.00 495,000 397,659
Zortec Holdings, Inc.............................. 12/31/97 8.00 148,500 149,125
Zortec Holdings, Inc.............................. 03/31/98 8.00 148,500 149,050
----------- -----------
Total loans..................................... $74,181,081 $72,336,480
========== ==========
</TABLE>
The accompanying notes are an integral part of this schedule.
F-16
<PAGE> 80
SIRROM CAPITAL CORPORATION
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES/PERCENTAGE COST OR
EQUITY INTERESTS OWNERSHIP CONTRIBUTED VALUE FAIR VALUE
- ---------------------------------------------------- ---------------- ----------------- ----------
<S> <C> <C> <C>
PUBLICLY TRADED INVESTMENTS
National Vision Associates, Ltd.
Common Stock -- restricted........................ 208,698 $ 1,771,149 $ 547,832
Republic Automotive Parts, Inc.
Common Stock -- restricted........................ 25,500 -- 239,859
Concept Technologies Group, Inc.
Common Stock -- restricted........................ 20,808 5,300 49,159
PMT Services, Inc.
Common Stock -- restricted........................ 40,000 186,200 241,500
----------------- ----------
Subtotal.................................. 1,962,649 1,078,350
----------------- ----------
EQUITY INVESTMENTS IN PRIVATE COMPANIES
National Recovery Technologies, Inc.
Preferred Stock -- Series A....................... 20,000 -- --
Premiere Technologies, Inc.
Common Stock...................................... 8,000 100,400 168,000
American Retirement Corporation
Common Stock...................................... 35,076 77,000 128,923
Medical Associates of America, Inc.
Preferred Stock -- Series A....................... 67,667 500,000 250,000
Skillsearch Corporation
Common Stock...................................... 2,241 250,035 250,035
Potomac Group, Inc.
Preferred Stock -- Series A....................... 800,000 1,000,000 1,000,000
Kentucky Kingdom, Inc.
Common Stock...................................... 11,288 220,000 1,501,305
Behavioral Healthcare Corporation
Preferred Stock -- Series B....................... 25,000 175,000 175,000
Zortec Technologies, Inc.
Preferred Stock -- Series B....................... 5,000,000 -- --
Golf Corporation of America, Inc.
Common Stock...................................... 100,000 100,000 100,000
International Risk Control, Inc.
Preferred Stock -- Series A....................... 200,000 50,000 50,000
DentureCare, Inc.
Preferred Stock -- Series D....................... 49,342 300,000 300,000
Tower Environmental, Inc.
Common Stock...................................... 9,858 20,000 300,000
Unique Electronics, Inc.
Preferred Stock -- Series A....................... 1,000,000 1,000,000 1,000,000
Pipeliner Systems, Inc.
Preferred Stock -- Series D....................... 5,000 1,000,000 1,000,000
Front Royal, Inc.
Common Stock...................................... 110,000 275,000 275,000
----------------- ----------
Subtotal.................................. 5,067,435 6,498,263
----------------- ----------
Total Equity Interests.................... $ 7,030,084 $7,576,613
============= =========
</TABLE>
The accompanying notes are an integral part of this schedule.
F-17
<PAGE> 81
SIRROM CAPITAL CORPORATION
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES/ COST OR
OWNERSHIP CONTRIBUTED
WARRANTS PERCENTAGE VALUE FAIR VALUE
- ------------------------------------------------------ ------------ ----------- -----------
<S> <C> <C> <C>
Affinity Fund, Inc.................................... 1,106 $ 20,000 $ 375,000
Alpha West Partners I, LP............................. 4 LP units 7,500 7,500
Ashe Industries, Inc.................................. 178 20,000 20,000
Associated Response Services, Inc..................... 316 14,000 400,000
Auto Rental Systems, Inc.............................. 128,772 7,500 285,000
BankCard Services Corporation......................... 115,000 3,000 3,000
Behavioral Healthcare Corporation..................... 67,730 -- --
BiTec Southeast, Inc.................................. 3,752 21,000 500,000
C.J. Spirits, Inc..................................... 180,000 7,500 --
Capital Network System, Inc........................... 168,874 20,000 20,000
CCS Technology Group.................................. 30,000 10,000 10,000
CellCall, Inc......................................... 26,500 10,000 500,000
Central Tennessee Broadcasting, Inc................... 272,433 34,000 400,000
CLS Corporation....................................... 126,997 -- 350,000
Clearidge, Inc........................................ 207,620 -- --
Continental Diamond Cutting Co........................ 112 -- --
Corporate Flight Management, Inc...................... 66,315 3,500 100,000
Cougar Power Products, Inc............................ 216 5,000 5,000
DentureCare, Inc...................................... 114,646 10,000 400,000
Earth Friendly Company................................ 19 10,000 10,000
Emerald Pointe Waterpark L.P.......................... 6% of LP 6,000 6,000
Freshnut Food, Inc.................................... 148,555 6,000 6,000
Front Royal, Inc...................................... 240,458 -- --
Fycon Technologies, Inc............................... 251,813 15,000 15,000
Gates Communication, L.P.............................. 47% of LP 10,000 10,000
Golf Corporation of America, Inc...................... 300,000 -- --
Gulfstream International Airlines, Inc................ 200 10,000 200,000
Healthfield, Inc...................................... 29,000 125,000 --
Hoveround Corporation................................. 1,512 5,000 200,000
Innotech, Inc......................................... 521,220 26,670 26,670
Intermed Healthcare Systems, Inc...................... 7,823 7,500 7,500
International Manufacturing and Trade, Inc............ 263 5,000 450,000
MBA Marketing Corporation............................. 25 18,000 300,000
Medical Associates of America, Inc.................... 40,000 15,000 --
Nationwide Engine Supply, Inc......................... 882,353 25,000 400,000
OCuTec Corp........................................... 3,881,711 13,584 13,584
One Stop Acquisitions, Inc............................ 742 18,000 500,000
Palco Telcom Service, Inc............................. 157,895 -- --
Pipeliner Systems, Inc................................ 1,920,000 20,000 20,000
Potomac Group, Inc.................................... 479,115 125,000 500,000
Premiere Technologies, Inc............................ 23,863 20,000 501,123
Quality Care Networks................................. 672,000 15,000 15,000
Radio Systems, Inc.................................... 48,650 94,275 94,275
Retail Marketing Concepts, Inc........................ 83 10,000 10,000
SkillSearch Corporation............................... 2,381 254,000 316,699
</TABLE>
F-18
<PAGE> 82
SIRROM CAPITAL CORPORATION
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
NUMBER OF
SHARES/ COST OR
OWNERSHIP CONTRIBUTED
WARRANTS PERCENTAGE VALUE FAIR VALUE
- ------------------------------------------------------ ------------ ----------- -----------
<S> <C> <C> <C>
Summit Publishing Group, Inc.......................... 4,508 $ 15,000 $ 350,000
Suncoast Medical Group, Inc........................... 210,780 15,000 15,000
Suprex Corporation.................................... 1,058,179 -- 7,500
TCOM Systems, Inc..................................... 1,147,059 -- --
TermNet Merchant Services, Inc........................ 214 12,500 12,500
Treasure Coast Pizza Company.......................... 40 8,500 8,500
Truckload Management Services, Inc.................... 1,500 5,000 150,000
Unique Electronics, Inc............................... 20% -- --
Zahren Alternative Power Corporation.................. 610 20,000 20,000
Zortec Holdings, Inc.................................. 436,000 8,000 8,000
----------- -----------
Total Warrants.............................. 1,131,029 7,548,851
----------- -----------
Total Investments........................... $82,342,194 $87,461,944
========== ==========
</TABLE>
The accompanying notes are an integral part of this schedule.
F-19
<PAGE> 83
SIRROM CAPITAL CORPORATION
PORTFOLIO OF INVESTMENTS
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
LOAN COUPON
MATURITY INTEREST
LOANS DATE RATE COST FAIR VALUE
- ------------------------------------------------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Affinity Fund, Inc.............................. 06/29/98 12.50% $ 1,485,000 $ 1,494,932
Affinity Fund, Inc.............................. 03/10/00 14.00 1,000,000 1,000,000
Affinity Fund, Inc.............................. 12/28/98 12.50 495,000 495,083
Alpha West Partners I, L.P...................... 12/31/97 12.50 771,308 675,058
American Remedial Tech., Inc.................... 03/26/00 13.50 1,485,000 1,487,500
American Remedial Tech., Inc.................... 07/11/00 14.00 495,000 495,498
Amscot Holdings, Inc............................ 05/26/00 14.00 800,000 800,000
Amscot Holdings, Inc............................ 09/20/00 14.00 200,000 200,000
Ashe Industries, Inc............................ 12/28/97 12.50 990,000 646,178
Ashe Industries, Inc............................ 03/25/99 12.50 445,500 447,150
Ashe Industries, Inc............................ 05/18/99 12.50 544,500 546,340
Ashe Industries, Inc............................ 06/12/96 14.00 750,000 750,000
Ashe Industries, Inc............................ 06/12/96 14.00 285,546 285,546
Associated Response Services, Inc............... 06/20/99 12.50 1,386,000 1,390,427
Associated Response Services, Inc............... 02/15/00 12.50 335,000 335,000
Associated Response Services, Inc............... 01/06/00 12.50 300,000 300,000
Assured Power, Inc.............................. 10/01/00 13.50 700,000 700,000
B & N Company, Inc.............................. 08/08/00 12.50 2,970,000 2,972,500
BankCard Services Corporation................... 01/21/98 13.00 297,000 298,800
BiTec Southeast, Inc............................ 11/03/97 12.50 445,500 448,350
BiTec Southeast, Inc............................ 11/30/98 12.50 1,188,000 1,193,000
BiTec Southeast, Inc............................ 11/03/97 12.50 445,500 447,300
BiTec Southeast, Inc............................ 08/01/99 13.50 521,321 521,321
C.J. Spirits, Inc............................... 05/01/97 13.50 750,171 455,546
Capital Network System, Inc..................... 11/30/98 12.50 990,000 994,342
Capital Network System, Inc..................... 01/18/99 12.50 990,000 994,008
Cardiac Control Systems, Inc.................... 03/31/00 13.50 1,500,000 1,500,000
Carter Kaplan Holdings, L.L.C................... 06/22/00 14.00 594,000 594,300
CCS Technology Group, Inc....................... 05/01/97 13.00 990,000 997,288
CellCall, Inc................................... 11/04/97 12.75 990,000 996,345
CF Data Corp.................................... 03/16/00 13.75 1,732,500 1,735,420
Champion Glove Mfg. Co., Inc.................... 07/27/00 13.50 1,250,000 1,250,000
Clearidge, Inc.................................. 09/29/99 13.00 2,000,000 2,000,000
Clearidge, Inc.................................. 12/28/00 13.50 500,000 500,000
Colonial Investments, Inc....................... 10/16/00 13.75 800,000 800,000
Consumat Systems, Inc........................... 11/01/00 14.00 500,000 500,000
Consumer Credit Associates, Inc................. 12/06/00 13.50 2,000,000 2,000,000
Continental Diamond Cutting Co.................. 10/28/99 13.00 1,500,000 1,500,000
Continental Diamond Cutting Co.................. 12/28/99 13.00 200,000 200,000
Continental Diamond Cutting Co.................. 05/31/96 14.00 300,000 300,000
Corporate Flight Mgmt., Inc..................... 12/04/97 12.50 346,500 348,645
Cougar Power Products, Inc...................... 10/05/96 13.00 495,000 495,083
Cougar Power Products, Inc...................... 10/05/96 13.00 495,000 497,003
Cougar Power Products, Inc...................... 10/05/96 14.00 325,000 325,000
Dalcon International, Inc....................... 01/31/02 13.00 150,000 150,000
Dalcon International, Inc....................... 01/31/00 13.00 200,000 200,000
</TABLE>
F-20
<PAGE> 84
SIRROM CAPITAL CORPORATION
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
LOAN COUPON
MATURITY INTEREST
LOANS DATE RATE COST FAIR VALUE
- ------------------------------------------------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Dalt's, Inc..................................... 04/28/01 13.50% $ 2,000,000 $ 2,000,000
DentureCare, Inc................................ 07/29/99 11.50 990,000 993,006
DentureCare, Inc................................ 11/03/00 14.00 111,150 111,150
DentureCare, Inc................................ 08/31/00 14.00 800,000 800,000
Eastern Food Group LLC.......................... 08/30/00 8.00 500,000 500,000
Eastern Food Group LLC.......................... 12/20/00 8.00 200,000 200,000
Educational Medical, Inc........................ 03/31/00 14.00 2,200,000 2,200,000
Electronic Merchant Services.................... 02/27/00 13.50 1,237,500 1,239,788
Electronic Merchant Services.................... 12/31/95 14.00 242,450 242,450
Emerald Pointe Waterpark L.P.................... 04/29/99 12.50 594,000 596,000
Emerald Pointe Waterpark L.P.................... 03/09/00 13.50 400,000 400,000
Encore Orthopedics, Inc......................... 07/31/00 13.50 2,620,985 2,658,887
Express Shipping Centers, Inc................... 09/25/00 13.25 1,697,619 1,734,426
Factory Card Outlet of America Ltd.............. 11/15/00 12.50 3,670,917 3,682,317
Front Royal, Inc................................ 10/01/99 13.00 1,550,000 1,550,000
Front Royal, Inc................................ 12/27/99 13.00 675,000 675,000
Fycon Technologies, Inc......................... 05/16/00 10.00 350,000 350,000
Fycon Technologies, Inc......................... 08/30/00 14.00 1,000,000 1,000,000
Fycon Technologies, Inc......................... 12/17/00 14.00 100,000 100,000
Gates Communications, L.P....................... 12/31/98 12.50 990,000 994,175
Gitman and Company.............................. 12/31/00 14.00 1,700,000 1,700,000
Global Finance and Leasing, Inc................. 01/03/00 13.00 1,500,000 1,500,000
Gold Medal Products, Inc........................ 11/19/00 13.50 1,250,000 1,250,000
Golf Corporation of America, Inc................ 09/16/99 11.00 300,000 300,000
Golf Corporation of America, Inc................ 12/28/00 14.00 200,000 200,000
Golf Corporation of America, Inc................ 12/29/00 10.00 455,589 455,589
Gulfstream International Airlines Inc........... 07/29/99 13.00 1,490,000 1,494,509
Gulfstream International Airlines Inc........... 09/25/00 14.00 1,000,000 1,000,000
Horizon Medical Products, Inc................... 09/22/00 13.75 1,500,000 1,500,000
Hoveround Corporation........................... 06/11/98 13.00 495,000 497,368
Hoveround Corporation........................... 11/08/99 13.50 250,000 250,000
Hoveround Corporation........................... 03/08/00 14.00 250,000 250,000
Hunt Incorporated............................... 03/31/00 14.00 3,300,000 3,300,000
In-Store Services, Inc.......................... 04/19/00 14.00 1,188,000 1,189,800
Innotech, Inc................................... 03/22/99 13.00 1,980,000 1,987,326
Intermed Healthcare Systems, Inc................ 06/29/99 12.00 742,500 744,875
Intermed Healthcare Systems, Inc................ 02/10/00 14.00 375,000 375,000
International Manufacturing and Trade, Inc...... 04/27/99 13.00 495,000 496,743
International Manufacturing and Trade, Inc...... 12/01/99 13.00 400,000 400,000
International Manufacturing and Trade, Inc...... 06/09/00 14.00 500,000 500,000
International Manufacturing and Trade, Inc...... 07/25/00 14.00 250,000 250,000
International Manufacturing and Trade, Inc...... 11/10/00 14.00 100,000 100,000
Johnston County Cable L.P....................... 08/31/00 14.00 1,990,000 1,990,668
Kentucky Kingdom, Inc........................... 04/04/99 8.50 250,000 250,000
Kentucky Kingdom, Inc........................... 01/05/98 12.50 1,980,000 1,991,989
Kentucky Kingdom, Inc........................... 09/26/99 10.50 1,200,000 1,200,000
</TABLE>
F-21
<PAGE> 85
SIRROM CAPITAL CORPORATION
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
LOAN COUPON
MATURITY INTEREST
LOANS DATE RATE COST FAIR VALUE
- ------------------------------------------------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Kentucky Kingdom, Inc........................... 03/01/00 14.00% $ 835,000 $ 835,000
Kentucky Kingdom, Inc........................... 11/06/00 12.50 1,500,000 1,500,000
Kryptonics, Inc................................. 12/14/00 12.90 2,500,000 2,500,000
Lovett's Buffet, Inc............................ 04/01/00 13.00 2,250,000 2,250,000
MBA Marketing Corporation....................... 02/04/99 12.50 1,782,000 1,788,900
Medical Associates of America, Inc.............. 11/01/97 12.50 1,485,000 392,000
Money Transfer Systems, Inc..................... 07/24/00 14.00 247,500 247,752
Money Transfer Systems, Inc..................... 12/20/00 14.00 148,500 148,525
Moore Diversified Products, Inc................. 06/16/00 13.50 800,000 800,000
Moovies, Inc.................................... 04/18/00 13.50 1,485,000 1,487,250
Multimedia Learning, Inc........................ 05/08/00 14.00 1,500,000 1,500,000
Nationwide Engine Supply, Inc................... 01/12/99 12.00 2,475,000 2,485,008
Nelson Juvenile Products L.L.C.................. 10/31/00 14.00 2,000,000 2,000,000
NRI Service and Supply L.P...................... 02/13/00 14.00 2,475,000 2,479,587
OcuTec Corporation.............................. 06/21/99 10.00 1,000,000 1,000,000
OcuTec Corporation.............................. 06/21/00 10.00 350,000 350,000
OcuTec Corporation.............................. 10/16/00 10.00 100,000 100,000
OcuTec Corporation.............................. 12/04/01 10.00 351,500 351,500
Orchid Manufacturing Group, Inc................. 09/14/00 13.00 2,960,000 2,960,667
Orchid Manufacturing Group, Inc................. 12/28/00 13.50 1,000,000 1,000,000
Palco Telecom Service, Inc...................... 11/22/99 12.00 1,800,000 1,800,000
Patton Management Corporation................... 05/26/00 13.50 1,900,000 1,900,000
Pharmaceutical Research Assoc., Inc............. 08/10/00 13.50 1,980,000 1,981,665
Pipeliner Systems, Inc.......................... 09/30/98 13.00 980,000 989,324
Plymouth, Inc................................... 09/28/00 13.00 1,000,000 1,000,000
Precision Fixtures & Graphics, Inc.............. 07/31/10 6.50 1,100,000 889,976
Precision Fixtures & Graphics, Inc.............. 05/26/00 6.50 250,000 202,267
Precision Fixtures & Graphics, Inc.............. 11/07/00 6.50 200,000 161,814
Precision Fixtures & Graphics, Inc.............. 12/27/00 6.50 100,000 80,907
Precision Fixtures & Graphics, Inc.............. 07/10/00 6.50 135,000 109,224
Precision Fixtures & Graphics, Inc.............. 08/28/00 6.50 110,000 88,998
Precision Fixtures & Graphics, Inc.............. 12/12/00 6.50 200,000 161,814
Precision Panel Products, Inc................... 01/11/00 12.75 1,485,000 1,488,000
Premiere Technologies, Inc...................... 05/01/97 12.50 990,000 997,345
Premiere Technologies, Inc...................... 12/23/98 12.00 990,000 994,175
Pritchard Paint & Glass Co...................... 03/21/00 14.00 250,000 250,000
Quest Group International, Inc.................. 11/15/00 13.25 1,125,000 1,129,166
Radio Systems Corporation....................... 12/27/99 13.00 905,725 926,148
SkillSearch Corporation......................... 02/05/98 13.00 496,000 498,545
Summit Publishing Group, Inc.................... 03/17/99 12.00 1,485,000 1,490,500
Suncoast Medical Group, Inc..................... 09/14/99 13.50 485,000 489,498
Suncoast Medical Group, Inc..................... 06/07/00 14.00 495,000 495,083
TCOM Systems, Inc............................... 02/05/98 13.00 571,969 571,969
Tower Environmental, Inc........................ 11/30/98 10.00 2,440,000 2,201,990
</TABLE>
F-22
<PAGE> 86
SIRROM CAPITAL CORPORATION
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
LOAN COUPON
MATURITY INTEREST
LOANS DATE RATE COST FAIR VALUE
- ------------------------------------------------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Tower Environmental, Inc........................ 05/30/95 12.50% $ 150,000 $ 150,000
Trade Am International, Inc..................... 09/30/00 12.75 4,000,000 4,000,000
Treasure Coast Pizza Co......................... 07/29/98 12.00 841,500 845,760
Truckload Management Services, Inc.............. 03/14/98 13.00 150,000 150,000
Unique Electronics, Inc......................... 11/30/99 10.70 600,000 600,000
Universal Marketing Corporation................. 01/31/00 13.50 500,000 500,000
Valdawn, L.L.C.................................. 04/13/00 13.50 2,399,974 2,400,000
Viking Moorings Acquisition, L.L.C.............. 12/15/00 13.00 1,655,500 1,661,242
WWR Technology, Inc............................. 11/01/97 13.00 524,700 528,128
Zahren Alternative Power Corp................... 01/30/00 13.00 495,000 495,083
Zahren Alternative PowerCorp.................... 11/27/99 13.00 1,980,000 1,985,679
------------ ------------
Total Loans................................... $147,018,924 $144,854,517
=========== ===========
</TABLE>
The accompanying notes are an integral part of this schedule.
F-23
<PAGE> 87
SIRROM CAPITAL CORPORATION
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF COST OR
SHARES/PERCENTAGE CONTRIBUTED
EQUITY INTERESTS OWNERSHIP VALUE FAIR VALUE
- ----------------------------------------------------- ----------------- ----------- -----------
<S> <C> <C> <C>
PUBLICLY TRADED INVESTMENTS
National Vision Associates, Ltd.
Common Stock -- restricted......................... 208,698 $ 1,771,149 $ 563,485
Concept Technologies Group, Inc. Common Stock --
restricted......................................... 23,408 5,300 30,723
Moovies Inc.
Common Stock....................................... 156,110 16,561 1,475,240
----------- -----------
Subtotal................................... 1,793,010 2,069,448
----------- -----------
EQUITY INVESTMENTS IN PRIVATE COMPANIES
National Recovery Technologies, Inc.
Preferred Stock -- Series A........................ 20,000 -- --
Premiere Technologies, Inc.
Common Stock....................................... 8,000 100,400 1,280,000
Medical Associates of America, Inc.
Preferred Stock -- Series A........................ 66,667 -- --
Viking Moorings Acquisition, L.L.C.
Membership interest in L.L.C....................... 6.50% 344,500 344,500
Nelson Juvenile Products, L.L.C.
Membership interest in L.L.C....................... 30.00% -- --
Skillsearch Corporation
Common Stock....................................... 2,241 250,035 250,035
Potomac Group, Inc.
Preferred Stock -- Series A........................ 800,000 1,000,000 1,232,966
Potomac Group, Inc.
Common Stock....................................... 240,000 60,000 370,504
Kentucky Kingdom, Inc.
Common Stock....................................... 11,671 258,300 1,539,603
Golf Corporation of America, Inc.
Common Stock....................................... 100,000 100,000 100,000
International Risk Control, Inc.
Preferred Stock -- Series A........................ 200,000 50,000 50,000
DentureCare, Inc.
Preferred Stock -- Series D........................ 49,342 300,000 300,000
Unique Electronics, Inc.
Preferred Stock -- Series A........................ 1,000,000 1,000,000 1,000,000
Pipeliner Systems, Inc.
Preferred Stock -- Series D........................ 5,000 1,000,000 1,000,000
Front Royal, Inc.
Common Stock....................................... 110,000 275,000 275,000
Ocutec Acquisition Corporation
Preferred Stock -- Series A........................ 1,539,867 1,539,867 1,539,867
Fycon Technologies, Inc.
Preferred Stock -- Series A........................ 800,000 800,000 800,000
Carter Kaplan Holdings, L.L.C.
Membership interest in LLC......................... 24.00% 6,100 6,100
</TABLE>
F-24
<PAGE> 88
SIRROM CAPITAL CORPORATION
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF COST OR
SHARES/PERCENTAGE CONTRIBUTED
EQUITY INTERESTS OWNERSHIP VALUE FAIR VALUE
- ----------------------------------------------------- ----------------- ----------- -----------
<S> <C> <C> <C>
Virginia Gas Company
Preferred Stock -- Series A........................ 2,000 $ 2,000,000 $ 2,000,000
Johnston County Cable, L.P.
Class A Interest in L.P............................ 11.11 100,000 100,000
Eastern Food Group, L.L.C.
Class B Preferred Stock............................ 7,500 754,444 754,444
Dalcon International, Inc.
Series B Preferred Stock........................... 850,000 850,000 490,000
Zahren Alternative Power Corporation
Common Stock....................................... 700 210,000 210,000
Zahren Alternative Power Corporation
Preferred Stock.................................... 200 200,000 200,000
----------- -----------
Subtotal................................... 11,198,646 13,843,020
----------- -----------
Total Equity Interests..................... $12,991,656 $15,912,467
========== ==========
</TABLE>
The accompanying notes are an integral part of this schedule.
F-25
<PAGE> 89
SIRROM CAPITAL CORPORATION
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
WARRANTS SHARES/UNITS OWNERSHIP VALUE FAIR VALUE
- ------------------------------------------ ------------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Affinity Fund, Inc........................ 1,725 8.62% $ 20,000 $ 600,000
Alpha West Partners I, L.P................ 2 units 20.00 7,500 --
American Remedial Tech., Inc.............. 244,168 17.05 20,000 230,000
Amscot Holdings, Inc...................... 1,121 18.10 -- --
Ashe Industries, Inc...................... 216 16.52 20,000 --
Associated Responses Services, Inc........ 343 24.27 14,000 400,000
Assured Power, Inc........................ 234 11.94 -- --
Auto Rental Systems, Inc.................. 144,869 8.00 -- 285,000
B & N Company, Inc........................ 18 2.14 30,000 30,000
BankCard Services Corporation............. 138,000 24.00 3,000 --
BiTec Southeast, Inc...................... 938 10.00 21,000 100,000
C.J. Spirits, Inc......................... 180,000 10.00 7,500 --
CF Data Corp.............................. 257 20.45 17,500 17,500
Capital Network System, Inc............... 173,409 3.50 20,000 --
Cardiac Control Systems, Inc.............. 100,000 3.51 -- 153,127
CCS Technology Group, Inc................. 30,000 2.68 10,000 10,000
CellCall, Inc............................. 31,836 1.25 10,000 125,000
Champion Glove Mfg. Co., Inc.............. 538,614 5.87 -- --
CLS Corporation........................... 126,997 4.22 -- --
Clearidge, Inc............................ 367,026 7.91 -- --
Colonial Investments, Inc................. 194 18.00 -- --
Consumer Credit Associates, Inc........... 3,669 15.78 -- --
Continental Diamond Cutting Co............ 112 10.00 -- --
Corporate Flight Mgmt., Inc............... 66,315 10.00 3,500 100,000
Cougar Power Products, Inc................ 336 16.29 10,000 --
Dalcon International, Inc................. 250,000 20.00 -- --
Dalt's, Inc............................... 125 25.00 -- --
DentureCare, Inc.......................... 396,724 11.30 10,000 375,000
Electronic Merchant Services.............. 430 12.50 12,500 12,500
Eastern Food Group LLC.................... 17,647 15.00 -- --
Educational Medical, Inc.................. 85,000 8.00 -- --
Emerald Pointe Waterpark L.P.............. 10 units 10.00 6,000 250,000
Encore Orthopedics, Inc................... 291,550 4.92 379,015 379,015
Express Shipping Centers, Inc............. 73,752 5.10 552,402 552,402
Factory Card Outlet of America Ltd........ 23,658 2.50 329,083 329,083
Front Royal, Inc.......................... 240,458 3.58 -- 420,000
Fycon Technologies, Inc................... 58,677 15.00 -- --
Gates Communication, L.P.................. 47% of LP 47.00 10,000 10,000
Gitman Bros............................... 1,518 20.50 -- --
Global Finance and Leasing, Inc........... 5,000 25.00 -- --
Gold Medal Products, Inc.................. 90,000 30.00 -- --
Golf Corporation of America, Inc.......... 390,000 11.48 -- --
Gulfstream International Airlines Inc..... 260 21.00 10,000 --
Horizon Medical Products, Inc............. 9,486 8.25 -- --
Hoveround Corporation..................... 1,963 27.00 5,000 325,000
Hunt Incorporated......................... 309 11.09 -- 200,000
</TABLE>
F-26
<PAGE> 90
SIRROM CAPITAL CORPORATION
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
WARRANTS SHARES/UNITS OWNERSHIP VALUE FAIR VALUE
- ------------------------------------------ ------------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Innotech, Inc............................. 521,220 4.00% $ 20,000 $ 300,000
In-Store Service, Inc..................... 429 12.50 12,000 12,000
Intermed Healthcare Systems, Inc.......... 11,884 10.50 7,500 --
International Manufacturing and Trade,
Inc..................................... 482 29.94 5,000 --
Johnston County Cable, L.P................ 27.5% of LP 27.50 10,000 10,000
Kryptonics, Inc........................... 1,255 9.00 -- --
Lovett's Buffet, Inc...................... 204,219 5.00 -- --
MBA Marketing Corporation................. 26 4.00 18,000 --
Money Transfer Systems, Inc............... 45 4.31 4,000 4,000
Moore Diversified Products, Inc........... 12 10.68 -- --
Multimedia Learning, Inc.................. 202 6.09 -- --
Nationwide Engine Supply, Inc............. 882,353 15.00 25,000 25,000
NRI Service and Supply, L.P............... 27.5% of LP 27.50 25,000 25,000
OcuTec Corp............................... 222,222 6.13 -- --
One Stop Acquisitions, Inc................ 794 24.40 -- 500,000
Orchid Manufacturing Group, Inc........... 1,719,047 4.50 40,000 540,000
Palco Telecom Services, Inc............... 157,895 5.00 -- --
Patton Management Corporation............. 12 10.00 -- 300,000
Pharmaceutical Research Assoc., Inc....... 150,114 7.82 20,000 20,000
Pipeliner Systems, Inc.................... 2,080,000 20.38 20,000 20,000
Plymouth, Inc............................. 92,647 15.00 -- --
Potomac Group, Inc........................ 239,115 1.85 125,000 368,530
Precision Fixtures & Graphics, Inc........ 132 5.00 -- --
Precision Panel Products, Inc............. 122 8.25 15,000 15,000
Premiere Technologies, Inc................ 23,863 2.08 20,000 3,820,000
Quest Group International, Inc............ 44,444 10.00 125,000 125,000
Radio Systems Corporation................. 129,734 7.27 94,275 330,000
SkillSearch Corporation................... 2,381 7.59 254,000 119,000
Summit Publishing Group, Inc.............. 6,296 24.50 15,000 15,000
Suncoast Medical Group, Inc............... 330,245 13.82 20,000 20,000
Suprex Corporation........................ 1,058,179 3.45 -- 7,500
Tower Environmental, Inc.................. 82 10.07 20,000 --
Trade Am International, Inc............... 335,106 6.00 -- --
Treasure Coast Pizza Company.............. 51 10.00 8,500 8,500
Valdawn, L.L.C............................ 2,658 21.00 26 26
Unique Electronics, Inc................... 55,732 20.00 -- --
Universal Marketing Corporation........... 111 10.00 -- --
Virginia Gas Company...................... 525 6.00 -- --
Zahren Alternative Power Corp............. 1,108 5.00 25,000 25,000
------------ ------------
Total Warrants.................. 2,456,301 11,513,183
------------ ------------
Total Investments............... $162,466,881 $172,280,167
=========== ===========
</TABLE>
The accompanying notes are an integral part of this schedule.
F-27
<PAGE> 91
SIRROM CAPITAL CORPORATION
PORTFOLIO OF INVESTMENTS
AS OF MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
LOAN COUPON
MATURITY INTEREST
LOANS DATE RATE COST FAIR VALUE
- ------------------------------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Affinity Fund, Inc......................... 06/29/98 12.50% $ 1,485,000 $ 1,495,682
Affinity Fund, Inc......................... 03/10/00 14.00 1,000,000 1,000,000
Affinity Fund, Inc......................... 12/28/98 12.50 495,000 495,332
Amscot Holdings, Inc....................... 05/26/00 14.00 800,000 800,000
Amscot Holdings, Inc....................... 09/20/00 14.00 200,000 200,000
Ashe Industries, Inc....................... 12/28/97 12.50 990,000 146,512
Ashe Industries, Inc....................... 03/25/99 12.50 445,500 197,300
Ashe Industries, Inc....................... 05/18/99 12.50 544,500 196,524
Ashe Industries, Inc....................... 06/12/96 14.00 750,000 100,000
Ashe Industries, Inc....................... 06/12/96 14.00 285,546 285,546
Associated Response Services, Inc.......... 06/20/99 12.50 1,386,000 1,391,126
Associated Response Services, Inc.......... 02/15/00 12.50 335,000 335,000
Associated Response Services, Inc.......... 01/06/00 12.50 300,000 300,000
Assured Power, Inc......................... 10/01/00 13.50 700,000 700,000
B & N Company, Inc......................... 08/08/00 12.50 2,970,000 2,974,000
B & N Company, Inc......................... 03/28/01 13.00 990,000 990,167
BankCard Services Corporation.............. 01/21/98 13.00 297,000 298,950
BiTec Southeast, Inc....................... 10/31/97 12.50 445,500 448,575
BiTec Southeast, Inc....................... 11/30/98 12.50 1,188,000 1,193,600
BiTec Southeast, Inc....................... 10/31/97 12.50 445,500 447,525
BiTec Southeast, Inc....................... 08/01/99 13.50 521,321 521,321
C.J. Spirits, Inc.......................... 05/01/97 13.50 750,171 455,796
Caldwell/VSR Inc........................... 02/28/01 4.00 1,500,000 1,500,000
Capital Network System, Inc................ 11/30/98 12.50 990,000 994,843
Capital Network System, Inc................ 01/18/99 12.50 990,000 994,509
Cardiac Control Systems, Inc............... 03/31/00 13.50 1,500,000 1,500,000
Carter Kaplan Holdings, L.L.C.............. 06/22/00 14.00 594,000 594,600
CCS Technology Group, Inc.................. 05/01/97 13.00 990,000 997,789
Cell Call, Inc............................. 11/04/97 12.75 990,000 996,846
CF Data Corp............................... 03/16/00 13.75 1,732,500 1,736,296
Champion Glove Manufacturing Co., Inc...... 07/27/00 13.50 1,250,000 1,250,000
Clearidge, Inc............................. 09/29/99 13.00 2,000,000 2,000,000
Clearidge, Inc............................. 12/28/00 13.50 500,000 500,000
Colonial Investments, Inc.................. 10/16/00 13.75 800,000 800,000
Consumat Systems, Inc...................... 11/01/00 14.00 500,000 500,000
Consumat Systems, Inc...................... 01/01/01 14.00 500,000 500,000
Consumat Systems, Inc...................... 03/11/01 14.00 500,000 500,000
Consumer Credit Associates, Inc............ 12/06/00 13.50 2,000,000 2,000,000
Consumer Credit Associates, Inc............ 03/28/01 13.50 1,000,000 1,000,000
Continental Diamond Cutting Co............. 10/28/99 13.00 1,500,000 1,500,000
Continental Diamond Cutting Co............. 12/28/99 13.00 200,000 200,000
Continental Diamond Cutting Co............. 05/31/96 14.00 200,000 200,000
Corporate Flight Mgmt, Inc................. 12/04/97 12.50 346,500 348,819
Cougar Power Products, Inc................. 10/05/96 13.00 495,000 372,169
Cougar Power Products, Inc................. 10/05/96 13.00 495,000 370,249
Cougar Power Products, Inc................. 10/05/96 14.00 325,000 325,000
Dalcon International, Inc.................. 01/31/02 13.00 150,000 150,000
Dalcon International, Inc.................. 01/31/00 13.00 200,000 200,000
Dalcon International, Inc.................. 05/15/96 13.00 45,000 45,000
</TABLE>
F-28
<PAGE> 92
SIRROM CAPITAL CORPORATION
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
LOAN COUPON
MATURITY INTEREST
LOANS DATE RATE COST FAIR VALUE
- ------------------------------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Dalt's, Inc................................ 04/28/01 13.50% $ 2,000,000 $ 2,000,000
DentureCare, Inc........................... 07/29/99 11.50 990,000 993,507
DentureCare, Inc........................... 11/03/00 14.00 111,150 111,150
DentureCare, Inc........................... 08/31/00 14.00 800,000 800,000
DentureCare, Inc........................... 01/11/01 12.50 550,000 550,000
Eastern Food Group L.L.C................... 08/30/00 8.00 500,000 500,000
Eastern Food Group L.L.C................... 12/20/00 8.00 200,000 200,000
Eastern Food Group L.L.C................... 01/21/01 8.00 200,000 200,000
Eastern Food Group L.L.C................... 02/14/01 8.00 265,000 265,000
Educational Medical Inc.................... 03/31/00 14.00 2,200,000 2,200,000
Electronic Merchant Services............... 02/27/00 13.50 1,237,500 1,040,204
Electronic Merchant Services............... 02/29/96 14.00 272,450 272,450
Electronic Merchant Services............... 02/29/96 14.00 134,000 134,000
Emerald Pointe Waterpark, L.P.............. 04/29/99 12.50 594,000 596,300
Emerald Pointe Waterpark, L.P.............. 03/09/00 13.50 400,000 400,000
Encore Orthopedics, Inc.................... 07/31/00 13.50 2,620,985 2,677,838
Encore Orthopedics, Inc.................... 02/28/01 13.00 1,667,680 1,678,758
Express Shipping Centers, Inc.............. 09/22/00 13.25 1,697,598 1,762,047
Factory Card Outlet of America Ltd......... 11/15/00 12.50 3,670,917 3,698,772
Front Royal, Inc........................... 10/01/99 13.00 1,550,000 1,550,000
Front Royal, Inc........................... 12/27/99 13.00 675,000 675,000
Fycon Technologies, Inc.................... 05/16/00 10.00 450,000 450,000
Fycon Technologies, Inc.................... 08/30/00 14.00 1,000,000 800,000
Fycon Technologies, Inc.................... 12/17/00 14.00 100,000 100,000
Gardner Wallcovering, Inc.................. 03/28/01 13.50 1,485,000 1,485,250
Gates Communications, L.P.................. 12/31/98 12.50 990,000 994,676
Gitman and Company......................... 12/31/00 14.00 1,700,000 1,700,000
Global Finance and Leasing, Inc............ 01/03/00 13.00 1,500,000 1,500,000
Gold Medal Products, Inc................... 11/19/00 13.50 1,250,000 1,250,000
Gold Medal Products, Inc................... 02/15/01 13.00 25,000 25,000
Golf Corporation of America, Inc........... 09/16/99 11.00 300,000 300,000
Golf Corporation of America, Inc........... 12/28/00 14.00 200,000 200,000
Golf Corporation of America, Inc........... 12/29/00 10.00 455,589 455,589
Golf Video, Inc............................ 03/27/01 14.00 250,000 250,000
Gulfstream International Airlines, Inc..... 07/29/99 13.00 1,490,000 1,495,010
Gulfstream International Airlines, Inc..... 09/25/00 14.00 1,000,000 1,000,000
Horizon Medical Products, Inc.............. 09/22/00 13.75 1,500,000 1,500,000
Hoveround Corporation...................... 06/11/98 13.00 495,000 497,617
Hoveround Corporation...................... 11/08/99 13.50 250,000 250,000
Hoveround Corporation...................... 03/08/00 14.00 250,000 250,000
HSA International.......................... 01/04/01 14.00 1,485,000 1,485,750
Hunt Incorporated.......................... 03/31/00 14.00 3,300,000 3,300,000
I.S. Acquisition, LLC...................... 04/01/01 14.00 2,000,000 2,000,000
In Store Services, Inc..................... 04/19/00 14.00 1,188,000 1,190,400
Innotech, Inc.............................. 03/22/99 13.00 1,980,000 1,988,325
Intermed Healthcare Systems, Inc........... 06/29/99 12.00 742,500 745,250
Intermed Healthcare Systems, Inc........... 02/10/00 14.00 375,000 375,000
Johnston County Cable L.P.................. 08/31/00 14.00 1,990,000 1,991,169
Kentucky Kingdom, Inc...................... 04/04/99 8.75 250,000 250,000
</TABLE>
F-29
<PAGE> 93
SIRROM CAPITAL CORPORATION
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
LOAN COUPON
MATURITY INTEREST
LOANS DATE RATE COST FAIR VALUE
- ------------------------------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Kentucky Kingdom, Inc...................... 01/05/98 12.50% $ 1,980,000 $ 1,992,988
Kentucky Kingdom, Inc...................... 09/26/99 10.50 1,200,000 1,200,000
Kentucky Kingdom, Inc...................... 03/01/00 14.00 835,000 835,000
Kentucky Kingdom, Inc...................... 11/06/00 12.50 1,500,000 1,500,000
Kentucky Kingdom, Inc...................... 09/15/96 14.00 2,000,000 2,000,000
Kryptonics, Inc............................ 12/14/00 12.90 2,500,000 2,500,000
Lovett's Buffet, Inc....................... 04/01/00 13.00 2,250,000 2,250,000
MBA Marketing Corporation.................. 02/04/99 12.50 1,782,000 1,789,800
Medical Associates of America, Inc......... 11/01/97 12.50 385,000 392,000
Midbrook Group, Inc........................ 02/28/01 13.50 3,600,000 3,613,334
Money Transfer Systems, Inc................ 07/24/00 14.00 247,500 247,878
Money Transfer Systems, Inc................ 12/20/00 14.00 148,500 148,600
Money Transfer Systems, Inc................ 03/01/01 14.00 148,500 148,525
Moore Diversified Products, Inc............ 06/16/00 13.50 800,000 800,000
Moovies Inc................................ 04/18/00 13.50 1,485,000 1,488,000
Moovies Inc................................ 01/04/01 13.00 1,980,000 1,980,999
Multicom Publishing, Inc................... 03/29/01 13.00 2,200,000 2,213,333
Multimedia Learning, Inc................... 05/08/00 14.00 1,500,000 1,500,000
Nationwide Engine Supply L.P............... 01/12/99 12.00 2,475,000 2,486,259
Nelson Juvenile Products L.L.C............. 10/31/00 14.00 2,000,000 2,000,000
Novavision Inc............................. 06/21/99 10.00 1,000,000 1,000,000
Novavision Inc............................. 06/21/00 10.00 350,000 350,000
Novavision Inc............................. 10/16/00 10.00 100,000 100,000
Novavision Inc............................. 12/04/01 10.00 386,500 386,500
NRI Service and Supply L.P................. 02/13/00 14.00 2,475,000 2,480,838
Orchid Manufacturing Group, Inc............ 09/14/00 13.00 2,960,000 2,962,668
Orchid Manufacturing Group, Inc............ 12/28/00 13.50 1,000,000 1,000,000
PFIC Corporation........................... 02/28/01 13.00 1,000,000 1,000,000
Palco Telecom Service, Inc................. 11/22/99 12.00 1,300,000 1,300,000
Patton Management Corporation.............. 05/26/00 13.50 1,900,000 1,900,000
Pharmaceutical Research Assoc., Inc........ 08/10/00 13.50 1,980,000 1,982,664
Pipeliner Systems, Inc..................... 09/30/98 13.00 980,000 990,323
P. A. Plymouth Inc......................... 09/28/00 13.00 1,000,000 1,000,000
Precision Fixtures & Graphics, Inc......... 07/31/10 7.76 1,100,000 700,000
Precision Fixtures & Graphics, Inc......... 05/26/00 7.76 250,000 250,000
Precision Fixtures & Graphics, Inc......... 11/07/00 7.76 200,000 200,000
Precision Fixtures & Graphics, Inc......... 12/27/00 7.76 100,000 100,000
Precision Fixtures & Graphics, Inc......... 07/10/00 7.76 135,000 135,000
Precision Fixtures & Graphics, Inc......... 08/28/00 7.76 110,000 110,000
Precision Fixtures & Graphics, Inc......... 12/12/00 7.76 200,000 200,000
Precision Fixtures & Graphics, Inc......... 01/28/01 7.76 200,000 200,000
Precision Fixtures & Graphics, Inc......... 02/15/01 7.76 100,000 100,000
Precision Fixtures & Graphics, Inc......... 02/19/01 7.76 100,000 100,000
Precision Fixtures & Graphics, Inc......... 03/07/01 7.76 100,000 100,000
Precision Panel Products, Inc.............. 01/11/00 12.75 1,485,000 1,488,750
Pritchard Paint & Glass Co................. 02/14/01 14.00 1,100,000 1,100,000
Quest Group International, Inc............. 11/15/00 13.25 1,125,000 1,135,415
Radio Systems Corporation.................. 12/27/99 13.00 905,725 930,861
SkillSearch Corporation.................... 02/05/98 13.00 496,000 498,746
</TABLE>
F-30
<PAGE> 94
SIRROM CAPITAL CORPORATION
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
LOAN COUPON
MATURITY INTEREST
LOANS DATE RATE COST FAIR VALUE
- ------------------------------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Southern Specialty Group................... 06/30/01 14.00% $ 1,732,500 $ 1,733,376
Summit Publishing Group, Inc............... 03/17/99 12.00 1,485,000 1,491,250
Suncoast Medical Group, Inc................ 09/14/99 13.50 485,000 490,248
Suncoast Medical Group, Inc................ 06/07/00 14.00 495,000 495,332
Suncoast Medical Group, Inc................ 02/23/01 14.00 495,000 495,166
TCOM Systems, Inc.......................... 02/05/98 13.00 546,853 546,853
Tower Environmental, Inc................... 11/30/98 10.00 2,440,000 2,451,990
Tower Environmental, Inc................... 05/30/95 12.50 150,000 150,000
Trade Am International, Inc................ 09/30/00 12.75 4,000,000 4,000,000
Treasury Coast Pizza Company............... 07/29/98 12.00 841,500 846,186
Urethane Technologies, Inc................. 03/16/01 13.50 1,636,520 1,642,578
Unique Electronics, Inc.................... 11/30/99 10.70 600,000 600,000
Universal Marketing Corporation............ 01/31/00 13.50 500,000 500,000
Valdawn L.L.C.............................. 04/13/00 13.50 2,399,974 2,400,000
Viking Moorings Acquisition, LLC........... 12/15/00 13.00 1,655,500 1,678,468
Voice FX................................... 01/23/01 13.50 2,324,000 2,332,799
WWR Technology, Inc........................ 11/01/97 13.50 524,700 528,392
Zahren Alternative Power Corp.............. 01/30/00 13.00 495,000 495,328
Zahren Alternative Power Corp.............. 11/27/99 13.00 1,980,000 1,986,696
------------ ------------
Total Loans.............................. $169,895,679 $166,936,281
=========== ===========
</TABLE>
F-31
<PAGE> 95
SIRROM CAPITAL CORPORATION
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES/ COST OR
PERCENTAGE CONTRIBUTED
EQUITY INTERESTS OWNERSHIP VALUE FAIR VALUE
- ------------------------------------------------------ --------------- ----------- -----------
<S> <C> <C> <C>
PUBLICLY TRADED INVESTMENTS
National Vision Associates, Ltd.
Common Stock -- restricted.......................... 208,698 $ 1,771,149 $ 563,485
Concept Technologies Group, Inc.
Common Stock -- restricted.......................... 23,408 5,300 22,792
Moovies Inc.
Common Stock........................................ 156,110 16,561 1,529,878
Premiere Technologies, Inc.
Common Stock........................................ 378,360 0 6,157,809
----------- -----------
Subtotal............................................ 1,793,010 8,273,964
----------- -----------
EQUITY INVESTMENTS IN PRIVATE COMPANIES
National Recovery Technologies, Inc.
Preferred Stock -- Series A......................... 20,000 0 0
Medical Associates of America Preferred
Stock -- Series A................................... 66,667 0 0
Skillsearch Corporation Common Stock.................. 2,241 250,035 250,035
Potomac Group Preferred Stock -- Series A............. 800,000 1,000,000 2,000,000
Potomac Group Common Stock............................ 254,115 63,529 635,288
Kentucky Kingdom Inc. Common Stock.................... 13,260 258,316 1,539,620
Golf Corporation of America Common Stock.............. 100,000 100,000 100,000
International Risk Control, Inc. Preferred
Stock -- Series A................................... 200,000 50,000 50,000
DentureCare Inc. Preferred Stock -- Series D.......... 49,342 300,000 300,000
Unique Electronics, Inc. Preferred Stock -- Series
A................................................... 1,000,000 1,000,000 1,000,000
Pipeliners Systems, Inc. Preferred Stock -- Series
D................................................... 5,000 1,000,000 1,000,000
Front Royal Inc. Common Stock......................... 110,000 275,000 275,000
Ocutec Aquisition Corporation Preferred
Stock -- Series A................................... 1,539,867 1,539,867 1,539,867
Fycon Technologies Inc. Preferred Stock -- Series A... 800,000 800,000 500,000
Carter Kaplan Holdings L.L.C. Membership interest in
LLC................................................. 24.00% 6,100 6,100
Virginia Gas Company Preferred Stock- Series A........ 2,000 2,000,000 2,000,000
Johnston County Cable L.P. Class A Interest in L.P.... 11.11% of L.P. 100,000 100,000
Eastern Food Group L.L.C. Class B Preferred Units..... 7,500 754,444 654,444
Dalcon International Inc. Series B Preferred Stock.... 850,000 850,000 490,000
Zahren Alternative Power Corporation Common Stock..... 700 210,000 210,000
Zahren Alternative Power Corporation Preferred
Stock............................................... 200 200,000 200,000
Viking Moorings Acquisition, L.L.C. Membership
interest in LLC..................................... 6.50% 344,500 344,500
Electronic Merchant Services Series B Preferred
Stock............................................... 163 0 0
Nelson Juvenile Products L.L.C. Membership interest in
LP.................................................. 30.00% 0 0
Pharmaceutical Research Associates Inc. Class F
Preferred Stock..................................... 29,195 190,000 190,000
Caldwell/VSR Inc. Preferred Stock..................... 890 890,000 890,000
----------- -----------
Subtotal............................................ 12,181,791 14,274,854
----------- -----------
Total Equity Interests.............................. $13,974,801 $22,548,818
========== ==========
</TABLE>
F-32
<PAGE> 96
SIRROM CAPITAL CORPORATION
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
WARRANTS SHARES/UNITS OWNERSHIP VALUE FAIR VALUE
- -------------------------------------------- ----------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Affinity Fund, Inc.......................... 1,725 8.62% $ 20,000 $ 600,000
Amscot Holdings, Inc........................ 1,121 17.50 0 0
Ashe Industries, Inc........................ 216 16.52 20,000 0
Associated Response Services, Inc........... 343 34.30 14,000 1,000,000
Assured Power, Inc.......................... 374 16.00 0 0
Auto Rental Systems, Inc.................... 144,869 8.00 0 285,000
B & N Company, Inc.......................... 33 4.00 40,000 40,000
BankCard Services Corporation............... 149,261 28.00 3,000 0
BiTec Southeast, Inc........................ 938 10.00 21,000 100,000
C.J. Spirits, Inc........................... 180,000 10.00 7,500 0
CF Data Corp................................ 257 20.50 17,500 17,500
Caldwell/VSR Inc............................ 159 15.93 0 0
Capital Network System Inc.................. 173,409 3.50 20,000 250,000
Cardiac Control Systems, Inc................ 100,000 2.90 0 150,000
CCS Technology Group, Inc................... 30,000 2.00 10,000 10,000
CellCall, Inc............................... 332 1.23 10,000 125,000
Champion Glove Mfg. Co., Inc................ 538,614 6.88 0 0
CLS Corporation............................. 126,997 4.90 0 0
Clearidge, Inc.............................. 449,039 7.90 0 0
Colonial Investments........................ 194 18.00 0 0
Consumat Systems, Inc....................... 250,000 20.00 0 0
Consumer Credit Associates, Inc............. 3,669 15.50 0 0
Continental Diamond Cutting Co.............. 112 12.22 0 0
Corporate Flight Mgmt., Inc................. 66,315 10.00 3,500 100,000
Cougar Power Products, Inc.................. 336 22.61 10,000 0
Dalcon International, Inc................... 250,000 20.00 0 0
Dalt's, Inc................................. 125 25.00 0 0
DentureCare, Inc............................ 546,545 12.65 10,000 375,000
Electronic Merchant Services................ 430 12.50 12,500 12,500
Eastern Food Group L.L.C.................... 17,647 15.00 0 0
Educational Medical, Inc.................... 85,000 8.00 0 400,000
Emerald Pointe Waterpark L.P................ 10% of LP 10.00 6,000 250,000
Encore Orthopedics, Inc..................... 466,455 7.36 711,335 711,335
Express Shipping Centers, Inc............... 73,752 3.00 552,402 552,402
Factory Card Outlet of America Ltd.......... 23,658 2.50 329,083 500,000
Front Royal, Inc............................ 240,458 3.59 0 420,000
Fycon Technologies, Inc..................... 58,677 15.00 0 0
FX Direct................................... 233,112 8.00 176,000 176,000
Gardner Wallcovering, Inc................... 2 2.00 15,000 15,000
Gates Communication, L.P.................... 47% of LP 47.00 10,000 10,000
Global Finance and Leasing, Inc............. 5,000 25.00 0 0
Gold Medal Products, Inc.................... 90,000 30.00 0 0
Golf Corporation of America, Inc............ 300,000 31.50 0 0
Golf Video, Inc............................. 98 49.50 0 0
Gulfstream International Airlines, Inc...... 271 21.00 10,000 0
</TABLE>
F-33
<PAGE> 97
SIRROM CAPITAL CORPORATION
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
WARRANTS SHARES/UNITS OWNERSHIP VALUE FAIR VALUE
- -------------------------------------------- ----------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Horizon Medical Products, Inc............... 9,486 8.25% $ 0 $ 0
Hoveround Corporation....................... 1,963 27.00 5,000 325,000
HSA International........................... 100,999 12.00 15,000 15,000
Hunt Incorporated........................... 309 10.00 0 200,000
I. Schneid Holdings LLC..................... 11 of LLC 11.00 0 0
Innotech, Inc............................... 65,995 3.79 20,000 268,100
In Store Services, Inc...................... 429 12.50 12,000 12,000
Intermed Healthcare Systems, Inc............ 11,884 10.25 7,500 0
Johnston County Cable, L.P.................. 27.5 of LP 27.50 10,000 10,000
Kryptonics, Inc............................. 1,255 9.00 0 0
Lovett's Buffet, Inc........................ 204,219 5.00 0 0
MBA Marketing Corporation................... 28 4.29 18,000 0
Midbrook Group Inc.......................... 7.40 7.40 400,000 400,000
Money Transfer Systems, Inc................. 45 4.00 5,500 5,500
Moore Diversified Products, Inc............. 12 11.00 0 0
Moovies, Inc................................ 20,000 0.20 20,000 20,000
Multicom Publishing, Inc.................... 335,423 6.00 800,000 800,000
Multimedia Learning, Inc.................... 202 6.00 0 0
Nationwide Engine Supply, Inc............... 952,381 16.19 25,000 25,000
NRI Service and Supply L.P.................. 27.5 of LP 27.50 25,000 25,000
Novavision, Inc............................. 222,222 10.00 0 0
One Stop Acquisitions, Inc.................. 794 24.40 0 500,000
Orchid Manufacturing Group, Inc............. 1,719,047 4.50 40,000 540,000
PFIC Corporation............................ 5,917 6.00 0 0
Palco Telecom Services, Inc................. 157,895 5.00 0 0
Patton Management Corporation............... 426 10.00 0 300,000
Pharmaceutical Research Associates, Inc..... 259,848 6.00 20,000 20,000
Pipeliner Systems, Inc...................... 2,080,000 20.55 20,000 20,000
Plymouth.................................... 92,647 15.00 0 0
Potomac Group, Inc.......................... 225,000 1.90 125,000 562,500
Precision Fixtures & Graphics Inc........... 132 5.00 0 0
Precision Panel Products, Inc............... 122 8.25 15,000 15,000
Pritchard Paint & Glass..................... 12,500 25.00 0 0
Quest Group International, Inc.............. 44,444 10.00 125,000 125,000
Radio Systems Corporation................... 129,734 7.27 94,275 330,000
SkillSearch Corporation..................... 2,381 7.20 254,000 119,000
Southern Specialty Brands, Inc.............. 10,000 10.00 17,500 17,500
Summit Publishing Group, Inc................ 6,296 24.50 15,000 15,000
Suncoast Medical Group, Inc................. 580,159 23.00 25,000 25,000
Suprex Corporation.......................... 1,058,179 3.45 0 7,500
The Ryland Co............................... 1,518 20.50 0 0
Tower Environmental, Inc.................... 82 10.07 20,000 0
Trade Am International, Inc................. 335,106 6.00 0 0
Treasure Coast Pizza Company................ 51 10.00 8,500 8,500
Valdawn L.L.C............................... 2,658 21.00 26 26
</TABLE>
F-34
<PAGE> 98
SIRROM CAPITAL CORPORATION
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
WARRANTS SHARES/UNITS OWNERSHIP VALUE FAIR VALUE
- -------------------------------------------- ----------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Unique Electronics, Inc..................... 80.00 20.00% $ 0 $ 0
Universal Marketing Corporation............. 111 10.00 0 0
Urethane Technologies, Inc.................. 484,640 4.66 363,480 363,480
Virginia Gas Company........................ 525 6.00 0 0
Zahren Alternative Power Corp............... 1,168 9.80 25,000 25,000
Total Warrants............................ 4,559,601 11,198,843
------------ ------------
Total Investments........................... $188,430,081 $200,683,942
=========== ===========
</TABLE>
F-35
<PAGE> 99
HARRIS WILLIAMS & CO.
AND SUBSIDIARY
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Harris Williams & Co. and Subsidiary:
We have audited the accompanying consolidated balance sheets of HARRIS
WILLIAMS & CO. AND SUBSIDIARY (a Virginia "S" corporation) as of December 31,
1994 and 1995, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the years ended December 31, 1993, 1994
and 1995. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Harris Williams & Co. and
subsidiary as of December 31, 1994 and 1995, and the results of their operations
and cash flows for the years ended December 31, 1993, 1994 and 1995 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
May 10, 1996
F-36
<PAGE> 100
HARRIS WILLIAMS & CO.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1994 1995 1996
-------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $738,851 $737,682 $1,782,594
Accounts receivable......................................... 20,352 61,023 137,423
Prepaid expenses............................................ 7,735 11,287 10,347
-------- -------- ----------
Total current assets................................ 766,938 809,992 1,930,364
-------- -------- ----------
FURNITURE AND EQUIPMENT, at cost.............................. 88,742 108,637 109,611
Less accumulated depreciation............................... (16,283) (36,216) (41,697)
-------- -------- ----------
Net furniture and equipment......................... 72,459 72,421 67,914
-------- -------- ----------
OTHER ASSETS.................................................. 6,025 2,115 2,115
-------- -------- ----------
$845,422 $884,528 $2,000,393
======== ======== =========
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities.................... $ 10,920 $ 44,418 $ 364,859
-------- -------- ----------
Total current liabilities........................... 10,920 44,418 364,859
-------- -------- ----------
MINORITY INTEREST............................................. 488,801 451,161 610,262
-------- -------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par, 5,000 shares authorized, 100 shares
issued and outstanding................................... 60,783 60,783 60,783
Retained earnings........................................... 284,918 328,166 964,489
-------- -------- ----------
345,701 388,949 1,025,272
-------- -------- ----------
$845,422 $884,528 $2,000,393
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-37
<PAGE> 101
HARRIS WILLIAMS & CO.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, FOR THE THREE MONTHS
---------------------------------- ENDED MARCH 31,
1993 1994 1995 -------------------------
-------- ---------- ---------- 1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Fee income........................... $498,543 $1,553,862 $2,257,496 $ 523,315 $ 1,277,597
Expense reimbursements............... 70,683 128,089 320,345 121,923 113,903
-------- ---------- ---------- ----------- -----------
569,226 1,681,951 2,577,841 645,238 1,391,500
-------- ---------- ---------- ----------- -----------
EXPENSES:
Salaries and benefits................ 206,607 884,396 1,314,723 318,526 498,402
Operating expenses................... 156,383 255,597 530,052 137,262 114,822
-------- ---------- ---------- ----------- -----------
362,990 1,139,993 1,844,775 455,788 613,224
-------- ---------- ---------- ----------- -----------
Operating income............. 206,236 541,958 733,066 189,450 778,276
-------- ---------- ---------- ----------- -----------
INTEREST INCOME AND OTHER.............. 931 10,909 78,544 4,385 17,142
-------- ---------- ---------- ----------- -----------
INCOME BEFORE MINORITY INTEREST........ 207,167 552,867 811,610 193,835 795,418
MINORITY INTEREST...................... -- (25,468) (162,361) (38,767) (159,095)
-------- ---------- ---------- ----------- -----------
NET INCOME............................. $207,167 $ 527,399 $ 649,249 $ 155,068 $ 636,323
======== ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-38
<PAGE> 102
HARRIS WILLIAMS & CO.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------- --------- ----------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993............................... 100 $60,783 $ 43,102 $ 103,885
Net income........................................... -- -- 207,167 207,167
Distributions to stockholders........................ -- -- (175,350) (175,350)
------ ------- --------- ----------
BALANCE, DECEMBER 31, 1993............................. 100 60,783 74,919 135,702
Net income........................................... -- -- 527,399 527,399
Distributions to stockholders........................ -- -- (317,400) (317,400)
------ ------- --------- ----------
BALANCE, DECEMBER 31, 1994............................. 100 60,783 284,918 345,701
Net income........................................... -- -- 649,249 649,249
Distributions to stockholders........................ -- -- (606,001) (606,001)
------ ------- --------- ----------
BALANCE, DECEMBER 31, 1995............................. 100 60,783 328,166 388,949
Net income, (unaudited).............................. -- -- 636,323 636,323
------ ------- --------- ----------
BALANCE, MARCH 31, 1996, (unaudited)................... 100 $60,783 $ 964,489 $1,025,272
===== ======= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-39
<PAGE> 103
HARRIS WILLIAMS & CO.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION> FOR THE THREE
FOR THE YEARS ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------------------------- -------------------------
1993 1994 1995 1995 1996
--------- --------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Consolidated net income....................... $ 207,167 $ 527,399 $ 649,249 $ 155,068 $ 636,323
Adjustments to reconcile consolidated net
income to net cash provided (used) by
operating activities:
Depreciation................................ 3,194 9,671 20,613 4,983 5,440
Minority interest in net income of
consolidated
subsidiary................................ -- 25,468 162,361 38,767 159,095
Increase in accounts receivable............. -- (4,989) (40,671) (508,124) (76,400)
(Increase) decrease in prepaid expenses..... (6,653) (5,785) (3,552) 567 940
(Increase) decrease in other assets......... (501) (5,287) 3,230 -- --
Increase (decrease) in accounts payable and
accrued liabilities....................... (760) 9,162 33,499 265,050 320,489
--------- --------- --------- ----------- -----------
Net cash provided (used) by operating
activities........................... 202,447 555,639 824,729 (43,689) 1,045,887
--------- --------- --------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment........... (8,452) (67,255) (19,898) (1,326) (975)
--------- --------- --------- ----------- -----------
Net cash used by investing
activities........................... (8,452) (67,255) (19,898) (1,326) (975)
--------- --------- --------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contribution from minority interest........... -- 500,000 -- -- --
Distributions to stockholders and minority
interest.................................... (175,350) (354,087) (806,000) -- --
--------- --------- --------- ----------- -----------
Net cash provided (used) by financing
activities........................... (175,350) 145,913 (806,000) -- --
--------- --------- --------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... 18,645 634,297 (1,169) (45,015) 1,044,912
CASH AND CASH EQUIVALENTS, at beginning of
year.......................................... 85,909 104,554 738,851 738,851 737,682
--------- --------- --------- ----------- -----------
CASH AND CASH EQUIVALENTS, at end of year....... $ 104,554 $ 738,851 $ 737,682 $ 693,836 $1,782,594
========== ========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-40
<PAGE> 104
HARRIS WILLIAMS & CO.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Harris Williams & Co. (the "Company") was incorporated in 1991 under the
laws of Virginia as a Subchapter S corporation and has a majority-owned
subsidiary, Harris Williams & Co., L.P. (a Virginia limited partnership), (the
"Partnership"), which was formed in August 1994. The Partnership was formed in
August 1994 at which time the Company began conducting all operations through
the Partnership and its activity was limited to the investment in the
Partnership. (See Note 3).
The Company provides merger and acquisition advisory services primarily to
small businesses. Engagement contracts provide for a monthly retainer,
reimbursement of direct expenses and a success fee upon closing of a
transaction.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The Partnership's assets, liabilities and earnings are consolidated with
those of the Company and the limited partner's interest in the Partnership is
included in the Company's financial statements as minority interest. Income from
the Partnership has been allocated to the partners in proportion to their
ownership interests.
Cash and Cash Equivalents
All highly liquid investments with a maturity of three months or less are
classified as cash equivalents.
Fair Value of Financial Instruments
In accordance with the requirements of Statement of Financial Accounting
Standards No. 107 "Disclosures About Fair Value of Financial Instruments," the
Partnership calculates the fair value of financial instruments using quoted or
estimated market prices. At December 31, 1995, there were no material
differences in the book values of the Partnership's financial instruments and
their related fair values.
Furniture and Equipment
Furniture and equipment are carried at cost. Depreciation is provided using
a straight line method over the estimated useful lives of the related assets
which approximate five years.
Revenue Recognition
Advisory services are typically provided by the Company in accordance with
engagement contracts that stipulate a monthly retainer, reimbursement of direct
expenses and transaction closing fees. Retainer fees are recognized ratably over
the retainer period, expense reimbursements are billed and recognized monthly
and success fees are recognized at the time of transaction closing.
Income Taxes
The Company has elected, under Subchapter S of the Internal Revenue Code,
to have its income taxed directly to the stockholders. Under this election, each
stockholder is responsible for including their share of the taxable income of
the Company in their individual federal income tax returns.
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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-41
<PAGE> 105
HARRIS WILLIAMS & CO.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENT IN PARTNERSHIP
In August 1994, the Company contributed approximately $285,000 in cash and
assets to the Partnership in exchange for an 80% general partner interest in the
Partnership. A third party investor contributed $500,000 in cash to the
Partnership in exchange for a 20% limited partnership interest. The Company
began conducting all business activity through the Partnership immediately upon
receiving its general partnership interest. Income for tax purposes and
distributions are made to each partner at amounts defined in the Partnership
agreements.
4. CONCENTRATION OF CREDIT
The Company's financial instruments subject to credit risk are primarily
cash and cash equivalents and accounts receivable. As of December 31, 1995, the
Partnership had $300,741 invested in one money market mutual fund and $300,000
in commercial paper. Generally, the Company does not require collateral or other
security to support customer receivables. As of December 31, 1995, the Company
had no significant concentrations of credit risk with respect to accounts
receivable.
5. COMMITMENTS AND CONTINGENCIES
Lease Agreement
The Company has a lease agreement for office space. Rental commitments
payable by the Company for this noncancelable operating lease are as follows:
1996 -- $51,183; 1997 -- $53,854; and 1998 -- $18,185. Total rental expense
approximated $11,000, $17,000 and $42,000 for the years ended December 31, 1993,
1994 and 1995, respectively.
Engagement Contracts
Under the terms of most client contracts, there are both fixed and
contingent fees. The fees include a retainer and reimbursement for certain
out-of-pocket expenses; however, success fees are usually contingent upon
completing a transaction.
6. STOCK OPTION PLAN
During 1993, the Company adopted a stock option plan which permits the
issuance of options to purchase the Company's common stock to selected
employees. The Plan reserves 11 shares of common stock for grant. Under the
terms of the Plan, the options' exercise price may not be less than the fair
market value of a share of common stock on the date of the grant. During
December 1993 and 1994, the Company granted options to two, non-owner employees
which become exercisable at various times specified in the option agreements or
upon a change in control of the Company. The options allow the holders to
purchase shares totaling 5.434 and 3.261 of common stock at exercise prices of
$971 per share and $2,676 per share, respectively.
As options are exercised, the Company's ownership interest in the
Partnership increases, as defined in the Partnership agreement, up to 81%.
7. SUBSEQUENT EVENT
In April 1996, the Company entered into a letter of intent with Sirrom
Capital Corporation ("Sirrom"), a Nashville based specialty finance company,
whereby 100% of its common stock would be exchanged for common stock of Sirrom.
Simultaneous with this transaction, Sirrom will also acquire the limited
partnership interest in the Partnership not owned by the Company. Consummation
of this transaction is subject to a number of conditions including, approval by
Sirrom shareholders, receipt of various regulatory approvals and the
availability of pooling of interests accounting treatment.
F-42
<PAGE> 106
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED
HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER AT ANY TIME IMPLIES THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
The Company........................... 8
Additional Information................ 8
Risk Factors.......................... 9
Use of Proceeds....................... 13
Distributions and Price Range of
Common Stock........................ 13
Selected Financial Data............... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 15
Business.............................. 20
Investment Objectives and Policies.... 34
Portfolio Companies................... 36
Principal Shareholders................ 45
Management............................ 46
Certain Transactions.................. 51
Determination of Net Asset Value...... 52
Reinvestment Plan..................... 53
Tax Status............................ 54
Description of Capital Stock.......... 56
Regulation............................ 58
Shares Eligible for Future Sale....... 59
Underwriting.......................... 60
Legal Matters......................... 61
Custodian, Transfer and Dividend
Paying Agent and Registrar.......... 61
Reports to Shareholders............... 61
Independent Public Accountants........ 61
Index to Financial Statements......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,000,000 SHARES
SIRROM CAPITAL
CORPORATION
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
THE ROBINSON-HUMPHREY
COMPANY, INC.
J.C. BRADFORD & CO.
EQUITABLE SECURITIES
CORPORATION
June , 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 107
PART C
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
1. FINANCIAL STATEMENTS.
SIRROM CAPITAL CORPORATION
Report of Independent Public Accountants
Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996
(unaudited)
Statements of Operations for the Years Ended December 31, 1993, 1994 and
1995 and for the Three Months Ended March 31, 1995 and 1996 (unaudited)
Statements of Changes in Partners' Capital and Shareholders' Equity for the
Years Ended December 31, 1993, 1994 and 1995 and the Three Months Ended
March 31, 1996 (unaudited)
Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and
1995 and the Three Months Ended March 31, 1995 and 1996 (unaudited)
Financial Highlights
Per Share Data for the Year Ended December 31, 1995 and the Three
Months Ended March 31, 1996 (unaudited)
Ratios/Supplemental Data for the Years Ended December 31, 1993, 1994
and 1995 and the Three Months Ended March 31, 1996 (unaudited)
Notes to Financial Statements
Quarterly Financial Information for the Years 1994 and 1995 (unaudited)
Portfolio of Investments
As of December 31, 1994
As of December 31, 1995
As of March 31, 1996 (unaudited)
HARRIS WILLIAMS & CO. AND SUBSIDIARY
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1994 and 1995 and March 31,
1996 (unaudited)
Consolidated Statements of Income for the Years Ended December 31, 1993,
1994 and 1995 and for the Three Months Ended March 31, 1995 and 1996
(unaudited)
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 1993, 1994 and 1995 and the Three Months Ended March
31, 1996 (unaudited)
Consolidated Statements of Cash Flows for the Years Ended December 31,
1993, 1994 and 1995 and the Three Months Ended March 31, 1995 and 1996
(unaudited)
Notes Consolidated to Financial Statements
2. EXHIBITS.
<TABLE>
<C> <S> <C>
a. -- Charter of the Company (incorporated by reference to the corresponding exhibit
contained in the Registrant's Registration Statement on Form N-2, as amended (File
No. 33-86680), filed with the Commission on November 23, 1994)
</TABLE>
C-1
<PAGE> 108
<TABLE>
<C> <S> <C>
b.1 -- Bylaws of the Company (incorporated by reference to exhibit b. contained in the
Registrant's Registration Statement on Form N-2, as amended (File No. 33-86680),
filed with the Commission on November 23, 1994)
b.2 -- Amendment No. 1 to Bylaws (incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q for the period ended March 30, 1995 filed with the Commission on
May 12, 1995)
d.1 -- Specimen form of Common Stock Certificate (incorporated by reference to the
corresponding exhibit contained in the Registrant's Registration Statement on Form
N-2, as amended (File No. 33-86680), filed with the Commission on November 23, 1994)
d.2 -- Instruments defining rights of holders of securities: See Paragraph 6 of the
Company's Charter (incorporated by reference to the corresponding exhibit contained
in the Registrant's Registration Statement on Form N-2, as amended (File No.
33-86680), filed with the Commission on November 23, 1994)
d.3 -- Equity Holders Agreement dated as of November 1, 1994 by and among the Partnership
and the other signatories thereto (incorporated by reference to the corresponding
exhibit contained in the Registrant's Registration Statement on Form N-2, as amended
(File No. 33-86680), filed with the Commission on November 23, 1994)
d.4 -- Registration Rights Agreement dated February 1, 1995 (incorporated by reference to
the corresponding exhibit contained in the Registrant's Registration Statement on
Form N-2, as amended (File No. 33-86680), filed with the Commission on November 23,
1994)
e. -- Dividend Reinvestment Plan of the Company (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the period ended March 30, 1995 filed
with the Commission on May 12, 1995)
h.1 -- Form of Underwriting Agreement
h.2 -- Form of Agreement Among Underwriters
h.3 -- Form of Selected Dealers Agreement
i.1 -- Amended and Restated 1994 Employee Stock Option Plan of the Company (incorporated by
reference to the corresponding exhibit contained in the Registrant's Registration
Statement on Form N-2, as amended (File No. 33-86680), filed with the Commission on
November 23, 1994)
i.2 -- Form of Indemnification Agreement (incorporated by reference to the corresponding
exhibit contained in the Registrant's Registration Statement on Form N-2, as amended
(File No. 33-86680), filed with the Commission on November 23, 1994)
i.3 -- 1995 Stock Option Plan for Non-Employee Directors (incorporated by reference to the
corresponding exhibit in the Registrant's Registration Statement on Form N-2, as
amended (File No. 33-95394), filed with the Commission on August 3, 1995)
i.4 -- 1996 Incentive Stock Option (incorporated by reference to Exhibit 10.3 in the
Registrant's Financial Report on Form 10-K for the year ended December 31, 1995,
filed with the Commission on March 29, 1996)
j.1 -- Custodial Services Agreement with First American Trust Company dated March 13, 1992
(incorporated by reference to the corresponding exhibit contained in the
Registrant's Registration Statement on Form N-2, as amended (File No. 33-86680),
filed with the Commission on November 23, 1994)
j.2 -- Custodial Services Agreement Supplement with First American Trust Company dated
January 16, 1995 (incorporated by reference to the corresponding exhibit contained
in the Registrant's Registration Statement on Form N-2, as amended (File No.
33-86680), filed with the Commission on November 23, 1994)
k.1 -- Third Amended and Restated Loan Agreement dated as of December 27, 1995, by and
among the Company, as Borrower, the Lenders referred to herein, and First Union
National Bank of Tennessee, as Agent (incorporated by reference to Exhibit 10.7 in
the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995,
filed with the Commission on March 29, 1996)
</TABLE>
C-2
<PAGE> 109
<TABLE>
<C> <S> <C>
k.2 -- Third Amended and Restated Revolving Credit Note dated December 27, 1995, in the
principal amount of $35,000,000, made by the Company in favor of First Union
National Bank of Tennessee (incorporated by reference to Exhibit 10.8 in the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1995, filed
with the Commission on March 29, 1996)
k.3 -- Revolving Credit Note dated December 27, 1995, in the principal amount of
$7,500,000, made by the Company in favor of Amsouth Bank of Tennessee (incorporated
by reference to Exhibit 10.9 in the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995, filed with the Commission on March 29, 1996)
k.4 -- Revolving Credit Note dated December 27, 1995, in the principal amount of
$7,500,000, made by the Company in favor of First American National Bank
(incorporated by reference to Exhibit 10.10 in the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995, filed with the Commission on March
29, 1996)
k.5 -- Swingline Note dated December 27, 1995, in the principal amount of $5,000,000, made
by the Company in favor of First Union National Bank of Tennessee (incorporated by
reference to Exhibit 10.11 in the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995, filed with the Commission on March 29, 1996)
k.6 -- Second Amended and Restated Security Agreement dated December 27, 1995, by and
between the Company and First Union National Bank of Tennessee (incorporated by
reference to Exhibit 10.12 in the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995, filed with the Commission on March 29, 1996)
k.7 -- Pledge Agreement dated December 27, 1995, made by the Company in favor of First
Union National Bank of Tennessee (incorporated by reference to Exhibit 10.13 in the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1995, filed
with the Commission on March 29, 1996)
k.8 -- ISDA Master Agreement dated as of September 13, 1995 by and between the Company and
First Union National Bank (incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the period ending September 30, 1995 filed with the
Commission on November 15, 1995)
k.9 -- Acquisition Agreement by and among the Company, Sirrom Capital Acquisition
Corporation, Sirrom, Ltd., Harris Williams & Co., L.P. and Harris Williams & Co.
dated as of May 16, 1996
l. -- Opinion of Bass, Berry & Sims PLC
n.1 -- Consent of Arthur Andersen LLP
n.2 -- Consent of Bass, Berry & Sims PLC (included in Exhibit 1)
</TABLE>
- ---------------
(c) Not applicable
ITEM 25. MARKETING ARRANGEMENTS
The information contained under the heading "Underwriting" on pages
through of the Prospectus is incorporated herein by this reference.
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.
C-3
<PAGE> 110
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC registration fee............................................................... $20,125
NASD fee........................................................................... $ 6,337
Nasdaq additional listing fee...................................................... $
Blue Sky fees and expenses......................................................... $
Accounting fees and expenses....................................................... $
Legal fees and expenses............................................................ $
Printing and engraving............................................................. $
Registrar and transfer agent's fees................................................ $
Miscellaneous fees and expenses.................................................... $
-------
Total.................................................................... $
=======
</TABLE>
- ---------------
*Estimated for filing purposes.
All of the expenses set forth above shall be borne by the Company.
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL.
Not applicable.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES.
The following table sets forth the number of record holders of the
Company's Common Stock as of the date hereof.
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
- ------------------------------------------------------------------------------- --------------
<S> <C>
Common Stock, no par value..................................................... 149
</TABLE>
ITEM 29. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Tennessee Business Corporation Act ("TBCA") provides that a corporation
may indemnify any of its directors and officers against liability incurred in
connection with a proceeding if (i) such person acted in good faith; (ii) in the
case of conduct in an official capacity, the director or officer reasonably
believed such conduct was in the corporation's best interests; (iii) in all
other cases, the director or officer reasonably believed that his conduct was
not opposed to the best interests of the corporation; and (iv) in connection
with any criminal proceeding, the director or officer had no reasonable cause to
believe his conduct was unlawful. In actions brought by or in the right of the
corporation, however, the TBCA provides that no indemnification may be made if
the director or officer was adjudged liable to the corporation. The TBCA also
provides that in connection with any proceeding charging improper personal
benefit to an officer or director, no indemnification may be made if such
officer or director is adjudged liable on the basis that such personal benefit
was improperly received. In cases where the director or officer is wholly
successful, on the merits or otherwise, in the defense of any proceeding
instigated because of his status as an officer or director of a corporation, the
TBCA mandates that the corporation indemnify the director or officer against
reasonable expenses incurred in the proceeding. Notwithstanding the foregoing,
the TBCA provides that a court of competent jurisdiction, upon application, may
order that an officer or director be indemnified for reasonable expenses if, in
consideration of all relevant circumstances, the court determines that such
individual is fairly and reasonably entitled to indemnification, notwithstanding
the fact that (i) he was adjudged liable to the corporation in a proceeding by
or in right of the corporation; (ii) he was adjudged liable on the basis that a
personal benefit was improperly received by him; or (iii) he breached his duty
of care to the corporation.
The Company's Charter provides that to the fullest extent permitted by
Tennessee law, no director shall be personally liable to the Company or its
shareholders for monetary damages for breach of any fiduciary duty as a
director. Under the TBCA, this charter provision relieves the Company's
directors from personal liability to the Company or its shareholders for
monetary damages for breach of fiduciary duty as a director, except for
C-4
<PAGE> 111
liability arising from a judgment or other final adjudication establishing (i) a
breach of the director's duty of loyalty, (ii) acts or omissions not in good
faith or involving intentional misconduct or a knowing violation of law, (iii)
unlawful distributions; or (iv) receipt of an improper personal benefit. In
addition, the Company's Bylaws provide that each director or officer of the
Company shall be indemnified by the Company to the fullest extent allowed by
Tennessee law.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR.
Not applicable.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS.
The Company maintains at its principal office physical possession of each
account, book or other document required to be maintained by Section 31(a) of
the 1940 Act.
ITEM 32. MANAGEMENT SERVICES.
Not applicable.
ITEM 33. UNDERTAKINGS.
The Registrant hereby undertakes:
(a) to suspend the offering of shares until the Prospectus is amended
if subsequent to the effective date of this Registration Statement, its net
asset value declines more than ten percent from its net asset value as of
the effective date of this Registration Statement.
(b) that, for the purpose of determining any liability under the
Securities Act of 1933, the information omitted from the form of Prospectus
filed as 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) that, for the purpose of determining any liability under the
Securities Act of 1933, each post effective amendment that contains a form
of Prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of the securities at
that time shall be deemed to be the initial bona fide offering thereof.
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
Insofar as indemnification for liability arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions of its Charter and Bylaws permitting
indemnification, or otherwise, the registrant has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of 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 by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
C-5
<PAGE> 112
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, and State of
Tennessee, on the 14 day of May, 1996.
Sirrom Capital Corporation
By: /s/ GEORGE M. MILLER, II
------------------------------------
George M. Miller, II
Chief Executive Officer and
President
KNOW ALL MEN BY THESE PRESENTS, each person whose signature appears below
hereby constitutes and appoints George M. Miller, II and Carl W. Stratton, 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 by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- --------------------------------------------- -------------------------------- -------------
<C> <S> <C>
/s/ JOHN A. MORRIS, JR., M.D. Chairman of the Board and May 9, 1996
- --------------------------------------------- Director
John A. Morris, Jr., M.D.
/s/ GEORGE M. MILLER, II Chief Executive Officer, May 14, 1996
- --------------------------------------------- President and Director
George M. Miller, II (Principal Executive Officer)
/s/ CARL W. STRATTON Chief Financial Officer May 14, 1996
- --------------------------------------------- (Principal Financial and
Carl W. Stratton Accounting Officer)
/s/ E. TOWNES DUNCAN Director May 14, 1996
- ---------------------------------------------
E. Townes Duncan
/s/ WILLIAM D. EBERLE Director May 14, 1996
- ---------------------------------------------
William D. Eberle
/s/ EDWARD J. MATHIAS Director May 14, 1996
- ---------------------------------------------
Edward J. Mathias
/s/ ROBERT A. MCCABE, JR. Director May 14, 1996
- ---------------------------------------------
Robert A. McCabe, Jr.
/s/ RAYMOND H. PIRTLE, JR. Director May 14, 1996
- ---------------------------------------------
Raymond H. Pirtle, Jr.
/s/ L. EDWARD WILSON Director May 14, 1996
- ---------------------------------------------
L. Edward Wilson
</TABLE>
C-6
<PAGE> 113
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----- ------------------------------------------------------------------------------------
<C> <S> <C>
a. -- Charter of the Company (incorporated by reference to the corresponding exhibit
contained in the Registrant's Registration Statement on Form N-2, as amended (File
No. 33-86680), filed with the Commission on November 23, 1994)
b.1 -- Bylaws of the Company (incorporated by reference to exhibit b. contained in the
Registrant's Registration Statement on Form N-2, as amended (File No. 33-86680),
filed with the Commission on November 23, 1994)
b.2 -- Amendment No. 1 to Bylaws (incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q for the period ended March 30, 1995 filed with the Commission on
May 12, 1995)
d.1 -- Specimen form of Common Stock Certificate (incorporated by reference to the
corresponding exhibit contained in the Registrant's Registration Statement on Form
N-2, as amended (File No. 33-86680), filed with the Commission on November 23, 1994)
d.2 -- Instruments defining rights of holders of securities: See Paragraph 6 of the
Company's Charter (incorporated by reference to the corresponding exhibit contained
in the Registrant's Registration Statement on Form N-2, as amended (File No.
33-86680), filed with the Commission on November 23, 1994)
d.3 -- Equity Holders Agreement dated as of November 1, 1994 by and among the Partnership
and the other signatories thereto (incorporated by reference to the corresponding
exhibit contained in the Registrant's Registration Statement on Form N-2, as amended
(File No. 33-86680), filed with the Commission on November 23, 1994)
d.4 -- Registration Rights Agreement dated February 1, 1995 (incorporated by reference to
the corresponding exhibit contained in the Registrant's Registration Statement on
Form N-2, as amended (File No. 33-86680), filed with the Commission on November 23,
1994)
e. -- Dividend Reinvestment Plan of the Company (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the period ended March 30, 1995 filed
with the Commission on May 12, 1995)
h.1 -- Form of Underwriting Agreement
h.2 -- Form of Agreement Among Underwriters
h.3 -- Form of Selected Dealers Agreement
i.1 -- Amended and Restated 1994 Employee Stock Option Plan of the Company (incorporated by
reference to the corresponding exhibit contained in the Registrant's Registration
Statement on Form N-2, as amended (File No. 33-86680), filed with the Commission on
November 23, 1994)
i.2 -- Form of Indemnification Agreement (incorporated by reference to the corresponding
exhibit contained in the Registrant's Registration Statement on Form N-2, as amended
(File No. 33-86680), filed with the Commission on November 23, 1994)
i.3 -- 1995 Stock Option Plan for Non-Employee Directors (incorporated by reference to the
corresponding exhibit in the Registrant's Registration Statement on Form N-2, as
amended (File No. 33-95394), filed with the Commission on August 3, 1995)
i.4 -- 1996 Incentive Stock Option (incorporated by reference to Exhibit 10.3 in the
Registrant's Financial Report on Form 10-K for the year ended December 31, 1995,
filed with the Commission on March 29, 1996)
j.1 -- Custodial Services Agreement with First American Trust Company dated March 13, 1992
(incorporated by reference to the corresponding exhibit contained in the
Registrant's Registration Statement on Form N-2, as amended (File No. 33-86680),
filed with the Commission on November 23, 1994)
j.2 -- Custodial Services Agreement Supplement with First American Trust Company dated
January 16, 1995 (incorporated by reference to the corresponding exhibit contained
in the Registrant's Registration Statement on Form N-2, as amended (File No.
33-86680), filed with the Commission on November 23, 1994)
</TABLE>
<PAGE> 114
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----- ------------------------------------------------------------------------------------
<C> <S> <C>
k.1 -- Third Amended and Restated Loan Agreement dated as of December 27, 1995, by and
among the Company, as Borrower, the Lenders referred to herein, and First Union
National Bank of Tennessee, as Agent (incorporated by reference to Exhibit 10.7 in
the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995,
filed with the Commission on March 29, 1996)
k.2 -- Third Amended and Restated Revolving Credit Note dated December 27, 1995, in the
principal amount of $35,000,000, made by the Company in favor of First Union
National Bank of Tennessee (incorporated by reference to Exhibit 10.8 in the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1995, filed
with the Commission on March 29, 1996)
k.3 -- Revolving Credit Note dated December 27, 1995, in the principal amount of
$7,500,000, made by the Company in favor of Amsouth Bank of Tennessee (incorporated
by reference to Exhibit 10.9 in the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995, filed with the Commission on March 29, 1996)
k.4 -- Revolving Credit Note dated December 27, 1995, in the principal amount of
$7,500,000, made by the Company in favor of First American National Bank
(incorporated by reference to Exhibit 10.10 in the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995, filed with the Commission on March
29, 1996)
k.5 -- Swingline Note dated December 27, 1995, in the principal amount of $5,000,000, made
by the Company in favor of First Union National Bank of Tennessee (incorporated by
reference to Exhibit 10.11 in the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995, filed with the Commission on March 29, 1996)
k.6 -- Second Amended and Restated Security Agreement dated December 27, 1995, by and
between the Company and First Union National Bank of Tennessee (incorporated by
reference to Exhibit 10.12 in the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995, filed with the Commission on March 29, 1996)
k.7 -- Pledge Agreement dated December 27, 1995, made by the Company in favor of First
Union National Bank of Tennessee (incorporated by reference to Exhibit 10.13 in the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1995, filed
with the Commission on March 29, 1996)
k.8 -- ISDA Master Agreement dated as of September 13, 1995 by and between the Company and
First Union National Bank (incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the period ending September 30, 1995 filed with the
Commission on November 15, 1995)
k.9 -- Acquisition Agreement by and among the Company, Sirrom Capital Acquisition
Corporation, Sirrom, Ltd., Harris Williams & Co., L.P. and Harris Williams & Co.
dated as of May 16, 1996
l. -- Opinion of Bass, Berry & Sims PLC
n.1 -- Consent of Arthur Andersen LLP
n.2 -- Consent of Bass, Berry & Sims PLC (included in Exhibit 1)
</TABLE>
- ---------------
(c) Not applicable
<PAGE> 1
Exhibit 5
BASS, BERRY & SIMS PLC
A PROFESSIONAL LIMITED LIABILITY COMPANY
ATTORNEYS AT LAW
<TABLE>
<S> <C>
2700 FIRST AMERICAN CENTER 1700 RIVERVIEW TOWER
NASHVILLE, TENNESSEE 37238-2700 POST OFFICE BOX 1509
TELEPHONE (615) 742-6200 KNOXVILLE, TENNESSEE 37901-1509
TELECOPIER (615) 742-6293 TELEPHONE (423) 521-6200
TELECOPIER (423) 521-6234
</TABLE>
May 17, 1996
Sirrom Capital Corporation
511 Union Street, Suite 2310
Nashville, Tennessee 37219
Re: REGISTRATION STATEMENT ON FORM N-2
Ladies and Gentlemen:
We have acted as your counsel in connection with your preparation of a
registration statement on Form N-2 (the "Registration Statement") to be filed
by you with the Securities and Exchange Commission on May 17, 1996, covering
2,300,000 shares (including 300,000 shares that may be purchased by the
Underwriters upon exercise of an option to cover over-allotments). of no par
value common stock (the "Common Stock") of Sirrom Capital Corporation (the
"Company") to be sold by the Company to the underwriters represented by The
Robinson-Humphrey Company, Inc., J.C. Bradford & Co., and Equitable Securities
Corporation (the "Underwriters") for public distribution pursuant to the
Underwriting Agreement between the Company and the Underwriters filed as an
exhibit to the Registration Statement.
In connection with this opinion, we have examined and relied upon such
records, documents and other instruments as in our judgment are necessary or
appropriate in order to express the opinions hereinafter set forth and have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, and the conformity to original documents of all
documents submitted to us as certified or photostatic copies.
Based on the foregoing and such other matters as we have deemed relevant,
we are of the opinion that the shares of Common Stock to be sold by the Company,
when issued and delivered in the manner and on the terms described in the
Registration Statement (after the same is declared effective), will be validly
issued, fully paid and nonassessable.
We hereby consent to the reference to our law firm in the Registration
Statement under the caption "Legal Matters" and to the use of this opinion as an
exhibit to the Registration Statement.
Very truly yours,
/s/ Bass, Berry & Sims PLC
<PAGE> 1
Exhibit h.1
SIRROM CAPITAL CORPORATION
COMMON STOCK
2,000,000 SHARES
UNDERWRITING AGREEMENT
__________________, 1996
THE ROBINSON-HUMPHREY COMPANY, INC.
J. C. BRADFORD & CO.
EQUITABLE SECURITIES CORPORATION
As representatives of the several
Underwriters named in Schedule I hereto,
c/o The Robinson-Humphrey Company, Inc.
3333 Peachtree Road, N.E.
Atlanta, Georgia 30326
Dear Sirs:
Sirrom Capital Corporation, a Tennessee corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the Underwriters named in Schedule I (the "Underwriters") for whom The
Robinson-Humphrey Company, Inc., J.C. Bradford & Co., and Equitable Securities
Corporation are acting as representatives (the "Representatives") an aggregate
of 2,000,000 shares of common stock, no par value ("Common Stock"), of the
Company (the "Firm Shares"). The Company also proposes to sell to the
Underwriters, at the election of the Underwriters, subject to the terms and
conditions stated herein, up to 300,000 additional shares of Common Stock (the
"Optional Shares") (the Firm Shares and the Optional Shares that the
Underwriters elect to purchase pursuant to Section 3 hereof are collectively
called the "Shares").
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. (a) The Company
represents and warrants to, and agrees with, each of the Underwriters that:
(i) A registration statement on Form N-2 (File No.
____________) with respect to the Shares, including a prospectus
subject to completion, has been filed by the Company with the
Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act"), and one or
more amendments to such registration statement have been so filed.
After the execution of this Agreement, the Company will file with the
Commission either (A) if such registration statement, as it may have
been amended, has become effective under the Securities Act and
information has been omitted therefrom in accordance with Rule 430A
under the Securities Act, a prospectus in the form most recently
included in an amendment to such registration
<PAGE> 2
statement (or, if no such amendment shall have been filed, in such
registration statement) with such changes or insertions as are
required by Rule 430A or permitted by Rule 424(b) or Rule 497(h)
under the Securities Act and as have been provided to and approved by
the Representatives, or (B) if such registration statement, as it may
have been amended, has not become effective under the Securities Act,
an amendment to such registration statement, including a form of
prospectus, a copy of which amendment has been provided to and
approved by the Representatives prior to the execution of this
Agreement. As used in this Agreement, the term "Registration
Statement" means the registration statement on Form N-2, as amended
at the time when it was or is declared effective, including all
financial statement schedules and exhibits thereto and including any
information omitted therefrom pursuant to Rule 430A under the
Securities Act and included in the Prospectus (as hereinafter
defined); the term "Preliminary Prospectus" means each prospectus
subject to completion included in such Registration Statement or any
subsequent amendment or post-effective amendment thereto (including
the prospectus subject to completion, if any, included in the
Registration Statement at the time it was or is declared effective);
and the term "Prospectus" means the prospectus first filed with the
Commission pursuant to Rule 424(b) or Rule 497(h) under the
Securities Act or, if no prospectus is required to be so filed, such
term means the prospectus included in the Registration Statement. For
purposes of the following representations and warranties, to the
extent reference is made to the Prospectus and at the relevant time
the Prospectus is not yet in existence, such reference shall be
deemed to be to the most recent Preliminary Prospectus.
(ii) No order preventing or suspending the use of any
Preliminary Prospectus has been issued and no proceeding for that
purpose has been instituted or threatened by the Commission or the
securities authority of any state or other jurisdiction. If the
Registration Statement has become effective under the Securities Act,
no stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued and no proceeding for
that purpose has been instituted or threatened or, to the best
knowledge of the Company, contemplated by the Commission or the
securities authority of any state or other jurisdiction.
(iii) When any Preliminary Prospectus was filed with the
Commission it (A) contained all statements required to be stated
therein in accordance with, and complied in all material respects
with the requirements of the Securities Act and the rules and
regulations of the Commission thereunder and (B) did not include any
untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading. When
the Registration Statement or any amendment thereto was or is
declared effective, and at each Time of Delivery (as hereinafter
defined), it (A) contained or will contain all statements required to
be stated therein in accordance with, and complied or will comply in
all material respects with the requirements of the Securities Act and
the rules and regulations of the Commission thereunder and (B) did
not or will not include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein not misleading. When the Prospectus or any amendment or
supplement thereto is filed with the Commission pursuant to Rule
424(b) or Rule 497(h) (or, if the Prospectus or such amendment or
supplement is not required to be so filed, when the Registration
Statement or the amendment thereto containing such amendment or
supplement
-2-
<PAGE> 3
to the Prospectus was or is declared effective) and at each Time of
Delivery, the Prospectus, as amended or supplemented at any such
time, (i) contained or will contain all statements required to be
stated therein in accordance with, and complied or will comply in all
material respects with the requirements of the Securities Act and the
rules and regulations of the Commission thereunder and (ii) did not
or will not include any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were
made, not misleading. The foregoing provisions of this subsection (c)
do not apply to statements or omissions made in any Preliminary
Prospectus, the Registration Statement or any amendment thereto or
the Prospectus or any amendment or supplement thereto in reliance
upon and in conformity with written information furnished to the
Company by any Underwriter through the Representatives specifically
for use therein.
(iv) The descriptions in the Registration Statement and the
Prospectus of statutes, legal and governmental proceedings, and
contracts or other documents are accurate in all material respects
and fairly present the information required to be shown; and there
are no statutes or legal or governmental proceedings required to be
described in the Registration Statement or the Prospectus that are
not described as required and no contracts or documents of a
character that are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described and filed as required.
(v) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of
Tennessee, and has full corporate power and authority to own or lease
its properties and conduct its business as described in the
Prospectus. The Company has full corporate power and authority to
enter into this Agreement and to perform its obligations hereunder.
The Company is duly qualified to transact business as a foreign
corporation and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties, or conducts any
business, so as to require such qualification, except where the
failure to so qualify would not have a material adverse effect on the
financial position, results of operations or business of the Company.
(vi) The Company's authorized, issued and outstanding
capital stock as of the date hereof is as disclosed in the
Prospectus. All of the issued shares of Common Stock of the Company
have been duly authorized and validly issued, are fully paid and
nonassessable and conform to the description of the Common Stock
contained in the Prospectus. None of the issued shares of Common
Stock of the Company has been issued or is owned or held in violation
of any preemptive rights of shareholders, and no person or entity
(including any holder of outstanding shares of Common Stock of the
Company) has any preemptive or other rights to subscribe for any of
the Shares.
(vii) The Company has no subsidiaries. The Company does not
own, directly or indirectly, any capital stock or other equity
securities of any other corporation or any ownership interest in any
partnership, joint venture or other association other than as
disclosed in the Prospectus or the Registration Statement, except for
such interests as the Company believes have no material value.
-3-
<PAGE> 4
(viii) Except as disclosed in the Prospectus, there are no
outstanding (A) securities or obligations of the Company convertible
into or exchangeable for any capital stock of the Company, (B)
warrants, rights or options to subscribe for or purchase from the
Company any such capital stock or any such convertible or exchangeable
securities or obligations, or (C) obligations of the Company to issue
any shares of capital stock, any such convertible or exchangeable
securities or obligations, or any such warrants, rights or options.
(ix) The Shares have been duly authorized and, when issued and
delivered against payment therefor as provided herein, will be validly
issued and fully paid and nonassessable and will conform to the
description of the Common Stock contained in the Prospectus; and the
certificates evidencing the Shares will comply with all applicable
requirements of Tennessee law.
(x) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Securities Act with respect to any
securities of the Company owned or to be owned by such person or to
require the Company to include such securities in the securities
registered pursuant to the Registration Statement (or any such right
has been effectively waived) or any securities being registered
pursuant to any other registration statement filed by the Company under
the Securities Act.
(xi) The Company is not and with the giving of notice, the
passage of time, or both, will not be, in violation of its Charter or
Bylaws or in default under any material indenture, mortgage, deed of
trust, loan agreement, lease or other material agreement or instrument
to which the Company is a party or to which any of its properties or
assets are subject.
(xii) The issue and sale of the Shares and the performance of
this Agreement and the consummation of the transactions herein
contemplated will not conflict with, or (with or without the giving of
notice, the passage of time, or both) result in a breach or violation
of any of the terms or provisions of, or constitute a default under,
any material indenture, mortgage, deed of trust, loan agreement, lease
or other material agreement or instrument to which the Company is a
party or to which any of its properties or assets is subject, nor will
such action conflict with or violate any provision of the Charter or
Bylaws of the Company or any statute, rule or regulation or any order,
judgment or decree of any court or governmental agency or body having
jurisdiction over the Company or any of its properties or assets.
(xiii) No consent, approval, authorization, order or
declaration of or from, or registration, qualification or filing with,
any court or governmental agency or body is required for the issue and
sale of the Shares or the consummation of the transactions contemplated
by this Agreement, except such as have been obtained and such as may be
required by the National Association of Securities Dealers, Inc. (the
"NASD") or under the Securities Act (which, if the Registration
Statement is not effective as of the time of execution hereof, shall be
obtained as provided in this Agreement) and the Investment Company Act
of 1940 (the "1940 Act"), the registration of the Common Stock under
the Exchange Act, and such as may be required under state securities or
blue sky laws in
-4-
<PAGE> 5
connection with the offer, sale and distribution of the Shares by the
Underwriters, and as may be required from the Small Business
Administration (the "SBA").
(xiv) Other than as disclosed in the Prospectus, there is no
litigation, arbitration, claim, proceeding (formal or informal) or
investigation pending or threatened (or any basis therefor) in which
the Company is a party or of which any of its properties or assets are
the subject which, if determined adversely to the Company, would have a
material adverse effect on the financial position, results of
operations, or business of the Company. The Company is not in violation
of, or in default with respect to, any statute, rule, regulation,
order, judgment or decree, except as described in the Prospectus or
such as do not and will not individually or in the aggregate have a
material adverse effect on the financial position, results of
operations, or business of the Company.
(xv) Arthur Andersen LLP, who have certified certain financial
statements of the Company and its predecessor, Sirrom Capital, L.P., a
Tennessee limited partnership (the "Partnership"), and Harris Williams
& Co., L.P., are and were during the periods covered by their reports
included in the Registration Statement and the Prospectus, independent
public accountants as required by the Securities Act and the rules and
regulations of the Commission thereunder.
(xvi) The financial statements and schedules (including the
related notes) of the Company included in the Registration Statement,
the Prospectus, or any Preliminary Prospectus were prepared in
accordance with generally accepted accounting principles consistently
applied throughout the periods involved (except as otherwise set forth
in the financial statements) and fairly present in all material
respects the financial position and results of operations of the
Company and the Partnership at the dates and for the periods presented.
The selected financial data set forth under the caption "Selected
Financial Data" in the Prospectus in all material respects fairly
presents, on the basis stated in the Prospectus, the information
included therein.
(xvii) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes the valid and binding
obligation of the Company enforceable against the Company in accordance
with its terms, subject, as to enforcement, to applicable bankruptcy,
insolvency, reorganization and moratorium laws and other laws relating
to or affecting the enforcement of creditors' rights generally and to
general equitable principles and except as the enforceability of rights
to indemnity and contribution under this Agreement may be limited under
applicable securities law or the public policy underlying such laws.
(xviii) Neither the Company nor, to the Company's knowledge,
any of its officers, directors or affiliates has (A) taken, directly or
indirectly, any action designed to cause or result in, or that has
constituted or might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares or (B) since the
filing of the Registration Statement (1) sold, bid for, purchased or
paid anyone any compensation for soliciting purchase of the Shares,
except as provided herein, or (2) paid or agreed to pay to any person
any compensation for soliciting another to purchase any other
securities of the Company; provided that actions
-5-
<PAGE> 6
taken by an Underwriter in accordance with Rule 10b-7 with respect to
the Shares shall not be considered actions taken by a director of the
Company.
(xix) The Company has obtained for the benefit of the Company
and the Underwriters from each of its directors and officers and will
use its best efforts to obtain from each shareholder who is the
beneficial owner of at least 2% of the Company's outstanding Common
Stock, a written agreement that for a period of 180 days from the date
of the Prospectus such director, officer or shareholder will not,
without prior written consent, offer, pledge, sell, contract to sell,
grant any option for the sale of, or otherwise dispose of (or announce
any offer, pledge, sale, grant of an option to purchase or other
disposition), directly or indirectly, any shares of Common Stock or
securities convertible into, or exercisable or exchangeable for, shares
of Common Stock, other than bona fide gifts to donees who agree to be
bound by these restrictions; provided however, that such written
agreement shall not affect or restrict Common Stock that is owned by
such persons and is registered under the Securities Act.
(xx) Neither the Company, nor, to the Company's knowledge, any
director, officer, or agent, employee or other person associated with
or acting on behalf of the Company has, directly or indirectly: used
any corporate funds for unlawful contributions, gifts, entertainment or
other unlawful expenses relating to political activity; made any
unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns from
corporate funds; violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended; or made any bribe, payoff, influence
payment, kickback or other unlawful payment.
(xxi) The Company makes and keeps accurate books and records
reflecting its assets and maintains internal accounting controls which
provide reasonable assurance that transactions are executed in
accordance with management's authorization.
(xxii) The Company has filed all foreign, federal, state and
local tax returns required to be filed by it and has paid all taxes
shown as due on such returns as well as all other taxes, assessments
and governmental charges that are due and payable; and no deficiency
with respect to any such return has been assessed or proposed.
(xxiii) The Company is, and at all times through the
completion of the transactions contemplated hereby will be, in
compliance in all material respects with the terms and conditions of
the Securities Act and the 1940 Act. No person is serving as an officer
or director of the Company except in compliance with the provisions of
the 1940 Act and the rules and regulations thereunder.
2. REPRESENTATIONS AND WARRANTIES OF THE UNDERWRITERS. The
Representatives, on behalf of the several Underwriters, represent and warrant to
the Company that the information set forth (a) on the cover page of the
Prospectus with respect to the public offering price and underwriting discount
and (b) under "Underwriting" in the Prospectus was furnished (and is the only
information so furnished) to the Company by and on behalf of the Underwriters
for use in connection with the preparation of the Registration Statement and
such information is accurate in all material respects. The Representatives
further represent and warrant to the Company that such
-6-
<PAGE> 7
Representatives have the authority to act on behalf of the several Underwriters
in connection with this Agreement and the offering contemplated hereby.
3. PURCHASE AND SALE OF SHARES. Subject to the terms and conditions
herein set forth, (a) the Company agrees to issue and sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from the Company, at a purchase price of $________ per share, the
number of Firm Shares set forth opposite the name of such Underwriter in
Schedule I hereto, and (b) in the event and to the extent that the Underwriters
shall exercise the election to purchase Optional Shares as provided below, the
Company agrees to sell to each of the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from the Company, at the purchase
price per share set forth in subsection (a) of this Section 3, that portion of
the number of Optional Shares as to which such election shall have been
exercised (to be adjusted by the Representatives so as to eliminate fractional
shares) determined by multiplying such number of Optional Shares by a fraction,
the numerator of which is the maximum number of Optional Shares that such
Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of the Optional Shares that all of the Underwriters are entitled to
purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election in whole or in part up to 300,000 Optional Shares in the amounts
set forth in Schedule II, at the purchase price per share set forth in
subsection (a) in the section above, for the sole purpose of covering
over-allotments in the sale of Firm Shares. Any such election to purchase
Optional Shares may be exercised by written notice from the Representatives to
the Company, given at any time (but only once) within a period of 30 calendar
days after the date of this Agreement and setting forth the aggregate number of
Optional Shares to be purchased and the date on which such Optional Shares are
to be delivered, as determined by the Representatives but in no event earlier
than the First Time of Delivery (as hereinafter defined) or, unless the
Representatives and the Company otherwise agree in writing, earlier than three
or later than ten business days after the date of such notice. In the event the
Representatives elect to purchase all or a portion of the Optional Shares, the
Company agrees to furnish or cause to be furnished to the Representatives the
certificates, letters and opinions, and to satisfy all conditions, set forth in
Section 8 hereof at each Subsequent Time of Delivery (as hereinafter defined).
4. OFFERING BY THE UNDERWRITERS. Upon the authorization by the
Representatives of the release of the Shares, the several Underwriters propose
to offer the Shares for sale to the public upon the terms and conditions
disclosed in the Prospectus.
5. DELIVERY OF SHARES; CLOSING. Certificates in definitive form for the
Shares to be purchased by each Underwriter hereunder, and in such denominations
and registered in such names as The Robinson-Humphrey Company, Inc., may request
upon at least 48 hours prior notice to the Company, shall be delivered by or on
behalf of the Company to the Representatives for the account of such
Underwriter, against payment by such Underwriter on its behalf of the purchase
price therefor by wire transfer of same day available funds to an
account designated in writing by the Company with at least two business days
notice. In lieu of physical delivery of certificates representing the Shares,
the Shares may be posted to The Depository Trust Company account of The
Robinson-Humphrey Company,
-7-
<PAGE> 8
Inc., for further transfer to the account of the respective Underwriters against
payment of the purchase price for the Shares as described above. The closing of
the sale and purchase of the Shares shall be held at the offices of Sherrard &
Roe, PLC, 424 Church Street, Suite 2000, Nashville, Tennessee 37219, except that
if certificates representing the Shares are physically delivered to the
Representatives, such delivery shall be made at the office of The Depository
Trust Company, 55 Water Street, New York, New York 10041. The time and date of
such delivery and payment shall be, with respect to the Firm Shares, at 9:00
a.m., Nashville time, on the third full business day after the execution of this
Agreement or at such other time and date as the Representatives and the Company
may agree upon in writing, and, with respect to the Optional Shares, at 9:00
a.m., Nashville time, on the date specified by the Representatives in the
written notice given by the Representatives of the Underwriters' election to
purchase all or part of such Optional Shares, or at such other time and date as
the Representatives may agree upon in writing. Such time and date for delivery
of the Firm Shares is herein called the "First Time of Delivery", such time and
date for delivery of the Optional Shares, if not the First Time of Delivery, is
herein called a "Subsequent Time of Delivery", and each such time and date for
delivery is herein called a "Time of Delivery". The Company will make such
certificates available for checking and packaging at least 24 hours prior to
each Time of Delivery at the office of The Depository Trust Company, 55 Water
Street, New York, New York 10041 or at such other location in New York, New York
specified by the Representatives in writing at least 48 hours prior to such Time
of Delivery.
6. COVENANTS OF THE COMPANY. The Company covenants and agrees with each
of the Underwriters:
(a) If the Registration Statement has been declared effective
prior to the execution and delivery of this Agreement, the Company will
timely file the Prospectus with the Commission pursuant to and in
accordance with Rule 424(b) or Rule 497(h) as the case may be. The
Company will advise the Representatives promptly of any such filing
pursuant to Rule 424(b) or Rule 497(h).
(b) The Company will not file with the Commission the
prospectus or the amendment referred to in the second sentence of
Section 1(a)(i) hereof, any amendment or supplement to the Prospectus
or any amendment to the Registration Statement unless the
Representatives have received a reasonable period of time to review any
such proposed amendment or supplement and will use its best efforts to
cause any such amendment to the Registration Statement to be declared
effective as promptly as possible. Upon the request of the
Representatives or counsel for the Underwriters, the Company will
promptly prepare and file with the Commission, in accordance with the
rules and regulations of the Commission, any amendments to the
Registration Statement or amendments or supplements to the Prospectus
that may be reasonably necessary or advisable in connection with the
distribution of the Shares by the several Underwriters and will use its
reasonable efforts to cause any such amendment to the Registration
Statement to be declared effective as promptly as possible. If
required, the Company will file any amendment or supplement to the
Prospectus with the Commission in the manner and within the time period
required by Rule 424(b) or Rule 497(h) under the Securities Act. The
Company will advise the Representatives, promptly after receiving
notice thereof, of the time when the Registration Statement or any
amendment thereto has been filed or declared effective or the
Prospectus
-8-
<PAGE> 9
or any amendment or supplement thereto has been filed and will
provide evidence to the Representatives of each such filing or
effectiveness.
(c) The Company will advise the Representatives promptly after
receiving notice or obtaining knowledge of (i) the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or any part thereof or any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus or
any amendment or supplement thereto, (ii) the suspension of the
qualification of the Shares for offer or sale in any jurisdiction or of
the initiation or threatening of any proceeding for any such purpose,
or (iii) any request made by the Commission or any securities authority
of any other jurisdiction for amending the Registration Statement, for
amending or supplementing the Prospectus or for additional information.
The Company will use its reasonable efforts to prevent the issuance of
any such stop order and, if any such stop order is issued, to obtain
the withdrawal thereof as promptly as possible.
(d) If the delivery of a prospectus relating to the Shares is
required under the Securities Act at any time prior to the expiration
of nine months after the date of the Prospectus and if at such time any
events have occurred as a result of which the Prospectus as then
amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under they were made,
not misleading, or if for any reason it is necessary during such same
period to amend or supplement the Prospectus to comply with the
Securities Act or the rules and regulations thereunder, the Company
will promptly notify the Representatives and upon the request of the
Representatives (but at the Company's expense) prepare and file with
the Commission an amendment or supplement to the Prospectus that
corrects such statement or omission or effects such compliance and will
furnish without charge to each Underwriter and to any dealer in
securities as many copies of such amended or supplemented Prospectus as
the Representatives may from time to time reasonably request. If the
delivery of a prospectus relating to the Shares is required under the
Securities Act at any time nine months or more after the date of the
Prospectus, upon the Representatives' request but at the expense of
such Underwriter, the Company will prepare and deliver to such
Underwriter as many copies as the Representatives may request of an
amended or supplemented Prospectus complying with Section 10(a)(3) of
the Securities Act. Neither the Representatives' consent to, nor the
Underwriters' delivery of, any such amendment or supplement shall
constitute a waiver of any of the conditions set forth in Section 8.
(e) The Company promptly from time to time will take such
action as the Representatives may reasonably request to qualify the
Shares for offering and sale under the securities or blue sky laws of
such jurisdictions as the Representatives may request and will continue
such qualifications in effect for as long as may be necessary to
complete the distribution of the Shares, provided that in connection
therewith the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction.
-9-
<PAGE> 10
(f) The Company will promptly provide the Representatives,
without charge, (i) three manually executed copies of the Registration
Statement as originally filed with the Commission and of each amendment
thereto, (ii) for each other Underwriter a conformed copy of the
Registration Statement as originally filed and of each amendment
thereto, without exhibits, and (iii) so long as a prospectus relating
to the Shares is required to be delivered under the Securities Act, as
many copies of each Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto as the Representatives may reasonably
request.
(g) As soon as practicable, but in any event not later than
the last day of the thirteenth month after the effective date of the
Registration Statement, the Company will make generally available to
its security holders an earnings statement of the Company covering a
period of at least 12 months beginning after the effective date of the
Registration Statement (which need not be audited) complying with
Section 11(a) of the Securities Act and the rules and regulations
thereunder.
(h) During the period beginning from the date hereof and
continuing to and including the date 90 days after the date of the
Prospectus, the Company will not, without the Representatives' prior
written consent, offer, pledge, issue, sell, contract to sell, grant
any option for the sale of, or otherwise dispose of (or announce any
offer, pledge, sale, grant of an option to purchase or other
disposition), directly or indirectly, any shares of Common Stock or
securities convertible into, exercisable or exchangeable for, shares of
Common Stock, except as provided in Section 3 and except for (i) the
grant of options to purchase shares of Common Stock pursuant to the
Company's Amended and Restated 1994 Employee Stock Option Plan, 1996
Incentive Stock Option Plan and/or 1995 Stock Option Plan for
Non-Employee Directors (the "Plans"), (ii) the issuance of Common Stock
upon the exercise of stock options granted under the Plans, or (iii)
such additional Shares of Common Stock as may be required to be issued
to certain shareholders as described in the Prospectus.
(i) During a period of five years from the effective date of
the Registration Statement, the Company will furnish to the
Representatives and, upon request, to each of the other Underwriters,
without charge, (i) copies of all reports or other communications
(financial or other) furnished to shareholders, (ii) as soon as they
are available, copies of any reports and financial statements furnished
to or filed with the Commission or any national securities exchange,
and (iii) such additional information concerning the business and
financial condition of the Company as the Representatives may
reasonably request.
(j) Neither the Company nor any of its officers, directors or
affiliates will (i) take, directly or indirectly, prior to the
termination of the underwriting syndicate contemplated by this
Agreement, any action designed to cause or to result in, or that might
reasonably be expected to constitute, the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or
resale of any of the Shares, (ii) sell, bid for, purchase or pay anyone
any compensation for soliciting purchases of, the Shares or (iii) pay
or agree to pay to any person any compensation for soliciting another
to purchase any other securities of the Company; it being understood
that actions taken by an
-10-
<PAGE> 11
Underwriter with respect to the Shares shall not be considered
actions taken by a director of the Company.
(k) The Company will apply the net proceeds from the offering
in the manner set forth under "Use of Proceeds" in the Prospectus.
(l) The Company will use its best efforts to cause shares of
its Common Stock to continue to be eligible for quotation on the Nasdaq
National Market for at least one year from the date hereof.
(m) If at any time during the 30-day period after the
Registration Statement becomes effective, any rumor, publication or
event relating to or affecting the Company shall occur as a result of
which in the Representatives' reasonable opinion the market price of
the Common Stock has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates an
amendment of or supplement to the Prospectus), the Company will, after
written notice from the Representatives advising the Company to the
effect set forth above, forthwith prepare, consult with the
Representatives concerning the substance of, and disseminate a press
release or other public statement, reasonably satisfactory to the
Representatives, responding to or commenting on such rumor, publication
or event.
(n) The Company will not establish a record date for the
payment of dividends or other distributions which is earlier than seven
full business days after the last day on which the several Underwriters
exercise their option to purchase the Optional Shares pursuant to
Section 3.
7. EXPENSES. The Company will pay all costs and expenses incident to
the performance of its obligations under this Agreement, whether or not the
transactions contemplated hereby are consummated or this Agreement is terminated
pursuant to Section 11 hereof, including without limitation all costs and
expenses incident to (i) the fees, disbursements and expenses of the Company's
counsel and accountants in connection with the registration of the Shares under
the Securities Act and all other expenses in connection with the preparation,
printing and, if applicable, filing of the Registration Statement (including all
amendments thereto), any Preliminary Prospectus, the Prospectus and any
amendments and supplements thereto, this Agreement and any blue sky memoranda;
(ii) the delivery of copies of the foregoing documents to the Underwriters;
(iii) the filing fees of the Commission and the NASD relating to the Shares;
(iv) the preparation, issuance and delivery to the Underwriters of any
certificates evidencing the Shares, including transfer agent's and registrar's
fees; (v) the qualification of the Shares for offering and sale under state
securities and blue sky laws, including filing fees and fees and disbursements
of counsel for the Underwriters relating thereto; (vi) any listing of the Shares
on the National Association Securities Dealers Automated Quotation National
Market System and (vii) any expenses for travel, lodging and meals incurred by
the Company in connection with any meetings with prospective investors in the
Shares. It is understood, however, that, except as provided in this Section,
Section 9 and Section 11 hereof, the Underwriters will pay all of their own
costs and expenses, including the fees of their counsel, stock transfer taxes on
resale of any of the Shares by them, and any advertising expenses relating to
the offer and sale of the Shares.
-11-
<PAGE> 12
8. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters hereunder to purchase and pay for the Shares to be delivered at
each Time of Delivery shall be subject, in their discretion, to the accuracy, in
all material respects, of the representations and warranties of the Company
contained herein as of the date hereof and as of such Time of Delivery, to the
performance by the Company of its covenants and agreements hereunder, and to the
following additional conditions precedent:
(a) If the registration statement as amended to date has not
become effective prior to the execution of this Agreement, such
registration statement shall have been declared effective not later
than 11:00 a.m., Nashville time, on the date of this Agreement or such
later date and/or time as shall have been consented to by the
Representatives in writing. The Prospectus and any amendment or
supplement thereto shall have been filed with the Commission pursuant
to Rule 424(b) or Rule 497(h) within the applicable time period
prescribed for such filing and in accordance with Section 6(a) of this
Agreement; no stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and
no proceedings for that purpose shall have been instituted, threatened
or, to the knowledge by the Company, contemplated by the Commission;
and all requests for additional information on the part of the
Commission shall have been complied with to the Representatives'
reasonable satisfaction.
(b) Sherrard & Roe, PLC, counsel for the Underwriters, shall
have furnished to the Representatives such opinion or opinions, dated
the Time of Delivery, with respect to the incorporation of the Company,
the validity of the Shares being delivered at the Time of Delivery, the
Registration Statement, the Prospectus, and other related matters as
the Representatives may reasonably request, and the Company shall have
furnished to such counsel such documents as they reasonably request for
the purpose of enabling them to pass upon such matters.
(c) The Representatives shall have received an opinion, dated
the Time of Delivery, of Bass, Berry & Sims, PLC, counsel for the
Company, in form and substance reasonably satisfactory to the
Representatives and the Representatives' counsel, to the effect that:
(i) The Company has been duly incorporated, is
validly existing as a corporation in good standing under the
laws of Tennessee and has the corporate power and authority to
own or lease its properties and conduct its business as
described in the Registration Statement and the Prospectus and
to enter into this Agreement and perform its obligations
hereunder. The Company is qualified to transact business as a
foreign corporation in any jurisdiction in which such
qualification is required.
(ii) The Company's authorized and issued capital
stock as of the date of the Prospectus is as disclosed in the
Prospectus. All of the issued shares of Common Stock of the
Company have been duly authorized and validly issued, are
fully paid and nonassessable. None of the issued shares of
Common Stock of the Company have been issued or is owned or
held in violation of any statutory, or to the knowledge of
such counsel, any other preemptive rights of shareholders or
-12-
<PAGE> 13
equity owners, as the case may be, and no person or entity
(including any holder of outstanding shares of capital stock
of the Company) has any preemptive or other rights to
subscribe for any of the Shares.
(iii) To such counsel's knowledge, except as
disclosed in the Prospectus, there are no outstanding (A)
securities or obligations of the Company convertible into or
exchangeable for any capital stock of the Company, (B)
warrants, rights or options to subscribe for or purchase from
the Company any such capital stock or any such convertible or
exchangeable securities or obligations, or (C) obligations of
the Company to issue any shares of capital stock, any such
convertible or exchangeable securities or obligations, or any
such warrants, rights or options.
(iv) The Shares have been duly authorized and, when
issued and delivered against payment therefor as provided
herein, will be validly issued and fully paid and
nonassessable. The form of certificates evidencing the Shares
comply in all material respects with all applicable
requirements of Tennessee law.
(v) Except as disclosed in the Prospectus, there are
no contracts, agreements or understandings known to such
counsel between the Company and any person granting such
person the right to require the Company to file a registration
statement under the Securities Act with respect to any
securities of the Company owned or to be owned by such person
or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement
(or any such right has been effectively waived).
(vi) All offers and sales of the capital stock of the
Company prior to the date hereof were at all relevant times
exempt from the registration requirements of the Securities
Act and were duly registered or were the subject of an
available exemption from the registration requirements of the
applicable state securities or blue sky laws or were duly
registered under the provisions of the Securities Act and were
duly registered or the subject of an available exemption from
the registration requirements of the applicable state
securities or blue sky laws.
(vii) The Company is not, and will not be, with the
giving of notice, the passage of time, or both, in violation
of its Charter or Bylaws or in default under any indenture,
mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which the Company is a party or to
which any of its properties or assets are subject and which is
filed as an Exhibit to the Registration Statement.
(viii) The issue and sale of the Shares being issued
at such Time of Delivery and the performance of this Agreement
and the consummation of the transactions herein contemplated
will not conflict with, or (with or without the giving of
notice or the passage of time or both) result in a breach or
violation of any of the terms or provisions of, or constitute
a default under, any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which the
Company is a party or to which its properties or assets are
subject and which is filed as an Exhibit to the Registration
Statement, nor will such action conflict with or violate
-13-
<PAGE> 14
any provision of the Charter or Bylaws of the Company or any
Federal or Tennessee statute, rule or regulation or, to such
counsel's knowledge, any order, judgment or decree of any
court or governmental agency or body having jurisdiction
over the Company or any of its respective properties or
assets.
(ix) No consent, approval, authorization, order or
declaration of or from, or registration, qualification or
filing with, any Tennessee court or governmental agency or
body is required for the issue and sale of the Shares or the
consummation of the transactions contemplated by this
Agreement, except such as may be required from the SBA and
such as have been obtained under the Securities Act and the
1940 Act and such as may be required by the NASD, and under
state securities or blue sky laws in connection with the
offer, sale and distribution of the Shares by the
Underwriters.
(x) To such counsel's knowledge and other than as
disclosed in the Prospectus, there is no litigation,
arbitration, claim, proceeding (formal or informal) or
investigation pending or threatened in which the Company is a
party or of which its assets are the subject which, if
determined adversely to the Company would individually or in
the aggregate have a material adverse effect on the financial
position, results of operations or business of the Company.
(xi) This Agreement has been duly authorized,
executed and delivered by the Company.
(xii) The Registration Statement and the Prospectus
and each amendment or supplement thereto (other than the
financial statements and related schedules and other financial
or statistical data therein, as to which such counsel need
express no opinion), as of their respective effective or issue
dates, complied as to form in all material respects with the
requirements of the Securities Act and the rules and
regulations thereunder. The descriptions in the Registration
Statement and the Prospectus of statutes, legal and
governmental proceedings or contracts and other documents
fairly present in all material respects the information
required to be shown; and such counsel do not know of any
statutes or legal or governmental proceedings required to be
described in the Registration Statement or Prospectus that are
not described as required to be described in the Registration
Statement or Prospectus or to be filed as exhibits to the
Registration Statement which are not described and filed as
required.
(xiii) The Registration Statement is effective under
the Securities Act; any required filing of the Prospectus
pursuant to Rule 424(b) or Rule 497(h) has been made in the
manner and within the time period required by Rule 424(b) or
Rule 497(h); and no stop order suspending the effectiveness of
the Registration Statement or any part thereof has been issued
and, to such counsel's knowledge, no proceedings for that
purpose have been instituted or threatened or are contemplated
by the Commission.
-14-
<PAGE> 15
(xiv) All required action has been taken by the
Company under the Securities Act, the 1940 Act, and the
Exchange Act to make the public offering and consummate the
sale of the Shares pursuant to this Agreement; the provisions
of the Charter and Bylaws of the Company comply as to form in
all material respects with the requirements of the 1940 Act;
and, the provisions of the Charter and Bylaws of the Company
and the investment policies described in the Prospectus under
the caption "Investment Objectives and Policies" comply in all
material respects with the requirements of the 1940 Act.
(xv) The Company meets all requirements to qualify as
a "business development company" as that term is defined in
the 1940 Act.
Such opinion also will include a statement that the
limitations inherent in the independent verification of
factual matters and the character of determinations involved
in the registration process are such that such counsel has not
verified, and, except as to the description in the
Registration Statement and the Prospectus of statutes,
regulations, legal proceedings and contracts and other
instruments, 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
Prospectus. Such opinions will also state that such counsel
participated in the preparation of the Registration Statement
and the Prospectus, during the course of which, among other
things, such counsel examined various documents and other
papers and participated in conferences with representatives of
the Company, with representatives of the Company's independent
public accountants, and with the Representatives and counsel
for the Representatives, at which conferences the contents of
the Registration Statement and the Prospectus and related
matters were discussed, and that on the basis of the
information that was developed in the course of such counsel's
above-described participation, considered in the light of such
counsel's understanding of the applicable law and the
experience such counsel gained through such counsel's practice
thereunder, such counsel has no reason to believe that the
Registration Statement, or any further amendment thereto made
prior to such Time of Delivery, on its effective date and as
of such Time of Delivery, contained or contains any untrue
statement of a material fact or omitted or omits to state any
material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the
Prospectus, or any amendment or supplement thereto made prior
to such Time of Delivery, as of its issue date and as of such
Time of Delivery, contained or contains any untrue statement
of a material fact or omitted or omits to state a material
fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
misleading (provided that such counsel need express no belief
regarding the financial statements and related schedules and
other financial data contained in the Registration Statement,
any amendment thereto, or the Prospectus, or any amendment or
supplement thereto).
-15-
<PAGE> 16
In rendering any such opinions, such counsel may rely, as to
matters of fact, to the extent such counsel deem proper, on
certificates of responsible officers of the Company and public
officials. Such opinions may be rendered under and incorporate by
reference the Legal Opinion Accord of the ABA Section of Business Law
(1991).
(d) The Representatives shall have received from Arthur
Andersen LLP letters dated, respectively, the date hereof (or, if the
Registration Statement has been declared effective prior the execution
and delivery of this Agreement, dated such effective date and the date
of this Agreement) and each Time of Delivery, in form and substance
satisfactory to the Representatives, to the effect set forth in Annex I
hereto. In the event that the letters referred to in this Section 8(d)
set forth any changes, decreases or increases in the items specified in
subsection (iii) of Annex I, it shall be a further condition to the
obligations of the Underwriters that (i) such letters shall be
accompanied by a written explanation by the Company as to the
significance thereof, unless the Representatives deem such explanation
unnecessary, and (ii) such changes, decreases or increases do not, in
the Representatives' sole judgment, make it impracticable or
inadvisable to proceed with the purchase, sale and delivery of the
Shares being delivered at such Time of Delivery as contemplated by the
Registration Statement, as amended as of the date of such letter.
(e) Since the date of the latest audited financial statements
included in the Prospectus, the Company shall not have sustained (i)
any loss or interference with its businesses from court or governmental
action, order or decree, otherwise than as disclosed in or contemplated
by the Prospectus, or (ii) any change, or any development involving a
prospective change (including without limitation a change in management
or control of the Company), in or affecting the position (financial or
otherwise), results of operations, net worth or business prospects of
the Company otherwise than as disclosed in or contemplated by the
Prospectus, the effect of which, in either such case, is in the
Representatives' judgment so material and adverse as to make it
impracticable or inadvisable to proceed with the purchase, sale and
delivery of the Shares being delivered at such Time of Delivery as
contemplated by the Registration Statement, as amended as of the date
hereof.
(f) Subsequent to the date hereof there shall not have
occurred any of the following: (i) any suspension or limitation in
trading in securities generally on the New York Stock Exchange, or any
setting of minimum prices for trading on such exchange, or in the
Common Stock by the Commission or the National Association of
Securities Dealers Automated Quotation National Market System; (ii) a
moratorium on commercial banking activities in New York declared by
either federal or state authorities; or (iii) any outbreak or
escalation of hostilities involving the United States, declaration by
the United States of a national emergency or war or any other national
or international calamity or emergency if the effect of any such event
specified in this subsection (iii) in the Representatives' judgment
makes it impracticable or inadvisable to proceed with the purchase,
sale and delivery of the Shares being delivered at such Time of
Delivery as contemplated by the Registration Statement, as amended as
of the date hereof.
-16-
<PAGE> 17
(g) The Company shall have furnished to the Representatives,
at each Time of Delivery, certificates of officers of the Company
satisfactory to the Representatives as to the accuracy in all material
respects of the representations and warranties of the Company herein at
and as of such Time of Delivery, as to the performance by the Company
of all of its obligations hereunder to be performed at or prior to such
Time of Delivery, and as to such other matters as the Representatives
may reasonably request, and the Company shall have furnished or caused
to be furnished certificates as to the matters set forth in subsections
(a) and (e) of this Section 8, and as to such other matters as the
Representatives may reasonably request.
9. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless each Underwriter against any losses, claims, damages
or liabilities, joint or several, to which such Underwriter may become subject,
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of any material fact
contained in (A) the Registration Statement or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or (B) any application or other document, or any amendment or supplement
thereto, executed by the Company or based upon written information furnished by
or on behalf of the Company filed in any jurisdiction in order to qualify the
Shares under the securities or blue sky laws thereof or filed with the
Commission or any securities association or securities exchange (each an
"Application"); or (ii) the omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary Prospectus, the
prospectus or any amendment or supplement thereto, or any Application a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and will reimburse each Underwriter for any legal or other
expenses reasonably incurred by such Underwriter in connection with
investigating, defending against or appearing as a third-party witness in
connection with any such loss, claim, damage, liability or action; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or action arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement or any amendment thereto, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto or
any Application in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through the Representatives
expressly for use therein; and provided further, that the Company will not be
liable in respect of any Preliminary Prospectus or any amendment or supplement
to any Preliminary Prospectus to the extent that both (x) all of the untrue
statements or alleged untrue statements of any material fact and all of the
omissions to state or alleged omissions to state any material fact in such
Preliminary Prospectus or such amendment or supplement were fully and adequately
corrected in the Prospectus and (y) the Prospectus was not sent or given to the
purchaser of the Shares in question at or prior to the written confirmation of
sale of Shares to such person. The Company will not, without the prior written
consent of each Underwriter, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceeding (or
related cause of action or portion thereof) in respect of which indemnification
may be sought hereunder (whether or not such Underwriter is a party to such
claim, action, suit or proceeding), unless such settlement, compromise or
consent includes an unconditional release of such Underwriter from all liability
arising out of such claim, action, suit or proceeding (or related cause of
action or portion thereof).
-17-
<PAGE> 18
(b) Each Underwriter, severally but not jointly, agrees to indemnify
and hold harmless the Company against any losses, claims, damages or liabilities
to which the Company may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment thereto, any Preliminary Prospectus, the Prospectus or any amendment
thereto or any Application or arise out of or are 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 reliance upon and in
conformity with written information furnished to the Company by such Underwriter
through the Representatives expressly for use therein; and will reimburse the
Company for any legal or other expenses reasonably incurred by the Company in
connection with investigation or defending any such loss, claim, damage,
liability or action.
(c) Promptly after receipt by an indemnified party under subsection (a)
and (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party); provided, however, that if the defendants in any such action include
both the indemnified party and indemnifying party, and indemnifying party shall
have reasonably concluded that there may be one or more legal defenses available
to it or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnifying party shall not have
the right to assume the defense of such action on behalf of such indemnified
party and such indemnified party shall have the right to select separate counsel
to defend such action on behalf of such indemnified party. After such notice
from the indemnifying party to such indemnified party of this election so to
assume the defense thereof and approval by such indemnified party of counsel
appointed to defend such action, the indemnifying party will not be liable to
such indemnified party under this Section 9 for any legal or other expenses,
other than reasonable costs of investigation, 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 in
connection with such action the indemnifying party shall not be liable for the
expenses of more than one separate counsel (in addition to local counsel) in any
one action or separate but substantially similar actions in the same
jurisdiction arising out of the same general allegations or circumstances, which
separate counsel shall be designated by the Representatives in the case of
indemnity arising under subsection (a) of this Section 9 or (ii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. Nothing in this Section 9(c)
shall preclude an indemnified party from participating at its own expense in the
defense of any such action so assumed by the indemnifying party.
-18-
<PAGE> 19
(d) If the indemnification provided for in this Section 9 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages, or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) 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 from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law or if the indemnified party failed to give the notice required under
subsection (c) above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), 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 shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the Underwriters on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this subsection (d) 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 above in this subsection (d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
in this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares underwritten
by it and distributed to the public were offered to the public exceeds the
amount of any damages which such Underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. 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 in this subsection (d) to contribute are several in
proportion to their respective underwriting obligations and not joint.
(e) The obligations of the Company under this Section 9 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Securities Act; and the obligations of the
Underwriters under this Section 9 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company and to each
person, if any, who controls the Company within the meaning of the Securities
Act.
-19-
<PAGE> 20
10. DEFAULT OF UNDERWRITERS. (a) If any Underwriter defaults in its
obligation to purchase Shares at a Time of Delivery, the Representatives may in
the Representatives' discretion arrange for the Representatives or another party
or other parties to purchase such Shares on the terms contained herein. If
within thirty-six (36) hours after such default by an Underwriter the
Representatives do not arrange for the purchase of such Shares, the Company
shall be entitled to a further period of thirty-six (36) hours within which to
procure another party or other parties satisfactory to the Representatives to
purchase such Shares on such terms. In the event that, within the respective
prescribed periods, the Representatives notify the Company that the
Representatives have so arranged for the purchase of such Shares, or the Company
notifies the Representatives that it has so arranged for the purchase of such
Shares, the Representatives or the Company shall have the right to postpone a
Time of Delivery for a period of not more than seven (7) days in order to effect
whatever changes may thereby be made necessary in the Registration Statement or
the Prospectus, or in any other documents or arrangements, and the Company
agrees to file promptly any amendments to the Registration Statement or the
Prospectus that in the Representatives' opinion may thereby be made necessary.
The cost of preparing, printing and filing any such amendments shall be paid for
by the Underwriters. The term "Underwriter" as used in the Agreement shall
include any person substituted under this Section with like effect as if such
persons had originally been a party to this Agreement with respect to such
Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by the Representatives and
the Company as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased does not exceed one-eleventh of the aggregate
number of Shares to be purchased at such Time of Delivery, then the Company
shall have the right to require each non-defaulting Underwriter to purchase the
number of Shares which such Underwriter agreed to purchase hereunder at such
Time of Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made, but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
11. TERMINATION. (a) This Agreement may be terminated with respect to
the Firm Shares or any Optional Shares in the sole discretion of the
Representatives by notice to the Company given prior to the First Time of
Delivery or any Subsequent Time of Delivery, respectively, in the event that (i)
any condition to the obligations of the Underwriters set forth in Section 8
hereof has not been satisfied, or (ii) the Company shall have failed, refused or
been unable to deliver the Shares or to perform all obligations and satisfy all
conditions on its part to be performed or satisfied hereunder at or prior to
such Time of Delivery, in either case other than by reason of a default by any
of the Underwriters. If this Agreement is terminated pursuant to this Section
11(a) (other than due to the failure of any condition to the obligations of the
Underwriters pursuant to Section 8(f) hereof), the Company will reimburse the
Underwriters severally upon demand for all reasonable out-of-pocket expenses
(including counsel fees and disbursements) that shall have been incurred by them
in connection with the proposed purchase and sale of the Shares. The Company
shall not in any event be liable to any of the Underwriters for the loss of
anticipated profits from the transactions covered by this Agreement.
-20-
<PAGE> 21
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by the Representatives and
the Company as provided in Section 10(a), the aggregate number of such Shares
which remains unpurchased exceeds one-eleventh of the aggregate number of Shares
to be purchased at such Time of Delivery, or if the Company shall not exercise
the right described in Section 10(b) to require non-defaulting Underwriters to
purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement
(or, with respect to a Subsequent Time of Delivery, the obligations of the
Underwriters to purchase and of the Company to sell the Optional Shares) shall
thereupon terminate, without liability on the part of any non-defaulting
Underwriter or the Company, except for the expenses to be borne by the Company
and the Underwriters as provided in Section 7 hereof and the indemnity and
contribution agreements in Section 9 hereof; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
12. SURVIVAL. The respective indemnities, agreements, representations,
warranties and other statements of the Company, its officers, and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of any Underwriter or any controlling person referred to in
Section 9(e) or the Company or any officer or director or controlling persons of
the Company referred to in Section 8(e), and shall survive delivery of and
payment for the Shares. The respective agreements, covenants, indemnities and
other statements set forth in Sections 7 and 9 hereof shall remain in full force
and effect, regardless of any termination or cancellation of this Agreement.
13. NOTICES. All communications hereunder shall be in writing and, if
sent to any of the Underwriters, shall be mailed, delivered or telegraphed and
confirmed in writing to the Representatives in care of The Robinson-Humphrey
Company, Inc., 3333 Peachtree Road, N.E. Atlanta, Georgia 30326, Attention:
Corporate Finance Department (with a copy to Sherrard & Roe, PLC, 424 Church
Street, Suite 2000, Nashville, Tennessee 37219 Attention: Donald I.N. McKenzie);
and if sent to the Company, shall be mailed, delivered or telegraphed and
confirmed in writing to the Company at Sirrom Capital Corporation, 511 Union
Street, Suite 2310, Nashville, Tennessee 37219 Attention: George M. Miller, II,
President (with a copy to Bass, Berry & Sims, PLC, First American Center,
Nashville, Tennessee 37238, Attention: Bob F. Thompson, Esq.).
14. REPRESENTATIVES. The Representatives will act for the several
Underwriters in connection with the transactions contemplated by this Agreement,
and any action under this Agreement taken by the Representatives jointly or by
The Robinson-Humphrey Company, Inc., will be binding upon all the Underwriters.
15. BINDING EFFECT. This Agreement shall be binding upon, and inure
solely to the benefit of, the Underwriters and the Company and to the extent
provided in Sections 8 and 10 hereof, the officers and directors and controlling
persons referred to therein and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
-21-
<PAGE> 22
16. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Tennessee without giving effect to any
provisions regarding conflicts of laws.
17. COUNTERPARTS. This Agreement may be executed by any one or more of
the parties hereto in any number of counterparts, each of which shall be deemed
to be an original, but all such counterparts shall together constitute one and
the same instrument.
If the foregoing is in accordance with the Representatives'
understanding of our agreement, please sign and return to us one of the
counterparts hereof, and upon the acceptance hereof by The Robinson-Humphrey
Company, Inc., on behalf of each of the Underwriters, this letter will
constitute a binding agreement among the Underwriters and the Company. It is
understood that the Representatives' acceptance of this letter on behalf of each
of the Underwriters is pursuant to the authority set forth in the Master
Agreement among Underwriters, a copy of which shall be submitted to the Company
for examination, upon request, but without warranty on the Representatives' part
as to the authority of the signers thereof.
Very Truly Yours,
SIRROM CAPITAL CORPORATION
By:
--------------------------------
George M. Miller, II, President
The foregoing Agreement is hereby confirmed and accepted as of the date first
written above at Atlanta, Georgia.
THE ROBINSON-HUMPHREY COMPANY, INC.
J. C. BRADFORD & CO.
EQUITABLE SECURITIES CORPORATION
By: The Robinson-Humphrey Company, Inc.
By:
----------------------------
Authorized Representative
On behalf of each of the Underwriters
-22-
<PAGE> 23
SCHEDULE I
<TABLE>
<CAPTION>
Number of Optional
Total Number of Shares to be Purchased
Firm Shares to be if Maximum Option
Underwriter Purchased Exercised
----------- --------- ---------
<S> <C> <C>
The Robinson-Humphrey Company, Inc.
J. C. Bradford & Co.
Equitable Securities Corporation
========= =======
Total 2,000,000 300,000
========= =======
</TABLE>
<PAGE> 24
ANNEX I
Pursuant to Section 8(D) of the Underwriting Agreement, Arthur
Andersen LLP shall furnish letters to the Underwriters to the effect that:
1. They are independent public accountants with respect to the
Company, Sirrom Capital, L.P., and Harris Williams & Co., L.P., within the
meaning the Act and the applicable published rules and regulations thereunder;
2. In their opinion, the financial statements and schedules
audited by them and included in the Prospectus and the Registration Statement
comply as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations
thereunder;
3. The financial statements of the Company as of and for the
quarter ended March 31, 1996, were reviewed by them in accordance with the
standards established by the American Institute of Certified Public Accountants
and based upon their review they are not aware of any material modifications
that should be made to such financial statements for them to be in conformity
with generally accepted accounting principles, and such financial statements
comply as to form in all material respects with the applicable accounting
requirements of the Act and the applicable rules and regulations thereunder;
4. On the basis of financial statements of the Company and of the
unaudited financial statements of the Company for the periods from which such
amounts are derived, limited procedures, not constituting an audit in
accordance with generally accepted auditing standards, consisting of a reading
of the unaudited financial statements and other information referred to below,
a reading of the latest available interim financial statements of the Company,
inspection of the minute books of the Company since the date of the latest
audited financial statements included in the Prospectus, inquiries of officials
of the Company responsible for financial accounting matters and such other
inquiries and procedures as may be specified in such letter, nothing came to
their attention that caused them to believe that:
(A) the unaudited financial statements of the Company included in
the Registration Statement and the Prospectus do not comply in form in
all material respects with the applicable accounting requirements of
the Act and the related published rules and regulations thereunder or
are not in conformity with generally accepted principles applied on a
basis substantially consistent with that of the audited financial
statements included in the Registration Statement and the Prospectus;
(B) as of a specified date not more than 5 days prior to the date
of such letter, there were any changes in the capital stock (other
than the issuance of capital stock upon exercise of employee stock
options that were outstanding on the date of the latest balance sheet
included in the Prospectus) or any increase in inventories or the
long-term debt or short-term debt of the Company, or any decreases in
net current assets or net assets or other items specified by the
Representatives, or any increases in any other items specified by the
Representatives, in each case as compared with amounts shown in the
latest balance sheet included in the Prospectus, except in each case
for changes, increases or decreases which the Prospectus discloses
have occurred or may occur, or which are described in such letter; and
<PAGE> 25
(C) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred
to in Clause (B) there were any decreases in revenues or operating
income or the total or per share amounts of net income or other items
specified by the Representatives, or any increases in any items
specified by the Representatives, in each case as compared with the
comparable period of the preceding year and with any other period of
corresponding length specified by the Representatives, except in each
case for increases or decreases which the Prospectus discloses have
occurred or may occur, or which are described in such letter; and
5. In addition to the audit referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraph 4 above, they
have carried out certain specified procedures, not constituting an audit in
accordance with generally accepted auditing standards, with respect to certain
amounts, percentages and financial information specified by the Representatives
that are included in the Registration Statement and the Prospectus, or which
appear in Part B of, or in exhibits or schedules to, the Registration Statement
and have compared certain of such amounts, percentages and financial
information with the accounting records of the Company and have found them to
be in agreement.
6. On the basis of a reading of the unaudited pro forma financial
statements included in the Registration Statement and the Prospectus, carrying
out certain specified procedures that would not necessarily reveal matters of
significance with respect to the comments set forth in this paragraph 6,
inquiries of certain officials of the Company and Harris Williams & Co., L.P.,
who have responsibility for financial and accounting matters and preparing the
pro forma financial statements, nothing came to their attention that caused
them to believe that the unaudited pro forma financial statements do not comply
as to form in all material respects with the applicable accounting requirements
of Rule 11-02 of Regulation S-X or that the pro forma adjustments have not been
properly applied to the historical amounts in the compilation of such
statements.
References to the Registration Statement and the Prospectus in this
Annex I shall include any amendment or supplement thereto at the date of such
letter.
<PAGE> 1
EXHIBIT h.2
THE ROBINSON-HUMPHREY COMPANY, INC.
May 7, 1992
Dear Sirs:
From time to time in the future, in connection with offerings of
securities in which we act as representative of the underwriters comprising the
underwriting syndicate, you may be invited to become a member of an
underwriting syndicate.
Attached hereto are the basic provisions of the Master Agreement Among
Underwriters (the "Basic Provisions") that will be applicable to any such
offering where we are the lead representative and expressly inform you that
such Basic Provisions will be applicable. Acceptance by you by telegram, wire,
facsimile transmission, telex or telephone call (confirmed immediately in
writing) of an Invitation Wire referred to in the Basic Provisions and/or
acceptance by you of an allotment of securities as set forth in the Terms Wire
referred to in the Basic Provisions shall reconfirm (or, if you have not signed
and returned this letter to us, shall confirm) your acceptance of an agreement
to the terms and conditions set forth in the Basic Provisions, insofar as such
terms and conditions relate to the securities referred to in the Terms Wire,
and shall constitute a binding agreement among yourselves and the other several
Underwriters of such securities. In certain cases the Invitation Wire and the
Terms Wires may be combined in a single communication. Such acceptance will
further constitute your confirmation of the statements made in the
Underwriters' Questionnaire attached as Schedule A to the Basic Provisions
unless you advise us in your acceptance of any exceptions to such
questionnaire.
Please acknowledge your agreement to the foregoing procedure by signing
and returning the enclosed copy of this letter to The Robinson-Humphrey
Company, Inc., 3333 Peachtree Road, N.E., Atlanta, Georgia 30326, Attention:
Syndicate Department.
Very truly yours,
THE ROBINSON-HUMPHREY COMPANY, INC.
By: ...........................
Robert J. Glenn
Executive Vice President
Acknowledged: ..................., 1992
.......................................
(Underwriter's name, exactly as it
should appear in any Registration
Statement, Prospectus, Offering
Circular or advertisement, and address,
including zip code)
By: ...................................
Name: .............................
(Please Print)
Title: ............................
<PAGE> 2
THE ROBINSON-HUMPHREY COMPANY, INC.
MASTER AGREEMENT AMONG UNDERWRITERS
BASIC PROVISIONS FOR OFFERINGS OF SECURITIES
May 7, 1992
These basic provisions (the "Basic Provisions") set forth the general
terms and conditions pursuant to which the several Underwriters will agree
among themselves with reference to their proposed purchases severally of
securities (the "Securities") referred to in an underwriting, placement, or
terms agreement (the "Underwriting Agreement") to be executed by the issuer of
such Securities (the "Company") and the selling securityholders, if any, named
therein (the "Selling Shareholders").
1. UNDERWRITING ARRANGEMENTS. (a) From time to time, in connection
with offerings of the Securities by Underwriters to be represented by The
Robinson-Humphrey Company, Inc., either alone or with one or more other firms
(the "Representatives"), the Representatives may invite one or more Underwriters
to become a member of an underwriting syndicate on the terms and conditions set
forth herein, which shall be deemed to include the terms and conditions set
forth in (i) any letter, telegram, facsimile transmission, wire, telex or other
written communication or telephone call (confirmed immediately in writing) to
prospective Underwriters in connection with an invitation to participate as
Underwriters of the Securities (the "Invitation Wire") and (ii) any letter,
telegram, facsimile transmission, wire, telex or other written communication or
telephone call (confirmed immediately in writing) to Underwriters in connection
with the terms of any particular public offering of Securities (the "Terms
Wire"), provided that the terms and conditions set forth herein and therein
shall be applicable only to offerings with respect to which The
Robinson-Humphrey Company, Inc. has expressly informed Underwriters that such
terms and conditions shall be applicable. Under certain circumstances, the
Invitation Wire and Terms Wire may be combined in a single communication, in
which case any reference herein to either the Invitation Wire or the Terms Wire
shall refer to such single communication. Any Invitation Wire, the Terms Wire
and this Master Agreement Among Underwriters are together referred to herein as
this "Agreement."
(b) The Terms Wire specifies, with respect to the Underwriter to whom
such Terms Wire is addressed (i) the amount of the Securities to be purchased
by such Underwriter, the purchase price to be paid by such Underwriter for the
Securities, (ii) the offering price of the Securities or, if the initial
offering price is to be determined by a formula based upon market prices, the
terms of the formula, (iii) the interest rate, if any, (iv) the selling
concession, if any, to be allowed to Selected Dealers (as defined in Section
5(c) hereof), (v) the amount of any reallowance to other dealers, (vi) the
Representatives' compensation for managing the offering, (vii) certain
information with respect to the Trustee, if any, and (viii) other matters,
including whether the Underwriting Agreement provides the Underwriters with an
option to purchase additional Securities (the "Option Securities") to cover
over-allotments and whether the Underwriters are authorized to solicit
institutional investors to purchase Securities pursuant to Delayed Delivery
Contracts, certain terms thereof and the Underwriters compensation therefor.
(c) By its acceptance by telegram, facsimile transmission, telex, wire or
telephone call (confirmed immediately in writing) of the Invitation Wire or the
Terms Wire, as the case may be, in accordance with the terms thereof and its
acceptance of an allotment of Securities as set forth in the Terms Wire, each
Underwriter agrees that it will purchase, on the terms and conditions set forth
in the Underwriting Agreement, in the Invitation Wire, if any, in the Terms
Wire, in the Prospectus referred to below and herein, the amount of such
Securities set forth in the Underwriting Agreement to be purchased by it.
<PAGE> 3
(d) If acceptance of an Invitation Wire has been received, the Terms Wire
may state that an Underwriter will be deemed to have accepted an allotment of
Securities unless the Syndicate Department of The Robinson-Humphrey Company,
Inc. receives a telegram, facsimile transmission, wire, telex or telephone call
prior to the time specified in the Terms Wire giving notice of such
Underwriter's rejection of its allotment of Securities. Notwithstanding the
foregoing, in certain instances the Representatives may notify the Underwriters
that no affirmative acceptance to either any Invitation Wire or the Terms Wire
may be required. In such case, an Underwriter will be deemed to have accepted
an allotment of Securities unless the Syndicate Department of The
Robinson-Humphrey Company, Inc. receives a telegram, facsimile transmission,
wire or telex prior to the time specified in the Terms Wire giving notice of
such Underwriter's rejection of its allotment of Securities.
2. REGISTRATION STATEMENT, PROSPECTUS AND OFFERING CIRCULAR. As used in
this Agreement, (i) the term "Registration Statement" means the registration
statement, as amended, filed with respect to the Securities under the
Securities Act of 1933, (the "Act"), (ii) the terms "Preliminary Prospectus"
and "Prospectus" mean any preliminary prospectus and the prospectus (including
any basic Prospectus and Prospectus Supplement and any documents incorporated by
reference therein) authorized for use in connection with the offering of the
Securities and (iii) the term "Offering Circular" means any offering circular
(including any supplement thereto and any documents incorporated therein). A
conformed copy of the Registration Statement (excluding exhibits other than the
Underwriting Agreement, any indenture covering the Securities, any computation
of the ratio of earnings to fixed charges, and any computation of per share
earnings) and such number of copies of each Prospectus or Offering Circular
(and any documents incorporated by reference therein) as may be requested by
any Underwriter will be delivered to it. Each Underwriter hereby consents to
being named in any Prospectus or Offering Circular as an underwriter of the
amount of Securities specified in the Terms Wire addressed to such Underwriter.
The Securities may be registered for a delayed or continuous offering pursuant
to Rule 415 under the Act or may be offered and sold under an exemption from
registration under Rule 144A under the Act.
3. AUTHORITY OF THE REPRESENTATIVES. (a) Each Underwriter authorizes
the Representatives, on such Underwriter's behalf, to negotiate in their
discretion the terms of, and to execute and deliver, the Underwriting
Agreement. Each Underwriter also authorizes the Representatives to exercise,
in their discretion, all authority and discretion vested in the Underwriters or
in the Representatives by the Underwriting Agreement and to take all such
action as the Representatives may believe desirable in order to carry out the
Underwriting Agreement and this Agreement.
(b) Each Underwriter authorizes the Representatives to take such action
as, in their discretion, may be necessary or desirable to effect the sale and
distribution of the Securities, including the right to determine and advise the
Company and Selling Securityholders, if any, of the terms of any proposed
offering, the selling concession to Selected Dealers and the reallowance, if
any, to other dealers. Each Underwriter also authorizes the Representatives to
determine all matters relating to the public advertisement of the offering of
the Securities.
(c) Any action to be taken by the Representatives under this Agreement
may be taken by The Robinson-Humphrey Company, Inc.
4. AUTHORITY OF THE REPRESENTATIVES AS TO WITHDRAWING OR DEFAULTING
UNDERWRITER. (a) Until the termination of this Agreement, the Representatives
are authorized to arrange for or agree to the purchase by other persons, who
may include the Representatives and any of the other Underwriters, of any
Securities not taken up by any withdrawing or defaulting Underwriter. In the
event that such arrangements or agreements are made, the respective amounts of
the Securities to be purchased by the other Underwriters and by such other
persons, if any, shall be taken as the basis for all rights and obligations
under this Agreement; but this shall not in any way affect the liability of any
defaulting Underwriter to the other Underwriters (including the
Representatives) for damages resulting from such default, nor shall such
default in any way relieve any other Underwriter
2
<PAGE> 4
of any of its obligations hereunder or under the Underwriting Agreement, except
as herein or therein provided.
(b) In the event of default by one or more Underwriters in respect of its
obligation under this Agreement, including the obligations to take up and pay
for any Securities or Stabilized Securities (as defined in Section 9(a) hereof)
purchased by the Representatives for their respective accounts pursuant to
Section 9 hereof, or to deliver any Securities sold or over-allotted by the
Representatives for their account pursuant to such Section, and to the extent
that arrangements shall not have been made by the Representatives for any
person to assume the obligations of such defaulting Underwriter, each
non-defaulting Underwriter shall assume its proportionate share of the
obligations of each defaulting Underwriter without relieving any such
defaulting Underwriter of its liability therefor.
5. OFFERING OF THE SECURITIES. (a) The Representatives will notify
each Underwriter when the initial public offering of the Securities (subject to
reservation by the Representatives as herein provided) is to be made. The
Representatives are authorized, in their discretion, after the initial public
offering, to change the public offering price, the selling concession to
Selected Dealers and the reallowance to other dealers. The offering price at
any time in effect is hereinafter referred to as the "public offering price."
Each Underwriter agrees to make, at the initial public offering price, a public
offering of the Securities purchased by it and not reserved by the
Representatives for sale to retail purchasers and dealers.
(b) Each Underwriter agrees that all arrangements for the solicitation of
offers to purchase the Securities under Delayed Delivery Contracts, if such
contracts are authorized pursuant to the Underwriting Agreement, will be made
only through the Representatives, and each Underwriter authorizes the
Representatives to act on its behalf in making such arrangements for the
accounts of all Underwriters or of less than all Underwriters and in such
proportions as the Representatives may determine, in their discretion. Any fee
payable to the Representatives for the accounts of the Underwriters under the
Underwriting Agreement with respect to arranging sales of Securities pursuant
to Delayed Delivery Contracts shall be credited to the accounts of the
Underwriters.
(c) Each Underwriter authorizes the Representatives to reserve and offer
for sale such of the Securities to be purchased by such Underwriter pursuant to
the Underwriting Agreement or for its account under any of the provisions of
this Agreements as the Representatives shall determine (i) to retail purchasers
and (ii) to dealers to be selected by the Representatives (the "Selected
Dealers") (A) who are members of the National Association of Securities
Dealers, Inc. (the "NASD") and who will agree to comply with the requirements
of Section 24 of Article III of the Rules of Fair Practice of the NASD or (B)
who are foreign dealers not eligible for membership in the NASD and who will
agree (I) not to make any sales of the Securities in, or to nationals or
residents of, the United States, its territories or its possessions and (II) in
making any sales of the Securities to comply, as though such foreign dealers
were members of the NASD, with (x) the interpretation of the Board of Governors
of the NASD entitled "Free-Riding and Withholding," (y) the requirements of
Sections 8, 24 and 36 of Article III of the Rules of Fair Practice of the NASD
and (z) to the extent applicable to such foreign dealers, the requirements of
Section 25 of such Article III. The sales referred to in clause (i) shall be
made at the public offering price, and the sales referred to in clause (ii)
shall be made at the public offering price less the selling concession to
Selected Dealers. The Representatives may arrange for any Underwriter,
including the Representatives, to become one of such Selected Dealers, and each
Underwriter agrees that it will not offer any of the Securities for sale at a
price below the public offering price or allow any concession therefrom except
as herein otherwise provided. Sales made by the Representatives for the
account of each Underwriter to Selected Dealers will be as nearly as
practicable in the ratio which the amount of the Securities so reserved for the
account of such Underwriter bears to the aggregate amount of the Securities so
reserved for the account of all Underwriters.
(d) Any such offering may be made by the Representatives pursuant to the
terms and conditions of selling agreements or otherwise, as the Representatives
determine. Each Underwriter
3
<PAGE> 5
authorizes the Representatives to determine the form and manner of any selling
agreements or other communications with Selected Dealers and, in the event
there shall be any such selling agreements, each Underwriter agrees to be
governed by the terms and conditions of such agreements.
(e) The Representatives, as such, may make purchases and sales of
the Securities from or to any Underwriter or Selected Dealer at the public
offering price less all or any part of the selling concession to Selected
Dealers specified in the Terms Wire. With the Representatives' consent, any
Underwriter may make purchases or sales of the Securities from or to any
Underwriter or Selected Dealer at the public offering price less all or any
part of such selling concession to Selected Dealers.
(f) The Representatives will notify each Underwriter promptly upon
the release of the public offering of the Securities as to the amount of the
Securities reserved for sale to retail purchasers and Selected Dealers, and the
amount of the Securities not so reserved. Any of the Securities not so reserved
may be sold by each Underwriter for its own account. Each Underwriter agrees,
upon the Representatives' request, at any time or times prior to the
termination of this Agreement with respect to the Securities, to report to the
Representatives as to the amount of the Securities not so reserved which then
remain unsold by it and the Representatives may, in their discretion, add to
the Securities reserved for sale to retail purchasers and Selected Dealers any
such unsold Securities.
(g) If all the Securities so reserved are not promptly sold by the
Representatives, any Underwriter may from time to time, with the
Representatives' consent, obtain a release of all or any Securities of such
Underwriter then remaining unsold, and Securities so released shall thereafter
be deemed not to have been reserved. Securities of any Underwriters so reserved
which remain unsold or if sold have not been paid for at any time prior to the
termination of this Agreement with respect to the Securities may, in the
Representatives' discretion, or upon the request of such Underwriter, be
delivered to such Underwriter for carrying purposes only, but such Securities
shall remain subject to disposition by the Representatives, in their
discretion, until this Agreement is terminated. If the aggregate amount of the
Securities so reserved upon termination of this Agreement does not exceed 20%
of the total amount of the Securities, the Representatives may, in their
discretion, sell for the accounts of the several Underwriters all or any
Securities so reserved, at such prices, on such terms and in such manner as the
Representatives may determine.
(h) The Representatives may, in their discretion, charge the
account of any Underwriter with an amount equal to the selling concession to
Selected Dealers (plus any broker's commissions and transfer taxes) with
respect to Securities purchased by such Underwriter, or purchased for their
account, and not sold to retail purchasers or Selected Dealers for their
account by the Representatives, which, prior to the termination of this
Agreement, the Representatives may purchase or contract to purchase, in the
open market or otherwise, pursuant to this Agreement, for the account of any
Underwriter, or which may be delivered against contracts made prior to the
termination of this Agreement; or in lieu thereof require such Underwriter to
repurchase on demand at the total cost thereof (including commissions and
taxes) any of such Securities so purchased or contracted to be purchased. In
lieu of so charging the account of any Underwriter or delivering such Securities
to any Underwriter obligated to repurchase the same as aforesaid, the
Representatives may, in their discretion, sell the same for the account of such
Underwriter, publicly or privately, without notice, at such prices and upon
such terms and to such persons, including any of the several Underwriters, as
the Representatives may determine, charging to the Underwriters so obligated
the amount of any loss and expense or crediting to such Underwriter the amount
of any profit less any expense resulting from such sale.
6. COMPENSATION TO REPRESENTATIVES. As compensation for the
Representatives' services, each Underwriter agrees to pay the Representatives a
management fee as specified in the Terms Wire (without reduction for any
Securities to be delivered pursuant to any Delayed Delivery Contracts). Such
compensation shall be treated as an expense of each Underwriter and shall be
charged to its account on the books of the Representatives.
4
<PAGE> 6
7. PAYMENT AND DELIVERY. (a) Upon the request of the Representatives
each Underwriter will deliver to The Robinson-Humphrey Company, Inc., 3333
Peachtree Road, N.E., Atlanta, Georgia 30326, payment for the Securities to be
purchased by such Underwriter under the Underwriting Agreement in an amount
equal to the initial public offering price for such Securities less the
concession to Selected Dealers. Such payment shall be made in such form and at
such times and places as may be specified in the Terms Wire. The Representatives
may, however, advance funds (to the extent permitted by law) in respect of
Securities which have been sold or reserved for sale to retail purchasers or
Selected Dealers for the account of any Underwriter. Each Underwriter authorizes
the Representatives to make payment to the Company and the Selling
Securityholders, if any, for the Securities to be purchased by such Underwriter
against delivery to the Representatives of certificates for such Securities for
the account of such Underwriter. Unless notified at least three full business
days prior to the date of delivery to make other arrangements, the
Representatives may, in their discretion, advise the Company and the Selling
Securityholders, if any, to prepare each Underwriter's certificates for the
Securities to be purchased by it in the name of such Underwriter (or in such
other name as the representatives shall designate, but such other name shall be
for administrative convenience only and shall not affect such Underwriter's
title to such Securities or the several nature of the obligations of the
Underwriters hereunder) in such denomination as the Representatives may
determine. The Representatives will give each Underwriter notice of the date of
delivery.
(b) Each Underwriter authorizes the Representatives to hold and deliver
against payment the Securities purchased by such Underwriter or for its account
which have been sold or reserved for sale to retail purchasers or Selected
Dealers, and agrees to endorse such Securities in blank or to deliver to the
Representatives upon their request appropriate powers executed in blank. The
Representatives will remit promptly to each Underwriter an amount equivalent to
the purchase price paid by such Underwriter, and not advanced or borrowed by
the Representatives for securities sold for such Underwriter's account to
retail purchasers or Selected Dealers and for which payment has been received.
The Representatives agree that Securities not sold or reserved by them as
aforesaid will be available for delivery to each Underwriter at the office of
the Robinson-Humphrey Company, Inc., 3333 Peachtree Road, N.E., Atlanta, Georgia
30326; or such other address as the Underwriter may be notified by the
Representatives, as soon as practicable after such Securities have been
delivered to the Representatives.
(c) If an Underwriter is a member of, or clears through a member of, The
Depository Trust Company ("DTC"), the Representatives may, in their discretion,
deliver such Underwriter's Securities through the facilities of DTC.
8. AUTHORITY TO BORROW. The Representatives are hereby authorized (to the
extent permitted by law) to arrange such loans for the account of one or more of
the Underwriters, severally and not jointly, to execute and deliver any notes or
other instruments in connection therewith, and to pledge as security therefor
all or any part of the Securities as the Representatives may deem necessary or
advisable to carry out the purchase, carrying and distribution of the
Securities, and to advance their own funds, in their individual capacities,
charging current interest rates. Any lending bank is hereby authorized to rely
upon instruction of the Representatives in all matters relating to any such
loan. the Representatives may deliver to any Underwriter for carrying purposes
such Securities, or any part thereof, which Securities will be redelivered to
the Representatives on demand.
9. OVER-ALLOTMENTS AND STABILIZATION. (a) The Representatives may, for
the account of each Underwriter, until the termination of this Agreement or
earlier surrender of this authorization, (i) over-allot in arranging for sales
of the Securities to retail purchasers and Selected Dealers, and purchase
Securities at such prices as the Representatives may determine for the purpose
of covering such over-allotments, and (ii) for the purpose of stabilizing the
market in the Securities, make purchases and sales of Securities or other
securities of the Company which the Representatives may designate for purchase
or sale in stabilizing transactions ("Stabilized Securities"), for long or short
account, on a when-issued basis or otherwise, at such prices, in such amounts
and in such manner as the Representatives may determine; provided that at no
time shall the net dollar
5
<PAGE> 7
commitment of any Underwriter either for long or short account, under this
Section 9, exceed (except as otherwise provided in Section 4(b) hereof) 20% of
the amount of the Securities (and the Option Securities, if any) which such
Underwriter is obligated to purchase pursuant to the Underwriting Agreement.
Such purchases, sales and over-allotments shall be made for the accounts of
several Underwriters as nearly as practicable in proportion to the respective
underwriting obligations of such Underwriters. Each Underwriter agrees to take
up at cost on demand any Securities or Stabilized Securities so purchased for
their account and to deliver on demand any thereof so sold or any Securities so
over-allotted for their account.
(b) The Representatives may sell for the account of any Underwriter
any Securities or Stabilized Securities purchased pursuant to the provisions of
this Section 9 upon such terms as the Representatives may deem advisable and
any Underwriter, including the Representatives, may participate as a purchaser
in connection with any such sales. The Representatives shall have full
discretionary power to pay such commissions in connection with such purchases
and sales as they may deem proper and to charge the respective accounts of the
Underwriters commissions on purchases and sales effected by them.
(c) If stabilizing transactions are effected pursuant to the
authorizations contained in this Section 9, the Representatives shall effect
such transactions in accordance with the rules of the Securities and Exchange
Commission (the "Commission") under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and each Underwriter agrees to furnish the
Representatives with the notification required by Rule 17a-2(d) promulgated by
the Commission under the Exchange Act. The Representatives will notify each
Underwriter if they effect any such transactions.
10. OPEN MARKET TRANSACTIONS. Each Underwriter agrees that,
except as herein otherwise provided, until the termination of this Agreement or
until notified by the Representatives prior thereto that such Underwriter is
released from this restriction, it will not buy, sell, deal or trade in the
Securities or Stabilized Securities or, if options to purchase Securities or
common stock into which Securities may be convertible ("Common Stock") are
traded on any securities exchange, buy any right or option to purchase
Securities or Common Stock for their own account or for the accounts of
customers except on unsolicited brokerage orders therefor received and executed
in the ordinary course of their brokerage business. Each Underwriter further
agrees that it will not lend any shares of Common Stock, either before or after
the purchase of the Securities, to any customer, Underwriter, Selected Dealer
or to any other securities broker or dealer. Each Underwriter represents that
it has not participated, since the date on which it was invited by the
Representatives to participate in the offering of Securities, in any
transactions prohibited by the foregoing provisions of this Section 10 and that
it has at all times complied with the provisions of Rule 10b-6 under the
Exchange Act applicable to the offering of the Securities.
11. ALLOCATION OF EXPENSES. Each Underwriter authorizes the
Representatives to charge against such Underwriter's account any and all
expenses incurred by the Representatives, as such, in connection with the
purchase, carrying, offering, sale and distribution of the Securities for the
account of such Underwriter. All expenses of a general nature paid by the
Representatives in connection with the purchase and sale of the Securities
shall be borne by the Underwriters in proportion to the amount of the
Securities which each Underwriter is obligated to purchase pursuant to the
Underwriting Agreement, except that any transfer taxes payable by reason of
sales by the Underwriters shall be charged to the accounts of the respective
Underwriters only to the extent that sales of Securities or Stabilized
Securities are made for such Underwriter's account. In the event of the default
of any Underwriter in carrying out its obligations under this Agreement, the
expenses chargeable to such Underwriter pursuant to this Agreement and not paid
by it, as well as any additional losses or expenses arising from such default,
may be charged against the other Underwriters not so defaulting in proportion
to the respective amounts of Securities which such other Underwriters are
obligated to purchase pursuant to the Underwriting Agreement, without, however,
relieving such Underwriter from its liability therefor. The Representatives'
ascertainment of all expenses and the apportionment thereof shall be
conclusive.
6
<PAGE> 8
12. TERMINATION. This Agreement will terminate at the close of
business on the fifth full day after the date of the Terms Wire unless prior
thereto the Underwriting Agreement shall have been executed and delivered and
shall have become effective, in which event: (a) if there shall be an offering
to Selected Dealers pursuant to the terms of selling agreements, this Agreement
will terminate at the close of business on the thirtieth day after the
termination of the selling agreements, or at such earlier date, not earlier
than the termination of the selling agreements, as the Representatives may
determine, but may be extended for a further period not exceeding forty-five
days with the consent of the Underwriters (including the Representatives) who
have agreed to purchase in the aggregate 50% or more of the total amount of the
Securities; or (b) if there shall be no such offering to Selected Dealers, this
Agreement will terminate at the close of business on the forty-fifth day after
payment by the Underwriters for the Securities, or at such earlier date as the
Representatives may determine. Notwithstanding any settlement of accounts under
this Agreement, each Underwriter agrees to pay its proportionate share (based
on its final total obligation to purchase Securities pursuant to the
Underwriting Agreement) of the amount of any claim, demand or liability which
may be asserted against and discharged by the Underwriters, or any of them,
based on the claim that the Underwriters constitute an association,
unincorporated business or other entity, and also to pay a like proportionate
share of any transfer taxes which may be assessed after such settlement and of
the expenses incurred by the Underwriters, or any of them, and approved by the
Representatives, in contesting any such claim, demand, liability or tax.
13. POSITION OF REPRESENTATIVES. (a) Except as otherwise
specifically provided in this Agreement, the Representatives shall have full
authority to take such action as they may deem necessary or advisable in
respect of all matters pertaining to the Underwriting Agreement and this
Agreement in connection with the purchase, carrying, offering, sale,
distribution and advertising of the Securities, but they shall not be under any
liability whatsoever to any of the Underwriters except such as may be incurred
under the Act and except for want of good faith and for the obligations
expressly assumed by them in this Agreement. No obligations not expressly
assumed by the Representatives in this Agreement shall be implied hereby or
inferred from this Agreement. Authority with respect to matters to be
determined by the Representatives or by the Representatives, the Company and
the Selling Securityholders, if any, pursuant to the terms of the Underwriting
Agreement shall survive the termination of this Agreement. Nothing herein
contained shall constitute the several Underwriters an association, or partners
with the Representatives or with each other, or, except as in this Agreement
expressly provided, render any Underwriter liable for the obligation of any
other Underwriter, and the rights, obligations and liabilities of each of the
Underwriters are several, in accordance with their respective obligations, and
not joint. If the Underwriters, among themselves or with the Selected Dealers,
are deemed to constitute a partnership for Federal income tax purpose, it is
the intent of each Underwriter to be excluded from the application of
Subchapter K, Chapter 1, Subtitle A, of the Internal Revenue Code of 1954, as
amended. Each Underwriter elects to be so excluded and agrees not to take any
position inconsistent with such election. Each Underwriter authorizes the
Representatives, in their discretion, to execute and file on behalf of the
Underwriters such evidence of election as may be required by the Internal
Revenue Service.
(b) The Representatives shall be under no duty to account for any
interest on funds of any of the Underwriters at any time in their hands, and
such funds may be held by the Representatives unsegregated from their general
funds.
14. INDEMNIFICATION AND FUTURE CLAIMS. (a) Each Underwriter agrees
to indemnify and hold harmless each other Underwriter, and each person, if any,
who controls any such other Underwriter within the meaning of Section 15 of the
Act, to the extent and upon the terms that such Underwriter will agree to
indemnify, hold harmless and reimburse the Company and the Selling
Securityholders, if any, as set forth in the Underwriting Agreement.
(b) In the event that at any time any claim or claims shall be asserted
against the Representatives, as such, or shall otherwise involve the
Underwriters generally, or related to any Preliminary Prospectus, any
Prospectus, any Offering Circular, the Registration Statement, the public
offering of the Securities, or any of the transactions contemplated by this
Agreement, each Underwriter
7
<PAGE> 9
authorizes the Representatives to make such investigation, to retain such
counsel and to take such other action as the Representatives shall deem
necessary or desirable under the circumstances, including settlement of any
such claim or claims if such course of action shall be recommended by counsel
retained by them. Each Underwriter agrees to pay to the Representatives, on
request, such Underwriter's proportionate share (based on their final total
obligation to purchase Securities pursuant to the Underwriting Agreement) of
all expenses incurred by the Representatives (including, but not limited to,
the fees and disbursements of counsel retained by them) in investigating and
defending against such claim or claims, and their proportionate share of any
liability incurred by the Representatives in respect of such claim or claims,
whether such liability shall be the result of a judgment against the
Representatives or as a result of any such settlement. A claim against or
liability incurred by a person who controls an Underwriter within the meaning
of Section 15 of the Act shall be deemed to have been made against or incurred
by such Underwriter.
(c) The foregoing indemnity agreement shall survive the termination of
this Agreement, and shall remain in full force and effect regardless of any
investigation made by or on behalf of such other Underwriter or controlling
person.
15. TITLE TO SECURITIES. The Securities and Stabilized Securities
purchased by or for the account of each Underwriter pursuant to this Agreement
or the Underwriting Agreement shall remain the property of such Underwriter
until sold, and no title to any such Securities or Stabilized Securities shall
in any event pass to the Representatives, as such, by virtue of any of the
provisions of this Agreement.
16. BLUE SKY MATTERS. It is understood that the Representatives
assume no obligation or responsibility with respect to the right of any
Underwriter or other person to sell the Securities in any jurisdiction,
notwithstanding any information which the Representatives may furnish as to the
jurisdictions under the securities laws of which it is believed the Securities
may be sold.
17. NASD MEMBERSHIP. The Representatives represent that they are
members in good standing of the NASD and each Underwriter represents that it is
either (a) a member in good standing of the NASD and that in making sales of
Securities it will comply with the Rules of Fair Practice of the NASD,
including, without limitation, Section 24 of Article III thereof, or (b) a
foreign dealer, broker or bank not eligible for membership in the NASD, in
which event such Underwriter agrees that it will not sell any of the Securities
in, or to nationals or residents of, the United States, its territories or its
possessions, except as required by Sections 5(c), 5(e), 5(f) and 9 hereof, and
that in making any sales of the Securities it will comply, as though it were a
member of the NASD, with (i) the interpretation of the Board of Governors of
the NASD entitled "Free-Riding and Withholding," (ii) the requirements of
Sections 8, 24 and 36 of Article III of the Rules of Fair Practice of the NASD
and (iii) to the extent applicable to it, the requirements of Section 25 of
such Article III.
18. UNDERWRITERS' QUESTIONNAIRE. Each Underwriter represents and
warrants to the Representatives, the Company and the Selling Securityholders,
if any, that the statements made in the Underwriters' Questionnaire attached as
Schedule A are (except as otherwise disclosed in writing to the
Representatives) true, correct and complete as of the date of the Terms Wire.
19. CERTAIN AGREEMENTS OF THE UNDERWRITERS. Each Underwriter agrees
that:
(a) Such Underwriter will notify the representatives immediately if
any of the representations of such Underwriter contained in this Agreement
cease to be accurate;
(b) If, immediately prior to the filing of the Registration Statement,
the Company was not subject to the requirements of Section 13(a) or 15(d) of
the Exchange Act, such Underwriter (i) will not sell any Securities to any
account over which it exercises discretionary authority and (ii) confirms that
(A) it is familiar with Release No. 4968 under the Act and Rule 15c2-8 under
the Exchange Act relating to the distribution of prospectuses for securities of
an issuer which is not subject to the reporting requirements of Section 13(a)
or 15(d) of the Exchange Act, (B) copies of each Preliminary Prospectus have
been or will be distributed to all persons to whom it expects to mail
confirmations of sales, (C) such distribution will be made not less than 48
hours prior to the
8
<PAGE> 10
time that it is expected such confirmations will be mailed, (D) such
distribution will be either made by air mail if the confirmations are to be
sent by air mail, or by such other means of delivery as shall assure that such
Preliminary Prospectuses will be received not less than 48 hours prior to the
time confirmations are received and (E) such Underwriter will otherwise comply
with said Release; and
(c) Such Underwriter will (i) deliver Preliminary Prospectuses,
Prospectuses and other reports required to be delivered under the Act, the
Exchange Act and the rules and regulations under such Acts, including without
limitation Rule 15c2-8 under the Exchange Act, (ii) keep an accurate record of
the names and addresses of all persons to whom it delivers copies of the
Registration Statement, any amendment thereto or any Preliminary Prospectus or
any document incorporated therein by reference, (iii) upon the request of the
Representatives, furnish promptly to the persons who received copies of the
foregoing documents, any subsequent amendment, revised Preliminary Prospectus,
Prospectus, document incorporated by reference or any memorandum furnished to
the undersigned outlining changes in the Registration Statement or any
Preliminary Prospectus and (iv) deliver a copy of each Prospectus to each
person who purchases any of the Securities from it.
20. NOTICES. Any notice from the Representatives to any Underwriter
shall be deemed to have been duly given if mailed, telephoned (and confirmed in
writing) or given by telegram, wire, facsimile transmission or telex or
telegraphed to such Underwriter at the address set forth in the Terms Wire to
such Underwriter. Any notice from any Underwriter to the Representatives shall
be deemed to have been duly given if mailed, telephoned (and confirmed in
writing) or telegraphed to The Robinson-Humphrey Company, Inc., 3333 Peachtree
Road, N.E., Atlanta Georgia 30326, Attention: Syndicate Department (or to such
other address as the Underwriter may be notified of by the Representatives).
21. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of Georgia, without giving effect to the choice of
law or conflicts of laws principles thereof.
<PAGE> 11
UNDERWRITERS' QUESTIONNAIRE
In connection with each offering of Securities to which this Agreement
relates, except as disclosed to the Representatives in writing, each
Underwriter advises the Representatives as follows and authorizes the
Representatives to use the information furnished in response to this
Underwriters' Questionnaire in the Registration Statement relating to the
Securities:
(a) Neither such Underwriter nor any of its directors, officers or
partners, individually or as a part of a "group" (as that term is used in
Section 13(d)(3) of the Exchange Act), (i) has a "material" relationship
(as defined in Rule 405 under the Act) with the Company or any Selling
Securityholder or (ii) is a director, officer or holder (of record or
beneficially) of 5% or more of any class of voting securities of the
Company or any Selling Securityholders;
(b) With reference to the interpretation of the Board of Governors of
the NASD with respect to the Review of Corporate Financing, neither such
Underwriter nor any of its "related persons" (as defined by the NASD) (i)
has purchased or otherwise acquired from the Company any warrants, options
or other securities of the Company within 18 months prior to the date that
the Registration Statement was initially filed or subsequent to that date,
and there are no existing arrangements for any such purchase or (ii) has
had any dealings with the Company (except those with respect to the
Underwriting Agreement) or any "affiliate" of the Company (as defined in
Rule 405 under the Act) as to which documents or other information are
required to be furnished to the NASD pursuant to such interpretation.
(c) Other than as may be stated in the Registration Statement, any
Prospectus, any Offering Circular, the Master Agreement Among Underwrites,
the Underwriting Agreement or any selling agreements, such Underwriter does
not know of any discounts or commissions, including any cash, securities,
contract or other consideration to be received by any dealer in connection
with the sale of the Securities, or of any intention to over-allot the
Securities or to stabilize the price of any security to facilitate the
offering of the Securities;
(d) If the Securities are to be issued pursuant to a trust indenture,
such Underwriter is not in control of, controlled by, or under common
control with the Trustee, any other trustee under a trust indenture
relating to securities of the Company and qualified under the Trust
Indenture Act of 1939 (an "Other Trustee") or any of their respective
affiliates, and none of said companies or affiliates, or any of their
respective directors or executive officers, is a director, officer,
partner, employee, appointee or representative of such Underwriter;
(e) If the Securities are to be issued pursuant to a trust indenture,
such Underwriter and its directors, executive officers and partners, taken
as a group, did not, on the date of the Trustee's Statement of Eligibility
and Qualification on Form T-1, own beneficially more than 1% of the
outstanding voting securities of the Trustee, the Trustee's parent, any
Other Trustee or the parent of any Other Trustee;
(f) If the Registration Statement is on Form S-1, such Underwriter has
not prepared or had prepared for it within the past 12 months any
engineering, management or similar report or memorandum relating to the
broad aspects of the business, operations or products of the Company,
except for reports solely comprised of recommendations to buy, sell or hold
the Company's securities, unless such recommendations have changed within
the past six months;
(g) If the Registration Statement is on either Form S-2 or Form S-3,
such Underwriter has not prepared any report or memorandum for external use
by it or by the Company in connection with the proposed offering of the
Securities:
(h) Such Underwriter's proposed commitment to purchase Securities will
not result in a violation by it of the financial responsibility
requirements of Rule 15c3-1 under the Exchange Act;
A-1
<PAGE> 12
(i) Such Underwriter is familiar with the rules, regulations and
releases of the Commission dealing with the dissemination of information
prior to and during registration and has not distributed nor will it
distribute any written information outside of its organization relating to
the Company or its securities other than in accordance with such rules,
regulations and releases; and
(j) If the Company is a "public utility," such Underwriter is not a
"holding company" or a "subsidiary group" or an "affiliate" of a "holding
company" or of a "public utility," each as defined in the Public Utility
Holding Company Act of 1935.
<PAGE> 1
EXHIBIT h.3
THE ROBINSON-HUMPHREY COMPANY, INC.
May 7, 1992
Dear Sirs:
From time to time in the future, in connection with offerings of
securities in which we act as representative of the underwriters comprising the
underwriting syndicate, you may be invited to participate in the distribution
of such securities as a Selected Dealer.
Attached hereto are the basic provisions of the Master Dealers Agreement
(the "Basic Provisions") that will be applicable to any such public offering
where we are the lead representative, and we expressly inform you that such
Basic Provisions are applicable. Acceptable by you by telegram, wire,
facsimile transmission, telex or telephone call (confirmed immediately in
writing) of a Terms Wire referred to in the Basic Provisions shall reconfirm
(or, if you have not signed and returned this letter and the attached Basic
Provisions to us, shall confirm) your acceptance of an agreement to the terms
and conditions set forth in the Basic Provisions insofar as such terms and
conditions apply to the securities referred to in the Terms Wire, and shall
constitute a binding agreement between yourselves and the several Underwriters
of such securities.
Please acknowledge your agreement to the foregoing procedure by signing
and returning the enclosed duplicate copy of this letter to The
Robinson-Humphrey Company, Inc., 3333 Peachtree Road, N.E., Atlanta, Georgia
30326, Attention: Syndicate Department.
Very truly yours,
ROBINSON-HUMPHREY COMPANY, INC.
By: ...........................
Robert J. Glenn
Executive Vice President
Acknowledged: ..................., 1992
.......................................
(Selected Dealer's name and address,
including zip code)
By: ...................................
Name: .............................
Please print
Title: ............................
<PAGE> 2
THE ROBINSON-HUMPHREY COMPANY, INC.
MASTER DEALERS AGREEMENT
BASIC PROVISIONS FOR OFFERINGS OF SECURITIES
May 7, 1992
These basic provisions (the "Basic Provisions") set forth the general
terms and conditions pursuant to which, in connection with a proposed
underwritten offering of securities (the "Securities"), a portion of the
Securities will be offered to certain selected dealers (the "Selected
Dealers").
1. SELLING GROUP ARRANGEMENTS. (a) From time to time, in connection
with certain offerings of the Securities by underwriters (the "Underwriters") to
be represented by The Robinson-Humphrey Company, Inc., either alone or with one
or more other firms (the "Representatives"), the Representatives may offer one
or more Selected Dealers the right to purchase as principal a portion of the
Securities being distributed in the offering (the "Offering") on the terms and
conditions set forth herein, which shall be deemed to include the terms and
conditions set forth in any letter, telegram, wire, facsimile transmission,
telex or other written communication or telephone call (confirmed immediately in
writing) sent or made to prospective Selected Dealers in connection with the
terms of any particular public offering of Securities (the "Terms Wire"),
provided that the terms and conditions set forth herein and therein shall be
applicable only to public offerings with respect to which The Robinson-Humphrey
Company, Inc. has expressly informed Selected Dealers that such terms and
conditions shall be applicable. The Terms Wire and these Basic Provisions are
together referred to herein as this "Agreement."
(b) The Terms Wire specifies, with respect to the Selected Dealer to whom
such Terms Wire is addressed, (i) the amount of the Securities to be allotted to
such Selected Dealer, (ii) the purchase price to be paid by such Selected
Dealer for the Securities, (iii) the public offering price of the Securities, or
if the initial public offering price is to be determined by a formula based on
market prices, the terms of the formula, (iv) the interest rate, if any, (v)
the selling concession, if any, to be allowed to Selected Dealers, (vi) the
amount of any reallowance to other dealers and (vii) other matters, including
whether the Underwriters have the option to purchase additional Securities to
cover over-allotments and whether the Underwriters are authorized to solicit
institutional investors to purchase Securities pursuant to Delayed Delivery
Contracts, certain terms thereof and the compensation therefor.
(c) By its acceptance of this Agreement by telegram, wire, facsimile
transmission, telex, or telephone call (confirmed immediately in writing) in
accordance with the terms hereof and its acceptance of an allotment of
Securities as set forth in the Terms Wire, each Selected Dealer agrees that it
will purchase, on the terms and conditions set forth in the Terms Wire, herein
and in the Prospectus referred to below, the amount of such Securities allotted
to it. Acceptance of any reserved Securities received after the time specified
therefor in the Terms Wire and any application for additional Securities will be
subject to rejection in whole or in part. Subscription books may be closed by
the Representatives at any time in the Representatives' discretion without
notice and the right is reserved to reject any subscription in whole or in part,
but notification of allotments against and rejections of subscriptions will be
made as promptly as practicable.
2. REGISTRATION STATEMENT, PROSPECTUS AND OFFERING CIRCULAR. (a) As
used in this Agreement, (i) the term "Registration Statement" means the
registration statement, as amended, filed with respect to the Securities under
the Securities Act of 1933 (the "Act"), (ii) the terms "Preliminary Prospectus"
and "Prospectus" mean any preliminary prospectus and the prospectus (including
any basic prospectus and prospectus supplement and any documents incorporated by
reference) authorized for use in connection with the offering of the Securities
and (iii) the term
<PAGE> 3
"Offering Circular" means any offering circular (including any supplement
thereto and any documents incorporated by reference). Such number of copies of
each Prospectus or Offering Circular (and any documents incorporated by
reference therein) as may reasonably be requested by any Selected Dealer will
be delivered to it.
(b) The Underwriters named in the Prospectus or Offering Circular have
severally agreed, subject to the terms and conditions of the Underwriting
Agreement referred to therein, to purchase from the issuer (the "Company") or
the seller of the Securities named in the Prospectus or Offering Circular, the
securities described therein. The Securities are more particularly described in
the Prospectus or Offering Circular.
3. ROLE OF REPRESENTATIVES. The Representatives are acting as
representatives of each of the Underwriters in all matters connected with the
offering of the Securities and with the Underwriters' purchases of the
Securities. Any action to be taken by the Representatives under this Agreement
may be taken by The Robinson-Humphrey Company, Inc.
4. OFFERING OF THE SECURITIES. (a) The representatives have advised each
Selected Dealer of the release by the Representatives of the Securities for
public offering and of the public offering price. Upon receipt of such
advice, any of the the Securities thereafter purchased by such Selected Dealer
pursuant to this Agreement are to be offered by such Selected Dealer to the
public at the public offering price, subject to the terms of this Agreement.
Except as otherwise provided herein, the Securities shall not be offered or
sold by any Selected Dealer below the public offering price before the
termination of this Agreement, except that a concession from the public
offering price of not in excess of the amount set forth in the Prospectus may
be allowed either to dealers who are members in good standing of the NASD or to
foreign dealers not eligible for membership in the NASD and who, in each case,
will agree as provided in Paragraph 12 of these Basic Provisions.
(b) The Representatives as such, and, with the Representatives' consent,
any Underwriter may buy Securities from, or sell Securities to, any of the
Selected Dealers or any of the Underwriters, and any Selected Dealer may buy
Securities from, or sell Securities to, any other Selected Dealer or any
Underwriter at the public offering price less all or any part of the concession
to Selected Dealers.
(c) Each Selected Dealer agrees to pay the Representatives on demand for
the accounts of the several Underwriters an amount equal to the Selected Dealer
concession as to any Securities purchased by such Selected Dealer pursuant to
this Agreement, which, prior to the termination of this Agreement, the
Representatives may purchase or contract to purchase for the account of any
Underwriter or which may be delivered against purchase contracts made prior to
the termination of this Agreement and, in addition, the Representatives may
charge such Selected Dealer with any broker's commission and transfer tax paid
in connection with such purchase or contract to purchase. Securities delivered
on such repurchases need not be the Identical Securities originally purchased.
(d) No expenses shall be charged to Selected Dealers. A single transfer
tax upon the sale of the Securities by the respective Underwriters to a Selected
Dealer will be paid when such Securities are delivered to such Selected Dealer.
However, each Selected Dealer shall pay any transfer tax on sales of Securities
by it and each Selected Dealer shall pay its proportional share of any transfer
tax or other tax (other than the single transfer tax described above) in the
event that any such tax shall from time to time be assessed against it and other
Selected Dealers as a group or otherwise.
5. PAYMENT AND DELIVERY. (a) Securities purchased by any Selected Dealer
pursuant to this Agreement shall be paid for at the cost price to such
Selected Dealer on the delivery date specified in the Terms Wire, on one day's
notice, by certified or official bank check payable in Clearing House Funds or,
if specified in the Terms Wire, immediately available funds to the order of The
Robinson-Humphrey Company, Inc. at the office of The Robinson-Humphrey Company,
Inc., Atlanta Financial Center, 3333 Peachtree Road, N.E., Atlanta, Georgia
30326, or such other address
2
<PAGE> 4
as the Selected Dealer may be notified of by the Representatives, against
delivery of such Securities.
(b) If payment is made for Securities purchased by a Selected Dealer at
the public offering price, the concession to which such Selected Dealer may be
entitled will be paid to such Selected Dealer upon termination of this
Agreement, as it applies to such Securities.
(c) If a Selected Dealer is a member of, or clears through a member of,
The Depository Trust Company ("DTC"), the Representatives may, in their
discretion, deliver such Selected Dealer's Securities through the facilities of
DTC.
(d) The offering of the Securities is made subject to the conditions
referred to on the cover of the Prospectus and to the terms and conditions set
forth in this Agreement and may be made on the basis of the reservation of the
Securities or an allotment against subscriptions, and is not joint but several.
6. DELIVERY OF PROSPECTUSES. (a) In the case of a public offering of
securities registered under the Act, the Underwriters have been advised by the
Company that the Registration Statement in respect of the Securities has become
effective. Each Selected Dealer, in selling Securities purchased pursuant to
this Agreement, agrees (which agreement shall also be for the benefit of the
Company and any selling securityholder) that such Selected Dealer will comply
with the applicable requirements of the Act and of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and applicable rules and regulations
issued under the Act and the Exchange Act.
(b) With respect to Rule 15c2-8 of the Exchange Act, each Selected Dealer
confirms that it has itself delivered and will itself deliver copies of all
Preliminary Prospectuses and Prospectuses required under the provisions
thereof.
(c) Each Selected Dealer confirms that in purchasing the Securities, it
has relied upon no statements whatsoever, written or oral, other than the
statements in the Prospectus or Offering Circular, as delivered to such
Selected Dealer by the Representatives.
7. OVER-ALLOTMENTS AND STABILIZATION. Each of the Underwriters has
authorized the Representatives to (i) over-allot in arranging for sales of the
Securities to the Selected Dealers, and purchase the Securities at such prices
as the Representatives may determine for the purpose of covering such
overallotments and (ii) for the purpose of stabilizing the market in the
Securities, make purchases and sales of the Securities or other securities of
the Company which the Representatives may designate for purchase or sale in
stabilizing transactions ("Stabilized Securities"), for long or short account.
8. OPEN MARKET TRANSACTIONS. Each Selected Dealer agrees that, except
as herein otherwise provided, until the termination of this Agreement or until
notified by the Representatives prior thereto that such Selected Dealer is
released from this restriction, it will not buy, sell, deal or trade in the
Securities, securities convertible into common stock of the Company ("Common
Stock") or Stabilized Securities or, if options to purchase Securities or Common
Stock into which Securities may be convertible are traded on any securities
exchange, buy any right or option to purchase Securities or Common Stock for
its own account or for the accounts of customers except on unsolicited
brokerage orders therefor received and executed in the ordinary course of its
brokerage business. Each Selected Dealer further agrees that it will not lend
any shares of Common Stock, either before or after the purchase of the
Securities, to any customer, Underwriter, Selected Dealer or to any other
securities broker or dealer. Each Selected Dealer represents that it has not
participated, since the date on which it was invited by the Representatives to
participate in the Offering, in any transactions prohibited by the foregoing
provisions of this Paragraph 8 and that it has at all times complied with the
provisions of Rule 10b-6 under the Exchange Act applicable to the offering of
the Securities.
9. ROLE OF SELECTED DEALER; RELATIONSHIP WITH UNDERWRITERS. (a) No
person is authorized to give any information or to make any representations,
other than those contained in any
3
<PAGE> 5
Prospectus or Offering Circular in connection with the offering or sale of the
Securities. Each Selected Dealer is to act as principal in purchasing
Securities and is not authorized to act as agent for the Company or any selling
securityholder or any of the Underwriters in offering the Securities to the
public or otherwise.
(b) Nothing contained in this Agreement shall constitute the Selected
Dealers partners with any of the Underwriters or with one another. If the
Selected Dealers, among themselves or with the Underwriters, are deemed to
constitute a partnership for Federal income tax purposes, it is the intent of
each Selected Dealer to be excluded from the application of Subchapter K,
Chapter I, Subtitle A of the Internal Revenue Code of 1954, as amended, and
each Selected Dealer elects to be so excluded and agrees not to take any
position inconsistent with that election. Each Selected Dealer authorizes the
Representatives, in their discretion, to execute and file on behalf of such
Selected Dealer any evidence of that election which may be required by the
Internal Revenue Service.
(c) The Representatives, as such, shall have full authority to take such
action as they may deem advisable in respect of all matters pertaining to the
Offering or arising under this Agreement. Neither the Representatives, as
such, nor any of the Underwriters shall be under any liability to any Selected
Dealer, except such as may be incurred under the Act and except for lack of good
faith and for obligations assumed by the Representatives in this Agreement. No
obligation on the Representatives' part shall be implied or inferred herefrom.
10. BLUE SKY MATTERS. Upon application to the Representatives, any
Selected Dealer will be informed as to the States in which the Representatives
have been advised by counsel the Securities have been qualified for sale or are
exempt under the respective securities or blue sky laws of such States, but the
Representatives have not assumed and will not assume any obligation or
responsibility as to the right of any Selected Dealer to sell any of the
Securities in any such State.
11. REPORTS OF SELECTED DEALER. Each Selected Dealer agrees, upon the
Representatives' request, at any time or times prior to the termination of this
Agreement, to report to the Representatives as to the amount of the Securities
purchased by such Selected Dealer pursuant to the provisions of this Agreement
which then remain unsold.
12. NASD MEMBERSHIP. Each Selected Dealer represents that it is a member
in good standing of the National Association of Securities Dealers, Inc. (the
"NASD") or a foreign dealer, broker or bank not eligible for membership in the
NASD. If such Selected Dealer is a member of the NASD, it agrees to comply
with the requirements of Section 24 of Article III of the Rules of Fair
Practice of the NASD, and it agrees not to grant any concessions, discounts or
other allowances which are not permitted by that section. If such Selected
Dealer is a foreign dealer not eligible for membership in the NASD, it agrees
that it will not make any sales of the Securities in, or to nationals or
residents of, the United States, its territories or its possessions, and that
in making any sales of the Securities it will comply, as though it is a member
of the NASD, with (a) the interpretation of the Board of Governors of the NASD
entitled "Free-Riding and Withholding," (b) the requirements of Sections 8, 24
and 36 of Article III of the Rules of Fair Practice of the NASD and (c) to the
extent applicable to it, the requirements of Section 25 of such Article III.
13. TERMINATION AND AMENDMENT. (a) All Selected Dealers will be
governed by the conditions set forth in this Agreement until this Agreement is
terminated. This Agreement will terminate at the close of business on the
fifteenth day after the date of the initial public offering of the Securities,
but, in the Representatives' discretion, may be extended by the Representatives
for a further period not exceeding fifteen days and, in the Representatives'
discretion, whether or not extended, may be terminated at any earlier time.
Notwithstanding the termination of this Agreement, each Selected Dealer shall
remain liable to the extent provided by law for its proportionate amount of any
claim, demand or liability which may be asserted against it alone, or against
it together with other dealers purchasing Securities upon the terms of this
Agreement, or against the Representatives, based upon the claim that the
Selected Dealers, or any of them, constitute an association, an unincorporated
business or other separate entity.
4
<PAGE> 6
(b) This Agreement may be amended by the Representatives upon written
notice to Selected Dealers, and any such amendment shall be effective with
respect to any Offering to which this Agreement applies on the date of such
amendment.
(c) This Agreement may be terminated by either party hereto upon five
business days' written notice to the other party; provided that with respect to
any Offering for which a Terms Wire was sent and accepted prior to such notice,
this Agreement as it applies to such Offering shall remain in full force and
effect and shall terminate with respect to such Offering in accordance with
subparagraph (a) of this Paragraph 13.
14. NOTICES. Any notice from the Representatives to any Selected Dealer
shall be deemed to have been duly given if mailed, telephoned (and confirmed in
writing), or given by telegram, wire, facsimile transmission, or telex, to such
Selected Dealer at the address set forth in the Terms Wire sent to such Selected
Dealer. Any notice from any Selected Dealer to the representatives shall be
deemed to have been duly given if given by any of the means specified in the
preceding sentence to The Robinson-Humphrey Company, Inc., 3333 Peachtree Road,
N.E., Atlanta, Georgia 30326, Attention: Syndicate Department (or to such other
address as the Selected Dealer may be notified of by the Representatives).
15. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of Georgia, without giving effect to the choice of law
or conflicts of law principles thereof.
5
<PAGE> 1
Exhibit k.9
================================================================================
ACQUISITION AGREEMENT
AMONG
SIRROM CAPITAL CORPORATION,
SIRROM CAPITAL ACQUISITION CORPORATION,
SIRROM, LTD.
AND
HARRIS, WILLIAMS & CO.
DATED AS OF MAY 16, 1996
================================================================================
<PAGE> 2
<TABLE>
<CAPTION>
ARTICLE 1.
<S> <C>
TRANSFER OF LIMITED PARTNERSHIP INTEREST................................................. 1
1.1 Transfer of Interest............................................................ 1
1.2 Transactions Closing............................................................ 2
ARTICLE 2.
THE MERGER............................................................................... 2
2.1 The Merger...................................................................... 2
2.2 The Closing..................................................................... 2
2.3 Effective Time.................................................................. 2
2.4 Articles of Incorporation....................................................... 3
2.5 Bylaws.......................................................................... 3
2.6 Directors....................................................................... 3
2.7 Officers........................................................................ 3
2.8 Conversion of HW Corp. Shares in the Merger..................................... 3
2.9 Adjustment in Consideration..................................................... 3
2.10 Status of Sub Shares............................................................ 3
2.11 Exchange of HW Corp. Capital Stock Certificates................................. 3
2.12 Dissenting Shares............................................................... 6
2.13 Closing of Transfer Books....................................................... 6
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF HW CORP................................................ 6
3.1 Existence; Good Standing; Corporate Authority; Compliance With Law.............. 6
3.2 Authorization, Validity and Effect of Agreements................................ 7
3.3 Capitalization.................................................................. 7
3.4 Prior Sales of Securities....................................................... 7
3.5 No Violation.................................................................... 7
3.6 Regulatory Consents............................................................. 8
3.7 Financial Statements............................................................ 8
3.8 No Material Adverse Changes..................................................... 8
3.9 Tax Matters..................................................................... 9
3.10 Employees and Fringe Benefit Plans.............................................. 10
3.11 Compliance with Applicable Laws................................................. 11
3.12 Litigation...................................................................... 12
3.13 Corporate Records; Other Information............................................ 12
3.14 Properties...................................................................... 12
3.15 Material Contracts.............................................................. 13
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
3.16 Intellectual Property Rights................................................................... 13
3.17 Certain Business Practices and Regulations..................................................... 13
3.18 Insurance...................................................................................... 14
3.19 Certain Accounting and Tax Matters............................................................. 14
3.20 Proxy Statements............................................................................... 14
3.21 No Brokers..................................................................................... 14
3.22 Projections.................................................................................... 15
3.23 Full Disclosure................................................................................ 15
ARTICLE 3A
REPRESENTATIONS AND WARRANTIES OF SIRROM, LTD...........................................................15
3A.1 Ownership......................................................................................15
3A.2 Full Disclosure................................................................................15
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF SIRROM AND SIRROM SUB
.......................................................................................................16
4.1 Existence; Good Standing; Corporate Authority; Compliance With Law.............................16
4.2 Authorization, Validity and Effect of Agreements...............................................16
4.3 Capitalization.................................................................................16
4.4 Subsidiaries...................................................................................17
4.5 No Violation...................................................................................17
4.6 Regulatory Consents............................................................................17
4.7 Compliance with Applicable Laws................................................................17
4.8 SEC Documents..................................................................................17
4.9 Litigation.....................................................................................18
4.10 Taxes..........................................................................................18
4.11 Absence of Certain Changes.....................................................................18
4.12 No Brokers.....................................................................................18
4.13 Sirrom Common Stock............................................................................19
4.14 Sirrom Sub.....................................................................................19
4.15 Certain Accounting and Tax Matters.............................................................19
ARTICLE 5.
COVENANTS...............................................................................................19
5.1 Covenants of Sirrom , Sirrom , Ltd. and HW Corp................................................19
5.2 Covenants of HW Corp. and Sirrom, Ltd..........................................................21
5.3 Covenant Involving Taxes of Harris Williams....................................................23
</TABLE>
ii
<PAGE> 4
<TABLE>
ARTICLE 6.
<S> <C>
CONDITIONS.............................................................................................. 24
6.1 Conditions to Each Party's Obligation to Effect the Transactions............................... 24
6.2 Conditions to Obligation of HW Corp. and Sirrom, Ltd. to Effect the
Transactions................................................................................... 25
6.3 Conditions to Obligation of Sirrom and Sirrom Sub to Effect the Transactions.
.............................................................................................. 25
ARTICLE 7.
TERMINATION............................................................................................. 27
7.1 Termination by Mutual Consent.................................................................. 27
7.2 Termination by Either Sirrom or HW Corp........................................................ 27
7.3 Termination by HW Corp......................................................................... 28
7.4 Termination by Sirrom.......................................................................... 28
7.5 Effect of Termination and Abandonment.......................................................... 28
7.6 Extension; Waiver.............................................................................. 28
ARTICLE 8.
GENERAL PROVISIONS...................................................................................... 29
8.1 Non-survival of Representations and Warranties................................................. 29
8.2 Publicity...................................................................................... 29
8.3 Notices........................................................................................ 29
8.4 Assignment, Binding Effect; Benefit............................................................ 30
8.5 Entire Agreement............................................................................... 30
8.6 Amendment...................................................................................... 30
8.7 Governing Law.................................................................................. 30
8.8 Counterparts................................................................................... 30
8.9 Headings....................................................................................... 31
8.10 Interpretation................................................................................. 31
8.11 Waivers........................................................................................ 31
8.12 Incorporation of Exhibits...................................................................... 31
8.13 Severability................................................................................... 31
8.14 Expenses....................................................................................... 31
8.15 Enforcement of Agreement....................................................................... 31
</TABLE>
iii
<PAGE> 5
ACQUISITION AGREEMENT
This AGREEMENT (the "Agreement"), is executed as of the 16th day of
May, 1996, by and among Sirrom Capital Corporation, a Tennessee corporation
("Sirrom"), Sirrom Capital Acquisition Corporation, a newly formed Tennessee
corporation and wholly owned subsidiary of Sirrom ("Sirrom Sub"), Sirrom, Ltd.,
("Sirrom Ltd."), a Tennessee limited partnership and the sole limited partner of
Harris, Williams & Co., L.P., a Virginia limited partnership ("Harris
Williams"), and Harris, Williams & Co., a Virginia corporation and the general
partner of Harris Williams ("HW Corp.").
RECITALS
A. The Boards of Directors of Sirrom and HW Corp., and the partners of
Sirrom, Ltd. each have determined that acquisition of 100% of the partnership
interests of Harris Williams by Sirrom is in the best interests of their
respective companies, shareholders and partners and accordingly have agreed to
effect the acquisition of such partnership interests through (i) the acquisition
of the limited partnership interest of Harris Williams owned by Sirrom, Ltd. and
(ii) a business combination between Sirrom and HW Corp., all upon the terms and
subject to the conditions set forth herein.
B. For federal income tax purposes, it is intended that the merger
provided for herein shall qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and for financial accounting purposes shall be accounted for as a "pooling of
interests."
C. Sirrom, Sirrom Sub, Sirrom, Ltd. and HW Corp. desire to make certain
representations, warranties and agreements in connection with the purchase of
the limited partnership interest and the merger.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1.
TRANSFER OF LIMITED PARTNERSHIP INTEREST
1.1 Transfer of Interest. Subject to all of the terms and conditions of
this Agreement, at the Closing, (a) Sirrom, Ltd. will sell to Sirrom, and Sirrom
will purchase from Sirrom, Ltd., Sirrom, Ltd.'s 19% limited partnership interest
in Harris Williams (the "Limited Partnership Interest") in exchange for 180,500
shares (the "LP Shares") of Sirrom common stock, no par value per share
<PAGE> 6
("Sirrom Common Stock"), subject to the adjustment described in Section 2.9 of
this Agreement. The shares of Sirrom Common Stock issuable pursuant to this
Agreement shall bear a restrictive legend reflecting applicable federal and
state securities transfer restrictions, and stop transfer instructions will be
issued to Sirrom's stock transfer agent with respect to such shares. The
transfer of the Limited Partnership Interest and General Partnership Interest
(as defined in Section 3.3) shall sometimes hereinafter be referred to
collectively as the "Transactions."
1.2 Transactions Closing. The closing of the Transactions shall take
place (a) at the offices of Bass, Berry & Sims PLC, 2700 First American Center,
Nashville, Tennessee, at 9:00 a.m., local time, on the first business day
immediately following the day on which the last to be fulfilled or waived of the
conditions set forth in Article 7 shall be fulfilled or waived in accordance
herewith or (b) at such other time, date or place as Sirrom, Sirrom, Ltd. and HW
Corp. may agree. The date on which the Closing occurs is hereafter referred to
as the " Closing Date."
ARTICLE 2.
THE MERGER
2.1 The Merger. Subject to the terms and conditions of this Agreement,
at the Effective Time (as defined in Section 2.3), Sirrom Sub shall be merged
with and into HW Corp. in accordance with this Agreement and the separate
corporate existence of Sirrom Sub shall thereupon cease (the "Merger"). HW Corp.
shall be the surviving corporation in the Merger (sometimes hereinafter referred
to as the "Surviving Corporation") and shall be a wholly owned subsidiary of
Sirrom. The Merger shall have the effects specified in Section 13.1-721 of the
Virginia Business Corporation Act ("VBCA") and Section 48-21-106 of the
Tennessee Business Corporation Act ("TBCA").
2.2 The Closing. Subject to the terms and conditions of this Agreement,
the closing of the Merger (the "Closing") shall take place at the time set forth
in Section 1.2 of this Agreement.
2.3 Effective Time. If all the conditions to the Transactions set forth
in Article 7 shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article 8, the parties
hereto shall cause Articles of Merger meeting the requirements of Section
13.1-720 of the VBCA and Section 48-21-105 of the TBCA to be properly executed
and filed in accordance with such Sections on the Closing Date. The Merger shall
become effective at the time of filing of the Articles of Merger or at such
later time which the parties hereto shall have agreed upon and designated in
such filing as the effective time of the Merger (the "Effective Time"). Each of
the parties will use its best efforts to cause the Merger to be consummated as
soon as practicable following the fulfillment or waiver of the conditions in
Article 7.
2
<PAGE> 7
2.4 Articles of Incorporation. The Charter of HW Corp. in effect
immediately prior to the Effective Time shall be the Charter of the Surviving
Corporation, until duly amended in accordance with applicable law.
2.5 Bylaws. The Bylaws of HW Corp. in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation, until duly
amended in accordance with applicable law.
2.6 Directors. The directors of the Surviving Corporation shall
initially be George Miller, Chris Williams and Hiter Harris.
2.7 Officers. The officers of HW Corp. immediately prior to the
Effective Time shall be the officers of the Surviving Corporation as of the
Effective Time.
2.8 Conversion of HW Corp. Shares in the Merger. Prior to the
Effective Time of the Merger, all options to purchase shares of HW Corp. Common
Stock will be exercised. At the Effective Time, by virtue of the Merger and
without any action on the part of any holder of any capital stock of HW Corp.,
each issued and outstanding share of Common Stock, no par value, of HW Corp.
("HW Corp. Common Stock"), other than HW Corp. Dissenting Shares (as defined in
Section 2.12 hereof) shall, subject to adjustment as provided in Section 2.9 and
to 2.11 hereof, be converted into, and become exchangeable for, the right to
receive 7,079,442 shares of Sirrom Common Stock (the "Merger Consideration") or
an aggregate of 769,500 shares of Sirrom Common Stock ("GP Shares"), subject to
adjustment pursuant to Section 2.9. To the extent not exercised, any options to
acquire HW Common Stock shall be canceled at the Effective Time.
2.9 Adjustment in Consideration. If the average closing price of a
share of Sirrom Common Stock as reported on The Nasdaq Stock Market (or, if the
Sirrom Common Stock shall then be quoted on a national securities exchange, as
reported on such exchange) for the 15 trading days immediately preceding the
earlier of August 31, 1996 or the day prior to the Closing Date (the "Average
Sirrom Stock Price ") is less than $21 ("Lower Collar"), the total of the GP
shares and the LP Shares ("Total Sirrom Shares") shall be increased to equal
$19,950,000 divided by the Average Sirrom Stock Price, and if the Average
Sirrom Stock Price is above $26 (the "Upper Collar"), the Total Sirrom Shares
shall be reduced to equal $24,700,000 divided by the Average Sirrom Stock
Price, provided, however, if the Closing Date shall occur after September 1,
1996 and the average closing price for a share of Sirrom Common Stock so
reported for the 15 trading days immediately preceding the day prior to the
Closing Date (the "Adjusted Average Sirrom Stock Price") shall be less than the
Average Sirrom Stock Price, the Adjusted Sirrom Stock Price shall be used in
the foregoing calculation instead of the Average Sirrom Stock Price. The GP
Shares shall be 81% of the Total Sirrom Shares and the LP Shares shall be 19%
of the Total Sirrom Shares. If, between the date of this Agreement and the
Effective Time, the outstanding shares of Sirrom Common Stock shall be changed
into a different number of shares by reason of any reclassification,
recapitalization, split-up, combination, exchange of shares or readjustment, or
a stock dividend thereon shall be distributed as of a date prior to the
Effective Time, or declared with a record date prior to the Effective Time and
a distribution date after the Effective Time, the Lower Collar and Upper Collar
shall be appropriately adjusted.
2.10 Status of Sub Shares. At the Effective Time, each issued and
outstanding share of common stock of Sirrom Sub shall continue unchanged and
remain outstanding as a share of common stock of the Surviving Corporation.
3
<PAGE> 8
2.11 Exchange of HW Corp. Capital Stock Certificates.
(a) On or prior to the Closing Date, Sirrom shall instruct an
exchange agent appointed by it (the "Exchange Agent") to make available
the certificates representing shares of Sirrom Common Stock required to
effect the exchange referred to in Section 2.11(b). Shares of Sirrom
Common Stock into which shares of HW Corp. Common Stock shall be
converted in the Merger shall be deemed to have been issued at the
Effective Time.
(b) From and after the Effective Time, each holder of a
certificate which immediately prior to the Effective Time represented
outstanding shares of HW Corp. Common Stock, other than shares with
respect to which dissenters' rights, if any, are perfected under the
VBCA, shall be entitled to receive in exchange therefor, upon surrender
thereof to the Exchange Agent, a certificate or certificates
representing the number of whole shares of Sirrom Common Stock into
which such holder's shares of HW Corp. Common Stock were converted
pursuant to Section 2.8. From and after the Effective Time, Sirrom
shall be entitled to treat the certificates which immediately prior to
the Effective Time represented shares of HW Corp. Common Stock and
which have not yet been surrendered for exchange as evidencing the
ownership of the number of full shares of Sirrom Common Stock into
which the shares of HW Corp. Common Stock represented by such
certificates shall have been converted pursuant to Section 2.8,
notwithstanding the failure to surrender such certificates. However,
notwithstanding any other provision of this Agreement, until holders or
transferees of certificates which immediately prior to the Effective
Time represented shares of HW Corp. Common Stock have surrendered them
for exchange as provided herein, no dividends shall be paid with
respect to any shares represented by such certificates and no payment
for fractional shares shall be made with respect to such shares. Upon
surrender of a certificate which immediately prior to the Effective
Time represented outstanding shares of HW Corp. Common Stock, there
shall be paid to the holder of such certificate the amount of any
dividends which theretofore became payable, but which were not paid by
reason of the foregoing, with respect to the number of whole shares of
Sirrom Common Stock represented by the certificate or certificates
issued upon such surrender. If any certificate for shares of Sirrom
Common Stock is to be issued in a name other than that in which the
certificate for shares of HW Corp. Common Stock surrendered in exchange
therefor is registered, it shall be a condition of such exchange that
the person requesting such exchange shall pay any transfer or other
taxes required by reason of the issuance of certificates for such
shares of Sirrom Common Stock in a name other than that of the
registered holder of any such certificate surrendered.
(c) Immediately after the Effective Time, the Exchange Agent
shall mail to each holder of record of a certificate or certificates
that immediately prior to the Effective Time represented outstanding
shares of HW Corp. Common Stock (the "HW Corp. Certificates") (i) a
form letter of transmittal which shall specify that delivery shall be
4
<PAGE> 9
effected, and risk of loss and title to HW Corp. Certificates shall
pass, only upon actual delivery of HW Corp. Certificates to the
Exchange Agent and (ii) instructions for use in effecting the surrender
of HW Corp. Certificates in exchange for certificates representing
shares of Sirrom Common Stock. Upon surrender of HW Corp. Certificates
for cancellation to the Exchange Agent, together with a duly executed
letter of transmittal and such other documents as the Exchange Agent
shall require, the holder of such HW Corp. Certificates shall be
entitled to receive in exchange therefor a certificate representing
that number of whole shares of Sirrom Common Stock into which the
shares of HW Corp. Common Stock represented by HW Corp. Certificates so
surrendered shall have been converted pursuant to the provisions of
Section 2.8, and HW Corp. Certificates so surrendered shall forthwith
be canceled. Notwithstanding the foregoing, neither the Exchange Agent
nor any party hereto shall be liable to a holder of shares of HW Corp.
Common Stock for any shares of Sirrom Common Stock or dividends or
distributions thereon delivered to a public official pursuant to
applicable escheat laws.
(d) Notwithstanding any other provision of this Agreement, no
certificates for fractional shares of Sirrom Common Stock shall be
issued upon the surrender for exchange of HW Corp. Certificates
pursuant to this Article 2 in the Merger and no Sirrom Common Stock
dividend, stock split or interest shall relate to any fractional
security, and such fractional interests shall not entitle the owner
thereof to vote or to any other rights of a security holder. In lieu
of a fractional share of Sirrom Common Stock, any such fractional
interest arising by virtue of the Merger shall be converted
into a right to receive a cash payment equal to the closing price of
Sirrom Common Stock on the NASDAQ National Market multiplied by such
fractional interest.
(e) All shares of HW Corp. Common Stock held by any of the
parties hereto at the Effective Time (the "Treasury Shares") shall
cease to exist, and all certificates representing any Treasury Shares
shall, as promptly as practicable thereafter be canceled, and no cash
or shares of capital stock of Sirrom shall be issued in exchange
therefor.
(f) The shares of Sirrom Common Stock issued in the Merger
will not be registered under the Securities Act of 1933, as amended
(the "33 Act"). Each certificate representing the shares of Sirrom
Common Stock issued in the Merger shall bear a legend to the following
effect:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH LAWS OR
PURSUANT TO A WRITTEN OPINION OF COUNSEL FOR THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED.
5
<PAGE> 10
The Company may instruct the Transfer Agent to impose appropriate stop-transfer
instructions with respect to such shares.
2.12 Dissenting Shares. Notwithstanding anything to the contrary
contained in this Agreement or the Merger Plan, holders of shares of HW Corp.
Common Stock with respect to which dissenters' rights, if any, are granted by
reason of the Merger under the VBCA and who do not vote in favor of the Merger
and otherwise comply with the VBCA ("HW Corp. Dissenting Shares"), shall not be
entitled to any Merger Consideration pursuant to Section 2.8, unless and until
the holder thereof shall have failed to perfect or shall have effectively
withdrawn or lost such holder's right to dissent from the Merger under the VBCA,
and shall be entitled to receive only the payment provided for pursuant to the
VBCA. If any such holder shall have failed to perfect or shall have effectively
withdrawn or lost such holder's dissenters' rights under the VBCA, such holder's
HW Corp. Dissenting Shares shall thereupon be deemed to have been converted into
and to have become exchangeable for, as of the Effective Time, the right to
receive the Merger Consideration.
2.13 Closing of Transfer Books. From and after the Effective Time, the
stock transfer books of HW Corp. shall be closed and no transfer of shares of HW
Corp. Common Stock shall thereafter be made. If, after the Effective Time, HW
Corp. Certificates are presented to Sirrom, they shall be canceled and exchanged
for the Merger Consideration in accordance with the procedures set forth in this
Article 2.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF HW CORP.
Except as set forth in the disclosure letter delivered prior to the
execution hereof to Sirrom (the "HW Corp. Disclosure Letter"), HW Corp.
represents and warrants to Sirrom as of the date of this Agreement as follows:
3.1 Existence; Good Standing; Corporate Authority; Compliance With Law.
HW Corp. is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Virginia, and Harris Williams is a
limited partnership duly organized, validly existing and in good standing under
the laws of the state of Virginia. HW Corp. is the sole general partner of
Harris Williams. Except for its general partnership interest in Harris Williams,
HW Corp. does not, and Harris Williams does not, own, directly or indirectly,
any stock, partnership interest or other ownership interest in any person. HW
Corp. is qualified to do business as a foreign corporation, Harris Williams is
duly registered as a foreign limited partnership, and both are in good standing
under the laws of any state of the United States in which the character of the
properties owned or leased by them, respectively, therein or in which the
transaction of their respective businesses makes such qualification necessary,
except where the failure to be so qualified would not have a material adverse
effect on the business, results of operations or
6
<PAGE> 11
financial condition of HW Corp. or Harris Williams (a "HW Corp. Material Adverse
Effect"). Harris Williams and HW Corp. have all requisite power and authority to
own, operate and lease their respective properties and carry on their respective
businesses as now conducted, except where such failure would not result in a HW
Corp. Material Adverse Effect. HW Corp. has provided to Sirrom complete and
correct copies of the Limited Partnership Agreement of Harris Williams and the
Articles of Incorporation and Bylaws of HW Corp., each of which is in full force
and effect.
3.2 Authorization, Validity and Effect of Agreements. HW Corp. has the
requisite corporate power and authority to execute and deliver this Agreement
and all agreements and documents contemplated hereby. This Agreement has been
approved by HW Corp.'s Board of Directors and shareholders and the consummation
by HW Corp. of the transactions contemplated hereby has been duly authorized by
all requisite corporate action. This Agreement constitutes, and all agreements
and documents contemplated hereby (when executed and delivered pursuant hereto
for value received) will constitute, the valid and legally binding obligations
of HW Corp., enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, or other similar laws relating to creditors'
rights and general principles of equity (regardless of whether enforcement is
sought in a proceeding at law or in equity).
3.3 Capitalization. The authorized capital stock of HW Corp. consists
of 5,000 shares of Common Stock, 100 shares of which are issued and outstanding
as of the date of this Agreement and the only outstanding partnership interests
in Harris Williams are the general partnership interest owned by HW Corp (the
"General Partnership Interest") and the limited partnership interest owned by
Sirrom, Ltd., all of which are duly authorized, validly issued, fully paid and
not subject to any lien, encumbrance or restriction. HW Corp. has no outstanding
capital stock, bonds, debentures, notes or other obligations the holders of
which have the right to vote (or which are convertible into or exercisable for
securities having the right to vote) with the shareholders of HW Corp. on any
matter. All issued and outstanding shares of HW Corp. Common Stock are duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights. Except as described in the HW Corp. Disclosure Letter, there are no
options, warrants, calls, subscriptions, convertible securities, or other
rights, agreements or commitments which obligate HW Corp. to issue, transfer or
sell any shares of capital stock of HW Corp. or any partnership interests of
Harris Williams.
3.4 Prior Sales of Securities. All offers and sales of HW Corp. Common
Stock, and Harris Williams partnership interests prior to the date hereof were
at all relevant times exempt from the registration requirements of the 33 Act,
and were duly registered or the subject of an available exemption from the
registration requirements of the applicable state securities or Blue Sky laws,
or the relevant statutes of limitations have expired, or civil liability
therefor has been eliminated by an offer to rescind.
3.5 No Violation. Neither the execution and delivery by HW Corp. of
this Agreement nor the consummation by HW Corp. of the transactions contemplated
hereby in accordance with
7
<PAGE> 12
the terms hereof, will: (i) conflict with or result in a breach of any
provisions of the Articles of Incorporation or Bylaws of HW Corp. or the Limited
Partnership Agreement of Harris Williams; (ii) conflict with, result in a breach
of any provision of or the modification or termination of, constitute a default
under, or result in the creation of imposition of any lien, security interest,
charge or encumbrance upon any of the assets of HW Corp. or Harris Williams
pursuant to any material commitment, lease, contract, or other material
agreement or instrument to which HW Corp. or Harris Williams is a party; or
(iii) subject to obtaining the consents, approvals, authorizations or making
required filings described under Section 3.6, violate or result in change in
Harris Williams' or HW Corp.'s rights or obligations under any governmental
permit, license or any order, arbitration award, judgment, writ, injunction,
decree, statute, rule or regulation applicable to Harris Williams or HW Corp.
3.6 Regulatory Consents. No consent, approval, order or authorization
of, or registration, declaration or filing with, any governmental entity, is
required by or with respect to Harris Williams or HW Corp. in connection with
the execution and delivery of this Agreement by HW Corp., or the consummation by
HW Corp. of the transactions contemplated hereby, except for (A) such filings
as are required by HW Corp. under the Hart-Scott-Rodino Act, (B) such filings
and exemptions as are required to be made with or obtained from the Securities
and Exchange Commission.
3.7 Financial Statements. HW Corp. has delivered its and Harris
Williams' audited financial statements (containing balance sheets, statements of
income, of shareholders equity, of Partnership equity and of cash flow) for the
two years ended December 31, 1995 (collectively, the "Harris Williams Audited
Financial Statements") and its and Harris Williams' unaudited balance sheets as
of March 31, 1996 and statements of income, shareholders and partnership equity
and cash flow for the quarters ended March 31, 1995 and 1996 (the "Harris
Williams Unaudited Statements and collectively with the Harris Williams Audited
Statements, the "Harris Williams Financial Statements"). The Harris Williams
Financial Statements (including the related notes and schedules) fairly present
the financial position of each of Harris Williams and HW Corp. as of their
respective dates and for the respective periods set forth therein, in each case
in accordance with generally accepted accounting principles consistently applied
during the periods involved, except as may be noted therein. The Harris Williams
Financial Statements have been prepared from the books and records of each of
Harris Williams and HW Corp., which books and records accurately reflect the
transactions and dispositions of the assets of Harris Williams and HW Corp. As
of December 31, 1995 or any subsequent date for which a balance sheet is
provided, each of Harris Williams and HW Corp. did not have liabilities,
contingent or otherwise, whether due or to become due, known or unknown, other
than (x) as indicated on the balance sheet of such date or the notes related
thereto or (y) such as would not have a HW Corp. Material Adverse Effect.
3.8 No Material Adverse Changes. Since December 31, 1995, there has not
been (i) any material adverse change in the financial condition, results of
operations, business, assets or liabilities (contingent or otherwise, whether
due or to become due, known or unknown), of Harris
8
<PAGE> 13
Williams or HW Corp.; (ii) except as set forth in the HW Corp. Disclosure
Letter, any dividend declared or paid or distribution made on the capital stock
of HW Corp. or the partnership interests of Harris Williams, or any capital
stock of HW Corp. or partnership interest of Harris Williams redeemed or
repurchased; (iii) any incurrence of long-term debt by Harris Williams or HW
Corp.; (iv) except as set forth in the HW Corp. Disclosure Letter, any salary,
bonus or compensation increases to any officers, employees or agents of Harris
Williams or HW Corp. ; (v) any pending or threatened labor disputes or other
labor problems against or potentially affecting Harris Williams or HW Corp. ; or
(vi) except as set forth in the HW Corp. Disclosure Letter, any other
transaction entered into by Harris Williams or HW Corp. except in the ordinary
course of business and consistent with past practice.
3.9 Tax Matters. HW Corp. has duly filed all Tax reports and returns
required to be filed by it and has paid all Taxes and other charges (whether or
not shown on any Tax return) due or claimed to be due from it or Harris Williams
by federal, foreign, state or local taxing authorities. True and correct copies
of all Tax reports and returns relating to federal taxes and state income and
sales taxes and other charges for the period from organization through 1995 have
been heretofore delivered to Sirrom or its independent public accountants. The
accruals and reserves for Taxes contained in the financial statements and
carried on the books of HW Corp. (other than any reserve for deferred taxes
established to reflect timing differences between book and tax income) are
adequate to cover all Tax liabilities as of the date of this Agreement. Since
December 31, 1995, Harris Williams and HW Corp. have not incurred any Tax
liabilities other than in the ordinary course of business. There are no Tax
liens (other than liens for current Taxes not yet due) upon any properties or
assets of Harris Williams or HW Corp. (whether real, personal or mixed, tangible
or intangible), and, except as reflected in the financial statements, there are
no pending or to HW Corp.'s knowledge, threatened audits or examinations
relating to, or claims asserted for, Taxes or assessments against Harris
Williams or HW Corp., and HW Corp. is aware of no substantial basis for any such
claims. Neither Harris Williams nor HW Corp. has granted or been requested to
grant any extension of the limitation period applicable to any claim for Taxes
or assessments with respect to Taxes. Neither Harris Williams nor HW Corp. is a
party to any Tax allocation or sharing agreement. HW Corp. has never been a
member of an affiliated group within the meaning of Section 1504 of the Code
filing a consolidated federal income tax return. HW Corp. and Harris Williams
have withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor or shareholder where failure to do so would have a HW Corp. Material
Adverse Effect. For purposes of this Agreement, "Tax" means any federal, state,
local, or foreign income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Section 59A of the Code, customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not.
9
<PAGE> 14
3.10 Employees and Fringe Benefit Plans.
(a) The HW Corp. Disclosure Letter sets forth the names, ages
and titles of all members of the Board of Directors and officers of HW
Corp. and all employees of Harris Williams and HW Corp. earning in
excess of $50,000 per annum, and the annual rate of compensation
(including bonuses) being paid to each such member of the Board of
Directors, officer and employee as of the most recent practicable date.
(b) The HW Corp. Disclosure Letter lists each employment,
bonus, deferred compensation, pension, stock option, stock appreciation
right, profit-sharing or retirement plan, arrangement or practice, each
medical, vacation, retiree medical, severance pay plan, and each other
agreement or fringe benefit plan, arrangement or practice, of Harris
Williams or HW Corp., which affects one or more of its or their
employees, including all "employee benefit plans" as defined by Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (collectively, the "Plans"). No Plan is subject to Title IV
of ERISA or the minimum funding standards of Section 412 of the Code.
(c) For each Plan which is an "employee benefit plan" under
Section 3(3) of ERISA, HW Corp. has delivered to Sirrom correct and
complete copies of the Plan documents and summary plan descriptions,
the most recent determination letter received from the Internal Revenue
Service ("IRS"), the most recent Form 5500 Annual Report, and all
related trust agreements, insurance contracts and funding agreements
which implement each such Plan.
(d) Neither Harris Williams nor HW Corp. has any commitment,
whether formal or informal and whether legally binding or not, (i) to
create any additional such Plan; (ii) to modify or change any such
Plan; or (iii) to maintain for any period of time any such Plan. The HW
Corp. Disclosure Letter contains an accurate and complete description
of the funding policies (and commitments, if any) of Harris Williams
and HW Corp. with respect to each such existing Plan.
(e) Neither Harris Williams nor HW Corp. has unfunded past
service liability in respect of any of its Plans. Neither Harris
Williams, HW Corp. nor any Plan nor to HW Corp.'s knowledge any
trustee, administrator, fiduciary or sponsor of any Plan has engaged in
any prohibited transactions as defined in Section 406 of ERISA or
Section 4975 of the Code for which there is no statutory exemption in
Section 408 of ERISA or Section 4975 of the Code or administrative
exemption; all filings, reports and descriptions as to such Plans
(including Form 5500 Annual Reports, Summary Plan Descriptions,
PBCG-1's and Summary Annual Reports) required to have been made or
distributed to participants, the IRS, the United States Department of
Labor and other governmental agencies have been made in a timely manner
or, to the extent practicable, will be made on or prior to the Closing
Date; there is no material litigation, disputed claim, governmental
proceeding or
10
<PAGE> 15
investigation pending or threatened with respect to any of such Plans,
the related trusts, or to HW Corp.'s knowledge any fiduciary, trustee,
administrator or sponsor of such Plans; such Plans have been
established, maintained and administered in all material respects in
accordance with their governing documents and applicable provisions of
ERISA and the Code and Treasury Regulations promulgated thereunder.
Each Plan which is intended to be a qualified plan under Section 401(a)
of the Code has received a favorable determination letter from the IRS.
(f) Except where failure to do so would not have a HW Corp.
Material Adverse Effect, Harris Williams and HW Corp. have complied in
all respects with all applicable federal, state and local laws, rules
and regulations relating to employees' employment and/or employment
relationships, including, without limitation, wage related laws,
anti-discrimination laws, employee safety laws and COBRA (defined
herein to mean the requirements of Section 4980B of the Code, Proposed
Treasury Regulation Section 1.162- 26 and Part 6 of Subtitle B of Title
I of ERISA).
(g) The consummation of the transactions contemplated by this
Agreement will not (i) result in the payment or series of payments by
HW Corp. to any employee or other person of an "excess parachute
payment" within the meaning of Section 280G of the Code, (ii) entitle
any employee or former employee of Harris Williams or HW Corp. to
severance pay, unemployment compensation or any other payment, or (iii)
accelerate the time of payment or vesting of any deferred compensation
or other employee benefits under any Plan (including vacation and sick
pay).
(h) None of the Plans which are "welfare benefit plans,"
within the meaning of Section 3(1) of ERISA, provide for continuing
benefits or coverage after termination or retirement from employment,
except for COBRA rights under a "group health plan" as defined in
Section 4980B(g) of the Code and Section 607 of ERISA.
(i) Neither HW Corp. nor any "affiliate" of HW Corp. (as
defined in ERISA) has ever participated in or withdrawn from a
multi-employer plan as defined in Section 4001(a)(3) of Title IV of
ERISA, and HW Corp. has not incurred and does not owe any liability as
a result of any partial or complete withdrawal by any employer from
such a multi-employer plan as described under Sections 4201, 4203, or
4205 of ERISA.
3.11 Compliance with Applicable Laws. Harris Williams and HW Corp. hold
all permits, licenses, variances, exemptions, orders and approvals of all
governmental entities which are material to the operation of the businesses or
ownership of the properties of Harris Williams and HW Corp. (the "HW Corp.
Permits"), including all real estate licenses required pursuant to any state law
or regulation. Harris Williams and HW Corp. are in compliance with the terms of
the HW Corp. Permits, except where the failure so to comply would not have a HW
Corp. Material Adverse Effect. Neither Harris Williams nor HW Corp. is required
to be registered as a broker or dealer pursuant to Section 15 of the Securities
and Exchange Act of 1934, as amended
11
<PAGE> 16
("34 Act") or any applicable state law. Except as disclosed in the HW Corp.
Disclosure Letter, the businesses of Harris Williams and HW Corp. are being
conducted in conformity with any other law, ordinance or regulation of any
governmental entity, except with respect to such violations as would not have a
HW Corp. Material Adverse Effect. As of the date of this Agreement, no
investigation or review by any governmental entity with respect to Harris
Williams or HW Corp. is pending or to HW Corp.'s knowledge threatened, and HW
Corp. has no reason to believe that any such investigation or review will result
in any material changes in the procedures or operations of Harris Williams or HW
Corp., or any HW Corp. Material Adverse Effect. To HW Corp.'s knowledge, no
condition exists which is reasonably likely to result in any suit, claim,
action, proceeding or investigation by any person or governmental entity against
Harris Williams or HW Corp.
3.12 Litigation. As of the date of this Agreement, there is no suit,
action or proceeding pending or, to the knowledge of HW Corp., threatened
against or affecting Harris Williams or HW Corp.
3.13 Corporate Records; Other Information. The minute books of HW
Corp., copies of which have been provided to Sirrom, constitute complete and
accurate records of all meetings and actions taken by the boards of directors,
committees of the boards of directors and the stockholders thereof. To HW
Corp.'s knowledge, all documents and other written information as to existing
facts relating to Harris Williams and HW Corp. and their respective assets and
liabilities which have been provided to Sirrom by HW Corp. in connection with
this Agreement are true, correct and complete in all material respects except to
the extent that any documents or other written information was later
specifically supplemented or corrected prior to the date of this Agreement with
additional documents or written information that was provided to Sirrom. To the
knowledge of HW Corp., no material fact relating to the business, results of
operations or financial condition of Harris Williams or HW Corp. as of the date
of this Agreement has not been disclosed to Sirrom.
3.14 Properties. Except as disclosed in the HW Corp. Disclosure Letter
filed prior to the date of this Agreement, Harris Williams or HW Corp. (i) has
good and marketable title to all the properties and assets that are reflected in
the December, 1995 balance sheets as being owned by Harris Williams or HW Corp.
or acquired after the date thereof (except properties sold or otherwise disposed
of since the date thereof), free and clear of all claims, liens, charges,
security interests or encumbrances of any nature whatsoever except (A) statutory
liens securing payments not yet due, (B) such imperfections or irregularities of
title, claims, liens, charges, security interest or encumbrances as do not
affect the use of the properties or assets subject thereto or affected thereby
or otherwise materially impair business operations at such properties and (ii)
is the lessee of all property occupied by it under lease and is in possession of
the properties purported to be leased thereunder, and each such lease is valid
without default thereunder by the lessee, or to HW Corp.'s knowledge, the
lessor.
12
<PAGE> 17
3.15 Material Contracts. The HW Corp. Disclosure Letter sets forth as
of the date of this Agreement a list of the following agreements (the "HW Corp.
Contracts"):
(a) each currently effective engagement letter or brokerage,
agency or other agreement between Harris Williams and any other entity
which involves payment of a fee, commission or other payment in excess
of $10,000;
(b) each agreement of Harris Williams or HW Corp. concerning a
partnership, joint venture or other business venture with any other
person;
(c) each agreement limiting the right of Harris Williams or HW
Corp. to engage in or compete with any person in, any business or
geographical area;
(d) each agreement or other arrangement of or involving Harris
Williams or HW Corp. with respect to indebtedness for money borrowed,
including letters of credit, guaranties, swaps and similar agreements;
(e) each management, consulting, employment, severance or
similar agreement to which HW Corp. or Harris Williams is a party;
(f) each agreement not otherwise listed which is material to
the business of Harris Williams or HW Corp. or is other than in the
ordinary course of its business.
Each of the HW Corp. Contracts is in full force and effect and is a legal, valid
and binding contract or agreement, and there is no default (or any event known
to HW Corp. which, with the giving of notice or lapse of time or both would be a
material default or breach) by Harris Williams or HW Corp. or, to the knowledge
of HW Corp., any other party, in the timely performance of any obligation to be
performed or paid or any other material provision under any such contracts or
agreements. There is not pending, nor to HW Corp.'s knowledge, threatened any
cancellation or termination of any of the HW Corp. Contracts.
3.16 Intellectual Property Rights. Harris Williams and HW Corp. owns or
possesses the right to use all patents, trademarks, service marks, trade names,
slogans, registered copyrights, and all trade secrets it currently uses, without
any conflict or alleged conflict with the rights of others, except where any
such conflict would not have a HW Corp. Material Adverse Effect. The Harris
Williams mark is owned by Hiter Harris III and Christopher H. Williams and
licensed to HW Corp. Prior to the Closing Date, HW Corp. will enter into a
royalty free license for the Harris Williams mark.
3.17 Certain Business Practices and Regulations. Neither Harris
Williams, HW Corp., nor any of their executive officers, partners or directors,
has, to the knowledge of HW Corp., (i) made or agreed to make any contribution,
payment or gift to any customer, supplier, landlord, political candidate,
governmental official, employee or agent where either the contribution, payment
or gift or the purpose thereof was illegal under any law or regulation, (ii)
established or maintained any unrecorded fund or asset for any purpose or made
any false entries on its books
13
<PAGE> 18
and records for any reason, (iii) made or agreed to make any contribution, or
reimbursed any political gift or contribution made by any other person, to any
candidate for federal, state or local public office in violation under any law
or regulation.
3.18 Insurance. All policies and binders of insurance for professional
liability, directors and officers, fire, liability, worker's compensation and
other customary matters held by or on behalf of Harris Williams or HW Corp.
("Insurance Policies") have been made available to Sirrom or their independent
public accountants. The Insurance Policies (which term shall include any
insurance policy entered into after the date of this Agreement in replacement of
an Insurance Policy provided that such replacement policy shall insure against
risks and liabilities, and in amounts and under terms and conditions,
substantially the same as those provided in such replaced policy or binder) are
in full force and effect and neither Harris Williams nor HW Corp. is in default
with respect to any material provision contained in any Insurance Policy nor, to
HW Corp.'s knowledge has Harris Williams or HW Corp. failed to give any notice
of any claim under any Insurance Policy in due and timely fashion, nor, has any
coverage for current claims been denied, except where such default or failure
(A) as of the date of this Agreement, individually or in the aggregate, could
not reasonably be expected to result in a cost to Harris Williams or HW Corp. in
excess of $50,000, and (B) as to any default or failure arising after the date
of this Agreement, individually or in the aggregate, could not reasonably be
expected to have a HW Corp. Material Adverse Effect.
3.19 Certain Accounting and Tax Matters. Neither Harris Williams , HW
Corp. nor any of their affiliates or predecessors have taken or agreed to take
any action that would prevent the Merger from being effected as a pooling of
interests or would prevent the Merger from constituting a transaction qualifying
under Section 368(a) of the Code.
3.20 Proxy Statements. The information with respect to HW Corp., its
subsidiaries, its shareholders, officers and directors and Harris Williams that
shall have been supplied by HW Corp. or its authorized representatives in
writing for use in the Proxy Statement will not, on the date or dates the Proxy
Statement is first mailed to shareholders of Sirrom, and at the Effective Time,
as such Proxy Statement is then amended or supplemented, 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, in light of the
circumstances under which they are made, not misleading.
3.21 No Brokers. HW Corp. has not entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of HW Corp. or Sirrom to pay any finder's fees, brokerage or agent's
commissions or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby
and HW Corp. is not aware of any claim for payment of any finder's fees,
brokerage or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby.
14
<PAGE> 19
3.22 Projections. HW Corp. has furnished to Sirrom certain projections
of revenues, expenses and net income for the year ended December 31, 1996 ("1996
Projections"). The 1996 Projections have been prepared by HW Corp. in good faith
and on a reasonable basis. Notwithstanding the foregoing, the 1996 Projections
may not be indicative of actual results in the periods presented.
3.23 Full Disclosure. All of the information provided by HW Corp. and
its representatives herein or in the HW Corp. Disclosure Letter is true,
correct, and complete in all material respects and no representation, warranty,
or statement made by HW Corp. in or pursuant to this Agreement contains or will
contain any untrue statement of a material fact or omits or will omit to state
any material fact necessary to make such representation, warranty, or statement
not misleading to Sirrom who is seeking full information with respect to Harris
Williams and HW Corp.
ARTICLE 3A
REPRESENTATIONS AND WARRANTIES OF SIRROM, LTD.
Sirrom, Ltd. represents and warrants to Sirrom as of the date of this
Agreement as follows:
3A.1 Ownership. Sirrom, Ltd. is the owner of the Limited Partnership
Interest of Harris Williams free and clear of all liens, claims, charges,
restrictions, security interests, equities, pledges or encumbrances of any kind.
Sirrom, Ltd. has the full right, power, authority and capacity to sell and
transfer the Limited Partnership Interest owned by Sirrom, Ltd. By virtue of the
transfer of the Limited Partnership Interest to Sirrom Sub at the Closing,
Sirrom will obtain full title to such Limited Partnership Interest, free and
clear of all liens, claims, charges, restrictions, security interests, equity,
pledges or encumbrances of any kind. This Agreement constitutes a legal, binding
agreement of Sirrom, Ltd. enforceable in accordance with its terms.
3A.2 Full Disclosure. To the best of Sirrom, Ltd.'s knowledge, all of
the information provided by HW Corp. and its representatives pursuant to Article
3 of this Agreement or in the HW Corp. Disclosure Letter is true, correct and
complete in all material respects and to the best of Sirrom Ltd.'s knowledge no
representation, warranty or statement made by HW Corp. in or pursuant to this
Agreement contains or will contain any untrue statement of a material fact or
omits or will omit to state any material fact necessary to make such
representation, warranty, or statement not misleading to Sirrom which is seeking
full information with respect to Harris Williams and HW Corp. To the best of
Sirrom Ltd.'s knowledge, none of the executive officers of HW Corp. has withheld
from Sirrom or its representatives disclosure of any event, condition or fact
that such officer knows, or has reasonable grounds to know, could materially
adversely affect the financial condition, results of operations, business,
prospectus, assets, or liabilities of Harris Williams and HW Corp.
15
<PAGE> 20
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF SIRROM AND SIRROM SUB
Except as set forth in the disclosure letter delivered at or prior to
the execution hereof to HW Corp. (the "Sirrom Disclosure Letter"), Sirrom and
Sirrom Sub, jointly and severally, represent and warrant to HW Corp. and Sirrom,
Ltd. as of the date of this Agreement as follows:
4.1 Existence; Good Standing; Corporate Authority; Compliance With Law.
Each of Sirrom and Sirrom Sub is a corporation duly incorporated, validly
existing and in good standing under the laws of its respective jurisdiction of
incorporation. Each of Sirrom and Sirrom Sub is qualified to do business as a
foreign corporation and is in good standing under the laws of any other state of
the United States in which the character of the properties owned or leased by it
therein or in which the transaction of its business makes such qualification
necessary, except where the failure to be so qualified would not have a material
adverse effect on the business, results of operations or financial condition of
Sirrom (a "Sirrom Material Adverse Effect"). Each of Sirrom and Sirrom Sub has
all requisite corporate power and authority to own, operate and lease its
properties and carry on its business as now conducted. Sirrom and Sirrom Sub
have each previously delivered to HW Corp. and Sirrom, Ltd. complete copies of
its respective Charter and Bylaws.
4.2 Authorization, Validity and Effect of Agreements. Each of Sirrom
and Sirrom Sub has the requisite corporate power and authority to execute and
deliver this Agreement and all agreements and documents contemplated hereby. The
consummation by Sirrom and Sirrom Sub of the transactions contemplated hereby
has been duly authorized by all requisite corporate action, except for the
approval of Sirrom's Shareholders. This Agreement and when executed by Sirrom
or Sirrom Sub the employment agreements referred to in Section 6.3(k) and the
restricted stock and registration rights agreements referred to in Section
6.3(l) constitute the valid and legally binding obligation of Sirrom and Sirrom
Sub, enforceable in accordance with their respec tive terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights and general principles of equity.
4.3 Capitalization. As of March 31, 1996 the authorized capital stock
of Sirrom consists of 50,000,000 shares of common stock ("Sirrom Common
Stock"), 1,004,000 shares of Sirrom Common Stock were reserved for issuance
upon the exercise of outstanding stock options or rights to purchase granted
under its stock option plan. As of March 31, 1996, there were 9,195,116 shares
of Sirrom Common Stock issued and outstanding. Sirrom has no outstanding bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or which are convertible into or exercisable for securities having the
right to vote) with the shareholders of Sirrom on any matter. All issued and
outstanding shares of Sirrom Common Stock and Sirrom Sub's capital stock are
duly authorized, validly issued, fully paid, nonassessable and free of
preemptive rights. Other than as provided for in the Sirrom Disclosure Letter,
there are no options, warrants, calls,
16
<PAGE> 21
subscriptions, convertible securities, or other rights, agreements or
commitments which obligates Sirrom to issue, transfer or sell any shares of
capital stock of Sirrom.
4.4 Subsidiaries. The Sirrom Disclosure Letter sets forth, as of the
date hereof, the outstanding capital stock of Sirrom Sub, all of which is owned
of record or beneficially by Sirrom. As of the date of this Agreement Sirrom has
no subsidiaries other than Sirrom Sub.
4.5 No Violation. Except as set forth in the Sirrom Disclosure Letter,
neither the execution and delivery by Sirrom and Sirrom Sub of this Agreement,
nor the consummation by Sirrom and Sirrom Sub of the transactions contemplated
hereby in accordance with the terms hereof, will: (i) conflict with or result in
a breach of any provisions of the Charter or Bylaws of Sirrom or Sirrom Sub;
(ii) conflict with, result in a breach of any provision of or the modification
or termination of, constitute a default under, or result in the creation or
imposition of any lien, security interest, charge, or encumbrance upon any of
the assets of Sirrom or Sirrom Sub pursuant to any material commitment, lease,
contract, or other material agreement or instrument to which Sirrom or Sirrom
Sub is a party; or (iii) violate any order, arbitration award, judgment, writ,
injunction, decree, statute, rule, or regulation applicable to Sirrom or Sirrom
Sub.
4.6 Regulatory Consents. No consent, approval, order or authorization
of, or registration, declaration or filing with, any governmental entity is
required by or with respect to Sirrom or any Sirrom Subsidiary in connection
with the execution and delivery of this Agreement by Sirrom, or the consummation
by Sirrom of the transactions contemplated hereby, which the failure to obtain
would have a Sirrom Material Adverse Effect, except for such filings as are
required under the (a) Hart-Scott-Rodino Act; (b) with respect to the corporate
reorganization of Sirrom (the "Sirrom Reorganization"), the consummation of
which is a condition to the obligations of Sirrom pursuant to this Agreement,
the Investment Company Act of 1940 (the "Investment Company Act") and the Small
Business Investment Company Act of 1958, as amended (the "1958 Act"); and (c)
with respect to the acquisition of the Limited Partnership Interest from Sirrom,
Ltd., the Investment Company Act.
4.7 Compliance with Applicable Laws. Sirrom holds all permits,
licenses, variances, exemptions, orders and approvals of all governmental
entities which are material to the operation of the businesses of Sirrom (the
"Sirrom Permits"). Sirrom is in compliance with the terms of the Sirrom Permits,
except where the failure so to comply would not have a Sirrom Material Adverse
Effect. Except as disclosed in the Sirrom Reports (as defined in Section 4.8),
the businesses of Sirrom are not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except with respect to such
violations as would not have a Sirrom Material Adverse Effect. To Sirrom's
knowledge, no investigation by any governmental entity with respect to Sirrom
and Sirrom Subsidiaries is pending or threatened.
4.8 SEC Documents. Prior to the date hereof, Sirrom has delivered to HW
Corp. and Sirrom, Ltd. copies of Sirrom's Annual Reports on Form 10-K for the
year ended December 31, 1995, Quarterly Reports on Form 10-Q for the period
ended March 31, 1996, and proxy materials
17
<PAGE> 22
dated March 15, 1996 (the "Sirrom Reports"). The Sirrom Reports (i) were
prepared in all material respects in accordance with the applicable requirements
of the 34 Act and the rules and regulations promulgated thereunder, and (ii) as
of their respective dates, did 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 made therein, in the light of the circumstances under
which they were made, not misleading. Each of the balance sheets included in or
incorporated by reference into the Sirrom Reports (including the related notes
and schedules) fairly presents the financial position of Sirrom as of its date
and each of the statements of operations, changes in partners' capital and
shareholders' equity and cash flows included in or incorporated by reference
into the Sirrom Reports (including any related notes and schedules) fairly
presents the results of operations or cash flows of Sirrom for the periods set
forth therein (subject, in the case of unaudited statements, to normal year-end
audit adjustments which would not be material in amount or effect) in each case
in accordance with generally accepted accounting principles consistently applied
during the periods involved, except as may be noted therein. To Sirrom's
knowledge, there are no unasserted claims or liabilities or contingent
liabilities that are not disclosed in the Sirrom Reports and that would
reasonably be expected to have a Sirrom Material Adverse Effect.
4.9 Litigation. As of the date of this Agreement, except as set forth
in the Sirrom Reports, there is no action, suit or proceeding pending against
Sirrom or, to the knowledge of Sirrom, threatened against or affecting Sirrom or
any Sirrom Subsidiary, at law or in equity, or before or by any federal or state
commission, board, bureau, agency or instrumentality, that are reasonably likely
to have a Sirrom Material Adverse Effect.
4.10 Taxes. The provisions for taxes shown on the Sirrom financial
statement for the year ended December 31, 1995 are adequate to cover the
liability of Sirrom for all taxes (including employer income tax withholding,
social security and unemployment taxes) to the date thereof. Sirrom has (i)
filed all material federal, state or foreign tax returns required to be filed
for tax years ending prior to the date of this Agreement or requests for
extensions have been timely filed and any such request shall have been granted
and not expired and all such returns are complete in all material respects, (ii)
has paid or accrued all taxes shown to be due and payable on such returns, and
(iii) has properly accrued all such taxes for such periods subsequent to the
periods covered by such returns.
4.11 Absence of Certain Changes. Since December 31, 1995, there has not
been any material adverse change in the financial condition, results of
operations, business, prospects, assets or liabilities (contingent or otherwise,
whether due or to become due, known or unknown), of Sirrom except for changes in
the ordinary course of business consistent with past practice.
4.12 No Brokers. Sirrom has not entered into any contract, arrangement
or understanding with any person or firm which may result in the obligation of
HW Corp. or Sirrom to pay any finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby, except
that Sirrom has retained Keefe, Bruyette & Woods, Inc. as its financial
18
<PAGE> 23
advisor. Other than the foregoing arrangement, Sirrom is not aware of any claim
for payment of any fees, brokerage or agent's commissions or other like payments
in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby.
4.13 Sirrom Common Stock. The issuance and delivery by Sirrom of shares
of Sirrom Common Stock in connection with the Merger and this Agreement have
been duly and validly authorized by all necessary corporate action on the part
of Sirrom except for the approval of its shareholders contemplated by this
Agreement. The shares of Sirrom Common Stock to be issued in connection with the
Merger and this Agreement, when issued in accordance with the terms of this
Agreement, will be validly issued, fully paid and nonassessable.
4.14 Sirrom Sub. Since the date of its incorporation, Sirrom Sub has
not, and as of the Effective Time it will not have, (i) conducted any business,
(ii) had assets in excess of $10,000, (iii) incurred liabilities other than an
amount not exceeding $10,000 representing fees and disbursements incurred in
connection with incorporating and maintaining its corporate existence, and (iv)
made any distributions with respect to its stock or other payments except in
satisfaction of liabilities referred to in clause (iii) above.
4.15 Certain Accounting and Tax Matters. Neither Sirrom nor any of its
affiliates or predecessors has taken or agreed to take any action that would
prevent the Merger from being effected as a pooling of interests or would
prevent the Merger from constituting a transaction qualifying under Section
368(a) of the Code.
ARTICLE 5.
COVENANTS
5.1 Covenants of Sirrom , Sirrom , Ltd. and HW Corp. During the period
from the date hereof and continuing until the Effective Time (except as
expressly contemplated or permitted hereby, or to the extent that the other
parties shall otherwise consent in writing) each of Sirrom, Sirrom, Ltd. and HW
Corp. covenants with the other that, insofar as the obligations relate to it:
(a) Each of Sirrom, Sirrom, Ltd. and HW Corp. shall carry on
the respective business of Sirrom, Harris Williams and HW Corp. in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and shall use all reasonable efforts to preserve
intact their present business organizations, maintain their rights and
franchises and preserve their relationships with customers, suppliers
and others having business deals with them to the end that their good
will and ongoing businesses shall not be impaired in any material
respect at the Effective Time.
19
<PAGE> 24
(b) From the date hereof to the Effective Time, each of HW
Corp., Sirrom, Ltd. and Sirrom shall allow all designated officers,
attorneys, accountants and other representatives of the other access at
all reasonable times during regular business hours with reasonable
notice to the records and files, correspondence, audits and properties,
as well as to all information relating to commitments, contracts,
titles and financial position, or otherwise pertaining to the business
and affairs, of Harris Williams, HW Corp., and Sirrom.
(c) Each of Sirrom and HW Corp. and Sirrom, Ltd. shall
cooperate and promptly prepare and Sirrom shall file with the
Securities and Exchange Commission (the "SEC"), after notification to
HW Corp., as soon as practicable the Proxy Statement with respect to
the approval of the Transactions by the shareholders of Sirrom. The
respective parties will cause the Proxy Statement to comply as to form
in all material respects with the applicable provisions of the 34 Act
and the rules and regulations thereunder. Sirrom agrees that the Proxy
Statement and each amendment or supplement thereto at the time of
mailing thereof and at the time of the meeting of shareholders of
Sirrom will not include an 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, in light of circumstances under which they
were made, not misleading; provided, however, that the foregoing shall
not apply to the extent that any such untrue statement of a material
fact or omission to state a material fact was made by Sirrom in
reliance upon and in conformity with information concerning Harris
Williams, HW Corp., and Sirrom, Ltd. furnished to Sirrom by HW Corp.
and Sirrom, Ltd. for use in the Proxy Statement (unless HW Corp. or
Sirrom, Ltd. then cured the defect by providing corrected information
and Sirrom did not cure such defect by inserting corrected information
in the Proxy Statement). HW Corp. and Sirrom, Ltd. agree that the
information provided by it for inclusion in the Proxy Statement and
each amendment or supplement thereto, at the time of mailing thereof
and at the time of the consummation of the Merger, or, in the case of
information provided by HW Corp. or Sirrom, Ltd. for inclusion in the
Proxy Statement or any amendment or supplement thereto, at the time it
is filed, will not include an 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, in light of the circumstances
under which they were made, not misleading. No amendment or supplement
to the Proxy Statement will be made by Sirrom, Sirrom, Ltd. or HW Corp.
without the approval of the other parties. Sirrom will advise Sirrom,
Ltd. and HW Corp. promptly after it receives notice thereof, of the
time when the Proxy Statement or any supplement or amendment has been
filed, the issuance of any stop order, the suspension of the
qualification of the Sirrom Common Stock issuable in connection with
the Transactions for offering or sale in any jurisdiction, or any
request by the SEC for amendment of the Proxy Statement or comments
thereon and responses thereto or requests by the SEC for additional
information.
(d) Except as and to the extent required by law, each of
Sirrom, Sirrom, Ltd. and HW Corp. hereby agree not to disclose or use,
and each shall cause its representatives
20
<PAGE> 25
not to disclose or use, any confidential information with respect to
the other party hereto furnished, or to be furnished, by such other
party or their representatives in connection herewith at any time or in
any manner other than in connection with its evaluation of the
Transaction. Except as required by law, and as set forth in this
subparagraph (d), neither HW Corp., Sirrom, Ltd. nor their
representatives shall make any public statements regarding the
Transactions or this Agreement without the prior approval of Sirrom.
Sirrom may make such statements, disclosures and filings regarding the
Transactions or this Agreement as it is advised by its counsel are
necessary or appropriate for a public company. Should the Transactions
not be consummated, all such confidential information, in whatever
form, shall be returned to the originator by each party and its
representative.
(e) Each of Sirrom, Sirrom, Ltd. and HW Corp., without the
prior written consent of the other, shall not take any action which
would cause or tend to cause the conditions upon the obligations of the
parties hereto to effect the transactions contemplated hereby not to be
fulfilled including, without limitation, taking, causing to be taken,
or permitting or suffering to be taken or to exist any action,
condition or thing which would cause the representations and warranties
made by the other herein not to be true and correct as of the Closing
Date.
(f) From and after the date hereof to and until the Effective
Time, neither HW Corp., Sirrom, Ltd. nor Sirrom shall (i) knowingly
take any action, or knowingly fail to take any action, that would
jeopardize the treatment of the Merger as a "pooling of interests" for
accounting purposes, (ii) knowingly take any action, or knowingly fail
to take any action, that would jeopardize qualification of the Merger
as a reorganization within the meaning of Section 368(a) of the Code or
(iii) enter into any contract, agreement, commitment or arrangement
with respect to any of the foregoing.
5.2 Covenants of HW Corp. and Sirrom, Ltd. HW Corp. and Sirrom, Ltd.
covenant and agree, to the extent applicable, that between the date hereof and
continuing until the Effective Time (except as expressly contemplated or
permitted hereby, or to the extent that Sirrom shall otherwise consent in
writing or until this Agreement is terminated as provided in Section 7.5):
(a) Prior to the Effective Time, HW Corp. agrees (i) that it
shall, and shall direct and use its best efforts to cause their
directors, officers, employees, specified five percent or greater
shareholders, advisors, accountants and attorneys (the
"Representatives"), including such Representatives of any of HW Corp.'s
affiliated entities or persons, not to, initiate, solicit or encourage,
directly or indirectly, any inquiries or the making or implementation
of any proposal or offer (including, without limitation, any proposal
or offer to their shareholders) with respect to a merger, acquisition,
consolidation or similar transaction involving, or any purchase of all
or any significant portion of the assets or any equity securities of HW
Corp. (any such proposal or offer being hereinafter referred to as an
"Acquisition Proposal") or engage in any negotiations concerning, or
provide any confidential information or data to, or have any
discussions with, any person
21
<PAGE> 26
relating to an Acquisition Proposal, or otherwise facilitate any effort
or attempt to make or implement an Acquisition Proposal; (ii) that they
will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing and will take the
necessary steps to inform the individuals or entities referred to above
of the obligations undertaken in this Section 5.2(a); and (iii) that
they will notify Sirrom immediately if any such inquiries or proposals
are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued
with, them.
HW Corp. agrees that Sirrom will be entitled to specifically
enforce its rights under this paragraph 5.2(a) to recover damages by
reason of any breach of the provisions therein and to exercise all
other rights existing in its favor. HW Corp. further agrees and
acknowledges that money damages may not be an adequate remedy for the
breach of such provision and that Sirrom may in its sole discretion
apply to any court of law or equity of competent jurisdiction for
specific performance or injunctive relief in order to enforce or
prevent any violations of this covenant.
(b) Except as described in the HW Corp. Disclosure Letter or
as contemplated by this Agreement, HW Corp. will not and each of HW
Corp. and Sirrom, Ltd. will not permit Harris Williams to, without the
prior written consent of Sirrom:
(i) change its charter, bylaws, limited partnership
agreement or capitalization or merge, consolidate with or into
or otherwise acquire any interest in any entity;
(ii) declare, set aside or pay any cash dividend or
other distribution on or in respect of shares of its capital
stock or redeem, retire or purchase any shares of its capital
stock or issue any additional shares or rights or options or
agreements to acquire shares of its capital stock;
(iii) declare, set aside or pay any distribution to a
partner of Harris Williams which would have the effect of
reducing the minimum cash balance (net of short term debt) of
Harris Williams on the Closing Date below an amount equal to
$500,000 minus the expenses incurred by HW Corp. in connection
with the transactions contemplated by this Agreement.
(iv) discharge or satisfy any lien, charge,
encumbrance or indebtedness outside the ordinary course of
business, except those required to be discharged or satisfied;
(v) authorize, guarantee or incur indebtedness
aggregating in excess of $25,000;
22
<PAGE> 27
(vi) make any capital expenditures or capital
additions or betterments, or commitments therefor, aggregating
in excess of $70,000;
(vii) loan funds to any person;
(viii) institute, settle or agree to settle any
litigation, action or proceeding before any court or
governmental body;
(ix) sell, lease, mortgage, pledge or subject to any
other encumbrance or otherwise dispose of any of its property
or assets, tangible or intangible, other than in the ordinary
course of business;
(x) authorize any compensation increases of any kind
whatsoever for any employee, other than as in the ordinary
course of business and consistent with past practice, or adopt
or amend any existing employee benefit plan or severance plan;
(xi) take any action, other than reasonable and usual
actions in the ordinary course of business and consistent with
past practice;
(xii) enter into or modify any material contract,
including any contract with any governmental authority or any
third party standstill or confidentiality agreement to which
it is a party; or
(xiii) enter into any contract, agreement, commitment
or arrangement to do any of the foregoing.
(c) Prior to the Effective Time, HW Corp. shall within 21 days
provide to Sirrom quarterly financial statements of Harris Williams and
HW Corp. prepared for periods from and after December 31, 1995.
5.3 Covenant Involving Taxes of Harris Williams. Notwithstanding
anything to the contrary contained in the partnership agreement of Harris
Williams, Sirrom, Sirrom Sub, Sirrom Ltd. and HW Corp. agree that there shall be
an interim closing of the partnership's books on the Closing Date in order to
compute the distributive shares of Federal taxable income, and the distributive
shares of the HW Corp. and Sirrom Ltd. shall be based on the income of Harris
Williams for the short period in 1996 prior to the Closing Date; provided,
however, that allocable cash basis items shall be treated in accordance with
Section 706(d)(2) of the Code.
23
<PAGE> 28
ARTICLE 6.
CONDITIONS
6.1 Conditions to Each Party's Obligation to Effect the Transactions.
The respective obligation of each party to effect the Transactions shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) No action or proceeding shall have been instituted before
a court or other governmental body by any governmental agency or public
authority to restrain or prohibit the transactions contemplated by this
Agreement or to obtain an amount of damages or other material relief in
connection with the execution of the Agreement or the related
agreements or the consummation of the Transactions; and no governmental
agency shall have given notice to any party hereto to the effect that
consummation of the transactions contemplated by this Agreement would
constitute a violation of any law or that it intends to commence
proceedings to restrain consummation of the Transactions.
(b) Sirrom and HW Corp. shall have received an opinion of
counsel and/or accountants reasonably satisfactory to them,
generally to the effects that (i) the Merger qualifies as a
reorganization under Section 368(a), (ii) no material gain or loss will
be recognized by HW Corp. or Sirrom as a result of the Merger, (iii)
shareholders of HW Corp. who receive in the Merger solely Sirrom Common
Stock will recognize no gain or loss for federal income tax purposes
with respect to the Sirrom Common Stock received in the Merger, and
(iv) the Merger will not have a material adverse effect on the federal
income tax consequences of Sirrom; provided that the failure to satisfy
the requirements of clauses (ii) and (iv) of this subsection shall
constitute a condition to consummation of the Merger only if asserted
by Sirrom, and the failure to satisfy the requirements of clause (iii)
of this subsection shall constitute a condition to consummation of the
Merger only if asserted by HW Corp.
(c) All consents, authorizations, orders and approvals of (or
filings or registrations with) any governmental commission, board or
other regulatory body required in connection with the execution,
delivery and performance of this Agreement shall have been obtained or
made, except for filings in connection with the Transactions and any
other documents required to be filed after the Effective Time and
except where the failure to have obtained or made any such consent,
authorization, order, approval, filing or registration would not have a
material adverse effect on the business of Sirrom, Harris Williams and
HW Corp., taken as a whole, following the Effective Time.
(d) Sirrom shall have received from HW Corp. copies of all
resolutions adopted by the Board of Directors and shareholders of HW
Corp. and from Sirrom, Ltd. copies of all resolutions adopted by the
partners of Sirrom, Ltd., in connection with this Agreement and the
transactions contemplated hereby. HW Corp. and Sirrom, Ltd. shall
24
<PAGE> 29
have received from Sirrom and Sirrom Sub copies of all resolutions
adopted by the Board of Directors and shareholders of each respective
company in connection with this Agreement and the transactions
contemplated hereby.
6.2 Conditions to Obligation of HW Corp. and Sirrom, Ltd. to Effect the
Transactions. The obligation of HW Corp. and Sirrom, Ltd. to effect the Merger
shall be subject to the fulfillment at or prior to the Closing Date of the
following conditions:
(a) Sirrom shall have performed its agreements contained in
this Agreement required to be performed on or prior to the Closing Date
and the representations and warranties of Sirrom and Sirrom Sub
contained in this Agreement and in any document delivered in connection
herewith shall be true and correct as of the Closing Date, and HW Corp.
and Sirrom, Ltd. shall have received a certificate of the President or
the Chief Financial Officer, dated the Closing Date, certifying to such
effect.
(b) From the date of this Agreement through the Effective
Time, there shall not have occurred any material adverse change in the
financial condition, business, operations or prospects of Sirrom, that
would have or would be reasonably likely to have a Sirrom Material
Adverse Effect other than any such change that affects small business
lenders.
(c) HW Corp. and Sirrom, Ltd. shall each have received a
written opinion, dated as of the Closing Date, from the legal counsel
of Sirrom, in form and substance satisfactory to it, as to certain
matters agreed upon by legal counsel of Sirrom, Sirrom, Ltd. and HW
Corp.
(d) Concurrently with the execution of this Agreement, Sirrom
shall have entered into employment and noncompetition
agreements, and indemnification agreements (in substantially the form
as the Form of Indemnification Agreement filed as Exhibit i.2 to
Sirrom's Registration Statement as Form N-2, Amendment No. 1, dated
January 18, 1995 (1933 Act File No. 33-86680; 1940 Act File No.
814-154), which agreements shall become effective at Closing in the
forms attached hereto as Exhibits A, B, and C, respectively.
(e) Concurrently with the execution of this Agreement, each
individual receiving shares of Sirrom Common Stock pursuant to the
Transactions contemplated herein, shall execute a restricted
stock and registration rights agreement, in substantially the form
attached hereto as Exhibit D.
6.3 Conditions to Obligation of Sirrom and Sirrom Sub to Effect the
Transactions. The obligations of Sirrom and Sirrom Sub to effect the
Transactions shall be subject to the fulfillment at or prior to the Closing Date
of the following conditions:
25
<PAGE> 30
(a) HW Corp. and Sirrom, Ltd. shall have performed their
agreements contained in this Agreement required to be performed on or
prior to the Closing Date and the representations and warranties of HW
Corp. and Sirrom, Ltd. contained in this Agreement and in any document
delivered in connection herewith shall be true and correct as of the
Closing Date to the same extent as if made on the Closing Date, and
Sirrom shall have received a certificate of the Chief Executive Officer
of HW Corp. and the general partner of Sirrom, Ltd. dated the Closing
Date, certifying to such effect.
(b) Sirrom shall be satisfied that the Merger will qualify for
accounting by Sirrom as a pooling of interests under generally accepted
accounting principles and under applicable rules and regulations of the
Securities and Exchange Commission. In connection therewith, Sirrom
shall have received, on or before the Closing Date, letters from Arthur
Anderson LLP (or any other accountants of Sirrom's choosing), each
dated as of the Closing Date to the effect that the transactions
contemplated by this Agreement may be treated by Sirrom as a "pooling
of interests" for accounting purposes.
(c) Sirrom shall have received from ARTHUR ANDERSON LLP
"comfort" letters, in form and substance satisfactory to it, of the
kind contemplated by the Statement of Auditing Standards with respect
to Letters to Underwriters promulgated by the American Institute of
Certified Public Accountants (the "AICPA Statement") with respect to
the procedures undertaken by them relating to the financial statements
of HW Corp. contained in the Proxy Statement and the other matters
contemplated by the AICPA statement and customarily included in comfort
letters relating to transactions similar to the Merger, (i) dated
immediately prior to the date of mailing of the Proxy Statement, and
(ii) dated immediately prior to the Closing Date, a bring down of the
letter provided in subparagraph (i).
(d) Sirrom shall have consummated the Sirrom Reorganization
following the receipt of all governmental entity approvals required for
such Reorganization, including but not limited to the approval the
Small Business Administration (the "SBA") and of the SEC (or the
requisite exemptive orders shall have been issued thereby).
(e) Sirrom shall have received the requisite exemptive order
issued by the SEC with respect to the acquisition of the Limited
Partnership Interest from Sirrom, Ltd., and the waiting period under
the Hart-Scott-Rodino Act shall have expired.
(f) The options held by Tiffany B. Armstrong and Dean Frith
shall have been fully exercised prior to the Closing Date, so that the
capitalization of HW Corp. shall consist of 108.675 shares of Common
Stock issued and outstanding on the Closing Date.
(g) Sirrom and its Board of Directors have received an
opinion from an investment banking firm to be named by Sirrom
dated the mailing date of the Proxy Statements, to the effect that
the consideration to be
26
<PAGE> 31
paid by Sirrom in the Transactions is fair, from a financial point of
view, to the shareholders of Sirrom.
(h) From the date of this Agreement through the Effective
Time, there shall not have occurred any material adverse change in the
financial condition, business or operations of Harris Williams or HW
Corp.
(i) Sirrom shall have received a written opinion, dated as of
the Closing Date, from the legal counsel of HW Corp. and Sirrom, Ltd.
in form and substance satisfactory to it, as to certain matters agreed
upon by legal counsel of Sirrom and HW Corp.
(j) Sirrom shall have received a written opinion, dated as of
the Closing Date, from legal counsel, to the effect that Sirrom will
continue to qualify as a Regulated Investment Company pursuant to
Section 851 of the Code.
(k) Concurrently with the execution of this Agreement, Chris
Williams and Hiter Harris shall have entered into employment and
noncompetition agreements, and indemnification agreements (in
substantially the form as the Form of Indemnification Agreement filed
as Exhibit i.2 to Sirrom's Registration Statement as Form N-2,
Amendment No. 1, dated January 18, 1995 (1933 Act File No. 33-86680;
1940 Act File No. 814-154), which agreements shall become effective at
Closing in the forms attached hereto as Exhibits A, B, and C,
respectively.
(l) Concurrently with the execution of this Agreement, each
individual receiving shares of Sirrom Common Stock pursuant to the
Transactions contemplated herein, shall execute a restricted stock and
registration rights agreement, in substantially the form attached
hereto as Exhibit D.
(m) The number of shares of HW Corp. Common Stock which shall
perfect their dissenters rights under the VBCA shall not exceed 5% of
the shares of HW Corp. Common Stock outstanding immediately prior to
the Effective Time.
(n) This Agreement and the Transactions contemplated by this
Agreement shall have been approved and adopted by the affirmative vote
of the holders of a majority of the Sirrom Common Stock present and
voting at the special meeting called for such purpose.
27
<PAGE> 32
ARTICLE 7.
TERMINATION
7.1 Termination by Mutual Consent. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, before or
after the approval of this Agreement by the shareholders of HW Corp. and/or
Sirrom, by the mutual consent of all of the parties hereto.
7.2 Termination by Either Sirrom or HW Corp. This Agreement may be
terminated and the Transactions may be abandoned by action of the Board of
Directors of either Sirrom or HW Corp. if (a) the Merger shall not have been
consummated by October 1, 1996, or (b) a United States federal or state court
of competent jurisdiction or United States federal or state governmental,
regulatory or administrative agency or commission shall have issued an order,
decree or ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement and such
order, decree, ruling or other action shall have become final and
non-appealable; provided, that the party seeking to terminate this Agreement
pursuant to this clause (b) shall have used all reasonable efforts to remove
such injunction, order or decree.
7.3 Termination by HW Corp. This Agreement may be terminated and the
Transactions may be abandoned at any time prior to the Effective Time, before or
after the adoption and approval by the shareholders of HW Corp. referred to in
Section 6.2, by action of the Board of Directors of HW Corp., if (a) there has
been a breach by Sirrom or Sirrom Sub of any representation or warranty
contained in this Agreement which would have or would be reasonably likely to
have a Sirrom Material Adverse Effect, (b) there has been a material breach of
any of the covenants or agreements set forth in this Agreement on the part of
Sirrom, which breach is not curable or, if curable, is not cured within 30 days
after written notice of such breach is given by HW Corp. to Sirrom or (c) any of
the conditions set forth in Section 6.1 or Section 6.2 shall have failed to be
able to be satisfied without unreasonable effort or expense.
7.4 Termination by Sirrom. This Agreement may be terminated and the
Transactions may be abandoned at any time prior to the Effective Time, before or
after the approval by the shareholders of Sirrom referred to in Section 6.3, by
action of the Board of Directors of Sirrom, if (a) there has been a breach by HW
Corp. or Sirrom, Ltd. of any representation or warranty contained in this
Agreement which would have or would be reasonably likely to have an HW Corp.
Material Adverse Effect, (b) there has been a material breach of any of the
covenants or agreements set forth in this Agreement on the part of HW Corp. or
Sirrom, Ltd., which breach is not curable or, if curable, is not cured within 30
days after written notice of such breach is given by Sirrom to HW Corp. or
Sirrom, Ltd. or (c) any of the conditions set forth in Section 6.3 shall have
failed to be able to be satisfied without unreasonable effort and expense.
28
<PAGE> 33
7.5 Effect of Termination and Abandonment. Upon termination of this
Agreement pursuant to this Article, except for Sections 3.20, 4.10, 5.1(d) and
this Section 7.5, which shall survive termination of this Agreement, this
Agreement shall be void and of no other effect, and there shall be no liability
by reason of this Agreement or the termination thereof on the part of any party
hereto (other than for breach of a covenant contained herein), or on the part of
the respective directors, officers, employees, agents or shareholders of any of
them provided, however, that in the event of a termination of this Agreement (X)
by HW Corp. pursuant to Section 7.3, (Y) by any party hereto pursuant to Section
7.2 or (Z) by Sirrom as a result of the inability to satisfy any of the
conditions described in Section 6.1 or in paragraphs (b), (c), (d), (e), (f),
(g), (i), (j) or (n) of Section 6.3, then Sirrom shall, within 10 days
following the effective date of such termination, pay to HW Corp. an amount
equal to the out-of-pocket expenses incurred by HW Corp. in connection with the
negotiation or execution of, or and performance of HW Corp.'s obligations under
this Agreement.
7.6 Extension; Waiver. At any time prior to the Effective Time, any
party hereto, by action taken by its Board of Directors, may, to the extent
legally allowed, (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE 8.
GENERAL PROVISIONS
8.1 Non-survival of Representations and Warranties. All representations
and warranties in this Agreement or in any instrument delivered pursuant to this
Agreement shall be deemed to the extent expressly provided herein to be
conditions to the Transactions and shall not survive the Transactions.
8.2 Publicity. Except as otherwise required by law or the rules of the
Nasdaq or the SEC (or as otherwise required by law in the opinion of counsel to
such party), as long as this Agreement is in effect, no party shall, or shall
permit any of its subsidiaries to, issue or cause the publication of any press
release or other public announcement with respect to the transactions
contemplated by this Agreement without the consent of the other parties, which
consent shall not be unreasonably withheld.
8.3 Notices. Any notice required to be given hereunder shall be
sufficient if in writing, by courier service (with proof of service), hand
delivery or certified or registered mail (return receipt requested and
first-class postage prepaid), addressed as follows:
29
<PAGE> 34
If to Sirrom or Sirrom Sub: If to HW Corp.:
George M. Miller, II Hiter Harris and Chris Williams
Sirrom Capital Corporation Harris Williams & Co., L.P.
500 Church Street, Suite 200 1313 E. Main Street, Third Floor
Nashville, TN 37219 Richmond, VA 23219
with a copy to: with a copy to:
Bob F. Thompson R. Marshall Merriman, Jr.
Bass, Berry & Sims PLC McGuire, Woods, Battle & Boothe, L.L.P.
2700 First American Center One James Center
Nashville, Tennessee 37238 901 East Cary Street
Richmond, Virginia 23219-4030
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
8.4 Assignment, Binding Effect; Benefit. Neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns.
8.5 Entire Agreement. This Agreement, the Exhibits, the HW Corp.
Disclosure Letter, the Sirrom Disclosure Letter and any documents delivered by
the parties in connection herewith constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings among the parties with respect thereto, No
addition to or modification of any provision of this Agreement shall be binding
upon any party hereto unless made in writing and signed by all parties hereto.
8.6 Amendment. This Agreement may be amended by the parties hereto, by
action taken by their respective Boards of Directors and general partners, at
any time before or after approval of matters presented in connection with the
Transactions by the shareholders of HW Corp. or Sirrom, but after any such
stockholder approval, no amendment shall be made which by law requires the
further approval of shareholders without obtaining such further approval. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
30
<PAGE> 35
8.7 Governing Law. The validity of this Agreement, the construction of
its terms and the determination of the rights and duties of the parties hereto
shall be governed by and construed in accordance with the laws of the United
States and those of the State of Tennessee applicable to contracts made and to
be performed wholly within such state.
8.8 Counterparts. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
8.9 Headings. Headings of the Articles and Sections of this Agreement
are for the convenience of the parties only, and shall be given no substantive
or interpretive effect whatsoever.
8.10 Interpretation. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
8.11 Waivers. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
8.12 Incorporation of Exhibits. The HW Corp. Disclosure Letter, the
Sirrom Disclosure Letter and the Annexes and Exhibits attached hereto and
referred to herein are hereby incorporated herein and made a part hereof for all
purposes as if fully set forth herein.
8.13 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
8.14 Expenses. Each party to this Agreement shall bear its own expenses
in connection with the Merger and the transactions contemplated hereby. Sirrom
shall be solely responsible for (A) all expenses in connection with the
preparation and filing of the Proxy Statement and each
31
<PAGE> 36
amendment and supplement thereto, (B) the fees and expenses of Arthur Andersen
LLP in connection with its audit of HW Corp. and Harris Williams and all other
services provided in connection with this Agreement and the transactions
contemplated thereby, (C) the fees and expenses of Keefe, Bruyette & Woods,
Inc. in connection with the provision of its opinion pursuant to Section 6.3(g)
of this Agreement, (D) the fees and expenses of counsel or accountants
providing the opinions described in Section 6.1(b) and (E) all filing fees
required under the HSR Act..
8.15 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of competent
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
32
<PAGE> 37
IN WITNESS WHEREOF, the parties have executed this Agreement and caused
the same to be duly delivered on their behalf on the day and year first written
above.
SIRROM CORPORATION
By:______________________________
George M. Miller, II
President and
Chief Executive Officer
SIRROM ACQUISITION CORPORATION
By:______________________________
George M. Miller, II
President and
Chief Executive Officer
HARRIS WILLIAMS & CO.
By:_____________________________
____________________
President
SIRROM, LTD..
By: All Scarlet, Inc., its general partner
By:_____________________________
Title:____________________________
33
<PAGE> 1
EXHIBIT N.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports on Sirrom Capital Corporation and Harris Williams & Co. and Subsidiary
(and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
May 16, 1996
