<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 9, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
REGISTRATION STATEMENT
UNDER
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 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 FRED B. WHITE III
BASS, BERRY & SIMS PLC SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
FIRST AMERICAN CENTER 919 THIRD AVENUE
NASHVILLE, TENNESSEE 37238-2700 NEW YORK, NY 10022
(615) 742-6200 (212) 735-3000
</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 MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE OFFERING REGISTRATION
BEING REGISTERED REGISTERED PER UNIT(1) PRICE FEE(1)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value per
share......................... 3,335,000 $35.25 $117,558,750 $35,624
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) on the basis of the closing sales price of the Common Stock
on January 7, 1997 as reported on The Nasdaq Stock Market's National
Market.
---------------------
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; Investment
Objectives and Policies; Tax Status; Regulation
11. Defaults and Arrears on Senior
Securities.......................... Not applicable
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 and
Selling Shareholders................ Principal and Selling 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.
PROSPECTUS (Subject to Completion)
Issued January , 1997
2,900,000 Shares
Sirrom Capital Corporation
COMMON STOCK
------------------------
OF THE 2,900,000 SHARES OF COMMON STOCK BEING OFFERED HEREBY, 2,320,000 SHARES
ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND 580,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE OF THE
UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE
"UNDERWRITERS." OF THE 2,320,000 SHARES OF COMMON STOCK BEING
OFFERED BY THE U.S. UNDERWRITERS, 2,144,410 SHARES ARE BEING SOLD
BY THE COMPANY AND 175,590 SHARES ARE BEING SOLD BY THE SELLING
SHAREHOLDERS. OF THE 580,000 SHARES OF COMMON STOCK BEING
OFFERED BY THE INTERNATIONAL UNDERWRITERS, 536,103 SHARES
ARE BEING SOLD BY THE COMPANY AND 43,897 SHARES ARE BEING
SOLD BY THE SELLING SHAREHOLDERS. SEE "PRINCIPAL AND
SELLING SHAREHOLDERS." THE COMPANY WILL NOT
RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF
SHARES BY THE SELLING SHAREHOLDERS. THE
COMMON STOCK IS TRADED ON THE NASDAQ
NATIONAL MARKET UNDER THE SYMBOL
"SROM." ON JANUARY 8, 1997 THE LAST
REPORTED SALE PRICE FOR THE COMMON
STOCK WAS $34 3/4.
THE COMPANY IS A NON-DIVERSIFIED, CLOSED-END INVESTMENT COMPANY THAT HAS ELECTED
TO BE TREATED AS A BUSINESS DEVELOPMENT COMPANY UNDER THE INVESTMENT COMPANY
ACT OF 1940, AS AMENDED (THE "1940 ACT"). THE COMPANY'S INVESTMENT
OBJECTIVES ARE TO ACHIEVE A HIGH LEVEL OF INCOME FROM THE COLLECTION OF
INTEREST AND PROCESSING AND FINANCIAL ADVISORY FEES, AS WELL AS
LONG-TERM GROWTH IN ITS SHAREHOLDERS' EQUITY THROUGH THE APPRECIATION
IN VALUE OF THE EQUITY INTERESTS IN ITS PORTFOLIO COMPANIES. SEE
"BUSINESS." NO ASSURANCES CAN BE GIVEN THAT THE COMPANY WILL
CONTINUE TO ACHIEVE THESE OBJECTIVES. THIS PROSPECTUS SETS FORTH
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 AND IS
AVAILABLE UPON WRITTEN OR ORAL REQUEST WITHOUT CHARGE. SEE
"ADDITIONAL INFORMATION."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR CERTAIN INFORMATION 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 PROCEEDS PROCEEDS TO
PRICE TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
----------- -------------- ---------- -------------------
<S> <C> <C> <C> <C>
Per Share.............. $ $ $ $
Total(3)............... $ $ $ $
</TABLE>
- ------------
(1) The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriters."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
435,000 additional Shares at the Price to Public less Underwriting
Discounts and Commissions for the purpose of covering over-allotments,
if any. If the U.S. Underwriters exercise such option in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriters."
------------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Underwriters. It is
expected that the delivery of the Shares will be made on or about February ,
1997 at the office of Morgan Stanley & Co. Incorporated, New York, N.Y., against
payment therefor in immediately available funds.
------------------------
MORGAN STANLEY & CO.
Incorporated
THE ROBINSON-HUMPHREY COMPANY, INC.
J.C. BRADFORD & CO.
EQUITABLE SECURITIES CORPORATION
January , 1997
<PAGE> 4
SIRROM CAPITAL CORPORATION
The following map sets forth, as of September 30, 1996, the 24 states in
which the Company's portfolio companies maintain their principal place of
business and the number of portfolio companies in each state.
[MAP OF UNITED STATES]
2
<PAGE> 5
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON STOCK OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT
IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREBY SHALL UNDER ANY
CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 4
The Company........................... 10
Additional Information................ 10
Risk Factors.......................... 11
Use of Proceeds....................... 14
Distributions and Price Range of
Common Stock........................ 15
Capitalization........................ 16
Selected Financial Data............... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 24
Investment Objectives and Policies.... 30
Portfolio Companies................... 32
Management............................ 40
Certain Transactions.................. 46
Principal and Selling Shareholders.... 47
Determination of Net Asset Value...... 48
Reinvestment Plan..................... 48
Tax Status............................ 49
Description of Capital Stock.......... 52
Regulation............................ 53
Shares Eligible for Future Sale....... 55
Underwriters.......................... 56
Legal Matters......................... 59
Custodian, Transfer and Dividend
Paying Agent and Registrar.......... 59
Reports to Shareholders............... 59
Independent Public Accountants........ 59
Index to Financial Statements......... F-1
</TABLE>
---------------------
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
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. 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 AND EXCHANGE ACT OF
1934, AS AMENDED. SEE "UNDERWRITERS."
3
<PAGE> 6
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.
Information contained or incorporated by reference in this Prospectus may
contain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, which can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "intend,"
"anticipate," "estimate" or "continue" or the negative thereof or other
variations thereon or comparable terminology. The matters described in "Risk
Factors" and certain other factors noted throughout this Prospectus and in any
exhibits to the Registration Statement of which this Prospectus is a part,
constitute cautionary statements identifying important factors with respect to
any such forward-looking statements, including certain risks and uncertainties,
that could cause actual results to differ materially from those in such
forward-looking statements.
THE COMPANY
Sirrom Capital Corporation ("Sirrom" or the "Company") is a specialty
finance company that is primarily engaged in making loans to small businesses.
The Company's loans typically range from $500,000 to $5.0 million in size, have
a five-year maturity, require interest payments monthly 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 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. 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 most effectively in
this market. The principal investment objectives of the Company are to achieve
(i) a high level of current income from interest and processing and financial
advisory fees and (ii) long-term growth in its shareholders' equity through the
appreciation in value of the equity interests in its portfolio companies.
The Company, which was founded in 1992, has experienced significant growth
in both the size and diversity of its investment portfolio. At September 30,
1996, the Company had loans outstanding with a fair value of $220.0 million to
119 companies in a variety of industries. The Company's loan portfolio balances
at December 31, 1993, 1994 and 1995 were $42.4 million, $72.3 million and $144.9
million, respectively. The Company's pre-tax operating income has increased from
$2.1 million for the year ended December 31, 1993 to $11.9 million for the nine
months ended September 30, 1996. Since inception, the Company has had realized
gains of $7.8 million (net of realized losses) from the sale of its equity
positions in portfolio companies and at September 30, 1996, had $12.6 million in
unrealized appreciation of investments (net of unrealized depreciation of
investments).
The Company has begun to broaden its geographic market, has recently
relocated a senior lender to open and manage a San Francisco office, and
currently anticipates opening an office in the Northeast in fiscal 1997. In
addition, the Company has reached a preliminary understanding with a Canadian
financial institution to make small business loans in Canada similar to those
made in the United States. In an effort to broaden its target market of
borrowers, the Company has also begun to market loans with equity features to
public companies with a market capitalization of less than $100.0 million
through a newly formed subsidiary, Tandem Capital, Inc. ("Tandem"). The Company
believes these borrowers are also underserved by traditional lending sources. In
addition to making loans to small businesses, the Company also provides merger
and acquisition advisory services with respect to companies in the small
business sector through its wholly-owned subsidiary, Harris Williams & Co., a
Virginia corporation ("Harris Williams"). Harris Williams
4
<PAGE> 7
typically receives a monthly retainer fee with respect to each engagement, as
well as a success fee for each transaction that is closed.
The Company is a non-diversified, closed-end investment company that has
elected to be treated as a business development company (a "BDC") under the
Investment Company Act of 1940 (the "1940 Act"). The Company was licensed as a
small business investment company ("SBIC") by the U.S. Small Business
Administration (the "SBA") under the Small Business Investment Company Act of
1958 (the "SBIA") on May 14, 1992. In August 1996, the Company transferred its
SBIC operations, including its SBIC license, assets and liabilities, to Sirrom
Investments, Inc., its wholly-owned subsidiary ("SII").
THE OFFERING
Common Stock Offered(1):
International
Offering................. 580,000
United States
Offering................. 2,320,000
Total............ 2,900,000
Common Stock to be
outstanding after the
Offering................. 15,024,080
- ---------------
(1) Of the 2,320,000 shares of Common Stock being offered in the United States
Offering, 2,144,410 shares are being sold by the Company and 175,590 shares
are being sold by the Selling Shareholders. Of the 580,000 shares of Common
Stock being offered in the International Offering, 536,103 shares are being
sold by the Company and 43,897 shares are being sold by the Selling
Shareholders.
Nasdaq National Market
Symbol................... SROM
Use of Proceeds............ Origination of loans and investments and temporary
repayment of indebtedness. The Company will not
receive any proceeds from the sale of Common Stock
by the Selling Shareholders. 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 and Price Range of Common Stock."
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 the purchasers of the Common Stock.
See "Risk Factors."
Risks Associated with Investments in Small,
Privately Owned Companies. The Company's portfolio
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. A significant majority
of the Company's portfolio securities are and will
continue to 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 in the absence of readily
ascertainable market values. The estimated values
may differ signifi-
5
<PAGE> 8
cantly from the values that would have been used
had a ready market for the securities existed, and
the differences could be material.
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
the value of any collateral for the loan and 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.
Risks of Expansion. Since its inception, the
Company has expanded its small business lending
activities substantially, both in size and
geographic scope. After this Offering, the Company
anticipates not only continuing to expand its
traditional small business lending activities, but
also expanding its business to include unsecured
loans to and investments in public companies with
equity market capitalizations below $100.0 million
and Canadian small businesses. No assurance can be
given that the Company will continue to maintain
the historic growth rates of its loan and
investment portfolio, or that it will be able to
develop sufficient lending and administrative
personnel and management and operating systems to
manage its expansion effectively.
Leverage Risks. The Company's use of leverage and
its obligation to make 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 Unavailability of Funds. As the Company
grows, it will have a continuing need for long-term
capital to finance its lending activities.
Traditionally, the Company's capital needs have
been met by borrowings under SBA programs, from
commercial banks and through the sale of equity
securities. As an SBIC, SII has borrowed $90.0
million the maximum amount available to an SBIC
from the SBA at a relatively low interest rate. SII
has supplemented its SBA borrowings with a $50.0
million revolving credit facility (the "Revolving
Credit Facility") from First Union National Bank of
Tennessee and a syndicate of other banks. At
December 31, 1996, the Company had $
outstanding thereunder. To support the Company's
future loan origination activities outside of SII,
the Company, through its wholly-owned subsidiary
Sirrom Funding Corporation ("SFC"), has also
established a $100.0 million five-year
non-amortizing credit facility (the "ING Credit
Facility"). At December 31, 1996 $ was
outstanding under the ING Credit Facility.
Risk of Voluntary or Involuntary Termination of
Pass Through Tax Treatment. The Company, SII and
SFC have each qualified for and elected to be taxed
as a regulated investment company (a "RIC"), and as
such SII and SFC distribute at least 90% of their
respective net investment income to the Company and
the Company, in turn, distributes 90% of its net
investment income, including such dividends, to its
shareholders. In any year in which the Company, SII
or SFC so
6
<PAGE> 9
qualifies, it generally will not be subject to
federal income tax on net investment income and net
capital gains distributed to its respective
shareholders. However, the Company, SII or SFC may
retain part or all of its realized long-term
capital gains, in which case each such entity would
be required to pay tax on such capital gains and
the Company's shareholders or the Company, as
appropriate, would receive a deemed distribution
and a tax credit for their or its pro rata portion
of the tax paid by the entity that retains the
capital gains. 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 Company, SII or SFC
will continue to elect or to qualify for such
treatment. Harris Williams does not qualify to be
taxed as a RIC and therefore pays tax at the
subsidiary level. If the Company, or any of its
subsidiaries other than Harris Williams was to fail
to qualify or elect not to qualify as a RIC and its
income became fully taxable, a reduction in the
Company's net assets by the amount of the tax
payable, 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)............................... %(1)
---------
Dividend Reinvestment Plan fees.............................................. None(2)
ANNUAL EXPENSES (as a percentage of net assets attributable to common
shares)(3)
Operating expenses........................................................... %(4)
---------
Interest payments on borrowed funds.......................................... %
---------
Total Annual Expenses (estimated).................................... %
=========
</TABLE>
- ------------
(1) The underwriting discounts and commissions with respect to the Common Stock
sold by the Company in this Offering, which are onetime fees paid by the
Company to the Underwriters in connection with this Offering, are the only
sales load paid in connection with this Offering.
(2) The expenses of the Company's Dividend Reinvestment Plan (the "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 $[ ] 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 nine months ended September 30, 1996.
(4) Operating expenses consist primarily of compensation and employee benefits,
travel and other marketing expenses, rent and other similar expenses.
7
<PAGE> 10
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 % sales load
(the underwriting discounts and commissions paid by the Company with respect to
the Common Stock sold by the Company in 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........... $ [] $ [] $ [] $ []
</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. Although the example assumes (as required by the Securities and Exchange
Commission (the "Commission")) a 5.0% annual return, the Company's performance
will vary and may result in a return of 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 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."
8
<PAGE> 11
SUMMARY HISTORICAL FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FROM NINE MONTHS
INCEPTION YEAR ENDED ENDED
THROUGH DECEMBER 31, SEPTEMBER 30,
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 $ 10,591 $ 19,298
Interest expense................... 127 1,427 3,124 4,771 3,361 5,979
General, administrative and
amortization expenses............ 218 928 1,313 2,702 1,843 4,037
Equity in pretax income of
unconsolidated subsidiary........ 43 207 553 812 609 2,573
--------- --------- --------- --------- --------- ----------
Pretax operating income(1)......... $ 616 $ 2,066 $ 4,354 $ 8,914 $ 5,934 $ 11,855
========= ========= ========= ========= ========= ==========
Pretax operating income per
share............................ $ .18 $ .48 $ .83 $ .96 $ .70 $ 1.05
Dividends per share................ -- -- -- .89 .63 .82
Fully diluted weighted average
number of shares outstanding..... 3,548,000 4,274,000 5,222,000 9,072,000 8,603,000 11,275,000
OTHER OPERATING DATA:
Number of portfolio companies with
loans outstanding at period
end.............................. 17 38 57 91 81 119
Number of new portfolio
companies........................ 17 24 25 44 34 36
Principal amount of loans
originated....................... $ 14,639 $ 31,470 $ 40,785 $ 101,505 $ 71,344 $ 103,138
Principal amount of loan
repayments....................... 0 2,013 7,585 14,414 $ 11,112 $ 16,217
Net interest spread(2)............. 5.6% 5.8% 5.5% 5.8% 5.7%(3) 5.9%(3)
General and administrative expenses
as a percentage of assets........ 1.5% 1.6% 1.3% 1.4% 1.4%(4) 1.7%(4)
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------
ACTUAL AS ADJUSTED(5)
-------- --------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................... $ 20,789 $
Loans............................................................................... 220,050
Equity interests.................................................................... 25,578
Warrants............................................................................ 15,088
Total assets........................................................................ 287,262
Revolving Credit Facility........................................................... 41,811
Debentures payable to SBA........................................................... 83,260
Total shareholders' equity.......................................................... 156,539
</TABLE>
- ---------------
(1) Beginning in February 1995, the Company elected to be taxed as a RIC under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
SII and SFC have also elected the same tax treatment. As such, SII and SFC
must distribute at least 90% of their respective net investment income (net
interest income plus net realized short-term capital gains) to the Company
(as its sole shareholder) and the Company must, in turn, distribute at least
90% of its net investment income (including dividends from SII, SFC and
Harris Williams) to its shareholders, on a quarterly basis. In years 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 shareholders. SII and SFC may retain all or a portion of
their respective long-term capital gains, net of applicable taxes, to
supplement equity capital and to support growth in their respective
portfolios. Harris Williams is taxed at the corporate level as it does not
qualify to be taxed as a RIC.
(2) 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 at the end of the respective periods shown.
(3) Calculated on an annualized basis.
(4) Calculated on an annualized basis.
(5) Adjusted to reflect the sale by the Company of 2,680,513 shares of Common
Stock offered hereby by the Company at an offering price of $[ ] per share
and the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
9
<PAGE> 12
THE COMPANY
The Company was incorporated under the laws of the State of Tennessee in
November 1994 and is a non-diversified, closed-end investment company that has
elected to be treated as a BDC under the 1940 Act. 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. Following
this exchange, the Partnership was dissolved and liquidated by operation of law,
and all of the assets and liabilities of the Partnership (including the SBIC
license which was obtained by the Partnership in May 1992) were assigned and
transferred to the Company. In August 1996, the Company transferred its SBIC
operations, including its SBIC license, assets and liabilities to SII, its
wholly-owned subsidiary, and acquired Harris Williams, which, since the
acquisition, has operated as a "C" corporation and a wholly-owned subsidiary of
the Company. In December 1996, the Company formed SFC, a special purpose,
bankruptcy remote subsidiary, as the borrower under the ING Credit Facility.
Unless otherwise indicated, all references to the Company include the
Partnership, SII, SFC and Harris Williams and their respective 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 Securities
Exchange Act of 1934, 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. The Commission maintains a web site that contains reports, proxy
statements and other information regarding registrants, including the Company,
that file such information electronically with the Commission. The address of
the Commission's web site is http://www.sec.gov. 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.
10
<PAGE> 13
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.
RISKS ASSOCIATED WITH INVESTMENTS IN SMALL, PRIVATELY OWNED COMPANIES
The Company's portfolio 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 the related 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 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 Company's investments 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. 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. The valuation of
securities in the Company's portfolio is determined in good faith by the
Company's Board of Directors in the absence of readily ascertainable market
values. 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.
RISK OF PAYMENT DEFAULT
The Company generally makes nonamortizing, five-year term loans with
relatively high fixed rates of interest to small companies that may have limited
financial resources and 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 and prospects usually will be accompanied by a deterioration
in the value of any collateral for the loan and the likelihood of realizing on
any guarantees 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 any collateral for a loan may be subordinate to another
lender's security interest.
11
<PAGE> 14
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 revalues its portfolio on a quarterly basis to reflect the Company's
estimate of the current realizable value of the loan portfolio. At September 30,
1996, management's estimate of potential loan losses in its loan portfolio was
$6.6 million. There can be no assurance that this estimate reflects the amounts
that ultimately will be realized on these loans. See "Business -- Operations."
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 using a combination of long-term and short-term borrowings
to finance its lending activities and engaging 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 will maintain this net interest spread or
that a significant change in market interest rates will not have a material
adverse effect on the Company's profitability.
RISKS OF EXPANSION
Since inception, the Company has expanded its small business lending
activities substantially, both in size and geographic scope. After this Offering
the Company anticipates not only continuing to expand its traditional small
business lending activities, but also expanding its business activities to
include unsecured loans to and investments in public companies with market
capitalizations below $100.0 million and secured loans with warrants to Canadian
small businesses. No assurance can be given that the Company will continue to
maintain the historic growth rates of its loan and investment portfolio, or that
it will be able to develop sufficient lending and administrative personnel, and
management and operating systems to manage its expansion effectively.
In August 1996, the Company acquired Harris Williams, a company which
provides merger and acquisition financial advisory services to small and medium
sized businesses. 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. There can be
no assurance that Harris Williams' fee income will continue at or exceed
historical levels. See "Business."
LEVERAGE RISKS
The Company, through SII, has borrowed funds from the SBA and under the
Revolving Credit Facility and, through SFC, has borrowed funds under the ING
Credit Facility, resulting in a significant leveraging of its assets. Leverage
magnifies the potential for gain and loss on monies invested and, therefore,
increases 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. In addition, pursuant to the terms of the
ING Credit Facility, the Company may be requested by ING, depending on interest
rate conditions, to make deposits into a sinking fund account to be used by ING
to purchase interest rate caps or to enter into additional interest rate swaps
and transfer to SFC the interest rate cap payments payable to the Company, and
failure of the Company to do so would cause the ING Credit Facility to be
unavailable for future funding. The Company does not have the ability to
estimate the size of such deposits if necessary and if prevailing interest rates
substantially differ from the borrowing rate such amounts could be material. As
of September 30, 1996, the Company's debt as a percentage of total liabilities
and shareholders' equity was 43.5%. 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.
12
<PAGE> 15
As of December 31, 1996, SII had borrowed $90.0 million from the SBA under
the SBA debenture program bearing an average annual interest rate of %, had
$ million outstanding under the Revolving Credit Facility bearing an average
annual interest rate of % and had $ million outstanding under the ING
Credit Facility bearing an average annual interest rate of %. In order for
the Company to cover annual interest payments on the debt described above, it
must achieve annual returns of at least [ ]% on its portfolio.
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)...............................
</TABLE>
- ------------
(1) The calculation assumes (i) $[ ] million in investments, (ii) an
average cost of funds of [ ]%, (iii) $[ ] million in debt
outstanding and (iv) $[ ] million of shareholders' equity.
RISK OF UNAVAILABILITY OF FUNDS
As the Company grows, it will have a continuing need for long-term capital
to finance its lending activities. Traditionally, 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. As of the date hereof, SII had
outstanding borrowings of $90.0 million from the SBA and therefore has no
additional SBA funding available. As of the date hereof, SII also had
outstanding borrowings of $ million of the $50.0 million available under the
Revolving Credit Facility. As of the date hereof, SFC had outstanding borrowings
of $ of the $100.0 million available under the ING Credit Facility.
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, since in order to maintain RIC status, SII and SFC
distribute 90% of their respective investment company taxable income to the
Company and the Company presently distributes 90% of its investment company
taxable income to its shareholders, such earnings are not available to fund loan
originations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Financial Condition, Liquidity and Capital
Resources."
Under the Revolving Credit Facility, if either George M. Miller, II or
David M. Resha ceases to be employed by the Company, the lenders have the
ability to accelerate the repayment of any amounts outstanding. Under the ING
Credit Facility, if any two of Mr. Miller, Mr. Resha and Carl W. Stratton cease
to be actively involved in the management of the Company, then either ING or a
majority of the noteholders may declare an event of default thereunder. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Financial Condition, Liquidity and Capital Resources."
RISK OF VOLUNTARY OR INVOLUNTARY TERMINATION OF PASSTHROUGH TAX TREATMENT
The Company, SII and SFC have each qualified for and elected to be taxed as
a RIC and as such SII and SFC distributed at least 90% of their respective net
investment to the Company and the Company, in turn, distributes 90% of its net
investment, including such dividends, to its shareholders. In any year in which
the Company, SII or SFC so qualifies, it generally will not be subject to
federal income tax on net operating income and net capital gains distributed to
its respective shareholders. However, the Company, SII or SFC may retain part or
all of its realized long-term capital gains, in which case each such entity
would be required to pay tax on such capital gains and the Company's
shareholders or the Company, as appropriate, would receive a deemed distribution
and a tax credit for their or its pro rata portion of the tax paid by the entity
that retains the capital gains. 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
13
<PAGE> 16
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 Company, SII or SFC will continue to elect or to qualify for such
treatment. See "Tax Status." Harris Williams does not qualify to be taxed as a
RIC and therefore, will pay tax at the subsidiary level. If the Company or any
of its subsidiaries other than Harris Williams were to fail to qualify or elect
not to qualify as a RIC and its respective income became fully taxable, a
reduction in the Company's net assets by the amount of the tax payable, 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 to make the types of
investments made by the Company, many of whom 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 make investments which
satisfy the Company's investment objectives or that it will be able to invest
fully its available capital.
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."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be approximately $[ ] million, after
deducting the Underwriting discounts and commissions and estimated Offering
expenses payable by the Company. The Company intends to use the net proceeds to
temporarily repay approximately $ million outstanding under the Revolving
Credit Facility and to originate new loans and make investments. 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 Company
believes that the net proceeds will be applied as set forth above within nine
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."
14
<PAGE> 17
DISTRIBUTIONS AND PRICE RANGE OF COMMON STOCK
The Company has distributed and currently intends to continue to distribute
90% of its net operating income and net realized short-term capital gains, if
any, on a quarterly basis to its shareholders. 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. 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." 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.
The Common Stock is quoted on the Nasdaq National Market under the symbol
SROM. On January 8, 1997, the last reported sale price of the Common Stock was
$34.75 per share (a [ ]% 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
January , 1997. The Common Stock has historically traded at a premium to net
asset value per share. There can be no assurance, however, that such premium
will be maintained.
<TABLE>
<CAPTION>
PREMIUM OF PREMIUM OF
CLOSING SALE HIGH SALES LOW SALES
PRICE NET ASSET PRICE TO NET PRICE TO NET
------------ VALUE PER ASSET VALUE ASSET VALUE DIVIDEND
HIGH LOW SHARE(1)(2) (%)(2) (%)(2) DECLARED
---- --- ----------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
1995
First Quarter (beginning February
6, 1995)....................... $11 5/8 $10 3/4 $ 7.86 48% 37% $.14
Second Quarter.................... 13 3/4 11 1/8 8.05 71 38 .26
Third Quarter..................... 18 3/4 13 1/2 10.11 85 31 .23
Fourth Quarter.................... 20 16 3/4 9.23(3) 117 81 .26
1996
First Quarter..................... 23 3/4 18 5/8 9.70 145 92 .24
Second Quarter.................... 29 1/2 23 1/4 12.78 129 82 .26
Third Quarter..................... 30 1/4 23 12.38 144 86 .32
Fourth Quarter.................... 38 3/8 30 1/4 [ ] [ ] [ ] []
</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) Except for the information for the third and fourth quarters of 1996, the
above table does not reflect the acquisition of Harris Williams in August
1996 for 898,454 shares of Common Stock in a transaction accounted for as a
pooling-of-interests. If Net Asset Value had been calculated for periods
prior to the acquisition to include the shares issued in the acquisition,
the Net Asset Value per share for each of the quarters since the first
quarter of 1995 and through the second quarter of 1996 would have been
$7.17, $7.34, $9.30, $8.54, $9.03, and $12.05, respectively.
(3) This number reflects the issuance of shares by the Company in a public
offering.
15
<PAGE> 18
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
at September 30, 1996, and (ii) the capitalization of the Company at September
30, 1996, as adjusted to reflect the effects of the sale of the Common Stock
offered hereby by the Company, and the application of the net proceeds as set
forth under "Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------
ACTUAL AS ADJUSTED(1)
-------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Debentures payable to Small Business Administration.................. $ 83,260 $ 83,260
Revolving credit facility............................................ 41,811 --
-------- -------
$125,071 $ 83,260
-------- -------
Shareholders' equity:
Common stock, no par value, 50,000,000 shares authorized; 12,343,567
issued and outstanding (15,024,080 issued and outstanding as
adjusted)(2)....................................................... 132,407 []
Notes receivable from employees...................................... (1,539) (1,539)
Undistributed net realized earnings.................................. 13,064 13,064
Unrealized appreciation of investments............................... 12,607 12,607
-------- -------
Total shareholders' equity...................................... 156,539
-------- -------
Total Capitalization................................................. $281,610 $
======== =======
</TABLE>
- ---------------
(1) Assumes a public offering price of $34.75 (the last reported sale price of
the Common Stock on the Nasdaq National Market on January 8, 1997).
(2) Excludes an aggregate of shares issuable pursuant to stock
options outstanding at September 30, 1996.
16
<PAGE> 19
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 nine months ended September 30, 1995 and 1996. The selected financial
data for the nine months ended September 30, 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 NINE MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31, SEPTEMBER 30,
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 $ 9,030 $ 16,837
Loan processing fees............................. 282 699 901 1,900 1,561 2,370
Other income..................................... -- -- -- 223 -- 91
--------- --------- --------- --------- --------- ----------
Total operating income..................... 918 4,214 8,238 15,575 10,591 19,298
Operating expenses:
Interest expense................................. 127 1,427 3,124 4,771 3,361 5,979
Salaries and benefits............................ -- -- -- 1,082 1,035 2,180
Management fees.................................. 210 709 1,073 -- -- --
Other operating expenses......................... -- 166 122 1,412 694 1,478
State income tax on interest..................... -- 231 457 109 62 --
Amortization expense............................. 8 54 118 208 114 379
--------- --------- --------- --------- --------- ----------
Total operating expenses................... 345 2,587 4,894 7,582 5,266 10,016
--------- --------- --------- --------- --------- ----------
Equity in pretax income of unconsolidated
subsidiary....................................... 43 207 553 812 609 2,573
Net operating income............................... 616 1,834 3,897 8,805 5,934 11,855
Realized gain (loss) on investments.............. 198 (799) (538) 1,759 446 7,206
Change in unrealized appreciation (depreciation)
of investments................................. 1,813 (50) 3,356 4,694 4,146 2,795
Provision for income taxes......................... -- -- -- (1,020) (317) (2,765)
--------- --------- --------- --------- --------- ----------
Net increase in partners' capital and shareholders'
equity resulting from operations................. $ 2,627 $ 985 $ 6,715 $ 14,238 $ 10,209 $ 19,091
========= ========= ========= ========= ========= ==========
Per share:
Pretax operating income.......................... $ .18 $ .48 $ .83 $ .96 $ .70 $ 1.05
Net increase in partners' capital and
shareholders' equity resulting from
operations..................................... .74 .23 1.29 1.57 1.19 1.69
Dividends........................................ -- -- -- .89(1) .63(1) .82(1)
Fully diluted weighted average shares
outstanding...................................... 3,548,000 4,274,000 5,222,000 9,072,000 8,603,000 11,275,000
OPERATING STATISTICS:
Number of portfolio companies with loans
outstanding at period end........................ 17 38 57 91 81 119
Number of new portfolio companies.................. 17 24 25 44 34 36
Principal amount of loans originated............... $ 14,639 $ 31,470 $ 40,785 $ 101,505 $ 71,344 $ 103,138
Principal amount of loan repayments................ -- 2,013 7,585 14,414 $ 11,122 $ 16,217
Loan portfolio at period end....................... 14,639 42,441 72,336 144,855 127,290 220,050
Average net interest spread at period end(2)....... 5.6% 5.8% 5.5% 5.8% 5.7%(3) 5.9%(3)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1996
----------------------------------------- ------------------------
1992 1993 1994 1995 ACTUAL AS ADJUSTED(4)
-------- -------- -------- -------- -------- --------------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 4,601 $ 1,633 $ 137 $ 195 $ 20,789 $
Loans...................................................... 14,639 42,441 72,336 144,855 220,050
Equity interests........................................... 4,233 3,591 7,577 15,912 25,578
Warrants................................................... 951 4,219 7,549 11,513 15,088
Total assets............................................... 24,850 53,289 90,969 177,030 287,262
Revolving credit facility.................................. -- -- 6,389 13,200 41,811
Debentures payable to SBA.................................. 10,000 34,000 51,000 73,260 83,260
Total shareholders' equity................................. 14,702 18,651 32,383 88,346 156,539
</TABLE>
- ---------------
(1) For the year ended December 31, 1995, includes $.26 per share in dividends
declared and paid in the first quarter of 1996 related to 1995 earnings and,
with respect to the three months ended March 31, 1995 and 1996, represents
dividends per share paid in the following quarter on income earned and gains
realized in the respective three month periods presented.
(2) 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.
(3) Calculated on an annualized basis.
(4) Adjusted to reflect the sale by the Company of 2,680,513 shares of Common
Stock offered hereby by the Company and the application of the estimated net
proceeds therefrom. See "Use of Proceeds."
17
<PAGE> 20
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 Selected Financial Data,
the Company's Financial Statements and 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 and the Notes
thereto and the financial data included elsewhere in this Prospectus. The
financial information contained herein has been restated to reflect the
operations of Harris Williams as an unconsolidated subsidiary of the Company
accounted for by the equity method of accounting in conformity with the
requirements of the 1940 Act.
OVERVIEW
The following table summarizes selected financial information expressed as
a percentage of total operating income and the change from year to year.
<TABLE>
<CAPTION>
% OF TOTAL OPERATING INCOME
------------------------------------------
NINE MONTHS PERCENTAGE CHANGE
YEARS ENDED DECEMBER ENDED -------------------------------------
31, SEPTEMBER 30, 1994 1995 SEPTEMBER 30, 1996
----------------------- -------------- VS. VS. VS.
1993 1994 1995 1995 1996 1993 1994 SEPTEMBER 30, 1995
----- ----- ----- ----- ----- ----- ------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest on investments...... 83.4% 89.1% 86.4% 85.3% 87.2% 108.8% 83.3% 86.5%
Loan processing fees......... 16.6 10.9 12.2 14.7 12.3 28.9% 110.8% 51.8%
Other income................. 0.0 0.0 1.4 0.0 0.5 -- -- --
----- ----- ----- ----- -----
Total Operating Income... 100.0% 100.0% 100.0% 100.0% 100.0% 95.5% 89.1% 82.2%
Interest expense............. 33.9 37.9 30.6 31.7 31.0 118.8% 52.8% 77.9%
Salaries, benefits, and other
operating expenses......... 20.8 14.5 16.0 16.3 19.0 36.6% 108.7% 111.6%
State income tax on
interest................... 5.5 5.5 0.7 0.6 0.0 98.1% (76.1%) (100.0%)
Amortization expense......... 1.3 1.4 1.3 1.1 2.0 119.6% 76.1% 232.5%
----- ----- ----- ----- -----
Total Operating
Expenses............... 61.4 59.4 48.7 49.7 51.9 89.2% 54.9% 90.2%
Equity in pre-tax income of
unconsolidated
subsidiary................. 4.9 6.7 5.2 5.8 13.3 166.9% 46.8% 322.5%
----- ----- ----- ----- -----
Net Operating Income..... 43.5% 47.3% 56.5% 56.0% 61.4% 112.5% 125.9% 99.8%
===== ===== ===== ===== =====
</TABLE>
The following table summarizes the Company's operating results by quarter
for 1995 and the first three quarters of 1996.
<TABLE>
<CAPTION>
MARCH JUNE SEPT. DEC. MARCH JUNE SEPT.
1995 1995 1995 1995 1996 1996 1996
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest on investments.................... $2,424 $3,231 $3,375 $4,422 $4,862 $5,586 $6,389
Loan processing fees....................... 541 313 706 340 921 652 797
Other income............................... -- -- -- 223 -- 62 28
------ ------ ------ ------ ------ ------ ------
Total Operating Income................. 2,965 3,544 4,081 4,985 5,783 6,300 7,214
Interest expense........................... 999 1,170 1,192 1,410 1,790 2,051 2,138
Salaries, benefits, and other operating
expenses................................. 673 434 620 767 1,216 1,172 1,270
State income tax on interest............... -- 109 -- -- -- -- --
Amortization expense....................... 30 38 45 95 188 89 101
------ ------ ------ ------ ------ ------ ------
Total Operating Expenses............... 1,702 1,751 1,657 2,272 3,194 3,312 3,509
Equity in pre-tax income of unconsolidated
subsidiary............................... 194 8 408 202 795 627 1,151
------ ------ ------ ------ ------ ------ ------
Net Operating Income................... $1,457 $1,801 $2,632 $2,915 $3,384 $3,615 $4,856
====== ====== ====== ====== ====== ====== ======
</TABLE>
18
<PAGE> 21
The Company's principal investment objectives are: (i) to achieve through
its own operations and those of its subsidiaries a high level of income from
interest and processing fees on loans originated and (ii) long-term growth in
its shareholders' equity through the appreciation in value of equity interests
in its portfolio companies and to achieve through Harris Williams a high level
of income from fees earned from consulting services rendered in merger and
acquisition transactions. The Company's and SII's loans are typically made in
the form of secured debt with relatively high fixed interest rates accompanied
by warrants to purchase equity securities of the borrower. In addition to
interest on investments, the Company and SII also typically collect an up-front
processing fee on each loan they originate. Harris Williams typically obtains a
retainer fee for each transaction for which it is retained and, in addition, a
success fee when the transaction is consummated.
RESULTS OF OPERATIONS
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 from interest, dividends, fees,
and Harris Williams' pre-tax income 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.
Nine Months Ended September 30, 1996
Net Operating Income. During the nine month period ended September 30,
1996, interest on investments was $16.8 million, an 86.7% increase over the $9.0
million earned in the same period of 1995. During the first nine months of 1996,
the Company collected $2.4 million in processing fees, a 51.8% increase over the
$1.6 million collected in the same period of 1995. These increases in interest
income and processing fees are a result of the increase both in the dollar
amount of loans outstanding during the period and loans originated during the
period. The Company's loan portfolio increased 93.0% to $220.0 million at
September 30, 1996, from $127.0 million at September 30, 1995. The $103.1
million of loans originated in the first nine months of 1996 was a 38.0%
increase over the $74.7 million of loans originated in the same period of 1995.
In addition, the weighted average interest rate charged on the loan portfolio at
September 30, 1996 was 13.13%, as compared to 12.67% at September 30, 1995.
The most significant portion of the Company's total operating expenses is
interest expense. In connection with the corporate restructuring in August 1996,
the Company transferred its SBA-guaranteed debentures and the Revolving Credit
Facility to SII. The Company continues to guarantee that indebtedness. The
Company's interest expense for the first nine months of 1996 increased to $6.0
million, a 76.0% increase over the $3.4 million paid in the same period 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
September 30, 1996, and $73.3 million on September 30, 1995. Amounts outstanding
under the Revolving Credit Facility at September 30, 1996, were $41.8 million.
The other significant components of total operating expenses are (i)
overhead, which primarily 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 $4.0 million for the first nine
months of 1996, a 110.0% increase over the $1.9 million of such expenses in the
same period of 1995. As a percentage of assets, these expenses increased from
1.4% in 1995 to 1.7% in 1996. These increases can be largely attributed to the
19
<PAGE> 22
increase in the number of employees in 1996 versus 1995 and the accrual of
bonuses in the current year as opposed to the former policy of expensing bonuses
when paid in the first quarter of each year. The bonus accrual added
approximately $725,000 to operating expenses for the first nine months of 1996.
Excluding these bonuses, operating expenses for the first nine months of 1996
would have represented 1.4% of assets.
For the nine months ended September 30, 1996, Harris Williams had revenue
of $5.0 million, up 164% from $1.9 million for the same period of 1995, and
pre-tax income increased 136% to $1.4 million from $609,000. Harris Williams
provided advisory services on nine transactions that closed in the first nine
months of 1996. No taxes were accrued on Harris Williams' pretax income for the
third quarter of 1996 due to the timing of the acquisition during the quarter
and the timing of Harris Williams' revenue and expenses. No taxes were accrued
in 1995, as Harris Williams was a partnership at that time.
For the nine months ended September 30, 1996, the Company paid dividends of
$7,605,249 from net operating income. For the same period in 1995, the Company
paid dividends of $2,349,552 from net operating income.
Realized Gain (Loss) on Investments. The Company's net realized gain on
investments was $7.2 million for the nine month period ended September 30, 1996.
The $7.2 million net gain primarily resulted from gains of $6.3 million, $1.5
million and $450,000 on the sale of warrant or common stock positions in
Premiere Technologies, Inc., Hoveround Corporation, and American Remedial
Technologies, Inc., respectively, offset by losses of $1.1 million on a loan to
Medical Associates of America and $250,000 on the sale of collateral securing a
loan to Alpha West Partners I, L.P. 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
nine month periods ended September 30, 1996, and 1995, the Company recorded net
increases in unrealized appreciation of investments of $2.8 million and $4.1
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.
Provision for Income Taxes. Beginning in February 1995, the Company
elected to be taxed as a RIC under Subchapter M of the Code and in August 1996,
SII elected the same tax treatment. If the Company, SII or SFC, each as a RIC,
satisfy certain requirements relating to the source of its income, the
diversification of its assets and the distribution of its net income, each 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, each entity
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 at least 90% of its net income (other than
long-term capital gains). The Company, SII and SFC presently intend to meet the
RIC qualifications in future years, and therefore, the Company has not provided
for federal income taxes on the unrealized appreciation of such entities'
investments. However, no assurance can be given that the Company, SII and SFC
will continue to qualify for or elect such treatment.
For the nine month period ended September 30, 1996, the Statements of
Operations include a provision for taxes totaling $2.7 million for federal
income tax at a 35% rate on realized gains not distributed to shareholders. The
$2.7 million tax is payable on the net retained long-term capital gain of
approximately $8.3 million, which resulted primarily from the gains on the sale
of warrant or equity positions in Premiere Techologies, Inc., Hoveround
Corporation and American Remidial Technologies, Inc., offset by the loss on the
sale of collateral securing the loan to Alpha West Partners I, L.P. The Company
also had accrued $121,792 for state income taxes during the first nine months of
1996.
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%
20
<PAGE> 23
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.
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.
During 1995, Harris Williams had revenues of $2.6 million, a 53% increase
over the $1.7 million in 1994, which was a 183% increase over the $600,000 in
revenues for fiscal 1993. Harris Williams provided advisory services on 9
transactions that closed during 1995, a 50.0% increase over the 6 transactions
that closed during 1994, which was a 50.0% increase over the 4 transactions that
closed during fiscal 1993. No taxes were reserved on Harris Williams' pre-tax
income in 1995, 1994 or 1993, as Harris Williams was a partnership at that time.
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 writeoff of
Medical Associates of America, Inc. equity positions and a $1.5 million writeoff
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 writeoffs, 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 writeoff 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.
21
<PAGE> 24
Provision for Income Taxes. 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
1997. However, no assurance can be given that the Company will continue to elect
or qualify for such treatment after 1997.
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.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had $20.8 million in cash and cash
equivalents. At September 30, 1996, the Company's investment portfolio included
investments in publicly-traded securities which have an ascertainable market
value with a fair value of approximately $12.5 million 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.
Traditionally, 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. In June
1996, the Company consummated a third public offering of 2,300,000 shares of
Common Stock generating net proceeds of $59.2 million. The Company used the
proceeds of these offerings to originate new loans, and the Company has used and
will use the proceeds of the most recent offering to originate new loans.
At September 30, 1996, total SBA borrowings were $83.3 million. During the
fourth quarter of 1996, SII received $6.7 million in additional funding from the
SBA, resulting in total SBA borrowings of $90.0 million at December 31, 1996,
the maximum amount of SBA loans available to an SBIC. Each borrowing from the
SBA has a term of ten years, is secured by the assets of SII, is guaranteed by
the Company and can be prepaid without penalty after five years. The average
interest rate on these borrowings was 7.02% as of September 30, 1996, and none
of these borrowings mature prior to 2002.
As of September 30, 1996, SII had $41.8 million outstanding under its
Revolving Credit Facility, which is secured by all of SII's assets and is
guaranteed by the Company. The interest rate on these borrowings was 7.50% at
September 30, 1996. During the fourth quarter of 1996, SII reduced the amount
outstanding under the Revolving Credit Facility to $28.9 million at December 31,
1996. The Revolving Credit Facility matures on December 27, 1998. The Revolving
Credit Facility requires that SII 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
22
<PAGE> 25
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, SII has entered
into two interest rate swap agreements that effectively convert the variable
rate on a portion of the Revolving Credit Facility to fixed rates of 8.15% and
8.05% per annum on borrowings of $30.0 million and $15.0 million, respectively.
Under this agreement, SII will convert the $30.0 million in $3.0 million per
month increments beginning in April 1996 and will convert the $15.0 million in
$5.0 million per month increments beginning in December 1996.
To support the Company's future loan origination activities outside of SII,
the Company has also established the $100.0 million ING Credit Facility. SFC, a
special purpose, bankruptcy remote subsidiary of the Company, will be the
borrower under the ING Credit Facility. SFC will purchase loans originated by
the Company and the related warrants and use these loans and warrants as
collateral to secure borrowings from ING. The interest rate on the borrowings
will be 2.25% above the rate at which ING issues the commercial paper which
funds the facility. In order to manage the interest rate risk associated with
the variable interest rate under the ING Credit Facility, the Company has
entered into various hedging arrangements. SFC is generally able to borrow up to
70% of the principal amount of conforming loans collateralizing the ING Credit
Facility. The Company anticipates that it will make an initial capital
contribution to SFC of approximately $20 million of loans, which loans will
serve as collateral for the ING Credit Facility. At January , 1997,
$ was outstanding under the ING Credit Facility. Based on current
commercial paper rates and the swaps into which the Company has entered, the
average interest rate of the ING Credit Facility is anticipated to be
approximately 8.2%. The ING Credit Facility is not guaranteed by the Company.
However, certain actions by the Company can trigger an event of default under
the ING Credit Facility which will result in termination of further funding
thereunder and the application of the collateral pledged for repayment of the
amounts outstanding. See "Risk Factors -- Leverage Risks" and " -- Availability
of Funds."
The Company believes that the net proceeds of this Offering, anticipated
borrowings under the Revolving Credit Facility and the ING Credit Facility,
together with cash on hand and cash flow from operations (after distributions to
shareholders), will be adequate to fund the continuing growth of the Company's
investment portfolio through the first half of 1998. 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 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 assurances that such additional funding will be available on
terms acceptable to the Company.
23
<PAGE> 26
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 most effectively in this market. The Company, which was founded in May
1992 and is based in Nashville, Tennessee, has experienced significant growth in
both the size and diversity of its loan portfolio. At September 30, 1996, the
Company had loans outstanding with a fair value of $220.0 million to 119
companies in a variety of industries located in 24 states. The Company's loan
portfolio balances at December 31, 1993, 1994 and 1995 were $42.4 million, $72.3
million and $144.9 million, respectively. The average rate of interest on the
Company's loan portfolio at September 30, 1996, was 13.1%. The Company's
strategic objective is to provide a full range of financial and other 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, 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 that typically
range from $500,000 to $5.0 million in size and are 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 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., redeployment of capital) and return on equity to
shareholders.
The Company has begun to broaden its geographic market, has recently
relocated a senior lender to open and manage a San Francisco office, and
currently anticipates opening an office in the Northeast in fiscal 1997. In
addition, the Company has reached a preliminary understanding with a Canadian
financial institution to make small business loans in Canada similar to those
made in the United States. In an effort to broaden its target market of
borrowers, the Company has also begun to market loans with equity features to
public companies with a market capitalization of less than $100.0 million
through a newly formed subsidiary, Tandem Capital, Inc. The Company believes
these borrowers are also underserved by traditional lending sources.
In order to broaden the range of services it offers to businesses in its
target market, the Company acquired Harris Williams, a merger and acquisition
advisory firm located in Richmond, Virginia, in August 1996. 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 with an opportunity to obtain significant fee income and
cross-sell services between the two companies.
The Company has entered into a preliminary understanding to make secured
loans with warrants to small private companies located in Canada on a joint
basis with a Canadian bank (the "Canadian Bank"). Initially,
24
<PAGE> 27
the Company anticipates commiting to make up to $20.0 million of loans to
Canadian companies, which will be matched by a $30.0 million commitment from the
Canadian Bank. The parties anticipate creating a Canadian corporation, SCC
Canada, 60% of which will be owned by the Canadian Bank and 40% of which will be
owned by the Company. SCC Canada, which will be located in Toronto, Canada, is
excepted to serve as the originator and servicer of loans. In its capacity as
originator, SCC Canada will identify potential loan investments and collect a
processing fee when the loan is funded. SCC Canada would also service each loan
and collect a servicing fee. The Canadian Bank and the Company will individually
approve their respective loans to each borrower identified by SCC Canada. It's
anticipated SCC Canada will target borrowers that meet the same criteria as the
Company's U.S. borrowers.
The Company also intends to diversify its operations by making loans with
equity features to public companies through Tandem Capital, Inc. The target
market for this product will be public companies with a market capitalization
under $100.0 million and revenues ranging from $20.0 million to $100.0 million.
The typical investment will range from $3.0 million to $10.0 million, will be
structured to provide a current yield, as well as an equity component (i.e.,
loan with warrants, convertible debt, or convertible preferred stock) and will
typically be unsecured or subordinate to existing lenders. The Company intends
to market this product through its established referral network.
SELECTION OF LOAN AND INVESTMENT OPPORTUNITIES
Since inception, the Company has identified certain common characteristics
of borrowers which create a superior small business portfolio. Although the
criteria listed below may not be applied in every instance and their importance
may vary depending on the relevant circumstances, generally, these criteria are
applied in investment decisions.
Growth. 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.
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.
25
<PAGE> 28
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, $289.0 million
of loans have been originated and $41.0 million or 14% 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 $0.1 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 September 30, 1996, the Company had seven stock positions
in publicly traded companies that had a fair market value of $14.7 million on
that date. In accordance with the Company's valuation policy, the securities
were carried at a fair value of $10.4 million at September 30, 1996. In
addition, at that date, the Company owned common stock and preferred stock
investments in 21 non-public companies with a fair value of approximately $15.1
million. The Company has also converted approximately 20 equity positions to
cash since inception with gains approximating $14.1 million. At September 30,
1996, the Company held warrant positions in seven public companies that it
carried on its books at a fair value of approximately $2.1 million and warrants
in 113 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 $15.1 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 6 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 February 1996, in an effort to expand its
geographic presence, the Company entered into a consulting arrangement with an
experienced small business finance professional located in northern California
who assisted the Company in identifying potential borrowers and referral sources
in the western United States and structuring loan and warrant transactions with
small businesses so identified. Due to the early success of this operation, the
Company has relocated one of its senior lenders to the West Coast to manage a
new office in San Francisco, California. 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
26
<PAGE> 29
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 -- Special Assets 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 the existence of short term trends or negative events 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 and 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 sometimes by 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 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 charged off 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 "-- Delinquency and Collections" below.
27
<PAGE> 30
Loan Portfolio. During the nine months ended September 30, 1996, the
Company originated loans to 71 companies, including 36 new borrowers, in the
aggregate principal amount of approximately $103.1 million, in several
industries. During the same period, the Company realized $8.6 million in equity
gains and realized approximately $1.4 million in loan and other losses. The
following table sets forth the amount of the Company's loans originated and
repaid for the periods indicated, as well as the realized gain on investments.
<TABLE>
<CAPTION>
FROM NINE MONTHS
INCEPTION ENDED
THROUGH YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, --------------------------- ------------------
1992 1993 1994 1995 1995 1996
------------ ------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Loans originated...................... $ 15,130 $32,317 $43,304 $94,370 $71,344 $103,138
Loan repayments....................... 0 2,163 8,455 14,539 11,122 16,217
Loans amount converted to equity...... 0 500 2,450 3,752 2,902 3,704
Realized (losses) on loans............ 0 (1,155) (1,117) (1,485) (1,485) (1,100)
Net realized gains on equity
investments......................... [ ] [ ] [ ] [ ] 1,923 8,306
</TABLE>
The table below sets forth, as of September 30, 1996, the 24 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 NUMBER
BALANCE OF
STATE OUTSTANDING BORROWERS
- ---------------------------------------------------------------------- -------------- ---------
<S> <C> <C>
Alabama............................................................... 1.4% 2
California............................................................ 9.3 9
Connecticut........................................................... 2.7 3
Florida............................................................... 15.6 20
Georgia............................................................... 14.8 15
Kentucky.............................................................. 4.8 4
North Carolina........................................................ 6.9 10
New Jersey............................................................ 2.0 3
Ohio.................................................................. 3.1 4
Pennsylvania.......................................................... 2.4 2
South Carolina........................................................ 1.9 3
Tennessee............................................................. 10.5 16
Texas................................................................. 9.8 8
Virginia.............................................................. 5.6 9
*Other states(10)..................................................... 9.2 11
----- ---
Total....................................................... 100.0% 119
===== ===
</TABLE>
- ------------
* The other states in which the Company has only a single borrower are Colorado,
Hawaii, Iowa, Illinois, Maryland, Michigan, Mississippi, Missouri, Oklahoma
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 circum-
28
<PAGE> 31
stances 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 September 30, 1996, the Company had loans to twelve companies with an
aggregate principal balance of $17.1 million that were graded a 5 or 6 and that
were not accruing interest. Based on the particular circumstances involved, the
Board of Directors estimated the aggregate fair value of these loans to be $10.7
million, and therefore provided for unrealized depreciation of $6.3 million on
these loans.
CUSTODIAL SERVICES
Pursuant to a Custodial Services Agreement, First American National Bank
(Trust Department) acts as the custodian of all the Company's and SII's
portfolio assets in accordance with the 1940 Act and, with respect to SII's
portfolio assets, in accordance with SBA Regulations.
MERGER AND ACQUISITION ADVISORY SERVICES
In August, 1996, the Company acquired Harris Williams. Harris Williams is a
merger and acquisition advisory firm that currently focuses exclusively on
providing advisory services 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 net income increasing from $207,000 for the year ended December
31, 1993 to $812,000 for the year ended December 31, 1995 and with the number of
professionals increasing from two to fourteen over the past four years.
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.
COMPETITION
The Company's principal competitors include financial institutions, venture
capital firms and other nontraditional 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 43 employees, including 18 employees of Harris
Williams. 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.
29
<PAGE> 32
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, through SII, 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 December 31, 1996, SII had borrowed $90.0 million from
the SBA, the maximum amount available to an SBIC under the SBA debenture
program.
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%. In connection with the transfer of its SBIC Operations to
SII and the formation of SFC, the Company obtained certain exemptive relief
from the Commission with respect to certain provisions of the 1940 Act.
Accordingly, the Company, SII and SFC may issue Senior Securities, so long
as after incurring such indebtedness the Company, individually, and the
Company and its subsidiaries, on a consolidated basis, meet the 200% asset
coverage requirement.
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 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
30
<PAGE> 33
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".
SII'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.
1. The Company may make investments in the form of loans, loans with
equity features and equity securities. At September 30, 1996, 82% of the
Company's total assets were invested in loans and convertible debt with
related warrants, 9% in equity securities, and 9% in other assets. SII will
not make loans to any single small business concern or its affiliates that
exceed 20% of SII'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 SII's regulatory capital.
2. SII 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 SII's assets so invested
will depend on, among other things, loan demand, timing of equity infusions
and SBA funding and availability of funds under SII's credit facility.
PORTFOLIO TURNOVER
During the nine months ended September 30, 1996, the Company made loans to
71 companies totaling approximately $103.1 million and received repayments
(either partial or full) from 18 companies aggregating $16.2 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 $289.0 million in total
loans and $41.4 million, or 14%, 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.
INVESTMENT ADVISOR
The Company has no investment advisor and is advised by its executive
officers under the supervision of its Board of Directors.
31
<PAGE> 34
PORTFOLIO COMPANIES
The following table sets forth certain information as of September 30,
1996, regarding each portfolio company in which the Company or SII 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, SII is deemed
to make available significant managerial assistance to its portfolio companies.
For information relating to the amount and general terms of all loans to
portfolio companies, see the Company's Consolidated Portfolio of Investments as
of September 30, 1996 at pages F-29 to F-37 herein.
<TABLE>
<CAPTION>
PERCENTAGE
NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS
NAME AND ADDRESS OF PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1)
- ----------------------------------------------- ----------------------- ------------------------- ----------
<S> <C> <C> <C>
A B Plastics Holding Corporation............... Plastics molding Warrant to purchase 20.0%
15730 S. Figueroa Common Stock
Gardena, CA 90248
Affinity Corporation........................... Telecommunications Warrant to purchase 8.6
20975 Swenson Drive Common Stock
Suite 150
Waukesha, WI 53186
American Corporate Literature, Inc............. Printing/Distribution Warrant to purchase 19.7
811 Cowan St. Common Stock
Nashville, TN 37207
American Network Exchange, Inc. ............... Telecommunications Warrant to purchase 3.5
100 W. Lucerne Circle Common Stock
Suite 100
Orlando, FL 32801
Amscot Holdings, Inc. ......................... Check Cashing Service Warrant to purchase 17.5
8430 North Armenia Avenue Common Stock
Service Tampa, FL 33614
Argenbright Holdings, Limited.................. Security Services Warrant to purchase 3.5
3465 N. Desert Drive Common Stock
Atlanta, GA 30344
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
Avionics Systems, Inc.......................... Aviation Services Warrant to purchase 15.0
P.O. Box 2444 Common Stock
Oakland, CA 94614
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>
32
<PAGE> 35
<TABLE>
<CAPTION>
PERCENTAGE
NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS
NAME AND ADDRESS OF PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1)
- ----------------------------------------------- ----------------------- ------------------------- ----------
<S> <C> <C> <C>
Caldwell/VSR Inc. ............................. Contract Warrant to purchase 15.9%
17151 Darwin Avenue Manufacturing Common Stock
Hesperia, CA 92345 Preferred Stock 100.0
Cardiac Control Systems, Inc. ................. Pacemaker Warrant to purchase 2.9
3 Commerce Blvd. Manufacturer Common Stock
Palm Coast, FL 32164
Carter Kaplan Holdings, L.L.C. ................ Investment Banking Warrant to purchase 24.0
629 East Main Street interest in 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
Cedaron Medical, Inc........................... Equipment/Software Warrant to purchase 4.5
9352 Campbell Road Common Stock
Winter, CA 95694
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.,Inc. ......... Sports Equipment Warrant to purchase 6.9
12121 E. 51st St. #102 Common Stock
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
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 Company............ Jewelry Replacement Warrant to purchase 12.2
4427 W. Kennedy Blvd. Common Stock
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
</TABLE>
33
<PAGE> 36
<TABLE>
<CAPTION>
PERCENTAGE
NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS
NAME AND ADDRESS OF PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1)
- ----------------------------------------------- ----------------------- ------------------------- ----------
<S> <C> <C> <C>
Dalcon Technologies, Inc. ..................... Computer Services Warrant to purchase 25.0%
1321 Murfreesboro Road Common Stock
4th Floor Preferred Stock -- 100.0
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
Suite 300 Warrant to purchase 12.6
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
Encore Orthopedics, Inc. ...................... Orthopedics Warrant to purchase 7.4
8900 Shoal Creek Blvd., Bldg. 300 Common Stock
Austin, TX 78757
Entek Scientific, Inc.......................... Applied Technology Warrant to purchase 4.3
4480 Lake Forest Drive Common Stock
Suite 316
Cincinnati, OH 45242
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
Foodnet Holdings, LLC.......................... Fast Food Services Warrant to purchase 8.0
510m Eastpark Court interest in LLC
Suite 190
Sandstar, VA 23150
Fortrend Engineering Corp...................... Manufacturing Warrant to purchase 3.3
1273 Hammerwood Ave. Common Stock
Sunnyvale, CA 92673
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
</TABLE>
34
<PAGE> 37
<TABLE>
<CAPTION>
PERCENTAGE
NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS
NAME AND ADDRESS OF PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1)
- ----------------------------------------------- ----------------------- ------------------------- ----------
<S> <C> <C> <C>
Gates Communications, L.P. .................... Publishing Warrant to purchase 47.0%
P.O. Box 5181 Partnership Units
Richmond, VA 23220
General Materials Management, Inc.............. Computer/Technology Warrant to purchase 10.0
991 Calle Amanecer Common Stock
San Clemente, CA 92673
Generation 2 Worldwide, LLC ................... Furniture Products Membership interest 30.0
P.O. Box 2208 in L.L.C.
113 Anderson Ct.
Dothan, AL 36302-2208
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, Inc. ....... Commuter Airline Warrant to purchase 21.0
P.O. Box 777 Common Stock
Miami Springs, FL 33266
H & H Acquisition Corporation.................. Textile Parts Warrant to purchase 22.5
P.O. Box 8516 Common Stock
Greenville, SC 29604
Hancock Company................................ Clothing Warrant to purchase 20.5
104 New Era Drive Common Stock
S. Plainfield, NJ 07080
Horizon Medical Products, Inc. ................ Medical Products Warrant to purchase 8.3
4200 Northside Pkwy., NW Common Stock
Atlanta, GA 30327
HPC America, Inc............................... Healthcare Warrant to purchase 2.8
One Hook Road Common Stock
Sharon Hill, PA 19079
Hoveround Corporation.......................... Wheelchairs Warrant to purchase 27.0
8135 25th Court East Common Stock
Sarasota, FL 34243
HSA International, Inc......................... 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 10.0
1429 Fairmont Ave, NW Interest in L.L.C.
Atlanta, GA 30318-4153
ILD Communications, Inc........................ Telecommunications Warrant to purchase 3.2
1300 Sawgrass Village Circle Common Stock
Suite 5
Ponteverda Beach, FL 32082
</TABLE>
35
<PAGE> 38
<TABLE>
<CAPTION>
PERCENTAGE
NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS
NAME AND ADDRESS OF PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1)
- ----------------------------------------------- ----------------------- ------------------------- ----------
<S> <C> <C> <C>
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
Annapolis, MD 21401 Class A interest 11.1
in L.P.
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
K.W.C. Management Corp. ....................... Music Retail Warrant to purchase 24.4
3390 Peachtree Rd., NE Common Stock
Suite 1132
Atlanta, GA 30326
Leisure Clubs International, Inc............... Specialized Travel Warrant to purchase 10.0
2400 Herodian Way Common Stock
Suite 330
Smyrna, GA 30080
Lovett's Buffet, Inc. ......................... Restaurants Warrants to purchase 3.6
5118 Park Avenue Common Stock
Suite 127
Memphis, TN 38117
Mayo Hawaiian Corporation...................... Tire Manufacturer Warrant to purchase 7.5
701 S. Queen St. Common Stock
Honolulu, HI 96813
MBA Marketing Corporation...................... Shoe Stores Warrant to purchase 4.0
6615 Dublin Center Drive Common Stock
Dublin, OH 43017
McAuley's, Inc................................. Home Fragrance Warrant to purchase 6.0
1814 S. 3rd St. Common Stock
Memphis, TN 38109
Money Transfer Systems, Inc. .................. Credit Card Services Warrant to purchase 4.0
600 Lakeview Rd., Suite A Common Stock
Clearwater, FL 34616
Monogram Products, Inc......................... Novelty Manufacturing Warrant to purchase 6.0
12395 75th St. N. Common Stock
Largo, FL 34643
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
</TABLE>
36
<PAGE> 39
<TABLE>
<CAPTION>
PERCENTAGE
NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS
NAME AND ADDRESS OF PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1)
- ----------------------------------------------- ----------------------- ------------------------- ----------
<S> <C> <C> <C>
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, Inc. .......... Environmental Products Preferred Stock -- 6.0
566 Mainstream Drive Series A
Nashville, TN 37228-1223
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
North American Sports Camps, Inc............... Sports Camps Warrant to purchase 13.0
5 Connecticut Ave. Common Stock
Norwich, CT 06360
Novavision, Inc. .............................. Optical Products Warrant to purchase 6.1
2700-200 Gateway Center Common Stock
Morrisville, NC 27560 Preferred Stock -- 100.0
Series A
NRI Service and Supply, L.P. .................. Gas Pump Services Warrant to purchase 27.5
333 Ludlow Street L.P. Interests
Stamford, CT 06902
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
Suite 132 Preferred Stock -- 100.0
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
The Potomac Group, Inc. ....................... Healthcare Information Common Stock 2.2
P.O. Box 290037 Warrant to purchase 1.9
Nashville, TN 37229 Common Stock
Preferred Stock -- 83.2
Series A
PRA International, Inc. ....................... Research Warrant to purchase 6.0
2400 Old Ivy Road Common Stock
Charlottesville, VA 22903-4826 Preferred Stock -- 38.0
Class F
</TABLE>
37
<PAGE> 40
<TABLE>
<CAPTION>
PERCENTAGE
NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS
NAME AND ADDRESS OF PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1)
- ----------------------------------------------- ----------------------- ------------------------- ----------
<S> <C> <C> <C>
Precision Fixtures & Graphics, Inc. ........... Design/Construction Warrant to purchase 5.0%
4644 Cummings Park Dr. Common Stock
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
Radiant Systems, Inc........................... Computer Software Warrant to purchase 1.5
1000 Alderman Dr. Common Stock
Suite A
Alpharetta, GA 30202
Radio Systems Corporation...................... Electrical Machinery Warrant to purchase 5.3
5008 National Drive Common Stock
Knoxville, TN 37914
Scandia Technologies, Inc...................... Specialized Warrant to purchase 22.0
2051 Sunnydale Blvd. Manufacturing Common Stock
Clearwater, FL 34625
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
Sqwincher Corporation.......................... Sports Drinks Warrant to purchase 10.0
1409 Highway 45 South Common Stock
Columbus, MS 39701
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
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
</TABLE>
38
<PAGE> 41
<TABLE>
<CAPTION>
PERCENTAGE
NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS
NAME AND ADDRESS OF PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1)
- ----------------------------------------------- ----------------------- ------------------------- ----------
<S> <C> <C> <C>
Trans Global Services, Inc. ................... Professional Audio Common Stock 0.1%
6632 Central Avenue Pike Equipment
Knoxville, TN 37912
Treasure Coast Pizza, Co. ..................... Restaurant Warrant to purchase 10.0
19990 Princewood Drive Common Stock
Jupiter, FL 33458
Ultra Fab, Inc................................. Tank Manufacturing Warrant to purchase 12.0
Route 2, Box 1580 Common Stock
Mexia, TX 76667
Unique Electronics, Inc. ...................... Defense Electronics Warrant to purchase 20.0
1320 26th Street Common Stock
Orlando, FL 32805 Preferred Stock -- 100.0
Series A
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, L.L.C. ........... Yacht Charter Membership interest 6.5
19345 U.S. Hwy. 19N, Suite 402 in L.L.C.
Clearwater, FL 34624-3193
Virginia Gas Company........................... Gas Warrant to purchase 6.0
P.O. Box 2407 Common Stock
Abingdon, VA 24212 Preferred Stock -- 100.0
Series A
Virtual Resources, Inc......................... Computer Software Warrant to purchase 7.5
490 Sun Valley Drive Common Stock
Building 200
Roswell, GA 30076
Vista Information Solutions, Inc............... Information Company Warrant to purchase 5.0
5060 Shoreham Place Common Stock
San Diego, CA 92122
Voice FX Corporation........................... Telecommunications Warrant to purchase 8.0
1100 E. Hector Street, Suite 416 Common Stock
Conshohocken, PA 19428
Zahren Alternative Power Corporation........... Converted Power Warrant to purchase 9.8
40 Tower Lane Common Stock
Avon, CT 06001 Common Stock 5.9
Preferred Stock 4.9
</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
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.
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).................. 50 Chairman of the Board and Director
George M. Miller, II(1)...................... 37 President, Chief Executive Officer and Director
E. Townes Duncan............................. 43 Director
William D. Eberle............................ 73 Director
Edward J. Mathias............................ 55 Director
Robert A. McCabe, Jr......................... 46 Director
Raymond H. Pirtle, Jr.(1).................... 55 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 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 Building 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 Master of 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 the President of Solidus, LLC, a venture capital
firm, since January 1, 1997. Prior to that time, Mr. Duncan was a director of
Comptronix Corporation, a provider of electronics contract manufacturing
services, since April 1988, and had served as its Chairman of the Board and
Chief Executive Officer since November 1993. Comptronix Corporation filed a
petition for Chapter 11 protection on August 9, 1996. 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, Barry's Jewelry,
a retail jewelry chain, 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.
40
<PAGE> 43
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.
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 owned by 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......................... 37 President, Chief Executive Officer and Director
David M. Resha............................... 50 Chief Operating Officer
Carl W. Stratton............................. 37 Chief Financial Officer
Donald F. Barrickman......................... 46 Vice President -- Special Assets
Jeffrey D. Armstrong......................... 38 Vice President -- Special Assets
Kathy Harris................................. 38 Vice President -- Portfolio Manager
John C. Harrison............................. 39 Vice President -- Portfolio Manager
John S. Scott................................ 33 Vice President -- Portfolio Manager
William A. Williamson, III................... 36 Vice President -- Portfolio Manager
John N. Dyslin............................... 30 Vice President -- Portfolio Manager
R. Burton Harvey............................. 33 Vice President -- Portfolio Manager
Maria-Lisa Caldwell.......................... 33 Secretary
Kimberly M. Stringfield...................... 27 Controller and Treasurer
H. Hiter Harris, III......................... 36 Co-Chairman of Harris Williams
Christopher H. Williams...................... 34 Co-Chairman of Harris Williams
</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 a 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.
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
41
<PAGE> 44
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 Master 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.
Donald F. Barrickman joined the Company in September 1996 and is
responsible for the management of the Company's problem loan portfolio. Prior to
joining the Company, Mr. Barrickman served as the chief operation officer for
United Mortgage and Loan Investment Corp. in Charlotte, NC. From 1986 to 1995,
he managed the Special Assets Division for First Union National Bank of
Virginia, Maryland and D.C. and its predecessors. Mr. Barrickman holds a
Bachelor of Science degree in Accounting from Western Kentucky University. He is
also a graduate of the Stonier Graduate School of Banking at Rutgers University.
Jeffrey D. Armstrong joined the Company in April 1996 and is responsible
for the management of the Company's problem loan portfolio. Mr. Armstrong has 13
years of experience in 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 Master of 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.
John N. Dyslin joined the Company in July 1996 and is responsible for
marketing and loan origination efforts in Illinois, Minnesota, Wisconsin and
Michigan. From 1994 to 1996, Mr. Dyslin served as Associate at Bowles Hollowell
Conner & Co., a merger and acquisition firm located in Charlotte, North
Carolina. From 1990 to 1992, Mr. Dyslin served as Vice President of Bradford
Capital Partners, a private equity fund affiliated
42
<PAGE> 45
with J.C. Bradford & Co., and from 1990 to 1992 worked as an Analyst and
Associate in the Corporate Finance department of J.C. Bradford & Co. Mr. Dyslin
holds a Bachelor of Science degree in Commerce from the University of Virginia
and a Master of Business Administration from the University of North Carolina.
R. Burton Harvey joined the Company in August of 1996 and is responsible
for marketing and loan origination efforts in eastern Pennsylvania and Maryland.
In addition to generating new loans, Mr. Harvey oversees several of the
Company's portfolio companies. From 1993 to August 1996, Mr. Harvey was a Vice
President at NationsBank of Tennessee. From 1989 to November 1994, he served as
a Vice President in the U.S. Corporate Division of Wachovia Corporate Services,
Inc. in Atlanta, Georgia and as a Loan Administration Officer prior to becoming
a Vice President. Mr. Harvey holds a Master of Business Administration and a
Bachelor of Science Degree from the University of Tennessee.
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.
H. Hiter Harris, III co-founded Harris Williams in 1991 and has served as
co-chairman of Harris Williams since the Company's acquisition of the firm in
September of 1996. From 1987 to 1991, Mr. Harris served as Vice President of
Bowles Hollowell & Conner and from 1983 to 1985 served as pricing coordinator
for Crestar Bank. Mr. Harris holds a Master of Business Administration degree
with distinction from Harvard Graduate School of Business Administration and
Bachelor of Science degrees in Mathematics and Economics from Hampden-Sydney
College.
Christopher H. Williams co-founded Harris Williams in 1991 and has served
as co-chairman of Harris Williams since the Company's acquisition of the firm in
September 1996. From 1987 to 1991, Mr. Williams served as Vice President of
Bowles Hollowell & Conner. Mr. Williams holds a Master of Business
Administration from Harvard Graduate School of Business Administration and a
Bachelor of Arts in Business Administration from Washington and Lee University.
COMPENSATION
The following table sets forth for the fiscal year ended December 31, 1996,
the compensation paid to the five most highly compensated executive officers of
the Company. No director received compensation in excess of $60,000 for fiscal
1996. The Company does not have a pension plan, but has established a 401K plan
that does not provide for matching contributions. Options to purchase a total of
84,000 shares of Common Stock were granted to the directors of the Company
during the fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
AGGREGATE
NAME OF INDIVIDUAL OR CAPACITIES IN WHICH COMPENSATION COMPENSATION
IDENTITY OF GROUP COMPENSATION WAS RECEIVED SALARY BONUS
- ---------------------------------- ------------------------------------- ------------ ------------
<S> <C> <C> <C>
George M. Miller, II.............. President and Chief Executive Officer $229,883 $225,000(1)
David M. Resha.................... Chief Operating Officer 150,293 100,000(1)
Carl W. Stratton.................. Chief Financial Officer 91,586 100,000(1)
H. Hiter Harris, III.............. Co-Chairman of Harris Williams 100,000(2) 183,000
Christopher H. Williams........... Co-Chairman of Harris Williams 100,000(2) 183,000
</TABLE>
- ---------------
(1) These amounts represent 1996 bonuses paid on January 2, 1996.
(2) These amounts do not include $22,500 contributed by Harris Williams to each
of Messrs. Harris' and Williams' SEP/IRA account pursuant to the terms of
Harris Williams' SEP/IRA Plan.
43
<PAGE> 46
STOCK OPTION GRANTS IN LAST FISCAL YEAR. The following table provides
information relating to stock options granted to the following executive
officers for the year ended December 31, 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL
------------------------------------------------- REALIZABLE
% OF TOTAL VALUE AT ASSUMED
OPTIONS ANNUAL RATE OF
NUMBER OF GRANTED TO STOCK PRICE
SECURITIES EMPLOYEES OF EXERCISE APPRECIATION FOR
UNDERLYING THE COMPANY OR BASE OPTION TERM
OPTIONS IN FISCAL PRICE EXPIRATION ------------------------
NAME GRANTED YEAR ($/SH) DATE 5%($) 10%($)
- ------------------------------ ---------- ------------ -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
George M. Miller, II.......... 56,966 7.4% $18.63 2/1/06 $ 667,252 $ 1,690,948
224,115 29.3% 30.00 10/1/06 4,228,342 10,715,448
David M. Resha................ -- -- -- -- -- --
Carl W. Stratton.............. 50,000 6.6% 23.25 4/1/06 731,090 1,852,726
25,000 3.3% 31.75 10/8/06 499,185 1,265,033
H. Hiter Harris, III.......... -- -- -- -- -- --
Christopher H. Williams....... -- -- -- -- -- --
</TABLE>
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.
1996 Employee Plan. The 1996 Employee Plan authorizes the issuance of up
to 390,000 shares of the Company's Common Stock. As of December 31, 1996,
options for the purchase of 390,000 shares of the Common Stock have been granted
by the Company under the plan. In addition, options to purchase 319,547 shares
have been granted under the 1996 Employee Plan, subject to the approval of the
amendment to the plan, which amendment authorizes an increase in the number of
shares issuable thereunder, by the Company's shareholders at the next annual
meeting of shareholders. Awards under the 1996 Employee Plan may be made
44
<PAGE> 47
to key employees and officers. The number of people currently eligible for
awards is 43. 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.
The following table sets forth certain information with respect to options
that have been granted under the 1994 Employee Plan and 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,.................................. 150,000(1) $11.00
President and Chief Executive Officer 56,966(2) 18.50
56,966(3) 18.63
224,115(4) 30.00
David M. Resha......................................... 125,000(5) 13.50
Chief Operating Officer
Carl W. Stratton....................................... 50,000(6) 23.25
Chief Financial Officer 25,000(7) 31.75
Employees, as a group (43 persons)..................... 1,209,547 (8)
</TABLE>
- ---------------
(1) This option vests 25% on August 1, 1997, 25% on August 1, 1998 and 50% on
August 1, 1999.
(2) This option vests 20% per year beginning December 15, 1996.
(3) This option vests 20% per year beginning February 1, 1997.
(4) This option vests 20% per year beginning October 1, 1997.
(5) This option vests 20% per year beginning July 5, 1996.
(6) This option vests 20% per year beginning April 8, 1997.
(7) This option vests 20% per year beginning April 8, 1997.
(8) These options have exercise prices that range from $11.00 per share to
$35.75 per share.
45
<PAGE> 48
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, 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; Ms. Waugh, $102,678.51; and Ms. Garrison $43,822.29.
The Robinson-Humphrey Company, Inc. ("Robinson-Humphrey"), one 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 the ING Credit
Facility. Robinson-Humphrey has received a fee equal to 0.5% of the aggregate
debt commitment. In addition, Sirrom agreed to indemnify Robinson-Humphrey with
respect to certain matters.
Sirrom, Ltd., a family-owned limited partnership, owned 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 Alfred H. Morris, the brother of Dr. Morris.
Sirrom, Ltd. received 170,706 shares of the Company's stock as part of the
acquisition of Harris Williams. See "Business -- Merger and Acquisition Advisory
Services."
46
<PAGE> 49
PRINCIPAL AND SELLING SHAREHOLDERS
Of the 50,000,000 shares of Common Stock, no par value, authorized, there
are 12,343,567 shares of Common Stock outstanding and approximately 2,550
holders of the Company's Common Stock, including approximately 169 holders of
record. The Company has no other class of securities outstanding. The following
table sets forth certain ownership information as of December 31, 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. Unless otherwise
indicated, all shares are owned beneficially and of record by each shareholder.
The address for each of the Selling Shareholders is 500 Church Street, Suite
200, Nashville, Tennessee 37219.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES TO BE
OWNED PRIOR TO THE BENEFICIALLY OWNED
OFFERING SHARES AFTER THE OFFERING
------------------- BEING -------------------
NAME AND ADDRESS NUMBER PERCENT OFFERED NUMBER PERCENT
- -------------------------------------------------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
John A. Morris, Jr., M.D.(1)...................... 2,393,204 19.4 0 2,393,204 15.9%
243 Medical Center South
2100 Pierce Avenue
Nashville, TN 37212
Sirrom Partners, L.P.............................. 2,035,148 16.5 0 2,035,148 13.5
500 Church Street
Suite 200
Nashville, TN 37219
Gerald B. Andrews................................. 5,788 * 5,788 0 *
Bank of Scotland London Nominees Limited.......... 65,658 * 1,528 64,130 *
O. Gene Gabbard................................... 4,008 * 4,008 0 *
Hare & Co......................................... 45,454 * 25,454 20,000 *
James O. Hayles................................... 5,073 * 2,500 2,573 *
Myna C. Hayles.................................... 5,073 * 2,500 2,573 *
Andrew L. Smith, Trustee for Leila Temple
Hayles.......................................... 5,073 * 2,500 2,573 *
Andrew L. Smith, Trustee for James Russell
Hayles.......................................... 5,073 * 2,500 2,573 *
Kenneth F. Leddick................................ 2,536 * 536 2,000 *
Richard Monk...................................... 18,942 * 8,000 10,942 *
Kathleen R. Parsons............................... 4,008 * 4,008 0 *
Carolyn W. Perrone(2)............................. 68,800 * 68,800 0 *
Michael M. Rosenberg.............................. 24,244 * 24,244 0 *
Peter T. Socha(3)................................. 80,200 * 50,000 30,200 *
Sam Stevenson..................................... 12,121 * 12,121 0 *
Berthold G. Stumberg.............................. 10,148 * 5,000 5,148 *
Officers and directors, as a group (27 persons)... 3,476,735 28.2 0 3,476,735 23.1
</TABLE>
- ------------
* Less than one percent.
(1) Includes 2,035,148 shares owned of record by Sirrom Partners, L.P., a
limited partnership owned by Dr. Morris and his family, and 358,056 shares
owned of record by Sirrom, Ltd., a limited partnership whose general partner
is All Scarlet, Inc., a corporation owned 50% by Dr. Morris and 50% by
Alfred H. Morris, the brother of Dr. Morris. Dr. Morris has shared voting
power and shared investment power with respect to all of these shares.
(2) Ms. Perrone was the Chief Financial Officer of the Company from February
1993 until April 1996.
(3) Mr. Socha was a Vice President -- Workouts of the Company from February 1994
until December 1996.
47
<PAGE> 50
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.
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.
48
<PAGE> 51
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.
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. SII and SFC have elected the same tax treatment. If
each of the Company, SII and SFC continues to qualify as a RIC and distributes
to the shareholders or the Company, as appropriate, 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), each such entity
will not be subject to federal income tax on the portion of its taxable income
and gains it distributes to shareholders. In addition, if each of the Company,
SII and SFC 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, SII or SFC),
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,
each of the Company, SII and SFC 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 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
it'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 its total assets and 10% of the outstanding voting
securities of the issuer and (ii) no more than 25% of the value of it's total
assets are invested in the securities of one issuer (other than U.S.
49
<PAGE> 52
government securities or the securities of other regulated investment
companies), or of two or more issuers that are controlled by 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). See "Prospectus Summary." It is possible that the existence and
operation of Harris Williams or other non-RIC subsidiaries in the future will
cause the Company, SII or SFC not to qualify as a RIC.
Certain types of income which are earned by the Company and its
subsidiaries, such as processing fees, do not qualify for purposes of satisfying
the 90% of gross income test mentioned above. For taxable year 1996, 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. Because each of SII, SFC and the
Company must satisfy this 90% test on a stand alone basis, 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.
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 (and not as short-term capital gains) to the extent of the
Company's current or accumulated earnings and profits. 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. 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 the Company's 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 claim will exceed the amount of tax that they
would be required to pay on capital gains. Shareholders who are not
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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.
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 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 held 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 me 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 acquisition of Harris Williams, it is possible that the
Company, SII or SFC 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 regular corporate tax rates with no deduction for any dividends to
the Company.
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<PAGE> 54
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, 12,343,567 are outstanding,
500,000 are reserved for issuance under the 1994 Employee Plan (all of which
have been issued), 114,000 shares are reserved for issuance under the Directors'
Stock Option Plan (84,000 of which have been issued), and 390,000 shares, are
reserved for issuance under the 1996 Employee Plan (all of which have been
issued), and 319,547 shares are reserved for issuance under the 1996 Employee
Plan, subject to approval by the Company's shareholders of the amendment to the
plan increasing the shares available thereunder.
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.
REGISTRATION RIGHTS
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 on 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 series of
transactions) of assets 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 class 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 law and (ii) is approved by at least two-thirds of the outstanding
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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 beneficially 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.
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 a BDC and as such is regulated under the 1940 Act.
SII is presently an SBIC and as such is regulated by the SBIA and is subject to
the SBA Regulations and the 1940 Act. SII and SFC are also registered investment
companies and, therefore, subject to the provisions of the 1940 Act as modified
by certain exemptive orders received by the Company from the Commission.
As an SBIC, SII 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 SII 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 September 30, 1996, the maximum annual financing costs applicable to SII were
14%. 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,
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<PAGE> 56
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 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 test. In connection with the transfer of its SBIC operations
to SII and the formation of SFC, the Company obtained certain exemptive relief
from the Commission with respect to certain provisions of the 1940 Act.
Accordingly, the Company, SII and SFC may each incur indebtedness so long as
after incurring such indebtedness the Company, individually, and the Company and
each of its investment company subsidiaries on a consolidated basis, meets the
200% asset coverage 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. Securities issued
by Canadian small businesses will not be Qualifying Assets. However, based on
the Company's total assets at September 30, 1996, the Company could make up to
$86.1 million in non-Qualifying Assets and retain its BDC status. 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
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<PAGE> 57
(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 may 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
15,024,080 shares of Common Stock. Of these shares, the 2,900,000 shares of
Common Stock sold in this Offering and the 8,820,000 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 3,304,080 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.
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UNDERWRITERS
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date of this Prospectus (the "Underwriting Agreement"), the Company
and the Selling Shareholders have agreed to sell an aggregate of 2,900,000
shares of Common Stock and the U. S. Underwriters named below, for whom Morgan
Stanley & Co. Incorporated, The Robinson-Humphrey Company, Inc., J.C. Bradford &
Co. and Equitable Securities Corporation are serving as U.S. Representatives,
have severally agreed to purchase, and the International Underwriters named
below, for whom Morgan Stanley & Co. International Limited, The
Robinson-Humphrey Company, Inc., J.C. Bradford & Co. and Equitable Securities
Corporation are serving as International Representatives, have severally agreed
to purchase, the respective number of shares of Common Stock set forth opposite
their names below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated..............................................
The Robinson-Humphrey Company, Inc. ...........................................
J.C. Bradford & Co. ...........................................................
Equitable Securities Corporation...............................................
----------
Subtotal.................................................................... 2,320,000
----------
International Underwriters:
Morgan Stanley & Co. International Limited.....................................
The Robinson-Humphrey Company, Inc. ...........................................
J.C. Bradford & Co.............................................................
Equitable Securities Corporation...............................................
----------
Subtotal.................................................................... 580,000
----------
Total.................................................................. 2,900,000
==========
</TABLE>
The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters." The Underwriting Agreement provides that the
obligations of the several Underwriters to pay for and accept delivery of the
shares of Common Stock offered hereby are subject to the approval of certain
legal matters by counsel and to certain other conditions. The Underwriters are
obligated to take and pay for all the shares of Common Stock offered hereby if
any such shares are taken.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, each U.S. Underwriter has represented and agreed that, with
certain exceptions, (a) it is not purchasing any U.S. Shares (as defined below)
being sold by it for the account of anyone other than a United States or
Canadian Person (as defined below) and (b) it has not offered or sold, and will
not offer or sell, directly or indirectly, any U.S. Shares or distribute any
prospectus relating to the U.S. Shares outside the United States or Canada or to
anyone other than a United States or Canadian Person. Pursuant to the Agreement
Between U.S. and International Underwriters, each International Underwriter has
represented and agreed that, with certain exceptions, (a) it is not purchasing
any International Shares (as defined below) being sold by it for the account of
any United States or Canadian Person and (b) it has not offered or sold, and
will not offer or sell, directly or indirectly, any International Shares or
distribute any prospectus relating to the International Shares within the United
States or Canada or to any United States or Canadian Person. With respect to any
Underwriter that is a U.S. Underwriter and an International Underwriter, the
foregoing representations and agreements (i) made by it in its capacity as a
U.S. Underwriter shall apply only to shares purchased by it in its capacity as a
U.S. Underwriter, (ii) made by it in its capacity as an International
Underwriter shall apply only to shares purchased by it in its capacity as an
International Underwriter, and (iii) do not restrict its ability to distribute
any prospectus relating to the shares of Common Stock to any person. The
foregoing limitations do not apply to stabilization transactions or to certain
other transactions specified in the Agreement Between U.S. Underwriters and
International Underwriters. As used herein, "United States or Canadian Person"
means any national or resident of the United States or Canada or any
corporation, pension, profit-sharing, or other trust or
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<PAGE> 59
other entity organized under the laws of the United States or Canada or of any
political subdivision thereof (other than a branch located outside the United
States and Canada of any United States or Canadian Person) and includes any
United States or Canadian branch of a person who is otherwise not a United
States or Canadian Person. All shares of Common Stock to be purchased by the
U.S. Underwriters and the International Underwriters under the Underwriting
Agreement are referred to herein as the "U.S. Shares" and the "International
Shares," respectively.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, sales may be made between the U.S. Underwriters and International
Underwriters of any number of shares of Common Stock to be purchased pursuant to
the Underwriting Agreement as may be mutually agreed. The per share price of any
shares so sold shall be the Price to Public set forth on the cover page hereof,
in United States dollars, less an amount not greater than the per share amount
of the concession to dealers set forth below.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, each U.S. Underwriter has represented that if has not offered or
sold, and has agreed not to offer or sell, any shares of Common Stock, directly
or indirectly, in Canada in contravention of the securities laws of Canada or
any province or territory thereof and has represented that any offer of shares
of Common Stock in Canada will be made only pursuant to an exemption from the
requirements to file a prospectus in the province or territory of Canada in
which such offer is made. Each U.S. Underwriter has further agreed to send any
dealer who purchases from it any shares of Common Stock a notice stating in
substance that, by purchasing such shares of Common Stock, such dealer
represents and agrees that it has not offered or sold, and will not offer or
sell, directly or indirectly, any of such shares of Common Stock in Canada or
to, or for the benefit of, any resident of Canada in contravention of the
securities laws of Canada or any province or territory thereof and that any
offer of shares of Common Stock in Canada will be made only pursuant to an
exemption from the requirement to file a prospectus in the province of Canada in
which such offer is made, and that such dealer will deliver to any other dealer
to whom it sells any of such shares of Common Stock a notice to the foregoing
effect.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, each International Underwriter has represented and agreed that (a)
it has not offered or sold and will not offer or sell any shares of Common Stock
in the United Kingdom except to persons whose ordinary activities involve them
in acquiring, holding, managing, or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in circumstances which
have not resulted and will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations (1995)
(the "Regulations"); (b) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 and the Regulations with respect
to anything done by it in relation to the shares of Common Stock offered hereby
in, from, or otherwise involving the United Kingdom; and (c) it has only issued
or passed on and will only issue or pass on to any person in the United Kingdom
any document received by it in connection with the issue of the shares of Common
Stock if that person is of a kind described in Article 11(3) of the Financial
Services Act 1986, (Investment Advertisement) (Exemptions) Order 1996, or is a
person to whom such document may otherwise lawfully be issued or passed on.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, each International Underwriter has represented and agreed that it
has not offered or sold, and agrees not to offer or sell, directly or
indirectly, in Japan or to or for the account of any resident thereof, any of
the shares of Common Stock acquired in connection with the distribution
contemplated hereby, except for offers or sales to Japanese International
Underwriters or dealers and except pursuant to any exemption from the
registration requirements of the Securities and Exchange Law of Japan. Each
International Underwriter further agrees to send to any dealer who purchases
from it any of the shares of Common Stock a notice stating in substance that, by
purchasing such shares, directly or indirectly in Japan or to or for the account
of any resident thereof except pursuant to any exemption from the registration
requirements of the Securities and Exchange Law of Japan, and that such dealer
will send to any other dealer to whom it sells any of such shares of Common
Stock a notice containing substantially the same statement as contained in the
foregoing.
The Underwriters propose to offer part of the shares of Common Stock
directly to the public at the Price to Public set forth on the cover page hereof
and part to certain dealers at a price which represents a concession
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<PAGE> 60
not in excess of $. a share below the public offering price. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of $. a
share to other Underwriters or to certain dealers. After the initial offering of
the shares of Common Stock, the offering price and other selling terms may from
time to time be varied by the Underwriters.
Representatives of the Underwriters have informed the Company that the
Underwriters do not intend sales to discretionary accounts to exceed five
percent of the total number of shares of Common Stock offered by them.
Pursuant to the Underwriting Agreement, the Company has granted the U.S.
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to an aggregate of 435,000 additional shares of
Common Stock at the Price to Public on the cover page hereof, less Underwriting
Discounts and Commissions. The U.S. Underwriters may exercise such option to
purchase solely for the purpose of covering over-allotments, if any, made in
connection with the Offering. To the extent such option is exercised, each U.S.
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares of Common Stock as
the number set forth next to such U.S. Underwriter's name in the preceding table
bears to the total number of shares of Common Stock offered by the U.S.
Underwriters hereby.
The Company and all of its executive officers and directors have agreed
that, without the prior written consent of Morgan Stanley & Co. Incorporated on
behalf of the Underwriters, they will not (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right, or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock
(whether such shares or any such securities are now owned by such stockholder or
acquired after the date of the Prospectus), or (ii) enter into any swap or other
arrangement that transfers to another in whole or in part, any of the economic
consequences of ownership of the Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise, for a period of 90 days
after the date of this Prospectus, other than the sale to the Underwriters of
any shares of Common Stock pursuant to the Underwriting Agreements.
The Company and the Underwriters have agreed to indemnify each other
against 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 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 bid is 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 prercentage 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 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.
Raymond H. Pirtle, Jr., a director of the Company, is also a managing
director and member of the Board of Directors of Equitable.
The principal business address of each of the Representatives is as
follows: Morgan Stanley & Co. Incorporated, 1585 Broadway, New York, New York
10036; The Robinson-Humphrey Company, Inc., 3333 Peachtree Road, N.E., Atlanta,
Georgia 30326; J.C. Bradford & Co., 330 Commerce Street, Nashville,
58
<PAGE> 61
Tennessee 37201; and Equitable Securities Corporation, 800 Nashville City
Center, 511 Union Street, Nashville, Tennessee 37219-1743.
The Robinson-Humphrey Company, Inc. ("Robinson-Humphrey"), one 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 the ING Credit
Facility. Robinson-Humphrey has received a fee equal to 0.5% of the aggregate
debt commitment. In addition, Sirrom agreed to indemnify Robinson-Humphrey with
respect to certain matters.
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 Skadden, Arps, Slate, Meagher & Flom LLP.
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 [.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.
59
<PAGE> 62
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 September 30, 1996 (unaudited).... F-3
Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995 and for
the Nine Months Ended September 30, 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 Nine Months Ended September 30, 1996
(unaudited)......................................................................... F-5
Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995 and the
Nine Months Ended September 30, 1995 and 1996 (unaudited)........................... F-6
Financial Highlights
Per Share Data for the Year Ended December 31, 1995 and the Nine Months Ended
September 30, 1996 (unaudited)................................................... F-7
Ratios/Supplemental Data for the Years Ended December 31, 1993, 1994 and 1995 and
the Nine Months Ended September 30, 1996 (unaudited)............................. F-7
Notes to Financial Statements......................................................... F-8
Quarterly Financial Information for the Years 1994 and 1995 (unaudited)............... F-15
Portfolio of Investments
As of December 31, 1994............................................................. F-16
As of December 31, 1995............................................................. F-21
As of September 30, 1996 (unaudited)................................................ F-29
</TABLE>
F-1
<PAGE> 63
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.
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
September 1, 1996
F-2
<PAGE> 64
SIRROM CAPITAL CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- SEPTEMBER 30,
1994 1995 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Investments, at fair value:
Loans.............................................. $ 72,336,480 $144,854,517 $220,049,964
Equity interests................................... 7,576,613 15,912,467 25,578,037
Warrants........................................... 7,548,851 11,513,183 15,087,636
------------ ------------ ------------
Total investments (cost of $82,342,194,
$162,466,881, and $247,958,383,
respectively)............................ 87,461,944 172,280,167 260,715,637
Investment in unconsolidated subsidiary.............. 834,482 840,092 427,743
Cash and cash equivalents............................ 137,247 195,069 20,789,140
Interest receivable.................................. 1,302,662 2,119,567 2,455,789
Debenture costs (less accumulated amortization of
$175,487, $383,279, and $728,040, respectively).... 1,049,408 2,020,030 2,420,030
Restricted investment................................ 1,000,000 --
Furniture and equipment (less accumulated
depreciation of $18,565 and $53,523,
respectively)...................................... -- 203,860 220,648
Other assets......................................... 18,000 211,165 232,708
------------ ------------ ------------
Total assets............................... $ 91,803,743 $177,869,950 $287,261,695
============ ============ ============
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 41,811,000
Interest payable................................... 681,008 936,818 1,392,778
Accrued taxes payable.............................. 487,794 1,073,525 3,035,160
Accounts payable and accrued expenses.............. 28,376 213,901 1,223,701
------------ ------------ ------------
Total liabilities.......................... 58,586,429 88,684,244 130,722,639
------------ ------------ ------------
Commitments and contingencies
Partners' capital and shareholders' equity (Note 1):
Partners' capital.................................. 25,398,519 -- --
Common stock -- No par value, 50,000,000 shares
authorized, 10,093,570, 12,328,567 at September
30, 1996, (unaudited) issued and outstanding.... -- 74,479,967 132,407,465
Notes receivable from employees.................... (1,980,000) (1,980,000) (1,539,858)
Undistributed net realized earnings................ 4,679,053 6,872,453 13,064,204
Unrealized appreciation of investments............. 5,119,742 9,813,286 12,607,245
------------ ------------ ------------
Total partners' capital and shareholders'
equity................................... 33,217,314 89,185,706 156,539,056
------------ ------------ ------------
Total liabilities, partners' capital and
shareholders' equity..................... $ 91,803,743 $177,869,950 $287,261,695
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 65
SIRROM CAPITAL CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- -------------------------
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 $ 9,029,397 $16,837,156
Loan processing fees............ 699,000 901,340 1,899,692 1,561,138 2,369,850
Other income.................... -- -- 223,456 -- 90,585
---------- ---------- ----------- ----------- -----------
Total operating
income................ 4,213,564 8,238,156 15,574,890 10,590,535 19,297,591
---------- ---------- ----------- ----------- -----------
OPERATING EXPENSES:
Interest expense................ 1,427,386 3,123,461 4,771,131 3,360,701 5,979,355
Salaries and benefits........... -- -- 1,081,478 1,035,415 2,180,154
Management fees................. 708,999 1,072,833 -- -- --
Other operating expenses........ 165,811 122,339 1,412,358 693,931 1,477,737
State income tax on interest.... 230,743 457,035 109,035 62,426 --
Amortization expense............ 53,725 117,992 207,792 113,424 378,510
---------- ---------- ----------- ----------- -----------
Total operating
expenses.............. 2,586,664 4,893,660 7,581,794 5,265,897 10,015,756
---------- ---------- ----------- ----------- -----------
Equity in pretax income of
unconsolidated subsidiary....... 207,167 552,867 811,610 609,193 2,573,197
Net operating income.............. 1,834,067 3,897,363 8,804,706 5,933,831 11,855,032
Realized gain (loss) on
investments..................... (799,353) (538,025) 1,759,513 445,618 7,206,489
Change in unrealized appreciation
(depreciation) of investments... (49,611) 3,356,316 4,693,544 4,146,091 2,793,944
Provision for income taxes........ -- -- (1,020,321) (316,880) (2,764,960)
---------- ---------- ----------- ----------- -----------
Net increase in partners' capital
and shareholders' equity
resulting from operations....... $ 985,103 $6,715,654 $14,237,442 $10,208,660 $19,090,505
========== ========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 66
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................... $ 12,178,327 -- $ -- $ -- $ 814,438 $ 1,813,037 $ 14,805,802
Capital
contributions........ 3,936,968 -- -- -- -- -- 3,936,968
Capital
distributions........ (765,861) -- -- -- -- -- (765,861)
Distribution of Harris
Williams earnings.... -- -- -- -- (175,350) -- (175,350)
Net increase in
partners' capital
resulting from
operations........... -- -- -- -- 1,034,714 (49,611) 985,103
------------ --------- ------------ ----------- ----------- ----------- ------------
BALANCE, DECEMBER 31,
1993................... 15,349,434 -- -- -- 1,673,802 1,763,426 18,786,662
Capital
contributions........ 8,662,178 -- -- -- -- -- 8,662,178
Purchase of ownership
in partnership....... 1,980,000 -- -- (1,980,000) -- -- --
Capital
distributions........ (593,093) -- -- -- -- -- (593,093)
Distribution of Harris
Williams earnings.... -- -- -- -- (354,087) -- (354,087)
Net increase in
partners' capital
resulting from
operations........... -- -- -- -- 3,359,338 3,356,316 6,715,654
------------ --------- ------------ ----------- ----------- ----------- ------------
BALANCE, DECEMBER 31,
1994................... 25,398,519 -- -- (1,980,000) 4,679,053 5,119,742 33,217,314
SIRROM CAPITAL
CORPORATION:
Effect of
reorganization (Note
1)................... (25,398,519) 5,948,567 25,398,519 -- -- -- --
Issuance of common
stock................ -- 4,145,000 47,712,029 -- -- -- 47,712,029
Net increase in
shareholders' equity
resulting from
operations........... -- -- -- -- 9,543,898 4,693,544 14,237,442
Payment of dividends... -- -- -- -- (3,974,079) -- (3,974,079)
Distribution of Capital
Gains................ -- -- -- -- (1,201,000) -- (1,201,000)
Distribution of Harris
Williams earnings.... -- -- -- -- (806,000) -- (806,000)
Designation of
undistributed capital
gains, net of tax
(Note 13)............ -- -- 1,369,419 -- (1,369,419) -- --
------------ --------- ------------ ----------- ----------- ----------- ------------
BALANCE, DECEMBER 31,
1995................... -- 10,093,567 74,479,967 (1,980,000) 6,872,453 9,813,286 89,185,706
Issuance of common
stock (unaudited).... -- 2,300,000 58,737,143 -- -- -- 58,737,143
Employee shares
repurchased
(unaudited).......... -- (65,000) (809,645) -- -- -- (809,645)
Payment on notes
receivable
(unaudited).......... -- -- -- 440,142 -- -- 440,142
Payment of dividends
(unaudited).......... -- -- -- -- (7,605,249) (7,605,249)
Distribution of Harris
Williams earnings
(unaudited).......... -- -- -- -- (2,499,561) -- (2,499,561)
Net increase in
shareholders' equity
resulting from
operations
(unaudited).......... -- -- -- -- 16,296,561 2,793,959 19,090,520
------------ --------- ------------ ----------- ----------- ----------- ------------
BALANCE, SEPTEMBER 30,
1996 (unaudited)....... $ -- 12,328,567 $132,407,465 $ (1,539,858) $13,064,204 $ 12,607,245 $156,539,056
============ ========= ============ =========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 67
SIRROM CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------------- ---------------------------
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.................................. $ 985,103 $ 6,715,654 $ 14,237,442 $ 10,208,660 $ 19,090,505
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) (4,146,091) (2,793,944)
Realized loss (gain) on investments......... 799,353 538,025 (1,759,513) (445,618) (7,206,489)
Equity in income of unconsolidated
subsidiary................................ (207,166) (552,867) (811,610) (609,193) (2,587,199)
Amortization of debenture costs............. 53,725 117,992 207,792 108,616 374,009
Increase in interest receivable............. (608,947) (508,321) (816,905) (735,812) (336,222)
Decrease in prepaid management fee.......... 33,000 -- -- -- --
Increase (decrease) in accounts payable and
accrued expenses.......................... (36,655) 28,376 185,525 71,624 1,009,800
Amortization of organization costs.......... 6,000 6,000 6,000 4,500 4,500
Depreciation of fixed assets................ -- -- 18,565 9,160 34,957
Increase (decrease) in prepaid interest..... 12,350 (12,350) -- (964,286) (162,944)
Increase (decrease) in accrued taxes
payable................................... 205,515 282,279 585,731 (164,318) 1,961,635
Increase in interest payable................ 308,501 261,158 255,810 382,632 455,960
------------ ------------ ------------ ------------ ------------
Net cash provided by operating
activities............................ 1,600,390 3,519,630 7,415,293 3,719,874 9,844,568
------------ ------------ ------------ ------------ ------------
INVESTING ACTIVITIES:
Proceeds from sale of investments............. 2,355,147 9,769,378 27,303,888 13,873,850 24,873,391
Investments originated or acquired............ (33,632,035) (44,162,021) (105,669,054) (72,703,559) (103,687,232)
Purchase of fixed assets...................... -- -- (222,425) (195,526) (51,745)
(Increase) decrease in restricted
investments................................. -- (1,000,000) 1,000,000 -- --
(Increase) decrease in other assets........... -- -- (199,165) (9,165) 515,707
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities... (31,276,888) (35,392,643) (77,786,756) (59,034,400) (78,349,879)
------------ ------------ ------------ ------------ ------------
FINANCING ACTIVITIES:
Proceeds from debentures payable to Small
Business Administration..................... 24,000,000 17,000,000 22,260,000 22,260,000 10,000,000
Proceeds from revolving credit facilities..... 8,323,500 42,978,109 62,638,595 32,171,594 73,200,766
Repayment of line of credit borrowings........ (8,323,500) (36,588,858) (55,827,846) (38,560,845) (44,589,766)
Increase in debenture costs................... (462,900) (580,995) (1,178,414) (619,976) (774,009)
Proceeds from capital contributions........... 3,936,968 8,162,178 -- -- --
Distribution of capital....................... (765,861) (593,093) -- -- --
Issuance of common stock...................... -- -- 47,712,029 47,749,695 59,237,143
Payment of dividends.......................... -- -- (3,974,079) (2,349,552) (7,605,249)
Distribution of Capital Gains................. -- -- (1,201,000) (690,788) --
Employee shares repurchased................... -- -- -- -- (809,645)
Payment on notes receivable................... -- -- -- -- 440,142
------------ ------------ ------------ ------------ ------------
Net cash provided by financing
activities............................ 26,708,207 30,377,341 70,429,285 59,960,128 89,099,382
------------ ------------ ------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... (2,968,291) (1,495,672) 57,822 4,645,602 20,594,071
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 $ 4,782,849 $ 20,789,140
============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid................................. $ 1,131,235 $ 2,707,488 $ 4,525,701 $ 2,978,033 $ 5,529,590
============ ============ ============ ============ ============
Taxes paid.................................... $ 25,228 $ 174,756 $ 493,465 $ 396,037 $ 976,894
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 68
SIRROM CAPITAL CORPORATION
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
PER SHARE DATA(1) DECEMBER 31, 1995 SEPTEMBER 30, 1996
- ------------------------------------------------------------- ----------------- ------------------
(UNAUDITED)
<S> <C> <C>
Net asset value, beginning of year........................... $ 5.58(2) $ 8.84
---------- ----------
Net operating income......................................... .97 1.05
Net realized and unrealized gains or losses on investments... 3.15(3) 3.51
---------- ----------
Total from investment operations............................. 4.12 4.56
---------- ----------
Less: Dividends on net investment income..................... .53 .70
Distributions on realized capital gains................ .33(4) --
---------- ----------
Total Distributions................................ .86 .70
---------- ----------
Net asset value, end of period............................... $ 8.84 $ 12.70
========== ==========
Per share market value, end of period........................ $ 17.19 $ 30.17
========== ==========
Shares outstanding, end of period............................ 10,093,570 12,328,567
========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
RATIOS/SUPPLEMENTAL DATA 1993 1994 1995 SEPTEMBER 31, 1996
- ------------------------------------------------- ------- ------- ------- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net assets, end of period (in thousands)......... $18,651 $33,217 $89,186 $156,539
Ratio of operating expenses to average net
assets......................................... 15.5% 19.2% 12.6% 10.9%(5)
Ratio of net operating income to average net
assets......................................... 10.9% 15.0% 14.4% 12.9%(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 $33,917,734 at December 31, 1994, 5,050,116 shares of common
stock issued at conversion of the Partnership to the Company at February 1,
1995 and the effect of issuing 898,454 shares for Harris Williams.
(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 nine months ended September 30,
1996.
The accompanying notes are an integral part of these statements.
F-7
<PAGE> 69
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 "40 Act"). 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 and 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 the Company believes 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.
In August 1996, the Company acquired the ownership interests of Harris
Williams & Co., L.P. ("Harris Williams"), for 898,454 shares of common stock of
the Company. After the acquisition, Harris Williams began operating as a "C"
corporation. Harris Williams is a merger and acquisition advisory services firm
located in Richmond, Virginia, that is being operated as a wholly-owned
subsidiary of the Company. The acquisition of Harris Williams is accounted for
as a pooling of interests. The Balance Sheets as of December 31, 1994 and 1995
and September 30, 1996 (unaudited) and the Statements of Operations and Cash
Flows for each of the three years in the period ended December 31, 1995 and the
nine months ended September 30, 1995 and 1996 (unaudited) have been restated
accordingly to reflect the operations of Harris Williams as an unconsolidated
subsidiary accounted for by the equity method of accounting in conformity with
the requirements of the 1940 Act.
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
F-8
<PAGE> 70
SIRROM CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 stocks of public companies that it is not
permitted to sell in the public market as a result of securities laws
restrictions, lock-up agreements and other similar restrictions are valued at
70% of market value at the balance sheet date. All other publicly traded stocks
are valued at 90% of market value at the balance sheet date.
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 September 30, 1996, the investment portfolio
included investments whose values have been estimated by the Board of Directors
totaling $250,307,000 (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%. Typically, interest is payable in monthly
or quarterly installments over five years with the entire principal amount
typically 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 (eleven at September 30, 1996, unaudited) SBA debentures, as discussed
in Note 5.
F-9
<PAGE> 71
SIRROM CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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).
The Company currently 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 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
$1,539,858 at September 30, 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.
F-10
<PAGE> 72
SIRROM CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 September 30, 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 $1,385,896, $2,857,398
and $4,243,851, respectively. Interest expense on the debentures for the nine
months ended September 30, 1996 totaled $4,243,996 (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% (7.50% at December 31, 1995). As of December 31,
1995, $13,200,000 was outstanding. This agreement expires on December 27, 1998.
As of September 30, 1996, $41,811,000 (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.
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 will
exchange the interest rate difference between the fixed and variable rates on
incremental amounts of $3,000,000 a month beginning in April 1996. Interest
expense related to the Revolving Credit Facility for the period ended September
30, 1996 was $1,735,352 (unaudited).
The revolving credit facility provides that repayment of amounts
outstanding can be accelerated if certain executive management cease to be
employed by the Company.
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 nine months ended September 30, 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 nine months
ended September 30, 1996, the Company provided for taxes totaling $2,764,960
(unaudited).
F-11
<PAGE> 73
SIRROM CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 terms 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.
In February 1996, the Company adopted the 1996 Employee Stock Incentive
Plan (the "1996 Plan") that permits the issuance of options to purchase shares
of the Company's Common Stock to selected employees. The 1996 Plan reserves
390,000 shares of Common Stock for grant and provides that the terms of each
award be determined by a committee of the Board of Directors.
As of September 30, 1996, options to purchase 893,932 shares had been
granted to 43 employees under the 1994 Plan and 1996 Plan (unaudited). Those
options have exercise prices ranging from $11.00 per share to $26.333 per share,
and the options vest over either three or five year periods ranging from June
1996 through September 2001 (unaudited). Each option expires ten years from the
date of grant. Of the shares noted above, 3,932 shares have been granted under
the 1996 Plan, subject to approval of an amendment to 1996 Plan which authorizes
an increase in the number of shares issuable thereunder (unaudited).
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.
F-12
<PAGE> 74
SIRROM CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 $26,498,000.
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.
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 nine months ending September 31, 1996, the Company paid
dividends of $7,605,000 (unaudited).
14. COMMITMENTS AND CONTINGENCIES
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.
Harris Williams leases office space under or operating lease in which
rental commitments are payable as follows: 1996 -- $51,183; 1997 -- $53,854 and
1998 -- $18,185.
15. INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
As discussed in Note 1, Harris Williams is accounted for by the equity
method of accounting. The balance sheets for Harris Williams as of December 31,
1994 and 1995 and September 30, 1996 (unaudited) and statements of income for
the years ended December 31, 1993, 1994 and 1995 and for nine months ended
September 30, 1996 (unaudited) are as follows:
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1994 1995 1996
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents........................ $738,851 $737,682 $ 776,980
Accounts receivable.............................. 20,352 61,023 46,263
Other assets, net................................ 86,219 85,823 117,171
-------- -------- --------
Total Assets................................ $845,422 $884,528 $ 940,414
======== ======== ========
LIABILITIES AND STOCKHOLDER EQUITY
Liabilities...................................... $ 10,940 $ 44,436 $ 512,671
Stockholder equity............................... 834,482 840,092 427,743
-------- -------- --------
Total liabilities and stockholder equity.... $845,422 $884,528 $ 940,414
======== ======== ========
</TABLE>
F-13
<PAGE> 75
SIRROM CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER NINE MONTHS ENDED
------------------------------------ SEPTEMBER 30,
1993 1994 1995 1996
-------- ---------- ---------- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Fee Income....................... $498,543 $1,553,862 $2,257,496 $4,716,911
Expense reimbursements and
other.......................... 71,614 138,998 398,889 339,037
-------- ---------- ---------- ----------
570,157 1,692,860 2,656,385 5,055,948
-------- ---------- ---------- ----------
EXPENSES:
Salaries and benefits............ 206,607 884,396 1,314,723 1,881,103
Operating expenses............... 156,383 255,597 530,052 601,648
-------- ---------- ---------- ----------
362,990 1,139,993 1,844,775 2,482,751
-------- ---------- ---------- ----------
Net income....................... $207,167 $ 552,867 $ 811,610 $2,573,197
======== ========== ========== ==========
</TABLE>
Advisory services are typically provided by Harris Williams in accordance
with engagement contracts that stipulate a monthly retainer, reimbursement of
direct expenses and transaction closing fees. Retainer fees are recognized
notably over the retainer period, expense reimbursements are recognized monthly
as billed and success fees or recognized at the time of closing.
Prior to the acquisition by the Company, Harris Williams operated as a
limited partnership since August 1994 and as a Subchapter S corporation prior to
August 1994. As such, the statements of income do not include a provision for
income tax.
16. SUBSEQUENT EVENTS
In June 1996, the Company completed a third public offering of 2,300,000
shares of common stock at a price of $27.50 per share. The net proceeds of the
offering after underwriting commissions and expenses, were approximately
$59,237,000.
In August 1996, the Company completed a corporate reorganization pursuant
to which the Company's small business investment company ("SBIC") operations,
including its SBIC license, assets and liabilities were transferred to a
wholly-owned subsidiary. The subsidiary elected to be taxed as a RIC.
17. RECLASSIFICATIONS
Certain reclassifications have been made to the 1993 and 1994 financial
statements to conform to the 1995 presentation.
F-14
<PAGE> 76
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........................................ $ 1,849 $ 1,909 $ 2,413 $ 2,619
Pre-tax operating income...................................... 892 944 1,271 1,245
Net increase (decrease) in partners' capital resulting from
operations.................................................. 531 3,538 (75) 2,721
Per share:
Pretax operating income..................................... $ .20 $ .21 $ .26 $ .24
Net increase in partners' capital resulting from
operations............................................... .12 .77 (.02) .50
Dividends................................................... -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
1995
--------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total operating income........................................ $ 3,159 $ 3,552 $ 4,489 $ 5,186
Pretax operating income....................................... 1,457 1,908 2,632 2,917
Net increase in partners' capital and shareholders' equity
resulting from operations................................... 3,058 2,500 4,651 4,028
Per share:
Pre-tax operating income.................................... $ .19 $ .22 $ .28 $ .28
Net increase in partners' capital and shareholders' equity
resulting from operations................................ .40 .29 .49 .39
Dividends................................................... .13 .23 .21 .29
Market price of common stock:*
High........................................................ $ 12 $ 13 3/4 $ 18 3/4 $ 20
Low......................................................... 10 3/4 10 3/4 13 1/4 16 3/4
</TABLE>
- ---------------
* No public market for the stock prior to February 6, 1995.
F-15
<PAGE> 77
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-16
<PAGE> 78
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-17
<PAGE> 79
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-18
<PAGE> 80
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-19
<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>
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-20
<PAGE> 82
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-21
<PAGE> 83
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-22
<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>
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-23
<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>
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-24
<PAGE> 86
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....................................... 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-25
<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>
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-26
<PAGE> 88
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-27
<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>
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-28
<PAGE> 90
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS
AS OF SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
LOAN COUPON
MATURITY INTEREST
LOANS DATE RATE COST FAIR VALUE
- ------------------------------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
AB Plastics Holding Corporation............ 9/27/01 13.50% $ 4,000,000 $ 4,000,000
Affinity Fund, Inc......................... 6/29/98 12.50 1,485,000 1,497,182
Affinity Fund, Inc......................... 3/10/00 14.00 1,000,000 1,000,000
Affinity Fund, Inc......................... 12/28/98 12.50 495,000 495,830
American Corporate Literature, Inc......... 9/29/01 14.00 1,683,000 1,683,283
ARAC Holding Co., Inc...................... 9/27/01 13.50 3,000,000 3,000,000
American Network Exchange.................. 11/30/98 13.00 990,000 995,845
American Network Exchange.................. 1/18/99 13.00 990,000 995,511
Amscot Holdings, Inc....................... 5/26/00 14.00 800,000 800,000
Amscot Holdings, Inc....................... 9/20/00 14.00 200,000 200,000
Amscot Holdings, Inc....................... 6/28/01 14.00 500,000 500,000
Argenbright Holdings Limited............... 7/7/01 13.50 2,750,000 2,787,500
Ashe Industries, Inc....................... 12/28/97 12.50 990,000 232,058
Ashe Industries, Inc....................... 3/25/99 12.50 445,500 147,300
Ashe Industries, Inc....................... 5/18/99 12.50 544,500 146,524
Ashe Industries, Inc....................... 6/12/96 14.00 750,000 100,000
Ashe Industries, Inc....................... 6/12/96 14.00 285,546 0
Associated Response Services, Inc.......... 6/20/99 12.50 1,386,000 1,392,524
Associated Response Services, Inc.......... 2/15/00 12.50 335,000 335,000
Associated Response Services, Inc.......... 1/6/00 12.50 300,000 300,000
Assured Power, Inc......................... 10/1/00 13.50 700,000 700,000
Avionics Systems, Inc...................... 7/19/01 13.50 3,000,000 3,000,000
B & N Company, Inc......................... 8/8/00 12.50 2,970,000 2,977,000
B & N Company, Inc......................... 3/28/01 13.00 990,000 991,169
BankCard Services Corporation.............. 1/21/98 13.00 297,000 299,250
BiTec Southeast, Inc....................... 10/31/97 12.70 445,500 449,025
BiTec Southeast, Inc....................... 11/30/98 12.70 1,188,000 1,194,800
BiTec Southeast, Inc....................... 10/31/97 12.70 445,500 447,975
BiTec Southeast, Inc....................... 8/1/99 12.70 521,321 521,321
BiTec Southeast, Inc....................... 8/9/01 14.00 950,000 950,000
C.J. Spirits, Inc.......................... 5/1/97 13.50 750,171 455,796
Caldwell/VSR Inc........................... 2/28/01 8.00 1,500,000 1,500,000
Caldwell/VSR Inc........................... 9/27/01 14.00 116,000 116,000
Cardiac Control Systems, Inc............... 3/31/00 13.50 1,500,000 1,500,000
Cartech Holdings, Inc...................... 4/29/01 13.00 1,500,000 1,500,000
Carter Kaplan Holdings, LLC................ 6/22/00 14.00 594,000 144,800
Cedaron Medical, Inc....................... 6/28/01 13.50 1,500,000 1,500,000
Cell Call, Inc............................. 11/4/97 12.75 990,000 997,848
CF Data Corp............................... 3/16/00 13.75 1,732,500 1,738,048
Champion Glove Manufacturing Co.,Inc....... 7/27/00 13.50 1,250,000 1,250,000
Clearidge, Inc............................. 9/29/99 13.00 2,000,000 2,000,000
Clearidge, Inc............................. 12/28/00 13.50 500,000 500,000
Clearidge, Inc............................. 3/6/97 14.00 200,000 200,000
Colonial Investments, Inc.................. 10/16/00 13.75 800,000 800,000
Colonial Investments, Inc.................. 5/8/01 13.75 300,000 300,000
Consumat Systems, Inc...................... 11/1/00 14.00 500,000 500,000
Consumat Systems, Inc...................... 1/1/01 14.00 500,000 500,000
Consumat Systems, Inc...................... 3/11/01 14.00 500,000 500,000
</TABLE>
F-29
<PAGE> 91
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
LOAN COUPON
MATURITY INTEREST
LOANS DATE RATE COST FAIR VALUE
- ------------------------------------------- -------- ----- ------------ ------------
<S> <C> <C> <C> <C>
Consumer Credit Associates, Inc............ 12/6/00 13.50 $ 2,000,000 $ 2,000,000
Consumer Credit Associates, Inc............ 3/28/01 13.50 1,000,000 1,000,000
Consumer Credit Associates, Inc............ 8/12/01 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............. 11/16/99 13.00 200,000 200,000
Corporate Flight Mgmt, Inc................. 12/4/97 12.50 346,500 349,167
Cougar Power Products, Inc................. 10/5/96 13.00 495,000 172,169
Cougar Power Products, Inc................. 10/5/96 13.00 495,000 270,249
Cougar Power Products, Inc................. 10/5/96 14.00 325,000 100,000
Dalcon International, Inc.................. 1/31/02 13.00 150,000 150,000
Dalcon International, Inc.................. 1/31/00 13.00 200,000 200,000
Dalcon International, Inc.................. 5/15/96 13.00 25,000 25,000
Dalts, Inc................................. 4/28/01 13.50 2,000,000 2,000,000
DentureCare, Inc........................... 7/29/99 11.50 490,000 494,509
DentureCare, Inc........................... 11/3/00 14.00 111,150 111,150
DentureCare, Inc........................... 8/31/00 14.00 800,000 800,000
DentureCare, Inc........................... 1/11/01 12.50 550,000 550,000
Eastern Food Group LLC..................... 8/30/00 8.00 500,000 500,000
Eastern Food Group LLC..................... 12/20/00 8.00 200,000 200,000
Eastern Food Group LLC..................... 1/21/01 8.00 200,000 200,000
Eastern Food Group LLC..................... 2/14/01 8.00 265,000 265,000
Eastern Food Group LLC..................... 4/30/01 8.00 200,000 200,000
Eastern Food Group LLC..................... 9/10/01 8.00 100,000 100,000
Educational Medical Inc.................... 3/31/00 14.00 2,200,000 2,200,000
Electronic Merchant Services............... 2/27/00 13.50 1,237,500 1,040,204
Electronic Merchant Services............... 2/29/96 14.00 34,572 34,572
Electronic Merchant Services............... 2/29/96 14.00 134,000 134,000
Encore Orthopedics, Inc.................... 7/31/00 13.50 2,620,985 2,715,740
Encore Orthopedics, Inc.................... 2/28/01 13.00 1,667,680 1,711,992
Entek Scientific, Inc...................... 6/28/01 13.00 2,500,000 2,500,000
Express Shipping Centers, Inc.............. 9/22/00 13.25 1,697,598 1,817,289
Factory Card Outlet of America Ltd......... 11/15/00 12.50 3,670,917 3,731,682
Factory Card Outlet of America Ltd......... 6/27/01 12.50 915,622 921,246
FoodNet Holdings, LLC...................... 7/22/01 13.50 1,000,000 1,000,000
Fortrend Engineering Corp.................. 8/30/01 12.99 1,500,000 1,500,000
Front Royal, Inc........................... 10/1/99 13.00 1,550,000 1,550,000
Front Royal, Inc........................... 12/27/99 13.00 675,000 675,000
FX Direct, Inc............................. 1/23/01 13.50 2,324,000 2,350,400
Fycon Technologies, Inc.................... 12/17/00 12.50 100,000 100,000
Fycon Technologies, Inc.................... 5/16/00 10.00 350,000 350,000
Fycon Technologies, Inc.................... 8/30/00 14.00 1,000,000 800,000
Fycon Technologies, Inc.................... 12/17/00 14.00 100,000 100,000
Fycon Technologies, Inc.................... 5/30/96 12.50 100,000 100,000
Fycon Technologies, Inc.................... 6/30/96 12.50 130,000 130,000
Fycon Technologies, Inc.................... various 14.00 202,838 0
Fycon Technologies, Inc.................... 8/31/96 12.50 130,000 130,000
Fycon Technologies, Inc.................... 9/30/96 12.50 130,000 130,000
Gardner Wallcovering, Inc.................. 3/28/01 13.50 1,485,000 1,486,750
Gates Communications, L.P.................. 12/30/98 12.50 990,000 995,010
</TABLE>
F-30
<PAGE> 92
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
LOAN COUPON
MATURITY INTEREST
LOANS DATE RATE COST FAIR VALUE
- ------------------------------------------- -------- ----- ------------ ------------
<S> <C> <C> <C> <C>
Gates Communications, L.P.................. 12/30/98 14.00 $ 125,000 $ 125,000
Gates Communications, L.P.................. 12/30/98 14.00 145,000 145,000
General Materials Management, Inc.......... 7/29/01 13.50 2,500,000 2,500,000
Global Finance and Leasing, Inc............ 1/3/00 13.00 1,500,000 1,500,000
Global Marine Electronics, Inc............. 5/1/01 13.00 1,350,000 1,350,000
Gold Medal Products, Inc................... 11/19/00 13.50 1,250,000 1,250,000
Gold Medal Products, Inc................... 2/15/01 13.50 25,000 25,000
Gold Medal Products, Inc................... 6/27/01 13.50 100,000 100,000
Gold Medal Products, Inc................... 7/31/01 13.50 100,000 100,000
Golf Corporation of America, Inc........... 9/16/99 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 Corporation of America, Inc........... 7/13/96 14.00 100,000 100,000
Golf Corporation of America, Inc........... 10/5/96 14.00 50,000 50,000
Golf Video, Inc............................ 3/27/01 14.00 500,000 500,000
Gulfstream International Airlines Inc...... 7/29/99 13.00 1,490,000 1,496,012
Gulfstream International Airlines Inc...... 9/25/00 13.50 1,000,000 1,000,000
Gulfstream International Airlines Inc...... 10/15/96 14.00 1,000,000 1,000,000
Hancock Company (acquired Gitman).......... 12/31/00 14.00 1,700,000 400,000
Hancock Company (acquired Gitman).......... 6/28/01 10.25 200,000 200,000
Horizon Medical Products, Inc.............. 9/22/00 13.75 1,500,000 1,500,000
Hoveround Corporation...................... 6/11/98 13.00 495,000 498,115
Hoveround Corporation...................... 3/8/00 13.00 250,000 250,000
HPC America, Inc........................... 8/15/01 13.50 2,970,000 2,971,000
HSA International, Inc..................... 1/4/01 14.00 1,485,000 986,500
HSA International, Inc..................... 5/15/01 14.00 300,000 300,000
HSA International, Inc..................... 5/23/01 14.00 100,000 100,000
HSA International, Inc..................... 7/8/01 14.00 250,000 250,000
Hunt Incorporated.......................... 3/31/00 14.00 3,250,000 3,250,000
H & H Acq. Corp............................ 8/30/01 14.00 1,500,000 1,500,000
I. Schneid Acquisition, LLC................ 4/1/01 14.00 2,000,000 2,000,000
ILD Communications......................... 5/10/01 13.50 1,500,000 1,500,000
In-Store Services, Inc..................... 4/19/00 14.00 1,188,000 1,191,600
Innotech, Inc.............................. 3/22/99 13.00 1,980,000 1,990,323
Intermed Healthcare Systems, Inc........... 6/29/99 12.00 742,500 746,000
Intermed Healthcare Systems, Inc........... 2/10/00 14.00 375,000 375,000
Johnston County Cable, L.P................. 8/31/00 14.00 1,990,000 1,992,171
Kentucky Kingdom, Inc...................... 4/4/99 8.25 250,000 250,000
Kentucky Kingdom, Inc...................... 1/5/98 12.50 1,980,000 1,994,986
Kentucky Kingdom, Inc...................... 9/26/99 10.50 1,200,000 1,200,000
Kentucky Kingdom, Inc...................... 3/1/00 14.00 835,000 835,000
Kentucky Kingdom, Inc...................... 11/6/00 12.50 1,500,000 1,500,000
Kentucky Kingdom, Inc...................... 3/30/98 14.00 2,000,000 2,000,000
Kryptonics, Inc............................ 12/14/00 12.90 2,500,000 2,500,000
KWC Management Co., LLC.................... 4/25/01 14.00 500,000 500,000
Leisure Clubs International, Inc........... 4/1/01 14.00 1,485,000 1,486,500
Lovett's Buffet, Inc....................... 4/1/00 13.00 2,250,000 2,250,000
Mayo Hawaiian Corp......................... 6/27/01 14.00 2,200,000 2,200,000
MBA Marketing Corporation.................. 2/4/99 12.50 1,782,000 1,791,600
</TABLE>
F-31
<PAGE> 93
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
LOAN COUPON
MATURITY INTEREST
LOANS DATE RATE COST FAIR VALUE
- ------------------------------------------- -------- ----- ------------ ------------
<S> <C> <C> <C> <C>
McAuley's Incorporated..................... 7/31/01 13.00 $ 3,000,000 $ 3,000,000
Medical Associates of America, Inc......... 11/1/97 12.50 385,000 392,000
Money Transfer Systems, Inc................ 7/24/00 14.00 247,500 248,130
Money Transfer Systems, Inc................ 12/20/00 14.00 148,500 148,750
Money Transfer Systems, Inc................ 3/1/01 14.00 148,500 148,675
Money Transfer Systems, Inc................ 5/2/01 14.00 148,500 148,575
Money Transfer Systems, Inc................ 7/8/01 14.00 148,500 148,575
Monogram Products, Inc..................... 6/18/01 13.50 916,000 921,600
Moore Diversified Products, Inc............ 6/16/00 13.50 800,000 800,000
Multicom Publishing, Inc................... 3/29/01 13.00 2,200,000 2,293,331
Multimedia Learning, Inc................... 5/8/00 14.00 1,500,000 1,500,000
Multimedia Learning, Inc................... 4/18/01 13.50 500,000 500,000
Multimedia Learning, Inc................... 9/12/01 13.50 750,000 750,000
NASC, Inc.................................. 6/26/01 13.50 1,500,000 1,500,000
Nationwide Engine Supply, Inc.............. 1/12/99 12.00 2,475,000 2,488,761
Nationwide Engine Supply, Inc.............. 9/26/01 13.50 1,000,000 1,000,000
Nelson Juvenile Products, LLC.............. 10/31/00 14.00 2,000,000 2,000,000
Novavision, Inc............................ 6/21/99 10.00 1,000,000 1,000,000
Novavision, Inc............................ 6/21/00 10.00 350,000 350,000
Novavision, Inc............................ 10/16/00 10.00 100,000 100,000
Novavision, Inc............................ 12/4/01 10.00 351,500 351,500
Novavision, Inc............................ 11/30/96 10.00 40,000 40,000
NRI Service and Supply L.P................. 2/13/00 14.00 2,225,000 2,233,340
Orchid Manufacturing Group, Inc............ 9/14/00 13.00 2,960,000 2,966,670
Orchid Manufacturing Group, Inc............ 12/28/00 13.50 1,000,000 1,000,000
Palco Telecom Service, Inc................. 11/22/99 12.00 1,300,000 1,300,000
Patton Management Corporation.............. 5/26/00 13.50 1,900,000 1,900,000
PaySys International, Inc.................. 5/1/97 13.00 990,000 998,791
PFIC Corporation........................... 2/28/01 13.00 1,000,000 1,000,000
Pharmaceutical Research Assoc., Inc........ 8/10/00 13.50 1,980,000 1,984,662
Pipeliner Systems, Inc..................... 9/30/98 10.00 980,000 992,321
Plymouth, Inc.............................. 9/28/00 13.00 1,000,000 1,000,000
Precision Fixtures & Graphics, Inc......... 4/11/01 14.00 1,095,000 1,095,000
Precision Fixtures & Graphics, Inc......... 4/11/01 14.00 300,000 300,000
Precision Fixtures & Graphics, Inc......... 5/8/01 14.00 100,000 100,000
Precision Fixtures & Graphics, Inc......... 5/28/01 14.00 75,000 75,000
Precision Fixtures & Graphics, Inc......... 7/12/01 14.00 75,000 75,000
Precision Fixtures & Graphics, Inc......... 7/22/01 14.00 100,000 100,000
Precision Fixtures & Graphics, Inc......... 8/27/01 14.00 250,000 250,000
Precision Fixtures & Graphics, Inc......... 8/27/01 14.00 295,000 295,000
Precision Fixtures & Graphics, Inc......... 8/27/01 14.00 150,000 150,000
Precision Panel Products, Inc.............. 1/11/00 12.75 1,485,000 1,490,250
Pritchard Paint & Glass Co................. 2/14/01 14.00 567,431 567,431
Quest Group International, Inc............. 11/15/00 13.25 1,125,000 1,147,913
Quest Group International, Inc............. 9/3/01 14.00 1,350,000 1,352,500
Radio Systems Corporation.................. 12/27/99 13.00 905,725 940,287
Scandia Technologies, Inc.................. 4/9/01 14.00 1,825,000 1,825,000
Sheet Metal Specialties, Inc............... 6/20/01 14.00 250,000 250,000
SkillSearch Corporation.................... 2/5/98 13.00 496,000 499,148
</TABLE>
F-32
<PAGE> 94
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
LOAN COUPON
MATURITY INTEREST
LOANS DATE RATE COST FAIR VALUE
- ------------------------------------------- -------- ----- ------------ ------------
<S> <C> <C> <C> <C>
SkillSearch Corporation.................... 3/10/97 14.00 $ 100,000 $ 100,000
Softsense Computer Products, Inc........... 6/27/01 14.00 2,760,000 2,776,000
Softsense Computer Products, Inc........... 9/24/01 14.00 1,500,000 1,500,000
Southern Specialty Brands, Inc............. 6/30/01 14.00 1,732,500 1,735,128
Sqwincher Corporation...................... 1/31/00 13.50 500,000 500,000
Summit Publishing Group, Ltd............... 3/17/99 12.00 1,485,000 1,492,750
Summit Publishing Group, Ltd............... 7/26/01 14.00 625,000 625,000
Suncoast Medical Group, Inc................ 9/14/99 13.50 485,000 491,748
Suncoast Medical Group, Inc................ 6/7/00 14.00 495,000 495,830
Suncoast Medical Group, Inc................ 2/23/01 14.00 495,000 495,664
TCOM Systems, Inc.......................... 2/5/98 13.00 490,914 490,914
Tower Environmental, Inc................... 11/30/98 10.00 2,440,000 2,201,990
Tower Environmental, Inc................... 5/30/95 12.50 150,000 150,000
Trade Am International, Inc................ 9/30/00 12.75 4,000,000 4,000,000
UltraFab, Inc.............................. 6/27/01 14.00 1,500,000 1,500,000
Unique Electronics, Inc.................... 11/30/99 10.67 600,000 600,000
Urethane Technologies, Inc................. 3/16/01 13.50 1,636,520 1,678,926
Valdawn, LLC............................... 4/13/00 13.50 2,399,974 2,400,000
Viking Moorings Acquisition, LLC........... 12/15/00 13.00 1,655,500 1,712,920
Virtual Resources Inc...................... 8/16/01 14.00 3,000,000 3,000,000
Vista Information Solutions, Inc........... 4/30/01 13.50 2,032,157 2,063,345
WWR Technology, Inc........................ 6/30/97 13.50 394,700 398,920
Zahren Alternative Power Corp.............. 1/30/00 13.00 495,000 495,826
Zahren Alternative Power Corp.............. 11/27/99 13.00 1,980,000 1,988,678
------------ ------------
Total Loans.............................. $225,656,411 $220,049,964
============ ============
</TABLE>
F-33
<PAGE> 95
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF SEPTEMBER 30, 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......... 208,698 $ 1,771,149 $ 751,313
Trans Global Services, Inc. Common Stock.............. 28,088 5,300 36,456
Moovies, Inc. Common Stock............................ 156,110 1,561 669,322
Premiere Technologies, Inc. Common Stock.............. 378,360 0 8,059,068
Cardiac Control Systems, Inc. Common Stock............ 50,000 250,000 59,062
Innotech, Inc. Common Stock........................... 65,530 20,000 602,057
American Exchange Network Common Stock................ 139,651 21,879 231,297
EQUITY INVESTMENTS IN PRIVATE COMPANIES
Skillsearch Corporation Common Stock.................. 2,241 250,035 150,000
Potomac Group, Inc. Preferred Stock -- Series A....... 800,000 1,000,000 2,000,000
Potomac Group, Inc. Common Stock...................... 479,115 289,779 1,299,038
Kentucky Kingdom, Inc. Common Stock................... 13,260 258,316 1,650,000
Golf Corporation of America, Inc. Common Stock........ 100,000 100,000 0
International Risk Control, Inc. Preferred
Stock -- Series A................................... 200,000 50,000 50,000
DentureCare, Inc. Preferred Stock -- Series E......... 490,978 800,000 800,000
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
NovaVision, Inc. Preferred Stock -- Series A.......... 1,763,846 1,763,846 1,763,846
Fycon Technologies, Inc. Preferred Stock -- Series
A................................................... 597,162 597,162 0
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 LLC Class B Preferred Units........ 7,500 754,444 0
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
Electronic Merchant Services Series B Preferred
Stock............................................... 163 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
Precision Fixtures & Graphics, Inc. Preferred Stock... 1,500,000 1,500,000 1,100,000
Palco Telecom Service Common Stock.................... 157,895 1,579 1,579
----------- -----------
Total Equity Interests.............................. $16,150,050 $25,578,037
=========== ===========
</TABLE>
F-34
<PAGE> 96
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
WARRANTS SHARES/UNITS OWNERSHIP VALUE FAIR VALUE
- ------------------------------------------ -------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
PUBLICLY TRADED COMPANIES
American Network Exchange................. 13,988 0.00% $ 0 $ 0
Cardiac Control Systems, Inc.............. 100,000 4.35 0 118,125
Consumat Systems, Inc..................... 250,000 20.00 0 183,750
Moovies, Inc.............................. 20,000 0.20 0 85,750
Multicom Publishing, Inc.................. 163,791 4.80 800,000 611,486
Urethane Technologies, Inc................ 484,640 4.66 363,480 296,842
Vista Information Solutions, Inc.......... 1,247,582 5.00 467,843 836,920
PRIVATE COMPANIES
AB Plastics Holding Corporation........... 200,000 20.00 0 0
Affinity Corporation...................... 2,041 10.04 20,000 385,000
Alvin Carter Holdings Corp................ 20 2.00 0 0
American Corporate Literature............. 222,197% 19.72 17,000 17,000
American Rockwool Acquisition Corp........ 1,100,000 11.00 0 0
Amscot Holdings, Inc...................... 1,409 22.02 0 0
Argenbright Holdings LLC.................. 18 3.50 750,000 750,000
Ashe Industries, Inc...................... 225 17.14 20,000 0
Associated Response Services, Inc......... 356 24.27 14,000 1,000,000
Assured Power, Inc........................ 234 16.00 0 0
Auto Rental Systems, Inc.................. 144,869 9.00 0 285,000
Avionics Systems, Inc..................... 15.00% of Co. 15.00 0 0
B & N Company, Inc........................ 46 4.00 40,000 40,000
BankCard Services Corporation............. 149,261 28.00 3,000 0
BiTec Southeast, Inc...................... 1,480 15.00 21,000 55,000
Carter Kaplan Holdings, LLC............... 24 24.00 6,100 0
C.J. Spirits, Inc......................... 180,000 10.00 7,500 0
Caldwell/VSR Inc.......................... 159 15.93 0 0
Cartech................................... 210,527 20.00 0 0
Cedaron Medical, Inc...................... 173,981 4.25 0 0
CellCall, Inc............................. 358 1.35 10,000 125,000
CF Data Corp.............................. 257 20.50 17,500 17,500
Champion Glove Manufacturing Co., Inc..... 538,614 6.88 0 0
Clearidge, Inc............................ 449,039 9.32 0 0
CLS Corporation........................... 126,997 4.22 0 0
Colonial Investments, Inc................. 264 18.00 0 0
Consumer Credit Associates, Inc........... 3,669 15.50 0 0
Continental Diamond Cutting Company....... 112 12.22 0 0
Corporate Flight Mgmt., Inc............... 66,315 6.63 3,500 100,000
Cougar Power Products, Inc................ 336 22.61 10,000 0
Dalcon Technologies, Inc.................. 250,000 20.00 0 0
Dalt's, Inc............................... 125 25.00 0 0
Delaware Publishing Group, Inc............ 4,386 37.00 15,000 15,000
DentureCare, Inc.......................... 628,500 12.65 10,000 375,000
Eastern Food Group LLC.................... 17,647 15.00 0 0
</TABLE>
F-35
<PAGE> 97
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
WARRANTS SHARES/UNITS OWNERSHIP VALUE FAIR VALUE
- ------------------------------------------ ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Educational Medical, Inc.................. 141,667 8.00 $ 0 $ 900,000
Electronic Merchant Services.............. 430 12.50 12,500 0
Encore Orthopedics, Inc................... 524,094 7.36 711,335 711,335
Entek Scientific Corporation.............. 18,548 4.25 0 0
Express Shipping Centers, Inc............. 73,752 3.00 552,402 552,402
FCOA Acquisition Corp..................... 29,724 3.13 413,461 815,000
Foodnet Holdings, LLC..................... 8.00% of LLC 8.00 0 0
Fortrend Engineering Corp................. 437,552 3.25 0 0
Front Royal, Inc.......................... 240,458 3.59 0 420,000
Fycon Technologies, Inc................... 58,677 15.00 0 0
Gardner Wallcovering, Inc................. 2 2.00 15,000 15,000
Gates Communication L.P................... 47.00% of L.P. 47.00 10,000 0
General Materials Management Inc.......... 600,000 10.00 0 0
Global Finance & Leasing, Inc............. 5,000 25.00 0 0
Global Marine............................. 5,137 18.00 0 0
Gold Medal Products, Inc.................. 102,370 32.77 0 0
Golf Corporation of America, Inc.......... 390,000 31.50 0 0
Golf Video, Inc........................... 98 49.50 0 0
Gulfstream International Airlines, Inc.... 271 27.00 10,000 140,000
H & H Acquisition Corp.................... 3,600 22.50 0 0
Horizon Medical Products, Inc............. ,486 8.25 0 0
Hoveround Corporation..................... 491 10.00 5,000 750,000
HPC America, Inc.......................... 5 2.75 30,000 30,000
HSA International, Inc.................... 2,534,003 62.49 15,000 0
Hunt Incorporated......................... 44 10.00 0 100,000
Hunt Leasing & Rental Corporation......... 265 10.00 0 100,000
I. Schneid Holdings LLC................... 11% of LLC 11.00 0 0
ILD Communications........................ 5,429 3.20 0 0
In Store Services, Inc.................... 429 12.50 12,000 12,000
Intermed Healthcare Systems, Inc.......... 11,884 10.50 7,500 7,500
Johnston County Cable L.P................. 27.5% of LP 27.50 10,000 10,000
Kentucky Kingdom, Inc..................... 6,132 2.00 0 0
K.W.C. Management Corp.................... 794 24.40 0 0
Kryptonics, Inc........................... 1,255 9.00 0 400,000
Leisure Clubs International, Inc.......... 144 10.00 15,000 15,000
Lovett's Buffet, Inc...................... 204,219 5.00 0 400,000
Mayo Hawaiian Corp........................ 81 7.50 0 0
MBA Marketing Corporation................. 11,100 4.29 18,000 18,000
McAuley's Incorporated.................... 64 6.00 0 0
Money Transfer Systems, Inc............... 94 8.50 8,500 8,500
Monogram Products, Inc.................... 1,276 6.00 84,000 84,000
Moore Diversified Products, Inc........... 12 11.00 0 0
Multimedia Learning, Inc.................. 116,450 7.32 0 800,000
NASC, Inc................................. 130 13.00 0 0
Nationwide Engine Supply, Inc............. 1,265,664 20.20 25,000 25,000
</TABLE>
F-36
<PAGE> 98
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
WARRANTS SHARES/UNITS OWNERSHIP VALUE FAIR VALUE
- ------------------------------------------ -------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Nelson Juvenile Products, LLC............. 30 30.00 $ 0 $ 0
Novavision, Inc........................... 222,222 10.00 0 0
NRI Service and Supply, L.P............... 27.5% of LP 27.50 25,000 25,000
Orchid Manufacturing, Inc................. 1,719,047 4.50 40,000 540,000
P.A. Plymouth, Inc........................ 92,647 15.00 0 0
Patton Management Corporation............. 426 10.00 0 185,000
PaySys International, Inc................. 30,000 2.68 10,000 10,000
PFIC Corporation.......................... 5,917 6.00 0 0
Pharmaceutical Research Assoc., Inc....... 259,848 6.00 20,000 685,000
Pipeliner Systems, Inc.................... 2,080,000 20.55 20,000 20,000
Precision Fixtures & Graphics, Inc........ 2,602 51.00 0 0
Precision Panel Products, Inc............. 122 8.25 15,000 15,000
Pritchard Glass, Inc...................... 12,500 25.00 0 0
Quest Group International, Inc............ 88,840 17.79 275,000 275,000
Radio Systems Corporation................. 162,167 8.92 94,275 600,000
Ryland Company............................ 1,518 20.50 0 0
Scandia Technologies, Inc................. 282 22.00 0 0
SkillSearch Corporation................... 2,381 7.59 254,000 150,000
Softsense Computer Products, Inc.......... 171,642 1.50 240,000 240,000
Southern Specialty Brands, Inc............ 10,000 10.00 17,500 17,500
Suncoast Medical Group, Inc............... 580,159 23.00 25,000 0
Suprex Corporation........................ 1,058,179 3.45 0 0
Tower Environmental, Inc.................. 82 10.07 20,000 0
Trade Am International, Inc............... 335,106 6.00 0 0
Treasure Coast Pizza Co................... 51 10.00 0 8,500
UltraFab, Inc............................. 120,000 12.00 0 0
Unique Electronics, Inc................... 20% of Co. 20.00 0 0
Universal Marketing Corporation........... 111 10.00 0 0
VDI Acquisition Company, LLC.............. 2,658 21.00 26 26
Viking Moorings Acquisition, LLC.......... 7 6.50 344,500 344,500
Virginia Gas Company...................... 59,413 10.00 0 160,000
Virtual Resources, Inc.................... 8 7.50 0 0
Voice FX Corporation...................... 233,112 8.00 176,000 176,000
Zahren Alternative Power Corporation...... 1,168 6.54 25,000 25,000
------------ ------------
Total Warrants.......................... $ 6,151,922 $ 15,087,636
------------ ------------
Total Investments....................... $247,958,383 $260,715,637
============ ============
</TABLE>
- ---------------
(a) All restricted or locked up publicly traded stocks and warrants are being
valued each month at 70% of the publicly traded price. All other publicly
traded stocks are valued at 90% of the publicly traded price.
F-37
<PAGE> 99
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 September 30, 1996
(unaudited)
Statements of Operations for the Years Ended December 31, 1993, 1994 and
1995 and for the Nine Months Ended September 30, 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 Nine Months Ended
September 30, 1996 (unaudited)
Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and
1995 and the Nine Months Ended September 30, 1995 and 1996 (unaudited)
Financial Highlights
Per Share Data for the Year Ended December 31, 1995 and the Nine Months
Ended September 30, 1996 (unaudited)
Ratios/Supplemental Data for the Years Ended December 31, 1993, 1994 and
1995 and the Nine Months Ended September 30, 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 September 30, 1996 (unaudited)
2. EXHIBITS.
<TABLE>
<C> <S> <C>
a. -- Amended and Restated Charter of the Company (incorporated by reference to Exhibit
3.1 to the Registrant's Quarterly Report on Form 10-Q for the period ending
September 30, 1996), filed with the Commission on November 14, 1996)
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 Amended and Restated Charter (incorporated by reference to Exhibit 3.1 to
the Registrant's Quarterly Report on Form 10-Q for the period ending September 30,
1996, filed with the Commission on November 14, 1996)
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)
</TABLE>
C-1
<PAGE> 100
<TABLE>
<C> <S> <C>
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)
f.1 -- Fourth Amended and Restated Loan Agreement dated as of August 16, 1996, by and
among SII, as borrower, the Company, as guarantor, the lenders referred to herein,
and First Union National Bank of Tennessee, as Agent (incorporated by reference to
Exhibit 7.1 to SII's Post-Effective Amendment No. 1 to Registration Statement on
Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996)
f.2 -- Fourth Amended and Restated Revolving Credit Note dated August 16, 1996, in the
principal amount of $27,500,000, made by SII in favor of First Union National Bank
of Tennessee (incorporated by reference to Exhibit 7.2 to SII's Post-Effective
Amendment No. 1 to Registration Statement on Form N-5 (File No. 811-7779), filed
with the Commission on November 7, 1996)
f.3 -- Revolving Credit Note dated August 16, 1996, in the principal amount of
$10,000,000, made by SII in favor of Amsouth Bank of Tennessee (incorporated by
reference to Exhibit 7.3 to SII's Post-Effective Amendment No. 1 to Registration
Statement on Form N-5 (File No. 811-7779), filed with the Commission on November 7,
1996)
f.4 -- Revolving Credit Note dated August 16, 1996, in the principal amount of $7,500,000,
made by SII in favor of First American National Bank (incorporated by reference to
Exhibit 7.4 to SII's Post-Effective Amendment No. 1 to Registration Statement on
Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996)
f.5 -- Amended and Restated Swingline Note dated August 16, 1996, in the principal amount
of $5,000,000, made by SII in favor of First Union National Bank of Tennessee
(incorporated by reference to Exhibit 7.5 to SII's Post-Effective Amendment No. 1
to Registration Statement on Form N-5 (File No. 811-7779), filed with the
Commission on November 7, 1996)
f.6 -- Fourth Amended and Restated Revolving Credit Note dated August 16, 1996, in the
principal amount of $5,000,000, made by SII in favor of First Tennessee Bank
National Association (incorporated by reference to Exhibit 7.6 to SII's
Post-Effective Amendment No. 1 to Registration Statement on Form N-5 (File No.
811-7779), filed with the Commission on November 7, 1996)
f.7 -- Third Amended and Restated Security Agreement dated August 16, 1996, by and between
SII and First Union National Bank of Tennessee (incorporated by reference to
Exhibit 7.7 to SII's Post-Effective Amendment No. 1 to Registration Statement on
Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996)
f.8 -- Amended and Restated Borrower Pledge Agreement dated August 16, 1996, made by SII
in favor of First Union National Bank of Tennessee (incorporated by reference to
Exhibit 7.8 to SII's Post-Effective Amendment No. 1 to Registration Statement on
Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996)
f.9 -- Amended and Restated Security Agreement dated as of August 16, 1996, by and between
SII and the SBA (incorporated by reference to Exhibit 7.10 to SII's Post-Effective
Amendment No. 1 to Registration Statement on Form N-5 (File No. 811-7779), filed
with the Commission on November 7, 1996)
f.10 -- Amended and Restated Pledge Agreement dated as of August 16, 1996, by and between
SII and the SBA (incorporated by reference to Exhibit 7.11 to SII's Post-Effective
Amendment No. 1 to Registration Statement on Form N-5 (File No. 811-7779), filed
with the Commission on November 7, 1996)
f.11 -- Guaranty Agreement dated August 16, 1996 by and between the Company and the SBA
(incorporated by reference to the Company's Quarterly Report on Form 10-Q for the
period ending September 30, 1996, filed with the Commission on November 14, 1996)
f.12 -- Master Trust Indenture and Security Agreement Supplement dated as of December 31,
1996, by and between SFC as Issuer, the Company as Servicer, First Trust National
Association as Trustee and ING Baring (U.S.) Capital Markets, Inc.
*f.13 -- Revolving Note, Series 1996-1 dated December 31, 1996, with a principal amount of
$100,000,000 made by SFC in favor of First Trust National Association
f.14 -- Loan Sale and Contribution Agreement dated as of December 31, 1996, by and between
the Company as Originator and Servicer and SFC as Buyer
</TABLE>
C-2
<PAGE> 101
<TABLE>
<C> <S> <C>
f.15 -- Custodial Agreement dated as of December 31, 1996, by and among SFC, the Company,
First Trust National Association and ING Baring (U.S.) Capital Markets, Inc.
f.16 -- Backup Servicing Agreement dated as of December 31, 1996, by and among First Trust
National Association, the Company and ING Baring (U.S.) Capital Markets, Inc.
f.17 -- Fee Agreement dated as of December 31, 1996, by and among the Company, SFC, and ING
Baring (U.S.) Capital Markets, Inc.
f.18 -- ISDA Master Agreement dated as of November 26, 1996, by and between the Company and
NationsBank, N.A.
*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 -- 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.2 -- 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 (incorporated by reference to Exhibit k.9 to the Company's
Registration Statement on Form N-2 (File No. 333-4023), filed with the Commission
on May 17, 1996)
k.3 -- Master Trust Indenture and Security Agreement dated as of December 31, 1996, by and
among SFC as Issuer, the Company as Servicer and First Trust National Association
as Trustee
*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)
r. -- Financial Data Schedule (for SEC use only)
</TABLE>
- ---------------
* To be filed by amendment
(c) Not applicable
ITEM 25. MARKETING ARRANGEMENTS
The information contained under the heading "Underwriters" on pages 54
through 56 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> 102
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC registration fee.............................................................. $ 35,624
NASD fee.......................................................................... $
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.
Sirrom Investments, Inc., a Tennessee corporation, is a wholly-owned
subsidiary of the Company. Harris Williams & Co., a Virginia corporation, is a
wholly-owned subsidiary of the Company. Sirrom Funding Corporation, a Delaware
corporation, is a wholly-owned subsidiary of the Company. Tandem Capital, Inc.,
a Tennessee corporation, is a wholly-owned subsidiary of the Company. SCCGS,
Inc., a Tennessee corporation, is a wholly-owned subsidiary of the Company.
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..................................................... 169
</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.
C-4
<PAGE> 103
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
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> 104
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 9th day of January, 1997.
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, and to file the same, with the Securities and
Exchange Commission, granting unto said attorneys-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 Amendment
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 January 9, 1997
- --------------------------------------------- Director
John A. Morris, Jr., M.D.
/s/ GEORGE M. MILLER, II Chief Executive Officer, January 9, 1997
- --------------------------------------------- President and Director
George M. Miller, II (Principal Executive
Officer)
/s/ CARL W. STRATTON Chief Financial Officer January 9, 1997
- --------------------------------------------- (Principal Financial and
Carl W. Stratton Accounting Officer)
/s/ E. TOWNES DUNCAN Director January 9, 1997
- ---------------------------------------------
E. Townes Duncan
/s/ WILLIAM D. EBERLE Director January 9, 1997
- ---------------------------------------------
William D. Eberle
/s/ EDWARD J. MATHIAS Director January 9, 1997
- ---------------------------------------------
Edward J. Mathias
/s/ ROBERT A. MCCABE, JR. Director January 9, 1997
- ---------------------------------------------
Robert A. McCabe, Jr.
/s/ RAYMOND H. PIRTLE, JR. Director January 9, 1997
- ---------------------------------------------
Raymond H. Pirtle, Jr.
/s/ L. EDWARD WILSON Director January 9, 1997
- ---------------------------------------------
L. Edward Wilson
</TABLE>
C-6
<PAGE> 105
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
<C> <S> <C>
a. -- Amended and Restated Charter of the Company (incorporated by reference to Exhibit
3.1 to the Registrant's Quarterly Report on Form 10-Q for the period ending
September 30, 1996), filed with the Commission on November 14, 1996)
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 Amended and Restated Charter (incorporated by reference to Exhibit 3.1 to
the Registrant's Quarterly Report on Form 10-Q for the period ending September 30,
1996, filed with the Commission on November 14, 1996)
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)
f.1 -- Fourth Amended and Restated Loan Agreement dated as of August 16, 1996, by and
among SII, as borrower, the Company, as guarantor, the lenders referred to herein,
and First Union National Bank of Tennessee, as Agent (incorporated by reference to
Exhibit 7.1 to SII's Post-Effective Amendment No. 1 to Registration Statement on
Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996)
f.2 -- Fourth Amended and Restated Revolving Credit Note dated August 16, 1996, in the
principal amount of $27,500,000, made by SII in favor of First Union National Bank
of Tennessee (incorporated by reference to Exhibit 7.2 to SII's Post-Effective
Amendment No. 1 to Registration Statement on Form N-5 (File No. 811-7779), filed
with the Commission on November 7, 1996)
f.3 -- Revolving Credit Note dated August 16, 1996, in the principal amount of
$10,000,000, made by SII in favor of Amsouth Bank of Tennessee (incorporated by
reference to Exhibit 7.3 to SII's Post-Effective Amendment No. 1 to Registration
Statement on Form N-5 (File No. 811-7779), filed with the Commission on November 7,
1996)
f.4 -- Revolving Credit Note dated August 16, 1996, in the principal amount of $7,500,000,
made by SII in favor of First American National Bank (incorporated by reference to
Exhibit 7.4 to SII's Post-Effective Amendment No. 1 to Registration Statement on
Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996)
f.5 -- Amended and Restated Swingline Note dated August 16, 1996, in the principal amount
of $5,000,000, made by SII in favor of First Union National Bank of Tennessee
(incorporated by reference to Exhibit 7.5 to SII's Post-Effective Amendment No. 1
to Registration Statement on Form N-5 (File No. 811-7779), filed with the
Commission on November 7, 1996)
</TABLE>
<PAGE> 106
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
<C> <S> <C>
f.6 -- Fourth Amended and Restated Revolving Credit Note dated August 16, 1996, in the
principal amount of $5,000,000, made by SII in favor of First Tennessee Bank
National Association (incorporated by reference to Exhibit 7.6 to SII's
Post-Effective Amendment No. 1 to Registration Statement on Form N-5 (File No.
811-7779), filed with the Commission on November 7, 1996)
f.7 -- Third Amended and Restated Security Agreement dated August 16, 1996, by and between
SII and First Union National Bank of Tennessee (incorporated by reference to
Exhibit 7.7 to SII's Post-Effective Amendment No. 1 to Registration Statement on
Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996)
f.8 -- Amended and Restated Borrower Pledge Agreement dated August 16, 1996, made by SII
in favor of First Union National Bank of Tennessee (incorporated by reference to
Exhibit 7.8 to SII's Post-Effective Amendment No. 1 to Registration Statement on
Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996)
f.9 -- Amended and Restated Security Agreement dated as of August 16, 1996, by and between
SII and the SBA (incorporated by reference to Exhibit 7.10 to SII's Post-Effective
Amendment No. 1 to Registration Statement on Form N-5 (File No. 811-7779), filed
with the Commission on November 7, 1996)
f.10 -- Amended and Restated Pledge Agreement dated as of August 16, 1996, by and between
SII and the SBA (incorporated by reference to Exhibit 7.11 to SII's Post-Effective
Amendment No. 1 to Registration Statement on Form N-5 (File No. 811-7779), filed
with the Commission on November 7, 1996)
f.11 -- Guaranty Agreement dated August 16, 1996 by and between the Company and the SBA
(incorporated by reference to the Company's Quarterly Report on Form 10-Q for the
period ending September 30, 1996, filed with the Commission on November 14, 1996)
f.12 -- Master Trust Indenture and Security Agreement Supplement dated as of December 31,
1996, by and between SFC as Issuer, the Company as Servicer, First Trust National
Association as Trustee and ING Baring (U.S.) Capital Markets, Inc.
*f.13 -- Revolving Note, Series 1996-1 dated December 31, 1996, with a principal amount of
$100,000,000 made by SFC in favor of First Trust National Association
f.14 -- Loan Sale and Contribution Agreement dated as of December 31, 1996, by and between
the Company as Originator and Servicer and SFC as Buyer
f.15 -- Custodial Agreement dated as of December 31, 1996, by and among SFC, the Company,
First Trust National Association and ING Baring (U.S.) Capital Markets, Inc.
f.16 -- Backup Servicing Agreement dated as of December 31, 1996, by and among First Trust
National Association, the Company and ING Baring (U.S.) Capital Markets, Inc.
f.17 -- Fee Agreement dated as of December 31, 1996, by and among the Company, SFC, and ING
Baring (U.S.) Capital Markets, Inc.
f.18 -- ISDA Master Agreement dated as of November 26, 1996, by and between the Company and
NationsBank, N.A.
*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)
</TABLE>
<PAGE> 107
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
<C> <S> <C>
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 -- 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.2 -- 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 (incorporated by reference to Exhibit k.9 to the Company's
Registration Statement on Form N-2 (File No. 333-4023), filed with the Commission
on May 17, 1996)
k.3 -- Master Trust Indenture and Security Agreement dated as of December 31, 1996, by and
among SFC as Issuer, the Company as Servicer and First Trust National Association
as Trustee
*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)
r. -- Financial Data Schedule (for SEC use only)
</TABLE>
- ---------------
* To be filed by amendment
<PAGE> 1
Exhibit k.3
EXECUTION COPY
SIRROM FUNDING CORPORATION,
as Issuer
SIRROM CAPITAL CORPORATION,
as Servicer
and
FIRST TRUST NATIONAL ASSOCIATION,
as Trustee
MASTER TRUST INDENTURE AND
SECURITY AGREEMENT
Fixed Principal and Revolving Notes
Dated as of December 31, 1996
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
<TABLE>
<S> <C> <C>
SECTION 1.01. Definitions...............................................................................3
SECTION 1.02. Incorporation by Reference to Trust
Indenture Act............................................................................30
SECTION 1.03. Compliance Certificates and Opinions.....................................................31
SECTION 1.04. Form of Documents Delivered to Trustee. .................................................32
SECTION 1.05. Acts of Noteholders......................................................................32
SECTION 1.06. Conflict with Trust Indenture Act........................................................33
SECTION 1.07. Benefits of Indenture....................................................................34
SECTION 1.08. Incorporation of Recitals................................................................34
SECTION 1.09. Other Definitional Provisions............................................................34
ARTICLE II
GRANT OF LIEN OF CERTAIN ASSETS;
ISSUANCE OF NOTES
SECTION 2.01. Acceptance by Trustee....................................................................34
SECTION 2.02. Certain Matters Regarding the Grant......................................................35
SECTION 2.03. Representations and Warranties of the
Issuer...................................................................................38
SECTION 2.04. Representations and Warranties of the
Issuer Relating to this Indenture and
the Pledged Assets.......................................................................43
SECTION 2.05. Affirmative Covenants of the Issuer......................................................44
SECTION 2.06. Negative Covenants of the Issuer.........................................................48
ARTICLE III
ADMINISTRATION AND SERVICING OF LOANS
SECTION 3.01. Acceptance of Appointment and Other
Matters Relating to the Servicer.........................................................53
SECTION 3.02. Servicing Compensation; Servicer's
Expenses.................................................................................55
SECTION 3.03. Representations and Warranties of the
Servicer.................................................................................56
SECTION 3.04. Covenants of the Servicer................................................................59
SECTION 3.05. Reports and Records for the Trustee......................................................63
SECTION 3.06. Annual Certificate of Servicer...........................................................64
SECTION 3.07. Annual Servicing Report of Independent
Public Accountants.......................................................................64
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 3.08. Annual Noteholders' Statement............................................................65
SECTION 3.09. Tax and Usury Treatment..................................................................65
SECTION 3.10. Notice to Originator.....................................................................66
SECTION 3.11. Adjustments..............................................................................66
ARTICLE IV
RIGHTS OF NOTEHOLDERS AND
ALLOCATION AND APPLICATION OF COLLECTIONS
SECTION 4.01. Rights of Noteholders....................................................................66
SECTION 4.02. Establishment of Lock-Box Accounts,
Concentration Account and Other Trust
Accounts.................................................................................67
SECTION 4.03. Daily Calculations and Allocation
of Collections...........................................................................70
ARTICLE V
DISTRIBUTIONS AND REPORTS TO NOTEHOLDERS
ARTICLE VI
THE NOTES
SECTION 6.01. The Notes................................................................................74
SECTION 6.02. Authentication of Notes..................................................................75
SECTION 6.03. Registration of Transfer and Exchange of
Notes....................................................................................75
SECTION 6.04. Mutilated, Destroyed, Lost or Stolen
Notes....................................................................................77
SECTION 6.05. Persons Deemed Owners....................................................................78
SECTION 6.06. Appointment of Paying Agent..............................................................78
SECTION 6.07. Access to List of Noteholders' Names
and Addresses............................................................................79
SECTION 6.08. Authenticating Agent.....................................................................80
SECTION 6.09. New Issuances............................................................................81
SECTION 6.10. Changes in Revolving Notes...............................................................83
SECTION 6.11. Book-Entry Notes.........................................................................84
SECTION 6.12. Notices to Clearing Agency...............................................................85
SECTION 6.13. Definitive Notes.........................................................................85
SECTION 6.14. Temporary Notes..........................................................................86
SECTION 6.15. CUSIP Number.............................................................................86
SECTION 6.16. Letter of Representations................................................................87
</TABLE>
ii
<PAGE> 4
ARTICLE VII
OTHER MATTERS RELATING TO THE ISSUER
<TABLE>
<S> <C> <C>
SECTION 7.01. Obligations not Assignable...............................................................87
SECTION 7.02. Limitations on Liability.................................................................87
SECTION 7.03. Indemnification of the Trustee and
the Noteholders..........................................................................87
ARTICLE VIII
OTHER MATTERS RELATING TO THE SERVICER
SECTION 8.01. Liability of the Servicer................................................................91
SECTION 8.02. Merger or Consolidation of, or Assumption
of the Obligations of, the Servicer......................................................91
SECTION 8.03. Limitations on Liability.................................................................92
SECTION 8.04. Servicer Indemnification.................................................................92
SECTION 8.05. The Servicer Not to Resign...............................................................93
SECTION 8.06. Examination of Records...................................................................94
ARTICLE IX
EVENTS OF DEFAULT
SECTION 9.01. Events of Default........................................................................94
SECTION 9.02. Additional Rights Upon the Occurrence
of any Event of Default..................................................................97
ARTICLE X
SERVICER DEFAULTS
SECTION 10.01. Servicer Defaults.......................................................................98
SECTION 10.02. Trustee to Act; Appointment of
Successor Servicer.....................................................................102
SECTION 10.03. Notification to Noteholders............................................................103
ARTICLE XI
THE TRUSTEE
SECTION 11.01. Duties of Trustee......................................................................104
SECTION 11.02. Certain Matters Affecting the Trustee..................................................106
SECTION 11.03. [Intentionally left blank.].............................................................107
SECTION 11.04. Trustee May Own Notes..................................................................107
SECTION 11.05. Money Held in Trust....................................................................107
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
SECTION 11.06. Disqualification; Conflicting Interests................................................108
SECTION 11.07. Preferential Collection of Claims
against Issuer.........................................................................108
SECTION 11.08. Limitation on Liability of Trustee.....................................................108
SECTION 11.09. Trustee May Deal with Other Parties....................................................110
SECTION 11.10. Servicer to Pay Trustee's Fees and
Expenses...............................................................................110
SECTION 11.11. Corporate Trustee Required; Eligibility................................................111
SECTION 11.12. Resignation or Removal of Trustee......................................................111
SECTION 11.13. Successor Trustee......................................................................113
SECTION 11.14. Merger or Consolidation of Trustee.....................................................113
SECTION 11.15. Appointment of Co-Trustee or Separate
Trustee................................................................................114
SECTION 11.16. Tax Returns............................................................................115
SECTION 11.17. Trustee May Enforce Claims Without
Possession of Notes....................................................................116
SECTION 11.18. Suits for Enforcement..................................................................116
SECTION 11.19. Rights of Noteholders to Direct Trustee................................................117
SECTION 11.20. Representations and Warranties of
Trustee................................................................................117
SECTION 11.21. Maintenance of Office or Agency........................................................117
SECTION 11.22. Trustee May File Proofs of Claim.......................................................117
ARTICLE XII
SATISFACTION AND DISCHARGE
SECTION 12.01. Satisfaction and Discharge of Indenture................................................118
SECTION 12.02. Release of Liens.......................................................................119
SECTION 12.03. Final Distribution.....................................................................120
ARTICLE XIII
REDEMPTIONS
SECTION 13.01. Redemption Allowed.....................................................................121
SECTION 13.02. Election to Redeem; Notice to Trustee..................................................121
SECTION 13.03. Selection of Securities to Be Redeemed.................................................122
SECTION 13.04. Notice of Redemption...................................................................122
SECTION 13.05. Deposit of Redemption Price............................................................123
SECTION 13.06. Notes Payable on Redemption Date.......................................................124
SECTION 13.07. Notes Redeemed in Part.................................................................124
</TABLE>
iv
<PAGE> 6
ARTICLE XIV
MISCELLANEOUS PROVISIONS
<TABLE>
<S> <C> <C>
SECTION 14.01. Amendment..............................................................................124
SECTION 14.02. Limitation on Rights of Noteholders....................................................126
SECTION 14.03. Governing Law; Jurisdiction; Consent
to Service of Process..................................................................127
SECTION 14.04. Notices; Payments......................................................................128
SECTION 14.05. Rule 144A Information..................................................................128
SECTION 14.06. Severability of Provisions.............................................................129
SECTION 14.07. Assignment.............................................................................129
SECTION 14.08. Notes Nonassessable and Fully Paid.....................................................129
SECTION 14.09. Further Assurances.....................................................................129
SECTION 14.10. Nonpetition Covenant...................................................................129
SECTION 14.11. No Waiver; Cumulative Remedies.........................................................130
SECTION 14.12. Counterparts...........................................................................130
SECTION 14.13. Third-Party Beneficiaries..............................................................130
SECTION 14.14. Actions by Noteholders.................................................................130
SECTION 14.15. Merger and Integration.................................................................130
SECTION 14.16. Headings...............................................................................131
EXHIBITS AND SCHEDULES
EXHIBITS
Exhibit A Form of Daily Report
Exhibit B Form of Settlement Statement
Exhibit C Form of Annual Certificate of Servicer
Exhibit D Form of Lock-Box Agreement
Exhibit E Credit and Collection Policy
Exhibit F Form of Reserve Account Withdrawal
Certificate
SCHEDULES
Schedule I List of Collection Accounts
Schedule II Locations of Pledged Asset Records
</TABLE>
v
<PAGE> 7
THIS MASTER TRUST INDENTURE AND SECURITY AGREEMENT, dated as
of December 31, 1996 among SIRROM FUNDING CORPORATION, a Delaware corporation,
as Issuer (the "Issuer"), SIRROM CAPITAL CORPORATION a Tennessee corporation, as
Servicer (the "Servicer"), and FIRST TRUST NATIONAL ASSOCIATION, a national
banking association, as Trustee (the "Trustee").
RECITALS OF THE ISSUER
The Issuer has duly authorized the creation and issuance of
each Series of Notes, each Series to be of substantially the tenor and amount
set forth herein and in the respective Supplement relating to each such Series
of Notes. In order to provide for the foregoing, the Issuer has duly authorized
the execution and delivery of this Indenture.
The Notes shall each be limited recourse obligations of the
Issuer and shall be secured solely by the Noteholders' respective allocable
shares of the Pledged Assets as set forth herein. If and to the extent that such
allocable share is insufficient to pay all amounts owing with respect to such
Notes, then, except as otherwise expressly provided hereunder, the Noteholders
of such Notes shall have no Claim in respect to such insufficiency against the
Issuer or any of its other assets or properties (including, without limitation,
any Pledged Assets allocable to any other Notes in accordance with any terms
hereof), and the Noteholders, by their acceptance of the Notes, hereby waive any
such Claim.
All things necessary to (a) make the Notes, when executed by
the Issuer and authenticated and delivered by the Trustee hereunder and duly
issued by the Issuer, the valid obligations of the Issuer, and (b) make this
Indenture a valid agreement of the Issuer, in each case, in accordance with
their respective terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That the Issuer, in consideration of the premises herein
contained and of the purchase of the Notes by the Noteholders, and of other good
and lawful consideration, the receipt of which is hereby acknowledged, and to
secure, equally and ratably without prejudice, priority or distinction, except
as specifically otherwise set forth in this Indenture and in the respective
Supplement relating to such Notes, the payment of the Notes, the payment of all
other amounts due under or in connection with the Notes or with this Indenture,
and the performance and observance of all of the covenants and conditions
<PAGE> 8
contained herein or in such Notes, has hereby executed and delivered this
Indenture and by these presents does hereby convey, grant, assign, transfer and
pledge a security interest, in each case, in and unto the Trustee, its
successors and assigns and its or their assigns forever, for the benefit of the
Noteholders, with power of sale, all and singular in the property hereinafter
described (said property being sometimes referred to as the "Pledged Assets"),
to wit:
GRANTING CLAUSE
All of the Issuer's right, title and interest in, to and under
(i) each Loan that has been or at any time hereafter shall be transferred by the
Originator to the Issuer pursuant to the Loan Purchase Agreement at any time on
or prior to the date hereof and continuing hereafter up to but excluding the
Purchase Termination Date; (ii) any Equity Security; (iii) all Related Security;
(iv) the Originator Transaction Documents and all of the Issuer's rights and
remedies thereunder; (v) all of the following property and interests in property
which in any way relates to, secures or is received in payment of or on account
of any Issuer Loan or Related Security: (A) cash, accounts, accounts receivable,
participations, interests in participations, inventory, equipment, fixtures,
vehicles, supplies, materials, returned and repossessed property acquired by
foreclosure, the exercise by the Issuer or the Servicer of other remedies or
otherwise, goods, guaranties, options, warranties, choses in action, causes of
action, claims, contract rights, chattel paper, notes (including, without
limitation, notes receivable arising from Issuer Loans), acceptances,
instruments, documents, rights to payments, surety bonds, rights in warehouse
receipts or documents of any kind in respect of any of the foregoing, general
intangibles (including without limitation, rights, interests, goodwill,
inventions, designs, secrets, service marks, trademarks, trademark applications,
trade names, fictitious names, trade secrets, patents, patent applications,
registrations, technology, proprietary information, copyrights, permits,
licenses, franchises, customer lists, tax refunds, tax refund claims and
reversionary interests in pension and profit sharing plans), (B) all of the
Issuer's right, title and interest under leases, subleases, licenses and
concessions and other agreements relating to real or personal property
(including, without limitation, all rents, issues and profits related thereto),
rights and claims against third parties (including carriers and shippers),
rights to indemnification and security interests or other security held by or
granted to the Issuer to secure payment of the Issuer Loans, (C) the Loan
Documents, computer programs, printouts and other computer materials and
2
<PAGE> 9
records relating to the Issuer Loans; (vi) all rights (but no obligations) in,
to and under all Sinking Fund Account Agreements and Swap Agreements, (vii) all
Interest Rate Payments; (viii) all funds from time to time on deposit in each of
the Sinking Fund Accounts, each of the Trust Accounts and all funds from time to
time on deposit in each of the Lock-Box Accounts representing Collections on, or
other proceeds of, the foregoing and, in each case, all certificates and
instruments, if any, from time to time evidencing such funds, all investments
made with such funds, all claims thereunder or in connection therewith and all
interest, dividends, monies, instruments, securities and other property from
time to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the foregoing; and (ix) all moneys due or to become
due and all amounts received or receivable with respect to the foregoing and all
products and proceeds of the foregoing.
AND IT IS HEREBY COVENANTED, DECLARED AND AGREED by and
between the parties hereto that all Notes are to be issued, countersigned and
delivered and that all of the Pledged Assets are to be held and applied, subject
to the further covenants, conditions, releases, uses and trusts hereinafter set
forth, and the Issuer and the Servicer, in each case, for itself and its
successors, do hereby covenant and agree to and with the Trustee and each of the
foregoing's respective successors in said trust, for the benefit of those who
shall hold the Notes, or any of them, as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. Whenever used in this Indenture,
the following words and phrases shall have the following meanings, and the
definitions of such terms are applicable to the singular as well as the plural
forms of such terms and to the masculine as well as to the feminine and neuter
genders of such terms.
"Act" is defined in Section 1.05.
"Affiliate" shall mean, with respect to any specified Person,
any other Person controlling, controlled by or under common control with such
specified Person and, without limiting the generality of the foregoing, shall be
presumed to include (A) any Person which beneficially owns or holds (exclusive
of such Person's interest in unexercised Contingent Compensation) 10% or
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more of any class of voting securities of such designated Person or 10% or more
of the equity interest in such designated Person and (B) any Person of which
such designated Person beneficially owns or holds (exclusive of such Person's
interest in unexercised Contingent Compensation) 10% or more of any class of
voting securities or in which such designated Person beneficially owns or holds
10% or more of the equity interest. For the purposes of this definition,
"control" when used with respect to any specified Person shall mean the power to
direct the management and policies of such specified Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Adjusted Outstanding Loan Balance" shall mean, as of any date
of determination with respect to any Loan, the lesser of (i) the Outstanding
Loan Balance of such Loan and (ii) $5,000,000; provided, however, that the
Adjusted Outstanding Loan Balance shall be calculated as if such Loan, all other
Loans to the Obligor of such Loan, and all Loans to such Obligor's Affiliates
were one Loan.
"Aggregate Outstanding Amount" shall mean the aggregate of the
Outstanding Principal Balance for all Series.
"Amortization Date" shall mean the earlier to occur of (a) the
date upon which the Amortization Date is declared or occurs automatically
pursuant to Section 9.01 and (b) the Purchase Termination Date.
"Amortization Period" shall mean the period beginning on the
Amortization Date and ending upon the payment in full to the Noteholders of all
Series of the Aggregate Outstanding Amount with respect to all Series, all
accrued and unpaid interest thereon and all other amounts owed to the
Noteholders hereunder and under the applicable Supplement.
"Asset Coverage Shortfall" shall mean, as of any date of
determination, (i) the Equity Floor exceeds (ii) the Overcollateralization
Amount.
"Backup Servicing Agreement" shall mean that certain Backup
Servicing Agreement of even date herewith among First Trust, in its capacity as
the "Backup Servicer", the Servicer and the Program Agent, or any successor
agreement, as the same may be amended, restated, supplemented or otherwise
modified from time to time.
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"Backup Servicer's Fee" shall have the meaning specified in
the Backup Servicing Agreement.
"Base Amount" shall mean the Net Loan Balance minus the
aggregate of the Required Overcollateralization Amount for all outstanding
Series.
"Book-Entry Form" shall mean with respect to any Notes or
Series of Notes, that such Notes or Series are not certificated and the
ownership and transfers thereof shall be made through the book entries by a
Clearing Agency as described in Section 6.11 and the applicable Supplement.
"Book-Entry Notes" shall mean any Notes issued in Book-Entry
Form unless and until Definitive Notes are issued to the Holders thereof in
accordance with Section 6.13 and the applicable Supplement.
"Breakage Costs" shall mean, with respect to any Note, the
amount payable (if any) to the Holder thereof pursuant to the related
Supplement, as compensation for losses incurred as a result of the reduction of
the Outstanding Principal Balance thereof on a day other than the last day of an
Interest Period.
"Business Day" shall mean any day other than a Saturday or
Sunday or any other day on which national banking associations or state banking
institutions in New York, New York or the city in which the Corporate Trust
Office is located are authorized or obligated by law, executive order or
governmental decree to be closed.
"Carrying Cost Account" shall have the meaning specified in
Section 4.02(a).
"Carrying Cost Amount" shall mean, as of any date of
determination, the sum of (i) all accrued but unpaid Carrying Costs due as of
such date and (ii) all fees, costs and expenses owed to the Trustee and/or the
Noteholders as of such date.
"Carrying Costs" shall mean, for any Collection Period, (a)
all interest payable on the Notes of any Series, (b) the Servicing Reimbursement
for such period, (c) the Trustee's Fee for such period and (d) any other fees,
costs and expenses of any Series as set forth in the applicable Supplement.
"Claim" shall mean a "claim" as defined in Section 101(5) of
the United States Bankruptcy Code.
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"Class" shall mean, with respect to any Series divided into
classes, any one of the classes of Notes of that Series.
"Clearing Agency" shall mean an organization registered as a
"clearing agency" pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" shall mean a broker, dealer,
bank, other financial institution or other Person for whom from time to time a
Clearing Agency effects book-entry transfers and pledges of securities deposited
with the Clearing Agency.
"Closing Date" shall mean, with respect to any Series, the
Closing Date specified in the related Supplement.
"Collection Period" shall mean, with respect to any Monthly
Payment Date, the calendar month (or, in the case of the calendar month in which
any Closing Date occurs, the portion of such calendar month following the
Closing Date) immediately preceding the calendar month in which such Monthly
Payment Date occurs.
"Collections" shall mean any Interest Collections, any
Principal Collections and/or any cash proceeds of any Contingent Compensation in
respect of any Issuer Loans.
"Commission" shall mean the Securities and Exchange
Commission, as constituted from time to time, or, if at any time after the
execution of the Indenture such Commission is no longer existing and/or
performing the duties now assigned to it under the Trust Indenture Act, the
Person performing such duties at such time.
"Concentration Account" shall have the meaning specified in
Section 4.02(a).
"Concentration Account Bank" shall initially be the Trustee,
and shall have the meaning specified in Section 4.02(a).
"Confidential Information" shall mean, in relation to any
Person, any written information delivered or made available by or on behalf of
the Originator, any Affiliates or subsidiaries thereof or the Issuer to such
Person in connection with or pursuant to this Indenture or the transactions
contemplated hereby which is proprietary in nature, other than information (i)
which was publicly known, or otherwise known to such Person, at the time of
disclosure (except pursuant to disclosure in
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connection with this Indenture or otherwise previously provided by the
Originator on a confidential basis), (ii) which subsequently becomes publicly
known through no act or omission by such Person, or (iii) which otherwise
becomes known to such Person other than through disclosure by the Originator or
the Issuer.
"Consolidated Affiliate" shall mean, (i) as to any Obligor,
any other Person recognized in the Servicer's accounting records as a Person
whose financial statements should, under generally accepted accounting
principles, be consolidated with the financial statements of such Obligor; and
(ii) as to each of the Originator and the Issuer, any other Person whose
financial statements should, under generally accepted accounting principles, be
consolidated with the financial statements of such Originator or the Issuer, as
applicable.
"Contingent Compensation" shall mean, with respect to any
Loan, all of Issuer's rights to contingent compensation from the Obligor or
otherwise in connection with and as additional compensation for the extension of
such Loan, including, without limitation, all such compensation in the form of
warrants, stock or other equity interests in such Obligor, and not in respect of
any interest, principal, commitment or other origination fees, reimbursement of
costs and expenses, or other amounts owing by such Obligor to the holder of the
related Loan pursuant to the terms of the related Loan Documents.
"Corporate Trust Office" shall have the meaning specified in
Section 11.21.
"Credit and Collection Policy" shall mean those credit and
collection policies and practices of the Originator as of the date hereof
relating to the Loans and related Loan Documents, set forth in Exhibit E, as the
same may be amended or modified from time to time in compliance with Section
3.04(i).
"Daily Report" shall have the meaning specified in Section
3.05(a).
"Defaulted Loan" shall mean a Loan: (i) as to which ten
percent (10%) or more of any payment remains unpaid for more than 45 days after
the original due date for such payment, (ii) as to which an Insolvency Event has
occurred with respect to the Obligor thereof, (iii) as to which there has been a
default by the Obligor under the related Loan Documents that has continued for
more than 60 days, (iv) as to which the Obligor thereof has suffered any other
material adverse event which is
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likely to materially and adversely affect the ability of the Obligor to continue
its business as a going concern, (v) that the Servicer determines to be or, in
accordance with the Credit and Collection Policy should have determined to be,
uncollectible or (vi) that the Servicer determines to be or, in accordance with
the Credit and Collection Policy should have determined to be, classified as
"Grade 5 or 6".
"Default Ratio" shall mean with respect to any Collection
Period, the ratio (expressed as a percentage), the numerator of which is an
amount equal to aggregate of the Outstanding Loan Balances of Loans included in
Pledged Assets that have become Defaulted Loans during such Collection Period,
and the denominator of which is the daily average of the aggregate of the
Outstanding Loan Balances of Eligible Loans included in Pledged Assets for such
Collection Period.
"Defeasance Account" shall have the meaning specified
in Section 4.02(a).
"Definitive Notes" shall have the meaning specified in
Section 6.13.
"Delinquent Loan" shall mean a Loan: (i) as to which ten
percent (10%) or more of any payment remains unpaid for more than 30 days after
the original due date for such payment, and (ii) which is not a Defaulted Loan.
"Delinquency Ratio" shall mean with respect to any Collection
Period, the ratio (expressed as a percentage), the numerator of which is an
amount equal to aggregate of the Outstanding Loan Balances of Loans included in
Pledged Assets that are Delinquent Loans as of the last day of such Collection
Period, and the denominator of which is the aggregate of the Outstanding Loan
Balances of Eligible Loans included in Pledged Assets for such Collection
Period.
"Determination Date" shall mean, with respect to any Monthly
Payment Date, the second Business Day preceding such Monthly Payment Date.
"Early Termination" shall have the meaning assigned to such
terms in the ISDA Definitions.
"Eligible Institution" shall mean a depository institution
organized under the laws of the United States of America or any one of the
states thereof, including the District of Columbia (or any domestic branch of a
foreign bank), which at
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all times (i) is a member of the FDIC; (ii) has a combined capital and surplus
of at least $50,000,000; (iii) has or is a subsidiary or a member of a bank
holding system which has a long-term unsecured debt rating of at least A or
better by S&P, and A or better by Fitch, if rated by Fitch.
"Eligible Investments" shall mean book-entry securities
entered on the books of the registrar of such security and held in the name or
on behalf of the Trustee or negotiable instruments or securities represented by
instruments in bearer or registered form (registered in the name of the Trustee
or its nominee) which evidence:
(a) direct obligations of, or obligations fully guaranteed as
to timely payment by, the United States of America or any agency
(having original maturities no later than the next Transfer Date for
any Series);
(b) demand deposits, time deposits or certificates of deposit
(having original maturities no later than the next Transfer Date for
any Series) of depository institutions or trust companies incorporated
under the laws of the United States of America or any state thereof (or
domestic branches of foreign banks), subject to supervision and
examination by Federal or state banking or depository institution
authorities, and having, at the time of the investment or contractual
commitment to invest therein, the highest short-term unsecured debt
rating from S&P and Moody's and, if rated by Fitch, its highest
short-term unsecured debt rating;
(c) commercial paper (having original maturities no later than
the next Transfer Date for any Series) having, at the time of the
investment or contractual commitment to invest therein, the highest
short-term rating from S&P and Moody's, and, if rated by Fitch, in its
highest short-term rating category;
(d) investments in money market funds (which may be 12b-1
funds, as contemplated under the rules promulgated by the Securities
and Exchange Commission under the Investment Company Act of 1940)
having a rating of AAA-m or AAAM-G from S&P and Aaa from Moody's
(including funds for which the Trustee or any of its Affiliates acts as
an investment adviser or manager), and having a rating of AAA by Fitch,
if rated by Fitch;
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(e) notes or bankers' acceptances (having original maturities
no later than the next Transfer Date for any Series) issued by any
depository institution or trust company referred to in clause (b)
above; or
(f) repurchase agreements entered into with a securities firm
which is a primary dealer on the Federal Reserve reporting dealer list
or a financial institution having the highest short-term debt or
certificate of deposit rating (as the case may be) available from S&P
and Moody's, and Fitch (if rated by Fitch); provided that such
repurchase agreements are secured by a perfected first priority
security interest in an obligation of the type described in clause (a)
above; and provided, further, that (y) the market value of the
obligation with respect to which such firm or institution has a
repurchase obligation, determined as of the date on which such
obligation is originally purchased, shall equal or exceed 102% of the
repurchase price to be paid by such firm or institution and (z) the
Trustee or a custodian acting on its behalf shall have possession of
the instruments or documents evidencing such obligations.
"Eligible Loan" shall mean each Issuer Loan or portion
thereof, as of any date of determination:
(i) which is currently owing under a promissory note which has
been duly authorized and which, together with the related Loan
Documents, is in full force and effect and constitutes the legal, valid
and binding obligation of the Obligor of such Loan to pay the stated
amount of the Loan and interest thereon, and the related Loan Documents
are enforceable against such Obligor in accordance with their
respective terms except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws, now or
hereafter in effect, affecting the enforcement of creditors' rights
generally and except as such enforceability may be limited by general
provisions of equity;
(ii) which arose in the ordinary course of the Originator's
business, or a subsidiary of the Originator, from the loaning of money
to the Obligor thereof;
(iii) which is not a Defaulted Loan and in respect of which no
material default exists (whether matured or otherwise), and with
respect thereto there is not then in effect any waiver by the
Originator of any (a) material default with respect thereto or (b) any
event or
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circumstance that would, with notice, the passage of time, or both,
become a material default with respect thereto;
(iv) the Obligor of which is not the Obligor of any Defaulted
Loans;
(v) the Obligor of which is not a Governmental Authority;
(vi) which, together with the Loan Documents (other than those
relating to real estate collateral) related thereto, is a "general
intangible" or an "instrument" within the meaning of the UCC of all
jurisdictions which govern the perfection of the Issuer's interest
therein;
(vii) with respect to which all material consents, licenses,
approvals or authorizations of, or registrations or declarations with,
any Governmental Authority required to be obtained, effected or given
in connection with the making of such Loan have been duly obtained,
effected or given and are in full force and effect;
(viii) the Obligor of which is not an Affiliate of any of the
parties hereto;
(ix) the Obligor of which is organized in and a resident of
the United States;
(x) which is denominated and payable only in United States
Dollars in the United States;
(xi) which bears interest (a) payable monthly or quarterly and
(b) as of the date of acquisition of such Loan by the Issuer, at a
fixed interest rate per annum which is in excess of the sum of 4.25%
plus the 90 day USD-CP-H.15 Rate on such date;
(xii) which, together with the Loan Documents related thereto,
does not contravene in any material respect any laws, rules or
regulations applicable thereto (including, without limitation, laws,
rules and regulations relating to usury, truth in lending, fair credit
billing, fair credit reporting, equal credit opportunity, fair debt
collection practices and privacy) and with respect to which no party to
the Loan Documents related thereto is in material violation of any such
law, rule or regulation in any respect;
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(xiii) which is prepayable without penalty and, together with
the related Loan Documents and Contingent Compensation, if any, is
fully assignable;
(xiv) which has been originated pursuant to and satisfies in
all material respects all applicable requirements of the Credit and
Collection Policy;
(xv) with respect to which only one current original Note
exists, which Note has been delivered to the Issuer;
(xvi) which is secured by a perfected security interest in the
related Collateral in favor of the Issuer, which security interest has
the priority required for such security interest in the related Loan
Documents;
(xvii) which was originally made by the Originator, or one of
its subsidiaries, prior to its transfer to the Issuer;
(xviii) which has an original term to maturity of no more than
60 months, or with respect to a Rehabilitated Loan, has a term to
maturity of no more than 48 months from the date such loan became a
Rehabilitated Loan, and, in either case, is either fully amortizing in
installments over the remaining term or is due in a single installment
at the end of the remaining term;
(xix) which, except as permitted pursuant to Section 3.01(c)
hereof, has not been compromised, adjusted or similarly modified and is
not subject to any Obligor Claims whatsoever and which did not arise
pursuant to Loan Documents giving the Obligor an explicit right of
offset;
(xx) which was made under the existing Loan Documents, which
Loan Documents (other than with respect to a Rehabilitated Loan or as
permitted by Section 3.01(c) hereof) have not been modified for
negative credit reasons (including, without limitation, rescheduling of
installment payments);
(xxi) the proceeds of which have been fully disbursed, having
no obligation on the part of the Originator to make future advances
under the related Loan Documents;
(xxii) the Collateral with respect to which is insured for in
accordance with the Credit and Collection Policy;
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(xxiii) with respect to which the Loan Documents are complete
in accordance with the Credit and Collection Policy;
(xxiv) which was classified by the Originator as "Grade 1, 2,
3 or 4" under the Credit and Collection Policy at the time of
acquisition by the Issuer;
(xxv) the Obligor of which has been notified of the pledge
hereunder and directed to remit payments therefor to a Lock-Box
Account;
(xxvi) the Obligor of which is not in the gaming, nuclear
waste, bio-tech, oil and gas or real estate industries;
(xxvii) the Obligor of which is a legal operating entity, duly
organized and validly existing under the laws of its jurisdiction of
organization; and
(xxviii) the Obligor of which, as of the end of the most
recent Collection Period, was not the subject of any voluntary or
involuntary bankruptcy proceedings.
"Eligible Servicer" shall mean the Originator, the Trustee or
an entity which, at the time of its appointment as Servicer, (a) is servicing a
portfolio of loan receivables, (b) is legally qualified and has the capacity to
service the Loans and (c) has demonstrated the ability to professionally and
competently service a portfolio of similar loan receivables with high standards
of skill and care.
"Enhancement" shall mean the rights and benefits provided to
the Noteholders of any Series or Class pursuant to any letter of credit, surety
bond, cash collateral account, spread account, guaranteed rate agreement,
maturity liquidity facility, tax protection agreement, interest rate swap
agreement or other similar arrangement. The subordination of any Series or Class
to any other Series or Class shall not be deemed to be an Enhancement.
"Enhancement Agreement" shall mean any agreement, instrument
or document governing the terms of any Enhancement of any Series or pursuant to
which any Enhancement of any Series is issued or outstanding.
"Enhancement Provider" shall mean the Person providing
any Enhancement.
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"Equity Floor" shall mean as of any date of determination, the
greater of (i) the eight largest (determined by Adjusted Outstanding Loan
Balance) Eligible Loans (and if a single Obligor or any of its Affiliates is the
obligor of more than one Eligible Loan, all of the Eligible Loans owed by such
Obligor or such Affiliates shall be treated as a single Eligible Loan) or (ii)
$20,000,000.
"Equity Security" means any capital stock, equity ownership or
interest in the equity of a Person (excluding warrants, options or other
convertible securities), whether certificated or uncertificated.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.
"ERISA Affiliate" shall mean, as to any Person, any
partnership, trade or business (whether or not incorporated) which, together
with such Person, is treated as a single employer within the meaning of Section
414(b), (c), (m) or (o) of the IRC.
"Event of Default" shall mean any event described in
Section 9.01.
"Excess Concentration Balance" shall mean as of any date of
determination, with respect to the amount of otherwise Eligible Loans, the sum
of (i) the amounts by which the aggregate Adjusted Outstanding Loan Balances of
any such Eligible Loans that are Large Loans exceeds the Large Loan Limit, plus
(ii) the amount by which the aggregate Adjusted Outstanding Loan Balances of
such Eligible Loans to Obligors in any Industry exceeds such Industry Limit,
plus (iii) the amount by which the aggregate Adjusted Outstanding Loan Balances
of such Eligible Loans the Obligors of which are Grade 4 Obligors exceeds the
Grade 4 Limit, plus (iv) the amount by which the aggregate Adjusted Outstanding
Loan Balances of such Eligible Loans that are Rehabilitated Loans exceeds the
Rehabilitated Loans Limit, plus (v) the amount by which the aggregate Adjusted
Outstanding Loan Balances of such Eligible Loans that pay interest on quarterly
basis exceeds 5% of the aggregate Adjusted Outstanding Loan Balances of all
Eligible Loans.
"Excess O/C Sharing Date" shall mean the date, if any, that is
the first Business Day on which all outstanding Series are in their respective
Pay-Out Period and the Overcollateralization Amount on such date is greater than
both (x) the Minimum Overcollateralization Amount on such date and (y) the
Equity Floor on such date.
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"Excess O/C Sharing Period" shall commence on the Excess O/C
Sharing Date, if any, and shall end on the earliest to occur of (x) the date
thereafter that the Revolving Period for any outstanding Series commences, (y)
the Amortization Date and (z) the first day on which the Overcollateralization
Amount on such date is equal to or less than the greater of (I) the Minimum
Overcollateralization Amount on such date and (II) the Equity Floor as of the
Excess O/C Sharing Date.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"FDIC" shall mean the Federal Deposit Insurance Corporation or
any successor.
"Fitch" shall mean Fitch Investors Service, L.P., or its
successor.
"Fixed Principal Note" shall mean any Note of a Series of
Notes that is not designated as a Series of Revolving Notes in the Supplement
pursuant to which such Series is issued.
"Global Note" shall mean a Note evidencing all or any part of
a Series to be issued in Book-Entry Form, which Global Note shall be issued to
the Clearing Agency for such Series or its nominee in accordance with Section
6.11 and the applicable Supplement pursuant to which such Note is issued.
"Governmental Authority" shall mean any country or nation, any
political subdivision, state or municipality of such country or nation, and any
entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government of any country or nation or political
subdivision thereof.
"Grade 4 Limit" shall mean as of any date of determination, an
amount equal to the greater of (a) 30% of the aggregate Adjusted Outstanding
Loan Balances of all Eligible Loans as of such date and (b) $22,500,000.
"Grade 4 Obligor" shall mean, as of any date of determination,
(i) an Obligor of any Issuer Loan that the Servicer determines to be or, in
accordance with the Credit and Collection Policy should have determined to be,
classified as "Grade 4", or (ii) an Obligor designated by the Issuer as a "Grade
4 Obligor."
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"Holder" or "Noteholder" shall mean, with respect to any Note,
the Person in whose name such Note is registered in the Note Register.
"Indemnified Amounts" shall have the meaning specified
in Section 7.03.
"Indemnified Party" shall have the meaning specified in
Section 7.03.
"Indenture" shall mean this Master Trust Indenture and
Security Agreement, as the same may from time to time be amended, modified or
otherwise supplemented, including, with respect to any Series or Class, the
related Supplement.
"Independent Public Accountants" shall mean any of (a) Arthur
Andersen LLP, (b) Deloitte & Touche, (c) Coopers & Lybrand LLP, (d) Ernst &
Young LLP, (e) KPMG Peat Marwick and (f) Price Waterhouse LLP or any of their
successors so long as such successor is one of the six largest national
accounting firms, provided that such firm is independent with respect to the
Servicer within the meaning of the Securities Act.
"Industry" shall mean the industry of an Obligor as determined
by reference to the four digit standard industry classification codes.
"Industry Limit" shall mean, as of any date of determination,
an amount equal to the greater of (a) 15% of the aggregate Adjusted Outstanding
Loan Balances of all Eligible Loans as of such date and (b) $11,250,000.
"Initial Outstanding Principal Balance" shall mean, with
respect to any Series or Class and for any date, an amount equal to the initial
principal balance amount or amounts specified in the related Supplement.
"Insolvency Event" shall mean, with respect to a specified
Person, (i) failure by such Person generally to pay its debts as such debts
become due, or the admission by such Person in writing of its inability to pay
its debts generally, or the making by such Person of a general assignment for
the benefit of creditors; or (ii) institution by or against such Person of any
proceeding seeking to adjudicate such Person a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief, or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of an
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order for relief or the appointment of a receiver, trustee, or other similar
official for it or for any substantial part of its property; or (iii) the taking
of any corporate action by such Person to authorize any of the actions by such
Person set forth in clauses (i) or (ii) above in this definition of Insolvency
Event.
"Interest Collections" shall mean, for any Monthly Payment
Date, an amount equal to (i) the interest collections received on behalf of the
Obligors during the related Collection Period deposited to any Lock-Box Account
or Concentration Account, or received by a Servicer, in respect of Issuer Loans,
in the form of cash, checks, wire transfers, electronic transfers or any other
form of cash payment, (ii) all interest and other investment earnings (net of
losses and investment expenses) on Collections (including without limitation
funds on deposit in the Reserve Account) as a result of the investment thereof
pursuant to Section 4.02 and (iii) all Interest Rate Payments.
"Interest Payment Date" shall mean, with respect to each
Interest Period, the last day of such Interest Period.
"Interest Period" shall mean, unless otherwise specified in
the Supplement relating to any Series, with respect to any Monthly Payment Date
for such Series (i) in the case of the initial such Monthly Payment Date, the
period from and including the Closing Date for such Series to but excluding such
initial Monthly Payment Date and (ii) in the case of any other Monthly Payment
Date, the period from and including the preceding Monthly Payment Date to but
excluding such Monthly Payment Date.
"Interest Rate Payment" all rights (but no obligations) to
payment with respect to each "Rate Cap Transaction" (as defined in the ISDA
Definitions) under the Swap Agreement and any Specified Rate Cap, in each case,
including without limitation, all payments in respect of any Early Termination
thereof.
"Investment Company Act" shall mean the Investment Company Act
of 1940, as amended from time to time.
"ISDA Definitions" means the 1991 ISDA Definitions published
by the International Swap Dealers Association, Inc.
"Issuer" shall mean Sirrom Funding Corporation, a Delaware
special purpose corporation.
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"Issuer Loan" shall mean a Loan acquired by the Issuer
pursuant to the Loan Purchase Agreement and pledged to the Trustee hereunder.
"Issuer's Account" shall mean the special account under the
dominion and control of the Issuer, for deposits by the Servicer of funds
allocable to the Issuer, maintained at such bank as the Issuer may designate for
such purpose from time to time.
"IRC" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
"Large Loan" shall mean, as of any date of determination, an
amount equal to the aggregate of the Outstanding Loan Balance of the five
largest Issuer Loans.
"Large Loan Limit" shall mean $20,000,000.
"Letter of Representations" shall mean any applicable
agreement among the Issuer, the Trustee and the applicable Clearing Agency with
respect to such Clearing Agency's rights and obligations with respect to any
Book-Entry Notes, as the same may be amended, supplemented, restated or
otherwise modified from time to time.
"Lien" shall mean any ownership interest or any security
interest, mortgage, deed of trust, pledge, hypothecation, assignment,
encumbrance, lien (statutory or other and including a Lien created by the PBGC),
preference, participation interest, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever resulting in an
encumbrance against real or personal property of a Person, including, without
limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing and the filing of any financing statement under the UCC or comparable
law of any jurisdiction to evidence any of the foregoing.
"Loan" shall mean a non-revolving small business loan
receivable shown on the records of the Originator as of the Closing Date for the
initial Series, and from time to time thereafter, arising from the extension of
credit to an Obligor by the Originator or one of its subsidiaries in the
ordinary course of its business and shall include, without limitation, all
monies due or owing and all Interest Collections, Principal Collections and
other amounts received from time to time with respect to such loan receivable
and all proceeds (including, without limitation,
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"proceeds" as defined in the UCC of the jurisdiction the law of which governs
the perfection of the interest on the Loans subject to this Indenture) thereof.
"Loan Document" shall mean, with respect to any Loan, the
related promissory note which evidences the obligation of the Obligor to repay
from time to time any amounts extended to such Obligor by the Originator and any
related loan agreement, security agreement, mortgage, assignment of leases and
other documents, instruments, certificates or assignments (including amendments
or modifications thereof) executed by the Obligor thereof or by another Person
on the Obligor's behalf in respect of such Loan and related promissory note,
including, without limitation, general or limited guaranties.
"Loan Purchase Agreement" shall mean that certain Loan Sale
and Contribution Agreement between the Originator and the Issuer, dated as of
the date hereof, governing the terms and conditions upon which the Issuer shall
have acquired the Loans as the same may from time to time be amended, modified
or otherwise supplemented.
"Lock-Box Account" shall have the meaning specified for such
term in Section 4.02(b).
"Lock-Box Agreement" shall have the meaning specified for such
term in Section 4.02(c).
"Lock-Box Bank" shall have the meaning specified for such term
in Section 4.02(b).
"Majority in Interest" shall mean with respect to each Series
the Holders of Notes evidencing 51% or more of the Outstanding Principal Balance
of such outstanding Series.
"Majority Noteholders" shall mean, at any time, the
Noteholders holding Notes evidencing 51% or more of the aggregate Outstanding
Principal Balance for all outstanding Notes of all Series at such time.
"Minimum Overcollateralization Amount" shall mean as of any
date of determination, with respect to any Series, the amount set forth in the
related Supplement.
"Monthly Payment Date" shall mean, with respect to any
Collection Period, the 5th Business Day of the calendar month immediately
following the end of such Collection Period, or, with
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respect to any Series, such other day as may be set forth in the applicable
Supplement.
"Moody's" shall mean Moody's Investors Service, Inc. or
its successor.
"Multiemployer Plan" shall mean a "multiemployer plan" as
defined in Section 4001(a)(3) of ERISA to which either Originator or an ERISA
Affiliate of either of them is making, is obligated to make or has within the
last six years made or been obligated to make contributions on behalf of
participants who are or were employed by any such entity.
"Net Outstanding Amount" shall mean at any time the Aggregate
Outstanding Amount minus the amount on deposit in the Reserve Account as of such
time minus the amount of funds on deposit in any Defeasance Account to be
distributed to Noteholders in reduction of the Outstanding Principal Balance of
their Notes.
"Net Loan Balance" shall mean as of any date of determination,
the excess of (a) the aggregate Adjusted Outstanding Loan Balances of Eligible
Loans over (b) the Excess Concentration Balance at such time. For purposes of
calculating the Net Loan Balance, the aggregate Adjusted Outstanding Loan
Balances of Eligible Loans shall be calculated as if reduced by the aggregate
amount of Principal Collections received that have not been applied to any
corresponding Loans on the records of the Servicer.
"Note" shall mean any one of the Notes executed by the Issuer
and authenticated by or on behalf of the Trustee, in substantially the form
attached to the related Supplement.
"Noteholder" or "Holder" shall mean, with respect to any Note,
the Person in whose name such Note is registered in the Note Register.
"Note Rate" shall mean, with respect to any Series or Class,
the interest rate specified therefor in the related Supplement.
"Note Register" shall have the meaning specified in
Section 6.03(a).
"Notices" shall have the meaning specified in Section
13.05(a).
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"Obligor" shall mean each Person who is obligated to pay for
an extension of credit by the Originator which gave rise to an Issuer Loan,
including any guarantor of such Person's obligations.
"Officer's Certificate" shall mean, unless otherwise specified
in this Indenture, a certificate signed by the President, any Vice President,
the Chief Financial Officer, the Treasurer or Controller, the Assistant
Treasurer or the Secretary or Assistant Secretary of the Issuer, or of a
Servicer, or of any Successor Servicer, as the case may be, and delivered to the
Trustee.
"Opinion of Counsel" shall mean a written opinion, in form and
substance reasonably satisfactory to the Trustee and from counsel reasonably
satisfactory to the Trustee, which counsel, except where this Indenture
otherwise provides, may be counsel for, or an employee of, either the Person
providing such opinion or an Affiliate of such Person.
"Originator" shall mean Sirrom Capital Corporation, together
with its permitted successors and assigns under the Loan Purchase Agreement.
"Originator Transaction Documents" shall mean the Loan
Purchase Agreement and the Lock-Box Agreements.
"Overcollateralization Amount" shall mean as of any date of
determination, the amount, if any, by which the Net Loan Balance plus
unallocated Principal Collections held in the Concentration Account (without
giving effect to the allocation and deposit of amounts pursuant to clause Third
of Section 4.03(b)(ii)) as of such date, exceeds the Net Outstanding Amount on
such date.
"Outstanding Loan Balance" shall mean with respect to any
Loan, as of any date of determination, the then outstanding principal balance
thereof.
"Outstanding Principal Balance" shall mean, at any time (a)
with respect to any Note, the outstanding principal balance of such Note at such
time and (b) with respect to any Class or Series of Notes, the aggregate
outstanding principal balance of all Notes in such Class or Series, as
applicable, at such time.
"Paying Agent" shall mean any paying agent appointed pursuant
to Section 6.06.
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"Pay-Out Event" shall mean, with respect to any Series, any
event defined as such in the related Supplement.
"Pay-Out Period" shall mean, with respect to one or more
Series, the period commencing on the Pay-Out Period Commencement Date of such
Series and ending on the date on which all of such Series shall have been paid
in full.
"Pay-Out Period Commencement Date" shall mean, with respect to
one or more Series, the date on which a Pay-Out Event for such Series occurs.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or
any other Governmental Authority succeeding to the functions thereof.
"Permitted Liens" shall mean (i) Liens for taxes, assessments
or charges of any Governmental Authority or Liens of landlords, carriers,
warehousemen, mechanics and materialmen imposed by law and created in the
ordinary course of business, which, in either such case, are for amounts not yet
due or for amounts which are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves or other appropriate
provisions are being maintained in accordance with generally accepted accounting
principles and (ii) any Liens of a collecting bank arising by operation of law
under Section 4-210 of the UCC.
"Person" shall mean any individual, corporation, partnership,
joint venture, association, limited liability company, joint-stock company,
trust, unincorporated organization, Governmental Authority or any other entity
of similar nature.
"Plan" shall mean any plan, program, arrangement, agreement,
practice or contract that provides or is intended to provide benefits or
compensation to or on behalf of one or more employees or former employees of the
Originator or an ERISA Affiliate of the Originator, whether formal or informal,
whether or not written, including, but not limited to, any employee benefit plan
as defined in Section 3(3) of ERISA, any employee pension benefit plan and any
retiree welfare plan.
"Pledged Assets" shall have the meaning ascribed to such term
in the Granting Clause of this Indenture.
"Prepayment Premium" with respect to any Series, shall have
the meaning specified in the related Supplement, if applicable.
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"Principal Collections" shall mean, for any Monthly Payment
Date, an amount equal to (i) the principal collections received on behalf of the
Obligors during the related Collection Period deposited to any Lock-Box Account
or Concentration Account, or received by a Servicer, in respect of Issuer Loans,
in the form of cash, checks, wire transfers, electronic transfers or any other
form of cash payment, and (ii) all cash proceeds and distributions on Contingent
Compensation in respect of Issuer Loans.
"Principal Terms" shall mean, with respect to any Series: (a)
the name or designation; (b) the Initial Outstanding Principal Balance or
maximum principal amount (or method for calculating such amount); (c) the Note
Rate (or method for the determination thereof); (d) whether such Notes are to be
Fixed Principal Notes or Revolving Notes and the denominations (if such Notes
are Fixed Principal Notes) or Stated Amounts (if such Notes are Revolving Notes)
thereof; (e) Maturity Date and Stated Maturity Date thereof; (f) the designation
of any Series Accounts and the terms governing the operation of any such Series
Accounts; (g) the terms of any form of Enhancement with respect thereto; (h) the
terms, if any, on which the Notes of such Series may be exchanged for Notes of
another Series, repurchased or redeemed by the Issuer or remarketed to other
Noteholders; (i) the number of Classes of Notes of such Series and, if more than
one Class, the rights and priorities of each such Class; (j) the Pay-Out Events
with respect thereto; (k) the method of calculating each of the Required
Overcollateralization Amount and the Minimum Overcollateralization Amount of
such Series.
"Purchase Price" shall have the meaning specified in the Loan
Purchase Agreement.
"Purchase Termination Date" shall mean the earlier to occur of
(i) the date upon which the "Termination Date" is declared or automatically
occurs pursuant to the terms of the Loan Purchase Agreement and (ii) the date
upon which the Amortization Date is declared or automatically occurs pursuant to
the terms of this Indenture.
"Qualified Sale Agent" shall mean (i) a nationally recognized
investment bank, (ii) a nationally recognized commercial bank or (iii) any other
reputable institution whose regular business includes the sale of loan
portfolios.
"Rating Agency" shall mean each nationally recognized rating
agency which, with respect to any Class or Series of Notes if rated, at the
request of the Issuer, has rated any such Class
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or Series of Notes, and with respect to any rated securities issued by any
Noteholder of any outstanding Series or Class in order to fund or maintain its
interest in any Note of such Series or Class, at the request of such Noteholder,
has rated such securities.
"Record Date" shall mean, with respect to any Monthly Payment
Date, the last day of the preceding calendar month.
"Records" shall mean all Loan Documents and other documents,
books, credit files, records and other information (including, without
limitation, computer programs, tapes, discs, punch cards, data processing
software and related property and rights) maintained with respect to Loans and
the related Obligors.
"Rehabilitated Loan" shall mean any Loan which, (i) was a
Defaulted Loan or otherwise not an Eligible Loan, (ii) has been modified or
restructured by the Originator in accordance with the Credit and Collection
Policy (either before or after such Loan became an Issuer Loan), (iii) has been
paying as modified or restructured pursuant to clause (ii) hereof for at least
twelve (12) months since the effective date of such modification or
restructuring, (iv) which otherwise satisfies the criteria of an "Eligible Loan"
and (v) has otherwise been approved by the Majority in Interest of each Series
in writing.
"Rehabilitated Loan Limit" shall mean, as of any date of
determination, an amount equal to 5% of the aggregate Adjusted Outstanding Loan
Balances of all Eligible Loans.
"Related Security" shall mean, with respect to any Issuer
Loan:
(i) all of the Issuer's rights under the related Loan
Documents, including, without limitation, all monies due and to become
due to the Issuer under or in connection with such related Loan
Documents, and all rights, remedies, powers, privileges, benefits and
claims of the Issuer under or with respect to such related Loan
Documents (whether arising pursuant to the terms of such related Loan
Documents or otherwise available at law or in equity);
(ii) all of the Issuer's interest in all security interests,
or liens and property (whether real or personal, tangible or
intangible), subject thereto from time to time purporting to secure
payment of such Loan, together with all
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mortgages, assignments and financing statements signed by an Obligor
describing any other collateral securing such Loan;
(iii) all guarantees, indemnities and other agreements or
arrangements of whatever character from time to time supporting or
securing payment of such Loan;
(iv) all of the Issuer's right, title and interest to
and rights under the Loan Purchase Agreement;
(v) all Records;
(vi) all Contingent Compensation; and
(vii) all substitutions for and proceeds of any of the
foregoing.
"Reportable Event" shall mean any of the reportable events set
forth in Section 4043(b) of ERISA and the regulations issued from time to time
thereunder (other than a reportable event not subject to the provisions for
30-day notice to the PBGC under such regulations).
"Required Overcollateralization Amount" shall mean as of any
date of determination, with respect to any Series, the amount set forth in the
related Supplement.
"Requirements of Law" shall mean any law, treaty, rule or
regulation, final determination of an arbitrator or Governmental Authority, or
order of any judicial authority, and, when used with respect to any Person, the
certificate of incorporation and by-laws or other organizational or governing
documents of such Person.
"Reserve Account" shall have the meaning specified in
Section 4.02.
"Responsible Officer" shall mean, (i) when used with respect
to the Trustee, any officer within the corporate trust department of the Trustee
including any vice president, assistant vice president, senior trust officer,
trust officer or any other officer of the Trustee who customarily performs
functions similar to those performed by the persons who at the time shall be
such officers, respectively, or to whom any corporate trust matter is referred
because of such officer's knowledge of and familiarity with the particular
subject and (ii) when used with respect to the Issuer or the Servicer, any of
the President, Chief Executive Officer, Chief Operating Officer, Vice President,
Secretary,
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Assistant Secretary, Treasurer, Assistant Treasurer or Chief Financial Officer
of such Person.
"Revolving Note" shall mean any Notes of any Series the
principal amount of which may be increased and/or decreased from time to time
and which are designated as "Revolving Notes" in the Supplement pursuant to
which such Series is issued.
"Revolving Period" shall mean, with respect to any Series or
Class of Notes, the period during which such Series is outstanding prior to the
occurrence of the Pay-Out Period for such Series or Class or the Amortization
Period.
"S&P" shall mean Standard & Poor's Corporation, or its
successor.
"Securities Act" shall mean the Securities Act of 1933, as
amended from time to time.
"Senior Class" shall mean any Class of Notes which is
designated as a "Senior Class" in the applicable Supplement.
"Series" shall mean any series of Notes.
"Series Account" shall mean any deposit, trust, escrow,
reserve or similar account maintained for the benefit of the Noteholders of any
Series or Class, as specified in any Supplement and including, with respect to
any Series or Class, any Defeasance Accounts maintained for the benefit of the
applicable Noteholders.
"Series Allocation Percentage" shall mean, with respect to
each Series, (i) on any Business Day prior to the Amortization Date and on which
no Excess O/C Sharing Period is in effect
(a) if all Series are in the Revolving Period and no
Set-Aside Period has occurred and is continuing, zero;
(b) if any Series is in the Pay-Out Period and no Set-Aside
Period has occurred and is continuing, a fraction (expressed as a percentage)
(x) the numerator of which equals the sum of (I) the Net Outstanding Amount of
all Classes of Notes of such Series plus (II) the Required Overcollateralization
Amount for such Series computed as provided in the applicable Supplement, in
each case, as of the applicable Pay-Out Period Commencement Date, and (y) the
denominator of which equals the sum of (I) the Net Outstanding Amount of all
Series in their respective Pay-Out Periods plus (II) the aggregate Required
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Overcollateralization Amount for all Series in their respective Pay-Out Periods
computed as provided in the applicable Supplement, in each case, as of the
applicable Pay-Out Period Commencement Date for each such Series;
(c) if a Set-Aside Period has occurred and is continuing, a
fraction (expressed as a percentage) (x) the numerator of which equals the sum
of (I) the Net Outstanding Amount of all Classes of Notes of such Series plus
(II) the Required Overcollateralization Amount for such Series, in each case, as
of the Business Day immediately preceding the commencement of such Set-Aside
Period and (y) the denominator of which equals the sum of (I) the Net
Outstanding Amount of all outstanding Series plus (II) the aggregate Required
Overcollateralization Amount for all outstanding Series, in each case, as of the
Business Day immediately preceding the commencement of such Set-Aside Period;
(ii) on any Business Day after the Amortization Date, a
fraction (expressed as a percentage)(a) the numerator of which equals the sum of
(I) the Net Outstanding Amount of all Classes of Notes of such Series plus (II)
the Required Overcollateralization Amount for such Series, in each case, as of
the Amortization Date and (b) the denominator of which equals the sum of (I) the
Net Outstanding Amount of all outstanding Series of Notes plus (II) the
aggregate Required Overcollateralization Amount for all outstanding Series, in
each case, as of the Amortization Date; and
(iii) on any Business Day during an Excess O/C Sharing Period,
a fraction (expressed as a percentage) (a) the numerator of which equals the sum
of the Net Outstanding Amount of all Classes of Notes of all Series as of such
date, and (b) the denominator of which equals the sum of (I) the Net Outstanding
Amount of all Series as of such date plus (II) the Equity Floor as of the Excess
O/C Sharing Date.
"Service Transfer" shall have the meaning specified in
Section 10.01.
"Servicer" shall mean, at any time, the Person which is
authorized to act as Servicer under Section 3.01 to administer, collect and
service the Issuer Loans, including any Successor Servicer appointed pursuant to
Section 10.02.
"Servicer Default" shall have the meaning specified in
Section 10.01.
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"Servicing Officer" shall mean any officer, employee or other
agent of the Servicer who in any case is involved in, or responsible for, the
administration and servicing of the Issuer Loans and whose name appears on a
list of servicing officers furnished to the Trustee by the Servicer, as such
list may from time to time be amended.
"Servicing Reimbursement" shall have the meaning
specified in Section 3.02(a).
"Set-Aside Period" shall mean the period beginning on any
Business Day on which (i) the Base Amount is less than the Net Outstanding
Amount and (ii) the aggregate of the Overcollateralization Amount for all
outstanding Series is greater than or equal to the aggregate of the Minimum
Overcollateralization Amount for all outstanding Series, but less than the
aggregate of the Required Overcollateralization Amount for all outstanding
Series, and continuing until the earliest of (a) the date on which the Net
Outstanding Amount is less than or equal to the Base Amount, (b) the 180th
consecutive day after which the Base Amount is less than the Net Outstanding
Amount, (c) the commencement of an Excess O/C Sharing Period and (d) the
commencement of the Amortization Period. Notwithstanding the foregoing, the
Issuer may not deposit any amounts to the Reserve Account at any time if such
amount, together with the aggregate amount on deposit in the Reserve Account at
such time, would exceed 25% of the Aggregate Outstanding Amount at such time and
such excess shall have continued for 90 consecutive days, unless the Issuer has
obtained the prior written consent of the Majority Noteholders.
"Settlement Statement" shall have the meaning specified
in Section 3.05(b).
"Significant Subsidiary" shall mean "significant subsidiary"
as such term is defined in Rule 1-02(v) of Regulation S-X promulgated by the
Securities and Exchange Commission as in effect on the Closing Date.
"Sinking Fund Account" shall have the meaning specified in
each Sinking Fund Account Agreement.
"Sinking Fund Account Agreement" shall mean that certain
Sinking Fund Account Agreement of even date herewith among the Originator, the
Issuer, the Trustee and the Program Agent as the same may be amended, restated,
supplemented or otherwise modified from time to time, or any successor agreement
or similar agreement executed in connection with any Series.
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"Specified Rate Cap" shall have the meaning specified in each
Sinking Fund Account Agreement.
"Stated Amount" shall mean, with respect to any Revolving
Note, the maximum principal amount that may be required to be funded by the
Holder of such Revolving Note pursuant to the applicable Supplement.
"Stated Maturity Date" shall mean, with respect to any Series,
the "Stated Maturity Date" specified in the applicable Supplement relating
thereto.
"Subordinated Class" shall mean any Class of Notes which is
designated as a Subordinated Class in the applicable Supplement.
"Subsequent Issuance" shall mean any issuance of Notes on any
date after the Closing Date.
"Successor Servicer" shall have the meaning specified
in Section 10.02(a).
"Supplement" shall mean, with respect to any Series, a
supplement to this Indenture, executed and delivered in connection with the
original issuance of the Notes of such Series pursuant to Article VI, and all
amendments, modifications or supplements to this Indenture.
"Swap Agreement" means that certain ISDA Master Agreement
dated as of November 26, 1996 between the Originator and the Swap Counterparty,
together with all schedules thereto and confirmations thereof, in each case, as
the same may be amended, restated, supplemented or otherwise modified from time
to time.
"Swap Counterparty" shall mean NationsBank, N.A. or any
successor or assign thereof or replacement thereof under the Swap
Agreement.
"Tax Opinion" shall mean, with respect to any action, an
Opinion of Counsel who is not an employee of the Originator or any Affiliate
thereof to the effect that, for Federal and Tennessee State (and any other State
where substantial servicing activities in respect of Issuer Loans are conducted
by the Issuer or the Servicer if there is a substantial change from present
servicing activities) state income and franchise tax purposes, (a) such action
will not adversely affect the characterization of
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the Notes of any outstanding Series or Class as debt and (b) in the case of the
original issuance of Notes and any Subsequent Issuance, the Notes being issued
thereby should properly be characterized as debt of the Issuer.
"Termination Notice" shall have the meaning specified
in Section 10.01.
"Transaction Documents" shall mean the Loan Purchase
Agreement, the Indenture, each Supplement, the Notes and, with respect to any
Series, any interest hedging agreement, any other agreement specified in the
applicable Supplement relating thereto as being a "Transaction Document."
"Transfer Agent and Registrar" shall have the meaning
specified in Section 6.03.
"Transfer Date" for any Series shall mean the Business Day
immediately preceding a Monthly Payment Date for such Series, or, if the last
day of an Interest Period for such Series is other than a Monthly Payment Date,
the Business Day immediately preceding such last day of such Interest Period.
"Trust Accounts" shall mean the Concentration Account, the
Reserve Account, the Carrying Cost Account, each Defeasance Account and any
other Series Account established pursuant to the terms of any Supplement.
"Trust Indenture Act" shall mean the Trust Indenture Act of
1939, as amended by the Trust Indenture Reform Act of 1939, as in force on the
Closing Date, except as set forth in Section 6.09(d) of this Indenture.
"Trustee" shall mean First Trust National Association, a
national banking association, in its capacity as trustee on behalf of the
Noteholders, or its successor in interest, or any successor trustee appointed as
herein provided.
"Trustee's Fee" shall have the meaning specified in
Section 11.10.
"UCC" shall mean the Uniform Commercial Code, as amended from
time to time, as in effect in any applicable or specified jurisdiction.
SECTION 1.02. Incorporation by Reference to Trust Indenture
Act. Whenever this Indenture refers to a provision of the Trust Indenture Act,
the provision is incorporated by
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reference in and made a part of this Indenture. The following Trust Indenture
Act terms incorporated by reference in this Indenture have the following
meanings:
"indenture securities" shall mean the Notes.
"indenture security holder" shall mean a Noteholder.
"indenture to be qualified" shall mean this Indenture.
"indenture trustee" or "institutional trustee" shall
mean the Trustee.
"obligor" on the indenture securities shall mean the Issuer or
any other obligor on the Notes, if any.
All other Trust Indenture Act terms used or incorporated by
reference in this Indenture that are defined by the Trust Indenture Act, defined
by the Trust Indenture Act's reference to another statute or defined by
Commission rule shall, in each case, have the meanings assigned to them therein.
SECTION 1.03. Compliance Certificates and Opinions. (a) Upon
any application or request by the Issuer to the Trustee to take any action under
any provision of this Indenture, the Issuer shall furnish to the Trustee (x) an
Officer's Certificate stating that all conditions precedent, if any, provided
for in this Indenture relating to the proposed action have been complied with,
and (y) an Opinion of Counsel stating that, in the opinion of such counsel, all
such conditions precedent, if any, have been complied with; provided that, if
any other provision of this Indenture describes the documents to be furnished to
the Trustee in connection with any action to be taken by the Trustee hereunder,
then in such case, notwithstanding this Section 1.03, only the documents so
described in such provision and such other documents shall be required to be
furnished in respect of such action.
(b) Every certificate or opinion with respect to compliance
with a condition or covenant provided for in this Indenture (other than the
annual certificate provided pursuant to Section 3.06) shall include:
(1) a statement that each Person signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
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(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such Person, such
Person has made such examination or investigation as is necessary to
enable it to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
Person, such covenant or condition has been complied with.
SECTION 1.04. Form of Documents Delivered to Trustee. In any
case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents. Where any Person is required to
make, give or execute two or more applications, requests, consents,
certificates, statements, opinions or other instruments under this Indenture,
they may, but need not, be consolidated and form one instrument.
SECTION 1.05. Acts of Noteholders. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by any Noteholders, or a specified
percentage or number of Noteholders, may be embodied in and evidenced by one or
more instruments of substantially similar tenor signed by such Noteholders, in
person or by an agent duly appointed in writing; and, except as herein otherwise
expressly provided, such action shall become effective when such instrument or
instruments are delivered to the Trustee as herein provided and, where it is
hereby expressly required, to the Issuer. Such instrument or instruments (and
the action embodied therein and evidenced thereby) are herein sometimes referred
to as the "Act" of the Noteholders signing such instrument or instruments. Proof
of execution of any such instrument or of a writing appointing any such agent
shall be sufficient for any purpose of this Indenture and (subject to Section
11.02) conclusive in favor of the Trustee and the Issuer if made in the manner
provided in this Section.
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(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by an acknowledgment of a notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than such signer's
individual capacity, such certificate or affidavit shall also constitute
sufficient proof of the signer's authority. The fact and date of the execution
of any such instrument or writing, or the authority of the person executing the
same, may also be proved in any other manner which the Trustee deems sufficient.
(c) The ownership of the Notes shall be proved by the Note
Register.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of any Noteholder or the Noteholders of any Series
of Notes shall bind every future holder of the same Note or Series of Notes and
the holder of any Note issued upon the registration of transfer thereof or in
exchange therefor or in lieu thereof in respect of anything done, suffered or
omitted to be done by the Trustee or the Issuer in reliance thereon, whether or
not notation of such action is made upon such Note.
(e) The Issuer may, but shall not be obligated to, fix a
record date for the purpose of determining the Noteholders entitled to take any
action under this Indenture by vote or consent. Such record date shall be the
later of 30 days prior to the first solicitation of such consent or vote or the
date of the most recent list of Noteholders, furnished by or to the Trustee
prior to such solicitation. If a record date is fixed, those persons who were
Noteholders at such record date (or their duly designated proxies), and only
those persons, shall be entitled to take such action by vote or consent or to
revoke any vote or consent previously given, whether or not such persons
continue to be so after such record date.
SECTION 1.06. Conflict with Trust Indenture Act. If at any
time this Indenture becomes or is required to become qualified under the Trust
Indenture Act and any provision hereof limits, qualifies or conflicts with the
duties imposed by any of Sections 310 through 317, inclusive, of the Trust
Indenture Act through the operation of Section 318(c) thereof, such imposed
duties shall control.
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SECTION 1.07. Benefits of Indenture. Nothing in this Indenture
or in the Notes, express or implied, shall give to any Person (other than the
parties hereto or thereto and their successors hereunder, any Paying Agent and
the Noteholders) any benefit or any legal or equitable right, remedy or claim
under this Indenture.
SECTION 1.08. Incorporation of Recitals. The Recitals of the
Issuer set forth above in this Indenture are hereby incorporated by this
reference hereto as if, and to the same extent that, such Recitals were
contained in the body of this Indenture.
SECTION 1.09. Other Definitional Provisions. (a) All terms
defined in this Indenture shall have the defined meanings when used in any
certificate or other document made or delivered pursuant hereto unless otherwise
defined therein.
(b) As used herein and in any certificate or other document
made or delivered pursuant hereto or thereto, accounting terms not defined in
this Indenture, and accounting terms partly defined in this Indenture to the
extent not completely defined, shall have the respective meanings given to them
under generally accepted accounting principles or regulatory accounting
principles, as applicable and in effect from time to time. To the extent that
the definitions of accounting terms herein are inconsistent with the meanings of
such terms under generally accepted accounting principles or regulatory
accounting principles, the definitions contained herein shall control.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Indenture shall refer to this Indenture as a
whole and not to any particular provision of this Indenture; and Section,
Schedule and Exhibit references contained in this Indenture are references to
Sections, Schedules and Exhibits in or to this Indenture unless otherwise
specified; and the term "including" shall mean "including without limitation".
ARTICLE II
GRANT OF LIEN OF CERTAIN ASSETS;
ISSUANCE OF NOTES
SECTION 2.01. Acceptance by Trustee. The Trustee hereby
acknowledges its acceptance on behalf of the Noteholders
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of the security interest in all Pledged Assets granted pursuant to the Granting
Clause of this Indenture and declares that it shall maintain such security
interest upon the trust herein set forth, for the benefit of all Noteholders on
the terms and subject to the conditions hereinafter set forth.
SECTION 2.02. Certain Matters Regarding the Grant. (a) In
connection with the grant to the Trustee as described in the Granting Clause
above, the Issuer and the Servicer have on or prior to the Closing Date recorded
and filed or caused to be recorded and filed, at the Issuer's expense, financing
statements (including assignments of pre-existing financing statements and
continuation statements with respect to any such financing statements when
applicable) with respect to the Pledged Assets (whether now existing or
hereafter created) meeting the requirements of applicable state law in such
manner and in such jurisdictions as the Issuer and the Servicer reasonably
determined where necessary or desirable to perfect, and maintain perfection of,
the security interests granted hereunder and the ownership interests of the
Issuer in the Issuer Loans and Related Security purchased from or contributed by
the Originator. The Trustee shall have no obligation whatsoever to file such
financing statements, or continuation statements to such financing statements,
or to make any other filing under the UCC in connection with such transfer or
grant. In connection with the grant to the Trustee as described in the Granting
Clause above, the Issuer and the Servicer further agree to deliver to the
Trustee each Pledged Asset (including any original documents or instruments
included in the Pledged Assets as are necessary to effect such grant) in which
the grant of a security interest is perfected under the UCC or otherwise by
possession. The Issuer or the Servicer shall deliver each such Pledged Asset in
its possession to the Trustee or to such other Person as the Trustee may direct,
at the Issuer's or the Servicer's, as applicable, own expenses, immediately upon
the effectiveness of the grant of the security interest in any such Pledged
Asset to the Trustee pursuant to the Granting Clause hereof.
(b) In connection with the grant to the Trustee as described
in the Granting Clause above, the Servicer shall, on behalf of the Issuer, on or
prior to the Closing Date and prior to each subsequent acquisition of Loans by
the Issuer from the Originator pursuant to the Loan Purchase Agreement, mark or
cause to be marked, the master data processing records of the Originator
evidencing the Loan with the following legend:
"THE LOANS DESCRIBED HEREIN HAVE BEEN SOLD OR CONTRIBUTED TO
SIRROM FUNDING CORPORATION
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PURSUANT TO A LOAN PURCHASE AGREEMENT, DATED AS OF DECEMBER
31, 1996, BETWEEN SIRROM CAPITAL CORPORATION, AS THE
ORIGINATOR, AND SIRROM FUNDING CORPORATION, AS THE PURCHASER;
AND SUCH LOANS HAVE BEEN FURTHER PLEDGED AND ASSIGNED TO FIRST
TRUST NATIONAL ASSOCIATION, AS TRUSTEE, PURSUANT TO A MASTER
TRUST INDENTURE AND SECURITY AGREEMENT, DATED AS OF DECEMBER
31, 1996, AMONG SIRROM CAPITAL CORPORATION, AS SERVICER,
SIRROM FUNDING CORPORATION AND FIRST TRUST NATIONAL
ASSOCIATION, AS TRUSTEE."
(c) The Servicer agrees to request from the Issuer, and the
Issuer agrees to record and file from time to time, at its own expense,
financing statements and other documents (and amendments thereto, assignments
thereof and continuation statements, when applicable) with respect to the Issuer
Loans and the other Pledged Assets now existing and hereafter created meeting
the requirements of applicable law in such manner and in such jurisdictions as
are necessary to perfect, and maintain the perfection of, the grant of a
security interest hereunder in the Issuer Loans and the other Pledged Assets to
the Trustee. The Issuer shall deliver a file-stamped copy of each such financing
statement or other document or other evidence of such filing to the Trustee as
soon as available after filing. The Trustee shall be under no obligation
whatsoever to file such financing statements, documents, amendments, assignments
or continuation statements, or to make any other filing under the UCC in
connection with such Transfer. In the event that any of the Issuer Loans and
other Pledged Assets become evidenced by an instrument, the Issuer agrees to (or
to cause the Originator or the Servicer to) deliver to the Trustee, or to such
other Person as the Trustee may direct, the original of such instrument as
required by Section 3.04(g) hereof. Within 30 days after the Issuer makes any
change in its name, identity or corporate structure which would make any
financing statement or continuation statement filed in accordance with the terms
of this Indenture seriously misleading within the meaning of Section 9-402(7)
(or any comparable provision) of the UCC as in effect in the jurisdiction the
law of which governs the perfection of the interest in the Pledged Assets
created hereunder, the Issuer shall give the Trustee notice of such change and
shall file such financing statements or amendments as may be necessary to
continue the perfection of the Trust's interest in the Pledged Assets and the
proceeds thereof contemplated by this Section 2.01.
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The Issuer and the Servicer will give the Trustee prompt
written notice of any relocation of any office from which any of them service
the Issuer Loans or keep records concerning the Issuer Loans or of their
principal executive offices and whether, as a result of such relocation, the
applicable provisions of the UCC would require the filing of any amendment of
any previously filed financing or continuation statement or of any new financing
statement and shall file such financing statements or amendments as may be
necessary to perfect or to continue the perfection of the Trust's interest in
the Issuer Loans and the other Pledged Assets and the proceeds thereof
contemplated by this Section 2.01. The Issuer and the Servicer will at all times
maintain each office from which they service Issuer Loans and their principal
executive offices within the United States of America.
The Issuer further agrees herein, at its own expense, on or
prior to the initial Closing Date and prior to each subsequent pledge hereunder,
to indicate in its computer records that the Issuer Loans have been pledged to
the Trustee hereunder.
(d) The Trustee hereby agrees not to disclose to any Person
any information delivered to the Trustee from time to time with respect to the
Issuer Loans or any Obligor except (i) to a Successor Servicer or as required by
a Requirement of Law applicable to the Trustee, (ii) as required in the
performance of the Trustee's duties hereunder, (iii) as required in enforcing
the rights of the Noteholders hereunder, (iv) as provided in any Supplement or
(v) to any "Backup Servicer" under and as defined in the Backup Servicing
Agreement, or under any successor agreement or similar agreement executed in
connection with any Series. The Trustee shall have no liability to any Person
for the disclosure to any Person of information with respect to the Issuer Loans
or any Obligor as permitted by this Section 2.02(d). The Trustee agrees to
protect and maintain the security and confidentiality of such information in
accordance with reasonable and customary industry standards and, in connection
therewith, will allow the Issuer to inspect the Trustee's security and
confidentiality arrangements from time to time during normal business hours. The
Trustee shall use its best efforts to provide the Issuer written notice at least
five Business Days prior to any disclosure pursuant to this Section 2.01 and in
any event will provide written notice whenever disclosure is made.
(e) If (i) the Issuer or the Servicer fails to perform any of
its agreements or obligations under any Transaction Document to which it is a
party and does not remedy such failure within the applicable cure period, if
any, and (ii) the Trustee
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in good faith reasonably believes that the performance of such agreements and
obligations is necessary or appropriate to protect the interests of the
Noteholders under this Indenture, then the Trustee or its designees may (but
shall not be required to) itself perform, or cause performance of, such
agreement or obligation, and the reasonable expenses of the Trustee or such
designee incurred in connection therewith shall be payable by the Issuer. If, at
any time, the Issuer or the Servicer fails to file or cause to be filed any
financing statement or continuation statement, or amendment thereto or
assignment thereof, that is required to be filed pursuant to this Indenture or
any of the other Transaction Documents, the Trustee may (but shall not be
obligated to), and the Issuer and the Servicer hereby authorize the Trustee to,
file such financing or continuation statements, and amendments thereto and
assignments thereof, relative to all or any of the Pledged Assets now existing
or hereafter arising in the name of the Issuer, the Servicer or, to the extent
permitted under the Loan Purchase Agreement, the Originator, in any case, at the
expense of the Servicer to be paid out of the Servicing Reimbursement.
SECTION 2.03. Representations and Warranties of the Issuer.
The Issuer hereby represents and warrants as of the date hereof and, as of such
date and with respect to any Series, as of the date of any Supplement and the
related Closing Date, unless otherwise stated in such Supplement, that:
(a) Organization and Good Standing. The Issuer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has full corporate power and authority to own its
properties and conduct its business as presently owned or conducted, to execute,
deliver and perform its obligations under this Indenture and the Loan Purchase
Agreement, and to execute and deliver to the Trustee pursuant hereto the Notes.
(b) Due Qualification. The Issuer is duly qualified to do
business and is in good standing as a corporation or foreign corporation, as
applicable, and has obtained all necessary licenses and approvals, in each
jurisdiction in which failure to so qualify or to obtain such licenses and
approvals would have a material adverse effect on the Issuer's ability to
perform its obligations hereunder, under the applicable Supplement or under the
Loan Purchase Agreement.
(c) Due Authorization. The execution, delivery and performance
of this Indenture and the applicable Supplement and the Loan Purchase Agreement
by the Issuer, and the execution and
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delivery by the Issuer to the Trustee of the Notes and the consummation by the
Issuer of the transactions provided for in this Indenture and the applicable
Supplement and the Loan Purchase Agreement, have been duly authorized by all
necessary corporate action on the part of the Issuer and this Indenture and the
other documents and agreements executed in connection herewith have been duly
executed and delivered on behalf of the Issuer.
(d) Enforceability. Each of this Indenture, the applicable
Supplement and the Loan Purchase Agreement constitutes a legal, valid and
binding obligation of the Issuer enforceable against the Issuer in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or other similar laws
affecting creditors' rights generally, now or hereafter in effect, and except as
such enforceability may be limited by general principles of equity (whether
considered in a suit at law or in equity). The Loan Purchase Agreement is in
full force and effect, and is not subject to any specific dispute, offset,
counterclaim or defense.
(e) No Conflict. The Issuer's execution and delivery of this
Indenture, the applicable Supplement, the Loan Purchase Agreement and the Notes,
performance of the transactions contemplated by this Indenture and the
applicable Supplement and the Loan Purchase Agreement, and fulfillment of the
terms hereof and thereof applicable to the Issuer, do not conflict with or
violate in any material respect any Requirements of Law applicable to the Issuer
(including, without limitation, the Investment Company Act) or conflict with,
result in any breach of any of the terms and provisions of, or constitute (with
or without notice or lapse of time or both) a default under, any indenture,
contract, agreement, mortgage, deed of trust or other instrument to which the
Issuer is a party or by which it or its properties are bound.
(f) No Proceedings. There are no proceedings or investigations
pending or, to the best knowledge of the Issuer, threatened against the Issuer
before any Governmental Authority which asserts the invalidity of this Indenture
or the Loan Purchase Agreement or which otherwise is likely to have a material
adverse effect on the Issuer's financial condition or operations or on the
Pledged Assets or the transactions contemplated herein, under each Supplement
and under the Loan Purchase Agreement.
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(g) Consents. No authorization, consent, license, order or
approval of, registration or declaration with any Governmental Authority
(including, without limitation, the Investment Company Act) or other Person is
required to be obtained, effected or given by the Issuer in connection with the
execution and delivery of this Indenture the applicable Supplement, the Loan
Purchase Agreement and the Notes by the Issuer or its performance of its
obligations under this Indenture, the applicable Supplement and the Loan
Purchase Agreement or the transactions contemplated hereby and thereby except
for (i) the filings of the financing statements or other documents required to
have been filed on or prior to the initial Closing Date pursuant to Section
2.01, all of which were so filed and are in full force and effect, (ii) the
filing of any amendments, assignments or continuation statements which may
become applicable pursuant to Section 2.01, and (iii) other consents and
approvals the failure of which to obtain is not likely to have a material
adverse effect on the Issuer's financial condition or operations or the Pledged
Assets or the Issuer's ability to perform its obligations under this Indenture.
(h) Liens on Properties. Except as created hereby, there are
no Liens (except for Permitted Liens) of any nature whatsoever on any Issuer
Loan. The Issuer is not a party to any contract, agreement, lease or instrument
(other than this Indenture) the performance of which, either unconditionally or
upon the happening of an event, will result in or require the creation of any
Lien on any Issuer Loan or otherwise result in a violation of this Indenture.
(i) Contractual Obligations. (i) The Issuer is not a party to
any indenture, loan or credit agreement or any lease or other agreement or
instrument, or subject to any Requirements of Law, that would have a material
adverse effect on the ability of the Issuer to carry out its obligations under
this Indenture, the applicable Supplement or the Loan Purchase Agreement, and
(ii) neither the Issuer nor, to the best of the knowledge of the Issuer, any
other party is in default in any respect under or with respect to the Loan
Purchase Agreement or any other material contract, agreement, lease or other
instrument to which the Issuer is a party.
(j) Investment Company. The Issuer is registered under the
Investment Company Act as an investment company, and is in compliance in all
material respects with the applicable provisions of the Investment Company Act
and the rules and regulations promulgated thereunder.
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(k) Locations. The chief place of business and chief executive
office of the Issuer are located at the address of the Issuer referred to in
Section 13.05, and the locations of the offices where the Issuer keeps the
originals of its books, records and documents regarding the Issuer Loans and the
other Pledged Assets are listed on Schedule II hereto (or at such other
locations, notified to the Trustee in accordance with Section 2.05(d), in
jurisdictions with respect to which all applicable action required by Section
2.02 has been taken and completed).
(l) Tradenames. The legal name of the Issuer is as set forth
on the signature page of this Agreement and the Issuer has no tradenames,
fictitious names, assumed names or "doing business as" names.
(m) Subsidiaries. The Issuer has no subsidiaries.
(n) Information. (i) Each certificate, information, exhibit,
financial statement, document, book or record or report furnished by the Issuer
to the Trustee or the Servicer in connection with this Indenture and (ii) any
information contained in any written documents regarding the Issuer provided by
the Issuer to Noteholders is accurate in all material respects as of its date,
when considered as a whole with other such documents, and no such document
contains any material misstatement of fact or omits to state a material fact or
any fact necessary to make the statements contained therein under the
circumstances in which they were made not materially misleading.
(o) Solvency. As of the date hereof and after giving effect to
the transactions contemplated by this Indenture, the fair saleable value of the
Issuer's assets exceeds its liabilities and the Issuer is currently repaying all
of its indebtedness as such indebtedness becomes due; and, after giving effect
to the transactions contemplated by this Indenture, the Issuer will have
adequate capital to conduct its business as presently conducted and as
contemplated by this Indenture. The Issuer is not entering into the transactions
contemplated hereunder and under the Loan Purchase Agreement with the intent of
hindering, delaying or defrauding creditors and no transfer hereunder
constitutes a fraudulent transfer or fraudulent conveyance under the United
States Bankruptcy Code or similar state law.
(p) Compliance. The Issuer has complied in all material
respects with all Requirements of Law with respect to it, its business and
properties, including all Issuer Loans and the Loan Documents related thereto.
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(q) Taxes. The Issuer has filed all material tax returns
(federal, state and local) which it reasonably believes are required to be filed
by it and has paid or made adequate provision for the payment of all taxes,
assessments and other governmental charges due from the Issuer or is contesting
any such tax, assessment or other governmental charge in good faith through
appropriate proceedings. The Issuer knows of no basis for any material
additional tax assessment for any fiscal year for which adequate reserves have
not been established.
(r) Use of Proceeds. No proceeds of the issuance of any Note
will be used by the Issuer to acquire any security in a transaction that is
subject to Sections 13 and 14 of the Exchange Act, or to purchase or carry any
margin security in violation of any applicable law or regulation.
(s) Lock-Box Accounts. The Lock-Box Banks are the only
institutions holding Lock-Box Accounts for the receipts of payments in respect
of Issuer Loans (subject to such changes as may be made from time to time in
accordance with Section 4.02(b)).
(t) Event of Default. As of the Closing Date for any Series,
no Event of Default, and no condition that with the giving of notice and/or the
passage of time would constitute an Event of Default, has occurred and is
continuing.
(u) ERISA. No Plan maintained by the Issuer or any of its
ERISA Affiliates has any accumulated funding deficiency (within the meaning of
Section 302 of ERISA or Section 412 of the IRC), whether or not waived. The
Issuer and each ERISA Affiliate of the Issuer has timely made all contributions
required to be made by it to any Plan and Multiemployer Plan to which
contributions are or have been required to be made since November, 1991 by the
Issuer or such ERISA Affiliate, and no Reportable Event has occurred and is
continuing or could reasonably be expected to occur with respect to any such
Plan, in any case, that could reasonably be expected to result directly or
indirectly, in any Lien being imposed on the property of the Issuer or the
payment of any material amount to avoid such Lien.
The representations and warranties set forth in this Section
2.03 shall survive the issuance of the Notes and shall cease and be of no effect
upon repayment in full of the Outstanding Principal Balance of the last
outstanding Series and all other obligations of the Issuer hereunder. Upon
discovery by the Issuer, any Servicer or the Trustee of a material breach of any
of the foregoing representations and warranties, the party
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discovering such breach shall give prompt written notice to the other parties
hereto and to any Enhancement Providers. The Trustee's obligations in respect of
any such breach are limited as provided in Section 11.02(g).
SECTION 2.04. Representations and Warranties of the Issuer
Relating to this Indenture and the Pledged Assets. The Issuer hereby represents
and warrants as of the date hereof and on each date during the Revolving Period
for any Series, that:
(a) Valid Grant. The grant in favor of the Trustee made by the
Issuer pursuant to this Indenture constitutes a valid grant, pledge and
hypothecation of a security interest in and lien on all of the Issuer's right,
title and interest in, to and under the Issuer Loans and the other Pledged
Assets, which lien and security interest are perfected and of first priority
under the UCC and otherwise, enforceable against creditors of, and purchasers
from, the Issuer and the Originator, free and clear of any Lien (other than any
Permitted Lien).
(b) No Claim or Interest. Except as otherwise provided in this
Indenture and the applicable Supplement, neither the Issuer nor any Person
claiming through or under the Issuer has any claim to or interest in the
Concentration Account or any Series Account.
(c) Outstanding Balance; Base Amount. As of each Closing Date,
the aggregate Net Outstanding Amount (after giving effect to the issuance of all
Notes on such date) is less than or equal to the Base Amount.
(d) Liens. All Issuer Loans and all other Pledged Assets are
owned by the Issuer free and clear of any Lien except as created hereby or by
the Loan Purchase Agreement and free and clear of any adverse claim or interest
of any other Person.
(e) Eligibility. Each Issuer Loan classified as an "Eligible
Loan" by the Issuer in any Daily Report or Settlement Statement delivered
hereunder satisfies, as of the dates referred to in such Daily Report or
Settlement Statement, as applicable, the requirements of eligibility contained
in the definition of Eligible Loan, and no such Loan nor any related Loan
Document has been satisfied, subordinated or rescinded nor, except as otherwise
permitted hereunder, been compromised, adjusted, extended or otherwise modified.
The representations and warranties set forth in this Section
2.04 shall survive the issuance of the Notes, and shall
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cease and be of no effect upon repayment in full of the Outstanding Principal
Balance of the last outstanding Series and all other obligations of the Issuer
hereunder. Upon discovery by the Issuer, any Servicer or the Trustee of a
material breach of any of the foregoing representations and warranties, the
party discovering such breach shall give prompt written notice to the other
parties hereto and to any Enhancement Provider. The Trustee's obligations in
respect of any such breach are limited as provided in Section 11.02(g).
SECTION 2.05. Affirmative Covenants of the Issuer. The Issuer
hereby covenants that, until the termination of the Amortization Period:
(a) Compliance with Law. The Issuer will comply in all
material respects with all Requirements of Law applicable to the Issuer, its
business and properties and the Pledged Assets, where failure to so comply would
have a material adverse effect on the Pledged Assets or the ability of the
Issuer to perform in any material respects its obligations hereunder or under
the Loan Purchase Agreement.
(b) Preservation of Corporate Existence. The Issuer will
preserve and maintain its corporate existence, rights, franchises and privileges
in the jurisdiction of its formation, and qualify and remain qualified in good
standing as a foreign corporation in each jurisdiction where the failure to
maintain such qualification would materially and adversely affect (i) the
interests of the Trustee or of the Noteholders hereunder or in the Pledged
Assets, (ii) the collectibility of the Issuer Loans or (iii) the ability of the
Issuer to perform its obligations hereunder or under the Loan Purchase Agreement
in any material respect.
(c) Keeping of Records and Books of Account. The Issuer will
(i) keep proper books of record and account, which shall be maintained or caused
to be maintained by the Issuer and shall be separate and apart from those of any
Affiliate of the Issuer, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Issuer in accordance
with generally accepted accounting principles consistently applied, and (ii)
maintain and implement administrative and operating procedures (including
without limitation, an ability to recreate records evidencing the Issuer Loans
in the event of the destruction of the originals thereof) and keep and maintain
all documents, books, records and other information reasonably necessary or
advisable for the collection of all Issuer Loans (including, without limitation,
records
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adequate to permit the daily identification of each new Issuer Loan and all
Collections of and adjustments to each existing Issuer Loan).
The Issuer shall provide to the Trustee access to the
documentation regarding the Issuer Loans in such cases where the Trustee is
required in connection with the enforcement of the rights of Noteholders or by
applicable statutes or regulations to review such documentation, such access
being afforded without charge but only (i) upon reasonable written request, (ii)
during normal business hours, (iii) subject to the Issuer's normal security and
confidentiality procedures and (iv) at reasonably accessible offices in the
continental United States designated by the Issuer.
(d) Location of Records. The Issuer will keep its chief place
of business and chief executive office, and the office where it keeps the books,
records and documents regarding the Pledged Assets, at the addresses of the
Issuer referred to in Section 13.05 and on Schedule II hereto or, upon 30 days'
prior written notice to the Trustee, at any other location within the United
States with respect to which all applicable action required by the last two
paragraphs of Section 2.02 shall have been taken and completed.
(e) Maintenance of Separate Directors. The Issuer will
maintain at least two independent directors each of whom is not an officer,
director or employee of (i) any Originator or (ii) any Affiliate, nor a parent,
child, spouse or sibling of any such Person; provided, however, that if any such
independent director dies or resigns the Issuer shall have 10 Business Days, to
replace that Person with another independent director.
(f) Payment of Taxes, Etc. The Issuer will pay promptly when
due all taxes, assessments and governmental charges or levies imposed upon it or
any Pledged Asset, or in respect of its income or profits therefrom, and any and
all claims of any kind, except that no such amount need be paid if (i) such
non-payment could not subject any Indemnified Party to civil or criminal penalty
or liability or involve any risk of the sale, forfeiture or loss of any of the
property, rights or interest covered hereunder or under the Loan Purchase
Agreement, (ii) the charge or levy is being contested in good faith and by
proper proceedings and (iii) the obligation to pay such amount is adequately
reserved against in accordance with and to the extent required by generally
accepted accounting principles.
(g) Reporting Requirements. The Issuer will:
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(i) within one Business Day after a Responsible Officer
becomes aware of the occurrence of any Event of Default, any Pay-Out
Event, any Set-Aside Period and each event which, with the giving of
notice or lapse of time or both, would constitute an Event of Default
or a Pay-out Event, notify the Trustee of such occurrence;
(ii) as soon as possible and in any event (A) within three
Business Days after a Responsible Officer becomes aware of the
occurrence of any Event of Default, any Pay-Out Event, any Set-Aside
Period, and each event which, with the giving of notice or lapse of
time or both, would constitute an Event of Default or a Pay-Out Event,
furnish to the Trustee the statement of the chief administrative and
credit officer or other Responsible Officer of the Issuer setting forth
details of such Event of Default, Pay-Out Event, Set-Aside Period or
event and the action which the Issuer has taken and proposes to take
with respect thereto, and (B) within three Business Days after the
occurrence thereof, notify the Trustee of any other event, development
or information which is reasonably likely to materially and adversely
affect the ability of the Issuer to perform its obligations under this
Indenture or the Loan Purchase Agreement;
(iii) as soon as practicable and in any event within 50 days
after the end of each of the first three quarters of each fiscal year
of the Issuer, furnish to the Trustee a balance sheet of the Issuer as
of the end of such quarter, and the related revenue and expense
statements for the period commencing at the end of the previous fiscal
year and ending with the end of such quarter, all of the foregoing to
be certified by a Responsible Officer of the Issuer and prepared in
accordance with generally accepted accounting principles;
(iv) as soon as practicable and in any event within 95 days
after the end of each fiscal year of the Issuer, furnish to the Trustee
a balance sheet of the Issuer as of the end of such fiscal year, and
the related revenue and expense statements for such fiscal year, all of
the foregoing to be prepared in accordance with generally accepted
accounting principles and reported on by the Issuer's Independent
Public Accountants;
(v) promptly, from time to time, furnish to the Trustee such
other information, documents, records or reports respecting the Issuer
Loans, the other Pledged
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Assets or the condition or operations, financial or otherwise, of the
Issuer as the Trustee may from time to time reasonably request, subject
to the confidentially provisions of the related Loan Documents.
(h) Loan Purchase Agreement. The Issuer will at its expense
timely perform and comply in all material respects with all provisions,
covenants and other promises required to be observed by it under the Loan
Purchase Agreement, maintain the Loan Purchase Agreement in full force and
effect, enforce its rights under the Loan Purchase Agreement substantially in
accordance with its terms and comply with its obligations under Loan Documents
giving rise to Loans.
(i) UCC Opinion. On or before December 31 of each calendar
year, beginning with December 31, 1997, the Issuer shall deliver to the Trustee
an Opinion of Counsel to the effect that no financing statements or continuation
statements, other than those currently filed, are necessary to be filed by the
Issuer or the Servicer in order to fully preserve and protect the perfected
security or ownership interest of the Trustee, Issuer or any of the Noteholders
hereunder in and to the Issuer Loans or describing such filings as may be
necessary.
(j) ERISA. The Issuer shall promptly give the Trustee notice
of the following events, as soon as possible and in any event within 30 days
after the Issuer or any of its ERISA Affiliates knows or has reason to know
thereof: (i) the occurrence or expected occurrence of any Reportable Event with
respect to any Plan to which the Issuer or any of its ERISA Affiliates
contributed, or any withdrawal from, or the termination, reorganization or
insolvency of any Multiemployer Plan to which the Issuer or any of its ERISA
Affiliates contributes or to which contributions have been required to be made
by the Issuer or such ERISA Affiliate or (ii) the institution of proceedings or
the taking of any other action by the PBGC or the Issuer or any of its ERISA
Affiliates or any such Multiemployer Plan with respect to the withdrawal from,
or the termination, reorganization or insolvency of, any such Plan or
Multiemployer Plan. The Issuer shall give the Trustee notice, as soon as
possible and in any event within 10 days after the Issuer or any of its ERISA
Affiliates knows or has reason to know thereof, of any filing of any Lien by the
PBGC against the assets of either Originator, the Issuer or any of their ERISA
Affiliates.
(k) Collections. On each Business Day that the Issuer or any
Affiliate thereof receives any Collections, the Issuer agrees to hold, or cause
such Affiliate to hold, all such
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Collections in trust and, in the case of Collections remitted directly to the
Issuer or any Affiliate by the applicable Obligor, to deposit, or cause such
Affiliate to deposit, such Collections, in kind and in the form received, to the
appropriate Lock-Box Account as soon as practicable, but in no event later than
the next succeeding Business Day.
(l) Equity Securities. Upon obtaining the beneficial interest
in any Equity Security, by exercise of any purchase, exchange or conversion
option granted as a part of any Contingent Compensation relating to any Issuer
Loan, or in any other way, the Issuer shall either (i) promptly (and in no event
more than thirty days after its acquisition) sell, assign or otherwise transfer
such Equity Security pursuant to Section 2.06(a) (and during the period prior to
such sale, assignment or transfer, the Issuer shall not exercise any of the
rights arising from the ownership of such Equity Security, including, without
limitation, any voting rights with respect thereto), or (ii) concurrently with
the exercise of any purchase, exchange or conversion option with respect to any
Contingent Compensation relating to any Issuer Loan, or otherwise within ten
days of the acquisition of such Equity Security, deliver to the Trustee an
Opinion of Counsel (which must be given by independent legal counsel of national
standing) confirming that the exercise of such option and/or the ownership of
such Equity Security will not, nor will the subsequent disposition of such
Equity Security, (x) require the Issuer to file reports under Section 16(a) of
the Exchange Act, (y) be subject to Section 16(b) of the Exchange Act, or (z)
cause the Issuer to be deemed an "insider," "control person" or "affiliate" of
the applicable Obligor or issuer of such Equity Security (in each case as such
terms may apply under any applicable law, including the Securities Act, the
Exchange Act, the Bankruptcy Code, any principles of equitable subordination and
any law causing the actions of the Issuer with respect to such Obligor or issuer
to be held to a higher standard than if the Issuer did not own such Equity
Security), provided, that in no event may the Issuer retain ownership of an
Equity Security under clause (ii) above if, after giving effect to the
acquisition of such Equity Security, the aggregate amount of outstanding voting
securities of such Obligor or issuer and its Affiliates then owned by the Issuer
is equal to or greater than 20% of the voting securities of such Obligor or
issuer and its Affiliates.
SECTION 2.06. Negative Covenants of the Issuer. The Issuer
hereby further covenants that, until the termination of the Amortization Period:
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(a) No Sales, Liens, Etc.. Except for the security interest
created hereunder, the Issuer will not sell, pledge, assign or transfer any
Pledged Asset or any interest therein to any other Person, or grant, create,
incur, assume or suffer to exist any Lien on, any Pledged Asset, whether now
existing or hereafter created, or any interest therein, and the Issuer shall
defend the right, title and interest of the Trustee in and to the Pledged
Assets, whether now existing or hereafter created, against all claims of third
parties claiming through or under the Issuer; provided, however, that each of
the following types of Pledged Assets may be sold, assigned or otherwise
transferred by the Issuer at any time, at the direction of the Issuer or the
Servicer:
(i) any Issuer Loan;
(ii) any Equity Security received by the Issuer (x) by
exercise of any purchase, exchange or conversion option granted as part
of any Contingent Compensation relating to any Issuer Loan or (y)
otherwise; or
(iii) any Contingent Compensation relating to any Issuer Loan
that has been paid in full in cash;
provided, further, that (I) any sale, assignment or other transfer permitted
under the foregoing clauses (i) through (iii) shall be on an "arm's-length
basis" for fair market compensation in cash and without representations or
warranties with respect thereto (provided, that if any such disposition is made
to the Originator, then such disposition may be made for no compensation so long
as such transfer is made to the Originator as a dividend in-kind or such other
distribution of or in respect of the capital of the Issuer, in each case,
pursuant to all corporate formalities), (II) all cash proceeds of any such sale,
assignment or other transfer shall constitute Principal Collections and shall be
promptly deposited into the Concentration Account upon receipt by the Issuer, or
Sirrom on behalf of the Issuer (and until such time, shall be held in trust by
such Person for the benefit of the Trustee and the Noteholders) and (III) either
(x) at the time of any such sale, assignment or other transfer and immediately
thereafter, no Set-Aside Period shall have occurred and be continuing, no Event
of Default, "Event of Default" under any Supplement or Servicer Default shall
have occurred or be continuing, nor shall any event exist which but for notice,
or the lapse of time, or both, would constitute an Event of Default, an "Event
of Default" under any Supplement or a Servicer Default or (y) such sale,
assignment or other transfer shall be on an "arm's-length basis" for fair market
compensation in cash, (2)
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the Program Agent shall then be the "Program Agent" for the Majority
Noteholders, and (3) the Program Agent shall have provided the Issuer (with a
copy to the Trustee) its prior written consent to such cash sale, assignment or
other transfer. The satisfaction of each of the foregoing conditions shall be
certified in an Officer's Certificate of the Issuer and the Servicer delivered
to the Trustee and each "Program Agent" (as defined in each Supplement) at the
time of any such sale, assignment or other transfer.
(b) Activities of the Issuer. The Issuer will not engage in,
enter into or be a party to any business, activity or transaction of any kind
other than the businesses, activities and transactions contemplated and
authorized by this Indenture or the Loan Purchase Agreement or any document
related hereto or thereto or incidental to its ability to carry out its
obligations under such agreements.
(c) Indebtedness. Except as provided herein or in the Loan
Purchase Agreement, the Issuer will not (i) create, incur or assume any
indebtedness (other than operating expenses incurred in the performance of or
incidental to its obligations under this Indenture) or (ii) sell or transfer any
loans to a trust or other Person which issues securities in respect of any such
loans.
(d) Guarantees. Except as provided for herein, the Issuer will
not become or remain liable, directly or contingently, in connection with any
indebtedness or other liability of any other Person, whether by guarantee,
endorsement (other than endorsements of negotiable instruments for deposit or
collection in the ordinary course of business), agreement to purchase or
repurchase, agreement to supply or advance funds, or otherwise.
(e) Investments. The Issuer will not make or suffer to exist
any loans or advances to, or extend any credit to, or make any investments (by
way of transfer of property, contributions to capital, purchase of stock or
securities or evidences of indebtedness, acquisition of the business or assets,
or otherwise) in, any Affiliate or any other Person except for purchases of
Loans pursuant to the terms of the Loan Purchase Agreement and investments in
Eligible Investments in accordance with the terms of this Indenture. Except as
permitted the Issuer's certificate of incorporation and by-laws, the Issuer will
not declare or pay any dividend or other distribution in respect its stock.
(f) Extension or Amendment of Loans. Except as permitted in
Section 3.01(c), the Issuer will not extend, amend
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or otherwise modify (or consent or fail to object to any such extension,
amendment or modification by an Originator), the terms of any Issuer Loan, or
amend, modify or waive (or consent or fail to object to any such amendment,
modification or waiver by an Originator) any payment term or condition of any
Loan Document related thereto (other than as provided in the Credit and
Collection Policy) if the effect of such amendment, modification or waiver would
impair the collectibility or delay the payment of any then existing Issuer Loan
beyond the earlier of (i) 60 days from the scheduled date of such payment and
(ii) December 31, 2006. The Issuer will not rescind or cancel, or permit the
rescission or cancellation of, any Issuer Loan except as ordered by a court of
competent jurisdiction or other Governmental Authority.
(g) Change in Corporate Name. The Issuer will not (i) make any
change to its corporate name or principal place of business or use any
tradenames, fictitious names, assumed names or "doing business as" names unless,
prior to the effective date of any such name change, change in principal place
of business, or use, the Issuer delivers an Opinion of Counsel, together with
such financing statements (Forms UCC-1 and UCC-3) executed by the Issuer which
reflect such name change or use, together with such other documents and
instruments that the Trustee may reasonably request in connection therewith or
(ii) change its jurisdiction of formation unless the Trustee shall have received
from the Issuer (A) written notice of such change at least 30 days prior to the
effective date thereof, and (B) prior to the effective date thereof, an Opinion
of Counsel, as to such formation and the Issuer's valid existence and good
standing and as to the matters referred to in Section 2.04(a).
(h) Loan Purchase Agreement. The Issuer will not (i) cancel or
terminate the Loan Purchase Agreement or consent to or accept any cancellation
or termination thereof, (ii) amend or otherwise modify any term or condition of
the Loan Purchase Agreement or give any consent, waiver or approval thereunder,
(iii) waive any default under or breach of the Loan Purchase Agreement or (iv)
take any other action under the Loan Purchase Agreement not required by the
terms thereof, to the extent that, in each of clauses (ii) through (iv) above,
such amendment, modification, consent, waiver, approval or other action would
adversely affect in any material respect the rights or interests of the Issuer
thereunder or of the Trustee or the Noteholders hereunder or thereunder, unless
the Issuer has obtained the prior written consent of the Majority Noteholders
with respect thereto.
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(i) Organization. The Issuer will not amend its certificate of
incorporation or bylaws in any manner which would modify the limitations on the
Issuer's business set forth therein, or modify the requirements that the Issuer
maintain at least two independent directors or alter the duties, powers, rights
and responsibilities of such directors or otherwise alter the provisions
contained therein requiring the Issuer to maintain its existence as a
corporation separate and apart from its Affiliates, except for such changes not
adverse to the Noteholders with respect to which the Issuer has provided an
Opinion of Counsel, which counsel is not an employee of the Originator or any of
its Affiliates, relating to the continued separate existence of the Issuer, and
will not otherwise amend its certificate of incorporation or bylaws in any
manner which would be materially adverse to the Noteholders.
(j) Maintenance of Separate Existence. The Issuer will not (i)
fail to do all things necessary to maintain its existence as a corporation
separate and apart from the Originator and any other Affiliate of the Originator
or of the Issuer including, without limitation, conducting business
correspondence in its own name, holding regular meetings of, or obtaining
regular written consents from, its shareholders and Board of Directors and
maintaining appropriate books and records; (ii) suffer any limitation on the
authority of its own directors and officers to conduct its business and affairs
in accordance with their independent business judgment, or authorize or suffer
any Person other than its own directors and officers to act on its behalf with
respect to matters (other than matters customarily delegated to others under
powers of attorney) for which a corporation's own directors and officers would
customarily be responsible; (iii) fail to (A) maintain, or cause to be
maintained by an agent of the Issuer under the Issuer's control, physical
possession of all its books and records, (B) maintain capitalization adequate
for the conduct of its business, (C) account for and manage its liabilities
separately from those of any other Person, including, without limitation,
payment of all payroll and other administrative expenses and taxes from its own
assets, (D) segregate and identify separately all of its assets from those of
any other Person, and (E) maintain offices through which its business is
conducted separate from those of its Affiliates (provided that, to the extent
that the Issuer and any of its Affiliates have offices in the same location,
there shall be a fair and appropriate allocation of overhead costs and expenses
among them, and each such entity shall bear its fair share of such expenses); or
(iv) fail to take any actions required on its part or fail to cause any
Affiliates to take any action required on their part to prevent the commingling
of its
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funds with those of any of its Affiliates, or use its funds for other than the
Issuer's uses.
(k) Ownership; Merger. The Issuer will not (i) sell any shares
of any class of its capital stock to any Person (other than the Originator or
any wholly-owned subsidiary of the Originator), or enter into any transaction of
merger or consolidation, or convey or otherwise dispose of all or substantially
all of its assets (except as contemplated herein), or (ii) terminate, liquidate
or dissolve itself (or suffer any termination, liquidation or dissolution), or
(iii) acquire or be acquired by any Person, (except indirectly in connection
with a consolidation, merger or transfer of stock of the Originator to the
extent such consolidation or merger is permitted under the Loan Purchase
Agreement, in connection with which the Trustee shall have received an Opinion
of Counsel, which counsel is not an employee of the Originator or any of its
Affiliates, relating to the continued separate corporate existence of the
Issuer).
ARTICLE III
ADMINISTRATION AND SERVICING OF LOANS
SECTION 3.01. Acceptance of Appointment and Other Matters
Relating to the Servicer. (a) Sirrom Capital Corporation agrees to act as a
Servicer for the benefit of the Noteholders under this Indenture until
appointment of a Successor Servicer under Article X, and each Noteholder by its
acceptance of its Notes consents to Sirrom Capital Corporation so acting as
Servicer. The Servicer hereby disclaims all right, title and interest in and to
the Issuer Loans and the proceeds thereof, except for the payment of its fees
and expenses hereunder.
(b) The Servicer shall (subject to Article X) enforce the
Issuer's respective rights and interests in, to and under the Issuer Loans and
the Pledged Assets on behalf of the Issuer, the Trustee and the Noteholders. The
Servicer, on behalf of the Trustee, shall service, administer and collect the
Issuer Loans and, in connection therewith, the Servicer shall take or cause to
be taken all such actions as may be necessary or advisable to attempt to collect
each Issuer Loan from time to time, all in accordance with applicable laws,
rules and regulations, with reasonable care and diligence, and in accordance
with the Credit and Collection Policy applicable to such Issuer Loan, except
where such failure to conform or comply would not be likely to materially
adversely affect the rights of the Noteholders.
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(c) Provided no Servicer Default shall have occurred and be
continuing, the Servicer may, in accordance with the applicable Credit and
Collection Policy, extend the maturity, adjust the Outstanding Balance, or
amend, modify or waive the terms of any Defaulted Loan or amend, modify or waive
any payment term or condition of any Loan Document related thereto, all as it
may determine to be appropriate to maximize Collections thereof.
(d) The Servicer shall have full power and authority, acting
alone or through any party properly designated by it hereunder, to do any and
all things in connection with such servicing and administration which it may
deem necessary or desirable. Without limiting the generality of the foregoing
and subject to Section 10.01, (i) the Servicer or its designee is hereby
authorized and empowered to instruct the Trustee to make withdrawals and
payments from the Trust Accounts, subject to the limitations set forth in
Section 4.02 and as otherwise set forth in this Indenture and to instruct the
Trustee to take any action required or permitted under any Enhancement Agreement
and (ii) the Servicer or its designee is hereby authorized and empowered (x) to
make any filings, reports, notices, applications and registrations with, and to
seek any consents or authorizations from, the Securities and Exchange Commission
and any state securities authority as may be necessary or advisable to comply
with any Federal or state securities laws or reporting requirements, and (y) to
subcontract with or delegate to any other Person (at such Servicer's expense)
for servicing, administering or collecting the Issuer Loans, provided that the
Servicer shall give the Trustee notice of any such subcontracting and such other
Person shall not become a Servicer hereunder and the subcontracting or
delegating Servicer shall remain liable for the performance of its duties and
obligations as a Servicer pursuant to the terms hereof. Each subservicing
agreement will be upon such terms and conditions as are not inconsistent with
this Indenture and the standard of care set forth herein. All compensation
payable to a subservicer under any subservicing agreement shall be payable by
the Servicer from the Servicing Reimbursement received by it or otherwise from
its own funds, and neither the Trustee nor the Noteholders shall have any
obligations, duties or liabilities of any kind whatsoever under any such
subservicing agreements. Upon the written request of the Servicer and receipt of
an Officer's Certificate setting forth the facts underlying such request, the
Trustee shall execute any documents furnished by the Servicer which are
necessary or appropriate to enable the Servicer to carry out its servicing and
administrative duties hereunder and acceptable in form and substance to the
Trustee and shall furnish the Servicer with any documents then in the Trustee's
possession which are
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necessary or appropriate to enable the Servicer to carry out its servicing and
administrative duties hereunder.
(e) The relationship of the Servicer (including any Successor
Servicer) to the Trustee under this Indenture is intended by the parties to be
that of an independent contractor to or with the Trustee and shall not be
construed to be that of a joint venturer, partner, or agent, such that the acts
of the Servicer are in any way vicariously attributable to the Trustee in its
individual capacity prior to such time as the Trustee may serve as Servicer
pursuant to the provisions of Article X.
SECTION 3.02. Servicing Compensation; Servicer's Expenses.
(a) Compensation. As full compensation for its servicing
activities hereunder, the Servicer shall be entitled to receive a monthly
servicing reimbursement (the "Servicing Reimbursement") for each Collection
Period (or portion thereof) from the initial Closing Date until the termination
of the Amortization Period, payable in arrears on the Monthly Payment Date with
respect to such Collection Period (or portion), in an amount equal to the lesser
of (x) the actual costs and expenses incurred by the Servicer in connection with
its servicing activities hereunder during such Collection Period with respect to
such Monthly Payment Date (as such costs and expenses are certified in an
Officer's Certificate of the Servicer delivered to the Trustee) and (y) the
product of the per annum fee of 1.00% (calculated on the basis of a 360-day year
of twelve 30-day months) times the aggregate Adjusted Outstanding Loan Balance
of the Loans subject to the Granting Clause of this Indenture being serviced by
such Servicer as of the beginning of such Collection Period; the Servicing
Reimbursement for any Servicer other than the Originator or an Affiliate thereof
shall be an amount equal to that computed pursuant to clause (y) hereof. The
Servicing Reimbursement shall be payable only from Collections.
(b) Expenses. The Servicer's expenses include: first, the
Trustee's Fee and the Backup Servicer's Fee (to the extent not paid from the
Carrying Cost Account, Collections or other funds on deposit in the Trust
Accounts or the Issuer's Account) and second, all documented expenses and
liabilities (other than any liability of the Trustee with respect to any amount
payable solely out of Collections) in respect hereof not expressly stated herein
to be for the account of the Noteholders, the reasonable fees and disbursements
of independent accountants, counsel and other fees and documented expenses
including but not
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limited to the costs of filing UCC continuation statements; provided that, in no
event shall any Servicer be liable for any federal, state or local income,
franchise or other tax, or any interest or penalties with respect thereto,
assessed on the Pledged Assets, the Trustee or the Noteholders except as
expressly provided herein. Such expenses shall be payable, first, from the
Servicing Reimbursement, and, second, to the extent not paid from the Servicing
Reimbursement, by the Issuer for its own account (subject to the limitations set
forth below). In addition, to the extent not paid from the Servicing
Reimbursement, the Issuer shall pay for its own account, and, if the Issuer
fails to do so, the Servicer will pay, all fees and expenses incurred by or on
behalf of the Servicer in connection with their servicing activities hereunder
(including without limitation expenses related to enforcement of the Issuer
Loans, the costs of a Service Transfer and expenses otherwise relating to a
Servicer Default), and the Servicer will not be entitled to any fee or other
payment from, or claim on, any of the Pledged Assets (other than the Servicing
Reimbursement and reimbursement from the Issuer). The Issuer's and Servicer's
covenant to pay the expenses and disbursements provided for in this Section
3.02(b) shall survive the termination of this Indenture. Any payments from the
Issuer under this Section 3.02(b) shall be made solely from funds available to
make such payments after all other allocations and/or payments to be made for
the benefit of the Noteholders pursuant to Section 4.03(b) or 4.03(c), as
applicable, shall have been made, and there shall be no other recourse to, and
no Person shall have any Claim against, the Issuer for the payment of all or any
part of any such obligations under this Section 3.02(b).
SECTION 3.03. Representations and Warranties of the Servicer.
Sirrom Capital Corporation, as the initial Servicer, hereby makes, and each
successor Servicer by acceptance of its appointment hereunder shall make, the
following representations and warranties, in the case of the initial Servicer,
as of the date hereof and as of the date of the initial issuance of Notes
hereunder and with respect to any Series as of the date of any Supplement and
the related Closing Date or, in the case of any Successor Servicer, the date of
such appointment and, with respect to any Series issued after such date, as of
the date of the related Supplement and the related Closing Date, in each case
unless otherwise stated in such Supplement:
(a) Organization and Good Standing. Such Servicer is a
corporation or national banking association duly organized, validly existing and
in good standing under the applicable laws of its jurisdiction of organization
or incorporation and has, in
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all material respects, full corporate power and authority to own its properties
and conduct its business including its receivables or loans servicing business
as such properties are presently owned and as such business is presently
conducted and as is proposed to be conducted under this Indenture and the Loan
Purchase Agreement, and to execute, deliver and perform its obligations under
this Indenture and the applicable Supplement.
(b) Due Qualification. Such Servicer is duly qualified to do
business and is in good standing as a foreign corporation (or is exempt from
such requirements), and has obtained all necessary licenses and approvals, in
each jurisdiction in which the servicing of the Issuer Loans in accordance with
the terms of this Indenture and any Supplement requires such qualification,
except where failure to so qualify or to obtain such licenses or approvals would
not have a material adverse effect on its ability to perform its obligations as
Servicer under this Indenture and the applicable Supplement.
(c) Due Authorization. Such Servicer's execution, delivery and
performance of this Indenture and the applicable Supplement and the other
agreements and instruments executed or to be executed by such Servicer as
contemplated hereby have been duly authorized by all necessary corporate action
on the part of such Servicer.
(d) Enforceability. Each of this Indenture and the applicable
Supplement constitutes a legal, valid and binding obligation of such Servicer
enforceable against it in accordance with its terms except as such
enforceability may be limited by applicable bankruptcy, reorganization,
insolvency, moratorium or other similar laws now and hereafter in effect
affecting creditors' rights generally, and except as such enforceability may be
limited by general principles of equity (whether considered in a suit at law or
in equity).
(e) No Conflict. Such Servicer's execution and delivery of
this Indenture, performance of the transactions contemplated by this Indenture
and the applicable Supplement, and fulfillment of the terms hereof and thereof
applicable to such Servicer, do not conflict with or violate in any material
respect any material Requirements of Law applicable to such Servicer, or
conflict with, result in any breach of any of the material terms and provisions
of, or constitute (with or without notice or lapse of time or both) a default
under, any material indenture, contract, agreement, mortgage, deed of trust or
other instrument to which such Servicer is a party or by which it or its
properties are bound in any manner which is likely to have a
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material adverse effect on the Issuer's financial condition or operations or the
Pledged Assets or such Servicer's ability to perform its obligations hereunder,
under the Loan Purchase Agreement and each applicable Supplement.
(f) No Proceedings. There are no proceedings or, to the best
knowledge of such Servicer, investigations pending or threatened against it
before any Governmental Authority (i) asserting the illegality, invalidity or
unenforceability or seeking any determination or ruling that would affect the
legality, binding effect, validity or enforceability, of this Indenture and the
applicable Supplement, or (ii) seeking to prevent the consummation of any of the
transactions contemplated by this Indenture and the applicable Supplement, or
(iii) seeking any determination or ruling that is likely to have a material and
adverse effect on the performance by such Servicer of its obligations under this
Indenture and the applicable Supplement.
(g) Consents. No authorization, consent, license, order or
approval of or registration or declaration with any Governmental Authority is
required to be obtained, effected or given by such Servicer in connection with
the execution and delivery of this Indenture and the applicable Supplement by
such Servicer or the performance of its obligations hereunder and thereunder
except where the failure to obtain such authorization, consent, license, order
or approval is not likely to have a material adverse effect on the performance
by such Servicer of its obligations under the Indenture and the applicable
supplement.
(h) Account Banks. The names, addresses and ABA numbers of all
the Account Banks, together with the account numbers of all Lock-Box Accounts
and Concentration Accounts and the name of a contact person at such Account
Banks, are specified in Schedule I hereto as of the initial Closing Date. Also
specified in Schedule I hereto are the name, address and ABA numbers of the
Concentration Account Bank, together with the account number and the name of a
contact person for the Concentration Account as of the initial Closing Date.
(i) Daily Reports and Determination Date Notes. Each Daily
Report and Settlement Statement delivered by such Servicer pursuant to this
Indenture shall be true and correct in all material respects as of the date such
report or certificate is delivered.
(j) Servicer Default. No Servicer Default with respect to such
Servicer has occurred or is continuing.
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The representations and warranties set forth in this Section
3.03 shall survive the issuance of the Notes, and shall cease and be of no
effect upon repayment in full of the Outstanding Principal Balance of the last
outstanding Series and all other obligations of the Issuer hereunder. Upon a
discovery by the Issuer, the Servicer or the Trustee of a material breach of any
of the foregoing representations and warranties, the party discovering such
breach shall give prompt written notice to the other parties. The Trustee's
obligations in respect of any such breach are limited as provided in Section
11.02(g).
SECTION 3.04. Covenants of the Servicer. The Servicer hereby
covenants that, until the termination of the Amortization Period:
(a) Change in Accounts. The Servicer will not (i) terminate
and substitute any Concentration Account (or make any change in its instructions
to Concentration Account Banks regarding payments to be made to the
Concentration Account) except as required pursuant to Section 4.02 or any Series
Account except as required pursuant to the applicable Supplement or (ii) add or
terminate any institution as a Concentration Account Bank from those listed in
Schedule I hereto, except as otherwise permitted pursuant to Section 4.02 or
unless the Trustee shall have received written notice of such addition,
termination or change and executed copies of Concentration Account Notices to
each new Concentration Account Bank.
(b) Collections. On each Business Day that the Servicer or any
Affiliate thereof receives any Collections, the Servicer agrees to hold, or
cause such Affiliate to hold, all such Collections in trust and, in the case of
Collections remitted directly to the Servicer or any Affiliate by the applicable
Obligor, to deposit, or cause such Affiliate to deposit, such Collections, in
kind and in the form received, to the appropriate Lock-Box Account as soon as
practicable, but in no event later than the next succeeding Business Day.
(c) Compliance with Loan Documents and Requirements of Law.
The Servicer will duly satisfy in all material respects all obligations on its
part to be fulfilled under or in connection with each Issuer Loan and the
related Loan Documents, will maintain in effect all qualifications required
under Requirements of Law in order to service each Issuer Loan and will comply
in all material respects with all other Requirements of Law in connection with
servicing each Issuer Loan, in each case except where the failure to perform
such obligations or maintain such
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qualifications would not be substantially likely to have a material adverse
effect on any Noteholders.
(d) Extension or Amendment of Loans. Except as permitted by
Section 3.01(c), the Servicer will not extend, amend or otherwise modify (or
consent or fail to object to any such extension, amendment or modification by
the Originator or the Issuer) the terms of any then existing Issuer Loan, or
amend, modify or waive (or consent or fail to object to any such amendment,
modification or waiver by the Originator or the Issuer) any payment term or
condition of any Loan Document related thereto if the effect of any such
amendment, modification or waiver would impair the collectibility or delay the
payment of any Issuer Loan beyond 60 days from scheduled date of such payment.
The Servicer will not rescind or cancel, or permit the rescission or
cancellation of, any Issuer Loan except as ordered by a court of competent
jurisdiction or other Governmental Authority.
(e) Protection of Noteholders' Rights. Except as authorized by
this Indenture and the applicable Supplement, the Servicer will take no action
which would materially impair the rights of Noteholders in any Issuer Loan or
other Pledged Asset.
(f) Deposits to Concentration Account, any Series Account or
any Lock-Box Account. The Servicer will not deposit or otherwise credit, or
cause to be so deposited or credited, or consent or fail to object to any such
deposit or credit, to the Concentration Account, any Lock-Box Account or any
Series Account cash or cash proceeds other than Collections, funds transferred
from the Reserve Account pursuant to Section 4.03 hereof, or other funds
constituting Pledged Assets.
(g) Reporting Requirements. The Servicer will furnish
to the Trustee:
(i) within one Business Day after a Responsible Officer
becomes aware of the occurrence of a Servicer Default, any Event of
Default, the commencement of a Set-Aside Period and each event which,
with the giving of notice or lapse of time or both, would constitute an
Event of Default, notification of such occurrence;
(ii) as soon as possible and in any event (A) within three
Business Days after a Responsible Officer becomes aware of the
occurrence of a Servicer Default, any Event of Default, any Set-Aside
Period, and each event which with the giving of notice of lapse of time
or both, would
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constitute a Servicer Default or an Event of Default, the statement of
the chief financial officer or chief accounting officer or other
Responsible Officer setting forth details of such Servicer Default or
Event of Default or Set-Aside Period or other event and the action
which the Servicer has taken and proposes to take with respect thereto,
and (B) within three Business Days after the occurrence thereof, notice
of any other event, development or information which is likely to
materially and adversely affect the ability of such Servicer to perform
its obligations under this Indenture;
(iii) as soon as practicable and in any event within 50 days
after the end of each of the first three quarters of each fiscal year
of the Servicer, copies of a balance sheet of the Servicer as of the
end of such quarter, and the related revenue and expense statements and
statements of cash flows each for the period commencing at the end of
the previous fiscal year and ending with the end of such quarter, all
of the foregoing to be certified by a Responsible Officer of the
Servicer and prepared in accordance with generally accepted accounting
principles; provided that, so long as the Servicer (or its parent
corporation) is subject to the information reporting requirements of
the Exchange Act, delivery of the Servicer's (or such parent
corporation's) 10-Q as filed with the Securities and Exchange
Commission shall satisfy the requirements of this clause (iii);
(iv) as soon as practicable and in any event within 95 days
after the end of each fiscal year of the Servicer, a balance sheet of
the Servicer as of the end of such fiscal year, and the related revenue
and expense statements and statements of cash flows for such fiscal
year, all of the foregoing to be certified by a Responsible Officer of
the Servicer and prepared in accordance with generally accepted
accounting principles; provided that, so long as the Servicer (or its
parent corporation) is subject to the information reporting
requirements of the Exchange Act, delivery of the Servicer's (or such
parent corporation's) 10-K as filed with the Securities and Exchange
Commission shall satisfy the requirements of this clause (iv);
(v) promptly, from time to time, such other information,
documents, records or reports within its possession respecting the
Issuer Loans, the other Pledged Assets or the condition or operations,
financial or otherwise, of the Servicer as the Trustee may from time to
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time reasonably request, subject to the confidentiality
provisions of the related Loan Documents.
The Servicer shall provide to the Trustee access to the
documentation regarding the Issuer Loans serviced by it in such cases where the
Trustee is required in connection with the enforcement of the rights of
Noteholders or by applicable statutes or regulations to review such
documentation, such access being afforded without charge but only (i) upon
reasonable request, (ii) during normal business hours, (iii) subject to the
Servicer's normal security and confidentiality procedures and (iv) at reasonably
accessible offices in the continental United States designated by the Servicer.
(h) Filing of Continuation Statements. The Servicer shall
prepare and file such continuation statements and any other documents reasonably
requested by the Trustee or the Issuer or which may otherwise be required by law
to fully preserve and protect the interest of the Trustee, Issuer or any of the
Noteholders hereunder in and to the Issuer Loans. The Trustee shall be under no
obligation whatsoever to file (or to request the filing of) such continuation
statements or other documents.
(i) Compliance with and Change in Credit and Collection
Policy. The Servicer shall comply with and perform its servicing obligations
with respect to the Issuer Loans in accordance with the applicable Credit and
Collection Policy, except insofar as any failure to so comply or perform would
not adversely affect the Noteholders in any material respect. Subject to
compliance with all Requirements of Law, the Issuer or the Servicer, as
applicable, will not change the terms and provisions of the Credit and
Collection Policy in any manner which would impair the collectibility of any
Issuer Loan or have a material adverse effect on the Noteholders.
(j) Change in Corporate Name. The Servicer will not (i) (if
the Servicer is also the Originator) make any change to its corporate name or
principal place of business or use any tradenames, fictitious names, assumed
names or "doing business as" names for such company's business operations
unless, within 30 days after the effective date of any such name change, change
in principal place of business, or use, the Servicer delivers to the Trustee
such financing statements (Forms UCC-1 and UCC-3) executed by it which the
Trustee may reasonably request to reflect such name change, change in place of
business or use, together with such other documents and instruments that the
Trustee may reasonably request in connection therewith or (ii) change its
jurisdiction of incorporation unless the Trustee shall
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have received from the Servicer (A) written notice of such change within 30 days
after the effective date thereof, and (B) on or prior to such 30th day after the
effective date, an Opinion of Counsel, as to such incorporation and the
Servicer's valid existence and good standing and as to the matters referred to
in the first sentence of Section 2.04(a).
(k) Loan Purchase Agreement. The Servicer will at its expense
timely perform and comply in all material respects with all provisions,
covenants and other promises required to be observed by it under the Loan
Purchase Agreement, maintain the Loan Purchase Agreement in full force and
effect, enforce its rights under the Loan Purchase Agreement in accordance with
its terms, and make to any party to the Loan Purchase Agreement, upon the
Trustee's request, such reasonable demands and requests for information and
reports or for action as the Servicer is entitled to make thereunder.
(l) Application of Loans. With respect to each Business Day,
the Servicer shall either (i) apply all Collections received in the Lock-Box
Accounts on such day to the related balances of Issuer Loans on the records of
the Servicer prior to the preparation of the Daily Report on the immediately
following Business Day or (ii) subtract such unapplied Collections from the Net
Loans Balance (as contemplated by the definition thereof) to be reported in such
Daily Report.
SECTION 3.05. Reports and Records for the Trustee.
(a) Daily Records. On each Business Day, the Servicer shall
provide by telecopy to the Trustee, the Issuer and the Paying Agent, and upon
request to any Enhancement Provider, a report (the "Daily Report") substantially
in the form of Exhibit A hereto (as the same may be supplemented in accordance
with the terms of any Supplement) or in such similar form as may be reasonably
acceptable to the Trustee, the Paying Agent, the Issuer and the Servicer. Such
Daily Report shall set forth, among other things, (i) the Collections in respect
of the Issuer Loans processed by the Servicer on the immediately preceding
Business Day, (ii) the amount of Eligible Loans as of the close of business on
the immediately preceding Business Day, (iii) the Net Loans Balance, Base Amount
and each Series Allocation Percentage at the close of business on the
immediately preceding Business Day and (iv) if the Issuer or the Servicer has
requested the Outstanding Principal Balance of any Revolving Note to be
increased on the day of delivery of such report, the Net Outstanding Amount and
each Series Allocation Percentage after giving effect to any such increases.
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(b) Settlement Statement. On or before each Determination Date
with respect to each outstanding Series, the Servicer shall prepare and deliver
by telecopy to the Trustee, the Issuer and the Paying Agent, with a copy
delivered by telecopy or mail to each Clearing Agency (or, in the case of the
initial Clearing Agency, Cede & Co. as its nominee), a certificate (the
"Settlement Statement") substantially in the form of Exhibit B hereto (as the
same may be supplemented in accordance with the terms of any Supplement) or in
such similar form as may be reasonably acceptable to the Trustee, the Paying
Agent, the Issuer and the Servicer. Such Settlement Statement shall set forth,
among other things, any payments to be made to Noteholders on the related
Monthly Payment Date, such other matters as may be required by any Supplement
and (at all times prior to the Amortization Date) calculations of the Required
Overcollateralization Amount for each Series.
SECTION 3.06. Annual Certificate of Servicer. On or before
April 30 of each calendar year, beginning with April 30, 1997, the Servicer
shall deliver to the Trustee and each Enhancement Provider an Officer's
Certificate, executed by a Responsible Officer of the Servicer, substantially in
the form of Exhibit C hereto. A copy of each such certificate will be sent to
each Noteholder by the Trustee.
SECTION 3.07. Annual Servicing Report of Independent Public
Accountants. (a) On or before April 30 of each calendar year, beginning with
April 30, 1997, the Servicer shall, at its own expense, cause a firm of
Independent Public Accountants (who may also render other services to the
Servicer or the Issuer) to furnish a report (addressed to the Trustee) to the
Trustee, the Servicer and each Enhancement Provider substantially to the effect
that (i) such accountants have examined certain documents and records relating
to the servicing of Issuer Loans under this Indenture, compared the information
contained in the Settlement Statements delivered pursuant to Section 3.05(b)
during the period covered by such report with such documents and records and
that, on the basis of such examination, and describing what exceptions, if any,
they detected between such documents and records and such Settlement Statements
and (ii) such accountants have compared the mathematical calculations of certain
amounts set forth in the Settlement Statements delivered pursuant to Section
3.05(b) during the period covered by such report with the Servicer's computer
reports which were the source of such amounts and describing what exceptions, if
any, they detected between the calculations set forth in such certificates and
contained in the Servicer's computer reports which were the source of such
calculations.
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(b) As soon as practicable and in any event within 90 days
after the close of each of its fiscal years commencing with the 1996 fiscal
year, the Issuer shall deliver to the Trustee the annual audited consolidated
financial statements of the Originator (including balance sheets as of the end
of such period, related revenue and expense statements, and a statement of cash
flows) certified by Independent Public Accountants and prepared in accordance
with generally accepted accounting principles. Delivery of a copy of the
Originator's 10-K as filed with the Securities and Exchange Commission shall
satisfy the requirements of this Section 3.07(b).
SECTION 3.08. Annual Noteholders' Statement. On or before
February 15 of each calendar year, beginning with February 15, 1997, the
Servicer (so long as it is the Originator or an Affiliate of the Originator and,
following any Service Transfer, the Issuer) shall provide to the Paying Agent
and the Paying Agent shall forward or cause to be forwarded to any Person who at
any time during the preceding calendar year was a Noteholder, a statement
prepared by the Servicer containing any information which is required to be
provided under the IRC by an issuer of indebtedness to the holders thereof and
such other customary information in the possession of the Issuer or the Servicer
as is necessary to enable the Noteholders to prepare their federal income tax
returns. Such obligation of the Servicer shall be deemed to have been satisfied
to the extent that substantially comparable information shall be provided by the
Paying Agent pursuant to any requirements of the IRC as from time to time in
effect.
SECTION 3.09. Tax and Usury Treatment. The Issuer has entered
into this Indenture, and the Notes have been (or will be) issued to and acquired
by the Noteholders, with the intention that, for federal, state, foreign and
local income and franchise tax and usury law purposes, the Notes will be
indebtedness of the Issuer secured by the Issuer Loans and the Pledged Assets.
The Issuer, by entering into this Indenture, and each Noteholder, by the
acceptance of its Note, agree to treat the Notes for purposes of federal, state
and local income and franchise taxes and for any other tax imposed on or
measured by income and usury law purposes as indebtedness of the Issuer. In
accordance with the foregoing, the Issuer agrees that it will report its income
for such federal, state, foreign and local income or franchise taxes, or for
purposes of any other taxes on or measured by income, on the basis that it is
the owner of the Issuer Loans. If at any time the Note Rate for any Series or
Class of Notes exceeds the maximum non-usurious interest rate permissible for
borrowers
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under applicable law (the "Maximum Rate"), the Note Rate charged with respect to
such Note shall be limited to the Maximum Rate.
SECTION 3.10. Notice to Originator. In the event that the
Originator is no longer acting as Servicer, any Successor Servicer shall deliver
or make available to the Originator and the Issuer each certificate and report
required to be delivered thereafter pursuant to Sections 3.05(b), 3.06 and 3.07.
SECTION 3.11. Adjustments. If the Servicer makes a mistake
with respect to the amount of any Collection and deposits or pays an amount that
is less than or more than the actual amount of such Collection, the Servicer
shall, promptly upon discovery thereof, appropriately adjust the amount
subsequently deposited into the Concentration Account or paid to reflect such
mistake and send written notice thereof to the Trustee. Any Issuer Loan in
respect of which a dishonored check is received shall be deemed not to have been
paid.
ARTICLE IV
RIGHTS OF NOTEHOLDERS AND
ALLOCATION AND APPLICATION OF COLLECTIONS
SECTION 4.01. Rights of Noteholders. (a) The Noteholders of
any Series shall have a security interest in the Pledged Assets, which shall
consist of the right to receive, to the extent necessary to make the required
payments with respect to the Notes of such Series at the times and in the
amounts specified in the related Supplement, the portion of Collections
allocable to such Noteholders pursuant to this Indenture and the related
Supplement from funds on deposit in the Concentration Account and the Reserve
Account allocable to Noteholders and funds on deposit in any related Series
Account and funds available pursuant to any related Enhancement, it being
understood that the Notes of any Series or Class shall not represent any
interest in any Series Account or Enhancement for the benefit of any other
Series or Class. The Issuer shall have an ownership interest in the Pledged
Assets and shall have the right to receive that portion of Collections with
respect to the Issuer Loans and other Pledged Assets at the times and in the
amounts specified in this Indenture or in any Supplement.
(b) Each Series Allocation Percentage shall be initially
computed by the Servicer as of the opening of business of the Servicer on the
initial Closing Date. Thereafter until
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the commencement of the Amortization Period, the Series Allocation Percentage
for each Series, shall be automatically recomputed by the Servicer as of the
close of business of the Servicer on each Business Day. Each Series Allocation
Percentage (i) shall remain constant from the time as of which any such
computation or recomputation is made until the times as of which the next such
recomputation, if any, shall be made and (ii) as computed as of the close of
business of the Servicer on the Business Day immediately preceding the
commencement of the Amortization Period, shall remain constant at all times
during the Amortization Period.
SECTION 4.02. Establishment of Lock-Box Accounts,
Concentration Account and Other Trust Accounts. (a) On or prior to the initial
Closing Date, the Servicer, for the benefit of the Noteholders, shall establish
and maintain or cause to be established and maintained with the Trustee, in the
name of the Trustee on behalf of the Noteholders, the Concentration Account, the
Reserve Account and the Carrying Cost Account described below in this Section
4.02 accessible by the Trustee and, subject to the limitations set forth in this
Section 4.02, the Servicer, each such account bearing a designation clearly
indicating that the funds deposited therein are held for the benefit of the
Noteholders. Any other Trust Accounts established from time to time shall be
similarly established and maintained with the Trustee or any Eligible
Institution and shall also bear a designation clearly indicating that the funds
deposited therein are held for the benefit of the Noteholders. The Trustee shall
possess all right, title and interest in and to all funds from time to time on
deposit in the Concentration Account, the Reserve Account and all other Trust
Accounts and in all proceeds thereof. Each Trust Account shall be under the sole
dominion and control of the Trustee for the benefit of the Noteholders. The
Servicer agrees that it shall have no right of setoff or banker's lien against,
and no right to otherwise deduct from, any funds held in the Trust Accounts for
any amount owed to it by the Trustee or any Noteholder. The Servicer shall from
time to time, instruct each Lock-Box Bank at which a Lock-Box Account is
maintained to transfer all Collections on deposit in such account on each
Business Day, into a segregated Trust Account (such Trust Account, the
"Concentration Account" and the institution holding such account being the
"Concentration Account Bank"). The Servicer shall not make, or cause to be made,
any withdrawal of any funds on deposit in a Lock-Box Account except for a
transfer of such funds to a Concentration Account. In no event shall the
Servicer permit the aggregate amount of Collections on deposit at any Lock-Box
Bank at which a Lock-Box Account is maintained to exceed $100,000 for more than
one (1) Business Day. In addition,
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on or prior to the initial Closing Date, the Concentration Account Bank shall
set up (i) an administrative sub-account of the Concentration Account or a
separate Trust Account (such account, the "Reserve Account") into which funds on
deposit in the Concentration Account may be withdrawn from time to time as
described in this Article IV; (ii) an administrative sub-account of the
Concentration Account or a separate Trust Account (such account, the "Carrying
Cost Account" into which funds shall be set aside for the payment of Carrying
Costs as described in Section 4.03 and (iii) to the extent required by any
Supplement for any Series, an administrative sub-account of the Concentration
Account or a separate Trust Account meeting the requirements described above for
the benefit of the Noteholders of such Series (each, a "Defeasance Account")
into which funds from the other Trust Accounts may be deposited as described in
the related Supplement. Notwithstanding the foregoing, if and to the extent that
funds that are not Collections or other Pledged Assets are deposited into the
Concentration Account, the Servicer may direct the Trustee to withdraw such
funds from the Trust Accounts to be returned to the appropriate Person to whom
such funds belong.
If, at any time, the institution holding any of the Trust
Accounts ceases to be an Eligible Institution, the Servicer, upon actual
knowledge thereof, for the benefit of the Noteholders, shall within 30 Business
Days (i) establish new Trust Accounts meeting the conditions specified above
with an Eligible Institution, (ii) transfer any cash and/or any investments held
therein or with respect thereto to such new Trust Accounts and (iii) in the case
of any new Concentration Account, deliver to all Lock-Box Banks amended Lock-Box
Agreements (with copies thereof to the Trustee) referring to such new
Concentration Account, and from the date such new Concentration Account is
established, it shall be the "Concentration Account." Pursuant to the authority
granted to the Servicer in Section 3.01, the Servicer shall have the power to
instruct the Trustee to make withdrawals and payments from the Concentration
Account and the Reserve Account for the purposes of carrying out the Servicer's
or the Trustee's duties specified in this Indenture.
Funds on deposit in any Trust Accounts on any date and which
are not released to the Issuer, including funds required pursuant to the
applicable Supplement to be deposited to the Issuer's Account on such date,
shall at the direction of the Servicer be invested by the Trustee or the
Eligible Institution maintaining such accounts in Eligible Investments as
instructed by the Servicer in writing (which may be a standing instruction).
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All such Eligible Investments shall be held by the Trustee. Such funds shall be
invested in Eligible Investments that will mature so that such funds will be
available in amounts sufficient for the Servicer to make each distribution
required under the applicable Supplement on the Monthly Payment Date with
respect to such Collection Period or the last day of an Interest Period if such
day is other than a Monthly Payment Date. The Trustee is hereby authorized,
unless otherwise directed by the Servicer, to effect transactions in Eligible
Investments through a capital markets affiliate of the Trustee or its own
investment department.
(b) On or prior to the initial Closing Date, the Servicer, for
the benefit of the Noteholders, shall establish and maintain or cause to be
established and maintained in the name of the Trustee, on behalf of the
Noteholders, with a depositary institution organized under the laws of the
United States of America or any one of the states thereof, including the
District of Columbia (or any domestic branch of a foreign bank) (each, a
"Lock-Box Bank") segregated accounts accessible by the Trustee and the Servicer,
subject to the limitations set forth in this Section 4.02 (each such account, a
"Lock-Box Account") to which Collections, subject to all Requirements of Law,
are to be remitted. Each Lock-Box Account shall be maintained with a Lock-Box
Bank which is an Eligible Institution. The Lock-Box Accounts shall be under the
sole dominion and control of the Trustee for the benefit of the Noteholders;
provided, however, that each Lock-Box Account shall be accessible by the
Servicer for the purpose of transferring Collections to the Concentration
Account in the manner set forth in Section 4.02(a). The name, location and
account number of each current Lock-Box Account is set forth on Schedule I
attached hereto. Each Lock-Box Account shall be maintained with a Lock-Box
Agreement in form and substance satisfactory to the Trustee. Such documentation
shall provide, among other things, that available amounts shall be promptly
transferred to the Concentration Account when required by the terms of this
Indenture. The Issuer shall not (i) change any Lock-Box Account, or establish
any additional Lock-Box Account without, in any such case, causing any
replacement Lock-Box Bank to execute and deliver a Lock-Box Agreement as
contemplated by Section 4.02(c) below prior to the establishment of such
additional or alternative Lock-Box Account or (ii) without the prior written
consent of the Trustee, change such instructions or documentation at any time so
long as the Trustee has any interest in the Issuer Loans. The Originator will
deposit any Collections received by it directly from an Obligor into a Lock-Box
Account or the Concentration Account within one Business Day following
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the Business Day on which the Originator has knowledge of receipt thereof.
(c) The Issuer hereby agrees and acknowledges that (i) such
Person has executed and delivered to the Trustee a letter and executed
acknowledgment thereto substantially in the form of Exhibit D hereto, addressed
to each banking institution with which such Person maintains a Lock-Box Account
(each, a "Lock-Box Agreement") and (ii) each such Person shall execute and
deliver a substantially similar Lock-Box Agreement prior to the establishment of
any additional or alternative Lock-Box Account. The Issuer hereby agrees, and
the Trustee hereby accepts, that such letter transfers all right, title and
interest in all monies, securities and instruments in each Lock-Box Account to
the Trustee. The Issuer agrees to execute such further documents and take such
other actions as may be reasonably requested by the Trustee in order to effect
such transfer.
SECTION 4.03. Daily Calculations and Allocation of
Collections.
(a) Delivery of Daily Report. On or prior to 4:00 p.m. (New
York City time) on each Business Day prior to the Amortization Date, the
Servicer shall deliver the Daily Report to the Trustee and the Paying Agent as
contemplated by Section 3.05(a); provided that if the Trustee has not received
the Daily Report for any Business Day on or prior to 2:00 p.m. (New York City
time) on such Business Day, the Trustee shall not have any obligation to release
any funds on such Business Day from the Trust Accounts to the Issuer or its
Affiliates. If, on any day on which the Trustee is open for business, the
Trustee has not received the Daily Report as provided above, then the Trustee
shall have no duty to allocate funds pursuant to Section 4.03(b) below on such
day, and shall not on such day release any funds from the Trust Accounts to the
Issuer or its Affiliates. No increases shall be made to the Outstanding
Principal Balance of any Revolving Note if, as a result thereof (and after
giving effect to the application of funds therefrom), the resulting Net
Outstanding Amount as reflected in such Daily Report would be greater than the
Base Amount.
(b) Daily Allocation of Funds in the Concentration Account,
Carrying Cost Account and Reserve Account. On each Business Day the Servicer
shall instruct the Trustee in the applicable Daily Report to, and the Trustee
shall, deposit all Interest Collections and all Principal Collections received
in the Concentration Account since the receipt of the last Daily Report as
follows:
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(i) Daily Allocation of Interest Collections. On each
Business Day, all Interest Collections in the Concentration Account
shall be allocated and deposited in the following manner:
First, to the extent that funds in the Carrying Cost
Account are less than the Carrying Cost Amount, to the
Carrying Cost Account up to the amount of such deficiency.
Funds which are on deposit in the Carrying Cost Account shall
be withdrawn solely for the purpose of paying the applicable
Carrying Costs and any other fees and expenses included in the
calculation of the Carrying Cost Amount; provided that if, on
any day, the amount of Collections on deposit in the Carrying
Cost Account exceeds the Carrying Cost Amount, then funds on
deposit in the Carrying Cost Account up to the amount of such
excess shall, if so requested by the Servicer in the Daily
Report, be transferred to the Reserve Account and/or
transferred as Interest Collections to the Concentration
Account, in each case, for allocation and distribution in
accordance with the provisions of this Section 4.03(b).
Second, if a Set-Aside Period has occurred and is
continuing, to the Reserve Account until the Net Outstanding
Amount is less than or equal to the Base Amount. If the Base
Amount is greater than the Net Outstanding Amount and amounts
are then on deposit in the Reserve Account, such amounts up to
the amount of such excess shall, if so requested by the
Servicer in the Daily Report and upon satisfaction of the
conditions described in Section 4.03(b)(iii)(A) below, be
transferred to the Concentration Account as Interest
Collections for distribution in accordance with the provisions
of this Section 4.03(b).
Third, if the Amortization Date shall have occurred
or if an Excess O/C Sharing Period is in effect, all remaining
amounts shall be allocated and deposited as Principal
Collections pursuant to the provisions of this Section
4.03(b), otherwise, all remaining amounts shall be deposited
to the Issuer's Account.
(ii) Daily Allocation of Principal Collections. On
each Business Day, all Principal Collections in the
Concentration Account shall be allocated and deposited in
the following manner:
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First, so long as the Amortization Date has not
occurred and no Set-Aside Period has occurred and is
continuing, to the extent that the funds in the Carrying Cost
Account are less than the Carrying Cost Amount, to the
Carrying Cost Account up to the amount of such deficiency.
Second, if a Set-Aside Period has occurred and is
continuing, to the Reserve Account until the Net Outstanding
Amount is less than or equal to the Base Amount.
Third, each Series' Series Allocation Percentage of
the remaining amounts shall be allocated to the Noteholders of
each Series to be applied in accordance with the terms of the
applicable Supplement.
Fourth, all remaining amounts shall be deposited to
the Issuer's Account.
(iii) Daily Allocation of Reserve Account. On each
Business Day, amounts on deposit in the Reserve Account
shall be allocated and deposited in the following manner:
(A) During the Revolving Period (so long as no
Set-Aside Period shall have occurred and be continuing), the
Issuer may instruct the Trustee by an Officer's Certificate
delivered to the Trustee by 12:00 noon (New York City time)
to, and the Trustee shall, deposit to the Concentration
Account as Interest Collections, all or a portion of the
amounts then on deposit in the Reserve Account; provided that
the Issuer shall have delivered to the Trustee at the time of
such request an Officer's Certificate (in substantially the
form of Exhibit F hereto) stating that, after taking account
of the requested withdrawal, the Base Amount on such day is
equal to or greater than the Net Outstanding Amount and
setting forth the calculation supporting such statement.
(B) During a Set-Aside Period, all funds in the
Reserve Account shall be retained therein for the benefit of
the Noteholders.
(C) Upon the occurrence of the Amortization Date, all
amounts then on deposit in the Reserve Account shall be
deposited to the Carrying Cost Account for
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distribution pursuant to the provisions of this Section
4.03(c) and (d).
(c) Distribution of Amounts on Deposit in the Carrying Cost
Account on each Interest Payment Date. On each Interest Payment Date for each
Series, the Servicer shall direct the Trustee in the Daily Report to, and the
Trustee shall, allocate and distribute from amounts then on deposit in the
Carrying Cost Account, to the Paying Agent for distribution to or for the
account of the Noteholders with respect to each applicable Series, the amount of
accrued and unpaid interest and Breakage Costs that is due and payable on such
Interest Payment Date pursuant to the related Supplement.
Any amounts allocated pursuant to the foregoing to a Series of Notes shall be
paid to the Noteholders in accordance with the related Supplement. If on any
Interest Payment Date the amount on deposit in the Carrying Cost Account is
insufficient to pay the full amount set forth in the foregoing clause, such
funds shall be distributed among such Noteholders in the following order of
priority: first to all such Noteholders whose Notes constitute a Senior Class
(ratably in accordance with their Series Allocation Percentages) until the
amount of the required payments to be distributed to such Noteholders has been
paid in full, and second to all such Noteholders whose Notes constitute a
Subordinated Class (ratably in accordance with their Series Allocation
Percentages) until the amount of such required payments to be distributed to
such Noteholders has been paid in full.
(d) Distribution of Amounts on Deposit in the Carrying Cost
Account on each Monthly Payment Date. On each Monthly Payment Date, the Servicer
shall direct the Trustee in the Daily Report to, and the Trustee shall,
distribute from amounts then on deposit in the Carrying Cost Account, to the
following Persons in the following order of priority:
(i) first, to the Trustee for payment of accrued and
unpaid Trustee's Fees;
(ii) second, to the payment of accrued and unpaid Servicing
Reimbursements to the extent owed to a Successor Servicer which is not
an Affiliate of the Originator or of the Issuer;
(iii) third, to the payment of any other accrued and unpaid
costs, fees, expenses or other obligations (exclusive of accrued and
unpaid interest) included in the calculation
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of the Carrying Cost Amount pursuant to the terms of the applicable
Supplements; and
(iv) fourth, to the payment of accrued and unpaid Servicing
Reimbursements to the extent owed to the Issuer or any Affiliate of it.
If on any Monthly Payment Date the amount on deposit in the Carrying Cost
Account is insufficient to pay the full amount set forth in the foregoing
clauses first through fourth, such available funds shall be allocated by the
Servicer pro rata for distribution to the Persons to whom such amounts are owed
within a priority category according to the respective amounts of such
obligations held by such Persons and all obligations in lower priority
categories shall remain unsatisfied until the obligations in the preceding
category have been satisfied.
ARTICLE V
DISTRIBUTIONS AND REPORTS TO NOTEHOLDERS
Distributions shall be made to, and reports shall be provided
to, Noteholders as set forth in Section 3.08 hereof and in the applicable
Supplement.
ARTICLE VI
THE NOTES
SECTION 6.01. The Notes. The Notes of any Series or Class
shall be issued in the form contemplated by the applicable Supplement and shall
upon issue be executed and delivered by the Issuer to the Trustee for
authentication and redelivery as provided in Section 6.02. Except to the extent
otherwise provided in an applicable Supplement, the Notes shall be issued in
minimum denominations of $250,000 and in integral multiples of $1,000 in excess
thereof (except that one Note may be issued in a denomination that includes any
residual amount); provided, however, that if such Notes are issued in Book-Entry
Form, the Trustee shall have no liability to any Person for the issuance of such
Notes in a denomination not permitted by this Section 6.01. The Notes shall be
issued upon initial issuance as one or more Notes in an aggregate original
principal amount equal to the Initial Outstanding Principal Balance or, in the
case of any Revolving Note, in its applicable Stated Amount. Each Note shall
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be executed by manual or facsimile signature on behalf of the Issuer by the
President, any Vice President, the Chief Financial Officer, the Chief
Administrative and Credit Officer, Treasurer or the Secretary of the Issuer, or
by any other officer or assistant officer duly authorized to execute such Note
on behalf of the Issuer. Notes bearing the manual or facsimile signature of the
individual who was, at the time when such signature was affixed, authorized to
sign on behalf of the Issuer shall not be rendered invalid, notwithstanding that
such individual ceased to be so authorized prior to the authentication and
delivery of such Notes or does not hold such office at the date of such Notes.
No Notes shall be entitled to any benefit under this Indenture or the applicable
Supplement or be valid for any purpose, unless there appears on such Note a
certification of authentication in substantially the form provided for herein
executed by or on behalf of the Trustee by the manual signature of a duly
authorized signatory, and such certification upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder. All Notes shall be dated the date of their authentication.
SECTION 6.02. Authentication of Notes. The Trustee shall
authenticate and deliver the Notes of each Series to, and upon the written order
of, the Issuer against payment to the Issuer of the purchase price therefor. The
Notes of any Series or Class shall be duly authenticated by or on behalf of the
Trustee, in authorized denominations equal to (in the aggregate) the Initial
Outstanding Principal Balance or Stated Amount, as applicable, of such Series or
Class.
SECTION 6.03. Registration of Transfer and Exchange of Notes.
(a) The Trustee shall cause to be kept at its corporate trust operations office
in St. Paul, Minnesota, such office or agency to be maintained in accordance
with the provisions of Section 11.16 a register (the "Note Register") in which,
subject to such reasonable regulations as it may prescribe, a transfer agent and
registrar (which may be the Trustee) (the "Transfer Agent and Registrar") shall
provide for the registration of the Notes and of transfers and exchanges of the
Notes as herein provided. The Transfer Agent and Registrar shall initially be
the Trustee, together with any co-transfer agent and co-registrar chosen by the
Trustee and acceptable to the Servicer, and any reference in this Indenture to
the Transfer Agent and Registrar shall include any co-transfer agent and
co-registrar unless the context requires otherwise. The provisions of Sections
11.01, 11.02, 11.03 and 11.05 shall apply to the Trustee also in its
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role as Transfer Agent and Registrar, for so long as the Trustee shall act as
Transfer Agent and Registrar.
The Trustee shall be permitted to resign as Transfer Agent and
Registrar upon 30 days' (60 days' during the Amortization Period) written
notice to the Issuer and the Servicer. Upon receiving such notice of
resignation, the Servicer shall appoint a successor Transfer Agent and Registrar
reasonably acceptable to the Issuer. If no successor Transfer Agent and
Registrar shall have been appointed and have accepted appointment within 30 days
(60 days during the Amortization Period) after the giving of such notice of
resignation, the Trustee may petition any court of competent jurisdiction for
the appointment of a successor Transfer Agent and Registrar; provided, however,
that such resignation shall not be effective and the Trustee shall continue to
perform its duties as Transfer Agent and Registrar until a successor Transfer
Agent and Registrar has been appointed in accordance with this paragraph, and
such successor has assumed its duties under this Indenture.
It is intended that the registration of Notes which is
described in this Section 6.03 comply with the registration requirements
contained in Section 163 of the IRC.
Upon surrender for registration of transfer of any Note at any
office or agency of the Transfer Agent and Registrar maintained for such
purpose, the Issuer shall execute, and the Trustee shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Notes (of the same Series and Class) in authorized denominations of like
tenor.
Except as otherwise expressly provided in the Supplement
relating to any Series or Class of Notes and subject to Section 6.11, Notes may,
at the option of Noteholder, be exchanged for other Notes (of the same Series
and Class) of authorized denominations of like tenor, upon surrender of the
Notes to be exchanged at any such office or agency. Whenever any Notes are so
surrendered for exchange, the Issuer shall execute, and the Trustee shall
authenticate and deliver, the Notes which the Noteholder making the exchange is
entitled to receive.
Every Note presented or surrendered for registration of
transfer or exchange shall be accompanied by a written instrument of transfer in
a form satisfactory to the Trustee or the Transfer Agent and Registrar duly
executed by the Holder thereof or his attorney-in-fact duly authorized in
writing. Each Holder must
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satisfy the transfer restrictions set forth in the applicable Notes.
Each Note shall be registered at all times as herein provided,
and any transfer or exchange of such Note will be valid for purposes hereunder
only upon registration of such transfer or exchange by the Trustee or the
Transfer Agent and Registrar as provided herein. Payments on any Monthly Payment
Date shall be made to Holders of record on the immediately preceding Record
Date.
No service charge shall be made for any registration of
transfer or exchange of Notes, but the Transfer Agent and Registrar or any
co-transfer agent and co-registrar may require payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
transfer or exchange of the Notes.
All Notes surrendered for registration of transfer or
exchange, or for payment, shall be canceled and disposed of in a manner
reasonably satisfactory to the Trustee.
(b) The Transfer Agent and Registrar will maintain at its
expense, an office or offices or agency or agencies where Notes may be
surrendered for registration of transfer or exchange which office, so long as
the Trustee acts as Transfer Agent and Registrar, shall be the Corporate Trust
Office designated in Section 11.21.
SECTION 6.04. Mutilated, Destroyed, Lost or Stolen Notes. If
(a) any mutilated Note is surrendered to the Transfer Agent and Registrar, or
the Transfer Agent and Registrar receives evidence to its satisfaction of the
destruction, loss or theft of any Note and (b) there is delivered to the
Transfer Agent and Registrar, the Trustee and the Issuer such indemnity as may
be required by them to save each of them harmless, then, in the absence of
notice to the Trustee that such Note has been acquired by a bona fide purchaser,
the Issuer shall execute and the Trustee shall authenticate and deliver, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen Note, a
new Note of like tenor. In connection with the issuance of any new Note under
this Section 6.04, the Trustee or the Transfer Agent and Registrar may require
the payment by the Noteholder of a sum sufficient to pay any tax or other
governmental charge that may be imposed in relation thereto. Any duplicate Note
issued pursuant to this Section 6.04 shall be entitled to all the benefits of
this Indenture equally and proportionately with any and all Notes of the same
Class and Series issued hereunder
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whether or not the lost, stolen or destroyed Note shall be found at any time.
SECTION 6.05. Persons Deemed Owners. At all times prior to due
presentation of a Note for registration of transfer, the Trustee, the Paying
Agent, the Transfer Agent and Registrar and any agent of any of them shall treat
the Person in whose name any Note is registered as the owner of such Note as of
the most recent Record Date for the purpose of receiving distributions pursuant
to the terms of the applicable Supplement and for all other purposes whatsoever
and neither the Trustee, the Paying Agent, the Transfer Agent and Registrar nor
any agent of any of them shall be affected by any notice to the contrary.
Notwithstanding the foregoing, in determining whether the Holders of the
requisite Notes have given any request, demand, authorization, direction,
notice, consent or waiver hereunder, Notes owned by the Issuer, the Servicer or
any Affiliate thereof shall be disregarded and deemed not to be outstanding,
except that, in determining whether the Trustee shall be protected in relying
upon any such request, demand, authorization, direction, notice, consent or
waiver, only Notes which the Trustee knows to be so owned shall be so
disregarded. Notes so owned which have been pledged in good faith shall not be
disregarded and may be regarded as outstanding if the pledgee establishes to
the satisfaction of the Trustee the pledgee's right so to act with respect to
such Notes and that the pledgee is not the Issuer, the Servicer or an Affiliate
thereof.
SECTION 6.06. Appointment of Paying Agent. The Paying Agent
shall make distributions to the Noteholders, the Servicer and the Trustee
pursuant to the applicable Supplement and shall report the amounts of such
distributions to the Trustee. The Trustee shall make available to the Paying
Agent funds from the applicable Trust Account on the day on which they are to be
distributed pursuant to the applicable Supplement. The Paying Agent shall
initially be the Trustee. The Trustee shall be permitted to resign as Paying
Agent upon 90 days' written notice to the Servicer. In the event that the
Trustee shall no longer be the Paying Agent, the Servicer shall appoint a
successor to act as Paying Agent (which shall be a bank or trust company). The
Servicer shall cause such successor Paying Agent to execute and deliver to the
Trustee an instrument in which such successor Paying Agent shall agree with the
Trustee that, as Paying Agent, such successor Paying Agent will hold all sums,
if any, held by it for payment to the Noteholders, the Servicer or the Trustee
in trust for the benefit of the Noteholders entitled thereto, the Servicer or
the Trustee, respectively, until such sums shall be paid to such Noteholders,
the Servicer or the Trustee,
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respectively. The Paying Agent shall return all unclaimed funds to the Trustee
and upon removal of a Paying Agent such Paying Agent shall also return all funds
in its possession to the Trustee. The provisions of Sections 11.01, 11.02, 11.03
and 11.05 shall apply to the Trustee also in its role as Paying Agent, for so
long as the Trustee shall act as Paying Agent.
SECTION 6.07. Access to List of Noteholders' Names and
Addresses. (a) The Trustee will, within five Business Days after receipt by the
Trustee of a written request therefor from the Servicer, the Issuer, or the
Paying Agent, respectively, furnish (or cause the Transfer Agent to furnish) a
list of the names and addresses of the Noteholders. Upon written request of any
Noteholder or group of Noteholders holding Notes evidencing not less than 10% of
the Outstanding Principal Balance of any Series, the Trustee will (or will cause
the Transfer Agent and Registrar to) afford such Noteholders access during
normal business hours to the current list of Noteholders of such Series.
Every Noteholder, by receiving and holding a Note, agrees that
neither the Trustee, the Transfer Agent and Registrar, the Originator, the
Servicer, nor any of their respective agents, shall be held accountable by
reason of the disclosure of any such information as to the names and addresses
of the Noteholders hereunder, regardless of the sources from which such
information was derived.
(b) The Noteholders may communicate as provided in Section
312(b) of the Trust Indenture Act (without regard as to whether this Indenture
has been or at such time remains qualified under the Trust Indenture Act) with
all other Noteholders with respect to their rights under this Indenture, the
other Transaction Documents or under the Notes; provided that application by the
Noteholders under such Section of such Act shall be made to the Trustee as
provided under such Act. The Trustee shall comply in all material respects with
the provisions of such Act to facilitate such communications by and among
Noteholders.
(c) Each Noteholder by receiving and holding a Note, agrees
with the Trustee and the Issuer that neither the Trustee, the Transfer Agent and
Registrar, the Issuer, the Servicer, the Originator nor any of their respective
agents shall be held accountable by reason of the disclosure of any such
information as to the names and addresses of the Noteholders in accordance with
Section 312(b) of the Trust Indenture Act, regardless of the sources from which
such information was derived, and that the Trustee shall not be held accountable
by reason of mailing any
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material pursuant to a request made under Section 312(b) of the Trust Indenture
Act.
SECTION 6.08. Authenticating Agent. (a) The Trustee may
appoint one or more authenticating agents with respect to the Notes which shall
be authorized to act on behalf of the Trustee in authenticating the Notes in
connection with the issuance, delivery, registration of transfer, exchange or
repayment of the Notes. Whenever reference is made in this Indenture to the
authentication of Notes by the Trustee or the Trustee's Note of authentication,
such reference shall be deemed to include authentication on behalf of the
Trustee by an authenticating agent and a certificate of authentication executed
on behalf of the Trustee by an authenticating agent. Each authenticating agent
must be acceptable to the Issuer and the Servicer.
(b) Any institution succeeding to the corporate agency
business of an authenticating agent shall continue to be an authenticating agent
without the execution or filing of any power or any further act on the part of
the Trustee or such authenticating agent.
(c) An authenticating agent may at any time resign by giving
written notice of resignation to the Trustee and to the Issuer. The Trustee may
at any time terminate the agency of an authenticating agent by giving notice of
termination to such authenticating agent and to the Issuer. Upon receiving such
a notice of resignation or upon such a termination, or in case at any time an
authenticating agent shall cease to be acceptable to the Trustee or the Issuer,
the Trustee may promptly appoint a successor authenticating agent. Any successor
authenticating agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers and duties of its predecessor hereunder, with
like effect as if originally named as an authenticating agent. No successor
authenticating agent shall be appointed unless acceptable to the Trustee and the
Issuer.
(d) The Issuer agrees to pay to each authenticating agent from
time to time reasonable compensation for its services under this Section 6.08.
(e) The provisions of Sections 11.01, 11.02, 11.03 and 11.05
shall be applicable to any authenticating agent.
(f) Pursuant to an appointment made under this Section 6.08,
the Notes may have endorsed thereon, in lieu of or in addition to the Trustee's
certification of authentication, an
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alternate certificate of authentication in substantially the following form:
This is one of the Notes described in the Master Trust
Indenture and Security Agreement.
________________________________________
________________________________________
as Authenticating Agent
for the Trustee
By:_____________________________________
Authorized Officer
SECTION 6.09. New Issuances. (a) The Issuer may from time to
time direct the Trustee, on behalf of the Noteholders, to issue one or more new
Series of Notes pursuant to a Supplement. The Notes of all outstanding Series
shall be equally and ratably entitled as provided herein to the benefits of this
Indenture without preference, priority or distinction, all in accordance with
the terms and provisions of this Indenture and the applicable Supplement except,
with respect to any Series or Class, as provided in the related Supplement and
except that any Enhancement with respect to a particular Series or Class shall
not be available for any other Series or Class unless so provided in the
applicable Supplement.
(b) On or before the Closing Date relating to any new Series,
the parties hereto will execute and deliver a Supplement which will specify the
Principal Terms of such new Series. The terms of such Supplement may modify or
amend the terms of this Indenture solely as applied to such new Series. The
obligation of the Trustee to issue the Notes of such new Series and to execute
and deliver the related Supplement is subject to the satisfaction of the
following conditions:
(i) on or before the fifth Business Day immediately preceding
the applicable Closing Date (or such later date preceding the Closing
Date as shall be acceptable to the Trustee and any Enhancement
Provider), the Issuer shall have given the Trustee, the Servicer and
any Enhancement Provider written notice of such issuance and such
Closing Date;
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(ii) the Issuer shall have delivered to the Trustee the
related Supplement in a form satisfactory to the Trustee, executed by
each party hereto other than the Trustee;
(iii) the Issuer shall have delivered to the Trustee any
related Enhancement Agreement executed by each party hereto other than
the Trustee;
(iv) each Rating Agency shall have notified the Issuer, the
Servicer, the Trustee and any Enhancement Provider in writing that the
issuance of such new Series of Notes will not result in a reduction or
withdrawal of the rating of any outstanding Series or Class (if rated)
or the rated securities issued by the Noteholder of any outstanding
Series or Class in order to fund or maintain its interest in any Note
of such Series or Class, in each case, with respect to which Series,
Class or securities it is a Rating Agency;
(v) If then a Noteholder, Holland Limited Securitization,
Inc., ING Baring (U.S.) Capital Markets, Inc., or their respective
Affiliates or assignees (as the case may be) shall have consented in
writing to the issuance of such new Series, which consent shall not be
unreasonably withheld;
(vi) such issuance will not result in the occurrence of an
Event of Default and the Issuer shall have delivered to the Trustee and
any Enhancement Provider an Officer's Certificate, dated the applicable
Closing Date (upon which the Trustee may conclusively rely), to the
effect that the Issuer reasonably believes that such issuance will not
in and of itself result in the occurrence of an Event of Default and is
not reasonably in and of itself expected to result in the occurrence of
an Event of Default;
(vii) the Issuer shall have delivered to the Trustee and any
Enhancement Provider an Opinion of Counsel to the effect that the
issuance of the Notes of such Series (A) has been, or need not be,
registered under the Securities Act and will not result in the
requirement that any other Series of Notes not registered under the
Securities Act be so registered (unless the Issuer has elected, in its
sole discretion, to register such Notes), (B) will not result in this
Indenture or the related Supplement becoming subject to registration as
an investment company under the Investment Company Act and (C) will not
require this Indenture or the
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related Supplement to be qualified under the Trust Indenture
Act of 1939, as amended;
(viii) the Issuer shall have delivered to the Trustee a Tax
Opinion, dated the applicable Closing Date, with respect to such
issuance;
(ix) if such issuance is in exchange for any outstanding
Notes, the Issuer shall have delivered to the Trustee the Notes to be
canceled in connection with such exchange;
(x) the Servicer shall have delivered to the Trustee an
Officer's Certificate stating that the effect of such issuance will not
dilute the benefit of the Required Overcollateralization Amount to
which any pre-existing Series is entitled prior to the effectiveness of
such Supplement; and
(xi) the Issuer shall have delivered to the Trustee an
Officer's Certificate that the foregoing conditions have been
satisfied.
Upon satisfaction of the above conditions, the Trustee shall execute the
Supplement and the Issuer shall execute and deliver the Notes of such Series for
authentication and redelivery to or upon the order of the Issuer.
Notwithstanding the provisions of this Section 6.09(b), prior to the execution
of any Supplement, the Trustee shall be entitled to receive and rely upon an
Opinion of Counsel stating that the execution of such Supplement is authorized
or permitted by this Indenture and any Supplement related to any outstanding
Series. The Trustee may, but shall not be obligated to, enter into any such
Supplement which adversely affects the Trustee's own rights, duties or
immunities under this Indenture.
(c) In the event this Indenture shall become qualified under
the Trust Indenture Act, every Supplement executed pursuant to this Article VI
shall conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 6.10. Changes in Revolving Notes. The Outstanding
Principal Balance of any Revolving Note shall at no time exceed the Stated
Amount then applicable to such Note. The Stated Amount and the Outstanding
Principal Balance of any Revolving Notes may be increased or decreased from time
to time, subject to any terms set forth in the applicable Supplement and the
allocation of Collections set forth in Article IV hereof,
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provided that the Outstanding Principal Balance of any Revolving Notes may not
be increased in any manner which would cause the Net Outstanding Amount to
exceed the Base Amount as in effect immediately prior to such increase.
SECTION 6.11. Book-Entry Notes. If the Issuer shall establish
pursuant to any Supplement that the Notes to be issued thereunder are to be
issued in Book-Entry Form, then the Issuer shall, in accordance with the other
provisions of this Indenture, execute and the Trustee shall authenticate and
deliver one or more Global Notes, evidencing the Notes of such Series which (i)
shall be in an aggregate Outstanding Principal Balance equal to the Initial
Outstanding Principal Balance of such Series, (ii) shall be registered in the
name of the Clearing Agency therefor or its nominee, which shall initially be
Cede & Co., as nominee for The Depositary Trust Company, the initial Clearing
Agency, (iii) shall be delivered by the Trustee to such Clearing Agency or such
nominee pursuant to such Clearing Agency's or such nominee's instructions, and
(iv) shall bear a legend substantially to the following effect: "Transfers of
this Global Note shall be limited to transfers in whole, but not in part, to the
Clearing Agency or a nominee of the Clearing Agency or to a successor thereof or
such successor's nominee and transfers of portions of this Global Note shall be
limited to transfers made in accordance with the restrictions set forth in the
Master Trust Indenture and Security Agreement pursuant to which these Notes were
issued."
Each Clearing Agency designated pursuant to this Section 6.11
must, at the time of its designation and at all times while it serves as
Clearing Agency hereunder, be a "clearing agency" registered under the Exchange
Act and any other applicable statute or regulation.
No Holder of any Notes issued in Book-Entry Form shall receive
a Definitive Note except as provided in Section 6.13 or in the applicable
Supplement relating to such Notes. Unless (and until) fully registered Notes of
any Series (the "Definitive Notes") have been issued to the Noteholders of such
Series pursuant to Section 6.13 or pursuant to any applicable Supplement
relating thereto:
(a) the provisions of this Section 6.11 shall be in full force
and effect;
(b) the Issuer, the Servicer, the Paying Agent, the Transfer
Agent and Registrar and the Trustee may deal with the Clearing Agency
for all purposes (including the making
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of distributions on the Notes of such Series) as the authorized
representatives of the Noteholders of such Series;
(c) to the extent that the provisions of this Section 6.11
conflict with any other provisions of this Indenture, the provisions of
this Section 6.11 shall control; and
(d) the rights of Noteholders of such Series shall be
exercised only through the Clearing Agency and the Clearing Agency
Participants and shall be limited to those established by law and
agreements between such Noteholders and the Clearing Agency and/or the
Clearing Agency Participants. Unless and until Definitive Notes are
issued pursuant to Section 6.13, the initial Clearing Agency will make
book-entry transfers among the Clearing Agency Participants and receive
and transmit distributions of principal and interest on the Book-Entry
Notes to such Clearing Agency Participants.
SECTION 6.12. Notices to Clearing Agency. Unless and until
Definitive Notes shall have been issued to Noteholders of such Series pursuant
to Section 6.13 or the applicable Supplement relating to such Notes, whenever
notice, payment, or other communication to the holders of Book-Entry Notes of
any Series is required under this Indenture, the Trustee, the Servicer and the
Paying Agent shall give all such notices and communications specified herein to
be given to Noteholders of such Series to the Clearing Agency.
SECTION 6.13. Definitive Notes. If (i)(A) the Issuer advises
the Trustee in writing that the Clearing Agency is no longer willing or able to
properly discharge its responsibilities under any Letter of Representations and
(B) the Issuer is unable to locate a qualified successor Clearing Agency, (ii)
the Issuer, at its option, advises the Trustee in writing that, with respect to
any Series, it elects to terminate the book-entry system through the Clearing
Agency or (iii) after the occurrence of a Servicer Default, a Majority in
Interest of the Noteholders of any Series of Notes maintained as Book-Entry
Notes advise the Trustee and the Clearing Agency (through the Clearing Agency
Participants) in writing that the continuation of a book-entry system through
the Clearing Agency is no longer in the best interests of the Noteholders of
such Series, the Trustee shall notify the Clearing Agency and all such
Noteholders of such Series of the occurrence of any such event and of the
availability of Definitive Notes of such Series to the
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Noteholders of such Series requesting the same. Upon surrender to the Trustee of
the Global Notes of such Series by the Clearing Agency accompanied by
registration instructions from such Clearing Agency for registration, the
Trustee shall authenticate and deliver Definitive Notes of such Series. None of
the Issuer, the Transfer Agent and Registrar or the Trustee shall be liable for
any delay in delivery of such instructions and may conclusively rely on, and
shall be protected in relying on, such instructions. Upon the issuance of
Definitive Notes of any Series, all references herein to obligations with
respect to such Series imposed upon or to be performed by the Clearing Agency
shall be deemed to be imposed upon and performed by the Trustee, to the extent
applicable with respect to such Definitive Notes and the Trustee shall recognize
the holders of the Definitive Notes as the Noteholders hereunder.
SECTION 6.14. Temporary Notes. Pending the preparation of
Definitive Notes of any Series to be issued in accordance with Section 6.13, the
Issuer may execute and, in accordance with the terms of Section 6.02, the
Trustee shall authenticate and deliver, temporary Notes for such Series which
are printed, lithographed, typewritten or otherwise produced and are in any
authorized denomination and substantially in the forms of the Definitive Notes
of such Series, but with such omissions, insertions and variations as may be
appropriate for temporary Notes, all as may be determined by the Issuer as
evidenced by the execution thereof by the authorized officers of the Issuer.
Temporary Notes may contain such references to any provisions of this Indenture
as may be appropriate. Every temporary Note of any Series shall be executed by
the Issuer and authenticated by the Trustee upon the same conditions and in
substantially the same manner, and with like effect, as the Definitive Notes of
such Series. If temporary Notes are issued, the Issuer, without unreasonable
delay, shall cause Definitive Notes to be executed and delivered to the Trustee
for authentication; and thereupon the temporary Notes of such Series shall be
exchangeable for Definitive Notes without charge at each office or agency to be
maintained for such purpose in accordance with Section 6.03. The Trustee shall
authenticate and deliver in exchange for temporary Notes of such Series so
surrendered Definitive Notes of equal tenor and denomination. Until so
exchanged, the temporary Notes of any Series shall be entitled to the same
benefits under this Indenture as the Definitive Notes of such Series.
SECTION 6.15. CUSIP Number. The Issuer in issuing any Notes or
Series of Notes may use a "CUSIP" number and, if so used, the Trustee shall use
the CUSIP number in any notices to the Noteholders thereof as a convenience to
such Noteholders;
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provided that any such notice may state that no representation is made as to the
correctness or accuracy of the CUSIP number printed in the notice or on the
Notes and that reliance may be placed only on the other identification numbers
printed on the Notes. The Issuer shall promptly notify the Trustee of any change
in the CUSIP number with respect to any Note.
SECTION 6.16. Letter of Representations. Notwithstanding
anything to the contrary in this Indenture or any Supplement, the parties
hereto shall comply with the terms of each Letter of Representations.
ARTICLE VII
OTHER MATTERS RELATING TO THE ISSUER
SECTION 7.01. Obligations not Assignable. The obligations of
the Issuer hereunder shall not be assignable nor shall any Person succeed to the
obligations of the Issuer hereunder.
SECTION 7.02. Limitations on Liability. None of the directors,
officers, shareholders, employees or agents of the Issuer, past, present or
future, shall be under any liability to the Trustee, the Noteholders or any
other Person for any action taken or for refraining from the taking of any
action in such capacities pursuant to this Indenture or for any obligation or
covenant under this Indenture; provided, however, that this provision shall not
protect any such Person against any liability which would otherwise be imposed
by reason of willful misconduct or bad faith, in the performance by such Person
of such Person's duties or the reckless disregard by such Person of any of his,
her or its obligations and duties hereunder. The Issuer and any director,
officer, employee or agent of the Issuer may rely in good faith on any document
of any kind prima facie properly executed and submitted by any Person (other
than the Issuer or any Affiliate thereof) respecting any matters arising
hereunder.
SECTION 7.03. Indemnification of the Trustee and the
Noteholders. Without limiting any other rights which the Trustee or any
Noteholder (each, an "Indemnified Party") may have hereunder or under applicable
law, the Issuer hereby agrees to indemnify each Indemnified Party from and
against any and all claims, losses and liabilities (except to the extent that
such claims, losses and liabilities arise from any action by such Indemnified
Party) (all of the foregoing being collectively
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referred to as "Indemnified Amounts") arising out of or resulting from this
Indenture, the activities of the Trustee in connection herewith, the Issuer's
use of proceeds from the issuance of Notes, the interest conveyed hereunder in
the Pledged Assets, or in respect of any Issuer Loan, any Loan Document or the
Loan Purchase Agreement, excluding, however, (a) Indemnified Amounts to the
extent resulting from willful misconduct, bad faith, gross negligence, the
reckless disregard by such Indemnified Party of any of his, her or its
obligations and duties, (b) recourse for uncollectible Issuer Loans, (c)
indemnification for lost profits or for consequential, special or punitive
damages or (d) any income or franchise taxes (or any interest or penalties with
respect thereto) or other taxes on or measured by the gross or net income or
receipts of such Indemnified Party or (except as otherwise provided in any
Supplement) any withholding taxes, in each case to the extent such Indemnified
Amounts are incurred by such Indemnified Party arising out of or as a result of
this Indenture or the interest conveyed hereunder in Pledged Assets or in
respect of any Issuer Loan or any Loan Document or the Loan Purchase Agreement.
Subject to the exclusions described in clauses (c) and (d) above, the Issuer
shall pay on demand to each Indemnified Party any and all amounts necessary to
indemnify such Indemnified Party from and against any and all Indemnified
Amounts relating to or resulting from:
(i) reliance on any representation or warranty or statement
made or deemed made by the Issuer under or in connection with this
Indenture or the Loan Purchase Agreement which shall have been
incorrect in any material respect when made;
(ii) the failure by the Issuer to comply with this Indenture
or the Loan Purchase Agreement, or the failure by the Issuer to comply
with any applicable Requirement of Law with respect to any Issuer Loan
or the related Loan Document or the Loan Purchase Agreement, or the
nonconformity of any Issuer Loan or the related Loan Document or the
Loan Purchase Agreement with any Requirement of Law;
(iii) the failure to vest and maintain vested in the Issuer a
first priority perfected ownership interest in the Issuer Loans and the
Related Security therefor as against the Originator and the failure to
vest and maintain vested in the Trustee, for the benefit of the
Noteholders, a first priority perfected security interest in the Issuer
Loans and the other Pledged Assets, free and clear of any Lien;
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(iv) the failure to have filed, or any delay in filing,
financing statements or other similar instruments or documents under
the UCC of any applicable jurisdiction or other applicable laws with
respect to any Issuer Loan or any other Pledged Asset, whether at the
time of Transfer thereof or reinvestment of the proceeds thereof or at
any subsequent time;
(v) any dispute, claim, offset or defense (other than
discharge in bankruptcy of the Obligor or other defense relating to
such Obligor's inability to pay) of any Obligor to the payment of any
Issuer Loan;
(vi) any investigation, litigation or proceeding related to
this Indenture or the Loan Purchase Agreement or the use of proceeds
from the issuance of Notes, or in respect of any Issuer Loan or other
Pledged Asset, other than any litigation or proceeding between the
Issuer or any Affiliate thereof, on the one hand, and the Trustee or
any Noteholder or any Affiliate thereof, on the other hand, in which
the Issuer or an Affiliate thereof prevails in a final non-appealable
judgment by a court of competent jurisdiction;
(vii) the failure of the Issuer, the Servicer or the
Originator to perform any of its duties or obligations under or in
connection with any Issuer Loan or other Pledged Asset;
(viii) any failure by the Issuer or the Originator to be duly
qualified to do business or be in good standing in any jurisdiction in
which such qualification or good standing is necessary for the
enforcement of any Issuer Loan;
(ix) the failure of the Issuer or the Originator to remit
Collections as required under this Indenture or the commingling of
Collections of Issuer Loans at any time with other funds prior to
distribution under the applicable Supplement;
(x) the use, possession, ownership or operation by the Issuer
or the Servicer or any Affiliate thereof of any of the Pledged Assets
that constitute real property or any environmental liability claim
allegedly arising out of or in connection with any such real property;
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(xi) any act or omission by the Issuer impairing the
security interest of the Trustee or the Noteholders in the
Pledged Assets; or
(xii) any tax (other than any taxes excluded by reason of
clause (d) in the first paragraph of this Section 7.03) imposed by
reason of any security interest in the Issuer Loans or other Pledged
Assets by the Trustee.
In case any proceeding shall be instituted involving any
Person in respect of which indemnity may be sought pursuant to this Section 7.03
the Indemnified Party shall promptly notify the Issuer in writing and the
Issuer, upon request of the Indemnified Party, shall retain counsel reasonably
satisfactory to the Indemnified Party to represent the Indemnified Party and any
others the Issuer may designate in such proceeding and shall pay the reasonable
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any Indemnified Party shall have the right to retain its own
counsel, but the reasonable fees and expenses of such counsel shall be at the
expense of such Indemnified Party unless (i) the Issuer and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the Issuer and the Indemnified Party and representation of both parties by
the same counsel would be inappropriate due to actual conflicts of interests
between them. It is understood that the Issuer shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one separate firm for all such
Indemnified Parties. It is further understood that the Issuer shall not be
liable to any Indemnified Party until or unless such Indemnified Party promptly
notifies the Issuer in writing of its request for indemnification.
Indemnification pursuant to this Section 7.03 shall only be
payable from Collections otherwise distributable to the Issuer under Section
4.03(b), or from other assets of the Issuer, and there shall be no recourse to,
and no Person shall have any Claim against, the Issuer for payment of all or any
part of any such indemnification to the extent that such Collections and other
funds and any assets of the Issuer are insufficient to pay the applicable
Indemnified Amounts. In addition, any indemnification payable under clause
(vii), (viii), (ix), (x) or (xii) of this Section 7.03 shall be payable only to
the extent that the Issuer has received payment from the Originator under the
equivalent indemnification provision of the Loan Purchase Agreement and there
shall be no recourse to, and no Person shall
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have any Claim against, the Issuer for payment of any, all or any part of any
such indemnification to the extent that the amounts so received are insufficient
to pay the applicable Indemnified Amounts arising under such clauses. The
agreement contained in this Section 7.03 shall survive the collection of all
Issuer Loans, the termination of this Indenture and the payment of all amounts
otherwise payable hereunder.
ARTICLE VIII
OTHER MATTERS RELATING TO THE SERVICER
SECTION 8.01. Liability of the Servicer. The Servicer shall be
liable under this Indenture only to the extent of the obligations specifically
undertaken by the Servicer in its capacity as Servicer.
SECTION 8.02. Merger or Consolidation of, or Assumption of
the Obligations of, the Servicer. The Servicer shall not consolidate with or
merge into any other Person or convey or transfer its properties and assets
substantially as an entirety to any Person unless:
(a)(i) the Person formed by such consolidation or into which
the Servicer is merged or the Person which acquires by conveyance or transfer
the properties and assets of the Servicer substantially as an entirety shall be,
if the Servicer is not the surviving entity, a corporation organized and
existing under the laws of the United States of America or any State or the
District of Columbia, and such successor corporation shall have expressly
assumed, by an agreement supplemental hereto, executed and delivered to the
Trustee, in form reasonably satisfactory to the Trustee and the Enhancement
Providers holding 51% or more of the outstanding commitments to provider
Enhancement to the Noteholders, the performance of every covenant and obligation
of the Servicer hereunder; and (ii) the Servicer shall have delivered to the
Trustee an Officer's Certificate and an Opinion of Counsel stating that such
consolidation, merger, conveyance or transfer complies with this Section 8.02
and that all conditions precedent herein provided for relating to such
transaction have been complied with; and
(b) if the Servicer is the Originator, all conditions for such
merger or consolidation or conveyance or transfer, as the case may be, contained
in the Loan Purchase Agreement shall be satisfied; and
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(c) the corporation formed by such consolidation or into which
the Servicer is merged or which acquires by conveyance or transfer the
properties and assets of the Servicer substantially as an entirety shall have
all licenses and approvals of Governmental Authorities required to service the
Issuer Loans, as evidenced by an officer's certificate of the Servicer, except
to the extent the failure to have any such license would not have a material
adverse effect on its ability to perform the obligations of the Servicer
hereunder.
SECTION 8.03. Limitations on Liability. None of the directors,
officers, shareholders, employees or agents of the Servicer, past, present or
future, shall be under any liability to the Trustee, the Noteholders or any
other Person for any action taken or for refraining from the taking of any
action in such capacities pursuant to this Indenture or for any obligation or
covenant under this Indenture, it being understood that, with respect to the
Servicer, this Indenture and the obligations created hereunder are solely the
corporate obligations of the Servicer; provided, however, that this provision
shall not protect the Servicer or any such other Person against any liability
which would otherwise be imposed by reason of willful misconduct, bad faith,
gross negligence or the reckless disregard by such Person of any of his, her or
its obligations and duties. The Servicer and any director or officer or employee
or agent of the Servicer may rely in good faith on any document of any kind
prima facie properly executed and submitted by any Person (other than the
Servicer or any Affiliate thereof) respecting any matters arising hereunder. The
Servicer shall be under no obligation to appear in, prosecute or defend any
legal action which is not incidental to its duties as the Servicer in accordance
with this Indenture and which in its reasonable judgment may involve it in any
material expense or liability.
SECTION 8.04. Servicer Indemnification. The Servicer shall
indemnify and hold harmless each Indemnified Party from and against Indemnified
Amounts suffered or sustained by reason of any breach by the Servicer of its
representations and warranties or obligations under this Indenture, excluding,
however, Indemnified Amounts to the extent resulting from (i) willful miscon-
duct, bad faith, gross negligence, the reckless disregard by such Indemnified
Party of any of his, her or its obligations and duties, (ii) recourse for
uncollectible Issuer Loans, (iii) lost profits or for consequential, special or
punitive damages or (iv) any income or franchise taxes (or any interest or
penalties with respect thereto) or other taxes on or measured by the gross or
net income or receipts of such Indemnified Party or (except as otherwise
provided in any Supplement) any withholding taxes, in
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each case to the extent such Indemnified Amounts are incurred by such
Indemnified Party arising out of or as a result of this Indenture or the
security interest conveyed hereunder in Pledged Assets or in respect of any
Issuer Loan or any Loan Document or the Loan Purchase Agreement. Indemnification
pursuant to this Section 8.04 shall not be payable from the Pledged Assets. The
agreement contained in this Section 8.04 shall survive the collection of all
Issuer Loans, the payment of all amounts otherwise due hereunder and the
satisfaction and discharge of this Indenture.
In case any proceeding shall be instituted involving any
Person in respect of which indemnity may be sought pursuant to this Section
8.04, the Indemnified Party shall promptly notify the Servicer in writing and
the Servicer, upon request of the Indemnified Party, shall retain counsel
reasonably satisfactory to the Indemnified Party to represent the Indemnified
Party and shall pay the reasonable fees and disbursements of such counsel
related to such proceeding. In any such proceeding, any Indemnified Party shall
have the right to retain its own counsel, but the reasonable fees and expenses
of such counsel shall be at the expense of such Indemnified Party unless (i) the
Servicer and the Indemnified Party shall have mutually agreed to the retention
of such counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the Servicer and the Indemnified Party and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them. It is understood that the
Servicer shall, in connection with any proceeding or related proceedings in the
same jurisdiction, not be liable for the reasonable fees and expenses of more
than one separate firm for all such Indemnified Parties. It is further
understood that the Servicer shall not be liable to any Indemnified Party unless
such Indemnified Party promptly notifies the Servicer in writing of its request
for indemnification.
SECTION 8.05. The Servicer Not to Resign. The Servicer shall
not resign from the obligations and duties hereby imposed on it except upon
determination that (i) its performance of its duties hereunder is no longer
permissible under applicable law and (ii) there is no reasonable action which
the Servicer could take to make its performance of its duties hereunder
permissible under applicable law. Any determination permitting the resignation
of the Servicer shall be evidenced by an Opinion of Counsel with respect to
clause (i) above, delivered to the Trustee. No resignation shall become
effective until the Trustee or a Successor Servicer shall have assumed the
responsibilities and obligations of the resigning Servicer in accordance with
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Section 10.02 hereof. If within 60 days of the date of the determination that
the resigning Servicer may no longer act as Servicer hereunder for any reason
and the Trustee has not appointed a Successor Servicer, the Trustee shall serve
as Successor Servicer hereunder. Notwithstanding the foregoing, the Trustee
shall, if it is legally unable so to act, petition a court of competent
jurisdiction to appoint any established institution that is an Eligible Servicer
(other than the Trustee) as the Successor Servicer hereunder.
SECTION 8.06. Examination of Records. The Servicer shall
indicate in its computer records that a security interest in the Issuer Loans
and other Pledged Assets has been granted to the Trustee, pursuant to this
Indenture for the benefit of the Noteholders. The Servicer (and the Issuer)
shall, prior to the sale or transfer to a third party of any Loan held in its
custody, examine its records to determine that such Loan is not an Issuer Loan.
ARTICLE IX
EVENTS OF DEFAULT
SECTION 9.01. Events of Default. Upon the occurrence
of any of the following events:
(a) any failure by the Issuer, the Originator or the Servicer
to make any payment, transfer or deposit required to be paid by it under the
terms of this Indenture, any Supplement, any Note, the Loan Purchase Agreement,
or any other Transaction Document, or, if applicable, to give instructions or
notice to the Trustee to make such payment, transfer or deposit on or before the
date occurring (i) in the case of any payment, transfer, deposit, instruction or
notice relating to the payment of the interest or principal balance of any Note
or the Swap Agreement, the date such payment, transfer or deposit or such
instruction or notice was required to be made or given, as the case may be,
under the terms of the Indenture or any Supplement and (ii) in the case of any
other payment, transfer or deposit, payment instruction or notice related to any
Note, the Indenture, any Supplement, the Loan Purchase Agreement, or any other
Transaction Document, the date occurring two Business Days after the date such
payment, transfer or deposit or such instruction or notice was required to be
made or given, as the case may be, under the terms of such Note, the Indenture,
any Supplement, the
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Loan Purchase Agreement or any other Transaction Documents to which any such
Person is a party; or
(b) any failure by the Issuer, the Originator or the Servicer
to observe or perform in any material respect any other covenant or agreement to
be performed by it under this Indenture, the Loan Purchase Agreement, or any
other Transaction Document which failure has a material adverse effect on the
interests of the Noteholders of any Series and which continues unremedied for a
period of thirty days (or such longer period as may be agreed to by the Trustee
and the Majority in Interest of any Series that is materially and adversely
affected by such failure) after the date on which written notice of such
failure, requiring the same to be remedied, shall have been given to the Issuer,
the Originator or the Servicer, as applicable, by the Trustee or any En-
hancement Provider, or to the Issuer, the Originator or the Servicer, as
applicable, and the Trustee by the Majority Noteholders or by a Majority in
Interest of any Series; or
(c)(i) any representation, warranty or certification made by
the Issuer, the Originator or the Servicer under or in connection with this
Indenture, or the Loan Purchase Agreement, or in any Note or information
delivered pursuant hereto or thereto or in connection herewith or therewith,
shall prove to have been incorrect in any material respect when made and which
continues to be incorrect in any material respect for a period of 30 days (or,
with respect to any representation, warranty or certification made by the Issuer
in Section 2.03(g) hereof, shall prove to have been incorrect in any material
respect when made and which continue to be incorrect in any material respect for
a period for five days, or, with respect to any representations and warranties
made under Section 2.04, such longer period as may be agreed to by the Trustee
and the Majority in Interest of any Series that is materially and adversely
affected by such incorrectness) after the date on which notice of such failure,
requiring the same to be remedied, shall have been given to the Issuer by the
Trustee or to the Issuer and the Trustee by any Noteholder (it being understood
and agreed that with respect to the incorrectness of any representation with
respect to any Issuer Loan as an Eligible Loan, the incorrectness of such
representation shall be deemed corrected for the purposes of this clause (c)
upon the substitution of an Eligible Loan within the cure period provided for in
this clause (c)) and (ii) as a result of such incorrectness the interests of the
Noteholders of any Series are materially and adversely affected; or
(d) any other default by the Issuer, the Originator or
the Servicer shall occur, and shall not be remedied within the
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applicable grace period, if any, under the Loan Purchase Agreement, or the Loan
Purchase Agreement shall for any reason cease to be in full force and effect or
the Issuer shall otherwise cease to continue purchasing Loans thereunder; or
(e) an Insolvency Event shall occur with respect to
the Issuer or the Originator; or
(f) the Trustee shall not have for any reason a valid and
perfected first priority "security interest" (as defined in the UCC of the
jurisdiction the law of which governs the perfection of the interest in the
Issuer Loans created hereunder) in the now existing or hereafter arising Issuer
Loans, the other Pledged Assets and the proceeds thereof; or
(g) the Overcollateralization Amount shall be less than the
aggregate Minimum Overcollateralization Amount for all outstanding Series; or
(h) the 180th consecutive day after which the Base Amount is
less than the Net Outstanding Amount; or
(i) the Servicer (if the Originator) shall have resigned under
Section 8.05 and the Person then acting as Successor Servicer, if not an
Affiliate of the Originator, shall not have been approved by the Majority
Noteholders within 30 days of its agreement to act as Successor Servicer; or
(j) the PBGC or the Internal Revenue Service shall have filed
notice of one or more Liens against the Originator or the Issuer, and such
notice shall have remained in effect for more than 15 Business Days unless,
prior to the expiration of such period, such Liens shall have been adequately
bonded by the Originator; or
(k) any Additional Event of Default shall have occurred with
respect to any outstanding Series; or
(l) Sirrom Capital Corporation or its successor shall cease to
own (whether directly or indirectly) 100% of the issued and outstanding stock of
the Issuer; or
(m) there shall have been any material adverse change in the
financial condition or operations of the Issuer since December 17, 1996 or the
Originator since September 30, 1996, or there shall have occurred any event
which materially adversely affects the collectibility of the Issuer Loans taken
as a whole or the ability of the Issuer, the Servicer, or the Originator to
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perform its respective obligations under the Indenture, any Supplement or any of
the other Transaction Documents to which any such Person is a party; or
(n)(i) the aggregate Adjusted Outstanding Loan Balance shall
equal or exceed $75,000,000 and (ii) the Default Ratio shall exceed (x) 20% for
any Collection Period, or (y) 12.5% for any three (3) consecutive Collection
Periods; or
(o)(i) the aggregate Adjusted Outstanding Loan Balance shall
equal or exceed $40,000,000 and (ii) the Delinquency Ratio shall exceed 25% for
any Collection Period; or
(p)(i) any "Rate Cap Transaction" (as defined in the ISDA
Definitions) under the Swap Agreement shall be terminated, or (ii) the
occurrence of any event described in clauses (a), (b) or (c) of the term
"Specified Event" under and as defined in the Sinking Fund Account Agreement,
then, in the case of any such event either the Trustee (unless otherwise
directed by the Majority Noteholders), or the Majority Noteholders, by notice
then given in writing to the Issuer and the Servicer (and to the Trustee if
given by such Noteholders), may declare (provided such event shall not have been
remedied) that an event of default (an "Event of Default") has occurred as of
the date of such notice and as of such notice date the Amortization Date and the
Purchase Termination Date shall occur; provided that, in the case of any event
described in clause (a), clauses (c) through (e), clauses (g) through (l), or in
the case of any event described in subsection (f) which has occurred and is
continuing for a period of five Business Days, subject to ap plicable law, an
Event of Default, the Amortization Date and the Purchase Termination Date shall
occur, and the Notes and all other obligations owed hereunder to the Noteholders
shall immediately and automatically become due and payable, in each case,
without any notice or other action on the part of the Trustee or the
Noteholders, immediately upon the occurrence of such event. Promptly and in any
event within one Business Day after the Servicer becomes aware of any Event of
Default, the Servicer shall notify the Trustee of the occurrence of such Event
of Default.
SECTION 9.02. Additional Rights Upon the Occurrence of any
Event of Default. Upon the occurrence and during the continuance of any Event of
Default, the Trustee shall have, in addition to all other rights and remedies
available to the Trustee under this Indenture or otherwise, (a) the right to
apply Collections to the payment of the Obligations of the Issuer and
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the Servicer under this Indenture or under any of the other Transaction
Documents as provided herein, and (b) all other rights and remedies provided
under the UCC of the applicable jurisdiction and other applicable laws (which
rights shall be cumulative). The Trustee shall exercise such rights at the
direction of the Noteholders pursuant to (and subject to the limitations of)
Section 11.19; provided, however, that without the consent of all of the
Noteholders, the Trustee shall not be permitted to sell, transfer or otherwise
convey the Pledged Assets to any third party for an amount less than the
Aggregate Outstanding Amount of all of the Notes, together with accrued but
unpaid interest thereon.
ARTICLE X
SERVICER DEFAULTS
SECTION 10.01. Servicer Defaults. If any one of the following
events (each being a "Servicer Default") shall occur and be continuing:
(a) any failure by the Servicer to make any payment, transfer
or deposit hereunder, or, if applicable, to give instructions or notice to the
Trustee to make such payment, transfer or deposit, which failure, (i) in the
case of any payment of interest, continues for three Business Days after the
date such payment is required to be made hereunder and (ii) in the case of any
other payment, transfer or deposit, continues for five Business Days after the
date such payment, transfer or deposit is required to be made hereunder or
thereunder;
(b) any failure by the Servicer to give notice to the Trustee
as required in this Indenture, any Supplement or any Enhancement Agreement, or
any failure to provide the Settlement Statement to the Trustee, on or before the
date occurring five Business Days after the date such notice or Settlement
Statement is required to be made or given, as the case may be, under the terms
of this Indenture, such Supplement or Enhancement Agreement;
(c) any failure by the Servicer duly to observe or perform in
any material respect any other covenant or agreement to be performed by it as
Servicer set forth in this Indenture, which failure has a material adverse
effect on the interest of the Noteholders and continues unremedied for 30 days
(or, with respect to any covenant contained in Sections 3.04(a), 3.04(b),
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3.04(h) and 3.04(i), continues unremedied for five Business Days) after the
earlier of (i) knowledge of such failure by a Responsible Officer of the
Servicer and (ii) the date on which written notice of such failure, requiring
the same to be remedied, shall have been given to the Servicer by the Trustee,
or to the Servicer and the Trustee by the Majority in Interest of any Series
which is materially and adversely affected by such failure; or the Servicer
shall assign its duties under this Indenture, except as permitted by Section
8.02;
(d) any representation, warranty or certification made by the
Servicer under or in connection with this Indenture, or in any Note or
information delivered pursuant to or in connection with this Indenture, shall
prove to have been incorrect in any material respect when made and has a
material adverse effect on the interests of the Noteholders of any Series and
which material adverse effect continues for a period of 30 days after the
earlier of (i) knowledge of such failure by a Responsible Officer of the
Servicer and (ii) the date on which written notice thereof, requiring the same
to be remedied, shall have been given (A) to the Servicer by the Trustee or (B)
to the Servicer and the Trustee by the Majority in Interest of any Series which
is materially and adversely affected by such incorrect representation, warranty
or certification; or
(e) an Insolvency Event shall occur with respect to the
Servicer;
then, as long as the Servicer Default shall not have been remedied and is
continuing, then either the Trustee shall, by notice given in writing to the
Servicer at the direction of the Holders of Notes evidencing not less than 66
2/3% of the Aggregate Outstanding Amount (the "Requisite Holders") or the
Requisite Holders may, by notice given in writing to the Servicer and to the
Trustee (each such notice being a "Termination Notice"), terminate all but not
less than all the rights and obligations of the Servicer as the Servicer under
this Indenture. The Trustee shall not be deemed to have knowledge of a Servicer
Default unless it has actual knowledge or if a Responsible Officer has received
written notice thereof.
The Majority Noteholders may, on behalf of all Noteholders,
waive any default by the Issuer or the Servicer in the performance of their
obligations under this Indenture and its consequences, except the failure to
make any distributions required to be made to Noteholders or to make any
required deposits of any amounts to be so distributed. Upon any such waiver of a
past default, such default shall cease to exist, and
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any such default shall be deemed to have been remedied for every purpose of this
Indenture. No such waiver shall extend to any subsequent or other default or
impair any right consequent thereon except to the extent expressly so waived.
After receipt by the Servicer of a Termination Notice, and on
the date that a Successor Servicer shall have been appointed pursuant to
Section 10.02, all authority and power of the Servicer under this Indenture
shall pass to and be vested in such Successor Servicer (a "Service Transfer");
and, without limitation, the Trustee is hereby authorized, empowered and
instructed (upon the failure of the Servicer to cooperate) to execute and
deliver, on behalf of the Servicer, as attorney-in fact or otherwise, all
documents and other instruments upon the failure of the Servicer to execute or
deliver such documents or instruments, and to do and accomplish all other acts
or things necessary or appropriate to effect the purposes of such Service
Transfer. The Servicer agrees to cooperate, at its expense, with the Trustee and
such Successor Servicer in (i) effecting the termination of the responsibilities
and rights of the Servicer to conduct servicing hereunder, including, without
limitation, the transfer to such Successor Servicer of all authority of the
Servicer to service the Issuer Loans as provided under this Indenture, including
all authority over all Collections which shall on the date of such Service
Transfer be held by the Servicer for deposit to any Lock-Box Account, the
Concentration Account, the Reserve Account or the Issuer's Account, or which
have been deposited by the Servicer to any Lock-Box Account, the Concentration
Account, or any other account, or which shall thereafter be received with
respect to the Issuer Loans, and (ii) assisting the Successor Servicer until all
servicing activities have been transferred to such Successor Servicer, such
assistance to include, without limitation, (x) assisting any accountants
selected by the Successor Servicer to verify collection records and reports made
prior to the Service Transfer and (y) assisting the Successor Servicer in making
the computer systems of the Servicer and the Successor Servicer compatible to
the extent necessary to effect the Service Transfer. The Servicer shall, at its
expense, within five Business Days of such Service Transfer, (A) assemble such
documents, instruments and other records (including computer tapes and discs),
which evidence the Issuer Loans and the other Pledged Assets, and which are
necessary or desirable to collect the Issuer Loans and shall make the same
available to the Successor Servicer or the Trustee or its designee at a place
selected by the Successor Servicer or the Trustee and in such form as the
Successor Servicer or the Trustee may reasonably request, and (B) segregate all
cash, checks and other instruments received by it from time to time constituting
Collec-
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tions of Issuer Loans in a manner acceptable to the Successor Servicer
and the Trustee, and, promptly upon receipt, remit all such cash, checks and
instruments to the Successor Servicer or the Trustee or its designee.
At any time following a Termination Notice:
(1) The Servicer shall, at the Trustee's request and at the
Servicer's expense, give notice of the Trustee's security interest in
the Issuer Loans to the related Obligors and direct that payments be
made directly to the Trustee or its designee;
(2) If the Servicer fails to provide the notice to Obligors
required in paragraph (1) above, the Trustee may direct the Obligors of
Issuer Loans, or any of them, that payment of all amounts payable under
any such Loans be made directly to the Trustee or its designee; and
(3) Each of the Issuer and Noteholder hereby authorizes the
Trustee to take any and all steps in the Issuer's name and on behalf of
the Issuer and the Noteholders necessary or desirable, in the
determination of the Trustee, to collect all amounts due under any and
all Issuer Loans, including, without limitation, endorsing the Issuer's
name on checks and other instruments representing Collections in
respect of such Loans and enforcing such Loans.
Notwithstanding the foregoing, a delay in or failure of
performance referred to in Section 10.01(a) for a period of ten Business Days
after the applicable grace period, or under Section 10.01(b) for a period of
thirty Business Days after the applicable grace period, shall not constitute a
Servicer Default if such delay or failure could not have been prevented by the
exercise of reasonable diligence by the Servicer and such delay or failure was
caused by an act of God or the public enemy, acts of declared or undeclared war,
public disorder, rebellion or sabotage, epidemics, landslides, lightning, fire,
hurricanes, earthquakes, floods, union strikes, work stoppages or similar
occurrences. The preceding sentence shall not relieve the Servicer from using
its best efforts to perform its obligations in a timely manner in accordance
with the terms of this Indenture, and the Servicer shall provide the Trustee,
the Issuer and any Enhancement Provider with an Officer's Certificate giving
prompt notice of such failure or delay by it, together with a description of its
efforts so to perform its obligations.
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SECTION 10.02. Trustee to Act; Appointment of Successor
Servicer. (a) On and after the receipt by the Servicer of a Termination Notice
pursuant to Section 10.01 or upon a resignation by the Servicer pursuant to
Section 8.05, the Servicer shall continue to perform all servicing functions
under this Indenture until (i) in the case of any such receipt, the date
specified in such Termination Notice or otherwise specified by the Trustee in
writing or, if no such date is specified in such Termination Notice or otherwise
specified by the Trustee, until the earlier of a date agreed upon by the
Servicer and the Trustee or a date specified by the Trustee in a written notice
to the Servicer, and (ii) in the case of any such resignation, until the Trustee
or a Successor Servicer shall have assumed the responsibilities and obligations
of the Servicer pursuant to this Section 10.02. The Trustee shall as promptly as
possible after the giving of a Termination Notice or such a resignation appoint
the Backup Servicer as a successor servicer (the "Successor Servicer"), subject
to the acceptance by the Backup Servicer (in accordance with and subject to
Section 2 of the Backup Servicing Agreement) of such appointment by written
acceptance in a form acceptable to the Trustee. In the event the Backup Servicer
is unable to accept such appointment as Successor Servicer, the Trustee shall as
promptly as possible appoint an Eligible Servicer as a Successor Servicer,
subject to the consent of any Enhancement Providers and if specified in any
Supplement, the consent of the Majority in Interest of the Noteholders of the
related Series, which consent shall not be unreasonably withheld, and such
Successor Servicer shall accept its appointment by a written assumption in a
form acceptable to the Trustee. In the event that the Successor Servicer has not
been appointed or has not accepted its appointment by the earlier of 60 days
after the date of such Termination Notice or at the time when the Servicer
ceases to act, the Trustee without further action shall automatically be
appointed the Successor Servicer. The Trustee may delegate any of its servicing
obligations to an affiliate or agent in accordance with the terms of this
Indenture. Notwithstanding the foregoing, the Trustee shall, if it is legally
unable so to act as Successor Servicer, petition a court of competent
jurisdiction to appoint any established institution that is an Eligible Servicer
(other than the Trustee) as the Successor Servicer hereunder.
(b) Upon its appointment, the Successor Servicer shall be the
successor in all respects to the Servicer being terminated with respect to
servicing functions under this Indenture performed by the Servicer and shall be
subject to all the responsibilities, duties and liabilities relating thereto
placed on the Servicer by the terms and provisions hereof, and all
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references in this Indenture to the Servicer shall be deemed to refer to such
Successor Servicer; provided, however, that neither the Trustee (solely in its
capacity as such) nor any Successor Servicer shall be deemed in default
hereunder as a result of any predecessor Servicer's failure to deliver necessary
Pledged Assets, documents, or records to the Trustee (solely in its capacity as
such) or to such Successor Servicer. The Successor Servicer, by its acceptance
of its appointment, will automatically agree to be bound by the terms and
provisions of any Enhancement Agreement.
(c) In connection with any Termination Notice, the Trustee
will review any bids which it obtains from Eligible Servicers and shall be
permitted to appoint any Eligible Servicer submitting such a bid as a Successor
Servicer for servicing compensation not in excess of the Servicing
Reimbursement.
(d) All authority and power granted to the Successor Servicer
under this Indenture shall automatically terminate upon satisfaction and
discharge of this Indenture pursuant to Section 12.01, and shall pass to and be
vested in the Issuer and, without limitation, the Issuer is hereby authorized
and empowered to execute and deliver, on behalf of the Successor Servicer, as
attorney-in-fact or otherwise, all documents and other instruments, and to do
and accomplish all other acts or things necessary or appropriate to effect the
purposes of such transfer of servicing rights. The Successor Servicer agrees to
cooperate with the Issuer in effecting the termination of the responsibilities
and rights of the Successor Servicer to conduct servicing of the Issuer Loans.
The Successor Servicer shall transfer its electronic records relating to the
Issuer Loans to the Issuer in such electronic form as the Issuer may reasonably
request and shall transfer all other records, correspondence and documents to
the Issuer in the manner and at such times as the Issuer shall reasonably
request.
(e) Upon the effectiveness of the appointment of a Successor
Servicer, the Successor Servicer shall as soon as practicable upon demand
deliver to the Originator all documents, instruments and records in its
possession which evidence or relate to Issuer Loans owned by the Originator
which are not Pledged Assets, and copies of documents, instruments and records
in its possession which evidence or relate to such Loans.
SECTION 10.03. Notification to Noteholders. Promptly and in
any event within three Business Days after the Servicer becomes aware of any
Servicer Default, the Servicer shall give written notice thereof to a
Responsible Officer of the Trustee,
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and the Trustee shall promptly deliver a copy of such notice to the Noteholders.
Upon any termination of the initial Servicer or appointment of a Successor
Servicer pursuant to this Article X, the Trustee shall give prompt written
notice thereof to the Issuer and the Noteholders.
ARTICLE XI
THE TRUSTEE
SECTION 11.01. Duties of Trustee. (a) The Trustee, prior to
the occurrence of a Servicer Default of which it has actual knowledge and after
the curing of all Servicer Defaults which may have occurred, undertakes to
perform such duties and only such duties as are specifically set forth in this
Indenture and no implied duties or covenants shall be read into this Indenture
against the Trustee. If a Servicer Default to the actual knowledge of the
Trustee has occurred (which has not been cured or waived), the Trustee shall
exercise such of the rights and powers vested in it by this Indenture and use
the same degree of care and skill in their exercise, as a prudent person would
exercise or use under the circumstances in the conduct of his or her own
affairs.
(b) The Trustee, upon receipt of any resolutions,
certificates, statements, opinions, reports, documents, orders or other
instruments furnished to the Trustee which are specifically required to be
furnished pursuant to any provision of this Indenture or any Supplement, shall
examine them to determine whether they substantially conform to the requirements
of this Indenture or any Supplement. The Trustee shall give prompt written
notice to the Noteholders of any material lack of conformity of any such
instrument to the applicable requirements of this Indenture or any Supplement
discovered by the Trustee which would entitle a specified percentage of the
Noteholders to take any action pursuant to this Indenture or any Supplement.
(c) Subject to Section 11.01(a), no provision of this
Indenture shall be construed to relieve the Trustee from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct; provided, however, that:
(i) the Trustee shall not be personally liable for an error of
judgment made in good faith by a Responsible Officer or Responsible
Officers of the Trustee, unless it
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shall be proved that the Trustee was negligent in ascertaining the
pertinent facts;
(ii) the Trustee shall not be personally liable with respect
to any action taken, suffered or omitted to be taken by it in good
faith in accordance with the direction of the requisite amount of
Noteholders specified hereunder for each Series relating to the time,
method and place of conducting any proceeding for any remedy available
to the Trustee, or exercising any trust or power conferred upon the
Trustee, under this Indenture; and
(iii) the Trustee shall not be charged with knowledge for any
failure by the Servicer to comply with the obligations of the Servicer
referred to in Section 10.01 unless a Responsible Officer of the
Trustee obtains actual knowledge of such failure or the Trustee
received written notice of such failure from the Servicer or from
Holders of Notes evidencing not less than 10% of the Outstanding
Principal Balance of any Series.
(d) The Trustee shall not be required to expend or risk its
own funds or otherwise incur financial liability in the performance of any of
its duties hereunder or under any Supplement or in the exercise of any of its
rights or powers. None of the provisions contained in this Indenture shall in
any event require the Trustee to perform, or be responsible for the manner of
performance of, any obligations of the Servicer under this Indenture except
during such time, if any, as the Trustee shall be the successor to, and be
vested with the rights, duties, powers and privileges of, the Servicer in
accordance with the terms of this Indenture.
(e) Except for actions expressly authorized by this Indenture,
the Trustee shall take no action reasonably likely to impair the interests of
the Trustee in any Issuer Loan now existing or hereafter created or to impair
the value of any Issuer Loan now existing or hereafter created.
(f) Except as expressly provided in this Indenture, the
Trustee shall have no power to vary the corpus of the Pledged Assets including,
without limitation, by (i) accepting any substitute obligation for an Issuer
Loan, (ii) adding any other investment, obligation or security to the Pledged
Assets, or (iii) releasing its interest in any Pledged Asset.
(g) In the event that the Paying Agent or the Transfer Agent
and Registrar shall fail to perform any obligation, duty or
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agreement in the manner or on the day required to be performed by the Paying
Agent or the Transfer Agent and Registrar, as the case may be, under this
Indenture or under any Supplement, the Trustee shall be obligated promptly upon
its actual knowledge thereof to perform such obligation, duty or agreement in
the manner so required.
(h) The Trustee shall have no responsibility or liability for
investment losses on Eligible Investments.
(i) Notwithstanding any other provision contained herein, the
Trustee is not acting as, and shall not be deemed to be, a fiduciary for any
Enhancement Provider and the Trustee's sole responsibility with respect to any
such Enhancement Provider shall be to perform those duties with respect to any
such Enhancement Provider as are specifically set forth herein or in any
applicable Supplement and no implied duties or obligations shall be read into
this Indenture or such Supplement against the Trustee with respect to any such
Enhancement Provider.
SECTION 11.02. Certain Matters Affecting the Trustee.
Except as otherwise provided in Section 11.01:
(a) the Trustee may rely on and shall be protected in acting
on, or in refraining from acting in accord with, any resolution, Officer's
Certificate, certificate of auditors or any other certificate, statement,
instrument, opinion, report, notice, request, consent, order, appraisal, bond or
other paper or document believed by it to be genuine and to have been signed or
presented to it pursuant to this Indenture by the proper party or parties;
(b) the Trustee may consult with counsel and any advice or
Opinion of Counsel shall be full and complete authorization and protection in
respect of any action taken or suffered or omitted by it hereunder in good faith
and in accordance with such advice or Opinion of Counsel, and the cost of
obtaining any such Opinion of Counsel shall be an expense of the Trustee
reimbursable under Section 3.02(b);
(c) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture, or to institute, conduct
or defend any litigation hereunder or in relation hereto, at the request, order
or direction of any of the Noteholders, pursuant to the provisions of this
Indenture, unless such Noteholders shall have offered to the Trustee security or
indemnity reasonably satisfactory to the Trustee against the costs, expenses and
liabilities which may be
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incurred therein or thereby; provided, however, that nothing contained herein
shall relieve the Trustee of the obligations, upon the occurrence of a Servicer
Default (which has not been cured or waived), to exercise such of the rights and
powers vested in it by this Indenture, and to use the same degree of care and
skill in their exercise as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs;
(d) the Trustee shall not be personally liable for any action
taken, suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon it by
this Indenture;
(e) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, appraisal,
approval, bond or other paper or document;
(f) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian, and the Trustee shall not be responsible for
any misconduct or negligence on the part of any such agent, attorney or
custodian appointed with due care by it hereunder;
(g) the Trustee shall not be required to make any initial or
periodic examination of any documents or records related to the Issuer Loans for
the purpose of establishing the presence or absence of defects, the compliance
by the Issuer with its representations and warranties or for any other purposes;
and
(h) nothing in this Indenture shall be construed to require
the Trustee to monitor the performance of the Servicer or act as a guarantor of
the Servicer' performance.
SECTION 11.03. [Intentionally left blank.]
SECTION 11.04. Trustee May Own Notes. The Trustee in its
individual or any other capacity may become the owner or pledgee of Notes and
may otherwise deal, and transact banking business, with the Originator, the
Servicer and/or the Issuer with the same rights as it would have if it were not
the Trustee.
SECTION 11.05. Money Held in Trust. Money held by the
Trustee in trust hereunder need not be segregated from other
funds of such Person, except to the extent required by law or
this Indenture. The Trustee shall have no liability for interest
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on any money received by it hereunder except as otherwise agreed in writing with
the Issuer.
SECTION 11.06. Disqualification; Conflicting Interests. If, at
any time after this Indenture has been qualified under the Trust Indenture Act,
the Trustee has or shall acquire any "conflicting interest" within the meaning
of Section 310(b) of the Trust Indenture Act, the Trustee and the Issuer shall
in all respects comply with the provisions of Section 310(b) of the Trust
Indenture Act. Without limiting the foregoing, if a conflicting interest is
deemed to arise under said Section 310(b) by virtue of the fact that the Trustee
is acting as Trustee for more than one Series of Notes Outstanding concurrently,
and such conflicting interest is not, or is not reasonably expected to be, cured
within 90 days of its occurrence, then, in such event, the Trustee may resign or
assign to a separate trustee such of its duties under the Transaction Documents
as may be necessary to eliminate any such conflicting interest in accordance
with Section 11.15 hereof.
SECTION 11.07. Preferential Collection of Claims against
Issuer. At all times after this Indenture becomes qualified under the Trust
Indenture Act, the Trustee shall comply with Section 311(a) of the Trust
Indenture Act, excluding any creditor relationship described in Section 311(b)
of the Trust Indenture Act, and a Trustee who has resigned or been removed shall
be subject to Section 311(a) of the Trust Indenture Act to the extent indicated
therein.
SECTION 11.08. Limitation on Liability of Trustee. The Trustee
shall have no responsibility or liability for or with respect to the correctness
of the recitals contained herein, in any of the other Transaction Documents, or
in the Notes (other than the certificate of authentication of the Trustee on the
Notes). Except as set forth in Section 11.20, the Trustee makes no
representations as to the validity or sufficiency of this Indenture, any of the
other Transaction Documents, the Notes (other than the certificate of
authentication of the Trustee on the Notes), any other Transaction Document or
any Pledged Asset or related document. The Trustee shall not be accountable for
the use or application by the Issuer of any of the Notes, or of the proceeds of
such Notes, or for the use or application of any funds paid to the Issuer or the
Servicer in respect of the Pledged Assets or deposited by the Servicer in, or
withdrawn by the Servicer from, the Lock-Box Account, the Concentration Account,
the Reserve Account, the Issuer's Account or any other accounts hereafter
established to effectuate the transactions
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contemplated herein or in the other Transaction Documents in accordance with the
terms hereof or thereof.
The Trustee shall have no responsibility or liability for or
with respect to (A) the legality, validity or enforceability of any security
interest in any Pledged Asset; (B) the perfection or priority of such a security
interest; (C) the maintenance of any such perfection or priority; (D) the
efficacy of the Granting Clause hereunder; (E) the ability of the Pledged Assets
to generate the payments to be distributed to Noteholders under this Indenture;
(F) the existence and substance of any Pledged Asset or any related Record or
any computer or other record thereof; (G) the validity of the grant of security
in any Pledged Asset to the Trustee as contemplated pursuant to the Granting
Clause hereunder or of any preceding or intervening grant pursuant thereto; (H)
the performance or enforcement of any Pledged Asset; (I) the compliance by the
Issuer or the Servicer with any warranty or representation made under this
Indenture or in any other Transaction Document and the accuracy of any such
warranty or representation prior to the Trustee's receipt of actual notice of
any noncompliance therewith or any breach thereof; (J) any investment of monies
pursuant to Section 4.02 or any loss resulting therefrom; (K) the acts or
omissions of the Issuer, the Servicer or any Obligor; (L) any action of the
Servicer taken in the name of the Trustee; or (M) any action by the Trustee
taken at the instruction of the Servicer; provided, however, that the foregoing
shall not relieve the Trustee of its obligation to perform its duties under this
Indenture and the other Transaction Documents in accordance with the terms
hereof and thereof.
Except with respect to a claim based on the failure of the
Trustee to perform its duties under this Indenture or under any of the other
Transaction Documents or based on the Trustee's negligence or willful
misconduct, no recourse shall be had against the Trustee in its individual
capacity for any claim based on any provision of this Indenture, any other
Transaction Document, the Notes, any Pledged Asset or any assignment thereof.
The Trustee shall not have any personal obligation, liability or duty whatsoever
to any Noteholder or any other Person with respect to any such claim, and any
such claims shall be asserted solely against the Pledged Assets, the Issuer or
any indemnitor who shall furnish indemnity to the Trustee as provided in this
Indenture. The Trustee shall have no liability to any Person for any failure to
so provide such notice or statement.
The provisions of this Section 11.08 shall survive and
continue to inure to the benefit of the Trustee notwithstanding
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the termination of this Indenture or the removal or resignation of the Trustee.
SECTION 11.09. Trustee May Deal with Other Parties. Subject to
any restrictions that may otherwise be imposed by Section 406 of ERISA or
Section 4975(e) of the IRC and/or the Trust Indenture Act (if applicable), the
Trustee, in its individual or any other capacity, may deal with the other
parties hereto (other than the Issuer) and their respective affiliates with the
same rights as it would have if it were not the Trustee.
SECTION 11.10. Servicer to Pay Trustee's Fees and Expenses.
(a) To the extent not paid by the Servicer to the Trustee from funds
constituting the Servicing Reimbursement, the Servicer covenants and agrees to
pay to the Trustee from time to time, and the Trustee shall be entitled to
receive, such reasonable compensation as is agreed upon in writing between the
Trustee and the Servicer, in the case of any such fees payable to the Trustee,
which amount shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust (the "Trustee's Fee") for all
services rendered by it in the execution of the trust hereby created and in the
exercise and performance of any of the powers and duties of the Trustee
hereunder and under the other Transaction Documents, and the Servicer will pay
or reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any of the provisions of this Indenture and the other Transaction Documents to
which it is a party (including the reasonable fees and expenses of its agents,
any co-trustee and counsel), except any such expense, disbursement or advance as
may arise from the Trustee's own negligence or willful misconduct and except as
otherwise provided in the following subsection (c).
(b) In addition, the Servicer (if other than the Trustee)
agrees to indemnify the Trustee from, and hold it harmless against, any and all
losses, liabilities, damages, claims or expenses (including, without limitation,
the reasonable fees and expenses of counsel) incurred by the Trustee in the
exercise or performance of any of its powers or duties hereunder and the other
Transaction Documents or as a result of the Trustee's action as Trustee
hereunder and/or thereunder, other than those resulting from the gross
negligence or willful misconduct of the Trustee.
(c) If the Trustee is appointed Successor Servicer pursuant to
Article X, the provisions of this Section 11.10 shall not apply to expenses,
disbursements and advances made or
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incurred by the Trustee in its capacity as Successor Servicer, which accounts
shall be paid out of the Servicing Reimbursement. The Servicer's covenant to pay
the fees, expenses, disbursements and advances provided for in this Section
11.10 shall survive the resignation or removal of the Trustee and the
satisfaction and discharge of this Indenture.
SECTION 11.11. Corporate Trustee Required; Eligibility. There
shall at all times be a Trustee hereunder which shall:
(a) be a corporation organized and doing business under the
laws of the United States of America, any State or Territory thereof or
the District of Columbia, authorized under such laws to exercise
corporate trust powers, and subject to supervision or examination by
Federal, State, Territorial or District of Columbia authority;
(b) not be an Enhancement Provider;
(c) have a combined capital and surplus of at least
$50,000,000 (or shall be a member of a bank holding system, the
aggregate combined capital and surplus of which is at least
$50,000,000, provided that the Trustee's separate capital and surplus
shall at all times be at least the amount specified in Section
310(a)(2) of the Trust Indenture Act, and shall at all times be subject
to supervision or examination by federal or state authority; and
(d) with respect to any successor Trustee, have a long-term
unsecured senior debt rating of "BBB" or better from S&P and "Baa2" or
better from Moody's Investors Service, Inc, and "BBB" or better from
Fitch, if rated by Fitch.
If such corporation or association publishes reports of condition at least
annually, pursuant to law or to the requirements of the aforesaid supervising or
examining authority, then, for the purpose of this Section 11.11, the combined
capital and surplus of such corporation or association shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section 11.11, the Trustee shall resign
immediately in the manner and with the effect specified in Section 11.12.
SECTION 11.12. Resignation or Removal of Trustee.
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(a) The Trustee may at any time resign and be discharged from the trust hereby
created by giving at least 90 days' prior written notice thereof to the Issuer,
the Servicer, the Rating Agencies (if any) and the Noteholders. Upon receiving
such notice of resignation, the Issuer shall promptly appoint a successor
Trustee who meets the eligibility requirements set forth in Section 11.11 by
written instrument, in duplicate, one copy of which instrument shall be
delivered to the resigning Trustee and one copy of the successor Trustee. If no
successor Trustee shall have been so appointed and shall have accepted such
appointment within 30 days after the giving of such notice of resignation, the
resigning Trustee may, upon notice to the Issuer, petition any court of
competent jurisdiction to appoint a successor Trustee who meets the eligibility
requirements set forth in Section 11.11.
(b) If at any time:
(i) after this Indenture is qualified or required to be
qualified under the Trust Indenture Act, the Trustee shall fail to
comply with Section 310(b) of the Trust Indenture Act pursuant to
Section 11.06 hereof after written request therefor by the Issuer, the
Servicer or any Noteholder (unless the Trustee's duty to resign is
stayed in accordance with the provisions of Section 310(b) of the Trust
Indenture Act), or
(ii) the Trustee shall otherwise cease to be eligible under
Section 11.11 hereof and shall fail to resign after written request
therefor by the Servicer, the Issuer or the Majority Noteholders, or
(iii) the Trustee shall become incapable of acting or
shall become the subject of an Insolvency Event,
then, in any such case, the Servicer may (or, at the request of the Issuer or
any Noteholder, shall) remove the Trustee and promptly appoint a successor
Trustee by written instrument, in duplicate, one copy of which instrument shall
be delivered to the Trustee being so removed (who shall send a copy thereof to
each of the applicable Rating Agencies) and the other copy thereof shall be
delivered to the successor Trustee. If no successor Trustee shall have been
appointed and shall have accepted such appointment within 30 days after the
Issuer's or any such Noteholder's giving of any such notice, the Issuer or any
such Noteholder may petition any court of competent jurisdiction to appoint a
successor Trustee meeting the eligibility requirements set forth in Section
11.11.
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(c) Any resignation or removal of the Trustee and appointment
of a successor Trustee pursuant to any of the provisions of this Section 11.12
shall not become effective until acceptance of appointment by the successor
Trustee as provided in Section 11.13 hereof.
SECTION 11.13. Successor Trustee. (a) Any successor trustee
appointed as provided in Section 11.12 shall execute, acknowledge and deliver to
the Issuer, to the Servicer and to its predecessor Trustee an instrument
accepting such appointment hereunder, and thereupon the resignation or removal
of the predecessor Trustee shall become effective and such successor trustee,
without any further act, deed or conveyance, shall become fully vested with all
the rights, powers, duties and obligations of its predecessor hereunder, with
like effect as if originally named as Trustee herein. The predecessor Trustee
shall deliver (with the expenses therefor payable out of the Servicing
Reimbursement, and by the Issuer and the Servicer, pursuant to Sections 3.02(b)
and 11.05(b)) to the successor trustee all documents or copies thereof and
statements held by it hereunder; and the Issuer and the predecessor Trustee
shall execute and deliver such instruments and do such other things as may
reasonably be required for fully and certainly vesting and confirming in the
successor trustee all such rights, powers, duties and obligations.
(b) No successor trustee shall accept appointment as provided
in this Section 11.13 unless at the time of such acceptance such successor
trustee shall be eligible under the provisions of this Indenture.
(c) Upon acceptance of appointment by a successor trustee as
provided in this Section 11.13, such successor trustee shall mail notice of such
succession hereunder to all Noteholders.
SECTION 11.14. Merger or Consolidation of Trustee. Any Person
into which the Trustee may be merged or converted or with which it may be
consolidated, or any Person resulting from any merger, conversion or
consolidation in which the Trustee shall be a party, or any Person succeeding to
the corporate trust business of the Trustee, shall be successor of the Trustee
hereunder, provided such corporation shall be eligible under the provisions of
this Indenture, without the execution or filing of any paper or any further act
on the part of any of the parties hereto, anything herein to the contrary
notwithstanding.
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SECTION 11.15. Appointment of Co-Trustee or Separate Trustee.
(a) Notwithstanding any other provisions of this Indenture, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Pledged Assets may at the time be located, the Trustee shall have the
power and may execute and deliver all instruments to appoint one or more persons
to act as a co-trustee, or co-trustees, or separate trustee or separate
trustees, of all or any part of the Pledged Assets, and to vest in such Person
or Persons, in such capacity and for the benefit of the Noteholders, such title
to the Pledged Assets, or any part thereof, and, subject to the other provisions
of this Section 11.15, such powers, duties, obligations, rights and trusts as
the Trustee may consider necessary or desirable. No co-trustee or separate
trustee hereunder shall be required to meet the terms of eligibility as a
successor trustee under this Indenture and no notice to Noteholders of the
appointment of any co-trustee or separate trustee shall be required under
Section 11.13 hereof; provided, however, that in the event this Indenture is
qualified under the Trust Indenture Act, each separate "indenture trustee" must
qualify under the Trust Indenture Act. The Trustee shall give the Servicer and
the Issuer notice of any such appointment as promptly as possible.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) except for any appointment of a separate Trustee pursuant
to Section 11.06 hereof, all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or imposed
upon and exercised or performed by the Trustee and such separate
trustee or co-trustee jointly (it being understood that such separate
trustee or co-trustee is not authorized to act separately without the
Trustee joining in such act), except to the extent that under any law
of any jurisdiction in which any particular act or acts are to be
performed (whether as Trustee hereunder or as Successor Servicer
hereunder), the Trustee shall be incompetent or unqualified to perform
such act or acts, in which event such rights, powers, duties and
obligations (including the holding of its interest in the Pledged
Assets or any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate trustee or co-trustee,
but solely at the direction of the Trustee;
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(ii) no Trustee hereunder shall be personally liable
by reason of any act or omission of any other trustee
hereunder; and
(iii) the Trustee may at any time accept the resignation of
or (except with respect to a separate Trustee appointed pursuant to
Section 11.06 hereof) remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Indenture and
the conditions of this Article XI. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Trustee or separately, as may be provided therein, subject to all the provisions
of this Indenture, specifically including every provision of this Indenture
relating to the conduct of, affecting the liability of, or affording protection
to, the Trustee. Every such instrument shall be filed with the Trustee and a
copy thereof given to the Servicer.
(d) Any separate trustee or co-trustee may at any time
constitute the Trustee, its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Indenture on its behalf and in its name. If any separate trustee
or co-trustee shall die, become incapable of acting, resign or be removed, all
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
SECTION 11.16. Tax Returns. No federal income tax return shall
be filed on behalf of this Indenture unless either (i) the Trustee or the
Servicer shall receive an Opinion of Counsel based on a change in applicable law
occurring after the date hereof that the IRC requires such a filing or (ii) the
Internal Revenue Service shall determine that this Indenture is required to file
such a return or (iii) this Indenture is required to file such a return by order
of a court of competent jurisdiction. In the event this Indenture shall be
required to file tax returns, the Servicer shall prepare or cause to be
prepared any tax returns required to be filed by this Indenture and shall remit
such returns to the Trustee for signature at least five days before such returns
are due to be filed; the Trustee shall promptly sign such returns and deliver
such returns
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after signature to the Servicer and such returns shall be filed by the Servicer.
The Trustee, the Paying Agent and the Transfer Agent and Registrar, upon
request, will each furnish the Servicer with all such information known to such
Person as may be reasonably required in connection with the preparation of all
tax returns of this Indenture, and the Trustee shall, upon request of the
Servicer, execute such returns. In no event shall the Trustee, any Servicer or
the Issuer be liable for any liabilities, costs or expenses of this Indenture or
the Noteholders arising out of the application of any tax law, including
federal, state, foreign or local income or excise taxes or any other tax imposed
on or measured by income (or any interest penalty or addition with respect
thereto or arising from a failure to comply therewith).
SECTION 11.17. Trustee May Enforce Claims Without Possession
of Notes. All rights of action and claims under this Indenture or the Notes may
be prosecuted and enforced by the Trustee without the possession of any of the
Notes or the production thereof in any proceeding relating thereto, and any such
proceeding instituted by the Trustee shall be brought in its own name as
trustee. Any recovery of judgment shall, after provision for the payment
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, be for the ratable benefit of the Noteholders in respect
of which such judgment has been obtained.
SECTION 11.18. Suits for Enforcement. (a) If a Servicer
Default shall occur and be continuing, the Trustee, in its discretion may,
subject to the provisions of Sections 11.01 and 11.19, proceed to protect and
enforce its rights and the rights of the Noteholders under this Indenture by
suit, action or proceeding in equity or at law or otherwise, whether for the
specific performance of any covenant or agreement contained in this Indenture or
in aid of the execution of any power granted in this Indenture or for the
enforcement of any other legal, equitable or other remedy as the Trustee, being
advised by counsel, shall deem most effectual to protect and enforce any of the
rights of the Trustee or the Noteholders.
(b) Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any
Noteholder any plan of reorganization, arrangement, adjustment or composition
affecting the Noteholders or the rights of any Holder thereof, or to authorize
the Trustee to vote in respect of the claim of any Noteholder in any such
proceeding.
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SECTION 11.19. Rights of Noteholders to Direct Trustee. The
Majority Noteholders shall have the right to direct the time, method, and place
of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee; provided, however, that
subject to Section 11.01, the Trustee shall have the right to decline to follow
any such direction if the Trustee after being advised by counsel determines that
the action so directed may not lawfully be taken, or if the Trustee in good
faith shall, by a Responsible Officer or Responsible Officers of the Trustee,
determine that the proceedings so directed would be illegal or involve it in
personal liability or be unduly prejudicial to the rights of Noteholders not
parties to such direction; and, provided, further, that nothing in this
Indenture shall impair the right of the Trustee to take any action deemed proper
by the Trustee and which is not inconsistent with such direction of the
Noteholders unless the Majority Noteholders shall have directed the Trustee not
to take such action.
SECTION 11.20. Representations and Warranties of
Trustee. The Trustee represents and warrants that:
(a) the Trustee is a national banking association;
(b) the Trustee has full power, authority and right to
execute, deliver and perform this Indenture, and has taken all necessary action
to authorize the execution, delivery and performance by it of this Indenture;
and
(c) this Indenture has been duly executed and
delivered by the Trustee.
SECTION 11.21. Maintenance of Office or Agency. The Trustee
will maintain at its expense, an office or agency (the "Corporate Trust Office")
where Notes may be presented for registration of transfer. The Trustee initially
designates its office or agency at 180 East Fifth Street, St. Paul, Minnesota
55101 as such office. The Trustee will give prompt written notice to the
Servicer and to Noteholders of any change in the location of the Note Register
or any such office or agency.
SECTION 11.22. Trustee May File Proofs of Claim. In case of
the pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other insolvency
proceedings, or any voluntary or involuntary case under the Bankruptcy Code or
any similar state bankruptcy or insolvency laws, in each case, as now or
hereafter constituted, relative to the Issuer, the Trustee (irrespective of
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whether the principal of the Notes shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the Trustee
shall have made any demand on the Issuer for the payment of overdue principal or
interest) shall be entitled and empowered, by intervention in such proceeding or
otherwise,
(i) to file and prove a claim for the whole Outstanding
Principal Balance (and premium, if any) and interest owing and unpaid
in respect of the Notes and to file such other papers or documents as
may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and
the Noteholders allowed in such judicial proceeding, and
(ii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator,
sequestrator (or other similar official) in any such proceedings is
hereby authorized by each Noteholder to make such payments to the
Trustee and, in the event that the Trustee shall consent to the making
of such payments directly to the Noteholders, to pay to the Trustee any
amount due it for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 11.10.
Nothing contained herein shall be deemed to authorize the Trustee to authorize
or consent to or accept or adopt on behalf of any Noteholder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or of
any Noteholder, or to authorize the Trustee to vote in respect of the claim of
any Noteholder in any such proceeding.
ARTICLE XII
SATISFACTION AND DISCHARGE
SECTION 12.01. Satisfaction and Discharge of Indenture. This
Indenture and all obligations of the Issuer hereunder and under the other
Transaction Documents shall (except to the extent expressly otherwise provided
herein or therein with respect to certain provisions hereof or thereof which
shall survive the satisfaction and discharge hereof) cease to be of
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further effect at such time (i) after the Amortization Date as the entire
Outstanding Principal Balance of all Outstanding Notes and all other Obligations
owing by the Issuer hereunder and under the other Transaction Documents have
been reduced to zero or (ii) such earlier time as all Outstanding Notes
theretofore authenticated and issued hereunder have been delivered (other than
any Notes which shall have been destroyed, lost or stolen and which shall have
been replaced or paid as provided in Section 6.04 to the Trustee for
cancellation) and the Issuer has paid all sums payable hereunder, under the
other Transaction Documents and under the Notes; provided, however, that this
Indenture and the trusts created hereby shall earlier terminate and this
Indenture be satisfied and discharged upon any sale or final disposition by the
Trustee of all property constituting the Pledged Assets from and after an Event
of Default and the final distribution by the Trustee of all proceeds thereof in
accordance with Article IV hereof, and provided further that the Servicer's
obligations with respect to any amounts owed to the Trustee, the Transfer Agent,
the Registrar and/or the Paying Agent shall survive the satisfaction and
discharge of this Indenture.
SECTION 12.02. Release of Liens. (a) Upon the satisfaction and
discharge of this Indenture pursuant to Section 12.01, the Trustee, at the
request of the Issuer, shall release (and shall, at the expense of the Issuer,
execute and deliver to the Issuer) all necessary UCC releases and other releases
in respect thereof of the Pledged Assets from the lien of the Trustee effected
pursuant to the Granting Clause hereof.
(b) Upon any sale, assignment or other transfer of any Pledged
Asset as permitted by Section 2.06(a), the security interest of the Trustee in
such Pledged Asset, and in all other Related Security related thereto (other
than in the cash proceeds of such sale, assignment or other transfer, or in the
case of the sale, assignment or other transfer of any Defaulted Loan or other
Issuer Loan that is not an Eligible Loan, any Contingent Compensation related
thereto) shall, immediately upon the sale, assignment or other transfer of such
Pledged Asset, and without any further action on the part of the Trustee, be
released except to the extent of the interest, if any, in such Pledged Asset
which is then retained by the Issuer. The security interest of the Trustee shall
nevertheless continue in (i) all amounts payable to the Issuer by any Person
pursuant to the agreement with regard to which such sale, assignment or other
transfer is to be made and (ii) all other claims, proceeds, benefits and rights
of the Issuer thereunder or in connection therewith, if any, subject, in each
case, to any rights therein granted to the purchaser of such Pledged Asset
pursuant to such agreement.
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(c) Upon the sale, assignment or other transfer of any Pledged
Asset as permitted by Section 2.06(a), the Issuer or the Servicer shall deliver
a certificate to the Trustee certifying (i) that such sale, assignment or other
disposition complies with the requirements of Section 2.06(a) and (ii) that all
funds required to be delivered to the Trustee in accordance with Section 2.06(a)
have been so delivered. Upon the request of the Issuer (or the Servicer on
behalf of the Issuer) and concurrently with or after the delivery of the
certificate described in the preceding sentence, the Trustee shall deliver to
the purchaser, assignee or other recipient of such Pledged Asset a certificate
(in such form as may be provided by the Issuer or the Servicer and approved by
the Trustee) stating that the Trustee no longer has a security interest in such
Pledged Asset except to the extent of the interest therein, if any, which is
retained by the Issuer or with respect to the proceeds thereof, in each case, as
set forth in the last sentence of Section 12.02(b). The purchaser, assignee or
other recipient of such Pledged Asset shall be entitled to rely conclusively on
such certificate of the Trustee for any and all purposes.
SECTION 12.03. Final Distribution. (a) The Servicer shall give
the Trustee and the Issuer, and the Trustee shall give each Noteholder, at least
twenty days' prior written notice of the date on which (i) this Indenture is
expected to terminate in accordance with Section 12.01 and (ii) the Noteholders
shall surrender their Notes for payment of the final distribution on, and
cancellation of, such Notes. Such notice shall be accompanied by an Officer's
Certificate setting forth the information specified in Section 3.06 covering the
period during the then-current calendar year through the date of such notice.
Not later than five Business Days after the Trustee shall receive such notice,
the Trustee shall mail a notice to the Noteholders specifying (i) the date upon
which such final distribution will be made upon presentation and surrender of
such Notes at the office or offices therein designated, (ii) the amount of any
such final distribution and (iii) that the Monthly Payment Date otherwise
applicable to such final distribution is not applicable, payments being made
only upon presentation and surrender of such Notes at the office or offices
therein specified. Upon delivery and surrender of each Note, the Trustee shall
make the final distribution to such Noteholder and, subject to the provisions of
Section 12.03(b), any remaining amounts shall be distributed to the Issuer. The
Trustee shall give such notice to the Transfer Agent and Registrar and the
Paying Agent at the time such notice is given to the Noteholders.
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(b) Notwithstanding the Servicer's delivery to the Trustee, or
the Trustee's delivery to the Noteholders, of the notices required under Section
12.03(a), all funds then on deposit in the Concentration Account, the Reserve
Account, any Series Account, any Defeasance Account, any other Trust Account or
the Issuer's Account shall continue to be held in trust for the benefit of the
Noteholders, and the Paying Agent or the Trustee shall pay such funds to the
Noteholders upon surrender of their Notes pursuant to, and subject to the
priorities set forth in, the applicable Supplement, as if such surrender date
were on a Monthly Payment Date (and any excess shall be paid in accordance with
the terms of any Enhancement Agreement). In the event that all Noteholders shall
not surrender their Notes for cancellation within six months after the date
specified in the above-mentioned written notice from the Trustee, the Trustee
shall give a second written notice to the remaining Noteholders to surrender
their Notes for cancellation and receive the final distribution with respect
thereto. If within one year after the second notice all the Notes shall not have
been surrendered for cancellation, the Trustee may take appropriate steps, or
may appoint an agent to take appropriate steps, to contact the remaining
Noteholders concerning surrender of their Notes, and the cost thereof shall be
paid out of the funds in the Trust Accounts. The Trustee and the Paying Agent
shall pay to the Issuer any monies held by them for the payment of principal or
interest that remains unclaimed for two years. After payment to the Issuer,
Noteholders entitled to the money must look to the Issuer for payment as general
creditors unless an applicable abandoned property law designates another person.
ARTICLE XIII
REDEMPTIONS
SECTION 13.01. Redemption Allowed. The Issuer may at its
option redeem the Notes of any Series which are redeemable before their Stated
Maturity Date in accordance with the terms of such Series of Notes and this
Article.
SECTION 13.02. Election to Redeem; Notice to Trustee. The
election of the Issuer to redeem any Notes shall be evidenced by a resolution of
the Board of Directors of the Issuer. In case of any such redemption at the
election of the Issuer, the Issuer shall, at least 35 Business Days prior to the
redemption date (the "Redemption Date") fixed by the Issuer (unless a shorter
notice shall be acceptable to the Trustee), notify the Trustee of
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such Redemption Date and of the principal amount of the Notes of such Series to
be redeemed. In the case of any redemption of the Notes of any Series prior to
the expiration of any restriction on such redemption provided in the terms of
such Series of Notes or elsewhere in this Indenture, the Issuer shall furnish
the Trustee with an Officer's Certificate evidencing compliance with such
restriction.
SECTION 13.03. Selection of Securities to Be Redeemed. If less
than all of the Notes of such Series or Class are to be redeemed, the particular
Notes of such Series to be redeemed shall be selected, not less than 30 days
prior to the Redemption Date, by the Trustee from among the Outstanding Notes of
such Series not previously called for redemption, by such method as the Trustee
shall deem fair and appropriate in accordance with the terms of any applicable
Supplement and which may provide for the selection for redemption of portions of
the principal amount of the Notes of such Series of a denomination larger than
the minimum authorized denomination for the Notes of such Series; provided,
however, that if the Notes of such Series have different terms, the Notes of
such Series to be redeemed shall be selected by the Issuer in accordance with
the terms of this Indenture, and the Issuer shall give notice thereof to the
Trustee. The Trustee shall promptly notify the Issuer in writing of the Notes
selected for redemption and, in the case of any Notes selected for partial
redemption, the principal amount thereof to be redeemed. For all purposes of
this Indenture, unless the context otherwise requires, all provisions relating
to the redemption of Notes shall relate, in the case of any Notes redeemed or to
be redeemed only in part, to the portion of the principal amount of such Notes
which has been or is to be redeemed.
SECTION 13.04. Notice of Redemption. Unless otherwise provided
in any applicable Supplement pursuant to which Notes are issued, at least 30 but
not more than 60 days before a Redemption Date, the Issuer shall mail a notice
of redemption by first-class mail to each Noteholder whose Notes are to be
redeemed, at the addresses of such Noteholders as they appear in the Note
Register. Any notice which is mailed in the manner herein provided shall be
conclusively presumed to have been duly given, whether or not the Noteholder
actually receives such notice. Failure to give notice by mail, or any defect in
the notice to the Noteholder of any Note of any Series designated for redemption
in whole or in part, shall not affect the validity of the proceedings for the
redemption of any other Notes of such Series. The notices of redemption shall
identify the Notes to be redeemed and shall also state:
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(1) the Redemption Date;
(2) the redemption price (including the amount of accrued and
unpaid interest to be paid and any premium payable in connection
therewith) the "Redemption Price:);
(3) the place or places where such Notes are to be surrendered
for payment of the Redemption Price;
(4) that, unless the Issuer defaults in making the redemption
payment, interest on the Notes or any portion thereof called for
redemption ceases to accrue on and after the specified Redemption Date
and the only remaining right of the Noteholders thereof will be to
receive payment of the Redemption Price upon surrender to the Trustee
of the Notes;
(5) if less than all of the Outstanding Notes of any Series
are to be redeemed, the identification of the particular Notes to be
redeemed, in whole or in part; and
(6) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, on or after the
Redemption Date, upon surrender of such Note, a new Note or Notes in an
aggregate principal amount equal to the unredeemed portion thereof will
be issued.
At the Issuer's request, the Trustee shall give the notice of
redemption in the Issuer's name and at its expense. In such event the Issuer
will provide the Trustee with the information required by clauses (1), (2), (3),
(5) and (6) above.
SECTION 13.05. Deposit of Redemption Price. On or prior to any
Redemption Date, the Issuer shall deposit with the Trustee an amount of money
sufficient to pay the Redemption Price of, and accrued interest on (unless such
interest has otherwise been paid on such date), all of the Notes which are to be
redeemed on the Redemption Date. So long as the Issuer complies with the
provisions of Section 13.04 and the other provisions of this Article, interest
on the Notes (or portions thereof) to be redeemed on the applicable Redemption
Date shall cease to accrue from and after such date and such Notes (or portions
thereof) shall be deemed not to be entitled to any benefit under this Indenture
or the related Supplement except to receive payment of the Redemption Price on
the Redemption Date. The provisions of Section 12.03 shall apply to any money
held by the Trustee under this Article that remains unclaimed for two years
after the
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Redemption Date for any Notes called for redemption pursuant to the provisions
of this Article.
SECTION 13.06. Notes Payable on Redemption Date. Notice of
redemption having been given as aforesaid, the Notes (or portions thereof) to be
so redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified. Upon surrender of any such Note for
redemption in accordance with such notice, such Notes (or portions thereof)
shall be paid at the Redemption Price, together with accrued interest to the
Redemption Date. If any Note (or portion thereof) called for redemption shall
not be so paid upon surrender for redemption, then, from the Redemption Date
until such principal is paid, interest shall be paid on the unpaid principal
and, to the extent permitted by law, on any accrued but unpaid interest thereon,
in each case at the rate prescribed therefor by such Notes.
SECTION 13.07. Notes Redeemed in Part. Upon surrender of a
Note that is redeemed in part, the Issuer shall issue and authenticate a new
Note or Notes equal in aggregate principal amount to the unredeemed portion of
the Note so surrendered.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
SECTION 14.01. Amendment. (a) This Indenture or any Supplement
may be amended from time to time by the Servicer, the Issuer and the Trustee
without the consent of any of the Noteholders, (i) to cure any ambiguity, (ii)
to comply with the requirements of the Commission in order to effect or maintain
the qualification of this Indenture under the Trust Indenture Act, (iii) to
correct or supplement any provision herein or in any Supplement which may be
inconsistent with any other provision herein or therein, (iv) to evidence the
succession of another Person to the Originator, the Issuer, the Servicer and/or
the Trustee in each case to the extent that such succession is otherwise
permitted under the terms of this Indenture and, if applicable, the Loan
Purchase Agreement, (v) to add any other provisions with respect to matters or
questions arising under this Indenture or any Supplement which are not
inconsistent with the provisions of this Indenture or such Supplement and (vi)
to change or eliminate any provisions of this Indenture or any Supplement in
order to maintain the outstanding rating of any outstanding Series or Class of
Notes; provided that any amendment
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pursuant to this paragraph (a) shall not, as evidenced by an Officer's
Certificate of the Servicer, adversely affect in any material respect the
interests of any Noteholders. No such Supplement or amendment to this Indenture
or any Supplement pursuant to this Section 14.01 shall become effective unless a
copy thereof shall have been sent to each Noteholder. The Trustee may request an
Officer's Certificate and Opinion of Counsel with respect to any such amendment
concerning compliance with the requirements of this Indenture.
(b) This Indenture or any Supplement may be amended from time
to time by the Servicer, the Issuer and the Trustee, with the consent of the
Majority in Interest of each adversely affected Series, for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of modifying in any manner the rights of the
Noteholders; provided, however, that no such amendment shall (i) reduce in any
manner the amount of, or delay the timing of, distributions to be made to any
Noteholder or deposits of amounts to be so distributed or the amount available
under any Enhancement without the consent of such affected Noteholder, (ii)
reduce the aforesaid percentage required to consent to any such amendment
without the consent of each Noteholder or (iii) cause any adverse tax effect for
Noteholder without the consent of each affected Noteholder. The Trustee may
request an Officer's Certificate and Opinion of Counsel with respect to an
amendment entered into pursuant to this Section 14.01(b) concerning compliance
with the requirements of this Indenture. Any amendment to be effected pursuant
to this paragraph shall be deemed to adversely affect all outstanding Series.
No such amendment to this Indenture or any Supplement pursuant to this Section
14.01(b) shall become effective unless the Noteholders holding Notes evidencing
not less than 66-2/3% of the Outstanding Principal Balance of each Series whose
rating is or would be adversely affected thereby shall have consented thereto in
writing.
(c) Promptly after the execution of any such amendment or
consent (other than an amendment pursuant to Section 14.01(a)), the Trustee
shall furnish written notification of the substance of such amendment to each
affected Noteholder, each Enhancement Provider and, so long as Holland Limited
Securitization is a Noteholder, S&P and Fitch.
(d) It shall not be necessary for the consent of Noteholders
under this Section 14.01 to approve the particular form of any proposed
amendment, but it shall be sufficient if such consent shall approve the
substance thereof. The manner of obtaining such consents and of evidencing the
authorization of
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the execution thereof by Noteholders shall be subject to such reasonable
requirements as the Trustee may prescribe.
(e) Notwithstanding anything in this Section 14.01 to the
contrary, no amendment may be made to this Indenture or any Supplement without
the consent of any Enhancement Provider unless such amendment would not (as
evidenced by an Officer's Certificate of the Servicer) adversely affect in any
material respect the interests of such Enhancement Provider.
(f) Any Supplement executed in accordance with the provisions
of Section 6.09 shall not be considered an amendment to this Indenture for the
purposes of this Section 14.01.
(g) Prior to the execution of any amendment to this Indenture
or any Supplement, the Trustee and any Enhancement Provider shall be entitled to
receive and rely upon an Opinion of Counsel stating that the execution of such
amendment is authorized or permitted by this Indenture. The Trustee may, but
shall not be obligated to, enter into any such amendment which affects the
Trustee's own rights, duties or immunities under this Indenture, any Supplement
or otherwise.
SECTION 14.02. Limitation on Rights of Noteholders. (a) The
death or incapacity of any Noteholder shall not operate to terminate this
Indenture, nor shall such death or incapacity entitle such Noteholders' legal
representatives or heirs to claim an accounting or to take any action or
commence any proceeding in any court for a partition or winding up of the corpus
of the Pledged Assets, nor otherwise affect the rights, obligations and
liabilities of the parties hereto or any of them.
(b) No Noteholder shall have the right to vote (except as
expressly provided in this Indenture, including without limitation under Section
11.19) or in any manner otherwise control the operation and management of the
Trust, or the obligations of the parties hereto, nor shall anything herein set
forth, or contained in the terms of the Notes, be construed so as to constitute
the Noteholders from time to time as partners or members of an association nor
shall any Noteholder be under any liability to any third person by reason of any
action taken by the parties to this Indenture pursuant to any provision hereof.
(c) No Noteholder shall have any right by virtue of any
provisions of this Indenture to file or otherwise institute any suit, action or
proceeding in equity or at law upon or under or with respect to this Indenture,
unless such Noteholder previously shall have made, and unless the Majority
Noteholders
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shall have made, a written request to the Trustee to institute such action, suit
or proceeding in its own name as Trustee hereunder and shall have offered to the
Trustee such reasonable indemnity as it may require against the costs, expenses
and liabilities to be incurred therein or thereby, and the Trustee, for 60 days
after such request and offer of indemnity, shall have failed to file or
otherwise refused to institute any such action, suit or proceeding; it being
understood and intended, and being expressly covenanted, by each Noteholder with
every other Noteholder and the Trustee, that no one or more Noteholders shall
have any right in any manner whatever by virtue or by availing itself or
themselves of any provisions of this Indenture to affect, disturb or prejudice
the rights of the holders of any of the Notes, or to obtain or seek to obtain
priority over or preference to any such Noteholder, or to enforce any right
under this Indenture, except in the manner herein provided and for the equal,
ratable and common benefit of all Noteholders. For the protection and
enforcement of the provisions of this Section 14.02, each and every Noteholder
and the Trustee shall be entitled to such relief as can be given either at law
or in equity. Notwithstanding any other provision of this Indenture, the Notes
or any Supplement, each Noteholder shall have the right to receive the payments
of all amounts due hereunder, under the Notes held by such Holder and under the
Supplement relating to the Series of Notes held by such Holder and the right to
institute suit for the enforcement of any such payment without the consent of
the Trustee or any other Holder.
SECTION 14.03. Governing Law; Jurisdiction; Consent to
Service of Process.
(a) Governing Law. THIS INDENTURE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING
WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF
NEW YORK BUT OTHERWISE WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND
THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(b) Jurisdiction. Each of the parties hereto hereby
irrevocably and unconditionally submits to the nonexclusive jurisdiction of any
federal court of the United States of America sitting in New York City or, if
jurisdiction is not available in such federal court, New York State court, and
any appellate court from any thereof, in any action or proceeding arising out of
or relating to this Indenture, and each of the parties hereto hereby
127
<PAGE> 134
irrevocably and unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in such New York State or, to
the extent permitted by law, in such federal court. Each of the parties hereto
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law.
(c) Consent to Service of Process. Each party to this
Indenture irrevocably consents to service of process in the manner provided for
notices in Section 14.04. Nothing in this Indenture will affect the right of any
party to this Indenture to serve process in any other manner permitted by law.
SECTION 14.04. Notices; Payments. (a) All demands, notices,
instructions, directions, requests, authorizations and communications
(collectively, "Notices") under this Indenture shall be in writing and shall be
deemed to have been duly given if personally delivered at, mailed by registered
mail, return receipt requested, or sent by facsimile transmission (i) in the
case of the Issuer, to Sirrom Funding Corporation, 500 Church Street - Suite
200, Nashville, Tennessee 37219, (ii) in the case of the Originator in its
capacity as initial Servicer, to Sirrom Capital Corporation, 500 Church Street -
Suite 200, Nashville, Tennessee 37219, (iii) in the case of the Trustee
(including in its capacity as Paying Agent), to First Trust National
Association, 180 East Fifth Street, SPFT0210, St. Paul, Minnesota 55101,
Attention: Structured Finance, and (iv) in the case of the Trustee in its
capacity as Transfer Agent and Registrar, to First Trust National Association,
180 East Fifth Street, SPFT0210, St. Paul, Minnesota 55101, Attention:
Structured Finance, or, as to each such party, at such other address or
facsimile number as shall be designated by such party in a written notice to
each other party. In the case of any Successor Servicer, successor Trustee or
any successor Paying Agent or successor Transfer Agent and Registrar, notices
shall be given to such Person at the address designated by it in a notice to the
other parties hereto at the addresses designated above as applicable.
(b) Any Notice required or permitted to be mailed to
Noteholder shall be given by first-class mail, postage prepaid, at the address
of such Noteholder as shown in the Note Register. Notice so mailed within the
time prescribed in this Indenture shall be conclusively presumed to have been
duly given, whether or not the Noteholder receives such notice.
SECTION 14.05. Rule 144A Information. In the event
that and for so long as any of the Notes of any Series or Class
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<PAGE> 135
are "restricted securities" within the meaning of Rule 144(a)(3) under the
Securities Act, the Issuer, the Servicer and any Enhancement Provider agree to
cooperate with each other to provide to each Noteholder of such Series or Class
and to each prospective purchaser of the applicable Notes designated by such
Noteholder, upon the request of such Noteholder or prospective purchaser, any
information required to be provided to such holder or prospective purchaser to
satisfy the condition set forth in Rule 144A(d)(4) under the Securities Act (or
any successor provision).
SECTION 14.06. Severability of Provisions. If any one or more
of the covenants, agreements, provisions or terms of this Indenture shall for
any reason whatsoever be held invalid, then such covenants, agreements,
provisions or terms shall be deemed severable from the remaining covenants,
agreements, provisions or terms of this Indenture and shall in no way affect the
validity or enforceability of the other covenants, agreements, provisions or
terms of this Indenture or of the Notes or rights of the Noteholders.
SECTION 14.07. Assignment. Notwithstanding anything to the
contrary contained herein, (i) this Indenture may not be assigned by the Issuer,
and (ii) except as provided in Section 8.02, this Indenture may not be assigned
by the Servicer without the prior consent of the Majority in Interest of each
Series.
SECTION 14.08. Notes Nonassessable and Fully Paid. It is the
intention of the parties to this Indenture that upon authentication thereof by
the Trustee pursuant to Section 6.02, the Notes are and shall be deemed fully
paid.
SECTION 14.09. Further Assurances. The Issuer and the Servicer
agree to do and perform, from time to time, any and all acts and to execute any
and all further instruments and documents required or reasonably requested by
the Trustee more fully to effect the purposes of this Indenture, including,
without limitation, the execution of any financing statements or continuation
statements relating to the Pledged Assets for filing under the provisions of the
UCC of any applicable jurisdiction.
SECTION 14.10. Nonpetition Covenant. Notwithstanding any prior
termination of this Indenture, each of the Servicer, the Trustee, the Paying
Agent, and the Transfer Agent and Registrar shall not, prior to the date which
is one year and one day after the termination of this Indenture acquiesce,
petition or otherwise invoke or cause any other Person to invoke the process of
any Governmental Authority for the purpose of
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<PAGE> 136
commencing or sustaining a case against the Issuer under any Federal or state
bankruptcy, insolvency or similar law or appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the
Issuer or any substantial part of its property or ordering the winding-up or
liquidation of the affairs of the Issuer.
SECTION 14.11. No Waiver; Cumulative Remedies. No failure to
exercise and no delay in exercising, on the part of any Person, any right,
remedy, power or privilege hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, remedy, power or privilege
under this Indenture preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and not exhaustive of any
rights, remedies, powers and privileges provided by law.
SECTION 14.12. Counterparts. This Indenture may be executed in
two or more counterparts and by different parties on separate counterparts),
each of which shall be an original, but all of which together shall constitute
one and the same instrument.
SECTION 14.13. Third-Party Beneficiaries. This Indenture will
inure to the benefit of and be binding upon the parties hereto, the Noteholders
and their respective successors and permitted assigns. Except as otherwise
provided in this Indenture, no other Person will have any right or obligation
hereunder.
SECTION 14.14. Actions by Noteholders. (a) Wherever in this
Indenture a provision is made that an action may be taken or a Notice given by
Noteholders, such action or Notice may be taken or given by any Noteholder,
unless such provision requires a specific percentage of Noteholders.
(b) Any Notice, consent, waiver or other act by the Holder of
a Note shall bind such Holder and every subsequent Holder of such Note and of
any Note issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof in respect of anything done or omitted to be done by
the Trustee or the Servicer in reliance thereon, whether or not notation of such
action is made upon such Note.
SECTION 14.15. Merger and Integration. Except as specifically
stated otherwise herein, this Indenture sets forth the entire understanding of
the parties relating to the subject
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matter hereof, and all prior understandings, written or oral, are superseded by
this Indenture. This Indenture may not be modified, amended, waived or
supplemented except as provided herein.
SECTION 14.16. Headings. The headings herein are for
purposes of reference only and shall not otherwise affect the
meaning or interpretation of any provision hereof.
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IN WITNESS WHEREOF, the Issuer, the Servicer and the Trustee
have caused this Indenture to be duly executed by their respective officers as
of the day and year first above written.
SIRROM FUNDING CORPORATION, as the
Issuer
By:
------------------------------------
Name:
Title:
SIRROM CAPITAL CORPORATION, as the
Servicer
By:
------------------------------------
Name:
Title:
FIRST TRUST NATIONAL ASSOCIATION, as the
Trustee
By:
------------------------------------
Name:
Title:
132
<PAGE> 1
Exhibit f.12
EXECUTION COPY
================================================================================
SIRROM FUNDING CORPORATION,
as Issuer
SIRROM CAPITAL CORPORATION,
as Servicer
FIRST TRUST NATIONAL ASSOCIATION,
Not in its individual capacity,
but solely as Trustee of the
Music City Funding Corporation
Master Trust Indenture and
Security Agreement
and
ING BARING (U.S.)
CAPITAL MARKETS, INC.,
as Program Agent
SERIES 1996-1 SUPPLEMENT
Dated as of December 31, 1996
to
MASTER TRUST INDENTURE AND
SECURITY AGREEMENT
Dated as of December 31, 1996
$100,000,000
Revolving Notes, Series 1996-1
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
------- ----
ARTICLE I
Creation of the Revolving Notes, Series 1996-1
<S> <C> <C>
SECTION 1.01. Designation...............................................................................1
SECTION 1.02. Definitions...............................................................................1
ARTICLE II
Additional Covenants
SECTION 2.01. Covenants of the Servicer................................................................11
ARTICLE III
Establishment of Program Agent's Account and
Allocation and Application of Collections
SECTION 3.01. Establishment of Program Agent's Account.................................................12
SECTION 3.02. Payment of Funds to Program Agent........................................................12
SECTION 3.03. Allocation and Distribution..............................................................12
ARTICLE IV
Distributions and Reports to
Series 1996-1 Noteholders
SECTION 4.01. Annual Noteholders' Statement............................................................17
ARTICLE V
Events of Default;
Additional Events of Default;
Pay-Out Events
SECTION 5.01. Events of Default; Additional Events of
Default; Pay-Out Events..................................................................17
ARTICLE VI
Miscellaneous Provisions
SECTION 6.01. Ratification of Indenture................................................................19
SECTION 6.02. Counterparts.............................................................................19
SECTION 6.03. Governing Law; Jurisdiction..............................................................19
SECTION 6.04. Appointment of Successor Servicer........................................................20
SECTION 6.05. The Trustee..............................................................................20
SECTION 6.06. Assignment by HLS, Liquidity Providers,
the Enhancement Providers and Holder(s)
of Notes.................................................................................20
SECTION 6.07. No Assignability by Issuer or Servicer...................................................22
</TABLE>
-ii-
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 6.08. Amendments and Waivers...................................................................22
SECTION 6.09. Indemnification of the Trustee and the
Noteholders..............................................................................23
SECTION 6.10. Servicer Indemnification.................................................................25
SECTION 6.11. Additional Reporting Requirements........................................................26
</TABLE>
-iii-
<PAGE> 4
SERIES 1996-1 SUPPLEMENT, dated as of December 31, 1996 (this
"Supplement"), is made by and among SIRROM FUNDING CORPORATION, a Delaware
corporation, as issuer (the "Issuer"), SIRROM CAPITAL CORPORATION, a Tennessee
corporation, as initial Servicer (in such capacity, together with any successor
in such capacity, the "Servicer"), FIRST TRUST NATIONAL ASSOCIATION, as Trustee
(in such capacity, together with any successor in such capacity, the "Trustee")
and ING BARING (U.S.) CAPITAL MARKETS, INC.
PRELIMINARY STATEMENT
Pursuant to the Master Trust Indenture and Security Agreement
dated as of December 31, 1996 (as the same may be amended, restated,
supplemented or otherwise modified from time to time, and as supplemented
hereby, the "Indenture"), among the Issuer, the Servicer and the Trustee, the
Issuer may from time to time, among other things, issue one or more Series of
Notes secured by the Pledged Assets. The Principal Terms of any new Series are
to be set forth in a Supplement to the Indenture Certain terms applicable to any
such Series of Notes are to be set forth in a Supplement to the Indenture.
Accordingly, the Issuer hereby enters into this Supplement with the Servicer and
the Trustee as required by Section 6.08 of the Indenture to provide for the
issuance, authentication and delivery a Series of Revolving Notes, Series 1996-1
(the "Notes").
ARTICLE I
Creation of the Revolving Notes, Series 1996-1
SECTION 1.01. Designation. (a) There is hereby created a
Series of Revolving Notes to be issued pursuant to the Indenture and this
Supplement to be designated generally as Revolving Notes, Series 1996-1. Subject
to the satisfaction of the conditions set forth in the Note Purchase Agreement,
the Trustee shall authenticate and deliver the Notes upon the order of the
Issuer, in an aggregate Stated Amount equal to $100,000,000. The Notes shall be
authenticated and delivered in the manner and at the times for authentication
and delivery of Revolving Notes that are specified in Article VI of the
Indenture.
(b) In the event that any term or provision contained herein
shall conflict with or be inconsistent with any term or provision contained in
the Indenture, the terms and provisions of this Supplement shall govern.
SECTION 1.02. Definitions. (a) Whenever used in this
Supplement the following words and phrases shall have the
following meanings.
<PAGE> 5
"Additional Event of Default" has the meaning specified for
such term in Section 5.01 hereof.
"Adjusted Eurodollar Rate" shall mean an interest rate per
annum determined by the Program Agent to be equal to the rate (rounded upwards,
if necessary, to the nearest 1/16 of 1%) reported at or about 11:00 A.M., on the
date two Business Days prior to the first day of such Interest Period, on
Telerate Access Service Page 3750 (British Bankers Association Settlement Rate)
as the London Interbank Offered Rate for United States dollar deposits having a
term of 90 days and in a principal amount of $1,000,000 or more (or, if such
Page shall cease to be publicly available or, if the information contained on
such Page, in the Program Agent's sole judgment, shall cease to accurately
reflect such London Interbank Offered Rate, such rate as reported by any
publicly available recognized source of similar market data selected by the
Program Agent that, in the Program Agent's sole judgment, accurately reflects
such London Interbank Offered Rate).
"Alternative Rate" shall mean, with respect to any Interest
Period, an interest rate per annum equal to the Adjusted Eurodollar Rate;
provided, however, that the "Alternative Rate" for such Interest Period (or, in
the case of clause (ii) below, any portion of such Interest Period during which
the condition described therein exists) shall be the Base Rate in effect from
time to time during such Interest Period if (i) such Interest Period is a period
of 1 to 29 days, (ii) the Outstanding Principal Balance of the Notes is at any
time less than $1,000,000, or (iii) on the first day of such Interest Period the
Note Rate was being calculated by reference to the CP Rate.
"Amortization Period" shall have the meaning specified
for such term in the Indenture.
"Asset Coverage Shortfall" shall have the meaning specified
for such term in the Indenture.
"Base Rate" shall mean, on any date, a fluctuating rate of
interest per annum equal to the arithmetic average of the rates of interest
publicly announced by The Chase Manhattan Bank, Citibank, N.A. and Morgan
Guaranty Trust Company of New York (or their respective successors) as their
respective prime commercial lending rates (or, as to any such bank that does not
announce such a rate, such bank's "base" or other rate determined by the Program
Agent to be the equivalent rate announced by such bank), except that, if any
such bank shall, for any period, cease to announce publicly its prime commercial
lending (or equivalent) rate, the Program Agent shall, during such period,
determine the "Base Rate" based upon the prime commercial lending (or
2
<PAGE> 6
equivalent) rates announced publicly by the other such banks or, if each such
bank ceases to announce publicly its prime commercial lending (or equivalent)
rate, based upon the prime commercial lending (or equivalent) rates announced
publicly by other banks reasonably acceptable to the Issuer. The prime
commercial lending (or equivalent) rates used in computing the Base Rate are not
intended to be the lowest rates of interest charged by such banks in connection
with extensions of credit to debtors. The Base Rate shall change as and when
such banks' prime commercial lending (or equivalent) rates change.
"Breakage Costs" shall mean, for each Interest Period during
which the Outstanding Principal Balance of any Series 1996-1 Note is reduced,
the amount, if any, by which (i) the additional interest at the Note Rate
(calculated without taking into account any Breakage Costs), which would have
accrued on the reduction of the Outstanding Principal Balance of such Note
during such Interest Period (as so computed) if such reduction had not occurred,
through the last day of the Interest Period exceeds (ii) the income, if any,
received by the Noteholder funding such Outstanding Principal Balance investing
the proceeds of such reductions of such Outstanding Principal Balance.
"Carrying Cost Amount" shall mean, as of any date of
determination, all accrued but unpaid Carrying Costs as of such date.
"Carrying Costs" shall mean, for any Collection Period, (a)
all interest payable on the Notes, (b) all Purchaser Fees, (c) all Breakage
Costs, if any, and (d) any other fees, costs and expenses payable by the Issuer
pursuant to terms hereof. The accrued interest for the Notes for each Interest
Period used in computing the Carrying Costs for such Collection Period shall be
determined by the Program Agent based upon the actual number of days in such
Interest Period, the Outstanding Principal Balance and the Note Rate in effect
on each day in such Interest Period, and a year consisting of 360 days, and the
Program Agent shall give notice thereof to the Issuer and the Servicer at least
two Business Days prior to the Interest Payment Date relating to such Collection
Period.
"Closing Date" shall mean the first date on which any
Notes are issued.
"Collection Period" shall mean, with respect to any Monthly
Payment Date, the calendar month (or, in the case of the calendar month in which
any Closing Date occurs, the portion of such calendar month following the
Closing Date) immediately preceding the calendar month in which such Monthly
Payment Date occurs.
3
<PAGE> 7
"CP Disruption Event" shall mean, at any time for any reason
whatsoever, any Noteholder shall be unable to raise, or shall be precluded or
prohibited from raising, funds through the issuance of commercial paper notes in
the United States' commercial paper market at such time.
"CP Rate" shall mean, with respect to any Interest Period and
any Noteholder, the weighted average of the per annum rates (or, if such rates
are expressed as discount rates, the weighted average of the per annum rates
resulting from converting such discount rates to an interest-bearing equivalent)
of the commercial paper notes issued by such Noteholder and allocated by such
Noteholder to the funding or maintenance of its Advances (as such term is
defined in the Note Purchase Agreement) under the Notes during such Interest
Period; provided, however, that at all times following the occurrence of an
Event of Termination, the "CP Rate" shall be the Alternative Rate in effect from
time to time; and provided, further, that upon the occurrence and during the
continuance of any CP Disruption Event, the "CP Rate" shall be the Alternative
Rate in effect from time to time during such Interest Period.
"Daily Report" shall mean an Officer's Certificate of the
Servicer substantially in the form of Exhibit A to the Indenture.
"Eligible Assignee" shall mean a Person which certifies to the
Trustee, the Issuer and the Servicer that it (i) is a receivables investment
company which customarily issues commercial paper to fund its acquisition and
maintenance of financial assets or interests therein or a bank, insurance
company or other financial institution, and (ii) has a short-term debt rating or
short-term certificate of deposit rating of at least A-1 from S&P, or at least
P-1 from Moody's, or at least F-1 from Fitch, if rated by Fitch, or if such
Person does not have a short-term debt rating or short-term certificate of
deposit rating, a long-term senior debt rating of at least A from S&P, or A2
from Moody's, or at least A from Fitch, if rated by Fitch; provided that if such
Person is an insurance, bonding or surety company which does not have a
certificate of deposit rating or a debt rating, such Person has a claims paying
rating or a surety rating of at least A from S&P, A2 from Moody's, or at least A
from Fitch, if rated by Fitch; provided, further, in any case, if such Person is
rated by two or more of S&P, Moody's and Fitch, it must have the prescribed
minimum ratings from each of S&P, Moody's and Fitch.
"Enhancement Providers" shall mean any enhancement providers
specified in the Note Purchase Agreement and any of their successors and assigns
that are Eligible Assignees.
4
<PAGE> 8
"Equity Floor" shall have the meaning assigned to such
term in the Indenture.
"Excess O/C Sharing Date" shall have the meaning specified for
such term in the Indenture.
"Excess O/C Sharing Period" shall have the meaning specified
for such term in the Indenture.
"Fee Agreement" shall mean that certain fee agreement dated as
of December 31, 1996 among Sirrom, the Issuer, HLS and the Program Agent, as the
same may be amended, restated, supplemented or otherwise modified from time to
time in accordance with the terms thereof.
"Grade 4 Limit" shall have the meaning assigned to such term
in the Indenture.
"HLS" shall mean Holland Limited Securitization, Inc.,
together with its permitted successors and assigns.
"Industry Limit" shall have the meaning assigned to
such term in the Indenture.
"Interest Payment Date" shall mean, with respect to each
Interest Period, the last day of such Interest Period.
"Interest Period" shall means
(a) (if the Note Rate for such Interest Period is determined
by reference to the CP Rate), the period of time (not to exceed 90
days), beginning on the Closing Date and ending on the last day of such
period and, thereafter, shall mean the period beginning on the day
following the last day of the immediately preceding Interest Period and
ending on the last day of the next Interest Period, in each case, as
the Program Agent shall select and the Program Agent shall advise the
Issuer not later than 1:00 p.m. (New York City time) on any day; and
(b) (if the Note Rate for such Interest Period is not
determined by reference to the CP Rate) initially, the period beginning
on the Closing Date and ending on the second Business Day following the
last day of the month in which the Closing Date occurs and, thereafter,
shall mean the period beginning on the day following the last day of
the immediately preceding Interest Period and ending on the second
Business Day following the last day of the month in which such Interest
Period began.
5
<PAGE> 9
Notwithstanding the foregoing, each Interest Period to occur during the Pay-Out
Period shall be of a duration selected by the Program Agent.
"Issuer Loan" shall have the meaning specified for such
term in the Indenture.
"Liquidity Providers" shall mean any liquidity providers
specified in the Note Purchase Agreement and any of their successors and assigns
that are Eligible Assignees.
"Large Loan Limit" shall have the meaning assigned to such
term in the Indenture.
"Maturity Date" shall mean, the earlier to occur of (i) the
Stated Maturity Date and (ii) the 60th Monthly Payment Date following the
commencement of the Amortization Period or the Pay-Out Period with respect to
the Notes.
"Minimum Overcollateralization Amount" shall mean, as of any
date of determination, the Net Loan Balance as of such date minus the quotient
of (x) the Net Loan Balance as of such date, divided by (y) 1.33.
"Net Loan Balance" shall have the meaning assigned to such
term in the Indenture.
"Net Outstanding Amount" shall mean, at any time, (a) the
aggregate Outstanding Principal Balance of the Notes at such time minus (b) the
amount on deposit in the Reserve Account allocable to the Notes at such time.
"Note" shall mean any one of the Revolving Notes, Series
1996-1 executed by the Issuer and authenticated and delivered by or on behalf of
the Issuer that is substantially in the form of Exhibit A and is issued pursuant
to this Supplement; and "Notes" means all such Notes, collectively.
"Noteholder" shall mean the Person in whose name a Note is
registered in the Note Register.
"Note Purchase Agreement" shall mean that certain Revolving
Note Purchase Agreement, Series 1996-1, dated as of December 31, 1996 among the
Issuer, the Servicer, the Series 1996-1 Noteholders and the Program Agent, as
the same may be amended, restated, supplemented or otherwise modified from time
to time in accordance with terms thereof.
"Note Rate" shall mean, with respect to any Interest
Period and the related Collection Period
6
<PAGE> 10
(a) to the extent the Noteholder will be funding the
Outstanding Principal Balance of the Notes on the first day of such
Interest Period through the issuance of commercial paper, a rate equal
to the CP Rate for such Interest Period, and
(b) to the extent the Noteholder will not be funding the
Outstanding Principal Balance of the Notes on the first day of such
Interest period through the issuance of commercial paper, a rate equal
to the Alternative Rate for such Interest Period or such other rate as
the Program Agent and the Issuer shall agree to in writing;
provided that at all times following the occurrence and during the continuance
of any Event of Default described in clause (i) or (j) of Section 5.01 hereof or
any "Event of Default" under and as described in clause (a), (b), (c), (e), (f),
(l) or (p) of Section 9.01 of the Indenture, the Note Rate shall be the sum of
the rate per annum otherwise then in effect plus two percent (2.00%).
"Outstanding Principal Balance" shall mean, at any time (a)
with respect to any Note, the outstanding principal balance of such Note at such
time and (b) with respect to the Series 1996-1 Notes, the aggregate outstanding
principal balance of all of such Notes.
"Overcollateralization Amount" shall mean, as of any date of
determination, the amount, if any, by which the Net Loan Balance plus
unallocated Principal Collections held in the Concentration Account (without
giving effect to the allocation and deposit pursuant to clause Third of Section
4.03(b)(ii) of the Indenture) as of such date, exceeds the Net Outstanding
Amount as of such date.
"Pay-Out Event" has the meaning specified for such term
in Section 5.01 hereof.
"Pay-Out Period" means the period commencing on the Pay-Out
Period Commencement Date and terminating on the earliest of (a) the close of
business on the Business Day immediately preceding the Amortization Date and (b)
the date on which all of Notes shall have been paid in full.
"Pay-Out Period Commencement Date" shall mean the date on
which a Pay-Out Event occurs.
7
<PAGE> 11
"Program Agent" shall mean ING Baring (U.S.) Capital Markets,
Inc., in its capacity as agent for HLS, the Liquidity Providers and the
Enhancement Providers in respect of the Notes.
"Program Agent's Account" shall mean the account established
pursuant to Section 3.01(a) of this Supplement.
"Program Fees" shall have the meaning specified in the
Fee Agreement.
"Purchaser Fees" shall mean, with respect to any Collection
Period, the Program Fees for such Collection Period and all other fees and
expenses payable to any of HLS, the Liquidity Providers, the Enhancement
Providers or the Holders of the Notes and incurred during such Collection
Period, including, without limitation, increased costs and indemnities.
"Required Overcollateralization Amount" shall mean, as of any
date of determination, the Net Loan Balance as of such date minus the quotient
of (x) the Net Loan Balance as of such date, divided by (y) 1.429.
"Reserve Account" shall have the meaning assigned to
such term in the Indenture.
"Revolving Period" shall mean the period beginning on the
Closing Date and terminating on the earliest of (a) the close of business on the
Business Day immediately preceding the Amortization Date and (b) the close of
business on the day on which any Pay-Out Event shall occur.
"Scheduled Pay-Out Commencement Date" shall mean the close of
business on December 31, 2001.
"Series Allocation Percentage" shall mean (i) on any Business
Day prior to the Amortization Date and on which no Excess O/C Sharing Period is
in effect
(a) during the Revolving Period and no Set-Aside Period
has occurred and is continuing, zero;
(b) during the Pay-Out Period for this Series and so long as
no Set-Aside Period has occurred and is continuing, a fraction (expressed as a
percentage) (x) the numerator of which equals the sum of (I) the Net Outstanding
Amount of all Notes of this Series plus (II) the Required Overcollateralization
Amount for this Series, in each case, as of the Pay-Out Period Commencement
Date, and (y) the denominator of which equals the sum of (I) the Net Outstanding
Amount of all Series in their respective Pay-Out Periods plus (II) the aggregate
Required
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Overcollateralization Amount for all Series in their respective Pay-Out Periods
computed as provided in the applicable Supplement, in each case, as of the
applicable Pay-Out Period Commencement Date for each such Series;
(c) if a Set-Aside Period has occurred and is continuing, a
fraction (expressed as a percentage) (x) the numerator of which equals the sum
of (I) the Net Outstanding Amount of all Notes of this Series plus (II) the
Required Overcollateralization Amount for this Series, in each case, as of the
Business Day immediately preceding the commencement of such Set-Aside Period and
(y) the denominator of which equals the sum of (I) the Net Outstanding Amount of
all outstanding Series plus (II) the aggregate Required Overcollateralization
Amount for all outstanding Series, in each case, as of the Business Day
immediately preceding the commencement of such Set-Aside Period;
(ii) on any Business Day after the Amortization Date, a
fraction (expressed as a percentage)(a) the numerator of which equals the sum of
(I) the Net Outstanding Amount of all Notes of this Series plus (II) the
Required Overcollateralization Amount for this Series, in each case, as of the
Amortization Date and (b) the denominator of which equals the sum of (I) the Net
Outstanding Amount of all outstanding Series of Notes plus (II) the aggregate
Required Overcollateralization Amount for all outstanding Series, in each case,
as of the Amortization Date; and
(iii) on any Business Day during an Excess O/C Sharing Period,
a fraction (expressed as a percentage) (a) the numerator of which equals the Net
Outstanding Amount of all Notes of this Series as of such date, and (b) the
denominator of which equals the sum of (I) the Net Outstanding Amount of all
Series as of such date plus (II) the Equity Floor as of the Excess O/C Sharing
Date.
"Series 1996-1" shall mean the Series of Notes, the terms of
which are specified in this Supplement.
"Servicer Default" shall have the meaning specified for
such term in the Indenture.
"Set-Aside Period" shall have the meaning specified in
the Indenture.
"Settlement Statement" shall mean, with respect to each
Monthly Payment Date, the certificate prepared by the Servicer, substantially in
the form of Exhibit B to the Indenture.
"Sirrom" means Sirrom Capital Corporation.
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"Stated Amount" is $100,000,000.
"Stated Maturity Date" shall mean the close of business on
January 5, 2007.
"Transaction Documents" shall have the meaning assigned
thereto in the Indenture and, without in any way limiting the foregoing, shall
include the Fee Agreement and all other agreements executed in connection
herewith.
SECTION 1.03. Other Definitional Provisions.
(a) All terms defined in this Supplement shall have the
defined meanings when used in any certificate or other document made or
delivered pursuant hereto unless otherwise defined therein.
(b) All capitalized terms used herein and not otherwise
defined herein have the meanings ascribed to them in the Indenture. Each
capitalized term defined herein shall relate only to the Revolving Notes, Series
1996-1 and not to any other Series of Notes issued pursuant to the Indenture.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Series 1996-1 Supplement shall refer to this
Supplement as a whole and not to any particular provision of this Supplement;
references to any Article, Section, Schedule or Exhibit are references to
Articles, Sections, Schedules and Exhibits in or to this Supplement unless
otherwise specified; and the term "including" means "including without
limitation".
(d) Whenever the term "including" (whether this term is
followed by the phrase "but not limited to" or "without limitation" or words of
similar effect) is used in this Supplement in connection with a listing of items
without a particular classification, that listing will not be interpreted as a
limitation on, or exclusive listing of, the items within that classification.
(e) In computing periods from a specified date to a later
specified date, when precise times of day are not stated, the words "from" and
"commencing on" (and the like) mean "from and including," and the words "to,"
"until" and "ending on" (and the like) mean "to but excluding."
(f) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms. Each
gender-specific term used in this Supplement
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has a comparable meaning whether used in a masculine, feminine or gender-neutral
form.
ARTICLE II
Additional Covenants
SECTION 2.01. Covenants of the Servicer. The Servicer hereby
covenants that, until the termination of the Amortization Period:
(a) The Servicer will furnish to the Program Agent, promptly
after delivery to the Trustee, all notices, reports and other information given
to the Trustee under the Indenture other than the Daily Reports required
thereunder.
(b) At any time and from time to time during the Servicer's
regular business hours and at the Servicer's expense, on reasonable prior
notice; the Servicer shall, in response to any reasonable request of the Trustee
or the Program Agent, permit the Trustee or the Program Agent, or their agents
or representatives, (i) to examine and make copies of and abstracts from all
books, records and documents (including, without limitation, computer tapes,
microfiche and disks) in the possession or under the control of the Servicer
relating to the Pledged Assets, the Issuer Loans and the related Loan Documents
and (ii) to visit the offices and properties of the Servicer for the purpose of
examining such materials and to discuss matters relating to the Issuer Loans or
the Servicer's performance hereunder with any of the Responsible Officers of the
Servicer having knowledge thereof; such audits and/or visits may take place
annually, or more frequently if so required at the reasonable discretion of the
Program Agent, or its agents or representatives including, without limitation,
any Independent Public Accountants mutually acceptable to the Servicer and the
Program Agent. The Servicer agrees that the Program Agent will have the right to
require changes in the scope of the Annual Servicing Report furnished by the
Independent Public Accountants pursuant to Section 3.07 of the Indenture. The
Program Agent shall provide the Trustee with notice of any changes in the scope
of the Annual Servicing Report.
(c) The Servicer will deliver or cause to be delivered in
duplicate, to each Noteholder and the Trustee, for so long as Sirrom is the
Servicer, copies of each report of Sirrom filed with the Securities and Exchange
Commission on Forms 10-K and 10-Q within 95 days after end of each fiscal year,
in the case of Forms 10-K, and within 50 days after end of each fiscal quarter
in the case of Forms 10-Q.
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ARTICLE III
Establishment of Program Agent's Account and
Allocation and Application of Collections
SECTION 3.01. Establishment of Program Agent's Account. The
Program Agent, for the benefit of HLS (for so long as HLS is the Holder of all
of the Series 1996-1 Notes), shall establish and maintain in its own name, on
behalf of HLS, the Liquidity Providers and the Enhancement Providers, with an
Eligible Institution a segregated account accessible only by the Program Agent
(the "Program Agent's Account"), which shall be identified as the "Program
Agent's Account for the Sirrom Funding Master Trust Indenture, Series 1996-1"
and shall bear a designation clearly indicating that the funds deposited therein
are held for the benefit of HLS, as Holder of Series 1996-1 Notes. The Program
Agent's Account initially shall be established at First Trust of New York,
National Association. If a substitute Program Agent's Account is established
pursuant to this Section 4.01, the Program Agent shall promptly provide to the
Paying Agent, the Servicer and the Trustee with the relevant information in
respect thereof.
SECTION 3.02. Payment of Funds to Program Agent. Except as
provided in Section 12.03 of the Indenture with respect to the final
distribution, all Collections and other amounts allocated by the Trustee
pursuant to Article IV of the Indenture for distribution in respect of the
Revolving Notes, Series 1996-1 shall be paid by the Trustee or the Paying Agent,
as the case may be, to the Program Agent by wire transfer to the Program Agent's
Account, without presentation or surrender of any Note or the making of any
notation thereon. Any payments due to the Revolving Notes, Series 1996-1 and
received to the credit of the Program Agent's Account shall be considered
received by the Noteholders thereof for the purposes of the Indenture, this
Supplement and the Notes.
SECTION 3.03. Allocation and Distribution. All Collections and
other amounts paid to the Program Agent's Account pursuant to Section 3.02
hereof upon allocation by the Trustee to the Revolving Notes, Series 1996-1
shall be distributed by the Program Agent as follows:
(a) Revolving Period.
(i) Interest Payment Date. All amounts allocated to Series
1996-1 pursuant to Section 4.03(c) of the Indenture during the
Revolving Period shall, on each Interest Payment
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Date, be applied by the Program Agent in the following order of
priority:
(A) for distribution to the Noteholders, ratably in
accordance with their respective Outstanding Principal
Balances of the Notes, in payment of accrued and unpaid
interest with respect to the Notes; and
(B) for distribution to the Noteholders, in payment
of the Breakage Costs, if any, due and payable with respect to
the Notes, ratably in accordance with the amount of Breakage
Costs so due and payable.
(ii) Monthly Payment Date. All amounts allocated pursuant to
Section 4.03(d)(iii) of the Indenture during the Revolving Period
shall, on each Monthly Payment Date, be applied by the Program Agent in
the following order of priority:
(A) for distribution to the Noteholders, ratably in
accordance with the respective Stated Amounts of the Notes, in
payment of the Program Fees payable for the account of the
Noteholders; and
(B) for distribution to the applicable Persons as
their interests may appear, in payment of all other Purchaser
Fees, ratably in accordance with the amounts so due and
payable.
(iii) The amount allocated pursuant to clause Third of Section
4.03(b)(ii) of the Indenture in respect of Series 1996-1 during the
Revolving Period (so long as no Set-Aside Period has occurred and is
continuing) shall be zero, therefore all amounts not otherwise
allocated to another Series shall be deposited to the Issuer's Account
pursuant to clause Fourth of Section 4.03(b)(ii) of the Indenture.
(b) Pay-Out Period.
(i) Interest Payment Date. All amounts allocated pursuant to
Section 4.03(c) of the Indenture during the Pay-Out Period shall, on
each Interest Payment Date, be applied by the Program Agent in the
following order of priority:
(A) for distribution to the Noteholders, ratably in
accordance with their respective Outstanding Principal
Balances of the Notes, in payment of accrued and unpaid
interest with respect to the Notes; and
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(B) for distribution to the Noteholders, in payment
of the Breakage Costs, if any, due and payable with respect to
the Notes, ratably in accordance with the amount of Breakage
Costs so due and payable.
(ii) Monthly Payment Date. All amounts allocated pursuant to
Section 4.03(d)(iii) of the Indenture during the Pay-Out Period shall,
on each Monthly Payment Date, be applied by the Program Agent in the
following order of priority:
(A) for distribution to the Noteholders, ratably in
accordance with the respective Stated Amounts of the Notes, in
payment of the Program Fees payable for the account of the
Noteholders; and
(B) for distribution to the applicable Persons as
their interests may appear, in payment of all other Purchaser
Fees, ratably in accordance with the amounts so due and
payable.
(iii) The amount allocated pursuant to clause Third of Section
4.03(b)(ii) of the Indenture in respect of Series 1996-1 during a
Pay-Out Period shall equal the Series Allocation Percentage of the
amount available for allocation pursuant to such clause Third and shall
be paid by the Program Agent to the Noteholders, ratably in accordance
with the respective Outstanding Principal Balances of the Notes. Upon
payment in full to all of the Series 1996-1 Noteholders of the
Outstanding Principal Balance of the Series 1996-1 Notes, all accrued
and unpaid interest thereon and all other amounts due the Series 1996-1
Noteholders under the Transaction Documents, all remaining amounts
allocated to the Notes shall be distributed by the Trustee to the
Issuer or to the Holders of any other outstanding Series, pursuant to
the terms of the Indenture.
(c) Set-Aside Period.
(i) Interest Payment Date. All amounts allocated pursuant to
Section 4.03(c) of the Indenture during a Set-Aside Period shall, on
each Interest Payment Date, be applied by the Program Agent in the
following order of priority:
(A) for distribution to the Noteholders, ratably in
accordance with their respective Outstanding Principal
Balances of the Notes, in payment of accrued and unpaid
interest with respect to the Notes; and
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(B) for distribution to the Noteholders, in payment
of the Breakage Costs, if any, due and payable with respect to
the Notes, ratably in accordance with the amount of Breakage
Costs so due and payable.
(ii) Monthly Payment Date. All amounts allocated pursuant to
Section 4.03(d)(iii) of the Indenture during a Set-Aside Period shall,
on each Monthly Payment Date, be applied by the Program Agent in the
following order of priority:
(A) for distribution to the Noteholders, ratably in
accordance with the respective Stated Amounts of the Notes, in
payment of the Program Fees payable for the account of the
Noteholders; and
(B) for distribution to the applicable Persons as
their interests may appear, in payment of all other Purchaser
Fees, ratably in accordance with the amounts so due and
payable.
(iii) During a Set-Aside Period, no amounts shall be allocated
pursuant to clause Third of Section 4.03(b)(ii) of the Indenture in
respect of any Series, rather, all such amounts shall be allocated and
deposited to the Reserve Account pursuant to clause Second of Section
4.03(b)(ii) of the Indenture until the Net Outstanding Amount is less
than or equal to the Base Amount. Thereafter, if the Amortization Date
shall not have occurred, the amount allocated pursuant to clause Third
of Section 4.03(b)(ii) of the Indenture in respect of Series 1996-1
during the Revolving Period is zero, therefore all amounts not
otherwise allocated to another Series shall be deposited to the
Issuer's Account pursuant to clause Fourth of Section 4.03(b)(ii) of
the Indenture.
(d) Amortization Period.
(i) Interest Payment Date. All amounts allocated pursuant to
Section 4.03(c) of the Indenture during the Amortization Period, on
each Interest Payment Date, shall be applied by the Program Agent in
the following order of priority:
(A) for distribution to the Noteholders, ratably in
accordance with their respective Outstanding Principal
Balances of the Notes, in payment of accrued and unpaid
interest with respect to the Notes; and
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(B) for distribution to the Noteholders, in payment
of the Breakage Costs, if any, due and payable with respect to
the Notes, ratably in accordance with the amount of Breakage
Costs so due and payable.
(ii) Monthly Payment Date. All amounts allocated pursuant to
Section 4.03(d)(iii) of the Indenture during the Amortization Period,
on each Monthly Payment Date, shall be applied by the Program Agent in
the following order of priority:
(A) for distribution to the Noteholders, ratably in
accordance with the respective Stated Amounts of the Notes, in
payment of the Program Fees payable for the account of the
Noteholders; and
(B) for distribution to the applicable Persons as
their interests may appear, in payment of all other Purchaser
Fees, ratably in accordance with the amounts so due and
payable.
(iii) The amount allocated pursuant to clause Third of Section
4.03(b)(ii) of the Indenture in respect of Series 1996-1 during the
Amortization Period shall equal the Series Allocation Percentage of the
amount available for allocation pursuant to such clause Third and shall
be paid by the Program Agent to the Noteholders, ratably in accordance
with the respective Outstanding Principal Balances of the Notes. Upon
payment in full to all of the Series 1996-1 Noteholders of the
Outstanding Principal Balance of the Series 1996-1 Notes, all accrued
and unpaid interest thereon and all other amounts due the Series 1996-1
Noteholders under the Transaction Documents, and provided that no
amounts are then due and unpaid to the Holders of any other outstanding
Series, all amounts remaining on deposit in the Trust Accounts shall be
distributed by the Trustee to the Issuer, and all amounts, if any,
remaining in the Lock-Box Accounts, the Concentration Account and the
Reserve Account shall be distributed by the Trustee to the Issuer;
provided, however, that if at any time after the payment that would
have otherwise resulted in such payment in full, such payment is
rescinded or must otherwise be returned for any reason, effective upon
such rescission or return such payment in full shall automatically be
deemed, as between the Series 1996-1 Noteholders and the Issuer, never
to have occurred, and the Issuer shall be required, to the extent it
received any amounts under this Section 4.03, to remit to the Series
1996-1 Noteholders an amount equal to the rescinded or returned
payment.
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SECTION 3.04. Determination of Rates. At any time that the
Note Rate is required to be determined hereunder, for any reason whatsoever, the
Servicer shall give the Trustee written notice of such rate at such time, and to
the extent that the Servicer shall not have sufficient information in order to
calculate such rate at such time, the Servicer shall obtain such additional
information from the Program Agent.
SECTION 3.05. New Issuances. In addition to the conditions to
the issuance of a new Series of Notes described in Section 6.09(b) of the
Indenture, on or before the Closing Date relating to any new Series, Program
Agent shall have consented to the issuance of such new Series in writing to the
Servicer and the Trustee.
ARTICLE IV
Distributions and Reports to
Series 1996-1 Noteholders
SECTION 4.01. Annual Noteholders' Statement. On or before
February 15 of each calendar year, beginning with February 15, 1997, the
Servicer shall provide to the Trustee and the Trustee shall forward or cause to
be forwarded to each Person who at any time during the preceding fiscal year was
a Noteholder, a statement prepared by the Servicer containing the information
which is required to be contained in the Settlement Statements provided to
Noteholders pursuant to Section 3.05(b) of the Indenture, aggregated for such
fiscal year or the applicable portion thereof during which such Person was a
Noteholder, together with other information as is required to be provided under
the IRC and such other customary information as is necessary to enable the
Noteholders to prepare their tax returns (all as determined by the Servicer).
The obligation of the Servicer to provide such other information and such other
customary information shall be deemed to have been satisfied to the extent that
information substantially comparable to such other information and such other
customary information shall be provided by the Trustee pursuant to any
requirements of the IRC as from time to time in effect.
ARTICLE V
Events of Default;
Additional Events of Default;
Pay-Out Events
SECTION 5.01. Events of Default; Additional Events of Default;
Pay-Out Events. (a) If any one of the following events shall occur (each, an
"Event of Default"):
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(a) the 90th consecutive Business Day after which the Base
Amount is less than the Net Outstanding Amount; or
(b) a regulatory, tax or accounting body of applicable
jurisdiction has ordered that the activities of HLS, or any Affiliate of HLS,
contemplated hereby be terminated or, as a result of any other event or
circumstance, the activities of HLS contemplated hereby may reasonably be
expected to cause HLS, the Person then acting as the administrator or the
manager for HLS, or any of their respective Affiliates to suffer materially
adverse regulatory, accounting or tax consequences; or
(c) no commercial paper dealer of HLS is able to retire
maturing commercial paper issued to fund or maintain the Outstanding Principal
Balance of the Notes hereunder through the issuance of new commercial paper for
180 consecutive days; or
(d) the Issuer shall fail to perform any of its obligations
under the Note Purchase Agreement; or
(e) the occurrence of the Scheduled Pay-Out Commencement Date;
or
(f) any two of George Miller, David Resha and Carl Stratton
shall cease to be actively involved in the management of Sirrom; or
(g) Sirrom Capital Corporation ("Sirrom") shall fail at any
time to maintain consolidated tangible net worth in an amount equal to or
exceeding the sum of (i) $75,000,000 and (ii) an amount equal to the product of
(X) 75% and (Y) the aggregate amount of equity and subordinated indebtedness
issued by Sirrom after the Closing Date to the date of determination; or
(h) an Asset Coverage Shortfall shall occur; or
(i) the Originator, the Issuer, the Servicer or any
Significant Subsidiary of any such Person shall fail to pay any principal of or
premium or interest on any indebtedness of any such Person (other than the
Notes) which indebtedness has an aggregate principal amount of $1,000,000 or
more, when the same becomes due and payable (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) and such failure shall
continue after the applicable grace period, if any, specified in the agreement
or instrument relating to such indebtedness; or any such indebtedness shall be
declared to be due and payable or required to be prepaid (other than by a
regularly scheduled required prepayment) prior to the stated maturity thereof;
or
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(j) any other default by the Issuer, the Originator or the
Servicer shall occur, and shall not be remedied within the applicable grace
period, if any, under any indebtedness of any such Person (other than the Notes)
which indebtedness has an aggregate principal amount of $1,000,000 or more and
such failure shall continue after the applicable grace period, if any, speci-
fied in the agreement or instrument relating to such indebtedness; or
(k) a Servicer Default shall have occurred and be continuing,
then, upon the occurrence of any Event of Default described in clauses (a) and
(d) and clauses (h) through (k) above, an "Additional Event of Default" shall be
deemed to have automatically occurred under the Indenture and with respect to
all Series; and upon the occurrence of any other Event of Default described in
clauses (b) and (c) and clauses (e) through (g) above, either the Trustee or the
Program Agent (unless otherwise directed by the Majority Noteholders) or the
Majority Noteholders, by notice then given in writing to the Issuer and the
Servicer (and to the Trustee if given by such Noteholders), may declare
(provided that such Event of Default shall not have been remedied) that a
"Pay-Out Event" has occurred as of the date of such notice with respect to this
Series.
ARTICLE VI
Miscellaneous Provisions
SECTION 6.01. Ratification of Indenture. As supplemented by
this Supplement, the Indenture is in all respects ratified and confirmed and the
Indenture as so supplemented by this Supplement shall be read, taken and
construed as one and the same instrument.
SECTION 6.02. Counterparts. This Supplement may be executed in
two or more counterparts (and by different parties on separate counterparts),
each of which shall be an original but all of which together shall constitute
one and the same instrument.
SECTION 6.03. Governing Law; Jurisdiction; Service of
Process.
(a) Governing Law. THIS SERIES SUPPLEMENT, INCLUDING THE
RIGHTS AND DUTIES OF THE PARTIES HERETO, SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.
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(b) Jurisdiction. Each of the parties hereto hereby
irrevocably and unconditionally submits to the nonexclusive jurisdiction of any
New York State court or federal court of the United States of America sitting in
New York City, and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Series Supplement, and each of the
parties hereto hereby irrevocably and unconditionally (i) agrees that all claims
in respect of any such action or proceeding may be heard and determined in such
New York State or, to the extent permitted by law, such federal court and (ii)
waives the defense of an inconvenient forum. Each of the parties hereto agrees
that a final judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law.
(c) Consent to Service of Process. Each party to this Series
Supplement irrevocably consents to service of process by personal delivery,
certified mail, postage prepaid or overnight courier. Nothing in this Series
Supplement will affect the right of any party to this Series Supplement to serve
process in any other manner permitted by law.
SECTION 6.04. Appointment of Successor Servicer.
Notwithstanding anything to the contrary in Section 10.02 of the Indenture, the
Trustee's appointment of a Successor Servicer shall be subject to the consent of
a Majority in Interest of the Series 1996-1 Noteholders.
SECTION 6.05. The Trustee. The Trustee shall not be
responsible in any manner whatsoever for or with respect to the validity or
sufficiency of this Supplement, or for or with respect to the recitals contained
herein, all of which recitals are made solely by the Issuer and the Servicer.
SECTION 6.06. Assignment by HLS, Liquidity Providers, the
Enhancement Providers and Holder(s) of Notes. (a) Subject to the limitations on
transfer contained in the Indenture and this Supplement, at any time and from
time to time, HLS or any Liquidity Provider or Enhancement Provider may, by
notice and delivery to the Program Agent of a fully executed assignment and
assumption agreement (in sufficient counterparts for each party hereto), assign
to any Person all or any portion of its rights and obligations hereunder;
provided that such Person is an Eligible Assignee. The Program Agent shall,
promptly upon its receipt of any such notice and assignment and assumption
agreement, notify the Issuer, the Servicer and the Trustee of such assignment.
The Issuer and the Servicer agree to execute or obtain such other documentation
as may be reasonably requested by HLS or any Liquidity Provider or Enhancement
Provider in order to
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effectuate such assignment. The assignee shall, upon the effectiveness of such
assignment and assumption agreement and delivery thereof and of such other
requested documentation to the Program Agent, become entitled to the benefits
hereof and subject to the obligations of HLS hereunder.
(b) Subject to the limitations on transfer contained in the
Indenture and this Supplement, at any time and from time to time, HLS may assign
to any Liquidity Provider or Enhancement Provider, and any Liquidity Provider or
Enhancement Provider may assign to any other Liquidity Provider or Enhancement
Provider (as applicable), all or any portion of its Note or its interest
therein; provided that such assignee shall be an Eligible Assignee; and
provided, further, that such assignment shall comply with any applicable legal
requirements including, without limitation, the Securities Act. Each such
assignment shall be upon such terms and conditions as the assignor and the
assignee may mutually agree. HLS or the Liquidity Provider or Enhancement
Provider making any such assignment shall provide notice to the Trustee, the
Issuer and the Servicer thereof.
(c) No Holder of a Series 1996-1 Note may sell, transfer or
otherwise dispose of (each, a "Sale") any Series 1996-1 Note, or any interest in
any Series 1996-1 Note, held by it (other than, in the case of HLS, any
assignment to the Liquidity Providers or the Enhancement providers, as
applicable, pursuant to Section 6.04 of the Note Purchase Agreement, provided,
that each such Liquidity Provider or Enhancement Provider shall have previously
delivered a Non-Rule 144-A Letter to the Trustee and the Issuer) unless:
(i) such Sale is to a "qualified institutional buyer" within
the meaning of Rule 144A ("Rule 144A") promulgated under the Securities
Act that purchases for its own account or for the account of another
Person that is a qualified institutional buyer, which Person is aware
that the proposed Sale is being made in reliance on Rule 144A and to
whom such Sale is being made pursuant to an available exemption from
the registration requirements of applicable state securities laws, and,
prior to the proposed Sale, such transferring Holder has executed and
delivered to the Trustee and the Issuer an investor letter,
substantially in the form of Exhibit B-1 hereto (a "Rule 144-A
Letter"), or
(ii) the transferee to whom such Sale is being made is a
sophisticated institutional investor that is an "accredited investor"
(within the meaning of Rule 501(a) (1), (2), (3) or (7) under the
Securities Act)
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in a transaction not involving any general solicitation or advertising
as evidenced by a certificate of the proposed transferor thereof
delivered to the Trustee, and to whom such Sale is being made pursuant
to an available exemption from the registration requirements of
applicable state securities laws, and, prior to the proposed Sale, such
transferring Holder has executed and delivered to the Trustee and the
Issuer an investor letter, substantially in the form of Exhibit B-2
hereto (a "Non-Rule 144-A Letter"), or
(iii) such Sale is being made pursuant to an applicable
exemption from the registration requirements of the Securities Act and
applicable state securities laws and, prior to the proposed Sale such
transferring Holder and the proposed transferee each provide the
Trustee and the Issuer with an investor letter, substantially in the
form of Exhibit B-2 hereto and, if requested by the Trustee or the
Issuer, an Opinion of Counsel, in each case satisfactory in form and
substance to the Trustee and the Issuer, concerning the proposed Sale
and the availability of such exemption.
No Holder of a Series 1996-1 Note or other Person acting on behalf of a
Noteholder shall use any means of general solicitation or distribution in
connection with the Sale of any Series 1996-1 Note. Each of the Series 1996-1
Note shall bear a legend substantially as set forth in the form of the note
attached to this Series Supplement.
SECTION 6.07. No Assignability by Issuer or Servicer. Neither
the Servicer nor the Issuer may assign any of its rights and obligations
hereunder or any interest herein without the prior written consent of HLS and
the Program Agent.
SECTION 6.08. Amendments and Waivers. No amendments, waivers
or other modifications may be made to this Supplement without the prior written
consent of the Program Agent (which consent of the Program Agent shall in all
circumstances be given in accordance with the applicable provisions of the Note
Purchase Agreement). In addition, no such amendment, waiver or modification
shall be made, the effect of which would be to
(i) change the Carrying Costs, Equity Floor, Grade 4 Limit,
Industry Limit, Large Loan Limit, Minimum Overcollateralization
Percentage, Pay-Out Event, Required Overcollateralization Percentage,
or Stated Amount, unless and to the extent that the amendment, waiver
or modification effecting such change shall be consented to by the
Program
22
<PAGE> 26
Agent acting pursuant to the authority granted the Program Agent in the
Note Purchase Agreement,
(ii) reduce in any manner the amount of, or delay the timing
of, distributions to be made to any Series 1996-1 Noteholder or
deposits of amounts to be so distributed, in each case without the
prior written consent of such Series 1996-1 Noteholder, or
(iii) adversely affect in any other material respect the
interests of any Series 1996-1 Noteholder, in each case unless a
Majority in Interest of the Series 1996-1 Noteholders has consented in
writing.
SECTION 6.09. Indemnification of the Trustee and the
Noteholders. Without limiting any other rights which the Trustee, any Holder of
the Series 1996-1 Notes, any Liquidity Provider or Enhancement Provider (each,
an "Indemnified Party") may have under the Indenture, under this Series
Supplement, under the Note Purchase Agreement or under applicable law, the
Issuer hereby agrees to indemnify each Indemnified Party from and against any
and all damages, losses, liabilities and related costs and expenses actually
incurred (excluding consequential damages and lost profits), including
reasonable attorneys' fees and disbursements (all of the foregoing being
collectively referred to as "Indemnified Amounts") awarded against or incurred
by any of them arising out of or resulting from the Indenture, this Series
Supplement, the Note Purchase Agreement, the activities of the Trustee in
connection with the Indenture, the Issuer's use of proceeds of any Pledged
Assets or reinvestments of Collections, the interest conveyed under the
Indenture in Pledged Assets, or in respect of any Loan or the Loan Purchase
Agreement (excluding however (a) Indemnified Amounts to the extent resulting
from willful misconduct, bad faith, gross negligence, the reckless disregard by
such Indemnified Party of any of his, her or its obligations and duties or
breach of fiduciary duty on the part of such Indemnified Party (if any), (b)
losses in respect of Loans to the extent reimbursement therefor would constitute
credit recourse to the Issuer for nonpayment of any Loan by any Originator, (c)
any income or franchise taxes or similar taxes (or any interest or penalties
with respect thereto) incurred by such Indemnified Party arising out of or as a
result of this Series Supplement or the interest conveyed hereunder in Pledged
Assets or in respect of any Loan or the Loan Purchase Agreement), to the extent
caused by:
(i) reliance on any representation, warranty or covenant made
or statement made or deemed made by the Issuer (or any of its
Responsible Officers) under or in connection with the Indenture, this
Series Supplement, the Note
23
<PAGE> 27
Purchase Agreement or the Loan Purchase Agreement which shall have been
incorrect in any material respect when made or deemed made or which the
Issuer shall have failed to perform;
(ii) the failure by the Issuer or any of the Originators to
comply with the Indenture, this Series Supplement, the Note Purchase
Agreement or the Loan Purchase Agreement or any applicable Requirement
of Law with respect to any Loan or the related Loan Documents or the
Loan Purchase Agreement, or the failure of any Loan or the related Loan
Documents to conform to the Loan Purchase Agreement or any Requirement
of Law;
(iii) the failure to vest in the Issuer a first priority
perfected ownership interest in and to the Loans, or the failure to
vest in the Noteholder a first priority perfected security interest, in
and to the Loans and the other Pledged Assets, in each case free and
clear of any Lien (other than any Lien in favor of the Issuer pursuant
to the Loan Purchase Agreement or in favor of the Trustee pursuant to
the Indenture);
(iv) the failure to have filed, or any delay in filing, any
financing statements or other similar instruments or documents under
the UCC of any applicable jurisdiction or other applicable laws that
are necessary for perfection or priority of the ownership and/or
security interests (as the case may be) created by the Loan Purchase
Agreement and/or the Indenture;
(v) any commingling of Collections with other funds of
the Issuer or any Affiliate;
(vi) any investigation, litigation or proceeding related to
the Indenture, this Series Supplement, the Note Purchase Agreement or
the Loan Purchase Agreement or the use of proceeds or reinvestments of
proceeds by the Issuer or Sirrom of Pledged Assets or the ownership of
or security interest in Pledged Assets or in respect of any Loan or
Loan Document;
(vii) any claim brought by any Person other than an
Indemnified Party arising from any activity by the Issuer or any
Affiliate of the Issuer in servicing, administering or collecting any
Loan;
(viii) any failure by the Issuer or any Originator (as the
case may be) to perform its duties or obligations in accordance with
the provisions of the Indenture, this Series
24
<PAGE> 28
Supplement, the applicable Note Purchase Agreement or the
Loan Purchase Agreement (as appropriate); or
(ix) any tax (other than any income or franchise tax, or any
interest or penalties with respect thereto) imposed by reason of
ownership of the Loans or other Pledged Assets by the Trustee; or
(x) any Loan which is not an Eligible Loan at the time
of its Transfer to the Trust under the Indenture.
Any Indemnified Amounts due hereunder shall be payable within
five business days following submission of a claim by the Indemnified Party
accompanied by information and documentation reasonably supporting such claim.
Indemnification pursuant to this Section 6.09 shall be payable
from assets of the Issuer. The agreement contained in this Section 6.09 shall
survive the collection of all Loans, the termination of the Trust and the
payment of all amounts otherwise payable hereunder.
All rights of indemnification under this Section 6.09 are in
addition to, and not by way of substitution for, the obligations and liabilities
of the Issuer and/or the Servicer in favor of the Indemnified Parties under the
Indenture and under this Supplement.
SECTION 6.10. Servicer Indemnification. The Servicer hereby
agrees to indemnify each Indemnified Party from and against Indemnified Amounts
awarded against or incurred by any of them arising out of or resulting from the
Indenture, this Series Supplement, the activities of the Trustee in connection
with the Indenture, the Issuer's use of proceeds of Transfers of Loans or
reinvestments of Collections, the interest conveyed under the Indenture in
Pledged Assets, or in respect of any Loan or the Loan Purchase Agreement
(excluding however (a) Indemnified Amounts resulting from negligence or willful
misconduct on the part of such Indemnified Party to which such Indemnified
Amount would otherwise be due, (b) losses in respect of Loans to the extent
reimbursement therefor would constitute credit recourse to the Issuer for
nonpayment of any Loan by any Originator and (c) any income or franchise taxes
or similar taxes (or any interest or penalties with respect thereto) incurred by
such Indemnified Party arising out of or as a result of this Series Supplement
or the interest conveyed hereunder in Pledged Assets or in respect of any Loan
or the Loan Purchase Agreement, in each case to the extent caused by:
25
<PAGE> 29
(i) reliance on any representation, warranty or covenant made
by the Servicer (or any of its Responsible Officers) under or in
connection with the Indenture or this Series Supplement which shall
have been incorrect in any material respect when made or which the
Servicer shall have failed to perform;
(ii) the failure by the Servicer to comply with any applicable
Requirement of Law with respect to any Loan or the related Loan
Documents;
(iii) any commingling of Collections with other funds of the
Servicer or any Affiliate;
(iv) any claim brought by any Person other than an Indemnified
Party arising from any activity by the Servicer or any Affiliate of the
Servicer in servicing, administering or collecting any Loan; or
(v) any failure by the Servicer to perform its duties or
obligations in accordance with the provisions of the Indenture or this
Series Supplement.
Indemnification pursuant to this Section 6.10 shall only be
payable from the assets of the Servicer. The agreement contained in this Section
6.10 shall survive the collection of all Loans, the termination of the Indenture
and the payment of all amounts otherwise due under the Indenture and this Series
Supplement.
Any Indemnified Amounts due hereunder shall be payable
following submission of a claim by the Indemnified Party accompanied by
information and documentation reasonably supporting such claim.
All rights of indemnification under this Section 6.10 are in
addition to, and not by way of substitution for, the obligations and liabilities
of the Issuer and/or the Servicer in favor of the Indemnified Parties under the
Indenture and under this Supplement (including, without limitation, under
Section 8.04 of the Indenture).
SECTION 6.11. Additional Reporting Requirements.
(a) On each Business Day, the Trustee shall provide by
telecopy to each of the Series 1996-1 Noteholders and the Program Agent, a copy
of the Daily Report received from the Servicer.
(b) The Trustee shall deliver to the Program Agent, promptly
upon its receipt thereof, a copy of (i) the Annual
26
<PAGE> 30
Certificate of Servicer (described at Section 3.06 of the Indenture) and (ii)
the Annual Servicing Report of Independent Public Accountants (described at
Section 3.06 of the Indenture).
27
<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have caused this Series
Supplement to be duly executed by their respective officers thereunto duly
authorized as of the day and year first above written.
SIRROM FUNDING CORPORATION,
the Issuer
By:
--------------------------------
Name:
Title:
SIRROM CAPITAL CORPORATION,
the Servicer
By:
-------------------------------
Name:
Title:
FIRST TRUST NATIONAL ASSOCIATION,
not in its individual capacity,
but solely as Trustee
By:------------------------------
Name:
Title:
ING BARING (U.S.) CAPITAL MARKETS,
INC., as Program Agent
By:
-------------------------------
Name:
Title:
<PAGE> 32
SIRROM FUNDING CORPORATION
500 CHURCH STREET, SUITE 200
NASHVILLE, TENNESSEE 37219
NOTICE OF ISSUANCE OF REVOLVING NOTE, SERIES 1996-1
December 31, 1996
First Trust National Association,
as Trustee
180 East Fifth Street
St. Paul, MN 55101
Attention: Corporate Trust Department
Sirrom Capital Corporation
500 Church Street, Suite 200
Nashville, Tennessee 37219
Re: Master Trust Indenture and Security Agreement, dated
as of December 31, 1996, among Sirrom Funding
Corporation, as Issuer, Sirrom Capital Corporation,
as Servicer, and First Trust National Association, as
Trustee (the "Indenture") as supplemented by that
certain Series 1996-1 Supplement, dated as of
December 31, 1996 (the "1996-1 Supplement"), among
the Issuer, the Servicer, the Trustee and ING Baring
(U.S.) Capital Markets, Inc., as Program Agent
Ladies and Gentlemen:
Pursuant to Section 6.09 of the Indenture, and in connection
with the proposed issuance pursuant to the Series 1996-1 Supplement by Sirrom
Funding Corporation, a Delaware corporation, (the "Issuer"), of its Revolving
Note, Series 1996-1, with a stated amount of $100,000,000 (the "Revolving
Note"), the undersigned, ________________, being the _____________ of the
Issuer, hereby gives you notice of such issuance. The Closing Date in connection
with the issuance of the Revolving Note shall be December 31, 1996.
Very truly yours,
SIRROM FUNDING CORPORATION
By:
---------------------------
Name:
Title:
<PAGE> 1
Exhibit f.14
EXECUTION COPY
================================================================================
LOAN SALE AND CONTRIBUTION AGREEMENT
Dated as of December 31, 1996
among
SIRROM CAPITAL CORPORATION
as Originator and Servicer
and
SIRROM FUNDING CORPORATION
as Buyer
================================================================================
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
Section Page
- ------- ----
ARTICLE I
DEFINITIONS
<S> <C> <C>
1.01. Certain Defined Terms.............................................................................1
1.02. Other Terms......................................................................................13
1.03. Computation of Time Periods......................................................................13
ARTICLE II
AMOUNTS AND TERMS OF THE PURCHASES
2.01. Purchase Facility................................................................................13
2.02. Purchases from the Originator....................................................................15
2.03. Purchases of Loans...............................................................................16
2.04. Collections......................................................................................16
ARTICLE III
CONDITIONS OF PURCHASES
3.01. Conditions Precedent to Initial Purchase.........................................................16
3.02. Conditions Precedent to All Purchases. ..........................................................18
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.01. Representations and Warranties of the Originator.................................................20
ARTICLE V
GENERAL COVENANTS OF THE ORIGINATOR
5.01. Affirmative Covenants of the Originator..........................................................26
5.02. Reporting Requirements of the Originator.........................................................28
5.03. Negative Covenants of the Originator. ...........................................................30
ARTICLE VI
ADMINISTRATION AND COLLECTION
6.01. Designation of Sub-Servicer......................................................................32
6.02. Rights of the Buyer..............................................................................33
6.03. Responsibilities of the Originator...............................................................33
6.04. Lock-Box Accounts; Maintenance of Perfection.....................................................34
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Section Page
- ------- ----
ARTICLE VII
TERMINATION EVENTS
<S> <C> <C>
7.01. Termination Events...............................................................................35
ARTICLE VIII
INDEMNIFICATION
8.01. Indemnities by the Originator....................................................................37
8.02. Substitution and Retransfer of Loans.............................................................39
ARTICLE IX
MISCELLANEOUS
9.01. Amendments, Etc..................................................................................40
9.02. Notices, Etc.....................................................................................41
9.03. No Waiver; Remedies..............................................................................41
9.04. Binding Effect; Assignability....................................................................42
9.05. GOVERNING LAW....................................................................................42
9.06. Costs, Expenses and Taxes........................................................................42
9.07. CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL....................................................43
9.08. Execution in Counterparts; Severability..........................................................43
9.09. No Proceedings...................................................................................44
</TABLE>
<PAGE> 4
SCHEDULE AND EXHIBITS
SCHEDULE I Real Estate Secured Loans
EXHIBIT A Credit and Collection Policy
EXHIBIT B Form of Lock-Box Agreement
EXHIBIT C Lock-Box Banks and Lock-Box Accounts
EXHIBIT D Locations Where Records Are Kept; Location of
Chief Executive Office; Federal Tax Identification
Numbers
EXHIBIT E Form of Purchase Notice
EXHIBIT F Responsible Officers
<PAGE> 5
LOAN SALE AND CONTRIBUTION AGREEMENT
Dated as of December 31, 1996
SIRROM CAPITAL CORPORATION, a Tennessee corporation
("Sirrom"), in its capacity as seller (the "Originator") and Servicer (together
with any successor in such capacity, the "Servicer"), and SIRROM FUNDING
CORPORATION, a Delaware corporation (the "Buyer"), agree as follows:
PRELIMINARY STATEMENTS. (1) Certain terms which are
capitalized and used throughout this Agreement (in addition to
those defined above) are defined in Article I of this Agreement.
(2) The Originator is in the business of making loans to small
businesses;
(3) The Buyer is a special-purpose Subsidiary of the
Originator established to purchase and otherwise acquire Loans and related
assets;
(4) The Originator wishes from time to time to offer to sell
Loans and related assets to the Buyer; and
(5) The Buyer desires to procure such Loans and related
Purchased Assets from the Originator;
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined):
"Add-On Loan" means a discretionary subsequent loan made to an
Obligor of a Purchased Loan pursuant to the terms of existing Loan Documents
(other than any previously executed Note), evidenced by a new Note.
"Affiliate" shall mean, with respect to any specified Person,
any other Person controlling, controlled by or under common control with such
specified Person and, without limiting the generality of the foregoing, shall be
presumed to include (A) any Person which beneficially owns or holds (exclusive
of such Person's interest in unexercised Contingent Compensation) 10% or more of
any class of voting securities of such designated Person or 10% or more of the
equity interest in such designated Person and (B) any Person of which such
designated Person beneficially
<PAGE> 6
owns or holds (exclusive of such Person's interest in unexercised Contingent
Compensation) 10% or more of any class of voting securities or in which such
designated Person beneficially owns or holds 10% or more of the equity interest.
For the purposes of this definition, "control" when used with respect to any
specified Person shall mean the power to direct the management and policies of
such specified Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Benefit Plan" means, with respect to any Person, any employee
pension benefit plan that (i) is maintained by such Person or any ERISA
Affiliate of such Person, or to which contributions by any such Person are
required to be made or under which such Person has or could have any liability,
(ii) is subject to the provisions of Title IV of ERISA and (iii) is not a
Multiemployer Plan.
"Benefit Plan Event" means, with respect to any Person, (i)
the provision of a notice of intent to terminate any Benefit Plan under Section
4041 of ERISA other than in a "standard termination," (ii) the receipt of any
notice by any Benefit Plan to the effect that the PBGC intends to apply for the
appointment of a trustee to administer any Benefit Plan, (iii) the termination
of any Benefit Plan which results in any material liability of such Person, (iv)
the withdrawal of such Person or any ERISA Affiliate of such Person from any
Benefit Plan described in Section 4063 of ERISA which may reasonably be expected
to result in a material liability of such Person, (v) the complete or partial
withdrawal of such Person or any ERISA Affiliate of such person from any
Multiemployer Plan which may reasonably be expected to result in a material
liability of such Person, (vi) a Reportable Event or an event described in
Section 4068(f) of ERISA which may reasonably be expected to result in a
material liability of such Person, and (vii) any other event or condition which
under ERISA or the IRC may reasonably be expected to constitute grounds for the
imposition of a lien on the property of such Person in respect of any Benefit
Plan or Multiemployer Plan.
"Business Day" means any day other than a Saturday or Sunday
or any other day on which national banking associations or state banking
institutions in New York, New York are authorized or obligated by law, executive
order or governmental decree to be closed.
"Closing Date" means December 31, 1996.
"Collateral" means all or any portion of the property
and assets (whether real or personal and whether tangible or
2
<PAGE> 7
intangible) pledged as collateral by any Person to secure repayment of a Loan.
"Collection Date" means the date on which (i) all Purchased
Loans have been repaid in full, together with interest thereon and other amounts
owing in respect thereof and (ii) all other amounts owing to the Buyer hereunder
shall have been paid in full.
"Collection Period" means, with respect to any Monthly Payment
Date, the calendar month (or, in the case of the calendar month in which the
Closing Date occurs, the portion of such calendar month following the Closing
Date) immediately preceding the calendar month in which such Monthly Payment
Date occurs.
"Collections" means, with respect to any Purchased Loan, all
cash collections and other cash proceeds of such Purchased Loan, including,
without limitation, all cash proceeds of Related Security with respect to such
Purchased Loan.
"Concentration Account" means the account created and
maintained under the Indenture into which Collections of Purchased Loans are
remitted from Lock-Box Accounts.
"Contingent Compensation" means, with respect to any Purchased
Loan, all forms of contingent compensation received by the Originator from the
Obligor or otherwise in connection with and as additional compensation for the
extension of such Purchased Loan, including, without limitation, all such
compensation in the form of warrants, stock or other equity interests in such
Obligor, and not in respect of any interest, principal, commitment or other
origination fees, reimbursement of costs and expenses, or other amounts owing by
such Obligor to the holder of the related Purchased Loan pursuant to the terms
of the related Loan Documents.
"Credit and Collection Policy" means those credit and
collection policies and practices of the Originator as of the date hereof
relating to the Loans and related Loan Documents, set forth in Exhibit A, as the
same may be amended or modified from time to time in compliance with the terms
of the Indenture.
"Custodial Agreement" means that certain Custodial Agreement
dated as of December 31, 1996 among the Buyer, the Originator and the
Custodian, as the same may be amended, restated, supplemented or otherwise
modified from time to time in accordance with terms thereof.
"Custodian" means First Trust National Association, or such
successor custodian under the Custodial Agreement.
3
<PAGE> 8
"Debt" of any Person means (i) indebtedness of such Person for
borrowed money, (ii) obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments, (iii) obligations of such Person to pay the
deferred purchase price of property or services, (iv) obligations of such Person
as lessee under leases which shall have been or should be, in accordance with
generally accepted accounting principles, recorded as capital leases, (v)
obligations of such Person in connection with any letter of credit issued for
the account of such Person, (vi) obligations of such Person under an interest
rate or currency swap, cap or similar agreement, (vii) obligations secured by
any lien or other charge upon property or assets owned by such Person, even
though such Person has not assumed or become liable for the payment of such
obligations, and (viii) obligations of such Person under direct or indirect
guaranties in respect of, and obligations (contingent or otherwise) to purchase
or otherwise acquire, or otherwise to assure a creditor against loss in respect
of, indebtedness or obligations of others of the kinds referred to in clauses
(i) through (vii).
"Defaulted Loan" means a Loan: (i) as to which ten percent
(10%) or more of any payment remains unpaid for more than 45 days after the
original due date for such payment, (ii) as to which an Insolvency Event has
occurred with respect to the Obligor thereof, (iii) as to which there has been a
default by the Obligor under the related Loan Documents that has continued for
more than 60 days, (iv) as to which the Obligor thereof has suffered any other
material adverse event which is likely to materially and adversely affect the
ability of the Obligor to continue its business as a going concern, (v) that the
Servicer determines to be or, in accordance with the Credit and Collection
Policy should have determined to be, uncollectible or (vi) that the Servicer
determines to be or, in accordance with the Credit and Collection Policy should
have determined to be, classified as "Grade 5 or 6".
"Eligible Loan" means, at any time, a Loan or portion thereof:
(i) which is currently owing under a Note which has been duly
authorized and which, together with the related Loan Documents, is in
full force and effect and constitutes the legal, valid and binding
obligation of the Obligor of such Loan to pay the stated amount of the
Loan and interest thereon, and the related Loan Documents are
enforceable against such Obligor in accordance with their respective
terms except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws, now or hereafter in
effect, affecting the enforcement of creditors' rights generally and
except as such
4
<PAGE> 9
enforceability may be limited by general provisions of equity;
(ii) which arose in the ordinary course of business of the
Originator or a subsidiary of the Originator from the loaning of money
to the Obligor thereof;
(iii) which is not a Defaulted Loan and in respect of which no
material default exists (whether matured or otherwise), and with
respect thereto there is not then in affect any waiver by the
Originator of any (a) material default with respect thereto or (b) any
event or circumstance that would, with notice, the passage of time, or
both, become a material default with respect thereto;
(iv) the Obligor of which is not the Obligor of any Defaulted
Loans;
(v) the Obligor of which is not a Governmental Authority;
(vi) which, together with the Loan Documents (other than those
relating to real estate Collateral) related thereto, is a "general
intangible" or an "instrument" within the meaning of the UCC of all
jurisdictions which govern the perfection of the Buyer's interest
therein;
(vii) with respect to which all material consents, licenses,
approvals or authorizations of, or registrations or declarations with,
any Governmental Authority required to be obtained, effected or given
in connection with the making of such Loan have been duly obtained,
effected or given and are in full force and effect;
(viii) the Obligor of which is not an Affiliate of any of the
parties hereto;
(ix) the Obligor of which is organized in and a resident of
the United States resident;
(x) which is denominated and payable only in United States
Dollars in the United States;
(xi) which bears interest (a) payable monthly or quarterly and
(b) as of the date of Purchase, at a fixed interest rate per annum
which is in excess of the sum of 4.25% plus the 90 day USD-CP-H.15 Rate
on such date;
(xii) which, together with the Loan Documents related thereto,
does not contravene in any material respect any laws, rules or
regulations applicable thereto (including,
5
<PAGE> 10
without limitation, laws, rules and regulations relating to usury,
truth in lending, fair credit billing, fair credit reporting, equal
credit opportunity, fair debt collection practices and privacy) and
with respect to which no party to the Loan Documents related thereto is
in material violation of any such law, rule or regulation in any
respect;
(xiii) which is prepayable without penalty and, together with
the related Loan Documents and Contingent Collateral, if any, is fully
assignable;
(xiv) which has been originated pursuant to and satisfies in
all material respects all applicable requirements of the Credit and
Collection Policy;
(xv) with respect to which only one current original Note
exists, which Note has been delivered to the Buyer;
(xvi) which is secured by a perfected security interest in the
related Collateral in favor of the Buyer, which security interest has
the priority required for such security interest in the related Loan
Documents;
(xvii) which was originally made by the Originator or one of
its subsidiaries prior to its transfer to the Buyer;
(xviii) which has an original term to maturity of no more than
60 months, or with respect to a Rehabilitated Loan, has a term to
maturity of no more than 48 months from the date such loan became a
Rehabilitated Loan, and, in either case, is either fully amortizing in
installments over the remaining term or is due in a single installment
at the end of the remaining term;
(xix) which, except as permitted pursuant to Section 5.03(b)
hereof, has not been compromised, adjusted or similarly modified and is
not subject to any Obligor Claims whatsoever and which did not arise
pursuant to Loan Documents giving the Obligor an explicit right of
offset;
(xx) which was made under the existing Loan Documents, which
Loan Documents (other than with respect to a Rehabilitated Loan or as
permitted pursuant to Section 5.03(b) hereof) have not been modified
for negative credit reasons (including, without limitation,
rescheduling of installment payments);
(xxi) the proceeds of which have been fully disbursed, having
no obligation on the part of the Originator to make future advances
under the related Loan Documents;
6
<PAGE> 11
(xxii) the Collateral with respect to which is insured for in
accordance with the Credit and Collection Policy;
(xxiii) with respect to which the Loan Documents are complete
in accordance with the Credit and Collection Policy;
(xxiv) which was classified by the Originator as "Grade 1, 2,
3 or 4" under the Credit and Collection Policy at the time of Purchase
by the Buyer;
(xxv) the Obligor of which has been notified of the transfer
pursuant to this Agreement and the pledge under the Indenture and
directed to remit payments therefor to a Lock-Box Account;
(xxvi) the Obligor of which is not in the gaming, nuclear
waste, bio-tech, oil and gas or real estate industries; and
(xxvii) the Obligor of which is a legal operating entity, duly
organized and validly existing under the laws of its jurisdiction of
organization; and
(xxviii) the Obligor of which, as of the end of the most
recent Collection Period, was not the subject of any voluntary or
involuntary bankruptcy proceedings.
"ERISA" means the U.S. Employee Retirement Income
Security Act of 1974, as amended from time to time.
"ERISA Affiliate" means, as to any Person, any partnership,
trade or business (whether or not incorporated) which, together with such
Person, is treated as a single employer within the meaning of Section 414(b),
(c), (m) or (o) of the IRC.
"Facility Documents" means collectively, this Agreement, the
Indenture and the liquidity support, credit enhancement and other agreements and
instruments executed in connection with the Indenture or any Series.
"Governmental Authority" means any country or nation, any
political subdivision, state or municipality of such country or nation, and any
entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government of any country or nation or political
subdivision thereof.
"HLS" means Holland Limited Securitization, Inc. and its
permitted successors and assigns.
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"Indenture" means, that certain Master Trust Indenture and
Security Agreement of even date herewith among the Buyer as the "Issuer", the
Servicer and the Trustee, as the same may from time to time be amended, modified
or otherwise supplemented, including, with respect to any Series or Class, the
related Supplement.
"Insolvency Event" means, with respect to a specified Person,
(i) failure by such Person generally to pay its debts as such debts become due,
or the admission by such Person in writing of its inability to pay its debts
generally, or the making by such Person of a general assignment for the benefit
of creditors; or (ii) institution by or against such Person of any proceeding
seeking to adjudicate such Person a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief, or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee, or other similar
official for it or for any substantial part of its property; or (iii) the taking
of any corporate action by such Person to authorize any of the actions by such
Person set forth in clauses (i) or (ii) above in this definition of Insolvency
Event.
"Investment Company Act" shall mean the Investment Company Act
of 1940, as amended from time to time.
"IRC" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor statute.
"Lien" means any ownership interest or any security interest,
mortgage, deed of trust, pledge, hypothecation, assignment, encumbrance, lien
(statutory or other and including a Lien created by the PBGC), preference,
participation interest, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever resulting in an encumbrance against
real or personal property of a Person, including, without limitation, any
conditional sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing and the filing of
any financing statement under the UCC or comparable law of any jurisdiction to
evidence any of the foregoing.
"Loan" shall mean a non-revolving small business loan
receivable shown on the records of the Originator as of the Closing Date, and
from time to time thereafter (including any Add-On Loan), arising from the
extension of credit to an Obligor by the Originator in the ordinary course of
its business to such Obligor, and shall include, without limitation, all monies
due or owing and all Collections and other amounts received from time to
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time with respect to such loan receivable and all proceeds (including, without
limitation, "proceeds" as defined in the UCC of the jurisdiction the law of
which governs the perfection of the interest on the Loans subject to this
Agreement) thereof.
"Loan Document" means, with respect to any Loan, the related
Note and any related loan agreement, security agreement, mortgage, assignment of
leases and other documents, instruments, certificates or assignments (including
amendments or modifications thereof) executed by the Obligor thereof or by
another Person on the Obligor's behalf in respect of such Loan and related Note,
including, without limitation, general or limited guaranties.
"Lock-Box Account" means an account maintained at a Lock-Box
Bank for the purpose of receiving Collections.
"Lock-Box Agreement" means an agreement with respect to a
Lock-Box Account at a Lock-Box Bank, in substantially the form of Exhibit B or
such other form as may be acceptable to the Buyer, among, as appropriate, such
Lock-Box Bank, the Servicer, the Buyer, the Originator, the Program Agent and
the Trustee, as amended, supplemented or otherwise modified from time to time.
"Lock-Box Bank" means any of the banks holding one or more
lock-box accounts for receiving Collections from Purchased Loans.
"Monthly Payment Date" means, with respect to any Collection
Period, the 5th Business Day of the calendar month immediately following the end
of such Collection Period.
"Multiemployer Plan" means a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA to which the Originator or an ERISA Affiliate
thereof is making, is obligated to make or has within the last six years made or
been obligated to make contributions on behalf of participants who are or were
employed by any such entity.
"Note" means any promissory note evidencing the indebtedness
of an Obligor under a Loan, together with any modifications thereto.
"Note Purchase Agreement" shall mean that certain Note
Purchase Agreement relating to the Revolving Note, Series 1996-1, dated as of
December 31, 1996 among the Buyer, the Servicer, the parties thereto as
"Noteholders" and the Program Agent, as the same may be amended, restated,
supplemented or otherwise modified from time to time in accordance with terms
thereof.
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"Obligor" means each Person who is obligated to pay for an
extension of credit by the Originator which gave rise to a Loan, including any
guarantor of such Person's obligations.
"Obligor Claim" means any dispute, claim, offset or defense of
the Obligor of a Loan, including, without limitation, the defense of usury, or
any other claim of such Obligor against or adjustment to such Loan resulting
from the transaction out of which such Loan arose or any related or unrelated
transaction.
"Originator" has the meaning assigned to that term in
the preamble hereto.
"Outstanding Loan Balance" means with respect to any Loan, as
of any date of determination, the then outstanding principal balance thereof.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
other Governmental Authority succeeding to the functions thereof.
"Person" means an individual, partnership, corporation
(including a business trust), limited liability company, joint stock company,
trust, unincorporated association, joint venture, government (or any agency or
political subdivision thereof) or other entity.
"Program Agent" shall mean ING Baring (U.S.) Capital Markets,
Inc., in its capacity as agent for HLS and its permitted successors and assigns,
in respect of the Note Purchase Agreement.
"Purchase" means a purchase by the Buyer of a Loan, the
Related Security and Collections with respect to the foregoing from the
Originator pursuant to Article II.
"Purchase Notice" has the meaning assigned to that term
in Section 2.02(a).
"Purchase Price" has the meaning assigned to that term
in Section 2.02(b).
"Purchased Assets" means the Originator's right, title and
interest in, to and under (i) all then outstanding Purchased Loans, (ii) all
Related Security relating to such Purchased Loans and (iii) all Collections with
respect to, and other proceeds of, such Purchased Loans and (iv) all monies from
time to time on deposit in, and all securities, instruments and other
investments purchased from time to time with monies on deposit in, any Lock-Box
Account or the Concentration Account (whether or not allocated to any
sub-account thereof); provided that "Purchased
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Assets" shall exclude the right under the related Loan Documents to make any
Add-On Loan, which right and related an interest in such Loan Documents shall be
retained by the Originator.
"Purchased Loan" means any Loan which appears on any list of
Loans at any time hereafter submitted to and accepted by the Buyer in connection
with a purchase pursuant to Section 2.02. Once a Loan appears on any such list
it shall remain a Purchased Loan; provided that "Purchased Loan" shall exclude
the right under the related Loan Documents to make any Add-On Loan, which right
and related interest in such Loan Documents shall be retained by the Originator;
provided, however, that "Purchased Loan" shall include any Loan which is
substituted pursuant to Section 8.02 for any existing Purchased Loan; provided,
further, that with respect to any Purchased Loan that is sold back to the
Originator pursuant to Section 8.02, following the Buyer's receipt of the
repurchase price for such Loan, "Purchased Loans" shall not include the Loan so
repurchased by the Originator.
"Real Estate Secured Loan" means any Loan that is secured by
interests in real estate and that, without taking account of the collateral
value of such real estate security, would not satisfy the collateral coverage
requirements of the Credit and Collection Policy.
"Records" means all Loan Documents and other documents, books,
credit files, records and other information (including, without limitation,
computer programs, tapes, discs, punch cards, data processing software and
related property and rights) maintained with respect to Loans and the related
Obligors.
"Rehabilitated Loan" means any Loan which, (i) was a Defaulted
Loan otherwise not an Eligible Loan, (ii) has been modified or restructured by
the Originator in accordance with the Credit and Collection Policy (either
before or after such Loan became a Purchased Loan), (iii) has been paying as
modified or restructured pursuant to clause (i) hereof for at least twelve (12)
months since the effective date of such modification or restructuring, (iv)
which otherwise satisfies the criteria of an "Eligible Loan") and (v) has
otherwise been approved by the Program Agent in writing.
"Related Security" means with respect to any Loan:
(i) all of the Originator's rights under each of the related
Loan Documents, including, without limitation, all monies due and to
become due to the Originator under or in connection with such related
Loan Documents, and all rights, remedies, powers, privileges, benefits
and claims of the Originator under or with respect to such related Loan
Documents (whether arising pursuant to the terms of such
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related Loan Documents or otherwise available at law or in equity);
(ii) all security interests, or liens and property (whether
real or personal, tangible or intangible), subject thereto from time to
time purporting to secure payment of such Loan, together with all
mortgages, assignments and financing statements signed by an Obligor
describing any other collateral securing such Loan;
(iii) all guarantees, indemnities and other agreements or
arrangements of whatever character from time to time supporting or
securing payment of such Loan;
(iv) all Records;
(v) all Contingent Compensation; and
(vi) all substitutions for and proceeds of any of the
foregoing.
"Reportable Event" means any of the reportable events set
forth in Section 4043(b) of ERISA and the regulations issued from time to time
thereunder (other than a reportable event not subject to the provisions for
30-day notice to the PBGC under such regulations).
"Responsible Officer" means, with respect to the Originator,
the officers set forth on Exhibit F.
"SBA" means the Small Business Administration, or any
successor agency.
"SBIC Regulations" means the Small Business Investment Company
Act of 1958, as amended, and the regulations issued by the SBA thereunder.
"Servicer" has the meaning assigned to that term in the
preamble hereto.
"Sub-Servicer" means at any time a Person then authorized by
the Servicer in accordance with the terms of the Indenture to service,
administer and collect Loans on behalf of the Servicer.
"Subsidiary" means, as to any Person, any corporation or other
entity of which securities or other ownership interests having ordinary voting
power to elect a majority of the Board of Directors or other Persons performing
similar functions are at the time directly or indirectly owned by such Person.
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"Termination Date" means the earliest of (i) the fifth
anniversary of the Closing Date, (ii) the date of the declaration or automatic
occurrence of the Termination Date pursuant to Section 7.01 and (iii) the date
specified by the Originator or the Buyer in a written notice to the other party
given at least 30 days prior to such specified date.
"Termination Event" has the meaning assigned to that
term in Section 7.01.
"Trustee" means First Trust National Association, or such
successor trustee under the Indenture.
"UCC" means the Uniform Commercial Code as from time to time
in effect in the specified jurisdiction.
SECTION 1.02. Other Terms. All accounting terms not
specifically defined herein shall be construed in accordance with generally
accepted accounting principles. All terms used in Article 9 of the UCC in the
State of New York, and not specifically defined herein, are used herein as
defined in such Article 9.
SECTION 1.03. Computation of Time Periods. Unless otherwise
stated in this Agreement, in the computation of a period of time from a
specified date to a later specified date, the word "from" means "from and
including" and the words "to" and "until" each means "to but excluding."
ARTICLE II
AMOUNTS AND TERMS OF THE PURCHASES
SECTION 2.01. Purchase Facility. (a) On the terms and
conditions hereinafter set forth, the Buyer may in its sole discretion, purchase
Loans, Related Security with respect to such Loans and Collections with respect
thereto from the Originator from time to time during the period from the date
the condition precedent to the initial Purchase in Section 3.01 is satisfied to
the Termination Date. Nothing in this Agreement shall be deemed to be or
construed as a commitment by the Buyer to purchase any Loans at any time.
(b) It is the intention of the parties hereto that each
Purchase of Loans, Related Security and Collections made hereunder shall
constitute a sale of such assets, which sale is absolute and irrevocable and
provides the Buyer with the full benefits of ownership of the Purchased Loans
and the related Purchased Assets. Neither the Originator nor the Buyer intends
the transactions contemplated hereunder to be, or for any purpose
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to be characterized as, loans from the Buyer to the Originator secured by such
assets. However, in the event that, notwithstanding the intent of the parties,
the Purchased Assets are held to be the property of the Originator, or if for
any other reason this Agreement is held or deemed to create a security interest
in the Purchased Assets, then this Agreement shall be deemed to be a security
agreement, the conveyance provided for in Section 2.01 shall be deemed to be a
grant by the Originator to the Buyer of a security interest in all of the
Originator's right, title and interest in, to and under (i) each Purchased Loan;
(ii) all Related Security in respect of each Purchased Loan; (iii) the Lock-Box
Agreements and all of the Originator's rights and remedies thereunder; (iv) all
of the following property and interests in property which in any way relates to,
secures or is received in payment of or on account of any Purchased Loan or
Related Security in respect of any Purchased Loan: (A) cash, accounts, accounts
receivable, participations, interests in participations, inventory, equipment,
fixtures, vehicles, supplies, materials, returned and repossessed property
acquired by foreclosure, the exercise by the Originator or the Servicer of other
remedies or otherwise, goods, guaranties, options, warranties, choses in action,
causes of action, claims, contract rights, chattel paper, notes (including,
without limitation, notes receivable arising from Purchased Loans), acceptances,
instruments, documents, rights to payments, surety bonds, rights in warehouse
receipts or documents of any kind in respect of any of the foregoing, general
intangibles (including without limitation, rights, interests, goodwill,
inventions, designs, secrets, service marks, trademarks, trademark applications,
trade names, fictitious names, trade secrets, patents, patent applications,
registrations, technology, proprietary information, copyrights, permits,
licenses, franchises, customer lists, tax refunds, tax refund claims and
reversionary interests in pension and profit sharing plans), (B) all of the
Originator's right, title and interest under leases, subleases, licenses and
concessions and other agreements relating to real or personal property
(including, without limitation, all rents, issues and profits related thereto),
rights and claims against third parties (including carriers and shippers),
rights to indemnification and security interests or other security held by or
granted to the Originator to secure payment of the Purchased Loans, (C) the Loan
Documents, computer programs, printouts and other computer materials and records
relating to the Purchased Loans; (iv) all funds from time to time on deposit in
the Concentration Account and all funds from time to time on deposit in each of
the Lock-Box Accounts representing Collections on, or other proceeds of, the
foregoing and, in each case, all certificates and instruments, if any, from time
to time evidencing such funds, all investments made with such funds, all claims
thereunder or in connection therewith and all interest, dividends, monies,
instruments, securities and other property
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from time to time received, receivable or otherwise distributed in respect of or
in exchange for any or all of the foregoing; and (v) all moneys due or to become
due and all amounts received or receivable with respect to the foregoing and all
products and proceeds of the foregoing. The possession by the Originator or its
transferee of Notes, other Loan Documents, and such other goods, letters of
credit, advices of credit, instruments, money, documents, chattel paper or
certificated securities shall be deemed to be "possession by the secured party,"
for purposes of perfecting the security interest pursuant to the UCC (including,
without limitation, Section 9-305 thereof) as in force in the relevant
jurisdiction. Notifications to persons holding such property, and
acknowledgments, receipts or confirmations from persons holding such property,
shall be deemed to be notifications to, or acknowledgments, receipts or
confirmations from bailees or agents (as applicable) or the Originator or its
transferee for the purpose of perfecting such security interest under applicable
law. In view of the intention of the parties hereto that the Purchases of Loans
made hereunder shall constitute sales of such Loans rather than a loan secured
by such Loans, the Originator agrees to note on its financial statements that
the Purchased Loans and the related Purchase Assets have been sold to the Buyer.
SECTION 2.02. Purchases from the Originator.
(a) The initial Purchase shall be made on the Closing Date or
on such later date mutually agreeable to the parties hereto, provided that a
notice (a "Purchase Notice") requesting such Purchase (such Purchase Notice to
be in substantially the form of Exhibit E hereto) is received by the Buyer at
least five Business Days before the date of such initial Purchase. Each
subsequent Purchase shall be made on any Business Day prior to the Termination
Date; provided, that a Purchase Notice requesting such Purchase is received by
the Buyer at least two Business Days before such Purchase (the date set forth in
each Purchase Notice as the date of the initial Purchase and each subsequent
Purchase being hereinafter referred as a "Purchase Date"). Schedule I hereto
shall be deemed to have been updated by the addition of any applicable
information reflected in any such Purchase Notice, but only to the extent that
the applicable Loans are purchased hereunder. The Buyer shall promptly after the
receipt of such notice notify the Originator whether the Buyer has determined to
make such Purchase.
(b) The purchase price (the "Purchase Price") for new Loans
(together with the related Purchased Assets) payable on the date of the initial
Purchase shall be the Outstanding Loan Balance of such Loans on the Purchase
Date therefor (after giving effect to the scheduled payments due (whether or not
received) on such Loans on or before such Purchase Date, except that the Buyer
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may, with respect to any Purchase, offset against such Purchase Price any unpaid
amounts owing hereunder from the Originator to the Buyer and the Originator may
treat a portion of the Outstanding Loan Balance of new Loans as a contribution
to the capital of the Buyer in accordance with Section 2.02(d), in which case
the Purchase Price with respect to the Loans sold to the Buyer on the applicable
Monthly Payment Date will be reduced as contemplated in Section 2.02(d).
(c) The Buyer shall pay the Purchase Price for the Loans
(together with the related Purchased Assets) sold by the Originator under this
Agreement on the Purchase Date specified in each Purchase Notice. On each
Purchase Date, the Buyer shall, upon satisfaction of the applicable conditions
set forth in Article III, make available to the Originator the Purchase Price,
in cash in same day funds.
(d) Notwithstanding any provision herein to the contrary, the
Originator may, on the Purchase Date of the initial purchase hereunder and on
any Purchase Date, elect to designate all or a portion of the Eligible Loans
proposed to be transferred to the Buyer on such date as a capital contribution
to the Buyer. In such event, the Purchase Price payable with respect to such
Purchase shall be reduced by the aggregate principal balance of the contributed
Loans; provided, however, that Loans contributed to the Buyer as capital shall
otherwise constitute Purchased Loans for purposes of this Agreement.
SECTION 2.03. Purchases of Loans. Although the Buyer shall
purchase the Loans that constitute Purchased Loans, the Originator shall remain
obligated (i) to perform, or cause to be performed, all of the obligations of
the originator under the Loans (and the exercise by the Buyer of any of its
rights thereunder or hereunder shall not relieve the Originator of such
obligations) and (ii) to pay or cause to be paid, when due any taxes, including
without limitation, sales, excise and personal property taxes payable in
connection with the Loans, unless the payment of such taxes in being contested
in good faith and by appropriate proceedings; provided, that, the Buyer shall
have the right to exercise any of the rights of the Originator under any such
Loan.
SECTION 2.04. Collections. Any Collections of Purchased Loans
received (or deemed to have been received) by the Originator shall be remitted
directly to the Buyer by depositing such Collections in the Lock-Box Account
within one Business Day of the Originator's receipt.
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ARTICLE III
CONDITIONS OF PURCHASES
SECTION 3.01. Conditions Precedent to Initial Purchase. The
initial Purchase hereunder is subject to the condition precedent that the Buyer
shall have received on or before the date of such Purchase the following, each
(unless otherwise indicated) dated such date, in form and substance satisfactory
to the Buyer:
(a) a copy of the resolutions of the Board of Directors of the
Originator approving this Agreement and the other Facility Documents to be
delivered by it hereunder and the transactions contemplated hereby, certified by
its Secretary or Assistant Secretary;
(b) a certificate of the Secretary or Assistant Secretary of
the Originator certifying (i) the names and true signatures of the officers
authorized on its behalf to sign this Agreement and the other documents to be
delivered by it hereunder (on which certificate the Buyer may conclusively rely
until such time as the Buyer shall receive from the Originator a revised
certificate meeting the requirements of this subsection (b)), (ii) a copy of the
certificate of incorporation of the Originator and (iii) a copy of the
Originator's by-laws;
(c) duly executed financing statements (Form UCC-1), in proper
form for filing, naming the Originator as the debtor/seller of the Purchased
Assets and the Buyer as secured party/purchaser or other documents, as may be
necessary or, in the opinion of the Buyer, desirable under the UCC of all
appropriate jurisdictions or any comparable law to perfect the Buyer's interests
in the Purchased Assets;
(d) receipt-stamped copies of proper financing statements
(Form UCC-3), if any, necessary to release all security interests and other
rights of any Person in the Purchased Assets previously granted by the
Originator;
(e) certified copies of requests for information or copies
(Form UCC-11) (or a similar search report certified by a party acceptable to the
Buyer), dated a date reasonably near to the date of the initial Purchase,
listing all effective financing statements which name the Originator (under its
present name and any previous name) as debtor and which are filed in the
jurisdictions in which filings were made pursuant to subsection (d) above,
together with copies of such financing statements (none of which shall cover any
Purchased Loans, related Loan Documents, Related Security and/or Collections,
except as otherwise agreed by the Buyer;
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(f) the Lock-Box Agreements with the Lock-Box Banks, each
executed by the Originator and acknowledged and agreed to by the applicable
Lock-Box Bank and the other parties thereto;
(g) copies of all written agreements, if any, between each
Lock-Box Bank and Originator with respect to the opening or operation of the
Lock-Box Accounts;
(h) an opinion of Bass Berry & Sims PLC, counsel to the
Originator as to such other matters as the Buyer may reasonably request; and
(i) an Officer's Certificate in form and substance
satisfactory to the Buyer.
SECTION 3.02. Conditions Precedent to All Purchases. Each
Purchase (including the initial Purchase) from the Originator by the Buyer shall
be subject to the further conditions precedent that:
(a) with respect to any such Purchase, the Originator
shall have delivered to the Buyer a Purchase Notice pursuant to
the terms of Section 2.02(a);
(b) on the date of such Purchase the following statements
shall be true and the Originator by accepting the amount of such Purchase shall
be deemed to have certified that:
(i) the representations and warranties contained in
Section 4.01 are correct on and as of such day as though
made on and as of such date;
(ii) no event has occurred and is continuing, or would result
from such Purchase, which constitutes a Termination Event or would
constitute a Termination Event but for the requirement that notice be
given or time elapse or both;
(c) the Buyer shall have received confirmation from the
Custodian, pursuant to the terms of the Custodial Agreement, that it has
received (i) the original Notes related to the Purchased Loans included in such
Purchase, endorsed by the Originator (directly on such Note or by means of an
allonge to such Note) as follows: "Pay to the order of Sirrom Funding
Corporation without recourse" and signed by a Responsible Officer of the
Originator, with all prior and intervening endorsements showing a complete chain
of endorsement to the Originator, (ii)(A) executed originals of all other
instruments included in the Loan Documents and (B) executed originals or copies
of the other Loan Documents related to the Purchased Loans included in such
Purchase and (iii) all Records related to such Purchased Loans;
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(d) with respect to such Purchased Loans that are Real Estate
Secured Loans, Buyer shall have received confirmation from the Custodian,
pursuant to the terms of the Custodial Agreement, that it has received (i)
either: (A) the original mortgage, with evidence of recording thereon, (B) a
copy of the mortgage certified as a true copy by a Responsible Officer of the
Originator where the original has been transmitted for recording until such time
as the original is returned by the public recording officer or duly licensed
title or escrow officer or (C) a copy of the mortgage certified by the public
recording office in those instances where the original recorded mortgage has
been lost; (ii) either: (A) the original assignment of mortgage from Originator
endorsed as follows: "Sirrom Funding Corporation," with evidence of recording
thereon (provided, however, that where permitted under the laws of the
jurisdiction wherein the mortgaged property is located, the assignment of
mortgage may be effected by one or more blanket assignments for Loans secured by
mortgaged properties located in the same county), or (B) a copy of such
assignment of mortgage certified as a true copy by a Responsible Officer of the
Originator where the original has been transmitted for recording (provided,
however, that where the original assignment or mortgage is not being delivered
to the Buyer, each such Responsible Officer may complete one or more blanket
certificates attaching copies of one or more assignments of mortgage relating to
the mortgages originated by the Originator); and (iii) either: (A) originals of
all intervening assignments, if any, showing a complete chain of title from the
originator to the Originator, including warehousing assignments, with evidence
of recording thereon if such assignments were recorded, (B) copies of any
assignments certified as true copies by a Responsible Officer of the Originator
where the originals have been submitted for recording until such time as the
originals are returned by the public recording officer, or (C) copies of any
assignments certified by the public recording office in any instances where the
original recorded assignments have been lost; and (iv) copies of appraisals,
environmental surveys and questionnaires and originals of all title insurance
policies related to the mortgaged property in accordance with the Credit and
Collection Policy;
(e) upon the request of the Buyer, the Buyer shall have
received documents evidencing or related to any insurance policies and copies of
executed original counterparts of the Loan Documents, together with copies of
the executed originals of all modifications or amendments thereof; and
(f) the Buyer shall have received such other approvals,
opinions or documents as it may reasonably request.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the
Originator. The Originator represents and warrants as follows as of the Closing
Date and the date of each Purchase:
(a) Organization and Good Standing. The Originator is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Tennessee and is duly qualified to do business and is in
good standing as a foreign corporation, and has obtained all necessary licenses
and approvals, in every jurisdiction in which failure to so qualify or to obtain
such licenses and approvals could have a material adverse effect on (i) the
interests of the Buyer hereunder or in the Purchased Assets, (ii) the
collectibility of any Purchased Loan or (iii) the ability of the Originator to
perform its obligations hereunder or under any other Facility Document.
(b) Due Authorization and No Conflict. The execution, delivery
and performance by the Originator of this Agreement and all other instruments
and documents to be delivered hereunder and thereunder, and the transactions
contemplated hereby and thereby, are within the Originator's corporate powers
and have been duly authorized by all necessary corporate action of the
Originator and do not contravene, conflict with, result in any breach of the
terms and provisions of, or constitute (with or without notice or lapse of time
or both) a default under, or require consent under, (i) the charter or by-laws
of the Originator, (ii) any applicable law, rule or regulation applicable to the
Originator or its property (including, without limitation, the SBIC Regulations
or the Investment Company Act), (iii) any contractual restriction contained in
any indenture, loan or credit agreement, lease, mortgage, security agreement,
bond, note, or other agreement or instrument binding on or affecting the
Originator or its property or (iv) any order, writ, judgment, award, injunction
or decree binding on or affecting the Originator or its property, and do not
result in or require the creation of any Lien upon or with respect to any of its
properties (other than in favor of the Buyer with respect to the Purchased
Assets); and no transaction contemplated hereby requires compliance with any
bulk sales act or similar law. This Agreement has been duly executed and
delivered on behalf of the Originator.
(c) No Consents. No authorization or approval or other action
by, and no notice to or filing with, any Governmental Authority or regulatory
body (including, without limitation, the SBA) is required for the due execution,
delivery and performance by the Originator of this Agreement or any other
document or instrument to be delivered hereunder or thereunder
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except for the filing of the financing statements and mortgage assignments
referred to in Article III, all of which, at the time required in Article III,
shall have been duly made and shall be in full force and effect.
(d) Enforceability. This Agreement and the other Facility
Documents to which the Originator is a party constitute the legal, valid and
binding obligations of the Originator enforceable against the Originator in
accordance with their respective terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws, now or
hereafter in effect, affecting the enforcement of creditors' rights generally
and except as such enforceability may be limited by general provisions of
equity. This Agreement is in full force and effect, and is not subject to any
dispute, offset, counterclaim or defense and no party thereto is in default
thereunder.
(e) No Proceedings. There are no actions, investigations,
suits or proceedings pending, or to the knowledge of the Originator, threatened,
against or affecting the Originator, or the property of the Originator, in any
court, or before any arbitrator of any kind, or before or by any governmental
body (i) asserting the illegality, invalidity or unenforceability, or seeking
any determination or ruling that would affect the legality, binding effect,
validity or enforceability, of any of the Facility Documents, (ii) seeking to
prevent the consummation of any of the transactions contemplated by any of the
Facility Documents or (iii) seeking any determination or ruling that is
reasonably likely to materially and adversely affect the financial condition or
operations of the Originator or the performance by the Originator of its
obligations under any of the Facility Documents. The Originator is not in
default with respect to any order of any court, arbitrator or governmental body.
(f) Investment Company Act. The Originator is registered under
the Investment Company Act as an investment company, and is in compliance in all
material respects with the applicable provisions of the Investment Company Act
and the rules and regulations promulgated thereunder.
(g) Use of Proceeds. No use of any funds obtained by the
Originator under this Agreement will conflict with or contravene any of
Regulations G, T, U and X promulgated by the Federal Reserve Board from time to
time.
(h) Valid Transfer. This Agreement constitutes a valid sale,
transfer and assignment to the Buyer of all right, title and interest of the
Originator in and to the Purchased Loans and other Purchased Assets, which is
enforceable against
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creditors of and purchasers from the Originator, free and clear of any Lien.
Each Purchased Loan (prior to Purchase by the Buyer), together with the related
Purchased Assets, is owned by the Originator free and clear of any Lien and the
Buyer shall acquire a valid perfected first priority ownership or security
interest in each Purchased Loan and in the other Purchased Assets with respect
thereto, free and clear of any Lien except as provided herein and the other
Facility Documents; and no effective financing statement or other instrument
similar in effect covering any Purchased Loan or the other Purchased Assets with
respect thereto shall at any time be on file in any recording office except such
as may be filed in accordance with this Agreement and the other Facility
Documents.
(i) Information. No information, exhibit, financial statement,
document, book, record or report furnished or to be furnished by the Originator
or any of its Affiliates to the Buyer or the Servicer in connection with this
Agreement or any of the other Facility Documents is or shall be inaccurate in
any material respect as of the date it is or shall be dated or (except as
otherwise disclosed to the Buyer at such time) as of the date so furnished, or
contains or shall contain any material misstatement of fact or omits or shall
omit to state a material fact or any fact necessary to make the statements
contained therein not materially misleading.
(j) Locations. The chief executive office of the Originator is
located at the address of the Originator referred to in Section 9.02 hereof and
the locations of the offices where the Originator keeps all the Records are
listed on Exhibit D (or at such other locations, notified to the Buyer in
accordance with Section 5.01(e), in jurisdictions where all action required by
Section 6.04 has been taken and completed); the federal tax identification
number of the Originator is set forth on Exhibit D hereto and, except as
disclosed to Buyer, there has been no change in any such tax identification
number during the five-year period prior to the date hereof.
(k) Tradenames. The legal name of the Originator is as set
forth on the signature page of this Agreement, the Originator has no tradenames,
fictitious names, assumed names or "doing business as" names, and since its
incorporation, the Originator (i) has not been the subject of any merger or
other corporate reorganization that resulted in a change of name, identity or
corporate structure or (ii) had any other name.
(l) Lock-Box Accounts. Each Obligor of a Purchased Loan has
been instructed to remit payment on the Purchased Loan to the Lock-Box Accounts.
From and after the date of the initial Purchase hereunder, the Originator will
have no right, title and/or interest to any of the Lock-Box Accounts and will
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maintain no lock-box accounts in its own name for the collection of such
Purchased Loans. The account numbers of all Lock-Box Accounts, together with the
names and addresses of all the Lock-Box Banks maintaining such Lock-Box
Accounts, are specified in Exhibit C.
(m) Separate Corporate Existence. The Originator is entering
into the transactions contemplated by this Agreement in reliance on the Buyer's
identity as a separate legal entity from the Originator and each of its
Affiliates other than the Buyer, and acknowledges that the Buyer and the other
parties to the Facility Documents are similarly entering into the transactions
contemplated by the other Facility Documents in reliance on the Buyer's identity
as a separate legal entity from the Originator and each such other Affiliate.
(n) ERISA. No Benefit Plan maintained by the Originator or any
of its ERISA Affiliates has any accumulated funding deficiency (within the
meaning of Section 302 of ERISA or Section 412 of the Internal Revenue Code),
whether or not waived. Each of the Originator and each ERISA Affiliate of the
Originator has timely made all contributions required by it to be made by it to
any Benefit Plan and Multiemployer Plan to which contributions are or have been
required to be made during the preceding five years by the Originator or such
ERISA Affiliate, and no Reportable Event has occurred and is continuing or could
reasonably be expected to occur with respect to any such Benefit Plan, in any
case, that could reasonably be expected to result, directly or indirectly, in
any lien being imposed on the property of the Originator or the payment of any
material amount to avoid such lien. No Benefit Plan Event with respect to the
Originator or any of its ERISA Affiliates has occurred or could reasonably be
expected to occur that could reasonably be expected to result, directly or
indirectly, in any lien being imposed on the property of the Originator or the
payment of any material amount to avoid such lien. Each Benefit Plan sponsored
or participated in by the Originator or any of its ERISA Affiliates or under or
to which the Originator or any of its ERISA Affiliates has any present or future
liability or obligations is in compliance in all material respects with all
applicable law, and each such Benefit Plan that is intended to qualify for
special tax treatment under Sections 401(a) or 403(a) of the IRC is in
compliance with the applicable requirements of the IRC for such qualifications.
(o) Eligibility of Loans. Each Loan transferred by the
Originator to the Buyer hereunder will satisfy the requirements of eligibility
contained in the definition of "Eligible Loan" on the date of the applicable
transfer.
(p) Solvency. Both before and after giving effect to any of
the transactions contemplated by this Agreement: (i) the
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fair value and present fair saleable value of the Originator's assets exceeds
the stated value of the Originator's liabilities (including all contingent
liabilities), (ii) the present fair saleable value of the Originator's assets
will exceed the probable liability on its debts, including contingent
liabilities, as such debts become absolute and matured, (iii) the Originator
will not have an unreasonably small amount of capital for the operation of the
business in which it is engaged and is proposed to be engaged, and (iv) the
Originator reasonably expects to be able to pay its debts, including contingent
liabilities, as such debts mature.
(q) Facility Documents. The Originator has delivered to the
Buyer true and correct copies of all material agreements between each Obligor,
on the one hand, and the Originator on the other. Neither the Originator nor any
Affiliate party thereto is in default of any of its obligations under any
Facility Document in any material respect. Upon the origination of each Loan,
the Originator shall be the lawful owner of, and have good title to, such Loan
and the Related Security, free and clear of any Liens (except for Liens created
hereunder). All such Loans and Related Security are transferred without recourse
to the Originator except as described herein.
(r) Taxes. The Originator has filed or caused to be filed all
Federal, state and local tax returns which are required to be filed by it, and
has paid or caused to be paid all taxes shown to be due and payable on such
returns or on any assessments received by it, other than any taxes or
assessments, the validity of which are being contested in good faith by
appropriate proceedings and with respect to which the Originator has set aside
adequate reserves on its books in accordance with generally accepted accounting
principles and which have not given rise to any Liens.
(s) Software. The Originator and the Servicer, as assignee of
the Buyer, has (or will have, concurrently with the effectiveness hereof) an
enforceable right (whether by license, sublicense or assignment) to use all of
the computer software used to account for the Purchased Loans to the extent
necessary to administer the Purchased Loans.
(t) Loan Documents. The Originator has heretofore caused all
original copies of all Notes and other Loan Documents related to the Purchased
Loans to be delivered to the Buyer.
(u) Loans Secured by Real Property.
(i) All Loans specified on Schedule I (as the same may be
supplemented upon each subsequent Purchase) are Real
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Estate Secured Loans and are secured by interests in real estate more
particularly described on Schedule I;
(ii) With respect to any Real Estate Secured Loan secured by a
mortgage,
(A) each such mortgage is a valid and subsisting lien
of record on the mortgaged property subject only to a first
mortgage lien on such mortgaged property previously disclosed
to Buyer and subject in all cases to such exceptions that are
generally acceptable to prudent and experienced lenders in
connection with their regular commercial lending activities,
and such other exceptions to which similar properties are
commonly subject and which do not individually, or in the
aggregate, materially and adversely affect the benefits of the
security intended to be provided by such mortgage,
(B) each original mortgage was recorded, and all
subsequent assignments of the original mortgage have been
recorded in the appropriate jurisdictions wherein such
recordation is necessary to perfect the lien thereof as
against creditors of Originator,
(C) any related mortgage contains customary and
enforceable provisions which render the rights and remedies of
the holder thereof adequate for the realization against the
mortgaged property of the benefits of the security, including
(1) in the case of a mortgage designated as a deed of trust,
by trustee's sale, and (2) otherwise by judicial foreclosure,
and
(D) (1) there are no material defaults in complying
with the terms of any applicable mortgage, and all taxes,
governmental assessments, insurance premiums, water, sewer and
municipal charges, leasehold payments or ground rents which
previously became due and owing have been paid, or an escrow
of funds has been established in an amount sufficient to pay
for every such item which remains unpaid and which has been
assessed but is not yet due and payable; (2) there is no
proceeding pending or, to the Originator's knowledge,
threatened for the total or partial condemnation of any
related mortgaged property, nor is such a proceeding currently
occurring, and such property is undamaged by waste, fire,
earthquake or earth movement, windstorm, flood, tornado or
other casualty, so as to affect adversely the value of such
mortgaged property as security for the Loan or the use for
which the premises were intended; and (3) at the
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time of origination of the applicable Loan, and to the best of
the Originator's knowledge, and based primarily on the related
Phase I environmental survey or environmental questionnaire,
as the case may be, the related mortgaged property is, as of
the applicable date of purchase, free of contamination from
toxic substances or hazardous wastes.
(v) Reasonably Equivalent Value. The Purchase Price
constitutes reasonably equivalent value in consideration for the transfer to the
Buyer of the Loans and Related Security from the Originator and no such transfer
shall have been made for or on account of an antecedent debt owed by any
Originator to the Buyer and no such transfer is or may be voidable under any
Section of the Bankruptcy Reform Act of 1978 (11 U.S.C. Section 101 et seq.), as
amended.
(w) Ownership of the Buyer. The Originator directly owns one
hundred percent (100%) of the outstanding capital stock of the Buyer and has not
granted or issued any options, warrants or other rights to acquire any such
capital stock.
(x) Small Business Investment Company. The Originator is a
duly licensed small business investment company authorized by the SBA under the
SBIC Regulations. The Originator is in good standing with the SBA and is not
subject to any restriction, letter agreement, probation or other special
condition respecting the Originator's ability, qualification or operation as a
small business investment company.
ARTICLE V
GENERAL COVENANTS OF THE ORIGINATOR
SECTION 5.01. Affirmative Covenants of the Originator. From
the date hereof until the later of the Termination Date or the Collection Date,
the Originator will, unless the Buyer shall otherwise consent in writing:
(a) Compliance with Laws, Etc. Comply in all material respects
with all applicable laws, rules, regulations and orders with respect to its
business and properties or the Purchased Loans (including, without limitation,
the SBIC Regulations and the Investment Company Act).
(b) Preservation of Corporate Existence. Observe all corporate
procedures required by its charter and By-Laws and preserve and maintain its
corporate existence, rights, franchises and privileges in the jurisdiction of
its incorporation, and qualify and remain qualified in good standing in each
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jurisdiction in which failure to so qualify or to obtain such licenses and
approvals could have a material adverse effect on (i) the interests of the Buyer
hereunder or in the Purchased Assets, (ii) the collectibility of any Purchased
Loan or (iii) the ability of the Originator to perform its obligations hereunder
or under any other Facility Document.
(c) Audits. At any time and from time to time upon reasonable
notice to the Originator and during regular business hours, permit the Buyer, or
its agents or representatives, (i) to examine and make copies of and abstracts
from all Records and (ii) to visit the offices and properties of the Originator
for the purpose of examining such Records, and (iii) to discuss matters relating
to the affairs and finances of the Originator, the Purchased Loans or to the
Originator's performance hereunder, in each case with any of the officers or
employees of the Originator having knowledge of such matters.
(d) Keeping of Records and Books of Account. Itself or through
its agents, maintain and implement administrative and operating procedures
(including, without limitation, a complete disaster recovery plan that enables
the Originator to recreate records evidencing the Purchased Loans in the event
of the destruction of the originals thereof) and keep and maintain all
documents, books, records and other information reasonably necessary or
advisable for the collection of all Purchased Loans (including, without
limitation, records adequate to permit the daily identification of all
Collections of and adjustments to existing Purchased Loan).
(e) Location of Records. Keep its chief executive office, and
the offices where it keeps the Records, at the address(es) referred to in
Section 4.01(j), or, in any such case, upon 30 days' prior written notice to the
Buyer, at such other locations within the United States where all action
required by Section 6.04 shall have been taken and completed.
(f) Credit and Collection Policies. Comply in all material
respects with the Credit and Collection Policy in regard to each Purchased Loan
and the related Purchased Assets.
(g) Collections. Instruct all Obligors to cause all
Collections to be deposited directly with a Lock-Box Bank in accordance with the
terms of this Agreement and if the Originator shall receive any Collections, the
Originator shall hold such Collections in trust for the benefit of the Buyer and
remit such Collections to the Buyer by depositing such Collections into the
Lock-Box Account within one Business Day following Originator's receipt thereof.
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(h) Segregation of Collections. Take all necessary actions to
prevent the deposit of any funds other than Collections in respect of Purchased
Loans and the proceeds of permitted investments of such Collections into any of
the Lock-Box Accounts and, to the extent that the Originator has actual
knowledge that any such funds are nevertheless deposited into any of such
Lock-Box Accounts, promptly identify any such funds to the Buyer for segregation
and remittance to the owner thereof.
(i) Computer Services. The Originator shall take such action
as may be necessary (including, without limitation, obtaining any necessary
consents from licensors or other Persons) to provide the Buyer with such
licenses, sublicenses and/or assignments of contracts as the Buyer shall from
time to time require with regard to all services and computer hardware or
software that relate to the servicing of the Purchased Loans or the other
Purchased Assets.
(j) Separate Corporate Existence. Take all actions required to
maintain the Buyer's status as a separate legal entity, including, without
limitation, (i) not holding the Buyer out to third parties as other than an
entity with assets and liabilities distinct from the Originator and the
Originator's other Subsidiaries; (ii) not holding itself out to be responsible
for the debts of the Buyer or, other than by reason of owning capital stock of
the Buyer, for any decisions or actions relating to the business and affairs of
the Buyer; (iii) causing any financial statements consolidated with those of the
Buyer to state that the Buyer is a separate corporate entity with its own
separate creditors who, in any liquidation of the Buyer, will be entitled to be
satisfied out of the Buyer's assets prior to any value in the Buyer becoming
available to the Buyer's equity holders; (iv) taking such other actions as are
necessary on its part to ensure that all corporate procedures required by its
charter and the Buyer's certificate of incorporation and by-laws are duly and
validly taken; (v) keeping, with respect to the Originator, correct and complete
records and books of account and corporate minutes; (vi) not acting in any other
matter that could foreseeably mislead others with respect to the Buyer's
separate identity; and (vii) taking such other actions as may be necessary on
its part to ensure that the Buyer is in compliance at all times with Sections
2.05(a), 2.05(e), 2.06(i), 2.06(j) and 2.06(k) of the Indenture.
SECTION 5.02. Reporting Requirements of the Originator. From
the date hereof until the later of the Termination Date or the Collection Date,
the Originator will, unless the Buyer shall otherwise consent in writing,
furnish to the Buyer:
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(a) Quarterly Financial Statements. As soon as available and
in any event within 50 days after the end of each of the first three quarters of
each fiscal year of the Originator, balance sheets of the Originator as of the
end of such quarter, and the related statements of income and retained earnings
and statements of changes in financial position of the Originator, each for the
period commencing at the end of the previous fiscal year and ending with the end
of such quarter, certified by the chief financial officer or chief accounting
officer of the Originator.
(b) Annual Financial Statements. As soon as available and in
any event within 95 days after the end of each fiscal year of the Originator, an
audit report, including the balance sheets of the Originator as of the end of
such year and the related statements of income and retained earnings and
statements of changes in financial position of the Originator for such year,
certified without qualification by nationally recognized independent public
accountants.
(c) Shareholder Reports. Promptly after the sending or filing
thereof, copies of all reports, if any, which the Originator sends to any of its
shareholders.
(d) Notice of Termination Events. Except as otherwise provided
in the succeeding clause (e) as soon as possible and in any event within two
Business Days after the Originator's becoming aware of the occurrence of each
Termination Event or each event which, with the giving of notice or lapse of
time or both, would constitute a Termination Event, the statement of the chief
financial officer or chief accounting officer of the Originator setting forth
details of such or event and the action which the Originator proposes to take
with respect thereto.
(e) Notice of Insolvency Event. Within one day after the
occurrence of an Insolvency Event with respect to the Originator, the statement
of the chief financial or chief accounting officer of the Originator setting
forth the details of such event or circumstance.
(f) Other Information.
(i) Promptly upon receipt thereof, copies of all SBA audit
reports and all other material correspondence and reports to, from or
regarding the SBA.
(ii) Promptly, but in any event within ten (10) Business Days
after the filing thereof, a copy of (a) each report or other filing
made by the Originator or any Subsidiary with the Securities and
Exchange Commission (the "SEC") and required by the SEC to be delivered
to the
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shareholders of the Originator or any such Subsidiary, and (b) each
report and final registration statement of the Originator or any
Subsidiary filed with the SEC.
(iii) Promptly, from time to time, such other information,
documents, records or reports respecting the Purchased Loans or the
conditions or operations, financial or otherwise, of the Originator
(including, without limitation, reports and notices relating to the
Originator's actions under and compliance with ERISA, the SBIC
Regulations and the Investment Company Act) as the Buyer or the
Servicer may from time to time request in order to perform its
obligations hereunder or under any other Facility Document or to
protect the interests of the Buyer under or as contemplated by this
Agreement and the other Facility Documents.
SECTION 5.03. Negative Covenants of the Originator. From the
date hereof until the later of the Termination Date or the Collection Date, the
Originator will not without the written consent of the Buyer:
(a) Sales, Liens, Etc. Except as otherwise provided herein or
any other Facility Document, sell, assign (by operation of law or otherwise) or
otherwise dispose of, or create or suffer to exist, any Lien upon or with
respect to, any Purchased Loan, or the Related Security or Collections with
respect thereto, or any related Loan Document, or upon or with respect to any
Lock-Box Account to which any Collections of any Purchased Loan are sent, or
assign any right to receive income in respect thereof.
(b) Extension or Amendment of Loans. Except as provided in the
Credit and Collection Policy, or as otherwise approved in writing by the Buyer,
(i) extend, amend or otherwise modify (or consent or fail to object to any such
extension, amendment or modification by the Servicer) the terms of any Purchased
Loan, or amend, modify or waive (or consent or fail to object to any such
amendment, modification or waiver by the Servicer) any term or condition of any
Loan Document related thereto or (ii) release any Collateral or guaranty
supporting any Obligor's obligations under a Note or Loan Document, if the
effect of such amendment, modification or waiver or release of Collateral could
reasonably be expected to impair the collectibility or delay the payment of any
Purchased Loan; provided, however, that unless any such Purchased Loan is a
"Defaulted Loan" (under and as defined in the Indenture) and no "Servicer
Default" (under and as defined in the Indenture) has occurred and is continuing,
the prior written consent of the Buyer shall be required for any extension,
amendment, modification or waiver of any term or condition of any Loan
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Document or any release that would (x) decrease the amount of principal of, or
the rate at which interest is payable on, the related Loan, (y) extend any date
fixed for the payment of principal of, or interest on, the related Loan or (z)
release any guaranty of the related Loan or all or substantially all of the
Collateral for the related Loan. The Originator will not rescind or cancel, or
permit the rescission or cancellation of, any Purchased Loan except as ordered
by a court of competent jurisdiction or other Governmental Authority.
(c) Change in Payment Instructions to Obligors. Terminate any
bank as a Lock-Box Bank from those listed in Exhibit D, or terminate any
Lock-Box Account, unless (i) the payments of Collections that had been received
by such terminated Lock-Box Bank or that had been directed to such terminated
Lock-Box Account, as the case may be, are redirected to one or more
non-terminated Lock-Box Accounts, as the case may be and (ii) the Buyer shall
have received ten Business Days' prior notice of such termination and
redirection; or add any bank as a Lock-Box Bank or any Lock-Box Account as a
Lock-Box Account other than those listed in Exhibit C, or make, any change in
its instructions to Obligors regarding payments to be made to the Originator or
pay ments to be made to any Lock-Box Account, unless the Buyer shall have
received on or before the effective date of such addition or change, (x) fully
executed copies of Lock-Box Agreements with respect to each new Lock-Box Account
and (y) fully executed copies of all other agreements and documents related to
any new Lock-Box Account.
(d) Stock, Merger, Consolidation, Etc. Consolidate with or
merge into or with any other corporation, or purchase or otherwise acquire all
or substantially all of the assets or capital stock, or other ownership interest
of, any Person or sell, transfer, lease or otherwise dispose of all or
substantially all of its assets to any Person, or permit any Subsidiary of the
Originator to do so, except that (i) any Subsidiary of the Originator may merge
or consolidate with or transfer assets to or acquire assets from any other
Subsidiary of the Originator, (ii) any Subsidiary of the Originator may merge
into or transfer assets to the Originator and (iii) the Originator or any
Subsidiary of the Originator may acquire the capital stock or assets of any
other Person, provided that, (A) immediately after giving effect to any proposed
transaction pursuant to the foregoing clause (i), (ii) or (iii), no Termination
Event or event which, with the giving of notice or lapse of time, or both, would
constitute a Termination Event, would exist; (B) in the case of any merger to
which the Originator is a party, the Originator is the surviving corporation and
(C) an acquisition by the Originator of the capital stock or assets of any other
Person shall not, in and of
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itself, constitute a breach of a covenant or agreement for purposes of Section
7.01(d).
(e) Change in Corporate Names. Make any change to its
corporate name or use any tradenames, fictitious names, assumed names or "doing
business as" names, unless prior to the effective date of any such name change
or use, the Originator delivers to the Buyer such Financing Statements (Form
UCC-1 and UCC-3) executed by the Originator which the Buyer may request to
reflect such name change or use, together with such other documents and
instruments that the Buyer may request in connection therewith.
(f) Accounting of Purchases. Prepare any financial statements
or other statements which shall account for the transactions contemplated hereby
in any manner other than the sale of the Loans by the Originator to the Buyer.
(g) ERISA. Allow any Benefit Plan maintained by the Originator
or any of its ERISA Affiliates to incur any "accumulated funding deficiency"
(within the meaning of Section 302 of ERISA or Section 412 of the IRC), whether
or not waived. Each of the Originator and each ERISA Affiliate of the Originator
shall timely make all contributions required by it to be made by it to any
Benefit Plan and Multiemployer Plan to which contributions are or shall be
required to be made by the Originator or such ERISA Affiliate, and no event
requiring notice to the PBGC under Section 302(f) of ERISA shall occur with
respect to any such Benefit Plan, in any case, that could reasonably be expected
to result, directly or indirectly, in any lien being imposed on the property of
the Originator or the payment of any material amount to avoid such lien. No
Benefit Plan Event with respect to the Originator or any of its ERISA Affiliates
shall occur that could reasonably be expected to result, directly or indirectly,
in any lien being imposed on the property of the Originator or the payment of
any material amount to avoid such lien.
ARTICLE VI
ADMINISTRATION AND COLLECTION
SECTION 6.01. Designation of Sub-Servicer. Consistent with the
Buyer's ownership of the Purchased Loans and the other Purchased Assets, the
Originator agrees that the Buyer shall have the sole right to service,
administer and collect the Purchased Loans, to assign such right and to delegate
such right to any other Person. The Originator hereby acknowledges that the
Buyer has appointed Sirrom Capital Corporation to be the Servicer with respect
to the Purchased Loans and Sirrom Capital Corporation has accepted such
appointment. In addition, the Buyer has authorized
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the Servicer to appoint Sub-Servicers to perform its servicing obligations with
respect to the Purchased Loans. The Originator shall deliver all Records to the
Servicer, as agent for the Buyer, and the Servicer shall hold all such Records
in trust for the Buyer in accordance with its interests.
SECTION 6.02. Rights of the Buyer. (a) At any time:
(i) the Buyer may notify the Obligors of Purchased Loans, or
any of them, of the Buyer's ownership interest in Purchased Loans and
direct such Obligors, or any of them, that payment of all amounts
payable under any Purchased Loans be made directly to the Lock-Box
Bank, or if so directed by the Buyer, to the Buyer or its designee
(including, without limitation, the Program Agent);
(ii) the Originator shall, at the Servicer's or Buyer's
request and at the Originator's expense, give notice of the Buyer's
interest in Purchased Loans to each Obligor and direct that payments be
made directly to the Lock-Box Bank, or if so directed by the Buyer, to
the Buyer or its designee (including, without limitation, the Program
Agent); and
(iii) the Originator shall, at the Buyer's request, assemble
all Records which the Buyer reasonably believes are necessary or
appropriate for the administration and enforcement of the Purchased
Loans, and shall make the same available to the Buyer at a place
selected by the Buyer or its designee.
(b) The Originator hereby authorizes the Buyer and the
Servicer at any time to take any and all steps in the Originator's name and on
behalf of the Originator necessary or desirable, in the determination of the
Buyer and/or the Servicer, to collect all amounts due under any and all
Purchased Loans, including, without limitation, endorsing the Originator's name
on checks and other instruments representing Collections and enforcing such
Loans.
SECTION 6.03. Responsibilities of the Originator. Anything
herein to the contrary notwithstanding:
(a) The Originator shall perform all of its obligations under
the Loan Documents related to the Purchased Loans to the same extent as if they
had not been sold hereunder and the exercise by the Buyer of its rights
hereunder shall not relieve the Originator from such obligations; and
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(b) The Buyer shall not have any obligation or liability with
respect to any Purchased Loans or any related Loan Documents, nor shall the
Buyer be obligated to perform any of the obligations of the Originator
thereunder.
SECTION 6.04. Lock-Box Accounts; Maintenance of Perfection.
(a) The Originator hereby transfers to the Buyer the exclusive ownership and
control of the Lock-Box Accounts to which the Obligors of Purchased Loans shall
make payments, and the Originator hereby agrees to take any further action
necessary that the Buyer may reasonably request to effect such transfer. The
Servicer shall be responsible for maintaining the Lock-Box Accounts, for causing
the Obligors of Purchased Loans to make payments to the Lock-Box Accounts;
provided, that, the Buyer is hereby authorized at any time to notify any or all
of the Lock-Box Banks to remit all amounts deposited in the applicable Lock-Box
Accounts directly to the Buyer or its designee.
(b) The Originator agrees to take all actions, including
conducting lien searches and filing UCC continuation statements, necessary or
desirable to ensure that the Liens arising pursuant to the Loan Documents and
securing repayment of any Obligor's indebtedness evidenced by a Note will be
maintained as continuously perfected (with the same level of priority as sold
and assigned hereunder) security interests (except as otherwise approved by
Buyer) in all applicable jurisdictions to the extent required by the Credit and
Collection Policy. To the extent that any Note or Loan Document related to a
Purchased Loan comes into the possession of the Originator, the Originator
agrees that it will promptly deliver such item to the Buyer, with all necessary
endorsements. The Originator agrees from time to time, at the Originator's
expense, promptly to execute and deliver, or cause to be executed and delivered,
all further instruments and documents, and take all further action (including
the making, or causing to be made, of notations on the records of the Originator
or the Servicer) necessary or desirable or that the Buyer may reasonably request
in order to perfect (to the extent required by the Credit and Collection
Policy), maintain perfected, protect or more fully evidence the Purchase of
Loans by the Buyer hereunder, or to enable the Buyer or the Program Agent to
exercise or enforce any of their respective rights hereunder or under any other
Facility Document. To the fullest extent permitted by applicable law, the
Originator hereby grants to the Servicer and the Buyer, an irrevocable power of
attorney, with full power of substitution, coupled with an interest, to sign and
file in the name of the Originator, or in its own name, such financing
statements and continuation statements and amendments thereto or assignments
thereof as the Buyer deems necessary to protect or perfect the Buyer's rights in
the Purchased Assets to the extent required by the Credit and Collection Policy.
Without limiting the generality of the
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foregoing, the Originator will upon the request of the Servicer or Buyer: (i)
execute and file such financing or continuation statements, or amendments
thereto or assignments thereof, and such other instruments or notices, as may be
necessary or appropriate or as the Servicer or the Buyer may request and (ii)
mark its master data processing records evidencing such Purchased Loans and
related Loan Documents, as the Servicer or the Buyer may request. The Originator
hereby authorizes the Servicer or the Buyer to file one or more financing or
continuation statements, and amendments thereto and assignments thereof,
relative to all or any of the Purchased Loans and the Related Security now
existing or hereafter arising without the signature of the Originator where
permitted by law. A carbon, photographic or other reproduction of this Agreement
or of any financing statement covering the Purchased Loans or any part thereof,
shall be sufficient as a financing statement. If the Originator fails to perform
any of its agreements or obligations under this Agreement, the Buyer or the
Servicer may (but shall not be required to) itself perform, or cause performance
of, such agreement or obligation, and the expenses of the Buyer or the Servicer
incurred in connection therewith shall be payable by the Originator upon the
Buyer's demand therefor.
ARTICLE VII
TERMINATION EVENTS
SECTION 7.01. Termination Events. If any of the following
events (each, a "Termination Event") shall occur:
(a) Any failure by the Originator or the Servicer to make any
payment, transfer or deposit required to be paid by it under the terms of this
Agreement; or
(b) Any representation or warranty made or deemed to be made
by the Originator (or any of its officers) under or in connection with this
Agreement or other information or report delivered pursuant to this Agreement or
any other Facility Document shall prove to have been false or incorrect in any
material respect when made; or
(c) The Originator or the Servicer shall fail to perform or
observe any other term, covenant or agreement contained in this Agreement on its
part to be performed or observed and any such failure shall remain unremedied
for up to two Business Days following the earlier of notice or such time as the
Originator knows or should have known thereof; or
(d) The Originator shall fail to pay any principal of or
interest on any Debt having a principal amount of $1,000,000 or greater, when
the same becomes due and payable (whether by
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scheduled maturity, required prepayment, acceleration, demand or otherwise) and
such failure shall continue after the applicable grace period, if any, specified
in the agreement or instrument relating to such Debt; or any other default under
any agreement or instrument relating to any such Debt of the Originator or any
other event, shall occur and shall continue after the applicable grace period,
if any, specified in such agreement or instrument if the effect of such default
or event is to accelerate, or to permit the acceleration of, the maturity of
such Debt; or any such Debt shall be declared to be due and payable or required
to be prepaid (other than by a regularly scheduled required prepayment) prior to
the stated maturity thereof; or
(e) Any Purchase or acquisition by the Buyer of Purchased
Assets shall for any reason, except to the extent permitted by the terms hereof,
cease to create a valid and perfected first priority ownership or security
interest in each Purchased Loan, the Related Security and Collections with
respect thereto or shall for any reason cease to evidence the transfer to the
Buyer of a valid and perfected first priority ownership or security interest in
Purchased Loans, the Related Security and Collections; provided, however, if any
such failure relates to a Loan which is retransferred to the Originator pursuant
to Section 8.02 hereof, then such failure shall not give rise to an Event of
Termination under this subsection (e); or
(f) An Insolvency Event shall occur with respect to
the Originator or any of its Subsidiaries;
(g) There shall have been any material adverse change in the
financial condition or operations of the Originator or the Originator and its
Subsidiaries on a consolidated basis or there shall have occurred any event
which materially adversely affects the collectibility of the Purchased Loans or
there shall have occurred any other event which materially adversely affects the
ability of the Originator to collect Purchased Loans or the ability of the
Originator or Servicer to perform their respective obligations hereunder; or
(h) Any "Event of Default" or "Servicer Event of Default"
shall have occurred and be declared pursuant to the Indenture,
then, and in any such event, the Buyer may, by notice to the Originator declare
the Termination Date to have occurred, except that, in the case of any event
described in clauses (i) or (ii) of the definition of Insolvency Event with
respect to the Originator or any of its Subsidiaries, the Termination Date shall
be deemed to have occurred automatically upon the occurrence of such event;
provided that in the case of any proceeding described in clause (ii) of the
definition of Insolvency Event against the
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Originator or any of its Subsidiaries (but not instituted by any such Person
that is the subject of such proceeding), either such proceeding has remained
undismissed or unstayed for a period of 60 days, or any order, judgment, decree
or action sought in such proceeding has been made or entered or has occurred.
Upon any such declaration or automatic occurrence, the Buyer shall have, in
addition to all other rights and remedies under this Agreement or otherwise, all
other rights and remedies provided under the UCC of all applicable jurisdictions
and other applicable laws, which rights shall be cumulative.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.01. Indemnities by the Originator. Without limiting
any other rights which the Buyer may have hereunder or under applicable law, the
Originator hereby agrees to indemnify the Buyer from and against any and all
damages, losses, claims, liabilities and related costs and expenses, including
reasonable attorneys' fees and disbursements (all of the foregoing being
collectively referred to as "Indemnified Amounts") awarded against or incurred
by the Buyer arising out of or as a result of this Agreement or the ownership of
Purchased Loans or in respect of any Loan or any Loan Document, excluding,
however, (i) Indemnified Amounts to the extent resulting from gross negligence
or willful misconduct on the part of the Buyer or (ii) recourse (except as
otherwise specifically provided in this Agreement) for uncollectible Purchased
Loans. Without limiting the foregoing the Originator shall indemnify the Buyer
for Indemnified Amounts arising or resulting from:
(i) reliance on any representation or warranty made or deemed
made by the Originator (or any of its officers) under or in connection
with this Agreement or any other Facility Document or any other
information or report delivered by the Originator pursuant to this
Agreement or any other Facility Document (including, without
limitation, any representation with respect to a Loan's classification
as an Eligible Loan), which shall have been false or incorrect in any
material respect when made or deemed made or delivered;
(ii) the failure by the Originator to comply with any term,
provision or covenant contained in this Agreement, or with any
applicable law, rule or regulation with respect to any Purchased Loan,
the related Loan Documents or the Related Security, or the
nonconformity of any Purchased Loan, the related Loan Documents or the
Related Security with any such applicable law, rule or regulation;
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(iii) the failure to vest and maintain vested in the Buyer or
to transfer to the Buyer, legal and equitable title to and ownership
of, or security interest in, the Loans which are, or are intended to
be, Purchased Loans, together with all Collections and Related
Security, free and clear of any Lien (except as permitted hereunder)
whether existing at the time of the Purchase of such Loan or at any
time thereafter;
(iv) the failure by the Originator to file, or any delay in
filing, financing statements or other similar instruments or documents
under the UCC of all applicable jurisdictions or other applicable laws
or the failure to make other filings with respect to Collateral with
respect to any Loans which are, or are intended to be, Purchased Loans,
to the extent required by the Credit and Collection Policy and whether
at the time of any Purchase or at any subsequent time;
(v) any Obligor Claim or other dispute, claim, offset or
defense (other than discharge in bankruptcy of the Obligor) of the
Obligor to the payment of any Loan which is, or is intended to be, a
Purchased Loan (including, without limitation, a defense based on such
Loan or the related Loan Documents not being a legal, valid and binding
obligation of such Obligor enforceable against it in accordance with
its terms);
(vi) any lender liability claim or other similar or related
claim or action of whatever sort arising out of or in connection with
any Loan which is, or is intended to be a Purchased Loan, or the
related Loan Documents;
(vii) the failure to pay when due any taxes, including without
limitation, sales, excise or personal property taxes payable in
connection with the Loans;
(viii) the failure of the Originator or any of its agents and
representatives to remit to the Buyer, Collections of Purchased Loans
remitted to the Originator or such agent or representative;
(ix) the failure by the Originator to be duly qualified to do
business, to be in good standing or to have filed appropriate
fictitious or assumed name registration documents in any jurisdiction,
where such qualification may be required by applicable law;
(x) the commingling of Collections of Purchased Loans at any
time with other funds;
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(xi) any repayment by the Buyer which is required by law, or
which the Buyer believes in good faith is required by law (as a
preference or otherwise, and to the Originator, an Obligor, a trustee
for the Originator or any Obligor, a court or any other Person) of an
amount that previously caused a reduction in the cash portion of the
Purchase Price paid by the Buyer, and any interest thereon required (or
believed in good faith by the Buyer to be required); and
(xiii) the failure by the Originator to cause the Collateral
for a Purchased Loan to be insured in accordance with the Credit and
Collection Policy.
The Buyer shall promptly notify the Originator of any claim as to which it seeks
indemnification. If any suit, action, claim or proceeding which might result in
indemnification under this Section 8.01 is brought against the Buyer, the Buyer
shall, if a claim in respect thereof is to be made against the Originator
hereunder, notify the Originator in writing of the commencement thereof. The
Originator may participate in and assume the defense of any such suit, action,
claim, proceeding or investigation at its expense, and no settlement thereof
shall be made without the approval of the Originator and the Buyer. The approval
of the Originator and the Buyer will not be unreasonably withheld or delayed;
provided, however, that (i) the Originator shall agree that any judgment,
settlement or other amounts payable as a result of such suit, action, claim, or
proceeding shall be subject to indemnification by the Originator pursuant to
this Section 8.01; (ii) the Originator must keep the Buyer apprised of the
progress of any such suit, action, claim or proceeding; and (iii) if the Buyer
reasonably believes that its failure to participate will adversely affect its
interests or that there is a conflict of interest which makes it inadvisable for
the Originator's attorney to represent such party, it shall notify the
Originator of such conclusion in writing and may, at its election, participate
in such suit, action, claim or proceeding (the legal fees incurred by the Buyer
as a result of such anticipation to be reimbursed by the Originator). Any
amounts subject to the indemnification provisions of this Section 8.01 shall be
paid by the Originator to the Buyer within two Business Days following the
Buyer's demand.
SECTION 8.02. Substitution and Retransfer of Loans.
The following rights are in addition to and not in limitation of
any other rights or remedies that the Buyer may have hereunder.
(a) If, with respect to any Purchased Loan, (i) such Loan did
not constitute an Eligible Loan on the date such Loan became a Purchased Loan or
(ii) the Originator shall have breached any of the representations and
warranties contained in Section 4.01(h) (a Purchased Loan described in either of
clauses
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(i) or (ii) above being referred to as an "Ineligible Purchased Loan"), then the
Originator shall on the next succeeding Business Day, upon the Buyer's demand,
at the Originator's option either substitute for such Ineligible Purchased Loan
a new Loan in the manner specified in subsection (b) of this Section 8.02 or
accept a retransfer of such Ineligible Purchased Loan for the retransfer price
specified in subsection (c) of this Section 8.02; provided, however, that
following the Termination Date, the Originator shall not have the option to
substitute for Ineligible Purchased Loans, but must accept retransfers of such
Ineligible Purchased Loans.
(b) If the Originator substitutes a new Loan for a Purchased
Loan pursuant to this Section 8.02, such new Loan shall (i) on the date of
substitution, be an Eligible Loan, and shall be certified as such by the
Originator, (ii) have an Outstanding Loan Balance at least equal to the
Outstanding Loan Balance of the Purchased Loan for which it is being
substituted, (iii) have a remaining term that is no longer than the remaining
term of the Purchased Loan for which it is being substituted and (iv) be of
credit quality equal to or better than the Purchased Loan for which it is being
substituted. On the date of such substitution, such new Eligible Loan shall
become a Purchased Loan and the Loan so replaced shall cease to be a Purchased
Loan.
(c) In the case of a retransfer by the Buyer to the Originator
of a Purchased Loan pursuant to this Section 8.02, the Originator shall, on the
day of such retransfer pay to the Buyer an amount equal to the Outstanding Loan
Balance of such Purchased Loan as of such Monthly Payment Date. The proceeds of
any such retransfer or purchase shall be deemed to be Collections of such Loan
received by the Originator. Any such retransfer shall be made without recourse
or warranty, express or implied.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Amendments, Etc. No amendment or waiver of any
provision of this Agreement nor consent to any departure by the Originator
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the parties hereto, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. The Buyer shall promptly send written notice to each of Standard & Poor's
Corporation and Fitch Investors Service, L.P. of any amendment, waiver or
consent which occurs under this Section 9.01. This Agreement contains a final
and complete integration of all prior expressions by the parties hereto with
respect to the subject matter hereof and shall constitute the entire agreement
among the parties hereto with respect to the
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subject matter hereof, superseding all prior oral or written understandings.
SECTION 9.02. Notices, Etc. All notices and other
communications provided for hereunder shall, unless otherwise stated herein, be
in writing (including facsimile communication) and mailed, transmitted or
delivered, as to each party hereto, at its address set forth under its name
below or at such other address as shall be designated by such party in a written
notice to the other parties hereto. All such notices and communications shall be
effective, upon receipt, or in the case of delivery by mail, five days after
being deposited in the mails, postage prepaid, or in the case of notice by
facsimile copy, when verbal confirmation of receipt is obtained, in each case
addressed as aforesaid, except that notices and communications pursuant to
Article II shall not be effective until received.
The Buyer:
500 Church Street, Suite 200
Nashville, Tennessee 37219
Telephone: 615-244-1567
Facsimile: 615-726-1208
Attention: Chief Financial Officer
The Originator:
500 Church Street, Suite 200
Nashville, Tennessee 37219
Telephone: 615-256-0701
Facsimile: 615-726-1208
Attention: Chief Financial Officer
The Servicer:
500 Church Street, Suite 200
Nashville, Tennessee 37219
Telephone: 615-256-0701
Facsimile: 615-726-1208
Attention: Chief Financial Officer
SECTION 9.03. No Waiver; Remedies. No failure on the part of
the Buyer to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
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SECTION 9.04. Binding Effect; Assignability.
(a) This Agreement shall be binding upon the Originator, the
Buyer and their respective successors and permitted assigns and shall inure to
the benefit of the Originator, the Buyer, and their respective successors and
permitted assigns. Except as provided in Section 9.04(b) neither the Originator
nor the Buyer (nor the Servicer (except as expressly permitted pursuant to
Section 6.01)) may assign any of its rights and obligations hereunder or any
interest herein without the prior written consent of the other party hereto. The
Originator further agrees to send to the Program Agent copies of all notices and
reports required to be delivered to the Buyer hereunder. This Agreement shall
create and constitute the continuing obligations of the parties hereto in
accordance with its terms, and shall remain in full force and effect until such
time, after the Termination Date until the Collection Date; provided, however,
that the rights and remedies with respect to any breach of any representation
and warranty made by the Originator pursuant to Article IV and the
indemnification and payment provisions of Article VIII and Section 9.06 shall be
continuing and shall survive any termination of this Agreement.
(b) The Originator acknowledges that the Buyer will assign to
the Trustee, for the benefit of the holders of the debt issued thereunder
(pursuant to the Indenture), all of its rights, remedies, powers and privileges
hereunder and that Trustee may further assign such rights, remedies, powers and
privileges to the extent permitted in the Indenture and the other Facility
Documents. The Originator agrees that the Trustee, as the assignee of the Buyer,
shall, subject to the terms of the Indenture and the other Facility Documents,
have the right to enforce this Agreement and to exercise directly all of the
Buyer's rights and remedies under this Agreement, and the Originator agrees to
cooperate fully with the Trustee and the Servicer in the exercise of such rights
and remedies.
SECTION 9.05. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, EXCEPT
TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE INTERESTS OF THE BUYER IN
THE PURCHASED LOANS, OR REMEDIES HEREUNDER, IN RESPECT THEREOF, ARE GOVERNED BY
THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK.
SECTION 9.06. Costs, Expenses and Taxes. (a) In addition to
the rights of indemnification granted to the Buyer under Article VIII hereof,
the Originator agrees to pay on demand (i) all reasonable costs and expenses in
connection with the preparation, execution, delivery and administration
(including periodic auditing by the Buyer or its agents or representatives) of
this Agreement, the Indenture and the other Facility
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Documents, including, without limitation, the reasonable fees and reasonable
out-of-pocket expenses of counsel for the Buyer (and the Trustee and the Program
Agent) with respect thereto and with respect to advising the Buyer (and the
Trustee and the Program Agent) as to its rights and remedies under this
Agreement, and the other agreements executed pursuant hereto, and (ii) all costs
and expenses, if any (including reasonable counsel fees and expenses), in
connection with the enforcement of this Agreement and the other Facility
Documents.
(b) In addition, the Originator shall pay any and all stamp,
sales, excise and other taxes and fees payable or determined to be payable in
connection with the execution, delivery, filing and recording of this Agreement,
the Loans or the other agreements and documents to be delivered hereunder.
SECTION 9.07. CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.
THE ORIGINATOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK
STATE OR FEDERAL COURT SITTING IN THE CITY OF NEW YORK OVER ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND HEREBY IRREVOCABLY
AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN SUCH NEW YORK STATE OR FEDERAL COURT. THE ORIGINATOR IRREVOCABLY
CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS TO THE ORIGINATOR AT ITS ADDRESS
SPECIFIED IN SECTION 9.02. THE ORIGINATOR AGREES THAT A FINAL JUDGMENT IN ANY
SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. TO
THE EXTENT ENFORCEABLE UNDER APPLICABLE LAW, THE ORIGINATOR HEREBY WAIVES ANY
RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT, OR OTHERWISE BETWEEN THE ORIGINATOR AND THE BUYER ARISING OUT
OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM
IN CONNECTION WITH THIS AGREEMENT OR THE DOCUMENTS RELATED HERETO. INSTEAD, ANY
DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY.
SECTION 9.08. Execution in Counterparts; Severability. This
Agreement may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed shall be deemed
to be an original and all of which when taken together shall constitute one and
the same agreement. In case any provision in or obligation under this Agreement
shall be invalid, illegal or unenforceable in any jurisdiction, the validity,
legality and enforceability of the remaining provisions or obligations, or of
such provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
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SECTION 9.09. No Proceedings. The Originator and the Servicer
each hereby agrees that it will not institute any proceeding of the type
referred to in clause (ii) of definition of Insolvency Event (a) against HLS so
long as any commercial paper issued by HLS shall be outstanding or there shall
not have elapsed one year plus one day since the last day on which any such
commercial paper shall have been outstanding or (b) against the Buyer so long as
any rated indebtedness issued by the Buyer shall be outstanding or there shall
not have elapsed one year plus one day after the last day on which any such
rated indebtedness of the Buyer shall have been outstanding.
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IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
ORIGINATOR: SIRROM CAPITAL CORPORATION
By:
-----------------------------
Name:
Title:
BUYER: SIRROM FUNDING CORPORATION
By:
-----------------------------
Name:
Title:
SERVICER: SIRROM CAPITAL CORPORATION
By:
-----------------------------
Name:
Title:
45
<PAGE> 1
Exhibit f.15
EXECUTION COPY
CUSTODIAL AGREEMENT
THIS CUSTODIAL AGREEMENT (the "Agreement") dated as of
December 31, 1996, is entered into among SIRROM FUNDING CORPORATION ("SFC"),
SIRROM CAPITAL CORPORATION ("Sirrom"), FIRST TRUST NATIONAL ASSOCIATION ("First
Trust") in its capacity as the "Custodian" and ING BARING (U.S.) CAPITAL
MARKETS, INC., as agent for certain Holders of Notes issued under the Indenture
referred to below (the "Program Agent"). Capitalized terms used herein which are
not otherwise defined herein shall have the meanings assigned to such terms in
the Indenture.
PRELIMINARY STATEMENT
WHEREAS, SFC and Sirrom are parties to that certain Loan Sale
and Contribution Agreement of even date herewith (as amended, modified or
supplemented from time to time, the "Loan Purchase Agreement") pursuant to SFC
may from time to time purchase loans (the "Issuer Loans") from Sirrom.
WHEREAS, SFC as the Issuer, Sirrom as the initial Servicer and
First Trust as Trustee, are parties to that certain Master Trust Indenture and
Security Agreement of even date herewith (as amended, modified or supplemented
from time to time, together with any "Supplements" thereto, the "Indenture")
pursuant to which SFC has pledged, among other things, the Issuer Loans to the
Trustee, for the benefit of the Noteholders.
WHEREAS, SFC has requested that First Trust act as custodian
(the "Custodian") for the purposes of (i) receiving and holding all Loan
Documents relating to all Issuer Loans purchased by SFC from Sirrom from time to
time and (ii) to act as the agent of the Noteholders for the purpose of
perfection under Article 9 of the UCC.
WHEREAS, First Trust is willing to act in such capacity as
Custodian.
NOW, THEREFORE, the parties agree as follows:
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<PAGE> 2
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. As used herein, the following terms
shall have the meanings assigned thereto below:
"Authorized Employee" means any of the employees of the
Program Agent listed on Schedule I hereto and any other employee of the Program
Agent who is hereafter authorized in writing by an existing Authorized Employee
(which authorization must be delivered to SFC and to the Custodian) to act as an
Authorized Employee of the Program Agent hereunder, provided, however, that any
Authorized Employee may send a notice to SFC and the Custodian informing them of
any other Authorized Employee who ceases to be an Authorized Employee.
"Report" has the meaning ascribed to such term in
Section 2.08.
"Report Effective Date" has the meaning ascribed to such term
in Section 2.08.
"Responsible Officer" means, with respect to SFC, the
officers set forth on Exhibit E.
"Termination Date" means that date when the Trustee notifies
the Custodian in writing that the satisfaction and discharge of the obligations
of the Issuer under the Indenture shall have occurred.
ARTICLE II
CUSTODIAN
SECTION 2.01. Designation and Appointment of First Trust as
Custodian. First Trust is hereby designated as, and hereby agrees to perform the
duties and obligations of, the Custodian under and as set forth in this
Agreement. First Trust shall serve as Custodian from the date hereof until the
Termination Date, subject to resignation or removal pursuant to Section 4.05
hereof.
SECTION 2.02. Duties of the Custodian. (a) At all times that
First Trust shall be the Custodian, it shall duly discharge its duties of
receiving and holding the Loan Documents in accordance with this Agreement. As
to any matters not expressly provided for by this Agreement, the Custodian shall
be
2
<PAGE> 3
required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the written instructions of the Program
Agent (executed by an Authorized Employee); provided, however, that the
Custodian shall not be required to take any action which is contrary to this
Agreement or applicable law, or which is not reasonably incidental to its duties
and responsibilities under this Agreement or is of a type unrelated to its
business.
(b) First Trust is hereby authorized and empowered, with the
prior written consent of the Program Agent, SFC, Sirrom and the Trustee, to
subcontract with or delegate to any other Person (at the Custodian's expense)
for performance of its duties and obligations as Custodian described in this
Agreement; provided that such other Person shall not become the Custodian
hereunder and the First Trust shall remain liable for the performance of its
duties and obligations as the Custodian pursuant to the terms hereof. The
Program Agent, SFC, Sirrom and the Trustee hereby consent to the appointment by
First Trust of SunTrust Bank, Nashville, N.A. as its subcontractor for the
performance of its duties described herein. Each subcontracting agreement will
be upon such terms and conditions as are not inconsistent with this Agreement.
All compensation payable to a subcontractor under any subcontracting agreement
shall be payable by the Custodian from the fee received by it pursuant to
Section 4.01 hereof or otherwise from its own funds, and neither the Trustee,
Sirrom, SFC nor the Program Agent shall have any obligations, duties or
liabilities of any kind whatsoever under any such subcontracting agreements.
SECTION 2.03. Loan Documents; Agent for Perfection. (a) From
time to time as provided in the Loan Purchase Agreement, the Loan Documents
related to the Issuer Loans shall be delivered by Sirrom to the Custodian. All
such Loan Documents shall be held by the Custodian pursuant to the terms hereof.
The Loan Documents for each Issuer Loan delivered to you must include, among
other things, (i) the original executed promissory note (the "Loan Note")
related to such Issuer Loan, endorsed by SFC (directly on such Loan Note or by
means of an allonge to such Loan Note) as follows: "Pay to the order of First
Trust National Association, as Trustee without recourse" and signed by a
Responsible Officer of SFC, with all prior and intervening endorsements showing
a complete chain of endorsement to SFC, (ii)(A) executed originals of all other
instruments included in the Loan Documents as described on the applicable Loan
Document Transmittal Sheet and (B) executed originals or copies of the loan
agreement and security agreement (which may be in the form
3
<PAGE> 4
of a loan and security agreement) and all other Loan Documents described on the
applicable Loan Document Transmittal Sheet. With each delivery of Loan Documents
to the Custodian, Sirrom shall provide the Custodian with a summary of specific
information with respect to each Issuer Loan (a "Loan Document Transmittal
Sheet")(with simultaneous delivery thereof by facsimile to the Trustee and the
Program Agent) substantially in the form of Exhibit A hereto. No later than the
Business Day after receipt thereof, the Custodian shall (i) confirm the
information set forth on each Loan Document Transmittal Sheet, noting thereon
all discrepancies between the information contained thereon and the Loan
Documents related thereto (if any), and (ii) deliver such Loan Document
Transmittal Sheet by facsimile to the Trustee, the Program Agent, SFC and
Sirrom.
(b) In order to perfect the interests of the Noteholders in
the Loan Notes related to Issuer Loans subject to the security interest granted
in the Indenture, the Custodian, acting directly or through its agents, shall
hold the Loan Notes, as agent hereunder for the Noteholders on the terms and
conditions hereinafter set forth.
SECTION 2.04. Removal of Loan Documents. (a) The Program Agent
shall have the unlimited right, upon written notice (by facsimile or otherwise),
which notice shall include a statement explicitly requesting the delivery of all
or any portion of the Loan Documents relating to one or more Issuer Loans,
executed by an Authorized Employee and delivered to the Custodian, with a copy
sent to SFC, Sirrom and the Trustee, to remove all or any portion of the Loan
Documents relating to one or more Issuer Loans from the Custodian.
(b) From time to time, with not less than three Business Days
prior written notice (substantially in the form of Exhibit B-1 hereto) delivered
to the Custodian (with simultaneous delivery thereof by facsimile to the Trustee
and the Program Agent), SFC may request the Custodian to release certain Loan
Documents held by the Custodian to the Servicer; provided, that the Custodian
shall release such Loan Documents only if (i) the Program Agent shall have
notified the Custodian in writing (with simultaneous delivery thereof by
facsimile to the Trustee and SFC) to release such Loan Documents, and (ii) SFC
and Sirrom shall have certified that either (1)(A) the applicable Issuer Loan is
an Ineligible Purchased Loan (as such term is defined in the Loan Purchase
Agreement) and (B) Sirrom has, pursuant to Section 8.02 of the Loan Purchase
Agreement, either (x) substituted a new Eligible Loan therefor and delivered the
Loan
4
<PAGE> 5
Documents related thereto to the Custodian or (y) repurchased such Ineligible
Purchased Loan by depositing repurchase price thereof to the Collection Account,
or (2) the release is being requested pursuant to Section 2.06(a) of the
Indenture and all of the conditions precedent to such release have been
satisfied. The right of SFC to request the release of Loan Documents under this
Section 2.04(b) may be withdrawn by the Program Agent at any time by written
notice to the Custodian from an Authorized Employee. Promptly upon the
satisfaction of the conditions precedent to any release of Loan Documents held
by the Custodian (including, without limitation, the receipt by the Program
Agent of the certification described in clause (ii) of the immediately preceding
sentence) the Program Agent shall direct the Custodian to release such Loan
Documents.
(c) From time to time, with not less than three Business Days
prior written notice (substantially in the form of Exhibit B-2 hereto) delivered
to the Custodian (with simultaneous delivery thereof by facsimile to the Trustee
and the Program Agent), the Servicer may request the Custodian to release
certain Loan Documents held by the Custodian to the Servicer; provided, that the
Custodian shall release such Loan Documents only if (i) the Program Agent shall
have notified the Custodian in writing (with simultaneous delivery thereof by
facsimile to the Trustee and the Servicer) to release such Loan Documents, and
(ii) the Servicer shall have certified that either (1)(A) the applicable Issuer
Loan has been paid in full and (B) that all amounts received or to be received
in connection with such payment which are required to be transferred to the
Collection Account in accordance with the terms of the Indenture have been so
transferred or (2) the Servicer has reasonably determined that it is necessary
to take possession of the Loan Documents with respect to such Issuer Loan for
the purpose of foreclosure thereon or further servicing thereof. The right of
the Servicer to request the release of Loan Documents under this Section 2.04(c)
may be withdrawn by the Program Agent at any time by written notice to the
Custodian from an Authorized Employee.
(d) Notwithstanding the requirement for three Business Days
prior written notice to the Custodian in respect to any request for the release
of certain Loan Documents as set forth in clauses (b) and (c) of this Section
2.04, the Custodian agrees to use its reasonable best efforts to accommodate
requests on shorter notice so long as (i) all other conditions precedent to any
such requested release are satisfied prior to such release and (ii) such
requests have not, in the Custodian's sole determination, become regular.
5
<PAGE> 6
(e) Other than as described in the this Section 2.04 and as
otherwise required by law, the Custodian shall have no authority to release any
Loan Documents to any Person, including, without limitation, SFC and Sirrom.
SECTION 2.05. Documents held by the Custodian. All Loan
Documents coming into the possession of the Custodian, (a) shall be held by it
in trust for the benefit of the Trustee, on behalf of the Noteholders, and shall
be segregated from all other documents held by the Custodian and placed for
safekeeping in a fireproof vault (or similar safekeeping device) located on its
premises, (b) shall be held by it as agent and bailee on behalf of the Trustee
for the purposes of perfecting the security interest therein of the Trustee, (c)
shall be made available to the Trustee and the Program Agent upon reasonable
prior notification on any Business Day, for inspection or otherwise, upon the
Trustee's or Program Agent's request therefor, and (d) shall be held in a manner
which allows such Loan Documents to be released within two Business Days
following the Custodian's receipt of notice pursuant to the terms set forth in
Section 2.04 above.
SECTION 2.06 No Liens or Encumbrances. The Custodian hereby
agrees not to assert any statutory or possessory liens or encumbrances of any
kind with respect to the Loan Documents held by it, and hereby waives all such
liens and encumbrances.
SECTION 2.07. Maintenance of Records. The Custodian shall
implement and maintain administrative and operating procedures pursuant to which
it shall keep and maintain all records and information necessary to permit the
regular identification of all Loan Documents held or released by it.
SECTION 2.08. Reports; Visitation Rights; Other Information.
(a) The Custodian shall furnish to the Trustee and the Program Agent, not later
than the Monthly Payment Date for each Collection Period, a report substantially
in the form of Exhibit C hereto (each, a "Report"), setting forth, as of the
last day of such Collection Period (with respect to each Report, the "Report
Effective Date"), (i) the Loan Documents held by the Custodian as of such Report
Effective Date and as of the Report Effective Date for the immediately preceding
Report, (ii) the Loan Documents delivered to the Custodian since the Report
Effective Date for the immediately preceding Report, and (iii) the Loan
Documents released by the Custodian since the Report Effective Date for the
immediately preceding Report. For purposes of clauses (ii) and (iii) above with
respect to the
6
<PAGE> 7
first Report delivered by the Custodian hereunder, "the Report Effective Date
for the immediately preceding Report" shall be deemed to mean the date on which
the Loan Documents are initially delivered to the Custodian hereunder. Each
Report shall identify the applicable Loan Documents by loan number.
(b) On the date any Loan Documents are initially delivered to
the Custodian hereunder, (i) SFC shall deliver a notice to the Trustee and the
Program Agent indicating such Loan Documents as shall have been added on such
date, identified by loan number and (ii) the Custodian shall deliver to the
Trustee (with a copy to the Program Agent and SFC) a Receipt substantially in
the form of Exhibit D attached hereto identifying the Loan Documents that it has
received and confirming that it holds such Loan Documents on the Trustee's
behalf.
(c) From time to time upon reasonable prior notification,
during normal business hours, the Program Agent and the Trustee, and any of
their respective authorized agents, employees or representatives, shall have the
right (i) to visit the office of the Custodian (or its subcontractor) where the
Loan Documents are kept, (ii) to examine the facilities for the storage and
safekeeping thereof, (iii) to review the procedures with which such documents
are stored and catalogued, (iv) to examine and make copies of and abstracts from
such documents, and (v) to discuss matters relating to the Loan Documents and
the Custodian's performance hereunder with any officer of the Custodian having
knowledge of such matters.
(d) The Custodian shall provide to the Trustee and the Program
Agent such other information as either may from time to time reasonably request,
concerning the Loan Documents which are in the possession of the Custodian.
SECTION 2.09. Custodian's Liability. The Custodian shall have
no liability whatsoever by reason of any error of judgment for any act done or
step taken or omitted by it, or for any mistake of fact or law for anything
which it may do or refrain from doing in connection herewith, unless caused by
or arising out of its own gross negligence or willful misconduct. Furthermore,
the Program Agent, SFC and Sirrom each agree to hold the Custodian harmless from
any and all losses, expenses, damages and costs (including, without limitation,
attorneys fees) incurred by either as a result of their execution of, or
performance of their respective obligations under, this Agreement, unless
however, such losses, expenses, damages and
7
<PAGE> 8
costs are caused by or arise out of the Custodian's gross negligence or willful
misconduct. The provisions of this Section 2.09 shall be continuing and shall
survive the termination of this Agreement.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 3.01. Representations and Warranties of the Custodian.
The Custodian hereby represents and warrants to SFC, the Program Agent and the
Trustee, on behalf of itself and the Noteholders, as follows:
(i) The Custodian is a national banking association duly
incorporated, validly existing and in good standing under the laws of
the United States of America and has all required corporate power and
authority to enter into and perform its obligations under this
Agreement.
(ii) The execution, delivery and performance by the Custodian
of this Agreement has been duly authorized by all necessary corporate
action on the part of the Custodian.
(iii) The Custodian has, and has created, no liens against any
Loan Document.
(iv) There are no actions or proceedings pending or, to the
actual knowledge of any officers of the Custodian, threatened against
it before any court or other governmental authority (A) which question
the validity or enforceability of this Agreement; or (B) which relate
to the trust powers of the Custodian and which, if determined adversely
to the position of the Custodian, would materially and adversely affect
the ability of the Custodian to perform its obligations as Custodian
under this Agreement.
(v) This Agreement has been duly executed and delivered by the
Custodian.
8
<PAGE> 9
ARTICLE IV
MISCELLANEOUS
SECTION 4.01. Fees and Expenses of the Custodian. SFC agrees
to pay the Custodian such fees (the "Custodian Fees") and expenses as set forth
in the fee letter of even date herewith between SFC and the Custodian.
SECTION 4.02. Amendments, Etc. No amendment or waiver of any
provision of this Agreement nor consent to any departure therefrom, shall in any
event be effective unless the same shall be in writing and signed by each party
hereto, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 4.03. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing (including telex
communication and communication by facsimile copy) and mailed, telexed,
transmitted or delivered, as to each party hereto, at its address set forth
under its name on the signature pages hereof or at such other address as shall
be designated by such party in a written notice to the other parties hereto. All
such notices and communications shall be effective, upon receipt, or in the case
of delivery by facsimile copy, when verbal communication of receipt is obtained,
in each case addressed as aforesaid.
SECTION 4.04. Binding Effect; Assignability; Term. This
Agreement shall be binding upon and inure to the benefit of the Trustee, the
Program Agent, SFC, Sirrom and the Custodian and their respective successors and
permitted assigns. The Program Agent may assign at any time its rights and
obligations hereunder and interests herein without the consent of the SFC,
Sirrom or the Custodian. This Agreement shall create and constitute the
continuing obligations of the parties hereto in accordance with its terms, and
shall remain in full force and effect until the Termination Date, provided,
however, that the provisions of Section 2.09 shall be continuing and shall
survive the termination of this Agreement. The Custodian may not assign any of
its rights, duties and obligations hereunder or any interest herein without the
prior written consent, executed by an Authorized Employee, of the Program Agent.
SECTION 4.05. Resignation and Removal. The Custodian may
resign at any time by giving written notice thereof to the Program Agent not
less than 120 days' prior to the effective date of such resignation. The
Custodian may be removed by the Trustee
9
<PAGE> 10
or the Program Agent at any time, with or without cause, by the Trustee or the
Program Agent, as the case may be, giving written notice thereof to the
Custodian not less than ten (10) days prior to the effective date of such
removal. Upon any such resignation or removal, the Program Agent shall have the
right to appoint a successor Custodian. Any such successor shall, upon its
acceptance thereof, succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Custodian, and the retiring Custodian
shall be discharged from its duties and obligations as Custodian under this
Agreement.
SECTION 4.06. Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws and decisions of the State of New
York.
SECTION 4.07. Execution in Counterparts; Severability. This
Agreement may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed shall be deemed
to be an original and all of which when taken together shall constitute one and
the same agreement. In case any provision in or obligation under this Agreement
shall be invalid, illegal or unenforceable in any jurisdiction, the validity,
legality and enforceability of the remaining provisions or obligations, or of
such provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
SIRROM FUNDING CORPORATION
By:
------------------------------
Name:
Title:
Notice Address:
c/o Sirrom Capital Corporation
500 Church Street, Suite 200
Nashville, Tennessee 37219
Attention: Chief Financial Officer
Telecopier: (615) 726-1208
SIRROM CAPITAL CORPORATION,
individually and as Servicer
By:
------------------------------
Name:
Title:
Notice Address:
500 Church Street, Suite 200
Nashville, Tennessee 37219
Attention: Chief Financial Officer
Telecopier: (615) 726-1208
11
<PAGE> 12
FIRST TRUST NATIONAL ASSOCIATION,
as Custodian
By:
-------------------------------
Name:
Title:
Notice Address:
180 East Fifth Street, SPFTMZ04
St. Paul, Minnesota 55101
Attention: DCS - Client Services
Telecopier: (612) 244-0010
ING BARING (U.S.) CAPITAL MARKETS,
INC., as Program Agent
By:
------------------------------
Name:
Title:
Notice Address:
135 East 57th Street
New York, New York 10022-2101
Attention: Laurel S. Choate
Telecopier: (212) 593-3362
Acknowledged and agreed to
this ____ day of December, 1996
FIRST TRUST NATIONAL ASSOCIATION,
as Trustee
By:
------------------------------
Name:
Title:
Notice Address:
180 East Fifth Street, SPFT0210
St. Paul, Minnesota 55101
Attention: Structured Finance Administration
Telecopier: (612) 244-0089
12
<PAGE> 13
EXHIBIT A
Form of Loan Document Transmittal Sheet
Loans transferred from Sirrom Funding Corporation to Sirrom Capital Corporation
as of _______ (date)
<TABLE>
<CAPTION>
Sirrom Custodial Confirmation
(Note any discrepancies)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Borrower Name
- ---------------------------------------------------------------------------------------------------------------------------
Loan Amount
- ---------------------------------------------------------------------------------------------------------------------------
Interest Rate
- ---------------------------------------------------------------------------------------------------------------------------
Maturity Date
- ---------------------------------------------------------------------------------------------------------------------------
Original Note properly endorsed
- ---------------------------------------------------------------------------------------------------------------------------
Original or Copy of Loan Agreement
- ---------------------------------------------------------------------------------------------------------------------------
Original or Copy of Security Agreement
- ---------------------------------------------------------------------------------------------------------------------------
Original Stock Warrant Agreement
- ---------------------------------------------------------------------------------------------------------------------------
Original Real Estate Related documents (if applicable)
1. Original mortgage (A certified copy if the
original has been lost or a copy with the
signature of a responsible officer stating that
the mortgage is at the recording office)
2. An original endorsed assignment of the
mortgage (or copy in the case of the
circumstances discussed in (1) above)
3. Originals of all intervening documents (or
copy in the case of the circumstances
discussed in (1) above)
4. Copies of appraisals, environmental surveys
and questionnaires, title insurance policies,
etc.
- ---------------------------------------------------------------------------------------------------------------------------
List of any other documents
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Upon completion, please fax immediately to the Program Agent, the Trustee,
Sirrom Funding Corporation and Sirrom Capital Corporation.
13
<PAGE> 14
EXHIBIT B-1
__________ __, 199__
First Trust National Association,
as Custodian
180 East Fifth Street, SPFTMZ04
St. Paul, Minnesota 55101
Attention: DCS - Client Services
First Trust National Association,
as Trustee
180 East Fifth Street, SPFT0210
St. Paul, Minnesota 55101
Attention: Structured Finance Administration
ING Baring (U.S.) Capital
Markets, Inc., as Program Agent
135 East 57th Street
New York, New York 10022
Attention: Joseph S. Weingarten
Re: Sirrom Funding Corporation - Removal of Loan
Documents
Ladies and Gentlemen:
Pursuant to Section 2.04(b) of that certain Custodian
Agreement dated as of [_________], 1996 (the "Custodian Agreement"; capitalized
terms used herein and not otherwise defined herein shall have the meanings
ascribed thereto in the Custodian Agreement) among Sirrom Funding Corporation
("SFC"), Sirrom Capital Corporation, First Trust National Association, as
Custodian and ING Baring (U.S.) Capital Markets, Inc., as Program Agent, the
undersigned hereby requests that the following Loan Documents be delivered into
our possession:
[Identify Loan Documents to be released,
including loan numbers and other requested information]
In connection with the foregoing, the undersigned hereby
represents and warrants as follows:
(a) A copy of this notice has been delivered to the Trustee
and the Program Agent simultaneously with delivery to the Custodian.
<PAGE> 15
(b) With respect to each of the foregoing Loan Documents,
either (1)(A) the applicable Issuer Loan is an Ineligible Purchased
Loan (as such term is defined in the Loan Purchase Agreement) and (B)
Sirrom has, pursuant to Section 8.02 of the Loan Purchase Agreement,
either (x) substituted a new Eligible Loan therefor and delivered the
Loan Documents related thereto to the Custodian or (y) repurchased such
Ineligible Purchased Loan by depositing repurchase price thereof to the
Collection Account, or (2) the applicable Issuer Loan has been
transferred pursuant to Section 2.06(a) of the Indenture and all of the
conditions precedent to such transfer have been satisfied.
(c) No Set-Aside Period shall have occurred and be continuing,
no Event of Default, "Event of Default" under any Supplement or
Servicer Default shall have occurred or be continuing, nor shall any
event exist which but for notice, or the lapse of time, or both, would
constitute an Event of Default, an "Event of Default" under any
Supplement or a Servicer Default.
Very truly yours,
SIRROM FUNDING CORPORATION
By:
------------------------
[Title]
2
<PAGE> 16
EXHIBIT B-2
__________ __, 199__
First Trust National Association,
as Custodian
180 East Fifth Street, SPFTMZ04
St. Paul, Minnesota 55101
Attention: DCS - Client Services
First Trust National Association,
as Trustee
180 East Fifth Street, SPFT0210
St. Paul, Minnesota 55101
Attention: Structured Finance Administration
ING Baring (U.S.) Capital
Markets, Inc., as Program Agent
135 East 57th Street
New York, New York 10022
Attention: Joseph S. Weingarten
Re: Sirrom Funding Corporation - Removal of Loan
Documents
Ladies and Gentlemen:
Pursuant to Section 2.04(c) of that certain Custodian
Agreement dated as of [_________], 1996 (the "Custodian Agreement"; capitalized
terms used herein and not otherwise defined herein shall have the meanings
ascribed thereto in the Custodian Agreement) among Sirrom Funding Corporation
("SFC"), Sirrom Capital Corporation, First Trust National Association, as
Custodian and ING Baring (U.S.) Capital Markets, Inc., as Program Agent, the
undersigned hereby requests that the following Loan Documents be delivered into
our possession:
[Identify Loan Documents to be released,
including loan numbers and other requested information]
In connection with the foregoing, the undersigned hereby
represents and warrants as follows:
(a) A copy of this notice has been delivered to the Trustee
and the Program Agent simultaneously with delivery to the Custodian.
<PAGE> 17
(b) With respect to each of the foregoing Loan Documents,
either (1)(A) the applicable Issuer Loan has been paid in full and (B)
that all amounts received or to be received in connection with such
payment which are required to be transferred to the Collection Account
in accordance with the terms of the Indenture have been so transferred
or (2) the Servicer has reasonably determined that it is necessary to
take possession of the Loan Documents with respect to such Issuer Loan
for the purpose of foreclosure thereon or further servicing thereof.
(c) No Set-Aside Period shall have occurred and be continuing,
no Event of Default, "Event of Default" under any Supplement or
Servicer Default shall have occurred or be continuing, nor shall any
event exist which but for notice, or the lapse of time, or both, would
constitute an Event of Default, an "Event of Default" under any
Supplement or a Servicer Default.
Very truly yours,
SIRROM CAPITAL CORPORATION
By:
----------------------
[Title]
2
<PAGE> 18
EXHIBIT C
__________ __, 199__
First Trust National Association,
as Trustee
180 East Fifth Street, SPFT0210
St. Paul, Minnesota 55101
Attention: Structured Finance Administration
ING Baring (U.S.) Capital
Markets, Inc., as Program Agent
135 East 57th Street
New York, New York 10022
Attention: Joseph S. Weingarten
Re: Sirrom Funding Corporation - Report
Ladies and Gentlemen:
We are sending this letter to you pursuant to Section 2.08(a)
of that certain Custodian Agreement dated as of [_________], 1996 (the
"Custodian Agreement") among Sirrom Funding Corporation ("SFC"), Sirrom Capital
Corporation, First Trust National Association, as Custodian and ING Baring
(U.S.) Capital Markets, Inc., as Program Agent. Capitalized terms used herein
and not otherwise defined herein shall have the meanings ascribed thereto in the
Custodian Agreement). This letter constitutes the Report for the period (the
"Report Period") from ________________ to _________________ (the "Report
Effective Date"). As of such Report Effective Date:
1. Loan Documents Held During Entire Report Period
[List applicable Loan Documents by loan
number, and include other requested information]
2. Loan Documents Delivered During Report Period
[List applicable Loan Documents by loan
number, and include other requested information]
<PAGE> 19
3. Loan Documents Released During Report Period
[List applicable Loan Documents by loan
number, and include other requested information]
Very truly yours,
FIRST TRUST NATIONAL
ASSOCIATION, as Custodian
By:
---------------------
[Title]
2
<PAGE> 20
EXHIBIT D
__________ __, 199__
First Trust National Association,
as Trustee
180 East Fifth Street, SPFT0210
St. Paul, Minnesota 55101
Attention: Structured Finance Administration
ING Baring (U.S.) Capital
Markets, Inc., as Program Agent
135 East 57th Street
New York, New York 10022
Attention: Joseph S. Weingarten
Re: Sirrom Funding Corporation - Report
Ladies and Gentlemen:
We are sending this letter to you pursuant to Section 2.08(b)
of that certain Custodian Agreement dated as of [_________], 1996 (the
"Custodian Agreement") among Sirrom Funding Corporation ("SFC"), Sirrom Capital
Corporation, First Trust National Association, as Custodian and ING Baring
(U.S.) Capital Markets, Inc., as Program Agent. Capitalized terms used herein
and not otherwise defined herein shall have the meanings ascribed thereto in the
Custodian Agreement).
The undersigned hereby confirms to you its receipt of the
following Loan Documents:
[List applicable Loan Documents by loan
number, and include other requested information]
The undersigned hereby confirms that all of the above-listed Loan Documents
shall be held in trust for the benefit of the Trustee, on behalf of the
Noteholders, and shall be held at all times hereafter in accordance with the
terms of the Custodial Agreement.
Very truly yours,
FIRST TRUST NATIONAL
ASSOCIATION, as Custodian
By:
-----------------------
[Title]
<PAGE> 21
EXHIBIT E
RESPONSIBLE OFFICERS
Name Title
---- -----
George M. Miller, II President
David M. Resha Chief Operating Officer
Carl W. Stratton Chief Financial Officer
Kimberly Stringfield Controller/Treasurer
2
<PAGE> 22
SCHEDULE I
Authorized Employees
Joseph S. Weingarten
Evan E. Binder
Laurel S. Choate
Kenneth W. Bradt
Daniel M. Berger
Jennifer A. Wickoff
<PAGE> 1
Exhibit f.16
EXECUTION COPY
BACKUP SERVICING AGREEMENT
THIS BACKUP SERVICING AGREEMENT (the "Agreement") dated as of
December 31, 1996, is entered into among FIRST TRUST NATIONAL ASSOCIATION, a
national banking association ("First Trust"), as backup servicer (the "Backup
Servicer"), SIRROM CAPITAL CORPORATION, a Tennessee corporation ("Sirrom")(in
its capacity as initial Servicer under the Indenture referred to below, the
"Servicer"), and ING BARING (U.S.) CAPITAL MARKETS, INC., as agent for certain
Holders of Notes issued under the Indenture (the "Program Agent"). Capitalized
terms used herein which are not otherwise defined herein shall have the meanings
assigned to such terms in the Indenture.
PRELIMINARY STATEMENT
WHEREAS, Sirrom is the initial Servicer under that certain
Master Trust Indenture and Security Agreement of even date herewith (as the same
may be amended, restated, supplemented or otherwise modified from time to time,
and together with any Supplement thereto, the "Indenture"), with Sirrom Funding
Corporation, a Delaware corporation, as the Issuer and First Trust as the
Trustee; and
WHEREAS, the parties hereto desire to set forth certain
agreements with respect to (i) the performance by the Backup Servicer of certain
services which relate to the servicing by Sirrom of the Issuer Loans pledged to
the Trustee under the Indenture (the "Pledged Loans") and (ii) the assumption of
certain responsibilities as Servicer under the Indenture under certain
circumstances;
NOW, THEREFORE, in consideration of the foregoing and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Reconciliation Procedures. So long as the Backup
Servicer has not been appointed the "Servicer" pursuant to Section 2 hereof and
Section 10.02 of the Indenture:
(a) On or prior to the Determination Date with respect to each
Monthly Payment Date, the Servicer shall prepare and deliver to the Backup
Servicer, by overnight courier of national standing, a copy of the Settlement
Statement prepared by the Servicer pursuant to Section 3.05(b) of the Indenture
for the
<PAGE> 2
immediately preceding Collection Period and a computer tape or diskette, in a
format acceptable to the Program Agent and the Backup Servicer, containing all
information with respect to the Pledged Loans necessary to prepare the
Settlement Statement.
(b) On or before the Business Day preceding each Monthly
Payment Date in respect of the immediately preceding Collection Period, the
Backup Servicer shall (i) use the data received pursuant to subparagraph (a)
above to verify the amount of Principal Collections and Interest Collections
received with respect to the Pledged Loans during such Collection Period as set
forth in the applicable Settlement Statement and (ii) report to the Servicer the
nature and amount of any discrepancies identified as a result of such
verification process. The Servicer and the Backup Servicer shall use their best
efforts to reconcile any discrepancies identified to the Servicer pursuant to
the immediately preceding sentence prior to the related Monthly Payment Date;
provided that if the Servicer and the Backup Servicer are unable to reconcile
such discrepancies within two (2) Business Days after the such Monthly Payment
Date, the Servicer shall cause a firm of independent accountants to audit such
Settlement Statement and, prior to the seventh Business Day after such Monthly
Payment Date, reconcile such discrepancies. The effect, if any, of such
reconciliation shall be reflected in the next Daily Report delivered by the
Servicer to Trustee pursuant to the terms of the Indenture and the next
Settlement Statement for the immediately succeeding Monthly Payment Date.
(c) First Trust is hereby authorized and empowered, with the
prior written consent of the Program Agent, Sirrom and the Trustee, to
subcontract with or delegate to any other Person (at the Backup Servicer's
expense) for performance of its duties and obligations as Backup Servicer
described in this Agreement; provided that such other Person shall not become
the Backup Servicer hereunder and First Trust shall remain liable for the
performance of its duties and obligations as the Backup Servicer pursuant to the
terms hereof. The Program Agent, Sirrom and the Trustee hereby consent to the
appointment by First Trust of American Network Leasing Corporation as its
subcontractor for the performance of its duties described herein. Each
subcontracting agreement will be upon such terms and conditions as are not
inconsistent with this Agreement. All compensation payable to a subcontractor
under any subcontracting agreement shall be payable by the Backup Servicer from
the fee received by it pursuant to Section 4 hereof or otherwise from its own
funds, and neither the Trustee, Sirrom nor the Program Agent shall have any
obligations, duties or liabilities of any kind whatsoever under any such
subcontracting agreements.
2
<PAGE> 3
(d) The Backup Servicer shall have no obligations under this
Agreement other than those specifically set forth in this Section 1, and shall
not otherwise be obligated to supervise, verify, monitor or administer the
performance of the Servicer. The Backup Servicer shall have no liability for any
action or omission on the part of the Servicer.
SECTION 2. Assumption of Obligations. (a) The Backup Servicer
hereby agrees, on the date (the "Assumption Date") specified in the written
notice from the Backup Servicer to the Trustee pursuant to Section 10.02(a) of
the Indenture, and without any further notice, to assume the obligations of
Servicer, other than (i) the obligation, if any, of Sirrom to advance funds
pursuant to the Indenture, (ii) any obligation of the Servicer to make payments
with respect to any losses on investments made by or at the direction of the
Servicer, and (iii) any obligation of the Servicer to take any legal action
which the Backup Servicer in its reasonable opinion believes may subject it to
any liability in connection with such legal action. From and after the
Assumption Date, the Backup Servicer shall be entitled to all of the rights
granted to the Servicer by the terms and provisions of the Indenture. The Backup
Servicer shall not be obligated to assume the duties of the Servicer in the
event the Backup Servicer is determined to be incapable of performing such
duties as a matter of law in accordance with the provisions of Section 10.02 of
the Indenture.
(b) Notwithstanding the Backup Servicer's assumption of, and
its agreement to perform and observe, all duties, responsibilities and
obligations of the Servicer under the Indenture arising on and after the
Assumption Date, the Backup Servicer shall not be deemed to have assumed or to
become liable for, or otherwise have any liability for, any duties,
responsibilities, obligations or liabilities of Sirrom or any predecessor
Servicer arising on the terms of the Indenture, arising by operation of law or
otherwise, including, without limitation, any liability for, any duties,
responsibilities, obligations or liabilities of Sirrom or any predecessor
Servicer arising on or before the Assumption Date under Article III of the
Indenture, regardless of when the liability, duty, responsibility or obligation
of Sirrom or any predecessor Servicer therefor arose, whether provided by the
terms of the Indenture, arising by operation of law or otherwise and in no case
will the Backup Servicer have any liability for any failure to perform its
duties as Servicer, or any loss or damages arising from such failure, that
results from the actions (or inaction) of any predecessor Servicer on or before
the Assumption Date.
3
<PAGE> 4
SECTION 3. Indemnity. Sirrom shall indemnify, defend, and hold
harmless the Backup Servicer from and against any and all costs, expenses,
losses, claims, damages, and liabilities to the extent that such cost, expense,
loss, claim, damage, or liability arose out of, or was imposed upon the Backup
Servicer through, the negligence, willful misfeasance, or bad faith of Sirrom in
the performance of its duties under this Agreement or the Indenture or by reason
of reckless disregard of its obligations and duties under this Agreement or the
Indenture.
SECTION 4. Fees. The Backup Servicer shall be entitled to such
fees as are set forth in the fee agreement executed in connection herewith
between the Program Agent and the Backup Servicer.
SECTION 5. Further Assurances. The Backup Servicer agrees to
execute, acknowledge and deliver from time to time all such further instruments
and documents and to take all reasonable actions as the Program Agent may from
time to time reasonably request to preserve the rights and obligations created
hereunder; provided, however, that the Backup Servicer shall not be required to
take any action which is contrary to this Agreement or applicable law, or which
is not reasonably incidental to its duties and responsibilities under this
Agreement or is of a type unrelated to its business.
SECTION 6. Termination. This Agreement shall continue in full
force and effect until the earliest of the date (i) that the Backup Servicer has
assumed the obligations and responsibilities of the Servicer under the Indenture
pursuant to this Agreement, (ii) the satisfaction and discharge of the
obligations of the Issuer under the Indenture shall have occurred, (iii) that
the Backup Servicer resigns (which resignation may be made at any time by not
less than 120 days' prior written notice to the Servicer and the Program Agent)
and (iv) that the Backup Servicer is to be removed (which removal may be made at
any time without cause by the Program Agent by not less than 60 days' notice
then given in writing to the Backup Servicer and the Servicer). Notwithstanding
the foregoing, the provisions of Sections 2 and 3 of this Agreement shall be
continuing and shall survive the termination of this Agreement.
SECTION 7. Notice. All demands, notices and communications
under this Agreement shall be in writing, and delivered (a) personally, (b) by
certified mail, return receipt requested, (c) by Federal Express or similar
overnight carrier service or (d) by telecopy and shall be deemed to have been
duly given upon receipt, (i) in the case of the Backup Servicer, to First Trust
National Association, 180 East Fifth Street,
4
<PAGE> 5
SPFT0210, St. Paul, Minnesota 55101, Attention: Structured Finance
Administration, (Telecopy: (612) 244-0089) with a copy to American Network
Leasing Corporation, 5400 Legacy Drive, Plano, Texas 75024, Attention: William
H. Skelton (Telecopy: 972-605- 3140), (ii) in the case of Sirrom, to Sirrom
Capital Corporation, 500 Church Street, Suite 200 Nashville, Tennessee 37219,
Attention: Chief Financial Officer (Telecopy: 615-726-1208) and (iii) in the
case of the Program Agent, to ING Baring (U.S.) Capital Markets, Inc., 135 East
57th Street, New York, New York 10022-2101, Attention: Laurel S. Choate
(Telecopy: 212-593-3362).
SECTION 9. Miscellaneous. This Agreement may not be assigned
by the Backup Servicer or Sirrom. This Agreement may be assigned by the Program
Agent only to a successor Program Agent appointed pursuant to the Indenture.
This Agreement shall be construed in accordance with the laws of the State of
New York and the obligations, rights, and remedies of the parties under this
Agreement shall be determined in accordance with such laws. This Agreement may
be executed in counterparts, each of which shall be an original, but all of
which together shall constitute one and the same instrument.
SECTION 10. Conflict. The parties hereto acknowledge and agree
that to the extent the provisions of this Agreement conflict with the provisions
of the Indenture insofar as they relate to the Backup Servicer, the provisions
of this Agreement shall control.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective officers as of the day and
year first above written.
FIRST TRUST NATIONAL ASSOCIATION,
as Backup Servicer
By:
--------------------------
Name:
Title:
SIRROM CAPITAL CORPORATION
By:
--------------------------
Name:
Title:
ING BARING (U.S.) CAPITAL MARKETS,
INC., as Program Agent
By:
--------------------------
Name:
Title:
6
<PAGE> 1
Exhibit f.17
EXECUTION COPY
FEE AGREEMENT
THIS FEE AGREEMENT (the "Agreement") is dated as of December
31, 1996 among SIRROM CAPITAL CORPORATION ("Sirrom"), SIRROM FUNDING CORPORATION
(the "Issuer), a Delaware corporation, HOLLAND LIMITED SECURITIZATION, INC.
("HLS") and ING BARING (U.S.) CAPITAL MARKETS, INC. ("ING Capital"), in its
capacity as agent for HLS in respect of the "Notes" referred to below (in such
capacity, the "Program Agent"). Capitalized terms used herein and not otherwise
defined herein shall have the meanings assigned to such terms in the "Indenture"
referred to below.
PRELIMINARY STATEMENT
A. The Issuer, Sirrom, as Servicer (in such capacity, the
"Servicer") and First Trust National Association, as Trustee are parties to that
certain Master Trust Indenture and Security Agreement of even date herewith
(together with all "Supplements" thereto, as each may be amended, restated,
supplemented or otherwise modified from time to time, the "Indenture"), pursuant
to which the Issuer may from time to time authorize the issuance of Series of
Notes.
B. The Issuer, the Servicer, HLS and the Program Agent are
parties to that certain Note Purchase Agreement of even date herewith (as the
same may be amended, restated, supplemented or otherwise modified from time to
time, the "Note Purchase Agreement"), pursuant to which HLS has agreed to
purchase and the Issuer has agreed to sell all of the Revolving Notes, Series
1996-1 (the "Revolving Notes") issued under the Indenture.
C. To induce HLS to enter into the Note Purchase Agreement,
and for other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Fees. Sirrom and the Issuer hereby agree to
pay to HLS certain fees as follows:
(a) Facility Increase Fee. After the Closing Date of the Note
Purchase Agreement, on the effective date of each increase in the Stated Amount
(as defined in the Indenture) of the Revolving Notes, Sirrom shall pay to HLS a
Facility Increase Fee in an amount equal to the product of (i) 0.75% and (ii)
the
1
<PAGE> 2
amount of such increase in the Stated Amount of the Revolving Notes.
(b) Program Fees. After the Effective Date of the Note
Purchase Agreement, the Issuer shall pay to the Program Agent each of the
following fees (collectively for each Computation Period, the "Program Fees"),
payable in arrears on each Monthly Payment Date (as defined in the Indenture),
commencing with the Monthly Payment Date immediately succeeding the Effective
Date and on the last day of the Revolving Period (as defined in the Indenture):
(i) a program fee, for the account of HLS, in an amount equal
to the product of (i) a per annum rate of 2.25% and (ii) the Fee Basis
(as defined below) during the immediately preceding Computation Period
(as defined below); and
(ii) an unused facility fee, for the account of HLS, in an
amount equal to the product of (i) a per annum rate of 0.50% and (ii)
an amount equal to the excess of the average Stated Amount of the
Revolving Notes owned by HLS, ING Capital and/or their respective
Affiliates during the immediately preceding Computation Period and the
Fee Basis during the immediately preceding Computation Period.
For the purposes of this Agreement "Effective Date" shall mean
the date on which HLS shall have received written confirmation from Sirrom on
behalf of the Issuer, in form and substance satisfactory to HLS, that all
consents and approvals necessary for the consummation of the transactions
contemplated by the Note Purchase Agreement, the Indenture and the Series 1996-1
Supplement (including, without limitation, approval of the Securities and
Exchange Commission pursuant to the Investment Company Act of 1940) have been
obtained. For the purposes of this Agreement "Fee Basis" shall mean the average
Outstanding Principal Balance (as defined in the Series 1996-1 Supplement) of
Revolving Notes during the Computation Period, calculated on the basis of a
360-day year and the number of actual days elapsed. For the purposes of this
Agreement "Computation Period" shall mean (i) with respect to any Monthly
Payment Date, the calendar month (or, in the case of the calendar month in which
the Effective Date occurs, the portion of such calendar month following the
Effective Date) immediately preceding the calendar month in which such Monthly
Payment Date occurs, and (ii) with respect to any payment due on the last day of
the Revolving Period, the period commencing on the first day of the calendar
month in which the Revolving Period ends and ending on the last day of the
Revolving Period.
2
<PAGE> 3
In the event that the day upon which the Program Fee would
otherwise be due and payable occurs on a day which is not a Business Day, then
such payment shall be deemed to be due and payable on the Business Day
immediately succeeding such day.
SECTION 2. Restriction on Certain Indebtedness.
(a) Sirrom agrees that, prior to the Scheduled Pay-Out
Commencement Date (as defined in the Supplement for the Revolving Notes), so
long as both
(x) HLS, ING Capital and/or their respective Affiliates
(collectively, the "Purchasers") have not denied a request by Sirrom or
the Issuer to increase the Stated Amount of any Revolving Note owned by
the Purchasers such that after giving effect to such increase the
aggregate Outstanding Principal Balance of the Revolving Notes and
Fixed Principal Notes (collectively, the "Notes") owned by the
Purchasers would be in an amount in excess of $100,000,000, but less
than or equal to $200,000,000, and
(y) the aggregate Outstanding Principal Balance of the Notes
owned by the Purchasers is less than $180,000,000,
are true, it will not incur, nor will it allow any of its Subsidiaries (as
hereinafter defined) to incur, without the prior written consent of ING Capital,
any Indebtedness (as hereinafter defined) other than Permitted Indebtedness (as
hereinafter defined). For the purposes of this Agreement "Subsidiary " shall
mean any corporation, partnership or other entity of which more than fifty
percent (50%) of the outstanding capital stock or other interests having
ordinary voting power to elect a majority of the board of directors (if a
corporation) or to appoint the general partner (if a partnership) or otherwise
direct the management of such corporation, partnership or other entity
(irrespective of whether at the time stock or other interests of any other class
or classes of such corporation, partnership or other entity shall have or might
have voting power by reason of the happening of any contingency) is at the time,
directly or indirectly, owned by Sirrom.
For the purposes of this Agreement "Indebtedness" of any Person shall mean:
(i) indebtedness of such Person for borrowed money other
than intercompany loans,
(ii) obligations of such Person evidenced by bonds,
debentures, Notes or other similar instruments,
3
<PAGE> 4
(iii) any other financing, whether or not treated as indebtedness for
generally accepted accounting principles, including the sale or other
transfer of Eligible Loans in a securitization transaction.
For purposes of this Agreement "Permitted Indebtedness" shall mean:
(i) any Indebtedness under the Notes owned by Purchasers,
(ii) any Indebtedness incurred by Sirrom Investments, Inc. or its
successors guaranteed by the U.S. Small Business Administration and any
Indebtedness incurred under the Fourth Amended and Restated Loan
Agreement dated as of August 16, 1996 by and among First Union National
Bank of Tennessee, Sirrom Investments, Inc. and the other Lenders named
therein (including any Add-On Loans thereunder) (as such term is
defined in the Loan Purchase Agreement), as it may be amended (or
replaced in whole or in part with a similar facility) or increased from
time to time hereafter, so long as each such increase is approved by
the U.S. Small Business Administration,
(iii) any Indebtedness incurred by any Subsidiary of Sirrom guaranteed
by the Federal Home Loan Bank and any Indebtedness incurred under a
loan agreement with a third party lender in connection with
Indebtedness guaranteed by the Federal Home Loan Bank,
(iv) any Indebtedness that is used to finance and/or is secured by
Loans that are not Eligible Loans,
(v) any Indebtedness that is used to finance and/or is secured by
convertible debt instruments,
(vi) any Indebtedness that is used to finance and/or is secured by any
other investments that are not Eligible Loans,
(vii) any convertible debt financing,
(viii) any Indebtedness incurred while the Outstanding Principal
Balance of the Notes owned by Purchasers is greater than or equal to
(x) $180,000,000, or (y) after a denial of a Requested Increase, 90% of
the Stated Amount of the Notes on the date of such denial,
(ix) any Indebtedness incurred while the Outstanding
Principal Balance of the Notes owned by Purchasers is less
4
<PAGE> 5
than $180,000,000 (or after a denial of a Requested Increase, 90% of
the Stated Amount of the Notes on the date of such denial), but was
greater than $180,000,000 (or after a denial of a Requested Increase,
90% of the Stated Amount of the Notes on the date of such denial)
during the immediately preceding 15 days,
(x) High Cost Indebtedness (as defined below).
For purposes of this Agreement "High Cost Indebtedness" shall mean any
Indebtedness other than the types described in clauses (i) through (ix) of the
defined term "Permitted Indebtedness" which is incurred by Sirrom or any of its
Subsidiaries after the Amortization Date having a Comparison Percentage (as
defined below) in excess of 2.50%. For the purposes of this Agreement
"Comparison Percentage" shall mean, with respect to any Indebtedness, the spread
(expressed as a percentage) charged by the lender thereof, in excess of such
lenders cost of funds (expressed as a percentage), multiplied by a fraction, the
numerator of which is 70%, and the denominator of which is the advance
(expressed as a percentage) against Eligible Loans offered to Sirrom, or such
Subsidiary, with respect to such Indebtedness.
(b) Upon the occurrence of any breach of the covenant
described in clause (a) above, Sirrom shall pay to the Program Agent on each
Monthly Payment Date, for the account of HLS, an amount equal to the product of
(x) the per annum rate of 2.25% and (y) the weighted average amount of the
Indebtedness that does not constitute Permitted Indebtedness during the
Collection Period for such Monthly Payment Date (the "Incremental Fee Amount"),
such product to be calculated until the earlier to occur of the Scheduled
Pay-Out Commencement Date for the Revolving Notes (as defined in the Supplement
in respect of the Revolving Notes) owned by the Purchasers or the Take Out Date
(as defined below). For the purposes of this Agreement "Take Out Date" shall
mean the date following the Amortization Date when both (i) Holders of the
Revolving Notes have been paid in full and (ii) Sirrom shall have paid the Make
Whole Fee to the Program Agent (as defined below).
(c) Notwithstanding anything to the contrary set forth in this
Section 2, (i) in the event that Sirrom shall request in writing an increase
(the "Requested Increase") in the Stated Amount of the Revolving Notes issued
under the Indenture in an amount such that after giving effect to such increase,
the sum of the Stated Amount thereof, plus the aggregate Outstanding Principal
Balance of any Fixed Principal Notes issued under the indenture would not exceed
$200,000,000 in the aggregate, and the
5
<PAGE> 6
Purchasers shall fail to increase such Stated Amount on the same terms and
conditions as set forth in the Indenture and the Series 1996-1 Supplement, the
amount in clause (y) in subsection (b) above shall be reduced to an amount equal
to 90% of the Stated Amount of the Notes then owned by the Purchasers, and (ii)
Sirrom and its Subsidiaries may issue common stock, preferred stock or other
Equity Securities or securities convertible into or representing the right to
acquire Equity Securities and utilize the net proceeds without restriction,
including using the net proceeds to fund Eligible Loans and loans that are not
Eligible Loans, to make any other investments, to engage in other activities and
to pay down any amounts owing on the Revolving Notes.
(d) The parties hereto agree that for the purposes of this
Agreement, neither Sirrom nor any of its Subsidiaries shall be deemed to have
incurred any Indebtedness solely upon entering into an agreement containing a
commitment or other agreement to extend Indebtedness to such Person, but rather
Indebtedness shall occur on the date and in the amount of any advance, draw or
other extension of credit with respect to any such agreement.
(e) Notwithstanding any provisions hereof to the contrary, the
Incremental Fee Amount shall be waived by the Program Agent upon the merger of
or sale of all or substantially all of the assets or equity of Sirrom to any
Person that is not an affiliate of Sirrom (the date of such event being
hereinafter referred to as the "Acquisition Date"); provided that Sirrom shall
have paid the Make Whole Fee (as defined below) to the Program Agent.
For the purposes of this Agreement, "Make Whole Fee" as of any date of
determination, shall mean an amount equal to the product of (a) the sum of (i)
the Fee Basis as of the end of the most recently ended Computation Period plus
(ii) the amount of Indebtedness that does not constitute Permitted Indebtedness
as of the end of such Computation Period, (b) 1.125% and (c) a fraction, the
numerator of which is the number of months (rounded to the nearest whole number)
remaining from the such date of determination to the Scheduled Pay-Out
Commencement Date, and the denominator of which is 12.
SECTION 3. Representations and Warranties of Sirrom. Sirrom
hereby represents and warrants to HLS and the Program Agent as follows:
(i) Sirrom is a corporation duly organized, validly existing
and in good standing under the applicable laws of its jurisdiction of
organization or
6
<PAGE> 7
incorporation and has, in all material respects, full corporate power
and authority to own its properties and conduct its business as such
properties are presently owned and as such business is presently
conducted, and to execute, deliver and perform its obligations under
this Agreement.
(ii) The execution and delivery of this Agreement by Sirrom
and the performance by Sirrom of this Agreement has been duly
authorized by all necessary corporate action on the part of the Sirrom.
(iii) This Agreement has been duly and validly executed and
delivered by Sirrom and constitutes a legal, valid and binding
obligation of Sirrom enforceable against it in accordance with its
terms except as such enforceability may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or other similar
laws now and hereafter in effect affecting creditors' rights generally,
and except as such enforceability may be limited by general principles
of equity (whether considered in a suit at law or in equity).
(iv) Sirrom's execution and delivery of this Agreement,
performance of the transactions contemplated by this Agreement, and
fulfillment of the terms hereof, do not conflict with or violate in any
material respects any material requirements of law applicable to
Sirrom, or conflict with, result in any breach of any of the material
terms and provisions of, or constitute (with or without notice or lapse
of time or both) a default under, any material indenture, contract,
agreement, mortgage, deed of trust or other instrument to which Sirrom
is a party or by which it or its properties are bound in any manner
which is likely to have a material adverse effect on Sirrom's ability
to perform its obligations hereunder.
(v) No authorization, consent, license, order or approval of
or registration or declaration with any Governmental Authority is
required to be obtained, effected or given by Sirrom in connection with
the execution and delivery of this Agreement or the performance of its
obligations hereunder.
SECTION 4. Amendments, Etc. No amendment or waiver of
any provision of this Agreement nor consent to any departure
therefrom, shall in any event be effective unless the same shall
7
<PAGE> 8
be in writing and signed by each party hereto, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.
SECTION 5. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing (including telex communication and
communication by facsimile copy) and shall be delivered in accordance with the
terms of the Note Purchase Agreement.
SECTION 6. Binding Effect; Assignability; Term. This Agreement
shall be binding upon and inure to the benefit of Sirrom, HLS and the Program
Agent and their respective successors and permitted assigns. This Agreement
shall create and constitute the continuing obligations of the parties hereto in
accordance with its terms, and shall remain in full force and effect until the
Scheduled Pay-Out Commencement Date (as defined in the Supplement in respect of
the Revolving Notes); provided, however, that the provisions of Section 2 shall
be continuing and shall survive the termination of the Indenture and the
repayment in full of the Notes.
SECTION 7. Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws and decisions of the State of New
York.
SECTION 8. Execution in Counterparts; Severability. This
Agreement may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed shall be deemed
to be an original and all of which when taken together shall constitute one and
the same agreement. In case any provision in or obligation under this Agreement
shall be invalid, illegal or unenforceable in any jurisdiction, the validity,
legality and enforceability of the remaining provisions or obligations, or of
such provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
SIRROM CAPITAL CORPORATION
By:
------------------------------
Name:
Title:
SIRROM FUNDING CORPORATION
By:
------------------------------
Name:
Title:
HOLLAND LIMITED SECURITIZATION, INC.
By: ING Baring (U.S.) Capital Markets,
Inc., as its attorney-in-fact
By:
------------------------------
Name:
Title:
ING BARING (U.S.) CAPITAL MARKETS, INC.,
as Program Agent
By:
------------------------------
Name:
Title:
9
<PAGE> 1
Exhibit f.18
(MULTICURRENCY-CROSS BORDER)
ISDA(R)
International Swap Dealers Association, Inc.
MASTER AGREEMENT
dated as of November 26, 1996
NationsBank, N.A. and Sirrom Capital Corporation have entered and/or anticipate
entering into one or more transactions (each a "Transaction") that are or will
be governed by this Master Agreement, which includes the schedule (the
"Schedule"), and the documents and other confirming evidence (each a
"Confirmation") exchanged between the parties confirming those Transactions.
Accordingly, the parties agree as follows:--
1. INTERPRETATION
(a) DEFINITIONS. The terms defined in Section 14 and in the Schedule will
have the meanings therein specified for the purpose of this Master Agreement.
(b) INCONSISTENCY. In the event of any inconsistency between the provisions
of the Schedule and the other provisions of this Master Agreement, the Schedule
will prevail. In the event of any inconsistency between the provisions of any
Confirmation and this Master Agreement (including the Schedule), such
Confirmation will prevail for the purpose of the relevant Transaction.
(c) SINGLE AGREEMENT. All Transactions are entered into in reliance on the
fact that this Master Agreement and all Confirmations form a single agreement
between the parties (collectively referred to as this "Agreement"), and the
parties would not otherwise enter into any Transactions.
2. OBLIGATIONS
(a) GENERAL CONDITIONS.
(i) Each party will make each payment or delivery specified in each
Confirmation to be made by it, subject to the other provisions of this
Agreement.
(ii) Payments under this Agreement will be made on the due date for
value on that date in the place of the account specified in the relevant
Confirmation or otherwise pursuant to this Agreement, in freely
transferable funds and in the manner customary for payments in the
required currency. Where settlement is by delivery (that is, other than
by payment), such delivery will be made for receipt on the due date in
the manner customary for the relevant obligation unless otherwise
specified in the relevant Confirmation or elsewhere in this Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is subject to
(1) the condition precedent that no Event of Default or Potential Event
of Default with respect to the other party has occurred and is
continuing, (2) the condition precedent that no Early Termination Date in
respect of the relevant Transaction has occurred or been effectively
designated and (3) each other applicable condition precedent specified in
this Agreement.
Copyright (c) 1992 by International Swap Dealers Association, Inc.
<PAGE> 2
(b) CHANGE OF ACCOUNT. Either party may change its account for receiving a
payment or delivery by giving notice to the other party at least five Local
Business Days prior to the scheduled date for the payment or delivery to which
such change applies unless such other party gives timely notice of a reasonable
objection to such change.
(c) NETTING. If on any date amounts would otherwise be payable:--
(i) in the same currency; and
(ii) in respect of the same Transaction.
by each party to the other, then, on such date, each party's obligation to make
payment of any such amount will be automatically satisfied and discharged and,
if the aggregate amount that would otherwise have been payable by one party
exceeds the aggregate amount that would otherwise have been payable by the
other party, replaced by an obligation upon the party by whom the larger
aggregate amount would have been payable to pay to the other party the excess
of the larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net amount
will be determined in respect of all amounts payable on the same date in the
same currency in respect of such Transactions, regardless of whether such
amounts are payable in respect of the same Transaction. The election may be
made in the Schedule or a Confirmation by specifying that subparagraph (ii)
above will not apply to the Transactions identified as being subject to the
election, together with the starting date (in which case subparagraph (ii)
above will not, or will cease to, apply to such Transactions from such date).
This election may be made separately for different groups of Transactions and
will apply separately to each pairing of Offices through which the parties
make and receive payments or deliveries.
(d) DEDUCTION OR WITHHOLDING FOR TAX.
(i) GROSS-UP. All payments under this Agreement will be made without
any deduction or withholding for or on account of any Tax unless such
deduction or withholding is required by any applicable law, as modified
by the practice of any relevant governmental revenue authority, then in
effect. If a party is so required to deduct or withhold, then that
party ("X") will:--
(1) promptly notify the other party ("Y") of such requirement;
(2) pay to the relevant authorities the full amount required to
be deducted or withheld (including the full amount required to be
deducted or withheld from any additional amount paid by X to Y
under this Section 2(d)) promptly upon the earlier of determining
that such deduction or withholding is required or receiving notice
that such amount has been assessed against Y;
(3) promptly forward to Y an official receipt (or a certified
copy), or other documentation reasonably acceptable to Y,
evidencing such payment to such authorities; and
(4) if such Tax is an Indemnifiable Tax, pay to Y, in addition
to the payment to which Y is otherwise entitled under this
Agreement, such additional amount as is necessary to ensure that
the net amount actually received by Y (free and clear of
Indemnifiable Taxes, whether assessed against X or Y) will equal
the full amount Y would have received had no such deduction or
withholding been required. However, X will not be required to pay
any additional amount to Y to the extent that it would not be
required to be paid but for:--
(A) the failure by Y to comply with or perform any
agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d);
or
(B) the failure of a representation made by Y pursuant
to Section 3(f) to be accurate and true unless such failure
would not have occurred but for (I) any action taken by a
taxing authority, or brought in a court of competent
jurisdiction, on or after the date on which a Transaction
is entered into (regardless of whether such action is taken
or brought with respect to a party to this Agreement) or
(II) a Change in Tax Law.
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(ii) LIABILITY. If:--
(1) X is required by any applicable law, as modified by the
practice of any relevant governmental revenue authority, to make
any deduction or withholding in respect of which X would not be
required to pay an additional amount to Y under Section
2(d)(i)(4);
(2) X does not so deduct or withhold; and
(3) a liability resulting from such Tax is assessed directly
against X,
then, except to the extent Y has satisfied or then satisfies the
liability resulting from such Tax, Y will promptly pay to X the
amount of such liability (including any related liability for
interest, but including any related liability for penalties only if
Y has failed to comply with or perform any agreement contained in
Section 4(a)(i), 4(a)(iii) or 4(d)).
(e) DEFAULT INTEREST; OTHER AMOUNTS. Prior to the occurrence or effective
designation of an Early Termination Date in respect of the relevant
Transaction, a party that defaults in the performance of any payment obligation
will, to the extent permitted by law and subject to Section 6(c), be required
to pay interest (before as well as after judgment) on the overdue amount to the
other party on demand in the same currency as such overdue amount, for the
period from (and including) the original due date for payment to (but
excluding) the date of actual payment, at the Default Rate. Such interest will
be calculated on the basis of daily compounding and the actual number of days
elapsed. If, prior to the occurrence or effective designation of an Early
Termination Date in respect of the relevant Transaction, a party defaults in
the performance of any obligation required to be settled by delivery, it will
compensate the other party on demand if and to the extent provided for in the
relevant Confirmation or elsewhere in this Agreement.
3. REPRESENTATIONS
Each party represents to the other party (which representations will be deemed
to be repeated by each party on each date on which a Transaction is entered into
and, in the case of the representations in Section 3(f), at all times until the
termination of this Agreement) that:--
(a) BASIC REPRESENTATIONS.
(i) STATUS. It is duly organized and validly existing under the laws
of the jurisdiction of its organization or incorporation and, if
relevant under such laws, in good standing;
(ii) POWERS. It has the power to execute this Agreement and any other
documentation relating to this Agreement to which it is a party, to
deliver this Agreement and any other documentation relating to this
Agreement that it is required by this Agreement to deliver and to
perform its obligations under this Agreement and any obligations it has
under any Credit Support Document to which it is a party and has taken
all necessary action to authorize such execution, delivery and
performance;
(iii) NO VIOLATION OR CONFLICT. Such execution, delivery and
performance do not violate or conflict with any law applicable to it,
any provision of its constitutional documents, any order or judgment
of any court or other agency of government applicable to it or any of
its assets or any contractual restriction binding on or affecting it
or any of its assets;
(iv) CONSENTS. All governmental and other consents that are required
to have been obtained by it with respect to this Agreement or any
Credit Support Document to which it is a party have been obtained and
are in full force and effect and all conditions of any such consents
have been complied with; and
(v) OBLIGATIONS BINDING. Its obligations under this Agreement and
any Credit Support Document to which it is a party constitute its
legal, valid and binding obligations, enforceable in accordance with
their respective terms (subject to applicable bankruptcy,
reorganization, insolvency, moratorium or similar laws affecting
creditors' rights generally and subject, as to enforceability, to
equitable principles of general application (regardless of whether
enforcement is sought in a proceeding in equity or at law)).
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(b) ABSENCE OF CERTAIN EVENTS. No Event of Default or Potential Event of
Default or, to its knowledge, Termination Event with respect to it has
occurred and is continuing and no such event or circumstance would
occur as a result of its entering into or performing its obligations
under this Agreement or any Credit Support Document to which it is a
party.
(c) ABSENCE OF LITIGATION. There is not pending or, to its knowledge,
threatened against it or any of its Affiliates any action, suit or
proceeding at law or in equity or before any court, tribunal,
governmental body, agency or official or any arbitrator that is likely
to affect the legality, validity or enforceability against it of this
Agreement or any Credit Support Document to which it is a party or its
ability to perform obligations under this Agreement or such Credit
Support Document.
(d) ACCURACY OF SPECIFIED INFORMATION. All applicable information that is
furnished in writing by or on behalf of it to the other party and is
identified for the purpose of this Section 3(d) in the Schedule is, as
of the date of the information, true, accurate and complete in every
material respect.
(e) PAYER TAX REPRESENTATION. Each representation specified in the
Schedule as being made by it for the purpose of this Section 3(e) is
accurate and true.
(f) PAYEE TAX REPRESENTATIONS. Each representation specified in the
Schedule as being made by it for the purpose of this Section 3(f) is
accurate and true.
4. AGREEMENTS
Each party agrees with the other that, so long as either party has or may have
any obligation under this Agreement or under any Credit Support Document to
which it is a party:--
(a) FURNISH SPECIFIED INFORMATION. It will deliver to the other party or,
in certain cases under subparagraph (iii) below, to such government or taxing
authority as the other party reasonably directs:--
(i) any forms, documents or certificates relating to taxation
specified in the Schedule or any Confirmation;
(i) any other documents specified in the Schedule or any
Confirmation; and
(iii) upon reasonable demand by such other party, any form or document
that may be required or reasonably requested in writing in order to
allow such other party or its Credit Support Provider to make a
payment under this Agreement or any applicable Credit Support Document
without any deduction or withholding for or on account of any Tax or
with such deduction or withholding at a reduced rate (so long as the
completion, execution or submission of such form or document would not
materially prejudice the legal or commercial position of the party in
receipt of such demand), with any such form or document to be accurate
and completed in a manner reasonably satisfactory to such other party
and to be executed and to be delivered with any reasonably required
certification,
in each case the date specified in the Schedule or such Confirmation or, if none
is specified, as soon as reasonably practicable.
(b) MAINTAIN AUTHORIZATIONS. It will use all reasonable efforts to
maintain in full force and effect all consents of any governmental or other
authority that are required to be obtained by it with respect to this Agreement
or any Credit Support Document to which it is a party and will use all
reasonable efforts to obtain any that may become necessary in the future.
(c) COMPLY WITH LAWS. It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to comply
would materially impair its ability to perform its obligations under this
Agreement or any Credit Support Document to which it is a party.
(d) TAX AGREEMENT. It will give notice of any failure of a representation
made by it under Section 3(f) to be accurate and true promptly upon learning of
such failure.
(e) PAYMENT OF STAMP TAX. Subject to Section 11, it will pay any Stamp
Tax levied or imposed upon it or in respect of its execution or performance of
this Agreement by a jurisdiction in which it is incorporated,
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<PAGE> 5
organized, managed and controlled, or considered to have its seat, or in which
a branch or office through which it is acting for the purpose of this Agreement
is located ("Stamp Tax Jurisdiction") and will indemnify the other party
against any Stamp Tax levied or imposed upon the other party or in respect of
the other party's execution or performance of this Agreement by any such Stamp
Tax Jurisdiction which is not also a Stamp Tax Jurisdiction with respect to the
other party.
5. EVENTS OF DEFAULT AND TERMINATION EVENTS
(a) EVENTS OF DEFAULT. The occurrence at any time with respect to a party
or, if applicable, any Credit Support Provider of such party or any Specified
Entity of such party of any of the following events constitutes an event of
default (an "Event of Default") with respect to such party;
(i) FAILURE TO PAY OR DELIVER. Failure by the party to make,
when due, any payment under this Agreement or delivery under Section
2(a)(i) or 2(e) required to be made by it if such failure is not
remedied on or before the third Local Business Day after notice of
such failure is given to the party;
(ii) BREACH OF AGREEMENT. Failure by the party to comply with or
perform any agreement or obligation (other than an obligation to make
any payment under this Agreement or delivery under Section 2(a)(i) or
2(e) or to give notice of a Termination Event or any agreement or
obligation under Section 4(a)(i), 4(a)(iii) or 4(d)) to be complied
with or performed by the party in accordance with this Agreement if
such failure is not remedied on or before the thirtieth day after
notice of such failure is given to the party;
(iii) CREDIT SUPPORT DEFAULT.
(1) Failure by the party or any Credit Support Provider of
such party to comply with or perform any agreement or obligation
to be complied with or performed by it in accordance with any
Credit Support Document if such failure is continuing after any
applicable grace period has elapsed;
(2) the expiration or termination of such Credit Support
Document or the failing or ceasing of such Credit Support
Document to be in full force and effect for the purpose of this
Agreement (in either case other than in accordance with its
terms) prior to the satisfaction of all obligations of such
party under each Transaction to which such Credit Support
Document relates without the written consent of the other party;
or
(3) the party or such Credit Support Provider disaffirms,
disclaims, repudiates or rejects, in whole or in part, or
challenges the validity of, such Credit Support Document;
(iv) MISREPRESENTATION. A representation (other than a representation
under Section 3(e) or (f)) made or repeated or deemed to have been made
or repeated by the party or any Credit Support Provider of such party
in this Agreement or any Credit Support Document proves to have been
incorrect or misleading in any material respect when made or repeated
or deemed to have been made or repeated;
(v) DEFAULT UNDER SPECIFIED TRANSACTION. The party, any Credit
Support Provider of such party or any applicable Specified Entity of
such party (1) defaults under a Specified Transaction and, after
giving effect to any applicable notice requirement or grace period,
there occurs a liquidation of, an acceleration of obligations under,
or an early termination of, that Specified Transaction, (2) defaults,
after giving effect to any applicable notice requirement or grace
period, in making any payment or delivery due on the last payment.
delivery or exchange date of, or any payment on early termination of,
a Specified Transaction (or such default continues for at least three
Local Business Days if there is no applicable notice requirement or
grace period) or (3) disaffirms, disclaims, repudiates or rejects, in
whole or in part, a Specified Transaction (or such action is taken by
any person or entity appointed or empowered to operate it or act on
its behalf);
(vi) CROSS DEFAULT. If "Cross Default" is specified in the Schedule
as applying to the party, the occurrence or existence of (1) a default,
event of default or other similar condition or event (however
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described) in respect of such party, any Credit Support Provider of
such party or any applicable Specified Entity of such party under one
or more agreements or instruments relating to Specified Indebtedness
of any of them (individually or collectively) in an aggregate amount
of not less than the applicable Threshold Amount (as specified in the
Schedule) which has resulted in such Specified Indebtedness becoming,
or becoming capable at such time of being declared, due and payable
under such agreements or instruments, before it would otherwise have
been due and payable or 2) a default by such party, such Credit Support
Provider or such Specified Entity (individually or collectively) in
making one or more payments on the due date thereof in an aggregate
amount of not less than the applicable Threshold Amount under such
agreements or instruments (after giving effect to any applicable
notice requirement or grace period);
(vii) BANKRUPTCY. The party, any Credit Support Provider of such
party or any applicable Specified Entity of such party:-
(1) is dissolved (other than pursuant to a consolidation,
amalgamation or merger); (2) becomes insolvent or is unable to
pay its debts or fails or admits in writing its inability
generally to pay its debts as they become due; (3) makes a
general assignment, arrangement or composition with or for the
benefit of its creditors; (4) institutes or has instituted
against it a proceeding seeking a judgment of insolvency or
bankruptcy or any other relief under any bankruptcy or
insolvency law or other similar law affecting creditors' rights,
or a petition is presented for its winding-up or liquidation,
and, in the case of any such proceeding or petition instituted
or presented against it, such proceeding or petition (A) results
in a judgment of insolvency or bankruptcy or the entry of an
order for relief or the making of an order for its winding-up or
liquidation or (B) is not dismissed, discharged, stayed or
restrained in each case within 30 days of the institution or
presentation thereof; (5) has a resolution passed for its
winding-up, official management or liquidation (other than
pursuant to a consolidation, amalgamation or merger); (6) seeks
or becomes subject to the appointment of an administrator,
provisional liquidator, conservator, receiver, trustee,
custodian or other similar official for it or for all or
substantially all its assets; (7) has a secured party take
possession of all or substantially all its assets or has a
distress, execution, attachment, sequestration or other legal
process levied, enforced or sued on or against all or
substantially all its assets and such secured party maintains
possession, or any such process is not dismissed, discharged,
stayed or restrained, in each case within 30 days thereafter;
(8) causes or is subject to any event with respect to it which,
under the applicable laws of any jurisdiction, has an analogous
effect to any of the events specified in clauses (1) to (7)
(inclusive); or (9) takes any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any
of the foregoing acts; or
(viii) MERGER WITHOUT ASSUMPTION. The party or any Credit Support
Provider of such party consolidates or amalgamates with, or merges
with or into, or transfers all or substantially all its assets to,
another entity and, at the time of such consolidation, amalgamation,
merger or transfer:--
(1) the resulting,surviving or transferee entity fails to assume
all the obligations of such party or such Credit Support Provider
under this Agreement or any Credit Support Document to which it
or its predecessor was a party by operation of law or pursuant to
an agreement reasonably satisfactory to the other party to this
Agreement; or
(2) the benefits of any Credit Support Document fail to extend
(without the consent of the other party) to the performance by
such resulting, surviving or transferee entity of its obligations
under this Agreement.
(b) TERMINATION EVENTS. The occurrence at any time with respect to a
party or, if applicable, any Credit Support Provider of such party or any
Specified Entity of such party of any event specified below constitutes an
Illegality if the event is specified in (i) below, a Tax Event if the event is
specified in (ii) below or a Tax Event Upon Merger if the event is specified in
(iii) below, and, if specified to be applicable, a Credit Event
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Upon Merger if the event is specified pursuant to (iv) below or an Additional
Termination Event if the event is specified pursuant to (v) below:--
(i) ILLEGALITY. Due to the adoption of, or any change in, any
applicable law after the date on which a Transaction is entered into, or
due to the promulgation of, or any change in, the interpretation by any
court, tribunal or regulatory authority with competent jurisdiction of
any applicable law after such date, it becomes unlawful (other than as a
result of a breach by the party of Section 4(b)) for such party (which
will be the Affected Party):--
(1) to perform any absolute or contingent obligation to make a
payment or delivery or to receive a payment or delivery in respect
of such Transaction or to comply with any other material provision
of this Agreement relating to such Transaction; or
(2) to perform, or for any Credit Support Provider of such
party to perform, any contingent or other obligation which the
party (or such Credit Support Provider) has under any Credit
Support Document relating to such Transaction;
(ii) TAX EVENT. Due to (x) any action taken by a taxing authority, or
brought in a court of competent jurisdiction, on or after the date on
which a Transaction is entered into (regardless of whether such
action is taken or brought with respect to a party to this Agreement)
or (y) a Change in Tax Law, the party (which will be the Affected
Party) will, or there is a substantial likelihood that it will, on
the next succeeding Scheduled Payment Date (1) be required to pay to
the other party an additional amount in respect of an Indemnifiable
Tax under Section 2(d)(i)(4) (except in respect of interest under
Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a payment from which
an amount is required to be deducted or withheld for or on account of
a Tax (except in respect of interest under Section 2(e), 6(d)(ii) or
6(e)) and no additional amount is required to be paid in respect of
such Tax under Section 2(d)(i)(4) (other than by reason of Section
2(d)(i)(4)(A) or (B));
(iii) TAX EVENT UPON MERGER. The party (the "Burdened Party") on the
next succeeding Scheduled Payment Date will either (1) be required to
pay an additional amount in respect of an Indemnifiable Tax under
Section 2(d)(i)(4) (except in respect of interest under Section 2(e),
6(d)(ii) or 6(e)) or (2) receive a payment from which an amount has
been deducted or withheld for or on account of any Indemnifiable Tax
in respect of which the other party is not required to pay an
additional amount (other than by reason of Section 2(d)(i)(4)(A) or
(B), in either case as a result of a party consolidating or
amalgamating with, or merging with or into, or transferring all or
substantially all its assets to, another entity (which will be the
Affected Party) where such action does not constitute an event
described in Section 5(a)(viii);
(iv) CREDIT EVENT UPON MERGER. If "Credit Event Upon Merger" is
specified in the Schedule as applying to the party, such party ("X"),
any Credit Support Provider of X or any applicable Specified Entity of
X consolidates or amalgamates with, or merges with or into, or
transfers all or substantially all its assets to, another entity and
such action does not constitute an event described in Section
5(a)(viii) but the creditworthiness of the resulting, surviving or
transferee entity is materially weaker than that of X, such Credit
Support Provider or such Specified Entity, as the case may be,
immediately prior to such action (and, in such event, X or its
successor or transferee, as appropriate, will be the Affected Party);
or
(v) ADDITIONAL TERMINATION EVENT. If any "Additional Termination
Event" is specified in the Schedule or any Confirmation as applying,
the occurrence of such event (and, in such event, the Affected Party
or Affected Parties shall be as specified for such Additional
Termination Event in the Schedule or such Confirmation).
(c) EVENT OF DEFAULT AND ILLEGALITY. If an event or circumstance which
would otherwise constitute or give rise to an Event of Default also constitutes
an Illegality, it will be treated as an Illegality and will not constitute an
Event of Default.
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6. EARLY TERMINATION
(a) RIGHT TO TERMINATE FOLLOWING EVENT OF DEFAULT. If at any time an
Event of Default with respect to a party (the "Defaulting Party") has occurred
and is then continuing, the other party (the "Non-defaulting Party") may, by
not more than 20 days notice to the Defaulting Party specifying the relevant
Event of Default, designate a day not earlier than the day such notice is
effective as an Early Termination Date in respect of all outstanding
Transactions. If, however, "Automatic Early Termination" is specified in the
Schedule as applying to a party, then an Early Termination Date in respect
of all outstanding Transactions will occur immediately upon the occurrence with
respect to such party of an Event of Default specified in Section 5(a)(vii)(1),
(3), (5), (6) or, to the extent analogous thereto, (8), and as of the time
immediately preceding the institution of the relevant proceeding or the
presentation of the relevant petition upon the occurrence with respect to such
party of an Event of Default specified in Section 5(a)(vii)(4) or, to the
extent analogous thereto, (8).
(b) RIGHT TO TERMINATE FOLLOWING TERMINATION EVENT.
(i) NOTICE. If a Termination Event occurs, an Affected Party will,
promptly upon becoming aware of it, notify the other party, specifying
the nature of that Termination Event and each Affected Transaction and
will also give such other information about that Termination Event as
the other party may reasonably require.
(ii) TRANSFER TO AVOID TERMINATION EVENT. If either an Illegality
under Section 5(b)(i)(1) or a Tax Event occurs and there is only one
Affected Party, or if a Tax Event Upon Merger occurs and the Burdened
Party is the Affected Party, the Affected Party will, as a condition
to its right to designate an Early Termination Date under Section
6(b)(iv), use all reasonable efforts (which will not require such
party to incur a loss, excluding immaterial, incidental expenses) to
transfer within 20 days after it gives notice under Section 6(b)(i)
all its rights and obligations under this Agreement in respect of the
Affected Transactions to another of its Offices or Affiliates so that
such Termination Event ceases to exist.
If the Affected Party is not able to make such a transfer it will give
notice to the other party to that effect within such 20 day period,
whereupon the other party may effect such a transfer within 30 days
after the notice is given under Section 6(b)(i).
Any such transfer by a party under this Section 6(b)(ii) will be
subject to and conditional upon the prior written consent of the other
party, which consent will not be withheld if such other party's
policies in effect at such time would permit it to enter into
transactions with the transferee on the terms proposed.
(iii) TWO AFFECTED PARTIES. If an Illegality under Section 5(b)(i)(1)
or a Tax Event occurs and there are two Affected Parties, each party
will use all reasonable efforts to reach agreement within 30 days
after notice thereof is given under Section 6(b)(i) on action to avoid
that Termination Event.
(iv) RIGHT TO TERMINATE. If:--
(1) a transfer under Section 6(b)(ii) or an agreement under
Section 6(b)(iii), as the case may be, has not been effected with
respect to all Affected Transactions within 30 days after an
Affected Party gives notice under Section 6(b)(i); or
(2) an Illegality under Section 5(b)(i)(2), a Credit Event Upon
Merger or an Additional Termination Event occurs, or a Tax Event
Upon Merger occurs and the Burdened Party is not the Affected
Party,
either party in the case of an Illegality, the Burdened Party in the
case of a Tax Event Upon Merger, any Affected Party in the case of a
Tax Event or an Additional Termination Event if there is more than one
Affected Party, or the party which is not the Affected Party in the
case of a Credit Event Upon Merger or an Additional Termination Event
if there is only one Affected Party may, by not more than 20 days
notice to the other party and provided that the relevant Termination
Event is then
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continuing, designate a day not earlier than the day such notice is
effective as an Early Termination Date in respect of all Affected
Transactions.
(c) EFFECT OF DESIGNATION.
(i) If notice designating an Early Termination Date is given under
Section 6(a) or (b), the Early Termination Date will occur on the date
so designated, whether or not the relevant Event of Default or
Termination Event is then continuing.
(ii) Upon the occurrence or effective designation of an Early
Termination Date, no further payments or deliveries under Section
2(a)(i) or 2(e) in respect of the Terminated Transactions will be
required to be made, but without prejudice to the other provisions of
this Agreement. The amount, if any, payable in respect of an Early
Termination Date shall be determined pursuant to Section 6(e).
(d) CALCULATIONS.
(i) STATEMENT. On or as soon as reasonably practicable following
the occurrence of an Early Termination Date, each party will make the
calculations on its part, if any, contemplated by Section 6((e) and
will provide to the other party a statement (1) showing, in reasonable
detail, such calculations (including all relevant quotations and
specifying any amount payable under Section 6(e)) and (2) giving
details of the relevant account to which any amount payable to it is
to be paid. In the absence of written confirmation from the source of
a quotation obtained in determining a Market Quotation, the records of
the party obtaining such quotation will be conclusive evidence of the
existence and accuracy of such quotation.
(ii) PAYMENT DATE. An amount calculated as being due in respect of
any Early Termination Date under Section 6(e) will be payable on the
day that notice of the amount payable is effective (in the case of an
Early Termination Date which is designated or occurs as a result of an
Event of Default) and on the day which is two Local Business Days
after the day on which notice of the amount payable is effective (in
the case of an Early Termination Date which is designated as a result
of a Termination Event). Such amount will be paid together with (to
the extent permitted under applicable law) interest thereon (before as
well as after judgment) in the Termination Currency, from (and
including) the relevant Early Termination Date to (but excluding) the
date such amount is paid, at the Applicable Rate. Such interest will
be calculated on the basis of daily compounding and the actual number
of days elapsed.
(e) PAYMENTS ON EARLY TERMINATION. If an Early Termination Date occurs,
the following provisions shall apply based on the parties' election in the
Schedule of a payment measure, either "Market Quotation" or "Loss", and a
payment method, either the "First Method" or the "Second Method". If the
parties fail to designate a payment measure or payment method in the Schedule,
it will be deemed that "Market Quotation" or the "Second Method", as the case
may be, shall apply. The amount, if any, payable in respect of an Early
Termination Date and determined pursuant to this Section will be subject to any
Set-off.
(i) EVENTS OF DEFAULT. If the Early Termination Date results from
an Event of Default:-
(1) First Method and Market Quotation. If the First Method and
Market Quotation apply, the Defaulting Party will pay to the
Non-defaulting Party the excess, if a positive number, of (A)
the sum of the Settlement Amount (determined by the
Non-defaulting Party) in respect of the Terminated Transactions
and the Termination Currency Equivalent of the Unpaid Amounts
owing to the Non-defaulting Party over (B) the Termination
Currency Equivalent of the Unpaid Amounts owing to the
Defaulting Party.
(2) First Method and Loss. If the First Method and Loss
apply, the Defaulting Party will pay to the Non-defaulting
Party, if a positive number, the Non-defaulting Party's Loss in
respect of this Agreement.
(3) Second Method and Market Quotation. If the Second Method
and Market Quotation apply, an amount will be payable equal to
(A) the sum of the Settlement Amount (determined by the
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Non-defaulting Party) in respect of the Terminated Transactions
and the Termination Currency Equivalent of the Unpaid Amounts
owing to the Non-defaulting Party less (B) the Termination
Currency Equivalent of the Unpaid Amounts owing to the
Defaulting Party. If that amount is a positive number, the
Defaulting Party will pay it to the Non-defaulting Party; if it
is a negative number, the Non-defaulting Party will pay the
absolute value of that amount to the Defaulting Party.
(4) Second Method and Loss. If the Second Method and Loss
apply, an amount will be payable equal to the Non-defaulting
Party's Loss in respect of this Agreement. If that amount is a
positive number, the Defaulting Party will pay it to the
Non-defaulting Party; if it is a negative number, the
Non-defaulting Party will pay the absolute value of that amount
to the Defaulting Party.
(ii) TERMINATION EVENTS. If the Early Termination Date results from
a Termination Event:-
(1) One Affected Party. If there is one Affected Party, the
amount payable will be determined in accordance with Section
6(e)(i)(3), if Market Quotation applies, or Section 6(e)(i)(4),
if Loss applies, except that, in either case, references to the
Defaulting Party and to the Non-defaulting Party will be deemed
to be references to the Affected Party and the party which is
not the Affected Party, respectively, and, if Loss applies and
fewer than all the Transactions are being terminated, Loss shall
be calculated in respect of all Terminated Transactions.
(2) Two Affected Parties. If there are two Affected Parties:-
(A) if Market Quotation applies, each party will determine
a Settlement Amount in respect of the Terminated
Transactions, and an amount will be payable equal to (1)
the sum of (a) one-half of the difference between the
Settlement Amount of the party with the higher Settlement
Amount ("X") and the Settlement Amount of the party with
the lower Settlement Amount ("Y") and (b) the Termination
Currency Equivalent of the Unpaid Amounts owing to X less
(II) the Termination Currency Equivalent of the Unpaid
Amounts owing to Y; and
(B) if Loss applies, each party will determine its Loss in
respect of this Agreement (or, if fewer than all the
Transactions are being terminated, in respect of all
Terminated Transactions) and an amount will be payable
equal to one-half of the difference between the Loss of the
party with the higher Loss ("X") and the Loss of the party
with the lower Loss ("Y").
If the amount payable is a positive number, Y will pay it to X;
if it is a negative number, X will pay the absolute value of
that amount to Y.
(iii) ADJUSTMENT FOR BANKRUPTCY. In circumstances where an Early
Termination Date occurs because "Automatic Early Termination" applies in
respect of a party, the amount determined under this Section 6(e) will be
subject to such adjustments as are appropriate and permitted by law to
reflect any payments or deliveries made by one party to the other under
this Agreement (and retained by such other party) during the period from
the relevant Early Termination Date to the date for payment determined
under Section 6(d)(ii).
(iv) PRE-ESTIMATE. The parties agree that if Market Quotation
applies an amount recoverable under this Section 6(e) is a reasonable
pre-estimate of loss and not a penalty. Such amount is payable for the
loss of bargain and the loss of protection against future risks and
except as otherwise provided in this Agreement neither party will be
entitled to recover any additional damages as a consequence of such
losses.
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7. TRANSFER
Subject to Section 6(b)(ii), neither this Agreement nor any interest or
obligation in or under this Agreement may be transferred (whether by way of
security or otherwise) by either party without the prior written consent of the
other party, except that:-
(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of all
or substantially all its assets to, another entity (but without prejudice to
any other right or remedy under this Agreement); and
(b) a party may make such a transfer of all or any part of its interest in
any amount payable to it from a Defaulting Party under Section 6(e).
Any purported transfer that is not in compliance with this Section will be void.
8. CONTRACTUAL CURRENCY
(a) PAYMENT IN THE CONTRACTUAL CURRENCY. Each payment under this Agreement
will be made in the relevant currency specified in this Agreement for that
payment (the "Contractual Currency"). To the extent permitted by applicable law,
any obligation to make payments under this Agreement in the Contractual Currency
will not be discharged or satisfied by any tender in any currency other than the
Contractual Currency, except to the extent such tender results in the actual
receipt by the party to which payment is owed, acting in a reasonable manner and
in good faith in converting the currency so tendered into the Contractual
Currency, of the full amount in the Contractual Currency of all amounts payable
in respect of this Agreement. If for any reason the amount in the Contractual
Currency so received falls short of the amount in the Contractual Currency
payable in respect of this Agreement, the party required to make the payment
will, to the extent permitted by applicable law, immediately pay such additional
amount in the Contractual Currency as may be necessary to compensate for the
shortfall. If for any reason the amount in the Contractual Currency so received
exceeds the amount in the Contractual Currency payable in respect of this
Agreement, the party receiving the payment will refund promptly the amount of
such excess.
(b) JUDGMENTS. To the extent permitted by applicable law, if any judgment or
order expressed in a currency other than the Contractual Currency is rendered
(i) for the payment of any amount owing in respect of this Agreement, (ii) for
the payment of any amount relating to any early termination in respect of this
Agreement or (iii) in respect of a judgment or order of another court for the
payment of any amount described in (i) or (ii) above, the party seeking
recovery, after recovery in full of the aggregate amount to which such party is
entitled pursuant to the judgment or order, will be entitled to receive
immediately from the other party the amount of any shortfall of the Contractual
Currency received by such party as a consequence of sums paid in such other
currency and will refund promptly to the other party any excess of the
Contractual Currency received by such party as a consequence of sums paid in
such other currency if such shortfall or such excess arises or results from any
variation between the rate of exchange at which the Contractual Currency is
converted into the currency of the judgment or order for the purposes of such
judgment or order and the rate of exchange at which such party is able, acting
in a reasonable manner and in good faith in converting the currency received
into the Contractual Currency, to purchase the Contractual Currency with the
amount of the currency of the judgment or order actually received by such
party. The term "rate of exchange" includes, without limitation, any premiums
and costs of exchange payable in connection with the purchase of or conversion
into the Contractual Currency.
(c) SEPARATE INDEMNITIES. To the extent permitted by applicable law, these
indemnities constitute separate and independent obligations from the other
obligations in this Agreement, will be enforceable as separate and independent
causes of action, will apply notwithstanding any indulgence granted by the party
to which any payment is owed and will not be affected by judgment being obtained
or claim or proof being made for any other sums payable in respect of this
Agreement.
(d) EVIDENCE OF LOSS. For the purpose of this Section 8, it will be
sufficient for a party to demonstrate that it would have suffered a loss had an
actual exchange or purchase been made.
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9. MISCELLANEOUS
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding of the parties with respect to its subject matter and supersedes
all oral communication and prior writings with respect thereto.
(b) AMENDMENTS. No amendment, modification or waiver in respect of this
Agreement will be effective unless in writing (including a writing evidenced by
a facsimile transmission) and executed by each of the parties or confirmed by an
exchange of telexes or electronic messages on an electronic messaging system.
(c) SURVIVAL OF OBLIGATIONS. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will survive the
termination of any Transaction.
(d) REMEDIES CUMULATIVE. Except as provided in this Agreement, the rights,
powers, remedies and privileges provided in this Agreement are cumulative and
not exclusive of any rights, powers, remedies and privileges provided by law.
(e) COUNTERPARTS AND CONFIRMATIONS.
(i) This Agreement (and each amendment, modification and waiver in
respect of it) may be executed and delivered in counterparts (including
by facsimile transmission), each of which will be deemed an original.
(ii) The parties intend that they are legally bound by the terms of each
Transaction from the moment they agree to those terms (whether orally or
otherwise). A Confirmation shall be entered into as soon as practicable
and may be executed and delivered in counterparts (including by facsimile
transmission) or be created by an exchange of telexes or by an exchange
of electronic messages on an electronic messaging system, which in each
case will be sufficient for all purposes to evidence a binding supplement
to this Agreement. The parties will specify therein or through another
effective means that and such counterpart, telex or electronic message
constitutes a Confirmation.
(f) NO WAIVER OF RIGHTS. A failure or delay in exercising any right, power
or privilege in respect of this Agreement will not be presumed to operate as a
waiver, and a single or partial exercise of any right, power or privilege will
not be presumed to preclude any subsequent or further exercise, of that right,
power or privilege or the exercise of any other right, power or privilege.
(g) HEADINGS. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.
10. OFFICES; MULTIBRANCH PARTIES
(a) If Section 10(a) is specified in the Schedule as applying, each party
that enters into a Transaction through an Office other than its head or home
office represents to the other party that, notwithstanding the place of booking
office or jurisdiction of incorporation or organization of such party, the
obligations of such party are the same as if it had entered into the Transaction
through its head or home office. This representation will be deemed to be
repeated by such party on each date on which a Transaction is entered into.
(b) Neither party may change the Office through which it makes and receives
payments or deliveries for the purpose of a Transaction without the prior
written consent of the other party.
(c) If a party is specified as a Multibranch Party in the Schedule, such
Multibranch Party may make and receive payments or deliveries under any
Transaction through any Office listed in the Schedule, and the Office through
which it makes and receives payments or deliveries with respect to a Transaction
will be specified in the relevant Confirmation.
11. EXPENSES
A Defaulting Party will, on demand, indemnify and hold harmless the other party
for and against all reasonable out-of-pocket expenses, including legal fees and
Stamp Tax, incurred by such other party by reason of the enforcement and
protection of its rights under this Agreement or any Credit Support Document
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to which the Defaulting Party is a party or by reason of the early termination
of any Transaction, including, but not limited to, costs of collection.
12. NOTICES
(a) EFFECTIVENESS. Any notice or other communication in respect of this
Agreement may be given in any manner set forth below (except that a notice or
other communication under Section 5 or 6 may not be given by facsimile
transmission or electronic messaging system) to the address or number or in
accordance with the electronic messaging system details provided (see the
Schedule) and will be deemed effective as indicated:-
(i) if in writing and delivered in person or by courier, on the
date it is delivered;
(ii) if sent by telex, on the date the recipient's answerback is
received;
(iii) if sent by facsimile transmission, on the date that transmission
is received by a responsible employee of the recipient in legible
form (it being agreed that the burden of proving receipt will be
on the sender and will not be met by a transmission report
generated by the sender's facsimile machine);
(iv) if sent by certified or registered mail (airmail, if overseas) or
the equivalent (return receipt requested), on the date that mail
is delivered or its delivery is attempted; or
(v) if sent by electronic messaging system, on the date that
electronic message is received,
unless the date of that delivery (or attempted delivery) or that receipt, as
applicable, is not a Local Business Day or that communication is delivered (or
attempted) or received, as applicable, after the close of business on a Local
Business Day, in which case that communication shall be deemed given and
effective on the first following day that is a Local Business Day.
(b) CHANGE OF ADDRESSES. Either party may by notice to the other change the
address, telex or facsimile number or electronic messaging system details at
which notices or other communications are to be given to it.
13. GOVERNING LAW AND JURISDICTION
(a) GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.
(b) JURISDICTION. With respect to any suit, action or proceedings relating to
this Agreement ("Proceedings"), each party irrevocably:-
(i) submits to the jurisdiction of the English courts, if this
Agreement is expressed to be governed by English law, or to the
non-exclusive jurisdiction of the courts of the State of New York and the
United States District Court located in the Borough of Manhattan in New
York City, if this Agreement is expressed to be governed by the laws of
the State of New York; and
(ii) waives any objection which it may have at any time to the laying of
venue of any Proceedings brought in any such court, waives any claim that
such Proceedings have been brought in an inconvenient forum and further
waives the right to object, with respect to such Proceedings, that such
court does not have any jurisdiction over such party.
Nothing in this Agreement precludes either party from bringing Proceedings in
any other jurisdiction (outside, if this Agreement is expressed to be governed
by English law, the Contracting States, as defined in Section 1(3) of the Civil
Jurisdiction and Judgments Act 1982 or any modification, extension or
re-enactment thereof for the time being in force) nor will the bringing of
Proceedings in any one or more jurisdictions preclude the bringing of
Proceedings in any other jurisdiction.
(c) SERVICE OF PROCESS. Each party irrevocably appoints the Process Agent
(if any) specified opposite its name in the Schedule to receive, for it and on
its behalf, service of process in any Proceedings. If for any
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reason any party's Process Agent is unable to act as such, such party will
promptly notify the other party and within 30 days appoint a substitute
process agent acceptable to the other party. The parties irrevocably consent
to service of process given in the manner provided for notices in Section 12.
Nothing in this Agreement will affect the right of either party to serve
process in any other manner permitted by law.
(d) WAIVER OF IMMUNITIES. Each party irrevocably waives, to the fullest
extent permitted by applicable law, with respect to itself and its revenues and
assets (irrespective of their use or intended use), all immunity on the grounds
of sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any
court, (iii) relief by way of injunction, order for specific performance or for
recovery of property, (iv) attachment of its assets (whether before or after
judgment) and (v) execution or enforcement of any judgment to which it or its
revenues or assets might otherwise be entitled in any Proceedings in the courts
of any jurisdiction and irrevocably agrees, to the extent permitted by
applicable law, that it will not claim any such immunity in any Proceedings.
14. DEFINITIONS
As used in this Agreement:-
"ADDITIONAL TERMINATION EVENT" has the meaning specified in Section 5(b).
"AFFECTED PARTY" has the meaning specified in Section 5(b).
"AFFECTED TRANSACTIONS" means (a) with respect to any Termination Event
consisting of an Illegality, Tax Event or Tax Event Upon Merger, all
Transactions affected by the occurrence of such Termination Event and (b) with
respect to any other Termination Event, all Transactions.
"AFFILIATE" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person. For this purpose, "control"
of any entity or person means ownership of a majority of the voting power of
the entity or person.
"APPLICABLE RATE" means:-
(a) in respect of obligations payable or deliverable (or which would have
been but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;
(b) in respect of an obligation to pay an amount under Section 6(e) of
either party from and after the date (determined in accordance with Section
6(d)(ii)) on which that amount is payable, the Default Rate;
(c) in respect of all other obligations payable or deliverable (or which
would have been but for Section 2(a)(iii)) by a Non-defaulting Party, the
Non-default Rate; and
(d) in all other cases, the Termination Rate.
"BURDENED PARTY" has the meaning specified in Section 5(b).
"CHANGE IN TAX LAW" means the enactment, promulgation, execution or ratification
of, or any change in or amendment to, any law (or in the application or official
interpretation of any law) that occurs on or after the date on which the
relevant Transaction is entered into.
"CONSENT" includes a consent, approval, action, authorization, exemption,
notice, filing, registration or exchange control consent.
"CREDIT EVENT UPON MERGER" has the meaning specified in Section 5(b).
"CREDIT SUPPORT DOCUMENT" means any agreement or instrument that is specified
as such in this Agreement.
"CREDIT SUPPORT PROVIDER" has the meaning specified in the Schedule.
"DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if it
were to fund or of funding the relevant amount plus 1% per annum.
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"DEFAULTING PARTY" has the meaning specified in Section 6(a).
"EARLY TERMINATION DATE" means the date determined in accordance with Section
6(a) or 6(b)(iv).
"EVENT OF DEFAULT" has the meaning specified in Section 5(a) and, if applicable,
in the Schedule.
"ILLEGALITY" has the meaning specified in Section 5(b).
"INDEMNIFIABLE TAX" means any Tax other than a Tax that would not be imposed in
respect of a payment under this Agreement but for a present or former connection
between the jurisdiction of the government or taxation authority imposing such
Tax and the recipient of such payment or a person related to such recipient
(including, without limitation, a connection arising from such recipient or
related person being or having been a citizen or resident of such jurisdiction,
or being or having been organized, present or engaged in a trade or business in
such jurisdiction, or having or having had a permanent establishment or fixed
place of business in such jurisdiction, but excluding a connection arising
solely from such recipient or related person having executed, delivered,
performed its obligations or received a payment, under or enforced this
Agreement or a Credit Support Document).
"LAW" includes any treaty, law, rule or regulation (as modified, in the case of
tax matters, by the practice of any relevant governmental revenue authority)
and "LAWFUL" and "UNLAWFUL" will be construed accordingly.
"LOCAL BUSINESS DAY" means, subject to the Schedule, a day on which commercial
banks are open for business (including dealings in foreign exchange and foreign
currency deposits) (a) in relation to any obligation under Section 2(a)(i), in
the place(s) specified in the relevant Confirmation or, if not so specified. as
otherwise agreed by the parties in writing or determined pursuant to provisions
contained, or incorporated by reference, in this Agreement, (b) in relation to
any other payment, in the place where the relevant account is located and, if
different, in the principal financial centre, if any, of the currency of such
payment, (c) in relation to any notice or other communication, including notice
contemplated under Section 5(a)(i), in the city specified in the address for
notice provided by the recipient and, in the case of a notice contemplated by
Section 2(b), in the place where the relevant new account is to be located and
(d) in relation to Section 5(a)(v)(2), in the relevant locations for performance
with respect to such Specified Transaction.
"LOSS" means, with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, the Termination Currency
Equivalent of an amount that parry reasonably determines in good faith to be its
total losses and costs (or gain, in which case expressed as a negative number)
in connection with this Agreement or that Terminated Transaction or group of
Terminated Transactions, as the case may be, including any loss of bargain, cost
of funding or, at the election of such party but without duplication, loss or
cost incurred as a result of its terminating, liquidating, obtaining or
reestablishing any hedge or related trading position (or any gain resulting from
any of them). Loss includes losses and costs (or gains) in respect of any
payment or delivery required to have been made (assuming satisfaction of each
applicable condition precedent) on or before the relevant Early Termination Date
and not made, except, so as to avoid duplication, if Section 6(e)(i)(1) or (3)
or 6(e)(ii)(2)(A) applies. Loss does not include a party's legal fees and
out-of-pocket expenses referred to under Section 11. A party will determine its
Loss as of the relevant Early Termination Date, or, if that is not reasonably
practicable, as of the earliest date thereafter as is reasonably practicable. A
party may (but need not) determine its Loss by reference to quotations of
relevant rates or prices from one or more leading dealers in the relevant
markets.
"MARKET QUOTATION" means, with respect to one or more Terminated Transactions
and a party making the determination, an amount determined on the basis of
quotations from Reference Market-makers. Each quotation will be for an amount,
if any, that would be paid to such party (expressed as a negative number) or by
such party (expressed as a positive number) in consideration of an agreement
between such party (taking into account any existing Credit Support Document
with respect to the obligations of such party) and the quoting Reference
Market-maker to enter into a transaction (the "Replacement Transaction") that
would have the effect of preserving for such party the economic equivalent of
any payment or delivery (whether the underlying obligation was absolute or
contingent and assuming the satisfaction of each applicable condition precedent)
by the parties under Section 2(a)(i) in respect of such Terminated Transaction
or group of Terminated Transactions that would, but for the occurrence of the
relevant Early Termination Date, have
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been required after that date. For this purpose, Unpaid Amounts in respect of
the Terminated Transaction or group of Terminated Transactions are to be
excluded but without limitation, any payment or delivery that would, but for
the relevant Early Termination Date, have been required (assuming satisfaction
of each applicable condition precedent) after that Early Termination Date is to
be included. The Replacement Transaction would be subject to such
documentation as such party and the Reference Market-maker may, in good faith,
agree. The party making the determination (or its agent) will request each
Reference Market-maker to provide its quotation to the extent reasonably
practicable as of the same day and time (without regard to different time
zones) on or as soon as reasonably practicable after the relevant Early
Termination Date. The day and time as of which those quotations are to be
obtained will be selected in good faith by the party obliged to make a
determination under Section 6(e), and, if each party is so obliged, after
consultation with the other. If more than three quotations are provided, the
Market Quotation will be the arithmetic mean of the quotations, without regard
to the quotations having the highest and lowest values. If exactly three such
quotations are provided, the Market Quotation will be the quotation remaining
after disregarding the highest and lowest quotations. For this purpose, if
more than one quotation has the same highest value or lowest value, then one of
such quotations shall be disregarded. If fewer than three quotations are
provided, it will be deemed that the Market Quotation in respect of such
Terminated Transaction or group of Terminated Transactions cannot be
determined.
"NON-DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the Non-defaulting Party (as certified by it) if
it were to fund the relevant amount.
"NON-DEFAULTING PARTY" has the meaning specified in Section 6(a).
"OFFICE" means a branch or office of a party, which may be such party's head or
home office.
"POTENTIAL EVENT OF DEFAULT" means any event which, with the giving of notice or
the lapse of time or both, would constitute an Event of Default.
"REFERENCE MARKET-MAKERS" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria that
such party applies generally at the time in deciding whether to offer or to make
an extension of credit and (b) to the extent practicable, from among such
dealers having an office in the same city.
"RELEVANT JURISDICTION" means, with respect to a party, the jurisdictions (a) in
which the party is incorporated, organized, managed and controlled or considered
to have its seat, (b) where an Office through which the party is acting for
purposes of this Agreement is located, (c) in which the party executes this
Agreement and (d) in relation to any payment, from or through which such payment
is made.
"SCHEDULED PAYMENT DATE" means a date on which a payment or delivery is to be
made under Section 2(a)(i) with respect to a Transaction.
"SET-OFF" means set-off, offset, combination of accounts, right of retention or
withholding or similar right or requirement to which the payer of an amount
under Section 6 is entitled or subject (whether arising under this Agreement,
another contract, applicable law or otherwise) that is exercised by, or imposed
on, such payer.
"SETTLEMENT AMOUNT" means, with respect to a party and any Early Termination
Date, the sum of:-
(a) the Termination Currency Equivalent of the Market Quotations
(whether positive or negative) for each Terminated Transaction or group of
Terminated Transactions for which a Market Quotation is determined; and
(b) such party's Loss (whether positive or negative and without reference to
any Unpaid Amounts) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation cannot be determined or would not (in
the reasonable belief of the party making the determination) produce a
commercially reasonable result.
"SPECIFIED ENTITY" has the meaning specified in the Schedule.
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"SPECIFIED INDEBTEDNESS" means, subject to the Schedule, any obligation (whether
present or future, contingent or otherwise, as principal or surety or otherwise)
in respect of borrowed money.
"SPECIFIED TRANSACTION" means, subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter entered
into between one party to this Agreement (or any Credit Support Provider of such
party or any applicable Specified Entity of such party) and the other party to
this Agreement (or any Credit Support Provider of such other party or any
applicable Specified Entity of such other party) which is a rate swap
transaction, basis swap, forward rate transaction, commodity swap, commodity
option, equity or equity index swap, equity or equity index option, bond option,
interest rate option, foreign exchange transaction, cap transaction, floor
transaction, collar transaction, currency swap transaction, cross-currency rate
swap transaction, currency option or any other similar transaction (including
any option with respect to any of these transactions), (b) any combination of
these transactions and (c) any other transaction identified as a Specified
Transaction in this Agreement or the relevant confirmation.
"STAMP TAX" means any stamp, registration, documentation or similar tax.
"TAX" means any present or future tax, levy, impost, duty, charge, assessment or
fee of any nature (including interest, penalties and additions thereto) that is
imposed by any government or other taxing authority in respect of any payment
under this Agreement other than a stamp, registration, documentation or similar
tax.
"TAX EVENT" has the meaning specified in Section 5(b).
"TAX EVENT UPON MERGER" has the meaning specified in Section 5(b).
"TERMINATED TRANSACTIONS" means with respect to any Early Termination Date
(a) if resulting from a Termination Event, all Affected Transactions and (b)
if resulting from an Event of Default, all Transactions (in either case) in
effect immediately before the effectiveness of the notice designating that
Early Termination Date (or, if "Automatic Early Termination" applies,
immediately before that Early Termination Date).
"TERMINATION CURRENCY" has the meaning specified in the Schedule.
"TERMINATION CURRENCY EQUIVALENT" means, in respect of any amount
denominated in the Termination Currency, such Termination Currency amount
and, in respect of any amount denominated in a currency other than the
Termination Currency (the "Other Currency"), the amount in the Termination
Currency determined by the party making the relevant determination as being
required to purchase such amount of such Other Currency as at the relevant
Early Termination Date, or, if the relevant Market Quotation or Loss (as the
case may be), is determined as of a later date, that later date, with the
Termination Currency at the rate equal to the spot exchange rate of the
foreign exchange agent (selected as provided below) for the purchase of such
Other Currency with the Termination Currency at or about 11:00 a.m. (in the
city in which such foreign exchange agent is located) on such date as would
be customary for the determination of such a rate for the purchase of such
Other Currency for value on the relevant Early Termination Date or that
later date. The foreign exchange agent will, if only one party is obliged
to make a determination under Section 6(e), be selected in good faith by
that party and otherwise will be agreed by the parties.
"TERMINATION EVENT" means an Illegality, a Tax Event or a Tax Event Upon
Merger or, if specified to be applicable, a Credit Event Upon Merger or an
Additional Termination Event.
"TERMINATION RATE" means a rate per annum equal to the arithmetic mean of
the cost (without proof or evidence of any actual cost) to each party (as
certified by such party) if it were to fund or of funding such amounts.
"UNPAID AMOUNTS" owing to any party means, with respect to an Early
Termination Date, the aggregate of (a) in respect of all Terminated
Transactions, the amounts that became payable (or that would have become
payable but for Section 2(a)(iii)) to such party under Section 2(a)(i) on or
prior to such Early Termination Date and which remain unpaid as at such
Early Termination Date and (b) in respect of each Terminated Transaction,
for each obligation under Section 2(a)(i) which was (or would have been but
for Section 2(a)(iii)) required to be settled by delivery to such party on
or prior to such Early Termination Date and which has not been so settled as
at such Early Termination Date, an amount equal to the fair market
17
<PAGE> 18
value of that which was (or would have been) required to be delivered as of the
originally scheduled date for delivery, in each case together with (to the
extent permitted under applicable law) interest, in the currency of such
amounts, from (and including) the date such amounts or obligations were or
would have been required to have been paid or performed to (but excluding) such
Early Termination Date, at the Applicable Rate. Such amounts of interest will
be calculated on the basis of daily compounding and the actual number of days
elapsed. The fair market value of any obligation referred to in clause (b)
above shall be reasonably determined by the party obliged to make the
determination under Section 6(e) or, if each party is so obliged, it shall be
the average of the Termination Currency Equivalents of the fair market values
reasonably determined by both parties.
IN WITNESS WHEREOF the parties have executed this document on the respective
dates specified below with effect from the date specified on the first page of
this document.
NationsBank N.A. Sirrom Capital Corporation
- ------------------------- ---------------------------------
(Name of Party) (Name of Party)
By: By: /s/
---------------------- ---------------------------
Name: Name: Carl W. Stratton
Title: Title: C.F.O
Date: Date: 12/6/96
<PAGE> 19
SCHEDULE TO THE MASTER AGREEMENT
DATED AS OF NOVEMBER 26, 1996 BETWEEN
NATIONSBANK, N.A. ("PARTY A") AND
SIRROM CAPITAL CORPORATION ("PARTY B")
PART 1: TERMINATION PROVISIONS AND CERTAIN OTHER MATTERS
(a) "SPECIFIED ENTITY" means in relation to Party A for the purpose
of:-
Section 5(a)(v), none;
Section 5(a)(vi), none;
Section 5(a)(vii), none; and
Section 5(b)(iv), none;
in relation to Party B for the purpose of:-
Section 5(a)(v), none;
Section 5(a)(vi), none;
Section 5(a)(vii), none; and
Section 5(b)(iv), none.
(b) "SPECIFIED TRANSACTION" will have the meaning specified in Section 14.
(c) The "CROSS-DEFAULT" provisions of Section 5(a)(vi) will apply to Party
A and Party B. In connection therewith, "SPECIFIED INDEBTEDNESS" will have the
meaning specified in Section 14, except that such term shall not include
obligations in respect of deposits received in the ordinary course of a party's
banking business, and "THRESHOLD AMOUNT" means an amount equal to three percent
of a party's shareholders' equity, determined in accordance with generally
accepted accounting principles in such party's jurisdiction of incorporation or
organization, consistently applied, as at the end of such party's most recently
completed fiscal year.
(d) The "CREDIT EVENT UPON MERGER" provisions of Section 5(b)(iv) will
apply to Party A and Party B.
(e) The "AUTOMATIC EARLY TERMINATION" provision of Section 6(a) will not
apply to Party A or Party B.
(f) PAYMENTS ON EARLY TERMINATION. For the purpose of Section 6(e):-
(i) Market Quotation will apply.
(ii) The Second Method will apply.
(g) "TERMINATION CURRENCY" means United States Dollars.
(h) ADDITIONAL TERMINATION EVENT. Additional Termination Event will not
apply.
PART 2: TAX REPRESENTATIONS
Not applicable.
1
<PAGE> 20
PART 3: AGREEMENT TO DELIVER DOCUMENT
For the purpose of Section 4(a)(i) and (ii) of this Agreement, each party agrees
to deliver the following documents:
(a) Tax forms, documents or certificates to be delivered are: none.
(b) Other documents to be delivered are:-
<TABLE>
<CAPTION>
Party required Form/ Date by Covered by
to deliver Document/ which to be Section 3(d)
document Certificate delivered Representation
- -------------- ------------------------------------------- ------------------------------ --------------
<S> <C> <C> <C>
Party B Annual Report of Party B As soon as available and Yes
containing consolidated financial in any event within 120 days
statements certified by independent after the end of of each
certified public accountants and prepared fiscal year of Party B
in accordance with generally accepted
accounting principles in the country in
which Party B is organized.
Party B Unaudited consolidated financial statements of As soon as available and in any Yes
Party B for a fiscal quarter prepared in event within 60 days after the
accordance with generally accepted end of each fiscal quarter of
accounting principles in the country in Party B
which Party B (or such entity) is organized
and on a basis consistent with that of the
annual financial statements of Party B (or
such entity)
Party B Credit Support Document Upon execution and Yes
delivery of this
Agreement
Party A and Certified copies of all Upon execution and Yes
Party B corporate authorizations and delivery of this
any other documents with respect Agreement
to the execution, delivery and
performance of this Agreement
</TABLE>
2
<PAGE> 21
<TABLE>
<S> <C>
Party A and Certificate of authority and Upon execution and Yes
Party B specimen signatures of delivery of this
individuals executing this Agreement and thereafter
Agreement and upon request of the other
Confirmations. party
</TABLE>
PART 4: MISCELLANEOUS
(a) ADDRESS FOR NOTICES. For the purpose of Section 12(a) of this
Agreement:-
Address for notice or communications to Party A:
NationsBank, N.A.
100 N. Tryon St., NCl-007-13-01
Charlotte, North Carolina 28255
Attention: Derivatives Documentation Unit
(Telex No: 669959; Answerback: NATIONSBK CHA)
Telecopy No.: 704-386-4113
Address for notice or communications to Party B:
Attention: Carl Stratton
Sirrom Capital Corporation
500 Church Street
Suite 200
Nashville, TN 37219
Telephone No.: 615-726-0701
Telecopy No.: 615-726-1208
with a copy to
Attention: Joe Weingarten
ING (U.S.) Capital Corporation
135 East 57th Street
New York, NY 10022
Telephone No.: 212-409-0966
Telecopy No.: 212-593-3362
(b) PROCESS AGENT. For the purpose of Section 13(c):
Party A appoints as its Process Agent: Not applicable.
Party B appoints as its Process Agent: Not applicable.
(c) OFFICES. The provisions of Section 10(a) will apply to this Agreement.
(d) MULTIBRANCH PARTY. For the purpose of Section 10(c) of this Agreement:-
Party A is not a Multibranch Party.
Party B is not a Multibranch Party.
(e) CALCULATION AGENT. The Calculation Agent is Party A, unless otherwise
specified in a Confirmation in relation to the relevant Transaction.
(f) CREDIT SUPPORT DOCUMENT. Details of any Credit Support Document:-
3
<PAGE> 22
The obligations of Party A hereunder shall be subject to the condition precedent
that Party B shall deliver or cause to be delivered to Party A the ISDA Credit
Support Annex between Party A and Party B dated as of the date hereof.
(g) CREDIT SUPPORT PROVIDER. Credit Support Provider means in relation to
Party A,
Not applicable.
Credit Support Provider means in relation to Party B,
Not applicable.
(h) GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of New York (without reference to that
jurisdiction's choice of law doctrine).
(i) NETTING OF PAYMENTS. Subparagraph (ii) of Section 2(c) will not apply to
any Transaction unless specified in the relevant Confirmation.
(j) "AFFILIATE" will have the meaning specified in Section 14 of this
Agreement.
PART 5: OTHER PROVISIONS
(a) SET-OFF. Nothing in this Agreement shall be treated as restricting or
negating any right of set-off, lien, counterclaim or other right or remedy
which might otherwise be available to either party.
(b) PAYMENTS. Notwithstanding the provisions of any Swap Transaction, in
the event an Event of Default or an event that with the giving of notice or
lapse of time (or both) would become an Event of Default shall have occurred
and be continuing with respect to a party ("Party X"), or material adverse
change in the business, operations, assets or financial or other condition of
Party X shall have occurred, then, upon written notice being given to Party X
by the other party ("Party Y") (or automatically, without any requirement for
the giving of notice, in the case of an Event of Default or Potential Event
of Default described in Section 5(a)(vii)), the following modifications shall
be made, effective as of the date such notice is given or deemed to be given,
to each Swap Transaction where the originally-scheduled Payment Dates for
Party Y occur more frequently than the Payment Dates for Party X: (i)
Compounding shall apply; (ii) Party Y's Payment Dates shall be changed to
coincide with Party X's Payment Dates; (iii) the Compounding Dates shall be
the same dates as Party Y's originally-scheduled Payment Dates; and (iv) for
purposes of calculating the amount of the payment to be made by Party Y on
the Payment Date for Party Y (as modified hereby) next succeeding the
effective date of the modifications provided for in this paragraph, the
Calculation Period in respect of which such payment is being made will be
deemed to have commenced on the date of the most recent payment made by Party
Y.
(c) EXCHANGE OF CONFIRMATIONS. For each Swap Transaction entered into
hereunder, Party A shall promptly send to Party B a Confirmation, via telex
or facsimile transmission. Party B agrees to respond to such Confirmation
within three (3) Business Days, either confirming agreement thereto or
requesting a correction of any error(s) contained therein. Failure by Party
B to respond within such period shall not affect the validity or
enforceability of such Swap Transaction and shall be deemed to be an
affirmation of the terms contained in such Confirmation, absent manifest
error. The parties agree that any such exchange of telexes or facsimile
transmissions shall constitute a Confirmation for all purposes hereunder.
4
<PAGE> 23
(d) NOTICE BY FACSIMILE TRANSMISSION. Section 12(a) is hereby amended by
inserting the words "or 13(c)" between the number "6" and the word "may" in
the second line thereof.
(e) WAIVER OF RIGHT TO TRIAL BY JURY. Each party hereby irrevocably waives
any and all rights to trial by jury with respect to any legal proceeding
arising out of or relating to this Agreement or any Transaction contemplated
hereby.
(f) RECORDING OF CONVERSATIONS. Each party to this Agreement acknowledges and
agrees to the tape or electronic recording of conversations between the parties
to this Agreement whether by one or other or both of the parties, and that any
such recordings may be submitted in evidence in any action or proceeding
relating to the Agreement or any Transaction.
(g) ELIGIBLE SWAP PARTICIPANT. Each party represents to the other that it is
an "eligible swap participant" as defined under the regulations of the Commodity
Futures Trading Commission, currently at 17 C.F.R. Section 35.1(b)(2).
(h) TRANSFER. A new subsection (c) shall be added to Section 7 of this
Agreement:
"(c) a party may make such a transfer of this Agreement and all, but not
less than all, Transactions hereunder to such party's Affiliate upon 10
days' prior written notice to the other party, provided that such
Affiliate has attained a rating of at least AA (or its equivalent) from a
nationally recognized U.S. rating agency on the date that the intended
transfer shall take effect."
(i) RELATIONSHIP BETWEEN PARTIES. Each party represents to the other party
and will be deemed to represent to the other party on the date on which it
enters into a Transaction that (absent a written agreement between the parties
that expressly imposes affirmative obligations to the contrary for that
Transaction):-
(i) NON-RELIANCE. It is acting for its own account, and it has made
its own independent decisions to enter into that Transaction and as to whether
that Transaction is appropriate or proper for it based upon its own judgment and
upon advice from such advisors as it has deemed necessary. It is not relying on
any communication (written or oral) of the other party as investment advice or
as a recommendation to enter into that Transaction; it being understood that
information and explanations related to the terms and conditions of a
Transaction shall not be considered investment advice or a recommendation to
enter into that Transaction. Further, such party has not received from the
other party any assurance or guarantee as to the expected results of that
Transaction.
(ii) EVALUATION AND UNDERSTANDING. It is capable of evaluating and
understanding (on its own behalf or through independent professional advice),
and understands and accepts, the terms, conditions and risks of that
Transaction. It is also capable of assuming, and assumes, the financial and
other risks of that Transaction.
(iii) STATUS OF PARTIES. The other party is not acting as an agent,
fiduciary or advisor for it in respect of that Transaction.
(J) EVENT OF DEFAULT WITH RESPECT TO PARTY B. Party A hereby agrees that
it will promptly give ING (U.S.) Capital Corporation ("ING") a copy of any
written notices delivered to Party B pursuant to Section 5 of the Agreement.
In the event that Party B, a Credit Support Provider or a Specified Entity
(as the case may be) fails to take such actions to avoid an Event of Default
pursuant to Section 5(a)(i), (ii),(iii) or (v), which is the subject of the
aforementioned notice, ING shall have the right to take such actions as would
be necessary or appropriate to avoid such Event of Default. ING shall
promptly deliver written notice of its intention to take such action to Party
A, Party B, and such other party as may be appropriate under the
circumstances. Notwithstanding
5
<PAGE> 24
anything herein to the contrary, this Section shall not be deemed to provide
Party B, ING or any other party additional time to cure any Events of Default.
ACCEPTED AND AGREED:
NATIONSBANK, N.A. SIRROM CAPITAL CORPORATION
/s/ Carl W. Stratton
- --------------------------- ------------------------------------
Name: Name: Carl W. Stratton
Title: Title: C.F.O.
6
<PAGE> 25
(BILATERAL FORM) (ISDA AGREEMENTS SUBJECT TO NEW YORK LAW ONLY)
ISDA(TM)
INTERNATIONAL SWAPS AND DERIVATIVES ASSOCIATION INC.
CREDIT SUPPORT ANNEX
to the Schedule to the
ISDA MASTER AGREEMENT
dated as of November 26, 1996
between
NATIONSBANK,. N.A. SIRROM CAPITAL CORPORATION
- ------------------------------ and --------------------------------
("PARTY A") . ("PARTY B")
This Annex supplements, forms part, of, and is subject to, the above-referenced
Agreement, is part of its Schedule and is a Credit Support Document under this
Agreement with respect to each party,
Accordingly, the parties agree as follows:-
PARAGRAPH 1. INTERPRETATION
(a) DEFINITIONS AND INCONSISTENCY. Capitalized terms not otherwise defined
herein or elsewhere in this Agreement have the meanings specified pursuant to
Paragraph 12, and all references in this Annex to Paragraphs are to Paragraphs
of this Annex. In the event of any inconsistency between this Annex and the
other provisions of this Schedule, this Annex will prevail, and in the event of
any inconsistency between Paragraph 13 and the other provisions of this Annex,
Paragraph 13 will prevail.
(b) SECURED PARTY AND PLEDGOR. All references in this Annex to the
"Secured Party" will be to either party when acting in that capacity and all
corresponding references to the "Pledgor" will be to the other party when
acting in that capacity; provided, however, that if Other Posted Support is
held by a party to this Annex, all references herein to that party as the
Secured Party with respect to that Other Posted Support will be to that party
as the beneficiary thereof and will not subject that support or that party as
the beneficiary thereof to provisions of law generally relating to security
interests and secured parties.
PARAGRAPH 2. SECURITY INTEREST
Each party, as the Pledgor, hereby pledges to the other party, as the Secured
Party, as security for its Obligations, and grants to the Secured Party a first
priority continuing security interest in, lien on and right of Set-off against
all Posted Collateral Transferred to or received by the Secured Party
hereunder. Upon the Transfer by the Secured Party to the Pledgor of Posted
Collateral, the security interest and lien granted hereunder on that Posted
Collateral will be released immediately and, to the extent possible, without
any further action by either party.
<PAGE> 26
PARAGRAPH 3. CREDIT SUPPORT OBLIGATIONS
(a) DELIVERY AMOUNT. Subject to Paragraphs 4 and 5, upon a demand made by
the Secured Party on or promptly following a Valuation Date, if the Delivery
Amount for that Valuation Date equals or exceeds the Pledgor's Minimum Transfer
Amount, then the Pledgor will Transfer to the Secured Party Eligible Credit
Support having a Value as of the date of Transfer at least equal to the
applicable Delivery Amount (rounded pursuant to Paragraph 13). Unless
otherwise specified in Paragraph 13, the "DELIVERY AMOUNT" applicable to the
Pledgor for any Valuation Date will equal the amount by which:
(i) the Credit Support Amount
exceeds
(ii) the Value as of that Valuation Date of all Posted Credit
Support held by the Secured Party.
(b) RETURN AMOUNT. Subject to Paragraphs 4 and 5, upon a demand made by
the Pledgor on or promptly following a Valuation Date, if the Return Amount for
that Valuation Date equals or exceeds the Secured Party's Minimum Transfer
Amount, then the Secured Party will Transfer to the Pledgor Posted Credit
Support specified by the Pledgor in that demand having a Value as of the date
of Transfer as close as practicable to the applicable Return Amount (rounded
pursuant to Paragraph 13). Unless otherwise specified in Paragraph 13, the
"RETURN AMOUNT" applicable to the Secured Party for any Valuation Date will
equal the amount by which:
(i) the Value as of that Valuation Date of all Posted Credit
Support held by the Secured Party exceeds
(ii) the Credit Support Amount.
"CREDIT SUPPORT AMOUNT" means, unless otherwise specified in Paragraph 13, for
any Valuation Date (i) the Secured Party's Exposure for that Valuation Date plus
(ii) the aggregate of all Independent Amounts applicable to the Pledgor, if any,
minus (iii) all Independent Amounts applicable to the Secured Party, if any,
minus (iv) the Pledgor's Threshold; provided, however, that the Credit Support
Amount will be deemed to be zero whenever the calculation of Credit Support
Amount yields a number less than zero.
PARAGRAPH 4. CONDITIONS PRECEDENT, TRANSFER TIMING, CALCULATIONS AND
SUBSTITUTIONS
(a) CONDITIONS PRECEDENT. Each Transfer obligation of the Pledgor under
Paragraphs 3 and 5 and of the Secured Party under Paragraphs 3, 4(d)(ii), 5 and
6(d) is subject to the conditions precedent that:
(i) no Event of Default, Potential Event of Default or Specified
Condition has occurred and is continuing with respect to the other
party; and
(ii) no Early Termination Date for which any unsatisfied payment
obligations exist has occurred or been designated as the result of an
Event of Default or Specified Condition with respect to the other
party.
(b) TRANSFER TIMING. Subject to Paragraphs 4(a) and 5 and unless
otherwise specified, if a demand for the Transfer of Eligible Credit Support or
Posted Credit Support is made by the Notification Time, then the relevant
Transfer will be made not later than the close of business on the next Local
Business Day; if a demand is made after the Notification Time, then the
relevant Transfer will be made not later than the close of business on the
second Local Business Day thereafter.
(c) CALCULATIONS. All calculations of Value and Exposure for purposes of
Paragraphs 3 and 6(d) will be made by the Valuation Agent as of the Valuation
Time. The Valuation Agent will notify each party (or the other party, if the
Valuation Agent is a party) of its calculations not later than the Notification
Time on the Local Business Day following the applicable Valuation Date (or in
the case of Paragraph 6(d), following the date of calculation).
2
<PAGE> 27
(d) SUBSTITUTIONS.
(i) Unless otherwise specified in Paragraph 13, upon notice to the
Secured Party specifying the items of Posted Credit Support to be
exchanged, the Pledgor may, on any Local Business Day, Transfer to the
Secured Party substitute Eligible Credit Support (the "Substitute Credit
Support"); and
(ii) subject to Paragraph 4(a), the Secured Party will Transfer to the
Pledgor the items of Posted Credit Support specified by the Pledgor in
its notice not later than the Local Business Day following the date on
which the Secured Party receives the Substitute Credit Support, unless
otherwise specified in Paragraph 13 (the "Substitution Date"); provided
that the Secured Party will only be obligated to Transfer Posted Credit
Support with a Value as of the date of Transfer of that Posted Credit
Support equal to the Value as of that date of the Substitute Credit
Support.
PARAGRAPH 5. DISPUTE RESOLUTION
If a party (a "Disputing Party") disputes (I) the Valuation Agent's
calculation of a Delivery Amount or a Return Amount or (II) the Value of any
Transfer of Eligible Credit Support or Posted Credit Support, then (1) the
Disputing Party will notify the other party and the Valuation Agent (if the
Valuation Agent is not the other party) not later than the close of business
on the Local Business Day following (X) the date that the demand is made
under Paragraph 3 in the case of (I) above or (Y) the date of Transfer in the
case of (II) above, (2) subject to Paragraph 4(a), the appropriate party will
Transfer the undisputed amount to the other party not later than the close of
business on the Local Business Day following (X) the date that the demand is
made under Paragraph 3 in the case of (I) above or (Y) the date of Transfer
in the case of (II) above, (3) the parties will consult with each other in an
attempt to resolve the dispute and (4) if they fail to resolve the dispute by
the Resolution Time, then:
(i) In the case of a dispute involving a Delivery Amount or Return
Amount, unless otherwise specified in Paragraph 13, the Valuation Agent
will recalculate the Exposure and the Value as of the Recalculation Date
by:
(A) utilizing any calculations of Exposure for the Transactions (or
Swap Transactions) that the parties have agreed are not in dispute;
(B) calculating the Exposure for the Transactions (or Swap
Transactions) in dispute by seeking four actual quotations at
mid-market from Reference Market-makers for purposes of calculating
Market Quotation, and taking the arithmetic average of those
obtained; provided that if four quotations are not available for a
particular Transaction (or Swap Transaction), then fewer than four
quotations may be used for that Transaction (or Swap Transaction);
and if no quotations are available for a particular Transaction (or
Swap Transaction), then the Valuation Agent's original calculations
will be used for that Transaction (or Swap Transaction); and
(C) utilizing the procedures specified in Paragraph 13 for
calculating the Value, if disputed, of Posted Credit Support.
(ii) In the case of a dispute involving the Value of any Transfer of
Eligible Credit Support or Posted Credit Support, the Valuation Agent
will recalculate the Value as of the date of Transfer pursuant to
Paragraph 13.
Following a recalculation pursuant to this Paragraph, the Valuation Agent will
notify each party (or the other party, if the Valuation Agent is a party) not
later than the Notification Time on the Local Business Day following the
Resolution Time. The appropriate party will, upon demand following that notice
by the Valuation Agent or a resolution pursuant to (3) above and subject to
Paragraphs 4(a) and 4(b), make the appropriate Transfer.
3
<PAGE> 28
PARAGRAPH 6. HOLDING AND USING POSTED COLLATERAL
(a) CARE OF POSTED COLLATERAL. Without limiting the Secured Party's
rights under Paragraph 6(c), the Secured Party will exercise reasonable care to
assure the safe custody of all Posted Collateral to the extent required by
applicable law, and in any event the Secured Party will be deemed to have
exercised reasonable care if it exercises at least the same degree of care as
it would exercise with respect to its own property. Except as specified in the
preceding sentence, the Secured Party will have no duty with respect to Posted
Collateral, including, without limitation, any duty to collect any
Distributions, or enforce or preserve any rights pertaining thereto.
(b) ELIGIBILITY TO HOLD POSTED COLLATERAL; CUSTODIANS.
(i) GENERAL. Subject to the satisfaction of any conditions specified in
Paragraph 13 for holding Posted Collateral, the Secured Party will be
entitled to hold Posted Collateral or to appoint an agent (a "Custodian")
to hold Posted Collateral for the Secured Party. Upon notice by the
Secured Party to the Pledgor of the appointment of a Custodian, the
Pledgor's obligations to make any Transfer will be discharged by making
the Transfer to that Custodian. The holding of Posted Collateral by a
Custodian will be deemed to be the holding of that Posted Collateral by
the Secured Party for which the Custodian is acting.
(ii) FAILURE TO SATISFY CONDITIONS. If the Secured Party or its
Custodian fails to satisfy any conditions for holding Posted Collateral,
then upon a demand made by the Pledgor, the Secured Party will, not
later than five Local Business Days after the demand, Transfer or cause
its Custodian to Transfer all Posted Collateral held by it to a
Custodian that satisfies those conditions or to the Secured Party if it
satisfies those conditions.
(iii) LIABILITY. The Secured Party will be liable for the acts or
omissions of its Custodian to the same extent that the Secured Party
would be liable hereunder for its own acts or omissions.
(c) USE OF POSTED COLLATERAL. Unless otherwise specified in Paragraph 13
and without limiting the rights and obligations of the parties under Paragraphs
3, 4(d)(ii), 5, 6(d) and 8, if the Secured Party is not a Defaulting Party or
an Affected Party with respect to a Specified Condition and no Early
Termination Date has occurred or been designated as the result of an Event of
Default or Specified Condition with respect to the Secured Party, then the
Secured Party will, notwithstanding Section 9-207 of the New York Uniform
Commercial Code, have the right to:
(i) sell, pledge, rehypothecate, assign, invest, use, commingle or
otherwise dispose of, or otherwise use in its business any Posted
Collateral it holds, free from any claim or right of any nature
whatsoever of the Pledgor; including any equity or right of redemption by
the Pledgor; and
(ii) register any Posted Collateral in the name of the Secured Party, its
Custodian or a nominee for either.
For purposes of the obligation to Transfer Eligible Credit Support or Posted
Credit Support pursuant to Paragraphs 3 and 5 and any rights or remedies
authorized under this Agreement, the Secured Party will be deemed to continue
to hold all Posted Collateral and to receive Distributions made thereon,
regardless of whether the Secured Party has exercised any rights with respect
to any Posted Collateral pursuant to (i) or (ii) above.
(d) DISTRIBUTIONS AND INTEREST AMOUNT.
(i) DISTRIBUTIONS. Subject to Paragraph 4(a), if the Secured Party
receives or is deemed to receive Distributions on a Local Business Day,
it will Transfer to the Pledgor not later than the following Local
Business Day any Distributions it receives or is deemed to receive to the
extent that a Delivery Amount would not be created or increased by that
Transfer, as calculated by the Valuation Agent (and the date of
calculation will be deemed to be a Valuation Date for this purpose).
4
<PAGE> 29
(ii) INTEREST AMOUNT. Unless otherwise specified in Paragraph 13 and
subject to Paragraph 4(a), in lieu of any interest, dividends or other
amounts paid or deemed to have been paid with respect to Posted
Collateral in the form of Cash (all of which may be retained by
the Secured Party), the Secured Party will Transfer to the Pledgor at
the times specified in Paragraph 13 the Interest Amount to the extent
that a Delivery Amount would not be created or increased by that
Transfer, as calculated by the Valuation Agent (and the date of
calculation will be deemed to be a Valuation Date for this purpose).
The Interest Amount or portion thereof not Transferred pursuant to
this Paragraph will constitute Posted Collateral in the form of Cash
and will be subject to the security interest granted under Paragraph
2.
PARAGRAPH 7. EVENTS OF DEFAULT
For purposes of Section 5(a)(iii)(1) of this Agreement, an Event of Default
will exist with respect to a party if:
(i) that party fails (or fails to cause its Custodian) to make,
when due, any Transfer of Eligible Collateral, Posted Collateral or
the Interest Amount, as applicable, required to be made by it and
that failure continues for two Local Business Days after notice of
that failure is given to that party;
(ii) that party fails to comply with any restriction or prohibition
specified in this Annex with respect to any of the rights specified
in Paragraph 6(c) and that failure continues for five Local Business
Days after notice of that failure is given to that party; or
(iii) that party fails to comply with or perform any agreement or
obligation other than those specified in Paragraphs 7(i) and 7(ii)
and that failure continues for 30 days after notice of that failure
is given to that parry.
PARAGRAPH 8. CERTAIN RIGHTS AND REMEDIES
(a) SECURED PARTY'S RIGHTS AND REMEDIES. If at any time (1) an Event of
Default or Specified Condition with respect to the Pledgor has occurred and is
continuing or (2) an Early Termination Date has occurred or been designated as
the result of an Event of Default or Specified Condition with respect to the
Pledgor, then, unless the Pledgor has paid in full all of its Obligations that
are then due, the Secured Party may exercise one or more of the following
rights and remedies:
(i) all rights and remedies available to a secured party under
applicable law with respect to Posted Collateral held by the Secured
Party;
(ii) any other rights and remedies available to the Secured Party
under the terms of Other Posted Support, if any;
(iii) the right to Set-off any amounts payable by the Pledgor with
respect to any Obligations against any Posted Collateral or the Cash
equivalent of any Posted Collateral held by the Secured Party (or any
obligation of the Secured Party to Transfer that Posted Collateral);
and
(iv) the right to liquidate any Posted Collateral held by the
Secured Party through one or more public or private sales or other
dispositions with such notice, if any, as may be required under
applicable law, free from any claim or right of any nature whatsoever
of the Pledgor, including any equity or right of redemption by the
Pledgor (with the Secured Party having the right to purchase any or
all of the Posted Collateral to be sold) and to apply the proceeds
(or the Cash equivalent thereof) from the liquidation of the Posted
Collateral to any amounts payable by the Pledgor with respect to any
Obligations in that order as the Secured Party may elect.
Each party acknowledges and agrees that Posted Collateral in the form of
securities may decline speedily in value and is of a type customarily sold on a
recognized market, and, accordingly, the Pledgor is not entitled to prior
notice of any sale of that Posted Collateral by the Secured Party, except any
notice that is required under applicable law and cannot be waived.
5
<PAGE> 30
(b) PLEDGOR'S RIGHTS AND REMEDIES. If at any time an Early Termination Date
has occurred or been designated as the result of an Event of Default or
Specified Condition with respect to the Secured Party, then (except in the case
of an Early Termination Date relating to less than all Transactions (or Swap
Transactions) where the Secured Party has paid in full all of its obligations
that are then due under Section 6(e) of this Agreement):
(i) the Pledgor may exercise all rights and remedies available to
a pledgor under applicable law with respect to Posted Collateral held
by the Secured Party;
(ii) the Pledgor may exercise any other rights and remedies
available to the Pledgor under the terms of Other Posted Support, if
any;
(iii) the Secured Party will be obligated immediately to Transfer
all Posted Collateral and the Interest Amount to the Pledgor; and
(iv) to the extent that Posted Collateral or the Interest Amount is
not so Transferred pursuant to (iii) above, the Pledgor may:
(A) Set-off any amounts payable by the Pledgor with respect to any
Obligations against any Posted Collateral or the Cash equivalent of
any Posted Collateral held by the Secured Party (or any obligation
of the Secured Party to Transfer that Posted Collateral); and
(B) to the extent that the Pledgor does not Set-off under (iv)(A)
above, withhold payment of any remaining amounts payable by the
Pledgor with respect to any Obligations, up to the Value of any
remaining Posted Collateral held by the Secured Party, until that
Posted Collateral is Transferred to the Pledgor.
(c) DEFICIENCIES AND EXCESS PROCEEDS. The Secured Party will Transfer to
the Pledgor any proceeds and Posted Credit Support remaining after liquidation,
Set-off and/or application under Paragraphs 8(a) and 8(b) after satisfaction in
full of all amounts payable by the Pledgor with respect to any Obligations; the
Pledgor in all events will remain liable for any amounts remaining unpaid after
any liquidation, Set-off and/or application under Paragraphs 8(a) and 8(b).
(d) FINAL RETURNS. When no amounts are or thereafter may become payable
by the Pledgor with respect to any Obligations (except for any potential
liability under Section 2(d) of this Agreement), the Secured Party will
Transfer to the Pledgor all Posted Credit Support and the Interest Amount, if
any.
PARAGRAPH 9. REPRESENTATIONS
Each party represents to the other party (which representations will be deemed
to be repeated as of each date on which it, as the Pledgor, Transfers Eligible
Collateral) that:
(i) it has the power to grant a security interest in and lien on
any Eligible Collateral it Transfers as the Pledgor and has taken all
necessary actions to authorize the granting of that security interest
and lien;
(ii) it is the sole owner of or otherwise has the right to Transfer
all Eligible Collateral it Transfers to the Secured Party hereunder,
free and clear of any security interest, lien, encumbrance or other
restrictions other than the security interest and lien granted under
Paragraph 2;
(iii) upon the Transfer of any Eligible Collateral to the Secured
Party under the terms of this Annex, the Secured Party will have a
valid and perfected first priority security interest therein (assuming
that any central clearing corporation or any third-party financial
intermediary or other entity not within the control of the Pledgor
involved in the Transfer of that Eligible Collateral gives the notices
and takes the action required of it under applicable law for perfection
of that interest); and
(iv) the performance by it of its obligations under this Annex
will not result in the creation of any security interest, lien or other
encumbrance on any Posted Collateral other than the security interest
and lien granted under Paragraph 2.
6
<PAGE> 31
PARAGRAPH 10. EXPENSES
(a) GENERAL. Except as otherwise provided in Paragraphs 10(b) and 10(c), each
party will pay its own costs and expenses in connection with performing its
obligations under this Annex and neither party will be liable for any costs and
expenses incurred by the other party in connection herewith.
(b) POSTED CREDIT SUPPORT. The Pledgor will promptly pay when due all taxes,
assessments or charges of any nature that are imposed with respect to Posted
Credit Support held by the Secured Party upon becoming aware of the same,
regardless of whether any portion of that Posted Credit Support is subsequently
disposed of under Paragraph 6(c), except for those taxes, assessments and
charges that result from the exercise of the Secured Party's rights under
Paragraph 6(c).
(c) LIQUIDATION/APPLICATION OF POSTED CREDIT SUPPORT. All reasonable costs
and expenses incurred by or on behalf of the Secured Party or the Pledgor in
connection with the liquidation and/or application of any Posted Credit Support
under Paragraph 8 will be payable, on demand and pursuant to the Expenses
Section of this Agreement, by the Defaulting Party or, if there is no Defaulting
Party, equally by the parties.
PARAGRAPH 11. MISCELLANEOUS
(a) DEFAULT INTEREST. A Secured Party that fails to make, when due, any
Transfer of Posted Collateral or the Interest Amount will be obligated to pay
the Pledgor (to the extent permitted under applicable law) an amount equal to
interest at the Default Rate multiplied by the Value of the items of property
that were required to be Transferred, from (and including) the date that Posted
Collateral or Interest Amount was required to be Transferred to (but excluding)
the date of Transfer of that Posted Collateral or Interest Amount. This
interest will be calculated on the basis of daily compounding and the actual
number of days elapsed.
(b) FURTHER ASSURANCES. Promptly following a demand made by a party, the
other party will execute, deliver, file and record any financing statement,
specific assignment or other document and take any other action that may be
necessary or desirable and reasonably requested by that party to create,
preserve, perfect or validate any security interest or lien granted under
Paragraph 2, to enable that party to exercise or enforce its rights under
this Annex with respect to Posted Credit Support or an Interest Amount or to
effect or document a release of a security interest on Posted Collateral or
an Interest Amount.
(c) FURTHER PROTECTION. The Pledgor will promptly give notice to the
Secured Party of, and defend against, any suit, action, proceeding or lien
that involves Posted Credit Support Transferred by the Pledgor or that could
adversely affect the security interest and lien granted by it under
Paragraph 2, unless that suit, action, proceeding or lien results from the
exercise of the Secured Party's rights under Paragraph 6(c).
(d) GOOD FAITH AND COMMERCIALLY REASONABLE MANNER. Performance of all
obligations under this Annex, including, but not limited to, all
calculations, valuations and determinations made by either party, will be
made in good faith and in a commercially reasonable manner.
(e) DEMANDS AND NOTICES. All demands and notices made by a party under
this Annex will be made as specified in the Notices Section of this
Agreement, except as otherwise provided in Paragraph 13.
(f) SPECIFICATIONS OF CERTAIN MATTERS. Anything referred to in this Annex
as being specified in Paragraph 13 also may be specified in one or more
Confirmations or other documents and this Annex will be construed
accordingly.
7
<PAGE> 32
PARAGRAPH 12. DEFINITIONS
As used in this Annex:--
"CASH" means the lawful currency of the United States of America.
"CREDIT SUPPORT AMOUNT" has the meaning specified in Paragraph 3.
"CUSTODIAN" has the meaning specified in Paragraphs 6(b)(i) and 13.
"DELIVERY AMOUNT" has the meaning specified in Paragraph 3(a).
"DISPUTING PARTY" has the meaning specified in Paragraph 5.
"DISTRIBUTIONS" means with respect to Posted Collateral other than Cash, all
principal, interest and other payments and distributions of cash or other
property with respect thereto, regardless of whether the Secured Party has
disposed of that Posted Collateral under Paragraph 6(c). Distributions will not
include any item of property acquired by the Secured Party upon any disposition
or liquidation of Posted Collateral or, with respect to any Posted Collateral in
the form of Cash, any distributions on that collateral, unless otherwise
specified herein.
"ELIGIBLE COLLATERAL" means, with respect to a party, the items, if any,
specified as such for that party in Paragraph 13.
"ELIGIBLE CREDIT SUPPORT" means Eligible Collateral and Other Eligible Support.
"EXPOSURE" means for any Valuation Date or other date for which Exposure is
calculated and subject to Paragraph 5 in the case of a dispute, the amount,
if any, that would be payable to a party that is the Secured Party by the
other party (expressed as a positive number) or by a party that is the
Secured Party to the other party (expressed as a negative number) pursuant to
Section 6(e)(ii)(2)(A) of this Agreement as if all Transactions (or Swap
Transactions) were being terminated as of the relevant Valuation Time;
provided that Market Quotation will be determined by the Valuation Agent
using its estimates at mid-market of the amounts that would be paid for
Replacement Transactions (as that term is defined in the definition of
"Market Quotation").
"INDEPENDENT AMOUNT" means, with respect to a party, the amount specified as
such for that party in Paragraph 13; if no amount is specified, zero.
"INTEREST AMOUNT" means, with respect to an Interest Period, the aggregate
sum of the amounts of interest calculated for each day in that Interest
Period on the principal amount of Posted Collateral in the form of Cash held
by the Secured Party on that day, determined by the Secured Party for each
such day as follows:
(x) the amount of that Cash on that day; multiplied by
(y) the Interest Rate in effect for that day; divided by
(z) 360.
"INTEREST PERIOD" means the period from (and including) the last Local
Business Day on which an Interest Amount was Transferred (or, if no interest
Amount has yet been Transferred, the Local Business Day on which Posted
Collateral in the form of Cash was Transferred to or received by the Secured
Party) to (but excluding) the Local Business Day on which the current
Interest Amount is to be Transferred.
"INTEREST RATE" means the rate specified in Paragraph 13.
"LOCAL BUSINESS DAY", unless otherwise specified in Paragraph 13, has the
meaning specified in the Definitions Section of this Agreement, except that
references to a payment in clause (b) thereof will be deemed to include a
Transfer under this Annex.
8
<PAGE> 33
"MINIMUM TRANSFER AMOUNT" means, with respect to a party, the amount specified
as such for that party in Paragraph 13; if no amount is specified, zero.
"NOTIFICATION TIME" has the meaning specified in Paragraph 13.
"OBLIGATIONS" means, with respect to a party, all present and future obligations
of that party under this Agreement and any additional obligations specified for
that party in Paragraph 13.
"OTHER ELIGIBLE SUPPORT" means, with respect to a party, the items, if any,
specified as such for that party in Paragraph 13.
"OTHER POSTED SUPPORT" means all Other Eligible Support Transferred to the
Secured Party that remains in effect for the benefit of that Secured Party.
"PLEDGOR" means either party, when that party (i) receives a demand for or is
required to, Transfer Eligible Credit Support under Paragraph 3(a) or (ii) has
Transferred Eligible Credit Support under Paragraph 3(a).
"POSTED COLLATERAL" means all Eligible Collateral, other property,
Distributions, and all proceeds thereof that have been Transferred to or
received by the Secured Party under this Annex and not Transferred to the
Pledgor pursuant to Paragraph 3(b), 4(d)(ii) or 6(d)(i) or released by the
Secured Party under Paragraph 8. Any Interest Amount or portion thereof not
Transferred pursuant to Paragraph 6(d)(ii) will constitute Posted Collateral
in the form of Cash.
"POSTED CREDIT SUPPORT" means Posted Collateral and Other Posted Support.
"RECALCULATION DATE" means the Valuation Date that gives rise to the dispute
under Paragraph 5; provided, however, that if a subsequent Valuation Date
occurs under Paragraph 3 prior to the resolution of the dispute, then the
"RECALCULATION DATE" means the most recent Valuation Date under Paragraph 3.
"RESOLUTION TIME" has the meaning specified in Paragraph 13.
"RETURN AMOUNT" has the meaning specified in Paragraph 3(b).
"SECURED PARTY" means either party, when that party (i) makes a demand for or
is entitled to receive Eligible Credit Support under Paragraph 3(a) or (ii)
holds or is deemed to hold Posted Credit Support.
"SPECIFIED CONDITION" means, with respect to a party, any event specified as
such for that party in Paragraph 13.
"SUBSTITUTE CREDIT SUPPORT" has the meaning specified in Paragraph 4(d)(i).
"SUBSTITUTION DATE" has the meaning specified in Paragraph 4(d)(ii).
"THRESHOLD" means, with respect to a party, the amount specified as such for
that party in Paragraph 13; if no amount is specified, zero.
"TRANSFER" means, with respect to any Eligible Credit Support, Posted Credit
Support or Interest Amount, and in accordance with the instructions of the
Secured Party, Pledgor or Custodian, as applicable:
(i) in the case of Cash, payment or delivery by wire transfer into
one or more bank accounts specified by the recipient;
(ii) in the case of certificated securities that cannot be paid or
delivered by book-entry, payment or delivery in appropriate physical
form to the recipient or its account accompanied by any duly executed
instruments of transfer, assignments in blank, transfer tax stamps and
any other documents necessary to constitute a legally valid transfer to
the recipient;
(iii) in the case of securities that can be paid or delivered by
book-entry, the giving of written instructions to the relevant
depository institution or other entity specified by the recipient,
together with a written copy thereof to the recipient, sufficient if
complied with to result in a legally effective transfer of the relevant
interest to the recipient; and
(iv) in the case of Other Eligible Support or Other Posted Support, as
specified in Paragraph 13.
9
<PAGE> 34
"VALUATION AGENT" has the meaning specified in Paragraph 13.
"VALUATION DATE" means each date specified in or otherwise determined pursuant
to Paragraph 13.
"VALUATION PERCENTAGE" means, for any item of Eligible Collateral, the
percentage specified in Paragraph 13.
"VALUATION TIME" has the meaning specified in Paragraph 13.
"VALUE" means for any Valuation Date or other date for which Value is
calculated and subject to Paragraph 5 in the case of a dispute, with respect
to:
(i) Eligible Collateral or Posted Collateral that is:
(A) Cash, the amount thereof; and
(B) a security, the bid price obtained by the Valuation Agent
multiplied by the applicable Valuation Percentage, if any;
(ii) Posted Collateral that consists of items that are not specified
as Eligible Collateral, zero; and
(iii) Other Eligible Support and Other Posted Support, as specified in
Paragraph 13.
10
<PAGE> 35
PARAGRAPH 13. ELECTIONS AND VARIABLES
(a) SECURITY INTEREST FOR "OBLIGATIONS" The term "Obligations" as used in
this Annex includes no additional obligations with respect to Party A or Party
B.
(b) CREDIT SUPPORT OBLIGATIONS.
(i) "DELIVERY AMOUNT", "RETURN AMOUNT" AND "CREDIT SUPPORT AMOUNT"
will have the meanings specified in Paragraphs 3(a), 3(b) and 3,
respectively.
(ii) The following items will qualify as "ELIGIBLE COLLATERAL" for
Party A and Party B:
<TABLE>
<CAPTION>
VALUATION PERCENTAGE
--------------------
<S> <C> <C>
(A) Cash (U.S. Dollars) 100%
(B) Negotiable debt obligations issued by the 95%
U.S. Treasury Department with remaining
maturity of less than or equal to 5 years
(C) Negotiable debt obligations issued by the 90%
U.S. Treasury Department with remaining
maturity greater than 5 years
</TABLE>
(iii) The following items will qualify as "OTHER ELIGIBLE SUPPORT" for
Party A or Party B:
<TABLE>
<CAPTION>
VALUATION PERCENTAGE
-------------------
<S> <C>
Letters of Credit, which shall mean an 100%
irrevocable, transferable standby
letter of credit, from a major U.S.
commercial bank acceptable to the party
in whose favor the Letter of Credit is
issued, utilizing a form satisfactory to
both parties, with such changes to the
terms in that form as the issuing bank
may require and as may be reasonably
acceptable to the party in whose favor
the letter of credit is issued.
</TABLE>
(iv) THRESHOLDS.
(A) "INDEPENDENT AMOUNT" means:- Not applicable with respect
to Party A; $950,000 with respect to Party B.
(B) "THRESHOLD" means $1,000,000, with respect to Party A,
and means $250,000 with respect to Party B, provided that the
Threshold shall be zero for any party for so long as an Event of
Default is continuing with respect to such party.
(C) "MINIMUM TRANSFER AMOUNT" means:- Not applicable.
(D) ROUNDING. The Delivery Amount will be rounded up and the
Return Amount will be rounded down to the nearest integral
multiple of $100,000, respectively.
(c) VALUATION AND TIMING.
(i) "VALUATION AGENT" means, for the purposes of Paragraphs 3 and 5, the
party making the demand under Paragraph 3, and, for the purposes of
Paragraph 6(d), the Secured Party receiving or deemed to receive the
Distributions or the Interest Amount, as applicable.
(ii) "VALUATION DATE" means any Local Business Day.
11
<PAGE> 36
(iii) "VALUATION TIME" means the close of the Local Business Day before the
Valuation Date or date of calculation as applicable; provided that the
calculations of Value and Exposure will be made as of approximately the
same time on the same date.
(iv) "NOTIFICATION TIME" means 1:00 p.m., New York time, on a Local
Business Day.
(d) CONDITIONS PRECEDENT AND SECURED PARTY'S RIGHTS AND REMEDIES. The following
Termination Event(s) will be a "SPECIFIED CONDITION" for each party (that
party being the Affected Party if the Termination Event occurs with respect
to that party) for the purposes of the Paragraphs specified below:
<TABLE>
<CAPTION>
PARAGRAPH 4(a) PARAGRAPH 8(a) AND (b)
-------------- ----------------------
<S> <C> <C>
Illegality [x] [ ]
Tax Event [x] [ ]
Tax Event Upon Merger [x] [ ]
Credit Event Upon Merger [x] [x]
</TABLE>
(e) SUBSTITUTION.
(i) "SUBSTITUTION DATE" has the meaning specified in Paragraph
4(d)(ii).
(ii) CONSENT. The Pledgor is not required to obtain the Secured Party's
consent for any substitution pursuant to Paragraph 4(d).
(f) DISPUTE RESOLUTION.
(i) "RESOLUTION TIME" means 1:00 p.m., New York time, on the second
Local Business Day following the date on which a notice is given
regarding a dispute under Paragraph 5.
(ii) VALUE. For the purpose of Paragraphs 5(i)(C) and 5(ii), the
Value of Posted Credit Support will be calculated as follows: For each
item of Eligible Collateral (except for Cash), an amount in U.S. dollars
equal to the product of (i) either (A) the bid price for such security
quoted on such day by a principal market-maker for such security
selected in good faith by the Secured Party or (B) the most recent
publicly available bid price for such security as reported by a
quotation service or in a medium selected in good faith and in a
commercially reasonable manner by Secured Party, multiplied by (ii) the
percentage figure listed in section (b)(ii) hereof with respect to such
security: and (c) with respect to any other Eligible Collateral, an
amount agreed to by the parties and specified on a supplement to this
Annex.
(iii) ALTERNATIVE. The provisions of Paragraph 5 will apply.
(g) HOLDING AND USING POSTED COLLATERAL.
(i) ELIGIBILITY TO HOLD POSTED COLLATERAL; CUSTODIANS. Party A and its
Custodian, and Party B and its Custodian, will be entitled to hold
Posted Collateral, as applicable, pursuant to Paragraph 6(b); provided
that the following conditions applicable to each party are satisfied:
(A) Party A, as the Secured Party, is not a Defaulting Party.
(B) Party B, as the Secured Party, is not a Defaulting Party.
(C) Each party hereby covenants and agrees that it will
cause all Posted Collateral received from the other party to be
entered in one or more accounts (each, a "Collateral Account")
with a domestic office of a commercial bank, trust company or
financial institution organized under the laws of the United
States (or any state or a political subdivision thereof) having
assets of at least $10 Billion and a long term debt or deposit
rating of at least (i) Baa2 from Moody's Investors Services, Inc.
("Moody's") and (ii) BBB from Standard and Poor's Corporation
("S&P") (a "Qualified Institution"), each of which accounts may
include property of other parties but will bear a title indicating
the
12
<PAGE> 37
Secured Party's interest in said account and the Posted
Collateral in such account. In addition the Secured Party may
direct the Pledgor to transfer or deliver Eligible Collateral
directly into the Secured Party's Collateral Account(s). If
otherwise qualified, the Secured Party may act as such Qualified
Institution and the Secured Party may move the Collateral
Accounts from one Qualified Institution to another upon
reasonable notice to the Pledgor. The Secured Party shall cause
statements concerning the Posted Collateral transferred or
delivered by the Pledgor to be sent to the Pledgor on request,
which may not be made more frequently than once in each calendar
month.
Initially the Custodian, for Party A and Party B is:- Not applicable.
(ii) USE OF POSTED COLLATERAL. The provisions of Paragraph 6(c)
will apply to Party A and Party B.
(h) DISTRIBUTIONS AND INTEREST AMOUNT.
(i) The "INTEREST RATE", with respect to cash Collateral, will be the
Federal Funds Rate which means, for any day, the simple interest rate
per annum (rounded upward, if necessary, to the nearest 1/100th of 1%)
equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by
Federal funds brokers on such day, as published by the Federal Reserve
Bank of New York on the Local Business Day next succeeding such day,
provided that (a) if such day is not a Local Business Day, the Federal
Funds Rate for such day shall be such rate on such transactions on the
next preceding Local Business Day, and (b) if no such rate is so
published on such next succeeding Local Business Day, the Federal Funds
Rate for such day shall be the arithmetic mean of the rates for the last
transaction in overnight Federal funds arranged by three leading brokers
of Federal funds transactions in New York City selected by NationsBank
in good faith on such day.
(ii) The "TRANSFER OF INTEREST AMOUNT" will be made on the last Local
Business Day of each calendar month and on any Local Business Day that
Posted Collateral in the form of Cash is transferred to the Pledgor
pursuant to Paragraph 3(b).
(iii) ALTERNATIVE INTEREST AMOUNT. The provisions of Paragraph 6(d)
(ii) will apply.
(i) ADDITIONAL REPRESENTATIONS. None.
(j) OTHER ELIGIBLE SUPPORT AND OTHER POSTED SUPPORT. Other Eligible
Support in the form of a Letter of Credit shall be subject to the following
provisions:
(i) "Letter of Credit Default" shall mean with respect to an outstanding
Letter of Credit, the occurrence of any of the following events: (1) the
issuer of such Letter of Credit shall fail to maintain a credit rating
of at least BBB+ by S&P or Baa2 by Moody's; (2) the issuer of the Letter
of Credit shall fail to comply with or perform its obligations under
such Letter of Credit if such failure shall be continuing after the
lapse of any applicable grace period; (3) the issuer of such Letter of
Credit shall disaffirm, disclaim, repudiate or reject, in whole or in
part, or challenge the validity of, such Letter of Credit; (4) such
Letter of Credit shall expire or terminate, or shall fail or cease to be
in full force and effect at any time during a period in which Posted
Collateral is required, (5) cause the renewal or replacement Letter of
Credit to the Secured Party at the address specified in the Agreement at
least 90 days prior to the expiration of such Letter Of Credit.
(ii) Upon the occurrence of a Letter of Credit Default, the Pledgor
agrees to deliver a substitute Letter of Credit to the Secured Party on
or before the second Business Day after written demand by the Secured
Party. The failure to so deliver a substitute Letter of Credit
13
<PAGE> 38
233 South Wacker Drive, Suite 2800
Chicago, Illinois 60606
Tel 312 234-2934
Fax 312 234-3160
NationsBank
CONFIRMATION FOR U.S. DOLLAR CAP
TO BE SUBJECT TO MASTER AGREEMENT
TO: SIRROM CAPITAL CORPORATION
500 CHURCH STREET, SUITE 200
NASHVILLE, TN 37219
ATTN: CARL STRATTON, CFO
TEL: 615-256-0701
FAX: 615-726-1208
FROM: NationsBank, N.A.
233 5. Wacker Drive
Chicago, Illinois 60606
MICHAEL SHARP / STUART ADAMS
DATE: 27NOV96
SUBJECT: Transaction Ref# 565300
The purpose of this letter agreement is to confirm the terms and
conditions of the Rate Cap Transaction entered into between us on the Trade
Date specified below (the "Cap Transaction"). This letter agreement
constitutes a "Confirmation" as referred to in the Master Agreement specified
below.
The definitions and provisions contained in the 1991 ISDA Definitions
(as published by the International Swaps and Derivatives Association, Inc.),
(the "Definitions") are incorporated into this Confirmation. In the event of
any inconsistency between the Definitions and this Confirmation, this
Confirmation will govern.
1. This Confirmation supplements, forms part of, and is subject to, the
Master Agreement dated as of 26NOV96, as amended and supplemented from time to
time (the "Agreement"), between you and us. All provisions contained in the
Agreement shall govern this Confirmation except as expressly modified below.
2. The terms of the Rate Cap Transaction to which this Confirmation
relates are as follows:
SELLER: NATIONSBANK, N.A.
BUYER: SIRROM CAPITAL CORPORATION
Notional Amount: USD- SEE SCHEDULE A
Accretion: APPLICABLE
<PAGE> 39
and conditions of our agreement by responding within three (3) Business Days by
returning via telecopier an executed copy of this Confirmation to the attention
of the Swaps Documentation Unit at Fax (312) 234-3160. Failure to respond
within such period shall not affect the validity or enforceability of this Cap
Transaction, and shall be deemed to be an affirmation of the terms and
conditions contained herein, absent manifest error.
Yours Sincerely,
NATIONSBANK, N.A.
By: /s/
---------------------
VICE PRESIDENT
SIRROM CAPITAL CORPORATION
BY: /s/ Carl W. Stratton, CFO
--------------------------
AUTHORIZED SIGNATORY
3
<PAGE> 40
SCHEDULE A TO CONFIRMATION
ACCRETION SCHEDULE
<TABLE>
<CAPTION>
PERIOD COVERED NOTIONAL
<S> <C> <C>
02JAN97 03FEB97 8,333,333.00
03FEB97 03MAR97 16,666,667.00
03MAR97 02APR97 25,000,000.00
02APR97 02MAY97 33,333,333.00
02MAY97 02JUN97 41,666,667.00
02JUN97 02JUL97 50,000,000.00
02JUL97 04AUG97 58,333,333.00
04AUG97 02SEP97 66,666,667.00
02SEP97 02OCT97 75,000,000.00
02OCT97 03NOV97 83,333,333.00
03NOV97 02DEC97 91,666,667.00
02DEC97 02JAN98 100,000,000.00
</TABLE>
NATIONSBANK, N.A.
By: /s/
----------------------
VICE PRESIDENT
SIRROM CAPITAL CORPORATION
BY: /s/Carl W. Stratton, CFO
-------------------------
AUTHORIZED SIGNATORY
4
<PAGE> 41
233 South Wacker Drive, Suite 2800
Chicago, Illinois 60606
Tel 312 234-2934
Fax 312 234-3160
NATIONSBANK
CONFIRMATION FOR U.S. DOLLAR CAP
SUBJECT TO EXISTING 1992 MASTER
TO: SIRROM CAPITAL CORPORATION
500 CHURCH STREET, SUITE 200
NASHVILLE, TN 37219
ATTN: CARL STRATTON, CFO
TEL: 615-256-0701
FAX: 615-726-1208
FROM: NationsBank, N.A.
233 S. Wacker Drive
Chicago, Illinois 60606
MICHAEL SHARP / SEAN DOYLE
DATE: 27NOV96
SUBJECT: Transaction Ref# 565310
The purpose of this letter agreement is to confirm the terms and
conditions of the Rate Cap Transaction entered into between us on the Trade
Date specified below (the "Cap Transaction"). This letter agreement
constitutes a "Confirmation" as referred to in the Master Agreement specified
below.
The definitions and provisions contained in the 1991 ISDA Definitions
(as published by the International Swaps and Derivatives Association, Inc.),
(the "Definitions") are incorporated into this Confirmation. In the event of
any inconsistency between the Definitions and this Confirmation, this
Confirmation will govern.
1. This Confirmation supplements, forms part of, and is subject to, the
Master Agreement dated as of 26NOV96, as amended and supplemented from time to
time (the "Agreement"), between you and us. All provisions contained in the
Agreement shall govern this Confirmation except as expressly modified below.
2. The terms of the Rate Cap Transaction to which this Confirmation
relates are as follows:
Notional Amount: USD 100,000,000.00
Trade Date: 27NOV96
Effective Date: 02JAN98
Termination Date: 03JAN00
<PAGE> 42
<TABLE>
<S> <C>
SELLER: NATIONSBANK, N.A.
BUYER: SIRROM CAPITAL CORPORATION
Cap Rate: 6.00%
Payment Dates: THE 2ND OF EACH MONTH COMMENCING
FEBRUARY 2, 1998 AND ENDING JANUARY 3,
2000, SUBJECT TO ADJUSTMENT IN
ACCORDANCE WITH THE MODIFIED FOLLOWING
BUSINESS DAY CONVENTION.
First Calculation Period: The First Calculation Period for this
Rate Cap Transaction shall commence
02JAN98.
Spread: NONE
Reset Dates: Each Business day during the Calculation Period
Floating Rate Reference: USD-CP-H.15
Designated Maturity: 1 Month
Business Day Centers: NEW YORK
Day Count Fraction: ACTUAL/360
Averaging: DAILY UNWEIGHTED
Premium Amount: INAPPLICABLE
Calculation Agent: NationsBank, N.A.
Legal and Out-of-Pocket
Expenses: For each party's own account.
Recording of Conversations: Each party to this Agreement acknowledges and
agrees to the tape or electronic recording of
conversations between the parties to this
Agreement whether by one or other or both of
the parties, and that any such recordings may
be submitted in evidence in any action or
proceeding relating to the Agreement or any
Transaction.
INSTRUCTIONS FOR PAYMENT:
Payment to NationsBank: Payment to SIRROM CAPITAL CORPORATION:
NATIONSBANK, N.A. - CHARLOTTE PLEASE ADVISE
ABA 053000196
ACCT: 10852016511
ATTN: DERIVATIVE OPERATIONS
</TABLE>
Please confirm that the foregoing correctly sets forth the terms and
conditions of our agreement by responding within three (3) Business Days by
returning via telecopier an executed copy
2
<PAGE> 43
of this Confirmation to the Swaps Documentation Group at Fax No. (312)
234-2543. Failure to respond within such period shall not affect the validity
or enforceability of this Cap Transaction, and shall be deemed to be an
affirmation of the terms and conditions contained herein, absent manifest
error.
Yours Sincerely,
NATIONSBANK, N.A.
BY: /s/
--------------------------------
VICE PRESIDENT
Confirmed as of the day first written above:
SIRROM CAPITAL CORPORATION
BY: /s/ Carl W. Stratton, C.F.O.
-------------------------------
AUTHORIZED SIGNATORY
3
<PAGE> 44
233 South Wacker Drive, Suite 2800
Chicago, Illinois 60606
Tel 312 234-2934
Fax 312 234-3160
NATIONSBANK
CONFIRMATION FOR U.S. DOLLAR CAP
TO BE SUBJECT TO MASTER AGREEMENT
TO: SIRROM CAPITAL CORPORATION
500 CHURCH STREET, SUITE 200
NASHVILLE, TN 37219
ATTN: CARL STRATTON, CFO
TEL: 615-256-0701
FAX: 615-726-1208
FROM: NationsBank, N.A.
233 S. Wacker Drive
Chicago, Illinois 60606
MICHAEL SHARP / STUART ADAMS
DATE: 27NOV96
SUBJECT: Transaction Ref# 565140
The purpose of this letter agreement is to confirm the terms and
conditions of the Rate Cap Transaction entered into between us on the Trade
Date specified below (the "Cap Transaction"). This letter agreement
constitutes a "Confirmation" as referred to in the Master Agreement specified
below.
The definitions and provisions contained in the 1991 ISDA Definitions
(as published by the International Swaps and Derivatives Association, Inc.),
(the "Definitions") are incorporated into this Confirmation. In the event of
any inconsistency between the Definitions and this Confirmation, this
Confirmation will govern.
1. This Confirmation supplements, forms part of, and is subject
to, the Master Agreement dated as of 26NOV96, as amended and supplemented from
time to time (the "Agreement"), between you and us. All provisions contained
in the Agreement shall govern this Confirmation except as expressly modified
below.
2. The terms of the Rate Cap Transaction to which this
Confirmation relates are as follows:
SELLER: NATIONSBANK, N.A.
BUYER: SIRROM CAPITAL CORPORATION
Notional Amount: USD- 100,000,000.00
Trade Date: 27NOV96
Effective Date: 03JAN00
Termination Date: 02JAN02
<PAGE> 45
<TABLE>
<S> <C>
Cap Rate: 6.95%
Reset Date: Each Business Day of the Calculation Period
Payment Date: THE 2ND OF EACH MONTH COMMENCING
FEBRUARY 2, 2000 AND ENDING JANUARY 2, 2002,
SUBJECT TO ADJUSTMENT IN ACCORDANCE WITH THE
MODIFIED FOLLOWING BUSINESS DAY CONVENTION.
Floating Rate Reference: USD-CP-H.15
Designated Maturity: 1 Month
Spread: NONE
Business Days: NEW YORK
Day Count Fraction: ACTUAL/360
Averaging: DAILY UNWEIGHTED
Calculation Agent: NationsBank, N.A.
Premium: INAPPLICABLE
Rounding Factor: One Hundred Thousandth of One Percent
Assignment: This Cap Transaction may be assigned only
with prior written consent.
Legal and Out-of-Pocket
Expenses: For Each Party's Own Account.
Governing Law: The Laws of the State of New York.
Recording of Conversations: Each party to this Agreement
acknowledges and agrees to the tape or
electronic recording of conversations between
the parties to this Agreement whether by one
or other or both of the parties, and that any
such recordings may be submitted in evidence
in any action or proceeding relating to the
Agreement or any Transaction.
INSTRUCTIONS FOR PAYMENT:
Payment to NationsBank: Payment to SIRROM CAPITAL CORPORATION:
NATIONSBANK, N.A. - CHARLOTTE FIRST UNION NATIONAL BANK
ABA 053000196 ABA 064000059
ACCT: 10852016511 ACCT: 202-0000-151-160
ATTN: DERIVATIVE OPERATIONS ATTN: KIM STRINGFIELD
</TABLE>
Please confirm that the foregoing correctly sets forth the terms and
conditions of our agreement by responding within three (3) Business Days by
returning via telecopier an executed copy of this Confirmation to the attention
of the Swaps Documentation Unit at Fax
2
<PAGE> 46
(312) 234-3160. Failure to respond within such period shall not affect the
validity or enforceability of this Cap Transaction, and shall be deemed to be
an affirmation of the terms and conditions contained herein, absent manifest
error.
Yours Sincerely,
NATIONSBANK, N.A.
BY: /s/
----------------------------
VICE PRESIDENT
SIRROM CAPITAL CORPORATION
BY: /s/ Carl W. Stratton, C.F.O.
-----------------------------
AUTHORIZED SIGNATORY
3
<PAGE> 47
233 South Wacker Drive, Suite 2800
Chicago, Illinois 60606
Tel 312 234-2934
FAX 312 234-3160
NATIONSBANK
CONFIRMATION FOR U.S. DOLLAR FLOOR
TO BE SUBJECT TO MASTER AGREEMENT
TO: SIRROM CAPITAL CORPORATION
500 CHURCH STREET, SUITE 200
NASHVILLE, TN 37219
ATTN: CARL STRATTON, CFO
TEL: 615-256-0701
FAX: 615-726-1208
FROM: NationsBank, N.A.
233 S. Wacker Drive
Chicago, Illinois 60606
MICHAEL SHARP / STUART ADAMS
DATE: 27NOV96
SUBJECT: Transaction Ref# 565290
The purpose of this letter agreement is to confirm the terms and conditions of
the Rate Floor Transaction entered into between us on the Trade Date specified
below (the "Floor Transaction"). This letter agreement constitutes a
"Confirmation" as referred to in the Master Agreement specified below.
The definitions and provisions contained in the 1991 ISDA Definitions
(as published by the International Swaps and Derivatives Association, Inc.),
(the "Definitions") are incorporated into this Confirmation. In the event of
any inconsistency between the Definitions and this Confirmation, this
Confirmation will govern.
1. This Confirmation supplements, forms part of, and is subject to, the
Master Agreement dated as of 26NOV96, as amended and supplemented from time to
time (the "Agreement"), between you and us. All provisions contained in the
Agreement shall govern this Confirmation except as expressly modified below.
2. The terms of the Rate Floor Transaction to which this Confirmation
relates are as follows:
BUYER: NATIONSBANK, N.A.
SELLER: SIRROM CAPITAL CORPORATION
<PAGE> 48
INSTRUCTIONS FOR PAYMENT:
<TABLE>
<S> <C>
Payment to NationsBank: Payment to SIRROM CAPITAL CORPORATION:
NATIONSBANK, N.A. - CHARLOTTE FIRST UNION NATIONAL BANK
ABA 053000196 ABA 064000059
ACCT: 10852016511 ACCT: 202-0000-151-160
ATTN: DERIVATIVE OPERATIONS ATTN: KIM STRINGFIELD
</TABLE>
Please confirm that the foregoing correctly sets forth the terms and
conditions of our agreement by responding within three (3) Business Days by
returning via telecopier an executed copy of this Confirmation to the attention
of the Swaps Documentation Unit at Fax (312) 234-3160. Failure to respond
within such period shall not affect the validity or enforceability of this
Floor Transaction, and shall be deemed to be an affirmation of the terms and
conditions contained herein, absent manifest error.
Yours Sincerely,
NATIONSBANK, N.A.
BY: /s/
---------------------------
Confirmed as of the date first written above:
SIRROM CAPITAL CORPORATION
BY: /s/ Carl W. Stratton, CFO
--------------------------
AUTHORIZED SIGNATORY
3
<PAGE> 49
SCHEDULE A TO CONFIRMATION
ACCRETION SCHEDULE
<TABLE>
<CAPTION>
PERIOD COVERED NOTIONAL
<S> <C> <C>
02JAN97 03FEB97 8,333,333.00
03FEB97 03MAR97 16,666,667.00
03MAR97 02APR97 25,000,000.00
02APR97 02MAY97 33,333,333.00
02MAY97 02JUN97 41,666,667.00
02JUN97 02JUL97 50,000,000.00
02JUL97 04AUG97 58,333,333.00
04AUG97 02SEP97 66,666,667.00
02SEP97 02OCT97 75,000,000.00
02OCT97 03NOV97 83,333,333.00
03NOV97 02DEC97 91,666,667.00
02DEC97 02JAN98 100,000,000.00
</TABLE>
Yours Sincerely,
NATIONSBANK, N.A.
BY: /s/
--------------------------
SIRROM CAPITAL CORPORATION
BY: /s/ Carl W. Stratton, CFO
--------------------------
AUTHORIZED SIGNATORY
4
<PAGE> 50
233 South Wacker Drive, Suite 2800
Chicago, Illinois 60606
Tel 312 234-2934
Fax 312 234-3160
NATIONSBANK
CONFIRMATION FOR U.S. DOLLAR FLOOR
SUBJECT TO EXISTING 1992 MASTER
TO: SIRROM CAPITAL CORPORATION
500 CHURCH STREET, SUITE 200
NASHVILLE, TN 37219
ATTN: CARL STRATTON, CFO
TEL: 615-256-0701
FAX: 615-726-1208
FROM: NationsBank, N.A.
233 S. Wacker Drive
Chicago, Illinois 60606
MICHAEL SHARP / SEAN DOYLE
DATE: 27NOV96
SUBJECT: Transaction Ref# 565260
The purpose of this letter agreement is to confirm the terms and
conditions of the Rate Floor Transaction entered into between us on the Trade
Date specified below (the "Floor Transaction"). This letter agreement
constitutes a "Confirmation" as referred to in the Master Agreement specified
below.
The definitions and provisions contained in the 1991 ISDA Definitions
(as published by the International Swaps and Derivatives Association, Inc.),
(the "Definitions") are incorporated into this Confirmation. In the event of
any inconsistency between the Definitions and this Confirmation, this
Confirmation will govern.
1. This Confirmation supplements, forms part of, and is subject to, the
Master Agreement dated as of 26NOV96, as amended and supplemented from time to
time (the "Agreement"), between you and us. All provisions contained in the
Agreement shall govern this Confirmation except as expressly modified below.
2. The terms of the Rate Floor Transaction to which this Confirmation
relates are as follows:
<TABLE>
<S> <C>
BUYER: NATIONSBANK, N.A.
SELLER: SIRROM CAPITAL CORPORATION
Notional Amount: USD 100,000,000.00
Trade Date: 27NOV96
Effective Date: 02JAN98
Termination Date: 03JAN00
</TABLE>
<PAGE> 51
<TABLE>
<S> <C>
Floor Rate: 6.00%
Floating Rate Payment Dates: THE 2ND OF EACH MONTH COMMENCING
FEBRUARY 2, 1998 AND ENDING JANUARY 3, 2000,
SUBJECT TO ADJUSTMENT IN ACCORDANCE WITH THE
MODIFIED FOLLOWING BUSINESS DAY CONVENTION.
First Calculation Period: The First Calculation Period for this Rate
Floor Transaction shall commence 02JAN98.
Spread: NONE
Reset Dates: Each Business Day of the Calculation Period
Floating Rate Reference: USD-CP-H.15
Designated Maturity: 1 Month
Business Day Centers: NEW YORK
Day Count Fraction: ACTUAL/360
Averaging: DAILY UNWEIGHTED
Premium Amount: Inapplicable
Calculation Agent: NationsBank, N.A.
Legal and Out-of-Pocket
Expenses: For each party's own account.
Recording of Conversations: Each party to this Agreement
acknowledges and agrees to the tape or
electronic recording of conversations between
the parties to this Agreement whether by one
or other or both of the parties, and that any
such recordings may be submitted in evidence
in any action or proceeding relating to the
Agreement or any Transaction.
INSTRUCTIONS FOR PAYMENT:
Payment to NationsBank: Payment to SIRROM CAPITAL CORPORATION:
NATIONSBANK, N.A. - CHARLOTTE FIRST UNION NATIONAL BANK
ABA 053000196 ABA 064000059
ACCT: 10852016511 ACCT: 202-0000-151-160
ATTN: DERIVATIVE OPERATIONS ATTN: KIM STRINGFIELD
</TABLE>
Please confirm that the foregoing correctly sets forth the terms and
conditions of our agreement by responding within three (3) Business Days by
returning via telecopier an executed copy of this Confirmation to the Swaps
Documentation Group at Fax No. (312) 234-2543. Failure to respond within such
period shall not affect the validity or enforceability of this Floor
Transaction, and shall be
2
<PAGE> 52
deemed to be an affirmation of the terms and conditions contained herein,
absent manifest error.
Yours Sincerely,
NATIONSBANK, N.A.
BY: /s/
------------------------------
VICE PRESIDENT
Confirmed as of the date first written above:
SIRROM CAPITAL CORPORATION
BY: /s/ Carl W. Stratton, CFO
------------------------------
AUTHORIZED SIGNATORY
3
<PAGE> 53
233 South Wacker Drive, Suite 2800
Chicago, Illinois 60606
Tel 312 234-2934
Fax: 312 234-3160
NATIONSBANK
CONFIRMATION FOR U.S. DOLLAR FLOOR
TO BE SUBJECT TO MASTER AGREEMENT
TO: SIRROM CAPITAL CORPORATION
500 CHURCH STREET, SUITE 200
NASHVILLE, TN 37219
ATTN: CARL STRATTON, CFO
TEL: 615-256-0701
FAX: 615-726-1208
FROM: NationsBank, N.A.
233 S. Wacker Drive
Chicago, Illinois 60606
MICHAEL SHARP / STUART ADAMS
DATE: 27NOV96
SUBJECT: Transaction Ref# 565170
The purpose of this letter agreement is to confirm the terms and conditions of
the Rate Floor Transaction entered into between us on the Trade Date specified
below (the "Floor Transaction"). This letter agreement constitutes a
"Confirmation" as referred to in the Master Agreement specified below.
The definitions and provisions contained in the 1991 ISDA Definitions (as
published by the International Swaps and Derivatives Association, Inc.), (the
"Definitions") are incorporated into this Confirmation. In the event of any
inconsistency between the Definitions and this Confirmation, this Confirmation
will govern.
1. This Confirmation supplements, forms part of, and is subject to, the
Master Agreement dated as of 26NOV96, as amended and supplemented from time to
time (the "Agreement"), between you and us. All provisions contained in the
Agreement shall govern this Confirmation except as expressly modified below.
2. The terms of the Rate Floor Transaction to which this Confirmation
relates are as follows:
BUYER: NATIONSBANK, N.A.
SELLER: SIRROM CAPITAL CORPORATION
Notional Amount: USD 100,000,000.00
Trade Date: 27NOV96
Effective Date: 03JAN00
Termination Date: 02JAN02
<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 to all references to our Firm)
included in or made a part of this Registration Statement on Form N-2.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
January 9, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SIRROM CAPITAL, CORPORATION FOR THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 247,958,383
<INVESTMENTS-AT-VALUE> 260,715,637
<RECEIVABLES> 2,455,789
<ASSETS-OTHER> 24,090,270
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 287,261,696
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 125,071,000
<OTHER-ITEMS-LIABILITIES> 5,651,639
<TOTAL-LIABILITIES> 130,722,639
<SENIOR-EQUITY> 132,407,465
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 12,328,567
<SHARES-COMMON-PRIOR> 9,195,116
<ACCUMULATED-NII-CURRENT> 8,002,404
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,061,800
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,607,245
<NET-ASSETS> 156,539,057
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 16,837,156
<OTHER-INCOME> 5,033,632
<EXPENSES-NET> 10,015,756
<NET-INVESTMENT-INCOME> 11,855,033
<REALIZED-GAINS-CURRENT> 7,206,489
<APPREC-INCREASE-CURRENT> 2,793,944
<NET-CHANGE-FROM-OPS> 19,090,506
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,028,049
<DISTRIBUTIONS-OF-GAINS> 577,200
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,198,451
<NUMBER-OF-SHARES-REDEEMED> 65,000
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 5,972,873
<ACCUMULATED-GAINS-PRIOR> 620,271
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 5,979,355
<GROSS-EXPENSE> 10,015,756
<AVERAGE-NET-ASSETS> 122,442,335
<PER-SHARE-NAV-BEGIN> 9.61
<PER-SHARE-NII> .96
<PER-SHARE-GAIN-APPREC> 3.09
<PER-SHARE-DIVIDEND> .96
<PER-SHARE-DISTRIBUTIONS> .0
<RETURNS-OF-CAPITAL> .0
<PER-SHARE-NAV-END> 12.70
<EXPENSE-RATIO> .082
<AVG-DEBT-OUTSTANDING> 105,765,500
<AVG-DEBT-PER-SHARE> 8.58
</TABLE>
