<PAGE> 1
Filed pursuant to Rules 497(c) and (h)
1933 Act File No. 333-19493
PROSPECTUS
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, 2,169,029 SHARES ARE BEING SOLD
BY THE COMPANY AND 150,971 SHARES ARE BEING SOLD BY THE SELLING
SHAREHOLDERS. OF THE 580,000 SHARES OF COMMON STOCK BEING
OFFERED BY THE INTERNATIONAL UNDERWRITERS, 542,257 SHARES
ARE BEING SOLD BY THE COMPANY AND 37,743 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 FEBRUARY 10, 1997 THE
LAST REPORTED SALE PRICE FOR THE
COMMON STOCK WAS $37.
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 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 11 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.
---------------------
PRICE $37 A SHARE
---------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
-------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Per Share............ $37.00 $1.85 $35.15 $35.15
Total(3)............. $107,300,000 $5,365,000 $95,301,703 $6,633,297
</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 $595,000.
(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 $123,395,000, $6,169,750 and $110,591,953, 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 14,
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
February 10, 1997
<PAGE> 2
SIRROM CAPITAL CORPORATION
The following map sets forth, as of December 31, 1996, the 24 states (and
Washington, D.C.) in which the Company's borrowers maintain their principal
place of business and the number of borrowers in each state.
MAP
2
<PAGE> 3
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.............................. 23
Investment Objectives and Policies.... 29
Portfolio Companies................... 31
Management............................ 40
Certain Transactions.................. 47
Principal and Selling Shareholders.... 48
Determination of Net Asset Value...... 49
Reinvestment Plan..................... 49
Tax Status............................ 50
Description of Capital Stock.......... 53
Regulation............................ 54
Shares Eligible for Future Sale....... 56
Underwriters.......................... 57
Legal Matters......................... 60
Custodian, Transfer and Dividend
Paying Agent and Registrar.......... 60
Reports to Shareholders............... 60
Independent Public Accountants........ 60
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> 4
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 December 31,
1996, the Company had loans outstanding with a fair value of $221.5 million to
122 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 $17.1 million for the year
ended December 31, 1996. Since inception, the Company has had realized gains of
$10.1 million (net of realized losses) from the sale of its equity positions in
portfolio companies and at December 31, 1996, had $12.4 million in unrealized
appreciation of investments (net of unrealized depreciation of investments).
The Company has begun to broaden its geographic presence. The Company has
recently relocated a senior lender to manage a San Francisco office, and
currently anticipates opening an office in the Northeast in fiscal 1997. In
addition, the Company has entered into a joint venture with Toronto-Dominion
Bank to jointly make small business loans in Canada similar to those made by the
Company 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 typically receives a
monthly retainer fee with respect to each engagement, as well as a success fee
for each transaction that is closed.
4
<PAGE> 5
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, a majority of its 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................. 15,038,813
- ---------------
(1) Of the 2,320,000 shares of Common Stock being offered in the United States
Offering, 2,169,029 shares are being sold by the Company and 150,971 shares
are being sold by the Selling Shareholders. Of the 580,000 shares of Common
Stock being offered in the International Offering, 542,257 shares are being
sold by the Company and 37,743 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 significantly from the values that would
have been used had a ready market for the
securities existed, and the differences could be
material.
5
<PAGE> 6
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 borrower's 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
January 15, 1997, SII had $28.9 million 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 revolving credit facility (the
"ING Credit Facility"). At January 15, 1997, $2.0
million 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 from
SII and SFC, 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 investment income and net capital gains
distributed to its respective shareholders.
However, the Company, SII or SFC may retain part or
all
6
<PAGE> 7
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)............ 5.00%(1)
---------
Dividend Reinvestment Plan fees........................... None(2)
ANNUAL EXPENSES (as a percentage of net assets attributable
to common shares)(3)
Operating expenses........................................ 2.16%(4)
---------
Interest payments on borrowed funds....................... 3.28%
---------
Total Annual Expenses (estimated)................. 5.44%
=========
</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 $254.1 million, which will be the Company's
estimated shareholders' equity upon completion of the Offering.
(4) Operating expenses consist primarily of compensation and employee benefits,
travel and other marketing expenses, rent and other similar expenses.
EXAMPLE
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in the Company. These amounts assume no additional
leverage and are based upon the payment by an investor of a 5.0% 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........... $ 104 $ 221 $ 350 $ 732
</TABLE>
7
<PAGE> 8
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> 9
SUMMARY HISTORICAL FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FROM
INCEPTION YEAR ENDED
THROUGH DECEMBER 31,
DECEMBER 31, -----------------------------------------------
1992 1993 1994 1995 1996
------------ --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total operating income.......................... $ 918 $ 4,214 $ 8,238 $ 15,575 $ 27,680
Interest expense................................ 127 1,427 3,124 4,771 8,342
General, administrative and amortization
expenses...................................... 218 928 1,313 2,702 5,479
Pretax income of unconsolidated subsidiary...... 43 207 553 812 3,264
--------- --------- --------- ---------- ----------
Pretax operating income(1)...................... $ 616 $ 2,066 $ 4,354 $ 8,914 $ 17,123
========= ========= ========= ========== ==========
Pretax operating income per share............... $ .17 $ .48 $ .83 $ .98 $ 1.47
Dividends per share............................. -- -- -- .89(2) 1.18(2)
Fully diluted weighted average number of shares
outstanding................................... 3,548,000 4,274,000 5,222,000 9,072,000 11,666,000
OTHER OPERATING DATA:
Number of portfolio companies with loans
outstanding at period end..................... 17 38 57 91 122
Number of new portfolio companies............... 17 24 25 44 48
Principal amount of loans originated............ $ 14,639 $ 31,470 $ 40,785 $ 101,505 $ 131,963
Principal amount of loan repayments............. 0 2,013 7,585 14,414 32,630
Net interest spread(3).......................... 5.6% 5.8% 5.5% 5.8% 5.9%
General and administrative expenses as a
percentage of ending assets................... 1.5% 1.6% 1.3% 1.4% 1.7%
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
-------------------------
Actual As Adjusted(4)
-------- --------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 4,612 $ 69,220
Loans..................................................... 221,487 221,487
Equity interests.......................................... 34,966 34,966
Warrants.................................................. 15,894 15,894
Total assets.............................................. 288,013 352,622
Revolving credit facilities............................... 30,858 --
Debentures payable to SBA................................. 90,000 90,000
Total shareholders' equity................................ 158,621 254,087
</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) For the years 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 year ended December 31, 1996, includes $.36 in dividends
declared and to be paid in the first quarter of 1997 related to 1996
earnings.
(3) Net interest spread represents the weighted average gross yield on the
Company's interest bearing investments less the weighted average cost of
borrowed funds at the end of the respective periods shown.
(4) Adjusted to reflect the sale by the Company of 2,711,286 shares of Common
Stock offered hereby by the Company and the application of the estimated net
proceeds therefrom. See "Use of Proceeds" and "Capitalization."
9
<PAGE> 10
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> 11
RISK FACTORS
The purchase of the shares offered by this Prospectus involves a number of
significant risks and other factors relating to the structure and investment
objectives of the Company. As a result, there can be no assurance that the
Company will continue to achieve its investment objectives. In addition to the
other information contained in this Prospectus, the following risk factors
should be carefully considered in evaluating an investment in the Common Stock.
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> 12
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 fair value of the loan portfolio. At December 31, 1996,
the Company's directors have approved loan valuations that resulted in the
recording of $7.2 million of unrealized depreciation. 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 Holland Limited
Securitization, Inc., a multi-seller commercial paper conduit sponsored by ING
Baring (U.S.) Capital Markets, Inc. (individually and collectively, "ING"), the
lender under the ING Credit Facility, 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 December 31, 1996,
the Company's debt as a percentage of total liabilities and shareholders' equity
was 42.0%. In addition, the
12
<PAGE> 13
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.
As of January 15, 1997, SII had borrowed $90.0 million from the SBA under
the SBA debenture program bearing an average annual interest rate of 7.02% and
had $28.9 million outstanding under the Revolving Credit Facility bearing an
average annual interest rate of 8.14%. As of January 15, 1997, SFC had $2.0
million outstanding under the ING Credit Facility bearing an average annual
interest rate of 7.72%. In order for the Company to cover annual interest
payments on the debt described above, it must achieve annual returns of at least
2.4% 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).................. -17.9% -10.7% -3.5% 3.8% 11.0%
</TABLE>
- ------------
(1) The calculation assumes (i) $367.1 million in investments, (ii) an average
cost of funds of 7.30%, (iii) $120.9 million in debt outstanding and (iv)
$254.1 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 January 15, 1997, SII had
outstanding borrowings of $90.0 million from the SBA and therefore has no
additional SBA funding available. As of January 15, 1997, SII also had
outstanding borrowings of $28.9 million of the $50.0 million available under the
Revolving Credit Facility. As of January 15, 1997, SFC had outstanding
borrowings of $2.0 million 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 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 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
13
<PAGE> 14
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, 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 $94.7 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 $35.5 million outstanding under the Revolving
Credit Facility, to repay approximately $7.0 million outstanding under the ING
Credit Facility, and to originate new loans and make investments. SII and SFC,
as applicable, will then reborrow amounts available under the Revolving Credit
Facility and the ING Credit Facility to originate new loans. Amounts outstanding
under the Revolving Credit Facility and the ING Credit Facility bear interest at
8.26% per annum and 7.72% per annum, respectively, 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,
income-producing securities with maturities of 15 months or less that are issued
or guaranteed by the federal government or agencies thereof and high quality
debt securities maturing in one year or less from the time of investment in such
high quality debt securities. See "Investment Objectives and Policies."
14
<PAGE> 15
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 February 10, 1997, the last reported sale price of the Common Stock was
$37.00 per share (a 188% 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 the fourth
quarter of 1996. 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 $ 8.01 45% 34% $.14
Second Quarter.................... 13 3/4 11 1/8 8.21 68 36 .26
Third Quarter..................... 18 3/4 13 1/4 9.43 99 41 .23
Fourth Quarter.................... 20 16 3/4 9.61 108 74 .26
1996
First Quarter..................... 23 3/4 18 5/8 10.27 131 81 .24
Second Quarter.................... 29 1/2 23 1/4 13.36 119 74 .26
Third Quarter..................... 30 1/4 23 12.70 138 81 .32
Fourth Quarter.................... 38 3/8 30 1/4 12.85 199 135 .36
</TABLE>
- ------------
(1) 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. The net asset values shown are
based on outstanding shares at the end of each period.
(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
$7.29, $7.47, $8.73, $8.84, $9.52, and $12.56, respectively.
15
<PAGE> 16
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
at December 31, 1996, and (ii) the capitalization of the Company at December 31,
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>
DECEMBER 31, 1996
-------------------------
ACTUAL AS ADJUSTED(1)
-------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Debentures payable to Small Business Administration......... $ 90,000 $ 90,000
Revolving credit facilities................................. 30,858 --
-------- --------
$120,858 $ 90,000
-------- --------
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)(3)............................ 140,061 234,665
Notes receivable from employees(3)(4)....................... (1,539) (677)
Undistributed net realized earnings......................... 7,706 7,706
Unrealized appreciation of investments...................... 12,393 12,393
-------- --------
Total shareholders' equity............................. $158,621 $254,087
-------- --------
Total Capitalization........................................ $279,479 $344,087
======== ========
</TABLE>
- ---------------
(1) Reflects a public offering price of $37.
(2) Excludes an aggregate of 1,278,547 shares issuable pursuant to stock options
outstanding at December 31, 1996 that vest over varying periods of time.
(3) The as adjusted data reflects the forfeiture of 16,040 shares at $6.3974
from Peter T. Socha, former Vice President -- Workouts of the Company, on
January 31, 1997 following Mr. Socha's resignation from employment in
December 1996, and the partial cancellation of Mr. Socha's note receivable
in the amount of $102,614 related to those shares.
(4) The as adjusted data reflects the repayment of $760,012 of notes receivable
by Mr. Socha and Carolyn W. Perrone upon the sale of shares in this
Offering.
16
<PAGE> 17
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 four years in the
period ended December 31, 1996, 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 four years in the period ended December 31,
1996, is included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FROM
INCEPTION
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, --------------------------------------------------
1992 1993 1994 1995 1996
------------ ---------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Operating income:
Interest on investments................................... $ 636 $ 3,515 $ 7,337 $ 13,452 $ 24,395
Loan processing fees...................................... 282 699 901 1,900 3,166
Other income.............................................. -- -- -- 223 119
---------- ---------- ---------- ---------- -----------
Total operating income.............................. 918 4,214 8,238 15,575 27,680
Operating expenses:
Interest expense.......................................... 127 1,427 3,124 4,771 8,342
Salaries and benefits..................................... -- -- -- 1,082 2,994
Management fees........................................... 210 709 1,073 -- --
Other operating expenses.................................. -- 166 122 1,412 1,942
State income tax on interest.............................. -- 231 457 109 --
Amortization expense...................................... 8 54 118 208 543
---------- ---------- ---------- ---------- -----------
Total operating expenses............................ 345 2,587 4,894 7,582 13,821
---------- ---------- ---------- ---------- -----------
Pretax income of unconsolidated subsidiary.................. 43 207 553 812 3,264
---------- ---------- ---------- ---------- -----------
Net operating income........................................ 616 1,834 3,897 8,805 17,123
Realized gain (loss) on investments....................... 198 (799) (538) 1,759 9,463
Change in unrealized appreciation (depreciation) of
investments............................................. 1,813 (50) 3,356 4,694 2,580
Provision for income taxes.................................. -- -- -- (1,020) (4,270)
---------- ---------- ---------- ---------- -----------
Net increase in partners' capital and shareholders' equity
resulting from operations................................. $ 2,627 $ 985 $ 6,715 $ 14,238 $ 24,896
========== ========== ========== ========== ===========
Per share:
Pretax operating income................................... $ .17 $ .48 $ .83 $ .98 $ 1.47
Net increase in partners' capital and shareholders' equity
resulting from operations............................... .74 .23 1.29 1.57 2.13
Dividends................................................. -- -- -- .89(1) 1.18(1)
Fully diluted weighted average shares outstanding........... 3,548,000 4,274,000 5,222,000 9,072,000 11,666,000
OPERATING STATISTICS:
Number of portfolio companies with loans outstanding at
period end................................................ 17 38 57 91 122
Number of new portfolio companies........................... 17 24 25 44 48
Principal amount of loans originated........................ $ 14,639 $ 31,470 $ 40,785 $ 101,505 $ 131,962
Principal amount of loan repayments......................... -- 2,013 7,585 14,414 32,630
Loan portfolio at period end................................ 14,639 42,441 72,336 144,855 221,487
Average net interest spread at period end(2)................ 5.6% 5.8% 5.5% 5.8% 5.9%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, 1996
-------------------------------------- -------------------------
1992 1993 1994 1995 ACTUAL AS ADJUSTED(3)
------- ------- ------- -------- -------- --------------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 4,601 $ 1,633 $ 137 $ 195 $ 4,612 $ 69,220
Loans....................................................... 14,639 42,441 72,336 144,855 221,487 221,487
Equity interests............................................ 4,233 3,591 7,577 15,912 34,966 34,966
Warrants.................................................... 951 4,219 7,549 11,513 15,894 15,894
Total assets................................................ 24,954 53,425 91,804 177,870 288,013 352,622
Revolving credit facilities................................. -- -- 6,389 13,200 30,858 --
Debentures payable to SBA................................... 10,000 34,000 51,000 73,260 90,000 90,000
Total shareholders' equity.................................. 14,806 18,787 33,218 89,186 158,621 254,087
</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 year ended December 31, 1996, includes $.36 in dividends
declared and to be paid in the first quarter of 1997 related to 1996
earnings.
(2) Net interest spread represents the weighted average gross yield on the
Company's interest bearing investments less the weighted average cost of
borrowed funds at the end of the respective periods shown.
(3) Adjusted to reflect the sale by the Company of 2,711,286 shares of Common
Stock offered hereby by the Company and the application of the estimated net
proceeds therefrom. See "Use of Proceeds" and "Capitalization."
17
<PAGE> 18
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 PERCENTAGE CHANGE
----------------------------- -----------------------
YEARS ENDED DECEMBER 31, 1994 1995 1996
----------------------------- VS. VS. VS.
1993 1994 1995 1996 1993 1994 1995
----- ----- ----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest on investments........................ 83.4% 89.1% 86.4% 88.1% 108.7% 83.3% 81.3%
Loan processing fees........................... 16.6 10.9 12.2 11.4 28.9% 110.9% 66.6%
Other income................................... 0.0 0.0 1.4 0.4 -- -- (46.6)%
----- ----- ----- -----
Total Operating Income..................... 100.0% 100.0% 100.0% 100.0% 95.5% 89.1% 77.7%
Interest expense............................... 33.9 37.9 30.7 30.1 118.9% 52.7% 74.8%
Salaries, benefits, and other operating
expenses..................................... 20.7 14.5 16.0 17.8 36.6% 108.7% 98.0%
State income tax on interest................... 5.5 5.6 0.7 -- 97.8% (76.1%) (100.0)%
Amortization expense........................... 1.3 1.4 1.3 2.0 118.5% 76.3% 161.1%
----- ----- ----- -----
Total Operating Expenses................... 61.4 59.4 48.7 49.9 89.2% 54.9% 82.3%
Equity in pre-tax income of unconsolidated
subsidiary................................... 4.9 6.7 5.2 11.8 167.1% 46.8% 302.0%
----- ----- ----- -----
Net Operating Income....................... 43.5% 47.3% 56.5% 61.9% 112.5% 125.9% 94.5%
===== ===== ===== =====
</TABLE>
The following table summarizes the Company's operating results by quarter
for 1995 and 1996.
<TABLE>
<CAPTION>
MARCH JUNE SEPT. DEC. MARCH JUNE SEPT. DEC.
1995 1995 1995 1995 1996 1996 1996 1996
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest on investments............ $2,424 $3,231 $3,375 $4,422 $4,862 $5,586 $6,389 $7,558
Loan processing fees............... 541 313 706 340 921 652 797 796
Other income....................... -- -- -- 223 -- 62 28 29
------ ------ ------ ------ ------ ------ ------ ------
Total Operating Income......... 2,965 3,544 4,081 4,985 5,783 6,300 7,214 8,383
Interest expense................... 999 1,170 1,192 1,410 1,790 2,051 2,138 2,362
Salaries, benefits, and other
operating expenses............... 673 436 620 765 1,216 1,172 1,270 1,279
State income tax on interest....... 52 11 -- 47 -- -- -- --
Amortization expense............... 30 38 45 95 188 89 101 165
------ ------ ------ ------ ------ ------ ------ ------
Total Operating Expenses....... 1,754 1,655 1,857 2,317 3,194 3,312 3,509 3,806
Equity in pre-tax income of
unconsolidated subsidiary........ 194 8 408 202 795 627 1,151 691
------ ------ ------ ------ ------ ------ ------ ------
Net Operating Income........... $1,405 $1,897 $2,632 $2,870 $3,384 $3,615 $4,856 $5,268
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
The Company's principal investment objectives are to achieve a high level
of income from the collection of interest and processing and financial advisory
fees and long-term growth in its shareholders' equity through the appreciation
in value of equity interests in its portfolio companies 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
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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 monthly
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 four 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 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 since 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. The fourth element is "provision for income taxes," which
primarily consists of taxes owed on retained capital gains and taxes on the
pre-tax income of Harris Williams.
Fiscal Years Ended December 31, 1996, 1995 and 1994
Net Operating Income. During the fiscal year ended December 31, 1996, the
Company earned interest on investments of $24.4 million, an 80.7% increase over
the $13.5 million earned in 1995, which in turn was an 84.9% increase over the
$7.3 million earned in 1994. In addition to interest on investments, the Company
also collects an up-front processing fee for each loan it originates. During
fiscal 1996, the Company collected $3.2 million in processing fees, a 68.4%
increase over the $1.9 million collected in 1995, which in turn was a 110.9%
increase over the $901,000 collected in 1994. 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 $221.5 million at December 31, 1996, an increase of 52.9%
over the $144.9 million at December 31, 1995, which in turn was an increase of
100.4% from $72.3 million at December 31, 1994. The $132.0 million of loans
originated during fiscal 1996 was a 30.0% increase over the $101.5 million of
loans originated during fiscal 1995, which in turn was a 148.8% increase over
the $40.8 million of loans originated in 1994. In addition, the weighted average
interest rate charged on the loan portfolio at December 31, 1996 was 13.2%, as
compared to 12.8% and 12.3% at December 31, 1995 and 1994, respectively. The
Company also earned income from miscellaneous sources in an amount equal to
$119,000 in 1996 and $223,000 in 1995, primarily from interest paid on loans to
employees made in connection with purchases of common stock of the Company.
The Company's interest expense increased to $8.3 million in 1996, a 72.9%
increase over the $4.8 million in 1995, which in turn was a 54.8% increase over
the $3.1 million paid in 1994. The increase in interest expense from 1994 to
1996 was primarily attributable to increased borrowings from the SBA and, in
1995 and 1996, under the revolving credit facilities. The Company's total
borrowings were $120.9 million on December 31, 1996, $86.5 million on December
31, 1995 and $57.4 million on December 31, 1994.
Overhead, amortization of borrowing costs and state taxes totaled $5.5
million in fiscal 1996, a 96.4% increase over the $2.8 million of such expenses
in fiscal 1995, which in turn was a 55.6% increase over the $1.8 million of such
expenses in 1994. These increases can be largely attributed to the increase in
the number of employees from five in January 1994 to 24 in December 1996 and the
Company's relocation to larger office space in 1995. In addition, in 1996, the
Company changed its practice of expensing bonuses when paid in the first quarter
of each year to accruing for bonuses currently. As a result, this bonus accrual
increased operating expenses by approximately $1.0 million in 1996, representing
35.7% of the 96.4% increase in expenses from
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<PAGE> 20
1995 to 1996. Although the dollar amount of these expenses increased over the
three-year period, overhead expenses as a percentage of ending assets increased
slightly at 1.7%, 1.4% and 1.3% for fiscal 1996, 1995 and 1994, respectively.
During 1996, Harris Williams had revenues of $6.7 million, a 157.7%
increase over the $2.6 million in fiscal 1995, which in turn was a 52.9%
increase over the $1.7 million in revenues in 1994. During 1996, Harris Williams
had pre-tax income of $3.3 million, a 306.4% increase over the $812,000 in
pre-tax income in 1995, which in turn was a 46.8% increase over the $553,000 in
pre-tax income in 1994. These increases were due to an increase in the number of
transactions in which Harris Williams provided advisory services. Harris
Williams provided advisory services on 13 transactions that closed during 1996,
a 44.4% increase over the nine transactions closed in 1995, which in turn was a
50.0% increase over the six transactions that closed during 1994. Income taxes
of $207,000 were accrued on Harris Williams' pre-tax income in 1996. No taxes
were accrued on Harris Williams' pre-tax income in 1995 and 1994, as Harris
Williams was a partnership at that time.
Realized Gain (Loss) on Investments. The Company's net realized gain on
investments was $9.5 million during the year ended December 31, 1996, largely
resulting from gains of $12.3 million on equity positions in American Remedial
Technologies, Inc., Premiere Technologies, Inc., Hoveround Corporation,
Education Medical, Inc., Orchid Manufacturing Group, Inc., and Consumer Credit
Associates Inc. offset by losses of $2.8 million on loans to Medical Associates
of America, Inc. and Cougar Power Products, Inc., on an equity position in
Eastern Food Group L.L.C., and on the collateral securing a loan to Alpha West
Partners I, L.P. The Company's net realized gain on investments was $1.8 million
during 1995, primarily 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 loss on Medical Associates of America, Inc. equity positions and a
$1.5 million loss on a loan to Quality Care Networks, Inc. The realized loss on
investments for 1994 was $538,000, primarily resulting from $1.6 million of
losses, 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.
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, 1996, 1995 and 1994, the Company recorded net increases
in unrealized appreciation of investments of $2.6 million, $4.7 million and $3.4
million, respectively. These changes 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. 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 1996, the Company paid dividends of $11.6 million compared to the
$5.2 million paid in 1995. Of these dividends, $11.2 million and $4.0 million
were derived from net operating income for 1996 and 1995, respectively, and
$406,000 and $1.2 million were derived from realized capital gains for 1996 and
1995, respectively. The Company also elected to designate $10.6 million and $2.1
million of the undistributed realized capital gains as a "deemed" distribution
to shareholders of record as of the end of 1996 and 1995,
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<PAGE> 21
respectively. Accordingly, $6.9 million and $1.4 million, for 1996 and 1995
respectively, net of taxes of $3.7 million and $737,000, respectively, of this
"deemed" distribution has been retained and reclassified from undistributed net
realized earnings to Common Stock.
For the years ended December 31, 1996, 1995 and 1994 the Statements of
Operations include a provision for state income taxes on interest totaling $0,
$109,000 and $457,000, respectively. For the years ended December 31, 1996 and
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. These tax provisions totalled $4.3 million and $1.0
million for the years ended December 31, 1996 and 1995, respectively. The
provision for income taxes includes the $3.9 million and $737,000 of tax related
to the retained "deemed" distribution discussed above.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had $4.6 million in cash and cash
equivalents ($950,000 of which was pledged to secure the Company's obligations
under certain swap agreements). At December 31, 1996, the Company's investment
portfolio included investments in stocks and warrants of publicly-traded
companies that had an ascertainable market value and were being carried at a
fair value of approximately $12.7 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.
At December 31, 1996, total SBA borrowings were $90.0 million, 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 December 31, 1996, and none of these borrowings
mature prior to 2002.
As of December 31, 1996, SII had $28.9 million outstanding under its
Revolving Credit Facility, which is secured by all of SII's assets, guaranteed
by the Company and secured by a pledge of SII's stock by the Company. The
interest rate on these borrowings was 8.14% at December 31, 1996. The Revolving
Credit Facility matures on May 31, 2000. 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 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 various hedging arrangements.
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, is 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. As
of January 15, 1997, the Company made an initial capital contribution to SFC of
approximately
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$25.0 million of loans, which loans will serve as initial collateral for the ING
Credit Facility. At January 15, 1997, $2.0 million 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 at January 15, 1997 was 7.72%. The ING Credit Facility matures on
December 31, 2001. 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 thereunder. 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.
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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 December 31, 1996, the
Company had loans outstanding with a fair value of $221.5 million to 122
companies in a variety of industries located in 24 states and Washington, D.C.
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 December 31, 1996, was 13.2%. The
Company's strategic objective is to provide various 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 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 "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 entered into a joint venture agreement to make secured
loans with warrants to small private companies located in Canada on a joint
basis with a Toronto-Dominion Bank ("TD"). Initially, the Company has committed
to make up to $20.0 million (in Canadian dollars) of loans to Canadian
companies, which has been matched by a $30.0 million (in Canadian dollars)
commitment from TD. The parties will create a Canadian corporation, SCC Canada
Inc. ("SCC Canada"), 60% of which will be owned by TD and 40% of which will be
owned by the Company. SCC Canada, which will be located in Toronto, Canada, will
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 will also service each loan and collect a
servicing fee from TD and the Company. SCC Canada will not have the ability to
contractually obligate the Company or TD and will not fund the loans. The loans
themselves will be funded directly to the borrowers from TD and the Company, and
the Company and TD will individually approve their respective loans to each
borrower identified by SCC Canada. It is anticipated SCC Canada will target
borrowers that meet similar 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, its wholly-owned subsidiary.
The target market for this product will be public companies with a market
capitalization under $100.0 million and revenues typically ranging from $20.0
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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 existing
referral network.
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.
SELECTION OF LOAN AND INVESTMENT OPPORTUNITIES
Since inception, the Company has identified certain common characteristics
of borrowers which it believes will 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, these
criteria generally are applied in the Company's 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 or a repurchase by the borrower of
the Company's equity position.
LOAN REPAYMENT; VALUATION AND REALIZATION OF EQUITY INVESTMENTS
The Company's investments in small businesses are made with the intent of
having the loans repaid within five years and liquidating the equity portion of
the investments for cash within five to ten years. If an investment is
successful, not only will the loan made by the Company have been repaid with
interest, but the Company may be in a position to realize a gain on the equity
security obtained in connection with the loan. Although the Company expects to
dispose of an investment after a certain time, situations may arise in which
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it may hold equity securities for a longer period. From the Company's inception
through December 31, 1996, $320.4 million of loans have been originated and
$56.6 million, or 17.7%, have been repaid.
Each loan the Company makes generally has a related five-year warrant to
buy common stock of the borrower. These warrants are exercisable at a nominal
price (usually $.01 per share) and typically represent 3% to 15% of a borrower's
fully diluted common stock. The warrants are generally structured to provide
both registration rights that entitle the Company to sell the equity securities
of the borrower in a public offering and a put option that requires the borrower
to repurchase the warrant after five years at the fair market value of the
shares issuable. As of December 31, 1996, the Company had ten stock positions in
publicly traded companies that had a fair market value of $13.6 million on that
date. In accordance with the Company's valuation policy, the securities were
carried at a fair value of $11.4 million at December 31, 1996. In addition, at
that date, the Company owned common stock and preferred stock investments in 25
non-public companies with a fair value of approximately $23.5 million. The
Company has also converted approximately 25 equity positions to cash since
inception with gains approximating $17.8 million. At December 31, 1996, the
Company held warrant positions in eight public companies that it carried on its
books at a fair value of approximately $1.3 million and warrants in
approximately 120 private companies that it carried at a fair value of $14.6
million. The fair value of the Company's loans and investments is determined in
good faith by the Board of Directors in accordance with the Company's Valuation
Policy. For a discussion of the Company's Valuation Policy see "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; (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; or (vi) high quality debt securities maturing in
one year or less from the time of investment in such high quality debt
securities.
OPERATIONS
Marketing. The Company currently employs six 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 and engaged another consultant with
small business finance experience. The Company is also considering expanding its
presence into other geographic markets and anticipates opening an office in the
Northeast in fiscal 1997.
Loan Approval Process. The Company's lending officers review informational
packages in order to identify potential borrowers. After identifying applicants
that meet the Company's investment criteria, the loan officer, in conjunction
with the Chief Operating Officer, selects applicants that merit additional
consideration. See "-- Selection of Loan and Investment Opportunities." The
lending officer then conducts a more thorough investigation and analysis ("due
diligence") of the applicant. The due diligence process usually includes on-site
visits, review of historical and prospective financial information, interviews
with management,
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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 presently
comprised of the George M. Miller, II, David M. Resha, Donald F. Barrickman and
Carl W. Stratton, 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. Rather than rely on borrower's management, the Company has decided to
implement its own 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.
26
<PAGE> 27
Loan Portfolio. During the year ended December 31, 1996, the Company
originated loans to 84 companies, including 48 new borrowers, in the aggregate
principal amount of approximately $132.0 million, in several industries. During
the same period, the Company realized $12.3 million in equity gains and realized
approximately $2.8 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
INCEPTION
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, ---------------------------------------
1992 1993 1994 1995 1996
------------ ------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans originated............................. $14,639 $31,470 $40,785 $101,505 $131,962
Loan repayments.............................. 0 2,013 7,585 14,414 32,630
Loans amount converted to equity............. 0 500 2,150 3,751 8,278
Realized losses on loans..................... 0 1,155 1,155 1,500 1,764
Net realized gains on equity investments..... 198 355 617 3,220 11,227
</TABLE>
The table below sets forth, as of December 31, 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.................................................. 11.5 11
Colorado.................................................... 2.1 2
Connecticut................................................. 2.9 3
Florida..................................................... 14.4 19
Georgia..................................................... 15.4 16
Kentucky.................................................... 4.8 4
Maryland.................................................... 2.1 2
North Carolina.............................................. 6.3 9
New Jersey.................................................. 1.2 2
Ohio........................................................ 3.1 4
Pennsylvania................................................ 2.4 2
South Carolina.............................................. 1.9 3
Tennessee................................................... 9.3 15
Texas....................................................... 10.8 11
Virginia.................................................... 4.3 8
*Other states (8)........................................... 6.1 9
----- ---
Total............................................. 100.0% 122
===== ===
</TABLE>
- ------------
* The other states in which the Company has only a single borrower are Hawaii,
Iowa, Maine, 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
27
<PAGE> 28
workout area. Management determines the most appropriate course of action given
the particular circumstances with respect to protecting its interest in a
defaulted loan, which may involve, among other things, the sale of the borrower
or foreclosure proceedings.
At December 31, 1996, the Company had loans to thirteen companies with an
aggregate principal balance of $15.9 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 $8.7
million, and therefore provided for unrealized depreciation from original cost
of $7.2 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 pre-tax income increasing from $207,000 for the year ended
December 31, 1993 to $3.3 million for the year ended December 31, 1996 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, underwriting and workout of small business loans or the executive
management of the Company.
28
<PAGE> 29
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
29
<PAGE> 30
distressed loan or investment situations), or (vii) acquire the voting
stock of, or invest in any securities issued by, any other investment
company, except as they may be acquired as part of a merger, consolidation
or acquisition of assets.
6. The Company may make loans and loans with equity features, as well
as investments in equity securities of small business concerns. It is
anticipated that substantially all of the Company's investments in small
business concerns will continue to be secured loans with warrants or other
equity features issued in connection therewith. The Company may also make
loans as permitted under its Amended and Restated 1994 Stock Option Plan
and its 1996 Incentive Stock Option Plan, as described in this Prospectus
under "Management -- Employee Stock Options".
The Company's and 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 loans and loans with equity features, as well
as investments in equity securities of small business concerns. At December
31, 1996, 82% of the Company's total assets were invested in loans and
convertible debt with related warrants, 12% in equity securities, and 6% 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 year ended December 31, 1996, the Company made loans to 84
companies totaling approximately $132.0 million and received repayments (either
partial or full) from 24 companies aggregating $32.6 million. During the year
ended December 31, 1995, the Company made loans to 68 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 $320.4 million in total
loans and $56.6 million, or 17.7%, 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.
30
<PAGE> 31
PORTFOLIO COMPANIES
The following table sets forth certain information as of December 31, 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 December 31, 1996 at pages F-25 to F-33 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 9.7
20975 Swenson Drive Common Stock
Suite 150
Waukesha, WI 53186
Alternative Home Care.......................... Home Health Care Warrant to purchase 13.0
P.O. Box 17486 Common Stock
Clearwater, FL 34622
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 .1
100 W. Lucerne Circle Common Stock
Suite 100 Common Stock .1
Orlando, FL 32801
American Rockwool.............................. Rockwool Insulation Warrant to purchase 11.0
Acquisition Corporation Common Stock
P.O. Box 880
Spring Hope, NC 27882
Amscot Holdings, Inc. ......................... Check Cashing Service Warrant to purchase 26.5
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 19.3
4505 Transport Drive Common Stock
Tampa, FL 33605
Associated Response Services, Inc. ............ Direct Mail Warrant to purchase 35.2
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 7.0
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
</TABLE>
31
<PAGE> 32
<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>
BankCard Services Corporation.................. Debit Card Warrant to purchase 28.0%
3400 McClure Ridge Rd. Common Stock
Bldg. E, Ste. B
Duluth, GA 30136
BiTec Southeast, Inc. ......................... Specialty Gas Warrant to purchase 15.0
8405-G Benjamin Rd. Common Stock
Tampa, FL 33634
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 Common Stock 1.5
Cartech Holdings, Inc.......................... Paint and Body Shop Warrant to purchase 20.0
11200 Alpharetta Hwy. Common Stock
Roswell, GA 30076
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
Cedaron Medical, Inc........................... Equipment/Software Warrant to purchase 4.2
9352 Campbell Road Common Stock
Winter, CA 95694
CellCall, Inc. ................................ Radio/Telephone Warrant to purchase 1.5
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 Common Stock 33.9
2710 Landers Avenue Warrant to purchase 1.8
Nashville, TN 37211 Common Stock
CLS Corporation................................ Management Services Preferred Stock -- 86.0
4 Century Parkway Series A
Suite 110 Warrant to purchase 4.2
Blue Bell, PA 19422 Common Stock
Colonial Investments, Inc. .................... Retail Warrant to purchase 24.0
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
Continental Diamond Cutting Company............ Jewelry Replacement Warrant to purchase 12.2
4427 W. Kennedy Blvd. Common Stock
Suite 300
Tampa, FL 33609
</TABLE>
32
<PAGE> 33
<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>
Corporate Flight Management, Inc. ............. FBO Airport Warrant to purchase 6.6%
Smyrna Airport Common Stock
Hangar 625
Smyrna, TN 37167
Corporate Link................................. Real Estate Warrant to purchase 16.0
100 North Tampa St. Management Common Stock
Tampa, FL 33602
CreditCorp and affiliates...................... Consumer Finance Warrant to purchase 5.0%
P.O. Box 1015 Common Stock
Cleveland, TN 37364-1015
Dalcon Technologies, Inc. ..................... Computer Services Warrant to purchase 20.0
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
The Delaware Publishing Group, Inc. ........... Publishing Warrant to purchase 47.7
1112 E. Copeland Rd., Ste. 510 Common Stock
Arlington, TX 76011
DentalCare Partners, Inc. ..................... Dental Services Preferred Stock -- 6.8
3109 Poplarwood Court Series E
Suite 300 Warrant to purchase 5.0
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
Educational Medical, Inc. ..................... Technical Schools Common Stock 1.6
1327 Northmeadow Parkway
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 5.2
8900 Shoal Creek Blvd., Bldg. 300 Common Stock
Austin, TX 78757
Entek Scientific, Inc.......................... Applied Technology Warrant to purchase 3.7
4480 Lake Forest Drive Common Stock
Suite 316
Cincinnati, OH 45242
Express Shipping Centers, Inc. ................ Shipping Warrant to purchase 5.0
P.O. Box 1599 Common Stock
Fairfield, IA 52556
FCOA Acquisition Corp ......................... Retail Common Stock 2.5
745 Birginal Drive
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
</TABLE>
33
<PAGE> 34
<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>
Front Royal, Inc. ............................. Environmental Common Stock .9%
2200 Gateway Blvd. Insurance Warrant to purchase 1.8
Suite 205 Common Stock
Morrisville, NC 27560
Fycon Technologies, Inc. ...................... OEM Preferred Stock -- 100.0
4100 Barringer Drive Series A
Charlotte, NC 28217 Warrant to purchase 15.0
Common Stock
Fypro, Inc. ................................... OEM Warrant to purchase 15.0
4100 Barringer Drive common stock
Charlotte, NC 28217
Gardner Wallcovering, Inc. .................... Wallcovering Warrant to purchase 2.0
3300 Canton Pike Common Stock
Hopkinsville, KY 42240
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
Global Marine Electronics, Inc................. Marine Electronics Warrant to purchase 18.0
934 Single Path Lane Common Stock
St. Louis, MO 63122
Gold Medal Products, Inc. ..................... Manufacturing Warrant to purchase 32.8
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 28.3
Nashville, TN 37209 Common Stock
Golf Video, Inc. .............................. Interactive Golf Video Warrant to purchase 49.5
6950 Charlotte Pike Common Stock
Nashville, TN 37209
Good Food Fast Companies, The.................. Bagel & Coffee Retail Warrant to purchase 17.0
151 Kalmus Dr. Common Stock
Costa Mesa, CA 92626
Gulfstream International Airlines, Inc. ....... Commuter Airline Warrant to purchase 32.0
P.O. Box 777 Common Stock
Miami Springs, FL 33266 Preferred Stock --
Series A 100.0
H & H Acquisition Corporation.................. Textile Parts Warrant to purchase 22.5
P.O. Box 8516 Common Stock
Greenville, SC 29604
Home Link Services, Inc. ...................... Home Services Warrant to purchase 20.0
250 East Carpenter Freeway Common Stock
7 Decker Preferred Stock 100.0
Irving, TX 75062
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
</TABLE>
34
<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>
Hoveround Corporation.......................... Wheelchairs Warrant to purchase 10.0%
8135 25th Court East Common Stock
Sarasota, FL 34243
HTR, Inc. ..................................... Software Consulting Warrant to purchase 6.0
6100 Executive Blvd., Ste. 810 Common Stock
Rockville, MD 20862
Hunt Incorporated.............................. Truck Dealer Warrant to purchase 10.0
8211 Adamo Drive Common Stock
Tampa, FL 33619
Hunt Leasing & Rental Corporation.............. Truck Leasing Warrant to purchase 10.0
8211 Adamo Drive Common Stock
Tampa, FL 33619
I. Schneid Holdings, L.L.C. ................... Equipment Cleaning Warrant to Purchase 11.0
1429 Fairmont Ave, NW Interest in L.L.C.
Atlanta, GA 30318-4153
ILD Communications, Inc........................ Telecommunications Warrant to purchase 3.2
1300 Sawgrass Village Circle Common Stock
Suite 5
Ponteverda Beach, FL 32082
Innotech, Inc. ................................ Optical Products Common Stock 0.7
5568 Airport Road
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
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 Warrant to Purchase 2.0
Louisville, KY 40209-9016 Common Stock
Kryptonics, Inc. .............................. In-Line Skates Warrant to purchase 6.4
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
Lane Acquisition Corporation................... Manufacturing Warrant to purchase 6.0
120 Fairview Ave. Common Stock
Arlington, TX 39705
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 3.0
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
</TABLE>
35
<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>
MBA Marketing Corporation...................... Shoe Stores Warrant to purchase 4.3%
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
Metals Recycling Technologies Corp. ........... Waste Recovery Warrant to purchase 5.0
3350 Cumberland Circle Facilities Common Stock
Atlanta, GA 30339
Money Transfer Systems, Inc. .................. Credit Card Services Warrant to purchase 8.5
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 11.0
1441 Sunshine Lane Common Stock
Lexington, KY 40505
Moovies Inc. .................................. Video Stores Common Stock 1.5
201 Brookfield Pkwy., Ste. 200 Warrant to purchase 0.2
Greenville, SC 29607 Common Stock
Multicom Publishing, Inc. ..................... Software Publishing Warrant to purchase 2.8
1100 Olive Way, #125 Common Stock
Seattle, WA 98101
Multi-Media Data Systems, Inc. ................ Healthcare Warrant to purchase 20.0
Two Concourse Parkway, Suite 225 Management/ Common Stock
Atlanta, GA 30328 Information
Multimedia Learning, Inc. ..................... Employee Training Warrant to purchase 8.1
5215 North O'Connor Common Stock
Suite 760
Irving, TX 75039
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 20.2
609 N. Houston Common Stock
Fort Worth, TX 76106
North American Sports Camps, Inc............... Sports Camps Warrant to purchase 23.0
5 Connecticut Ave. Common Stock
Norwich, CT 06360
Novavision, Inc. .............................. Optical Products Warrant to purchase 10.0
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 2.6
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 Common Stock 5.0
2914 Green Cove Road Services
Huntsville, AL 35803
</TABLE>
36
<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>
Paradigm Valve Services, Inc. ................. Valve Remanufacturing Warrant to purchase 12.0%
901 W. 13th St. Common Stock
Deer Park, TX 77536-3163
Patton Management Corporation.................. Communications Warrant to purchase 10.0
P.O. Box 491539 Common Stock
Atlanta, GA 30349
PaySys International, Inc. .................... Computer Systems Warrant to purchase 2.7
900 Winderly Place Design Common Stock
Maitland, FL 32751
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 4.0
P.O. Box 290037 Preferred Stock -- 83.2
Nashville, TN 37229 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
Precision Fixtures & Graphics, Inc. ........... Design/Construction Warrant to purchase 51.0
4644 Cummings Park Dr. Common Stock
Antioch, TN 37013 Preferred Stock 100.0
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 1.6
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
QuadraMed, Inc. ............................... Healthcare Common Stock 0.5
245 Peachtree Center Avenue, NE
Suite 350
Atlanta, GA 30303
Quest Group International, Inc. ............... Telecommunications Warrant to purchase 17.5
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 8.1
5008 National Drive Common Stock
Knoxville, TN 37914
Rynel, Ltd., Inc. ............................. Hydrophilic Warrant to purchase 15.0
Route 27 Foam Products Common Stock
Boothbay, ME 04537
Scandia Technologies, Inc...................... Specialized Warrant to purchase 22.0
2051 Sunnydale Blvd. Manufacturing Common Stock
Clearwater, FL 34625
</TABLE>
37
<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>
Sheet Metal Specialties, Inc. ................. Manufacturer Warrant to purchase 35.0%
P.O. Box 310 Common Stock
Waxhaw, NC 28173
Skillsearch Corporation........................ Resume Database Common Stock 6.8
3354 Perimeter Hill Drive Warrant to purchase 7.6
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
Studley Products Corporation................... Lawn Equipment Common Stock 55.1
361 Dabbs House Road
Richmond, VA 23223
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 3.5
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
Trans Global Services, Inc. ................... Professional Audio Common Stock 0.1
6632 Central Avenue Pike Equipment
Knoxville, TN 37912
TRC Acquisition Company........................ Restaurant Chain Warrant to purchase 12.5
2662 Holcomb Bridge Road, Suite 320 Common Stock
Alpharetta, GA 30202
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
VanGuard Communications Co., LLC............... Radio Warrant to purchase 12.0
P.O. Box 5559 interest in LLC
Avon, CO 81620
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 Warrant to purchase
19345 U.S. Hwy. 19N, Suite 402 Membership interest 6.5
Clearwater, FL 34624-3193 in L.L.C.
</TABLE>
38
<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>
Virginia Gas Company........................... Gas Warrant to purchase 3.0%
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 7.1
1100 E. Hector Street, Suite 416 Common Stock
Conshohocken, PA 19428 Common Stock 0.7
WJ Holdings, Inc. ............................. Metal Fabrication Warrant to purchase 25.0
301 E. Goetz Avenue Common Stock
Santa Ana, CA 92707
Zahren Alternative Power Corporation........... Converted Power Warrant to purchase 6.5
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> 40
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 Banking Group of Equitable Securities Corporation ("Equitable"). From
1987 to 1989, Mr. Miller worked as an associate in the Corporate Finance
department of J.C. Bradford & Co. Prior to that time, Mr. Miller spent four and
one-half years on active duty in the United States Marine Corps. Mr. Miller
holds a 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 private
investment firm, since January 1, 1997. Sirrom Partners, L.P., a limited
partnership owned by Dr. Morris and his family, is the principal investor in
Solidus, LLC. Mr. Duncan is also a director of Comptronix Corporation, a
provider of electronics contract manufacturing services, and has 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 J. Alexander's Corporation, an owner and operator of restaurants in
eight 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 auto parts
distributor headquartered in Nashville. Mr. Eberle is also the Vice Chairman of
the U.S. Council of the International Chamber of Commerce.
40
<PAGE> 41
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 of First American National Bank, a subsidiary 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 provides capital to environmental service firms and that is
controlled by Sirrom Partners, L.P., a limited partnership owned by Sirrom
Partners, L.P., a limited partnership owned by Dr. Morris and his family. See
"Principal and Selling Shareholders." 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
John N. Dyslin............................... 30 Vice President -- Portfolio Manager
Kathy Harris................................. 38 Vice President -- Portfolio Manager
John C. Harrison............................. 39 Vice President -- Portfolio Manager
R. Burton Harvey............................. 33 Vice President -- Portfolio Manager
John S. Scott................................ 33 Vice President -- Portfolio Manager
William A. Williamson, III................... 36 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
Craig Macnab................................. 41 President of Tandem Capital, Inc.
</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.
41
<PAGE> 42
Carl W. Stratton joined the Company in October 1995 and has served as Chief
Financial Officer since April 1996. From October 1995 through April 1996, Mr.
Stratton held the position of Vice President -- Workouts with the Company. From
1991 to 1995, Mr. Stratton was chief financial officer of International Citrus
Corporation, and from 1986 to 1991, Mr. Stratton was chief financial officer of
Dove Computer Corporation. From 1981 to 1985, Mr. Stratton held a variety of
engineering and manufacturing positions with E.I. du Pont de Nemours, Inc. &
Company, Incorporated. Mr. Stratton is also a director of International Citrus
Corporation. Mr. Stratton holds a 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 operating 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.
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 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.
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 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.
R. Burton Harvey joined the Company in August 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 1994 to 1996, Mr. Harvey was a Vice President at
NationsBank of Tennessee. From 1989 to 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.
42
<PAGE> 43
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 degree from
Southern Methodist University.
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 attorney with the
law firm of Bass, Berry & Sims PLC. Prior to that time, Ms. Caldwell was an
attorney 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
August 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
August 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 degree from Washington and Lee University.
Craig Macnab joined the Company in January 1997 and serves as the President
of Tandem Capital, Inc. From 1993 to 1996, Mr. Macnab served as the general
partner of MacNiel Advisors, Inc., the general partner of three private funds
that invested in public companies with market capitalizations of less than
$100.0 million. From 1987 to 1993, Mr. Macnab was a partner of J.C. Bradford &
Co., jointly responsible for the merger and acquisition department and a private
equity fund. Mr. Macnab holds a Bachelor of Commerce degree from the University
of Witwatersrand and a Master of Business Administration from Drexel University.
43
<PAGE> 44
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>
COMPENSATION
NAME OF INDIVIDUAL OR CAPACITIES IN WHICH ----------------------
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, 1997.
(2) These amounts do not include $22,500 contributed by Harris Williams to each
of Messrs. Harris' and Williams' SEP/IRA account pursuant to the terms of
Harris Williams' SEP/IRA Plan.
STOCK OPTION GRANTS IN LAST FISCAL YEAR. The following table provides
information relating to stock options granted to the following executive
officers for the year ended December 31, 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
------------------------------------------------- REALIZABLE
% OF TOTAL VALUE AT ASSUMED
OPTIONS ANNUAL RATE OF
NUMBER OF GRANTED TO STOCK PRICE
SECURITIES EMPLOYEES OF EXERCISE APPRECIATION FOR
UNDERLYING THE COMPANY OR BASE OPTION TERM
OPTIONS IN FISCAL PRICE EXPIRATION ------------------------
NAME GRANTED YEAR ($/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(1) 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(1) 3.3 31.75 10/8/06 499,185 1,265,033
H. Hiter Harris, III.......... -- -- -- -- -- --
Christopher H. Williams....... -- -- -- -- -- --
</TABLE>
- ---------------
(1) The grant of these options is subject to the approval of the shareholders of
the Company at the Company's next annual shareholders' meeting of an
increase in the number of shares available under the 1996 Employee Plan.
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
44
<PAGE> 45
number of shares, if any, for which options may be granted to them. Forty-three
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 by the
Company's shareholders at the next annual meeting of shareholders of an
amendment that authorizes an increase in the number of shares issuable
thereunder. Awards under the 1996 Employee Plan may be made 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. 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.
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<PAGE> 46
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 EXERCISE PRICE
NAME AND POSITION SUBJECT TO 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) $11.00-$35.75
</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 and as of the date
hereof Mr. Resha had exercised the option with respect to 10,000 shares.
(6) This option vests 20% per year beginning April 8, 1997.
(7) This option vests 20% per year beginning April 8, 1997.
(8) This number includes options for 15,000 shares that have been exercised.
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.
46
<PAGE> 47
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, was 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."
47
<PAGE> 48
PRINCIPAL AND SELLING SHAREHOLDERS
Of the 50,000,000 shares of Common Stock, no par value, authorized, there
are 12,327,527 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 January 31, 1997 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
Pilgrim Baxter & Associates, Ltd.(2).............. 754,800 6.1 0 754,800 5.0
1255 Drummers Lane, Suite 300
Wayne, PA 19087
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................................. 5,787 * 5,787 0 *
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(3)............................. 68,800 * 68,800 0 *
Peter T. Socha(4)................................. 64,160 * 50,000 14,160 *
Sam Stevenson..................................... 12,121 * 12,121 0 *
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) Pilgrim Baxter & Associates, Ltd., an institutional investment manager, does
not beneficially own the referenced shares but may exercise investment
discretion with respect to such shares, and accordingly files a quarterly
report on Form 13F with the Commission.
(3) Ms. Perrone was the Chief Financial Officer of the Company from February
1993 until April 1996.
(4) Mr. Socha was a Vice President -- Workouts of the Company from February 1994
until December 1996.
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<PAGE> 49
DETERMINATION OF NET ASSET VALUE
The net asset value per share of Common Stock is 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 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 also considers 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. 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.
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
49
<PAGE> 50
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 investment company taxable 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. The Company believes that it is likely, and SII and SCC believe that it
is possible, that they will have to pay excise tax on undistributed investment
company taxable income.
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
its 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 its total
assets is invested in the securities of one issuer (other than U.S. government
securities or the securities of other regulated investment companies), or of two
or more issuers that are
50
<PAGE> 51
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 addition, if one of SII or
SFC were to fail to qualify as a RIC, it would likely cause the Company to fail
to qualify as a RIC. 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, or both of their 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 35%, 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
51
<PAGE> 52
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.
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.
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<PAGE> 53
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, 12,327,527 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.
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
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
53
<PAGE> 54
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, 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
54
<PAGE> 55
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 December 31, 1996, the Company could make up to
$86.4 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 (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.
55
<PAGE> 56
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
15,038,813 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"), and from and after February 1, 1997,
may be sold in open market transactions in compliance with the provisions of
Rule 144, including limitations on the amount sold set forth in Rule 144(e)(1).
The Restricted Shares were issued by the Company in the Conversion in reliance
upon an exemption from registration under the Securities Act.
56
<PAGE> 57
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......................... 580,000
The Robinson-Humphrey Company, Inc. ...................... 580,000
J.C. Bradford & Co. ...................................... 580,000
Equitable Securities Corporation.......................... 580,000
---------
Subtotal............................................... 2,320,000
---------
International Underwriters:
Morgan Stanley & Co. International Limited................ 145,000
The Robinson-Humphrey Company, Inc. ...................... 145,000
J.C. Bradford & Co........................................ 145,000
Equitable Securities Corporation.......................... 145,000
---------
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
(other than those covered by the over-allotment option described below), 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
57
<PAGE> 58
national or resident of the United States or Canada or any corporation, pension,
profit-sharing, or other trust or 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 during the period of six months from the closing
date of the Offering 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.
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<PAGE> 59
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 not in
excess of $1.11 a share below the public offering price. 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.
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 prior to
commencement of sales in this Offering (the "Cooling Off Period"). The
Commission has, however, adopted Rule 10b-6A ("Rule 10b-6A") which provides an
exemption from such prohibition for certain passive market making transactions.
Such passive market making transactions must comply with applicable price and
volume limits and must be identified as passive market making transactions. In
general, pursuant to Rule 10b-6A, a passive market maker may display its bid for
a security at a price not in excess of the highest independent bid for the
security. If an independent 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 percentage of the passive market maker's
average daily trading volume in a security during a specified prior period and
must be discontinued when such limit is reached. Pursuant to the exemption
provided by Rule 10b-6A, certain of the Underwriters and selling group members
may engage in passive 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, Tennessee
37201; and Equitable Securities Corporation, 800 Nashville City Center, 511
Union Street, Nashville, Tennessee 37219-1743.
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<PAGE> 60
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.
60
<PAGE> 61
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 1995 and
1996...................................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1994, 1995 and 1996.......................... F-4
Consolidated Statements of Changes in Partners' Capital and
Shareholders' Equity for the Years Ended December 31,
1994, 1995 and 1996....................................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996.......................... F-6
Financial Highlights
Per Share Data for the Years Ended December 31, 1995 and
1996................................................... F-7
Ratios/Supplemental Data for the Years Ended December 31,
1993, 1994, 1995 and 1996.............................. F-7
Notes to Consolidated Financial Statements.................. F-8
Quarterly Financial Information for the Years 1995 and 1996
(unaudited)............................................... F-17
Portfolio of Investments
As of December 31, 1995................................... F-18
As of December 31, 1996................................... F-26
</TABLE>
F-1
<PAGE> 62
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Sirrom Capital Corporation and
Subsidiaries:
We have audited the accompanying consolidated balance sheets of SIRROM
CAPITAL CORPORATION AND SUBSIDIARIES (see Note 1) as of December 31, 1995 and
1996, and the related consolidated 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, 1996 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
and Subsidiaries at December 31, 1995 and 1996 and the results of their
operations, the changes in Partners' capital and shareholders' equity and their
cash flows for each of the three years in the period ended December 31, 1996 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 $170,211,000 (96% of total assets) and $262,606,000 (91% of total assets) as
of December 31, 1995 and 1996, respectively, whose values have been estimated by
the Board of Directors in the absence of readily ascertainable market values.
However, because of the inherent uncertainty of valuation, those estimated
values may differ significantly from the values that would have been used had a
ready market for the securities existed, and the differences could be material.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
January 30, 1997
F-2
<PAGE> 63
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Investments, at fair value:
Loans..................................................... $144,854,517 $221,487,385
Equity interests.......................................... 15,912,467 34,965,801
Warrants.................................................. 11,513,183 15,893,828
Other..................................................... -- 2,990,282
------------ ------------
Total investments (cost of $162,466,881 and
$262,943,963, respectively).................... 172,280,167 275,337,296
Investment in unconsolidated subsidiary..................... 840,092 911,487
Cash and cash equivalents................................... 195,069 4,611,532
Interest receivable......................................... 2,119,567 2,870,138
Debt financing costs (less accumulated amortization of
$383,279 and $920,289, respectively)...................... 2,020,030 3,690,362
Furniture and equipment (less accumulated depreciation of
$18,565 and $73,711, respectively)........................ 203,860 275,454
Other assets................................................ 211,165 316,797
------------ ------------
Total assets...................................... $177,869,950 $288,013,066
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Debentures payable to Small Business Administration....... $ 73,260,000 $ 90,000,000
Revolving credit facilities............................... 13,200,000 30,858,213
Interest payable.......................................... 936,818 1,348,252
Accrued taxes payable..................................... 1,073,525 4,333,144
Accounts payable, accrued expenses, and other
liabilities............................................ 213,901 2,852,942
------------ ------------
Total liabilities................................. 88,684,244 129,392,551
------------ ------------
Commitments and contingencies
Shareholders' equity (Note 1):
Common stock -- No par value, 50,000,000 shares
authorized, 10,093,567, and 12,343,567 issued and
outstanding, respectively.............................. 74,479,967 140,061,092
Notes receivable from employees........................... (1,980,000) (1,539,858)
Undistributed net realized earnings....................... 6,872,453 7,705,948
Unrealized appreciation of investments.................... 9,813,286 12,393,333
------------ ------------
Total shareholders' equity........................ 89,185,706 158,620,515
------------ ------------
Total liabilities and shareholders' equity........ $177,869,950 $288,013,066
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 64
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
OPERATING INCOME:
Interest on investments................................ $7,336,816 $13,451,742 $24,395,072
Loan processing fees................................... 901,340 1,899,692 3,166,117
Other income........................................... -- 223,456 119,115
---------- ----------- -----------
Total operating income......................... 8,238,156 15,574,890 27,680,304
---------- ----------- -----------
OPERATING EXPENSES:
Interest expense....................................... 3,123,461 4,771,131 8,341,777
Salaries and benefits.................................. -- 1,081,478 2,994,500
Management fees........................................ 1,072,833 -- --
Other operating expenses............................... 122,339 1,412,358 1,942,456
State income tax on interest........................... 457,035 109,035 --
Amortization expense................................... 117,992 207,792 543,011
---------- ----------- -----------
Total operating expenses....................... 4,893,660 7,581,794 13,821,744
---------- ----------- -----------
Subtotal.................................. 3,344,496 7,993,096 13,858,560
Pretax income of unconsolidated subsidiary............... 552,867 811,610 3,264,051
---------- ----------- -----------
Net operating income........................... 3,897,363 8,804,706 17,122,611
Realized gain (loss) on investments...................... (538,025) 1,759,513 9,462,991
Change in unrealized appreciation of investments......... 3,356,316 4,693,544 2,580,047
Provision for income taxes............................... -- (1,020,321) (4,270,054)
---------- ----------- -----------
Net increase in partners' capital and shareholders'
equity resulting from operations....................... $6,715,654 $14,237,442 $24,895,595
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 65
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL AND
SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK UNDISTRIBUTED APPRECIATION
PARTNERS' ------------------------- NOTES RECEIVABLE NET REALIZED OF
CAPITAL SHARES AMOUNT FROM EMPLOYEES EARNINGS INVESTMENTS
---------------- ---------- ------------ ---------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
SIRROM CAPITAL, L.P.:
BALANCE, DECEMBER 31, 1993..... $ 15,349,434 -- $ -- $ -- $ 1,673,802 $ 1,763,426
Capital contributions........ 8,662,178 -- -- -- -- --
Purchase of ownership in
partnership................ 1,980,000 -- -- (1,980,000) -- --
Capital distributions........ (593,093) -- -- -- -- --
Distribution of Harris
Williams earnings.......... -- -- -- -- (354,087) --
Net increase in partners'
capital resulting from
operations................. -- -- -- -- 3,359,338 3,356,316
------------ ---------- ------------ ----------- ------------ -----------
BALANCE, DECEMBER 31, 1994..... 25,398,519 -- -- (1,980,000) 4,679,053 5,119,742
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 -- -- --
Net increase in shareholders'
equity resulting from
operations................. -- -- -- -- 9,543,898 4,693,544
Payment of dividends......... -- -- -- -- (3,974,079) --
Distribution of capital
gains...................... -- -- -- -- (1,201,000) --
Distribution of Harris
Williams earnings.......... -- -- -- -- (806,000) --
Designation of undistributed
capital gains, net of tax
(Note 11).................. -- -- 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
Issuance of common stock..... -- 2,300,000 59,223,301 -- -- --
Stock options exercised...... -- 15,000 224,375 -- -- --
Employee shares
repurchased................ -- (65,000) (809,645) -- -- --
Payment on notes
receivable................. -- -- -- 440,142 -- --
Net increase in shareholders'
equity resulting from
operations................. -- -- -- -- 22,315,548 2,580,047
Payment of dividends......... -- -- -- -- (10,976,390)
Distribution of capital
gains...................... -- -- -- -- (577,200) --
Distribution of Harris
Williams earnings.......... -- -- -- -- (2,985,369) --
Designation of undistributed
capital gains, net of tax
(Note 11).................. -- -- 6,943,094 -- (6,943,094) --
------------ ---------- ------------ ----------- ------------ -----------
BALANCE, DECEMBER 31, 1996..... $ -- 12,343,567 $140,061,092 $(1,539,858) $ 7,705,948 $12,393,333
============ ========== ============ =========== ============ ===========
<CAPTION>
TOTAL
------------
<S> <C>
SIRROM CAPITAL, L.P.:
BALANCE, DECEMBER 31, 1993..... $ 18,786,662
Capital contributions........ 8,662,178
Purchase of ownership in
partnership................ --
Capital distributions........ (593,093)
Distribution of Harris
Williams earnings.......... (354,087)
Net increase in partners'
capital resulting from
operations................. 6,715,654
------------
BALANCE, DECEMBER 31, 1994..... 33,217,314
SIRROM CAPITAL CORPORATION:
Effect of reorganization
(Note 1)................... --
Issuance of common stock..... 47,712,029
Net increase in shareholders'
equity resulting from
operations................. 14,237,442
Payment of dividends......... (3,974,079)
Distribution of capital
gains...................... (1,201,000)
Distribution of Harris
Williams earnings.......... (806,000)
Designation of undistributed
capital gains, net of tax
(Note 11).................. --
------------
BALANCE, DECEMBER 31, 1995..... 89,185,706
Issuance of common stock..... 59,223,301
Stock options exercised...... 224,375
Employee shares
repurchased................ (809,645)
Payment on notes
receivable................. 440,142
Net increase in shareholders'
equity resulting from
operations................. 24,895,595
Payment of dividends......... (10,976,390)
Distribution of capital
gains...................... (577,200)
Distribution of Harris
Williams earnings.......... (2,985,369)
Designation of undistributed
capital gains, net of tax
(Note 11).................. --
------------
BALANCE, DECEMBER 31, 1996..... $158,620,515
============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 66
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net increase in partners' capital and shareholders'
equity resulting from operations...................... $ 6,715,654 $ 14,237,442 $ 24,895,595
Adjustments to reconcile net increase to net cash
provided by operating activities:
Net unrealized appreciation of investments............ (3,356,316) (4,693,544) (2,580,047)
Realized loss (gain) on investments................... 538,025 (1,759,513) (9,462,991)
Income of unconsolidated subsidiary................... (552,867) (811,610) (3,056,941)
Amortization of debenture costs....................... 117,992 207,792 537,010
Increase in interest receivable....................... (508,321) (816,905) (750,571)
Increase in accounts payable and accrued expenses..... 28,376 185,525 2,639,041
Amortization of organization costs.................... 6,000 6,000 6,000
Depreciation of fixed assets.......................... -- 18,565 55,146
Decrease in prepaid interest.......................... (12,350) -- --
Increase in accrued taxes payable..................... 282,279 585,731 3,259,619
Increase in interest payable.......................... 261,158 255,810 411,434
------------ ------------ ------------
Net cash provided by operating activities........ 3,519,630 7,415,293 15,953,295
------------ ------------ ------------
INVESTING ACTIVITIES:
Proceeds from sale of investments....................... 9,769,378 27,303,888 44,772,899
Investments originated or acquired...................... (44,162,021) (105,669,054) (135,792,814)
Purchase of fixed assets................................ -- (222,425) (126,740)
(Increase) decrease in restricted investments........... (1,000,000) 1,000,000 --
Increase in other assets................................ -- (199,165) (105,632)
------------ ------------ ------------
Net cash used in investing activities............ (35,392,643) (77,786,756) (91,252,287)
------------ ------------ ------------
FINANCING ACTIVITIES:
Proceeds from debentures payable to Small Business
Administration........................................ 17,000,000 22,260,000 16,740,000
Proceeds from revolving credit facilities............... 42,978,109 62,638,595 92,067,979
Repayment of line of credit borrowings.................. (36,588,858) (55,827,846) (74,409,766)
Increase in debenture costs............................. (580,995) (1,178,414) (2,207,341)
Proceeds from capital contributions..................... 8,162,178 -- --
Distribution of capital................................. (593,093) -- --
Issuance of common stock................................ -- 47,712,029 59,223,301
Stock options exercised................................. -- -- 224,375
Payment of dividends.................................... -- (3,974,079) (10,976,390)
Distribution of capital gains........................... -- (1,201,000) (577,200)
Employee shares repurchased............................. -- -- (809,645)
Payment on notes receivable from employees.............. -- -- 440,142
------------ ------------ ------------
Net cash provided by financing activities........ 30,377,341 70,429,285 79,715,455
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......... (1,495,672) 57,822 4,416,463
CASH AND CASH EQUIVALENTS, beginning of year.............. 1,632,919 137,247 195,069
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year.................... $ 137,247 $ 195,069 $ 4,611,532
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid........................................... $ 2,707,488 $ 4,525,701 $ 7,961,534
============ ============ ============
Taxes paid.............................................. $ 174,756 $ 493,465 $ 976,894
============ ============ ============
Loans transferred to other investments.................. $ -- $ -- $ 5,218,436
============ ============ ============
Loans transferred to equity interests................... $ 2,150,000 $ 3,751,547 $ 8,898,147
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 67
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
PER SHARE DATA(1) DECEMBER 31, 1995(2) DECEMBER 31, 1996
----------------- -------------------- -----------------
<S> <C> <C>
Net asset value, beginning of year.......................... $ 6.41(3) $ 9.61
--------- ----------
Net operating income........................................ .87 1.52
Net realized and unrealized gains or losses on
investments............................................... 3.19(4) 3.71(6)
--------- ----------
Total from investment operations............................ 4.06 5.23
--------- ----------
Less: Dividends on net investment income.................... .49 1.02
Distributions on realized capital gains............... .37(5) .97(5)
--------- ----------
Total Distributions............................... .86 1.99
--------- ----------
Net asset value, end of period.............................. $ 9.61 $ 12.85
========= ==========
Per share market value, end of period....................... $ 18.875 $ 36.75
========= ==========
Shares outstanding, end of period........................... 9,195,116 12,343,567
========= ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
RATIOS/SUPPLEMENTAL DATA 1993 1994 1995 1996
------------------------ ------- ------- ------- --------
<S> <C> <C> <C> <C>
Net assets, end of period (in thousands)............... $18,651 $33,217 $89,186 $158,621
Ratio of operating expenses to average net assets(7)... 15.5% 19.2% 12.6% 11.2%
Ratio of net operating income to average net assets.... 10.9% 15.0% 14.4% 13.8%
</TABLE>
- ---------------
(1) Prior to 1995, the Company operated as a partnership, therefore no per share
information is available.
(2) 1995 data does not reflect the effect of issuing 898,451 shares for the
acquisition of Harris Williams in August 1996.
(3) Net asset value at beginning of the period is calculated based on partners'
capital totaling $33,917,734 at December 31, 1994 and 5,050,116 shares of
common stock issued at conversion of the Partnership to the Company at
February 1, 1995.
(4) 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.
(5) The per share amount includes distributions paid and realized capital gains
designated as distributed but retained by the Company. See Note 11.
(6) Amount includes the effect of stock issued at per share prices in excess of
the Company's per share net asset value and the effect of issuing 898,451
shares for the acquisition of Harris Williams.
(7) Includes interest expense.
The accompanying notes are an integral part of these statements.
F-7
<PAGE> 68
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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 specialty finance company that is primarily engaged in making loans
to small businesses. 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. In addition to making loans to small
businesses, the Company provides merger and acquisition advisory services
through its wholly owned subsidiary, Harris Williams & Co., ("Harris Williams").
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 "1940 Act"). Prior to August 1996, the Company was 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. In August 1996, the
Company transferred its SBIC operations, including its SBIC license, and the
majority of its assets and liabilities, to its wholly-owned subsidiary, Sirrom
Investments Inc. ("SII"), a Tennessee Corporation. Under applicable SBA
regulations, SII 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 ("RIC") under Subchapter M of the Internal Revenue Code of
1986, as amended and in August 1996 SII elected the same tax treatment.
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. for 898,451 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 consolidated balance sheets as of December 31, 1995 and 1996 and the
consolidated statements of operations and cash flows for each of the three years
in the period ended December 31, 1996 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.
In December 1996, the Company formed two wholly-owned subsidiaries, Sirrom
Funding Corporation, ("SFC") and SCCGS, Inc.. SFC had no operations for the year
ended December 31, 1996. SCCGS, Inc.'s operations were limited to the workout
activities of one investment.
F-8
<PAGE> 69
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company,
SII, SFC and SCCGS, Inc. All intercompany accounts and transactions have been
eliminated in the consolidation.
Valuation of Investments
Portfolio investments are stated at fair value as determined by the Board
of Directors.
Under the Company's valuation policy, the fair values of loans to small
business concerns are based on the Board of Director's evaluation of the
financial condition of the borrowers and/or the underlying collateral. The
values assigned are considered to be amounts which could be realized in the
normal course of business which anticipates the Company holding the loan to
maturity and realizing the face value of the loan. Fair value normally
corresponds to cost unless the borrower's condition or external factors lead to
a determination of fair value at a higher or a lower amount.
Equity interests and warrants for which there is not a public market are
valued based on factors such as significant equity financing by sophisticated,
unrelated new investors, history of positive cash flow from operations, the
market value of comparable publicly traded companies (discounted for
illiquidity) and other pertinent factors. The Board of Directors also considers
recent offers to purchase a portfolio company's securities when valuing
warrants.
The Company's investments in 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 typically
valued at 70% of market value at the balance sheet date. All other publicly
traded stocks are typically valued at 90% of market value at the balance sheet
date.
At December 31, 1995 and 1996, the investment portfolio included
investments totaling $170,211,000 and $262,606,000, respectively, whose values
had been estimated by the Board of Directors in the absence of readily
ascertainable market values. Because of the inherent uncertainty of the
valuations, the estimated fair values may differ significantly from the values
that would have been used had a ready market for the securities existed, and the
differences could be material.
Realized and Unrealized Gain or Loss on Investments
Realized gains 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. Realized losses are
recorded upon the final disposition of the cost basis of investments according
to federal income tax guidelines and are calculated in the same manner. All
other changes in the valuation of portfolio investments, as determined by the
directors, 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.
Interest on Investments
Interest income is recorded on the accrual basis. The accrual of income is
typically suspended when the related loan becomes 60 days past due unless
management anticipates that accrued amounts will be collected.
F-9
<PAGE> 70
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Loan Processing Fees
The Company recognizes loan processing fees as income when the related loan
closes.
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. At December 31, 1996, cash of $950,000 is restricted as
collateral for interest rate swap agreements.
Debt Financing Costs
SBA debenture costs are amortized over ten years which represents the term
of the thirteen SBA debentures, as discussed in Note 5. Financing costs related
to the revolving credit facilities are amortized over the term of the credit
agreements.
Income Taxes
The financial statements for 1994 do not include a provision for federal
income taxes because the partners were taxed based on their respective share of
partnership earnings. During this year, the Company was subject to state income
taxes on interest.
Beginning in February 1995, the Company elected to be taxed as a 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 1994, net operating income, 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, 1995. During 1996, one
employee terminated employment and SCC repurchased 65,000 shares for $809,645.
These shares were reissued by the Company in a secondary offering in June 1996.
The balance of the notes receivable from employees was reduced $440,142 to
$1,539,858 at December 31, 1996 as a result of the employee termination.
F-10
<PAGE> 71
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest Rate Swap Agreements
The Company uses interest rate swaps to hedge interest costs on its
floating rate revolving credit facilities. Any amounts paid or received on
interest rate swap agreements are recognized as an adjustment to interest
expense. The fair value of the swap agreements are not recognized in the
consolidated financial statements as they are accounted for as hedges.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
3. INVESTMENTS
Investments consist primarily of loans made and warrants obtained from
borrowers under both the SBIC loan program and non-SBA lending programs.
Investments are recorded at fair value as determined by the directors or by
current market prices, if available, in accordance the Company's valuation
policy (See Note 2). While the Company markets to borrowers throughout the
United States, approximately 47% of the investment portfolio consists of loans
and equity investments in companies that are headquartered in the southeastern
United States.
The aggregate cost balance of loans on non-accrual status, less realized
losses, totaled $11,924,475 and $15,873,178 at December 31, 1995 and 1996,
respectively. The aggregate fair values of these loans as determined by the
Company's directors totaled $9,824,475 and $8,683,178 at December 31, 1995 and
1996, respectively.
Included in the investment portfolio at December 31, 1996 are other assets
which consist of rights to royalty payments, a right to receive payment from an
potential arbitration settlement and certain tangible assets. The Company
obtained these rights upon foreclosure of three loans. The aggregate cost of
other assets at December 31, 1996 is $4,690,299 which represents the cost basis
of the original loans plus capitalized workout expenses. The Company's directors
have estimated the fair value of these assets to be $2,990,282.
4. DEBENTURES PAYABLE TO SMALL BUSINESS ADMINISTRATION
As of December 31, 1996, SII had thirteen debentures totaling $90,000,000
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
2006........................................................ 16,740,000
-----------
$90,000,000
===========
</TABLE>
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, 1994, 1995 and 1996 totaled $2,857,398, $4,243,851
and $5,734,794 respectively.
F-11
<PAGE> 72
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The SBA and the lenders of the $50.0 million revolving credit facility are
equally secured by the assets of SII. The debentures are also guaranteed by the
Company.
5. REVOLVING CREDIT FACILITIES
Revolving credit facilities consist of the following at December 31, 1995
and 1996:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
$50.0 million revolving credit facility................... $13,200,000 $28,900,000
$15.0 million bridge facility............................. -- 1,958,213
----------- -----------
Total revolving credit facilities............... $13,200,000 $30,858,213
=========== ===========
</TABLE>
The $50.0 million revolving credit facility is payable by SII to a
syndicate of lenders. The facility consists of a swingline totaling $5.0 million
which bears interest at prime plus 0.5%, and the balance of the facility bears
interest at either LIBOR plus 1.75% or prime plus 0.5% at SII's discretion.
Borrowing under the facility is based on the principal amount of eligible loans
and public securities in SII's portfolio. The revolving credit agreement imposes
certain operating restrictions on the Company and SII such as requiring lender
approval of certain mergers and acquisitions, changes in management, and payment
of dividends in excess of those required to maintain RIC status. The agreement
contains financial covenants that require SII to maintain a certain level of
tangible net worth and meet ratios related to interest coverage,
non-accrual/delinquent loans and loan losses. As of December 31, 1996, the
Company and SII were in compliance with these covenants. The facility expires on
December 27, 1998. The revolving credit lenders and the SBA are equally secured
by all assets of SII and the revolving credit facility is guaranteed by the
Company.
As of December 31, 1996, the Company had entered into two interest rate
swap agreements under the $50.0 million revolving credit facility. In one
agreement, the Company swapped the variable rate on $30.0 million of borrowings
to a fixed rate of 8.15% in incremental amounts of $3.0 million per month
beginning in April 1996. This swap expires in April 1999. In the second
agreement, the Company swapped the variable rate on $15.0 million in borrowings
to a fixed rate of 8.05% in incremental amounts of $5.0 million per month
beginning in December 1996. This swap expires in December 1998. Interest expense
on the revolving credit facility and related interest rate swaps for the periods
ended December 31, 1994, 1995 and 1996 was $266,063, $527,280, and $2,574,681.
The $15.0 million bridge facility is payable to a financial institution by
the Company and is secured by certain assets of the Company. The facility bears
interest at prime plus 0.5%. Borrowing under the facility is based on the
principal amount of eligible loans pledged as collateral to the lender. The
facility expires on January 8, 1997. Interest expense on the bridge facility was
$32,303 for the year ended December 31, 1996.
At December 31, 1996 SFC entered into a $100.0 million revolving credit
facility with a financial institution. This facility was used to retire the
$15.0 million bridge facility subsequent to December 31, 1996. The facility is
secured by all assets of SFC. SFC will purchase loans originated by the Company,
and will fund substantially all such purchases with borrowings under the
facility. The facility will be funded by commercial paper sold by the financial
institution, and will bear interest at the stated rate on the commercial paper
sold plus 2.25%. Borrowings by SFC are based on the principal amount of eligible
loans in SFC's portfolio. The facility agreement contains operational
restrictions such as requiring lender approval of certain mergers and
acquisitions and changes in management. The facility agreement also contains
financial covenants related to tangible net worth, loan delinquency and loan
defaults. The facility expires on December 31, 2001.
As of December 31, 1996, the Company had entered into several interest rate
swap agreements under the $100.0 million revolving credit facility. The Company
exchanged the variable rate on $100.0 million in borrowings to the rates
described below in incremental amounts of $8.3 million per month beginning in
January 1997. During the period from January through June 1997, the Company has
put in place a collar that
F-12
<PAGE> 73
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
caps the Company's variable rate at 8.25% in exchange for a floor at 7.25%.
During the period from July through December 1997, the Company has put in place
a collar that caps the Company's variable rate at 8.25% and in exchange for a
floor at 7.50%. During the period from January 1998 through December 1999, the
Company has swapped to a fixed rate of 8.25%. During the period from January
2000 through December 2001, the Company has put in place a collar that caps the
Company's variable rate at 9.15% in exchange for a floor at 8.25%. These swaps
expire in December 2001.
At December 31, 1996, $950,000 of cash was restricted as collateral under
these interest rate swap agreements. The amount of cash restricted as collateral
may increase or decrease depending upon changes in prevailing interest rates.
6. INCOME TAXES
For the years ended December 31, 1994 and 1995, the statements of
operations include a provision for state income taxes on interest totaling
$457,035 and $109,035, respectively. There is no provision for state income
taxes on interest for the year ended December 31, 1996.
For the years ended December 31, 1995 and 1996 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. For the years ended 1995 and 1996 the provision for income taxes
includes $737,380 and $3,940,609, respectively, of tax provided on the retained
realized gains as discussed in Note 11.
7. MANAGEMENT FEES AND OPERATING EXPENSES
During 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 period ended December
31, 1994 totaled $1,072,833. 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.
8. STOCK OPTION PLANS
At December 31, 1996, the Company has two employee stock based compensation
plans and one director stock plan, as described below. The Company applies APB
Opinion 25 and related Interpretations in accounting for its plans. Accordingly,
no compensation cost has been recognized for its fixed stock option plans. Had
compensation cost for the Company's three stock-based compensation plans been
determined based on fair value at the grant dates for awards under those plans
consistent with the method of FASB Statement 123, the Company's net operating
income and net increase in shareholder's equity resulting from operations for
the years ended December 31, 1995 and 1996 would have been reduced to the
pro-forma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C> <C>
Net operating income............................ As reported $ 8,805,000 $17,123,000
Pro-forma 8,450,000 15,553,000
Net increase in shareholder's equity............ As reported 14,237,000 24,896,000
Pro-forma 13,882,000 23,326,000
</TABLE>
The fair value of each grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used for
grants in 1995 and 1996, respectively; dividend yield of 5% and 3.5% for 1995
and 1996, respectively; expected volatility of 34%; risk-free interest rate
range of 6% to 7.5%; and expected lives of 6 years for all options. Management
also assumed an annual forfeiture rate on grants of 10% in its calculation of
compensation expense included in the pro forma amounts above.
F-13
<PAGE> 74
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Employee Stock Option Plan
The Company's two employee stock option plans, the Amended and Restated
1994 Employee Stock Option Plan (the "1994 Plan"), and the 1996 Employee Stock
Incentive Plan (the "1996 Plan") provide for the granting of options for 500,000
and 390,000 shares, respectively, of common stock to selected employees at an
exercise price not less than the fair market value of the common stock on the
date of the grant. The terms of each award are determined by the board of
directors. The options vest over a five year period from the date of grant and
expire ten years from the date of grant.
A summary of stock option activity related to the plans, including amounts
subject to shareholder approval, is as follows:
<TABLE>
<CAPTION>
PRICE RANGE
PER SHARE SHARES
-------------- ---------
<S> <C> <C>
Outstanding, December 31, 1994............................. -- --
Granted............................................... $11 -18.50 466,966
Exercised............................................. -- --
Forfeited............................................. -- --
---------
Outstanding, December 31, 1995............................. 466,966
Granted............................................... $18.625-35.75 767,581
Exercised............................................. $13.50 -17.875 15,000
Forfeited............................................. $18.50 -26.33 25,000
---------
Outstanding, December 31, 1996............................. 1,194,547
=========
</TABLE>
Included in the 767,581 options granted in 1996 are 319,547 options that
have been issued subject to the approval by the Company's shareholders of an
amendment that authorizes an increase in the options issuable under the 1996
Plan.
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. 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. No options were granted in 1995. In 1996, 84,000
options were granted which are outstanding at December 31, 1996.
9. PRIVATE PLACEMENT
During November 1994, the Company completed a private placement that
resulted in proceeds of approximately $3.6 million which are included in capital
contributions in the consolidated statements of changes in partners capital. 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.
10. 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.
F-14
<PAGE> 75
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Secondary Offerings
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. 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 were approximately
$59,223,000.
11. 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 1996, the Company paid dividends of $11,553,590, of which
$10,976,390 and $577,200 were derived from net operating income and realized
capital gains, respectively. The Company elected to designate $10,681,683 of the
undistributed realized capital gains as a deemed distribution to shareholders on
record as of the end of the year. Accordingly, $6,943,094, net of taxes of
$3,738,589, of this designated distribution has been retained and reclassified
from undistributed net realized earnings to common stock.
12. COMMITMENTS AND CONTINGENCIES
The Company and Harris Williams lease offices under operating leases and
incurred rent expense of $157,606 during 1996. Annual rental commitments for
each of the next five years are as follows: 1997 -- $231,907; 1998 -- $149,000;
1999 -- $131,000; 2000 -- $131,000 and 2001 -- $121,000.
The Company has employment contracts with certain employees of Harris
Williams that provide for annual salary, bonuses based on performance and
severance pay if terminated without cause. The agreements have a four year term,
expiring in August 2000. The Company's remaining commitment for salaries,
excluding bonuses, under these agreements is $828,000.
13. 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,
1995 and 1996 and statements of income for the years ended December 31, 1994,
1995 and 1996 are as follows:
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $737,682 $732,408
Accounts receivable......................................... 61,023 111,352
Other assets, net........................................... 85,823 126,752
-------- --------
Total Assets........................................... $884,528 $970,512
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities................................................. $ 44,436 $ 59,025
Shareholder's equity........................................ 840,092 911,487
-------- --------
Total liabilities and shareholder's equity............. $884,528 $970,512
======== ========
</TABLE>
F-15
<PAGE> 76
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
------------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Fee Income....................................... $1,553,862 $2,257,496 $6,331,818
Expense reimbursements and other................. 138,998 398,889 415,199
---------- ---------- ----------
1,692,860 2,656,385 6,747,017
---------- ---------- ----------
EXPENSES:
Salaries and benefits............................ 884,396 1,314,723 2,603,739
Operating expenses............................... 255,597 530,052 879,227
---------- ---------- ----------
1,139,993 1,844,775 3,482,966
---------- ---------- ----------
Operating income before taxes.................... 552,867 811,610 3,264,051
Provision for income taxes....................... -- -- 207,110
---------- ---------- ----------
Net income....................................... $ 552,867 $ 811,610 $3,056,941
========== ========== ==========
</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
ratably over the retainer period, expense reimbursements are recognized monthly
as billed and success fees are recognized at the time of closing.
Prior to the acquisition by the Company, Harris Williams operated as a
Subchapter S corporation from inception to August 1994 and as a limited
partnership subsequent to August 1994. Accordingly, no provision for income tax
was recorded for the years ended December 31, 1994 and 1995. Subsequent to the
acquisition in August 1996, Harris Williams began operating as a "C" corporation
and has provided for federal income taxes of $207,110 which is included in
provision for income taxes in the accompanying consolidated statements of
operations. Distributions of Harris Williams' earnings prior to the acquisition
by the Company were $354,087, $806,000 and $2,985,369 in 1994, 1995 and 1996,
respectively.
14. SUBSEQUENT EVENTS
On January 9, 1997, the Company filed a registration statement for the
offering of 2,900,000 shares of its common stock, of which 2,680,513 shares will
be sold by the Company.
On January 10, 1997, the Company's directors declared a dividend of $.36
per share payable on February 19, 1997 to shareholders on record as of February
3, 1997.
On January 17, the Company entered into an agreement with a Canadian
financial institution to make loans with warrants on a joint basis to companies
located in Canada.
On January 21, 1997, the lenders under the $50.0 million revolving credit
facility agreed to extend the maturity date of the facility to May 31, 2000.
The Company finalized its calculation of retained capital gains on January
30, 1997 upon the filing of its 1996 capital gains tax return. This resulted in
a reduction of $93,174 in the amount of deemed dividends distributed to
shareholders to $10,558,509. This reduction will be reclassified from common
stock to undistributed net realized earnings on subsequent financial statements.
In addition, the amount of dividends derived from capital gains was reduced by
$171,498 to $405,702.
F-16
<PAGE> 77
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
<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(1).............................................. .14 .26 .23 .26
Market price of common stock:(2)
High...................................................... $12 $13 3/4 $ 18 3/4 $20
Low....................................................... 10 3/4 10 3/4 13 1/4 16 3/4
</TABLE>
<TABLE>
<CAPTION>
1996
-------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total operating income...................................... $ 6,578 $ 6,927 $ 8,365 $ 9,074
Pretax operating income..................................... 3,384 3,615 4,856 5,268
Net increase in partners' capital and shareholders' equity
resulting from operations................................. 9,246 6,001 3,844 5,805
Per share:
Pre-tax operating income.................................. $ .32 $ .34 $ .38 $ .41
Net increase in partners' capital and shareholders' equity
resulting from operations.............................. .87 .57 .30 .45
Dividends(1).............................................. .24 .26 .32 .36
Market price of common stock:
High...................................................... $23 3/4 $29 1/2 $30 1/4 $38 3/8
Low....................................................... 18 5/8 23 1/4 23 30 1/4
</TABLE>
- ---------------
(1) Represents dividends on income earned during the quarter that are declared
and paid in the subsequent quarter.
(2) No public market for the stock existed prior to February 6, 1995.
F-17
<PAGE> 78
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
PORTFOLIO OF INVESTMENTS
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
LOAN COUPON COST OR
MATURITY INTEREST CONTRIBUTED
LOANS DATE RATE VALUE 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-18
<PAGE> 79
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
LOAN COUPON COST OR
MATURITY INTEREST CONTRIBUTED
LOANS DATE RATE VALUE 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-19
<PAGE> 80
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
LOAN COUPON COST OR
MATURITY INTEREST CONTRIBUTED
LOANS DATE RATE VALUE 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-20
<PAGE> 81
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
LOAN COUPON COST OR
MATURITY INTEREST CONTRIBUTED
LOANS DATE RATE VALUE 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 1,985,678
------------ ------------
Total Loans................................... $147,018,924 $144,854,517
============ ============
</TABLE>
The accompanying notes are an integral part of this schedule.
F-21
<PAGE> 82
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
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-22
<PAGE> 83
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
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 13,843,019
----------- -----------
Total Equity Interests..................... $12,991,656 $15,912,467
=========== ===========
</TABLE>
The accompanying notes are an integral part of this schedule.
F-23
<PAGE> 84
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
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-24
<PAGE> 85
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
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-25
<PAGE> 86
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
AB Plastics Holding Corporation.................. 9/27/01 $ 4,000,000 13.50% $ 4,000,000
Affinity Fund, Inc............................... 6/29/98 1,485,000 12.50 1,497,932
Affinity Fund, Inc............................... 3/10/00 1,000,000 14.00 1,000,000
Affinity Fund, Inc............................... 12/28/98 495,000 12.50 496,079
American Corporate Literature, Inc............... 9/29/01 1,683,000 14.00 1,684,132
ARAC Holding Co., Inc............................ 9/27/01 3,000,000 13.50 3,000,000
American Network Exchange........................ 11/30/98 990,000 13.00 996,346
American Network Exchange........................ 1/18/99 990,000 13.00 996,012
Amscot Holdings, Inc............................. 5/26/00 800,000 14.00 800,000
Amscot Holdings, Inc............................. 9/20/00 200,000 14.00 200,000
Amscot Holdings, Inc............................. 6/28/01 500,000 14.00 500,000
Amscot Holdings, Inc............................. 12/27/01 250,000 14.00 250,000
Argenbright Holdings Limited..................... 7/7/01 2,750,000 13.50 3,500,000
Ashe Industries, Inc............................. 12/28/97 990,000 12.50 132,058
Ashe Industries, Inc............................. 3/25/99 445,500 12.50 122,300
Ashe Industries, Inc............................. 5/18/99 544,500 12.50 121,524
Ashe Industries, Inc............................. 6/12/96 750,000 14.00 100,000
Ashe Industries, Inc............................. 6/12/96 285,546 14.00 0
Associated Response Services, Inc................ 6/20/99 1,386,000 12.50 1,393,223
Associated Response Services, Inc................ 2/15/00 335,000 12.50 335,000
Associated Response Services, Inc................ 1/6/00 300,000 12.50 300,000
Associated Response Services, Inc................ 11/8/01 500,000 12.50 500,000
Assured Power, Inc............................... 10/1/00 700,000 13.50 700,000
Avionics Systems, Inc............................ 7/19/01 3,000,000 13.50 3,000,000
B & N Company, Inc............................... 8/8/00 2,970,000 12.50 2,978,500
B & N Company, Inc............................... 3/28/01 990,000 13.00 991,670
BankCard Services Corporation.................... 1/21/98 297,000 13.00 299,400
BiTec Southeast, Inc............................. 7/1/99 2,600,321 12.70 2,614,171
BiTec Southeast, Inc............................. 8/9/01 950,000 14.00 950,000
C.J. Spirits, Inc................................ 6/1/97 750,171 13.50 455,796
Caldwell/VSR Inc................................. 2/28/01 1,500,000 8.00 1,500,000
Caldwell/VSR Inc................................. 9/27/01 116,000 14.00 116,000
Cardiac Control Systems, Inc..................... 3/31/00 1,500,000 13.50 1,500,000
Cartech Holdings, Inc............................ 4/29/01 1,500,000 13.00 1,500,000
Carter Kaplan Holdings, LLC...................... 6/22/00 594,000 14.00 94,800
Cedaron Medical, Inc............................. 6/28/01 1,500,000 13.50 1,500,000
Cell Call, Inc................................... 11/4/97 990,000 12.75 998,349
CF Data Corp..................................... 3/16/00 1,732,500 13.75 1,738,924
Champion Glove Manufacturing Co.,Inc............. 7/27/00 1,250,000 13.50 1,250,000
Colonial Investments, Inc........................ 10/16/00 800,000 13.75 800,000
Colonial Investments, Inc........................ 5/8/01 300,000 13.75 300,000
Consumat Systems, Inc............................ 11/1/00 500,000 14.00 500,000
Consumat Systems, Inc............................ 1/1/01 500,000 14.00 500,000
Consumat Systems, Inc............................ 3/11/01 500,000 14.00 500,000
Continental Diamond Cutting Co................... 10/28/99 1,500,000 13.00 1,500,000
Continental Diamond Cutting Co................... 11/16/99 200,000 13.00 200,000
</TABLE>
F-26
<PAGE> 87
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Corporate Flight Mgmt, Inc....................... 12/4/97 $ 346,500 12.50% $ 349,341
Corporate Link, Inc.............................. 12/13/01 600,000 14.00 600,000
Corporate Link, Inc.............................. 3/13/97 300,000 14.00 300,000
CreditCorp and affiliates........................ 11/7/01 539,000 14.00 546,683
Dalcon International, Inc........................ 1/31/02 150,000 13.00 150,000
Dalcon International, Inc........................ 1/31/00 200,000 13.00 200,000
Dalts, Inc....................................... 4/28/01 2,000,000 13.50 2,000,000
DentalCare Partners, Inc......................... 1/11/01 1,951,150 12.50 1,956,160
Eastern Food Group LLC........................... 8/30/00 500,000 8.00 25,000
Eastern Food Group LLC........................... 12/20/00 200,000 8.00 25,000
Eastern Food Group LLC........................... 1/21/01 200,000 8.00 25,000
Eastern Food Group LLC........................... 2/14/01 265,000 8.00 25,000
Eastern Food Group LLC........................... 4/30/01 200,000 8.00 100,000
Eastern Food Group LLC........................... 9/10/01 180,000 8.00 80,000
Electronic Merchant Services..................... 2/27/00 1,237,500 13.50 1,040,204
Electronic Merchant Services..................... 2/29/96 168,572 14.00 168,572
Encore Orthopedics, Inc.......................... 7/31/00 2,620,985 13.50 2,734,691
Encore Orthopedics, Inc.......................... 2/28/01 1,667,680 13.00 1,728,609
Entek Scientific, Inc............................ 6/28/01 2,500,000 13.00 2,500,000
Express Shipping Centers, Inc.................... 9/22/00 1,697,598 13.25 1,844,910
FoodNet Holdings, LLC............................ 7/22/01 1,000,000 13.50 1,000,000
Fortrend Engineering Corp........................ 8/30/01 1,500,000 12.99 1,500,000
FX Direct, Inc................................... 1/23/01 2,324,000 13.50 2,359,199
Fypro, Inc....................................... 12/17/01 3,117,480 12.50 3,117,480
Fypro, Inc....................................... 12/17/01 592,000 4.00 152,000
Gardner Wallcovering, Inc........................ 3/28/01 1,485,000 13.50 1,487,500
General Materials Management, Inc................ 7/29/01 2,500,000 13.50 2,500,000
Generation 2 Worldwide LLC....................... 10/31/00 2,000,000 14.00 2,000,000
Global Finance and Leasing, Inc.................. 1/3/00 1,500,000 13.00 1,500,000
Global Marine Electronics, Inc................... 5/1/01 1,350,000 13.00 1,350,000
Gold Medal Products, Inc......................... 11/19/00 1,250,000 13.50 1,250,000
Gold Medal Products, Inc......................... 2/15/01 25,000 13.50 25,000
Gold Medal Products, Inc......................... 6/27/01 100,000 13.50 100,000
Gold Medal Products, Inc......................... 7/31/01 100,000 13.50 100,000
Golf Corporation of America, Inc................. 9/16/99 300,000 11.00 150,000
Golf Corporation of America, Inc................. 12/28/00 200,000 14.00 150,000
Golf Corporation of America, Inc................. 12/29/00 455,589 10.00 180,589
Golf Corporation of America, Inc................. 7/13/96 100,000 14.00 100,000
Golf Corporation of America, Inc................. 10/5/96 50,000 14.00 50,000
Golf Corporation of America, Inc................. 12/1/96 52,000 14.00 52,000
Golf Corporation of America, Inc................. 12/31/96 39,000 14.00 39,000
Golf Video, Inc.................................. 3/27/01 500,000 14.00 50,000
Good Food Fast Companies, The.................... 12/13/01 1,300,000 13.50 1,300,000
Gulfstream International Airlines Inc............ 7/29/99 1,490,000 13.00 1,496,513
Gulfstream International Airlines Inc............ 9/25/00 1,000,000 13.50 1,000,000
Home Link Services, Inc.......................... 12/30/01 79,750 14.00 79,750
</TABLE>
F-27
<PAGE> 88
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Horizon Medical Products, Inc.................... 9/22/00 $ 1,500,000 13.75% $ 1,500,000
HPC America, Inc................................. 8/15/01 2,970,000 13.50 2,972,500
Hunt Incorporated................................ 3/31/00 3,250,000 14.00 3,250,000
H & H Acq. Corp.................................. 8/30/01 1,500,000 14.00 1,500,000
HTR, Inc......................................... 10/30/01 3,000,000 13.50 3,000,000
I.Schneid Acquisition, LLC....................... 4/1/01 2,000,000 14.00 2,000,000
ILD Communications............................... 5/10/01 1,500,000 13.50 1,500,000
In-Store Services, Inc........................... 4/19/00 1,188,000 14.00 1,192,200
Innotech, Inc.................................... 3/22/99 1,980,000 13.00 1,991,322
IV Infusion Corporation.......................... 12/19/01 1,000,000 14.00 1,000,000
Johnston County Cable, L.P....................... 8/31/00 1,990,000 14.00 1,992,672
Kentucky Kingdom, Inc............................ 4/4/99 250,000 8.25 250,000
Kentucky Kingdom, Inc............................ 1/5/98 1,980,000 12.50 1,995,985
Kentucky Kingdom, Inc............................ 9/26/99 1,200,000 10.50 1,200,000
Kentucky Kingdom, Inc............................ 3/1/00 835,000 14.00 835,000
Kentucky Kingdom, Inc............................ 11/6/00 1,500,000 12.50 1,500,000
Kentucky Kingdom, Inc............................ 3/30/98 2,000,000 14.00 2,000,000
Kryptonics, Inc.................................. 12/14/00 2,500,000 12.90 2,500,000
KWC Management Co., LLC.......................... 4/25/01 500,000 14.00 50,000
Lane Acquisition Corporation..................... 11/21/01 4,000,000 13.75 4,000,000
Leisure Clubs International, Inc................. 4/1/01 1,485,000 14.00 1,487,250
Lovett's Buffet, Inc............................. 4/1/00 2,250,000 13.00 2,250,000
Mayo Hawaiian Corp............................... 6/27/01 2,200,000 14.00 2,200,000
MBA Marketing Corporation........................ 2/4/99 1,782,000 12.50 1,792,500
McAuley's Incorporated........................... 7/31/01 3,000,000 13.00 3,000,000
Medical Associates of America, Inc............... 11/1/97 385,000 12.50 392,000
Metals Recycling Technologies, Inc............... 10/31/01 2,000,000 14.00 2,000,000
Money Transfer Systems, Inc...................... 7/24/00 247,500 14.00 248,256
Money Transfer Systems, Inc...................... 12/20/00 148,500 14.00 148,825
Money Transfer Systems, Inc...................... 3/1/01 148,500 14.00 148,750
Money Transfer Systems, Inc...................... 5/2/01 148,500 14.00 148,650
Money Transfer Systems, Inc...................... 7/8/01 148,500 14.00 148,650
Money Transfer Systems, Inc...................... 10/1/01 148,500 14.00 148,575
Monogram Products, Inc........................... 6/18/01 916,000 13.50 925,800
Moore Diversified Products, Inc.................. 6/16/00 800,000 13.50 800,000
Multicom Publishing, Inc......................... 3/29/01 2,200,000 13.00 2,333,330
Multimedia Learning, Inc......................... 5/8/00 1,500,000 14.00 1,500,000
Multimedia Learning, Inc......................... 4/18/01 500,000 13.50 500,000
Multimedia Learning, Inc......................... 9/12/01 750,000 13.50 750,000
Multi-Media Data Systems, Inc.................... 11/20/01 2,000,000 14.00 2,000,000
NASC, Inc........................................ 6/26/01 1,500,000 13.50 1,500,000
NASC, Inc........................................ 12/13/98 500,000 13.50 500,000
Nationwide Engine Supply, Inc.................... 1/12/99 2,475,000 12.00 2,490,012
Nationwide Engine Supply, Inc.................... 9/26/01 1,000,000 13.50 1,000,000
Novavision, Inc.................................. 12/18/01 520,000 13.00 520,000
NRI Service and Supply L.P....................... 2/13/00 2,225,000 14.00 2,234,591
</TABLE>
F-28
<PAGE> 89
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Orchid Manufacturing Group, Inc.................. 9/14/00 $ 2,960,000 13.00% $ 2,968,671
Orchid Manufacturing Group, Inc.................. 12/28/00 1,000,000 13.50 1,000,000
Palco Telecom Service, Inc....................... 11/22/99 1,300,000 12.00 1,300,000
Paradigm Valve Services, Inc..................... 11/12/01 1,600,000 13.50 1,600,000
Patton Management Corporation.................... 5/26/00 1,900,000 13.50 1,900,000
PaySys International, Inc........................ 6/1/97 990,000 13.00 999,292
PFIC Corporation................................. 2/28/01 1,000,000 13.00 1,000,000
Pipeliner Systems, Inc........................... 9/30/98 980,000 10.00 993,320
Plymouth, Inc.................................... 9/28/00 1,000,000 13.00 1,000,000
PRA International, Inc........................... 8/10/00 1,980,000 13.50 1,985,661
Precision Fixtures & Graphics, Inc............... 4/11/01 1,095,000 14.00 1,095,000
Precision Fixtures & Graphics, Inc............... 4/11/01 300,000 14.00 300,000
Precision Fixtures & Graphics, Inc............... 5/8/01 100,000 14.00 100,000
Precision Fixtures & Graphics, Inc............... 5/28/01 75,000 14.00 75,000
Precision Fixtures & Graphics, Inc............... 7/12/01 75,000 14.00 75,000
Precision Fixtures & Graphics, Inc............... 7/22/01 100,000 14.00 100,000
Precision Fixtures & Graphics, Inc............... 8/27/01 750,000 14.00 750,000
Precision Fixtures & Graphics, Inc............... demand 100,000 14.00 100,000
Precision Panel Products, Inc.................... 1/11/00 1,485,000 12.75 1,491,000
Pritchard Paint & Glass Co....................... 2/14/01 567,431 14.00 567,431
Quest Group International, Inc................... 11/15/00 1,125,000 13.25 1,154,162
Quest Group International, Inc................... 9/3/01 1,350,000 13.25 1,360,000
Radiant Systems, Inc............................. 6/27/01 2,760,000 14.00 2,788,000
Radiant Systems, Inc............................. 9/24/01 1,500,000 14.00 1,500,000
Rocky Mountain Radio Company LLC................. 11/10/01 2,500,000 13.50 2,500,000
Rynel Ltd., Inc.................................. 10/1/01 1,250,000 14.00 1,250,000
Scandia Technologies, Inc........................ 4/9/01 1,825,000 14.00 1,825,000
Sheet Metal Specialties, Inc..................... 6/20/01 250,000 14.00 250,000
Sheet Metal Specialties, Inc..................... 12/4/01 211,750 12.00 211,750
SkillSearch Corporation.......................... 2/5/98 496,000 13.00 499,349
SkillSearch Corporation.......................... 3/10/97 150,000 14.00 150,000
Southern Specialty Brands, Inc................... 6/30/01 1,732,500 14.00 1,736,004
Sqwincher Corporation............................ 1/31/00 500,000 13.50 500,000
Studley Products Corp............................ 11/18/99 107,000 12.00 107,000
Studley Products Corp............................ 12/1/99 440,800 8.00 440,800
Summit Publishing Group, Ltd..................... 3/17/99 1,485,000 12.00 1,493,500
Summit Publishing Group, Ltd..................... 7/26/01 625,000 14.00 625,000
Suncoast Medical Group, Inc...................... 9/14/99 485,000 13.50 441,998
Suncoast Medical Group, Inc...................... 6/7/00 495,000 14.00 445,913
Suncoast Medical Group, Inc...................... 2/23/01 522,000 14.00 472,747
TCOM Systems, Inc................................ 2/5/98 462,610 0.00 462,608
Tower Environmental, Inc......................... 11/30/98 2,440,000 10.00 1,601,990
Tower Environmental, Inc......................... 5/30/95 150,000 12.50 150,000
Trade Am International, Inc...................... 9/30/00 4,000,000 12.75 4,000,000
TRC Acquisition Corporation...................... 10/21/01 1,000,000 13.50 1,000,000
UltraFab, Inc.................................... 6/27/01 1,500,000 14.00 1,500,000
</TABLE>
F-29
<PAGE> 90
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Unique Electronics, Inc.......................... 11/30/99 $ 600,000 10.67% $ 600,000
Urethane Technologies, Inc....................... 3/16/01 1,636,520 13.50 1,697,100
Valdawn, LLC..................................... 4/13/00 2,399,974 13.50 2,400,000
Viking Moorings Acquisition, LLC................. 12/15/00 1,655,500 13.00 1,730,146
Virtual Resources Inc............................ 8/16/01 3,000,000 14.00 3,000,000
Vista Information Solutions, Inc................. 4/30/01 2,032,157 13.50 2,086,736
WJ Holdings, Inc................................. 11/19/01 4,000,000 13.50 4,000,000
WWR Technology, Inc.............................. 11/1/97 319,700 13.50 324,184
Zahren Alternative Power Corp.................... 1/30/00 495,000 13.00 496,075
Zahren Alternative Power Corp.................... 11/27/99 1,980,000 13.00 1,989,663
------------ ------------
Total Loans.................................... $227,313,284 $221,487,385
============ ============
</TABLE>
F-30
<PAGE> 91
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COST OR
NUMBER OF CONTRIBUTED
EQUITY INTERESTS SHARES VALUE FAIR VALUE
---------------- -------------- ----------- -----------
<S> <C> <C> <C>
PUBLICLY TRADED INVESTMENTS
National Vision Associates, Ltd. Common Stock......... 208,698 $ 1,771,149 $ 802,180
Trans Global Services, Inc. Common
Stock -- restricted................................. 28,088 5,300 37,685
Moovies, Inc. Common Stock -- restricted.............. 156,110 1,561 566,874
Premiere Technologies, Inc. Common Stock.............. 328,360 0 7,720,565
Cardiac Control Systems, Inc. Common
Stock -- restricted................................. 50,000 250,000 52,500
Innotech, Inc. Common Stock........................... 65,530 20,000 474,273
American Network Exchange Common
Stock -- restricted................................. 139,651 21,879 197,839
Educational Medical, Inc. Common
Stock -- restricted................................. 108,198 0 817,346
FCOA Acquisition Corp. Common Stock -- restricted..... 94,335 0 597,084
QuadraMed Corporation Common Stock -- restricted...... 25,700 0 180,275
QuadraMed Corporation Common Stock -- escrowed........ 2,856 0 0
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 1,325,000
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
DentalCare Partners, Inc. Preferred Stock -- Series
E................................................... 490,978 800,000 800,000
Unique Electronics, Inc. Preferred Stock -- Series
A................................................... 1,000,000 1,000,000 880,000
Pipeliner Systems, Inc. Preferred Stock -- Series D... 5,000 1,000,000 900,000
Front Royal, Inc. Common Stock........................ 110,000 275,000 275,000
NovaVision, Inc. Preferred Stock -- Series A.......... 3,720,141 3,720,141 3,720,141
Fycon Technologies, Inc. Preferred Stock -- Series
A................................................... 96,000 96,000 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
Dalcon International, Inc. Series B Preferred Stock... 850,000 850,000 750,000
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
PRA International, Inc. Common Stock.................. 31,279 190,000 190,000
Caldwell/VSR Inc. Preferred Stock..................... 890 890,000 760,000
Precision Fixtures & Graphics, Inc. Preferred Stock... 1,500,000 1,500,000 0
Palco Telecom Service Common Stock.................... 157,895 1,579 100,000
Studley Products Corp. Common Stock................... 2,204 220,400 0
Clearidge, Inc. Series A Preferred Stock.............. 14,800,000 3,700,000 3,700,000
Gulfstream International Airlines, Inc. Series A
Preferred Stock..................................... 216 3,000,000 3,000,000
Home Link, Inc. Preferred Stock....................... 1,000,000 1,000,000 1,000,000
Voice FX Corporation Common Stock..................... 24,078 110,001 110,001
----------- -----------
Total Equity Interests.............................. $24,881,140 $34,965,801
=========== ===========
</TABLE>
F-31
<PAGE> 92
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
STOCK WARRANTS SHARES 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 0 104,997
Consumat Systems, Inc....................... 250,000 20.00 0 229,688
Moovies, Inc................................ 20,000 0.20 0 0
Multicom Publishing, Inc.................... 163,791 2.80 800,000 138,540
Urethane Technologies, Inc.................. 484,640 4.66 363,480 42,406
Vista Information Solutions, Inc............ 1,247,582 5.00 467,843 491,235
Virginia Gas Company........................ 54,163 1.52 0 278,034
Virginia Gas Company........................ 54,163 1.52 54 0
PRIVATE COMPANIES
AB Plastics Holding Corporation............. 200,000 20.00 0 0
Affinity Corporation........................ 550 9.67 20,000 385,000
Alternative Home Care....................... 163,695 13.00 0 0
Alvin Carter Holdings Corp.................. 2% of Co. 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........................ 1,534 26.47 0 0
Argenbright Holdings LLC.................... 18 3.50 750,000 375,000
Ashe Industries, Inc........................ 254 19.35 20,000 0
Associated Response Services, Inc........... 370 35.20 14,000 1,000,000
Assured Power, Inc.......................... 374 16.00 0 0
Auto Rental Systems, Inc.................... 144,869 7.00 0 0
Avionics Systems, Inc....................... 15% of Co. 15.00 0 0
B & N Company, Inc.......................... 33 4.00 40,000 0
BankCard Services Corporation............... 149,261 28.00 3,000 0
BiTec Southeast, Inc........................ 1,480 15.00 21,000 0
Carter Kaplan Holdings, LLC................. 24% of LLC 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 Holdings, Inc....................... 210,527 20.00 0 0
Cedaron Medical, Inc........................ 173,981 4.25 0 0
CellCall, Inc............................... 398 1.50 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.............................. 442,164 1.78 0 0
CLS Corporation............................. 126,997 4.22 0 0
Colonial Investments, Inc................... 264 24.00 0 0
Continental Diamond Cutting Company......... 112 12.22 0 0
Corporate Flight Mgmt., Inc................. 66,315 6.63 3,500 100,000
Corporate Link, Inc......................... 190 16.00 0 0
CreditCorp and affiliates................... 52 5.00 461,000 461,000
Dalcon Technologies, Inc.................... 250,000 20.00 0 0
Dalts, Inc.................................. 125 25.00 0 0
Delaware Publishing Group, Inc.............. 8,534 47.67 15,000 200,000
DentalCare Partners, Inc.................... 666,022 4.98 10,000 290,000
Eastern Food Group LLC...................... 17,647 15.00 0 0
Electronic Merchant Services................ 430 12.50 12,500 0
Encore Orthopedics, Inc..................... 577,300 5.21 711,335 1,205,000
</TABLE>
F-32
<PAGE> 93
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
STOCK WARRANTS SHARES OWNERSHIP VALUE FAIR VALUE
-------------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Entek Scientific Corporation................ 185,480 3.75% $ 0 $ 0
Express Shipping Centers, Inc............... 73,752 5.09 552,402 552,402
Foodnet Holdings, LLC....................... 8.00% 8.00 0 0
Fortrend Engineering Corp................... 437,552 3.25 0 0
Front Royal, Inc............................ 240,458 1.85 0 480,000
Fycon Technologies, Inc..................... 58,677 15.00 0 0
Fypro, Inc.................................. 255,882 15.00 0 0
Gardner Wallcovering, Inc................... 2 2.00 15,000 15,000
General Materials Management Inc............ 600,000 10.00 0 0
Generation 2 Worldwide LLC.................. 30% of LLC 30.00 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............ 350,000 28.27 0 0
Golf Video, Inc............................. 98 49.50 0 0
Good Food Fast Companies, The............... 174,779 17.00 0 0
Gulfstream International Airlines, Inc...... 413 32.00 10,000 140,000
H & H Acquisition Corporation............... 3,600 22.50 0 0
Home Link Services, Inc..................... 166,667 20.00 0 0
Horizon Medical Products, Inc............... 9,486 8.25 0 0
Hoveround Corporation....................... 850 10.00 0 1,135,000
HPC America, Inc............................ 5 2.75 30,000 30,000
Hunt Incorporated........................... 44 10.00 0 100,000
Hunt Leasing & Rental Corporation........... 265 10.00 0 100,000
HTR, Inc.................................... 849,381 6.00 0 0
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
Johnston County Cable L.P................... 27.5% of L.P. 27.50 10,000 10,000
K.W.C. Management Corp...................... 794 24.40 0 0
Kentucky Kingdom, Inc....................... 6,132 2.00 0 610,000
Kryptonics, Inc............................. 1,255 6.40 0 400,000
Lane Acquisition Corporation................ 11,667 10.00 0 0
Leisure Clubs International, Inc............ 144 10.00 15,000 15,000
Lovett's Buffet, Inc........................ 204,219 3.02 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
Metals Recycling Technologies Corp.......... 257,801 5.00 0 0
Money Transfer Systems, Inc................. 94 8.50 10,000 10,000
Monogram Products, Inc...................... 1,276 6.00 84,000 84,000
Moore Diversified Products, Inc............. 12 11.00 0 0
Multimedia Learning, Inc.................... 131,697 8.10 0 800,000
Multi-Media Data Systems, Inc............... 259,072 20.00 0 0
NASC, Inc................................... 2,652 23.00 0 0
Nationwide Engine Supply, Inc............... 1,265,664 20.20 25,000 25,000
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................... 1,219,047 2.61 40,000 600,000
P.A. Plymouth, Inc.......................... 92,647 15.00 0 0
</TABLE>
F-33
<PAGE> 94
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
STOCK WARRANTS SHARES OWNERSHIP VALUE FAIR VALUE
-------------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Paradigm Valve Services, Inc................ 30,000 12.00% $ 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
PRA International, Inc...................... 117,298 3.63 20,000 685,000
Pipeliner Systems, Inc...................... 2,080,000 20.55 20,000 0
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 17.52 275,000 275,000
Radiant Systems, Inc........................ 174,642 1.52 240,000 950,000
Radio Systems Corporation................... 162,167 8.13 0 1,000,000
Rynel Ltd., Inc............................. 390,517 15.00 0 0
Scandia Technologies, Inc................... 282 22.00 0 0
Sheet Metal Specialties, Inc................ 538 35.00 0 0
SkillSearch Corporation..................... 2,381 7.59 254,000 150,000
Southern Specialty Brands, Inc.............. 10,000 10.00 17,500 17,500
Sqwincher Corporation....................... 111 10.00 0 140,000
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
TRC Acquisition Corporation................. 375,000 12.50 0 0
UltraFab, Inc............................... 120,000 12.00 0 0
Unique Electronics, Inc..................... 20% of Co. 20.00 0 0
VanGard Communications Co., LLC............. 12% of LLC 12.00 0 0
VDI Acquisition Company, LLC................ 21% of LLC 21.00 26 26
Viking Moorings Acquisition, LLC............ 6.5% of LLC 6.50 344,500 344,500
Virtual Resources, Inc...................... 8 7.50 0 250,000
Voice FX Corporation........................ 233,112 7.10 176,000 450,000
WJ Holdings, Inc............................ 250,000 25.00 0 0
Zahren Alternative Power Corporation........ 1,247 6.54 25,000 400,000
------------ ------------
Total Warrants............................ $ 6,059,240 $ 15,893,828
============ ============
OTHER INVESTMENTS(See Note 3)
Gates Communication, L.P. -- Anticipated
royalty payments upon sale of assets...... -- -- $ 1,389,628 $ 1,289,628
Hancock Company -- Royalty stream from sale
of Gitman brand name...................... -- -- 1,900,000 600,000
HSA International, Inc. -- Anticipated
proceeds from litigation.................. -- -- 1,150,000 1,000,000
Capitalized workout expenses................ -- -- 250,671 100,654
------------ ------------
Total other investments................... $ 4,690,299 $ 2,990,282
============ ============
Total Investments......................... $262,943,963 $275,337,296
============ ============
</TABLE>
F-34
