<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 23, 1997
REGISTRATION NO. 333-19493
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
REGISTRATION STATEMENT UNDER SECURITIES ACT OF 1933
PRE-EFFECTIVE
AMENDMENT NO. 1
SIRROM CAPITAL CORPORATION
(Exact Name of Registrant as Specified in Charter)
500 CHURCH STREET, SUITE 200
NASHVILLE, TENNESSEE 37219
(615) 256-0701
(Address and Telephone Number Principal Executive Offices)
CARL W. STRATTON
500 CHURCH STREET, SUITE 200
NASHVILLE, TENNESSEE 37219
(Name and Address of Agent For Service)
COPIES OF INFORMATION TO:
<TABLE>
<S> <C>
BOB F. THOMPSON FRED B. WHITE III
BASS, BERRY & SIMS PLC SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
FIRST AMERICAN CENTER 919 THIRD AVENUE
NASHVILLE, TENNESSEE 37238-2700 NEW YORK, NY 10022
(615) 742-6200 (212) 735-3000
</TABLE>
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the Registration Statement becomes effective.
If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. [ ]
[ ] This Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration statement number of the earlier effective registration statement
for the same offering is 333- .
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
SIRROM CAPITAL CORPORATION
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY PARTS A AND B OF FORM N-2 REGISTRATION STATEMENT
<TABLE>
<CAPTION>
ITEM REGISTRATION STATEMENT ITEM AND CAPTION OR LOCATION
NUMBER HEADING IN PROSPECTUS
- ------ ----------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Outside Front Cover................ Outside front cover
2. Inside Front and Outside Back Cover
Page............................... Inside front cover page
3. Fee Table and Synopsis............. Prospectus Summary; Fees and Expenses; Additional
Information
4. Financial Highlights............... Selected Financial Data; Management's Discussion and
Analysis of Financial Condition and Results of
Operations
5. Plan of Distribution............... Outside front cover; Certain Transactions;
Underwriters
6. Selling Shareholders............... Not Applicable
7. Use of Proceeds.................... Use of Proceeds
8. General Description of
Registrant......................... Outside front cover, Prospectus Summary; Investment
Objectives and Policies; The Company; Business;
Risk Factors; Distributions and Price Range of
Common Stock; Portfolio Companies
9. Management......................... Management; Custodian, Transfer and Dividend Paying
Agent and Registrar
10. Capital Stock, Long-Term Debt, and
Other Securities................... Description of Capital Stock; Distributions and Price
Range of Common Stock; Reinvestment Plan;
Investment Objectives and Policies; Tax Status;
Regulation
11. Defaults and Arrears on Senior
Securities......................... Not applicable
12. Legal Proceedings.................. Not applicable
13. Table of Contents of the Statement
of Additional Information.......... Not applicable
14. Cover Page......................... Not applicable
15. Table of Contents.................. Not applicable
16. General Information and History.... The Company
17. Investment Objective and
Policies........................... Investment Objectives and Policies
18. Management......................... Management
19. Control Persons and Principal and
Selling Shareholders............... Principal and Selling Shareholders; Risk Factors
20. Investment Advisory and Other
Services........................... Custodian, Transfer and Dividend Paying Agent and
Registrar; Independent Public Accountants;
Investment Objectives and Policies
21. Brokerage Allocation and Other
Practices.......................... Not applicable
22. Tax Status......................... Tax Status
23. Financial Statements............... Financial Statements
</TABLE>
- ---------------
* Pursuant to General Instruction on Form N-2, all information required to be
set forth in Part B: Statement of Additional Information has been included in
Part A: The Prospectus. All items required to be set forth in Part C are set
forth in Part C.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Issued January 23, 1997
2,900,000 Shares
Sirrom Capital Corporation
COMMON STOCK
------------------------
OF THE 2,900,000 SHARES OF COMMON STOCK BEING OFFERED HEREBY, 2,320,000 SHARES
ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND 580,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE OF THE
UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE
"UNDERWRITERS." OF THE 2,320,000 SHARES OF COMMON STOCK BEING
OFFERED BY THE U.S. UNDERWRITERS, 2,144,410 SHARES ARE BEING SOLD
BY THE COMPANY AND 175,590 SHARES ARE BEING SOLD BY THE SELLING
SHAREHOLDERS. OF THE 580,000 SHARES OF COMMON STOCK BEING
OFFERED BY THE INTERNATIONAL UNDERWRITERS, 536,103 SHARES
ARE BEING SOLD BY THE COMPANY AND 43,897 SHARES ARE BEING
SOLD BY THE SELLING SHAREHOLDERS. SEE "PRINCIPAL AND
SELLING SHAREHOLDERS." THE COMPANY WILL NOT
RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF
SHARES BY THE SELLING SHAREHOLDERS. THE
COMMON STOCK IS TRADED ON THE NASDAQ
NATIONAL MARKET UNDER THE SYMBOL
"SROM." ON JANUARY 21, 1997 THE LAST
REPORTED SALE PRICE FOR THE COMMON
STOCK WAS $37 3/4.
THE COMPANY IS A NON-DIVERSIFIED, CLOSED-END INVESTMENT COMPANY THAT HAS ELECTED
TO BE TREATED AS A BUSINESS DEVELOPMENT COMPANY UNDER THE INVESTMENT COMPANY
ACT OF 1940, AS AMENDED. THE 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.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS PROCEEDS TO
PRICE TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
----------- -------------- ---------- -------------------
<S> <C> <C> <C> <C>
Per Share.............. $ $ $ $
Total(3)............... $ $ $ $
</TABLE>
- ------------
(1) The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriters."
(2) Before deducting expenses payable by the Company estimated at $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 $ , $ and $ , respectively. See
"Underwriters."
------------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Underwriters. It is
expected that the delivery of the Shares will be made on or about February 13,
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
, 1997
<PAGE> 4
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> 5
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON STOCK OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT
IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREBY SHALL UNDER ANY
CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 4
The Company........................... 10
Additional Information................ 10
Risk Factors.......................... 11
Use of Proceeds....................... 14
Distributions and Price Range of
Common Stock........................ 15
Capitalization........................ 16
Selected Financial Data............... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 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> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and the financial statements and
notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, all information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option.
Information contained or incorporated by reference in this Prospectus may
contain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, which can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "intend,"
"anticipate," "estimate" or "continue" or the negative thereof or other
variations thereon or comparable terminology. The matters described in "Risk
Factors" and certain other factors noted throughout this Prospectus and in any
exhibits to the Registration Statement of which this Prospectus is a part,
constitute cautionary statements identifying important factors with respect to
any such forward-looking statements, including certain risks and uncertainties,
that could cause actual results to differ materially from those in such
forward-looking statements.
THE COMPANY
Sirrom Capital Corporation ("Sirrom" or the "Company") is a specialty
finance company that is primarily engaged in making loans to small businesses.
The Company's loans typically range from $500,000 to $5.0 million in size, have
a five-year maturity, require interest payments monthly and are accompanied by
warrants to purchase an equity interest in the borrower at a nominal exercise
price (usually $.01 per share). The Company targets borrowers that meet certain
criteria, including the potential for significant growth, adequate collateral
coverage, experienced management teams with a significant ownership interest in
the borrower, sophisticated outside equity investors and profitable operations.
To develop new lending opportunities, the Company markets to an extensive
referral network comprised of venture capitalists, investment bankers,
attorneys, accountants, commercial bankers and business brokers. The Company
believes the market for small commercial loans is underserved by traditional
lending sources and that competitors generally are burdened with an overhead and
administrative structure that hinders them from competing most effectively in
this market. The principal investment objectives of the Company are to achieve
(i) a high level of current income from interest and processing and financial
advisory fees and (ii) long-term growth in its shareholders' equity through the
appreciation in value of the equity interests in its portfolio companies.
The Company, which was founded in 1992, has experienced significant growth
in both the size and diversity of its investment portfolio. At 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> 7
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................. 15,024,080
- ---------------
(1) Of the 2,320,000 shares of Common Stock being offered in the United States
Offering, 2,144,410 shares are being sold by the Company and 175,590 shares
are being sold by the Selling Shareholders. Of the 580,000 shares of Common
Stock being offered in the International Offering, 536,103 shares are being
sold by the Company and 43,897 shares are being sold by the Selling
Shareholders.
Nasdaq National Market
Symbol................... SROM
Use of Proceeds............ Origination of loans and investments and temporary
repayment of indebtedness. The Company will not
receive any proceeds from the sale of Common Stock
by the Selling Shareholders. See "Use of Proceeds."
Distributions.............. The Company has distributed and currently intends
to continue to distribute quarterly to its
shareholders 90% of its net investment income. See
"Distributions and Price Range of Common Stock."
Risk Factors............... Investment in shares of the Common Stock involves
certain risks relating to the structure and
investment objectives of the Company that should be
considered by the purchasers of the Common Stock.
See "Risk Factors."
Risks Associated with Investments in Small,
Privately Owned Companies. The Company's portfolio
consists primarily of loans to and securities
issued by privately owned small businesses. There
is generally no publicly available information
about such companies, and the Company must rely on
the diligence of its employees and agents to obtain
information in connection with the Company's
investment decisions. In addition, there is
typically no public market for securities of
privately owned companies. A significant majority
of the Company's portfolio securities are and will
continue to be subject to restrictions on resale or
otherwise have no established trading market. The
illiquidity of most of the Company's portfolio
securities may adversely affect the ability of the
Company to dispose of such securities in a timely
matter and at a fair price at times when the
Company deems it necessary or advantageous. The
valuation of securities in the Company's portfolio
is determined in good faith by the Company's Board
of Directors in the absence of readily
ascertainable market values. The estimated values
may differ 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> 8
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 non-amortizing 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, 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
6
<PAGE> 9
shareholders. However, the Company, SII or SFC may
retain part or all of its realized long-term
capital gains, in which case each such entity would
be required to pay tax on such capital gains, and
the Company's shareholders or the Company, as
appropriate, would receive a deemed distribution
and a tax credit for their or its pro rata portion
of the tax paid by the entity that retains the
capital gains. However, because the Company uses
leverage, it is subject to certain asset coverage
ratio requirements set forth in the 1940 Act and
could, under certain circumstances, be restricted
from making distributions necessary to qualify as a
RIC under Subchapter M of the Code. The election to
qualify as a RIC is made on an annual basis, and no
assurance can be given that the Company, SII or SFC
will continue to elect or to qualify for such
treatment. Harris Williams does not qualify to be
taxed as a RIC and therefore pays tax at the
subsidiary level. If the Company, or any of its
subsidiaries other than Harris Williams was to fail
to qualify or elect not to qualify as a RIC and its
income became fully taxable, a reduction in the
Company's net assets by the amount of the tax
payable, the amount of income available for
distribution to the Company's shareholders and the
percentage of such income actually distributed
could result.
FEES AND EXPENSES
The purpose of the following table is to assist the investor in
understanding the various costs and expenses that an investor in the Company
will bear directly or indirectly.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales load (as a percentage of offering price)............................. 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 $254.2 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 $ 733
</TABLE>
7
<PAGE> 10
This example should not be considered a representation of the future
expenses of the Company, and actual expenses may be greater or less than those
shown. Although the example assumes (as required by the Securities and Exchange
Commission (the "Commission")) a 5.0% annual return, the Company's performance
will vary and may result in a return of greater or less than 5.0%. In addition,
while the example assumes reinvestment of all dividends and distributions at net
asset value, participants in the Reinvestment Plan may receive shares purchased
by First Union National Bank, as administrator of the Reinvestment Plan (the
"Reinvestment Plan Administrator") at the market price in effect at the time,
which may be at, above or below net asset value. See "Reinvestment Plan."
8
<PAGE> 11
SUMMARY HISTORICAL FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FROM
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 5,480
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 $ 69,289
Loans............................................................................. 221,487 221,487
Equity interests.................................................................. 34,966 34,966
Warrants.......................................................................... 15,894 15,894
Total assets...................................................................... 288,013 352,690
Revolving credit facilities....................................................... 30,858 --
Debentures payable to SBA......................................................... 90,000 90,000
Total shareholders' equity........................................................ 158,621 254,156
</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 2,680,513 shares of Common
Stock offered hereby by the Company at an offering price of $37.75 per share
and the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
9
<PAGE> 12
THE COMPANY
The Company was incorporated under the laws of the State of Tennessee in
November 1994 and is a non-diversified, closed-end investment company that has
elected to be treated as a BDC under the 1940 Act. The Company's principal
executive offices are located at 500 Church Street, Suite 200, Nashville,
Tennessee 37219 and its telephone number is (615) 256-0701.
The Company is the successor to Sirrom Capital, L.P., a Tennessee limited
partnership (the "Partnership"), which was organized under the laws of Tennessee
in 1991. Pursuant to a conversion (the "Conversion") consummated on February 1,
1995 all partners of the Partnership (the "Partners") transferred their
Partnership interests to the Company in exchange for the issuance of 5,050,116
shares of Common Stock. The Common Stock was received by each Partner in
proportion to the Partner's percentage interest in the Partnership. Following
this exchange, the Partnership was dissolved and liquidated by operation of law,
and all of the assets and liabilities of the Partnership (including the SBIC
license which was obtained by the Partnership in May 1992) were assigned and
transferred to the Company. In August 1996, the Company transferred its SBIC
operations, including its SBIC license, assets and liabilities to SII, its
wholly-owned subsidiary, and acquired Harris Williams, which, since the
acquisition, has operated as a "C" corporation and a wholly-owned subsidiary of
the Company. In December 1996, the Company formed SFC, a special purpose,
bankruptcy remote subsidiary, as the borrower under the ING Credit Facility.
Unless otherwise indicated, all references to the Company include the
Partnership, SII, SFC and Harris Williams and their respective historical
operations.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
N-2 (the "Registration Statement") under the Securities Act, with respect to the
shares of Common Stock offered by this Prospectus. This Prospectus, which is a
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement or the exhibits and schedules thereto. For
further information with respect to the Company and the Common Stock, reference
is made to the Registration Statement, including the exhibits and schedules
thereto.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, and, in accordance therewith, files reports, proxy
statements and other information with the Commission. The Registration Statement
and the exhibits and schedules thereto filed with the Commission, as well as
such reports, proxy statements and other information, may be inspected, without
charge, at the public reference facility maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices located at Seven World Trade Center, New York,
New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. The Commission maintains a web site that contains reports, proxy
statements and other information regarding registrants, including the Company,
that file such information electronically with the Commission. The address of
the Commission's web site is http://www.sec.gov. Copies of such material may
also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Common
Stock is listed on the Nasdaq National Market, and such reports, proxy
statements and other information can also be inspected at the offices of the
National Association of Securities Dealers, Inc., Corporate Financing
Department, 9513 Key West Avenue, 3rd Floor, Rockville, Maryland 20850.
10
<PAGE> 13
RISK FACTORS
The purchase of the shares offered by this Prospectus involves a number of
significant risks and other factors relating to the structure and investment
objectives of the Company. As a result, there can be no assurance that the
Company will continue to achieve its investment objectives. In addition to the
other information contained in this Prospectus, the following risk factors
should be carefully considered in evaluating an investment in the Common Stock.
RISKS ASSOCIATED WITH INVESTMENTS IN SMALL, PRIVATELY OWNED COMPANIES
The Company's portfolio consists primarily of loans to and securities
issued by small, privately owned businesses. There is generally no publicly
available information about such companies, and the Company must rely on the
diligence of its employees and agents to obtain information in connection with
the Company's investment decisions. Typically, small businesses depend for their
success on the management talents and efforts of one person or a small group of
persons, and the death, disability or resignation of one or more of these
persons could have a material adverse impact on the related company. Moreover,
small businesses frequently have smaller product lines and market shares than
their competition. Small companies may be more vulnerable to economic downturns
and often need substantial additional capital to expand or compete. Such
companies may also experience substantial variations in operating results.
Investment in small businesses therefore involves a high degree of business and
financial risk, which can result in substantial losses and accordingly should be
considered speculative. The Company's operating history is relatively limited
and it has not operated in recessionary economic periods during which the
operating results of small business companies such as those in the Company's
portfolio often are adversely affected. While the Company generally seeks to
make senior secured loans, its loans are often made on a subordinated basis,
which results in a higher degree of risk of collection. The Company also has the
ability to make unsecured loans or invest in equity securities which likewise
may involve a higher degree of risk.
RISK OF ILLIQUIDITY OF PORTFOLIO INVESTMENTS
Liquidity relates to the ability of the Company to sell either a debt or
equity security in a timely manner at a price that reflects the fair market
value of that security. Most of the Company's investments are or will be
securities acquired directly from small, privately owned companies. The
Company's portfolio securities are and will usually be subject to restrictions
on resale or otherwise have no established trading market. The illiquidity of
most of the Company's portfolio securities may adversely affect the ability of
the Company to dispose of such securities in a timely manner and at a fair price
at times when the Company deems it necessary or advantageous. The valuation of
securities in the Company's portfolio is determined in good faith by the
Company's Board of Directors in the absence of readily ascertainable market
values. The estimated values may differ significantly from the values that would
have been used had a ready market for the securities existed, and the
differences could be material.
RISK OF PAYMENT DEFAULT
The Company generally makes nonamortizing, five-year term loans with
relatively high fixed rates of interest to small companies that may have limited
financial resources and may be unable to obtain financing from traditional
sources. These loans are generally secured by the assets of the borrower. A
borrower's ability to repay its loan may be adversely affected by numerous
factors, including the failure to meet its business plan, a downturn in its
industry or negative economic conditions. A deterioration in a borrower's
financial condition and prospects usually will be accompanied by a deterioration
in the value of any collateral for the loan and the likelihood of realizing on
any guarantees obtained from the borrower's management. Although the Company
seeks to be the senior, secured lender to a borrower, the Company is not always
the senior lender, and any collateral for a loan may be subordinate to another
lender's security interest.
11
<PAGE> 14
RISK OF LOAN LOSSES EXCEEDING CURRENT ESTIMATES
There is typically no public market for the debt or equity securities of
small, privately owned companies. As a result, the valuation of securities in
the Company's portfolio is subject to the good faith determination of the
Company's Board of Directors. See "Determination of Net Asset Value." Unlike
certain lending institutions, the Company does not establish reserves for loan
losses, but revalues its portfolio on a quarterly basis to reflect the Company's
estimate of the current 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> 15
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) $367.9 million in investments, (ii) an average
cost of funds of 7.30%, (iii) $120.9 million in debt outstanding and (iv)
$254.2 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> 16
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 $95.5 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 $28.9 million outstanding under the Revolving
Credit Facility to repay approximately $2.0 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
8.14% 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> 17
DISTRIBUTIONS AND PRICE RANGE OF COMMON STOCK
The Company has distributed and currently intends to continue to distribute
90% of its net operating income and net realized short-term capital gains, if
any, on a quarterly basis to its shareholders. Net realized long-term capital
gains may be retained to supplement the Company's equity capital and support
growth in its portfolio, unless the Board of Directors determines in certain
cases to make a distribution. There is no assurance that the Company will
achieve investment results or maintain a tax status that will permit any
specified level of cash distributions or year-to-year increases in cash
distributions. See "Reinvestment Plan," "Regulation" and "Tax Status." Pursuant
to the Reinvestment Plan, a shareholder whose shares are registered in his own
name can elect to have all or a portion of the distributions reinvested in
additional shares of Common Stock by the Reinvestment Plan Administrator, by
letter to the Company received prior to the corresponding record date.
The Common Stock is quoted on the Nasdaq National Market under the symbol
SROM. On January 21, 1997, the last reported sale price of the Common Stock was
$37.75 per share (a 194% premium to net asset value per share on such date). The
following table sets forth the range of high and low closing sale prices of the
Common Stock as reported on the Nasdaq National Market, the net asset value per
share, the premium of high closing sale price to net asset value and the premium
of low closing sale price to net asset value for the period from February 6,
1995, when public trading of the Common Stock commenced, through January ,
1997. The Common Stock has historically traded at a premium to net asset value
per share. There can be no assurance, however, that such premium will be
maintained.
<TABLE>
<CAPTION>
PREMIUM OF PREMIUM OF
CLOSING SALE HIGH SALES LOW SALES
PRICE NET ASSET PRICE TO NET PRICE TO NET
------------ VALUE PER ASSET VALUE ASSET VALUE DIVIDEND
HIGH LOW SHARE(1)(2) (%)(2) (%)(2) DECLARED
---- --- ----------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
1995
First Quarter (beginning February
6, 1995)....................... $11 5/8 $10 3/4 $ 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> 18
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)....................................................... 140,436 235,971
Notes receivable from employees...................................... (1,539) (1,539)
Undistributed net realized earnings.................................. 7,331 7,331
Unrealized appreciation of investments............................... 12,393 12,393
-------- --------
Total shareholders' equity...................................... $158,621 $254,156
-------- --------
Total Capitalization................................................. $279,479 $344,156
======== ========
</TABLE>
- ---------------
(1) Assumes a public offering price of $37.75 (the last reported sale price of
the Common Stock on the Nasdaq National Market on January 21, 1997).
(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.
16
<PAGE> 19
SELECTED FINANCIAL DATA
The following tables set forth selected financial data of the Company,
which should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and with the Company's
Financial Statements and Notes thereto included elsewhere in this Prospectus.
The selected financial data set forth below as of and for the period from
inception to December 31, 1992, and as of and for each of the 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 $ 69,289
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 91,804 177,870 288,013 352,690
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 89,186 158,621 254,156
</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 2,680,513 shares of Common
Stock offered hereby by the Company and the application of the estimated net
proceeds therefrom. See "Use of Proceeds."
17
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis of the financial condition and results of operations
of the Company should be read in conjunction with the Selected Financial Data,
the Company's Financial Statements and the Notes thereto and the other financial
data included elsewhere in this Prospectus. The financial information provided
below has been rounded in order to simplify its presentation. However, the
ratios and percentages provided below are calculated using the detailed
financial information contained in the Financial Statements and the Notes
thereto and the financial data included elsewhere in this Prospectus. The
financial information contained herein has been restated to reflect the
operations of Harris Williams as an unconsolidated subsidiary of the Company
accounted for by the equity method of accounting in conformity with the
requirements of the 1940 Act.
OVERVIEW
The following table summarizes selected financial information expressed as
a percentage of total operating income and the change from year to year.
<TABLE>
<CAPTION>
% OF TOTAL OPERATING INCOME 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 2.0 119.6% 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 1,657 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
18
<PAGE> 21
purchase equity securities of the borrower. In addition to interest on
investments, the Company and SII also typically collect an up-front processing
fee on each loan they originate. Harris Williams typically obtains a retainer
fee for each transaction for which it is retained and, in addition, a success
fee when the transaction is consummated.
RESULTS OF OPERATIONS
The Company's financial performance in the Statements of Operations is
composed of 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 in the aggregate at the end of the period and their stated
costs at the beginning of the period. The third element is the "change in
unrealized appreciation (depreciation) of investments," which is the net change
in the fair values of the Company's portfolio assets compared with their fair
values at the beginning of the period or their stated costs, as appropriate.
Generally, "realized gain (loss) on investments" and "change in unrealized
appreciation (depreciation) of investments" are inversely related in that when
an appreciated asset is sold to realize a gain, a decrease in unrealized
appreciation occurs 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, a 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, which 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 new office space in 1995. In addition, in 1996, the
Company changed its practice of expensing bonuses when paid in the
19
<PAGE> 22
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 1995 to 1996.
Although the dollar amount of these expenses increased over the three-year
period, overhead expenses as a percentage of ending assets remained fairly
constant 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, $11.0 million and $4.0 million
were derived from net operating income for 1996 and 1995, respectively, and
$577,000 and $1.2 million were derived from realized capital gains for 1996 and
1995,
20
<PAGE> 23
respectively. The Company also elected to designate $10.7 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, 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 and is
guaranteed by the Company. The interest rate on these borrowings was 8.14% at
December 31, 1996. The Revolving Credit Facility matures on December 27, 1998.
The Revolving Credit Facility requires that SII obtain the lenders' consent
prior to, among other things, encumbering its assets, merging or consolidating
with another entity and making investments other than those permitted by the
SBA. In addition, the Revolving Credit Facility provides that 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, will be the
borrower under the ING Credit Facility. SFC will purchase loans originated by
the Company and the related warrants and use these loans and warrants as
collateral to secure borrowings from ING. The interest rate on the borrowings
will be 2.25% above the rate at which ING issues the commercial paper which
funds the facility. In order to manage the interest rate risk associated with
the variable interest
21
<PAGE> 24
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
$25 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 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.
22
<PAGE> 25
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 typically
range from $500,000 to $5.0 million in size and are evidenced by debt securities
that are accompanied by warrants to acquire equity securities of the borrower.
These warrants usually have a nominal exercise price (usually $.01 per share).
Typically, the loans are collateralized by a security interest in assets of the
borrower and are generally senior to the investments of sophisticated equity
investors. The personal guaranty of the major shareholder of the borrower or
other collateral may also be required. The debt securities issued to evidence
the Company's loans generally carry a fixed rate of interest and have a maturity
of five years from their respective dates of issuance. In most cases, the loans
are structured to require the payment of interest only on a monthly basis, with
a single payment of principal at maturity. The Company typically charges
borrowers a processing fee of approximately 2.0% to 2.5% of the amount of each
loan. Unlike most lenders, the Company does not impose prepayment penalties on
borrowers that repay loans prior to maturity. Instead, the Company's warrants
typically contain a warrant "ratchet" provision that increases the Company's
equity position, by one to three percentage points per year, until repayment of
the loan in full. Although the Company's loans provide for a five year maturity,
the warrant "ratchet" may have the effect of encouraging borrowers to repay
loans as soon as possible. The Company benefits from such repayments, because of
the direct relationship that exists between the Company's ability to generate
asset turnover (i.e., redeployment of capital) and return on equity to
shareholders.
The Company has begun to broaden its geographic market, has recently
relocated a senior lender to open and manage a San Francisco office, and
currently anticipates opening an office in the Northeast in fiscal 1997. In
addition, the Company has 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. 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 Capital, its wholly-owned
subsidiary. The target market for this product will be public companies with a
market capitalization under $100.0 million and revenues ranging from $20.0
23
<PAGE> 26
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 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
24
<PAGE> 27
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, as
determined in good faith by the Board of Directors in accordance with the
Company's Valuation Policy, of $14.6 million. For a discussion of the Company's
Valuation Policy see "Summary of Significant Accounting Policies" in the Notes
to Financial Statements included elsewhere in this Prospectus.
TEMPORARY INVESTMENTS
Pending investment in the types of securities described above, the Company
will invest its otherwise uninvested cash in (i) federal government or agency
issued or guaranteed securities that mature in 15 months or less; (ii)
repurchase agreements with banks whose deposits are insured by the Federal
Deposit Insurance Corporation (the "FDIC") (an "insured bank"), with maturities
of seven days or less, the underlying instruments of which are securities issued
or guaranteed by the federal government; (iii) certificates of deposit in an
insured bank with maturities of one year or less, up to the amount of the
deposit insurance; (iv) deposit accounts in an insured bank subject to
withdrawal restrictions of one year or less, up to the amount of deposit
insurance; (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,
25
<PAGE> 28
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> 29
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> 30
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> 31
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> 32
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 44 companies totaling
approximately $101.5 million and received ten repayments (either partial or
full) aggregating $14.4 million. During the year ended December 31, 1994, the
Company made loans to 34 companies totaling approximately $40.8 million and
received six repayments aggregating approximately $7.6 million. During the year
ended December 31, 1993, the Company made loans to 31 companies totaling
approximately $31.5 million and received three repayments aggregating $2.0
million. Since inception, the Company has originated $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> 33
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 17.1
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> 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>
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 1.3
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 9.3
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 18.0
4530 Harding Rd. Common Stock
Nashville, TN 37205
Consumat Systems, Inc. ........................ Environmental Warrant to purchase 20.0
P.O. Box 9379 Common Stock
Richmond, VA 23227
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> 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>
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 7.4
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> 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>
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 31.5
Nashville, TN 37209 Common Stock
Golf Video, Inc. .............................. Interactive Golf Video Warrant to purchase 49.5
6950 Charlotte Pike Common Stock
Nashville, TN 37209
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 21.0
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> 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>
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> 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>
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> 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>
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> 40
<TABLE>
<CAPTION>
PERCENTAGE
NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS
NAME AND ADDRESS OF PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1)
- ----------------------------------------------- ----------------------- ------------------------- ----------
<S> <C> <C> <C>
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> 41
<TABLE>
<CAPTION>
PERCENTAGE
NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS
NAME AND ADDRESS OF PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1)
- ----------------------------------------------- ----------------------- ------------------------- ----------
<S> <C> <C> <C>
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> 42
MANAGEMENT
The business and affairs of the Company are managed under the direction of
its Board of Directors. The Board of Directors has two committees, a
Compensation Committee comprised of Messrs. Eberle, Pirtle, and Wilson and an
Audit Committee comprised of Messrs. Duncan, McCabe and Mathias. All of the
Company's directors are subject to re-election at each annual meeting of
shareholders. The directors each receive $1,000 for each separate Board or
committee meeting attended and are reimbursed for expenses relating thereto. The
Board of Directors elects the Company's officers who serve at the pleasure of
the Board of Directors.
BOARD OF DIRECTORS
The following table sets forth certain information regarding the directors
of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------------- --- ------------------------------------------------
<S> <C> <C>
John A. Morris, Jr. M.D.(1).................. 50 Chairman of the Board and Director
George M. Miller, II(1)...................... 37 President, Chief Executive Officer and Director
E. Townes Duncan............................. 43 Director
William D. Eberle............................ 73 Director
Edward J. Mathias............................ 55 Director
Robert A. McCabe, Jr......................... 46 Director
Raymond H. Pirtle, Jr.(1).................... 55 Director
L. Edward Wilson, P.E........................ 52 Director
</TABLE>
- ------------
(1) "Interested Person" as defined in Section 2(a)(19) of the 1940 Act.
John A. Morris, Jr., M.D., co-founded the Company in August 1991. Dr.
Morris currently holds appointments of Professor of Surgery and Director of the
Division of Trauma and Surgical Critical Care at the Vanderbilt University
School of Medicine, Medical Director of the LifeFlight Air Ambulance Program at
Vanderbilt University Hospital, and Associate in the Department of Health Policy
and Management at the Johns Hopkins University.
George M. Miller, II, co-founded the Company in August 1991. Prior to
August 1991, Mr. Miller worked for two years as a vice president in the
Investment 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 autoparts
distributor headquartered in Nashville. Mr. Eberle is also the Vice Chairman of
the U.S. Council of the International Chamber of Commerce.
40
<PAGE> 43
Edward J. Mathias has been a managing director of The Carlyle Group, a
Washington, D.C. based private merchant bank, since 1994. Mr. Mathias served as
a managing director of T. Rowe Price Associates, Inc., an investment management
firm, from 1971 to 1993. Mr. Mathias is also a director of U.S. Office Products,
a supplier of office products, and PathoGenesis Corporation, a biotechnology
company.
Robert A. McCabe, Jr., has been the Vice Chairman of First American
Corporation, a bank holding company headquartered in Nashville, since 1993 and
the President of First American Enterprises, a division of First American
Corporation, since 1994. Prior to that time, Mr. McCabe served as President of
the General Bank 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> 44
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 January 1996, Ms. Harris was in the Corporate Finance
Department at J.C. Bradford & Co. From 1980 to 1983, she was with KPMG Peat
Marwick and served as a senior auditor specializing in the firm's thrift
practice. Ms. Harris holds a Master of Business Administration in Finance and
Human Resources Management from the Owen Graduate School of Management at
Vanderbilt University and a Bachelor of Science degree in Accounting from Murray
State University. Ms. Harris is a Certified Public Accountant.
John C. Harrison joined the Company in January 1994 and is responsible for
marketing and loan origination efforts in North and South Carolina and Virginia.
In addition to generating new loans, Mr. Harrison oversees several of the
Company's portfolio companies. From 1991 to 1993, Mr. Harrison served as a vice
president at First Union National Bank, and from 1987 to 1991, he worked for
First Tennessee Equipment Finance Corporation as a senior credit officer. From
1980 to 1987, Mr. Harrison held several positions with First American National
Bank. Mr. Harrison holds a Bachelor of Science degree from the University of
Tennessee.
R. Burton Harvey joined the Company in August of 1996 and is responsible
for marketing and loan origination efforts in eastern Pennsylvania and Maryland.
In addition to generating new loans, Mr. Harvey oversees several of the
Company's portfolio companies. From 1993 to August 1996, Mr. Harvey was a Vice
President at NationsBank of Tennessee. From 1989 to November 1994, he served as
a Vice President in the U.S. Corporate Division of Wachovia Corporate Services,
Inc. in Atlanta, Georgia and as a Loan Administration Officer prior to becoming
a Vice President. Mr. Harvey holds a Master of Business Administration and a
Bachelor of Science Degree from the University of Tennessee.
42
<PAGE> 45
John S. Scott joined the Company in November 1994 and is responsible for
marketing and loan origination efforts in Kentucky, Ohio and Indiana. In
addition to generating loans, Mr. Scott oversees several of the Company's
portfolio companies. From 1991 to 1994, Mr. Scott served as a vice president in
the Corporate Banking Group of Bank One. From 1985 to 1991, Mr. Scott was a
commercial lender with Ameritrust Corporation, Citizens Bank and Trust and First
American National Bank. Mr. Scott holds a Bachelor of Science degree from the
University of Kentucky.
William A. Williamson, III, joined the Company in April 1996 and is
responsible for marketing and loan origination efforts in Texas. Prior to
joining the Company, Mr. Williamson was vice president/partner of Bohannon
Brewing Company. From 1992 to 1994, Mr. Williamson was manager of Durr-Fillauer
Corporation's Nashville facility. From 1985 to 1991, Mr. Williamson was
assistant vice president of development for Jim Wilson Associates. From 1982 to
1984, Mr. Williamson was an investment banking analyst with E.F. Hutton in New
York. Mr. Williamson holds a Bachelor of Business Administration from Southern
Methodist University.
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
September of 1996. From 1987 to 1991, Mr. Harris served as Vice President of
Bowles Hollowell & Conner and from 1983 to 1985 served as pricing coordinator
for Crestar Bank. Mr. Harris holds a Master of Business Administration degree
with distinction from Harvard Graduate School of Business Administration and
Bachelor of Science degrees in Mathematics and Economics from Hampden-Sydney
College.
Christopher H. Williams co-founded Harris Williams in 1991 and has served
as co-chairman of Harris Williams since the Company's acquisition of the firm in
September 1996. From 1987 to 1991, Mr. Williams served as Vice President of
Bowles Hollowell & Conner. Mr. Williams holds a Master of Business
Administration from Harvard Graduate School of Business Administration and a
Bachelor of Arts in Business Administration from Washington and Lee University.
Craig Macnab joined the Company in January 1997 and serves as the President
of Tandem Capital, Inc. From July 1993 to December 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> 46
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> 47
number of shares, if any, for which options may be granted to them. Seventeen
people are potentially eligible to participate in the 1994 Employee Plan.
Options granted under the 1994 Employee Plan are exercisable at a price equal to
the fair market value of the Common Stock on the date the option is granted. No
option may be exercised more than 10 years after the date of grant. Options
granted under the 1994 Employee Plan are not transferable other than by the laws
of descent and distribution and during the grantee's life may be exercised only
by the grantee. Rights to exercise options terminate after a grantee ceases to
be an employee for any reason, other than death, three months following the date
of termination of employment. If a grantee dies before expiration of the option,
his legal successors may exercise the option within one year of the employee's
death. Shares purchased upon exercise of options must be paid for in cash or by
the surrender of unrestricted shares of Common Stock or any combination thereof.
The Company may lend the grantee up to the exercise price of the option to be
exercised. Any such loan would be subject to certain terms set out in the Plan
and limitations imposed by the SBA. The 1994 Employee Plan will terminate when
options have been granted on the total number of shares authorized by it or by
action of the Board of Directors, but in no event later than November 18, 2004.
1996 Employee Plan. The 1996 Employee Plan authorizes the issuance of up
to 390,000 shares of the Company's Common Stock. As of December 31, 1996,
options for the purchase of 390,000 shares of the Common Stock have been granted
by the Company under the plan. In addition, options to purchase 319,547 shares
have been granted under the 1996 Employee Plan, subject to the approval 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.
45
<PAGE> 48
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
SUBJECT TO PRICE
NAME AND POSITION OPTION PER SHARE
----------------------------------------------------- ---------------- -------------
<S> <C> <C>
George M. Miller, II,................................ 150,000(1) $ 11.00
President and Chief Executive Officer 56,966(2) 18.50
56,966(3) 18.63
224,115(4) 30.00
David M. Resha....................................... 125,000(5) 13.50
Chief Operating Officer
Carl W. Stratton..................................... 50,000(6) 23.25
Chief Financial Officer 25,000(7) 31.75
Employees, as a group (43 persons)................... 1,209,547(8) $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> 49
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> 50
PRINCIPAL AND SELLING SHAREHOLDERS
Of the 50,000,000 shares of Common Stock, no par value, authorized, there
are 12,343,567 shares of Common Stock outstanding and approximately 2,550
holders of the Company's Common Stock, including approximately 169 holders of
record. The Company has no other class of securities outstanding. The following
table sets forth certain ownership information as of December 31, 1996 with
respect to the Common Stock for (i) those persons who directly or indirectly
own, control or hold with the power to vote, 5% or more of the outstanding
Common Stock and (ii) all officers and directors, as a group. Unless otherwise
indicated, all shares are owned beneficially and of record by each shareholder.
The address for each of the Selling Shareholders is 500 Church Street, Suite
200, Nashville, Tennessee 37219.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES TO BE
OWNED PRIOR TO THE BENEFICIALLY OWNED
OFFERING SHARES AFTER THE OFFERING
------------------- BEING -------------------
NAME AND ADDRESS NUMBER PERCENT OFFERED NUMBER PERCENT
- -------------------------------------------------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
John A. Morris, Jr., M.D.(1)...................... 2,393,204 19.4 0 2,393,204 15.9%
243 Medical Center South
2100 Pierce Avenue
Nashville, TN 37212
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................................. 5,788 * 5,788 0 *
Bank of Scotland London Nominees Limited.......... 65,658 * 1,528 64,130 *
O. Gene Gabbard................................... 4,008 * 4,008 0 *
Hare & Co......................................... 45,454 * 25,454 20,000 *
James O. Hayles................................... 5,073 * 2,500 2,573 *
Myna C. Hayles.................................... 5,073 * 2,500 2,573 *
Andrew L. Smith, Trustee for Leila Temple
Hayles.......................................... 5,073 * 2,500 2,573 *
Andrew L. Smith, Trustee for James Russell
Hayles.......................................... 5,073 * 2,500 2,573 *
Kenneth F. Leddick................................ 2,536 * 536 2,000 *
Richard Monk...................................... 18,942 * 8,000 10,942 *
Kathleen R. Parsons............................... 4,008 * 4,008 0 *
Carolyn W. Perrone(3)............................. 68,800 * 68,800 0 *
Michael M. Rosenberg.............................. 24,244 * 24,244 0 *
Peter T. Socha(4)................................. 80,200 * 50,000 30,200 *
Sam Stevenson..................................... 12,121 * 12,121 0 *
Berthold G. Stumberg.............................. 10,148 * 5,000 5,148 *
Officers and directors, as a group (27 persons)... 3,476,735 28.2 0 3,476,735 23.1
</TABLE>
- ------------
* Less than one percent.
(1) Includes 2,035,148 shares owned of record by Sirrom Partners, L.P., a
limited partnership owned by Dr. Morris and his family, and 358,056 shares
owned of record by Sirrom, Ltd., a limited partnership whose general partner
is All Scarlet, Inc., a corporation owned 50% by Dr. Morris and 50% by
Alfred H. Morris, the brother of Dr. Morris. Dr. Morris has shared voting
power and shared investment power with respect to all of these shares.
(2) 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.
48
<PAGE> 51
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, at management's request, also has considered recent
operating results of a portfolio company or offers to purchase the portfolio
company's securities when valuing a warrant.
A substantial portion of the Company's assets will consist of securities
carried at fair values determined by its Board of Directors. 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> 52
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> 53
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
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<PAGE> 54
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> 55
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 50,000,000 shares of Common Stock. Of
the shares of Common Stock authorized for issuance, 12,343,567 are outstanding,
500,000 are reserved for issuance under the 1994 Employee Plan (all of which
have been issued), 114,000 shares are reserved for issuance under the Directors'
Stock Option Plan (84,000 of which have been issued), and 390,000 shares, are
reserved for issuance under the 1996 Employee Plan (all of which have been
issued), and 319,547 shares are reserved for issuance under the 1996 Employee
Plan, subject to approval by the Company's shareholders of the amendment to the
plan increasing the shares available thereunder.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by shareholders and are not entitled to cumulative voting
in the election of directors, which means that the holders of a majority of the
shares voting for the election of director can elect all of the directors then
standing for election by the holders of Common Stock. The holders of Common
Stock are entitled to share ratably in such dividends, if any, as may be
declared from time to time by the Board of Directors in its discretion out of
funds legally available therefor. The holders of Common Stock are entitled to
share ratably in any assets remaining after satisfaction of all prior claims
upon liquidation of the Company. The Company's Charter gives holders of Common
Stock no preemptive or other subscription or conversion rights, and there are no
redemption provisions with respect to such shares. All outstanding shares of
Common Stock are, and the shares offered hereby will be, when issued and paid
for, fully paid and nonassessable.
REGISTRATION RIGHTS
In addition, each shareholder of the Company receiving Common Stock in the
Conversion has piggyback registration rights, subject to certain limitations and
conditions, in the event that the Company proposes to register the sale of
shares of Common Stock for its own account or the account of another. These
registration rights expire on February 1, 1997.
ANTI-TAKEOVER LEGISLATION
In addition to the restrictions on changes of control of an SBIC under the
SBIA and the SBA Regulations described under "Regulation," the Company is
subject to the Tennessee Business Combination Act (the "Combination Act"). The
Combination Act provides that any corporation to which it applies, including the
Company, shall not engage in any "business combination" with an "interested
shareholder" for a period of five years following the date that such shareholder
became an interested shareholder unless prior to such date the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the shareholder becoming an interested
shareholder.
The Combination Act defines "business combination," generally, to mean any
(i) merger or consolidation; (ii) share exchange; (iii) sale, lease, exchange,
pledge, mortgage or other transfer (in one transaction or a series of
transactions) of assets representing 10% or more of (A) the market value of
consolidated assets, (B) the market value of the corporation's outstanding
shares or (C) the corporation's consolidated net income; (iv) issuance or
transfer of shares from the corporation to the interested shareholder; (v) plan
of liquidation; (vi) transaction in which the interested shareholder's
proportionate share of the outstanding shares of any class of securities is
increased; or (vii) financing arrangements pursuant to which the interested
shareholder, directly or indirectly, receives a benefit except proportionately
as a shareholder.
The Combination Act defines "interested shareholder," generally, to mean
any person who is the beneficial owner, directly or indirectly, of 10% or more
of any class or series of the outstanding voting stock, or any affiliate or
associate of the corporation who has been the beneficial owner, directly or
indirectly, of 10% or more of the voting power of any class or series of the
corporation's stock at any time within the five year period preceding the date
in question. Consummation of a business combination that is subject to the
five-year moratorium is permitted after such period if the transaction (i)
complies with all applicable charter and bylaw requirements and applicable
Tennessee law and (ii) is approved by at least two-thirds of the outstanding
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voting stock not beneficially owned by the interested shareholder, or when the
transaction meets certain fair price criteria. The fair price criteria include,
among others, the requirement that the per share consideration received in any
such business combination by each of the shareholders is equal to the highest of
(i) the highest per share price paid by the interested shareholder during the
preceding five year period for shares of the same class or series plus interest
thereon from such date at a treasury bill rate less the aggregate amount of any
cash dividends paid and the market value of any dividends paid other than in
cash since such earliest date, up to the amount of such interest, (ii) the
highest preferential amount, if any, such class or series is entitled to receive
on liquidation, or (iii) the market value of the shares on either the date the
business combination is announced or the date when the interested shareholder
reaches the 10% threshold, whichever is higher, plus interest thereon less
dividends as noted above.
The Tennessee Greenmail Act (the "Greenmail Act") prohibits the Company
from purchasing or agreeing to purchase any of its securities, at a price in
excess of fair market value, from a holder of 3% or more of any class of such
securities who has beneficially owned the securities for less than two years,
unless such purchase has been approved by a majority of the outstanding shares
of each class of voting stock issued by the Company or the Company makes an
offer of at least equal value per share to all holders of shares of such class.
The effects of this legislation may be to render more difficult a change of
control of the Company by delaying, deferring or preventing a tender offer or
takeover attempt that a shareholder might consider to be in such shareholder's
best interest, including those attempts that might result in the payment of a
premium over the market price for the shares held by such shareholder, and may
promote the continuity of the Company's management by making it more difficult
for shareholders to remove or change the incumbent members of the Board of
Directors.
REGULATION
The Company is presently a BDC and as such is regulated under the 1940 Act.
SII is presently an SBIC and as such is regulated by the SBIA and is subject to
the SBA Regulations and the 1940 Act. SII and SFC are also registered investment
companies and, therefore, subject to the provisions of the 1940 Act as modified
by certain exemptive orders received by the Company from the Commission.
As an SBIC, SII may only make loans to or investments in "small business
concerns," as defined by the SBIA and the SBA Regulations. A "small business
concern," as defined in the SBIA and the SBA Regulations is a business concern
that is independently owned and operated and which is not dominant in its field
of operation. A small business concern must either (i) have a net worth,
together with any affiliates, of $18.0 million or less and an average net income
after federal income taxes for the preceding two years of $6.0 million or less
(average net income to be computed without benefit of any carryover loss) or
(ii) satisfy alternative criteria under the SBA Regulations that focus on the
industry in which the business is engaged and the number of persons employed by
the business or its gross revenues. In addition at the end of each fiscal year,
20% of the total amount of investments made since April 8, 1994 must be made to
concerns that (i) have a net worth of not more than $6.0 million and not more
than $2.0 million in average net income after federal income taxes for the
preceding two years, or (ii) satisfy alternative industry-related size criteria.
The SBA Regulations also prohibit an SBIC from providing funds to a small
business concern for certain purposes, such as relending and investment outside
the United States.
The amount of annual interest payments SII may charge its borrowers is
limited by the SBA Regulations. Under these regulations, the maximum annual
financing costs (including interest) of loans with equity features to small
business concerns may not exceed the greater of 14% or 6 percentage points above
the "Debenture Rate." As defined in the SBA Regulations, the "Debenture Rate" is
the interest rate announced, from time to time, by the SBA on SBA debentures. As
of September 30, 1996, the maximum annual financing costs applicable to SII were
14%. The SBA Regulations also allow an SBIC to charge a processing fee of up to
3%, which fee is not included in the financing cost calculation.
The SBA restricts the ability of an SBIC to repurchase its capital stock,
to retire its debentures and to lend money to its officers, directors and
employees or invest in affiliates thereof. The SBA also prohibits,
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<PAGE> 57
without prior SBA approval, a "change of control" or transfers which would
result in any person (or group of persons acting in concert) owning 10% or more
of any class of capital stock of an SBIC. A "change of control" is any event
which would result in the transfer of the power, direct or indirect, to direct
the management and policies of an SBIC, whether through ownership, contractual
arrangements or otherwise.
The Company is a closed-end, non-diversified investment company that has
elected to be treated as a BDC and, as such, is subject to regulation under the
1940 Act. The 1940 Act contains prohibitions and restrictions relating to
transactions between investment companies and their affiliates, principal
underwriters and affiliates of those affiliate or underwriters and requires that
a majority of the directors be persons other than "interested persons," as
defined in the 1940 Act. In addition, the 1940 Act provides that the Company may
not change the nature of its business so as to cease to be, or to withdraw its
election as, a business development company unless so authorized by the vote of
a majority, as defined in the 1940 Act, of its outstanding voting securities.
The Company is permitted, under specified conditions, to issue multiple
classes of indebtedness and one class of stock senior to the shares offered
hereby if its asset coverage of any Senior Security is at least 200% immediately
after each such issuance. Debt securities issued to the SBA are not subject to
this asset coverage test. In connection with the transfer of its SBIC operations
to SII and the formation of SFC, the Company obtained certain exemptive relief
from the Commission with respect to certain provisions of the 1940 Act.
Accordingly, the Company, SII and SFC may each incur indebtedness so long as
after incurring such indebtedness the Company, individually, and the Company and
each of its investment company subsidiaries on a consolidated basis, meets the
200% asset coverage test. In addition, while Senior Securities are outstanding,
provisions must be made to prohibit any distribution to shareholders or the
repurchase of such securities or shares unless the Company meets the applicable
asset coverage ratios at the time of the distribution or repurchase. The Company
may also borrow amounts up to 5.0% of the value of its total assets for
temporary or emergency purposes.
Under the 1940 Act, a business development company may not acquire any
asset other than assets of the type listed in Section 55 (a) of the 1940 Act
("Qualifying Assets") unless, at the time the acquisition is made, Qualifying
Assets represent at least 70% of the Company's total assets. Securities issued
by Canadian small businesses will not be Qualifying Assets. However, based on
the Company's total assets at 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%
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test, the business development company must either control the issuer of the
securities or must make available to the issuer of the securities significant
managerial assistance; except that, where the company purchases such securities
in conjunction with one or more other persons acting together, one of the other
persons in the group may make available such managerial assistance. By the
making of loans to small concerns, SBICs are deemed to provide significant
managerial assistance.
SHARES ELIGIBLE FOR FUTURE SALE
No prediction may be made as to the effect, if any, that market sales of
shares or the availability of shares for sale will have on the market price of
the Common Stock prevailing from time to time. Nevertheless, sales of
substantial amounts of Common Stock of the Company in the public market after
the restrictions described below lapse could adversely affect the prevailing
market price and the ability of the Company to raise equity capital in the
future.
Upon completion of this Offering, the Company will have outstanding
15,024,080 shares of Common Stock. Of these shares, the 2,900,000 shares of
Common Stock sold in this Offering and the 8,820,000 shares sold in the
Company's prior public offerings will be freely tradeable without restriction or
limitation under the Securities Act, except to the extent such shares are
subject to the agreement with the Representatives of the Underwriters described
below, and except for any shares purchased by "affiliates," as that term is
deemed under the Securities Act, of the Company. The remaining 3,304,080 shares
are "restricted securities" within the meaning of Rule 144 adopted under the
Securities Act (the "Restricted Shares"), 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.
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UNDERWRITERS
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date of this Prospectus (the "Underwriting Agreement"), the Company
and the Selling Shareholders have agreed to sell an aggregate of 2,900,000
shares of Common Stock and the U. S. Underwriters named below, for whom Morgan
Stanley & Co. Incorporated, The Robinson-Humphrey Company, Inc., J.C. Bradford &
Co. and Equitable Securities Corporation are serving as U.S. Representatives,
have severally agreed to purchase, and the International Underwriters named
below, for whom Morgan Stanley & Co. International Limited, The
Robinson-Humphrey Company, Inc., J.C. Bradford & Co. and Equitable Securities
Corporation are serving as International Representatives, have severally agreed
to purchase, the respective number of shares of Common Stock set forth opposite
their names below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated..............................................
The Robinson-Humphrey Company, Inc. ...........................................
J.C. Bradford & Co. ...........................................................
Equitable Securities Corporation...............................................
----------
Subtotal.................................................................... 2,320,000
----------
International Underwriters:
Morgan Stanley & Co. International Limited.....................................
The Robinson-Humphrey Company, Inc. ...........................................
J.C. Bradford & Co.............................................................
Equitable Securities Corporation...............................................
----------
Subtotal.................................................................... 580,000
----------
Total.................................................................. 2,900,000
==========
</TABLE>
The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters." The Underwriting Agreement provides that the
obligations of the several Underwriters to pay for and accept delivery of the
shares of Common Stock offered hereby are subject to the approval of certain
legal matters by counsel and to certain other conditions. The Underwriters are
obligated to take and pay for all the shares of Common Stock offered hereby
(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
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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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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 $. a share below the public offering price. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $. a share
to other Underwriters or to certain dealers. After the initial offering of the
shares of Common Stock, the offering price and other selling terms may from time
to time be varied by the Underwriters.
Pursuant to the Underwriting Agreement, the Company has granted the U.S.
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to an aggregate of 435,000 additional shares of
Common Stock at the Price to Public on the cover page hereof, less Underwriting
Discounts and Commissions. The U.S. Underwriters may exercise such option to
purchase solely for the purpose of covering over-allotments, if any, made in
connection with the Offering. To the extent such option is exercised, each U.S.
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares of Common Stock as
the number set forth next to such U.S. Underwriter's name in the preceding table
bears to the total number of shares of Common Stock offered by the U.S.
Underwriters hereby.
The Company and all of its executive officers and directors have agreed
that, without the prior written consent of Morgan Stanley & Co. Incorporated on
behalf of the Underwriters, they will not (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right, or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock
(whether such shares or any such securities are now owned by such stockholder or
acquired after the date of the Prospectus), or (ii) enter into any swap or other
arrangement that transfers to another in whole or in part, any of the economic
consequences of ownership of the Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise, for a period of 90 days
after the date of this Prospectus, other than the sale to the Underwriters of
any shares of Common Stock pursuant to the Underwriting Agreements.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
The rules of the Commission generally prohibit the Underwriters from making
a market in the Common Stock during the two business day period to commencement
of sales in this Offering (the "Cooling Off Period"). The Commission has,
however, adopted Rule 10b-6A ("Rule 10b-6A") which provides an exemption from
such prohibition for certain passive market making transactions. Such passive
market making transactions must comply with applicable price and volume limits
and must be identified as passive market making transactions. In general,
pursuant to Rule 10b-6A, a passive market maker may display its bid for a
security at a price not in excess of the highest independent bid for the
security. If an independent bid is lowered below the passive market maker's bid,
however, such bid must then be lowered when certain purchase limits are
exceeded. Further, net purchases by a passive market maker on each day are
generally limited to a specified 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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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> 63
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> 64
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 22, 1997
F-2
<PAGE> 65
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> 66
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> 67
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 TOTAL
---------------- ---------- ------------ ---------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
SIRROM CAPITAL, L.P.:
BALANCE, DECEMBER 31,
1993................... $ 15,349,434 -- $ -- $ -- $ 1,673,802 $ 1,763,426 $ 18,786,662
Capital
contributions........ 8,662,178 -- -- -- -- -- 8,662,178
Purchase of ownership
in partnership....... 1,980,000 -- -- (1,980,000) -- -- --
Capital
distributions........ (593,093) -- -- -- -- -- (593,093)
Distribution of Harris
Williams earnings.... -- -- -- -- (354,087) -- (354,087)
Net increase in
partners' capital
resulting from
operations........... -- -- -- -- 3,359,338 3,356,316 6,715,654
------------ --------- ------------ ----------- ----------- ----------- ------------
BALANCE, DECEMBER 31,
1994................... 25,398,519 -- -- (1,980,000) 4,679,053 5,119,742 33,217,314
SIRROM CAPITAL
CORPORATION:
Effect of
reorganization (Note
1)................... (25,398,519) 5,948,567 25,398,519 -- -- -- --
Issuance of common
stock................ -- 4,145,000 47,712,029 -- -- -- 47,712,029
Net increase in
shareholders' equity
resulting from
operations........... -- -- -- -- 9,543,898 4,693,544 14,237,442
Payment of dividends... -- -- -- -- (3,974,079) -- (3,974,079)
Distribution of capital
gains................ -- -- -- -- (1,201,000) -- (1,201,000)
Distribution of Harris
Williams earnings.... -- -- -- -- (806,000) -- (806,000)
Designation of
undistributed capital
gains, net of tax
(Note 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 89,185,706
Issuance of common
stock................ -- 2,300,000 59,223,301 -- -- -- 59,223,301
Stock options
exercised............ -- 15,000 224,375 -- -- -- 224,375
Employee shares
repurchased.......... -- (65,000) (809,645) -- -- -- (809,645)
Payment on notes
receivable........... -- -- -- 440,142 -- -- 440,142
Net increase in
shareholders' equity
resulting from
operations........... -- -- -- -- 22,315,548 2,580,047 24,895,595
Payment of dividends... -- -- -- -- (10,976,390) (10,976,390)
Distribution of capital
gains................ -- -- -- -- (577,200) -- (577,200)
Distribution of Harris
Williams earnings.... -- -- -- -- (2,985,369) -- (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 $158,620,515
============ ========= ============ =========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 68
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> 69
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, YEAR ENDED
PER SHARE DATA(1) 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> 70
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> 71
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> 72
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> 73
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> 74
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> 75
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> 76
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> 77
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> 78
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.
F-16
<PAGE> 79
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> 80
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> 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>
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> 82
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> 83
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> 84
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> 85
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> 86
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> 87
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> 88
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............................. 10/31/97 445,500 12.70 449,250
BiTec Southeast, Inc............................. 11/30/98 1,188,000 12.70 1,195,400
BiTec Southeast, Inc............................. 10/31/97 445,500 12.70 448,200
BiTec Southeast, Inc............................. 8/1/99 521,321 12.70 521,321
BiTec Southeast, Inc............................. 8/9/01 950,000 14.00 950,000
C.J. Spirits, Inc................................ 5/1/97 750,171 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
</TABLE>
F-26
<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>
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
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
</TABLE>
F-27
<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>
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
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
</TABLE>
F-28
<PAGE> 91
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>
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.................................. 12/17/01 520,000 13.00 520,000
NRI Service and Supply L.P....................... 2/13/00 2,225,000 14.00 2,234,591
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........................ 5/1/97 990,000 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
</TABLE>
F-29
<PAGE> 92
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>
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
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> 93
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(A)
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 -- locked up............... 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> 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>
PUBLICLY TRADED COMPANIES (A)
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........................ 225 17.14 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............................... 358 1.35 10,000 125,000
CF Data Corp................................ 257 20.50 17,500 17,500
Champion Glove Manufacturing Co., Inc....... 538,614 6.88 0 0
Clearidge, Inc.............................. 449,039 9.32 0 0
CLS Corporation............................. 126,997 4.22 0 0
Colonial Investments, Inc................... 194 18.00 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..................... 524,094 7.36 711,335 1,205,000
</TABLE>
F-32
<PAGE> 95
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............ 390,000 31.50 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...... 271 21.00 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> 96
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
<PAGE> 97
PART C
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
1. FINANCIAL STATEMENTS.
SIRROM CAPITAL CORPORATION
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1995 and 1996
Consolidated Statements of Operations for the Years Ended December 31,
1994, 1995 and 1996
Consolidated Statements of Changes in Partners' Capital and Shareholders'
Equity for the Years Ended December 31, 1994, 1995 and 1996
Consolidated Statements of Cash Flows for the Years Ended December 31,
1994, 1995 and 1996
Financial Highlights
Per Share Data for the Years Ended December 31, 1995 and 1996
Ratios/Supplemental Data for the Years Ended December 31, 1993, 1994,
1995 and 1996
Notes to Consolidated Financial Statements
Quarterly Financial Information for the Years 1995 and 1996 (unaudited)
Portfolio of Investments
As of December 31, 1995
As of December 31, 1996
2. EXHIBITS.
<TABLE>
<C> <S> <C>
a. -- Amended and Restated Charter of the Company (incorporated by reference to Exhibit
3.1 to the Registrant's Quarterly Report on Form 10-Q for the period ending
September 30, 1996), filed with the Commission on November 14, 1996)
b.1 -- Bylaws of the Company (incorporated by reference to exhibit b. contained in the
Registrant's Registration Statement on Form N-2, as amended (File No. 33-86680),
filed with the Commission on November 23, 1994)
b.2 -- Amendment No. 1 to Bylaws (incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q for the period ended March 30, 1995 filed with the Commission
on May 12, 1995)
d.1 -- Specimen form of Common Stock Certificate (incorporated by reference to the
corresponding exhibit contained in the Registrant's Registration Statement on Form
N-2, as amended (File No. 33-86680), filed with the Commission on November 23,
1994)
d.2 -- Instruments defining rights of holders of securities: See Paragraph 6 of the
Company's Amended and Restated Charter (incorporated by reference to Exhibit 3.1 to
the Registrant's Quarterly Report on Form 10-Q for the period ending September 30,
1996, filed with the Commission on November 14, 1996)
d.3 -- Equity Holders Agreement dated as of November 1, 1994 by and among the Partnership
and the other signatories thereto (incorporated by reference to the corresponding
exhibit contained in the Registrant's Registration Statement on Form N-2, as
amended (File No. 33-86680), filed with the Commission on November 23, 1994)
d.4 -- Registration Rights Agreement dated February 1, 1995 (incorporated by reference to
the corresponding exhibit contained in the Registrant's Registration Statement on
Form N-2, as amended (File No. 33-86680), filed with the Commission on November 23,
1994)
e. -- Dividend Reinvestment Plan of the Company (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the period ended March 30, 1995
filed with the Commission on May 12, 1995)
</TABLE>
C-1
<PAGE> 98
<TABLE>
<C> <S> <C>
f.1 -- Fourth Amended and Restated Loan Agreement dated as of August 16, 1996, by and
among SII, as borrower, the Company, as guarantor, the lenders referred to herein,
and First Union National Bank of Tennessee, as Agent (incorporated by reference to
Exhibit 7.1 to SII's Post- Effective Amendment No. 1 to Registration Statement on
Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996)
f.2 -- Fourth Amended and Restated Revolving Credit Note dated August 16, 1996, in the
principal amount of $27,500,000, made by SII in favor of First Union National Bank
of Tennessee (incorporated by reference to Exhibit 7.2 to SII's Post-Effective
Amendment No. 1 to Registration Statement on Form N-5 (File No. 811-7779), filed
with the Commission on November 7, 1996)
f.3 -- Revolving Credit Note dated August 16, 1996, in the principal amount of
$10,000,000, made by SII in favor of Amsouth Bank of Tennessee (incorporated by
reference to Exhibit 7.3 to SII's Post-Effective Amendment No. 1 to Registration
Statement on Form N-5 (File No. 811-7779), filed with the Commission on November 7,
1996)
f.4 -- Revolving Credit Note dated August 16, 1996, in the principal amount of $7,500,000,
made by SII in favor of First American National Bank (incorporated by reference to
Exhibit 7.4 to SII's Post-Effective Amendment No. 1 to Registration Statement on
Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996)
f.5 -- Amended and Restated Swingline Note dated August 16, 1996, in the principal amount
of $5,000,000, made by SII in favor of First Union National Bank of Tennessee
(incorporated by reference to Exhibit 7.5 to SII's Post-Effective Amendment No. 1
to Registration Statement on Form N-5 (File No. 811-7779), filed with the
Commission on November 7, 1996)
f.6 -- Fourth Amended and Restated Revolving Credit Note dated August 16, 1996, in the
principal amount of $5,000,000, made by SII in favor of First Tennessee Bank
National Association (incorporated by reference to Exhibit 7.6 to SII's
Post-Effective Amendment No. 1 to Registration Statement on Form N-5 (File No.
811-7779), filed with the Commission on November 7, 1996)
f.7 -- Third Amended and Restated Security Agreement dated August 16, 1996, by and between
SII and First Union National Bank of Tennessee (incorporated by reference to
Exhibit 7.7 to SII's Post-Effective Amendment No. 1 to Registration Statement on
Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996)
f.8 -- Amended and Restated Borrower Pledge Agreement dated August 16, 1996, made by SII
in favor of First Union National Bank of Tennessee (incorporated by reference to
Exhibit 7.8 to SII's Post-Effective Amendment No. 1 to Registration Statement on
Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996)
f.9 -- Amended and Restated Security Agreement dated as of August 16, 1996, by and between
SII and the SBA (incorporated by reference to Exhibit 7.10 to SII's Post-Effective
Amendment No. 1 to Registration Statement on Form N-5 (File No. 811-7779), filed
with the Commission on November 7, 1996)
f.10 -- Amended and Restated Pledge Agreement dated as of August 16, 1996, by and between
SII and the SBA (incorporated by reference to Exhibit 7.11 to SII's Post-Effective
Amendment No. 1 to Registration Statement on Form N-5 (File No. 811-7779), filed
with the Commission on November 7, 1996)
f.11 -- Guaranty Agreement dated August 16, 1996 by and between the Company and the SBA
(incorporated by reference to the Company's Quarterly Report on Form 10-Q for the
period ending September 30, 1996, filed with the Commission on November 14, 1996)
*f.12 -- Master Trust Indenture and Security Agreement Supplement dated as of December 31,
1996, by and between SFC as Issuer, the Company as Servicer, First Trust National
Association as Trustee and ING Baring (U.S.) Capital Markets, Inc.
f.13 -- Revolving Note, Series 1996-1 dated December 31, 1996, with a principal amount of
$100,000,000 made by SFC in favor of First Trust National Association
*f.14 -- Loan Sale and Contribution Agreement dated as of December 31, 1996, by and between
the Company as Originator and Servicer and SFC as Buyer
*f.15 -- Custodial Agreement dated as of December 31, 1996, by and among SFC, the Company,
First Trust National Association and ING Baring (U.S.) Capital Markets, Inc.
*f.16 -- Backup Servicing Agreement dated as of December 31, 1996, by and among First Trust
National Association, the Company and ING Baring (U.S.) Capital Markets, Inc.
</TABLE>
C-2
<PAGE> 99
<TABLE>
<C> <S> <C>
*f.17 -- Fee Agreement dated as of December 31, 1996, by and among the Company, SFC, and ING
Baring (U.S.) Capital Markets, Inc.
*f.18 -- ISDA Master Agreement dated as of November 26, 1996, by and between the Company and
NationsBank, N.A.
*f.19 -- Master Trust Indenture and Security Agreement dated as of December 31, 1996, by and
among SFC as Issuer, the Company as Servicer and First Trust National Association
as Trustee (previously filed as Exhibit k.3 to this Registration Statement)
h.1 -- Form of Underwriting Agreement
h.2 -- Form of Agreement among International Underwriters
h.3 -- Form of Agreement between U.S. and International Underwriters
h.4 -- Form of International Dealer Agreement
i.1 -- Amended and Restated 1994 Employee Stock Option Plan of the Company (incorporated
by reference to the corresponding exhibit contained in the Registrant's
Registration Statement on Form N-2, as amended (File No. 33-86680), filed with the
Commission on November 23, 1994)
i.2 -- Form of Indemnification Agreement (incorporated by reference to the corresponding
exhibit contained in the Registrant's Registration Statement on Form N-2, as
amended (File No. 33-86680), filed with the Commission on November 23, 1994)
i.3 -- 1995 Stock Option Plan for Non-Employee Directors (incorporated by reference to the
corresponding exhibit in the Registrant's Registration Statement on Form N-2, as
amended (File No. 33-95394), filed with the Commission on August 3, 1995)
i.4 -- 1996 Incentive Stock Option (incorporated by reference to Exhibit 10.3 in the
Registrant's Financial Report on Form 10-K for the year ended December 31, 1995,
filed with the Commission on March 29, 1996)
j.1 -- Custodial Services Agreement with First American Trust Company dated March 13, 1992
(incorporated by reference to the corresponding exhibit contained in the
Registrant's Registration Statement on Form N-2, as amended (File No. 33-86680),
filed with the Commission on November 23, 1994)
j.2 -- Custodial Services Agreement Supplement with First American Trust Company dated
January 16, 1995 (incorporated by reference to the corresponding exhibit contained
in the Registrant's Registration Statement on Form N-2, as amended (File No.
33-86680), filed with the Commission on November 23, 1994)
k.1 -- ISDA Master Agreement dated as of September 13, 1995, by and between the Company
and First Union National Bank (incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the period ending September 30, 1995 filed with the
Commission on November 15, 1995)
k.2 -- Acquisition Agreement by and among the Company, Sirrom Capital Acquisition
Corporation, Sirrom, Ltd., Harris Williams & Co., L.P. and Harris Williams & Co.
dated as of May 16, 1996 (incorporated by reference to Exhibit k.9 to the Company's
Registration Statement on Form N-2 (File No. 333-4023), filed with the Commission
on May 17, 1996)
k.3 -- Joint Venture Agreement dated as of January 17, 1997 by and among the Company, TD
and SCC Canada, Inc.
l. -- Opinion of Bass, Berry & Sims PLC
n.1 -- Consent of Arthur Andersen LLP
n.2 -- Consent of Bass, Berry & Sims PLC (included in Exhibit 1)
*r. -- Financial Data Schedule (for SEC use only)
</TABLE>
- ---------------
* Previously filed as an exhibit to this Registration Statement.
(c) Not applicable
ITEM 25. MARKETING ARRANGEMENTS
The information contained under the heading "Underwriters" on pages 57
through 60 of the Prospectus is incorporated herein by this reference.
In connection with this Offering, the Underwriters may over-allot or effect
transactions which stabilize or maintain the market price of the Common Stock at
a level above that which might otherwise prevail in the open market. Such
stabilizing, if commenced, may be discontinued at any time.
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<PAGE> 100
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC registration fee.............................................................. $ 35,000
NASD fee.......................................................................... $ 12,000*
Nasdaq additional listing fee..................................................... $ 17,500
Accounting fees and expenses...................................................... $125,000*
Legal fees and expenses........................................................... $135,000*
Printing and engraving............................................................ $225,000*
Miscellaneous fees and expenses................................................... $ 45,500*
--------
Total................................................................... $595,000*
========
</TABLE>
- ---------------
*Estimated for filing purposes.
All of the expenses set forth above shall be borne by the Company.
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL.
Sirrom Investments, Inc., a Tennessee corporation, is a wholly-owned
subsidiary of the Company. Harris Williams & Co., a Virginia corporation, is a
wholly-owned subsidiary of the Company. Sirrom Funding Corporation, a Delaware
corporation, is a wholly-owned subsidiary of the Company. Tandem Capital, Inc.,
a Tennessee corporation, is a wholly-owned subsidiary of the Company. SCCGS,
Inc., a Tennessee corporation, is a wholly-owned subsidiary of the Company.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES.
The following table sets forth the number of record holders of the
Company's Common Stock as of December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
- ------------------------------------------------------------------------------- --------------
<S> <C>
Common Stock, no par value..................................................... 169
</TABLE>
ITEM 29. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Tennessee Business Corporation Act ("TBCA") provides that a corporation
may indemnify any of its directors and officers against liability incurred in
connection with a proceeding if (i) such person acted in good faith; (ii) in the
case of conduct in an official capacity, the director or officer reasonably
believed such conduct was in the corporation's best interests; (iii) in all
other cases, the director or officer reasonably believed that his conduct was
not opposed to the best interests of the corporation; and (iv) in connection
with any criminal proceeding, the director or officer had no reasonable cause to
believe his conduct was unlawful. In actions brought by or in the right of the
corporation, however, the TBCA provides that no indemnification may be made if
the director or officer was adjudged liable to the corporation. The TBCA also
provides that in connection with any proceeding charging improper personal
benefit to an officer or director, no indemnification may be made if such
officer or director is adjudged liable on the basis that such personal benefit
was improperly received. In cases where the director or officer is wholly
successful, on the merits or otherwise, in the defense of any proceeding
instigated because of his status as an officer or director of a corporation, the
TBCA mandates that the corporation indemnify the director or officer against
reasonable expenses incurred in the proceeding. Notwithstanding the foregoing,
the TBCA provides that a court of competent jurisdiction, upon application, may
order that an officer or director be indemnified for reasonable expenses if, in
consideration of all relevant circumstances, the court determines that such
individual is fairly and reasonably entitled to indemnification, notwithstanding
the fact that (i) he was adjudged liable to the corporation in a proceeding by
or in right of the corporation; (ii) he was adjudged liable on the basis that a
personal benefit was improperly received by him; or (iii) he breached his duty
of care to the corporation.
The Company's Charter provides that to the fullest extent permitted by
Tennessee law, no director shall be personally liable to the Company or its
shareholders for monetary damages for breach of any fiduciary duty
C-4
<PAGE> 101
as a director. Under the TBCA, this charter provision relieves the Company's
directors from personal liability to the Company or its shareholders for
monetary damages for breach of fiduciary duty as a director, except for
liability arising from a judgment or other final adjudication establishing (i) a
breach of the director's duty of loyalty, (ii) acts or omissions not in good
faith or involving intentional misconduct or a knowing violation of law, (iii)
unlawful distributions; or (iv) receipt of an improper personal benefit. In
addition, the Company's Bylaws provide that each director or officer of the
Company shall be indemnified by the Company to the fullest extent allowed by
Tennessee law.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR.
Not applicable.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS.
The Company maintains at its principal office physical possession of each
account, book or other document required to be maintained by Section 31(a) of
the 1940 Act.
ITEM 32. MANAGEMENT SERVICES.
Not applicable.
ITEM 33. UNDERTAKINGS.
The Registrant hereby undertakes:
(a) to suspend the offering of shares until the Prospectus is amended
if subsequent to the effective date of this Registration Statement, its net
asset value declines more than ten percent from its net asset value as of
the effective date of this Registration Statement.
(b) that, for the purpose of determining any liability under the
Securities Act of 1933, the information omitted from the form of Prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of Prospectus filed by the Registrant under Rule 497(h)
under the Securities Act of 1933 shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(c) that, for the purpose of determining any liability under the
Securities Act of 1933, each post effective amendment that contains a form
of Prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of the securities at
that time shall be deemed to be the initial bona fide offering thereof.
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
Insofar as indemnification for liability arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions of its Charter and Bylaws permitting
indemnification, or otherwise, the registrant has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
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<PAGE> 102
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Nashville, and State of Tennessee, on
the 22nd day of January, 1997.
Sirrom Capital Corporation
By: /s/ GEORGE M. MILLER, II
------------------------------------
George M. Miller, II
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- --------------------------------------------- ----------------------------- -----------------
<C> <S> <C>
* Chairman of the Board and January 22, 1997
- --------------------------------------------- Director
John A. Morris, Jr., M.D.
/s/ GEORGE M. MILLER, II Chief Executive Officer, January 22, 1997
- --------------------------------------------- President and Director
George M. Miller, II (Principal Executive
Officer)
* Chief Financial Officer January 22, 1997
- --------------------------------------------- (Principal Financial and
Carl W. Stratton Accounting Officer)
* Director January 22, 1997
- ---------------------------------------------
E. Townes Duncan
* Director January 22, 1997
- ---------------------------------------------
William D. Eberle
* Director January 22, 1997
- ---------------------------------------------
Edward J. Mathias
* Director January 22, 1997
- ---------------------------------------------
Robert A. McCabe, Jr.
* Director January 22, 1997
- ---------------------------------------------
Raymond H. Pirtle, Jr.
* Director January 22, 1997
- ---------------------------------------------
L. Edward Wilson
*By: /s/ GEORGE M. MILLER, II
- ---------------------------------------------
George M. Miller, II
Attorney-in-Fact
</TABLE>
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<PAGE> 103
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
<C> <S> <C>
a. -- Amended and Restated Charter of the Company (incorporated by reference to Exhibit
3.1 to the Registrant's Quarterly Report on Form 10-Q for the period ending
September 30, 1996), filed with the Commission on November 14, 1996)
b.1 -- Bylaws of the Company (incorporated by reference to exhibit b. contained in the
Registrant's Registration Statement on Form N-2, as amended (File No. 33-86680),
filed with the Commission on November 23, 1994)
b.2 -- Amendment No. 1 to Bylaws (incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q for the period ended March 30, 1995 filed with the Commission
on May 12, 1995)
d.1 -- Specimen form of Common Stock Certificate (incorporated by reference to the
corresponding exhibit contained in the Registrant's Registration Statement on Form
N-2, as amended (File No. 33-86680), filed with the Commission on November 23,
1994)
d.2 -- Instruments defining rights of holders of securities: See Paragraph 6 of the
Company's Amended and Restated Charter (incorporated by reference to Exhibit 3.1 to
the Registrant's Quarterly Report on Form 10-Q for the period ending September 30,
1996, filed with the Commission on November 14, 1996)
d.3 -- Equity Holders Agreement dated as of November 1, 1994 by and among the Partnership
and the other signatories thereto (incorporated by reference to the corresponding
exhibit contained in the Registrant's Registration Statement on Form N-2, as
amended (File No. 33-86680), filed with the Commission on November 23, 1994)
d.4 -- Registration Rights Agreement dated February 1, 1995 (incorporated by reference to
the corresponding exhibit contained in the Registrant's Registration Statement on
Form N-2, as amended (File No. 33-86680), filed with the Commission on November 23,
1994)
e. -- Dividend Reinvestment Plan of the Company (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the period ended March 30, 1995
filed with the Commission on May 12, 1995)
f.1 -- Fourth Amended and Restated Loan Agreement dated as of August 16, 1996, by and
among SII, as borrower, the Company, as guarantor, the lenders referred to herein,
and First Union National Bank of Tennessee, as Agent (incorporated by reference to
Exhibit 7.1 to SII's Post-Effective Amendment No. 1 to Registration Statement on
Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996)
f.2 -- Fourth Amended and Restated Revolving Credit Note dated August 16, 1996, in the
principal amount of $27,500,000, made by SII in favor of First Union National Bank
of Tennessee (incorporated by reference to Exhibit 7.2 to SII's Post-Effective
Amendment No. 1 to Registration Statement on Form N-5 (File No. 811-7779), filed
with the Commission on November 7, 1996)
f.3 -- Revolving Credit Note dated August 16, 1996, in the principal amount of
$10,000,000, made by SII in favor of Amsouth Bank of Tennessee (incorporated by
reference to Exhibit 7.3 to SII's Post-Effective Amendment No. 1 to Registration
Statement on Form N-5 (File No. 811-7779), filed with the Commission on November 7,
1996)
f.4 -- Revolving Credit Note dated August 16, 1996, in the principal amount of $7,500,000,
made by SII in favor of First American National Bank (incorporated by reference to
Exhibit 7.4 to SII's Post-Effective Amendment No. 1 to Registration Statement on
Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996)
f.5 -- Amended and Restated Swingline Note dated August 16, 1996, in the principal amount
of $5,000,000, made by SII in favor of First Union National Bank of Tennessee
(incorporated by reference to Exhibit 7.5 to SII's Post-Effective Amendment No. 1
to Registration Statement on Form N-5 (File No. 811-7779), filed with the
Commission on November 7, 1996)
</TABLE>
<PAGE> 104
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
<C> <S> <C>
f.6 -- Fourth Amended and Restated Revolving Credit Note dated August 16, 1996, in the
principal amount of $5,000,000, made by SII in favor of First Tennessee Bank
National Association (incorporated by reference to Exhibit 7.6 to SII's
Post-Effective Amendment No. 1 to Registration Statement on Form N-5 (File No.
811-7779), filed with the Commission on November 7, 1996)
f.7 -- Third Amended and Restated Security Agreement dated August 16, 1996, by and between
SII and First Union National Bank of Tennessee (incorporated by reference to
Exhibit 7.7 to SII's Post-Effective Amendment No. 1 to Registration Statement on
Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996)
f.8 -- Amended and Restated Borrower Pledge Agreement dated August 16, 1996, made by SII
in favor of First Union National Bank of Tennessee (incorporated by reference to
Exhibit 7.8 to SII's Post-Effective Amendment No. 1 to Registration Statement on
Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996)
f.9 -- Amended and Restated Security Agreement dated as of August 16, 1996, by and between
SII and the SBA (incorporated by reference to Exhibit 7.10 to SII's Post-Effective
Amendment No. 1 to Registration Statement on Form N-5 (File No. 811-7779), filed
with the Commission on November 7, 1996)
f.10 -- Amended and Restated Pledge Agreement dated as of August 16, 1996, by and between
SII and the SBA (incorporated by reference to Exhibit 7.11 to SII's Post-Effective
Amendment No. 1 to Registration Statement on Form N-5 (File No. 811-7779), filed
with the Commission on November 7, 1996)
f.11 -- Guaranty Agreement dated August 16, 1996 by and between the Company and the SBA
(incorporated by reference to the Company's Quarterly Report on Form 10-Q for the
period ending September 30, 1996, filed with the Commission on November 14, 1996)
*f.12 -- Master Trust Indenture and Security Agreement Supplement dated as of December 31,
1996, by and between SFC as Issuer, the Company as Servicer, First Trust National
Association as Trustee and ING Baring (U.S.) Capital Markets, Inc.
f.13 -- Revolving Note, Series 1996-1 dated December 31, 1996, with a principal amount of
$100,000,000 made by SFC in favor of First Trust National Association
*f.14 -- Loan Sale and Contribution Agreement dated as of December 31, 1996, by and between
the Company as Originator and Servicer and SFC as Buyer
*f.15 -- Custodial Agreement dated as of December 31, 1996, by and among SFC, the Company,
First Trust National Association and ING Baring (U.S.) Capital Markets, Inc.
*f.16 -- Backup Servicing Agreement dated as of December 31, 1996, by and among First Trust
National Association, the Company and ING Baring (U.S.) Capital Markets, Inc.
*f.17 -- Fee Agreement dated as of December 31, 1996, by and among the Company, SFC, and ING
Baring (U.S.) Capital Markets, Inc.
*f.18 -- ISDA Master Agreement dated as of November 26, 1996, by and between the Company and
NationsBank, N.A.
*f.19 -- Master Trust Indenture and Security Agreement dated as of December 31, 1996, by and
among SFC as Issuer, the Company as Servicer and First Trust National Association
as Trustee (previously filed as Exhibit k.3 to this Registration Statement)
h.1 -- Form of Underwriting Agreement
h.2 -- Form of Agreement among International Underwriters
h.3 -- Form of Agreement between U.S. and International Underwriters
h.4 -- Form of International Dealer Agreement
i.1 -- Amended and Restated 1994 Employee Stock Option Plan of the Company (incorporated
by reference to the corresponding exhibit contained in the Registrant's
Registration Statement on Form N-2, as amended (File No. 33-86680), filed with the
Commission on November 23, 1994)
</TABLE>
<PAGE> 105
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
<C> <S> <C>
i.2 -- Form of Indemnification Agreement (incorporated by reference to the corresponding
exhibit contained in the Registrant's Registration Statement on Form N-2, as
amended (File No. 33- 86680), filed with the Commission on November 23, 1994)
i.3 -- 1995 Stock Option Plan for Non-Employee Directors (incorporated by reference to the
corresponding exhibit in the Registrant's Registration Statement on Form N-2, as
amended (File No. 33-95394), filed with the Commission on August 3, 1995)
i.4 -- 1996 Incentive Stock Option (incorporated by reference to Exhibit 10.3 in the
Registrant's Financial Report on Form 10-K for the year ended December 31, 1995,
filed with the Commission on March 29, 1996)
j.1 -- Custodial Services Agreement with First American Trust Company dated March 13, 1992
(incorporated by reference to the corresponding exhibit contained in the
Registrant's Registration Statement on Form N-2, as amended (File No. 33-86680),
filed with the Commission on November 23, 1994)
j.2 -- Custodial Services Agreement Supplement with First American Trust Company dated
January 16, 1995 (incorporated by reference to the corresponding exhibit contained
in the Registrant's Registration Statement on Form N-2, as amended (File No.
33-86680), filed with the Commission on November 23, 1994)
k.1 -- ISDA Master Agreement dated as of September 13, 1995, by and between the Company
and First Union National Bank (incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the period ending September 30, 1995 filed with the
Commission on November 15, 1995)
k.2 -- Acquisition Agreement by and among the Company, Sirrom Capital Acquisition
Corporation, Sirrom, Ltd., Harris Williams & Co., L.P. and Harris Williams & Co.
dated as of May 16, 1996 (incorporated by reference to Exhibit k.9 to the Company's
Registration Statement on Form N-2 (File No. 333-4023), filed with the Commission
on May 17, 1996)
k.3 -- Joint Venture Agreement dated as of January 17, 1997 by and among the Company, TD
and SCC Canada, Inc.
l. -- Opinion of Bass, Berry & Sims PLC
n.1 -- Consent of Arthur Andersen LLP
n.2 -- Consent of Bass, Berry & Sims PLC (included in Exhibit 1)
r. -- Financial Data Schedule (for SEC use only)
</TABLE>
- ---------------
* Previously filed as an exhibit to this Registration Statement
(c) Not applicable
<PAGE> 1
EXHIBIT F.13
THE ISSUER MAKES NO REPRESENTATION HEREUNDER THAT AN INVESTMENT IN THIS
NOTE MEETS THE RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENTS BY ANY
PARTICULAR "EMPLOYEE BENEFIT PLAN" (AS DEFINED IN THE EMPLOYEE RETIREMENT INCOME
SECURITY ACT OF 1974, AS AMENDED ("ERISA")) OR "PLAN" (AS DEFINED IN THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE")) (SUCH "EMPLOYEE BENEFIT
PLAN" OR "PLAN" BEING REFERRED TO HEREIN AS A "PLAN") OR THAT SUCH INVESTMENT IS
APPROPRIATE FOR ANY PARTICULAR PLAN. EACH PLAN THAT PURCHASES THIS NOTE WILL BE
DEEMED TO REPRESENT AND WARRANT THAT THE ACQUISITION AND HOLDING OF THIS NOTE
WILL NOT RESULT IN A NON-EXEMPT PROHIBITED TRANSACTION UNDER ERISA OR THE CODE
THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE SECURITIES OR BLUE
SKY LAWS OF ANY STATE OF THE UNITED STATES OF AMERICA. THE HOLDER HEREOF, BY
PURCHASING THIS NOTE, AGREES THAT THIS NOTE MAY BE OFFERED, RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER
APPLICABLE LAWS AND ONLY IF (I) SUCH SALE IS TO A PERSON THAT SUCH HOLDER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER THAT PURCHASES FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF ANOTHER PERSON THAT IS A QUALIFIED
INSTITUTIONAL BUYER, WHICH PERSON IS AWARE THAT THE PROPOSED SALE IS BEING MADE
IN RELIANCE ON RULE 144A AND TO WHOM SUCH SALE IS BEING MADE PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF APPLICABLE STATE
SECURITIES LAWS, AND, PRIOR TO THE PROPOSED SALE, SUCH TRANSFERRING HOLDER HAS
EXECUTED AND DELIVERED TO THE TRUSTEE AND THE ISSUER AN INVESTOR LETTER IN THE
FORM OF EXHIBIT B-1 TO THE SUPPLEMENT REFERRED TO BELOW, OR (II) THE TRANSFEREE
TO WHOM SUCH SALE IS BEING MADE IS A SOPHISTICATED INSTITUTIONAL INVESTOR THAT
IS AN ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, AND TO WHOM SUCH SALE IS BEING MADE PURSUANT
TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF APPLICABLE STATE
SECURITIES LAWS, AND, PRIOR TO THE PROPOSED SALE, SUCH TRANSFERRING HOLDER HAS
EXECUTED AND DELIVERED TO THE TRUSTEE AND THE ISSUER AN INVESTOR LETTER IN THE
FORM OF EXHIBIT B-2 TO THE SUPPLEMENT REFERRED TO BELOW, AND IN EACH CASE IN
ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE UNITED STATES OF AMERICA
OR OTHER APPLICABLE JURISDICTION AND SECURITIES AND BLUE SKY LAWS OF THE STATES
OF THE UNITED STATES OF AMERICA. THE HOLDER OF THIS NOTE AGREES THAT IT WILL,
AND EACH SUBSEQUENT NOTEHOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS NOTE
OF THE RESALE RESTRICTIONS REFERRED TO ABOVE.
<PAGE> 2
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT AND MAY NOT
BE OFFERED OR SOLD IN CONTRAVENTION OF THAT ACT. THIS NOTE WILL NOT BE ACCEPTED
FOR REGISTRATION OF TRANSFER EXCEPT UPON PRESENTATION OF EVIDENCE SATISFACTORY
TO THE TRUSTEE (AS DEFINED IN THE INDENTURE) THAT THE RESTRICTIONS ON TRANSFER
SET FORTH IN THE INDENTURE HAVE BEEN COMPLIED WITH.
Definitive Note
Sirrom Funding Corporation
Revolving Note, Series 1996-1
Stated Amount: $100,000,000
Sirrom Funding Corporation, a corporation duly organized and existing
under the laws of Delaware (herein called the "Issuer", which term includes
any successor corporation under the Indenture hereinafter referred to), for
value received, hereby promises to pay to the order of HOLLAND LIMITED
SECURITIZATION, INC. or its registered assigns (the "Holder"), on the "Stated
Maturity Date" (as defined in the "Supplement" referred to below), the principal
amount of ONE HUNDRED MILLION & NO/100 DOLLARS ($100,000,000), or, if less, the
aggregate unpaid principal amount of all Advances made by the Holder from time
to time, and to pay interest on the outstanding principal balance hereof as set
forth in the Indenture and the Supplement.
This Revolving Note is one of a duly authorized issue of securities of
the Issuer designated as its "Revolving Notes, Series 1996-1" (herein called
the "Notes"), issued pursuant to (a) that certain Master Trust Indenture and
Security Agreement dated as of December 31, 1996 (as amended, restated,
supplemented or otherwise modified from time to time, the "Indenture"), among
the Issuer, as issuer, Sirrom Capital Corporation, a Tennessee corporation, as
servicer (this "Servicer", which term includes any successor Servicer under the
Indenture), and First Trust National Association, as trustee (the "Trustee",
which term includes any successor Trustee under the Indenture), and (b) that
certain Series 1996-1 Supplement dated as of December 31, 1996 (as amended,
restated, supplemented or otherwise modified from time to time, the
"Supplement") among the Issuer, as issuer, the Servicer, as servicer, and the
Trustee, as trustee. Reference is hereby made to the Indenture and the
Supplement for a
-2-
<PAGE> 3
statement of the respective rights, limitations of rights, duties and
immunities thereunder of the Issuer, the Servicer, the Trustee and each of the
Series 1996-1 Noteholders and of the terms upon which the Notes are, and are to
be, authenticated and delivered. All terms used in this Note which are not
defined herein shall have the meanings assigned to them in the Indenture and
Supplement.
The Holder hereof shall and is hereby authorized to record on the grid
attached to this Note (or at such Holder's option, in its internal books and
records) the date and amount of each Advance made by it, the amount of each
repayment of the principal amount represented by this Note and any reductions
to the Stated Amount of this Note made pursuant to Section 6.08 of the
Supplement; provided however, that failure to make any such recordation on the
grid or records or any error in the grid or records shall not adversely affect
the Holder's rights to receive all payments of principal and interest with
respect to the Advances evidenced hereby.
Payment of the principal of (and premium, if any) and interest on this
Note will be made in accordance with the Indenture.
Unless the certificate of authentication hereon has been executed by
the Trustee or any authenticating agent designated by it by manual signature,
this Note shall not be entitled to any benefit under the Indenture or be valid
or obligatory for any purpose.
As provided in the Indenture, the Notes are secured by the
Pledged Assets. The Trustee shall be entitled to the benefits of a perfected,
first priority security interest in the Pledged Assets, subject only to
permitted Liens, for the benefit of each holder accepting a Note.
The Indenture and the Supplement may be amended and the rights and
obligations of the parties thereto and of the Holder of this Note may be
modified as set forth in the Indenture and the Supplement.
This Note is subject to prepayment and/or redemption, prior to the
Stated Maturity Date as set forth in the Indenture and the Supplement.
The Indenture contains provisions for satisfaction and discharge of the
Indenture upon compliance by the Issuer with
-3-
<PAGE> 4
certain conditions set forth therein, which provisions apply to this Note.
This Note represents a limited recourse obligation of the Issuer and
the Holder's sole recourse for payment of amounts owed hereunder will be to its
allocable share of the Pledged Assets as described in the Indenture and the
Supplement. This Note is non-recourse to the Issuer's assets other than such
Holder's allocable share of the Pledged Assets and is non-recourse to the
Servicer and any of the Issuer's Affiliates. To the extent that amounts owing
under this Note cannot be satisfied out of such Holder's allocable share, the
Holder shall have no Claim against the Issuer for such deficiency.
The Notes are issuable only in denominations of $250,000 or in integral
multiples of $100,000 in excess thereof.
Prior to due presentment of this Note for registration of transfer, the
Issuer, the Servicer, the Trustee or any agent of any of them may treat the
Person in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note is overdue, and neither the Issuer, the
Servicer, the Trustee nor any such agent shall be affected by notice to the
contrary.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO CONFLICT OF LAWS PRINCIPLES
EXCEPT AS CONTEMPLATED IN SECTION 5-104 OF THE GENERAL OBLIGATIONS LAW OF THE
STATE OF NEW YORK, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed under its corporate seal.
Dated: December 31, 1996 SIRROM FUNDING CORPORATION
By: /s/ Carl W. Stratton
--------------------
Title: C.F.O.
-4-
<PAGE> 1
EXHIBIT h.1
2,900,000 Shares
Sirrom Capital Corporation
Shares of Common Stock, No Par Value Per Share
UNDERWRITING AGREEMENT
January __, 1997
<PAGE> 2
January __, 1997
Morgan Stanley & Co. Incorporated
The Robinson-Humphrey Company, Inc.
J.C. Bradford & Co.
Equitable Securities Corporation
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
Sirrom Capital Corporation, a Tennessee corporation (the
"Company"), proposes to issue and sell to the several Underwriters (as defined
below) named in Schedules II and III hereto, and certain shareholders of the
Company (the "Selling Shareholders") named in Schedule I hereto severally
propose to sell to the several Underwriters, an aggregate of 2,900,000 shares
of the Common Stock, no par value per share, of the Company (the "Firm
Shares"), of which 2,680,513 shares are to be issued and sold by the Company
and 219,487 shares are to be sold by the Selling Shareholders, each Selling
Shareholder selling the amount set forth opposite such Selling Shareholder's
name in Schedule I hereto.
It is understood that, subject to the conditions hereinafter
stated, 2,320,000 Firm Shares (the "U.S. Firm Shares") will be sold to the
several U.S. Underwriters named in Schedule II hereto (the "U.S. Underwriters")
in connection with the offering and sale of such U.S. Firm Shares in the United
States and Canada to United States and Canadian Persons (as such terms are
defined in the Agreement Between U.S. and International
<PAGE> 3
Underwriters of even date herewith), and 580,000 Firm Shares (the "International
Shares") will be sold to the several International Underwriters named in
Schedule III hereto (the "International Underwriters") in connection with the
offering and sale of such International Shares outside the United States and
Canada to persons other than United States and Canadian Persons. Morgan Stanley
& Co. Incorporated, The Robinson-Humphrey Company, Inc., J.C. Bradford & Co. and
Equitable Securities Corporation shall act as representatives (the "U.S.
Representatives") of the several U.S. Underwriters, and Morgan Stanley & Co.
International Limited shall act as representative (the "International
Representative") of the several International Underwriters. The U.S.
Underwriters and the International Underwriters are hereinafter collectively
referred to as the "Underwriters."
The Company also proposes to issue and sell to the several
U.S. Underwriters not more than an additional 435,000 shares of its Common
Stock, no par value per share, (the "Additional Shares") if and to the extent
that the U.S. Representatives shall have determined to exercise, on behalf of
the U.S. Underwriters, the right to purchase such shares of common stock
granted to the U.S. Underwriters in Section 2 hereof. The Firm Shares and the
Additional Shares are hereinafter collectively referred to as the "Shares." The
shares of Common Stock, no par value per share, of the Company to be outstanding
after giving effect to the sales contemplated hereby are hereinafter referred to
as the "Common Stock." The Company and the Selling Shareholders are hereinafter
sometimes collectively referred to as the "Sellers."
The Company has filed with the Securities and Exchange
Commission (the "Commission"), pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), the Investment Company Act of 1940 (the
"Investment Company Act"), and the published rules and regulations adopted by
the Commission under the Securities Act (the "Securities Act Rules") and the
Investment Company Act (the "Investment Company Act Rules") a registration
Statement on Form N-2 (File No. 333-19493) relating to the Shares. The
registration statement contains the U.S. prospectus which is to be used in
connection with the offering and sale of Shares in the United States and Canada
to United States and Canadian Persons. The international prospectus, to be used
in connection with the
2
<PAGE> 4
offering and sale of Shares outside the United States and Canada is identical to
the U.S. prospectus except for the outside front cover page. The registration
statement as amended at the time it becomes effective, including the information
(if any) deemed to be part of the registration statement at the time of
effectiveness pursuant to Rule 430A under the Securities Act (and any
information incorporated by reference therein) is hereinafter referred to as the
"Registration Statement"; the U.S. prospectus and the international prospectus
(as described in Rule 434(a)(1) under the Securities Act) in the respective
forms first used to confirm sales of Shares are hereinafter collectively
referred to as the "Distributed Prospectus"; the U.S. prospectus included in the
Registration Statement at the time of its effectiveness (including the
information, if any, deemed to be a part of the Registration Statement at the
time of effectiveness pursuant to Rule 430A under the Securities Act) is
hereinafter referred to as the "Filed Prospectus"; and the Distributed
Prospectus and the Filed Prospectus are hereinafter referred to collectively as
the "Prospectus."
1. REPRESENTATIONS AND WARRANTIES. The Company represents
and warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop
order suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.
(b) On (A) the effective date of the Registration Statement
(the "Effective Date"), and the date on which the Prospectus is first filed
with the Commission pursuant to Rule 497 of the Securities Act Rules, (B) the
date on which any post-effective amendment to the Registration Statement
(except any post-effective amendment required by Rule 8b-16 of the Investment
Company Act Rules or which is filed with the Commission after the later of (x)
one year from the date of this Agreement or (y) the date on which the
distribution of the Shares is completed) became or becomes effective or any
amendment or supplement to the Prospectus was or is filed with the Commission
and (C) at the Closing Date (as defined below), the Registration Statement, the
Prospectus and any such amendment or supplement thereto and the Notification
3
<PAGE> 5
of Registration of the Company filed with the Commission on Form N-8A (the
"Notification") pursuant to Section 8 of the Investment Company Act complied
or will comply in all material respects with the applicable requirements of the
Securities Act, the Investment Company Act, the Securities Act Rules and the
Investment Company Act Rules, as the case may be. On the Effective Date and on
the date that any post-effective amendment to the Registration Statement
(except any post-effective amendment required by Rule 8b-16 of the Investment
Company Act Rules or which is filed with the Commission after the later of (x)
one year from the date of this Underwriting Agreement or (y) the date on which
the distribution of the Shares is completed) became or becomes effective,
neither the Registration Statement nor any such amendment did or will contain
any untrue statement of a material fact or omit to state a material fact
required to be stated in it or necessary to make the statements in it not
misleading. At the Effective Date, if applicable, the date the Prospectus or
any amendment or supplement to the Prospectus was or is filed with the
Commission and at the Closing Date (as defined below), the Prospectus did not
or will not, as the case may be, contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements in it,
in light of the circumstances under which they were made, not misleading. The
foregoing representations in this paragraph 1(b) do not apply to statements or
omissions made in reliance on and in conformity with information relating to
any Underwriter furnished in writing to the Company by such Underwriter through
you expressly for use in the Registration Statement, the Prospectus, or any
amendments or supplements thereto.
(c) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the jurisdiction
of its incorporation, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each jurisdiction in
which the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse effect on
the Company and its subsidiaries, taken as a whole.
4
<PAGE> 6
(d) Each subsidiary of the Company has been duly incorporated,
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to own
its property and to conduct its business as described in the Prospectus and is
duly qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse effect on the
Company and its subsidiaries, taken as a whole; all of the issued shares of
capital stock of each subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and are owned directly
by the Company, free and clear of all liens, encumbrances, equities or claims.
(e) This Agreement has been duly authorized, executed and
delivered by the Company.
(f) The authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus.
(g) The shares of Common Stock (including the Shares to be
sold by the Selling Shareholders) outstanding prior to the issuance of the
Shares to be sold by the Company have been duly authorized and are validly
issued, fully paid and non-assessable.
(h) The Shares to be sold by the Company have been duly
authorized and, when issued and delivered in accordance with the terms of this
Agreement, will be validly issued, fully paid and non-assessable, and the
issuance of such Shares will not be subject to any preemptive or similar
rights.(1)
(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations
- ----------------------------------
(1) If the Closing occurs prior to February 1, 1997, this section would
be modified to provide for the registration rights (which rights
expire on February 1, 1997) of each shareholder who received
common stock in the conversion.
5
<PAGE> 7
under, this Agreement will not contravene any provision of applicable law or
the certificate of incorporation or by-laws of the Company or any agreement or
other instrument binding upon the Company or any of its subsidiaries that is
material to the Company and its subsidiaries, taken as a whole, or any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over the Company or any subsidiary, and no consent, approval,
authorization or order of, or qualification with, any governmental body or
agency is required for the performance by the Company of its obligations under
this Agreement.
(j) The Company's and its subsidiaries' operations are in
compliance with the Investment Company Act and the Investment Company Act
Rules.
(k) The Company and its subsidiaries are not currently in
breach of, or in default under, any material written agreement or instrument to
which they are a party or by which their property is bound or affected.
(l) The Company is duly registered with the Commission
under the Investment Company Act as a non-diversified closed-end management
investment company, and all required action has or will have been taken by the
Company under the Securities Act, the Investment Company Act, the Securities
Act Rules and the Investment Company Act Rules, as the case my be, to make the
public offering and consummate the sale of the Shares as provided in this
Agreement.
(m) The Company owns or possesses or has obtained all
governmental licenses, permits, consents, orders, approvals and other
authorizations, whether international or domestic, necessary to carry on its
business as contemplated.
(n) There are no material restrictions, limitations or
regulations with respect to the ability of the Company or its subsidiaries to
invest its assets as described in the Prospectus, other than as described
therein.
(o) There has not occurred any material adverse change,
or any development involving a prospective material adverse change, in the
condition, financial or
6
<PAGE> 8
otherwise, or in the earnings, business or operations of the Company and its
subsidiaries, taken as a whole, from that set forth in the Prospectus
(exclusive of any amendments or supplements thereto subsequent to the date of
this Agreement).
(p) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is a party or to
which any of the properties of the Company or any of its subsidiaries is
subject that are required to be described in the Registration Statement or the
Prospectus and are not so described or any statutes, regulations, contracts or
other documents that are required to be described in the Registration Statement
or the Prospectus or to be filed as exhibits to the Registration Statement that
are not described or filed as required.
(q) Each preliminary prospectus filed as part of the
registration statement as originally filed or as part of any amendment thereto,
or filed pursuant to Rule 497 under the Securities Act, complied when so filed
in all material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.
(r) The Company and its subsidiaries (i) are in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses
or other approvals required of them under applicable Environmental Laws to
conduct their respective businesses and (iii) are in compliance with all terms
and conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and conditions
of such permits, licenses or approvals would not, singly or in the aggregate,
have a material adverse effect on the Company and its subsidiaries, taken as a
whole.
(s) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or operating
expenditures required
7
<PAGE> 9
for clean-up, closure of properties or compliance with Environmental Laws or
any permit, license or approval, any related constraints on operating
activities and any potential liabilities to third parties) which would, singly
or in the aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(t) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to require
the Company to file a registration statement under the Securities Act with
respect to any securities of the Company or to require the Company to include
such securities with the Shares registered pursuant to the Registration
Statement.(2)
2. REPRESENTATIONS AND WARRANTIES OF THE SELLING
SHAREHOLDERS. Each of the Selling Shareholders represents and warrants to and
agrees with each of the Underwriters that:
(a) This Agreement has been duly authorized, executed and
delivered by or on behalf of such Selling Shareholder.
(b) Such Selling Shareholder has full legal right, power and
authority to enter into this Agreement, the Custody Agreement signed by such
Selling Shareholder and the Company, as Custodian, relating to the deposit of
the Shares to be sold by such Selling Shareholder (the "Custody Agreement") and
the Power of Attorney appointing certain individuals as such Selling
Shareholder's attorneys-in-fact to the extent set forth therein, relating to
the transactions contemplated hereby and by the Registration Statement (the
"Power of Attorney"). This Agreement, the Power of Attorney and the Custody
Agreement have been duly executed and delivered by such Selling Shareholder,
and (assuming this Agreement is a binding agreement of yours) constitute the
valid and binding agreements of such Selling Shareholder in accordance with
- ----------------------------------
(2) If the Closing occurs prior to February 1, 1997, this section would be
modified to provide for the registration rights (which rights expire
on February 1, 1997) of each shareholder who received common
stock in the conversion.
8
<PAGE> 10
their respective terms (except as (A) such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting the enforcement of creditor's
rights and the application of equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law) relating to
the availability of remedies, and (B) to the extent that rights to indemnity or
contribution may be limited by United States federal or state securities law
and the public policy underlying such laws).
(c) The execution and delivery by such Selling Shareholder of,
and the performance by such Selling Shareholder of its obligations under, this
Agreement, the Custody Agreement and the Power of Attorney will not contravene
any provision of applicable law, or the certificate of incorporation or by-laws
of such Selling Shareholder (if such Selling Shareholder is a corporation), or
any agreement or other instrument binding upon such Selling Shareholder or any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over such Selling Shareholder, and no consent, approval,
authorization or order of, or qualification with, any governmental body or
agency is required for the performance by such Selling Shareholder of its
obligations under this Agreement, the Custody Agreement or the Power of
Attorney of such Selling Shareholder.
(d) Such Selling Shareholder has, and on the Closing Date (as
defined below) will have, valid title to the Shares to be sold by such Selling
Shareholder and the legal right and power, and all authorization and approval
required by law, to enter into this Agreement, the Custody Agreement and the
Power of Attorney and to sell, transfer and deliver the Shares to be sold by
such Selling Shareholder.
(e) Physical delivery in the State of New York of the Shares
to be sold by such Selling Shareholder pursuant to this Agreement will pass
title to such Shares free and clear of any security interests, claims, liens,
equities and other encumbrances.
(f) On the Effective Date and on the date that any
post-effective amendment to the Registration Statement (except any
post-effective amendment required by
9
<PAGE> 11
Rule 8b-16 of the Investment Company Act Rules or which is filed with the
Commission after the later of (x) one year from the date of this Underwriting
Agreement or (y) the date on which the distribution of the Shares is completed)
became or becomes effective, neither the Registration Statement nor any such
amendment did or will contain any untrue statement of a material fact or omit
to state a material fact required to be stated in it or necessary to make the
statements in it not misleading, with reference to information furnished in
writing by or on behalf of a Selling Shareholder to the Company expressly for
use in the Registration Statement, or any amendments thereto. At the Effective
Date, if applicable, the date the Prospectus or any amendment or supplement to
the Prospectus was or is filed with the Commission and at the Closing Date, the
Prospectus did not or will not, as the case may be, contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements in it, in light of the circumstances under which they were made,
not misleading, with reference to information furnished in writing by or on
behalf of a Selling Shareholder to the Company expressly for use in the
Prospectus, or any amendments or supplements thereto.
(g) Such Selling Shareholder has not taken, directly or
indirectly, any action designed to stabilize or manipulate the price of any
security of the Company, or which has constituted or which might reasonably be
expected to cause or result in stabilization or manipulation of the price of
any security of the Company, to facilitate the sale or resale of the Shares or
otherwise.
(h) In order to document the Underwriters' compliance
with the reporting and withholding provisions of the Internal Revenue Code of
1986, such Selling Shareholder shall deliver to you on or prior to the Closing
Date a properly completed and executed United States Treasury Department Form
W-8 or W-9 (or other applicable form or statement specified by Treasury
Department Regulations in lieu thereof).
3. AGREEMENTS TO SELL AND PURCHASE. Each Seller, severally and
not jointly, hereby agrees to sell to the several Underwriters, and each
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter
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<PAGE> 12
stated, agrees, severally and not jointly, to purchase from such Seller at
$[______] a share (the "Purchase Price") the number of Firm Shares (subject to
such adjustments to eliminate fractional shares as you may determine) that
bears the same proportion to the number of Firm Shares to be sold by such
Seller as the number of Firm Shares such Underwriter bears to the total number
of Firm Shares.
On the basis of the representations and warranties contained
in this Agreement, and subject to its terms and conditions, the Company agrees
to sell to the U.S. Underwriters the Additional Shares, and the U.S.
Underwriters shall have a one-time right to purchase, severally and not
jointly, up to 435,000 Additional Shares at the Purchase Price. If the U.S.
Representatives, on behalf of the U.S. Underwriters, elect to exercise such
option, the U.S. Representatives shall so notify the Company in writing not
later than 30 days after the date of this Agreement, which notice shall specify
the number of Additional Shares to be purchased by the U.S. Underwriters and
the date on which such shares are to be purchased. Such date may be the same as
the Closing Date (as defined below) but not earlier than the Closing Date nor
later than ten business days after the date of such notice. Additional Shares
may be purchased as provided in Section 4 hereof solely for the purpose of
covering over-allotments made in connection with the offering of the Firm
Shares. If any Additional Shares are to be purchased, each U.S. Underwriter
agrees, severally and not jointly, to purchase the number of Additional Shares
(subject to such adjustments to eliminate fractional shares as the U.S.
Representatives may determine) that bears the same proportion to the total
number of Additional Shares to be purchased as the number of U.S. Firm Shares
such U.S. Underwriter bears to the total number of U.S. Firm Shares.
The Company hereby agrees that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it
will not, during the period ending 90 days after the date of the Prospectus,
(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
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<PAGE> 13
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. The foregoing sentence
shall not apply to (A) the Shares to be sold hereunder or (B) the issuance by
the Company of shares of Common Stock upon the exercise of an option or warrant
or the conversion of a security outstanding on the date hereof of which the
Underwriters have been advised in writing.
4. TERMS OF PUBLIC OFFERING. The Sellers are advised by you
that the Underwriters propose to make a public offering of their respective
portions of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable. Sellers are
further advised by you that the Shares are to be offered to the public
initially at U.S.$[____] a share (the "Public Offering Price") and to certain
dealers selected by you at a price that represents a concession not in excess
of U.S.$[____] a share under the Public Offering Price, and that any
Underwriter may allow, and such dealers may reallow, a concession, not in
excess of U.S.$[____] a share, to any Underwriter or to certain other dealers.
5. PAYMENT AND DELIVERY. Payment for the Firm Shares to be
sold by each Seller shall be made to such Seller in Federal or other funds
immediately available in New York City against delivery of such Firm Shares for
the respective accounts of the several Underwriters at 10:00 A.M., New York
City time, on [_________], 1997, or at such other time on the same or such
other date, not later than [_________], 1997, as shall be designated in writing
by you. The time and date of such payment are hereinafter referred to as the
"Closing Date."
Payment for any Additional Shares shall be made to the Company
in Federal or other funds immediately available in New York City against
delivery of such Additional Shares for the respective accounts of the several
Underwriters at 10:00 A.M., New York City time, on the
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<PAGE> 14
date specified in the notice described in Section 3 or at such other time on
the same or on such other date, in any event not later than [________], 1997,
as shall be designated in writing by the U.S. Representatives. The time and
date of such payment are hereinafter referred to as the "Option Closing Date."
Certificates for the Firm Shares and Additional Shares shall
be in definitive form and registered in such names and in such denominations as
you shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes
payable in connection with the transfer of the Shares to the Underwriters duly
paid, against payment of the Purchase Price therefor.
6. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The
obligations of the Sellers to sell the Shares to the Underwriters and the
several obligations of the Underwriters to purchase and pay for the Shares on
the Closing Date are subject to the condition that the Registration Statement
shall have become effective not later than [_______] (New York City time) on
the date hereof.
The several obligations of the Underwriters are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this
Agreement and prior to the Closing Date:
(i) there shall not have occurred any downgrading,
nor shall any notice have been given of any intended or potential downgrading
or of any review for a possible change that does not indicate the direction of
the possible change, in the rating accorded any of the Company's securities by
any "nationally recognized statistical rating organization," as such term is
defined for purposes of Rule 436(g)(2) under the Securities Act; and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition, financial or
otherwise, or in
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<PAGE> 15
the earnings, business or operations of the Company and its subsidiaries, taken
as a whole, from that set forth in the Prospectus (exclusive of any amendments
or supplements thereto subsequent to the date of this Agreement) that, in your
judgment, is material and adverse and that makes it, in your judgment,
impracticable to market the Shares on the terms and in the manner contemplated
in the Prospectus.
(b) (i) The Underwriters shall have received on the Closing
Date a certificate, dated the Closing Date and signed by an executive officer
of the Company, to the effect set forth in clause (a)(i) above and to the
effect that the representations and warranties of the Company contained in this
Agreement are true and correct as of the Closing Date and that the Company has
complied with all of the agreements and satisfied all of the conditions on its
part to be performed or satisfied hereunder on or before the Closing Date. The
officer signing and delivering such certificate may rely upon the best of his
or her knowledge as to proceedings threatened;
(ii) The Underwriters shall have received on the
Closing Date a certificate, dated the Closing Date and signed by each Selling
Shareholder, to the effect that the representations and warranties of such
Selling Shareholder contained in this Agreement are true and correct as of the
Closing Date and that such Selling Shareholder has complied with all of the
agreements and satisfied all of the conditions on its part to be performed or
satisfied hereunder on or before the Closing Date.
(c) The Underwriters shall have received on the Closing Date
an opinion of Bass, Berry, & Sims PLC, outside counsel for the Company, dated
the Closing Date, to the effect that:
(i) the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to own
its property and to conduct its business as described in the Prospectus and is
duly qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to be so
qualified or be in good standing
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<PAGE> 16
would not have a material adverse effect on the Company and its subsidiaries,
taken as a whole;
(ii) each subsidiary of the Company has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described in the
Prospectus and is duly qualified to transact business and is in good standing
in each jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that the
failure to be so qualified or be in good standing would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole;
(iii) the authorized capital stock of the Company
conforms as to legal matters to the description thereof contained in the
Prospectus;
(iv) the shares of Common Stock (including the Shares
to be sold by the Selling Shareholders) outstanding prior to the issuance of
the Shares to be sold by the Company have been duly authorized and are validly
issued, fully paid and non-assessable;
(v) all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and issued, are
fully paid and non-assessable and are owned directly by the Company, free and
clear of all liens, encumbrances, equities or claims;
(vi) the Shares to be sold by the Company have been
duly authorized and, when issued and delivered in accordance with the terms of
this Agreement, will be validly issued, fully paid and non-assessable, and the
issuance of such Shares will not be subject to any preemptive or similar
rights;(3)
- ----------------------------------
(3) If the Closing occurs prior to February 1, 1997, this section would
be modified to provide for the registration rights (which rights
expire on February 1, 1997) of each shareholder who received
common stock in the conversion.
15
<PAGE> 17
(vii) this Agreement and the Custody Agreement
have been duly authorized, executed and delivered by the Company and
(assuming this Agreement is a binding agreement of yours) constitute
the valid and binding agreements of such Company in accordance with
their respective terms (except as (A) such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application relating to or
affecting the enforcement of creditor's rights and the application of
equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law) relating to the
availability of remedies, and (B) to the extent that rights to
indemnity or contribution may be limited by United States federal or
state securities law and the public policy underlying such laws);
(viii) the execution and delivery by the Company of,
and the performance by the Company of its obligations under, this Agreement and
the Custody Agreement will not contravene any provision of applicable law or
the certificate of incorporation or by-laws of the Company or, to the best of
such counsel's knowledge, any agreement or other instrument binding upon the
Company or any of its subsidiaries that is material to the Company and its
subsidiaries, taken as a whole, or, to the best of such counsel's knowledge,
any judgment, order or decree of any governmental body, agency or court having
jurisdiction over the Company or any subsidiary, and no consent, approval,
authorization or order of, or qualification with, any governmental body or
agency is required for the performance by the Company of its obligations under
this Agreement, except such as may be required by the securities or Blue Sky
laws of the various states in connection with the offer and sale of the Shares
by the U.S. Underwriters;
(ix) the statements (A) in the Prospectus under the
captions "Description of Capital Stock" and "Underwriters" and (B) in the
Registration Statement in Item 29, in each case insofar as such statements
constitute summaries of the legal matters, documents or proceedings referred to
therein, fairly present the information called for with respect to such legal
matters, documents and proceedings and fairly summarize the matters referred to
therein;
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<PAGE> 18
(x) after due inquiry, such counsel does not know of
any legal or governmental proceedings pending or threatened to which the
Company or any of its subsidiaries is a party or to which any of the properties
of the Company or any of its subsidiaries is subject that are required to be
described in the Registration Statement or the Prospectus and are not so
described or of any statutes, regulations, contracts or other documents that
are required to be described in the Registration Statement or the Prospectus or
to be filed as exhibits to the Registration Statement that are not described or
filed as required;
(xi) the Company and its subsidiaries (A) are in
compliance with any and all applicable Environmental Laws, (B) have received
all permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (C) are in
compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or failure to comply with
the terms and conditions of such permits, licenses or approvals would not,
singly or in the aggregate, have a material adverse effect on the Company and
its subsidiaries, taken as a whole; and
(xii) such counsel (A) is of the opinion that the
Registration Statement and Prospectus (except for financial statements and
schedules and other financial and statistical data included therein as to which
such counsel need not express any opinion) comply as to form in all material
respects with the Securities Act, the Investment Company Act and the applicable
rules and regulations of the Commission thereunder, (B) has no reason to
believe that (except for financial statements and schedules and other financial
and statistical data as to which such counsel need not express any belief) the
Registration Statement and the prospectus included therein at the time the
Registration Statement became effective contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, (C) has no reason
to believe that (except for financial statements and schedules and other
financial and statistical data as to which such counsel need not
17
<PAGE> 19
express any belief) the Prospectus contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading and (D) is of the opinion that the Distributed Prospectus
is not materially different from the Filed Prospectus.
(xiii) the Company is duly registered with the
Commission under the Investment Act as a closed-end non-diversified management
investment company, and all action under the Securities Act and the Investment
Company Act necessary to make the public offering and consummate the sale of
the Shares as provided in this Agreement has been taken by the Company.
(d) The Underwriters shall have received on the Closing Date
an opinion of Bass, Berry & Sims PLC, counsel for the Selling Shareholders,
dated the Closing Date, to the effect that:
(i) This Agreement, the Custody Agreement and the
Power of Attorney has been duly authorized, executed and delivered by or on
behalf of each of the Selling Shareholders and (assuming this Agreement is a
binding agreement of yours) constitute the valid and binding agreements of such
Selling Shareholder in accordance with their respective terms (except as (A)
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting the enforcement of creditor's rights and the application of equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law) relating to the availability of remedies, and
(B) to the extent that rights to indemnity or contribution may be limited by
United States federal or state securities law and the public policy underlying
such laws);
(ii) Such Selling Shareholder has full legal right,
power and authority to enter into this Agreement, the Custody Agreement signed
by such Selling Shareholder and the Company, as Custodian, relating to the
deposit of the Shares to be sold by such Selling Shareholder (the "Custody
Agreement") and the Power of Attorney appointing certain individuals as such
Selling Shareholder's attorneys-in-fact to the extent set forth
18
<PAGE> 20
therein, relating to the transactions contemplated hereby and by the
Registration Statement (the "Power of Attorney").
(iii) The execution and delivery by such Selling
Shareholder of, and the performance by such Selling Shareholder of its
obligations under, this Agreement, the Custody Agreement and the Power of
Attorney will not contravene any provision of applicable law, or the
certificate of incorporation or by-laws of such Selling Shareholder (if such
Selling Shareholder is a corporation), or any agreement or other instrument
binding upon such Selling Shareholder or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over such Selling
Shareholder, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by such Selling Shareholder of its obligations under this
Agreement, the Custody Agreement or the Power of Attorney of such Selling
Shareholder.
(iv) Each of the Selling Shareholders has valid title
to the Shares to be sold by such Selling Shareholder and the legal right and
power, and all authorization and approval required by law, to enter into this
Agreement, the Custody Agreement and Power of Attorney of such Selling
Shareholder and to sell, transfer and deliver the Shares to be sold by such
Selling Shareholder;
(v) Physical delivery in the State of New York of the
Shares to be sold by each Selling Shareholder pursuant to this Agreement will
pass title to such Shares free and clear of any security interests, claims,
liens, equities and other encumbrances; and
(vi) Such counsel (A) has no reason to believe that
(except for financial statements and schedules and other financial and
statistical data as to which such counsel need not express any belief) the
Registration Statement and the Prospectus included therein at the time the
Registration Statement became effective contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading with reference to
information furnished in writing by or on behalf of a Selling Shareholder to
the Company expressly for use in the Registration Statement, the Pro-
19
<PAGE> 21
spectus, or any amendments or supplements thereto and (B) has no reason to
believe that (except for financial statements and schedules and other financial
and statistical data as to which such counsel need not express any belief) the
Prospectus contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading, with reference
to information furnished in writing by or on behalf of a Selling Shareholder to
the Company expressly for use in the Prospectus, or any amendments or
supplements thereto.
(e) The Underwriters shall have received, on each of the date
hereof and the Closing Date, a letter dated the date hereof or the Closing
Date, as the case may be, in form and substance satisfactory to the
Underwriters, from Arthur Andersen LLP, independent public accountants,
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the financial
statements and certain financial information contained in the Registration
Statement and the Prospectus; provided that the letter delivered on the Closing
Date shall use a "cut-off date" not earlier than the date hereof.
(f) The Underwriters shall have received on the Closing Date
an opinion of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the
Underwriters, dated the Closing Date, covering the matters referred to in
subparagraphs (vi), (vii), (ix) (but only as to the statements in the
Prospectus under "Description of Capital Stock" and "Underwriters") and (xii)
of paragraph (c) above.
With respect to subparagraph (xii) of paragraph (c) above,
Skadden, Arps, Slate, Meagher & Flom LLP, and with respect to subparagraph (vi)
of paragraph (d) above, Bass, Berry & Sims PLC, may state that their opinion
and belief are based upon their participation in the preparation of the
Registration Statement and Prospectus and any amendments or supplements thereto
and review and discussion of the contents thereof, but are without independent
check or verification, except as specified. With respect to paragraph (d)
above, [_______] may rely upon an opinion or opinions of counsel for any
Selling Shareholders and, with respect to factual matters and to the
20
<PAGE> 22
extent such counsel deems appropriate, upon the representations of each Selling
Shareholder contained herein and in the Custody Agreement and Power of Attorney
of such Selling Shareholder and in other documents and instruments; provided
that (A) each such counsel for the Selling Shareholders is satisfactory to your
counsel, (B) a copy of each opinion so relied upon is delivered to you and is
in form and substance satisfactory to your counsel, (C) copies of such Custody
Agreements and Powers of Attorney and of any such other documents and
instruments shall be delivered to you and shall be in form and substance
satisfactory to your counsel and (D) [________] shall state in their opinion
that they are justified in relying on each such other opinion.
The opinion of Bass, Berry & Sims PLC described in paragraphs
(c) and (d) above (and any opinions of counsel for any Selling Shareholder
referred to in the immediately preceding paragraph) shall be rendered to the
Underwriters at the request of the Company or one or more of the Selling
Shareholders, as the case may be, and shall so state therein.
(g) The "lock-up" agreements, each substantially in the form
of Exhibit A hereto, between you and all of the Company's executive officers
and directors relating to sales and certain other dispositions of shares of
Common Stock or certain other securities, delivered to you on or before the
date hereof, shall be in full force and effect on the Closing Date.
(h) The several obligations of the U.S. Underwriters to
purchase Additional Shares hereunder are subject to the delivery to the U.S.
Representatives on the Option Closing Date of such documents as they may
reasonably request with respect to the good standing of the Company, the due
authorization and issuance of the Additional Shares and other matters related
to the issuance of the Additional Shares.
7. COVENANTS OF THE COMPANY. In further consideration of the
agreements of the Underwriters herein contained, the Company covenants with
each Underwriter as follows:
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(a) To furnish to you, without charge, nine signed copies of
the Registration Statement (including exhibits thereto and documents
incorporated by reference) and to each other Underwriter a copy of the
Registration Statement (without exhibits thereto but, including documents
incorporated by reference) and during the period mentioned in paragraph (c)
below, as many copies of the Distributed Prospectus and any supplements and
amendments thereto or to the Registration Statement as you may reasonably
request, prior to 1:00 P.M. New York City time on the business day next
succeeding the date of this Agreement.
(b) Before amending or supplementing the Registration
Statement or the Prospectus, to furnish to you a copy of each such proposed
amendment or supplement and not to file any such proposed amendment or
supplement to which you reasonably object, and to file with the Commission
within the applicable period specified in Rule 497 under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters the
Prospectus is required by law to be delivered in connection with sales by an
Underwriter or dealer, any event shall occur or condition exist as a result of
which it is necessary to amend or supplement the Prospectus in order to make
the statements therein, in the light of the circumstances when the Prospectus
is delivered to a purchaser, not misleading, or if, in the opinion of counsel
for the Underwriters, it is necessary to amend or supplement the Prospectus to
comply with applicable law, forthwith to prepare, file with the Commission and
furnish, at its own expense, to the Underwriters and to the dealers (whose
names and addresses you will furnish to the Company) to which Shares may have
been sold by you on behalf of the Underwriters and to any other dealers upon
request, either amendments or supplements to the Prospectus so that the
statements in the Prospectus as so amended or supplemented will not, in the
light of the circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will comply
with law.
22
<PAGE> 24
(d) To endeavor to qualify the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
(e) To make generally available to the Company's security
holders and to you as soon as practicable an earning statement covering the
twelve-month period ending [March 31, 1998](4) that satisfies the provisions of
Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.
8. EXPENSES. Whether or not the transactions contemplated in
this Agreement are consummated or this Agreement is terminated, the Sellers
agree to pay or cause to be paid all expenses incident to the performance of
their obligations under this Agreement, including: (i) the fees, disbursements
and expenses of the Company's counsel, the Company's accountants and counsel
for the Selling Shareholders in connection with the registration and delivery
of the Shares under the Securities Act and the Investment Company Act and all
other fees or expenses in connection with the preparation and filing of the
Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing
costs associated therewith, and the mailing and delivering of copies thereof to
the Underwriters and dealers, in the quantities hereinabove specified, (ii) all
costs and expenses related to the transfer and delivery of the Shares to the
Underwriters, including any transfer or other taxes payable thereon, if
applicable, all expenses in connection with the qualification of the Shares for
offer and sale under state securities laws as provided in Section 7(d) hereof,
including filing fees and the reasonable fees and disbursements of counsel for
the Underwriters in connection with such qualification (iv) all filing fees and
disbursements of counsel to the Underwriters incurred in connection with the
review and qualification of the offering of the Shares by the National
Association of Securities Dealers, Inc., (v) the cost of printing certificates
representing the Shares, (vi) the costs and charges of any transfer agent,
registrar or depositary, (vii) the costs and expenses of the Company relating
to investor
- ----------------------------------
(4) Insert date one year after the end of the Company's fiscal quarter in
which the closing will occur.
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<PAGE> 25
presentations on any "road show" undertaken in connection with the marketing of
the offering of the Shares, including, without limitation, expenses associated
with the production of road show slides and graphics, fees and expenses of any
consultants engaged in connection with the road show presentations with the
prior approval of the Company, travel and lodging expenses of the
representatives and officers of the Company and any such consultants, and the
cost of any aircraft chartered in connection with the road show, and (viii) all
other costs and expenses incident to the performance of the obligations of the
Seller hereunder for which provision is not otherwise made in this Section. It
is understood, however, that except as provided in this Section, Section 9
entitled "Indemnity and Contribution", and the last paragraph of Section 11
below, the Underwriters will pay all of their costs and expenses, including fees
and disbursements of their counsel, stock transfer taxes payable on resale of
any of the Shares by them and any advertising expenses connected with any offers
they may make.
The provisions of this Section shall not supersede or
otherwise affect any agreement that the Sellers may otherwise have for the
allocation of such expenses among themselves.
9. INDEMNITY AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon infor-
24
<PAGE> 26
mation relating to any Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use therein.
(b) Each Selling Shareholder agrees, severally and not
jointly, to indemnify and hold harmless the Company and the Underwriters, its
directors, its officers who sign the Registration Statement and each person, if
any, who controls the Company within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the
Prospectus (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto), or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only with
reference to information relating to such Selling Shareholder furnished in
writing by or on behalf of such Selling Shareholder expressly for use in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendments or supplements thereto.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Selling Shareholders, the
directors of the Company, the officers of the Company who sign the Registration
Statement and each person, if any, who controls the Company or any Selling
Shareholder within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act from and against any and all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or investigating any
such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
amendment thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required
25
<PAGE> 27
to be stated therein or necessary to make the statements therein not misleading,
but only with reference to information relating to such Underwriter furnished to
the Company in writing by such Underwriter through you expressly for use in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendments or supplements thereto.
(d) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to paragraph (a), (b) or (c) of this Section
9, such person (the "indemnified party") shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying party") in writing
and the indemnifying party, upon request of the indemnified party, shall retain
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party and any others the indemnifying party may designate in such
proceeding and shall pay the fees and disbursements of such counsel related to
such proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such indemnified party unless (i) the indemnifying
party and the indemnified party shall have mutually agreed to the retention of
such counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It
is understood that the indemnifying party shall not, in respect of the legal
expenses of any indemnified party in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for (i) the fees and expenses
of more than one separate firm (in addition to any local counsel) for all
Underwriters and all persons, if any, who control any Underwriter within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, (ii) the fees and expenses of more than one separate firm (in
addition to any local counsel) for the Company, its directors, its officers who
sign the Registration Statement and each person, if any, who controls the
Company within the meaning of either such Section and (iii) the fees and
expenses of more than one separate firm (in addition to any local counsel) for
all Selling Shareholders and all
26
<PAGE> 28
persons, if any, who control any Selling Shareholder within the meaning of
either such Section, and that all such fees and expenses shall be reimbursed as
they are incurred. In the case of any such separate firm for the Underwriters
and such control persons of any Underwriters, such firm shall be designated in
writing by Morgan Stanley & Co. Incorporated. In the case of any such separate
firm for the Company, and such directors, officers and control persons of the
Company, such firm shall be designated in writing by the Company. In the case
of any such separate firm for the Selling Shareholders and such control persons
of any Selling Shareholders, such firm shall be designated in writing by the
persons named as attorneys-in-fact for the Selling Shareholders under the
Powers of Attorney. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written
consent if (i) such settlement is entered into more than 30 days after receipt
by such indemnifying party of the aforesaid request and (ii) such indemnifying
party shall not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
(e) To the extent the indemnification provided for in
paragraph (a), (b) or (c) of this Section 9 is unavailable to an indemnified
party or insufficient in respect of any losses, claims, damages or liabilities
referred to therein, then each indemnifying party under
27
<PAGE> 29
such paragraph, in lieu of indemnifying such indemnified party thereunder,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (i) in such proportion as
is appropriate to reflect the relative benefits received by the indemnifying
party or parties on the one hand and the indemnified party or parties on the
other hand from the offering of the Shares or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the indemnifying party or parties on
the one hand and of the indemnified party or parties on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Sellers on the one hand
and the Underwriters on the other hand in connection with the offering of the
Shares shall be deemed to be in the same respective proportions as the net
proceeds from the offering of the Shares (before deducting expenses) received
by each Seller and the total underwriting discounts and commissions received by
the Underwriters, in each case as set forth in the table on the cover of the
Prospectus, bear to the aggregate Public Offering Price of the Shares. The
relative fault of the Sellers on the one hand and the Underwriters on the other
hand shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Sellers or by the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Underwriters' respective obligations to contribute pursuant to
this Section 9 are several in proportion to the respective number of Shares
they have purchased hereunder, and not joint.
(f) The Sellers and the Underwriters agree that it would not
be just or equitable if contribution pursuant to this Section 9 were determined
by pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account
of the equitable considerations referred to in paragraph (e) of this Section
28
<PAGE> 30
9. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages and liabilities referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 9, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages that such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The remedies provided for in this
Section 9 are not exclusive and shall not limit any rights or remedies which
may otherwise be available to any indemnified party at law or in equity.
(g) The indemnity and contribution provisions contained in
this Section 9 and the representations, warranties and other statements of the
Company and the Selling Shareholders contained in this Agreement shall remain
operative and in full force and effect regardless of (i) any termination of
this Agreement, (ii) any investigation made by or on behalf of any Underwriter
or any person controlling any Underwriter, any Selling Shareholder or any
person controlling any Selling Shareholder, or the Company, its officers or
directors or any person controlling the Company and (iii) acceptance of and
payment for any of the Shares.
10. TERMINATION. This Agreement shall be subject to
termination by notice given by you to the Company, if (a) after the execution
and delivery of this Agreement and prior to the Closing Date (i) trading
generally shall have been suspended or materially limited on or by, as the case
may be, any of the New York Stock Exchange, the American Stock Exchange, the
National Association of Securities Dealers, Inc., the Chicago Board of Options
Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii)
trading of any securities of
29
<PAGE> 31
the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses (a)(i) through (iv), such event, singly or
together with any other such event, makes it, in your judgment, impracticable
to market the Shares on the terms and in the manner contemplated in the
Prospectus.
11. EFFECTIVENESS; DEFAULTING UNDERWRITERS. This Agreement
shall become effective upon the execution and delivery hereof by the parties
hereto.
If, on the Closing Date or the Option Closing Date, as the
case may be, any one or more of the Underwriters shall fail or refuse to
purchase Shares that it has or they have agreed to purchase hereunder on such
date, and the aggregate number of Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than
one-tenth of the aggregate number of the Shares to be purchased on such date,
the other Underwriters shall be obligated severally in the proportions that the
number of Firm Shares set forth opposite their respective names in Schedule II
or Schedule III bears to the aggregate number of Firm Shares set forth opposite
the names of all such non-defaulting Underwriters, or in such other proportions
as you may specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; provided
that in no event shall the number of Shares that any Underwriter has agreed to
purchase pursuant to this Agreement be increased pursuant to this Section 9 by
an amount in excess of one-ninth of such number of Shares without the written
consent of such Underwriter. If, on the Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Firm Shares and the aggregate
number of Firm Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Firm Shares to be purchased, and
arrangements satisfactory to you, the Company and the Selling Shareholders for
the purchase of such Firm Shares are not made within 36 hours after such
default, this Agree-
30
<PAGE> 32
ment shall terminate without liability on the part of any non-defaulting
Underwriter, the Company or the Selling Shareholders. In any such case either
you or the relevant Sellers shall have the right to postpone the Closing Date,
but in no event for longer than seven days, in order that the required changes,
if any, in the Registration Statement and in the Prospectus or in any other
documents or arrangements may be effected. If, on the Option Closing Date, any
Underwriter or Underwriters shall fail or refuse to purchase Additional Shares
and the aggregate number of Additional Shares with respect to which such
default occurs is more than one-tenth of the aggregate number of Additional
Shares to be purchased, the non-defaulting Underwriters shall have the option
to (i) terminate their obligation hereunder to purchase Additional Shares or
(ii) purchase not less than the number of Additional Shares that such
non-defaulting Underwriters would have been obligated to purchase in the
absence of such default. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or
any of them, because of any failure or refusal on the part of any Seller to
comply with the terms or to fulfill any of the conditions of this Agreement, or
if for any reason any Seller shall be unable to perform its obligations under
this Agreement, the Sellers will reimburse the Underwriters or such Underwriters
as have so terminated this Agreement with respect to themselves, severally, for
all out-of-pocket expenses (including the fees and disbursements of their
counsel) reasonably incurred by such Underwriters in connection with this
Agreement or the offering contemplated hereunder.
12. COUNTERPARTS. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
13. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
31
<PAGE> 33
14. HEADINGS. The headings of the sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed a
part of this Agreement.
Very truly yours,
SIRROM CAPITAL MANAGEMENT
By
---------------------------------
Name:
Title:
The Selling Shareholders
named in Schedule I hereto,
acting severally
By
---------------------------------
Attorney-in-Fact
Accepted as of the date hereof
MORGAN STANLEY & CO. INCORPORATED
THE ROBINSON-HUMPHREY COMPANY, INC.
J.C. BRADFORD & CO.
EQUITABLE SECURITIES CORPORATION
Acting severally on behalf of themselves
and the several U.S. Underwriters named
in Schedule II hereto.
By Morgan Stanley & Co. Incorporated
By
---------------------------
Name:
Title:
32
<PAGE> 34
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
Acting severally on behalf of itself
and the several International Underwriters
named in Schedule III hereto.
By Morgan Stanley & Co. International Limited
By
----------------------------
Name:
Title:
33
<PAGE> 35
Schedule I
<TABLE>
<CAPTION>
Number of
Firm Shares
Selling Shareholders To Be Purchased
-------------------- ---------------
<S> <C>
Gerald B. Andrews 5,788
Bank of Scotland London Nominees Limited 1,528
O. Gene Gabbard 4,008
Hare & Co. 25,454
James O. Hayles 2,500
Myna C. Hayles 2,500
Andrew L. Smith, Trustee for
Leila Temple Hayles 2,500
Andrew L. Smith, Trustee for
James Russell Hayles 2,500
Kenneth F. Leddick 536
Richard Menk 8,000
Kathleen R. Parsons 4,008
Carolyn W. Perrone 68,800
Michael M. Rosenberg 24,244
Peter T. Socha 50,000
Sam Stevenson 12,121
Berthold G. Stumberg 5,000
-------
Total
Total 219,487
=======
</TABLE>
<PAGE> 36
Schedule II
U.S. Underwriters
<TABLE>
<CAPTION>
Number of
Firm Shares
Underwriter To Be Purchased
----------- ---------------
<S> <C>
Morgan Stanley & Co. Incorporated 1,044,000
The Robinson-Humphrey Company, Inc. 487,200
J.C. Bradford & Co. 394,400
Equitable Securities Corporation 394,400
---------
Total U.S. Firm Shares ............. 2,320,000
=========
</TABLE>
<PAGE> 37
Schedule III
International Underwriters
<TABLE>
<CAPTION>
Number of
Firm Shares
Underwriter To Be Purchased
----------- ---------------
<S> <C>
Morgan Stanley & Co.
International Limited 261,000
The Robinson-Humphrey Company, Inc. 121,800
J.C. Bradford & Co. 98,600
Equitable Securities Corporation 98,600
-------
Total International Firm Shares ...... 580,000
=======
</TABLE>
<PAGE> 38
Exhibit A
[FORM OF LOCK-UP LETTER]
January __, 1997
Morgan Stanley & Co. Incorporated
The Robinson-Humphrey Company, Inc.
J.C. Bradford & Co.
Equitable Securities Corporation
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Morgan Stanley & Co. International Limited
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co.
Incorporated ("Morgan Stanley") and Morgan Stanley & Co. International Limited
("MSIL") propose to enter into an Underwriting Agreement (the "Underwriting
Agreement") with Sirrom Capital Corporation, a Tennessee corporation (the
"Company") providing for the public offering (the "Public Offering") by the
several Underwriters, including Morgan Stanley and MSIL (the "Underwriters") of
2,900,000 shares (the "Shares") of the Common Stock, no par value per share, of
the Company (the "Common Stock").
To induce the Underwriters that may participate in the Public
Offering to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period
commencing on the date hereof and ending 90 days after the date of the final
prospectus relating to the Public Offering (the "Prospectus"), (1) offer,
pledge, sell, contract to sell, sell any option or con-
<PAGE> 39
tract 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 securities
now owned by the undersigned or acquired after the date of the Prospectus), or
(2) 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 (1) or (2) above is to
be settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to (1) the sale of any Shares
to the Underwriters pursuant to the Underwriting Agreement or (2) the issuance
by the Company of shares of Common Stock upon the exercise of an option or
warrant or the conversion of a security outstanding on the date hereof of which
the Underwriters have been advised in writing.
Whether or not the Public Offering actually occurs depends on
a number of factors, including market conditions. Any Public Offering will only
be made pursuant to an Underwriting Agreement, the terms of which are subject
to negotiation between the Company, the Selling Shareholders and Underwriters
and the Underwriters.
Very truly yours,
-------------------------
(Name)
-------------------------
(Address)
<PAGE> 1
Exhibit h.2
January __, 1997
580,000 Shares
Sirrom Capital Corporation
AGREEMENT AMONG INTERNATIONAL UNDERWRITERS
<PAGE> 2
January __, 1997
Morgan Stanley & Co. International Limited
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs:
We understand that Sirrom Capital Corporation, a Tennessee
corporation (the "Company") and certain shareholders of the Company (the
"Selling Shareholders") named in Schedule I to the Underwriting Agreement (as
defined below), propose to issue and sell to the several Underwriters (as
defined below) an aggregate of 2,900,000 shares (the "Firm Shares") of its
Common Stock, no par value ("Common Stock") pursuant to an underwriting
agreement (the "Underwriting Agreement"), substantially in the form attached
hereto as Exhibit A, with you as representative (the "International
Representative") of the international underwriters named in Schedule III thereto
(the "International Underwriters"), and Morgan Stanley & Co. Incorporated, The
Robinson-Humphrey Company, Inc., J.C. Bradford & Co. and Equitable Securities
Corporation as representatives (the U.S. "Representatives") of the U.S.
underwriters (the "U.S. Underwriters"). The International Underwriters and the
U.S. Underwriters are hereinafter collectively referred to as the Underwriters.
Of such Firm Shares 580,000 shares are to be offered outside
the United States and Canada by the International Underwriters (the
"International Shares") and 2,320,000 shares are to be offered by the U.S.
Underwriters in the United States and Canada (the "U.S. Firm Shares").
In addition, the several U.S. Underwriters will have an option
to purchase from the Company an additional 450,000 shares (the "Additional
Shares") to provide for over-allotments. The term "U.S. Shares" shall mean the
U.S. Firm Shares and the Additional Shares. The U.S. Shares and the
International Shares are hereinafter collectively referred to as the Shares.
We further understand that the Company has filed with the U.S.
Securities and Exchange Commission (the "Commission") a registration statement
including a prospectus relating to the Shares.
<PAGE> 3
I.
We hereby confirm our agreement with you that the
International Shares shall be purchased by you and the other several
International Underwriters, including ourselves, pursuant to the terms of and
as set forth in the Underwriting Agreement. We further understand that the
International Representative proposes to enter into an agreement with the U.S.
Representatives (the "Agreement Between U.S. and International Underwriters"),
substantially in the form attached hereto as Exhibit B, pursuant to Article I
of which, and subject to the conditions thereof, the several International
Underwriters, including ourselves, could become obligated to purchase Shares
from, or sell Shares to, the U.S. Underwriters.
We authorize you (a) to execute and deliver the Underwriting
Agreement and the Agreement Between U.S. and International Underwriters on our
behalf in substantially the forms of Exhibits A and B hereto, respectively, and
to make representations and agreements on our behalf as set forth therein, (b)
to vary the offering terms of the International Shares in effect at any time,
including the offering price, the concession and the reallowance, (c) to agree
to the price at which the International Shares are to be purchased from the
Company and the Selling Shareholders, (d) to agree, on our behalf, to any
addition to, change in or waiver of any provision of the Underwriting Agreement
(other than a change in the purchase price of the International Shares and the
respective numbers of International Shares set forth opposite our names in
Schedule III thereto) or of the Agreement Between U.S. and International
Underwriters (other than a change in the purchase price of the International
Shares pursuant to Article I thereof) and (e) to take any other action as may
seem advisable to you in respect of the offering of the International Shares.
The number of Shares set forth opposite each Underwriter's name in Schedule I
or in Schedule II of the Underwriting Agreement (or such amount increased as
provided in Section 9 of the Underwriting Agreement) is hereinafter referred to
as the Original Purchase Obligation of such Underwriter, and the ratio that
such Original Purchase Obligation of any International Underwriter bears to the
total number of International Shares, expressed as a percentage, is hereinafter
referred to as the International Underwriting Percentage of such International
Underwriter.
2
<PAGE> 4
II.
We authorize you to act as the Lead Managers of the offering
by the International Underwriters of the International Shares outside of the
United States and Canada and to take such action as may seem advisable to you
in respect thereof. The offering of the International Shares is to be made as
soon after the registration statement filed with the Commission relating to the
Shares becomes effective (as then amended, the "Registration Statement") as in
your judgment and the judgment of the U.S. Representatives is advisable, at the
offering price set forth in, and on the other terms and conditions as you shall
determine in accordance with, the Underwriting Agreement. The offering of the
International Shares is to be made on the terms and conditions to be set forth
in the Underwriting Agreement, the Agreement Between U.S. and International
Underwriters and in the prospectus first used to confirm sales of the
International Shares (the "International Prospectus"), whether or not filed
pursuant to Rule [497] under the U.S. Securities Act of 1933, as amended (the
"Act"). During the term of this Agreement, advertisement of the offering
outside of the United States and Canada will be made only by Morgan Stanley &
Co. International Limited. Such advertisement will be made on behalf of the
International Underwriters on such dates and in such countries as Morgan
Stanley & Co. International Limited shall determine.
We authorize Morgan Stanley & Co. International Limited to
determine whether to purchase, and, if such determination is made, to purchase,
any Shares for the account of the International Underwriters pursuant to the
Agreement Between U.S. and International Underwriters. We further authorize
Morgan Stanley & Co. International Limited to determine whether to sell, and,
if such determination is made, to sell, Shares for the account of the
International Underwriters pursuant to such Agreement.
We authorize Morgan Stanley & Co. International Limited to
offer or to sell for our account, in conformity with the immediately succeeding
paragraph, to dealers selected by it (among whom may be included any
International Underwriter) such Shares purchased by us from the Company and the
Selling Shareholders or pursuant to the Agreement Between U.S. and International
Underwriters as Morgan Stanley & Co. International Limited shall determine.
Sales of Shares to dealers shall be made for the account of each International
Underwriter approximately in the proportion that Shares of such International
Underwriter held by Morgan Stanley & Co. International Limited for such sales
bear to the total Shares so held. Such sales shall be made pursuant
3
<PAGE> 5
to dealer agreements substantially in the form attached as Exhibit C hereto.
We authorize Morgan Stanley & Co. International Limited to
offer or sell for our account to certain persons (other than the persons to
whom Shares are sold pursuant to the terms of the immediately preceding
paragraph) such Shares purchased by us from the Company and the Selling
Shareholders or pursuant to the Agreement Between U.S. and International
Underwriters as it shall determine at the offering price set forth in the
International Prospectus. Except for sales for the accounts of International
Underwriters designated by a purchaser, aggregate sales of Shares to such
persons shall be made for the accounts of the several International
Underwriters as nearly as practicable in their respective International
Underwriting Percentages.
Morgan Stanley & Co. International Limited will advise us
promptly as to the number of Shares purchased by us that we shall retain for
direct sale. At any time prior to the termination of this Agreement, any Shares
purchased by us that are held by Morgan Stanley & Co. International Limited for
sale for our account as set forth above but not sold may, upon our request and
at Morgan Stanley & Co. International Limited's discretion, be released to us
for direct sale, and Shares so released to us shall no longer be deemed held
for sale by you.
From time to time prior to the termination of this Agreement,
at Morgan Stanley & Co. International Limited's request, we will advise it of
the number of Shares remaining unsold that were retained by or released to us
for direct sale and of the number of Shares remaining unsold that were
delivered to us pursuant to Article III and, at Morgan Stanley & Co.
International Limited's request, we will release to it any such Shares
remaining unsold for sale by it (i) for our account to dealers or certain other
persons or (ii) if in its opinion, such Shares are needed to make delivery
against sales made pursuant to Article III.
III.
We confirm that, pursuant to the Agreement Between U.S. and
International Underwriters, the International Underwriters are authorizing
Morgan Stanley & Co. Incorporated to buy and sell Common Stock for the accounts
of the several Underwriters, including the International Underwriters, in the
open market or otherwise, for long or short account, on such terms as it shall
deem advisable and to over-allot in arranging sales. Any shares of Common Stock
that may have been purchased by the U.S.
4
<PAGE> 6
Representatives for stabilizing purposes in connection with the offering of the
Shares prior to the execution of this Agreement and the Agreement Between U.S.
and International Underwriters shall be treated as having been purchased
pursuant to this paragraph and the Agreement Between U.S. and International
Underwriters for the accounts of the several Underwriters. We authorize Morgan
Stanley & Co. International Limited to over-allot in arranging sales. We
recognize that the International Primary Market Association (IPMA) limits will
not be complied with in connection with stabilization losses and expenses.
Subject to the provisions of the Agreement Between U.S. and International
Underwriters, all such purchases, sales and over-allotments for the
International Underwriters as a group shall be for the accounts of the several
International Underwriters as nearly as practicable in their respective
International Underwriting Percentages. At no time shall our net commitment
pursuant to the foregoing authorization exceed 15% of our Original Purchase
Obligation, and, in determining our net commitment for short account, there
shall be subtracted any Shares that you have agreed to purchase for our account
pursuant to Article I of the Agreement Between U.S. and International
Underwriters. On demand we will take up and pay for any shares of Common Stock
so purchased for our account and deliver against payment any shares of Common
Stock so sold or over-allotted for our account. The International Representative
agrees to notify us of the date of termination of stabilization when so notified
by Morgan Stanley & Co. Incorporated pursuant to the Agreement Between U.S. and
International Underwriters.
If pursuant to the provisions of the preceding paragraph and
prior to the termination of this Agreement (or prior to such earlier date as
the International Representative may have determined), the U.S. Representatives
purchase or contract to purchase in the open market or otherwise any Shares
that were retained by or released to us for direct sale, or any Shares that may
have been issued on transfer of or in exchange for such Shares, and which
Shares were therefore not effectively placed for investment by us, we authorize
the International Representative either to charge our account with an amount
equal to the selling concession with respect thereto, which amount shall be
credited against the cost of such Shares, or to require us to repurchase such
Shares at a price equal to the total cost of such purchase, including
commissions, if any, and any taxes on redelivery.
5
<PAGE> 7
IV.
On the Closing Date (as defined in the Underwriting
Agreement), prior to [8:45 A.M.] (New York City time) we will deliver to Morgan
Stanley & Co. International Limited, Federal or other funds immediately
available in New York City in the manner as you shall advise for (i) an amount
equal to the offering price less the selling concession in respect of the
Shares to be purchased by us, (ii) an amount equal to the offering price less
the selling concession in respect of such of the Shares to be purchased by us
as shall have been retained by or released to us for direct sale or (iii) the
amount set forth or indicated in a telex to us, as you shall advise. You will
make payment to the Company against delivery to you for our account of the
Shares to be purchased by us and you will deliver to us the Shares paid for by
us which shall have been retained by or released to us for direct sale. Unless
we promptly give you written instructions otherwise, if transactions in the
Shares may be settled through the facilities of The Depository Trust Company,
payment for and delivery of Shares purchased by us will be made through such
facilities, if we are a member, or, if we are not a member, settlement may be
made through our ordinary correspondent who is a member.
V.
We authorize you as Lead Managers to charge our account, as
compensation for your services in connection with this issue, including the
purchase from the Company, the Selling Shareholders and the management of the
offering, $____(2) a share for each Share that we have agreed to purchase
pursuant to Section (2) of the Underwriting Agreement.
We authorize you to charge to our account (i) our International
Underwriting Percentage of all expenses incurred by you under the terms of this
Agreement or in connection with or attributable to the purchase, carrying and
sale of Shares pursuant to this Agreement (including all expenses, if any,
incurred for the account of the International Underwriters pursuant to the
Agreement Between U.S. and International Underwriters), and (ii) all transfer
taxes paid or payable on our behalf on purchases, sales or transfers made for
our account pursuant to this Agreement.
- ----------------------------------
(2)Insert amount of praecipium. Typically, the praecipium is equal to 1/3
of the underwriting portion of the gross spread.
6
<PAGE> 8
VI.
We authorize you to advance your own funds for our account,
charging interest rates prevailing from time to time, or to arrange loans for
our account for the purpose of carrying out the provisions of this Agreement or
the Agreement Between U.S. and International Underwriters and in connection
therewith to hold or pledge as security therefor all or any Shares which you
may be holding for our account under this Agreement.
Out of payment received by you for Shares sold for our account
which have been paid for by us, you will remit to us promptly an amount equal
to the price paid by us for such Shares.
Morgan Stanley & Co. International Limited may deliver to us
or transfer to our account from time to time against payment, for carrying
purposes only, any Shares purchased by us or for our account under this
Agreement that it is holding for sale for our account but that are not sold and
paid for. We will transfer back to Morgan Stanley & Co. International Limited
against payment at such times as it may demand any Shares so transferred to us
for carrying purposes.
VII.
This Agreement shall terminate 30 days from the date hereof,
unless sooner terminated by you, provided that you may in your discretion
extend this Agreement for a further period or periods not exceeding an
aggregate of 30 days. You may at your discretion on notice to us prior to the
termination of this Agreement alter any of the terms or conditions of offering
determined pursuant to Article II hereof or Article III of the Agreement
Between U.S. and International Underwriters, or terminate or suspend in whole
or in part the effectiveness of Article III hereof or paragraphs five through
nine of Article IV thereof. No termination or suspension pursuant to this
paragraph shall affect your or Morgan Stanley & Co. Incorporated's authority
under Article III to cover any short or close any long position incurred under
this Agreement prior to such termination or suspension.
Upon termination of this Agreement, or prior thereto at your
discretion, Morgan Stanley & Co. International Limited shall deliver to us or
transfer to our account any Shares purchased by us from the Company and the
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Selling Shareholders or pursuant to the Agreement Between U.S. and International
Underwriters and held by Morgan Stanley & Co. International Limited for sale for
our account to dealers or others but not sold and paid for and any shares of
Common Stock which are held by Morgan Stanley & Co. International Limited for
our account pursuant to Article III. As soon as practicable after termination of
this Agreement our account hereunder shall be settled and paid. Morgan Stanley &
Co. International Limited may reserve from distribution such amount as it deems
advisable to cover possible additional amounts due from us. Determination by
Morgan Stanley & Co. International Limited of amounts to be paid to or by us
shall be final and conclusive. Any of our funds in Morgan Stanley & Co.
International Limited's hands may be held with its general funds without
accountability for interest.
Notwithstanding any settlement on the termination of this
Agreement, each International Underwriter agrees to pay its International
Underwriting Percentage of (i) all expenses incurred by you in investigating or
defending against any claim or proceeding which is asserted or instituted by
any party (including any governmental or regulatory body) other than an
Underwriter relating to the Registration Statement or the Prospectus (as
defined in the Underwriting Agreement) (or any amendment or supplement thereto)
or any preliminary prospectus and (ii) any liability, including attorneys'
fees, incurred by you in respect of any such claim or proceeding, whether such
liability shall be the result of a judgment or as a result of any settlement
agreed to by you, other than any such expense or liability as to which you
receive indemnity payments pursuant to the following paragraph, Article III of
the Agreement Between U.S. and International Underwriters or Section 7 of the
Underwriting Agreement.
We agree to indemnify and hold harmless each other Underwriter
and each person, if any, who controls any such Underwriter within the meaning
of either Section 15 of the Act or Section 20 of the U.S. Securities Exchange
Act of 1934, as amended, to the extent and upon the terms which we agree to
indemnify and hold harmless the Company, its shareholders, directors, the
officers of the Company who sign the Registration Statement and any person
controlling the Company as set forth in the Underwriting Agreement.
Our agreements contained in the second through fourth
paragraphs of Article II and this Article VII shall remain operative and in
full force and effect regardless of any termination of this Agreement or the
occurrence of any of the events described in clauses (i) through (iii) of the
last paragraph of Section 7 of the Underwriting Agreement.
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<PAGE> 10
VIII.
We have examined the prospectus included in the Registration
Statement as amended to date and we are familiar with the terms of the
securities being offered and the other terms of offering which are to be
reflected in the proposed amendment to the Registration Statement. In addition,
we confirm that the information relating to us which has been furnished to the
Company for use therein is correct. You are authorized, with the approval of
counsel for the Underwriters, to approve on our behalf such proposed amendment
and any further amendments or supplements to the Registration Statement or the
International Prospectus.
We represent that our commitment to purchase Shares hereunder
and under the Agreement Between U.S. and International Underwriters will not
result in a violation of any financial responsibility requirements of any laws,
rules or regulations applicable to us, including applicable rules of any
securities exchange.
IX.
If the Underwriting Agreement is terminated as permitted by
the terms thereof, our obligations hereunder shall immediately terminate except
that (i) our obligations as set forth in the last paragraph of Article VII
shall remain in full force and effect, (ii) we shall remain liable for our
International Underwriting Percentage of all expenses and for any purchases or
sales which may have been made for our account pursuant to the provisions of
Article III, including any taxes on any such purchases or sales and (iii) such
termination shall not affect any obligation of any defaulting International
Underwriter.
In the event that any International Underwriter shall default
in its obligations (i) pursuant to the second paragraph of Article II or the
first paragraph of Article III, (ii) to pay amounts owed by it pursuant to
Article V or (iii) pursuant to the third or fourth paragraph of Article VII or
the first paragraph of this Article IX, we will assume our proportionate share
(determined on the basis of the International Underwriting Percentages of the
non-defaulting International Underwriters) of such obligations, but no such
assumption shall affect any obligation of any defaulting International
Underwriter.
If any one or more of the Underwriters shall fail or refuse to
purchase any Shares which it or they have agreed to purchase under the
Underwriting Agreement, we
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agree, in the proportion which the number of Firm Shares set forth opposite our
name in Schedule III to the Underwriting Agreement bears to the aggregate number
of Firm Shares set forth opposite the names of all non-defaulting Underwriters,
or in such other proportions as you may specify, to purchase the Shares which
such defaulting Underwriter or Underwriters agreed but failed or refused to
purchase; provided that, in no event shall the Shares that any International
Underwriter has agreed to purchase pursuant to Section 2 of the Underwriting
Agreement be increased pursuant to this Article IX by an amount in excess of
one-ninth of the number of such Shares, without the written consent of such
International Underwriter. Morgan Stanley & Co. International Limited is
authorized to arrange for the purchase by others (including itself and any other
International Underwriter) of any Shares not purchased by any defaulting
International Underwriter or by the other International Underwriters as provided
in this paragraph and in Section 9 of the Underwriting Agreement. If such
arrangements are made, the respective numbers of Shares to be purchased by the
remaining International Underwriters and such other person or persons, if any,
shall be taken as the basis for all rights and obligations hereunder. Any action
taken under this paragraph shall not relieve any defaulting International
Underwriter from liability in respect of any default of such International
Underwriter under the Underwriting Agreement or this Agreement.
Nothing herein contained shall constitute us partners with you
or with the other Underwriters and the obligations of ourselves and of each of
the other Underwriters are several and not joint. If for United States federal
income tax purposes the International Underwriters shall be deemed to constitute
a partnership, each International Underwriter elects to be excluded from the
application of Subchapter K, Chapter 1, Subtitle A, of the United States
Internal Revenue Code, as amended.
You shall be under no liability to us for any act or omission
except in respect of obligations expressly assumed by you herein.
This Agreement is being executed by us and delivered to you in
duplicate. Upon your confirmation hereof and agreements in identical form with
each of the other Underwriters, this Agreement shall constitute a valid and
binding contract between us.
Your authority hereunder and under the Underwriting Agreement
and the Agreement Between U.S. and International Underwriters may be exercised
by Morgan Stanley & Co. International Limited, jointly or by Morgan Stanley &
Co. International Limited alone. The authority of
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the U.S. Representatives hereunder and under the Agreement Between U.S. and
International Underwriters may be exercised by Morgan Stanley & Co.
Incorporated, The Robinson-Humphrey Company, Inc., J.C. Bradford & Co. and
Equitable Securities Corporation, either jointly or alone.
This Agreement may be executed in two or more counterparts
which together shall constitute one and the same instrument. If this Agreement
is executed by or on behalf of any party hereto by a person acting under the
power of attorney given him by such party, such person hereby states that at
the time of execution hereof he has no notice of revocation of the power of
attorney by which he has executed this Agreement as such attorney.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York and United States federal
law.
Very truly yours,
MORGAN STANLEY & CO. INTERNATIONAL
LIMITED
By
------------------------------------
Attorney-in-fact for each
of the several International
Underwriters named in Schedule III
to the Underwriting Agreement
Confirmed as of the date hereof
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
By MORGAN STANLEY & CO. INTERNATIONAL LIMITED
By
--------------------------
11
<PAGE> 1
Exhibit h.3
January __, 1997
2,900,000 Shares
Sirrom Capital Corporation
Shares of Common Stock, No Par Value
AGREEMENT BETWEEN U.S. AND INTERNATIONAL UNDERWRITERS
January __, 1997
<PAGE> 2
January __, 1997(1)
To each of the Underwriters named in
Schedules II and III to the Underwriting
Agreement referred to below.
Dear Sirs:
We understand that Sirrom Capital Corporation (the "Company")
and certain shareholders of the Company (the "Selling Shareholders") named in
Schedule I to the Underwriting Agreement (as defined below) have entered into an
underwriting agreement (the "Underwriting Agreement") with Morgan Stanley & Co.
Incorporated, The Robinson-Humphrey Company, Inc., J.C. Bradford & Co. and
Equitable Securities Corporation acting as representatives (the "U.S.
Representatives") of the U.S. underwriters (the "U.S. Underwriters") and Morgan
Stanley & Co. International Limited as representative (the "International
Representative") of the international underwriters named in Schedule III thereto
(the "International Underwriters" and, together with the U.S. Underwriters, the
"Underwriters"), pursuant to which the several Underwriters have agreed to
purchase from the Company and the Selling Shareholders an aggregate of 2,900,000
shares of Common Stock, no par value of the Company ("Common Stock"). In
addition, the Company has granted the U.S. Underwriters the option to purchase
up to 435,000 additional shares of Common Stock (the "Additional Shares"). All
shares of Common Stock to be purchased by the U.S. Underwriters and the
International Underwriters under the Underwriting Agreement, including any
Additional Shares, are herein called the "U.S. Shares" and the "International
Shares," respectively. The U.S. Shares and the International Shares are
collectively referred to herein as the "Shares."
- ----------------------------------
(1) Insert date of Underwriting Agreement.
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<PAGE> 3
I.
The U.S. Underwriters acting through the U.S. Representatives,
and the International Underwriters, acting through the International
Representative, agree that, in order to provide an orderly marketing effort for
the offering, they will consult with each other as to the availability of the
Shares for sale to the public, from time to time until the earlier of (a)
notice from the U.S. Representatives to the U.S. Underwriters of the completion
of the distribution of the U.S. Shares and (b) notice from the International
Representative to the International Underwriters of the completion of the
distribution of the International Shares. From time to time as mutually agreed
among the U.S. Underwriters and the International Underwriters, acting through
Morgan Stanley & Co. Incorporated and Morgan Stanley & Co. International
Limited, respectively, the Underwriters may purchase and sell among each other
such number of Shares to be purchased pursuant to the Underwriting Agreement as
may be so mutually agreed.
The price and currency of settlement of any Shares so
purchased or sold shall be the public offering price, in United States dollars,
less an amount not greater than the selling concession. Settlement with respect
to any Shares transferred hereunder prior to the Closing Date (as defined in
the Underwriting Agreement) shall be made on the Closing Date, and in the case
of purchases and sales made thereafter, as promptly as practicable but in no
event later than three business days after the transfer date. Certificates
representing the Shares so purchased shall be delivered on the respective
settlement dates. The liability of the Underwriters under the Underwriting
Agreement for payment of the purchase price of the Shares purchased thereunder
shall not be affected by the provisions of this Agreement.
The obligations of each U.S. Underwriter in respect of any
purchase or sale of Shares under this Article I by the U.S. Underwriters shall
be pro rata in accordance with the proportion of the total number of U.S. Shares
that such U.S. Underwriter is obligated to purchase under the Underwriting
Agreement. The obligations of each International Underwriter in respect of any
purchase or sale of Shares under this Article I by the International
Underwriters shall be pro rata in accordance with the proportion of the total
number of International Shares that such International Underwriter is obligated
to purchase under the Underwriting Agreement.
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<PAGE> 4
II.
Each of the Underwriters represents that it is a member in
good standing of the U.S. National Association of Securities Dealers, Inc. (the
"NASD") or that it is a foreign bank or dealer not eligible for membership in
the NASD. In making sales of Shares, if it is such a member, such Underwriter
agrees to comply with all applicable rules of the NASD, including, without
limitation, the NASD's Interpretation with Respect to Free-Riding and Witholding
(IM-2110-1) and Rule 2740 of Article III of the NASD Conduct Rules, or, if it is
such a foreign bank or dealer, such Underwriter agrees to comply with such
Interpretation and 2730, 2740 and 2750 of the NASD Conduct Rules as though it
were such a member and Rule 2420 of the NASD Conduct Rules as it applies to a
nonmember broker or dealer in a foreign country.
III.
Each U.S. Underwriter represents and agrees that, except for
(x) sales between the U.S. Underwriters and the International Underwriters
pursuant to Article I of this Agreement and (y) stabilization transactions,
contemplated in Article IV of this Agreement, conducted through the U.S.
Representatives as part of the distribution of the Shares, (a) it is not
purchasing any of the U.S. Shares for the account of anyone other than a United
States or Canadian Person and (b) it has not offered or sold, and will not offer
or sell, directly or indirectly, any of the 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, and any dealer to whom it
may sell any of the U.S. Shares will represent that it is not purchasing any of
the U.S. Shares for the account of anyone other than a United States or Canadian
Person and will agree that it will not offer or resell such U.S. Shares directly
or indirectly outside the United States or Canada or to anyone other than a
United States or Canadian Person or to any other dealer who does not so
represent and agree.
Each International Underwriter represents and agrees that,
except for (x) sales between the U.S. Underwriters and the International
Underwriters pursuant to Article I of this Agreement and (y) stabilization
transactions, contemplated in Article IV of this Agreement, conducted through
the U.S. Representatives as part of the distribution of the Shares, (a) it is
not purchasing any of the Interna-
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<PAGE> 5
tional Shares 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 of the International Shares or distribute any prospectus relating to the
International Shares in the United States or Canada or to any United States or
Canadian Person, and any dealer to whom it may sell any of the International
Shares will represent that it is not purchasing any of the International Shares
for the account of any United States or Canadian Person and will agree that it
will not offer or resell such International Shares directly or indirectly in
the United States or Canada or to any United States or Canadian Person or to
any other dealer who does not so represent and agree.
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 it in its
capacity as a U.S. Underwriter and (ii) made by it in its capacity as an
International Underwriter shall apply only to it in its capacity as an
International Underwriter. In addition, notwithstanding the foregoing
representations and agreements, if an Underwriter (including its affiliates) is
both a U.S. Underwriter and an International Underwriter, then the U.S.
Underwriter and its corresponding International Underwriter may, with the
consent of Morgan Stanley & Co. Incorporated, transfer between themselves at
cost any Shares allocated to them for direct sale by the U.S. Representatives
or the International Representative so long as any Shares so transferred are
treated as U.S. Shares while held by the U.S. Underwriter and International
Shares while held by the International Underwriter for purposes of the foregoing
representations and agreements.
"United States or Canadian Person" shall mean any 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 of the United States and Canada of any United States or
Canadian Person), and shall include any United States or Canadian branch of a
person who is otherwise not a United States or Canadian Person. "United States"
shall mean the United States of America, its territories, its possessions and
all areas subject to its jurisdiction.
The agreements of the Underwriters set forth in the first and
second paragraphs of this Article III shall terminate upon the earlier of (a)
the mutual agreement of the U.S. Representatives and the International
Representative and (b) 30 days after the date hereof, unless the U.S.
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<PAGE> 6
Representatives or the International Representative shall have given notice to
the other to the effect that the distribution of the Shares by the U.S.
Underwriters or the International Underwriters, as the case may be, has not yet
been completed. If such notice is given, the agreements set forth in such
preceding paragraphs shall survive until the earlier of (x) the mutual
agreement referred to in the preceding sentence and (y) 30 days after the date
of any such notice.
Each U.S. Underwriter represents that it has not offered or
sold, and agrees not to offer or sell, any Shares, directly or indirectly, in
any province or territory of Canada or to, or for the benefit of, any resident
of any province or territory of Canada in contravention of the securities laws
thereof and, without limiting the generality of the foregoing, represents that
any offer of Shares in Canada will be made only pursuant to an exemption from
the requirement to file a prospectus in the province or territory of Canada in
which such offer is made. Each U.S. Underwriter further agrees to send to any
dealer who purchases from it any of the Shares a notice stating in substance
that, by purchasing such Shares, 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 in any province or territory of Canada or to, or for the benefit
of, any resident of any province or territory of Canada in contravention of the
securities laws thereof and that any offer of Shares in Canada will be made
only pursuant to an exemption from the requirement to file a prospectus in the
province or territory 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 a
notice containing substantially the same statement as is contained in this
sentence.
The Underwriters understand that no action has been or will be
taken in any jurisdiction by the Underwriters or the Company that would permit a
public offering of the Shares, or possession or distribution of the Prospectus
(as defined in the Underwriting Agreement), in preliminary or final form, in any
jurisdiction where, or in any circumstances in which, action for that purpose is
required, other than the United States.
Each International Underwriter agrees that it will comply with
all applicable laws and regulations, and make or obtain all necessary filings,
consents or approvals, in each jurisdiction in which it purchases, offers, sells
or delivers Shares (including, without limitation, any applicable requirements
relating to the delivery of the international prospectus, in preliminary or
final form), in each case at
5
<PAGE> 7
its own expense. In connection with sales of and offers to sell Shares made by
it, each International Underwriter will either furnish to each person to whom
any such sale or offer is made a copy of the then current international
prospectus (in preliminary or final form and as then amended or supplemented if
the Company shall have furnished any amendments or supplements thereto), or
inform such person that such international prospectus, in preliminary or final
form, will be made available upon request, and will keep an accurate record of
the names and addresses of all persons to whom it gives copies of the
registration statement relating to the offering of the Shares, the international
prospectus, in preliminary or final form, or any amendment or supplement
thereto, and, when furnished with any subsequent amendment to such registration
statement, any subsequent prospectus or any medium outlining changes in the
registration statement or any prospectus, will upon request of the International
Representative, promptly forward copies thereof to such person or inform such
person that such amendment, subsequent prospectus or other medium will be made
available upon request.
Each International Underwriter further represents 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
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 and other relevant laws and regulations of Japan. Each
International Underwriter further agrees to send to any dealer who purchases
from it any of the Shares a notice stating in substance that, by purchasing
such Shares, such dealer represents and agrees that it has not offered or sold,
and will not offer or sell, any of such Shares, directly or indirectly, in
Japan or to or for the account of any resident thereof 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 and other relevant laws and regulations of Japan, and that such dealer will
send to any other dealer to whom it sells any of such Shares a notice
containing substantially the same statement as is contained in this sentence.
Each International Underwriter further represents and agrees
that (i) it has not offered or sold and will not offer or sell, any Shares to
persons 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
6
<PAGE> 8
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"); (ii) 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 in, from or otherwise involving the United Kingdom; and (iii) 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 if that person is of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995 or is a
person to whom such document may otherwise lawfully be issued or passed on.
Each International Underwriter agrees to indemnify and hold
harmless each Underwriter and each person controlling any Underwriter from and
against any and all losses, claims, damages and liabilities (including fees and
disbursements of counsel) arising from any breach by it of any of the
provisions of paragraphs eight, nine and ten of this Article III.
IV.
The overall direction and planning of the stabilization
transactions contemplated herein shall be the responsibility of the U.S.
Representatives and the International Representative, which will consult with
one another on a continuous basis so that such stabilization transactions shall
be conducted in accordance with such direction and planning as is mutually
agreed upon.
All stabilization transactions shall be conducted only by
Morgan Stanley & Co. Incorporated and shall be conducted in compliance with any
applicable laws and regulations. Morgan Stanley & Co. Incorporated agrees to
notify the International Representative of the date of termination of
stabilization.
The International Primary Market Association (IPMA) limits
will not be complied with in connection with stabilization losses and expenses.
All stabilization transactions shall be for the respective accounts of the
several Underwriters and shall be allocated between the U.S. Underwriters and
the International Underwriters in the respective proportions that the number of
U.S. Shares and International Shares purchased pursuant to the Underwriting
Agreement bears to the total number of Shares purchased. In no event
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<PAGE> 9
shall the net commitment of any Underwriter, for either long or short account,
resulting from such stabilization transactions and from the over-allotments
referred to in Article V, exceed 15% of the total number of Shares that such
Underwriter is obligated to purchase under the Underwriting Agreement; provided
that the net commitment of any Underwriter for short account shall be
calculated (x) in the case of any U.S. Underwriter, after giving effect to the
purchase of (i) any Shares that the U.S. Representatives have agreed to
purchase for the account of such U.S. Underwriter pursuant to Article I of
this Agreement and (ii) the maximum number of Additional Shares that such U.S.
Underwriter is entitled to purchase under the Underwriting Agreement and (y) in
the case of any International Underwriter, after giving effect to the purchase
of any Shares that the International Representative has agreed to purchase for
the account of such International Underwriter pursuant to Article I of this
Agreement.
Each U.S. Underwriter represents that it has not offered or
sold, and agrees that it will not offer or sell, directly or indirectly, Shares
to any person at less than the public offering price, other than to (i) the
International Underwriters pursuant to Article I hereof or (ii) other U.S.
Underwriters or to dealers who have entered into the Master Dealer Agreement
with Morgan Stanley & Co. Incorporated and who have received a pricing wire
from the U.S. Representatives with respect to this offering that, among other
things, sets forth such dealer's agreement that it is not purchasing Shares for
the account of any persons other than United States or Canadian Persons and
that it will not offer or resell Shares outside the United States and Canada.
Such sales to U.S. dealers and other U.S. Underwriters shall be made in
confirmity with the provisions of Article II and at a price that is not below
the public offering price less the maximum permissible reallowance to be
specified in the Prospectus. Each U.S. Underwriter agrees that prior to
offering Shares to any dealer at the public offering price less the
reallowance, it will either ascertain that such dealer has entered into such
Master Dealer Agreement and received such a pricing wire or make arrangements
to ensure that such dealer will enter into such Master Dealer Agreement and
receive such a pricing wire.
Each International Underwriter represents that it has not
offered or sold and agrees that it will not offer or sell, directly or
indirectly, Shares to any person at less than the offering price, other than to
(i) U.S. Underwriters pursuant to Article I hereof or (ii) other International
Underwriters or to dealers who have entered into International Dealer Agreements
(the "International Dealers") with the International Representative in the form
of Exhibit C to
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<PAGE> 10
the Agreement Among International Underwriters. Such sales to International
Dealers and other International Underwriters shall be made in conformity with
the provisions of Article II and at a price that is not below the public
offering price less the maximum permissible reallowance to be specified in the
Prospectus. Each International Underwriter agrees that prior to offering Shares
to any dealer at the public offering price less the reallowance, it will either
ascertain that such dealer has entered into such an International Dealer
Agreement or make arrangements to assure that such dealer will enter into an
International Dealer Agreement.
The agreements of the Underwriters set forth in the foregoing
two paragraphs shall terminate upon the earlier of (a) the mutual agreement of
the U.S. Representatives and the International Representative and (b) 30 days
after the date hereof, unless the U.S. Representatives or the International
Representative shall have given notice to the other to the effect that the
distribution of the Shares by the U.S. Underwriters or the International
Underwriters, as the case may be, has not yet been completed. If such notice is
given, the agreements set forth in such preceding paragraphs shall survive
until the earlier of (x) the mutual agreement referred to in the preceding
sentence and (y) 30 days after the date of any such notice.
Each Underwriter agrees that it will not, without the advance
approval of the U.S. Representatives and the International Representative,
respectively, (i) offer, bid for, buy, sell, contract to buy or sell, sell any
option or contract to purchase or sell, purchase any option or contract to sell
or buy or otherwise acquire, transfer or dispose of, directly or indirectly,
any shares of Common Stock or any security convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that involves the transfer to another, in whole or in part, of any of the
economic consequences of ownership of the Common Stock (whether any such
transaction described in clause (i) or (ii) above is for the account of such
Underwriter or a customer or whether any such transaction is to be settled by
delivery of Common Stock or other such securities, in cash or otherwise),
except (a) as provided in the Agreement Among International Underwriters, the
Master Agreement Among Underwriters, this Agreement or the Underwriting
Agreement, (b) that it may convert any security of the Company convertible into
Common Stock owned by it and sell the Common Stock acquired upon such
conversion and that it may deliver Common Stock owned by it upon the exercise
of any option written by it as permitted by the provisions set forth herein,
(c) in brokerage transactions on unsolicited orders which have not resulted
from activities on its part
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<PAGE> 11
in connection with the solicitation of purchases and which are executed by it
in the ordinary course of its brokerage business and (d) that on or after the
date of the initial public offering of the Shares, it may execute covered
writing transactions in options to acquire Common Stock, when such transactions
are covered by Shares, for the accounts of customers.
An opening uncovered writing transaction in options to acquire
Common Stock for an Underwriter's account or for the account of a customer
shall be deemed, for purposes of this Article IV, to be a sale of Common Stock
which is not unsolicited. The term "opening uncovered writing transaction in
options to acquire" as used above means a transaction in which the seller
intends to become a writer of an option to purchase Common Stock which he does
not own. An opening uncovered purchase transaction in options to sell Common
Stock for an Underwriter's account or for the account of a customer shall be
deemed, for purposes of this paragraph, to be a sale of Common Stock which is
not unsolicited. The term "opening uncovered purchase transaction in options to
sell" as used above means a transaction where the purchaser intends to become
an owner of an option to sell Common Stock which he does not own.
Each Underwriter represents that it has not participated,
since it was invited to participate in the offering of the Shares, in any
transaction prohibited by this Article IV and that it has at all times complied
and agrees that it will at all times comply with the provisions of Rule 10b-6
of the U.S. Securities Exchange Act of 1934, as amended, applicable to this
offering.
V.
The overall direction and planning of any over-allotments to be
made by the Underwriters in arranging for sales of Shares, and the related
transactions required to cover such over-allotments, shall be the responsibility
of the U.S. Representatives. All profits and losses arising from such
over-allotments (excluding the excess, if any, of (i) the public selling price
of any Additional Shares and any Shares purchased pursuant to Article I of this
Agreement over (ii) the cost of such Additional Shares and such other Shares to
the Underwriters making such sales) shall be for the respective accounts of the
several Underwriters and shall be allocated between the U.S. Underwriters and
the International Underwriters in the respective proportions that the number of
U.S. Shares and International Shares purchased pursuant to the Underwriting
Agreement bears to the total number of Shares purchased.
10
<PAGE> 12
VI.
Each of the Underwriters agrees that the expenses incurred in
connection with or attributable to the purchase, carrying or sale of the
Shares, including the fees and disbursements of Skadden, Arps, Slate, Meagher &
Flom LLP (U.S. counsel to the Underwriters), shall be for the respective
accounts of the several Underwriters and shall be allocated between the U.S.
Underwriters and the International Underwriters in the respective proportions
that the number of U.S. Shares and International Shares purchased pursuant to
the Underwriting Agreement bears to the total number of Shares purchased.
VII.
Changes in the offering price and in the concessions and
reallowances to dealers will be made only upon the mutual agreement of the
Underwriters during the period referred to in the first sentence of Article I
hereof.
VIII.
The Representatives will keep one another fully informed of
the progress of the offering of the Shares.
The agreements of the Underwriters contained in Article II,
the sixth through eleventh paragraphs of Article III, the last paragraph of
Article IV, Article V and Article VI shall remain operative and in full force
and effect regardless of (i) any termination of this Agreement, (ii) any
termination of the Underwriting Agreement, (iii) any investigation made by or
on behalf of any Underwriter or any person controlling any Underwriter or by or
on behalf of the Company, its shareholders, officers or directors or any other
person controlling the Company and (iv) acceptance of and payment for any
Shares.
IX.
This Agreement may be signed in counterparts, which together
shall constitute one and the same instrument.
This Agreement shall be governed and construed in all respects
in accordance with the laws of the State of New York and United States federal
law.
11
<PAGE> 13
IN WITNESS WHEREOF, this Agreement has been executed as of the
date and year first above written by the undersigned for themselves and for the
Underwriters as set forth above.
MORGAN STANLEY & CO. INCORPORATED
THE ROBINSON-HUMPHREY COMPANY, INC.
J.C. BRADFORD & CO.
EQUITABLE SECURITIES CORPORATION
Acting severally on behalf of
themselves and the several U.S.
Underwriters named in Schedule II
to the Underwriting Agreement
referred to herein.
By MORGAN STANLEY & CO.
INCORPORATED
By
--------------------------------
MORGAN STANLEY & CO. INTERNATIONAL
LIMITED
Acting severally on behalf of
itself and the several
International Underwriters
named in Schedule III to the
Underwriting Agreement
referred to herein.
By MORGAN STANLEY & CO. INTERNATIONAL
LIMITED
By
-------------------------------
12
<PAGE> 1
Exhibit h.4
January __, 1997
580,000 Shares
Sirrom Capital Corporation
Shares of Common Stock, No Par Value
INTERNATIONAL DEALER AGREEMENT
January __, 1997(1)
- ----------------------------------
(1)Insert date of Underwriting Agreement.
<PAGE> 2
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
c/o MORGAN STANLEY & CO. INTERNATIONAL LIMITED
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs:
We understand that Sirrom Capital Corporation, a Tennessee
corporation (the "Company") and certain shareholders (the "Selling
Shareholders") named in Schedule I to the Underwriting Agreement (as defined
below), propose to issue and sell to the several Underwriters (as defined
below) an aggregate of 2,900,000 shares (the "Firm Shares") of its Common
Stock, no par value ("Common Stock") pursuant to an underwriting agreement (the
"Underwriting Agreement") with you as representative (the "International
Representative") of the international underwriters named in Schedule III
thereto (the "International Underwriters"), and with Morgan Stanley & Co.
Incorporated, The Robinson-Humphrey Company, Inc., J.C. Bradford & Co. and
Equitable Securities Corporation as representatives (the "U.S.
Representatives") of the U.S. underwriters (the "U.S. Underwriters"). The Firm
Shares to be sold to the several U.S. Underwriters and to the several
International Underwriters shall hereinafter be referred to, respectively, as
the U.S. Firm Shares and the International Shares. The International
Underwriters and the U.S. Underwriters are hereinafter collectively referred to
as the Underwriters.
In addition, the several U.S. Underwriters will have an option
to purchase from the Company an additional 435,000 shares (the "Additional
Shares") to provide for over-allotments. The term "U.S. Shares" shall mean the
U.S. Firm Shares and the Additional Shares. The U.S. Shares and the
International Shares are hereinafter collectively referred to as the Shares.
We acknowledge receipt of the Prospectus dated January __,
1997(2) (hereinafter called the international prospectus) relating to the
offering of the International Shares.
- ----------------------------------
(2)Insert date of Underwriting Agreement.
<PAGE> 3
We understand that the International Underwriters are
severally offering, through you, certain of the Shares for sale to certain
dealers at the offering price of U.S. $_____ less a concession not in excess of
U.S. $_____(3) under the offering price, and that any International Underwriter
may allow, and dealers may reallow, a concession not in excess of U.S.
$_____(4) under the offering price to other International Underwriters or to
other dealers who enter into an agreement in this form.
We hereby agree with you as follows with respect to any
purchase of Shares from you or from any other International Underwriter or from
any dealer at a concession from the offering price.
In purchasing Shares, we will rely only on the international
prospectus and on no other statements whatsoever, written or oral.
I.
We understand that no action has been or will be taken in any
jurisdiction by the International Underwriters or the Company that would permit
a public offering of the Shares, or possession or distribution of the
international prospectus, in preliminary or final form, in any jurisdiction
where, or in any circumstances in which, action for that purpose is required,
other than the United States. We agree that we will comply with all applicable
laws and regulations, and make or obtain all necessary filings, consents or
approvals, in each jurisdiction in which we purchase, offer, sell or deliver
Shares (including, without limitation, any applicable requirements relating to
the delivery of the international prospectus, in preliminary or final form), in
each case at our own expense. In connection with sales of and offers to sell
Shares made by us, we will either furnish to each person to whom any such sale
or offer is made a copy of the then current international prospectus (in
preliminary or final form and as then amended or supplemented if the Company
shall have furnished any amendments or supplements thereto), or inform such
person that such international prospectus will be made available upon request
and we will keep an accurate record of the names and addresses of all persons
to whom we give copies of the registration statement relating to the offering
of the Shares, the international prospectus, in preliminary or
- ----------------------------------
(3)Insert amount of selling concession.
(4)Insert amount of reallowance.
2
<PAGE> 4
final form, or any amendment or supplement thereto, and, when furnished with
any subsequent amendment to such registration statement, any subsequent
prospectus or any medium outlining changes in the registration statement or any
prospectus, we will upon request of the International Representative, promptly
forward copies thereof to such persons or inform such persons that such
amendment, subsequent prospectus or other medium will be made available upon
request.
We will not give any information or make any representation
other than as contained in the international prospectus, or act for the
Company, any Selling Shareholder, any International Underwriter or you.
We represent and agree that, except for (x) sales between the
U.S. Underwriters and the International Underwriters pursuant to Article I of
the Agreement Between U.S. and International Underwriters of even date herewith
(hereinafter called the Agreement Between U.S. and International Underwriters)
and (y) stabilization transactions contemplated in Article IV of the Agreement
Between U.S. and International Underwriters conducted through the U.S.
Representatives as part of the distribution of the Shares, (a) we are not
purchasing and have not purchased and will not purchase any of the Shares for
the account of any United States or Canadian Person and (b) we have not offered
or sold, and will not offer or sell, directly or indirectly, any of the Shares
or distribute any prospectus relating to the Shares, in the United States or
Canada or to any United States or Canadian Person and any dealer to whom we may
sell any of the Shares will represent that it is not purchasing any of the
Shares for the account of any United States or Canadian Person and will agree
that it will not offer or resell such Shares directly or indirectly in the
United States or Canada or to any United States or Canadian Person or to any
other dealer who does not so represent and agree. "United States or Canadian
Person" shall mean any 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 shall include any United
States or Canadian branch of a person who is otherwise not a United States or
Canadian Person. "United States" shall mean the United States of America, its
territories, its possessions and all areas subject to its jurisdiction. Our
agreement set forth in this paragraph shall terminate upon the earlier of (a)
notice from you to such effect and (b) 30 days after the date of the initial
offering of the Shares, unless you have given notice that the distribution of
the Shares has
3
<PAGE> 5
not yet been completed. If such latter notice is given, the agreement set forth
in this paragraph shall survive until the earlier of (x) the notice of
termination referred to in (a) above and (y) 30 days after the date of any
notice that the distribution of the Shares has not yet been completed.
We further represent that we have not offered or sold and
agree not to offer or sell, directly or indirectly, in Japan or to or for the
account of any resident thereof, any of the Shares 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 and other
relevant laws and regulations of Japan. We further agree to send to any dealer
who purchases from us any of such Shares a notice stating in substance that, by
purchasing such Shares, such dealer represents and agrees that it has not
offered or sold, and will not offer or sell, any of such Shares, directly or
indirectly, in Japan or to or for the account of any resident thereof, 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 and other relevant laws and regulations of Japan,
and that such dealer will send to any other dealer to whom it sells any of such
Shares a notice containing substantially the same statement as is contained in
this sentence.
We further represent and agree that (i) we have not offered or
sold and during the period of six months from the date hereof will not offer or
sell, any Shares to persons 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"); (ii) we have
complied and will comply with all applicable provisions of the Financial
Services Act 1986 and the Regulations with respect to anything done by us in
relation to the Shares in, from or otherwise involving the United Kingdom; and
(iii) we have only issued or passed on and will only issue or pass on to any
person in the United Kingdom any document received by us in connection with the
issue of the Shares if that person is of a kind described in Article 11(3) of
the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1995 or is a person to whom such document may otherwise lawfully be issued or
passed on.
We represent that we are a foreign bank or dealer not eligible
for membership in the U.S. National Association
4
<PAGE> 6
of Securities Dealers, Inc. (hereinafter called the NASD), and we agree not to
offer to sell or sell any Shares in, or to persons who are nationals or
residents of, the United States, except for offers and Shares referred to in
clause (x) of the third paragraph of this Article I. In making sales of Shares,
we agree to comply with the NASD's Interpretation with Respect to Free-Riding
and Withholding (IM-2110-1) and Rules 2730, 2740 and 2750 of the NASD Conduct
Rules as though we were a member in good standing of the NASD and Rule 2420 of
the NASD Conduct Rules as it applies to a non-member broker or dealer in a
foreign country.
We represent that we have not and agree that we will not,
during the period continuing until the International Representative shall have
notified us of the completion of the distribution of the Shares (i) offer, bid
for, buy, sell, contract to buy or sell, sell any option or contract to
purchase or sell, purchase any option or contract to sell or buy or otherwise
acquire, transfer or dispose of, directly or indirectly, any shares of Common
Stock or any security convertible into or exercisable or exchangeable for
Common Stock or (ii) enter into any swap or other arrangement that involves the
transfer to another, in whole or in part, of any of the economic consequences
of ownership of the Common Stock (whether any such transaction described in
clause (i) or (ii) above is for our own account or the account of a customer or
whether any such transaction is to be settled by delivery of Common Stock or
other such securities, in cash or otherwise), except (a) as provided in the
Agreement Among International Underwriters, the Morgan Stanley & Co.
Incorporated Master Agreement Among Underwriters, this Agreement or the
Underwriting Agreement, (b) that we may convert any security of the Company
convertible into Common Stock owned by us and sell the Common Stock acquired
upon such conversion and that we may deliver Common Stock owned by us upon the
exercise of any option written by us as permitted by the provisions set forth
herein, (c) in brokerage transactions on unsolicited orders which have not
resulted from activities on our part in connection with the solicitation of
purchases and which are executed by us in the ordinary course of our brokerage
business and (d) that on or after the date of the initial public offering of
the Shares, we may execute covered writing transactions in options to acquire
Common Stock, when such transactions are covered by Shares, for the accounts of
customers.
An opening uncovered writing transaction in options to acquire
Common Stock for our account or for the account of a customer shall be deemed,
for purposes of this Article I, to be a sale of Common Stock which is not
unsolicited. The term "opening uncovered writing
5
<PAGE> 7
transaction in options to acquire" as used above means a transaction where the
seller intends to become a writer of an option to purchase any Common Stock
which he does not own. An opening uncovered purchase transaction in options to
sell Common Stock for our account or for the account of a customer shall be
deemed, for purposes of this paragraph, to be a sale of Common Stock which is
not unsolicited. The term "opening uncovered purchase transaction in options to
sell" as used above means a transaction where the purchaser intends to become
an owner of an option to sell Common Stock which he does not own.
We represent that we have not participated, since we were
invited to participate in the offering of the Shares, in any transaction
prohibited by this Article I and that we have at all times complied and agree
that we will at all times comply with the provisions of Rule 10b-6 of the U.S.
Securities Exchange Act of 1934, as amended, applicable to this offering.
We agree to indemnify and hold harmless the Company, each
Selling Shareholder, each Underwriter and each person controlling the Company
or any Underwriter from and against any and all losses, claims, damages and
liabilities (including fees and disbursements of counsel) arising from any
breach by us of any of the provisions of this Article I.
II.
Shares purchased by us at a concession from the offering price
shall be promptly offered upon the terms set forth in the international
prospectus or for sale at a concession not in excess of the reallowance
concession under the offering price to any International Underwriter or to any
other dealer who enters into an agreement with you in this form with respect to
this offering that, among other things, sets forth such dealer's agreement that
it is not purchasing Shares for the account of any United States or Canadian
Persons and that it will not offer or resell Shares in the United States and
Canada. Prior to offering Shares to any dealer at the public offering price
less the reallowance, you must either ascertain that such dealer has entered
into such an agreement or assure that such dealer will enter into such an
agreement.
We agree to advise you from time to time upon request, prior
to the termination of this Agreement, of the number of Shares remaining unsold
which were purchased by us from you or from any other International Underwriter
or dealer at a concession from the offering price and, on your
6
<PAGE> 8
request, we will resell to you any such Shares remaining unsold at the purchase
price thereof if, in your opinion, such Shares are needed to make delivery
against sales made to others.
If prior to the termination of this Agreement (or prior to
such earlier date as you have determined) a U.S. Representative or
International Representative purchases or contracts to purchase in the open
market or otherwise any Shares which were purchased by us from you or from any
other International Underwriter or dealer at a concession from the offering
price (including any Shares represented by certificates which may have been
issued on transfer or in exchange for certificates originally representing such
Shares), and which Shares were therefore not effectively placed for investment
by us, we authorize you either to charge our account with an amount equal to
such concession which shall be credited against the cost of such Shares, or to
require us to repurchase such Shares at a price equal to the total cost of such
purchase, including any commissions and any taxes on redelivery.
We have not offered or sold, and we will not offer or sell,
directly or indirectly, Shares that were purchased by us from you or from any
other International Underwriter or dealer at a concession from the offering
price (including any Shares represented by certificates which may have been
issued on transfer or in exchange for certificates originally representing such
Shares) to any person at less than the offering price, other than to (i) U.S.
Underwriters pursuant to Article I of the Agreement Between U.S. and
International Underwriters or (ii) other International Underwriters or to
dealers who have entered into International Dealer Agreements with the
International Representative (hereinafter called the International Dealer
Agreements) and then only in conformity with the provisions of Article I and at
a price that is not below the offering price less the maximum permissible
reallowance to be specified in the international prospectus. We agree that
prior to offering Shares to any dealer at the public offering price less the
reallowance, we will either ascertain that such dealer has entered into such an
International Dealer Agreement or make arrangements to assure that such dealer
will enter into an International Dealer Agreement.
III.
If we purchase any Shares from you hereunder, we agree that
such purchases will be evidenced by your written confirmation and will be
subject to the terms and conditions
7
<PAGE> 9
set forth in the confirmation and in the international prospectus.
Shares purchased by us from you in connection with our
participation as dealer in the offering shall be paid for in full at (i) the
offering price, (ii) such price less the applicable concession or (iii) the
price set forth or indicated in the pricing wire, as you shall advise, in
Federal or other funds immediately available in New York City in the manner, at
such time and on such day as you may advise us against delivery of the Shares.
If we are called upon to pay the offering price for the Shares purchased by us,
the applicable concession will be paid to us, less any amounts charged to our
account pursuant to Article II above, after termination of this Agreement.
Unless we promptly give you written instruction otherwise, if transactions in
the Shares may be settled through the facilities of The Depository Trust
Company, payment for and delivery of Shares purchased by us will be made
through such facilities, if we are a member, or, if we are not a member,
settlement may be made through our ordinary correspondent who is a member.
We authorize the International Representative as principals to
advance, or to arrange the advance of, funds to us to cover any delay in the
receipt of funds necessary for payment for the Shares to be purchased by us and
to charge, or to arrange for the charging of, interest on such funds at current
rates.
IV.
You will advise us of the date and time of termination of this
Agreement or of any designated provisions hereof. This Agreement shall in any
event terminate 30 days after the date of the initial offering of the Shares
unless sooner terminated by you, provided that you may in your discretion
extend this Agreement for a further period or periods not exceeding an
aggregate of 30 days, and provided further that the provisions of Article I
hereof shall survive any termination of this Agreement.
V.
We agree that you, as International Representative, have full
authority to take such action as may seem advisable to you in respect of all
matters pertaining to the offering of the Shares. Neither you, as International
Representative, nor any of the International Underwriters shall be under any
liability to us for any act
8
<PAGE> 10
or omission, except in respect of obligations expressly assumed in this
Agreement.
All communications to you relating to the subject matter of
this Agreement shall be addressed to the Syndicate Department, Morgan Stanley &
Co. International Limited, 25 Cabot Square, Canary Wharf, London E14 4QA,
England, and any notices to us shall be deemed to have been duly given if
mailed or telegraphed to us at the address shown below.
VI.
GOVERNING LAW
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York and United States federal
law.
Very truly yours,
-------------------------
-------------------------
-------------------------
(ADDRESS)
By
-----------------------
9
<PAGE> 1
Exhibit K.3
JOINT VENTURE AGREEMENT
A M O N G
SIRROM CAPITAL CORPORATION
- and -
THE TORONTO-DOMINION BANK
- and -
SCC CANADA INC.
File No. 9700090 - MGC\TD\SCC\JV11.AGT
MGC:wpc
GOODMAN AND CARR
Suite 2300
200 King Street West
Toronto, Ontario
M5H 3W5
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE DESCRIPTION PAGE NO.
- ------- ----------- --------
<S> <C> <C>
1 - INTERPRETATION.......................................................... 2
1 Definitions................................................... 2
2 Schedules..................................................... 8
3 Currency...................................................... 8
4 Gender and Number............................................. 8
5 Table of Contents and Headings................................ 9
6 Calculation of Time Periods................................... 9
7 Applicable Law................................................ 9
8 Severable..................................................... 9
9 Entire Agreement.............................................. 9
10 Amendments.................................................... 10
11 Waiver........................................................ 10
12 Time of Essence............................................... 10
13 Successors and Assigns........................................ 10
14 Giving Effect to this Agreement............................... 10
2 - SECURED LOANS AND EQUITY INVESTMENTS.................................... 10
1 Agreement to make Secured Loans and Equity Investments........ 10
2 Senior Loan and Equity Investment Criteria.................... 11
3 Maximum Aggregate Principal Amount of Secured Loans and
Capital....................................................... 13
3 - SCC CANADA.............................................................. 13
1 Business of SCC Canada........................................ 13
2 Dealings with Investees....................................... 15
3 Capitalization and Financing of SCC Canada.................... 15
4 Principal Place of Business of SCC Canada..................... 17
5 Board of Directors............................................ 17
6 Matters Requiring Unanimous Approval
of SCC Canada Board of Directors.............................. 19
7 Resolutions in Writing........................................ 20
8 Conference Telephone Meetings................................. 21
9 SCC Canada Management......................................... 21
10 Administrative and Management Services........................ 21
11 Special Services to be provided to SCC Canada by Sirrom....... 22
12 Filing of Certificates and Compliance with Laws............... 23
4 - THE INVESTMENT COMMITTEE................................................ 23
1 Establishment of the Investment Committee..................... 23
2 Appointment of the Investment Committee....................... 24
3 Approval of the Investment Committee.......................... 24
4 Advisors...................................................... 25
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE DESCRIPTION PAGE NO.
- ------- ----------- --------
<S> <C> <C>
5 Investment Committee Meetings Generally....................... 26
6 Notice of Investment Committee Meetings....................... 26
7 Conference Telephone Meetings................................. 26
8 Location of Meetings.......................................... 26
9 Quorum........................................................ 27
10 Resolutions in Writing........................................ 27
5 - INTERESTS OF LENDERS IN
SECURED LOAN INVESTMENTS................................................ 27
1 (a) Secured Loans........................................ 27
(b) Bonus Equity Interests............................... 28
(c) Equity Investments................................... 28
2 Loss Payment by Sirrom to TD.................................. 29
3 Processing Fee................................................ 30
4 Investment Servicing Fee...................................... 30
5 Payments Generally............................................ 30
6 - REPRESENTATIONS AND WARRANTIES.......................................... 30
1 Representations and Warranties................................ 30
2 Survival of Representations and Warranties.................... 33
7 - TRANSFER OF INTERESTS................................................... 33
1 Prohibition Against Transfers and Encumbrances................ 33
8 - ACKNOWLEDGMENT REGARDING
ACTIVITIES OF TD AND SIRROM............................................. 34
1 Non-Competition............................................... 34
9 - TERMINATION............................................................. 35
1 Termination................................................... 35
10 - INDEMNITY............................................................... 36
1 Indemnity..................................................... 36
11 - GENERAL CONTRACT PROVISIONS............................................. 36
1 Notices....................................................... 36
2 Further Assurances............................................ 37
3 Execution..................................................... 38
</TABLE>
2
<PAGE> 4
THIS AGREEMENT made this 17th day of January, 1997,
A M O N G:
SIRROM CAPITAL CORPORATION, a corporation
incorporated under the laws of the State of
Tennessee, in the United States of America,
(hereinafter called "Sirrom")
OF THE FIRST PART;
- and -
THE TORONTO-DOMINION BANK, a
Canadian chartered bank,
(hereinafter called "TD")
OF THE SECOND PART;
- and -
SCC CANADA INC., a corporation incorporated
under the Business Corporations Act (Ontario),
(hereinafter called "SCC Canada")
OF THE THIRD PART.
WHEREAS Sirrom and TD intend to jointly make Secured Loans (as hereinafter
defined) from time to time;
AND WHEREAS Sirrom and TD wish to confirm their agreement regarding the
terms and conditions on which Secured Loans (as hereinafter defined) will be
jointly made and
<PAGE> 5
administered by SCC Canada from time to time, which terms and conditions are
hereinafter set forth;
NOW THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereby covenant and agree as follows:
ARTICLE 1 - INTERPRETATION
1 Definitions
Unless the context otherwise requires, in addition to any other terms
defined herein, the following terms shall have the respective meanings set out
below as follows:
(a) "ADMINISTRATIVE SERVICE COSTS" has the meaning given thereto in Section
3.10 hereof.
(b) "ADMINISTRATIVE SERVICES" has the meaning given thereto in Section 3.10
hereof.
(c) "AFFILIATE" has the meaning attributed to such term in the Canada
Business Corporations Act as in effect on the date hereof.
(d) "AGREEMENT" means this Agreement, including the schedules hereto, as
amended from time to time.
(e) "APPROVAL OF THE INVESTMENT COMMITTEE" or "APPROVED BY THE INVESTMENT
COMMITTEE" with respect to any matter to be decided by the Investment
Committee means the affirmative decision of the Investment Committee on
such matter given in accordance with Section 4.3.
(f) "ASSOCIATE" has the meaning attributed to such term in the Canada
Business Corporations Act as in effect on the date hereof.
2
<PAGE> 6
(g) "BOARD OF DIRECTORS" means the board of directors of SCC Canada as
constituted from time to time.
(h) "BONUS EQUITY INTERESTS" means all equity securities, warrants to
acquire equity securities and all similar rights and entitlements issued to
the Lenders for nominal consideration as a condition to the making of
Secured Loans, and all equity securities acquired by the Lenders for
nominal consideration on the exercise of such warrants or rights, or
received by the Lenders in exchange or in consideration therefor.
(i) "BUSINESS DAY" means any day, other than a Saturday, Sunday, or
statutory holiday in Ontario, on which banks are generally open to the
public in Toronto for the transaction of business in the ordinary course.
(j) "BUSINESS PLAN" has the meaning given thereto in Section 3.3(b).
(k) "CARRYING VALUE" of Secured Loans, Bonus Equity Interests and Equity
Investments held by a Lender means, at the time of determination, the fair
value of such Secured Loans, Bonus Equity Interests and Equity Investments
calculated in accordance with the Valuation Policy.
(l) INTENTIONALLY DELETED
(m) "COMPETITIVE BUSINESS" means the business of systematically making
Secured Loans having the criteria set out in Section 2.2 hereof as in
effect at the date hereof, and from which the expected rate of return
materially exceeds the prevailing rate of return on commercial bank loans,
using Sirrom's models for marketing, Secured Loan selection, investment
structure and documentation and investment management.
(n) "DISCLOSURE FILINGS" has the meaning given thereto in Section 6.1(k).
(o) "EQUITY INVESTMENTS" means equity securities (other than Bonus Equity
Interests, but including equity securities acquired on the conversion of
Secured Loans to equity, and including equity securities acquired by the
Lenders for consideration other than nominal consideration on the exercise
of warrants or rights constituting Bonus Equity Interests) acquired by the
Lenders in Investees which meet the criteria set
3
<PAGE> 7
out in Article 2, and which investment in equity securities is made in
accordance with the provisions of Article 2.
(p) "EQUITY INVESTMENTS PROCEEDS" means all proceeds (for greater
certainty, other than Processing Fees) received by the Lenders (or by
SCC Canada as agent of the Lenders) from Equity Investments in an
Investee and all property and assets (real or personal) derived
directly or indirectly from such Equity Investments, including,
without limitation, any property or assets which may be received by a
Lender (or by SCC Canada as agent of a Lender) on a reorganization,
amalgamation, or merger in consideration for the Equity Investments or
in consideration for any other property or assets described in this
paragraph (p).
(q) "GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" or "GAAP" means the
then current accounting principles recommended by the Canadian
Institute of Chartered Accountants in the "CICA Handbook" at the
relevant time, or in the event that the matter is not covered in the
CICA Handbook, principles having general acceptance among accounting
professionals in Canada at the particular time.
(r) "GOVERNMENTAL BODY" means any government, parliament, legislature
or any regulatory authority, agency, commission or board of any
government, parliament or legislature, or any court or (without
limitation to the foregoing) any other law, regulation or rule making
entity (including, without limitation, any central bank, fiscal or
monetary authority or authority regulating banks), having or
purporting to have jurisdiction in the relevant circumstances, or any
Person acting or purporting to act under the authority of any of the
foregoing (including, without limitation, any arbitrator).
(s) "INVESTED CAPITAL" has the meaning given thereto in Section
5.1(c).
(t) "INVESTEE" means a Person other than a natural person in whom a
Secured Loan Investment is made.
(u) "INVESTMENT AGREEMENTS" means the loan agreement, security
agreements, warrant agreements, shareholder agreements and all other
agreements to be entered into between the Lenders and the Investee
and, if appropriate, the shareholders of the Investee and all other
relevant parties in respect of a Secured Loan Investment.
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(v) "INVESTMENT COMMITTEE" means the committee of the Board of
Directors established pursuant to the provisions of Article 4 hereof.
(w) "INVESTMENT SERVICING FEE" has the meaning given thereto in
Section 5.4.
(x) "LENDER" means each of Sirrom and TD, and "Lenders" means Sirrom
and TD, collectively, and includes any successor or assignee thereof
to the extent permitted under this Agreement.
(y) "LOAN RECOVERY AMOUNT" has the meaning given thereto in Section
5.2 hereof.
(z) "MANAGEMENT INCENTIVE FEE" has the meaning given thereto in
Section 3.9.
(aa) "MANAGERS" has the meaning given thereto in Section 3.9.
(bb) "MATERIAL AUTHORIZATION" means, with respect to any Person, any
approval, permit, license or similar authorization (including any
trade mark, trade name or patent) from, and any filing or registration
with, any Governmental Body required by such Person to own its
property and assets or to carry on its business as presently carried
on by it or as contemplated hereunder to be carried on by it
(including the making of Secured Loans and Equity Investments as
contemplated in this Agreement) in each jurisdiction in which it does
so or is contemplated to do so where the failure to have such
approval, permit, license, authorization, filing or registration would
have a material adverse effect upon its business, financial condition
or prospects or upon its ability to perform its obligations hereunder
or to make Secured Loans or Equity Investments as contemplated
hereunder.
(cc) "MAXIMUM OPERATING COMMITMENT" has the meaning given thereto in
Section 3.3(c).
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(dd) "PERMITTED TRANSFEREE" means:
(i) with respect to TD, or any Permitted Transferee of TD, any
directly or indirectly wholly-owned subsidiary of TD; and
(ii) with respect to Sirrom, or any Permitted Transferee of
Sirrom, any directly or indirectly wholly-owned subsidiary of
Sirrom.
(ee) "PERSON" means a natural person, firm, trust, partnership,
association, corporation, government or governmental board, agency or
instrumentality.
(ff) "PRIME RATE" means the commercial lending rate of interest expressed
as an annual rate, which TD quotes in Toronto as the reference rate of
interest from time to time, (commonly known as "prime") for the purposes of
determining the rate of interest that it charges to its commercial
customers for loans in Canadian funds.
(gg) "PROCESSING FEE" means the up-front processing fee paid in cash by an
Investee to SCC Canada in connection with the Secured Loan Investment made
in such Investee.
(hh) "SCC CANADA ANNUAL BUDGET" means an annual operating plan and
operating budget for SCC Canada as described in Section 3.3(d) hereof.
(ii) "SCC CANADA INITIAL BUDGET" has the meaning given thereto in Section
3.3(c) hereof.
(jj) "SECURED LOAN" means a loan extended by each of the Lenders to an
Investee which meets the criteria set out in Article 2, and which loan is
made in accordance with the provisions of Article 2.
(kk) "SECURED LOAN INVESTMENTS" means, collectively, all Secured Loans, all
Secured Loan Security, all Secured Loan Proceeds, all Bonus Equity
Interests, all Equity Investments and all Equity Investments Proceeds
acquired by the Lenders (or, in the case of Secured Loan Security, by SCC
Canada as agent of the Lenders).
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(ll) "SECURED LOAN PROCEEDS" means all proceeds (for greater certainty,
other than Processing Fees) received by the Lenders (or by SCC Canada as
agent of the Lenders) from Secured Loans to an Investee (including all
payments of principal and interest) and from the Secured Loan Security for
such Secured Loans held from time to time by the Lenders (or by SCC Canada
as agent of the Lenders) and all property and assets (real or personal)
derived directly or indirectly from such Secured Loans and/or such Secured
Loan Security, including, without limitation, any property or assets
distributed in specie on the Secured Loan Security, interests or rights in
or to the assets comprising the Secured Loan Security, and any other
securities or other property or assets which may be received by a Lender
(or by SCC Canada as agent of a Lender) on a reorganization, amalgamation
or merger in consideration for the Secured Loan Security, in connection
with the enforcement of the Secured Loan Security or in consideration for
any other property or assets described in this paragraph (al).
(mm) "SECURED LOAN SECURITY" means all security interests, charges or
encumbrances on or in respect of the property and assets of an Investee or
any other Person granted to the Lenders (or to SCC Canada as agent of the
Lenders) as security for Secured Loans, including any guarantees of Secured
Loans provided by any Persons, and all security interests, charges and
encumbrances granted as security for such guarantees.
(nn) "SECURITIES LAWS" has the meaning given thereto in Section 6.1(k).
(oo) "TAXES" has the meaning given thereto in Section 10.1.
(pp) "TERMINATION COSTS" has the meaning given thereto in Section 3.10.
(qq) "TERMINATION DATE" has the meaning given thereto in Section 9.1.
(rr) "TERMINATION NOTICE" has the meaning given thereto in Section 9.1.
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(ss) "VALUATION POLICY" means the valuation policy attached as Schedule
"1.1(as)" hereto.
2 Schedules
The following are the schedules attached hereto which shall be deemed to be
a part of this Agreement and are incorporated herein by this reference:
Section Reference Description of Schedule
----------------- -----------------------
3.3(b)
Business Plan
3.3(c)
SCC Canada Initial Budget
3.9
Calculation of Management
Incentive Amount
1.1(as) Valuation Policy
3 Currency
Any reference herein to currency is to Canadian currency (unless otherwise
expressly stated) and any amount advanced, paid or calculated pursuant hereto is
to be advanced, paid or calculated in Canadian currency (unless otherwise
expressly provided herein).
4 Gender and Number
Words importing the singular number only shall include the plural, and vice
versa, and words importing the masculine gender shall include the feminine
gender and neuter gender.
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5 Table of Contents and Headings
The division of this Agreement into Articles and Sections and the Article
and Section headings and the Table of Contents preceding are for convenience of
reference only and shall not affect the interpretation or construction of this
Agreement.
6 Calculation of Time Periods
When calculating the period of time within which or following which any act
is to be done or step taken pursuant to this Agreement, the date upon which the
period commences shall be excluded. If the last day of such period is a
non-Business Day, the period in question shall end on the next Business Day.
7 Applicable Law
This Agreement shall be governed by the laws of the Province of Ontario and
the laws of Canada where applicable. The parties hereto attorn to the laws of
Ontario and the non-exclusive jurisdiction of the courts of Ontario and agree
not to dispute their competence or convenience.
8 Severable
If any provision of this Agreement shall be held to be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby and such invalid, illegal or unenforceable provision shall be severable
from the remainder of this Agreement.
9 Entire Agreement
This Agreement constitutes the entire agreement among the parties relating
to the matters herein addressed and supersedes all prior agreements,
understandings, negotiations and discussions, whether oral or written, among the
parties with respect thereto.
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10 Amendments
No amendment or modification of this Agreement shall be binding unless in
writing and signed by the parties.
11 Waiver
No waiver by a party to this Agreement of any breach of any of the
provisions of this Agreement by any other party to this Agreement shall take
effect or be binding upon the party unless in writing and signed by such party.
Unless otherwise provided therein, such waiver shall not limit or affect the
rights of the party with respect to any other breach.
12 Time of Essence
Time shall be of the essence of this Agreement.
13 Successors and Assigns
This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective legal representatives, successors and
assigns permitted under this Agreement.
14 Giving Effect to this Agreement
Each Lender hereby covenants and agrees to vote or cause the shares of SCC
Canada to be voted, and to use its best efforts and exercise its vote and
influence to cause its nominees on the Board of Directors and on the Investment
Committee to act so as to give effect to the provisions of this Agreement, and
to otherwise exercise its vote and influence to give effect to the provisions of
this Agreement.
ARTICLE 2 - SECURED LOANS AND EQUITY INVESTMENTS
1 Agreement to make Secured Loans and Equity Investments
The Lenders agree to jointly make Secured Loans and Equity Investments that
are Approved by the Investment Committee, and which have been approved, prior to
such Approval of the Investment Committee, by Sirrom and TD, individually, on
and subject to the terms and provisions of this Agreement.
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<PAGE> 14
2 Senior Loan and Equity Investment Criteria
Subject to Sections 3.6(d) hereof, Secured Loans and Equity Investments
jointly made by the Lenders pursuant to this Agreement shall meet the following
criteria:
(a) such loans shall be made to or investments made in Investees which
generally have or meet at least five of the following six criteria:
(i) a demonstrated compounded annual growth rate;
(ii) existing sophisticated equity shareholders;
(iii) experienced management with net worth at stake;
(iv) demonstrated operating profitability;
(v) demonstrated Secured Loan collateral coverage;
(vi) available exit strategy for the Lenders;
(b) such loans or investments shall generally not be made:
(i) for or in "turnaround" situations;
(ii) if the Secured Loan Investment will result in unacceptably high
leverage for an Investee whose business is highly cyclical;
(iii) if the Secured Loan Investment would constitute a deeply
subordinated position in an Investee with low growth rates, low
margins and high operating leverage;
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<PAGE> 15
(iv) for specific project financing;
(c) the total aggregate principal amount advanced by the Lenders to, or
invested by the Lenders in, a single Investee (including its
affiliates and associates) shall be between $500,000 and $5,000,000;
(d) 60% of the total aggregate principal amount of Secured Loans advanced
by the Lenders to, or 60% of the total capital invested by the Lenders
in consideration for Equity Investments in, any one Investee shall be
advanced or paid, as the case may be, by TD, and 40% of such total
aggregate principal amount or capital shall be advanced or paid, as
the case may be, by Sirrom;
(e) Secured Loans shall be secured by a charge and security interest on
the property and assets of the relevant Investee, registered in the
name of the Lenders (or SCC Canada as agent of the Lenders);
(f) each Investee in whom a Secured Loan Investment is made shall be
required to pay a Processing Fee to SCC Canada;
(g) Secured Loans shall have a term to maturity of no less than 5 years
and shall be non-amortizing;
(h) each Secured Loan shall bear interest at a fixed annual rate
determined on the date the Secured Loan is advanced, payable monthly;
(i) as a condition to the advance of Secured Loans to an Investee, the
Lenders shall be issued equity securities, warrants or similar rights
which entitle the holder to purchase equity securities of the Investee
generally representing 3% to 25% of the outstanding equity securities
of the Investee, or other similar entitlements, for nominal
consideration;
(j) any advance of Secured Loans to, or Equity Investments in, a
particular Investee shall be conditional upon the prior Approval of
the Investment Committee given after the prior approval of each
Lender, of such Secured Loans or Equity Investments, and shall also be
conditional upon the execution
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<PAGE> 16
and delivery of Investment Agreements for such Secured Loans or Equity
Investments.
For greater certainty, Secured Loans and Equity Investments shall meet such
additional criteria, or such variations of the above criteria, as the Board of
Directors may specify from time to time in accordance with Section 3.6(d)
hereof. Each particular Secured Loan Investment in a particular Investee shall
be made on such additional terms and provisions applicable to such Secured Loan
Investment as are Approved by the Investment Committee after the prior approval
of each Lender in connection with such Secured Loan Investment.
3 Maximum Aggregate Principal Amount of Secured Loans and Capital
Unless the Lenders otherwise agree, the maximum aggregate principal amount
of all Secured Loans and capital invested in Equity Investments made by them
hereunder prior to the Termination Date shall not exceed $50,000,000.
ARTICLE 3 - SCC CANADA
1 Business of SCC Canada
The parties confirm that SCC Canada has been incorporated for the purpose
of acting as loan originator and servicer and providing related services in
connection with Secured Loan Investments. The services to be performed by SCC
Canada in connection with Secured Loan Investments shall include the following:
(a) identifying and liaising with potential Investees in whom Secured Loan
Investments may be made;
(b) reviewing and analyzing investment proposals received from potential
Investees in whom Secured Loan Investments may be made;
(c) conducting due diligence with respect to potential Investees and
potential Secured Loan Investments;
(d) negotiating the Investment Agreements relating to each Secured Loan
Investment with Investees and other relevant parties;
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<PAGE> 17
(e) retaining lawyers, accountants and other required professional
advisors to assist in due diligence investigations relating to Secured
Loan Investments where necessary, and procuring all legal and other
appropriate professional opinions and advice (including with respect
to enforceability of Investment Agreements and registration of Secured
Loan Security) relating to a Secured Loan Investment;
(f) delivering Investment Agreements on behalf of the Lenders;
(g) disbursing proceeds of Secured Loans and payments for Equity
Investments to Investees, collecting Secured Loan Proceeds and Equity
Investments Proceeds from Investees and remitting same to the Lenders
in accordance with Section 5.1 hereof, and calculating and providing
to the Lenders particulars of the methods of calculating the
Investment Servicing Fee provided for in Section 5.4 hereof;
(h) exercising warrants or other similar rights included in Bonus Equity
Interests and Equity Investments of the Lenders and exercising voting
rights and all other rights attaching to Bonus Equity Interests and
Equity Investments in the manner Approved by the Investment Committee;
(i) disposing of Bonus Equity Interests and Equity Investments in the
manner Approved by the Investment Committee;
(j) enforcing the rights of the Lenders upon default under the Investment
Agreements governing Secured Loans and Secured Loan Security; and
(k) acting as collateral agent on behalf of the Lenders in respect of
Secured Loan Security.
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2 Dealings with Investees
Each Lender hereby authorizes SCC Canada to take such actions and exercise
all powers that the Lenders are entitled to exercise in connection with Secured
Loan Investments, provided that all such actions and powers are taken and
exercised in accordance with this Agreement, and provided that SCC Canada
complies in all respects with the provisions of this Agreement. Each Lender
agrees that, subject to the immediately preceding sentence, all dealings and
communications with Investees and all other relevant Persons relating to Secured
Loan Investments shall be effected and made exclusively by SCC Canada, and not
by the Lenders or either one of them.
3 Capitalization and Financing of SCC Canada
(a) Each of TD and Sirrom agree to subscribe, or to cause its Permitted
Transferee which has complied with Section 7.1 to subscribe for the number
and class of shares of SCC Canada for the subscription price listed
opposite its respective name below, and agrees that there shall be no other
shares or rights convertible into shares of SCC Canada issued except for
the following, which shall be owned beneficially and of record as follows:
<TABLE>
<CAPTION>
Number and Class Subscription
Name of Shares Price
---- ---------------- ------------
<S> <C> <C>
TD (or its 580 common $112.50 per share
Permitted Transferee)
Sirrom (or its 420 common $112.50 per share
Permitted Transferee)
</TABLE>
(b) The Business Plan for SCC Canada and the Lenders shall be as set forth
in Schedule 3.3(b) hereof (for the period of time covered by such
schedule), subject to Section 3.6 hereof.
(c) The budget of SCC Canada for the period from February 1, 1997 to
October 31, 1997 shall be as set forth in Schedule 3.3(c) hereof (the "SCC
Canada Initial Budget"), subject to Section 3.6 hereof. Initial operating
financing requirements of SCC Canada provided for in the SCC Canada Initial
Budget shall be funded by loans from the Lenders to SCC Canada of up to
$337,500 (the "Maximum Operating Commitment") when requested by management
of SCC Canada. TD shall advance
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<PAGE> 19
60% and Sirrom shall advance 40%, on a pro rata basis, of any such loans
that are required. All advances made to SCC Canada pursuant to this Section
shall be treated as shareholder's loans, and shall bear interest (subject
to such withholdings as are required pursuant to the Income Tax Act
(Canada) at the Prime Rate. None of these loans shall be called by a Lender
or repaid to a Lender, in whole or in part, except as is approved by the
Board of Directors; provided that whenever any amounts on account of such
loans are repaid to the Lenders, they shall be repaid to them on a pro rata
basis proportionate to their then total outstanding advances to SCC Canada.
The foregoing shareholder loans shall be made until such time as SCC
Canada's forecasted aggregate revenues and reimbursable expenses (based on
actual commitments) from Processing Fees, expense reimbursement commitments
from Investees, the Investment Servicing Fee, and all other revenues can
reasonably be considered to be sufficient to fund forecasted annual
operating expenses of SCC Canada. Notwithstanding the foregoing, however,
if at any time SCC Canada's operating expenses and financial requirements
contemplated in the SCC Canada Initial Budget or in the SCC Canada Annual
Budget then in effect, or its obligations to TD in respect of Termination
Costs as provided in Section 3.10 hereof, exceeds its revenues at any time,
each Lender shall make additional shareholder loans to SCC Canada on the
same basis as provided above to fund such shortfall, at such times and in
such amounts as management of SCC Canada reasonably requests, provided that
subject to the following sentence unless each Lender otherwise agrees, the
Lenders shall only be required to make shareholder loans (which loans shall
be made on a revolving basis), to fund operating expenses of SCC Canada
such that the maximum aggregate principal amount of such loans outstanding
at any time shall not exceed the Maximum Operating Commitment.
Notwithstanding anything to the contrary herein contained, and for greater
certainty, the obligations of the Lenders to make shareholder loans to fund
SCC Canada's obligation to pay Termination Costs shall not be limited to
the Maximum Operating Commitment (provided that the amounts required to be
contributed by the Lenders to SCC Canada to fund payment of Termination
Costs in excess of the Maximum Operating Commitment shall be contributed as
to 25% of such amount, as subscriptions for shares of SCC Canada, and as to
the balance of such amount as shareholder loans.
(d) Management of SCC Canada shall prepare and present to the Board of
Directors for its consideration an annual operating plan and operating
budget for SCC Canada (an "SCC Canada Annual Budget") at least twenty (20)
days prior to the commencement of each fiscal year of SCC Canada beginning
with the fiscal year commencing November 1, 1997. Such annual operating
plan and budget, when approved by the Board of Directors in accordance with
Section 3.6 hereof, shall become the SCC Canada Annual Budget for the
fiscal year to which it relates. The SCC Canada Initial Budget or SCC
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<PAGE> 20
Canada Annual Budget currently in effect at any time may only be amended
with the prior approval of the Board of Directors given in accordance with
Section 3.6 hereof.
(e) Management of SCC Canada shall cause to be prepared and provided to the
Lenders audited financial statements of SCC Canada prepared in accordance
with GAAP within sixty (60) days of SCC Canada's fiscal year end, and
unaudited monthly income statements for SCC Canada, including an unaudited
report of expenditures during each month, within fifteen (15) days after
the end of each month for the month then ended.
The monthly and annual financial statements shall be accompanied by a
statement prepared by SCC Canada management showing particulars of how the
Investment Servicing Fee and Management Incentive Fee for the period
covered by such statements has been calculated.
(f) SCC Canada shall establish and maintain a trust account or trust
accounts with TD into which all funds collected by SCC Canada on behalf of
the Lenders constituting Secured Loan Proceeds, and all proceeds from Bonus
Equity Interests and Equity Investments, shall be deposited and from which
SCC Canada shall disburse such funds to the Lenders in accordance with this
Agreement. In no event shall any funds required to be deposited in such
trust accounts be commingled with any funds of SCC Canada. All
disbursements and payments required to be made by SCC Canada in connection
with its operations shall be paid only out of SCC Canada's funds.
4 Principal Place of Business of SCC Canada
The principal place of business of SCC Canada shall be in the
Toronto-Dominion Centre, Toronto, Ontario.
5 Board of Directors
Subject to the provisions of this Agreement, the business and affairs of
SCC Canada shall be managed by a board of directors which shall at all times
consist of five directors, three of whom shall be nominees of TD (such nominees
of TD to include the President of SCC Canada), and two of whom shall be nominees
of Sirrom. Should any vacancy occur on the Board of Directors, such vacancy
shall be filled by the appointment of a nominee or nominees by the Lender who is
not then represented by the nominee or nominees to which it is entitled
hereunder. Until such vacancy is filled, the Board of Directors shall not
transact any business
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or exercise any of its powers or functions, save and except as may be necessary
to preserve the business and assets of SCC Canada. If a replacement nominee is
not appointed within ten (10) days of such vacancy occurring, then thereafter
the directors of SCC Canada then in office shall be entitled to transact
business and exercise all of the powers and functions the Board of Directors may
exercise in accordance with this Agreement.
The nominees to the Board of Directors appointed by TD shall be, until
changed by TD, John Greenwood, John MacIntyre and one additional nominee
designated by TD, and the nominees of Sirrom, until changed by Sirrom, shall be
George M. Miller, II and Carl W. Stratton.
Subject to Section 3.6, all decisions of the Board of Directors shall be
decided by a majority of votes cast (or by such greater percentage as may be
required by law). Notwithstanding any statutory rule or rule of procedure to the
contrary, the chairman at any meeting of the board shall not be entitled to a
second, extra or casting vote in the case of a tie vote at any such meeting.
A quorum for meetings of the Board of Directors (other than a meeting at
which a matter requiring unanimous approval of the Board of Directors pursuant
to Section 3.6 will be considered and/or voted upon) shall be a majority of the
directors then in office, provided that the quorum shall require the presence
(in person or by conference telephone) of one nominee of TD (unless TD's nominee
shall have given written notice to SCC Canada prior to the meeting of such
nominee's intention not to be present and of such nominee's consent to the
meeting proceeding in such nominee's absence), and of one nominee of Sirrom
(unless Sirrom's nominee shall have given written notice to SCC Canada prior to
the meeting of such nominee's intention not to be present and of such nominee's
consent to the meeting proceeding in such nominee's absence). Notwithstanding
the immediately preceding sentence, but subject to the next paragraph, if within
one hour of the time appointed for a meeting of the Board of Directors, a quorum
is not present, the meeting shall stand adjourned to the same hour on the next
Business Day at the same place and if at the adjourned meeting a quorum as
hereinbefore specified is not present, the quorum for the adjourned meeting
shall consist of a majority of the directors then in office.
A quorum for a meeting of the Board of Directors at which a matter
requiring the unanimous approval of the Board of Directors pursuant to Section
3.6 will be considered and/or voted upon shall be four directors, including two
nominees of TD and two nominees of Sirrom.
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The Board of Directors shall meet at such intervals as the directors may
determine at the principal place of business of SCC Canada in Toronto, or in
such other place in Canada or the United States as a majority of the directors
of SCC Canada then in office may agree upon from time to time. Meetings of the
directors may be called by the President of SCC Canada or by any two directors
upon not less than five (5) Business Days' notice (unless such notice is waived
by each director). The giving or the period of notice required to be given
hereunder may be waived with the consent in writing of a director either before
or after the meeting to which such waiver relates, and, to the extent permitted
by law, the presence in person or by conference telephone of such member at any
meeting of the Board of Directors shall constitute such director's waiver of any
such notice requirement for such meeting.
6 Matters Requiring Unanimous Approval
of SCC Canada Board of Directors
Notwithstanding any provision herein to the contrary, none of the following
matters may be implemented or effected by SCC Canada without the prior approval
of at least two of the nominees to the Board of Directors appointed by TD, and
of two of the nominees appointed by Sirrom:
(a) the approval of the SCC Canada Annual Budget for any fiscal year of SCC
Canada, and any amendments to or variations of the SCC Canada Initial
Budget or the SCC Canada Annual Budget currently in effect from time to
time, and any expenditures or the making of any financial commitments by
SCC Canada other than as provided for in the SCC Canada Initial Budget or
the SCC Canada Annual Budget then in effect which has been unanimously
approved by the Board of Directors (provided that management of SCC Canada
shall be entitled to make expenditures which vary from budgeted line items
in the SCC Canada Initial Budget or the SCC Canada Annual Budget then in
effect by no more than 10 percent, as long as revenues are at least 80% of
budget, without the prior approval of the Board of Directors given in
accordance with this Section 3.6);
(b) any change in the composition or powers of the Investment Committee
provided for in this Agreement (it being understood that the Investment
Committee of the Board of Directors shall, unless otherwise approved by at
least four of the directors, including two of the TD nominees and the two
Sirrom nominees), have the power and authority described in Article 4
hereof;
(c) the creation of any committee of the Board of Directors (other than the
Investment Committee), and the delegation of any power or authority of the
Board of
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<PAGE> 23
Directors to any such committee (other than the power and authority
delegated to the Investment Committee described in Article 4 hereof);
(d) any change to the general criteria for Secured Loans or Equity
Investments or the manner in which Secured Loan Investments will be made
set out in Section 2.2 hereof;
(e) any changes to the Business Plan, and the implementation of any
business plan for any period not covered by the Business Plan;
(f) any changes to the Management Incentive Fee or the method of
calculation thereof;
(g) any changes to the Investment Servicing Fee provided for in Section 5.4
hereof;
(h) any change of the fiscal year end of SCC Canada (which shall be October
31 of each year, unless otherwise approved by the Board of Directors in the
manner provided in this Section 3.6);
(i) the appointment of executive officers and management employees of SCC
Canada (and for greater certainty, portfolio managers/loan officers shall
be considered management employees of SCC Canada, for these purposes); and
(j) the allocation among the Managers of the amount in respect of the
Management Incentive Fee paid to the Managers pursuant to Section 3.9.
7 Resolutions in Writing
Any matter within the competence of the Board of Directors that is agreed
or consented to in writing by a director who is entitled to attend and vote at
meetings of the Board of Directors shall constitute the decision of that
director on such matter as if made at a duly constituted meeting of the Board of
Directors.
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8 Conference Telephone Meetings
Any director of SCC Canada may participate in a meeting of the Board of
Directors by means of conference telephone or other communications equipment by
means of which all persons participating in the meeting are able to hear each
other, and a member participating in a meeting in such manner shall be deemed to
be present in person at the meeting.
9 SCC Canada Management
The executive officers and management employees of SCC Canada (the
"Managers") shall be such individuals as are designated to act as such by TD
from time to time and approved by the Board of Directors as provided in Section
3.6(i).
The Lenders shall pay to SCC Canada semi-annually, by no later than 30 days
following the end of each period of 6 months (a "Calculation Period") ending on
the last day of April and October of each year, an amount (the "Management
Incentive Fee") calculated as provided in Schedule 3.9 hereto. TD shall pay 58%,
and Sirrom shall pay 42%, of the Management Incentive Fee payable by the Lenders
to SCC Canada for each Calculation Period. SCC Canada shall pay to TD (for
payment to the Managers as determined in accordance with Section 3.6(j)) within
10 days of the receipt by SCC Canada of the Management Incentive Fee for a
Calculation Period, an amount equal to the amount of such Management Incentive
Fee paid to SCC Canada as aforesaid for such Calculation Period. Notwithstanding
the foregoing, if the Managers are employees of SCC Canada, SCC Canada shall pay
the amounts payable to TD as provided for in the preceding sentence to the
Managers (as determined in accordance with Section 3.6(j)), rather than to TD.
10 Administrative and Management Services
TD shall provide SCC Canada with appropriate office space and operating
facilities at its offices in the City of Toronto located in the Toronto-Dominion
Centre, Toronto, Ontario (including appropriate office furniture, fixtures and
equipment) and professional staff and administrative staff and executive
officers and management employees sufficient to enable SCC Canada to carry on
its business contemplated hereunder (the "Administrative Services"). SCC Canada
shall reimburse TD for its cost of providing such services from time to time as
provided in the SCC Canada Initial Budget and the SCC Canada Annual Budget then
in effect ("Administrative Services Costs"), upon request and receipt of
appropriate particulars and vouchers with respect to those items to be
reimbursed.
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Notwithstanding anything to the contrary herein contained, TD shall be
reimbursed by SCC Canada for any and all Termination Costs (as hereinafter
defined) of TD in connection with the termination of the arrangements
contemplated herein, upon request and receipt of appropriate particulars and
vouchers with respect to those items to be reimbursed. For the purposes hereof,
"Termination Costs" means all costs and expenses incurred directly or indirectly
by TD to downsize its business, operations and management as a result of no
longer requiring professional and administrative employees and administrative
infrastructure which, in accordance with the SCC Canada Initial Budget or SCC
Canada Annual Budget in effect prior to such termination, were desirable or
reasonably necessary for TD to provide the Administrative Services to SCC
Canada, calculated as if such professional and administrative employees had been
employees of SCC Canada and as if SCC had directly acquired and entered into
commitments for the use and supply of the operating facilities and office space
included in the Administrative Services, and as if such termination costs had,
as a result, been incurred by SCC directly, including, without limitation
employee termination costs, costs and expenses of disposing of equipment and
supplies which are rendered surplus to TD's requirements as a result of such
termination, and break-up costs of terminating contracts with third parties.
Notwithstanding anything to the contrary herein contained, SCC Canada may
hire directly the employees whose services would otherwise be provided to SCC
Canada by TD as part of the Administrative Services, and enter into commitments
directly for such office facilities, equipment and space as would otherwise have
been provided to SCC Canada by TD as part of the Administrative Services
(provided that such hirings and commitments receive such prior approval of the
Board of Directors as is required pursuant to Sections 3.6(a), (e), (f) and (i)
hereof). Those employees, facilities and equipment so contracted for directly by
SCC Canada shall not be included in the Administrative Services.
11 Special Services to be provided to SCC Canada by Sirrom
Sirrom shall provide to the executive officers and management employees of
SCC Canada, commencing immediately upon the execution of this Agreement and in
sufficient time to permit SCC Canada and the Lenders to carry out the Business
Plan within the time period contemplated therein, and on a continuing basis up
to the Termination Date, the following services, information and assistance:
(a) training in and access to information regarding methods of marketing,
investment analysis, reporting and loan and investment monitoring and all
other relevant aspects of the business of making loans similar to the
Secured Loans contemplated herein heretofore, and hereafter carried on by
Sirrom in the United States;
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(b) copies of standard forms of investment agreements relating to its
loans, security therefor and equity investments heretofore made by Sirrom
in the United States, and all forms of documentation generally employed by
Sirrom in giving effect to investments heretofore and hereafter made by
Sirrom in the United States; and
(c) at the request of the executive officers and management employees of
SCC Canada, the services of Sirrom's workout specialist personnel to assist
with the administration and management, where necessary, of deteriorating
or increased risk Secured Loan Investments.
SCC Canada shall reimburse Sirrom, upon request and receipt of appropriate
vouchers therefor, for its reasonable out-of-pocket expenses incurred in
providing the services described in paragraphs (a), (b) and (c) above, and shall
pay Sirrom such reasonable per diem fees for the services provided by Sirrom's
personnel described in paragraph (c) above that Sirrom and SCC Canada may agree
to when such services are requested by SCC Canada management. If any such
payments by SCC Canada are subject to withholding under the Income Tax Act
(Canada) and the Regulations thereunder, such payments to Sirrom shall be made
by SCC Canada net of such withholding.
12 Filing of Certificates and Compliance with Laws
SCC Canada shall cause to be executed and filed such certificates,
instruments and documents as may be required under the laws as may be
appropriate to comply with the requirements of the laws of all jurisdictions
where SCC Canada may carry on business.
ARTICLE 4 - THE INVESTMENT COMMITTEE
1 Establishment of the Investment Committee
The Board of Directors shall establish a loan committee of the Board of
Directors (the "Investment Committee") for the purposes hereinafter set forth.
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2 Appointment of the Investment Committee
(a) The Investment Committee shall consist of three directors of SCC
Canada, two of whom shall be nominees of TD (and such nominees of TD shall
include the President of SCC Canada), and one of whom shall be a nominee of
Sirrom. Until changed by TD, John Greenwood and John MacIntyre shall be the
Investment Committee nominees of TD, and until changed by Sirrom, George M.
Miller, II shall be the Investment Committee nominee of Sirrom.
(b) Should any vacancy occur on the Investment Committee, such vacancy
shall be filled by TD or Sirrom in accordance with paragraph (a) hereof.
Until such vacancy is filled, the Investment Committee shall not transact
any business or exercise any of its powers or functions. If a replacement
representative(s) is not appointed within ten (10) days of such vacancy
occurring, then thereafter the member(s) of the Investment Committee then
in office shall be entitled to transact business and exercise all of the
powers and functions of the Investment Committee and, further, the
unanimous decision of such member(s) then in office shall constitute the
unanimous decision of all members of the Investment Committee until such
time as the said replacement member(s) is properly appointed.
3 Approval of the Investment Committee
Any matter requiring the approval of the Investment Committee pursuant to
this Agreement shall require the unanimous consent and approval of all of the
members of the Investment Committee who are then entitled to attend and vote at
a meeting of the Investment Committee, given at a duly called and constituted
meeting of the Investment Committee, or by written resolution duly signed by all
members of the Investment Committee then in office as provided in Section 4.10
hereof. A matter which has been approved by the Investment Committee as provided
in the immediately preceding sentence shall be deemed to have been "Approved by
the Investment Committee" for the purpose of this Agreement.
Any matter requiring the Approval of the Investment Committee pursuant to
this Agreement which is Approved by the Investment Committee in accordance with
this Agreement shall be binding on SCC Canada.
Notwithstanding any provision herein to the contrary, in addition to the
matters which are specified elsewhere in this Agreement as matters which the
Lenders and/or SCC Canada may not effect or undertake unless Approved by the
Investment Committee, none of the
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following matters shall be effected or implemented by the Lenders or SCC Canada
without the prior Approval of the Investment Committee:
(i) the making of any Secured Loan or Equity Investment;
(ii) the entering into of any Investment Agreements governing a
Secured Loan Investment, or the making of any amendment to any
Investment Agreement;
(iii) the exercise or sale of warrants or any other similar rights
comprising Bonus Equity Interests or Equity Investments;
(iv) the granting of any waivers in respect of any default provided
for in the Investment Agreements governing Secured Loans and
Secured Loan Security;
(v) the manner in which the rights of the Lenders, upon default under
the Investment Agreements governing a Secured Loan and the
Secured Loan Security therefor, or the manner in which the rights
of the Lenders arising at law as a result of the default by the
Investee to whom a Secured Loan has been made, will be exercised
or enforced; or
(vi) the conversion of Secured Loans to equity.
4 Advisors
A member of the Investment Committee shall be entitled to invite advisors
to attend any meeting of the Investment Committee, subject to such restrictions
on their attendance at and their participation in meetings as the Investment
Committee, acting reasonably, may impose.
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5 Investment Committee Meetings Generally
The Investment Committee shall hold meetings when necessary in connection
with such matters as are within the authority of the Investment Committee in
accordance with this Agreement, on such date and at such time as the Investment
Committee may determine, and shall hold such other meetings as the Investment
Committee may decide from time to time.
6 Notice of Investment Committee Meetings
Any chairman of the Investment Committee appointed by a majority of the
members of the Investment Committee then in office, from time to time, shall
give each member of the Investment Committee written notice of the time and
place of each meeting of the Investment Committee and a brief description of
matters to be considered thereat at least five (5) Business Days prior to the
date of the meeting. A notice of a meeting of the Investment Committee shall be
accompanied by an agenda of the matters to be considered at such meeting,
together with any relevant supporting materials that are sufficiently detailed
to inform each member of the matters to be considered thereat. The giving or the
period of notice required to be given hereunder may be waived with the consent
in writing of a member either before or after the particular meeting to which
such waiver relates, and, to the extent permitted by law, the presence in person
or by conference telephone of such member at any meeting of the Investment
Committee shall constitute such member's waiver of any such notice requirement
for such meeting.
7 Conference Telephone Meetings
Any member of the Investment Committee may participate in a meeting of the
Investment Committee by means of conference telephone or other communications
equipment by means of which all persons participating in the meeting are able to
hear each other, and a member participating in a meeting in such manner shall be
deemed to be present in person at the meeting.
8 Location of Meetings
Meetings of the Investment Committee shall be held at the offices of SCC
Canada in Toronto, Ontario or at such other place as may be Approved by the
Investment Committee from time to time.
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9 Quorum
A quorum for a meeting of the Investment Committee shall be all of the
members who are entitled to attend and vote at such meeting.
10 Resolutions in Writing
Any matter within the competence of the Investment Committee that is agreed
or consented to in writing by a member who is entitled to attend and vote at
meetings of the Investment Committee shall constitute the decision of that
member on such matter as if made at a duly constituted meeting of the Investment
Committee.
ARTICLE 5 - INTERESTS OF LENDERS IN
SECURED LOAN INVESTMENTS
1 (a) Secured Loans
The Lenders hereby agree that:
(i) 60% of the aggregate principal amount of the Secured Loans
made by the Lenders to a single Investee shall be made by, and
shall be repayable by the Investee to TD, and 40% of the
aggregate principal amount of Secured Loans made by the Lenders
to a single Investee shall be made by, and shall be repayable by
the Investee to Sirrom (regardless of whether such principal
repayment is made before, after or upon scheduled maturity, or
before or after default, or through a realization on any Secured
Loan Security or other enforcement of the Investment Agreements
governing the Secured Loans made to the Investee or the Secured
Loan Security therefor or otherwise, or as a Loan Recovery
Amount); and
(ii) notwithstanding that an Investee to whom Secured Loans are
made will be required by the relevant Investment Agreements to
pay interest on the aggregate principal amount of the Secured
Loans to such Investee outstanding during a particular period,
calculated at a single rate (the "Investee Rate") for such
period:
(A) the effective rate of interest which TD shall be
entitled to receive on the principal amount of the Secured
Loan made by TD to that
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particular Investee outstanding during such period shall be
the result obtained by multiplying 58/60 by the Investee
Rate; and
(B) the effective rate of interest which Sirrom shall be
entitled to receive on the principal amount of the Secured
Loan made by Sirrom to that particular Investee outstanding
during such relevant period shall be the result obtained
when the amount of interest payable to TD for such period,
calculated as provided in paragraph 5.1(a)(ii)(A), is
subtracted from the total amount of interest payable by the
Investee pursuant to the Investment Agreements on the total
aggregate principal amount of all Secured Loans to that
Investee outstanding during such period, and the result is
divided by the principal amount of the Secured Loan made by
Sirrom to such Investee outstanding during such period.
Each dollar of principal or interest, as the case may be, paid by an
Investee (or out of the assets of an Investee or any other Person) on account of
Secured Loans made to such Investee by the Lenders shall be deemed to be a
payment made to TD and Sirrom, on account of the outstanding principal amount of
their respective Secured Loans, or interest thereon, as the case may be, in the
proportions set forth in paragraphs (i) or (ii) above, as applicable, and shall
be distributed forthwith upon receipt by SCC Canada, if received by SCC Canada
on behalf of the Lenders, to the Lenders accordingly.
(b) Bonus Equity Interests
58% of the Bonus Equity Interests acquired by the Lenders (or by SCC Canada
as agent for the Lenders) in connection with the Secured Loans made by the
Lenders to a particular Investee shall be acquired by TD, and 42% of such Bonus
Equity Interests shall be acquired by Sirrom, and all proceeds of or from such
Bonus Equity Interests (other than proceeds which are Equity Investments, which
are subject to Section 5.1(c)), if held or received by SCC Canada as agent of
the Lenders, shall be distributed forthwith upon receipt by SCC Canada to the
Lenders accordingly.
(c) Equity Investments
Notwithstanding that TD shall pay 60% and Sirrom shall pay 40% of the
capital amount ("Invested Capital") paid to acquire Equity Investments in an
Investee:
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(i) TD shall be entitled to receive 58%, and Sirrom shall be entitled
to receive 42%, of the aggregate amount of all dividends and other
distributions (excluding capital distributions) paid on or in respect
of Equity Investments in such Investee;
(ii) TD shall be entitled to receive 60%, and Sirrom shall be entitled
to receive 40%, of all capital distributions paid on or in respect of
Equity Investments in such Investee;
(iii) TD shall be entitled to receive 60%, and Sirrom shall be
entitled to receive 40%, of all proceeds arising from the sale or
other disposition of such Equity Investments, until TD and Sirrom have
received repayment, by way of capital distributions on such Equity
Investments or by way of receipt of proceeds of sale or disposition of
such Equity Investments, of the amount of Invested Capital in such
Investee; and
(iv) TD shall be entitled to receive 58%, and Sirrom shall be entitled
to receive 42%, of the aggregate amount of all proceeds of sale
arising from the sale or other disposition of Equity Investments in
such Investee, after Sirrom and TD have received repayment of the
Invested Capital invested in such Investee as contemplated in
paragraph (iii) above.
2 Loss Payment by Sirrom to TD
(a) Sirrom shall pay to TD, within 30 days following the end of each fiscal
quarter of Sirrom in which Sirrom has realized a loss in accordance with
the requirements of the Internal Revenue Code and determined in accordance
with the Valuation Policy on one or more Secured Loan Investments, an
amount (a "Loan Loss Amount") equal to 2% of the product obtained by
multiplying the aggregate outstanding principal amount of Secured Loans
made by the Lenders to, or capital invested by the Lenders in Equity
Investments in, each Investee in respect of which Sirrom has so realized a
loss by the percentage of the principal amount of Sirrom's Senior Loan to
such Investee, or capital invested in such Investee, in respect of which
Sirrom has so realized a loss.
In the event that in any fiscal quarter of SCC Canada, the Lenders
shall recover payment of the principal amount or capital invested in a
Secured Loan Investment which has been previously accounted for as a Loan
Loss Amount in accordance with the preceding paragraph (the aggregate
amount of such recovered payments to the Lenders, less the costs of
recovery thereof, being herein referred to as "Loan Recovery Amounts"), TD
shall pay to Sirrom, within 30 days following the end of the fiscal quarter
of SCC Canada in which the Lenders receive such Loan Recovery Amounts, an
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amount equal to 2% of the aggregate of the Loan Recovery Amounts received
by the Lenders in such quarter.
(b) Sirrom shall pay to TD, within 30 days following the end of each fiscal
quarter of SCC Canada, an amount equal to 2% of the losses of SCC Canada
for such quarter, determined in accordance with GAAP.
3 Processing Fee
The Lenders confirm that all Processing Fees shall be paid to SCC Canada,
for its own account, and shall not form part of the Secured Loan Proceeds or
proceeds from Bonus Equity Interests payable to the Lenders pursuant hereto.
4 Investment Servicing Fee
In order to defray expenses of SCC Canada, each Lender shall pay to SCC
Canada in accordance with the SCC Canada Initial Budget or the SCC Canada Annual
Budget in effect from time to time a monthly fee equal to, for each month, 1/12
of 1% of the Carrying Value of: (i) Secured Loans made by such Lender; and (ii)
the Bonus Equity Interests and Equity Investments owned by such Lender under
administration or serviced by SCC Canada during such month (or in such other
amount as is approved by the Board of Directors in accordance with Section
3.6(g)) (the "Investment Servicing Fee"). The Investment Servicing Fee shall be
renegotiated annually, taking into account expenses of SCC Canada.
5 Payments Generally
If any payments to any party contemplated hereunder are subject to
withholding pursuant to the Income Tax Act (Canada) or Regulation thereunder, or
any similar applicable laws, such payments shall be subject to and made net of
such withholding.
ARTICLE 6 - REPRESENTATIONS AND WARRANTIES
1 Representations and Warranties
In consideration of and to induce the other Lender to enter into this
Agreement, each Lender represents and warrants to and in favour of the other
Lender as follows:
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(a) CORPORATE EXISTENCE, GOOD STANDING, AUTHORIZED AND ISSUED CAPITAL. Such
Lender is a corporation duly and validly incorporated and organized, and is
validly existing in good standing under the laws of its jurisdiction of
incorporation and it has the necessary power to own its property and to
carry on the business to be carried on by it (including the business of
making Secured Loan Investments contemplated herein) in every jurisdiction
in which it holds property or carries on business (or in which this
Agreement contemplates it will carry on business).
(b) COMPLIANCE WITH LAW. Such Lender is and has been conducting its
business in compliance in all material respects with all applicable laws,
rules, regulations and policies (including, without limitation, securities
laws, regulations and policies) of each jurisdiction in which its business
is carried on.
(c) CORPORATE POWER. Such Lender has the full power, authority and legal
right to execute and deliver this Agreement and to perform the terms and
provisions of this Agreement on its part to be performed, and to make
Secured Loan Investments as contemplated herein.
(d) EXECUTION AND BINDING OBLIGATION. This Agreement has been duly executed
and delivered by such Lender and constitutes a legal, valid and binding
obligation of such Lender, enforceable against it in accordance with the
terms of such documents, subject to the effect of:
(i) any applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' rights generally; and
(ii) general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(e) CONFLICT WITH OTHER INSTRUMENTS. The execution and delivery by such
Lender of this Agreement, and the performance by it of its obligations
thereunder and compliance with the terms, conditions and provisions
thereof, will not, as applicable:
(i) conflict with or result in a breach of any of the terms,
conditions or provisions of (A) its charter documents or by-laws; (B)
any law, rule or regulation having the force of law; (C) any
indenture, mortgage, lease,
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agreement or instrument binding or affecting it or its properties; or
(D) any judgment, injunction, determination or award which is binding
on it or its properties; or
(ii) result in, require or permit (A) the imposition of any security
interest, lien, charge or claim in or with respect to the properties
now owned or hereafter acquired by it; or (B) the acceleration of or
the maturity of any debt under any indenture, mortgage, lease,
agreement or instrument binding or affecting it or its properties.
(f) APPROVALS AND CONSENTS. No authorization, consent, approval, licence or
exemption under any law, rule or regulation of any governmental authority
or other Person is required by such Lender which has not been obtained in
connection with the execution and delivery by it of, and the performance by
it of its obligations under this Agreement, or in order for such Lender to
make Secured Loan Investments as contemplated herein. Such Lender holds all
Material Authorizations.
(g) SOLVENCY. Such Lender has not committed an act of bankruptcy, proposed
a compromise or arrangement to its creditors generally, had any petition
for a receiving order in bankruptcy filed against it, taken any proceeding
to have itself declared bankrupt or wound up or taken any proceeding to
have a receiver appointed of any part of its assets.
(h) ADEQUATE COMMITTED RESOURCES. Such Lender currently has sufficient
financial resources to make the maximum amount of Secured Loan Investments
that this Agreement contemplates will be made by such Lender (subject to
the terms and provisions hereof).
(i) NO RESTRICTIVE AGREEMENTS. Such Lender is not a party to or aware of
any agreement, written or oral, express or implied that restricts the
ability, legal right or authority of such Lender to perform its obligations
under this Agreement or to make Secured Loan Investments as contemplated
herein.
(j) NO LITIGATION. There are no actions, suits or proceedings pending,
taken or, to the knowledge of such Lender, threatened before or by any
domestic or foreign court or tribunal or governmental agency or other
regulatory or administrative agency or commission or by an elected or
appointed public official or private person in Canada or
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elsewhere, whether or not having the force of law which seeks to rescind,
vary or terminate any Material Authorizations of the Lender or which may
materially adversely affect such Lender or its properties or its ability to
perform its obligations hereunder or to make Secured Loan Investments as
contemplated herein.
(k) PUBLIC INFORMATION. All continuous disclosure materials and information
(including financial information), prospectuses, offering documents and
related documentation (collectively, "Disclosure Filings") heretofore filed
by such Lender under the securities laws of the provinces of Canada or of
the United States, as the case may be, and the regulations, rules, policies
and/or orders made thereunder (collectively, the "Securities Laws"), fully
complied, at the time of the filing thereof as aforesaid, with all
applicable requirements of the Securities Laws and, since the time of the
filing thereof, there has been no material change (actual, contemplated or
threatened) in or affecting the business, prospects, affairs, management,
operations, assets, liabilities (contingent or otherwise), capital or
ownership of such Lender, which change is or may be of such a nature as to
render the current Disclosure Filings of such Lender untrue, inaccurate,
incomplete or misleading in any material respect.
2 Survival of Representations and Warranties
The representations and warranties contained herein shall continue in full
force and effect until the later of January 17, 2002 and the Termination Date.
ARTICLE 7 - TRANSFER OF INTERESTS
1 Prohibition Against Transfers and Encumbrances
Except as expressly permitted in this Agreement, a Lender shall not,
without the prior written consent of the other Lender (which consent may be
unreasonably withheld), sell, transfer, assign, convey or otherwise dispose of,
or encumber or pledge or otherwise charge or create a security interest in, its
rights under this Agreement or of its interests in any Secured Loan Investments,
except, on no less than ten (10) days' prior written notice to the other Lender,
and subject to the following provisions of this Section 7.1, to a Permitted
Transferee of such Lender. No such transfer by a Lender to a Permitted
Transferee of such Lender shall release the transferor from its obligations
hereunder, unless the other Lender otherwise agrees. Any such Permitted
Transferee shall be required to execute an assumption agreement in form
satisfactory to the other parties hereto, pursuant to which such Permitted
Transferee agrees to be bound by the provisions hereof as if the Permitted
Transferee had been an original party hereto to the same extent as the
transferor. If a Lender effects a transfer of its rights and obligations under
this agreement to a transferee who is not a Permitted
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Transferee with the prior written consent of the other Lender, upon such
transfer being completed in accordance with any requirements imposed by the
other Lender as a condition of such Lender's consent to such transfer, the
transferor shall be released from its obligations hereunder.
ARTICLE 8 - ACKNOWLEDGMENT REGARDING
ACTIVITIES OF TD AND SIRROM
1 Non-Competition
(a) Subject to the provisions of this Section 8.1, TD hereby covenants and
agrees with Sirrom that: (i) it will not carry on or be engaged in a
Competitive Business within Canada or the United States, at any time prior
to the Termination Date, and (ii) that it will not, in Canada, for a period
of 18 months from the Termination Date, acquire or establish a separate
business division whose principal business is a Competitive Business
(provided that TD shall be subject to the restriction in this subparagraph
(ii) only if the Termination Date has occurred as a result of TD giving a
Termination Notice pursuant to Section 9.1), and (iii) that it will not,
for a period of 18 months from the Termination Date carry on or be engaged
in a Competitive Business within the United States.
The parties acknowledge that TD is a full service financial institution
which carries on the business of commercial banking at branches throughout
Canada through which commercial loans (for which TD may receive
consideration including warrants or similar entitlements) have heretofore
been, and shall hereafter be, made in the ordinary course of business, and
that such ordinary course branch business will not be affected by this
Agreement. The parties agree and confirm that TD shall not be in breach of
the covenant provided for in this paragraph 8.1(a) if at any time one or
more commercial loans having attributes similar to Secured Loan Investments
are made or extended through one or more branches if such commercial loan
is made in the ordinary course of TD's branch business as hereafter carried
on. TD covenants and agrees that it will not advise its branches of the
particulars of the business model, in substantially its entirety, applied
by Sirrom in carrying on its business, as disclosed by Sirrom to SCC Canada
or its representatives, provided that the foregoing shall not prevent TD
from advising its branches of the general investment criteria applicable to
appropriate Secured Loan Investments for the Lenders.
For greater certainty, the parties further acknowledge and agree that TD
shall not be in breach of the covenant provided for in this paragraph
8.1(a) if it acquires a business whose principal business is a business
which is not a Competitive Business, provided
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that the principal business of such acquired business owned by TD continues
not to be a Competitive Business carried on: (i) in Canada or the United
States, up to the Termination Date, or (ii) in the United States, for 18
months from the Termination Date, or (iii) in Canada, for 18 months from
the Termination Date (provided that the restriction in this subparagraph
(iii) shall only apply if the Termination Date has occurred as a result of
TD giving a Termination Notice pursuant to Section 9.1.)
(b) Subject to the provisions of this Section 8.1, Sirrom hereby covenants
and agrees with TD that it will not carry on or be engaged in a Competitive
Business within Canada at any time prior to the Termination Date and for a
period of 18 months thereafter.
(c) For the purposes of this Section 8.1, "carrying on a Competitive
Business" in a specified jurisdiction means carrying on a Competitive
Business with borrowers whose principal place of business is located in the
specified jurisdiction.
ARTICLE 9 - TERMINATION
1 Termination
Either TD or Sirrom shall be entitled, at any time following the execution
and delivery of this Agreement, to deliver a notice in writing to the other of
them (a "Termination Notice") stating that the party delivering such notice
wishes to terminate the arrangements provided for herein as of the date (the
"Termination Date") specified in the Termination Notice, which Termination Date
shall be no less than 90 days from the date the Termination Notice is given to
the recipient thereof pursuant hereto. In the event that a Termination Notice is
given by one Lender to the other pursuant hereto, the following provisions shall
apply:
(a) TD and Sirrom shall have no further obligation to make new Secured Loan
Investments pursuant hereto following the date the Termination Notice is
given, other than those which have been Approved by the Investment
Committee, and previously approved by TD and Sirrom, individually, prior to
such date; and
(b) this Agreement will continue to apply to all existing Secured Loans,
Bonus Equity Interests and Equity Investments held by the Lenders on or
after the Termination Date, until all such Secured Loan Investments have
been liquidated.
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For greater certainty, following the Termination Date, SCC Canada shall
continue to administer existing Secured Loan Investments made by the Lenders in
accordance with this Agreement, until all such Secured Loan Investments have
been liquidated, and all of the provisions of this Agreement regarding the
operations and financing of SCC Canada and the administration and management of
Secured Loan Investments shall continue, including the obligations of the
Lenders under Article 3 hereof.
Following the Termination Date, the Lenders agree to cause the name of SCC
Canada to be changed to a name which does not contain the words "SCC Canada",
and TD agrees that it shall not, thereafter, carry on business using the name
"SCC Canada".
ARTICLE 10 - INDEMNITY
1 Indemnity
Sirrom hereby indemnifies and saves harmless TD, SCC Canada, and their
respective directors and officers (each, an "Indemnitee") from and against any
and all claims, demands, actions, suits, losses, costs, charges, expenses,
damages and liabilities whatsoever which the Indemnitees or any of them may pay,
sustain, suffer or incur by reason of or in connection with any legal
requirement applicable to the Indemnitees or any one of them relating to the
obligation of TD or SCC Canada to withhold or deduct from any payment made to
Sirrom (including, without limitation, payments made as a remittance of
principal or interest on Secured Loans, or of Secured Loan Proceeds, or as
distributions on or proceeds from Bonus Equity Interests or Equity Investments)
any amount on account of any Taxes (as hereinafter defined). For these purposes,
"Taxes" means all taxes of any kind or nature whatsoever, including without
limitation, income taxes, sales or value-added taxes, levies, stamp taxes,
royalties, duties and all fees, deductions, compulsory loans and withholdings
imposed, collected, withheld or assessed at any time, by any Governmental Body
of or within Canada or any other jurisdiction whatsoever having the power to
tax, together with penalties, fines, additions to tax and interest thereon.
ARTICLE 11 - GENERAL CONTRACT PROVISIONS
1 Notices
All notices, requests, demands or other communications by the terms hereof
required or permitted to be given by one party to another shall be given in
writing by courier delivery or by facsimile transaction sent to the other
parties to the address or telecopy number indicated below follows:
36
<PAGE> 40
(a) to TD and SCC Canada at: Suite 800
Toronto-Dominion Tower
Toronto-Dominion Centre
55 King Street West
Toronto, Ontario
M5K 1A2
Attention: John MacIntyre or
John Greenwood
Telecopy: (416) 982-5045
(b) to Sirrom at: 500 Church Street
Suite 200
Nashville, Tennessee
U.S.A.
37219
Attention: George M. Miller, II or
Carl W. Stratton
Telecopy: (615) 726-1208
or at such other address or telecopy number as may be given by any of them to
the others in writing from time to time, and such notices, requests, demands,
acceptances and other communications shall be deemed to have been received when
delivered (if sent by courier delivery) or upon receipt of electronic
confirmation of successful transmission (if sent by facsimile transmission).
2 Further Assurances
Each of the parties shall from time to time and at all times, do such
further acts and deliver all such further assurances, deeds and documents as
shall be reasonably required in order to fully perform and carry out the terms
of this Agreement.
37
<PAGE> 41
3 Execution
This Agreement may be executed in several counterparts, each of which so
executed shall be deemed to be an original and such counterparts together shall
be considered one and the same instrument, and notwithstanding the date of
execution thereof, shall be deemed to be executed on the date indicated below.
In addition, a facsimile copy of a signed copy of this Agreement shall be deemed
an original.
IN WITNESS WHEREOF this Agreement has been duly executed and delivered by
the parties hereto this 17th day of January, 1997.
SIGNED, SEALED AND DELIVERED ) SIRROM CAPITAL CORPORATION
in the presence of: )
)
Per:______________________________
)
)
)
Per:______________________________
38
<PAGE> 42
) THE TORONTO-DOMINION BANK
)
)
Per:______________________________
)
)
)
Per:______________________________
)
)
) SCC CANADA INC.
)
)
Per:______________________________
)
)
)
Per:______________________________
)
)
39
<PAGE> 43
SCHEDULE "3.9"
1. For the purposes of this Schedule 3.9, the following words and phrases
shall have the following meanings:
(a) "CALCULATION PERIOD" has the meaning given thereto in Section 3.9
hereof.
(b) "COST OF CAPITAL" for any period means the result obtained by
(i) multiplying the average of the aggregate principal balance of all
Secured Loans outstanding and capital invested in Equity
Investments on each day of such period by TD's average daily cost
of funds for such period; and
(ii) multiplying the product calculated pursuant to subparagraph (i)
by the number of days in such period.
(c) "LOSS AMOUNT" for any period means, for each Secured Loan Investment in
an Investee in respect of which Sirrom has realized a loss in accordance
with the requirements of the U.S. Internal Revenue Code and in accordance
with the Valuation Policy in such period, the product obtained by
multiplying the aggregate outstanding principal amount of Secured Loans
made by the Lenders to, or capital invested by the Lenders in Equity
Investments or Bonus Equity Investments in, such Investee, by the
percentage of the principal amount of Sirrom's Secured Loan to such
Investee, or capital invested in such Investee, in respect of which Sirrom
has so realized a loss.
(d) "LOSS RECOVERY AMOUNT" for any period means a payment received by the
Lenders of the principal amount of a Secured Loan to such Investee or
capital invested in an Equity Investment made in such Investee which, in
either case, has been previously accounted for in the calculation of
Project Profit for any period as a Loss Amount.
(e) "NET SALE PROCEEDS" means the amount, of all cash proceeds of a sale or
other disposition of all or a portion of a Secured Loan Investment, after
payment of the expenses thereof, received by the Lenders.
<PAGE> 44
(f) "PROJECT OUTLAYS" for any period means the aggregate of the following
amounts:
(i) all expenses of SCC Canada (including any amounts paid to TD or
Sirrom pursuant to Section 3.10 and 3.11) for such period;
(ii) the Cost of Capital for such period; and
(iii) the aggregate Loss Amount for all Secured Loan Investments for
such period.
(g) "PROJECT LOSS" for any period means the amount, if any, by which all
Project Outlays for such period exceeds all Project Receipts for such
period.
(h) "PROJECT PROFIT" for any period means the amount, if any, by which all
Project Receipts for such period exceeds all Project Outlays for such
period.
(i) "PROJECT RECEIPTS" for any period means the aggregate of the following
amounts, without duplication:
(i) all cash interest on Secured Loans received by the Lenders in
such period;
(ii) all cash distributions and dividends on Bonus Equity Interests
(other than capital distributions) received by the Lenders in
such period;
(iii) all cash distributions and dividends (other than capital
distributions) on Equity Investments received by the Lenders in
such period;
2
<PAGE> 45
(iv) all Net Sale Proceeds arising from the sale or disposition of
Bonus Equity Interests received by the Lenders in such period in
excess of the Invested Capital, if any, in such Bonus Equity
Investments;
(v) all Net Sale Proceeds arising from the disposition of Equity
Investments received by the Lenders in such period in excess of
the Invested Capital in such Equity Investments;
(vi) all Processing Fees and all other cash receipts, excluding
Investment Servicing Fees, received by SCC Canada in such
period; and
(vii) all Loss Recovery Amounts received by the Lenders during such
period.
2. The Management Incentive Fee for each Calculation Period, for the purposes
of Section 3.9 of all of the Agreement, unless and until changed by the
Board of Directors in accordance with Section 3.6(f) of the Agreement,
shall be equal to 15% of Project Profit, calculated over such Calculation
Period, provided that notwithstanding the foregoing, for the purposes of
this calculation, Project Profit in any Calculation Period shall be reduced
by the Project Loss in any prior periods not previously deducted from
Project Profit for the purpose of calculating the Management Incentive Fee
hereunder.
3
<PAGE> 1
Exhibit l
BASS, BERRY & SIMS PLC
A PROFESSIONAL LIMITED LIABILITY COMPANY
ATTORNEYS AT LAW
2700 FIRST AMERICAN CENTER 1700 RIVERVIEW TOWER
NASHVILLE, TENNESSEE 37238-2700 POST OFFICE BOX 1509
TELEPHONE (615) 742-6200 KNOXVILLE, TENNESSEE 37901-1509
TELECOPIER (615) 742-6293 TELEPHONE (423) 521-6200
TELECOPIER (423) 521-6234
January 22, 1997
Sirrom Capital Corporation
500 Church Street, Suite 200
Nashville, Tennessee 37219
Re: REGISTRATION STATEMENT ON FORM N-2
Ladies and Gentlemen:
We have acted as your counsel in connection with your preparation of a
registration statement on Form N-2 (the "Registration Statement") to be filed
by you with the Securities and Exchange Commission on January 9, 1997, covering
3,115,513 shares (including 450,000 shares that may be purchased by the
underwriters upon exercise of an option to cover over-allotments) of no par
value common stock (the "Common Stock") of Sirrom Capital Corporation (the
"Company") to be sold by the Company and 219,487 shares of Common Stock to be
sold by certain selling shareholders to the underwriters represented by Morgan
Stanley & Co., Incorporated, The Robinson-Humphrey Company, Inc., J.C. Bradford
& Co., LLC and Equitable Securities Corporation (the "Underwriters") for
public distribution pursuant to the Underwriting Agreement between the Company
and the Underwriters filed as an exhibit to the Registration Statement.
In connection with this opinion, we have examined and relied upon such
records, documents and other instruments as in our judgment are necessary or
appropriate in order to express the opinions hereinafter set forth and have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, and the conformity to original documents of all
documents submitted to us as certified or photostatic copies.
Based on the foregoing and such other matters as we have deemed relevant,
we are of the opinion that the shares of Common Stock to be sold by the Company,
when issued and delivered in the manner and on the terms described in the
Registration Statement (after the same is declared effective), will be validly
issued, fully paid and nonassessable.
We hereby consent to the reference to our law firm in the Registration
Statement under the caption "Legal Matters" and to the use of this opinion as
an exhibit to the Registration Statement.
Very truly yours,
/s/ Bass, Berry & Sims PLC
<PAGE> 1
EXHIBIT N.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports on Sirrom Capital Corporation and Subsidiaries (and to all references to
our Firm) included in or made a part of this Amendment No. 1 to the Registration
Statement No. 333-19493 on Form N-2.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
January 22, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SIRROM CAPITAL CORPORATION FOR THE TWELVE MONTH PERIOD
ENDED DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 262,943,963
<INVESTMENTS-AT-VALUE> 275,337,296
<RECEIVABLES> 2,870,138
<ASSETS-OTHER> 9,805,632
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 288,013,066
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 120,858,213
<OTHER-ITEMS-LIABILITIES> 8,534,338
<TOTAL-LIABILITIES> 129,392,551
<SENIOR-EQUITY> 138,896,414
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 12,343,567
<SHARES-COMMON-PRIOR> 10,093,567
<ACCUMULATED-NII-CURRENT> 1,517,560
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,813,208
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,393,333
<NET-ASSETS> 158,620,515
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 24,395,072
<OTHER-INCOME> 6,549,283
<EXPENSES-NET> 13,821,744
<NET-INVESTMENT-INCOME> 17,122,611
<REALIZED-GAINS-CURRENT> 9,462,991
<APPREC-INCREASE-CURRENT> 2,580,047
<NET-CHANGE-FROM-OPS> 24,895,595
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10,976,390
<DISTRIBUTIONS-OF-GAINS> 577,200
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,213,451
<NUMBER-OF-SHARES-REDEEMED> 65,000
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 6,252,182
<ACCUMULATED-GAINS-PRIOR> 620,271
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 8,341,777
<GROSS-EXPENSE> 13,821,744
<AVERAGE-NET-ASSETS> 123,483,065
<PER-SHARE-NAV-BEGIN> 9.61
<PER-SHARE-NII> 1.52
<PER-SHARE-GAIN-APPREC> 3.71
<PER-SHARE-DIVIDEND> 1.02
<PER-SHARE-DISTRIBUTIONS> .97
<RETURNS-OF-CAPITAL> .0
<PER-SHARE-NAV-END> 12.85
<EXPENSE-RATIO> .112
<AVG-DEBT-OUTSTANDING> 103,659,107
<AVG-DEBT-PER-SHARE> 8.40
</TABLE>
