<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
for Annual Report Under Section 13
or 15(d) of the Securities Exchange Act of 1934
[x] ANNUAL REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to ____________
Commission File No.: 0-25174
SIRROM CAPITAL CORPORATION
(exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
TENNESSEE 62-1583116
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
500 CHURCH STREET
SUITE 200
NASHVILLE, TENNESSEE 37219
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: (615) 256-0701
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, NO
PAR VALUE
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods as the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
On March 7, 1997, the aggregate market value of the Registrant's common stock
held by nonaffiliates of the Registrant was approximately $495,727,556 based
upon a closing price of the Registrant's common stock of $41.00 on that date
and assuming executive officers and directors of the Registrant are affiliates.
On March 7, 1996, there were 15,477,813 shares of the Registrant's common
stock, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's definitive proxy statement for the Annual Meeting of Shareholders
to be held on April 4, 1997 is incorporated by reference into certain sections
of Part III. Certain exhibits previously filed with the Securities and
Exchange Commission are incorporated by reference into Part IV.
<PAGE> 2
PART I
ITEM 1. BUSINESS OF THE COMPANY
HISTORY
Sirrom Capital Corporation (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 business
development company (a "BDC") under the Investment Company Act of 1940, as
amended (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"), that 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 small business investment company ("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 Sirrom Investments, Inc.
("SII"), its wholly-owned subsidiary, and acquired Harris Williams & Co.
("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 Sirrom Funding Corporation ("SFC"), a special purpose,
bankruptcy remote subsidiary, as the borrower under the $100.0 million ING
Credit Facility (as hereinafter defined). Subsequent to fiscal year end, the
Company created Tandem Capital, Inc., a Tennessee Corporation and wholly-owned
subsidiary. Unless otherwise indicated, all references to the Company
include the Partnership, SII, SFC and Harris Williams and their respective
historical operations.
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 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 traditionally has focused and will continue to focus on
making loans with equity features to borrowers that the Company believes meet
certain criteria, including the potential for significant growth, adequate
collateral coverage, experienced management teams with a significant ownership
interest in the borrower, sophisticated outside equity investors and profitable
operations. To develop new lending opportunities, the Company markets to an
extensive referral network comprised of venture capitalists, investment
bankers, attorneys, accountants, commercial bankers and business brokers.
Generally, the Company's investments are structured as loans that
range from $500,000 to $5.0 million in size and are evidenced by debt
securities that are accompanied by warrants to acquire equity securities of the
borrower. These warrants usually have a nominal exercise price (usually $.01
per share). Typically, the loans are collateralized by a security interest in
assets of the borrower and are generally senior to the investments of
sophisticated equity investors. The personal guaranty of the major shareholder
of the borrower or other collateral may also be required. The debt securities
issued to evidence the Company's loans generally carry a fixed rate of interest
and have a maturity of five years
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from their respective dates of issuance. In most cases, the loans are
structured to require the payment of interest only on a monthly basis, with a
single payment of principal at maturity. The Company typically charges
borrowers a processing fee of approximately 2.0% to 2.5% of the amount of each
loan. Unlike most lenders, the Company does not impose prepayment penalties on
borrowers that repay loans prior to maturity. Instead, the Company's warrants
typically contain a "ratchet" provision that increases the Company's equity
position, by one to three percentage points per year, until repayment of the
loan in full. Although the Company's loans provide for a five year maturity,
the warrant "ratchet" may have the effect of encouraging borrowers to repay
loans as soon as possible. The Company benefits from such repayments, because
of the direct relationship that exists between the Company's ability to generate
asset turnover (i.e., redeployment of capital) and return on equity to
shareholders.
The Company has begun to broaden its geographic market, has recently
relocated a senior lender to open and manage a San Francisco office, and
currently anticipates opening an office in the Northeast in fiscal 1997. In
addition, the Company has entered into a joint venture agreement to make
secured loans with warrants to small private companies located in Canada on a
joint basis with 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 have created a Canadian corporation,
SCC Canada Inc. ("SCC Canada"), 60% of which is owned by TD and 40% of which
is owned by the Company. SCC Canada, located in Toronto, Canada, will serve as
the originator and servicer of loans. In its capacity as originator, SCC
Canada will identify potential loan investments and collect a processing fee
when the loan is funded. SCC Canada will also service each loan and collect a
servicing fee from TD and the Company. SCC Canada will not have the ability to
contractually obligate the Company or TD and will not fund the loans. The
loans themselves will be funded directly to the borrowers from TD and the
Company, and the Company and TD will individually approve their respective
loans to each borrower identified by SCC Canada. It is anticipated SCC Canada
will target borrowers that meet similar criteria as the Company's U.S.
borrowers.
The Company also intends to diversify its operations by making loans
with equity features to public companies through Tandem Capital, Inc., its
wholly-owned subsidiary. The target market for this product will be public
companies with a market capitalization under $100.0 million and revenues
typically ranging from $20.0 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
the Company's portfolio companies. Management believes that the acquisition of
Harris Williams provides the Company with an opportunity to obtain significant
fee income and cross-sell services between the two companies.
SELECTION OF LOAN AND INVESTMENT OPPORTUNITIES
Since inception, the Company has identified certain common
characteristics of borrowers which it believes will create a superior small
business portfolio. Although the criteria listed below may not be applied in
every instance and their importance may vary depending on the relevant
circumstances, these criteria generally are applied in the Company's investment
decisions.
Growth. The potential borrower typically must have an annual
projected growth rate of at least 20%. Anticipated growth is a key
factor in determining the potential valuation of warrants in the
Company's equity portfolio.
Liquidation Value of Assets. While the Company does not
market itself as an asset-based lender, the liquidation value of
assets securing the loans is an important component in the credit
decision. Valuations
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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 it
may hold equity securities for a longer period. From the Company's inception
through December 31, 1996, $320.4 million of loans have been originated and
$56.6 million, or 17.7%, have been repaid.
Each loan the Company makes generally has a related five-year
warrant to buy common stock of the borrower. These warrants are exercisable at
a nominal price (usually $.01 per share) and typically represent 3% to 15% of a
borrower's fully diluted common stock. The warrants are generally structured
to provide both registration rights that entitle the Company to sell the equity
securities of the borrower in a public offering and a put option that requires
the borrower to repurchase the warrant after five years at the fair market
value of the shares issuable. As of December 31, 1996, the Company had ten
stock positions in publicly traded companies that had a fair market value of
$13.6 million on that date. In accordance with the Company's valuation policy,
the securities were carried at a fair value of $11.4 million at December 31,
1996. In addition, at that date, the Company owned common stock and preferred
stock investments in 25 non-public companies with a fair value of approximately
$23.5 million. The Company has also converted approximately 25 equity
positions to cash since inception with gains approximating $17.8 million. At
December 31, 1996, the Company held warrant positions in eight public companies
that it carried on its books at a fair value of approximately $1.3 million and
warrants in approximately 120 private companies that it carried at a fair value
of $14.6 million. The fair value of the Company's loans and equity investments
is determined in good faith by the Board of Directors in accordance with the
Company's valuation policy.
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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 an office in San Francisco, California. 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, 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 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 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>
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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 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 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.
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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 U.S. Small Business Administration
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 non-traditional lenders. Many of these
entities have greater financial and managerial resources than the Company. The
Company believes that it competes effectively with such entities primarily on
the basis of the quality of its service, its reputation, and the timely credit
analysis and decision-making processes it follows, and to a significantly
lesser degree on the interest rates, maturities and payment schedules it offers
on the loans to borrowers.
EMPLOYEES
As of February 28, 1997, the Company had 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.
THE COMPANY'S OPERATIONS AS A BDC
As a BDC, the Company may not acquire any asset other than Qualifying
Assets unless, at the time the acquisition is made, Qualifying Assets represent
at least 70% of the value of the Company's total assets. The principal
categories of Qualifying Assets relevant to the business of the Company are the
following:
(i) securities purchased in transactions not involving any public
offering from the issuer of such securities, which issuer is an
eligible portfolio company. An eligible portfolio company is defined
as any issuer that (a) is organized and has its principal place of
business in the United States, (b) is not an investment company other
than a SBIC wholly-owned by the BDC and (c) does not have any class of
publicly-traded securities with respect to which a broker may extend
margin credit;
(ii) securities received in exchange for or distributed with respect
to securities described above, or pursuant to the exercise of options,
warrants or rights relating to such securities; and
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(iii) cash, cash items, Government securities, or high quality
debt securities maturing in one year or less from the time of
investment.
The Company may not change the nature of its business so as to cease
to be, or withdraw its election as, a BDC unless authorized by vote of a
majority, as defined in the 1940 Act, of the Company's shares. Since the
Company made its BDC election, it has not made any substantial change in its
structure or in the nature of its business.
The Company is permitted, under specified conditions, to issue
multiple classes of indebtedness and one class of stock senior to its common
stock 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.
ITEM 2. PROPERTIES
The Company does not own any properties and leases 9,378 square feet
of office space pursuant to a five year lease.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF REGISTRANT
Set forth below is certain information as of March 7, 1997 with respect to the
Company's executive officers:
<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 38 Chief Financial Officer
H. Hiter Harris, III 36 Co-Chairman of Harris Williams
Christopher H. Williams 33 Co-Chairman of Harris Williams
</TABLE>
George M. Miller, II, is President and Chief Executive Officer and
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. From 1987 to 1989, Mr. Miller worked as an associate
in the Corporate Finance department of J.C. Bradford & Co. Prior to this, 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.
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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 risk management
associated with the loan portfolio of the Company, including loan origination,
portfolio management and workout activities. Mr. Resha is a twenty-five year
veteran commercial banker. Most recently, he was Senior Vice President at First
Union National Bank of Tennessee where he managed the middle market/corporate
banking group. He held a similar position with Dominion Bank before it was
merged with First Union National Bank of Tennessee. Mr. Resha holds a Bachelor
of Business Administration degree from Loyola University in New Orleans and a
Master of International Management degree from American (Thunderbird) Graduate
School in Glendale, Arizona.
Carl W. Stratton joined the Company in October 1995 and has served as
Chief Financial Officer since April 1996. From October 1995 through April
1996, Mr. Stratton held the position of Vice President--Workouts with the
Company. From 1991 to 1995, Mr. Stratton was chief financial officer of
International 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.
H. Hiter Harris, III co-founded Harris Williams in 1991 and has served
as co-chairman of Harris Williams since the Company's acquisition of the firm
in August 1996. From 1987 to 1991, Mr. Harris served as Vice President of
Bowles Hollowell & Conner and from 1983 to 1985 served as pricing coordinator
for Crestar Bank. Mr. Harris holds a Master of Business Administration degree
with distinction from Harvard Graduate School of Business Administration and
Bachelor of Science degrees in Mathematics and Economics from Hampden-Sydney
College.
Christopher H. Williams co-founded Harris Williams in 1991 and has
served as co-chairman of Harris Williams since the Company's acquisition of the
firm in August 1996. From 1987 to 1991, Mr. Williams served as Vice President
of Bowles Hollowell & Conner. Mr. Williams holds a Master of Business
Administration from Harvard Graduate School of Business Administration and a
Bachelor of Arts in Business Administration degree from Washington and Lee
University.
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PART II
ITEM 5. MARKET PRICE
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.
The Common Stock is quoted on the Nasdaq National Market under the
symbol SROM. The Company presently has 151 holders of record and approximately
6,400 beneficial owners. The following table sets forth the range of high and
low bid prices of the Company's Common Stock as reported on the Nasdaq National
Market and the dividends declared by the Company for the period from February
6, 1995, when public trading of the Common Stock commenced, through the fourth
quarter of 1996.
<TABLE>
<CAPTION>
BID PRICE
------------------------------------ DIVIDEND
HIGH LOW DECLARED
-------------- --------------- -----------------
<S> <C> <C> <C>
1995
First Quarter (beginning February 6, 1995) . . . . $11 5/8 $10 3/4 $.14
Second Quarter . . . . . . . . . . . . . . . . . . 13 1/4 10 3/4 .26
Third Quarter . . . . . . . . . . . . . . . . . . . 18 1/2 13 1/4 .23
Fourth Quarter . . . . . . . . . . . . . . . . . . 19 1/2 16 7/8 .26
1996
First Quarter . . . . . . . . . . . . . . . . . . . 22 3/4 18 5/8 .24
Second Quarter . . . . . . . . . . . . . . . . . . 29 23 1/2 .26
Third Quarter . . . . . . . . . . . . . . . . . . . 29 3/4 23 .32
Fourth Quarter . . . . . . . . . . . . . . . . . . 38 29 3/4 .36
</TABLE>
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ITEM 6. SELECTED FINANCIAL DATA
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,
---------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- -------- --------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 4,601 $ 1,633 $ 137 $ 195 $ 4,612
Loans....................................................... 14,639 42,441 72,336 144,855 221,487
Equity interests............................................ 4,233 3,591 7,577 15,912 34,966
Warrants.................................................... 951 4,219 7,549 11,513 15,894
Total assets................................................ 24,954 53,425 91,804 177,870 288,013
Revolving credit facilities................................. -- -- 6,389 13,200 30,858
Debentures payable to SBA................................... 10,000 34,000 51,000 73,260 90,000
Total shareholders' equity.................................. 14,806 18,787 33,218 89,186 158,621
</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.
11
<PAGE> 12
ITEM 7. 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% 88.2% 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................................... -- -- 1.4 0.4 -- -- (46.6)%
----- ----- ----- -----
Total Operating Income..................... 100.0% 100.0% 100.0% 100.0% 95.5% 89.1% 77.7%
Interest expense............................... 33.9 37.9 30.7 30.1 118.9% 52.7% 74.8%
Salaries, benefits, and other operating
expenses..................................... 20.7 14.5 16.0 17.8 36.6% 108.7% 98.0%
State income tax on interest................... 5.5 5.6 0.7 -- 97.8% (76.1%) (100.0)%
Amortization expense........................... 1.3 1.4 1.3 2.0 118.5% 76.3% 161.1%
----- ----- ----- -----
Total Operating Expenses................... 61.4 59.4 48.7 49.9 89.2% 54.9% 82.3%
Equity in pre-tax income of unconsolidated
subsidiary................................... 4.9 6.7 5.2 11.8 167.1% 46.8% 302.0%
----- ----- ----- -----
Net Operating Income....................... 43.5% 47.3% 56.5% 61.9% 112.5% 125.9% 94.5%
===== ===== ===== =====
</TABLE>
The following table summarizes the Company's operating results by quarter
for 1995 and 1996.
<TABLE>
<CAPTION>
MARCH JUNE SEPT. DEC. MARCH JUNE SEPT. DEC.
1995 1995 1995 1995 1996 1996 1996 1996
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest on investments............ $2,424 $3,231 $3,375 $4,422 $4,862 $5,586 $6,389 $7,558
Loan processing fees............... 541 313 706 340 921 652 797 796
Other income....................... -- -- -- 223 -- 62 28 29
------ ------ ------ ------ ------ ------ ------ ------
Total Operating Income......... 2,965 3,544 4,081 4,985 5,783 6,300 7,214 8,383
Interest expense................... 999 1,170 1,192 1,410 1,790 2,051 2,138 2,362
Salaries, benefits, and other
operating expenses............... 673 436 620 765 1,216 1,172 1,270 1,279
State income tax on interest....... 52 11 -- 47
Amortization expense............... 30 38 45 95 188 89 101 165
------ ------ ------ ------ ------ ------ ------ ------
Total Operating Expenses....... 1,754 1,655 1,857 2,317 3,194 3,312 3,509 3,806
Equity in pre-tax income of
unconsolidated subsidiary........ 194 8 408 202 795 627 1,151 691
------ ------ ------ ------ ------ ------ ------ ------
Net Operating Income........... $1,405 $1,897 $2,632 $2,870 $3,384 $3,615 $4,856 $5,268
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
The Company's principal investment objectives are to achieve a high level
of income from the collection of interest and processing and financial advisory
fees and long-term growth in its shareholders' equity through the appreciation
in value of equity interests in its portfolio companies. The Company and its
wholly-owned subsidiary, SII make loans that are typically in the form of
secured debt with
12
<PAGE> 13
relatively high fixed interest rates accompanied by warrants to purchase equity
securities of the borrower. In addition to interest on investments, the Company
and SII also typically collect an up-front processing fee on each loan they
originate. Harris Williams, another wholly-owned subsidiary of the Company,
typically obtains a monthly retainer fee in 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' pretax income, and its total operating expenses, including
interest expense. The second element is "realized gain (loss) on investments,"
which is the difference between the proceeds received from the disposition of
portfolio assets and their stated costs. 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 pretax income of Harris Williams.
Fiscal Years Ended December 31, 1996, 1995 and 1994
Net Operating Income. During the fiscal year ended December 31, 1996, the
Company earned interest on investments of $24.4 million, an 80.7% increase over
the $13.5 million earned in 1995, which in turn was an 84.9% increase over the
$7.3 million earned in 1994. In addition to interest on investments, the Company
also collects an up-front processing fee for each loan it originates. During
fiscal 1996, the Company collected $3.2 million in processing fees, a 68.4%
increase over the $1.9 million collected in 1995, which in turn was a 110.9%
increase over the $901,000 collected in 1994. These increases in interest income
and processing fees are a result of increases in the dollar amount of loans
outstanding and originated during the applicable periods. The Company's loan
portfolio increased to $221.5 million at December 31, 1996, an increase of 52.9%
over the $144.9 million at December 31, 1995, which in turn was an increase of
100.4% from $72.3 million at December 31, 1994. The $132.0 million of loans
originated during fiscal 1996 was a 30.0% increase over the $101.5 million of
loans originated during fiscal 1995, which in turn was a 148.8% increase over
the $40.8 million of loans originated in 1994. In addition, the weighted average
interest rate charged on the loan portfolio at December 31, 1996 was 13.2%, as
compared to 12.8% and 12.3% at December 31, 1995 and 1994, respectively. The
Company also earned income from miscellaneous sources in an amount equal to
$119,000 in 1996 and $223,000 in 1995, primarily from interest received on loans
to employees made in connection with purchases of common stock of the Company.
The Company's interest expense increased to $8.3 million in 1996, a 72.9%
increase over the $4.8 million in 1995, which in turn was a 54.8% increase over
the $3.1 million paid in 1994. The increase in interest expense from 1994 to
1996 was primarily attributable to increased borrowings from the SBA and, in
1995 and 1996, under the revolving credit facilities. The Company's total
borrowings were $120.9 million on December 31, 1996, $86.5 million on December
31, 1995 and $57.4 million on December 31, 1994.
Overhead, amortization of borrowing costs and state taxes totaled $5.5
million in fiscal 1996, a 96.4% increase over the $2.8 million of such expenses
in fiscal 1995, which in turn was a 55.6% increase over the $1.8 million of such
expenses in 1994. These increases can be largely attributed to the increase in
the number of employees from five in January 1994 to 24 in December 1996 and the
Company's relocation to larger office space in 1995. In addition, in 1996, the
Company changed its practice of expensing bonuses when paid in the first quarter
of each year to accruing for bonuses currently. As a result, this bonus accrual
increased operating expenses by approximately $1.0 million in 1996, representing
35.7% of the 96.4% increase in expenses from
13
<PAGE> 14
1995 to 1996. Although the dollar amount of these expenses increased over the
three-year period, overhead expenses as a percentage of ending assets increased
slightly to 1.7% in fiscal 1996 from 1.4% and 1.3% for fiscal 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 pretax income of $3.3 million, a 306.4% increase over the $812,000 in pretax
income in 1995, which in turn was a 46.8% increase over the $553,000 in pretax
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 thirteen 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' pretax income in 1996. No
taxes were accrued on Harris Williams' pretax 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 regulated investment company ("RIC") under Subchapter M
of the Internal Revenue Code. If the Company, as a RIC, satisfies certain
requirements relating to the source of its income, the diversification of its
assets and the distribution of its net income, the Company is generally taxed as
a pass through entity which acts as a partial conduit of income to its
shareholders. In order to maintain its RIC status, the Company must in general
derive at least 90% of its gross income from dividends, interest and gains from
the sale or disposition of securities; derive less than 30% of its gross income
from the sale or disposition of securities held for less than three months; meet
investment diversification requirements defined by the Code; and distribute to
shareholders 90% of its net income (other than long-term capital gains). The
Company presently intends to meet the RIC qualifications in 1997. However, no
assurance can be given that the Company will continue to elect or qualify for
such treatment after 1997.
During 1996, the Company paid dividends of $11.6 million compared to the
$5.2 million paid in 1995. Of these dividends, $11.2 million and $4.0 million
were derived from net operating income for 1996 and 1995, respectively, and
$406,000 and $1.2 million were derived from realized capital gains for 1996 and
1995, respectively. The Company also elected to designate $10.6 million and $2.1
million of the undistributed
14
<PAGE> 15
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.
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 $50.0
million revolving credit facility with First Union National Bank and a syndicate
of other banks (the "Revolving Credit Facility"), which is secured by all of
SII's assets and by a pledge by the Company to the lenders under the Revolving
Credit Facility of SII's stock and which is also guaranteed by the Company. The
interest rate on these borrowings was 8.14% at December 31, 1996. 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. The Revolving Credit Facility matures on May 31, 2000. The
Revolving Credit Facility requires that SII obtain the lenders' consent prior
to, among other things, encumbering its assets, merging or consolidating with
another entity and making investments other than those permitted by the SBA. In
addition, the Revolving Credit Facility provides that the repayment of any
amounts outstanding can be accelerated if either George M. Miller, II or David
M. Resha ceases to be employed by the Company.
To support the Company's future loan origination activities outside of SII,
the Company has also established a $100.0 million five-year revolving credit
facility (the "ING Credit Facility") with Holland Limited Securitization, Inc.,
a multi-seller commercial paper conduit sponsored by ING Baring (U.S.) Capital
Markets, Inc. (collectively "ING"). Sirrom Funding Corporation ("SFC"), a
wholly-owned special purpose, bankruptcy remote subsidiary of the Company, is
the borrower under the ING Credit Facility. SFC will purchase loans originated
by the Company and the related warrants and use these loans and warrants as
collateral to secure borrowings from ING. SFC is generally able
15
<PAGE> 16
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 $25.0 million of loans, which loans
will serve as initial collateral for the ING Credit Facility. At January 15,
1997, $2.0 million was outstanding under the ING Credit Facility. The interest
rate of the ING Credit Facility at January 15, 1997 was 7.72%. In order to
manage interest rate risk associated with the variable interest rate provided
for under the ING Credit Facility, the Company has entered into various hedging
arrangements. The ING Credit Facility matures on December 31, 2001. The ING
Credit Facility is not guaranteed by the Company. However, certain actions by
the Company can trigger an event of default under the ING Credit Facility,
which will result in termination of further funding thereunder and the
application of the collateral pledged for repayment of the amounts outstanding
thereunder. In addition, the ING Credit Facility provides that an event of
default is triggered if any two of George M. Miller, II, David M. Resha and
Carl W. Stratton are no longer employed by the Company.
The Company believes that the $110.0 million raised in the February 1997
public offering, anticipated borrowings under the Revolving Credit Facility and
the ING Credit Facility, together with cash on hand, loan repayments 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.
16
<PAGE> 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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 consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sirrom Capital Corporation
and Subsidiaries at December 31, 1995 and 1996 and the results of their
operations, the changes in Partners' capital and shareholders' equity and their
cash flows for each of the three years in the period ended December 31, 1996 and
financial highlights for the periods indicated thereon, in conformity with
generally accepted accounting principles.
As explained in Note 2, the financial statements include investments valued
at $170,211,000 (96% of total assets) and $262,606,000 (91% of total assets) as
of December 31, 1995 and 1996, respectively, whose values have been estimated by
the Board of Directors in the absence of readily ascertainable market values.
However, because of the inherent uncertainty of valuation, those estimated
values may differ significantly from the values that would have been used had a
ready market for the securities existed, and the differences could be material.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
January 30, 1997
17
<PAGE> 18
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.
18
<PAGE> 19
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.
19
<PAGE> 20
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL AND
SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK UNDISTRIBUTED APPRECIATION
PARTNERS' ------------------------- NOTES RECEIVABLE NET REALIZED OF
CAPITAL SHARES AMOUNT FROM EMPLOYEES EARNINGS INVESTMENTS
---------------- ---------- ------------ ---------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
SIRROM CAPITAL, L.P.:
BALANCE, DECEMBER 31, 1993..... $ 15,349,434 -- $ -- $ -- $ 1,673,802 $ 1,763,426
Capital contributions........ 8,662,178 -- -- -- -- --
Purchase of ownership in
partnership................ 1,980,000 -- -- (1,980,000) -- --
Capital distributions........ (593,093) -- -- -- -- --
Distribution of Harris
Williams earnings.......... -- -- -- -- (354,087) --
Net increase in partners'
capital resulting from
operations................. -- -- -- -- 3,359,338 3,356,316
------------ ---------- ------------ ----------- ------------ -----------
BALANCE, DECEMBER 31, 1994..... 25,398,519 -- -- (1,980,000) 4,679,053 5,119,742
SIRROM CAPITAL CORPORATION:
Effect of reorganization
(Note 1)................... (25,398,519) 5,948,567 25,398,519 -- -- --
Issuance of common stock..... -- 4,145,000 47,712,029 -- -- --
Net increase in shareholders'
equity resulting from
operations................. -- -- -- -- 9,543,898 4,693,544
Payment of dividends......... -- -- -- -- (3,974,079) --
Distribution of capital
gains...................... -- -- -- -- (1,201,000) --
Distribution of Harris
Williams earnings.......... -- -- -- -- (806,000) --
Designation of undistributed
capital gains, net of tax
(Note 11).................. -- -- 1,369,419 -- (1,369,419) --
------------ ---------- ------------ ----------- ------------ -----------
BALANCE, DECEMBER 31, 1995..... -- 10,093,567 74,479,967 (1,980,000) 6,872,453 9,813,286
Issuance of common stock..... -- 2,300,000 59,223,301 -- -- --
Stock options exercised...... -- 15,000 224,375 -- -- --
Employee shares
repurchased................ -- (65,000) (809,645) -- -- --
Payment on notes
receivable................. -- -- -- 440,142 -- --
Net increase in shareholders'
equity resulting from
operations................. -- -- -- -- 22,315,548 2,580,047
Payment of dividends......... -- -- -- -- (10,976,390)
Distribution of capital
gains...................... -- -- -- -- (577,200) --
Distribution of Harris
Williams earnings.......... -- -- -- -- (2,985,369) --
Designation of undistributed
capital gains, net of tax
(Note 11).................. -- -- 6,943,094 -- (6,943,094) --
------------ ---------- ------------ ----------- ------------ -----------
BALANCE, DECEMBER 31, 1996..... $ -- 12,343,567 $140,061,092 $(1,539,858) $ 7,705,948 $12,393,333
============ ========== ============ =========== ============ ===========
<CAPTION>
TOTAL
------------
<S> <C>
SIRROM CAPITAL, L.P.:
BALANCE, DECEMBER 31, 1993..... $ 18,786,662
Capital contributions........ 8,662,178
Purchase of ownership in
partnership................ --
Capital distributions........ (593,093)
Distribution of Harris
Williams earnings.......... (354,087)
Net increase in partners'
capital resulting from
operations................. 6,715,654
------------
BALANCE, DECEMBER 31, 1994..... 33,217,314
SIRROM CAPITAL CORPORATION:
Effect of reorganization
(Note 1)................... --
Issuance of common stock..... 47,712,029
Net increase in shareholders'
equity resulting from
operations................. 14,237,442
Payment of dividends......... (3,974,079)
Distribution of capital
gains...................... (1,201,000)
Distribution of Harris
Williams earnings.......... (806,000)
Designation of undistributed
capital gains, net of tax
(Note 11).................. --
------------
BALANCE, DECEMBER 31, 1995..... 89,185,706
Issuance of common stock..... 59,223,301
Stock options exercised...... 224,375
Employee shares
repurchased................ (809,645)
Payment on notes
receivable................. 440,142
Net increase in shareholders'
equity resulting from
operations................. 24,895,595
Payment of dividends......... (10,976,390)
Distribution of capital
gains...................... (577,200)
Distribution of Harris
Williams earnings.......... (2,985,369)
Designation of undistributed
capital gains, net of tax
(Note 11).................. --
------------
BALANCE, DECEMBER 31, 1996..... $158,620,515
============
</TABLE>
The accompanying notes are an integral part of these statements.
20
<PAGE> 21
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.
21
<PAGE> 22
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
PER SHARE DATA(1) 1995(2) 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 898,454 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 898,454
shares for the acquisition of Harris Williams.
(7) Includes interest expense.
The accompanying notes are an integral part of these statements.
22
<PAGE> 23
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 898,454 shares of common stock of the Company. After
the acquisition, Harris Williams began operating as a "C" corporation. Harris
Williams is a merger and acquisition advisory services firm located in Richmond,
Virginia, that is being operated as a wholly-owned subsidiary of the Company.
The acquisition of Harris Williams is accounted for as a pooling of interests.
The 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.
23
<PAGE> 24
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 Directors' 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.
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.
24
<PAGE> 25
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.
25
<PAGE> 26
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 basis 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 a
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.
26
<PAGE> 27
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
27
<PAGE> 28
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% 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 from
operations.................................... 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.
28
<PAGE> 29
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.
29
<PAGE> 30
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 SHAREHOLDERS' EQUITY
Liabilities................................................. $ 44,436 $ 59,025
Shareholders' equity........................................ 840,092 911,487
-------- --------
Total liabilities and shareholders' equity............. $884,528 $970,512
======== ========
</TABLE>
30
<PAGE> 31
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
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, 1997, the Company entered into an agreement with a Canadian
financial institution to make loans with warrants on a joint basis to companies
located in Canada.
On January 21, 1997, the lenders under the $50.0 million revolving credit
facility agreed to extend the maturity date of the facility to May 31, 2000.
The Company finalized its calculation of retained capital gains on January
30, 1997 upon the filing of its 1996 capital gains tax return. This resulted in
a reduction of $93,174 in the amount of deemed dividends distributed to
shareholders to $10,558,509. This reduction will be reclassified from common
stock to undistributed net realized earnings on subsequent financial statements.
In addition, the amount of dividends derived from capital gains was reduced by
$171,498 to $405,702.
31
<PAGE> 32
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.
32
<PAGE> 33
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>
33
<PAGE> 34
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>
34
<PAGE> 35
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>
35
<PAGE> 36
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.
36
<PAGE> 37
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>
37
<PAGE> 38
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.
38
<PAGE> 39
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>
39
<PAGE> 40
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.
40
<PAGE> 41
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
AB Plastics Holding Corporation.................. 9/27/01 $ 4,000,000 13.50% $ 4,000,000
Affinity Fund, Inc............................... 6/29/98 1,485,000 12.50 1,497,932
Affinity Fund, Inc............................... 3/10/00 1,000,000 14.00 1,000,000
Affinity Fund, Inc............................... 12/28/98 495,000 12.50 496,079
American Corporate Literature, Inc............... 9/29/01 1,683,000 14.00 1,684,132
ARAC Holding Co., Inc............................ 9/27/01 3,000,000 13.50 3,000,000
American Network Exchange........................ 11/30/98 990,000 13.00 996,346
American Network Exchange........................ 1/18/99 990,000 13.00 996,012
Amscot Holdings, Inc............................. 5/26/00 800,000 14.00 800,000
Amscot Holdings, Inc............................. 9/20/00 200,000 14.00 200,000
Amscot Holdings, Inc............................. 6/28/01 500,000 14.00 500,000
Amscot Holdings, Inc............................. 12/27/01 250,000 14.00 250,000
Argenbright Holdings Limited..................... 7/7/01 2,750,000 13.50 3,500,000
Ashe Industries, Inc............................. 12/28/97 990,000 12.50 132,058
Ashe Industries, Inc............................. 3/25/99 445,500 12.50 122,300
Ashe Industries, Inc............................. 5/18/99 544,500 12.50 121,524
Ashe Industries, Inc............................. 6/12/96 750,000 14.00 100,000
Ashe Industries, Inc............................. 6/12/96 285,546 14.00 0
Associated Response Services, Inc................ 6/20/99 1,386,000 12.50 1,393,223
Associated Response Services, Inc................ 2/15/00 335,000 12.50 335,000
Associated Response Services, Inc................ 1/6/00 300,000 12.50 300,000
Associated Response Services, Inc................ 11/8/01 500,000 12.50 500,000
Assured Power, Inc............................... 10/1/00 700,000 13.50 700,000
Avionics Systems, Inc............................ 7/19/01 3,000,000 13.50 3,000,000
B & N Company, Inc............................... 8/8/00 2,970,000 12.50 2,978,500
B & N Company, Inc............................... 3/28/01 990,000 13.00 991,670
BankCard Services Corporation.................... 1/21/98 297,000 13.00 299,400
BiTec Southeast, Inc............................. 7/1/99 2,600,321 12.70 2,614,171
BiTec Southeast, Inc............................. 8/9/01 950,000 14.00 950,000
C.J. Spirits, Inc................................ 6/1/97 750,171 13.50 455,796
Caldwell/VSR Inc................................. 2/28/01 1,500,000 8.00 1,500,000
Caldwell/VSR Inc................................. 9/27/01 116,000 14.00 116,000
Cardiac Control Systems, Inc..................... 3/31/00 1,500,000 13.50 1,500,000
Cartech Holdings, Inc............................ 4/29/01 1,500,000 13.00 1,500,000
Carter Kaplan Holdings, LLC...................... 6/22/00 594,000 14.00 94,800
Cedaron Medical, Inc............................. 6/28/01 1,500,000 13.50 1,500,000
Cell Call, Inc................................... 11/4/97 990,000 12.75 998,349
CF Data Corp..................................... 3/16/00 1,732,500 13.75 1,738,924
Champion Glove Manufacturing Co.,Inc............. 7/27/00 1,250,000 13.50 1,250,000
Colonial Investments, Inc........................ 10/16/00 800,000 13.75 800,000
Colonial Investments, Inc........................ 5/8/01 300,000 13.75 300,000
Consumat Systems, Inc............................ 11/1/00 500,000 14.00 500,000
Consumat Systems, Inc............................ 1/1/01 500,000 14.00 500,000
Consumat Systems, Inc............................ 3/11/01 500,000 14.00 500,000
Continental Diamond Cutting Co................... 10/28/99 1,500,000 13.00 1,500,000
Continental Diamond Cutting Co................... 11/16/99 200,000 13.00 200,000
</TABLE>
41
<PAGE> 42
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Corporate Flight Mgmt, Inc....................... 12/4/97 $ 346,500 12.50% $ 349,341
Corporate Link, Inc.............................. 12/13/01 600,000 14.00 600,000
Corporate Link, Inc.............................. 3/13/97 300,000 14.00 300,000
CreditCorp and affiliates........................ 11/7/01 539,000 14.00 546,683
Dalcon International, Inc........................ 1/31/02 150,000 13.00 150,000
Dalcon International, Inc........................ 1/31/00 200,000 13.00 200,000
Dalts, Inc....................................... 4/28/01 2,000,000 13.50 2,000,000
DentalCare Partners, Inc......................... 1/11/01 1,951,150 12.50 1,956,160
Eastern Food Group LLC........................... 8/30/00 500,000 8.00 25,000
Eastern Food Group LLC........................... 12/20/00 200,000 8.00 25,000
Eastern Food Group LLC........................... 1/21/01 200,000 8.00 25,000
Eastern Food Group LLC........................... 2/14/01 265,000 8.00 25,000
Eastern Food Group LLC........................... 4/30/01 200,000 8.00 100,000
Eastern Food Group LLC........................... 9/10/01 180,000 8.00 80,000
Electronic Merchant Services..................... 2/27/00 1,237,500 13.50 1,040,204
Electronic Merchant Services..................... 2/29/96 168,572 14.00 168,572
Encore Orthopedics, Inc.......................... 7/31/00 2,620,985 13.50 2,734,691
Encore Orthopedics, Inc.......................... 2/28/01 1,667,680 13.00 1,728,609
Entek Scientific, Inc............................ 6/28/01 2,500,000 13.00 2,500,000
Express Shipping Centers, Inc.................... 9/22/00 1,697,598 13.25 1,844,910
FoodNet Holdings, LLC............................ 7/22/01 1,000,000 13.50 1,000,000
Fortrend Engineering Corp........................ 8/30/01 1,500,000 12.99 1,500,000
FX Direct, Inc................................... 1/23/01 2,324,000 13.50 2,359,199
Fypro, Inc....................................... 12/17/01 3,117,480 12.50 3,117,480
Fypro, Inc....................................... 12/17/01 592,000 4.00 152,000
Gardner Wallcovering, Inc........................ 3/28/01 1,485,000 13.50 1,487,500
General Materials Management, Inc................ 7/29/01 2,500,000 13.50 2,500,000
Generation 2 Worldwide LLC....................... 10/31/00 2,000,000 14.00 2,000,000
Global Finance and Leasing, Inc.................. 1/3/00 1,500,000 13.00 1,500,000
Global Marine Electronics, Inc................... 5/1/01 1,350,000 13.00 1,350,000
Gold Medal Products, Inc......................... 11/19/00 1,250,000 13.50 1,250,000
Gold Medal Products, Inc......................... 2/15/01 25,000 13.50 25,000
Gold Medal Products, Inc......................... 6/27/01 100,000 13.50 100,000
Gold Medal Products, Inc......................... 7/31/01 100,000 13.50 100,000
Golf Corporation of America, Inc................. 9/16/99 300,000 11.00 150,000
Golf Corporation of America, Inc................. 12/28/00 200,000 14.00 150,000
Golf Corporation of America, Inc................. 12/29/00 455,589 10.00 180,589
Golf Corporation of America, Inc................. 7/13/96 100,000 14.00 100,000
Golf Corporation of America, Inc................. 10/5/96 50,000 14.00 50,000
Golf Corporation of America, Inc................. 12/1/96 52,000 14.00 52,000
Golf Corporation of America, Inc................. 12/31/96 39,000 14.00 39,000
Golf Video, Inc.................................. 3/27/01 500,000 14.00 50,000
Good Food Fast Companies, The.................... 12/13/01 1,300,000 13.50 1,300,000
Gulfstream International Airlines Inc............ 7/29/99 1,490,000 13.00 1,496,513
Gulfstream International Airlines Inc............ 9/25/00 1,000,000 13.50 1,000,000
Home Link Services, Inc.......................... 12/30/01 79,750 14.00 79,750
</TABLE>
42
<PAGE> 43
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Horizon Medical Products, Inc.................... 9/22/00 $ 1,500,000 13.75% $ 1,500,000
HPC America, Inc................................. 8/15/01 2,970,000 13.50 2,972,500
Hunt Incorporated................................ 3/31/00 3,250,000 14.00 3,250,000
H & H Acq. Corp.................................. 8/30/01 1,500,000 14.00 1,500,000
HTR, Inc......................................... 10/30/01 3,000,000 13.50 3,000,000
I.Schneid Acquisition, LLC....................... 4/1/01 2,000,000 14.00 2,000,000
ILD Communications............................... 5/10/01 1,500,000 13.50 1,500,000
In-Store Services, Inc........................... 4/19/00 1,188,000 14.00 1,192,200
Innotech, Inc.................................... 3/22/99 1,980,000 13.00 1,991,322
IV Infusion Corporation.......................... 12/19/01 1,000,000 14.00 1,000,000
Johnston County Cable, L.P....................... 8/31/00 1,990,000 14.00 1,992,672
Kentucky Kingdom, Inc............................ 4/4/99 250,000 8.25 250,000
Kentucky Kingdom, Inc............................ 1/5/98 1,980,000 12.50 1,995,985
Kentucky Kingdom, Inc............................ 9/26/99 1,200,000 10.50 1,200,000
Kentucky Kingdom, Inc............................ 3/1/00 835,000 14.00 835,000
Kentucky Kingdom, Inc............................ 11/6/00 1,500,000 12.50 1,500,000
Kentucky Kingdom, Inc............................ 3/30/98 2,000,000 14.00 2,000,000
Kryptonics, Inc.................................. 12/14/00 2,500,000 12.90 2,500,000
KWC Management Co., LLC.......................... 4/25/01 500,000 14.00 50,000
Lane Acquisition Corporation..................... 11/21/01 4,000,000 13.75 4,000,000
Leisure Clubs International, Inc................. 4/1/01 1,485,000 14.00 1,487,250
Lovett's Buffet, Inc............................. 4/1/00 2,250,000 13.00 2,250,000
Mayo Hawaiian Corp............................... 6/27/01 2,200,000 14.00 2,200,000
MBA Marketing Corporation........................ 2/4/99 1,782,000 12.50 1,792,500
McAuley's Incorporated........................... 7/31/01 3,000,000 13.00 3,000,000
Medical Associates of America, Inc............... 11/1/97 385,000 12.50 392,000
Metals Recycling Technologies, Inc............... 10/31/01 2,000,000 14.00 2,000,000
Money Transfer Systems, Inc...................... 7/24/00 247,500 14.00 248,256
Money Transfer Systems, Inc...................... 12/20/00 148,500 14.00 148,825
Money Transfer Systems, Inc...................... 3/1/01 148,500 14.00 148,750
Money Transfer Systems, Inc...................... 5/2/01 148,500 14.00 148,650
Money Transfer Systems, Inc...................... 7/8/01 148,500 14.00 148,650
Money Transfer Systems, Inc...................... 10/1/01 148,500 14.00 148,575
Monogram Products, Inc........................... 6/18/01 916,000 13.50 925,800
Moore Diversified Products, Inc.................. 6/16/00 800,000 13.50 800,000
Multicom Publishing, Inc......................... 3/29/01 2,200,000 13.00 2,333,330
Multimedia Learning, Inc......................... 5/8/00 1,500,000 14.00 1,500,000
Multimedia Learning, Inc......................... 4/18/01 500,000 13.50 500,000
Multimedia Learning, Inc......................... 9/12/01 750,000 13.50 750,000
Multi-Media Data Systems, Inc.................... 11/20/01 2,000,000 14.00 2,000,000
NASC, Inc........................................ 6/26/01 1,500,000 13.50 1,500,000
NASC, Inc........................................ 12/13/98 500,000 13.50 500,000
Nationwide Engine Supply, Inc.................... 1/12/99 2,475,000 12.00 2,490,012
Nationwide Engine Supply, Inc.................... 9/26/01 1,000,000 13.50 1,000,000
Novavision, Inc.................................. 12/18/01 520,000 13.00 520,000
NRI Service and Supply L.P....................... 2/13/00 2,225,000 14.00 2,234,591
</TABLE>
43
<PAGE> 44
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Orchid Manufacturing Group, Inc.................. 9/14/00 $ 2,960,000 13.00% $ 2,968,671
Orchid Manufacturing Group, Inc.................. 12/28/00 1,000,000 13.50 1,000,000
Palco Telecom Service, Inc....................... 11/22/99 1,300,000 12.00 1,300,000
Paradigm Valve Services, Inc..................... 11/12/01 1,600,000 13.50 1,600,000
Patton Management Corporation.................... 5/26/00 1,900,000 13.50 1,900,000
PaySys International, Inc........................ 6/1/97 990,000 13.00 999,292
PFIC Corporation................................. 2/28/01 1,000,000 13.00 1,000,000
Pipeliner Systems, Inc........................... 9/30/98 980,000 10.00 993,320
Plymouth, Inc.................................... 9/28/00 1,000,000 13.00 1,000,000
PRA International, Inc........................... 8/10/00 1,980,000 13.50 1,985,661
Precision Fixtures & Graphics, Inc............... 4/11/01 1,095,000 14.00 1,095,000
Precision Fixtures & Graphics, Inc............... 4/11/01 300,000 14.00 300,000
Precision Fixtures & Graphics, Inc............... 5/8/01 100,000 14.00 100,000
Precision Fixtures & Graphics, Inc............... 5/28/01 75,000 14.00 75,000
Precision Fixtures & Graphics, Inc............... 7/12/01 75,000 14.00 75,000
Precision Fixtures & Graphics, Inc............... 7/22/01 100,000 14.00 100,000
Precision Fixtures & Graphics, Inc............... 8/27/01 750,000 14.00 750,000
Precision Fixtures & Graphics, Inc............... demand 100,000 14.00 100,000
Precision Panel Products, Inc.................... 1/11/00 1,485,000 12.75 1,491,000
Pritchard Paint & Glass Co....................... 2/14/01 567,431 14.00 567,431
Quest Group International, Inc................... 11/15/00 1,125,000 13.25 1,154,162
Quest Group International, Inc................... 9/3/01 1,350,000 13.25 1,360,000
Radiant Systems, Inc............................. 6/27/01 2,760,000 14.00 2,788,000
Radiant Systems, Inc............................. 9/24/01 1,500,000 14.00 1,500,000
Rocky Mountain Radio Company LLC................. 11/10/01 2,500,000 13.50 2,500,000
Rynel Ltd., Inc.................................. 10/1/01 1,250,000 14.00 1,250,000
Scandia Technologies, Inc........................ 4/9/01 1,825,000 14.00 1,825,000
Sheet Metal Specialties, Inc..................... 6/20/01 250,000 14.00 250,000
Sheet Metal Specialties, Inc..................... 12/4/01 211,750 12.00 211,750
SkillSearch Corporation.......................... 2/5/98 496,000 13.00 499,349
SkillSearch Corporation.......................... 3/10/97 150,000 14.00 150,000
Southern Specialty Brands, Inc................... 6/30/01 1,732,500 14.00 1,736,004
Sqwincher Corporation............................ 1/31/00 500,000 13.50 500,000
Studley Products Corp............................ 11/18/99 107,000 12.00 107,000
Studley Products Corp............................ 12/1/99 440,800 8.00 440,800
Summit Publishing Group, Ltd..................... 3/17/99 1,485,000 12.00 1,493,500
Summit Publishing Group, Ltd..................... 7/26/01 625,000 14.00 625,000
Suncoast Medical Group, Inc...................... 9/14/99 485,000 13.50 441,998
Suncoast Medical Group, Inc...................... 6/7/00 495,000 14.00 445,913
Suncoast Medical Group, Inc...................... 2/23/01 522,000 14.00 472,747
TCOM Systems, Inc................................ 2/5/98 462,610 0.00 462,608
Tower Environmental, Inc......................... 11/30/98 2,440,000 10.00 1,601,990
Tower Environmental, Inc......................... 5/30/95 150,000 12.50 150,000
Trade Am International, Inc...................... 9/30/00 4,000,000 12.75 4,000,000
TRC Acquisition Corporation...................... 10/21/01 1,000,000 13.50 1,000,000
UltraFab, Inc.................................... 6/27/01 1,500,000 14.00 1,500,000
</TABLE>
44
<PAGE> 45
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Unique Electronics, Inc.......................... 11/30/99 $ 600,000 10.67% $ 600,000
Urethane Technologies, Inc....................... 3/16/01 1,636,520 13.50 1,697,100
Valdawn, LLC..................................... 4/13/00 2,399,974 13.50 2,400,000
Viking Moorings Acquisition, LLC................. 12/15/00 1,655,500 13.00 1,730,146
Virtual Resources Inc............................ 8/16/01 3,000,000 14.00 3,000,000
Vista Information Solutions, Inc................. 4/30/01 2,032,157 13.50 2,086,736
WJ Holdings, Inc................................. 11/19/01 4,000,000 13.50 4,000,000
WWR Technology, Inc.............................. 11/1/97 319,700 13.50 324,184
Zahren Alternative Power Corp.................... 1/30/00 495,000 13.00 496,075
Zahren Alternative Power Corp.................... 11/27/99 1,980,000 13.00 1,989,663
------------ ------------
Total Loans.................................... $227,313,284 $221,487,385
============ ============
</TABLE>
45
<PAGE> 46
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COST OR
NUMBER OF CONTRIBUTED
EQUITY INTERESTS SHARES VALUE FAIR VALUE
---------------- -------------- ----------- -----------
<S> <C> <C> <C>
PUBLICLY TRADED INVESTMENTS
National Vision Associates, Ltd. Common Stock......... 208,698 $ 1,771,149 $ 802,180
Trans Global Services, Inc. Common
Stock -- restricted................................. 28,088 5,300 37,685
Moovies, Inc. Common Stock -- restricted.............. 156,110 1,561 566,874
Premiere Technologies, Inc. Common Stock.............. 328,360 0 7,720,565
Cardiac Control Systems, Inc. Common
Stock -- restricted................................. 50,000 250,000 52,500
Innotech, Inc. Common Stock........................... 65,530 20,000 474,273
American Network Exchange Common
Stock -- restricted................................. 139,651 21,879 197,839
Educational Medical, Inc. Common
Stock -- restricted................................. 108,198 0 817,346
FCOA Acquisition Corp. Common Stock -- restricted..... 94,335 0 597,084
QuadraMed Corporation Common Stock -- restricted...... 25,700 0 180,275
QuadraMed Corporation Common Stock -- escrowed........ 2,856 0 0
EQUITY INVESTMENTS IN PRIVATE COMPANIES
Skillsearch Corporation Common Stock.................. 2,241 250,035 150,000
Potomac Group, Inc. Preferred Stock -- Series A....... 800,000 1,000,000 2,000,000
Potomac Group, Inc. Common Stock...................... 479,115 289,779 1,299,038
Kentucky Kingdom, Inc. Common Stock................... 13,260 258,316 1,325,000
Golf Corporation of America, Inc. Common Stock........ 100,000 100,000 0
International Risk Control, Inc. Preferred
Stock -- Series A................................... 200,000 50,000 50,000
DentalCare Partners, Inc. Preferred Stock -- Series
E................................................... 490,978 800,000 800,000
Unique Electronics, Inc. Preferred Stock -- Series
A................................................... 1,000,000 1,000,000 880,000
Pipeliner Systems, Inc. Preferred Stock -- Series D... 5,000 1,000,000 900,000
Front Royal, Inc. Common Stock........................ 110,000 275,000 275,000
NovaVision, Inc. Preferred Stock -- Series A.......... 3,720,141 3,720,141 3,720,141
Fycon Technologies, Inc. Preferred Stock -- Series
A................................................... 96,000 96,000 0
Virginia Gas Company Preferred Stock -- Series A...... 2,000 2,000,000 2,000,000
Johnston County Cable, L.P. Class A Interest in
L.P................................................. 11.11% of L.P. 100,000 100,000
Dalcon International, Inc. Series B Preferred Stock... 850,000 850,000 750,000
Zahren Alternative Power Corporation Common Stock..... 700 210,000 210,000
Zahren Alternative Power Corporation Preferred
Stock............................................... 200 200,000 200,000
Electronic Merchant Services Series B Preferred
Stock............................................... 163 0 0
PRA International, Inc. Common Stock.................. 31,279 190,000 190,000
Caldwell/VSR Inc. Preferred Stock..................... 890 890,000 760,000
Precision Fixtures & Graphics, Inc. Preferred Stock... 1,500,000 1,500,000 0
Palco Telecom Service Common Stock.................... 157,895 1,579 100,000
Studley Products Corp. Common Stock................... 2,204 220,400 0
Clearidge, Inc. Series A Preferred Stock.............. 14,800,000 3,700,000 3,700,000
Gulfstream International Airlines, Inc. Series A
Preferred Stock..................................... 216 3,000,000 3,000,000
Home Link, Inc. Preferred Stock....................... 1,000,000 1,000,000 1,000,000
Voice FX Corporation Common Stock..................... 24,078 110,001 110,001
----------- -----------
Total Equity Interests.............................. $24,881,140 $34,965,801
=========== ===========
</TABLE>
46
<PAGE> 47
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
STOCK WARRANTS SHARES OWNERSHIP VALUE FAIR VALUE
-------------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
PUBLICLY TRADED COMPANIES
American Network Exchange................... 13,988 0.00% $ 0 $ 0
Cardiac Control Systems, Inc................ 100,000 4.35 0 104,997
Consumat Systems, Inc....................... 250,000 20.00 0 229,688
Moovies, Inc................................ 20,000 0.20 0 0
Multicom Publishing, Inc.................... 163,791 2.80 800,000 138,540
Urethane Technologies, Inc.................. 484,640 4.66 363,480 42,406
Vista Information Solutions, Inc............ 1,247,582 5.00 467,843 491,235
Virginia Gas Company........................ 54,163 1.52 0 278,034
Virginia Gas Company........................ 54,163 1.52 54 0
PRIVATE COMPANIES
AB Plastics Holding Corporation............. 200,000 20.00 0 0
Affinity Corporation........................ 550 9.67 20,000 385,000
Alternative Home Care....................... 163,695 13.00 0 0
Alvin Carter Holdings Corp.................. 2% of Co. 2.00 0 0
American Corporate Literature............... 222,197 19.72 17,000 17,000
American Rockwool Acquisition Corp.......... 1,100,000 11.00 0 0
Amscot Holdings, Inc........................ 1,534 26.47 0 0
Argenbright Holdings LLC.................... 18 3.50 750,000 375,000
Ashe Industries, Inc........................ 254 19.35 20,000 0
Associated Response Services, Inc........... 370 35.20 14,000 1,000,000
Assured Power, Inc.......................... 374 16.00 0 0
Auto Rental Systems, Inc.................... 144,869 7.00 0 0
Avionics Systems, Inc....................... 15% of Co. 15.00 0 0
B & N Company, Inc.......................... 33 4.00 40,000 0
BankCard Services Corporation............... 149,261 28.00 3,000 0
BiTec Southeast, Inc........................ 1,480 15.00 21,000 0
Carter Kaplan Holdings, LLC................. 24% of LLC 24.00 6,100 0
C.J. Spirits, Inc........................... 180,000 10.00 7,500 0
Caldwell/VSR Inc............................ 159 15.93 0 0
Cartech Holdings, Inc....................... 210,527 20.00 0 0
Cedaron Medical, Inc........................ 173,981 4.25 0 0
CellCall, Inc............................... 398 1.50 10,000 125,000
CF Data Corp................................ 257 20.50 17,500 17,500
Champion Glove Manufacturing Co., Inc....... 538,614 6.88 0 0
Clearidge, Inc.............................. 442,164 1.78 0 0
CLS Corporation............................. 126,997 4.22 0 0
Colonial Investments, Inc................... 264 24.00 0 0
Continental Diamond Cutting Company......... 112 12.22 0 0
Corporate Flight Mgmt., Inc................. 66,315 6.63 3,500 100,000
Corporate Link, Inc......................... 190 16.00 0 0
CreditCorp and affiliates................... 52 5.00 461,000 461,000
Dalcon Technologies, Inc.................... 250,000 20.00 0 0
Dalts, Inc.................................. 125 25.00 0 0
Delaware Publishing Group, Inc.............. 8,534 47.67 15,000 200,000
DentalCare Partners, Inc.................... 666,022 4.98 10,000 290,000
Eastern Food Group LLC...................... 17,647 15.00 0 0
Electronic Merchant Services................ 430 12.50 12,500 0
Encore Orthopedics, Inc..................... 577,300 5.21 711,335 1,205,000
</TABLE>
47
<PAGE> 48
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
STOCK WARRANTS SHARES OWNERSHIP VALUE FAIR VALUE
-------------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Entek Scientific Corporation................ 185,480 3.75% $ 0 $ 0
Express Shipping Centers, Inc............... 73,752 5.09 552,402 552,402
Foodnet Holdings, LLC....................... 8.00% 8.00 0 0
Fortrend Engineering Corp................... 437,552 3.25 0 0
Front Royal, Inc............................ 240,458 1.85 0 480,000
Fycon Technologies, Inc..................... 58,677 15.00 0 0
Fypro, Inc.................................. 255,882 15.00 0 0
Gardner Wallcovering, Inc................... 2 2.00 15,000 15,000
General Materials Management Inc............ 600,000 10.00 0 0
Generation 2 Worldwide LLC.................. 30% of LLC 30.00 0 0
Global Finance & Leasing, Inc............... 5,000 25.00 0 0
Global Marine............................... 5,137 18.00 0 0
Gold Medal Products, Inc.................... 102,370 32.77 0 0
Golf Corporation of America, Inc............ 350,000 28.27 0 0
Golf Video, Inc............................. 98 49.50 0 0
Good Food Fast Companies, The............... 174,779 17.00 0 0
Gulfstream International Airlines, Inc...... 413 32.00 10,000 140,000
H & H Acquisition Corporation............... 3,600 22.50 0 0
Home Link Services, Inc..................... 166,667 20.00 0 0
Horizon Medical Products, Inc............... 9,486 8.25 0 0
Hoveround Corporation....................... 850 10.00 0 1,135,000
HPC America, Inc............................ 5 2.75 30,000 30,000
Hunt Incorporated........................... 44 10.00 0 100,000
Hunt Leasing & Rental Corporation........... 265 10.00 0 100,000
HTR, Inc.................................... 849,381 6.00 0 0
I. Schneid Holdings LLC..................... 11% of LLC 11.00 0 0
ILD Communications.......................... 5,429 3.20 0 0
In Store Services, Inc...................... 429 12.50 12,000 12,000
Johnston County Cable L.P................... 27.5% of L.P. 27.50 10,000 10,000
K.W.C. Management Corp...................... 794 24.40 0 0
Kentucky Kingdom, Inc....................... 6,132 2.00 0 610,000
Kryptonics, Inc............................. 1,255 6.40 0 400,000
Lane Acquisition Corporation................ 11,667 10.00 0 0
Leisure Clubs International, Inc............ 144 10.00 15,000 15,000
Lovett's Buffet, Inc........................ 204,219 3.02 0 400,000
Mayo Hawaiian Corp.......................... 81 7.50 0 0
MBA Marketing Corporation................... 11,100 4.29 18,000 18,000
McAuley's Incorporated...................... 64 6.00 0 0
Metals Recycling Technologies Corp.......... 257,801 5.00 0 0
Money Transfer Systems, Inc................. 94 8.50 10,000 10,000
Monogram Products, Inc...................... 1,276 6.00 84,000 84,000
Moore Diversified Products, Inc............. 12 11.00 0 0
Multimedia Learning, Inc.................... 131,697 8.10 0 800,000
Multi-Media Data Systems, Inc............... 259,072 20.00 0 0
NASC, Inc................................... 2,652 23.00 0 0
Nationwide Engine Supply, Inc............... 1,265,664 20.20 25,000 25,000
Novavision, Inc............................. 222,222 10.00 0 0
NRI Service and Supply, L.P................. 27.5% of LP 27.50 25,000 25,000
Orchid Manufacturing, Inc................... 1,219,047 2.61 40,000 600,000
P.A. Plymouth, Inc.......................... 92,647 15.00 0 0
</TABLE>
48
<PAGE> 49
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>
49
<PAGE> 50
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information in response to this item is incorporated herein by
reference to the information provided in the Company's Proxy Statement for its
Annual Meeting of Shareholders to be held on April 4, 1997 (the "1997 Proxy
Statement") under the heading "Proposal 1: Election of Directors" and under the
heading "Section 16(a) Beneficial Ownership Reporting Compliance." Information
in response to this item is also included herein under the heading "Executive
Officers of Registrant."
ITEM 11. EXECUTIVE COMPENSATION
Information in response to this item is incorporated herein by
reference to the information provided in the 1997 Proxy Statement under the
heading "Compensation of Directors and Executive Officers."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information in response to this item is incorporated herein by
reference to the information provided in the 1997 Proxy Statement under the
heading "Security Ownership of Management and Certain Beneficial Owners."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in response to this item is incorporated herein by
reference to the information provided in the 1997 Proxy Statement under the
heading "Certain Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of the report:
1.A. The following financial statements are filed herewith:
50
<PAGE> 51
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
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
51
<PAGE> 52
B. The Report of Independent Public Accountants with respect to the
foregoing financial statements is filed herewith.
2. No financial statement schedules of the Company are filed herewith
because (i) such schedules are not required or (ii) the information
required has been presented in the aforementioned financial
statements.
3. The following exhibits are filed herewith or incorporated herein by
reference as set forth below:
52
<PAGE> 53
<TABLE>
<C> <S> <C>
2.1 -- 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)
3.1 -- 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)
3.2 -- 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)
3.3 -- 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)
4.1 -- 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)
4.2 -- Equity Holders Agreement dated as of November 1, 1994 by and
among the Partnership and the other signatories thereto
(incorporated by reference to exhibit d.3 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)
4.3 -- 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>
53
<PAGE> 54
10.1 -- 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)
10.2 -- 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)
10.3 -- 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)
10.4 -- 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)
10.5 -- 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)
10.6 -- 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)
10.7 -- 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)
10.8 -- 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)
10.9 -- 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)
10.10 -- 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)
10.11 -- 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)
10.12 -- 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.
(incorporated by reference to exhibit f.12 to the Company's
Registration Statement on Form N-2 (File No. 333-19493), filed
with the Commission on January 9, 1997)
10.13 -- 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 (incorporated by reference to
exhibit f.13 to the Company's Registration Statement on Form N-2
(File No. 333-19493), filed with the Commission on January 9,
1997)
10.14 -- Loan Sale and Contribution Agreement dated as of December
31, 1996, by and between the Company as Originator and
Servicer and SFC as Buyer (incorporated by reference to exhibit
f.14 to the Company's Registration Statement on Form N-2 (File No.
333-19493), filed with the Commission on January 9, 1997)
10.15 -- 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. (incorporated by
reference to exhibit f.15 to the Company's Registration Statement
on Form N-2 (File No. 333-19493), filed with the Commission
on January 9, 1997)
10.16 -- 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. (incorporated by
reference to exhibit f.16 to the Company's Registration Statement
on Form N-2 (File No. 333-19493), filed with the Commission
on January 9, 1997)
54
<PAGE> 55
10.17 -- Fee Agreement dated as of December 31, 1996, by and among
the Company, SFC, and ING Baring (U.S.) Capital Markets,
Inc. (incorporated by reference to exhibit f.17 to the
Company's Registration Statement on Form N-2 (File No.
333-19493), filed with the Commission on January 9, 1997)
10.18 -- ISDA Master Agreement dated as of November 26, 1996, by and
between the Company and NationsBank, N.A.
(incorporated by reference to exhibit f.18 to the
Company's Registration Statement on Form N-2 (File No.
333-19493), filed with the Commission on January 9, 1997)
10.19 -- 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
(incorporated by reference to exhibit f.19 to the
Company's Registration Statement on Form N-2 (File No.
333-19493), filed with the Commission on January 9, 1997)
10.20 -- 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)
10.21 -- Custodial Services Agreement with First American Trust
Company dated March 13, 1992 (incorporated by reference to
exhibit j.1 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)
10.22 -- Custodial Services Agreement Supplement with First American
Trust Company dated January 16, 1995 (incorporated by
reference to exhibit j.2 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)
10.23 -- Joint Venture Agreement dated as of January 17, 1997 by and
among the Company, TD and SCC Canada, Inc.
(incorporated by reference to exhibit k.3 to the
Company's Registration Statement on Form N-2 (File No.
333-19493), filed with the Commission on January 9, 1997)
*10.24 -- Amended and Restated 1994 Employee Stock Option Plan of the
Company (incorporated by reference to exhibit 1.1 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)
10.25 -- Form of Indemnification Agreement (incorporated by reference
to exhibit 1.2 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)
*10.26 -- 1995 Stock Option Plan for Non-Employee Directors
(incorporated by reference to exhibit 1.3 in the Registrant's
Registration Statement on Form N-2, as amended
(File No. 33-95394), filed with the Commission on August 3, 1995)
*10.27 -- 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)
*10.28 -- Amendment No. 1 to 1996 Incentive Stock Option Plan
21 -- Subsidiaries of the Company
23 -- Consent of Arthur Andersen LLP
27 -- Financial Data Schedule (for SEC use only)
- --------------------------------------
* Compensation Plans
(b) Reports on Form 8-K.
None.
(c) Exhibits. See the exhibits filed herewith.
(d) Additional Schedules. None.
55
<PAGE> 56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized in Nashville,
Tennessee, on this 18th day of March, 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 Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
- --------------------------------------------- ----------------------------------------- --------------
<S> <C> <C>
\s\ John A. Morris, Jr., M.D. Chairman of the Board and Director March 18, 1997
- ---------------------------------------------
John A. Morris, Jr., M.D.
\s\ George M. Miller, II Chief Executive Officer, President and March 18, 1997
- --------------------------------------------- Director (Principal Executive Officer)
George M. Miller, II
\s\ Carl W. Stratton Chief Financial Officer (Principal March 18, 1997
- --------------------------------------------- Financial and Accounting Officer)
Carl W. Stratton
\s\ E. Townes Duncan Director March 18, 1997
- ---------------------------------------------
E. Townes Duncan
\s\ William D. Eberle Director March 18, 1997
- ---------------------------------------------
William D. Eberle
\s\ Edward J. Mathias Director March 18, 1997
- ---------------------------------------------
Edward J. Mathias
\s\ Robert A. McCabe, Jr. Director March 18, 1997
- ---------------------------------------------
Robert A. McCabe, Jr.
\s\ Raymond H. Pirtle, Jr. Director March 18, 1997
- ---------------------------------------------
Raymond H. Pirtle, Jr.
\s\ L. Edward Wilson Director March 18, 1997
- ---------------------------------------------
L. Edward Wilson
</TABLE>
56
<PAGE> 57
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE
- ------- ----------- ----------
<C> <S> <C> <C>
2.1 -- 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)
3.1 -- 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)
3.2 -- 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)
3.3 -- 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)
4.1 -- 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)
4.2 -- Equity Holders Agreement dated as of November 1, 1994 by and
among the Partnership and the other signatories thereto
(incorporated by reference to exhibit d.3 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)
4.3 -- 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>
<PAGE> 58
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE
- ------- ----------- ----------
<C> <S> <C> <C>
10.1 -- 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)
10.2 -- 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)
10.3 -- 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)
10.4 -- 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)
10.5 -- 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)
10.6 -- 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)
10.7 -- 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)
10.8 -- 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)
10.9 -- 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)
10.10 -- 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)
10.11 -- 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)
10.12 -- 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.
(incorporated by reference to exhibit f.12 to the Company's
Registration Statement on Form N-2 (File No. 333-19493), filed
with the Commission on January 9, 1997)
10.13 -- 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 (incorporated by reference to
exhibit f.13 to the Company's Registration Statement on Form N-2
(File No. 333-19493), filed with the Commission on
January 9, 1997)
10.14 -- Loan Sale and Contribution Agreement dated as of December
31, 1996, by and between the Company as Originator and
Servicer and SFC as Buyer (incorporated by reference to exhibit
f.14 to the Company's Registration Statement on Form N-2 (File No.
333-19493), filed with the Commission on January 9, 1997)
10.15 -- 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. (incorporated by
reference to exhibit f.15 to the Company's Registration Statement
on Form N-2 (File No. 333-19493), filed with the Commission
on January 9, 1997)
10.16 -- 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. (incorporated by
reference to exhibit f.16 to the Company's Registration Statement
on Form N-2 (File No. 333-19493), filed with the Commission
on January 9, 1997)
</TABLE>
<PAGE> 59
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE
- ------- ----------- ----------
<C> <S> <C> <C>
10.17 -- Fee Agreement dated as of December 31, 1996, by and among
the Company, SFC, and ING Baring (U.S.) Capital Markets,
Inc. (incorporated by reference to exhibit f.17 to the
Company's Registration Statement on Form N-2 (File No.
333-19493), filed with the Commission on January 9, 1997)
10.18 -- ISDA Master Agreement dated as of November 26, 1996, by and
between the Company and NationsBank, N.A.
(incorporated by reference to exhibit f.18 to the
Company's Registration Statement on Form N-2 (File No.
333-19493), filed with the Commission on January 9, 1997)
10.19 -- 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
(incorporated by reference to exhibit f.19 to the
Company's Registration Statement on Form N-2 (File No.
333-19493), filed with the Commission on January 9, 1997)
10.20 -- 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)
10.21 -- Custodial Services Agreement with First American Trust
Company dated March 13, 1992 (incorporated by reference to
exhibit j.1 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)
10.22 -- Custodial Services Agreement Supplement with First American
Trust Company dated January 16, 1995 (incorporated by
reference to exhibit j.2 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)
10.23 -- Joint Venture Agreement dated as of January 17, 1997 by and
among the Company, TD and SCC Canada, Inc.
(incorporated by reference to exhibit k.3 to the
Company's Registration Statement on Form N-2 (File No.
333-19493), filed with the Commission on January 9, 1997)
*10.24 -- Amended and Restated 1994 Employee Stock Option Plan of the
Company (incorporated by reference to exhibit 1.1 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)
10.25 -- Form of Indemnification Agreement (incorporated by reference
to exhibit 1.2 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)
*10.26 -- 1995 Stock Option Plan for Non-Employee Directors
(incorporated by reference to exhibit 1.3 in the Registrant's
Registration Statement on Form N-2, as amended
(File No. 33-95394), filed with the Commission on August 3, 1995)
*10.27 -- 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)
*10.28 -- Amendment No. 1 to 1996 Incentive Stock Option Plan
21 -- Subsidiaries of the Company 60
23 -- Consent of Arthur Andersen LLP 61
27 -- Financial Data Schedule (for SEC use only) 62
</TABLE>
<PAGE> 1
Exhibit 10.28
AMENDMENT NO. 1 TO
1996 INCENTIVE STOCK OPTION PLAN
WHEREAS, the Board of Directors of Sirrom Capital Corporation has
approved certain amendments to the 1996 Incentive Stock Option Plan ("Plan"),
pursuant to resolutions of the Board of Directors approved as of February 28,
1997; and
WHEREAS, this Amendment No. 1 shall serve to evidence such amendments.
1. The first sentence of Section 3(a) of the Plan shall be modified to
read in its entirety as follows:
"(a) Shares of Common Stock Reserved Under the Plan. The aggregate
number of shares reserved and available for distribution under the Plan
shall be 1,140,000 shares."
2. Section 5(b)(vi) of the Plan shall be amended to include the
following sentence at the end thereof:
"Notwithstanding the foregoing, the Committee shall have the
authority to permit transfer of options to family members or trusts
established for the benefit of family members in accordance with
federal income tax laws."
<PAGE> 1
Exhibit 21
Subsidiaries of the Company
1. Sirrom Investments, Inc., a Tennessee corporation
2. Sirrom Funding Corporation, a Delaware corporation
3. Harris Williams & Co, Inc., a Virginia corporation
4. Tandem Capital, Inc., a Tennessee corporation
5. SWS1, Inc., a Tennessee corporation
6. SWS2, Inc., a Tennessee corporation
7. SWS3, Inc., a Tennessee corporation
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 10-K as of December 31, 1996 of our report dated January
30, 1997 included in Sirrom Capital Corporation and Subsidiaries' annual report
to shareholders.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
March 25, 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>
