<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM N-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
SIRROM CAPITAL CORPORATION
(Exact Name of Registrant as Specified in Charter)
---------------------
500 CHURCH STREET, SUITE 200
NASHVILLE, TENNESSEE 37219
(615) 256-0701
(Address and Telephone Number, including area code, of Registrant's Principal
Executive Offices)
CARL W. STRATTON
500 CHURCH STREET, SUITE 200
NASHVILLE, TENNESSEE 37219
(Name and Address of Agent For Service)
---------------------
COPIES OF INFORMATION TO:
<TABLE>
<C> <C>
BOB F. THOMPSON FRED B. WHITE, III
BASS, BERRY & SIMS PLC SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
FIRST AMERICAN CENTER 919 THIRD AVENUE
NASHVILLE, TENNESSEE 37238-2700 NEW YORK, NY 10022
(615) 742-6200 (212) 735-3000
</TABLE>
---------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the Registration Statement becomes effective.
If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. [ ]
This Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration statement number of the earlier effective registration statement
for the same offering is 333.
---------------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
==============================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT BEING OFFERING AGGREGATE OFFERING AMOUNT OF
BEING REGISTERED REGISTERED(1) PRICE PER UNIT(2) PRICE REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value per share...... 5,750,000 $26.25 $150,937,500 $44,527
==============================================================================================================================
</TABLE>
(1) Includes an aggregate of 750,000 additional shares which the Underwriters
have the option to purchase to cover over-allotments, if any.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) on the basis of the average of the high and low sales prices
of the Common Stock on February 10, 1998 as reported on the New York Stock
Exchange.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
SIRROM CAPITAL CORPORATION
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY PARTS A AND B OF FORM N-2 REGISTRATION STATEMENT
<TABLE>
<CAPTION>
ITEM CAPTION OR LOCATION
NUMBER REGISTRATION STATEMENT ITEM AND HEADING IN PROSPECTUS
- ------ --------------------------------------- -------------
<C> <S> <C>
1. Outside Front Cover.................... Outside front cover
2. Inside Front and Outside Back Cover
Page................................... Inside front cover page
3. Fee Table and Synopsis................. Prospectus Summary; Fees and Expenses; Additional
Information
4. Financial Highlights................... Selected Financial Data; Management's Discussion and
Analysis of Financial Condition and Results of
Operations
5. Plan of Distribution................... Outside front cover; Certain Transactions;
Underwriters
6. Selling Shareholders................... Principal and Selling Shareholders
7. Use of Proceeds........................ Use of Proceeds
8. General Description of Registrant...... Outside front cover; Prospectus Summary; Investment
Objectives and Policies; The Company; Business;
Risk Factors; Distributions and Price Range of
Common Stock; Portfolio Companies
9. Management............................. Management; Custodian, Transfer and Dividend Paying
Agent and Registrar
10. Capital Stock, Long-Term Debt, and
Other Securities....................... Description of Capital Stock; Distributions and
Price Range of Common Stock; Reinvestment Plan;
Investment Objectives and Policies; Taxation;
Regulation
11. Defaults and Arrears on Senior
Securities............................. Not applicable
12. Legal Proceedings...................... Not applicable
13. Table of Contents of the Statement of
Additional Information................. Not applicable
14. Cover Page............................. Not applicable
15. Table of Contents...................... Not applicable
16. General Information and History........ The Company
17. Investment Objective and Policies...... Investment Objectives and Policies
18. Management............................. Management
19. Control Persons and Principal and
Selling Shareholders................... Principal and Selling Shareholders
20. Investment Advisory and Other
Services............................... Custodian, Transfer and Dividend Paying Agent and
Registrar; Independent Public Accountants;
Investment Objectives and Policies
21. Brokerage Allocation and Other
Practices.............................. Brokerage Allocation
22. Tax Status............................. Taxation
23. Financial Statements................... Financial Statements
</TABLE>
- ---------------
* Pursuant to General Instruction on Form N-2, all information required to be
set forth in Part B: Statement of Additional Information has been included in
Part A: The Prospectus. All items required to be set forth in Part C are set
forth in Part C.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Issued February 11, 1998
5,000,000 Shares
Sirrom Capital Corporation
COMMON STOCK
------------------------
OF THE 5,000,000 SHARES OF COMMON STOCK BEING OFFERED HEREBY, 4,000,000 SHARES
ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND 1,000,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE OF THE
UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITERS."
THE COMMON STOCK IS TRADED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL
"SIR." ON FEBRUARY 10, 1998 THE LAST REPORTED SALE PRICE FOR THE COMMON STOCK
WAS $26 1/4.
------------------------
THE COMPANY IS A NON-DIVERSIFIED, CLOSED-END INVESTMENT COMPANY THAT HAS ELECTED
TO BE TREATED AS A BUSINESS DEVELOPMENT COMPANY UNDER THE INVESTMENT COMPANY ACT
OF 1940, AS AMENDED. THE COMPANY'S INVESTMENT OBJECTIVES ARE TO ACHIEVE A HIGH
LEVEL OF INCOME FROM THE COLLECTION OF INTEREST AND PROCESSING AND FINANCIAL
ADVISORY FEES, AS WELL AS LONG-TERM GROWTH IN ITS SHAREHOLDERS' EQUITY THROUGH
THE APPRECIATION IN VALUE OF THE EQUITY INTERESTS IN ITS PORTFOLIO COMPANIES.
SEE "BUSINESS." NO ASSURANCES CAN BE GIVEN THAT THE COMPANY WILL CONTINUE TO
ACHIEVE THESE OBJECTIVES. THIS PROSPECTUS SETS FORTH THE INFORMATION ABOUT THE
COMPANY THAT A PROSPECTIVE INVESTOR SHOULD KNOW BEFORE INVESTING AND SHOULD BE
RETAINED FOR FUTURE REFERENCE. ADDITIONAL INFORMATION ABOUT THE COMPANY HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS AVAILABLE UPON WRITTEN
OR ORAL REQUEST WITHOUT CHARGE. SEE "ADDITIONAL INFORMATION."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
-------- --------------- -----------
<S> <C> <C> <C>
Per Share................................................... $ $ $
Total(3).................................................... $ $ $
</TABLE>
- ------------
(1)The Company and the Selling Shareholders have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriters."
(2)Before deducting expenses payable by the Company estimated at $750,000.
(3)The Selling Shareholders have granted to the U.S. Underwriters an option,
exercisable within 30 days of the date hereof, to purchase up to an aggregate
of 750,000 additional Shares at the Price to Public less Underwriting
Discounts and Commissions for the purpose of covering over-allotments, if
any. If the U.S. Underwriters exercise such option in full, the total Price
to Public, Underwriting Discounts and Commissions, and Proceeds to Company
will be $ , $ , and $ , respectively, and the proceeds to Selling
Shareholders will be $ . See "Underwriters."
------------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Underwriters. It is
expected that the delivery of the Shares will be made on or about March , 1998
at the office of Morgan Stanley & Co. Incorporated, New York, N.Y., against
payment therefor in immediately available funds.
------------------------
MORGAN STANLEY DEAN WITTER
THE ROBINSON-HUMPHREY COMPANY
J.C. BRADFORD & CO.
SUNTRUST EQUITABLE SECURITIES
March , 1998
<PAGE> 4
SIRROM CAPITAL CORPORATION
The following map sets forth, as of December 31, 1997, the 29 states (plus
Washington, D.C. and Canada) in which the Company's borrowers maintain their
principal place of business and the number of borrowers in each state.
[MAP]
2
<PAGE> 5
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE COMMON STOCK OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE
SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREBY SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 4
The Company........................... 10
Additional Information................ 10
Risk Factors.......................... 11
Use of Proceeds....................... 14
Distributions and Price Range of
Common Stock........................ 15
Capitalization........................ 16
Selected Financial Data............... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 24
Investment Objectives and Policies.... 30
Portfolio Companies................... 33
Management............................ 49
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Certain Transactions.................. 56
Principal and Selling Shareholders.... 57
Determination of Net Asset Value...... 58
Reinvestment Plan..................... 58
Taxation.............................. 59
Description of Capital Stock.......... 62
Brokerage Allocation.................. 64
Regulation............................ 64
Underwriters.......................... 66
Legal Matters......................... 69
Custodian, Transfer and Dividend
Paying Agent and Registrar.......... 69
Reports to Shareholders............... 69
Independent Public Accountants........ 69
Index to Financial Statements......... F-1
</TABLE>
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET. IN
ADDITION, UNDERWRITERS MAY ENGAGE IN PASSIVE MARKET MAKING. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITERS."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE IN ACCORDANCE WITH RULE 103 UNDER REGULATION M. SEE "UNDERWRITERS."
3
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and the financial statements and
notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, all information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option.
Information contained or incorporated by reference in this Prospectus may
contain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, which can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "intend,"
"anticipate," "estimate" or "continue" or the negative thereof or other
variations thereon or comparable terminology. The matters described in "Risk
Factors" and certain other factors noted throughout this Prospectus and in any
exhibits to the Registration Statement of which this Prospectus is a part,
constitute cautionary statements identifying important factors with respect to
any such forward-looking statements, including certain risks and uncertainties,
that could cause actual results to differ materially from those in such
forward-looking statements.
On January 5, 1998, Sirrom Capital Corporation announced a two-for-one
stock split effective January 30, 1998. All information contained herein
reflects such stock split.
THE COMPANY
Sirrom Capital Corporation ("Sirrom" or the "Company") is a specialty
finance company that is primarily engaged in making loans to small businesses.
The Company's loans typically range from $500,000 to $5.0 million in size, have
a five-year maturity, require interest payments monthly and are accompanied by
warrants to purchase an equity interest in the borrower at a nominal exercise
price (usually $.01 per share). The Company targets borrowers that have certain
characteristics, 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 investment bankers, attorneys,
accountants, venture capitalists, commercial bankers and business brokers. The
Company believes the market for small commercial loans is underserved by
traditional lending sources and that competitors generally are burdened with an
overhead and administrative structure that hinders them from competing most
effectively in this market. The principal investment objectives of the Company
are to achieve (i) a high level of current income from interest and processing
and financial advisory fees and (ii) long-term growth in its shareholders'
equity through the appreciation in value of the equity interests in its
portfolio companies.
The Company, which was founded in 1992, has experienced significant growth
in both the size and diversity of its investment portfolio. At December 31,
1997, the Company had loans outstanding with a fair value of $412.0 million to
195 companies in a variety of industries. The fair values of the Company's loan
portfolio balances at December 31, 1994, 1995 and 1996 were $72.3 million,
$144.9 million and $221.5 million, respectively. The Company's pre-tax operating
income has increased from $4.4 million for the year ended December 31, 1994 to
$33.0 million for the year ended December 31, 1997. Since inception, the Company
has had realized gains of $20.8 million from the sale of its equity positions in
portfolio companies (net of realized losses) and at December 31, 1997, had $10.8
million in unrealized appreciation of investments (net of unrealized
depreciation of investments).
The Company has broadened its geographic presence nationwide with offices
presently located in Nashville, Tennessee, San Francisco, California and
Stamford, Connecticut. In addition, the Company has entered into a joint venture
with The Toronto-Dominion Bank to jointly make small business loans in Canada
similar to those made by the Company in the United States. The Company has also
broadened its target market of borrowers by marketing to micro-cap public
companies under the name Tandem Capital, Inc. ("Tandem"). The Company believes
these borrowers are also underserved by traditional lending sources. In an
effort to capitalize on the numerous asset-based lending opportunities that the
Company identifies through its extensive referral network, the Company plans to
acquire a small asset-based lender in the first or second
4
<PAGE> 7
quarter of 1998. In addition to making loans to small businesses, the Company
also provides merger and acquisition advisory services with respect to companies
in the small business sector through its wholly-owned subsidiary, Harris
Williams & Co., a Virginia corporation ("Harris Williams"). Harris Williams
typically receives a monthly retainer fee with respect to each engagement, as
well as a success fee for each transaction that is closed.
The Company is a non-diversified, closed-end investment company that has
elected to be treated as a business development company (a "BDC") under the
Investment Company Act of 1940, as amended, (the "1940 Act"). The Company was
licensed as a small business investment company ("SBIC") by the U.S. Small
Business Administration (the "SBA") under the Small Business Investment Company
Act of 1958, as amended, (the "SBIA") on May 14, 1992. In August 1996, the
Company transferred its SBIC operations, including its SBIC license, a majority
of its assets and all of its liabilities, to Sirrom Investments, Inc., its
wholly-owned subsidiary ("SII").
THE OFFERING
Common Stock Offered:
International Offering... 1,000,000
United States Offering... 4,000,000
Total............
5,000,000
=========
Common Stock to be
outstanding after the
Offering................. 36,094,708
New York Stock Exchange
Symbol................... SIR
Use of Proceeds............ Origination of loans and investments and temporary
repayment of indebtedness. See "Use of Proceeds."
Distributions.............. The Company has distributed and currently intends
to continue to distribute quarterly to its
shareholders at least 90% of its net investment
income and annually all of its long-term capital
gains. See "Distributions and Price Range of Common
Stock."
Risk Factors............... Investment in shares of the Common Stock involves
certain risks relating to the structure and
investment objectives of the Company that should be
considered by the purchasers of the Common Stock.
See "Risk Factors."
Risks Associated with Investments in Small,
Privately Owned Companies. The Company's portfolio
consists primarily of loans to and securities
issued by privately owned small businesses. There
is generally no publicly available information
about such companies, and the Company must rely on
the diligence of its employees and agents to obtain
information in connection with the Company's
investment decisions. In addition, there is
typically no public market for securities of
privately owned companies. A significant majority
of the Company's portfolio securities are and will
continue to be subject to restrictions on resale or
otherwise have no established trading market. The
illiquidity of most of the Company's portfolio
securities may adversely affect the ability of the
Company to dispose of such securities in a timely
manner and at a fair price at times when the
Company deems it necessary or advantageous.
5
<PAGE> 8
The valuation of securities in the Company's
portfolio is determined in good faith by the
Company's Board of Directors in the absence of
readily ascertainable market values. The estimated
values may differ significantly from the values
that would have been used had a ready market for
the securities existed, and the differences could
be material.
Risk of Payment Default. The loans made by the
Company to small businesses carry a relatively high
fixed rate of interest. The small businesses may
have limited financial resources and may be unable
to obtain financing from traditional sources. In
addition, a borrower's ability to repay its loans
may be adversely affected by numerous factors,
including the failure to meet its business plan, a
downturn in its industry or negative economic
conditions. A deterioration in a borrower's
financial condition and prospects usually will be
accompanied by a deterioration in the value of any
collateral for the loan and the likelihood of
realizing on any guarantees obtained from the
borrower's management. Investment in small
businesses, therefore, involves a high degree of
business and financial risk, which can result in
substantial losses and accordingly, should be
considered speculative.
Risk of Unavailability of Funds. As the Company
grows, it will have a continuing need for long-term
capital to finance its lending activities. As an
SBIC, SII has borrowed $90.0 million from the SBA
at a relatively low interest rate. During the
latter part of 1997, Congress increased the maximum
amount of funding available to an SBIC by indexing
the $90.0 million cap to inflation. Presently, the
maximum available leverage to an SBIC is $101.0
million. SII supplemented its SBA borrowings with a
$50.0 million revolving credit facility (the
"Revolving Credit Facility") from First Union
National Bank of Tennessee and a syndicate of other
banks. On October 9, 1997, SII increased its
Revolving Credit Facility to $125.0 million, which
also involved the addition of seven additional
banks to the syndicate. At December 31, 1997, SII
had $61.5 million outstanding thereunder. To
support the Company's future loan origination
activities outside of SII, the Company, through its
wholly-owned subsidiary Sirrom Funding Corporation
("SFC"), has also established a $100.0 million
five-year revolving credit facility (the "ING
Credit Facility"). At December 31, 1997, $62.8
million was outstanding under the ING Credit
Facility. Traditionally, the Company's capital
needs have been met by borrowings under SBA
programs, from commercial banks and through the
sale of equity securities; as a BDC, the Company is
subject to the asset coverage tests set forth in
the 1940 Act. Because the Company distributes
substantially all net income and capital gains to
its shareholders, it will need to continue to issue
equity securities to finance its growth. No
assurance can be given that the Company will
continue to meet its capital needs through these
sources.
Risks of Expansion. Since its inception, the
Company has expanded its small business lending
activities substantially, both in size and
geographic scope. After this Offering, the Company
anticipates not only continuing to expand its
traditional small business lending activities in
the United States and Canada, and its relatively
new line of business that encompasses making
unsecured loans to and investments in public
companies which generally have equity market
capitalizations below $100.0 million ("micro-cap
companies"), but also expanding its business
6
<PAGE> 9
to include factoring and asset-based lending for
small businesses. No assurance can be given that
the Company will continue to maintain the historic
growth rates of its loan and investment portfolio,
or that it will be able to develop sufficient
lending and administrative personnel, and
management and operating systems to manage its
expansion effectively.
Leverage Risks. The Company's use of leverage and
its obligation to make required interest payments
to its funding sources tends to increase the amount
of risk associated with the Company's operations.
Leverage magnifies the potential for gain and loss
on monies invested and, therefore, results in an
increase in the risks associated with an investment
in the Company's securities.
Risk of Voluntary or Involuntary Termination of
Pass Through Tax Treatment. The Company, SII and
SFC have each qualified for and elected to be taxed
as a regulated investment company (a "RIC") under
the Internal Revenue Code of 1986, as amended, (the
"Code"), and as such SII and SFC distribute at
least 90% of their respective net investment income
to the Company and the Company, in turn,
distributes at least 90% of its net investment
income, including such dividends from SII and SFC,
to its shareholders. The Company, SII and SFC
presently intend to distribute all long-term
capital gains to shareholders or the Company, as
the case may be. However, the Company, SII or SFC
may retain part or all of its net realized capital
gains, in which case each such entity would be
required to pay tax on such capital gains, and the
Company's shareholders or the Company, as
appropriate, would receive a deemed distribution
and a tax credit for their or its pro rata portion
of the tax paid by the entity that retains the
capital gains. In any year in which the Company,
SII or SFC so qualifies, it generally will not be
subject to federal income tax on net investment
income and net capital gains (excess of net
long-term capital gains over net short-term capital
losses) distributed to its respective shareholders.
However, because the Company uses leverage, it is
subject to certain asset coverage ratio
requirements set forth in the 1940 Act and could,
under certain circumstances, be restricted from
making distributions necessary to qualify as a RIC
under Subchapter M of the Code. The election to
qualify as a RIC is made on an annual basis, and no
assurance can be given that the Company, SII or SFC
will continue to elect or to qualify for such
treatment.
Harris Williams does not qualify to be taxed as a
RIC and therefore pays tax at the subsidiary level.
If the Company, or any of its subsidiaries other
than Harris Williams, was to fail to qualify or
elect not to qualify as a RIC and its income became
fully taxable, a reduction in the Company's net
assets by the amount of the tax payable, the amount
of income available for distribution to the
Company's shareholders and the percentage of such
income actually distributed could result.
7
<PAGE> 10
FEES AND EXPENSES
The purpose of the following table is to assist the investor in
understanding the various costs and expenses that an investor in the Company
will bear directly or indirectly.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales load (as a percentage of offering price)............ 5.0%(1)
Amended and Restated Dividend Reinvestment Plan fees...... None(2)
ANNUAL EXPENSES (AS A PERCENTAGE OF NET ASSETS ATTRIBUTABLE
TO COMMON SHARES)(3)
Operating expenses........................................ 2.3%(4)
----
Interest payments on borrowed funds....................... 2.4%
----
Total Annual Expenses (estimated)................. 4.7%
====
</TABLE>
- ---------------
(1) The underwriting discounts and commissions with respect to the Common Stock
sold by the Company in this Offering, which are one time fees paid by the
Company to the Underwriters in connection with this Offering, are the only
sales load paid in connection with this Offering.
(2) The expenses of the Company's Amended and Restated Dividend Reinvestment
Plan (the "Reinvestment Plan") are included in stock record expenses, a
component of "Operating expenses." The Company has no cash purchase plan.
The participants in the Reinvestment Plan will bear a pro rata share of
brokerage commissions incurred with respect to open market purchases, if
any. See "Reinvestment Plan."
(3) Assumes a Net Asset Value of $405.9 million, which will be the Company's
estimated shareholders' equity upon completion of the Offering.
(4) Operating expenses consist primarily of compensation and employee benefits,
travel and other marketing expenses, rent and other similar expenses.
EXAMPLE
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in the Company. These amounts assume no additional
leverage and are based upon the payment by an investor of a 5.0% sales load (the
underwriting discounts and commissions paid by the Company with respect to the
Common Stock sold by the Company in this Offering) and the payment by the
Company of operating expenses at the levels set forth in the table above.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming a 5.0% annual return.............. $ 97 $197 $308 $638
</TABLE>
This example should not be considered a representation of the future
expenses of the Company, and actual expenses may be greater or less than those
shown. Although the example assumes (as required by the Securities and Exchange
Commission (the "Commission")) a 5.0% annual return, the Company's performance
will vary and may result in a return of greater or less than 5.0%. In addition,
while the example assumes reinvestment of all dividends and distributions at net
asset value, participants in the Reinvestment Plan may receive shares issued by
the Company, at or above net asset value or purchased by First Union National
Bank, as administrator of the Reinvestment Plan (the "Reinvestment Plan
Administrator") at the market price in effect at the time, which may be at or
below net asset value. See "Reinvestment Plan."
8
<PAGE> 11
SUMMARY HISTORICAL FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FROM
INCEPTION
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997
------------ ------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Total operating income..... $ 918 $ 4,214 $ 8,238 $ 15,575 $ 27,680 $ 48,347
Interest expense........... 127 1,427 3,124 4,771 8,342 9,797
General, administrative and
amortization expenses.... 218 928 1,313 2,702 5,479 9,215
Pretax income of
unconsolidated
subsidiary............... 43 207 553 812 3,264 3,699
------------ ------------ ----------- ------------ ------------ ------------
Pretax operating
income(1)................ $ 616 $ 2,066 $ 4,354 $ 8,914 $ 17,123 $ 33,034
============ ============ =========== ============ ============ ============
Pretax operating income per
share(2)................. $ .09 $ .24 $ .42 $ .55 $ .74 $ 1.04
Dividends per share(2)..... -- -- -- .44(3) .59(3) 1.08(3)
Diluted weighted average
number of shares
outstanding(2)........... 7,096,000 8,548,000 10,444,000 15,979,000 23,110,000 31,658,000
OTHER OPERATING DATA:
Number of portfolio
companies with loans
outstanding at period
end...................... 17 38 57 91 122 195
Number of new portfolio
companies................ 17 24 25 44 48 102
Principal amount of loans
originated............... $ 14,639 $ 31,470 $ 40,785 $ 101,505 $ 131,963 $ 282,352
Principal amount of loan
repayments............... 0 2,013 7,585 14,414 32,630 67,743
Net interest spread(4)..... 5.6% 5.8% 5.5% 5.8% 5.9% 5.6%
General and administrative
expenses as a percentage
of ending assets......... 1.5% 1.6% 1.3% 1.4% 1.7% 1.6%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------
ACTUAL AS ADJUSTED(5)
-------- --------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 3,025 $ 3,025
Loans..................................................... 412,005 412,005
Equity interests.......................................... 55,211 55,211
Warrants.................................................. 24,543 24,543
Total assets.............................................. 509,236 509,236
Revolving credit facilities............................... 124,250 313
Debentures payable to SBA................................. 90,000 90,000
Total shareholders' equity................................ 281,969 405,907
</TABLE>
- ---------------
(1) Beginning in February 1995, the Company elected to be taxed as a RIC under
Subchapter M of the Code. SII and SFC have also elected the same tax
treatment. As such, SII and SFC must distribute at least 90% of their
respective net investment income (net interest income plus net realized
short-term capital gains) to the Company (as their sole shareholder) and the
Company must, in turn, distribute at least 90% of its net investment income
(including dividends from SII, SFC and Harris Williams) to its shareholders,
on a quarterly basis. In years in which the Company qualifies as a RIC, it
generally will not be subject to federal income tax on net investment income
and net capital gains distributed to shareholders. Harris Williams is taxed
at the corporate level as it does not qualify to be taxed as a RIC.
(2) On January 5, 1998, Sirrom announced a two-for-one stock split effective
January 30, 1998. All information contained herein reflects such stock
split.
(3) For the year ended December 31, 1995, includes $.13 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 $.18 in dividends
declared and paid in the first quarter of 1997 related to 1996 earnings and
excludes the $.13 per share in dividends paid in the first quarter of 1996
related to 1995 earnings. For the year ended December 31, 1997, includes
$.43 per share in dividends paid or to be paid in the first quarter of 1998
related to 1997 earnings and excludes the $.18 per share in dividends paid
in the first quarter of 1997 related to 1996 earnings.
(4) 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.
(5) Adjusted to reflect the sale by the Company of 5,000,000 shares of Common
Stock offered hereby and the application of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."
9
<PAGE> 12
THE COMPANY
The Company was incorporated under the laws of the State of Tennessee in
November 1994 and is a non-diversified, closed-end investment company that has
elected to be treated as a BDC under the 1940 Act. The Company's principal
executive offices are located at 500 Church Street, Suite 200, Nashville,
Tennessee 37219, and its telephone number is (615) 256-0701.
The Company is the successor to Sirrom Capital, L.P., a Tennessee limited
partnership (the "Partnership"), which was organized under the laws of Tennessee
in 1991. Pursuant to a conversion (the "Conversion") consummated on February 1,
1995, all partners of the Partnership (the "Partners") transferred their
Partnership interests to the Company in exchange for the issuance of 10,100,232
shares of Common Stock. The Common Stock was received by each Partner in
proportion to the Partner's percentage interest in the Partnership. Following
this exchange, the Partnership was dissolved and liquidated by operation of law,
and all of the assets and liabilities of the Partnership (including the SBIC
license which was obtained by the Partnership in May 1992) were assigned and
transferred to the Company. In August 1996, the Company transferred its SBIC
operations, including its SBIC license, assets and liabilities to SII, its
wholly-owned subsidiary, and acquired Harris Williams, which, since the
acquisition, has operated as a "C" corporation and a wholly-owned subsidiary of
the Company. In December 1996, the Company formed SFC, a special purpose,
bankruptcy remote subsidiary, as the borrower under the ING Credit Facility.
Unless otherwise indicated, all references to the Company include the
Partnership, SII, SFC and Harris Williams and their respective historical
operations.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
N-2 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the shares of Common Stock offered by
this Prospectus. This Prospectus, which is a part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement
or the exhibits and schedules thereto. For further information with respect to
the Company and the Common Stock, reference is made to the Registration
Statement, including the exhibits and schedules thereto.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, and, in accordance therewith, files reports, proxy
statements and other information with the Commission. The Registration Statement
and the exhibits and schedules thereto filed with the Commission, as well as
such reports, proxy statements and other information, may be inspected, without
charge, at the public reference facility maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices located at Seven World Trade Center, New York,
New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. The Commission maintains a web site that contains reports, proxy
statements and other information regarding registrants, including the Company,
that file such information electronically with the Commission. The address of
the Commission's web site is http://www.sec.gov. Copies of such material may
also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Common
Stock is listed on the New York Stock Exchange (the "NYSE"), and such reports,
proxy statements and other information can also be inspected at the offices of
the NYSE, Operations, 20 Broad Street, New York, New York 10005.
10
<PAGE> 13
RISK FACTORS
The purchase of the shares offered by this Prospectus involves a number of
significant risks and other factors relating to the structure and investment
objectives of the Company. As a result, there can be no assurance that the
Company will continue to achieve its investment objectives. In addition to the
other information contained in this Prospectus, the following risk factors
should be carefully considered in evaluating an investment in the Common Stock.
RISKS ASSOCIATED WITH INVESTMENTS IN SMALL, PRIVATELY OWNED COMPANIES
The Company's portfolio consists primarily of loans to and securities
issued by small, privately owned businesses. There is generally no publicly
available information about such companies, and the Company must rely on the
diligence of its employees and agents to obtain information in connection with
the Company's investment decisions. Typically, small businesses depend for their
success on the management talents and efforts of one person or a small group of
persons, and the death, disability or resignation of one or more of these
persons could have a material adverse impact on the related company. Moreover,
small businesses frequently have smaller product lines and market shares than
their competition. Small companies may be more vulnerable to economic downturns
and often need substantial additional capital to expand or compete. Such
companies may also experience substantial variations in operating results.
Investment in small businesses therefore involves a high degree of business and
financial risk, which can result in substantial losses and accordingly should be
considered speculative. The Company's operating history is relatively limited
and it has not operated in recessionary economic periods during which the
operating results of small business companies such as those in the Company's
portfolio often are adversely affected. While the Company generally seeks to
make senior secured loans, its loans are often made on a subordinated basis.
RISK OF ILLIQUIDITY OF PORTFOLIO INVESTMENTS
Liquidity relates to the ability of the Company to sell either a debt or
equity security in a timely manner at a price that reflects the fair market
value of that security. Most of the Company's investments are or will be
securities acquired directly from small, privately owned companies. The
Company's portfolio securities are and will usually be subject to restrictions
on resale or otherwise have no established trading market. The illiquidity of
most of the Company's portfolio securities may adversely affect the ability of
the Company to dispose of such securities in a timely manner and at a fair price
at times when the Company deems it necessary or advantageous. The valuation of
securities in the Company's portfolio is determined in good faith by the
Company's Board of Directors in accordance with an adopted valuation policy and
in the absence of readily ascertainable market values. The Company periodically
reviews and amends its valuation policy. The estimated values may differ
significantly from the values that would have been used had a ready market for
the securities existed, and the differences could be material.
RISK OF PAYMENT DEFAULT
The Company generally makes nonamortizing, five-year term loans with
relatively high fixed rates of interest to small companies that may have limited
financial resources and may be unable to obtain financing from traditional
sources. These loans are generally secured by the assets of the borrower. A
borrower's ability to repay its loan may be adversely affected by numerous
factors, including the failure to meet its business plan, a downturn in its
industry or negative economic conditions. A deterioration in a borrower's
financial condition and prospects usually will be accompanied by a deterioration
in the value of any collateral for the loan and the likelihood of realizing on
any guarantees obtained from the borrower's management. Although the Company
seeks to be the senior, secured lender to a borrower, the Company is not always
the senior lender, and any collateral for a loan may be subordinate to another
lender's security interest, which may result in a higher degree of risk of
collection. The Company also has the ability to make unsecured loans or invest
in equity securities, which likewise may involve a higher degree of risk.
11
<PAGE> 14
RISK OF UNAVAILABILITY OF FUNDS
As the Company grows, it will have a continuing need for long-term capital
to finance its lending activities. Traditionally, the Company's capital needs
have been met by borrowings under SBA programs, from commercial banks and
through the sale of equity securities. As of December 31, 1997, SII had
outstanding borrowings of $90.0 million from the SBA. During the latter part of
1997, Congress increased the maximum amount of funding available to an SBIC by
indexing the $90.0 million cap to inflation. Presently, the maximum amount of
funding available to an SBIC from the SBA is $101.0 million. As of December 31,
1997, SII also had borrowed $61.5 million of the $125.0 million available under
the Revolving Credit Facility. As of December 31, 1997, SFC had outstanding
borrowings of $62.8 million of the $100.0 million available under the ING Credit
Facility. Reductions in the availability of funds from commercial banks or other
sources on terms favorable to the Company could have a material adverse effect
on the Company. Furthermore, since in order to maintain RIC status, SII and SFC
distribute at least 90% of their respective investment company taxable income to
the Company and the Company presently distributes at least 90% of its investment
company taxable income to its shareholders, such earnings are not available to
fund loan originations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Financial Condition, Liquidity and
Capital Resources."
Under the Revolving Credit Facility, if either George M. Miller, II, or
David M. Resha ceases to be employed by the Company, the lenders have the
ability to accelerate the repayment of any amounts outstanding. Under the ING
Credit Facility, if any two of Mr. Miller, Mr. Resha and Carl W. Stratton cease
to be actively involved in the management of the Company, then either ING or a
majority of the noteholders may declare an event of default thereunder. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Financial Condition, Liquidity and Capital Resources."
RISK OF LOAN LOSSES EXCEEDING FAIR VALUE ESTIMATES
There is typically no public market for the debt or equity securities of
small, privately owned companies. As a result, the valuation of securities in
the Company's portfolio is subject to the good faith determination of the
Company's Board of Directors. See "Determination of Net Asset Value." Unlike
certain lending institutions, the Company does not establish reserves for loan
losses, but revalues its portfolio on a quarterly basis to reflect the Company's
estimate of the current fair value of the loan portfolio. At December 31, 1997,
the Company's directors had approved loan valuations that resulted in the
recording of $11.0 million of unrealized depreciation. There can be no assurance
that this estimate reflects the amounts that ultimately will be realized on
these loans. See "Business -- Operations."
INTEREST RATE RISK
The Company's income is materially dependent upon the "spread" between the
rate at which it borrows funds and the rate at which it loans these funds. The
Company anticipates using a combination of long-term and short-term borrowings
to finance its lending activities and engaging in interest rate risk management
techniques, including various interest rate hedging activities. Since inception,
the Company's net interest spread has averaged 5.7% (570 basis points). There
can be no assurance that the Company will maintain this net interest spread or
that a significant change in market interest rates will not have a material
adverse effect on the Company's profitability.
RISKS OF EXPANSION
Since inception, the Company has expanded its small business lending
activities substantially, both in size and geographic scope. After this
Offering, the Company will continue to expand its traditional small business
lending activities in the United States and Canada and its newer business of
making unsecured loans to and investments in micro-cap companies, but also
anticipates expanding its business to include factoring and asset-based lending
for small businesses. No assurance can be given that the Company will continue
to maintain the historic growth rates of its loan and investment portfolio, or
that it will be able to develop sufficient lending and administrative personnel,
and management and operating systems to manage its expansion effectively.
12
<PAGE> 15
In August 1996, the Company acquired Harris Williams, a company which
provides merger and acquisition financial advisory services to small and medium
sized businesses. Harris Williams' income is derived from fees received for its
financial advisory engagements, which typically provide for a monthly retainer
and a success fee contingent upon the closing of each transaction. There can be
no assurance that Harris Williams' fee income will continue at or exceed
historical levels. See "Business."
LEVERAGE RISKS
The Company, through SII, has borrowed funds from the SBA and under the
Revolving Credit Facility and, through SFC, has borrowed funds under the ING
Credit Facility, resulting in a significant leveraging of its assets. Leverage
magnifies the potential for gain and loss on monies invested and, therefore,
increases the risks associated with an investment in the Company's securities.
The Company's creditors have claims on the Company's assets superior to the
claims of the Company's shareholders. In addition, pursuant to the terms of the
ING Credit Facility, the Company may be requested by Holland Limited
Securitization, Inc., a multi-seller commercial paper conduit sponsored by ING
Baring (U.S.) Capital Markets, Inc. (individually and collectively, "ING"), the
lender under the ING Credit Facility, depending on interest rate conditions, to
make deposits into a sinking fund account to be used by ING to purchase interest
rate caps or to enter into additional interest rate swaps and transfer to SFC
the interest rate cap payments payable to the Company, and failure of the
Company to do so would cause the ING Credit Facility to be unavailable for
future funding. The Company does not have the ability to estimate the size of
such deposits if necessary, and if prevailing interest rates substantially
differ from the borrowing rate under the ING Credit Facility such amounts could
be material. As of December 31, 1997, the Company's debt as a percentage of
total liabilities and shareholders' equity was 42%. In addition, the ability of
the Company to achieve its investment objectives may depend in part on its
ability to achieve leverage on favorable terms, and there can be no assurance
that leverage on such terms can be obtained.
As of December 31, 1997, SII had borrowed $90.0 million from the SBA under
the SBA debenture program bearing an average annual interest rate of 7.02% and
had $61.5 million outstanding under the Revolving Credit Facility bearing an
average annual interest rate of 8.09%. As of December 31, 1997, SFC had $62.8
million outstanding under the ING Credit Facility bearing an average annual
interest rate of 8.3%. In order for the Company to cover annual interest
payments on the debt described above, it must achieve annual returns of at least
2.7% on its portfolio.
The purpose of the following table is to illustrate the effect of leverage
on returns to a shareholder on an investment in the Company's Common Stock
assuming various annual returns, net of expenses. The calculations set forth in
the table are hypothetical and actual returns may be greater or less than those
appearing below.
<TABLE>
<CAPTION>
ASSUMED RETURN ON THE COMPANY'S PORTFOLIO
(NET OF EXPENSES)
-------------------------------------------
-10% -5% 0% 5% 10%
------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C>
Corresponding return to shareholder(1)................ -19.2% -11.6% -4.1 3.5% 11.1%
</TABLE>
- ---------------
(1) The calculation assumes (i) $615.7 million in investments, (ii) an average
cost of funds of 7.7%, (iii) $214.3 million in debt outstanding and (iv)
$405.9 million of shareholders' equity.
RISK OF VOLUNTARY OR INVOLUNTARY TERMINATION OF PASSTHROUGH TAX TREATMENT
The Company, SII and SFC have each qualified for and elected to be taxed as
a RIC and as such SII and SFC distribute at least 90% of their respective net
investment income to the Company and the Company, in turn, distributes at least
90% of its net investment income, including such dividends, to its shareholders.
In any year in which the Company, SII or SFC so qualifies, it generally will not
be subject to federal income tax on net operating income and net capital gains
distributed to its respective shareholders. The Company presently intends to
distribute to shareholders all of its net capital gains. However, if the
Company, SII or SFC retained part or all of its realized net capital gains, then
each such entity would be required to pay tax on such capital
13
<PAGE> 16
gains and the Company's shareholders or the Company, as appropriate, would
receive a deemed distribution and a tax credit for their or its pro rata portion
of the tax paid by the entity that retained the capital gains. However, because
the Company uses leverage, it is subject to certain asset coverage ratio
requirements set forth in the 1940 Act and could, under certain circumstances,
be restricted from making distributions necessary to qualify as a RIC under
Subchapter M of the Code. The election to qualify as a RIC is made on an annual
basis, and no assurance can be given that the Company, SII or SFC will continue
to elect or to qualify for such treatment. Harris Williams does not qualify to
be taxed as a RIC and therefore, pays tax at the subsidiary level. If the
Company or any of its subsidiaries other than Harris Williams were to fail to
qualify or elect not to qualify as a RIC and its respective income became fully
taxable, a reduction in the Company's net assets by the amount of the tax
payable, the amount of income available for distribution to the Company's
shareholders and the percentage of such income actually distributed could
result. For financial accounting purposes, the Company does not currently
provide for deferred taxes on the amount of unrealized appreciation of its
equity securities because of its policy to distribute all long-term capital
gains to shareholders. If the Company were to retain substantially all of its
realized gains as a matter of general practice, the Company would provide for
deferred taxes on the amount of unrealized gains in its portfolio. In so doing,
the Company would accrue a one time charge to earnings and shareholders' equity
for financial reporting purposes for taxes on accumulated unrealized
appreciation at that time, and thereafter would recognize unrealized
appreciation, net of long-term capital gains tax. See "Taxation" and
"Regulation."
COMPETITIVE MARKET FOR INVESTMENT OPPORTUNITIES
A large number of entities and individuals compete to make the types of
investments made by the Company, many of whom have greater financial resources
than the Company. As a result of this competition, the Company may from time to
time be precluded from entering into attractive transactions. There can be no
assurance that the Company will be able to identify and make investments which
satisfy the Company's investment objectives or that it will be able to invest
fully its available capital.
DEPENDENCE ON MANAGEMENT
The Company is dependent for the selection, structuring, closing and
monitoring of its loans and investments on the diligence and skill of
management, particularly of George M. Miller, II, the loss of whose services
could have a material adverse effect on the operations of the Company. See
"Management."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be approximately $123.9 million, after deducting
the Underwriting discounts and commissions and estimated Offering expenses
payable by the Company. The Company intends to use a portion of the net proceeds
to temporarily repay approximately $62.8 million outstanding under the ING
Credit Facility and the remaining balance to repay amounts outstanding under the
Revolving Credit Facility and to originate new loans and make investments. SII
and SFC, as applicable, will then reborrow amounts available under the Revolving
Credit Facility and the ING Credit Facility to originate new loans. Amounts
outstanding under the Revolving Credit Facility and the ING Credit Facility bear
interest at 7.9% per annum and 8.3% per annum, respectively, as of the date of
this Prospectus. The Company believes that the net proceeds will be applied as
set forth above within six months of the Offering. Pending such application, the
Company intends to invest the net proceeds of this Offering in time deposits,
income-producing securities with maturities of 15 months or less that are issued
or guaranteed by the federal government or agencies thereof and high quality
debt securities maturing in one year or less from the time of investment in such
high quality debt securities. See "Investment Objectives and Policies."
14
<PAGE> 17
DISTRIBUTIONS AND PRICE RANGE OF COMMON STOCK
The Company has distributed and currently intends to continue to distribute
at least 90% of its net operating income and net realized short-term capital
gains, if any, on a quarterly basis to its shareholders. The Company also
intends to distribute all net realized long-term capital gains, if any, in an
annual dividend. There is no assurance that the Company will achieve investment
results or maintain a tax status that will permit any specified level of cash
distributions or year-to-year increases in cash distributions. See "Reinvestment
Plan," "Regulation" and "Taxation." Pursuant to the Reinvestment Plan, a
shareholder whose shares are registered in his own name can elect to have all or
a portion of the dividends reinvested in additional shares of Common Stock by
the Reinvestment Plan Administrator, by letter to the Company received prior to
the corresponding dividend declaration date.
The Common Stock is listed on the NYSE under the symbol SIR. Prior to
January 7, 1998, the Common Stock was quoted on the Nasdaq National Market under
the symbol SROM. On February 10, 1998, the last reported sale price of the
Common Stock was $26.25 per share (a 289% premium to net asset value per share
on such date). The following table sets forth the range of high and low closing
sale prices of the Common Stock as reported on the Nasdaq National Market, the
net asset value per share, the premium of high closing sale price to net asset
value and the premium of low closing sale price to net asset value for the
period from February 6, 1995, when public trading of the Common Stock commenced,
through the fourth quarter of 1997. The Common Stock has historically traded at
a premium to net asset value per share. There can be no assurance, however, that
such premium will be maintained. The information contained in the chart below
reflects the two-for-one stock split effective January 30, 1998.
<TABLE>
<CAPTION>
PREMIUM OF PREMIUM OF
HIGH SALES LOW SALES
CLOSING PRICE TO PRICE TO
SALE PRICE NET ASSET NET NET
---------- VALUE PER ASSET VALUE ASSET VALUE DIVIDEND
HIGH LOW SHARE(1)(2) (%)(2) (%)(2) DECLARED
-------- -------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995
First Quarter (beginning February 6,
1995).................................... $ 5 13/16 $5 3/8 $ 4.01 45% 34% $.07
Second Quarter............................. 6 7/8 5 9/16 4.11 68 36 .13
Third Quarter.............................. 9 3/8 6 5/8 4.72 99 41 .12
Fourth Quarter............................. 10 8 3/8 4.81 108 74 .13
1996
First Quarter.............................. 11 7/8 9 5/16 5.14 131 81 .12
Second Quarter............................. 14 3/4 11 5/8 6.68 119 74 .13
Third Quarter.............................. 15 1/8 11 1/2 6.35 138 81 .16
Fourth Quarter............................. 19 3/16 15 1/8 6.43 199 135 .18
1997
First Quarter.............................. 21 1/8 17 3/8 8.69 143 100 .20
Second Quarter............................. 20 13 31/32 8.91 124 59 .21
Third Quarter.............................. 26 1/16 17 9.13 185 86 .24
Fourth Quarter............................. 27 7/8 21 1/4 9.07 207 134 .43(3)
</TABLE>
- ---------------
(1) Net Asset Value per share is determined as of the last day in the relevant
quarter and therefore may not reflect the net asset value per share on the
date of the high and low sale price. Historically, the Company's net assets
have been highest at the end of the quarter. The net asset values shown are
based on outstanding shares at the end of each period.
(2) Except for the information for the third and fourth quarters of 1996 and the
four quarters of 1997, the above table does not reflect the acquisition of
Harris Williams in August 1996 for 1,796,908 shares of Common Stock in a
transaction accounted for as a pooling-of-interests. If Net Asset Value had
been calculated for periods prior to the acquisition to include the shares
issued in the acquisition, the Net Asset Value per share for each of the
quarters since the first quarter of 1995 and through the second quarter of
1996 would have been $3.65, $3.74, $4.37, $4.42, $4.76, and $6.28,
respectively.
(3) Includes $.18 per share annual capital gain dividend declared in December
1997.
15
<PAGE> 18
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
at December 31, 1997, and (ii) the capitalization of the Company at December 31,
1997, as adjusted to reflect the effects of the sale of the Common Stock offered
hereby and the application of the net proceeds as set forth under "Use of
Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------
ACTUAL AS ADJUSTED(1)
-------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Debentures payable to Small Business Administration......... $ 90,000 $ 90,000
Revolving credit facilities................................. 124,250 313
Shareholders' equity:
Common stock, no par value, 50,000,000 shares authorized;
31,093,226 issued and outstanding (37,093,226 issued
and outstanding as adjusted)(2)........................ 251,057 374,995
Notes receivable from employees........................... (648) (648)
Undistributed net realized earnings....................... 20,779 26,184
Unrealized appreciation of investments.................... 10,781 10,781
Total shareholders' equity........................ $281,969 $405,907
-------- --------
Total capitalization........................................ $496,219 $496,219
======== ========
</TABLE>
- ---------------
(1) Reflects a public offering price of $26.25 (the last reported sale price of
the Common Stock on the NYSE on February 10, 1998).
(2) Excludes an aggregate of 5,499,098 shares issuable pursuant to stock options
outstanding at December 31, 1997 that vest over varying periods of time.
16
<PAGE> 19
SELECTED FINANCIAL DATA
The following tables set forth selected financial data of the Company,
which should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and with the Company's
Financial Statements and Notes thereto included elsewhere in this Prospectus.
The selected financial data set forth below as of and for the period from
inception to December 31, 1992, and as of and for each of the five years in the
period ended December 31, 1997, 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 five years in the period ended December 31,
1997, is included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FROM
INCEPTION
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, -----------------------------------------------------------------
1992 1993 1994 1995 1996 1997
------------ ---------- ---------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Operating income:
Interest on investments................ $ 636 $ 3,515 $ 7,337 $ 13,452 $ 24,395 $ 41,297
Loan processing and other fees......... 282 699 901 1,900 3,166 6,989
Other income........................... -- -- -- 223 119 61
---------- ---------- ---------- ---------- ----------- ----------
Total operating income........... 918 4,214 8,238 15,575 27,680 48,347
Operating expenses:
Interest expense....................... 127 1,427 3,124 4,771 8,342 9,797
Salaries and benefits.................. -- -- -- 1,082 2,994 5,001
Management fees........................ 210 709 1,073 -- -- --
Other operating expenses............... -- 166 122 1,412 1,942 3,349
State income tax on interest........... -- 231 457 109 -- --
Amortization expense................... 8 54 118 208 543 865
---------- ---------- ---------- ---------- ----------- ----------
Total operating expenses......... 345 2,587 4,894 7,582 13,821 19,012
---------- ---------- ---------- ---------- ----------- ----------
Pretax income of unconsolidated
subsidiary............................. 43 207 553 812 3,264 3,699
---------- ---------- ---------- ---------- ----------- ----------
Net operating income..................... 616 1,834 3,897 8,805 17,123 33,034
Realized gain (loss) on investments...... 198 (799) (538) 1,759 9,463 10,722
Change in unrealized appreciation
(depreciation) of investments.......... 1,813 (50) 3,356 4,693 2,580 (1,612)
Provision for income taxes............... -- -- -- (1,020) (4,270) (838)
---------- ---------- ---------- ---------- ----------- ----------
Net increase in partners' capital and
shareholders' equity resulting from
operations............................. $ 2,627 $ 985 $ 6,715 $ 14,237 $ 24,896 $ 41,306
========== ========== ========== ========== =========== ==========
Per share:
Pretax operating income(1)............... $ .09 $ .24 $ .42 $ .55 $ .74 $ 1.04
Net increase in partners' capital and
shareholders' equity resulting from
operations(1)...................... .37 .12 .64 .89 1.08 1.30
Dividends(1)............................. -- -- -- .44(2) .59(2) 1.08(2)
Diluted weighted average shares
outstanding(1)......................... 7,096,000 8,548,000 10,444,000 15,979,000 23,110,000 31,658,000
OPERATING STATISTICS:
Number of portfolio companies with
loans outstanding at period end...... 17 38 57 91 122 195
Number of new portfolio companies...... 17 24 25 44 48 102
Principal amount of loans originated... $ 14,639 $ 31,470 $ 40,785 $ 101,505 $ 131,962 $ 282,352
Principal amount of loan repayments.... -- 2,013 7,585 14,414 32,630 67,743
Loan portfolio at period end........... 14,639 42,441 72,336 144,855 221,487 412,005
Net interest spread at period end(3)..... 5.6% 5.8% 5.5% 5.8% 5.9% 5.6%
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, 1997
------------------------------------------------- -------------------------
1992 1993 1994 1995 1996 ACTUAL AS ADJUSTED(4)
------- ------- ------- -------- -------- -------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents.......... $ 4,601 $ 1,633 $ 137 $ 195 $ 4,612 $ 3,025 $ 3,025
Loans................... 14,639 42,441 72,336 144,855 221,487 412,005 412,005
Equity interests........ 4,233 3,591 7,577 15,912 34,966 55,211 55,211
Warrants................ 951 4,219 7,549 11,513 15,894 24,543 24,543
Total assets............ 24,954 53,425 91,804 177,870 288,013 509,236 509,236
Revolving credit
facilities........... -- -- 6,389 13,200 30,858 124,250 313
Debentures payable to
SBA.................. 10,000 34,000 51,000 73,260 90,000 90,000 90,000
Total shareholders'
equity............... 14,806 18,787 33,218 89,186 158,621 281,969 405,907
</TABLE>
- ---------------
(1) On January 5, 1998, Sirrom announced a two-for-one stock split effective
January 30, 1998. All information contained herein reflects such stock
split.
(2) For the year ended December 31, 1995, includes $.13 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 $.18 in dividends
declared and paid in the first quarter of 1997 related to 1996 earnings and
excludes the $.13 per share in dividends paid in the first quarter of 1996
related to 1995 earnings. For the year ended December 31, 1997, includes
$.43 per share in dividends paid or to be paid in the first quarter of 1998
related to 1997 earnings and excludes the $.18 per share in dividends paid
in the first quarter of 1997 related to 1996 earnings.
(3) Net interest spread represents the weighted average gross yield on the
Company's interest bearing investments less the weighted average cost of
borrowed funds at the end of the respective periods shown.
(4) Adjusted to reflect the sale by the Company of 5,000,000 shares of Common
Stock offered hereby and the application of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."
18
<PAGE> 21
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
----------------------------------------- ---------------------------------
YEAR ENDED DECEMBER 31, 1994 1995 1996 1997
----------------------------------------- VS VS. VS. VS.
1993 1994 1995 1996 1997 1993 1994 1995 1996
----- ----- ----- ----- ----- ----- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest on investments............ 83.4% 89.1% 86.4% 88.1% 85.4% 108.7% 83.3% 81.3% 69.3%
Loan processing and other fees..... 16.6 10.9 12.2 11.4 14.4 28.9 110.9 66.6 120.7
Other income....................... 0.0 0.0 1.4 0.4 0.2 -- -- (46.6) (48.9)
----- ----- ----- ----- -----
Total Operating Income........... 100.0% 100.0% 100.0% 100.0% 100.0% 95.5 89.1 77.7 74.8
Interest expense................... 33.9 37.9 30.7 30.1 20.3 118.9 52.7 74.8 17.4
Salaries, benefits, and other
operating expenses............... 20.7 14.5 16.0 17.8 17.3 36.6 108.7 98.0 69.1
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 1.8 118.5 76.3 161.1 59.3
----- ----- ----- ----- -----
Total Operating Expenses......... 61.4 59.4 48.7 49.9 39.3 89.2 54.9 82.3 37.6
Equity in pre-tax income of
unconsolidated subsidiary........ 4.9 6.7 5.2 11.8 7.6 167.1 46.8 302.0 13.3
----- ----- ----- ----- -----
Net Operating Income............. 43.5% 47.3% 56.5% 61.9% 68.3% 112.5 125.9 94.5 93.1
===== ===== ===== ===== =====
</TABLE>
The following table summarizes the Company's operating results by quarter
for 1995, 1996 and 1997.
<TABLE>
<CAPTION>
MARCH JUNE SEPT. DEC. MARCH JUNE SEPT. DEC. MARCH JUNE
1995 1995 1995 1995 1996 1996 1996 1996 1997 1997
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <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 $8,028 $9,624
Loan processing and other fees.... 541 313 706 340 921 652 797 796 1,694 1,262
Other income...................... -- -- -- 223 -- 62 28 29 18 12
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Operating Income.......... 2,965 3,544 4,081 4,985 5,783 6,300 7,214 8,383 9,740 10,898
Interest expense.................. 999 1,170 1,192 1,410 1,790 2,051 2,138 2,362 2,142 1,818
Salaries, benefits, and other
operating expenses.............. 673 436 620 765 1,216 1,172 1,270 1,279 1,405 1,899
State income tax on interest...... 52 11 -- 47 -- -- -- -- -- --
Amortization expense.............. 30 38 45 95 188 89 101 165 208 225
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Operating Expenses........ 1,754 1,655 1,857 2,317 3,194 3,312 3,509 3,806 3,755 3,942
Equity in pre-tax income of
unconsolidated subsidiary....... 194 8 408 202 795 627 1,151 691 241 1,020
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Operating Income............ $1,405 $1,897 $2,632 $2,870 $3,384 $3,615 $4,856 $5,268 $6,226 $7,976
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
SEPT. DEC.
1997 1997
------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Interest on investments........... $10,978 $12,668
Loan processing and other fees.... 1,945 2,087
Other income...................... 15 16
------- -------
Total Operating Income.......... 12,938 14,771
Interest expense.................. 2,431 3,405
Salaries, benefits, and other
operating expenses.............. 2,166 2,880
State income tax on interest...... -- --
Amortization expense.............. 204 228
------- -------
Total Operating Expenses........ 4,801 6,513
Equity in pre-tax income of
unconsolidated subsidiary....... 915 1,522
------- -------
Net Operating Income............ $ 9,052 $ 9,780
======= =======
</TABLE>
19
<PAGE> 22
The Company's principal investment objectives are to achieve a high level
of income from the collection of interest and processing and financial advisory
fees and long-term growth in its shareholders' equity through the appreciation
in value of equity interests in its portfolio companies. The Company's and SII's
loans are typically made in the form of secured debt with relatively high fixed
interest rates accompanied by warrants to purchase equity securities of the
borrower. In addition to interest on investments, the Company and SII also
typically collect an up-front processing fee on each loan they originate. Harris
Williams typically obtains a monthly retainer fee for each transaction for which
it is retained and, in addition, a success fee when the transaction is
consummated.
RESULTS OF OPERATIONS
The Company's financial performance in the Statements of Operations is
comprised of four primary elements. The first is "net operating income," which
is the difference between the Company's income from interest, dividends, fees
and Harris Williams' pre-tax income, and its total operating expenses, including
interest expense. The second element is "realized gain (loss) on investments,"
which is the difference between the proceeds received from the disposition of
portfolio assets and their stated costs at the beginning of the period. The
third element is the "change in unrealized appreciation (depreciation) of
investments," which is the net change in the fair values of the Company's
portfolio assets compared with their fair values at the beginning of the period
or their stated costs, as appropriate. Generally, "realized gain (loss) on
investments" and "change in unrealized appreciation (depreciation) of
investments" are inversely related in that when an appreciated asset is sold to
realize a gain, a decrease in unrealized appreciation occurs since the gain
associated with the asset is transferred from the "unrealized" category to the
"realized" category. Conversely, when a loss is realized on a depreciated
portfolio asset, the reclassification of the loss from "unrealized" to
"realized" causes an increase in unrealized appreciation and an increase in
realized loss. The fourth element is "provision for income taxes," which
primarily consists of taxes owed on retained capital gains, excise taxes on
undistributed earnings and taxes on the pre-tax income of Harris Williams.
Fiscal Years Ended December 31, 1997, 1996 and 1995
Net Operating Income. During the fiscal year ended December 31, 1997, the
Company earned interest on investments of $41.3 million, a 69.3% increase over
the $24.4 million earned in 1996, which in turn was an 80.7% increase over the
$13.5 million earned in 1995. In addition to interest on investments, the
Company also collects an up-front processing fee for each loan it originates.
During fiscal 1997, the Company collected $7.0 million in processing and other
fees, a 118.7% increase over the $3.2 million collected in 1996, which in turn
was a 68.4% increase over the $1.9 million collected in 1995. These increases in
interest income and processing and other 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 $412.0 million at December 31, 1997,
an increase of 86.0% over the $221.5 million at December 31, 1996, which in turn
was an increase of 52.9% from $144.9 million at December 31, 1995. The $282.4
million of loans originated during fiscal 1997 was a 113.9% increase over the
$132.0 million of loans originated during fiscal 1996, which in turn was a 30.0%
increase over the $101.5 million of loans originated in 1995. In addition, the
weighted average interest rate charged on the loan portfolio at December 31,
1997 was 13.3%, as compared to 13.2% and 12.8% at December 31, 1996 and 1995,
respectively. The Company also earned income from miscellaneous sources in an
amount equal to $61,000 in 1997, $119,000 in 1996 and $223,000 in 1995,
primarily from interest paid on loans to employees made in connection with
purchases of common stock of the Company.
The Company's interest expense increased to $9.8 million in 1997, an 18.1%
increase over the $8.3 million in 1996, which in turn was a 72.9% increase over
the $4.8 million paid in 1995. The increase in interest expense from 1995 to
1997 was primarily attributable to increased borrowings from the SBA and under
the Company's two revolving credit facilities. The Company's total borrowings
were $214.3 million on December 31, 1997, $120.9 million on December 31, 1996
and $86.5 million on December 31, 1995.
Overhead, amortization of borrowing costs and state taxes totaled $9.2
million in fiscal 1997, a 67.3% increase over the $5.5 million of such expenses
in fiscal 1996, which in turn was a 96.4% increase over the $2.8 million of such
expenses in 1995. These increases can be largely attributed to the increase in
the number of employees from nine in January 1995 to 44 in December 1997,
several expansions of the Company's Nashville
20
<PAGE> 23
office space between 1995 and 1997, opening and expanding the Company's San
Francisco office in 1997 and opening the Company's Stamford office in 1997. 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 1995
to 1996. Although the dollar amount of these expenses increased over the
three-year period, overhead expenses as a percentage of ending assets were
relatively constant at 1.6%, 1.7% and 1.4% for fiscal 1997, 1996 and 1995,
respectively.
During 1997, Harris Williams had revenues of $9.9 million, a 47.8% increase
over the $6.7 million in fiscal 1996, which in turn was a 157.7% increase over
the $2.7 million in revenues in 1995. During 1997, Harris Williams had pre-tax
income of $3.7 million, a 15.6% increase over the $3.3 million in pre-tax income
in 1996, which in turn was a 294.1% increase over the $812,000 in pre-tax income
in 1995. 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 15 transactions that closed during 1997, a 7.7% increase
over the 13 transactions closed in 1996, which in turn was a 44.4% increase over
the nine transactions that closed during 1995. Pre-tax income grew more slowly
than revenues in 1997 due mainly to an increase in the number of investment
banking professionals from 13 to 21 from December 31, 1996 to December 31, 1997,
and increased compensation expense resulting from increased competition for
investment banking professionals. Income taxes of $825,000 and $207,000 were
accrued on Harris Williams' pre-tax income in 1997 and 1996, respectively. No
taxes were accrued on Harris Williams' pre-tax income in 1995, as Harris
Williams was a partnership at that time.
Realized Gain (Loss) on Investments. The Company's net realized gain on
investments was $10.7 million during the year ended December 31, 1997, largely
resulting from gains of $24.3 million on equity positions in Premiere
Technologies, Inc., Radiant Systems, Inc., Innotech, Inc., Horizon Medical
Products, Inc., Argenbright Ltd., Global Finance and Leasing, Inc., Virtual
Resources, Inc., Radio Systems Corporation, Educational Medical, Inc., Compass
Plastics and Technologies, Inc., Encore Medical Corporation, Factory Card Outlet
Corp., Vista Information Solutions, Inc. and Virginia Gas Company, offset by
losses of $13.6 million on loans to or equity interests in Eastern Food Group,
LLC, Gold Medal Products, Inc., Ashe Industries, Inc., Golf Video, Inc., Tower
Environmental Services, Inc., Studley Products Corp., Assured Power, Inc., Golf
Corporation of America, Inc., SWS3, Inc., and Scandia Technologies, Inc. The
Company's net realized gain on investments was $9.5 million during 1996
primarily resulting from gains of $12.3 million on equity positions in American
Remedial Technologies, Inc., Premiere Technologies, Inc., Hoveround Corporation,
Educational 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. 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
year ended December 31, 1997 the company recorded a net increase in unrealized
depreciation of $1.6 million and for the years ended December 31, 1996 and 1995,
the Company recorded net increases in unrealized appreciation of investments of
$2.6 million and $4.7 million, respectively. These changes are the result of the
Company's quarterly revaluation of its portfolio in accordance with its
valuation policy to reflect the fair value of each of its portfolio assets.
Provision for Income Taxes. Beginning in February 1995, the Company
elected to be taxed as a RIC under Subchapter M of the Code. If the Company, as
a RIC, satisfies certain requirements relating to the source of its income, the
diversification of its assets and the distribution of its net income, the
Company is
21
<PAGE> 24
generally taxed as a pass through entity that 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; meet investment
diversification requirements defined by the Code; and distribute to shareholders
at least 90% of its net income (other than long-term capital gains). The Company
presently intends to meet the RIC qualifications in 1998. However, no assurance
can be given that the Company will continue to elect or qualify for such
treatment after 1998.
During 1997, the Company paid dividends of $24.4 million compared to the
$11.6 million paid in 1996 and $5.2 million paid in 1995. Of these dividends,
$16.9 million, $11.2 million and $4.0 million were derived from net operating
income for 1997, 1996 and 1995, respectively, and $7.5 million, $406,000 and
$1.2 million were derived from realized capital gains for 1997, 1996 and 1995,
respectively. The Company also elected to designate $10.6 million and $2.1
million of the undistributed realized capital gains as a "deemed" distribution
to shareholders of record as of the end of 1996 and 1995, 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 year ended December 31, 1997, the Company
modified its dividend policy with respect to its long-term capital gains. The
Company now intends to distribute to shareholders all long-term capital gains
and did so for the year ended December 31, 1997. As a result no "deemed"
distribution was designated and no related tax was due in fiscal 1997.
For the years ended December 31, 1997, 1996 and 1995 the Statements of
Operations include a provision for state income taxes on interest totaling $0,
$0 and $109,000, respectively. For the years ended December 31, 1997, 1996 and
1995, the Company also provided for federal income tax at a 35% rate on
undistributed long-term capital gains and excise tax at a 4% rate on
undistributed taxable net investment income and undistributed realized long-term
capital gains and provided for federal and state income taxes on Harris
Williams' pre-tax income. These tax provisions totaled $838,000, $4.3 million
and $1.0 million for the years ended December 31, 1997, 1996 and 1995,
respectively.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had $3.0 million in cash and cash
equivalents of which $2.1 million was pledged as collateral under certain
hedging agreements. At December 31, 1997, 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 $13.4 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 its initial public offering and has completed three additional
public offerings since that time which have generated net proceeds of $216.9
million in the aggregate. The Company has used the proceeds of these offerings
to temporarily repay debt and to originate new loans.
At December 31, 1997, total SBA borrowings were $90.0 million, the previous
maximum amount of SBA loans available to an SBIC. During the latter part of
1997, Congress increased the maximum amount of funding available to an SBIC by
indexing the $90.0 million cap to inflation. Presently, the maximum amount of
funding available to an SBIC from the SBA is $101.0 million. 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, 1997, and none of
these borrowings mature prior to 2002.
As of December 31, 1997, SII had $61.5 million outstanding under its $125.0
million Revolving Credit Facility with First Union National Bank and a syndicate
of other banks, which is secured by a lien on all of SII's assets and a pledge
of SII's stock and guaranteed by the Company, which includes a $75.0 million
increase in its Revolving Credit Facility consummated in October 1997 that added
seven additional banks to the syndicate. In order to manage the interest rate
risk associated with the variable interest rate provided for
22
<PAGE> 25
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 the $100.0 million ING Credit Facility. SFC, a
wholly-owned special purpose, bankruptcy remote subsidiary of the Company, is
the borrower under the ING Credit Facility. SFC purchases loans originated by
the Company and the related warrants and uses these loans and warrants as
collateral to secure borrowings from ING. SFC is generally able to borrow up to
70% of the principal amount of conforming loans collateralizing the ING Credit
Facility. As of January 3, 1997, the Company made an initial capital
contribution to SFC of approximately $25.0 million of loans, which served as
initial collateral for the ING Credit Facility. At December 31, 1997, $62.8
million was outstanding under the ING Credit Facility and $93.2 million and
$96.5 million of loans and warrants at cost and fair value, respectively, had
been contributed to or sold to SFC by the Company and were collateralizing the
ING Credit Facility. 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 Company may borrow under the
ING Credit Facility until December 31, 2001, and it expires on January 5, 2007.
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 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 proceeds from this 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 second quarter 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.
YEAR 2000
The Company has reviewed the Year 2000 issue and has identified three
primary areas in which it could be affected. First, the Company utilizes two
primary software programs, one of which tracks its investment portfolio and one
of which provides accounting functions. Both software vendors have indicated to
the Company that their programs are Year 2000 compatible. Therefore, the Company
believes that it has no material exposure in this area. Second, the Company
utilizes standard cash management software provided by its commercial banks. The
Company is unaware of any potential exposure related to this software and
believes the possibility is remote that a major commercial bank would leave any
such problems unresolved. However, the Company intends to analyze this area in
further detail in 1998. Third, the Company has begun an investigation of the
impact of the Year 2000 on its portfolio companies. This investigation is not
yet complete, and thus the Company cannot yet state with certainty that it does
not have exposure in this area. However, given the size and age of its portfolio
companies and the service-based industries in which they primarily operate, the
Company anticipates that few of its portfolio companies will face any material
issues regarding the Year 2000.
23
<PAGE> 26
BUSINESS
Sirrom is a specialty finance company that primarily makes loans to small
businesses. The Company believes the market for small commercial loans is
underserved by traditional lending sources and that competitors generally are
burdened with an overhead and administrative structure that hinders them from
competing most effectively in this market. The Company, which was founded in May
1992 and is based in Nashville, Tennessee, has experienced significant growth in
both the size and diversity of its loan portfolio. At December 31, 1997, the
Company had loans outstanding with a fair value of $412.0 million to 195
companies in a variety of industries located in 29 states, Washington, D.C., and
Canada. The fair values of the Company's loan portfolio balances at December 31,
1994, 1995 and 1996 were $72.3 million, $144.9 million and $221.5 million,
respectively. The average rate of interest on the Company's loan portfolio at
December 31, 1997 was 13.3%. The Company's strategic objective is to provide
financial and various other services to small and medium sized growth
businesses. The Company traditionally has focused and will continue to focus on
making loans with equity features to borrowers that the Company believes have
certain characteristics, 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 initially
range from $500,000 to $5.0 million in size and are evidenced by debt securities
that are accompanied by warrants to acquire equity securities of the borrower.
These warrants usually have a nominal exercise price ($.01 per share).
Typically, the loans are collateralized by a security interest in assets of the
borrower and are generally senior to the investments of sophisticated equity
investors. The personal guaranty of the major shareholder of the borrower or
other collateral may also be required. The debt securities issued to evidence
the Company's loans generally carry a fixed rate of interest and have a maturity
of five years from their respective dates of issuance. In most cases, the loans
are structured to require the payment of interest only on a monthly basis, with
a single payment of principal at maturity. The Company typically charges
borrowers a processing fee of approximately 2.0% to 2.5% of the amount of each
loan. Unlike most lenders, the Company does not impose prepayment penalties on
borrowers that repay loans prior to maturity. Instead, the Company's warrants
typically contain a "ratchet" provision that increases the Company's equity
position, by one to three percentage points per year, until repayment of the
loan in full. Although the Company's loans provide for a five year maturity, the
warrant "ratchet" may have the effect of encouraging borrowers to repay loans as
soon as possible. The Company benefits from such repayments, because of the
direct relationship that exists between the Company's ability to generate asset
turnover (i.e., redeployment of capital) and return on equity to shareholders.
The Company has broadened its geographic market nationwide with offices
presently located in Nashville, Tennessee, San Francisco, California, and
Stamford, Connecticut. 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 The Toronto-Dominion Bank ("TD"). The Company
has recently increased its commitment to make up to $100.0 million (in Canadian
dollars) of loans to Canadian companies, which has been matched by a $150.0
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, which is located in
Toronto, Canada, serves as the originator and servicer of loans. In its capacity
as originator, SCC Canada identifies potential loan investments and collects a
processing fee when the loan is funded. SCC Canada also services each loan and
collects a servicing fee from TD and the Company. SCC Canada does not have the
ability to contractually obligate the Company or TD and does not fund the loans
with its own capital. The loans themselves are funded directly to the borrowers
from TD and the Company, and the Company and TD individually approve their
respective loans to each borrower identified by SCC Canada. SCC Canada targets
borrowers that have characteristics similar to the Company's U.S. borrowers.
During the first quarter of 1998, the Company intends to request an exemptive
order from the Commission that would permit the Company to transfer during the
second quarter of 1998 its Canadian assets to a wholly-owned subsidiary that
will be registered as an investment company under the 1940 Act and will either
elect RIC status under the Code or be established as a single member LLC. This
transfer
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<PAGE> 27
will allow the Company to establish a separate Canadian denominated credit
facility to leverage these investments, partially hedge its exchange rate risk
and provide funding for additional Canadian loans.
The Company has also begun to diversify its operations by making debt and
preferred stock investments in public companies under the name Tandem Capital,
Inc. The target market for this product is micro-cap companies with revenues
typically ranging from $20.0 million to $100.0 million. The typical investment
ranges from $3.0 million to $10.0 million, is 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 has marketed this product through
its existing referral network and presently markets these investments under the
name Tandem, but the Company funds such investments from Sirrom. During the
first quarter of 1998, the Company intends to request an exemptive order from
the Commission that would permit the Company to transfer these investments
during the second quarter of 1998 to a wholly-owned subsidiary, named Tandem
Capital, LLC, which will be registered as an investment company under the 1940
Act. This transfer will offer the Company the flexibility to establish a
separate credit facility to leverage these investments.
In order to broaden the range of services it offers to businesses in its
target market, the Company acquired Harris Williams, a merger and acquisition
advisory firm located in Richmond, Virginia, in August 1996. Harris Williams
provides advisory services with respect to small and medium-sized companies
throughout the United States that are similar in size to Sirrom's portfolio
companies. Sirrom's management believes that the acquisition of Harris Williams
provides the Company with an opportunity to obtain significant fee income and
cross-sell services between the two companies.
The Company intends to continue to diversify its operations by acquiring an
asset-based lender. The Company presently identifies numerous asset-based
lending opportunities through its extensive referral network and believes the
addition of this business line will complement its core business line. The
Company is in the process of identifying an appropriate acquisition candidate
and presently intends to consummate an acquisition in the first or second
quarter of 1998.
SELECTION OF LOAN AND INVESTMENT OPPORTUNITIES
Since inception, the Company has identified certain common characteristics
of borrowers that 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 value of warrants in the Company's equity portfolio.
Liquidation Value of Assets. While the Company, in its core business, does
not market itself as an asset-based lender, the liquidation value of assets
securing the loans is an important component in the credit decision. Valuations
include both hard assets (accounts receivable, inventory and property, plant and
equipment), as well as intangibles, such as customer lists, networks, databases
and recurring revenue streams.
Sophisticated Equity Shareholders. Many of the borrowers in the Company's
portfolio have sophisticated equity investors whose equity position is
subordinate to the debt securities of the Company. These investors allow the
Company to maximize its resources by enhancing the due diligence process and
financial sophistication of the borrower, and by providing increased controls
and a source of potential additional follow-on capital. The interest and support
of sophisticated equity investors tends to increase the Company's confidence in
the borrower, its management team and the potential long-term value of the
borrower's business.
Experienced Management Teams. The Company seeks to identify potential
borrowers that have management teams that are experienced, have a significant
ownership interest in the borrower and include a chief executive officer and
chief financial officer who demonstrate the ability to accomplish the objectives
set forth in the borrower's business plan.
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<PAGE> 28
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 from
cash flows or a refinancing by a bank or asset-based lender.
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, 1997, $599.3 million of loans have been originated and
$125.2 million, or 20.9%, 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, 1997, the Company had stock positions in 13
publicly traded companies that had a fair market value of $13.4 million on that
date. In accordance with the Company's valuation policy, the securities were
carried at a fair value of $10.5 million at December 31, 1997. In addition, at
that date, the Company owned common stock and preferred stock investments in
approximately 25 non-public companies and owned non-traded equity interests in 7
public companies with a fair value of $44.7 million. The Company has also
converted numerous equity positions to cash since inception with gains
approximating $42.1 million. At December 31, 1997, the Company held warrant
positions in 16 public companies that it carried on its books at a fair value of
$2.8 million and warrants in approximately 180 private companies that it carried
at a fair value of $21.7 million. The fair value of the Company's loans and
investments is determined in good faith by the Board of Directors in accordance
with the Company's valuation policy. For a discussion of the Company's valuation
policy see "Summary of Significant Accounting Policies" in the Notes to
Financial Statements included elsewhere in this Prospectus.
TEMPORARY INVESTMENTS
Pending investment in the types of securities described above, the Company
will invest its otherwise uninvested cash in (i) federal government or agency
issued or guaranteed securities that mature in 15 months or less; (ii)
repurchase agreements with banks whose deposits are insured by the Federal
Deposit Insurance Corporation (the "FDIC") (an "insured bank"), with maturities
of seven days or less, the underlying instruments of which are securities issued
or guaranteed by the federal government; (iii) certificates of deposit in an
insured bank with maturities of one year or less, up to the amount of the
deposit insurance; (iv) deposit accounts in an insured bank subject to
withdrawal restrictions of one year or less, up to the amount of deposit
insurance; (v) certificates of deposit or deposit accounts in an insured bank in
amounts in excess of the insured amount if the insured bank is deemed
"well-capitalized" by the FDIC; or (vi) high quality debt securities maturing in
one year or less from the time of investment in such high quality debt
securities.
OPERATIONS
Marketing. The Company presently has offices in Nashville, Tennessee, San
Francisco, California and Stamford, Connecticut, from which its sixteen lending
officers cover certain particular geographic territories.
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<PAGE> 29
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 ten and twenty informational packages per
month from these sources. On average, each lending officer closes one new loan
per month.
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 his or her Regional Manager, 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 his or her Regional Manager who has
the authority to approve loans and investments aggregating up to $2.0 million,
which are then ratified by a Loan Approval Committee presently comprised of
David M. Resha, Donald F. Barrickman, Carl W. Stratton, David M. Traversi, John
S. Scott and Kathy Harris. Loans and investments aggregating between $2.0
million and $3.0 million must be approved by the Regional Manager and David M.
Resha and ratified by the Loan Approval Committee. Loans and investments
aggregating in excess of $3.0 million must be approved, in advance, by the Loan
Approval Committee. Additional due diligence is conducted by the Company's
attorneys prior to funding the loan.
Loan Grading. In 1994, the Company implemented a system by which it graded
all loans on a scale of 1 to 6. The system was intended to reflect the
performance of the borrower's business, as well as the collateral coverage of
the loan and other factors considered relevant. During late 1995, the system was
refined to reflect management's additional experience in monitoring its growing
loan portfolio. Each loan is evaluated by the respective lending officer and the
Chief Operating Officer based on the financial performance of the borrower and
other borrower-specific risk factors that may include management quality,
capitalization, collateral coverage, value of intangible assets and availability
of working capital. All new loans are assigned a grade 3 for a period of six
months in the absence of an extraordinary event during that period. After the
initial six months, loans are assigned a grade of 1 to 6. Thereafter, all loans
are reviewed and graded on at least a quarterly basis. To monitor and manage the
risk in the overall portfolio, management tracks the weighted average portfolio
grade. The weighted average grade was 3.04 and 3.10 at December 31, 1997 and
1996, respectively. The Company believes that weighted average grades between
2.75 and 3.25 represent the current normal range for the portfolio.
Management believes that loans with a grade 1 involve the least amount of
risk in the Company's portfolio, as the borrower is performing well above
expectations financially, and other risk factors are clearly favorable.
Management believes that loans with a grade 2 involve low risk relative to other
loans in the Company's portfolio, as the borrower is performing above
expectations financially and the majority of risk factors are favorable.
Management believes that loans with a grade 3 involve an acceptable risk, as the
borrower is performing as expected financially and the other risk factors are
generally favorable.
Management believes that loans with a grade 4, while still involving an
acceptable level of risk, require additional attention from the lender. A loan
with a grade 4 typically involves a borrower that is performing marginally below
expectations, and the existence of short term trends or negative events that
have created some concern. However, other risk factors are favorable. Loans in
this category require a proactive action plan to be executed by the borrower's
management and monitored by the lender. A grade 4 is considered to be a
temporary rating (generally no longer than six months) that will result in
either an upgrade or downgrade. The loan is serviced either by the lending
officer or more often by a member of the Company's workout area. As of December
31, 1997 and 1996, the Company's portfolio consisted of 18 and 9 loans,
respectively, graded 4. The aggregate principal balance of loans graded 4 at
December 31, 1997 and 1996, respectively, was $49.0 million
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<PAGE> 30
and $17.4 million, which represented 10.2% and 7.4%, respectively, of the total
portfolio balance at such dates. Since late 1995 when the Company redefined the
loan grading system to reflect management's additional experience in monitoring
its growing portfolio, the percentage of the principal balance of loans graded 4
to the total portfolio balance has typically ranged between 10% and 15%, with an
occasional decrease to as low as 7%. The Company believes the current percentage
to be within the normal range of variability and expects significant variability
in the future in the absolute dollar amount of loans graded 4 and in the ratio
of loans graded 4 to the total portfolio balance.
Management believes that loans with a grade 5 involve greater than an
acceptable level of risk. The borrower is performing substantially below
expectations financially and negative trends persist. Other risk factors are
marginal and the execution of an action plan is critical to the long term
viability of the borrower. The loan may be in default, and interest is probably
not being accrued, but the Company's management believes the borrower's
management is capable of executing a plan to return the borrower to an
acceptable risk level.
Management believes that loans with a grade 6 involve an unacceptable level
of risk with substantial probability of loss. The borrower has grossly failed to
perform financially over an extended period and other unacceptable risk factors
exist. Rather than rely on borrower's management, the Company has decided to
implement its own action plan to return the borrower to a satisfactory risk
level or to liquidate the borrower or its collateral. Interest is not being
accrued, and the Company has charged off or fully expects to charge off some
part of the loan.
Loans graded 5 or 6 are placed on the Company's Credit Watch Portfolio and
are serviced by a member of the workout area. The workout area consists of four
officers of the Company and an analyst. See "-- Delinquency and Collections"
below. At December 31, 1997 and 1996, the Company had loans to 16 companies with
an aggregate principal balance of $27.7 million, and 13 companies with an
aggregate principal balance of $15.9 million, respectively, that were graded a 5
or 6 and that were not accruing interest, which represented 6.5% and 6.8%,
respectively, of the total portfolio balance. The Company believes that the
current normal range for loans graded 5 and 6 is 6% to 10% of the total
portfolio balance. Given the nature of the Company's portfolio, the Company
expects some variability in the absolute dollar amount of loans graded 5 and 6
and in the ratio of loans graded 5 and 6 to the total portfolio balance.
Loan Portfolio. During the year ended December 31, 1997, the Company
originated loans to 150 companies, including 102 new borrowers, in the aggregate
principal amount of approximately $282.4 million, in various industries. During
the same period, the Company realized $23.5 million in net equity gains and
realized approximately $12.8 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 realized gains and realized losses.
<TABLE>
<CAPTION>
FROM
INCEPTION
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, --------------------------------------------------
1992 1993 1994 1995 1996 1997
------------ ------- ------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Loans originated................... $14,639 $31,470 $40,785 $101,505 $131,962 $282,352
Loans repaid....................... 0 2,013 7,585 14,414 32,630 67,743
Loans converted to equity (net).... 0 500 2,450 3,806 8,698 7,076(1)
Realized losses on loans and other
investments...................... 0 1,155 1,155 1,500 2,048 12,771
Net realized gains on equity
investments...................... 198 355 617 3,220 11,511 23,493
</TABLE>
- ---------------
(1) Loans converted to equity in 1997 includes $2.1 million of loans converted
into publicly traded securities upon the sale of two portfolio companies to
public companies.
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The table below sets forth, as of December 31, 1997, the 29 states and
other locations 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..................................................... 1.1% 3
California.................................................. 11.0 20
Colorado.................................................... 1.8 3
Connecticut................................................. 1.6 3
Florida..................................................... 14.4 21
Georgia..................................................... 11.0 19
Illinois.................................................... 3.7 8
Indiana..................................................... 0.7 2
Kentucky.................................................... 4.0 8
Maryland.................................................... 1.8 3
Massachusetts............................................... 2.0 4
Michigan.................................................... 1.2 2
Minnesota................................................... 0.8 2
North Carolina.............................................. 5.9 13
New Jersey.................................................. 1.6 4
Ohio........................................................ 2.8 6
Pennsylvania................................................ 3.7 5
Tennessee................................................... 8.4 13
Texas....................................................... 10.4 20
Virginia.................................................... 2.5 7
Wisconsin................................................... 1.2 2
*Other states(8)............................................ 8.4 27
----- ---
Total............................................. 100.0% 195
===== ===
</TABLE>
- ---------------
* The other states in which the Company has only a single borrower are Hawaii,
Iowa, Maine, Missouri, New Mexico, New York, Oklahoma and South Carolina. The
Company also has 3 borrowers in Washington, D.C. and 16 borrowers in Canada
representing 2.0% and 3.4%, respectively, of the total loan principal balance
outstanding.
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, 1997, the Company had loans to 16 companies with an
aggregate principal balance of $27.7 million that were graded a 5 or 6 and that
were not accruing interest. Based on the particular circumstances involved, the
Board of Directors estimated the aggregate fair value of these loans to be $17.1
million, and therefore provided for unrealized depreciation from original cost
of $10.1 million on these loans after accounting for the original issue discount
on these loans of $0.5 million.
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<PAGE> 32
CUSTODIAL SERVICES
Pursuant to a Custodial Services Agreement, First American National Bank
(Trust Department) acts as the custodian of all the Company's and SII's
portfolio assets in accordance with the 1940 Act and, with respect to SII's
portfolio assets, in accordance with SBA Regulations.
MERGER AND ACQUISITION ADVISORY SERVICES
In August 1996, the Company acquired Harris Williams. Harris Williams is a
merger and acquisition advisory firm that currently focuses exclusively on
providing advisory services to small and medium sized companies throughout the
United States that are similar in size to Sirrom's portfolio companies. Harris
Williams' clients have included divisions of large companies, portfolio
companies of professional investor groups, and privately owned businesses. The
typical Harris Williams engagement includes a monthly retainer and a success fee
contingent upon closing the transaction. The firm has consistently grown since
inception with pre-tax income increasing from $207,000 for the year ended
December 31, 1993 to $3.7 million for the year ended December 31, 1997 and with
the number of professionals increasing from two to twenty-one at the present
time. Management believes that future growth of Harris Williams is attainable by
hiring additional merger and acquisition professionals, gaining additional
market share and realizing the benefits of its rapidly increasing client base,
which should expand as a result of its relationship with the Company. However,
no assurance can be given that such growth can be achieved.
COMPETITION
The Company's principal competitors include financial institutions, venture
capital firms and other nontraditional lenders. Many of these entities have
greater financial and managerial resources than the Company. The Company
believes that it competes effectively with such entities primarily on the basis
of the quality of its service, its reputation and the timely credit analysis and
decision-making processes it follows, and to a significantly lesser degree on
the interest rates, maturities and payment schedules it offers on the loans to
borrowers.
EMPLOYEES
The Company currently has 48 employees, excluding 26 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 job functions not directly related to the
marketing, underwriting and workout of small business loans or the executive
management of the Company.
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT POLICIES
The Company's investment objectives are to achieve both a high level of
income from interest on loans and other fees and long-term growth in its
shareholders' equity through the appreciation of the equity interests in its
portfolio companies. Except for the fundamental policies described below, the
Company's investment objectives may be changed by a majority vote of its Board
of Directors.
In making loans and managing its portfolio, the Company will adhere to the
following fundamental policies, which may not be changed without the approval of
the holders of the majority, as defined in the 1940 Act, of the Company's
outstanding shares of Common Stock. The percentage restrictions set forth below,
as well as those contained elsewhere in this Prospectus, apply at the time a
transaction is effected, and a subsequent change in a percentage resulting from
market fluctuations or any cause other than an action by the Company will not
require the Company to dispose of portfolio securities or to take other action
to satisfy the percentage restriction.
1. The Company will at all times conduct its business so as to retain its
status as a BDC. In order to retain that status, the Company may not acquire any
assets (other than non-investment assets necessary and
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<PAGE> 33
appropriate to its operations as a business development company) if, after
giving effect to such acquisition, the value of its "Qualifying Assets" amounts
to less than 70% of the value of its total assets. For a summary definition of
"Qualifying Assets," see "Regulation." The Company believes that the securities
it has acquired and it proposes to acquire, as well as temporary investments it
makes with its idle funds, will generally be Qualifying Assets. Securities of
public companies, on the other hand, are generally not Qualifying Assets unless
they were acquired in a distribution, in exchange for or upon the exercise of, a
right relating to securities that were Qualifying Assets.
2. The Company, through SII, may issue the maximum amount of SBA debentures
permitted by the SBIA, and the regulations promulgated thereunder (the "SBA
Regulations"). At December 31, 1997, SII had borrowed $90.0 million from the
SBA.
3. The Company may borrow funds to the extent permitted by the 1940 Act. A
BDC may borrow funds through the issuance of "Senior Securities" if, immediately
after such issuance, the securities will have asset coverage of at least 200%.
In connection with the transfer of its SBIC operations to SII and the formation
of SFC, the Company obtained exemptive relief from the Commission with respect
to certain provisions of the 1940 Act. Accordingly, the Company, SII and SFC may
issue Senior Securities, so long as after incurring such indebtedness the
Company, individually, and the Company and its subsidiaries, on a consolidated
basis, meet the 200% asset coverage requirement.
4. The Company will not concentrate its investments in any particular
industry or particular group of industries. Therefore, the Company will not
acquire any securities (except upon the exercise of a right related to
previously acquired securities) if, as a result, 25% or more of the value of its
total assets consists of securities of companies in the same industry.
5. The Company will not (i) act as an underwriter of securities of other
issuers (except to the extent that it may be deemed an "underwriter" of
securities purchased by it that subsequently must be registered under the
Securities Act before they may be offered or sold to the public), (ii) purchase
or sell real estate or interests in real estate or real estate investment trusts
(except that the Company may purchase and sell real estate or interests in real
estate in connection with the orderly liquidation of investments or the
foreclosure of mortgages held by the Company), (iii) sell securities short, (iv)
purchase securities on margin (except to the extent that it may purchase
securities with borrowed money), (v) write or buy put or call options (except to
the extent of warrants or conversion privileges obtained in connection with its
loans, and rights to require the issuers of such investments or their affiliates
to repurchase them under certain circumstances), (vi) engage in the purchase or
sale of commodities or commodity contracts, including futures contracts (except
where necessary in working out distressed loan or investment situations), or
(vii) acquire the voting stock of, or invest in any securities issued by, any
other investment company, except as they may be acquired as part of a merger,
consolidation or acquisition of assets. At the next annual shareholders meeting,
the Company intends to request shareholder approval of a change to this
fundamental policy that would allow the Company to sell certain public
securities short and write or buy put or call options to the extent the Company
owns the underlying securities. These changes are being requested to allow the
Company more flexibility in hedging its ownership of publicly traded securities.
6. The Company may make loans and loans with equity features, as well as
investments in equity securities of small business concerns. It is anticipated
that substantially all of the Company's investments in small business concerns
will continue to be secured loans with warrants or other equity features issued
in connection therewith. The Company may also make loans as permitted under its
Amended and Restated 1994 Stock Option Plan and its 1996 Incentive Stock Option
Plan, as amended, as described in this Prospectus under "Management -- Employee
Stock Options."
The Company's and SII's policies with respect to the following matters are
not fundamental policies and may be changed, subject to the SBIA and SBA
Regulations, by the Company's Board of Directors.
1. The Company may make loans and loans with equity features, as well as
investments in equity securities of small business concerns. At December 31,
1997, 86% of the Company's total assets were invested in loans and convertible
debt with related warrants, 11% in equity securities, and 3% in other assets.
SII will
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<PAGE> 34
not make loans to any single small business concern or its affiliates that
exceed 20% of SII's regulatory capital. Under the SBA Regulations, without prior
SBA approval, loans to any single small business concern and its affiliates may
not exceed 20% of SII's regulatory capital.
2. SII must invest funds that are not being used to make small business
concern loans in investments permitted by the SBA Regulations. These permitted
investments include direct obligations of, or obligations guaranteed as to
principal and interest by, the United States with a term of 15 months or less
and deposits maturing in one year or less issued by an institution insured by
the FDIC. The percentage of SII's assets so invested will depend on, among other
things, loan demand, timing of equity infusions and SBA funding and availability
of funds under SII's Revolving Credit Facility.
PORTFOLIO TURNOVER
During the year ended December 31, 1997, the Company made loans to 150
companies totaling approximately $282.3 million and received repayments (either
partial or full) from 47 companies aggregating $67.7 million. During the year
ended December 31, 1996, the Company made loans to 84 companies totaling
approximately $132.0 million and received repayments (either partial or full)
from 24 companies aggregating $32.6 million. During the year ended December 31,
1995, the Company made loans to 68 companies totaling approximately $101.5
million and received ten repayments (either partial or full) aggregating $14.4
million. During the year ended December 31, 1994, the Company made loans to 34
companies totaling approximately $40.8 million and received six repayments
aggregating approximately $7.6 million. During the year ended December 31, 1993,
the Company made loans to 31 companies totaling approximately $31.5 million and
received three repayments aggregating $2.0 million. Since inception, the Company
has originated $599.3 million in total loans and $125.2 million, or 20.9%, have
been repaid. The Company cannot control changes in its portfolio of investments,
as borrowers have the right to prepay loans made by the Company without penalty,
and the first loans made by the Company began maturing in May 1997.
INVESTMENT ADVISOR
The Company has no investment advisor and is advised by its executive
officers under the supervision of its Board of Directors.
32
<PAGE> 35
PORTFOLIO COMPANIES
The following table sets forth certain information as of December 31, 1997,
regarding each portfolio company in which the Company or SII has an equity
investment. Unless otherwise noted, the only relationship between each portfolio
company and the Company is the Company's investment. As an SBIC, SII is deemed
to make available significant managerial assistance to its portfolio companies.
For information relating to the amount and general terms of all loans to
portfolio companies, see the Company's Consolidated Portfolio of Investments as
of December 31, 1997 at pages F-28 to F-40 herein.
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS OF NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS
PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1)
- ------------------- ------------------ ------------------------ ----------
<S> <C> <C> <C>
Action Sports Group, LLC............ Sports Equipment Warrant to purchase 10.0%
375 Alabama Street, 3rd Floor Common Stock
San Francisco, CA 94110
Aero Products Corporation........... Medical Supplies Distributor Warrant to purchase 25.0
700 Aero Lane Common Stock
Sanford, FL 32771
Affinity Fund, Inc. ................ Telecommunications Warrant to purchase 9.7
20875 Crossroads Circle Common Stock
Suite 400
Waukesha, WI 53186
Alignis, Inc........................ Chiropractic Network Warrant to purchase 4.0
1055 Lenox Park Blvd., Suite 105 Common Stock
Atlanta, GA 30319
Altris Software, Inc. .............. Software Preferred Stock 100.0
9339 Carroll Park Drive Warrant to purchase 3.0
San Diego, CA 92121 Common Stock
American Consolidated Laboratories,
Inc............................... Optical Products Warrant to purchase 9.7
1640 North Market Dr. Common Stock
Raleigh, NC 27609 Preferred Stock -- 54.7
Series A
Common Stock 9.2
American Corporate Literature,
Inc. ............................. Printing/Distribution Warrant to purchase 28.2
811 Cowan St. Common Stock
Nashville, TN 37207
American Network Exchange, Inc. .... Telecommunications Warrant to purchase 0.0
100 W. Lucerne Circle Common Stock
Suite 100 Common Stock 0.1
Orlando, FL 32801
American Rockwool Acquisition
Corp.............................. Rockwool Insulation Warrant to purchase 11.0
Acquisition Corporation Common Stock
820 E. Nash Street
Spring Hope, NC 27882
Amscot Holdings, Inc................ Check Cashing Service Warrant to purchase 32.9
8430 North Armenia Avenue Common Stock
Tampa, FL 33604
Anton Airfoods, Inc. ............... Airport Food & Beverage Warrant to purchase 11.0
Main Terminal -- Washington Common Stock
National
Washington, DC 20001
</TABLE>
33
<PAGE> 36
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS OF NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS
PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1)
- ------------------- ------------------ ------------------------ ----------
<S> <C> <C> <C>
Associated Response Services,
Inc. ............................. Direct Mail Warrant to purchase 36.3%
9900 Brookford Street Common Stock
Charlotte, NC 28273
Assured Power, Inc.................. Environmental Warrant to purchase 12.0
4816 Sirus Lane Common Stock
Charlotte, NC 28208
Atlantic Security Systems, Inc...... Contract Security Staffing Warrant to purchase 9.0
1820 Byberry Road, Box 303 Common Stock
Benslem, PA 19020
Auburn International, Inc........... Process Measurement Warrant to purchase 5.5
Danvers Industrial Park Common Stock
Eight Electronics Avenue
Danvers, MA 01923
Austin Innovations, Inc............. Electroluminescent Warrant to purchase 3.0
222 West Rundberg, Suite 400 Technology Common Stock
Austin, TX 78758
Auto Rental Systems, Inc. .......... Auto Leasing Warrant to purchase 8.0
25 Century Blvd. Common Stock
Suite 204
Nashville, TN 37214
Aviation Holdings, Ltd.............. Education/Training Warrant to purchase 3.6
4th Floor Baine Johnson Centre Common Stock
10 Fort William Place
St. John's, Newfoundland AIC 1K4
Avionics Systems, Inc............... Aviation Services Warrant to purchase 15.0
P.O. Box 2444 Common Stock
Oakland, CA 94614
B&N Company, Inc. .................. Software Warrant to purchase 4.0
One Concourse Pkwy., Suite 770 Common Stock
Atlanta, GA 30328
BankCard Services Corporation....... Debit Card Warrant to purchase 32.0
3400 McClure Ridge Rd. Common Stock
Bldg. E, Ste. B
Duluth, GA 30136
Berger Holdings, Ltd. .............. Roof Drainage Products Preferred Stock 62.5
805 Pennsylvania Blvd. Warrant to purchase 4.6
Feasterville, PA 19053 Common Stock
Bikers Dream, Inc. ................. Motorcycle Retail Warrant to purchase 1.6
1420 Village Way Common Stock
Santa Ana, CA 92705
BiTec Southeast, Inc................ Specialty Gas Warrant to purchase 15.0
8405-G Benjamin Rd. Common Stock
Tampa, FL 33634
</TABLE>
34
<PAGE> 37
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS OF NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS
PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1)
- ------------------- ------------------ ------------------------ ----------
<S> <C> <C> <C>
Bohdan Automation, Inc. ............ Automated Lab Equipment Warrant to purchase 3.0%
1500 McCormick Blvd. Common Stock
Mandelein, IL 60060
Bravo Corporation................... Roller Blade Wheels Common Stock 1.2
3731 West Warner Ave.
Santa Ana, CA 92704
BroadNet, Inc. ..................... Technology Support -- Warrant to purchase 15.0
121 W. Trade Street, Suite 2800 Banks Common Stock
Charlotte, NC 28202
BUCA, Inc........................... Restaurant Chain Warrant to purchase 1.3
1422 West Lake Street, Suite 220 Common Stock
Minneapolis, MN 55408
Bug.Z, Inc. and Subsidiaries........ Pest Extermination Warrant to purchase 12.5
1210 N. Jefferson, Suite P Common Stock
Anaheim, CA 92807
Caldwell/VSR Inc. .................. Contract Manufacturing Warrant to purchase 15.9
17151 Darwin Avenue Common Stock
Hesperia, CA 92345 Preferred Stock 100.0
Cardiac Control Systems, Inc. ...... Pacemaker Manufacturer Warrant to purchase 6.5
3 Commerce Blvd. Common Stock
Palm Coast, FL 32164 Common Stock 2.2
Cartech Holdings, Inc............... Paint and Body Shop Warrant to purchase 25.0
11200 Alpharetta Hwy. Common Stock
Roswell, GA 30076
Carter Kaplan Holdings, L.L.C....... Investment Banking Warrant to purchase 24.0
629 East Main Street interest in LLC
Suite 1200
Richmond, VA 23219
Catalina Food Ingredients, Inc...... Spice/Ingredient Blending Warrant to purchase 9.3
206 Tower Dr. Common Stock
Oldsmar, FL 32164
Cedaron Medical, Inc................ Equipment/Software Warrant to purchase 4.3
1655 Devinchy Ct. Common Stock
Davis, CA 95616
CellCall, Inc....................... Radio/Telephone Common Stock 1.4
1720 Fortune Ct. Communications
Suite 106
Lexington, KY 40509
Century Pacific Greenhouses LTD..... Agriculture Warrant to purchase 6.3
1005-750 West Pender Street Common Stock
Vancouver, British Columbia V6C
2T8
CF Data Corp........................ Check Verification Warrant to purchase 20.5
9441 LBJ Freeway Common Stock
Dallas, TX 75243
Champion Glove Manufacturing Co.,
Inc............................... Sports Equipment Warrant to purchase 6.9
3701A South Harvard, #317 Common Stock
Tulsa, OK 74135
</TABLE>
35
<PAGE> 38
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS OF NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS
PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1)
- ------------------- ------------------ ------------------------ ----------
<S> <C> <C> <C>
Check Into Cash, Inc................ Consumer Finance Warrant to purchase 5.0%
205 2nd St., N.W. Common Stock
Cleveland, TN 37364-1015
C.J. Spirits, Inc................... Distilled Spirits Warrant to purchase 10.0
2903 Pointer Place Common Stock
Seffner, FL 33584
Clearidge, Inc. .................... Bottled Water Common Stock 17.7
2710 Landers Avenue Warrant to purchase 1.3
Nashville, TN 37211 Common Stock
Preferred Stock --
Series A 86.0
Clinicor, Inc....................... Clinical Trials Management Preferred Stock 39.8
1717 W. 6th Street, Suite 400
Austin, TX 78703
CLS Corporation..................... Management Services Warrant to purchase 4.2
4 Century Parkway Common Stock
Suite 110
Blue Bell, PA 19422
CMHC Systems, Inc. ................. Management Info. Systems Warrant to purchase 4.2
570 Metor Place Common Stock
Dublin, OH 43017
CMP Enterprises, LLC................ Industrial Supplies Warrant to purchase 15.2
2265 Harrodsburg Rd., Suite 200 Common Stock
Lexington, KY 40504
Colonial Investments, Inc........... Retail Warrant to purchase 32.0
4530 Harding Rd. Common Stock
Nashville, TN 37205
Columbus Medical Holdings, LLC...... Medical Warrant to purchase 12.0
12655 N. Central Expressway, Staffing/Consulting Common Stock
Suite 710
Dallas, TX 75243
Compass Plastics & Technologies,
Inc. ............................. Injection Molding Common Stock 7.7
15703 South Figueroa Street
Gardena, CA 90248
Consumat Systems, Inc. ............. Environmental Warrant to purchase 25.0
8407 Erle Rd. Common Stock
Mechanicsville, VA 23116
Continental Diamond Cutting
Company........................... Jewelry Replacement Warrant to purchase 12.2
4427 W. Kennedy Blvd. Common Stock
Suite 300
Tampa, FL 33609
Copperhead Chemical Company, Inc.... Drug Component Warrant to purchase 4.2
1090 Dundas Street West, Suite 201 Manufacturing Common Stock
Mississauga, Ontario L4Y 2B8
</TABLE>
36
<PAGE> 39
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS OF NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS
PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1)
- ------------------- ------------------ ------------------------ ----------
<S> <C> <C> <C>
Corporate Flight Management, Inc.... FBO Airport Common Stock 6.6%
Smyrna Airport
Hangar 625
Smyrna, TN 37167
Corporate Link, Inc................. Real Estate Management Warrant to purchase 16.0
8150 Brookriver Dr., Suite S-501 Common Stock
Dallas, TX 75247
Cort Investment Group, Inc.......... Office Furniture Systems Warrant to purchase 9.0
10390 Brockwood Common Stock
Dallas, TX 75238
Creighton Shirtmakers, Inc.......... Military Uniforms Warrant to purchase 30.3
112 Industrial Drive Common Stock
Reidsville, NC 27320
CSM, Inc............................ Employee Leasing Common Stock 10.0
30 Burton Hills Blvd., Suite 310 Warrant to purchase 13.0
Nashville, TN 37215 Common Stock
Cybo Robotics, Inc.................. Manufacturing Robotics Warrant to purchase 8.7
2040 Production Drive Common Stock
Indianapolis, IN 46241
Dalt's, Inc. ....................... Restaurant Warrant to purchase 28.0
250 East Wilson Bridge Rd. Common Stock
Suite 190
Worthington, OH 43085
Dartek Industries, Inc.............. Metal Fabrication Warrant to purchase 25.0
301 E. Goetz Avenue Common Stock
Santa Ana, CA 92707
Data National Corporation........... Direct Marketing Warrant to purchase 13.0
11415 West I-70 Frontage Rd. N. Common Stock
Wheat Ridge, CO 80033
Daxxes Corporation.................. Electronic Data Conversion Warrant to purchase 2.9
1105, 940 -- 6th Avenue S.W. Common Stock
Calgary, Alberta T2P 3T1
The Delaware Publishing Group,
Inc. ............................. Publishing Warrant to purchase 47.7
1112 E. Copeland Rd., Ste. 510 Common Stock
Arlington, TX 76011
DentalCare Partners, Inc. .......... Dental Services Preferred Stock -- 6.8
3109 Poplarwood Court Series E
Suite 300 Warrant to purchase 5.0
Raleigh, NC 27604-1025 Common Stock
DFI/Aeronomics Inc. ................ Revenue Max Software Warrant to purchase 0.5
4751 Best Road, Suite 300 Common Stock
Atlanta, GA 30337
Dyad Corporation.................... Auto Loan Mortgage Warrant to purchase 5.0
3150 Holcomb Bridge Rd., Suite 200 Common Stock
Norcross, GA 30071
</TABLE>
37
<PAGE> 40
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS OF NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS
PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1)
- ------------------- ------------------ ------------------------ ----------
<S> <C> <C> <C>
DynaGen, Inc........................ Pharmaceutical Distributor Warrant to purchase 0.01%
99 Erie St. Common Stock
Cambridge, MA 02139
Dyntec, Inc. ....................... Healthcare Services Warrant to purchase 15.0
12910 Shelbyville Rd. Common Stock
Louisville, KY 40243
Eagle Quest Golf Centers, Inc. ..... Amusement Warrant to purchase 1.4
535 Thurlow Street, Suite 601 Common Stock
Vancouver, British Columbia V6E
3L2
Electronic Accessory Specialists
Int'l, Inc. ...................... Electronic Accessories Warrant to purchase 3.0
7955 E. Redfield Rd. Common Stock
Scottsdale, AZ 85260
Encore Medical Corporation.......... Orthopedics Warrant to purchase 0.01
9800 Metric Blvd. Common Stock
Austin, TX 78758
Encor Technologies, Inc. ........... Injection Molding Warrant to purchase 6.8
462 4th Ave., Suite 1225 Common Stock
Louisville, KY 40202
Endeavor Technologies, Inc. ........ Telemedicine Warrant to purchase 5.0
1100 Lake Hearn Drive, Suite 370 Common Stock
Atlanta, GA 30342-1524
Entek Scientific Corporation ....... Applied Technology Warrant to purchase 5.8
1700 Edison Common Stock
Milford, OH 45150
Environmental Tectonics Corp. ...... Aeromedical Devices Preferred Stock 100.0
County Line Industrial Park Warrant to purchase 5.0
Southhampton, PA 18966 Common Stock
Executrain (3199673 Canada, Inc.)... Training (Software) Warrant to purchase 12.6
Suite 1010 Cathedral Place Common Stock
925 West Georgia Street
Vancouver, BC V6C 3L2
Express Shipping Centers, Inc. ..... Shipping Warrant to purchase 6.3
601 S. 23rd St. Common Stock
Fairfield, IA 52556
FaxNet Corporation.................. Telecommunications Warrant to purchase 2.5
98 N. Washington Street Common Stock
Boston, MA 02114
FDL, Inc. .......................... Residential/Office Seating Warrant to purchase 16.0
1216 Appletree Lane Common Stock
Kokomo, IN 46903
Film Technologies International,
Inc. ............................. Safety Film Manufacturer Warrant to purchase 7.5
2544 Terminal Drive South Common Stock
St. Petersburg, FL 33712
</TABLE>
38
<PAGE> 41
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS OF NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS
PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1)
- ------------------- ------------------ ------------------------ ----------
<S> <C> <C> <C>
Foodnet Holdings, LLC............... Fast Food Services Warrant to purchase 12.0%
510 Eastpark Court interest in LLC
Suite 190
Sandston, VA 23150
Fortrend Engineering Corp. ......... Manufacturing Warrant to purchase 3.3
1273 Hammerwood Ave. Common Stock
Sunnyvale, CA 94089
Front Royal, Inc. .................. Environmental Insurance Common Stock 0.8
2200 Gateway Blvd. Warrant to purchase 1.9
Suite 205 Common Stock
Morrisville, NC 27560
Fypro, Inc.......................... OEM Warrant to purchase 15.0
4100 Barringer Drive Common Stock
Charlotte, NC 28217 Preferred Stock 96.9
Gardner Wallcovering, Inc........... Wallcovering Warrant to purchase 2.0
3300 Canton Pike Common Stock
Hopkinsville, KY 42240
General Materials Management,
Inc............................... Computer/Technology Warrant to purchase 10.0
991 Calle Amanecer Common Stock
San Clemente, CA 92673
Generation 2 Worldwide, LLC......... Furniture Products Membership 28.0
113 Anderson Ct., Suite 1 interest in LLC
Dothan, AL 36301
Glen Oak, Inc. ..................... Flashlight & Battery Warrant to purchase 7.5
6060 Burnside Court Unit #2 Manufacturing Common Stock
Mississauga, Ontario L5T 2T5
Global Marine Electronics, Inc. .... Marine Electronics Warrant to purchase 18.0
934 SinglePath Lane Common Stock
St. Louis, MO 63122
Gloves, Inc. ....................... Industrial Gloves Warrant to purchase 5.0
85 Constitution Drive Common Stock
Taunton, MA 02780
Good Food Fast Companies, The....... Bagel & Coffee Retail Warrant to purchase 17.0
151 Kalmus Dr., Suite E-200 Common Stock
Costa Mesa, CA 92626
Graphic Workshop.................... Marketing & Warrant to purchase 4.6
(1246568 Ontario, Inc.) Communications Common Stock
6520 Gottardo Court
Mississauga, Ontario L5T 2A2
Gulfstream International Airlines,
Inc............................... Commuter Airline Warrant to purchase 39.0
P.O. Box 777 Common Stock
Miami Springs, FL 33266 Preferred Stock -- 100.0
Series A
H & H Acquisition Corporation....... Textile Parts Warrant to purchase 22.5
P.O. Box 8516 Common Stock
Greenville, SC 29604
</TABLE>
39
<PAGE> 42
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS OF NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS
PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1)
- ------------------- ------------------ ------------------------ ----------
<S> <C> <C> <C>
Home Link Services, Inc. ........... Home Services Warrant to purchase 20.0%
8150 Brook River Drive Common Stock
Suite 501 Preferred Stock 100.0
Dallas, TX 75247
Hoveround Corporation............... Wheelchairs Warrant to purchase 10.0
2151 Whitfield Industrial Way Common Stock
Sarasota, FL 34243
HPC America, Inc. .................. Healthcare Warrant to purchase 2.8
One Hook Road Common Stock
Sharon Hill, PA 19079
Hunt Assisted Living, LLC........... Assisted Living Warrant to purchase 11.0
101 Charwood Drive Common Stock
Abington, VA 24210
Hunt Incorporated................... Truck Dealer Warrant to purchase 11.0
8211 Adamo Drive Common Stock
Tampa, FL 33619
Hunt Leasing & Rental Corporation... Truck Leasing Warrant to purchase 11.0
8211 Adamo Drive Common Stock
Tampa, FL 33619
Hydrofuser Industries, Inc. ........ Industrial Waste Recycling Warrant to purchase 5.0
391 MacArthur Blvd., Suite 360 Common Stock
Newport Beach, CA 92660
IJL Holdings, Inc. ................. Dating Service Warrant to purchase 9.0
432 N. Clark Street, Suite 400 Common Stock
Chicago, IL 60610
ILD Communications, Inc. ........... Telecommunications Warrant to purchase 3.2
1300 Sawgrass Village Circle Common Stock
Suite 5
Ponteverda Beach, FL 32082
I. Schneid Holdings, L.L.C. ........ Equipment Cleaning Warrant to purchase 21.0
1429 Fairmont Ave., NW Interest in LLC
Atlanta, GA 30318-4153
In Store Services, Inc. ............ Retail Services Warrant to purchase 12.5
9332 Forsyth Park Drive Common Stock
Charlotte, NC 28273
Isthmus Corporation................. Computer Software Warrant to purchase 3.5
300 Tri State International, #100 Common Stock
Lincolnshire, IL 60069
Johnston County Cable L.P........... Entertainment Warrant to purchase 31.9
2444 Solomons Island Rd., Suite
202 L.P. interest
Annapolis, MD 21401
Karawia Industries, Inc............. Security Services Warrant to purchase 12.0
3771 W. 242nd Street Common Stock
Torrance, CA 90505
Kentucky Kingdom, Inc............... Amusement Park Common Stock 5.6
937 Phillips Lane Preferred Stock 40.0
Louisville, KY 40209-9016
</TABLE>
40
<PAGE> 43
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS OF NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS
PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1)
- ------------------- ------------------ ------------------------ ----------
<S> <C> <C> <C>
K.W.C. Management Corp. ............ Music Retail Warrant to purchase 24.4%
3390 Peachtree Rd., NE Common Stock
Suite 1132
Atlanta, GA 30326
Lane Acquisition Corporation........ Manufacturing Warrant to purchase 10.0
120 Fairview Ave. Common Stock
Arlington, TX 76010
Leisure Clubs International,
Inc. ............................. Specialized Travel Warrant to purchase 25.0
3856 West Lane Rd. Common Stock
Smyrna, GA 30080
Lovett's Buffet, Inc. .............. Restaurants Warrant to purchase 8.0
1701 Dock Street Common Stock
Memphis, TN 38113
M&M Industries, Inc................. Injection Molding Warrant to purchase 15.0
316 Corporate Place Common Stock
Chattanooga, TN 37419
Master Graphics, Inc................ Commercial Printing Warrant to purchase 6.0
2500 Lamar Ave. Common Stock
Memphis, TN 38113
Mayo Hawaiian Corporation........... Tire Manufacturer Warrant to purchase 9.5
701 S. Queen St. Common Stock
Honolulu, HI 96813
MBA Marketing Corporation........... Shoe Stores Warrant to purchase 4.5
6615 Dublin Center Drive Common Stock
Dublin, OH 43017
MCG, Inc. .......................... Precision Motion Control Warrant to purchase 4.5
14700 Martin Drive Common Stock
Eden Prarie, MN 55344
McAuley's, Inc. .................... Home Fragrance Warrant to purchase 6.0
1814 S. 3rd St. Common Stock
Memphis, TN 38109
Mead-Higgs Company, Inc. ........... Telecommunications Warrant to purchase 10.0
301 South McDowell Ave., Suite 813 Common Stock
Charlotte, NC 28204
Medical Resources, Inc. ............ Diagnostic Imaging Common Stock 0.30
155 State Street
Hackensack, NJ 07601
Merge Technologies, Inc. ........... Medical Network Solutions Warrant to purchase 3.3
1126 S. 70th Street Common Stock
Milwaukee, WI 53214-3451
Mesa International, Inc. ........... Info. Technology & Warrant to purchase 16.0
2000 Town Center, Suite 1140 Software Common Stock
Southfield, MI 48075
</TABLE>
41
<PAGE> 44
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS OF NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS
PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1)
- ------------------- ------------------ ------------------------ ----------
<S> <C> <C> <C>
Metals Recycling Technologies
Corp. ............................ Waste Recovery Facilities Warrant to purchase 5.0%
3015 Windward Plaza, Suite 550 Common Stock
Alpharetta, GA 30005-7448
MetroLease, Inc. ................... Business Equip. Leasing Warrant to purchase 20.0
11317 Smith Drive Common Stock
Huntley, IL 60142
Money Transfer Systems, Inc. ....... Credit Card Services Warrant to purchase 12.0
600 Lakeview Rd., Suite B Common Stock
Clearwater, FL 33756
Moore Diversified Products, Inc. ... Metal Fabrication Warrant to purchase 15.0
1441 Sunshine Lane Common Stock
Lexington, KY 40505
The Moorings, L.L.C. ............... Yacht Charter Warrant to purchase 14.5
19345 U.S. Hwy. 19N, Suite 402 interest in LLC
Clearwater, FL 34624-3193
Moovies Inc......................... Video Stores Common Stock 1.6
201 Brookfield Pkwy., Ste. 200 Warrant to purchase 0.2
Greenville, SC 29607 Common Stock
Multicom Publishing, Inc. .......... Software Publishing Warrant to purchase 2.4
1100 Olive Way, #1250 Common Stock
Seattle, WA 98101 Preferred Stock -- 100.0
Series A
Common Stock 12.5
Multimedia Learning, Inc............ Employee Training Warrant to purchase 10.8
5215 North O'Connor Common Stock
Suite 760
Irving, TX 75039
Mytech Corporation.................. Lighting Sensors Warrant to purchase 3.5
706 Brentwood Street Common Stock
Austin, TX 78752
National Vision Associates, Ltd. ... Optical Stores Common Stock 1.0
296 Grayson Hwy.
Lawrenceville, GA 30045
Nationwide Engine Supply, Inc. ..... Engine Rebuilding Warrant to purchase 21.3
609 N. Houston Common Stock
Fort Worth, TX 76106
NetForce, Inc. ..................... Medical Software Warrant to purchase 6.3
345 California Street, 20th Floor Consulting Common Stock
San Francisco, California 94104
Network Event Theatres, Inc. ....... College Campus Theaters Common Stock 4.2
529 Fifth Avenue
New York, NY 10017
Newfoundland Career Academy Ltd. ... Education/Training Warrant to purchase 3.6
4th Floor Baine Johnson Centre Common Stock
10 Fort William Place
St. John's, Newfoundland A1C 1K4
</TABLE>
42
<PAGE> 45
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS OF NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS
PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1)
- ------------------- ------------------ ------------------------ ----------
<S> <C> <C> <C>
North American Sports Camps,
Inc. ............................. Sports Camps Warrant to purchase 23.0%
5 Connecticut Ave. Common Stock
Norwich, CT 06360
NRI Service and Supply, L.P. ....... Gas Pump Services Warrant to purchase 27.5
4350 N.W. 19th Ave., Suite C L.P. interest
Pompano Beach, FL 33064
Omni Home Medical, Inc. ............ Home Medical Products Warrant to purchase 15.0
501 Cumberland Street, Suite A Common Stock
Chattanooga, TN 37404
One Call Comprehensive Care,
Inc. ............................. Home Health Care Warrant to purchase 21.0
5111 Central Avenue Common Stock
St. Petersburg, FL 33710
One Coast Network Corporation....... Manufacturer's Rep. Warrant to purchase 15.6
235 Peachtree Street, Suite 2200 Common Stock
Atlanta, GA 30303
Orchid Manufacturing Group, Inc. ... Manufacturing Warrant to purchase 2.6
100 Winners Circle Common Stock
Brentwood, TN 37027
Outdoor Promotions, LLC............. Outdoor Advertising Warrant to purchase 5.0
1839 E. Harmony Rd., #4 Common Stock
Fort Collins, CO 80527
P.A. Plymouth, Inc. ................ Retail Warrant to purchase 15.0
10 Corporate Drive Common Stock
Radford, VA 24141
Pacific Linens, Inc. ............... Retail Linens Warrant to purchase 7.8
115511 Woodenville -- Redmont Rd. Common Stock
Building B -- Suite 200
Woodenville, WA 98072
Palco Telecom Services, Inc. ....... Telephone Repair Services Common Stock 5.0
2914 Green Cove Road
Huntsville, AL 35803
Paradigm Valve Services, Inc. ...... Valve Remanufacturing Warrant to purchase 12.0
901 W. 13th St. Common Stock
Deer Park, TX 77536-3163
Pathology Consultants of America,
Inc. ............................. Physicians Practice Mgmt. Warrant to purchase 6.0
20 Burton Hills Blvd., Suite 220 Common Stock
Nashville, TN 37215
Patton Management Corporation....... Communications Warrant to purchase 12.0
1745 Phoenix Blvd., Suite 430 Common Stock
Atlanta, GA 30349
PaySys International, Inc. ......... Computer Systems Design Warrant to purchase 0.4
900 Winderly Place Common Stock
Maitland, FL 32751 Common Stock 15.9
Pipeliner Systems, Inc. ............ Sewer Rehabilitation Warrant to purchase 23.4
4140 Tuller Road Common Stock
Suite 132 Preferred Stock -- 100.0
Dublin, OH 43017 Series D
</TABLE>
43
<PAGE> 46
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS OF NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS
PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1)
- ------------------- ------------------ ------------------------ ----------
<S> <C> <C> <C>
The Potomac Group, Inc. ............ Healthcare Information Common Stock 9.1%
1283 Murfreesboro Rd., Bldg. 11 Preferred Stock -- 83.2
Nashville, TN 37217 Series A
PRA International, Inc.............. Research Common Stock 4.2
2400 Old Ivy Road
Charlottesville, VA 22903-4826
Precision Panel Products, Inc....... Cabinets Warrant to purchase 8.3
12440 73rd Court, North Common Stock
Largo, FL 33773
Premiere Technologies, Inc.......... Telecommunications Common Stock 0.1
3399 Peachtree Road, NE
Suite 400
Atlanta, GA 30326
Pritchard Glass, Inc................ Auto Glass Warrant to purchase 25.0
3330 North Tryon Street Common Stock
Charlotte, NC 28206
Proamics Corporation................ Computer Software Warrant to purchase 3.5
300 Tri State International, #100 Common Stock
Lincolnshire, IL 60069
Professional Training Services,
Inc............................... Multimedia Training Warrant to purchase 2.4
1150 First Ave., Suite 700 Common Stock
Parkview Tower
King of Prussia, PA 19406
Protect America, Inc................ Res. Security Systems Warrant to purchase 10.0
230 Palm Valley Road Common Stock
Round Rock, TX 78664
QuadraMed, Inc...................... Healthcare Common Stock 0.2
80 E. Sir Francis Drake Blvd.
Suite 2A
Larkspur, CA 94939
Quadravision Communications
Limited........................... Computer/Software Warrant to purchase 1.0
21 St. Clair Avenue East Development Common Stock
Toronto, Ontario M4T 1L9
R&R International, Inc.............. Engineering Services Warrant to purchase 6.0
1234 South Cleveland -- Massillon Common Stock
Akron, OH 44321
Race Face Components, Inc........... Manufacturing/Wholesaling Warrant to purchase 11.6
Suite 100 -- 100 Braind Street Common Stock
New Westminister, BC V3L 3P4
Ready Personnel, Inc................ Temp Service Warrant to purchase 12.5
1839 Planside Drive Common Stock
Louisville, KY 40299
Recompute Corporation............... Computers Common Stock 1.6
12317 Technology Blvd., Bldg. 200 Warrant to purchase 8.0
Austin, TX 78727-6104 Common Stock
</TABLE>
44
<PAGE> 47
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS OF NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS
PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1)
- ------------------- ------------------ ------------------------ ----------
<S> <C> <C> <C>
Reef Chemical Company, Inc.......... Chemical Services Warrant to purchase 3.0%
600 N. Marienfield, Suite 490 Common Stock
Midland, TX 79707
Relax the Back Corporation.......... Specialty Retailing Warrant to purchase 10.0
880 Apollo Street, Suite 353 Common Stock
El Segundo, CA 90245
Relevant Knowledge, Inc............. Internet Tracking Service Preferred Stock 11.3
430 10th Street, Ste. N-106
Atlanta, GA 30318
Rynel, Ltd., Inc.................... Hydrophilic Foam Products Warrant to purchase 15.0
Boothbay Industrial Park Common Stock
Boothbay, ME 04537
Saraventures Fixtures, Inc.......... Design/Construction Warrant to purchase 20.0
1500 Independence Blvd. Common Stock
Sarasota, FL 34234 Preferred Stock 100.0
Scandia Technologies, Inc........... Specialized Manufacturing Warrant to purchase 25.5
2051 Sunnydale Blvd. Common Stock
Clearwater, FL 34625
SFG Technologies, Inc............... Computer/Software Warrant to purchase 1.4
8900 Nelson Way, Suite 100 Development Common Stock
Burnaby, British Columbia V5A 4W9
Sheet Metal Specialties, Inc........ Manufacturer Warrant to purchase 37.0
401E S. Main Street Common Stock
Waxhaw, NC 28173
Sirvys Systems (3404447 Canada,
Inc.)............................. Software Warrant to purchase 3.4
55 Murray Park Road Common Stock
Winnipeg, R3J 3W2
SkillMaster, Inc.................... Temporary Staffing Warrant to purchase 5.5
5353 West Alabama, Suite 60 Common Stock
Houston, TX 44056
Skillsearch Corporation............. Resume Database Common Stock 19.1
3354 Perimeter Hill Drive Warrant to purchase 7.6
Suite 235 Common Stock
Nashville, TN 37211-4129
Smartchoice Automotive Group,
Inc............................... Automotive Services Warrant to purchase 2.5
5200 South Washington Avenue Common Stock
Titusville, IL 32780
Solutioneering, Inc. ............... Prepaid Phone Cards Warrant to purchase 7.5
555 Republic Drive, Suite 303 Common Stock
Plano, TX 75074
Southern Specialty Brands, Inc. .... Food Distributor Warrant to purchase 10.0
1 American Center, Ste. 1200 Common Stock
3100 West End Ave.
Nashville, TN 37203
Southern Therapy, Inc............... Home Healthcare Warrant to purchase 10.0
2433 Rutland Drive, Suite 100 Common Stock
Austin, TX 78758-5237
</TABLE>
45
<PAGE> 48
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS OF NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS
PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1)
- ------------------- ------------------ ------------------------ ----------
<S> <C> <C> <C>
Stealth Engineering, Inc. .......... Hip & Knee Implants Warrant to purchase 14.0%
1489 Cedar Street Common Stock
Holt, MI 48842
Stratford Safety Products, Inc. .... Safety Products Distributor Warrant to purchase 10.3
36 S. Wabash, Suite 1202 Common Stock
Chicago, IL 60603
Street Level Media, Inc. ........... Advertising Warrant to purchase 5.9
(1216069 Ontario Ltd.) Common Stock
20 Steelcase Rd. West Unit 1B
Markham, Ontario L3R 1B2
Sub 1 Corporation................... Credit Card Processing Warrant to purchase 13.0
11500 Olympic Blvd., Suite 627 Common Stock
Los Angeles, CA 90064
Suncoast Medical Group Inc. ........ Optical Products Warrant to purchase 24.0
7401 114th Avenue, North Common Stock
Suite 503-A
Largo, FL 34643
Superior Pharmaceutical Company..... Pharmaceutical Distributor Warrant to purchase 10.0
1385 Kemper Meadow Drive Common Stock
Cincinnati, OH 45240-1635
Supplements Plus Natural Vitamins &
Cosmetics, LTD.................... Distribution Warrant to purchase 1.7
317 Adelaide Street West, Suite
503 Common Stock
Toronto, Ontario M5V 1P9
Systech Group, Inc.................. Electronic Payments/Data Warrant to purchase 2.1
5915 Coopers Avenue Common Stock
Mississauga, Ontario LAZ 1R9
TAC Systems, Inc.................... Internet Fax/Data Storage Warrant to purchase 3.6
1035 Putnam Drive Common Stock
Huntsville, AL 35816
TeleCommunication Systems, Inc...... Information Technology Warrant to purchase 6.0
275 West Street, Suite 400 Common Stock
Annapolis, MD 21401-1740
Telecontrol Systems, Inc............ Video Surveillance Warrant to purchase 17.5
10852 Oxnard Street Common Stock
North Hollywood, CA
Teltrust, Inc....................... Telecom Outsourcing Common Stock 1.8
221 N. Charles Lindberg Dr.
Salt Lake City, UT 84116
Temps & Co., Inc.................... Temporary Staffing Warrant to purchase 5.0
8245 Boone Blvd., Suite 650 Common Stock
Vienna, VA 22182
Thomas Holdings Company, d/b/a Sport
& Social Clubs of the U.S......... Social Events Organization Warrant to purchase 10.0
414 N. Orleans, Suite 708 Common Stock
Chicago, IL 60610
</TABLE>
46
<PAGE> 49
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS OF NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS
PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1)
- ------------------- ------------------ ------------------------ ----------
<S> <C> <C> <C>
Tie & Track Systems, Inc............ Manufacturing Crossties Warrant to purchase 14.0%
12300 South New Avenue Common Stock
Lemont, IL 60439
Towne Services, Inc. ............... Merchant Processing Warrant to purchase 2.0
6621 Bay Circle Suite 170 Common Stock
Norcross, GA 30071
Trade Am International, Inc......... Retail Warrant to purchase 6.0
6580 Jimmy Carter Blvd. Common Stock
Norcross, GA 30071
TRC Acquisition Corporation......... Restaurant Chain Warrant to purchase 12.5
2662 Holcomb Bridge Road, Suite
320 Common Stock
Alpharetta, GA 30022
Ultra Fab, Inc. .................... Tank Manufacturing Warrant to purchase 12.0
Route 2, Box 1580 Common Stock
Mexia, TX 76667
Ultra Fab Vessels, Inc. ............ Tank Manufacturing Warrant to purchase 12.0
Route 2, Box 1580 Common Stock
Mexia, TX 76669
Unicoil, Inc........................ Plastic Coil/Binders Warrant to purchase 8.5
5855 Peachtree Corners East Common Stock
Norcross, GA 30092
Unique Electronics, Inc............. Defense Electronics Warrant to purchase 30.0
1320 26th Street Common Stock
Orlando, FL 32805 Preferred Stock -- 100.0
Series A
Universal Automotive Industries,
Inc. ............................. Automotive Services Warrant to purchase 6.0
3350 North Kedzie Avenue Common Stock
Chicago, IL 60618-5722
UOL Publishing, Inc................. Interactive Training Common Stock 0.9
8251 Greensboro Drive, Suite 500 Software
McLean, VA 22102
VDW Farms, Ltd...................... Salsa Manufacturing Warrant to purchase 10.0
5310 Old Highway 90 West Common Stock
San Antonio, TX 78227
Valdawn Watch Co.................... Watches Warrant to purchase 80.0
600 Sylvan Avenue Common Stock
Englewood Cliffs, NJ 07632 Preferred Stock 100.0
VanGard Communications Co., LLC..... Radio Warrant to purchase 14.4
1900 Wazee Street, #310 interest in LLC
Denver, CO 80202
Vista Information Solutions, Inc.... Information Company Warrant to purchase 0.3
5060 Shoreham Place, Suite 300 Common Stock
San Diego, CA 92122 Common Stock 3.6
Preferred Stock 100.0
Voice FX Corporation................ Telecommunications Warrant to purchase 8.0
1100 E. Hector Street, Suite 416 Common Stock
Conshohocken, PA 19428 Common Stock 0.8
</TABLE>
47
<PAGE> 50
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS OF NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS
PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1)
- ------------------- ------------------ ------------------------ ----------
<S> <C> <C> <C>
Watts-Finniss Holdings, Inc......... Material Handling Warrant to purchase 10.9%
170B Penrod Ct. Common Stock
Glen Burnie, MD 21061
Wearever Healthcare Products, LLC... Incontinence Products Warrant to purchase 16.1
202 Rd. Mountain Rd. Common Stock
Routemont, NC 27572
Wolfgang Puck Food Company, Inc..... Food Service & Products Warrant to purchase 1.4
1333 2nd Street, 1st Floor Common Stock
Santa Monica, CA 90401
Zahren Alternative Power
Corporation....................... Converted Power Warrant to purchase 6.5
40 Tower Lane Common Stock
Avon, CT 06001 Common Stock 3.9
Preferred Stock 4.4
</TABLE>
- ---------------
(1) Percentages shown for warrants held by the Company represent the percentage
of class of security to be owned upon exercise of the warrant.
48
<PAGE> 51
MANAGEMENT
The business and affairs of the Company are managed under the direction of
its Board of Directors. The Board of Directors has two committees, a
Compensation Committee comprised of Messrs. Eberle, Pirtle, Thompson and Wilson
and an Audit Committee comprised of Messrs. Duncan, McCabe and Mathias. All of
the Company's directors are subject to re-election at each annual meeting of
shareholders. Each director receives $10,000 per year if such director attends
75% of the meetings of the Board and is reimbursed for expenses relating to
attendance at such meetings. The Board of Directors elects the Company's
officers who serve at the pleasure of the Board of Directors.
BOARD OF DIRECTORS
The following table sets forth certain information regarding the directors
of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
John A. Morris, Jr., M.D.(1)............... 51 Chairman of the Board and Director
George M. Miller, II(1).................... 38 President, Chief Executive Officer and
Director
E. Townes Duncan........................... 44 Director
William D. Eberle.......................... 74 Director
Edward J. Mathias.......................... 56 Director
Robert A. McCabe, Jr....................... 47 Director
Raymond H. Pirtle, Jr.(1).................. 56 Director
Keith M. Thompson.......................... 57 Director
Christopher H. Williams (1)................ 35 Director
L. Edward Wilson, P.E...................... 53 Director
</TABLE>
- ---------------
(1) "Interested Person" as defined in Section 2(a)(19) of the 1940 Act.
John A. Morris, Jr., M.D., co-founded the Company in August 1991. Dr.
Morris currently holds appointments of Professor of Surgery and Director of the
Division of Trauma and Surgical Critical Care at the Vanderbilt University
School of Medicine, Medical Director of the LifeFlight Air Ambulance Program at
Vanderbilt University Hospital, and Associate in the Department of Health Policy
and Management at the Johns Hopkins University. Dr. Morris is also a director of
American Retirement Corporation.
George M. Miller, II, co-founded the Company in August 1991. Prior to
August 1991, Mr. Miller worked for two years as a vice president in the
Investment Banking Group of SunTrust Equitable Securities Corporation ("SunTrust
Equitable"). From 1987 to 1989, Mr. Miller worked as an associate in the
Corporate Finance department of J.C. Bradford & Co. Prior to that time, Mr.
Miller spent four and one-half years on active duty in the United States Marine
Corps. Mr. Miller holds a Master of Business Administration from the University
of North Carolina at Chapel Hill and a Bachelor of Science degree from the
University of Tennessee.
E. Townes Duncan has been the President of Solidus, LLC, a private
investment firm, since January 1, 1997. Sirrom Partners, L.P., a limited
partnership owned by Dr. Morris and his family, is the principal investor in
Solidus, LLC. Mr. Duncan was also a director of Comptronix Corporation, a
provider of electronics contract manufacturing services, and served as its
Chairman of the Board and Chief Executive Officer from November 1993 until May
1997. Comptronix Corporation filed a petition for Chapter 11 protection on
August 9, 1996. Mr. Duncan was a Vice-President of Massey Burch Investment
Group, Inc., a Nashville venture capital firm, from 1985 to November 1993. Mr.
Duncan is also a director of J. Alexander's Corporation, an owner and operator
of restaurants in ten states, Corporate Family Solutions, Inc., an operator of
employer sponsored child care centers, and Continental Circuits, Inc., a
manufacturer of printed circuit boards.
William D. Eberle is chairman of Manchester Associates, Ltd., a venture
capital and international consulting firm and is Of Counsel to the law firm of
Kaye, Scholer, Fierman, Hays & Handler. Mr. Eberle is also Chairman of America
Service Group Inc., a health care services company, and Showscan Entertainment,
49
<PAGE> 52
Inc., a movie-based software and technology company, and is a director of
Ampco-Pittsburgh Corp., a steel fabrication equipment company, Barry's Jewelry,
a retail jewelry chain, Fiberboard Corporation, a timber manufacturer, Mitchell
Energy and Development a gas and oil company, and Mid-States PLC, an auto parts
distributor headquartered in Nashville. Barry's Jewelry filed a petition for
Chapter 11 protection on May 11, 1997. Mr. Eberle is also the Vice Chairman of
the U.S. Council of the International Chamber of Commerce.
Edward J. Mathias has been a managing director of The Carlyle Group, a
Washington, D.C. based private merchant bank, since 1994. Mr. Mathias served as
a managing director of T. Rowe Price Associates, Inc., an investment management
firm, from 1971 to 1993. Mr. Mathias is also a director of U.S. Office Products,
a supplier of office products, USA Floral Products, a consolidator of floral
wholesalers and importers, and The Fortress Group, residential builders.
Robert A. McCabe, Jr., has been the Vice Chairman of First American
Corporation, a bank holding company headquartered in Nashville, since 1993 and
the President of First American Enterprises, a division of First American
Corporation, since 1994. Prior to that time, Mr. McCabe served as President of
the General Bank of First American National Bank, a subsidiary of First American
Corporation. Mr. McCabe is also a director of First American Corporation.
Raymond H. Pirtle, Jr., is a managing director and a member of the Board of
Directors of SunTrust Equitable, having joined the firm in February 1989. He
also serves as a director of Premiere Technologies, Inc. Prior to that date, Mr.
Pirtle was a general partner of J.C. Bradford & Co.
Keith M. Thompson has been the President and Chief Executive Officer of
Republic Automotive Parts, Inc., a distributor of automotive parts and supplies
since 1986. Mr. Thompson is also a director of Acklands Limited, a Canadian
automotive parts and industrial supplies distributor.
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 degree
in Business Administration from Washington and Lee University.
L. Edward Wilson, P.E., is president of L. Edward Wilson and Associates,
Inc., a management consulting firm providing services to individuals and
companies with interests in engineering and construction related businesses.
Prior to founding L. Edward Wilson and Associates, Mr. Wilson was a partner in
Sirrom Resource Funding, L.P., a private financial services company unrelated to
Sirrom. Prior to that, Mr. Wilson was chief executive officer of OSCO, Inc., a
Nashville based environmental services company. Prior to joining OSCO, he served
as executive vice president of ERC Environmental and Energy Services Company, a
public company that acquired the EDGe Group, a national engineering company that
he co-founded.
OFFICERS
The following table sets forth certain information regarding officers of
the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
George M. Miller, II...................... 38 President, Chief Executive Officer and Director
David M. Resha............................ 51 Chief Operating Officer
Carl W. Stratton.......................... 38 Chief Financial Officer
Kathy Harris.............................. 40 Vice President -- Regional Manager
John S. Scott............................. 34 Vice President -- Regional Manager
David M. Traversi......................... 38 Vice President -- Regional Manager
Donald F. Barrickman...................... 47 Vice President -- Special Assets
H. Hiter Harris, III...................... 37 Co-Chairman of Harris Williams
Christopher H. Williams................... 35 Co-Chairman of Harris Williams
Richard T. Gernert........................ 45 Vice President
</TABLE>
50
<PAGE> 53
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Craig Macnab.............................. 42 President of Tandem Capital, Inc.
Betty Lou Burnett......................... 38 Controller
Kimberly M. Stringfield................... 28 Treasurer
Maria-Lisa Caldwell....................... 34 Secretary
</TABLE>
David M. Resha joined the Company in July 1995 and is responsible for the
day-to-day operations of the Company. His primary role is the oversight of risk
management associated with the loan portfolio of the Company, including loan
origination, portfolio management and workout activities. Mr. Resha is a 25-year
veteran commercial banker. Most recently, he was Senior Vice President at First
Union National Bank of Tennessee where he managed the middle market/corporate
banking group. He held a similar position with Dominion Bank before it was
merged with First Union National Bank of Tennessee. Mr. Resha holds a Bachelor
of Business Administration degree from Loyola University in New Orleans and a
Master of International Management degree from American (Thunderbird) Graduate
School in Glendale, Arizona.
Carl W. Stratton joined the Company in October 1995 and has served as Chief
Financial Officer since April 1996. From October 1995 through April 1996, Mr.
Stratton held the position of Vice President -- Workouts with the Company. From
1991 to 1995, Mr. Stratton was chief financial officer of International 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.
Kathy Harris joined the Company in January 1996 and is responsible for
managing marketing and loan origination efforts in the Southern region. In
addition to generating new loans, Ms. Harris manages all Portfolio Managers in
her region and oversees several of the Company's portfolio companies. From 1985
to 1996, Ms. Harris was in the Corporate Finance Department at J.C. Bradford &
Co. From 1980 to 1983, she was with KPMG Peat Marwick and served as a senior
auditor specializing in the firm's thrift practice. Ms. Harris holds a Master of
Business Administration in Finance and Human Resources Management from the Owen
Graduate School of Management at Vanderbilt University and a Bachelor of Science
degree in Accounting from Murray State University. Ms. Harris is a Certified
Public Accountant.
John S. Scott joined the Company in November 1994 and is responsible for
managing marketing and loan origination efforts in the Northern region. In
addition to generating loans, Mr. Scott manages Portfolio Managers in his region
and oversees several of the Company's portfolio companies. From 1991 to 1994,
Mr. Scott served as a vice president in the Corporate Banking Group of Bank One.
From 1985 to 1991, Mr. Scott was a commercial lender with Ameritrust
Corporation, Citizens Bank and Trust and First American National Bank. Mr. Scott
holds a Bachelor of Science degree from the University of Kentucky.
David M. Traversi joined the Company in April 1997. As President of Sirrom
Capital West, Inc. Mr. Traversi manages Portfolio Managers in his region and
oversees several of the Company's portfolio companies. From May to November
1996, Mr. Traversi served as Senior Vice President of E*TRADE Group, Inc. and
President of its wholly-owned subsidiary, E*TRADE Online Ventures, Inc. From
1989 to 1996, Mr. Traversi was an officer of Montgomery Securities, serving as
Managing Director, Corporate Finance, from 1994 to 1996. Mr. Traversi holds a
Master of Business Administration from University of California, Berkeley, a
Juris Doctorate from University of California, Davis, and a Bachelor of Sciences
degree from California State University, Chico. He is admitted to practice law
in California and Alaska.
Donald F. Barrickman joined the Company in September 1996 and is
responsible for the management of the Company's workout area. Prior to joining
the Company, Mr. Barrickman served as the chief operating officer for United
Mortgage and Loan Investment Corp. in Charlotte, NC. From 1986 to 1995, he
managed the Special Assets Division for First Union National Bank of Virginia,
Maryland and D.C. and its
51
<PAGE> 54
predecessors. Mr. Barrickman holds a Bachelor of Science degree in Accounting
from Western Kentucky University. He is also a graduate of the Stonier Graduate
School of Banking at Rutgers University.
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.
Richard T. Gernert joined the Company in July 1997 as President of Sirrom
Business Funding, a newly formed subsidiary created to provide financing
products to small businesses, complimentary to those provided by the Company.
From 1992 to July 1997, Mr. Gernert was Vice-President, Corporate Business
Development of Electronic Data Systems in Dallas. Prior to that time, Mr.
Gernert held various senior officer positions in Forsch Corporation, a privately
owned acquisitions company. Mr. Gernert holds a Bachelor of Science degree in
Accounting from the University of Mississippi.
Craig Macnab joined the Company in January 1997 and serves as the President
of Tandem Capital, Inc. From 1993 to 1996, Mr. Macnab served as the general
partner of MacNiel Advisors, Inc., the general partner of three private funds
that invested in public companies with market capitalizations of less than
$100.0 million. From 1987 to 1993, Mr. Macnab was a partner of J.C. Bradford &
Co., jointly responsible for the merger and acquisition department and a private
equity fund. Mr. Macnab holds a Bachelor of Commerce degree from the University
of Witwatersrand and a Master of Business Administration from Drexel University.
Betty Lou Burnett joined the Company in March of 1997 and serves as the
Company's Controller. From 1995 to 1997, Ms. Burnett served as the Home Office
Controller for Ingram Industries, Inc. From 1993 to 1995, she was the Regional
Controller for ViroGroup, Inc., the successor company to OSCO Holdings, Inc.
where she held the position of Chief Accounting Officer from 1990 to 1993. From
1981 to 1986 she was with Touche Ross & Co. and served as audit supervisor. Ms.
Burnett holds a Bachelor of Science degree in Accounting from the University of
Tennessee. Ms. Burnett is a Certified Public Accountant.
Kimberly M. Stringfield joined the Company in December 1994 and serves as
the Company's Treasurer. From 1992 to 1994, Ms. Stringfield was a credit analyst
and commercial lender at NationsBank of Tennessee, N.A. Ms. Stringfield holds a
Bachelor of Science degree in Accounting from the University of Alabama.
Maria-Lisa Caldwell was appointed as the Secretary of the Company in April
1996. Ms. Caldwell is presently a principal in the law firm of Caldwell &
Caldwell, P.C. From 1991 to January 1996, Ms. Caldwell was an attorney with the
law firm of Bass, Berry & Sims PLC. Prior to that time, Ms. Caldwell was an
attorney with the law firm of Gibson, Dunn & Crutcher. Ms. Caldwell holds a
Juris Doctorate from Duke University School of Law and a Bachelor of Arts degree
in Economics from Fairfield University.
52
<PAGE> 55
COMPENSATION
The following table sets forth for the fiscal year ended December 31, 1997,
the compensation paid to the three most highly compensated executive officers of
the Company. No director received compensation in excess of $60,000 for fiscal
1997. The Company does not have a pension plan, but has established a 401(k)
plan that does not provide for matching contributions. Options to purchase a
total of 12,000 shares of Common Stock were granted to the directors of the
Company during the fiscal year ended December 31, 1997.
<TABLE>
<CAPTION>
COMPENSATION
NAME OF INDIVIDUAL OR CAPACITIES IN WHICH --------------------
IDENTITY OF GROUP COMPENSATION WAS RECEIVED SALARY BONUS(1)
--------------------- ------------------------- -------- --------
<S> <C> <C> <C>
George M. Miller, II.............. President and Chief Executive Officer $310,451 $500,000
David M. Resha.................... Chief Operating Officer 150,108 175,000
Carl W. Stratton.................. Chief Financial Officer 118,628 150,000
</TABLE>
- ---------------
(1) Represents 1997 bonuses paid on January 2, 1998.
Stock Option Grants In Last Fiscal Year. The following table provides
information relating to stock options granted to the following executive
officers for the year ended December 31, 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------
% OF TOTAL
OPTIONS POTENTIAL REALIZABLE VALUE AT
NUMBER OF GRANTED TO ASSUMED ANNUAL RATE OF STOCK
SECURITIES EMPLOYEES OF EXERCISE PRICE APPRECIATION FOR OPTION
UNDERLYING THE COMPANY OR BASE TERM
OPTIONS IN FISCAL PRICE EXPIRATION ------------------------------
NAME GRANTED YEAR ($/SH) DATE 5%($) 10%($)
- ---- ---------- ------------ -------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
George M. Miller, II......... 600,000(1) 19.0% $23.88 10/10/07 $9,008,916 $22,830,361
David M. Resha............... 50,000(1) 1.6 17.00 8/15/07 534,560 1,354,681
Carl W. Stratton............. 30,000 1.0 13.97 4/03/07 263,546 667,878
50,000(1) 1.6 18.75 9/02/07 589,589 1,494,134
</TABLE>
- ---------------
(1) The issuance of these options is conditioned upon the approval of an
increase in the number of shares available for grant under the 1996
Incentive Stock Option Plan (the "1996 Employee Plan") by the shareholders
of the Company at the next annual meeting of shareholders.
EMPLOYEE STOCK OPTIONS
For the purpose of providing employees who have substantial responsibility
for the management of the Company with additional incentives to exert their best
efforts on behalf of the Company, to increase their proprietary interest in the
success of the Company, to reward outstanding performance and to attract and
retain executive personnel of outstanding ability, the Company has adopted the
Amended and Restated 1994 Employee Stock Option Plan (the "1994 Employee Plan"),
and the 1996 Employee Plan. The following is a summary of certain provisions of
the 1994 Employee Plan and the 1996 Employee Plan.
1994 Employee Plan. The total number of shares for which options may be
granted under the 1994 Employee Plan is 1,000,000 and options for the purchase
of 968,000 shares of Common Stock have been granted. The 1994 Employee Plan is
administered by a committee of the Board of Directors, consisting of at least
two members who are not eligible for grants of options or other equity
securities under the 1994 Employee Plan or any other employee plan of the
Company or any of its affiliates. The committee determines the executive and
other officers of the Company who are eligible to participate in the 1994
Employee Plan and the number of shares, if any, for which options may be granted
to them. Sixty-nine people are potentially eligible to participate in the 1994
Employee Plan. Options granted under the 1994 Employee Plan are exercisable at a
price equal to the fair market value of the Common Stock on the date the option
is granted. No option may be exercised more than 10 years after the date of
grant. Options granted under the 1994 Employee Plan are not transferable other
than by the laws of descent and distribution and during the grantee's life may
be exercised only by the grantee. Rights to exercise options terminate after a
grantee ceases to be an employee for any reason, other than death, three months
following the date of termination of employment. If a
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<PAGE> 56
grantee dies before expiration of the option, his legal successors may exercise
the option within one year of the employee's death. Shares purchased upon
exercise of options must be paid for in cash or by the surrender of unrestricted
shares of Common Stock or any combination thereof. The Company may lend the
grantee up to the exercise price of the option to be exercised. Any such loan
would be subject to certain terms set out in the Plan and limitations imposed by
the SBA. The 1994 Employee Plan will terminate when options have been granted on
the total number of shares authorized by it or by action of the Board of
Directors, but in no event later than November 18, 2004.
1996 Employee Plan. The 1996 Employee Plan authorizes the issuance of up
to 2,280,000 shares of the Company's Common Stock. As of December 31, 1997,
options for the purchase of 4,527,098 shares of the Common Stock have been
granted by the Company under the plan (options with respect to 2,247,098 shares
of which are subject to the approval of an increase in the number of shares
available for grant under the 1996 Employee Plan at the next annual meeting of
shareholders). Awards under the 1996 Employee Plan may be made to key employees
and officers. The number of people currently eligible for awards is 74. The 1996
Employee Plan is administered by a committee of at least two disinterested
individuals appointed by the Board of Directors, which currently is the
Compensation Committee (the "Committee").
Incentive stock options ("ISO") and non-qualified stock options may be
granted as the Committee determines, subject to certain per person limitations
on awards. A stock option is exercisable at the times and subject to the terms
and conditions which the Committee determines. The option price for any ISO will
not be less than 100% (110% in the case of certain 10% shareholders) of the fair
market value of the Common Stock on the date of grant. Shares purchased upon
exercise of options must be paid for in cash or by surrender of unrestricted
shares of Common Stock or any combination thereof. The Board of Directors may
cause the Company to lend to the grantee up to the exercise price of the option
being exercised. Any such loan is subject to terms set out in the Plan,
including as to collateral and interest rate. Options granted under the 1996
Employee Plan can be assigned or transferred by will or by the laws of descent
and distribution, and the Committee has the discretion to permit transfer of
options to family members (or trusts established for the benefit of family
members) if permitted under the 1940 Act. During the lifetime of an optionee, an
option is exercisable only by the optionee. The Committee determines the term of
the option, which may not exceed 10 years. An option may be exercised at any
time or from time to time or only after a period of time or in installments, as
the Committee determines, except that options granted to officers of the Company
will not be exercisable for at least six months after the date of grant. Upon
termination of an option holder's employment for Cause (as defined in the 1996
Employee Plan), that employee's stock options will terminate. If employment is
involuntarily terminated without Cause, options (if exercisable) are exercisable
for three months or until the end of the option period, whichever is shorter.
Upon death or disability of an employee, exercisable stock options are
exercisable by the deceased employee's representative within the lesser of the
remainder of the option period or one year from the employee's death. In the
event of certain extraordinary corporate events, such as a sale of substantially
all its assets or a merger or share exchange in which the Company is not the
surviving corporation, all outstanding options under the 1996 Employee Plan
shall immediately become fully exercisable. The 1996 Employee Plan may be
amended by the Board of Directors, except that the approval of the Company's
shareholders is required to increase the total number of shares reserved for the
1996 Employee Plan or to materially increase the benefits accruing to
participants under the 1996 Employee Plan.
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<PAGE> 57
The following table sets forth certain information with respect to options
that have been granted as of December 31, 1997 under the 1994 Employee Plan and
the 1996 Employee Plan. The information in the chart below reflects the
two-for-one stock split effective January 30, 1998:
<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE PRICE
NAME AND POSITION SUBJECT TO OPTION PER SHARE
----------------- ----------------- --------------
<S> <C> <C>
George M. Miller, II,................................. 300,000(1) $ 5.50
President and Chief Executive Officer 113,932(2) 9.25
113,932(3) 9.32
448,230(4) 15.00
600,000(5) 23.88
David M. Resha........................................ 250,000(6) 6.75
Chief Operating Officer 50,000(6) 17.00
Carl W. Stratton...................................... 100,000(7) 11.63
Chief Financial Officer 50,000(8) 15.88
30,000(8) 13.97
50,000(8) 18.75
Employees, as a group (48 persons).................... 5,495,098(9)(10) $5.50-$23.88
</TABLE>
- ---------------
(1) This option vests 25% on August 1, 1997, 25% on August 1, 1998 and 50% on
August 1, 1999 and as of the date hereof Mr. Miller had exercised this
option with respect to 75,000 shares.
(2) This option vests 20% per year beginning December 15, 1996 and as of the
date hereof Mr. Miller had exercised this option with respect to 22,786
shares.
(3) This option vests 20% per year beginning February 1, 1997 and as of the
date hereof Mr. Miller had exercised this option with respect to 2,428
shares.
(4) This option vests 20% per year beginning October 1, 1997 and as of the date
hereof Mr. Miller had exercised this option with respect to 14,786 shares.
(5) This option vests 20% per year beginning October 10, 1998.
(6) These options vest 20% per year beginning July 5, 1996 and as of the date
hereof Mr. Resha had exercised the option with respect to 20,000 shares.
(7) These options vest 20% per year beginning April 8, 1997.
(8) These options vest 20% per year beginning October 1, 1996.
(9) This number includes options for 164,000 shares that have been exercised.
(10) This number includes options to purchase 2,247,098 shares (including the
option to purchase 600,000 shares granted to Mr. Miller, the option to
purchase 50,000 shares granted to Mr. Resha and the option to purchase
50,000 shares granted to Mr. Stratton) that are subject to the approval of
an increase in the number of shares available for grant under the 1996
Employee Plan by the Company's shareholders at the next annual meeting of
shareholders.
NON-EMPLOYEE DIRECTOR STOCK OPTIONS
In order to retain and attract highly qualified directors, and to ensure
close identification of interests between non-employee directors and the
Company's shareholders, the Company adopted the 1995 Stock Option Plan for
Non-Employee Directors (the "Directors' Stock Option Plan"), which provides for
the automatic grant of options to directors of the Company that are not
employees or officers of the Company (other than John A. Morris, Jr., M.D.). No
options were granted in 1995, options on 168,000 shares were granted in 1996,
and options on 12,000 shares were granted in 1997. Any person who is initially
elected a non-employee director in the future will automatically receive, on the
date of election, an option to purchase 12,000 shares of Common Stock.
The total number of shares for which options may be granted under the
Directors' Stock Option Plan is 228,000 of which options to purchase 180,000
shares have been granted. The Directors' Stock Option Plan is administered by a
committee of the Board of Directors comprised of directors who are not eligible
to receive options under the Directors' Stock Option Plan. Options granted under
the Directors Stock Option Plan are
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<PAGE> 58
exercisable at a price equal to the fair market value of the Common Stock at the
date of grant. No option may be exercised more than 10 years after the date of
grant. Shares purchased upon exercise of options, must be paid for in cash, by
surrender of unrestricted shares of Common Stock or any combination thereof.
Options granted under the Directors' Stock Option Plan are not transferable
other than by will or by the laws of descent and distribution and during the
grantee's life may be exercised only by the grantee. If the grantee dies before
expiration of the option, his legal successors may exercise the option within
one year of the grantee's death. The Directors' Stock Option Plan may be
terminated at any time by the Board of Directors, and will terminate on April
19, 2006. No increase in the number of shares authorized under the plan or
material increase in the benefits to participants under the plan may be made
without shareholders' approval.
CERTAIN TRANSACTIONS
Raymond H. Pirtle, Jr., a director and shareholder of the Company, is a
managing director and a member of the board of directors of SunTrust Equitable.
SunTrust Equitable is one of the underwriters of this Offering and in connection
therewith is entitled to the compensation set forth under the heading
"Underwriting."
Prior to the Conversion in February 1995, John C. Harrison and Jennifer K.
Waugh, employees of the Company, were granted ownership interests in the
Company. In connection therewith, each such employee executed a promissory note
for the purchase price of such interest that bears interest at 7.25% per annum,
payable annually, matures November 1, 2001, and is secured by a pledge of the
Common Stock owned by each such employee. As of the date hereof, the outstanding
principal balance of such promissory notes is as follows: Mr. Harrison,
$440,142.16; and Ms. Waugh, $102,678.51.
The Robinson-Humphrey Company, LLC ("Robinson-Humphrey"), one of the
underwriters in this Offering, was engaged by the Company as its exclusive
placing agent in connection with the obtaining and placement of the ING Credit
Facility. Robinson-Humphrey has received a fee equal to 0.5% of the aggregate
debt commitment. In addition, Sirrom agreed to indemnify Robinson-Humphrey with
respect to certain matters.
L. Edward Wilson, a director and shareholder of the Company, has entered
into a consulting arrangement with the Company pursuant to which he is paid
$75,000 for the business analysis and technical due diligence services he
provides with respect to potential portfolio companies and workout situations.
George M. Miller, II, President, Chief Executive Officer and director of
the Company, has entered into an aircraft lease agreement with the Company
pursuant to which he leases an aircraft to the Company for $17,000 a month. The
aircraft lease is terminable by either party on 90 days notice.
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<PAGE> 59
PRINCIPAL AND SELLING SHAREHOLDERS
Of the 50,000,000 shares of Common Stock, no par value, authorized, there
are 31,094,708 shares of Common Stock outstanding and approximately 4,700
holders of the Company's Common Stock, including approximately 150 holders of
record. The Company has no other class of securities outstanding. The following
table sets forth certain ownership information as of January 30, 1998 with
respect to the Common Stock for (i) those persons who directly or indirectly
own, control or hold with the power to vote, 5% or more of the outstanding
Common Stock and (ii) all officers and directors, as a group. Unless otherwise
indicated, all shares are owned beneficially and of record by each shareholder.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF SHARES
SHARES TO OUTSTANDING
BE SOLD IN ------------------------
AMOUNT THE BEFORE AFTER
NAME AND ADDRESS OWNED OFFERING OFFERING % OFFERING %
- ---------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
John A. Morris, Jr., M.D.(1).................. 4,786,408 618,000(2) 15.4% 11.5%(3)
243 Medical Center South
2100 Pierce Avenue
Nashville, TN 37212
Sirrom Partners, L.P.......................... 4,070,296 618,000(2) 13.1 9.6(3)
500 Church Street
Suite 200
Nashville, TN 37219
Putnam Investments, Inc.(4)................... 3,149,342 -- 10.1 8.7
One Post Office Square
Boston, MA 02109
Pilgrim Baxter & Associates, Ltd.(5).......... 2,067,200 -- 6.6 5.7
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Provident Investment Counsel, Inc.(6)......... 1,567,174 -- 5.0 4.3
300 N. Lake Ave., Suite 1001
Pasadena, CA 91101
H. Hiter Harris, III.......................... 672,958 66,000(2) 2.2 1.7(3)
1313 East Main St., Suite 300
Richmond, VA 23219
Christopher H. Williams....................... 669,958 66,000(2) 2.2 1.7(3)
1313 East Main St., Suite 300
Richmond, VA 23219
Executive officers and directors, as a group
(13 persons)................................ 8,423,300(7) 750,000(2) 27.1 21.3(3)
</TABLE>
- ---------------
* Less than one percent.
(1) Includes 4,070,296 shares owned of record by Sirrom Partners, L.P., a
limited partnership owned by Dr. Morris and his family, and 716,112 shares
owned of record by Sirrom, Ltd., a limited partnership whose general partner
is All Scarlet, Inc., a corporation owned 50% by Dr. Morris and 50% by
Alfred H. Morris, the brother of Dr. Morris. Dr. Morris has shared voting
power and shared investment power with respect to all of these shares.
(2) An additional 750,000 shares of Common Stock may be sold by the Selling
Shareholders if the over-allotment option is exercised in full by the
Underwriters (as defined herein).
(3) Assumes full exercise of the over-allotment option. In the event the
over-allotment option is not exercised, the percentage of shares owned after
the Offering would be 13.2% for Dr. Morris, 11.3% for Sirrom Partners, L.P.,
1.9% for Mr. Harris, 1.9% for Mr. Williams and 23.3% for executive officers
and directors, as a group.
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<PAGE> 60
(4) All of these shares are not beneficially owned by Putnam Investments, Inc.,
but it or its subsidiaries may exercise investment discretion with respect
to such shares. This information is based on the information included in the
Schedule 13G filed with the Commission by Putnam Investments, Inc. on
January 27, 1998.
(5) Pilgrim Baxter & Associates, Ltd., an institutional investment manager, does
not beneficially own the referenced shares but may exercise investment
discretion with respect to such shares, and accordingly files a quarterly
report on Form 13F with the Commission.
(6) This information is based on the information included in the Schedule 13G
filed with the Commission by Provident Investment Counsel, Inc. on December
11, 1997.
(7) This number includes options to purchase 1,522,864 shares granted to
executive officers that vest over varying periods of time.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of Common Stock is determined quarterly, as
soon as practicable after and as of the end of each calendar quarter, by
dividing the value of total assets minus liabilities by the total number of
shares outstanding on the date as of which the determination is made.
In making its valuation determination, the Board of Directors generally
adheres to a valuation policy approved by the SBA and adopted by the Board of
Directors. In calculating the value of the Company's total assets, securities
that are traded in the over-the-counter market or on a stock exchange are valued
at the average bid at close or closing price, as the case may be, for the
valuation date and the preceding two days, unless the investment is subject to a
restriction that requires a discount from such price, which is determined by the
Board of Directors. All other investments are valued at fair value as determined
in good faith by the Board of Directors. In making such determination, the Board
of Directors will value loans and nonconvertible debt securities for which there
exists no public trading market at cost plus amortized original issue discount,
if any, unless adverse factors lead to a determination of a lesser value, at
which time unrealized depreciation would be recognized. Convertible debt
securities and warrants are valued to reflect the value of the underlying equity
security less the conversion or exercise price. In valuing equity securities for
which there exists no public trading market, investment cost is presumed to
represent fair value except in cases where the valuation policy provides that
the Board of Directors may determine fair value on the basis of (i) financings
by unaffiliated investors, (ii) a history of positive cash flow from operations
for two years using a conservative financial measure such as earnings ratios or
cash flow multiples, (iii) the market value of comparable publicly traded
companies (discounted for illiquidity) and (iv) other pertinent factors. The
Board of Directors also considers recent operating results of a portfolio
company or offers to purchase the portfolio company's securities when valuing a
warrant.
A substantial portion of the Company's assets will consist of securities
carried at fair values determined by its Board of Directors. Determination of
fair values involves subjective judgment not susceptible to substantiation by
auditing procedures. Accordingly, under current standards, the accountants'
opinion on the Company's financial statements in its annual report refers to the
uncertainty with respect to the possible effect on the financial statements of
such valuations.
REINVESTMENT PLAN
Pursuant to the Reinvestment Plan a shareholder whose shares are registered
in his own name can have all dividends (including quarterly net income dividends
and the annual capital gains dividend) reinvested in additional shares of Common
Stock by the Reinvestment Plan Administrator if the shareholder enrolls in the
Reinvestment Plan by delivering an Authorization Form to the Reinvestment Plan
Administrator prior to the corresponding dividend declaration date. All
distributions to shareholders who do not participate in the Reinvestment Plan
will be paid by check mailed directly to the record holder by or under the
direction of the Reinvestment Plan Administrator. A shareholder may terminate
participation in the Reinvestment Plan by delivering a written letter to the
Reinvestment Plan Administrator before the record date of the next dividend.
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<PAGE> 61
When the Company declares a dividend, shareholders who are participants in
the Reinvestment Plan will receive the equivalent of the amount of the dividend
in shares of the Company's Common Stock. If the market price per share of Common
Stock on the dividend payment date equals or exceeds net asset value per share
on that date, then the Company will issue new shares of Common Stock to
participants at the greater of net asset value or 95% of the then current market
price. Such new shares will be issued on the dividend payment date.
If the market price per share of Common Stock on the dividend payment date
is less than the net asset value per share on that date, then the Reinvestment
Plan Administrator will buy shares in the open market, on the NYSE or elsewhere.
If, before the Reinvestment Plan Administrator has completed its purchases, the
market price exceeds the net asset value of a share of Common Stock, the average
price per share paid by the Reinvestment Plan Administrator may exceed the net
asset value of the Company's shares, resulting in the acquisition of fewer
shares than if the dividend had been in shares newly-issued by the Company. In
the case of shares purchased by the Reinvestment Plan Administrator in the open
market, on the NYSE or elsewhere, the Reinvestment Plan Administrator will apply
all cash received on account of a dividend as soon as practicable, but in no
event later than 30 days, after the payment date of the dividend except to the
extent necessary to comply with applicable provisions of the federal securities
laws. The number of shares to be purchased by the Reinvestment Plan
Administrator will be calculated on the basis of the average price of all shares
purchased for that period, including brokerage commissions, and will be credited
to the participants' accounts as of the payment date of the dividend.
For purposes of the Reinvestment Plan, the market price of the Company's
Common Stock on a particular date is the average for the 15 preceding trading
days of the last sale price on the NYSE on such days. Net asset value per share
of Common Stock on a particular date is as determined by or on behalf of the
Company.
The Reinvestment Plan Administrator will maintain all shareholder accounts
in the Reinvestment Plan and will furnish written confirmations of all
transactions in the account, including information needed by shareholders for
personal and tax records. Shares in the account of each Reinvestment Plan
participant will be held by the Reinvestment Plan Administrator in
non-certificated form in the name of the participant, and each shareholder's
proxy will include shares purchased pursuant to the Reinvestment Plan.
There is no charge to participants for reinvesting dividends. The fees of
the Reinvestment Plan Administrator for handling the reinvestment of dividends
will be included in the fee to be paid by the Company to its transfer agent.
However, each participant will bear a pro rata share of brokerage commissions
incurred with respect to the Reinvestment Plan Administrator's open market
purchases in connection with the reinvestment of dividends.
THE REINVESTMENT OF DIVIDENDS WILL NOT RELIEVE PARTICIPANTS OF ANY INCOME
TAX THAT MAY BE PAYABLE ON DIVIDENDS. SEE "TAXATION."
The Company reserves the right to amend or terminate the Reinvestment Plan
as applied to any dividend paid subsequent to written notice of the change sent
to participants in the Reinvestment Plan. The Plan also may be amended or
terminated by the Reinvestment Plan Administrator with the Company's prior
written consent, on at least 90 days' written notice to participants in the
Reinvestment Plan. All correspondence concerning the Reinvestment Plan should be
directed to the Reinvestment Plan Administrator by mail at 1525 West W.T. Harris
Blvd., Charlotte, North Carolina 28288-1153 or by phone at 1-800-829-8432.
TAXATION
The following discussion is a general summary of the material federal
income tax considerations applicable to the Company and to an investment in the
Common Stock and does not purport to be a complete description of the income tax
considerations applicable to such an investment. The discussion is based upon
the Code, applicable Treasury Regulations, administrative rulings and
pronouncements of the Internal Revenue Service, all as in effect on the date
hereof. Prospective shareholders should consult their own tax advisors with
respect to the tax considerations which pertain to their purchase of the Common
Stock. This
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<PAGE> 62
summary does not discuss all aspects of federal income taxation relevant to
holders of the Company's Common Stock in light of their personal circumstances,
or to certain types of holders subject to special treatment under federal income
tax laws, including foreign taxpayers, dealers in securities or financial
institutions. This summary does not discuss any aspects of foreign, state, or
local tax laws.
TAX STATUS
The Company has qualified for and elected to be treated as a RIC under
Subchapter M of the Code. SII and SFC have elected the same tax treatment. If
each of the Company, SII and SFC continues to qualify as a RIC and distributes
to the shareholders or the Company, as appropriate, each year in a timely manner
at least 90% of its "investment company taxable income," as defined in the Code
(in general, taxable income excluding net capital gains), each such entity will
not be subject to federal income tax on the portion of its taxable income and
gains it distributes to shareholders. However, the Company, SII and SFC each
would be subject to corporate income tax on any of its undistributed investment
company taxable income and net capital gain. In addition, if each of the
Company, SII and SFC distributes in a timely manner (or treats as "deemed
distributed" as described below) 98% of its capital gain net income for each one
year period ending on October 31 (or December 31, if so elected by the Company,
SII or SFC), and distributes 98% of its investment company taxable income for
each calendar year (as well as any income not distributed in prior years), it
will not be subject to the 4% nondeductible federal excise tax on certain
undistributed income. For purposes of the excise tax, any income or capital
gains retained by and taxed as "investment company taxable income" or a net
capital gain in the hands of the Company, SII or SFC, as the case may be, will
be treated as having been distributed. The Company believes that it is likely,
and SII and SFC believe that it is possible, that they will have to pay excise
tax on undistributed investment company taxable income.
In order to continue to qualify as a RIC for federal income tax purposes,
each of the Company, SII and SFC must, among other things, (a) derive in each
taxable year at least 90% of its gross income from dividends, interest, payments
with respect to securities loans, gains from the sale or other disposition of
stock or securities and other narrowly defined types of income derived with
respect to its business of investing in such stock or securities; (b) diversify
its holdings so that at the end of each quarter of the taxable year (i) at least
50% of the value of its assets consists of cash, cash items, government
securities, the securities of other RICs and investments in other securities
which, with respect to any one issuer, do not represent more than 5% of the
assets of the investment company nor more than 10% of the outstanding voting
securities of the issuer and (ii) no more than 25% of the value of its total
assets is invested in the securities (other than U.S. government securities or
the securities of other regulated investment companies) of one issuer or of two
or more issuers that are controlled by the regulated investment company and are
engaged in the same or similar or related trades or businesses; and (c)
distribute at least 90% of its investment company taxable income each taxable
year.
There is no requirement that all of the corporations in a controlled group
that includes a RIC must qualify as RICs. As a general rule in the application
of the tests to qualify as a RIC, the parent corporation and each of its
subsidiaries are tested separately and cannot be consolidated. However, in
ascertaining the value of a RIC's investment in the securities of an issuer for
purposes of the 25% test described in the preceding paragraph, the RIC's direct
investment in the issuer is added to its proper proportion of an investment in
the securities of the same issuer made by any other corporation which qualifies
as a member of a "controlled group" (defined with reference to a chain of
corporations with a 20% ownership threshold). See "Prospectus Summary." It is
possible that the existence and operation of Harris Williams or other
subsidiaries in the future could cause the Company, SII or SFC not to qualify as
a RIC.
Certain types of income which are earned by the Company and its
subsidiaries, such as loan processing fees, may not qualify for purposes of
satisfying the 90% of gross income test mentioned above. A failure to satisfy
the 90% test cannot be corrected after the end of the taxable year. Because each
of SII, SFC and the Company must satisfy this 90% test on a stand alone basis,
even if the 90% test is satisfied on a consolidated basis, it is possible that
one or more of the subsidiaries, or the Company, may fail to satisfy this test
and lose its status as a RIC.
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If the Company, SII or SFC were to fail to qualify as a RIC, it would not
be entitled to a deduction for dividends paid and would be subject to a
corporate level tax on all of its taxable income, whether or not distributed. In
addition, if one of SII or SFC were to fail to qualify as a RIC, it would likely
cause the Company to fail to qualify as a RIC. In this event, the corporate
income tax could be substantial and there would be a substantial reduction in
the Company's or subsidiary's net assets, or both of their net assets. Moreover,
future distributions to the Company's shareholders could be reduced because of
the loss of any tax deduction for payment of such dividends.
TAXATION OF SHAREHOLDERS
For any period during which the Company qualifies as a RIC for tax
purposes, dividends to shareholders of the Company's ordinary income (including
dividends, interest and original issue discount) and any distributions of net
short-term capital gains generally will be taxable as ordinary income to
shareholders (and not as short-term capital gains) to the extent of the
Company's current or accumulated earnings and profits. Distributions of the
Company's net long-term capital gains properly designated by the Company as
capital gain dividends will be taxable to shareholders as long-term capital
gain, regardless of the shareholder's holding period in his shares. The
foregoing rules apply to both dividends paid in cash or in additional shares of
Common Stock under the Company's Reinvestment Plan.
Under recent legislation, long-term capital gains may be broken down into
additional categories of gain, taxable at different rates for shareholders who
are individuals. Properly designated capital gain dividends comprising gains
with respect to assets held by the Company for more than one year but less than
eighteen months will be taxable at a maximum rate of 28% in the hands of an
individual shareholder ("28% rate gain distribution"), while properly designated
capital gain dividends comprising gains with respect to assets held by the
Company for more than eighteen months will be taxable at a maximum rate of 20%
in the hands of an individual shareholder ("20% rate gain distributions").
Distributions in excess of the Company's earnings and profits will first reduce
the adjusted tax basis of a shareholder's shares and, after such tax basis is
reduced to zero, will constitute capital gains to such holder (assuming the
shares are held as capital assets). Corporate shareholders should consult their
own tax advisers.
In addition, the Company may elect to relate back a dividend to the prior
taxable year for the purposes of (i) determining whether the 90% distribution
requirement is satisfied, (ii) computing investment company taxable income and
(iii) determining the amount of capital gain dividends paid during the prior
taxable year. Any such election will not alter the general rule that a
shareholder will be treated as receiving a dividend in the taxable year in which
the distribution is made. Any dividend declared by the Company in October,
November or December of any calendar year, payable to shareholders of record on
a specified date in such a month and actually paid during January of the
following year, will be treated as if it were paid by the Company and received
by the shareholders on December 31 of the previous year.
Shareholders should be careful to consider the tax implications of buying
shares just prior to the record date for a distribution. Even if the price of
the shares includes the amount of the forthcoming distribution the shareholder
will be taxed upon receipt of the distribution and will not be entitled to
offset the distribution against tax basis in the shares.
To the extent that the Company retains any net capital gains (defined as
the excess of net long-term capital gain over short-term capital loss), it may
designate them as "deemed distributions" and pay a tax thereon for the benefit
of its shareholders. In that event, the shareholders report their share of the
Company's retained realized capital gains on their individual tax returns as if
it had been received, and such shareholders are entitled to a refund or credit
for the tax paid by the Company. The amount of the deemed distribution net of
such tax is then added to the shareholder's adjusted tax basis for his shares.
Since the Company expects to pay tax on net capital gains at the regular
corporate tax rate of 35%, and the maximum rate payable by individuals on such
gains generally is 20% or 28%, depending on whether the deemed distribution
qualifies as a 20% rate gain distribution or a 28% rate gain distribution as
discussed above, the amount of credit or refund that individual shareholders may
claim will exceed the amount of tax that they would be required to pay on
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capital gains. Shareholders who are not subject to federal income tax or tax on
capital gains should be able to file a return on the appropriate form or claim a
refund that allows them to recover the tax paid on their behalf.
A shareholder will recognize taxable gain or loss if the shareholder sells
or exchanges his shares. Any gain arising from (or, in the case of distributions
in excess of earnings and profits, treated as arising from) the sale or exchange
of shares generally will be capital gain if the shares are held as capital
assets. This capital gain or loss will be included in the determination of a
shareholder's adjusted net capital gain if the shareholder has held his shares
for more than eighteen months. Under current law, capital gains recognized by
individual shareholders generally will be taxable at a maximum rate of (i) 28%
with respect to shares that are held for more than one year but not more than
eighteen months or (ii) 20% with respect to shares that are held for more than
eighteen months.
The Company may be required to withhold U.S. federal income tax at the rate
of 31% of all taxable dividends and distributions payable to shareholders who
fail to provide the Company with their correct taxpayer identification number or
to make required certifications or regarding whom the Company has been notified
by the Internal Revenue Service that they are subject to backup withholding.
Backup withholding is not an additional tax and any amounts withheld may be
credited against a shareholder's U.S. federal income tax liability.
Federal withholding taxes at a 30% rate (or a lesser treaty rate) may apply
to distributions to shareholders that are nonresident aliens or foreign
partnerships, trusts or corporations. Foreign shareholders should consult their
tax advisors with respect to the possible U.S. federal, state and local and
foreign tax consequences of an investment in the Company.
The Company will mail to each shareholder, as promptly as possible after
the end of each fiscal year, a notice detailing, on a per share and per
distribution basis, the amounts includable in such shareholder's taxable income
for such year as net investment income, as net realized capital gains (if
applicable), as "deemed" distributions of capital gains and as taxes paid by the
Company with respect thereto. In addition, the federal tax status of each year's
distributions will be reported to the Internal Revenue Service. Distributions
may also be subject to additional state, local and foreign taxes depending on
each shareholder's particular situation. Shareholders are advised to consult
their own tax advisers with respect to the particular tax consequences to them
of an investment in the Company.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 50,000,000 shares of Common Stock. Of
the shares of Common Stock authorized for issuance, 31,094,708 are outstanding,
1,000,000 are reserved for issuance under the 1994 Employee Plan (all of which
have been issued), 228,000 shares are reserved for issuance under the Directors'
Stock Option Plan (180,000 of which have been issued), and 2,280,000 shares, are
reserved for issuance under the 1996 Employee Plan (options with respect to all
of the reserved shares have been issued and options with respect to an
additional 2,247,098 shares have been issued subject to approval of an increase
in the number of shares available under the 1996 Employee Plan by the
shareholders of the Company at the next annual meeting).
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by shareholders and are not entitled to cumulative voting
in the election of directors, which means that the holders of a majority of the
shares voting for the election of directors can elect all of the directors then
standing for election by the holders of Common Stock. The holders of Common
Stock are entitled to share ratably in such dividends, if any, as may be
declared from time to time by the Board of Directors in its discretion out of
funds legally available therefor. The holders of Common Stock are entitled to
share ratably in any assets remaining after satisfaction of all prior claims
upon liquidation of the Company. The Company's Charter gives holders of Common
Stock no preemptive or other subscription or conversion rights, and there
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<PAGE> 65
are no redemption provisions with respect to such shares. All outstanding shares
of Common Stock are, and the shares offered hereby will be, when issued and paid
for, fully paid and nonassessable.
ANTI-TAKEOVER LEGISLATION
In addition to the restrictions on changes of control of an SBIC under the
SBIA and the SBA Regulations described under "Regulation," the Company is
subject to the Tennessee Business Combination Act (the "Combination Act"). The
Combination Act provides that any corporation to which it applies, including the
Company, shall not engage in any "business combination" with an "interested
shareholder" for a period of five years following the date that such shareholder
became an interested shareholder unless prior to such date the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the shareholder becoming an interested
shareholder.
The Combination Act defines "business combination," generally, to mean any
(i) merger or consolidation; (ii) share exchange; (iii) sale, lease, exchange,
pledge, mortgage or other transfer (in one transaction or a series of
transactions) of assets representing 10% or more of (A) the market value of
consolidated assets, (B) the market value of the corporation's outstanding
shares or (C) the corporation's consolidated net income; (iv) issuance or
transfer of shares from the corporation to the interested shareholder; (v) plan
of liquidation; (vi) transaction in which the interested shareholder's
proportionate share of the outstanding shares of any class of securities is
increased; or (vii) financing arrangements pursuant to which the interested
shareholder, directly or indirectly, receives a benefit except proportionately
as a shareholder.
The Combination Act defines "interested shareholder," generally, to mean
any person who is the beneficial owner, directly or indirectly, of 10% or more
of any class or series of the outstanding voting stock, or any affiliate or
associate of the corporation who has been the beneficial owner, directly or
indirectly, of 10% or more of the voting power of any class or series of the
corporation's stock at any time within the five year period preceding the date
in question. Consummation of a business combination that is subject to the
five-year moratorium is permitted after such period if the transaction (i)
complies with all applicable charter and bylaw requirements and applicable
Tennessee law and (ii) is approved by at least two-thirds of the outstanding
voting stock not beneficially owned by the interested shareholder, or when the
transaction meets certain fair price criteria. The fair price criteria include,
among others, the requirement that the per share consideration received in any
such business combination by each of the shareholders is equal to the highest of
(i) the highest per share price paid by the interested shareholder during the
preceding five year period for shares of the same class or series plus interest
thereon from such date at a treasury bill rate less the aggregate amount of any
cash dividends paid and the market value of any dividends paid other than in
cash since such earliest date, up to the amount of such interest, (ii) the
highest preferential amount, if any, such class or series is entitled to receive
on liquidation, or (iii) the market value of the shares on either the date the
business combination is announced or the date when the interested shareholder
reaches the 10% threshold, whichever is higher, plus interest thereon less
dividends as noted above.
The Tennessee Greenmail Act (the "Greenmail Act") prohibits the Company
from purchasing or agreeing to purchase any of its securities, at a price in
excess of fair market value, from a holder of 3% or more of any class of such
securities who has beneficially owned the securities for less than two years,
unless such purchase has been approved by a majority of the outstanding shares
of each class of voting stock issued by the Company or the Company makes an
offer of at least equal value per share to all holders of shares of such class.
The effects of this legislation may be to render more difficult a change of
control of the Company by delaying, deferring or preventing a tender offer or
takeover attempt that a shareholder might consider to be in such shareholder's
best interest, including those attempts that might result in the payment of a
premium over the market price for the shares held by such shareholder, and may
promote the continuity of the Company's management by making it more difficult
for shareholders to remove or change the incumbent members of the Board of
Directors.
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BROKERAGE ALLOCATION
The Chief Financial Officer is responsible for the selection of
brokers-dealers that execute transactions with respect to publicly traded stock
held in the Company's portfolio. The Chief Financial Officer directs portfolio
transactions to broker-dealers for execution on terms and at rates that he
believes, in good faith, to be reasonable in view of the overall nature and
quality of services provided by a particular broker-dealer. The Chief Financial
Officer seeks the best net results for the Company, taking into account such
factors as the price, including the applicable brokerage commission or dealer
spread, size of the order, difficulty of execution and operational facilities of
the firm involved. While the Chief Financial Officer seeks reasonable
competitive commission rates and spreads, payment of the lowest commission or
spread is not necessarily consistent with the best net results. Thus, although
the Chief Financial Officer may direct portfolio transactions without
necessarily obtaining the lowest price at which such broker-dealer, or another,
may be willing to do business, the Chief Financial Officer seeks the best value
to the Company on each trade that circumstances in the marketplace permit,
including the value inherent in on-going relationships with quality
broker-dealers. For the year ended December 31, 1997, the Company had paid
$78,662 in brokerage commissions, $48,867 of which was paid to SunTrust
Equitable, $15,064 of which was paid to J.C. Bradford & Co. and $6,096 of which
was paid to Robinson-Humphrey.
REGULATION
The Company is presently a BDC and as such is regulated under the 1940 Act.
SII is presently an SBIC and as such is regulated by the SBIA and is subject to
the SBA Regulations and the 1940 Act. SII and SFC are also registered investment
companies and, therefore, subject to the provisions of the 1940 Act as modified
by certain exemptive orders received by the Company from the Commission.
As an SBIC, SII may only make loans to or investments in "small business
concerns," as defined by the SBIA and the SBA Regulations. A "small business
concern," as defined in the SBIA and the SBA Regulations is a business concern
that is independently owned and operated and which is not dominant in its field
of operation. A small business concern must either (i) have a net worth,
together with any affiliates, of $18.0 million or less and an average net income
after federal income taxes for the preceding two years of $6.0 million or less
(average net income to be computed without benefit of any carryover loss) or
(ii) satisfy alternative criteria under the SBA Regulations that focus on the
industry in which the business is engaged and the number of persons employed by
the business or its gross revenues. In addition at the end of each fiscal year,
20% of the total amount of investments made since April 8, 1994 must be made to
concerns that (i) have a net worth of not more than $6.0 million and not more
than $2.0 million in average net income after federal income taxes for the
preceding two years, or (ii) satisfy alternative industry-related size criteria.
The SBA Regulations also prohibit an SBIC from providing funds to a small
business concern for certain purposes, such as relending and investment outside
the United States.
The amount of annual interest payments SII may charge its borrowers is
limited by the SBA Regulations. Under these regulations, the maximum annual
financing costs (including interest) of loans with equity features to small
business concerns may not exceed the greater of 14% or 6 percentage points above
the "Debenture Rate." As defined in the SBA Regulations, the "Debenture Rate" is
the interest rate announced, from time to time, by the SBA on SBA debentures. As
of December 31, 1997, the maximum annual financing costs applicable to SII were
14%. The SBA Regulations also allow an SBIC to charge a processing fee of up to
3%, which fee is not included in the financing cost calculation.
The SBA restricts the ability of an SBIC to repurchase its capital stock,
to retire its debentures and to lend money to its officers, directors and
employees or invest in affiliates thereof. The SBA also prohibits, without prior
SBA approval, a "change of control" or transfers which would result in any
person (or group of persons acting in concert) owning 10% or more of any class
of capital stock of an SBIC. A "change of control" is any event which would
result in the transfer of the power, direct or indirect, to direct the
management and policies of an SBIC, whether through ownership, contractual
arrangements or otherwise.
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The Company is a closed-end, non-diversified investment company that has
elected to be treated as a BDC and, as such, is subject to regulation under the
1940 Act. The 1940 Act contains prohibitions and restrictions relating to
transactions between investment companies and their affiliates, principal
underwriters and affiliates of those affiliates or underwriters and requires
that a majority of the directors be persons other than "interested persons," as
defined in the 1940 Act. In addition, the 1940 Act provides that the Company may
not change the nature of its business so as to cease to be, or to withdraw its
election as, a business development company unless so authorized by the vote of
a majority, as defined in the 1940 Act, of its outstanding voting securities.
The Company is permitted, under specified conditions, to issue multiple
classes of indebtedness and one class of stock senior to the shares offered
hereby if its asset coverage of any Senior Security is at least 200% immediately
after each such issuance. Debt securities issued to the SBA are not subject to
this asset coverage test. In connection with the transfer of its SBIC operations
to SII and the formation of SFC, the Company obtained certain exemptive relief
from the Commission with respect to certain provisions of the 1940 Act.
Accordingly, the Company, SII and SFC may each incur indebtedness so long as
after incurring such indebtedness the Company, individually, and the Company and
each of its investment company subsidiaries on a consolidated basis, meets the
200% asset coverage test. In addition, while Senior Securities are outstanding,
provisions must be made to prohibit any distribution to shareholders or the
repurchase of such securities or shares unless the Company meets the applicable
asset coverage ratios at the time of the distribution or repurchase. The Company
may also borrow amounts up to 5% of the value of its total assets for temporary
or emergency purposes.
Under the 1940 Act, a business development company may not acquire any
asset other than assets of the type listed in Section 55 (a) of the 1940 Act
("Qualifying Assets") unless, at the time the acquisition is made, Qualifying
Assets represent at least 70% of the Company's total assets. Securities issued
by Canadian small businesses will not be Qualifying Assets. However, based on
the Company's total assets at December 31, 1997, the Company could acquire or
originate up to $153.6 million in non-Qualifying Assets and retain its BDC
status. The principal categories of Qualifying Assets relevant to the proposed
business of the Company are the following:
(1) Securities purchased in transactions not involving any public
offering from the issuer of such securities, which issuer is an eligible
portfolio company. An eligible portfolio company is defined in the 1940 Act
as any issuer which:
(a) is organized under the laws of, and has its principal place of
business in, the United States;
(b) is not an investment company other than a small business
investment company wholly-owned by the business development company; and
(c) does not have any class of securities with respect to which a
broker or dealer may extend margin credit.
(2) Securities of any eligible portfolio company which is controlled
by the business development company.
(3) Securities received in exchange for or distributed on or with
respect to securities described in (1) or (2) above, or pursuant to the
exercise of options, warrants or rights relating to such securities.
(4) Cash, cash items, government securities, or high quality debt
securities maturing in one year or less from the time of investment.
In addition, a business development company must have been organized (and
have its principal place of business) in the United States for the purpose of
making investments in the types of securities described in (1) or (2) above.
However, in order to count the securities as Qualifying Assets for the purpose
of the 70% test, the business development company must either control the issuer
of the securities or must make available to the issuer of the securities
significant managerial assistance; except that, where the company purchases such
securities in conjunction with one or more other persons acting together, one of
the other persons in the group may make available such managerial assistance. By
the making of loans to small concerns, SBICs are deemed to provide significant
managerial assistance.
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UNDERWRITERS
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date of this Prospectus (the "Underwriting Agreement"), the Company
has agreed to sell an aggregate of 5,000,000 shares of Common Stock and the U.S.
Underwriters named below, for whom Morgan Stanley & Co. Incorporated, The
Robinson-Humphrey Company, LLC, J.C. Bradford & Co. and SunTrust Equitable
Securities Corporation are serving as U.S. Representatives, have severally
agreed to purchase, and the International Underwriters named below, for whom
Morgan Stanley & Co. International Limited, The Robinson-Humphrey Company, LLC,
J.C. Bradford & Co. and SunTrust Equitable Securities Corporation are serving as
International Representatives, have severally agreed to purchase, the respective
number of shares of Common Stock set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER
OF
NAME SHARES
- ---- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.........................
The Robinson-Humphrey Company, LLC........................
J.C. Bradford & Co........................................
SunTrust Equitable Securities Corporation.................
---------
Subtotal.......................................... 4,000,000
---------
International Underwriters:
Morgan Stanley & Co. International Limited................
The Robinson-Humphrey Company, LLC........................
J.C. Bradford & Co........................................
SunTrust Equitable Securities Corporation.................
---------
Subtotal.......................................... 1,000,000
---------
Total............................................. 5,000,000
=========
</TABLE>
The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters." The Underwriting Agreement provides that the
obligations of the several Underwriters to pay for and accept delivery of the
shares of Common Stock offered hereby are subject to the approval of certain
legal matters by counsel and to certain other conditions. The Underwriters are
obligated to take and pay for all the shares of Common Stock offered hereby
(other than those covered by the over-allotment option described below), if any
such shares are taken.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, each U.S. Underwriter has represented and agreed that, with
certain exceptions, (a) it is not purchasing any U.S. Shares (as defined below)
being sold by it for the account of anyone other than a United States or
Canadian Person (as defined below) and (b) it has not offered or sold, and will
not offer or sell, directly or indirectly, any U.S. Shares or distribute any
prospectus relating to the U.S. Shares outside the United States or Canada or to
anyone other than a United States or Canadian Person. Pursuant to the Agreement
Between U.S. and International Underwriters, each International Underwriter has
represented and agreed that, with certain exceptions, (a) it is not purchasing
any International Shares (as defined below) being sold by it for the account of
any United States or Canadian Person and (b) it has not offered or sold, and
will not offer or sell, directly or indirectly, any International Shares or
distribute any prospectus relating to the International Shares within the United
States or Canada or to any United States or Canadian Person. With respect to any
Underwriter that is a U.S. Underwriter and an International Underwriter, the
foregoing representations and agreements (i) made by it in its capacity as a
U.S. Underwriter shall apply only to shares purchased by it in its capacity as a
U.S. Underwriter, (ii) made by it in its capacity as an International
Underwriter shall apply only to shares purchased by it in its capacity as an
International Underwriter, and (iii) do not restrict its ability to distribute
any prospectus relating to the shares of Common Stock to any person. The
foregoing limitations do not apply to stabilization transactions or to certain
other transactions specified in the Agreement Between U.S.
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Underwriters and International Underwriters. As used herein, "United States or
Canadian Person" means any national or resident of the United States or Canada
or any corporation, pension, profit-sharing, or other trust or other entity
organized under the laws of the United States or Canada or of any political
subdivision thereof (other than a branch located outside the United States and
Canada of any United States or Canadian Person) and includes any United States
or Canadian branch of a person who is otherwise not a United States or Canadian
Person. All shares of Common Stock to be purchased by the U.S. Underwriters and
the International Underwriters under the Underwriting Agreement are referred to
herein as the "U.S. Shares" and the "International Shares," respectively.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, sales may be made between the U.S. Underwriters and International
Underwriters of any number of shares of Common Stock to be purchased pursuant to
the Underwriting Agreement as may be mutually agreed. The per share price of any
shares so sold shall be the Price to Public set forth on the cover page hereof,
in United States dollars, less an amount not greater than the per share amount
of the concession to dealers set forth below.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, each U.S. Underwriter has represented that it has not offered or
sold, and has agreed not to offer or sell, any shares of Common Stock, directly
or indirectly, in Canada in contravention of the securities laws of Canada or
any province or territory thereof and has represented that any offer of shares
of Common Stock in Canada will be made only pursuant to an exemption from the
requirements to file a prospectus in the province or territory of Canada in
which such offer is made. Each U.S. Underwriter has further agreed to send any
dealer who purchases from it any shares of Common Stock a notice stating in
substance that, by purchasing such shares of Common Stock, such dealer
represents and agrees that it has not offered or sold, and will not offer or
sell, directly or indirectly, any of such shares of Common Stock in Canada or
to, or for the benefit of, any resident of Canada in contravention of the
securities laws of Canada or any province or territory thereof and that any
offer of shares of Common Stock in Canada will be made only pursuant to an
exemption from the requirement to file a prospectus in the province of Canada in
which such offer is made, and that such dealer will deliver to any other dealer
to whom it sells any of such shares of Common Stock a notice to the foregoing
effect.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, each International Underwriter has represented and agreed that (a)
it has not offered or sold and during the period of six months from the closing
date of the Offering will not offer or sell any shares of Common Stock to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing, or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations (1995) (the "Regulations"); (b) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 and the
Regulations with respect to anything done by it in relation to the shares of
Common Stock offered hereby in, from, or otherwise involving the United Kingdom;
and (c) it has only issued or passed on and will only issue or pass on to any
person in the United Kingdom any document received by it in connection with the
issue of the shares of Common Stock if that person is of a kind described in
Article 11(3) of the Financial Services Act 1986, (Investment Advertisement)
(Exemptions) Order 1996, or is a person to whom such document may otherwise
lawfully be issued or passed on.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, each International Underwriter has represented and agreed that it
has not offered or sold, and agrees not to offer or sell, directly or
indirectly, in Japan or to or for the account of any resident thereof, any of
the shares of Common Stock acquired in connection with the distribution
contemplated hereby, except for offers or sales to Japanese International
Underwriters or dealers and except pursuant to any exemption from the
registration requirements of the Securities and Exchange Law of Japan. Each
International Underwriter further agrees to send to any dealer who purchases
from it any of the shares of Common Stock a notice stating in substance that, by
purchasing such shares, directly or indirectly in Japan or to or for the account
of any resident thereof except pursuant to any exemption from the registration
requirements of the Securities and Exchange Law of Japan, and that such dealer
will send to any other dealer to whom it sells any of such shares of Common
Stock a notice containing substantially the same statement as contained in the
foregoing.
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The Underwriters propose to offer part of the shares of Common Stock
directly to the public at the Price to Public set forth on the cover page hereof
and part to certain dealers at a price which represents a concession not in
excess of $ a share below the public offering price. After the initial
offering of the shares of Common Stock, the offering price and other selling
terms may from time to time be varied by the Underwriters.
Pursuant to the Underwriting Agreement, the Selling Shareholders have
granted the U.S. Underwriters an option, exercisable for 30 days from the date
of this Prospectus, to purchase up to an aggregate of 750,000 additional shares
of Common Stock at the Price to Public on the cover page hereof, less
Underwriting Discounts and Commissions. The U.S. Underwriters may exercise such
option to purchase solely for the purpose of covering over-allotments, if any,
made in connection with the Offering. To the extent such option is exercised,
each U.S. Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares of Common
Stock as the number set forth next to such U.S. Underwriter's name in the
preceding table bears to the total number of shares of Common Stock offered by
the U.S. Underwriters hereby.
The Company and all of its executive officers and directors and Selling
Shareholders have agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the Underwriters, they will not (i)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right, or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock (whether such shares or any such securities are
now owned by such stockholder or acquired after the date of the Prospectus) or
(ii) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (i) or (ii) above is to
be settled by delivery of Common Stock or such other securities, in cash or
otherwise, for a period of 90 days after the date of this Prospectus, other than
the sale to the Underwriters of any shares of Common Stock pursuant to the
Underwriting Agreement. In addition, each Selling Shareholder agrees that,
without the prior written consent of Morgan Stanley & Co. Incorporated on behalf
of the Underwriters, it will not, during the period ending 90 days after the
date of the Prospectus, make any demand for, or exercise any right with respect
to, the registration of any shares of Common Stock or any security convertible
into or exercisable or exchangeable for Common Stock.
The Company, the Selling Shareholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may overallot in
connection with the offering creating a short position in the Common Stock for
their own account. In addition, to cover overallotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
Common Stock in the offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The underwriters are not required to engage in these activities, and may
end any of these activities at any time.
The Underwriters and dealers may engage in passive market making
transactions in the Common Stock in accordance with Rule 103 of Regulation M
promulgated by the Commission. In general, a passive market maker may not bid
for, or purchase, the Common Stock at a price that exceeds the highest
independent bid. In addition, the net daily purchases made by any passive market
maker generally may not exceed 30% of the average daily trading volume in the
Common Stock during a specified two month period, or 200 shares, whichever is
greater. A passive market maker must identify passive market making bids as such
on the NYSE. Passive market making may stabilize or maintain the market price of
the Common Stock above independent market levels. Underwriters and dealers are
not required to engage in passive market making and may end passive market
making activities at any time.
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Raymond H. Pirtle, Jr., a director of the Company, is also a managing
director and member of the Board of Directors of SunTrust Equitable.
The principal business address of each of the Representatives is as
follows: Morgan Stanley & Co. Incorporated, 1585 Broadway, New York, New York
10036; The Robinson-Humphrey Company, LLC, 3333 Peachtree Road, N.E., Atlanta,
Georgia 30326; J.C. Bradford & Co., 330 Commerce Street, Nashville, Tennessee
37201; and SunTrust Equitable Securities Corporation, 800 Nashville City Center,
511 Union Street, Nashville, Tennessee 37219-1743.
Robinson-Humphrey, one of the underwriters in this Offering, has been
engaged by the Company as its exclusive placing agent in connection with the
obtaining and placement of the ING Credit Facility. Robinson-Humphrey has
received a fee equal to 0.5% of the aggregate debt commitment. In addition,
Sirrom agreed to indemnify Robinson-Humphrey with respect to certain matters.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of Common
Stock offered hereby will be passed upon for the Company by Bass, Berry & Sims
PLC, Nashville, Tennessee. Certain legal matters related to the Offering will be
passed upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP.
CUSTODIAN, TRANSFER AND DIVIDEND PAYING AGENT AND REGISTRAR
The Company's securities are held under a Custodial Services Agreement with
First American National Bank (Trust Department). The address of the custodian is
First American Center, Nashville, Tennessee 37237. The Company's assets are held
under bank custodianship in compliance with the 1940 Act. The Custodial Services
Agreement with First American Trust Company provides for an annual fee, payable
quarterly, equal to .015% of the first $100.0 million and .001% thereafter of
the assets held pursuant to the Custodial Services Agreement. First Union
National Bank will act as the Company's transfer and dividend paying agent and
registrar. The principal business address of First Union National Bank is 230
South Tryon Street, Charlotte, North Carolina 28288-1153.
REPORTS TO SHAREHOLDERS
The Company will furnish unaudited quarterly and audited annual reports to
the holders of its securities. The annual report will include a list of
investments held by the Company.
INDEPENDENT PUBLIC ACCOUNTANTS
The audited financial statements included in this Prospectus and elsewhere
in the Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports. The principal business address of Arthur
Andersen LLP is 424 Church Street, Nashville, Tennessee 37219.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 1996 and
1997...................................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1996 and 1997.......................... F-4
Consolidated Statements of Changes in Partners' Capital and
Shareholders' Equity for the Years Ended December 31,
1995, 1996 and 1997....................................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1996 and 1997.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
Quarterly Financial Information for the Years 1995, 1996 and
1997 (unaudited).......................................... F-17
Portfolio of Investments
As of December 31, 1996................................... F-19
As of December 31, 1997................................... F-28
</TABLE>
F-1
<PAGE> 73
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, 1996 and
1997, 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, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As explained in Note 2, the financial statements include investments valued
at approximately $262,606,000 (95% of total assets) and approximately
$482,652,000 (95% of total assets) as of December 31, 1996 and 1997,
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.
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, 1996 and 1997 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, 1997, in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Nashville, Tennessee
January 30, 1998
F-2
<PAGE> 74
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Investments, at fair value:
Loans..................................................... $221,487,385 $412,005,353
Equity interests.......................................... 34,965,801 55,210,669
Warrants.................................................. 15,893,828 24,543,035
Other..................................................... 2,990,282 2,440,503
------------ ------------
Total investments (cost of $262,943,963 and
$483,417,884, respectively)......................... 275,337,296 494,199,560
Investment in unconsolidated subsidiary..................... 911,487 924,959
Cash and cash equivalents................................... 4,611,532 3,024,608
Interest receivable......................................... 2,870,138 4,483,640
Receivable from sale of investment.......................... -- 1,498,240
Debt financing costs (less accumulated amortization of
$920,289 and $1,776,700, respectively).................... 3,690,362 3,989,904
Furniture and equipment (less accumulated depreciation of
$73,711 and $198,248, respectively)....................... 275,454 918,253
Other assets................................................ 316,797 197,235
------------ ------------
Total assets...................................... $288,013,066 $509,236,399
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Debentures payable to Small Business Administration....... $ 90,000,000 $ 90,000,000
Revolving credit facilities............................... 30,858,213 124,250,000
Interest payable.......................................... 1,348,252 1,576,600
Accounts payable, accrued expenses, and other
liabilities............................................ 2,852,942 5,435,621
Dividend payable.......................................... -- 5,405,267
Accrued taxes payable..................................... 4,333,144 600,000
------------ ------------
Total liabilities................................. 129,392,551 227,267,488
------------ ------------
Commitments and contingencies
Shareholders' equity:
Common stock -- No par value, 50,000,000 shares
authorized, 24,687,134 and 31,093,226 issued and
outstanding, respectively................................. 140,061,092 251,056,925
Notes receivable from employees........................... (1,539,858) (648,442)
Undistributed net realized earnings....................... 7,705,948 20,778,752
Unrealized appreciation of investments.................... 12,393,333 10,781,676
------------ ------------
Total shareholders' equity........................ 158,620,515 281,968,911
------------ ------------
Total liabilities and shareholders' equity........ $288,013,066 $509,236,399
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 75
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING INCOME:
Interest on investments............................... $13,451,742 $24,395,072 $41,297,190
Loan processing and other fees........................ 1,899,692 3,166,117 6,988,813
Other income.......................................... 223,456 119,115 60,926
----------- ----------- -----------
Total operating income........................ 15,574,890 27,680,304 48,346,929
----------- ----------- -----------
OPERATING EXPENSES:
Interest expense...................................... 4,771,131 8,341,777 9,796,759
Salaries and benefits................................. 1,081,478 2,994,500 5,001,264
Other operating expenses.............................. 1,412,358 1,942,456 3,348,852
State income tax on interest.......................... 109,035 -- --
Amortization expense.................................. 207,792 543,011 865,003
----------- ----------- -----------
Total operating expenses...................... 7,581,794 13,821,744 19,011,878
----------- ----------- -----------
Subtotal.................................... 7,993,096 13,858,560 29,335,051
Pretax income of unconsolidated subsidiary.............. 811,610 3,264,051 3,698,781
----------- ----------- -----------
Net operating income.......................... 8,804,706 17,122,611 33,033,832
Net realized gain on investments........................ 1,759,513 9,462,991 10,722,158
Change in unrealized appreciation (depreciation) of
investments........................................... 4,693,544 2,580,047 (1,611,657)
Provision for income taxes.............................. (1,020,321) (4,270,054) (838,175)
----------- ----------- -----------
Net increase in shareholders' equity resulting from
operations............................................ $14,237,442 $24,895,595 $41,306,158
=========== =========== ===========
Net increase in shareholders' equity resulting from
operations per share:
Basic.............................................. $ .90 $ 1.11 $ 1.37
=========== =========== ===========
Diluted............................................ $ .89 $ 1.08 $ 1.30
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 76
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL AND
SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
NOTES APPRECIATION
COMMON STOCK RECEIVABLE UNDISTRIBUTED (DEPRECIATION)
PARTNERS' -------------------------- FROM NET REALIZED OF
CAPITAL SHARES AMOUNT EMPLOYEES EARNINGS INVESTMENTS
----------- ----------- ------------ --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
SIRROM CAPITAL, L.P.:
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) 11,897,134 25,398,519 -- -- --
Issuance of common
stock............... -- 8,290,000 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 10).... -- -- 1,369,419 -- (1,369,419) --
----------- ----------- ------------ ----------- ----------- -----------
BALANCE, DECEMBER 31,
1995.................. -- 20,187,134 74,479,967 (1,980,000) 6,872,453 9,813,286
Issuance of common
stock............... -- 4,600,000 59,223,301 -- -- --
Stock options
exercised........... -- 30,000 224,375 -- -- --
Employee shares
repurchased......... -- (130,000) (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 10).... -- -- 6,943,094 -- (6,943,094) --
----------- ----------- ------------ ----------- ----------- -----------
BALANCE, DECEMBER 31,
1996.................. -- 24,687,134 140,061,092 (1,539,858) 7,705,948 12,393,333
Issuance of common
stock............... -- 6,292,572 109,953,783 -- -- --
Stock options
exercised........... -- 145,600 1,144,665 -- -- --
Employee shares
repurchased......... -- (32,080) (102,615) -- -- --
Payment on notes
receivable.......... -- -- -- 891,416 -- --
Net increase in
shareholders' equity
resulting from
operations.......... -- -- -- -- 42,917,815 (1,611,657)
Payment of
dividends........... -- -- -- -- (16,977,374) --
Capital gains
dividends........... -- -- -- -- (12,867,637) --
----------- ----------- ------------ ----------- ----------- -----------
BALANCE, DECEMBER 31,
1997.................. $ -- 31,093,226 $251,056,925 $ (648,442) $20,778,752 $10,781,676
=========== =========== ============ =========== =========== ===========
<CAPTION>
TOTAL
------------
<S> <C>
SIRROM CAPITAL, L.P.:
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 10).... --
------------
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 10).... --
------------
BALANCE, DECEMBER 31,
1996.................. 158,620,515
Issuance of common
stock............... 109,953,783
Stock options
exercised........... 1,144,665
Employee shares
repurchased......... (102,615)
Payment on notes
receivable.......... 891,416
Net increase in
shareholders' equity
resulting from
operations.......... 41,306,158
Payment of
dividends........... (16,977,374)
Capital gains
dividends........... (12,867,637)
------------
BALANCE, DECEMBER 31,
1997.................. $281,968,911
============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 77
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net increase in partners' capital and shareholders'
equity resulting from operations.................... $ 14,237,442 $ 24,895,595 $ 41,306,158
Adjustments to reconcile net increase to net cash
provided by operating activities:
Net unrealized (appreciation) depreciation of
investments....................................... (4,693,544) (2,580,047) 1,611,657
Net realized gain on investments.................... (1,759,513) (9,462,991) (10,722,158)
Increase in equity of unconsolidated subsidiary..... (5,610) (71,572) (13,472)
Amortization of debenture costs..................... 207,792 537,010 856,411
Increase in interest receivable..................... (816,905) (750,571) (1,613,502)
Increase in accounts payable and accrued expenses... 185,525 2,639,041 2,582,679
Amortization of organization costs.................. 6,000 6,000 8,592
Depreciation of fixed assets........................ 18,565 55,146 124,666
Increase (decrease) in accrued taxes payable........ 585,731 3,259,619 (3,733,144)
Increase in interest payable........................ 255,810 411,434 228,348
------------- ------------- -------------
Net cash provided by operating activities...... 8,221,293 18,938,664 30,636,235
------------- ------------- -------------
INVESTING ACTIVITIES:
Loan principal repayments............................. 14,414,000 32,630,000 67,743,485
Proceeds from sale of equities and other
investments......................................... 12,889,888 12,142,899 28,386,245
Investments originated or acquired.................... (105,669,054) (135,792,814) (305,881,489)
Purchase of fixed assets.............................. (222,425) (126,740) (767,465)
Decrease in restricted investments.................... 1,000,000 -- --
Increase in other assets.............................. (199,165) (105,632) (1,387,270)
------------- ------------- -------------
Net cash used in investing activities.......... (77,786,756) (91,252,287) (211,906,494)
------------- ------------- -------------
FINANCING ACTIVITIES:
Proceeds from debentures payable to Small Business
Administration...................................... 22,260,000 16,740,000 --
Proceeds from revolving credit facilities............. 62,638,595 92,067,979 253,327,052
Repayment of line of credit borrowings................ (55,827,846) (74,409,766) (159,935,271)
Increase in debenture costs........................... (1,178,414) (2,207,341) (1,155,953)
Issuance of common stock.............................. 47,712,029 59,223,301 109,953,785
Stock options exercised............................... -- 224,375 1,144,665
Distribution of Harris Williams earnings.............. (806,000) (2,985,369) --
Payment of dividends.................................. (3,974,079) (10,976,390) (16,977,374)
Distribution of capital gains......................... (1,201,000) (577,200) (7,462,370)
Employee shares repurchased........................... -- (809,645) (102,615)
Payments on notes receivable from employees........... -- 440,142 891,416
------------- ------------- -------------
Net cash provided by financing activities...... 69,623,285 76,730,086 179,683,335
------------- ------------- -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 57,822 4,416,463 (1,586,924)
CASH AND CASH EQUIVALENTS, beginning of year............ 137,247 195,069 4,611,532
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, end of year.................. $ 195,069 $ 4,611,532 $ 3,024,608
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid......................................... $ 4,525,701 $ 7,961,534 $ 9,935,749
============= ============= =============
Taxes paid............................................ $ 493,465 $ 976,894 $ 3,738,278
============= ============= =============
Loans transferred to other investments................ $ -- $ 5,218,436 $ 486,777
============= ============= =============
Loans transferred to equity interests................. $ 3,805,991 $ 8,695,309 $ 7,076,172
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 78
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. 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 10,100,232 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. 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 the appreciation of the equity
interests in its portfolio companies that are primarily small, privately owned
companies. The Company targets small businesses that the Company believes have
certain characteristics, 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 makes investments in micro-cap public companies
that are marketed under the name Tandem Capital ("Tandem") and 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 that has
elected to be treated as a business development company under the Investment
Company Act of 1940, as amended (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, as amended (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. In December 1996, the Company formed Sirrom Funding Corporation ("SFC"), a
closed-end, non-diversified investment company. SFC is a bankruptcy remote
subsidiary that purchases loans and warrants from the Company on a true-sale
basis and holds them as collateral for a $100.0 million revolving credit
facility. The Company, SII and SFC have each elected to be taxed as a regulated
investment company ("RIC") under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code").
In August 1996, the Company acquired the ownership interests of Harris
Williams & Co., L.P. for 1,796,908 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 has been accounted for as a pooling of
interests. The consolidated balance sheets as of December 31, 1996 and 1997 and
the consolidated statements of operations and cash flows for each of the three
years in the period ended December 31, 1997 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 SCCGS, Inc. SCCGS, Inc.'s operations
were limited to the workout activities of one investment during 1996 and 1997.
SCCGS, Inc. was sold during 1997 and is no longer a subsidiary of the Company at
December 31, 1997.
F-7
<PAGE> 79
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has a 40% ownership interest in a Canadian company, SCC Canada
Inc., that provides loan origination and processing services for loans to
Canadian companies. The Company's ownership interest in SCC Canada Inc. is
immaterial to its financial position and is accounted for under the equity
method of accounting.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company,
SII, SFC and SCCGS, Inc. All intercompany accounts and transactions have been
eliminated in the consolidation.
Valuation of Investments
Portfolio investments are stated at fair value as determined by the Board
of Directors.
Under the Company's valuation policy, the fair values of loans to small
business concerns are based on the Board of Director's evaluation of the
financial condition of the borrowers and/or the underlying collateral. The
values assigned are considered to be amounts that could be realized in the
normal course of business, assuming the Company holds the loan to maturity and
realizes 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 and the filings of
registration statements in connection with a portfolio company's initial public
offering when valuing warrants.
Shares of stocks and warrants of public companies that the Company 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, 1996 and 1997, the investment portfolio included
investments totaling $262,606,000 and $482,652,000, 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 statements of operations.
Description of Loan 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
F-8
<PAGE> 80
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
principal amount typically due at maturity. These loans are generally
collateralized by liens on the assets of the borrower, certain of which are
subject to prior liens, and/or guarantees.
Interest on Investments
Interest income is recorded on the accrual basis. The accrual of income is
typically suspended when the related loan becomes 60 days past due unless
management anticipates that accrued amounts will be collected.
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. Cash and cash equivalents totaling $2,075,000 is restricted as
collateral under interest rate swap agreements.
Debt Financing Costs
SBA debenture costs are amortized over ten years which represents the term
of the thirteen SBA debentures, (see Note 4). Financing costs related to the
revolving credit facilities are amortized over the term of the credit
agreements.
Income Taxes
Beginning in February 1995, the Company elected to be taxed as a RIC under
Subchapter M of the Code. If the Company, as a RIC, satisfies certain
requirements relating to the source of its income, the diversification of its
assets and the distribution of its net income, the Company is generally taxed as
a pass through entity that 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) meet investment diversification
requirements defined by the Code and (c) 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 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 130,000 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
F-9
<PAGE> 81
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
employees was reduced by $440,142 to $1,539,858 at December 31, 1996 as a result
of the cancellation of a note following the termination of employment of an
employee. During 1997, 32,080 shares were repurchased by the Company for
$102,615 following the termination of employment of an employee. These shares
were reissued by the Company in the February 1997 secondary offering. During
1997 notes receivable was reduced to $648,442 as a result of repayments.
Derivative Financial Instruments
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. Gains and losses on terminated swaps are recognized over the remaining
life of the underlying obligation as an adjustment to investment income or
interest expense. The fair value of the swap agreements are not recognized in
the consolidated financial statements as they are accounted for as hedges. The
Company does not hold derivative financial instruments for trading or
speculative purposes.
The counterparties to the interest rate swap agreements are major
commercial banks. Management believes that losses related to credit risk are
remote.
Net Increase In Shareholders' Equity Resulting From Operations per Share
Net increase in shareholders' equity resulting from operations per share is
calculated in accordance with the requirements of Statement of Financial
Accounting Standards ("SFAS") No. 128. Under the standards established by SFAS
No. 128, per share information is measured at two levels: basic and diluted. See
Note 8 for the Company's computation of these amounts.
New Accounting Pronouncement
SFAS No. 130, "Reporting Comprehensive Income" has been issued effective
for fiscal years beginning after December 15, 1997 and requires restatement of
earlier financial statements for comparative purposes. SFAS No. 130 requires
that changes in the amounts of certain items, including gains and losses on
certain securities, be shown in the financial statements. The Company does not
anticipate the adoption of SFAS No. 130 to have a material effect on the
Company's financial statements.
Reclassifications
Certain prior period amounts have been reclassified to conform to current
year presentation.
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 60% of the investment portfolio consists of loans
and equity investments in companies that are headquartered in the southeastern
United States.
F-10
<PAGE> 82
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate cost basis of loans on non-accrual status, less realized
losses, totaled $15,873,178 and $27,717,592 at December 31, 1996 and 1997,
respectively. The aggregate fair values of these loans as determined by the
Company's directors totaled $8,683,178 and $17,052,737 at December 31, 1996 and
1997, respectively.
Included in the investment portfolio at December 31, 1996 and 1997 are
other assets that consist of rights to royalty payments, a right to receive
payment from a potential arbitration settlement and certain other tangible and
intangible assets. The Company obtained these rights upon foreclosure of three
loans. The aggregate cost of other assets at December 31, 1996 and 1997 was
$4,690,299 and $4,240,503, respectively, 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 and $2,440,503 at
December 31, 1996 and 1997, respectively.
4. DEBENTURES PAYABLE TO SMALL BUSINESS ADMINISTRATION
As of December 31, 1997, SII had thirteen debentures totaling $90.0 million
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, 1995, 1996 and 1997 totaled $4,243,851, $5,734,794
and $6,317,392, respectively.
The SBA and the lenders of the $125.0 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, 1996
and 1997:
<TABLE>
<CAPTION>
1996 1997
----------- ------------
<S> <C> <C>
$125.0 million revolving facility........................ $28,900,000 $ 61,500,000
$15.0 million bridge facility............................ 1,958,213 --
$100.0 million revolving facility........................ -- 62,750,000
----------- ------------
Total revolving credit facilities.............. $30,858,213 $124,250,000
=========== ============
</TABLE>
The $125.0 million revolving credit facility is payable by SII to a
syndicate of lenders. The facility consists of a swingline totaling $10.0
million which bears interest at prime minus 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
F-11
<PAGE> 83
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 1997, the
Company and SII were in compliance with these covenants. 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. The facility expires on May 31,
2000.
As of December 31, 1997, the Company had entered into an interest rate swap
agreement under the $125.0 million revolving credit facility. In the agreement,
the Company swapped the variable rate on $45.0 million of borrowings to a fixed
rate of 8.12%. This swap expires in May 2000. Interest expense on the revolving
credit facility and related interest rate swaps for the periods ended December
31, 1995, 1996 and 1997 was $527,280, $2,574,681, and $1,555,468.
The $15.0 million bridge facility expired 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. SFC purchases loans and the related warrants
originated by the Company, and funds 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. SFC is generally able to borrow up to 70% of the
principal amount of conforming loans that are pledged to secure the credit
facility. At December 31, 1997, investments with a cost and fair value of
approximately $93,241,000 and $96,532,000, respectively, had been contributed or
sold to SFC by the Company and were pledged as collateral under the facility.
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. As of December 31, 1997, the Company
and SFC were in compliance with those covenants. The Company may borrow under
the facility until December 31, 2001, and the facility expires on January 5,
2007.
As of December 31, 1997, 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 $12.5 million per month beginning in
July 1997. During the period from July through December 1997, the Company put in
place a cap that capped the Company's variable rate at 8.25%. 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, 1997, $2,075,000 of cash was restricted as collateral for the interest rate
swap agreements under the $100.0 million revolving credit facility. The amount
of cash restricted as collateral may increase or decrease depending upon changes
in prevailing interest rates.
In addition to the rate of interest on the borrowings and the related
interest rate swaps under the $100.0 million revolving credit facility, interest
expense includes a monthly fee of 2.25% of the average outstanding facility
balance and a monthly fee of .50% on the unused portion of the facility.
Interest expense on the $100.0 million credit facility including the swaps and
monthly fees for the year ended December 31, 1997 totaled $1,923,899.
6. INCOME TAXES
For the year ended December 31, 1995, the statement of operations includes
a provision for state income taxes on interest totaling $109,035 which the
Company incurred while operating as a Partnership. There is no provision for
state income taxes on interest for the years ended December 31, 1996 and 1997.
F-12
<PAGE> 84
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For the years ended December 31, 1995, 1996 and 1997, the Company provided
for federal income tax at a 35% rate on undistributed realized long-term capital
gains, excise taxes at a 4% rate on undistributed taxable net investment income
as defined by the Code and undistributed realized long-term capital gains and
federal and state income taxes on Harris Williams' pre-tax income (see Note 12).
For the years ended 1995, 1996 and 1997, the provision for income taxes totaled
$1,020,321, $4,270,054 and $838,175, respectively.
7. STOCK OPTION PLANS
At December 31, 1997, 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 SFAS No. 123, the Company's net increase in
shareholder's equity resulting from operations and related per share amounts for
the years ended December 31, 1995, 1996 and 1997 would have been reduced to the
pro-forma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net increase in shareholder's equity............ $13,882,000 $23,326,000 $37,608,000
Net increase in shareholder's equity per
share--Basic.................................. .87 1.04 1.24
Net increase in shareholder's equity per
share--Diluted................................ .87 1.01 1.19
</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:
<TABLE>
<CAPTION>
1995 1996 1997
--------- ---------- ----------
<S> <C> <C> <C>
Dividend yield..................................... 5.0% 3.5% 4.0%
Expected volatility................................ 34% 34% 40%
Risk free interest rate............................ 6.0-7.5% 6.0-7.5% 6.05-6.93%
Expected lives..................................... 6 years 6 years 10 years
Annual forfeiture rate............................. 10% 10% 2.5%
</TABLE>
Employee Stock Option Plans
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
1,000,000 and 2,280,000 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.
F-13
<PAGE> 85
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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................................................. $5.50-9.25 933,932
Exercised............................................... -- --
Forfeited............................................... --
---------
Outstanding, December 31, 1995............................ 933,932
Granted................................................. $9.33-17.875 1,535,162
Exercised............................................... $6.75-8.938 30,000
Forfeited............................................... $9.25-13.167 50,000
---------
Outstanding, December 31, 1996............................ 2,389,094
Granted................................................. $13.969-23.875 3,118,004
Exercised............................................... $5.50-13.969 134,000
Forfeited............................................... $9.25-17.50 42,000
---------
Outstanding, December 31, 1997............................ 5,331,098
=========
</TABLE>
Included in the 1,535,162 and 3,118,004 options granted in 1996 and 1997,
respectively, are options to purchase 639,094 shares that were issued subject to
the approval of the Company's shareholders of an increase in the number of
shares available for grant under the 1996 Plan, which was obtained in 1997, and
options to purchase 2,247,098 shares that have been issued subject to the
approval by the Company's shareholders of an increase in the shares available
for grant 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 228,000 shares of common
stock for automatic grant. Directors elected prior to December 1, 1994 will
receive options to purchase 36,000 shares and directors elected after December
1, 1994 will receive options to purchase 24,000 shares. Upon the initial
election of a future non-employee director, an option to acquire 12,000 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, 168,000
options were granted at an exercise price of $12.125 which were outstanding at
December 31, 1996. In 1997, 12,000 options were granted at an exercise price of
$13.968. No shares were exercised prior to 1997, and 11,600 shares were
exercised during 1997. No shares have been forfeited to date.
8. NET INCREASE IN SHAREHOLDERS' EQUITY PER SHARE
The Company computes the net increase in shareholders equity from
operations per common share-basic by dividing the net increase in shareholders'
equity from operations by the weighted average number of common shares
outstanding during the year which was 15,879,442, 22,529,246, and 30,220,742 for
the years ended 1995, 1996 and 1997, respectively. For the calculation of the
net increase in shareholders' equity from operations per common share-diluted,
the Company increases the weighted average number of shares for the potential
dilutive effect of outstanding stock options. The weighted average shares
outstanding considering the effect of the stock options outstanding was
15,979,442, 23,109,950, and 31,658,154 for the years ended 1995, 1996, and 1997,
respectively.
F-14
<PAGE> 86
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. 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.
During 1997, the Company paid dividends of $24,439,744 of which $16,977,374
and $7,462,370 were derived from net operating income and realized capital
gains, respectively. In December 1997, the Company declared a dividend derived
from capital gains totaling $5,405,267 payable in January 1998.
10. STOCK SPLIT
On January 5, 1998 the Board of Directors declared a two-for-one stock
split on the Company's common stock. One additional share will be issued for
each share of common stock held by shareholders of record as of the close of
business on January 16, 1998. The new shares will be distributed on January 30,
1998. All references to the number of common shares and per share amounts have
been restated as appropriate to reflect the effect of the split for all periods
presented.
11. COMMITMENTS AND CONTINGENCIES
The Company and Harris Williams lease offices under operating leases and
incurred rent expense of $353,056 during 1997. Annual commitments for each of
the next five years are as follows: 1998 -- $472,974; 1999 -- $477,356;
2000 -- $383,765; 2001 -- $383,765 and 2002 -- $282,604.
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 $580,000.
As of December 31, 1997, the Company had outstanding loan commitments
totaling $11,150,000. These commitments were made in the ordinary course of the
Company's business and are generally on the same terms as those to existing
borrowers.
The Company has made a commitment under a joint venture agreement to fund
up to $100.0 million (in Canadian dollars) in loans to Canadian companies.
F-15
<PAGE> 87
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. 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,
1996 and 1997 and statements of income for the years ended December 31, 1995,
1996 and 1997 are as follows:
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
-------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................. $732,408 $ 282,913
Accounts receivable....................................... 111,352 674,256
Other assets, net......................................... 126,752 1,645,857
-------- ----------
Total assets...................................... $970,512 $2,603,026
======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities............................................... $ 59,025 $1,678,067
Shareholders' equity...................................... 911,487 924,959
-------- ----------
Total liabilities and shareholders' equity........ $970,512 $2,603,026
======== ==========
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Fee income....................................... $2,257,496 $6,331,818 $9,330,114
Expense reimbursements and other................. 398,889 415,199 606,341
---------- ---------- ----------
Total revenues........................... 2,656,385 6,747,017 9,936,455
---------- ---------- ----------
EXPENSES:
Salaries and benefits............................ 1,314,723 2,603,739 4,904,607
Operating expenses............................... 530,052 879,227 1,333,067
---------- ---------- ----------
Total expenses........................... 1,844,775 3,482,966 6,237,674
---------- ---------- ----------
Pre-tax operating income......................... 811,610 3,264,051 3,698,781
Provision for income taxes....................... -- 207,110 824,703
---------- ---------- ----------
Net income............................... $ 811,610 $3,056,941 $2,874,078
========== ========== ==========
</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. Accordingly for the two years ended 1996 and 1997, Harris Williams
has provided federal income taxes of $207,110 and $824,703, respectively, which
is included in provision for income taxes in the accompanying consolidated
statements of operations.
F-16
<PAGE> 88
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Distributions of Harris Williams' earnings prior to the acquisition by the
Company were $806,000 and $2,985,369 in 1995 and 1996, respectively. During
1997, Harris Williams paid to the Company dividends of $2,806,606.
Harris Williams reimburses the Company for certain expenses which totaled
$145,932 and $520,791 for the years ending 1996 and 1997. Expense reimbursements
are reflected as a reduction in operating expenses in the Company's consolidated
statements of operations. Harris Williams has a receivable from the Company as
of December 31, 1997 totaling $877,929, which is included in accounts payable in
the Company's consolidated balance sheet.
During 1997, Harris Williams established a profit sharing and 401(k) plan
available to substantially all employees. The plan provides for discretionary
matching and profit sharing contributions. Contribution expense for 1997 totaled
$259,000.
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
<TABLE>
<CAPTION>
1995
---------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH 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.................. $ 0.10 $ 0.11 $ 0.14 $ 0.14
Net increase in partners' capital and
shareholders' equity resulting from
operations............................. .20 .15 .25 .20
Dividends(1).............................. .07 .13 .12 .13
Market price of common stock:(2)
High...................................... $ 5 13/16 $ 6 7/8 $ 9 3/8 $ 10
Low....................................... 5 3/8 5 9/16 6 5/8 8 3/8
</TABLE>
<TABLE>
<CAPTION>
1996
---------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH 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.................. $ 0.16 $ 0.17 $ 0.19 $ 0.21
Net increase in partners' capital and
shareholders' equity resulting from
operations............................. .44 .29 .15 .23
Dividends(1).............................. .12 .13 .16 .18
Market price of common stock:
High...................................... $ 11 7/8 $ 14 3/4 $ 15 1/8 $ 19 3/16
Low....................................... 9 5/16 11 5/8 11 1/2 15 1/8
</TABLE>
F-17
<PAGE> 89
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997
---------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Total operating income...................... $9,740 $10,898 $12,938 $14,771
Pretax operating income..................... 6,226 7,976 9,052 9,780
Net increase in partners' capital and
shareholders' equity resulting from
operatings................................ 3,886 9,917 16,660 10,843
Per share:
Pre-tax operating income.................. $ .22 $ .25 $ .28 $ .30
Net increase in partners' capital and
shareholders' equity resulting from
operations............................. .14 .31 .50 .34
Dividends(1).............................. .20 .21 .24 .43(3)
Market price of common stock:
High...................................... $ 21 1/8 $ 20 $ 26 1/16 $ 27 7/8
Low....................................... 17 3/8 13 31/32 17 21 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.
(3) Includes $.18 per share annual capital gain dividend declared in December
1997 and paid in January 1998.
F-18
<PAGE> 90
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
- ----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
AB Plastics Holding Corporation................ 9/27/01 $ 4,000,000 13.50% $ 4,000,000
Affinity Fund, Inc. ........................... 6/29/98 1,485,000 12.50 1,497,932
Affinity Fund, Inc. ........................... 3/10/00 1,000,000 14.00 1,000,000
Affinity Fund, Inc. ........................... 12/28/98 495,000 12.50 496,079
American Corporate Literature, Inc............. 9/29/01 1,683,000 14.00 1,684,132
ARAC Holding Co., Inc. ........................ 9/27/01 3,000,000 13.50 3,000,000
American Network Exchange...................... 11/30/98 990,000 13.00 996,346
American Network Exchange...................... 1/18/99 990,000 13.00 996,012
Amscot Holdings, Inc. ......................... 5/26/00 800,000 14.00 800,000
Amscot Holdings, Inc. ......................... 9/20/00 200,000 14.00 200,000
Amscot Holdings, Inc. ......................... 6/28/01 500,000 14.00 500,000
Amscot Holdings, Inc. ......................... 12/27/01 250,000 14.00 250,000
Argenbright Holdings Limited................... 7/7/01 2,750,000 13.50 3,500,000
Ashe Industries, Inc. ......................... 12/28/97 990,000 12.50 132,058
Ashe Industries, Inc. ......................... 3/25/99 445,500 12.50 122,300
Ashe Industries, Inc. ......................... 5/18/99 544,500 12.50 121,524
Ashe Industries, Inc. ......................... 6/12/96 750,000 14.00 100,000
Ashe Industries, Inc. ......................... 6/12/96 285,546 14.00 0
Associated Response Services, Inc. ............ 6/20/99 1,386,000 12.50 1,393,223
Associated Response Services, Inc. ............ 2/15/00 335,000 12.50 335,000
Associated Response Services, Inc. ............ 1/6/00 300,000 12.50 300,000
Associated Response Services, Inc. ............ 11/8/01 500,000 12.50 500,000
Assured Power, Inc. ........................... 10/1/00 700,000 13.50 700,000
Avionics Systems, Inc. ........................ 7/19/01 3,000,000 13.50 3,000,000
B & N Company, Inc. ........................... 8/8/00 2,970,000 12.50 2,978,500
B & N Company, Inc. ........................... 3/28/01 990,000 13.00 991,670
BankCard Services Corporation.................. 1/21/98 297,000 13.00 299,400
BiTec Southeast, Inc. ......................... 7/1/99 2,600,321 12.70 2,614,171
BiTec Southeast, Inc. ......................... 8/9/01 950,000 14.00 950,000
C.J. Spirits, Inc. ............................ 6/1/97 750,171 13.50 455,796
Caldwell/VSR Inc. ............................. 2/28/01 1,500,000 8.00 1,500,000
Caldwell/VSR Inc. ............................. 9/27/01 116,000 14.00 116,000
Cardiac Control Systems, Inc. ................. 3/31/00 1,500,000 13.50 1,500,000
Cartech Holdings, Inc. ........................ 4/29/01 1,500,000 13.00 1,500,000
Carter Kaplan Holdings, LLC.................... 6/22/00 594,000 14.00 94,800
Cedaron Medical, Inc. ......................... 6/28/01 1,500,000 13.50 1,500,000
Cell Call, Inc. ............................... 11/4/97 990,000 12.75 998,349
CF Data Corp................................... 3/16/00 1,732,500 13.75 1,738,924
Champion Glove Manufacturing Co., Inc. ........ 7/27/00 1,250,000 13.50 1,250,000
Colonial Investments, Inc. .................... 10/16/00 800,000 13.75 800,000
Colonial Investments, Inc. .................... 5/8/01 300,000 13.75 300,000
Consumat Systems, Inc. ........................ 11/1/00 500,000 14.00 500,000
Consumat Systems, Inc. ........................ 1/1/01 500,000 14.00 500,000
Consumat Systems, Inc. ........................ 3/11/01 500,000 14.00 500,000
Continental Diamond Cutting Co................. 10/28/99 1,500,000 13.00 1,500,000
Continental Diamond Cutting Co................. 11/16/99 200,000 13.00 200,000
</TABLE>
F-19
<PAGE> 91
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
- ----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Corporate Flight Mgmt, Inc..................... 12/4/97 $ 346,500 12.50% $ 349,341
Corporate Link, Inc............................ 12/13/01 600,000 14.00 600,000
Corporate Link, Inc............................ 3/13/97 300,000 14.00 300,000
CreditCorp and affiliates...................... 11/7/01 539,000 14.00 546,683
Dalcon International, Inc...................... 1/31/02 150,000 13.00 150,000
Dalcon International, Inc...................... 1/31/00 200,000 13.00 200,000
Dalts, Inc..................................... 4/28/01 2,000,000 13.50 2,000,000
DentalCare Partners, Inc....................... 1/11/01 1,951,150 12.50 1,956,160
Eastern Food Group LLC......................... 8/30/00 500,000 8.00 25,000
Eastern Food Group LLC......................... 12/20/00 200,000 8.00 25,000
Eastern Food Group LLC......................... 1/21/01 200,000 8.00 25,000
Eastern Food Group LLC......................... 2/14/01 265,000 8.00 25,000
Eastern Food Group LLC......................... 4/30/01 200,000 8.00 100,000
Eastern Food Group LLC......................... 9/10/01 180,000 8.00 80,000
Electronic Merchant Services................... 2/27/00 1,237,500 13.50 1,040,204
Electronic Merchant Services................... 2/29/96 168,572 14.00 168,572
Encore Orthopedics, Inc........................ 7/31/00 2,620,985 13.50 2,734,691
Encore Orthopedics, Inc........................ 2/28/01 1,667,680 13.00 1,728,609
Entek Scientific, Inc.......................... 6/28/01 2,500,000 13.00 2,500,000
Express Shipping Centers, Inc.................. 9/22/00 1,697,598 13.25 1,844,910
FoodNet Holdings, LLC.......................... 7/22/01 1,000,000 13.50 1,000,000
Fortrend Engineering Corp...................... 8/30/01 1,500,000 12.99 1,500,000
FX Direct, Inc................................. 1/23/01 2,324,000 13.50 2,359,199
Fypro, Inc..................................... 12/17/01 3,117,480 12.50 3,117,480
Fypro, Inc..................................... 12/17/01 592,000 4.00 152,000
Gardner Wallcovering, Inc...................... 3/28/01 1,485,000 13.50 1,487,500
General Materials Management, Inc.............. 7/29/01 2,500,000 13.50 2,500,000
Generation 2 Worldwide LLC..................... 10/31/00 2,000,000 14.00 2,000,000
Global Finance and Leasing, Inc................ 1/3/00 1,500,000 13.00 1,500,000
Global Marine Electronics, Inc................. 5/1/01 1,350,000 13.00 1,350,000
Gold Medal Products, Inc....................... 11/19/00 1,250,000 13.50 1,250,000
Gold Medal Products, Inc....................... 2/15/01 25,000 13.50 25,000
Gold Medal Products, Inc....................... 6/27/01 100,000 13.50 100,000
Gold Medal Products, Inc....................... 7/31/01 100,000 13.50 100,000
Golf Corporation of America, Inc............... 9/16/99 300,000 11.00 150,000
Golf Corporation of America, Inc............... 12/28/00 200,000 14.00 150,000
Golf Corporation of America, Inc............... 12/29/00 455,589 10.00 180,589
Golf Corporation of America, Inc............... 7/13/96 100,000 14.00 100,000
Golf Corporation of America, Inc............... 10/5/96 50,000 14.00 50,000
Golf Corporation of America, Inc............... 12/1/96 52,000 14.00 52,000
Golf Corporation of America, Inc............... 12/31/96 39,000 14.00 39,000
Golf Video, Inc................................ 3/27/01 500,000 14.00 50,000
Good Food Fast Companies, The.................. 12/13/01 1,300,000 13.50 1,300,000
Gulfstream International Airlines Inc.......... 7/29/99 1,490,000 13.00 1,496,513
Gulfstream International Airlines Inc.......... 9/25/00 1,000,000 13.50 1,000,000
Home Link Services, Inc........................ 12/30/01 79,750 14.00 79,750
</TABLE>
F-20
<PAGE> 92
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
- ----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Horizon Medical Products, Inc.................. 9/22/00 $ 1,500,000 13.75% $ 1,500,000
HPC America, Inc............................... 8/15/01 2,970,000 13.50 2,972,500
Hunt Incorporated.............................. 3/31/00 3,250,000 14.00 3,250,000
H & H Acq. Corp................................ 8/30/01 1,500,000 14.00 1,500,000
HTR, Inc....................................... 10/30/01 3,000,000 13.50 3,000,000
I.Schneid Acquisition, LLC..................... 4/1/01 2,000,000 14.00 2,000,000
ILD Communications............................. 5/10/01 1,500,000 13.50 1,500,000
In-Store Services, Inc......................... 4/19/00 1,188,000 14.00 1,192,200
Innotech, Inc.................................. 3/22/99 1,980,000 13.00 1,991,322
IV Infusion Corporation........................ 12/19/01 1,000,000 14.00 1,000,000
Johnston County Cable, L.P..................... 8/31/00 1,990,000 14.00 1,992,672
Kentucky Kingdom, Inc.......................... 4/4/99 250,000 8.25 250,000
Kentucky Kingdom, Inc.......................... 1/5/98 1,980,000 12.50 1,995,985
Kentucky Kingdom, Inc.......................... 9/26/99 1,200,000 10.50 1,200,000
Kentucky Kingdom, Inc.......................... 3/1/00 835,000 14.00 835,000
Kentucky Kingdom, Inc.......................... 11/6/00 1,500,000 12.50 1,500,000
Kentucky Kingdom, Inc.......................... 3/30/98 2,000,000 14.00 2,000,000
Kryptonics, Inc................................ 12/14/00 2,500,000 12.90 2,500,000
KWC Management Co., LLC........................ 4/25/01 500,000 14.00 50,000
Lane Acquisition Corporation................... 11/21/01 4,000,000 13.75 4,000,000
Leisure Clubs International, Inc............... 4/1/01 1,485,000 14.00 1,487,250
Lovett's Buffet, Inc........................... 4/1/00 2,250,000 13.00 2,250,000
Mayo Hawaiian Corp............................. 6/27/01 2,200,000 14.00 2,200,000
MBA Marketing Corporation...................... 2/4/99 1,782,000 12.50 1,792,500
McAuley's Incorporated......................... 7/31/01 3,000,000 13.00 3,000,000
Medical Associates of America, Inc............. 11/1/97 385,000 12.50 392,000
Metals Recycling Technologies, Inc............. 10/31/01 2,000,000 14.00 2,000,000
Money Transfer Systems, Inc.................... 7/24/00 247,500 14.00 248,256
Money Transfer Systems, Inc.................... 12/20/00 148,500 14.00 148,825
Money Transfer Systems, Inc.................... 3/1/01 148,500 14.00 148,750
Money Transfer Systems, Inc.................... 5/2/01 148,500 14.00 148,650
Money Transfer Systems, Inc.................... 7/8/01 148,500 14.00 148,650
Money Transfer Systems, Inc.................... 10/1/01 148,500 14.00 148,575
Monogram Products, Inc......................... 6/18/01 916,000 13.50 925,800
Moore Diversified Products, Inc................ 6/16/00 800,000 13.50 800,000
Multicom Publishing, Inc....................... 3/29/01 2,200,000 13.00 2,333,330
Multimedia Learning, Inc....................... 5/8/00 1,500,000 14.00 1,500,000
Multimedia Learning, Inc....................... 4/18/01 500,000 13.50 500,000
Multimedia Learning, Inc....................... 9/12/01 750,000 13.50 750,000
Multi-Media Data Systems, Inc.................. 11/20/01 2,000,000 14.00 2,000,000
NASC, Inc...................................... 6/26/01 1,500,000 13.50 1,500,000
NASC, Inc...................................... 12/13/98 500,000 13.50 500,000
Nationwide Engine Supply, Inc.................. 1/12/99 2,475,000 12.00 2,490,012
Nationwide Engine Supply, Inc.................. 9/26/01 1,000,000 13.50 1,000,000
Novavision, Inc................................ 12/18/01 520,000 13.00 520,000
NRI Service and Supply L.P..................... 2/13/00 2,225,000 14.00 2,234,591
</TABLE>
F-21
<PAGE> 93
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
- ----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Orchid Manufacturing Group, Inc................ 9/14/00 $ 2,960,000 13.00% $ 2,968,671
Orchid Manufacturing Group, Inc................ 12/28/00 1,000,000 13.50 1,000,000
Palco Telecom Service, Inc..................... 11/22/99 1,300,000 12.00 1,300,000
Paradigm Valve Services, Inc................... 11/12/01 1,600,000 13.50 1,600,000
Patton Management Corporation.................. 5/26/00 1,900,000 13.50 1,900,000
PaySys International, Inc...................... 6/1/97 990,000 13.00 999,292
PFIC Corporation............................... 2/28/01 1,000,000 13.00 1,000,000
Pipeliner Systems, Inc......................... 9/30/98 980,000 10.00 993,320
Plymouth, Inc.................................. 9/28/00 1,000,000 13.00 1,000,000
PRA International, Inc......................... 8/10/00 1,980,000 13.50 1,985,661
Precision Fixtures & Graphics, Inc............. 4/11/01 1,095,000 14.00 1,095,000
Precision Fixtures & Graphics, Inc............. 4/11/01 300,000 14.00 300,000
Precision Fixtures & Graphics, Inc............. 5/8/01 100,000 14.00 100,000
Precision Fixtures & Graphics, Inc............. 5/28/01 75,000 14.00 75,000
Precision Fixtures & Graphics, Inc............. 7/12/01 75,000 14.00 75,000
Precision Fixtures & Graphics, Inc............. 7/22/01 100,000 14.00 100,000
Precision Fixtures & Graphics, Inc............. 8/27/01 750,000 14.00 750,000
Precision Fixtures & Graphics, Inc............. demand 100,000 14.00 100,000
Precision Panel Products, Inc.................. 1/11/00 1,485,000 12.75 1,491,000
Pritchard Paint & Glass Co..................... 2/14/01 567,431 14.00 567,431
Quest Group International, Inc................. 11/15/00 1,125,000 13.25 1,154,162
Quest Group International, Inc................. 9/3/01 1,350,000 13.25 1,360,000
Radiant Systems, Inc........................... 6/27/01 2,760,000 14.00 2,788,000
Radiant Systems, Inc........................... 9/24/01 1,500,000 14.00 1,500,000
Rocky Mountain Radio Company LLC............... 11/10/01 2,500,000 13.50 2,500,000
Rynel Ltd., Inc................................ 10/1/01 1,250,000 14.00 1,250,000
Scandia Technologies, Inc...................... 4/9/01 1,825,000 14.00 1,825,000
Sheet Metal Specialties, Inc................... 6/20/01 250,000 14.00 250,000
Sheet Metal Specialties, Inc................... 12/4/01 211,750 12.00 211,750
SkillSearch Corporation........................ 2/5/98 496,000 13.00 499,349
SkillSearch Corporation........................ 3/10/97 150,000 14.00 150,000
Southern Specialty Brands, Inc................. 6/30/01 1,732,500 14.00 1,736,004
Sqwincher Corporation.......................... 1/31/00 500,000 13.50 500,000
Studley Products Corp.......................... 11/18/99 107,000 12.00 107,000
Studley Products Corp.......................... 12/1/99 440,800 8.00 440,800
Summit Publishing Group, Ltd................... 3/17/99 1,485,000 12.00 1,493,500
Summit Publishing Group, Ltd................... 7/26/01 625,000 14.00 625,000
Suncoast Medical Group, Inc.................... 9/14/99 485,000 13.50 441,998
Suncoast Medical Group, Inc.................... 6/7/00 495,000 14.00 445,913
Suncoast Medical Group, Inc.................... 2/23/01 522,000 14.00 472,747
TCOM Systems, Inc.............................. 2/5/98 462,610 0.00 462,608
Tower Environmental, Inc....................... 11/30/98 2,440,000 10.00 1,601,990
Tower Environmental, Inc....................... 5/30/95 150,000 12.50 150,000
Trade Am International, Inc.................... 9/30/00 4,000,000 12.75 4,000,000
TRC Acquisition Corporation.................... 10/21/01 1,000,000 13.50 1,000,000
UltraFab, Inc.................................. 6/27/01 1,500,000 14.00 1,500,000
</TABLE>
F-22
<PAGE> 94
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>
<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
</TABLE>
F-23
<PAGE> 95
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>
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>
<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
</TABLE>
F-24
<PAGE> 96
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
STOCK WARRANTS SHARES OWNERSHIP VALUE FAIR VALUE
- -------------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
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
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
</TABLE>
F-25
<PAGE> 97
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>
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
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
</TABLE>
F-26
<PAGE> 98
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>
Tower Environmental, Inc................. 82 10.07% $ 20,000 $ 0
Trade Am International, Inc.............. 335,106 6.00 0 0
TRC Acquisition Corporation.............. 375,000 12.50 0 0
UltraFab, Inc............................ 120,000 12.00 0 0
Unique Electronics, Inc.................. 20% of Co. 20.00 0 0
VanGard Communications Co., LLC.......... 12% of LLC 12.00 0 0
VDI Acquisition Company, LLC............. 21% of LLC 21.00 26 26
Viking Moorings Acquisition, LLC......... 6.5% of LLC 6.50 344,500 344,500
Virtual Resources, Inc................... 8 7.50 0 250,000
Voice FX Corporation..................... 233,112 7.10 176,000 450,000
WJ Holdings, Inc. ....................... 250,000 25.00 0 0
Zahren Alternative Power Corporation..... 1,247 6.54 25,000 400,000
------------ ------------
Total Warrants................. $ 6,059,240 $ 15,893,828
============ ============
OTHER INVESTMENTS (See Note 3)
Gates Communication, L.P. -- Anticipated
royalty payments upon sale of assets... -- -- $ 1,389,628 $ 1,289,628
Hancock Company -- Royalty stream from
sale of Gitman brand name.............. -- -- 1,900,000 600,000
HSA International, Inc. -- Anticipated
proceeds from litigation............... -- -- 1,150,000 1,000,000
Capitalized workout expenses............. -- -- 250,671 100,654
------------ ------------
Total other investments........ $ 4,690,299 $ 2,990,282
------------ ------------
Total Investments.............. $262,943,963 $275,337,296
============ ============
</TABLE>
F-27
<PAGE> 99
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
- ----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Action Sports Group, LLC......................... 8/19/02 $ 1,750,000 13.00% $ 1,750,000
Aero Products Corporation........................ 6/9/02 2,500,000 13.00 2,500,000
Aero Products Corporation........................ 12/19/99 1,250,000 14.00 1,250,000
Affinity Fund, Inc. ............................. 6/29/98 1,485,000 12.50 1,500,000
Affinity Fund, Inc. ............................. 3/10/00 1,000,000 14.00 1,000,000
Affinity Fund, Inc. ............................. 12/28/98 495,000 12.50 497,075
Alignis, Inc. ................................... 2/28/02 2,500,000 13.00 2,500,000
American Consolidated Laboratories, Inc.......... 4/25/02 1,458,450 13.50 1,223,990
American Consolidated Laboratories, Inc.......... 12/18/01 520,000 13.00 520,000
American Consolidated Laboratories, Inc.......... 4/25/02 529,238 13.50 534,126
American Corporate Literature, Inc. ............. 9/29/01 1,683,000 14.00 1,687,528
American Corporate Literature, Inc. ............. 1/1/98 500,000 14.00 500,000
American Network Exchange, Inc................... 11/30/98 990,000 13.00 998,350
American Network Exchange, Inc................... 1/18/99 990,000 13.00 998,016
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
Amscot Holdings, Inc. ........................... 7/30/02 1,000,000 14.00 1,000,000
Anton Airfoods, Inc. ............................ 5/21/02 5,000,000 13.50 5,000,000
ARAC Holding Co., Inc. .......................... 9/27/01 3,000,000 13.50 3,000,000
Ashe Industries, Inc. ........................... 5/18/99 535,546 12.50 185,546
Associated Response Services, Inc. .............. 6/20/99 1,386,000 12.50 1,396,019
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
Associated Response Services, Inc. .............. 3/27/02 3,000,000 12.50 3,000,000
Assured Power, Inc. ............................. 10/1/00 200,000 13.50 50,000
Atlantic Security Systems, Inc. and affiliates... 1/29/02 2,250,000 13.25 2,250,000
Auburn International, Inc. ...................... 12/31/02 2,850,000 13.50 2,852,500
Austin Innovations, Inc. ........................ 7/1/02 1,950,000 13.75 1,953,448
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 2,583,500
B & N Company, Inc. ............................. 3/28/01 990,000 13.00 993,507
BankCard Services Corporation.................... 1/21/98 273,731 13.00 126,631
BiTec Southeast, Inc. ........................... 7/1/99 2,600,321 12.70 2,192,671
BiTec Southeast, Inc. ........................... 8/9/01 950,000 14.00 950,000
BiTec Southeast, Inc. ........................... 4/30/97 350,000 14.00 350,000
BiTec Southeast, Inc. ........................... demand 228,000 14.00 228,000
Bohdan Automation, Inc. ......................... 7/1/02 1,500,000 13.50 1,500,000
Bravo Corporation, Inc. ......................... 3/31/03 3,250,000 12.00 3,250,000
BroadNet, Inc. .................................. 6/9/02 2,500,000 14.00 2,500,000
BUCA, Inc........................................ 10/31/02 1,565,003 13.50 1,572,253
Bug.Z., Inc. .................................... 9/23/02 2,500,000 15.00 2,500,000
C.J. Spirits, Inc. .............................. 6/1/97 750,171 13.50 105,796
Caldwell/VSR Inc. ............................... 2/28/01 1,500,000 12.00 1,500,000
</TABLE>
F-28
<PAGE> 100
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
- ----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Caldwell/VSR Inc. ............................... 9/27/01 $ 22,262 14.00% $ 22,262
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 44,800
Catalina Food Ingredients, Inc. ................. 3/30/02 3,500,000 13.00 3,500,000
Cedaron Medical, Inc. ........................... 6/28/01 1,500,000 13.50 1,500,000
Cell Call, Inc. ................................. 3/1/98 990,000 12.75 1,000,000
CF Data Corp. ................................... 3/16/00 1,732,500 13.75 1,742,428
Champion Glove Manufacturing Co., Inc. .......... 7/27/00 1,250,000 13.50 50,000
Check Into Cash, Inc. ........................... 11/7/01 3,039,000 14.00 3,138,879
CMHC Systems, Inc. .............................. 7/1/02 1,400,000 13.50 1,400,000
CMP Enterprises, LLC............................. 12/10/02 3,500,000 13.00 3,500,000
Colonial Investments, Inc. ...................... 10/16/00 800,000 13.75 800,000
Colonial Investments, Inc. ...................... 4/1/98 300,000 13.75 300,000
Colonial Investments, Inc. ...................... 4/1/98 60,933 13.75 60,933
Columbus Medical Holdings, LLC................... 1/31/02 4,000,000 13.75 4,000,000
Compression, Inc. ............................... 12/17/02 3,700,000 13.50 3,700,000
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
Consumat Systems, Inc. .......................... 3/26/02 500,000 14.00 500,000
Consumat Systems, Inc. .......................... 7/15/98 500,000 14.00 500,000
Continental Diamond Cutting Co. ................. 10/28/99 500,000 13.00 500,000
Continental Diamond Cutting Co. ................. 11/16/99 200,000 13.00 200,000
Corporate Link, Inc. ............................ 12/13/01 600,000 14.00 600,000
Corporate Link, Inc. ............................ 1/13/98 300,000 14.00 300,000
Cort Investment Group, Inc. (d/b/a Contract
Network)....................................... 8/27/02 3,320,000 13.50 3,335,000
Creighton Shirtmakers, Inc. and affiliates....... demand 1,969,000 14.00 1,969,000
CSM, Inc. ....................................... 12/31/01 1,400,000 14.00 1,400,000
Cybo Robotics, Inc. ............................. 9/18/02 1,050,000 13.25 1,050,000
Dalts, Inc. ..................................... 4/28/01 2,000,000 13.50 2,000,000
Dartek Industries, Inc........................... 11/20/01 3,800,000 13.50 3,800,000
Dartek Industries, Inc........................... 6/1/99 688,915 13.50 688,915
Data National Corporation........................ 12/10/02 1,050,000 13.75 1,057,500
DentalCare Partners, Inc. ....................... 1/11/01 2,206,023 12.50 2,213,037
DFI/Aeronomics, Inc. ............................ 12/30/02 3,000,000 13.50 3,000,000
Dyad Corporation................................. 12/31/02 2,900,000 14.00 2,910,000
DynaGen, Inc. ................................... 6/17/02 1,733,300 13.50 1,764,415
Dyntec, Inc. .................................... 7/7/02 2,500,000 14.00 2,500,000
Electronic Accessory Specialists Int'l, Inc. .... 6/23/02 1,600,000 13.50 1,600,000
Encor Technologies, Inc. ........................ 3/30/02 1,444,000 13.13 1,444,000
Endeavor Technologies, Inc. ..................... 9/2/02 4,000,000 13.50 4,000,000
Entek Scientific Corporation..................... 5/22/02 1,090,000 13.00 1,108,984
Entek Scientific Corporation..................... 6/28/01 2,500,000 13.00 2,500,000
Express Shipping Centers, Inc. .................. 9/22/00 1,697,598 13.25 1,955,394
</TABLE>
F-29
<PAGE> 101
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
- ----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Express Shipping Centers, Inc. .................. 5/1/02 $ 250,000 13.25% $ 250,000
Express Shipping Centers, Inc. .................. 7/14/98 150,000 15.00 150,000
Faxnet Corporation............................... 6/17/02 1,900,000 13.00 1,911,669
FDL, Inc. ....................................... 1/30/02 1,750,000 13.50 1,800,004
Film Technologies International, Inc. ........... 2/27/02 1,500,000 14.00 1,500,000
FoodNet Holdings, LLC............................ 7/22/01 1,500,000 13.50 1,500,000
Fortrend Engineering Corp. ...................... 8/30/01 1,500,000 12.99 1,500,000
Fypro, Inc. ..................................... 12/17/01 1,166,000 8.00 1,016,000
Gardner Wallcovering, Inc. ...................... 3/28/01 235,000 13.50 240,250
General Materials Management, Inc. .............. 7/29/01 2,500,000 13.50 2,250,000
Generation 2 Worldwide LLC....................... 10/31/00 2,000,000 14.00 2,000,000
Global Marine Electronics, Inc. ................. 5/1/01 1,350,000 13.00 1,350,000
Gloves Inc. ..................................... 5/1/02 1,500,000 13.00 1,500,000
Good Food Fast Companies, The.................... 12/10/01 2,500,000 13.50 2,500,000
Gulfstream International Airlines Inc. .......... 7/29/99 1,490,000 13.00 1,498,517
Gulfstream International Airlines Inc. .......... 9/25/00 1,000,000 14.00 1,000,000
Gulfstream International Airlines Inc. .......... 3/19/02 1,500,000 14.00 1,500,000
Gulfstream International Airlines Inc. .......... 12/1/99 2,200,000 14.00 2,200,000
H & H Acq. Corp. ................................ 8/30/01 1,500,000 14.00 1,500,000
Home Link Services, Inc. ........................ 12/30/01 300,000 14.00 300,000
Hunt Assisted Living, LLC........................ 10/17/02 2,999,900 12.00 2,999,904
Hunt Incorporated................................ 3/31/00 3,000,000 14.00 3,000,000
Hydrofuser Industries, Inc. and affiliates....... 7/30/02 885,039 13.00 932,006
I.Schneid Acquisition, LLC....................... 4/1/01 2,000,000 14.00 2,000,000
IJL Holdings, Inc. .............................. 9/12/02 1,250,000 13.50 1,250,000
ILD Communications, Inc.......................... 5/10/01 1,500,000 13.50 1,500,000
In-Store Services, Inc. ......................... 4/19/00 1,188,000 14.00 1,194,600
Johnston County Cable, L.P. ..................... 8/31/00 1,990,000 14.00 1,994,676
Karawia Industries, Inc. ........................ 3/27/02 2,500,000 14.00 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 1,490,250
Leisure Clubs International, Inc. ............... 3/27/02 125,000 14.00 125,000
M & M Industries, Inc. .......................... 2/26/02 2,250,000 14.00 2,250,000
Master Graphics, Inc. ........................... 5/31/02 4,300,000 13.25 4,300,000
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 1,796,100
McAuley's Incorporated........................... 7/31/01 3,000,000 13.00 3,000,000
MCG, Inc. ....................................... 12/23/02 1,500,000 13.50 1,500,000
Mead-Higgs Company, Inc. ........................ 5/19/02 1,400,000 14.00 1,400,000
Merge Technologies, Inc. ........................ 6/30/02 2,000,000 13.50 2,000,000
Mesa International, Inc. ........................ 1/23/02 3,800,000 14.00 3,800,000
Metals Recycling Technologies Corp. ............. 10/31/01 2,000,000 14.00 2,000,000
MetroLease, Inc. ................................ 7/29/02 2,495,000 13.50 2,495,498
Money Transfer Systems, Inc. .................... 7/24/00 247,500 14.00 248,760
Money Transfer Systems, Inc. .................... 12/20/00 148,500 14.00 149,125
</TABLE>
F-30
<PAGE> 102
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
- ----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Money Transfer Systems, Inc. .................... 3/1/01 $ 148,500 14.00% $ 149,050
Money Transfer Systems, Inc. .................... 5/2/01 148,500 14.00 148,950
Money Transfer Systems, Inc. .................... 7/8/01 148,500 14.00 148,950
Money Transfer Systems, Inc. .................... 10/1/01 148,500 14.00 148,875
Money Transfer Systems, Inc. .................... 1/5/02 245,000 14.00 245,996
Money Transfer Systems, Inc. .................... 3/6/02 250,000 14.00 250,000
Money Transfer Systems, Inc. .................... 7/15/02 250,000 14.00 250,000
Moore Diversified Products, Inc. ................ 6/16/00 800,000 13.50 800,000
Moore Diversified Products, Inc. ................ 3/27/02 1,000,000 13.50 1,000,000
Multicom Publishing, Inc. ....................... 3/29/01 1,025,000 13.00 1,068,328
Multicom Publishing, Inc. ....................... demand 51,556 14.00 51,556
Multicom Publishing, Inc. ....................... demand 650,000 14.00 650,000
Multicom Publishing, Inc. ....................... demand 70,000 14.00 70,000
Multicom Publishing, Inc. ....................... demand 160,000 14.00 160,000
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
Mytech Corporation............................... 9/25/02 1,400,000 13.50 1,400,000
NASC, Inc. ...................................... 6/26/01 1,500,000 13.50 1,500,000
NASC, Inc. ...................................... 12/13/98 500,000 13.50 500,000
National Health Systems, Inc. ................... 10/1/99 420,000 12.50 127,000
Nationwide Engine Supply, Inc. .................. 1/12/99 2,475,000 12.00 2,495,016
Nationwide Engine Supply, Inc. .................. 9/26/01 1,000,000 13.50 1,000,000
NetForce, Inc. .................................. 11/27/02 2,000,000 14.00 2,000,000
NRI Service and Supply L.P. ..................... 2/13/00 2,225,000 14.00 2,239,595
Omni Home Medical, Inc. ......................... 3/30/02 2,000,000 14.00 2,000,000
One Call Comprehensive Care, Inc. ............... 12/19/01 1,500,000 14.00 1,500,000
One Call Comprehensive Care, Inc. ............... 3/31/02 500,000 14.00 500,000
One Call Comprehensive Care, Inc. ............... 1/31/98 300,000 14.00 300,000
One Call Comprehensive Care, Inc. ............... 1/31/98 175,000 14.00 175,000
One Coast Network Corporation.................... 11/17/02 5,000,000 14.00 5,000,000
Orchid Manufacturing Group, Inc. ................ 9/14/00 2,960,000 13.00 2,976,675
Orchid Manufacturing Group, Inc. ................ 12/28/00 1,000,000 13.50 1,000,000
Outdoor Promotions LLC........................... 11/26/02 850,000 13.75 850,000
Pacific Linen, Inc. ............................. 12/3/02 2,951,976 13.50 2,961,110
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
Pathology Consultants of America, Inc............ 12/23/02 1,702,368 13.13 1,703,161
Patton Management Corporation.................... 5/26/00 1,900,000 13.50 1,900,000
PaySys International, Inc. ...................... 9/26/02 3,725,158 13.50 3,743,482
Pik:Nik Media, Inc. ............................. 6/23/00 1,000,000 12.00 1,000,000
Pipeliner Systems, Inc. ......................... 9/30/98 980,000 10.00 896,984
Plymouth, Inc. .................................. 9/28/00 1,000,000 13.00 1,000,000
Potomac Group, Inc. ............................. 11/20/01 1,997,409 14.00 1,997,409
PRA International, Inc. ......................... 8/10/00 1,980,000 13.50 1,989,657
Precision Panel Products, Inc. .................. 1/11/02 2,022,781 12.75 2,031,781
</TABLE>
F-31
<PAGE> 103
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
- ----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Precision Panel Products, Inc. .................. 1/11/02 $ 2,348,026 14.00% $ 2,348,026
Pritchard Paint & Glass Co. ..................... 2/14/01 767,431 14.00 767,431
Pritchard Paint & Glass Co. ..................... 2/10/01 200,000 14.00 200,000
Proamics Corporation............................. 7/31/02 1,000,000 13.00 1,000,000
Professional Training Services, Inc. ............ 9/30/02 3,400,000 13.25 3,400,000
Protect America, Inc. ........................... 1/30/02 3,905,000 13.50 3,923,996
R & R International, Inc. ....................... 6/30/02 2,000,000 13.25 2,000,000
Ready Personnel, Inc. ........................... 12/3/02 3,000,000 13.25 3,000,000
Recompute Corporation............................ 2/21/02 2,300,000 13.50 2,355,000
Reef Chemical Company, Inc. ..................... 9/23/02 2,700,000 13.75 2,720,000
Relax the Back Corporation....................... 10/1/02 2,500,000 13.00 2,500,000
Rocky Mountain Radio Company LLC................. 11/10/01 3,000,000 13.50 3,000,000
Rynel Ltd., Inc. ................................ 10/1/01 1,250,000 14.00 1,250,000
Saraventures Fixtures Inc. ...................... 5/23/02 8,307,376 14.00 4,807,376
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
Sheet Metal Specialties, Inc. ................... 1/24/02 38,250 12.00 38,250
SkillMaster, Inc. ............................... 3/30/02 2,475,000 13.75 2,479,170
SkillSearch Corportion........................... 2/5/98 496,000 13.00 500,153
Solutioneering, Inc. ............................ 3/31/02 2,000,000 13.75 2,000,000
Southern Specialty Brands, Inc. ................. 6/30/02 1,732,500 14.00 1,739,508
Southern Therapy, Inc. .......................... 4/22/02 1,000,000 13.50 1,000,000
Southern Therapy, Inc. .......................... 7/28/02 500,000 13.50 500,000
Stealth Engineering, Inc. ....................... 12/31/02 1,500,000 13.50 1,500,000
Stratford Safety Products, Inc. ................. 3/1/02 2,125,000 13.50 2,138,750
Sub 1 Corporation (d/b/a Risk Management)........ 10/8/02 750,000 14.00 750,000
Summit Publishing Group, Ltd. ................... 3/17/99 1,485,000 12.00 1,496,500
Summit Publishing Group, Ltd. ................... 7/26/01 625,000 14.00 625,000
Summit Publishing Group, Ltd. ................... 1/16/98 250,000 14.00 250,000
Suncoast Medical Group, Inc. .................... 9/14/99 485,000 13.50 91,998
Suncoast Medical Group, Inc. .................... 6/7/00 495,000 14.00 420,913
Suncoast Medical Group, Inc. .................... 2/23/01 522,000 14.00 447,747
Suncoast Medical Group, Inc. .................... 2/23/01 71,700 14.00 21,700
Suncoast Medical Group, Inc. .................... 12/31/98 625,000 13.50 --
TAC Systems, Inc. ............................... 3/27/02 1,012,000 14.00 1,012,000
TAC Systems, Inc. ............................... 1/31/98 500,000 14.00 500,000
TCOM Systems, Inc. .............................. 3/30/04 397,740 0.00 397,740
TeleCommunication Systems, Inc. ................. 9/20/02 3,000,000 14.00 3,000,000
Telecontrol Systems, Inc. ....................... 9/30/02 2,500,000 14.00 2,500,000
Temps & Co., Inc. ............................... 5/12/02 3,000,000 13.25 3,000,000
The Moorings, LLC................................ 12/31/01 1,655,500 13.00 1,799,050
The Moorings, LLC................................ 11/17/02 2,500,000 13.00 2,500,000
Thomas Holding Company (d/b/a Sports & Social
Clubs of the U.S............................... 5/21/02 1,500,000 13.50 1,500,000
Tie and Track Systems, Inc.)..................... 10/31/02 1,500,000 13.50 1,500,000
Towne Services, Inc. ............................ 12/18/02 1,500,000 14.00 1,500,000
</TABLE>
F-32
<PAGE> 104
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
- ----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Trade Am International, Inc. .................... 9/30/00 $ 4,000,000 12.75% $ 4,000,000
TRC Acquisition Corporation...................... 10/21/01 2,000,000 13.50 2,000,000
UltraFab, Inc. .................................. 6/27/01 1,500,000 14.00 1,500,000
Umbrellas Unlimited, LLC......................... 8/21/02 314,691 14.00 264,691
Unicoil, Inc. ................................... 9/28/02 2,000,000 13.50 2,000,000
Unique Electronics, Inc. ........................ 11/30/99 600,000 10.67 600,000
Unique Electronics, Inc. ........................ 10/10/02 300,000 13.00 300,000
UOL Publishing, Inc. ............................ 10/31/99 32,353 6.00 32,348
Valdawn Watch Company............................ 4/13/00 2,160,000 14.00 1,525,000
Valdawn Watch Company............................ 8/21/02 1,000,000 14.00 1,000,000
Valdawn Watch Company............................ 1/30/98 100,000 14.00 100,000
VDW Farms, Ltd. ................................. 11/25/02 1,500,000 14.00 1,500,000
Watts-Finnis Holdings, Inc. ..................... 11/30/02 2,500,000 13.25 2,500,000
Wearever Health Products, LLC.................... 3/31/02 1,500,000 13.50 1,500,000
Wearever Health Products, LLC.................... 12/11/02 450,000 13.50 450,000
Wolfgang Puck Food Company, Inc.................. 5/20/02 5,000,000 12.50 5,000,000
Zahren Alternative Power Corp. .................. 1/30/00 495,000 13.00 497,071
Zahren Alternative Power Corp. .................. 11/27/99 1,980,000 13.00 1,993,619
------------ ------------
Subtotals.............................. 375,031,495 365,465,224
------------ ------------
TANDEM CAPITAL LOANS TO PUBLICLY TRADED COMPANIES
Altris Software, Inc. ........................... 6/27/02 $ 2,415,000 11.50% $ 2,454,000
Berger Holdings, Inc. ........................... 1/2/03 1,796,000 12.25 1,799,400
Bikers Dream, Inc. .............................. 11/17/98 2,390,625 12.00 2,392,448
Cover-All Technologies, Inc. (convertible at
$1.25/sh.)..................................... 3/31/02 3,000,000 12.50 5,150,000
Digital Transmission Systems, Inc. (Convert at
$10.25/sh.).................................... 9/25/02 4,000,000 11.50 4,000,000
Environmental Tectonics Corporation.............. 3/27/04 3,500,770 12.00 3,534,054
Smartchoice Automotive Group (convertible at
$6/sh.)........................................ 3/12/99 3,500,000 12.00 3,500,000
Smartchoice Automotive Group (convertible at
$6/sh.)........................................ 5/13/02 4,000,000 12.00 4,000,000
Teltronics, Inc. (convertible at $4/sh.)......... 2/13/02 4,250,000 11.00 4,250,000
Universal Automotive Industries, Inc. ........... 7/11/02 4,500,000 12.25 4,500,000
------------ ------------
Subtotals.............................. 33,352,395 35,579,902
------------ ------------
CANADIAN LOANS
Century Pacific Greenhouses Ltd.*................ 4/14/02 1,002,794 13.00% 1,002,794
Copperhead Chemical Company, Inc. ............... 10/23/02 500,000 12.50 500,000
Daxxes Corporation*.............................. 12/1/02 847,997 13.00 847,997
Eagle Quest Golf Center Inc. .................... 6/20/02 1,600,000 13.50 1,600,000
Executrain (3199673 Canada Inc.)*................ 10/1/02 292,105 13.00 292,105
Executrain (3199673 Canada Inc.)*................ 12/24/02 559,910 13.00 559,910
Glen Oak Inc.*................................... 12/17/02 1,268,678 12.50 1,268,678
Graphic Workshop (1246568 Ontario Inc.)*......... 9/30/02 360,787 12.50 360,787
Newfoundland Career Academy Ltd.*................ 8/8/02 860,172 13.50 860,172
Quadravision Communications Ltd.*................ 4/11/02 437,956 13.00 437,956
Race Face Components, Inc.*...................... 11/1/02 433,463 12.00 433,463
SFG Technologies Inc.*........................... 7/30/02 724,218 13.00 724,218
</TABLE>
F-33
<PAGE> 105
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
- ----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Sirvys Systems (3404447 Canada Inc.)*............ 12/30/02 $ 704,037 14.00% $ 704,037
Street Level (1216069 Ontario Ltd.)*............. 12/29/02 348,651 13.00 348,651
Supplements Plus Natural Vitamins & Cosmetics,
Ltd.*.......................................... 10/3/03 144,823 16.50 144,823
Systech Group, Inc.*............................. 3/31/02 874,636 13.00 874,636
------------ ------------
Subtotals.............................. $ 10,960,227 $ 10,960,227
------------ ------------
Total Loans............................ $419,344,117 $412,005,353
============ ============
</TABLE>
- ---------------
* Loan cost and fair value are stated in US dollars. Loan principal is
denominated in Canadian dollars.
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
EQUITY INTERESTS SHARES OWNERSHIP VALUE FAIR VALUE
- ---------------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
PUBLICLY TRADED INVESTMENTS
American Consolidated Laboratories, Inc.
Common Stock............................... 1,000,000 9.20% $ 1,000,000 $ 175,000
American Network Exchange, Inc. Common
Stock...................................... 76,222 0.10 21,879 65,741
American Network Exchange, Inc. Common
Stock...................................... 63,429 0.00 0 0
Cardiac Control Systems, Inc. Common Stock... 50,000 2.20 250,000 25,313
Compass Plastics & Technologies Inc. Common
Stock...................................... 447,144 7.70 2,000 2,373,589
Medical Resources Inc. Common Stock.......... 55,549 .30 1,000,000 358,060
Moovies, Inc. Common Stock................... 156,110 1.60 1,561 149,280
Multicom Publishing, Inc. Common Stock....... 844,354 12.50 8,444 41,477
National Vision Associates, Ltd. Common
Stock...................................... 208,698 1.00 1,771,149 1,087,838
Network Event Theaters, Inc. Common Stock.... 412,397 4.20 2,114,772 1,335,135
Premiere Technologies, Inc. Common Stock..... 25,000 .10 0 603,750
QuadraMed Corporation Common Stock........... 11,422 .20 0 209,546
UOL Publishing, Inc. Common Stock............ 32,728 .90 8,494 362,735
Vista Information Solutions, Inc. Common
Stock...................................... 1,015,000 3.20 0 3,387,563
Vista Information Solutions, Inc. Common
Stock...................................... 143,032 0.40 0 371,287
NON-TRADED EQUITY INVESTMENTS IN PUBLIC
COMPANIES
Altris Software, Inc. Preferred
Stock -- convertible at $6.00/sh........... 3,000 -- 3,000,000 3,000,000
American Consolidated Laboratories, Inc.
Preferred Stock -- Series A................ 2,720,141 -- 2,720,141 2,375,000
Berger Holdings, Ltd. Preferred
Stock -- Series A;
convertible at $4.25/sh.................... 25,000 -- 2,500,000 2,500,000
Clinicor, Inc. Preferred Stock -- Series B... 50,000 -- 5,000,000 5,000,000
Environmental Tectonics Corporation Preferred
Stock -- Series A; convertible at
$7.50/sh................................... 25,000 -- 2,500,000 2,500,000
</TABLE>
F-34
<PAGE> 106
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
EQUITY INTERESTS SHARES OWNERSHIP VALUE FAIR VALUE
- ---------------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Multicom Publishing, Inc. Preferred Stock --
Series A................................... 235,000 -- $ 1,175,000 $ 0
Vista Information Solutions, Inc. Preferred
Stock -- Series E; convertible at
$2.75/sh................................... 2,500 -- 2,500,000 2,800,000
Vista Information Solutions, Inc. Preferred
Stock -- Series E; convertible at a price
to be determined in June 1998.............. 2,500 -- 2,500,000 2,500,000
EQUITY INVESTMENTS IN PRIVATE COMPANIES
Bravo Corporation Common Stock............... 69,391 1.20% 106,950 350,000
Caldwell/VSR Inc. Preferred Stock............ 890 -- 890,000 890,000
CellCall, Inc. Common Stock.................. 358 1.40 10,465 100,000
Clearidge, Inc. Preferred Stock -- Series
A.......................................... 10,800,000 -- 2,700,000 2,700,000
Clearidge, Inc. Common Stock................. 4,000,000 17.70 1,000,000 1,000,000
Corporate Flight Management, Inc. Common
Stock...................................... 66,315 6.60 663 663
CSM, Inc. Class A Common Stock............... 99,673 10.00 100,000 100,000
Dentalcare Partners, Inc. Preferred Stock --
Series E................................... 510,617 -- 819,639 300,000
Front Royal, Inc. Common Stock............... 110,000 0.80 275,000 400,000
Fypro, Inc. Preferred Stock -- Series A...... 4,659,480 -- 4,659,480 4,048,480
Gulfstream International Airlines, Inc.
Preferred Stock --Series A................. 216 -- 3,000,000 3,000,000
Home Link, Inc. Preferred Stock.............. 1,000,000 -- 1,000,000 750,000
Kentucky Kingdom, Inc. Common Stock.......... 24,142 5.60 238,316 500,000
Palco Telecom Service Common Stock........... 157,895 5.00 1,579 100,000
Paysys International, Inc. Common Stock...... 150,000 15.90 300 600,000
Pipeliner Systems, Inc. Preferred
Stock -- Series D.......................... 5,000 -- 1,000,000 800,000
Potomac Group, Inc. Preferred Stock -- Series
A.......................................... 800,000 -- 1,000,000 2,000,000
Potomac Group, Inc. Common Stock............. 738,187 9.10 292,370 1,799,038
PRA International, Inc. Common Stock......... 148,577 4.20 211,174 2,046,174
Recompute Corporation Common Stock........... 125,000 1.60 250,000 125,000
Relevant Knowledge, Inc. Preferred Stock --
Series B................................... 312,500 -- 500,000 500,000
Relevant Knowledge, Inc. Common Stock........ 75,000 3.30 120,000 120,000
Saraventures Fixtures, Inc. Preferred
Stock...................................... 3,510 -- 1,659,469 0
Skillsearch Corporation Common Stock......... 5,998 19.10 554,035 125,000
Teltrust, Inc. Common Stock.................. 175,677 1.75 0 525,000
Unique Electronics, Inc. Preferred Stock --
Series A................................... 1,000,000 -- 1,000,000 675,000
Valdawn Watch Co. Preferred Stock............ 240 -- 240,000 0
Voice FX Corporation Common Stock............ 24,078 0.80 110,001 25,000
Zahren Alternative Power Corporation Common
Stock...................................... 700 3.90 210,000 210,000
Zahren Alternative Power Corporation
Preferred Stock............................ 200 -- 200,000 200,000
------------ ------------
Total Equity Interests............. $ 50,222,881 $ 55,210,669
============ ============
</TABLE>
F-35
<PAGE> 107
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
STOCK WARRANTS SHARES OWNERSHIP VALUE FAIR VALUE
-------------- --------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
PUBLICLY TRADED COMPANIES
American Consolidated Laboratories,
Inc.................................... 1,050,563 9.69% $ 214,312 $ 183,849
American Network Exchange, Inc........... 13,988 0.00 0 0
Cardiac Control Systems, Inc. ........... 150,000 4.35 0 50,625
Cardiac Control Systems, Inc. ........... 50,000 2.15 0 0
Consumat Systems, Inc. .................. 250,000 20.00 0 84,375
Consumat Systems, Inc. .................. 66,379 5.00 0 0
DynaGen, Inc. ........................... 266,700 0.01 266,700 23,336
Encore Medical Corporation............... 69,841 0.01 0 0
HydroFuser Industries, Inc. ............. 662,245 5.00 469,684 463,572
Moovies, Inc. ........................... 20,000 0.20 0 0
Multicom Publishing, Inc. ............... 163,791 2.40 800,000 10,265
Vista Information Solutions, Inc. ....... 47,582 0.20 0 158,805
Vista Information Solutions, Inc. ....... 10,000 0.05 0 25,958
TANDEM CAPITAL WARRANTS IN PUBLICLY
TRADED COMPANIES
Altris Software, Inc. (exercise price
$6/sh.)................................ 300,000 3.00 585,000 450,000
Berger Holdings, Ltd. (exercise price
$4.25/sh.)............................. 240,000 4.60 204,000 204,000
Bikers Dream, Inc. (exercise price
$1/sh.)................................ 437,500 1.55 109,375 109,375
Environmental Tectonics Corp. (exercise
price $1/sh.).......................... 166,410 5.00 499,230 700,000
Smartchoice Automotive Group, Inc.
(exercise price $3/sh.)................ 300,000 2.50 0 200,000
Universal Automotive Industries, Inc.
(exercise price will be 80% of average
closing bid price for the 20 days prior
to 7/11/98)............................ 450,000 6.00 0 175,000
PRIVATE COMPANIES
Action Sports Group, LLC................. 3,350 10.00 0 0
Aero Products Corporation................ 30.61 25.00 0 0
Affinity Corporation..................... 550 9.67 20,000 20,000
Alignis, Inc. ........................... 111,684 4.00 0 0
American Corporate Literature, Inc....... 344,392 28.18 17,000 17,000
American Rockwool Acquisition Corp....... 1,100,000 11.00 0 400,000
Amscot Holdings, Inc. ................... 2,421 32.94 0 0
Anton Airfoods, Inc...................... 124 11.00 0 225,000
Associated Response Services, Inc. ...... 559 36.35 14,000 1,000,000
Assured Power, Inc. ..................... 280 12.00 0 0
Atlantic Security Systems, Inc. ......... 99 9.00 0 0
Auburn International, Inc. .............. 175,214 5.50 150,000 150,000
Austin Innovations, Inc. ................ 35,146 3.00 50,000 50,000
Auto Rental Systems, Inc. ............... 144,869 8.00 0 0
Aviation Holdings Ltd. (Newfoundland
affiliate)............................. 1,570 3.60 0 0
Avionics Systems, Inc. .................. 15% of Co. 15.00 0 0
</TABLE>
F-36
<PAGE> 108
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
STOCK WARRANTS SHARES OWNERSHIP VALUE FAIR VALUE
-------------- --------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
B & N Company, Inc. ..................... 81 4.00% $ 40,000 $ 0
BankCard Services Corporation............ 149,261 32.00 3,000 0
BiTec Southeast, Inc. ................... 1,480 15.00 21,000 0
Bohdan Automation, Inc. ................. 404,564 3.00 0 0
BroadNet, Inc. .......................... 265,568 15.00 0 0
BUCA, Inc................................ 96,666 1.27 434,997 434,997
Bug.Z, Inc. and Subsidiaries............. 821,121 12.50 0 0
C.J. Spirits, Inc. ...................... 180,000 10.00 7,500 0
Caldwell/VSR Inc. ....................... 159 15.93 0 0
Cartech Holdings, Inc.................... 280,702 25.00 0 0
Carter Kaplan Holdings, LLC.............. 24% of LLC 24.00 6,100 0
Catalina Food Ingredients, Inc. ......... 10.2 9.25 0 0
Cedaron Medical, Inc. ................... 173,981 4.25 0 0
Century Pacific Greenhouses LTD.......... 177,418 6.30 0 0
CF Data Corp............................. 257 20.50 17,500 150,000
Champion Glove Manufacturing Co., Inc.... 538,614 6.88 0 0
Check Into Cash, Inc. ................... 63,789 5.00 461,000 461,000
Clearidge, Inc. ......................... 442,164 1.30 0 0
CLS Corporation.......................... 126,997 4.22 0 0
CMHC Systems, Inc. ...................... 3,231 4.20 0 0
CMP Enterprises, LLC..................... 15.17% of LLC 15.17 0 0
Colonial Investments, Inc. .............. 360 32.00 0 0
Columbus Medical Holdings, LLC........... 17,455 12.00 0 0
Continental Diamond Cutting Company...... 112 10.00 0 0
Copperhead Chemical Company, Inc. ....... 93 4.20 0 0
Corporate Link, Inc. .................... 190 16.00 0 0
Cort Investment Group, Inc. (d/b/a
Contract Network)...................... 90,000 9.00 180,000 180,000
Creighton Shirtmakers, Inc. ............. 30,250 30.25 0 0
CSM, Inc. ............................... 130,000 13.00 0 0
Cybo Robotics, Inc. ..................... 1,700,000 8.68 0 0
Dalt's, Inc. ............................ 140 28.00 0 0
Data National Corporation................ 275,682 13.00 450,000 450,000
Daxxes Corporation....................... 61,766 2.94 0 0
Delaware Publishing Group, Inc. ......... 8,534 47.67 15,000 0
Dentalcare Partners, Inc. ............... 666,022 4.98 10,000 10,000
DFI/Aeronomics Incorporated.............. 94,525 0.50 0 0
Dyad Corporation......................... 615 5.00 600,000 600,000
Dyntec, Inc. ............................ 126,667 15.00 0 0
Eagle Quest Golf Centers, Inc. .......... 407,135 1.40 0 250,000
Electronic Accessory Specialists Int'l,
Inc.................................... 3,694 3.00 0 250,000
Encor Technologies, Inc. ................ 7.46 6.84 0 0
Endeavor Technologies, Inc. ............. 557,490 5.00 0 550,000
Entek Scientific Corporation............. 260,710 5.75 160,000 850,000
Executrain (3199673 Canada Inc.)......... 18.0012 12.60 0 0
Express Shipping Centers, Inc. .......... 91,352 6.25 552,402 262,622
</TABLE>
F-37
<PAGE> 109
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
STOCK WARRANTS SHARES OWNERSHIP VALUE FAIR VALUE
-------------- --------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
FaxNet Corporation....................... 190,321 2.50% $ 100,000 $ 100,000
FDL, Inc. ............................... 548 16.00 250,000 250,000
Film Technologies International, Inc. ... 8 7.50 0 0
Foodnet Holdings, LLC.................... 12% of LLC 12.00 0 0
Fortrend Engineering Corp................ 437,552 3.25 0 0
Front Royal, Inc. ....................... 240,458 1.85 0 875,000
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............... 28% of LLC 28.00 0 0
Glen Oak Inc. ........................... 93 7.50 0 0
Global Marine Electronics, Inc........... 5,137 18.00 0 0
Gloves Inc. ............................. 5,000 5.00 0 0
Good Food Fast Companies, The............ 174,779 17.00 0 0
Graphic Workshop (1246568 Ontario
Inc.).................................. 462 4.62 0 0
Gulfstream International Airlines,
Inc. .................................. 271 39.00 10,000 140,000
H & H Acqu. Corp......................... 3,600 22.50 0 160,000
Home Link Services, Inc. ................ 166,667 20.00 0 0
Hoveround Corporation.................... 850 10.00 0 3,750,000
HPC America, Inc. ....................... 5 2.75 0 0
Hunt Assisted Living, LLC................ 7.2% of Class A 7.20 0 0
Hunt Assisted Living, LLC................ 4.8% of Class B 4.80 100 100
Hunt Incorporated........................ 49 11.00 0 125,000
Hunt Leasing & Rental Corporation........ 295 11.00 0 125,000
I. Schneid Holdings LLC.................. 21% of LLC 21.00 0 0
IJL Holdings, Inc. ...................... 99 9.00 0 0
ILD Communications, Inc.................. 5,429 3.20 0 750,000
In Store Services, Inc. ................. 429 12.50 12,000 12,000
Isthmus, Inc............................. 38.25 3.50 0 0
Johnston County Cable L.P................ 31.94% of LP 31.94 110,000 600,000
K.W.C. Management Corp................... 794 24.40 0 0
Karawia Industries, Inc. ................ 1,391 12.00 0 0
Lane Acquisition Corporation............. 11,667 10.00 0 0
Leisure Clubs International, Inc. ....... 433 25.00 15,000 0
Lovett's Buffet, Inc. ................... 540,424 8.00 0 400,000
M & M Industries, Inc. .................. 1,659,113 15.00 0 0
Master Graphics, Inc. ................... 5 6.00 0 950,000
Mayo Hawaiian Corp....................... 105 9.50 0 0
MBA Marketing Corporation................ 11,785 4.50 18,000 18,000
McAuley's Incorporated................... 64 6.00 0 0
MCG, Inc. ............................... 121,518 4.50 0 0
Mead-Higgs, Inc. ........................ 2,500 10.00 0 0
Merge Technologies, Inc. ................ 21,449 3.25 0 500,000
Mesa International, Inc. ................ 18.51 16.00 0 750,000
Metals Recycling Technologies Corp....... 257,801 5.00 0 0
MetroLease, Inc. ........................ 26,471 20.00 5,000 5,000
</TABLE>
F-38
<PAGE> 110
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
STOCK WARRANTS SHARES OWNERSHIP VALUE FAIR VALUE
-------------- --------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Money Transfer Systems, Inc. ............ 137 12.00% $ 15,000 $ 500,000
Moore Diversified Products, Inc. ........ 17.04 15.00 0 0
Multimedia Learning, Inc. ............... 183,968 10.82 0 650,000
Mytech Corporation....................... 172,098 3.50 0 0
NASC, Inc. .............................. 2,652 23.00 0 0
Nationwide Engine Supply, Inc. .......... 1,337,379 21.34 25,000 25,000
NetForce, Inc. .......................... 67 6.25 0 0
Newfoundland Career Academy Ltd.......... 6,278 3.60 0 0
NRI Service and Supply, L.P.............. 27.5% of LP 27.50 25,000 25,000
Omni Home Medical, Inc. ................. 2,672 15.00 0 0
One Call Comprehensive Care, Inc. ....... 279,481 21.00 0 0
One Coast Network Corporation............ 763,666 15.63 0 0
Orchid Manufacturing, Inc. .............. 1,219,047 2.61 40,000 600,000
Outdoor Promotions LLC................... 5% of LLC 5.00 0 0
P.A. Plymouth, Inc. ..................... 92,647 15.00 0 475,000
Pacific Linens, Inc. .................... 365,349 7.81 548,024 548,024
Paradigm Valve Services, Inc. ........... 30,000 12.00 0 0
Pathology Consultants, Inc. ............. 317,553 6.00 47,633 47,632
Patton Management Corporation............ 511 12.00 0 185,000
PaySys International, Inc. .............. 37,660 0.40 274,826 150,000
Pipeliner Systems, Inc. ................. 2,400,000 23.34 20,000 0
Precision Panel Products, Inc. .......... 122 8.25 15,000 0
Pritchard Glass, Inc. ................... 12,500 25.00 0 0
Proamics Corporation..................... 382,299 3.50 0 0
Professional Training Services, Inc...... 255,600 2.40 0 0
Protect America, Inc. ................... 12,200 10.00 95,000 95,000
Quadravision Communications Limited...... 10 1.00 0 0
R & R International, Inc. ............... 67,021 6.00 0 0
Race Face Components. Inc. .............. 3,465 11.55 0 0
Ready Personnel, Inc. ................... 101,565 12.50 0 0
Recompute Corporation.................... 611,144 8.00 300,000 600,000
Reef Chemical Company, Inc. ............. 183,215 3.00 300,000 300,000
Relax the Back Corporation............... 1,156,042 10.00 0 0
Rynel Ltd., Inc. ........................ 390,517 15.00 0 0
Saraventures Fixtures, Inc. ............. 25 20.00 0 0
Scandia Technologies, Inc. .............. 327 25.50 0 0
SFG Technologies Inc. ................... 29,814 1.38 0 0
Sheet Metal Specialties, Inc. ........... 587 37.00 0 0
Sirvys Systems (3404447 Canada Inc.)..... 134,400 3.36 0 0
SkillMaster, Inc. ....................... 117 5.51 25,000 25,000
SkillSearch Corporation.................. 2,381 7.59 250,000 50,000
Solutioneering, Inc. .................... 13,135 7.50 0 0
Southern Specialty Brands, Inc. ......... 10,000 10.00 17,500 17,500
Southern Therapy, Inc.................... 333 10.00 0 400,000
Stealth Engineering, Inc. ............... 228,820 14.00 0 0
</TABLE>
F-39
<PAGE> 111
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
STOCK WARRANTS SHARES OWNERSHIP VALUE FAIR VALUE
-------------- --------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Stratford Safety Products, Inc. ......... 114.21 10.25% $ 75,000 $ 75,000
Street Level (1216069 Ontario Ltd.)...... 68,373 5.88 0 0
Sub 1 Corporation (d/b/a Risk
Management)............................ 15 13.00 0 0
Suncoast Medical Group, Inc. ............ 580,159 24.00 25,000 0
Superior Pharmaceutical Co............... 10% of Co. 10.00 0 0
Supplements Plus Natural Vitamins &
Cosmetics, Ltd......................... 1.3125 1.68 0 0
Systech Group, Inc. ..................... 34,330 2.10 0 0
TAC Systems, Inc. ....................... 315,838 3.60 0 0
TeleCommunication Systems, Inc. ......... 96,774 6.00 0 0
Telecontrol Systems, Inc. ............... 530,303 17.50 0 0
Temps & Co., Inc......................... 53 5.00 0 0
The Moorings, LLC........................ 9,493 14.50 344,500 200,000
Thomas Holding Company (d/b/a Sports &
Social Clubs).......................... 11 10.00 0 0
Tie and Track Systems, Inc............... 1,645 14.00 0 0
Towne Services, Inc. .................... 308,982 2.00 0 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
UltraFab Vessels, Inc. .................. 120,000 12.00 0 0
Unicoil, Inc. ........................... 86,239 8.50 0 0
Unique Electronics, Inc. ................ 30% of Co. 30.00 0 0
Valdawn Watch Co......................... 400 80.00 0 0
VanGard Communications Co., LLC.......... 14.4% of LLC 14.40 0 0
VDW Farms, Ltd........................... 10% of Co. 10.00 0 0
Voice FX Corporation..................... 233,112 8.00 0 250,000
Watts-Finniss Holdings, Inc. ............ 7,146 10.94 0 0
Wearever Healthcare Products, LLC........ 416,359 16.14 250,000 250,000
WJ Holdings, Inc. ....................... 250,000 25.00 0 0
Wolfgang Puck Food Company, Inc.......... 80,065 1.35 0 0
Zahren Alternative Power Corporation..... 1,168 6.54 25,000 400,000
------------ ------------
Total Warrants................. $ 9,610,383 $ 24,543,035
============ ============
OTHER INVESTMENTS (SEE NOTE 3)
SWS3, Inc. (expected proceeds from sale
of mfg. plant)......................... -- -- $ 521,926 $ 371,926
Hancock Company (royalty stream to be
collected from sale of Gitman brand
name).................................. -- -- 1,700,000 300,000
HSA International, Inc. (anticipated
proceeds from litigation).............. -- -- 1,150,000 1,000,000
Capitalized workout expenses............. -- -- 868,577 768,577
------------ ------------
Total other investments........ $ 4,240,503 $ 2,440,503
------------ ------------
Total Investments.............. $483,417,884 $494,199,560
============ ============
</TABLE>
F-40
<PAGE> 112
PART C
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
1. FINANCIAL STATEMENTS.
SIRROM CAPITAL CORPORATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 1996 and
1997...................................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1996 and 1997.......................... F-4
Consolidated Statements of Changes in Partners' Capital and
Shareholders' Equity for the Years Ended December 31,
1995, 1996 and 1997....................................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1996 and 1997.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
Quarterly Financial Information for the Years 1995, 1996 and
1997 (unaudited).......................................... F-17
Portfolio of Investments
As of December 31, 1996................................... F-19
As of December 31, 1997................................... F-28
</TABLE>
2. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
a. -- Amended and Restated Charter of the Company (incorporated by
reference to Exhibit 3.1 to the Registrant's Quarterly
Report on Form 10-Q for the period ending September 30,
1996), filed with the Commission on November 14, 1996)
b.1 -- Bylaws of the Company (incorporated by reference to exhibit
b. contained in the Registrant's Registration Statement on
Form N-2, as amended (File No. 33-86680), filed with the
Commission on November 23, 1994)
b.2 -- Amendment No. 1 to Bylaws (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the period
ended March 30, 1995 filed with the Commission on May 12,
1995)
d.1 -- Specimen form of Common Stock Certificate
d.2 -- Instruments defining rights of holders of securities: See
Paragraph 6 of the Company's Amended and Restated Charter
(incorporated by reference to Exhibit 3.1 to the
Registrant's Quarterly Report on Form 10-Q for the period
ending September 30, 1996, filed with the Commission on
November 14, 1996)
d.3 -- Equity Holders Agreement dated as of November 1, 1994 by and
among the Partnership and the other signatories thereto
(incorporated by reference to the corresponding exhibit
contained in the Registrant's Registration Statement on Form
N-2, as amended (File No. 33-86680), filed with the
Commission on November 23, 1994)
e. -- Amended and Restated Dividend Reinvestment Plan of the
Company
f.1 -- Fourth Amended and Restated Loan Agreement dated as of
August 16, 1996, by and among SII, as borrower, the Company,
as guarantor, the lenders referred to herein, and First
Union National Bank of Tennessee, as Agent (incorporated by
reference to Exhibit 7.1 to SII's Post-Effective Amendment
No. 1 to Registration Statement on Form N-5 (File No.
811-7779), filed with the Commission on November 7, 1996)
f.2 -- 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)
</TABLE>
C-1
<PAGE> 113
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
f.3 -- Amended and Restated Borrower Pledge Agreement dated August
16, 1996, made by SII in favor of First Union National Bank
of Tennessee (incorporated by reference to Exhibit 7.8 to
SII's Post-Effective Amendment No. 1 to Registration
Statement on Form N-5 (File No. 811-7779), filed with the
Commission on November 7, 1996)
f.4 -- Amended and Restated Security Agreement dated as of August
16, 1996, by and between SII and the SBA (incorporated by
reference to Exhibit 7.10 to SII's Post-Effective Amendment
No. 1 to Registration Statement on Form N-5 (File No.
811-7779), filed with the Commission on November 7, 1996)
f.5 -- Amended and Restated Pledge Agreement dated as of August 16,
1996, by and between SII and the SBA (incorporated by
reference to Exhibit 7.11 to SII's Post-Effective Amendment
No. 1 to Registration Statement on Form N-5 (File No.
811-7779), filed with the Commission on November 7, 1996)
f.6 -- Guaranty Agreement dated August 16, 1996 by and between the
Company and the SBA (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the period
ending September 30, 1996, filed with the Commission on
November 14, 1996)
f.7 -- 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)
f.8 -- 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 Amendment No. 1 to the Company's
Registration Statement on Form N-2 (File No. 333-19493),
filed with the Commission on January 23, 1997)
f.9 -- 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)
f.10 -- 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)
f.11 -- 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)
f.12 -- 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)
f.13 -- 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 k.3 to the Company's
Registration Statement on Form N-2 (File No. 333-19493),
filed with the Commission on January 9, 1997)
f.14 -- Second Amendment to Fourth Amended and Restated Loan
Agreement dated as of October 8, 1997 by and among SII as
borrower, the Company, as guarantor, the lenders referred to
herein, and First Union National Bank, as Agent
f.15 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $25,000,000,
made by SII in favor of First Union National Bank of
Tennessee
f.16 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $7,500,000, made
by SII in favor of First American National Bank
</TABLE>
C-2
<PAGE> 114
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
f.17 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $15,000,000,
made by SII in favor of Amsouth Bank of Tennessee
f.18 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $7,500,000, made
by SII in favor of First Tennessee Bank National Association
f.19 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $10,000,000,
made by SII in favor of Bank of America, FSB
f.20 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $10,000,000,
made by SII in favor of Bank One Kentucky, N.A.
f.21 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $10,000,000,
made by SII in favor of Texas Commerce Bank National
Association
f.22 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $10,000,000,
made by SII in favor of Corestates Bank, N.A.
f.23 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $10,000,000,
made by SII in favor of The First National Bank of Chicago
f.24 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $10,000,000,
made by SII in favor of Union Bank of California, N.A.
f.25 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $10,000,000,
made by SII in favor of Fleet Bank, N.A.
f.26 -- Second Amended and Restated Swingline Note dated October 8,
1997, in the principal amount of $10,000,000, made by SII in
favor of First Union National Bank
h.1 -- Form of Underwriting Agreement
h.2 -- Form of Agreement among International Underwriters
h.3 -- Form of Agreement between U.S. and International
Underwriters
h.4 -- Form of International Dealer Agreement
i.1 -- Amended and Restated 1994 Employee Stock Option Plan of the
Company (incorporated by reference to the corresponding
exhibit contained in the Registrant's Registration Statement
on Form N-2, as amended (File No. 33-86680), filed with the
Commission on November 23, 1994)
i.2 -- Form of Indemnification Agreement (incorporated by reference
to the corresponding exhibit contained in the Registrant's
Registration Statement on Form N-2, as amended (File No. 33-
86680), filed with the Commission on November 23, 1994)
i.3 -- 1995 Stock Option Plan for Non-Employee Directors
(incorporated by reference to the corresponding exhibit in
the Registrant's Registration Statement on Form N-2, as
amended (File No. 33-95394), filed with the Commission on
August 3, 1995)
i.4 -- 1996 Incentive Stock Option Plan (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)
i.5 -- Amendment No. 1 to 1996 Incentive Stock Option Plan
(incorporated by reference to Exhibit 10.28 in the
Registrant's Form 10-K for the year ended December 31, 1997,
filed with the Commission on March 26, 1997)
j.1 -- Custodial Services Agreement with First American Trust
Company dated March 13, 1992 (incorporated by reference to
the corresponding exhibit contained in the Registrant's
Registration Statement on Form N-2, as amended (File No.
33-86680), filed with the Commission on November 23, 1994)
j.2 -- Custodial Services Agreement Supplement with First American
Trust Company dated January 16, 1995 (incorporated by
reference to the corresponding exhibit contained in the
Registrant's Registration Statement on Form N-2, as amended
(File No. 33-86680), filed with the Commission on November
23, 1994)
</TABLE>
C-3
<PAGE> 115
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S> <C>
k.1 -- ISDA Master Agreement dated as of September 13, 1995, by and between the Company and First Union
National Bank (incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period
ending September 30, 1995 filed with the Commission on November 15, 1995)
k.2 -- 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)
k.3 -- ISDA Credit Support Annex to the Schedule to the ISDA Master Agreement dated as of November 26, 1996, by
and between the Company and NationsBank, N.A.
k.4 -- Acquisition Agreement by and among the Company, Sirrom Capital Acquisition Corporation, Sirrom, Ltd.,
Harris Williams & Co., L.P. and Harris Williams & Co. dated as of May 16, 1996 (incorporated by
reference to Exhibit k.9 to the Company's Registration Statement on Form N-2 (File No. 333-4023), filed
with the Commission on May 17, 1996)
k.5 -- 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 Amendment No. 1 to the Company's Registration Statement on
Form N-2 (File No. 333-19493), filed with the Commission on January 23, 1997)
l. -- Opinion of Bass, Berry & Sims PLC
n.1 -- Consent of Arthur Andersen LLP
n.2 -- Consent of Bass, Berry & Sims PLC (included in Exhibit 1)
r. -- Financial Data Schedule (for SEC use only)
</TABLE>
ITEM 25. MARKETING ARRANGEMENTS
The information contained under the heading "Underwriters" on pages 66
through 69 of the Prospectus is incorporated herein by this reference.
In connection with this Offering, the Underwriters may over-allot or effect
transactions which stabilize or maintain the market price of the Common Stock at
a level above that which might otherwise prevail in the open market. Such
stabilizing, if commenced, may be discontinued at any time.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC registration fee........................................ $ 48,000*
--------
NASD fee.................................................... 16,800*
--------
NYSE Additional Listing Fee................................. $ 19,000*
--------
Accounting fees and expenses................................ 75,000
--------
Legal fees and expenses..................................... 275,000
--------
Printing and engraving...................................... 275,000
--------
Miscellaneous fees and expenses............................. 41,200
--------
Total............................................. $750,000
========
</TABLE>
- ---------------
* Estimated for filing purposes.
All of the expenses set forth above shall be borne by the Company.
C-4
<PAGE> 116
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
Sirrom Investments, Inc., a Tennessee corporation, is a wholly-owned
subsidiary of the Company. Harris Williams & Co., a Virginia corporation, is a
wholly-owned subsidiary of the Company. Sirrom Funding Corporation, a Delaware
corporation, is a wholly-owned subsidiary of the Company. Tandem Capital, Inc.,
a Tennessee corporation, is a wholly-owned subsidiary of the Company. Vision
2000, Inc., a Tennessee corporation, and Multimedia 2000, Inc., a Tennessee
corporation, are each a wholly-owned work-out subsidiary of the Company.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
The following table sets forth the number of record holders of the
Company's Common Stock as of the date hereof.
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
- -------------- --------------
<S> <C>
Common Stock, no par value.................................. 151
</TABLE>
ITEM 29. INDEMNIFICATION
The Tennessee Business Corporation Act ("TBCA") provides that a corporation
may indemnify any of its directors and officers against liability incurred in
connection with a proceeding if (i) such person acted in good faith; (ii) in the
case of conduct in an official capacity, the director or officer reasonably
believed such conduct was in the corporation's best interests; (iii) in all
other cases, the director or officer reasonably believed that his conduct was
not opposed to the best interests of the corporation; and (iv) in connection
with any criminal proceeding, the director or officer had no reasonable cause to
believe his conduct was unlawful. In actions brought by or in the right of the
corporation, however, the TBCA provides that no indemnification may be made if
the director or officer was adjudged liable to the corporation. The TBCA also
provides that in connection with any proceeding charging improper personal
benefit to an officer or director, no indemnification may be made if such
officer or director is adjudged liable on the basis that such personal benefit
was improperly received. In cases where the director or officer is wholly
successful, on the merits or otherwise, in the defense of any proceeding
instigated because of his status as an officer or director of a corporation, the
TBCA mandates that the corporation indemnify the director or officer against
reasonable expenses incurred in the proceeding. Notwithstanding the foregoing,
the TBCA provides that a court of competent jurisdiction, upon application, may
order that an officer or director be indemnified for reasonable expenses if, in
consideration of all relevant circumstances, the court determines that such
individual is fairly and reasonably entitled to indemnification, notwithstanding
the fact that (i) he was adjudged liable to the corporation in a proceeding by
or in right of the corporation, (ii) he was adjudged liable on the basis that a
personal benefit was improperly received by him, or (iii) he breached his duty
of care to the corporation.
The Company's Charter provides that to the fullest extent permitted by
Tennessee law, no director shall be personally liable to the Company or its
shareholders for monetary damages for breach of any fiduciary duty as a
director. Under the TBCA, this charter provision relieves the Company's
directors from personal liability to the Company or its shareholders for
monetary damages for breach of fiduciary duty as a director, except for
liability arising from a judgment or other final adjudication establishing (i) a
breach of the director's duty of loyalty, (ii) acts or omissions not in good
faith or involving intentional misconduct or a knowing violation of law, (iii)
unlawful distributions, or (iv) receipt of an improper personal benefit. In
addition, the Company's Bylaws provide that each director or officer of the
Company shall be indemnified by the Company to the fullest extent allowed by
Tennessee law.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Not applicable.
C-5
<PAGE> 117
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
The Company maintains at its principal office physical possession of each
account, book or other document required to be maintained by Section 31(a) of
the 1940 Act and the rules thereunder.
ITEM 32. MANAGEMENT SERVICES
Not applicable.
ITEM 33. UNDERTAKINGS
The Registrant hereby undertakes:
(a) to suspend the offering of shares until the Prospectus is amended
if subsequent to the effective date of this Registration Statement, its net
asset value declines more than ten percent from its net asset value as of
the effective date of this Registration Statement;
(b) that, for the purpose of determining any liability under the
Securities Act of 1933, the information omitted from the form of Prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of Prospectus filed by the Registrant under Rule 497(h)
under the Securities Act of 1933 shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(c) that, for the purpose of determining any liability under the
Securities Act of 1933, each post effective amendment that contains a form
of Prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of the securities at
that time shall be deemed to be the initial bona fide offering thereof.
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
Insofar as indemnification for liability arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions of its Charter and Bylaws permitting
indemnification, or otherwise, the registrant has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
C-6
<PAGE> 118
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Nashville, and State of
Tennessee, on the 11th day of February, 1998.
SIRROM CAPITAL CORPORATION
By: /s/ GEORGE M. MILLER, II
------------------------------------
George M. Miller, II
Chief Executive Officer and
President
KNOW ALL MEN BY THESE PRESENTS, each person whose signature appears below
hereby constitutes and appoints George M. Miller, II and Carl W. Stratton, and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him or her and in his or her name,
place, and stead, in any and all capacities, to sign any and all amendments to
this Registration Statement, and to file the same, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ JOHN A. MORRIS, JR., M.D. Chairman of the Board February 10, 1998
- ----------------------------------------------------- and Director
John A. Morris, Jr., M.D.
/s/ GEORGE M. MILLER, II Chief Executive Officer, February 10, 1998
- ----------------------------------------------------- President and Director
George M. Miller, II (Principal Executive
Officer)
/s/ CARL W. STRATTON Chief Financial Officer February 10, 1998
- ----------------------------------------------------- (Principal Financial and
Carl W. Stratton Accounting Officer)
/s/ E. TOWNES DUNCAN Director February 10, 1998
- -----------------------------------------------------
E. Townes Duncan
/s/ WILLIAM D. EBERLE Director February 10, 1998
- -----------------------------------------------------
William D. Eberle
/s/ EDWARD J. MATHIAS Director February 10, 1998
- -----------------------------------------------------
Edward J. Mathias
/s/ ROBERT A. MCCABE, JR. Director February 10, 1998
- -----------------------------------------------------
Robert A. McCabe, Jr.
</TABLE>
C-7
<PAGE> 119
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
<-> Director February 10, 1998
/s/ RAYMOND H. PIRTLE, JR.
- -----------------------------------------------------
Raymond H. Pirtle, Jr.
/s/ KEITH M. THOMPSON Director February 10, 1998
- -----------------------------------------------------
Keith M. Thompson
/s/ CHRISTOPHER H. WILLIAMS Director February 10, 1998
- -----------------------------------------------------
Christopher H. Williams
/s/ L. EDWARD WILSON Director February 10, 1998
- -----------------------------------------------------
L. Edward Wilson
</TABLE>
C-8
<PAGE> 120
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
a. -- Amended and Restated Charter of the Company (incorporated by
reference to Exhibit 3.1 to the Registrant's Quarterly
Report on Form 10-Q for the period ending September 30,
1996), filed with the Commission on November 14, 1996)
b.1 -- Bylaws of the Company (incorporated by reference to exhibit
b. contained in the Registrant's Registration Statement on
Form N-2, as amended (File No. 33-86680), filed with the
Commission on November 23, 1994)
b.2 -- Amendment No. 1 to Bylaws (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the period
ended March 30, 1995 filed with the Commission on May 12,
1995)
d.1 -- Specimen form of Common Stock Certificate
d.2 -- Instruments defining rights of holders of securities: See
Paragraph 6 of the Company's Amended and Restated Charter
(incorporated by reference to Exhibit 3.1 to the
Registrant's Quarterly Report on Form 10-Q for the period
ending September 30, 1996, filed with the Commission on
November 14, 1996)
d.3 -- Equity Holders Agreement dated as of November 1, 1994 by and
among the Partnership and the other signatories thereto
(incorporated by reference to the corresponding exhibit
contained in the Registrant's Registration Statement on Form
N-2, as amended (File No. 33-86680), filed with the
Commission on November 23, 1994)
e. -- Amended and Restated Dividend Reinvestment Plan of the
Company
f.1 -- Fourth Amended and Restated Loan Agreement dated as of
August 16, 1996, by and among SII, as borrower, the Company,
as guarantor, the lenders referred to herein, and First
Union National Bank of Tennessee, as Agent (incorporated by
reference to Exhibit 7.1 to SII's Post-Effective Amendment
No. 1 to Registration Statement on Form N-5 (File No.
811-7779), filed with the Commission on November 7, 1996)
f.2 -- Third Amended and Restated Security Agreement dated August
16, 1996, by and between SII and First Union National Bank
of Tennessee (incorporated by reference to Exhibit 7.7 to
SII's Post-Effective Amendment No. 1 to Registration
Statement on Form N-5 (File No. 811-7779), filed with the
Commission on November 7, 1996)
f.3 -- Amended and Restated Borrower Pledge Agreement dated August
16, 1996, made by SII in favor of First Union National Bank
of Tennessee (incorporated by reference to Exhibit 7.8 to
SII's Post-Effective Amendment No. 1 to Registration
Statement on Form N-5 (File No. 811-7779), filed with the
Commission on November 7, 1996)
f.4 -- Amended and Restated Security Agreement dated as of August
16, 1996, by and between SII and the SBA (incorporated by
reference to Exhibit 7.10 to SII's Post-Effective Amendment
No. 1 to Registration Statement on Form N-5 (File No.
811-7779), filed with the Commission on November 7, 1996)
f.5 -- Amended and Restated Pledge Agreement dated as of August 16,
1996, by and between SII and the SBA (incorporated by
reference to Exhibit 7.11 to SII's Post-Effective Amendment
No. 1 to Registration Statement on Form N-5 (File No.
811-7779), filed with the Commission on November 7, 1996)
f.6 -- Guaranty Agreement dated August 16, 1996 by and between the
Company and the SBA (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the period
ending September 30, 1996, filed with the Commission on
November 14, 1996)
f.7 -- 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)
</TABLE>
<PAGE> 121
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
f.8 -- 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 Amendment No. 1 to the Company's
Registration Statement on Form N-2 (File No. 333-19493),
filed with the Commission on January 23, 1997)
f.9 -- 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)
f.10 -- 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)
f.11 -- 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)
f.12 -- 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)
f.13 -- 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 k.3 to the Company's
Registration Statement on Form N-2 (File No. 333-19493),
filed with the Commission on January 9, 1997)
f.14 -- Second Amendment to Fourth Amended and Restated Loan
Agreement dated as of October 8, 1997 by and among SII as
borrower, the Company, as guarantor, the lenders referred to
herein, and First Union National Bank, as Agent
f.15 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $25,000,000,
made by SII in favor of First Union National Bank of
Tennessee
f.16 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $7,500,000, made
by SII in favor of First American National Bank
f.17 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $15,000,000,
made by SII in favor of Amsouth Bank of Tennessee
f.18 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $7,500,000, made
by SII in favor of First Tennessee Bank National Association
f.19 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $10,000,000,
made by SII in favor of Bank of America, FSB
f.20 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $10,000,000,
made by SII in favor of Bank One Kentucky, N.A.
f.21 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $10,000,000,
made by SII in favor of Texas Commerce Bank National
Association
f.22 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $10,000,000,
made by SII in favor of Corestates Bank, N.A.
f.23 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $10,000,000,
made by SII in favor of The First National Bank of Chicago
f.24 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $10,000,000,
made by SII in favor of Union Bank of California, N.A.
f.25 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $10,000,000,
made by SII in favor of Fleet Bank, N.A.
f.26 -- Second Amended and Restated Swingline Note dated October 8,
1997, in the principal amount of $10,000,000, made by SII in
favor of First Union National Bank
</TABLE>
<PAGE> 122
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
h.1 -- Form of Underwriting Agreement
h.2 -- Form of Agreement among International Underwriters
h.3 -- Form of Agreement between U.S. and International
Underwriters
h.4 -- Form of International Dealer Agreement
i.1 -- Amended and Restated 1994 Employee Stock Option Plan of the
Company (incorporated by reference to the corresponding
exhibit contained in the Registrant's Registration Statement
on Form N-2, as amended (File No. 33-86680), filed with the
Commission on November 23, 1994)
i.2 -- Form of Indemnification Agreement (incorporated by reference
to the corresponding exhibit contained in the Registrant's
Registration Statement on Form N-2, as amended (File No. 33-
86680), filed with the Commission on November 23, 1994)
i.3 -- 1995 Stock Option Plan for Non-Employee Directors
(incorporated by reference to the corresponding exhibit in
the Registrant's Registration Statement on Form N-2, as
amended (File No. 33-95394), filed with the Commission on
August 3, 1995)
i.4 -- 1996 Incentive Stock Option Plan (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)
i.5 -- Amendment No. 1 to 1996 Incentive Stock Option Plan
(incorporated by reference to Exhibit 10.28 in the
Registrant's Form 10-K for the year ended December 31, 1997,
filed with the Commission on March 26, 1997)
j.1 -- Custodial Services Agreement with First American Trust
Company dated March 13, 1992 (incorporated by reference to
the corresponding exhibit contained in the Registrant's
Registration Statement on Form N-2, as amended (File No.
33-86680), filed with the Commission on November 23, 1994)
j.2 -- Custodial Services Agreement Supplement with First American
Trust Company dated January 16, 1995 (incorporated by
reference to the corresponding exhibit contained in the
Registrant's Registration Statement on Form N-2, as amended
(File No. 33-86680), filed with the Commission on November
23, 1994)
k.1 -- ISDA Master Agreement dated as of September 13, 1995, by and
between the Company and First Union National Bank
(incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the period ending September 30, 1995 filed
with the Commission on November 15, 1995)
k.2 -- 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)
k.3 -- ISDA Credit Support Annex to the Schedule to the ISDA Master
Agreement dated as of November 26, 1996, by and between the
Company and NationsBank, N.A.
k.4 -- Acquisition Agreement by and among the Company, Sirrom
Capital Acquisition Corporation, Sirrom, Ltd., Harris
Williams & Co., L.P. and Harris Williams & Co. dated as of
May 16, 1996 (incorporated by reference to Exhibit k.9 to
the Company's Registration Statement on Form N-2 (File No.
333-4023), filed with the Commission on May 17, 1996)
k.5 -- 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 Amendment No. 1 to the Company's
Registration Statement on Form N-2 (File No. 333-19493),
filed with the Commission on January 23, 1997)
l. -- Opinion of Bass, Berry & Sims PLC
n.1 -- Consent of Arthur Andersen LLP
n.2 -- Consent of Bass, Berry & Sims PLC (included in Exhibit 1)
r. -- Financial Data Schedule (for SEC use only)
</TABLE>
<PAGE> 1
Exhibit d.1
<TABLE>
<S> <C> <C>
COMMON STOCK SCC COMMON STOCK
SIRROM CAPITAL CORPORATION
INCORPORATED UNDER THE LAWS OF CUSIP 829905 10 8
THE STATE OF TENNESSEE LENDER TO SMALL BUSINESS SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFICATE IS TRANSFERABLE IN
NEW YORK, NEW YORK OR
CHARLOTTE, NORTH CAROLINA
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, NO PAR VALUE PER SHARE, OF
Sirrom Capital Corporation (the "Corporation"), a Tennessee corporation. The shares represented by this certificate
are transferable only on the stock transfer books of the Corporation by the holder of record hereof, or by the duly
authorized attorney or legal representative, upon the surrender of this certificate properly endorsed. This
certificate is not valid until countersigned and registered by the Corporation's transfer agent and registrar.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be executed by the facsimile signature of its duly
authorized officers.
Dated:
/s/ /s/
SECRETARY PRESIDENT
</TABLE>
<PAGE> 2
SIRROM CAPITAL CORPORATION
The shares represented by this certificate are issued subject to all the
provisions of the charter and bylaws of Sirrom Capital Corporation (the
"Corporation") as from time to time amended (copies of which are on file at the
principal executive offices of the Corporation), to all of which the holder by
acceptance hereof assents.
The Corporation will furnish to any shareholder upon request and without
charge a full statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each authorized class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights, to the extent that the same have been fixed, and
of the authority of the board of directors to designate the same with respect to
other series. Such request may be made to the Corporation or to its transfer
agent and registrar.
- --------------------------------------------------------------------------------
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM- as tenants in common
TEN ENT- as tenants by the entireties
JT TEN- as joint tenants with right of survivorship and not as tenants
in common
UNIF GIFT MIN ACT- ________________ Custodian ________________
(Cust) (Minor)
under Uniform Gifts to Minors
Act ___________________________________________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, _________________________________________________ hereby
sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
__________________ Attorney, to transfer the said shares on the books of the
within named corporation with full power of substitution.
Dated, _____________________
X___________________________________________________
X___________________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE
OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
SIGNATURE(S) GUARANTEED:____________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION, (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR DESTROYED, THE
CORPORATION MAY REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE OF A
REPLACEMENT CERTIFICATE.
<PAGE> 1
Exhibit e
SIRROM CAPITAL CORPORATION
AMENDED AND RESTATED
DIVIDEND REINVESTMENT PLAN
Sirrom Capital Corporation
500 Church Street
Suite 200
Nashville, TN 37219
(615) 256-0701
PLAN ADMINISTRATOR:
First Union National Bank
Shareholder Services Group - NC - 1153
1525 West W.T. Harris Blvd.
Charlotte, NC 28288
(800) 829-8432
<PAGE> 2
The following is the Sirrom Capital Corporation Amended and Restated Dividend
Reinvestment Plan (the "Plan"). Further questions and correspondence should be
directed to either of the addresses listed on the front of the Plan:
1. WHAT IS THE PURPOSE OF THE PLAN?
Sirrom Capital Corporation (the "Company" or "Sirrom" presently intends
to pay 90% of its net investment income in the form of quarterly cash
dividends and 100% of its long term capital gains in the form of an
annual cash dividend. The purpose of the Plan is to provide
shareholders with a simple and convenient method of investing these
cash dividends in additional shares of Common Stock, no par value, of
the Company. Participants in the Plan may have cash dividends
automatically reinvested without charges for recordkeeping, and may
take advantage of the custodial and reporting services provided by
First Union National Bank of North Carolina ("First Union" or "Plan
Administrator") at no additional cost.
2. WHAT DOES THE PLAN ADMINISTRATOR DO?
First Union administers the Plan for participants, keeps records, sends
statement of accounts to participants, and performs other duties
relating to the Plan.
3. HOW DOES A SHAREHOLDER ENROLL?
An eligible shareholder may join the Plan by signing an Authorization
Form and returning it to First Union. The Authorization Form requesting
enrollment must be received by First Union prior to the dividend
declaration date in order to take effect as of the next dividend.
Authorization Forms may be obtained at any time by written request to
First Union National Bank of North Carolina, Shareholder Services Group
- NC - 1153-1525 West W.T. Harris Blvd., Charlotte, NC 28288.
4. WHAT IF THE SHARES ARE HELD BY A BROKER, BANK OR NOMINEE?
If your shares are held on the books of First Union in the name of a
broker, bank or other nominee (a "nominee"), you can participate in the
Plan only to the extent that the nominee participates on your behalf.
Many nominees do not provide that service and routinely request
dividends and capital gains distributions to be paid in cash on all
shares registered in their names. Therefore, if your shares are held
for your account by a nominee, you must either make appropriate
arrangements for your nominee to participate on your behalf, or you
must become shareholder of record by having a part or all of your
shares transferred to your own name. If you would like to have your
shares transferred to your own name please contact First Union at (800)
829-8432.
1
<PAGE> 3
5. WHAT IF A SHAREHOLDER WOULD RATHER RECEIVE CASH?
If you have previously enrolled in the Plan and would rather receive
cash dividends, you may write a letter to First Union to communicate
that you would like to terminate your participation in the Plan. Any
communication by you expressing a preference for cash in lieu of shares
must be received by First Union before the record date of the next
dividend.
6. WHAT IF A SHAREHOLDER WISHES TO RECEIVE CASH ON ONLY SOME OF HIS OR HER
SHARES?
If you wish to receive dividends in cash on some of your shares, and
have the remaining dividends reinvested, you must write to First Union
giving notice to that effect. As a partial participant, you will
receive your dividends in cash only with respect to the number of
shares that you have specified. With respect to any other shares
registered in your name, and with respect to the shares credited to
your account on the books of First Union, the corresponding dividends
will be paid in additional shares.
The number of shares on which you receive cash may be changed at any
time simply by writing to First Union.
7. MAY A SHAREHOLDER ELECT TO RE-ENROLL ONCE HE HAS TERMINATED
PARTICIPATION IN THE PLAN?
Yes. If a shareholder has previously terminated participation in the
Plan, and later wishes to participate in the Plan, the shareholder may
re-enroll at any time by completing an Authorization Form and
delivering it to First Union. Any letter requesting enrollment must be
received by First Union prior to the dividend declaration date in order
for it to take effect as of the next dividend.
8. HOW DOES THE PLAN WORK?
When the Board of Directors declares a dividend, all nonparticipants
will receive it in cash. Participants will have credited to their Plan
Accounts the number of full and fractional shares (computed to three
decimal places) that could be obtained with the cash, net of any
applicable withholding taxes, that would have been paid to them if they
were not participants. Depending on the circumstances described in
Question 9, such shares will be acquired for participants either (i)
through receipt of newly-issued shares of Common Stock from the Company
or (ii) by purchase of outstanding shares of Common Stock on the open
market.
2
<PAGE> 4
9. WHEN WILL SHARES ACQUIRED THROUGH THE PLAN BE NEWLY-ISSUED AS OPPOSED
TO PURCHASED IN THE OPEN MARKET?
If the market price per share of Common Stock on the dividend payment
date equals or exceeds net asset value per share on that date, then the
Company will issue new shares of Common Stock to participants at the
greater of net asset value or 95% of the then current market price.
If the market price per share of Common Stock on the dividend payment
date is less than the net asset value per share on that date, then
First Union, as agent for participants, will make purchases of Common
Stock in the open market. If, before First Union has completed its
purchases, the market price exceeds the net asset value of a share of
Common Stock, the average purchase price per share paid by First Union
may exceed the net asset value of the Company's shares, resulting in
the acquisition of fewer shares than if the dividend had been in shares
newly-issued by the Company.
For all purposes of the Plan, (i) the market price of the Company's
Common Stock on a particular date shall be the average for the fifteen
preceding trading days of the average high and low bid price on such
days and (ii) net asset value per share of Common Stock on a particular
date shall be as determined by or on behalf of the Company.
Historically, the Company's Common Stock has traded significantly above
the net asset value per share. Therefore, the Company believes that in
most, if not all cases, reinvested dividends will be made in newly
issued shares.
10. WHEN WILL SHARES OF COMMON STOCK BE PURCHASED UNDER THE PLAN?
In the months in which dividends are paid, dividends will be invested
beginning on the dividend payment date. If the shares of Common Stock
are to be newly-issued shares of the Company, such shares will be
issued on the dividend payment date.
If the shares of Common Stock are to be purchased by First Union in the
open market, First Union will make every effort to invest any dividends
it receives promptly beginning on each dividend payment date, and in no
event later than 30 days from such date, except where necessary under
any applicable federal securities laws.
No interest will be paid on funds held by First Union pending
investment.
3
<PAGE> 5
11. HOW WILL FIRST UNION PURCHASE SHARES IN THE OPEN MARKET?
If the dividend is to be invested in shares purchased in the open
market, First Union will commingle each participants funds in making
such purchases for the participant's account. The price at which First
Union will be deemed to have acquired shares of Common Stock purchased
in the open market will be the weighted average price of all shares of
Common Stock purchased for Participants for that period plus brokerage
commissions. Neither the Company nor any shareholder has the authority
or power to direct the time or price at which shares of Common Stock
may be purchased or the selection of the broker or dealer through or
from whom purchases are to be made. The Company will absorb all
administrative expenses connected with the operation of the Plan
(except brokerage commissions which shall be borne pro rata by the
participants). First Union will hold the total shares of Common Stock
purchased for all participants in the name of its nominee and will have
no responsibility for the price of such shares after their purchase.
12. WHAT ACCOUNTS ARE MAINTAINED FOR PARTICIPANTS AND WHAT REPORTS ON THESE
ACCOUNTS DO PARTICIPANTS RECEIVE?
The Plan Administrator will maintain a separate account for each
participant. All shares issued to a participant under the Plan will be
credited to the participant's account. First Union will mail to each
participant a statement confirming the issuance of shares within
fifteen days after the allocation of shares is made. The statement will
show the amount of the dividend the price at which shares were
credited, the number of full and fractional shares credited, the number
of shares previously credited and the cumulative total of shares
credited. In addition, each participant will receive copies of the
Company's annual and quarterly reports to shareholders, proxy
statements, and dividend income and capital gains information for tax
purposes. The proxy card received by each participant will represent
shares held of record, including shares held in the Plan Account.
13. WILL CERTIFICATES BE ISSUED FOR SHARES ISSUED UNDER THE PLAN?
No. Certificates for shares issued under the Plan will not be furnished
to you until your account is terminated or unless you request
certificates in writing for a specified number of shares credited to
your Plan Account. All written requests for certificates should be
directed to First Union, allowing two weeks for processing. The
issuance of certificates for shares credited to a Plan Account will not
terminate your participation in the Plan. No certificate for a
fractional share will be issued. If you terminate your participation in
the Plan (see Question 16), First Union will sell for your account any
fractional share and send you a check for the proceeds.
4
<PAGE> 6
14. IN WHOSE NAME WILL CERTIFICATES BE REGISTERED WHEN ISSUED?
Accounts under the Plan are maintained in the name in which share
certificates of the participant were registered at the time the
participant entered the Plan. Certificates for whole shares issued at
the request of a participant will be similarly registered.
15. WHAT HAPPENS IF THE COMPANY ISSUES A STOCK DIVIDEND OR DECLARES A STOCK
SPLIT?
Any stock dividends or split shares distributed by the Company on
shares held by the Plan Administrator for the participant will be
credited to the participant's account.
16. WHAT HAPPENS IF A PARTICIPANT WISHES TO TERMINATE PARTICIPATION?
You may terminate your participation in the Plan at any time by
notifying First Union in writing. To be effective on any given dividend
payment date, the notice to terminate must be received by First Union
before the record date for the dividend. All dividends with a record
date after receipt of your notification will be sent directly to you.
Upon termination of your participation, you will receive a certificate
for the number of full shares of Common Stock held for you by First
Union at no charge. At the same time, you will receive a check in
payment for any fractional shares in your account, valued at the then
current market price of the Company's Common Stock, less any applicable
brokerage commissions and any other costs of sale. If you prefer, you
can request that your full shares of Common Stock held by First Union
be sold, and you will receive a check for the proceeds, less any
applicable brokerage commissions and any other costs of sale.
First Union may terminate, for whatever reason at any time as it may
determine in its sole discretion, a Participant's enrollment in the
Plan upon mailing a notice of termination to the Participant at his or
her address as it appears on First Union's records. The Company and
First Union may suspend or terminate the Plan at any time upon notice
in writing mailed to each Participant.
17. WHAT ARE FIRST UNION'S RESPONSIBILITIES UNDER THE PLAN?
First Union will not be liable under the Plan for any act done by First
Union in good faith or for any good faith omission to act including,
without limitation, any claims for liability (a) arising out of failure
to terminate a participant's participation in the Plan upon the
participant's death prior to receipt of notice in writing of such
death; (b) with respect to the prices at which shares are purchased or
sold for the participant's account and the time such purchases or sales
are made; and (c) relating to the value of the shares acquired for the
participant's account.
The Internal Revenue Code of 1986, as amended, imposes certain
reporting obligations upon brokers and other middlemen. As a result,
First Union will be required to report to
5
<PAGE> 7
the Internal Revenue Service and the participant any sales of stock by
First Union on behalf of a participant.
6
<PAGE> 8
SIRROM CAPITAL CORPORATION
AMENDED AND RESTATED DIVIDEND REINVESTMENT PLAN
AUTHORIZATION FORM
I wish to participate in the Sirrom Capital Corporation Amended and Restated
Dividend Reinvestment Plan (the "Plan") and authorize Sirrom Capital Corporation
to forward to First Union National Bank of North Carolina, as my agent, the
dividends due to me with respect to the below designated shares of Sirrom
Capital Corporation common stock held in my name. I authorize First Union
National Bank of North Carolina, as my agent, to reinvest my cash dividends in
both newly-issued shares of Sirrom Capital Corporation Common Stock and shares
of Sirrom Capital Corporation Common Stock purchased in the open market, in each
case in accordance with the terms and conditions set forth in the Plan as from
time to time in effect, and to have such Common Stock held in nominee name.
DIVIDENDS TO BE REINVESTED:
I wish to have dividends automatically reinvested as follows:
[ ] Reinvest dividends for all shares of common stock held in my name.
[ ] Reinvest dividends for only ________ shares of common stock held
in my name and all shares held in the Plan. Continue to pay
dividends in cash for the remainder of my shares of common stock.
Name (print) _________________ SS#_________________ Signature ________________
Name (print) _________________ SS#_________________ Signature ________________
Date _____________
<PAGE> 1
Exhibit f.14
SECOND AMENDMENT TO
FOURTH AMENDED AND RESTATED LOAN AGREEMENT
THIS SECOND AMENDMENT TO LOAN AGREEMENT, dated as of the 8th day of
October, 1997 (this "Second Amendment"), to the Loan Agreement referred to below
is entered into by and among SIRROM INVESTMENTS, INC., a corporation organized
under the laws of Tennessee (the "Borrower"), SIRROM CAPITAL CORPORATION, a
corporation organized under the laws of Tennessee (the "Guarantor"), the Lenders
party hereto (the "Lenders"), and FIRST UNION NATIONAL BANK (f/k/a FIRST UNION
NATIONAL BANK OF TENNESSEE), a national banking association, as Agent for the
Lenders (the "Agent").
Statement of Purpose
Certain of the Lenders have made certain loans to the Borrower pursuant
to the Fourth Amended and Restated Loan Agreement dated as of August 16, 1996
(as amended by the First Amendment to Loan Agreement dated as of November 19,
1996, and as further amended, modified or supplemented from time to time, the
"Loan Agreement") by and among the Borrower, the Guarantor, the Lenders party
thereto (the "Initial Lenders") and the Agent.
The Borrower and the Guarantor have requested, and the Agent and the
Initial Lenders have agreed, to amend the Loan Agreement and certain of the
other Loan Documents to provide for, among other matters, (i) the confirmation
of the provisions of the Waiver and Extension Letter dated January 17, 1997, a
copy of which is attached hereto as Schedule A (the "Waiver and Extension
Letter"), from the Agent to the Borrower and the Guarantor providing for the
extension of the Termination Date under the Loan Agreement, (ii) the increase in
the Aggregate Commitment, (iii) a revision to the calculation of the Borrowing
Base, (iv) a revision to the criteria for the Borrower's Valuation Method, (v)
the addition of certain Lenders to the Loan Agreement, (vi) the reaffirmation
and clarification of certain of the collateral granted under the Borrower Pledge
Agreement and (vii) certain other amendments provided for herein, said amendment
being pursuant to the terms and conditions of this Second Amendment.
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the parties hereto hereby agree as follows:
1.01 Capitalized Terms. Except as otherwise provided in this Second
Amendment, all capitalized undefined terms used in this Second Amendment shall
have the meanings assigned thereto in the Loan Agreement.
<PAGE> 2
2.01 Amendments to Loan Agreement. The parties hereto acknowledge that
it is the intention of this Second Amendment (i) to confirm the provisions of
the Waiver and Extension Letter which provided for the extension of the
Termination Date under the Loan Agreement, (ii) to increase the Aggregate
Commitment, (iii) to provide for the addition of certain Lenders to the Loan
Agreement and (iv) to amend certain other provisions of the Loan Agreement.
Without limiting the generality of the foregoing, the Loan Agreement shall be
amended as follows:
(a) Loan Amounts. It is acknowledged that immediately prior to the
effectiveness of this Second Amendment (i) the Aggregate Commitment shall equal
$50,000,000 and (ii) the Swingline Commitment shall equal $5,000,000. Upon the
effectiveness of this Second Amendment, (i) the Aggregate Commitment shall equal
$125,000,000 and (ii) the Swingline Commitment shall equal $10,000,000. Any
reference in any Loan Document to the Aggregate Commitment or to the amount of
the Loans under the Credit Agreement of up to an aggregate principal amount of
$50,000,000 shall be deemed to refer to the Aggregate Commitment as set forth in
this Second Amendment or to the amount of the Loans under the Credit Agreement
of up to an aggregate principal amount of $125,000,000 and any reference in any
Loan Document to the Swingline Commitment or to the amount of the Swingline
Loans under the Credit Agreement of up to an aggregate principal amount of
$5,000,000 shall be deemed to refer to the Swingline Commitment as set forth in
this Second Amendment or to the amount of the Swingline Loans under the Credit
Agreement of up to an aggregate principal amount of $10,000,000.
(b) Schedules.
(i) Schedules to Credit Agreement. Attached hereto are copies
of each Schedule referenced in the Loan Agreement revised to include
all information required to be provided therein, including, without
limitation, any information required to be provided pursuant to this
Second Amendment. Each reference to a Schedule in the Loan Agreement
which indicates that the information provided therein is true as of the
Closing Date shall be deemed to be a reference to such information as
of the closing date of this Second Amendment.
(ii) Schedules to Security Documents. Attached hereto are copies of
(i) Schedule I referenced in each Pledge Agreement revised to include
all information required to be provided therein, including, without
limitation, any information required to be provided pursuant to this
Second Amendment and (ii) Schedule 1, Schedule 2 and Schedule 3
referenced in the Security Agreement revised to include all information
required to be provided therein, including, without limitation, any
information required to be provided pursuant to this Second Amendment.
Each reference to Schedule
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I in each Pledge Agreement and Schedule 1, Schedule 2 and Schedule 3 in
the Security Agreement which indicates that the information provided
therein is true as of the Closing Date shall be deemed to be a
reference to such information as of the closing date of this Second
Amendment.
(iii) Commitments. The Borrower and the Lenders hereby acknowledge
that upon the effectiveness of this Second Amendment the Revolving
Credit Commitment of each Lender shall be as set forth on Schedule 1
attached hereto.
(c) Lenders. The parties hereto acknowledge that each Lender not party
to the Loan Agreement prior to the date of this Second Amendment shall be a
Lender under the Loan Agreement and shall have all of the rights and obligations
of a Lender under the Loan Agreement and the other Loan Documents.
(d) Amendment to Reflect Confirmation of Waiver and Extension Letter.
In connection with the terms and provisions of the Waiver and Extension Letter,
the parties hereto hereby agree as follows:
(i) It is understood that the provisions of the Waiver and
Extension Letter pertain only to the first request of the Borrower to
extend the date set forth in subsection (a) of Section 2.7 and shall
not be deemed to be a waiver of, or consent to, a modification or
amendment of, any other term or condition of the Loan Agreement
(including, without limitation, any request at a later date to modify
or amend any term or condition of Section 2.7 of the Loan Agreement).
Accordingly, the Loan Agreement is hereby amended by deleting the
reference to "December 28, 1998" in subsection (a) of Section 2.7 of
the Loan Agreement and inserting "May 31, 2000" in lieu thereof.
(ii) In addition, as set forth in the Waiver and Extension Letter,
the parties hereto agree that the Borrower may pursuant to the terms of
Section 2.7 of the Loan Agreement request two additional one-year
extensions of the date set forth in clause (a) of Section 2.7 of the
Loan Agreement (thus permitting the Borrower to request the extension
of the date set forth in clause (a) of Section 2.7 of the Loan
Agreement to May 31, 2001 pursuant to its first request and to May 31,
2002 pursuant to its second request). It is understood that the parties
hereto agree that decision of the Borrower to request the remaining two
(2) one-year extensions of the date set forth in clause (a) of Section
2.7 of the Loan Agreement shall be made by providing the Agent and each
of the Lenders with a written request for such extensions not more than
one hundred twenty (120) days and not fewer than ninety (90) days prior
to May 31, 1998 with respect to the first request and May 31, 1999 with
respect to the second request. Accordingly, the proviso of the first
sentence of Section 2.7 of the Loan
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Agreement is hereby deleted and the following is substituted in lieu
thereof:
;provided that the Borrower may request up to two (2) one year
extensions of the date set forth in clause (a) above by
providing the Agent and each of the Lenders with a written
request for such extensions not more than one hundred twenty
(120) days and not fewer than ninety (90) days prior to May
31, 1998 with respect to the first request and May 31, 1999
with respect to the second request (each, an "Extension
Date").
(e) Amendment to Existing Definitions. The definitions of the quoted
terms set forth below which are set out in Section 1.1 of the Loan Agreement are
hereby amended in their entirety to read as follows:
"Aggregate Commitment" means the aggregate amount of the
Lenders' Commitments hereunder, as such amount may be reduced
at any time or from time to time pursuant to the terms hereof.
As of the date of the Second Amendment, the Aggregate Commitment shall
be One Hundred Twenty-Five Million Dollars ($125,000,000).
"Agreement" means this Fourth Amended and Restated Loan
Agreement, as amended by the First Amendment to Fourth Amended and
Restated Loan Agreement dated as of November 19, 1996, the Second
Amendment to Fourth Amended and Restated Loan Agreement dated as of
October 8, 1997, and as further amended, modified or supplemented from
time to time.
"Borrowing Base" means, as of any date of determination, an
amount equal to (a) seventy-five percent (75%) of Eligible Loans plus
(b) the lesser of (i) eighty percent (80%) of Eligible Securities and
(ii) Twenty Million Dollars ($20,000,000) minus (c) the aggregate
amount of SBA Debt outstanding at such date and minus (d) any liability
of the Borrower under Hedging Agreements under this Agreement
calculated on a marked to market basis. For the purposes of this
definition, "Eligible Loans" means all loans in the Borrower's
portfolio or its Subsidiaries' portfolios payable to the Borrower or
one or more of its Subsidiaries excluding the following: (A) loans
classified as credit rating #5 or #6 in the Borrower's Rating System,
(B) all loans with any interest or principal more than thirty (30) days
past due and (C) loans classified as credit rating #4 and credit rating
#3 in the Borrower's Rating System and determined to be non- eligible
by the Agent, in the Agent's sole discretion; and "Eligible Securities"
means (i) all publicly traded equity securities (regardless of whether
such securities are restricted in the hands of the Borrower) in the
Borrower's portfolio, and (ii) all warrants which are currently
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exercisable for the purchase of shares of publicly traded equity
securities in the Borrower's portfolio in an aggregate amount not to
exceed $10,000,000, each valued in accordance with the Borrower's
Valuation Method.
"Commitment" means, as to any Lender, the obligation of such
Lender to make Loans to the Borrower hereunder in an aggregate
principal amount at any time outstanding not to exceed the amount set
forth opposite such Lender's name on Schedule 1 hereto, as the same may
be reduced or modified at any time or from time to time pursuant to the
terms hereof.
"First Union" means First Union National Bank (f/k/a First
Union National Bank of Tennessee), a national banking association, and
its successors.
"Obligations" means, in each case, whether now in existence or
hereafter arising: (a) the principal of and interest on (including
interest accruing after the filing of any bankruptcy or similar
petition) the Loans, (b) all payment and other obligations owing by the
Borrower to any Lender (or any Affiliate of a Lender) or the Agent
under any Hedging Agreement, and (c) all other fees and commissions
(including attorney's fees), charges, indebtedness, loans, liabilities,
financial accommodations, obligations, covenants and duties owing by
the Borrower to the Lenders or the Agent, of every kind, nature and
description, direct or indirect, absolute or contingent, due or to
become due, contractual or tortious, liquidated or unliquidated, and
whether or not evidenced by any note, and whether or not for the
payment of money under or in respect of this Agreement, any Note or any
of the other Loan Documents.
"Portfolio Certificate" means a certificate appropriately
completed and in the form of Exhibit E-3 hereto confirming the
ownership by the Credit Parties and their Subsidiaries of all of the
investments in their respective issuers and obligors and confirming
that neither Credit Party nor any Subsidiary thereof shall have any
investment in any issuer or obligor in which the other Credit Party or
any Subsidiary thereof has any investment, except that (A) the Parent
may have an investment in (including without limitation loans to) an
issuer or obligor in which a Subsidiary thereof (other than the
Borrower or any of its Subsidiaries) has an investment (including
without limitation loans) and (B) the Parent or any of its Subsidiaries
(other than the Borrower or any of its Subsidiaries) may have
investments in (including without limitation loans to) issuers or
obligors in whom the Borrower or any of its Subsidiaries has an equity
investment in the form of warrants or capital stock interests as long
as the aggregate value of all such equity investments of the Borrower
and its Subsidiaries in such issuers or obligors does not
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exceed ten percent (10%) of the value of all assets of the Borrower and
its Subsidiaries as determined in accordance with GAAP.
"Required Lenders" means, at any date, any combination of
holders of at least sixty-six and two-thirds percent (66-2/3%) of the
aggregate unpaid principal amount of the Revolving Credit Notes, or if
no amounts are outstanding under the Revolving Credit Notes, any
combination of Lenders whose Commitment Percentages aggregate at least
sixty-six and two-thirds percent (66-2/3%).
"Swingline Commitment" means Ten Million Dollars
($10,000,000).
(f) Deletion of Defined Term. The definition of "Lender Addition and
Acknowledgment Agreement" which is set forth in Section 1.1 of the Loan
Agreement is hereby deleted in its entirety. In connection therewith, Exhibit N
to the Loan Agreement shall be deleted in its entirety.
(g) Additional Defined Terms. Section 1.1 of the Credit Agreement is
further amended by the addition of the following definitions:
"First Amendment" means the First Amendment to Fourth Amended
and Restated Loan Agreement dated as of November 19, 1996 by and among
the Borrower, the Guarantor, the Lenders party thereto, and the Agent.
"Second Amendment" means the Second Amendment to Fourth
Amended and Restated Loan Agreement dated as of October 8, 1997 by and
among the Borrower, the Guarantor, the Lenders party thereto, and the
Agent.
(h) Amendment to Section 2.8. Section 2.8 of the Loan Agreement is
hereby deleted in its entirety and "INTENTIONALLY OMITTED" is inserted in lieu
thereof.
(i) Amendment to Section 3.1(a). Clause (b) of Subsection 3.1(a) of the
Loan Agreement is hereby deleted in its entirety and the following is
substituted in lieu thereof:
(b) the aggregate principal balance of the Swingline Note or
any portion thereof shall bear interest at the Base Rate minus .50%
(the "Swingline Rate Margin").
(j) Amendment to Section 3.1(b). Clause (v) of Subsection 3.1(b) of the
Loan Agreement is hereby deleted in its entirety and the following is
substituted in lieu thereof:
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(v) there shall be no more than eight (8) Interest Periods
outstanding at any time.
(k) Addition to Section 3.3(b). The following sentence shall be added
to the end of subsection (b) of Section 3.3 of the Loan Agreement:
In order to compensate each Lender party to this Agreement on the
closing date of the Second Amendment who has increased its Commitment
from its Commitment prior to such date or who has a new Commitment, an
additional up-front fee at a rate per annum equal to .150% on a
pro-rata basis among Lenders with an increased or new Commitment on the
amount of the increase in the Aggregate Commitment as of the closing
date of the Second Amendment (which upfront fees shall be payable on or
before the closing date of the Second Amendment).
(l) Amendment to Section 3.3(c). Subsection (c) of Section 3.3 of the
Loan Agreement is hereby deleted in its entirety and the following is
substituted in lieu thereof:
(c) Agent's and Other Fees. In order to compensate the Agent
for restructuring the Loans and amending and restating the Existing
Loan Agreement and for its obligations hereunder, the Borrower agrees
to pay to the Agent, for its account, the fees set forth in the
separate fee letter agreement executed by the Borrower and the Agent
dated July 12, 1996 (as updated by the separate fee letter agreement
executed by the Borrower and the Agent dated August 29, 1997).
(m) Amendment to Section 7.11. Section 7.11 of the Loan Agreement is
hereby deleted in its entirety and the following is substituted in lieu thereof:
SECTION 7.11. Visits and Inspections.
(a) Permit representatives of the Agent or any Lender, from
time to time, upon reasonable prior notice, (i) to visit and inspect
its properties; inspect, audit and make extracts from its books,
records and files, including, but not limited to, management letters
prepared by independent accountants; and discuss with its principal
officers, and its independent accountants, its business, assets,
liabilities, financial condition, results of operations and business
prospects and (ii) to meet with SBA representatives once each calendar
quarter (and at any time a Default or Event of Default has occurred and
is continuing) to discuss the Borrower's standing with the SBA and the
SBA's view of the Borrower's operations and prospects. The Credit
Parties shall use their best efforts to arrange any meetings between
the Agent or any Lender and the SBA permitted hereunder.
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(b) Permit representatives of the Agent (and any Lender at the
same time and in coordination with the Agent), from time to time (but
in any event no less than annually), upon reasonable prior notice, (i)
to review the Borrower's collection and administration of its loans and
investments in order to assess compliance by the Borrower with the
written policies and procedures (including, without limitation, the
Borrower's Rating System and the Borrower's Valuation Method) of the
Borrower and with this Agreement and the other Loan Documents and (ii)
to conduct an audit of the loans and investments of the Borrower, and
all documents executed in connection therewith, in conjunction with any
review under clause (i) above. The Agent shall use reasonable efforts
to complete any such review or audit within a reasonable period of time
and the results of any such review shall be communicated to the Lenders
in a reasonable summary format and in reasonable time after such
review. Absent a Default or Event of Default, the Borrower shall not be
obligated to bear the costs of any such review or audit.
(n) Amendment to Section 7.14. Section 7.14 of the Loan Agreement is
hereby deleted in its entirety and the following is substituted in lieu thereof:
SECTION 7.14. Ownership of Portfolio Companies. Maintain
ownership of all of the investments in their respective issuers and
obligors; provided that (a) with respect to the Parent, such ownership
may be direct or indirect through the creation of special purpose
vehicles created for the purpose of the ownership of such investments
(including without limitation loans) and (b) neither Credit Party nor
any Subsidiary thereof shall have any investment in any issuer or
obligor in which the other Credit Party or any Subsidiary thereof has
any investment, except (i) that the Parent may have an investment in
(including without limitation loans to) an issuer or obligor in which a
Subsidiary thereof (other than the Borrower or any of its Subsidiaries)
has an investment (including without limitation loans) and (ii) the
Parent or any of its Subsidiaries (other than the Borrower or any of
its Subsidiaries) may have investments in (including without limitation
loans to) issuers or obligors in whom the Borrower or any of its
Subsidiaries has an equity investment in the form of warrants or
capital stock interests as long as the aggregate value of all such
equity investments of the Borrower and its Subsidiaries in such issuers
or obligors does not exceed ten percent (10%) of the value of all
assets of the Borrower and its Subsidiaries as determined in accordance
with GAAP.
(o) Amendment to Section 8.4. Section 8.4 of the Loan Agreement is
hereby deleted in its entirety and the following is substituted in lieu thereof:
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SECTION 8.4. Non-Accrual and Delinquent Loans. As of the end
of any fiscal quarter, permit the ratio of (a) loans in its portfolio
(calculated on a fair value basis) which have payments more than
forty-five (45) days past due or which are on a non-accrual basis to
(b) the aggregate amount of loans in its portfolio (calculated on a
fair value basis) to exceed (i) .150 to 1.00 for any fiscal quarter or
(ii) .125 to 1.00 for any two (2) consecutive fiscal quarters.
(p) Amendment to Section 9.7. Section 9.7 of the Loan Agreement is
hereby deleted in its entirety and the following is substituted in lieu thereof:
SECTION 9.7. Limitations on Dividends and Distributions.
Declare or pay any dividends upon any of its capital stock; purchase,
redeem, retire or otherwise acquire, directly or indirectly, any shares
of its capital stock, or make any distribution of cash, property or
assets among the holders of shares of its capital stock, or make any
change in its capital structure; provided that:
(a) any Credit Party or any Subsidiary may pay dividends in
shares of its own capital stock;
(b) any Subsidiary of the Borrower may pay cash dividends to
the Borrower;
(c) so long as no Default or Event of Default shall have
occurred and be continuing and such Credit Party maintains its status
as a "regulated investment company", each Credit Party may pay
dividends required under the Code to maintain its status as a
"regulated investment company";
(d) so long as no Default or Event of Default shall have
occurred and be continuing, the Borrower may pay realized capital gain
dividends to the Parent; provided the Parent will make a capital
contribution to the Borrower in the form of cash and otherwise in a
manner satisfactory to the Agent on the date of such payment in an
aggregate amount equal to the amount of such realized capital gain
dividends less income taxes required to be paid by the Parent under the
Code in connection therewith; and
(e) so long as no Default or Event of Default shall have
occurred and be continuing, the Parent may pay long term capital gain
dividends to its shareholders.
(q) Amendment to Section 13.11(h). Subsection (h) of Section 13.11 of
the Loan Agreement is hereby deleted in its entirety and the following is
substituted in lieu thereof:
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(h) Certain Pledges or Assignments. Nothing herein shall
prohibit any Lender from pledging or assigning any Note to any Federal
Reserve Bank in accordance with Applicable Law or from assigning a
portion of its rights and obligations hereunder to an Affiliate solely
for the purpose of inducing that Affiliate to enter into Hedging
Agreements on its behalf.
(r) Amendment to Section 13.12. Section 13.12 of the Loan Agreement is
hereby deleted in its entirety and the following is substituted in lieu thereof:
SECTION 13.12. Amendments, Waivers and Consents. Except as set
forth below, any term, covenant, agreement or condition of this
Agreement or any of the other Loan Documents may be amended or waived
by the Lenders, and any consent given by the Lenders, if, but only if,
such amendment, waiver or consent is in writing signed by the Required
Lenders (or by the Agent with the consent of the Required Lenders) and
delivered to the Agent and, in the case of an amendment, signed by the
Credit Parties; provided that no amendment, waiver or consent shall (a)
increase the amount or extend the time of the obligation of the Lenders
to make Loans (including, without limitation, pursuant to Section 2.7),
(b) except as specifically set forth in Section 2.7 hereof, extend the
originally scheduled time or times of payment of the principal of any
Loan or the time or times of payment of interest on any Loan, (c)
reduce the rate of interest or fees payable on any Loan, (d) permit any
subordination of the principal or interest on any Loan, (e) release any
Collateral (other than as specifically provided in this Section 13.12)
or Security Document (other than as specifically permitted in this
Agreement or the applicable Security Document), (f) reduce the
"Guaranteed Obligations" as defined in Section 10.1 or release the
Guarantor from its obligations under Article X, (g) amend the
provisions of this Section 13.12 or the definition of Required Lenders
or (h) amend the definition of Borrowing Base, without the prior
written consent of each Lender; and provided further that so long as no
Default or Event of Default has occurred or is continuing or would be
created, upon the request of the Borrower the Agent may, in its
reasonable discretion, release any Collateral pledged by the Borrower
under the Borrower Pledge Agreement on the basis of the sale or
transfer of notes, warrants or other securities in the ordinary course
of business of the Borrower and in accordance with the terms of the
applicable instruments governing said notes, warrants or securities. In
addition, no amendment, waiver or consent to the provisions of Article
XII shall be made without the written consent of the Agent.
(s) Amendments to Borrower's Valuation Method; Exhibit E-1. Exhibit E-1
(Description of Rating System and Valuation Method) to the Loan Agreement shall
be deleted in its entirety and a new
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Exhibit E-1 (Description of Rating System and Valuation Method) in the form
attached to this Second Amendment is incorporated by reference into the Loan
Agreement in lieu thereof.
(t) Amendments to Portfolio Certificate; Exhibit E-3. Exhibit E-3
(Portfolio Certificate) to the Loan Agreement shall be deleted in its entirety
and a new Exhibit E-3 (Portfolio Certificate) in the form attached to this
Second Amendment is incorporated by reference into the Loan Agreement in lieu
thereof.
(u) Amendments to Borrowing Base Certificate; Exhibit D. Exhibit D
(Borrowing Base Certificate) to the Loan Agreement shall be deleted in its
entirety and a new Exhibit D (Borrowing Base Certificate) in the form attached
to this Second Amendment is incorporated by reference into the Loan Agreement in
lieu thereof.
(v) Additional Exhibits. Attached hereto is (i) a copy of the form of
the Fifth Amended and Restated Revolving Credit Note, substantially in the form
of Exhibit A-1 hereto, and (ii) a copy of the form of the Second Amended and
Restated Swingline Note, substantially in the form of Exhibit A-2 hereto. The
form of each such Exhibit shall be substituted in lieu of the form of each such
Exhibit attached to the original Credit Amendment (prior to this Second
Amendment).
3.01 Amendments to Borrower Pledge Agreement. In addition to the
amendments previously set forth herein, the parties hereto acknowledge that it
is the intention of this Second Amendment to reaffirm and clarify the nature of
certain of the collateral granted under the Borrower Pledge Agreement. Without
limiting the generality of the foregoing, the Borrower Pledge Agreement shall be
amended as follows:
(a) Amendment to Existing Definitions. The definitions of the quoted
terms set forth below which are set out in Section 1 of the Borrower Pledge
Agreement are hereby amended in their entirety to read as follows:
"Pledged Debt" means the indebtedness described on Schedule I
and issued by the obligors named therein and the instruments evidencing
such indebtedness, and all principal, interest, cash, instruments and
other property (including, without limitation, all collateral or other
security interests granted by the obligors named therein to the Pledgor
as security for such indebtedness and all instruments relating thereto)
from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such indebtedness, and all
Proceeds therefrom; all additional indebtedness (to the extent not
effectively pledged to the Lender pursuant to another Loan Document)
from time to time owed to the Pledgor by any obligor and the
instruments evidencing such indebtedness, and all principal, interest,
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cash, instruments and other property (including, without limitation,
all collateral or other security interests granted by the obligors
named therein to the Pledgor as security for such indebtedness and all
instruments relating thereto) from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of
such additional indebtedness, and all Proceeds therefrom.
(b) Amendment to Section 2. The following sentence is hereby set forth
as an addition to Section 2 of the Borrower Pledge Agreement:
The Pledgor and the Agent hereby acknowledge that the
Collateral delivered to the Agent and granted as collateral
security for the prompt and complete payment and performance
when due (whether at the stated maturity, by acceleration or
otherwise) of the Obligations shall include, without
limitation, all collateral or other security interests granted
by the obligors of the Pledged Debt named therein to the
Pledgor as security for the Pledged Debt and all instruments
relating thereto.
4.01 Consent to SBA Amendments. The undersigned hereby consent to the
terms and provisions of that certain First Amendment to the Amended and Restated
Security Agreement dated as of August 16, 1996 between the Borrower and the SBA,
in the form attached hereto as Exhibit I and acknowledge the terms and
provisions of that certain First Amendment to the Amended and Restated Pledge
Agreement dated as of August 16, 1996 between the Borrower and the SBA, in the
form attached hereto as Exhibit II.
5.01 Effectiveness. This Second Amendment shall become effective on the
date (the "closing date of this Second Amendment") that the Agent has received
each of the following:
(a) a fully executed copy hereof;
(b) fully executed originals of the Fifth Amended and Restated
Revolving Credit Notes in favor of the Lenders;
(c) a fully executed original of the Second Amended and Restated
Swingline Note in favor of the Swingline Lender;
(d) evidence that all filings and recordations that are necessary
to perfect the security interests of the Lenders in the
Collateral shall have been filed or recorded in all
appropriate locations and evidence satisfactory to the Agent
that such security interests constitute valid and perfected
first priority Liens therein;
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(e) evidence of payment by the Borrower of any documentary/recording
tax incurred in connection with this Second Amendment and any
filings and recordations executed in connection with the Borrower
Pledge Agreement, the Parent Pledge Agreement and the Security
Agreement;
(f) pursuant to the terms of the Borrower Pledge Agreement and the
Bailment Agreement, the Custodian shall have received the
original notes (endorsed in blank), stock certificates and
warrants pledged pursuant to the Borrower Pledge Agreement,
together with an appropriate undated transfer power and
irrevocable proxy for each stock certificate and warrant, duly
executed in blank by the registered owner thereof;
(g) the results of a Lien search of all filings made against each
Credit Party under the Uniform Commercial Code as in effect in
any state in which the chief executive office of such Credit
Party or the Collateral of such Credit Party is located,
indicating among other things that its assets are free and
clear of any Lien except for the Liens permitted by Section 9.3
of the Loan Agreement;
(h) a certificate from the treasurer or chief financial officer (or
other officer acceptable to the Agent) of each Credit Party, in
form and substance satisfactory to the Agent, to the effect that
all representations and warranties of such Credit Party contained
in this Second Amendment, the Loan Agreement and the other Loan
Documents are true, correct and complete; that such Credit Party
is not in violation of any of the covenants contained in this
Second Amendment, the Loan Agreement and the other Loan
Documents; that, after giving effect to the transactions
contemplated by this Second Amendment, the Loan Agreement and the
other Loan Documents, no Default or Event of Default has occurred
and is continuing; and that such Credit Parties and its
Subsidiaries have satisfied each of the closing conditions;
(i) a certificate of the secretary or assistant secretary of each
Credit Party certifying that attached thereto is a true and
complete copy of the charter documents of such Credit Party, and
all amendments thereto, certified as of a recent date by the
appropriate Governmental Authority in its jurisdiction of
incorporation; that attached thereto is a true and complete copy
of the bylaws of such Credit Party as in effect on the date of
such certification; that attached thereto is a true and
complete copy of resolutions duly adopted by the Board of
Directors of such Credit Party authorizing (A) the execution,
delivery
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and performance of this Second Amendment, the Loan Agreement
and the other Loan Documents to which such Credit Party is a
party and (B) the borrowings contemplated under the Loan
Agreement; and as to the incumbency and genuineness of the
signature of each officer of such Credit Party executing this
Second Amendment, any other Loan Document to which such Person
is a party, and each other document executed in connection
herewith;
(j) long-form certificates as of a recent date of the good standing
of each Credit Party under the laws of its jurisdiction of
organization, its principal place of business and each other
jurisdiction where such Credit Party is qualified to do business
and a certificate of the relevant taxing authorities of such
jurisdictions certifying that such Person has filed required tax
returns and owes no delinquent taxes;
(k) a completed Borrowing Base Certificate in the form of Exhibit D
attached to the Loan Agreement;
(l) a completed Portfolio Certificate in the form of Exhibit E-3
attached to the Loan Agreement together with a copy of the
Portfolio Reports in form and substance acceptable to the Agent,
each dated no earlier than thirty (30) days prior to the date of
this Second Amendment;
(m) favorable opinions of counsel to the Credit Parties addressed
to the Agent and the Lenders with respect to the Credit Parties,
this Second Amendment, the Loan Documents, and such other matters
as the Agent and the Lenders shall request;
(n) copies of the United States Internal Revenue Service forms
required by Section 3.11(e) of the Loan Agreement;
(o) a Form FR U-1 duly authorized, executed and delivered by the
Borrower;
(p) all necessary approvals, authorizations and consents, if any be
required, of any Person and of all Governmental Authorities and
courts having jurisdiction with respect to the transactions
contemplated by this Second Amendment, the Loan Agreement and the
other Loan Documents, including, without limitation, the written
approval of the SBA and the SEC the terms and provisions of this
Second Amendment;
(q) the most recent audited and unaudited Consolidated financial
statements of the Credit Parties and their
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Subsidiaries, all in form and substance satisfactory to the Agent;
(r) a certificate, in form and substance satisfactory to the Agent,
and certified as accurate by the chief executive officer or chief
financial officer of each Credit Party, that (A) each Credit
Party and each of its Subsidiaries are each Solvent; and (B)
attached thereto are the financial projections previously
delivered to the Agent representing the good faith opinions of
each Credit Party and senior management thereof as to the
projected results contained therein;
(s) the payment by the Credit Parties to the Agent and the Lenders
the fees set forth or referenced in the separate fee letter dated
August 29, 1997, any fees set forth in Section 3.3 and any other
accrued and unpaid fees or commissions due under this Second
Amendment or the Loan Agreement (including, without limitation,
legal fees and expenses in connection with the transactions
contemplated hereby), and to any other Person such amount as may
be due thereto in connection with the transactions contemplated
by this Second Amendment and the Loan Agreement, including all
taxes, fees and other charges in connection with the execution,
delivery, recording, filing and registration of any of the Loan
Documents;
(t) since December 31, 1996, there shall not have occurred any
material adverse change in the business, condition (financial
or otherwise), operations, prospects or properties of any
Credit Party or any Subsidiary thereof, or any event, condition
or state of facts that is reasonably likely to have a Material
Adverse Effect;
(u) evidence satisfactory to the Agent of the receipt by the
Borrower from the Parent of proceeds in the form of equity
capital in an amount not less than fifty percent (50%) of the
amount by which the Lenders' Commitments hereunder on the closing
date of this Second Amendment exceed $50,000,000;
(v) a fully executed copy of the First Amendment to Intercreditor
Agreement, in form and substance satisfactory to the Agent; and
(w) a fully executed copy of each of (i) the First Amendment to the
Amended and Restated Pledge Agreement dated as of August 16, 1996
between the Borrower and the SBA and (ii) the First Amendment to
the Amended and Restated Security Agreement dated as of August 16,
1996 between the Borrower and the SBA, each in form and substance
satisfactory to the Agent; and
15
<PAGE> 16
(x) any other agreement or document reasonably requested by the
Agent in connection with the transactions contemplated hereby.
6.01 General Provisions.
(a) Representations and Warranties. Each of the Borrower and the
Guarantor hereby confirms that each representation and warranty made by it under
the Loan Agreement and the Loan Documents is true and correct as of the date
hereof and that no Default or Event of Default has occurred or is continuing
under the Loan Agreement or the Loan Documents. Each of the Borrower and the
Guarantor hereby represents and warrants that as of the date hereof there are no
claims or offsets against or defenses or counterclaims to their respective
obligations under the Loan Agreement or any other Loan Document. For the
purposes hereof and of the Loan Agreement, each reference in the representations
and warranties in the Credit Agreement to the effectiveness thereof as of the
Closing Date shall be deemed to be a reference to the effectiveness thereof as
of the closing date of this Second Amendment.
(b) Reaffirmation of the Guaranty and the Parent Pledge Agreement. The
Guarantor, as guarantor under the Loan Agreement and as pledgor under the Parent
Pledge Agreement, (i) agrees to the terms of this Second Amendment and all other
documents and instruments in connection with the Second Amendment, (ii) hereby
expressly ratifies and reaffirms its guaranty of the Obligations and the pledge
pursuant to the Parent Pledge Agreement, and (iii) agrees that its obligations
hereunder and under the Loan Documents, as amended by this Second Amendment, are
absolute, without right of setoff and shall in no way be affected or impaired
for any reason.
(c) Limited Amendment. Except as expressly amended herein, the Loan
Agreement and each other Loan Document shall continue to be and shall remain, in
full force and effect. This Second Amendment shall not be deemed (i) to be a
waiver of, or consent to, a modification or amendment of, any other term or
condition of the Loan Agreement or (ii) to prejudice any other right or rights
which the Agent or Lenders may now have or may have in the future under or in
connection with the Loan Agreement or the Loan Documents or any of the
instruments or agreements referred to therein, as the same may be amended or
modified from time to time.
(d) Use of Proceeds. The Borrower shall use the proceeds of the Loans
made pursuant to this Second Amendment (i) to finance asset growth and (ii) for
working capital and general corporate requirements of the Borrower and its
Subsidiaries.
(e) Costs and Expenses. The Borrower hereby agrees to pay or reimburse
the Agent for all of its reasonable and customary out-of-pocket costs and
expenses incurred in connection with the preparation, negotiation and execution
of this Second Amendment,
16
<PAGE> 17
including, without limitation, the reasonable fees and
disbursements of counsel.
(f) Counterparts. This Second Amendment may be executed by one or more
of the parties hereto in any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
(g) GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NORTH
CAROLINA, WITHOUT REFERENCE TO THE CONFLICTS OR CHOICE OF LAW PRINCIPLES
THEREOF.
(h) Fax Transmission. A facsimile, telecopy or other reproduction of
this Second Amendment may be executed by one or more parties hereto, and an
executed copy of this Second Amendment may be delivered by one or more parties
hereto by facsimile or similar instantaneous electronic transmission device
pursuant to which the signature of or on behalf of such party can be seen, and
such execution and delivery shall be considered valid, binding and effective for
all purposes. At the request of any party hereto, all parties hereto agree to
execute an original of this Second Amendment as well as any facsimile, telecopy
or other reproduction hereof.
17
<PAGE> 18
IN WITNESS WHEREOF the undersigned hereby causes this Second Amendment
to be executed and delivered as of the date first above written.
BORROWER:
SIRROM INVESTMENTS, INC.
By:
------------------------------------
Name:
------------------------------
Title:
-----------------------------
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
18
<PAGE> 19
GUARANTOR:
SIRROM CAPITAL CORPORATION
By:
----------------------------------
Name:
----------------------------
Title:
---------------------------
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
19
<PAGE> 20
AGENT:
FIRST UNION NATIONAL BANK (f/k/a
FIRST UNION NATIONAL BANK OF
TENNESSEE), as Agent
By:
-----------------------------------
Name:
-----------------------------
Title:
----------------------------
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
20
<PAGE> 21
LENDERS:
FIRST UNION NATIONAL BANK (f/k/a
FIRST UNION NATIONAL BANK OF
TENNESSEE), as Lender
By:
-----------------------------------
Name:
-----------------------------
Title:
----------------------------
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
21
<PAGE> 22
FIRST AMERICAN NATIONAL BANK
By:
-------------------------------------
Name:
--------------------------------
Title:
-------------------------------
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
22
<PAGE> 23
AMSOUTH BANK OF TENNESSEE
By:
---------------------------------
Name:
---------------------------
Title:
--------------------------
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
23
<PAGE> 24
FIRST TENNESSEE BANK NATIONAL
ASSOCIATION
By:
----------------------------------
Name:
----------------------------
Title:
---------------------------
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
24
<PAGE> 25
BANK OF AMERICA, FSB
By:
----------------------------------
Name:
----------------------------
Title:
---------------------------
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
25
<PAGE> 26
BANK ONE KENTUCKY, N.A.
By:
---------------------------------
Name:
---------------------------
Title:
--------------------------
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
26
<PAGE> 27
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By:
---------------------------------
Name:
---------------------------
Title:
--------------------------
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
27
<PAGE> 28
CORESTATES BANK, N.A.
By:
----------------------------------
Name:
-----------------------------
Title:
---------------------------
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
28
<PAGE> 29
THE FIRST NATIONAL BANK OF CHICAGO
By:
----------------------------------
Name:
----------------------------
Title:
---------------------------
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
29
<PAGE> 30
FLEET BANK, N.A.
By:
-----------------------------------
Name:
-----------------------------
Title:
----------------------------
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
30
<PAGE> 31
UNION BANK OF CALIFORNIA, N.A
By:
---------------------------------
Name:
---------------------------
Title:
--------------------------
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
31
<PAGE> 32
CONSENT TO SECOND AMENDMENT
OF U.S. SMALL BUSINESS ADMINISTRATION
The undersigned hereby consents to the terms and provisions of the Second
Amendment to Fourth Amended and Restated Loan Agreement dated as of October 8,
1997 by and among Sirrom Investments, Inc., as Borrower, Sirrom Capital
Corporation, as Guarantor, the Lenders party thereto, as Lenders, First Union
National Bank (f/k/a First Union National Bank of Tennessee), as Agent. In
connection therewith, the undersigned (i) reaffirms all of its respective
obligations under the Intercreditor Agreement dated as of August 16, 1996 (as
amended, restated, modified or otherwise supplemented) by and among First Union
National Bank (f/k/a First Union National Bank of Tennessee), The Small Business
Administration and First American National Bank (Trust Department), (ii)
confirms that each reference therein and in any other Loan Document to the First
Union Loans shall be deemed to refer to such Loans in an aggregate principal
amount up to $125,000,000 and (iii) confirms that the Borrower is a duly
licensed small business investment company authorized by U.S. Small Business
Administration under the SBIC Regulations and that the Borrower is in good
standing with U.S. Small Business Administration.
The undersigned hereby causes this Consent to Second Amendment to be executed
and delivered as of the 8th day of October, 1997.
U.S. SMALL BUSINESS ADMINISTRATION
[CORPORATE SEAL]
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
32
<PAGE> 33
Schedule 1
to
Fourth Amended and Restated Loan Agreement
(as amended, restated, supplemented or otherwise modified)
dated as of August 16, 1996
Lenders and Commitments
<TABLE>
<CAPTION>
COMMITMENT
AND COMMITMENT
LENDER PERCENTAGE ADDRESS
- ------ -------------- -------
<S> <C> <C>
First Union $25,000,000 First Union National Bank
National Bank (20%) of Tennessee
(f/k/a First 150 Fourth Avenue North
Union National Nashville, Tennessee 37219
Bank of Attention: Andrew C. Tompkins
Tennessee) Vice President
Telephone No.: (615) 251-9351
Telecopy No.: (615) 251-9461
and
First Union National Bank of
North Carolina
Syndication Agency Services
One First Union Center, TW-10
301 South College Street
Charlotte, N.C. 28288-0608
Attention: Charles Edmondson
Telephone No.: (704) 383-0530
Telecopy No.: (704) 383-0288
First American $ 7,500,000 First American National Bank
National Bank (6%) First American Center
Nashville, Tennessee 37237-0202
Attention: Ludolf H. Roell,
Vice President
Telephone No.: (615) 748-2137
Telecopy No.: (615) 748-2672
AmSouth Bank of $15,000,000 AmSouth Bank of Tennessee
Tennessee (12%) 333 Union Street, Suite 200
Nashville, Tennessee 37201
Attention: Andrew P. Grisham
Telephone: (615) 291-5262
Telecopy: (615) 291-5257
</TABLE>
<PAGE> 34
<TABLE>
<S> <C> <C>
First Tennessee $ 7,500,000 First Tennessee Bank National
Bank National (6%) Association
Association P.O. Box 28100
Nashville, Tennessee 37202
Attention: Kenneth Webb
Telephone: (615) 734-6118
Telecopy: (615) 734-6148
Bank of America, $10,000,000 Bank of America, FSB
FSB (8%) 1230 Peachtree Street
Suite 3600
Atlanta, Georgia
Attention: Calvin Blount
Kelly Gibson
Telephone: (404) 815-5929
(404) 815-5930
Telecopy: (404) 815-5919
Bank One Kentucky, Bank One Kentucky, N.A.
N.A. $10,000,000 201 East Main Street
(8%) Lexington, Kentucky 40507-2002
Attention: Robert J. Heiple
Telephone: (606) 231-2686
Telecopy: (606) 231-2732
Texas Commerce Bank Texas Commerce Bank National
National $10,000,000 Association
Association (8%) 2200 Ross Avenue, 3rd Floor
Dallas, Texas 75201
Attention: Ana Moreira
Telephone: (214) 965-3720
Telecopy: (214) 965-2044
CoreStates Bank, $10,000,000 CoreStates Bank, N.A.
N.A. (8%) 1339 Chestnut Street
F.C. 1-8-4-18
Philadelphia, Pennsylvania 19107
Attention: Jerry Goodwin
Telephone: (215) 973-2908
Telecopy: (215) 973-6680
Fleet Bank, N.A. $10,000,000 Fleet Bank, N.A.
(8%) 592 Fifth Avenue, 2nd Floor
New York, New York 10036
Attention: Andrea H. Lee
Telephone: (212) 819-6461
Telecopy: (212) 819-6515
</TABLE>
2
<PAGE> 35
<TABLE>
<S> <C> <C>
The First National The First National Bank
Bank of Chicago $10,000,000 of Chicago
(8%) One First National Plaza
Mail Suite 0084
Chicago, Illinois 60670-0084
Attention: John Ide
Telephone: (312) 732-5103
Telecopy: (312) 732-6222
Union Bank of
California, N.A. $10,000,000 Union Bank of California, N.A.
(8%) 350 California Street
11th Floor
San Francisco, California 94104
Attention: Donald Rubin
Telephone: (415) 705-7060
Telecopy: (415) 705-7037
</TABLE>
3
<PAGE> 36
Schedules
to
Loan Agreement
[Attached Hereto]
<PAGE> 37
Schedule I
to
Borrower Pledge Agreement
[Attached Hereto]
<PAGE> 38
Schedule I
to
Parent Pledge Agreement
[Attached Hereto]
<PAGE> 39
Schedule A
to
Second Amendment to
Fourth Amended and Restated Loan Agreement
dated as of October 8, 1997
Waiver and Extension Letter
[Attached Hereto]
<PAGE> 40
Exhibit A-1
to
Second Amendment to
Fourth Amended and Restated Loan Agreement
dated as of October 8, 1997
Form of Revolving Credit Note
[Attached Hereto]
<PAGE> 41
EXHIBIT A-1
to
Fourth Amended and Restated Loan Agreement
dated as of August 16, 1996
by and among
Sirrom Investments, Inc.,
as Borrower,
Sirrom Capital Corporation,
as Guarantor
the Lenders party thereto,
and
First Union National Bank of Tennessee,
as Agent
FIFTH AMENDED AND RESTATED REVOLVING CREDIT NOTE
$__________ October 8, 1997
FOR VALUE RECEIVED, the undersigned, SIRROM INVESTMENTS, INC., a
corporation organized under the laws of Tennessee (the "Borrower"), hereby
promises to pay to the order of __________(the "Bank"), at the times, at the
place and in the manner provided in the Loan Agreement hereinafter referred to,
the principal sum of up to ____________________ ($__________), or, if less, the
aggregate unpaid principal amount of all Loans disbursed by the Bank under the
Loan Agreement referred to below, together with interest at the rates as in
effect from time to time with respect to each portion of the principal amount
hereof, determined and payable as provided in the Loan Agreement.
This Note is a Note referred to in, and is entitled to the benefits of,
the Fourth Amended and Restated Loan Agreement dated as of August 16, 1996 (as
amended by the First Amendment to Loan Agreement dated as of November 19, 1996,
the Second Amendment to Loan Agreement dated as of October 8, 1997, and as
further amended, restated, supplemented or otherwise modified from time to time,
the "Loan Agreement"), by and among the Borrower, Sirrom Capital Corporation, as
guarantor (the "Parent"), the Lenders who are or may become party thereto (the
"Lenders"), and First Union National Bank (f/k/a First Union National Bank of
Tennessee), as Agent for the Lenders (the "Agent"). The Loan Agreement contains,
among other things, provisions for the time, place and manner of payment of this
Note, the determination of the interest rate borne by and fees payable in
respect of this Note, acceleration of the payment of this Note upon the
happening of certain stated events and the mandatory repayment of this Note
under certain circumstances.
The Borrower agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, if any part of this Note, principal or interest, is
collected after maturity with the aid of an attorney.
Presentment for payment, notice of dishonor, protest and notice of
protest are hereby waived.
1
<PAGE> 42
THIS NOTE IS MADE AND DELIVERED IN THE STATE OF NORTH CAROLINA
AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF NORTH CAROLINA.
Pursuant to the Assignment and Assumption Agreement dated as of August
16, 1996 between the Parent and the Borrower, the Parent transferred all of its
rights and obligations under the Third Amended and Restated Loan Agreement dated
as of December 27, 1995, as amended, by and among the Parent, the Lenders party
thereto, and the Agent, and the documents executed in connection therewith, to
the Borrower, and the Borrower assumed all of such rights and obligations.
[This Note amends and restates the obligations of the Borrower under
the Fourth Amended and Restated Revolving Credit Note dated [August 16, 1996]
[December 2, 1996] executed by the Borrower in favor of the Bank.]
2
<PAGE> 43
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
under seal by a duly authorized officer as of the day and year first above
written.
SIRROM INVESTMENTS, INC.
[CORPORATE SEAL]
By:
--------------------------------
Name:
--------------------------
Title:
-------------------------
3
<PAGE> 44
Exhibit A-2
to
Second Amendment to
Fourth Amended and Restated Loan Agreement
dated as of October 8, 1997
Form of Swingline Note
[Attached Hereto]
<PAGE> 45
EXHIBIT A-2
to
Fourth Amended and Restated Loan Agreement
dated as of August 16, 1996
by and among
Sirrom Investments, Inc.,
as Borrower,
Sirrom Capital Corporation,
as Guarantor,
the Lenders party thereto,
and
First Union National Bank of Tennessee,
as Agent
SECOND AMENDED AND RESTATED SWINGLINE NOTE
$10,000,000 October 8, 1997
FOR VALUE RECEIVED, the undersigned, SIRROM INVESTMENTS, INC., a
corporation organized under the laws of Tennessee (the "Borrower"), hereby
promises to pay to the order of FIRST UNION NATIONAL BANK (f/k/a FIRST UNION
NATIONAL BANK OF TENNESSEE) (the "Bank"), at the times, at the place and in the
manner provided in the Loan Agreement hereinafter referred to, the principal sum
of up to Ten Million Dollars ($10,000,000), or, if less, the aggregate unpaid
principal amount of all Swingline Loans disbursed by the Bank under the Loan
Agreement referred to below, together with interest at the rates as in effect
from time to time with respect to each portion of the principal amount hereof,
determined and payable as provided in the Loan Agreement.
This Swingline Note is a Note referred to in, and is entitled to the
benefits of, the Fourth Amended and Restated Loan Agreement dated as of August
16, 1996 (as amended by the First Amendment to Loan Agreement dated as of
November 19, 1996, the Second Amendment to Loan Agreement dated as of October 8,
1997, and as further amended, restated, supplemented or otherwise modified from
time to time, the "Loan Agreement"), by and among the Borrower, Sirrom Capital
Corporation, the guarantor (the "Parent"), the Lenders who are or may become
party thereto (the "Lenders"), and First Union National Bank (f/k/a First Union
National Bank of Tennessee), as Agent for the Lenders (the "Agent"). The Loan
Agreement contains, among other things, provisions for the time, place and
manner of payment of this Swingline Note, the determination of the interest rate
borne by and fees payable in respect of this Swingline Note, acceleration of the
payment of this Swingline Note upon the happening of certain stated events and
the mandatory repayment of this Swingline Note under certain circumstances.
The Borrower agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, if any part of this Swingline Note, principal or
interest, is collected after maturity with the aid of an attorney.
1
<PAGE> 46
Presentment for payment, notice of dishonor, protest and notice of
protest are hereby waived.
THIS SWINGLINE NOTE IS MADE AND DELIVERED IN THE STATE OF NORTH
CAROLINA AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE STATE OF NORTH CAROLINA.
Pursuant to the Assignment and Assumption Agreement dated as of August
16, 1996 between the Parent and the Borrower, the Parent transferred all of its
rights and obligations under the Third Amended and Restated Loan Agreement dated
as of December 27, 1995, as amended, by and among the Parent, the Lenders party
thereto, and the Agent, and the documents executed in connection therewith, to
the Borrower, and the Borrower assumed all of such rights and obligations.
This Note amends and restates the obligations of the Borrower under the
Amended and Restated Swingline Note dated August 16, 1996 executed by the
Borrower in favor of the Bank.
2
<PAGE> 47
IN WITNESS WHEREOF, the Borrower has caused this Swingline Note to be
executed under seal by a duly authorized officer as of the day and year first
above written.
SIRROM INVESTMENTS, INC.
[CORPORATE SEAL]
By:
----------------------------------
Name:
----------------------------
Title:
---------------------------
3
<PAGE> 48
Exhibit D
to
Second Amendment to
Fourth Amended and Restated Loan Agreement
dated as of October 8, 1997
Borrowing Base Certificate
[Attached Hereto]
<PAGE> 49
EXHIBIT D
to
Fourth Amended and Restated Loan Agreement
dated as of August 16, 1996
by and among
Sirrom Investments, Inc.,
as Borrower,
Sirrom Capital Corporation,
as Guarantor,
the Lenders party thereto,
and
First Union National Bank of Tennessee,
as Agent
BORROWING BASE CERTIFICATE
DATE: _________
This Borrowing Base Certificate (the "Certificate") is delivered
pursuant to the Fourth Amended and Restated Loan Agreement dated as of August
16, 1996 (as amended, restated, supplemented or otherwise modified from time to
time, the "Loan Agreement") by and among SIRROM INVESTMENTS, INC., a corporation
organized under the laws of Tennessee (the "Borrower"), SIRROM CAPITAL
CORPORATION, a corporation organized under the laws of Tennessee (the
"Guarantor"), the lenders who are or may become party thereto (collectively, the
"Lenders"), and FIRST UNION NATIONAL BANK (f/k/a FIRST UNION NATIONAL BANK OF
TENNESSEE), as Agent for the Lenders (the "Agent"). Capitalized terms used
herein and defined in the Loan Agreement are used herein with such defined
meanings.
<TABLE>
<S> <C> <C>
A. Eligible Loans and Eligible Securities.
1. Eligible Loans as of the end of
the preceding calendar month or ________:
(a) All outstanding portfolio Loans
of the Borrower or any
of its Subsidiaries A.1.(a)________
(b) Loans classified as credit
rating #5 or #6 A.1.(b)________
(c) Loans with interest or
principal more than 30 days
past due A.1.(c)________
(d) Loans classified as credit
rating #4 and determined by
the Agent to be non-eligible A.1.(d)________
(e) Loans classified as credit
rating #3 and determined by
the Agent to be non-eligible A.1.(e)________
</TABLE>
1
<PAGE> 50
<TABLE>
<S> <C> <C>
(f) Line A.1.(a) minus the sum of
Line A.1.(b) + Line A.1.(c) +
Line A.1.(d) + Line A.1.(e) A.1.(f)________
2. Eligible Securities as of the
end of the preceding calendar
month or _________:
(a) All publicly traded equity
securities (regardless of whether
such securities are restricted in
the hands of the Borrower) A.2.(a)________
(b) All warrants for the purchase of
shares of publicly traded securities
in the Borrower's portfolio in an
aggregate amount not to exceed
$10,000,000 A.2.(b)________
(c) Line A.2.(a) plus Line A.2.(b) A.2.(c)________
B. Borrowing Base.
1. The sum of the following as
of the end of the preceding calendar
month or _____________:
(a) Seventy-five percent (75%)
of Eligible Loans B.1(a) ________
(b) Plus the lesser of (i) eighty
percent (80%) of Eligible
Securities and (ii) $20,000,000 B.1(b) ________
(c) Minus the aggregate amount
of SBA Debt outstanding B.1(c) ________
(d) Minus the liability of the Borrower
under Hedging Agreements calculated
on a marked to market basis as of
the last day of the preceding fiscal
quarter B.1(d) ________
(e) Line B.1(a) plus Line
B.1(b) minus Line B.1(c)
minus Line B.1.(d) B.1(e) ________
C. Aggregate Commitment.
1. Aggregate amount of the
Lenders' Commitments C.1 ________
</TABLE>
2
<PAGE> 51
<TABLE>
<S> <C> <C>
D. Borrowing Limitation.
1. Borrowing Limitation:
Lesser of
(a) Total Borrowing
Base (Line B.1(e)) D.1(a) ________
(b) Aggregate Commitment
(Line C.1) D.1(b) ________
E. Availability.
1. Availability:
(a) Lesser of D.1(a) or D.1(b) E.1(a) ________
(b) Outstanding Revolving
Credit Loans E.1(b) ________
(c) Outstanding Swingline Loans E.1(c) ________
(d) Line E.1(a) minus Line E.1(b)
minus Line E.1(c) E.1(d) ________
</TABLE>
3
<PAGE> 52
The information contained herein has been taken from and is consistent
with the Portfolio Reports delivered to the Agent together herewith.
SIRROM INVESTMENTS, INC.
By:
---------------------------------
Name:
---------------------------
Title:
--------------------------
4
<PAGE> 53
Exhibit E-1
to
Second Amendment to
Fourth Amended and Restated Loan Agreement
dated as of October 8, 1997
Description of Valuation and Rating Method
[Attached Hereto]
<PAGE> 54
Exhibit E-3
to
Second Amendment to
Fourth Amended and Restated Loan Agreement
dated as of October 8, 1997
Portfolio Certificate
[Attached Hereto]
<PAGE> 55
EXHIBIT E-3
to
Fourth Amended and Restated Loan Agreement
dated as of August 16, 1996
by and among
Sirrom Investments, Inc.,
as Borrower,
Sirrom Capital Corporation,
as Guarantor,
the Lenders party thereto,
and
First Union National Bank of Tennessee,
as Agent
Portfolio Certificate
The undersigned, on behalf of SIRROM INVESTMENTS, INC., a corporation
organized under the laws of Tennessee (the "Borrower") and SIRROM CAPITAL
CORPORATION, a corporation organized under the laws of Tennessee (the
"Guarantor"), hereby certifies to FIRST UNION NATIONAL BANK (f/k/a FIRST UNION
NATIONAL BANK OF TENNESSEE), in its capacity as Agent for the Lenders referred
to below (the "Agent"):
1. This Certificate is delivered pursuant to Section 6.4(a) of the
Fourth Amended and Restated Loan Agreement dated as of August 16, 1996 (as
amended or supplemented from time to time, the "Loan Agreement") by and among
the Borrower, the Guarantor, the Lenders who are or may become party thereto
(collectively, the "Lenders") and the Agent. Capitalized terms used herein and
not defined herein shall have the meanings assigned thereto in the Loan
Agreement.
2. The Credit Parties and their Subsidiaries own all of the investments
in their respective issuers and obligors.
3. Neither Credit Party nor any Subsidiary thereof owns or has any
investment in any issuer or obligor in which the other Credit party or any
Subsidiary thereof owns or has any investment, except that (A) the Parent may
own or have an investment in (including without limitation loans to) an issuer
or obligor in which a Subsidiary thereof (other than the Borrower or any of its
Subsidiaries) owns or has an investment and (B) the Parent or any of its
Subsidiaries (other than the Borrower or any of its Subsidiaries) may have
investments in (including without limitation loans to) issuers or obligors in
whom the Borrower or any of its Subsidiaries has an equity investment in the
form of warrants or capital stock interests as long as the aggregate value of
all such equity investments of the Borrower and its Subsidiaries in such issuers
or obligors does not exceed ten percent (10%) of the value of all assets of the
Borrower and its Subsidiaries as determined in accordance with GAAP.
1
<PAGE> 56
WITNESS the following signature as of the ____ day of __________, 19___.
SIRROM INVESTMENTS, INC.
[SEAL]
-----------------------------
Name:
-------------------------------
Title:
------------------------------
SIRROM CAPITAL CORPORATION
[SEAL]
------------------------------
Name:
------------------------------
Title:
-----------------------------
2
<PAGE> 57
Exhibit I
to
Second Amendment to
Fourth Amended and Restated Loan Agreement
dated as of October 8, 1997
First Amendment to SBA Security Agreement
<PAGE> 58
Exhibit II
to
Second Amendment to
Fourth Amended and Restated Loan Agreement
dated as of October 8, 1997
First Amendment to SBA Pledge Agreement
<PAGE> 1
Exhibit f.15
FIFTH AMENDED AND RESTATED REVOLVING CREDIT NOTE
$25,000,000 October 8, 1997
FOR VALUE RECEIVED, the undersigned, SIRROM INVESTMENTS, INC., a
corporation organized under the laws of Tennessee (the "Borrower"), hereby
promises to pay to the order of FIRST UNION NATIONAL BANK (F/K/A FIRST UNION
NATIONAL BANK OF TENNESSEE) (the "Bank"), at the times, at the place and in the
manner provided in the Loan Agreement hereinafter referred to, the principal sum
of up to Twenty-Five Million Dollars ($25,000,000), or, if less, the aggregate
unpaid principal amount of all Loans disbursed by the Bank under the Loan
Agreement referred to below, together with interest at the rates as in effect
from time to time with respect to each portion of the principal amount hereof,
determined and payable as provided in the Loan Agreement.
This Note is a Note referred to in, and is entitled to the benefits of,
the Fourth Amended and Restated Loan Agreement dated as of August 16, 1996 (as
amended by the First Amendment to Loan Agreement dated as of November 19, 1996,
the Second Amendment to Loan Agreement dated as of October 8, 1997, and as
further amended, restated, supplemented or otherwise modified from time to time,
the "Loan Agreement"), by and among the Borrower, Sirrom Capital Corporation, as
guarantor (the "Parent"), the Lenders who are or may become party thereto (the
"Lenders"), and First Union National Bank (f/k/a First Union National Bank of
Tennessee), as Agent for the Lenders (the "Agent"). The Loan Agreement contains,
among other things, provisions for the time, place and manner of payment of this
Note, the determination of the interest rate borne by and fees payable in
respect of this Note, acceleration of the payment of this Note upon the
happening of certain stated events and the mandatory repayment of this Note
under certain circumstances.
The Borrower agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, if any part of this Note, principal or interest, is
collected after maturity with the aid of an attorney.
Presentment for payment, notice of dishonor, protest and notice of
protest are hereby waived.
THIS NOTE IS MADE AND DELIVERED IN THE STATE OF NORTH CAROLINA
AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF NORTH CAROLINA.
Pursuant to the Assignment and Assumption Agreement dated as of August
16, 1996 between the Parent and the Borrower, the Parent transferred all of its
rights and obligations under the Third Amended and Restated Loan Agreement dated
as of December 27, 1995, as amended, by and among the Parent, the Lenders party
thereto, and
<PAGE> 2
the Agent, and the documents executed in connection therewith, to the Borrower,
and the Borrower assumed all of such rights and obligations.
This Note amends and restates the obligations of the Borrower under the
Fourth Amended and Restated Revolving Credit Note dated December 2, 1996,
executed by the Borrower in favor of the Bank.
2
<PAGE> 3
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
under seal by a duly authorized officer as of the day and year first above
written.
SIRROM INVESTMENTS, INC.
[CORPORATE SEAL]
By:________________________________
Name:___________________________
Title:__________________________
3
<PAGE> 1
Exhibit f.16
FIFTH AMENDED AND RESTATED REVOLVING CREDIT NOTE
$7,500,000 October 8, 1997
FOR VALUE RECEIVED, the undersigned, SIRROM INVESTMENTS, INC., a
corporation organized under the laws of Tennessee (the "Borrower"), hereby
promises to pay to the order of FIRST AMERICAN NATIONAL BANK (the "Bank"), at
the times, at the place and in the manner provided in the Loan Agreement
hereinafter referred to, the principal sum of up to Seven Million Five Hundred
Thousand Dollars ($7,500,000), or, if less, the aggregate unpaid principal
amount of all Loans disbursed by the Bank under the Loan Agreement referred to
below, together with interest at the rates as in effect from time to time with
respect to each portion of the principal amount hereof, determined and payable
as provided in the Loan Agreement.
This Note is a Note referred to in, and is entitled to the benefits of,
the Fourth Amended and Restated Loan Agreement dated as of August 16, 1996 (as
amended by the First Amendment to Loan Agreement dated as of November 19, 1996,
the Second Amendment to Loan Agreement dated as of October 8, 1997, and as
further amended, restated, supplemented or otherwise modified from time to time,
the "Loan Agreement"), by and among the Borrower, Sirrom Capital Corporation, as
guarantor (the "Parent"), the Lenders who are or may become party thereto (the
"Lenders"), and First Union National Bank (f/k/a First Union National Bank of
Tennessee), as Agent for the Lenders (the "Agent"). The Loan Agreement contains,
among other things, provisions for the time, place and manner of payment of this
Note, the determination of the interest rate borne by and fees payable in
respect of this Note, acceleration of the payment of this Note upon the
happening of certain stated events and the mandatory repayment of this Note
under certain circumstances.
The Borrower agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, if any part of this Note, principal or interest, is
collected after maturity with the aid of an attorney.
Presentment for payment, notice of dishonor, protest and notice of
protest are hereby waived.
THIS NOTE IS MADE AND DELIVERED IN THE STATE OF NORTH CAROLINA
AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF NORTH CAROLINA.
Pursuant to the Assignment and Assumption Agreement dated as of August
16, 1996 between the Parent and the Borrower, the Parent transferred all of its
rights and obligations under the Third Amended and Restated Loan Agreement dated
as of December 27, 1995, as amended, by and among the Parent, the Lenders party
thereto, and the Agent, and the documents executed in connection therewith, to
<PAGE> 2
the Borrower, and the Borrower assumed all of such rights and obligations.
This Note amends and restates the obligations of the Borrower under the
Fourth Amended and Restated Revolving Credit Note dated August 16, 1996,
executed by the Borrower in favor of the Bank.
2
<PAGE> 3
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
under seal by a duly authorized officer as of the day and year first above
written.
SIRROM INVESTMENTS, INC.
[CORPORATE SEAL]
By:________________________________
Name:___________________________
Title:__________________________
3
<PAGE> 1
Exhibit f.17
FIFTH AMENDED AND RESTATED REVOLVING CREDIT NOTE
$15,000,000 October 8, 1997
FOR VALUE RECEIVED, the undersigned, SIRROM INVESTMENTS, INC., a
corporation organized under the laws of Tennessee (the "Borrower"), hereby
promises to pay to the order of AMSOUTH BANK OF TENNESSEE (the "Bank"), at the
times, at the place and in the manner provided in the Loan Agreement hereinafter
referred to, the principal sum of up to Fifteen Million Dollars ($15,000,000),
or, if less, the aggregate unpaid principal amount of all Loans disbursed by the
Bank under the Loan Agreement referred to below, together with interest at the
rates as in effect from time to time with respect to each portion of the
principal amount hereof, determined and payable as provided in the Loan
Agreement.
This Note is a Note referred to in, and is entitled to the benefits of,
the Fourth Amended and Restated Loan Agreement dated as of August 16, 1996 (as
amended by the First Amendment to Loan Agreement dated as of November 19, 1996,
the Second Amendment to Loan Agreement dated as of October 8, 1997, and as
further amended, restated, supplemented or otherwise modified from time to time,
the "Loan Agreement"), by and among the Borrower, Sirrom Capital Corporation, as
guarantor (the "Parent"), the Lenders who are or may become party thereto (the
"Lenders"), and First Union National Bank (f/k/a First Union National Bank of
Tennessee), as Agent for the Lenders (the "Agent"). The Loan Agreement contains,
among other things, provisions for the time, place and manner of payment of this
Note, the determination of the interest rate borne by and fees payable in
respect of this Note, acceleration of the payment of this Note upon the
happening of certain stated events and the mandatory repayment of this Note
under certain circumstances.
The Borrower agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, if any part of this Note, principal or interest, is
collected after maturity with the aid of an attorney.
Presentment for payment, notice of dishonor, protest and notice of
protest are hereby waived.
THIS NOTE IS MADE AND DELIVERED IN THE STATE OF NORTH CAROLINA
AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF NORTH CAROLINA.
Pursuant to the Assignment and Assumption Agreement dated as of August
16, 1996 between the Parent and the Borrower, the Parent transferred all of its
rights and obligations under the Third Amended and Restated Loan Agreement dated
as of December 27, 1995, as amended, by and among the Parent, the Lenders party
thereto, and the Agent, and the documents executed in connection therewith, to
<PAGE> 2
the Borrower, and the Borrower assumed all of such rights and obligations.
This Note amends and restates the obligations of the Borrower under the
Fourth Amended and Restated Revolving Credit Note dated December 2, 1996
executed by the Borrower in favor of the Bank.
2
<PAGE> 3
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
under seal by a duly authorized officer as of the day and year first above
written.
SIRROM INVESTMENTS, INC.
[CORPORATE SEAL]
By:________________________________
Name:___________________________
Title:__________________________
3
<PAGE> 1
Exhibit f.18
FIFTH AMENDED AND RESTATED REVOLVING CREDIT NOTE
$7,500,000 October 8, 1997
FOR VALUE RECEIVED, the undersigned, SIRROM INVESTMENTS, INC., a
corporation organized under the laws of Tennessee (the "Borrower"), hereby
promises to pay to the order of FIRST TENNESSEE BANK NATIONAL ASSOCIATION (the
"Bank"), at the times, at the place and in the manner provided in the Loan
Agreement hereinafter referred to, the principal sum of up to Seven Million Five
Hundred Thousand Dollars ($7,500,000), or, if less, the aggregate unpaid
principal amount of all Loans disbursed by the Bank under the Loan Agreement
referred to below, together with interest at the rates as in effect from time to
time with respect to each portion of the principal amount hereof, determined and
payable as provided in the Loan Agreement.
This Note is a Note referred to in, and is entitled to the benefits of,
the Fourth Amended and Restated Loan Agreement dated as of August 16, 1996 (as
amended by the First Amendment to Loan Agreement dated as of November 19, 1996,
the Second Amendment to Loan Agreement dated as of October 8, 1997, and as
further amended, restated, supplemented or otherwise modified from time to time,
the "Loan Agreement"), by and among the Borrower, Sirrom Capital Corporation, as
guarantor (the "Parent"), the Lenders who are or may become party thereto (the
"Lenders"), and First Union National Bank (f/k/a First Union National Bank of
Tennessee), as Agent for the Lenders (the "Agent"). The Loan Agreement contains,
among other things, provisions for the time, place and manner of payment of this
Note, the determination of the interest rate borne by and fees payable in
respect of this Note, acceleration of the payment of this Note upon the
happening of certain stated events and the mandatory repayment of this Note
under certain circumstances.
The Borrower agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, if any part of this Note, principal or interest, is
collected after maturity with the aid of an attorney.
Presentment for payment, notice of dishonor, protest and notice of
protest are hereby waived.
THIS NOTE IS MADE AND DELIVERED IN THE STATE OF NORTH CAROLINA
AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF NORTH CAROLINA.
Pursuant to the Assignment and Assumption Agreement dated as of August
16, 1996 between the Parent and the Borrower, the Parent transferred all of its
rights and obligations under the Third Amended and Restated Loan Agreement dated
as of December 27, 1995, as amended, by and among the Parent, the Lenders party
thereto, and
<PAGE> 2
the Agent, and the documents executed in connection therewith, to the
Borrower, and the Borrower assumed all of such rights and obligations.
This Note amends and restates the obligations of the Borrower under the
Fourth Amended and Restated Revolving Credit Note dated August 16, 1996 executed
by the Borrower in favor of the Bank.
2
<PAGE> 3
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
under seal by a duly authorized officer as of the day and year first above
written.
SIRROM INVESTMENTS, INC.
[CORPORATE SEAL]
By:________________________________
Name:___________________________
Title:__________________________
3
<PAGE> 1
Exhibit f.19
FIFTH AMENDED AND RESTATED REVOLVING CREDIT NOTE
$10,000,000 October 8, 1997
FOR VALUE RECEIVED, the undersigned, SIRROM INVESTMENTS, INC., a
corporation organized under the laws of Tennessee (the "Borrower"), hereby
promises to pay to the order of BANK OF AMERICA, FSB (the "Bank"), at the times,
at the place and in the manner provided in the Loan Agreement hereinafter
referred to, the principal sum of up to Ten Million Dollars ($10,000,000), or,
if less, the aggregate unpaid principal amount of all Loans disbursed by the
Bank under the Loan Agreement referred to below, together with interest at the
rates as in effect from time to time with respect to each portion of the
principal amount hereof, determined and payable as provided in the Loan
Agreement.
This Note is a Note referred to in, and is entitled to the benefits of,
the Fourth Amended and Restated Loan Agreement dated as of August 16, 1996 (as
amended by the First Amendment to Loan Agreement dated as of November 19, 1996,
the Second Amendment to Loan Agreement dated as of October 8, 1997, and as
further amended, restated, supplemented or otherwise modified from time to time,
the "Loan Agreement"), by and among the Borrower, Sirrom Capital Corporation, as
guarantor (the "Parent"), the Lenders who are or may become party thereto (the
"Lenders"), and First Union National Bank (f/k/a First Union National Bank of
Tennessee), as Agent for the Lenders (the "Agent"). The Loan Agreement contains,
among other things, provisions for the time, place and manner of payment of this
Note, the determination of the interest rate borne by and fees payable in
respect of this Note, acceleration of the payment of this Note upon the
happening of certain stated events and the mandatory repayment of this Note
under certain circumstances.
The Borrower agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, if any part of this Note, principal or interest, is
collected after maturity with the aid of an attorney.
Presentment for payment, notice of dishonor, protest and notice of
protest are hereby waived.
THIS NOTE IS MADE AND DELIVERED IN THE STATE OF NORTH CAROLINA
AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF NORTH CAROLINA.
Pursuant to the Assignment and Assumption Agreement dated as of August
16, 1996 between the Parent and the Borrower, the Parent transferred all of its
rights and obligations under the Third Amended and Restated Loan Agreement dated
as of December 27, 1995, as amended, by and among the Parent, the Lenders party
thereto, and the Agent, and the documents executed in connection therewith, to
<PAGE> 2
the Borrower, and the Borrower assumed all of such rights and obligations.
2
<PAGE> 3
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
under seal by a duly authorized officer as of the day and year first above
written.
SIRROM INVESTMENTS, INC.
[CORPORATE SEAL]
By:________________________________
Name:___________________________
Title:__________________________
3
<PAGE> 1
Exhibit f.20
FIFTH AMENDED AND RESTATED REVOLVING CREDIT NOTE
$10,000,000 October 8, 1997
FOR VALUE RECEIVED, the undersigned, SIRROM INVESTMENTS, INC., a
corporation organized under the laws of Tennessee (the "Borrower"), hereby
promises to pay to the order of BANK ONE KENTUCKY, N.A. (the "Bank"), at the
times, at the place and in the manner provided in the Loan Agreement hereinafter
referred to, the principal sum of up to Ten Million Dollars ($10,000,000), or,
if less, the aggregate unpaid principal amount of all Loans disbursed by the
Bank under the Loan Agreement referred to below, together with interest at the
rates as in effect from time to time with respect to each portion of the
principal amount hereof, determined and payable as provided in the Loan
Agreement.
This Note is a Note referred to in, and is entitled to the benefits of,
the Fourth Amended and Restated Loan Agreement dated as of August 16, 1996 (as
amended by the First Amendment to Loan Agreement dated as of November 19, 1996,
the Second Amendment to Loan Agreement dated as of October 8, 1997, and as
further amended, restated, supplemented or otherwise modified from time to time,
the "Loan Agreement"), by and among the Borrower, Sirrom Capital Corporation, as
guarantor (the "Parent"), the Lenders who are or may become party thereto (the
"Lenders"), and First Union National Bank (f/k/a First Union National Bank of
Tennessee), as Agent for the Lenders (the "Agent"). The Loan Agreement contains,
among other things, provisions for the time, place and manner of payment of this
Note, the determination of the interest rate borne by and fees payable in
respect of this Note, acceleration of the payment of this Note upon the
happening of certain stated events and the mandatory repayment of this Note
under certain circumstances.
The Borrower agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, if any part of this Note, principal or interest, is
collected after maturity with the aid of an attorney.
Presentment for payment, notice of dishonor, protest and notice of
protest are hereby waived.
THIS NOTE IS MADE AND DELIVERED IN THE STATE OF NORTH CAROLINA
AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF NORTH CAROLINA.
Pursuant to the Assignment and Assumption Agreement dated as of August
16, 1996 between the Parent and the Borrower, the Parent transferred all of its
rights and obligations under the Third Amended and Restated Loan Agreement dated
as of December 27, 1995, as amended, by and among the Parent, the Lenders party
thereto, and the Agent, and the documents executed in connection therewith, to
<PAGE> 2
the Borrower, and the Borrower assumed all of such rights and obligations.
2
<PAGE> 3
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
under seal by a duly authorized officer as of the day and year first above
written.
SIRROM INVESTMENTS, INC.
[CORPORATE SEAL]
By:________________________________
Name:___________________________
Title:__________________________
3
<PAGE> 1
Exhibit f.21
FIFTH AMENDED AND RESTATED REVOLVING CREDIT NOTE
$10,000,000 October 8, 1997
FOR VALUE RECEIVED, the undersigned, SIRROM INVESTMENTS, INC., a
corporation organized under the laws of Tennessee (the "Borrower"), hereby
promises to pay to the order of TEXAS COMMERCE BANK NATIONAL ASSOCIATION (the
"Bank"), at the times, at the place and in the manner provided in the Loan
Agreement hereinafter referred to, the principal sum of up to Ten Million
Dollars ($10,000,000), or, if less, the aggregate unpaid principal amount of all
Loans disbursed by the Bank under the Loan Agreement referred to below, together
with interest at the rates as in effect from time to time with respect to each
portion of the principal amount hereof, determined and payable as provided in
the Loan Agreement.
This Note is a Note referred to in, and is entitled to the benefits of,
the Fourth Amended and Restated Loan Agreement dated as of August 16, 1996 (as
amended by the First Amendment to Loan Agreement dated as of November 19, 1996,
the Second Amendment to Loan Agreement dated as of October 8, 1997, and as
further amended, restated, supplemented or otherwise modified from time to time,
the "Loan Agreement"), by and among the Borrower, Sirrom Capital Corporation, as
guarantor (the "Parent"), the Lenders who are or may become party thereto (the
"Lenders"), and First Union National Bank (f/k/a First Union National Bank of
Tennessee), as Agent for the Lenders (the "Agent"). The Loan Agreement contains,
among other things, provisions for the time, place and manner of payment of this
Note, the determination of the interest rate borne by and fees payable in
respect of this Note, acceleration of the payment of this Note upon the
happening of certain stated events and the mandatory repayment of this Note
under certain circumstances.
The Borrower agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, if any part of this Note, principal or interest, is
collected after maturity with the aid of an attorney.
Presentment for payment, notice of dishonor, protest and notice of
protest are hereby waived.
THIS NOTE IS MADE AND DELIVERED IN THE STATE OF NORTH CAROLINA
AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF NORTH CAROLINA.
Pursuant to the Assignment and Assumption Agreement dated as of August
16, 1996 between the Parent and the Borrower, the Parent transferred all of its
rights and obligations under the Third Amended and Restated Loan Agreement dated
as of December 27, 1995, as amended, by and among the Parent, the Lenders party
thereto, and
<PAGE> 2
the Agent, and the documents executed in connection therewith, to the Borrower,
and the Borrower assumed all of such rights and obligations.
2
<PAGE> 3
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
under seal by a duly authorized officer as of the day and year first above
written.
SIRROM INVESTMENTS, INC.
[CORPORATE SEAL]
By:________________________________
Name:___________________________
Title:__________________________
3
<PAGE> 1
Exhibit f.22
FIFTH AMENDED AND RESTATED REVOLVING CREDIT NOTE
$10,000,000 October 8, 1997
FOR VALUE RECEIVED, the undersigned, SIRROM INVESTMENTS, INC., a
corporation organized under the laws of Tennessee (the "Borrower"), hereby
promises to pay to the order of CORESTATES BANK, N.A. (the "Bank"), at the
times, at the place and in the manner provided in the Loan Agreement hereinafter
referred to, the principal sum of up to Ten Million Dollars ($10,000,000), or,
if less, the aggregate unpaid principal amount of all Loans disbursed by the
Bank under the Loan Agreement referred to below, together with interest at the
rates as in effect from time to time with respect to each portion of the
principal amount hereof, determined and payable as provided in the Loan
Agreement.
This Note is a Note referred to in, and is entitled to the benefits of,
the Fourth Amended and Restated Loan Agreement dated as of August 16, 1996 (as
amended by the First Amendment to Loan Agreement dated as of November 19, 1996,
the Second Amendment to Loan Agreement dated as of October 8, 1997, and as
further amended, restated, supplemented or otherwise modified from time to time,
the "Loan Agreement"), by and among the Borrower, Sirrom Capital Corporation, as
guarantor (the "Parent"), the Lenders who are or may become party thereto (the
"Lenders"), and First Union National Bank (f/k/a First Union National Bank of
Tennessee), as Agent for the Lenders (the "Agent"). The Loan Agreement contains,
among other things, provisions for the time, place and manner of payment of this
Note, the determination of the interest rate borne by and fees payable in
respect of this Note, acceleration of the payment of this Note upon the
happening of certain stated events and the mandatory repayment of this Note
under certain circumstances.
The Borrower agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, if any part of this Note, principal or interest, is
collected after maturity with the aid of an attorney.
Presentment for payment, notice of dishonor, protest and notice of
protest are hereby waived.
THIS NOTE IS MADE AND DELIVERED IN THE STATE OF NORTH CAROLINA
AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF NORTH CAROLINA.
Pursuant to the Assignment and Assumption Agreement dated as of August
16, 1996 between the Parent and the Borrower, the Parent transferred all of its
rights and obligations under the Third Amended and Restated Loan Agreement dated
as of December 27, 1995, as amended, by and among the Parent, the Lenders party
thereto, and the Agent, and the documents executed in connection therewith, to
<PAGE> 2
the Borrower, and the Borrower assumed all of such rights and obligations.
2
<PAGE> 3
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
under seal by a duly authorized officer as of the day and year first above
written.
SIRROM INVESTMENTS, INC.
[CORPORATE SEAL]
By:________________________________
Name:___________________________
Title:__________________________
3
<PAGE> 1
Exhibit f.23
FIFTH AMENDED AND RESTATED REVOLVING CREDIT NOTE
$10,000,000 October 8, 1997
FOR VALUE RECEIVED, the undersigned, SIRROM INVESTMENTS, INC., a
corporation organized under the laws of Tennessee (the "Borrower"), hereby
promises to pay to the order of THE FIRST NATIONAL BANK OF CHICAGO (the "Bank"),
at the times, at the place and in the manner provided in the Loan Agreement
hereinafter referred to, the principal sum of up to Ten Million Dollars
($10,000,000), or, if less, the aggregate unpaid principal amount of all Loans
disbursed by the Bank under the Loan Agreement referred to below, together with
interest at the rates as in effect from time to time with respect to each
portion of the principal amount hereof, determined and payable as provided in
the Loan Agreement.
This Note is a Note referred to in, and is entitled to the benefits of,
the Fourth Amended and Restated Loan Agreement dated as of August 16, 1996 (as
amended by the First Amendment to Loan Agreement dated as of November 19, 1996,
the Second Amendment to Loan Agreement dated as of October 8, 1997, and as
further amended, restated, supplemented or otherwise modified from time to time,
the "Loan Agreement"), by and among the Borrower, Sirrom Capital Corporation, as
guarantor (the "Parent"), the Lenders who are or may become party thereto (the
"Lenders"), and First Union National Bank (f/k/a First Union National Bank of
Tennessee), as Agent for the Lenders (the "Agent"). The Loan Agreement contains,
among other things, provisions for the time, place and manner of payment of this
Note, the determination of the interest rate borne by and fees payable in
respect of this Note, acceleration of the payment of this Note upon the
happening of certain stated events and the mandatory repayment of this Note
under certain circumstances.
The Borrower agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, if any part of this Note, principal or interest, is
collected after maturity with the aid of an attorney.
Presentment for payment, notice of dishonor, protest and notice of
protest are hereby waived.
THIS NOTE IS MADE AND DELIVERED IN THE STATE OF NORTH CAROLINA
AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF NORTH CAROLINA.
Pursuant to the Assignment and Assumption Agreement dated as of August
16, 1996 between the Parent and the Borrower, the Parent transferred all of its
rights and obligations under the Third Amended and Restated Loan Agreement dated
as of December 27, 1995, as amended, by and among the Parent, the Lenders party
thereto, and
<PAGE> 2
the Agent, and the documents executed in connection therewith, to the Borrower,
and the Borrower assumed all of such rights and obligations.
2
<PAGE> 3
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
under seal by a duly authorized officer as of the day and year first above
written.
SIRROM INVESTMENTS, INC.
[CORPORATE SEAL]
By:________________________________
Name:___________________________
Title:__________________________
3
<PAGE> 1
Exhibit f.24
FIFTH AMENDED AND RESTATED REVOLVING CREDIT NOTE
$10,000,000 October 8, 1997
FOR VALUE RECEIVED, the undersigned, SIRROM INVESTMENTS, INC., a
corporation organized under the laws of Tennessee (the "Borrower"), hereby
promises to pay to the order of UNION BANK OF CALIFORNIA, N.A. (the "Bank"), at
the times, at the place and in the manner provided in the Loan Agreement
hereinafter referred to, the principal sum of up to Ten Million Dollars
($10,000,000), or, if less, the aggregate unpaid principal amount of all Loans
disbursed by the Bank under the Loan Agreement referred to below, together with
interest at the rates as in effect from time to time with respect to each
portion of the principal amount hereof, determined and payable as provided in
the Loan Agreement.
This Note is a Note referred to in, and is entitled to the benefits of,
the Fourth Amended and Restated Loan Agreement dated as of August 16, 1996 (as
amended by the First Amendment to Loan Agreement dated as of November 19, 1996,
the Second Amendment to Loan Agreement dated as of October 8, 1997, and as
further amended, restated, supplemented or otherwise modified from time to time,
the "Loan Agreement"), by and among the Borrower, Sirrom Capital Corporation, as
guarantor (the "Parent"), the Lenders who are or may become party thereto (the
"Lenders"), and First Union National Bank (f/k/a First Union National Bank of
Tennessee), as Agent for the Lenders (the "Agent"). The Loan Agreement contains,
among other things, provisions for the time, place and manner of payment of this
Note, the determination of the interest rate borne by and fees payable in
respect of this Note, acceleration of the payment of this Note upon the
happening of certain stated events and the mandatory repayment of this Note
under certain circumstances.
The Borrower agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, if any part of this Note, principal or interest, is
collected after maturity with the aid of an attorney.
Presentment for payment, notice of dishonor, protest and notice of
protest are hereby waived.
THIS NOTE IS MADE AND DELIVERED IN THE STATE OF NORTH CAROLINA
AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF NORTH CAROLINA.
Pursuant to the Assignment and Assumption Agreement dated as of August
16, 1996 between the Parent and the Borrower, the Parent transferred all of its
rights and obligations under the Third Amended and Restated Loan Agreement dated
as of December 27, 1995, as amended, by and among the Parent, the Lenders party
thereto, and the Agent, and the documents executed in connection therewith, to
<PAGE> 2
the Borrower, and the Borrower assumed all of such rights and obligations.
2
<PAGE> 3
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
under seal by a duly authorized officer as of the day and year first above
written.
SIRROM INVESTMENTS, INC.
[CORPORATE SEAL]
By:________________________________
Name:___________________________
Title:__________________________
3
<PAGE> 1
Exhibit f.25
FIFTH AMENDED AND RESTATED REVOLVING CREDIT NOTE
$10,000,000 October 8, 1997
FOR VALUE RECEIVED, the undersigned, SIRROM INVESTMENTS, INC., a
corporation organized under the laws of Tennessee (the "Borrower"), hereby
promises to pay to the order of FLEET BANK, N.A. (the "Bank"), at the times, at
the place and in the manner provided in the Loan Agreement hereinafter referred
to, the principal sum of up to Ten Million Dollars ($10,000,000), or, if less,
the aggregate unpaid principal amount of all Loans disbursed by the Bank under
the Loan Agreement referred to below, together with interest at the rates as in
effect from time to time with respect to each portion of the principal amount
hereof, determined and payable as provided in the Loan Agreement.
This Note is a Note referred to in, and is entitled to the benefits of,
the Fourth Amended and Restated Loan Agreement dated as of August 16, 1996 (as
amended by the First Amendment to Loan Agreement dated as of November 19, 1996,
the Second Amendment to Loan Agreement dated as of October 8, 1997, and as
further amended, restated, supplemented or otherwise modified from time to time,
the "Loan Agreement"), by and among the Borrower, Sirrom Capital Corporation, as
guarantor (the "Parent"), the Lenders who are or may become party thereto (the
"Lenders"), and First Union National Bank (f/k/a First Union National Bank of
Tennessee), as Agent for the Lenders (the "Agent"). The Loan Agreement contains,
among other things, provisions for the time, place and manner of payment of this
Note, the determination of the interest rate borne by and fees payable in
respect of this Note, acceleration of the payment of this Note upon the
happening of certain stated events and the mandatory repayment of this Note
under certain circumstances.
The Borrower agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, if any part of this Note, principal or interest, is
collected after maturity with the aid of an attorney.
Presentment for payment, notice of dishonor, protest and notice of
protest are hereby waived.
THIS NOTE IS MADE AND DELIVERED IN THE STATE OF NORTH CAROLINA
AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF NORTH CAROLINA.
Pursuant to the Assignment and Assumption Agreement dated as of August
16, 1996 between the Parent and the Borrower, the Parent transferred all of its
rights and obligations under the Third Amended and Restated Loan Agreement dated
as of December 27, 1995, as amended, by and among the Parent, the Lenders party
thereto, and the Agent, and the documents executed in connection therewith, to
<PAGE> 2
the Borrower, and the Borrower assumed all of such rights and obligations.
2
<PAGE> 3
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
under seal by a duly authorized officer as of the day and year first above
written.
SIRROM INVESTMENTS, INC.
[CORPORATE SEAL]
By:________________________________
Name:___________________________
Title:__________________________
3
<PAGE> 1
Exhibit f.26
SECOND AMENDED AND RESTATED SWINGLINE NOTE
$10,000,000 October 8, 1997
FOR VALUE RECEIVED, the undersigned, SIRROM INVESTMENTS, INC., a
corporation organized under the laws of Tennessee (the "Borrower"), hereby
promises to pay to the order of FIRST UNION NATIONAL BANK (F/K/A FIRST UNION
NATIONAL BANK OF TENNESSEE) (the "Bank"), at the times, at the place and in the
manner provided in the Loan Agreement hereinafter referred to, the principal sum
of up to Ten Million Dollars ($10,000,000), or, if less, the aggregate unpaid
principal amount of all Swingline Loans disbursed by the Bank under the Loan
Agreement referred to below, together with interest at the rates as in effect
from time to time with respect to each portion of the principal amount hereof,
determined and payable as provided in the Loan Agreement.
This Swingline Note is a Note referred to in, and is entitled to the
benefits of, the Fourth Amended and Restated Loan Agreement dated as of August
16, 1996 (as amended by the First Amendment to Loan Agreement dated as of
November 19, 1996, the Second Amendment to Loan Agreement dated as of October 8,
1997, and as further amended, restated, supplemented or otherwise modified from
time to time, the "Loan Agreement"), by and among the Borrower, Sirrom Capital
Corporation, the guarantor (the "Parent"), the Lenders who are or may become
party thereto (the "Lenders"), and First Union National Bank (f/k/a First Union
National Bank of Tennessee), as Agent for the Lenders (the "Agent"). The Loan
Agreement contains, among other things, provisions for the time, place and
manner of payment of this Swingline Note, the determination of the interest rate
borne by and fees payable in respect of this Swingline Note, acceleration of the
payment of this Swingline Note upon the happening of certain stated events and
the mandatory repayment of this Swingline Note under certain circumstances.
The Borrower agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, if any part of this Swingline Note, principal or
interest, is collected after maturity with the aid of an attorney.
Presentment for payment, notice of dishonor, protest and notice of
protest are hereby waived.
THIS SWINGLINE NOTE IS MADE AND DELIVERED IN THE STATE OF NORTH
CAROLINA AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE STATE OF NORTH CAROLINA.
Pursuant to the Assignment and Assumption Agreement dated as of August
16, 1996 between the Parent and the Borrower, the Parent transferred all of its
rights and obligations under the Third
<PAGE> 2
Amended and Restated Loan Agreement dated as of December 27, 1995, as amended,
by and among the Parent, the Lenders party thereto, and the Agent, and the
documents executed in connection therewith, to the Borrower, and the Borrower
assumed all of such rights and obligations.
This Note amends and restates the obligations of the Borrower under the
Amended and Restated Swingline Note dated August 16, 1996 executed by the
Borrower in favor of the Bank.
2
<PAGE> 3
IN WITNESS WHEREOF, the Borrower has caused this Swingline Note to be
executed under seal by a duly authorized officer as of the day and year first
above written.
SIRROM INVESTMENTS, INC.
[CORPORATE SEAL]
By:________________________________
Name:___________________________
Title:__________________________
3
<PAGE> 1
Page 1
Exhibit h.1
5,000,000 Shares
Sirrom Capital Corporation
Shares of Common Stock, No Par Value Per Share
UNDERWRITING AGREEMENT
February __, 1998
<PAGE> 2
Page 2
February __, 1998
Morgan Stanley & Co. Incorporated
The Robinson-Humphrey Company LLC
J.C. Bradford & Co.
SunTrust Equitable Securities Corporation
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
The Robinson-Humphrey Company LLC
J.C. Bradford & Co.
SunTrust Equitable Securities Corporation
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
Sirrom Capital Corporation, a Tennessee corporation (the
"Company"), proposes to issue and sell to the several Underwriters (as defined
below) named in Schedules II and III hereto, an aggregate of 5,000,000 shares of
the Common Stock, no par value per share, of the Company (the "Firm Shares").
It is understood that, subject to the conditions hereinafter
stated, 4,000,000 Firm Shares (the "U.S. Firm Shares") will be sold to the
several U.S. Underwriters named in Schedule II hereto (the "U.S. Underwriters")
in connection with the offering and sale of such U.S. Firm Shares in the United
States and Canada to United States and Canadian Persons (as such terms are
defined in the Agreement Between U.S. and International Underwriters of even
date herewith), and 1,000,000 Firm Shares (the "International Shares") will be
sold to the several International Underwriters named in Schedule III hereto (the
"International Underwriters") in connection with the offering and sale of such
International Shares outside the United States and Canada to persons other than
United States and Canadian Persons. Morgan Stanley & Co. Incorporated, The
Robinson-Humphrey Company LLC, J.C. Bradford & Co. and SunTrust
<PAGE> 3
Page 3
Equitable Securities Corporation shall act as representatives (the "U.S.
Representatives") of the several U.S. Underwriters, and Morgan Stanley & Co.
International Limited, The Robinson-Humphrey Company, LLC, J.C. Bradford & Co.
and SunTrust Equitable Securities Corporation shall act as representatives (the
"International Representatives") of the several International Underwriters. The
U.S. Underwriters and the International Underwriters are hereinafter
collectively referred to as the "Underwriters."
Certain shareholders of the Company (the "Selling
Shareholders") named in Schedule I hereto [severally] propose to sell to the
several U.S. Underwriters not more than an additional 750,000 shares of the
Common Stock, no par value per share, of the Company (the "Additional Shares")
if and to the extent that the U.S. Representatives shall have determined to
exercise, on behalf of the U.S. Underwriters, the right to purchase such shares
of common stock granted to the U.S. Underwriters in Section 3 hereof. The Firm
Shares and the Additional Shares are hereinafter collectively referred to as the
"Shares." The shares of Common Stock, no par value per share, of the Company to
be outstanding after giving effect to the sales contemplated hereby are
hereinafter referred to as the "Common Stock." The Company and the Selling
Shareholders are hereinafter sometimes collectively referred to as the
"Sellers."
The Company has filed with the Securities and Exchange
Commission (the "Commission"), pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), the Investment Company Act of 1940 (the
"Investment Company Act"), and the published rules and regulations adopted by
the Commission under the Securities Act (the "Securities Act Rules") and the
Investment Company Act (the "Investment Company Act Rules") a registration
Statement on Form N2 (File No. 333_____) relating to the Shares. The
registration statement contains the U.S. prospectus which is to be used in
connection with the offering and sale of Shares in the United States and Canada
to United States and Canadian Persons. The international prospectus, to be used
in connection with the offering and sale of Shares outside the United States and
Canada is identical to the U.S. prospectus except for the outside front cover
page. The registration statement as amended at the time it becomes effective,
including the information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act (and any information incorporated by reference therein) is
hereinafter referred to as the "Registration Statement"; the U.S. prospectus and
the international prospectus (as described in Rule 434(a)(1) under the
Securities Act) in the respective forms first used to confirm sales of Shares
are hereinafter collectively referred to as the "Distributed Prospectus"; the
U.S. prospectus included in the Registration Statement at the time of its
effectiveness (including the information, if any, deemed to be a part of the
Registration Statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act) is hereinafter referred to as the "Filed Prospectus"; and
the Distributed Prospectus and the Filed Prospectus are hereinafter referred to
collectively as the "Prospectus."
<PAGE> 4
Page 4
1. REPRESENTATIONS AND WARRANTIES. The Company
represents and warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop
order suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.
(b) On (A) the effective date of the Registration Statement
(the "Effective Date"), and the date on which the Prospectus is first filed
with the Commission pursuant to Rule 497 of the Securities Act Rules, (B) the
date on which any posteffective amendment to the Registration Statement (except
any posteffective amendment required by Rule 8b16 of the Investment Company Act
Rules or which is filed with the Commission after the later of (x) one year
from the date of this Agreement or (y) the date on which the distribution of
the Shares is completed) became or becomes effective or any amendment or
supplement to the Prospectus was or is filed with the Commission and (C) at the
Closing Date (as defined below), the Registration Statement, the Prospectus and
any such amendment or supplement thereto and the Notification of Registration
of the Company filed with the Commission on Form N8A (the "Notification ")
pursuant to Section 8 of the Investment Company Act complied or will comply in
all material respects with the applicable requirements of the Securities Act,
the Investment Company Act, the Securities Act Rules and the Investment Company
Act Rules, as the case may be. On the Effective Date and on the date that any
posteffective amendment to the Registration Statement (except any posteffective
amendment required by Rule 8b16 of the Investment Company Act Rules or which is
filed with the Commission after the later of (x) one year from the date of this
Underwriting Agreement or (y) the date on which the distribution of the Shares
is completed) became or becomes effective, neither the Registration Statement
nor any such amendment did or will contain any untrue statement of a material
fact or omit to state a material fact required to be stated in it or necessary
to make the statements in it not misleading. At the Effective Date, if
applicable, the date the Prospectus or any amendment or supplement to the
Prospectus was or is filed with the Commission and at the Closing Date (as
defined below), the Prospectus did not or will not, as the case may be, contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements in it, in light of the circumstances under
which they were made, not misleading. The foregoing representations in this
paragraph 1(b) do not apply to statements or omissions made in reliance on and
in conformity with information relating to any Underwriter furnished in writing
to the Company by such Underwriter through you expressly for use in the
Registration Statement, the Prospectus, or any amendments or supplements
thereto.
(c) The Company has been duly incorporated, is validly
existing as
<PAGE> 5
Page 5
a corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be
in good standing would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated,
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to own
its property and to conduct its business as described in the Prospectus and is
duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or leasing
of property requires such qualification, except to the extent that the failure
to be so qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole; all of the issued
shares of capital stock of each subsidiary of the Company have been duly and
validly authorized and issued, are fully paid and nonassessable and are owned
directly by the Company, free and clear of all liens, encumbrances, equities or
claims, except with respect to all of the shares of Sirrom Investments, Inc., a
wholly-owned subsidiary of the Company ("SII"), which have been pledged by the
Company to First Union National Bank as agent for a syndicate of banks ("First
Union") as collateral to secure the revolving credit facility as described in
the Final Prospectus.
(e) This Agreement has been duly authorized, executed and
delivered by the Company.
(f) The authorized capital stock of the Company conforms as
to legal matters to the description thereof contained in the Prospectus.
(g) The shares of Common Stock (including the Shares to be
sold by the Selling Shareholders) outstanding prior to the issuance of the
Shares to be sold by the Company have been duly authorized and are validly
issued, fully paid and non-assessable.
(h) The Shares to be sold by the Company have been duly
authorized and, when issued and delivered in accordance with the terms of this
Agreement, will be validly issued, fully paid and non-assessable, and the
issuance of such Shares will not be subject to any preemptive or similar rights.
(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement will not
contravene any provision of applicable law or the certificate of incorporation
or by-laws of the Company or any agreement or other instrument binding upon the
<PAGE> 6
Page 6
Company or any of its subsidiaries that is material to the Company and its
subsidiaries, taken as a whole, or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company or any
subsidiary, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement other than
those which have been obtained as of the date hereof.
(j) To the best of the Company's knowledge, the Company's and
its subsidiaries' operations are in compliance with the Investment Company Act
and the Investment Company Act Rules.
(k) The Company and its subsidiaries are not currently in
breach of, or in default under, any material written agreement or instrument to
which they are a party or by which their property is bound or affected.
(l) The Company is duly registered with the Commission under
the Investment Company Act as a nondiversified closedend management investment
company, and all required action has or will have been taken by the Company
under the Securities Act, the Investment Company Act, the Securities Act Rules
and the Investment Company Act Rules, as the case my be, to make the public
offering and consummate the sale of the Shares as provided in this Agreement.
(m) The Company owns or possesses or has obtained all
governmental licenses, permits, consents, orders, approvals and other
authorizations, whether international or domestic, necessary to carry on its
business as contemplated.
(n) There are no material restrictions, limitations or
regulations with respect to the ability of the Company or its subsidiaries to
invest its assets as described in the Prospectus, other than as described
therein.
(o) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the condition,
financial or otherwise, or in the earnings, business or operations of the
Company and its subsidiaries, taken as a whole, from that set forth in the
Prospectus (exclusive of any amendments or supplements thereto subsequent to the
date of this Agreement).
(p) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is a party or to
which any of the properties of the Company or any of its subsidiaries is subject
that are required to be described in the Registration Statement or the
Prospectus and are not so described or any statutes, regulations, contracts or
other documents that are required to be described in the Registration Statement
or the Prospectus or
<PAGE> 7
Page 7
to be filed as exhibits to the Registration Statement that are not described or
filed as required.
(q) Each preliminary prospectus filed as part of the
registration statement as originally filed or as part of any amendment thereto,
or filed pursuant to Rule 497 under the Securities Act, complied when so filed
in all material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.
(r) The Company and its subsidiaries (i) are in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses
or other approvals required of them under applicable Environmental Laws to
conduct their respective businesses and (iii) are in compliance with all terms
and conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and conditions
of such permits, licenses or approvals would not, singly or in the aggregate,
have a material adverse effect on the Company and its subsidiaries, taken as a
whole.
(s) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to require the
Company to file a registration statement under the Securities Act with respect
to any securities of the Company or to require the Company to include such
securities with the Shares registered pursuant to the Registration Statement.
2. REPRESENTATIONS AND WARRANTIES OF THE SELLING
SHAREHOLDERS. Each of the Selling Shareholders represents and warrants to and
agrees with each of the Underwriters that:
(a) This Agreement has been duly authorized, executed and
delivered by or on behalf of such Selling Shareholder.
(b) Such Selling Shareholder has, and on the Option Closing
Date (as defined below) will have, full legal right, power and authority to
enter into this Agreement and the Custody Agreement and Power of Attorney (the
"Custody Agreement and Power of Attorney") signed by such Selling Shareholder
and the Company, as Custodian, relating to the deposit of the Shares to be sold
by such Selling Shareholder and to appointing certain individuals as such
Selling Shareholder's attorneys-in-fact to the extent set forth therein,
relating to the transactions contemplated hereby and by the Registration
Statement. This Agreement has been duly executed and delivered by such Selling
Shareholder. In addition, the Custody Agreement and Power of Attorney has been
duly executed and delivered by such Selling Shareholder and constitutes the
valid
<PAGE> 8
Page 8
and binding agreement of such Selling Shareholder in accordance with its terms
(except as (A) such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting the enforcement of creditor's rights and the
application of equitable principles (regardless of whether such enforceability
is considered in a proceeding in equity or at law) relating to the availability
of remedies, and (B) to the extent that rights to indemnity or contribution may
be limited by United States federal or state securities law and the public
policy underlying such laws).
(c) The execution and delivery by such Selling Shareholder of,
and the performance by such Selling Shareholder of its obligations under, this
Agreement and the Custody Agreement and Power of Attorney will not contravene
any provision of applicable law, or the certificate of incorporation or by-laws
of such Selling Shareholder (if such Selling Shareholder is a corporation), or
any agreement or other instrument binding upon such Selling Shareholder or any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over such Selling Shareholder, and no consent, approval,
authorization or order of, or qualification with, any governmental body or
agency is required for the performance by such Selling Shareholder of its
obligations under this Agreement or the Custody Agreement and Power of Attorney
of such Selling Shareholder.
(d) Such Selling Shareholder owns, and on the Option Closing
Date will own, the shares to be sold by such Selling Shareholder free of all
liens, claims and encumbrances and has, and the Option Closing Date will have,
the legal right and power to sell, transfer and deliver the Shares to be sold by
such Selling Shareholder.
(e) Upon the making by the Depository Trust Company of the
appropriate entries transferring the shares to be sold by such Selling
Shareholder on its books and records to the account of Morgan Stanley & Co.
Incorporated, Morgan Stanley & Co. Incorporated will acquire such shares free of
all liens, claims and encumbrances.
(f) On the Effective Date and on the date that any
post-effective amendment to the Registration Statement (except any post-
effective amendment required by Rule 8b16 of the Investment Company Act Rules
or which is filed with the Commission after the later of (x) one year from the
date of this Underwriting Agreement or (y) the date on which the distribution
of the Shares is completed) became or becomes effective, neither the
Registration Statement nor any such amendment did or will contain any untrue
statement of a material fact or omit to state a material fact required to be
stated in it or necessary to make the statements in it not misleading, with
reference to information furnished in writing by or on behalf of a Selling
Shareholder to the Company expressly for use in the Registration Statement, or
any amendments thereto. At the Effective Date, if applicable, the date the
Prospectus or any amendment or supplement to
<PAGE> 9
Page 9
the Prospectus was or is filed with the Commission and at the Closing Date and
the Option Closing Date, the Prospectus did not or will not, as the case may
be, contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements in it, in light of the circumstances
under which they were made, not misleading, with reference to information
furnished in writing by or on behalf of a Selling Shareholder to the Company
expressly for use in the Prospectus, or any amendments or supplements thereto.
(g) Such Selling Shareholder has not taken, and on the Option
Closing Date will not have taken, directly or indirectly, any action designed to
stabilize or manipulate the price of any security of the Company, or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company, to
facilitate the sale or resale of the Shares or otherwise.
(h) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Internal Revenue Code of 1986, such
Selling Shareholder shall deliver to you on or prior to the Closing Date a
properly completed and executed United States Treasury Department Form W8 or W9
(or other applicable form or statement specified by Treasury Department
Regulations in lieu thereof).
3. AGREEMENTS TO SELL AND PURCHASE. The Company hereby agrees
to sell to the several Underwriters, and each Underwriter, upon the basis of
the representations and warranties herein contained, but subject to the
conditions hereinafter stated, agrees, severally and not jointly, to purchase
from the Company at $____ a share (the "Purchase Price") the number of Firm
Shares (subject to such adjustments to eliminate fractional shares as you may
determine) that bears the same proportion to the number of Firm Shares to be
sold by such Seller as the number of Firm Shares such Underwriter bears to the
total number of Firm Shares.
On the basis of the representations and warranties contained
in this Agreement, and subject to its terms and conditions, if the option is
exercised as to all or any portion of the Additional Shares, each of the
Selling Shareholders agrees to sell to the U.S. Underwriters up to the amount
of the Additional Shares set forth opposite the name of such Selling
Shareholder on Schedule I, and the U.S. Underwriters shall have a one-time
right to purchase severally and not jointly, up to [750,000] Additional Shares
at the Purchase Price. If the U.S. Representatives, on behalf of the U.S.
Underwriters, elect to exercise such option, the U.S. Representatives shall so
notify the Selling Shareholders in writing not later than 30 days after the
date of this Agreement, which notice shall specify the number of Additional
Shares to be purchased by the U.S. Underwriters and the date on which such
shares are to be purchased. Such date may be the same as the Closing Date (as
defined below) but not earlier than the Closing Date nor later than ten
business days after the date of such
<PAGE> 10
Page 10
notice. Additional Shares may be purchased as provided in Section 4 hereof
solely for the purpose of covering over-allotments made in connection with the
offering of the Firm Shares. If any Additional Shares are to be purchased, each
U.S. Underwriter agrees, severally and not jointly, to purchase from each
Selling Shareholder at the Purchase price (i) the number of Additional Shares
that bears the same proportion to the total number of Additional Shares to be
purchased as the number of U.S. Firm Shares such U.S. Underwriter bears to the
total number of U.S. Firm Shares and (ii) any additional number of Additional
Shares which such Underwriter may become obligated to purchase pursuant to the
provisions of Section 11 hereof, subject in each case to such adjustments to
eliminate fractional shares as the U.S. Representatives may determine.
The Company and each Selling Shareholder hereby agrees that,
without the prior written consent of Morgan Stanley & Co. Incorporated on behalf
of the Underwriters, it will not, during the period ending 90 days after the
date of the Prospectus, (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, lend or otherwise transfer or dispose
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of the Common Stock, whether
any such transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise. The
foregoing sentence shall not apply to (A) the Shares to be sold hereunder, (B)
the issuance by the Company of shares of Common Stock upon the exercise of an
option or warrant or the conversion of a security outstanding on the date hereof
of which the Underwriters have been advised in writing or (C) transactions by
any person other than the Company relating to shares of Common Stock or other
securities acquired in open market transactions after the completion of the
offering of the Shares. In addition, each Selling Shareholder, agrees that,
without the prior written consent of Morgan Stanley & Co. Incorporated on
behalf of the Underwriters, it will not, during the period ending 90 days after
the date of the Prospectus, make any demand for, or exercise any right with
respect to, the registration of any shares of Common Stock or any security
convertible into or exercisable or exchangeable for Common Stock.
4. TERMS OF PUBLIC OFFERING. The Sellers are advised by you
that the Underwriters propose to make a public offering of their respective
portions of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable. Sellers are
further advised by you that the Shares are to be offered to the public initially
at U.S.$__ a share (the "Public Offering Price") and to certain dealers selected
by you at a price that represents a concession not in excess of U.S.$____ a
share under the Public Offering Price.
5. PAYMENT AND DELIVERY. Payment for the Firm Shares to be
sold by the Company shall be made to the Company in Federal or other funds
immediately available in New York City against delivery of such Firm Shares for
the respective accounts of the several Underwriters at 10:00 A.M., New York City
time, on _________ __, 1998, or at such other time on the same or such other
date, not later than _________ __, 1998, as shall be designated in writing by
you. The time and date of such payment are hereinafter referred to as the
"Closing Date."
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Payment for any Additional Shares shall be made to each of the
Selling Shareholders in Federal or other funds immediately available against
delivery of such Additional Shares for the respective accounts of the several
Underwriters at 10:00 A.M., New York City time, on the date specified in the
notice described in Section 3 or at such other time on the same or on such other
date, in any event not later than _________ __, 1998, as shall be designated in
writing by the U.S. Representatives. The time and date of such payment are
hereinafter referred to as the "Option Closing Date."
Certificates for the Firm Shares and Additional Shares shall
be in definitive form and registered in such names and in such denominations as
you shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
6. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The
obligations of the Sellers to sell the Shares to the Underwriters and the
several obligations of the Underwriters to purchase and pay for the Shares on
the Closing Date are subject to the condition that the Registration Statement
shall have become effective not later than 2:00 p.m. (New York City time) on
the date hereof.
The several obligations of the Underwriters are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date there shall not have occurred any change, or any
development involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations of the Company and its
subsidiaries, taken as a whole, from that set forth in the Prospectus (exclusive
of any amendments or supplements thereto subsequent to the date of this
Agreement) that, in your judgment, is material and adverse and that makes it, in
your judgment, impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.
(b) (i) The Underwriters shall have received on the Closing
Date a certificate, dated the Closing Date and signed by an executive officer of
the Company, to the effect set forth in clause (a)(i) above and to the effect
that the representations and warranties of the Company contained in this
Agreement are true and correct as of the Closing Date and that the Company has
complied with all of the agreements and satisfied all of the conditions on its
part to be performed or satisfied hereunder on or before the Closing Date. The
officer
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signing and delivering such certificate may rely upon the best of his or her
knowledge as to proceedings threatened;
(ii) The Underwriters shall have received on the Closing
Date a certificate, dated the Closing Date and signed by each Selling
Shareholder or their attorneyinfact, to the effect that the representations and
warranties of such Selling Shareholder contained in this Agreement are true and
correct as of the Closing Date and that such Selling Shareholder has complied
with all of the agreements and satisfied all of the conditions on its part to
be performed or satisfied hereunder on or before the Closing Date.
(c) The Underwriters shall have received on the Closing Date
an opinion of Bass, Berry, & Sims PLC, outside counsel for the Company, dated
the Closing Date, to the effect that:
(i) the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the jurisdiction
of its incorporation, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each jurisdiction in
which the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse effect on
the Company and its subsidiaries, taken as a whole;
(ii) each subsidiary of the Company has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described in the
Prospectus and is duly qualified to transact business and is in good standing
in each jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that the
failure to be so qualified or be in good standing would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole;
(iii) the authorized capital stock of the Company conforms
as to legal matters to the description thereof contained in the Prospectus;
(iv) the shares of Common Stock (including the Shares to
be sold by the Selling Shareholders) outstanding prior to the issuance of the
Shares to be sold by the Company have been duly authorized and are validly
issued, fully paid and non-assessable;
(v) all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and issued, are
fully paid and nonassessable and are owned directly by the Company, free
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and clear of all liens, encumbrances, equities or claims, except with respect
to all of the shares of SII which have been pledged to First Union as
collateral to secure the revolving credit facility as described in the Final
Prospectus;
(vi) the shares to be sold by the Company have been duly
authorized and, when issued and delivered in accordance with the terms of this
Agreement, will be validly issued, fully paid and non-assessable, and the
issuance of such Shares will not be subject to any preemptive or similar
rights;
(vii) this Agreement has been duly authorized, executed and
delivered by the Company. In addition, the Custody Agreement and Power of
Attorney has been duly authorized, executed and delivered by the Company and
constitutes the valid and binding agreement of such Company in accordance with
its respective terms (except as (A) such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting the enforcement of creditor's
rights and the application of equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law) relating to
the availability of remedies, and (B) to the extent that rights to indemnity or
contribution may be limited by United States federal or state securities law
and the public policy underlying such laws);
(viii) the execution and delivery by the Company of, and
the performance by the Company of its obligations under, this Agreement and the
Custody Agreement and Power of Attorney will not contravene any provision of
applicable law or the certificate of incorporation or by-laws of the Company
or, to the best of such counsel's knowledge, any agreement or other instrument
binding upon the Company or any of its subsidiaries that is material to the
Company and its subsidiaries, taken as a whole, or, to the best of such
counsel's knowledge, any judgment, order or decree of any governmental body,
agency or court having jurisdiction over the Company or any subsidiary, and no
consent, approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by the Company of
its obligations under this Agreement, except such as may be required by the
National Association of Securities Dealers, Inc., the securities or Blue Sky
laws of the various states in connection with the offer and sale of the Shares
by the U.S. Underwriters and the laws of any foreign jurisdiction in connection
with the offer and sale by the International Underwriters;
(ix) the statements (A) in the Prospectus under the
captions "Description of Capital Stock" and "Underwriters" and (B) in the
Registration Statement in Item 29, in each case insofar as such statements
constitute summaries of the legal matters, documents or proceedings referred to
therein, fairly present the information called for with respect to such legal
matters, documents and proceedings and fairly summarize the matters referred to
therein;
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(x) after due inquiry, such counsel does not know of any
legal or governmental proceedings pending or threatened to which the Company or
any of its subsidiaries is a party or to which any of the properties of the
Company or any of its subsidiaries is subject that are required to be described
in the Registration Statement or the Prospectus and are not so described or of
any statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described or filed as
required;
(xi) such counsel (A) is of the opinion that the
Registration Statement and Prospectus (except for financial statements and
schedules and other financial and statistical data included therein as to which
such counsel need not express any opinion) comply as to form in all material
respects with the Securities Act, the Investment Company Act of 1940 and the
applicable rules and regulations of the Commission thereunder, (B) has no
reason to believe that (except for financial statements and schedules and other
financial and statistical data as to which such counsel need not express any
belief) the Registration Statement and the prospectus included therein at the
time the Registration Statement became effective contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, (C) has no
reason to believe that (except for financial statements and schedules and other
financial and statistical data as to which such counsel need not express any
belief) the Prospectus contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading and (D) is of the opinion that the Distributed Prospectus is not
materially different from the Filed Prospectus.
(xii) the Company is duly registered with the Commission
under the Investment Act as a closedend nondiversified management investment
company, and all action under the Securities Act and the Investment Company Act
necessary to make the public offering and consummate the sale of the Shares as
provided in this Agreement has been taken by the Company.
(d) The Underwriters shall have received on the Closing Date
an opinion of Bass, Berry & Sims PLC, counsel for the Selling Shareholders,
dated the Closing Date, to the effect that:
(i) This Agreement has been duly authorized, executed
and delivered by or on behalf of each of the Selling Shareholders. The Custody
Agreement and Power of Attorney has been duly authorized, executed and
delivered by or on behalf of each of the Selling Shareholders and constitutes
the valid and binding agreement of such Selling Shareholder in accordance with
its terms (except as (A) such enforceability may be limited by applicable
bankruptcy,
<PAGE> 15
Page 15
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting the enforcement of creditor's rights and the
application of equitable principles (regardless of whether such enforceability
is considered in a proceeding in equity or at law) relating to the availability
of remedies, and (B) to the extent that rights to indemnity or contribution may
be limited by United States federal or state securities law and the public
policy underlying such laws);
(ii) Such Selling Shareholder has full legal right, power
and authority to enter into this Agreement and the Custody Agreement and Power
of Attorney signed by such Selling Shareholder and the Company, as Custodian,
relating to the deposit of the Shares to be sold by such Selling Shareholder
and appointing certain individuals as such Selling Shareholder's
attorneys-in-fact to the extent set forth therein, relating to the transactions
contemplated hereby and by the Registration Statement.
(iii) The execution and delivery by such Selling
Shareholder of, and the performance by such Selling Shareholder of its
obligations under, this Agreement, and the Custody Agreement and Power of
Attorney will not contravene any provision of applicable law, or the
certificate of incorporation or by-laws of such Selling Shareholder (if such
Selling Shareholder is a corporation), or, to such counsel's knowledge, any
agreement or other instrument binding upon such Selling Shareholder or any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over such Selling Shareholder, and, to such counsel's knowledge,
no consent, approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by such Selling
Shareholder of its obligations under this Agreement or the Custody Agreement
and Power of Attorney of such Selling Shareholder.
(iv) Upon transfer of the shares to Morgan Stanley & Co.
Incorporated, Morgan Stanley & Co. Incorporated, on behalf of itself and as
designee of the other Underwriters, will acquire such shares free of any
adverse claims (within the meaning of Section 8302 of the Uniform Commercial
Code as in effect in the State of New York (the "New York UCC")). "Transfer" of
the shares to Morgan Stanley & Co. Incorporated will occur upon the making by
The Depository Trust Company of appropriate entries transferring the shares on
its books and records to the account of Morgan Stanley & Co. Incorporated at
The Depository Trust Company. The opinion set forth in this paragraph (iv) is
subject to the following qualifications:
(A) we have assumed that each of the Underwriters
acquired its interest in the shares in good faith and without notice of any
adverse claims;
(B) we have assumed that appropriate entries
transferring the shares on the books and records of The Depository Trust
<PAGE> 16
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Company to the account of the Underwriter have been made and that such entries
are complete and accurate in all respects and that the shares will be
identified on the records of The Depository Trust Company for the sole and
exclusive account of Morgan Stanley & Co. Incorporated;
(C) we have assumed that the shares have been
deposited by First Union National Bank, as transfer agent in the "underwriting
account" at The Depository Trust Company, to be held in that account for the
benefit of the Selling Shareholders, and will be transferred from that account
to the account of Morgan Stanley & Co. Incorporated at The Depository Trust
Company upon payment therefor pursuant to the terms of the Underwriting
Agreement;
(D) we have assumed that (i) the shares are
maintained in the custody of The Depository Trust Company or a custodian bank
or a nominee of either subject to The Depository Trust Company's exclusive
control, (ii) the shares are in registered form either (x) registered in the
name of The Depository Trust Company or its nominee subject to The Depository
Trust Company's exclusive control, (y) indorsed to The Depository Trust
Company, or its nominee subject to The Depository Trust Company's exclusive
control or (z) indorsed in blank and (iii) will contain only signatures thereon
which are genuine;
(E) we have assumed that The Depository Trust
Company is a "clearing corporation" within the meaning of Section 8-102 of the
New York UCC; and
(F) we express no opinion with respect to the
priority of the lien of The Depository Trust Company.
(e) The Underwriters shall have received, on each of the
date hereof and the Closing Date, a letter dated the date hereof or the Closing
Date, as the case may be, in form and substance satisfactory to the
Underwriters, from Arthur Andersen LLP, independent public accountants,
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the financial
statements and certain financial information contained in the Registration
Statement and the Prospectus; provided that the letter delivered on the Closing
Date shall use a "cutoff date" not earlier than the date hereof.
(f) The Underwriters shall have received on the Closing
Date an opinion of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the
Underwriters, dated the Closing Date, covering the matters referred to in
subparagraphs (vi), (vii) (but only as to the first sentence), (ix) (but only
as to the statements in the Prospectus under "Description of Capital Stock" and
"Underwriters") and (xi) of paragraph (c) above.
<PAGE> 17
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With respect to subparagraph (xi) of paragraph (c) above,
Bass, Berry & Sims PLC and Skadden, Arps, Slate, Meagher & Flom LLP may state
that their opinion and belief are based upon their participation in the
preparation of the Registration Statement and Prospectus and any amendments or
supplements thereto and review and discussion of the contents thereof, but are
without independent check or verification, except as specified.
The opinion of Bass, Berry & Sims PLC described in paragraphs
(c) and (d) above (and any opinions of counsel for any Selling Shareholder
referred to in the immediately preceding paragraph) shall be rendered to the
Underwriters at the request of the Company or one or more of the Selling
Shareholders, as the case may be, and shall so state therein.
(g) The "lock-up" agreements, each substantially in the form
of Exhibit A hereto, between you and the Company and all of its executive
officers and directors relating to sales and certain other dispositions of
shares of Common Stock or certain other securities, delivered to you on or
before the date hereof, shall be in full force and effect on the Closing Date.
(h) The several obligations of the U.S. Underwriters to
purchase Additional Shares hereunder are subject to the delivery to the U.S.
Representatives on the Option Closing Date of such documents as they may
reasonably request with respect to the good standing of the Company, the due
authorization and issuance of the Additional Shares and other matters related to
the issuance of the Additional Shares.
7. COVENANTS OF THE COMPANY. In further consideration of
the agreements of the Underwriters herein contained, the Company covenants with
each Underwriter as follows:
(a) To furnish to you, without charge, nine signed copies of
the Registration Statement (including exhibits thereto and documents
incorporated by reference) and to each other Underwriter a copy of the
Registration Statement (without exhibits thereto but, including documents
incorporated by reference) and during the period mentioned in paragraph (c)
below, as many copies of the Distributed Prospectus and any supplements and
amendments thereto or to the Registration Statement as you may reasonably
request, prior to 1:00 P.M. New York City time on the business day next
succeeding the date of this Agreement.
(b) Before amending or supplementing the Registration
Statement or the Prospectus, to furnish to you a copy of each such proposed
amendment or supplement and not to file any such proposed amendment or
supplement to which you reasonably object, and to file with the Commission
within the applicable period specified in Rule 497 under the Securities Act any
prospectus required to be filed pursuant to such Rule.
<PAGE> 18
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(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters the
Prospectus is required by law to be delivered in connection with sales by an
Underwriter or dealer, any event shall occur or condition exist as a result of
which it is necessary to amend or supplement the Prospectus in order to make
the statements therein, in the light of the circumstances when the Prospectus
is delivered to a purchaser, not misleading, or if, in the opinion of counsel
for the Underwriters, it is necessary to amend or supplement the Prospectus to
comply with applicable law, forthwith to prepare, file with the Commission and
furnish, at its own expense, to the Underwriters and to the dealers (whose
names and addresses you will furnish to the Company) to which Shares may have
been sold by you on behalf of the Underwriters and to any other dealers upon
request, either amendments or supplements to the Prospectus so that the
statements in the Prospectus as so amended or supplemented will not, in the
light of the circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will comply
with law.
(d) To endeavor to qualify the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
(e) To make generally available to the Company's security
holders and to you as soon as practicable an earning statement covering the
twelve-month period ending March 31, 1998 that satisfies the provisions of
Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.
8. EXPENSES. Whether or not the transactions contemplated in
this Agreement are consummated or this Agreement is terminated, the Sellers
agree to pay or cause to be paid all expenses incident to the performance of
their obligations under this Agreement, including: (i) the fees, disbursements
and expenses of the Company's counsel, the Company's accountants and counsel
for the Selling Shareholders in connection with the registration and delivery
of the Shares under the Securities Act and the Investment Company Act and all
other fees or expenses in connection with the preparation and filing of the
Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing
costs associated therewith, and the mailing and delivering of copies thereof to
the Underwriters and dealers, in the quantities hereinabove specified, (ii) all
costs and expenses related to the transfer and delivery of the Shares to the
Underwriters, including any transfer or other taxes payable thereon, if
applicable, (iii) all expenses in connection with the qualification of the
Shares for offer and sale under state securities laws as provided in Section
7(d) hereof, including filing fees and the reasonable fees and disbursements of
counsel for the Underwriters in connection with such qualification, (iv) all
filing fees and disbursements of counsel to the Underwriters incurred in
connection with the review and qualification of the offering of the Shares by
the National Association
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of Securities Dealers, Inc., (v) the cost of printing certificates representing
the Shares, (vi) the costs and charges of any transfer agent, registrar or
depositary, (vii) the costs and expenses of the Company relating to investor
presentations on any "road show" undertaken in connection with the marketing of
the offering of the Shares, including, without limitation, expenses associated
with the production of road show slides and graphics, fees and expenses of any
consultants engaged in connection with the road show presentations with the
prior approval of the Company, travel and lodging expenses of the
representatives and officers of the Company and any such consultants, and the
cost of any aircraft chartered in connection with the road show, and (viii) all
other costs and expenses incident to the performance of the obligations of the
Sellers hereunder for which provision is not otherwise made in this Section. It
is understood, however, that except as provided in this Section, Section 9
entitled "Indemnity and Contribution", and the last paragraph of Section 11
below, the Underwriters will pay all of their costs and expenses, including
fees and disbursements of their counsel, stock transfer taxes payable on resale
of any of the Shares by them and any advertising expenses connected with any
offers they may make.
The provisions of this Section shall not supersede or
otherwise affect any agreement that the Sellers may otherwise have for the
allocation of such expenses among themselves.
9. INDEMNITY AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or omission or alleged untrue statement or omission based
upon information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein.
(b) Each Selling Shareholder agrees, severally and not
jointly, to indemnify and hold harmless the Company and the Underwriters, its
directors, its officers who sign the Registration Statement and each person, if
any, who controls the Company within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other
<PAGE> 20
Page 20
expenses reasonably incurred in connection with defending or investigating any
such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
amendment thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only with reference to information relating to such
Selling Shareholder furnished in writing by or on behalf of such Selling
Shareholder expressly for use in the Registration Statement, any preliminary
prospectus, the Prospectus or any amendments or supplements thereto.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Selling Shareholders, the directors
of the Company, the officers of the Company who sign the Registration Statement
and each person, if any, who controls the Company or any Selling Shareholder
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
but only with reference to information relating to such Underwriter furnished to
the Company in writing by such Underwriter through you expressly for use in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendments or supplements thereto.
(d) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to paragraph (a), (b) or (c) of this Section
9, such person (the "indemnified party") shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying party") in writing
and the indemnifying party, upon request of the indemnified party, shall retain
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party and any others the indemnifying party may designate in such
proceeding and shall pay the fees and disbursements of such counsel related to
such proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such indemnified party unless (i) the indemnifying
party and the indemnified party shall have mutually agreed to the retention of
such counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
party and representation
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of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
indemnifying party shall not, in respect of the legal expenses of any
indemnified party in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for (i) the fees and expenses of more than one
separate firm (in addition to any local counsel) for all Underwriters and all
persons, if any, who control any Underwriter within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act, (ii) the
fees and expenses of more than one separate firm (in addition to any local
counsel) for the Company, its directors, its officers who sign the Registration
Statement and each person, if any, who controls the Company within the meaning
of either such Section and (iii) the fees and expenses of more than one separate
firm (in addition to any local counsel) for all Selling Shareholders and all
persons, if any, who control any Selling Shareholder within the meaning of
either such Section, and that all such fees and expenses shall be reimbursed as
they are incurred. In the case of any such separate firm for the Underwriters
and such control persons of any Underwriters, such firm shall be designated in
writing by Morgan Stanley & Co. Incorporated. In the case of any such separate
firm for the Company, and such directors, officers and control persons of the
Company, such firm shall be designated in writing by the Company. In the case of
any such separate firm for the Selling Shareholders and such control persons of
any Selling Shareholders, such firm shall be designated in writing by the
persons named as attorneys-in-fact for the Selling Shareholders under the Powers
of Attorney. The indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by the second and third sentences of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
(e) To the extent the indemnification provided for in
paragraph (a), (b) or (c) of this Section 9 is unavailable to an indemnified
party or insufficient in respect of any losses, claims, damages or liabilities
referred to therein, then each indemnifying party under such paragraph, in lieu
of indemnifying such indemnified party thereunder, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (i) in such proportion as is appropriate to
reflect the relative benefits received by the indemnifying party or parties on
the one hand and the indemnified party or parties on the other hand from the
offering of the Shares or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the indemnifying party or parties on the one hand and of
the indemnified party or parties on the other hand in
<PAGE> 22
Page 22
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Sellers on the one hand
and the Underwriters on the other hand in connection with the offering of the
Shares shall be deemed to be in the same respective proportions as the net
proceeds from the offering of the Shares (before deducting expenses) received
by each Seller and the total underwriting discounts and commissions received by
the Underwriters, in each case as set forth in the table on the cover of the
Prospectus, bear to the aggregate Public Offering Price of the Shares. The
relative fault of the Sellers on the one hand and the Underwriters on the other
hand shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Sellers or by the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Underwriters' respective obligations to contribute pursuant to
this Section 9 are several in proportion to the respective number of Shares
they have purchased hereunder, and not joint.
(f) The Sellers and the Underwriters agree that it would not
be just or equitable if contribution pursuant to this Section 9 were determined
by pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in paragraph (e) of this Section 9. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 9, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Section 9 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
(g) The indemnity and contribution provisions contained in
this Section 9 and the representations, warranties and other statements of the
Company and the Selling Shareholders contained in this Agreement shall remain
operative and in full force and effect regardless of (i) any termination of this
Agreement, (ii) any investigation made by or on behalf of any Underwriter or any
person controlling any Underwriter, any Selling Shareholder or any person
controlling any Selling Shareholder, or the Company, its officers or directors
or any person controlling the Company and (iii) acceptance of and payment for
any of the Shares.
10. TERMINATION. This Agreement shall be subject to
termination by notice given by you to the Company, if (a) after the execution
and delivery of
<PAGE> 23
Page 23
this Agreement and prior to the Closing Date (i) trading generally shall
have been suspended or materially limited on or by, as the case may be,
any of the New York Stock Exchange, the American Stock Exchange, the
National Association of Securities Dealers, Inc., the Chicago Board of
Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of
Trade, (ii) trading of any securities of the Company shall have been
suspended on any exchange or in any over-the-counter market, (iii) a
general moratorium on commercial banking activities in New York shall have
been declared by either Federal or New York State authorities or (iv) there
shall have occurred any outbreak or escalation of hostilities or any change
in financial markets or any calamity or crisis that, in your judgment, is
material and adverse and (b) in the case of any of the events specified in
clauses (a)(i) through (iv), such event, singly or together with any other
such event, makes it, in your judgment, impracticable to market the Shares
on the terms and in the manner contemplated in the Prospectus.
11. EFFECTIVENESS; DEFAULTING UNDERWRITERS. This Agreement
shall become effective upon the execution and delivery hereof by the
parties hereto.
If, on the Closing Date or the Option Closing Date, as the
case may be, any one or more of the Underwriters shall fail or refuse
to purchase Shares that it has or they have agreed to purchase hereunder on
such date, and the aggregate number of Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not
more than one-tenth of the aggregate number of the Shares to be purchased
on such date, the other Underwriters shall be obligated severally in the
proportions that the number of Firm Shares set forth opposite their
respective names in Schedule II or Schedule III bears to the aggregate
number of Firm Shares set forth opposite the names of all such
non-defaulting Underwriters, or in such other proportions as you may
specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date;
provided that in no event shall the number of Shares that any Underwriter
has agreed to purchase pursuant to this Agreement be increased pursuant to
this Section 9 by an amount in excess of one-ninth of such number of Shares
without the written consent of such Underwriter. If, on the Closing Date,
any Underwriter or Underwriters shall fail or refuse to purchase Firm
Shares and the aggregate number of Firm Shares with respect to which such
default occurs is more than one-tenth of the aggregate number of Firm
Shares to be purchased, and arrangements satisfactory to you, the Company
and the Selling Shareholders for the purchase of such Firm Shares are not
made within 36 hours after such default, this Agreement shall terminate
without liability on the part of any non-defaulting Underwriter, the
Company or the Selling Shareholders. In any such case either you or the
relevant Sellers shall have the right to postpone the Closing Date, but in
no event for longer than seven days, in order that the required changes, if
any, in the Registration Statement and in the Prospectus or in any other
documents or arrangements may be effected. If, on the Option
<PAGE> 24
Page 24
Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Additional Shares and the aggregate number of Additional Shares
with respect to which such default occurs is more than one-tenth of the
aggregate number of Additional Shares to be purchased, the non-defaulting
Underwriters shall have the option to (i) terminate their obligation
hereunder to purchase Additional Shares or (ii) purchase not less than the
number of Additional Shares that such nondefaulting Underwriters would have
been obligated to purchase in the absence of such default. Any action taken
under this paragraph shall not relieve any defaulting Underwriter from
liability in respect of any default of such Underwriter under this
Agreement.
If this Agreement shall be terminated by the Underwriters, or
any of them, because of any failure or refusal on the part of any
Seller to comply with the terms or to fulfill any of the conditions of this
Agreement, or if for any reason any Seller shall be unable to perform its
obligations under this Agreement, the Sellers will reimburse the
Underwriters or such Underwriters as have so terminated this Agreement with
respect to themselves, severally, for all out-of-pocket expenses (including
the fees and disbursements of their counsel) reasonably incurred by such
Underwriters in connection with this Agreement or the offering contemplated
hereunder.
12. COUNTERPARTS. This Agreement may be signed in two or
more counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same
instrument.
13. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New
York.
14. HEADINGS. The headings of the sections of this
Agreement have been inserted for convenience of reference only and
shall not be deemed a part of this Agreement.
<PAGE> 25
Page 25
Very truly yours,
SIRROM CAPITAL CORPORATION
By:
---------------------------------
Name: George M. Miller III
Title: President and Chief
Executive Officer
The Selling Shareholders
named in Schedule I hereto,
acting severally
By:
---------------------------------
Attorney-in-Fact
Accepted as of the date hereof
MORGAN STANLEY & CO. INCORPORATED
THE ROBINSON-HUMPHREY COMPANY LLC
J.C. BRADFORD & CO.
SUNTRUST EQUITABLE SECURITIES CORPORATION
Acting severally on behalf of themselves
and the several U.S. Underwriters named
in Schedule II hereto.
By Morgan Stanley & Co. Incorporated
By:
---------------------------
Name: William H. Wright II
Title: Principal
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
THE ROBINSON-HUMPHREY COMPANY LLC
J.C. BRADFORD & CO.
SUNTRUST EQUITABLE SECURITIES CORPORATION
Acting severally on behalf of themselves
and the several International Underwriters
<PAGE> 26
Page 26
named in Schedule III hereto.
By Morgan Stanley & Co. International Limited
By:
---------------------------
Name: William H. Wright II
Title: Principal
<PAGE> 27
Page 27
Schedule I
<TABLE>
<CAPTION>
Number of
Firm Shares
Selling Shareholders To Be Purchased
-------------------- ---------------
<S> <C>
Total 750,000
=======
</TABLE>
<PAGE> 28
28
Schedule II
U.S. Underwriters
<TABLE>
<CAPTION>
Number of
Firm Shares
Underwriter To Be Purchased
----------- ---------------
<S> <C>
Morgan Stanley & Co. Incorporated
The Robinson-Humphrey Company LLC
J.C. Bradford & Co.
SunTrust Equitable Securities Corporation
Total U.S. Firm Shares ............. 4,000,000
=========
</TABLE>
<PAGE> 29
29
Schedule III
International Underwriters
<TABLE>
<CAPTION>
Number of
Firm Shares
Underwriter To Be Purchased
----------- ---------------
<S> <C>
Morgan Stanley & Co.
International Limited
The Robinson-Humphrey Company LLC
J.C. Bradford & Co.
SunTrust Equitable Securities Corporation
Total International Firm Shares ...... 1,000,000
=========
</TABLE>
<PAGE> 30
Page 30
Exhibit A
[FORM OF LOCKUP LETTER]
February __, 1998
Morgan Stanley & Co. Incorporated
The Robinson-Humphrey Company LLC
J.C. Bradford & Co.
SunTrust Equitable Securities Corporation
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Morgan Stanley & Co. International Limited
The Robinson-Humphrey Company LLC
J.C. Bradford & Co.
SunTrust Equitable Securities Corporation
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co.
Incorporated ("Morgan Stanley") and Morgan Stanley & Co. International Limited
("MSIL") propose to enter into an Underwriting Agreement (the "Underwriting
Agreement") with Sirrom Capital Corporation, a Tennessee corporation (the
"Company") providing for the public offering (the "Public Offering") by the
several Underwriters, including Morgan Stanley and MSIL (the "Underwriters") of
5,000,000 shares (the "Shares") of the Common Stock, no par value per share, of
the Company (the "Common Stock").
To induce the Underwriters that may participate in the Public
Offering to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period commencing
on the date hereof and ending 90 days after the date of the final prospectus
relating to the Public Offering (the "Prospectus"), (1) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to
<PAGE> 31
Page 31
sell, grant any option, right or warrant to purchase, lend or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
(whether such shares or securities now owned by the undersigned or acquired
after the date of the Prospectus), or (2) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Common Stock, whether any such transaction
described in clause (1) or (2) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise. The foregoing sentence
shall not apply to (1) the sale of any Shares to the Underwriters pursuant to
the Underwriting Agreement or (2) the issuance by the Company of shares of
Common Stock upon the exercise of an option or warrant or the conversion of a
security outstanding on the date hereof of which the Underwriters have been
advised in writing.
Whether or not the Public Offering actually occurs depends on
a number of factors, including market conditions. Any Public Offering will only
be made pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company, the Selling Shareholders and Underwriters and
the Underwriters.
Very truly yours,
-------------------------
(Name)
-------------------------
(Address)
<PAGE> 1
Page 1
Exhibit h.2
February __, 1998
1,000,000 Shares
Sirrom Capital Corporation
AGREEMENT AMONG INTERNATIONAL UNDERWRITERS
Exhibit A - Underwriting Agreement
Exhibit B - Agreement Between U.S. and
International Underwriters
Exhibit C - International Dealer Agreement
February __, 1998
<PAGE> 2
Page 2
February __, 1998
Morgan Stanley & Co. International Limited
The Robinson-Humphrey Company LLC
J.C. Bradford & Co.
SunTrust Equitable Securities Corporation
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs:
We understand that Sirrom Capital Corporation, a Tennessee corporation
(the "Company"), propose to issue and sell to the several Underwriters (as
defined below) an aggregate of 5,000,000 shares (the "Firm Shares") of its
Common Stock, no par value ("Common Stock") pursuant to an underwriting
agreement (the "Underwriting Agreement"), substantially in the form attached
hereto as Exhibit A, with you as representatives (the "International
Representatives") of the international underwriters named in Schedule III
thereto (the "International Underwriters"), and Morgan Stanley & Co.
Incorporated, The Robinson-Humphrey Company LLC, J.C. Bradford & Co. and
SunTrust Equitable Securities Corporation as representatives (the U.S.
"Representatives") of the U.S. underwriters (the "U.S. Underwriters"). The
International Underwriters and the U.S. Underwriters are hereinafter
collectively referred to as the Underwriters.
Of such Firm Shares 1,000,000 shares are to be offered outside the
United States and Canada by the International Underwriters (the "International
Shares") and 4,000,000 shares are to be offered by the U.S. Underwriters in the
United States and Canada (the "U.S. Firm Shares").
In addition, the several U.S. Underwriters will have an option to
purchase from certain shareholders of the Company (the "Selling Shareholders")
named in Schedule I to the Underwriting Agreement an additional 750,000 shares
(the "Additional Shares") to provide for over-allotments. The term "U.S. Shares"
shall mean the U.S. Firm Shares and the Additional Shares. The U.S. Shares and
the International Shares are hereinafter collectively referred to as the Shares.
We further understand that the Company has filed with the U.S.
Securities and Exchange Commission (the "Commission") a registration statement
including a prospectus relating to the Shares.
<PAGE> 3
Page 3
I.
We hereby confirm our agreement with you that the International Shares
shall be purchased by you and the other several International Underwriters,
including ourselves, pursuant to the terms of and as set forth in the
Underwriting Agreement. We further understand that the International
Representatives proposes to enter into an agreement with the U.S.
Representatives (the "Agreement Between U.S. and International Underwriters"),
substantially in the form attached hereto as Exhibit B, pursuant to Article I of
which, and subject to the conditions thereof, the several International
Underwriters, including ourselves, could become obligated to purchase Shares
from, or sell Shares to, the U.S. Underwriters.
We authorize you (a) to execute and deliver the Underwriting Agreement
and the Agreement Between U.S. and International Underwriters on our behalf in
substantially the forms of Exhibits A and B hereto, respectively, and to make
representations and agreements on our behalf as set forth therein, (b) to vary
the offering terms of the International Shares in effect at any time, including
the offering price, the concession and the reallowance, (c) to agree to the
price at which the International Shares are to be purchased from the Company,
(d) to agree, on our behalf, to any addition to, change in or waiver of any
provision of the Underwriting Agreement (other than a change in the purchase
price of the International Shares and the respective numbers of International
Shares set forth opposite our names in Schedule III thereto) or of the Agreement
Between U.S. and International Underwriters (other than a change in the purchase
price of the International Shares pursuant to Article I thereof) and (e) to take
any other action as may seem advisable to you in respect of the offering of the
International Shares. The number of Shares set forth opposite each Underwriter's
name in Schedule I or in Schedule II of the Underwriting Agreement (or such
amount increased as provided in Section 9 of the Underwriting Agreement) is
hereinafter referred to as the Original Purchase Obligation of such Underwriter,
and the ratio that such Original Purchase Obligation of any International
Underwriter bears to the total number of International Shares, expressed as a
percentage, is hereinafter referred to as the International Underwriting
Percentage of such International Underwriter.
II.
We authorize you to act as the Lead Managers of the offering by the
International Underwriters of the International Shares outside of the United
States and Canada and to take such action as may seem advisable to you in
respect thereof. The offering of the International Shares is to be made as soon
after the registration statement filed with the Commission relating to the
Shares becomes
<PAGE> 4
Page 4
effective (as then amended, the "Registration Statement") as in your judgment
and the judgment of the U.S. Representatives is advisable, at the offering price
set forth in, and on the other terms and conditions as you shall determine in
accordance with, the Underwriting Agreement. The offering of the International
Shares is to be made on the terms and conditions to be set forth in the
Underwriting Agreement, the Agreement Between U.S. and International
Underwriters and in the prospectus first used to confirm sales of the
International Shares (the "International Prospectus"), whether or not filed
pursuant to Rule 497 under the U.S. Securities Act of 1933, as amended (the
"Act"). During the term of this Agreement, advertisement of the offering outside
of the United States and Canada will be made only by Morgan Stanley & Co.
International Limited. Such advertisement will be made on behalf of the
International Underwriters on such dates and in such countries as Morgan Stanley
& Co. International Limited shall determine.
We authorize Morgan Stanley & Co. International Limited to determine
whether to purchase, and, if such determination is made, to purchase, any Shares
for the account of the International Underwriters pursuant to the Agreement
Between U.S. and International Underwriters. We further authorize Morgan Stanley
& Co. International Limited to determine whether to sell, and, if such
determination is made, to sell, Shares for the account of the International
Underwriters pursuant to such Agreement.
We authorize Morgan Stanley & Co. International Limited to offer or to
sell for our account, in conformity with the immediately succeeding paragraph,
to dealers selected by it (among whom may be included any International
Underwriter) such Shares purchased by us from the Company or pursuant to the
Agreement Between U.S. and International Underwriters as Morgan Stanley & Co.
International Limited shall determine. Sales of Shares to dealers shall be made
for the account of each International Underwriter approximately in the
proportion that Shares of such International Underwriter held by Morgan Stanley
& Co. International Limited for such sales bear to the total Shares so held.
Such sales shall be made pursuant to dealer agreements substantially in the form
attached as Exhibit C hereto.
We authorize Morgan Stanley & Co. International Limited to offer or
sell for our account to certain persons (other than the persons to whom Shares
are sold pursuant to the terms of the immediately preceding paragraph) such
Shares purchased by us from the Company or pursuant to the Agreement Between
U.S. and International Underwriters as it shall determine at the offering price
set forth in the International Prospectus. Except for sales for the accounts of
International Underwriters designated by a purchaser, aggregate sales of Shares
to such persons shall be made for the accounts of the several International
Underwriters as nearly as practicable in their respective International
Underwriting Percentages.
Morgan Stanley & Co. International Limited will advise us promptly as
to the number of Shares purchased by us that we shall retain for direct sale. At
any time prior to the termination of this Agreement, any Shares purchased by us
that are held
<PAGE> 5
Page 5
by Morgan Stanley & Co. International Limited for sale for our account as set
forth above but not sold may, upon our request and at Morgan Stanley & Co.
International Limited's discretion, be released to us for direct sale, and
Shares so released to us shall no longer be deemed held for sale by you.
From time to time prior to the termination of this Agreement, at Morgan
Stanley & Co. International Limited's request, we will advise it of the number
of Shares remaining unsold that were retained by or released to us for direct
sale and of the number of Shares remaining unsold that were delivered to us
pursuant to Article III and, at Morgan Stanley & Co. International Limited's
request, we will release to it any such Shares remaining unsold for sale by it
(i) for our account to dealers or certain other persons or (ii) if in its
opinion, such Shares are needed to make delivery against sales made pursuant to
Article III.
III.
We confirm that, pursuant to the Agreement Between U.S. and
International Underwriters, the International Underwriters are authorizing
Morgan Stanley & Co. Incorporated to buy and sell Common Stock for the accounts
of the several Underwriters, including the International Underwriters, in the
open market or otherwise, for long or short account, on such terms as it shall
deem advisable and to over-allot in arranging sales. Any shares of Common Stock
that may have been purchased by the U.S. Representatives for stabilizing
purposes in connection with the offering of the Shares prior to the execution of
this Agreement and the Agreement Between U.S. and International Underwriters
shall be treated as having been purchased pursuant to this paragraph and the
Agreement Between U.S. and International Underwriters for the accounts of the
several Underwriters. We authorize Morgan Stanley & Co. International Limited to
over-allot in arranging sales. We recognize that the International Primary
Market Association (IPMA) limits will not be complied with in connection with
stabilization losses and expenses. Subject to the provisions of the Agreement
Between U.S. and International Underwriters, all such purchases, sales and
over-allotments for the International Underwriters as a group shall be for the
accounts of the several International Underwriters as nearly as practicable in
their respective International Underwriting Percentages. At no time shall our
net commitment pursuant to the foregoing authorization exceed 15% of our
Original Purchase Obligation, and, in determining our net commitment for short
account, there shall be subtracted any Shares that you have agreed to purchase
for our account pursuant to Article I of the Agreement Between U.S. and
International Underwriters. On demand we will take up and pay for any shares of
Common Stock so purchased for our account and deliver against payment any shares
of Common Stock so sold or over-allotted for our account. The International
Representatives agree to notify us of the date of termination of stabilization
when so notified by Morgan Stanley & Co. Incorporated pursuant to the Agreement
Between U.S. and International Underwriters.
<PAGE> 6
Page 6
If pursuant to the provisions of the preceding paragraph and prior to
the termination of this Agreement (or prior to such earlier date as the
International Representatives may have determined), the U.S. Representatives
purchase or contract to purchase in the open market or otherwise any Shares
that were retained by or released to us for direct sale, or any Shares that may
have been issued on transfer of or in exchange for such Shares, and which
Shares were therefore not effectively placed for investment by us, we authorize
the International Representatives either to charge our account with an amount
equal to the selling concession with respect thereto, which amount shall be
credited against the cost of such Shares, or to require us to repurchase such
Shares at a price equal to the total cost of such purchase, including
commissions, if any, and any taxes on redelivery.
IV.
On the Closing Date (as defined in the Underwriting Agreement), prior
to 8:45 A.M. (New York City time) we will deliver to Morgan Stanley & Co.
International Limited, Federal or other funds immediately available in New York
City in the manner as you shall advise for (i) an amount equal to the offering
price less the selling concession in respect of the Shares to be purchased by
us, (ii) an amount equal to the offering price less the selling concession in
respect of such of the Shares to be purchased by us as shall have been retained
by or released to us for direct sale or (iii) the amount set forth or indicated
in a telex to us, as you shall advise. You will make payment to the Company
against delivery to you for our account of the Shares to be purchased by us and
you will deliver to us the Shares paid for by us which shall have been retained
by or released to us for direct sale. Unless we promptly give you written
instructions otherwise, if transactions in the Shares may be settled through the
facilities of The Depository Trust Company, payment for and delivery of Shares
purchased by us will be made through such facilities, if we are a member, or, if
we are not a member, settlement may be made through our ordinary correspondent
who is a member.
V.
We authorize you as Lead Managers to charge our account, as
compensation for your services in connection with this issue, including the
purchase from the Company, the Selling Shareholders and the management of the
offering, $___ a share for each Share that we have agreed to purchase pursuant
to Section 2 of the Underwriting Agreement.
We authorize you to charge to our account (i) our International
Underwriting Percentage of all expenses incurred by you under the terms of this
Agreement or in
<PAGE> 7
Page 7
connection with or attributable to the purchase, carrying and sale of Shares
pursuant to this Agreement (including all expenses, if any, incurred for the
account of the International Underwriters pursuant to the Agreement Between U.S.
and International Underwriters), and (ii) all transfer taxes paid or payable on
our behalf on purchases, sales or transfers made for our account pursuant to
this Agreement.
VI.
We authorize you to advance your own funds for our account, charging
interest rates prevailing from time to time, or to arrange loans for our account
for the purpose of carrying out the provisions of this Agreement or the
Agreement Between U.S. and International Underwriters and in connection
therewith to hold or pledge as security therefor all or any Shares which you may
be holding for our account under this Agreement.
Out of payment received by you for Shares sold for our account which
have been paid for by us, you will remit to us promptly an amount equal to the
price paid by us for such Shares.
Morgan Stanley & Co. International Limited may deliver to us or
transfer to our account from time to time against payment, for carrying purposes
only, any Shares purchased by us or for our account under this Agreement that it
is holding for sale for our account but that are not sold and paid for. We will
transfer back to Morgan Stanley & Co. International Limited against payment at
such times as it may demand any Shares so transferred to us for carrying
purposes.
VII.
This Agreement shall terminate 30 days from the date hereof, unless
sooner terminated by you, provided that you may in your discretion extend this
Agreement for a further period or periods not exceeding an aggregate of 30 days.
You may at your discretion on notice to us prior to the termination of this
Agreement alter any of the terms or conditions of offering determined pursuant
to Article II hereof or Article III of the Agreement Between U.S. and
International Underwriters, or terminate or suspend in whole or in part the
effectiveness of Article III hereof or paragraphs five through nine of Article
IV thereof. No termination or suspension pursuant to this paragraph shall affect
your or Morgan Stanley & Co. Incorporated's authority under Article III to cover
any short or close any long position incurred under this
<PAGE> 8
Page 8
Agreement prior to such termination or suspension.
Upon termination of this Agreement, or prior thereto at your
discretion, Morgan Stanley & Co. International Limited shall deliver to us or
transfer to our account any Shares purchased by us from the Company and the
Selling Shareholders or pursuant to the Agreement Between U.S. and International
Underwriters and held by Morgan Stanley & Co. International Limited for sale for
our account to dealers or others but not sold and paid for and any shares of
Common Stock which are held by Morgan Stanley & Co. International Limited for
our account pursuant to Article III. As soon as practicable after termination of
this Agreement our account hereunder shall be settled and paid. Morgan Stanley &
Co. International Limited may reserve from distribution such amount as it deems
advisable to cover possible additional amounts due from us. Determination by
Morgan Stanley & Co. International Limited of amounts to be paid to or by us
shall be final and conclusive. Any of our funds in Morgan Stanley & Co.
International Limited's hands may be held with its general funds without
accountability for interest.
Notwithstanding any settlement on the termination of this Agreement,
each International Underwriter agrees to pay its International Underwriting
Percentage of (i) all expenses incurred by you in investigating or defending
against any claim or proceeding which is asserted or instituted by any party
(including any governmental or regulatory body) other than an Underwriter
relating to the Registration Statement or the Prospectus (as defined in the
Underwriting Agreement) (or any amendment or supplement thereto) or any
preliminary prospectus and (ii) any liability, including attorneys' fees,
incurred by you in respect of any such claim or proceeding, whether such
liability shall be the result of a judgment or as a result of any settlement
agreed to by you, other than any such expense or liability as to which you
receive indemnity payments pursuant to the following paragraph, Article III of
the Agreement Between U.S. and International Underwriters or Section 7 of the
Underwriting Agreement.
We agree to indemnify and hold harmless each other Underwriter and each
person, if any, who controls any such Underwriter within the meaning of either
Section 15 of the Act or Section 20 of the U.S. Securities Exchange Act of 1934,
as amended, to the extent and upon the terms which we agree to indemnify and
hold harmless the Company, its shareholders, directors, the officers of the
Company who sign the Registration Statement and any person controlling the
Company as set forth in the Underwriting Agreement.
Our agreements contained in the second through fourth paragraphs of
Article II and this Article VII shall remain operative and in full force and
effect regardless of any termination of this Agreement or the occurrence of any
of the events described in clauses (i) through (iii) of the last paragraph of
Section 7 of the Underwriting Agreement.
<PAGE> 9
Page 9
VIII.
We have examined the prospectus included in the Registration Statement
as amended to date and we are familiar with the terms of the securities being
offered and the other terms of offering which are to be reflected in the
proposed amendment to the Registration Statement. In addition, we confirm that
the information relating to us which has been furnished to the Company for use
therein is correct. You are authorized, with the approval of counsel for the
Underwriters, to approve on our behalf such proposed amendment and any further
amendments or supplements to the Registration Statement or the International
Prospectus.
We represent that our commitment to purchase Shares hereunder and under
the Agreement Between U.S. and International Underwriters will not result in a
violation of any financial responsibility requirements of any laws, rules or
regulations applicable to us, including applicable rules of any securities
exchange.
IX.
If the Underwriting Agreement is terminated as permitted by the terms
thereof, our obligations hereunder shall immediately terminate except that (i)
our obligations as set forth in the last paragraph of Article VII shall remain
in full force and effect, (ii) we shall remain liable for our International
Underwriting Percentage of all expenses and for any purchases or sales which may
have been made for our account pursuant to the provisions of Article III,
including any taxes on any such purchases or sales and (iii) such termination
shall not affect any obligation of any defaulting International Underwriter.
In the event that any International Underwriter shall default in its
obligations (i) pursuant to the second paragraph of Article II or the first
paragraph of Article III, (ii) to pay amounts owed by it pursuant to Article V
or (iii) pursuant to the third or fourth paragraph of Article VII or the first
paragraph of this Article IX, we will assume our proportionate share (determined
on the basis of the International Underwriting Percentages of the non-defaulting
International Underwriters) of such obligations, but no such assumption shall
affect any obligation of any defaulting International Underwriter.
If any one or more of the Underwriters shall fail or refuse to purchase
any Shares which it or they have agreed to purchase under the Underwriting
Agreement, we agree, in the proportion which the number of Firm Shares set forth
opposite our name in Schedule III to the Underwriting Agreement bears to the
aggregate number of Firm Shares set forth opposite the names of all
non-defaulting Underwriters, or in such other proportions as you may specify, to
purchase the Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase; provided that, in no event shall the Shares that
any International Underwriter has
<PAGE> 10
Page 10
agreed to purchase pursuant to Section 2 of the Underwriting Agreement be
increased pursuant to this Article IX by an amount in excess of one-ninth of the
number of such Shares, without the written consent of such International
Underwriter. Morgan Stanley & Co. International Limited is authorized to arrange
for the purchase by others (including itself and any other International
Underwriter) of any Shares not purchased by any defaulting International
Underwriter or by the other International Underwriters as provided in this
paragraph and in Section 9 of the Underwriting Agreement. If such arrangements
are made, the respective numbers of Shares to be purchased by the remaining
International Underwriters and such other person or persons, if any, shall be
taken as the basis for all rights and obligations hereunder. Any action taken
under this paragraph shall not relieve any defaulting International Underwriter
from liability in respect of any default of such International Underwriter under
the Underwriting Agreement or this Agreement.
Nothing herein contained shall constitute us partners with you or with
the other Underwriters and the obligations of ourselves and of each of the other
Underwriters are several and not joint. If for United States federal income tax
purposes the International Underwriters shall be deemed to constitute a
partnership, each International Underwriter elects to be excluded from the
application of Subchapter K, Chapter 1, Subtitle A, of the United States
Internal Revenue Code, as amended.
You shall be under no liability to us for any act or omission except in
respect of obligations expressly assumed by you herein.
This Agreement is being executed by us and delivered to you in
duplicate. Upon your confirmation hereof and agreements in identical form with
each of the other Underwriters, this Agreement shall constitute a valid and
binding contract between us.
Your authority hereunder and under the Underwriting Agreement and the
Agreement Between U.S. and International Underwriters may be exercised by Morgan
Stanley & Co. International Limited, jointly or by Morgan Stanley & Co.
International Limited alone. The authority of the U.S. Representatives hereunder
and under the Agreement Between U.S. and International Underwriters may be
exercised by Morgan Stanley & Co. Incorporated, The Robinson-Humphrey Company
LLC, J.C. Bradford & Co. and SunTrust Equitable Securities Corporation, either
jointly or alone.
This Agreement may be executed in two or more counterparts which
together shall constitute one and the same instrument. If this Agreement is
executed by or on behalf of any party hereto by a person acting under the power
of attorney given him by such party, such person hereby states that at the time
of execution hereof he has no notice of revocation of the power of attorney by
which he has executed this Agreement as such attorney.
This Agreement shall be governed by and construed in accordance with
the laws
<PAGE> 11
Page 11
of the State of New York and United States federal law.
Very truly yours,
MORGAN STANLEY & CO. INTERNATIONAL
LIMITED
By
---------------------------------
Attorney-in-fact for each
of the several International
Underwriters named in Schedule III
to the Underwriting Agreement
Confirmed as of the date hereof
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
THE ROBINSON-HUMPHREY COMPANY LLC
J.C. BRADFORD & CO.
SUNTRUST EQUITABLE SECURITIES CORPORATION
By MORGAN STANLEY & CO. INTERNATIONAL LIMITED
By
---------------------
<PAGE> 1
Page 1
Exhibit h.3
Exhibit B
February __, 1998
5,000,000 Shares
Sirrom Capital Corporation
Shares of Common Stock, No Par Value
AGREEMENT BETWEEN U.S. AND INTERNATIONAL UNDERWRITERS
February __, 1998
<PAGE> 2
Page 2
February __, 1998
To each of the Underwriters named in
Schedules II and III to the Underwriting
Agreement referred to below.
Dear Sirs:
We understand that Sirrom Capital Corporation (the "Company") and
certain shareholders of the Company (the "Selling Shareholders") named in
Schedule I to the Underwriting Agreement (as defined below) have entered into
an underwriting agreement (the "Underwriting Agreement") with Morgan Stanley &
Co. Incorporated, The Robinson-Humphrey Company LLC, J.C. Bradford & Co. and
SunTrust Equitable Securities Corporation acting as representatives (the "U.S.
Representatives") of the U.S. underwriters (the "U.S. Underwriters") and Morgan
Stanley & Co. International Limited, The Robinson-Humphrey Company LLC, J.C.
Bradford & Co. and SunTrust Equitable Securities Corporation as representatives
(the "International Representatives") of the international underwriters named in
Schedule III thereto (the "International Underwriters" and, together with the
U.S. Underwriters, the "Underwriters"), pursuant to which the several
Underwriters have agreed to purchase from the Company an aggregate of 5,000,000
shares of Common Stock, no par value of the Company ("Common Stock"). In
addition, the Selling Shareholders have granted the U.S. Underwriters the option
to purchase up to 750,000 additional shares of Common Stock (the "Additional
Shares"). All shares of Common Stock to be purchased by the U.S. Underwriters
and the International Underwriters under the Underwriting Agreement, including
any Additional Shares, are herein called the "U.S. Shares" and the
"International Shares," respectively. The U.S. Shares and the International
Shares are collectively referred to herein as the "Shares."
I.
The U.S. Underwriters acting through the U.S. Representatives, and the
International Underwriters, acting through the International Representatives,
agree that, in order to provide an orderly marketing effort for the offering,
they will consult with each other as to the availability of the Shares for sale
to the public, from time to time until the earlier of (a) notice from the U.S.
Representatives to the U.S. Underwriters of the completion of the distribution
of the U.S. Shares and (b) notice from the International Representative to the
International Underwriters of the completion of the distribution of the
International Shares. From time to time as
<PAGE> 3
Page 3
mutually agreed among the U.S. Underwriters and the International Underwriters,
acting through Morgan Stanley & Co. Incorporated and Morgan Stanley & Co.
International Limited, respectively, the Underwriters may purchase and sell
among each other such number of Shares to be purchased pursuant to the
Underwriting Agreement as may be so mutually agreed.
The price and currency of settlement of any Shares so purchased or sold
shall be the public offering price, in United States dollars, less an amount not
greater than the selling concession. Settlement with respect to any Shares
transferred hereunder prior to the Closing Date (as defined in the Underwriting
Agreement) shall be made on the Closing Date, and in the case of purchases and
sales made thereafter, as promptly as practicable but in no event later than
three business days after the transfer date. Certificates representing the
Shares so purchased shall be delivered on the respective settlement dates. The
liability of the Underwriters under the Underwriting Agreement for payment of
the purchase price of the Shares purchased thereunder shall not be affected by
the provisions of this Agreement.
The obligations of each U.S. Underwriter in respect of any purchase or
sale of Shares under this Article I by the U.S. Underwriters shall be pro rata
in accordance with the proportion of the total number of U.S. Shares that such
U.S. Underwriter is obligated to purchase under the Underwriting Agreement. The
obligations of each International Underwriter in respect of any purchase or
sale of Shares under this Article I by the International Underwriters shall be
pro rata in accordance with the proportion of the total number of International
Shares that such International Underwriter is obligated to purchase under the
Underwriting Agreement.
II.
Each of the Underwriters represents that it is a member in good
standing of the U.S. National Association of Securities Dealers, Inc. (the
"NASD") or that it is a foreign bank or dealer not eligible for membership in
the NASD. In making sales of Shares, if it is such a member, such Underwriter
agrees to comply with all applicable rules of the NASD, including, without
limitation, the NASD's Interpretation with Respect to Free-Riding and
Witholding (IM-2110-1) and Rule 2740 of Article III of the NASD Conduct Rules,
or, if it is such a foreign bank or dealer, such Underwriter agrees to comply
with such Interpretation and 2730, 2740 and 2750 of the NASD Conduct Rules as
though it were such a member and Rule 2420 of the NASD Conduct Rules as it
applies to a nonmember broker or dealer in a foreign country.
III.
Each U.S. Underwriter represents and agrees that, except for (x) sales
between
<PAGE> 4
Page 4
the U.S. Underwriters and the International Underwriters pursuant to Article I
of this Agreement and (y) stabilization transactions, contemplated in Article IV
of this Agreement, conducted through the U.S. Representatives as part of the
distribution of the Shares, (a) it is not purchasing any of the U.S. Shares for
the account of anyone other than a United States or Canadian Person and (b) it
has not offered or sold, and will not offer or sell, directly or indirectly, any
of the U.S. Shares or distribute any prospectus relating to the U.S. Shares
outside the United States or Canada or to anyone other than a United States or
Canadian Person, and any dealer to whom it may sell any of the U.S. Shares will
represent that it is not purchasing any of the U.S. Shares for the account of
anyone other than a United States or Canadian Person and will agree that it will
not offer or resell such U.S. Shares directly or indirectly outside the United
States or Canada or to anyone other than a United States or Canadian Person or
to any other dealer who does not so represent and agree.
Each International Underwriter represents and agrees that, except for
(x) sales between the U.S. Underwriters and the International Underwriters
pursuant to Article I of this Agreement and (y) stabilization transactions,
contemplated in Article IV of this Agreement, conducted through the U.S.
Representatives as part of the distribution of the Shares, (a) it is not
purchasing any of the International Shares for the account of any United States
or Canadian Person and (b) it has not offered or sold, and will not offer or
sell, directly or indirectly, any of the International Shares or distribute any
prospectus relating to the International Shares in the United States or Canada
or to any United States or Canadian Person, and any dealer to whom it may sell
any of the International Shares will represent that it is not purchasing any of
the International Shares for the account of any United States or Canadian Person
and will agree that it will not offer or resell such International Shares
directly or indirectly in the United States or Canada or to any United States or
Canadian Person or to any other dealer who does not so represent and agree.
With respect to any Underwriter that is a U.S. Underwriter and an
International Underwriter, the foregoing representations and agreements (i) made
by it in its capacity as a U.S. Underwriter shall apply only to it in its
capacity as a U.S. Underwriter and (ii) made by it in its capacity as an
International Underwriter shall apply only to it in its capacity as an
International Underwriter. In addition, notwithstanding the foregoing
representations and agreements, if an Underwriter (including its affiliates) is
both a U.S. Underwriter and an International Underwriter, then the U.S.
Underwriter and its corresponding International Underwriter may, with the
consent of Morgan Stanley & Co. Incorporated, transfer between themselves at
cost any Shares allocated to them for direct sale by the U.S. Representatives
or the International Representatives so long as any Shares so transferred are
treated as U.S. Shares while held by the U.S. Underwriter and International
Shares while held by the International Underwriter for purposes of the forego
ing representations and agreements.
"United States or Canadian Person" shall mean any national or resident
of the
<PAGE> 5
Page 5
United States or Canada, or any corporation, pension, profit-sharing or other
trust or other entity organized under the laws of the United States or Canada or
of any political subdivision thereof (other than a branch located outside of the
United States and Canada of any United States or Canadian Person), and shall
include any United States or Canadian branch of a person who is other wise not a
United States or Canadian Person. "United States" shall mean the United States
of America, its territories, its possessions and all areas subject to its
jurisdiction.
The agreements of the Underwriters set forth in the first and second
paragraphs of this Article III shall terminate upon the earlier of (a) the
mutual agreement of the U.S. Representatives and the International
Representatives and (b) 30 days after the date hereof, unless the U.S.
Representatives or the International Representatives shall have given notice to
the other to the effect that the distribution of the Shares by the U.S.
Underwriters or the International Underwriters, as the case may be, has not yet
been completed. If such notice is given, the agreements set forth in such
preceding paragraphs shall survive until the earlier of (x) the mutual agreement
referred to in the preceding sentence and (y) 30 days after the date of any
such notice.
Each U.S. Underwriter represents that it has not offered or sold, and
agrees not to offer or sell, any Shares, directly or indirectly, in any province
or territory of Canada or to, or for the benefit of, any resident of any
province or territory of Canada in contravention of the securities laws thereof
and, without limiting the generality of the foregoing, represents that any offer
of Shares in Canada will be made only pursuant to an exemption from the
requirement to file a prospectus in the province or territory of Canada in
which such offer is made. Each U.S. Underwriter further agrees to send to any
dealer who purchases from it any of the Shares a notice stating in substance
that, by purchasing such Shares, such dealer represents and agrees that it has
not offered or sold, and will not offer or sell, directly or indirectly, any of
such Shares in any province or territory of Canada or to, or for the benefit of,
any resident of any province or territory of Canada in contravention of the
securities laws thereof and that any offer of Shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer is made, and that such
dealer will deliver to any other dealer to whom it sells any of such Shares a
notice containing substantially the same statement as is contained in this
sentence.
The Underwriters understand that no action has been or will be taken in
any jurisdiction by the Underwriters or the Company that would permit a public
offering of the Shares, or possession or distribution of the Prospectus (as
defined in the Underwriting Agreement), in preliminary or final form, in any
jurisdiction where, or in any circumstances in which, action for that purpose
is required, other than the United States.
Each International Underwriter agrees that it will comply with all
applicable laws and regulations, and make or obtain all necessary filings,
consents or approvals, in
<PAGE> 6
Page 6
each jurisdiction in which it purchases, offers, sells or delivers Shares
(including, without limitation, any applicable requirements relating to the
delivery of the international prospectus, in preliminary or final form), in each
case at its own expense. In connection with sales of and offers to sell Shares
made by it, each International Underwriter will either furnish to each person to
whom any such sale or offer is made a copy of the then current international
prospectus (in preliminary or final form and as then amended or supplemented if
the Company shall have furnished any amendments or supplements thereto), or
inform such person that such inter national prospectus, in preliminary or final
form, will be made available upon request, and will keep an accurate record of
the names and addresses of all persons to whom it gives copies of the
registration statement relating to the offering of the Shares, the international
prospectus, in preliminary or final form, or any amendment or supplement
thereto, and, when furnished with any subsequent amendment to such registration
statement, any subsequent prospectus or any medium outlining changes in the
registration statement or any prospectus, will upon request of the International
Representative, promptly forward copies thereof to such person or inform such
person that such amendment, subsequent prospectus or other medium will be made
available upon request.
Each International Underwriter further represents that it has not
offered or sold, and agrees not to offer or sell, directly or indirectly, in
Japan or to or for the account of any resident thereof, any of the Shares
acquired in connection with the distribution contemplated hereby, except for
offers or sales to Japanese International Underwriters or dealers and except
pursuant to any exemption from the registration requirements of the Securities
and Exchange Law and other relevant laws and regulations of Japan. Each
International Underwriter further agrees to send to any dealer who purchases
from it any of the Shares a notice stating in substance that, by purchasing such
Shares, such dealer represents and agrees that it has not offered or sold, and
will not offer or sell, any of such Shares, directly or indirectly, in Japan or
to or for the account of any resident thereof except for offers or sales to
Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and other relevant laws and regulations of Japan, and that such dealer will send
to any other dealer to whom it sells any of such Shares a notice containing
substantially the same statement as is contained in this sentence.
Each International Underwriter further represents and agrees that (i)
it has not offered or sold and will not offer or sell, any Shares to persons in
the United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or agent)
for the purposes of their businesses or otherwise in circumstances which have
not resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995 (the
"Regulations"); (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 and the Regulations with respect
to any thing done by it in relation to the Shares in, from or otherwise
involving the United Kingdom; and (iii) it has only
<PAGE> 7
Page 7
issued or passed on and will only issue or pass on to any person in the United
Kingdom any document received by it in connection with the issue of the Shares
if that person is of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1995 or is a person to
whom such document may otherwise lawfully be issued or passed on.
Each International Underwriter agrees to indemnify and hold harmless
each Underwriter and each person controlling any Underwriter from and against
any and all losses, claims, damages and liabilities (including fees and
disbursements of counsel) arising from any breach by it of any of the provisions
of paragraphs eight, nine and ten of this Article III.
IV.
The overall direction and planning of the stabilization transactions
contemplated herein shall be the responsibility of the U.S. Representatives and
the International Representatives, which will consult with one another on a
continuous basis so that such stabilization transactions shall be conducted in
accordance with such direction and planning as is mutually agreed upon.
All stabilization transactions shall be conducted only by Morgan
Stanley & Co. Incorporated and shall be conducted in compliance with any
applicable laws and regulations. Morgan Stanley & Co. Incorporated agrees to
notify the International Representatives of the date of termination of
stabilization.
The International Primary Market Association (IPMA) limits will not be
complied with in connection with stabilization losses and expenses. All
stabilization transactions shall be for the respective accounts of the several
Underwriters and shall be allocated between the U.S. Underwriters and the
International Underwriters in the respective proportions that the number of U.S.
Shares and International Shares purchased pursuant to the Underwriting Agreement
bears to the total number of Shares purchased. In no event shall the net
commitment of any Underwriter, for either long or short account, resulting from
such stabilization transactions and from the over-allotments referred to in
Article V, exceed 15% of the total number of Shares that such Underwriter is
obligated to purchase under the Underwriting Agreement; provided that the net
commitment of any Underwriter for short account shall be calculated (x) in the
case of any U.S. Underwriter, after giving effect to the purchase of (i) any
Shares that the U.S. Representatives have agreed to purchase for the account of
such U.S. Underwriter pursuant to Article I of this Agreement and (ii) the
maximum number of Additional Shares that such U.S. Underwriter is entitled to
purchase under the Underwriting Agreement and (y) in the case of any
International Underwriter, after giving effect to the purchase of any Shares
that the International Representatives have agreed to purchase for the account
of such International Underwriter pursuant to Article I of this Agreement.
<PAGE> 8
Page 8
Each U.S. Underwriter represents that it has not offered or sold, and
agrees that it will not offer or sell, directly or indirectly, Shares to any
person at less than the public offering price, other than to (i) the
International Underwriters pursuant to Article I hereof or (ii) other U.S.
Underwriters or to dealers who have entered into the Master Dealer Agreement
with Morgan Stanley & Co. Incorporated and who have received a pricing wire
from the U.S. Representatives with respect to this offering that, among other
things, sets forth such dealer's agreement that it is not purchasing Shares for
the account of any persons other than United States or Canadian Persons and that
it will not offer or resell Shares outside the United States and Canada. Such
sales to U.S. dealers and other U.S. Underwriters shall be made in conformity
with the provisions of Article II and at a price that is not below the public
offering price less the maximum permissible reallowance to be specified in the
Prospectus. Each U.S. Underwriter agrees that prior to offering Shares to any
dealer at the public offering price less the reallowance, it will either
ascertain that such dealer has entered into such Master Dealer Agreement and
received such a pricing wire or make arrangements to ensure that such dealer
will enter into such Master Dealer Agreement and receive such a pricing wire.
Each International Underwriter represents that it has not offered or
sold and agrees that it will not offer or sell, directly or indirectly, Shares
to any person at less than the offering price, other than to (i) U.S.
Underwriters pursuant to Article I hereof or (ii) other International
Underwriters or to dealers who have entered into International Dealer
Agreements (the "International Dealers") with the International Representatives
in the form of Exhibit C to the Agreement Among International Underwriters. Such
sales to International Dealers and other International Underwriters shall be
made in conformity with the provisions of Article II and at a price that is not
below the public offering price less the maximum permissible reallowance to be
specified in the Prospectus. Each International Underwriter agrees that prior
to offering Shares to any dealer at the public offering price less the
reallowance, it will either ascertain that such dealer has entered into such an
International Dealer Agreement or make arrangements to as sure that such dealer
will enter into an International Dealer Agreement.
The agreements of the Underwriters set forth in the foregoing two
paragraphs shall terminate upon the earlier of (a) the mutual agreement of the
U.S. Representatives and the International Representative and (b) 30 days after
the date hereof, unless the U.S. Representatives or the International
Representatives shall have given notice to the other to the effect that the
distribution of the Shares by the U.S. Underwriters or the International
Underwriters, as the case may be, has not yet been completed. If such notice is
given, the agreements set forth in such preceding paragraphs shall survive
until the earlier of (x) the mutual agreement referred to in the preceding
sentence and (y) 30 days after the date of any such notice.
Each Underwriter agrees that it will not, without the advance approval
of Morgan Stanley & Co. Incorporated, for its own account or the account of a
customer, offer,
<PAGE> 9
Page 9
bid for, buy, sell, deal, trade in or attempt to induce any person to bid for or
buy any Covered Security, except (a) as provided in the Agreement Among
International Underwriters, this Agreement, the Underwriting Agreement, or the
International Dealer Agreement, (b) in brokerage transactions on unsolicited
orders which have not resulted from activities on its part in connection with
the solicitation of purchases and which are executed by it in the ordinary
course of its brokerage business, (c) in market making transactions on Nasdaq or
any similar market or quotation system executed by it in the ordinary course of
its business so long as its bids and purchases are made consistent with the
pricing restrictions set forth in Rule 103 of Regulation M of the U.S.
Securities and Exchange Commission ("Regulation M") and the volumes of such
transactions are consistent with its past practice as a market maker, (d) in
basket transactions that meet the standards set forth in Rule 101(b)(6) of
Regulation M, (e) that it may convert, exchange or exercise any security owned
by it prior to the commencement of this restriction and that it may sell any
security obtained upon any such conversion, exchange or exercise, (f) that it
may deliver securities owned by it upon the exercise of any option written by it
as permitted by the provisions set forth herein, (g) that on or after the date
of the initial public offering of the Shares, it may execute covered writing
transactions for the accounts of customers in options to acquire Common Stock,
when such transactions are covered by Shares and (h) that it may engage in
principal purchases or sales with the intent of offsetting the market risk of
principal positions in over-the-counter derivatives on solicited orders that
were executed by it prior to the commencement of this restriction, and on
unsolicited orders that were executed by it in the ordinary course of its
principal over-the-counter derivatives business. "Covered Security" means (a)
the Common Stock and (b) any securities convertible into or exercisable or
exchangeable for the Common Stock.
An opening uncovered writing transaction in options to acquire Common
Stock for an Underwriter's account or for the account of a customer shall be
deemed, for purposes of this Article IV, to be a sale of Common Stock which is
not unsolicited. The term "opening uncovered writing transaction in options to
acquire" as used above means a transaction in which the seller intends to become
a writer of an option to purchase Common Stock which he does not own. An opening
uncovered purchase transaction in options to sell Common Stock for an
Underwriter's account or for the account of a customer shall be deemed, for
purposes of this paragraph, to be a sale of Common Stock which is not
unsolicited. The term "opening uncovered purchase transaction in options to
sell" as used above means a transaction where the purchaser intends to become an
owner of an option to sell Common Stock which he does not own.
Each Underwriter represents that it has not participated, since it was
invited to participate in the offering of the Shares, in any transaction
prohibited by this Article IV and that it has at all times complied and agrees
that it will at all times comply with the provisions of Rule 10b-6 of the U.S.
Securities Exchange Act of 1934, as amended, applicable to this offering.
<PAGE> 10
Page 10
V.
The overall direction and planning of any over-allotments to be made by
the Underwriters in arranging for sales of Shares, and the related transactions
required to cover such over-allotments, shall be the responsibility of the U.S.
Representatives. All profits and losses arising from such over-allotments
(excluding the excess, if any, of (i) the public selling price of any Additional
Shares and any Shares purchased pursuant to Article I of this Agreement over
(ii) the cost of such Additional Shares and such other Shares to the
Underwriters making such sales) shall be for the respective accounts of the
several Underwriters and shall be allocated between the U.S. Underwriters and
the International Underwriters in the respective proportions that the number of
U.S. Shares and International Shares purchased pursuant to the Underwriting
Agreement bears to the total number of Shares purchased.
VI.
Each of the Underwriters agrees that the expenses incurred in
connection with or attributable to the purchase, carrying or sale of the Shares,
including the fees and disbursements of Skadden, Arps, Slate, Meagher & Flom
LLP (U.S. counsel to the Underwriters), shall be for the respective accounts of
the several Underwriters and shall be allocated between the U.S. Underwriters
and the International Underwriters in the respective proportions that the
number of U.S. Shares and International Shares purchased pursuant to the
Underwriting Agreement bears to the total number of Shares purchased.
VII.
Changes in the offering price and in the concessions and reallowances
to dealers will be made only upon the mutual agreement of the Underwriters
during the period referred to in the first sentence of Article I hereof.
VIII.
The Representatives will keep one another fully informed of the
progress of the offering of the Shares.
The agreements of the Underwriters contained in Article II, the sixth
through eleventh paragraphs of Article III, the last paragraph of Article IV,
Article V and Article VI shall remain operative and in full force and effect
regardless of (i) any termination of this Agreement, (ii) any termination of
the Underwriting Agreement, (iii) any investigation made by or on behalf of any
Underwriter or any person
<PAGE> 11
Page 11
controlling any Underwriter or by or on behalf of the Company, its
shareholders, officers or directors or any other person controlling the Company
and (iv) acceptance of and payment for any Shares.
IX.
This Agreement may be signed in counterparts, which together shall
constitute one and the same instrument.
This Agreement shall be governed and construed in all respects in
accordance with the laws of the State of New York and United States federal law.
<PAGE> 12
Page 12
IN WITNESS WHEREOF, this Agreement has been executed as of the date
and year first above written by the undersigned for themselves and for the
Underwriters as set forth above.
MORGAN STANLEY & CO. INCORPORATED
THE ROBINSON-HUMPHREY COMPANY LLC
J.C. BRADFORD & CO.
SUNTRUST EQUITABLE SECURITIES CORPORATION
Acting severally on behalf of
themselves and the several U.S.
Underwriters named in Schedule II
to the Underwriting Agreement
referred to herein.
By MORGAN STANLEY & CO.
INCORPORATED
THE ROBINSON-HUMPHREY COMPANY LLC
J.C. BRADFORD & CO.
SUNTRUST EQUITABLE SECURITIES CORPORATION
By
----------------------------------------
MORGAN STANLEY & CO. INTERNATIONAL
LIMITED
Acting severally on behalf of
themselves and the several
International Underwriters
named in Schedule III to the
Underwriting Agreement
referred to herein.
By MORGAN STANLEY & CO. INTERNATIONAL
LIMITED
THE ROBINSON-HUMPHREY COMPANY LLC
J.C. BRADFORD & CO.
SUNTRUST EQUITABLE SECURITIES CORPORATION
By
---------------------------------------
<PAGE> 1
Page 1
Exhibit h.4
Exhibit C
February __, 1998
1,000,000 Shares
Sirrom Capital Corporation
Share of Common Stock, No Par Value
INTERNATIONAL DEALER AGREEMENT
February __, 1998
<PAGE> 2
Page 2
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
THE ROBINSON-HUMPHREY COMPANY LLC
J.C. BRADFORD & CO.
SUNTRUST EQUITABLE SECURITIES CORPORATION
c/o MORGAN STANLEY & CO. INTERNATIONAL LIMITED
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs:
We understand that Sirrom Capital Corporation, a Tennessee corporation
(the "Company), proposes to issue and sell to the several Underwriters (as
defined below) an aggregate of 5,000,000 shares (the "Firm Shares") of its
Common Stock, no par value ("Common Stock") pursuant to an underwriting
agreement (the "Underwriting Agreement") with you as representatives (the
"International Representatives") of the international underwriters named in
Schedule III thereto (the "International Underwriters"), and with Morgan Stanley
& Co. Incorporated, The Robinson-Humphrey Company LLC, J.C. Bradford & Co. and
SunTrust Equitable Securities Corporation as representatives (the "U.S.
Representatives") of the U.S. underwriters (the "U.S. Underwriters"). The Firm
Shares to be sold to the several U.S. Underwriters and to the several
International Underwriters shall hereinafter be referred to, respectively, as
the U.S. Firm Shares and the International Shares. The International
Underwriters and the U.S. Underwriters are hereinafter collectively referred to
as the Underwriters.
In addition, the several U.S. Underwriters will have an option to
purchase from certain shareholders of the Company (the "Selling Shareholders")
an additional 750,000 shares (the "Additional Shares") to provide for
over-allotments. The term "U.S. Shares" shall mean the U.S. Firm Shares and the
Additional Shares. The U.S. Shares and the International Shares are hereinafter
collectively referred to as the Shares.
We acknowledge receipt of the Prospectus dated February __, 1998
(hereinafter called the international prospectus) relating to the offering of
the International Shares.
We understand that the International Underwriters are severally
offering, through
<PAGE> 3
Page 3
you, certain of the Shares for sale to certain dealers at the offering price of
U.S. $____ less a concession not in excess of U.S. $____ under the offering
price and that any International Underwriter may allow, and dealers may reallow,
a concession not in excess of U.S. $____ under the offering price to other
International Underwriters or to other dealers who enter into an agreement in
this form.
We hereby agree with you as follows with respect to any purchase of
Shares from you or from any other International Underwriter or from any dealer
at a concession from the offering price.
In purchasing Shares, we will rely only on the international prospectus
and on no other statements whatsoever, written or oral.
I.
We understand that no action has been or will be taken in any
jurisdiction by the International Underwriters or the Company that would permit
a public offering of the Shares, or possession or distribution of the
international prospectus, in preliminary or final form, in any jurisdiction
where, or in any circumstances in which, action for that purpose is required,
other than the United States. We agree that we will comply with all applicable
laws and regulations, and make or obtain all necessary filings, consents or
approvals, in each jurisdiction in which we purchase, offer, sell or deliver
Shares (including, without limitation, any applicable requirements relating to
the delivery of the international prospectus, in preliminary or final form), in
each case at our own expense. In connection with sales of and offers to sell
Shares made by us, we will either furnish to each person to whom any such sale
or offer is made a copy of the then current international prospectus (in
preliminary or final form and as then amended or supplemented if the Company
shall have furnished any amendments or supplements thereto), or inform such
person that such international prospectus will be made available upon request
and we will keep an accurate record of the names and addresses of all persons to
whom we give copies of the registration statement relating to the offering of
the Shares, the international prospectus, in preliminary or final form, or any
amendment or supplement thereto, and, when furnished with any subsequent
amendment to such registration statement, any subsequent prospectus or any
medium outlining changes in the registration statement or any prospectus, we
will upon request of the International Representatives, promptly forward copies
thereof to such persons or inform such persons that such amendment, subsequent
prospectus or other medium will be made available upon request.
We will not give any information or make any representation other than
as contained in the international prospectus, or act for the Company, any
Selling Shareholder, any International Underwriter or you.
<PAGE> 4
Page 4
We represent and agree that, except for (x) sales between the U.S.
Underwriters and the International Underwriters pursuant to Article I of the
Agreement Between U.S. and International Underwriters of even date herewith
(hereinafter called the Agreement Between U.S. and International Underwriters)
and (y) stabilization transactions contemplated in Article IV of the Agreement
Between U.S. and International Underwriters conducted through the U.S.
Representatives as part of the distribution of the Shares, (a) we are not
purchasing and have not purchased and will not purchase any of the Shares for
the account of any United States or Canadian Person and (b) we have not offered
or sold, and will not offer or sell, directly or indirectly, any of the Shares
or distribute any prospectus relating to the Shares, in the United States or
Canada or to any United States or Canadian Person and any dealer to whom we may
sell any of the Shares will represent that it is not purchasing any of the
Shares for the account of any United States or Canadian Person and will agree
that it will not offer or resell such Shares directly or indirectly in the
United States or Canada or to any United States or Canadian Person or to any
other dealer who does not so represent and agree. "United States or Canadian
Person" shall mean any national or resident of the United States or Canada, or
any corporation, pension, profit-sharing or other trust or other entity
organized under the laws of the United States or Canada or of any political
subdivision thereof (other than a branch located outside the United States and
Canada of any United States or Canadian Person), and shall include any United
States or Canadian branch of a person who is otherwise not a United States or
Canadian Person. "United States" shall mean the United States of America, its
territories, its possessions and all areas subject to its jurisdiction. Our
agreement set forth in this paragraph shall terminate upon the earlier of (a)
notice from you to such effect and (b) 30 days after the date of the initial
offering of the Shares, unless you have given notice that the distribution of
the Shares has not yet been completed. If such latter notice is given, the
agreement set forth in this paragraph shall survive until the earlier of (x) the
notice of termination referred to in (a) above and (y) 30 days after the date of
any notice that the distribution of the Shares has not yet been completed.
We further represent and agree that we have not offered or sold and
agree not to offer or sell, directly or indirectly, in Japan or to or for the
account of any resident thereof, any of the Shares acquired in connection with
the distribution contemplated hereby, except for offers or sales to Japanese
International Underwriters or dealers and except pursuant to any exemption from
the registration requirements of the Securities and Exchange Law and other
relevant laws and regulations of Japan. We further agree to send to any dealer
who purchases from us any of such Shares a notice stating in substance that, by
purchasing such Shares, such dealer represents and agrees that it has not
offered or sold, and will not offer or sell, any of such Shares, directly or
indirectly, in Japan or to or for the account of any resident thereof, except
for offers or sales to Japanese International Underwriters or dealers and except
pursuant to any exemption from the registration requirements of the Securities
and Exchange Law and other relevant laws and regulations of Japan, and that such
dealer will send to any other dealer to whom it sells any of such Shares a
notice containing substantially the same statement as is contained in this
sentence.
<PAGE> 5
Page 5
We further represent and agree that (i) we have not offered or sold
and, prior to the date six months after the closing date for the sale of the
Firm Shares to the Underwriters, will not offer or sell, any Shares to persons
in the United Kingdom except to persons whose ordinary activities involve them
in acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in circumstances which
have not resulted and will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations 1995;
(ii) we have complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by us in relation to
the Shares in, from or otherwise involving the United Kingdom; and (iii) we have
only issued or passed on and will only issue or pass on in the United Kingdom
any document received by us in connection with the offering of the Shares to a
person who is of a kind described in Article 11(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom
such document may otherwise lawfully be issued or passed on.
We represent that we are a foreign bank or dealer not eligible for
membership in the U.S. National Association of Securities Dealers, Inc.
(hereinafter called the NASD), and we agree not to offer to sell or sell any
Shares in, or to persons who are nationals or residents of, the United States,
except for offers and Shares referred to in clause (x) of the third paragraph of
this Article I. In making sales of Shares, we agree to comply with the NASD's
Interpretation with Respect to Free-Riding and Withholding (IM-2110-1) and Rules
2730, 2740 and 2750 of the NASD Conduct Rules as though we were a member in good
standing of the NASD and Rule 2420 of the NASD Conduct Rules as it applies to a
non-member broker or dealer in a foreign country.
We agree that we will not, during the period continuing until the
International Representatives shall have notified us of the completion of the
distribution of the Shares, for our own account or the account of a customer,
offer, bid for, buy, sell, deal, trade in or attempt to induce any person to bid
for or buy any Covered Security, except (a) as provided in the Agreement Among
International Underwriters, the Agreement between U.S. and International
Underwriters, this Agreement or the Underwriting Agreement, (b) in brokerage
transactions on unsolicited orders which have not resulted from activities on
our part in connection with the solicitation of purchases and which are executed
by us in the ordinary course of our brokerage business, (c) in market making
transactions on Nasdaq or any similar market or quotation system executed by us
in the ordinary course of our business so long as our bids and purchases are
made consistent with the pricing restrictions set forth in Rule 103 of
Regulation M of the U.S. Securities and Exchange Commission ("REGULATION M") and
the volumes of such transactions are consistent with our past practice as a
market maker, (d) in basket transactions that meet the standards set forth in
Rule 101(b)(6) of Regulation M, (e) that we may convert, exchange or exercise
any security owned by us prior to the commencement of this restriction and that
we may sell any security obtained upon any such conversion, exchange or
<PAGE> 6
Page 6
exercise, (f) that we may deliver securities owned by us upon the exercise of
any option written by us as permitted by the provisions set forth herein, (g)
that on or after the date of the initial public offering of the Shares, we may
execute covered writing transactions for the accounts of customers in options to
acquire Common Stock, when such transaction are covered by Shares and (h) that
we may engage in principal purchases or sales with the intent of offsetting the
market risk of principal positions in over-the-counter derivatives on solicited
orders that were executed by us prior to the commencement of this restriction,
and on unsolicited orders that were executed by us at any time, so long as such
orders were executed by us in the ordinary course of our principal
over-the-counter derivatives business. "COVERED SECURITY" means (a) the Common
Stock and (b) any securities convertible into or exercisable or exchangeable for
the Common Stock.
An opening uncovered writing transaction in options to acquire Common
Stock for our account or for the account of a customer shall be deemed, for
purposes of this Article I, to be a sale of Common Stock which is not
unsolicited. The term "opening uncovered writing transaction in options to
acquire" as used above means a transaction where the seller intends to become a
writer of an option to purchase any Common Stock which he does not own. An
opening uncovered purchase transaction in options to sell Common Stock for our
account or for the account of a customer shall be deemed, for purposes of this
paragraph, to be a sale of Common Stock which is not unsolicited. The term
"opening uncovered purchase transaction in options to sell" as used above means
a transaction where the purchaser intends to become an owner of an option to
sell Common Stock which he does not own.
We represent that we have not participated, since we were invited to
participate in the offering of the Shares, in any transaction prohibited by this
Article I and that we have at all times complied and agree that we will at all
times comply with the provisions of Regulation M applicable to this offering.
We agree to indemnify and hold harmless the Company, each Selling
Shareholder, each Underwriter and each person controlling the Company or any
Underwriter from and against any and all losses, claims, damages and liabilities
(including fees and disbursements of counsel) arising from any breach by us of
any of the provisions of this Article I.
II.
Shares purchased by us at a concession from the offering price shall be
promptly offered upon the terms set forth in the international prospectus or for
sale at a concession not in excess of the reallowance under the offering price
to any International Underwriter or to any other dealer who enters into an
agreement with you in this form with respect to this offering that, among other
things, sets forth such dealer's agreement that it is not purchasing Shares for
the account of any United
<PAGE> 7
Page 7
States or Canadian Persons and that it will not offer or resell Shares in the
United States and Canada. Prior to offering Shares to any dealer at the public
offering price less the reallowance, you must either ascertain that such dealer
has entered into such an agreement or assure that such dealer will enter into
such an agreement.
We agree to advise you from time to time upon request, prior to the
termination of this Agreement, of the number of Shares remaining unsold which
were purchased by us from you or from any other International Underwriter or
dealer at a concession from the offering price and, on your request, we will
resell to you any such Shares remaining unsold at the purchase price thereof if,
in your opinion, such Shares are needed to make delivery against sales made to
others.
If prior to the termination of this Agreement (or prior to such earlier
date as you have determined) a U.S. Representative or International
Representative purchases or contracts to purchase in the open market or
otherwise any Shares which were purchased by us from you or from any other
International Underwriter or dealer at a concession from the offering price
(including any Shares represented by certificates which may have been issued on
transfer or in exchange for certificates originally representing such Shares),
and which Shares were therefore not effectively placed for investment by us, we
authorize you either to charge our account with an amount equal to such
concession which shall be credited against the cost of such Shares, or to
require us to repurchase such Shares at a price equal to the total cost of such
purchase, including any commissions and any taxes on redelivery.
We have not offered or sold, and we will not offer or sell, directly or
indirectly, Shares that were purchased by us from you or from any other
International Underwriter or dealer at a concession from the offering price
(including any Shares represented by certificates which may have been issued on
transfer or in exchange for certificates originally representing such Shares) to
any person at less than the offering price, other than to (i) U.S. Underwriters
pursuant to Article I of the Agreement Between U.S. and International
Underwriters or (ii) other International Underwriters or to dealers who have
entered into International Dealer Agreements with the International
Representatives (hereinafter called the International Dealer Agreements) and
then only in conformity with the provisions of Article I and at a price that is
not below the offering price. We agree that prior to offering Shares to any
dealer at the public offering price, we will either ascertain that such dealer
has entered into such an International Dealer Agreement or make arrangements to
assure that such dealer will enter into an International Dealer Agreement.
III.
If we purchase any Shares from you hereunder, we agree that such
purchases will be evidenced by your written confirmation and will be subject to
the terms and
<PAGE> 8
Page 8
conditions set forth in the confirmation and in the international prospectus.
Shares purchased by us from you in connection with our participation as
dealer in the offering shall be paid for in full at (i) the offering price, (ii)
such price less the applicable concession or (iii) the price set forth or
indicated in the pricing wire, as you shall advise, in Federal or other funds
immediately available in New York City in the manner, at such time and on such
day as you may advise us against delivery of the Shares. If we are called upon
to pay the offering price for the Shares purchased by us, the applicable
concession will be paid to us, less any amounts charged to our account pursuant
to Article II above, after termination of this Agreement. Unless we promptly
give you written instruction otherwise, if transactions in the Shares may be
settled through the facilities of The Depository Trust Company, payment for and
delivery of Shares purchased by us will be made through such facilities, if we
are a member, or, if we are not a member, settlement may be made through our
ordinary correspondent who is a member.
We authorize the International Representatives as principals to
advance, or to arrange the advance of, funds to us to cover any delay in the
receipt of funds necessary for payment for the Shares to be purchased by us and
to charge, or to arrange for the charging of, interest on such funds at current
rates.
IV.
You will advise us of the date and time of termination of this
Agreement or of any designated provisions hereof. This Agreement shall in any
event terminate 30 days after the date of the initial offering of the Shares
unless sooner terminated by you, provided that you may in your discretion extend
this Agreement for a further period or periods not exceeding an aggregate of 30
days, and provided further that the provisions of Article I hereof shall survive
any termination of this Agreement.
V.
We agree that you, as International Representatives, have full
authority to take such action as may seem advisable to you in respect of all
matters pertaining to the offering of the Shares. Neither you, as International
Representatives, nor any of the International Underwriters shall be under any
liability to us for any act or omission, except in respect of obligations
expressly assumed in this Agreement.
All communications to you relating to the subject matter of this
Agreement shall be addressed to the Syndicate Department, Morgan Stanley & Co.
International Limited, 25 Cabot Square, Canary Wharf, London E14 4QA, England,
and any notices to us shall be deemed to have been duly given if mailed or
telegraphed to us
<PAGE> 9
Page 9
at the address shown below.
VI.
GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York and United States federal law.
Very truly yours,
-------------------------
-------------------------
-------------------------
(ADDRESS)
By
----------------------
<PAGE> 1
EXHIBIT k.3
(BILATERAL FORM) (ISDA AGREEMENTS Subject to NEW YORK LAW Only)
ISDA(R)
International Swaps and Derivatives Association, Inc.
CREDIT SUPPORT ANNEX
to the Schedule to the
ISDA Master Agreement
------------------------------------------------------
dated as of November 26, 1996
-----------------
between
NATIONSBANK, N.A. and SIRROM CAPITAL CORPORATION
----------------- --------------------------
("Party A") ("Party B")
This Annex supplements, forms part of, and is subject to, the above-referenced
Agreement, is part of its Schedule and is a Credit Support Document under this
Agreement with respect to each party.
Accordingly, the parties agree as follows:--
PARAGRAPH 1. INTERPRETATION
(a) DEFINITIONS AND INCONSISTENCY. Capitalized terms not otherwise defined
herein or elsewhere in this Agreement have the meanings specified pursuant to
Paragraph 12, and all references in this Annex to Paragraphs are to Paragraphs
of this Annex. In the event of any inconsistency between this Annex and the
other provisions of this Schedule, this Annex will prevail, and in the event of
any inconsistency between Paragraph 13 and the other provisions of this Annex,
Paragraph 13 will prevail.
(b) SECURED PARTY AND PLEDGOR. All references in this Annex to the "Secured
Party" will be to either party when acting in that capacity and all
corresponding references to the "Pledgor" will be to the other party when acting
in that capacity; provided, however, that if Other Posted Support is held by a
party to this Annex, all references herein to that party as the Secured Party
with respect to that Other Posted Support will be to that party as the
beneficiary thereof and will not subject that support or that party as the
beneficiary thereof to provisions of law generally relating to security
interests and secured parties.
PARAGRAPH 2. SECURITY INTEREST
Each party, as the Pledgor, hereby pledges to the other party, as the Secured
Party, as security for its Obligations, and grants to the Secured Party a
first priority continuing security interest in, lien on and right of Set-off
against all Posted Collateral Transferred to or received by the Secured Party
hereunder. Upon the Transfer by the Secured Party to the Pledgor of Posted
Collateral, the security interest and lien granted hereunder on that Posted
Collateral will be released immediately and, to the extent possible, without
any further action by either party.
Copyright (C) 1994 by International Swaps and Derivatives Association, Inc.
<PAGE> 2
PARAGRAPH 3. Credit Support Obligations
(a) DELIVERY AMOUNT. Subject to Paragraphs 4 and 5, upon a demand made by the
Secured Party on or promptly following a Valuation Date, if the Delivery Amount
for that Valuation Date equals or exceeds the Pledgor's Minimum Transfer Amount,
then the Pledgor will Transfer to the Secured Party Eligible Credit Support
having a Value as of the date of Transfer at least equal to the applicable
Delivery Amount (rounded pursuant to Paragraph 13). Unless otherwise specified
in Paragraph 13, the "DELIVERY AMOUNT" applicable to the Pledgor for any
Valuation Date will equal the amount by which:
(i) the Credit Support Amount
exceeds
(ii) the Value as of that Valuation Date of all Posted Credit
Support held by the Secured Party.
(b) RETURN AMOUNT. Subject to Paragraphs 4 and 5, upon a demand made by the
Pledgor on or promptly following a Valuation Date, if the Return Amount for that
Valuation Date equals or exceeds the Secured Party's Minimum Transfer Amount,
then the Secured Party will Transfer to the Pledgor Posted Credit Support
specified by the Pledgor in that demand having a Value as of the date of
Transfer as close as practicable to the applicable Return Amount (rounded
pursuant to Paragraph 13). Unless otherwise specified in Paragraph 13, the
"RETURN AMOUNT" applicable to the Secured Party for any Valuation Date will
equal the amount by which:
(i) the Value as of that Valuation Date of all Posted Credit
Support Held by the Secured Party
exceeds
(ii) the Credit Support Amount.
"CREDIT SUPPORT AMOUNT" means, unless otherwise specified in Paragraph 13, for
any Valuation Date (i) the Secured Party's Exposure for that Valuation Date plus
(ii) the aggregate of all Independent Amounts applicable to the Pledgor, if any,
minus (iii) all Independent Amounts applicable to the Secured Party, if any,
minus (iv) the Pledgor's Threshold; provided, however, that the Credit Support
Amount will be deemed to be zero whenever the calculation of Credit Support
Amount yields a number less than zero.
PARAGRAPH 4. CONDITIONS PRECEDENT, TRANSFER TIMING, CALCULATIONS AND
SUBSTITUTIONS
(a) CONDITIONS PRECEDENT. Each Transfer obligation of the Pledgor under
Paragraphs 3 and 5 and of the Secured Party under Paragraphs 3, 4(d)(ii), 5 and
6(d) is subject to the conditions precedent that:
(i) no Event of Default, Potential Event of Default or Specified
Condition has occurred and is continuing with respect to the other
party; and
(ii) no Early Termination Date for which any unsatisfied payment
obligations exist has occurred or been designated as the result of an
Event of Default or Specified Condition with respect to the other
party.
(b) TRANSFER TIMING. Subject to Paragraphs 4(a) and 5 and unless otherwise
specified, if a demand for the Transfer of Eligible Credit Support or Posted
Credit Support is made by the Notification Time, then the relevant Transfer will
be made not later than the close of business on the next Local Business Day; if
a demand is made after the Notification Time, then the relevant Transfer will be
made not later than the close of business on the second Local Business Day
thereafter.
(c) CALCULATIONS. All calculations of Value and Exposure for purposes of
Paragraphs 3 and 6(d) will be made by the Valuation Agent as of the Valuation
Time. The Valuation Agent will notify each party (or the other party, if the
Valuation Agent is a party) of its calculations not later than the Notification
Time on the Local Business Day following the applicable Valuation Date (or in
the case of Paragraph 6(d), following the date of calculation).
2
<PAGE> 3
(D) SUBSTITUTIONS.
(i) Unless otherwise specified in Paragraph 13, upon notice to
the Secured Party specifying the items of Posted Credit Support
to be exchanged, the Pledgor may, on any Local Business Day,
Transfer to the Secured Party substitute Eligible Credit Support
(the "Substitute Credit Support"); and
(ii) subject to Paragraph 4(a), the Secured Party will Transfer
to the Pledgor the items of Posted Credit Support specified by
the Pledgor in its notice not later than the Local Business Day
following the date on which the Secured Party receives the
Substitute Credit Support, unless otherwise specified in
Paragraph 13 (the "Substitution Date"); provided that the Secured
Party will only be obligated to Transfer Posted Credit Support
with a Value as of the date of Transfer of that Posted Credit
Support equal to the Value as of that date of the Substitute
Credit Support.
PARAGRAPH 5. DISPUTE RESOLUTION
If a party (a "Disputing Party") disputes (I) the Valuation Agent's
calculation of a Delivery Amount or a Return Amount or (II) the Value of any
Transfer of Eligible Credit Support or Posted Credit Support, then (1) the
Disputing Party will notify the other party and the Valuation Agent (if the
Valuation Agent is not the other party) not later than the close of business
on the Local Business Day following (X) the date that the demand is made
under Paragraph 3 in the case of (I) above or (Y) the date of Transfer in
the case of (II) above, (2) subject to Paragraph 4(a), the appropriate party
will Transfer the undisputed amount to the other party not later than the
close of business on the Local Business Day following (X) the date that the
demand is made under Paragraph 3 in the case of (I) above or (Y) the date of
Transfer in the case of (II) above, (3) the parties will consult with each
other in an attempt to resolve the dispute and (4) if they fail to resolve
the dispute by the Resolution Time, then:
(i) In the case of a dispute involving a Delivery Amount or
Return Amount, unless otherwise specified in Paragraph 13, the
Valuation Agent will recalculate the Exposure and the Value as of
the Recalculation Date by:
(A) utilizing any calculations of Exposure for the
Transactions (or Swap Transactions) that the parties have
agreed are not in dispute;
(B) calculating the Exposure for the Transactions (or Swap
Transactions) in dispute by seeking four actual quotations at
mid-market from Reference Market-makers for purposes of
calculating Market Quotation, and taking the arithmetic
average of those obtained; provided that if four quotations
are not available for a particular Transaction (or Swap
Transaction), then fewer than four quotations may be used for
that Transaction (or Swap Transaction); and if no quotations
are available for a particular Transaction (or Swap
Transaction), then the Valuation Agent's original calculations
will be used for that Transaction (or Swap Transaction); and
(C) utilizing the procedures specified in Paragraph 13 for
calculating the Value, if disputed, of Posted Credit Support.
(ii) In the case of a dispute involving the Value of any Transfer
of Eligible Credit Support or Posted Credit Support, the
Valuation Agent will recalculate the Value as of the date of
Transfer pursuant to Paragraph 13.
Following a recalculation pursuant to this Paragraph, the Valuation Agent will
notify each party (or the other party, if the Valuation Agent is a party) not
later than the Notification Time on the Local Business Day following the
Resolution Time. The appropriate party will, upon demand following that notice
by the Valuation Agent or a resolution pursuant to (3) above and subject to
Paragraphs 4(a) and 4(b), make the appropriate Transfer.
3
<PAGE> 4
PARAGRAPH 6. HOLDING AND USING POSTED COLLATERAL
(a) CARE OF POSTED COLLATERAL. Without limiting the Secured Party's rights
under Paragraph 6(c), the Secured Party will exercise reasonable care to assure
the safe custody of all Posted Collateral to the extent required by applicable
law, and in any event the Secured Party will be deemed to have exercised
reasonable care if it exercises at least the same degree of care as it would
exercise with respect to its own property. Except as specified in the preceding
sentence, the Secured Party will have no duty with respect to Posted Collateral,
including, without limitation, any duty to collect any Distributions, or enforce
or preserve any rights pertaining thereto.
(b) ELIGIBILITY TO HOLD POSTED COLLATERAL; CUSTODIANS.
(i) GENERAL. Subject to the satisfaction of any conditions specified in
Paragraph 13 for holding Posted Collateral, the Secured Party will be entitled
to hold Posted Collateral or to appoint an agent (a "Custodian") to hold Posted
Collateral for the Secured Party. Upon notice by the Secured Party to the
Pledgor of the appointment of a Custodian, the Pledgor's obligations to make any
Transfer will be discharged by making the Transfer to that Custodian. The
holding of Posted Collateral by a Custodian will be deemed to be the holding of
that Posted Collateral by the Secured Party for which the Custodian is acting.
(ii) FAILURE TO SATISFY CONDITIONS. If the Secured Party or its Custodian
fails to satisfy any conditions for holding Posted Collateral, then upon a
demand made by the Pledgor, the Secured Party will, not later than five Local
Business Days after the demand. Transfer or cause its Custodian to Transfer all
Posted Collateral held by it to a Custodian that satisfies those conditions or
to the Secured Party if it satisfies those conditions.
(iii) LIABILITY. The Secured Party will be liable for the acts or
omissions of its Custodian to the same extent that the Secured Party would be
liable hereunder for its own acts or omissions.
(c) USE OF POSTED COLLATERAL. Unless otherwise specified in Paragraph 13 and
without limiting the rights and obligations of the parties under Paragraphs
3,4(d)(ii),5,6(d) and 8, if the Secured Party is not a Defaulting Party or an
Affected Party with respect to a Specified Condition and no Early Termination
Date has occurred or been designated as the result of an Event of Default or
Specified Condition with respect to the Secured Party, then the Secured Party
will, notwithstanding Section 9-207 of the New York Uniform Commercial Code,
have the right to:
(i) sell, pledge, rehypothecate, assign, invest, use, commingle or
otherwise dispose of, or otherwise use in its business any Posted Collateral it
holds, free from any claim or right of any nature whatsoever of the Pledgor,
including any equity or right of redemption by the Pledgor; and
(ii) register any Posted Collateral in the name of the Secured Party, its
Custodian or a nominee for either.
For purposes of the obligation to Transfer Eligible Credit Support or Posted
Credit Support pursuant to Paragraphs 3 and 5 and any rights or remedies
authorized under this Agreement, the Secured Party will be deemed to continue to
hold all Posted Collateral and to receive Distributions made thereon, regardless
of whether the Secured Party has exercised any rights with respect to any Posted
Collateral pursuant to (i) or (ii) above.
(d) DISTRIBUTIONS AND INTEREST AMOUNT.
(i) DISTRIBUTIONS. Subject to Paragraph 4(a), if the Secured Party
receives or is deemed to receive Distributions on a Local Business Day, it will
Transfer to the Pledgor not later than the following Local Business Day any
Distributions it receives or is deemed to receive to the extent that a Delivery
Amount would not be created or increased by that Transfer, as calculated by the
Valuation Agent (and the date of calculation will be deemed to be a Valuation
Date for this purpose).
4
<PAGE> 5
(II) INTEREST AMOUNT. Unless otherwise specified in Paragraph 13
and subject to Paragraph 4(a), in lieu of any interest, dividends
or other amounts paid or deemed to have been paid with respect to
Posted Collateral in the form of Cash (all of which may be
retained by the Secured Party), the Secured Party will Transfer
to the Pledgor at the times specified in Paragraph 13 the
Interest Amount to the extent that a Delivery Amount would not be
created or increased by that Transfer, as calculated by the
Valuation Agent (and the date of calculation will be deemed to be
a Valuation Date for this purpose). The Interest Amount or
portion thereof not Transferred pursuant to this Paragraph will
constitute Posted Collateral in the form of Cash and will be
subject to the security interest granted under Paragraph 2.
PARAGRAPH 7. EVENTS OF DEFAULT
For purposes of Section 5(a)(iii)(1) of this Agreement, an Event of
Default will exist with respect to a party if:
(i) that party fails (or fails to cause its Custodian) to make,
when due, any Transfer of Eligible Collateral, Posted Collateral or
the Interest Amount, as applicable, required to be made by it and
that failure continues for two Local Business Days after notice of
that failure is given to that party;
(ii) that party fails to comply with any restriction or prohibition
specified in this Annex with respect to any of the rights specified
in Paragraph 6(c) and that failure continues for five Local
Business Days after notice of that failure is given to that party;
or
(iii) that party fails to comply with or perform any agreement or
obligation other than those specified in Paragraphs 7(i) and 7(ii)
and that failure continues for 30 days after notice of that failure
is given to that party.
PARAGRAPH 8. CERTAIN RIGHTS AND REMEDIES
(A) SECURED PARTY'S RIGHTS AND REMEDIES. If at any time (1) an Event of
Default or Specified Condition with respect to the Pledgor has occurred and
is continuing or (2) an Early Termination Date has occurred or been
designated as the result of an Event of Default or Specified Condition with
respect to the Pledgor, then, unless the Pledgor has paid in full all of its
Obligations that are then due, the Secured Party may exercise one or more of
the following rights and remedies:
(i) all rights and remedies available to a secured party under
applicable law with respect to Posted Collateral held by the Secured
Party;
(ii) any other rights and remedies available to the Secured Party
under the terms of Other Posted Support, if any;
(iii) the right to Set-off any amounts payable by the Pledgor with
respect to any Obligations against any Posted Collateral or the Cash
equivalent of any Posted Collateral held by the Secured Party (or any
obligation of the Secured Party to Transfer that Posted Collateral);
and
(iv) the right to liquidate any Posted Collateral held by the Secured
Party through one or more public or private sales or other
dispositions with such notice, if any, as may be required under
applicable law, free from any claim or right of any nature whatsoever
of the Pledgor, including any equity or right of redemption by the
Pledgor (with the Secured Party having the right to purchase any or
all of the Posted Collateral to be sold) and to apply the proceeds
(or the Cash equivalent thereof) from the liquidation of the Posted
Collateral to any amounts payable by the Pledgor with respect to any
Obligations in that order as the Secured Party may elect.
Each party acknowledges and agrees that Posted Collateral in the form of
securities may decline speedily in value and is of a type customarily sold on a
recognized market, and, accordingly, the Pledgor is not entitled to prior notice
of any sale of that Posted Collateral by the Secured Party, except any notice
that is required under applicable law and cannot be waived.
5
<PAGE> 6
(b) PLEDGOR'S RIGHTS AND REMEDIES. If at any time an Early Termination Date
has occurred or been designated as the result of an Event of Default or
Specified Condition with respect to the Secured Party, then (except in the case
of an Early Termination Date relating to less than all Transactions (or Swap
Transactions) where the Secured Party has paid in full all of its obligations
that are then due under Section 6(e) of this Agreement):
(i) the Pledgor may exercise all rights and remedies available to a pledgor
under applicable law with respect to Posted Collateral held by the Secured
Party;
(ii) the Pledgor may exercise any other rights and remedies available to the
Pledgor under the terms of Other Posted Support, if any;
(iii) the Secured Party will be obligated immediately to Transfer all Posted
Collateral and the Interest Amount to the Pledgor; and
(iv) to the extent that Posted Collateral or the Interest Amount is not so
Transferred pursuant to (iii) above, the Pledgor may:
(A) Set-off any amounts payable by the Pledgor with respect to any
Obligations against any Posted Collateral or the Cash equivalent of any
Posted Collateral held by the Secured Party (or any obligation of the
Secured Party to Transfer that Posted Collateral); and
(B) to the extent that the Pledgor does not Set-off under (iv)(A) above,
withhold payment of any remaining amounts payable by the Pledgor with
respect to any Obligations, up to the Value of any remaining Posted
Collateral held by the Secured Party, until that Posted Collateral is
Transferred to the Pledgor.
(c) DEFICIENCIES AND EXCESS PROCEEDS. The Secured Party will Transfer to the
Pledgor any proceeds and Posted Credit Support remaining after liquidation,
Set-off and/or application under Paragraphs 8(a) and 8(b) after satisfaction in
full of all amounts payable by the Pledgor with respect to any Obligations; the
Pledgor in all events will remain liable for any amounts remaining unpaid after
any liquidation, Set-off and/or application under Paragraphs 8(a) and 8(b).
(d) FINAL RETURNS. When no amounts are or thereafter may become payable by the
Pledgor with respect to any Obligations (except for any potential liability
under Section 2(d) of this Agreement), the Secured Party will Transfer to the
Pledgor all Posted Credit Support and the Interest Amount, if any.
PARAGRAPH 9. REPRESENTATIONS
Each party represents to the other party (which representations will be deemed
to be repeated as of each date on which it, as the Pledgor, Transfers Eligible
Collateral) that:
(i) it has the power to grant a security interest in and lien on any
Eligible Collateral it Transfers as the Pledgor and has taken all necessary
actions to authorize the granting of that security interest and lien;
(ii) it is the sole owner of or otherwise has the right to Transfer all
Eligible Collateral it Transfers to the Secured Party hereunder, free and
clear of any security interest, lien, encumbrance or other restrictions
other than the security interest and lien granted under Paragraph 2;
(iii) upon the Transfer of any Eligible Collateral to the Secured Party
under the terms of this Annex, the Secured Party will have a valid and
perfected first priority security interest therein (assuming that any
central clearing corporation or any third-party financial intermediary or
other entity not within the control of the Pledgor involved in the Transfer
of that Eligible Collateral gives the notices and takes the action required
of it under applicable law for perfection of that interest); and
(iv) the performance by it of its obligations under this Annex will not
result in the creation of any security interest, lien or other encumbrance
on any Posted Collateral other than the security interest and lien granted
under Paragraph 2.
6
<PAGE> 7
PARAGRAPH 10. EXPENSES
(a) GENERAL. Except as otherwise provided in Paragraphs 10(b) and 10(c),
each party will pay its own costs and expenses in connection with performing
its obligations under this Annex and neither party will be liable for any
costs and expenses incurred by the other party in connection herewith.
(b) POSTED CREDIT SUPPORT. The Pledgor will promptly pay when due all taxes,
assessments or charges of any nature that are imposed with respect to Posted
Credit Support held by the Secured Party upon becoming aware of the same,
regardless of whether any portion of that Posted Credit Support is
subsequently disposed of under Paragraph 6(c), except for those taxes,
assessments and charges that result from the exercise of the Secured
Party's rights under Paragraph 6(c).
(c) LIQUIDATION/APPLICATION OF POSTED CREDIT SUPPORT. All reasonable costs
and expenses incurred by or on behalf of the Secured Party or the Pledgor in
connection with the liquidation and/or application of any Posted Credit
Support under Paragraph 8 will be payable, on demand and pursuant to the
Expenses Section of this Agreement, by the Defaulting Party or, if there is no
Defaulting Party, equally by the parties.
PARAGRAPH 11. MISCELLANEOUS
(a) DEFAULT INTEREST. A Secured Party that fails to make, when due, any
Transfer of Posted Collateral or the Interest Amount will be obligated to
pay the Pledgor (to the extent permitted under applicable law) an amount
equal to interest at the Default Rate multiplied by the Value of the items
of property that were required to be Transferred, from (and including) the
date that Posted Collateral or Interest Amount was required to be
Transferred to (but excluding) the date of Transfer of that Posted
Collateral or Interest Amount. This interest will be calculated on the
basis of daily compounding and the actual number of days elapsed.
(b) FURTHER ASSURANCES. Promptly following a demand made by a party, the
other party will execute, deliver, file and record any financing statement,
specific assignment or other document and take any other action that may be
necessary or desirable and reasonably requested by that party to create,
preserve, perfect or validate any security interest or lien granted under
Paragraph 2, to enable that party to exercise or enforce its rights under
this Annex with respect to Posted Credit Support or an Interest Amount or
to effect or document a release of a security interest on Posted Collateral
or an Interest Amount.
(c) FURTHER PROTECTION. The Pledgor will promptly give notice to the
Secured Party of, and defend against, any suit, action, proceeding or lien
that involves Posted Credit Support Transferred by the Pledgor or that
could adversely affect the security interest and lien granted by it under
Paragraph 2, unless that suit, action, proceeding or lien results from the
exercise of the Secured Party's rights under Paragraph 6(c).
(d) GOOD FAITH AND COMMERCIALLY REASONABLE MANNER. Performance of all
obligations under this Annex, including, but not limited to, all
calculations, valuations and determinations made by either party, will be
made in good faith and in a commercially reasonable manner.
(e) DEMANDS AND NOTICES. All demands and notices made by a party under this
Annex will be made as specified in the Notices Section of this Agreement,
except as otherwise provided in Paragraph 13.
(f) SPECIFICATIONS OF CERTAIN MATTERS. Anything referred to in this Annex
as being specified in Paragraph 13 also may be specified in one or more
Confirmations or other documents and this Annex will be construed
accordingly.
7
<PAGE> 8
PARAGRAPH 12. DEFINITIONS
As used in this Annex:--
"CASH" means the lawful currency of the United States of America.
"CREDIT SUPPORT AMOUNT" has the meaning specified in Paragraph 3.
"CUSTODIAN" has the meaning specified in Paragraphs 6(b)(i) and 13.
"DELIVERY AMOUNT" has the meaning specified in Paragraph 3(a).
"DISPUTING PARTY" has the meaning specified in Paragraph 5.
"DISTRIBUTIONS" means with respect to Posted Collateral other than Cash, all
principal, interest and other payments and distributions of cash or other
property with respect thereto, regardless of whether the Secured Party has
disposed of that Posted Collateral under Paragraph 6(c). Distributions will not
include any item of property acquired by the Secured Party upon any disposition
or liquidation of Posted Collateral or, with respect to any Posted Collateral
in the form of Cash, any distributions on that collateral, unless otherwise
specified herein.
"ELIGIBLE COLLATERAL" means, with respect to a party, the items, if any,
specified as such for that party in Paragraph 13.
"ELIGIBLE CREDIT SUPPORT" means Eligible Collateral and Other Eligible Support.
"EXPOSURE" means for any Valuation Date or other date for which Exposure is
calculated and subject to Paragraph 5 in the case of a dispute, the amount, if
any, that would be payable to a party that is the Secured Party by the other
party (expressed as a positive number) or by a party that is the Secured Party
to the other party (expressed as a negative number) pursuant to Section
6(e)(ii)(2)(A) of this Agreement as if all Transactions (or Swap Transactions)
were being terminated as of the relevant Valuation Time; provided that Market
Quotation will be determined by the Valuation Agent using its estimates at
mid-market of the amounts that would be paid for Replacement Transactions (as
that term is defined in the definition of "Market Quotation").
"INDEPENDENT AMOUNT" means, with respect to a party, the amount specified as
such for that party in Paragraph 13; if no amount is specified, zero.
"INTEREST AMOUNT" means, with respect to an Interest Period, the aggregate sum
of the amounts of interest calculated for each day in that Interest Period on
the principal amount of Posted Collateral in the form of Cash held by the
Secured Party on that day, determined by the Secured Party for each such day as
follows:
(x) the amount of that Cash on that day; multiplied by
(y) the Interest Rate in effect for that day; divided by
(z) 360.
"INTEREST PERIOD" means the period from (and including) the last Local Business
Day on which an Interest Amount was Transferred (or, if no Interest Amount has
yet been Transferred, the Local Business Day on which Posted Collateral in the
form of Cash was Transferred to or received by the Secured Party) to (but
excluding) the Local Business Day on which the current Interest Amount is to
be Transferred.
"INTEREST RATE" means the rate specified in Paragraph 13.
"LOCAL BUSINESS DAY", unless otherwise specified in Paragraph 13, has the
meaning specified in the Definitions Section of this Agreement, except that
references to a payment in clause (b) thereof will be deemed to include a
Transfer under this Annex.
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<PAGE> 9
"MINIMUM TRANSFER AMOUNT" means, with respect to a party, the amount
specified as such for that party in Paragraph 13; if no amount is specified,
zero.
"NOTIFICATION TIME" has the meaning specified in Paragraph 13.
"OBLIGATIONS" means, with respect to a party, all present and future
obligations of that party under this Agreement and any additional
obligations specified for that party in Paragraph 13.
"OTHER ELIGIBLE SUPPORT" means, with respect to a party, the items, if any,
specified as such for that party in Paragraph 13.
"OTHER POSTED SUPPORT" means all Other Eligible Support Transferred to the
Secured Party that remains in effect for the benefit of that Secured Party.
"PLEDGOR" means either party, when that party (i) receives a demand for or
is required to Transfer Eligible Credit Support under Paragraph 3(a) or
(ii) has Transferred Eligible Credit Support under Paragraph 3(a).
"POSTED COLLATERAL" means all Eligible Collateral, other property,
Distributions, and all proceeds thereof that have been Transferred to or
received by the Secured Party under this Annex and not Transferred to the
Pledgor pursuant to Paragraph 3(b), 4(d)(ii) or 6(d)(i) or released by the
Secured Party under Paragraph 8. Any Interest Amount or portion thereof not
Transferred pursuant to Paragraph 6(d)(ii) will constitute Posted Collateral
in the form of Cash.
"POSTED CREDIT SUPPORT" means Posted Collateral and Other Posted Support.
"RECALCULATION DATE" means the Valuation Date that gives rise to the dispute
under Paragraph 5; provided, however, that if a subsequent Valuation Date
occurs under Paragraph 3 prior to the resolution of the dispute, then the
"Recalculation Date" means the most recent Valuation Date under Paragraph 3.
"RESOLUTION TIME" has the meaning specified in Paragraph 13.
"RETURN AMOUNT" has the meaning specified in Paragraph 3(b).
"SECURED PARTY" means either party, when that party (i) makes a demand for
or is entitled to receive Eligible Credit Support under Paragraph 3(a) or
(ii) holds or is deemed to hold Posted Credit Support.
"SPECIFIED CONDITION" means, with respect to a party, any event specified as
such for that party in Paragraph 13.
"SUBSTITUTE CREDIT SUPPORT" has the meaning specified in Paragraph 4(d)(i).
"SUBSTITUTION DATE" has the meaning specified in Paragraph 4(d)(ii).
"THRESHOLD" means, with respect to a party, the amount specified as such
for that party in Paragraph 13; if no amount is specified, zero.
"TRANSFER" means, with respect to any Eligible Credit Support, Posted Credit
Support or Interest Amount, and in accordance with the instructions of the
Secured Party, Pledgor or Custodian, as applicable:
(i) in the case of Cash, payment or delivery by wire transfer into one
or more bank accounts specified by the recipient;
(ii) in the case of certificated securities that cannot be paid or
delivered by book-entry, payment or delivery in appropriate physical
form to the recipient or its account accompanied by any duly executed
instruments of transfer, assignments in blank, transfer tax stamps and
any other documents necessary to constitute a legally valid transfer to
the recipient;
(iii) in the case of securities that can be paid or delivered by
book-entry, the giving of written instructions to the relevant
depository institution or other entity specified by the recipient,
together with a written copy thereof to the recipient, sufficient if
complied with to result in a legally effective transfer of the
relevant interest to the recipient; and
(iv) in the case of Other Eligible Support or Other Posted Support, as
specified in Paragraph 13.
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<PAGE> 10
"VALUATION AGENT" has the meaning specified in Paragraph 13.
"VALUATION DATE" means each date specified in or otherwise determined pursuant
to Paragraph 13.
"VALUATION PERCENTAGE" means, for any item of Eligible Collateral, the
percentage specified in Paragraph 13.
"VALUATION TIME" has the meaning specified in Paragraph 13.
"VALUE" means for any Valuation Date or other date for which Value is
calculated and subject to Paragraph 5 in the case of a dispute, with respect to:
(i) Eligible Collateral or Posted Collateral that is:
(A) Cash, the amount thereof; and
(B) a security, the bid price obtained by the Valuation Agent
multiplied by the applicable Valuation Percentage, if any;
(ii) Posted Collateral that consists of items that are not specified
as Eligible Collateral, zero; and
(iii) Other Eligible Support and Other Posted Support, as specifed in
Paragraph 13.
10
<PAGE> 11
PARAGRAPH 13. ELECTIONS AND VARIABLES
(a) SECURITY INTEREST FOR "OBLIGATIONS". The term "OBLIGATIONS" as used in
this Annex includes no additional obligations with respect to Party A or
Party B.
(b) CREDIT SUPPORT OBLIGATIONS.
(i) "DELIVERY AMOUNT", "RETURN AMOUNT" and "CREDIT SUPPORT AMOUNT"
will have the meanings specified in Paragraphs 3(a), 3(b) and 3,
respectively.
(ii) The following items will qualify as "ELIGIBLE COLLATERAL" for
Party A and Party B:
<TABLE>
<CAPTION>
VALUATION PERCENTAGE
--------------------
<S> <C>
(A) Cash (U.S. Dollars) 100%
(B) Negotiable debt obligations issued by the 95%
U.S. Treasury Department with remaining
maturity of less than or equal to 5 years
(C) Negotiable debt obligations issued by the 90%
U.S. Treasury Department with remaining
maturity greater than 5 years
</TABLE>
(iii) The following items will qualify as "OTHER ELIGIBLE SUPPORT" for
Party A or Party B:
<TABLE>
<CAPTION>
VALUATION PERCENTAGE
--------------------
<S> <C>
Letters of Credit, which shall mean an 100%
irrevocable, transferable standby letter of
credit, from a major U.S. commercial bank
acceptable to the party in whose favor the
Letter of Credit is issued, utilizing a form
satisfactory to both parties, with such changes
to the terms in that form as the issuing bank
may require and as may be reasonably acceptable
to the party in whose favor the letter of credit
is issued.
</TABLE>
(iv) THRESHOLDS.
(A) "INDEPENDENT AMOUNT" means:- Not applicable with respect to
Party A; $950,000 with respect to Party B.
(B) "THRESHOLD" means $1,000,000, with respect to Party A, and
means $250,000 with respect to Party B, provided that the
Threshold shall be zero for any party for so long as an Event of
Default is continuing with respect to such party.
(C) "MINIMUM TRANSFER AMOUNT" means:- Not applicable.
(D) ROUNDING. The Delivery Amount will be rounded up and the
Return Amount will be rounded down to the nearest integral
multiple of $100,000, respectively.
(c) VALUATION AND TIMING.
(i) "VALUATION AGENT" means, for the purposes of Paragraphs 3 and 5,
the party making the demand under Paragraph 3, and, for the purposes of
Paragraph 6(d), the Secured Party receiving or deemed to receive the
Distributions or the Interest Amount, as applicable.
(ii) "VALUATION DATE" means any Local Business Day.
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<PAGE> 12
(iii) "VALUATION TIME" means the close of the Local Business Day
before the Valuation Date or date of calculation as applicable;
provided that the calculations of Value and Exposure will be made as of
approximately the same time on the same date.
(iv) "NOTIFICATION TIME" means 1:00 p.m., New York time, on a Local
Business Day.
(d) CONDITIONS PRECEDENT AND SECURED PARTY'S RIGHTS AND REMEDIES. The
following Termination Event(s) will be a "SPECIFIED CONDITION" for
each party (that party being the Affected Party if the Termination
Event occurs with respect to that party) for the purposes of the
Paragraphs specified below:
<TABLE>
<CAPTION>
Paragraph 4(a) Paragraph 8(a) and (b)
-------------- ----------------------
<S> <C> <C>
Illegality [X] [ ]
Tax Event [X] [ ]
Tax Event Upon Merger [X] [ ]
Credit Event Upon Merger [X] [X]
</TABLE>
(e) SUBSTITUTION.
(i) "SUBSTITUTION DATE" has the meaning specified in Paragraph 4(d)(ii).
(ii) CONSENT. The Pledgor is not required to obtain the Secured Party's
consent for any substitution pursuant to Paragraph 4(d).
(f) DISPUTE RESOLUTION.
(i) "RESOLUTION TIME" means 1:00 p.m., New York time, on the second
Local Business Day following the date on which a notice is given
regarding a dispute under Paragraph 5.
(ii) VALUE. For the purpose of Paragraphs 5(i)(C) and 5(ii), the
Value of Posted Credit Support will be calculated as follows: For each
item of Eligible Collateral (except for Cash), an amount in U.S. dollars
equal to the product of (i) either (A) the bid price for such security
quoted on such day by a principal market-maker for such security
selected in good faith by the Secured Party or (B) the most recent
publicly available bid price for such security as reported by a
quotation service or in a medium selected in good faith and in a
commercially reasonable manner by Secured Party, multiplied by (ii) the
percentage figure listed in section (b)(ii) hereof with respect to such
security; and (c) with respect to any other Eligible Collateral, an
amount agreed to by the parties and specified on a supplement to this
Annex.
(iii) ALTERNATIVE. The provisions of Paragraph 5 will apply.
(g) HOLDING AND USING POSTED COLLATERAL.
(i) ELIGIBILITY TO HOLD POSTED COLLATERAL; CUSTODIANS. Party A and its
Custodian, and Party B and its Custodian, will be entitled to hold
Posted Collateral, as applicable, pursuant to Paragraph 6(b); provided
that the following conditions applicable to each party are satisfied:
(A) Party A, as the Secured Party, is not a Defaulting Party.
(B) Party B, as the Secured Party, is not a Defaulting Party.
(C) Each party hereby covenants and agrees that it will cause all
Posted Collateral received from the other party to be entered in
one or more accounts (each, a "Collateral Account") with a
domestic office of a commercial bank, trust company or financial
institution organized under the laws of the United States (or any
state or a political subdivision thereof) having assets of at
least $10 Billion and a long term debt or deposit rating of at
least (i) Baa2 from Moody's Investors Services, Inc. ("Moody's")
and (ii) BBB from Standard and Poor's Corporation ("S&P") (a
"Qualified Institution"), each of which accounts may include
property of other parties but will bear a title indicating the
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<PAGE> 13
Secured Party's interest in said account and the Posted
Collateral in such account. In addition the Secured Party may
direct the Pledgor to transfer or deliver Eligible Collateral
directly into the Secured Party's Collateral Account(s). If
otherwise qualified, the Secured Party may act as such Qualified
Institution and the Secured Party may move the Collateral
Accounts from one Qualified Institution to another upon
reasonable notice to the Pledgor. The Secured Party shall cause
statements concerning the Posted Collateral transferred or
delivered by the Pledgor to be sent to the Pledgor on request,
which may not be made more frequently than once in each calendar
month.
Initially the Custodian, for Party A and Party B is:- Not applicable.
(ii) USE OF POSTED COLLATERAL. The provisions of Paragraph 6(c) will
apply to Party A and Party B.
(h) DISTRIBUTIONS AND INTEREST AMOUNT.
(i) The "INTEREST RATE", with respect to cash Collateral, will be the
Federal Funds Rate which means, for any day, the simple interest rate
per annum (rounded upward, if necessary, to the nearest 1/100th of 1%)
equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by
Federal funds brokers on such day, as published by the Federal Reserve
Bank of New York on the Local Business Day next succeeding such day,
provided that (a) if such day is not a Local Business Day, the Federal
Funds Rate for such day shall be such rate on such transactions on the
next preceding Local Business Day, and (b) if no such rate is so
published on such next succeeding Local Business Day, the Federal Funds
Rate for such day shall be the arithmetic mean of the rates for the last
transaction in overnight Federal funds arranged by three leading brokers
of Federal funds transactions in New York City selected by NationsBank
in good faith on such day.
(ii) The "TRANSFER OF INTEREST AMOUNT" will be made on the last Local
Business Day of each calendar month and on any Local Business Day that
Posted Collateral in the form of Cash is transferred to the Pledgor
pursuant to Paragraph 3(b).
(iii) ALTERNATIVE INTEREST AMOUNT. The provisions of Paragraph 6(d)(ii)
will apply.
(i) ADDITIONAL REPRESENTATIONS. None.
(j) OTHER ELIGIBLE SUPPORT AND OTHER POSTED SUPPORT. Other Eligible Support
in the form of a Letter of Credit shall be subject to the following provisions:
(i) "Letter of Credit Default" shall mean with respect to an outstanding
Letter of Credit, the occurrence of any of the following events: (1) the
issuer of such Letter of Credit shall fail to maintain a credit rating
of at least BBB+ by S&P or Baa2 by Moody's; (2) the issuer of the
Letter of Credit shall fail to comply with or perform its obligations
under such Letter of Credit if such failure shall be continuing after
the lapse of any applicable grace period; (3) the issuer of such Letter
of Credit shall disaffirm, disclaim, repudiate or reject, in whole or in
part, or challenge the validity of, such Letter of Credit; (4) such
Letter of Credit shall expire or terminate, or shall fail or cease to be
in full force and effect at any time during a period in which Posted
Collateral is required, (5) cause the renewal or replacement Letter of
Credit to the Secured Party at the address specified in the Agreement at
least 90 days prior to the expiration of such Letter of Credit.
(ii) Upon the occurrence of a Letter of Credit Default, the Pledgor
agrees to deliver a substitute Letter of Credit to the Secured Party on
or before the second Business Day after written demand by the Secured
Party. The failure to so deliver a substitute Letter of Credit
13
<PAGE> 14
or other Posted Collateral to cover the Secured Party's Exposure less
the Pledgor's Threshold shall be deemed to be an Event of Default under
the Agreement.
(iii) Unless otherwise agreed in writing by the parties, each Letter of
Credit shall be provided in such manner as is mutually agreed in writing
by the parties or is customary in the relevant market, and each Letter
of Credit shall be maintained for the benefit of the Secured Party.
(iv) When providing Letters of Credit, the Pledgor may increase the
amount of an outstanding Letter of Credit or procure one or more
additional Letters of Credit.
(v) A Letter of Credit shall provide that the Secured Party may draw
upon the Letter of Credit in an amount that is equal to all amounts that
are due and owing from the Pledgor but have not been paid to the Secured
Party within the time allowed for such payments under the Agreement
(including any related notice or grace period or both). A Letter of
Credit shall provide that a drawing may be made on the Letter of Credit
upon submission to the bank issuing the Letter of Credit of one or
more certificates specifying the amounts due and owing the Secured
Party.
(vi) In all cases, the costs and expenses (including but not limited to
the reasonable costs, expenses and attorneys' fees of the Secured Party)
of establishing, renewing, substituting, canceling and increasing the
amount of one or more Letters of Credit (as the case may be) shall be
borne by the Pledgor.
(k) DEMANDS AND NOTICES. All demands, specifications and notices made by a
party to this Annex will be made pursuant to the Notices Section of this
Agreement.
(1) ADDRESSES FOR TRANSFERS.
Party A: Cash: Harris Trust and Savings Bank, Chicago, ABA 071 000 288
AC 1245372, F/A/O: NationsBank, N.A.
Eligible Collateral (other than cash): NATIONSBK NC/DLR, ABA
053 000 196
Party B: Cash:
Eligible Collateral (other than cash):
(m) OTHER PROVISIONS.
(i) This Credit Support Annex is a Security Agreement under the New
York UCC.
(ii) Paragraph 8(d) is hereby amended by striking the words "or
thereafter may become" in line 1 thereof.
ACCEPTED AND AGREED:
NATIONSBANK, N.A. SIRROM CAPITAL CORPORATION
/s/ R. Vaughan Dodd /s/ Carl W. Stratton
- ------------------------ ----------------------------
Name: R. VAUGHAN DODD Name: Carl W. Stratton
Title: SENIOR VICE PRESIDENT Title: C.F.O.
14
<PAGE> 15
SCHEDULE to the MASTER AGREEMENT
DATED AS OF NOVEMBER 26, 1996 BETWEEN
NATIONSBANK, N.A. ("PARTY A") AND
SIRROM CAPITAL CORPORATION ("Party B")
PART 1: TERMINATION PROVISIONS AND CERTAIN OTHER MATTERS
(a) "SPECIFIED ENTITY" means in relation to Party A for the purpose of:-
Section 5(a)(v), none;
Section 5(a)(vi), none;
Section 5(a)(vii), none; and
Section 5(b)(iv), none;
in relation to Party B for the purpose of:-
Section 5(a)(v), none;
Section 5(a)(vi), none;
Section 5(a)(vii), none; and
Section 5(b)(iv), none.
(b) "SPECIFIED TRANSACTION" will have the meaning specified in Section 14.
(c) The "CROSS-DEFAULT" provisions of Section 5(a)(vi) will apply to Party A
and Party B. In connection therewith, "SPECIFIED INDEBTEDNESS" will have the
meaning specified in Section 14, except that such term shall not include
obligations in respect of deposits received in the ordinary course of a party's
banking business, and "THRESHOLD AMOUNT" means an amount equal to three percent
of a party's shareholders' equity, determined in accordance with generally
accepted accounting principles in such party's jurisdiction of incorporation or
organization, consistently applied, as at the end of such party's most recently
completed fiscal year.
(d) The "CREDIT EVENT UPON MERGER" provisions of Section 5(b)(iv) will apply to
Party A and Party B.
(e) The "AUTOMATIC EARLY TERMINATION" provision of Section 6(a) will not apply
to Party A or Party B.
(f) PAYMENTS ON EARLY TERMINATION. For the purpose of Section 6(e):-
(i) Market Quotation will apply.
(ii) The Second Method will apply.
(g) "TERMINATION CURRENCY" means United States Dollars.
(h) ADDITIONAL TERMINATION EVENT. Additional Termination Event will not apply.
PART 2: TAX REPRESENTATIONS
Not applicable.
1
<PAGE> 16
PART 3: AGREEMENT TO DELIVER DOCUMENTS
For the purpose of Section 4(a)(i) and (ii) of this Agreement, each party agrees
to deliver the following documents:
(a) Tax forms, documents or certificates to be delivered are: none.
(b) Other documents to be delivered are:-
<TABLE>
<CAPTION>
Party required Form/ Date by Covered by
to deliver Document/ which to be Section 3(d)
document Certificate delivered Representation
-------------- ----------------------------- ------------------------- --------------
<S> <C> <C> <C>
Party B Annual Report of Party B As soon as available and Yes
containing consolidated in any event within 120
financial statements days after the end of
certified by independent each fiscal year of Party
certified public accountants B
and prepared in accordance
with generally accepted
accounting principles in the
country in which Party B is
organized.
Party B Unaudited consolidated As soon as available and Yes
financial statements of in any event within 60
Party B for a fiscal quarter days after the end of
prepared in accordance with each fiscal quarter of
generally accepted Party B
accounting principles in the
country in which Party B
(or such entity) is organized
and on a basis consistent
with that of the annual
financial statements of
Party B (or such entity)
Party B Credit Support Document Upon execution and Yes
delivery of this
Agreement
Party A and Certified copies of all Upon execution and Yes
Party B corporate authorizations delivery of this
and any other documents Agreement
with respect to the
execution, delivery and
performance of this
Agreement
</TABLE>
2
<PAGE> 17
<TABLE>
<S> <C> <C> <C>
Party A and Certificate of authority and Upon execution and Yes
Party B specimen signatures of delivery of this
individuals executing this Agreement and
Agreement and thereafter upon request
Confirmations. of the other party
</TABLE>
PART 4: MISCELLANEOUS
(a) ADDRESS FOR NOTICES. For the purpose of Section 12(a) of this Agreement:-
Address for notice or communications to Party A:
NationsBank, N.A.
100 N. Tryon St., NCl-007-13-01
Charlotte, North Carolina 28255
Attention: Derivatives Documentation Unit
(Telex No: 669959; Answerback: NATIONSBK CHA)
Telecopy No.: 704-386-4113
Address for notice or communications to Party B:
Attention: Carl Stratton
Sirrom Capital Corporation
500 Church Street
Suite 200
Nashville, TN 37219
Telephone No.: 615-726-0701
Telecopy No.: 615-726-1208
with a copy to
Attention: Joe Weingarten
ING (U.S.) Capital Corporation
135 East 57th Street
New York, NY 10022
Telephone No.: 212-409-0966
Telecopy No.: 212-593-3362
(b) PROCESS AGENT. For the purpose of Section 13(c):
Party A appoints as its Process Agent: Not applicable.
Party B appoints as its Process Agent: Not applicable.
(c) OFFICES. The provisions of Section 10(a) will apply to this Agreement.
(d) MULTIBRANCH PARTY. For the purpose of Section 10(c) of this Agreement:-
Party A is not a Multibranch Party.
Party B is not a Multibranch Party.
(e) CALCULATION AGENT. The Calculation Agent is Party A, unless otherwise
specified in a Confirmation in relation to the relevant Transaction.
(f) CREDIT SUPPORT DOCUMENT. Details of any Credit Support Document:-
3
<PAGE> 18
The obligations of Party A hereunder shall be subject to the condition precedent
that Party B shall deliver or cause to be delivered to Party A the ISDA Credit
Support Annex between Party A and Party B dated as of the date hereof.
(g) CREDIT SUPPORT PROVIDER. Credit Support Provider means in relation to
Party A,
Not applicable.
Credit Support Provider means in relation to Party B,
Not applicable.
(h) GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of New York (without reference to that
jurisdiction's choice of law doctrine).
(i) NETTING OF PAYMENTS. Subparagraph (ii) of Section 2(c) will not apply to
any Transaction unless specified in the relevant Confirmation.
(j) "AFFILIATE" will have the meaning specified in Section 14 of this
Agreement.
PART 5: OTHER PROVISIONS
(a) SET-OFF. Nothing in this Agreement shall be treated as restricting or
negating any right of set-off, lien, counterclaim or other right or remedy which
might otherwise be available to either party.
(b) PAYMENTS. Notwithstanding the provisions of any Swap Transaction, in the
event an Event of Default or an event that with the giving of notice or lapse of
time (or both) would become an Event of Default shall have occurred and be
continuing with respect to a party ("Party X"), or material adverse change in
the business, operations, assets or financial or other condition of Party X
shall have occurred, then, upon written notice being given to Party X by the
other party ("Party Y") (or automatically, without any requirement for the
giving of notice, in the case of an Event of Default or Potential Event of
Default described in Section 5(a)(vii)), the following modifications shall be
made, effective as of the date such notice is given or deemed to be given, to
each Swap Transaction where the originally-scheduled Payment Dates for Party Y
occur more frequently than the Payment Dates for Party X: (i) Compounding shall
apply; (ii) Party Y's Payment Dates shall be changed to coincide with Party X's
Payment Dates; (iii) the Compounding Dates shall be the same dates as Party Y's
originally-scheduled Payment Dates; and (iv) for purposes of calculating the
amount of the payment to be made by Party Y on the Payment Date for Party Y (as
modified hereby) next succeeding the effective date of the modifications
provided for in this paragraph, the Calculation Period in respect of which such
payment is being made will be deemed to have commenced on the date of the most
recent payment made by Party Y.
(c) EXCHANGE OF CONFIRMATIONS. For each Swap Transaction entered into
hereunder, Party A shall promptly send to Party B a Confirmation, via telex or
facsimile transmission. Party B agrees to respond to such Confirmation within
three (3) Business Days, either confirming agreement thereto or requesting a
correction of any error(s) contained therein. Failure by Party B to respond
within such period shall not affect the validity or enforceability of such Swap
Transaction and shall be deemed to be an affirmation of the terms contained in
such Confirmation, absent manifest error. The parties agree that any such
exchange of telexes or facsimile transmissions shall constitute a Confirmation
for all purposes hereunder.
4
<PAGE> 19
(d) NOTICE BY FACSIMILE TRANSMISSION. Section 12(a) is hereby amended by
inserting the words "or 13(c)" between the number "6" and the word "may" in the
second line thereof.
(e) WAIVER OF RIGHT TO TRIAL BY JURY. Each party hereby irrevocably waives
any and all rights to trial by jury with respect to any legal proceeding arising
out of or relating to this Agreement or any Transaction contemplated hereby.
(f) RECORDING OF CONVERSATIONS. Each party to this Agreement acknowledges and
agrees to the tape or electronic recording of conversations between the parties
to this Agreement whether by one or other or both of the parties, and that any
such recordings may be submitted in evidence in any action or proceeding
relating to the Agreement or any Transaction.
(g) ELIGIBLE SWAP PARTICIPANT. Each party represents to the other that it is
an "eligible swap participant" as defined under the regulations of the Commodity
Futures Trading Commission, currently at 17 C.F.R. ss 35.1(b)(2).
(h) TRANSFER. A new subsection (c) shall be added to Section 7 of this
Agreement:
"(c) a party may make such a transfer of this Agreement and all, but not
less than all, Transactions hereunder to such party's Affiliate upon 10
days' prior written notice to the other party, provided that such Affiliate
has attained a rating of at least AA (or its equivalent) from a nationally
recognized U.S. rating agency on the date that the intended transfer shall
take effect."
(i) RELATIONSHIP BETWEEN PARTIES. Each party represents to the other party
and will be deemed to represent to the other party on the date on which it
enters into a Transaction that (absent a written agreement between the parties
that expressly imposes affirmative obligations to the contrary for that
Transaction):-
(i) NON-RELIANCE. It is acting for its own account, and it has made
its own independent decisions to enter into that Transaction and as to whether
that Transaction is appropriate or proper for it based upon its own judgment and
upon advice from such advisors as it has deemed necessary. It is not relying on
any communication (written or oral) of the other party as investment advice or
as a recommendation to enter into that Transaction; it being understood that
information and explanations related to the terms and conditions of a
Transaction shall not be considered investment advice or a recommendation to
enter into that Transaction. Further, such party has not received from the other
party any assurance or guarantee as to the expected results of that Transaction.
(ii) EVALUATION AND UNDERSTANDING. It is capable of evaluating and
understanding (on its own behalf or through independent professional advice),
and understands and accepts, the terms, conditions and risks of that
Transaction. It is also capable of assuming, and assumes, the financial and
other risks of that Transaction.
(iii) STATUS OF PARTIES. The other party is not acting as an agent,
fiduciary or advisor for it in respect of that Transaction.
(j) EVENT OF DEFAULT WITH RESPECT TO PARTY B. Party A hereby agrees that it will
promptly give ING (U.S.) Capital Corporation ("ING") a copy of any written
notices delivered to Party B pursuant to Section 5 of the Agreement. In the
event that Party B, a Credit Support Provider or a Specified Entity (as the case
may be) fails to take such actions to avoid an Event of Default pursuant to
Section 5(a)(i), (ii),(iii) or (v), which is the subject of the aforementioned
notice, ING shall have the right to take such actions as would be necessary
or appropriate to avoid such Event of Default. ING shall promptly deliver
written notice of its intention to take such action to Party A, Party B, and
such other party as may be appropriate under the circumstances. Notwithstanding
5
<PAGE> 20
anything herein to the contrary, this Section shall not be deemed to provide
Party B, ING or any other party additional time to cure any Events of Default.
ACCEPTED AND AGREED:
NATIONSBANK, N.A. SIRROM CAPITAL CORPORATION
/s/ R. VAUGHAN DODD /s/ CARL W. STRATTON
- ----------------------------- ---------------------------
Name: R. Vaughan Dodd Name: Carl W. Stratton
Title: Senior Vice President Title: C.F.O.
6
<PAGE> 21
233 South Wacker Drive, Suite 2800
Chicago, Illinois 60606
Tel 312-234-2934
Fax 312-234-3160
[NATIONSBANK LOGO]
CONFIRMATION FOR U.S. DOLLAR CAP
TO BE SUBJECT TO MASTER AGREEMENT
TO: SIRROM CAPITAL CORPORATION
500 CHURCH STREET, SUITE 200
NASHVILLE, TN 37219
ATTN: CARL STRATTON, CFO
TEL: 615-256-0701
FAX: 615-726-1208
FROM: NationsBank, N.A.
233 S. Wacker Drive
Chicago, Illinois 60606
MICHAEL SHARP / STUART ADAMS
DATE: 27NOV96
SUBJECT: Transaction Ref# 565300
The purpose of this letter agreement is to confirm the terms and
conditions of the Rate Cap Transaction entered into between us on the Trade
Date specified below (the "Cap Transaction"). This letter agreement
constitutes a "Confirmation" as referred to in the Master Agreement specified
below.
The definitions and provisions contained in the 1991 ISDA Definitions
(as published by the International Swaps and Derivatives Association, Inc.),
(the "Definitions") are incorporated into this Confirmation. In the event of
any inconsistency between the Definitions and this Confirmation, this
Confirmation will govern.
1. This Confirmation supplements, forms part of, and is subject to, the
Master Agreement dated as of 26NOV96, as amended and supplemented from time to
time (the "Agreement"), between you and us. All provisions contained in the
Agreement shall govern this Confirmation except as expressly modified below.
2. The terms of the Rate Cap Transaction to which this Confirmation
relates are as follows:
SELLER: NATIONSBANK, N.A.
BUYER: SIRROM CAPITAL CORPORATION
Notional Amount: USD- SEE SCHEDULE A
Accretion: APPLICABLE
<PAGE> 22
<TABLE>
<S> <C>
Trade Date: 27NOV96
Effective Date: 02JAN97
Termination Date: 02JAN98
Cap Rate: 6.00%
Reset Date: Each Business Day of the Calculation Period.
Payment Date: THE 2ND OF EACH MONTH COMMENCING
FEBRUARY 2, 1997 AND ENDING JANUARY 2, 1998,
SUBJECT TO ADJUSTMENT IN ACCORDANCE WITH THE
MODIFIED FOLLOWING BUSINESS DAY CONVENTION.
Floating Rate Reference: USD-CP-H.15
Designated Maturity: 1 Month
Spread: NONE
Business Days: NEW YORK
Day Count Fraction: ACTUAL/360
Averaging: DAILY UNWEIGHTED
Calculation Agent: NationsBank, N.A.
Premium: INAPPLICABLE
Rounding Factor: One Hundred Thousandth of One Percent
Assignment: This Cap Transaction may be assigned
only with prior written consent.
Legal and Out-of-Pocket
Expenses: For Each Party's Own Account.
Governing Law: The Laws of the State of New York.
Recording of Conversations: Each party to this Agreement
acknowledges and agrees to the tape or
electronic recording of conversations
between the parties to this Agreement
whether by one or other or both of the
parties, and that any such recordings
may be submitted in evidence in any
action or proceeding relating to the
Agreement or any Transaction.
Instructions for Payment:
Payment to NationsBank: Payment to SIRROM CAPITAL CORPORATION:
NATIONSBANK, N.A. - CHARLOTTE PLEASE ADVISE
ABA 053000196
ACCT: 10852016511
ATTN: DERIVATIVE OPERATIONS
</TABLE>
Please confirm that the foregoing correctly sets forth the terms
2
<PAGE> 23
and conditions of our agreement by responding within three (3) Business Days by
returning via telecopier an executed copy of this Confirmation to the attention
of the Swaps Documentation Unit at Fax (312) 234-3160. Failure to respond within
such period shall not affect the validity or enforceability of this Cap
Transaction, and shall be deemed to be an affirmation of the terms and
conditions contained herein, absent manifest error.
Yours Sincerely,
NATIONSBANK, N.A.
BY: /s/ NICK KOLICK
------------------------
Nick Kolick
Vice President
SIRROM CAPITAL CORPORATION
BY: /s/ CARL W. STRATTON
------------------------
AUTHORIZED SIGNATORY
Carl W. Stratton, CFO
3
<PAGE> 24
SCHEDULE A TO CONFIRMATION
ACCRETION SCHEDULE
<TABLE>
<CAPTION>
PERIOD COVERED NOTIONAL
------ ------- --------
<S> <C> <C>
02JAN97 03FEB97 8,333,333.00
03FEB97 03MAR97 16,666,667.00
03MAR97 02APR97 25,000,000.00
02APR97 02MAY97 33,333,333.00
02MAY97 02JUN97 41,666,667.00
02JUN97 02JUL97 50,000,000.00
02JUL97 04AUG97 58,333,333.00
04AUG97 02SEP97 66,666,667.00
02SEP97 02OCT97 75,000,000.00
02OCT97 03NOV97 83,333,333.00
03NOV97 02DEC97 91,666,667.00
02DEC97 02JAN98 100,000,000.00
</TABLE>
NATIONSBANK, N.A.
BY: /s/ NICK KOLICK
------------------------
Nick Kolick
Vice President
SIRROM CAPITAL CORPORATION
BY: /s/ CARL W. STRATTON
------------------------
AUTHORIZED SIGNATORY
Carl W. Stratton, CFO
4
<PAGE> 25
233 South Wacker Drive, Suite 2800
Chicago, Illinois 60606
Tel 312 234-2934
Fax 312 234-3160
[NATIONSBANK LOGO]
CONFIRMATION FOR U.S. DOLLAR CAP
SUBJECT TO EXISTING 1992 MASTER
TO: SIRROM CAPITAL CORPORATION
500 CHURCH STREET, SUITE 200
NASHVILLE, TN 37219
ATTN: CARL STRATTON, CFO
TEL: 615-256-0701
FAX: 615-726-1208
FROM: NationsBank, N.A.
233 S. Wacker Drive
Chicago, Illinois 60606
MICHAEL SHARP / SEAN DOYLE
DATE: 27NOV96
SUBJECT: Transaction Ref# 565310
The purpose of this letter agreement is to confirm the terms and
conditions of the Rate Cap Transaction entered into between us on the Trade Date
specified below (the "Cap Transaction"). This letter agreement constitutes a
"Confirmation" as referred to in the Master Agreement specified below.
The definitions and provisions contained in the 1991 ISDA Definitions
(as published by the International Swaps and Derivatives Association, Inc.),
(the "Definitions") are incorporated into this Confirmation. In the event of any
inconsistency between the Definitions and this Confirmation, this Confirmation
will govern.
1. This Confirmation supplements, forms part of, and is subject to, the
Master Agreement dated as of 26NOV96, as amended and supplemented from time to
time (the "Agreement"), between you and us. All provisions contained in the
Agreement shall govern this Confirmation except as expressly modified below.
2. The terms of the Rate Cap Transaction to which this Confirmation
relates are as follows:
Notional Amount: USD 100,000,000.00
Trade Date: 27NOV96
Effective Date: 02JAN98
Termination Date: 03JAN00
<PAGE> 26
<TABLE>
<S> <C>
SELLER: NATIONSBANK, N.A.
BUYER: SIRROM CAPITAL CORPORATION
Cap Rate: 6.00%
Payment Dates: THE 2ND OF EACH MONTH COMMENCING
FEBRUARY 2, 1998 AND ENDING JANUARY 3, 2000,
SUBJECT TO ADJUSTMENT IN ACCORDANCE WITH THE
MODIFIED FOLLOWING BUSINESS DAY CONVENTION.
First Calculation Period: The First Calculation Period for this
Rate Cap Transaction shall commence
02JAN98.
Spread: NONE
Reset Dates: Each Business day during the Calculation Period
Floating Rate Reference: USD-CP-H.15
Designated Maturity: 1 Month
Business Day Centers: NEW YORK
Day Count Fraction: ACTUAL/360
Averaging: DAILY UNWEIGHTED
Premium Amount: INAPPLICABLE
Calculation Agent: NationsBank, N.A.
Legal and Out-of-Pocket
Expenses: For each party's own account.
Recording of Conversations: Each party to this Agreement
acknowledges and agrees to the tape or
electronic recording of conversations
between the parties to this Agreement
whether by one or other or both of the
parties, and that any such recordings
may be submitted in evidence in any
action or proceeding relating to the
Agreement or any Transaction.
Instructions for Payment:
Payment to NationsBank: Payment to SIRROM CAPITAL CORPORATION:
NATIONSBANK, N.A. - CHARLOTTE PLEASE ADVISE
ABA 053000196
ACCT: 10852016511
ATTN: DERIVATIVE OPERATIONS
</TABLE>
Please confirm that the foregoing correctly sets forth the terms and
conditions of our agreement by responding within three (3) Business Days by
returning via telecopier an executed copy
Ref. 565310 2
<PAGE> 27
of this Confirmation to the Swaps Documentation Group at Fax No. (312)
234-2543. Failure to respond within such period shall not affect the
validity or enforceability of this Cap Transaction, and shall be deemed to
be an affirmation of the terms and conditions contained herein, absent
manifest error.
Yours Sincerely,
NATIONSBANK, N.A.
BY: /s/ NICK KOLICK
--------------------------------
Nick Kolick
Vice President
Confirmed as of the date first written above:
SIRROM CAPITAL CORPORATION
BY: /s/ CARL W. STRATTON
-------------------------------
AUTHORIZED SIGNATORY
Carl W. Stratton, CFO
3
<PAGE> 28
233 South Wacker Drive, Suite 2800
Chicago, Illinois 60606
Tel 312 234-2934
Fax 312 234-3160
[NATIONSBANK LOGO]
CONFIRMATION FOR U.S. DOLLAR CAP
TO BE SUBJECT TO MASTER AGREEMENT
TO: SIRROM CAPITAL CORPORATION
500 CHURCH STREET, SUITE 200
NASHVILLE, TN 37219
ATTN: CARL STRATTON, CFO
TEL: 615-256-0701
FAX: 615-726-1208
FROM: NationsBank, N.A.
233 S. Wacker Drive
Chicago, Illinois 60606
MICHAEL SHARP / STUART ADAMS
DATE: 27NOV96
SUBJECT: Transaction Ref# 565140
The purpose of this letter agreement is to confirm the terms and
conditions of the Rate Cap Transaction entered into between us on the Trade Date
specified below (the "Cap Transaction"). This letter agreement constitutes a
"Confirmation" as referred to in the Master Agreement specified below.
The definitions and provisions contained in the 1991 ISDA Definitions
(as published by the International Swaps and Derivatives Association, Inc.),
(the "Definitions") are incorporated into this Confirmation. In the event of any
inconsistency between the Definitions and this Confirmation, this Confirmation
will govern.
1. This Confirmation supplements, forms part of, and is subject to, the
Master Agreement dated as of 26NOV96, as amended and supplemented from time to
time (the "Agreement"), between you and us. All provisions contained in the
Agreement shall govern this Confirmation except as expressly modified below.
2. The terms of the Rate Cap Transaction to which this Confirmation
relates are as follows:
SELLER: NATIONSBANK, N.A.
BUYER: SIRROM CAPITAL CORPORATION
Notional Amount: USD- 100,000,000.00
Trade Date: 27NOV96
Effective Date: 03JAN00
Termination Date: 02JAN02
<PAGE> 29
<TABLE>
<S> <C>
Cap Rate: 6.95%
Reset Date: Each Business Day of the Calculation Period
Payment Date: THE 2ND OF EACH MONTH COMMENCING
FEBRUARY 2, 2000 AND ENDING JANUARY 2, 2002,
SUBJECT TO ADJUSTMENT IN ACCORDANCE WITH THE
MODIFIED FOLLOWING BUSINESS DAY CONVENTION.
Floating Rate Reference: USD-CP-H.15
Designated Maturity: 1 Month
Spread: NONE
Business Days: NEW YORK
Day Count Fraction: ACTUAL/360
Averaging: DAILY UNWEIGHTED
Calculation Agent: NationsBank, N.A.
Premium: INAPPLICABLE
Rounding Factor: One Hundred Thousandth of One Percent
Assignment: This Cap Transaction may be assigned
only with prior written consent.
Legal and Out-of-Pocket
Expenses: For Each Party's Own Account.
Governing Law: The Laws of the State of New York.
Recording of Conversations: Each party to this Agreement
acknowledges and agrees to the tape or
electronic recording of conversations
between the parties to this Agreement
whether by one or other or both of the
parties, and that any such recordings
may be submitted in evidence in any
action or proceeding relating to the
Agreement or any Transaction.
</TABLE>
Instructions for Payment:
Payment to NationsBank: Payment to SIRROM CAPITAL CORPORATION:
NATIONSBANK, N.A. - CHARLOTTE FIRST UNION NATIONAL BANK
ABA 053000196 ABA 064000059
ACCT: 10852016511 ACCT: 202-0000-151-160
ATTN: DERIVATIVE OPERATIONS ATTN: KIM STRINGFIELD
Please confirm that the foregoing correctly sets forth the terms and
conditions of our agreement by responding within three (3) Business Days by
returning via telecopier an executed copy of this Confirmation to the attention
of the Swaps Documentation Unit at Fax
2
<PAGE> 30
(312) 234-3160. Failure to respond within such period shall not affect the
validity or enforceability of this Cap Transaction, and shall be deemed to be an
affirmation of the terms and conditions contained herein, absent manifest error.
Yours Sincerely,
NATIONSBANK, N.A.
BY: /s/ NICK KOLICK
-----------------------------
Nick Kolick
Vice President
SIRROM CAPITAL CORPORATION
BY: /s/ CARL W. STRATTON
-----------------------------
AUTHORIZED SIGNATORY
Carl W. Stratton, CFO
3
<PAGE> 31
233 South Wacker Drive, Suite 2800
Chicago, Illinois 60606
Tel 312 234-2934
Fax 312 234-3160
[NATIONSBANK LOGO]
CONFIRMATION FOR U.S. DOLLAR FLOOR
TO BE SUBJECT TO MASTER AGREEMENT
TO: SIRROM CAPITAL CORPORATION
500 CHURCH STREET, SUITE 200
NASHVILLE, TN 37219
ATTN: CARL STRATTON, CFO
TEL: 615-256-0701
FAX: 615-726-1208
FROM: NationsBank, N.A.
233 S. Wacker Drive
Chicago, Illinois 60606
MICHAEL SHARP / STUART ADAMS
DATE: 27NOV96
SUBJECT: Transaction Ref# 565290
The purpose of this letter agreement is to confirm the terms and conditions of
the Rate Floor Transaction entered into between us on the Trade Date specified
below (the "Floor Transaction"). This letter agreement constitutes a
"Confirmation" as referred to in the Master Agreement specified below.
The definitions and provisions contained in the 1991 ISDA Definitions
(as published by the International Swaps and Derivatives Association, Inc.),
(the "Definitions") are incorporated into this Confirmation. In the event of any
inconsistency between the Definitions and this Confirmation, this Confirmation
will govern.
1. This Confirmation supplements, forms part of, and is subject to, the
Master Agreement dated as of 26NOV96, as amended and supplemented from time to
time (the "Agreement"), between you and us. All provisions contained in the
Agreement shall govern this Confirmation except as expressly modified below.
2. The terms of the Rate Floor Transaction to which this Confirmation
relates are as follows:
BUYER: NATIONSBANK, N.A.
SELLER: SIRROM CAPITAL CORPORATION
<PAGE> 32
<TABLE>
<S> <C>
Notional Amount: USD-SEE SCHEDULE A
Accretion: APPLICABLE
Trade Date: 27NOV96
Effective Date: 02JAN97
Termination Date: 02JAN98
Floor Rate: 5.00% for period covering January 2, 1997
to June 2, 1997.
5.25% for period covering June 2, 1997 to
January 2, 1998.
Reset Date: Each Business Day of the Calculation Period.
Payment Date: THE 2ND OF EACH MONTH COMMENCING
FEBRUARY 2, 1997 AND ENDING JANUARY 2, 1998,
SUBJECT TO ADJUSTMENT IN ACCORDANCE WITH THE
MODIFIED FOLLOWING BUSINESS DAY CONVENTION.
Floating Rate Reference: USD-CP-H.15
Designated Maturity: 1 Month
Spread: NONE
Business Days: NEW YORK
Day Count Fraction: ACTUAL/360
Averaging: DAILY UNWEIGHTED
Business Day Convention: MODIFIED FOLLOWING BUSINESS DAY
Calculation Agent: NationsBank, N.A.
Premium: INAPPLICABLE
Rounding Factor: One Hundred Thousandth of One Percent
Assignment: This Floor Transaction may be assigned
only with prior written consent.
Legal and Out-of-Pocket
Expenses: For Each Party's Own Account.
Governing Law: The Laws of the State of New York.
Recording of Conversations: Each party to this Agreement
acknowledges and agrees to the tape or
electronic recording of conversations
between the parties to this Agreement
whether by one or other or both of the
parties, and that any such recordings
may be submitted in evidence in any
action or proceeding relating to the
Agreement or any Transaction.
</TABLE>
2
<PAGE> 33
Instructions for Payment:
Payment to NationsBank: Payment to SIRROM CAPITAL CORPORATION:
NATIONSBANK, N.A. - CHARLOTTE FIRST UNION NATIONAL BANK
ABA 053000196 ABA 064000059
ACCT: 10852016511 ACCT: 202-0000-151-160
ATTN: DERIVATIVE OPERATIONS ATTN: KIM STRINGFIELD
Please confirm that the foregoing correctly sets forth the terms and
conditions of our agreement by responding within three (3) Business Days by
returning via telecopier an executed copy of this Confirmation to the attention
of the Swaps Documentation Unit at Fax (312) 234-3160. Failure to respond within
such period shall not affect the validity or enforceability of this Floor
Transaction, and shall be deemed to be an affirmation of the terms and
conditions contained herein, absent manifest error.
Yours Sincerely,
NATIONSBANK, N.A.
BY: /s/ NICK KOLICK
-----------------------------
Nick Kolick
Vice President
Confirmed as of the date first written above:
SIRROM CAPITAL CORPORATION
BY: /s/ CARL W. STRATTON
-----------------------------
AUTHORIZED SIGNATORY
Carl W. Stratton, CFO
3
<PAGE> 34
SCHEDULE A TO CONFIRMATION
ACCRETION SCHEDULE
<TABLE>
<CAPTION>
PERIOD COVERED NOTIONAL
------ ------- --------
<S> <C> <C>
02JAN97 03FEB97 8,333,333.00
03FEB97 03MAR97 16,666,667.00
03MAR97 02APR97 25,000,000.00
02APR97 02MAY97 33,333,333.00
02MAY97 02JUN97 41,666,667.00
02JUN97 02JUL97 50,000,000.00
02JUL97 04AUG97 58,333,333.00
04AUG97 02SEP97 66,666,667.00
02SEP97 02OCT97 75,000,000.00
02OCT97 03NOV97 83,333,333.00
03NOV97 02DEC97 91,666,667.00
02DEC97 02JAN98 100,000,000.00
</TABLE>
Yours Sincerely,
NATIONSBANK, N.A.
BY: /s/ NICK KOLICK
-----------------------------
Nick Kolick
Vice President
SIRROM CAPITAL CORPORATION
BY: /s/ CARL W. STRATTON
-----------------------------
AUTHORIZED SIGNATORY
Carl W. Stratton, CFO
4
<PAGE> 35
233 South Wacker Drive, Suite 2800
Chicago, Illinois 60606
Tel 312 234-2934
Fax 312 234-3160
[NATIONSBANK LOGO]
CONFIRMATION FOR U.S. DOLLAR FLOOR
SUBJECT TO EXISTING 1992 MASTER
TO: SIRROM CAPITAL CORPORATION
500 CHURCH STREET, SUITE 200
NASHVILLE, TN 37219
ATTN: CARL STRATTON, CFO
TEL: 615-256-0701
FAX: 615-726-1208
FROM: NationsBank, N.A.
233 S. Wacker Drive
Chicago, Illinois 60606
MICHAEL SHARP / SEAN DOYLE
DATE: 27NOV96
SUBJECT: Transaction Ref# 565260
The purpose of this letter agreement is to confirm the terms and
conditions of the Rate Floor Transaction entered into between us on the Trade
Date specified below (the "Floor Transaction"). This letter agreement
constitutes a "Confirmation" as referred to in the Master Agreement specified
below.
The definitions and provisions contained in the 1991 ISDA Definitions
(as published by the International Swaps and Derivatives Association, Inc.),
(the "Definitions") are incorporated into this Confirmation. In the event of any
inconsistency between the Definitions and this Confirmation, this Confirmation
will govern.
1. This Confirmation supplements, forms part of, and is subject to, the
Master Agreement dated as of 26NOV96, as amended and supplemented from time to
time (the "Agreement"), between you and us. All provisions contained in the
Agreement shall govern this Confirmation except as expressly modified below.
2. The terms of the Rate Floor Transaction to which this Confirmation
relates are as follows:
BUYER: NATIONSBANK, N.A.
SELLER: SIRROM CAPITAL CORPORATION
Notional Amount: USD 100,000,000.00
Trade Date: 27NOV96
Effective Date: 02JAN98
Termination Date: 03JAN00
<PAGE> 36
<TABLE>
<S> <C>
Floor Rate: 6.00%
Floating Rate Payment Dates: THE 2ND OF EACH MONTH COMMENCING
FEBRUARY 2, 1998 AND ENDING JANUARY 3, 2000,
SUBJECT TO ADJUSTMENT IN ACCORDANCE WITH THE
MODIFIED FOLLOWING BUSINESS DAY CONVENTION.
First Calculation Period: The First Calculation Period for this
Rate Floor Transaction shall commence
02JAN98.
Spread: NONE
Reset Dates: Each Business Day of the Calculation Period
Floating Rate Reference: USD-CP-H.15
Designated Maturity: 1 Month
Business Day Centers: NEW YORK
Day Count Fraction: ACTUAL/360
Averaging: DAILY UNWEIGHTED
Premium Amount: Inapplicable
Calculation Agent: NationsBank, N.A.
Legal and Out-of-Pocket.
Expenses: For each party's own account.
Recording of Conversations: Each party to this Agreement
acknowledges and agrees to
the tape or electronic
recording of conversations
between the parties to this
Agreement whether by one or
other or both of the
parties, and that any such
recordings may be submitted
in evidence in any action
or proceeding relating to
the Agreement or any
Transaction.
</TABLE>
Instructions for Payment:
Payment to NationsBank: Payment to SIRROM CAPITAL CORPORATION:
NATIONSBANK, N.A. - CHARLOTTE FIRST UNION NATIONAL BANK
ABA 053000196 ABA 064000059
ACCT:10852016511 ACCT: 202-0000-151-160
ATTN: DERIVATIVE OPERATIONS ATTN: KIM STRINGFIELD
Please confirm that the foregoing correctly sets forth the terms and
conditions of our agreement by responding within three (3) Business Days by
returning via telecopier an executed copy of this Confirmation to the Swaps
Documentation Group at Fax No. (312) 234-2543. Failure to respond within such
period shall not affect the validity or enforceability of this Floor
Transaction, and shall be
2
<PAGE> 37
deemed to be an affirmation of the terms and conditions contained herein, absent
manifest error.
Yours Sincerely,
NATIONSBANK, N.A.
BY: /s/ NICK KOLICK
-----------------------------
Nick Kolick
Vice President
Confirmed as of the date first written above:
SIRROM CAPITAL CORPORATION
BY: /s/ CARL W. STRATTON
-----------------------------
AUTHORIZED SIGNATORY
Carl W. Stratton, CFO
3
<PAGE> 38
233 South Wacker Drive, Suite 2800
Chicago, Illinois 60606
Tel 312 234-2934
Fax 312 234-3160
[NATIONSBANK LOGO]
CONFIRMATION FOR U.S. DOLLAR FLOOR
TO BE SUBJECT TO MASTER AGREEMENT
TO: SIRROM CAPITAL CORPORATION
500 CHURCH STREET, SUITE 200
NASHVILLE, TN 37219
ATTN: CARL STRATTON, CFO
TEL: 615-256-0701
FAX: 615-726-1208
FROM: NationsBank, N.A.
233 S. Wacker Drive
Chicago, Illinois 60606
MICHAEL SHARP / STUART ADAMS
DATE: 27NOV96
SUBJECT: Transaction Ref# 565170
The purpose of this letter agreement is to confirm the terms and conditions of
the Rate Floor Transaction entered into between us on the Trade Date specified
below (the "Floor Transaction"). This letter agreement constitutes a
"Confirmation" as referred to in the Master Agreement specified below.
The definitions and provisions contained in the 1991 ISDA Definitions
(as published by the International Swaps and Derivatives Association, Inc.),
(the "Definitions") are incorporated into this Confirmation. In the event of any
inconsistency between the Definitions and this Confirmation, this Confirmation
will govern.
1. This Confirmation supplements, forms part of, and is subject to, the
Master Agreement dated as of 26NOV96, as amended and supplemented from time to
time (the "Agreement"), between you and us. All provisions contained in the
Agreement shall govern this Confirmation except as expressly modified below.
2. The terms of the Rate Floor Transaction to which this Confirmation
relates are as follows:
BUYER: NATIONSBANK, N.A.
SELLER: SIRROM CAPITAL CORPORATION
Notional Amount: USD 100,000,000.00
Trade Date: 27NOV96
Effective Date: 03JAN00
Termination Date: 02JAN02
<PAGE> 39
<TABLE>
<S> <C>
Floor Rate: 6.00%
Reset Date: Each Business Day of the Calculation Period.
Payment Date: THE 2ND OF EACH MONTH COMMENCING
FEBRUARY 2, 2000 AND ENDING JANUARY 2, 2000,
SUBJECT TO ADJUSTMENT IN ACCORDANCE WITH THE
MODIFIED FOLLOWING BUSINESS DAY CONVENTION.
Floating Rate Reference: USD-CP-H.15
Designated Maturity: 1 Month
Spread: NONE
Business Days: NEW YORK
Day Count Fraction: ACTUAL/360
Averaging: DAILY UNWEIGHTED
Business Day Convention: MODIFIED FOLLOWING BUSINESS DAY
Calculation Agent: NationsBank, N.A.
Premium: INAPPLICABLE
Rounding Factor: One Hundred Thousandth of One Percent
Assignment: This Floor Transaction may be assigned
only with prior written consent.
Legal and Out-of-Pocket
Expenses: For Each Party's Own Account.
Governing Law: The Laws of the State of New York.
Recording of Conversations: Each party to this Agreement
acknowledges and agrees to the tape or
electronic recording of conversations
between the parties to this Agreement
whether by one or other or both of the
parties, and that any such recordings
may be submitted in evidence in any
action or proceeding relating to the
Agreement or any Transaction.
</TABLE>
Instructions for Payment:
Payment to NationsBank: Payment to SIRROM CAPITAL CORPORATION:
NATIONSBANK, N.A. - CHARLOTTE FIRST UNION NATIONAL BANK
ABA 053000196 ABA 064000059
ACCT: 10852016511 ACCT: 202-0000-151-160
ATTN: DERIVATIVE OPERATIONS ATTN: KIM STRINGFIELD
Please confirm that the foregoing correctly sets forth the terms and
conditions of our agreement by responding within three (3) Business
2
<PAGE> 40
Days by returning via telecopier an executed copy of this Confirmation to the
attention of the Swaps Documentation Unit at Fax (312) 234-3160. Failure to
respond within such period shall not affect the validity or enforceability of
this Floor Transaction, and shall be deemed to be an affirmation of the terms
and conditions contained herein, absent manifest error.
Yours Sincerely,
NATIONSBANK, N.A.
BY: /s/ NICK KOLICK
-----------------------------
Nick Kolick
Vice President
Confirmed as of the date first written above:
SIRROM CAPITAL CORPORATION
BY: /s/ CARL W. STRATTON
-----------------------------
AUTHORIZED SIGNATORY
Carl W. Stratton, CFO
3
<PAGE> 1
Exhibit 1
BASS, BERRY & SIMS PLC
A PROFESSIONAL LIMITED LIABILITY COMPANY
ATTORNEYS AT LAW
2700 FIRST AMERICAN CENTER 1700 RIVERVIEW TOWER
NASHVILLE, TENNESSEE 37238-2700 POST OFFICE BOX 1509
TELEPHONE (615) 742-6200 KNOXVILLE, TENNESSEE 37901-1509
TELECOPIER (615) 742-6293 TELEPHONE (423) 521-6200
TELECOPIER (423) 521-6234
FEBRUARY 11, 1998
Sirrom Capital Corporation
500 Church Street, Suite 200
Nashville, Tennessee 37219
Re: REGISTRATION STATEMENT ON FORM N-2
Ladies and Gentlemen:
We have acted as your counsel in connection with your preparation of a
registration statement on Form N-2 (the "Registration Statement") to be filed
by you with the Securities and Exchange Commission on February 11, 1998,
covering 5,000,000 shares of no par value common stock (the "Common Stock") of
Sirrom Capital Corporation (the "Company") to be sold by the Company and 750,000
shares of Common Stock to be sold by certain selling shareholders upon exercise
of an option to cover over-allotments to the underwriters represented by Morgan
Stanley & Co., Incorporated, The Robinson-Humphrey Company, LLC, J.C. Bradford &
Co., LLC and SunTrust Equitable Securities Corporation (the "Underwriters") for
public distribution pursuant to the Underwriting Agreement between the Company
and the Underwriters filed as an exhibit to the Registration Statement.
In connection with this opinion, we have examined and relied upon such
records, documents and other instruments as in our judgment are necessary or
appropriate in order to express the opinions hereinafter set forth and have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, and the conformity to original documents of all
documents submitted to us as certified or photostatic copies.
Based on the foregoing and such other matters as we have deemed relevant,
we are of the opinion that the shares of Common Stock to be sold by the
Company, when issued and delivered in the manner and on the terms described in
the Registration Statement (after the same is declared effective), will be
validly issued, fully paid and nonassessable.
We hereby consent to the reference to our law firm in the Registration
Statement under the caption "Legal Matters" and to the use of this opinion as
an exhibit to the Registration Statement.
Very truly yours,
/s/ Bass, Berry & Sims PLC
<PAGE> 1
EXHIBIT N.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated January 30, 1998 on Sirrom Capital Corporation and Subsidiaries
(and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
February 11, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 483,417,899
<INVESTMENTS-AT-VALUE> 494,199,560
<RECEIVABLES> 4,483,640
<ASSETS-OTHER> 10,553,199
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 509,236,399
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 214,250,000
<OTHER-ITEMS-LIABILITIES> 13,017,488
<TOTAL-LIABILITIES> 227,267,488
<SENIOR-EQUITY> 250,408,483
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 31,093,226
<SHARES-COMMON-PRIOR> 24,687,134
<ACCUMULATED-NII-CURRENT> 13,159,861
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7,618,891
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,781,676
<NET-ASSETS> 281,968,911
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 41,297,190
<OTHER-INCOME> 10,748,520
<EXPENSES-NET> 19,011,881
<NET-INVESTMENT-INCOME> 33,033,829
<REALIZED-GAINS-CURRENT> 10,722,158
<APPREC-INCREASE-CURRENT> (1,611,654)
<NET-CHANGE-FROM-OPS> 41,306,158
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 16,977,374
<DISTRIBUTIONS-OF-GAINS> 12,867,638
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,438,172
<NUMBER-OF-SHARES-REDEEMED> 32,080
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 221,223,333
<ACCUMULATED-NII-PRIOR> 1,517,560
<ACCUMULATED-GAINS-PRIOR> 5,813,208
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 9,796,759
<GROSS-EXPENSE> 19,011,881
<AVERAGE-NET-ASSETS> 398,624,732
<PER-SHARE-NAV-BEGIN> 6.43
<PER-SHARE-NII> 1.06
<PER-SHARE-GAIN-APPREC> 2.58
<PER-SHARE-DIVIDEND> .59
<PER-SHARE-DISTRIBUTIONS> .41
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.07
<EXPENSE-RATIO> .048
<AVG-DEBT-OUTSTANDING> 167,554,106
<AVG-DEBT-PER-SHARE> 5.39
</TABLE>
