<PAGE> 1
Filed Pursuant to Rule 497C and H
Registration No: 333-46051
PROSPECTUS
6,000,000 Shares
SIRROM CAPITAL CORPORATION
COMMON STOCK
------------------------
OF THE 6,000,000 SHARES OF COMMON STOCK BEING OFFERED HEREBY, 5,000,000 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 MARCH 5, 1998 THE LAST REPORTED SALE PRICE FOR THE COMMON STOCK WAS
$25 3/4.
------------------------
THE COMPANY IS A NON-DIVERSIFIED, CLOSED-END INVESTMENT COMPANY THAT HAS ELECTED
TO BE TREATED AS A BUSINESS DEVELOPMENT COMPANY UNDER THE INVESTMENT COMPANY ACT
OF 1940, AS AMENDED. THE COMPANY'S INVESTMENT OBJECTIVES ARE TO ACHIEVE A HIGH
LEVEL OF INCOME FROM THE COLLECTION OF INTEREST AND PROCESSING AND FINANCIAL
ADVISORY FEES, AS WELL AS LONG-TERM GROWTH IN ITS SHAREHOLDERS' EQUITY THROUGH
THE APPRECIATION IN VALUE OF THE EQUITY INTERESTS IN ITS PORTFOLIO COMPANIES.
SEE "BUSINESS." NO ASSURANCES CAN BE GIVEN THAT THE COMPANY WILL CONTINUE TO
ACHIEVE THESE OBJECTIVES. THIS PROSPECTUS SETS FORTH THE INFORMATION ABOUT THE
COMPANY THAT A PROSPECTIVE INVESTOR SHOULD KNOW BEFORE INVESTING AND SHOULD BE
RETAINED FOR FUTURE REFERENCE. ADDITIONAL INFORMATION ABOUT THE COMPANY HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS AVAILABLE UPON WRITTEN
OR ORAL REQUEST WITHOUT CHARGE. SEE "ADDITIONAL INFORMATION."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PRICE $25.50 A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
------------ --------------- ------------
<S> <C> <C> <C>
Per Share............................................. $ 25.50 $ 1.275 $ 24.225
Total(3).............................................. $153,000,000 $7,650,000 $145,350,000
</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 900,000 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 $175,950,000, $8,797,500, and $145,350,000, respectively, and the
proceeds to Selling Shareholders will be $21,802,500. 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 11, 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 5, 1998
<PAGE> 2
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> 3
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY 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> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and the financial statements and
notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, all information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option.
Information contained or incorporated by reference in this Prospectus may
contain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, which can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "intend,"
"anticipate," "estimate" or "continue" or the negative thereof or other
variations thereon or comparable terminology. The matters described in "Risk
Factors" and certain other factors noted throughout this Prospectus and in any
exhibits to the Registration Statement of which this Prospectus is a part,
constitute cautionary statements identifying important factors with respect to
any such forward-looking statements, including certain risks and uncertainties,
that could cause actual results to differ materially from those in such
forward-looking statements.
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> 5
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... 5,000,000
---------
Total............ 6,000,000
=========
Common Stock to be
outstanding after the
Offering................. 37,094,708
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> 6
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. In addition, on February 27, 1998, the
Company entered into a $25.0 million revolving
bridge credit facility that terminates on June 30,
1998 (the "Bridge Loan") to fund Tandem investments
and loans. On the date hereof, $12.0 million was
outstanding under the Bridge Loan. 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
6
<PAGE> 7
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 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> 8
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........................................ 2.2%(4)
----
Interest payments on borrowed funds....................... 2.3%
----
Total Annual Expenses (estimated)................. 4.5%
====
</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 $426.6 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
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<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming a 5.0% annual return.............. $ 94 $190 $296 $609
</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> 9
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 $ 131,962 $ 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 $ 23,375
Loans..................................................... 412,005 412,005
Equity interests.......................................... 55,211 55,211
Warrants.................................................. 24,543 24,543
Total assets.............................................. 509,236 529,586
Revolving credit facilities............................... 124,250 --
Debentures payable to SBA................................. 90,000 90,000
Total shareholders' equity................................ 281,969 426,569
</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 6,000,000 shares of Common
Stock offered hereby and the application of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."
9
<PAGE> 10
THE COMPANY
The Company was incorporated under the laws of the State of Tennessee in
November 1994 and is a non-diversified, closed-end investment company that has
elected to be treated as a BDC under the 1940 Act. The Company's principal
executive offices are located at 500 Church Street, Suite 200, Nashville,
Tennessee 37219, and its telephone number is (615) 256-0701.
The Company is the successor to Sirrom Capital, L.P., a Tennessee limited
partnership (the "Partnership"), which was organized under the laws of Tennessee
in 1991. Pursuant to a conversion (the "Conversion") consummated on February 1,
1995, all partners of the Partnership (the "Partners") transferred their
Partnership interests to the Company in exchange for the issuance of 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> 11
RISK FACTORS
The purchase of the shares offered by this Prospectus involves a number of
significant risks and other factors relating to the structure and investment
objectives of the Company. As a result, there can be no assurance that the
Company will continue to achieve its investment objectives. In addition to the
other information contained in this Prospectus, the following risk factors
should be carefully considered in evaluating an investment in the Common Stock.
RISKS ASSOCIATED WITH INVESTMENTS IN SMALL, PRIVATELY OWNED COMPANIES
The Company's portfolio consists primarily of loans to and securities
issued by small, privately owned businesses. There is generally no publicly
available information about such companies, and the Company must rely on the
diligence of its employees and agents to obtain information in connection with
the Company's investment decisions. Typically, small businesses depend for their
success on the management talents and efforts of one person or a small group of
persons, and the death, disability or resignation of one or more of these
persons could have a material adverse impact on the related company. Moreover,
small businesses frequently have smaller product lines and market shares than
their competition. Small companies may be more vulnerable to economic downturns
and often need substantial additional capital to expand or compete. Such
companies may also experience substantial variations in operating results.
Investment in small businesses therefore involves a high degree of business and
financial risk, which can result in substantial losses and accordingly should be
considered speculative. The Company's operating history is relatively limited
and it has not operated in recessionary economic periods during which the
operating results of small business companies such as those in the Company's
portfolio often are adversely affected. While the Company generally seeks to
make senior secured loans, its loans are often made on a subordinated basis.
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> 12
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. In addition, as of the date hereof, the Company has outstanding
borrowings of $12.0 million of the $25.0 million available under the Bridge
Loan. 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
12
<PAGE> 13
historic growth rates of its loan and investment portfolio, or that it will be
able to develop sufficient lending and administrative personnel, and management
and operating systems to manage its expansion effectively.
In August 1996, the Company acquired Harris Williams, a company which
provides merger and acquisition financial advisory services to small and medium
sized businesses. Harris Williams' income is derived from fees received for its
financial advisory engagements, which typically provide for a monthly retainer
and a success fee contingent upon the closing of each transaction. There can be
no assurance that Harris Williams' fee income will continue at or exceed
historical levels. See "Business."
LEVERAGE RISKS
The Company, through SII, has borrowed funds from the SBA and under the
Revolving Credit Facility and, through SFC, has borrowed funds under the ING
Credit Facility, resulting in a significant leveraging of its assets. Leverage
magnifies the potential for gain and loss on monies invested and, therefore,
increases the risks associated with an investment in the Company's securities.
The Company's creditors have claims on the Company's assets superior to the
claims of the Company's shareholders. In addition, pursuant to the terms of the
ING Credit Facility, the Company may be requested by Holland Limited
Securitization, Inc., a multi-seller commercial paper conduit sponsored by ING
Baring (U.S.) Capital Markets, Inc. (individually and collectively, "ING"), the
lender under the ING Credit Facility, depending on interest rate conditions, to
make deposits into a sinking fund account to be used by ING to purchase interest
rate caps or to enter into additional interest rate swaps and transfer to SFC
the interest rate cap payments payable to the Company, and failure of the
Company to do so would cause the ING Credit Facility to be unavailable for
future funding. The Company does not have the ability to estimate the size of
such deposits if necessary, and if prevailing interest rates substantially
differ from the borrowing rate 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
2.6% 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)................ -18.8% -11.3% -3.9% 3.6% 11.0%
</TABLE>
- ---------------
(1) The calculation assumes (i) $636.4 million in investments, (ii) an average
cost of funds of 7.7%, (iii) $214.3 million in debt outstanding and (iv)
$426.6 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
13
<PAGE> 14
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 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 $144.6 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, $12.0 million under the Bridge Loan 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. The Company anticipates terminating the
Bridge Loan upon repayment of the outstanding balance. Amounts outstanding under
the Revolving Credit Facility, the ING Credit Facility and the Bridge Loan bear
interest at 7.9% per annum, 8.3% per annum and 7.9% per annum, respectively, as
of the date of this Prospectus. The Company believes that the net proceeds will
be applied as set forth above within nine months of the Offering. Pending such
application, the Company intends to invest the net proceeds of this Offering in
time deposits, income-producing securities with maturities of 15 months or less
that are issued or guaranteed by the federal government or agencies thereof and
high quality debt securities maturing in one year or less from the time of
investment in such high quality debt securities. See "Investment Objectives and
Policies."
14
<PAGE> 15
DISTRIBUTIONS AND PRICE RANGE OF COMMON STOCK
The Company has distributed and currently intends to continue to distribute
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 March 5, 1998, the last reported sale price of the Common
Stock was $25.75 per share (a 184% 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 5/8 17 3/8 8.68 149 100 .20
Second Quarter............................. 20 13 31/32 8.81 127 59 .21
Third Quarter.............................. 26 1/16 17 9.14 185 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> 16
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 --
Shareholders' equity:
Common stock, no par value, 50,000,000 shares authorized;
31,093,226 issued and outstanding (38,093,226 issued
and outstanding as adjusted)(2)........................ 251,057 395,657
Notes receivable from employees........................... (648) (648)
Undistributed net realized earnings....................... 20,779 20,779
Unrealized appreciation of investments.................... 10,781 10,781
Total shareholders' equity........................ $281,969 $426,569
-------- --------
Total capitalization........................................ $496,219 $516,569
======== ========
</TABLE>
- ---------------
(1) Reflects a public offering price of $25.50.
(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> 17
SELECTED FINANCIAL DATA
The following tables set forth selected financial data of the Company,
which should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and with the Company's
Financial Statements and Notes thereto included elsewhere in this Prospectus.
The selected financial data set forth below as of and for the period from
inception to December 31, 1992, and as of and for each of the 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> 18
<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 $ 23,375
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 91,804 177,870 288,013 509,236 529,586
Revolving credit
facilities........... -- -- 6,389 13,200 30,858 124,250 --
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 89,186 158,621 281,969 426,569
</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 6,000,000 shares of Common
Stock offered hereby and the application of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."
18
<PAGE> 19
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 74.7
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 39.4 89.2 54.9 82.3 37.6
Equity in pre-tax income of
unconsolidated subsidiary........ 4.9 6.7 5.2 11.8 7.7 167.1 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 92.9
===== ===== ===== ===== =====
</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
------- -------
<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> 20
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> 21
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 these 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 148.1% increase over
the $2.7 million in revenues in 1995. During 1997, Harris Williams had pre-tax
income of $3.7 million, a 12.1% increase over the $3.3 million in pre-tax income
in 1996, which in turn was a 306.4% 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 15.4% 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> 22
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> 23
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 third 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> 24
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
24
<PAGE> 25
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.
25
<PAGE> 26
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.
26
<PAGE> 27
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
27
<PAGE> 28
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 8,695 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.
28
<PAGE> 29
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.
29
<PAGE> 30
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
30
<PAGE> 31
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
31
<PAGE> 32
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> 33
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> 34
<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> 35
<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> 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>
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> 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>
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> 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>
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> 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>
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> 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>
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 L.P. interest
202
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> 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>
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> 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>
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> 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>
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> 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>
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> 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>
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> 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>
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> 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>
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> 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>
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> 49
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> 50
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> 51
<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> 52
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> 53
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
53
<PAGE> 54
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.
54
<PAGE> 55
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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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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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).................. 4,786,408 768,000(2) 15.4% 10.8%(3)
243 Medical Center South
2100 Pierce Avenue
Nashville, TN 37212
Sirrom Partners, L.P.......................... 4,070,296 768,000(2) 13.1 8.9(3)
500 Church Street
Suite 200
Nashville, TN 37219
Putnam Investments, Inc.(4)................... 3,149,342 -- 10.1 8.5
One Post Office Square
Boston, MA 02109
Pilgrim Baxter & Associates, Ltd.(5).......... 2,067,200 -- 6.6 5.6
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Provident Investment Counsel, Inc.(6)......... 1,567,174 -- 5.0 4.2
300 N. Lake Ave., Suite 1001
Pasadena, CA 91101
H. Hiter Harris, III.......................... 672,958 66,000(2) 2.2 1.6(3)
1313 East Main St., Suite 300
Richmond, VA 23219
Christopher H. Williams....................... 669,958 66,000(2) 2.2 1.6(3)
1313 East Main St., Suite 300
Richmond, VA 23219
Executive officers and directors, as a group
(13 persons)................................ 9,031,680(7) 900,000(2) 29.0 21.9(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 900,000 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 12.9% for Dr. Morris, 11.0% for Sirrom Partners, L.P.,
1.8% for Mr. Harris, 1.8% for Mr. Williams and 24.3% for executive officers
and directors, as a group.
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(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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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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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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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.
63
<PAGE> 64
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.
64
<PAGE> 65
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.
65
<PAGE> 66
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 6,000,000 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......................... 1,250,000
The Robinson-Humphrey Company, LLC........................ 1,250,000
J.C. Bradford & Co........................................ 1,250,000
SunTrust Equitable Securities Corporation................. 1,250,000
---------
Subtotal.......................................... 5,000,000
---------
International Underwriters:
Morgan Stanley & Co. International Limited................ 250,000
The Robinson-Humphrey Company, LLC........................ 250,000
J.C. Bradford & Co........................................ 250,000
SunTrust Equitable Securities Corporation................. 250,000
---------
Subtotal.......................................... 1,000,000
---------
Total............................................. 6,000,000
=========
</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.
66
<PAGE> 67
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.
67
<PAGE> 68
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 $0.76 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 900,000 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, 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 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.
68
<PAGE> 69
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 1525
West W.T. Harris Boulevard, 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.
69
<PAGE> 70
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-18
Consolidated Portfolio of Investments
As of December 31, 1996................................... F-19
As of December 31, 1997................................... F-28
</TABLE>
F-1
<PAGE> 71
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 (91% 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> 72
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> 73
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> 74
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> 75
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 revolving credit facilities.............. (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> 76
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 shareholders' equity through the appreciation in
value 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, Inc.
("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. ("Harris Williams") 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> 77
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 stock and warrants of public companies that the Company is not
permitted to sell in the public market as a result of securities law
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> 78
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 these liens
may be subject to prior liens.
Interest on Investments
Interest income is recorded on the accrual basis. The accrual of income is
typically suspended when the related loan becomes 60 days past due unless
management anticipates that accrued amounts will be collected.
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 debenture (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 at least 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 the Company repurchased 130,000 shares for
$809,645 which resulted in a cancellation of a note and a reduction in the
balance of the notes receivable from employees of $440,142. These shares were
reissued by the Company in a secondary offering in June 1996.
F-9
<PAGE> 79
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. 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> 80
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> 81
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, including the interest rate swaps and a quarterly fee of .25%
per annum on the total revolving credit facility for the periods ended December
31, 1995, 1996 and 1997 was $527,280, $2,574,681 and $1,555,468, respectively.
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 is funded by commercial paper sold
by the financial institution, and bears interest at the stated rate on the
commercial paper sold plus 2.25%. 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.
Interest expense on the $100.0 million credit facility including the swaps
and a monthly fee of .50% per annum on the unused portion of the facility
totaled $1,923,899 for the year ended December 31, 1997.
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 that 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> 82
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 December 31, 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 had two employee stock option plans and
one director stock option 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
shareholders' 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 shareholders' equity............ $13,882,000 $23,326,000 $37,608,000
Net increase in shareholders' equity per
share--Basic.................................. .87 1.04 1.24
Net increase in shareholders' 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 typically vest over a five year period from the
date of hire and expire ten years from the date of grant.
F-13
<PAGE> 83
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 the 1995 Stock Option Plan for
Non-Employee Directors that provides for the automatic 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 received options to purchase 36,000 shares and directors
elected after December 1, 1994 received 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 December 31, 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
December 31, 1995, 1996, and 1997, respectively.
F-14
<PAGE> 84
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
of 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 of
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.
On January 20, 1998, the Company's directors declared a dividend of
$7,929,151 payable on March 20, 1998 to shareholders of record as of February
27, 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 was 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 were 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 loans 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> 85
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 success 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 December 31, 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> 86
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 December 31, 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.
F-17
<PAGE> 87
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 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 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>
<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 shareholders' equity
resulting from operations................. 3,886 9,917 16,660 10,843
Per share:
Pre-tax operating income.................. $ .22 $ .25 $ .28 $ .30
Net increase in shareholders' equity
resulting from operations.............. .14 .31 .50 .34
Dividends(1).............................. .20 .21 .24 .43(3)
Market price of common stock:
High...................................... $ 21 5/8 $ 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> 88
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
- ----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
AB Plastics Holding Corporation................ 9/27/01 $ 4,000,000 13.50% $ 4,000,000
Affinity Fund, Inc. ........................... 6/29/98 1,485,000 12.50 1,497,932
Affinity Fund, Inc. ........................... 3/10/00 1,000,000 14.00 1,000,000
Affinity Fund, Inc. ........................... 12/28/98 495,000 12.50 496,079
American Corporate Literature, Inc............. 9/29/01 1,683,000 14.00 1,684,132
ARAC Holding Co., Inc. ........................ 9/27/01 3,000,000 13.50 3,000,000
American Network Exchange...................... 11/30/98 990,000 13.00 996,346
American Network Exchange...................... 1/18/99 990,000 13.00 996,012
Amscot Holdings, Inc. ......................... 5/26/00 800,000 14.00 800,000
Amscot Holdings, Inc. ......................... 9/20/00 200,000 14.00 200,000
Amscot Holdings, Inc. ......................... 6/28/01 500,000 14.00 500,000
Amscot Holdings, Inc. ......................... 12/27/01 250,000 14.00 250,000
Argenbright Holdings Limited................... 7/7/01 2,750,000 13.50 3,500,000
Ashe Industries, Inc. ......................... 12/28/97 990,000 12.50 132,058
Ashe Industries, Inc. ......................... 3/25/99 445,500 12.50 122,300
Ashe Industries, Inc. ......................... 5/18/99 544,500 12.50 121,524
Ashe Industries, Inc. ......................... 6/12/96 750,000 14.00 100,000
Ashe Industries, Inc. ......................... 6/12/96 285,546 14.00 0
Associated Response Services, Inc. ............ 6/20/99 1,386,000 12.50 1,393,223
Associated Response Services, Inc. ............ 2/15/00 335,000 12.50 335,000
Associated Response Services, Inc. ............ 1/6/00 300,000 12.50 300,000
Associated Response Services, Inc. ............ 11/8/01 500,000 12.50 500,000
Assured Power, Inc. ........................... 10/1/00 700,000 13.50 700,000
Avionics Systems, Inc. ........................ 7/19/01 3,000,000 13.50 3,000,000
B & N Company, Inc. ........................... 8/8/00 2,970,000 12.50 2,978,500
B & N Company, Inc. ........................... 3/28/01 990,000 13.00 991,670
BankCard Services Corporation.................. 1/21/98 297,000 13.00 299,400
BiTec Southeast, Inc. ......................... 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> 89
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
- ----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
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> 90
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
- ----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
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> 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>
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> 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>
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> 93
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COST OR
NUMBER OF CONTRIBUTED
EQUITY INTERESTS SHARES VALUE FAIR VALUE
- ---------------- -------------- ----------- -----------
<S> <C> <C> <C>
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> 94
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
STOCK WARRANTS SHARES OWNERSHIP VALUE FAIR VALUE
- -------------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
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 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> 95
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
STOCK WARRANTS SHARES OWNERSHIP VALUE FAIR VALUE
- -------------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
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> 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>
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> 97
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> 98
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> 99
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> 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>
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> 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>
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> 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>
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. (convertible
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> 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>
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> 104
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............. 1,437,681 9.40 292,370 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> 105
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> 106
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> 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>
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> 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>
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> 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>
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
