<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO _____________
COMMISSION FILE NUMBER: 0-25174
SIRROM CAPITAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
TENNESSEE 62-1583116
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
500 CHURCH STREET, SUITE 200
NASHVILLE, TENNESSEE 37219
(Address of Principal (Zip Code)
Executive Offices)
(615) 256-0701
(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. The number of shares of common
stock, no par value per share, outstanding on October 30, 1998 was 37,229,196.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31,
1997 and September 30, 1998 3
Consolidated Statements of Operations for the Three Months Ended September 30,
1997 and 1998 and for the Nine Months Ended September 30, 1997 and 1998 4
Consolidated Statements of Cash Flows for the Three Months Ended
September 30, 1997 and 1998 and for the Nine Months Ended
September 30, 1997 and 1998 5
Notes to Consolidated Financial Statements 6
Consolidated Portfolio of Investments as of December 31, 1997 16
Consolidated Portfolio of Investments as of September 30, 1998 29
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 43
General 43
Results of Operations 43
Financial Condition, Liquidity and Capital Resources 51
Portfolio Turnover and Credit Quality 52
Year 2000 Compliance 53
Impact of Inflation 55
Risks 55
PART II. OTHER INFORMATION 56
ITEM 1. LEGAL PROCEEDINGS 56
ITEM 2. CHANGES IN SECURITIES 56
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 56
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 56
ITEM 5. OTHER INFORMATION 56
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 56
SIGNATURES 58
</TABLE>
2
<PAGE> 3
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------- -------------
(audited) (unaudited)
<S> <C> <C>
ASSETS
Investments, at fair value:
Loans $ 412,005,353 $ 534,541,002
Equity interests 55,210,669 47,656,538
Warrants 24,543,035 42,617,225
Other 2,440,503 454,427
------------- -------------
Total investments (cost of $483,417,884 and
$654,421,476, respectively) 494,199,560 625,269,192
Investment in unconsolidated subsidiary 924,959 3,540,140
Cash and cash equivalents 3,024,608 1,209,659
Interest receivable 4,483,640 5,995,072
Receivable from sale of investment 1,498,240 0
Debt financing costs (less accumulated
amortization of $1,776,700 and
$2,652,165, respectively) 3,989,904 4,999,515
Furniture and equipment (less accumulated
depreciation of $198,248 and $425,845,
respectively) 918,253 1,294,957
Other assets 197,235 410,669
------------- -------------
Total assets $ 509,236,399 $ 642,719,204
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Debentures payable to Small Business
Administration $ 90,000,000 $ 101,000,000
Revolving credit facilities 124,250,000 141,277,000
Interest payable 1,576,600 2,069,558
Accounts payable, accrued expenses
and other liabilities 5,435,621 8,375,045
Dividend payable 5,405,267 0
Accrued taxes payable 600,000 404,545
------------- -------------
Total liabilities 227,267,488 253,126,148
------------- -------------
Commitments and contingencies
Shareholders' equity:
Common stock, no par value 251,056,925 397,274,134
Notes receivable from employees (648,442) (499,812)
Undistributed net realized earnings 20,778,752 21,971,018
Unrealized appreciation (depreciation)
of investments 10,781,676 (29,152,284)
------------- -------------
Total shareholders' equity 281,968,911 389,593,056
------------- -------------
Total liabilities and
shareholders' equity $ 509,236,399 $ 642,719,204
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1997 1998 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating Income:
Interest on investments $ 10,977,893 $ 17,046,709 $ 28,629,681 $ 46,548,244
Loan processing and other fees 1,944,812 1,452,693 4,901,592 5,978,414
Other income 15,054 11,850 44,879 34,110
------------ ------------ ------------ ------------
Total Operating Income 12,937,759 18,511,252 33,576,152 52,560,768
------------ ------------ ------------ ------------
Operating Expenses:
Interest expense 2,431,058 4,593,370 6,391,182 12,011,366
Salaries and benefits 1,315,103 2,138,742 3,193,913 5,498,095
Other operating expenses 850,727 1,308,272 2,276,639 3,925,300
Amortization expense 204,225 328,572 637,179 872,624
------------ ------------ ------------ ------------
Total Operating Expenses 4,801,113 8,368,956 12,498,913 22,307,385
------------ ------------ ------------ ------------
Pre-tax income of unconsolidated
subsidiary (before taxes (benefit)
of $228,842, $(22,292) $444,197
and $1,243,454) 915,371 194,269 2,176,802 3,858,635
------------ ------------ ------------ ------------
Net Operating Income 9,052,017 10,336,565 23,254,041 34,112,018
------------ ------------ ------------ ------------
Realized gain (loss) on investments 2,238,614 202,946 9,682,823 (4,352,547)
Change in unrealized appreciation
(depreciation) of investments 1,079,036 (34,525,526) (2,115,387) (39,933,960)
Provision for income taxes (4,290,807) (22,292) 357,681 1,243,454
------------ ------------ ------------ ------------
Net increase in shareholders'
equity resulting from
operations $ 16,660,474 $(23,963,723) $ 30,463,796 $(11,417,943)
============ ============ ============ ============
Net increase in shareholders'
equity resulting from operations
per share:
Basic .54 (.64) 1.02 (.32)
Diluted .51 (.64) .98 (.30)
Weighted average shares outstanding:
Basic 30,968 37.229 29,922 35,644
Diluted 32,442 37,565 31,145 37,448
</TABLE>
4
<PAGE> 5
SIRROM CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1997 1998 1997 1998
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net increase (decrease) in shareholders'
equity resulting from operations $ 16,660,474 $(23,963,723) $ 30,463,796 $ (11,417,943)
Adjustments to reconcile net
increase (decrease) to net cash
provided by operating activities:
Net unrealized (appreciation)
depreciation of investments (1,079,036) 34,525,527 2,115,387 39,933,961
Realized (gain) loss on
investments (2,238,614) (202,946) (9,682,823) 4,352,547
Increase in equity of
unconsolidated subsidiary (686,529) (216,561) (1,732,593) (2,615,181)
Amortization of debenture costs 167,193 327,708 426,795 870,032
Increase in interest receivable (318,267) (454,676) (1,194,794) (1,511,432)
Increase in accounts payable
and accrued expenses 3,012,536 1,736,714 3,636,299 3,449,256
Amortization of organization costs 2,364 864 6,228 2,592
Depreciation of fixed assets 49,101 79,137 91,098 227,597
Increase (decrease) in other assets 105,459 89,632 (21,507) 83,923
Increase (decrease) in accrued
taxes payable (4,525,857) 4,545 (3,833,144) (195,455)
Increase in interest payable 357,817 265,141 315,557 492,958
------------- ------------ ------------- -------------
Net cash provided by operating
activities 11,506,641 12,191,362 20,590,299 33,672,855
------------- ------------ ------------- -------------
INVESTING ACTIVITIES:
Loan principal repayments 15,740,074 26,193,553 46,675,093 74,757,981
Proceeds from sale of equities,
warrants and other investments 8,644,929 8,301,008 21,513,426 21,491,658
Investments originated or acquired (79,013,119) (65,800,441) (214,611,318) (270,917,333)
Purchase of fixed assets (443,089) (95,112) (590,824) (604,301)
------------- ------------ ------------- -------------
Net cash used in investing
activities (55,071,205) (31,400,992) (147,013,623) (175,271,995)
------------- ------------ ------------- -------------
FINANCING ACTIVITIES:
Proceeds from debentures payable
to Small Business Administration 0 0 0 11,000,000
Proceeds from revolving credit
facilities 119,940,000 77,294,000 156,001,132 295,838,000
Repayment of revolving credit
facilities (68,477,000) (47,186,000) (125,908,345) (278,811,000)
(Increase) decrease in debenture
costs (172,024) 50,737 (480,293) (1,879,643)
Issuance of common stock 0 0 109,953,785 144,722,636
Employee shares repurchased 0 0 (102,614) 0
Repayment of employee notes 28,789 0 891,416 148,630
Stock options exercised 54,271 0 268,921 1,494,573
Payment of dividends (6,503,117) (10,051,883) (16,260,614) (32,729,007)
Distribution of capital gains 0 0 (716,760) 0
------------- ------------ ------------- -------------
Net cash provided by
financing activities 44,870,919 20,106,854 123,646,628 139,784,189
------------- ------------ ------------- -------------
Increase (decrease) in cash
and cash equivalents 1,306,355 897,224 (2,776,696) (1,814,951)
Cash and cash equivalents,
beginning of period 528,481 3,308,146 4,611,532 3,024,608
------------- ------------ ------------- -------------
Cash and cash equivalents,
end of period $ 1,834,836 $ 4,205,370 $ 1,834,836 $ 1,209,657
============= ============ ============= =============
Supplemental disclosures of cash
flow information:
Interest paid $ 1,585,195 $ 4,556,325 $ 5,495,818 $ 11,779,904
============= ============ ============= =============
Taxes paid $ 0 $ 0 $ 3,738,278 $ 927,000
============= ============ ============= =============
Loans transferred to (from) other
investments $ 0 $ (1,750,000) $ 486,777 $ 200,000
============= ============ ============= =============
Loans transferred to equity
interests $ 690,000 $ 283,000 $ 1,924,469 $ 7,176,712
============= ============ ============= =============
</TABLE>
5
<PAGE> 6
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 a viable exit strategy,
adequate enterprise value, experienced management teams, adequate liquidity
and/or 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 $200.0 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").
6
<PAGE> 7
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, 1997 and September 30, 1998 and the consolidated statements of operations
and cash flows for the quarter ended September 30, 1997 and 1998 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.
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. INTERIM FINANCIAL STATEMENTS
Certain notes and other information have been omitted from the interim
consolidated financial statements presented in this Quarterly Report on Form
10-Q. Therefore, these financial statements should be read in conjunction with
the consolidated financial statements and notes thereto contained in the
Company's 1997 Annual Report on Form 10-K and the Quarterly Report on Form 10-Q
for the period ended June 30, 1998.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company, SII and SFC. All intercompany accounts and transactions have been
eliminated in the consolidation.
Valuation of Investments
Portfolio investments are stated at fair value as determined by the
Board of Directors.
Under the Company's valuation policy, the fair values of loans to small
business concerns are based on the Board of Directors' evaluation of the
financial condition of the borrowers and/or the underlying collateral. The
values assigned are considered to be amounts which could be realized in the
normal course of business, 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 were typically
valued at 80% of market value at September 30, 1998 and 70% of market value at
December 31, 1997. The change in 1998 was a result of the
7
<PAGE> 8
reduction in the holding period for restricted stock by the Securities and
Exchange Commission from two years to one year. All other publicly traded stocks
were typically valued at 95% of market value at the balance sheet date at
September 30, 1998 and 90% of market value at December 31, 1997. The change in
1998 was the result of an analysis by the Company of sales of public company
stocks in 1996 and 1997 that evidenced an average valuation in excess of 95% of
market price.
At September 30, 1998 and December 31, 1997, the investment portfolio
included investments totaling $617,936,000 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
Board of Directors, are included as changes in the unrealized appreciation or
depreciation of investments in the statement of operations.
Description of Loans Terms
The loans to small business concerns included in investments bear
interest at rates ranging from 6.0% to 16.5%. Typically, interest is payable
in monthly or quarterly installments over five years with the entire principal
amount typically due at maturity. These loans are generally collateralized by
liens on the assets of the borrower and/or guarantees. 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 interest on 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.
Debt Financing Costs
SBA debenture costs are amortized over ten years, which represents the
term of the fourteen SBA debentures (See Note 5). Financing costs related to the
revolving credit facilities are amortized over the term of the credit
agreements.
8
<PAGE> 9
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, (i)
derive at least 90% of its gross income from dividends, interest and gains from
the sale or disposition of securities, (ii) meet investment diversification
requirements defined by the Code and (iii) distribute to shareholders at least
90% of its net income (other than long-term capital gains).
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 three years
from the date of purchase. During 1997, 32,080 shares were repurchased by the
Company for $102,615 following the termination of the employment of an employee.
These shares were reissued by the Company in the February 1997 offering. In
addition, during 1998 and 1997 notes receivable was reduced to $499,812 and
$648,442, respectively, 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 is 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.
In July 1998, the Company entered into a foreign currency swap with a
major commercial bank to hedge a portion of its loan portfolio denominated in
Canadian dollars. Under the terms of the agreement the Company will swap an
initial C$11,856,031.20 for U.S.$8,416,172.98, with the amounts declining by
C$1,185,600.00 and U.S.$841,617.30, respectively, every six months through July
2003. In addition, the agreement provides for the Company to make monthly
interest payments in Canadian dollars at 13.15%, while receiving monthly
interest payments in U.S. dollars at 11.43%.
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 10 for the Company's computation of this amount.
New Accounting Pronouncement
Effective January 1, 1998, the Company adopted two recently issued
Statement of Financial Accounting Standards (SFAS) as follows:
9
<PAGE> 10
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive, or all inclusive income. This Statement
has no effect on the net income of the Company.
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements.
Because this Statement addresses how supplemental financial information is
disclosed in annual and interim reports, the adoption will have no material
impact on the financial statements. SFAS No. 131 is effective for annual
financial statements for fiscal years beginning after December 15, 1997, and
interim comparative financial statements for fiscal years beginning after
December 15, 1998, with early adoption encouraged.
During the second quarter, the Financial Accounting Standards Board
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which will be effective for the Company's fiscal year 2000. This
statement establishes accounting and reporting standards requiring that every
derivative instrument, including certain derivative instruments imbedded in
other contracts, be recorded in the balance sheet as either an asset or
liability measured at its fair value. The Statement also requires that changes
in the derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. The Company is currently assessing the impact of
this new Statement on its consolidated financial position, liquidity, and
results of operations.
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.
4. INVESTMENTS
Investments consist primarily of loans made to and warrants obtained
from borrowers. Investments are recorded at fair value as determined by the
Board of Directors or by current market prices, if available, in accordance with
the Company's valuation policy (See Note 3). While the Company markets to
borrowers throughout the United States, approximately 53.7% of the investment
portfolio consists of loans and equity investments in companies that are
headquartered in the southeastern United States and Texas.
The aggregate cost basis of loans on non-accrual status, less realized
losses, totaled $27,717,592 and $76,517,936 at December 31, 1997 and September
30, 1998, respectively. The aggregate fair values of these loans as determined
by the Company's Board of Directors totaled $17,052,737 and $29,128,319 at
December 31, 1997 and September 30, 1998, respectively.
Included in the investment portfolio at December 31, 1997 are other
investments which consist of rights to royalty payments, a right to receive
payment from a potential arbitration settlement and certain tangible assets.
Included in the investment portfolio at September 30, 1998 are assets which
consist of rights to royalty payments and certain tangible and intangible
assets. The aggregate cost of other investments
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<PAGE> 11
at December 31, 1997 and September 30, 1998 was $4,240,503 and $3,694,427,
respectively, which represents the cost basis of the original loans plus
capitalized workout expenses. The Company's Board of Directors has estimated the
fair value of these investments to be $2,440,503 and $454,427 at December 31,
1997 and September 30, 1998, respectively.
5. DEBENTURES PAYABLE TO SMALL BUSINESS ADMINISTRATION
As of September 30, 1998, SII had fourteen debentures totaling $101.0
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
2008 11,000,000
------------
$101,000,000
============
</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
quarters ended September 30, 1997 and 1998 totaled $4,726,052 and $5,089,202,
respectively.
The SBA debentures and revolving credit facility issued by a syndicate
of banks led by First Union National Bank (the "First Union Credit Facility")
are secured on a pari passu basis by the assets of SII. The debentures are also
guaranteed by the Company.
6. REVOLVING CREDIT FACILITIES
Revolving credit facilities consist of the following at December 31,
1997 and September 30, 1998:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ ------------
<S> <C> <C>
First Union Credit Facility $ 61,500,000 $ 21,077,000
ING Credit Facility 62,750,000 120,200,000
------------ ------------
Total revolving credit facilities $124,250,000 $141,277,000
============ ============
</TABLE>
The availability under the First Union Credit Facility was reduced from
$125.0 million to $50.0 million in October 1998 at the Company's request. The
First Union Credit Facility is payable by SII to a syndicate of lenders. The
facility consists of a swingline totaling $15.0 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 approval of certain
mergers and acquisitions, changes in management, payment of dividends in excess
of those required to maintain RIC status, and use of net proceeds of any
non-core asset sales for other than repayment of the facility. The agreement
contains financial covenants that require SII to maintain a certain level of
tangible net worth and meet ratios related to interest coverage, leverage,
non-accrual/delinquent loans and loan losses. As of September 30, 1998, the
Company and SII were in compliance with these covenants. The First Union Credit
Facility and the SBA debt are secured by all assets of SII on a pari passu basis
and the First Union Credit Facility is guaranteed by the Company. The facility
expires on May 31, 2000.
11
<PAGE> 12
As of September 30, 1998, the Company had entered into an interest rate
swap agreement under the First Union Credit Facility. In the agreement, the
Company swapped the variable rate on $45.0 million in borrowings to a fixed rate
of 8.12%. This swap expires in May 2000. Interest expense on the First Union
Credit Facility, including the interest rate swaps and a quarterly fee of .25%
per annum on the total credit facility, for the quarters ended September 30,
1997 and September 30, 1998 was $382,166 and $663,900, respectively.
At December 31, 1996, SFC entered into a $100.0 million revolving
credit facility with a financial institution (the "ING Credit Facility"). This
credit facility was increased to $200.0 million in March 1998. SFC purchases
loans and the related warrants originated by the Company, and funds
substantially all such purchases with borrowings under the credit facility. The
ING Credit 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 September
30, 1998, investments with a cost and fair value of approximately $211,634,846
and $219,048,924, respectively, had been contributed or sold to SFC by the
Company and were pledged as collateral under the ING Credit Facility. The ING
Credit 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 September 30, 1998, the Company
and SFC were in compliance with those covenants. The Company may borrow under
the ING Credit Facility until December 31, 2001, and the facility expires on
January 5, 2007.
To hedge its exposure under the ING Credit Facility, in 1996 the
Company entered into several interest rate swap agreements which were modified
in March 1998. In May 1998, the Company further modified these previous swap
agreements ("First Swap Agreements") and entered into several new agreements
("Second Swap Agreements"). Under the terms of the First Swap Agreements, the
Company has exchanged variable commercial paper rates on $100.0 million notional
amount. During the period from July 1998 through December 1999, the Company has
swapped the variable commercial paper rate to a fixed rate of 6.0%. During the
period from January 2000 through January 2002, the Company has put in place a
collar that caps the variable commercial paper rate at 6.35% in exchange for a
floor at 6.00%. Under the terms of the Second Swap Agreements, the Company has
exchanged variable commercial paper rates on $20.0 million notional amount
beginning in September 1998, increasing by $20.0 million per month to a total
notional amount of $100.0 million in January 2002. During the period from
September 1998 through January 2002, the Company has swapped the variable
commercial paper rate to a fixed rate of 6.0%. The rates under both the First
Swap Agreements and Second Swap Agreements do not include the 2.25% fee charged
by the financial institution on amounts borrowed under the ING Credit Facility.
Interest expense on the $200.0 million credit facility including the
swaps and a monthly fee of .50% per annum on the unused portion of the facility
totaled $456,245 and $2,026,411 for the quarters ended September 30, 1997 and
September 30, 1998, respectively.
7. INCOME TAXES
For the quarters ended September 30, 1997 and 1998 the Company provided
for federal income tax at a 35.0% rate on undistributed realized long-term
capital gains, excise taxes at a 4.0% 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 13). For the quarters ended September 30, 1997 and September
30, 1998, the provision for income taxes totaled $(4,290,807) and $(22,292),
respectively.
8. STOCK OPTION PLANS
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
12
<PAGE> 13
of options for 1,000,000 and 5,707,098 shares, respectively, of common stock to
selected employees at an exercise price not less than the fair market value of
the common stock on the date of the grant. The terms of each award are
determined by the Board of Directors. The options vest over a five-year period
from the date of grant and expire ten years from the date of grant.
A summary of stock option activity related to the plans through
September 30, 1998 is as follows:
<TABLE>
<CAPTION>
PRICE RANGE
PER SHARE SHARES
---------------- ---------
<S> <C> <C>
Outstanding, December 31, 1995 933,932
Granted $ 9.33 - 17.785 1,535,162
Exercised $ 6.750 - 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
Granted $ 3.563 - 28.75 1,169,500
Exercised $ 6.75 - 17.375 109,500
Forfeited $ 12.75 - 28.75 419,000
----------
Outstanding, September 30, 1998 5,972,098
==========
</TABLE>
Directors Stock Option Plan. During 1995, the Company adopted the 1995
Stock Option Plan for Non-Employee Directors which permits the issuance of
options to purchase the Company's stock to non-employee directors. This plan was
amended in April 1998, subject to the approval of the Securities and Exchange
Commission which was received in June 1998. The plan reserves 246,000 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. In addition, upon reelection each director
will receive an option to purchase 4,000 shares beginning with the 1997
reelections. 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. In 1998, 52,000
shares were granted at an exercise price of $23.625. No shares were exercised
prior to 1997, 11,600 shares were exercised during 1997 and 20,000 shares have
been exercised in 1998. No shares have been forfeited to date.
9. SECONDARY OFFERING
In March 1998, the Company completed a public offering of 6,000,000
shares of common stock at a price of $25.50 per share. The net proceeds to the
Company of the offering, after underwriting commissions and expenses were
approximately $144,560,000.
10. NET INCREASE IN SHAREHOLDERS' EQUITY RESULTING FROM OPERATIONS PER SHARE
The Company computes net increase in shareholders' equity resulting
from operations per common share-basic by dividing the income amount by the
weighted average number of common shares outstanding during the quarter, which
was 30,968,030 and 37,229,196 for the quarters ended September 30, 1997 and
1998, respectively. For the calculation of net increase in shareholders' equity
resulting 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
13
<PAGE> 14
the effect of the stock options outstanding was 33,170,784 and 37,564,996 for
the quarters ended September 30, 1997 and 1998, respectively.
In December 1997, the Company declared a dividend derived from capital
gains totaling $5,405,267 payable in January 1998. On March 20, 1998, the
Company paid a dividend of $7,929,151 from net investment income to shareholders
of record as of February 27, 1998. On June 16, 1998, the Company paid a dividend
of $9,306,660 to shareholders of record as of May 29, 1998. On September 15,
1998, the Company paid a dividend of $10,051,883 to shareholders of record as of
August 28, 1998.
11. 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.
12. COMMITMENTS AND CONTINGENCIES
As of September 30, 1998, the Company had outstanding loan commitments
totaling $17.25 million, of which $12.25 million are contingent upon the
borrower meeting certain future financial conditions. 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.
As of September 30, 1998, the Company had contingent liabilities
totaling $8.4 million relating to guarantees of letters of credit, credit
facilities, performance bonds and operating costs of four portfolio companies.
These liabilities expire at various dates through March 2001.
The Company has made a commitment under a joint venture agreement with
a Canadian bank to fund up to $100.0 million (in Canadian dollars) in loans to
Canadian companies of which approximately $30.3 million has been funded.
13. INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
As discussed in Note 1, Harris Williams is accounted for by the equity
method of accounting. The balance sheets for Harris Williams as of December 31,
1997 and September 30, 1998 and statements of income for the quarters ended
September 30, 1997 and 1998 and for the nine month periods ended September 30,
1997 and 1998 are as follows:
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
---------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 282,913 $1,044,964
Accounts receivable 674,256 4,483,174
Other assets, net 1,645,857 1,104,523
---------- ----------
Total Assets $2,603,026 $6,632,661
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities $1,678,067 $3,092,520
Shareholders' equity 924,959 3,540,141
---------- ----------
Total liabilities and
shareholders' equity $2,603,026 $6,632,661
========== ==========
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------------- --------------------------
1997 1998 1997 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Fee income $ 1,831,457 $ 2,081,145 $ 5,312,229 $ 9,362,893
Expense reimbursements and other 171,137 174,328 412,238 650,158
----------- ----------- ----------- -----------
Total revenues 2,002,594 2,255,473 5,724,467 10,013,051
EXPENSES:
Salaries and benefits 657,705 1,431,344 2,449,534 4,175,123
Operating expenses 429,528 629,860 1,098,142 1,979,293
----------- ----------- ----------- -----------
Total expenses 1,087,233 2,061,204 3,547,676 6,154,416
----------- ----------- ----------- -----------
Operating income before taxes 915,361 194,269 2,176,791 3,858,635
Provision for income taxes 228,842 (22,292) 444,197 1,243,454
----------- ----------- ----------- -----------
Net income $ 686,519 $ 216,561 $ 1,732,594 $ 2,615,181
=========== =========== =========== ===========
</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.
Subsequent to the acquisition in August 1996, Harris Williams began
operating as a "C" corporation. Accordingly for the quarters ended September 30,
1997 and 1998, Harris Williams has provided federal income taxes of $228,842 and
$(22,292), respectively, which are included in provision for income taxes in the
accompanying consolidated statements of operations.
Harris Williams reimburses the Company for certain expenses which
totaled $127,899 and $112,197 for the quarters ended September 30, 1997 and
1998, respectively. 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 September 30, 1998
totaling $4,096,777, which is included in accounts payable in the Company's
consolidated balance sheet.
15
<PAGE> 16
SIRROM CAPITAL CORPORATION AND 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>
16
<PAGE> 17
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>
17
<PAGE> 18
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>
18
<PAGE> 19
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>
19
<PAGE> 20
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 Corporation.......................... 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>
20
<PAGE> 21
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>
21
<PAGE> 22
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>
22
<PAGE> 23
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>
23
<PAGE> 24
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>
24
<PAGE> 25
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>
25
<PAGE> 26
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>
26
<PAGE> 27
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 Linen, 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>
27
<PAGE> 28
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 4)
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>
28
<PAGE> 29
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
LOANS Maturity Cost Coupon Fair Value
----- -------- ---------- ------ ----------
<S> <C> <C> <C> <C>
2021. Interactive, LLC 4/6/03 $2,500,000 13.50% $2,500,000
ACT Teleconferencing, Inc. 3/31/03 1,242,294 13.50 1,279,062
Action Sports Group, LLC 8/19/02 1,750,000 13.00 1,750,000
Adavest Holdings, LLC 5/15/03 3,500,000 13.75 3,500,000
Advanced Wireless Technologies 8/24/03 1,250,000 13.25 1,250,000
Aero Products Corporation 12/19/99 1,250,000 14.00 600,000
Aero Products Corporation 6/9/02 2,500,000 13.00 2,500,000
Affinity Fund, Inc. 10/28/98 1,485,000 12.50 1,500,000
Affinity Fund, Inc. 10/28/98 495,000 12.50 497,814
Affinity Fund, Inc. 3/10/00 1,000,000 14.00 1,000,000
Air Age Services of San Antonio, Inc. 4/30/03 3,500,000 13.50 3,500,000
Alignis, Inc. 2/28/02 2,500,000 13.00 2,500,000
Alliance Media Group, Inc. 9/29/03 4,000,000 13.50 4,000,000
American Network Exchange, Inc. 11/30/98 990,000 13.00 999,853
American Network Exchange, Inc. 1/18/99 990,000 13.00 999,519
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
Amscot Holdings, Inc. demand 700,000 14.00 700,000
Anton Airfoods, Inc. 5/21/02 5,000,000 13.50 5,000,000
Ashe Industries, Inc. 5/18/99 550,000 9.00 200,000
Associated Response Services, Inc. 6/20/99 1,386,000 12.50 1,398,116
Associated Response Services, Inc. 8/1/99 750,000 13.50 750,000
Associated Response Services, Inc. 1/6/00 300,000 12.50 300,000
Associated Response Services, Inc. 2/15/00 335,000 12.50 335,000
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
Auburn International, Inc. 12/31/02 2,850,000 13.50 2,875,000
Austin Innovations, Inc. 7/1/02 1,950,000 13.75 1,961,206
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 2,183,500
B & N Company, Inc. 3/28/01 990,000 13.00 993,841
BroadNet, Inc. 6/9/02 2,500,000 14.00 2,500,000
BUCA, Inc. 10/31/02 1,565,003 13.50 1,637,503
BUCA, Inc. 5/30/03 1,673,750 13.50 1,700,940
Bug.Z., Inc. 9/23/02 2,500,000 15.00 2,500,000
Bug.Z., Inc. 9/23/02 600,000 15.00 600,000
Caldwell/VSR Inc. 2/28/01 1,500,000 12.00 1,500,000
Caldwell/VSR Inc. 5/31/02 99,000 8.00 99,000
Caldwell/VSR Inc. 5/31/03 1,050,000 8.00 925,000
Caldwell/VSR Inc. 6/23/03 500,000 13.50 500,000
Campbell Software, Inc. 2/11/03 2,000,000 13.50 2,000,000
Capital Sigma Investments, Inc. 4/30/03 2,250,000 13.50 2,250,000
Cardiac Control Systems, Inc. 3/31/00 1,500,000 13.50 1,500,000
Caribou Coffee Company, Inc. 12/31/02 4,153,528 12.50 4,266,392
Cartech Holdings, Inc. 4/29/01 1,500,000 13.00 1,500,000
CarStar A&B, Inc. 6/29/03 2,500,000 13.00 2,500,000
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
CF Data Corp. 3/16/00 1,732,500 13.75 1,745,056
Check Into Cash, Inc. 11/7/01 3,039,000 14.00 3,208,026
Check Into Cash, Inc. 11/7/01 3,250,000 14.00 3,250,000
</TABLE>
29
<PAGE> 30
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
LOANS Maturity Cost Coupon Fair Value
----- -------- ---------- ------ ----------
<S> <C> <C> <C> <C>
Chinese Media Group, LLC 3/27/03 $2,100,000 13.50% $2,100,000
Clearidge, Inc. 3/30/03 2,000,000 14.00 2,000,000
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
Cold Jet, Inc. 6/30/03 1,000,000 14.00 1,000,000
Colonial Investments, Inc. 10/16/00 800,000 13.75 800,000
Columbus Medical Holdings, LLC 1/31/02 4,000,000 13.75 4,000,000
Co-Mack Technologies, Inc. 6/26/03 1,600,000 14.00 1,600,000
Compression, Inc. 12/17/02 3,700,000 13.50 3,700,000
Compression, Inc. 4/30/03 2,073,000 13.50 2,073,000
Consumat Systems, Inc. 11/15/98 250,000 14.00 250,000
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
Continental Diamond Cutting Co. 10/28/99 375,000 13.00 375,000
Continental Diamond Cutting Co. 11/16/99 200,000 13.00 200,000
Corporate Link, Inc. 6/13/00 186,740 14.00 186,740
Corporate Link, Inc. 12/13/01 600,000 14.00 600,000
Cort Investment Group, Inc. (d/b/a Contract Network) 8/27/02 3,320,000 13.50 3,362,000
Counsel Press LLC 6/3/03 2,556,300 13.50 2,585,880
CPI Qualified Plan Consultants, Inc. 8/24/03 2,500,000 13.50 2,500,000
Creighton Shirtmakers, Inc. and affiliates demand 1,969,000 14.00 1,969,000
Creighton Shirtmakers, Inc. and affiliates demand 100,000 14.00 100,000
CSM, Inc. 12/31/01 1,400,000 14.00 1,400,000
Cybo Robotics, Inc. 9/29/02 1,050,000 13.25 1,050,000
Cybo Robotics, Inc. 9/29/02 700,000 13.25 700,000
Cybo Robotics, Inc. 9/29/02 1,000,000 13.25 1,000,000
Dalts, Inc. 4/28/01 2,000,000 13.50 1,500,000
Data National Corporation 12/10/02 1,050,000 13.75 1,125,000
Data Net Corporation 8/28/03 1,250,000 13.00 1,250,000
Distinction Software, Inc. 6/9/03 1,000,000 14.00 1,000,000
Dyad Corporation 12/31/02 2,900,000 14.00 3,000,000
DynaGen, Inc. 6/17/02 1,733,300 13.50 1,804,420
Dyntec, Inc. 7/7/02 2,500,000 14.00 2,500,000
Encor Technologies, Inc. 3/30/02 1,444,000 13.13 1,444,000
Entek Scientific Corporation 6/28/01 2,500,000 13.00 2,500,000
Entek Scientific Corporation 5/22/02 1,090,000 13.00 1,133,392
ERDA, Inc. 5/1/03 2,500,000 13.50 2,500,000
Exhibit Emporium Acquisition Company, LLC 9/1/03 3,600,000 14.00 3,600,000
Express Shipping Centers, Inc. 11/15/98 150,000 15.00 150,000
Express Shipping Centers, Inc. 9/22/00 1,697,598 13.25 983,015
Express Shipping Centers, Inc. 5/1/02 250,000 13.25 250,000
Faxnet Corporation 6/17/02 1,900,000 13.00 1,926,672
FDL, Inc. 1/30/02 1,750,000 13.50 1,837,507
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. 12/17/01 198,793 8.00 173,793
Gateway Communications, Inc. 6/16/03 1,732,720 13.00 1,733,872
GC Management, Inc. 7/29/01 2,500,000 13.50 1,250,000
Generation 2 Worldwide LLC 10/31/00 2,000,000 14.00 2,000,000
GerAssist, Inc. 6/26/03 3,000,000 13.50 3,000,000
Gloves Inc. 5/1/02 1,500,000 13.00 1,500,000
</TABLE>
30
<PAGE> 31
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
LOANS Maturity Cost Coupon Fair Value
- ----- -------- ---------- ------ ----------
<S> <C> <C> <C> <C>
Good Food Fast Companies, The 12/10/01 $2,500,000 13.50% $1,850,000
Good Food Fast Companies, The demand 553,000 13.50 553,000
Graphic Systems Group, Inc. 6/24/03 1,000,000 13.50 1,000,000
Green Tree Technologies, Inc 9/17/03 3,000,000 13.00 3,000,000
Gulfstream International Airlines Inc. 7/29/99 1,490,000 13.00 1,500,000
Gulfstream International Airlines Inc. 12/1/99 2,200,000 14.00 2,200,000
Gulfstream International Airlines Inc. 4/30/00 2,500,000 13.80 2,500,000
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 0
Hunt Assisted Living, LLC 10/17/02 2,999,900 12.00 2,999,922
Hydrofuser Industries, Inc. and affiliates 7/30/02 825,031 13.00 378,309
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 50,000
IJL Holdings, Inc. 9/12/02 350,000 13.50 50,000
ILD Communications 5/10/01 1,500,000 13.50 1,500,000
Imtek Office Solutions, Inc. 5/28/03 6,000,000 14.00 6,000,000
In-Store Services, Inc. 1/1/99 350,000 14.00 350,000
In-Store Services, Inc. 4/19/00 1,188,000 14.00 1,196,400
J. Fegely & Son Hardware Co., Inc. 6/30/03 1,000,000 13.00 1,000,000
Jim Bridges Acquisition Company 3/31/03 1,500,000 14.00 1,500,000
Johnston County Cable, L.P. 8/31/00 1,990,000 14.00 1,996,179
JRB Enterprises, Inc. (d/b/a/ Silk, Silk, Silk) 9/8/03 1,000,000 14.00 1,000,000
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 1,492,500
Leisure Clubs International, Inc. 3/27/02 125,000 14.00 125,000
Lightfoot Software Company 10/1/03 1,800,000 13.50 1,800,000
M & M Industries, Inc. 2/26/02 2,250,000 14.00 2,250,000
M.A.P.A., Inc. 9/3/03 3,000,000 13.75 3,000,000
Marmot Mountain, Ltd. 3/27/03 2,750,000 13.00 2,779,169
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 1,798,800
McAuley's Incorporated 7/31/01 3,750,000 13.00 3,750,000
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
MegaMarketing Corporation 3/5/03 2,800,000 14.00 2,823,331
Mesa International, Inc. demand 5,289,125 14.00 189,125
Mesa International, Inc. 8/31/98 180,000 14.00 180,000
Mesa International, Inc. 8/31/98 29,026 14.00 29,026
Mesa International, Inc. demand 250,000 14.00 0
MetroLease, Inc. 7/29/02 2,495,000 13.50 2,496,245
MetroLease, Inc. 7/29/02 1,250,000 13.50 1,250,000
MLG-LoBue LLC 8/27/03 5,400,000 14.00 5,400,000
MMS Incentives, LLC 4/15/03 2,250,000 13.00 2,250,000
Mobility Electronics, Inc. 6/23/02 1,600,000 13.50 1,600,000
Mobility Electronics, Inc. 6/23/02 1,750,000 13.50 1,750,000
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
Multimedia 2000, Inc. 3/29/01 2,857,455 14.00 1,357,454
Multimedia 2000, Inc. demand 1,769,586 10.50 1,769,586
Mytech Corporation 9/25/02 1,200,000 13.50 1,200,000
NASC, Inc. 12/13/98 500,000 13.50 500,000
NASC, Inc. 6/26/01 1,500,000 13.50 1,500,000
</TABLE>
31
<PAGE> 32
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
LOANS Maturity Cost Coupon Fair Value
- ----- -------- ---------- ------ ----------
<S> <C> <C> <C> <C>
N&R Printing, Inc. 6/1/03 $2,000,000 14.00% $2,000,000
Nationwide Engine Supply, Inc. 1/12/99 2,475,000 12.00 196,684
Nationwide Engine Supply, Inc. 9/26/01 315,643 13.50 315,643
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 14.00 792,097
Nunn Acquisition Corporation 5/12/03 4,000,000 14.00 4,000,000
NWES, Inc. and Dean McAdoo 8/31/00 825,000 11.25 825,000
Omni Home Medical, Inc. 3/30/02 2,000,000 14.00 2,000,000
Omni Home Medical, Inc. 9/10/99 440,000 14.00 440,000
Omni Products of Palm Beach, Inc. 2/19/03 2,900,000 14.00 2,913,336
One Call Comprehensive Care, Inc. 12/1/98 3,005,369 14.00 1,530,369
One Coast Network Corporation 11/17/02 5,000,000 14.00 5,000,000
Online Resources & Communications Corp. 3/30/03 6,000,000 12.75 6,000,000
Online Resources & Communications Corp. 3/30/03 2,000,000 12.75 2,000,000
OpenConnect Systems Incorporated 7/30/03 5,000,000 13.00 5,000,000
Orchid Manufacturing Group, Inc. 9/14/00 2,960,000 13.00 2,982,678
Orchid Manufacturing Group, Inc. 12/28/00 1,000,000 13.50 1,000,000
Pacific Linen, Inc. 12/3/02 2,951,976 13.50 3,043,316
Pacific Plus, Inc. 5/1/03 2,325,000 13.50 2,339,585
Palco Telecom Service, Inc. 11/22/99 650,000 12.00 650,000
Palouse Holdings, LLC 9/1/03 3,150,000 13.25 3,150,000
Paradigm Valve Services, Inc. 11/12/01 1,600,000 13.50 1,600,000
PaySys International, Inc. 3/31/01 3,725,158 13.50 3,784,711
Pharmed Group Holdings, Inc. 6/25/03 4,500,000 13.00 4,500,000
Physicians Surgical Care, Inc. 5/29/03 1,857,000 13.50 1,868,915
Piedmont Hardwood Flooring, LLC 6/8/03 2,500,000 13.00 2,500,000
Pik:Nik Media, Inc. 6/23/00 1,000,000 12.00 1,000,000
Plymouth, Inc. 9/28/00 750,000 13.00 750,000
PRA International, Inc. 8/10/00 1,980,000 13.50 1,992,654
Precision Panel Products, Inc. 1/11/02 2,022,781 12.75 0
Precision Panel Products, Inc. 1/11/02 3,869,683 12.75 0
Precision Panel Products, Inc. demand 92,524 14.00 0
Precision Panel Products, Inc. demand 150,000 12.75 0
Precision Panel Products, Inc. demand 500,000 12.75 0
Precision Panel Products, Inc. demand 356,000 12.75 0
Precision Panel Products, Inc. demand 125,000 12.75 0
Precision Panel Products, Inc. demand 227,000 12.75 0
Precision Panel Products, Inc. demand 300,000 12.75 0
Precision Panel Products, Inc. demand 1,183,665 12.75 0
Precision Panel Products, Inc. demand 150,000 12.75 0
Precision Panel Products, Inc. demand 0 12.75 0
Precision Panel Products, Inc. demand 0 12.75 0
Price Systems, LLC 6/1/03 1,000,000 13.50 1,000,000
Pritchard Paint & Glass Co. 2/10/01 200,000 14.00 200,000
Pritchard Paint & Glass Co. 2/14/01 767,431 14.00 767,431
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
Pro-Style Acquisition Corporation 2/26/03 6,000,000 13.59 6,000,000
Protect America, Inc. 8/27/03 1,000,000 13.50 1,000,000
QSS Acquisition, Inc. 6/25/03 3,750,000 14.00 3,750,000
R & R International, Inc. 6/30/02 2,000,000 13.25 2,000,000
Ready Personnel, Inc. 12/3/02 5,000,000 13.25 5,000,000
Recompute Corporation 2/21/02 2,300,000 13.50 2,400,000
Recycling Technologies Inc. 8/11/99 1,750,000 11.00 1,400,000
</TABLE>
32
<PAGE> 33
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
LOANS Maturity Cost Coupon Fair Value
- ----- -------- ---------- ------ ----------
<S> <C> <C> <C> <C>
Reef Chemical Company, Inc. 9/23/02 $2,700,000 13.75% $2,765,000
Relax the Back Corporation 10/1/02 5,000,000 13.00 5,000,000
Rocky Mountain Radio Company LLC 11/10/01 2,500,000 13.50 2,500,000
Rocky Mountain Radio Company LLC 11/10/01 500,000 13.50 500,000
Rynel Ltd., Inc. 10/1/01 1,250,000 14.00 1,100,000
Rynel Ltd., Inc. 10/1/01 307,500 14.00 307,500
Saraventures Fixtures Inc. 5/23/02 1,645,926 14.00 0
Saraventures Fixtures Inc. demand 108,825 14.00 0
SBX Holding Company 3/26/03 4,100,000 13.13 4,100,000
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
Sheet Metal Specialties, Inc. 1/24/02 38,250 12.00 38,250
Sheet Metal Specialties, Inc. 11/10/98 75,000 14.00 75,000
SkillSearch Corporation 3/31/99 496,000 13.00 500,000
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 1,742,136
Southern Therapy, Inc. 4/24/02 1,000,000 13.50 1,000,000
Southern Therapy, Inc. 4/24/02 500,000 13.50 500,000
Southern Therapy, Inc. 4/24/02 500,000 13.50 500,000
Southern Therapy, Inc. 4/24/02 1,000,000 13.50 1,000,000
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 2,150,000
Sub 1 Corporation (d/b/a Risk Management) 10/8/02 750,000 14.00 750,000
Summit Publishing Group, Ltd. 1/16/98 250,000 14.00 0
Summit Publishing Group, Ltd. 3/17/99 1,485,000 12.00 0
Summit Publishing Group, Ltd. 7/26/01 625,000 14.00 0
SWS6, Inc. 12/31/98 1,950,000 12.70 1,000,000
SWS6, Inc. demand 837,349 14.00 837,349
Synaxis Group, Inc. 3/31/03 2,500,000 13.00 2,500,000
TAC Systems, Inc. 1/1/00 850,000 14.00 850,000
TAC Systems, Inc. 3/27/02 1,012,000 14.00 1,012,000
Talent Metal Products, Inc. 5/19/03 2,300,000 14.00 0
TCOM Systems, Inc. 3/30/04 346,165 0.00 96,165
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
Telemate Software, Inc. 3/27/03 1,000,000 14.00 1,000,000
Telequestion, Inc. 6/30/03 4,500,000 13.75 4,500,000
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 1,850,728
The Moorings, LLC 11/17/02 2,500,000 13.00 2,500,000
Therapeutic Services of America, Inc. 1/4/03 2,750,000 13.25 2,750,000
Thomas Holding Company (d/b/a Sports & Social Clubs) 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
Toccoa Associates, LLC 2/18/03 2,110,000 13.50 1,785,000
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
Tulsa Industries, Inc. 2/26/03 6,000,000 13.00 6,000,000
UltraFab, Inc. 6/27/01 1,500,000 14.00 1,500,000
Umbrellas Unlimited, LLC 8/21/02 264,691 14.00 114,691
Unicoil, Inc. 9/28/02 1,300,000 13.50 1,300,000
Unicoil, Inc. 9/28/02 700,000 13.50 700,000
Unicoil, Inc. 6/1/99 200,000 13.50 200,000
Unique Electronics, Inc. 11/30/99 600,000 10.67 600,000
Unique Electronics, Inc. 10/10/02 300,000 13.00 300,000
</TABLE>
33
<PAGE> 34
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
LOANS Maturity Cost Coupon Fair Value
----- -------- ---------- ------ ----------
<S> <C> <C> <C> <C>
UOL Publishing, Inc. 10/31/99 $ 32,352 6.00% $ 32,352
U.S. Ringbinder, L.P. 7/1/03 4,415,000 13.00 4,419,251
Valdawn Watch Company 12/31/98 100,000 14.00 0
Valdawn Watch Company 2/14/00 450,000 14.00 450,000
Valdawn Watch Company 8/21/02 2,160,000 14.00 0
Valdawn Watch Company 8/21/02 1,000,000 14.00 50,000
VDW Farms, Ltd. 11/25/02 1,500,000 14.00 1,500,000
Vision 2000, Inc. 4/25/02 2,398,066 13.50 73,066
Vision Software, Inc. 2/26/03 5,000,000 12.75 5,000,000
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 13.50 425,000
Wearever Health Products, LLC 12/11/02 650,000 14.00 75,000
Westcorp Software Systems, Inc. 3/6/03 2,000,000 14.00 2,000,000
Wolfgang Puck Food Company, Inc. 5/20/02 5,000,000 12.50 5,000,000
Zahren Alternative Power Corp. 11/27/99 1,980,000 13.00 1,996,616
Zahren Alternative Power Corp. 1/30/00 495,000 13.00 497,818
------------ ------------
Subtotals 503,766,752 460,979,253
------------ ------------
TANDEM CAPITAL LOANS TO PUBLICLY
TRADED COMPANIES*
Altris Software, Inc.
(Gross principal of $3,000,000) 6/27/02 2,415,000 11.50 2,541,750
Aqua Care Systems, Inc.
(Gross principal of $1,500,000) 6/30/03 1,447,000 12.00 1,449,649
Berger Holdings, Inc.
(Gross principal of $2,000,000) 1/2/03 1,796,000 12.25 1,830,000
Bikers Dream, Inc.
(Gross principal of $4,500,000) 6/22/01 4,390,625 12.00 4,474,483
Compass Plastics & Technologies, Inc.
(Gross principal of $7,000,000) 2/27/03 6,615,205 12.25 5,166,509
Cover-All Technologies, Inc.(Convertible at $1.25/sh) 3/31/02 3,000,000 12.50 3,300,000
Digital Transmission Systems, Inc.(Convertible
at $10.25/sh) 9/25/02 4,000,000 11.50 2,000,000
Diplomat Direct Marketing Corporation
(Gross principal of $5,000,000) 6/29/03 4,947,925 12.00 4,951,397
Environmental Tectonics Corporation
(Gross principal of $4,000,000) 3/27/04 3,500,770 12.00 3,608,943
Ergobilt, Inc.
(Gross principal of $4,000,000) 1/15/03 3,818,400 11.50 3,434,055
Great Train Store Company
(Gross principal of $3,000,000) 6/30/03 2,840,618 12.00 2,843,414
Smartchoice Automotive Group(Convertible at $6.00/sh) 6/30/00 3,500,000 12.00 3,100,000
Smartchoice Automotive Group(Convertible at $3.67/sh) 5/13/02 4,000,000 12.00 3,750,000
Tava Technologies, Inc.
(Gross principal of $4,000,000) 1/31/01 3,685,350 11.50 3,734,294
Teltronics, Inc.
(Gross principal of $1,750,000) 2/13/02 1,571,500 12.00 1,601,252
Teltronics, Inc.
(Gross principal of $1,000,000) 2/25/99 875,900 12.00 958,636
Teltronics, Inc. 10/1/00 246,547 12.00 246,547
Universal Automotive Industries, Inc. 7/11/02 4,500,000 12.25 4,500,000
----------- -----------
Subtotals 57,150,840 53,490,929
----------- -----------
- ----------
* For Tandem Capital loans, if the loan is convertible into Common Stock, the
conversion price is shown in parentheses. If the gross principal amount owed
under the loan is higher than its cost basis, the gross principal is shown in
parentheses.
CANADIAN LOANS
Business Press Group Inc. 6/4/03 300,000 13.00 300,000
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
DEC Interactive Inc.* 3/8/03 75,000 11.00 75,000
DEC Interactive Inc.* 5/12/03 75,000 11.00 75,000
DEC Interactive Inc.* 6/6/03 69,784 11.00 69,784
DEC Interactive Inc.* 9/5/03 202,525 11.00 202,525
</TABLE>
34
<PAGE> 35
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
LOANS Maturity Cost Coupon Fair Value
- ----- -------- ----------- ------ ----------
<S> <C> <C> <C> <C>
EHN Inc.* 10/3/03 $ 144,823 16.50% $ 144,823
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
Executrain (3199673 Canada Inc.)* 1/31/99 21,511 13.00 21,511
Executrain (3199673 Canada Inc.)* 1/31/99 13,027 13.00 13,027
Executrain (3199673 Canada Inc.)* 8/31/99 125,572 13.00 125,572
FEI Refrigerated Services LLC 1/14/03 2,000,000 12.50 2,000,000
G/Comm Marketing Inc.* 9/30/02 360,787 12.50 360,787
Gavel & Gown Software Inc.* 6/30/03 326,820 14.00 326,820
Glen Oak Inc. 12/17/02 1,268,678 12.50 1,268,678
Helix Hearing Care of America Corp. 8/9/03 1,200,000 13.00 1,200,000
Helix Hearing Care of America Corp. 8/9/03 800,000 13.00 800,000
Hunt Industries 2/1/03 1,000,000 15.00 900,000
Just Vacations, Inc.* 5/11/03 837,404 14.00 837,404
Kos Corp. Industries 8/6/03 2,000,000 14.00 2,000,000
Race Face Components, Inc.* 11/1/02 433,463 12.00 433,463
SFG Technologies Inc.* 7/30/02 738,204 5.00 613,204
SFG Technologies Inc.* 7/30/02 60,000 5.00 60,000
Sirvys Systems (3404447 Canada Inc.)* 12/30/02 704,037 14.00 354,037
Solitudes Holdings, Inc. 8/21/03 1,000,000 17.00 1,000,000
Street Level (1216069 Ontario Ltd.)* 12/29/02 348,651 13.00 348,651
Systech Group, Inc.* 3/31/02 874,636 13.00 874,636
Trademart Group, Inc.* 7/18/03 867,150 13.00 867,150
Traf-O-Data Investment Corporation* 7/14/98 180,000 14.00 180,000
Traf-O-Data Investment Corporation* 10/5/98 164,688 14.00 164,688
Troy Holdings International, Inc. 10/6/03 1,400,000 12.50 1,400,000
West Sun International, Inc.* 1/14/03 699,252 13.00 699,252
------------ ------------
Subtotals 20,645,820 20,070,820
------------ ------------
Total Loans $581,563,412 $534,541,002
============ ============
</TABLE>
- ----------
* Loan cost and fair value are stated in U.S. dollars. Loan principal is
denominated in Canadian dollars.
Note: Total gross principal owed under all loans outstanding at September 30,
1998 was $594,098,776.
35
<PAGE> 36
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Cost or
Number of Contributed
EQUITY INTERESTS Shares Value Fair Value
---------------- ------ ---------- -----------
<S> <C> <C> <C>
Publicly Traded Investments (a)
American Network Exchange , Inc. Common Stock 76,222 $ 21,879 $ 0
American Network Exchange , Inc. Common Stock 63,429 0 0
Cardiac Control Systems, Inc. Common Stock 50,000 250,000 16,625
Compass Plastics & Technologies Inc. Common Stock 447,144 2,000 327,440
Consumat Systems, Inc. Common Stock 100,000 600,100 23,750
Family Golf Centers, Inc. Common Stock 18,238 0 257,156
Master Graphics, Inc. Common Stock 66,664 0 266,656
Medical Resources Inc. Common Stock 55,549 1,000,000 140,724
Merge Technologies, Inc. Common Stock 108,942 214 144,676
National Vision Associates, Ltd. Common Stock 208,698 1,771,149 875,662
Network Event Theaters, Inc. Common Stock 412,397 2,114,772 1,072,232
NOVA Corporation Common Stock 42,793 1 1,062,687
Premiere Technologies, Inc. Common Stock 25,000 0 108,112
Recompute Corporation Common Stock 125,000 250,000 202,083
Towne Services, Inc. Common Stock 158,595 0 724,250
UOL Publishing, Inc. Common Stock 32,728 8,494 159,344
Video Update Inc. Common Stock 85,000 1,561 85,796
Vista Information Solutions, Inc. Common Stock 96,660 0 714,529
Non-traded Equity Investments in Public Companies
Altris Software, Inc. Preferred Stock - convertible at $6.00 3,000 3,000,000 600,000
Berger Holdings, Ltd. Preferred Stock - Series A; convertible at $4.25 25,000 2,500,000 2,400,000
Clinicor, Inc. Preferred Stock - Series B; convertible at $3.00 50,000 5,000,000 4,625,000
Environmental Tectonics Corporation Preferred Stock - Series A; convertible at $7.50 25,000 2,500,000 2,525,000
Smart Choice Automotive Group, Inc. Preferred Stock - Series D; convertible at $6.00 100 1,000,000 925,000
Teltronic, Inc. Preferred Stock - Series B; convertible at $2.75 25,000 2,500,000 2,500,000
Vista Information Solutions, Inc. Preferred Stock - Series E; convertible at $4.00 2,500 2,500,000 3,250,000
Vista Information Solutions, Inc. Preferred Stock - Series F; convertible at $6.37 2,500 2,500,000 2,650,000
Equity Investments in Private Companies
Affinity Fund, Inc. Common Stock 1,738 15,000 15,000
Associated Response Services, Inc. Common Stock 96 500,000 500,000
Bravo Corporation Common Stock 69,391 106,950 0
Clearidge, Inc. Preferred Stock - Series A 1,189,480 2,700,000 2,700,000
Clearidge, Inc. Common Stock 400,000 1,000,000 1,000,000
Corporate Flight Management, Inc. Common Stock 66,315 663 663
CSM, Inc. Class A Common Stock 99,673 100,000 100,000
Dentalcare Partners, Inc. Common Stock 1,513,683 819,639 0
Front Royal, Inc. Common Stock 110,000 275,000 550,000
Fypro, Inc. Preferred Stock - Series A 4,659,480 4,659,480 250,000
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 0
HPC America, Inc. Common Stock 5 0 0
Kentucky Kingdom, Inc. Common Stock 24,142 238,316 475,000
Micro Optics Design Corporation Common Stock 166,667 33 33
Micro Optics Design Corporation Preferred Stock - Series IV 166,667 299,967 299,967
Multimedia 2000, Inc. Common Stock 900 8,444 0
Multimedia 2000, Inc. Preferred Stock - Series A 2,609,988 2,274,556 0
Palco Telecom Service, Inc. Common Stock 157,895 1,579 100,000
Paysys International, Inc. Common Stock 150,000 300 425,000
Potomac Group, Inc. Common Stock 1,279,115 1,289,779 3,820,000
Potomac Group, Inc. Common Stock 958,566 2,591 2,880,000
</TABLE>
36
<PAGE> 37
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Cost or
Number of Contributed
EQUITY INTERESTS Shares Value Fair Value
---------------- ------ ---------- -----------
<S> <C> <C> <C>
PRA International, Inc. Common Stock 292,696 $ 211,166 $ 2,046,166
Relevant Knowledge, Inc. Preferred Stock - Series B 312,500 500,000 500,000
Relevant Knowledge, Inc. Common Stock 75,000 120,000 120,000
Relevant Knowledge, Inc. Common Stock 114,458 286,145 286,145
Skillsearch Corporation Common Stock 13,350 1,060,875 431,840
SWS6, Inc. Preferred Stock 2,449,321 2,449,321 0
Teltrust , Inc. Common Stock 175,677 0 1,350,000
Unique Electronics, Inc. Preferred Stock - Series A 1,000,000 1,000,000 675,000
Valdawn Watch Co. Preferred Stock 240 240,000 0
Vision 2000, Inc. Common Stock 1,000,000 1,000,000 0
Vision 2000, Inc. Preferred Stock - Series A 2,720,141 2,720,141 0
Vision 2000, Inc. Preferred Stock - Series B 520,000 527,136 0
Zahren Alternative Power Corporation Common Stock 700 210,000 375,000
Zahren Alternative Power Corporation Preferred Stock 200 200,000 100,000
----------- -----------
TOTAL EQUITY INTERESTS $56,337,253 $47,656,538
=========== ===========
</TABLE>
37
<PAGE> 38
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Cost or
Number of Percentage Contributed
STOCK WARRANTS Shares Ownership Value Fair Value
-------------- --------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
PUBLICLY TRADED COMPANIES
ACT Teleconferencing, Inc. (exercise price $7/sh.) 183,853 3.33% $367,706 $ 0
Cardiac Control Systems, Inc. 250,000 4.35 0 83,125
Cardiac Control Systems, Inc. (exercise price $5/sh.) 50,000 2.15 0 0
Consumat Systems, Inc. 250,000 27.80 0 59,375
Consumat Systems, Inc. (exercise price $2.25/sh.) 66,379 5.00 0 0
DynaGen, Inc. 26,670 0.01 266,700 4,334
Encore Medical Corporation (exercise price $7/sh.) 69,841 0.01 0 0
HydroFuser Industries, Inc. 662,245 5.00 469,684 16,556
Recompute Corporation 611,144 8.00 300,000 988,016
Video Update Inc. (exercise price $10.80/sh.) 20,000 0.20 0 0
TANDEM CAPITAL WARRANTS AND OPTIONS
IN PUBLICLY TRADED COMPANIES
Altris Software, Inc. (exercise price $6/sh) 300,000 3.00 585,000 0
Aqua Care Systems, Inc. (exercise price $2.60/sh.) 115,500 4.14 53,000 25,000
Berger Holdings, Ltd. (exercise price $4.25/sh) 240,000 4.60 204,000 204,000
Bikers Dream, Inc. (exercise price $5/sh) 87,500 1.55 109,375 150,000
Bikers Dream, Inc. (exercise price $4.07/sh) 370,000 6.77 0 0
Compass Plastics & Technologies, Inc. (exercise price $6.75/sh) 420,000 7.92 384,795 0
Diplomat Direct Marketing Corporation(exercise price $2.35) 208,300 1.85 52,075 100,000
Environmental Tectonics Corp. (exercise price $1/sh) 166,410 5.00 499,230 575,000
Ergobilt, Inc. (exercise price $10/sh) 100,000 1.67 181,600 0
Great Train Store Company (exercise price $3.75/sh) 175,000 3.50 159,382 75,000
Smartchoice Automotive Group, Inc. (exercise price 300,000 2.50 0 100,000
Tava Technologies, Inc. (exercise price $4.91/sh) 155,000 1.00 314,650 250,000
Teltronics, Inc. (exercise price $2.75/sh) 890,000 16.90 302,600 400,000
Universal Automotive Industries, Inc. (exercise price $.92/sh) 450,000 6.00 0 100,000
PRIVATE COMPANIES
2021. Interactive, LLC 10.25 of LLC 10.25 0 0
Action Sports Group, LLC 3,350 10.00 0 0
Adavest Holdings, LLC 18.75 of LLC 18.75 0 0
Advanced Wireless Technologies 2,034,366 8.75
Aero Products Corporation 31 25.00 0 0
Affinity Corporation 1,402 6.79 5,000 5,000
Air Age Services of San Antonio, Inc. 149 13.00 0 0
Alignis, Inc. 111,685 4.00 0 0
Alliance Media Group, Inc. 1,172,289 12.50 0 0
American Rockwool Acquisition Corp. 1,100,000 11.00 0 1,075,000
Amscot Holdings, Inc. 4,804 49.00 0 0
Anton Airfoods, Inc. 124 11.00 0 575,000
Associated Response Services, Inc. 611 39.73 14,000 1,000,000
Assured Power, Inc. 280 12.00 0 0
Atlantic Security Systems, Inc. 1 1.00 0 0
Auburn International, Inc. 175,214 5.50 150,000 150,000
Austin Innovations, Inc. 35,146 3.00 50,000 50,000
Aviation Holdings Ltd. (Newfoundland affiliate) 4,713 9.69 0 0
Avionics Systems, Inc. 16.5 of Co. 16.50 0 0
B & N Company, Inc. 91 10.63 40,000 0
Bohdan Automation, Inc. 571,048 4.25 0 475,000
BroadNet, Inc. 265,568 15.00 0 0
BUCA, Inc. 193,332 2.04 761,247 761,247
</TABLE>
38
<PAGE> 39
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Cost or
Number of Percentage Contributed
STOCK WARRANTS Shares Ownership Value Fair Value
-------------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Bug.Z, Inc. and Subsidiaries 994,971 14.90% $ 0 $ 0
Business Press Group, Inc. 4,573 4.20 0 0
C.J. Spirits, Inc. 180,000 10.00 0 0
Caldwell/VSR Inc. 69 6.93 0 0
Campbell Software, Inc. 748,942 1.50 0 0
Capital Sigma Investments, Inc. 331,825 22.00 0 0
Caribou Coffee Company, Inc. 125,418 1.70 846,472 846,472
CarStar A&B, Inc. 200 20.00 0 0
CarStar Automotive, Inc. 492,136 5.00 0 0
Cartech Holdings, Inc. 280,702 25.00 0 0
Catalina Food Ingredients, Inc. 14 12.25 0 0
Cedaron Medical, Inc. 185,168 4.50 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. 64,512 5.05 461,000 4,300,000
Chinese Media Group, LLC 17.5% of LLC 17.50 0 0
Clearidge, Inc. 44,217 1.07 0 0
CLS Corporation 126,997 4.22 0 0
CMHC Systems, Inc. 2,385 3.15 0 200,000
CMP Enterprises, LLC 15.17% of LLC 15.17 0 0
Cold Jet, Inc. 820 3.00 0 0
Colonial Investments, Inc. 369 32.50 0 0
Columbus Medical Holdings, LLC 17,455 12.00 0 300,000
Co0Mack Technologies, Inc. 245,217 11.75 400,000 400,000
Compression, Inc. 422,498 4.60 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
Counsel Press LLC 678,146 8.33 443,700 443,700
CPI Qualified Plan Consultants, Inc. 3,379 8.00 0 0
Creighton Shirmakers, Inc. 30,250 30.25 0 0
CSM, Inc. 130,000 13.00 0 150,000
Cybo Robotics, Inc. 2,835,960 13.68 0 0
Dalt's, Inc. 161 31.00 0 0
Data National Corporation 275,682 18.00 450,000 450,000
Data Net Corporation 523,476 9.00 0 0
Daxxes Corporation 61,766 2.94 0 0
DEC Interactive, Inc. 35,409 2.68 0 0
Delaware Publishing Group, Inc. 5,817 32.49 15,000 0
Distinction Software, Inc. 17,746 1.50 0 0
Dyad Corporation 615 5.00 600,000 600,000
Dyntec, Inc. 126,667 15.00 0 350,000
Encor Technologies, Inc. 7 6.84 0 0
Entek Scientific Corporation 260,710 5.25 160,000 850,000
ERDA, Inc. 433,130 7.00 0 0
Executrain (3199673 Canada Inc.) 18 12.60 0 0
Exhibit Emporium Acquisition Company, LLC 200 16.00 0 0
Express Shipping Centers, Inc. 113,352 7.76 552,402 0
FaxNet Corporation 190,321 2.50 100,000 425,000
FDL, Inc. 548 16.00 250,000 250,000
FEI Refrigerated Services, LLC 4.37% of LLC 4.37 0 0
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 1,225,000
</TABLE>
39
<PAGE> 40
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Cost or
Number of Percentage Contributed
STOCK WARRANTS Shares Ownership Value Fair Value
-------------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Fulcrum Direct, Inc. 1,600,831 5.00% $ 0 $ 0
Fypro, Inc. 255,882 15.00 0 0
G/Comm Marketing Inc. 462 4.62 0 0
Gardner Wallcovering, Inc. 2 2.00 0 0
Gateway Communications, Inc. 8 7.75 17,280 17,280
Gavel & Gown Software Inc. 3,285 1.68 0 0
GC Management, Inc. 600,000 10.00 0 0
Generation 2 Worldwide LLC 28% of LLC 28.00 0 0
GerAssist, Inc. 334,021 2.30 0 225,000
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 Systems Group, Inc. 4 3.50 0 0
Green Tree Technologies, Inc. 307,580 13.00 0 0
Gulfstream International Airlines, Inc. 271 39.00 10,000 10,000
H & H Acquisition Corp. 3,600 22.50 0 160,000
Helix Hearing Care of America Corp 1,060,871 3.34 0 0
Home Link Services, Inc. 166,667 20.00 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 Holdings 1,612 6.30 0 0
I. Schneid Holdings LLC 21% of LLC 21.00 0 150,000
IJL Holdings, Inc. 139 12.50 0 0
ILD Communications, Inc. 5,429 2.09 0 1,250,000
Imtek Office Solutions, Inc. 119,891 1.50 0 0
In Store Services, Inc. 429 12.50 12,000 12,000
Isthmus, Inc. (Proamics affiliate) 38 3.50 0 0
J. Fegely & Son Hardware Co., Inc. 180 7.00 0 0
Jim Bridges Acquisition Company 10,728 15.00 0 0
Johnston County Cable L.P. 31.94% of LP 31.94 110,000 600,000
JRB Enterprises, Inc.(d/b/a Silk, Silk, Silk) 4,617 16.00 0 0
Just Vacations, Inc. 89,508 6.83 0 0
K.W.C. Management Corp. 794 24.40 0 0
Karawia Industries, Inc. 1,391 12.00 0 0
Kos Corp. Industries 265,263 2.10 0 0
Lane Acquisition Corporation 11,667 10.00 0 0
Leisure Clubs International, Inc. 525 29.50 15,000 0
Lightfoot Software Company 25 20.00 0 0
Lovett's Buffet, Inc. 743,083 11.00 0 725,000
M & M Industries, Inc. 1,659,113 15.00 0 0
M.A.P.A., Inc. 205 16.00 0 0
Marmot Mountain, Ltd. 64,840 2.25 250,000 250,000
Mayo Hawaiian Corp. 130 11.50 0 0
MBA Marketing Corporation 15,147 4.62 18,000 18,000
McAuley's Incorporated 87 8.00 0 0
MCG, Inc. 121,518 4.50 0 0
Mead0Higgs, Inc. 2,500 10.00 0 525,000
MegaMarketing Corporation 260,192 4.00 200,000 200,000
Mesa International, Inc. 23 32.00 0 0
Metals Recycling Technologies Corp. 257,801 5.00 0 0
MetroLease, Inc. 35,447 26.50 5,000 475,000
MLG0LoBue LLC 33% of LLC 33.00 0 0
MMS Incentives, LLC 281,687 10.00 0 0
Mobility Electronics, Inc. 264,172 2.32 0 1,850,000
Moore Diversified Products, Inc. 17 15.00 0 200,000
Moorings, LLC 9,493 14.50 344,500 200,000
</TABLE>
40
<PAGE> 41
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Cost or
Number of Percentage Contributed
STOCK WARRANTS Shares Ownership Value Fair Value
-------------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Multimedia Learning, Inc. $ 0 $ 200,000
Mytech Corporation 172,098 3.50% 0 175,000
N&R Printing, Inc. 25 23.00 0 0
NASC, Inc. 2,652 23.00 0 250,000
Nationwide Engine Supply, Inc. 1,410,844 22.52 25,000 0
NetForce, Inc. 67 6.25 0 0
Newfoundland Career Academy Ltd. 19,159 9.87 0 0
NRI Service and Supply, L.P. 28.5% of LP 28.50 25,000 0
Nunn Acquisition Corporation 16,280 14.00 0 0
Omni Home Medical, Inc. 3,778 20.50 0 0
Omni Products of Palm Beach, Inc. 149,925 16.00 0 0
Omni Products of Palm Beach, Inc. for preferred stock 19,048 16.00 100,000 100,000
One Call Comprehensive Care, Inc. 326,974 30.00 0 0
One Coast Network Corporation 763,666 15.63 0 1,700,000
Online Resources & Communications Corp. 350,000 1.26 0 0
OpenConnect Systems Incorporated 280,862 3.00 0 0
Orchid Manufacturing, Inc. 1,219,047 2.61 40,000 600,000
Outdoor Promotions, LLC 16.5% of LLC 16.50 0 100,000
P.A. Plymouth, Inc. 92,647 15.00 0 475,000
Pacific Linen, Inc. 365,349 7.81 548,020 548,020
Pacific Plus, Inc. 3,087 9.25 175,000 175,000
Palouse Holdings, LLC 14% of LLC 14.00 0 0
Paradigm Valve Services, Inc. 30,000 12.00 0 0
Pathology Consultants, Inc. 317,553 6.00 0 500,000
PaySys International, Inc. 66,100 1.80 274,842 175,000
Pharmed Group Holdings, Inc. 930,286 12.50 0 0
Physicians Surgical Care, Inc. 286,000 4.86 143,000 550,000
Piedmont Hardwood Flooring, LLC 8% of LLC 8.00 0 0
Precision Panel Products, Inc. 137 9.25 15,000 0
PRICE Systems, LLC 8% of LLC 8.00 0 0
Pritchard Paint & Glass Co. 12,500 25.00 0 425,000
Proamics Corporation 382,299 3.50 0 0
Professional Training Services, Inc. 369,493 3.65 0 0
Protect America, Inc. 6,702 6.00 0 0
Pro-Style Acquisition Corporation 121,993 10.00 0 0
QSS Acquisition, Inc. 156,503 14.63 0 0
R & R International, Inc. 49,646 4.00 0 325,000
Race Face Components. Inc. 3,465 11.55 0 0
Ready Personnel, Inc. 101,510 12.50 0 1,100,000
Reef Chemical Company, Inc. 183,215 3.00 300,000 300,000
Relax the Back Corporation 1,156,042 6.69 0 1,350,000
Relevant Knowledge, Inc. 121,283 1.09 0 150,000
Rynel Ltd., Inc. 916,523 22.50 0 0
Saraventures Fixtures, Inc. 25 20.00 0 0
SBX Holding Company 101,928 9.25 0 0
SFG Technologies Inc. 31,304 1.38 0 0
Sheet Metal Specialties, Inc. 587 37.00 0 0
Sirvys Systems (3404447 Canada Inc.) 134,400 3.36 0 0
Solitudes Holdings Inc 0.2118 0.21 0 0
Solutioneering, Inc. 131,350 7.50 0 0
Southern Specialty Brands, Inc. 10,000 10.00 17,500 125,000
Southern Therapy, Inc. 333 10.00 0 400,000
Stealth Engineering, Inc. 228,820 14.00 0 0
Stratford Safety Products, Inc. 114 10.25 75,000 250,000
Street Level (1216069 Ontario Ltd.) 68,373 5.88 0 0
Sub 1 Corporation (d/b/a Risk Management) 13 13.00 0 0
Superior Pharmaceutical Co.(Dynagen affiliate) 10% of Co. 10.00 0 0
</TABLE>
41
<PAGE> 42
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Cost or
Number of Percentage Contributed
STOCK WARRANTS Shares Ownership Value Fair Value
-------------- --------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
EHN Inc. 1 1.68% $ 0 $ 0
Synaxis Group, Inc. 331,819 5.50 0 0
Systech Group, Inc. 41,418 2.52 0 350,000
TAC Systems, Inc. 522,902 5.47 0 0
Talent Metal Products, Inc. 227 18.50 0 0
Talus Solutions, Inc. 94,525 0.34 0 200,000
TeleCommunication Systems, Inc. 290,322 6.00 0 300,000
Telecontrol Systems, Inc. 530,303 17.50 0 0
Telemate Software, Inc. 20,202 1.00 0 0
Telequestion, Inc. 2,995,975 25.00 0 0
Temps & Co., Inc. 53 5.00 0 0
Therapeutic Services of America, Inc. 20,000 14.00 0 0
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
Toccoa Associates, LLC 99 15.47 0 0
Trade Am International, Inc. 335,106 6.00 0 0
Trademart Group, Inc. 1,636 1.68 0 0
TRC Acquisition Corporation 375,000 12.50 0 175,000
Troy Holdings (SCCC) 294,000 0 0
Tulsa Industries, Inc. 2,564 2.50 0 0
UltraFab Vessels, Inc. 131,494 13.00 0 0
UltraFab, Inc. 131,494 13.00 0 0
Unicoil, Inc. 93,292 9.25 0 0
Unique Electronics, Inc. 30% of Co. 30.00 0 0
U.S. Ring Binder, L.P. 14.5% of L.P. 14.50 85,000 85,000
Valdawn Watch Co. 400 80.00 0 0
VanGard Communications Co., LLC 12% of LLC 12.00 0 0
VDW Farms, Ltd. 10.1% of Co. 10.10 0 0
Vision Software, Inc. 36,740 2.08 0 0
Watts0Finniss Holdings, Inc. 7,146 10.94 0 0
Wearever Healthcare Products, LLC 501,274 17.33 250,000 0
WebMD, Inc. 557,490 3.50 0 5,575,000
West Sun International, Inc. 224 1.26 0 0
Westcorp Software Systems, Inc. 887,066 4.00 0 0
WJ Holdings, Inc. 250,000 25.00 0 0
Wolfgang Puck Food Company 115,452 1.99 0 0
Zahren Alternative Power Corporation 1,366 5.00 25,000 750,000
------------ ------------
Total Warrants $ 12,826,360 $ 42,617,225
OTHER INVESTMENTS
SWS3, Inc. (balance of proceeds from sale of mfg. plant) $ 524,926 $ 124,926
Hancock Company (royalty stream
to be collected from sale of Gitman brand name) 1,675,097 125,097
Capitalized workout expenses - SCC 1,494,404 204,404
------------ ------------
Total Other Investments $ 3,694,427 $ 454,427
------------ ------------
Total Investments $654,421,452 $625,269,192
============ ============
</TABLE>
42
<PAGE> 43
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
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 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
merger and acquisition 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' pretax income, and its total operating expenses, including
interest expense. The second element is "realized gain (loss) on investments,"
which is the difference between the proceeds received from the disposition of
portfolio assets and their stated costs 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 on the pre-tax income of Harris Williams.
Net Operating Income. During the quarter ended September 30, 1998, the
Company earned interest on investments of $17.0 million, a 55% increase over the
$11.0 million earned in the same quarter of 1997. For the nine month period
ended September 30, 1998, interest on investments was $46.5 million, a 63%
increase over the $28.6 million earned in the same period of 1997. In addition
to interest on investments, the Company also collects an up-front processing fee
for each loan it originates. During the third quarter of 1998, the Company
earned $1.5 million in processing fees, a 21% decrease versus the $1.9 million
earned in the third quarter of 1997. The increases in interest income are a
result of increases in the dollar amount of loans outstanding during the
applicable periods. The decrease in processing fees for the third quarter of
1998 versus 1997 was the result of a 14% decrease in loan originations from
$73.6 million in the third quarter of 1997 to $64.4 million in the third
quarter of 1998 that was a combined result of the diversion in loan officer and
management focus created by the events that transpired during the third quarter,
the intentional tightening of the Company's underwriting parameters,
management's decision to slow loan production, and increased competition early
in the third quarter that has since subsided. During the nine months of 1998,
the Company earned $6.0 million in processing fees, a 22% increase over the $4.9
million earned in the nine months of 1997. This increase was attributable to the
fact that the $266.1 million of loans originated in the nine months of 1998 was
a 32% increase over the $202.3 million of loans originated in the nine months of
1997. The Company's loan portfolio increased to $534.5 million at September 30,
1998, an increase of 47% over the $363.4 million loan portfolio balance at
September, 1997. The weighted average interest rate charged on the loan
portfolio at September 30, 1998 and 1997 was 13.25% and 13.25%, respectively.
43
<PAGE> 44
The Company's interest expense increased to $4.6 million in the third
quarter of 1998, a 92% increase from the $2.4 million expensed in the third
quarter of 1997. Interest expense was $12.0 million in the nine months of 1998,
an 88% increase over the $6.4 million expensed in the nine months of 1997. The
increase in interest expense periods resulted from increased amounts borrowed
under the Company's two revolving credit facilities and from the SBA. The
Company's total borrowings were $242.3 million on September 30, 1998 and $151.0
million on September 30, 1997.
Overhead and amortization of borrowing costs totaled $3.8 million in
the third quarter of 1998, a 58% increase over the $2.4 million of such expenses
in the third quarter of 1997 and $10.3 million in the nine months of 1998, a 69%
increase over the $6.1 million of such expenses in the nine months of 1997.
These increases can be largely attributed to the increase in the number of
employees to 61 in September 1998 from 41 in September 1997 (excluding Harris
Williams employees), the operation of additional offices and the increase in the
Company's loan portfolio.
During the third quarter of 1998, Harris Williams had revenues of $2.3
million, a 15% increase from $2.0 million in the third quarter of 1997. For the
nine months of 1998, Harris Williams had revenues of $10.0 million, a 75%
increase over the $5.7 million for the nine months of 1997. During the third
quarter of 1998, Harris Williams had pre-tax income of $194,000, a 79% decrease
from $915,000 in pre-tax income in the third quarter of 1997 and during the nine
months of 1998, had pre-tax income of $3.9 million, a 77% increase over the $2.2
million in pre-tax income for the nine months of 1997. The increases in revenues
and pre-tax income for the nine months of 1998 over the same period of 1997 were
due to an increase in the number and size of transactions on which Harris
Williams provided advisory services. The decrease in pre-tax income for the
third quarter of 1998 versus 1997 was due to higher expenses in 1998 resulting
from an increase in the number of employees and the timing of bonus accruals.
Since a significant percentage of Harris Williams' fees are paid at the closing
of advised transactions, the timing of such closings may cause significant
variations in its revenues and pre-tax income from quarter to quarter. Income
taxes of $(22,292) and $228,842 were accrued on Harris Williams' pre-tax income
in the third quarter of 1998 and 1997, respectively.
Realized Gain (Loss) on Investments. The Company's net realized gain on
investments was $203,000 during the third quarter of 1998 and its net realized
loss was $4.4 million during the nine months of 1998, as compared to net
realized gains of $2.2 million and $9.7 million for the third quarter and the
nine months of 1997, respectively. The net realized loss for the nine months of
1998 is primarily attributable to loans made to Saraventures Fixtures, Inc.,
whose manufacturing operations were consolidated with Precision Panel Products,
Inc., during 1998 as part of a restructuring strategy that the Company no longer
believes is likely to result in repayment of the outstanding loans to those
borrowers. The following table sets forth the details of realized gains and
losses that occurred during the third quarter and the nine months of 1998 and
1997.
44
<PAGE> 45
Schedule of realized gains(losses) for the three month period and nine month
period ending September 30, 1997 and September 30, 1998.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------------- -------------------------------
1997 1998 1997 1998
---- ---- ---- ----
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Argenbright Holdings Ltd. Warrant $ 0 $ 750
Ashe Industries, Inc. Loan (1) (2,609)
Assured Power, Inc. Loan $ (200)
Atlantic Security Systems, Inc. Warrants 434
BankCard Services, Inc. Loan (277)
Bohdan Automation, Inc. Warrants $ 477 477
CellCall, Inc. Common Stock 228
Champion Glove Manufacturing, Inc. Loan (1,250)
C.J. Spirits, Inc. Loan (758) (758)
Compass Plastics and Technologies, Inc. Stock 1,948 1,948
Daxxes Corporation Loan (848) (848)
Eastern Food Group LLC Loan (1,265)
Educational Medical Inc. Stock 560 560
Encore Medical Corporation Stock 947 947
Factory Card Outlet Corporation Stock 534 534
Fulcrum Direct, Inc. Loan (5,000) (5,000)
Global Finance & Leasing, Inc. Warrant 409
Global Marine Electronics, Inc. Warrants 200
Gold Medal Products, Inc. Loan (835)
Golf Corporation of America, Inc. Loan (1,240) (1,240)
Golf Video, Inc. Loan (500)
Horizon Medical Products, Inc. Warrant 400 400
Hoveround Corporation Warrants 4,100 4,100
H.S.A. International Other Investment (441)
Hunt Leasing & Rental Corporation Warrants 598
Innotech, Inc. Common Stock 901
IOL 2000/Suncoast Medical Group Loan (1,517)
Master Graphics, Inc. Common Stock 1,860
Merge Technologies, Inc. Common Stock 196
Miscellaneous 21 (4) 5 (15)
Monogram Products, Inc. Warrant 200 200
Multimedia Learning, Inc. Warrant 245 1,170
National Health Systems, Inc. Loan (420)
Newfoundland Career Academy, Ltd. Loan (1,160) (1,160)
Outdoor Promotions, LLC Warrants 89 89
Patton Management Corporation Warrants 303
PMTS Services, Inc. Warrants 469 469
Precision Panel, Inc. Loan (7,223)
Premier Technologies, Inc. Common Stock 7,170
Protect America, Inc. Warrants 185 185
QuadraMed Corporation Common Stock 357
Quadravision Communications Limited Warrant 156
Radiant Systems, Inc. Common Stock 1,544 2,260
Radio Systems Corporation Warrant 1,800
Saraventures Fixtures, Inc. Preferred Stock (1,659)
Skillmaster, Inc. Warrant 200
Sqwincher Corporation Warrant 320
SWS3 (f/k/a Urethane Technologies) Other Investments (700) (700)
Tower Environmental, Inc. Loan (2,609) (2,609)
Towne Services, Inc. Common Stock 1,116 1,116
Union Planters, Inc. Common Stock 170
Video Update Common Stock 99
Virginia Gas Company Stock 475 475
Virginia Gas Company Warrant 160 160
Virtual Resources, Inc. Warrant 432
Vista Information Solutions, Inc. Common Stock 1,246 3,933
Voice FX Corporation Common Stock 46 245
------- -------- -------- --------
$ 2,239 $ 203 $ 9,683 $ (4,353)
======= ======== ======== ========
</TABLE>
45
<PAGE> 46
Change in Unrealized Appreciation (Depreciation) of Investments. For the
quarter ended September 30, 1998, the Company recorded change in unrealized
depreciation of investments of $34.5 million and for the quarter ended September
30, 1997, the Company recorded change in unrealized appreciation of investments
of $1.1 million. For the nine month periods ended September 30, 1998 and 1997,
the Company recorded a change in unrealized depreciation of investments of $39.9
million and $2.1 million, respectively. The significant change in unrealized
depreciation during 1998 is primarily attributable to additional net unrealized
depreciation taken against the loans made to the two borrowers described in the
"Realized Gain (Loss) on Investments" section above, unrealized depreciation
recorded against new loans added to the Company's Credit Watch Portfolio during
1998 and the recent significant decline in the value of publicly traded small
and micro-cap stocks that comprise part of the Company's portfolio. The
following table sets forth information regarding significant changes in
unrealized appreciation (depreciation) of assets in the Company's portfolio made
during the third quarter of 1998 and 1997 and the nine months of 1998 and 1997.
46
<PAGE> 47
Schedule of significant unrealized appreciation (depreciation) for the three
month period and nine month period ending September 30, 1997 and September
30, 1998.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------- ------------------------
1997 1998 1997 1998
---- ---- ---- ----
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
LOANS:
Aero Products Corporation $ (275) $ (650)
Argenbright Holdings, Ltd. $ (750)
Ashe Industries, Inc. 2,300
Assured Power, Inc. $ (625) (625)
B&N Company, Inc. (400) (400) (400)
C. J. Spirits, Inc. 50 700 (350) 650
Carter Kaplan Holdings LLC (25) 549
Champion Glove Manufacturing Co., Inc. (200) (1,200) 1,200
Compass Plastics & Technologies, Inc. (1,500) (1,500)
Coverall Technologies, Inc. (1,275) (1,850)
Dalts, Inc. (500)
Daxxes Corporation 848
Digital Transmission Systems, Inc. (1,600) (2,000)
Eastern Food Group LLC 1,265
Ergobilt, Inc. (400)
Express Shipping Centers, Inc. (500) (1,000)
Fulcrum Direct, Inc. 500
Fypro, Inc. (225) (225)
GC Management, Inc. (750) (750)
Golf Corporation of America 1,100 475
Golf Video, Inc. 450
Good Food Fast Companies, The (400) (400)
Home Link Services, Inc. (25) (300)
Hydrofuser Industries, Inc. (400) (400)
IJL Holdings, Inc. (1,500) (1,500)
International Displays Inc. (750) (750)
IOL 2000, Inc. 1,225
Mesa International, Inc. (4,850) (5,350)
Metals Recycling Technologies Corp. 350
Multimedia 2000, Inc. (1,150) (1,150)
National Health Systems, Inc. (50) (50) 300
Nationwide Engine Supply, Inc. (300) (2,300)
Nozzle Rebuilders (1,225) (1,225)
One Call Comprehensive Care, Inc. (1,175) (1,475)
Precision Panel, Inc. (2,477) (8,977)
Recycling Technologies, Inc. (350) (350)
Saraventures Fixtures, Inc. 1,745
Sirvys, Inc. (350) (350)
Scandia Technologies, Inc. (425) (425)
Smartchoice Automotive Group, Inc. (1,100) (650)
Studley Products Corp. (525) (525)
Summit Publishing Group, Ltd. (397) (2,372)
Suncoast Medical Group, Inc. (925) (925)
SWS3, Inc. 200 (150) (250)
SWS6, Inc. (200) (700) (200) (525)
Talent Metal Products (2,300) (2,300)
Toccoa Associates, LLC (325) (325)
Tower Environmental, Inc. 2,560 850
Valdawn Watch Company (60) (100) (460) (2,575)
Vision 2000, Inc. (650) (2,075)
Wearever Health Products, LLC (1,075) (1,650)
PRIVATE COMPANY WARRANTS AND
EQUITY SECURITIES:
AB Plastics Holding Corporation 2,875
Affinity Corporation (365)
American Rockwool Acquisition Corp. 400 400 675
Anton Airfoods, Inc. 350 350
Argenbright Holdings Ltd. 375
Bohdan Automation, Inc. 475
</TABLE>
47
<PAGE> 48
Schedule of significant unrealized appreciation (depreciation) for the three
month period and nine month period ending September 30, 1997 and September
30, 1998 -- (continued).
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------- ------------------------
1997 1998 1997 1998
---- ---- ---- ----
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Bravo Corporation $ (350) $ (350)
CF Data Corp. $ 133 $ 133
Check into Cash, Inc. 3,839
CMHC Systems, Inc. 200 200
Columbus Medical Holdings, LLC 300
DentalCare Partners, Inc. (290) (280) (300)
Dyntec, Inc. 350
Electronic Accessory Specialists Inc. 250 250
Endeavor Technologies, Inc. 5,025
Express Shipping Centers, Inc. (290) (262)
FaxNet Corporation 325
Front Royal Inc. 520 520 350
Fulcrum Direct, Inc. 500
Fypro, Inc. (125) (3,798)
GerAssist, Inc. 225 225
Home Link, Inc. (250) (750)
Horizon Medical Products, Inc. (200)
Hoveround Corporation (4,050) (3,750)
HTR, Inc. 475 475
Hunt Leasing & Rental Corporation (250)
H & H Acquistion Corp. 160 160
ILD Communications, Inc. 300 300 500
International Displays, Inc. (159)
Johnston County Cable, L.P. 230 220
Kentucky Kingdom, Inc. (810) (25) (810) (25)
Lovetts Buffet, Inc. 325
Master Graphics, Inc. 1,050
Mead-Higgs, Inc. 525
Mesa International, Inc. 750 750 (750)
Metrolease, Inc. 470
Mobility Electronics, Inc. 1,600
Monogram Products, Inc. (116)
Multicom Publishing, Inc. (non-traded) (950) (1,175)
Multimedia 2000, Inc. (225) (351)
Multimedia Data Systems, Inc. 497 497
Multimedia Learning, Inc. (150) (450)
One Coast Network Corporation 1,700
Pathology Consultants of America, Inc. 500
Patton Management Corporation (185)
Paysys International Inc. 475 475
Physicians Surgical Care 407 407
Potomac Group, Inc. common stock 1,596 2,296
Potomac Group, Inc. preferred stock 1,205 605
PRA International, Inc. 1,170
Pritchard Glass, Inc. 425
Protect America, Inc. (180) (180)
R&R International, Inc. 325
Radio Systems Corporation (1,000)
Ready Personnel, Inc. 1,100
Recompute Corporation 175 175
Relax the Back Corporation 1,350
Saraventures Fixtures, Inc. 1,659
Southern Specialties, Inc. 108 108
Systech Group, Inc. 350 350
SWS6, Inc. (800) (2,428)
Talus Solutions, Inc. (100) 200
Telecommunication Systems, Inc. 300
Teltrust, Inc. 825
The Moorings, LLC (145) (145)
Towne Services, Inc. 1,500
TRC Acquisitions, Inc. 175 175
</TABLE>
48
<PAGE> 49
Schedule of significant unrealized appreciation (depreciation) for the three
month period and nine month period ending September 30, 1997 and September
30, 1998 -- (continued).
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------- ------------------------
1997 1998 1997 1998
---- ---- ---- ----
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Unique Electronics, Inc. $ (250) $ (250)
Valdawn Watch Co., Inc. (240) (240)
Virtual Resources, Inc. (250)
Vision 2000, Inc. (442) $(3,047)
Wolfgang Puck Food Company, Inc. $ (350)
Zahren Alternative Power Corp. common stock 515 515
Zahren Alternative Power Corp. preferred stock (100) (100)
PUBLIC COMPANY WARRANTS AND
EQUITY SECURITIES:
ACT Teleconferencing warrant (369) (369)
Altris Software, Inc. common stock (1,350) (1,950)
Altris Software, Inc. preferred stock (900)
American Consolidated Laboratories, Inc.
common stock and warrant (602) (1,044)
AquaCare Systems, Inc. warrant (28) (28)
Clinicor, Inc. preferred stock (100) (375)
Compass Plastics & Technologies, Inc. common stock (537) (537)
Compass Plastics & Technologies, Inc. warrant 419 (150) 419 (1,894)
Consumat Systems, Inc. common stock (146) (12) 131 (570)
Educational Medical, Inc. common stock (557) (575)
Encore Medical, Inc. common stock (926) 191
Environmental Tectonics Corporation preferred stock (399) (375) 401 25
Environmental Tectonics Corporation warrants (275) (275)
Ergobilt, Inc. warrant (182)
Factory Card Outlet of America common stock (306) (408)
Family Golf Centers common stock (112) (112)
Great Train Store Company warrants (84) (84)
Hydrofuser Industries, Inc. warrant 805 (116) 805 (447)
Innotech, Inc. common stock (454)
Integrated Health Services, Inc. common stock 165 165
Master Graphics Inc. common stock (222) (1,733)
Medical Resources Inc. common stock (152) (21) (152) (21)
Merge Technologies Inc. common stock (184) (184)
Moovies, Inc warrant (471) (291)
National Vision Associates, Ltd. common stock 43 (444) 145 (444)
Network Event Theatres Inc. common stock (340) (340)
NOVA Corp. common stock (134) (134)
PMT Services, Inc. common stock (487) 609
Premiere Technologies, Inc. common stock 341 (6,222) (408)
QuadraMed Corporation common stock 218 159
Radiant Systems, Inc. warrant (1,056) (351)
Recompute Corp. warrant 388 388
Smart Choice Automotive Group, Inc. warrant 300 (525) 300 (100)
Tava Technologies, Inc. warrant (300) (300)
Teltronics, Inc. preferred stock (300)
Teltronics, Inc. warrant (450) 97
Towne Services, Inc. common stock (776) (776)
Universal Automotive warrant 225 225
Virginia Gas Company common stock (541) (278)
Vista Information Solutions, Inc. common stock 2,313 (1,316) 3,629 (3,229)
Vista Information Solutions, Inc. preferred stock 600
</TABLE>
49
<PAGE> 50
Provision for Income Taxes. Beginning in February 1995, the Company
elected to be taxed as a regulated investment company (a "RIC") under Subchapter
M of the Internal Revenue Code of 1986, as amended (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, 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 90% of its net investment income. The Company presently intends to
meet the RIC qualifications in 1998. However, the Company's Board of Directors
is giving serious consideration to giving up the Company's RIC status in 1999.
During the third quarter of 1998, the Company paid dividends of $10.1
million compared to the $6.5 million paid in the third quarter of 1997 from net
investment income. As of September 30, 1998, the Company had recorded
approximately $60.0 million in unrealized depreciation against loans on Credit
Watch and related equity interests. Based on trends and information currently
available, the Company currently expects to recognize realized losses in the
fourth quarter of 1998 with respect to a significant portion of these
depreciated assets. As a result of these losses, the Company anticipates that
there will be no further distributions to shareholders required to be made under
RIC rules for 1998, and therefore, none will be made.
For the quarters ended September 30, 1998 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 13). For the quarters ended September 30, 1997 and 1998, the
provision for income taxes totaled $(4.3) million and $(22,292), respectively.
50
<PAGE> 51
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had $1.2 million in cash and cash
equivalents. At September 30, 1998, 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 $7.3 million and represent an additional source of liquidity.
However, the Company's ability to realize such values on a short-term basis is
limited by market conditions and various securities law restrictions.
Traditionally, the Company's principal sources of capital to fund its
portfolio growth have been borrowings through the SBA-sponsored SBIC debenture
program, sales of the Company's equity securities, both privately and publicly,
and funds borrowed from banking institutions. In February 1995, the Company
consummated an initial public offering and has completed four additional public
offerings since that time, including the public offering of 6,000,000 shares
completed in March 1998, that have generated net proceeds of $361.5 million in
the aggregate. The Company has used the proceeds of these offerings to
temporarily repay debt and to originate new loans.
At September 30, 1998, total SBA borrowings were $101.0 million, the
maximum amount of SBA loans available to an SBIC. Each borrowing from the SBA
has a term of ten years, is secured by the assets of SII, is guaranteed by the
Company and can be prepaid without penalty after five years. The average
interest rate on these borrowings was 6.9% as of September 30, 1998, and none of
these borrowings mature prior to 2002.
As of September 30, 1998, SII had $21.1 million outstanding under its
First Union Credit Facility. The First Union Credit Facility was reduced from
$125.0 million to $50.0 million at the election of the Company in October 1998
in keeping with its plan to moderate loan originations in the future. The First
Union Credit Facility is secured by a lien on all of SII's assets and a pledge
of SII's stock and guaranteed by the Company. In order to manage the interest
rate risk associated with the variable interest rate provided for under the
First Union Credit Facility, SII has entered into various hedging arrangements.
The First Union Credit Facility matures on May 31, 2000. The First Union Credit
Facility requires that SII obtain the lenders' consent prior to, among other
things, encumbering its assets, merging or consolidating with another entity,
making investments other than those permitted by the SBA, and using the net
proceeds of any sale of non-core assets for a purpose other than repayment of
the First Union Credit Facility. In addition, the First Union 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.
The Company has also established the $200.0 million ING Credit Facility
with Holland Limited Securitization, Inc., a multi-seller commercial paper
conduit sponsored by ING Baring (U.S.) Capital Markets, Inc. (individually and
collectively, "ING"). 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 September 30,
1998, $120.2 million was outstanding under the ING Credit Facility and $211.6
million and $219.0 million of loans and warrants at cost and fair value,
respectively, had been contributed 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
51
<PAGE> 52
an event of default under the ING Credit Facility, which will result in
termination of further funding thereunder and the application of the collateral
pledged for repayment of the amounts outstanding thereunder. In addition, the
ING Credit Facility provides that an event of default is triggered if any two of
George M. Miller, II, David M. Resha and Carl W. Stratton are no longer employed
by the Company.
The Company believes that anticipated borrowings under the First Union
Credit Facility and the ING Credit Facility, together with cash on hand, loan
repayments and cash flow from operations plus realized gains on investments,
will be adequate to fund the continuing growth of the Company's investment
portfolio through the first or second quarter of 1999. 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. In addition, the Company is
considering the sale of certain non-core business assets. The availability and
terms of any such borrowing, securities issuance or sale of assets will depend
upon market conditions, the interest rate environment and various other
conditions. There can be no assurances that such additional funding will be
available on terms acceptable to the Company.
PORTFOLIO TURNOVER AND CREDIT QUALITY
During the quarter ended September 30, 1998, the Company made loans to
43 companies totaling approximately $64.5 million and received repayments
(either partial or full) from 16 companies aggregating $26.2 million. During the
quarter ended September 30, 1997, the Company made loans to 60 companies
totaling approximately $73.6 million and received repayments (either partial or
full) from 17 companies aggregating $15.7 million. Since inception, the Company
has originated $865.5 million in total loans and $200.0 million, or 23%, have
been repaid. The Company cannot control prepayments of loans in its portfolio,
as borrowers have the right to prepay loans made by the Company without penalty.
The Company has implemented a system by which it grades 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 loans and other
factors considered relevant. To monitor and manage the risk in the overall
portfolio, management tracks, among other things, the weighted average portfolio
grade. The weighted average grade was 3.26 and 3.09 at September 30, 1998 and
1997, respectively. The Company believes that weighted average grades between
2.75 and 3.25 represent the current normal range for the portfolio.
Loans graded 4 typically involve a borrower that the Company believes
is performing marginally below the Company's expectations and that the Company
believes has short-term negative trends or negative events that have created
some concern. The Company believes loans in this category require a proactive
action plan to be executed by the borrower's management and monitored by the
responsible Company officer. A grade 4 is a temporary rating that the Company
expects would be followed by an upgrade or downgrade, typically within six
months, as the borrower's business improves or declines. Loans graded 5 and 6
are placed on the Company's Credit Watch List and are serviced by a member of
the Company's workout group. Loans with a grade 5 are generally in default and
interest is generally 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. Loans with a grade 6 involve an unacceptable level
of risk with substantial probability of loss. These loans are on non-accrual and
the Company has charged off or expects to charge off some part of the loan.
As of September 30, 1998 and 1997, the Company's portfolio consisted of
18 and 21 loans, respectively, graded 4. The aggregate principal balance of
loans graded 4 at September 30, 1998 and 1997, was $44.3 million and $49.0
million, respectively, which represented 7.5% and 13.0%, respectively, of the
total portfolio balance at such dates. At September 30, 1998 and 1997, the
Company had loans to 31 companies with an aggregate principal balance of $76.5
million, and 16 companies with an aggregate principal balance of $19.2 million,
respectively, that were graded a 5 or 6, which represented 12.9% and 5.1%,
respectively, of the
52
<PAGE> 53
total loan portfolio balance. At September 30, 1998, the aggregate principal
balance of loans graded 4,5 or 6 as a percentage of the total loan portfolio was
20.3%, up from 18.1% at September 30, 1997.
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
below that range, and the percentage of the principal balance of loans graded 5
and 6 to the total portfolio balance has typically ranged between 6% and 10%
also, with an occasional decrease below that range. Given the nature of the
Company's business, making loans to small businesses, and the risks associated
therewith, the Company expects significant variability in the absolute dollar
amount of and the ratio of grade 4, 5 and 6 loans to the total portfolio,
individually and in the aggregate, on a quarter to quarter basis.
The Company believes the current percentage of grade 4 loans to be
below the current normal range of variability. The Company also believes that
the percentage of grade 5 and 6 loans to be above the current normal range of
variability as a result of a combination of factors, including the following.
The tremendous growth in the portfolio over the last two years coupled with the
concept that non-performance on new loans typically come early in the life cycle
of the loan has played a major part in the percentage increase. In addition, in
the current credit environment, the senior lenders to certain of the Company's
portfolio companies have instituted interest payment blockages to subordinated
lenders such as the Company that has caused such loans to be put on the Credit
Watch List when they otherwise would not have been. The Company continues to
closely monitor the recent upward trend in this ratio and continues to redefine
its operating model to produce higher asset quality in the future. However, no
assurance can be given that the trends in total loans classified in the lower
three loan categories will not continue, or that the total loans classified 5
and 6 will not continue to exceed the normal range for such loans, particularly
if overall economic conditions nationally, internationally or in the
Southeastern United States were to continue to deteriorate.
YEAR 2000 COMPLIANCE
The Year 2000 issue, in general terms, is that many existing computer
systems and microprocessors with date-based functions (including those in
non-information technology equipment and systems) use only two digits to
identify a year with the assumption that the first two digits of the year are
always "19". Consequently, on January 1, 2000, computers that are not Year 2000
compliant may read the year as 1900. The concern is that systems that calculate,
compare or sort using the incorrect date may malfunction, and, if such
malfunction is not corrected, it could cause a disruption in business
operations. In an attempt to prevent such a situation, the Company has begun
implementation of a Year 2000 compliance program. The Company created a Year
2000 Compliance Committee that is focusing on three primary areas of concern:
the Company's information technology ("IT") and other systems, third parties and
portfolio companies.
A majority of the software used in the Company's IT systems is provided
by outside vendors. The Company utilizes two primary software programs, one of
which tracks its investment portfolio and one of which provides accounting
functions. These programs have either been designated as Year 2000 compliant by
the vendor or the Company is being provided with the appropriate upgrades to
provide for Year 2000 compliance. Additionally, the Company shall either conduct
its own tests for compliance or utilize third party test results. Approximately
80% of the Company's remaining vendors have provided software or software
upgrades that have been designated by the software vendor as Year 2000
compliant. In addition, the Company has developed a Year 2000 contingency plan
to address vendor-supplied software which does not meet the Company's Year 2000
compliance deadlines.
53
<PAGE> 54
The Company's non-IT systems used to conduct business at its facilities
consist primarily of office equipment (other than computer and communications
equipment). The Company has inventoried its non-IT systems and has contacted its
office equipment vendors and landlords to determine the status of their Year
2000 readiness. The Company does not currently believe that it faces material
adverse issues with respect to its non-IT systems.
In addition, the Company has been actively communicating with third
parties concerning the status of their Year 2000 readiness. These third parties
include the Company's banks, vendors, landlords and suppliers of
telecommunication services and other utilities. As part of the process of
evaluating its options and attempting to mitigate third party risks, the Company
is collecting and analyzing information from third parties.
The Company is also investigating the impact of the Year 2000 issue on
its portfolio companies. Beginning in February 1998, the Company submitted a
series of questionnaires to its portfolio companies as of December 31, 1997 to
determine their potential exposure to Year 2000 problems and the adequacy of
their plans to address any exposure. Additionally, since January 1998, the
Company has performed due diligence regarding the Year 2000 issue for all new
borrowers. The Company plans to complete its evaluation of its portfolio
companies by December 31, 1998. The Company will then complete any necessary
follow up with those portfolio companies whom the Company believes have material
exposure and inadequate contingency plans by March 31, 1999. Based upon the
disclosure which has been received from the responding companies, the Company
believes that companies whose loans represent approximately 90% of the portfolio
have either no material exposure to Year 2000 or are finalizing their
contingency plans to address such exposure.
For the remainder of 1998 and through March 31, 1999, the Company will
continue with the testing and remediation of its IT and non-IT systems and the
evaluation of its third party and portfolio company Year 2000 risks, and will
take further steps designed to reduce its exposure to these risks. The Company
will also further develop its contingency plan for business continuation in the
event of a Year 2000 systems failure. This contingency plan is based upon the
Company's existing disaster recovery plan with modifications for Year 2000
risks.
Because the Company has maintenance contracts with nearly all of its
software vendors, the Company has not been required to purchase most of the
software upgrades necessary to insure Year 2000 compliance. As a result, the
cost of the Company's Year 2000 project is expected to be relatively minor, not
exceeding $200,000. This amount includes the costs of (i) additional software,
(ii) the Company's systems professionals dedicated to achieving
54
<PAGE> 55
Year 2000 compliance for the Company's IT systems, (iii) the costs of analyzing
the Year 2000 readiness of the portfolio companies and (iv) other employee and
management costs. The Company has included the cost of the Year 2000 project in
its annual budgets for information technology. The Company has postponed some
minor non-Year 2000 IT expenditures and initiatives until after 2000 in order to
concentrate resources on the Year 2000 issue. The Company does not expect that
this postponement will have a material effect on the Company's financial
condition and results of operations.
It is difficult to predict the effect of Year 2000 non-readiness on the
business of the Company. Significant Year 2000 failures in the Company's systems
or in the systems of third parties (or third parties upon whom they depend)
could have a material adverse effect on the Company's financial condition and
results of operations. 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. However, no assurance can be given that certain of the
Company's portfolio companies will not suffer material adverse effects from Year
2000 issues, and if such adverse effects impact such companies ability to repay
their loans, the Company's operating results and financial condition could be
adversely effected. The Company believes that its reasonably likely worst case
Year 2000 scenario is (i) a material increase in the Company's credit losses due
to Year 2000 problems for the Company's portfolio and (ii) disruption in
financial markets causing liquidity stress to the Company. The magnitude of
these potential credit losses or disruption cannot be determined at this time.
IMPACT OF INFLATION
The Company does not believe that its business is materially affected
by inflation, other than the impact which inflation may have on the securities
markets, the valuations of business enterprises and the relationship of such
valuations to underlying earnings, all of which could influence the value of the
Company's investments.
RISKS
The significant risks inherent in the Company's business, which
primarily consists of making loans to small businesses, are set forth in the
Company's most recent Registration Statement on Form N-2 (Registration No.
333-46051) and should be kept in mind when evaluating the Company's financial
performance.
55
<PAGE> 56
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 13, 1998, a purported class action was filed in U.S. District
Court for the Middle District of Tennessee against the Company and certain
officers, directors and affiliates (Trinity Holdings Corporation v. Sirrom
Capital Corporation, John A. Morris, Jr., George M. Miller, II, Carl W.
Stratton, H. Hiter Harris, III and Christopher H. Williams, Case No. 3-98-0643,
United States District Court for the Middle District of Tennessee, Nashville
(the "Trinity Holdings Lawsuit")) alleging violations of federal securities laws
related to a secondary offering of securities that was made pursuant to a
Registration Statement that was declared effective on March 5, 1998, certain
press releases and oral communications with analysts. The plaintiff purports to
sue on its own behalf and on behalf of all persons who purchased or otherwise
acquired common stock of the Company between March 5, 1998 and July 9, 1998,
including all persons who purchased common stock in connection with the March 5,
1998 secondary offering. The plaintiff seeks unspecified monetary damages as
well as reasonable costs and expenses.
On September 4, 1998 and September 9, 1998, two additional purported
class actions were filed in the U.S. District Court for the Middle District of
Tennessee against the Company and certain officers, directors and affiliates
(respectively, John Brown v. Sirrom Capital Corporation, David Resha,
Christopher H. Williams, H. Hiter Harris, III, John A. Morris, Jr., George M.
Miller II, and Sirrom Partners, L.P., Case No. 3-98-0826, United States
District Court for the Middle District of Tennessee, Nashville (the "Brown
Lawsuit") and James Hirsch v. Sirrom Capital Corporation, John A. Morris, Jr.,
George M. Miller, II, Carl W. Stratton, H. Hiter Harris, III, and Christopher
H. Williams, Case No. 3-98-0833, United States District Court for the Middle
District of Tennessee, Nashville (the "Hirsch Lawsuit")). The allegations
made in the Brown Lawsuit and the Hirsch Lawsuit are substantially similar to
those made in the prior pending Trinity Holdings Lawsuit, with the exception
that the plaintiff in the Brown Lawsuit purports to sue on behalf of all
persons who purchased or otherwise acquired the Company's common stock between
January 20, 1998 and July 10, 1998.
The District Court has ordered that the Trinity Holdings Lawsuit, the
Brown Lawsuit and the Hirsch Lawsuit be consolidated and proceed as one case.
Prior to that order, the Company and the individual defendants had moved to
dismiss the Trinity Holdings Lawsuit for, among other reasons, the plaintiff's
failure to state a claim. Pursuant to the Court's orders, however, the
plaintiffs will file one single consolidated amended class action complaint by
November 30, 1998. Once that complaint is filed, the Company will respond
appropriately.
A separate purported class action was filed on the same date as the
Trinity Holdings Lawsuit by Scott Orrock in the Chancery Court for Davidson
County, Tennessee against Sirrom Capital Corporation and certain officers,
directors and affiliates (Scott Orrock v. Sirrom Capital Corporation, David
Resha, Christopher H. Williams, H. Hiter Harris, III, John A. Morris, Jr.,
George M. Miller, II and Sirrom Partners, L.P., Docket No. 98-2103-111, Chancery
Court, Davidson County, Tennessee (the "Orrock Lawsuit")), alleging violations
of state securities laws in connection with the March 5, 1998 secondary
offering, certain periodic reports filed with the Securities and Exchange
Commission, certain press releases and oral communications with analysts. The
plaintiff purports to sue on his own behalf and on behalf of all persons who
purchased common stock of the Company between January 20, 1998 and July 10,
1998. The plaintiff, who has been joined by another intervening plaintiff, seeks
unspecified monetary damages with interest, reasonable costs and expenses, and
equitable relief. The Company and the individual defendants have filed a motion
to dismiss the Orrock Lawsuit. That motion has not yet been set for hearing
before the Chancellor.
The Company believes that these actions are without merit and it will
continue to vigorously defend the claims brought against it and the individual
defendants. The Company is unable, however, to predict the outcome of these
lawsuits or the costs to be incurred in connection with their defense. The
Company does not believe that these actions will have a material adverse effect
on the operations of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 3.1 Amended and Restated Charter of the Company
(incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement on Form S-8,
filed with the Commission on April 30, 1998)
56
<PAGE> 57
Exhibit 3.2 Bylaws of the Company (incorporated by reference
to exhibit b. contained in the Registrant's
Registration Statement on Form N-2, as amended
(File No. 33-86680), filed with the Commission on
November 23, 1994)
Exhibit 4.1 Instruments defining rights of holders of
securities: See Paragraph 6 of the Company's
Amended and Restated Charter (incorporated by
reference to Exhibit 3.1 to the Registrant's
Quarterly Report on Form 10-Q for the period
ending September 30, 1996, filed with the
Commission on November 14, 1996)
Exhibit 10.1 Fifth Amendment to Fourth Amended and Restated
Loan Agreement dated as of October 8, 1998 by and
among SII, the Company, the lenders to the
First Union Credit Facility and First Union
National Bank.
Exhibit 27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K.
None.
57
<PAGE> 58
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIRROM CAPITAL CORPORATION
Date: November 13, 1998 By: /s/ Carl W. Stratton
-----------------------------
Carl W. Stratton
Chief Financial Officer
58
<PAGE> 59
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
Exhibit 3.1 Amended and Restated Charter of the Company (incorporated by
reference to Exhibit 4.1 to the Registrant's Registration
Statement on Form S-8, filed with the Commission on April 30,
1998)
Exhibit 3.2 Bylaws of the Company (incorporated by reference to exhibit b.
contained in the Registrant's Registration Statement on Form
N-2, as amended (File No. 33-86680), filed with the Commission
on November 23, 1994)
Exhibit 4.1 Instruments defining rights of holders of securities: See
Paragraph 6 of the Company's Amended and Restated Charter
(incorporated by reference to Exhibit 3.1 to the Registrant's
Quarterly Report on Form 10-Q for the period ending September
30, 1996, filed with the Commission on November 14, 1996)
Exhibit 10.1 Fifth Amendment to Fourth Amended and Restated Loan Agreement
dated as of October 8, 1998 by and among SII, the Company, the
lenders to the First Union Credit Facility and First Union
National Bank.
Exhibit 27 Financial Data Schedule (for SEC use only)
</TABLE>
<PAGE> 1
Exhibit 10.1
FIFTH AMENDMENT TO
FOURTH AMENDED AND RESTATED LOAN AGREEMENT
FIFTH AMENDMENT, dated as of October 8, 1998 (this
"Amendment"), by and among SIRROM INVESTMENTS, INC., a Tennessee corporation
(the "Borrower"), SIRROM CAPITAL CORPORATION, a Tennessee corporation (the
"Guarantor"), the lenders party to the Existing Loan Agreement (as defined
below) (the "Lenders"), and FIRST UNION NATIONAL BANK (f/k/a FIRST UNION
NATIONAL BANK OF TENNESSEE), as agent for the Lenders thereunder (in such
capacity, the "Agent"), to the Existing Loan Agreement. Capitalized terms used
but not otherwise defined herein shall have the meanings given to them in the
Existing Loan Agreement.
STATEMENT OF PURPOSE
The Borrower, the Guarantor, the Lenders and the Agent are
parties to that certain Fourth Amended and Restated Loan Agreement, dated as of
August 16, 1996 (as heretofore amended, supplemented or otherwise modified, the
"Existing Loan Agreement"; as amended by this Amendment, the "Loan Agreement").
The Borrower and the Guarantor have requested that the
Existing Loan Agreement be amended to reduce the aggregate Commitments to Fifty
Million Dollars ($50,000,000), and to make certain other modifications in the
Loan Agreement as more fully set forth herein, and the Agent and the Lenders
parties hereto are willing to agree to such amendments on the terms, and subject
to the conditions, set forth herein.
Accordingly, the Borrower, the Guarantor, the Required Lenders
and the Agent hereby agree that the Existing Loan Agreement is hereby amended as
follows:
SECTION 1. Amendments to Loan Agreement. (a) Section 1.1 of
the Existing Loan Agreement is hereby amended by (i) deleting the definition of
"Aggregate Commitment" set forth therein and substituting in lieu thereof the
following new definition in the appropriate alphabetical order:
""Aggregate Commitment" means the aggregate amount of
the Lenders' Commitments hereunder, as such amount may be reduced at
any time or from time to time pursuant to the terms hereof. As of the
Fifth Amendment Effective Date, the Aggregate Commitment shall be
Fifty Million Dollars ($50,000,000)."; and
(ii) adding the following new definitions in the appropriate
alphabetical order:
"Fifth Amendment" means the Fifth Amendment, dated as
of October 8, 1998, to this Agreement.
<PAGE> 2
"Fifth Amendment Effective Date" means the "Amendment
Effective Date", as defined in Section 4 of the Fifth Amendment.
""Identified Assets" means, collectively, all of the
business, assets and property (including, without limitation,
intangible assets and goodwill) of the Guarantor and the Borrower
primarily utilized in the businesses known as (a) Harris Williams & Co.
and similar investment banking businesses, (b) the "Tandem" division of
the Guarantor, and (c) the Canadian business currently operated as a
joint venture between the Guarantor and Toronto Dominion Bank."
""Net Proceeds" means (i) the aggregate cash
consideration received by the Guarantor, the Borrower or a Subsidiary
thereof in connection with any transaction referred to in Section
2.4(e) less (ii) the expenses (including out-of-pocket expenses)
incurred by the Guarantor, the Borrower or such Subsidiary in
connection with such transaction (including, in the case of any
issuance of debt or equity securities, underwriters' commissions and
fees) and the amount of any federal and state taxes incurred in
connection with such transaction, in each case as certified by an
executive officer of the Borrower to the Agent at the time of such
transaction."
(b) Section 2.4 of the Existing Loan Agreement is hereby
amended by adding at the end thereof the following new clause (e):
"(e) Unless the Required Lenders otherwise agree, the
Borrower shall prepay the Loans, and the Commitments shall be
automatically and permanently reduced, in an amount equal to (i) 100%
of the Net Proceeds of any sale, lease, assignment, exchange or other
disposition for cash of, or of any pledge, mortgage, hypothecation or
other financing secured by, any Identified Assets or portion thereof
(including, without limitation, insurance proceeds paid as a result of
any destruction, casualty or taking of any Identified Asset or portion
thereof), and (ii) 100% of the Net Proceeds of any sale or issuance of
debt securities, or equity securities, in either case by the Guarantor
or the Borrower or any Subsidiary thereof, whether in a public
offering, a private placement or otherwise. Nothing in this Section
2.4(e) shall be construed to derogate any restriction or limitation
contained in any Loan Document imposed on any transaction of the types
described in this Section 2.4(e), including without limitation the
restrictions set forth in Sections 9.6 and 9.8 hereof."
(c) Section 6.1 of the Existing Loan Agreement is hereby
mended by adding at the end thereof the following new clause (d) to read in its
entirety as follows:
"(d) As soon as practicable but in any event within
five (5) Business Days following the Fifth Amendment Effective Date,
and on the first Business Day of each month thereafter, the Credit
Parties shall furnish to the Agent and each Lender the following:
-2-
<PAGE> 3
(i) Cash flow projections (including a
summary of sources and uses of cash) for each of the Borrower,
and of the Guarantor and its consolidated Subsidiaries, in
each case on a month by month basis for the period of three
months following the Fifth Amendment Effective Date and each
later date such projections are provided, showing in
reasonable detail the Credit Parties' projected funding
requirements for such periods (including loan repayments), and
otherwise in form and substance reasonably satisfactory to the
Agent;
(ii) A schedule of the loan proposals with
respect to which the Borrower has committed or proposed to
make loans, setting forth the Person or Persons which would be
the borrower or obligor on such anticipated loan, the amount
of such anticipated loan and the expected funding date of such
anticipated loan, together with, if requested, copies of the
offer letters, term sheets or other similar instruments
relating to such anticipated loans; and
(iii) A schedule of existing loan facilities
made available by the Borrower with respect to which there are
unfunded lending commitments, setting forth the borrower or
obligor on such loan facilities, the amount of such loan
facilities and the unfunded portion thereof, and the expected
funding date of such unfunded portion."
(d) Section 6.4 of the Existing Loan Agreement is hereby
amended by deleting the word "and" at the end of clause (d), and by adding
immediately after clause (d) thereof the following new clauses (e) and (f) to
read in their entirety as follows:
"(e) Promptly after the funding of any loans by the
Borrower after the Fifth Amendment Effective Date, a copy of (i) the
commitment letter, term sheet or similar instrument with respect to
such loan, and (ii) the Borrower's underwriting memorandum ("sideways
sheet") with respect to such loan; and
(f) Promptly after any transfer of any portfolio
loans or securities of the Borrower or any Subsidiary to any other
Person, written notice of such transfer, setting forth the
identification of such loan or security, the principal amount and
market value thereof, and the terms of such transfer (including the
sale price or other consideration received in connection with such
transfer), it being understood that nothing in this Section 6.4(f)
shall be construed to derogate any restriction or limitation contained
in any Loan Document imposed on any transfer of any portfolio loans or
securities of the Borrower or any Subsidiary, including without
limitation the restrictions set forth in Section 9.6 hereof; and";
and by redesignating clause (e) as clause (g) thereof.
(e) Schedule 1 to the Existing Agreement is hereby amended by
deleting such Schedule 1 in its entirety and substituting in lieu thereof
Schedule 1 to this Amendment.
-3-
<PAGE> 4
SECTION 2. Reservation of Rights. Upon the effectiveness of
this Amendment, the letter from the Agent to the Borrower, dated September 29,
1998, shall be automatically rescinded and be of no further force or effect. The
Agent and the Lenders parties hereto hereby advise the Borrower that the Agent
and the Lenders do not waive any Events of Default which may exist, and that the
current non-exercise of rights, remedies, powers and privileges by the Agent and
the Lenders under the Loan Documents and applicable law with respect to such
Events of Default, if any, shall not be, and shall not be construed as, a waiver
thereof, and the Agent and the Lenders reserve their rights (i) fully to invoke
any and all such rights, remedies, powers and privileges under the Loan
Documents and applicable law at any time any of them deems appropriate in such
respect of any Events of Default that may exist, (ii) to refuse to make
available any further extensions of credit except in strict accordance with the
terms of the Loan Documents (including Section 4.3(a) of the Loan Agreement) and
(iii) to require that all Loans bear interest at the rates specified in the
Credit Agreement (including Section 3.1(c) of the Loan Agreement). Nothing in
this Amendment, and no extension of credit made by the Lenders on or after
September 30, 1998, shall be construed as an acknowledgment or determination by
the Agent or any Lender that, since December 31, 1995, there has been no
material adverse change in the properties, business, operations, prospects, or
condition (financial or otherwise) of the Credit Parties and their Subsidiaries
and no event has occurred or condition arisen that could reasonably be expected
to have a Material Adverse Effect.
SECTION 3. Reaffirmation of the Guaranty and Parent Pledge
Agreement. The Guarantor, as guarantor under the Loan Agreement and as pledgor
under the Parent Pledge Agreement, (a) agrees to the terms of this Amendment and
all other documents, instruments, and agreements executed, delivered, or
otherwise provided in connection with this Amendment, (b) expressly ratifies and
reaffirms (i) its guaranty of the Obligations and (ii) its pledge made pursuant
to the terms and provisions of the Parent Pledge Agreement, and (c) agrees that
its obligations hereunder and under the Loan Documents, as amended by this
Amendment, are absolute, without right of setoff, and shall in no way be
affected or impaired for any reason, including, without limitation, the
execution and delivery of this Amendment.
SECTION 4. Conditions to Effectiveness of Amendment. This
Amendment shall become effective on the date (the "Amendment Effective Date") on
which the Agent shall have received this Amendment, executed and delivered by a
duly authorized officer of the Borrower, the Guarantor, the Required Lenders,
and the Agent.
SECTION 5. Delivery of Amendment to SBA. Pursuant to the terms
and provisions of the Intercreditor Agreement, the Agent shall deliver an
executed copy of this Amendment to the SBA following the Amendment Effective
Date.
SECTION 6. Certain Fees and Expenses. The Credit Parties
hereby agree, notwithstanding anything to the contrary set forth in the Loan
Documents (including, without limitation, Section 7.11(b) of the Loan
Agreement), to pay the reasonable fees and expenses (not to exceed $20,000) of
portfolio and process auditors retained by the Agent and the
-4-
<PAGE> 5
Lenders from and after the date hereof in connection with a review of the
portfolios of the Credit Parties and the businesses conducted by them, to be
undertaken reasonably promptly following the date hereof.
SECTION 7. Limited Effect. Except as expressly amended and
modified by this Amendment, the Existing Loan Agreement shall continue to be,
and shall remain, in full force and effect in accordance with its terms.
SECTION 8. Counterparts. This Amendment may be executed by the
parties hereto on any number of separate counterparts, each of which shall be an
original and all of which taken together shall constitute one and the same
instrument.
SECTION 9. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NORTH
CAROLINA, WITHOUT REFERENCE TO THE CONFLICTS OR CHOICE OF LAW PRINCIPLES
THEREOF.
[SIGNATURE PAGES FOLLOW]
-5-
<PAGE> 6
IN WITNESS WHEREOF, the Borrower, the Guarantor, the Lenders
and the Agent have caused this Fifth Amendment to be duly executed and delivered
by their duly authorized officers, all as of the day and year first above
written.
Borrower:
SIRROM INVESTMENTS, INC.
By /s/ Carl W. Stratton
-----------------------------------
Name: Carl W. Stratton
Title: Chief Financial Officer
Guarantor:
SIRROM CAPITAL CORPORATION
By /s/ Carl W. Stratton
------------------------------------
Name: Carl W. Stratton
Title: Chief Financial Officer
Fifth Amendment Signature Pages
<PAGE> 7
Agent:
FIRST UNION NATIONAL BANK, AS AGENT
By /s/ Jane W. Workman
------------------------------------
Name: Jane W. Workman
Title: Senior Vice President
Lenders:
FIRST UNION NATIONAL BANK, AS LENDER
By /s/ Jane W. Workman
------------------------------------
Name: Jane W. Workman
Title: Senior Vice President
FIRST AMERICAN NATIONAL BANK
By /s/ Samuel Ballesteros
------------------------------------
Name:
Title:
AMSOUTH BANK
By /s/ Scott Corrigan
------------------------------------
Name: Scott Corrigan
Title: Senior Vice President
FIRST TENNESSEE BANK
NATIONAL ASSOCIATION
By /s/ J. Todd Carter
------------------------------------
Name: J. Todd Carter
Title: Vice President
Fifth Amendment Signature Pages
<PAGE> 8
BANK OF AMERICA, FSB
By /s/ Nancy Halwig
------------------------------------
Name:
Title:
BANK ONE KENTUCKY, N.A.
By /s/ Robert J. Izzo
------------------------------------
Name: Robert J. Izzo
Title: First Vice President
CHASE BANK OF TEXAS
By /s/ John Dean
------------------------------------
Name: John Dean
Title: Senior Vice President
THE FIRST NATIONAL BANK
OF CHICAGO
By /s/ Thomas T. Bower
------------------------------------
Name: Thomas T. Bower
Title: First Vice President
Fifth Amendment Signature Pages
<PAGE> 9
FLEET BANK, N.A.
By /s/ Edward J. Walsh
------------------------------------
Name: Edward J. Walsh
Title: Senior Vice President
UNION BANK OF CALIFORNIA, N.A.
By /s/ Robert C. Nagel
------------------------------------
Name: Robert C. Nagel
Title: Vice President
Fifth Amendment Signature Pages
<PAGE> 10
ACKNOWLEDGED, ACCEPTED AND CONSENTED TO:
THE SMALL BUSINESS ADMINISTRATION
By:
---------------------------------
Name:
Title:
Fifth Amendment Signature Pages
<PAGE> 11
SCHEDULE 1 TO FIFTH AMENDMENT
Schedule 1 to
the Loan Agreement
LENDERS AND COMMITMENTS
AND ADDRESSES FOR NOTICE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
LENDER COMMITMENT AND COMMITMENT PERCENTAGE
- ---------------------------------------------------------------------------------------
Commitment Commitment
Percentage
- ---------------------------------------------------------------------------------------
<S> <C> <C>
First Union National Bank $14,000,000 28%
- ---------------------------------------------------------------------------------------
First American National Bank $3,000,000 6%
- ---------------------------------------------------------------------------------------
AmSouth Bank of Tennessee $6,000,000 12%
- ---------------------------------------------------------------------------------------
First Tennessee Bank National Association $3,000,000 6%
- ---------------------------------------------------------------------------------------
Bank of America, FSB $4,000,000 8%
- ---------------------------------------------------------------------------------------
Bank One Kentucky, N.A. $4,000,000 8%
- ---------------------------------------------------------------------------------------
Chase Bank of Texas $4,000,000 8%
- ---------------------------------------------------------------------------------------
The First National Bank of Chicago $4,000,000 8%
- ---------------------------------------------------------------------------------------
Fleet Bank, N.A. $4,000,000 8%
- ---------------------------------------------------------------------------------------
Union Bank of California, N.A. $4,000,000 8%
- ---------------------------------------------------------------------------------------
Total: $50,000,000 100%
- ---------------------------------------------------------------------------------------
</TABLE>
-1-
<PAGE> 12
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
LENDER ADDRESS
- ------------------------------------------------------------------------------------------
<S> <C>
First Union National Bank 301 South College Street
Charlotte, North Carolina 28288-0735
Attention:
Telephone:
Telecopy:
- ------------------------------------------------------------------------------------------
First American National Bank First American Center, 10th Floor
Nashville, TN 37237-1051
Attention: Samuel M. Ballesteros
Telephone: (615) 736-6246
Telecopy: (615) 736-6633
- ------------------------------------------------------------------------------------------
AmSouth Bank 333 Union Street, Suite 200
Nashville, TN 37201
Attention: Andy Grisham
Telephone: 615-291-5298
Telecopy: 615-291-5257
copy to:
1900 5th Ave. North, 6th Floor
Birmingham, AL 35203
Attention: Scott J. Corrigan
Telephone: 205-801-0121
Telecopy: 205-801-0745
- ------------------------------------------------------------------------------------------
First Tennessee Bank National Association Post Office Box 28100
Nashville, TN 37202
Attention: J. Todd Carter
Telephone: (615) 734-6191
Telecopy: (615) 734-6148
- ------------------------------------------------------------------------------------------
Bank of America, FSB 1230 Peachtree Street, Suite 3600
Atlanta, GA 30309
Attention: Nancy Halwig/John Yankauskas
Telephone: (404) 815-5427/(404) 815-5428
Telecopy: (404) 815-5919
- ------------------------------------------------------------------------------------------
</TABLE>
-2-
<PAGE> 13
<TABLE>
- ------------------------------------------------------------------------------------------
<S> <C>
Bank One Kentucky, N.A. One First National Plaza, Suite 0631
Chicago, IL 60670
Attention: Thomas T. Bower
Telephone: (312) 732-6904
Telecopy: (312) 732-1775
and
One First National Plaza, Suite 0286
Chicago, IL 60670
Attention: Christy S. Chapman
Telephone: (312) 732-5413
Telecopy: (312) 732-3596
- ------------------------------------------------------------------------------------------
Chase Bank of Texas [Address]
[Address]
Attention:
Telephone:
Telecopy:
- ------------------------------------------------------------------------------------------
The First National Bank of Chicago One First National Plaza, Suite 0631
Chicago, IL 60670
Attention: Thomas T. Bower
Telephone: (312) 732-6904
Telecopy: (312) 732-1775
and
One First National Plaza, Suite 0286
Chicago, IL 60670
Attention: Christy S. Chapman
Telephone: (312) 732-5413
Telecopy: (312) 732-3596
- ------------------------------------------------------------------------------------------
Fleet Bank, N.A. 777 Main Street C7M0H21
Hartford, CT 06115
Attention: Edward J. Walsh/Donald Nicholson
Telephone: (860) 986-3784 or 6933
Telecopy: (860) 986-7624
- ------------------------------------------------------------------------------------------
Union Bank of California, N.A. 350 California Street H-603
San Francisco, CA 94104-1402
Attention: Robert C. Nagel
Telephone: (415) 705-7189
Telecopy: (415) 705-5093
- ------------------------------------------------------------------------------------------
</TABLE>
-3-
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> DEC-31-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 654,421,452
<INVESTMENTS-AT-VALUE> 625,269,192
<RECEIVABLES> 5,995,072
<ASSETS-OTHER> 11,454,938
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 642,719,204
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 242,277,000
<OTHER-ITEMS-LIABILITIES> 10,849,148
<TOTAL-LIABILITIES> 253,126,148
<SENIOR-EQUITY> 397,274,134
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 37,229,196
<SHARES-COMMON-PRIOR> 37,229,196
<ACCUMULATED-NII-CURRENT> 10,336,565
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 225,238
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (29,152,284)
<NET-ASSETS> 389,593,056
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 17,046,709
<OTHER-INCOME> 1,658,812
<EXPENSES-NET> 8,368,956
<NET-INVESTMENT-INCOME> 10,336,565
<REALIZED-GAINS-CURRENT> 202,946
<APPREC-INCREASE-CURRENT> (34,525,526)
<NET-CHANGE-FROM-OPS> (23,963,723)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10,051,883
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (1,901,206)
<ACCUMULATED-NII-PRIOR> 12,949,064
<ACCUMULATED-GAINS-PRIOR> (6,324,308)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 4,593,370
<GROSS-EXPENSE> 8,368,956
<AVERAGE-NET-ASSETS> 409,354,745
<PER-SHARE-NAV-BEGIN> 11.38
<PER-SHARE-NII> .28
<PER-SHARE-GAIN-APPREC> (.92)
<PER-SHARE-DIVIDEND> (.27)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.47
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 225,539,000
<AVG-DEBT-PER-SHARE> 6.06
</TABLE>
