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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
for Annual and Transition Reports Under Section 13
or 15(d) of the Securities Exchange Act of 1934
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to ____________
Commission File No.:
SIRROM CAPITAL CORPORATION
(exact name of Registrant as specified in its charter)
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<S> <C> <C>
TENNESSEE 62-1583116
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
500 CHURCH STREET
SUITE 200
NASHVILLE, TENNESSEE 37219
(Address of principal executive offices)
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Registrant's telephone number, including area code: (615) 256-0701
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, NO
PAR VALUE
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods as the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
On March 25, 1998, the aggregate market value of the Registrant's common stock
held by nonaffiliates of the Registrant was approximately $947,579,775.70 based
upon a closing price of the Registrant's common stock of $30 3/8 on that date
and assuming executive officers and directors of the Registrant are affiliates.
On March 25, 1998, there were 37,094,708 shares of the Registrant's common
stock, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's definitive proxy statement for the Annual Meeting of Shareholders
to be held on April 17, 1998 is incorporated by reference into certain sections
of Part III. Certain exhibits previously filed with the Securities and
Exchange Commission are incorporated by reference into Part IV.
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PART I
ITEM 1. BUSINESS OF THE COMPANY
HISTORY
Sirrom Capital Corporation ("Sirrom" or the "Company") was incorporated
under the laws of the State of Tennessee in November 1994 and is a
non-diversified, closed-end investment company that has elected to be treated as
a business development company (a "BDC") under the Investment Company Act of
1940, as amended, (the "1940 Act"). The Company's principal executive offices
are located at 500 Church Street, Suite 200, Nashville, Tennessee 37219, and its
telephone number is (615) 256-0701.
The Company is the successor to Sirrom Capital, L.P., a Tennessee limited
partnership (the "Partnership"), which was organized under the laws of Tennessee
in 1991. Pursuant to a conversion (the "Conversion") consummated on February 1,
1995, all partners of the Partnership (the "Partners") transferred their
Partnership interests to the Company in exchange for the issuance of 10,100,232
shares of Common Stock. The Common Stock was received by each Partner in
proportion to the Partner's percentage interest in the Partnership. Following
this exchange, the Partnership was dissolved and liquidated by operation of law,
and all of the assets and liabilities of the Partnership (including the small
business investment company ("SBIC") license which was obtained by the
Partnership in May 1992) were assigned and transferred to the Company. In August
1996, the Company transferred its SBIC operations, including its SBIC license,
assets and liabilities to Sirrom Investments Inc., ("SII"), its wholly-owned
subsidiary, and acquired Harris Williams & Co., a Virginia corporation, ("Harris
Williams"), which, since the acquisition, has operated as a "C" corporation and
a wholly-owned subsidiary of the Company. In December 1996, the Company formed
Sirrom Funding Corporation ("SFC"), a special purpose, bankruptcy remote
subsidiary, as the borrower under its [$100.0] million five-year revolving
credit facility (the "ING Credit Facility"). Unless otherwise indicated, all
references to the Company include the Partnership, SII, SFC and Harris Williams
and their respective historical operations.
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BUSINESS
Sirrom is a specialty finance company that primarily makes loans to small
businesses. The Company believes the market for small commercial loans is
underserved by traditional lending sources and that competitors generally are
burdened with an overhead and administrative structure that hinders them from
competing most effectively in this market. The Company, which was founded in May
1992 and is based in Nashville, Tennessee, has experienced significant growth in
both the size and diversity of its loan portfolio. At December 31, 1997, the
Company had loans outstanding with a fair value of $412.0 million to 195
companies in a variety of industries located in 29 states, Washington, D.C., and
Canada. The fair values of the Company's loan portfolio balances at December 31,
1994, 1995 and 1996 were $72.3 million, $144.9 million and $221.5 million,
respectively. The average rate of interest on the Company's loan portfolio at
December 31, 1997 was 13.3%. The Company's strategic objective is to provide
financial and various other services to small and medium sized growth
businesses. The Company traditionally has focused and will continue to focus on
making loans with equity features to borrowers that the Company believes have
certain characteristics, including the potential for significant growth,
adequate collateral coverage, experienced management teams with a significant
ownership interest in the borrower, sophisticated outside equity investors and
profitable operations. To develop new lending opportunities, the Company markets
to an extensive referral network comprised of venture capitalists, investment
bankers, attorneys, accountants, commercial bankers and business brokers.
Generally, the Company's investments are structured as loans that initially
range from $500,000 to $5.0 million in size and are evidenced by debt securities
that are accompanied by warrants to acquire equity securities of the borrower.
These warrants usually have a nominal exercise price ($.01 per share).
Typically, the loans are collateralized by a security interest in assets of the
borrower and are generally senior to the investments of sophisticated equity
investors. The personal guaranty of the major shareholder of the borrower or
other collateral may also be required. The debt securities issued to evidence
the Company's loans generally carry a fixed rate of interest and have a maturity
of five years from their respective dates of issuance. In most cases, the loans
are structured to require the payment of interest only on a monthly basis, with
a single payment of principal at maturity. The Company typically charges
borrowers a processing fee of approximately 2.0% to 2.5% of the amount of each
loan. Unlike most lenders, the Company does not impose prepayment penalties on
borrowers that repay loans prior to maturity. Instead, the Company's warrants
typically contain a "ratchet" provision that increases the Company's equity
position, by one to three percentage points per year, until repayment of the
loan in full. Although the Company's loans provide for a five year maturity, the
warrant "ratchet" may have the effect of encouraging borrowers to repay loans as
soon as possible. The Company benefits from such repayments, because of the
direct relationship that exists between the Company's ability to generate asset
turnover (i.e., redeployment of capital) and return on equity to shareholders.
The Company has broadened its geographic market nationwide with offices
presently located in Nashville, Tennessee, San Francisco, California, and
Stamford, Connecticut. In addition, the Company has entered into a joint venture
agreement to make secured loans with warrants to small private companies located
in Canada on a joint basis with The Toronto-Dominion Bank ("TD"). The Company
has recently increased its commitment to make up to $100.0 million (in Canadian
dollars) of loans to Canadian companies, which has been matched by a $150.0
million (in Canadian dollars) commitment from TD. The parties have created a
Canadian corporation, SCC Canada Inc. ("SCC Canada"), 60% of which is owned by
TD and 40% of which is owned by the Company. SCC Canada, which is located in
Toronto, Canada, serves as the originator and servicer of loans. In its capacity
as originator, SCC Canada identifies potential loan investments and collects a
processing fee when the loan is funded. SCC Canada also services each loan and
collects a servicing fee from TD and the Company. SCC Canada does not have the
ability to contractually obligate the Company or TD and does not fund the loans
with its own capital. The loans themselves are funded directly to the borrowers
from TD and the Company, and the Company and TD individually approve their
respective loans to each borrower identified by SCC Canada. SCC Canada targets
borrowers that have characteristics similar to the Company's U.S. borrowers.
During the first quarter of 1998, the Company requested an exemptive order from
the Commission that would permit the Company to transfer during the second
quarter of 1998 its Canadian assets to a wholly-owned subsidiary that will be
registered as an investment company under the 1940 Act and will either elect RIC
status under the Code or be established as a single member LLC. This transfer
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will allow the Company to establish a separate Canadian denominated credit
facility to leverage these investments, partially hedge its exchange rate risk
and provide funding for additional Canadian loans.
The Company has also begun to diversify its operations by making debt and
preferred stock investments in public companies under the name Tandem Capital,
Inc. The target market for this product is micro-cap companies with revenues
typically ranging from $20.0 million to $100.0 million. The typical investment
ranges from $3.0 million to $10.0 million, is structured to provide a current
yield, as well as an equity component (i.e., loan with warrants, convertible
debt, or convertible preferred stock) and will typically be unsecured or
subordinate to existing lenders. The Company has marketed this product through
its existing referral network and presently markets these investments under the
name Tandem, but the Company funds such investments from Sirrom. During the
first quarter of 1998, the Company requested an exemptive order from
the Commission that would permit the Company to transfer these investments
during the second quarter of 1998 to a wholly-owned subsidiary, named Tandem
Capital, LLC, which will be registered as an investment company under the 1940
Act. This transfer will offer the Company the flexibility to establish a
separate credit facility to leverage these investments.
In order to broaden the range of services it offers to businesses in its
target market, the Company acquired Harris Williams, a merger and acquisition
advisory firm located in Richmond, Virginia, in August 1996. Harris Williams
provides advisory services with respect to small and medium-sized companies
throughout the United States that are similar in size to Sirrom's portfolio
companies. Sirrom's management believes that the acquisition of Harris Williams
provides the Company with an opportunity to obtain significant fee income and
cross-sell services between the two companies.
The Company intends to continue to diversify its operations by acquiring an
asset-based lender. The Company presently identifies numerous asset-based
lending opportunities through its extensive referral network and believes the
addition of this business line will complement its core business line. The
Company is in the process of identifying an appropriate acquisition candidate
and presently intends to consummate an acquisition in the second quarter of
1998.
SELECTION OF LOAN AND INVESTMENT OPPORTUNITIES
Since inception, the Company has identified certain common characteristics
of borrowers that it believes will create a superior small business portfolio.
Although the criteria listed below may not be applied in every instance and
their importance may vary depending on the relevant circumstances, these
criteria generally are applied in the Company's investment decisions.
Growth. The potential borrower typically must have an annual projected
growth rate of at least 20%. Anticipated growth is a key factor in determining
the potential value of warrants in the Company's equity portfolio.
Liquidation Value of Assets. While the Company, in its core business, does
not market itself as an asset-based lender, the liquidation value of assets
securing the loans is an important component in the credit decision. Valuations
include both hard assets (accounts receivable, inventory and property, plant and
equipment), as well as intangibles, such as customer lists, networks, databases
and recurring revenue streams.
Sophisticated Equity Shareholders. Many of the borrowers in the Company's
portfolio have sophisticated equity investors whose equity position is
subordinate to the debt securities of the Company. These investors allow the
Company to maximize its resources by enhancing the due diligence process and
financial sophistication of the borrower, and by providing increased controls
and a source of potential additional follow-on capital. The interest and support
of sophisticated equity investors tends to increase the Company's confidence in
the borrower, its management team and the potential long-term value of the
borrower's business.
Experienced Management Teams. The Company seeks to identify potential
borrowers that have management teams that are experienced, have a significant
ownership interest in the borrower and include a chief executive officer and
chief financial officer who demonstrate the ability to accomplish the objectives
set forth in the borrower's business plan.
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Profitable Operations. The Company focuses on portfolio companies that
have positive earnings from operations (before interest, depreciation and
amortization). The Company does not typically lend to start-up companies.
Exit Strategy. Prior to making an investment, the Company analyzes the
potential for the borrower to repay its loan and to experience a liquidity event
that would allow the Company to realize value for its equity position. Liquidity
events include, without limitation, an initial public offering, a sale of the
borrower or a repurchase by the borrower of the Company's equity position from
cash flows or a refinancing by a bank or asset-based lender.
LOAN REPAYMENT; VALUATION AND REALIZATION OF EQUITY INVESTMENTS
The Company's investments in small businesses are made with the intent of
having the loans repaid within five years and liquidating the equity portion of
the investments for cash within five to ten years. If an investment is
successful, not only will the loan made by the Company have been repaid with
interest, but the Company may be in a position to realize a gain on the equity
security obtained in connection with the loan. Although the Company expects to
dispose of an investment after a certain time, situations may arise in which it
may hold equity securities for a longer period. From the Company's inception
through December 31, 1997, $599.3 million of loans have been originated and
$125.2 million, or 20.9%, have been repaid.
Each loan the Company makes generally has a related five-year warrant to
buy common stock of the borrower. These warrants are exercisable at a nominal
price (usually $.01 per share) and typically represent 3% to 15% of a borrower's
fully diluted common stock. The warrants are generally structured to provide
both registration rights that entitle the Company to sell the equity securities
of the borrower in a public offering and a put option that requires the borrower
to repurchase the warrant after five years at the fair market value of the
shares issuable. As of December 31, 1997, the Company had stock positions in 13
publicly traded companies that had a fair market value of $13.4 million on that
date. In accordance with the Company's valuation policy, the securities were
carried at a fair value of $10.5 million at December 31, 1997. In addition, at
that date, the Company owned common stock and preferred stock investments in
approximately 25 non-public companies and owned non-traded equity interests in 7
public companies with a fair value of $44.7 million. The Company has also
converted numerous equity positions to cash since inception with gains
approximating $42.1 million. At December 31, 1997, the Company held warrant
positions in 16 public companies that it carried on its books at a fair value of
$2.8 million and warrants in approximately 180 private companies that it carried
at a fair value of $21.7 million. The fair value of the Company's loans and
investments is determined in good faith by the Board of Directors in accordance
with the Company's valuation policy. For a discussion of the Company's valuation
policy see "Summary of Significant Accounting Policies" in the Notes to
Financial Statements included elsewhere in this Report.
TEMPORARY INVESTMENTS
Pending investment in the types of securities described above, the Company
will invest its otherwise uninvested cash in (i) federal government or agency
issued or guaranteed securities that mature in 15 months or less; (ii)
repurchase agreements with banks whose deposits are insured by the Federal
Deposit Insurance Corporation (the "FDIC") (an "insured bank"), with maturities
of seven days or less, the underlying instruments of which are securities issued
or guaranteed by the federal government; (iii) certificates of deposit in an
insured bank with maturities of one year or less, up to the amount of the
deposit insurance; (iv) deposit accounts in an insured bank subject to
withdrawal restrictions of one year or less, up to the amount of deposit
insurance; (v) certificates of deposit or deposit accounts in an insured bank in
amounts in excess of the insured amount if the insured bank is deemed
"well-capitalized" by the FDIC; or (vi) high quality debt securities maturing in
one year or less from the time of investment in such high quality debt
securities.
OPERATIONS
Marketing. The Company presently has offices in Nashville, Tennessee, San
Francisco, California and Stamford, Connecticut, from which its sixteen lending
officers cover certain particular geographic territories.
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In order to originate loans, these lending officers make use of an extensive
referral network comprised of investment bankers, venture capitalists,
attorneys, accountants, commercial bankers and business brokers. A lending
officer typically receives between ten and twenty informational packages per
month from these sources. On average, each lending officer closes one new loan
per month.
Loan Approval Process. The Company's lending officers review informational
packages in order to identify potential borrowers. After identifying applicants
that meet the Company's investment criteria, the loan officer, in conjunction
with his or her Regional Manager, selects applicants that merit additional
consideration. See "-- Selection of Loan and Investment Opportunities." The
lending officer then conducts a more thorough investigation and analysis ("due
diligence") of the applicant. The due diligence process usually includes on-site
visits, review of historical and prospective financial information, interviews
with management, employees, customers and vendors of the applicant, background
checks and research on the applicant's product, service or particular industry.
Upon the completion of due diligence, the lending officer completes a
standard borrower profile that summarizes the borrower's historical financial
statements, its industry and management team, and its conformity to the
Company's investment criteria. The lending officer then presents the profile,
along with his due diligence findings, to his or her Regional Manager who has
the authority to approve loans and investments aggregating up to $2.0 million,
which are then ratified by a Loan Approval Committee presently comprised of
David M. Resha, Donald F. Barrickman, Carl W. Stratton, David M. Traversi, John
S. Scott and Kathy Harris. Loans and investments aggregating between $2.0
million and $3.0 million must be approved by the Regional Manager and David M.
Resha and ratified by the Loan Approval Committee. Loans and investments
aggregating in excess of $3.0 million must be approved, in advance, by the Loan
Approval Committee. Additional due diligence is conducted by the Company's
attorneys prior to funding the loan.
Loan Grading. In 1994, the Company implemented a system by which it graded
all loans on a scale of 1 to 6. The system was intended to reflect the
performance of the borrower's business, as well as the collateral coverage of
the loan and other factors considered relevant. During late 1995, the system was
refined to reflect management's additional experience in monitoring its growing
loan portfolio. Each loan is evaluated by the respective lending officer and the
Chief Operating Officer based on the financial performance of the borrower and
other borrower-specific risk factors that may include management quality,
capitalization, collateral coverage, value of intangible assets and availability
of working capital. All new loans are assigned a grade 3 for a period of six
months in the absence of an extraordinary event during that period. After the
initial six months, loans are assigned a grade of 1 to 6. Thereafter, all loans
are reviewed and graded on at least a quarterly basis. To monitor and manage the
risk in the overall portfolio, management tracks the weighted average portfolio
grade. The weighted average grade was 3.04 and 3.10 at December 31, 1997 and
1996, respectively. The Company believes that weighted average grades between
2.75 and 3.25 represent the current normal range for the portfolio.
Management believes that loans with a grade 1 involve the least amount of
risk in the Company's portfolio, as the borrower is performing well above
expectations financially, and other risk factors are clearly favorable.
Management believes that loans with a grade 2 involve low risk relative to other
loans in the Company's portfolio, as the borrower is performing above
expectations financially and the majority of risk factors are favorable.
Management believes that loans with a grade 3 involve an acceptable risk, as the
borrower is performing as expected financially and the other risk factors are
generally favorable.
Management believes that loans with a grade 4, while still involving an
acceptable level of risk, require additional attention from the lender. A loan
with a grade 4 typically involves a borrower that is performing marginally below
expectations, and the existence of short term trends or negative events that
have created some concern. However, other risk factors are favorable. Loans in
this category require a proactive action plan to be executed by the borrower's
management and monitored by the lender. A grade 4 is considered to be a
temporary rating (generally no longer than six months) that will result in
either an upgrade or downgrade. The loan is serviced either by the lending
officer or more often by a member of the Company's workout area. As of December
31, 1997 and 1996, the Company's portfolio consisted of 18 and 9 loans,
respectively, graded 4. The aggregate principal balance of loans graded 4 at
December 31, 1997 and 1996, respectively, was $49.0 million
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and $17.4 million, which represented 10.2% and 7.4%, respectively, of the total
portfolio balance at such dates. Since late 1995 when the Company redefined the
loan grading system to reflect management's additional experience in monitoring
its growing portfolio, the percentage of the principal balance of loans graded 4
to the total portfolio balance has typically ranged between 10% and 15%, with an
occasional decrease to as low as 7%. The Company believes the current percentage
to be within the normal range of variability and expects significant variability
in the future in the absolute dollar amount of loans graded 4 and in the ratio
of loans graded 4 to the total portfolio balance.
Management believes that loans with a grade 5 involve greater than an
acceptable level of risk. The borrower is performing substantially below
expectations financially and negative trends persist. Other risk factors are
marginal and the execution of an action plan is critical to the long term
viability of the borrower. The loan may be in default, and interest is probably
not being accrued, but the Company's management believes the borrower's
management is capable of executing a plan to return the borrower to an
acceptable risk level.
Management believes that loans with a grade 6 involve an unacceptable level
of risk with substantial probability of loss. The borrower has grossly failed to
perform financially over an extended period and other unacceptable risk factors
exist. Rather than rely on borrower's management, the Company has decided to
implement its own action plan to return the borrower to a satisfactory risk
level or to liquidate the borrower or its collateral. Interest is not being
accrued, and the Company has charged off or fully expects to charge off some
part of the loan.
Loans graded 5 or 6 are placed on the Company's Credit Watch Portfolio and
are serviced by a member of the workout area. The workout area consists of four
officers of the Company and an analyst. See "-- Delinquency and Collections"
below. At December 31, 1997 and 1996, the Company had loans to 16 companies with
an aggregate principal balance of $27.7 million, and 13 companies with an
aggregate principal balance of $15.9 million, respectively, that were graded a 5
or 6 and that were not accruing interest, which represented 6.5% and 6.8%,
respectively, of the total portfolio balance. The Company believes that the
current normal range for loans graded 5 and 6 is 6% to 10% of the total
portfolio balance. Given the nature of the Company's portfolio, the Company
expects some variability in the absolute dollar amount of loans graded 5 and 6
and in the ratio of loans graded 5 and 6 to the total portfolio balance.
Loan Portfolio. During the year ended December 31, 1997, the Company
originated loans to 150 companies, including 102 new borrowers, in the aggregate
principal amount of approximately $282.4 million, in various industries. During
the same period, the Company realized $23.5 million in net equity gains and
realized approximately $12.8 million in loan and other losses. The following
table sets forth the amount of the Company's loans originated and repaid for the
periods indicated, as well as realized gains and realized losses.
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<CAPTION>
FROM
INCEPTION
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, --------------------------------------------------
1992 1993 1994 1995 1996 1997
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(DOLLARS IN THOUSANDS)
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Loans originated................... $14,639 $31,470 $40,785 $101,505 $131,962 $282,352
Loans repaid....................... 0 2,013 7,585 14,414 32,630 67,743
Loans converted to equity (net).... 0 500 2,450 3,806 8,695 7,076(1)
Realized losses on loans and other
investments...................... 0 1,155 1,155 1,500 2,048 12,771
Net realized gains on equity
investments...................... 198 355 617 3,220 11,511 23,493
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(1) Loans converted to equity in 1997 includes $2.1 million of loans converted
into publicly traded securities upon the sale of two portfolio companies to
public companies.
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The table below sets forth, as of December 31, 1997, the 29 states and
other locations in which the Company's borrowers maintain their principal place
of business, the number of borrowers and the percent of total loan principal
balance outstanding to borrowers located in such states.
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<CAPTION>
% OF TOTAL
LOAN PRINCIPAL NUMBER
BALANCE OF
STATE OUTSTANDING BORROWERS
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Alabama..................................................... 1.1% 3
California.................................................. 11.0 20
Colorado.................................................... 1.8 3
Connecticut................................................. 1.6 3
Florida..................................................... 14.4 21
Georgia..................................................... 11.0 19
Illinois.................................................... 3.7 8
Indiana..................................................... 0.7 2
Kentucky.................................................... 4.0 8
Maryland.................................................... 1.8 3
Massachusetts............................................... 2.0 4
Michigan.................................................... 1.2 2
Minnesota................................................... 0.8 2
North Carolina.............................................. 5.9 13
New Jersey.................................................. 1.6 4
Ohio........................................................ 2.8 6
Pennsylvania................................................ 3.7 5
Tennessee................................................... 8.4 13
Texas....................................................... 10.4 20
Virginia.................................................... 2.5 7
Wisconsin................................................... 1.2 2
*Other states(8)............................................ 8.4 27
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Total............................................. 100.0% 195
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* The other states in which the Company has only a single borrower are Hawaii,
Iowa, Maine, Missouri, New Mexico, New York, Oklahoma and South Carolina. The
Company also has 3 borrowers in Washington, D.C. and 16 borrowers in Canada
representing 2.0% and 3.4%, respectively, of the total loan principal balance
outstanding.
DELINQUENCY AND COLLECTIONS
When a borrower fails to make a required payment by the tenth of the month,
it is notified by telephone by the Company's Controller who discusses with the
borrower the expected timing of the payment. If the payment is delinquent more
than 30 days, the Chief Operating Officer and responsible lending officer
jointly determine an appropriate course of action on the account, which could
include transferring responsibility for the loan to the Company's workout area.
When a loan reaches 60 days past due, the Company normally discontinues accruing
interest, and all loans over 60 days past due become the responsibility of the
Company's workout area. Management determines the most appropriate course of
action given the particular circumstances with respect to protecting its
interest in a defaulted loan, which may involve, among other things, the sale of
the borrower or foreclosure proceedings.
At December 31, 1997, the Company had loans to 16 companies with an
aggregate principal balance of $27.7 million that were graded a 5 or 6 and that
were not accruing interest. Based on the particular circumstances involved, the
Board of Directors estimated the aggregate fair value of these loans to be $17.1
million, and therefore provided for unrealized depreciation from original cost
of $10.1 million on these loans after accounting for the original issue discount
on these loans of $0.5 million.
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CUSTODIAL SERVICES
Pursuant to a Custodial Services Agreement, First American National Bank
(Trust Department) acts as the custodian of all the Company's and SII's
portfolio assets in accordance with the 1940 Act and, with respect to SII's
portfolio assets, in accordance with SBA Regulations.
MERGER AND ACQUISITION ADVISORY SERVICES
In August 1996, the Company acquired Harris Williams. Harris Williams is a
merger and acquisition advisory firm that currently focuses exclusively on
providing advisory services to small and medium sized companies throughout the
United States that are similar in size to Sirrom's portfolio companies. Harris
Williams' clients have included divisions of large companies, portfolio
companies of professional investor groups, and privately owned businesses. The
typical Harris Williams engagement includes a monthly retainer and a success fee
contingent upon closing the transaction. The firm has consistently grown since
inception with pre-tax income increasing from $207,000 for the year ended
December 31, 1993 to $3.7 million for the year ended December 31, 1997 and with
the number of professionals increasing from two to twenty-one at the present
time. Management believes that future growth of Harris Williams is attainable by
hiring additional merger and acquisition professionals, gaining additional
market share and realizing the benefits of its rapidly increasing client base,
which should expand as a result of its relationship with the Company. However,
no assurance can be given that such growth can be achieved.
COMPETITION
The Company's principal competitors include financial institutions, venture
capital firms and other nontraditional lenders. Many of these entities have
greater financial and managerial resources than the Company. The Company
believes that it competes effectively with such entities primarily on the basis
of the quality of its service, its reputation and the timely credit analysis and
decision-making processes it follows, and to a significantly lesser degree on
the interest rates, maturities and payment schedules it offers on the loans to
borrowers.
EMPLOYEES
The Company currently has 48 employees, excluding 26 employees of Harris
Williams. The Company believes its relations with its employees are excellent.
The Company believes that it has maintained low overhead as a percentage of its
assets as a result of outsourcing job functions not directly related to the
marketing, underwriting and workout of small business loans or the executive
management of the Company.
THE COMPANY'S OPERATIONS AS A BDC
As a BDC, the Company may not acquire any asset other than Qualifying
Assets unless, at the time the acquisition is made, Qualifying Assets represent
at least 70% of the value of the Company's total assets. The principal
categories of Qualifying Assets relevant to the business of the Company are the
following:
(i) securities purchased in transactions not involving any public
offering from the issuer of such securities, which issuer is an
eligible portfolio company. An eligible portfolio company is defined
as any issuer that (a) is organized and has its principal place of
business in the United States, (b) is not an investment company other
than a SBIC wholly-owned by the BDC and (c) does not have any class of
publicly-traded securities with respect to which a broker may extend
margin credit;
(ii) securities received in exchange for or distributed with respect
to securities described above, or pursuant to the exercise of options,
warrants or rights relating to such securities; and
9
<PAGE> 10
(iii) cash, cash items, Government securities, or high quality
debt securities maturing in one year or less from the time of
investment.
The Company may not change the nature of its business so as to cease
to be, or withdraw its election as, a BDC unless authorized by vote of a
majority, as defined in the 1940 Act, of the Company's shares. Since the
Company made its BDC election, it has not made any substantial change in its
structure or in the nature of its business.
The Company is permitted, under specified conditions, to issue
multiple classes of indebtedness and one class of stock senior to its common
stock if its asset coverage of any Senior Security is at least 200% immediately
after each such issuance. Debt securities issued to the SBA are not subject to
this asset coverage test. In connection with the transfer of its SBIC
operations to SII and the formation of SFC, the Company obtained certain
exemptive relief from the Commission with respect to certain provisions of the
1940 Act. Accordingly, the Company, SII and SFC may each incur indebtedness so
long as after incurring such indebtedness the Company, individually, and the
Company and each of its investment company subsidiaries on a consolidated
basis, meets the 200% asset coverage test. In addition, while Senior
Securities are outstanding, provisions must be made to prohibit any
distribution to shareholders or the repurchase of such securities or shares
unless the Company meets the applicable asset coverage ratios at the time of
the distribution or repurchase. The Company may also borrow amounts up to 5.0%
of the value of its total assets for temporary or emergency purposes.
ITEM 2. PROPERTIES
The Company does not own any properties and leases 13,262 square feet of
office space in Nashville pursuant to a five year lease, 3,433 square feet of
office space in San Francisco pursuant to a 10 year lease and 3,337 square feet
of office space in Stamford pursuant to a 5 year lease.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF REGISTRANT
Set forth below is certain information as of March 13, 1998 with respect to the
Company's executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
George M. Miller, II 38 President, Chief Executive Officer and Director
David M. Resha 51 Chief Operating Officer
Carl W. Stratton 39 Chief Financial Officer
H. Hiter Harris, III 37 Co-Chairman of Harris Williams
Christopher H. Williams 35 Co-Chairman of Harris Williams
</TABLE>
George M. Miller, II, is President and Chief Executive Officer and
co-founded the Company in August 1991. Prior to August 1991, Mr. Miller worked
for two years as a vice president in the Investment Banking Group of SunTrust
Equitable Securities Corporation. From 1987 to 1989, Mr. Miller worked as an
associate in the Corporate Finance department of J.C. Bradford & Co. Prior to
this, Mr. Miller spent four and one-half years on active duty in the United
States Marine Corps. Mr. Miller holds a Master of Business Administration from
the University of North Carolina at Chapel Hill and a Bachelor of Science degree
from the University of Tennessee.
10
<PAGE> 11
David M. Resha joined the Company in July 1995 and is responsible for
the day-to-day operations of the Company. His primary role is risk management
associated with the loan portfolio of the Company, including loan origination,
portfolio management and workout activities. Mr. Resha is a twenty-five year
veteran commercial banker. Most recently, he was Senior Vice President at First
Union National Bank of Tennessee where he managed the middle market/corporate
banking group. He held a similar position with Dominion Bank before it was
merged with First Union National Bank of Tennessee. Mr. Resha holds a Bachelor
of Business Administration degree from Loyola University in New Orleans and a
Master of International Management degree from American (Thunderbird) Graduate
School in Glendale, Arizona.
Carl W. Stratton joined the Company in October 1995 and has served as
Chief Financial Officer since April 1996. From October 1995 through April
1996, Mr. Stratton held the position of Vice President--Workouts with the
Company. From 1991 to 1995, Mr. Stratton was chief financial officer of
International Citrus Corporation, and from 1986 to 1991, Mr. Stratton was chief
financial officer of Dove Computer Corporation. From 1981 to 1985, Mr.
Stratton held a variety of engineering and manufacturing positions with E.I.
du Pont de Nemours, Inc. & Company, Incorporated. Mr. Stratton is also a
director of International Citrus Corporation. Mr. Stratton holds a Master of
Business Administration degree from the University of North Carolina at Chapel
Hill and a Bachelor of Science in Chemical Engineering degree from Lafayette
College.
H. Hiter Harris, III co-founded Harris Williams in 1991 and has served
as co-chairman of Harris Williams since the Company's acquisition of the firm
in August 1996. From 1987 to 1991, Mr. Harris served as Vice President of
Bowles Hollowell & Conner and from 1983 to 1985 served as pricing coordinator
for Crestar Bank. Mr. Harris holds a Master of Business Administration degree
with distinction from Harvard Graduate School of Business Administration and
Bachelor of Science degrees in Mathematics and Economics from Hampden-Sydney
College.
Christopher H. Williams co-founded Harris Williams in 1991 and has
served as co-chairman of Harris Williams since the Company's acquisition of the
firm in August 1996. From 1987 to 1991, Mr. Williams served as Vice President
of Bowles Hollowell & Conner. Mr. Williams holds a Master of Business
Administration from Harvard Graduate School of Business Administration and a
Bachelor of Arts in Business Administration degree from Washington and Lee
University.
11
<PAGE> 12
PART II
ITEM 5. MARKET PRICE
The Company has distributed and currently intends to continue to distribute
at least 90% of its net operating income and net realized short-term capital
gains, if any, on a quarterly basis to its shareholders. The Company also
intends to distribute all net realized long-term capital gains, if any, in an
annual dividend. There is no assurance that the Company will achieve investment
results or maintain a tax status that will permit any specified level of cash
distributions or year-to-year increases in cash distributions. See "Reinvestment
Plan," "Regulation" and "Taxation." Pursuant to the Reinvestment Plan, a
shareholder whose shares are registered in his own name can elect to have all or
a portion of the dividends reinvested in additional shares of Common Stock by
the Reinvestment Plan Administrator, by letter to the Company received prior to
the corresponding dividend declaration date.
The Common Stock is listed on the NYSE under the symbol SIR. Prior to
January 7, 1998, the Common Stock was quoted on the Nasdaq National Market under
the symbol SROM. On March 5, 1998, the last reported sale price of the Common
Stock was $25.75 per share (a 184% premium to net asset value per share on such
date). The Company presently has 167 holders of record and approximately 6,400
beneficial owners. The following table sets forth the range of high and low
closing sale prices of the Common Stock as reported on the Nasdaq National
Market, the net asset value per share, the premium of high closing sale price to
net asset value and the premium of low closing sale price to net asset value for
the period from February 6, 1995, when public trading of the Common Stock
commenced, through the fourth quarter of 1997. The Common Stock has historically
traded at a premium to net asset value per share. There can be no assurance,
however, that such premium will be maintained. The information contained in the
chart below reflects the two-for-one stock split effective January 30, 1998.
<TABLE>
<CAPTION>
CLOSING
SALE PRICE
---------- DIVIDEND
HIGH LOW DECLARED
-------- -------- --------
<S> <C> <C> <C> <C> <C>
1995
First Quarter (beginning February 6,
1995).................................... $ 5 13/16 $5 3/8 $.07
Second Quarter............................. 6 7/8 5 9/16 .13
Third Quarter.............................. 9 3/8 6 5/8 .12
Fourth Quarter............................. 10 8 3/8 .13
1996
First Quarter.............................. 11 7/8 9 5/16 .12
Second Quarter............................. 14 3/4 11 5/8 .13
Third Quarter.............................. 15 1/8 11 1/2 .16
Fourth Quarter............................. 19 3/16 15 1/8 .18
1997
First Quarter.............................. 21 5/8 17 3/8 .20
Second Quarter............................. 20 13 31/32 .21
Third Quarter.............................. 26 1/16 17 .24
Fourth Quarter............................. 27 7/8 21 1/4 .43(1)
</TABLE>
- ---------------
(1) Includes $.18 per share annual capital gain dividend declared in December
1997.
12
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth selected financial data of the Company,
which should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and with the Company's
Financial Statements and Notes thereto included elsewhere in this Report.
The selected financial data set forth below as of and for the period from
inception to December 31, 1992, and as of and for each of the five years in the
period ended December 31, 1997, have been derived, in part, from the financial
statements of the Company which have been audited by Arthur Andersen LLP,
independent public accountants, whose report for the period from inception to
December 31, 1992, and each of the five years in the period ended December 31,
1997, is included elsewhere in this Report.
<TABLE>
<CAPTION>
FROM
INCEPTION
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, -----------------------------------------------------------------
1992 1993 1994 1995 1996 1997
------------ ---------- ---------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Operating income:
Interest on investments................ $ 636 $ 3,515 $ 7,337 $ 13,452 $ 24,395 $ 41,297
Loan processing and other fees......... 282 699 901 1,900 3,166 6,989
Other income........................... -- -- -- 223 119 61
---------- ---------- ---------- ---------- ----------- ----------
Total operating income........... 918 4,214 8,238 15,575 27,680 48,347
Operating expenses:
Interest expense....................... 127 1,427 3,124 4,771 8,342 9,797
Salaries and benefits.................. -- -- -- 1,082 2,994 5,001
Management fees........................ 210 709 1,073 -- -- --
Other operating expenses............... -- 166 122 1,412 1,942 3,349
State income tax on interest........... -- 231 457 109 -- --
Amortization expense................... 8 54 118 208 543 865
---------- ---------- ---------- ---------- ----------- ----------
Total operating expenses......... 345 2,587 4,894 7,582 13,821 19,012
---------- ---------- ---------- ---------- ----------- ----------
Pretax income of unconsolidated
subsidiary............................. 43 207 553 812 3,264 3,699
---------- ---------- ---------- ---------- ----------- ----------
Net operating income..................... 616 1,834 3,897 8,805 17,123 33,034
Realized gain (loss) on investments...... 198 (799) (538) 1,759 9,463 10,722
Change in unrealized appreciation
(depreciation) of investments.......... 1,813 (50) 3,356 4,693 2,580 (1,612)
Provision for income taxes............... -- -- -- (1,020) (4,270) (838)
---------- ---------- ---------- ---------- ----------- ----------
Net increase in partners' capital and
shareholders' equity resulting from
operations............................. $ 2,627 $ 985 $ 6,715 $ 14,237 $ 24,896 $ 41,306
========== ========== ========== ========== =========== ==========
Per share:
Pretax operating income(1)............... $ .09 $ .24 $ .42 $ .55 $ .74 $ 1.04
Net increase in partners' capital and
shareholders' equity resulting from
operations(1)...................... .37 .12 .64 .89 1.08 1.30
Dividends(1)............................. -- -- -- .44(2) .59(2) 1.08(2)
Diluted weighted average shares
outstanding(1)......................... 7,096,000 8,548,000 10,444,000 15,979,000 23,110,000 31,658,000
OPERATING STATISTICS:
Number of portfolio companies with
loans outstanding at period end...... 17 38 57 91 122 195
Number of new portfolio companies...... 17 24 25 44 48 102
Principal amount of loans originated... $ 14,639 $ 31,470 $ 40,785 $ 101,505 $ 131,962 $ 282,352
Principal amount of loan repayments.... -- 2,013 7,585 14,414 32,630 67,743
Loan portfolio at period end........... 14,639 42,441 72,336 144,855 221,487 412,005
Net interest spread at period end(3)..... 5.6% 5.8% 5.5% 5.8% 5.9% 5.6%
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------
1992 1993 1994 1995 1996 1997
------- ------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents.......... $ 4,601 $ 1,633 $ 137 $ 195 $ 4,612 $ 3,025
Loans................... 14,639 42,441 72,336 144,855 221,487 412,005
Equity interests........ 4,233 3,591 7,577 15,912 34,966 55,211
Warrants................ 951 4,219 7,549 11,513 15,894 24,543
Total assets............ 24,954 53,425 91,804 177,870 288,013 509,236
Revolving credit
facilities........... -- -- 6,389 13,200 30,858 124,250
Debentures payable to
SBA.................. 10,000 34,000 51,000 73,260 90,000 90,000
Total shareholders'
equity............... 14,806 18,787 33,218 89,186 158,621 281,969
</TABLE>
- ---------------
(1) On January 5, 1998, Sirrom announced a two-for-one stock split effective
January 30, 1998. All information contained herein reflects such stock
split.
(2) For the year ended December 31, 1995, includes $.13 per share in dividends
declared and paid in the first quarter of 1996 related to 1995 earnings and,
with respect to the year ended December 31, 1996, includes $.18 in dividends
declared and paid in the first quarter of 1997 related to 1996 earnings and
excludes the $.13 per share in dividends paid in the first quarter of 1996
related to 1995 earnings. For the year ended December 31, 1997, includes
$.43 per share in dividends paid or to be paid in the first quarter of 1998
related to 1997 earnings and excludes the $.18 per share in dividends paid
in the first quarter of 1997 related to 1996 earnings.
(3) Net interest spread represents the weighted average gross yield on the
Company's interest bearing investments less the weighted average cost of
borrowed funds at the end of the respective periods shown.
14
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis of the financial condition and results of operations
of the Company should be read in conjunction with the Selected Financial Data,
the Company's Financial Statements and the Notes thereto and the other financial
data included elsewhere in this Report. The financial information provided
below has been rounded in order to simplify its presentation. However, the
ratios and percentages provided below are calculated using the detailed
financial information contained in the Financial Statements and the Notes
thereto and the financial data included elsewhere in this Report. The
financial information contained herein has been restated to reflect the
operations of Harris Williams as an unconsolidated subsidiary of the Company
accounted for by the equity method of accounting in conformity with the
requirements of the 1940 Act.
OVERVIEW
The following table summarizes selected financial information expressed as
a percentage of total operating income and the change from year to year.
<TABLE>
<CAPTION>
% OF TOTAL OPERATING INCOME PERCENTAGE CHANGE
----------------------------------------- ---------------------------------
YEAR ENDED DECEMBER 31, 1994 1995 1996 1997
----------------------------------------- VS. VS. VS. VS.
1993 1994 1995 1996 1997 1993 1994 1995 1996
----- ----- ----- ----- ----- ----- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest on investments............ 83.4% 89.1% 86.4% 88.1% 85.4% 108.7% 83.3% 81.3% 69.3%
Loan processing and other fees..... 16.6 10.9 12.2 11.4 14.4 28.9 110.9 66.6 120.7
Other income....................... 0.0 0.0 1.4 0.4 0.2 -- -- (46.6) (48.9)
----- ----- ----- ----- -----
Total Operating Income........... 100.0% 100.0% 100.0% 100.0% 100.0% 95.5 89.1 77.7 74.7
Interest expense................... 33.9 37.9 30.7 30.1 20.3 118.9 52.7 74.8 17.4
Salaries, benefits, and other
operating expenses............... 20.7 14.5 16.0 17.8 17.3 36.6 108.7 98.0 69.1
State income tax on interest....... 5.5 5.6 0.7 -- -- 97.8 (76.1) (100.0) --
Amortization expense............... 1.3 1.4 1.3 2.0 1.8 118.5 76.3 161.1 59.3
----- ----- ----- ----- -----
Total Operating Expenses......... 61.4 59.4 48.7 49.9 39.4 89.2 54.9 82.3 37.6
Equity in pre-tax income of
unconsolidated subsidiary........ 4.9 6.7 5.2 11.8 7.7 167.1 46.8 302.0 13.3
----- ----- ----- ----- -----
Net Operating Income............. 43.5% 47.3% 56.5% 61.9% 68.3% 112.5 125.9 94.5 92.9
===== ===== ===== ===== =====
</TABLE>
The following table summarizes the Company's operating results by quarter
for 1995, 1996 and 1997.
<TABLE>
<CAPTION>
MARCH JUNE SEPT. DEC. MARCH JUNE SEPT. DEC. MARCH JUNE
1995 1995 1995 1995 1996 1996 1996 1996 1997 1997
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest on investments........... $2,424 $3,231 $3,375 $4,422 $4,862 $5,586 $6,389 $7,558 $8,028 $9,624
Loan processing and other fees.... 541 313 706 340 921 652 797 796 1,694 1,262
Other income...................... -- -- -- 223 -- 62 28 29 18 12
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Operating Income.......... 2,965 3,544 4,081 4,985 5,783 6,300 7,214 8,383 9,740 10,898
Interest expense.................. 999 1,170 1,192 1,410 1,790 2,051 2,138 2,362 2,142 1,818
Salaries, benefits, and other
operating expenses.............. 673 436 620 765 1,216 1,172 1,270 1,279 1,405 1,899
State income tax on interest...... 52 11 -- 47 -- -- -- -- -- --
Amortization expense.............. 30 38 45 95 188 89 101 165 208 225
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Operating Expenses........ 1,754 1,655 1,857 2,317 3,194 3,312 3,509 3,806 3,755 3,942
Equity in pre-tax income of
unconsolidated subsidiary....... 194 8 408 202 795 627 1,151 691 241 1,020
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Operating Income............ $1,405 $1,897 $2,632 $2,870 $3,384 $3,615 $4,856 $5,268 $6,226 $7,976
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
SEPT. DEC.
1997 1997
------- -------
<S> <C> <C>
Interest on investments........... $10,978 $12,668
Loan processing and other fees.... 1,945 2,087
Other income...................... 15 16
------- -------
Total Operating Income.......... 12,938 14,771
Interest expense.................. 2,431 3,405
Salaries, benefits, and other
operating expenses.............. 2,166 2,880
State income tax on interest...... -- --
Amortization expense.............. 204 228
------- -------
Total Operating Expenses........ 4,801 6,513
Equity in pre-tax income of
unconsolidated subsidiary....... 915 1,522
------- -------
Net Operating Income............ $ 9,052 $ 9,780
======= =======
</TABLE>
15
<PAGE> 16
The Company's principal investment objectives are to achieve a high level
of income from the collection of interest and processing and financial advisory
fees and long-term growth in its shareholders' equity through the appreciation
in value of equity interests in its portfolio companies. The Company's and SII's
loans are typically made in the form of secured debt with relatively high fixed
interest rates accompanied by warrants to purchase equity securities of the
borrower. In addition to interest on investments, the Company and SII also
typically collect an up-front processing fee on each loan they originate. Harris
Williams typically obtains a monthly retainer fee for each transaction for which
it is retained and, in addition, a success fee when the transaction is
consummated.
RESULTS OF OPERATIONS
The Company's financial performance in the Statements of Operations is
comprised of four primary elements. The first is "net operating income," which
is the difference between the Company's income from interest, dividends, fees
and Harris Williams' pre-tax income, and its total operating expenses, including
interest expense. The second element is "realized gain (loss) on investments,"
which is the difference between the proceeds received from the disposition of
portfolio assets and their stated costs at the beginning of the period. The
third element is the "change in unrealized appreciation (depreciation) of
investments," which is the net change in the fair values of the Company's
portfolio assets compared with their fair values at the beginning of the period
or their stated costs, as appropriate. Generally, "realized gain (loss) on
investments" and "change in unrealized appreciation (depreciation) of
investments" are inversely related in that when an appreciated asset is sold to
realize a gain, a decrease in unrealized appreciation occurs since the gain
associated with the asset is transferred from the "unrealized" category to the
"realized" category. Conversely, when a loss is realized on a depreciated
portfolio asset, the reclassification of the loss from "unrealized" to
"realized" causes an increase in unrealized appreciation and an increase in
realized loss. The fourth element is "provision for income taxes," which
primarily consists of taxes owed on retained capital gains, excise taxes on
undistributed earnings and taxes on the pre-tax income of Harris Williams.
Fiscal Years Ended December 31, 1997, 1996 and 1995
Net Operating Income. During the fiscal year ended December 31, 1997, the
Company earned interest on investments of $41.3 million, a 69.3% increase over
the $24.4 million earned in 1996, which in turn was an 80.7% increase over the
$13.5 million earned in 1995. In addition to interest on investments, the
Company also collects an up-front processing fee for each loan it originates.
During fiscal 1997, the Company collected $7.0 million in processing and other
fees, a 118.7% increase over the $3.2 million collected in 1996, which in turn
was a 68.4% increase over the $1.9 million collected in 1995. These increases in
interest income and processing and other fees are a result of increases in the
dollar amount of loans outstanding and originated during the applicable periods.
The Company's loan portfolio increased to $412.0 million at December 31, 1997,
an increase of 86.0% over the $221.5 million at December 31, 1996, which in turn
was an increase of 52.9% from $144.9 million at December 31, 1995. The $282.4
million of loans originated during fiscal 1997 was a 113.9% increase over the
$132.0 million of loans originated during fiscal 1996, which in turn was a 30.0%
increase over the $101.5 million of loans originated in 1995. In addition, the
weighted average interest rate charged on the loan portfolio at December 31,
1997 was 13.3%, as compared to 13.2% and 12.8% at December 31, 1996 and 1995,
respectively. The Company also earned income from miscellaneous sources in an
amount equal to $61,000 in 1997, $119,000 in 1996 and $223,000 in 1995,
primarily from interest paid on loans to employees made in connection with
purchases of common stock of the Company.
The Company's interest expense increased to $9.8 million in 1997, an 18.1%
increase over the $8.3 million in 1996, which in turn was a 72.9% increase over
the $4.8 million paid in 1995. The increase in interest expense from 1995 to
1997 was primarily attributable to increased borrowings from the SBA and under
the Company's two revolving credit facilities. The Company's total borrowings
were $214.3 million on December 31, 1997, $120.9 million on December 31, 1996
and $86.5 million on December 31, 1995.
Overhead, amortization of borrowing costs and state taxes totaled $9.2
million in fiscal 1997, a 67.3% increase over the $5.5 million of such expenses
in fiscal 1996, which in turn was a 96.4% increase over the $2.8 million of such
expenses in 1995. These increases can be largely attributed to the increase in
the number of employees from nine in January 1995 to 44 in December 1997,
several expansions of the Company's Nashville
16
<PAGE> 17
office space between 1995 and 1997, opening and expanding the Company's San
Francisco office in 1997 and opening the Company's Stamford office in 1997. In
addition, in 1996, the Company changed its practice of expensing bonuses when
paid in the first quarter of each year to accruing for bonuses currently. As a
result, this bonus accrual increased these operating expenses by approximately
$1.0 million in 1996, representing 35.7% of the 96.4% increase in expenses from
1995 to 1996. Although the dollar amount of these expenses increased over the
three-year period, overhead expenses as a percentage of ending assets were
relatively constant at 1.6%, 1.7% and 1.4% for fiscal 1997, 1996 and 1995,
respectively.
During 1997, Harris Williams had revenues of $9.9 million, a 47.8% increase
over the $6.7 million in fiscal 1996, which in turn was a 148.1% increase over
the $2.7 million in revenues in 1995. During 1997, Harris Williams had pre-tax
income of $3.7 million, a 12.1% increase over the $3.3 million in pre-tax income
in 1996, which in turn was a 306.4% increase over the $812,000 in pre-tax income
in 1995. These increases were due to an increase in the number of transactions
in which Harris Williams provided advisory services. Harris Williams provided
advisory services on 15 transactions that closed during 1997, a 15.4% increase
over the 13 transactions closed in 1996, which in turn was a 44.4% increase over
the nine transactions that closed during 1995. Pre-tax income grew more slowly
than revenues in 1997 due mainly to an increase in the number of investment
banking professionals from 13 to 21 from December 31, 1996 to December 31, 1997,
and increased compensation expense resulting from increased competition for
investment banking professionals. Income taxes of $825,000 and $207,000 were
accrued on Harris Williams' pre-tax income in 1997 and 1996, respectively. No
taxes were accrued on Harris Williams' pre-tax income in 1995, as Harris
Williams was a partnership at that time.
Realized Gain (Loss) on Investments. The Company's net realized gain on
investments was $10.7 million during the year ended December 31, 1997, largely
resulting from gains of $24.3 million on equity positions in Premiere
Technologies, Inc., Radiant Systems, Inc., Innotech, Inc., Horizon Medical
Products, Inc., Argenbright Ltd., Global Finance and Leasing, Inc., Virtual
Resources, Inc., Radio Systems Corporation, Educational Medical, Inc., Compass
Plastics and Technologies, Inc., Encore Medical Corporation, Factory Card Outlet
Corp., Vista Information Solutions, Inc. and Virginia Gas Company, offset by
losses of $13.6 million on loans to or equity interests in Eastern Food Group,
LLC, Gold Medal Products, Inc., Ashe Industries, Inc., Golf Video, Inc., Tower
Environmental Services, Inc., Studley Products Corp., Assured Power, Inc., Golf
Corporation of America, Inc., SWS3, Inc., and Scandia Technologies, Inc. The
Company's net realized gain on investments was $9.5 million during 1996
primarily resulting from gains of $12.3 million on equity positions in American
Remedial Technologies, Inc., Premiere Technologies, Inc., Hoveround Corporation,
Educational Medical, Inc., Orchid Manufacturing Group, Inc., and Consumer Credit
Associates Inc. offset by losses of $2.8 million on loans to Medical Associates
of America, Inc. and Cougar Power Products, Inc., on an equity position in
Eastern Food Group L.L.C., and on the collateral securing a loan to Alpha West
Partners I, L.P. The Company's net realized gain on investments was $1.8 million
during 1995, primarily resulting from gains of $3.9 million on the sale of
equity positions in American Retirement Corporation, BiTec Southeast, Inc.,
Central Tennessee Broadcasting, Inc., Patton Management Corporation, PMT
Services, Inc., Termnet Merchant Services, Inc., Truckload Management, Inc., One
Stop Acquisitions, Inc. and Republic Auto Parts, Inc., which were largely offset
by a $515,000 loss on Medical Associates of America, Inc. equity positions and a
$1.5 million loss on a loan to Quality Care Networks, Inc. Management does not
attempt to maintain a comparable level of realized gains from year to year, but
instead attempts to maximize total investment portfolio appreciation.
Change in Unrealized Appreciation (Depreciation) of Investments. For the
year ended December 31, 1997 the company recorded a net increase in unrealized
depreciation of $1.6 million and for the years ended December 31, 1996 and 1995,
the Company recorded net increases in unrealized appreciation of investments of
$2.6 million and $4.7 million, respectively. These changes are the result of the
Company's quarterly revaluation of its portfolio in accordance with its
valuation policy to reflect the fair value of each of its portfolio assets.
Provision for Income Taxes. Beginning in February 1995, the Company
elected to be taxed as a RIC under Subchapter M of the Code. If the Company, as
a RIC, satisfies certain requirements relating to the source of its income, the
diversification of its assets and the distribution of its net income, the
Company is
17
<PAGE> 18
generally taxed as a pass through entity that acts as a partial conduit of
income to its shareholders. In order to maintain its RIC status, the Company
must, in general: derive at least 90% of its gross income from dividends,
interest and gains from the sale or disposition of securities; meet investment
diversification requirements defined by the Code; and distribute to shareholders
at least 90% of its net income (other than long-term capital gains). The Company
presently intends to meet the RIC qualifications in 1998. However, no assurance
can be given that the Company will continue to elect or qualify for such
treatment after 1998.
During 1997, the Company paid dividends of $24.4 million compared to the
$11.6 million paid in 1996 and $5.2 million paid in 1995. Of these dividends,
$16.9 million, $11.2 million and $4.0 million were derived from net operating
income for 1997, 1996 and 1995, respectively, and $7.5 million, $406,000 and
$1.2 million were derived from realized capital gains for 1997, 1996 and 1995,
respectively. The Company also elected to designate $10.6 million and $2.1
million of the undistributed realized capital gains as a "deemed" distribution
to shareholders of record as of the end of 1996 and 1995, respectively.
Accordingly, $6.9 million and $1.4 million, for 1996 and 1995 respectively, net
of taxes of $3.7 million and $737,000, respectively, of this "deemed"
distribution has been retained and reclassified from undistributed net realized
earnings to Common Stock. For the year ended December 31, 1997, the Company
modified its dividend policy with respect to its long-term capital gains. The
Company now intends to distribute to shareholders all long-term capital gains
and did so for the year ended December 31, 1997. As a result no "deemed"
distribution was designated and no related tax was due in fiscal 1997.
For the years ended December 31, 1997, 1996 and 1995 the Statements of
Operations include a provision for state income taxes on interest totaling $0,
$0 and $109,000, respectively. For the years ended December 31, 1997, 1996 and
1995, the Company also provided for federal income tax at a 35% rate on
undistributed long-term capital gains and excise tax at a 4% rate on
undistributed taxable net investment income and undistributed realized long-term
capital gains and provided for federal and state income taxes on Harris
Williams' pre-tax income. These tax provisions totaled $838,000, $4.3 million
and $1.0 million for the years ended December 31, 1997, 1996 and 1995,
respectively.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had $3.0 million in cash and cash
equivalents of which $2.1 million was pledged as collateral under certain
hedging agreements. At December 31, 1997, the Company's investment portfolio
included investments in stocks and warrants of publicly-traded companies that
had an ascertainable market value and were being carried at a fair value of
approximately $13.4 million and represent an additional source of liquidity.
However, the Company's ability to realize such values on a short-term basis is
limited by market conditions and various securities law restrictions.
Traditionally, the Company's principal sources of capital to fund its
portfolio growth have been borrowings through the SBA-sponsored SBIC debenture
program, sales of the Company's equity securities, both privately and publicly,
and funds borrowed from banking institutions. In February 1995, the Company
consummated its initial public offering and has completed four additional
public offerings since that time which 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 December 31, 1997, total SBA borrowings were $90.0 million, the previous
maximum amount of SBA loans available to an SBIC. During the latter part of
1997, Congress increased the maximum amount of funding available to an SBIC by
indexing the $90.0 million cap to inflation. Presently, the maximum amount of
funding available to an SBIC from the SBA is $101.0 million. Each borrowing from
the SBA has a term of ten years, is secured by the assets of SII, is guaranteed
by the Company and can be prepaid without penalty after five years. The average
interest rate on these borrowings was 7.02% as of December 31, 1997, and none of
these borrowings mature prior to 2002.
As of December 31, 1997, SII had $61.5 million outstanding under its $125.0
million Revolving Credit Facility with First Union National Bank and a syndicate
of other banks, which is secured by a lien on all of SII's assets and a pledge
of SII's stock and guaranteed by the Company, which includes a $75.0 million
increase in its Revolving Credit Facility consummated in October 1997 that added
seven additional banks to the syndicate. In order to manage the interest rate
risk associated with the variable interest rate provided for
18
<PAGE> 19
under the Revolving Credit Facility, SII has entered into various hedging
arrangements. The Revolving Credit Facility matures on May 31, 2000. The
Revolving Credit Facility requires that SII obtain the lenders' consent prior
to, among other things, encumbering its assets, merging or consolidating with
another entity and making investments other than those permitted by the SBA. In
addition, the Revolving Credit Facility provides that the repayment of any
amounts outstanding can be accelerated if either George M. Miller, II, or David
M. Resha ceases to be employed by the Company.
To support the Company's future loan origination activities outside of SII,
the Company has also established the $100.0 million ING Credit Facility. SFC, a
wholly-owned special purpose, bankruptcy remote subsidiary of the Company, is
the borrower under the ING Credit Facility. SFC purchases loans originated by
the Company and the related warrants and uses these loans and warrants as
collateral to secure borrowings from ING. SFC is generally able to borrow up to
70% of the principal amount of conforming loans collateralizing the ING Credit
Facility. As of January 3, 1997, the Company made an initial capital
contribution to SFC of approximately $25.0 million of loans, which served as
initial collateral for the ING Credit Facility. At December 31, 1997, $62.8
million was outstanding under the ING Credit Facility and $93.2 million and
$96.5 million of loans and warrants at cost and fair value, respectively, had
been contributed to or sold to SFC by the Company and were collateralizing the
ING Credit Facility. In order to manage interest rate risk associated with the
variable interest rate provided for under the ING Credit Facility the Company
has entered into various hedging arrangements. The Company may borrow under the
ING Credit Facility until December 31, 2001, and it expires on January 5, 2007.
The ING Credit Facility is not guaranteed by the Company. However, certain
actions by the Company can trigger an event of default under the ING Credit
Facility, which will result in termination of further funding and the
application of the collateral pledged for repayment of the amounts outstanding
thereunder. In addition, the ING Credit Facility provides that an event of
default is triggered if any two of George M. Miller, II, David M. Resha and Carl
W. Stratton are no longer employed by the Company.
The Company believes that the proceeds from the most recently completed
public offering, anticipated borrowings under the Revolving Credit Facility and
the ING Credit Facility, together with cash on hand, loan repayments and cash
flow from operations (after distributions to shareholders), will be adequate to
fund the continuing growth of the Company's investment portfolio through the
third quarter of 1998. In order to provide the funds necessary for the Company
to continue its growth strategy beyond that period, the Company expects to
incur, from time to time, additional short and long-term borrowings from other
sources, and to issue, in public or private transactions, its equity and debt
securities. The availability and terms of any such borrowings will depend upon
interest rate, market and other conditions. There can be no assurances that such
additional funding will be available on terms acceptable to the Company.
PORTFOLIO TURNOVER AND CREDIT QUALITY
During the year ended December 31, 1997, the Company made loans to 150
companies totaling approximately $282.3 million and received repayments (either
partial or full) from 47 companies aggregating $67.7 million. During the year
ended December 31, 1996, the Company made loans to 84 companies totaling
approximately $132.0 million and received repayments (either partial or full)
from 24 companies aggregating $32.6 million. During the year ended December 31,
1995, the Company made loans to 68 companies totaling approximately $101.5
million and received ten repayments (either partial or full) aggregating $14.4
million. During the year ended December 31, 1994, the Company made loans to 34
companies totaling approximately $40.8 million and received six repayments
aggregating approximately $7.6 million. During the year ended December 31, 1993,
the Company made loans to 31 companies totaling approximately $31.5 million and
received three repayments aggregating $2.0 million. Since inception, the Company
has originated $599.3 million in total loans and $125.2 million, or 20.9%, have
been repaid. The Company cannot control changes in its portfolio of investments,
as borrowers have the right to prepay loans made by the Company without penalty.
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 the weighted average portfolio grade. The weighted
average grade was 3.04 and 3.10 at December 31, 1997 and 1996, respectively. The
Company believes that weighted average grades between 2.75 and 3.25 represent
the current normal range for the portfolio.
Loans graded 4 typically involve a borrower that is performing marginally
below expectations and the existence of short-term negative trends or negative
events that have created some concern. 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 typically a temporary rating
that is followed by an upgrade or downgrade within six months as the borrower's
business improves or declines. As of December 31, 1997 and 1996, the Company's
portfolio consisted of 18 and 9 loans, respectively, graded 4. The aggregate
principal balance of loans graded 4 at December 31, 1997 and 1996, respectively,
was $49.0 million and $17.4 million, which represented 10.2% and 7.4%,
respectively, of the total portfolio balance at such dates. Since late 1995 when
the Company redefined the loan grading system to reflect management's additional
experience in monitoring its growing portfolio, the percentage of the principal
balance of loans graded 4 to the total portfolio balance has typically ranged
between 10% and 15%, with an occasional decrease to as low as 7%. The Company
believes the current percentage to be within the normal range of variability and
expects significant variability in the future in the absolute dollar amount of
loans graded 4 and in the ratio of loans graded 4 to the total portfolio
balance.
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. At December 31, 1997 and 1996, the Company had
loans to 16 companies with an aggregate principal balance of $27.7 million, and
13 companies with an aggregate principal balance of $15.9 million, respectively,
that were graded a 5 or 6 and that were not accruing interest, which represented
6.5% and 6.8%, respectively, of the total portfolio balance. The Company
believes that the current normal range of loans graded 5 and 6 is 6% to 10% of
the total portfolio balance. Given the nature of the Company's portfolio, the
Company expects some variability in the absolute dollar amount of the loans
graded 5 and 6 and in the ratio of loans graded 5 and 6 to the total portfolio
balance.
YEAR 2000
The Company has reviewed the Year 2000 issue and has identified three
primary areas in which it could be affected. First, the Company utilizes two
primary software programs, one of which tracks its investment portfolio and one
of which provides accounting functions. Both software vendors have indicated to
the Company that their programs are Year 2000 compatible. Therefore, the Company
believes that it has no material exposure in this area. Second, the Company
utilizes standard cash management software provided by its commercial banks. The
Company is unaware of any potential exposure related to this software and
believes the possibility is remote that a major commercial bank would leave any
such problems unresolved. However, the Company intends to analyze this area in
further detail in 1998. Third, the Company has begun an investigation of the
impact of the Year 2000 on its portfolio companies. This investigation is not
yet complete, and thus the Company cannot yet state with certainty that it does
not have exposure in this area. However, given the size and age of its portfolio
companies and the service-based industries in which they primarily operate, the
Company anticipates that few of its portfolio companies will face any material
issues regarding the Year 2000.
19
<PAGE> 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Sirrom Capital Corporation and
Subsidiaries:
We have audited the accompanying consolidated balance sheets of SIRROM
CAPITAL CORPORATION AND SUBSIDIARIES (see Note 1) as of December 31, 1996 and
1997, and the related consolidated statements of operations, changes in
Partners' capital and shareholders' equity and cash flows for each of the years
in the three year period ended December 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As explained in Note 2, the financial statements include investments valued
at approximately $262,606,000 (91% of total assets) and approximately
$482,652,000 (95% of total assets) as of December 31, 1996 and 1997,
respectively, whose values have been estimated by the Board of Directors in the
absence of readily ascertainable market values. However, because of the inherent
uncertainty of valuation, those estimated values may differ significantly from
the values that would have been used had a ready market for the securities
existed, and the differences could be material.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sirrom Capital Corporation
and Subsidiaries at December 31, 1996 and 1997 and the results of their
operations, the changes in Partners' capital and shareholders' equity and their
cash flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Nashville, Tennessee
January 30, 1998
F-2
<PAGE> 21
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Investments, at fair value:
Loans..................................................... $221,487,385 $412,005,353
Equity interests.......................................... 34,965,801 55,210,669
Warrants.................................................. 15,893,828 24,543,035
Other..................................................... 2,990,282 2,440,503
------------ ------------
Total investments (cost of $262,943,963 and
$483,417,884, respectively)......................... 275,337,296 494,199,560
Investment in unconsolidated subsidiary..................... 911,487 924,959
Cash and cash equivalents................................... 4,611,532 3,024,608
Interest receivable......................................... 2,870,138 4,483,640
Receivable from sale of investment.......................... -- 1,498,240
Debt financing costs (less accumulated amortization of
$920,289 and $1,776,700, respectively).................... 3,690,362 3,989,904
Furniture and equipment (less accumulated depreciation of
$73,711 and $198,248, respectively)....................... 275,454 918,253
Other assets................................................ 316,797 197,235
------------ ------------
Total assets...................................... $288,013,066 $509,236,399
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Debentures payable to Small Business Administration....... $ 90,000,000 $ 90,000,000
Revolving credit facilities............................... 30,858,213 124,250,000
Interest payable.......................................... 1,348,252 1,576,600
Accounts payable, accrued expenses, and other
liabilities............................................ 2,852,942 5,435,621
Dividend payable.......................................... -- 5,405,267
Accrued taxes payable..................................... 4,333,144 600,000
------------ ------------
Total liabilities................................. 129,392,551 227,267,488
------------ ------------
Commitments and contingencies
Shareholders' equity:
Common stock -- No par value, 50,000,000 shares
authorized, 24,687,134 and 31,093,226 issued and
outstanding, respectively................................. 140,061,092 251,056,925
Notes receivable from employees........................... (1,539,858) (648,442)
Undistributed net realized earnings....................... 7,705,948 20,778,752
Unrealized appreciation of investments.................... 12,393,333 10,781,676
------------ ------------
Total shareholders' equity........................ 158,620,515 281,968,911
------------ ------------
Total liabilities and shareholders' equity........ $288,013,066 $509,236,399
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 22
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING INCOME:
Interest on investments............................... $13,451,742 $24,395,072 $41,297,190
Loan processing and other fees........................ 1,899,692 3,166,117 6,988,813
Other income.......................................... 223,456 119,115 60,926
----------- ----------- -----------
Total operating income........................ 15,574,890 27,680,304 48,346,929
----------- ----------- -----------
OPERATING EXPENSES:
Interest expense...................................... 4,771,131 8,341,777 9,796,759
Salaries and benefits................................. 1,081,478 2,994,500 5,001,264
Other operating expenses.............................. 1,412,358 1,942,456 3,348,852
State income tax on interest.......................... 109,035 -- --
Amortization expense.................................. 207,792 543,011 865,003
----------- ----------- -----------
Total operating expenses...................... 7,581,794 13,821,744 19,011,878
----------- ----------- -----------
Subtotal.................................... 7,993,096 13,858,560 29,335,051
Pretax income of unconsolidated subsidiary.............. 811,610 3,264,051 3,698,781
----------- ----------- -----------
Net operating income.......................... 8,804,706 17,122,611 33,033,832
Net realized gain on investments........................ 1,759,513 9,462,991 10,722,158
Change in unrealized appreciation (depreciation) of
investments........................................... 4,693,544 2,580,047 (1,611,657)
Provision for income taxes.............................. (1,020,321) (4,270,054) (838,175)
----------- ----------- -----------
Net increase in shareholders' equity resulting from
operations............................................ $14,237,442 $24,895,595 $41,306,158
=========== =========== ===========
Net increase in shareholders' equity resulting from
operations per share:
Basic.............................................. $ .90 $ 1.11 $ 1.37
=========== =========== ===========
Diluted............................................ $ .89 $ 1.08 $ 1.30
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 23
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL AND
SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
NOTES APPRECIATION
COMMON STOCK RECEIVABLE UNDISTRIBUTED (DEPRECIATION)
PARTNERS' -------------------------- FROM NET REALIZED OF
CAPITAL SHARES AMOUNT EMPLOYEES EARNINGS INVESTMENTS
----------- ----------- ------------ --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
SIRROM CAPITAL, L.P.:
BALANCE, DECEMBER 31,
1994.................. $25,398,519 -- $ -- $(1,980,000) $ 4,679,053 $ 5,119,742
SIRROM CAPITAL
CORPORATION:
Effect of
reorganization (Note
1).................. (25,398,519) 11,897,134 25,398,519 -- -- --
Issuance of common
stock............... -- 8,290,000 47,712,029 -- -- --
Net increase in
shareholders' equity
resulting from
operations.......... -- -- -- -- 9,543,898 4,693,544
Payment of
dividends........... -- -- -- -- (3,974,079) --
Distribution of
capital gains....... -- -- -- -- (1,201,000) --
Distribution of Harris
Williams'
earnings............ -- -- -- -- (806,000) --
Designation of
undistributed
capital gains, net
of tax (Note 10).... -- -- 1,369,419 -- (1,369,419) --
----------- ----------- ------------ ----------- ----------- -----------
BALANCE, DECEMBER 31,
1995.................. -- 20,187,134 74,479,967 (1,980,000) 6,872,453 9,813,286
Issuance of common
stock............... -- 4,600,000 59,223,301 -- -- --
Stock options
exercised........... -- 30,000 224,375 -- -- --
Employee shares
repurchased......... -- (130,000) (809,645) -- -- --
Payment on notes
receivable.......... -- -- -- 440,142 -- --
Net increase in
shareholders' equity
resulting from
operations.......... -- -- -- -- 22,315,548 2,580,047
Payment of
dividends........... -- -- -- -- (10,976,390) --
Distribution of
capital gains....... -- -- -- -- (577,200) --
Distribution of Harris
Williams'
earnings............ -- -- -- -- (2,985,369) --
Designation of
undistributed
capital gains, net
of tax (Note 10).... -- -- 6,943,094 -- (6,943,094) --
----------- ----------- ------------ ----------- ----------- -----------
BALANCE, DECEMBER 31,
1996.................. -- 24,687,134 140,061,092 (1,539,858) 7,705,948 12,393,333
Issuance of common
stock............... -- 6,292,572 109,953,783 -- -- --
Stock options
exercised........... -- 145,600 1,144,665 -- -- --
Employee shares
repurchased......... -- (32,080) (102,615) -- -- --
Payment on notes
receivable.......... -- -- -- 891,416 -- --
Net increase in
shareholders' equity
resulting from
operations.......... -- -- -- -- 42,917,815 (1,611,657)
Payment of
dividends........... -- -- -- -- (16,977,374) --
Capital gains
dividends........... -- -- -- -- (12,867,637) --
----------- ----------- ------------ ----------- ----------- -----------
BALANCE, DECEMBER 31,
1997.................. $ -- 31,093,226 $251,056,925 $ (648,442) $20,778,752 $10,781,676
=========== =========== ============ =========== =========== ===========
<CAPTION>
TOTAL
------------
<S> <C>
SIRROM CAPITAL, L.P.:
BALANCE, DECEMBER 31,
1994.................. $ 33,217,314
SIRROM CAPITAL
CORPORATION:
Effect of
reorganization (Note
1).................. --
Issuance of common
stock............... 47,712,029
Net increase in
shareholders' equity
resulting from
operations.......... 14,237,442
Payment of
dividends........... (3,974,079)
Distribution of
capital gains....... (1,201,000)
Distribution of Harris
Williams'
earnings............ (806,000)
Designation of
undistributed
capital gains, net
of tax (Note 10).... --
------------
BALANCE, DECEMBER 31,
1995.................. 89,185,706
Issuance of common
stock............... 59,223,301
Stock options
exercised........... 224,375
Employee shares
repurchased......... (809,645)
Payment on notes
receivable.......... 440,142
Net increase in
shareholders' equity
resulting from
operations.......... 24,895,595
Payment of
dividends........... (10,976,390)
Distribution of
capital gains....... (577,200)
Distribution of Harris
Williams'
earnings............ (2,985,369)
Designation of
undistributed
capital gains, net
of tax (Note 10).... --
------------
BALANCE, DECEMBER 31,
1996.................. 158,620,515
Issuance of common
stock............... 109,953,783
Stock options
exercised........... 1,144,665
Employee shares
repurchased......... (102,615)
Payment on notes
receivable.......... 891,416
Net increase in
shareholders' equity
resulting from
operations.......... 41,306,158
Payment of
dividends........... (16,977,374)
Capital gains
dividends........... (12,867,637)
------------
BALANCE, DECEMBER 31,
1997.................. $281,968,911
============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 24
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net increase in partners' capital and shareholders'
equity resulting from operations.................... $ 14,237,442 $ 24,895,595 $ 41,306,158
Adjustments to reconcile net increase to net cash
provided by operating activities:
Net unrealized (appreciation) depreciation of
investments....................................... (4,693,544) (2,580,047) 1,611,657
Net realized gain on investments.................... (1,759,513) (9,462,991) (10,722,158)
Increase in equity of unconsolidated subsidiary..... (5,610) (71,572) (13,472)
Amortization of debenture costs..................... 207,792 537,010 856,411
Increase in interest receivable..................... (816,905) (750,571) (1,613,502)
Increase in accounts payable and accrued expenses... 185,525 2,639,041 2,582,679
Amortization of organization costs.................. 6,000 6,000 8,592
Depreciation of fixed assets........................ 18,565 55,146 124,666
Increase (decrease) in accrued taxes payable........ 585,731 3,259,619 (3,733,144)
Increase in interest payable........................ 255,810 411,434 228,348
------------- ------------- -------------
Net cash provided by operating activities...... 8,221,293 18,938,664 30,636,235
------------- ------------- -------------
INVESTING ACTIVITIES:
Loan principal repayments............................. 14,414,000 32,630,000 67,743,485
Proceeds from sale of equities and other
investments......................................... 12,889,888 12,142,899 28,386,245
Investments originated or acquired.................... (105,669,054) (135,792,814) (305,881,489)
Purchase of fixed assets.............................. (222,425) (126,740) (767,465)
Decrease in restricted investments.................... 1,000,000 -- --
Increase in other assets.............................. (199,165) (105,632) (1,387,270)
------------- ------------- -------------
Net cash used in investing activities.......... (77,786,756) (91,252,287) (211,906,494)
------------- ------------- -------------
FINANCING ACTIVITIES:
Proceeds from debentures payable to Small Business
Administration...................................... 22,260,000 16,740,000 --
Proceeds from revolving credit facilities............. 62,638,595 92,067,979 253,327,052
Repayment of revolving credit facilities.............. (55,827,846) (74,409,766) (159,935,271)
Increase in debenture costs........................... (1,178,414) (2,207,341) (1,155,953)
Issuance of common stock.............................. 47,712,029 59,223,301 109,953,785
Stock options exercised............................... -- 224,375 1,144,665
Distribution of Harris Williams' earnings............. (806,000) (2,985,369) --
Payment of dividends.................................. (3,974,079) (10,976,390) (16,977,374)
Distribution of capital gains......................... (1,201,000) (577,200) (7,462,370)
Employee shares repurchased........................... -- (809,645) (102,615)
Payments on notes receivable from employees........... -- 440,142 891,416
------------- ------------- -------------
Net cash provided by financing activities...... 69,623,285 76,730,086 179,683,335
------------- ------------- -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 57,822 4,416,463 (1,586,924)
CASH AND CASH EQUIVALENTS, beginning of year............ 137,247 195,069 4,611,532
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, end of year.................. $ 195,069 $ 4,611,532 $ 3,024,608
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid......................................... $ 4,525,701 $ 7,961,534 $ 9,935,749
============= ============= =============
Taxes paid............................................ $ 493,465 $ 976,894 $ 3,738,278
============= ============= =============
Loans transferred to other investments................ $ -- $ 5,218,436 $ 486,777
============= ============= =============
Loans transferred to equity interests................. $ 3,805,991 $ 8,695,309 $ 7,076,172
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 25
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Sirrom Capital Corporation (the "Company"), a Tennessee corporation, was
formed in November 1994 and Sirrom Capital, L.P. (the "Partnership") became a
partnership under the laws of the State of Tennessee in November 1991. Effective
February 1, 1995, the partners of the Partnership transferred, in a tax free
conversion, their partnership interests to the Company in exchange for the
issuance of 10,100,232 shares of common stock of the Company. The common stock
was received by each partner in proportion to the partner's percentage interest
in the Partnership. As a result of this exchange, the Partnership was dissolved
and liquidated, with all of the assets and liabilities of the Partnership
(including the SBIC license which was obtained by the Partnership in May 1992)
being thereby assigned and transferred to the Company. This transaction was
accounted for as a reorganization of entities under common control, in a manner
similar to a pooling of interests. The accompanying financial statements have
been prepared on a basis appropriate for investment companies as enumerated in
the American Institute of Certified Public Accountants' Audit and Accounting
Guide on Audits of Investment Companies.
The Company is a specialty finance company that is primarily engaged in
making loans to small businesses. The Company's objectives are to achieve both a
high level of current income from interest on loans and fees and long-term
growth in the value of its shareholders' equity through the appreciation in
value of the equity interests in its portfolio companies that are primarily
small, privately owned companies. The Company targets small businesses that the
Company believes have certain characteristics, including the potential for
significant growth, adequate collateral coverage, experienced management teams,
sophisticated outside equity investors and profitable operations. In addition to
making loans to small businesses, the Company makes investments in micro-cap
public companies that are marketed under the name Tandem Capital, Inc.
("Tandem") and provides merger and acquisition advisory services through its
wholly-owned subsidiary, Harris Williams & Co. ("Harris Williams").
The Company is a non-diversified, closed-end investment company that has
elected to be treated as a business development company under the Investment
Company Act of 1940, as amended (the "1940 Act"). Prior to August 1996, the
Company was also a small business investment company ("SBIC") licensed under the
Small Business Investment Act of 1958, as amended (the "1958 Act"). The Company
was licensed by the U.S. Small Business Administration (the "SBA") on May 14,
1992. In August 1996, the Company transferred its SBIC operations, including its
SBIC license, and the majority of its assets and liabilities, to its
wholly-owned subsidiary, Sirrom Investments, Inc. ("SII"), a Tennessee
corporation. Under applicable SBA regulations, SII is restricted to investing
only in qualified small business concerns in the manner contemplated by the 1958
Act. In December 1996, the Company formed Sirrom Funding Corporation ("SFC"), a
closed-end, non-diversified investment company. SFC is a bankruptcy remote
subsidiary that purchases loans and warrants from the Company on a true-sale
basis and holds them as collateral for a $100.0 million revolving credit
facility. The Company, SII and SFC have each elected to be taxed as a regulated
investment company ("RIC") under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code").
In August 1996, the Company acquired the ownership interests of Harris
Williams & Co., L.P. ("Harris Williams") for 1,796,908 shares of common stock of
the Company. After the acquisition, Harris Williams began operating as a "C"
corporation. Harris Williams is a merger and acquisition advisory services firm
located in Richmond, Virginia, that is being operated as a wholly-owned
subsidiary of the Company. The acquisition of Harris Williams has been accounted
for as a pooling of interests. The consolidated balance sheets as of December
31, 1996 and 1997 and the consolidated statements of operations and cash flows
for each of the three years in the period ended December 31, 1997 reflect the
operations of Harris Williams as an unconsolidated subsidiary accounted for by
the equity method of accounting in conformity with the requirements of the 1940
Act.
In December 1996, the Company formed SCCGS, Inc. SCCGS, Inc.'s operations
were limited to the workout activities of one investment during 1996 and 1997.
SCCGS, Inc. was sold during 1997 and is no longer a subsidiary of the Company at
December 31, 1997.
F-7
<PAGE> 26
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has a 40% ownership interest in a Canadian company, SCC Canada,
Inc., that provides loan origination and processing services for loans to
Canadian companies. The Company's ownership interest in SCC Canada, Inc. is
immaterial to its financial position and is accounted for under the equity
method of accounting.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company,
SII, SFC and SCCGS, Inc. All intercompany accounts and transactions have been
eliminated in the consolidation.
Valuation of Investments
Portfolio investments are stated at fair value as determined by the Board
of Directors.
Under the Company's valuation policy, the fair values of loans to small
business concerns are based on the Board of Director's evaluation of the
financial condition of the borrowers and/or the underlying collateral. The
values assigned are considered to be amounts that could be realized in the
normal course of business, assuming the Company holds the loan to maturity and
realizes the face value of the loan. Fair value normally corresponds to cost
unless the borrower's condition or external factors lead to a determination of
fair value at a higher or a lower amount.
Equity interests and warrants for which there is not a public market are
valued based on factors such as significant equity financing by sophisticated,
unrelated new investors, history of positive cash flow from operations, the
market value of comparable publicly traded companies (discounted for
illiquidity) and other pertinent factors. The Board of Directors also considers
recent offers to purchase a portfolio company's securities and the filings of
registration statements in connection with a portfolio company's initial public
offering when valuing warrants.
Shares of stock and warrants of public companies that the Company is not
permitted to sell in the public market as a result of securities law
restrictions, lock-up agreements and other similar restrictions are typically
valued at 70% of market value at the balance sheet date. All other publicly
traded stocks are typically valued at 90% of market value at the balance sheet
date.
At December 31, 1996 and 1997, the investment portfolio included
investments totaling $262,606,000 and $482,652,000, respectively, whose values
had been estimated by the Board of Directors in the absence of readily
ascertainable market values. Because of the inherent uncertainty of the
valuations, the estimated fair values may differ significantly from the values
that would have been used had a ready market for the securities existed, and the
differences could be material.
Realized and Unrealized Gain or Loss on Investments
Realized gains are recorded upon disposition of investments and are
calculated based upon the difference between the proceeds and the cost basis
determined using the specific identification method. Realized losses are
recorded upon the final disposition of the cost basis of investments according
to federal income tax guidelines and are calculated in the same manner. All
other changes in the valuation of portfolio investments, as determined by the
directors, are included as changes in the unrealized appreciation or
depreciation of investments in the statements of operations.
Description of Loan Terms
The loans to small business concerns included in investments bear interest
at rates ranging from 6.50% to 14.00%. Typically, interest is payable in monthly
or quarterly installments over five years with the entire
F-8
<PAGE> 27
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
principal amount typically due at maturity. These loans are generally
collateralized by liens on the assets of the borrower. Certain of these liens
may be subject to prior liens.
Interest on Investments
Interest income is recorded on the accrual basis. The accrual of income is
typically suspended when the related loan becomes 60 days past due unless
management anticipates that accrued amounts will be collected.
Loan Processing Fees
The Company recognizes loan processing fees as income when the related loan
closes.
Cash and Cash Equivalents
The Company defines cash and cash equivalents as cash on hand, cash in
interest bearing and non-interest bearing operating bank accounts and highly
liquid investments such as time deposits with an original maturity of three
months or less. Cash and cash equivalents totaling $2,075,000 is restricted as
collateral under interest rate swap agreements.
Debt Financing Costs
SBA debenture costs are amortized over ten years, which represents the term
of the thirteen SBA debenture (See Note 4). Financing costs related to the
revolving credit facilities are amortized over the term of the credit
agreements.
Income Taxes
Beginning in February 1995, the Company elected to be taxed as a RIC under
Subchapter M of the Code. If the Company, as a RIC, satisfies certain
requirements relating to the source of its income, the diversification of its
assets and the distribution of its net income, the Company is generally taxed as
a pass through entity that acts as a partial conduit of income to its
shareholders.
In order to maintain its RIC status, the Company must, in general, (a)
derive at least 90% of its gross income from dividends, interest and gains from
the sale or disposition of securities, (b) meet investment diversification
requirements defined by the Code and (c) distribute to shareholders at least 90%
of its net income (other than long-term capital gains).
The Company currently intends to meet the RIC qualifications in future
years. Therefore, the Company has not provided for federal income taxes on the
unrealized appreciation of investments.
Partners' Capital/Shareholders' Equity
During November 1994, six employees were granted ownership interests in the
partnership at a purchase price equal to the approximate fair value of each
ownership interest. In connection therewith, each employee executed a promissory
note for the purchase price of such interest. The promissory notes bear interest
at 7.25% per annum with interest payable annually. All notes mature on November
1, 2001. As discussed in Note 1, the interests in the partnership were
subsequently exchanged for the Company's common stock. The stock must be resold
to the Company if the employee is no longer employed by the Company for a period
of not less than three years from the date of purchase. The notes receivable
from employees were shown as a reduction in partners' capital and a reduction to
common stock in the amount of $1,980,000 at December 31, 1995. During 1996, one
employee terminated employment and the Company repurchased 130,000 shares for
$809,645 which resulted in a cancellation of a note and a reduction in the
balance of the notes receivable from employees of $440,142. These shares were
reissued by the Company in a secondary offering in June 1996.
F-9
<PAGE> 28
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1997, 32,080 shares were repurchased by the Company for $102,615
following the termination of employment of an employee. These shares were
reissued by the Company in the February 1997 secondary offering. During 1997
notes receivable was reduced to $648,442 as a result of repayments.
Derivative Financial Instruments
The Company uses interest rate swaps to hedge interest costs on its
floating rate revolving credit facilities. Any amounts paid or received on
interest rate swap agreements are recognized as an adjustment to interest
expense. Gains and losses on terminated swaps are recognized over the remaining
life of the underlying obligation as an adjustment to investment income or
interest expense. The fair value of the swap agreements are not recognized in
the consolidated financial statements as they are accounted for as hedges. The
Company does not hold derivative financial instruments for trading or
speculative purposes.
The counterparties to the interest rate swap agreements are major
commercial banks. Management believes that losses related to credit risk are
remote.
Net Increase In Shareholders' Equity Resulting From Operations per Share
Net increase in shareholders' equity resulting from operations per share is
calculated in accordance with the requirements of Statement of Financial
Accounting Standards ("SFAS") No. 128. Under the standards established by SFAS
No. 128, per share information is measured at two levels: basic and diluted. See
Note 8 for the Company's computation of these amounts.
New Accounting Pronouncement
SFAS No. 130, "Reporting Comprehensive Income," has been issued effective
for fiscal years beginning after December 15, 1997 and requires restatement of
earlier financial statements for comparative purposes. SFAS No. 130 requires
that changes in the amounts of certain items, including gains and losses on
certain securities, be shown in the financial statements. The Company does not
anticipate the adoption of SFAS No. 130 to have a material effect on the
Company's financial statements.
Reclassifications
Certain prior period amounts have been reclassified to conform to current
year presentation.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
3. INVESTMENTS
Investments consist primarily of loans made and warrants obtained from
borrowers. Investments are recorded at fair value as determined by the directors
or by current market prices, if available, in accordance the Company's valuation
policy (See Note 2). While the Company markets to borrowers throughout the
United States, approximately 60% of the investment portfolio consists of loans
and equity investments in companies that are headquartered in the southeastern
United States.
F-10
<PAGE> 29
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate cost basis of loans on non-accrual status, less realized
losses, totaled $15,873,178 and $27,717,592 at December 31, 1996 and 1997,
respectively. The aggregate fair values of these loans as determined by the
Company's directors totaled $8,683,178 and $17,052,737 at December 31, 1996 and
1997, respectively.
Included in the investment portfolio at December 31, 1996 and 1997 are
other assets that consist of rights to royalty payments, a right to receive
payment from a potential arbitration settlement and certain other tangible and
intangible assets. The Company obtained these rights upon foreclosure of three
loans. The aggregate cost of other assets at December 31, 1996 and 1997 was
$4,690,299 and $4,240,503, respectively, which represents the cost basis of the
original loans plus capitalized workout expenses. The Company's directors have
estimated the fair value of these assets to be $2,990,282 and $2,440,503 at
December 31, 1996 and 1997, respectively.
4. DEBENTURES PAYABLE TO SMALL BUSINESS ADMINISTRATION
As of December 31, 1997, SII had thirteen debentures totaling $90.0 million
payable to the SBA with semiannual interest only payments based upon rates
ranging from 6.12% to 8.20% per annum, with scheduled maturity dates as follows:
<TABLE>
<CAPTION>
DATE AMOUNT
- ---- -----------
<S> <C>
2002........................................................ $10,000,000
2003........................................................ 24,000,000
2004........................................................ 17,000,000
2005........................................................ 22,260,000
2006........................................................ 16,740,000
-----------
$90,000,000
===========
</TABLE>
The debentures are subject to a prepayment penalty if paid prior to five
years from maturity. Interest expense related to these debentures for the
periods ended December 31, 1995, 1996 and 1997 totaled $4,243,851, $5,734,794
and $6,317,392, respectively.
The SBA and the lenders of the $125.0 million revolving credit facility are
equally secured by the assets of SII. The debentures are also guaranteed by the
Company.
5. REVOLVING CREDIT FACILITIES
Revolving credit facilities consist of the following at December 31, 1996
and 1997:
<TABLE>
<CAPTION>
1996 1997
----------- ------------
<S> <C> <C>
$125.0 million revolving facility........................ $28,900,000 $ 61,500,000
$15.0 million bridge facility............................ 1,958,213 --
$100.0 million revolving facility........................ -- 62,750,000
----------- ------------
Total revolving credit facilities.............. $30,858,213 $124,250,000
=========== ============
</TABLE>
The $125.0 million revolving credit facility is payable by SII to a
syndicate of lenders. The facility consists of a swingline totaling $10.0
million which bears interest at prime minus 0.5%, and the balance of the
facility bears interest at either LIBOR plus 1.75% or prime plus 0.5% at SII's
discretion. Borrowing under the facility is based on the principal amount of
eligible loans and public securities in SII's portfolio. The revolving credit
agreement imposes certain operating restrictions on the Company and SII such as
requiring lender
F-11
<PAGE> 30
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approval of certain mergers and acquisitions, changes in management, and payment
of dividends in excess of those required to maintain RIC status. The agreement
contains financial covenants that require SII to maintain a certain level of
tangible net worth and meet ratios related to interest coverage,
non-accrual/delinquent loans and loan losses. As of December 31, 1997, the
Company and SII were in compliance with these covenants. The revolving credit
lenders and the SBA are equally secured by all assets of SII and the revolving
credit facility is guaranteed by the Company. The facility expires on May 31,
2000.
As of December 31, 1997, the Company had entered into an interest rate swap
agreement under the $125.0 million revolving credit facility. In the agreement,
the Company swapped the variable rate on $45.0 million of borrowings to a fixed
rate of 8.12%. This swap expires in May 2000. Interest expense on the revolving
credit facility, including the interest rate swaps and a quarterly fee of .25%
per annum on the total revolving credit facility for the periods ended December
31, 1995, 1996 and 1997 was $527,280, $2,574,681 and $1,555,468, respectively.
The $15.0 million bridge facility expired on January 8, 1997. Interest
expense on the bridge facility was $32,303 for the year ended December 31, 1996.
At December 31, 1996 SFC entered into a $100.0 million revolving credit
facility with a financial institution. This facility was used to retire the
$15.0 million bridge facility. SFC purchases loans and the related warrants
originated by the Company, and funds substantially all such purchases with
borrowings under the facility. The facility is funded by commercial paper sold
by the financial institution, and bears interest at the stated rate on the
commercial paper sold plus 2.25%. SFC is generally able to borrow up to 70% of
the principal amount of conforming loans that are pledged to secure the credit
facility. At December 31, 1997, investments with a cost and fair value of
approximately $93,241,000 and $96,532,000, respectively, had been contributed or
sold to SFC by the Company and were pledged as collateral under the facility.
The facility agreement contains operational restrictions such as requiring
lender approval of certain mergers and acquisitions and changes in management.
The facility agreement also contains financial covenants related to tangible net
worth, loan delinquency and loan defaults. As of December 31, 1997, the Company
and SFC were in compliance with those covenants. The Company may borrow under
the facility until December 31, 2001, and the facility expires on January 5,
2007.
As of December 31, 1997, the Company had entered into several interest rate
swap agreements under the $100.0 million revolving credit facility. The Company
exchanged the variable rate on $100.0 million in borrowings to the rates
described below in incremental amounts of $12.5 million per month beginning in
July 1997. During the period from July through December 1997, the Company put in
place a cap that capped the Company's variable rate at 8.25%. During the period
from January 1998 through December 1999, the Company has swapped to a fixed rate
of 8.25%. During the period from January 2000 through December 2001, the Company
has put in place a collar that caps the Company's variable rate at 9.15% in
exchange for a floor at 8.25%. These swaps expire in December 2001. At December
31, 1997, $2,075,000 of cash was restricted as collateral for the interest rate
swap agreements under the $100.0 million revolving credit facility. The amount
of cash restricted as collateral may increase or decrease depending upon changes
in prevailing interest rates.
Interest expense on the $100.0 million credit facility including the swaps
and a monthly fee of .50% per annum on the unused portion of the facility
totaled $1,923,899 for the year ended December 31, 1997.
6. INCOME TAXES
For the year ended December 31, 1995, the statement of operations includes
a provision for state income taxes on interest totaling $109,035 that the
Company incurred while operating as a Partnership. There is no provision for
state income taxes on interest for the years ended December 31, 1996 and 1997.
F-12
<PAGE> 31
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For the years ended December 31, 1995, 1996 and 1997, the Company provided
for federal income tax at a 35% rate on undistributed realized long-term capital
gains, excise taxes at a 4% rate on undistributed taxable net investment income
as defined by the Code and undistributed realized long-term capital gains and
federal and state income taxes on Harris Williams' pre-tax income (See Note 12).
For the years ended December 31, 1995, 1996 and 1997, the provision for income
taxes totaled $1,020,321, $4,270,054 and $838,175, respectively.
7. STOCK OPTION PLANS
At December 31, 1997, the Company had two employee stock option plans and
one director stock option plan, as described below. The Company applies APB
Opinion 25 and related Interpretations in accounting for its plans. Accordingly,
no compensation cost has been recognized for its fixed stock option plans. Had
compensation cost for the Company's three stock-based compensation plans been
determined based on fair value at the grant dates for awards under those plans
consistent with the method of SFAS No. 123, the Company's net increase in
shareholders' equity resulting from operations and related per share amounts for
the years ended December 31, 1995, 1996 and 1997 would have been reduced to the
pro-forma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net increase in shareholders' equity............ $13,882,000 $23,326,000 $37,608,000
Net increase in shareholders' equity per
share--Basic.................................. .87 1.04 1.24
Net increase in shareholders' equity per
share--Diluted................................ .87 1.01 1.19
</TABLE>
The fair value of each grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
1995 1996 1997
--------- ---------- ----------
<S> <C> <C> <C>
Dividend yield..................................... 5.0% 3.5% 4.0%
Expected volatility................................ 34% 34% 40%
Risk free interest rate............................ 6.0-7.5% 6.0-7.5% 6.05-6.93%
Expected lives..................................... 6 years 6 years 10 years
Annual forfeiture rate............................. 10% 10% 2.5%
</TABLE>
Employee Stock Option Plans
The Company's two employee stock option plans, the Amended and Restated
1994 Employee Stock Option Plan (the "1994 Plan"), and the 1996 Employee Stock
Incentive Plan (the "1996 Plan") provide for the granting of options for
1,000,000 and 2,280,000 shares, respectively, of common stock to selected
employees at an exercise price not less than the fair market value of the common
stock on the date of the grant. The terms of each award are determined by the
board of directors. The options typically vest over a five year period from the
date of hire and expire ten years from the date of grant.
F-13
<PAGE> 32
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of stock option activity related to the plans, including amounts
subject to shareholder approval, is as follows:
<TABLE>
<CAPTION>
PRICE RANGE
PER SHARE SHARES
--------------- ---------
<S> <C> <C>
Outstanding, December 31, 1994............................ -- --
Granted................................................. $5.50-9.25 933,932
Exercised............................................... -- --
Forfeited............................................... -- --
---------
Outstanding, December 31, 1995............................ 933,932
Granted................................................. $9.33-17.875 1,535,162
Exercised............................................... $6.75-8.938 30,000
Forfeited............................................... $9.25-13.167 50,000
---------
Outstanding, December 31, 1996............................ 2,389,094
Granted................................................. $13.969-23.875 3,118,004
Exercised............................................... $5.50-13.969 134,000
Forfeited............................................... $9.25-17.50 42,000
---------
Outstanding, December 31, 1997............................ 5,331,098
=========
</TABLE>
Included in the 1,535,162 and 3,118,004 options granted in 1996 and 1997,
respectively, are options to purchase 639,094 shares that were issued subject to
the approval of the Company's shareholders of an increase in the number of
shares available for grant under the 1996 Plan, which was obtained in 1997, and
options to purchase 2,247,098 shares that have been issued subject to the
approval by the Company's shareholders of an increase in the shares available
for grant under the 1996 Plan.
Directors Stock Option Plan
During 1995, the Company adopted the 1995 Stock Option Plan for
Non-Employee Directors that provides for the automatic issuance of options to
purchase the Company's common stock to non-employee directors. The Plan reserves
228,000 shares of common stock for automatic grant. Directors elected prior to
December 1, 1994 received options to purchase 36,000 shares and directors
elected after December 1, 1994 received options to purchase 24,000 shares. Upon
the initial election of a future non-employee director, an option to acquire
12,000 shares of common stock will be issued to the director. Under the terms of
the Plan, the options' exercise price may not be less than the fair market value
of a share of common stock on date of grant. No options were granted in 1995. In
1996, 168,000 options were granted at an exercise price of $12.125 which were
outstanding at December 31, 1996. In 1997, 12,000 options were granted at an
exercise price of $13.968. No shares were exercised prior to 1997, and 11,600
shares were exercised during 1997. No shares have been forfeited to date.
8. NET INCREASE IN SHAREHOLDERS' EQUITY PER SHARE
The Company computes the net increase in shareholders equity from
operations per common share-basic by dividing the net increase in shareholders'
equity from operations by the weighted average number of common shares
outstanding during the year which was 15,879,442, 22,529,246, and 30,220,742 for
the years ended December 31, 1995, 1996 and 1997, respectively. For the
calculation of the net increase in shareholders' equity from operations per
common share-diluted, the Company increases the weighted average number of
shares for the potential dilutive effect of outstanding stock options. The
weighted average shares outstanding considering the effect of the stock options
outstanding was 15,979,442, 23,109,950, and 31,658,154 for the years ended
December 31, 1995, 1996, and 1997, respectively.
F-14
<PAGE> 33
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. DIVIDENDS AND DISTRIBUTIONS
During 1995, the Company paid dividends of $5,175,079, of which $3,974,079
and $1,201,000 were derived from net operating income and realized capital
gains, respectively. The Company also elected to designate $2,106,799 of the
undistributed realized capital gains as a "deemed" distribution to shareholders
of record as of the end of the year. Accordingly, $1,369,419, net of taxes of
$737,380, of this designated distribution has been retained and reclassified
from undistributed net realized earnings to common stock.
During 1996, the Company paid dividends of $11,553,590, of which
$10,976,390 and $577,200 were derived from net operating income and realized
capital gains, respectively. The Company elected to designate $10,681,683 of the
undistributed realized capital gains as a deemed distribution to shareholders of
record as of the end of the year. Accordingly, $6,943,094, net of taxes of
$3,738,589, of this designated distribution has been retained and reclassified
from undistributed net realized earnings to common stock.
During 1997, the Company paid dividends of $24,439,744, of which
$16,977,374 and $7,462,370 were derived from net operating income and realized
capital gains, respectively. In December 1997, the Company declared a dividend
derived from capital gains totaling $5,405,267 payable in January 1998.
On January 20, 1998, the Company's directors declared a dividend of
$7,929,151 payable on March 20, 1998 to shareholders of record as of February
27, 1998.
10. STOCK SPLIT
On January 5, 1998 the Board of Directors declared a two-for-one stock
split on the Company's common stock. One additional share was issued for each
share of common stock held by shareholders of record as of the close of business
on January 16, 1998. The new shares were distributed on January 30, 1998. All
references to the number of common shares and per share amounts have been
restated as appropriate to reflect the effect of the split for all periods
presented.
11. COMMITMENTS AND CONTINGENCIES
The Company and Harris Williams lease offices under operating leases and
incurred rent expense of $353,056 during 1997. Annual commitments for each of
the next five years are as follows: 1998 -- $472,974; 1999 -- $477,356;
2000 -- $383,765; 2001 -- $383,765; and 2002 -- $282,604.
The Company has employment contracts with certain employees of Harris
Williams that provide for annual salary, bonuses based on performance and
severance pay if terminated without cause. The agreements have a four year term,
expiring in August 2000. The Company's remaining commitment for salaries,
excluding bonuses, under these agreements is $580,000.
As of December 31, 1997, the Company had outstanding loan commitments
totaling $11,150,000. These commitments were made in the ordinary course of the
Company's business and are generally on the same terms as loans to existing
borrowers.
The Company has made a commitment under a joint venture agreement to fund
up to $100.0 million (in Canadian dollars) in loans to Canadian companies.
F-15
<PAGE> 34
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
As discussed in Note 1, Harris Williams is accounted for by the equity
method of accounting. The balance sheets for Harris Williams as of December 31,
1996 and 1997 and statements of income for the years ended December 31, 1995,
1996 and 1997 are as follows:
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
-------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................. $732,408 $ 282,913
Accounts receivable....................................... 111,352 674,256
Other assets, net......................................... 126,752 1,645,857
-------- ----------
Total assets...................................... $970,512 $2,603,026
======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities............................................... $ 59,025 $1,678,067
Shareholders' equity...................................... 911,487 924,959
-------- ----------
Total liabilities and shareholders' equity........ $970,512 $2,603,026
======== ==========
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Fee income....................................... $2,257,496 $6,331,818 $9,330,114
Expense reimbursements and other................. 398,889 415,199 606,341
---------- ---------- ----------
Total revenues........................... 2,656,385 6,747,017 9,936,455
---------- ---------- ----------
EXPENSES:
Salaries and benefits............................ 1,314,723 2,603,739 4,904,607
Operating expenses............................... 530,052 879,227 1,333,067
---------- ---------- ----------
Total expenses........................... 1,844,775 3,482,966 6,237,674
---------- ---------- ----------
Pre-tax operating income......................... 811,610 3,264,051 3,698,781
Provision for income taxes....................... -- 207,110 824,703
---------- ---------- ----------
Net income............................... $ 811,610 $3,056,941 $2,874,078
========== ========== ==========
</TABLE>
Advisory services are typically provided by Harris Williams in accordance
with engagement contracts that stipulate a monthly retainer, reimbursement of
direct expenses and success fees. Retainer fees are recognized ratably over the
retainer period, expense reimbursements are recognized monthly as billed and
success fees are recognized at the time of closing.
Prior to the acquisition by the Company, Harris Williams operated as a
Subchapter S corporation from inception to August 1994 and as a limited
partnership subsequent to August 1994. Accordingly, no provision for income tax
was recorded for the years ended December 31, 1994 and 1995. Subsequent to the
acquisition in August 1996, Harris Williams began operating as a "C"
corporation. Accordingly for the two years ended December 31, 1996 and 1997,
Harris Williams has provided federal income taxes of $207,110 and $824,703,
respectively, which is included in provision for income taxes in the
accompanying consolidated statements of operations.
F-16
<PAGE> 35
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Distributions of Harris Williams' earnings prior to the acquisition by the
Company were $806,000 and $2,985,369 in 1995 and 1996, respectively. During
1997, Harris Williams paid to the Company dividends of $2,806,606.
Harris Williams reimburses the Company for certain expenses which totaled
$145,932 and $520,791 for the years ending December 31, 1996 and 1997. Expense
reimbursements are reflected as a reduction in operating expenses in the
Company's consolidated statements of operations. Harris Williams has a
receivable from the Company as of December 31, 1997 totaling $877,929, which is
included in accounts payable in the Company's consolidated balance sheet.
During 1997, Harris Williams established a profit sharing and 401(k) plan
available to substantially all employees. The plan provides for discretionary
matching and profit sharing contributions. Contribution expense for 1997 totaled
$259,000.
F-17
<PAGE> 36
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
<TABLE>
<CAPTION>
1995
---------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Total operating income...................... $3,159 $3,552 $4,489 $5,186
Pretax operating income..................... 1,457 1,908 2,632 2,917
Net increase in partners' capital and
shareholders' equity resulting from
operations................................ 3,058 2,500 4,651 4,028
Per share:
Pre-tax operating income.................. $ 0.10 $ 0.11 $ 0.14 $ 0.14
Net increase in partners' capital and
shareholders' equity resulting from
operations............................. .20 .15 .25 .20
Dividends(1).............................. .07 .13 .12 .13
Market price of common stock:(2)
High...................................... $ 5 13/16 $ 6 7/8 $ 9 3/8 $ 10
Low....................................... 5 3/8 5 9/16 6 5/8 8 3/8
</TABLE>
<TABLE>
<CAPTION>
1996
---------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Total operating income...................... $6,578 $6,927 $8,365 $9,074
Pretax operating income..................... 3,384 3,615 4,856 5,268
Net increase in shareholders' equity
resulting from operations................. 9,246 6,001 3,844 5,805
Per share:
Pre-tax operating income.................. $ 0.16 $ 0.17 $ 0.19 $ 0.21
Net increase in shareholders' equity
resulting from operations.............. .44 .29 .15 .23
Dividends(1).............................. .12 .13 .16 .18
Market price of common stock:
High...................................... $ 11 7/8 $ 14 3/4 $ 15 1/8 $ 19 3/16
Low....................................... 9 5/16 11 5/8 11 1/2 15 1/8
</TABLE>
<TABLE>
<CAPTION>
1997
---------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Total operating income...................... $9,740 $10,898 $12,938 $14,771
Pretax operating income..................... 6,226 7,976 9,052 9,780
Net increase in shareholders' equity
resulting from operations................. 3,886 9,917 16,660 10,843
Per share:
Pre-tax operating income.................. $ .22 $ .25 $ .28 $ .30
Net increase in shareholders' equity
resulting from operations.............. .14 .31 .50 .34
Dividends(1).............................. .20 .21 .24 .43(3)
Market price of common stock:
High...................................... $ 21 5/8 $ 20 $ 26 1/16 $ 27 7/8
Low....................................... 17 3/8 13 31/32 17 21 1/4
</TABLE>
- ---------------
(1) Represents dividends on income earned during the quarter that are declared
and paid in the subsequent quarter.
(2) No public market for the stock existed prior to February 6, 1995.
(3) Includes $.18 per share annual capital gain dividend declared in December
1997 and paid in January 1998.
F-18
<PAGE> 37
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
- ----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
AB Plastics Holding Corporation................ 9/27/01 $ 4,000,000 13.50% $ 4,000,000
Affinity Fund, Inc. ........................... 6/29/98 1,485,000 12.50 1,497,932
Affinity Fund, Inc. ........................... 3/10/00 1,000,000 14.00 1,000,000
Affinity Fund, Inc. ........................... 12/28/98 495,000 12.50 496,079
American Corporate Literature, Inc............. 9/29/01 1,683,000 14.00 1,684,132
ARAC Holding Co., Inc. ........................ 9/27/01 3,000,000 13.50 3,000,000
American Network Exchange...................... 11/30/98 990,000 13.00 996,346
American Network Exchange...................... 1/18/99 990,000 13.00 996,012
Amscot Holdings, Inc. ......................... 5/26/00 800,000 14.00 800,000
Amscot Holdings, Inc. ......................... 9/20/00 200,000 14.00 200,000
Amscot Holdings, Inc. ......................... 6/28/01 500,000 14.00 500,000
Amscot Holdings, Inc. ......................... 12/27/01 250,000 14.00 250,000
Argenbright Holdings Limited................... 7/7/01 2,750,000 13.50 3,500,000
Ashe Industries, Inc. ......................... 12/28/97 990,000 12.50 132,058
Ashe Industries, Inc. ......................... 3/25/99 445,500 12.50 122,300
Ashe Industries, Inc. ......................... 5/18/99 544,500 12.50 121,524
Ashe Industries, Inc. ......................... 6/12/96 750,000 14.00 100,000
Ashe Industries, Inc. ......................... 6/12/96 285,546 14.00 0
Associated Response Services, Inc. ............ 6/20/99 1,386,000 12.50 1,393,223
Associated Response Services, Inc. ............ 2/15/00 335,000 12.50 335,000
Associated Response Services, Inc. ............ 1/6/00 300,000 12.50 300,000
Associated Response Services, Inc. ............ 11/8/01 500,000 12.50 500,000
Assured Power, Inc. ........................... 10/1/00 700,000 13.50 700,000
Avionics Systems, Inc. ........................ 7/19/01 3,000,000 13.50 3,000,000
B & N Company, Inc. ........................... 8/8/00 2,970,000 12.50 2,978,500
B & N Company, Inc. ........................... 3/28/01 990,000 13.00 991,670
BankCard Services Corporation.................. 1/21/98 297,000 13.00 299,400
BiTec Southeast, Inc. ......................... 7/1/99 2,600,321 12.70 2,614,171
BiTec Southeast, Inc. ......................... 8/9/01 950,000 14.00 950,000
C.J. Spirits, Inc. ............................ 6/1/97 750,171 13.50 455,796
Caldwell/VSR Inc. ............................. 2/28/01 1,500,000 8.00 1,500,000
Caldwell/VSR Inc. ............................. 9/27/01 116,000 14.00 116,000
Cardiac Control Systems, Inc. ................. 3/31/00 1,500,000 13.50 1,500,000
Cartech Holdings, Inc. ........................ 4/29/01 1,500,000 13.00 1,500,000
Carter Kaplan Holdings, LLC.................... 6/22/00 594,000 14.00 94,800
Cedaron Medical, Inc. ......................... 6/28/01 1,500,000 13.50 1,500,000
Cell Call, Inc. ............................... 11/4/97 990,000 12.75 998,349
CF Data Corp................................... 3/16/00 1,732,500 13.75 1,738,924
Champion Glove Manufacturing Co., Inc. ........ 7/27/00 1,250,000 13.50 1,250,000
Colonial Investments, Inc. .................... 10/16/00 800,000 13.75 800,000
Colonial Investments, Inc. .................... 5/8/01 300,000 13.75 300,000
Consumat Systems, Inc. ........................ 11/1/00 500,000 14.00 500,000
Consumat Systems, Inc. ........................ 1/1/01 500,000 14.00 500,000
Consumat Systems, Inc. ........................ 3/11/01 500,000 14.00 500,000
Continental Diamond Cutting Co................. 10/28/99 1,500,000 13.00 1,500,000
Continental Diamond Cutting Co................. 11/16/99 200,000 13.00 200,000
</TABLE>
F-19
<PAGE> 38
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
- ----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Corporate Flight Mgmt, Inc..................... 12/4/97 $ 346,500 12.50% $ 349,341
Corporate Link, Inc............................ 12/13/01 600,000 14.00 600,000
Corporate Link, Inc............................ 3/13/97 300,000 14.00 300,000
CreditCorp and affiliates...................... 11/7/01 539,000 14.00 546,683
Dalcon International, Inc...................... 1/31/02 150,000 13.00 150,000
Dalcon International, Inc...................... 1/31/00 200,000 13.00 200,000
Dalts, Inc..................................... 4/28/01 2,000,000 13.50 2,000,000
DentalCare Partners, Inc....................... 1/11/01 1,951,150 12.50 1,956,160
Eastern Food Group LLC......................... 8/30/00 500,000 8.00 25,000
Eastern Food Group LLC......................... 12/20/00 200,000 8.00 25,000
Eastern Food Group LLC......................... 1/21/01 200,000 8.00 25,000
Eastern Food Group LLC......................... 2/14/01 265,000 8.00 25,000
Eastern Food Group LLC......................... 4/30/01 200,000 8.00 100,000
Eastern Food Group LLC......................... 9/10/01 180,000 8.00 80,000
Electronic Merchant Services................... 2/27/00 1,237,500 13.50 1,040,204
Electronic Merchant Services................... 2/29/96 168,572 14.00 168,572
Encore Orthopedics, Inc........................ 7/31/00 2,620,985 13.50 2,734,691
Encore Orthopedics, Inc........................ 2/28/01 1,667,680 13.00 1,728,609
Entek Scientific, Inc.......................... 6/28/01 2,500,000 13.00 2,500,000
Express Shipping Centers, Inc.................. 9/22/00 1,697,598 13.25 1,844,910
FoodNet Holdings, LLC.......................... 7/22/01 1,000,000 13.50 1,000,000
Fortrend Engineering Corp...................... 8/30/01 1,500,000 12.99 1,500,000
FX Direct, Inc................................. 1/23/01 2,324,000 13.50 2,359,199
Fypro, Inc..................................... 12/17/01 3,117,480 12.50 3,117,480
Fypro, Inc..................................... 12/17/01 592,000 4.00 152,000
Gardner Wallcovering, Inc...................... 3/28/01 1,485,000 13.50 1,487,500
General Materials Management, Inc.............. 7/29/01 2,500,000 13.50 2,500,000
Generation 2 Worldwide LLC..................... 10/31/00 2,000,000 14.00 2,000,000
Global Finance and Leasing, Inc................ 1/3/00 1,500,000 13.00 1,500,000
Global Marine Electronics, Inc................. 5/1/01 1,350,000 13.00 1,350,000
Gold Medal Products, Inc....................... 11/19/00 1,250,000 13.50 1,250,000
Gold Medal Products, Inc....................... 2/15/01 25,000 13.50 25,000
Gold Medal Products, Inc....................... 6/27/01 100,000 13.50 100,000
Gold Medal Products, Inc....................... 7/31/01 100,000 13.50 100,000
Golf Corporation of America, Inc............... 9/16/99 300,000 11.00 150,000
Golf Corporation of America, Inc............... 12/28/00 200,000 14.00 150,000
Golf Corporation of America, Inc............... 12/29/00 455,589 10.00 180,589
Golf Corporation of America, Inc............... 7/13/96 100,000 14.00 100,000
Golf Corporation of America, Inc............... 10/5/96 50,000 14.00 50,000
Golf Corporation of America, Inc............... 12/1/96 52,000 14.00 52,000
Golf Corporation of America, Inc............... 12/31/96 39,000 14.00 39,000
Golf Video, Inc................................ 3/27/01 500,000 14.00 50,000
Good Food Fast Companies, The.................. 12/13/01 1,300,000 13.50 1,300,000
Gulfstream International Airlines Inc.......... 7/29/99 1,490,000 13.00 1,496,513
Gulfstream International Airlines Inc.......... 9/25/00 1,000,000 13.50 1,000,000
Home Link Services, Inc........................ 12/30/01 79,750 14.00 79,750
</TABLE>
F-20
<PAGE> 39
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
- ----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Horizon Medical Products, Inc.................. 9/22/00 $ 1,500,000 13.75% $ 1,500,000
HPC America, Inc............................... 8/15/01 2,970,000 13.50 2,972,500
Hunt Incorporated.............................. 3/31/00 3,250,000 14.00 3,250,000
H & H Acq. Corp................................ 8/30/01 1,500,000 14.00 1,500,000
HTR, Inc....................................... 10/30/01 3,000,000 13.50 3,000,000
I.Schneid Acquisition, LLC..................... 4/1/01 2,000,000 14.00 2,000,000
ILD Communications............................. 5/10/01 1,500,000 13.50 1,500,000
In-Store Services, Inc......................... 4/19/00 1,188,000 14.00 1,192,200
Innotech, Inc.................................. 3/22/99 1,980,000 13.00 1,991,322
IV Infusion Corporation........................ 12/19/01 1,000,000 14.00 1,000,000
Johnston County Cable, L.P..................... 8/31/00 1,990,000 14.00 1,992,672
Kentucky Kingdom, Inc.......................... 4/4/99 250,000 8.25 250,000
Kentucky Kingdom, Inc.......................... 1/5/98 1,980,000 12.50 1,995,985
Kentucky Kingdom, Inc.......................... 9/26/99 1,200,000 10.50 1,200,000
Kentucky Kingdom, Inc.......................... 3/1/00 835,000 14.00 835,000
Kentucky Kingdom, Inc.......................... 11/6/00 1,500,000 12.50 1,500,000
Kentucky Kingdom, Inc.......................... 3/30/98 2,000,000 14.00 2,000,000
Kryptonics, Inc................................ 12/14/00 2,500,000 12.90 2,500,000
KWC Management Co., LLC........................ 4/25/01 500,000 14.00 50,000
Lane Acquisition Corporation................... 11/21/01 4,000,000 13.75 4,000,000
Leisure Clubs International, Inc............... 4/1/01 1,485,000 14.00 1,487,250
Lovett's Buffet, Inc........................... 4/1/00 2,250,000 13.00 2,250,000
Mayo Hawaiian Corp............................. 6/27/01 2,200,000 14.00 2,200,000
MBA Marketing Corporation...................... 2/4/99 1,782,000 12.50 1,792,500
McAuley's Incorporated......................... 7/31/01 3,000,000 13.00 3,000,000
Medical Associates of America, Inc............. 11/1/97 385,000 12.50 392,000
Metals Recycling Technologies, Inc............. 10/31/01 2,000,000 14.00 2,000,000
Money Transfer Systems, Inc.................... 7/24/00 247,500 14.00 248,256
Money Transfer Systems, Inc.................... 12/20/00 148,500 14.00 148,825
Money Transfer Systems, Inc.................... 3/1/01 148,500 14.00 148,750
Money Transfer Systems, Inc.................... 5/2/01 148,500 14.00 148,650
Money Transfer Systems, Inc.................... 7/8/01 148,500 14.00 148,650
Money Transfer Systems, Inc.................... 10/1/01 148,500 14.00 148,575
Monogram Products, Inc......................... 6/18/01 916,000 13.50 925,800
Moore Diversified Products, Inc................ 6/16/00 800,000 13.50 800,000
Multicom Publishing, Inc....................... 3/29/01 2,200,000 13.00 2,333,330
Multimedia Learning, Inc....................... 5/8/00 1,500,000 14.00 1,500,000
Multimedia Learning, Inc....................... 4/18/01 500,000 13.50 500,000
Multimedia Learning, Inc....................... 9/12/01 750,000 13.50 750,000
Multi-Media Data Systems, Inc.................. 11/20/01 2,000,000 14.00 2,000,000
NASC, Inc...................................... 6/26/01 1,500,000 13.50 1,500,000
NASC, Inc...................................... 12/13/98 500,000 13.50 500,000
Nationwide Engine Supply, Inc.................. 1/12/99 2,475,000 12.00 2,490,012
Nationwide Engine Supply, Inc.................. 9/26/01 1,000,000 13.50 1,000,000
Novavision, Inc................................ 12/18/01 520,000 13.00 520,000
NRI Service and Supply L.P..................... 2/13/00 2,225,000 14.00 2,234,591
</TABLE>
F-21
<PAGE> 40
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
- ----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Orchid Manufacturing Group, Inc................ 9/14/00 $ 2,960,000 13.00% $ 2,968,671
Orchid Manufacturing Group, Inc................ 12/28/00 1,000,000 13.50 1,000,000
Palco Telecom Service, Inc..................... 11/22/99 1,300,000 12.00 1,300,000
Paradigm Valve Services, Inc................... 11/12/01 1,600,000 13.50 1,600,000
Patton Management Corporation.................. 5/26/00 1,900,000 13.50 1,900,000
PaySys International, Inc...................... 6/1/97 990,000 13.00 999,292
PFIC Corporation............................... 2/28/01 1,000,000 13.00 1,000,000
Pipeliner Systems, Inc......................... 9/30/98 980,000 10.00 993,320
Plymouth, Inc.................................. 9/28/00 1,000,000 13.00 1,000,000
PRA International, Inc......................... 8/10/00 1,980,000 13.50 1,985,661
Precision Fixtures & Graphics, Inc............. 4/11/01 1,095,000 14.00 1,095,000
Precision Fixtures & Graphics, Inc............. 4/11/01 300,000 14.00 300,000
Precision Fixtures & Graphics, Inc............. 5/8/01 100,000 14.00 100,000
Precision Fixtures & Graphics, Inc............. 5/28/01 75,000 14.00 75,000
Precision Fixtures & Graphics, Inc............. 7/12/01 75,000 14.00 75,000
Precision Fixtures & Graphics, Inc............. 7/22/01 100,000 14.00 100,000
Precision Fixtures & Graphics, Inc............. 8/27/01 750,000 14.00 750,000
Precision Fixtures & Graphics, Inc............. demand 100,000 14.00 100,000
Precision Panel Products, Inc.................. 1/11/00 1,485,000 12.75 1,491,000
Pritchard Paint & Glass Co..................... 2/14/01 567,431 14.00 567,431
Quest Group International, Inc................. 11/15/00 1,125,000 13.25 1,154,162
Quest Group International, Inc................. 9/3/01 1,350,000 13.25 1,360,000
Radiant Systems, Inc........................... 6/27/01 2,760,000 14.00 2,788,000
Radiant Systems, Inc........................... 9/24/01 1,500,000 14.00 1,500,000
Rocky Mountain Radio Company LLC............... 11/10/01 2,500,000 13.50 2,500,000
Rynel Ltd., Inc................................ 10/1/01 1,250,000 14.00 1,250,000
Scandia Technologies, Inc...................... 4/9/01 1,825,000 14.00 1,825,000
Sheet Metal Specialties, Inc................... 6/20/01 250,000 14.00 250,000
Sheet Metal Specialties, Inc................... 12/4/01 211,750 12.00 211,750
SkillSearch Corporation........................ 2/5/98 496,000 13.00 499,349
SkillSearch Corporation........................ 3/10/97 150,000 14.00 150,000
Southern Specialty Brands, Inc................. 6/30/01 1,732,500 14.00 1,736,004
Sqwincher Corporation.......................... 1/31/00 500,000 13.50 500,000
Studley Products Corp.......................... 11/18/99 107,000 12.00 107,000
Studley Products Corp.......................... 12/1/99 440,800 8.00 440,800
Summit Publishing Group, Ltd................... 3/17/99 1,485,000 12.00 1,493,500
Summit Publishing Group, Ltd................... 7/26/01 625,000 14.00 625,000
Suncoast Medical Group, Inc.................... 9/14/99 485,000 13.50 441,998
Suncoast Medical Group, Inc.................... 6/7/00 495,000 14.00 445,913
Suncoast Medical Group, Inc.................... 2/23/01 522,000 14.00 472,747
TCOM Systems, Inc.............................. 2/5/98 462,610 0.00 462,608
Tower Environmental, Inc....................... 11/30/98 2,440,000 10.00 1,601,990
Tower Environmental, Inc....................... 5/30/95 150,000 12.50 150,000
Trade Am International, Inc.................... 9/30/00 4,000,000 12.75 4,000,000
TRC Acquisition Corporation.................... 10/21/01 1,000,000 13.50 1,000,000
UltraFab, Inc.................................. 6/27/01 1,500,000 14.00 1,500,000
</TABLE>
F-22
<PAGE> 41
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
- ----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Unique Electronics, Inc........................ 11/30/99 $ 600,000 10.67% $ 600,000
Urethane Technologies, Inc..................... 3/16/01 1,636,520 13.50 1,697,100
Valdawn, LLC................................... 4/13/00 2,399,974 13.50 2,400,000
Viking Moorings Acquisition, LLC............... 12/15/00 1,655,500 13.00 1,730,146
Virtual Resources Inc. ........................ 8/16/01 3,000,000 14.00 3,000,000
Vista Information Solutions, Inc. ............. 4/30/01 2,032,157 13.50 2,086,736
WJ Holdings, Inc. ............................. 11/19/01 4,000,000 13.50 4,000,000
WWR Technology, Inc. .......................... 11/1/97 319,700 13.50 324,184
Zahren Alternative Power Corp. ................ 1/30/00 495,000 13.00 496,075
Zahren Alternative Power Corp. ................ 11/27/99 1,980,000 13.00 1,989,663
------------ ------------
Total Loans.......................... $227,313,284 $221,487,385
============ ============
</TABLE>
<TABLE>
<CAPTION>
COST OR
NUMBER OF CONTRIBUTED
EQUITY INTERESTS SHARES VALUE FAIR VALUE
- ---------------- -------------- ----------- -----------
<S> <C> <C> <C>
PUBLICLY TRADED INVESTMENTS
National Vision Associates, Ltd. Common Stock....... 208,698 $ 1,771,149 $ 802,180
Trans Global Services, Inc. Common
Stock -- restricted............................... 28,088 5,300 37,685
Moovies, Inc. Common Stock -- restricted............ 156,110 1,561 566,874
Premiere Technologies, Inc. Common Stock............ 328,360 0 7,720,565
Cardiac Control Systems, Inc. Common
Stock -- restricted............................... 50,000 250,000 52,500
Innotech, Inc. Common Stock......................... 65,530 20,000 474,273
American Network Exchange Common
Stock -- restricted............................... 139,651 21,879 197,839
Educational Medical, Inc. Common
Stock -- restricted............................... 108,198 0 817,346
FCOA Acquisition Corp. Common Stock -- restricted... 94,335 0 597,084
QuadraMed Corporation Common Stock -- restricted.... 25,700 0 180,275
QuadraMed Corporation Common Stock -- escrowed...... 2,856 0 0
EQUITY INVESTMENTS IN PRIVATE COMPANIES
Skillsearch Corporation Common Stock................ 2,241 250,035 150,000
Potomac Group, Inc. Preferred Stock -- Series A..... 800,000 1,000,000 2,000,000
Potomac Group, Inc. Common Stock.................... 479,115 289,779 1,299,038
Kentucky Kingdom, Inc. Common Stock................. 13,260 258,316 1,325,000
Golf Corporation of America, Inc. Common Stock...... 100,000 100,000 0
International Risk Control, Inc. Preferred
Stock -- Series A................................. 200,000 50,000 50,000
DentalCare Partners, Inc. Preferred Stock --
Series E.......................................... 490,978 800,000 800,000
Unique Electronics, Inc. Preferred Stock --
Series A.......................................... 1,000,000 1,000,000 880,000
Pipeliner Systems, Inc. Preferred Stock --
Series D.......................................... 5,000 1,000,000 900,000
Front Royal, Inc. Common Stock...................... 110,000 275,000 275,000
NovaVision, Inc. Preferred Stock -- Series A........ 3,720,141 3,720,141 3,720,141
Fycon Technologies, Inc. Preferred Stock --
Series A.......................................... 96,000 96,000 0
Virginia Gas Company Preferred Stock -- Series A.... 2,000 2,000,000 2,000,000
Johnston County Cable, L.P. Class A Interest in
L.P............................................... 11.11% of L.P. 100,000 100,000
Dalcon International, Inc. Series B Preferred
Stock............................................. 850,000 850,000 750,000
Zahren Alternative Power Corporation Common Stock... 700 210,000 210,000
Zahren Alternative Power Corporation Preferred
Stock............................................. 200 200,000 200,000
</TABLE>
F-23
<PAGE> 42
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COST OR
NUMBER OF CONTRIBUTED
EQUITY INTERESTS SHARES VALUE FAIR VALUE
- ---------------- -------------- ----------- -----------
<S> <C> <C> <C>
Electronic Merchant Services Series B Preferred
Stock............................................. 163 $ 0 $ 0
PRA International, Inc. Common Stock................ 31,279 190,000 190,000
Caldwell/VSR Inc. Preferred Stock................... 890 890,000 760,000
Precision Fixtures & Graphics, Inc. Preferred
Stock............................................. 1,500,000 1,500,000 0
Palco Telecom Service Common Stock.................. 157,895 1,579 100,000
Studley Products Corp. Common Stock................. 2,204 220,400 0
Clearidge, Inc. Series A Preferred Stock............ 14,800,000 3,700,000 3,700,000
Gulfstream International Airlines, Inc. Series A
Preferred Stock................................... 216 3,000,000 3,000,000
Home Link, Inc. Preferred Stock..................... 1,000,000 1,000,000 1,000,000
Voice FX Corporation Common Stock................... 24,078 110,001 110,001
----------- -----------
Total Equity Interests.................... $24,881,140 $34,965,801
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
STOCK WARRANTS SHARES OWNERSHIP VALUE FAIR VALUE
- -------------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
PUBLICLY TRADED COMPANIES
American Network Exchange................ 13,988 0.00% $ 0 $ 0
Cardiac Control Systems, Inc............. 100,000 4.35 0 104,997
Consumat Systems, Inc.................... 250,000 20.00 0 229,688
Moovies, Inc............................. 20,000 0.20 0 0
Multicom Publishing, Inc................. 163,791 2.80 800,000 138,540
Urethane Technologies, Inc............... 484,640 4.66 363,480 42,406
Vista Information Solutions, Inc......... 1,247,582 5.00 467,843 491,235
Virginia Gas Company..................... 54,163 1.52 0 278,034
Virginia Gas Company..................... 54,163 1.52 54 0
PRIVATE COMPANIES
AB Plastics Holding Corporation.......... 200,000 20.00 0 0
Affinity Corporation..................... 550 9.67 20,000 385,000
Alternative Home Care.................... 163,695 13.00 0 0
Alvin Carter Holdings Corp. ............. 2% of Co. 2.00 0 0
American Corporate Literature............ 222,197 19.72 17,000 17,000
American Rockwool Acquisition Corp. ..... 1,100,000 11.00 0 0
Amscot Holdings, Inc. ................... 1,534 26.47 0 0
Argenbright Holdings LLC................. 18 3.50 750,000 375,000
Ashe Industries, Inc. ................... 254 19.35 20,000 0
Associated Response Services, Inc. ...... 370 35.20 14,000 1,000,000
Assured Power, Inc. ..................... 374 16.00 0 0
Auto Rental Systems, Inc. ............... 144,869 7.00 0 0
Avionics Systems, Inc. .................. 15% of Co. 15.00 0 0
B & N Company, Inc. ..................... 33 4.00 40,000 0
BankCard Services Corporation............ 149,261 28.00 3,000 0
BiTec Southeast, Inc. ................... 1,480 15.00 21,000 0
Carter Kaplan Holdings, LLC.............. 24% of LLC 24.00 6,100 0
</TABLE>
F-24
<PAGE> 43
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
STOCK WARRANTS SHARES OWNERSHIP VALUE FAIR VALUE
- -------------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
C.J. Spirits, Inc. ...................... 180,000 10.00% $ 7,500 $ 0
Caldwell/VSR Inc. ....................... 159 15.93 0 0
Cartech Holdings, Inc. .................. 210,527 20.00 0 0
Cedaron Medical, Inc. ................... 173,981 4.25 0 0
CellCall, Inc. .......................... 398 1.50 10,000 125,000
CF Data Corp. ........................... 257 20.50 17,500 17,500
Champion Glove Manufacturing Co., Inc.... 538,614 6.88 0 0
Clearidge, Inc. ......................... 442,164 1.78 0 0
CLS Corporation.......................... 126,997 4.22 0 0
Colonial Investments, Inc. .............. 264 24.00 0 0
Continental Diamond Cutting Company...... 112 12.22 0 0
Corporate Flight Mgmt., Inc. ............ 66,315 6.63 3,500 100,000
Corporate Link, Inc. .................... 190 16.00 0 0
CreditCorp and affiliates................ 52 5.00 461,000 461,000
Dalcon Technologies, Inc. ............... 250,000 20.00 0 0
Dalts, Inc. ............................. 125 25.00 0 0
Delaware Publishing Group, Inc. ......... 8,534 47.67 15,000 200,000
DentalCare Partners, Inc. ............... 666,022 4.98 10,000 290,000
Eastern Food Group LLC................... 17,647 15.00 0 0
Electronic Merchant Services............. 430 12.50 12,500 0
Encore Orthopedics, Inc. ................ 577,300 5.21 711,335 1,205,000
Entek Scientific Corporation............. 185,480 3.75 0 0
Express Shipping Centers, Inc. .......... 73,752 5.09 552,402 552,402
Foodnet Holdings, LLC.................... 8 8.00 0 0
Fortrend Engineering Corp. .............. 437,552 3.25 0 0
Front Royal, Inc. ....................... 240,458 1.85 0 480,000
Fycon Technologies, Inc. ................ 58,677 15.00 0 0
Fypro, Inc. ............................. 255,882 15.00 0 0
Gardner Wallcovering, Inc. .............. 2 2.00 15,000 15,000
General Materials Management Inc. ....... 600,000 10.00 0 0
Generation 2 Worldwide LLC............... 30% of LLC 30.00 0 0
Global Finance & Leasing, Inc. .......... 5,000 25.00 0 0
Global Marine............................ 5,137 18.00 0 0
Gold Medal Products, Inc. ............... 102,370 32.77 0 0
Golf Corporation of America, Inc. ....... 350,000 28.27 0 0
Golf Video, Inc. ........................ 98 49.50 0 0
Good Food Fast Companies, The............ 174,779 17.00 0 0
Gulfstream International Airlines,
Inc.................................... 413 32.00 10,000 140,000
H & H Acquisition Corporation............ 3,600 22.50 0 0
Home Link Services, Inc. ................ 166,667 20.00 0 0
Horizon Medical Products, Inc. .......... 9,486 8.25 0 0
Hoveround Corporation.................... 850 10.00 0 1,135,000
HPC America, Inc. ....................... 5 2.75 30,000 30,000
Hunt Incorporated........................ 44 10.00 0 100,000
Hunt Leasing & Rental Corporation........ 265 10.00 0 100,000
HTR, Inc. ............................... 849,381 6.00 0 0
</TABLE>
F-25
<PAGE> 44
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
STOCK WARRANTS SHARES OWNERSHIP VALUE FAIR VALUE
- -------------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
I. Schneid Holdings LLC.................. 11% of LLC 11.00% $ 0 $ 0
ILD Communications....................... 5,429 3.20 0 0
In Store Services, Inc. ................. 429 12.50 12,000 12,000
Johnston County Cable L.P................ 27.5% of L.P 27.50 10,000 10,000
K.W.C. Management Corp. ................. 794 24.40 0 0
Kentucky Kingdom, Inc. .................. 6,132 2.00 0 610,000
Kryptonics, Inc. ........................ 1,255 6.40 0 400,000
Lane Acquisition Corporation............. 11,667 10.00 0 0
Leisure Clubs International, Inc. ....... 144 10.00 15,000 15,000
Lovett's Buffet, Inc. ................... 204,219 3.02 0 400,000
Mayo Hawaiian Corp. ..................... 81 7.50 0 0
MBA Marketing Corporation................ 11,100 4.29 18,000 18,000
McAuley's Incorporated................... 64 6.00 0 0
Metals Recycling Technologies Corp....... 257,801 5.00 0 0
Money Transfer Systems, Inc. ............ 94 8.50 10,000 10,000
Monogram Products, Inc. ................. 1,276 6.00 84,000 84,000
Moore Diversified Products, Inc. ........ 12 11.00 0 0
Multimedia Learning, Inc. ............... 131,697 8.10 0 800,000
Multi-Media Data Systems, Inc. .......... 259,072 20.00 0 0
NASC, Inc. .............................. 2,652 23.00 0 0
Nationwide Engine Supply, Inc. .......... 1,265,664 20.20 25,000 25,000
Novavision, Inc. ........................ 222,222 10.00 0 0
NRI Service and Supply, L.P.............. 27.5% of LP 27.50 25,000 25,000
Orchid Manufacturing, Inc. .............. 1,219,047 2.61 40,000 600,000
P.A. Plymouth, Inc. ..................... 92,647 15.00 0 0
Paradigm Valve Services, Inc. ........... 30,000 12.00 0 0
Patton Management Corporation............ 426 10.00 0 185,000
PaySys International, Inc. .............. 30,000 2.68 10,000 10,000
PFIC Corporation......................... 5,917 6.00 0 0
PRA International, Inc. ................. 117,298 3.63 20,000 685,000
Pipeliner Systems, Inc. ................. 2,080,000 20.55 20,000 0
Precision Fixtures & Graphics, Inc....... 2,602 51.00 0 0
Precision Panel Products, Inc............ 122 8.25 15,000 15,000
Pritchard Glass, Inc..................... 12,500 25.00 0 0
Quest Group International, Inc........... 88,840 17.52 275,000 275,000
Radiant Systems, Inc..................... 174,642 1.52 240,000 950,000
Radio Systems Corporation................ 162,167 8.13 0 1,000,000
Rynel Ltd., Inc.......................... 390,517 15.00 0 0
Scandia Technologies, Inc................ 282 22.00 0 0
Sheet Metal Specialties, Inc............. 538 35.00 0 0
SkillSearch Corporation.................. 2,381 7.59 254,000 150,000
Southern Specialty Brands, Inc........... 10,000 10.00 17,500 17,500
Sqwincher Corporation.................... 111 10.00 0 140,000
Suncoast Medical Group, Inc.............. 580,159 23.00 25,000 0
Suprex Corporation....................... 1,058,179 3.45 0 0
</TABLE>
F-26
<PAGE> 45
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
STOCK WARRANTS SHARES OWNERSHIP VALUE FAIR VALUE
- -------------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Tower Environmental, Inc................. 82 10.07% $ 20,000 $ 0
Trade Am International, Inc.............. 335,106 6.00 0 0
TRC Acquisition Corporation.............. 375,000 12.50 0 0
UltraFab, Inc............................ 120,000 12.00 0 0
Unique Electronics, Inc.................. 20% of Co. 20.00 0 0
VanGard Communications Co., LLC.......... 12% of LLC 12.00 0 0
VDI Acquisition Company, LLC............. 21% of LLC 21.00 26 26
Viking Moorings Acquisition, LLC......... 6.5% of LLC 6.50 344,500 344,500
Virtual Resources, Inc................... 8 7.50 0 250,000
Voice FX Corporation..................... 233,112 7.10 176,000 450,000
WJ Holdings, Inc. ....................... 250,000 25.00 0 0
Zahren Alternative Power Corporation..... 1,247 6.54 25,000 400,000
------------ ------------
Total Warrants................. $ 6,059,240 $ 15,893,828
============ ============
OTHER INVESTMENTS (See Note 3)
Gates Communication, L.P. -- Anticipated
royalty payments upon sale of assets... -- -- $ 1,389,628 $ 1,289,628
Hancock Company -- Royalty stream from
sale of Gitman brand name.............. -- -- 1,900,000 600,000
HSA International, Inc. -- Anticipated
proceeds from litigation............... -- -- 1,150,000 1,000,000
Capitalized workout expenses............. -- -- 250,671 100,654
------------ ------------
Total other investments........ $ 4,690,299 $ 2,990,282
------------ ------------
Total Investments.............. $262,943,963 $275,337,296
============ ============
</TABLE>
F-27
<PAGE> 46
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
- ----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Action Sports Group, LLC......................... 8/19/02 $ 1,750,000 13.00% $ 1,750,000
Aero Products Corporation........................ 6/9/02 2,500,000 13.00 2,500,000
Aero Products Corporation........................ 12/19/99 1,250,000 14.00 1,250,000
Affinity Fund, Inc. ............................. 6/29/98 1,485,000 12.50 1,500,000
Affinity Fund, Inc. ............................. 3/10/00 1,000,000 14.00 1,000,000
Affinity Fund, Inc. ............................. 12/28/98 495,000 12.50 497,075
Alignis, Inc. ................................... 2/28/02 2,500,000 13.00 2,500,000
American Consolidated Laboratories, Inc.......... 4/25/02 1,458,450 13.50 1,223,990
American Consolidated Laboratories, Inc.......... 12/18/01 520,000 13.00 520,000
American Consolidated Laboratories, Inc.......... 4/25/02 529,238 13.50 534,126
American Corporate Literature, Inc. ............. 9/29/01 1,683,000 14.00 1,687,528
American Corporate Literature, Inc. ............. 1/1/98 500,000 14.00 500,000
American Network Exchange, Inc................... 11/30/98 990,000 13.00 998,350
American Network Exchange, Inc................... 1/18/99 990,000 13.00 998,016
Amscot Holdings, Inc. ........................... 5/26/00 800,000 14.00 800,000
Amscot Holdings, Inc. ........................... 9/20/00 200,000 14.00 200,000
Amscot Holdings, Inc. ........................... 6/28/01 500,000 14.00 500,000
Amscot Holdings, Inc. ........................... 12/27/01 250,000 14.00 250,000
Amscot Holdings, Inc. ........................... 7/30/02 1,000,000 14.00 1,000,000
Anton Airfoods, Inc. ............................ 5/21/02 5,000,000 13.50 5,000,000
ARAC Holding Co., Inc. .......................... 9/27/01 3,000,000 13.50 3,000,000
Ashe Industries, Inc. ........................... 5/18/99 535,546 12.50 185,546
Associated Response Services, Inc. .............. 6/20/99 1,386,000 12.50 1,396,019
Associated Response Services, Inc. .............. 2/15/00 335,000 12.50 335,000
Associated Response Services, Inc. .............. 1/6/00 300,000 12.50 300,000
Associated Response Services, Inc. .............. 11/8/01 500,000 12.50 500,000
Associated Response Services, Inc. .............. 3/27/02 3,000,000 12.50 3,000,000
Assured Power, Inc. ............................. 10/1/00 200,000 13.50 50,000
Atlantic Security Systems, Inc. and affiliates... 1/29/02 2,250,000 13.25 2,250,000
Auburn International, Inc. ...................... 12/31/02 2,850,000 13.50 2,852,500
Austin Innovations, Inc. ........................ 7/1/02 1,950,000 13.75 1,953,448
Avionics Systems, Inc. .......................... 7/19/01 3,000,000 13.50 3,000,000
B & N Company, Inc. ............................. 8/8/00 2,970,000 12.50 2,583,500
B & N Company, Inc. ............................. 3/28/01 990,000 13.00 993,507
BankCard Services Corporation.................... 1/21/98 273,731 13.00 126,631
BiTec Southeast, Inc. ........................... 7/1/99 2,600,321 12.70 2,192,671
BiTec Southeast, Inc. ........................... 8/9/01 950,000 14.00 950,000
BiTec Southeast, Inc. ........................... 4/30/97 350,000 14.00 350,000
BiTec Southeast, Inc. ........................... demand 228,000 14.00 228,000
Bohdan Automation, Inc. ......................... 7/1/02 1,500,000 13.50 1,500,000
Bravo Corporation, Inc. ......................... 3/31/03 3,250,000 12.00 3,250,000
BroadNet, Inc. .................................. 6/9/02 2,500,000 14.00 2,500,000
BUCA, Inc........................................ 10/31/02 1,565,003 13.50 1,572,253
Bug.Z., Inc. .................................... 9/23/02 2,500,000 15.00 2,500,000
C.J. Spirits, Inc. .............................. 6/1/97 750,171 13.50 105,796
Caldwell/VSR Inc. ............................... 2/28/01 1,500,000 12.00 1,500,000
</TABLE>
F-28
<PAGE> 47
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
- ----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Caldwell/VSR Inc. ............................... 9/27/01 $ 22,262 14.00% $ 22,262
Cardiac Control Systems, Inc. ................... 3/31/00 1,500,000 13.50 1,500,000
Cartech Holdings, Inc. .......................... 4/29/01 1,500,000 13.00 1,500,000
Carter Kaplan Holdings, LLC...................... 6/22/00 594,000 14.00 44,800
Catalina Food Ingredients, Inc. ................. 3/30/02 3,500,000 13.00 3,500,000
Cedaron Medical, Inc. ........................... 6/28/01 1,500,000 13.50 1,500,000
Cell Call, Inc. ................................. 3/1/98 990,000 12.75 1,000,000
CF Data Corp. ................................... 3/16/00 1,732,500 13.75 1,742,428
Champion Glove Manufacturing Co., Inc. .......... 7/27/00 1,250,000 13.50 50,000
Check Into Cash, Inc. ........................... 11/7/01 3,039,000 14.00 3,138,879
CMHC Systems, Inc. .............................. 7/1/02 1,400,000 13.50 1,400,000
CMP Enterprises, LLC............................. 12/10/02 3,500,000 13.00 3,500,000
Colonial Investments, Inc. ...................... 10/16/00 800,000 13.75 800,000
Colonial Investments, Inc. ...................... 4/1/98 300,000 13.75 300,000
Colonial Investments, Inc. ...................... 4/1/98 60,933 13.75 60,933
Columbus Medical Holdings, LLC................... 1/31/02 4,000,000 13.75 4,000,000
Compression, Inc. ............................... 12/17/02 3,700,000 13.50 3,700,000
Consumat Systems, Inc. .......................... 11/1/00 500,000 14.00 500,000
Consumat Systems, Inc. .......................... 1/1/01 500,000 14.00 500,000
Consumat Systems, Inc. .......................... 3/11/01 500,000 14.00 500,000
Consumat Systems, Inc. .......................... 3/26/02 500,000 14.00 500,000
Consumat Systems, Inc. .......................... 7/15/98 500,000 14.00 500,000
Continental Diamond Cutting Co. ................. 10/28/99 500,000 13.00 500,000
Continental Diamond Cutting Co. ................. 11/16/99 200,000 13.00 200,000
Corporate Link, Inc. ............................ 12/13/01 600,000 14.00 600,000
Corporate Link, Inc. ............................ 1/13/98 300,000 14.00 300,000
Cort Investment Group, Inc. (d/b/a Contract
Network)....................................... 8/27/02 3,320,000 13.50 3,335,000
Creighton Shirtmakers, Inc. and affiliates....... demand 1,969,000 14.00 1,969,000
CSM, Inc. ....................................... 12/31/01 1,400,000 14.00 1,400,000
Cybo Robotics, Inc. ............................. 9/18/02 1,050,000 13.25 1,050,000
Dalts, Inc. ..................................... 4/28/01 2,000,000 13.50 2,000,000
Dartek Industries, Inc........................... 11/20/01 3,800,000 13.50 3,800,000
Dartek Industries, Inc........................... 6/1/99 688,915 13.50 688,915
Data National Corporation........................ 12/10/02 1,050,000 13.75 1,057,500
DentalCare Partners, Inc. ....................... 1/11/01 2,206,023 12.50 2,213,037
DFI/Aeronomics, Inc. ............................ 12/30/02 3,000,000 13.50 3,000,000
Dyad Corporation................................. 12/31/02 2,900,000 14.00 2,910,000
DynaGen, Inc. ................................... 6/17/02 1,733,300 13.50 1,764,415
Dyntec, Inc. .................................... 7/7/02 2,500,000 14.00 2,500,000
Electronic Accessory Specialists Int'l, Inc. .... 6/23/02 1,600,000 13.50 1,600,000
Encor Technologies, Inc. ........................ 3/30/02 1,444,000 13.13 1,444,000
Endeavor Technologies, Inc. ..................... 9/2/02 4,000,000 13.50 4,000,000
Entek Scientific Corporation..................... 5/22/02 1,090,000 13.00 1,108,984
Entek Scientific Corporation..................... 6/28/01 2,500,000 13.00 2,500,000
Express Shipping Centers, Inc. .................. 9/22/00 1,697,598 13.25 1,955,394
</TABLE>
F-29
<PAGE> 48
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
- ----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Express Shipping Centers, Inc. .................. 5/1/02 $ 250,000 13.25% $ 250,000
Express Shipping Centers, Inc. .................. 7/14/98 150,000 15.00 150,000
Faxnet Corporation............................... 6/17/02 1,900,000 13.00 1,911,669
FDL, Inc. ....................................... 1/30/02 1,750,000 13.50 1,800,004
Film Technologies International, Inc. ........... 2/27/02 1,500,000 14.00 1,500,000
FoodNet Holdings, LLC............................ 7/22/01 1,500,000 13.50 1,500,000
Fortrend Engineering Corp. ...................... 8/30/01 1,500,000 12.99 1,500,000
Fypro, Inc. ..................................... 12/17/01 1,166,000 8.00 1,016,000
Gardner Wallcovering, Inc. ...................... 3/28/01 235,000 13.50 240,250
General Materials Management, Inc. .............. 7/29/01 2,500,000 13.50 2,250,000
Generation 2 Worldwide LLC....................... 10/31/00 2,000,000 14.00 2,000,000
Global Marine Electronics, Inc. ................. 5/1/01 1,350,000 13.00 1,350,000
Gloves Inc. ..................................... 5/1/02 1,500,000 13.00 1,500,000
Good Food Fast Companies, The.................... 12/10/01 2,500,000 13.50 2,500,000
Gulfstream International Airlines Inc. .......... 7/29/99 1,490,000 13.00 1,498,517
Gulfstream International Airlines Inc. .......... 9/25/00 1,000,000 14.00 1,000,000
Gulfstream International Airlines Inc. .......... 3/19/02 1,500,000 14.00 1,500,000
Gulfstream International Airlines Inc. .......... 12/1/99 2,200,000 14.00 2,200,000
H & H Acq. Corp. ................................ 8/30/01 1,500,000 14.00 1,500,000
Home Link Services, Inc. ........................ 12/30/01 300,000 14.00 300,000
Hunt Assisted Living, LLC........................ 10/17/02 2,999,900 12.00 2,999,904
Hunt Incorporated................................ 3/31/00 3,000,000 14.00 3,000,000
Hydrofuser Industries, Inc. and affiliates....... 7/30/02 885,039 13.00 932,006
I.Schneid Acquisition, LLC....................... 4/1/01 2,000,000 14.00 2,000,000
IJL Holdings, Inc. .............................. 9/12/02 1,250,000 13.50 1,250,000
ILD Communications, Inc.......................... 5/10/01 1,500,000 13.50 1,500,000
In-Store Services, Inc. ......................... 4/19/00 1,188,000 14.00 1,194,600
Johnston County Cable, L.P. ..................... 8/31/00 1,990,000 14.00 1,994,676
Karawia Industries, Inc. ........................ 3/27/02 2,500,000 14.00 2,500,000
KWC Management Co., LLC.......................... 4/25/01 500,000 14.00 50,000
Lane Acquisition Corporation..................... 11/21/01 4,000,000 13.75 4,000,000
Leisure Clubs International, Inc. ............... 4/1/01 1,485,000 14.00 1,490,250
Leisure Clubs International, Inc. ............... 3/27/02 125,000 14.00 125,000
M & M Industries, Inc. .......................... 2/26/02 2,250,000 14.00 2,250,000
Master Graphics, Inc. ........................... 5/31/02 4,300,000 13.25 4,300,000
Mayo Hawaiian Corp. ............................. 6/27/01 2,200,000 14.00 2,200,000
MBA Marketing Corporation........................ 2/4/99 1,782,000 12.50 1,796,100
McAuley's Incorporated........................... 7/31/01 3,000,000 13.00 3,000,000
MCG, Inc. ....................................... 12/23/02 1,500,000 13.50 1,500,000
Mead-Higgs Company, Inc. ........................ 5/19/02 1,400,000 14.00 1,400,000
Merge Technologies, Inc. ........................ 6/30/02 2,000,000 13.50 2,000,000
Mesa International, Inc. ........................ 1/23/02 3,800,000 14.00 3,800,000
Metals Recycling Technologies Corp. ............. 10/31/01 2,000,000 14.00 2,000,000
MetroLease, Inc. ................................ 7/29/02 2,495,000 13.50 2,495,498
Money Transfer Systems, Inc. .................... 7/24/00 247,500 14.00 248,760
Money Transfer Systems, Inc. .................... 12/20/00 148,500 14.00 149,125
</TABLE>
F-30
<PAGE> 49
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
- ----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Money Transfer Systems, Inc. .................... 3/1/01 $ 148,500 14.00% $ 149,050
Money Transfer Systems, Inc. .................... 5/2/01 148,500 14.00 148,950
Money Transfer Systems, Inc. .................... 7/8/01 148,500 14.00 148,950
Money Transfer Systems, Inc. .................... 10/1/01 148,500 14.00 148,875
Money Transfer Systems, Inc. .................... 1/5/02 245,000 14.00 245,996
Money Transfer Systems, Inc. .................... 3/6/02 250,000 14.00 250,000
Money Transfer Systems, Inc. .................... 7/15/02 250,000 14.00 250,000
Moore Diversified Products, Inc. ................ 6/16/00 800,000 13.50 800,000
Moore Diversified Products, Inc. ................ 3/27/02 1,000,000 13.50 1,000,000
Multicom Publishing, Inc. ....................... 3/29/01 1,025,000 13.00 1,068,328
Multicom Publishing, Inc. ....................... demand 51,556 14.00 51,556
Multicom Publishing, Inc. ....................... demand 650,000 14.00 650,000
Multicom Publishing, Inc. ....................... demand 70,000 14.00 70,000
Multicom Publishing, Inc. ....................... demand 160,000 14.00 160,000
Multimedia Learning, Inc. ....................... 5/8/00 1,500,000 14.00 1,500,000
Multimedia Learning, Inc. ....................... 4/18/01 500,000 13.50 500,000
Multimedia Learning, Inc. ....................... 9/12/01 750,000 13.50 750,000
Mytech Corporation............................... 9/25/02 1,400,000 13.50 1,400,000
NASC, Inc. ...................................... 6/26/01 1,500,000 13.50 1,500,000
NASC, Inc. ...................................... 12/13/98 500,000 13.50 500,000
National Health Systems, Inc. ................... 10/1/99 420,000 12.50 127,000
Nationwide Engine Supply, Inc. .................. 1/12/99 2,475,000 12.00 2,495,016
Nationwide Engine Supply, Inc. .................. 9/26/01 1,000,000 13.50 1,000,000
NetForce, Inc. .................................. 11/27/02 2,000,000 14.00 2,000,000
NRI Service and Supply L.P. ..................... 2/13/00 2,225,000 14.00 2,239,595
Omni Home Medical, Inc. ......................... 3/30/02 2,000,000 14.00 2,000,000
One Call Comprehensive Care, Inc. ............... 12/19/01 1,500,000 14.00 1,500,000
One Call Comprehensive Care, Inc. ............... 3/31/02 500,000 14.00 500,000
One Call Comprehensive Care, Inc. ............... 1/31/98 300,000 14.00 300,000
One Call Comprehensive Care, Inc. ............... 1/31/98 175,000 14.00 175,000
One Coast Network Corporation.................... 11/17/02 5,000,000 14.00 5,000,000
Orchid Manufacturing Group, Inc. ................ 9/14/00 2,960,000 13.00 2,976,675
Orchid Manufacturing Group, Inc. ................ 12/28/00 1,000,000 13.50 1,000,000
Outdoor Promotions LLC........................... 11/26/02 850,000 13.75 850,000
Pacific Linen, Inc. ............................. 12/3/02 2,951,976 13.50 2,961,110
Palco Telecom Service, Inc. ..................... 11/22/99 1,300,000 12.00 1,300,000
Paradigm Valve Services, Inc. ................... 11/12/01 1,600,000 13.50 1,600,000
Pathology Consultants of America, Inc............ 12/23/02 1,702,368 13.13 1,703,161
Patton Management Corporation.................... 5/26/00 1,900,000 13.50 1,900,000
PaySys International, Inc. ...................... 9/26/02 3,725,158 13.50 3,743,482
Pik:Nik Media, Inc. ............................. 6/23/00 1,000,000 12.00 1,000,000
Pipeliner Systems, Inc. ......................... 9/30/98 980,000 10.00 896,984
Plymouth, Inc. .................................. 9/28/00 1,000,000 13.00 1,000,000
Potomac Group, Inc. ............................. 11/20/01 1,997,409 14.00 1,997,409
PRA International, Inc. ......................... 8/10/00 1,980,000 13.50 1,989,657
Precision Panel Products, Inc. .................. 1/11/02 2,022,781 12.75 2,031,781
</TABLE>
F-31
<PAGE> 50
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>
F-32
<PAGE> 51
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
- ----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Trade Am International, Inc. .................... 9/30/00 $ 4,000,000 12.75% $ 4,000,000
TRC Acquisition Corporation...................... 10/21/01 2,000,000 13.50 2,000,000
UltraFab, Inc. .................................. 6/27/01 1,500,000 14.00 1,500,000
Umbrellas Unlimited, LLC......................... 8/21/02 314,691 14.00 264,691
Unicoil, Inc. ................................... 9/28/02 2,000,000 13.50 2,000,000
Unique Electronics, Inc. ........................ 11/30/99 600,000 10.67 600,000
Unique Electronics, Inc. ........................ 10/10/02 300,000 13.00 300,000
UOL Publishing, Inc. ............................ 10/31/99 32,353 6.00 32,348
Valdawn Watch Company............................ 4/13/00 2,160,000 14.00 1,525,000
Valdawn Watch Company............................ 8/21/02 1,000,000 14.00 1,000,000
Valdawn Watch Company............................ 1/30/98 100,000 14.00 100,000
VDW Farms, Ltd. ................................. 11/25/02 1,500,000 14.00 1,500,000
Watts-Finnis Holdings, Inc. ..................... 11/30/02 2,500,000 13.25 2,500,000
Wearever Health Products, LLC.................... 3/31/02 1,500,000 13.50 1,500,000
Wearever Health Products, LLC.................... 12/11/02 450,000 13.50 450,000
Wolfgang Puck Food Company, Inc.................. 5/20/02 5,000,000 12.50 5,000,000
Zahren Alternative Power Corp. .................. 1/30/00 495,000 13.00 497,071
Zahren Alternative Power Corp. .................. 11/27/99 1,980,000 13.00 1,993,619
------------ ------------
Subtotals.............................. 375,031,495 365,465,224
------------ ------------
TANDEM CAPITAL LOANS TO PUBLICLY TRADED COMPANIES
Altris Software, Inc. ........................... 6/27/02 $ 2,415,000 11.50% $ 2,454,000
Berger Holdings, Inc. ........................... 1/2/03 1,796,000 12.25 1,799,400
Bikers Dream, Inc. .............................. 11/17/98 2,390,625 12.00 2,392,448
Cover-All Technologies, Inc. (convertible at
$1.25/sh.)..................................... 3/31/02 3,000,000 12.50 5,150,000
Digital Transmission Systems, Inc. (convertible
at $10.25/sh.)................................. 9/25/02 4,000,000 11.50 4,000,000
Environmental Tectonics Corporation.............. 3/27/04 3,500,770 12.00 3,534,054
Smartchoice Automotive Group (convertible at
$6/sh.)........................................ 3/12/99 3,500,000 12.00 3,500,000
Smartchoice Automotive Group (convertible at
$6/sh.)........................................ 5/13/02 4,000,000 12.00 4,000,000
Teltronics, Inc. (convertible at $4/sh.)......... 2/13/02 4,250,000 11.00 4,250,000
Universal Automotive Industries, Inc. ........... 7/11/02 4,500,000 12.25 4,500,000
------------ ------------
Subtotals.............................. 33,352,395 35,579,902
------------ ------------
CANADIAN LOANS
Century Pacific Greenhouses Ltd.*................ 4/14/02 $ 1,002,794 13.00% $ 1,002,794
Copperhead Chemical Company, Inc. ............... 10/23/02 500,000 12.50 500,000
Daxxes Corporation*.............................. 12/1/02 847,997 13.00 847,997
Eagle Quest Golf Center Inc. .................... 6/20/02 1,600,000 13.50 1,600,000
Executrain (3199673 Canada Inc.)*................ 10/1/02 292,105 13.00 292,105
Executrain (3199673 Canada Inc.)*................ 12/24/02 559,910 13.00 559,910
Glen Oak Inc.*................................... 12/17/02 1,268,678 12.50 1,268,678
Graphic Workshop (1246568 Ontario Inc.)*......... 9/30/02 360,787 12.50 360,787
Newfoundland Career Academy Ltd.*................ 8/8/02 860,172 13.50 860,172
Quadravision Communications Ltd.*................ 4/11/02 437,956 13.00 437,956
Race Face Components, Inc.*...................... 11/1/02 433,463 12.00 433,463
SFG Technologies Inc.*........................... 7/30/02 724,218 13.00 724,218
</TABLE>
F-33
<PAGE> 52
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COUPON
INTEREST
LOANS MATURITY COST RATE FAIR VALUE
- ----- -------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Sirvys Systems (3404447 Canada Inc.)*............ 12/30/02 $ 704,037 14.00% $ 704,037
Street Level (1216069 Ontario Ltd.)*............. 12/29/02 348,651 13.00 348,651
Supplements Plus Natural Vitamins & Cosmetics,
Ltd.*.......................................... 10/3/03 144,823 16.50 144,823
Systech Group, Inc.*............................. 3/31/02 874,636 13.00 874,636
------------ ------------
Subtotals.............................. $ 10,960,227 $ 10,960,227
------------ ------------
Total Loans............................ $419,344,117 $412,005,353
============ ============
</TABLE>
- ---------------
* Loan cost and fair value are stated in US dollars. Loan principal is
denominated in Canadian dollars.
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
EQUITY INTERESTS SHARES OWNERSHIP VALUE FAIR VALUE
- ---------------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
PUBLICLY TRADED INVESTMENTS
American Consolidated Laboratories, Inc.
Common Stock............................... 1,000,000 9.20% $ 1,000,000 $ 175,000
American Network Exchange, Inc. Common
Stock...................................... 76,222 0.10 21,879 65,741
American Network Exchange, Inc. Common
Stock...................................... 63,429 0.00 0 0
Cardiac Control Systems, Inc. Common Stock... 50,000 2.20 250,000 25,313
Compass Plastics & Technologies Inc. Common
Stock...................................... 447,144 7.70 2,000 2,373,589
Medical Resources Inc. Common Stock.......... 55,549 .30 1,000,000 358,060
Moovies, Inc. Common Stock................... 156,110 1.60 1,561 149,280
Multicom Publishing, Inc. Common Stock....... 844,354 12.50 8,444 41,477
National Vision Associates, Ltd. Common
Stock...................................... 208,698 1.00 1,771,149 1,087,838
Network Event Theaters, Inc. Common Stock.... 412,397 4.20 2,114,772 1,335,135
Premiere Technologies, Inc. Common Stock..... 25,000 .10 0 603,750
QuadraMed Corporation Common Stock........... 11,422 .20 0 209,546
UOL Publishing, Inc. Common Stock............ 32,728 .90 8,494 362,735
Vista Information Solutions, Inc. Common
Stock...................................... 1,015,000 3.20 0 3,387,563
Vista Information Solutions, Inc. Common
Stock...................................... 143,032 0.40 0 371,287
NON-TRADED EQUITY INVESTMENTS IN PUBLIC
COMPANIES
Altris Software, Inc. Preferred
Stock -- convertible at $6.00/sh........... 3,000 -- 3,000,000 3,000,000
American Consolidated Laboratories, Inc.
Preferred Stock -- Series A................ 2,720,141 -- 2,720,141 2,375,000
Berger Holdings, Ltd. Preferred
Stock -- Series A;
convertible at $4.25/sh.................... 25,000 -- 2,500,000 2,500,000
Clinicor, Inc. Preferred Stock -- Series B... 50,000 -- 5,000,000 5,000,000
Environmental Tectonics Corporation Preferred
Stock -- Series A; convertible at
$7.50/sh................................... 25,000 -- 2,500,000 2,500,000
</TABLE>
F-34
<PAGE> 53
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
EQUITY INTERESTS SHARES OWNERSHIP VALUE FAIR VALUE
- ---------------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Multicom Publishing, Inc. Preferred Stock --
Series A................................... 235,000 -- $ 1,175,000 $ 0
Vista Information Solutions, Inc. Preferred
Stock -- Series E; convertible at
$2.75/sh................................... 2,500 -- 2,500,000 2,800,000
Vista Information Solutions, Inc. Preferred
Stock -- Series E; convertible at a price
to be determined in June 1998.............. 2,500 -- 2,500,000 2,500,000
EQUITY INVESTMENTS IN PRIVATE COMPANIES
Bravo Corporation Common Stock............... 69,391 1.20% 106,950 350,000
Caldwell/VSR Inc. Preferred Stock............ 890 -- 890,000 890,000
CellCall, Inc. Common Stock.................. 358 1.40 10,465 100,000
Clearidge, Inc. Preferred Stock -- Series
A.......................................... 10,800,000 -- 2,700,000 2,700,000
Clearidge, Inc. Common Stock................. 4,000,000 17.70 1,000,000 1,000,000
Corporate Flight Management, Inc. Common
Stock...................................... 66,315 6.60 663 663
CSM, Inc. Class A Common Stock............... 99,673 10.00 100,000 100,000
Dentalcare Partners, Inc. Preferred Stock --
Series E................................... 510,617 -- 819,639 300,000
Front Royal, Inc. Common Stock............... 110,000 0.80 275,000 400,000
Fypro, Inc. Preferred Stock -- Series A...... 4,659,480 -- 4,659,480 4,048,480
Gulfstream International Airlines, Inc.
Preferred Stock --Series A................. 216 -- 3,000,000 3,000,000
Home Link, Inc. Preferred Stock.............. 1,000,000 -- 1,000,000 750,000
Kentucky Kingdom, Inc. Common Stock.......... 24,142 5.60 238,316 500,000
Palco Telecom Service Common Stock........... 157,895 5.00 1,579 100,000
Paysys International, Inc. Common Stock...... 150,000 15.90 300 600,000
Pipeliner Systems, Inc. Preferred
Stock -- Series D.......................... 5,000 -- 1,000,000 800,000
Potomac Group, Inc. Preferred Stock -- Series
A.......................................... 800,000 -- 1,000,000 2,000,000
Potomac Group, Inc. Common Stock............. 1,437,681 9.40 292,370 1,799,038
PRA International, Inc. Common Stock......... 148,577 4.20 211,174 2,046,174
Recompute Corporation Common Stock........... 125,000 1.60 250,000 125,000
Relevant Knowledge, Inc. Preferred Stock --
Series B................................... 312,500 -- 500,000 500,000
Relevant Knowledge, Inc. Common Stock........ 75,000 3.30 120,000 120,000
Saraventures Fixtures, Inc. Preferred
Stock...................................... 3,510 -- 1,659,469 0
Skillsearch Corporation Common Stock......... 5,998 19.10 554,035 125,000
Teltrust, Inc. Common Stock.................. 175,677 1.75 0 525,000
Unique Electronics, Inc. Preferred Stock --
Series A................................... 1,000,000 -- 1,000,000 675,000
Valdawn Watch Co. Preferred Stock............ 240 -- 240,000 0
Voice FX Corporation Common Stock............ 24,078 0.80 110,001 25,000
Zahren Alternative Power Corporation Common
Stock...................................... 700 3.90 210,000 210,000
Zahren Alternative Power Corporation
Preferred Stock............................ 200 -- 200,000 200,000
------------ ------------
Total Equity Interests............. $ 50,222,881 $ 55,210,669
============ ============
</TABLE>
F-35
<PAGE> 54
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
STOCK WARRANTS SHARES OWNERSHIP VALUE FAIR VALUE
-------------- --------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
PUBLICLY TRADED COMPANIES
American Consolidated Laboratories,
Inc.................................... 1,050,563 9.69% $ 214,312 $ 183,849
American Network Exchange, Inc........... 13,988 0.00 0 0
Cardiac Control Systems, Inc. ........... 150,000 4.35 0 50,625
Cardiac Control Systems, Inc. ........... 50,000 2.15 0 0
Consumat Systems, Inc. .................. 250,000 20.00 0 84,375
Consumat Systems, Inc. .................. 66,379 5.00 0 0
DynaGen, Inc. ........................... 266,700 0.01 266,700 23,336
Encore Medical Corporation............... 69,841 0.01 0 0
HydroFuser Industries, Inc. ............. 662,245 5.00 469,684 463,572
Moovies, Inc. ........................... 20,000 0.20 0 0
Multicom Publishing, Inc. ............... 163,791 2.40 800,000 10,265
Vista Information Solutions, Inc. ....... 47,582 0.20 0 158,805
Vista Information Solutions, Inc. ....... 10,000 0.05 0 25,958
TANDEM CAPITAL WARRANTS IN PUBLICLY
TRADED COMPANIES
Altris Software, Inc. (exercise price
$6/sh.)................................ 300,000 3.00 585,000 450,000
Berger Holdings, Ltd. (exercise price
$4.25/sh.)............................. 240,000 4.60 204,000 204,000
Bikers Dream, Inc. (exercise price
$1/sh.)................................ 437,500 1.55 109,375 109,375
Environmental Tectonics Corp. (exercise
price $1/sh.).......................... 166,410 5.00 499,230 700,000
Smartchoice Automotive Group, Inc.
(exercise price $3/sh.)................ 300,000 2.50 0 200,000
Universal Automotive Industries, Inc.
(exercise price will be 80% of average
closing bid price for the 20 days prior
to 7/11/98)............................ 450,000 6.00 0 175,000
PRIVATE COMPANIES
Action Sports Group, LLC................. 3,350 10.00 0 0
Aero Products Corporation................ 30.61 25.00 0 0
Affinity Corporation..................... 550 9.67 20,000 20,000
Alignis, Inc. ........................... 111,684 4.00 0 0
American Corporate Literature, Inc....... 344,392 28.18 17,000 17,000
American Rockwool Acquisition Corp....... 1,100,000 11.00 0 400,000
Amscot Holdings, Inc. ................... 2,421 32.94 0 0
Anton Airfoods, Inc...................... 124 11.00 0 225,000
Associated Response Services, Inc. ...... 559 36.35 14,000 1,000,000
Assured Power, Inc. ..................... 280 12.00 0 0
Atlantic Security Systems, Inc. ......... 99 9.00 0 0
Auburn International, Inc. .............. 175,214 5.50 150,000 150,000
Austin Innovations, Inc. ................ 35,146 3.00 50,000 50,000
Auto Rental Systems, Inc. ............... 144,869 8.00 0 0
Aviation Holdings Ltd. (Newfoundland
affiliate)............................. 1,570 3.60 0 0
Avionics Systems, Inc. .................. 15% of Co. 15.00 0 0
</TABLE>
F-36
<PAGE> 55
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
STOCK WARRANTS SHARES OWNERSHIP VALUE FAIR VALUE
-------------- --------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
B & N Company, Inc. ..................... 81 4.00% $ 40,000 $ 0
BankCard Services Corporation............ 149,261 32.00 3,000 0
BiTec Southeast, Inc. ................... 1,480 15.00 21,000 0
Bohdan Automation, Inc. ................. 404,564 3.00 0 0
BroadNet, Inc. .......................... 265,568 15.00 0 0
BUCA, Inc................................ 96,666 1.27 434,997 434,997
Bug.Z, Inc. and Subsidiaries............. 821,121 12.50 0 0
C.J. Spirits, Inc. ...................... 180,000 10.00 7,500 0
Caldwell/VSR Inc. ....................... 159 15.93 0 0
Cartech Holdings, Inc.................... 280,702 25.00 0 0
Carter Kaplan Holdings, LLC.............. 24% of LLC 24.00 6,100 0
Catalina Food Ingredients, Inc. ......... 10.2 9.25 0 0
Cedaron Medical, Inc. ................... 173,981 4.25 0 0
Century Pacific Greenhouses LTD.......... 177,418 6.30 0 0
CF Data Corp............................. 257 20.50 17,500 150,000
Champion Glove Manufacturing Co., Inc.... 538,614 6.88 0 0
Check Into Cash, Inc. ................... 63,789 5.00 461,000 461,000
Clearidge, Inc. ......................... 442,164 1.30 0 0
CLS Corporation.......................... 126,997 4.22 0 0
CMHC Systems, Inc. ...................... 3,231 4.20 0 0
CMP Enterprises, LLC..................... 15.17% of LLC 15.17 0 0
Colonial Investments, Inc. .............. 360 32.00 0 0
Columbus Medical Holdings, LLC........... 17,455 12.00 0 0
Continental Diamond Cutting Company...... 112 10.00 0 0
Copperhead Chemical Company, Inc. ....... 93 4.20 0 0
Corporate Link, Inc. .................... 190 16.00 0 0
Cort Investment Group, Inc. (d/b/a
Contract Network)...................... 90,000 9.00 180,000 180,000
Creighton Shirtmakers, Inc. ............. 30,250 30.25 0 0
CSM, Inc. ............................... 130,000 13.00 0 0
Cybo Robotics, Inc. ..................... 1,700,000 8.68 0 0
Dalt's, Inc. ............................ 140 28.00 0 0
Data National Corporation................ 275,682 13.00 450,000 450,000
Daxxes Corporation....................... 61,766 2.94 0 0
Delaware Publishing Group, Inc. ......... 8,534 47.67 15,000 0
Dentalcare Partners, Inc. ............... 666,022 4.98 10,000 10,000
DFI/Aeronomics Incorporated.............. 94,525 0.50 0 0
Dyad Corporation......................... 615 5.00 600,000 600,000
Dyntec, Inc. ............................ 126,667 15.00 0 0
Eagle Quest Golf Centers, Inc. .......... 407,135 1.40 0 250,000
Electronic Accessory Specialists Int'l,
Inc.................................... 3,694 3.00 0 250,000
Encor Technologies, Inc. ................ 7.46 6.84 0 0
Endeavor Technologies, Inc. ............. 557,490 5.00 0 550,000
Entek Scientific Corporation............. 260,710 5.75 160,000 850,000
Executrain (3199673 Canada Inc.)......... 18.0012 12.60 0 0
Express Shipping Centers, Inc. .......... 91,352 6.25 552,402 262,622
</TABLE>
F-37
<PAGE> 56
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
STOCK WARRANTS SHARES OWNERSHIP VALUE FAIR VALUE
-------------- --------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
FaxNet Corporation....................... 190,321 2.50% $ 100,000 $ 100,000
FDL, Inc. ............................... 548 16.00 250,000 250,000
Film Technologies International, Inc. ... 8 7.50 0 0
Foodnet Holdings, LLC.................... 12% of LLC 12.00 0 0
Fortrend Engineering Corp................ 437,552 3.25 0 0
Front Royal, Inc. ....................... 240,458 1.85 0 875,000
Fypro, Inc. ............................. 255,882 15.00 0 0
Gardner Wallcovering, Inc. .............. 2 2.00 15,000 15,000
General Materials Management Inc. ....... 600,000 10.00 0 0
Generation 2 Worldwide LLC............... 28% of LLC 28.00 0 0
Glen Oak Inc. ........................... 93 7.50 0 0
Global Marine Electronics, Inc........... 5,137 18.00 0 0
Gloves Inc. ............................. 5,000 5.00 0 0
Good Food Fast Companies, The............ 174,779 17.00 0 0
Graphic Workshop (1246568 Ontario
Inc.).................................. 462 4.62 0 0
Gulfstream International Airlines,
Inc. .................................. 271 39.00 10,000 140,000
H & H Acqu. Corp......................... 3,600 22.50 0 160,000
Home Link Services, Inc. ................ 166,667 20.00 0 0
Hoveround Corporation.................... 850 10.00 0 3,750,000
HPC America, Inc. ....................... 5 2.75 0 0
Hunt Assisted Living, LLC................ 7.2% of Class A 7.20 0 0
Hunt Assisted Living, LLC................ 4.8% of Class B 4.80 100 100
Hunt Incorporated........................ 49 11.00 0 125,000
Hunt Leasing & Rental Corporation........ 295 11.00 0 125,000
I. Schneid Holdings LLC.................. 21% of LLC 21.00 0 0
IJL Holdings, Inc. ...................... 99 9.00 0 0
ILD Communications, Inc.................. 5,429 3.20 0 750,000
In Store Services, Inc. ................. 429 12.50 12,000 12,000
Isthmus, Inc............................. 38.25 3.50 0 0
Johnston County Cable L.P................ 31.94% of LP 31.94 110,000 600,000
K.W.C. Management Corp................... 794 24.40 0 0
Karawia Industries, Inc. ................ 1,391 12.00 0 0
Lane Acquisition Corporation............. 11,667 10.00 0 0
Leisure Clubs International, Inc. ....... 433 25.00 15,000 0
Lovett's Buffet, Inc. ................... 540,424 8.00 0 400,000
M & M Industries, Inc. .................. 1,659,113 15.00 0 0
Master Graphics, Inc. ................... 5 6.00 0 950,000
Mayo Hawaiian Corp....................... 105 9.50 0 0
MBA Marketing Corporation................ 11,785 4.50 18,000 18,000
McAuley's Incorporated................... 64 6.00 0 0
MCG, Inc. ............................... 121,518 4.50 0 0
Mead-Higgs, Inc. ........................ 2,500 10.00 0 0
Merge Technologies, Inc. ................ 21,449 3.25 0 500,000
Mesa International, Inc. ................ 18.51 16.00 0 750,000
Metals Recycling Technologies Corp....... 257,801 5.00 0 0
MetroLease, Inc. ........................ 26,471 20.00 5,000 5,000
</TABLE>
F-38
<PAGE> 57
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>
F-39
<PAGE> 58
SIRROM CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED)
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COST OR
NUMBER OF PERCENTAGE CONTRIBUTED
STOCK WARRANTS SHARES OWNERSHIP VALUE FAIR VALUE
-------------- --------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Stratford Safety Products, Inc. ......... 114.21 10.25% $ 75,000 $ 75,000
Street Level (1216069 Ontario Ltd.)...... 68,373 5.88 0 0
Sub 1 Corporation (d/b/a Risk
Management)............................ 15 13.00 0 0
Suncoast Medical Group, Inc. ............ 580,159 24.00 25,000 0
Superior Pharmaceutical Co............... 10% of Co. 10.00 0 0
Supplements Plus Natural Vitamins &
Cosmetics, Ltd......................... 1.3125 1.68 0 0
Systech Group, Inc. ..................... 34,330 2.10 0 0
TAC Systems, Inc. ....................... 315,838 3.60 0 0
TeleCommunication Systems, Inc. ......... 96,774 6.00 0 0
Telecontrol Systems, Inc. ............... 530,303 17.50 0 0
Temps & Co., Inc......................... 53 5.00 0 0
The Moorings, LLC........................ 9,493 14.50 344,500 200,000
Thomas Holding Company (d/b/a Sports &
Social Clubs).......................... 11 10.00 0 0
Tie and Track Systems, Inc............... 1,645 14.00 0 0
Towne Services, Inc. .................... 308,982 2.00 0 0
Trade Am International, Inc. ............ 335,106 6.00 0 0
TRC Acquisition Corporation.............. 375,000 12.50 0 0
UltraFab, Inc. .......................... 120,000 12.00 0 0
UltraFab Vessels, Inc. .................. 120,000 12.00 0 0
Unicoil, Inc. ........................... 86,239 8.50 0 0
Unique Electronics, Inc. ................ 30% of Co. 30.00 0 0
Valdawn Watch Co......................... 400 80.00 0 0
VanGard Communications Co., LLC.......... 14.4% of LLC 14.40 0 0
VDW Farms, Ltd........................... 10% of Co. 10.00 0 0
Voice FX Corporation..................... 233,112 8.00 0 250,000
Watts-Finniss Holdings, Inc. ............ 7,146 10.94 0 0
Wearever Healthcare Products, LLC........ 416,359 16.14 250,000 250,000
WJ Holdings, Inc. ....................... 250,000 25.00 0 0
Wolfgang Puck Food Company, Inc.......... 80,065 1.35 0 0
Zahren Alternative Power Corporation..... 1,168 6.54 25,000 400,000
------------ ------------
Total Warrants................. $ 9,610,383 $ 24,543,035
============ ============
OTHER INVESTMENTS (SEE NOTE 3)
SWS3, Inc. -- Expected proceeds from sale
of mfg. plant.......................... -- -- $ 521,926 $ 371,926
Hancock Company -- Royalty stream to be
collected from sale of Gitman brand
name................................... -- -- 1,700,000 300,000
HSA International, Inc. -- Anticipated
proceeds from litigation............... -- -- 1,150,000 1,000,000
Capitalized workout expenses............. -- -- 868,577 768,577
------------ ------------
Total other investments........ $ 4,240,503 $ 2,440,503
------------ ------------
Total Investments.............. $483,417,884 $494,199,560
============ ============
</TABLE>
F-40
<PAGE> 59
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information in response to this item is incorporated herein by
reference to the information provided in the Company's Proxy Statement for its
Annual Meeting of Shareholders to be held on April 17, 1998 (the "1998 Proxy
Statement") under the heading "Proposal 1: Election of Directors" and under the
heading "Section 16(a) Beneficial Ownership Reporting Compliance." Information
in response to this item is also included herein under the heading "Executive
Officers of Registrant."
ITEM 11. EXECUTIVE COMPENSATION
Information in response to this item is incorporated herein by
reference to the information provided in the 1998 Proxy Statement under the
heading "Compensation of Directors and Executive Officers."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information in response to this item is incorporated herein by
reference to the information provided in the 1998 Proxy Statement under the
heading "Security Ownership of Management and Certain Beneficial Owners."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in response to this item is incorporated herein by
reference to the information provided in the 1998 Proxy Statement under the
heading "Certain Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of the report:
1.A. The following financial statements are filed herewith:
<PAGE> 60
SIRROM CAPITAL CORPORATION AND SUBSIDIARIES
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1996 and
1997
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1996 and 1997
Consolidated Statements of Changes in Partners' Capital and
Shareholders' Equity for the Years Ended December 31,
1995, 1996 and 1997
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1996 and 1997
Notes to Consolidated Financial Statements
Quarterly Financial Information for the Years 1996 and 1997
(unaudited)
Consolidated Portfolio of Investments
As of December 31, 1996
As of December 31, 1997
<PAGE> 61
B. The Report of Independent Public Accountants with respect to the
foregoing financial statements is filed herewith.
2. No financial statement schedules of the Company are filed herewith
because (i) such schedules are not required or (ii) the information
required has been presented in the aforementioned financial
statements.
3. The following exhibits are filed herewith or incorporated herein by
reference as set forth below:
<PAGE> 62
2. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
2.1 -- Acquisition Agreement by and among the Company, Sirrom Capital
Acquisition Corporation, Sirrom, Ltd., Harris Williams & Co.,
L.P. and Harris Williams & Co. dated as of May 16, 1996
(incorporated by reference to Exhibit k.9 to the Company's
Registration Statement on Form N-2 (File No. 333-4023), filed
with the Commission on May 17, 1996)
3.1 -- Amended and Restated Charter of the Company (incorporated by
reference to Exhibit 3.1 to the Registrant's Quarterly
Report on Form 10-Q for the period ending September 30,
1996), filed with the Commission on November 14, 1996)
3.2 -- Bylaws of the Company (incorporated by reference to exhibit
b. contained in the Registrant's Registration Statement on
Form N-2, as amended (File No. 33-86680), filed with the
Commission on November 23, 1994)
3.3 -- Amendment No. 1 to Bylaws (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the period
ended March 30, 1995 filed with the Commission on May 12,
1995)
4.1 -- 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)
4.2 -- Equity Holders Agreement dated as of November 1, 1994 by and
among the Partnership and the other signatories thereto
(incorporated by reference to the corresponding exhibit
contained in the Registrant's Registration Statement on Form
N-2, as amended (File No. 33-86680), filed with the
Commission on November 23, 1994)
4.3 -- Amended and Restated Dividend Reinvestment Plan of the
Company (incorporated by reference to the exhibits to the
Company's Registration Statement on Form N-2 (File No.
333-46051) filed with the Commission on February 11, 1998)
10.1 -- Fourth Amended and Restated Loan Agreement dated as of
August 16, 1996, by and among SII, as borrower, the Company,
as guarantor, the lenders referred to herein, and First
Union National Bank of Tennessee, as Agent (incorporated by
reference to Exhibit 7.1 to SII's Post-Effective Amendment
No. 1 to Registration Statement on Form N-5 (File No.
811-7779), filed with the Commission on November 7, 1996)
10.2 -- Third Amended and Restated Security Agreement dated August
16, 1996, by and between SII and First Union National Bank
of Tennessee (incorporated by reference to Exhibit 7.7 to
SII's Post-Effective Amendment No. 1 to Registration
Statement on Form N-5 (File No. 811-7779), filed with the
Commission on November 7, 1996)
</TABLE>
C-1
<PAGE> 63
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
10.3 -- Amended and Restated Borrower Pledge Agreement dated August
16, 1996, made by SII in favor of First Union National Bank
of Tennessee (incorporated by reference to Exhibit 7.8 to
SII's Post-Effective Amendment No. 1 to Registration
Statement on Form N-5 (File No. 811-7779), filed with the
Commission on November 7, 1996)
10.4 -- Amended and Restated Security Agreement dated as of August
16, 1996, by and between SII and the SBA (incorporated by
reference to Exhibit 7.10 to SII's Post-Effective Amendment
No. 1 to Registration Statement on Form N-5 (File No.
811-7779), filed with the Commission on November 7, 1996)
10.5 -- Amended and Restated Pledge Agreement dated as of August 16,
1996, by and between SII and the SBA (incorporated by
reference to Exhibit 7.11 to SII's Post-Effective Amendment
No. 1 to Registration Statement on Form N-5 (File No.
811-7779), filed with the Commission on November 7, 1996)
10.6 -- Guaranty Agreement dated August 16, 1996 by and between the
Company and the SBA (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the period
ending September 30, 1996, filed with the Commission on
November 14, 1996)
10.7 -- Master Trust Indenture and Security Agreement Supplement
dated as of December 31, 1996, by and between SFC as Issuer,
the Company as Servicer, First Trust National Association as
Trustee and ING Baring (U.S.) Capital Markets, Inc.
(incorporated by reference to Exhibit f.12 to the Company's
Registration Statement on Form N-2 (File No. 333-19493),
filed with the Commission on January 9, 1997)
10.8 -- Revolving Note, Series 1996-1 dated December 31, 1996, with
a principal amount of $100,000,000 made by SFC in favor of
First Trust National Association (incorporated by reference
to Exhibit f.13 to Amendment No. 1 to the Company's
Registration Statement on Form N-2 (File No. 333-19493),
filed with the Commission on January 23, 1997)
10.9 -- Loan Sale and Contribution Agreement dated as of December
31, 1996, by and between the Company as Originator and
Servicer and SFC as Buyer (incorporated by reference to
Exhibit f.14 to the Company's Registration Statement on Form
N-2 (File No. 333-19493), filed with the Commission on
January 9, 1997)
10.10 -- Custodial Agreement dated as of December 31, 1996, by and
among SFC, the Company, First Trust National Association and
ING Baring (U.S.) Capital Markets, Inc. (incorporated by
reference to Exhibit f.15 to the Company's Registration
Statement on Form N-2 (File No. 333-19493), filed with the
Commission on January 9, 1997)
10.11 -- Backup Servicing Agreement dated as of December 31, 1996, by
and among First Trust National Association, the Company and
ING Baring (U.S.) Capital Markets, Inc. (incorporated by
reference to Exhibit f.16 to the Company's Registration
Statement on Form N-2 (File No. 333-19493), filed with the
Commission on January 9, 1997)
10.12 -- Fee Agreement dated as of December 31, 1996, by and among
the Company, SFC, and ING Baring (U.S.) Capital Markets,
Inc. (incorporated by reference to Exhibit f.17 to the
Company's Registration Statement on Form N-2 (File No.
333-19493), filed with the Commission on January 9, 1997)
10.13 -- Master Trust Indenture and Security Agreement dated as of
December 31, 1996, by and among SFC as Issuer, the Company
as Servicer and First Trust National Association as Trustee
(incorporated by reference to Exhibit k.3 to the Company's
Registration Statement on Form N-2 (File No. 333-19493),
filed with the Commission on January 9, 1997)
10.14 -- Second Amendment to Fourth Amended and Restated Loan
Agreement dated as of October 8, 1997 by and among SII as
borrower, the Company, as guarantor, the lenders referred to
herein, and First Union National Bank, as Agent (incorporated by
reference to the exhibits to the Company's Registration Statement
on Form N-2 (File No. 333-46051), filed with the Commission on
February 11, 1998)
10.15 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $25,000,000,
made by SII in favor of First Union National Bank of Tennessee
(incorporated by reference to the exhibits to the Company's
Registration Statement on Form N-2 (File No. 333-46051), filed
with the Commission on February 11, 1998)
10.16 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $7,500,000, made
by SII in favor of First American National Bank (incorporated by
reference to the exhibits to the Company's Registration Statement
on Form N-2 (File No. 333-46051), filed with the Commission on
February 11, 1998)
</TABLE>
C-2
<PAGE> 64
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
10.17 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $15,000,000,
made by SII in favor of Amsouth Bank of Tennessee
(incorporated by reference to the exhibits to the Company's
Registration Statement on Form N-2 (File No. 333-46051), filed
with the Commission on February 11, 1998)
10.18 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $7,500,000, made
by SII in favor of First Tennessee Bank National Association
(incorporated by reference to the exhibits to the Company's
Registration Statement on Form N-2 (File No. 333-46051), filed
with the Commission on February 11, 1998)
10.19 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $10,000,000,
made by SII in favor of Bank of America, FSB (incorporated by
reference to the exhibits to the Company's Registration Statement
on Form N-2 (File No. 333-46051), filed with the Commission on
February 11, 1998)
10.20 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $10,000,000,
made by SII in favor of Bank One Kentucky, N.A. (incorporated by
reference to the exhibits to the Company's Registration Statement
on Form N-2 (File No. 333-46051), filed with the Commission on
February 11, 1998)
10.21 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $10,000,000,
made by SII in favor of Texas Commerce Bank National
Association (incorporated by reference to the exhibits to the
Company's Registration Statement on Form N-2 (File No.
333-46051), filed with the Commission on February 11, 1998)
10.22 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $10,000,000,
made by SII in favor of Corestates Bank, N.A. (incorporated by
reference to the exhibits to the Company's Registration Statement
on Form N-2 (File No. 333-46051), filed with the Commission on
February 11, 1998)
10.23 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $10,000,000,
made by SII in favor of The First National Bank of Chicago
(incorporated by reference to the exhibits to the Company's
Registration Statement on Form N-2 (File No. 333-46051), filed
with the Commission on February 11, 1998)
10.24 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $10,000,000,
made by SII in favor of Union Bank of California, N.A.
(incorporated by reference to the exhibits to the Company's
Registration Statement on Form N-2 (File No. 333-46051), filed
with the Commission on February 11, 1998)
10.25 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $10,000,000,
made by SII in favor of Fleet Bank, N.A. (incorporated by
reference to the exhibits to the Company's Registration
Statement on Form N-2 (File No. 333-46051), filed
with the Commission on February 11, 1998)
10.26 -- Second Amended and Restated Swingline Note dated October 8,
1997, in the principal amount of $10,000,000, made by SII in
favor of First Union National Bank (incorporated by reference
to the exhibits to the Company's Registration Statement
on Form N-2 (File No. 333-46051), filed
with the Commission on February 11, 1998)
10.27* -- Amended and Restated 1994 Employee Stock Option Plan of the
Company (incorporated by reference to the corresponding
exhibit contained in the Registrant's Registration Statement
on Form N-2, as amended (File No. 33-86680), filed with the
Commission on November 23, 1994)
10.28 -- Form of Indemnification Agreement (incorporated by reference
to the corresponding exhibit contained in the Registrant's
Registration Statement on Form N-2, as amended (File No. 33-
86680), filed with the Commission on November 23, 1994)
10.29* -- 1995 Stock Option Plan for Non-Employee Directors
(incorporated by reference to the corresponding exhibit in
the Registrant's Registration Statement on Form N-2, as
amended (File No. 33-95394), filed with the Commission on
August 3, 1995)
10.30* -- 1996 Incentive Stock Option Plan (incorporated by reference
to Exhibit 10.3 in the Registrant's Financial Report on Form
10-K for the year ended December 31, 1995, filed with the
Commission on March 29, 1996)
10.31* -- Amendment No. 1 to 1996 Incentive Stock Option Plan
(incorporated by reference to Exhibit 10.28 in the
Registrant's Form 10-K for the year ended December 31, 1997,
filed with the Commission on March 26, 1997)
10.32 -- Custodial Services Agreement with First American Trust
Company dated March 13, 1992 (incorporated by reference to
the corresponding exhibit contained in the Registrant's
Registration Statement on Form N-2, as amended (File No.
33-86680), filed with the Commission on November 23, 1994)
10.33 -- Custodial Services Agreement Supplement with First American
Trust Company dated January 16, 1995 (incorporated by
reference to the corresponding exhibit contained in the
Registrant's Registration Statement on Form N-2, as amended
(File No. 33-86680), filed with the Commission on November
23, 1994)
</TABLE>
C-3
<PAGE> 65
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------
<C> <S> <C>
10.34 -- ISDA Master Agreement dated as of September 13, 1995, by and
between the Company and First Union National Bank (incorporated
by reference to the Company's Quarterly Report on Form 10-Q for
the period ending September 30, 1995 filed with the Commission
on November 15, 1995)
10.35 -- ISDA Master Agreement dated as of November 26, 1996, by and between
the Company and NationsBank, N.A. (incorporated by reference to
Exhibit f.18 to the Company's Registration Statement on Form N-2
(File No. 333-19493), filed with the Commission on January 9, 1997)
10.36 -- ISDA Credit Support Annex to the Schedule to the ISDA Master
Agreement dated as of November 26, 1996, by and between the Company
and NationsBank, N.A. (incorporated by reference to the exhibits to
the Company's Registration Statement on Form N-2
(File No. 333-46051), filed with the Commission on February 11, 1998)
10.37 -- Joint Venture Agreement dated as of January 17, 1997 by
and among the Company, TD and SCC Canada, Inc..
(incorporated by reference to Exhibit k.3 to Amendment No. 1 to the
Company's Registration Statement on Form N-2 (File No. 333-19493),
filed with the Commission on January 23, 1997)
21 -- Subsidiaries of the Company
23 -- Consent of Arthur Andersen LLP
27 -- Financial Data Schedule (for SEC use only)
</TABLE>
- --------------------------------------
* Compensation Plans
(b) Reports on Form 8-K.
None.
(c) Exhibits. See the exhibits filed herewith.
(d) Additional Schedules. None.
C-4
<PAGE> 66
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized in Nashville,
Tennessee, on this 26th day of March, 1998.
SIRROM CAPITAL CORPORATION
By: /s/ George M. Miller, II
---------------------------------------
George M. Miller, II
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
- --------------------------------------------- ----------------------------------------- --------------
<S> <C> <C>
/s/ John A. Morris, Jr., M.D. Chairman of the Board and Director March 26, 1998
- ---------------------------------------------
John A. Morris, Jr., M.D.
/s/ George M. Miller, II Chief Executive Officer, President and March 26, 1998
- --------------------------------------------- Director (Principal Executive Officer)
George M. Miller, II
/s/ Carl W. Stratton Chief Financial Officer (Principal March 26, 1998
- --------------------------------------------- Financial and Accounting Officer)
Carl W. Stratton
/s/ E. Townes Duncan Director March 26, 1998
- ---------------------------------------------
E. Townes Duncan
/s/ William D. Eberle Director March 26, 1998
- ---------------------------------------------
William D. Eberle
/s/ Edward J. Mathias Director March 26, 1998
- ---------------------------------------------
Edward J. Mathias
/s/ Robert A. McCabe, Jr. Director March 26, 1998
- ---------------------------------------------
Robert A. McCabe, Jr.
/s/ Raymond H. Pirtle, Jr. Director March 26, 1998
- ---------------------------------------------
Raymond H. Pirtle, Jr.
/s/ Keith M. Thompson Director March 26, 1998
- ---------------------------------------------
Keith M. Thompson
/s/ Christopher H. Williams Director March 26, 1998
- ---------------------------------------------
Christopher H. Williams
/s/ L. Edward Wilson Director March 26, 1998
- ---------------------------------------------
L. Edward Wilson
</TABLE>
C-5
<PAGE> 67
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
2.1 -- Acquisition Agreement by and among the Company, Sirrom Capital
Acquisition Corporation, Sirrom, Ltd., Harris Williams & Co.,
L.P. and Harris Williams & Co. dated as of May 16, 1996
(incorporated by reference to Exhibit k.9 to the Company's
Registration Statement on Form N-2 (File No. 333-4023), filed
with the Commission on May 17, 1996)
3.1 -- Amended and Restated Charter of the Company (incorporated by
reference to Exhibit 3.1 to the Registrant's Quarterly
Report on Form 10-Q for the period ending September 30,
1996), filed with the Commission on November 14, 1996)
3.2 -- Bylaws of the Company (incorporated by reference to exhibit
b. contained in the Registrant's Registration Statement on
Form N-2, as amended (File No. 33-86680), filed with the
Commission on November 23, 1994)
3.3 -- Amendment No. 1 to Bylaws (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the period
ended March 30, 1995 filed with the Commission on May 12,
1995)
4.1 -- 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)
4.2 -- Equity Holders Agreement dated as of November 1, 1994 by and
among the Partnership and the other signatories thereto
(incorporated by reference to the corresponding exhibit
contained in the Registrant's Registration Statement on Form
N-2, as amended (File No. 33-86680), filed with the
Commission on November 23, 1994)
4.3 -- Amended and Restated Dividend Reinvestment Plan of the
Company (incorporated by reference to the exhibits to the
Company's Registration Statement on Form N-2 (File No.
333-46051) filed with the Commission on February 11, 1998)
10.1 -- Fourth Amended and Restated Loan Agreement dated as of
August 16, 1996, by and among SII, as borrower, the Company,
as guarantor, the lenders referred to herein, and First
Union National Bank of Tennessee, as Agent (incorporated by
reference to Exhibit 7.1 to SII's Post-Effective Amendment
No. 1 to Registration Statement on Form N-5 (File No.
811-7779), filed with the Commission on November 7, 1996)
10.2 -- Third Amended and Restated Security Agreement dated August
16, 1996, by and between SII and First Union National Bank
of Tennessee (incorporated by reference to Exhibit 7.7 to
SII's Post-Effective Amendment No. 1 to Registration
Statement on Form N-5 (File No. 811-7779), filed with the
Commission on November 7, 1996)
</TABLE>
<PAGE> 68
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
10.3 -- Amended and Restated Borrower Pledge Agreement dated August
16, 1996, made by SII in favor of First Union National Bank
of Tennessee (incorporated by reference to Exhibit 7.8 to
SII's Post-Effective Amendment No. 1 to Registration
Statement on Form N-5 (File No. 811-7779), filed with the
Commission on November 7, 1996)
10.4 -- Amended and Restated Security Agreement dated as of August
16, 1996, by and between SII and the SBA (incorporated by
reference to Exhibit 7.10 to SII's Post-Effective Amendment
No. 1 to Registration Statement on Form N-5 (File No.
811-7779), filed with the Commission on November 7, 1996)
10.5 -- Amended and Restated Pledge Agreement dated as of August 16,
1996, by and between SII and the SBA (incorporated by
reference to Exhibit 7.11 to SII's Post-Effective Amendment
No. 1 to Registration Statement on Form N-5 (File No.
811-7779), filed with the Commission on November 7, 1996)
10.6 -- Guaranty Agreement dated August 16, 1996 by and between the
Company and the SBA (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the period
ending September 30, 1996, filed with the Commission on
November 14, 1996)
10.7 -- Master Trust Indenture and Security Agreement Supplement
dated as of December 31, 1996, by and between SFC as Issuer,
the Company as Servicer, First Trust National Association as
Trustee and ING Baring (U.S.) Capital Markets, Inc.
(incorporated by reference to Exhibit f.12 to the Company's
Registration Statement on Form N-2 (File No. 333-19493),
filed with the Commission on January 9, 1997)
10.8 -- Revolving Note, Series 1996-1 dated December 31, 1996, with
a principal amount of $100,000,000 made by SFC in favor of
First Trust National Association (incorporated by reference
to Exhibit f.13 to Amendment No. 1 to the Company's
Registration Statement on Form N-2 (File No. 333-19493),
filed with the Commission on January 23, 1997)
10.9 -- Loan Sale and Contribution Agreement dated as of December
31, 1996, by and between the Company as Originator and
Servicer and SFC as Buyer (incorporated by reference to
Exhibit f.14 to the Company's Registration Statement on Form
N-2 (File No. 333-19493), filed with the Commission on
January 9, 1997)
10.10 -- Custodial Agreement dated as of December 31, 1996, by and
among SFC, the Company, First Trust National Association and
ING Baring (U.S.) Capital Markets, Inc. (incorporated by
reference to Exhibit f.15 to the Company's Registration
Statement on Form N-2 (File No. 333-19493), filed with the
Commission on January 9, 1997)
10.11 -- Backup Servicing Agreement dated as of December 31, 1996, by
and among First Trust National Association, the Company and
ING Baring (U.S.) Capital Markets, Inc. (incorporated by
reference to Exhibit f.16 to the Company's Registration
Statement on Form N-2 (File No. 333-19493), filed with the
Commission on January 9, 1997)
10.12 -- Fee Agreement dated as of December 31, 1996, by and among
the Company, SFC, and ING Baring (U.S.) Capital Markets,
Inc. (incorporated by reference to Exhibit f.17 to the
Company's Registration Statement on Form N-2 (File No.
333-19493), filed with the Commission on January 9, 1997)
10.13 -- Master Trust Indenture and Security Agreement dated as of
December 31, 1996, by and among SFC as Issuer, the Company
as Servicer and First Trust National Association as Trustee
(incorporated by reference to Exhibit k.3 to the Company's
Registration Statement on Form N-2 (File No. 333-19493),
filed with the Commission on January 9, 1997)
10.14 -- Second Amendment to Fourth Amended and Restated Loan
Agreement dated as of October 8, 1997 by and among SII as
borrower, the Company, as guarantor, the lenders referred to
herein, and First Union National Bank, as Agent (incorporated by
reference to the exhibits to the Company's Registration Statement
on Form N-2 (File No. 333-46051), filed with the Commission on
February 11, 1998)
10.15 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $25,000,000,
made by SII in favor of First Union National Bank of Tennessee
(incorporated by reference to the exhibits to the Company's
Registration Statement on Form N-2 (File No. 333-46051), filed
with the Commission on February 11, 1998)
10.16 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $7,500,000, made
by SII in favor of First American National Bank (incorporated by
reference to the exhibits to the Company's Registration Statement
on Form N-2 (File No. 333-46051), filed with the Commission on
February 11, 1998)
</TABLE>
C-2
<PAGE> 69
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
10.17 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $15,000,000,
made by SII in favor of Amsouth Bank of Tennessee
(incorporated by reference to the exhibits to the Company's
Registration Statement on Form N-2 (File No. 333-46051), filed
with the Commission on February 11, 1998)
10.18 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $7,500,000, made
by SII in favor of First Tennessee Bank National Association
(incorporated by reference to the exhibits to the Company's
Registration Statement on Form N-2 (File No. 333-46051), filed
with the Commission on February 11, 1998)
10.19 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $10,000,000,
made by SII in favor of Bank of America, FSB (incorporated by
reference to the exhibits to the Company's Registration Statement
on Form N-2 (File No. 333-46051), filed with the Commission on
February 11, 1998)
10.20 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $10,000,000,
made by SII in favor of Bank One Kentucky, N.A. (incorporated by
reference to the exhibits to the Company's Registration Statement
on Form N-2 (File No. 333-46051), filed with the Commission on
February 11, 1998)
10.21 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $10,000,000,
made by SII in favor of Texas Commerce Bank National
Association (incorporated by reference to the exhibits to the
Company's Registration Statement on Form N-2 (File No.
333-46051), filed with the Commission on February 11, 1998)
10.22 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $10,000,000,
made by SII in favor of Corestates Bank, N.A. (incorporated by
reference to the exhibits to the Company's Registration Statement
on Form N-2 (File No. 333-46051), filed with the Commission on
February 11, 1998)
10.23 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $10,000,000,
made by SII in favor of The First National Bank of Chicago
(incorporated by reference to the exhibits to the Company's
Registration Statement on Form N-2 (File No. 333-46051), filed
with the Commission on February 11, 1998)
10.24 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $10,000,000,
made by SII in favor of Union Bank of California, N.A.
(incorporated by reference to the exhibits to the Company's
Registration Statement on Form N-2 (File No. 333-46051), filed
with the Commission on February 11, 1998)
10.25 -- Fifth Amended and Restated Revolving Credit Note dated
October 8, 1997, in the principal amount of $10,000,000,
made by SII in favor of Fleet Bank, N.A. (incorporated by
reference to the exhibits to the Company's Registration
Statement on Form N-2 (File No. 333-46051), filed
with the Commission on February 11, 1998)
10.26 -- Second Amended and Restated Swingline Note dated October 8,
1997, in the principal amount of $10,000,000, made by SII in
favor of First Union National Bank (incorporated by reference
to the exhibits to the Company's Registration Statement
on Form N-2 (File No. 333-46051), filed
with the Commission on February 11, 1998)
10.27* -- Amended and Restated 1994 Employee Stock Option Plan of the
Company (incorporated by reference to the corresponding
exhibit contained in the Registrant's Registration Statement
on Form N-2, as amended (File No. 33-86680), filed with the
Commission on November 23, 1994)
10.28 -- Form of Indemnification Agreement (incorporated by reference
to the corresponding exhibit contained in the Registrant's
Registration Statement on Form N-2, as amended (File No. 33-
86680), filed with the Commission on November 23, 1994)
10.29* -- 1995 Stock Option Plan for Non-Employee Directors
(incorporated by reference to the corresponding exhibit in
the Registrant's Registration Statement on Form N-2, as
amended (File No. 33-95394), filed with the Commission on
August 3, 1995)
10.30* -- 1996 Incentive Stock Option Plan (incorporated by reference
to Exhibit 10.3 in the Registrant's Financial Report on Form
10-K for the year ended December 31, 1995, filed with the
Commission on March 29, 1996)
10.31* -- Amendment No. 1 to 1996 Incentive Stock Option Plan
(incorporated by reference to Exhibit 10.28 in the
Registrant's Form 10-K for the year ended December 31, 1997,
filed with the Commission on March 26, 1997)
10.32 -- Custodial Services Agreement with First American Trust
Company dated March 13, 1992 (incorporated by reference to
the corresponding exhibit contained in the Registrant's
Registration Statement on Form N-2, as amended (File No.
33-86680), filed with the Commission on November 23, 1994)
10.33 -- Custodial Services Agreement Supplement with First American
Trust Company dated January 16, 1995 (incorporated by
reference to the corresponding exhibit contained in the
Registrant's Registration Statement on Form N-2, as amended
(File No. 33-86680), filed with the Commission on November
23, 1994)
</TABLE>
C-3
<PAGE> 70
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------
<C> <S> <C>
10.34 -- ISDA Master Agreement dated as of September 13, 1995, by and
between the Company and First Union National Bank (incorporated
by reference to the Company's Quarterly Report on Form 10-Q for
the period ending September 30, 1995 filed with the Commission
on November 15, 1995)
10.35 -- ISDA Master Agreement dated as of November 26, 1996, by and between
the Company and NationsBank, N.A. (incorporated by reference to
Exhibit f.18 to the Company's Registration Statement on Form N-2
(File No. 333-19493), filed with the Commission on January 9, 1997)
10.36 -- ISDA Credit Support Annex to the Schedule to the ISDA Master
Agreement dated as of November 26, 1996, by and between the Company
and NationsBank, N.A. (incorporated by reference to the exhibits to
the Company's Registration Statement on Form N-2
(File No. 333-46051), filed with the Commission on February 11, 1998)
10.37 -- Joint Venture Agreement dated as of January 17, 1997 by
and among the Company, TD and SCC Canada, Inc..
(incorporated by reference to Exhibit k.3 to Amendment No. 1 to the
Company's Registration Statement on Form N-2 (File No. 333-19493),
filed with the Commission on January 23, 1997)
21 -- Subsidiaries of the Company
23 -- Consent of Arthur Andersen LLP
27 -- Financial Data Schedule (for SEC use only)
</TABLE>
- --------------------------------------
* Compensation Plans
(b) Reports on Form 8-K.
None.
(c) Exhibits. See the exhibits filed herewith.
(d) Additional Schedules. None.
C-4
<PAGE> 1
Exhibit 21
Subsidiaries of the Company
1. Sirrom Investments, Inc., a Tennessee corporation
2. Sirrom Funding Corporation, a Delaware corporation
3. Harris Williams & Co, Inc., a Virginia corporation
4. Tandem Capital, Inc., a Tennessee corporation (Shell)
5. Vision 2000, Inc., a Tennessee corporation (workout sub)
6. Vision 2000 Technologies, Inc., a Tennessee corporation (workout sub)
7. AC Contact Lens, Inc., a Tennessee corporation (workout sub)
8. IOL 2000, Inc., a Tennessee corporation (workout sub)
9. Multimedia 2000, Inc., a Tennessee corporation (workout sub)
10. SWS 5, Inc., a Tennessee corporation (workout sub)
11. SWS 6, Inc., a Tennessee corporation (workout sub)
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 10-K as of December 31, 1997 of our report dated January
30, 1998 included in Sirrom Capital Corporation and Subsidiaries' annual report
to shareholders.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
March 26, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SIRROM CAPITAL CORPORATION FOR THE TWELVE MONTH PERIOD
ENDED DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 483,417,884
<INVESTMENTS-AT-VALUE> 494,199,560
<RECEIVABLES> 4,483,640
<ASSETS-OTHER> 10,553,199
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 509,236,399
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 214,250,000
<OTHER-ITEMS-LIABILITIES> 13,017,488
<TOTAL-LIABILITIES> 227,267,488
<SENIOR-EQUITY> 250,408,483
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 12,343,567
<ACCUMULATED-NII-CURRENT> 17,574,015
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,204,737
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,781,676
<NET-ASSETS> 281,968,911
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 41,297,190
<OTHER-INCOME> 10,748,520
<EXPENSES-NET> 19,011,878
<NET-INVESTMENT-INCOME> 33,033,832
<REALIZED-GAINS-CURRENT> 10,722,158
<APPREC-INCREASE-CURRENT> (1,611,657)
<NET-CHANGE-FROM-OPS> 41,306,158
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 16,977,374
<DISTRIBUTIONS-OF-GAINS> 12,867,637
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,438,172
<NUMBER-OF-SHARES-REDEEMED> 32,080
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 1,517,560
<ACCUMULATED-GAINS-PRIOR> 5,813,208
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 9,796,759
<GROSS-EXPENSE> 19,011,878
<AVERAGE-NET-ASSETS> 220,294,713
<PER-SHARE-NAV-BEGIN> 6.43
<PER-SHARE-NII> 1.05
<PER-SHARE-GAIN-APPREC> 2.55
<PER-SHARE-DIVIDEND> .55
<PER-SHARE-DISTRIBUTIONS> .41
<RETURNS-OF-CAPITAL> .0
<PER-SHARE-NAV-END> 9.07
<EXPENSE-RATIO> .086
<AVG-DEBT-OUTSTANDING> 167,554,106
<AVG-DEBT-PER-SHARE> 5.39
</TABLE>
