-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ObW/+fUv/Xmx0Og22yU3loQBZCv2iK7m8/z7cBcFVoNlxRHSDp8wpq90nWlG5ZXj +lPjkR+LFqLjcFoD+PSYUg== 0000950144-97-000161.txt : 19970110 0000950144-97-000161.hdr.sgml : 19970110 ACCESSION NUMBER: 0000950144-97-000161 CONFORMED SUBMISSION TYPE: N-2 PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19970109 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIRROM CAPITAL CORP CENTRAL INDEX KEY: 0000933166 STANDARD INDUSTRIAL CLASSIFICATION: LOAN BROKERS [6163] IRS NUMBER: 621583116 STATE OF INCORPORATION: TN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-19493 FILM NUMBER: 97503458 BUSINESS ADDRESS: STREET 1: 500 CHURCH STREET STREET 2: STE 200 CITY: NASHVILLE STATE: TN ZIP: 37219 BUSINESS PHONE: 6152560701 N-2 1 SIRROM CAPITAL CORPORATION FORM N-2 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 9, 1997 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-2 REGISTRATION STATEMENT UNDER SECURITIES ACT OF 1933 SIRROM CAPITAL CORPORATION (Exact Name of Registrant as Specified in Charter) 500 CHURCH STREET, SUITE 200 NASHVILLE, TENNESSEE 37219 (615) 256-0701 (Address and Telephone Number Principal Executive Offices) CARL W. STRATTON 500 CHURCH STREET, SUITE 200 NASHVILLE, TENNESSEE 37219 (Name and Address of Agent For Service) COPIES OF INFORMATION TO: BOB F. THOMPSON FRED B. WHITE III BASS, BERRY & SIMS PLC SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP FIRST AMERICAN CENTER 919 THIRD AVENUE NASHVILLE, TENNESSEE 37238-2700 NEW YORK, NY 10022 (615) 742-6200 (212) 735-3000
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after the Registration Statement becomes effective. If any securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, other than securities offered in connection with a dividend reinvestment plan, check the following box. [ ] [ ] This Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act and the Securities Act registration statement number of the earlier effective registration statement for the same offering is 333- . CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE OFFERING REGISTRATION BEING REGISTERED REGISTERED PER UNIT(1) PRICE FEE(1) - ----------------------------------------------------------------------------------------------------------- Common Stock, no par value per share......................... 3,335,000 $35.25 $117,558,750 $35,624 - ----------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(c) on the basis of the closing sales price of the Common Stock on January 7, 1997 as reported on The Nasdaq Stock Market's National Market. --------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 SIRROM CAPITAL CORPORATION CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY PARTS A AND B OF FORM N-2 REGISTRATION STATEMENT
ITEM REGISTRATION STATEMENT ITEM AND CAPTION OR LOCATION NUMBER HEADING IN PROSPECTUS - ------ ------------------------------------ --------------------------------------------------------- 1. Outside Front Cover................. Outside front cover 2. Inside Front and Outside Back Cover Page................................ Inside front and outside back cover page 3. Fee Table and Synopsis.............. Prospectus Summary; Fees and Expenses; Additional Information 4. Financial Highlights................ Selected Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations 5. Plan of Distribution................ Outside front cover; Certain Transactions; Underwriting 6. Selling Shareholders................ Not Applicable 7. Use of Proceeds..................... Use of Proceeds 8. General Description of Registrant... Outside front cover, Prospectus Summary; Investment Objectives and Policies; The Company; Business; Risk Factors; Distributions and Price Range of Common Stock; Portfolio Companies 9. Management.......................... Management; Custodian, Transfer and Dividend Paying Agent and Registrar 10. Capital Stock, Long-Term Debt, and Other Securities.................... Description of Capital Stock; Distributions and Price Range of Common Stock; Reinvestment Plan; Investment Objectives and Policies; Tax Status; Regulation 11. Defaults and Arrears on Senior Securities.......................... Not applicable 12. Legal Proceedings................... Not applicable 13. Table of Contents of the Statement of Additional Information........... Not applicable 14. Cover Page.......................... Not applicable 15. Table of Contents................... Not applicable 16. General Information and History..... The Company 17. Investment Objective and Policies... Investment Objectives and Policies 18. Management.......................... Management 19. Control Persons and Principal and Selling Shareholders................ Principal and Selling Shareholders; Risk Factors 20. Investment Advisory and Other Services............................ Custodian, Transfer and Dividend Paying Agent and Registrar; Independent Public Accountants; Investment Objectives and Policies 21. Brokerage Allocation and Other Practices........................... Not applicable 22. Tax Status.......................... Tax Status 23. Financial Statements................ Financial Statements
- --------------- * Pursuant to General Instruction on Form N-2, all information required to be set forth in Part B: Statement of Additional Information has been included in Part A: The Prospectus. All items required to be set forth in Part C are set forth in Part C. 3 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. PROSPECTUS (Subject to Completion) Issued January , 1997 2,900,000 Shares Sirrom Capital Corporation COMMON STOCK ------------------------ OF THE 2,900,000 SHARES OF COMMON STOCK BEING OFFERED HEREBY, 2,320,000 SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS AND 580,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE OF THE UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITERS." OF THE 2,320,000 SHARES OF COMMON STOCK BEING OFFERED BY THE U.S. UNDERWRITERS, 2,144,410 SHARES ARE BEING SOLD BY THE COMPANY AND 175,590 SHARES ARE BEING SOLD BY THE SELLING SHAREHOLDERS. OF THE 580,000 SHARES OF COMMON STOCK BEING OFFERED BY THE INTERNATIONAL UNDERWRITERS, 536,103 SHARES ARE BEING SOLD BY THE COMPANY AND 43,897 SHARES ARE BEING SOLD BY THE SELLING SHAREHOLDERS. SEE "PRINCIPAL AND SELLING SHAREHOLDERS." THE COMPANY WILL NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF SHARES BY THE SELLING SHAREHOLDERS. THE COMMON STOCK IS TRADED ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "SROM." ON JANUARY 8, 1997 THE LAST REPORTED SALE PRICE FOR THE COMMON STOCK WAS $34 3/4. THE COMPANY IS A NON-DIVERSIFIED, CLOSED-END INVESTMENT COMPANY THAT HAS ELECTED TO BE TREATED AS A BUSINESS DEVELOPMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE "1940 ACT"). THE COMPANY'S INVESTMENT OBJECTIVES ARE TO ACHIEVE A HIGH LEVEL OF INCOME FROM THE COLLECTION OF INTEREST AND PROCESSING AND FINANCIAL ADVISORY FEES, AS WELL AS LONG-TERM GROWTH IN ITS SHAREHOLDERS' EQUITY THROUGH THE APPRECIATION IN VALUE OF THE EQUITY INTERESTS IN ITS PORTFOLIO COMPANIES. SEE "BUSINESS." NO ASSURANCES CAN BE GIVEN THAT THE COMPANY WILL CONTINUE TO ACHIEVE THESE OBJECTIVES. THIS PROSPECTUS SETS FORTH THE INFORMATION ABOUT THE COMPANY THAT A PROSPECTIVE INVESTOR SHOULD KNOW BEFORE INVESTING AND SHOULD BE RETAINED FOR FUTURE REFERENCE. ADDITIONAL INFORMATION ABOUT THE COMPANY HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS AVAILABLE UPON WRITTEN OR ORAL REQUEST WITHOUT CHARGE. SEE "ADDITIONAL INFORMATION." ------------------------ SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
UNDERWRITING PROCEEDS PROCEEDS TO PRICE TO DISCOUNTS AND TO SELLING PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS ----------- -------------- ---------- ------------------- Per Share.............. $ $ $ $ Total(3)............... $ $ $ $
- ------------ (1) The Company and the Selling Shareholders have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriters." (2) Before deducting expenses payable by the Company estimated at $ . (3) The Company has granted to the U.S. Underwriters an option, exercisable within 30 days of the date hereof, to purchase up to an aggregate of 435,000 additional Shares at the Price to Public less Underwriting Discounts and Commissions for the purpose of covering over-allotments, if any. If the U.S. Underwriters exercise such option in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriters." ------------------------ The Shares are offered, subject to prior sale, when, as and if accepted by the Underwriters named herein and subject to approval of certain legal matters by Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Underwriters. It is expected that the delivery of the Shares will be made on or about February , 1997 at the office of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor in immediately available funds. ------------------------ MORGAN STANLEY & CO. Incorporated THE ROBINSON-HUMPHREY COMPANY, INC. J.C. BRADFORD & CO. EQUITABLE SECURITIES CORPORATION January , 1997 4 SIRROM CAPITAL CORPORATION The following map sets forth, as of September 30, 1996, the 24 states in which the Company's portfolio companies maintain their principal place of business and the number of portfolio companies in each state. [MAP OF UNITED STATES] 2 5 NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREBY SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. --------------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary.................... 4 The Company........................... 10 Additional Information................ 10 Risk Factors.......................... 11 Use of Proceeds....................... 14 Distributions and Price Range of Common Stock........................ 15 Capitalization........................ 16 Selected Financial Data............... 17 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 18 Business.............................. 24 Investment Objectives and Policies.... 30 Portfolio Companies................... 32 Management............................ 40 Certain Transactions.................. 46 Principal and Selling Shareholders.... 47 Determination of Net Asset Value...... 48 Reinvestment Plan..................... 48 Tax Status............................ 49 Description of Capital Stock.......... 52 Regulation............................ 53 Shares Eligible for Future Sale....... 55 Underwriters.......................... 56 Legal Matters......................... 59 Custodian, Transfer and Dividend Paying Agent and Registrar.......... 59 Reports to Shareholders............... 59 Independent Public Accountants........ 59 Index to Financial Statements......... F-1
--------------------- IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITERS." 3 6 PROSPECTUS SUMMARY The following summary is qualified in its entirety by and should be read in conjunction with the more detailed information and the financial statements and notes thereto appearing elsewhere in this Prospectus. Unless otherwise indicated, all information in this Prospectus assumes no exercise of the Underwriters' over-allotment option. Information contained or incorporated by reference in this Prospectus may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, which can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "anticipate," "estimate" or "continue" or the negative thereof or other variations thereon or comparable terminology. The matters described in "Risk Factors" and certain other factors noted throughout this Prospectus and in any exhibits to the Registration Statement of which this Prospectus is a part, constitute cautionary statements identifying important factors with respect to any such forward-looking statements, including certain risks and uncertainties, that could cause actual results to differ materially from those in such forward-looking statements. THE COMPANY Sirrom Capital Corporation ("Sirrom" or the "Company") is a specialty finance company that is primarily engaged in making loans to small businesses. The Company's loans typically range from $500,000 to $5.0 million in size, have a five-year maturity, require interest payments monthly and are accompanied by warrants to purchase an equity interest in the borrower at a nominal exercise price (usually $.01 per share). The Company targets borrowers that meet certain criteria, including the potential for significant growth, adequate collateral coverage, experienced management teams with a significant ownership interest in the borrower, sophisticated outside equity investors and profitable operations. To develop new lending opportunities, the Company markets to an extensive referral network comprised of venture capitalists, investment bankers, attorneys, accountants, commercial bankers and business brokers. The Company believes the market for small commercial loans is underserved by traditional lending sources and that competitors generally are burdened with an overhead and administrative structure that hinders them from competing most effectively in this market. The principal investment objectives of the Company are to achieve (i) a high level of current income from interest and processing and financial advisory fees and (ii) long-term growth in its shareholders' equity through the appreciation in value of the equity interests in its portfolio companies. The Company, which was founded in 1992, has experienced significant growth in both the size and diversity of its investment portfolio. At September 30, 1996, the Company had loans outstanding with a fair value of $220.0 million to 119 companies in a variety of industries. The Company's loan portfolio balances at December 31, 1993, 1994 and 1995 were $42.4 million, $72.3 million and $144.9 million, respectively. The Company's pre-tax operating income has increased from $2.1 million for the year ended December 31, 1993 to $11.9 million for the nine months ended September 30, 1996. Since inception, the Company has had realized gains of $7.8 million (net of realized losses) from the sale of its equity positions in portfolio companies and at September 30, 1996, had $12.6 million in unrealized appreciation of investments (net of unrealized depreciation of investments). The Company has begun to broaden its geographic market, has recently relocated a senior lender to open and manage a San Francisco office, and currently anticipates opening an office in the Northeast in fiscal 1997. In addition, the Company has reached a preliminary understanding with a Canadian financial institution to make small business loans in Canada similar to those made in the United States. In an effort to broaden its target market of borrowers, the Company has also begun to market loans with equity features to public companies with a market capitalization of less than $100.0 million through a newly formed subsidiary, Tandem Capital, Inc. ("Tandem"). The Company believes these borrowers are also underserved by traditional lending sources. In addition to making loans to small businesses, the Company also provides merger and acquisition advisory services with respect to companies in the small business sector through its wholly-owned subsidiary, Harris Williams & Co., a Virginia corporation ("Harris Williams"). Harris Williams 4 7 typically receives a monthly retainer fee with respect to each engagement, as well as a success fee for each transaction that is closed. The Company is a non-diversified, closed-end investment company that has elected to be treated as a business development company (a "BDC") under the Investment Company Act of 1940 (the "1940 Act"). The Company was licensed as a small business investment company ("SBIC") by the U.S. Small Business Administration (the "SBA") under the Small Business Investment Company Act of 1958 (the "SBIA") on May 14, 1992. In August 1996, the Company transferred its SBIC operations, including its SBIC license, assets and liabilities, to Sirrom Investments, Inc., its wholly-owned subsidiary ("SII"). THE OFFERING Common Stock Offered(1): International Offering................. 580,000 United States Offering................. 2,320,000 Total............ 2,900,000 Common Stock to be outstanding after the Offering................. 15,024,080 - --------------- (1) Of the 2,320,000 shares of Common Stock being offered in the United States Offering, 2,144,410 shares are being sold by the Company and 175,590 shares are being sold by the Selling Shareholders. Of the 580,000 shares of Common Stock being offered in the International Offering, 536,103 shares are being sold by the Company and 43,897 shares are being sold by the Selling Shareholders. Nasdaq National Market Symbol................... SROM Use of Proceeds............ Origination of loans and investments and temporary repayment of indebtedness. The Company will not receive any proceeds from the sale of Common Stock by the Selling Shareholders. See "Use of Proceeds." Distributions.............. The Company has distributed and currently intends to continue to distribute quarterly to its shareholders 90% of its net investment income. See "Distributions and Price Range of Common Stock." Risk Factors............... Investment in shares of the Common Stock involves certain risks relating to the structure and investment objectives of the Company that should be considered by the purchasers of the Common Stock. See "Risk Factors." Risks Associated with Investments in Small, Privately Owned Companies. The Company's portfolio consists primarily of loans to and securities issued by privately owned small businesses. There is generally no publicly available information about such companies, and the Company must rely on the diligence of its employees and agents to obtain information in connection with the Company's investment decisions. In addition, there is typically no public market for securities of privately owned companies. A significant majority of the Company's portfolio securities are and will continue to be subject to restrictions on resale or otherwise have no established trading market. The illiquidity of most of the Company's portfolio securities may adversely affect the ability of the Company to dispose of such securities in a timely matter and at a fair price at times when the Company deems it necessary or advantageous. The valuation of securities in the Company's portfolio is determined in good faith by the Company's Board of Directors in the absence of readily ascertainable market values. The estimated values may differ signifi- 5 8 cantly from the values that would have been used had a ready market for the securities existed, and the differences could be material. Risk of Payment Default. The loans made by the Company to small businesses carry a relatively high fixed rate of interest. The small businesses may have limited financial resources and may be unable to obtain financing from traditional sources. In addition, a small business' ability to repay its loans may be adversely affected by numerous factors, including the failure to meet its business plan, a downturn in its industry, or negative economic conditions. A deterioration in a borrower's financial condition and prospects usually will be accompanied by a deterioration in the value of any collateral for the loan and the likelihood of realizing on any guarantees obtained from the borrower's management. Investment in small businesses, therefore, involves a high degree of business and financial risk, which can result in substantial losses and accordingly, should be considered speculative. Risks of Expansion. Since its inception, the Company has expanded its small business lending activities substantially, both in size and geographic scope. After this Offering, the Company anticipates not only continuing to expand its traditional small business lending activities, but also expanding its business to include unsecured loans to and investments in public companies with equity market capitalizations below $100.0 million and Canadian small businesses. No assurance can be given that the Company will continue to maintain the historic growth rates of its loan and investment portfolio, or that it will be able to develop sufficient lending and administrative personnel and management and operating systems to manage its expansion effectively. Leverage Risks. The Company's use of leverage and its obligation to make required interest payments to its funding sources tends to increase the amount of risk associated with the Company's operations. Leverage magnifies the potential for gain and loss on monies invested and, therefore, results in an increase in the risks associated with an investment in the Company's securities. Risk of Unavailability of Funds. As the Company grows, it will have a continuing need for long-term capital to finance its lending activities. Traditionally, the Company's capital needs have been met by borrowings under SBA programs, from commercial banks and through the sale of equity securities. As an SBIC, SII has borrowed $90.0 million the maximum amount available to an SBIC from the SBA at a relatively low interest rate. SII has supplemented its SBA borrowings with a $50.0 million revolving credit facility (the "Revolving Credit Facility") from First Union National Bank of Tennessee and a syndicate of other banks. At December 31, 1996, the Company had $ outstanding thereunder. To support the Company's future loan origination activities outside of SII, the Company, through its wholly-owned subsidiary Sirrom Funding Corporation ("SFC"), has also established a $100.0 million five-year non-amortizing credit facility (the "ING Credit Facility"). At December 31, 1996 $ was outstanding under the ING Credit Facility. Risk of Voluntary or Involuntary Termination of Pass Through Tax Treatment. The Company, SII and SFC have each qualified for and elected to be taxed as a regulated investment company (a "RIC"), and as such SII and SFC distribute at least 90% of their respective net investment income to the Company and the Company, in turn, distributes 90% of its net investment income, including such dividends, to its shareholders. In any year in which the Company, SII or SFC so 6 9 qualifies, it generally will not be subject to federal income tax on net investment income and net capital gains distributed to its respective shareholders. However, the Company, SII or SFC may retain part or all of its realized long-term capital gains, in which case each such entity would be required to pay tax on such capital gains and the Company's shareholders or the Company, as appropriate, would receive a deemed distribution and a tax credit for their or its pro rata portion of the tax paid by the entity that retains the capital gains. However, because the Company uses leverage, it is subject to certain asset coverage ratio requirements set forth in the 1940 Act and could, under certain circumstances, be restricted from making distributions necessary to qualify as a RIC under Subchapter M of the Code. The election to qualify as a RIC is made on an annual basis, and no assurance can be given that the Company, SII or SFC will continue to elect or to qualify for such treatment. Harris Williams does not qualify to be taxed as a RIC and therefore pays tax at the subsidiary level. If the Company, or any of its subsidiaries other than Harris Williams was to fail to qualify or elect not to qualify as a RIC and its income became fully taxable, a reduction in the Company's net assets by the amount of the tax payable, the amount of income available for distribution to the Company's shareholders and the percentage of such income actually distributed could result. FEES AND EXPENSES The purpose of the following table is to assist the investor in understanding the various costs and expenses that an investor in the Company will bear directly or indirectly. SHAREHOLDER TRANSACTION EXPENSES Sales load (as a percentage of offering price)............................... %(1) --------- Dividend Reinvestment Plan fees.............................................. None(2) ANNUAL EXPENSES (as a percentage of net assets attributable to common shares)(3) Operating expenses........................................................... %(4) --------- Interest payments on borrowed funds.......................................... % --------- Total Annual Expenses (estimated).................................... % =========
- ------------ (1) The underwriting discounts and commissions with respect to the Common Stock sold by the Company in this Offering, which are onetime fees paid by the Company to the Underwriters in connection with this Offering, are the only sales load paid in connection with this Offering. (2) The expenses of the Company's Dividend Reinvestment Plan (the "Reinvestment Plan") are included in stock record expenses, a component of "Operating expenses." The Company has no cash purchase plan. The participants in the Reinvestment Plan will bear a pro rata share of brokerage commissions incurred with respect to open market purchases. (3) Assumes a net asset value of $[ ] million, which will be the Company's estimated shareholders' equity upon completion of the Offering. Operating expenses and interest payments are calculated on an annualized basis based on the nine months ended September 30, 1996. (4) Operating expenses consist primarily of compensation and employee benefits, travel and other marketing expenses, rent and other similar expenses. 7 10 EXAMPLE The following example demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in the Company. These amounts assume no additional leverage and are based upon the payment by an investor of a % sales load (the underwriting discounts and commissions paid by the Company with respect to the Common Stock sold by the Company in this Offering) and the payment by the Company of operating expenses at the levels set forth in the table above.
1 YEAR 3 YEARS 5 YEARS 10 YEARS -------- -------- -------- -------- You would pay the following expenses on a $1,000 investment, assuming a 5.0% annual return........... $ [] $ [] $ [] $ []
This example should not be considered a representation of the future expenses of the Company, and actual expenses may be greater or less than those shown. Although the example assumes (as required by the Securities and Exchange Commission (the "Commission")) a 5.0% annual return, the Company's performance will vary and may result in a return of greater or less than 5.0%. In addition, while the example assumes reinvestment of all dividends and distributions at net asset value, participants in the Reinvestment Plan may receive shares purchased by First Union National Bank, as administrator of the Reinvestment Plan (the "Reinvestment Plan Administrator") at the market price in effect at the time, which may be at, above or below net asset value. See "Reinvestment Plan." 8 11 SUMMARY HISTORICAL FINANCIAL AND OTHER DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FROM NINE MONTHS INCEPTION YEAR ENDED ENDED THROUGH DECEMBER 31, SEPTEMBER 30, DECEMBER 31, ------------------------------------ ------------------------- 1992 1993 1994 1995 1995 1996 ------------ --------- --------- ---------- --------- ---------- (UNAUDITED) STATEMENTS OF OPERATIONS DATA: Total operating income............. $ 918 $ 4,214 $ 8,238 $ 15,575 $ 10,591 $ 19,298 Interest expense................... 127 1,427 3,124 4,771 3,361 5,979 General, administrative and amortization expenses............ 218 928 1,313 2,702 1,843 4,037 Equity in pretax income of unconsolidated subsidiary........ 43 207 553 812 609 2,573 --------- --------- --------- --------- --------- ---------- Pretax operating income(1)......... $ 616 $ 2,066 $ 4,354 $ 8,914 $ 5,934 $ 11,855 ========= ========= ========= ========= ========= ========== Pretax operating income per share............................ $ .18 $ .48 $ .83 $ .96 $ .70 $ 1.05 Dividends per share................ -- -- -- .89 .63 .82 Fully diluted weighted average number of shares outstanding..... 3,548,000 4,274,000 5,222,000 9,072,000 8,603,000 11,275,000 OTHER OPERATING DATA: Number of portfolio companies with loans outstanding at period end.............................. 17 38 57 91 81 119 Number of new portfolio companies........................ 17 24 25 44 34 36 Principal amount of loans originated....................... $ 14,639 $ 31,470 $ 40,785 $ 101,505 $ 71,344 $ 103,138 Principal amount of loan repayments....................... 0 2,013 7,585 14,414 $ 11,112 $ 16,217 Net interest spread(2)............. 5.6% 5.8% 5.5% 5.8% 5.7%(3) 5.9%(3) General and administrative expenses as a percentage of assets........ 1.5% 1.6% 1.3% 1.4% 1.4%(4) 1.7%(4)
SEPTEMBER 30, 1996 -------------------------- ACTUAL AS ADJUSTED(5) -------- -------------- (UNAUDITED) BALANCE SHEET DATA: Cash and cash equivalents........................................................... $ 20,789 $ Loans............................................................................... 220,050 Equity interests.................................................................... 25,578 Warrants............................................................................ 15,088 Total assets........................................................................ 287,262 Revolving Credit Facility........................................................... 41,811 Debentures payable to SBA........................................................... 83,260 Total shareholders' equity.......................................................... 156,539
- --------------- (1) Beginning in February 1995, the Company elected to be taxed as a RIC under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). SII and SFC have also elected the same tax treatment. As such, SII and SFC must distribute at least 90% of their respective net investment income (net interest income plus net realized short-term capital gains) to the Company (as its sole shareholder) and the Company must, in turn, distribute at least 90% of its net investment income (including dividends from SII, SFC and Harris Williams) to its shareholders, on a quarterly basis. In years in which the Company qualifies as a RIC, it generally will not be subject to federal income tax on net investment income and net capital gains distributed to shareholders. SII and SFC may retain all or a portion of their respective long-term capital gains, net of applicable taxes, to supplement equity capital and to support growth in their respective portfolios. Harris Williams is taxed at the corporate level as it does not qualify to be taxed as a RIC. (2) Net interest spread represents the weighted average gross yield on the Company's interest bearing investments less the weighted average cost of long-term borrowed funds at the end of the respective periods shown. (3) Calculated on an annualized basis. (4) Calculated on an annualized basis. (5) Adjusted to reflect the sale by the Company of 2,680,513 shares of Common Stock offered hereby by the Company at an offering price of $[ ] per share and the application of the estimated net proceeds therefrom. See "Use of Proceeds." 9 12 THE COMPANY The Company was incorporated under the laws of the State of Tennessee in November 1994 and is a non-diversified, closed-end investment company that has elected to be treated as a BDC under the 1940 Act. The Company's principal executive offices are located at 500 Church Street, Suite 200, Nashville, Tennessee 37219 and its telephone number is (615) 256-0701. The Company is the successor to Sirrom Capital, L.P., a Tennessee limited partnership (the "Partnership"), which was organized under the laws of Tennessee in 1991. Pursuant to a conversion (the "Conversion") consummated on February 1, 1995 all partners of the Partnership (the "Partners") transferred their Partnership interests to the Company in exchange for the issuance of 5,050,116 shares of Common Stock. The Common Stock was received by each Partner in proportion to the Partner's percentage interest in the Partnership. Following this exchange, the Partnership was dissolved and liquidated by operation of law, and all of the assets and liabilities of the Partnership (including the SBIC license which was obtained by the Partnership in May 1992) were assigned and transferred to the Company. In August 1996, the Company transferred its SBIC operations, including its SBIC license, assets and liabilities to SII, its wholly-owned subsidiary, and acquired Harris Williams, which, since the acquisition, has operated as a "C" corporation and a wholly-owned subsidiary of the Company. In December 1996, the Company formed SFC, a special purpose, bankruptcy remote subsidiary, as the borrower under the ING Credit Facility. Unless otherwise indicated, all references to the Company include the Partnership, SII, SFC and Harris Williams and their respective historical operations. ADDITIONAL INFORMATION The Company has filed with the Commission a Registration Statement on Form N-2 (the "Registration Statement") under the Securities Act, with respect to the shares of Common Stock offered by this Prospectus. This Prospectus, which is a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement or the exhibits and schedules thereto. For further information with respect to the Company and the Common Stock, reference is made to the Registration Statement, including the exhibits and schedules thereto. The Company is subject to the informational requirements of the Securities Exchange Act of 1934, and, in accordance therewith, files reports, proxy statements and other information with the Commission. The Registration Statement and the exhibits and schedules thereto filed with the Commission, as well as such reports, proxy statements and other information, may be inspected, without charge, at the public reference facility maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices located at Seven World Trade Center, New York, New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The Commission maintains a web site that contains reports, proxy statements and other information regarding registrants, including the Company, that file such information electronically with the Commission. The address of the Commission's web site is http://www.sec.gov. Copies of such material may also be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Common Stock is listed on the Nasdaq National Market, and such reports, proxy statements and other information can also be inspected at the offices of the National Association of Securities Dealers, Inc., Corporate Financing Department, 9513 Key West Avenue, 3rd Floor, Rockville, Maryland 20850. 10 13 RISK FACTORS The purchase of the shares offered by this Prospectus involves a number of significant risks and other factors relating to the structure and investment objectives of the Company. As a result, there can be no assurance that the Company will continue to achieve its investment objectives. In addition to the other information contained in this Prospectus, the following risk factors should be carefully considered in evaluating an investment in the Common Stock. RISKS ASSOCIATED WITH INVESTMENTS IN SMALL, PRIVATELY OWNED COMPANIES The Company's portfolio consists primarily of loans to and securities issued by small, privately owned businesses. There is generally no publicly available information about such companies, and the Company must rely on the diligence of its employees and agents to obtain information in connection with the Company's investment decisions. Typically, small businesses depend for their success on the management talents and efforts of one person or a small group of persons, and the death, disability or resignation of one or more of these persons could have a material adverse impact on the related company. Moreover, small businesses frequently have smaller product lines and market shares than their competition. Small companies may be more vulnerable to economic downturns and often need substantial additional capital to expand or compete. Such companies may also experience substantial variations in operating results. Investment in small businesses therefore involves a high degree of business and financial risk, which can result in substantial losses and accordingly should be considered speculative. The Company's operating history is relatively limited and it has not operated in recessionary economic periods during which the operating results of small business companies such as those in the Company's portfolio often are adversely affected. While the Company generally seeks to make senior secured loans, its loans are often made on a subordinated basis, which results in a higher degree of risk of collection. The Company also has the ability to make unsecured loans or invest in equity securities which likewise may involve a higher degree of risk. RISK OF ILLIQUIDITY OF PORTFOLIO INVESTMENTS Liquidity relates to the ability of the Company to sell either a debt or equity security in a timely manner at a price that reflects the fair market value of that security. Most of the Company's investments are or will be securities acquired directly from small, privately owned companies. The Company's portfolio securities are and will usually be subject to restrictions on resale or otherwise have no established trading market. The illiquidity of most of the Company's portfolio securities may adversely affect the ability of the Company to dispose of such securities in a timely manner and at a fair price at times when the Company deems it necessary or advantageous. The valuation of securities in the Company's portfolio is determined in good faith by the Company's Board of Directors in the absence of readily ascertainable market values. The estimated values may differ significantly from the values that would have been used had a ready market for the securities existed, and the differences could be material. RISK OF PAYMENT DEFAULT The Company generally makes nonamortizing, five-year term loans with relatively high fixed rates of interest to small companies that may have limited financial resources and may be unable to obtain financing from traditional sources. These loans are generally secured by the assets of the borrower. A borrower's ability to repay its loan may be adversely affected by numerous factors, including the failure to meet its business plan, a downturn in its industry or negative economic conditions. A deterioration in a borrower's financial condition and prospects usually will be accompanied by a deterioration in the value of any collateral for the loan and the likelihood of realizing on any guarantees obtained from the borrower's management. Although the Company seeks to be the senior, secured lender to a borrower, the Company is not always the senior lender, and any collateral for a loan may be subordinate to another lender's security interest. 11 14 RISK OF LOAN LOSSES EXCEEDING CURRENT ESTIMATES There is typically no public market for the debt or equity securities of small, privately owned companies. As a result, the valuation of securities in the Company's portfolio is subject to the good faith determination of the Company's Board of Directors. See "Determination of Net Asset Value." Unlike certain lending institutions, the Company does not establish reserves for loan losses, but revalues its portfolio on a quarterly basis to reflect the Company's estimate of the current realizable value of the loan portfolio. At September 30, 1996, management's estimate of potential loan losses in its loan portfolio was $6.6 million. There can be no assurance that this estimate reflects the amounts that ultimately will be realized on these loans. See "Business -- Operations." INTEREST RATE RISK The Company's income is materially dependent upon the "spread" between the rate at which it borrows funds and the rate at which it loans these funds. The Company anticipates using a combination of long-term and short-term borrowings to finance its lending activities and engaging in interest rate risk management techniques, including various interest rate hedging activities. Since inception, the Company's net interest spread has averaged 5.7% (570 basis points). There can be no assurance that the Company will maintain this net interest spread or that a significant change in market interest rates will not have a material adverse effect on the Company's profitability. RISKS OF EXPANSION Since inception, the Company has expanded its small business lending activities substantially, both in size and geographic scope. After this Offering the Company anticipates not only continuing to expand its traditional small business lending activities, but also expanding its business activities to include unsecured loans to and investments in public companies with market capitalizations below $100.0 million and secured loans with warrants to Canadian small businesses. No assurance can be given that the Company will continue to maintain the historic growth rates of its loan and investment portfolio, or that it will be able to develop sufficient lending and administrative personnel, and management and operating systems to manage its expansion effectively. In August 1996, the Company acquired Harris Williams, a company which provides merger and acquisition financial advisory services to small and medium sized businesses. Harris Williams' income is derived from fees received for its financial advisory engagements, which typically provide for a monthly retainer and a success fee contingent upon the closing of each transaction. There can be no assurance that Harris Williams' fee income will continue at or exceed historical levels. See "Business." LEVERAGE RISKS The Company, through SII, has borrowed funds from the SBA and under the Revolving Credit Facility and, through SFC, has borrowed funds under the ING Credit Facility, resulting in a significant leveraging of its assets. Leverage magnifies the potential for gain and loss on monies invested and, therefore, increases the risks associated with an investment in the Company's securities. The Company's creditors have claims on the Company's assets superior to the claims of the Company's shareholders. In addition, pursuant to the terms of the ING Credit Facility, the Company may be requested by ING, depending on interest rate conditions, to make deposits into a sinking fund account to be used by ING to purchase interest rate caps or to enter into additional interest rate swaps and transfer to SFC the interest rate cap payments payable to the Company, and failure of the Company to do so would cause the ING Credit Facility to be unavailable for future funding. The Company does not have the ability to estimate the size of such deposits if necessary and if prevailing interest rates substantially differ from the borrowing rate such amounts could be material. As of September 30, 1996, the Company's debt as a percentage of total liabilities and shareholders' equity was 43.5%. In addition, the ability of the Company to achieve its investment objectives may depend in part on its ability to achieve leverage on favorable terms, and there can be no assurance that such terms can be obtained. 12 15 As of December 31, 1996, SII had borrowed $90.0 million from the SBA under the SBA debenture program bearing an average annual interest rate of %, had $ million outstanding under the Revolving Credit Facility bearing an average annual interest rate of % and had $ million outstanding under the ING Credit Facility bearing an average annual interest rate of %. In order for the Company to cover annual interest payments on the debt described above, it must achieve annual returns of at least [ ]% on its portfolio. The purpose of the following table is to illustrate the effect of leverage on returns to a shareholder on an investment in the Company's Common Stock assuming various annual returns, net of expenses. The calculations set forth in the table are hypothetical and actual returns may be greater or less than those appearing below.
ASSUMED RETURN ON THE COMPANY'S PORTFOLIO (NET OF EXPENSES) ---------------------------- -10% -5% 0% 5% 10% ---- --- --- --- --- Corresponding return to shareholder(1)...............................
- ------------ (1) The calculation assumes (i) $[ ] million in investments, (ii) an average cost of funds of [ ]%, (iii) $[ ] million in debt outstanding and (iv) $[ ] million of shareholders' equity. RISK OF UNAVAILABILITY OF FUNDS As the Company grows, it will have a continuing need for long-term capital to finance its lending activities. Traditionally, the Company's capital needs have been met by borrowings under SBA programs, from commercial banks and through the sale of equity securities. The maximum amount of funding available to an SBIC from the SBA is $90.0 million. As of the date hereof, SII had outstanding borrowings of $90.0 million from the SBA and therefore has no additional SBA funding available. As of the date hereof, SII also had outstanding borrowings of $ million of the $50.0 million available under the Revolving Credit Facility. As of the date hereof, SFC had outstanding borrowings of $ of the $100.0 million available under the ING Credit Facility. Reductions in the availability of funds from commercial banks or other sources on terms favorable to the Company could have a material adverse effect on the Company. Furthermore, since in order to maintain RIC status, SII and SFC distribute 90% of their respective investment company taxable income to the Company and the Company presently distributes 90% of its investment company taxable income to its shareholders, such earnings are not available to fund loan originations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Financial Condition, Liquidity and Capital Resources." Under the Revolving Credit Facility, if either George M. Miller, II or David M. Resha ceases to be employed by the Company, the lenders have the ability to accelerate the repayment of any amounts outstanding. Under the ING Credit Facility, if any two of Mr. Miller, Mr. Resha and Carl W. Stratton cease to be actively involved in the management of the Company, then either ING or a majority of the noteholders may declare an event of default thereunder. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Financial Condition, Liquidity and Capital Resources." RISK OF VOLUNTARY OR INVOLUNTARY TERMINATION OF PASSTHROUGH TAX TREATMENT The Company, SII and SFC have each qualified for and elected to be taxed as a RIC and as such SII and SFC distributed at least 90% of their respective net investment to the Company and the Company, in turn, distributes 90% of its net investment, including such dividends, to its shareholders. In any year in which the Company, SII or SFC so qualifies, it generally will not be subject to federal income tax on net operating income and net capital gains distributed to its respective shareholders. However, the Company, SII or SFC may retain part or all of its realized long-term capital gains, in which case each such entity would be required to pay tax on such capital gains and the Company's shareholders or the Company, as appropriate, would receive a deemed distribution and a tax credit for their or its pro rata portion of the tax paid by the entity that retains the capital gains. However, because the Company uses leverage, it is subject to certain asset coverage ratio requirements set forth in the 1940 Act and could, under certain circumstances, be restricted from making 13 16 distributions necessary to qualify as a RIC under Subchapter M of the Code. The election to qualify as a RIC is made on an annual basis, and no assurance can be given that the Company, SII or SFC will continue to elect or to qualify for such treatment. See "Tax Status." Harris Williams does not qualify to be taxed as a RIC and therefore, will pay tax at the subsidiary level. If the Company or any of its subsidiaries other than Harris Williams were to fail to qualify or elect not to qualify as a RIC and its respective income became fully taxable, a reduction in the Company's net assets by the amount of the tax payable, the amount of income available for distribution to the Company's shareholders and the percentage of such income actually distributed could result. For financial accounting purposes, the Company does not currently provide for deferred taxes on the amount of unrealized appreciation of its equity securities because of the uncertainty as to whether any long-term capital gain would be distributed to shareholders. If the Company were to retain substantially all of its realized gains as a matter of general practice, the Company would provide for deferred taxes on the amount of unrealized gains in its portfolio. In so doing, the Company would accrue a one time charge to earnings and shareholders' equity for financial reporting purposes for taxes on accumulated unrealized appreciation at that time, and thereafter would recognize unrealized appreciation, net of long-term capital gains tax. See "Tax Status" and "Regulation." COMPETITIVE MARKET FOR INVESTMENT OPPORTUNITIES A large number of entities and individuals compete to make the types of investments made by the Company, many of whom have greater financial resources than the Company. As a result of this competition, the Company may from time to time be precluded from entering into attractive transactions. There can be no assurance that the Company will be able to identify and make investments which satisfy the Company's investment objectives or that it will be able to invest fully its available capital. DEPENDENCE ON MANAGEMENT The Company is dependent for the selection, structuring, closing and monitoring of its loans and investments on the diligence and skill of management, particularly of George M. Miller, II, the loss of whose services could have a material adverse effect on the operations of the Company. See "Management." USE OF PROCEEDS The net proceeds to the Company from the sale of the shares of Common Stock offered hereby are estimated to be approximately $[ ] million, after deducting the Underwriting discounts and commissions and estimated Offering expenses payable by the Company. The Company intends to use the net proceeds to temporarily repay approximately $ million outstanding under the Revolving Credit Facility and to originate new loans and make investments. The Company will then reborrow amounts available under the Revolving Credit Facility to originate new loans. Amounts outstanding under the Revolving Credit Facility bear interest at % per annum as of the date of this Prospectus. The Company believes that the net proceeds will be applied as set forth above within nine months of the Offering. Pending such application, the Company intends to invest the net proceeds of this Offering in time deposits and income-producing securities with maturities of 15 months or less that are issued or guaranteed by the federal government or agencies thereof. See "Investment Objectives and Policies." 14 17 DISTRIBUTIONS AND PRICE RANGE OF COMMON STOCK The Company has distributed and currently intends to continue to distribute 90% of its net operating income and net realized short-term capital gains, if any, on a quarterly basis to its shareholders. Net realized long-term capital gains may be retained to supplement the Company's equity capital and support growth in its portfolio, unless the Board of Directors determines in certain cases to make a distribution. There is no assurance that the Company will achieve investment results or maintain a tax status that will permit any specified level of cash distributions or year-to-year increases in cash distributions. See "Reinvestment Plan," "Regulation" and "Tax Status." 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 distributions reinvested in additional shares of Common Stock by the Reinvestment Plan Administrator, by letter to the Company received prior to the corresponding record date. The Common Stock is quoted on the Nasdaq National Market under the symbol SROM. On January 8, 1997, the last reported sale price of the Common Stock was $34.75 per share (a [ ]% premium to net asset value per share on such date). The following table sets forth the range of high and low closing sale prices of the Common Stock as reported on the Nasdaq National Market, the net asset value per share, the premium of high closing sale price to net asset value and the premium of low closing sale price to net asset value for the period from February 6, 1995, when public trading of the Common Stock commenced, through January , 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.
PREMIUM OF PREMIUM OF CLOSING SALE HIGH SALES LOW SALES PRICE NET ASSET PRICE TO NET PRICE TO NET ------------ VALUE PER ASSET VALUE ASSET VALUE DIVIDEND HIGH LOW SHARE(1)(2) (%)(2) (%)(2) DECLARED ---- --- ----------- ------------ ------------ -------- 1995 First Quarter (beginning February 6, 1995)....................... $11 5/8 $10 3/4 $ 7.86 48% 37% $.14 Second Quarter.................... 13 3/4 11 1/8 8.05 71 38 .26 Third Quarter..................... 18 3/4 13 1/2 10.11 85 31 .23 Fourth Quarter.................... 20 16 3/4 9.23(3) 117 81 .26 1996 First Quarter..................... 23 3/4 18 5/8 9.70 145 92 .24 Second Quarter.................... 29 1/2 23 1/4 12.78 129 82 .26 Third Quarter..................... 30 1/4 23 12.38 144 86 .32 Fourth Quarter.................... 38 3/8 30 1/4 [ ] [ ] [ ] []
- ------------ (1) Fully diluted net asset value per share is determined as of the last day in the relevant quarter and therefore may not reflect the net asset value per share on the date of the high and low sale price. Historically, the Company's net assets have been highest at the end of the quarter. (2) Except for the information for the third and fourth quarters of 1996, the above table does not reflect the acquisition of Harris Williams in August 1996 for 898,454 shares of Common Stock in a transaction accounted for as a pooling-of-interests. If Net Asset Value had been calculated for periods prior to the acquisition to include the shares issued in the acquisition, the Net Asset Value per share for each of the quarters since the first quarter of 1995 and through the second quarter of 1996 would have been $7.17, $7.34, $9.30, $8.54, $9.03, and $12.05, respectively. (3) This number reflects the issuance of shares by the Company in a public offering. 15 18 CAPITALIZATION The following table sets forth (i) the actual capitalization of the Company at September 30, 1996, and (ii) the capitalization of the Company at September 30, 1996, as adjusted to reflect the effects of the sale of the Common Stock offered hereby by the Company, and the application of the net proceeds as set forth under "Use of Proceeds."
SEPTEMBER 30, 1996 ------------------------- ACTUAL AS ADJUSTED(1) -------- -------------- (DOLLARS IN THOUSANDS) Debentures payable to Small Business Administration.................. $ 83,260 $ 83,260 Revolving credit facility............................................ 41,811 -- -------- ------- $125,071 $ 83,260 -------- ------- Shareholders' equity: Common stock, no par value, 50,000,000 shares authorized; 12,343,567 issued and outstanding (15,024,080 issued and outstanding as adjusted)(2)....................................................... 132,407 [] Notes receivable from employees...................................... (1,539) (1,539) Undistributed net realized earnings.................................. 13,064 13,064 Unrealized appreciation of investments............................... 12,607 12,607 -------- ------- Total shareholders' equity...................................... 156,539 -------- ------- Total Capitalization................................................. $281,610 $ ======== =======
- --------------- (1) Assumes a public offering price of $34.75 (the last reported sale price of the Common Stock on the Nasdaq National Market on January 8, 1997). (2) Excludes an aggregate of shares issuable pursuant to stock options outstanding at September 30, 1996. 16 19 SELECTED FINANCIAL DATA The following tables set forth selected financial data of the Company, which should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with the Company's Financial Statements and Notes thereto included elsewhere in this Prospectus. The selected financial data set forth below as of and for the period from inception to December 31, 1992, and as of and for each of the three years in the period ended December 31, 1995, 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 three years in the period ended December 31, 1995, is included elsewhere in this Prospectus. Also included are unaudited financial statements for the nine months ended September 30, 1995 and 1996. The selected financial data for the nine months ended September 30, 1996, has been derived from the unaudited financial statements of the Company which, in the opinion of management, include all adjustments (which consist of only normal recurring adjustments) necessary for a fair presentation of the financial condition and results of operations of the Company for that period.
FROM INCEPTION NINE MONTHS ENDED THROUGH YEAR ENDED DECEMBER 31, SEPTEMBER 30, DECEMBER 31, --------------------------------- ---------------------- 1992 1993 1994 1995 1995 1996 ------------ --------- --------- --------- --------- --------- (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENTS OF OPERATIONS DATA: Operating income: Interest on investments.......................... $ 636 $ 3,515 $ 7,337 $ 13,452 $ 9,030 $ 16,837 Loan processing fees............................. 282 699 901 1,900 1,561 2,370 Other income..................................... -- -- -- 223 -- 91 --------- --------- --------- --------- --------- ---------- Total operating income..................... 918 4,214 8,238 15,575 10,591 19,298 Operating expenses: Interest expense................................. 127 1,427 3,124 4,771 3,361 5,979 Salaries and benefits............................ -- -- -- 1,082 1,035 2,180 Management fees.................................. 210 709 1,073 -- -- -- Other operating expenses......................... -- 166 122 1,412 694 1,478 State income tax on interest..................... -- 231 457 109 62 -- Amortization expense............................. 8 54 118 208 114 379 --------- --------- --------- --------- --------- ---------- Total operating expenses................... 345 2,587 4,894 7,582 5,266 10,016 --------- --------- --------- --------- --------- ---------- Equity in pretax income of unconsolidated subsidiary....................................... 43 207 553 812 609 2,573 Net operating income............................... 616 1,834 3,897 8,805 5,934 11,855 Realized gain (loss) on investments.............. 198 (799) (538) 1,759 446 7,206 Change in unrealized appreciation (depreciation) of investments................................. 1,813 (50) 3,356 4,694 4,146 2,795 Provision for income taxes......................... -- -- -- (1,020) (317) (2,765) --------- --------- --------- --------- --------- ---------- Net increase in partners' capital and shareholders' equity resulting from operations................. $ 2,627 $ 985 $ 6,715 $ 14,238 $ 10,209 $ 19,091 ========= ========= ========= ========= ========= ========== Per share: Pretax operating income.......................... $ .18 $ .48 $ .83 $ .96 $ .70 $ 1.05 Net increase in partners' capital and shareholders' equity resulting from operations..................................... .74 .23 1.29 1.57 1.19 1.69 Dividends........................................ -- -- -- .89(1) .63(1) .82(1) Fully diluted weighted average shares outstanding...................................... 3,548,000 4,274,000 5,222,000 9,072,000 8,603,000 11,275,000 OPERATING STATISTICS: Number of portfolio companies with loans outstanding at period end........................ 17 38 57 91 81 119 Number of new portfolio companies.................. 17 24 25 44 34 36 Principal amount of loans originated............... $ 14,639 $ 31,470 $ 40,785 $ 101,505 $ 71,344 $ 103,138 Principal amount of loan repayments................ -- 2,013 7,585 14,414 $ 11,122 $ 16,217 Loan portfolio at period end....................... 14,639 42,441 72,336 144,855 127,290 220,050 Average net interest spread at period end(2)....... 5.6% 5.8% 5.5% 5.8% 5.7%(3) 5.9%(3)
DECEMBER 31, SEPTEMBER 30, 1996 ----------------------------------------- ------------------------ 1992 1993 1994 1995 ACTUAL AS ADJUSTED(4) -------- -------- -------- -------- -------- -------------- (DOLLARS IN THOUSANDS) (UNAUDITED) BALANCE SHEET DATA: Cash and cash equivalents.................................. $ 4,601 $ 1,633 $ 137 $ 195 $ 20,789 $ Loans...................................................... 14,639 42,441 72,336 144,855 220,050 Equity interests........................................... 4,233 3,591 7,577 15,912 25,578 Warrants................................................... 951 4,219 7,549 11,513 15,088 Total assets............................................... 24,850 53,289 90,969 177,030 287,262 Revolving credit facility.................................. -- -- 6,389 13,200 41,811 Debentures payable to SBA.................................. 10,000 34,000 51,000 73,260 83,260 Total shareholders' equity................................. 14,702 18,651 32,383 88,346 156,539
- --------------- (1) For the year ended December 31, 1995, includes $.26 per share in dividends declared and paid in the first quarter of 1996 related to 1995 earnings and, with respect to the three months ended March 31, 1995 and 1996, represents dividends per share paid in the following quarter on income earned and gains realized in the respective three month periods presented. (2) Net interest spread represents the weighted average gross yield on the Company's interest bearing investments less the weighted average cost of long-term borrowed funds. (3) Calculated on an annualized basis. (4) Adjusted to reflect the sale by the Company of 2,680,513 shares of Common Stock offered hereby by the Company and the application of the estimated net proceeds therefrom. See "Use of Proceeds." 17 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following analysis of the financial condition and results of operations of the Company should be read in conjunction with the Selected Financial Data, the Company's Financial Statements and the Notes thereto and the other financial data included elsewhere in this Prospectus. The financial information provided below has been rounded in order to simplify its presentation. However, the ratios and percentages provided below are calculated using the detailed financial information contained in the Financial Statements and the Notes thereto and the financial data included elsewhere in this Prospectus. The financial information contained herein has been restated to reflect the operations of Harris Williams as an unconsolidated subsidiary of the Company accounted for by the equity method of accounting in conformity with the requirements of the 1940 Act. OVERVIEW The following table summarizes selected financial information expressed as a percentage of total operating income and the change from year to year.
% OF TOTAL OPERATING INCOME ------------------------------------------ NINE MONTHS PERCENTAGE CHANGE YEARS ENDED DECEMBER ENDED ------------------------------------- 31, SEPTEMBER 30, 1994 1995 SEPTEMBER 30, 1996 ----------------------- -------------- VS. VS. VS. 1993 1994 1995 1995 1996 1993 1994 SEPTEMBER 30, 1995 ----- ----- ----- ----- ----- ----- ------ ------------------ Interest on investments...... 83.4% 89.1% 86.4% 85.3% 87.2% 108.8% 83.3% 86.5% Loan processing fees......... 16.6 10.9 12.2 14.7 12.3 28.9% 110.8% 51.8% Other income................. 0.0 0.0 1.4 0.0 0.5 -- -- -- ----- ----- ----- ----- ----- Total Operating Income... 100.0% 100.0% 100.0% 100.0% 100.0% 95.5% 89.1% 82.2% Interest expense............. 33.9 37.9 30.6 31.7 31.0 118.8% 52.8% 77.9% Salaries, benefits, and other operating expenses......... 20.8 14.5 16.0 16.3 19.0 36.6% 108.7% 111.6% State income tax on interest................... 5.5 5.5 0.7 0.6 0.0 98.1% (76.1%) (100.0%) Amortization expense......... 1.3 1.4 1.3 1.1 2.0 119.6% 76.1% 232.5% ----- ----- ----- ----- ----- Total Operating Expenses............... 61.4 59.4 48.7 49.7 51.9 89.2% 54.9% 90.2% Equity in pre-tax income of unconsolidated subsidiary................. 4.9 6.7 5.2 5.8 13.3 166.9% 46.8% 322.5% ----- ----- ----- ----- ----- Net Operating Income..... 43.5% 47.3% 56.5% 56.0% 61.4% 112.5% 125.9% 99.8% ===== ===== ===== ===== =====
The following table summarizes the Company's operating results by quarter for 1995 and the first three quarters of 1996.
MARCH JUNE SEPT. DEC. MARCH JUNE SEPT. 1995 1995 1995 1995 1996 1996 1996 ------ ------ ------ ------ ------ ------ ------ Interest on investments.................... $2,424 $3,231 $3,375 $4,422 $4,862 $5,586 $6,389 Loan processing fees....................... 541 313 706 340 921 652 797 Other income............................... -- -- -- 223 -- 62 28 ------ ------ ------ ------ ------ ------ ------ Total Operating Income................. 2,965 3,544 4,081 4,985 5,783 6,300 7,214 Interest expense........................... 999 1,170 1,192 1,410 1,790 2,051 2,138 Salaries, benefits, and other operating expenses................................. 673 434 620 767 1,216 1,172 1,270 State income tax on interest............... -- 109 -- -- -- -- -- Amortization expense....................... 30 38 45 95 188 89 101 ------ ------ ------ ------ ------ ------ ------ Total Operating Expenses............... 1,702 1,751 1,657 2,272 3,194 3,312 3,509 Equity in pre-tax income of unconsolidated subsidiary............................... 194 8 408 202 795 627 1,151 ------ ------ ------ ------ ------ ------ ------ Net Operating Income................... $1,457 $1,801 $2,632 $2,915 $3,384 $3,615 $4,856 ====== ====== ====== ====== ====== ====== ======
18 21 The Company's principal investment objectives are: (i) to achieve through its own operations and those of its subsidiaries a high level of income from interest and processing fees on loans originated and (ii) long-term growth in its shareholders' equity through the appreciation in value of equity interests in its portfolio companies and to achieve through Harris Williams a high level of income from fees earned from consulting services rendered in merger and acquisition transactions. 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 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 composed of three 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 in the aggregate at the end of the period 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 when 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. Nine Months Ended September 30, 1996 Net Operating Income. During the nine month period ended September 30, 1996, interest on investments was $16.8 million, an 86.7% increase over the $9.0 million earned in the same period of 1995. During the first nine months of 1996, the Company collected $2.4 million in processing fees, a 51.8% increase over the $1.6 million collected in the same period of 1995. These increases in interest income and processing fees are a result of the increase both in the dollar amount of loans outstanding during the period and loans originated during the period. The Company's loan portfolio increased 93.0% to $220.0 million at September 30, 1996, from $127.0 million at September 30, 1995. The $103.1 million of loans originated in the first nine months of 1996 was a 38.0% increase over the $74.7 million of loans originated in the same period of 1995. In addition, the weighted average interest rate charged on the loan portfolio at September 30, 1996 was 13.13%, as compared to 12.67% at September 30, 1995. The most significant portion of the Company's total operating expenses is interest expense. In connection with the corporate restructuring in August 1996, the Company transferred its SBA-guaranteed debentures and the Revolving Credit Facility to SII. The Company continues to guarantee that indebtedness. The Company's interest expense for the first nine months of 1996 increased to $6.0 million, a 76.0% increase over the $3.4 million paid in the same period of 1995. The increase in interest expense from 1995 to 1996 is primarily attributable to increased borrowings from the SBA and establishment of and borrowing under the Revolving Credit Facility. Borrowings from the SBA were $83.3 million on September 30, 1996, and $73.3 million on September 30, 1995. Amounts outstanding under the Revolving Credit Facility at September 30, 1996, were $41.8 million. The other significant components of total operating expenses are (i) overhead, which primarily relates to employee compensation, travel and marketing expenses, office expenses and legal fees, (ii) amortization of borrowing costs and (iii) state taxes. These expenses totaled $4.0 million for the first nine months of 1996, a 110.0% increase over the $1.9 million of such expenses in the same period of 1995. As a percentage of assets, these expenses increased from 1.4% in 1995 to 1.7% in 1996. These increases can be largely attributed to the 19 22 increase in the number of employees in 1996 versus 1995 and the accrual of bonuses in the current year as opposed to the former policy of expensing bonuses when paid in the first quarter of each year. The bonus accrual added approximately $725,000 to operating expenses for the first nine months of 1996. Excluding these bonuses, operating expenses for the first nine months of 1996 would have represented 1.4% of assets. For the nine months ended September 30, 1996, Harris Williams had revenue of $5.0 million, up 164% from $1.9 million for the same period of 1995, and pre-tax income increased 136% to $1.4 million from $609,000. Harris Williams provided advisory services on nine transactions that closed in the first nine months of 1996. No taxes were accrued on Harris Williams' pretax income for the third quarter of 1996 due to the timing of the acquisition during the quarter and the timing of Harris Williams' revenue and expenses. No taxes were accrued in 1995, as Harris Williams was a partnership at that time. For the nine months ended September 30, 1996, the Company paid dividends of $7,605,249 from net operating income. For the same period in 1995, the Company paid dividends of $2,349,552 from net operating income. Realized Gain (Loss) on Investments. The Company's net realized gain on investments was $7.2 million for the nine month period ended September 30, 1996. The $7.2 million net gain primarily resulted from gains of $6.3 million, $1.5 million and $450,000 on the sale of warrant or common stock positions in Premiere Technologies, Inc., Hoveround Corporation, and American Remedial Technologies, Inc., respectively, offset by losses of $1.1 million on a loan to Medical Associates of America and $250,000 on the sale of collateral securing a loan to Alpha West Partners I, L.P. 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 nine month periods ended September 30, 1996, and 1995, the Company recorded net increases in unrealized appreciation of investments of $2.8 million and $4.1 million, respectively. These increases 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 and in August 1996, SII elected the same tax treatment. If the Company, SII or SFC, each as a RIC, satisfy certain requirements relating to the source of its income, the diversification of its assets and the distribution of its net income, each is generally taxed as a pass through entity which acts as a partial conduit of income to its shareholders. In order to maintain its RIC status, each entity must in general derive at least 90% of its gross income from dividends, interest and gains from the sale or disposition of securities; derive less than 30% of its gross income from the sale or disposition of securities held for less than three months; meet investment diversification requirements defined by the Code; and distribute to shareholders at least 90% of its net income (other than long-term capital gains). The Company, SII and SFC presently intend to meet the RIC qualifications in future years, and therefore, the Company has not provided for federal income taxes on the unrealized appreciation of such entities' investments. However, no assurance can be given that the Company, SII and SFC will continue to qualify for or elect such treatment. For the nine month period ended September 30, 1996, the Statements of Operations include a provision for taxes totaling $2.7 million for federal income tax at a 35% rate on realized gains not distributed to shareholders. The $2.7 million tax is payable on the net retained long-term capital gain of approximately $8.3 million, which resulted primarily from the gains on the sale of warrant or equity positions in Premiere Techologies, Inc., Hoveround Corporation and American Remidial Technologies, Inc., offset by the loss on the sale of collateral securing the loan to Alpha West Partners I, L.P. The Company also had accrued $121,792 for state income taxes during the first nine months of 1996. Fiscal Years Ended December 31, 1995, 1994 and 1993 Net Operating Income. During the fiscal year ended December 31, 1995, the Company earned interest on investments of $13.5 million, an 84.9% increase over the $7.3 million earned in 1994, which was a 108.6% 20 23 increase over the $3.5 million earned during fiscal 1993. In addition to interest on investments, the Company also collects an up-front processing fee for each loan it originates. During fiscal 1995, the Company collected $1.9 million in processing fees, a 110.9% increase over the $901,000 collected in 1994, which was a 28.9% increase over the $699,000 collected in 1993. These increases in interest income and processing fees are a result of increases in the dollar amount of loans outstanding and originated during the applicable periods. The Company's loan portfolio increased to $144.8 million at December 31, 1995, an increase of 100.3% from $72.3 million at December 31, 1994, which in turn was a 70.5% increase from $42.4 million at December 31, 1993. The $101.5 million of loans originated during fiscal 1995 was a 148.8% increase over the $40.8 million of loans originated in 1994, which was a 29.5% increase over the $31.5 million originated in 1993. In addition, the weighted average interest rate charged on the loan portfolio at December 31, 1995 was 12.8%, as compared to 12.3% and 12.5% at December 31, 1994 and 1993, respectively. The Company also earned income from miscellaneous sources in an amount equal to $223,000 in 1995, primarily from interest paid on loans to employees made in connection with purchases of equity in the Company. The Company's interest expense, most of which was related to the SBA guaranteed debentures of the Company, increased to $4.8 million in 1995, a 54.8% increase over the $3.1 million paid in 1994, which in turn was a 121.4% increase over the $1.4 million of interest expense in 1993. The increase in interest expense from 1993 to 1995 was primarily attributable to increased borrowings from the SBA, which were $73.3 million on December 31, 1995, $51.0 million on December 31, 1994 and $34.0 million on December 31, 1993. Overhead, amortization of borrowing costs and state taxes totaled $2.8 million in fiscal 1995, a 55.6% increase over the $1.8 million of such expenses in 1994, which in turn was a 50.0% increase over the total of such expenses in 1993. These increases can be largely attributed to the increase in the number of employees from four in 1993 to 13 in 1995 and the Company's relocation to new office space in 1995. Although the dollar amount of these expenses increased over the three-year period, overhead expenses as a percentage of total assets remained fairly constant at 1.4%, 1.3% and 1.6% for fiscal 1995, 1994 and 1993, respectively. During 1995, Harris Williams had revenues of $2.6 million, a 53% increase over the $1.7 million in 1994, which was a 183% increase over the $600,000 in revenues for fiscal 1993. Harris Williams provided advisory services on 9 transactions that closed during 1995, a 50.0% increase over the 6 transactions that closed during 1994, which was a 50.0% increase over the 4 transactions that closed during fiscal 1993. No taxes were reserved on Harris Williams' pre-tax income in 1995, 1994 or 1993, as Harris Williams was a partnership at that time. Realized Gain (Loss) on Investments. The Company's net realized gain on investments was $1.8 million during the year ended December 31, 1995, largely 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 writeoff of Medical Associates of America, Inc. equity positions and a $1.5 million writeoff of a loan to Quality Care Networks, Inc. The realized loss on investments for 1994 was $538,000, primarily resulting from $1.6 million of writeoffs, including loans to ETC Peripherals, Inc., Stewart Foods, Inc. and TCOM Systems, Inc., offset partially by approximately $1.1 million in gains on the sale of equity positions in PMT Services, Inc. and Softkey International, Inc. The realized loss on investments for 1993 was $799,000, primarily resulting from a $1.0 million loan writeoff of ETC Peripherals, Inc., offset slightly by gains on the sale of equity positions in Anasazi, Inc. and Ideals Publications, Inc. Management does not attempt to maintain a comparable level of realized gains from year to year, but instead attempts to maximize total investment portfolio appreciation. Change in Unrealized Appreciation (Depreciation) of Investments. For the years ended December 31, 1995 and 1994, the Company recorded net increases in unrealized appreciation of investments before income taxes of $4.7 million and $3.4 million, respectively, and a net decrease of $50,000 for the year ended December 31, 1993. These increases 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. 21 24 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 generally taxed as a pass through entity which acts as a partial conduit of income to its shareholders. In order to maintain its RIC status, the Company must in general derive at least 90% of its gross income from dividends, interest and gains from the sale or disposition of securities; derive less than 30% of its gross income from the sale or disposition of securities held for less than three months; meet investment diversification requirements defined by the Code; and distribute to shareholders 90% of its net income (other than long-term capital gains). The Company presently intends to meet the RIC qualifications in 1997. However, no assurance can be given that the Company will continue to elect or qualify for such treatment after 1997. During 1995, the Company paid dividends of $5.2 million, $4.0 million of which was derived from net operating income and $1.2 million of which was derived from realized capital gains. The Company also elected to designate $2.1 million of the undistributed realized capital gains as a "deemed" distribution to shareholders of record as of the end of the year. Accordingly, $1.4 million, net of taxes of $737,000, of this "deemed" distribution has been retained and reclassified from undistributed net realized earnings to Common Stock. For the years ended December 31, 1995, 1994 and 1993 the Statements of Operations include a provision for state income taxes on interest totaling $109,000, $457,000 and $231,000, respectively. For the year ended December 31, 1995, the Company also provided for federal income tax at a 35% rate and excise tax at a 4% rate on taxable net investment income and realized gains not distributed to shareholders. The provision for income taxes includes the $737,000 of tax related to the retained "deemed" distribution discussed above. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES At September 30, 1996, the Company had $20.8 million in cash and cash equivalents. At September 30, 1996, the Company's investment portfolio included investments in publicly-traded securities which have an ascertainable market value with a fair value of approximately $12.5 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. See "Summary of Significant Accounting Policies" in the Notes to Financial Statements. Traditionally, the Company's principal sources of capital to fund its portfolio growth have been borrowings through the SBA sponsored SBIC debenture program, sales of the Company's equity securities, both privately and publicly, and funds borrowed from banking institutions. In February 1995, the Company consummated an initial public offering of 2,645,000 shares of Common Stock resulting in net proceeds of $26.5 million. In August 1995, the Company consummated a second public offering of 1,500,000 shares of Common Stock generating net proceeds to the Company of approximately $21.2 million. In June 1996, the Company consummated a third public offering of 2,300,000 shares of Common Stock generating net proceeds of $59.2 million. The Company used the proceeds of these offerings to originate new loans, and the Company has used and will use the proceeds of the most recent offering to originate new loans. At September 30, 1996, total SBA borrowings were $83.3 million. During the fourth quarter of 1996, SII received $6.7 million in additional funding from the SBA, resulting in total SBA borrowings of $90.0 million at December 31, 1996, the maximum amount of SBA loans available to an SBIC. Each borrowing from the SBA has a term of ten years, is secured by the assets of SII, is guaranteed by the Company and can be prepaid without penalty after five years. The average interest rate on these borrowings was 7.02% as of September 30, 1996, and none of these borrowings mature prior to 2002. As of September 30, 1996, SII had $41.8 million outstanding under its Revolving Credit Facility, which is secured by all of SII's assets and is guaranteed by the Company. The interest rate on these borrowings was 7.50% at September 30, 1996. During the fourth quarter of 1996, SII reduced the amount outstanding under the Revolving Credit Facility to $28.9 million at December 31, 1996. The Revolving Credit Facility matures on December 27, 1998. 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 22 25 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. In order to manage the interest rate risk associated with the variable interest rate provided for under the Revolving Credit Facility, SII has entered into two interest rate swap agreements that effectively convert the variable rate on a portion of the Revolving Credit Facility to fixed rates of 8.15% and 8.05% per annum on borrowings of $30.0 million and $15.0 million, respectively. Under this agreement, SII will convert the $30.0 million in $3.0 million per month increments beginning in April 1996 and will convert the $15.0 million in $5.0 million per month increments beginning in December 1996. 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 special purpose, bankruptcy remote subsidiary of the Company, will be the borrower under the ING Credit Facility. SFC will purchase loans originated by the Company and the related warrants and use these loans and warrants as collateral to secure borrowings from ING. The interest rate on the borrowings will be 2.25% above the rate at which ING issues the commercial paper which funds the facility. In order to manage the interest rate risk associated with the variable interest rate under the ING Credit Facility, the Company has entered into various hedging arrangements. SFC is generally able to borrow up to 70% of the principal amount of conforming loans collateralizing the ING Credit Facility. The Company anticipates that it will make an initial capital contribution to SFC of approximately $20 million of loans, which loans will serve as collateral for the ING Credit Facility. At January , 1997, $ was outstanding under the ING Credit Facility. Based on current commercial paper rates and the swaps into which the Company has entered, the average interest rate of the ING Credit Facility is anticipated to be approximately 8.2%. The ING Credit Facility is not guaranteed by the Company. However, certain actions by the Company can trigger an event of default under the ING Credit Facility which will result in termination of further funding thereunder and the application of the collateral pledged for repayment of the amounts outstanding. See "Risk Factors -- Leverage Risks" and " -- Availability of Funds." The Company believes that the net proceeds of this Offering, anticipated borrowings under the Revolving Credit Facility and the ING Credit Facility, together with cash on hand and cash flow from operations (after distributions to shareholders), will be adequate to fund the continuing growth of the Company's investment portfolio through the first half of 1998. In order to provide the funds necessary for the Company to continue its growth strategy beyond that period, the Company expects to incur, from time to time, additional short and long-term borrowings from other sources, and to issue, in public or private transactions, its equity and debt securities. The availability and terms of any such borrowings will depend upon interest rate, market and other conditions. There can be no assurances that such additional funding will be available on terms acceptable to the Company. 23 26 BUSINESS Sirrom Capital Corporation is a specialty finance company that makes loans to small businesses. The Company believes the market for small commercial loans is underserved by traditional lending sources and that competitors generally are burdened with an overhead and administrative structure that hinders them from competing most effectively in this market. The Company, which 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 September 30, 1996, the Company had loans outstanding with a fair value of $220.0 million to 119 companies in a variety of industries located in 24 states. The Company's loan portfolio balances at December 31, 1993, 1994 and 1995 were $42.4 million, $72.3 million and $144.9 million, respectively. The average rate of interest on the Company's loan portfolio at September 30, 1996, was 13.1%. The Company's strategic objective is to provide a full range of financial and 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 meet certain criteria, including the potential for significant growth, adequate collateral coverage, experienced management teams with a significant ownership interest in the borrower, sophisticated outside equity investors and profitable operations. To develop new lending opportunities, the Company markets to an extensive referral network comprised of venture capitalists, investment bankers, attorneys, accountants, commercial bankers and business brokers. Generally, the Company's investments are structured as loans that typically range from $500,000 to $5.0 million in size and are evidenced by debt securities that are accompanied by warrants to acquire equity securities of the borrower. These warrants usually have a nominal exercise price (usually $.01 per share). Typically, the loans are collateralized by a security interest in assets of the borrower and are generally senior to the investments of sophisticated equity investors. The personal guaranty of the major shareholder of the borrower or other collateral may also be required. The debt securities issued to evidence the Company's loans generally carry a fixed rate of interest and have a maturity of five years 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 warrant "ratchet" provision that increases the Company's equity position, by one to three percentage points per year, until repayment of the loan in full. Although the Company's loans provide for a five year maturity, the warrant "ratchet" may have the effect of encouraging borrowers to repay loans as soon as possible. The Company benefits from such repayments, because of the direct relationship that exists between the Company's ability to generate asset turnover (i.e., redeployment of capital) and return on equity to shareholders. The Company has begun to broaden its geographic market, has recently relocated a senior lender to open and manage a San Francisco office, and currently anticipates opening an office in the Northeast in fiscal 1997. In addition, the Company has reached a preliminary understanding with a Canadian financial institution to make small business loans in Canada similar to those made in the United States. In an effort to broaden its target market of borrowers, the Company has also begun to market loans with equity features to public companies with a market capitalization of less than $100.0 million through a newly formed subsidiary, Tandem Capital, Inc. The Company believes these borrowers are also underserved by traditional lending sources. 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 has entered into a preliminary understanding to make secured loans with warrants to small private companies located in Canada on a joint basis with a Canadian bank (the "Canadian Bank"). Initially, 24 27 the Company anticipates commiting to make up to $20.0 million of loans to Canadian companies, which will be matched by a $30.0 million commitment from the Canadian Bank. The parties anticipate creating a Canadian corporation, SCC Canada, 60% of which will be owned by the Canadian Bank and 40% of which will be owned by the Company. SCC Canada, which will be located in Toronto, Canada, is excepted to serve as the originator and servicer of loans. In its capacity as originator, SCC Canada will identify potential loan investments and collect a processing fee when the loan is funded. SCC Canada would also service each loan and collect a servicing fee. The Canadian Bank and the Company will individually approve their respective loans to each borrower identified by SCC Canada. It's anticipated SCC Canada will target borrowers that meet the same criteria as the Company's U.S. borrowers. The Company also intends to diversify its operations by making loans with equity features to public companies through Tandem Capital, Inc. The target market for this product will be public companies with a market capitalization under $100.0 million and revenues ranging from $20.0 million to $100.0 million. The typical investment will range from $3.0 million to $10.0 million, will be structured to provide a current yield, as well as an equity component (i.e., loan with warrants, convertible debt, or convertible preferred stock) and will typically be unsecured or subordinate to existing lenders. The Company intends to market this product through its established referral network. SELECTION OF LOAN AND INVESTMENT OPPORTUNITIES Since inception, the Company has identified certain common characteristics of borrowers which 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, generally, these criteria are applied in investment decisions. Growth. The potential borrower typically must have an annual projected growth rate of at least 20%. Anticipated growth is a key factor in determining the potential valuation of warrants in the Company's equity portfolio. Liquidation Value of Assets. While the Company does not market itself as an asset-based lender, the liquidation value of assets securing the loans is an important component in the credit decision. Valuations include both hard assets (accounts receivable, inventory, and property, plant and equipment), as well as intangibles, such as customer lists, networks, databases, and recurring revenue streams. Sophisticated Equity Shareholders. Many of the borrowers in the Company's portfolio have sophisticated equity investors whose equity position is subordinate to the debt securities of the Company. These investors allow the Company to maximize its resources by enhancing the due diligence process and financial sophistication of the borrower, and by providing increased controls and a source of potential additional follow-on capital. The interest and support of sophisticated equity investors tends to increase the Company's confidence in the borrower, its management team and the potential long-term value of the borrower's business. Experienced Management Teams. The Company seeks to identify potential borrowers that have management teams that are experienced, have a significant ownership interest in the borrower and include a chief executive officer and chief financial officer who demonstrate the ability to accomplish the objectives set forth in the borrower's business plan. Profitable Operations. The Company focuses on portfolio companies that have positive earnings from operations (before interest, depreciation and amortization). The Company does not typically lend to start-up companies. Exit Strategy. Prior to making an investment, the Company analyzes the potential for the borrower to repay its loan and to experience a liquidity event that would allow the Company to realize value for its equity position. Liquidity events include, without limitation, an initial public offering, a sale of the borrower and a repurchase by the borrower of the Company's equity position. 25 28 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. Since inception, $289.0 million of loans have been originated and $41.0 million or 14% 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 $0.1 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 September 30, 1996, the Company had seven stock positions in publicly traded companies that had a fair market value of $14.7 million on that date. In accordance with the Company's valuation policy, the securities were carried at a fair value of $10.4 million at September 30, 1996. In addition, at that date, the Company owned common stock and preferred stock investments in 21 non-public companies with a fair value of approximately $15.1 million. The Company has also converted approximately 20 equity positions to cash since inception with gains approximating $14.1 million. At September 30, 1996, the Company held warrant positions in seven public companies that it carried on its books at a fair value of approximately $2.1 million and warrants in 113 companies that it carried at a fair value, as determined in good faith by the Board of Directors in accordance with the Company's Valuation Policy, of approximately $15.1 million. For a discussion of the Company's Valuation Policy see "Summary of Significant Accounting Policies" in the Notes to Financial Statements included elsewhere in this Prospectus. TEMPORARY INVESTMENTS Pending investment in the types of securities described above, the Company will invest its otherwise uninvested cash in (i) federal government or agency issued or guaranteed securities that mature in 15 months or less; (ii) repurchase agreements with banks whose deposits are insured by the Federal Deposit Insurance Corporation (the "FDIC") (an "insured bank"), with maturities of seven days or less, the underlying instruments of which are securities issued or guaranteed by the federal government; (iii) certificates of deposit in an insured bank with maturities of one year or less, up to the amount of the deposit insurance; (iv) deposit accounts in an insured bank subject to withdrawal restrictions of one year or less, up to the amount of deposit insurance; or (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. OPERATIONS Marketing. The Company currently employs 6 lending officers who cover certain geographic territories. In order to originate loans, these lending officers make use of an extensive referral network comprised of investment bankers, venture capitalists, attorneys, accountants, commercial bankers and business brokers. A lending officer typically receives between five and ten informational packages per week from these sources. On average, each lending officer closes one loan per month. In February 1996, in an effort to expand its geographic presence, the Company entered into a consulting arrangement with an experienced small business finance professional located in northern California who assisted the Company in identifying potential borrowers and referral sources in the western United States and structuring loan and warrant transactions with small businesses so identified. Due to the early success of this operation, the Company has relocated one of its senior lenders to the West Coast to manage a new office in San Francisco, California. The Company is also considering expanding its presence into other geographic markets. 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 26 29 loan officer, in conjunction with the Chief Operating Officer, selects applicants that merit additional consideration. See "-- Selection of Loan and Investment Opportunities." The lending officer then conducts a more thorough investigation and analysis ("due diligence") of the applicant. The due diligence process usually includes on-site visits, review of historical and prospective financial information, interviews with management, employees, customers and vendors of the applicant, background checks and research on the applicant's product, service or particular industry. Upon the completion of due diligence, the lending officer completes a standard borrower profile that summarizes the borrower's historical financial statements, its industry and management team, and its conformity to the Company's investment criteria. The lending officer then presents the profile, along with his due diligence findings, to a Loan Approval Committee comprised of the Chief Executive Officer, Chief Operating Officer, the Company's Vice President -- Special Assets and the Chief Financial Officer, which committee evaluates the merits and risks of each potential loan and must approve each loan. Additional due diligence is conducted by the Company's attorneys prior to funding the loan. Loan 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. 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 usually serviced by the lending officer or sometimes by a member of the workout area. 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 Sirrom'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. Sirrom has or will most likely assume management control of the borrower and will most likely be responsible for executing an 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 List and are serviced by a member of the workout area. The workout area consists of two officers of the Company. See "-- Delinquency and Collections" below. 27 30 Loan Portfolio. During the nine months ended September 30, 1996, the Company originated loans to 71 companies, including 36 new borrowers, in the aggregate principal amount of approximately $103.1 million, in several industries. During the same period, the Company realized $8.6 million in equity gains and realized approximately $1.4 million in loan and other losses. The following table sets forth the amount of the Company's loans originated and repaid for the periods indicated, as well as the realized gain on investments.
FROM NINE MONTHS INCEPTION ENDED THROUGH YEAR ENDED DECEMBER 31, SEPTEMBER 30, DECEMBER 31, --------------------------- ------------------ 1992 1993 1994 1995 1995 1996 ------------ ------- ------- ------- ------- -------- (DOLLARS IN THOUSANDS) (UNAUDITED) Loans originated...................... $ 15,130 $32,317 $43,304 $94,370 $71,344 $103,138 Loan repayments....................... 0 2,163 8,455 14,539 11,122 16,217 Loans amount converted to equity...... 0 500 2,450 3,752 2,902 3,704 Realized (losses) on loans............ 0 (1,155) (1,117) (1,485) (1,485) (1,100) Net realized gains on equity investments......................... [ ] [ ] [ ] [ ] 1,923 8,306
The table below sets forth, as of September 30, 1996, the 24 states in which the Company's borrowers maintain their principal place of business, the number of borrowers and the percent of total loan principal balance outstanding to borrowers located in such states.
% OF TOTAL LOAN PRINCIPAL NUMBER BALANCE OF STATE OUTSTANDING BORROWERS - ---------------------------------------------------------------------- -------------- --------- Alabama............................................................... 1.4% 2 California............................................................ 9.3 9 Connecticut........................................................... 2.7 3 Florida............................................................... 15.6 20 Georgia............................................................... 14.8 15 Kentucky.............................................................. 4.8 4 North Carolina........................................................ 6.9 10 New Jersey............................................................ 2.0 3 Ohio.................................................................. 3.1 4 Pennsylvania.......................................................... 2.4 2 South Carolina........................................................ 1.9 3 Tennessee............................................................. 10.5 16 Texas................................................................. 9.8 8 Virginia.............................................................. 5.6 9 *Other states(10)..................................................... 9.2 11 ----- --- Total....................................................... 100.0% 119 ===== ===
- ------------ * The other states in which the Company has only a single borrower are Colorado, Hawaii, Iowa, Illinois, Maryland, Michigan, Mississippi, Missouri, Oklahoma and Wisconsin. The Company also has one borrower in Washington, D.C. DELINQUENCY AND COLLECTIONS When a borrower fails to make a required payment by the tenth of the month, it is notified by telephone by the Company's Controller who discusses with the borrower the expected timing of the payment. If the payment is delinquent more than 30 days, the Chief Operating Officer and responsible lending officer jointly determine an appropriate course of action on the account, which could include transferring responsibility for the loan to the Company's workout area. When a loan reaches 60 days past due, the Company normally discontinues accruing interest, and all loans over 60 days past due become the responsibility of the Company's workout area. Management determines the most appropriate course of action given the particular circum- 28 31 stances 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 September 30, 1996, the Company had loans to twelve companies with an aggregate principal balance of $17.1 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 $10.7 million, and therefore provided for unrealized depreciation of $6.3 million on these loans. 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 net income increasing from $207,000 for the year ended December 31, 1993 to $812,000 for the year ended December 31, 1995 and with the number of professionals increasing from two to fourteen over the past four years. Management believes that future growth of Harris Williams is attainable through adding additional merger and acquisition professionals, by gaining additional market share and by realizing the benefits of its rapidly increasing client base, which should expand as a result of its relationship with the Company. However, no assurance can be given that such growth can be achieved. COMPETITION The Company's principal competitors include financial institutions, venture capital firms and other 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 43 employees, including 18 employees of Harris Williams. The Company believes its relations with its employees are excellent. The Company believes that it has maintained low overhead as a percentage of its assets as a result of outsourcing all job functions not directly related to the marketing or underwriting of small business loans or the executive management of the Company. 29 32 INVESTMENT OBJECTIVES AND POLICIES INVESTMENT POLICIES The Company's investment objectives are to achieve both a high level of income from interest on loans and other fees and long-term growth in its shareholders' equity through the appreciation of the equity interests in its portfolio companies. Except for the fundamental policies described below, the Company's investment objectives may be changed by a majority vote of its Board of Directors. In making loans and managing its portfolio, the Company will adhere to the following fundamental policies, which may not be changed without the approval of the holders of the majority, as defined in the 1940 Act, of the Company's outstanding shares of Common Stock. The percentage restrictions set forth below, as well as those contained elsewhere in this Prospectus, apply at the time a transaction is effected, and a subsequent change in a percentage resulting from market fluctuations or any cause other than an action by the Company will not require the Company to dispose of portfolio securities or to take other action to satisfy the percentage restriction. 1. The Company will at all times conduct its business so as to retain its status as a BDC. In order to retain that status, the Company may not acquire any assets (other than non-investment assets necessary and appropriate to its operations as a business development company) if, after giving effect to such acquisition, the value of its "Qualifying Assets" amounts to less than 70% of the value of its total assets. For a summary definition of "Qualifying Assets," see "Regulation." The Company believes that the securities it has acquired and it proposes to acquire, as well as temporary investments it makes with its idle funds, will generally be Qualifying Assets. Securities of public companies, on the other hand, are generally not Qualifying Assets unless they were acquired in a distribution, in exchange for or upon the exercise of, a right relating to securities that were Qualifying Assets. 2. The Company, through SII, may issue the maximum amount of SBA debentures permitted by the Small Business Investment Act of 1958, as amended (the "SBIA"), and the regulations promulgated thereunder (the "SBA Regulations"). At December 31, 1996, SII had borrowed $90.0 million from the SBA, the maximum amount available to an SBIC under the SBA debenture program. 3. The Company may borrow funds to the extent permitted by the 1940 Act. A BDC may borrow funds through the issuance of "Senior Securities" if, immediately after such issuance, the securities will have asset coverage of at least 200%. In connection with the transfer of its SBIC Operations to SII and the formation of SFC, the Company obtained certain exemptive relief from the Commission with respect to certain provisions of the 1940 Act. Accordingly, the Company, SII and SFC may issue Senior Securities, so long as after incurring such indebtedness the Company, individually, and the Company and its subsidiaries, on a consolidated basis, meet the 200% asset coverage requirement. 4. The Company will not concentrate its investments in any particular industry or particular group of industries. Therefore, the Company will not acquire any securities (except upon the exercise of a right related to previously acquired securities) if, as a result, 25% or more of the value of its total assets consists of securities of companies in the same industry. 5. The Company will not (i) act as an underwriter of securities of other issuers (except to the extent that it may be deemed an "underwriter" of securities purchased by it that subsequently must be registered under the Securities Act before they may be offered or sold to the public), (ii) purchase or sell real estate or interests in real estate or real estate investment trusts (except that the Company may purchase and sell real estate or interests in real estate in connection with the orderly liquidation of investments or the foreclosure of mortgages held by the Company), (iii) sell securities short, (iv) purchase securities on margin (except to the extent that it may purchase securities with borrowed money), (v) write or buy put or call options (except to the extent of warrants or conversion privileges obtained in connection with its loans, and rights to require the issuers of such investments or their affiliates to repurchase them under certain circumstances), (vi) engage in the purchase or sale of commodities or commodity contracts, including futures contracts (except where necessary in working out 30 33 distressed loan or investment situations), or (vii) acquire the voting stock of, or invest in any securities issued by, any other investment company, except as they may be acquired as part of a merger, consolidation or acquisition of assets. 6. The Company may make loans and loans with equity features, as well as investments in equity securities of small business concerns. It is anticipated that substantially all of the Company's investments in small business concerns will continue to be secured loans with warrants or other equity features issued in connection therewith. The Company may also make loans as permitted under its Amended and Restated 1994 Stock Option Plan and its 1996 Incentive Stock Option Plan, as described in this Prospectus under "Management -- Employee Stock Options". SII's policies with respect to the following matters are not fundamental policies and may be changed, subject to the SBIA and SBA Regulations, by the Company's Board of Directors. 1. The Company may make investments in the form of loans, loans with equity features and equity securities. At September 30, 1996, 82% of the Company's total assets were invested in loans and convertible debt with related warrants, 9% in equity securities, and 9% in other assets. SII will not make loans to any single small business concern or its affiliates that exceed 20% of SII's regulatory capital. Under the SBA Regulations, without prior SBA approval, loans to any single small business concern and its affiliates may not exceed 20% of SII's regulatory capital. 2. SII must invest funds that are not being used to make small business concern loans in investments permitted by the SBA Regulations. These permitted investments include direct obligations of, or obligations guaranteed as to principal and interest by, the United States with a term of 15 months or less and deposits maturing in one year or less issued by an institution insured by the FDIC. The percentage of SII's assets so invested will depend on, among other things, loan demand, timing of equity infusions and SBA funding and availability of funds under SII's credit facility. PORTFOLIO TURNOVER During the nine months ended September 30, 1996, the Company made loans to 71 companies totaling approximately $103.1 million and received repayments (either partial or full) from 18 companies aggregating $16.2 million. During the year ended December 31, 1995, the Company made loans to 44 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 $289.0 million in total loans and $41.4 million, or 14%, have been repaid. The Company cannot control changes in its portfolio of investments, as borrowers have the right to prepay loans made by the Company without penalty, and the first loans made by the Company begin maturing May 1997. INVESTMENT ADVISOR The Company has no investment advisor and is advised by its executive officers under the supervision of its Board of Directors. 31 34 PORTFOLIO COMPANIES The following table sets forth certain information as of September 30, 1996, regarding each portfolio company in which the Company or SII has an equity investment. Unless otherwise noted, the only relationship between each portfolio company and the Company is the Company's investment. As an SBIC, SII is deemed to make available significant managerial assistance to its portfolio companies. For information relating to the amount and general terms of all loans to portfolio companies, see the Company's Consolidated Portfolio of Investments as of September 30, 1996 at pages F-29 to F-37 herein.
PERCENTAGE NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS NAME AND ADDRESS OF PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1) - ----------------------------------------------- ----------------------- ------------------------- ---------- A B Plastics Holding Corporation............... Plastics molding Warrant to purchase 20.0% 15730 S. Figueroa Common Stock Gardena, CA 90248 Affinity Corporation........................... Telecommunications Warrant to purchase 8.6 20975 Swenson Drive Common Stock Suite 150 Waukesha, WI 53186 American Corporate Literature, Inc............. Printing/Distribution Warrant to purchase 19.7 811 Cowan St. Common Stock Nashville, TN 37207 American Network Exchange, Inc. ............... Telecommunications Warrant to purchase 3.5 100 W. Lucerne Circle Common Stock Suite 100 Orlando, FL 32801 Amscot Holdings, Inc. ......................... Check Cashing Service Warrant to purchase 17.5 8430 North Armenia Avenue Common Stock Service Tampa, FL 33614 Argenbright Holdings, Limited.................. Security Services Warrant to purchase 3.5 3465 N. Desert Drive Common Stock Atlanta, GA 30344 Ashe Industries, Inc. ......................... Building Products Warrant to purchase 16.5 4505 Transport Drive Common Stock Tampa, FL 33605 Associated Response Services, Inc. ............ Direct Mail Warrant to purchase 34.3 9900 Brookford Street Common Stock Charlotte, NC 28273 Assured Power, Inc. ........................... Environmental Warrant to purchase 16.0 4816 Sirus Lane Common Stock Charlotte, NC 28208 Auto Rental Systems, Inc. ..................... Auto Leasing Warrant to purchase 8.0 25 Century Blvd. Common Stock Suite 204 Nashville, TN 37214 Avionics Systems, Inc.......................... Aviation Services Warrant to purchase 15.0 P.O. Box 2444 Common Stock Oakland, CA 94614 B&N Company, Inc. ............................. Software Warrant to purchase 4.0 3060 Peachtree Rd., NW, Suite 1460 Common Stock Atlanta, GA 30305 BankCard Services Corporation.................. Debit Card Warrant to purchase 24.0 3400 McClure Ridge Rd. Common Stock Bldg. E, Ste. B Duluth, GA 30136 BiTec Southeast, Inc. ......................... Specialty Gas Warrant to purchase 10.0 8405-G Benjamin Rd. Common Stock Tampa, FL 33634
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PERCENTAGE NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS NAME AND ADDRESS OF PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1) - ----------------------------------------------- ----------------------- ------------------------- ---------- Caldwell/VSR Inc. ............................. Contract Warrant to purchase 15.9% 17151 Darwin Avenue Manufacturing Common Stock Hesperia, CA 92345 Preferred Stock 100.0 Cardiac Control Systems, Inc. ................. Pacemaker Warrant to purchase 2.9 3 Commerce Blvd. Manufacturer Common Stock Palm Coast, FL 32164 Carter Kaplan Holdings, L.L.C. ................ Investment Banking Warrant to purchase 24.0 629 East Main Street interest in L.L.C. Suite 1200 Richmond, VA 23219 CCS Technology Group, Inc. .................... Computer Systems Warrant to purchase 2.0 900 Winderly Place Design Common Stock Maitland, FL 32751 Cedaron Medical, Inc........................... Equipment/Software Warrant to purchase 4.5 9352 Campbell Road Common Stock Winter, CA 95694 CellCall, Inc. ................................ Radio/Telephone Warrant to purchase 1.2 103 Jerrico Drive Communications Common Stock Suite 200 Lexington, KY 40509 CF Data Corp................................... Check Verification Warrant to purchase 20.5 9441 LBJ Freeway Common Stock Dallas, TX 75243 Champion Glove Manufacturing Co.,Inc. ......... Sports Equipment Warrant to purchase 6.9 12121 E. 51st St. #102 Common Stock Tulsa, OK 74146 C.J. Spirits, Inc. ............................ Distilled Spirits Warrant to purchase 10.0 2903 Pointer Place Common Stock Seffner, FL 33584 Clearidge, Inc. ............................... Bottled Water Warrant to purchase 7.9 2710 Landers Avenue Common Stock Nashville, TN 37211 CLS Corporation................................ Management Services Warrant to purchase 4.9 4 Century Parkway Common Stock Suite 110 Blue Bell, PA 19422 Colonial Investments, Inc. .................... Retail Warrant to purchase 18.0 4530 Harding Rd. Common Stock Nashville, TN 37205 Consumat Systems, Inc. ........................ Environmental Warrant to purchase 20.0 P.O. Box 9379 Common Stock Richmond, VA 23227 Consumer Credit Associates, Inc. .............. Credit Card Services Warrant to purchase 15.5 950 Thread Needle Common Stock Houston, TX 77079-2903 Continental Diamond Cutting Company............ Jewelry Replacement Warrant to purchase 12.2 4427 W. Kennedy Blvd. Common Stock Suite 300 Tampa, FL 33609 Corporate Flight Management, Inc. ............. FBO Airport Warrant to purchase 10.0 Smyrna Airport Common Stock Hangar 625 Smyrna, TN 37167 Cougar Power Products, Inc. ................... Lawn Equipment Warrant to purchase 22.6 361 Dabbs House Road Common Stock Richmond, VA 23223
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PERCENTAGE NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS NAME AND ADDRESS OF PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1) - ----------------------------------------------- ----------------------- ------------------------- ---------- Dalcon Technologies, Inc. ..................... Computer Services Warrant to purchase 25.0% 1321 Murfreesboro Road Common Stock 4th Floor Preferred Stock -- 100.0 Nashville, TN 37217 Series B Dalt's, Inc. .................................. Restaurant Warrant to purchase 25.0 250 East Wilson Bridge Rd. Common Stock Suite 190 Worthington, OH 43085 DentureCare, Inc. ............................. Dental Services Preferred Stock -- 2.6 3109 Poplarwood Court Series D Suite 300 Warrant to purchase 12.6 Raleigh, NC 27604-1025 Common Stock Eastern Food Group L.L.C. ..................... Grocery Warrant to purchase 15.0 2400 S. Memorial Drive interest in L.L.C. Greenville, NC 27834 Class B Preferred 100.0 Units Educational Medical, Inc. ..................... Technical Schools Warrant to purchase 8.0 1327 Northmeadow Parkway Common Stock Suite 132 Roswell, GA 30076 Electronic Merchant Services................... Payment Processing Warrant to purchase 12.5 1401 Main Street Common Stock Suite 850 Preferred Stock -- 100.0 Columbia, SC 29201 Series B Encore Orthopedics, Inc. ...................... Orthopedics Warrant to purchase 7.4 8900 Shoal Creek Blvd., Bldg. 300 Common Stock Austin, TX 78757 Entek Scientific, Inc.......................... Applied Technology Warrant to purchase 4.3 4480 Lake Forest Drive Common Stock Suite 316 Cincinnati, OH 45242 Express Shipping Centers, Inc. ................ Shipping Warrant to purchase 3.0 P.O. Box 1599 Common Stock Fairfield, IA 52556 FCOA Acquisition Corp ......................... Retail Warrant to purchase 2.5 745 Birginal Drive Common Stock Bensenville, IL 60106-2104 Foodnet Holdings, LLC.......................... Fast Food Services Warrant to purchase 8.0 510m Eastpark Court interest in LLC Suite 190 Sandstar, VA 23150 Fortrend Engineering Corp...................... Manufacturing Warrant to purchase 3.3 1273 Hammerwood Ave. Common Stock Sunnyvale, CA 92673 Front Royal, Inc. ............................. Environmental Common Stock 1.6 2200 Gateway Blvd. Insurance Warrant to purchase 3.6 Suite 205 Common Stock Morrisville, NC 27560 Fycon Technologies, Inc. ...................... OEM Warrant to purchase 15.0 4100 Barringer Drive Common Stock Charlotte, NC 28217 Preferred Stock -- 100.0 Series A Gardner Wallcovering, Inc. .................... Wallcovering Warrant to purchase 2.0 3300 Canton Pike Common Stock Hopkinsville, KY 42240
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PERCENTAGE NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS NAME AND ADDRESS OF PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1) - ----------------------------------------------- ----------------------- ------------------------- ---------- Gates Communications, L.P. .................... Publishing Warrant to purchase 47.0% P.O. Box 5181 Partnership Units Richmond, VA 23220 General Materials Management, Inc.............. Computer/Technology Warrant to purchase 10.0 991 Calle Amanecer Common Stock San Clemente, CA 92673 Generation 2 Worldwide, LLC ................... Furniture Products Membership interest 30.0 P.O. Box 2208 in L.L.C. 113 Anderson Ct. Dothan, AL 36302-2208 Global Finance & Leasing, Inc. ................ Leasing Warrant to purchase 25.0 P.O. Box 9406 Common Stock Wyoming, MI 49509 Gold Medal Products, Inc. ..................... Manufacturing Warrant to purchase 30.0 1500 Commerce Rd. Common Stock Richmond, VA 23214 Golf Corp. of America, Inc. ................... Golf Driving Ranges Common Stock 3.8 6950 Charlotte Pike Warrant to purchase 11.5 Nashville, TN 37209 Common Stock Golf Video, Inc. .............................. Interactive Golf Video Warrant to purchase 49.5 6950 Charlotte Pike Common Stock Nashville, TN 37209 Gulfstream International Airlines, Inc. ....... Commuter Airline Warrant to purchase 21.0 P.O. Box 777 Common Stock Miami Springs, FL 33266 H & H Acquisition Corporation.................. Textile Parts Warrant to purchase 22.5 P.O. Box 8516 Common Stock Greenville, SC 29604 Hancock Company................................ Clothing Warrant to purchase 20.5 104 New Era Drive Common Stock S. Plainfield, NJ 07080 Horizon Medical Products, Inc. ................ Medical Products Warrant to purchase 8.3 4200 Northside Pkwy., NW Common Stock Atlanta, GA 30327 HPC America, Inc............................... Healthcare Warrant to purchase 2.8 One Hook Road Common Stock Sharon Hill, PA 19079 Hoveround Corporation.......................... Wheelchairs Warrant to purchase 27.0 8135 25th Court East Common Stock Sarasota, FL 34243 HSA International, Inc......................... Discount Membership Warrant to purchase 12.0 100 N. Tampa St. Suite 2610 Tampa, FL 33602 Hunt Incorporated.............................. Truck Dealer Warrant to purchase 10.0 8211 Adamo Drive Common Stock Tampa, FL 33619 Hunt Leasing & Rental Corporation.............. Truck Leasing Warrant to purchase 10.0 8211 Adamo Drive Common Stock Tampa, FL 33619 I. Schneid Holdings, L.L.C. ................... Equipment Cleaning Warrant to Purchase 10.0 1429 Fairmont Ave, NW Interest in L.L.C. Atlanta, GA 30318-4153 ILD Communications, Inc........................ Telecommunications Warrant to purchase 3.2 1300 Sawgrass Village Circle Common Stock Suite 5 Ponteverda Beach, FL 32082
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PERCENTAGE NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS NAME AND ADDRESS OF PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1) - ----------------------------------------------- ----------------------- ------------------------- ---------- Innotech, Inc. ................................ Optical Products Warrant to purchase 0.7% 5568 Airport Road Common Stock Roanoke, VA 24012-1311 In Store Services, Inc. ....................... Retail Services Warrant to purchase 12.5 9332 Forsyth Park Drive Common Stock Charlotte, NC 28241 International Risk Control, Inc. .............. Computer Software Preferred Stock -- 0.8 636 Ramona Street Series A Palo Alto, CA 94301-2546 InterMed Healthcare Systems, Inc. ............. Information Services Warrant to purchase 9.4 245 Peachtree Center Ave., NE Common Stock Suite 350 Atlanta, GA 30303 Johnston County Cable L.P. .................... Entertainment Warrant to purchase 27.5 2444 Solomons Island Rd., Suite 202 L.P. interest Annapolis, MD 21401 Class A interest 11.1 in L.P. Kentucky Kingdom, Inc. ........................ Amusement Park Common Stock 5.2 P.O. Box 9016 Louisville, KY 40209-9016 Kryptonics, Inc. .............................. In-Line Skates Warrant to purchase 9.0 740 South Pierce Ave. Common Stock Louisville, CO 80027 K.W.C. Management Corp. ....................... Music Retail Warrant to purchase 24.4 3390 Peachtree Rd., NE Common Stock Suite 1132 Atlanta, GA 30326 Leisure Clubs International, Inc............... Specialized Travel Warrant to purchase 10.0 2400 Herodian Way Common Stock Suite 330 Smyrna, GA 30080 Lovett's Buffet, Inc. ......................... Restaurants Warrants to purchase 3.6 5118 Park Avenue Common Stock Suite 127 Memphis, TN 38117 Mayo Hawaiian Corporation...................... Tire Manufacturer Warrant to purchase 7.5 701 S. Queen St. Common Stock Honolulu, HI 96813 MBA Marketing Corporation...................... Shoe Stores Warrant to purchase 4.0 6615 Dublin Center Drive Common Stock Dublin, OH 43017 McAuley's, Inc................................. Home Fragrance Warrant to purchase 6.0 1814 S. 3rd St. Common Stock Memphis, TN 38109 Money Transfer Systems, Inc. .................. Credit Card Services Warrant to purchase 4.0 600 Lakeview Rd., Suite A Common Stock Clearwater, FL 34616 Monogram Products, Inc......................... Novelty Manufacturing Warrant to purchase 6.0 12395 75th St. N. Common Stock Largo, FL 34643 Moore Diversified Products, Inc. .............. Metal Fabrication Warrant to purchase 10.7 1441 Sunshine Lane Common Stock Lexington, KY 40505 Moovies Inc. .................................. Video Stores Common Stock 0.2 201 Brookfield Pkwy., Ste. 200 Warrant to purchase 1.8 Greenville, SC 29607 Common Stock
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PERCENTAGE NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS NAME AND ADDRESS OF PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1) - ----------------------------------------------- ----------------------- ------------------------- ---------- Multicom Publishing, Inc. ..................... Software Publishing Warrant to purchase 6.0% 1100 Olive Way, #125 Common Stock Seattle, WA 98101 Multimedia Learning, Inc. ..................... Employee Training Warrant to purchase 6.0 5215 North O'Connor Common Stock Suite 760 Irving, TX 75039 National Recovery Technologies, Inc. .......... Environmental Products Preferred Stock -- 6.0 566 Mainstream Drive Series A Nashville, TN 37228-1223 National Vision Associates, Ltd. .............. Optical Stores Common Stock 1.0 296 South Clayton Street Lawrenceville, GA 30245 Nationwide Engine Supply, Inc. ................ Engine Rebuilding Warrant to purchase 16.2 609 N. Houston Common Stock Fort Worth, TX 76106 North American Sports Camps, Inc............... Sports Camps Warrant to purchase 13.0 5 Connecticut Ave. Common Stock Norwich, CT 06360 Novavision, Inc. .............................. Optical Products Warrant to purchase 6.1 2700-200 Gateway Center Common Stock Morrisville, NC 27560 Preferred Stock -- 100.0 Series A NRI Service and Supply, L.P. .................. Gas Pump Services Warrant to purchase 27.5 333 Ludlow Street L.P. Interests Stamford, CT 06902 Orchid Manufacturing Group, Inc. .............. Manufacturing Warrant to purchase 4.5 100 Winners Circle Common Stock Brentwood, TN 37027 P.A. Plymouth, Inc. ........................... Retail Warrant to purchase 15.0 100 Corporate Drive Common Stock Radford, VA 24141 Palco Telecom Services, Inc. .................. Telephone Repair Warrant to purchase 5.0 2914 Green Cove Road Services Common Stock Huntsville, AL 35803 Patton Management Corporation.................. Communications Warrant to purchase 10.0 P.O. Box 491539 Common Stock Atlanta, GA 30349 Pipeliner Systems, Inc. ....................... Sewer Rehabilitation Warrant to purchase 20.6 4140 Tuller Road Common Stock Suite 132 Preferred Stock -- 100.0 Dublin, OH 43017 Series B PFIC Corporation............................... Third Party Marketing Warrant to purchase 6.0 1749 Mallory Lane, Suite 120 Common Stock Brentwood, TN 37027 The Potomac Group, Inc. ....................... Healthcare Information Common Stock 2.2 P.O. Box 290037 Warrant to purchase 1.9 Nashville, TN 37229 Common Stock Preferred Stock -- 83.2 Series A PRA International, Inc. ....................... Research Warrant to purchase 6.0 2400 Old Ivy Road Common Stock Charlottesville, VA 22903-4826 Preferred Stock -- 38.0 Class F
37 40
PERCENTAGE NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS NAME AND ADDRESS OF PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1) - ----------------------------------------------- ----------------------- ------------------------- ---------- Precision Fixtures & Graphics, Inc. ........... Design/Construction Warrant to purchase 5.0% 4644 Cummings Park Dr. Common Stock Antioch, TN 37013 Precision Panel Products, Inc. ................ Cabinets Warrant to purchase 8.3 12440 73rd Court, North Common Stock Largo, FL 34643 Premiere Technologies, Inc. ................... Telecommunications Common Stock 1.8 3399 Peachtree Road, NE Suite 400 Atlanta, GA 30326 Pritchard Glass, Inc. ......................... Auto Glass Warrant to purchase 25.0 140 Remount Road Common Stock Charlotte, NC 28203 Quest Group International, Inc. ............... Telecommunications Warrant to purchase 10.0 242 Falcon Dr. Common Stock Forest Park, GA 30050 Radiant Systems, Inc........................... Computer Software Warrant to purchase 1.5 1000 Alderman Dr. Common Stock Suite A Alpharetta, GA 30202 Radio Systems Corporation...................... Electrical Machinery Warrant to purchase 5.3 5008 National Drive Common Stock Knoxville, TN 37914 Scandia Technologies, Inc...................... Specialized Warrant to purchase 22.0 2051 Sunnydale Blvd. Manufacturing Common Stock Clearwater, FL 34625 Skillsearch Corporation........................ Resume Database Common Stock 6.8 3354 Perimeter Hill Drive Warrant to purchase 7.2 Suite 235 Common Stock Nashville, TN 37211-4129 Southern Specialty Brands, Inc. ............... Food Distributor Warrant to purchase 10.0 c/o Price Waterhouse Common Stock 4400 Harding Road Nashville, TN 37205 Sqwincher Corporation.......................... Sports Drinks Warrant to purchase 10.0 1409 Highway 45 South Common Stock Columbus, MS 39701 The Summit Publishing Group, Inc. ............. Publishing Warrant to purchase 24.5 1112 E. Copeland Rd., Ste. 510 Common Stock Arlington, TX 76011 Suncoast Medical Group Inc. ................... Optical Products Warrant to purchase 23.0 7401 114th Avenue, North Common Stock Suite 503-A Largo, FL 34643 Suprex Corporation............................. Laboratory Analytical Warrant to purchase 3.9 125 William Pitt Way Instruments Common Stock Pittsburgh, PA 15238 Tower Environmental, Inc. ..................... Environmental Services Warrant to purchase 10.1 4830 W. Kennedy Blvd. Common Stock Suite 930 Tampa, FL 33609-2574 Trade Am International, Inc. .................. Retail Warrant to purchase 6.0 6580 Jimmy Carter Blvd. Common Stock Norcross, GA 30071
38 41
PERCENTAGE NATURE OF ITS TITLE OF SECURITIES HELD OF CLASS NAME AND ADDRESS OF PORTFOLIO COMPANY PRINCIPAL BUSINESS BY THE COMPANY HELD(1) - ----------------------------------------------- ----------------------- ------------------------- ---------- Trans Global Services, Inc. ................... Professional Audio Common Stock 0.1% 6632 Central Avenue Pike Equipment Knoxville, TN 37912 Treasure Coast Pizza, Co. ..................... Restaurant Warrant to purchase 10.0 19990 Princewood Drive Common Stock Jupiter, FL 33458 Ultra Fab, Inc................................. Tank Manufacturing Warrant to purchase 12.0 Route 2, Box 1580 Common Stock Mexia, TX 76667 Unique Electronics, Inc. ...................... Defense Electronics Warrant to purchase 20.0 1320 26th Street Common Stock Orlando, FL 32805 Preferred Stock -- 100.0 Series A Urethane Technologies, Inc. ................... Manufacturing Warrant to purchase 4.7 1202 East Wakeham Ave. Common Stock Santa Ana, CA 92705 VDI Acquisition Company, L.L.C. ............... Watches Warrant to purchase 21.0 600 Sylvan Avenue Membership Units Englewood Cliffs, NJ 07632 Viking Moorings Acquisition, L.L.C. ........... Yacht Charter Membership interest 6.5 19345 U.S. Hwy. 19N, Suite 402 in L.L.C. Clearwater, FL 34624-3193 Virginia Gas Company........................... Gas Warrant to purchase 6.0 P.O. Box 2407 Common Stock Abingdon, VA 24212 Preferred Stock -- 100.0 Series A Virtual Resources, Inc......................... Computer Software Warrant to purchase 7.5 490 Sun Valley Drive Common Stock Building 200 Roswell, GA 30076 Vista Information Solutions, Inc............... Information Company Warrant to purchase 5.0 5060 Shoreham Place Common Stock San Diego, CA 92122 Voice FX Corporation........................... Telecommunications Warrant to purchase 8.0 1100 E. Hector Street, Suite 416 Common Stock Conshohocken, PA 19428 Zahren Alternative Power Corporation........... Converted Power Warrant to purchase 9.8 40 Tower Lane Common Stock Avon, CT 06001 Common Stock 5.9 Preferred Stock 4.9
- ------------ (1) Percentages shown for warrants held by the Company represent the percentage of class of security to be owned upon exercise of the warrant. 39 42 MANAGEMENT The business and affairs of the Company are managed under the direction of its Board of Directors. The Board of Directors has two committees, a Compensation Committee comprised of Messrs. Eberle, Pirtle, and Wilson and an Audit Committee comprised of Messrs. Duncan, McCabe and Mathias. All of the Company's directors are subject to re-election at each annual meeting of shareholders. The directors each receive $1,000 for each separate Board or committee meeting attended and are reimbursed for expenses relating thereto. The Board of Directors elects the Company's officers who serve at the pleasure of the Board of Directors. BOARD OF DIRECTORS The following table sets forth certain information regarding the directors of the Company.
NAME AGE POSITION - --------------------------------------------- --- ------------------------------------------------ John A. Morris, Jr. M.D.(1).................. 50 Chairman of the Board and Director George M. Miller, II(1)...................... 37 President, Chief Executive Officer and Director E. Townes Duncan............................. 43 Director William D. Eberle............................ 73 Director Edward J. Mathias............................ 55 Director Robert A. McCabe, Jr......................... 46 Director Raymond H. Pirtle, Jr.(1).................... 55 Director L. Edward Wilson, P.E........................ 52 Director
- ------------ (1) "Interested Person" as defined in Section 2(a)(19) of the 1940 Act. John A. Morris, Jr., M.D., co-founded the Company in August 1991. Dr. Morris currently holds appointments of Professor of Surgery and Director of the Division of Trauma and Surgical Critical Care at the Vanderbilt University School of Medicine, Medical Director of the LifeFlight Air Ambulance Program at Vanderbilt University Hospital, and Associate in the Department of Health Policy and Management at the Johns Hopkins University. George M. Miller, II, co-founded the Company in August 1991. Prior to August 1991, Mr. Miller worked for two years as a vice president in the Investment Building Group of Equitable Securities Corporation ("Equitable"). From 1987 to 1989, Mr. Miller worked as an associate in the Corporate Finance department of J.C. Bradford & Co. Prior to that time, Mr. Miller spent four and one-half years on active duty in the United States Marine Corps. Mr. Miller holds a Master of Business Administration from the University of North Carolina at Chapel Hill and a Bachelor of Science degree from the University of Tennessee. E. Townes Duncan has been the President of Solidus, LLC, a venture capital firm, since January 1, 1997. Prior to that time, Mr. Duncan was a director of Comptronix Corporation, a provider of electronics contract manufacturing services, since April 1988, and had served as its Chairman of the Board and Chief Executive Officer since November 1993. Comptronix Corporation filed a petition for Chapter 11 protection on August 9, 1996. Mr. Duncan was a Vice-President of Massey Burch Investment Group, Inc., a Nashville venture capital firm, from 1985 to November 1993. Mr. Duncan is also a director of Volunteer Capital Corporation, an owner and operator of restaurants in six states. William D. Eberle is chairman of Manchester Associates, Ltd., a venture capital and international consulting firm and is Of Counsel to the law firm of Kaye, Scholer, Fierman, Hays & Handler. Mr. Eberle is also Chairman of America Service Group Inc., a health care services Company, and Showscan Entertainment, Inc., a movie-based software and technology company, and is a director of Ampco-Pittsburgh Corp., a steel fabrication equipment company, Barry's Jewelry, a retail jewelry chain, Fiberboard Corporation, a timber manufacturer, Mitchell Energy and Development a gas and oil company, and Mid-States PLC, an autoparts distributor headquartered in Nashville. Mr. Eberle is also the Vice Chairman of the U.S. Council of the International Chamber of Commerce. 40 43 Edward J. Mathias has been a managing director of The Carlyle Group, a Washington, D.C. based private merchant bank, since 1994. Mr. Mathias served as a managing director of T. Rowe Price Associates, Inc., an investment management firm, from 1971 to 1993. Mr. Mathias is also a director of U.S. Office Products, a supplier of office products, and PathoGenesis Corporation, a biotechnology company. Robert A. McCabe, Jr., has been the Vice Chairman of First American Corporation, a bank holding company headquartered in Nashville, since 1993 and the President of First American Enterprises, a division of First American Corporation, since 1994. Prior to that time, Mr. McCabe served as President of the General Bank and First American National Bank, subsidiaries of First American Corporation. Mr. McCabe is also a director of First American Corporation. Raymond H. Pirtle, Jr., is a managing director and a member of the Board of Directors of Equitable, having joined the firm in February 1989. Prior to that date, Mr. Pirtle was a general partner of J.C. Bradford & Co. L. Edward Wilson, P.E., is president of Sirrom Resource Texas, Inc. ("SRF"), the general partner of Sirrom Resource Funding, L.P., a privately owned partnership that is not owned by the Company and provides capital to environmental service firms. Prior to joining SRF, Mr. Wilson served as president and chief executive officer of OSCO, Inc., a Nashville-based environmental services company. Prior to that, Mr. Wilson served as executive vice president of ERC Environmental & Energy Services, Inc. ("ERC"), where he was in charge of all eastern regional operations of this publicly-traded environmental services company. He joined ERC after it acquired the EDGE Group, a company he founded in 1982. OFFICERS The following table sets forth certain information regarding officers of the Company.
NAME AGE POSITION - --------------------------------------------- --- ------------------------------------------------ George M. Miller, II......................... 37 President, Chief Executive Officer and Director David M. Resha............................... 50 Chief Operating Officer Carl W. Stratton............................. 37 Chief Financial Officer Donald F. Barrickman......................... 46 Vice President -- Special Assets Jeffrey D. Armstrong......................... 38 Vice President -- Special Assets Kathy Harris................................. 38 Vice President -- Portfolio Manager John C. Harrison............................. 39 Vice President -- Portfolio Manager John S. Scott................................ 33 Vice President -- Portfolio Manager William A. Williamson, III................... 36 Vice President -- Portfolio Manager John N. Dyslin............................... 30 Vice President -- Portfolio Manager R. Burton Harvey............................. 33 Vice President -- Portfolio Manager Maria-Lisa Caldwell.......................... 33 Secretary Kimberly M. Stringfield...................... 27 Controller and Treasurer H. Hiter Harris, III......................... 36 Co-Chairman of Harris Williams Christopher H. Williams...................... 34 Co-Chairman of Harris Williams
David M. Resha joined the Company in July 1995 and is responsible for the day-to-day operations of the Company. His primary role is the oversight of risk management associated with the loan portfolio of the Company, including loan origination, portfolio management and workout activities. Mr. Resha is a 25-year veteran commercial banker. Most recently, he was Senior Vice President at First Union National Bank of Tennessee where he managed the middle market/corporate banking group. He held a similar position with Dominion Bank before it was merged with First Union National Bank of Tennessee. Mr. Resha holds a Bachelor of Business Administration degree from Loyola University in New Orleans and a Master of International Management degree from American (Thunderbird) Graduate School in Glendale, Arizona. Carl W. Stratton joined the Company in October 1995 and has served as Chief Financial Officer since April 1996. From October 1995 through April 1996, Mr. Stratton held the position of Vice President -- Workouts with the Company. From 1991 to 1995, Mr. Stratton was chief financial officer of International 41 44 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. Donald F. Barrickman joined the Company in September 1996 and is responsible for the management of the Company's problem loan portfolio. Prior to joining the Company, Mr. Barrickman served as the chief operation officer for United Mortgage and Loan Investment Corp. in Charlotte, NC. From 1986 to 1995, he managed the Special Assets Division for First Union National Bank of Virginia, Maryland and D.C. and its predecessors. Mr. Barrickman holds a Bachelor of Science degree in Accounting from Western Kentucky University. He is also a graduate of the Stonier Graduate School of Banking at Rutgers University. Jeffrey D. Armstrong joined the Company in April 1996 and is responsible for the management of the Company's problem loan portfolio. Mr. Armstrong has 13 years of experience in consulting, finance and operations from Aladdin Industries, Buccino & Associates, Inc., and the Alpert Investment Corporation. Mr. Armstrong holds a Master of Business Administration from the University of Texas at Austin and a Bachelor of Science Degree from Stanford University. Kathy Harris joined the Company in January 1996 and is responsible for marketing and loan origination efforts in Georgia and Florida. In addition to generating new loans, Ms. Harris oversees several of the Company's portfolio companies. From 1985 to January 1996, Ms. Harris was in the Corporate Finance Department at J.C. Bradford & Co. From 1980 to 1983, she was with KPMG Peat Marwick and served as a senior auditor specializing in the firm's thrift practice. Ms. Harris holds a Master of Business Administration in Finance and Human Resources Management from the Owen Graduate School of Management at Vanderbilt University and a Bachelor of Science degree in Accounting from Murray State University. Ms. Harris is a Certified Public Accountant. John C. Harrison joined the Company in January 1994 and is responsible for marketing and loan origination efforts in North and South Carolina and Virginia. In addition to generating new loans, Mr. Harrison oversees several of the Company's portfolio companies. From 1991 to 1993, Mr. Harrison served as a vice president at First Union National Bank, and from 1987 to 1991, he worked for First Tennessee Equipment Finance Corporation as a senior credit officer. From 1980 to 1987, Mr. Harrison held several positions with First American National Bank. Mr. Harrison holds a Bachelor of Science degree from the University of Tennessee. John S. Scott joined the Company in November 1994 and is responsible for marketing and loan origination efforts in Kentucky, Ohio and Indiana. In addition to generating loans, Mr. Scott oversees several of the Company's portfolio companies. From 1991 to 1994, Mr. Scott served as a vice president in the Corporate Banking Group of Bank One. From 1985 to 1991, Mr. Scott was a commercial lender with Ameritrust Corporation, Citizens Bank and Trust and First American National Bank. Mr. Scott holds a Bachelor of Science degree from the University of Kentucky. William A. Williamson, III, joined the Company in April 1996 and is responsible for marketing and loan origination efforts in Texas. Prior to joining the Company, Mr. Williamson was vice president/partner of Bohannon Brewing Company. From 1992 to 1994, Mr. Williamson was manager of Durr-Fillauer Corporation's Nashville facility. From 1985 to 1991, Mr. Williamson was assistant vice president of development for Jim Wilson Associates. From 1982 to 1984, Mr. Williamson was an investment banking analyst with E.F. Hutton in New York. Mr. Williamson holds a Bachelor of Business Administration from Southern Methodist University. John N. Dyslin joined the Company in July 1996 and is responsible for marketing and loan origination efforts in Illinois, Minnesota, Wisconsin and Michigan. From 1994 to 1996, Mr. Dyslin served as Associate at Bowles Hollowell Conner & Co., a merger and acquisition firm located in Charlotte, North Carolina. From 1990 to 1992, Mr. Dyslin served as Vice President of Bradford Capital Partners, a private equity fund affiliated 42 45 with J.C. Bradford & Co., and from 1990 to 1992 worked as an Analyst and Associate in the Corporate Finance department of J.C. Bradford & Co. Mr. Dyslin holds a Bachelor of Science degree in Commerce from the University of Virginia and a Master of Business Administration from the University of North Carolina. R. Burton Harvey joined the Company in August of 1996 and is responsible for marketing and loan origination efforts in eastern Pennsylvania and Maryland. In addition to generating new loans, Mr. Harvey oversees several of the Company's portfolio companies. From 1993 to August 1996, Mr. Harvey was a Vice President at NationsBank of Tennessee. From 1989 to November 1994, he served as a Vice President in the U.S. Corporate Division of Wachovia Corporate Services, Inc. in Atlanta, Georgia and as a Loan Administration Officer prior to becoming a Vice President. Mr. Harvey holds a Master of Business Administration and a Bachelor of Science Degree from the University of Tennessee. Maria-Lisa Caldwell was appointed as the Secretary of the Company in April 1996. Ms. Caldwell is presently a principal in the law firm of Caldwell & Caldwell, P.C. From 1991 to January 1996, Ms. Caldwell was an associate with the law firm of Bass, Berry & Sims PLC. Prior to that time, Ms. Caldwell was an associate with the law firm of Gibson, Dunn & Crutcher. Ms. Caldwell holds a Juris Doctorate from Duke University School of Law and a Bachelor of Arts Degree in Economics from Fairfield University. Kimberly M. Stringfield joined the Company in December 1994 and serves as the Company's Controller and Treasurer. From 1992 to 1994, Ms. Stringfield was a credit analyst and commercial lender at NationsBank of Tennessee, N.A. Ms. Stringfield holds a Bachelor of Science degree in Accounting from the University of Alabama. 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 September of 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 September 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 from Washington and Lee University. COMPENSATION The following table sets forth for the fiscal year ended December 31, 1996, the compensation paid to the five most highly compensated executive officers of the Company. No director received compensation in excess of $60,000 for fiscal 1996. The Company does not have a pension plan, but has established a 401K plan that does not provide for matching contributions. Options to purchase a total of 84,000 shares of Common Stock were granted to the directors of the Company during the fiscal year ended December 31, 1996.
AGGREGATE NAME OF INDIVIDUAL OR CAPACITIES IN WHICH COMPENSATION COMPENSATION IDENTITY OF GROUP COMPENSATION WAS RECEIVED SALARY BONUS - ---------------------------------- ------------------------------------- ------------ ------------ George M. Miller, II.............. President and Chief Executive Officer $229,883 $225,000(1) David M. Resha.................... Chief Operating Officer 150,293 100,000(1) Carl W. Stratton.................. Chief Financial Officer 91,586 100,000(1) H. Hiter Harris, III.............. Co-Chairman of Harris Williams 100,000(2) 183,000 Christopher H. Williams........... Co-Chairman of Harris Williams 100,000(2) 183,000
- --------------- (1) These amounts represent 1996 bonuses paid on January 2, 1996. (2) These amounts do not include $22,500 contributed by Harris Williams to each of Messrs. Harris' and Williams' SEP/IRA account pursuant to the terms of Harris Williams' SEP/IRA Plan. 43 46 STOCK OPTION GRANTS IN LAST FISCAL YEAR. The following table provides information relating to stock options granted to the following executive officers for the year ended December 31, 1996.
INDIVIDUAL GRANTS(1) POTENTIAL ------------------------------------------------- REALIZABLE % OF TOTAL VALUE AT ASSUMED OPTIONS ANNUAL RATE OF NUMBER OF GRANTED TO STOCK PRICE SECURITIES EMPLOYEES OF EXERCISE APPRECIATION FOR UNDERLYING THE COMPANY OR BASE OPTION TERM OPTIONS IN FISCAL PRICE EXPIRATION ------------------------ NAME GRANTED YEAR ($/SH) DATE 5%($) 10%($) - ------------------------------ ---------- ------------ -------- ---------- ---------- ----------- George M. Miller, II.......... 56,966 7.4% $18.63 2/1/06 $ 667,252 $ 1,690,948 224,115 29.3% 30.00 10/1/06 4,228,342 10,715,448 David M. Resha................ -- -- -- -- -- -- Carl W. Stratton.............. 50,000 6.6% 23.25 4/1/06 731,090 1,852,726 25,000 3.3% 31.75 10/8/06 499,185 1,265,033 H. Hiter Harris, III.......... -- -- -- -- -- -- Christopher H. Williams....... -- -- -- -- -- --
EMPLOYEE STOCK OPTIONS For the purpose of providing employees who have substantial responsibility for the management of the Company with additional incentives to exert their best efforts on behalf of the Company, to increase their proprietary interest in the success of the Company, to reward outstanding performance and to attract and retain executive personnel of outstanding ability, the Company has adopted the Amended and Restated 1994 Employee Stock Option Plan (the "1994 Employee Plan"), and the 1996 Incentive Stock Option Plan (the "1996 Employee Plan"). The following is a summary of certain provisions of the 1994 Employee Plan and the 1996 Employee Plan. 1994 Employee Plan. The total number of shares for which options may be granted under the 1994 Employee Plan is 500,000, and options for the purchase of 500,000 shares of Common Stock have been granted. The 1994 Employee Plan is administered by a committee of the Board of Directors, consisting of at least two members who are not eligible for grants of options or other equity securities under the 1994 Employee Plan or any other plan of the Company or any of its affiliates. The committee determines the executive and other officers of the Company who are eligible to participate in the 1994 Employee Plan and the number of shares, if any, for which options may be granted to them. Seventeen people are potentially eligible to participate in the 1994 Employee Plan. Options granted under the 1994 Employee Plan are exercisable at a price equal to the fair market value of the Common Stock on the date the option is granted. No option may be exercised more than 10 years after the date of grant. Options granted under the 1994 Employee Plan are not transferable other than by the laws of descent and distribution and during the grantee's life may be exercised only by the grantee. Rights to exercise options terminate after a grantee ceases to be an employee for any reason, other than death, three months following the date of termination of employment. If a grantee dies before expiration of the option, his legal successors may exercise the option within one year of the employee's death. Shares purchased upon exercise of options must be paid for in cash or by the surrender of unrestricted shares of Common Stock or any combination thereof. The Company may lend the grantee up to the exercise price of the option to be exercised. Any such loan would be subject to certain terms set out in the Plan and limitations imposed by the SBA. The 1994 Employee Plan will terminate when options have been granted on the total number of shares authorized by it or by action of the Board of Directors, but in no event later than November 18, 2004. 1996 Employee Plan. The 1996 Employee Plan authorizes the issuance of up to 390,000 shares of the Company's Common Stock. As of December 31, 1996, options for the purchase of 390,000 shares of the Common Stock have been granted by the Company under the plan. In addition, options to purchase 319,547 shares have been granted under the 1996 Employee Plan, subject to the approval of the amendment to the plan, which amendment authorizes an increase in the number of shares issuable thereunder, by the Company's shareholders at the next annual meeting of shareholders. Awards under the 1996 Employee Plan may be made 44 47 to key employees and officers. The number of people currently eligible for awards is 43. The 1996 Employee Plan is administered by a committee of at least two disinterested individuals appointed by the Board of Directors, which currently is the Compensation Committee (the "Committee"). Incentive stock options ("ISO") and non-qualified stock options may be granted as the Committee determines, subject to certain per person limitations on awards. A stock option is exercisable at the times and subject to the terms and conditions which the Committee determines. The option price for any ISO will not be less than 100% (110% in the case of certain 10% shareholders) of the fair market value of the Common Stock on the date of grant. Shares purchased upon exercise of options must be paid for in cash or by surrender of unrestricted shares of Common Stock or any combination thereof. The Board of Directors may cause the Company to lend to the grantee up to the exercise price of the option being exercised. Any such loan is subject to terms set out in the Plan, including as to collateral and interest rate, and to other limitations imposed by the SBA. Options granted under the 1996 Employee Plan cannot be assigned or transferred except by will or by the laws of descent and distribution. During the lifetime of an optionee, an option is exercisable only by the optionee. The Committee determines the term of the option, which may not exceed 10 years. An option may be exercised at any time or from time to time or only after a period of time or in installments, as the Committee determines, except that options granted to officers of the Company will not be exercisable for at least six months after the date of grant. Upon termination of an option holder's employment for Cause (as defined in the 1996 Employee Plan), that employee's stock options will terminate. If employment is involuntarily terminated without Cause, options (if exercisable) are exercisable for three months or until the end of the option period, whichever is shorter. Upon death or disability of an employee, exercisable stock options are exercisable by the deceased employee's representative within the lesser of the remainder of the option period or one year from the employee's death. In the event of certain extraordinary corporate events, such as a sale of substantially all its assets or a merger or share exchange in which the Company is not the surviving corporation, all outstanding options under the 1996 Employee Plan shall immediately become fully exercisable. The 1996 Employee Plan may be amended by the Board of Directors, except that the approval of the Company's shareholders is required to increase the total number of shares reserved for the 1996 Employee Plan or to materially increase the benefits accruing to participants under the 1996 Employee Plan. The following table sets forth certain information with respect to options that have been granted under the 1994 Employee Plan and the 1996 Employee Plan:
NUMBER OF SHARES SUBJECT TO EXERCISE PRICE NAME AND POSITION OPTION PER SHARE ------------------------------------------------------- ---------------- -------------- George M. Miller, II,.................................. 150,000(1) $11.00 President and Chief Executive Officer 56,966(2) 18.50 56,966(3) 18.63 224,115(4) 30.00 David M. Resha......................................... 125,000(5) 13.50 Chief Operating Officer Carl W. Stratton....................................... 50,000(6) 23.25 Chief Financial Officer 25,000(7) 31.75 Employees, as a group (43 persons)..................... 1,209,547 (8)
- --------------- (1) This option vests 25% on August 1, 1997, 25% on August 1, 1998 and 50% on August 1, 1999. (2) This option vests 20% per year beginning December 15, 1996. (3) This option vests 20% per year beginning February 1, 1997. (4) This option vests 20% per year beginning October 1, 1997. (5) This option vests 20% per year beginning July 5, 1996. (6) This option vests 20% per year beginning April 8, 1997. (7) This option vests 20% per year beginning April 8, 1997. (8) These options have exercise prices that range from $11.00 per share to $35.75 per share. 45 48 NON-EMPLOYEE DIRECTOR STOCK OPTIONS In order to retain and attract highly qualified directors, and to ensure close identification of interests between non-employee directors and the Company's shareholders, the Company adopted the 1995 Stock Option Plan for Non-Employee Directors (the "Directors' Stock Option Plan"), which provides for the automatic grant of options to directors of the Company that are not employees or officers of the Company (other than John A. Morris, Jr., M.D.). In accordance with the applicable provisions of the 1940 Act, the automatic grant of options under the Directors' Stock Option Plan occurred on April 19, 1996, the date of the approval of the plan by the Company's shareholders (the "Approval Date"). Under the Directors' Stock Option Plan, eligible non-employee directors who were directors of the Company before December 1, 1994, received options to purchase 18,000 shares of Common Stock. Non-employee directors elected after December 1, 1994, but before April 19, 1996, received options to purchase 12,000 shares of Common Stock. Any person who is initially elected a non-employee director in the future will automatically receive, on the date of election, an option to purchase 6,000 shares of Common Stock. The total number of shares for which options may be granted under the Directors' Stock Option Plan is 114,000, of which options to purchase 84,000 shares have been granted. The Directors' Stock Option Plan is administered by a committee of the Board of Directors comprised of directors who are not eligible to receive options under the Directors' Stock Option Plan. Options granted under the Directors Stock Option Plan are exercisable at a price equal to the fair market value of the Common Stock at the date of grant. No option may be exercised more than 10 years after the date of grant. Shares purchased upon exercise of options, must be paid for in cash, by surrender of unrestricted shares of Common Stock or any combination thereof. Options granted under the Directors' Stock Option Plan are not transferable other than by will or by the laws of descent and distribution and during the grantee's life may be exercised only by the grantee. If the grantee dies before expiration of the option, his legal successors may exercise the option within one year of the grantee's death. The Directors' Stock Option Plan may be terminated at any time by the Board of Directors, and will terminate on April 19, 2006. No increase in the number of shares authorized under the plan or material increase in the benefits to participants under the plan may be made without shareholders' approval. CERTAIN TRANSACTIONS Raymond H. Pirtle, Jr., a director and shareholder of the Company, is a managing director and a member of the board of directors of Equitable. Equitable is one of the underwriters of this Offering and in connection therewith is entitled to the compensation set forth under the heading "Underwriting." Prior to the Conversion in February 1995, Messrs. Harrison, Jennifer K. Waugh and Kristen L. Garrison, employees of the Company, were granted ownership interests in the Company. In connection therewith, each such employee executed a promissory note for the purchase price of such interest that bears interest at 7.25% per annum, payable annually, matures November 1, 2001, and is secured by a pledge of the Common Stock owned by each such employee. As of the date hereof, the outstanding principal balance of such promissory notes is as follows: Mr. Harrison, $440,142.16; Ms. Waugh, $102,678.51; and Ms. Garrison $43,822.29. The Robinson-Humphrey Company, Inc. ("Robinson-Humphrey"), one of the underwriters in this Offering, has been engaged by the Company as its exclusive placing agent in connection with the obtaining and placement of the ING Credit Facility. Robinson-Humphrey has received a fee equal to 0.5% of the aggregate debt commitment. In addition, Sirrom agreed to indemnify Robinson-Humphrey with respect to certain matters. Sirrom, Ltd., a family-owned limited partnership, owned 20% of Harris Williams that it purchased in 1994 for $500,000. The general partner of Sirrom, Ltd. is All Scarlet, Inc., a corporation owned equally by John A. Morris, Jr., M.D., Chairman of the Company, and Alfred H. Morris, the brother of Dr. Morris. Sirrom, Ltd. received 170,706 shares of the Company's stock as part of the acquisition of Harris Williams. See "Business -- Merger and Acquisition Advisory Services." 46 49 PRINCIPAL AND SELLING SHAREHOLDERS Of the 50,000,000 shares of Common Stock, no par value, authorized, there are 12,343,567 shares of Common Stock outstanding and approximately 2,550 holders of the Company's Common Stock, including approximately 169 holders of record. The Company has no other class of securities outstanding. The following table sets forth certain ownership information as of December 31, 1996 with respect to the Common Stock for (i) those persons who directly or indirectly own, control or hold with the power to vote, 5% or more of the outstanding Common Stock and (ii) all officers and directors, as a group. Unless otherwise indicated, all shares are owned beneficially and of record by each shareholder. The address for each of the Selling Shareholders is 500 Church Street, Suite 200, Nashville, Tennessee 37219.
SHARES BENEFICIALLY SHARES TO BE OWNED PRIOR TO THE BENEFICIALLY OWNED OFFERING SHARES AFTER THE OFFERING ------------------- BEING ------------------- NAME AND ADDRESS NUMBER PERCENT OFFERED NUMBER PERCENT - -------------------------------------------------- --------- ------- ------- --------- ------- John A. Morris, Jr., M.D.(1)...................... 2,393,204 19.4 0 2,393,204 15.9% 243 Medical Center South 2100 Pierce Avenue Nashville, TN 37212 Sirrom Partners, L.P.............................. 2,035,148 16.5 0 2,035,148 13.5 500 Church Street Suite 200 Nashville, TN 37219 Gerald B. Andrews................................. 5,788 * 5,788 0 * Bank of Scotland London Nominees Limited.......... 65,658 * 1,528 64,130 * O. Gene Gabbard................................... 4,008 * 4,008 0 * Hare & Co......................................... 45,454 * 25,454 20,000 * James O. Hayles................................... 5,073 * 2,500 2,573 * Myna C. Hayles.................................... 5,073 * 2,500 2,573 * Andrew L. Smith, Trustee for Leila Temple Hayles.......................................... 5,073 * 2,500 2,573 * Andrew L. Smith, Trustee for James Russell Hayles.......................................... 5,073 * 2,500 2,573 * Kenneth F. Leddick................................ 2,536 * 536 2,000 * Richard Monk...................................... 18,942 * 8,000 10,942 * Kathleen R. Parsons............................... 4,008 * 4,008 0 * Carolyn W. Perrone(2)............................. 68,800 * 68,800 0 * Michael M. Rosenberg.............................. 24,244 * 24,244 0 * Peter T. Socha(3)................................. 80,200 * 50,000 30,200 * Sam Stevenson..................................... 12,121 * 12,121 0 * Berthold G. Stumberg.............................. 10,148 * 5,000 5,148 * Officers and directors, as a group (27 persons)... 3,476,735 28.2 0 3,476,735 23.1
- ------------ * Less than one percent. (1) Includes 2,035,148 shares owned of record by Sirrom Partners, L.P., a limited partnership owned by Dr. Morris and his family, and 358,056 shares owned of record by Sirrom, Ltd., a limited partnership whose general partner is All Scarlet, Inc., a corporation owned 50% by Dr. Morris and 50% by Alfred H. Morris, the brother of Dr. Morris. Dr. Morris has shared voting power and shared investment power with respect to all of these shares. (2) Ms. Perrone was the Chief Financial Officer of the Company from February 1993 until April 1996. (3) Mr. Socha was a Vice President -- Workouts of the Company from February 1994 until December 1996. 47 50 DETERMINATION OF NET ASSET VALUE The net asset value per share of Common Stock will be determined quarterly, as soon as practicable after and as of the end of each calendar quarter, by dividing the value of total assets minus liabilities by the total number of shares outstanding on a fully diluted basis at the date as of which the determination is made. In making its valuation determination, the Board of Directors generally adheres to a valuation policy approved by the SBA and adopted by the Board of Directors. In calculating the value of the Company's total assets, securities that are traded in the over-the-counter market or on a stock exchange are valued at the average bid at close or closing price, as the case may be, for the valuation date and the preceding two days, unless the investment is subject to a restriction that requires a discount from such price, which is determined by the Board of Directors. All other investments are valued at fair value as determined in good faith by the Board of Directors. In making such determination, the Board of Directors will value loans and nonconvertible debt securities for which there exists no public trading market at cost plus amortized original issue discount, if any, unless adverse factors lead to a determination of a lesser value, at which time unrealized depreciation would be recognized. Convertible debt securities and warrants are valued to reflect the value of the underlying equity security less the conversion or exercise price. In valuing equity securities for which there exists no public trading market, investment cost is presumed to represent fair value except in cases where the valuation policy provides that the Board of Directors may determine fair value on the basis of (i) financings by unaffiliated investors, (ii) a history of positive cash flow from operations for two years using a conservative financial measure such as earnings ratios or cash flow multiples, (iii) the market value of comparable publicly traded companies (discounted for illiquidity) and (iv) other pertinent factors. The Board of Directors, at management's request, also has considered recent operating results of a portfolio company or offers to purchase the portfolio company's securities when valuing a warrant. A substantial portion of the Company's assets will consist of securities carried at fair values determined by its Board of Directors. The Company's independent public accountants will review and express an opinion on the reasonableness of the basis used by the Board of Directors in determining the valuation of investments, the adequacy of the procedures applied by the directors in valuing such securities and the appropriateness of the underlying documentation. However, determination of fair values involves subjective judgment not susceptible to substantiation by auditing procedures. Accordingly, under current standards, the accountants' opinion on the Company's financial statements in its annual report refers to the uncertainty with respect to the possible effect on the financial statements of such valuations. REINVESTMENT PLAN Pursuant to the Reinvestment Plan a shareholder whose shares are registered in his own name can have all distributions reinvested in additional shares of Common Stock by the Reinvestment Plan Administrator if the shareholder enrolls in the Reinvestment Plan by delivering an Authorization Form to the Reinvestment Plan Administrator prior to the corresponding dividend declaration date. All distributions to shareholders who do not participate in the Reinvestment Plan will be paid by check mailed directly to the record holder by or under the direction of the Reinvestment Plan Administrator. A shareholder may terminate participation in the Reinvestment Plan by delivering a written letter to the Reinvestment Plan Administrator before the record date of the next dividend or distribution. When the Company declares a dividend or distribution, shareholders who are participants in the Reinvestment Plan will receive the equivalent of the amount of the dividend or distribution in shares of the Company's Common Stock. The Reinvestment Plan Administrator will buy shares in the open market, on the Nasdaq National Market or elsewhere. The Reinvestment Plan Administrator will apply all cash received on account of a dividend or distribution as soon as practicable, but in no event later than 30 days, after the payment date of the dividend or distribution except to the extent necessary to comply with applicable provisions of the federal securities laws. The number of shares to be received by the Reinvestment Plan participants on account of the dividend or distribution will be calculated on the basis of the average price of all shares purchased for that period, including brokerage commissions, and will be credited to their accounts as of the payment date of the dividend or distribution. 48 51 The Reinvestment Plan Administrator will maintain all shareholder accounts in the Reinvestment Plan and will furnish written confirmations of all transactions in the account, including information needed by shareholders for personal and tax records. Shares in the account of each Reinvestment Plan participant will be held by the Reinvestment Plan Administrator in non-certificated form in the name of the participant, and each shareholder's proxy will include shares purchased pursuant to the Reinvestment Plan. There is no charge to participants for reinvesting dividends and capital gains distributions. The fees of the Reinvestment Plan Administrator for handling the reinvestment of dividends and capital gains distributions will be included in the fee to be paid by the Company to its transfer agent. However, each participant will bear a pro rata share of brokerage commissions incurred with respect to the Reinvestment Plan Administrator's open market purchases in connection with the reinvestment of dividends and distributions. THE REINVESTMENT OF DISTRIBUTIONS WILL NOT RELIEVE PARTICIPANTS OF ANY INCOME TAX THAT MAY BE PAYABLE ON DISTRIBUTIONS. SEE "TAX STATUS." The Company reserves the right to amend or terminate the Reinvestment Plan as applied to any distribution paid subsequent to written notice of the change sent to participants in the Reinvestment Plan. The Plan also may be amended or terminated by the Reinvestment Plan Administrator with the Company's prior written consent, on at least 90 days' written notice to participants in the Reinvestment Plan. All correspondence concerning the Reinvestment Plan should be directed to the Reinvestment Plan Administrator by mail at 230 South Tryon Street, Charlotte, North Carolina 28288-1153 or by phone at 1-800-829-8432. TAX STATUS The following discussion is a general summary of the material federal tax considerations applicable to the Company and to an investment in the Common Stock and does not purport to be a complete description of the tax considerations applicable to such an investment. Prospective shareholders should consult their own tax advisors with respect to the tax considerations which pertain to their purchase of the Common Stock. This summary does not discuss all aspects of federal income taxation relevant to holders of the Company's Common Stock in light of their personal circumstances, or to certain types of holders subject to special treatment under federal income tax laws, including foreign taxpayers. This summary does not discuss any aspects of foreign, state, or local tax laws. The Company has qualified for and elected to be treated as a RIC under Subchapter M of the Code. SII and SFC have elected the same tax treatment. If each of the Company, SII and SFC continues to qualify as a RIC and distributes to the shareholders or the Company, as appropriate, each year in a timely manner at least 90% of its "investment company taxable income," as defined in the Code (in general, taxable income excluding long-term capital gains), each such entity will not be subject to federal income tax on the portion of its taxable income and gains it distributes to shareholders. In addition, if each of the Company, SII and SFC distributes in a timely manner (or treats as "deemed distributed" as described below) 98% of its capital gain net income for each one year period ending on October 31 (or December 31, if so elected by the Company, SII or SFC), and distributes 98% of its ordinary income for each calendar year (as well as any income not distributed in prior years), it will not be subject to the 4% nondeductible federal excise tax on certain undistributed income of RICS. In order to continue to qualify as a RIC for federal income tax purposes, each of the Company, SII and SFC must, among other things, (a) derive in each taxable year at least 90% of its gross income from dividends, interest, payments with respect to securities loans, gains from the sale or other disposition of stock or securities and other narrowly defined types of income derived with respect to its business of investing in such stock or securities; (b) derive in each taxable year less than 30% of its gross income from the sale of stock or securities held for less than three months; (c) diversify its holdings so that at the end of each quarter of the taxable year (i) at least 50% of the value of it's assets consists of cash, cash items, government securities, the securities of other RICs and other securities if such other securities of any one issuer do not represent more than 5% of its total assets and 10% of the outstanding voting securities of the issuer and (ii) no more than 25% of the value of it's total assets are invested in the securities of one issuer (other than U.S. 49 52 government securities or the securities of other regulated investment companies), or of two or more issuers that are controlled by and are engaged in the same or similar or related trades or businesses; and (d) distribute at least 90% of its investment company taxable income each taxable year. There is no requirement that all of the corporations in a controlled group that includes a RIC must qualify as RICs. As a general rule in the application of the tests to qualify as a RIC, the parent corporation and each of its subsidiaries are tested separately and cannot be consolidated. There is a significant exception to this rule with regard to the 25% diversification test described in the preceding paragraph. Solely for that test, the investments of a subsidiary are deemed to be owned by the parent in proportion to the ratio of the value of the subsidiary's stock to the value of all investments of the parent, provided that the subsidiary and parent are in the same controlled group (defined with reference to a chain of corporations with a 20% ownership threshold). See "Prospectus Summary." It is possible that the existence and operation of Harris Williams or other non-RIC subsidiaries in the future will cause the Company, SII or SFC not to qualify as a RIC. Certain types of income which are earned by the Company and its subsidiaries, such as processing fees, do not qualify for purposes of satisfying the 90% of gross income test mentioned above. For taxable year 1996, this test was satisfied by a small margin. A failure to satisfy the 90% test cannot be corrected after the end of the taxable year. Because each of SII, SFC and the Company must satisfy this 90% test on a stand alone basis, even if the 90% test is satisfied on a consolidated basis, it is possible that one or more of the subsidiaries, or the Company, may fail to satisfy this test and lose its status as a RIC. If the Company or any subsidiary were to fail to qualify as a RIC, it would not be entitled to a deduction for dividends paid. In this event, the corporate income tax could be substantial and there would be a substantial reduction in the Company's or subsidiary's net assets. Moreover, future distributions to the Company's shareholders would be reduced because of the loss of any tax deduction for payment of such dividends. For any period during which the Company qualifies as a RIC for tax purposes, dividends to shareholders of the Company's ordinary income (including dividends, interest and original issue discount) and any distributions of net short-term capital gains generally will be taxable as ordinary income to shareholders (and not as short-term capital gains) to the extent of the Company's current or accumulated earnings and profits. Distributions of the Company's net long-term capital gains (designated by the Company as capital gain dividends) will be taxable to shareholders as long-term capital gains regardless of the shareholder's holding period in his shares. Corporate shareholders should consult their own tax advisers. In addition, the Company may elect to relate back a dividend to the prior taxable year for the purposes of (i) determining whether the 90% distribution requirement is satisfied, (ii) computing investment company taxable income and (iii) determining the amount of capital gain dividends paid during the prior taxable year. Any such election will not alter the general rule that a shareholder will be treated as receiving a dividend in the taxable year in which the distribution is made. Any dividend declared by the Company in October, November or December of any calendar year, payable to shareholders of record on a specified date in such a month and actually paid during January of the following year, will be treated as if it were paid by the Company and received by the shareholders on December 31 of the previous year. Shareholders should be careful to consider the tax implications of buying shares just prior to the record date for a distribution. Even if the price of the shares includes the amount of the forthcoming distribution the shareholder will be taxed upon receipt of the distribution and will not be entitled to offset the distribution against tax basis in the shares. To the extent that the Company retains any net long-term capital gains, it may designate them as "deemed distributions" and pay a tax thereon for the benefit of its shareholders. In that event, the shareholders report their share of the Company's retained realized capital gains on their individual tax returns as if it had been received, and report a credit for the tax paid thereon by the Company. The amount of the deemed distribution net of such tax is then added to the shareholder's cost basis for his shares. Since the Company expects to pay tax on long-term capital gains at the regular corporate tax rate of 34%, and the maximum rate payable by individuals on such gains is 28%, the amount of credit that individual shareholders may claim will exceed the amount of tax that they would be required to pay on capital gains. Shareholders who are not 50 53 subject to federal income tax or tax on capital gains should be able to file a return on the appropriate form or a claim for refund that allows them to recover the tax paid on their behalf. The Budget Reconciliation Act of 1993 added Section 1202 of the Code, which permits the exclusion, for federal income tax purposes, of 50% of any gain (subject to certain limitations) realized upon the sale or exchange of "qualified small business stock" held for more than five years. Generally, qualified small business stock is stock of a small business corporation acquired directly from the issuing corporation which must at the time of issuance and immediately thereafter have assets of not more than $50.0 million and be actively engaged in the conduct of a trade or business not excluded by law. The amount of gain eligible for the 50 percent exclusion limit is limited, on a per investor and per investment basis, to the greater of (i) ten times the taxpayer's cost in the stock or (ii) $10.0 million. It is possible that in some cases investments made by the Company will be in qualified small business stock, that the Company will hold such stock for more than five years and that the Company will ultimately dispose of such stock at a profit. If that were to occur, each shareholder who held his shares at the time the Company purchased the qualified small business stock and at all times thereafter until the disposition of such stock by the Company would be entitled to exclude from his taxable income 50% of such shareholders' share of such gain, whether distributed or deemed distributed. One half of any amount so excluded would be treated as a preference item for alternative minimum tax purposes. A shareholder may recognize taxable gain or loss if the shareholder sells or exchanges his shares. Any gain arising from (or, in the case of distributions in excess of earnings and profits, treated as arising from) the sale or exchange of shares generally will be a capital gain or loss except in the case of a dealer or a financial institution. This capital gain or loss will be treated as a long-term capital gain or loss if the shareholder has held his shares for more than one year. However, any capital loss arising from the sale or exchange of shares held for six months or less will be treated as a long-term capital loss to the extent of the amount of capital gain dividends received with respect to such shares; for this purpose, the special rules of Sections 246(c)(3) and (4) of the Code generally apply in determining me holding period of shares. Under current law applicable to individual taxpayers, capital gains are taxed at the same rate as ordinary income, subject to a 28% cap for long-term capital gains, but the deduction of capital losses is subject to limitations. The Company may be required to withhold U.S. federal income tax at the rate of 31% of all taxable dividends and distributions payable to shareholders who fail to provide the Company with their correct taxpayer identification number or to make required certifications or regarding whom the Company has been notified by the Internal Revenue Service that they are subject to backup withholding. Backup withholding is not an additional tax and any amounts withheld may be credited against a shareholder's U.S. federal income tax liability. Federal withholding taxes at a 30% rate (or a lesser treaty rate) may apply to distributions to shareholders that are nonresident aliens or foreign partnerships, trusts or corporations. Foreign shareholders should consult their tax advisors with respect to the possible U.S. federal, state and local and foreign tax consequences of an investment in the Company. The Company will mail to each shareholder, as promptly as possible after the end of each fiscal year, a notice detailing, on a per share and per distribution basis, the amounts includable in such shareholder's taxable income for such year as net investment income, as net realized capital gains (if applicable), as "deemed" distributions of capital gains and as taxes paid by the Company with respect thereto. In addition, the federal tax status of each year's distributions will be reported to the Internal Revenue Service. Distributions may also be subject to additional state, local and foreign taxes depending on each shareholder's particular situation. Shareholders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in the Company. Following the acquisition of Harris Williams, it is possible that the Company, SII or SFC may not continue to meet the tests for qualification as a RIC. Harris Williams will not qualify or be taxed as a RIC and, therefore, will pay tax at regular corporate tax rates with no deduction for any dividends to the Company. 51 54 DESCRIPTION OF CAPITAL STOCK The Company is authorized to issue 50,000,000 shares of Common Stock. Of the shares of Common Stock authorized for issuance, 12,343,567 are outstanding, 500,000 are reserved for issuance under the 1994 Employee Plan (all of which have been issued), 114,000 shares are reserved for issuance under the Directors' Stock Option Plan (84,000 of which have been issued), and 390,000 shares, are reserved for issuance under the 1996 Employee Plan (all of which have been issued), and 319,547 shares are reserved for issuance under the 1996 Employee Plan, subject to approval by the Company's shareholders of the amendment to the plan increasing the shares available thereunder. COMMON STOCK The holders of Common Stock are entitled to one vote per share on all matters to be voted on by shareholders and are not entitled to cumulative voting in the election of directors, which means that the holders of a majority of the shares voting for the election of director can elect all of the directors then standing for election by the holders of Common Stock. The holders of Common Stock are entitled to share ratably in such dividends, if any, as may be declared from time to time by the Board of Directors in its discretion out of funds legally available therefor. The holders of Common Stock are entitled to share ratably in any assets remaining after satisfaction of all prior claims upon liquidation of the Company. The Company's Charter gives holders of Common Stock no preemptive or other subscription or conversion rights, and there are no redemption provisions with respect to such shares. All outstanding shares of Common Stock are, and the shares offered hereby will be, when issued and paid for, fully paid and nonassessable. REGISTRATION RIGHTS In addition, each shareholder of the Company receiving Common Stock in the Conversion has piggyback registration rights, subject to certain limitations and conditions, in the event that the Company proposes to register the sale of shares of Common Stock for its own account or the account of another. These registration rights expire on February 1, 1997. ANTI-TAKEOVER LEGISLATION In addition to the restrictions on changes of control of an SBIC under the SBIA and the SBA Regulations described under "Regulation," the Company is subject to the Tennessee Business Combination Act (the "Combination Act"). The Combination Act provides that any corporation to which it applies, including the Company, shall not engage in any "business combination" with an "interested shareholder" for a period of five years following the date that such shareholder became an interested shareholder unless prior to such date the board of directors of the corporation approved either the business combination or the transaction which resulted in the shareholder becoming an interested shareholder. The Combination Act defines "business combination," generally, to mean any (i) merger or consolidation; (ii) share exchange; (iii) sale, lease, exchange, pledge, mortgage or other transfer (in one transaction or a series of transactions) of assets representing 10% or more of (A) the market value of consolidated assets, (B) the market value of the corporation's outstanding shares or (C) the corporation's consolidated net income; (iv) issuance or transfer of shares from the corporation to the interested shareholder; (v) plan of liquidation; (vi) transaction in which the interested shareholder's proportionate share of the outstanding shares of any class of securities is increased; or (vii) financing arrangements pursuant to which the interested shareholder, directly or indirectly, receives a benefit except proportionately as a shareholder. The Combination Act defines "interested shareholder," generally, to mean any person who is the beneficial owner, directly or indirectly, of 10% or more of any class or series of the outstanding voting stock, or any affiliate or associate of the corporation who has been the beneficial owner, directly or indirectly, of 10% or more of the voting power of any class or series of the corporation's stock at any time within the five year period preceding the date in question. Consummation of a business combination that is subject to the five-year moratorium is permitted after such period if the transaction (i) complies with all applicable charter and bylaw requirements and applicable Tennessee law and (ii) is approved by at least two-thirds of the outstanding 52 55 voting stock not beneficially owned by the interested shareholder, or when the transaction meets certain fair price criteria. The fair price criteria include, among others, the requirement that the per share consideration received in any such business combination by each of the shareholders is equal to the highest of (i) the highest per share price paid by the interested shareholder during the preceding five year period for shares of the same class or series plus interest thereon from such date at a treasury bill rate less the aggregate amount of any cash dividends paid and the market value of any dividends paid other than in cash since such earliest date, up to the amount of such interest, (ii) the highest preferential amount, if any, such class or series is entitled to receive on liquidation, or (iii) the market value of the shares on either the date the business combination is announced or the date when the interested shareholder reaches the 10% threshold, whichever is higher, plus interest thereon less dividends as noted above. The Tennessee Greenmail Act (the "Greenmail Act") prohibits the Company from purchasing or agreeing to purchase any of its securities, at a price in excess of fair market value, from a holder of 3% or more of any class of such securities who has beneficially owned the securities for less than two years, unless such purchase has been approved by a majority of the outstanding shares of each class of voting stock issued by the Company or the Company makes an offer of at least equal value per share to all holders of shares of such class. The effects of this legislation may be to render more difficult a change of control of the Company by delaying, deferring or preventing a tender offer or takeover attempt that a shareholder might consider to be in such shareholder's best interest, including those attempts that might result in the payment of a premium over the market price for the shares held by such shareholder, and may promote the continuity of the Company's management by making it more difficult for shareholders to remove or change the incumbent members of the Board of Directors. REGULATION The Company is presently a BDC and as such is regulated under the 1940 Act. SII is presently an SBIC and as such is regulated by the SBIA and is subject to the SBA Regulations and the 1940 Act. SII and SFC are also registered investment companies and, therefore, subject to the provisions of the 1940 Act as modified by certain exemptive orders received by the Company from the Commission. As an SBIC, SII may only make loans to or investments in "small business concerns," as defined by the SBIA and the SBA Regulations. A "small business concern," as defined in the SBIA and the SBA Regulations is a business concern that is independently owned and operated and which is not dominant in its field of operation. A small business concern must either (i) have a net worth, together with any affiliates, of $18.0 million or less and an average net income after federal income taxes for the preceding two years of $6.0 million or less (average net income to be computed without benefit of any carryover loss) or (ii) satisfy alternative criteria under the SBA Regulations that focus on the industry in which the business is engaged and the number of persons employed by the business or its gross revenues. In addition at the end of each fiscal year, 20% of the total amount of investments made since April 8, 1994 must be made to concerns that (i) have a net worth of not more than $6.0 million and not more than $2.0 million in average net income after federal income taxes for the preceding two years, or (ii) satisfy alternative industry-related size criteria. The SBA Regulations also prohibit an SBIC from providing funds to a small business concern for certain purposes, such as relending and investment outside the United States. The amount of annual interest payments SII may charge its borrowers is limited by the SBA Regulations. Under these regulations, the maximum annual financing costs (including interest) of loans with equity features to small business concerns may not exceed the greater of 14% or 6 percentage points above the "Debenture Rate." As defined in the SBA Regulations, the "Debenture Rate" is the interest rate announced, from time to time, by the SBA on SBA debentures. As of September 30, 1996, the maximum annual financing costs applicable to SII were 14%. The SBA Regulations also allow an SBIC to charge a processing fee of up to 3%, which fee is not included in the financing cost calculation. The SBA restricts the ability of an SBIC to repurchase its capital stock, to retire its debentures and to lend money to its officers, directors and employees or invest in affiliates thereof. The SBA also prohibits, 53 56 without prior SBA approval, a "change of control" or transfers which would result in any person (or group of persons acting in concert) owning 10% or more of any class of capital stock of an SBIC. A "change of control" is any event which would result in the transfer of the power, direct or indirect, to direct the management and policies of an SBIC, whether through ownership, contractual arrangements or otherwise. The Company is a closed-end, non-diversified investment company that has elected to be treated as a BDC and, as such, is subject to regulation under the 1940 Act. The 1940 Act contains prohibitions and restrictions relating to transactions between investment companies and their affiliates, principal underwriters and affiliates of those affiliate or underwriters and requires that a majority of the directors be persons other than "interested persons," as defined in the 1940 Act. In addition, the 1940 Act provides that the Company may not change the nature of its business so as to cease to be, or to withdraw its election as, a business development company unless so authorized by the vote of a majority, as defined in the 1940 Act, of its outstanding voting securities. The Company is permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to the shares offered hereby if its asset coverage of any Senior Security is at least 200% immediately after each such issuance. Debt securities issued to the SBA are not subject to this asset coverage test. In connection with the transfer of its SBIC operations to SII and the formation of SFC, the Company obtained certain exemptive relief from the Commission with respect to certain provisions of the 1940 Act. Accordingly, the Company, SII and SFC may each incur indebtedness so long as after incurring such indebtedness the Company, individually, and the Company and each of its investment company subsidiaries on a consolidated basis, meets the 200% asset coverage test. In addition, while Senior Securities are outstanding, provisions must be made to prohibit any distribution to shareholders or the repurchase of such securities or shares unless the Company meets the applicable asset coverage ratios at the time of the distribution or repurchase. The Company may also borrow amounts up to 5.0% of the value of its total assets for temporary or emergency purposes. Under the 1940 Act, a business development company may not acquire any asset other than assets of the type listed in Section 55 (a) of the 1940 Act ("Qualifying Assets") unless, at the time the acquisition is made, Qualifying Assets represent at least 70% of the Company's total assets. Securities issued by Canadian small businesses will not be Qualifying Assets. However, based on the Company's total assets at September 30, 1996, the Company could make up to $86.1 million in non-Qualifying Assets and retain its BDC status. The principal categories of Qualifying Assets relevant to the proposed business of the Company are the following: (1) Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer is an eligible portfolio company. An eligible portfolio company is defined in the 1940 Act as any issuer which: (a) is organized under the laws of, and has its principal place of business in, the United States; (b) is not an investment company other than a small business investment company wholly-owned by the business development company; and (c) does not have any class of securities with respect to which a broker or dealer may extend margin credit. (2) Securities of any eligible portfolio company which is controlled by the business development company. (3) Securities received in exchange for or distributed on or with respect to securities described in (1) or (2) above, or pursuant to the exercise of options, warrants or rights relating to such securities. (4) Cash, cash items, government securities, or high quality debt securities maturing in one year or less from the time of investment. In addition, a business development company must have been organized (and have its principal place of business) in the United States for the purpose of making investments in the types of securities described in 54 57 (1) or (2) above. However, in order to count the securities as Qualifying Assets for the purpose of the 70% test, the business development company must either control the issuer of the securities or must make available to the issuer of the securities significant managerial assistance; except that, where the company purchases such securities in conjunction with one or more other persons acting together, one of the other persons in the group may make available such managerial assistance. By the making of loans to small concerns, SBICs are deemed to provide significant managerial assistance. SHARES ELIGIBLE FOR FUTURE SALE No prediction may be made as to the effect, if any, that market sales of shares or the availability of shares for sale will have on the market price of the Common Stock prevailing from time to time. Nevertheless, sales of substantial amounts of Common Stock of the Company in the public market after the restrictions described below lapse could adversely affect the prevailing market price and the ability of the Company to raise equity capital in the future. Upon completion of this Offering, the Company will have outstanding 15,024,080 shares of Common Stock. Of these shares, the 2,900,000 shares of Common Stock sold in this Offering and the 8,820,000 shares sold in the Company's prior public offerings will be freely tradeable without restriction or limitation under the Securities Act, except to the extent such shares are subject to the agreement with the Representatives of the Underwriters described below, and except for any shares purchased by "affiliates," as that term is deemed under the Securities Act, of the Company. The remaining 3,304,080 shares are "restricted securities" within the meaning of Rule 144 adopted under the Securities Act (the "Restricted Shares"). The Restricted Shares were issued by the Company in the Conversion in reliance upon an exemption from registration under the Securities Act. 55 58 UNDERWRITERS Under the terms and subject to the conditions in the Underwriting Agreement dated the date of this Prospectus (the "Underwriting Agreement"), the Company and the Selling Shareholders have agreed to sell an aggregate of 2,900,000 shares of Common Stock and the U. S. Underwriters named below, for whom Morgan Stanley & Co. Incorporated, The Robinson-Humphrey Company, Inc., J.C. Bradford & Co. and Equitable Securities Corporation are serving as U.S. Representatives, have severally agreed to purchase, and the International Underwriters named below, for whom Morgan Stanley & Co. International Limited, The Robinson-Humphrey Company, Inc., J.C. Bradford & Co. and Equitable Securities Corporation are serving as International Representatives, have severally agreed to purchase, the respective number of shares of Common Stock set forth opposite their names below:
NUMBER OF NAME SHARES - --------------------------------------------------------------------------------- ---------- U.S. Underwriters: Morgan Stanley & Co. Incorporated.............................................. The Robinson-Humphrey Company, Inc. ........................................... J.C. Bradford & Co. ........................................................... Equitable Securities Corporation............................................... ---------- Subtotal.................................................................... 2,320,000 ---------- International Underwriters: Morgan Stanley & Co. International Limited..................................... The Robinson-Humphrey Company, Inc. ........................................... J.C. Bradford & Co............................................................. Equitable Securities Corporation............................................... ---------- Subtotal.................................................................... 580,000 ---------- Total.................................................................. 2,900,000 ==========
The U.S. Underwriters and the International Underwriters are collectively referred to as the "Underwriters." The Underwriting Agreement provides that the obligations of the several Underwriters to pay for and accept delivery of the shares of Common Stock offered hereby are subject to the approval of certain legal matters by counsel and to certain other conditions. The Underwriters are obligated to take and pay for all the shares of Common Stock offered hereby if any such shares are taken. Pursuant to the Agreement Between U.S. Underwriters and International Underwriters, each U.S. Underwriter has represented and agreed that, with certain exceptions, (a) it is not purchasing any U.S. Shares (as defined below) being sold by it for the account of anyone other than a United States or Canadian Person (as defined below) and (b) it has not offered or sold, and will not offer or sell, directly or indirectly, any U.S. Shares or distribute any prospectus relating to the U.S. Shares outside the United States or Canada or to anyone other than a United States or Canadian Person. Pursuant to the Agreement Between U.S. and International Underwriters, each International Underwriter has represented and agreed that, with certain exceptions, (a) it is not purchasing any International Shares (as defined below) being sold by it for the account of any United States or Canadian Person and (b) it has not offered or sold, and will not offer or sell, directly or indirectly, any International Shares or distribute any prospectus relating to the International Shares within the United States or Canada or to any United States or Canadian Person. With respect to any Underwriter that is a U.S. Underwriter and an International Underwriter, the foregoing representations and agreements (i) made by it in its capacity as a U.S. Underwriter shall apply only to shares purchased by it in its capacity as a U.S. Underwriter, (ii) made by it in its capacity as an International Underwriter shall apply only to shares purchased by it in its capacity as an International Underwriter, and (iii) do not restrict its ability to distribute any prospectus relating to the shares of Common Stock to any person. The foregoing limitations do not apply to stabilization transactions or to certain other transactions specified in the Agreement Between U.S. Underwriters and International Underwriters. As used herein, "United States or Canadian Person" means any national or resident of the United States or Canada or any corporation, pension, profit-sharing, or other trust or 56 59 other entity organized under the laws of the United States or Canada or of any political subdivision thereof (other than a branch located outside the United States and Canada of any United States or Canadian Person) and includes any United States or Canadian branch of a person who is otherwise not a United States or Canadian Person. All shares of Common Stock to be purchased by the U.S. Underwriters and the International Underwriters under the Underwriting Agreement are referred to herein as the "U.S. Shares" and the "International Shares," respectively. Pursuant to the Agreement Between U.S. Underwriters and International Underwriters, sales may be made between the U.S. Underwriters and International Underwriters of any number of shares of Common Stock to be purchased pursuant to the Underwriting Agreement as may be mutually agreed. The per share price of any shares so sold shall be the Price to Public set forth on the cover page hereof, in United States dollars, less an amount not greater than the per share amount of the concession to dealers set forth below. Pursuant to the Agreement Between U.S. Underwriters and International Underwriters, each U.S. Underwriter has represented that if has not offered or sold, and has agreed not to offer or sell, any shares of Common Stock, directly or indirectly, in Canada in contravention of the securities laws of Canada or any province or territory thereof and has represented that any offer of shares of Common Stock in Canada will be made only pursuant to an exemption from the requirements to file a prospectus in the province or territory of Canada in which such offer is made. Each U.S. Underwriter has further agreed to send any dealer who purchases from it any shares of Common Stock a notice stating in substance that, by purchasing such shares of Common Stock, such dealer represents and agrees that it has not offered or sold, and will not offer or sell, directly or indirectly, any of such shares of Common Stock in Canada or to, or for the benefit of, any resident of Canada in contravention of the securities laws of Canada or any province or territory thereof and that any offer of shares of Common Stock in Canada will be made only pursuant to an exemption from the requirement to file a prospectus in the province of Canada in which such offer is made, and that such dealer will deliver to any other dealer to whom it sells any of such shares of Common Stock a notice to the foregoing effect. Pursuant to the Agreement Between U.S. Underwriters and International Underwriters, each International Underwriter has represented and agreed that (a) it has not offered or sold and will not offer or sell any shares of Common Stock in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing, or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations (1995) (the "Regulations"); (b) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 and the Regulations with respect to anything done by it in relation to the shares of Common Stock offered hereby in, from, or otherwise involving the United Kingdom; and (c) it has only issued or passed on and will only issue or pass on to any person in the United Kingdom any document received by it in connection with the issue of the shares of Common Stock if that person is of a kind described in Article 11(3) of the Financial Services Act 1986, (Investment Advertisement) (Exemptions) Order 1996, or is a person to whom such document may otherwise lawfully be issued or passed on. Pursuant to the Agreement Between U.S. Underwriters and International Underwriters, each International Underwriter has represented and agreed that it has not offered or sold, and agrees not to offer or sell, directly or indirectly, in Japan or to or for the account of any resident thereof, any of the shares of Common Stock acquired in connection with the distribution contemplated hereby, except for offers or sales to Japanese International Underwriters or dealers and except pursuant to any exemption from the registration requirements of the Securities and Exchange Law of Japan. Each International Underwriter further agrees to send to any dealer who purchases from it any of the shares of Common Stock a notice stating in substance that, by purchasing such shares, directly or indirectly in Japan or to or for the account of any resident thereof except pursuant to any exemption from the registration requirements of the Securities and Exchange Law of Japan, and that such dealer will send to any other dealer to whom it sells any of such shares of Common Stock a notice containing substantially the same statement as contained in the foregoing. The Underwriters propose to offer part of the shares of Common Stock directly to the public at the Price to Public set forth on the cover page hereof and part to certain dealers at a price which represents a concession 57 60 not in excess of $. a share below the public offering price. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $. a share to other Underwriters or to certain dealers. After the initial offering of the shares of Common Stock, the offering price and other selling terms may from time to time be varied by the Underwriters. Representatives of the Underwriters have informed the Company that the Underwriters do not intend sales to discretionary accounts to exceed five percent of the total number of shares of Common Stock offered by them. Pursuant to the Underwriting Agreement, the Company has granted the U.S. Underwriters an option, exercisable for 30 days from the date of this Prospectus, to purchase up to an aggregate of 435,000 additional shares of Common Stock at the Price to Public on the cover page hereof, less Underwriting Discounts and Commissions. The U.S. Underwriters may exercise such option to purchase solely for the purpose of covering over-allotments, if any, made in connection with the Offering. To the extent such option is exercised, each U.S. Underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of such additional shares of Common Stock as the number set forth next to such U.S. Underwriter's name in the preceding table bears to the total number of shares of Common Stock offered by the U.S. Underwriters hereby. The Company and all of its executive officers and directors have agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, they will not (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right, or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock (whether such shares or any such securities are now owned by such stockholder or acquired after the date of the Prospectus), or (ii) enter into any swap or other arrangement that transfers to another in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise, for a period of 90 days after the date of this Prospectus, other than the sale to the Underwriters of any shares of Common Stock pursuant to the Underwriting Agreements. The Company and the Underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. The rules of the Commission generally prohibit the Underwriters from making a market in the Common Stock during the two business day period to commencement of sales in this Offering (the "Cooling Off Period"). The Commission has, however, adopted Rule 10b-6A ("Rule 10b-6A") which provides an exemption from such prohibition for certain passive market making transactions. Such passive market making transactions must comply with applicable price and volume limits and must be identified as passive market making transactions. In general, pursuant to Rule 10b-6A, a passive market maker may display its bid for a security at a price not in excess of the highest independent bid for the security. If an independent bid is lowered below the passive market maker's bid, however, such bid must then be lowered when certain purchase limits are exceeded. Further, net purchases by a passive market maker on each day are generally limited to a specified prercentage of the passive market maker's average daily trading volume in a security during a specified prior period and must be discontinued when such limit is reached. Pursuant to the exemption provided by Rule 10b-6A, certain of the Underwriters and selling group members may engage in passive market making in the Common Stock during the Cooling Off Period. Passive market making may stabilize the market price of the Common Stock at a level above that which might otherwise prevail and if commenced, may be discontinued at any time. Raymond H. Pirtle, Jr., a director of the Company, is also a managing director and member of the Board of Directors of Equitable. The principal business address of each of the Representatives is as follows: Morgan Stanley & Co. Incorporated, 1585 Broadway, New York, New York 10036; The Robinson-Humphrey Company, Inc., 3333 Peachtree Road, N.E., Atlanta, Georgia 30326; J.C. Bradford & Co., 330 Commerce Street, Nashville, 58 61 Tennessee 37201; and Equitable Securities Corporation, 800 Nashville City Center, 511 Union Street, Nashville, Tennessee 37219-1743. The Robinson-Humphrey Company, Inc. ("Robinson-Humphrey"), one of the underwriters in this Offering, has been engaged by the Company as its exclusive placing agent in connection with the obtaining and placement of the ING Credit Facility. Robinson-Humphrey has received a fee equal to 0.5% of the aggregate debt commitment. In addition, Sirrom agreed to indemnify Robinson-Humphrey with respect to certain matters. LEGAL MATTERS Certain legal matters with respect to the validity of the shares of Common Stock offered hereby will be passed upon for the Company by Bass, Berry & Sims PLC, Nashville, Tennessee. Certain legal matters related to the Offering will be passed upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP. CUSTODIAN, TRANSFER AND DIVIDEND PAYING AGENT AND REGISTRAR The Company's securities are held under a Custodial Services Agreement with First American National Bank (Trust Department). The address of the custodian is First American Center, Nashville, Tennessee 37237. The Company's assets are held under bank custodianship in compliance with the 1940 Act. The Custodial Services Agreement with First American Trust Company provides for an annual fee, payable quarterly, equal to approximately [.035%] of the assets held pursuant to the Custodial Services Agreement. First Union National Bank will act as the Company's transfer and dividend paying agent and registrar. The principal business address of First Union National Bank is 230 South Tryon Street, Charlotte, North Carolina 28288-1153. REPORTS TO SHAREHOLDERS The Company will furnish unaudited quarterly and audited annual reports to the holders of its securities. The annual report will include a list of investments held by the Company. INDEPENDENT PUBLIC ACCOUNTANTS The audited financial statements included in this Prospectus and elsewhere in the Registration Statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. The principal business address of Arthur Andersen LLP is 424 Church Street, Nashville, Tennessee 37219. 59 62 INDEX TO FINANCIAL STATEMENTS
PAGE ---- SIRROM CAPITAL CORPORATION Report of Independent Public Accountants.............................................. F-2 Balance Sheets as of December 31, 1994 and 1995 and September 30, 1996 (unaudited).... F-3 Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995 and for the Nine Months Ended September 30, 1995 and 1996 (unaudited)....................... F-4 Statements of Changes in Partners' Capital and Shareholders' Equity for the Years Ended December 31, 1993, 1994 and 1995 and the Nine Months Ended September 30, 1996 (unaudited)......................................................................... F-5 Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995 and the Nine Months Ended September 30, 1995 and 1996 (unaudited)........................... F-6 Financial Highlights Per Share Data for the Year Ended December 31, 1995 and the Nine Months Ended September 30, 1996 (unaudited)................................................... F-7 Ratios/Supplemental Data for the Years Ended December 31, 1993, 1994 and 1995 and the Nine Months Ended September 30, 1996 (unaudited)............................. F-7 Notes to Financial Statements......................................................... F-8 Quarterly Financial Information for the Years 1994 and 1995 (unaudited)............... F-15 Portfolio of Investments As of December 31, 1994............................................................. F-16 As of December 31, 1995............................................................. F-21 As of September 30, 1996 (unaudited)................................................ F-29
F-1 63 SIRROM CAPITAL CORPORATION REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of Sirrom Capital Corporation: We have audited the accompanying balance sheets, including the portfolio of investments of SIRROM CAPITAL CORPORATION (see Note 1) as of December 31, 1994 and 1995, and the related 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, 1995 and financial highlights for the periods indicated thereon. 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. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sirrom Capital Corporation at December 31, 1994 and 1995 and the results of its operations, the changes in Partners' capital and shareholders' equity and its cash flows for each of the three years in the period ended December 31, 1995 and financial highlights for the periods indicated thereon, in conformity with generally accepted accounting principles. As explained in Note 2, the financial statements include investments valued at $86,383,594 (95% of total assets) and $170,210,719 (96% of total assets) as of December 31, 1994 and 1995, respectively, whose values have been estimated by the Board of Directors in the absence of readily ascertainable market values. However, the estimated values may differ significantly from the values that would have been used had a ready market for the securities existed, and the differences could be material. ARTHUR ANDERSEN LLP Nashville, Tennessee September 1, 1996 F-2 64 SIRROM CAPITAL CORPORATION BALANCE SHEETS
DECEMBER 31, --------------------------- SEPTEMBER 30, 1994 1995 1996 ------------ ------------ ------------ (UNAUDITED) ASSETS Investments, at fair value: Loans.............................................. $ 72,336,480 $144,854,517 $220,049,964 Equity interests................................... 7,576,613 15,912,467 25,578,037 Warrants........................................... 7,548,851 11,513,183 15,087,636 ------------ ------------ ------------ Total investments (cost of $82,342,194, $162,466,881, and $247,958,383, respectively)............................ 87,461,944 172,280,167 260,715,637 Investment in unconsolidated subsidiary.............. 834,482 840,092 427,743 Cash and cash equivalents............................ 137,247 195,069 20,789,140 Interest receivable.................................. 1,302,662 2,119,567 2,455,789 Debenture costs (less accumulated amortization of $175,487, $383,279, and $728,040, respectively).... 1,049,408 2,020,030 2,420,030 Restricted investment................................ 1,000,000 -- Furniture and equipment (less accumulated depreciation of $18,565 and $53,523, respectively)...................................... -- 203,860 220,648 Other assets......................................... 18,000 211,165 232,708 ------------ ------------ ------------ Total assets............................... $ 91,803,743 $177,869,950 $287,261,695 ============ ============ ============ LIABILITIES, PARTNERS' CAPITAL AND SHAREHOLDERS' EQUITY Liabilities: Debentures payable to Small Business Administration.................................. $ 51,000,000 $ 73,260,000 $ 83,260,000 Revolving credit facility.......................... 6,389,251 13,200,000 41,811,000 Interest payable................................... 681,008 936,818 1,392,778 Accrued taxes payable.............................. 487,794 1,073,525 3,035,160 Accounts payable and accrued expenses.............. 28,376 213,901 1,223,701 ------------ ------------ ------------ Total liabilities.......................... 58,586,429 88,684,244 130,722,639 ------------ ------------ ------------ Commitments and contingencies Partners' capital and shareholders' equity (Note 1): Partners' capital.................................. 25,398,519 -- -- Common stock -- No par value, 50,000,000 shares authorized, 10,093,570, 12,328,567 at September 30, 1996, (unaudited) issued and outstanding.... -- 74,479,967 132,407,465 Notes receivable from employees.................... (1,980,000) (1,980,000) (1,539,858) Undistributed net realized earnings................ 4,679,053 6,872,453 13,064,204 Unrealized appreciation of investments............. 5,119,742 9,813,286 12,607,245 ------------ ------------ ------------ Total partners' capital and shareholders' equity................................... 33,217,314 89,185,706 156,539,056 ------------ ------------ ------------ Total liabilities, partners' capital and shareholders' equity..................... $ 91,803,743 $177,869,950 $287,261,695 ============ ============ ============
The accompanying notes are an integral part of these statements. F-3 65 SIRROM CAPITAL CORPORATION STATEMENTS OF OPERATIONS
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------------- ------------------------- 1993 1994 1995 1995 1996 ---------- ---------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) OPERATING INCOME: Interest on investments......... $3,514,564 $7,336,816 $13,451,742 $ 9,029,397 $16,837,156 Loan processing fees............ 699,000 901,340 1,899,692 1,561,138 2,369,850 Other income.................... -- -- 223,456 -- 90,585 ---------- ---------- ----------- ----------- ----------- Total operating income................ 4,213,564 8,238,156 15,574,890 10,590,535 19,297,591 ---------- ---------- ----------- ----------- ----------- OPERATING EXPENSES: Interest expense................ 1,427,386 3,123,461 4,771,131 3,360,701 5,979,355 Salaries and benefits........... -- -- 1,081,478 1,035,415 2,180,154 Management fees................. 708,999 1,072,833 -- -- -- Other operating expenses........ 165,811 122,339 1,412,358 693,931 1,477,737 State income tax on interest.... 230,743 457,035 109,035 62,426 -- Amortization expense............ 53,725 117,992 207,792 113,424 378,510 ---------- ---------- ----------- ----------- ----------- Total operating expenses.............. 2,586,664 4,893,660 7,581,794 5,265,897 10,015,756 ---------- ---------- ----------- ----------- ----------- Equity in pretax income of unconsolidated subsidiary....... 207,167 552,867 811,610 609,193 2,573,197 Net operating income.............. 1,834,067 3,897,363 8,804,706 5,933,831 11,855,032 Realized gain (loss) on investments..................... (799,353) (538,025) 1,759,513 445,618 7,206,489 Change in unrealized appreciation (depreciation) of investments... (49,611) 3,356,316 4,693,544 4,146,091 2,793,944 Provision for income taxes........ -- -- (1,020,321) (316,880) (2,764,960) ---------- ---------- ----------- ----------- ----------- Net increase in partners' capital and shareholders' equity resulting from operations....... $ 985,103 $6,715,654 $14,237,442 $10,208,660 $19,090,505 ========== ========== =========== =========== ===========
The accompanying notes are an integral part of these statements. F-4 66 SIRROM CAPITAL CORPORATION STATEMENTS OF CHANGES IN PARTNERS' CAPITAL AND SHAREHOLDERS' EQUITY
UNREALIZED APPRECIATION COMMON STOCK UNDISTRIBUTED (DEPRECIATION) PARTNERS' ------------------------ NOTES RECEIVABLE NET REALIZED OF CAPITAL SHARES AMOUNT FROM EMPLOYEES EARNINGS INVESTMENTS TOTAL ---------------- ---------- ------------ ---------------- ------------- ------------ ------------ SIRROM CAPITAL, L.P.: BALANCE, DECEMBER 31, 1992................... $ 12,178,327 -- $ -- $ -- $ 814,438 $ 1,813,037 $ 14,805,802 Capital contributions........ 3,936,968 -- -- -- -- -- 3,936,968 Capital distributions........ (765,861) -- -- -- -- -- (765,861) Distribution of Harris Williams earnings.... -- -- -- -- (175,350) -- (175,350) Net increase in partners' capital resulting from operations........... -- -- -- -- 1,034,714 (49,611) 985,103 ------------ --------- ------------ ----------- ----------- ----------- ------------ BALANCE, DECEMBER 31, 1993................... 15,349,434 -- -- -- 1,673,802 1,763,426 18,786,662 Capital contributions........ 8,662,178 -- -- -- -- -- 8,662,178 Purchase of ownership in partnership....... 1,980,000 -- -- (1,980,000) -- -- -- Capital distributions........ (593,093) -- -- -- -- -- (593,093) Distribution of Harris Williams earnings.... -- -- -- -- (354,087) -- (354,087) Net increase in partners' capital resulting from operations........... -- -- -- -- 3,359,338 3,356,316 6,715,654 ------------ --------- ------------ ----------- ----------- ----------- ------------ BALANCE, DECEMBER 31, 1994................... 25,398,519 -- -- (1,980,000) 4,679,053 5,119,742 33,217,314 SIRROM CAPITAL CORPORATION: Effect of reorganization (Note 1)................... (25,398,519) 5,948,567 25,398,519 -- -- -- -- Issuance of common stock................ -- 4,145,000 47,712,029 -- -- -- 47,712,029 Net increase in shareholders' equity resulting from operations........... -- -- -- -- 9,543,898 4,693,544 14,237,442 Payment of dividends... -- -- -- -- (3,974,079) -- (3,974,079) Distribution of Capital Gains................ -- -- -- -- (1,201,000) -- (1,201,000) Distribution of Harris Williams earnings.... -- -- -- -- (806,000) -- (806,000) Designation of undistributed capital gains, net of tax (Note 13)............ -- -- 1,369,419 -- (1,369,419) -- -- ------------ --------- ------------ ----------- ----------- ----------- ------------ BALANCE, DECEMBER 31, 1995................... -- 10,093,567 74,479,967 (1,980,000) 6,872,453 9,813,286 89,185,706 Issuance of common stock (unaudited).... -- 2,300,000 58,737,143 -- -- -- 58,737,143 Employee shares repurchased (unaudited).......... -- (65,000) (809,645) -- -- -- (809,645) Payment on notes receivable (unaudited).......... -- -- -- 440,142 -- -- 440,142 Payment of dividends (unaudited).......... -- -- -- -- (7,605,249) (7,605,249) Distribution of Harris Williams earnings (unaudited).......... -- -- -- -- (2,499,561) -- (2,499,561) Net increase in shareholders' equity resulting from operations (unaudited).......... -- -- -- -- 16,296,561 2,793,959 19,090,520 ------------ --------- ------------ ----------- ----------- ----------- ------------ BALANCE, SEPTEMBER 30, 1996 (unaudited)....... $ -- 12,328,567 $132,407,465 $ (1,539,858) $13,064,204 $ 12,607,245 $156,539,056 ============ ========= ============ =========== =========== =========== ============
The accompanying notes are an integral part of these statements. F-5 67 SIRROM CAPITAL CORPORATION STATEMENTS OF CASH FLOWS
NINE MONTHS YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30, ------------------------------------------- --------------------------- 1993 1994 1995 1995 1996 ------------- ------------ ------------ ------------ ------------ (UNAUDITED) (UNAUDITED) OPERATING ACTIVITIES: Net increase in partners' capital and shareholders' equity resulting from operations.................................. $ 985,103 $ 6,715,654 $ 14,237,442 $ 10,208,660 $ 19,090,505 Adjustments to reconcile net increase to net cash provided by operating activities: Net unrealized (appreciation) depreciation of investments............................ 49,611 (3,356,316) (4,693,544) (4,146,091) (2,793,944) Realized loss (gain) on investments......... 799,353 538,025 (1,759,513) (445,618) (7,206,489) Equity in income of unconsolidated subsidiary................................ (207,166) (552,867) (811,610) (609,193) (2,587,199) Amortization of debenture costs............. 53,725 117,992 207,792 108,616 374,009 Increase in interest receivable............. (608,947) (508,321) (816,905) (735,812) (336,222) Decrease in prepaid management fee.......... 33,000 -- -- -- -- Increase (decrease) in accounts payable and accrued expenses.......................... (36,655) 28,376 185,525 71,624 1,009,800 Amortization of organization costs.......... 6,000 6,000 6,000 4,500 4,500 Depreciation of fixed assets................ -- -- 18,565 9,160 34,957 Increase (decrease) in prepaid interest..... 12,350 (12,350) -- (964,286) (162,944) Increase (decrease) in accrued taxes payable................................... 205,515 282,279 585,731 (164,318) 1,961,635 Increase in interest payable................ 308,501 261,158 255,810 382,632 455,960 ------------ ------------ ------------ ------------ ------------ Net cash provided by operating activities............................ 1,600,390 3,519,630 7,415,293 3,719,874 9,844,568 ------------ ------------ ------------ ------------ ------------ INVESTING ACTIVITIES: Proceeds from sale of investments............. 2,355,147 9,769,378 27,303,888 13,873,850 24,873,391 Investments originated or acquired............ (33,632,035) (44,162,021) (105,669,054) (72,703,559) (103,687,232) Purchase of fixed assets...................... -- -- (222,425) (195,526) (51,745) (Increase) decrease in restricted investments................................. -- (1,000,000) 1,000,000 -- -- (Increase) decrease in other assets........... -- -- (199,165) (9,165) 515,707 ------------ ------------ ------------ ------------ ------------ Net cash used in investing activities... (31,276,888) (35,392,643) (77,786,756) (59,034,400) (78,349,879) ------------ ------------ ------------ ------------ ------------ FINANCING ACTIVITIES: Proceeds from debentures payable to Small Business Administration..................... 24,000,000 17,000,000 22,260,000 22,260,000 10,000,000 Proceeds from revolving credit facilities..... 8,323,500 42,978,109 62,638,595 32,171,594 73,200,766 Repayment of line of credit borrowings........ (8,323,500) (36,588,858) (55,827,846) (38,560,845) (44,589,766) Increase in debenture costs................... (462,900) (580,995) (1,178,414) (619,976) (774,009) Proceeds from capital contributions........... 3,936,968 8,162,178 -- -- -- Distribution of capital....................... (765,861) (593,093) -- -- -- Issuance of common stock...................... -- -- 47,712,029 47,749,695 59,237,143 Payment of dividends.......................... -- -- (3,974,079) (2,349,552) (7,605,249) Distribution of Capital Gains................. -- -- (1,201,000) (690,788) -- Employee shares repurchased................... -- -- -- -- (809,645) Payment on notes receivable................... -- -- -- -- 440,142 ------------ ------------ ------------ ------------ ------------ Net cash provided by financing activities............................ 26,708,207 30,377,341 70,429,285 59,960,128 89,099,382 ------------ ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................... (2,968,291) (1,495,672) 57,822 4,645,602 20,594,071 CASH AND CASH EQUIVALENTS, beginning of year.... 4,601,210 1,632,919 137,247 137,247 195,069 ------------ ------------ ------------ ------------ ------------ CASH AND CASH EQUIVALENTS, end of year.......... $ 1,632,919 $ 137,247 $ 195,069 $ 4,782,849 $ 20,789,140 ============ ============ ============ ============ ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid................................. $ 1,131,235 $ 2,707,488 $ 4,525,701 $ 2,978,033 $ 5,529,590 ============ ============ ============ ============ ============ Taxes paid.................................... $ 25,228 $ 174,756 $ 493,465 $ 396,037 $ 976,894 ============ ============ ============ ============ ============
The accompanying notes are an integral part of these statements. F-6 68 SIRROM CAPITAL CORPORATION FINANCIAL HIGHLIGHTS
NINE MONTHS YEAR ENDED ENDED PER SHARE DATA(1) DECEMBER 31, 1995 SEPTEMBER 30, 1996 - ------------------------------------------------------------- ----------------- ------------------ (UNAUDITED) Net asset value, beginning of year........................... $ 5.58(2) $ 8.84 ---------- ---------- Net operating income......................................... .97 1.05 Net realized and unrealized gains or losses on investments... 3.15(3) 3.51 ---------- ---------- Total from investment operations............................. 4.12 4.56 ---------- ---------- Less: Dividends on net investment income..................... .53 .70 Distributions on realized capital gains................ .33(4) -- ---------- ---------- Total Distributions................................ .86 .70 ---------- ---------- Net asset value, end of period............................... $ 8.84 $ 12.70 ========== ========== Per share market value, end of period........................ $ 17.19 $ 30.17 ========== ========== Shares outstanding, end of period............................ 10,093,570 12,328,567 ========== ==========
DECEMBER 31, --------------------------- RATIOS/SUPPLEMENTAL DATA 1993 1994 1995 SEPTEMBER 31, 1996 - ------------------------------------------------- ------- ------- ------- ------------------ (UNAUDITED) Net assets, end of period (in thousands)......... $18,651 $33,217 $89,186 $156,539 Ratio of operating expenses to average net assets......................................... 15.5% 19.2% 12.6% 10.9%(5) Ratio of net operating income to average net assets......................................... 10.9% 15.0% 14.4% 12.9%(5)
- --------------- (1) Prior to 1995 the Company operated as a partnership, therefore no per share information is available. (2) Net asset value at beginning of the period is calculated based on partners' capital of $33,917,734 at December 31, 1994, 5,050,116 shares of common stock issued at conversion of the Partnership to the Company at February 1, 1995 and the effect of issuing 898,454 shares for Harris Williams. (3) Per share net realized and unrealized gains or losses includes the effect of stock issuances at per share prices in excess of the Company's per share net asset value. (4) The per share amount includes distributions paid and realized capital gains designated as distributed but retained by the Company. See Note 13. (5) Represents annualized ratios based on the nine months ended September 30, 1996. The accompanying notes are an integral part of these statements. F-7 69 SIRROM CAPITAL CORPORATION NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION Sirrom Capital Corporation (the "Company"), a Tennessee Corporation, was formed in November 1994 and Sirrom Capital, L.P. (the "Partnership") became a partnership under the laws of the State of Tennessee in November 1991. The accompanying financial statements have been prepared on a basis appropriate for investment companies as enumerated in the American Institute of Certified Public Accountants' Audit and Accounting Guide on Audits of Investment Companies. The Company is a non-diversified, closed-end investment company, which has elected to be treated as a business development company under the Investment Company Act of 1940 (the "40 Act"). The Company is also a small business investment company ("SBIC") licensed under the Small Business Investment Act of 1958 (the "1958 Act"). The Company was licensed by the U.S. Small Business Administration (the "SBA") on May 14, 1992. Under applicable SBA regulations, the Company is restricted to investing only in qualified small business concerns in the manner contemplated by the 1958 Act, as amended. Additionally, beginning in February 1995, the Company elected to be taxed as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. The Company's objectives are to achieve both a high level of current income from interest on loans and fees and long-term growth in the value of its net assets through equity interests primarily in small, privately owned companies. The Company targets small businesses that the Company believes meet certain criteria, including the potential for significant growth, adequate collateral coverage, experienced management teams, sophisticated outside equity investors and profitable operations. Effective February 1, 1995, the partners of the Partnership transferred, in a tax free conversion, their partnership interests to the Company in exchange for the issuance of 5,050,116 shares of common stock of the Company. The common stock was received by each partner in proportion to the partner's percentage interest in the Partnership. As a result of this exchange, the Partnership was dissolved and liquidated, with all of the assets and liabilities of the Partnership (including the SBIC license which was obtained by the Partnership in May 1992) being thereby assigned and transferred to the Company. This transaction was accounted for as a reorganization of entities under common control, in a manner similar to a pooling of interests. In August 1996, the Company acquired the ownership interests of Harris Williams & Co., L.P. ("Harris Williams"), for 898,454 shares of common stock of the Company. After the acquisition, Harris Williams began operating as a "C" corporation. Harris Williams is a merger and acquisition advisory services firm located in Richmond, Virginia, that is being operated as a wholly-owned subsidiary of the Company. The acquisition of Harris Williams is accounted for as a pooling of interests. The Balance Sheets as of December 31, 1994 and 1995 and September 30, 1996 (unaudited) and the Statements of Operations and Cash Flows for each of the three years in the period ended December 31, 1995 and the nine months ended September 30, 1995 and 1996 (unaudited) have been restated accordingly to reflect the operations of Harris Williams as an unconsolidated subsidiary accounted for by the equity method of accounting in conformity with the requirements of the 1940 Act. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 which could be realized in the normal course of business which anticipates the Company holding the loan to maturity and realizing the face value of the loan. Fair F-8 70 SIRROM CAPITAL CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) value normally corresponds to cost unless the borrower's condition or external factors lead to a determination of fair value at a higher or a lower amount. Equity interests and warrants for which there is not a public market are valued based on factors such as significant equity financing by sophisticated, unrelated new investors, history of positive cash flow from operations, the market value of comparable publicly traded companies (discounted for illiquidity) and other pertinent factors. The Board of Directors also considers recent offers to purchase a portfolio company's securities when valuing warrants. The Company's investments in stocks of public companies that it is not permitted to sell in the public market as a result of securities laws restrictions, lock-up agreements and other similar restrictions are valued at 70% of market value at the balance sheet date. All other publicly traded stocks are valued at 90% of market value at the balance sheet date. At December 31, 1994 and 1995, the investment portfolio included investments totaling $86,383,594 and $170,210,719, respectively, whose values had been estimated by the Board of Directors in the absence of readily ascertainable market values. At September 30, 1996, the investment portfolio included investments whose values have been estimated by the Board of Directors totaling $250,307,000 (unaudited). 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 or losses 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. All other changes in the valuation of portfolio investments are included as changes in the unrealized appreciation or depreciation of investments in the statement of operations. Description of Loans Terms The loans to small business concerns included in investments bear interest at rates ranging from 6.50% to 14.00%. Typically, interest is payable in monthly or quarterly installments over five years with the entire principal amount typically due at maturity. These loans are generally collateralized by the assets of the borrower, certain of which are subject to prior liens, and/or guarantees. Loan Processing Fees The Company recognizes loan processing fees as income when received. 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. Debenture Costs Debenture costs are amortized over ten years which represents the term of the ten (eleven at September 30, 1996, unaudited) SBA debentures, as discussed in Note 5. F-9 71 SIRROM CAPITAL CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Income Taxes The financial statements for 1993 and 1994 do not include a provision for federal income taxes because the partners are taxed based on their respective share of partnership earnings. During these years, the Company was subject to state income taxes on interest. Beginning in February 1995, the Company elected to be taxed as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code (the "Code"). If the Company, as a RIC, satisfies certain requirements relating to the source of its income, the diversification of its assets and the distribution of its net income, the Company is generally taxed as a pass through entity which acts as a partial conduit of income to its shareholders. In order to maintain its RIC status, the Company must in general: a) derive at least 90% of its gross income from dividends, interest and gains from the sale or disposition of securities b) derive less than 30% of its gross income from the sale or disposition of securities held for less than three months, c) meet investment diversification requirements defined by the Code and d) distribute to shareholders 90% of its net income (other than long-term capital gains). The Company currently intends to meet the RIC qualifications in future years. Therefore, the Company has not provided for federal income taxes on the unrealized appreciation of investments. Partners' Capital/Shareholders' Equity During 1993 and 1994, net operating income (loss), realized gains (losses) and unrealized gains (losses) were allocated one percent (1%) and ninety-nine percent (99%) to the General Partner and Limited Partners, respectively. During November 1994, six employees were granted ownership interests in the partnership at a purchase price equal to the approximate fair value of each ownership interest. In connection therewith, each employee executed a promissory note for the purchase price of such interest. The promissory notes bear interest at 7.25% per annum with interest payable annually. All notes mature on November 1, 2001. As discussed in Note 1, the interests in the partnership were subsequently exchanged for the Company's common stock. The stock must be resold to the Company if the employee is no longer employed by the Company for a period of not less than three years from the date of purchase. The notes receivable from employees were shown as a reduction in partners' capital and a reduction to common stock in the amount of $1,980,000 at December 31, 1994 and 1995 and $1,539,858 at September 30, 1996 (unaudited). 3. 1995 WARRANT VALUATIONS During 1995, the Company's Board of Directors approved warrant and stock valuations totaling approximately $6,000,000 (the investments in Premiere Technologies, Inc. attributed to 84% of this amount) that did not conform to the valuation guidelines of the SBA. SBA guidelines state that increases to investment valuations can be made after a significant equity financing occurs by an unrelated, new investor, but not prior to such a transaction. The valuations in question were based on impending public offerings, purchase offers and private placements. 4. RESTRICTED INVESTMENT The restricted investment of $1,000,000 at December 31, 1994 represented a certificate of deposit that the Company pledged to a bank as collateral on behalf of one of the Company's portfolio investments. The Company sold this investment during 1995 and no longer pledges the collateral. F-10 72 SIRROM CAPITAL CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 5. DEBENTURES PAYABLE TO SMALL BUSINESS ADMINISTRATION As of December 31, 1995, the Company had ten debentures totaling $73,260,000 payable to the SBA with semiannual interest only payments based upon rates ranging from 6.12% to 8.20% per annum, with scheduled maturity dates as follows:
DATE AMOUNT ------------------------------------------------------------------------ ----------- 2002.................................................................... $10,000,000 2003.................................................................... 24,000,000 2004.................................................................... 17,000,000 2005.................................................................... 22,260,000 ----------- $73,260,000 ==========
As of September 30, 1996, the Company had eleven debentures payable to the SBA totaling $83,260,000 (unaudited). 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, 1993, 1994 and 1995 totaled $1,385,896, $2,857,398 and $4,243,851, respectively. Interest expense on the debentures for the nine months ended September 30, 1996 totaled $4,243,996 (unaudited). 6. REVOLVING CREDIT FACILITY During 1994 and 1995, the Company maintained a line of credit agreement with a bank, whereby it could borrow up to $15,000,000 at the annual rate of one-half percent per annum in excess of the bank's prime rate. As of December 31, 1994, $6,389,251 was outstanding. During December 1995, the Company entered into a new revolving credit facility with a bank, whereby it may borrow up to $50,000,000 at LIBOR plus 1.75% (7.50% at December 31, 1995). As of December 31, 1995, $13,200,000 was outstanding. This agreement expires on December 27, 1998. As of September 30, 1996, $41,811,000 (unaudited) was outstanding. Interest expense related to lines of credit for the period ended December 31, 1993, 1994 and 1995 was $41,490, $266,063 and $527,280, respectively. The Company entered into an interest rate swap agreement that effectively converts the variable rate on $30,000,000 of borrowings on the revolving credit facility to a fixed rate of 8.15%. Under the agreement, the Company will exchange the interest rate difference between the fixed and variable rates on incremental amounts of $3,000,000 a month beginning in April 1996. Interest expense related to the Revolving Credit Facility for the period ended September 30, 1996 was $1,735,352 (unaudited). The revolving credit facility provides that repayment of amounts outstanding can be accelerated if certain executive management cease to be employed by the Company. 7. INCOME TAXES For the years ended December 31, 1993, 1994 and 1995, the statements of operations include a provision for state income taxes on interest totaling $230,743 and $457,035 and $109,035, respectively. There is no provision for state income taxes on interest for the nine months ended September 30, 1996 (unaudited). For the year ended December 31, 1995 the Company provided for federal income tax at a 35% rate and excise taxes at a 4% rate on taxable net investment income as defined by the Code and realized gains not distributed to shareholders. The provision for income taxes includes $737,380 of tax provided on the retained deemed distribution as discussed in Note 13. For the nine months ended September 30, 1996, the Company provided for taxes totaling $2,764,960 (unaudited). F-11 73 SIRROM CAPITAL CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 8. MANAGEMENT FEES AND OPERATING EXPENSES During 1993 and 1994, the Company agreed to pay an annual management fee to the General Partner of the partnership equal to the actual expenses incurred by the General Partner of the partnership not to exceed two percent of the gross value of the partnership's assets. The amount of the fee for the periods ended December 31, 1993 and 1994 totaled $708,999 and $1,072,833, respectively. In connection with the reorganization discussed in Note 1, the agreement with the General Partner was terminated effective February 1, 1995 at which time the Company began incurring expense for salaries and benefits and direct operating expenses. 9. EMPLOYEE STOCK OPTION PLAN During 1994, the Company adopted the Amended and Restated 1994 Employee Stock Option Plan which permits the issuance of options to purchase the Company's common stock to selected employees. The Plan reserves 500,000 shares of common stock for grant and provides that the terms of each award be determined by a committee of the Board of Directors. 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 the date of the grant. During 1994, no stock options were granted. In February 1996, the Company adopted the 1996 Employee Stock Incentive Plan (the "1996 Plan") that permits the issuance of options to purchase shares of the Company's Common Stock to selected employees. The 1996 Plan reserves 390,000 shares of Common Stock for grant and provides that the terms of each award be determined by a committee of the Board of Directors. As of September 30, 1996, options to purchase 893,932 shares had been granted to 43 employees under the 1994 Plan and 1996 Plan (unaudited). Those options have exercise prices ranging from $11.00 per share to $26.333 per share, and the options vest over either three or five year periods ranging from June 1996 through September 2001 (unaudited). Each option expires ten years from the date of grant. Of the shares noted above, 3,932 shares have been granted under the 1996 Plan, subject to approval of an amendment to 1996 Plan which authorizes an increase in the number of shares issuable thereunder (unaudited). 10. DIRECTORS STOCK OPTION PLAN During 1995, the Company adopted a 1995 Stock Option Plan for Non Employee Directors which permits the issuance of options to purchase the Company's common stock to non employee directors. The Plan reserves 114,000 shares of common stock for automatic grant. Upon shareholder approval of the plan, directors elected prior to December 1, 1994 will receive options to purchase 18,000 shares and directors elected after December 1, 1994 will receive options to purchase 12,000 shares. Upon the initial election of a future non employee director, an option to acquire 6,000 shares of common stock will be issued to the director. Under the terms of the Plan, the options' exercise price may not be less than the fair market value of a share of common stock on date of grant. 11. PRIVATE PLACEMENT During November 1994, the Company completed a private placement that resulted in proceeds of approximately $3.6 million. In connection with the conversion of partnership interests to common stock as discussed in Note 1, the Company exchanged 441,921 shares of common stock for the partnership interests of the private placement investors. F-12 74 SIRROM CAPITAL CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 12. PUBLIC OFFERINGS Initial Public Offering In February 1995, the Company completed an initial public offering of 2,645,000 shares of common stock at a price of $11.00 per share. The net proceeds of the offering, after underwriting commissions and expenses, were approximately $26,498,000. Secondary Offering In August 1995, the Company completed a public offering of 2,500,000 shares of common stock at a price of $15.25 per share of which 1,500,000 shares were sold by the Company. The net proceeds to the Company of the offering, after underwriting commissions and expenses, were approximately $21,214,000. 13. DIVIDENDS AND DISTRIBUTIONS During 1995, the Company paid dividends of $5,175,079 of which $3,974,079 and $1,201,000 were derived from net operating income and realized capital gains, respectively. The Company also elected to designate $2,106,799 of the undistributed realized capital gains as a "deemed" distribution to shareholders on record as of the end of the year. Accordingly, $1,369,419, net of taxes of $737,380, of this designated distribution has been retained and reclassified from undistributed net realized earnings to common stock. During the nine months ending September 31, 1996, the Company paid dividends of $7,605,000 (unaudited). 14. COMMITMENTS AND CONTINGENCIES The Company leases office space under a five year operating lease that commenced August 1, 1995. Annual rent for 1996 totals $151,000, decreasing to $132,000 for the years 1997 through 1999. Harris Williams leases office space under or operating lease in which rental commitments are payable as follows: 1996 -- $51,183; 1997 -- $53,854 and 1998 -- $18,185. 15. 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, 1994 and 1995 and September 30, 1996 (unaudited) and statements of income for the years ended December 31, 1993, 1994 and 1995 and for nine months ended September 30, 1996 (unaudited) are as follows: BALANCE SHEETS
DECEMBER 31, --------------------- SEPTEMBER 30, 1994 1995 1996 -------- -------- ------------- (UNAUDITED) ASSETS Cash and cash equivalents........................ $738,851 $737,682 $ 776,980 Accounts receivable.............................. 20,352 61,023 46,263 Other assets, net................................ 86,219 85,823 117,171 -------- -------- -------- Total Assets................................ $845,422 $884,528 $ 940,414 ======== ======== ======== LIABILITIES AND STOCKHOLDER EQUITY Liabilities...................................... $ 10,940 $ 44,436 $ 512,671 Stockholder equity............................... 834,482 840,092 427,743 -------- -------- -------- Total liabilities and stockholder equity.... $845,422 $884,528 $ 940,414 ======== ======== ========
F-13 75 SIRROM CAPITAL CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) STATEMENTS OF INCOME
YEAR ENDED DECEMBER NINE MONTHS ENDED ------------------------------------ SEPTEMBER 30, 1993 1994 1995 1996 -------- ---------- ---------- ------------------ (UNAUDITED) REVENUES: Fee Income....................... $498,543 $1,553,862 $2,257,496 $4,716,911 Expense reimbursements and other.......................... 71,614 138,998 398,889 339,037 -------- ---------- ---------- ---------- 570,157 1,692,860 2,656,385 5,055,948 -------- ---------- ---------- ---------- EXPENSES: Salaries and benefits............ 206,607 884,396 1,314,723 1,881,103 Operating expenses............... 156,383 255,597 530,052 601,648 -------- ---------- ---------- ---------- 362,990 1,139,993 1,844,775 2,482,751 -------- ---------- ---------- ---------- Net income....................... $207,167 $ 552,867 $ 811,610 $2,573,197 ======== ========== ========== ==========
Advisory services are typically provided by Harris Williams in accordance with engagement contracts that stipulate a monthly retainer, reimbursement of direct expenses and transaction closing fees. Retainer fees are recognized notably over the retainer period, expense reimbursements are recognized monthly as billed and success fees or recognized at the time of closing. Prior to the acquisition by the Company, Harris Williams operated as a limited partnership since August 1994 and as a Subchapter S corporation prior to August 1994. As such, the statements of income do not include a provision for income tax. 16. SUBSEQUENT EVENTS In June 1996, the Company completed a third public offering of 2,300,000 shares of common stock at a price of $27.50 per share. The net proceeds of the offering after underwriting commissions and expenses, were approximately $59,237,000. In August 1996, the Company completed a corporate reorganization pursuant to which the Company's small business investment company ("SBIC") operations, including its SBIC license, assets and liabilities were transferred to a wholly-owned subsidiary. The subsidiary elected to be taxed as a RIC. 17. RECLASSIFICATIONS Certain reclassifications have been made to the 1993 and 1994 financial statements to conform to the 1995 presentation. F-14 76 SIRROM CAPITAL CORPORATION QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
1994 ------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- Total operating income........................................ $ 1,849 $ 1,909 $ 2,413 $ 2,619 Pre-tax operating income...................................... 892 944 1,271 1,245 Net increase (decrease) in partners' capital resulting from operations.................................................. 531 3,538 (75) 2,721 Per share: Pretax operating income..................................... $ .20 $ .21 $ .26 $ .24 Net increase in partners' capital resulting from operations............................................... .12 .77 (.02) .50 Dividends................................................... -- -- -- --
1995 -------------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- Total operating income........................................ $ 3,159 $ 3,552 $ 4,489 $ 5,186 Pretax operating income....................................... 1,457 1,908 2,632 2,917 Net increase in partners' capital and shareholders' equity resulting from operations................................... 3,058 2,500 4,651 4,028 Per share: Pre-tax operating income.................................... $ .19 $ .22 $ .28 $ .28 Net increase in partners' capital and shareholders' equity resulting from operations................................ .40 .29 .49 .39 Dividends................................................... .13 .23 .21 .29 Market price of common stock:* High........................................................ $ 12 $ 13 3/4 $ 18 3/4 $ 20 Low......................................................... 10 3/4 10 3/4 13 1/4 16 3/4
- --------------- * No public market for the stock prior to February 6, 1995. F-15 77 SIRROM CAPITAL CORPORATION PORTFOLIO OF INVESTMENTS AS OF DECEMBER 31, 1994
LOAN COUPON MATURITY INTEREST LOANS DATE RATE COST FAIR VALUE - -------------------------------------------------- -------- ------- ----------- ----------- Affinity Fund, Inc................................ 06/29/98 12.50% $ 1,485,000 $ 1,490,930 Affinity Fund, Inc................................ 12/28/98 12.50 495,000 495,085 Alpha West Partners I, L.P........................ 12/31/97 12.50 771,308 774,558 Ashe Industries, Inc.............................. 12/28/97 12.50 990,000 994,174 Ashe Industries, Inc.............................. 03/25/99 12.50 445,500 446,250 Ashe Industries, Inc.............................. 05/18/99 12.50 544,500 545,236 Associated Response Services, Inc................. 06/20/99 12.50 1,386,000 1,387,631 Auto Rental Systems, Inc.......................... 10/31/97 12.50 742,500 745,875 Auto Rental Systems, Inc.......................... 06/30/98 13.50 200,000 200,000 BankCard Services Corporation..................... 01/21/98 13.00 297,000 298,200 Behavioral Healthcare Corporation................. 06/30/00 10.50 1,270,000 1,270,000 BiTec Southeast, Inc.............................. 11/03/97 12.50 445,500 447,450 BiTec Southeast, Inc.............................. 11/30/98 12.50 1,188,000 1,190,600 BiTec Southeast, Inc.............................. 11/03/97 12.50 445,500 446,400 BiTec Southeast, Inc.............................. 08/01/99 13.50 800,000 800,000 BiTec Southeast, Inc.............................. 08/01/99 13.50 171,321 171,321 C.J. Spirits, Inc................................. 05/01/97 13.50 742,500 446,375 Capital Network System, Inc....................... 11/30/98 12.50 990,000 992,338 Capital Network System, Inc....................... 01/31/99 12.50 990,000 992,004 CCS Technology Group, Inc......................... 05/01/97 13.00 990,000 995,284 CellCall, Inc..................................... 11/04/97 12.75 990,000 994,341 Central Tennessee Broadcasting, Inc............... 06/27/98 13.00 1,485,000 1,488,950 Central Tennessee Broadcasting, Inc............... 04/30/99 13.00 792,000 793,198 Central Tennessee Broadcasting, Inc............... 08/24/99 13.00 1,089,000 1,089,915 Clearidge, Inc.................................... 09/29/99 13.00 2,000,000 2,000,000 Continental Diamond Cutting Co.................... 10/28/99 13.00 1,500,000 1,500,000 Continental Diamond Cutting Co.................... 12/28/99 13.00 200,000 200,000 Corporate Flight Mgmt., Inc....................... 12/04/97 12.50 346,500 347,949 Cougar Power Products, Inc........................ 11/30/99 13.00 495,000 495,083 Dalcon International, Inc......................... 12/31/94 13.00 25,000 25,000 Dalcon International, Inc......................... 12/31/94 13.00 115,000 115,000 DentureCare, Inc.................................. 07/31/99 11.50 990,000 991,002 Earth Friendly Company............................ 07/29/99 13.00 990,000 990,834 Emerald Pointe Waterpark L.P...................... 05/03/99 12.50 594,000 594,800 Freshnut Food, Inc................................ 02/20/99 12.00 495,000 495,913 Freshnut Food, Inc................................ 11/20/99 13.00 199,000 199,034 Front Royal, Inc.................................. 10/01/99 13.00 1,550,000 1,550,000 Front Royal, Inc.................................. 12/27/99 13.00 675,000 675,000 Fycon Technologies, Inc........................... 03/14/98 13.00 1,010,000 815,500 Fycon Technologies, Inc........................... 09/30/94 13.00 17,500 17,500 Gates Communications, L.P......................... 12/31/98 12.50 990,000 992,171 Golf Corporation of America, Inc.................. 09/16/99 11.00 300,000 300,000 Gulfstream International Airlines Inc............. 07/29/99 13.00 1,490,000 1,492,505 Hoveround Corporation............................. 06/11/98 13.00 495,000 496,372 Hoveround Corporation............................. 11/08/99 13.50 250,000 250,000 Innotech, Inc..................................... 03/23/99 13.00 1,980,000 1,983,330
F-16 78 SIRROM CAPITAL CORPORATION PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF DECEMBER 31, 1994
LOAN COUPON MATURITY INTEREST LOANS DATE RATE COST FAIR VALUE - -------------------------------------------------- -------- ------- ----------- ----------- Innotech, Inc..................................... 08/30/99 13.00% $ 660,330 $ 660,885 Intermed Healthcare Systems, Inc.................. 06/29/99 12.00 742,500 743,375 International Manufacturing and Trade, Inc........ 04/27/99 13.00 495,000 495,747 International Manufacturing and Trade, Inc........ 12/01/99 13.00 400,000 400,000 Kentucky Kingdom, Inc............................. 04/05/99 8.50 250,000 250,000 Kentucky Kingdom, Inc............................. 01/05/98 12.50 1,980,000 1,987,993 Kentucky Kingdom, Inc. (Convertible Debt)......... 09/23/99 10.50 1,200,000 1,200,000 Kentucky Kingdom, Inc............................. 02/11/95 10.00 720,000 720,000 MBA Marketing Corporation......................... 02/04/99 12.50 1,782,000 1,785,300 Medical Associates of America, Inc................ 11/01/97 12.50 1,485,000 891,000 Nationwide Engine Supply, Inc..................... 01/12/99 12.00 2,475,000 2,480,004 OcuTec Corporation................................ 12/31/97 13.50 990,000 794,197 OcuTec Corporation (Convertible Debt)............. 05/19/98 13.00 250,000 250,000 OcuTec Corporation................................ 01/14/99 13.00 354,816 355,536 OcuTec Corporation................................ 09/30/94 13.00 142,000 142,000 OcuTec Corporation................................ 01/31/95 13.00 306,580 306,580 One Stop Acquisitions, Inc........................ 04/01/99 13.00 1,584,000 1,586,403 One Stop Acquisitions, Inc........................ 05/18/99 13.00 198,000 198,264 Palco Telecom Service, Inc........................ 11/22/99 12.00 1,800,000 1,800,000 Pipeliner Systems, Inc............................ 09/30/98 13.00 980,000 985,328 Potomac Group, Inc................................ 02/11/98 12.00 1,500,000 1,500,000 Premiere Technologies, Inc........................ 05/01/97 12.50 990,000 995,341 Premiere Technologies, Inc........................ 12/23/98 12.00 990,000 992,171 Quality Care Networks............................. 05/19/98 13.00 1,485,000 889,958 Radio Systems Corporation......................... 12/27/99 13.00 905,725 907,296 Retail Marketing Concepts, Inc.................... 08/01/98 12.50 990,000 993,173 SkillSearch Corporation........................... 02/05/98 13.00 496,000 497,741 Stewart Foods, Inc................................ 05/01/97 12.50 22,665 25,000 Summit Publishing Group, Inc...................... 03/17/99 12.00 1,485,000 1,487,500 Suncoast Medical Group, Inc....................... 09/14/99 13.50 485,000 486,000 TCOM Systems, Inc................................. 02/05/98 13.00 673,136 673,761 TermNet MerchantServices, Inc..................... 04/01/99 13.00 1,237,500 1,239,372 Tower Environmental, Inc.......................... 11/30/98 10.00 2,440,000 2,448,993 Treasure Coast Pizza Company...................... 07/29/98 12.00 841,500 844,056 Truckload ManagementServices, Inc................. 03/14/98 13.00 495,000 496,826 Unique Electronics, Inc........................... 11/29/99 10.70 600,000 600,000 WWR Technology, Inc............................... 11/01/97 13.00 524,700 527,072 Zahren Alternative Power Corp..................... 11/27/99 13.00 1,980,000 1,980,666 Zortec Holdings, Inc.............................. 05/01/97 8.00 495,000 397,659 Zortec Holdings, Inc.............................. 12/31/97 8.00 148,500 149,125 Zortec Holdings, Inc.............................. 03/31/98 8.00 148,500 149,050 ----------- ----------- Total loans..................................... $74,181,081 $72,336,480 ========== ==========
The accompanying notes are an integral part of this schedule. F-17 79 SIRROM CAPITAL CORPORATION PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF DECEMBER 31, 1994
NUMBER OF SHARES/PERCENTAGE COST OR EQUITY INTERESTS OWNERSHIP CONTRIBUTED VALUE FAIR VALUE - ---------------------------------------------------- ---------------- ----------------- ---------- PUBLICLY TRADED INVESTMENTS National Vision Associates, Ltd. Common Stock -- restricted........................ 208,698 $ 1,771,149 $ 547,832 Republic Automotive Parts, Inc. Common Stock -- restricted........................ 25,500 -- 239,859 Concept Technologies Group, Inc. Common Stock -- restricted........................ 20,808 5,300 49,159 PMT Services, Inc. Common Stock -- restricted........................ 40,000 186,200 241,500 ----------------- ---------- Subtotal.................................. 1,962,649 1,078,350 ----------------- ---------- EQUITY INVESTMENTS IN PRIVATE COMPANIES National Recovery Technologies, Inc. Preferred Stock -- Series A....................... 20,000 -- -- Premiere Technologies, Inc. Common Stock...................................... 8,000 100,400 168,000 American Retirement Corporation Common Stock...................................... 35,076 77,000 128,923 Medical Associates of America, Inc. Preferred Stock -- Series A....................... 67,667 500,000 250,000 Skillsearch Corporation Common Stock...................................... 2,241 250,035 250,035 Potomac Group, Inc. Preferred Stock -- Series A....................... 800,000 1,000,000 1,000,000 Kentucky Kingdom, Inc. Common Stock...................................... 11,288 220,000 1,501,305 Behavioral Healthcare Corporation Preferred Stock -- Series B....................... 25,000 175,000 175,000 Zortec Technologies, Inc. Preferred Stock -- Series B....................... 5,000,000 -- -- Golf Corporation of America, Inc. Common Stock...................................... 100,000 100,000 100,000 International Risk Control, Inc. Preferred Stock -- Series A....................... 200,000 50,000 50,000 DentureCare, Inc. Preferred Stock -- Series D....................... 49,342 300,000 300,000 Tower Environmental, Inc. Common Stock...................................... 9,858 20,000 300,000 Unique Electronics, Inc. Preferred Stock -- Series A....................... 1,000,000 1,000,000 1,000,000 Pipeliner Systems, Inc. Preferred Stock -- Series D....................... 5,000 1,000,000 1,000,000 Front Royal, Inc. Common Stock...................................... 110,000 275,000 275,000 ----------------- ---------- Subtotal.................................. 5,067,435 6,498,263 ----------------- ---------- Total Equity Interests.................... $ 7,030,084 $7,576,613 ============= =========
The accompanying notes are an integral part of this schedule. F-18 80 SIRROM CAPITAL CORPORATION PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF DECEMBER 31, 1994
NUMBER OF SHARES/ COST OR OWNERSHIP CONTRIBUTED WARRANTS PERCENTAGE VALUE FAIR VALUE - ------------------------------------------------------ ------------ ----------- ----------- Affinity Fund, Inc.................................... 1,106 $ 20,000 $ 375,000 Alpha West Partners I, LP............................. 4 LP units 7,500 7,500 Ashe Industries, Inc.................................. 178 20,000 20,000 Associated Response Services, Inc..................... 316 14,000 400,000 Auto Rental Systems, Inc.............................. 128,772 7,500 285,000 BankCard Services Corporation......................... 115,000 3,000 3,000 Behavioral Healthcare Corporation..................... 67,730 -- -- BiTec Southeast, Inc.................................. 3,752 21,000 500,000 C.J. Spirits, Inc..................................... 180,000 7,500 -- Capital Network System, Inc........................... 168,874 20,000 20,000 CCS Technology Group.................................. 30,000 10,000 10,000 CellCall, Inc......................................... 26,500 10,000 500,000 Central Tennessee Broadcasting, Inc................... 272,433 34,000 400,000 CLS Corporation....................................... 126,997 -- 350,000 Clearidge, Inc........................................ 207,620 -- -- Continental Diamond Cutting Co........................ 112 -- -- Corporate Flight Management, Inc...................... 66,315 3,500 100,000 Cougar Power Products, Inc............................ 216 5,000 5,000 DentureCare, Inc...................................... 114,646 10,000 400,000 Earth Friendly Company................................ 19 10,000 10,000 Emerald Pointe Waterpark L.P.......................... 6% of LP 6,000 6,000 Freshnut Food, Inc.................................... 148,555 6,000 6,000 Front Royal, Inc...................................... 240,458 -- -- Fycon Technologies, Inc............................... 251,813 15,000 15,000 Gates Communication, L.P.............................. 47% of LP 10,000 10,000 Golf Corporation of America, Inc...................... 300,000 -- -- Gulfstream International Airlines, Inc................ 200 10,000 200,000 Healthfield, Inc...................................... 29,000 125,000 -- Hoveround Corporation................................. 1,512 5,000 200,000 Innotech, Inc......................................... 521,220 26,670 26,670 Intermed Healthcare Systems, Inc...................... 7,823 7,500 7,500 International Manufacturing and Trade, Inc............ 263 5,000 450,000 MBA Marketing Corporation............................. 25 18,000 300,000 Medical Associates of America, Inc.................... 40,000 15,000 -- Nationwide Engine Supply, Inc......................... 882,353 25,000 400,000 OCuTec Corp........................................... 3,881,711 13,584 13,584 One Stop Acquisitions, Inc............................ 742 18,000 500,000 Palco Telcom Service, Inc............................. 157,895 -- -- Pipeliner Systems, Inc................................ 1,920,000 20,000 20,000 Potomac Group, Inc.................................... 479,115 125,000 500,000 Premiere Technologies, Inc............................ 23,863 20,000 501,123 Quality Care Networks................................. 672,000 15,000 15,000 Radio Systems, Inc.................................... 48,650 94,275 94,275 Retail Marketing Concepts, Inc........................ 83 10,000 10,000 SkillSearch Corporation............................... 2,381 254,000 316,699
F-19 81 SIRROM CAPITAL CORPORATION PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF DECEMBER 31, 1994
NUMBER OF SHARES/ COST OR OWNERSHIP CONTRIBUTED WARRANTS PERCENTAGE VALUE FAIR VALUE - ------------------------------------------------------ ------------ ----------- ----------- Summit Publishing Group, Inc.......................... 4,508 $ 15,000 $ 350,000 Suncoast Medical Group, Inc........................... 210,780 15,000 15,000 Suprex Corporation.................................... 1,058,179 -- 7,500 TCOM Systems, Inc..................................... 1,147,059 -- -- TermNet Merchant Services, Inc........................ 214 12,500 12,500 Treasure Coast Pizza Company.......................... 40 8,500 8,500 Truckload Management Services, Inc.................... 1,500 5,000 150,000 Unique Electronics, Inc............................... 20% -- -- Zahren Alternative Power Corporation.................. 610 20,000 20,000 Zortec Holdings, Inc.................................. 436,000 8,000 8,000 ----------- ----------- Total Warrants.............................. 1,131,029 7,548,851 ----------- ----------- Total Investments........................... $82,342,194 $87,461,944 ========== ==========
The accompanying notes are an integral part of this schedule. F-20 82 SIRROM CAPITAL CORPORATION PORTFOLIO OF INVESTMENTS AS OF DECEMBER 31, 1995
LOAN COUPON MATURITY INTEREST LOANS DATE RATE COST FAIR VALUE - ------------------------------------------------ -------- -------- ------------ ------------ Affinity Fund, Inc.............................. 06/29/98 12.50% $ 1,485,000 $ 1,494,932 Affinity Fund, Inc.............................. 03/10/00 14.00 1,000,000 1,000,000 Affinity Fund, Inc.............................. 12/28/98 12.50 495,000 495,083 Alpha West Partners I, L.P...................... 12/31/97 12.50 771,308 675,058 American Remedial Tech., Inc.................... 03/26/00 13.50 1,485,000 1,487,500 American Remedial Tech., Inc.................... 07/11/00 14.00 495,000 495,498 Amscot Holdings, Inc............................ 05/26/00 14.00 800,000 800,000 Amscot Holdings, Inc............................ 09/20/00 14.00 200,000 200,000 Ashe Industries, Inc............................ 12/28/97 12.50 990,000 646,178 Ashe Industries, Inc............................ 03/25/99 12.50 445,500 447,150 Ashe Industries, Inc............................ 05/18/99 12.50 544,500 546,340 Ashe Industries, Inc............................ 06/12/96 14.00 750,000 750,000 Ashe Industries, Inc............................ 06/12/96 14.00 285,546 285,546 Associated Response Services, Inc............... 06/20/99 12.50 1,386,000 1,390,427 Associated Response Services, Inc............... 02/15/00 12.50 335,000 335,000 Associated Response Services, Inc............... 01/06/00 12.50 300,000 300,000 Assured Power, Inc.............................. 10/01/00 13.50 700,000 700,000 B & N Company, Inc.............................. 08/08/00 12.50 2,970,000 2,972,500 BankCard Services Corporation................... 01/21/98 13.00 297,000 298,800 BiTec Southeast, Inc............................ 11/03/97 12.50 445,500 448,350 BiTec Southeast, Inc............................ 11/30/98 12.50 1,188,000 1,193,000 BiTec Southeast, Inc............................ 11/03/97 12.50 445,500 447,300 BiTec Southeast, Inc............................ 08/01/99 13.50 521,321 521,321 C.J. Spirits, Inc............................... 05/01/97 13.50 750,171 455,546 Capital Network System, Inc..................... 11/30/98 12.50 990,000 994,342 Capital Network System, Inc..................... 01/18/99 12.50 990,000 994,008 Cardiac Control Systems, Inc.................... 03/31/00 13.50 1,500,000 1,500,000 Carter Kaplan Holdings, L.L.C................... 06/22/00 14.00 594,000 594,300 CCS Technology Group, Inc....................... 05/01/97 13.00 990,000 997,288 CellCall, Inc................................... 11/04/97 12.75 990,000 996,345 CF Data Corp.................................... 03/16/00 13.75 1,732,500 1,735,420 Champion Glove Mfg. Co., Inc.................... 07/27/00 13.50 1,250,000 1,250,000 Clearidge, Inc.................................. 09/29/99 13.00 2,000,000 2,000,000 Clearidge, Inc.................................. 12/28/00 13.50 500,000 500,000 Colonial Investments, Inc....................... 10/16/00 13.75 800,000 800,000 Consumat Systems, Inc........................... 11/01/00 14.00 500,000 500,000 Consumer Credit Associates, Inc................. 12/06/00 13.50 2,000,000 2,000,000 Continental Diamond Cutting Co.................. 10/28/99 13.00 1,500,000 1,500,000 Continental Diamond Cutting Co.................. 12/28/99 13.00 200,000 200,000 Continental Diamond Cutting Co.................. 05/31/96 14.00 300,000 300,000 Corporate Flight Mgmt., Inc..................... 12/04/97 12.50 346,500 348,645 Cougar Power Products, Inc...................... 10/05/96 13.00 495,000 495,083 Cougar Power Products, Inc...................... 10/05/96 13.00 495,000 497,003 Cougar Power Products, Inc...................... 10/05/96 14.00 325,000 325,000 Dalcon International, Inc....................... 01/31/02 13.00 150,000 150,000 Dalcon International, Inc....................... 01/31/00 13.00 200,000 200,000
F-21 83 SIRROM CAPITAL CORPORATION PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF DECEMBER 31, 1995
LOAN COUPON MATURITY INTEREST LOANS DATE RATE COST FAIR VALUE - ------------------------------------------------ -------- -------- ------------ ------------ Dalt's, Inc..................................... 04/28/01 13.50% $ 2,000,000 $ 2,000,000 DentureCare, Inc................................ 07/29/99 11.50 990,000 993,006 DentureCare, Inc................................ 11/03/00 14.00 111,150 111,150 DentureCare, Inc................................ 08/31/00 14.00 800,000 800,000 Eastern Food Group LLC.......................... 08/30/00 8.00 500,000 500,000 Eastern Food Group LLC.......................... 12/20/00 8.00 200,000 200,000 Educational Medical, Inc........................ 03/31/00 14.00 2,200,000 2,200,000 Electronic Merchant Services.................... 02/27/00 13.50 1,237,500 1,239,788 Electronic Merchant Services.................... 12/31/95 14.00 242,450 242,450 Emerald Pointe Waterpark L.P.................... 04/29/99 12.50 594,000 596,000 Emerald Pointe Waterpark L.P.................... 03/09/00 13.50 400,000 400,000 Encore Orthopedics, Inc......................... 07/31/00 13.50 2,620,985 2,658,887 Express Shipping Centers, Inc................... 09/25/00 13.25 1,697,619 1,734,426 Factory Card Outlet of America Ltd.............. 11/15/00 12.50 3,670,917 3,682,317 Front Royal, Inc................................ 10/01/99 13.00 1,550,000 1,550,000 Front Royal, Inc................................ 12/27/99 13.00 675,000 675,000 Fycon Technologies, Inc......................... 05/16/00 10.00 350,000 350,000 Fycon Technologies, Inc......................... 08/30/00 14.00 1,000,000 1,000,000 Fycon Technologies, Inc......................... 12/17/00 14.00 100,000 100,000 Gates Communications, L.P....................... 12/31/98 12.50 990,000 994,175 Gitman and Company.............................. 12/31/00 14.00 1,700,000 1,700,000 Global Finance and Leasing, Inc................. 01/03/00 13.00 1,500,000 1,500,000 Gold Medal Products, Inc........................ 11/19/00 13.50 1,250,000 1,250,000 Golf Corporation of America, Inc................ 09/16/99 11.00 300,000 300,000 Golf Corporation of America, Inc................ 12/28/00 14.00 200,000 200,000 Golf Corporation of America, Inc................ 12/29/00 10.00 455,589 455,589 Gulfstream International Airlines Inc........... 07/29/99 13.00 1,490,000 1,494,509 Gulfstream International Airlines Inc........... 09/25/00 14.00 1,000,000 1,000,000 Horizon Medical Products, Inc................... 09/22/00 13.75 1,500,000 1,500,000 Hoveround Corporation........................... 06/11/98 13.00 495,000 497,368 Hoveround Corporation........................... 11/08/99 13.50 250,000 250,000 Hoveround Corporation........................... 03/08/00 14.00 250,000 250,000 Hunt Incorporated............................... 03/31/00 14.00 3,300,000 3,300,000 In-Store Services, Inc.......................... 04/19/00 14.00 1,188,000 1,189,800 Innotech, Inc................................... 03/22/99 13.00 1,980,000 1,987,326 Intermed Healthcare Systems, Inc................ 06/29/99 12.00 742,500 744,875 Intermed Healthcare Systems, Inc................ 02/10/00 14.00 375,000 375,000 International Manufacturing and Trade, Inc...... 04/27/99 13.00 495,000 496,743 International Manufacturing and Trade, Inc...... 12/01/99 13.00 400,000 400,000 International Manufacturing and Trade, Inc...... 06/09/00 14.00 500,000 500,000 International Manufacturing and Trade, Inc...... 07/25/00 14.00 250,000 250,000 International Manufacturing and Trade, Inc...... 11/10/00 14.00 100,000 100,000 Johnston County Cable L.P....................... 08/31/00 14.00 1,990,000 1,990,668 Kentucky Kingdom, Inc........................... 04/04/99 8.50 250,000 250,000 Kentucky Kingdom, Inc........................... 01/05/98 12.50 1,980,000 1,991,989 Kentucky Kingdom, Inc........................... 09/26/99 10.50 1,200,000 1,200,000
F-22 84 SIRROM CAPITAL CORPORATION PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF DECEMBER 31, 1995
LOAN COUPON MATURITY INTEREST LOANS DATE RATE COST FAIR VALUE - ------------------------------------------------ -------- -------- ------------ ------------ Kentucky Kingdom, Inc........................... 03/01/00 14.00% $ 835,000 $ 835,000 Kentucky Kingdom, Inc........................... 11/06/00 12.50 1,500,000 1,500,000 Kryptonics, Inc................................. 12/14/00 12.90 2,500,000 2,500,000 Lovett's Buffet, Inc............................ 04/01/00 13.00 2,250,000 2,250,000 MBA Marketing Corporation....................... 02/04/99 12.50 1,782,000 1,788,900 Medical Associates of America, Inc.............. 11/01/97 12.50 1,485,000 392,000 Money Transfer Systems, Inc..................... 07/24/00 14.00 247,500 247,752 Money Transfer Systems, Inc..................... 12/20/00 14.00 148,500 148,525 Moore Diversified Products, Inc................. 06/16/00 13.50 800,000 800,000 Moovies, Inc.................................... 04/18/00 13.50 1,485,000 1,487,250 Multimedia Learning, Inc........................ 05/08/00 14.00 1,500,000 1,500,000 Nationwide Engine Supply, Inc................... 01/12/99 12.00 2,475,000 2,485,008 Nelson Juvenile Products L.L.C.................. 10/31/00 14.00 2,000,000 2,000,000 NRI Service and Supply L.P...................... 02/13/00 14.00 2,475,000 2,479,587 OcuTec Corporation.............................. 06/21/99 10.00 1,000,000 1,000,000 OcuTec Corporation.............................. 06/21/00 10.00 350,000 350,000 OcuTec Corporation.............................. 10/16/00 10.00 100,000 100,000 OcuTec Corporation.............................. 12/04/01 10.00 351,500 351,500 Orchid Manufacturing Group, Inc................. 09/14/00 13.00 2,960,000 2,960,667 Orchid Manufacturing Group, Inc................. 12/28/00 13.50 1,000,000 1,000,000 Palco Telecom Service, Inc...................... 11/22/99 12.00 1,800,000 1,800,000 Patton Management Corporation................... 05/26/00 13.50 1,900,000 1,900,000 Pharmaceutical Research Assoc., Inc............. 08/10/00 13.50 1,980,000 1,981,665 Pipeliner Systems, Inc.......................... 09/30/98 13.00 980,000 989,324 Plymouth, Inc................................... 09/28/00 13.00 1,000,000 1,000,000 Precision Fixtures & Graphics, Inc.............. 07/31/10 6.50 1,100,000 889,976 Precision Fixtures & Graphics, Inc.............. 05/26/00 6.50 250,000 202,267 Precision Fixtures & Graphics, Inc.............. 11/07/00 6.50 200,000 161,814 Precision Fixtures & Graphics, Inc.............. 12/27/00 6.50 100,000 80,907 Precision Fixtures & Graphics, Inc.............. 07/10/00 6.50 135,000 109,224 Precision Fixtures & Graphics, Inc.............. 08/28/00 6.50 110,000 88,998 Precision Fixtures & Graphics, Inc.............. 12/12/00 6.50 200,000 161,814 Precision Panel Products, Inc................... 01/11/00 12.75 1,485,000 1,488,000 Premiere Technologies, Inc...................... 05/01/97 12.50 990,000 997,345 Premiere Technologies, Inc...................... 12/23/98 12.00 990,000 994,175 Pritchard Paint & Glass Co...................... 03/21/00 14.00 250,000 250,000 Quest Group International, Inc.................. 11/15/00 13.25 1,125,000 1,129,166 Radio Systems Corporation....................... 12/27/99 13.00 905,725 926,148 SkillSearch Corporation......................... 02/05/98 13.00 496,000 498,545 Summit Publishing Group, Inc.................... 03/17/99 12.00 1,485,000 1,490,500 Suncoast Medical Group, Inc..................... 09/14/99 13.50 485,000 489,498 Suncoast Medical Group, Inc..................... 06/07/00 14.00 495,000 495,083 TCOM Systems, Inc............................... 02/05/98 13.00 571,969 571,969 Tower Environmental, Inc........................ 11/30/98 10.00 2,440,000 2,201,990
F-23 85 SIRROM CAPITAL CORPORATION PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF DECEMBER 31, 1995
LOAN COUPON MATURITY INTEREST LOANS DATE RATE COST FAIR VALUE - ------------------------------------------------ -------- -------- ------------ ------------ Tower Environmental, Inc........................ 05/30/95 12.50% $ 150,000 $ 150,000 Trade Am International, Inc..................... 09/30/00 12.75 4,000,000 4,000,000 Treasure Coast Pizza Co......................... 07/29/98 12.00 841,500 845,760 Truckload Management Services, Inc.............. 03/14/98 13.00 150,000 150,000 Unique Electronics, Inc......................... 11/30/99 10.70 600,000 600,000 Universal Marketing Corporation................. 01/31/00 13.50 500,000 500,000 Valdawn, L.L.C.................................. 04/13/00 13.50 2,399,974 2,400,000 Viking Moorings Acquisition, L.L.C.............. 12/15/00 13.00 1,655,500 1,661,242 WWR Technology, Inc............................. 11/01/97 13.00 524,700 528,128 Zahren Alternative Power Corp................... 01/30/00 13.00 495,000 495,083 Zahren Alternative PowerCorp.................... 11/27/99 13.00 1,980,000 1,985,679 ------------ ------------ Total Loans................................... $147,018,924 $144,854,517 =========== ===========
The accompanying notes are an integral part of this schedule. F-24 86 SIRROM CAPITAL CORPORATION PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF DECEMBER 31, 1995
NUMBER OF COST OR SHARES/PERCENTAGE CONTRIBUTED EQUITY INTERESTS OWNERSHIP VALUE FAIR VALUE - ----------------------------------------------------- ----------------- ----------- ----------- PUBLICLY TRADED INVESTMENTS National Vision Associates, Ltd. Common Stock....................................... 208,698 $ 1,771,149 $ 563,485 Concept Technologies Group, Inc. Common Stock -- restricted......................................... 23,408 5,300 30,723 Moovies Inc. Common Stock....................................... 156,110 16,561 1,475,240 ----------- ----------- Subtotal................................... 1,793,010 2,069,448 ----------- ----------- EQUITY INVESTMENTS IN PRIVATE COMPANIES National Recovery Technologies, Inc. Preferred Stock -- Series A........................ 20,000 -- -- Premiere Technologies, Inc. Common Stock....................................... 8,000 100,400 1,280,000 Medical Associates of America, Inc. Preferred Stock -- Series A........................ 66,667 -- -- Viking Moorings Acquisition, L.L.C. Membership interest in L.L.C....................... 6.50% 344,500 344,500 Nelson Juvenile Products, L.L.C. Membership interest in L.L.C....................... 30.00% -- -- Skillsearch Corporation Common Stock....................................... 2,241 250,035 250,035 Potomac Group, Inc. Preferred Stock -- Series A........................ 800,000 1,000,000 1,232,966 Potomac Group, Inc. Common Stock....................................... 240,000 60,000 370,504 Kentucky Kingdom, Inc. Common Stock....................................... 11,671 258,300 1,539,603 Golf Corporation of America, Inc. Common Stock....................................... 100,000 100,000 100,000 International Risk Control, Inc. Preferred Stock -- Series A........................ 200,000 50,000 50,000 DentureCare, Inc. Preferred Stock -- Series D........................ 49,342 300,000 300,000 Unique Electronics, Inc. Preferred Stock -- Series A........................ 1,000,000 1,000,000 1,000,000 Pipeliner Systems, Inc. Preferred Stock -- Series D........................ 5,000 1,000,000 1,000,000 Front Royal, Inc. Common Stock....................................... 110,000 275,000 275,000 Ocutec Acquisition Corporation Preferred Stock -- Series A........................ 1,539,867 1,539,867 1,539,867 Fycon Technologies, Inc. Preferred Stock -- Series A........................ 800,000 800,000 800,000 Carter Kaplan Holdings, L.L.C. Membership interest in LLC......................... 24.00% 6,100 6,100
F-25 87 SIRROM CAPITAL CORPORATION PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF DECEMBER 31, 1995
NUMBER OF COST OR SHARES/PERCENTAGE CONTRIBUTED EQUITY INTERESTS OWNERSHIP VALUE FAIR VALUE - ----------------------------------------------------- ----------------- ----------- ----------- Virginia Gas Company Preferred Stock -- Series A........................ 2,000 $ 2,000,000 $ 2,000,000 Johnston County Cable, L.P. Class A Interest in L.P............................ 11.11 100,000 100,000 Eastern Food Group, L.L.C. Class B Preferred Stock............................ 7,500 754,444 754,444 Dalcon International, Inc. Series B Preferred Stock........................... 850,000 850,000 490,000 Zahren Alternative Power Corporation Common Stock....................................... 700 210,000 210,000 Zahren Alternative Power Corporation Preferred Stock.................................... 200 200,000 200,000 ----------- ----------- Subtotal................................... 11,198,646 13,843,020 ----------- ----------- Total Equity Interests..................... $12,991,656 $15,912,467 ========== ==========
The accompanying notes are an integral part of this schedule. F-26 88 SIRROM CAPITAL CORPORATION PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF DECEMBER 31, 1995
COST OR NUMBER OF PERCENTAGE CONTRIBUTED WARRANTS SHARES/UNITS OWNERSHIP VALUE FAIR VALUE - ------------------------------------------ ------------- --------- ------------ ------------ Affinity Fund, Inc........................ 1,725 8.62% $ 20,000 $ 600,000 Alpha West Partners I, L.P................ 2 units 20.00 7,500 -- American Remedial Tech., Inc.............. 244,168 17.05 20,000 230,000 Amscot Holdings, Inc...................... 1,121 18.10 -- -- Ashe Industries, Inc...................... 216 16.52 20,000 -- Associated Responses Services, Inc........ 343 24.27 14,000 400,000 Assured Power, Inc........................ 234 11.94 -- -- Auto Rental Systems, Inc.................. 144,869 8.00 -- 285,000 B & N Company, Inc........................ 18 2.14 30,000 30,000 BankCard Services Corporation............. 138,000 24.00 3,000 -- BiTec Southeast, Inc...................... 938 10.00 21,000 100,000 C.J. Spirits, Inc......................... 180,000 10.00 7,500 -- CF Data Corp.............................. 257 20.45 17,500 17,500 Capital Network System, Inc............... 173,409 3.50 20,000 -- Cardiac Control Systems, Inc.............. 100,000 3.51 -- 153,127 CCS Technology Group, Inc................. 30,000 2.68 10,000 10,000 CellCall, Inc............................. 31,836 1.25 10,000 125,000 Champion Glove Mfg. Co., Inc.............. 538,614 5.87 -- -- CLS Corporation........................... 126,997 4.22 -- -- Clearidge, Inc............................ 367,026 7.91 -- -- Colonial Investments, Inc................. 194 18.00 -- -- Consumer Credit Associates, Inc........... 3,669 15.78 -- -- Continental Diamond Cutting Co............ 112 10.00 -- -- Corporate Flight Mgmt., Inc............... 66,315 10.00 3,500 100,000 Cougar Power Products, Inc................ 336 16.29 10,000 -- Dalcon International, Inc................. 250,000 20.00 -- -- Dalt's, Inc............................... 125 25.00 -- -- DentureCare, Inc.......................... 396,724 11.30 10,000 375,000 Electronic Merchant Services.............. 430 12.50 12,500 12,500 Eastern Food Group LLC.................... 17,647 15.00 -- -- Educational Medical, Inc.................. 85,000 8.00 -- -- Emerald Pointe Waterpark L.P.............. 10 units 10.00 6,000 250,000 Encore Orthopedics, Inc................... 291,550 4.92 379,015 379,015 Express Shipping Centers, Inc............. 73,752 5.10 552,402 552,402 Factory Card Outlet of America Ltd........ 23,658 2.50 329,083 329,083 Front Royal, Inc.......................... 240,458 3.58 -- 420,000 Fycon Technologies, Inc................... 58,677 15.00 -- -- Gates Communication, L.P.................. 47% of LP 47.00 10,000 10,000 Gitman Bros............................... 1,518 20.50 -- -- Global Finance and Leasing, Inc........... 5,000 25.00 -- -- Gold Medal Products, Inc.................. 90,000 30.00 -- -- Golf Corporation of America, Inc.......... 390,000 11.48 -- -- Gulfstream International Airlines Inc..... 260 21.00 10,000 -- Horizon Medical Products, Inc............. 9,486 8.25 -- -- Hoveround Corporation..................... 1,963 27.00 5,000 325,000 Hunt Incorporated......................... 309 11.09 -- 200,000
F-27 89 SIRROM CAPITAL CORPORATION PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF DECEMBER 31, 1995
COST OR NUMBER OF PERCENTAGE CONTRIBUTED WARRANTS SHARES/UNITS OWNERSHIP VALUE FAIR VALUE - ------------------------------------------ ------------- --------- ------------ ------------ Innotech, Inc............................. 521,220 4.00% $ 20,000 $ 300,000 In-Store Service, Inc..................... 429 12.50 12,000 12,000 Intermed Healthcare Systems, Inc.......... 11,884 10.50 7,500 -- International Manufacturing and Trade, Inc..................................... 482 29.94 5,000 -- Johnston County Cable, L.P................ 27.5% of LP 27.50 10,000 10,000 Kryptonics, Inc........................... 1,255 9.00 -- -- Lovett's Buffet, Inc...................... 204,219 5.00 -- -- MBA Marketing Corporation................. 26 4.00 18,000 -- Money Transfer Systems, Inc............... 45 4.31 4,000 4,000 Moore Diversified Products, Inc........... 12 10.68 -- -- Multimedia Learning, Inc.................. 202 6.09 -- -- Nationwide Engine Supply, Inc............. 882,353 15.00 25,000 25,000 NRI Service and Supply, L.P............... 27.5% of LP 27.50 25,000 25,000 OcuTec Corp............................... 222,222 6.13 -- -- One Stop Acquisitions, Inc................ 794 24.40 -- 500,000 Orchid Manufacturing Group, Inc........... 1,719,047 4.50 40,000 540,000 Palco Telecom Services, Inc............... 157,895 5.00 -- -- Patton Management Corporation............. 12 10.00 -- 300,000 Pharmaceutical Research Assoc., Inc....... 150,114 7.82 20,000 20,000 Pipeliner Systems, Inc.................... 2,080,000 20.38 20,000 20,000 Plymouth, Inc............................. 92,647 15.00 -- -- Potomac Group, Inc........................ 239,115 1.85 125,000 368,530 Precision Fixtures & Graphics, Inc........ 132 5.00 -- -- Precision Panel Products, Inc............. 122 8.25 15,000 15,000 Premiere Technologies, Inc................ 23,863 2.08 20,000 3,820,000 Quest Group International, Inc............ 44,444 10.00 125,000 125,000 Radio Systems Corporation................. 129,734 7.27 94,275 330,000 SkillSearch Corporation................... 2,381 7.59 254,000 119,000 Summit Publishing Group, Inc.............. 6,296 24.50 15,000 15,000 Suncoast Medical Group, Inc............... 330,245 13.82 20,000 20,000 Suprex Corporation........................ 1,058,179 3.45 -- 7,500 Tower Environmental, Inc.................. 82 10.07 20,000 -- Trade Am International, Inc............... 335,106 6.00 -- -- Treasure Coast Pizza Company.............. 51 10.00 8,500 8,500 Valdawn, L.L.C............................ 2,658 21.00 26 26 Unique Electronics, Inc................... 55,732 20.00 -- -- Universal Marketing Corporation........... 111 10.00 -- -- Virginia Gas Company...................... 525 6.00 -- -- Zahren Alternative Power Corp............. 1,108 5.00 25,000 25,000 ------------ ------------ Total Warrants.................. 2,456,301 11,513,183 ------------ ------------ Total Investments............... $162,466,881 $172,280,167 =========== ===========
The accompanying notes are an integral part of this schedule. F-28 90 SIRROM CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS AS OF SEPTEMBER 30, 1996 (UNAUDITED)
LOAN COUPON MATURITY INTEREST LOANS DATE RATE COST FAIR VALUE - ------------------------------------------- -------- -------- ------------ ------------ AB Plastics Holding Corporation............ 9/27/01 13.50% $ 4,000,000 $ 4,000,000 Affinity Fund, Inc......................... 6/29/98 12.50 1,485,000 1,497,182 Affinity Fund, Inc......................... 3/10/00 14.00 1,000,000 1,000,000 Affinity Fund, Inc......................... 12/28/98 12.50 495,000 495,830 American Corporate Literature, Inc......... 9/29/01 14.00 1,683,000 1,683,283 ARAC Holding Co., Inc...................... 9/27/01 13.50 3,000,000 3,000,000 American Network Exchange.................. 11/30/98 13.00 990,000 995,845 American Network Exchange.................. 1/18/99 13.00 990,000 995,511 Amscot Holdings, Inc....................... 5/26/00 14.00 800,000 800,000 Amscot Holdings, Inc....................... 9/20/00 14.00 200,000 200,000 Amscot Holdings, Inc....................... 6/28/01 14.00 500,000 500,000 Argenbright Holdings Limited............... 7/7/01 13.50 2,750,000 2,787,500 Ashe Industries, Inc....................... 12/28/97 12.50 990,000 232,058 Ashe Industries, Inc....................... 3/25/99 12.50 445,500 147,300 Ashe Industries, Inc....................... 5/18/99 12.50 544,500 146,524 Ashe Industries, Inc....................... 6/12/96 14.00 750,000 100,000 Ashe Industries, Inc....................... 6/12/96 14.00 285,546 0 Associated Response Services, Inc.......... 6/20/99 12.50 1,386,000 1,392,524 Associated Response Services, Inc.......... 2/15/00 12.50 335,000 335,000 Associated Response Services, Inc.......... 1/6/00 12.50 300,000 300,000 Assured Power, Inc......................... 10/1/00 13.50 700,000 700,000 Avionics Systems, Inc...................... 7/19/01 13.50 3,000,000 3,000,000 B & N Company, Inc......................... 8/8/00 12.50 2,970,000 2,977,000 B & N Company, Inc......................... 3/28/01 13.00 990,000 991,169 BankCard Services Corporation.............. 1/21/98 13.00 297,000 299,250 BiTec Southeast, Inc....................... 10/31/97 12.70 445,500 449,025 BiTec Southeast, Inc....................... 11/30/98 12.70 1,188,000 1,194,800 BiTec Southeast, Inc....................... 10/31/97 12.70 445,500 447,975 BiTec Southeast, Inc....................... 8/1/99 12.70 521,321 521,321 BiTec Southeast, Inc....................... 8/9/01 14.00 950,000 950,000 C.J. Spirits, Inc.......................... 5/1/97 13.50 750,171 455,796 Caldwell/VSR Inc........................... 2/28/01 8.00 1,500,000 1,500,000 Caldwell/VSR Inc........................... 9/27/01 14.00 116,000 116,000 Cardiac Control Systems, Inc............... 3/31/00 13.50 1,500,000 1,500,000 Cartech Holdings, Inc...................... 4/29/01 13.00 1,500,000 1,500,000 Carter Kaplan Holdings, LLC................ 6/22/00 14.00 594,000 144,800 Cedaron Medical, Inc....................... 6/28/01 13.50 1,500,000 1,500,000 Cell Call, Inc............................. 11/4/97 12.75 990,000 997,848 CF Data Corp............................... 3/16/00 13.75 1,732,500 1,738,048 Champion Glove Manufacturing Co.,Inc....... 7/27/00 13.50 1,250,000 1,250,000 Clearidge, Inc............................. 9/29/99 13.00 2,000,000 2,000,000 Clearidge, Inc............................. 12/28/00 13.50 500,000 500,000 Clearidge, Inc............................. 3/6/97 14.00 200,000 200,000 Colonial Investments, Inc.................. 10/16/00 13.75 800,000 800,000 Colonial Investments, Inc.................. 5/8/01 13.75 300,000 300,000 Consumat Systems, Inc...................... 11/1/00 14.00 500,000 500,000 Consumat Systems, Inc...................... 1/1/01 14.00 500,000 500,000 Consumat Systems, Inc...................... 3/11/01 14.00 500,000 500,000
F-29 91 SIRROM CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF SEPTEMBER 30, 1996 (UNAUDITED)
LOAN COUPON MATURITY INTEREST LOANS DATE RATE COST FAIR VALUE - ------------------------------------------- -------- ----- ------------ ------------ Consumer Credit Associates, Inc............ 12/6/00 13.50 $ 2,000,000 $ 2,000,000 Consumer Credit Associates, Inc............ 3/28/01 13.50 1,000,000 1,000,000 Consumer Credit Associates, Inc............ 8/12/01 13.50 1,000,000 1,000,000 Continental Diamond Cutting Co............. 10/28/99 13.00 1,500,000 1,500,000 Continental Diamond Cutting Co............. 11/16/99 13.00 200,000 200,000 Corporate Flight Mgmt, Inc................. 12/4/97 12.50 346,500 349,167 Cougar Power Products, Inc................. 10/5/96 13.00 495,000 172,169 Cougar Power Products, Inc................. 10/5/96 13.00 495,000 270,249 Cougar Power Products, Inc................. 10/5/96 14.00 325,000 100,000 Dalcon International, Inc.................. 1/31/02 13.00 150,000 150,000 Dalcon International, Inc.................. 1/31/00 13.00 200,000 200,000 Dalcon International, Inc.................. 5/15/96 13.00 25,000 25,000 Dalts, Inc................................. 4/28/01 13.50 2,000,000 2,000,000 DentureCare, Inc........................... 7/29/99 11.50 490,000 494,509 DentureCare, Inc........................... 11/3/00 14.00 111,150 111,150 DentureCare, Inc........................... 8/31/00 14.00 800,000 800,000 DentureCare, Inc........................... 1/11/01 12.50 550,000 550,000 Eastern Food Group LLC..................... 8/30/00 8.00 500,000 500,000 Eastern Food Group LLC..................... 12/20/00 8.00 200,000 200,000 Eastern Food Group LLC..................... 1/21/01 8.00 200,000 200,000 Eastern Food Group LLC..................... 2/14/01 8.00 265,000 265,000 Eastern Food Group LLC..................... 4/30/01 8.00 200,000 200,000 Eastern Food Group LLC..................... 9/10/01 8.00 100,000 100,000 Educational Medical Inc.................... 3/31/00 14.00 2,200,000 2,200,000 Electronic Merchant Services............... 2/27/00 13.50 1,237,500 1,040,204 Electronic Merchant Services............... 2/29/96 14.00 34,572 34,572 Electronic Merchant Services............... 2/29/96 14.00 134,000 134,000 Encore Orthopedics, Inc.................... 7/31/00 13.50 2,620,985 2,715,740 Encore Orthopedics, Inc.................... 2/28/01 13.00 1,667,680 1,711,992 Entek Scientific, Inc...................... 6/28/01 13.00 2,500,000 2,500,000 Express Shipping Centers, Inc.............. 9/22/00 13.25 1,697,598 1,817,289 Factory Card Outlet of America Ltd......... 11/15/00 12.50 3,670,917 3,731,682 Factory Card Outlet of America Ltd......... 6/27/01 12.50 915,622 921,246 FoodNet Holdings, LLC...................... 7/22/01 13.50 1,000,000 1,000,000 Fortrend Engineering Corp.................. 8/30/01 12.99 1,500,000 1,500,000 Front Royal, Inc........................... 10/1/99 13.00 1,550,000 1,550,000 Front Royal, Inc........................... 12/27/99 13.00 675,000 675,000 FX Direct, Inc............................. 1/23/01 13.50 2,324,000 2,350,400 Fycon Technologies, Inc.................... 12/17/00 12.50 100,000 100,000 Fycon Technologies, Inc.................... 5/16/00 10.00 350,000 350,000 Fycon Technologies, Inc.................... 8/30/00 14.00 1,000,000 800,000 Fycon Technologies, Inc.................... 12/17/00 14.00 100,000 100,000 Fycon Technologies, Inc.................... 5/30/96 12.50 100,000 100,000 Fycon Technologies, Inc.................... 6/30/96 12.50 130,000 130,000 Fycon Technologies, Inc.................... various 14.00 202,838 0 Fycon Technologies, Inc.................... 8/31/96 12.50 130,000 130,000 Fycon Technologies, Inc.................... 9/30/96 12.50 130,000 130,000 Gardner Wallcovering, Inc.................. 3/28/01 13.50 1,485,000 1,486,750 Gates Communications, L.P.................. 12/30/98 12.50 990,000 995,010
F-30 92 SIRROM CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF SEPTEMBER 30, 1996 (UNAUDITED)
LOAN COUPON MATURITY INTEREST LOANS DATE RATE COST FAIR VALUE - ------------------------------------------- -------- ----- ------------ ------------ Gates Communications, L.P.................. 12/30/98 14.00 $ 125,000 $ 125,000 Gates Communications, L.P.................. 12/30/98 14.00 145,000 145,000 General Materials Management, Inc.......... 7/29/01 13.50 2,500,000 2,500,000 Global Finance and Leasing, Inc............ 1/3/00 13.00 1,500,000 1,500,000 Global Marine Electronics, Inc............. 5/1/01 13.00 1,350,000 1,350,000 Gold Medal Products, Inc................... 11/19/00 13.50 1,250,000 1,250,000 Gold Medal Products, Inc................... 2/15/01 13.50 25,000 25,000 Gold Medal Products, Inc................... 6/27/01 13.50 100,000 100,000 Gold Medal Products, Inc................... 7/31/01 13.50 100,000 100,000 Golf Corporation of America, Inc........... 9/16/99 11.00 300,000 300,000 Golf Corporation of America, Inc........... 12/28/00 14.00 200,000 200,000 Golf Corporation of America, Inc........... 12/29/00 10.00 455,589 455,589 Golf Corporation of America, Inc........... 7/13/96 14.00 100,000 100,000 Golf Corporation of America, Inc........... 10/5/96 14.00 50,000 50,000 Golf Video, Inc............................ 3/27/01 14.00 500,000 500,000 Gulfstream International Airlines Inc...... 7/29/99 13.00 1,490,000 1,496,012 Gulfstream International Airlines Inc...... 9/25/00 13.50 1,000,000 1,000,000 Gulfstream International Airlines Inc...... 10/15/96 14.00 1,000,000 1,000,000 Hancock Company (acquired Gitman).......... 12/31/00 14.00 1,700,000 400,000 Hancock Company (acquired Gitman).......... 6/28/01 10.25 200,000 200,000 Horizon Medical Products, Inc.............. 9/22/00 13.75 1,500,000 1,500,000 Hoveround Corporation...................... 6/11/98 13.00 495,000 498,115 Hoveround Corporation...................... 3/8/00 13.00 250,000 250,000 HPC America, Inc........................... 8/15/01 13.50 2,970,000 2,971,000 HSA International, Inc..................... 1/4/01 14.00 1,485,000 986,500 HSA International, Inc..................... 5/15/01 14.00 300,000 300,000 HSA International, Inc..................... 5/23/01 14.00 100,000 100,000 HSA International, Inc..................... 7/8/01 14.00 250,000 250,000 Hunt Incorporated.......................... 3/31/00 14.00 3,250,000 3,250,000 H & H Acq. Corp............................ 8/30/01 14.00 1,500,000 1,500,000 I. Schneid Acquisition, LLC................ 4/1/01 14.00 2,000,000 2,000,000 ILD Communications......................... 5/10/01 13.50 1,500,000 1,500,000 In-Store Services, Inc..................... 4/19/00 14.00 1,188,000 1,191,600 Innotech, Inc.............................. 3/22/99 13.00 1,980,000 1,990,323 Intermed Healthcare Systems, Inc........... 6/29/99 12.00 742,500 746,000 Intermed Healthcare Systems, Inc........... 2/10/00 14.00 375,000 375,000 Johnston County Cable, L.P................. 8/31/00 14.00 1,990,000 1,992,171 Kentucky Kingdom, Inc...................... 4/4/99 8.25 250,000 250,000 Kentucky Kingdom, Inc...................... 1/5/98 12.50 1,980,000 1,994,986 Kentucky Kingdom, Inc...................... 9/26/99 10.50 1,200,000 1,200,000 Kentucky Kingdom, Inc...................... 3/1/00 14.00 835,000 835,000 Kentucky Kingdom, Inc...................... 11/6/00 12.50 1,500,000 1,500,000 Kentucky Kingdom, Inc...................... 3/30/98 14.00 2,000,000 2,000,000 Kryptonics, Inc............................ 12/14/00 12.90 2,500,000 2,500,000 KWC Management Co., LLC.................... 4/25/01 14.00 500,000 500,000 Leisure Clubs International, Inc........... 4/1/01 14.00 1,485,000 1,486,500 Lovett's Buffet, Inc....................... 4/1/00 13.00 2,250,000 2,250,000 Mayo Hawaiian Corp......................... 6/27/01 14.00 2,200,000 2,200,000 MBA Marketing Corporation.................. 2/4/99 12.50 1,782,000 1,791,600
F-31 93 SIRROM CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF SEPTEMBER 30, 1996 (UNAUDITED)
LOAN COUPON MATURITY INTEREST LOANS DATE RATE COST FAIR VALUE - ------------------------------------------- -------- ----- ------------ ------------ McAuley's Incorporated..................... 7/31/01 13.00 $ 3,000,000 $ 3,000,000 Medical Associates of America, Inc......... 11/1/97 12.50 385,000 392,000 Money Transfer Systems, Inc................ 7/24/00 14.00 247,500 248,130 Money Transfer Systems, Inc................ 12/20/00 14.00 148,500 148,750 Money Transfer Systems, Inc................ 3/1/01 14.00 148,500 148,675 Money Transfer Systems, Inc................ 5/2/01 14.00 148,500 148,575 Money Transfer Systems, Inc................ 7/8/01 14.00 148,500 148,575 Monogram Products, Inc..................... 6/18/01 13.50 916,000 921,600 Moore Diversified Products, Inc............ 6/16/00 13.50 800,000 800,000 Multicom Publishing, Inc................... 3/29/01 13.00 2,200,000 2,293,331 Multimedia Learning, Inc................... 5/8/00 14.00 1,500,000 1,500,000 Multimedia Learning, Inc................... 4/18/01 13.50 500,000 500,000 Multimedia Learning, Inc................... 9/12/01 13.50 750,000 750,000 NASC, Inc.................................. 6/26/01 13.50 1,500,000 1,500,000 Nationwide Engine Supply, Inc.............. 1/12/99 12.00 2,475,000 2,488,761 Nationwide Engine Supply, Inc.............. 9/26/01 13.50 1,000,000 1,000,000 Nelson Juvenile Products, LLC.............. 10/31/00 14.00 2,000,000 2,000,000 Novavision, Inc............................ 6/21/99 10.00 1,000,000 1,000,000 Novavision, Inc............................ 6/21/00 10.00 350,000 350,000 Novavision, Inc............................ 10/16/00 10.00 100,000 100,000 Novavision, Inc............................ 12/4/01 10.00 351,500 351,500 Novavision, Inc............................ 11/30/96 10.00 40,000 40,000 NRI Service and Supply L.P................. 2/13/00 14.00 2,225,000 2,233,340 Orchid Manufacturing Group, Inc............ 9/14/00 13.00 2,960,000 2,966,670 Orchid Manufacturing Group, Inc............ 12/28/00 13.50 1,000,000 1,000,000 Palco Telecom Service, Inc................. 11/22/99 12.00 1,300,000 1,300,000 Patton Management Corporation.............. 5/26/00 13.50 1,900,000 1,900,000 PaySys International, Inc.................. 5/1/97 13.00 990,000 998,791 PFIC Corporation........................... 2/28/01 13.00 1,000,000 1,000,000 Pharmaceutical Research Assoc., Inc........ 8/10/00 13.50 1,980,000 1,984,662 Pipeliner Systems, Inc..................... 9/30/98 10.00 980,000 992,321 Plymouth, Inc.............................. 9/28/00 13.00 1,000,000 1,000,000 Precision Fixtures & Graphics, Inc......... 4/11/01 14.00 1,095,000 1,095,000 Precision Fixtures & Graphics, Inc......... 4/11/01 14.00 300,000 300,000 Precision Fixtures & Graphics, Inc......... 5/8/01 14.00 100,000 100,000 Precision Fixtures & Graphics, Inc......... 5/28/01 14.00 75,000 75,000 Precision Fixtures & Graphics, Inc......... 7/12/01 14.00 75,000 75,000 Precision Fixtures & Graphics, Inc......... 7/22/01 14.00 100,000 100,000 Precision Fixtures & Graphics, Inc......... 8/27/01 14.00 250,000 250,000 Precision Fixtures & Graphics, Inc......... 8/27/01 14.00 295,000 295,000 Precision Fixtures & Graphics, Inc......... 8/27/01 14.00 150,000 150,000 Precision Panel Products, Inc.............. 1/11/00 12.75 1,485,000 1,490,250 Pritchard Paint & Glass Co................. 2/14/01 14.00 567,431 567,431 Quest Group International, Inc............. 11/15/00 13.25 1,125,000 1,147,913 Quest Group International, Inc............. 9/3/01 14.00 1,350,000 1,352,500 Radio Systems Corporation.................. 12/27/99 13.00 905,725 940,287 Scandia Technologies, Inc.................. 4/9/01 14.00 1,825,000 1,825,000 Sheet Metal Specialties, Inc............... 6/20/01 14.00 250,000 250,000 SkillSearch Corporation.................... 2/5/98 13.00 496,000 499,148
F-32 94 SIRROM CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF SEPTEMBER 30, 1996 (UNAUDITED)
LOAN COUPON MATURITY INTEREST LOANS DATE RATE COST FAIR VALUE - ------------------------------------------- -------- ----- ------------ ------------ SkillSearch Corporation.................... 3/10/97 14.00 $ 100,000 $ 100,000 Softsense Computer Products, Inc........... 6/27/01 14.00 2,760,000 2,776,000 Softsense Computer Products, Inc........... 9/24/01 14.00 1,500,000 1,500,000 Southern Specialty Brands, Inc............. 6/30/01 14.00 1,732,500 1,735,128 Sqwincher Corporation...................... 1/31/00 13.50 500,000 500,000 Summit Publishing Group, Ltd............... 3/17/99 12.00 1,485,000 1,492,750 Summit Publishing Group, Ltd............... 7/26/01 14.00 625,000 625,000 Suncoast Medical Group, Inc................ 9/14/99 13.50 485,000 491,748 Suncoast Medical Group, Inc................ 6/7/00 14.00 495,000 495,830 Suncoast Medical Group, Inc................ 2/23/01 14.00 495,000 495,664 TCOM Systems, Inc.......................... 2/5/98 13.00 490,914 490,914 Tower Environmental, Inc................... 11/30/98 10.00 2,440,000 2,201,990 Tower Environmental, Inc................... 5/30/95 12.50 150,000 150,000 Trade Am International, Inc................ 9/30/00 12.75 4,000,000 4,000,000 UltraFab, Inc.............................. 6/27/01 14.00 1,500,000 1,500,000 Unique Electronics, Inc.................... 11/30/99 10.67 600,000 600,000 Urethane Technologies, Inc................. 3/16/01 13.50 1,636,520 1,678,926 Valdawn, LLC............................... 4/13/00 13.50 2,399,974 2,400,000 Viking Moorings Acquisition, LLC........... 12/15/00 13.00 1,655,500 1,712,920 Virtual Resources Inc...................... 8/16/01 14.00 3,000,000 3,000,000 Vista Information Solutions, Inc........... 4/30/01 13.50 2,032,157 2,063,345 WWR Technology, Inc........................ 6/30/97 13.50 394,700 398,920 Zahren Alternative Power Corp.............. 1/30/00 13.00 495,000 495,826 Zahren Alternative Power Corp.............. 11/27/99 13.00 1,980,000 1,988,678 ------------ ------------ Total Loans.............................. $225,656,411 $220,049,964 ============ ============
F-33 95 SIRROM CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF SEPTEMBER 30, 1996 (UNAUDITED)
NUMBER OF SHARES/ COST OR PERCENTAGE CONTRIBUTED EQUITY INTERESTS OWNERSHIP VALUE FAIR VALUE - ------------------------------------------------------ --------------- ----------- ----------- PUBLICLY TRADED INVESTMENTS National Vision Associates, Ltd. Common Stock......... 208,698 $ 1,771,149 $ 751,313 Trans Global Services, Inc. Common Stock.............. 28,088 5,300 36,456 Moovies, Inc. Common Stock............................ 156,110 1,561 669,322 Premiere Technologies, Inc. Common Stock.............. 378,360 0 8,059,068 Cardiac Control Systems, Inc. Common Stock............ 50,000 250,000 59,062 Innotech, Inc. Common Stock........................... 65,530 20,000 602,057 American Exchange Network Common Stock................ 139,651 21,879 231,297 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 1,650,000 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 DentureCare, Inc. Preferred Stock -- Series E......... 490,978 800,000 800,000 Unique Electronics, Inc. Preferred Stock -- Series A................................................... 1,000,000 1,000,000 1,000,000 Pipeliner Systems, Inc. Preferred Stock -- Series D... 5,000 1,000,000 1,000,000 Front Royal, Inc. Common Stock........................ 110,000 275,000 275,000 NovaVision, Inc. Preferred Stock -- Series A.......... 1,763,846 1,763,846 1,763,846 Fycon Technologies, Inc. Preferred Stock -- Series A................................................... 597,162 597,162 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 Eastern Food Group LLC Class B Preferred Units........ 7,500 754,444 0 Dalcon International, Inc. Series B Preferred Stock... 850,000 850,000 490,000 Zahren Alternative Power Corporation Common Stock..... 700 210,000 210,000 Zahren Alternative Power Corporation Preferred Stock............................................... 200 200,000 200,000 Electronic Merchant Services Series B Preferred Stock............................................... 163 0 0 Pharmaceutical Research Associates Inc. Class F Preferred Stock..................................... 29,195 190,000 190,000 Caldwell/VSR Inc. Preferred Stock..................... 890 890,000 890,000 Precision Fixtures & Graphics, Inc. Preferred Stock... 1,500,000 1,500,000 1,100,000 Palco Telecom Service Common Stock.................... 157,895 1,579 1,579 ----------- ----------- Total Equity Interests.............................. $16,150,050 $25,578,037 =========== ===========
F-34 96 SIRROM CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF SEPTEMBER 30, 1996 (UNAUDITED)
COST OR NUMBER OF PERCENTAGE CONTRIBUTED WARRANTS SHARES/UNITS OWNERSHIP VALUE FAIR VALUE - ------------------------------------------ -------------- ---------- ------------ ------------ PUBLICLY TRADED COMPANIES American Network Exchange................. 13,988 0.00% $ 0 $ 0 Cardiac Control Systems, Inc.............. 100,000 4.35 0 118,125 Consumat Systems, Inc..................... 250,000 20.00 0 183,750 Moovies, Inc.............................. 20,000 0.20 0 85,750 Multicom Publishing, Inc.................. 163,791 4.80 800,000 611,486 Urethane Technologies, Inc................ 484,640 4.66 363,480 296,842 Vista Information Solutions, Inc.......... 1,247,582 5.00 467,843 836,920 PRIVATE COMPANIES AB Plastics Holding Corporation........... 200,000 20.00 0 0 Affinity Corporation...................... 2,041 10.04 20,000 385,000 Alvin Carter Holdings Corp................ 20 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...................... 1,409 22.02 0 0 Argenbright Holdings LLC.................. 18 3.50 750,000 750,000 Ashe Industries, Inc...................... 225 17.14 20,000 0 Associated Response Services, Inc......... 356 24.27 14,000 1,000,000 Assured Power, Inc........................ 234 16.00 0 0 Auto Rental Systems, Inc.................. 144,869 9.00 0 285,000 Avionics Systems, Inc..................... 15.00% of Co. 15.00 0 0 B & N Company, Inc........................ 46 4.00 40,000 40,000 BankCard Services Corporation............. 149,261 28.00 3,000 0 BiTec Southeast, Inc...................... 1,480 15.00 21,000 55,000 Carter Kaplan Holdings, LLC............... 24 24.00 6,100 0 C.J. Spirits, Inc......................... 180,000 10.00 7,500 0 Caldwell/VSR Inc.......................... 159 15.93 0 0 Cartech................................... 210,527 20.00 0 0 Cedaron Medical, Inc...................... 173,981 4.25 0 0 CellCall, Inc............................. 358 1.35 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............................ 449,039 9.32 0 0 CLS Corporation........................... 126,997 4.22 0 0 Colonial Investments, Inc................. 264 18.00 0 0 Consumer Credit Associates, Inc........... 3,669 15.50 0 0 Continental Diamond Cutting Company....... 112 12.22 0 0 Corporate Flight Mgmt., Inc............... 66,315 6.63 3,500 100,000 Cougar Power Products, Inc................ 336 22.61 10,000 0 Dalcon Technologies, Inc.................. 250,000 20.00 0 0 Dalt's, Inc............................... 125 25.00 0 0 Delaware Publishing Group, Inc............ 4,386 37.00 15,000 15,000 DentureCare, Inc.......................... 628,500 12.65 10,000 375,000 Eastern Food Group LLC.................... 17,647 15.00 0 0
F-35 97 SIRROM CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF SEPTEMBER 30, 1996 (UNAUDITED)
COST OR NUMBER OF PERCENTAGE CONTRIBUTED WARRANTS SHARES/UNITS OWNERSHIP VALUE FAIR VALUE - ------------------------------------------ ------------- ---------- ------------ ------------ Educational Medical, Inc.................. 141,667 8.00 $ 0 $ 900,000 Electronic Merchant Services.............. 430 12.50 12,500 0 Encore Orthopedics, Inc................... 524,094 7.36 711,335 711,335 Entek Scientific Corporation.............. 18,548 4.25 0 0 Express Shipping Centers, Inc............. 73,752 3.00 552,402 552,402 FCOA Acquisition Corp..................... 29,724 3.13 413,461 815,000 Foodnet Holdings, LLC..................... 8.00% of LLC 8.00 0 0 Fortrend Engineering Corp................. 437,552 3.25 0 0 Front Royal, Inc.......................... 240,458 3.59 0 420,000 Fycon Technologies, Inc................... 58,677 15.00 0 0 Gardner Wallcovering, Inc................. 2 2.00 15,000 15,000 Gates Communication L.P................... 47.00% of L.P. 47.00 10,000 0 General Materials Management Inc.......... 600,000 10.00 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.......... 390,000 31.50 0 0 Golf Video, Inc........................... 98 49.50 0 0 Gulfstream International Airlines, Inc.... 271 27.00 10,000 140,000 H & H Acquisition Corp.................... 3,600 22.50 0 0 Horizon Medical Products, Inc............. ,486 8.25 0 0 Hoveround Corporation..................... 491 10.00 5,000 750,000 HPC America, Inc.......................... 5 2.75 30,000 30,000 HSA International, Inc.................... 2,534,003 62.49 15,000 0 Hunt Incorporated......................... 44 10.00 0 100,000 Hunt Leasing & Rental Corporation......... 265 10.00 0 100,000 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 Intermed Healthcare Systems, Inc.......... 11,884 10.50 7,500 7,500 Johnston County Cable L.P................. 27.5% of LP 27.50 10,000 10,000 Kentucky Kingdom, Inc..................... 6,132 2.00 0 0 K.W.C. Management Corp.................... 794 24.40 0 0 Kryptonics, Inc........................... 1,255 9.00 0 400,000 Leisure Clubs International, Inc.......... 144 10.00 15,000 15,000 Lovett's Buffet, Inc...................... 204,219 5.00 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 Money Transfer Systems, Inc............... 94 8.50 8,500 8,500 Monogram Products, Inc.................... 1,276 6.00 84,000 84,000 Moore Diversified Products, Inc........... 12 11.00 0 0 Multimedia Learning, Inc.................. 116,450 7.32 0 800,000 NASC, Inc................................. 130 13.00 0 0 Nationwide Engine Supply, Inc............. 1,265,664 20.20 25,000 25,000
F-36 98 SIRROM CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF SEPTEMBER 30, 1996 (UNAUDITED)
COST OR NUMBER OF PERCENTAGE CONTRIBUTED WARRANTS SHARES/UNITS OWNERSHIP VALUE FAIR VALUE - ------------------------------------------ -------------- ---------- ------------ ------------ Nelson Juvenile Products, LLC............. 30 30.00 $ 0 $ 0 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................. 1,719,047 4.50 40,000 540,000 P.A. Plymouth, Inc........................ 92,647 15.00 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 Pharmaceutical Research Assoc., Inc....... 259,848 6.00 20,000 685,000 Pipeliner Systems, Inc.................... 2,080,000 20.55 20,000 20,000 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 17.79 275,000 275,000 Radio Systems Corporation................. 162,167 8.92 94,275 600,000 Ryland Company............................ 1,518 20.50 0 0 Scandia Technologies, Inc................. 282 22.00 0 0 SkillSearch Corporation................... 2,381 7.59 254,000 150,000 Softsense Computer Products, Inc.......... 171,642 1.50 240,000 240,000 Southern Specialty Brands, Inc............ 10,000 10.00 17,500 17,500 Suncoast Medical Group, Inc............... 580,159 23.00 25,000 0 Suprex Corporation........................ 1,058,179 3.45 0 0 Tower Environmental, Inc.................. 82 10.07 20,000 0 Trade Am International, Inc............... 335,106 6.00 0 0 Treasure Coast Pizza Co................... 51 10.00 0 8,500 UltraFab, Inc............................. 120,000 12.00 0 0 Unique Electronics, Inc................... 20% of Co. 20.00 0 0 Universal Marketing Corporation........... 111 10.00 0 0 VDI Acquisition Company, LLC.............. 2,658 21.00 26 26 Viking Moorings Acquisition, LLC.......... 7 6.50 344,500 344,500 Virginia Gas Company...................... 59,413 10.00 0 160,000 Virtual Resources, Inc.................... 8 7.50 0 0 Voice FX Corporation...................... 233,112 8.00 176,000 176,000 Zahren Alternative Power Corporation...... 1,168 6.54 25,000 25,000 ------------ ------------ Total Warrants.......................... $ 6,151,922 $ 15,087,636 ------------ ------------ Total Investments....................... $247,958,383 $260,715,637 ============ ============
- --------------- (a) All restricted or locked up publicly traded stocks and warrants are being valued each month at 70% of the publicly traded price. All other publicly traded stocks are valued at 90% of the publicly traded price. F-37 99 PART C INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS. 1. FINANCIAL STATEMENTS. SIRROM CAPITAL CORPORATION Report of Independent Public Accountants Balance Sheets as of December 31, 1994 and 1995 and September 30, 1996 (unaudited) Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995 and for the Nine Months Ended September 30, 1995 and 1996 (unaudited) Statements of Changes in Partners' Capital and Shareholders' Equity for the Years Ended December 31, 1993, 1994 and 1995 and the Nine Months Ended September 30, 1996 (unaudited) Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995 and the Nine Months Ended September 30, 1995 and 1996 (unaudited) Financial Highlights Per Share Data for the Year Ended December 31, 1995 and the Nine Months Ended September 30, 1996 (unaudited) Ratios/Supplemental Data for the Years Ended December 31, 1993, 1994 and 1995 and the Nine Months Ended September 30, 1996 (unaudited) Notes to Financial Statements Quarterly Financial Information for the Years 1994 and 1995 (unaudited) Portfolio of Investments As of December 31, 1994 As of December 31, 1995 As of September 30, 1996 (unaudited) 2. EXHIBITS. a. -- Amended and Restated Charter of the Company (incorporated by reference to Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the period ending September 30, 1996), filed with the Commission on November 14, 1996) b.1 -- Bylaws of the Company (incorporated by reference to exhibit b. contained in the Registrant's Registration Statement on Form N-2, as amended (File No. 33-86680), filed with the Commission on November 23, 1994) b.2 -- Amendment No. 1 to Bylaws (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the period ended March 30, 1995 filed with the Commission on May 12, 1995) d.1 -- Specimen form of Common Stock Certificate (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) d.2 -- Instruments defining rights of holders of securities: See Paragraph 6 of the Company's Amended and Restated Charter (incorporated by reference to Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the period ending September 30, 1996, filed with the Commission on November 14, 1996) d.3 -- Equity Holders Agreement dated as of November 1, 1994 by and among the Partnership and the other signatories thereto (incorporated by reference to the corresponding exhibit contained in the Registrant's Registration Statement on Form N-2, as amended (File No. 33-86680), filed with the Commission on November 23, 1994) d.4 -- Registration Rights Agreement dated February 1, 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)
C-1 100 e. -- Dividend Reinvestment Plan of the Company (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the period ended March 30, 1995 filed with the Commission on May 12, 1995) f.1 -- Fourth Amended and Restated Loan Agreement dated as of August 16, 1996, by and among SII, as borrower, the Company, as guarantor, the lenders referred to herein, and First Union National Bank of Tennessee, as Agent (incorporated by reference to Exhibit 7.1 to SII's Post-Effective Amendment No. 1 to Registration Statement on Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996) f.2 -- Fourth Amended and Restated Revolving Credit Note dated August 16, 1996, in the principal amount of $27,500,000, made by SII in favor of First Union National Bank of Tennessee (incorporated by reference to Exhibit 7.2 to SII's Post-Effective Amendment No. 1 to Registration Statement on Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996) f.3 -- Revolving Credit Note dated August 16, 1996, in the principal amount of $10,000,000, made by SII in favor of Amsouth Bank of Tennessee (incorporated by reference to Exhibit 7.3 to SII's Post-Effective Amendment No. 1 to Registration Statement on Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996) f.4 -- Revolving Credit Note dated August 16, 1996, in the principal amount of $7,500,000, made by SII in favor of First American National Bank (incorporated by reference to Exhibit 7.4 to SII's Post-Effective Amendment No. 1 to Registration Statement on Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996) f.5 -- Amended and Restated Swingline Note dated August 16, 1996, in the principal amount of $5,000,000, made by SII in favor of First Union National Bank of Tennessee (incorporated by reference to Exhibit 7.5 to SII's Post-Effective Amendment No. 1 to Registration Statement on Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996) f.6 -- Fourth Amended and Restated Revolving Credit Note dated August 16, 1996, in the principal amount of $5,000,000, made by SII in favor of First Tennessee Bank National Association (incorporated by reference to Exhibit 7.6 to SII's Post-Effective Amendment No. 1 to Registration Statement on Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996) f.7 -- Third Amended and Restated Security Agreement dated August 16, 1996, by and between SII and First Union National Bank of Tennessee (incorporated by reference to Exhibit 7.7 to SII's Post-Effective Amendment No. 1 to Registration Statement on Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996) f.8 -- Amended and Restated Borrower Pledge Agreement dated August 16, 1996, made by SII in favor of First Union National Bank of Tennessee (incorporated by reference to Exhibit 7.8 to SII's Post-Effective Amendment No. 1 to Registration Statement on Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996) f.9 -- Amended and Restated Security Agreement dated as of August 16, 1996, by and between SII and the SBA (incorporated by reference to Exhibit 7.10 to SII's Post-Effective Amendment No. 1 to Registration Statement on Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996) f.10 -- Amended and Restated Pledge Agreement dated as of August 16, 1996, by and between SII and the SBA (incorporated by reference to Exhibit 7.11 to SII's Post-Effective Amendment No. 1 to Registration Statement on Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996) f.11 -- Guaranty Agreement dated August 16, 1996 by and between the Company and the SBA (incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ending September 30, 1996, filed with the Commission on November 14, 1996) f.12 -- Master Trust Indenture and Security Agreement Supplement dated as of December 31, 1996, by and between SFC as Issuer, the Company as Servicer, First Trust National Association as Trustee and ING Baring (U.S.) Capital Markets, Inc. *f.13 -- Revolving Note, Series 1996-1 dated December 31, 1996, with a principal amount of $100,000,000 made by SFC in favor of First Trust National Association f.14 -- Loan Sale and Contribution Agreement dated as of December 31, 1996, by and between the Company as Originator and Servicer and SFC as Buyer
C-2 101 f.15 -- Custodial Agreement dated as of December 31, 1996, by and among SFC, the Company, First Trust National Association and ING Baring (U.S.) Capital Markets, Inc. f.16 -- Backup Servicing Agreement dated as of December 31, 1996, by and among First Trust National Association, the Company and ING Baring (U.S.) Capital Markets, Inc. f.17 -- Fee Agreement dated as of December 31, 1996, by and among the Company, SFC, and ING Baring (U.S.) Capital Markets, Inc. f.18 -- ISDA Master Agreement dated as of November 26, 1996, by and between the Company and NationsBank, N.A. *h.1 -- Form of Underwriting Agreement *h.2 -- Form of Agreement Among Underwriters *h.3 -- Form of Selected Dealers Agreement i.1 -- Amended and Restated 1994 Employee Stock Option Plan of the Company (incorporated by reference to the corresponding exhibit contained in the Registrant's Registration Statement on Form N-2, as amended (File No. 33-86680), filed with the Commission on November 23, 1994) i.2 -- Form of Indemnification Agreement (incorporated by reference to the corresponding exhibit contained in the Registrant's Registration Statement on Form N-2, as amended (File No. 33-86680), filed with the Commission on November 23, 1994) i.3 -- 1995 Stock Option Plan for Non-Employee Directors (incorporated by reference to the corresponding exhibit in the Registrant's Registration Statement on Form N-2, as amended (File No. 33-95394), filed with the Commission on August 3, 1995) i.4 -- 1996 Incentive Stock Option (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) j.1 -- Custodial Services Agreement with First American Trust Company dated March 13, 1992 (incorporated by reference to the corresponding exhibit contained in the Registrant's Registration Statement on Form N-2, as amended (File No. 33-86680), filed with the Commission on November 23, 1994) j.2 -- Custodial Services Agreement Supplement with First American Trust Company dated January 16, 1995 (incorporated by reference to the corresponding exhibit contained in the Registrant's Registration Statement on Form N-2, as amended (File No. 33-86680), filed with the Commission on November 23, 1994) k.1 -- ISDA Master Agreement dated as of September 13, 1995, by and between the Company and First Union National Bank (incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ending September 30, 1995 filed with the Commission on November 15, 1995) k.2 -- Acquisition Agreement by and among the Company, Sirrom Capital Acquisition Corporation, Sirrom, Ltd., Harris Williams & Co., L.P. and Harris Williams & Co. dated as of May 16, 1996 (incorporated by reference to Exhibit k.9 to the Company's Registration Statement on Form N-2 (File No. 333-4023), filed with the Commission on May 17, 1996) k.3 -- 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 *l. -- Opinion of Bass, Berry & Sims PLC n.1 -- Consent of Arthur Andersen LLP *n.2 -- Consent of Bass, Berry & Sims PLC (included in Exhibit 1) r. -- Financial Data Schedule (for SEC use only)
- --------------- * To be filed by amendment (c) Not applicable ITEM 25. MARKETING ARRANGEMENTS The information contained under the heading "Underwriters" on pages 54 through 56 of the Prospectus is incorporated herein by this reference. In connection with this Offering, the Underwriters may over-allot or effect transactions which stabilize or maintain the market price of the Common Stock at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. C-3 102 ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION SEC registration fee.............................................................. $ 35,624 NASD fee.......................................................................... $ Nasdaq additional listing fee..................................................... $ Blue Sky fees and expenses........................................................ $ Accounting fees and expenses...................................................... $ Legal fees and expenses........................................................... $ Printing and engraving............................................................ $ Registrar and transfer agent's fees............................................... $ Miscellaneous fees and expenses................................................... $ -------- Total................................................................... $ ========
- --------------- *Estimated for filing purposes. All of the expenses set forth above shall be borne by the Company. ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL. Sirrom Investments, Inc., a Tennessee corporation, is a wholly-owned subsidiary of the Company. Harris Williams & Co., a Virginia corporation, is a wholly-owned subsidiary of the Company. Sirrom Funding Corporation, a Delaware corporation, is a wholly-owned subsidiary of the Company. Tandem Capital, Inc., a Tennessee corporation, is a wholly-owned subsidiary of the Company. SCCGS, Inc., a Tennessee corporation, is a wholly-owned subsidiary of the Company. ITEM 28. NUMBER OF HOLDERS OF SECURITIES. The following table sets forth the number of record holders of the Company's Common Stock as of the date hereof.
NUMBER OF TITLE OF CLASS RECORD HOLDERS - ------------------------------------------------------------------------------- -------------- Common Stock, no par value..................................................... 169
ITEM 29. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Tennessee Business Corporation Act ("TBCA") provides that a corporation may indemnify any of its directors and officers against liability incurred in connection with a proceeding if (i) such person acted in good faith; (ii) in the case of conduct in an official capacity, the director or officer reasonably believed such conduct was in the corporation's best interests; (iii) in all other cases, the director or officer reasonably believed that his conduct was not opposed to the best interests of the corporation; and (iv) in connection with any criminal proceeding, the director or officer had no reasonable cause to believe his conduct was unlawful. In actions brought by or in the right of the corporation, however, the TBCA provides that no indemnification may be made if the director or officer was adjudged liable to the corporation. The TBCA also provides that in connection with any proceeding charging improper personal benefit to an officer or director, no indemnification may be made if such officer or director is adjudged liable on the basis that such personal benefit was improperly received. In cases where the director or officer is wholly successful, on the merits or otherwise, in the defense of any proceeding instigated because of his status as an officer or director of a corporation, the TBCA mandates that the corporation indemnify the director or officer against reasonable expenses incurred in the proceeding. Notwithstanding the foregoing, the TBCA provides that a court of competent jurisdiction, upon application, may order that an officer or director be indemnified for reasonable expenses if, in consideration of all relevant circumstances, the court determines that such individual is fairly and reasonably entitled to indemnification, notwithstanding the fact that (i) he was adjudged liable to the corporation in a proceeding by or in right of the corporation; (ii) he was adjudged liable on the basis that a personal benefit was improperly received by him; or (iii) he breached his duty of care to the corporation. C-4 103 The Company's Charter provides that to the fullest extent permitted by Tennessee law, no director shall be personally liable to the Company or its shareholders for monetary damages for breach of any fiduciary duty as a director. Under the TBCA, this charter provision relieves the Company's directors from personal liability to the Company or its shareholders for monetary damages for breach of fiduciary duty as a director, except for liability arising from a judgment or other final adjudication establishing (i) a breach of the director's duty of loyalty, (ii) acts or omissions not in good faith or involving intentional misconduct or a knowing violation of law, (iii) unlawful distributions; or (iv) receipt of an improper personal benefit. In addition, the Company's Bylaws provide that each director or officer of the Company shall be indemnified by the Company to the fullest extent allowed by Tennessee law. ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR. Not applicable. ITEM 31. LOCATION OF ACCOUNTS AND RECORDS. The Company maintains at its principal office physical possession of each account, book or other document required to be maintained by Section 31(a) of the 1940 Act. ITEM 32. MANAGEMENT SERVICES. Not applicable. ITEM 33. UNDERTAKINGS. The Registrant hereby undertakes: (a) to suspend the offering of shares until the Prospectus is amended if subsequent to the effective date of this Registration Statement, its net asset value declines more than ten percent from its net asset value as of the effective date of this Registration Statement. (b) that, for the purpose of determining any liability under the Securities Act of 1933, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the Registrant under Rule 497(h) under the Securities Act of 1933 shall be deemed to be part of this Registration Statement as of the time it was declared effective; and (c) that, for the purpose of determining any liability under the Securities Act of 1933, each post effective amendment that contains a form of Prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering thereof. Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the registrant hereby undertakes to file with the Securities and Exchange Commission such supplementary and periodic information, documents and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority conferred in that section. Insofar as indemnification for liability arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions of its Charter and Bylaws permitting indemnification, or otherwise, the registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. C-5 104 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Nashville, and State of Tennessee, on the 9th day of January, 1997. Sirrom Capital Corporation By: /s/ GEORGE M. MILLER, II ------------------------------------ George M. Miller, II Chief Executive Officer and President KNOW ALL MEN BY THESE PRESENTS, each person whose signature appears below hereby constitutes and appoints George M. Miller, II, and Carl W. Stratton, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place, and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Amendment has been signed by the following persons in the capacities and on the dates indicated.
NAME TITLE DATE - --------------------------------------------- ------------------------------ ---------------- /s/ JOHN A. MORRIS, JR., M.D. Chairman of the Board and January 9, 1997 - --------------------------------------------- Director John A. Morris, Jr., M.D. /s/ GEORGE M. MILLER, II Chief Executive Officer, January 9, 1997 - --------------------------------------------- President and Director George M. Miller, II (Principal Executive Officer) /s/ CARL W. STRATTON Chief Financial Officer January 9, 1997 - --------------------------------------------- (Principal Financial and Carl W. Stratton Accounting Officer) /s/ E. TOWNES DUNCAN Director January 9, 1997 - --------------------------------------------- E. Townes Duncan /s/ WILLIAM D. EBERLE Director January 9, 1997 - --------------------------------------------- William D. Eberle /s/ EDWARD J. MATHIAS Director January 9, 1997 - --------------------------------------------- Edward J. Mathias /s/ ROBERT A. MCCABE, JR. Director January 9, 1997 - --------------------------------------------- Robert A. McCabe, Jr. /s/ RAYMOND H. PIRTLE, JR. Director January 9, 1997 - --------------------------------------------- Raymond H. Pirtle, Jr. /s/ L. EDWARD WILSON Director January 9, 1997 - --------------------------------------------- L. Edward Wilson
C-6 105 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------ ----------------------------------------------------------------------------------- a. -- Amended and Restated Charter of the Company (incorporated by reference to Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the period ending September 30, 1996), filed with the Commission on November 14, 1996) b.1 -- Bylaws of the Company (incorporated by reference to exhibit b. contained in the Registrant's Registration Statement on Form N-2, as amended (File No. 33-86680), filed with the Commission on November 23, 1994) b.2 -- Amendment No. 1 to Bylaws (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the period ended March 30, 1995 filed with the Commission on May 12, 1995) d.1 -- Specimen form of Common Stock Certificate (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) d.2 -- Instruments defining rights of holders of securities: See Paragraph 6 of the Company's Amended and Restated Charter (incorporated by reference to Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the period ending September 30, 1996, filed with the Commission on November 14, 1996) d.3 -- Equity Holders Agreement dated as of November 1, 1994 by and among the Partnership and the other signatories thereto (incorporated by reference to the corresponding exhibit contained in the Registrant's Registration Statement on Form N-2, as amended (File No. 33-86680), filed with the Commission on November 23, 1994) d.4 -- Registration Rights Agreement dated February 1, 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) e. -- Dividend Reinvestment Plan of the Company (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the period ended March 30, 1995 filed with the Commission on May 12, 1995) f.1 -- Fourth Amended and Restated Loan Agreement dated as of August 16, 1996, by and among SII, as borrower, the Company, as guarantor, the lenders referred to herein, and First Union National Bank of Tennessee, as Agent (incorporated by reference to Exhibit 7.1 to SII's Post-Effective Amendment No. 1 to Registration Statement on Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996) f.2 -- Fourth Amended and Restated Revolving Credit Note dated August 16, 1996, in the principal amount of $27,500,000, made by SII in favor of First Union National Bank of Tennessee (incorporated by reference to Exhibit 7.2 to SII's Post-Effective Amendment No. 1 to Registration Statement on Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996) f.3 -- Revolving Credit Note dated August 16, 1996, in the principal amount of $10,000,000, made by SII in favor of Amsouth Bank of Tennessee (incorporated by reference to Exhibit 7.3 to SII's Post-Effective Amendment No. 1 to Registration Statement on Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996) f.4 -- Revolving Credit Note dated August 16, 1996, in the principal amount of $7,500,000, made by SII in favor of First American National Bank (incorporated by reference to Exhibit 7.4 to SII's Post-Effective Amendment No. 1 to Registration Statement on Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996) f.5 -- Amended and Restated Swingline Note dated August 16, 1996, in the principal amount of $5,000,000, made by SII in favor of First Union National Bank of Tennessee (incorporated by reference to Exhibit 7.5 to SII's Post-Effective Amendment No. 1 to Registration Statement on Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996)
106
EXHIBIT NUMBER DESCRIPTION - ------ ----------------------------------------------------------------------------------- f.6 -- Fourth Amended and Restated Revolving Credit Note dated August 16, 1996, in the principal amount of $5,000,000, made by SII in favor of First Tennessee Bank National Association (incorporated by reference to Exhibit 7.6 to SII's Post-Effective Amendment No. 1 to Registration Statement on Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996) f.7 -- Third Amended and Restated Security Agreement dated August 16, 1996, by and between SII and First Union National Bank of Tennessee (incorporated by reference to Exhibit 7.7 to SII's Post-Effective Amendment No. 1 to Registration Statement on Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996) f.8 -- Amended and Restated Borrower Pledge Agreement dated August 16, 1996, made by SII in favor of First Union National Bank of Tennessee (incorporated by reference to Exhibit 7.8 to SII's Post-Effective Amendment No. 1 to Registration Statement on Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996) f.9 -- Amended and Restated Security Agreement dated as of August 16, 1996, by and between SII and the SBA (incorporated by reference to Exhibit 7.10 to SII's Post-Effective Amendment No. 1 to Registration Statement on Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996) f.10 -- Amended and Restated Pledge Agreement dated as of August 16, 1996, by and between SII and the SBA (incorporated by reference to Exhibit 7.11 to SII's Post-Effective Amendment No. 1 to Registration Statement on Form N-5 (File No. 811-7779), filed with the Commission on November 7, 1996) f.11 -- Guaranty Agreement dated August 16, 1996 by and between the Company and the SBA (incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ending September 30, 1996, filed with the Commission on November 14, 1996) f.12 -- Master Trust Indenture and Security Agreement Supplement dated as of December 31, 1996, by and between SFC as Issuer, the Company as Servicer, First Trust National Association as Trustee and ING Baring (U.S.) Capital Markets, Inc. *f.13 -- Revolving Note, Series 1996-1 dated December 31, 1996, with a principal amount of $100,000,000 made by SFC in favor of First Trust National Association f.14 -- Loan Sale and Contribution Agreement dated as of December 31, 1996, by and between the Company as Originator and Servicer and SFC as Buyer f.15 -- Custodial Agreement dated as of December 31, 1996, by and among SFC, the Company, First Trust National Association and ING Baring (U.S.) Capital Markets, Inc. f.16 -- Backup Servicing Agreement dated as of December 31, 1996, by and among First Trust National Association, the Company and ING Baring (U.S.) Capital Markets, Inc. f.17 -- Fee Agreement dated as of December 31, 1996, by and among the Company, SFC, and ING Baring (U.S.) Capital Markets, Inc. f.18 -- ISDA Master Agreement dated as of November 26, 1996, by and between the Company and NationsBank, N.A. *h.1 -- Form of Underwriting Agreement *h.2 -- Form of Agreement Among Underwriters *h.3 -- Form of Selected Dealers Agreement i.1 -- Amended and Restated 1994 Employee Stock Option Plan of the Company (incorporated by reference to the corresponding exhibit contained in the Registrant's Registration Statement on Form N-2, as amended (File No. 33-86680), filed with the Commission on November 23, 1994) i.2 -- Form of Indemnification Agreement (incorporated by reference to the corresponding exhibit contained in the Registrant's Registration Statement on Form N-2, as amended (File No. 33-86680), filed with the Commission on November 23, 1994)
107
EXHIBIT NUMBER DESCRIPTION - ------ ----------------------------------------------------------------------------------- i.3 -- 1995 Stock Option Plan for Non-Employee Directors (incorporated by reference to the corresponding exhibit in the Registrant's Registration Statement on Form N-2, as amended (File No. 33-95394), filed with the Commission on August 3, 1995) i.4 -- 1996 Incentive Stock Option (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) j.1 -- Custodial Services Agreement with First American Trust Company dated March 13, 1992 (incorporated by reference to the corresponding exhibit contained in the Registrant's Registration Statement on Form N-2, as amended (File No. 33-86680), filed with the Commission on November 23, 1994) j.2 -- Custodial Services Agreement Supplement with First American Trust Company dated January 16, 1995 (incorporated by reference to the corresponding exhibit contained in the Registrant's Registration Statement on Form N-2, as amended (File No. 33-86680), filed with the Commission on November 23, 1994) k.1 -- ISDA Master Agreement dated as of September 13, 1995, by and between the Company and First Union National Bank (incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ending September 30, 1995 filed with the Commission on November 15, 1995) k.2 -- Acquisition Agreement by and among the Company, Sirrom Capital Acquisition Corporation, Sirrom, Ltd., Harris Williams & Co., L.P. and Harris Williams & Co. dated as of May 16, 1996 (incorporated by reference to Exhibit k.9 to the Company's Registration Statement on Form N-2 (File No. 333-4023), filed with the Commission on May 17, 1996) k.3 -- 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 *l. -- Opinion of Bass, Berry & Sims PLC n.1 -- Consent of Arthur Andersen LLP *n.2 -- Consent of Bass, Berry & Sims PLC (included in Exhibit 1) r. -- Financial Data Schedule (for SEC use only)
- --------------- * To be filed by amendment EX-99.K.3 2 MASTER TRUST INDENTURE 1 Exhibit k.3 EXECUTION COPY SIRROM FUNDING CORPORATION, as Issuer SIRROM CAPITAL CORPORATION, as Servicer and FIRST TRUST NATIONAL ASSOCIATION, as Trustee MASTER TRUST INDENTURE AND SECURITY AGREEMENT Fixed Principal and Revolving Notes Dated as of December 31, 1996 2 TABLE OF CONTENTS ARTICLE I DEFINITIONS SECTION 1.01. Definitions...............................................................................3 SECTION 1.02. Incorporation by Reference to Trust Indenture Act............................................................................30 SECTION 1.03. Compliance Certificates and Opinions.....................................................31 SECTION 1.04. Form of Documents Delivered to Trustee. .................................................32 SECTION 1.05. Acts of Noteholders......................................................................32 SECTION 1.06. Conflict with Trust Indenture Act........................................................33 SECTION 1.07. Benefits of Indenture....................................................................34 SECTION 1.08. Incorporation of Recitals................................................................34 SECTION 1.09. Other Definitional Provisions............................................................34 ARTICLE II GRANT OF LIEN OF CERTAIN ASSETS; ISSUANCE OF NOTES SECTION 2.01. Acceptance by Trustee....................................................................34 SECTION 2.02. Certain Matters Regarding the Grant......................................................35 SECTION 2.03. Representations and Warranties of the Issuer...................................................................................38 SECTION 2.04. Representations and Warranties of the Issuer Relating to this Indenture and the Pledged Assets.......................................................................43 SECTION 2.05. Affirmative Covenants of the Issuer......................................................44 SECTION 2.06. Negative Covenants of the Issuer.........................................................48 ARTICLE III ADMINISTRATION AND SERVICING OF LOANS SECTION 3.01. Acceptance of Appointment and Other Matters Relating to the Servicer.........................................................53 SECTION 3.02. Servicing Compensation; Servicer's Expenses.................................................................................55 SECTION 3.03. Representations and Warranties of the Servicer.................................................................................56 SECTION 3.04. Covenants of the Servicer................................................................59 SECTION 3.05. Reports and Records for the Trustee......................................................63 SECTION 3.06. Annual Certificate of Servicer...........................................................64 SECTION 3.07. Annual Servicing Report of Independent Public Accountants.......................................................................64
i 3 SECTION 3.08. Annual Noteholders' Statement............................................................65 SECTION 3.09. Tax and Usury Treatment..................................................................65 SECTION 3.10. Notice to Originator.....................................................................66 SECTION 3.11. Adjustments..............................................................................66 ARTICLE IV RIGHTS OF NOTEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS SECTION 4.01. Rights of Noteholders....................................................................66 SECTION 4.02. Establishment of Lock-Box Accounts, Concentration Account and Other Trust Accounts.................................................................................67 SECTION 4.03. Daily Calculations and Allocation of Collections...........................................................................70 ARTICLE V DISTRIBUTIONS AND REPORTS TO NOTEHOLDERS ARTICLE VI THE NOTES SECTION 6.01. The Notes................................................................................74 SECTION 6.02. Authentication of Notes..................................................................75 SECTION 6.03. Registration of Transfer and Exchange of Notes....................................................................................75 SECTION 6.04. Mutilated, Destroyed, Lost or Stolen Notes....................................................................................77 SECTION 6.05. Persons Deemed Owners....................................................................78 SECTION 6.06. Appointment of Paying Agent..............................................................78 SECTION 6.07. Access to List of Noteholders' Names and Addresses............................................................................79 SECTION 6.08. Authenticating Agent.....................................................................80 SECTION 6.09. New Issuances............................................................................81 SECTION 6.10. Changes in Revolving Notes...............................................................83 SECTION 6.11. Book-Entry Notes.........................................................................84 SECTION 6.12. Notices to Clearing Agency...............................................................85 SECTION 6.13. Definitive Notes.........................................................................85 SECTION 6.14. Temporary Notes..........................................................................86 SECTION 6.15. CUSIP Number.............................................................................86 SECTION 6.16. Letter of Representations................................................................87
ii 4 ARTICLE VII OTHER MATTERS RELATING TO THE ISSUER SECTION 7.01. Obligations not Assignable...............................................................87 SECTION 7.02. Limitations on Liability.................................................................87 SECTION 7.03. Indemnification of the Trustee and the Noteholders..........................................................................87 ARTICLE VIII OTHER MATTERS RELATING TO THE SERVICER SECTION 8.01. Liability of the Servicer................................................................91 SECTION 8.02. Merger or Consolidation of, or Assumption of the Obligations of, the Servicer......................................................91 SECTION 8.03. Limitations on Liability.................................................................92 SECTION 8.04. Servicer Indemnification.................................................................92 SECTION 8.05. The Servicer Not to Resign...............................................................93 SECTION 8.06. Examination of Records...................................................................94 ARTICLE IX EVENTS OF DEFAULT SECTION 9.01. Events of Default........................................................................94 SECTION 9.02. Additional Rights Upon the Occurrence of any Event of Default..................................................................97 ARTICLE X SERVICER DEFAULTS SECTION 10.01. Servicer Defaults.......................................................................98 SECTION 10.02. Trustee to Act; Appointment of Successor Servicer.....................................................................102 SECTION 10.03. Notification to Noteholders............................................................103 ARTICLE XI THE TRUSTEE SECTION 11.01. Duties of Trustee......................................................................104 SECTION 11.02. Certain Matters Affecting the Trustee..................................................106 SECTION 11.03. [Intentionally left blank.].............................................................107 SECTION 11.04. Trustee May Own Notes..................................................................107 SECTION 11.05. Money Held in Trust....................................................................107
iii 5 SECTION 11.06. Disqualification; Conflicting Interests................................................108 SECTION 11.07. Preferential Collection of Claims against Issuer.........................................................................108 SECTION 11.08. Limitation on Liability of Trustee.....................................................108 SECTION 11.09. Trustee May Deal with Other Parties....................................................110 SECTION 11.10. Servicer to Pay Trustee's Fees and Expenses...............................................................................110 SECTION 11.11. Corporate Trustee Required; Eligibility................................................111 SECTION 11.12. Resignation or Removal of Trustee......................................................111 SECTION 11.13. Successor Trustee......................................................................113 SECTION 11.14. Merger or Consolidation of Trustee.....................................................113 SECTION 11.15. Appointment of Co-Trustee or Separate Trustee................................................................................114 SECTION 11.16. Tax Returns............................................................................115 SECTION 11.17. Trustee May Enforce Claims Without Possession of Notes....................................................................116 SECTION 11.18. Suits for Enforcement..................................................................116 SECTION 11.19. Rights of Noteholders to Direct Trustee................................................117 SECTION 11.20. Representations and Warranties of Trustee................................................................................117 SECTION 11.21. Maintenance of Office or Agency........................................................117 SECTION 11.22. Trustee May File Proofs of Claim.......................................................117 ARTICLE XII SATISFACTION AND DISCHARGE SECTION 12.01. Satisfaction and Discharge of Indenture................................................118 SECTION 12.02. Release of Liens.......................................................................119 SECTION 12.03. Final Distribution.....................................................................120 ARTICLE XIII REDEMPTIONS SECTION 13.01. Redemption Allowed.....................................................................121 SECTION 13.02. Election to Redeem; Notice to Trustee..................................................121 SECTION 13.03. Selection of Securities to Be Redeemed.................................................122 SECTION 13.04. Notice of Redemption...................................................................122 SECTION 13.05. Deposit of Redemption Price............................................................123 SECTION 13.06. Notes Payable on Redemption Date.......................................................124 SECTION 13.07. Notes Redeemed in Part.................................................................124
iv 6 ARTICLE XIV MISCELLANEOUS PROVISIONS SECTION 14.01. Amendment..............................................................................124 SECTION 14.02. Limitation on Rights of Noteholders....................................................126 SECTION 14.03. Governing Law; Jurisdiction; Consent to Service of Process..................................................................127 SECTION 14.04. Notices; Payments......................................................................128 SECTION 14.05. Rule 144A Information..................................................................128 SECTION 14.06. Severability of Provisions.............................................................129 SECTION 14.07. Assignment.............................................................................129 SECTION 14.08. Notes Nonassessable and Fully Paid.....................................................129 SECTION 14.09. Further Assurances.....................................................................129 SECTION 14.10. Nonpetition Covenant...................................................................129 SECTION 14.11. No Waiver; Cumulative Remedies.........................................................130 SECTION 14.12. Counterparts...........................................................................130 SECTION 14.13. Third-Party Beneficiaries..............................................................130 SECTION 14.14. Actions by Noteholders.................................................................130 SECTION 14.15. Merger and Integration.................................................................130 SECTION 14.16. Headings...............................................................................131 EXHIBITS AND SCHEDULES EXHIBITS Exhibit A Form of Daily Report Exhibit B Form of Settlement Statement Exhibit C Form of Annual Certificate of Servicer Exhibit D Form of Lock-Box Agreement Exhibit E Credit and Collection Policy Exhibit F Form of Reserve Account Withdrawal Certificate SCHEDULES Schedule I List of Collection Accounts Schedule II Locations of Pledged Asset Records
v 7 THIS MASTER TRUST INDENTURE AND SECURITY AGREEMENT, dated as of December 31, 1996 among SIRROM FUNDING CORPORATION, a Delaware corporation, as Issuer (the "Issuer"), SIRROM CAPITAL CORPORATION a Tennessee corporation, as Servicer (the "Servicer"), and FIRST TRUST NATIONAL ASSOCIATION, a national banking association, as Trustee (the "Trustee"). RECITALS OF THE ISSUER The Issuer has duly authorized the creation and issuance of each Series of Notes, each Series to be of substantially the tenor and amount set forth herein and in the respective Supplement relating to each such Series of Notes. In order to provide for the foregoing, the Issuer has duly authorized the execution and delivery of this Indenture. The Notes shall each be limited recourse obligations of the Issuer and shall be secured solely by the Noteholders' respective allocable shares of the Pledged Assets as set forth herein. If and to the extent that such allocable share is insufficient to pay all amounts owing with respect to such Notes, then, except as otherwise expressly provided hereunder, the Noteholders of such Notes shall have no Claim in respect to such insufficiency against the Issuer or any of its other assets or properties (including, without limitation, any Pledged Assets allocable to any other Notes in accordance with any terms hereof), and the Noteholders, by their acceptance of the Notes, hereby waive any such Claim. All things necessary to (a) make the Notes, when executed by the Issuer and authenticated and delivered by the Trustee hereunder and duly issued by the Issuer, the valid obligations of the Issuer, and (b) make this Indenture a valid agreement of the Issuer, in each case, in accordance with their respective terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: That the Issuer, in consideration of the premises herein contained and of the purchase of the Notes by the Noteholders, and of other good and lawful consideration, the receipt of which is hereby acknowledged, and to secure, equally and ratably without prejudice, priority or distinction, except as specifically otherwise set forth in this Indenture and in the respective Supplement relating to such Notes, the payment of the Notes, the payment of all other amounts due under or in connection with the Notes or with this Indenture, and the performance and observance of all of the covenants and conditions 8 contained herein or in such Notes, has hereby executed and delivered this Indenture and by these presents does hereby convey, grant, assign, transfer and pledge a security interest, in each case, in and unto the Trustee, its successors and assigns and its or their assigns forever, for the benefit of the Noteholders, with power of sale, all and singular in the property hereinafter described (said property being sometimes referred to as the "Pledged Assets"), to wit: GRANTING CLAUSE All of the Issuer's right, title and interest in, to and under (i) each Loan that has been or at any time hereafter shall be transferred by the Originator to the Issuer pursuant to the Loan Purchase Agreement at any time on or prior to the date hereof and continuing hereafter up to but excluding the Purchase Termination Date; (ii) any Equity Security; (iii) all Related Security; (iv) the Originator Transaction Documents and all of the Issuer's rights and remedies thereunder; (v) all of the following property and interests in property which in any way relates to, secures or is received in payment of or on account of any Issuer Loan or Related Security: (A) cash, accounts, accounts receivable, participations, interests in participations, inventory, equipment, fixtures, vehicles, supplies, materials, returned and repossessed property acquired by foreclosure, the exercise by the Issuer or the Servicer of other remedies or otherwise, goods, guaranties, options, warranties, choses in action, causes of action, claims, contract rights, chattel paper, notes (including, without limitation, notes receivable arising from Issuer Loans), acceptances, instruments, documents, rights to payments, surety bonds, rights in warehouse receipts or documents of any kind in respect of any of the foregoing, general intangibles (including without limitation, rights, interests, goodwill, inventions, designs, secrets, service marks, trademarks, trademark applications, trade names, fictitious names, trade secrets, patents, patent applications, registrations, technology, proprietary information, copyrights, permits, licenses, franchises, customer lists, tax refunds, tax refund claims and reversionary interests in pension and profit sharing plans), (B) all of the Issuer's right, title and interest under leases, subleases, licenses and concessions and other agreements relating to real or personal property (including, without limitation, all rents, issues and profits related thereto), rights and claims against third parties (including carriers and shippers), rights to indemnification and security interests or other security held by or granted to the Issuer to secure payment of the Issuer Loans, (C) the Loan Documents, computer programs, printouts and other computer materials and 2 9 records relating to the Issuer Loans; (vi) all rights (but no obligations) in, to and under all Sinking Fund Account Agreements and Swap Agreements, (vii) all Interest Rate Payments; (viii) all funds from time to time on deposit in each of the Sinking Fund Accounts, each of the Trust Accounts and all funds from time to time on deposit in each of the Lock-Box Accounts representing Collections on, or other proceeds of, the foregoing and, in each case, all certificates and instruments, if any, from time to time evidencing such funds, all investments made with such funds, all claims thereunder or in connection therewith and all interest, dividends, monies, instruments, securities and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the foregoing; and (ix) all moneys due or to become due and all amounts received or receivable with respect to the foregoing and all products and proceeds of the foregoing. AND IT IS HEREBY COVENANTED, DECLARED AND AGREED by and between the parties hereto that all Notes are to be issued, countersigned and delivered and that all of the Pledged Assets are to be held and applied, subject to the further covenants, conditions, releases, uses and trusts hereinafter set forth, and the Issuer and the Servicer, in each case, for itself and its successors, do hereby covenant and agree to and with the Trustee and each of the foregoing's respective successors in said trust, for the benefit of those who shall hold the Notes, or any of them, as follows: ARTICLE I DEFINITIONS SECTION 1.01. Definitions. Whenever used in this Indenture, the following words and phrases shall have the following meanings, and the definitions of such terms are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such terms. "Act" is defined in Section 1.05. "Affiliate" shall mean, with respect to any specified Person, any other Person controlling, controlled by or under common control with such specified Person and, without limiting the generality of the foregoing, shall be presumed to include (A) any Person which beneficially owns or holds (exclusive of such Person's interest in unexercised Contingent Compensation) 10% or 3 10 more of any class of voting securities of such designated Person or 10% or more of the equity interest in such designated Person and (B) any Person of which such designated Person beneficially owns or holds (exclusive of such Person's interest in unexercised Contingent Compensation) 10% or more of any class of voting securities or in which such designated Person beneficially owns or holds 10% or more of the equity interest. For the purposes of this definition, "control" when used with respect to any specified Person shall mean the power to direct the management and policies of such specified Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Adjusted Outstanding Loan Balance" shall mean, as of any date of determination with respect to any Loan, the lesser of (i) the Outstanding Loan Balance of such Loan and (ii) $5,000,000; provided, however, that the Adjusted Outstanding Loan Balance shall be calculated as if such Loan, all other Loans to the Obligor of such Loan, and all Loans to such Obligor's Affiliates were one Loan. "Aggregate Outstanding Amount" shall mean the aggregate of the Outstanding Principal Balance for all Series. "Amortization Date" shall mean the earlier to occur of (a) the date upon which the Amortization Date is declared or occurs automatically pursuant to Section 9.01 and (b) the Purchase Termination Date. "Amortization Period" shall mean the period beginning on the Amortization Date and ending upon the payment in full to the Noteholders of all Series of the Aggregate Outstanding Amount with respect to all Series, all accrued and unpaid interest thereon and all other amounts owed to the Noteholders hereunder and under the applicable Supplement. "Asset Coverage Shortfall" shall mean, as of any date of determination, (i) the Equity Floor exceeds (ii) the Overcollateralization Amount. "Backup Servicing Agreement" shall mean that certain Backup Servicing Agreement of even date herewith among First Trust, in its capacity as the "Backup Servicer", the Servicer and the Program Agent, or any successor agreement, as the same may be amended, restated, supplemented or otherwise modified from time to time. 4 11 "Backup Servicer's Fee" shall have the meaning specified in the Backup Servicing Agreement. "Base Amount" shall mean the Net Loan Balance minus the aggregate of the Required Overcollateralization Amount for all outstanding Series. "Book-Entry Form" shall mean with respect to any Notes or Series of Notes, that such Notes or Series are not certificated and the ownership and transfers thereof shall be made through the book entries by a Clearing Agency as described in Section 6.11 and the applicable Supplement. "Book-Entry Notes" shall mean any Notes issued in Book-Entry Form unless and until Definitive Notes are issued to the Holders thereof in accordance with Section 6.13 and the applicable Supplement. "Breakage Costs" shall mean, with respect to any Note, the amount payable (if any) to the Holder thereof pursuant to the related Supplement, as compensation for losses incurred as a result of the reduction of the Outstanding Principal Balance thereof on a day other than the last day of an Interest Period. "Business Day" shall mean any day other than a Saturday or Sunday or any other day on which national banking associations or state banking institutions in New York, New York or the city in which the Corporate Trust Office is located are authorized or obligated by law, executive order or governmental decree to be closed. "Carrying Cost Account" shall have the meaning specified in Section 4.02(a). "Carrying Cost Amount" shall mean, as of any date of determination, the sum of (i) all accrued but unpaid Carrying Costs due as of such date and (ii) all fees, costs and expenses owed to the Trustee and/or the Noteholders as of such date. "Carrying Costs" shall mean, for any Collection Period, (a) all interest payable on the Notes of any Series, (b) the Servicing Reimbursement for such period, (c) the Trustee's Fee for such period and (d) any other fees, costs and expenses of any Series as set forth in the applicable Supplement. "Claim" shall mean a "claim" as defined in Section 101(5) of the United States Bankruptcy Code. 5 12 "Class" shall mean, with respect to any Series divided into classes, any one of the classes of Notes of that Series. "Clearing Agency" shall mean an organization registered as a "clearing agency" pursuant to Section 17A of the Exchange Act. "Clearing Agency Participant" shall mean a broker, dealer, bank, other financial institution or other Person for whom from time to time a Clearing Agency effects book-entry transfers and pledges of securities deposited with the Clearing Agency. "Closing Date" shall mean, with respect to any Series, the Closing Date specified in the related Supplement. "Collection Period" shall mean, with respect to any Monthly Payment Date, the calendar month (or, in the case of the calendar month in which any Closing Date occurs, the portion of such calendar month following the Closing Date) immediately preceding the calendar month in which such Monthly Payment Date occurs. "Collections" shall mean any Interest Collections, any Principal Collections and/or any cash proceeds of any Contingent Compensation in respect of any Issuer Loans. "Commission" shall mean the Securities and Exchange Commission, as constituted from time to time, or, if at any time after the execution of the Indenture such Commission is no longer existing and/or performing the duties now assigned to it under the Trust Indenture Act, the Person performing such duties at such time. "Concentration Account" shall have the meaning specified in Section 4.02(a). "Concentration Account Bank" shall initially be the Trustee, and shall have the meaning specified in Section 4.02(a). "Confidential Information" shall mean, in relation to any Person, any written information delivered or made available by or on behalf of the Originator, any Affiliates or subsidiaries thereof or the Issuer to such Person in connection with or pursuant to this Indenture or the transactions contemplated hereby which is proprietary in nature, other than information (i) which was publicly known, or otherwise known to such Person, at the time of disclosure (except pursuant to disclosure in 6 13 connection with this Indenture or otherwise previously provided by the Originator on a confidential basis), (ii) which subsequently becomes publicly known through no act or omission by such Person, or (iii) which otherwise becomes known to such Person other than through disclosure by the Originator or the Issuer. "Consolidated Affiliate" shall mean, (i) as to any Obligor, any other Person recognized in the Servicer's accounting records as a Person whose financial statements should, under generally accepted accounting principles, be consolidated with the financial statements of such Obligor; and (ii) as to each of the Originator and the Issuer, any other Person whose financial statements should, under generally accepted accounting principles, be consolidated with the financial statements of such Originator or the Issuer, as applicable. "Contingent Compensation" shall mean, with respect to any Loan, all of Issuer's rights to contingent compensation from the Obligor or otherwise in connection with and as additional compensation for the extension of such Loan, including, without limitation, all such compensation in the form of warrants, stock or other equity interests in such Obligor, and not in respect of any interest, principal, commitment or other origination fees, reimbursement of costs and expenses, or other amounts owing by such Obligor to the holder of the related Loan pursuant to the terms of the related Loan Documents. "Corporate Trust Office" shall have the meaning specified in Section 11.21. "Credit and Collection Policy" shall mean those credit and collection policies and practices of the Originator as of the date hereof relating to the Loans and related Loan Documents, set forth in Exhibit E, as the same may be amended or modified from time to time in compliance with Section 3.04(i). "Daily Report" shall have the meaning specified in Section 3.05(a). "Defaulted Loan" shall mean a Loan: (i) as to which ten percent (10%) or more of any payment remains unpaid for more than 45 days after the original due date for such payment, (ii) as to which an Insolvency Event has occurred with respect to the Obligor thereof, (iii) as to which there has been a default by the Obligor under the related Loan Documents that has continued for more than 60 days, (iv) as to which the Obligor thereof has suffered any other material adverse event which is 7 14 likely to materially and adversely affect the ability of the Obligor to continue its business as a going concern, (v) that the Servicer determines to be or, in accordance with the Credit and Collection Policy should have determined to be, uncollectible or (vi) that the Servicer determines to be or, in accordance with the Credit and Collection Policy should have determined to be, classified as "Grade 5 or 6". "Default Ratio" shall mean with respect to any Collection Period, the ratio (expressed as a percentage), the numerator of which is an amount equal to aggregate of the Outstanding Loan Balances of Loans included in Pledged Assets that have become Defaulted Loans during such Collection Period, and the denominator of which is the daily average of the aggregate of the Outstanding Loan Balances of Eligible Loans included in Pledged Assets for such Collection Period. "Defeasance Account" shall have the meaning specified in Section 4.02(a). "Definitive Notes" shall have the meaning specified in Section 6.13. "Delinquent Loan" shall mean a Loan: (i) as to which ten percent (10%) or more of any payment remains unpaid for more than 30 days after the original due date for such payment, and (ii) which is not a Defaulted Loan. "Delinquency Ratio" shall mean with respect to any Collection Period, the ratio (expressed as a percentage), the numerator of which is an amount equal to aggregate of the Outstanding Loan Balances of Loans included in Pledged Assets that are Delinquent Loans as of the last day of such Collection Period, and the denominator of which is the aggregate of the Outstanding Loan Balances of Eligible Loans included in Pledged Assets for such Collection Period. "Determination Date" shall mean, with respect to any Monthly Payment Date, the second Business Day preceding such Monthly Payment Date. "Early Termination" shall have the meaning assigned to such terms in the ISDA Definitions. "Eligible Institution" shall mean a depository institution organized under the laws of the United States of America or any one of the states thereof, including the District of Columbia (or any domestic branch of a foreign bank), which at 8 15 all times (i) is a member of the FDIC; (ii) has a combined capital and surplus of at least $50,000,000; (iii) has or is a subsidiary or a member of a bank holding system which has a long-term unsecured debt rating of at least A or better by S&P, and A or better by Fitch, if rated by Fitch. "Eligible Investments" shall mean book-entry securities entered on the books of the registrar of such security and held in the name or on behalf of the Trustee or negotiable instruments or securities represented by instruments in bearer or registered form (registered in the name of the Trustee or its nominee) which evidence: (a) direct obligations of, or obligations fully guaranteed as to timely payment by, the United States of America or any agency (having original maturities no later than the next Transfer Date for any Series); (b) demand deposits, time deposits or certificates of deposit (having original maturities no later than the next Transfer Date for any Series) of depository institutions or trust companies incorporated under the laws of the United States of America or any state thereof (or domestic branches of foreign banks), subject to supervision and examination by Federal or state banking or depository institution authorities, and having, at the time of the investment or contractual commitment to invest therein, the highest short-term unsecured debt rating from S&P and Moody's and, if rated by Fitch, its highest short-term unsecured debt rating; (c) commercial paper (having original maturities no later than the next Transfer Date for any Series) having, at the time of the investment or contractual commitment to invest therein, the highest short-term rating from S&P and Moody's, and, if rated by Fitch, in its highest short-term rating category; (d) investments in money market funds (which may be 12b-1 funds, as contemplated under the rules promulgated by the Securities and Exchange Commission under the Investment Company Act of 1940) having a rating of AAA-m or AAAM-G from S&P and Aaa from Moody's (including funds for which the Trustee or any of its Affiliates acts as an investment adviser or manager), and having a rating of AAA by Fitch, if rated by Fitch; 9 16 (e) notes or bankers' acceptances (having original maturities no later than the next Transfer Date for any Series) issued by any depository institution or trust company referred to in clause (b) above; or (f) repurchase agreements entered into with a securities firm which is a primary dealer on the Federal Reserve reporting dealer list or a financial institution having the highest short-term debt or certificate of deposit rating (as the case may be) available from S&P and Moody's, and Fitch (if rated by Fitch); provided that such repurchase agreements are secured by a perfected first priority security interest in an obligation of the type described in clause (a) above; and provided, further, that (y) the market value of the obligation with respect to which such firm or institution has a repurchase obligation, determined as of the date on which such obligation is originally purchased, shall equal or exceed 102% of the repurchase price to be paid by such firm or institution and (z) the Trustee or a custodian acting on its behalf shall have possession of the instruments or documents evidencing such obligations. "Eligible Loan" shall mean each Issuer Loan or portion thereof, as of any date of determination: (i) which is currently owing under a promissory note which has been duly authorized and which, together with the related Loan Documents, is in full force and effect and constitutes the legal, valid and binding obligation of the Obligor of such Loan to pay the stated amount of the Loan and interest thereon, and the related Loan Documents are enforceable against such Obligor in accordance with their respective terms except as limited by applicable bankruptcy, insolvency, reorganization, moratorium and similar laws, now or hereafter in effect, affecting the enforcement of creditors' rights generally and except as such enforceability may be limited by general provisions of equity; (ii) which arose in the ordinary course of the Originator's business, or a subsidiary of the Originator, from the loaning of money to the Obligor thereof; (iii) which is not a Defaulted Loan and in respect of which no material default exists (whether matured or otherwise), and with respect thereto there is not then in effect any waiver by the Originator of any (a) material default with respect thereto or (b) any event or 10 17 circumstance that would, with notice, the passage of time, or both, become a material default with respect thereto; (iv) the Obligor of which is not the Obligor of any Defaulted Loans; (v) the Obligor of which is not a Governmental Authority; (vi) which, together with the Loan Documents (other than those relating to real estate collateral) related thereto, is a "general intangible" or an "instrument" within the meaning of the UCC of all jurisdictions which govern the perfection of the Issuer's interest therein; (vii) with respect to which all material consents, licenses, approvals or authorizations of, or registrations or declarations with, any Governmental Authority required to be obtained, effected or given in connection with the making of such Loan have been duly obtained, effected or given and are in full force and effect; (viii) the Obligor of which is not an Affiliate of any of the parties hereto; (ix) the Obligor of which is organized in and a resident of the United States; (x) which is denominated and payable only in United States Dollars in the United States; (xi) which bears interest (a) payable monthly or quarterly and (b) as of the date of acquisition of such Loan by the Issuer, at a fixed interest rate per annum which is in excess of the sum of 4.25% plus the 90 day USD-CP-H.15 Rate on such date; (xii) which, together with the Loan Documents related thereto, does not contravene in any material respect any laws, rules or regulations applicable thereto (including, without limitation, laws, rules and regulations relating to usury, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and with respect to which no party to the Loan Documents related thereto is in material violation of any such law, rule or regulation in any respect; 11 18 (xiii) which is prepayable without penalty and, together with the related Loan Documents and Contingent Compensation, if any, is fully assignable; (xiv) which has been originated pursuant to and satisfies in all material respects all applicable requirements of the Credit and Collection Policy; (xv) with respect to which only one current original Note exists, which Note has been delivered to the Issuer; (xvi) which is secured by a perfected security interest in the related Collateral in favor of the Issuer, which security interest has the priority required for such security interest in the related Loan Documents; (xvii) which was originally made by the Originator, or one of its subsidiaries, prior to its transfer to the Issuer; (xviii) which has an original term to maturity of no more than 60 months, or with respect to a Rehabilitated Loan, has a term to maturity of no more than 48 months from the date such loan became a Rehabilitated Loan, and, in either case, is either fully amortizing in installments over the remaining term or is due in a single installment at the end of the remaining term; (xix) which, except as permitted pursuant to Section 3.01(c) hereof, has not been compromised, adjusted or similarly modified and is not subject to any Obligor Claims whatsoever and which did not arise pursuant to Loan Documents giving the Obligor an explicit right of offset; (xx) which was made under the existing Loan Documents, which Loan Documents (other than with respect to a Rehabilitated Loan or as permitted by Section 3.01(c) hereof) have not been modified for negative credit reasons (including, without limitation, rescheduling of installment payments); (xxi) the proceeds of which have been fully disbursed, having no obligation on the part of the Originator to make future advances under the related Loan Documents; (xxii) the Collateral with respect to which is insured for in accordance with the Credit and Collection Policy; 12 19 (xxiii) with respect to which the Loan Documents are complete in accordance with the Credit and Collection Policy; (xxiv) which was classified by the Originator as "Grade 1, 2, 3 or 4" under the Credit and Collection Policy at the time of acquisition by the Issuer; (xxv) the Obligor of which has been notified of the pledge hereunder and directed to remit payments therefor to a Lock-Box Account; (xxvi) the Obligor of which is not in the gaming, nuclear waste, bio-tech, oil and gas or real estate industries; (xxvii) the Obligor of which is a legal operating entity, duly organized and validly existing under the laws of its jurisdiction of organization; and (xxviii) the Obligor of which, as of the end of the most recent Collection Period, was not the subject of any voluntary or involuntary bankruptcy proceedings. "Eligible Servicer" shall mean the Originator, the Trustee or an entity which, at the time of its appointment as Servicer, (a) is servicing a portfolio of loan receivables, (b) is legally qualified and has the capacity to service the Loans and (c) has demonstrated the ability to professionally and competently service a portfolio of similar loan receivables with high standards of skill and care. "Enhancement" shall mean the rights and benefits provided to the Noteholders of any Series or Class pursuant to any letter of credit, surety bond, cash collateral account, spread account, guaranteed rate agreement, maturity liquidity facility, tax protection agreement, interest rate swap agreement or other similar arrangement. The subordination of any Series or Class to any other Series or Class shall not be deemed to be an Enhancement. "Enhancement Agreement" shall mean any agreement, instrument or document governing the terms of any Enhancement of any Series or pursuant to which any Enhancement of any Series is issued or outstanding. "Enhancement Provider" shall mean the Person providing any Enhancement. 13 20 "Equity Floor" shall mean as of any date of determination, the greater of (i) the eight largest (determined by Adjusted Outstanding Loan Balance) Eligible Loans (and if a single Obligor or any of its Affiliates is the obligor of more than one Eligible Loan, all of the Eligible Loans owed by such Obligor or such Affiliates shall be treated as a single Eligible Loan) or (ii) $20,000,000. "Equity Security" means any capital stock, equity ownership or interest in the equity of a Person (excluding warrants, options or other convertible securities), whether certificated or uncertificated. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" shall mean, as to any Person, any partnership, trade or business (whether or not incorporated) which, together with such Person, is treated as a single employer within the meaning of Section 414(b), (c), (m) or (o) of the IRC. "Event of Default" shall mean any event described in Section 9.01. "Excess Concentration Balance" shall mean as of any date of determination, with respect to the amount of otherwise Eligible Loans, the sum of (i) the amounts by which the aggregate Adjusted Outstanding Loan Balances of any such Eligible Loans that are Large Loans exceeds the Large Loan Limit, plus (ii) the amount by which the aggregate Adjusted Outstanding Loan Balances of such Eligible Loans to Obligors in any Industry exceeds such Industry Limit, plus (iii) the amount by which the aggregate Adjusted Outstanding Loan Balances of such Eligible Loans the Obligors of which are Grade 4 Obligors exceeds the Grade 4 Limit, plus (iv) the amount by which the aggregate Adjusted Outstanding Loan Balances of such Eligible Loans that are Rehabilitated Loans exceeds the Rehabilitated Loans Limit, plus (v) the amount by which the aggregate Adjusted Outstanding Loan Balances of such Eligible Loans that pay interest on quarterly basis exceeds 5% of the aggregate Adjusted Outstanding Loan Balances of all Eligible Loans. "Excess O/C Sharing Date" shall mean the date, if any, that is the first Business Day on which all outstanding Series are in their respective Pay-Out Period and the Overcollateralization Amount on such date is greater than both (x) the Minimum Overcollateralization Amount on such date and (y) the Equity Floor on such date. 14 21 "Excess O/C Sharing Period" shall commence on the Excess O/C Sharing Date, if any, and shall end on the earliest to occur of (x) the date thereafter that the Revolving Period for any outstanding Series commences, (y) the Amortization Date and (z) the first day on which the Overcollateralization Amount on such date is equal to or less than the greater of (I) the Minimum Overcollateralization Amount on such date and (II) the Equity Floor as of the Excess O/C Sharing Date. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "FDIC" shall mean the Federal Deposit Insurance Corporation or any successor. "Fitch" shall mean Fitch Investors Service, L.P., or its successor. "Fixed Principal Note" shall mean any Note of a Series of Notes that is not designated as a Series of Revolving Notes in the Supplement pursuant to which such Series is issued. "Global Note" shall mean a Note evidencing all or any part of a Series to be issued in Book-Entry Form, which Global Note shall be issued to the Clearing Agency for such Series or its nominee in accordance with Section 6.11 and the applicable Supplement pursuant to which such Note is issued. "Governmental Authority" shall mean any country or nation, any political subdivision, state or municipality of such country or nation, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government of any country or nation or political subdivision thereof. "Grade 4 Limit" shall mean as of any date of determination, an amount equal to the greater of (a) 30% of the aggregate Adjusted Outstanding Loan Balances of all Eligible Loans as of such date and (b) $22,500,000. "Grade 4 Obligor" shall mean, as of any date of determination, (i) an Obligor of any Issuer Loan that the Servicer determines to be or, in accordance with the Credit and Collection Policy should have determined to be, classified as "Grade 4", or (ii) an Obligor designated by the Issuer as a "Grade 4 Obligor." 15 22 "Holder" or "Noteholder" shall mean, with respect to any Note, the Person in whose name such Note is registered in the Note Register. "Indemnified Amounts" shall have the meaning specified in Section 7.03. "Indemnified Party" shall have the meaning specified in Section 7.03. "Indenture" shall mean this Master Trust Indenture and Security Agreement, as the same may from time to time be amended, modified or otherwise supplemented, including, with respect to any Series or Class, the related Supplement. "Independent Public Accountants" shall mean any of (a) Arthur Andersen LLP, (b) Deloitte & Touche, (c) Coopers & Lybrand LLP, (d) Ernst & Young LLP, (e) KPMG Peat Marwick and (f) Price Waterhouse LLP or any of their successors so long as such successor is one of the six largest national accounting firms, provided that such firm is independent with respect to the Servicer within the meaning of the Securities Act. "Industry" shall mean the industry of an Obligor as determined by reference to the four digit standard industry classification codes. "Industry Limit" shall mean, as of any date of determination, an amount equal to the greater of (a) 15% of the aggregate Adjusted Outstanding Loan Balances of all Eligible Loans as of such date and (b) $11,250,000. "Initial Outstanding Principal Balance" shall mean, with respect to any Series or Class and for any date, an amount equal to the initial principal balance amount or amounts specified in the related Supplement. "Insolvency Event" shall mean, with respect to a specified Person, (i) failure by such Person generally to pay its debts as such debts become due, or the admission by such Person in writing of its inability to pay its debts generally, or the making by such Person of a general assignment for the benefit of creditors; or (ii) institution by or against such Person of any proceeding seeking to adjudicate such Person a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an 16 23 order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property; or (iii) the taking of any corporate action by such Person to authorize any of the actions by such Person set forth in clauses (i) or (ii) above in this definition of Insolvency Event. "Interest Collections" shall mean, for any Monthly Payment Date, an amount equal to (i) the interest collections received on behalf of the Obligors during the related Collection Period deposited to any Lock-Box Account or Concentration Account, or received by a Servicer, in respect of Issuer Loans, in the form of cash, checks, wire transfers, electronic transfers or any other form of cash payment, (ii) all interest and other investment earnings (net of losses and investment expenses) on Collections (including without limitation funds on deposit in the Reserve Account) as a result of the investment thereof pursuant to Section 4.02 and (iii) all Interest Rate Payments. "Interest Payment Date" shall mean, with respect to each Interest Period, the last day of such Interest Period. "Interest Period" shall mean, unless otherwise specified in the Supplement relating to any Series, with respect to any Monthly Payment Date for such Series (i) in the case of the initial such Monthly Payment Date, the period from and including the Closing Date for such Series to but excluding such initial Monthly Payment Date and (ii) in the case of any other Monthly Payment Date, the period from and including the preceding Monthly Payment Date to but excluding such Monthly Payment Date. "Interest Rate Payment" all rights (but no obligations) to payment with respect to each "Rate Cap Transaction" (as defined in the ISDA Definitions) under the Swap Agreement and any Specified Rate Cap, in each case, including without limitation, all payments in respect of any Early Termination thereof. "Investment Company Act" shall mean the Investment Company Act of 1940, as amended from time to time. "ISDA Definitions" means the 1991 ISDA Definitions published by the International Swap Dealers Association, Inc. "Issuer" shall mean Sirrom Funding Corporation, a Delaware special purpose corporation. 17 24 "Issuer Loan" shall mean a Loan acquired by the Issuer pursuant to the Loan Purchase Agreement and pledged to the Trustee hereunder. "Issuer's Account" shall mean the special account under the dominion and control of the Issuer, for deposits by the Servicer of funds allocable to the Issuer, maintained at such bank as the Issuer may designate for such purpose from time to time. "IRC" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Large Loan" shall mean, as of any date of determination, an amount equal to the aggregate of the Outstanding Loan Balance of the five largest Issuer Loans. "Large Loan Limit" shall mean $20,000,000. "Letter of Representations" shall mean any applicable agreement among the Issuer, the Trustee and the applicable Clearing Agency with respect to such Clearing Agency's rights and obligations with respect to any Book-Entry Notes, as the same may be amended, supplemented, restated or otherwise modified from time to time. "Lien" shall mean any ownership interest or any security interest, mortgage, deed of trust, pledge, hypothecation, assignment, encumbrance, lien (statutory or other and including a Lien created by the PBGC), preference, participation interest, priority or other security agreement or preferential arrangement of any kind or nature whatsoever resulting in an encumbrance against real or personal property of a Person, including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing and the filing of any financing statement under the UCC or comparable law of any jurisdiction to evidence any of the foregoing. "Loan" shall mean a non-revolving small business loan receivable shown on the records of the Originator as of the Closing Date for the initial Series, and from time to time thereafter, arising from the extension of credit to an Obligor by the Originator or one of its subsidiaries in the ordinary course of its business and shall include, without limitation, all monies due or owing and all Interest Collections, Principal Collections and other amounts received from time to time with respect to such loan receivable and all proceeds (including, without limitation, 18 25 "proceeds" as defined in the UCC of the jurisdiction the law of which governs the perfection of the interest on the Loans subject to this Indenture) thereof. "Loan Document" shall mean, with respect to any Loan, the related promissory note which evidences the obligation of the Obligor to repay from time to time any amounts extended to such Obligor by the Originator and any related loan agreement, security agreement, mortgage, assignment of leases and other documents, instruments, certificates or assignments (including amendments or modifications thereof) executed by the Obligor thereof or by another Person on the Obligor's behalf in respect of such Loan and related promissory note, including, without limitation, general or limited guaranties. "Loan Purchase Agreement" shall mean that certain Loan Sale and Contribution Agreement between the Originator and the Issuer, dated as of the date hereof, governing the terms and conditions upon which the Issuer shall have acquired the Loans as the same may from time to time be amended, modified or otherwise supplemented. "Lock-Box Account" shall have the meaning specified for such term in Section 4.02(b). "Lock-Box Agreement" shall have the meaning specified for such term in Section 4.02(c). "Lock-Box Bank" shall have the meaning specified for such term in Section 4.02(b). "Majority in Interest" shall mean with respect to each Series the Holders of Notes evidencing 51% or more of the Outstanding Principal Balance of such outstanding Series. "Majority Noteholders" shall mean, at any time, the Noteholders holding Notes evidencing 51% or more of the aggregate Outstanding Principal Balance for all outstanding Notes of all Series at such time. "Minimum Overcollateralization Amount" shall mean as of any date of determination, with respect to any Series, the amount set forth in the related Supplement. "Monthly Payment Date" shall mean, with respect to any Collection Period, the 5th Business Day of the calendar month immediately following the end of such Collection Period, or, with 19 26 respect to any Series, such other day as may be set forth in the applicable Supplement. "Moody's" shall mean Moody's Investors Service, Inc. or its successor. "Multiemployer Plan" shall mean a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which either Originator or an ERISA Affiliate of either of them is making, is obligated to make or has within the last six years made or been obligated to make contributions on behalf of participants who are or were employed by any such entity. "Net Outstanding Amount" shall mean at any time the Aggregate Outstanding Amount minus the amount on deposit in the Reserve Account as of such time minus the amount of funds on deposit in any Defeasance Account to be distributed to Noteholders in reduction of the Outstanding Principal Balance of their Notes. "Net Loan Balance" shall mean as of any date of determination, the excess of (a) the aggregate Adjusted Outstanding Loan Balances of Eligible Loans over (b) the Excess Concentration Balance at such time. For purposes of calculating the Net Loan Balance, the aggregate Adjusted Outstanding Loan Balances of Eligible Loans shall be calculated as if reduced by the aggregate amount of Principal Collections received that have not been applied to any corresponding Loans on the records of the Servicer. "Note" shall mean any one of the Notes executed by the Issuer and authenticated by or on behalf of the Trustee, in substantially the form attached to the related Supplement. "Noteholder" or "Holder" shall mean, with respect to any Note, the Person in whose name such Note is registered in the Note Register. "Note Rate" shall mean, with respect to any Series or Class, the interest rate specified therefor in the related Supplement. "Note Register" shall have the meaning specified in Section 6.03(a). "Notices" shall have the meaning specified in Section 13.05(a). 20 27 "Obligor" shall mean each Person who is obligated to pay for an extension of credit by the Originator which gave rise to an Issuer Loan, including any guarantor of such Person's obligations. "Officer's Certificate" shall mean, unless otherwise specified in this Indenture, a certificate signed by the President, any Vice President, the Chief Financial Officer, the Treasurer or Controller, the Assistant Treasurer or the Secretary or Assistant Secretary of the Issuer, or of a Servicer, or of any Successor Servicer, as the case may be, and delivered to the Trustee. "Opinion of Counsel" shall mean a written opinion, in form and substance reasonably satisfactory to the Trustee and from counsel reasonably satisfactory to the Trustee, which counsel, except where this Indenture otherwise provides, may be counsel for, or an employee of, either the Person providing such opinion or an Affiliate of such Person. "Originator" shall mean Sirrom Capital Corporation, together with its permitted successors and assigns under the Loan Purchase Agreement. "Originator Transaction Documents" shall mean the Loan Purchase Agreement and the Lock-Box Agreements. "Overcollateralization Amount" shall mean as of any date of determination, the amount, if any, by which the Net Loan Balance plus unallocated Principal Collections held in the Concentration Account (without giving effect to the allocation and deposit of amounts pursuant to clause Third of Section 4.03(b)(ii)) as of such date, exceeds the Net Outstanding Amount on such date. "Outstanding Loan Balance" shall mean with respect to any Loan, as of any date of determination, the then outstanding principal balance thereof. "Outstanding Principal Balance" shall mean, at any time (a) with respect to any Note, the outstanding principal balance of such Note at such time and (b) with respect to any Class or Series of Notes, the aggregate outstanding principal balance of all Notes in such Class or Series, as applicable, at such time. "Paying Agent" shall mean any paying agent appointed pursuant to Section 6.06. 21 28 "Pay-Out Event" shall mean, with respect to any Series, any event defined as such in the related Supplement. "Pay-Out Period" shall mean, with respect to one or more Series, the period commencing on the Pay-Out Period Commencement Date of such Series and ending on the date on which all of such Series shall have been paid in full. "Pay-Out Period Commencement Date" shall mean, with respect to one or more Series, the date on which a Pay-Out Event for such Series occurs. "PBGC" shall mean the Pension Benefit Guaranty Corporation, or any other Governmental Authority succeeding to the functions thereof. "Permitted Liens" shall mean (i) Liens for taxes, assessments or charges of any Governmental Authority or Liens of landlords, carriers, warehousemen, mechanics and materialmen imposed by law and created in the ordinary course of business, which, in either such case, are for amounts not yet due or for amounts which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with generally accepted accounting principles and (ii) any Liens of a collecting bank arising by operation of law under Section 4-210 of the UCC. "Person" shall mean any individual, corporation, partnership, joint venture, association, limited liability company, joint-stock company, trust, unincorporated organization, Governmental Authority or any other entity of similar nature. "Plan" shall mean any plan, program, arrangement, agreement, practice or contract that provides or is intended to provide benefits or compensation to or on behalf of one or more employees or former employees of the Originator or an ERISA Affiliate of the Originator, whether formal or informal, whether or not written, including, but not limited to, any employee benefit plan as defined in Section 3(3) of ERISA, any employee pension benefit plan and any retiree welfare plan. "Pledged Assets" shall have the meaning ascribed to such term in the Granting Clause of this Indenture. "Prepayment Premium" with respect to any Series, shall have the meaning specified in the related Supplement, if applicable. 22 29 "Principal Collections" shall mean, for any Monthly Payment Date, an amount equal to (i) the principal collections received on behalf of the Obligors during the related Collection Period deposited to any Lock-Box Account or Concentration Account, or received by a Servicer, in respect of Issuer Loans, in the form of cash, checks, wire transfers, electronic transfers or any other form of cash payment, and (ii) all cash proceeds and distributions on Contingent Compensation in respect of Issuer Loans. "Principal Terms" shall mean, with respect to any Series: (a) the name or designation; (b) the Initial Outstanding Principal Balance or maximum principal amount (or method for calculating such amount); (c) the Note Rate (or method for the determination thereof); (d) whether such Notes are to be Fixed Principal Notes or Revolving Notes and the denominations (if such Notes are Fixed Principal Notes) or Stated Amounts (if such Notes are Revolving Notes) thereof; (e) Maturity Date and Stated Maturity Date thereof; (f) the designation of any Series Accounts and the terms governing the operation of any such Series Accounts; (g) the terms of any form of Enhancement with respect thereto; (h) the terms, if any, on which the Notes of such Series may be exchanged for Notes of another Series, repurchased or redeemed by the Issuer or remarketed to other Noteholders; (i) the number of Classes of Notes of such Series and, if more than one Class, the rights and priorities of each such Class; (j) the Pay-Out Events with respect thereto; (k) the method of calculating each of the Required Overcollateralization Amount and the Minimum Overcollateralization Amount of such Series. "Purchase Price" shall have the meaning specified in the Loan Purchase Agreement. "Purchase Termination Date" shall mean the earlier to occur of (i) the date upon which the "Termination Date" is declared or automatically occurs pursuant to the terms of the Loan Purchase Agreement and (ii) the date upon which the Amortization Date is declared or automatically occurs pursuant to the terms of this Indenture. "Qualified Sale Agent" shall mean (i) a nationally recognized investment bank, (ii) a nationally recognized commercial bank or (iii) any other reputable institution whose regular business includes the sale of loan portfolios. "Rating Agency" shall mean each nationally recognized rating agency which, with respect to any Class or Series of Notes if rated, at the request of the Issuer, has rated any such Class 23 30 or Series of Notes, and with respect to any rated securities issued by any Noteholder of any outstanding Series or Class in order to fund or maintain its interest in any Note of such Series or Class, at the request of such Noteholder, has rated such securities. "Record Date" shall mean, with respect to any Monthly Payment Date, the last day of the preceding calendar month. "Records" shall mean all Loan Documents and other documents, books, credit files, records and other information (including, without limitation, computer programs, tapes, discs, punch cards, data processing software and related property and rights) maintained with respect to Loans and the related Obligors. "Rehabilitated Loan" shall mean any Loan which, (i) was a Defaulted Loan or otherwise not an Eligible Loan, (ii) has been modified or restructured by the Originator in accordance with the Credit and Collection Policy (either before or after such Loan became an Issuer Loan), (iii) has been paying as modified or restructured pursuant to clause (ii) hereof for at least twelve (12) months since the effective date of such modification or restructuring, (iv) which otherwise satisfies the criteria of an "Eligible Loan" and (v) has otherwise been approved by the Majority in Interest of each Series in writing. "Rehabilitated Loan Limit" shall mean, as of any date of determination, an amount equal to 5% of the aggregate Adjusted Outstanding Loan Balances of all Eligible Loans. "Related Security" shall mean, with respect to any Issuer Loan: (i) all of the Issuer's rights under the related Loan Documents, including, without limitation, all monies due and to become due to the Issuer under or in connection with such related Loan Documents, and all rights, remedies, powers, privileges, benefits and claims of the Issuer under or with respect to such related Loan Documents (whether arising pursuant to the terms of such related Loan Documents or otherwise available at law or in equity); (ii) all of the Issuer's interest in all security interests, or liens and property (whether real or personal, tangible or intangible), subject thereto from time to time purporting to secure payment of such Loan, together with all 24 31 mortgages, assignments and financing statements signed by an Obligor describing any other collateral securing such Loan; (iii) all guarantees, indemnities and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Loan; (iv) all of the Issuer's right, title and interest to and rights under the Loan Purchase Agreement; (v) all Records; (vi) all Contingent Compensation; and (vii) all substitutions for and proceeds of any of the foregoing. "Reportable Event" shall mean any of the reportable events set forth in Section 4043(b) of ERISA and the regulations issued from time to time thereunder (other than a reportable event not subject to the provisions for 30-day notice to the PBGC under such regulations). "Required Overcollateralization Amount" shall mean as of any date of determination, with respect to any Series, the amount set forth in the related Supplement. "Requirements of Law" shall mean any law, treaty, rule or regulation, final determination of an arbitrator or Governmental Authority, or order of any judicial authority, and, when used with respect to any Person, the certificate of incorporation and by-laws or other organizational or governing documents of such Person. "Reserve Account" shall have the meaning specified in Section 4.02. "Responsible Officer" shall mean, (i) when used with respect to the Trustee, any officer within the corporate trust department of the Trustee including any vice president, assistant vice president, senior trust officer, trust officer or any other officer of the Trustee who customarily performs functions similar to those performed by the persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such officer's knowledge of and familiarity with the particular subject and (ii) when used with respect to the Issuer or the Servicer, any of the President, Chief Executive Officer, Chief Operating Officer, Vice President, Secretary, 25 32 Assistant Secretary, Treasurer, Assistant Treasurer or Chief Financial Officer of such Person. "Revolving Note" shall mean any Notes of any Series the principal amount of which may be increased and/or decreased from time to time and which are designated as "Revolving Notes" in the Supplement pursuant to which such Series is issued. "Revolving Period" shall mean, with respect to any Series or Class of Notes, the period during which such Series is outstanding prior to the occurrence of the Pay-Out Period for such Series or Class or the Amortization Period. "S&P" shall mean Standard & Poor's Corporation, or its successor. "Securities Act" shall mean the Securities Act of 1933, as amended from time to time. "Senior Class" shall mean any Class of Notes which is designated as a "Senior Class" in the applicable Supplement. "Series" shall mean any series of Notes. "Series Account" shall mean any deposit, trust, escrow, reserve or similar account maintained for the benefit of the Noteholders of any Series or Class, as specified in any Supplement and including, with respect to any Series or Class, any Defeasance Accounts maintained for the benefit of the applicable Noteholders. "Series Allocation Percentage" shall mean, with respect to each Series, (i) on any Business Day prior to the Amortization Date and on which no Excess O/C Sharing Period is in effect (a) if all Series are in the Revolving Period and no Set-Aside Period has occurred and is continuing, zero; (b) if any Series is in the Pay-Out Period and no Set-Aside Period has occurred and is continuing, a fraction (expressed as a percentage) (x) the numerator of which equals the sum of (I) the Net Outstanding Amount of all Classes of Notes of such Series plus (II) the Required Overcollateralization Amount for such Series computed as provided in the applicable Supplement, in each case, as of the applicable Pay-Out Period Commencement Date, and (y) the denominator of which equals the sum of (I) the Net Outstanding Amount of all Series in their respective Pay-Out Periods plus (II) the aggregate Required 26 33 Overcollateralization Amount for all Series in their respective Pay-Out Periods computed as provided in the applicable Supplement, in each case, as of the applicable Pay-Out Period Commencement Date for each such Series; (c) if a Set-Aside Period has occurred and is continuing, a fraction (expressed as a percentage) (x) the numerator of which equals the sum of (I) the Net Outstanding Amount of all Classes of Notes of such Series plus (II) the Required Overcollateralization Amount for such Series, in each case, as of the Business Day immediately preceding the commencement of such Set-Aside Period and (y) the denominator of which equals the sum of (I) the Net Outstanding Amount of all outstanding Series plus (II) the aggregate Required Overcollateralization Amount for all outstanding Series, in each case, as of the Business Day immediately preceding the commencement of such Set-Aside Period; (ii) on any Business Day after the Amortization Date, a fraction (expressed as a percentage)(a) the numerator of which equals the sum of (I) the Net Outstanding Amount of all Classes of Notes of such Series plus (II) the Required Overcollateralization Amount for such Series, in each case, as of the Amortization Date and (b) the denominator of which equals the sum of (I) the Net Outstanding Amount of all outstanding Series of Notes plus (II) the aggregate Required Overcollateralization Amount for all outstanding Series, in each case, as of the Amortization Date; and (iii) on any Business Day during an Excess O/C Sharing Period, a fraction (expressed as a percentage) (a) the numerator of which equals the sum of the Net Outstanding Amount of all Classes of Notes of all Series as of such date, and (b) the denominator of which equals the sum of (I) the Net Outstanding Amount of all Series as of such date plus (II) the Equity Floor as of the Excess O/C Sharing Date. "Service Transfer" shall have the meaning specified in Section 10.01. "Servicer" shall mean, at any time, the Person which is authorized to act as Servicer under Section 3.01 to administer, collect and service the Issuer Loans, including any Successor Servicer appointed pursuant to Section 10.02. "Servicer Default" shall have the meaning specified in Section 10.01. 27 34 "Servicing Officer" shall mean any officer, employee or other agent of the Servicer who in any case is involved in, or responsible for, the administration and servicing of the Issuer Loans and whose name appears on a list of servicing officers furnished to the Trustee by the Servicer, as such list may from time to time be amended. "Servicing Reimbursement" shall have the meaning specified in Section 3.02(a). "Set-Aside Period" shall mean the period beginning on any Business Day on which (i) the Base Amount is less than the Net Outstanding Amount and (ii) the aggregate of the Overcollateralization Amount for all outstanding Series is greater than or equal to the aggregate of the Minimum Overcollateralization Amount for all outstanding Series, but less than the aggregate of the Required Overcollateralization Amount for all outstanding Series, and continuing until the earliest of (a) the date on which the Net Outstanding Amount is less than or equal to the Base Amount, (b) the 180th consecutive day after which the Base Amount is less than the Net Outstanding Amount, (c) the commencement of an Excess O/C Sharing Period and (d) the commencement of the Amortization Period. Notwithstanding the foregoing, the Issuer may not deposit any amounts to the Reserve Account at any time if such amount, together with the aggregate amount on deposit in the Reserve Account at such time, would exceed 25% of the Aggregate Outstanding Amount at such time and such excess shall have continued for 90 consecutive days, unless the Issuer has obtained the prior written consent of the Majority Noteholders. "Settlement Statement" shall have the meaning specified in Section 3.05(b). "Significant Subsidiary" shall mean "significant subsidiary" as such term is defined in Rule 1-02(v) of Regulation S-X promulgated by the Securities and Exchange Commission as in effect on the Closing Date. "Sinking Fund Account" shall have the meaning specified in each Sinking Fund Account Agreement. "Sinking Fund Account Agreement" shall mean that certain Sinking Fund Account Agreement of even date herewith among the Originator, the Issuer, the Trustee and the Program Agent as the same may be amended, restated, supplemented or otherwise modified from time to time, or any successor agreement or similar agreement executed in connection with any Series. 28 35 "Specified Rate Cap" shall have the meaning specified in each Sinking Fund Account Agreement. "Stated Amount" shall mean, with respect to any Revolving Note, the maximum principal amount that may be required to be funded by the Holder of such Revolving Note pursuant to the applicable Supplement. "Stated Maturity Date" shall mean, with respect to any Series, the "Stated Maturity Date" specified in the applicable Supplement relating thereto. "Subordinated Class" shall mean any Class of Notes which is designated as a Subordinated Class in the applicable Supplement. "Subsequent Issuance" shall mean any issuance of Notes on any date after the Closing Date. "Successor Servicer" shall have the meaning specified in Section 10.02(a). "Supplement" shall mean, with respect to any Series, a supplement to this Indenture, executed and delivered in connection with the original issuance of the Notes of such Series pursuant to Article VI, and all amendments, modifications or supplements to this Indenture. "Swap Agreement" means that certain ISDA Master Agreement dated as of November 26, 1996 between the Originator and the Swap Counterparty, together with all schedules thereto and confirmations thereof, in each case, as the same may be amended, restated, supplemented or otherwise modified from time to time. "Swap Counterparty" shall mean NationsBank, N.A. or any successor or assign thereof or replacement thereof under the Swap Agreement. "Tax Opinion" shall mean, with respect to any action, an Opinion of Counsel who is not an employee of the Originator or any Affiliate thereof to the effect that, for Federal and Tennessee State (and any other State where substantial servicing activities in respect of Issuer Loans are conducted by the Issuer or the Servicer if there is a substantial change from present servicing activities) state income and franchise tax purposes, (a) such action will not adversely affect the characterization of 29 36 the Notes of any outstanding Series or Class as debt and (b) in the case of the original issuance of Notes and any Subsequent Issuance, the Notes being issued thereby should properly be characterized as debt of the Issuer. "Termination Notice" shall have the meaning specified in Section 10.01. "Transaction Documents" shall mean the Loan Purchase Agreement, the Indenture, each Supplement, the Notes and, with respect to any Series, any interest hedging agreement, any other agreement specified in the applicable Supplement relating thereto as being a "Transaction Document." "Transfer Agent and Registrar" shall have the meaning specified in Section 6.03. "Transfer Date" for any Series shall mean the Business Day immediately preceding a Monthly Payment Date for such Series, or, if the last day of an Interest Period for such Series is other than a Monthly Payment Date, the Business Day immediately preceding such last day of such Interest Period. "Trust Accounts" shall mean the Concentration Account, the Reserve Account, the Carrying Cost Account, each Defeasance Account and any other Series Account established pursuant to the terms of any Supplement. "Trust Indenture Act" shall mean the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1939, as in force on the Closing Date, except as set forth in Section 6.09(d) of this Indenture. "Trustee" shall mean First Trust National Association, a national banking association, in its capacity as trustee on behalf of the Noteholders, or its successor in interest, or any successor trustee appointed as herein provided. "Trustee's Fee" shall have the meaning specified in Section 11.10. "UCC" shall mean the Uniform Commercial Code, as amended from time to time, as in effect in any applicable or specified jurisdiction. SECTION 1.02. Incorporation by Reference to Trust Indenture Act. Whenever this Indenture refers to a provision of the Trust Indenture Act, the provision is incorporated by 30 37 reference in and made a part of this Indenture. The following Trust Indenture Act terms incorporated by reference in this Indenture have the following meanings: "indenture securities" shall mean the Notes. "indenture security holder" shall mean a Noteholder. "indenture to be qualified" shall mean this Indenture. "indenture trustee" or "institutional trustee" shall mean the Trustee. "obligor" on the indenture securities shall mean the Issuer or any other obligor on the Notes, if any. All other Trust Indenture Act terms used or incorporated by reference in this Indenture that are defined by the Trust Indenture Act, defined by the Trust Indenture Act's reference to another statute or defined by Commission rule shall, in each case, have the meanings assigned to them therein. SECTION 1.03. Compliance Certificates and Opinions. (a) Upon any application or request by the Issuer to the Trustee to take any action under any provision of this Indenture, the Issuer shall furnish to the Trustee (x) an Officer's Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with, and (y) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent, if any, have been complied with; provided that, if any other provision of this Indenture describes the documents to be furnished to the Trustee in connection with any action to be taken by the Trustee hereunder, then in such case, notwithstanding this Section 1.03, only the documents so described in such provision and such other documents shall be required to be furnished in respect of such action. (b) Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than the annual certificate provided pursuant to Section 3.06) shall include: (1) a statement that each Person signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; 31 38 (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such Person, such Person has made such examination or investigation as is necessary to enable it to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such Person, such covenant or condition has been complied with. SECTION 1.04. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 1.05. Acts of Noteholders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by any Noteholders, or a specified percentage or number of Noteholders, may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Noteholders, in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee as herein provided and, where it is hereby expressly required, to the Issuer. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Noteholders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 11.02) conclusive in favor of the Trustee and the Issuer if made in the manner provided in this Section. 32 39 (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by an acknowledgment of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than such signer's individual capacity, such certificate or affidavit shall also constitute sufficient proof of the signer's authority. The fact and date of the execution of any such instrument or writing, or the authority of the person executing the same, may also be proved in any other manner which the Trustee deems sufficient. (c) The ownership of the Notes shall be proved by the Note Register. (d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of any Noteholder or the Noteholders of any Series of Notes shall bind every future holder of the same Note or Series of Notes and the holder of any Note issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, suffered or omitted to be done by the Trustee or the Issuer in reliance thereon, whether or not notation of such action is made upon such Note. (e) The Issuer may, but shall not be obligated to, fix a record date for the purpose of determining the Noteholders entitled to take any action under this Indenture by vote or consent. Such record date shall be the later of 30 days prior to the first solicitation of such consent or vote or the date of the most recent list of Noteholders, furnished by or to the Trustee prior to such solicitation. If a record date is fixed, those persons who were Noteholders at such record date (or their duly designated proxies), and only those persons, shall be entitled to take such action by vote or consent or to revoke any vote or consent previously given, whether or not such persons continue to be so after such record date. SECTION 1.06. Conflict with Trust Indenture Act. If at any time this Indenture becomes or is required to become qualified under the Trust Indenture Act and any provision hereof limits, qualifies or conflicts with the duties imposed by any of Sections 310 through 317, inclusive, of the Trust Indenture Act through the operation of Section 318(c) thereof, such imposed duties shall control. 33 40 SECTION 1.07. Benefits of Indenture. Nothing in this Indenture or in the Notes, express or implied, shall give to any Person (other than the parties hereto or thereto and their successors hereunder, any Paying Agent and the Noteholders) any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 1.08. Incorporation of Recitals. The Recitals of the Issuer set forth above in this Indenture are hereby incorporated by this reference hereto as if, and to the same extent that, such Recitals were contained in the body of this Indenture. SECTION 1.09. Other Definitional Provisions. (a) All terms defined in this Indenture shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein. (b) As used herein and in any certificate or other document made or delivered pursuant hereto or thereto, accounting terms not defined in this Indenture, and accounting terms partly defined in this Indenture to the extent not completely defined, shall have the respective meanings given to them under generally accepted accounting principles or regulatory accounting principles, as applicable and in effect from time to time. To the extent that the definitions of accounting terms herein are inconsistent with the meanings of such terms under generally accepted accounting principles or regulatory accounting principles, the definitions contained herein shall control. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Indenture shall refer to this Indenture as a whole and not to any particular provision of this Indenture; and Section, Schedule and Exhibit references contained in this Indenture are references to Sections, Schedules and Exhibits in or to this Indenture unless otherwise specified; and the term "including" shall mean "including without limitation". ARTICLE II GRANT OF LIEN OF CERTAIN ASSETS; ISSUANCE OF NOTES SECTION 2.01. Acceptance by Trustee. The Trustee hereby acknowledges its acceptance on behalf of the Noteholders 34 41 of the security interest in all Pledged Assets granted pursuant to the Granting Clause of this Indenture and declares that it shall maintain such security interest upon the trust herein set forth, for the benefit of all Noteholders on the terms and subject to the conditions hereinafter set forth. SECTION 2.02. Certain Matters Regarding the Grant. (a) In connection with the grant to the Trustee as described in the Granting Clause above, the Issuer and the Servicer have on or prior to the Closing Date recorded and filed or caused to be recorded and filed, at the Issuer's expense, financing statements (including assignments of pre-existing financing statements and continuation statements with respect to any such financing statements when applicable) with respect to the Pledged Assets (whether now existing or hereafter created) meeting the requirements of applicable state law in such manner and in such jurisdictions as the Issuer and the Servicer reasonably determined where necessary or desirable to perfect, and maintain perfection of, the security interests granted hereunder and the ownership interests of the Issuer in the Issuer Loans and Related Security purchased from or contributed by the Originator. The Trustee shall have no obligation whatsoever to file such financing statements, or continuation statements to such financing statements, or to make any other filing under the UCC in connection with such transfer or grant. In connection with the grant to the Trustee as described in the Granting Clause above, the Issuer and the Servicer further agree to deliver to the Trustee each Pledged Asset (including any original documents or instruments included in the Pledged Assets as are necessary to effect such grant) in which the grant of a security interest is perfected under the UCC or otherwise by possession. The Issuer or the Servicer shall deliver each such Pledged Asset in its possession to the Trustee or to such other Person as the Trustee may direct, at the Issuer's or the Servicer's, as applicable, own expenses, immediately upon the effectiveness of the grant of the security interest in any such Pledged Asset to the Trustee pursuant to the Granting Clause hereof. (b) In connection with the grant to the Trustee as described in the Granting Clause above, the Servicer shall, on behalf of the Issuer, on or prior to the Closing Date and prior to each subsequent acquisition of Loans by the Issuer from the Originator pursuant to the Loan Purchase Agreement, mark or cause to be marked, the master data processing records of the Originator evidencing the Loan with the following legend: "THE LOANS DESCRIBED HEREIN HAVE BEEN SOLD OR CONTRIBUTED TO SIRROM FUNDING CORPORATION 35 42 PURSUANT TO A LOAN PURCHASE AGREEMENT, DATED AS OF DECEMBER 31, 1996, BETWEEN SIRROM CAPITAL CORPORATION, AS THE ORIGINATOR, AND SIRROM FUNDING CORPORATION, AS THE PURCHASER; AND SUCH LOANS HAVE BEEN FURTHER PLEDGED AND ASSIGNED TO FIRST TRUST NATIONAL ASSOCIATION, AS TRUSTEE, PURSUANT TO A MASTER TRUST INDENTURE AND SECURITY AGREEMENT, DATED AS OF DECEMBER 31, 1996, AMONG SIRROM CAPITAL CORPORATION, AS SERVICER, SIRROM FUNDING CORPORATION AND FIRST TRUST NATIONAL ASSOCIATION, AS TRUSTEE." (c) The Servicer agrees to request from the Issuer, and the Issuer agrees to record and file from time to time, at its own expense, financing statements and other documents (and amendments thereto, assignments thereof and continuation statements, when applicable) with respect to the Issuer Loans and the other Pledged Assets now existing and hereafter created meeting the requirements of applicable law in such manner and in such jurisdictions as are necessary to perfect, and maintain the perfection of, the grant of a security interest hereunder in the Issuer Loans and the other Pledged Assets to the Trustee. The Issuer shall deliver a file-stamped copy of each such financing statement or other document or other evidence of such filing to the Trustee as soon as available after filing. The Trustee shall be under no obligation whatsoever to file such financing statements, documents, amendments, assignments or continuation statements, or to make any other filing under the UCC in connection with such Transfer. In the event that any of the Issuer Loans and other Pledged Assets become evidenced by an instrument, the Issuer agrees to (or to cause the Originator or the Servicer to) deliver to the Trustee, or to such other Person as the Trustee may direct, the original of such instrument as required by Section 3.04(g) hereof. Within 30 days after the Issuer makes any change in its name, identity or corporate structure which would make any financing statement or continuation statement filed in accordance with the terms of this Indenture seriously misleading within the meaning of Section 9-402(7) (or any comparable provision) of the UCC as in effect in the jurisdiction the law of which governs the perfection of the interest in the Pledged Assets created hereunder, the Issuer shall give the Trustee notice of such change and shall file such financing statements or amendments as may be necessary to continue the perfection of the Trust's interest in the Pledged Assets and the proceeds thereof contemplated by this Section 2.01. 36 43 The Issuer and the Servicer will give the Trustee prompt written notice of any relocation of any office from which any of them service the Issuer Loans or keep records concerning the Issuer Loans or of their principal executive offices and whether, as a result of such relocation, the applicable provisions of the UCC would require the filing of any amendment of any previously filed financing or continuation statement or of any new financing statement and shall file such financing statements or amendments as may be necessary to perfect or to continue the perfection of the Trust's interest in the Issuer Loans and the other Pledged Assets and the proceeds thereof contemplated by this Section 2.01. The Issuer and the Servicer will at all times maintain each office from which they service Issuer Loans and their principal executive offices within the United States of America. The Issuer further agrees herein, at its own expense, on or prior to the initial Closing Date and prior to each subsequent pledge hereunder, to indicate in its computer records that the Issuer Loans have been pledged to the Trustee hereunder. (d) The Trustee hereby agrees not to disclose to any Person any information delivered to the Trustee from time to time with respect to the Issuer Loans or any Obligor except (i) to a Successor Servicer or as required by a Requirement of Law applicable to the Trustee, (ii) as required in the performance of the Trustee's duties hereunder, (iii) as required in enforcing the rights of the Noteholders hereunder, (iv) as provided in any Supplement or (v) to any "Backup Servicer" under and as defined in the Backup Servicing Agreement, or under any successor agreement or similar agreement executed in connection with any Series. The Trustee shall have no liability to any Person for the disclosure to any Person of information with respect to the Issuer Loans or any Obligor as permitted by this Section 2.02(d). The Trustee agrees to protect and maintain the security and confidentiality of such information in accordance with reasonable and customary industry standards and, in connection therewith, will allow the Issuer to inspect the Trustee's security and confidentiality arrangements from time to time during normal business hours. The Trustee shall use its best efforts to provide the Issuer written notice at least five Business Days prior to any disclosure pursuant to this Section 2.01 and in any event will provide written notice whenever disclosure is made. (e) If (i) the Issuer or the Servicer fails to perform any of its agreements or obligations under any Transaction Document to which it is a party and does not remedy such failure within the applicable cure period, if any, and (ii) the Trustee 37 44 in good faith reasonably believes that the performance of such agreements and obligations is necessary or appropriate to protect the interests of the Noteholders under this Indenture, then the Trustee or its designees may (but shall not be required to) itself perform, or cause performance of, such agreement or obligation, and the reasonable expenses of the Trustee or such designee incurred in connection therewith shall be payable by the Issuer. If, at any time, the Issuer or the Servicer fails to file or cause to be filed any financing statement or continuation statement, or amendment thereto or assignment thereof, that is required to be filed pursuant to this Indenture or any of the other Transaction Documents, the Trustee may (but shall not be obligated to), and the Issuer and the Servicer hereby authorize the Trustee to, file such financing or continuation statements, and amendments thereto and assignments thereof, relative to all or any of the Pledged Assets now existing or hereafter arising in the name of the Issuer, the Servicer or, to the extent permitted under the Loan Purchase Agreement, the Originator, in any case, at the expense of the Servicer to be paid out of the Servicing Reimbursement. SECTION 2.03. Representations and Warranties of the Issuer. The Issuer hereby represents and warrants as of the date hereof and, as of such date and with respect to any Series, as of the date of any Supplement and the related Closing Date, unless otherwise stated in such Supplement, that: (a) Organization and Good Standing. The Issuer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has full corporate power and authority to own its properties and conduct its business as presently owned or conducted, to execute, deliver and perform its obligations under this Indenture and the Loan Purchase Agreement, and to execute and deliver to the Trustee pursuant hereto the Notes. (b) Due Qualification. The Issuer is duly qualified to do business and is in good standing as a corporation or foreign corporation, as applicable, and has obtained all necessary licenses and approvals, in each jurisdiction in which failure to so qualify or to obtain such licenses and approvals would have a material adverse effect on the Issuer's ability to perform its obligations hereunder, under the applicable Supplement or under the Loan Purchase Agreement. (c) Due Authorization. The execution, delivery and performance of this Indenture and the applicable Supplement and the Loan Purchase Agreement by the Issuer, and the execution and 38 45 delivery by the Issuer to the Trustee of the Notes and the consummation by the Issuer of the transactions provided for in this Indenture and the applicable Supplement and the Loan Purchase Agreement, have been duly authorized by all necessary corporate action on the part of the Issuer and this Indenture and the other documents and agreements executed in connection herewith have been duly executed and delivered on behalf of the Issuer. (d) Enforceability. Each of this Indenture, the applicable Supplement and the Loan Purchase Agreement constitutes a legal, valid and binding obligation of the Issuer enforceable against the Issuer in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium or other similar laws affecting creditors' rights generally, now or hereafter in effect, and except as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity). The Loan Purchase Agreement is in full force and effect, and is not subject to any specific dispute, offset, counterclaim or defense. (e) No Conflict. The Issuer's execution and delivery of this Indenture, the applicable Supplement, the Loan Purchase Agreement and the Notes, performance of the transactions contemplated by this Indenture and the applicable Supplement and the Loan Purchase Agreement, and fulfillment of the terms hereof and thereof applicable to the Issuer, do not conflict with or violate in any material respect any Requirements of Law applicable to the Issuer (including, without limitation, the Investment Company Act) or conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, any indenture, contract, agreement, mortgage, deed of trust or other instrument to which the Issuer is a party or by which it or its properties are bound. (f) No Proceedings. There are no proceedings or investigations pending or, to the best knowledge of the Issuer, threatened against the Issuer before any Governmental Authority which asserts the invalidity of this Indenture or the Loan Purchase Agreement or which otherwise is likely to have a material adverse effect on the Issuer's financial condition or operations or on the Pledged Assets or the transactions contemplated herein, under each Supplement and under the Loan Purchase Agreement. 39 46 (g) Consents. No authorization, consent, license, order or approval of, registration or declaration with any Governmental Authority (including, without limitation, the Investment Company Act) or other Person is required to be obtained, effected or given by the Issuer in connection with the execution and delivery of this Indenture the applicable Supplement, the Loan Purchase Agreement and the Notes by the Issuer or its performance of its obligations under this Indenture, the applicable Supplement and the Loan Purchase Agreement or the transactions contemplated hereby and thereby except for (i) the filings of the financing statements or other documents required to have been filed on or prior to the initial Closing Date pursuant to Section 2.01, all of which were so filed and are in full force and effect, (ii) the filing of any amendments, assignments or continuation statements which may become applicable pursuant to Section 2.01, and (iii) other consents and approvals the failure of which to obtain is not likely to have a material adverse effect on the Issuer's financial condition or operations or the Pledged Assets or the Issuer's ability to perform its obligations under this Indenture. (h) Liens on Properties. Except as created hereby, there are no Liens (except for Permitted Liens) of any nature whatsoever on any Issuer Loan. The Issuer is not a party to any contract, agreement, lease or instrument (other than this Indenture) the performance of which, either unconditionally or upon the happening of an event, will result in or require the creation of any Lien on any Issuer Loan or otherwise result in a violation of this Indenture. (i) Contractual Obligations. (i) The Issuer is not a party to any indenture, loan or credit agreement or any lease or other agreement or instrument, or subject to any Requirements of Law, that would have a material adverse effect on the ability of the Issuer to carry out its obligations under this Indenture, the applicable Supplement or the Loan Purchase Agreement, and (ii) neither the Issuer nor, to the best of the knowledge of the Issuer, any other party is in default in any respect under or with respect to the Loan Purchase Agreement or any other material contract, agreement, lease or other instrument to which the Issuer is a party. (j) Investment Company. The Issuer is registered under the Investment Company Act as an investment company, and is in compliance in all material respects with the applicable provisions of the Investment Company Act and the rules and regulations promulgated thereunder. 40 47 (k) Locations. The chief place of business and chief executive office of the Issuer are located at the address of the Issuer referred to in Section 13.05, and the locations of the offices where the Issuer keeps the originals of its books, records and documents regarding the Issuer Loans and the other Pledged Assets are listed on Schedule II hereto (or at such other locations, notified to the Trustee in accordance with Section 2.05(d), in jurisdictions with respect to which all applicable action required by Section 2.02 has been taken and completed). (l) Tradenames. The legal name of the Issuer is as set forth on the signature page of this Agreement and the Issuer has no tradenames, fictitious names, assumed names or "doing business as" names. (m) Subsidiaries. The Issuer has no subsidiaries. (n) Information. (i) Each certificate, information, exhibit, financial statement, document, book or record or report furnished by the Issuer to the Trustee or the Servicer in connection with this Indenture and (ii) any information contained in any written documents regarding the Issuer provided by the Issuer to Noteholders is accurate in all material respects as of its date, when considered as a whole with other such documents, and no such document contains any material misstatement of fact or omits to state a material fact or any fact necessary to make the statements contained therein under the circumstances in which they were made not materially misleading. (o) Solvency. As of the date hereof and after giving effect to the transactions contemplated by this Indenture, the fair saleable value of the Issuer's assets exceeds its liabilities and the Issuer is currently repaying all of its indebtedness as such indebtedness becomes due; and, after giving effect to the transactions contemplated by this Indenture, the Issuer will have adequate capital to conduct its business as presently conducted and as contemplated by this Indenture. The Issuer is not entering into the transactions contemplated hereunder and under the Loan Purchase Agreement with the intent of hindering, delaying or defrauding creditors and no transfer hereunder constitutes a fraudulent transfer or fraudulent conveyance under the United States Bankruptcy Code or similar state law. (p) Compliance. The Issuer has complied in all material respects with all Requirements of Law with respect to it, its business and properties, including all Issuer Loans and the Loan Documents related thereto. 41 48 (q) Taxes. The Issuer has filed all material tax returns (federal, state and local) which it reasonably believes are required to be filed by it and has paid or made adequate provision for the payment of all taxes, assessments and other governmental charges due from the Issuer or is contesting any such tax, assessment or other governmental charge in good faith through appropriate proceedings. The Issuer knows of no basis for any material additional tax assessment for any fiscal year for which adequate reserves have not been established. (r) Use of Proceeds. No proceeds of the issuance of any Note will be used by the Issuer to acquire any security in a transaction that is subject to Sections 13 and 14 of the Exchange Act, or to purchase or carry any margin security in violation of any applicable law or regulation. (s) Lock-Box Accounts. The Lock-Box Banks are the only institutions holding Lock-Box Accounts for the receipts of payments in respect of Issuer Loans (subject to such changes as may be made from time to time in accordance with Section 4.02(b)). (t) Event of Default. As of the Closing Date for any Series, no Event of Default, and no condition that with the giving of notice and/or the passage of time would constitute an Event of Default, has occurred and is continuing. (u) ERISA. No Plan maintained by the Issuer or any of its ERISA Affiliates has any accumulated funding deficiency (within the meaning of Section 302 of ERISA or Section 412 of the IRC), whether or not waived. The Issuer and each ERISA Affiliate of the Issuer has timely made all contributions required to be made by it to any Plan and Multiemployer Plan to which contributions are or have been required to be made since November, 1991 by the Issuer or such ERISA Affiliate, and no Reportable Event has occurred and is continuing or could reasonably be expected to occur with respect to any such Plan, in any case, that could reasonably be expected to result directly or indirectly, in any Lien being imposed on the property of the Issuer or the payment of any material amount to avoid such Lien. The representations and warranties set forth in this Section 2.03 shall survive the issuance of the Notes and shall cease and be of no effect upon repayment in full of the Outstanding Principal Balance of the last outstanding Series and all other obligations of the Issuer hereunder. Upon discovery by the Issuer, any Servicer or the Trustee of a material breach of any of the foregoing representations and warranties, the party 42 49 discovering such breach shall give prompt written notice to the other parties hereto and to any Enhancement Providers. The Trustee's obligations in respect of any such breach are limited as provided in Section 11.02(g). SECTION 2.04. Representations and Warranties of the Issuer Relating to this Indenture and the Pledged Assets. The Issuer hereby represents and warrants as of the date hereof and on each date during the Revolving Period for any Series, that: (a) Valid Grant. The grant in favor of the Trustee made by the Issuer pursuant to this Indenture constitutes a valid grant, pledge and hypothecation of a security interest in and lien on all of the Issuer's right, title and interest in, to and under the Issuer Loans and the other Pledged Assets, which lien and security interest are perfected and of first priority under the UCC and otherwise, enforceable against creditors of, and purchasers from, the Issuer and the Originator, free and clear of any Lien (other than any Permitted Lien). (b) No Claim or Interest. Except as otherwise provided in this Indenture and the applicable Supplement, neither the Issuer nor any Person claiming through or under the Issuer has any claim to or interest in the Concentration Account or any Series Account. (c) Outstanding Balance; Base Amount. As of each Closing Date, the aggregate Net Outstanding Amount (after giving effect to the issuance of all Notes on such date) is less than or equal to the Base Amount. (d) Liens. All Issuer Loans and all other Pledged Assets are owned by the Issuer free and clear of any Lien except as created hereby or by the Loan Purchase Agreement and free and clear of any adverse claim or interest of any other Person. (e) Eligibility. Each Issuer Loan classified as an "Eligible Loan" by the Issuer in any Daily Report or Settlement Statement delivered hereunder satisfies, as of the dates referred to in such Daily Report or Settlement Statement, as applicable, the requirements of eligibility contained in the definition of Eligible Loan, and no such Loan nor any related Loan Document has been satisfied, subordinated or rescinded nor, except as otherwise permitted hereunder, been compromised, adjusted, extended or otherwise modified. The representations and warranties set forth in this Section 2.04 shall survive the issuance of the Notes, and shall 43 50 cease and be of no effect upon repayment in full of the Outstanding Principal Balance of the last outstanding Series and all other obligations of the Issuer hereunder. Upon discovery by the Issuer, any Servicer or the Trustee of a material breach of any of the foregoing representations and warranties, the party discovering such breach shall give prompt written notice to the other parties hereto and to any Enhancement Provider. The Trustee's obligations in respect of any such breach are limited as provided in Section 11.02(g). SECTION 2.05. Affirmative Covenants of the Issuer. The Issuer hereby covenants that, until the termination of the Amortization Period: (a) Compliance with Law. The Issuer will comply in all material respects with all Requirements of Law applicable to the Issuer, its business and properties and the Pledged Assets, where failure to so comply would have a material adverse effect on the Pledged Assets or the ability of the Issuer to perform in any material respects its obligations hereunder or under the Loan Purchase Agreement. (b) Preservation of Corporate Existence. The Issuer will preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its formation, and qualify and remain qualified in good standing as a foreign corporation in each jurisdiction where the failure to maintain such qualification would materially and adversely affect (i) the interests of the Trustee or of the Noteholders hereunder or in the Pledged Assets, (ii) the collectibility of the Issuer Loans or (iii) the ability of the Issuer to perform its obligations hereunder or under the Loan Purchase Agreement in any material respect. (c) Keeping of Records and Books of Account. The Issuer will (i) keep proper books of record and account, which shall be maintained or caused to be maintained by the Issuer and shall be separate and apart from those of any Affiliate of the Issuer, in which full and correct entries shall be made of all financial transactions and the assets and business of the Issuer in accordance with generally accepted accounting principles consistently applied, and (ii) maintain and implement administrative and operating procedures (including without limitation, an ability to recreate records evidencing the Issuer Loans in the event of the destruction of the originals thereof) and keep and maintain all documents, books, records and other information reasonably necessary or advisable for the collection of all Issuer Loans (including, without limitation, records 44 51 adequate to permit the daily identification of each new Issuer Loan and all Collections of and adjustments to each existing Issuer Loan). The Issuer shall provide to the Trustee access to the documentation regarding the Issuer Loans in such cases where the Trustee is required in connection with the enforcement of the rights of Noteholders or by applicable statutes or regulations to review such documentation, such access being afforded without charge but only (i) upon reasonable written request, (ii) during normal business hours, (iii) subject to the Issuer's normal security and confidentiality procedures and (iv) at reasonably accessible offices in the continental United States designated by the Issuer. (d) Location of Records. The Issuer will keep its chief place of business and chief executive office, and the office where it keeps the books, records and documents regarding the Pledged Assets, at the addresses of the Issuer referred to in Section 13.05 and on Schedule II hereto or, upon 30 days' prior written notice to the Trustee, at any other location within the United States with respect to which all applicable action required by the last two paragraphs of Section 2.02 shall have been taken and completed. (e) Maintenance of Separate Directors. The Issuer will maintain at least two independent directors each of whom is not an officer, director or employee of (i) any Originator or (ii) any Affiliate, nor a parent, child, spouse or sibling of any such Person; provided, however, that if any such independent director dies or resigns the Issuer shall have 10 Business Days, to replace that Person with another independent director. (f) Payment of Taxes, Etc. The Issuer will pay promptly when due all taxes, assessments and governmental charges or levies imposed upon it or any Pledged Asset, or in respect of its income or profits therefrom, and any and all claims of any kind, except that no such amount need be paid if (i) such non-payment could not subject any Indemnified Party to civil or criminal penalty or liability or involve any risk of the sale, forfeiture or loss of any of the property, rights or interest covered hereunder or under the Loan Purchase Agreement, (ii) the charge or levy is being contested in good faith and by proper proceedings and (iii) the obligation to pay such amount is adequately reserved against in accordance with and to the extent required by generally accepted accounting principles. (g) Reporting Requirements. The Issuer will: 45 52 (i) within one Business Day after a Responsible Officer becomes aware of the occurrence of any Event of Default, any Pay-Out Event, any Set-Aside Period and each event which, with the giving of notice or lapse of time or both, would constitute an Event of Default or a Pay-out Event, notify the Trustee of such occurrence; (ii) as soon as possible and in any event (A) within three Business Days after a Responsible Officer becomes aware of the occurrence of any Event of Default, any Pay-Out Event, any Set-Aside Period, and each event which, with the giving of notice or lapse of time or both, would constitute an Event of Default or a Pay-Out Event, furnish to the Trustee the statement of the chief administrative and credit officer or other Responsible Officer of the Issuer setting forth details of such Event of Default, Pay-Out Event, Set-Aside Period or event and the action which the Issuer has taken and proposes to take with respect thereto, and (B) within three Business Days after the occurrence thereof, notify the Trustee of any other event, development or information which is reasonably likely to materially and adversely affect the ability of the Issuer to perform its obligations under this Indenture or the Loan Purchase Agreement; (iii) as soon as practicable and in any event within 50 days after the end of each of the first three quarters of each fiscal year of the Issuer, furnish to the Trustee a balance sheet of the Issuer as of the end of such quarter, and the related revenue and expense statements for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, all of the foregoing to be certified by a Responsible Officer of the Issuer and prepared in accordance with generally accepted accounting principles; (iv) as soon as practicable and in any event within 95 days after the end of each fiscal year of the Issuer, furnish to the Trustee a balance sheet of the Issuer as of the end of such fiscal year, and the related revenue and expense statements for such fiscal year, all of the foregoing to be prepared in accordance with generally accepted accounting principles and reported on by the Issuer's Independent Public Accountants; (v) promptly, from time to time, furnish to the Trustee such other information, documents, records or reports respecting the Issuer Loans, the other Pledged 46 53 Assets or the condition or operations, financial or otherwise, of the Issuer as the Trustee may from time to time reasonably request, subject to the confidentially provisions of the related Loan Documents. (h) Loan Purchase Agreement. The Issuer will at its expense timely perform and comply in all material respects with all provisions, covenants and other promises required to be observed by it under the Loan Purchase Agreement, maintain the Loan Purchase Agreement in full force and effect, enforce its rights under the Loan Purchase Agreement substantially in accordance with its terms and comply with its obligations under Loan Documents giving rise to Loans. (i) UCC Opinion. On or before December 31 of each calendar year, beginning with December 31, 1997, the Issuer shall deliver to the Trustee an Opinion of Counsel to the effect that no financing statements or continuation statements, other than those currently filed, are necessary to be filed by the Issuer or the Servicer in order to fully preserve and protect the perfected security or ownership interest of the Trustee, Issuer or any of the Noteholders hereunder in and to the Issuer Loans or describing such filings as may be necessary. (j) ERISA. The Issuer shall promptly give the Trustee notice of the following events, as soon as possible and in any event within 30 days after the Issuer or any of its ERISA Affiliates knows or has reason to know thereof: (i) the occurrence or expected occurrence of any Reportable Event with respect to any Plan to which the Issuer or any of its ERISA Affiliates contributed, or any withdrawal from, or the termination, reorganization or insolvency of any Multiemployer Plan to which the Issuer or any of its ERISA Affiliates contributes or to which contributions have been required to be made by the Issuer or such ERISA Affiliate or (ii) the institution of proceedings or the taking of any other action by the PBGC or the Issuer or any of its ERISA Affiliates or any such Multiemployer Plan with respect to the withdrawal from, or the termination, reorganization or insolvency of, any such Plan or Multiemployer Plan. The Issuer shall give the Trustee notice, as soon as possible and in any event within 10 days after the Issuer or any of its ERISA Affiliates knows or has reason to know thereof, of any filing of any Lien by the PBGC against the assets of either Originator, the Issuer or any of their ERISA Affiliates. (k) Collections. On each Business Day that the Issuer or any Affiliate thereof receives any Collections, the Issuer agrees to hold, or cause such Affiliate to hold, all such 47 54 Collections in trust and, in the case of Collections remitted directly to the Issuer or any Affiliate by the applicable Obligor, to deposit, or cause such Affiliate to deposit, such Collections, in kind and in the form received, to the appropriate Lock-Box Account as soon as practicable, but in no event later than the next succeeding Business Day. (l) Equity Securities. Upon obtaining the beneficial interest in any Equity Security, by exercise of any purchase, exchange or conversion option granted as a part of any Contingent Compensation relating to any Issuer Loan, or in any other way, the Issuer shall either (i) promptly (and in no event more than thirty days after its acquisition) sell, assign or otherwise transfer such Equity Security pursuant to Section 2.06(a) (and during the period prior to such sale, assignment or transfer, the Issuer shall not exercise any of the rights arising from the ownership of such Equity Security, including, without limitation, any voting rights with respect thereto), or (ii) concurrently with the exercise of any purchase, exchange or conversion option with respect to any Contingent Compensation relating to any Issuer Loan, or otherwise within ten days of the acquisition of such Equity Security, deliver to the Trustee an Opinion of Counsel (which must be given by independent legal counsel of national standing) confirming that the exercise of such option and/or the ownership of such Equity Security will not, nor will the subsequent disposition of such Equity Security, (x) require the Issuer to file reports under Section 16(a) of the Exchange Act, (y) be subject to Section 16(b) of the Exchange Act, or (z) cause the Issuer to be deemed an "insider," "control person" or "affiliate" of the applicable Obligor or issuer of such Equity Security (in each case as such terms may apply under any applicable law, including the Securities Act, the Exchange Act, the Bankruptcy Code, any principles of equitable subordination and any law causing the actions of the Issuer with respect to such Obligor or issuer to be held to a higher standard than if the Issuer did not own such Equity Security), provided, that in no event may the Issuer retain ownership of an Equity Security under clause (ii) above if, after giving effect to the acquisition of such Equity Security, the aggregate amount of outstanding voting securities of such Obligor or issuer and its Affiliates then owned by the Issuer is equal to or greater than 20% of the voting securities of such Obligor or issuer and its Affiliates. SECTION 2.06. Negative Covenants of the Issuer. The Issuer hereby further covenants that, until the termination of the Amortization Period: 48 55 (a) No Sales, Liens, Etc.. Except for the security interest created hereunder, the Issuer will not sell, pledge, assign or transfer any Pledged Asset or any interest therein to any other Person, or grant, create, incur, assume or suffer to exist any Lien on, any Pledged Asset, whether now existing or hereafter created, or any interest therein, and the Issuer shall defend the right, title and interest of the Trustee in and to the Pledged Assets, whether now existing or hereafter created, against all claims of third parties claiming through or under the Issuer; provided, however, that each of the following types of Pledged Assets may be sold, assigned or otherwise transferred by the Issuer at any time, at the direction of the Issuer or the Servicer: (i) any Issuer Loan; (ii) any Equity Security received by the Issuer (x) by exercise of any purchase, exchange or conversion option granted as part of any Contingent Compensation relating to any Issuer Loan or (y) otherwise; or (iii) any Contingent Compensation relating to any Issuer Loan that has been paid in full in cash; provided, further, that (I) any sale, assignment or other transfer permitted under the foregoing clauses (i) through (iii) shall be on an "arm's-length basis" for fair market compensation in cash and without representations or warranties with respect thereto (provided, that if any such disposition is made to the Originator, then such disposition may be made for no compensation so long as such transfer is made to the Originator as a dividend in-kind or such other distribution of or in respect of the capital of the Issuer, in each case, pursuant to all corporate formalities), (II) all cash proceeds of any such sale, assignment or other transfer shall constitute Principal Collections and shall be promptly deposited into the Concentration Account upon receipt by the Issuer, or Sirrom on behalf of the Issuer (and until such time, shall be held in trust by such Person for the benefit of the Trustee and the Noteholders) and (III) either (x) at the time of any such sale, assignment or other transfer and immediately thereafter, no Set-Aside Period shall have occurred and be continuing, no Event of Default, "Event of Default" under any Supplement or Servicer Default shall have occurred or be continuing, nor shall any event exist which but for notice, or the lapse of time, or both, would constitute an Event of Default, an "Event of Default" under any Supplement or a Servicer Default or (y) such sale, assignment or other transfer shall be on an "arm's-length basis" for fair market compensation in cash, (2) 49 56 the Program Agent shall then be the "Program Agent" for the Majority Noteholders, and (3) the Program Agent shall have provided the Issuer (with a copy to the Trustee) its prior written consent to such cash sale, assignment or other transfer. The satisfaction of each of the foregoing conditions shall be certified in an Officer's Certificate of the Issuer and the Servicer delivered to the Trustee and each "Program Agent" (as defined in each Supplement) at the time of any such sale, assignment or other transfer. (b) Activities of the Issuer. The Issuer will not engage in, enter into or be a party to any business, activity or transaction of any kind other than the businesses, activities and transactions contemplated and authorized by this Indenture or the Loan Purchase Agreement or any document related hereto or thereto or incidental to its ability to carry out its obligations under such agreements. (c) Indebtedness. Except as provided herein or in the Loan Purchase Agreement, the Issuer will not (i) create, incur or assume any indebtedness (other than operating expenses incurred in the performance of or incidental to its obligations under this Indenture) or (ii) sell or transfer any loans to a trust or other Person which issues securities in respect of any such loans. (d) Guarantees. Except as provided for herein, the Issuer will not become or remain liable, directly or contingently, in connection with any indebtedness or other liability of any other Person, whether by guarantee, endorsement (other than endorsements of negotiable instruments for deposit or collection in the ordinary course of business), agreement to purchase or repurchase, agreement to supply or advance funds, or otherwise. (e) Investments. The Issuer will not make or suffer to exist any loans or advances to, or extend any credit to, or make any investments (by way of transfer of property, contributions to capital, purchase of stock or securities or evidences of indebtedness, acquisition of the business or assets, or otherwise) in, any Affiliate or any other Person except for purchases of Loans pursuant to the terms of the Loan Purchase Agreement and investments in Eligible Investments in accordance with the terms of this Indenture. Except as permitted the Issuer's certificate of incorporation and by-laws, the Issuer will not declare or pay any dividend or other distribution in respect its stock. (f) Extension or Amendment of Loans. Except as permitted in Section 3.01(c), the Issuer will not extend, amend 50 57 or otherwise modify (or consent or fail to object to any such extension, amendment or modification by an Originator), the terms of any Issuer Loan, or amend, modify or waive (or consent or fail to object to any such amendment, modification or waiver by an Originator) any payment term or condition of any Loan Document related thereto (other than as provided in the Credit and Collection Policy) if the effect of such amendment, modification or waiver would impair the collectibility or delay the payment of any then existing Issuer Loan beyond the earlier of (i) 60 days from the scheduled date of such payment and (ii) December 31, 2006. The Issuer will not rescind or cancel, or permit the rescission or cancellation of, any Issuer Loan except as ordered by a court of competent jurisdiction or other Governmental Authority. (g) Change in Corporate Name. The Issuer will not (i) make any change to its corporate name or principal place of business or use any tradenames, fictitious names, assumed names or "doing business as" names unless, prior to the effective date of any such name change, change in principal place of business, or use, the Issuer delivers an Opinion of Counsel, together with such financing statements (Forms UCC-1 and UCC-3) executed by the Issuer which reflect such name change or use, together with such other documents and instruments that the Trustee may reasonably request in connection therewith or (ii) change its jurisdiction of formation unless the Trustee shall have received from the Issuer (A) written notice of such change at least 30 days prior to the effective date thereof, and (B) prior to the effective date thereof, an Opinion of Counsel, as to such formation and the Issuer's valid existence and good standing and as to the matters referred to in Section 2.04(a). (h) Loan Purchase Agreement. The Issuer will not (i) cancel or terminate the Loan Purchase Agreement or consent to or accept any cancellation or termination thereof, (ii) amend or otherwise modify any term or condition of the Loan Purchase Agreement or give any consent, waiver or approval thereunder, (iii) waive any default under or breach of the Loan Purchase Agreement or (iv) take any other action under the Loan Purchase Agreement not required by the terms thereof, to the extent that, in each of clauses (ii) through (iv) above, such amendment, modification, consent, waiver, approval or other action would adversely affect in any material respect the rights or interests of the Issuer thereunder or of the Trustee or the Noteholders hereunder or thereunder, unless the Issuer has obtained the prior written consent of the Majority Noteholders with respect thereto. 51 58 (i) Organization. The Issuer will not amend its certificate of incorporation or bylaws in any manner which would modify the limitations on the Issuer's business set forth therein, or modify the requirements that the Issuer maintain at least two independent directors or alter the duties, powers, rights and responsibilities of such directors or otherwise alter the provisions contained therein requiring the Issuer to maintain its existence as a corporation separate and apart from its Affiliates, except for such changes not adverse to the Noteholders with respect to which the Issuer has provided an Opinion of Counsel, which counsel is not an employee of the Originator or any of its Affiliates, relating to the continued separate existence of the Issuer, and will not otherwise amend its certificate of incorporation or bylaws in any manner which would be materially adverse to the Noteholders. (j) Maintenance of Separate Existence. The Issuer will not (i) fail to do all things necessary to maintain its existence as a corporation separate and apart from the Originator and any other Affiliate of the Originator or of the Issuer including, without limitation, conducting business correspondence in its own name, holding regular meetings of, or obtaining regular written consents from, its shareholders and Board of Directors and maintaining appropriate books and records; (ii) suffer any limitation on the authority of its own directors and officers to conduct its business and affairs in accordance with their independent business judgment, or authorize or suffer any Person other than its own directors and officers to act on its behalf with respect to matters (other than matters customarily delegated to others under powers of attorney) for which a corporation's own directors and officers would customarily be responsible; (iii) fail to (A) maintain, or cause to be maintained by an agent of the Issuer under the Issuer's control, physical possession of all its books and records, (B) maintain capitalization adequate for the conduct of its business, (C) account for and manage its liabilities separately from those of any other Person, including, without limitation, payment of all payroll and other administrative expenses and taxes from its own assets, (D) segregate and identify separately all of its assets from those of any other Person, and (E) maintain offices through which its business is conducted separate from those of its Affiliates (provided that, to the extent that the Issuer and any of its Affiliates have offices in the same location, there shall be a fair and appropriate allocation of overhead costs and expenses among them, and each such entity shall bear its fair share of such expenses); or (iv) fail to take any actions required on its part or fail to cause any Affiliates to take any action required on their part to prevent the commingling of its 52 59 funds with those of any of its Affiliates, or use its funds for other than the Issuer's uses. (k) Ownership; Merger. The Issuer will not (i) sell any shares of any class of its capital stock to any Person (other than the Originator or any wholly-owned subsidiary of the Originator), or enter into any transaction of merger or consolidation, or convey or otherwise dispose of all or substantially all of its assets (except as contemplated herein), or (ii) terminate, liquidate or dissolve itself (or suffer any termination, liquidation or dissolution), or (iii) acquire or be acquired by any Person, (except indirectly in connection with a consolidation, merger or transfer of stock of the Originator to the extent such consolidation or merger is permitted under the Loan Purchase Agreement, in connection with which the Trustee shall have received an Opinion of Counsel, which counsel is not an employee of the Originator or any of its Affiliates, relating to the continued separate corporate existence of the Issuer). ARTICLE III ADMINISTRATION AND SERVICING OF LOANS SECTION 3.01. Acceptance of Appointment and Other Matters Relating to the Servicer. (a) Sirrom Capital Corporation agrees to act as a Servicer for the benefit of the Noteholders under this Indenture until appointment of a Successor Servicer under Article X, and each Noteholder by its acceptance of its Notes consents to Sirrom Capital Corporation so acting as Servicer. The Servicer hereby disclaims all right, title and interest in and to the Issuer Loans and the proceeds thereof, except for the payment of its fees and expenses hereunder. (b) The Servicer shall (subject to Article X) enforce the Issuer's respective rights and interests in, to and under the Issuer Loans and the Pledged Assets on behalf of the Issuer, the Trustee and the Noteholders. The Servicer, on behalf of the Trustee, shall service, administer and collect the Issuer Loans and, in connection therewith, the Servicer shall take or cause to be taken all such actions as may be necessary or advisable to attempt to collect each Issuer Loan from time to time, all in accordance with applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit and Collection Policy applicable to such Issuer Loan, except where such failure to conform or comply would not be likely to materially adversely affect the rights of the Noteholders. 53 60 (c) Provided no Servicer Default shall have occurred and be continuing, the Servicer may, in accordance with the applicable Credit and Collection Policy, extend the maturity, adjust the Outstanding Balance, or amend, modify or waive the terms of any Defaulted Loan or amend, modify or waive any payment term or condition of any Loan Document related thereto, all as it may determine to be appropriate to maximize Collections thereof. (d) The Servicer shall have full power and authority, acting alone or through any party properly designated by it hereunder, to do any and all things in connection with such servicing and administration which it may deem necessary or desirable. Without limiting the generality of the foregoing and subject to Section 10.01, (i) the Servicer or its designee is hereby authorized and empowered to instruct the Trustee to make withdrawals and payments from the Trust Accounts, subject to the limitations set forth in Section 4.02 and as otherwise set forth in this Indenture and to instruct the Trustee to take any action required or permitted under any Enhancement Agreement and (ii) the Servicer or its designee is hereby authorized and empowered (x) to make any filings, reports, notices, applications and registrations with, and to seek any consents or authorizations from, the Securities and Exchange Commission and any state securities authority as may be necessary or advisable to comply with any Federal or state securities laws or reporting requirements, and (y) to subcontract with or delegate to any other Person (at such Servicer's expense) for servicing, administering or collecting the Issuer Loans, provided that the Servicer shall give the Trustee notice of any such subcontracting and such other Person shall not become a Servicer hereunder and the subcontracting or delegating Servicer shall remain liable for the performance of its duties and obligations as a Servicer pursuant to the terms hereof. Each subservicing agreement will be upon such terms and conditions as are not inconsistent with this Indenture and the standard of care set forth herein. All compensation payable to a subservicer under any subservicing agreement shall be payable by the Servicer from the Servicing Reimbursement received by it or otherwise from its own funds, and neither the Trustee nor the Noteholders shall have any obligations, duties or liabilities of any kind whatsoever under any such subservicing agreements. Upon the written request of the Servicer and receipt of an Officer's Certificate setting forth the facts underlying such request, the Trustee shall execute any documents furnished by the Servicer which are necessary or appropriate to enable the Servicer to carry out its servicing and administrative duties hereunder and acceptable in form and substance to the Trustee and shall furnish the Servicer with any documents then in the Trustee's possession which are 54 61 necessary or appropriate to enable the Servicer to carry out its servicing and administrative duties hereunder. (e) The relationship of the Servicer (including any Successor Servicer) to the Trustee under this Indenture is intended by the parties to be that of an independent contractor to or with the Trustee and shall not be construed to be that of a joint venturer, partner, or agent, such that the acts of the Servicer are in any way vicariously attributable to the Trustee in its individual capacity prior to such time as the Trustee may serve as Servicer pursuant to the provisions of Article X. SECTION 3.02. Servicing Compensation; Servicer's Expenses. (a) Compensation. As full compensation for its servicing activities hereunder, the Servicer shall be entitled to receive a monthly servicing reimbursement (the "Servicing Reimbursement") for each Collection Period (or portion thereof) from the initial Closing Date until the termination of the Amortization Period, payable in arrears on the Monthly Payment Date with respect to such Collection Period (or portion), in an amount equal to the lesser of (x) the actual costs and expenses incurred by the Servicer in connection with its servicing activities hereunder during such Collection Period with respect to such Monthly Payment Date (as such costs and expenses are certified in an Officer's Certificate of the Servicer delivered to the Trustee) and (y) the product of the per annum fee of 1.00% (calculated on the basis of a 360-day year of twelve 30-day months) times the aggregate Adjusted Outstanding Loan Balance of the Loans subject to the Granting Clause of this Indenture being serviced by such Servicer as of the beginning of such Collection Period; the Servicing Reimbursement for any Servicer other than the Originator or an Affiliate thereof shall be an amount equal to that computed pursuant to clause (y) hereof. The Servicing Reimbursement shall be payable only from Collections. (b) Expenses. The Servicer's expenses include: first, the Trustee's Fee and the Backup Servicer's Fee (to the extent not paid from the Carrying Cost Account, Collections or other funds on deposit in the Trust Accounts or the Issuer's Account) and second, all documented expenses and liabilities (other than any liability of the Trustee with respect to any amount payable solely out of Collections) in respect hereof not expressly stated herein to be for the account of the Noteholders, the reasonable fees and disbursements of independent accountants, counsel and other fees and documented expenses including but not 55 62 limited to the costs of filing UCC continuation statements; provided that, in no event shall any Servicer be liable for any federal, state or local income, franchise or other tax, or any interest or penalties with respect thereto, assessed on the Pledged Assets, the Trustee or the Noteholders except as expressly provided herein. Such expenses shall be payable, first, from the Servicing Reimbursement, and, second, to the extent not paid from the Servicing Reimbursement, by the Issuer for its own account (subject to the limitations set forth below). In addition, to the extent not paid from the Servicing Reimbursement, the Issuer shall pay for its own account, and, if the Issuer fails to do so, the Servicer will pay, all fees and expenses incurred by or on behalf of the Servicer in connection with their servicing activities hereunder (including without limitation expenses related to enforcement of the Issuer Loans, the costs of a Service Transfer and expenses otherwise relating to a Servicer Default), and the Servicer will not be entitled to any fee or other payment from, or claim on, any of the Pledged Assets (other than the Servicing Reimbursement and reimbursement from the Issuer). The Issuer's and Servicer's covenant to pay the expenses and disbursements provided for in this Section 3.02(b) shall survive the termination of this Indenture. Any payments from the Issuer under this Section 3.02(b) shall be made solely from funds available to make such payments after all other allocations and/or payments to be made for the benefit of the Noteholders pursuant to Section 4.03(b) or 4.03(c), as applicable, shall have been made, and there shall be no other recourse to, and no Person shall have any Claim against, the Issuer for the payment of all or any part of any such obligations under this Section 3.02(b). SECTION 3.03. Representations and Warranties of the Servicer. Sirrom Capital Corporation, as the initial Servicer, hereby makes, and each successor Servicer by acceptance of its appointment hereunder shall make, the following representations and warranties, in the case of the initial Servicer, as of the date hereof and as of the date of the initial issuance of Notes hereunder and with respect to any Series as of the date of any Supplement and the related Closing Date or, in the case of any Successor Servicer, the date of such appointment and, with respect to any Series issued after such date, as of the date of the related Supplement and the related Closing Date, in each case unless otherwise stated in such Supplement: (a) Organization and Good Standing. Such Servicer is a corporation or national banking association duly organized, validly existing and in good standing under the applicable laws of its jurisdiction of organization or incorporation and has, in 56 63 all material respects, full corporate power and authority to own its properties and conduct its business including its receivables or loans servicing business as such properties are presently owned and as such business is presently conducted and as is proposed to be conducted under this Indenture and the Loan Purchase Agreement, and to execute, deliver and perform its obligations under this Indenture and the applicable Supplement. (b) Due Qualification. Such Servicer is duly qualified to do business and is in good standing as a foreign corporation (or is exempt from such requirements), and has obtained all necessary licenses and approvals, in each jurisdiction in which the servicing of the Issuer Loans in accordance with the terms of this Indenture and any Supplement requires such qualification, except where failure to so qualify or to obtain such licenses or approvals would not have a material adverse effect on its ability to perform its obligations as Servicer under this Indenture and the applicable Supplement. (c) Due Authorization. Such Servicer's execution, delivery and performance of this Indenture and the applicable Supplement and the other agreements and instruments executed or to be executed by such Servicer as contemplated hereby have been duly authorized by all necessary corporate action on the part of such Servicer. (d) Enforceability. Each of this Indenture and the applicable Supplement constitutes a legal, valid and binding obligation of such Servicer enforceable against it in accordance with its terms except as such enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium or other similar laws now and hereafter in effect affecting creditors' rights generally, and except as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity). (e) No Conflict. Such Servicer's execution and delivery of this Indenture, performance of the transactions contemplated by this Indenture and the applicable Supplement, and fulfillment of the terms hereof and thereof applicable to such Servicer, do not conflict with or violate in any material respect any material Requirements of Law applicable to such Servicer, or conflict with, result in any breach of any of the material terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, any material indenture, contract, agreement, mortgage, deed of trust or other instrument to which such Servicer is a party or by which it or its properties are bound in any manner which is likely to have a 57 64 material adverse effect on the Issuer's financial condition or operations or the Pledged Assets or such Servicer's ability to perform its obligations hereunder, under the Loan Purchase Agreement and each applicable Supplement. (f) No Proceedings. There are no proceedings or, to the best knowledge of such Servicer, investigations pending or threatened against it before any Governmental Authority (i) asserting the illegality, invalidity or unenforceability or seeking any determination or ruling that would affect the legality, binding effect, validity or enforceability, of this Indenture and the applicable Supplement, or (ii) seeking to prevent the consummation of any of the transactions contemplated by this Indenture and the applicable Supplement, or (iii) seeking any determination or ruling that is likely to have a material and adverse effect on the performance by such Servicer of its obligations under this Indenture and the applicable Supplement. (g) Consents. No authorization, consent, license, order or approval of or registration or declaration with any Governmental Authority is required to be obtained, effected or given by such Servicer in connection with the execution and delivery of this Indenture and the applicable Supplement by such Servicer or the performance of its obligations hereunder and thereunder except where the failure to obtain such authorization, consent, license, order or approval is not likely to have a material adverse effect on the performance by such Servicer of its obligations under the Indenture and the applicable supplement. (h) Account Banks. The names, addresses and ABA numbers of all the Account Banks, together with the account numbers of all Lock-Box Accounts and Concentration Accounts and the name of a contact person at such Account Banks, are specified in Schedule I hereto as of the initial Closing Date. Also specified in Schedule I hereto are the name, address and ABA numbers of the Concentration Account Bank, together with the account number and the name of a contact person for the Concentration Account as of the initial Closing Date. (i) Daily Reports and Determination Date Notes. Each Daily Report and Settlement Statement delivered by such Servicer pursuant to this Indenture shall be true and correct in all material respects as of the date such report or certificate is delivered. (j) Servicer Default. No Servicer Default with respect to such Servicer has occurred or is continuing. 58 65 The representations and warranties set forth in this Section 3.03 shall survive the issuance of the Notes, and shall cease and be of no effect upon repayment in full of the Outstanding Principal Balance of the last outstanding Series and all other obligations of the Issuer hereunder. Upon a discovery by the Issuer, the Servicer or the Trustee of a material breach of any of the foregoing representations and warranties, the party discovering such breach shall give prompt written notice to the other parties. The Trustee's obligations in respect of any such breach are limited as provided in Section 11.02(g). SECTION 3.04. Covenants of the Servicer. The Servicer hereby covenants that, until the termination of the Amortization Period: (a) Change in Accounts. The Servicer will not (i) terminate and substitute any Concentration Account (or make any change in its instructions to Concentration Account Banks regarding payments to be made to the Concentration Account) except as required pursuant to Section 4.02 or any Series Account except as required pursuant to the applicable Supplement or (ii) add or terminate any institution as a Concentration Account Bank from those listed in Schedule I hereto, except as otherwise permitted pursuant to Section 4.02 or unless the Trustee shall have received written notice of such addition, termination or change and executed copies of Concentration Account Notices to each new Concentration Account Bank. (b) Collections. On each Business Day that the Servicer or any Affiliate thereof receives any Collections, the Servicer agrees to hold, or cause such Affiliate to hold, all such Collections in trust and, in the case of Collections remitted directly to the Servicer or any Affiliate by the applicable Obligor, to deposit, or cause such Affiliate to deposit, such Collections, in kind and in the form received, to the appropriate Lock-Box Account as soon as practicable, but in no event later than the next succeeding Business Day. (c) Compliance with Loan Documents and Requirements of Law. The Servicer will duly satisfy in all material respects all obligations on its part to be fulfilled under or in connection with each Issuer Loan and the related Loan Documents, will maintain in effect all qualifications required under Requirements of Law in order to service each Issuer Loan and will comply in all material respects with all other Requirements of Law in connection with servicing each Issuer Loan, in each case except where the failure to perform such obligations or maintain such 59 66 qualifications would not be substantially likely to have a material adverse effect on any Noteholders. (d) Extension or Amendment of Loans. Except as permitted by Section 3.01(c), the Servicer will not extend, amend or otherwise modify (or consent or fail to object to any such extension, amendment or modification by the Originator or the Issuer) the terms of any then existing Issuer Loan, or amend, modify or waive (or consent or fail to object to any such amendment, modification or waiver by the Originator or the Issuer) any payment term or condition of any Loan Document related thereto if the effect of any such amendment, modification or waiver would impair the collectibility or delay the payment of any Issuer Loan beyond 60 days from scheduled date of such payment. The Servicer will not rescind or cancel, or permit the rescission or cancellation of, any Issuer Loan except as ordered by a court of competent jurisdiction or other Governmental Authority. (e) Protection of Noteholders' Rights. Except as authorized by this Indenture and the applicable Supplement, the Servicer will take no action which would materially impair the rights of Noteholders in any Issuer Loan or other Pledged Asset. (f) Deposits to Concentration Account, any Series Account or any Lock-Box Account. The Servicer will not deposit or otherwise credit, or cause to be so deposited or credited, or consent or fail to object to any such deposit or credit, to the Concentration Account, any Lock-Box Account or any Series Account cash or cash proceeds other than Collections, funds transferred from the Reserve Account pursuant to Section 4.03 hereof, or other funds constituting Pledged Assets. (g) Reporting Requirements. The Servicer will furnish to the Trustee: (i) within one Business Day after a Responsible Officer becomes aware of the occurrence of a Servicer Default, any Event of Default, the commencement of a Set-Aside Period and each event which, with the giving of notice or lapse of time or both, would constitute an Event of Default, notification of such occurrence; (ii) as soon as possible and in any event (A) within three Business Days after a Responsible Officer becomes aware of the occurrence of a Servicer Default, any Event of Default, any Set-Aside Period, and each event which with the giving of notice of lapse of time or both, would 60 67 constitute a Servicer Default or an Event of Default, the statement of the chief financial officer or chief accounting officer or other Responsible Officer setting forth details of such Servicer Default or Event of Default or Set-Aside Period or other event and the action which the Servicer has taken and proposes to take with respect thereto, and (B) within three Business Days after the occurrence thereof, notice of any other event, development or information which is likely to materially and adversely affect the ability of such Servicer to perform its obligations under this Indenture; (iii) as soon as practicable and in any event within 50 days after the end of each of the first three quarters of each fiscal year of the Servicer, copies of a balance sheet of the Servicer as of the end of such quarter, and the related revenue and expense statements and statements of cash flows each for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, all of the foregoing to be certified by a Responsible Officer of the Servicer and prepared in accordance with generally accepted accounting principles; provided that, so long as the Servicer (or its parent corporation) is subject to the information reporting requirements of the Exchange Act, delivery of the Servicer's (or such parent corporation's) 10-Q as filed with the Securities and Exchange Commission shall satisfy the requirements of this clause (iii); (iv) as soon as practicable and in any event within 95 days after the end of each fiscal year of the Servicer, a balance sheet of the Servicer as of the end of such fiscal year, and the related revenue and expense statements and statements of cash flows for such fiscal year, all of the foregoing to be certified by a Responsible Officer of the Servicer and prepared in accordance with generally accepted accounting principles; provided that, so long as the Servicer (or its parent corporation) is subject to the information reporting requirements of the Exchange Act, delivery of the Servicer's (or such parent corporation's) 10-K as filed with the Securities and Exchange Commission shall satisfy the requirements of this clause (iv); (v) promptly, from time to time, such other information, documents, records or reports within its possession respecting the Issuer Loans, the other Pledged Assets or the condition or operations, financial or otherwise, of the Servicer as the Trustee may from time to 61 68 time reasonably request, subject to the confidentiality provisions of the related Loan Documents. The Servicer shall provide to the Trustee access to the documentation regarding the Issuer Loans serviced by it in such cases where the Trustee is required in connection with the enforcement of the rights of Noteholders or by applicable statutes or regulations to review such documentation, such access being afforded without charge but only (i) upon reasonable request, (ii) during normal business hours, (iii) subject to the Servicer's normal security and confidentiality procedures and (iv) at reasonably accessible offices in the continental United States designated by the Servicer. (h) Filing of Continuation Statements. The Servicer shall prepare and file such continuation statements and any other documents reasonably requested by the Trustee or the Issuer or which may otherwise be required by law to fully preserve and protect the interest of the Trustee, Issuer or any of the Noteholders hereunder in and to the Issuer Loans. The Trustee shall be under no obligation whatsoever to file (or to request the filing of) such continuation statements or other documents. (i) Compliance with and Change in Credit and Collection Policy. The Servicer shall comply with and perform its servicing obligations with respect to the Issuer Loans in accordance with the applicable Credit and Collection Policy, except insofar as any failure to so comply or perform would not adversely affect the Noteholders in any material respect. Subject to compliance with all Requirements of Law, the Issuer or the Servicer, as applicable, will not change the terms and provisions of the Credit and Collection Policy in any manner which would impair the collectibility of any Issuer Loan or have a material adverse effect on the Noteholders. (j) Change in Corporate Name. The Servicer will not (i) (if the Servicer is also the Originator) make any change to its corporate name or principal place of business or use any tradenames, fictitious names, assumed names or "doing business as" names for such company's business operations unless, within 30 days after the effective date of any such name change, change in principal place of business, or use, the Servicer delivers to the Trustee such financing statements (Forms UCC-1 and UCC-3) executed by it which the Trustee may reasonably request to reflect such name change, change in place of business or use, together with such other documents and instruments that the Trustee may reasonably request in connection therewith or (ii) change its jurisdiction of incorporation unless the Trustee shall 62 69 have received from the Servicer (A) written notice of such change within 30 days after the effective date thereof, and (B) on or prior to such 30th day after the effective date, an Opinion of Counsel, as to such incorporation and the Servicer's valid existence and good standing and as to the matters referred to in the first sentence of Section 2.04(a). (k) Loan Purchase Agreement. The Servicer will at its expense timely perform and comply in all material respects with all provisions, covenants and other promises required to be observed by it under the Loan Purchase Agreement, maintain the Loan Purchase Agreement in full force and effect, enforce its rights under the Loan Purchase Agreement in accordance with its terms, and make to any party to the Loan Purchase Agreement, upon the Trustee's request, such reasonable demands and requests for information and reports or for action as the Servicer is entitled to make thereunder. (l) Application of Loans. With respect to each Business Day, the Servicer shall either (i) apply all Collections received in the Lock-Box Accounts on such day to the related balances of Issuer Loans on the records of the Servicer prior to the preparation of the Daily Report on the immediately following Business Day or (ii) subtract such unapplied Collections from the Net Loans Balance (as contemplated by the definition thereof) to be reported in such Daily Report. SECTION 3.05. Reports and Records for the Trustee. (a) Daily Records. On each Business Day, the Servicer shall provide by telecopy to the Trustee, the Issuer and the Paying Agent, and upon request to any Enhancement Provider, a report (the "Daily Report") substantially in the form of Exhibit A hereto (as the same may be supplemented in accordance with the terms of any Supplement) or in such similar form as may be reasonably acceptable to the Trustee, the Paying Agent, the Issuer and the Servicer. Such Daily Report shall set forth, among other things, (i) the Collections in respect of the Issuer Loans processed by the Servicer on the immediately preceding Business Day, (ii) the amount of Eligible Loans as of the close of business on the immediately preceding Business Day, (iii) the Net Loans Balance, Base Amount and each Series Allocation Percentage at the close of business on the immediately preceding Business Day and (iv) if the Issuer or the Servicer has requested the Outstanding Principal Balance of any Revolving Note to be increased on the day of delivery of such report, the Net Outstanding Amount and each Series Allocation Percentage after giving effect to any such increases. 63 70 (b) Settlement Statement. On or before each Determination Date with respect to each outstanding Series, the Servicer shall prepare and deliver by telecopy to the Trustee, the Issuer and the Paying Agent, with a copy delivered by telecopy or mail to each Clearing Agency (or, in the case of the initial Clearing Agency, Cede & Co. as its nominee), a certificate (the "Settlement Statement") substantially in the form of Exhibit B hereto (as the same may be supplemented in accordance with the terms of any Supplement) or in such similar form as may be reasonably acceptable to the Trustee, the Paying Agent, the Issuer and the Servicer. Such Settlement Statement shall set forth, among other things, any payments to be made to Noteholders on the related Monthly Payment Date, such other matters as may be required by any Supplement and (at all times prior to the Amortization Date) calculations of the Required Overcollateralization Amount for each Series. SECTION 3.06. Annual Certificate of Servicer. On or before April 30 of each calendar year, beginning with April 30, 1997, the Servicer shall deliver to the Trustee and each Enhancement Provider an Officer's Certificate, executed by a Responsible Officer of the Servicer, substantially in the form of Exhibit C hereto. A copy of each such certificate will be sent to each Noteholder by the Trustee. SECTION 3.07. Annual Servicing Report of Independent Public Accountants. (a) On or before April 30 of each calendar year, beginning with April 30, 1997, the Servicer shall, at its own expense, cause a firm of Independent Public Accountants (who may also render other services to the Servicer or the Issuer) to furnish a report (addressed to the Trustee) to the Trustee, the Servicer and each Enhancement Provider substantially to the effect that (i) such accountants have examined certain documents and records relating to the servicing of Issuer Loans under this Indenture, compared the information contained in the Settlement Statements delivered pursuant to Section 3.05(b) during the period covered by such report with such documents and records and that, on the basis of such examination, and describing what exceptions, if any, they detected between such documents and records and such Settlement Statements and (ii) such accountants have compared the mathematical calculations of certain amounts set forth in the Settlement Statements delivered pursuant to Section 3.05(b) during the period covered by such report with the Servicer's computer reports which were the source of such amounts and describing what exceptions, if any, they detected between the calculations set forth in such certificates and contained in the Servicer's computer reports which were the source of such calculations. 64 71 (b) As soon as practicable and in any event within 90 days after the close of each of its fiscal years commencing with the 1996 fiscal year, the Issuer shall deliver to the Trustee the annual audited consolidated financial statements of the Originator (including balance sheets as of the end of such period, related revenue and expense statements, and a statement of cash flows) certified by Independent Public Accountants and prepared in accordance with generally accepted accounting principles. Delivery of a copy of the Originator's 10-K as filed with the Securities and Exchange Commission shall satisfy the requirements of this Section 3.07(b). SECTION 3.08. Annual Noteholders' Statement. On or before February 15 of each calendar year, beginning with February 15, 1997, the Servicer (so long as it is the Originator or an Affiliate of the Originator and, following any Service Transfer, the Issuer) shall provide to the Paying Agent and the Paying Agent shall forward or cause to be forwarded to any Person who at any time during the preceding calendar year was a Noteholder, a statement prepared by the Servicer containing any information which is required to be provided under the IRC by an issuer of indebtedness to the holders thereof and such other customary information in the possession of the Issuer or the Servicer as is necessary to enable the Noteholders to prepare their federal income tax returns. Such obligation of the Servicer shall be deemed to have been satisfied to the extent that substantially comparable information shall be provided by the Paying Agent pursuant to any requirements of the IRC as from time to time in effect. SECTION 3.09. Tax and Usury Treatment. The Issuer has entered into this Indenture, and the Notes have been (or will be) issued to and acquired by the Noteholders, with the intention that, for federal, state, foreign and local income and franchise tax and usury law purposes, the Notes will be indebtedness of the Issuer secured by the Issuer Loans and the Pledged Assets. The Issuer, by entering into this Indenture, and each Noteholder, by the acceptance of its Note, agree to treat the Notes for purposes of federal, state and local income and franchise taxes and for any other tax imposed on or measured by income and usury law purposes as indebtedness of the Issuer. In accordance with the foregoing, the Issuer agrees that it will report its income for such federal, state, foreign and local income or franchise taxes, or for purposes of any other taxes on or measured by income, on the basis that it is the owner of the Issuer Loans. If at any time the Note Rate for any Series or Class of Notes exceeds the maximum non-usurious interest rate permissible for borrowers 65 72 under applicable law (the "Maximum Rate"), the Note Rate charged with respect to such Note shall be limited to the Maximum Rate. SECTION 3.10. Notice to Originator. In the event that the Originator is no longer acting as Servicer, any Successor Servicer shall deliver or make available to the Originator and the Issuer each certificate and report required to be delivered thereafter pursuant to Sections 3.05(b), 3.06 and 3.07. SECTION 3.11. Adjustments. If the Servicer makes a mistake with respect to the amount of any Collection and deposits or pays an amount that is less than or more than the actual amount of such Collection, the Servicer shall, promptly upon discovery thereof, appropriately adjust the amount subsequently deposited into the Concentration Account or paid to reflect such mistake and send written notice thereof to the Trustee. Any Issuer Loan in respect of which a dishonored check is received shall be deemed not to have been paid. ARTICLE IV RIGHTS OF NOTEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS SECTION 4.01. Rights of Noteholders. (a) The Noteholders of any Series shall have a security interest in the Pledged Assets, which shall consist of the right to receive, to the extent necessary to make the required payments with respect to the Notes of such Series at the times and in the amounts specified in the related Supplement, the portion of Collections allocable to such Noteholders pursuant to this Indenture and the related Supplement from funds on deposit in the Concentration Account and the Reserve Account allocable to Noteholders and funds on deposit in any related Series Account and funds available pursuant to any related Enhancement, it being understood that the Notes of any Series or Class shall not represent any interest in any Series Account or Enhancement for the benefit of any other Series or Class. The Issuer shall have an ownership interest in the Pledged Assets and shall have the right to receive that portion of Collections with respect to the Issuer Loans and other Pledged Assets at the times and in the amounts specified in this Indenture or in any Supplement. (b) Each Series Allocation Percentage shall be initially computed by the Servicer as of the opening of business of the Servicer on the initial Closing Date. Thereafter until 66 73 the commencement of the Amortization Period, the Series Allocation Percentage for each Series, shall be automatically recomputed by the Servicer as of the close of business of the Servicer on each Business Day. Each Series Allocation Percentage (i) shall remain constant from the time as of which any such computation or recomputation is made until the times as of which the next such recomputation, if any, shall be made and (ii) as computed as of the close of business of the Servicer on the Business Day immediately preceding the commencement of the Amortization Period, shall remain constant at all times during the Amortization Period. SECTION 4.02. Establishment of Lock-Box Accounts, Concentration Account and Other Trust Accounts. (a) On or prior to the initial Closing Date, the Servicer, for the benefit of the Noteholders, shall establish and maintain or cause to be established and maintained with the Trustee, in the name of the Trustee on behalf of the Noteholders, the Concentration Account, the Reserve Account and the Carrying Cost Account described below in this Section 4.02 accessible by the Trustee and, subject to the limitations set forth in this Section 4.02, the Servicer, each such account bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Noteholders. Any other Trust Accounts established from time to time shall be similarly established and maintained with the Trustee or any Eligible Institution and shall also bear a designation clearly indicating that the funds deposited therein are held for the benefit of the Noteholders. The Trustee shall possess all right, title and interest in and to all funds from time to time on deposit in the Concentration Account, the Reserve Account and all other Trust Accounts and in all proceeds thereof. Each Trust Account shall be under the sole dominion and control of the Trustee for the benefit of the Noteholders. The Servicer agrees that it shall have no right of setoff or banker's lien against, and no right to otherwise deduct from, any funds held in the Trust Accounts for any amount owed to it by the Trustee or any Noteholder. The Servicer shall from time to time, instruct each Lock-Box Bank at which a Lock-Box Account is maintained to transfer all Collections on deposit in such account on each Business Day, into a segregated Trust Account (such Trust Account, the "Concentration Account" and the institution holding such account being the "Concentration Account Bank"). The Servicer shall not make, or cause to be made, any withdrawal of any funds on deposit in a Lock-Box Account except for a transfer of such funds to a Concentration Account. In no event shall the Servicer permit the aggregate amount of Collections on deposit at any Lock-Box Bank at which a Lock-Box Account is maintained to exceed $100,000 for more than one (1) Business Day. In addition, 67 74 on or prior to the initial Closing Date, the Concentration Account Bank shall set up (i) an administrative sub-account of the Concentration Account or a separate Trust Account (such account, the "Reserve Account") into which funds on deposit in the Concentration Account may be withdrawn from time to time as described in this Article IV; (ii) an administrative sub-account of the Concentration Account or a separate Trust Account (such account, the "Carrying Cost Account" into which funds shall be set aside for the payment of Carrying Costs as described in Section 4.03 and (iii) to the extent required by any Supplement for any Series, an administrative sub-account of the Concentration Account or a separate Trust Account meeting the requirements described above for the benefit of the Noteholders of such Series (each, a "Defeasance Account") into which funds from the other Trust Accounts may be deposited as described in the related Supplement. Notwithstanding the foregoing, if and to the extent that funds that are not Collections or other Pledged Assets are deposited into the Concentration Account, the Servicer may direct the Trustee to withdraw such funds from the Trust Accounts to be returned to the appropriate Person to whom such funds belong. If, at any time, the institution holding any of the Trust Accounts ceases to be an Eligible Institution, the Servicer, upon actual knowledge thereof, for the benefit of the Noteholders, shall within 30 Business Days (i) establish new Trust Accounts meeting the conditions specified above with an Eligible Institution, (ii) transfer any cash and/or any investments held therein or with respect thereto to such new Trust Accounts and (iii) in the case of any new Concentration Account, deliver to all Lock-Box Banks amended Lock-Box Agreements (with copies thereof to the Trustee) referring to such new Concentration Account, and from the date such new Concentration Account is established, it shall be the "Concentration Account." Pursuant to the authority granted to the Servicer in Section 3.01, the Servicer shall have the power to instruct the Trustee to make withdrawals and payments from the Concentration Account and the Reserve Account for the purposes of carrying out the Servicer's or the Trustee's duties specified in this Indenture. Funds on deposit in any Trust Accounts on any date and which are not released to the Issuer, including funds required pursuant to the applicable Supplement to be deposited to the Issuer's Account on such date, shall at the direction of the Servicer be invested by the Trustee or the Eligible Institution maintaining such accounts in Eligible Investments as instructed by the Servicer in writing (which may be a standing instruction). 68 75 All such Eligible Investments shall be held by the Trustee. Such funds shall be invested in Eligible Investments that will mature so that such funds will be available in amounts sufficient for the Servicer to make each distribution required under the applicable Supplement on the Monthly Payment Date with respect to such Collection Period or the last day of an Interest Period if such day is other than a Monthly Payment Date. The Trustee is hereby authorized, unless otherwise directed by the Servicer, to effect transactions in Eligible Investments through a capital markets affiliate of the Trustee or its own investment department. (b) On or prior to the initial Closing Date, the Servicer, for the benefit of the Noteholders, shall establish and maintain or cause to be established and maintained in the name of the Trustee, on behalf of the Noteholders, with a depositary institution organized under the laws of the United States of America or any one of the states thereof, including the District of Columbia (or any domestic branch of a foreign bank) (each, a "Lock-Box Bank") segregated accounts accessible by the Trustee and the Servicer, subject to the limitations set forth in this Section 4.02 (each such account, a "Lock-Box Account") to which Collections, subject to all Requirements of Law, are to be remitted. Each Lock-Box Account shall be maintained with a Lock-Box Bank which is an Eligible Institution. The Lock-Box Accounts shall be under the sole dominion and control of the Trustee for the benefit of the Noteholders; provided, however, that each Lock-Box Account shall be accessible by the Servicer for the purpose of transferring Collections to the Concentration Account in the manner set forth in Section 4.02(a). The name, location and account number of each current Lock-Box Account is set forth on Schedule I attached hereto. Each Lock-Box Account shall be maintained with a Lock-Box Agreement in form and substance satisfactory to the Trustee. Such documentation shall provide, among other things, that available amounts shall be promptly transferred to the Concentration Account when required by the terms of this Indenture. The Issuer shall not (i) change any Lock-Box Account, or establish any additional Lock-Box Account without, in any such case, causing any replacement Lock-Box Bank to execute and deliver a Lock-Box Agreement as contemplated by Section 4.02(c) below prior to the establishment of such additional or alternative Lock-Box Account or (ii) without the prior written consent of the Trustee, change such instructions or documentation at any time so long as the Trustee has any interest in the Issuer Loans. The Originator will deposit any Collections received by it directly from an Obligor into a Lock-Box Account or the Concentration Account within one Business Day following 69 76 the Business Day on which the Originator has knowledge of receipt thereof. (c) The Issuer hereby agrees and acknowledges that (i) such Person has executed and delivered to the Trustee a letter and executed acknowledgment thereto substantially in the form of Exhibit D hereto, addressed to each banking institution with which such Person maintains a Lock-Box Account (each, a "Lock-Box Agreement") and (ii) each such Person shall execute and deliver a substantially similar Lock-Box Agreement prior to the establishment of any additional or alternative Lock-Box Account. The Issuer hereby agrees, and the Trustee hereby accepts, that such letter transfers all right, title and interest in all monies, securities and instruments in each Lock-Box Account to the Trustee. The Issuer agrees to execute such further documents and take such other actions as may be reasonably requested by the Trustee in order to effect such transfer. SECTION 4.03. Daily Calculations and Allocation of Collections. (a) Delivery of Daily Report. On or prior to 4:00 p.m. (New York City time) on each Business Day prior to the Amortization Date, the Servicer shall deliver the Daily Report to the Trustee and the Paying Agent as contemplated by Section 3.05(a); provided that if the Trustee has not received the Daily Report for any Business Day on or prior to 2:00 p.m. (New York City time) on such Business Day, the Trustee shall not have any obligation to release any funds on such Business Day from the Trust Accounts to the Issuer or its Affiliates. If, on any day on which the Trustee is open for business, the Trustee has not received the Daily Report as provided above, then the Trustee shall have no duty to allocate funds pursuant to Section 4.03(b) below on such day, and shall not on such day release any funds from the Trust Accounts to the Issuer or its Affiliates. No increases shall be made to the Outstanding Principal Balance of any Revolving Note if, as a result thereof (and after giving effect to the application of funds therefrom), the resulting Net Outstanding Amount as reflected in such Daily Report would be greater than the Base Amount. (b) Daily Allocation of Funds in the Concentration Account, Carrying Cost Account and Reserve Account. On each Business Day the Servicer shall instruct the Trustee in the applicable Daily Report to, and the Trustee shall, deposit all Interest Collections and all Principal Collections received in the Concentration Account since the receipt of the last Daily Report as follows: 70 77 (i) Daily Allocation of Interest Collections. On each Business Day, all Interest Collections in the Concentration Account shall be allocated and deposited in the following manner: First, to the extent that funds in the Carrying Cost Account are less than the Carrying Cost Amount, to the Carrying Cost Account up to the amount of such deficiency. Funds which are on deposit in the Carrying Cost Account shall be withdrawn solely for the purpose of paying the applicable Carrying Costs and any other fees and expenses included in the calculation of the Carrying Cost Amount; provided that if, on any day, the amount of Collections on deposit in the Carrying Cost Account exceeds the Carrying Cost Amount, then funds on deposit in the Carrying Cost Account up to the amount of such excess shall, if so requested by the Servicer in the Daily Report, be transferred to the Reserve Account and/or transferred as Interest Collections to the Concentration Account, in each case, for allocation and distribution in accordance with the provisions of this Section 4.03(b). Second, if a Set-Aside Period has occurred and is continuing, to the Reserve Account until the Net Outstanding Amount is less than or equal to the Base Amount. If the Base Amount is greater than the Net Outstanding Amount and amounts are then on deposit in the Reserve Account, such amounts up to the amount of such excess shall, if so requested by the Servicer in the Daily Report and upon satisfaction of the conditions described in Section 4.03(b)(iii)(A) below, be transferred to the Concentration Account as Interest Collections for distribution in accordance with the provisions of this Section 4.03(b). Third, if the Amortization Date shall have occurred or if an Excess O/C Sharing Period is in effect, all remaining amounts shall be allocated and deposited as Principal Collections pursuant to the provisions of this Section 4.03(b), otherwise, all remaining amounts shall be deposited to the Issuer's Account. (ii) Daily Allocation of Principal Collections. On each Business Day, all Principal Collections in the Concentration Account shall be allocated and deposited in the following manner: 71 78 First, so long as the Amortization Date has not occurred and no Set-Aside Period has occurred and is continuing, to the extent that the funds in the Carrying Cost Account are less than the Carrying Cost Amount, to the Carrying Cost Account up to the amount of such deficiency. Second, if a Set-Aside Period has occurred and is continuing, to the Reserve Account until the Net Outstanding Amount is less than or equal to the Base Amount. Third, each Series' Series Allocation Percentage of the remaining amounts shall be allocated to the Noteholders of each Series to be applied in accordance with the terms of the applicable Supplement. Fourth, all remaining amounts shall be deposited to the Issuer's Account. (iii) Daily Allocation of Reserve Account. On each Business Day, amounts on deposit in the Reserve Account shall be allocated and deposited in the following manner: (A) During the Revolving Period (so long as no Set-Aside Period shall have occurred and be continuing), the Issuer may instruct the Trustee by an Officer's Certificate delivered to the Trustee by 12:00 noon (New York City time) to, and the Trustee shall, deposit to the Concentration Account as Interest Collections, all or a portion of the amounts then on deposit in the Reserve Account; provided that the Issuer shall have delivered to the Trustee at the time of such request an Officer's Certificate (in substantially the form of Exhibit F hereto) stating that, after taking account of the requested withdrawal, the Base Amount on such day is equal to or greater than the Net Outstanding Amount and setting forth the calculation supporting such statement. (B) During a Set-Aside Period, all funds in the Reserve Account shall be retained therein for the benefit of the Noteholders. (C) Upon the occurrence of the Amortization Date, all amounts then on deposit in the Reserve Account shall be deposited to the Carrying Cost Account for 72 79 distribution pursuant to the provisions of this Section 4.03(c) and (d). (c) Distribution of Amounts on Deposit in the Carrying Cost Account on each Interest Payment Date. On each Interest Payment Date for each Series, the Servicer shall direct the Trustee in the Daily Report to, and the Trustee shall, allocate and distribute from amounts then on deposit in the Carrying Cost Account, to the Paying Agent for distribution to or for the account of the Noteholders with respect to each applicable Series, the amount of accrued and unpaid interest and Breakage Costs that is due and payable on such Interest Payment Date pursuant to the related Supplement. Any amounts allocated pursuant to the foregoing to a Series of Notes shall be paid to the Noteholders in accordance with the related Supplement. If on any Interest Payment Date the amount on deposit in the Carrying Cost Account is insufficient to pay the full amount set forth in the foregoing clause, such funds shall be distributed among such Noteholders in the following order of priority: first to all such Noteholders whose Notes constitute a Senior Class (ratably in accordance with their Series Allocation Percentages) until the amount of the required payments to be distributed to such Noteholders has been paid in full, and second to all such Noteholders whose Notes constitute a Subordinated Class (ratably in accordance with their Series Allocation Percentages) until the amount of such required payments to be distributed to such Noteholders has been paid in full. (d) Distribution of Amounts on Deposit in the Carrying Cost Account on each Monthly Payment Date. On each Monthly Payment Date, the Servicer shall direct the Trustee in the Daily Report to, and the Trustee shall, distribute from amounts then on deposit in the Carrying Cost Account, to the following Persons in the following order of priority: (i) first, to the Trustee for payment of accrued and unpaid Trustee's Fees; (ii) second, to the payment of accrued and unpaid Servicing Reimbursements to the extent owed to a Successor Servicer which is not an Affiliate of the Originator or of the Issuer; (iii) third, to the payment of any other accrued and unpaid costs, fees, expenses or other obligations (exclusive of accrued and unpaid interest) included in the calculation 73 80 of the Carrying Cost Amount pursuant to the terms of the applicable Supplements; and (iv) fourth, to the payment of accrued and unpaid Servicing Reimbursements to the extent owed to the Issuer or any Affiliate of it. If on any Monthly Payment Date the amount on deposit in the Carrying Cost Account is insufficient to pay the full amount set forth in the foregoing clauses first through fourth, such available funds shall be allocated by the Servicer pro rata for distribution to the Persons to whom such amounts are owed within a priority category according to the respective amounts of such obligations held by such Persons and all obligations in lower priority categories shall remain unsatisfied until the obligations in the preceding category have been satisfied. ARTICLE V DISTRIBUTIONS AND REPORTS TO NOTEHOLDERS Distributions shall be made to, and reports shall be provided to, Noteholders as set forth in Section 3.08 hereof and in the applicable Supplement. ARTICLE VI THE NOTES SECTION 6.01. The Notes. The Notes of any Series or Class shall be issued in the form contemplated by the applicable Supplement and shall upon issue be executed and delivered by the Issuer to the Trustee for authentication and redelivery as provided in Section 6.02. Except to the extent otherwise provided in an applicable Supplement, the Notes shall be issued in minimum denominations of $250,000 and in integral multiples of $1,000 in excess thereof (except that one Note may be issued in a denomination that includes any residual amount); provided, however, that if such Notes are issued in Book-Entry Form, the Trustee shall have no liability to any Person for the issuance of such Notes in a denomination not permitted by this Section 6.01. The Notes shall be issued upon initial issuance as one or more Notes in an aggregate original principal amount equal to the Initial Outstanding Principal Balance or, in the case of any Revolving Note, in its applicable Stated Amount. Each Note shall 74 81 be executed by manual or facsimile signature on behalf of the Issuer by the President, any Vice President, the Chief Financial Officer, the Chief Administrative and Credit Officer, Treasurer or the Secretary of the Issuer, or by any other officer or assistant officer duly authorized to execute such Note on behalf of the Issuer. Notes bearing the manual or facsimile signature of the individual who was, at the time when such signature was affixed, authorized to sign on behalf of the Issuer shall not be rendered invalid, notwithstanding that such individual ceased to be so authorized prior to the authentication and delivery of such Notes or does not hold such office at the date of such Notes. No Notes shall be entitled to any benefit under this Indenture or the applicable Supplement or be valid for any purpose, unless there appears on such Note a certification of authentication in substantially the form provided for herein executed by or on behalf of the Trustee by the manual signature of a duly authorized signatory, and such certification upon any Note shall be conclusive evidence, and the only evidence, that such Note has been duly authenticated and delivered hereunder. All Notes shall be dated the date of their authentication. SECTION 6.02. Authentication of Notes. The Trustee shall authenticate and deliver the Notes of each Series to, and upon the written order of, the Issuer against payment to the Issuer of the purchase price therefor. The Notes of any Series or Class shall be duly authenticated by or on behalf of the Trustee, in authorized denominations equal to (in the aggregate) the Initial Outstanding Principal Balance or Stated Amount, as applicable, of such Series or Class. SECTION 6.03. Registration of Transfer and Exchange of Notes. (a) The Trustee shall cause to be kept at its corporate trust operations office in St. Paul, Minnesota, such office or agency to be maintained in accordance with the provisions of Section 11.16 a register (the "Note Register") in which, subject to such reasonable regulations as it may prescribe, a transfer agent and registrar (which may be the Trustee) (the "Transfer Agent and Registrar") shall provide for the registration of the Notes and of transfers and exchanges of the Notes as herein provided. The Transfer Agent and Registrar shall initially be the Trustee, together with any co-transfer agent and co-registrar chosen by the Trustee and acceptable to the Servicer, and any reference in this Indenture to the Transfer Agent and Registrar shall include any co-transfer agent and co-registrar unless the context requires otherwise. The provisions of Sections 11.01, 11.02, 11.03 and 11.05 shall apply to the Trustee also in its 75 82 role as Transfer Agent and Registrar, for so long as the Trustee shall act as Transfer Agent and Registrar. The Trustee shall be permitted to resign as Transfer Agent and Registrar upon 30 days' (60 days' during the Amortization Period) written notice to the Issuer and the Servicer. Upon receiving such notice of resignation, the Servicer shall appoint a successor Transfer Agent and Registrar reasonably acceptable to the Issuer. If no successor Transfer Agent and Registrar shall have been appointed and have accepted appointment within 30 days (60 days during the Amortization Period) after the giving of such notice of resignation, the Trustee may petition any court of competent jurisdiction for the appointment of a successor Transfer Agent and Registrar; provided, however, that such resignation shall not be effective and the Trustee shall continue to perform its duties as Transfer Agent and Registrar until a successor Transfer Agent and Registrar has been appointed in accordance with this paragraph, and such successor has assumed its duties under this Indenture. It is intended that the registration of Notes which is described in this Section 6.03 comply with the registration requirements contained in Section 163 of the IRC. Upon surrender for registration of transfer of any Note at any office or agency of the Transfer Agent and Registrar maintained for such purpose, the Issuer shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Notes (of the same Series and Class) in authorized denominations of like tenor. Except as otherwise expressly provided in the Supplement relating to any Series or Class of Notes and subject to Section 6.11, Notes may, at the option of Noteholder, be exchanged for other Notes (of the same Series and Class) of authorized denominations of like tenor, upon surrender of the Notes to be exchanged at any such office or agency. Whenever any Notes are so surrendered for exchange, the Issuer shall execute, and the Trustee shall authenticate and deliver, the Notes which the Noteholder making the exchange is entitled to receive. Every Note presented or surrendered for registration of transfer or exchange shall be accompanied by a written instrument of transfer in a form satisfactory to the Trustee or the Transfer Agent and Registrar duly executed by the Holder thereof or his attorney-in-fact duly authorized in writing. Each Holder must 76 83 satisfy the transfer restrictions set forth in the applicable Notes. Each Note shall be registered at all times as herein provided, and any transfer or exchange of such Note will be valid for purposes hereunder only upon registration of such transfer or exchange by the Trustee or the Transfer Agent and Registrar as provided herein. Payments on any Monthly Payment Date shall be made to Holders of record on the immediately preceding Record Date. No service charge shall be made for any registration of transfer or exchange of Notes, but the Transfer Agent and Registrar or any co-transfer agent and co-registrar may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer or exchange of the Notes. All Notes surrendered for registration of transfer or exchange, or for payment, shall be canceled and disposed of in a manner reasonably satisfactory to the Trustee. (b) The Transfer Agent and Registrar will maintain at its expense, an office or offices or agency or agencies where Notes may be surrendered for registration of transfer or exchange which office, so long as the Trustee acts as Transfer Agent and Registrar, shall be the Corporate Trust Office designated in Section 11.21. SECTION 6.04. Mutilated, Destroyed, Lost or Stolen Notes. If (a) any mutilated Note is surrendered to the Transfer Agent and Registrar, or the Transfer Agent and Registrar receives evidence to its satisfaction of the destruction, loss or theft of any Note and (b) there is delivered to the Transfer Agent and Registrar, the Trustee and the Issuer such indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Trustee that such Note has been acquired by a bona fide purchaser, the Issuer shall execute and the Trustee shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Note, a new Note of like tenor. In connection with the issuance of any new Note under this Section 6.04, the Trustee or the Transfer Agent and Registrar may require the payment by the Noteholder of a sum sufficient to pay any tax or other governmental charge that may be imposed in relation thereto. Any duplicate Note issued pursuant to this Section 6.04 shall be entitled to all the benefits of this Indenture equally and proportionately with any and all Notes of the same Class and Series issued hereunder 77 84 whether or not the lost, stolen or destroyed Note shall be found at any time. SECTION 6.05. Persons Deemed Owners. At all times prior to due presentation of a Note for registration of transfer, the Trustee, the Paying Agent, the Transfer Agent and Registrar and any agent of any of them shall treat the Person in whose name any Note is registered as the owner of such Note as of the most recent Record Date for the purpose of receiving distributions pursuant to the terms of the applicable Supplement and for all other purposes whatsoever and neither the Trustee, the Paying Agent, the Transfer Agent and Registrar nor any agent of any of them shall be affected by any notice to the contrary. Notwithstanding the foregoing, in determining whether the Holders of the requisite Notes have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Notes owned by the Issuer, the Servicer or any Affiliate thereof shall be disregarded and deemed not to be outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Notes which the Trustee knows to be so owned shall be so disregarded. Notes so owned which have been pledged in good faith shall not be disregarded and may be regarded as outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Notes and that the pledgee is not the Issuer, the Servicer or an Affiliate thereof. SECTION 6.06. Appointment of Paying Agent. The Paying Agent shall make distributions to the Noteholders, the Servicer and the Trustee pursuant to the applicable Supplement and shall report the amounts of such distributions to the Trustee. The Trustee shall make available to the Paying Agent funds from the applicable Trust Account on the day on which they are to be distributed pursuant to the applicable Supplement. The Paying Agent shall initially be the Trustee. The Trustee shall be permitted to resign as Paying Agent upon 90 days' written notice to the Servicer. In the event that the Trustee shall no longer be the Paying Agent, the Servicer shall appoint a successor to act as Paying Agent (which shall be a bank or trust company). The Servicer shall cause such successor Paying Agent to execute and deliver to the Trustee an instrument in which such successor Paying Agent shall agree with the Trustee that, as Paying Agent, such successor Paying Agent will hold all sums, if any, held by it for payment to the Noteholders, the Servicer or the Trustee in trust for the benefit of the Noteholders entitled thereto, the Servicer or the Trustee, respectively, until such sums shall be paid to such Noteholders, the Servicer or the Trustee, 78 85 respectively. The Paying Agent shall return all unclaimed funds to the Trustee and upon removal of a Paying Agent such Paying Agent shall also return all funds in its possession to the Trustee. The provisions of Sections 11.01, 11.02, 11.03 and 11.05 shall apply to the Trustee also in its role as Paying Agent, for so long as the Trustee shall act as Paying Agent. SECTION 6.07. Access to List of Noteholders' Names and Addresses. (a) The Trustee will, within five Business Days after receipt by the Trustee of a written request therefor from the Servicer, the Issuer, or the Paying Agent, respectively, furnish (or cause the Transfer Agent to furnish) a list of the names and addresses of the Noteholders. Upon written request of any Noteholder or group of Noteholders holding Notes evidencing not less than 10% of the Outstanding Principal Balance of any Series, the Trustee will (or will cause the Transfer Agent and Registrar to) afford such Noteholders access during normal business hours to the current list of Noteholders of such Series. Every Noteholder, by receiving and holding a Note, agrees that neither the Trustee, the Transfer Agent and Registrar, the Originator, the Servicer, nor any of their respective agents, shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Noteholders hereunder, regardless of the sources from which such information was derived. (b) The Noteholders may communicate as provided in Section 312(b) of the Trust Indenture Act (without regard as to whether this Indenture has been or at such time remains qualified under the Trust Indenture Act) with all other Noteholders with respect to their rights under this Indenture, the other Transaction Documents or under the Notes; provided that application by the Noteholders under such Section of such Act shall be made to the Trustee as provided under such Act. The Trustee shall comply in all material respects with the provisions of such Act to facilitate such communications by and among Noteholders. (c) Each Noteholder by receiving and holding a Note, agrees with the Trustee and the Issuer that neither the Trustee, the Transfer Agent and Registrar, the Issuer, the Servicer, the Originator nor any of their respective agents shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Noteholders in accordance with Section 312(b) of the Trust Indenture Act, regardless of the sources from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any 79 86 material pursuant to a request made under Section 312(b) of the Trust Indenture Act. SECTION 6.08. Authenticating Agent. (a) The Trustee may appoint one or more authenticating agents with respect to the Notes which shall be authorized to act on behalf of the Trustee in authenticating the Notes in connection with the issuance, delivery, registration of transfer, exchange or repayment of the Notes. Whenever reference is made in this Indenture to the authentication of Notes by the Trustee or the Trustee's Note of authentication, such reference shall be deemed to include authentication on behalf of the Trustee by an authenticating agent and a certificate of authentication executed on behalf of the Trustee by an authenticating agent. Each authenticating agent must be acceptable to the Issuer and the Servicer. (b) Any institution succeeding to the corporate agency business of an authenticating agent shall continue to be an authenticating agent without the execution or filing of any power or any further act on the part of the Trustee or such authenticating agent. (c) An authenticating agent may at any time resign by giving written notice of resignation to the Trustee and to the Issuer. The Trustee may at any time terminate the agency of an authenticating agent by giving notice of termination to such authenticating agent and to the Issuer. Upon receiving such a notice of resignation or upon such a termination, or in case at any time an authenticating agent shall cease to be acceptable to the Trustee or the Issuer, the Trustee may promptly appoint a successor authenticating agent. Any successor authenticating agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an authenticating agent. No successor authenticating agent shall be appointed unless acceptable to the Trustee and the Issuer. (d) The Issuer agrees to pay to each authenticating agent from time to time reasonable compensation for its services under this Section 6.08. (e) The provisions of Sections 11.01, 11.02, 11.03 and 11.05 shall be applicable to any authenticating agent. (f) Pursuant to an appointment made under this Section 6.08, the Notes may have endorsed thereon, in lieu of or in addition to the Trustee's certification of authentication, an 80 87 alternate certificate of authentication in substantially the following form: This is one of the Notes described in the Master Trust Indenture and Security Agreement. ________________________________________ ________________________________________ as Authenticating Agent for the Trustee By:_____________________________________ Authorized Officer SECTION 6.09. New Issuances. (a) The Issuer may from time to time direct the Trustee, on behalf of the Noteholders, to issue one or more new Series of Notes pursuant to a Supplement. The Notes of all outstanding Series shall be equally and ratably entitled as provided herein to the benefits of this Indenture without preference, priority or distinction, all in accordance with the terms and provisions of this Indenture and the applicable Supplement except, with respect to any Series or Class, as provided in the related Supplement and except that any Enhancement with respect to a particular Series or Class shall not be available for any other Series or Class unless so provided in the applicable Supplement. (b) On or before the Closing Date relating to any new Series, the parties hereto will execute and deliver a Supplement which will specify the Principal Terms of such new Series. The terms of such Supplement may modify or amend the terms of this Indenture solely as applied to such new Series. The obligation of the Trustee to issue the Notes of such new Series and to execute and deliver the related Supplement is subject to the satisfaction of the following conditions: (i) on or before the fifth Business Day immediately preceding the applicable Closing Date (or such later date preceding the Closing Date as shall be acceptable to the Trustee and any Enhancement Provider), the Issuer shall have given the Trustee, the Servicer and any Enhancement Provider written notice of such issuance and such Closing Date; 81 88 (ii) the Issuer shall have delivered to the Trustee the related Supplement in a form satisfactory to the Trustee, executed by each party hereto other than the Trustee; (iii) the Issuer shall have delivered to the Trustee any related Enhancement Agreement executed by each party hereto other than the Trustee; (iv) each Rating Agency shall have notified the Issuer, the Servicer, the Trustee and any Enhancement Provider in writing that the issuance of such new Series of Notes will not result in a reduction or withdrawal of the rating of any outstanding Series or Class (if rated) or the rated securities issued by the Noteholder of any outstanding Series or Class in order to fund or maintain its interest in any Note of such Series or Class, in each case, with respect to which Series, Class or securities it is a Rating Agency; (v) If then a Noteholder, Holland Limited Securitization, Inc., ING Baring (U.S.) Capital Markets, Inc., or their respective Affiliates or assignees (as the case may be) shall have consented in writing to the issuance of such new Series, which consent shall not be unreasonably withheld; (vi) such issuance will not result in the occurrence of an Event of Default and the Issuer shall have delivered to the Trustee and any Enhancement Provider an Officer's Certificate, dated the applicable Closing Date (upon which the Trustee may conclusively rely), to the effect that the Issuer reasonably believes that such issuance will not in and of itself result in the occurrence of an Event of Default and is not reasonably in and of itself expected to result in the occurrence of an Event of Default; (vii) the Issuer shall have delivered to the Trustee and any Enhancement Provider an Opinion of Counsel to the effect that the issuance of the Notes of such Series (A) has been, or need not be, registered under the Securities Act and will not result in the requirement that any other Series of Notes not registered under the Securities Act be so registered (unless the Issuer has elected, in its sole discretion, to register such Notes), (B) will not result in this Indenture or the related Supplement becoming subject to registration as an investment company under the Investment Company Act and (C) will not require this Indenture or the 82 89 related Supplement to be qualified under the Trust Indenture Act of 1939, as amended; (viii) the Issuer shall have delivered to the Trustee a Tax Opinion, dated the applicable Closing Date, with respect to such issuance; (ix) if such issuance is in exchange for any outstanding Notes, the Issuer shall have delivered to the Trustee the Notes to be canceled in connection with such exchange; (x) the Servicer shall have delivered to the Trustee an Officer's Certificate stating that the effect of such issuance will not dilute the benefit of the Required Overcollateralization Amount to which any pre-existing Series is entitled prior to the effectiveness of such Supplement; and (xi) the Issuer shall have delivered to the Trustee an Officer's Certificate that the foregoing conditions have been satisfied. Upon satisfaction of the above conditions, the Trustee shall execute the Supplement and the Issuer shall execute and deliver the Notes of such Series for authentication and redelivery to or upon the order of the Issuer. Notwithstanding the provisions of this Section 6.09(b), prior to the execution of any Supplement, the Trustee shall be entitled to receive and rely upon an Opinion of Counsel stating that the execution of such Supplement is authorized or permitted by this Indenture and any Supplement related to any outstanding Series. The Trustee may, but shall not be obligated to, enter into any such Supplement which adversely affects the Trustee's own rights, duties or immunities under this Indenture. (c) In the event this Indenture shall become qualified under the Trust Indenture Act, every Supplement executed pursuant to this Article VI shall conform to the requirements of the Trust Indenture Act as then in effect. SECTION 6.10. Changes in Revolving Notes. The Outstanding Principal Balance of any Revolving Note shall at no time exceed the Stated Amount then applicable to such Note. The Stated Amount and the Outstanding Principal Balance of any Revolving Notes may be increased or decreased from time to time, subject to any terms set forth in the applicable Supplement and the allocation of Collections set forth in Article IV hereof, 83 90 provided that the Outstanding Principal Balance of any Revolving Notes may not be increased in any manner which would cause the Net Outstanding Amount to exceed the Base Amount as in effect immediately prior to such increase. SECTION 6.11. Book-Entry Notes. If the Issuer shall establish pursuant to any Supplement that the Notes to be issued thereunder are to be issued in Book-Entry Form, then the Issuer shall, in accordance with the other provisions of this Indenture, execute and the Trustee shall authenticate and deliver one or more Global Notes, evidencing the Notes of such Series which (i) shall be in an aggregate Outstanding Principal Balance equal to the Initial Outstanding Principal Balance of such Series, (ii) shall be registered in the name of the Clearing Agency therefor or its nominee, which shall initially be Cede & Co., as nominee for The Depositary Trust Company, the initial Clearing Agency, (iii) shall be delivered by the Trustee to such Clearing Agency or such nominee pursuant to such Clearing Agency's or such nominee's instructions, and (iv) shall bear a legend substantially to the following effect: "Transfers of this Global Note shall be limited to transfers in whole, but not in part, to the Clearing Agency or a nominee of the Clearing Agency or to a successor thereof or such successor's nominee and transfers of portions of this Global Note shall be limited to transfers made in accordance with the restrictions set forth in the Master Trust Indenture and Security Agreement pursuant to which these Notes were issued." Each Clearing Agency designated pursuant to this Section 6.11 must, at the time of its designation and at all times while it serves as Clearing Agency hereunder, be a "clearing agency" registered under the Exchange Act and any other applicable statute or regulation. No Holder of any Notes issued in Book-Entry Form shall receive a Definitive Note except as provided in Section 6.13 or in the applicable Supplement relating to such Notes. Unless (and until) fully registered Notes of any Series (the "Definitive Notes") have been issued to the Noteholders of such Series pursuant to Section 6.13 or pursuant to any applicable Supplement relating thereto: (a) the provisions of this Section 6.11 shall be in full force and effect; (b) the Issuer, the Servicer, the Paying Agent, the Transfer Agent and Registrar and the Trustee may deal with the Clearing Agency for all purposes (including the making 84 91 of distributions on the Notes of such Series) as the authorized representatives of the Noteholders of such Series; (c) to the extent that the provisions of this Section 6.11 conflict with any other provisions of this Indenture, the provisions of this Section 6.11 shall control; and (d) the rights of Noteholders of such Series shall be exercised only through the Clearing Agency and the Clearing Agency Participants and shall be limited to those established by law and agreements between such Noteholders and the Clearing Agency and/or the Clearing Agency Participants. Unless and until Definitive Notes are issued pursuant to Section 6.13, the initial Clearing Agency will make book-entry transfers among the Clearing Agency Participants and receive and transmit distributions of principal and interest on the Book-Entry Notes to such Clearing Agency Participants. SECTION 6.12. Notices to Clearing Agency. Unless and until Definitive Notes shall have been issued to Noteholders of such Series pursuant to Section 6.13 or the applicable Supplement relating to such Notes, whenever notice, payment, or other communication to the holders of Book-Entry Notes of any Series is required under this Indenture, the Trustee, the Servicer and the Paying Agent shall give all such notices and communications specified herein to be given to Noteholders of such Series to the Clearing Agency. SECTION 6.13. Definitive Notes. If (i)(A) the Issuer advises the Trustee in writing that the Clearing Agency is no longer willing or able to properly discharge its responsibilities under any Letter of Representations and (B) the Issuer is unable to locate a qualified successor Clearing Agency, (ii) the Issuer, at its option, advises the Trustee in writing that, with respect to any Series, it elects to terminate the book-entry system through the Clearing Agency or (iii) after the occurrence of a Servicer Default, a Majority in Interest of the Noteholders of any Series of Notes maintained as Book-Entry Notes advise the Trustee and the Clearing Agency (through the Clearing Agency Participants) in writing that the continuation of a book-entry system through the Clearing Agency is no longer in the best interests of the Noteholders of such Series, the Trustee shall notify the Clearing Agency and all such Noteholders of such Series of the occurrence of any such event and of the availability of Definitive Notes of such Series to the 85 92 Noteholders of such Series requesting the same. Upon surrender to the Trustee of the Global Notes of such Series by the Clearing Agency accompanied by registration instructions from such Clearing Agency for registration, the Trustee shall authenticate and deliver Definitive Notes of such Series. None of the Issuer, the Transfer Agent and Registrar or the Trustee shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. Upon the issuance of Definitive Notes of any Series, all references herein to obligations with respect to such Series imposed upon or to be performed by the Clearing Agency shall be deemed to be imposed upon and performed by the Trustee, to the extent applicable with respect to such Definitive Notes and the Trustee shall recognize the holders of the Definitive Notes as the Noteholders hereunder. SECTION 6.14. Temporary Notes. Pending the preparation of Definitive Notes of any Series to be issued in accordance with Section 6.13, the Issuer may execute and, in accordance with the terms of Section 6.02, the Trustee shall authenticate and deliver, temporary Notes for such Series which are printed, lithographed, typewritten or otherwise produced and are in any authorized denomination and substantially in the forms of the Definitive Notes of such Series, but with such omissions, insertions and variations as may be appropriate for temporary Notes, all as may be determined by the Issuer as evidenced by the execution thereof by the authorized officers of the Issuer. Temporary Notes may contain such references to any provisions of this Indenture as may be appropriate. Every temporary Note of any Series shall be executed by the Issuer and authenticated by the Trustee upon the same conditions and in substantially the same manner, and with like effect, as the Definitive Notes of such Series. If temporary Notes are issued, the Issuer, without unreasonable delay, shall cause Definitive Notes to be executed and delivered to the Trustee for authentication; and thereupon the temporary Notes of such Series shall be exchangeable for Definitive Notes without charge at each office or agency to be maintained for such purpose in accordance with Section 6.03. The Trustee shall authenticate and deliver in exchange for temporary Notes of such Series so surrendered Definitive Notes of equal tenor and denomination. Until so exchanged, the temporary Notes of any Series shall be entitled to the same benefits under this Indenture as the Definitive Notes of such Series. SECTION 6.15. CUSIP Number. The Issuer in issuing any Notes or Series of Notes may use a "CUSIP" number and, if so used, the Trustee shall use the CUSIP number in any notices to the Noteholders thereof as a convenience to such Noteholders; 86 93 provided that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Notes and that reliance may be placed only on the other identification numbers printed on the Notes. The Issuer shall promptly notify the Trustee of any change in the CUSIP number with respect to any Note. SECTION 6.16. Letter of Representations. Notwithstanding anything to the contrary in this Indenture or any Supplement, the parties hereto shall comply with the terms of each Letter of Representations. ARTICLE VII OTHER MATTERS RELATING TO THE ISSUER SECTION 7.01. Obligations not Assignable. The obligations of the Issuer hereunder shall not be assignable nor shall any Person succeed to the obligations of the Issuer hereunder. SECTION 7.02. Limitations on Liability. None of the directors, officers, shareholders, employees or agents of the Issuer, past, present or future, shall be under any liability to the Trustee, the Noteholders or any other Person for any action taken or for refraining from the taking of any action in such capacities pursuant to this Indenture or for any obligation or covenant under this Indenture; provided, however, that this provision shall not protect any such Person against any liability which would otherwise be imposed by reason of willful misconduct or bad faith, in the performance by such Person of such Person's duties or the reckless disregard by such Person of any of his, her or its obligations and duties hereunder. The Issuer and any director, officer, employee or agent of the Issuer may rely in good faith on any document of any kind prima facie properly executed and submitted by any Person (other than the Issuer or any Affiliate thereof) respecting any matters arising hereunder. SECTION 7.03. Indemnification of the Trustee and the Noteholders. Without limiting any other rights which the Trustee or any Noteholder (each, an "Indemnified Party") may have hereunder or under applicable law, the Issuer hereby agrees to indemnify each Indemnified Party from and against any and all claims, losses and liabilities (except to the extent that such claims, losses and liabilities arise from any action by such Indemnified Party) (all of the foregoing being collectively 87 94 referred to as "Indemnified Amounts") arising out of or resulting from this Indenture, the activities of the Trustee in connection herewith, the Issuer's use of proceeds from the issuance of Notes, the interest conveyed hereunder in the Pledged Assets, or in respect of any Issuer Loan, any Loan Document or the Loan Purchase Agreement, excluding, however, (a) Indemnified Amounts to the extent resulting from willful misconduct, bad faith, gross negligence, the reckless disregard by such Indemnified Party of any of his, her or its obligations and duties, (b) recourse for uncollectible Issuer Loans, (c) indemnification for lost profits or for consequential, special or punitive damages or (d) any income or franchise taxes (or any interest or penalties with respect thereto) or other taxes on or measured by the gross or net income or receipts of such Indemnified Party or (except as otherwise provided in any Supplement) any withholding taxes, in each case to the extent such Indemnified Amounts are incurred by such Indemnified Party arising out of or as a result of this Indenture or the interest conveyed hereunder in Pledged Assets or in respect of any Issuer Loan or any Loan Document or the Loan Purchase Agreement. Subject to the exclusions described in clauses (c) and (d) above, the Issuer shall pay on demand to each Indemnified Party any and all amounts necessary to indemnify such Indemnified Party from and against any and all Indemnified Amounts relating to or resulting from: (i) reliance on any representation or warranty or statement made or deemed made by the Issuer under or in connection with this Indenture or the Loan Purchase Agreement which shall have been incorrect in any material respect when made; (ii) the failure by the Issuer to comply with this Indenture or the Loan Purchase Agreement, or the failure by the Issuer to comply with any applicable Requirement of Law with respect to any Issuer Loan or the related Loan Document or the Loan Purchase Agreement, or the nonconformity of any Issuer Loan or the related Loan Document or the Loan Purchase Agreement with any Requirement of Law; (iii) the failure to vest and maintain vested in the Issuer a first priority perfected ownership interest in the Issuer Loans and the Related Security therefor as against the Originator and the failure to vest and maintain vested in the Trustee, for the benefit of the Noteholders, a first priority perfected security interest in the Issuer Loans and the other Pledged Assets, free and clear of any Lien; 88 95 (iv) the failure to have filed, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Issuer Loan or any other Pledged Asset, whether at the time of Transfer thereof or reinvestment of the proceeds thereof or at any subsequent time; (v) any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor or other defense relating to such Obligor's inability to pay) of any Obligor to the payment of any Issuer Loan; (vi) any investigation, litigation or proceeding related to this Indenture or the Loan Purchase Agreement or the use of proceeds from the issuance of Notes, or in respect of any Issuer Loan or other Pledged Asset, other than any litigation or proceeding between the Issuer or any Affiliate thereof, on the one hand, and the Trustee or any Noteholder or any Affiliate thereof, on the other hand, in which the Issuer or an Affiliate thereof prevails in a final non-appealable judgment by a court of competent jurisdiction; (vii) the failure of the Issuer, the Servicer or the Originator to perform any of its duties or obligations under or in connection with any Issuer Loan or other Pledged Asset; (viii) any failure by the Issuer or the Originator to be duly qualified to do business or be in good standing in any jurisdiction in which such qualification or good standing is necessary for the enforcement of any Issuer Loan; (ix) the failure of the Issuer or the Originator to remit Collections as required under this Indenture or the commingling of Collections of Issuer Loans at any time with other funds prior to distribution under the applicable Supplement; (x) the use, possession, ownership or operation by the Issuer or the Servicer or any Affiliate thereof of any of the Pledged Assets that constitute real property or any environmental liability claim allegedly arising out of or in connection with any such real property; 89 96 (xi) any act or omission by the Issuer impairing the security interest of the Trustee or the Noteholders in the Pledged Assets; or (xii) any tax (other than any taxes excluded by reason of clause (d) in the first paragraph of this Section 7.03) imposed by reason of any security interest in the Issuer Loans or other Pledged Assets by the Trustee. In case any proceeding shall be instituted involving any Person in respect of which indemnity may be sought pursuant to this Section 7.03 the Indemnified Party shall promptly notify the Issuer in writing and the Issuer, upon request of the Indemnified Party, shall retain counsel reasonably satisfactory to the Indemnified Party to represent the Indemnified Party and any others the Issuer may designate in such proceeding and shall pay the reasonable fees and disbursements of such counsel related to such proceeding. In any such proceeding, any Indemnified Party shall have the right to retain its own counsel, but the reasonable fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (i) the Issuer and the Indemnified Party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the Issuer and the Indemnified Party and representation of both parties by the same counsel would be inappropriate due to actual conflicts of interests between them. It is understood that the Issuer shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm for all such Indemnified Parties. It is further understood that the Issuer shall not be liable to any Indemnified Party until or unless such Indemnified Party promptly notifies the Issuer in writing of its request for indemnification. Indemnification pursuant to this Section 7.03 shall only be payable from Collections otherwise distributable to the Issuer under Section 4.03(b), or from other assets of the Issuer, and there shall be no recourse to, and no Person shall have any Claim against, the Issuer for payment of all or any part of any such indemnification to the extent that such Collections and other funds and any assets of the Issuer are insufficient to pay the applicable Indemnified Amounts. In addition, any indemnification payable under clause (vii), (viii), (ix), (x) or (xii) of this Section 7.03 shall be payable only to the extent that the Issuer has received payment from the Originator under the equivalent indemnification provision of the Loan Purchase Agreement and there shall be no recourse to, and no Person shall 90 97 have any Claim against, the Issuer for payment of any, all or any part of any such indemnification to the extent that the amounts so received are insufficient to pay the applicable Indemnified Amounts arising under such clauses. The agreement contained in this Section 7.03 shall survive the collection of all Issuer Loans, the termination of this Indenture and the payment of all amounts otherwise payable hereunder. ARTICLE VIII OTHER MATTERS RELATING TO THE SERVICER SECTION 8.01. Liability of the Servicer. The Servicer shall be liable under this Indenture only to the extent of the obligations specifically undertaken by the Servicer in its capacity as Servicer. SECTION 8.02. Merger or Consolidation of, or Assumption of the Obligations of, the Servicer. The Servicer shall not consolidate with or merge into any other Person or convey or transfer its properties and assets substantially as an entirety to any Person unless: (a)(i) the Person formed by such consolidation or into which the Servicer is merged or the Person which acquires by conveyance or transfer the properties and assets of the Servicer substantially as an entirety shall be, if the Servicer is not the surviving entity, a corporation organized and existing under the laws of the United States of America or any State or the District of Columbia, and such successor corporation shall have expressly assumed, by an agreement supplemental hereto, executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee and the Enhancement Providers holding 51% or more of the outstanding commitments to provider Enhancement to the Noteholders, the performance of every covenant and obligation of the Servicer hereunder; and (ii) the Servicer shall have delivered to the Trustee an Officer's Certificate and an Opinion of Counsel stating that such consolidation, merger, conveyance or transfer complies with this Section 8.02 and that all conditions precedent herein provided for relating to such transaction have been complied with; and (b) if the Servicer is the Originator, all conditions for such merger or consolidation or conveyance or transfer, as the case may be, contained in the Loan Purchase Agreement shall be satisfied; and 91 98 (c) the corporation formed by such consolidation or into which the Servicer is merged or which acquires by conveyance or transfer the properties and assets of the Servicer substantially as an entirety shall have all licenses and approvals of Governmental Authorities required to service the Issuer Loans, as evidenced by an officer's certificate of the Servicer, except to the extent the failure to have any such license would not have a material adverse effect on its ability to perform the obligations of the Servicer hereunder. SECTION 8.03. Limitations on Liability. None of the directors, officers, shareholders, employees or agents of the Servicer, past, present or future, shall be under any liability to the Trustee, the Noteholders or any other Person for any action taken or for refraining from the taking of any action in such capacities pursuant to this Indenture or for any obligation or covenant under this Indenture, it being understood that, with respect to the Servicer, this Indenture and the obligations created hereunder are solely the corporate obligations of the Servicer; provided, however, that this provision shall not protect the Servicer or any such other Person against any liability which would otherwise be imposed by reason of willful misconduct, bad faith, gross negligence or the reckless disregard by such Person of any of his, her or its obligations and duties. The Servicer and any director or officer or employee or agent of the Servicer may rely in good faith on any document of any kind prima facie properly executed and submitted by any Person (other than the Servicer or any Affiliate thereof) respecting any matters arising hereunder. The Servicer shall be under no obligation to appear in, prosecute or defend any legal action which is not incidental to its duties as the Servicer in accordance with this Indenture and which in its reasonable judgment may involve it in any material expense or liability. SECTION 8.04. Servicer Indemnification. The Servicer shall indemnify and hold harmless each Indemnified Party from and against Indemnified Amounts suffered or sustained by reason of any breach by the Servicer of its representations and warranties or obligations under this Indenture, excluding, however, Indemnified Amounts to the extent resulting from (i) willful miscon- duct, bad faith, gross negligence, the reckless disregard by such Indemnified Party of any of his, her or its obligations and duties, (ii) recourse for uncollectible Issuer Loans, (iii) lost profits or for consequential, special or punitive damages or (iv) any income or franchise taxes (or any interest or penalties with respect thereto) or other taxes on or measured by the gross or net income or receipts of such Indemnified Party or (except as otherwise provided in any Supplement) any withholding taxes, in 92 99 each case to the extent such Indemnified Amounts are incurred by such Indemnified Party arising out of or as a result of this Indenture or the security interest conveyed hereunder in Pledged Assets or in respect of any Issuer Loan or any Loan Document or the Loan Purchase Agreement. Indemnification pursuant to this Section 8.04 shall not be payable from the Pledged Assets. The agreement contained in this Section 8.04 shall survive the collection of all Issuer Loans, the payment of all amounts otherwise due hereunder and the satisfaction and discharge of this Indenture. In case any proceeding shall be instituted involving any Person in respect of which indemnity may be sought pursuant to this Section 8.04, the Indemnified Party shall promptly notify the Servicer in writing and the Servicer, upon request of the Indemnified Party, shall retain counsel reasonably satisfactory to the Indemnified Party to represent the Indemnified Party and shall pay the reasonable fees and disbursements of such counsel related to such proceeding. In any such proceeding, any Indemnified Party shall have the right to retain its own counsel, but the reasonable fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (i) the Servicer and the Indemnified Party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the Servicer and the Indemnified Party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the Servicer shall, in connection with any proceeding or related proceedings in the same jurisdiction, not be liable for the reasonable fees and expenses of more than one separate firm for all such Indemnified Parties. It is further understood that the Servicer shall not be liable to any Indemnified Party unless such Indemnified Party promptly notifies the Servicer in writing of its request for indemnification. SECTION 8.05. The Servicer Not to Resign. The Servicer shall not resign from the obligations and duties hereby imposed on it except upon determination that (i) its performance of its duties hereunder is no longer permissible under applicable law and (ii) there is no reasonable action which the Servicer could take to make its performance of its duties hereunder permissible under applicable law. Any determination permitting the resignation of the Servicer shall be evidenced by an Opinion of Counsel with respect to clause (i) above, delivered to the Trustee. No resignation shall become effective until the Trustee or a Successor Servicer shall have assumed the responsibilities and obligations of the resigning Servicer in accordance with 93 100 Section 10.02 hereof. If within 60 days of the date of the determination that the resigning Servicer may no longer act as Servicer hereunder for any reason and the Trustee has not appointed a Successor Servicer, the Trustee shall serve as Successor Servicer hereunder. Notwithstanding the foregoing, the Trustee shall, if it is legally unable so to act, petition a court of competent jurisdiction to appoint any established institution that is an Eligible Servicer (other than the Trustee) as the Successor Servicer hereunder. SECTION 8.06. Examination of Records. The Servicer shall indicate in its computer records that a security interest in the Issuer Loans and other Pledged Assets has been granted to the Trustee, pursuant to this Indenture for the benefit of the Noteholders. The Servicer (and the Issuer) shall, prior to the sale or transfer to a third party of any Loan held in its custody, examine its records to determine that such Loan is not an Issuer Loan. ARTICLE IX EVENTS OF DEFAULT SECTION 9.01. Events of Default. Upon the occurrence of any of the following events: (a) any failure by the Issuer, the Originator or the Servicer to make any payment, transfer or deposit required to be paid by it under the terms of this Indenture, any Supplement, any Note, the Loan Purchase Agreement, or any other Transaction Document, or, if applicable, to give instructions or notice to the Trustee to make such payment, transfer or deposit on or before the date occurring (i) in the case of any payment, transfer, deposit, instruction or notice relating to the payment of the interest or principal balance of any Note or the Swap Agreement, the date such payment, transfer or deposit or such instruction or notice was required to be made or given, as the case may be, under the terms of the Indenture or any Supplement and (ii) in the case of any other payment, transfer or deposit, payment instruction or notice related to any Note, the Indenture, any Supplement, the Loan Purchase Agreement, or any other Transaction Document, the date occurring two Business Days after the date such payment, transfer or deposit or such instruction or notice was required to be made or given, as the case may be, under the terms of such Note, the Indenture, any Supplement, the 94 101 Loan Purchase Agreement or any other Transaction Documents to which any such Person is a party; or (b) any failure by the Issuer, the Originator or the Servicer to observe or perform in any material respect any other covenant or agreement to be performed by it under this Indenture, the Loan Purchase Agreement, or any other Transaction Document which failure has a material adverse effect on the interests of the Noteholders of any Series and which continues unremedied for a period of thirty days (or such longer period as may be agreed to by the Trustee and the Majority in Interest of any Series that is materially and adversely affected by such failure) after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Issuer, the Originator or the Servicer, as applicable, by the Trustee or any En- hancement Provider, or to the Issuer, the Originator or the Servicer, as applicable, and the Trustee by the Majority Noteholders or by a Majority in Interest of any Series; or (c)(i) any representation, warranty or certification made by the Issuer, the Originator or the Servicer under or in connection with this Indenture, or the Loan Purchase Agreement, or in any Note or information delivered pursuant hereto or thereto or in connection herewith or therewith, shall prove to have been incorrect in any material respect when made and which continues to be incorrect in any material respect for a period of 30 days (or, with respect to any representation, warranty or certification made by the Issuer in Section 2.03(g) hereof, shall prove to have been incorrect in any material respect when made and which continue to be incorrect in any material respect for a period for five days, or, with respect to any representations and warranties made under Section 2.04, such longer period as may be agreed to by the Trustee and the Majority in Interest of any Series that is materially and adversely affected by such incorrectness) after the date on which notice of such failure, requiring the same to be remedied, shall have been given to the Issuer by the Trustee or to the Issuer and the Trustee by any Noteholder (it being understood and agreed that with respect to the incorrectness of any representation with respect to any Issuer Loan as an Eligible Loan, the incorrectness of such representation shall be deemed corrected for the purposes of this clause (c) upon the substitution of an Eligible Loan within the cure period provided for in this clause (c)) and (ii) as a result of such incorrectness the interests of the Noteholders of any Series are materially and adversely affected; or (d) any other default by the Issuer, the Originator or the Servicer shall occur, and shall not be remedied within the 95 102 applicable grace period, if any, under the Loan Purchase Agreement, or the Loan Purchase Agreement shall for any reason cease to be in full force and effect or the Issuer shall otherwise cease to continue purchasing Loans thereunder; or (e) an Insolvency Event shall occur with respect to the Issuer or the Originator; or (f) the Trustee shall not have for any reason a valid and perfected first priority "security interest" (as defined in the UCC of the jurisdiction the law of which governs the perfection of the interest in the Issuer Loans created hereunder) in the now existing or hereafter arising Issuer Loans, the other Pledged Assets and the proceeds thereof; or (g) the Overcollateralization Amount shall be less than the aggregate Minimum Overcollateralization Amount for all outstanding Series; or (h) the 180th consecutive day after which the Base Amount is less than the Net Outstanding Amount; or (i) the Servicer (if the Originator) shall have resigned under Section 8.05 and the Person then acting as Successor Servicer, if not an Affiliate of the Originator, shall not have been approved by the Majority Noteholders within 30 days of its agreement to act as Successor Servicer; or (j) the PBGC or the Internal Revenue Service shall have filed notice of one or more Liens against the Originator or the Issuer, and such notice shall have remained in effect for more than 15 Business Days unless, prior to the expiration of such period, such Liens shall have been adequately bonded by the Originator; or (k) any Additional Event of Default shall have occurred with respect to any outstanding Series; or (l) Sirrom Capital Corporation or its successor shall cease to own (whether directly or indirectly) 100% of the issued and outstanding stock of the Issuer; or (m) there shall have been any material adverse change in the financial condition or operations of the Issuer since December 17, 1996 or the Originator since September 30, 1996, or there shall have occurred any event which materially adversely affects the collectibility of the Issuer Loans taken as a whole or the ability of the Issuer, the Servicer, or the Originator to 96 103 perform its respective obligations under the Indenture, any Supplement or any of the other Transaction Documents to which any such Person is a party; or (n)(i) the aggregate Adjusted Outstanding Loan Balance shall equal or exceed $75,000,000 and (ii) the Default Ratio shall exceed (x) 20% for any Collection Period, or (y) 12.5% for any three (3) consecutive Collection Periods; or (o)(i) the aggregate Adjusted Outstanding Loan Balance shall equal or exceed $40,000,000 and (ii) the Delinquency Ratio shall exceed 25% for any Collection Period; or (p)(i) any "Rate Cap Transaction" (as defined in the ISDA Definitions) under the Swap Agreement shall be terminated, or (ii) the occurrence of any event described in clauses (a), (b) or (c) of the term "Specified Event" under and as defined in the Sinking Fund Account Agreement, then, in the case of any such event either the Trustee (unless otherwise directed by the Majority Noteholders), or the Majority Noteholders, by notice then given in writing to the Issuer and the Servicer (and to the Trustee if given by such Noteholders), may declare (provided such event shall not have been remedied) that an event of default (an "Event of Default") has occurred as of the date of such notice and as of such notice date the Amortization Date and the Purchase Termination Date shall occur; provided that, in the case of any event described in clause (a), clauses (c) through (e), clauses (g) through (l), or in the case of any event described in subsection (f) which has occurred and is continuing for a period of five Business Days, subject to ap plicable law, an Event of Default, the Amortization Date and the Purchase Termination Date shall occur, and the Notes and all other obligations owed hereunder to the Noteholders shall immediately and automatically become due and payable, in each case, without any notice or other action on the part of the Trustee or the Noteholders, immediately upon the occurrence of such event. Promptly and in any event within one Business Day after the Servicer becomes aware of any Event of Default, the Servicer shall notify the Trustee of the occurrence of such Event of Default. SECTION 9.02. Additional Rights Upon the Occurrence of any Event of Default. Upon the occurrence and during the continuance of any Event of Default, the Trustee shall have, in addition to all other rights and remedies available to the Trustee under this Indenture or otherwise, (a) the right to apply Collections to the payment of the Obligations of the Issuer and 97 104 the Servicer under this Indenture or under any of the other Transaction Documents as provided herein, and (b) all other rights and remedies provided under the UCC of the applicable jurisdiction and other applicable laws (which rights shall be cumulative). The Trustee shall exercise such rights at the direction of the Noteholders pursuant to (and subject to the limitations of) Section 11.19; provided, however, that without the consent of all of the Noteholders, the Trustee shall not be permitted to sell, transfer or otherwise convey the Pledged Assets to any third party for an amount less than the Aggregate Outstanding Amount of all of the Notes, together with accrued but unpaid interest thereon. ARTICLE X SERVICER DEFAULTS SECTION 10.01. Servicer Defaults. If any one of the following events (each being a "Servicer Default") shall occur and be continuing: (a) any failure by the Servicer to make any payment, transfer or deposit hereunder, or, if applicable, to give instructions or notice to the Trustee to make such payment, transfer or deposit, which failure, (i) in the case of any payment of interest, continues for three Business Days after the date such payment is required to be made hereunder and (ii) in the case of any other payment, transfer or deposit, continues for five Business Days after the date such payment, transfer or deposit is required to be made hereunder or thereunder; (b) any failure by the Servicer to give notice to the Trustee as required in this Indenture, any Supplement or any Enhancement Agreement, or any failure to provide the Settlement Statement to the Trustee, on or before the date occurring five Business Days after the date such notice or Settlement Statement is required to be made or given, as the case may be, under the terms of this Indenture, such Supplement or Enhancement Agreement; (c) any failure by the Servicer duly to observe or perform in any material respect any other covenant or agreement to be performed by it as Servicer set forth in this Indenture, which failure has a material adverse effect on the interest of the Noteholders and continues unremedied for 30 days (or, with respect to any covenant contained in Sections 3.04(a), 3.04(b), 98 105 3.04(h) and 3.04(i), continues unremedied for five Business Days) after the earlier of (i) knowledge of such failure by a Responsible Officer of the Servicer and (ii) the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Servicer by the Trustee, or to the Servicer and the Trustee by the Majority in Interest of any Series which is materially and adversely affected by such failure; or the Servicer shall assign its duties under this Indenture, except as permitted by Section 8.02; (d) any representation, warranty or certification made by the Servicer under or in connection with this Indenture, or in any Note or information delivered pursuant to or in connection with this Indenture, shall prove to have been incorrect in any material respect when made and has a material adverse effect on the interests of the Noteholders of any Series and which material adverse effect continues for a period of 30 days after the earlier of (i) knowledge of such failure by a Responsible Officer of the Servicer and (ii) the date on which written notice thereof, requiring the same to be remedied, shall have been given (A) to the Servicer by the Trustee or (B) to the Servicer and the Trustee by the Majority in Interest of any Series which is materially and adversely affected by such incorrect representation, warranty or certification; or (e) an Insolvency Event shall occur with respect to the Servicer; then, as long as the Servicer Default shall not have been remedied and is continuing, then either the Trustee shall, by notice given in writing to the Servicer at the direction of the Holders of Notes evidencing not less than 66 2/3% of the Aggregate Outstanding Amount (the "Requisite Holders") or the Requisite Holders may, by notice given in writing to the Servicer and to the Trustee (each such notice being a "Termination Notice"), terminate all but not less than all the rights and obligations of the Servicer as the Servicer under this Indenture. The Trustee shall not be deemed to have knowledge of a Servicer Default unless it has actual knowledge or if a Responsible Officer has received written notice thereof. The Majority Noteholders may, on behalf of all Noteholders, waive any default by the Issuer or the Servicer in the performance of their obligations under this Indenture and its consequences, except the failure to make any distributions required to be made to Noteholders or to make any required deposits of any amounts to be so distributed. Upon any such waiver of a past default, such default shall cease to exist, and 99 106 any such default shall be deemed to have been remedied for every purpose of this Indenture. No such waiver shall extend to any subsequent or other default or impair any right consequent thereon except to the extent expressly so waived. After receipt by the Servicer of a Termination Notice, and on the date that a Successor Servicer shall have been appointed pursuant to Section 10.02, all authority and power of the Servicer under this Indenture shall pass to and be vested in such Successor Servicer (a "Service Transfer"); and, without limitation, the Trustee is hereby authorized, empowered and instructed (upon the failure of the Servicer to cooperate) to execute and deliver, on behalf of the Servicer, as attorney-in fact or otherwise, all documents and other instruments upon the failure of the Servicer to execute or deliver such documents or instruments, and to do and accomplish all other acts or things necessary or appropriate to effect the purposes of such Service Transfer. The Servicer agrees to cooperate, at its expense, with the Trustee and such Successor Servicer in (i) effecting the termination of the responsibilities and rights of the Servicer to conduct servicing hereunder, including, without limitation, the transfer to such Successor Servicer of all authority of the Servicer to service the Issuer Loans as provided under this Indenture, including all authority over all Collections which shall on the date of such Service Transfer be held by the Servicer for deposit to any Lock-Box Account, the Concentration Account, the Reserve Account or the Issuer's Account, or which have been deposited by the Servicer to any Lock-Box Account, the Concentration Account, or any other account, or which shall thereafter be received with respect to the Issuer Loans, and (ii) assisting the Successor Servicer until all servicing activities have been transferred to such Successor Servicer, such assistance to include, without limitation, (x) assisting any accountants selected by the Successor Servicer to verify collection records and reports made prior to the Service Transfer and (y) assisting the Successor Servicer in making the computer systems of the Servicer and the Successor Servicer compatible to the extent necessary to effect the Service Transfer. The Servicer shall, at its expense, within five Business Days of such Service Transfer, (A) assemble such documents, instruments and other records (including computer tapes and discs), which evidence the Issuer Loans and the other Pledged Assets, and which are necessary or desirable to collect the Issuer Loans and shall make the same available to the Successor Servicer or the Trustee or its designee at a place selected by the Successor Servicer or the Trustee and in such form as the Successor Servicer or the Trustee may reasonably request, and (B) segregate all cash, checks and other instruments received by it from time to time constituting Collec- 100 107 tions of Issuer Loans in a manner acceptable to the Successor Servicer and the Trustee, and, promptly upon receipt, remit all such cash, checks and instruments to the Successor Servicer or the Trustee or its designee. At any time following a Termination Notice: (1) The Servicer shall, at the Trustee's request and at the Servicer's expense, give notice of the Trustee's security interest in the Issuer Loans to the related Obligors and direct that payments be made directly to the Trustee or its designee; (2) If the Servicer fails to provide the notice to Obligors required in paragraph (1) above, the Trustee may direct the Obligors of Issuer Loans, or any of them, that payment of all amounts payable under any such Loans be made directly to the Trustee or its designee; and (3) Each of the Issuer and Noteholder hereby authorizes the Trustee to take any and all steps in the Issuer's name and on behalf of the Issuer and the Noteholders necessary or desirable, in the determination of the Trustee, to collect all amounts due under any and all Issuer Loans, including, without limitation, endorsing the Issuer's name on checks and other instruments representing Collections in respect of such Loans and enforcing such Loans. Notwithstanding the foregoing, a delay in or failure of performance referred to in Section 10.01(a) for a period of ten Business Days after the applicable grace period, or under Section 10.01(b) for a period of thirty Business Days after the applicable grace period, shall not constitute a Servicer Default if such delay or failure could not have been prevented by the exercise of reasonable diligence by the Servicer and such delay or failure was caused by an act of God or the public enemy, acts of declared or undeclared war, public disorder, rebellion or sabotage, epidemics, landslides, lightning, fire, hurricanes, earthquakes, floods, union strikes, work stoppages or similar occurrences. The preceding sentence shall not relieve the Servicer from using its best efforts to perform its obligations in a timely manner in accordance with the terms of this Indenture, and the Servicer shall provide the Trustee, the Issuer and any Enhancement Provider with an Officer's Certificate giving prompt notice of such failure or delay by it, together with a description of its efforts so to perform its obligations. 101 108 SECTION 10.02. Trustee to Act; Appointment of Successor Servicer. (a) On and after the receipt by the Servicer of a Termination Notice pursuant to Section 10.01 or upon a resignation by the Servicer pursuant to Section 8.05, the Servicer shall continue to perform all servicing functions under this Indenture until (i) in the case of any such receipt, the date specified in such Termination Notice or otherwise specified by the Trustee in writing or, if no such date is specified in such Termination Notice or otherwise specified by the Trustee, until the earlier of a date agreed upon by the Servicer and the Trustee or a date specified by the Trustee in a written notice to the Servicer, and (ii) in the case of any such resignation, until the Trustee or a Successor Servicer shall have assumed the responsibilities and obligations of the Servicer pursuant to this Section 10.02. The Trustee shall as promptly as possible after the giving of a Termination Notice or such a resignation appoint the Backup Servicer as a successor servicer (the "Successor Servicer"), subject to the acceptance by the Backup Servicer (in accordance with and subject to Section 2 of the Backup Servicing Agreement) of such appointment by written acceptance in a form acceptable to the Trustee. In the event the Backup Servicer is unable to accept such appointment as Successor Servicer, the Trustee shall as promptly as possible appoint an Eligible Servicer as a Successor Servicer, subject to the consent of any Enhancement Providers and if specified in any Supplement, the consent of the Majority in Interest of the Noteholders of the related Series, which consent shall not be unreasonably withheld, and such Successor Servicer shall accept its appointment by a written assumption in a form acceptable to the Trustee. In the event that the Successor Servicer has not been appointed or has not accepted its appointment by the earlier of 60 days after the date of such Termination Notice or at the time when the Servicer ceases to act, the Trustee without further action shall automatically be appointed the Successor Servicer. The Trustee may delegate any of its servicing obligations to an affiliate or agent in accordance with the terms of this Indenture. Notwithstanding the foregoing, the Trustee shall, if it is legally unable so to act as Successor Servicer, petition a court of competent jurisdiction to appoint any established institution that is an Eligible Servicer (other than the Trustee) as the Successor Servicer hereunder. (b) Upon its appointment, the Successor Servicer shall be the successor in all respects to the Servicer being terminated with respect to servicing functions under this Indenture performed by the Servicer and shall be subject to all the responsibilities, duties and liabilities relating thereto placed on the Servicer by the terms and provisions hereof, and all 102 109 references in this Indenture to the Servicer shall be deemed to refer to such Successor Servicer; provided, however, that neither the Trustee (solely in its capacity as such) nor any Successor Servicer shall be deemed in default hereunder as a result of any predecessor Servicer's failure to deliver necessary Pledged Assets, documents, or records to the Trustee (solely in its capacity as such) or to such Successor Servicer. The Successor Servicer, by its acceptance of its appointment, will automatically agree to be bound by the terms and provisions of any Enhancement Agreement. (c) In connection with any Termination Notice, the Trustee will review any bids which it obtains from Eligible Servicers and shall be permitted to appoint any Eligible Servicer submitting such a bid as a Successor Servicer for servicing compensation not in excess of the Servicing Reimbursement. (d) All authority and power granted to the Successor Servicer under this Indenture shall automatically terminate upon satisfaction and discharge of this Indenture pursuant to Section 12.01, and shall pass to and be vested in the Issuer and, without limitation, the Issuer is hereby authorized and empowered to execute and deliver, on behalf of the Successor Servicer, as attorney-in-fact or otherwise, all documents and other instruments, and to do and accomplish all other acts or things necessary or appropriate to effect the purposes of such transfer of servicing rights. The Successor Servicer agrees to cooperate with the Issuer in effecting the termination of the responsibilities and rights of the Successor Servicer to conduct servicing of the Issuer Loans. The Successor Servicer shall transfer its electronic records relating to the Issuer Loans to the Issuer in such electronic form as the Issuer may reasonably request and shall transfer all other records, correspondence and documents to the Issuer in the manner and at such times as the Issuer shall reasonably request. (e) Upon the effectiveness of the appointment of a Successor Servicer, the Successor Servicer shall as soon as practicable upon demand deliver to the Originator all documents, instruments and records in its possession which evidence or relate to Issuer Loans owned by the Originator which are not Pledged Assets, and copies of documents, instruments and records in its possession which evidence or relate to such Loans. SECTION 10.03. Notification to Noteholders. Promptly and in any event within three Business Days after the Servicer becomes aware of any Servicer Default, the Servicer shall give written notice thereof to a Responsible Officer of the Trustee, 103 110 and the Trustee shall promptly deliver a copy of such notice to the Noteholders. Upon any termination of the initial Servicer or appointment of a Successor Servicer pursuant to this Article X, the Trustee shall give prompt written notice thereof to the Issuer and the Noteholders. ARTICLE XI THE TRUSTEE SECTION 11.01. Duties of Trustee. (a) The Trustee, prior to the occurrence of a Servicer Default of which it has actual knowledge and after the curing of all Servicer Defaults which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied duties or covenants shall be read into this Indenture against the Trustee. If a Servicer Default to the actual knowledge of the Trustee has occurred (which has not been cured or waived), the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (b) The Trustee, upon receipt of any resolutions, certificates, statements, opinions, reports, documents, orders or other instruments furnished to the Trustee which are specifically required to be furnished pursuant to any provision of this Indenture or any Supplement, shall examine them to determine whether they substantially conform to the requirements of this Indenture or any Supplement. The Trustee shall give prompt written notice to the Noteholders of any material lack of conformity of any such instrument to the applicable requirements of this Indenture or any Supplement discovered by the Trustee which would entitle a specified percentage of the Noteholders to take any action pursuant to this Indenture or any Supplement. (c) Subject to Section 11.01(a), no provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct; provided, however, that: (i) the Trustee shall not be personally liable for an error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it 104 111 shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (ii) the Trustee shall not be personally liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of the requisite amount of Noteholders specified hereunder for each Series relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture; and (iii) the Trustee shall not be charged with knowledge for any failure by the Servicer to comply with the obligations of the Servicer referred to in Section 10.01 unless a Responsible Officer of the Trustee obtains actual knowledge of such failure or the Trustee received written notice of such failure from the Servicer or from Holders of Notes evidencing not less than 10% of the Outstanding Principal Balance of any Series. (d) The Trustee shall not be required to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or under any Supplement or in the exercise of any of its rights or powers. None of the provisions contained in this Indenture shall in any event require the Trustee to perform, or be responsible for the manner of performance of, any obligations of the Servicer under this Indenture except during such time, if any, as the Trustee shall be the successor to, and be vested with the rights, duties, powers and privileges of, the Servicer in accordance with the terms of this Indenture. (e) Except for actions expressly authorized by this Indenture, the Trustee shall take no action reasonably likely to impair the interests of the Trustee in any Issuer Loan now existing or hereafter created or to impair the value of any Issuer Loan now existing or hereafter created. (f) Except as expressly provided in this Indenture, the Trustee shall have no power to vary the corpus of the Pledged Assets including, without limitation, by (i) accepting any substitute obligation for an Issuer Loan, (ii) adding any other investment, obligation or security to the Pledged Assets, or (iii) releasing its interest in any Pledged Asset. (g) In the event that the Paying Agent or the Transfer Agent and Registrar shall fail to perform any obligation, duty or 105 112 agreement in the manner or on the day required to be performed by the Paying Agent or the Transfer Agent and Registrar, as the case may be, under this Indenture or under any Supplement, the Trustee shall be obligated promptly upon its actual knowledge thereof to perform such obligation, duty or agreement in the manner so required. (h) The Trustee shall have no responsibility or liability for investment losses on Eligible Investments. (i) Notwithstanding any other provision contained herein, the Trustee is not acting as, and shall not be deemed to be, a fiduciary for any Enhancement Provider and the Trustee's sole responsibility with respect to any such Enhancement Provider shall be to perform those duties with respect to any such Enhancement Provider as are specifically set forth herein or in any applicable Supplement and no implied duties or obligations shall be read into this Indenture or such Supplement against the Trustee with respect to any such Enhancement Provider. SECTION 11.02. Certain Matters Affecting the Trustee. Except as otherwise provided in Section 11.01: (a) the Trustee may rely on and shall be protected in acting on, or in refraining from acting in accord with, any resolution, Officer's Certificate, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond or other paper or document believed by it to be genuine and to have been signed or presented to it pursuant to this Indenture by the proper party or parties; (b) the Trustee may consult with counsel and any advice or Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such advice or Opinion of Counsel, and the cost of obtaining any such Opinion of Counsel shall be an expense of the Trustee reimbursable under Section 3.02(b); (c) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture, or to institute, conduct or defend any litigation hereunder or in relation hereto, at the request, order or direction of any of the Noteholders, pursuant to the provisions of this Indenture, unless such Noteholders shall have offered to the Trustee security or indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities which may be 106 113 incurred therein or thereby; provided, however, that nothing contained herein shall relieve the Trustee of the obligations, upon the occurrence of a Servicer Default (which has not been cured or waived), to exercise such of the rights and powers vested in it by this Indenture, and to use the same degree of care and skill in their exercise as a prudent man would exercise or use under the circumstances in the conduct of his own affairs; (d) the Trustee shall not be personally liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; (e) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, approval, bond or other paper or document; (f) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys or a custodian, and the Trustee shall not be responsible for any misconduct or negligence on the part of any such agent, attorney or custodian appointed with due care by it hereunder; (g) the Trustee shall not be required to make any initial or periodic examination of any documents or records related to the Issuer Loans for the purpose of establishing the presence or absence of defects, the compliance by the Issuer with its representations and warranties or for any other purposes; and (h) nothing in this Indenture shall be construed to require the Trustee to monitor the performance of the Servicer or act as a guarantor of the Servicer' performance. SECTION 11.03. [Intentionally left blank.] SECTION 11.04. Trustee May Own Notes. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal, and transact banking business, with the Originator, the Servicer and/or the Issuer with the same rights as it would have if it were not the Trustee. SECTION 11.05. Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds of such Person, except to the extent required by law or this Indenture. The Trustee shall have no liability for interest 107 114 on any money received by it hereunder except as otherwise agreed in writing with the Issuer. SECTION 11.06. Disqualification; Conflicting Interests. If, at any time after this Indenture has been qualified under the Trust Indenture Act, the Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Trustee and the Issuer shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. Without limiting the foregoing, if a conflicting interest is deemed to arise under said Section 310(b) by virtue of the fact that the Trustee is acting as Trustee for more than one Series of Notes Outstanding concurrently, and such conflicting interest is not, or is not reasonably expected to be, cured within 90 days of its occurrence, then, in such event, the Trustee may resign or assign to a separate trustee such of its duties under the Transaction Documents as may be necessary to eliminate any such conflicting interest in accordance with Section 11.15 hereof. SECTION 11.07. Preferential Collection of Claims against Issuer. At all times after this Indenture becomes qualified under the Trust Indenture Act, the Trustee shall comply with Section 311(a) of the Trust Indenture Act, excluding any creditor relationship described in Section 311(b) of the Trust Indenture Act, and a Trustee who has resigned or been removed shall be subject to Section 311(a) of the Trust Indenture Act to the extent indicated therein. SECTION 11.08. Limitation on Liability of Trustee. The Trustee shall have no responsibility or liability for or with respect to the correctness of the recitals contained herein, in any of the other Transaction Documents, or in the Notes (other than the certificate of authentication of the Trustee on the Notes). Except as set forth in Section 11.20, the Trustee makes no representations as to the validity or sufficiency of this Indenture, any of the other Transaction Documents, the Notes (other than the certificate of authentication of the Trustee on the Notes), any other Transaction Document or any Pledged Asset or related document. The Trustee shall not be accountable for the use or application by the Issuer of any of the Notes, or of the proceeds of such Notes, or for the use or application of any funds paid to the Issuer or the Servicer in respect of the Pledged Assets or deposited by the Servicer in, or withdrawn by the Servicer from, the Lock-Box Account, the Concentration Account, the Reserve Account, the Issuer's Account or any other accounts hereafter established to effectuate the transactions 108 115 contemplated herein or in the other Transaction Documents in accordance with the terms hereof or thereof. The Trustee shall have no responsibility or liability for or with respect to (A) the legality, validity or enforceability of any security interest in any Pledged Asset; (B) the perfection or priority of such a security interest; (C) the maintenance of any such perfection or priority; (D) the efficacy of the Granting Clause hereunder; (E) the ability of the Pledged Assets to generate the payments to be distributed to Noteholders under this Indenture; (F) the existence and substance of any Pledged Asset or any related Record or any computer or other record thereof; (G) the validity of the grant of security in any Pledged Asset to the Trustee as contemplated pursuant to the Granting Clause hereunder or of any preceding or intervening grant pursuant thereto; (H) the performance or enforcement of any Pledged Asset; (I) the compliance by the Issuer or the Servicer with any warranty or representation made under this Indenture or in any other Transaction Document and the accuracy of any such warranty or representation prior to the Trustee's receipt of actual notice of any noncompliance therewith or any breach thereof; (J) any investment of monies pursuant to Section 4.02 or any loss resulting therefrom; (K) the acts or omissions of the Issuer, the Servicer or any Obligor; (L) any action of the Servicer taken in the name of the Trustee; or (M) any action by the Trustee taken at the instruction of the Servicer; provided, however, that the foregoing shall not relieve the Trustee of its obligation to perform its duties under this Indenture and the other Transaction Documents in accordance with the terms hereof and thereof. Except with respect to a claim based on the failure of the Trustee to perform its duties under this Indenture or under any of the other Transaction Documents or based on the Trustee's negligence or willful misconduct, no recourse shall be had against the Trustee in its individual capacity for any claim based on any provision of this Indenture, any other Transaction Document, the Notes, any Pledged Asset or any assignment thereof. The Trustee shall not have any personal obligation, liability or duty whatsoever to any Noteholder or any other Person with respect to any such claim, and any such claims shall be asserted solely against the Pledged Assets, the Issuer or any indemnitor who shall furnish indemnity to the Trustee as provided in this Indenture. The Trustee shall have no liability to any Person for any failure to so provide such notice or statement. The provisions of this Section 11.08 shall survive and continue to inure to the benefit of the Trustee notwithstanding 109 116 the termination of this Indenture or the removal or resignation of the Trustee. SECTION 11.09. Trustee May Deal with Other Parties. Subject to any restrictions that may otherwise be imposed by Section 406 of ERISA or Section 4975(e) of the IRC and/or the Trust Indenture Act (if applicable), the Trustee, in its individual or any other capacity, may deal with the other parties hereto (other than the Issuer) and their respective affiliates with the same rights as it would have if it were not the Trustee. SECTION 11.10. Servicer to Pay Trustee's Fees and Expenses. (a) To the extent not paid by the Servicer to the Trustee from funds constituting the Servicing Reimbursement, the Servicer covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to receive, such reasonable compensation as is agreed upon in writing between the Trustee and the Servicer, in the case of any such fees payable to the Trustee, which amount shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust (the "Trustee's Fee") for all services rendered by it in the execution of the trust hereby created and in the exercise and performance of any of the powers and duties of the Trustee hereunder and under the other Transaction Documents, and the Servicer will pay or reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any of the provisions of this Indenture and the other Transaction Documents to which it is a party (including the reasonable fees and expenses of its agents, any co-trustee and counsel), except any such expense, disbursement or advance as may arise from the Trustee's own negligence or willful misconduct and except as otherwise provided in the following subsection (c). (b) In addition, the Servicer (if other than the Trustee) agrees to indemnify the Trustee from, and hold it harmless against, any and all losses, liabilities, damages, claims or expenses (including, without limitation, the reasonable fees and expenses of counsel) incurred by the Trustee in the exercise or performance of any of its powers or duties hereunder and the other Transaction Documents or as a result of the Trustee's action as Trustee hereunder and/or thereunder, other than those resulting from the gross negligence or willful misconduct of the Trustee. (c) If the Trustee is appointed Successor Servicer pursuant to Article X, the provisions of this Section 11.10 shall not apply to expenses, disbursements and advances made or 110 117 incurred by the Trustee in its capacity as Successor Servicer, which accounts shall be paid out of the Servicing Reimbursement. The Servicer's covenant to pay the fees, expenses, disbursements and advances provided for in this Section 11.10 shall survive the resignation or removal of the Trustee and the satisfaction and discharge of this Indenture. SECTION 11.11. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall: (a) be a corporation organized and doing business under the laws of the United States of America, any State or Territory thereof or the District of Columbia, authorized under such laws to exercise corporate trust powers, and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority; (b) not be an Enhancement Provider; (c) have a combined capital and surplus of at least $50,000,000 (or shall be a member of a bank holding system, the aggregate combined capital and surplus of which is at least $50,000,000, provided that the Trustee's separate capital and surplus shall at all times be at least the amount specified in Section 310(a)(2) of the Trust Indenture Act, and shall at all times be subject to supervision or examination by federal or state authority; and (d) with respect to any successor Trustee, have a long-term unsecured senior debt rating of "BBB" or better from S&P and "Baa2" or better from Moody's Investors Service, Inc, and "BBB" or better from Fitch, if rated by Fitch. If such corporation or association publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then, for the purpose of this Section 11.11, the combined capital and surplus of such corporation or association shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 11.11, the Trustee shall resign immediately in the manner and with the effect specified in Section 11.12. SECTION 11.12. Resignation or Removal of Trustee. 111 118 (a) The Trustee may at any time resign and be discharged from the trust hereby created by giving at least 90 days' prior written notice thereof to the Issuer, the Servicer, the Rating Agencies (if any) and the Noteholders. Upon receiving such notice of resignation, the Issuer shall promptly appoint a successor Trustee who meets the eligibility requirements set forth in Section 11.11 by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Trustee and one copy of the successor Trustee. If no successor Trustee shall have been so appointed and shall have accepted such appointment within 30 days after the giving of such notice of resignation, the resigning Trustee may, upon notice to the Issuer, petition any court of competent jurisdiction to appoint a successor Trustee who meets the eligibility requirements set forth in Section 11.11. (b) If at any time: (i) after this Indenture is qualified or required to be qualified under the Trust Indenture Act, the Trustee shall fail to comply with Section 310(b) of the Trust Indenture Act pursuant to Section 11.06 hereof after written request therefor by the Issuer, the Servicer or any Noteholder (unless the Trustee's duty to resign is stayed in accordance with the provisions of Section 310(b) of the Trust Indenture Act), or (ii) the Trustee shall otherwise cease to be eligible under Section 11.11 hereof and shall fail to resign after written request therefor by the Servicer, the Issuer or the Majority Noteholders, or (iii) the Trustee shall become incapable of acting or shall become the subject of an Insolvency Event, then, in any such case, the Servicer may (or, at the request of the Issuer or any Noteholder, shall) remove the Trustee and promptly appoint a successor Trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the Trustee being so removed (who shall send a copy thereof to each of the applicable Rating Agencies) and the other copy thereof shall be delivered to the successor Trustee. If no successor Trustee shall have been appointed and shall have accepted such appointment within 30 days after the Issuer's or any such Noteholder's giving of any such notice, the Issuer or any such Noteholder may petition any court of competent jurisdiction to appoint a successor Trustee meeting the eligibility requirements set forth in Section 11.11. 112 119 (c) Any resignation or removal of the Trustee and appointment of a successor Trustee pursuant to any of the provisions of this Section 11.12 shall not become effective until acceptance of appointment by the successor Trustee as provided in Section 11.13 hereof. SECTION 11.13. Successor Trustee. (a) Any successor trustee appointed as provided in Section 11.12 shall execute, acknowledge and deliver to the Issuer, to the Servicer and to its predecessor Trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor Trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as Trustee herein. The predecessor Trustee shall deliver (with the expenses therefor payable out of the Servicing Reimbursement, and by the Issuer and the Servicer, pursuant to Sections 3.02(b) and 11.05(b)) to the successor trustee all documents or copies thereof and statements held by it hereunder; and the Issuer and the predecessor Trustee shall execute and deliver such instruments and do such other things as may reasonably be required for fully and certainly vesting and confirming in the successor trustee all such rights, powers, duties and obligations. (b) No successor trustee shall accept appointment as provided in this Section 11.13 unless at the time of such acceptance such successor trustee shall be eligible under the provisions of this Indenture. (c) Upon acceptance of appointment by a successor trustee as provided in this Section 11.13, such successor trustee shall mail notice of such succession hereunder to all Noteholders. SECTION 11.14. Merger or Consolidation of Trustee. Any Person into which the Trustee may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation in which the Trustee shall be a party, or any Person succeeding to the corporate trust business of the Trustee, shall be successor of the Trustee hereunder, provided such corporation shall be eligible under the provisions of this Indenture, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. 113 120 SECTION 11.15. Appointment of Co-Trustee or Separate Trustee. (a) Notwithstanding any other provisions of this Indenture, at any time, for the purpose of meeting any legal requirements of any jurisdiction in which any part of the Pledged Assets may at the time be located, the Trustee shall have the power and may execute and deliver all instruments to appoint one or more persons to act as a co-trustee, or co-trustees, or separate trustee or separate trustees, of all or any part of the Pledged Assets, and to vest in such Person or Persons, in such capacity and for the benefit of the Noteholders, such title to the Pledged Assets, or any part thereof, and, subject to the other provisions of this Section 11.15, such powers, duties, obligations, rights and trusts as the Trustee may consider necessary or desirable. No co-trustee or separate trustee hereunder shall be required to meet the terms of eligibility as a successor trustee under this Indenture and no notice to Noteholders of the appointment of any co-trustee or separate trustee shall be required under Section 11.13 hereof; provided, however, that in the event this Indenture is qualified under the Trust Indenture Act, each separate "indenture trustee" must qualify under the Trust Indenture Act. The Trustee shall give the Servicer and the Issuer notice of any such appointment as promptly as possible. (b) Every separate trustee and co-trustee shall, to the extent permitted by law, be appointed and act subject to the following provisions and conditions: (i) except for any appointment of a separate Trustee pursuant to Section 11.06 hereof, all rights, powers, duties and obligations conferred or imposed upon the Trustee shall be conferred or imposed upon and exercised or performed by the Trustee and such separate trustee or co-trustee jointly (it being understood that such separate trustee or co-trustee is not authorized to act separately without the Trustee joining in such act), except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed (whether as Trustee hereunder or as Successor Servicer hereunder), the Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of its interest in the Pledged Assets or any portion thereof in any such jurisdiction) shall be exercised and performed singly by such separate trustee or co-trustee, but solely at the direction of the Trustee; 114 121 (ii) no Trustee hereunder shall be personally liable by reason of any act or omission of any other trustee hereunder; and (iii) the Trustee may at any time accept the resignation of or (except with respect to a separate Trustee appointed pursuant to Section 11.06 hereof) remove any separate trustee or co-trustee. (c) Any notice, request or other writing given to the Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee or co-trustee shall refer to this Indenture and the conditions of this Article XI. Each separate trustee and co-trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, either jointly with the Trustee or separately, as may be provided therein, subject to all the provisions of this Indenture, specifically including every provision of this Indenture relating to the conduct of, affecting the liability of, or affording protection to, the Trustee. Every such instrument shall be filed with the Trustee and a copy thereof given to the Servicer. (d) Any separate trustee or co-trustee may at any time constitute the Trustee, its agent or attorney-in-fact with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect of this Indenture on its behalf and in its name. If any separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Trustee, to the extent permitted by law, without the appointment of a new or successor trustee. SECTION 11.16. Tax Returns. No federal income tax return shall be filed on behalf of this Indenture unless either (i) the Trustee or the Servicer shall receive an Opinion of Counsel based on a change in applicable law occurring after the date hereof that the IRC requires such a filing or (ii) the Internal Revenue Service shall determine that this Indenture is required to file such a return or (iii) this Indenture is required to file such a return by order of a court of competent jurisdiction. In the event this Indenture shall be required to file tax returns, the Servicer shall prepare or cause to be prepared any tax returns required to be filed by this Indenture and shall remit such returns to the Trustee for signature at least five days before such returns are due to be filed; the Trustee shall promptly sign such returns and deliver such returns 115 122 after signature to the Servicer and such returns shall be filed by the Servicer. The Trustee, the Paying Agent and the Transfer Agent and Registrar, upon request, will each furnish the Servicer with all such information known to such Person as may be reasonably required in connection with the preparation of all tax returns of this Indenture, and the Trustee shall, upon request of the Servicer, execute such returns. In no event shall the Trustee, any Servicer or the Issuer be liable for any liabilities, costs or expenses of this Indenture or the Noteholders arising out of the application of any tax law, including federal, state, foreign or local income or excise taxes or any other tax imposed on or measured by income (or any interest penalty or addition with respect thereto or arising from a failure to comply therewith). SECTION 11.17. Trustee May Enforce Claims Without Possession of Notes. All rights of action and claims under this Indenture or the Notes may be prosecuted and enforced by the Trustee without the possession of any of the Notes or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee. Any recovery of judgment shall, after provision for the payment reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Noteholders in respect of which such judgment has been obtained. SECTION 11.18. Suits for Enforcement. (a) If a Servicer Default shall occur and be continuing, the Trustee, in its discretion may, subject to the provisions of Sections 11.01 and 11.19, proceed to protect and enforce its rights and the rights of the Noteholders under this Indenture by suit, action or proceeding in equity or at law or otherwise, whether for the specific performance of any covenant or agreement contained in this Indenture or in aid of the execution of any power granted in this Indenture or for the enforcement of any other legal, equitable or other remedy as the Trustee, being advised by counsel, shall deem most effectual to protect and enforce any of the rights of the Trustee or the Noteholders. (b) Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Noteholder any plan of reorganization, arrangement, adjustment or composition affecting the Noteholders or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Noteholder in any such proceeding. 116 123 SECTION 11.19. Rights of Noteholders to Direct Trustee. The Majority Noteholders shall have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee; provided, however, that subject to Section 11.01, the Trustee shall have the right to decline to follow any such direction if the Trustee after being advised by counsel determines that the action so directed may not lawfully be taken, or if the Trustee in good faith shall, by a Responsible Officer or Responsible Officers of the Trustee, determine that the proceedings so directed would be illegal or involve it in personal liability or be unduly prejudicial to the rights of Noteholders not parties to such direction; and, provided, further, that nothing in this Indenture shall impair the right of the Trustee to take any action deemed proper by the Trustee and which is not inconsistent with such direction of the Noteholders unless the Majority Noteholders shall have directed the Trustee not to take such action. SECTION 11.20. Representations and Warranties of Trustee. The Trustee represents and warrants that: (a) the Trustee is a national banking association; (b) the Trustee has full power, authority and right to execute, deliver and perform this Indenture, and has taken all necessary action to authorize the execution, delivery and performance by it of this Indenture; and (c) this Indenture has been duly executed and delivered by the Trustee. SECTION 11.21. Maintenance of Office or Agency. The Trustee will maintain at its expense, an office or agency (the "Corporate Trust Office") where Notes may be presented for registration of transfer. The Trustee initially designates its office or agency at 180 East Fifth Street, St. Paul, Minnesota 55101 as such office. The Trustee will give prompt written notice to the Servicer and to Noteholders of any change in the location of the Note Register or any such office or agency. SECTION 11.22. Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other insolvency proceedings, or any voluntary or involuntary case under the Bankruptcy Code or any similar state bankruptcy or insolvency laws, in each case, as now or hereafter constituted, relative to the Issuer, the Trustee (irrespective of 117 124 whether the principal of the Notes shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Issuer for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (i) to file and prove a claim for the whole Outstanding Principal Balance (and premium, if any) and interest owing and unpaid in respect of the Notes and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Noteholders allowed in such judicial proceeding, and (ii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such proceedings is hereby authorized by each Noteholder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Noteholders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 11.10. Nothing contained herein shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Noteholder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or of any Noteholder, or to authorize the Trustee to vote in respect of the claim of any Noteholder in any such proceeding. ARTICLE XII SATISFACTION AND DISCHARGE SECTION 12.01. Satisfaction and Discharge of Indenture. This Indenture and all obligations of the Issuer hereunder and under the other Transaction Documents shall (except to the extent expressly otherwise provided herein or therein with respect to certain provisions hereof or thereof which shall survive the satisfaction and discharge hereof) cease to be of 118 125 further effect at such time (i) after the Amortization Date as the entire Outstanding Principal Balance of all Outstanding Notes and all other Obligations owing by the Issuer hereunder and under the other Transaction Documents have been reduced to zero or (ii) such earlier time as all Outstanding Notes theretofore authenticated and issued hereunder have been delivered (other than any Notes which shall have been destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 6.04 to the Trustee for cancellation) and the Issuer has paid all sums payable hereunder, under the other Transaction Documents and under the Notes; provided, however, that this Indenture and the trusts created hereby shall earlier terminate and this Indenture be satisfied and discharged upon any sale or final disposition by the Trustee of all property constituting the Pledged Assets from and after an Event of Default and the final distribution by the Trustee of all proceeds thereof in accordance with Article IV hereof, and provided further that the Servicer's obligations with respect to any amounts owed to the Trustee, the Transfer Agent, the Registrar and/or the Paying Agent shall survive the satisfaction and discharge of this Indenture. SECTION 12.02. Release of Liens. (a) Upon the satisfaction and discharge of this Indenture pursuant to Section 12.01, the Trustee, at the request of the Issuer, shall release (and shall, at the expense of the Issuer, execute and deliver to the Issuer) all necessary UCC releases and other releases in respect thereof of the Pledged Assets from the lien of the Trustee effected pursuant to the Granting Clause hereof. (b) Upon any sale, assignment or other transfer of any Pledged Asset as permitted by Section 2.06(a), the security interest of the Trustee in such Pledged Asset, and in all other Related Security related thereto (other than in the cash proceeds of such sale, assignment or other transfer, or in the case of the sale, assignment or other transfer of any Defaulted Loan or other Issuer Loan that is not an Eligible Loan, any Contingent Compensation related thereto) shall, immediately upon the sale, assignment or other transfer of such Pledged Asset, and without any further action on the part of the Trustee, be released except to the extent of the interest, if any, in such Pledged Asset which is then retained by the Issuer. The security interest of the Trustee shall nevertheless continue in (i) all amounts payable to the Issuer by any Person pursuant to the agreement with regard to which such sale, assignment or other transfer is to be made and (ii) all other claims, proceeds, benefits and rights of the Issuer thereunder or in connection therewith, if any, subject, in each case, to any rights therein granted to the purchaser of such Pledged Asset pursuant to such agreement. 119 126 (c) Upon the sale, assignment or other transfer of any Pledged Asset as permitted by Section 2.06(a), the Issuer or the Servicer shall deliver a certificate to the Trustee certifying (i) that such sale, assignment or other disposition complies with the requirements of Section 2.06(a) and (ii) that all funds required to be delivered to the Trustee in accordance with Section 2.06(a) have been so delivered. Upon the request of the Issuer (or the Servicer on behalf of the Issuer) and concurrently with or after the delivery of the certificate described in the preceding sentence, the Trustee shall deliver to the purchaser, assignee or other recipient of such Pledged Asset a certificate (in such form as may be provided by the Issuer or the Servicer and approved by the Trustee) stating that the Trustee no longer has a security interest in such Pledged Asset except to the extent of the interest therein, if any, which is retained by the Issuer or with respect to the proceeds thereof, in each case, as set forth in the last sentence of Section 12.02(b). The purchaser, assignee or other recipient of such Pledged Asset shall be entitled to rely conclusively on such certificate of the Trustee for any and all purposes. SECTION 12.03. Final Distribution. (a) The Servicer shall give the Trustee and the Issuer, and the Trustee shall give each Noteholder, at least twenty days' prior written notice of the date on which (i) this Indenture is expected to terminate in accordance with Section 12.01 and (ii) the Noteholders shall surrender their Notes for payment of the final distribution on, and cancellation of, such Notes. Such notice shall be accompanied by an Officer's Certificate setting forth the information specified in Section 3.06 covering the period during the then-current calendar year through the date of such notice. Not later than five Business Days after the Trustee shall receive such notice, the Trustee shall mail a notice to the Noteholders specifying (i) the date upon which such final distribution will be made upon presentation and surrender of such Notes at the office or offices therein designated, (ii) the amount of any such final distribution and (iii) that the Monthly Payment Date otherwise applicable to such final distribution is not applicable, payments being made only upon presentation and surrender of such Notes at the office or offices therein specified. Upon delivery and surrender of each Note, the Trustee shall make the final distribution to such Noteholder and, subject to the provisions of Section 12.03(b), any remaining amounts shall be distributed to the Issuer. The Trustee shall give such notice to the Transfer Agent and Registrar and the Paying Agent at the time such notice is given to the Noteholders. 120 127 (b) Notwithstanding the Servicer's delivery to the Trustee, or the Trustee's delivery to the Noteholders, of the notices required under Section 12.03(a), all funds then on deposit in the Concentration Account, the Reserve Account, any Series Account, any Defeasance Account, any other Trust Account or the Issuer's Account shall continue to be held in trust for the benefit of the Noteholders, and the Paying Agent or the Trustee shall pay such funds to the Noteholders upon surrender of their Notes pursuant to, and subject to the priorities set forth in, the applicable Supplement, as if such surrender date were on a Monthly Payment Date (and any excess shall be paid in accordance with the terms of any Enhancement Agreement). In the event that all Noteholders shall not surrender their Notes for cancellation within six months after the date specified in the above-mentioned written notice from the Trustee, the Trustee shall give a second written notice to the remaining Noteholders to surrender their Notes for cancellation and receive the final distribution with respect thereto. If within one year after the second notice all the Notes shall not have been surrendered for cancellation, the Trustee may take appropriate steps, or may appoint an agent to take appropriate steps, to contact the remaining Noteholders concerning surrender of their Notes, and the cost thereof shall be paid out of the funds in the Trust Accounts. The Trustee and the Paying Agent shall pay to the Issuer any monies held by them for the payment of principal or interest that remains unclaimed for two years. After payment to the Issuer, Noteholders entitled to the money must look to the Issuer for payment as general creditors unless an applicable abandoned property law designates another person. ARTICLE XIII REDEMPTIONS SECTION 13.01. Redemption Allowed. The Issuer may at its option redeem the Notes of any Series which are redeemable before their Stated Maturity Date in accordance with the terms of such Series of Notes and this Article. SECTION 13.02. Election to Redeem; Notice to Trustee. The election of the Issuer to redeem any Notes shall be evidenced by a resolution of the Board of Directors of the Issuer. In case of any such redemption at the election of the Issuer, the Issuer shall, at least 35 Business Days prior to the redemption date (the "Redemption Date") fixed by the Issuer (unless a shorter notice shall be acceptable to the Trustee), notify the Trustee of 121 128 such Redemption Date and of the principal amount of the Notes of such Series to be redeemed. In the case of any redemption of the Notes of any Series prior to the expiration of any restriction on such redemption provided in the terms of such Series of Notes or elsewhere in this Indenture, the Issuer shall furnish the Trustee with an Officer's Certificate evidencing compliance with such restriction. SECTION 13.03. Selection of Securities to Be Redeemed. If less than all of the Notes of such Series or Class are to be redeemed, the particular Notes of such Series to be redeemed shall be selected, not less than 30 days prior to the Redemption Date, by the Trustee from among the Outstanding Notes of such Series not previously called for redemption, by such method as the Trustee shall deem fair and appropriate in accordance with the terms of any applicable Supplement and which may provide for the selection for redemption of portions of the principal amount of the Notes of such Series of a denomination larger than the minimum authorized denomination for the Notes of such Series; provided, however, that if the Notes of such Series have different terms, the Notes of such Series to be redeemed shall be selected by the Issuer in accordance with the terms of this Indenture, and the Issuer shall give notice thereof to the Trustee. The Trustee shall promptly notify the Issuer in writing of the Notes selected for redemption and, in the case of any Notes selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Notes shall relate, in the case of any Notes redeemed or to be redeemed only in part, to the portion of the principal amount of such Notes which has been or is to be redeemed. SECTION 13.04. Notice of Redemption. Unless otherwise provided in any applicable Supplement pursuant to which Notes are issued, at least 30 but not more than 60 days before a Redemption Date, the Issuer shall mail a notice of redemption by first-class mail to each Noteholder whose Notes are to be redeemed, at the addresses of such Noteholders as they appear in the Note Register. Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the Noteholder actually receives such notice. Failure to give notice by mail, or any defect in the notice to the Noteholder of any Note of any Series designated for redemption in whole or in part, shall not affect the validity of the proceedings for the redemption of any other Notes of such Series. The notices of redemption shall identify the Notes to be redeemed and shall also state: 122 129 (1) the Redemption Date; (2) the redemption price (including the amount of accrued and unpaid interest to be paid and any premium payable in connection therewith) the "Redemption Price:); (3) the place or places where such Notes are to be surrendered for payment of the Redemption Price; (4) that, unless the Issuer defaults in making the redemption payment, interest on the Notes or any portion thereof called for redemption ceases to accrue on and after the specified Redemption Date and the only remaining right of the Noteholders thereof will be to receive payment of the Redemption Price upon surrender to the Trustee of the Notes; (5) if less than all of the Outstanding Notes of any Series are to be redeemed, the identification of the particular Notes to be redeemed, in whole or in part; and (6) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, on or after the Redemption Date, upon surrender of such Note, a new Note or Notes in an aggregate principal amount equal to the unredeemed portion thereof will be issued. At the Issuer's request, the Trustee shall give the notice of redemption in the Issuer's name and at its expense. In such event the Issuer will provide the Trustee with the information required by clauses (1), (2), (3), (5) and (6) above. SECTION 13.05. Deposit of Redemption Price. On or prior to any Redemption Date, the Issuer shall deposit with the Trustee an amount of money sufficient to pay the Redemption Price of, and accrued interest on (unless such interest has otherwise been paid on such date), all of the Notes which are to be redeemed on the Redemption Date. So long as the Issuer complies with the provisions of Section 13.04 and the other provisions of this Article, interest on the Notes (or portions thereof) to be redeemed on the applicable Redemption Date shall cease to accrue from and after such date and such Notes (or portions thereof) shall be deemed not to be entitled to any benefit under this Indenture or the related Supplement except to receive payment of the Redemption Price on the Redemption Date. The provisions of Section 12.03 shall apply to any money held by the Trustee under this Article that remains unclaimed for two years after the 123 130 Redemption Date for any Notes called for redemption pursuant to the provisions of this Article. SECTION 13.06. Notes Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Notes (or portions thereof) to be so redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified. Upon surrender of any such Note for redemption in accordance with such notice, such Notes (or portions thereof) shall be paid at the Redemption Price, together with accrued interest to the Redemption Date. If any Note (or portion thereof) called for redemption shall not be so paid upon surrender for redemption, then, from the Redemption Date until such principal is paid, interest shall be paid on the unpaid principal and, to the extent permitted by law, on any accrued but unpaid interest thereon, in each case at the rate prescribed therefor by such Notes. SECTION 13.07. Notes Redeemed in Part. Upon surrender of a Note that is redeemed in part, the Issuer shall issue and authenticate a new Note or Notes equal in aggregate principal amount to the unredeemed portion of the Note so surrendered. ARTICLE XIV MISCELLANEOUS PROVISIONS SECTION 14.01. Amendment. (a) This Indenture or any Supplement may be amended from time to time by the Servicer, the Issuer and the Trustee without the consent of any of the Noteholders, (i) to cure any ambiguity, (ii) to comply with the requirements of the Commission in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act, (iii) to correct or supplement any provision herein or in any Supplement which may be inconsistent with any other provision herein or therein, (iv) to evidence the succession of another Person to the Originator, the Issuer, the Servicer and/or the Trustee in each case to the extent that such succession is otherwise permitted under the terms of this Indenture and, if applicable, the Loan Purchase Agreement, (v) to add any other provisions with respect to matters or questions arising under this Indenture or any Supplement which are not inconsistent with the provisions of this Indenture or such Supplement and (vi) to change or eliminate any provisions of this Indenture or any Supplement in order to maintain the outstanding rating of any outstanding Series or Class of Notes; provided that any amendment 124 131 pursuant to this paragraph (a) shall not, as evidenced by an Officer's Certificate of the Servicer, adversely affect in any material respect the interests of any Noteholders. No such Supplement or amendment to this Indenture or any Supplement pursuant to this Section 14.01 shall become effective unless a copy thereof shall have been sent to each Noteholder. The Trustee may request an Officer's Certificate and Opinion of Counsel with respect to any such amendment concerning compliance with the requirements of this Indenture. (b) This Indenture or any Supplement may be amended from time to time by the Servicer, the Issuer and the Trustee, with the consent of the Majority in Interest of each adversely affected Series, for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Noteholders; provided, however, that no such amendment shall (i) reduce in any manner the amount of, or delay the timing of, distributions to be made to any Noteholder or deposits of amounts to be so distributed or the amount available under any Enhancement without the consent of such affected Noteholder, (ii) reduce the aforesaid percentage required to consent to any such amendment without the consent of each Noteholder or (iii) cause any adverse tax effect for Noteholder without the consent of each affected Noteholder. The Trustee may request an Officer's Certificate and Opinion of Counsel with respect to an amendment entered into pursuant to this Section 14.01(b) concerning compliance with the requirements of this Indenture. Any amendment to be effected pursuant to this paragraph shall be deemed to adversely affect all outstanding Series. No such amendment to this Indenture or any Supplement pursuant to this Section 14.01(b) shall become effective unless the Noteholders holding Notes evidencing not less than 66-2/3% of the Outstanding Principal Balance of each Series whose rating is or would be adversely affected thereby shall have consented thereto in writing. (c) Promptly after the execution of any such amendment or consent (other than an amendment pursuant to Section 14.01(a)), the Trustee shall furnish written notification of the substance of such amendment to each affected Noteholder, each Enhancement Provider and, so long as Holland Limited Securitization is a Noteholder, S&P and Fitch. (d) It shall not be necessary for the consent of Noteholders under this Section 14.01 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent shall approve the substance thereof. The manner of obtaining such consents and of evidencing the authorization of 125 132 the execution thereof by Noteholders shall be subject to such reasonable requirements as the Trustee may prescribe. (e) Notwithstanding anything in this Section 14.01 to the contrary, no amendment may be made to this Indenture or any Supplement without the consent of any Enhancement Provider unless such amendment would not (as evidenced by an Officer's Certificate of the Servicer) adversely affect in any material respect the interests of such Enhancement Provider. (f) Any Supplement executed in accordance with the provisions of Section 6.09 shall not be considered an amendment to this Indenture for the purposes of this Section 14.01. (g) Prior to the execution of any amendment to this Indenture or any Supplement, the Trustee and any Enhancement Provider shall be entitled to receive and rely upon an Opinion of Counsel stating that the execution of such amendment is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such amendment which affects the Trustee's own rights, duties or immunities under this Indenture, any Supplement or otherwise. SECTION 14.02. Limitation on Rights of Noteholders. (a) The death or incapacity of any Noteholder shall not operate to terminate this Indenture, nor shall such death or incapacity entitle such Noteholders' legal representatives or heirs to claim an accounting or to take any action or commence any proceeding in any court for a partition or winding up of the corpus of the Pledged Assets, nor otherwise affect the rights, obligations and liabilities of the parties hereto or any of them. (b) No Noteholder shall have the right to vote (except as expressly provided in this Indenture, including without limitation under Section 11.19) or in any manner otherwise control the operation and management of the Trust, or the obligations of the parties hereto, nor shall anything herein set forth, or contained in the terms of the Notes, be construed so as to constitute the Noteholders from time to time as partners or members of an association nor shall any Noteholder be under any liability to any third person by reason of any action taken by the parties to this Indenture pursuant to any provision hereof. (c) No Noteholder shall have any right by virtue of any provisions of this Indenture to file or otherwise institute any suit, action or proceeding in equity or at law upon or under or with respect to this Indenture, unless such Noteholder previously shall have made, and unless the Majority Noteholders 126 133 shall have made, a written request to the Trustee to institute such action, suit or proceeding in its own name as Trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee, for 60 days after such request and offer of indemnity, shall have failed to file or otherwise refused to institute any such action, suit or proceeding; it being understood and intended, and being expressly covenanted, by each Noteholder with every other Noteholder and the Trustee, that no one or more Noteholders shall have any right in any manner whatever by virtue or by availing itself or themselves of any provisions of this Indenture to affect, disturb or prejudice the rights of the holders of any of the Notes, or to obtain or seek to obtain priority over or preference to any such Noteholder, or to enforce any right under this Indenture, except in the manner herein provided and for the equal, ratable and common benefit of all Noteholders. For the protection and enforcement of the provisions of this Section 14.02, each and every Noteholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. Notwithstanding any other provision of this Indenture, the Notes or any Supplement, each Noteholder shall have the right to receive the payments of all amounts due hereunder, under the Notes held by such Holder and under the Supplement relating to the Series of Notes held by such Holder and the right to institute suit for the enforcement of any such payment without the consent of the Trustee or any other Holder. SECTION 14.03. Governing Law; Jurisdiction; Consent to Service of Process. (a) Governing Law. THIS INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK BUT OTHERWISE WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. (b) Jurisdiction. Each of the parties hereto hereby irrevocably and unconditionally submits to the nonexclusive jurisdiction of any federal court of the United States of America sitting in New York City or, if jurisdiction is not available in such federal court, New York State court, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Indenture, and each of the parties hereto hereby 127 134 irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. (c) Consent to Service of Process. Each party to this Indenture irrevocably consents to service of process in the manner provided for notices in Section 14.04. Nothing in this Indenture will affect the right of any party to this Indenture to serve process in any other manner permitted by law. SECTION 14.04. Notices; Payments. (a) All demands, notices, instructions, directions, requests, authorizations and communications (collectively, "Notices") under this Indenture shall be in writing and shall be deemed to have been duly given if personally delivered at, mailed by registered mail, return receipt requested, or sent by facsimile transmission (i) in the case of the Issuer, to Sirrom Funding Corporation, 500 Church Street - Suite 200, Nashville, Tennessee 37219, (ii) in the case of the Originator in its capacity as initial Servicer, to Sirrom Capital Corporation, 500 Church Street - Suite 200, Nashville, Tennessee 37219, (iii) in the case of the Trustee (including in its capacity as Paying Agent), to First Trust National Association, 180 East Fifth Street, SPFT0210, St. Paul, Minnesota 55101, Attention: Structured Finance, and (iv) in the case of the Trustee in its capacity as Transfer Agent and Registrar, to First Trust National Association, 180 East Fifth Street, SPFT0210, St. Paul, Minnesota 55101, Attention: Structured Finance, or, as to each such party, at such other address or facsimile number as shall be designated by such party in a written notice to each other party. In the case of any Successor Servicer, successor Trustee or any successor Paying Agent or successor Transfer Agent and Registrar, notices shall be given to such Person at the address designated by it in a notice to the other parties hereto at the addresses designated above as applicable. (b) Any Notice required or permitted to be mailed to Noteholder shall be given by first-class mail, postage prepaid, at the address of such Noteholder as shown in the Note Register. Notice so mailed within the time prescribed in this Indenture shall be conclusively presumed to have been duly given, whether or not the Noteholder receives such notice. SECTION 14.05. Rule 144A Information. In the event that and for so long as any of the Notes of any Series or Class 128 135 are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act, the Issuer, the Servicer and any Enhancement Provider agree to cooperate with each other to provide to each Noteholder of such Series or Class and to each prospective purchaser of the applicable Notes designated by such Noteholder, upon the request of such Noteholder or prospective purchaser, any information required to be provided to such holder or prospective purchaser to satisfy the condition set forth in Rule 144A(d)(4) under the Securities Act (or any successor provision). SECTION 14.06. Severability of Provisions. If any one or more of the covenants, agreements, provisions or terms of this Indenture shall for any reason whatsoever be held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Indenture and shall in no way affect the validity or enforceability of the other covenants, agreements, provisions or terms of this Indenture or of the Notes or rights of the Noteholders. SECTION 14.07. Assignment. Notwithstanding anything to the contrary contained herein, (i) this Indenture may not be assigned by the Issuer, and (ii) except as provided in Section 8.02, this Indenture may not be assigned by the Servicer without the prior consent of the Majority in Interest of each Series. SECTION 14.08. Notes Nonassessable and Fully Paid. It is the intention of the parties to this Indenture that upon authentication thereof by the Trustee pursuant to Section 6.02, the Notes are and shall be deemed fully paid. SECTION 14.09. Further Assurances. The Issuer and the Servicer agree to do and perform, from time to time, any and all acts and to execute any and all further instruments and documents required or reasonably requested by the Trustee more fully to effect the purposes of this Indenture, including, without limitation, the execution of any financing statements or continuation statements relating to the Pledged Assets for filing under the provisions of the UCC of any applicable jurisdiction. SECTION 14.10. Nonpetition Covenant. Notwithstanding any prior termination of this Indenture, each of the Servicer, the Trustee, the Paying Agent, and the Transfer Agent and Registrar shall not, prior to the date which is one year and one day after the termination of this Indenture acquiesce, petition or otherwise invoke or cause any other Person to invoke the process of any Governmental Authority for the purpose of 129 136 commencing or sustaining a case against the Issuer under any Federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Issuer or any substantial part of its property or ordering the winding-up or liquidation of the affairs of the Issuer. SECTION 14.11. No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of any Person, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege under this Indenture preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exhaustive of any rights, remedies, powers and privileges provided by law. SECTION 14.12. Counterparts. This Indenture may be executed in two or more counterparts and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument. SECTION 14.13. Third-Party Beneficiaries. This Indenture will inure to the benefit of and be binding upon the parties hereto, the Noteholders and their respective successors and permitted assigns. Except as otherwise provided in this Indenture, no other Person will have any right or obligation hereunder. SECTION 14.14. Actions by Noteholders. (a) Wherever in this Indenture a provision is made that an action may be taken or a Notice given by Noteholders, such action or Notice may be taken or given by any Noteholder, unless such provision requires a specific percentage of Noteholders. (b) Any Notice, consent, waiver or other act by the Holder of a Note shall bind such Holder and every subsequent Holder of such Note and of any Note issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done or omitted to be done by the Trustee or the Servicer in reliance thereon, whether or not notation of such action is made upon such Note. SECTION 14.15. Merger and Integration. Except as specifically stated otherwise herein, this Indenture sets forth the entire understanding of the parties relating to the subject 130 137 matter hereof, and all prior understandings, written or oral, are superseded by this Indenture. This Indenture may not be modified, amended, waived or supplemented except as provided herein. SECTION 14.16. Headings. The headings herein are for purposes of reference only and shall not otherwise affect the meaning or interpretation of any provision hereof. 131 138 IN WITNESS WHEREOF, the Issuer, the Servicer and the Trustee have caused this Indenture to be duly executed by their respective officers as of the day and year first above written. SIRROM FUNDING CORPORATION, as the Issuer By: ------------------------------------ Name: Title: SIRROM CAPITAL CORPORATION, as the Servicer By: ------------------------------------ Name: Title: FIRST TRUST NATIONAL ASSOCIATION, as the Trustee By: ------------------------------------ Name: Title: 132 EX-99.F.12 3 MASTER TRUST INDENTURE 1 Exhibit f.12 EXECUTION COPY ================================================================================ SIRROM FUNDING CORPORATION, as Issuer SIRROM CAPITAL CORPORATION, as Servicer FIRST TRUST NATIONAL ASSOCIATION, Not in its individual capacity, but solely as Trustee of the Music City Funding Corporation Master Trust Indenture and Security Agreement and ING BARING (U.S.) CAPITAL MARKETS, INC., as Program Agent SERIES 1996-1 SUPPLEMENT Dated as of December 31, 1996 to MASTER TRUST INDENTURE AND SECURITY AGREEMENT Dated as of December 31, 1996 $100,000,000 Revolving Notes, Series 1996-1 ================================================================================ 2 TABLE OF CONTENTS
Section Page ------- ---- ARTICLE I Creation of the Revolving Notes, Series 1996-1 SECTION 1.01. Designation...............................................................................1 SECTION 1.02. Definitions...............................................................................1 ARTICLE II Additional Covenants SECTION 2.01. Covenants of the Servicer................................................................11 ARTICLE III Establishment of Program Agent's Account and Allocation and Application of Collections SECTION 3.01. Establishment of Program Agent's Account.................................................12 SECTION 3.02. Payment of Funds to Program Agent........................................................12 SECTION 3.03. Allocation and Distribution..............................................................12 ARTICLE IV Distributions and Reports to Series 1996-1 Noteholders SECTION 4.01. Annual Noteholders' Statement............................................................17 ARTICLE V Events of Default; Additional Events of Default; Pay-Out Events SECTION 5.01. Events of Default; Additional Events of Default; Pay-Out Events..................................................................17 ARTICLE VI Miscellaneous Provisions SECTION 6.01. Ratification of Indenture................................................................19 SECTION 6.02. Counterparts.............................................................................19 SECTION 6.03. Governing Law; Jurisdiction..............................................................19 SECTION 6.04. Appointment of Successor Servicer........................................................20 SECTION 6.05. The Trustee..............................................................................20 SECTION 6.06. Assignment by HLS, Liquidity Providers, the Enhancement Providers and Holder(s) of Notes.................................................................................20 SECTION 6.07. No Assignability by Issuer or Servicer...................................................22
-ii- 3 SECTION 6.08. Amendments and Waivers...................................................................22 SECTION 6.09. Indemnification of the Trustee and the Noteholders..............................................................................23 SECTION 6.10. Servicer Indemnification.................................................................25 SECTION 6.11. Additional Reporting Requirements........................................................26
-iii- 4 SERIES 1996-1 SUPPLEMENT, dated as of December 31, 1996 (this "Supplement"), is made by and among SIRROM FUNDING CORPORATION, a Delaware corporation, as issuer (the "Issuer"), SIRROM CAPITAL CORPORATION, a Tennessee corporation, as initial Servicer (in such capacity, together with any successor in such capacity, the "Servicer"), FIRST TRUST NATIONAL ASSOCIATION, as Trustee (in such capacity, together with any successor in such capacity, the "Trustee") and ING BARING (U.S.) CAPITAL MARKETS, INC. PRELIMINARY STATEMENT Pursuant to the Master Trust Indenture and Security Agreement dated as of December 31, 1996 (as the same may be amended, restated, supplemented or otherwise modified from time to time, and as supplemented hereby, the "Indenture"), among the Issuer, the Servicer and the Trustee, the Issuer may from time to time, among other things, issue one or more Series of Notes secured by the Pledged Assets. The Principal Terms of any new Series are to be set forth in a Supplement to the Indenture Certain terms applicable to any such Series of Notes are to be set forth in a Supplement to the Indenture. Accordingly, the Issuer hereby enters into this Supplement with the Servicer and the Trustee as required by Section 6.08 of the Indenture to provide for the issuance, authentication and delivery a Series of Revolving Notes, Series 1996-1 (the "Notes"). ARTICLE I Creation of the Revolving Notes, Series 1996-1 SECTION 1.01. Designation. (a) There is hereby created a Series of Revolving Notes to be issued pursuant to the Indenture and this Supplement to be designated generally as Revolving Notes, Series 1996-1. Subject to the satisfaction of the conditions set forth in the Note Purchase Agreement, the Trustee shall authenticate and deliver the Notes upon the order of the Issuer, in an aggregate Stated Amount equal to $100,000,000. The Notes shall be authenticated and delivered in the manner and at the times for authentication and delivery of Revolving Notes that are specified in Article VI of the Indenture. (b) In the event that any term or provision contained herein shall conflict with or be inconsistent with any term or provision contained in the Indenture, the terms and provisions of this Supplement shall govern. SECTION 1.02. Definitions. (a) Whenever used in this Supplement the following words and phrases shall have the following meanings. 5 "Additional Event of Default" has the meaning specified for such term in Section 5.01 hereof. "Adjusted Eurodollar Rate" shall mean an interest rate per annum determined by the Program Agent to be equal to the rate (rounded upwards, if necessary, to the nearest 1/16 of 1%) reported at or about 11:00 A.M., on the date two Business Days prior to the first day of such Interest Period, on Telerate Access Service Page 3750 (British Bankers Association Settlement Rate) as the London Interbank Offered Rate for United States dollar deposits having a term of 90 days and in a principal amount of $1,000,000 or more (or, if such Page shall cease to be publicly available or, if the information contained on such Page, in the Program Agent's sole judgment, shall cease to accurately reflect such London Interbank Offered Rate, such rate as reported by any publicly available recognized source of similar market data selected by the Program Agent that, in the Program Agent's sole judgment, accurately reflects such London Interbank Offered Rate). "Alternative Rate" shall mean, with respect to any Interest Period, an interest rate per annum equal to the Adjusted Eurodollar Rate; provided, however, that the "Alternative Rate" for such Interest Period (or, in the case of clause (ii) below, any portion of such Interest Period during which the condition described therein exists) shall be the Base Rate in effect from time to time during such Interest Period if (i) such Interest Period is a period of 1 to 29 days, (ii) the Outstanding Principal Balance of the Notes is at any time less than $1,000,000, or (iii) on the first day of such Interest Period the Note Rate was being calculated by reference to the CP Rate. "Amortization Period" shall have the meaning specified for such term in the Indenture. "Asset Coverage Shortfall" shall have the meaning specified for such term in the Indenture. "Base Rate" shall mean, on any date, a fluctuating rate of interest per annum equal to the arithmetic average of the rates of interest publicly announced by The Chase Manhattan Bank, Citibank, N.A. and Morgan Guaranty Trust Company of New York (or their respective successors) as their respective prime commercial lending rates (or, as to any such bank that does not announce such a rate, such bank's "base" or other rate determined by the Program Agent to be the equivalent rate announced by such bank), except that, if any such bank shall, for any period, cease to announce publicly its prime commercial lending (or equivalent) rate, the Program Agent shall, during such period, determine the "Base Rate" based upon the prime commercial lending (or 2 6 equivalent) rates announced publicly by the other such banks or, if each such bank ceases to announce publicly its prime commercial lending (or equivalent) rate, based upon the prime commercial lending (or equivalent) rates announced publicly by other banks reasonably acceptable to the Issuer. The prime commercial lending (or equivalent) rates used in computing the Base Rate are not intended to be the lowest rates of interest charged by such banks in connection with extensions of credit to debtors. The Base Rate shall change as and when such banks' prime commercial lending (or equivalent) rates change. "Breakage Costs" shall mean, for each Interest Period during which the Outstanding Principal Balance of any Series 1996-1 Note is reduced, the amount, if any, by which (i) the additional interest at the Note Rate (calculated without taking into account any Breakage Costs), which would have accrued on the reduction of the Outstanding Principal Balance of such Note during such Interest Period (as so computed) if such reduction had not occurred, through the last day of the Interest Period exceeds (ii) the income, if any, received by the Noteholder funding such Outstanding Principal Balance investing the proceeds of such reductions of such Outstanding Principal Balance. "Carrying Cost Amount" shall mean, as of any date of determination, all accrued but unpaid Carrying Costs as of such date. "Carrying Costs" shall mean, for any Collection Period, (a) all interest payable on the Notes, (b) all Purchaser Fees, (c) all Breakage Costs, if any, and (d) any other fees, costs and expenses payable by the Issuer pursuant to terms hereof. The accrued interest for the Notes for each Interest Period used in computing the Carrying Costs for such Collection Period shall be determined by the Program Agent based upon the actual number of days in such Interest Period, the Outstanding Principal Balance and the Note Rate in effect on each day in such Interest Period, and a year consisting of 360 days, and the Program Agent shall give notice thereof to the Issuer and the Servicer at least two Business Days prior to the Interest Payment Date relating to such Collection Period. "Closing Date" shall mean the first date on which any Notes are issued. "Collection Period" shall mean, with respect to any Monthly Payment Date, the calendar month (or, in the case of the calendar month in which any Closing Date occurs, the portion of such calendar month following the Closing Date) immediately preceding the calendar month in which such Monthly Payment Date occurs. 3 7 "CP Disruption Event" shall mean, at any time for any reason whatsoever, any Noteholder shall be unable to raise, or shall be precluded or prohibited from raising, funds through the issuance of commercial paper notes in the United States' commercial paper market at such time. "CP Rate" shall mean, with respect to any Interest Period and any Noteholder, the weighted average of the per annum rates (or, if such rates are expressed as discount rates, the weighted average of the per annum rates resulting from converting such discount rates to an interest-bearing equivalent) of the commercial paper notes issued by such Noteholder and allocated by such Noteholder to the funding or maintenance of its Advances (as such term is defined in the Note Purchase Agreement) under the Notes during such Interest Period; provided, however, that at all times following the occurrence of an Event of Termination, the "CP Rate" shall be the Alternative Rate in effect from time to time; and provided, further, that upon the occurrence and during the continuance of any CP Disruption Event, the "CP Rate" shall be the Alternative Rate in effect from time to time during such Interest Period. "Daily Report" shall mean an Officer's Certificate of the Servicer substantially in the form of Exhibit A to the Indenture. "Eligible Assignee" shall mean a Person which certifies to the Trustee, the Issuer and the Servicer that it (i) is a receivables investment company which customarily issues commercial paper to fund its acquisition and maintenance of financial assets or interests therein or a bank, insurance company or other financial institution, and (ii) has a short-term debt rating or short-term certificate of deposit rating of at least A-1 from S&P, or at least P-1 from Moody's, or at least F-1 from Fitch, if rated by Fitch, or if such Person does not have a short-term debt rating or short-term certificate of deposit rating, a long-term senior debt rating of at least A from S&P, or A2 from Moody's, or at least A from Fitch, if rated by Fitch; provided that if such Person is an insurance, bonding or surety company which does not have a certificate of deposit rating or a debt rating, such Person has a claims paying rating or a surety rating of at least A from S&P, A2 from Moody's, or at least A from Fitch, if rated by Fitch; provided, further, in any case, if such Person is rated by two or more of S&P, Moody's and Fitch, it must have the prescribed minimum ratings from each of S&P, Moody's and Fitch. "Enhancement Providers" shall mean any enhancement providers specified in the Note Purchase Agreement and any of their successors and assigns that are Eligible Assignees. 4 8 "Equity Floor" shall have the meaning assigned to such term in the Indenture. "Excess O/C Sharing Date" shall have the meaning specified for such term in the Indenture. "Excess O/C Sharing Period" shall have the meaning specified for such term in the Indenture. "Fee Agreement" shall mean that certain fee agreement dated as of December 31, 1996 among Sirrom, the Issuer, HLS and the Program Agent, as the same may be amended, restated, supplemented or otherwise modified from time to time in accordance with the terms thereof. "Grade 4 Limit" shall have the meaning assigned to such term in the Indenture. "HLS" shall mean Holland Limited Securitization, Inc., together with its permitted successors and assigns. "Industry Limit" shall have the meaning assigned to such term in the Indenture. "Interest Payment Date" shall mean, with respect to each Interest Period, the last day of such Interest Period. "Interest Period" shall means (a) (if the Note Rate for such Interest Period is determined by reference to the CP Rate), the period of time (not to exceed 90 days), beginning on the Closing Date and ending on the last day of such period and, thereafter, shall mean the period beginning on the day following the last day of the immediately preceding Interest Period and ending on the last day of the next Interest Period, in each case, as the Program Agent shall select and the Program Agent shall advise the Issuer not later than 1:00 p.m. (New York City time) on any day; and (b) (if the Note Rate for such Interest Period is not determined by reference to the CP Rate) initially, the period beginning on the Closing Date and ending on the second Business Day following the last day of the month in which the Closing Date occurs and, thereafter, shall mean the period beginning on the day following the last day of the immediately preceding Interest Period and ending on the second Business Day following the last day of the month in which such Interest Period began. 5 9 Notwithstanding the foregoing, each Interest Period to occur during the Pay-Out Period shall be of a duration selected by the Program Agent. "Issuer Loan" shall have the meaning specified for such term in the Indenture. "Liquidity Providers" shall mean any liquidity providers specified in the Note Purchase Agreement and any of their successors and assigns that are Eligible Assignees. "Large Loan Limit" shall have the meaning assigned to such term in the Indenture. "Maturity Date" shall mean, the earlier to occur of (i) the Stated Maturity Date and (ii) the 60th Monthly Payment Date following the commencement of the Amortization Period or the Pay-Out Period with respect to the Notes. "Minimum Overcollateralization Amount" shall mean, as of any date of determination, the Net Loan Balance as of such date minus the quotient of (x) the Net Loan Balance as of such date, divided by (y) 1.33. "Net Loan Balance" shall have the meaning assigned to such term in the Indenture. "Net Outstanding Amount" shall mean, at any time, (a) the aggregate Outstanding Principal Balance of the Notes at such time minus (b) the amount on deposit in the Reserve Account allocable to the Notes at such time. "Note" shall mean any one of the Revolving Notes, Series 1996-1 executed by the Issuer and authenticated and delivered by or on behalf of the Issuer that is substantially in the form of Exhibit A and is issued pursuant to this Supplement; and "Notes" means all such Notes, collectively. "Noteholder" shall mean the Person in whose name a Note is registered in the Note Register. "Note Purchase Agreement" shall mean that certain Revolving Note Purchase Agreement, Series 1996-1, dated as of December 31, 1996 among the Issuer, the Servicer, the Series 1996-1 Noteholders and the Program Agent, as the same may be amended, restated, supplemented or otherwise modified from time to time in accordance with terms thereof. "Note Rate" shall mean, with respect to any Interest Period and the related Collection Period 6 10 (a) to the extent the Noteholder will be funding the Outstanding Principal Balance of the Notes on the first day of such Interest Period through the issuance of commercial paper, a rate equal to the CP Rate for such Interest Period, and (b) to the extent the Noteholder will not be funding the Outstanding Principal Balance of the Notes on the first day of such Interest period through the issuance of commercial paper, a rate equal to the Alternative Rate for such Interest Period or such other rate as the Program Agent and the Issuer shall agree to in writing; provided that at all times following the occurrence and during the continuance of any Event of Default described in clause (i) or (j) of Section 5.01 hereof or any "Event of Default" under and as described in clause (a), (b), (c), (e), (f), (l) or (p) of Section 9.01 of the Indenture, the Note Rate shall be the sum of the rate per annum otherwise then in effect plus two percent (2.00%). "Outstanding Principal Balance" shall mean, at any time (a) with respect to any Note, the outstanding principal balance of such Note at such time and (b) with respect to the Series 1996-1 Notes, the aggregate outstanding principal balance of all of such Notes. "Overcollateralization Amount" shall mean, as of any date of determination, the amount, if any, by which the Net Loan Balance plus unallocated Principal Collections held in the Concentration Account (without giving effect to the allocation and deposit pursuant to clause Third of Section 4.03(b)(ii) of the Indenture) as of such date, exceeds the Net Outstanding Amount as of such date. "Pay-Out Event" has the meaning specified for such term in Section 5.01 hereof. "Pay-Out Period" means the period commencing on the Pay-Out Period Commencement Date and terminating on the earliest of (a) the close of business on the Business Day immediately preceding the Amortization Date and (b) the date on which all of Notes shall have been paid in full. "Pay-Out Period Commencement Date" shall mean the date on which a Pay-Out Event occurs. 7 11 "Program Agent" shall mean ING Baring (U.S.) Capital Markets, Inc., in its capacity as agent for HLS, the Liquidity Providers and the Enhancement Providers in respect of the Notes. "Program Agent's Account" shall mean the account established pursuant to Section 3.01(a) of this Supplement. "Program Fees" shall have the meaning specified in the Fee Agreement. "Purchaser Fees" shall mean, with respect to any Collection Period, the Program Fees for such Collection Period and all other fees and expenses payable to any of HLS, the Liquidity Providers, the Enhancement Providers or the Holders of the Notes and incurred during such Collection Period, including, without limitation, increased costs and indemnities. "Required Overcollateralization Amount" shall mean, as of any date of determination, the Net Loan Balance as of such date minus the quotient of (x) the Net Loan Balance as of such date, divided by (y) 1.429. "Reserve Account" shall have the meaning assigned to such term in the Indenture. "Revolving Period" shall mean the period beginning on the Closing Date and terminating on the earliest of (a) the close of business on the Business Day immediately preceding the Amortization Date and (b) the close of business on the day on which any Pay-Out Event shall occur. "Scheduled Pay-Out Commencement Date" shall mean the close of business on December 31, 2001. "Series Allocation Percentage" shall mean (i) on any Business Day prior to the Amortization Date and on which no Excess O/C Sharing Period is in effect (a) during the Revolving Period and no Set-Aside Period has occurred and is continuing, zero; (b) during the Pay-Out Period for this Series and so long as no Set-Aside Period has occurred and is continuing, a fraction (expressed as a percentage) (x) the numerator of which equals the sum of (I) the Net Outstanding Amount of all Notes of this Series plus (II) the Required Overcollateralization Amount for this Series, in each case, as of the Pay-Out Period Commencement Date, and (y) the denominator of which equals the sum of (I) the Net Outstanding Amount of all Series in their respective Pay-Out Periods plus (II) the aggregate Required 8 12 Overcollateralization Amount for all Series in their respective Pay-Out Periods computed as provided in the applicable Supplement, in each case, as of the applicable Pay-Out Period Commencement Date for each such Series; (c) if a Set-Aside Period has occurred and is continuing, a fraction (expressed as a percentage) (x) the numerator of which equals the sum of (I) the Net Outstanding Amount of all Notes of this Series plus (II) the Required Overcollateralization Amount for this Series, in each case, as of the Business Day immediately preceding the commencement of such Set-Aside Period and (y) the denominator of which equals the sum of (I) the Net Outstanding Amount of all outstanding Series plus (II) the aggregate Required Overcollateralization Amount for all outstanding Series, in each case, as of the Business Day immediately preceding the commencement of such Set-Aside Period; (ii) on any Business Day after the Amortization Date, a fraction (expressed as a percentage)(a) the numerator of which equals the sum of (I) the Net Outstanding Amount of all Notes of this Series plus (II) the Required Overcollateralization Amount for this Series, in each case, as of the Amortization Date and (b) the denominator of which equals the sum of (I) the Net Outstanding Amount of all outstanding Series of Notes plus (II) the aggregate Required Overcollateralization Amount for all outstanding Series, in each case, as of the Amortization Date; and (iii) on any Business Day during an Excess O/C Sharing Period, a fraction (expressed as a percentage) (a) the numerator of which equals the Net Outstanding Amount of all Notes of this Series as of such date, and (b) the denominator of which equals the sum of (I) the Net Outstanding Amount of all Series as of such date plus (II) the Equity Floor as of the Excess O/C Sharing Date. "Series 1996-1" shall mean the Series of Notes, the terms of which are specified in this Supplement. "Servicer Default" shall have the meaning specified for such term in the Indenture. "Set-Aside Period" shall have the meaning specified in the Indenture. "Settlement Statement" shall mean, with respect to each Monthly Payment Date, the certificate prepared by the Servicer, substantially in the form of Exhibit B to the Indenture. "Sirrom" means Sirrom Capital Corporation. 9 13 "Stated Amount" is $100,000,000. "Stated Maturity Date" shall mean the close of business on January 5, 2007. "Transaction Documents" shall have the meaning assigned thereto in the Indenture and, without in any way limiting the foregoing, shall include the Fee Agreement and all other agreements executed in connection herewith. SECTION 1.03. Other Definitional Provisions. (a) All terms defined in this Supplement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein. (b) All capitalized terms used herein and not otherwise defined herein have the meanings ascribed to them in the Indenture. Each capitalized term defined herein shall relate only to the Revolving Notes, Series 1996-1 and not to any other Series of Notes issued pursuant to the Indenture. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Series 1996-1 Supplement shall refer to this Supplement as a whole and not to any particular provision of this Supplement; references to any Article, Section, Schedule or Exhibit are references to Articles, Sections, Schedules and Exhibits in or to this Supplement unless otherwise specified; and the term "including" means "including without limitation". (d) Whenever the term "including" (whether this term is followed by the phrase "but not limited to" or "without limitation" or words of similar effect) is used in this Supplement in connection with a listing of items without a particular classification, that listing will not be interpreted as a limitation on, or exclusive listing of, the items within that classification. (e) In computing periods from a specified date to a later specified date, when precise times of day are not stated, the words "from" and "commencing on" (and the like) mean "from and including," and the words "to," "until" and "ending on" (and the like) mean "to but excluding." (f) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. Each gender-specific term used in this Supplement 10 14 has a comparable meaning whether used in a masculine, feminine or gender-neutral form. ARTICLE II Additional Covenants SECTION 2.01. Covenants of the Servicer. The Servicer hereby covenants that, until the termination of the Amortization Period: (a) The Servicer will furnish to the Program Agent, promptly after delivery to the Trustee, all notices, reports and other information given to the Trustee under the Indenture other than the Daily Reports required thereunder. (b) At any time and from time to time during the Servicer's regular business hours and at the Servicer's expense, on reasonable prior notice; the Servicer shall, in response to any reasonable request of the Trustee or the Program Agent, permit the Trustee or the Program Agent, or their agents or representatives, (i) to examine and make copies of and abstracts from all books, records and documents (including, without limitation, computer tapes, microfiche and disks) in the possession or under the control of the Servicer relating to the Pledged Assets, the Issuer Loans and the related Loan Documents and (ii) to visit the offices and properties of the Servicer for the purpose of examining such materials and to discuss matters relating to the Issuer Loans or the Servicer's performance hereunder with any of the Responsible Officers of the Servicer having knowledge thereof; such audits and/or visits may take place annually, or more frequently if so required at the reasonable discretion of the Program Agent, or its agents or representatives including, without limitation, any Independent Public Accountants mutually acceptable to the Servicer and the Program Agent. The Servicer agrees that the Program Agent will have the right to require changes in the scope of the Annual Servicing Report furnished by the Independent Public Accountants pursuant to Section 3.07 of the Indenture. The Program Agent shall provide the Trustee with notice of any changes in the scope of the Annual Servicing Report. (c) The Servicer will deliver or cause to be delivered in duplicate, to each Noteholder and the Trustee, for so long as Sirrom is the Servicer, copies of each report of Sirrom filed with the Securities and Exchange Commission on Forms 10-K and 10-Q within 95 days after end of each fiscal year, in the case of Forms 10-K, and within 50 days after end of each fiscal quarter in the case of Forms 10-Q. 11 15 ARTICLE III Establishment of Program Agent's Account and Allocation and Application of Collections SECTION 3.01. Establishment of Program Agent's Account. The Program Agent, for the benefit of HLS (for so long as HLS is the Holder of all of the Series 1996-1 Notes), shall establish and maintain in its own name, on behalf of HLS, the Liquidity Providers and the Enhancement Providers, with an Eligible Institution a segregated account accessible only by the Program Agent (the "Program Agent's Account"), which shall be identified as the "Program Agent's Account for the Sirrom Funding Master Trust Indenture, Series 1996-1" and shall bear a designation clearly indicating that the funds deposited therein are held for the benefit of HLS, as Holder of Series 1996-1 Notes. The Program Agent's Account initially shall be established at First Trust of New York, National Association. If a substitute Program Agent's Account is established pursuant to this Section 4.01, the Program Agent shall promptly provide to the Paying Agent, the Servicer and the Trustee with the relevant information in respect thereof. SECTION 3.02. Payment of Funds to Program Agent. Except as provided in Section 12.03 of the Indenture with respect to the final distribution, all Collections and other amounts allocated by the Trustee pursuant to Article IV of the Indenture for distribution in respect of the Revolving Notes, Series 1996-1 shall be paid by the Trustee or the Paying Agent, as the case may be, to the Program Agent by wire transfer to the Program Agent's Account, without presentation or surrender of any Note or the making of any notation thereon. Any payments due to the Revolving Notes, Series 1996-1 and received to the credit of the Program Agent's Account shall be considered received by the Noteholders thereof for the purposes of the Indenture, this Supplement and the Notes. SECTION 3.03. Allocation and Distribution. All Collections and other amounts paid to the Program Agent's Account pursuant to Section 3.02 hereof upon allocation by the Trustee to the Revolving Notes, Series 1996-1 shall be distributed by the Program Agent as follows: (a) Revolving Period. (i) Interest Payment Date. All amounts allocated to Series 1996-1 pursuant to Section 4.03(c) of the Indenture during the Revolving Period shall, on each Interest Payment 12 16 Date, be applied by the Program Agent in the following order of priority: (A) for distribution to the Noteholders, ratably in accordance with their respective Outstanding Principal Balances of the Notes, in payment of accrued and unpaid interest with respect to the Notes; and (B) for distribution to the Noteholders, in payment of the Breakage Costs, if any, due and payable with respect to the Notes, ratably in accordance with the amount of Breakage Costs so due and payable. (ii) Monthly Payment Date. All amounts allocated pursuant to Section 4.03(d)(iii) of the Indenture during the Revolving Period shall, on each Monthly Payment Date, be applied by the Program Agent in the following order of priority: (A) for distribution to the Noteholders, ratably in accordance with the respective Stated Amounts of the Notes, in payment of the Program Fees payable for the account of the Noteholders; and (B) for distribution to the applicable Persons as their interests may appear, in payment of all other Purchaser Fees, ratably in accordance with the amounts so due and payable. (iii) The amount allocated pursuant to clause Third of Section 4.03(b)(ii) of the Indenture in respect of Series 1996-1 during the Revolving Period (so long as no Set-Aside Period has occurred and is continuing) shall be zero, therefore all amounts not otherwise allocated to another Series shall be deposited to the Issuer's Account pursuant to clause Fourth of Section 4.03(b)(ii) of the Indenture. (b) Pay-Out Period. (i) Interest Payment Date. All amounts allocated pursuant to Section 4.03(c) of the Indenture during the Pay-Out Period shall, on each Interest Payment Date, be applied by the Program Agent in the following order of priority: (A) for distribution to the Noteholders, ratably in accordance with their respective Outstanding Principal Balances of the Notes, in payment of accrued and unpaid interest with respect to the Notes; and 13 17 (B) for distribution to the Noteholders, in payment of the Breakage Costs, if any, due and payable with respect to the Notes, ratably in accordance with the amount of Breakage Costs so due and payable. (ii) Monthly Payment Date. All amounts allocated pursuant to Section 4.03(d)(iii) of the Indenture during the Pay-Out Period shall, on each Monthly Payment Date, be applied by the Program Agent in the following order of priority: (A) for distribution to the Noteholders, ratably in accordance with the respective Stated Amounts of the Notes, in payment of the Program Fees payable for the account of the Noteholders; and (B) for distribution to the applicable Persons as their interests may appear, in payment of all other Purchaser Fees, ratably in accordance with the amounts so due and payable. (iii) The amount allocated pursuant to clause Third of Section 4.03(b)(ii) of the Indenture in respect of Series 1996-1 during a Pay-Out Period shall equal the Series Allocation Percentage of the amount available for allocation pursuant to such clause Third and shall be paid by the Program Agent to the Noteholders, ratably in accordance with the respective Outstanding Principal Balances of the Notes. Upon payment in full to all of the Series 1996-1 Noteholders of the Outstanding Principal Balance of the Series 1996-1 Notes, all accrued and unpaid interest thereon and all other amounts due the Series 1996-1 Noteholders under the Transaction Documents, all remaining amounts allocated to the Notes shall be distributed by the Trustee to the Issuer or to the Holders of any other outstanding Series, pursuant to the terms of the Indenture. (c) Set-Aside Period. (i) Interest Payment Date. All amounts allocated pursuant to Section 4.03(c) of the Indenture during a Set-Aside Period shall, on each Interest Payment Date, be applied by the Program Agent in the following order of priority: (A) for distribution to the Noteholders, ratably in accordance with their respective Outstanding Principal Balances of the Notes, in payment of accrued and unpaid interest with respect to the Notes; and 14 18 (B) for distribution to the Noteholders, in payment of the Breakage Costs, if any, due and payable with respect to the Notes, ratably in accordance with the amount of Breakage Costs so due and payable. (ii) Monthly Payment Date. All amounts allocated pursuant to Section 4.03(d)(iii) of the Indenture during a Set-Aside Period shall, on each Monthly Payment Date, be applied by the Program Agent in the following order of priority: (A) for distribution to the Noteholders, ratably in accordance with the respective Stated Amounts of the Notes, in payment of the Program Fees payable for the account of the Noteholders; and (B) for distribution to the applicable Persons as their interests may appear, in payment of all other Purchaser Fees, ratably in accordance with the amounts so due and payable. (iii) During a Set-Aside Period, no amounts shall be allocated pursuant to clause Third of Section 4.03(b)(ii) of the Indenture in respect of any Series, rather, all such amounts shall be allocated and deposited to the Reserve Account pursuant to clause Second of Section 4.03(b)(ii) of the Indenture until the Net Outstanding Amount is less than or equal to the Base Amount. Thereafter, if the Amortization Date shall not have occurred, the amount allocated pursuant to clause Third of Section 4.03(b)(ii) of the Indenture in respect of Series 1996-1 during the Revolving Period is zero, therefore all amounts not otherwise allocated to another Series shall be deposited to the Issuer's Account pursuant to clause Fourth of Section 4.03(b)(ii) of the Indenture. (d) Amortization Period. (i) Interest Payment Date. All amounts allocated pursuant to Section 4.03(c) of the Indenture during the Amortization Period, on each Interest Payment Date, shall be applied by the Program Agent in the following order of priority: (A) for distribution to the Noteholders, ratably in accordance with their respective Outstanding Principal Balances of the Notes, in payment of accrued and unpaid interest with respect to the Notes; and 15 19 (B) for distribution to the Noteholders, in payment of the Breakage Costs, if any, due and payable with respect to the Notes, ratably in accordance with the amount of Breakage Costs so due and payable. (ii) Monthly Payment Date. All amounts allocated pursuant to Section 4.03(d)(iii) of the Indenture during the Amortization Period, on each Monthly Payment Date, shall be applied by the Program Agent in the following order of priority: (A) for distribution to the Noteholders, ratably in accordance with the respective Stated Amounts of the Notes, in payment of the Program Fees payable for the account of the Noteholders; and (B) for distribution to the applicable Persons as their interests may appear, in payment of all other Purchaser Fees, ratably in accordance with the amounts so due and payable. (iii) The amount allocated pursuant to clause Third of Section 4.03(b)(ii) of the Indenture in respect of Series 1996-1 during the Amortization Period shall equal the Series Allocation Percentage of the amount available for allocation pursuant to such clause Third and shall be paid by the Program Agent to the Noteholders, ratably in accordance with the respective Outstanding Principal Balances of the Notes. Upon payment in full to all of the Series 1996-1 Noteholders of the Outstanding Principal Balance of the Series 1996-1 Notes, all accrued and unpaid interest thereon and all other amounts due the Series 1996-1 Noteholders under the Transaction Documents, and provided that no amounts are then due and unpaid to the Holders of any other outstanding Series, all amounts remaining on deposit in the Trust Accounts shall be distributed by the Trustee to the Issuer, and all amounts, if any, remaining in the Lock-Box Accounts, the Concentration Account and the Reserve Account shall be distributed by the Trustee to the Issuer; provided, however, that if at any time after the payment that would have otherwise resulted in such payment in full, such payment is rescinded or must otherwise be returned for any reason, effective upon such rescission or return such payment in full shall automatically be deemed, as between the Series 1996-1 Noteholders and the Issuer, never to have occurred, and the Issuer shall be required, to the extent it received any amounts under this Section 4.03, to remit to the Series 1996-1 Noteholders an amount equal to the rescinded or returned payment. 16 20 SECTION 3.04. Determination of Rates. At any time that the Note Rate is required to be determined hereunder, for any reason whatsoever, the Servicer shall give the Trustee written notice of such rate at such time, and to the extent that the Servicer shall not have sufficient information in order to calculate such rate at such time, the Servicer shall obtain such additional information from the Program Agent. SECTION 3.05. New Issuances. In addition to the conditions to the issuance of a new Series of Notes described in Section 6.09(b) of the Indenture, on or before the Closing Date relating to any new Series, Program Agent shall have consented to the issuance of such new Series in writing to the Servicer and the Trustee. ARTICLE IV Distributions and Reports to Series 1996-1 Noteholders SECTION 4.01. Annual Noteholders' Statement. On or before February 15 of each calendar year, beginning with February 15, 1997, the Servicer shall provide to the Trustee and the Trustee shall forward or cause to be forwarded to each Person who at any time during the preceding fiscal year was a Noteholder, a statement prepared by the Servicer containing the information which is required to be contained in the Settlement Statements provided to Noteholders pursuant to Section 3.05(b) of the Indenture, aggregated for such fiscal year or the applicable portion thereof during which such Person was a Noteholder, together with other information as is required to be provided under the IRC and such other customary information as is necessary to enable the Noteholders to prepare their tax returns (all as determined by the Servicer). The obligation of the Servicer to provide such other information and such other customary information shall be deemed to have been satisfied to the extent that information substantially comparable to such other information and such other customary information shall be provided by the Trustee pursuant to any requirements of the IRC as from time to time in effect. ARTICLE V Events of Default; Additional Events of Default; Pay-Out Events SECTION 5.01. Events of Default; Additional Events of Default; Pay-Out Events. (a) If any one of the following events shall occur (each, an "Event of Default"): 17 21 (a) the 90th consecutive Business Day after which the Base Amount is less than the Net Outstanding Amount; or (b) a regulatory, tax or accounting body of applicable jurisdiction has ordered that the activities of HLS, or any Affiliate of HLS, contemplated hereby be terminated or, as a result of any other event or circumstance, the activities of HLS contemplated hereby may reasonably be expected to cause HLS, the Person then acting as the administrator or the manager for HLS, or any of their respective Affiliates to suffer materially adverse regulatory, accounting or tax consequences; or (c) no commercial paper dealer of HLS is able to retire maturing commercial paper issued to fund or maintain the Outstanding Principal Balance of the Notes hereunder through the issuance of new commercial paper for 180 consecutive days; or (d) the Issuer shall fail to perform any of its obligations under the Note Purchase Agreement; or (e) the occurrence of the Scheduled Pay-Out Commencement Date; or (f) any two of George Miller, David Resha and Carl Stratton shall cease to be actively involved in the management of Sirrom; or (g) Sirrom Capital Corporation ("Sirrom") shall fail at any time to maintain consolidated tangible net worth in an amount equal to or exceeding the sum of (i) $75,000,000 and (ii) an amount equal to the product of (X) 75% and (Y) the aggregate amount of equity and subordinated indebtedness issued by Sirrom after the Closing Date to the date of determination; or (h) an Asset Coverage Shortfall shall occur; or (i) the Originator, the Issuer, the Servicer or any Significant Subsidiary of any such Person shall fail to pay any principal of or premium or interest on any indebtedness of any such Person (other than the Notes) which indebtedness has an aggregate principal amount of $1,000,000 or more, when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such indebtedness; or any such indebtedness shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled required prepayment) prior to the stated maturity thereof; or 18 22 (j) any other default by the Issuer, the Originator or the Servicer shall occur, and shall not be remedied within the applicable grace period, if any, under any indebtedness of any such Person (other than the Notes) which indebtedness has an aggregate principal amount of $1,000,000 or more and such failure shall continue after the applicable grace period, if any, speci- fied in the agreement or instrument relating to such indebtedness; or (k) a Servicer Default shall have occurred and be continuing, then, upon the occurrence of any Event of Default described in clauses (a) and (d) and clauses (h) through (k) above, an "Additional Event of Default" shall be deemed to have automatically occurred under the Indenture and with respect to all Series; and upon the occurrence of any other Event of Default described in clauses (b) and (c) and clauses (e) through (g) above, either the Trustee or the Program Agent (unless otherwise directed by the Majority Noteholders) or the Majority Noteholders, by notice then given in writing to the Issuer and the Servicer (and to the Trustee if given by such Noteholders), may declare (provided that such Event of Default shall not have been remedied) that a "Pay-Out Event" has occurred as of the date of such notice with respect to this Series. ARTICLE VI Miscellaneous Provisions SECTION 6.01. Ratification of Indenture. As supplemented by this Supplement, the Indenture is in all respects ratified and confirmed and the Indenture as so supplemented by this Supplement shall be read, taken and construed as one and the same instrument. SECTION 6.02. Counterparts. This Supplement may be executed in two or more counterparts (and by different parties on separate counterparts), each of which shall be an original but all of which together shall constitute one and the same instrument. SECTION 6.03. Governing Law; Jurisdiction; Service of Process. (a) Governing Law. THIS SERIES SUPPLEMENT, INCLUDING THE RIGHTS AND DUTIES OF THE PARTIES HERETO, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. 19 23 (b) Jurisdiction. Each of the parties hereto hereby irrevocably and unconditionally submits to the nonexclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Series Supplement, and each of the parties hereto hereby irrevocably and unconditionally (i) agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, such federal court and (ii) waives the defense of an inconvenient forum. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. (c) Consent to Service of Process. Each party to this Series Supplement irrevocably consents to service of process by personal delivery, certified mail, postage prepaid or overnight courier. Nothing in this Series Supplement will affect the right of any party to this Series Supplement to serve process in any other manner permitted by law. SECTION 6.04. Appointment of Successor Servicer. Notwithstanding anything to the contrary in Section 10.02 of the Indenture, the Trustee's appointment of a Successor Servicer shall be subject to the consent of a Majority in Interest of the Series 1996-1 Noteholders. SECTION 6.05. The Trustee. The Trustee shall not be responsible in any manner whatsoever for or with respect to the validity or sufficiency of this Supplement, or for or with respect to the recitals contained herein, all of which recitals are made solely by the Issuer and the Servicer. SECTION 6.06. Assignment by HLS, Liquidity Providers, the Enhancement Providers and Holder(s) of Notes. (a) Subject to the limitations on transfer contained in the Indenture and this Supplement, at any time and from time to time, HLS or any Liquidity Provider or Enhancement Provider may, by notice and delivery to the Program Agent of a fully executed assignment and assumption agreement (in sufficient counterparts for each party hereto), assign to any Person all or any portion of its rights and obligations hereunder; provided that such Person is an Eligible Assignee. The Program Agent shall, promptly upon its receipt of any such notice and assignment and assumption agreement, notify the Issuer, the Servicer and the Trustee of such assignment. The Issuer and the Servicer agree to execute or obtain such other documentation as may be reasonably requested by HLS or any Liquidity Provider or Enhancement Provider in order to 20 24 effectuate such assignment. The assignee shall, upon the effectiveness of such assignment and assumption agreement and delivery thereof and of such other requested documentation to the Program Agent, become entitled to the benefits hereof and subject to the obligations of HLS hereunder. (b) Subject to the limitations on transfer contained in the Indenture and this Supplement, at any time and from time to time, HLS may assign to any Liquidity Provider or Enhancement Provider, and any Liquidity Provider or Enhancement Provider may assign to any other Liquidity Provider or Enhancement Provider (as applicable), all or any portion of its Note or its interest therein; provided that such assignee shall be an Eligible Assignee; and provided, further, that such assignment shall comply with any applicable legal requirements including, without limitation, the Securities Act. Each such assignment shall be upon such terms and conditions as the assignor and the assignee may mutually agree. HLS or the Liquidity Provider or Enhancement Provider making any such assignment shall provide notice to the Trustee, the Issuer and the Servicer thereof. (c) No Holder of a Series 1996-1 Note may sell, transfer or otherwise dispose of (each, a "Sale") any Series 1996-1 Note, or any interest in any Series 1996-1 Note, held by it (other than, in the case of HLS, any assignment to the Liquidity Providers or the Enhancement providers, as applicable, pursuant to Section 6.04 of the Note Purchase Agreement, provided, that each such Liquidity Provider or Enhancement Provider shall have previously delivered a Non-Rule 144-A Letter to the Trustee and the Issuer) unless: (i) such Sale is to a "qualified institutional buyer" within the meaning of Rule 144A ("Rule 144A") promulgated under the Securities Act that purchases for its own account or for the account of another Person that is a qualified institutional buyer, which Person is aware that the proposed Sale is being made in reliance on Rule 144A and to whom such Sale is being made pursuant to an available exemption from the registration requirements of applicable state securities laws, and, prior to the proposed Sale, such transferring Holder has executed and delivered to the Trustee and the Issuer an investor letter, substantially in the form of Exhibit B-1 hereto (a "Rule 144-A Letter"), or (ii) the transferee to whom such Sale is being made is a sophisticated institutional investor that is an "accredited investor" (within the meaning of Rule 501(a) (1), (2), (3) or (7) under the Securities Act) 21 25 in a transaction not involving any general solicitation or advertising as evidenced by a certificate of the proposed transferor thereof delivered to the Trustee, and to whom such Sale is being made pursuant to an available exemption from the registration requirements of applicable state securities laws, and, prior to the proposed Sale, such transferring Holder has executed and delivered to the Trustee and the Issuer an investor letter, substantially in the form of Exhibit B-2 hereto (a "Non-Rule 144-A Letter"), or (iii) such Sale is being made pursuant to an applicable exemption from the registration requirements of the Securities Act and applicable state securities laws and, prior to the proposed Sale such transferring Holder and the proposed transferee each provide the Trustee and the Issuer with an investor letter, substantially in the form of Exhibit B-2 hereto and, if requested by the Trustee or the Issuer, an Opinion of Counsel, in each case satisfactory in form and substance to the Trustee and the Issuer, concerning the proposed Sale and the availability of such exemption. No Holder of a Series 1996-1 Note or other Person acting on behalf of a Noteholder shall use any means of general solicitation or distribution in connection with the Sale of any Series 1996-1 Note. Each of the Series 1996-1 Note shall bear a legend substantially as set forth in the form of the note attached to this Series Supplement. SECTION 6.07. No Assignability by Issuer or Servicer. Neither the Servicer nor the Issuer may assign any of its rights and obligations hereunder or any interest herein without the prior written consent of HLS and the Program Agent. SECTION 6.08. Amendments and Waivers. No amendments, waivers or other modifications may be made to this Supplement without the prior written consent of the Program Agent (which consent of the Program Agent shall in all circumstances be given in accordance with the applicable provisions of the Note Purchase Agreement). In addition, no such amendment, waiver or modification shall be made, the effect of which would be to (i) change the Carrying Costs, Equity Floor, Grade 4 Limit, Industry Limit, Large Loan Limit, Minimum Overcollateralization Percentage, Pay-Out Event, Required Overcollateralization Percentage, or Stated Amount, unless and to the extent that the amendment, waiver or modification effecting such change shall be consented to by the Program 22 26 Agent acting pursuant to the authority granted the Program Agent in the Note Purchase Agreement, (ii) reduce in any manner the amount of, or delay the timing of, distributions to be made to any Series 1996-1 Noteholder or deposits of amounts to be so distributed, in each case without the prior written consent of such Series 1996-1 Noteholder, or (iii) adversely affect in any other material respect the interests of any Series 1996-1 Noteholder, in each case unless a Majority in Interest of the Series 1996-1 Noteholders has consented in writing. SECTION 6.09. Indemnification of the Trustee and the Noteholders. Without limiting any other rights which the Trustee, any Holder of the Series 1996-1 Notes, any Liquidity Provider or Enhancement Provider (each, an "Indemnified Party") may have under the Indenture, under this Series Supplement, under the Note Purchase Agreement or under applicable law, the Issuer hereby agrees to indemnify each Indemnified Party from and against any and all damages, losses, liabilities and related costs and expenses actually incurred (excluding consequential damages and lost profits), including reasonable attorneys' fees and disbursements (all of the foregoing being collectively referred to as "Indemnified Amounts") awarded against or incurred by any of them arising out of or resulting from the Indenture, this Series Supplement, the Note Purchase Agreement, the activities of the Trustee in connection with the Indenture, the Issuer's use of proceeds of any Pledged Assets or reinvestments of Collections, the interest conveyed under the Indenture in Pledged Assets, or in respect of any Loan or the Loan Purchase Agreement (excluding however (a) Indemnified Amounts to the extent resulting from willful misconduct, bad faith, gross negligence, the reckless disregard by such Indemnified Party of any of his, her or its obligations and duties or breach of fiduciary duty on the part of such Indemnified Party (if any), (b) losses in respect of Loans to the extent reimbursement therefor would constitute credit recourse to the Issuer for nonpayment of any Loan by any Originator, (c) any income or franchise taxes or similar taxes (or any interest or penalties with respect thereto) incurred by such Indemnified Party arising out of or as a result of this Series Supplement or the interest conveyed hereunder in Pledged Assets or in respect of any Loan or the Loan Purchase Agreement), to the extent caused by: (i) reliance on any representation, warranty or covenant made or statement made or deemed made by the Issuer (or any of its Responsible Officers) under or in connection with the Indenture, this Series Supplement, the Note 23 27 Purchase Agreement or the Loan Purchase Agreement which shall have been incorrect in any material respect when made or deemed made or which the Issuer shall have failed to perform; (ii) the failure by the Issuer or any of the Originators to comply with the Indenture, this Series Supplement, the Note Purchase Agreement or the Loan Purchase Agreement or any applicable Requirement of Law with respect to any Loan or the related Loan Documents or the Loan Purchase Agreement, or the failure of any Loan or the related Loan Documents to conform to the Loan Purchase Agreement or any Requirement of Law; (iii) the failure to vest in the Issuer a first priority perfected ownership interest in and to the Loans, or the failure to vest in the Noteholder a first priority perfected security interest, in and to the Loans and the other Pledged Assets, in each case free and clear of any Lien (other than any Lien in favor of the Issuer pursuant to the Loan Purchase Agreement or in favor of the Trustee pursuant to the Indenture); (iv) the failure to have filed, or any delay in filing, any financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws that are necessary for perfection or priority of the ownership and/or security interests (as the case may be) created by the Loan Purchase Agreement and/or the Indenture; (v) any commingling of Collections with other funds of the Issuer or any Affiliate; (vi) any investigation, litigation or proceeding related to the Indenture, this Series Supplement, the Note Purchase Agreement or the Loan Purchase Agreement or the use of proceeds or reinvestments of proceeds by the Issuer or Sirrom of Pledged Assets or the ownership of or security interest in Pledged Assets or in respect of any Loan or Loan Document; (vii) any claim brought by any Person other than an Indemnified Party arising from any activity by the Issuer or any Affiliate of the Issuer in servicing, administering or collecting any Loan; (viii) any failure by the Issuer or any Originator (as the case may be) to perform its duties or obligations in accordance with the provisions of the Indenture, this Series 24 28 Supplement, the applicable Note Purchase Agreement or the Loan Purchase Agreement (as appropriate); or (ix) any tax (other than any income or franchise tax, or any interest or penalties with respect thereto) imposed by reason of ownership of the Loans or other Pledged Assets by the Trustee; or (x) any Loan which is not an Eligible Loan at the time of its Transfer to the Trust under the Indenture. Any Indemnified Amounts due hereunder shall be payable within five business days following submission of a claim by the Indemnified Party accompanied by information and documentation reasonably supporting such claim. Indemnification pursuant to this Section 6.09 shall be payable from assets of the Issuer. The agreement contained in this Section 6.09 shall survive the collection of all Loans, the termination of the Trust and the payment of all amounts otherwise payable hereunder. All rights of indemnification under this Section 6.09 are in addition to, and not by way of substitution for, the obligations and liabilities of the Issuer and/or the Servicer in favor of the Indemnified Parties under the Indenture and under this Supplement. SECTION 6.10. Servicer Indemnification. The Servicer hereby agrees to indemnify each Indemnified Party from and against Indemnified Amounts awarded against or incurred by any of them arising out of or resulting from the Indenture, this Series Supplement, the activities of the Trustee in connection with the Indenture, the Issuer's use of proceeds of Transfers of Loans or reinvestments of Collections, the interest conveyed under the Indenture in Pledged Assets, or in respect of any Loan or the Loan Purchase Agreement (excluding however (a) Indemnified Amounts resulting from negligence or willful misconduct on the part of such Indemnified Party to which such Indemnified Amount would otherwise be due, (b) losses in respect of Loans to the extent reimbursement therefor would constitute credit recourse to the Issuer for nonpayment of any Loan by any Originator and (c) any income or franchise taxes or similar taxes (or any interest or penalties with respect thereto) incurred by such Indemnified Party arising out of or as a result of this Series Supplement or the interest conveyed hereunder in Pledged Assets or in respect of any Loan or the Loan Purchase Agreement, in each case to the extent caused by: 25 29 (i) reliance on any representation, warranty or covenant made by the Servicer (or any of its Responsible Officers) under or in connection with the Indenture or this Series Supplement which shall have been incorrect in any material respect when made or which the Servicer shall have failed to perform; (ii) the failure by the Servicer to comply with any applicable Requirement of Law with respect to any Loan or the related Loan Documents; (iii) any commingling of Collections with other funds of the Servicer or any Affiliate; (iv) any claim brought by any Person other than an Indemnified Party arising from any activity by the Servicer or any Affiliate of the Servicer in servicing, administering or collecting any Loan; or (v) any failure by the Servicer to perform its duties or obligations in accordance with the provisions of the Indenture or this Series Supplement. Indemnification pursuant to this Section 6.10 shall only be payable from the assets of the Servicer. The agreement contained in this Section 6.10 shall survive the collection of all Loans, the termination of the Indenture and the payment of all amounts otherwise due under the Indenture and this Series Supplement. Any Indemnified Amounts due hereunder shall be payable following submission of a claim by the Indemnified Party accompanied by information and documentation reasonably supporting such claim. All rights of indemnification under this Section 6.10 are in addition to, and not by way of substitution for, the obligations and liabilities of the Issuer and/or the Servicer in favor of the Indemnified Parties under the Indenture and under this Supplement (including, without limitation, under Section 8.04 of the Indenture). SECTION 6.11. Additional Reporting Requirements. (a) On each Business Day, the Trustee shall provide by telecopy to each of the Series 1996-1 Noteholders and the Program Agent, a copy of the Daily Report received from the Servicer. (b) The Trustee shall deliver to the Program Agent, promptly upon its receipt thereof, a copy of (i) the Annual 26 30 Certificate of Servicer (described at Section 3.06 of the Indenture) and (ii) the Annual Servicing Report of Independent Public Accountants (described at Section 3.06 of the Indenture). 27 31 IN WITNESS WHEREOF, the parties hereto have caused this Series Supplement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. SIRROM FUNDING CORPORATION, the Issuer By: -------------------------------- Name: Title: SIRROM CAPITAL CORPORATION, the Servicer By: ------------------------------- Name: Title: FIRST TRUST NATIONAL ASSOCIATION, not in its individual capacity, but solely as Trustee By:------------------------------ Name: Title: ING BARING (U.S.) CAPITAL MARKETS, INC., as Program Agent By: ------------------------------- Name: Title: 32 SIRROM FUNDING CORPORATION 500 CHURCH STREET, SUITE 200 NASHVILLE, TENNESSEE 37219 NOTICE OF ISSUANCE OF REVOLVING NOTE, SERIES 1996-1 December 31, 1996 First Trust National Association, as Trustee 180 East Fifth Street St. Paul, MN 55101 Attention: Corporate Trust Department Sirrom Capital Corporation 500 Church Street, Suite 200 Nashville, Tennessee 37219 Re: Master Trust Indenture and Security Agreement, dated as of December 31, 1996, among Sirrom Funding Corporation, as Issuer, Sirrom Capital Corporation, as Servicer, and First Trust National Association, as Trustee (the "Indenture") as supplemented by that certain Series 1996-1 Supplement, dated as of December 31, 1996 (the "1996-1 Supplement"), among the Issuer, the Servicer, the Trustee and ING Baring (U.S.) Capital Markets, Inc., as Program Agent Ladies and Gentlemen: Pursuant to Section 6.09 of the Indenture, and in connection with the proposed issuance pursuant to the Series 1996-1 Supplement by Sirrom Funding Corporation, a Delaware corporation, (the "Issuer"), of its Revolving Note, Series 1996-1, with a stated amount of $100,000,000 (the "Revolving Note"), the undersigned, ________________, being the _____________ of the Issuer, hereby gives you notice of such issuance. The Closing Date in connection with the issuance of the Revolving Note shall be December 31, 1996. Very truly yours, SIRROM FUNDING CORPORATION By: --------------------------- Name: Title: EX-99.F.14 4 LOAN SALE AND CONTRIBUTION AGREEMENT 1 Exhibit f.14 EXECUTION COPY ================================================================================ LOAN SALE AND CONTRIBUTION AGREEMENT Dated as of December 31, 1996 among SIRROM CAPITAL CORPORATION as Originator and Servicer and SIRROM FUNDING CORPORATION as Buyer ================================================================================ 2 TABLE OF CONTENTS Section Page - ------- ---- ARTICLE I DEFINITIONS 1.01. Certain Defined Terms.............................................................................1 1.02. Other Terms......................................................................................13 1.03. Computation of Time Periods......................................................................13 ARTICLE II AMOUNTS AND TERMS OF THE PURCHASES 2.01. Purchase Facility................................................................................13 2.02. Purchases from the Originator....................................................................15 2.03. Purchases of Loans...............................................................................16 2.04. Collections......................................................................................16 ARTICLE III CONDITIONS OF PURCHASES 3.01. Conditions Precedent to Initial Purchase.........................................................16 3.02. Conditions Precedent to All Purchases. ..........................................................18 ARTICLE IV REPRESENTATIONS AND WARRANTIES 4.01. Representations and Warranties of the Originator.................................................20 ARTICLE V GENERAL COVENANTS OF THE ORIGINATOR 5.01. Affirmative Covenants of the Originator..........................................................26 5.02. Reporting Requirements of the Originator.........................................................28 5.03. Negative Covenants of the Originator. ...........................................................30 ARTICLE VI ADMINISTRATION AND COLLECTION 6.01. Designation of Sub-Servicer......................................................................32 6.02. Rights of the Buyer..............................................................................33 6.03. Responsibilities of the Originator...............................................................33 6.04. Lock-Box Accounts; Maintenance of Perfection.....................................................34
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Section Page - ------- ---- ARTICLE VII TERMINATION EVENTS 7.01. Termination Events...............................................................................35 ARTICLE VIII INDEMNIFICATION 8.01. Indemnities by the Originator....................................................................37 8.02. Substitution and Retransfer of Loans.............................................................39 ARTICLE IX MISCELLANEOUS 9.01. Amendments, Etc..................................................................................40 9.02. Notices, Etc.....................................................................................41 9.03. No Waiver; Remedies..............................................................................41 9.04. Binding Effect; Assignability....................................................................42 9.05. GOVERNING LAW....................................................................................42 9.06. Costs, Expenses and Taxes........................................................................42 9.07. CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL....................................................43 9.08. Execution in Counterparts; Severability..........................................................43 9.09. No Proceedings...................................................................................44
4 SCHEDULE AND EXHIBITS SCHEDULE I Real Estate Secured Loans EXHIBIT A Credit and Collection Policy EXHIBIT B Form of Lock-Box Agreement EXHIBIT C Lock-Box Banks and Lock-Box Accounts EXHIBIT D Locations Where Records Are Kept; Location of Chief Executive Office; Federal Tax Identification Numbers EXHIBIT E Form of Purchase Notice EXHIBIT F Responsible Officers 5 LOAN SALE AND CONTRIBUTION AGREEMENT Dated as of December 31, 1996 SIRROM CAPITAL CORPORATION, a Tennessee corporation ("Sirrom"), in its capacity as seller (the "Originator") and Servicer (together with any successor in such capacity, the "Servicer"), and SIRROM FUNDING CORPORATION, a Delaware corporation (the "Buyer"), agree as follows: PRELIMINARY STATEMENTS. (1) Certain terms which are capitalized and used throughout this Agreement (in addition to those defined above) are defined in Article I of this Agreement. (2) The Originator is in the business of making loans to small businesses; (3) The Buyer is a special-purpose Subsidiary of the Originator established to purchase and otherwise acquire Loans and related assets; (4) The Originator wishes from time to time to offer to sell Loans and related assets to the Buyer; and (5) The Buyer desires to procure such Loans and related Purchased Assets from the Originator; NOW, THEREFORE, the parties agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Add-On Loan" means a discretionary subsequent loan made to an Obligor of a Purchased Loan pursuant to the terms of existing Loan Documents (other than any previously executed Note), evidenced by a new Note. "Affiliate" shall mean, with respect to any specified Person, any other Person controlling, controlled by or under common control with such specified Person and, without limiting the generality of the foregoing, shall be presumed to include (A) any Person which beneficially owns or holds (exclusive of such Person's interest in unexercised Contingent Compensation) 10% or more of any class of voting securities of such designated Person or 10% or more of the equity interest in such designated Person and (B) any Person of which such designated Person beneficially 6 owns or holds (exclusive of such Person's interest in unexercised Contingent Compensation) 10% or more of any class of voting securities or in which such designated Person beneficially owns or holds 10% or more of the equity interest. For the purposes of this definition, "control" when used with respect to any specified Person shall mean the power to direct the management and policies of such specified Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Benefit Plan" means, with respect to any Person, any employee pension benefit plan that (i) is maintained by such Person or any ERISA Affiliate of such Person, or to which contributions by any such Person are required to be made or under which such Person has or could have any liability, (ii) is subject to the provisions of Title IV of ERISA and (iii) is not a Multiemployer Plan. "Benefit Plan Event" means, with respect to any Person, (i) the provision of a notice of intent to terminate any Benefit Plan under Section 4041 of ERISA other than in a "standard termination," (ii) the receipt of any notice by any Benefit Plan to the effect that the PBGC intends to apply for the appointment of a trustee to administer any Benefit Plan, (iii) the termination of any Benefit Plan which results in any material liability of such Person, (iv) the withdrawal of such Person or any ERISA Affiliate of such Person from any Benefit Plan described in Section 4063 of ERISA which may reasonably be expected to result in a material liability of such Person, (v) the complete or partial withdrawal of such Person or any ERISA Affiliate of such person from any Multiemployer Plan which may reasonably be expected to result in a material liability of such Person, (vi) a Reportable Event or an event described in Section 4068(f) of ERISA which may reasonably be expected to result in a material liability of such Person, and (vii) any other event or condition which under ERISA or the IRC may reasonably be expected to constitute grounds for the imposition of a lien on the property of such Person in respect of any Benefit Plan or Multiemployer Plan. "Business Day" means any day other than a Saturday or Sunday or any other day on which national banking associations or state banking institutions in New York, New York are authorized or obligated by law, executive order or governmental decree to be closed. "Closing Date" means December 31, 1996. "Collateral" means all or any portion of the property and assets (whether real or personal and whether tangible or 2 7 intangible) pledged as collateral by any Person to secure repayment of a Loan. "Collection Date" means the date on which (i) all Purchased Loans have been repaid in full, together with interest thereon and other amounts owing in respect thereof and (ii) all other amounts owing to the Buyer hereunder shall have been paid in full. "Collection Period" means, with respect to any Monthly Payment Date, the calendar month (or, in the case of the calendar month in which the Closing Date occurs, the portion of such calendar month following the Closing Date) immediately preceding the calendar month in which such Monthly Payment Date occurs. "Collections" means, with respect to any Purchased Loan, all cash collections and other cash proceeds of such Purchased Loan, including, without limitation, all cash proceeds of Related Security with respect to such Purchased Loan. "Concentration Account" means the account created and maintained under the Indenture into which Collections of Purchased Loans are remitted from Lock-Box Accounts. "Contingent Compensation" means, with respect to any Purchased Loan, all forms of contingent compensation received by the Originator from the Obligor or otherwise in connection with and as additional compensation for the extension of such Purchased Loan, including, without limitation, all such compensation in the form of warrants, stock or other equity interests in such Obligor, and not in respect of any interest, principal, commitment or other origination fees, reimbursement of costs and expenses, or other amounts owing by such Obligor to the holder of the related Purchased Loan pursuant to the terms of the related Loan Documents. "Credit and Collection Policy" means those credit and collection policies and practices of the Originator as of the date hereof relating to the Loans and related Loan Documents, set forth in Exhibit A, as the same may be amended or modified from time to time in compliance with the terms of the Indenture. "Custodial Agreement" means that certain Custodial Agreement dated as of December 31, 1996 among the Buyer, the Originator and the Custodian, as the same may be amended, restated, supplemented or otherwise modified from time to time in accordance with terms thereof. "Custodian" means First Trust National Association, or such successor custodian under the Custodial Agreement. 3 8 "Debt" of any Person means (i) indebtedness of such Person for borrowed money, (ii) obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) obligations of such Person to pay the deferred purchase price of property or services, (iv) obligations of such Person as lessee under leases which shall have been or should be, in accordance with generally accepted accounting principles, recorded as capital leases, (v) obligations of such Person in connection with any letter of credit issued for the account of such Person, (vi) obligations of such Person under an interest rate or currency swap, cap or similar agreement, (vii) obligations secured by any lien or other charge upon property or assets owned by such Person, even though such Person has not assumed or become liable for the payment of such obligations, and (viii) obligations of such Person under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (i) through (vii). "Defaulted Loan" means a Loan: (i) as to which ten percent (10%) or more of any payment remains unpaid for more than 45 days after the original due date for such payment, (ii) as to which an Insolvency Event has occurred with respect to the Obligor thereof, (iii) as to which there has been a default by the Obligor under the related Loan Documents that has continued for more than 60 days, (iv) as to which the Obligor thereof has suffered any other material adverse event which is likely to materially and adversely affect the ability of the Obligor to continue its business as a going concern, (v) that the Servicer determines to be or, in accordance with the Credit and Collection Policy should have determined to be, uncollectible or (vi) that the Servicer determines to be or, in accordance with the Credit and Collection Policy should have determined to be, classified as "Grade 5 or 6". "Eligible Loan" means, at any time, a Loan or portion thereof: (i) which is currently owing under a Note which has been duly authorized and which, together with the related Loan Documents, is in full force and effect and constitutes the legal, valid and binding obligation of the Obligor of such Loan to pay the stated amount of the Loan and interest thereon, and the related Loan Documents are enforceable against such Obligor in accordance with their respective terms except as limited by applicable bankruptcy, insolvency, reorganization, moratorium and similar laws, now or hereafter in effect, affecting the enforcement of creditors' rights generally and except as such 4 9 enforceability may be limited by general provisions of equity; (ii) which arose in the ordinary course of business of the Originator or a subsidiary of the Originator from the loaning of money to the Obligor thereof; (iii) which is not a Defaulted Loan and in respect of which no material default exists (whether matured or otherwise), and with respect thereto there is not then in affect any waiver by the Originator of any (a) material default with respect thereto or (b) any event or circumstance that would, with notice, the passage of time, or both, become a material default with respect thereto; (iv) the Obligor of which is not the Obligor of any Defaulted Loans; (v) the Obligor of which is not a Governmental Authority; (vi) which, together with the Loan Documents (other than those relating to real estate Collateral) related thereto, is a "general intangible" or an "instrument" within the meaning of the UCC of all jurisdictions which govern the perfection of the Buyer's interest therein; (vii) with respect to which all material consents, licenses, approvals or authorizations of, or registrations or declarations with, any Governmental Authority required to be obtained, effected or given in connection with the making of such Loan have been duly obtained, effected or given and are in full force and effect; (viii) the Obligor of which is not an Affiliate of any of the parties hereto; (ix) the Obligor of which is organized in and a resident of the United States resident; (x) which is denominated and payable only in United States Dollars in the United States; (xi) which bears interest (a) payable monthly or quarterly and (b) as of the date of Purchase, at a fixed interest rate per annum which is in excess of the sum of 4.25% plus the 90 day USD-CP-H.15 Rate on such date; (xii) which, together with the Loan Documents related thereto, does not contravene in any material respect any laws, rules or regulations applicable thereto (including, 5 10 without limitation, laws, rules and regulations relating to usury, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and with respect to which no party to the Loan Documents related thereto is in material violation of any such law, rule or regulation in any respect; (xiii) which is prepayable without penalty and, together with the related Loan Documents and Contingent Collateral, if any, is fully assignable; (xiv) which has been originated pursuant to and satisfies in all material respects all applicable requirements of the Credit and Collection Policy; (xv) with respect to which only one current original Note exists, which Note has been delivered to the Buyer; (xvi) which is secured by a perfected security interest in the related Collateral in favor of the Buyer, which security interest has the priority required for such security interest in the related Loan Documents; (xvii) which was originally made by the Originator or one of its subsidiaries prior to its transfer to the Buyer; (xviii) which has an original term to maturity of no more than 60 months, or with respect to a Rehabilitated Loan, has a term to maturity of no more than 48 months from the date such loan became a Rehabilitated Loan, and, in either case, is either fully amortizing in installments over the remaining term or is due in a single installment at the end of the remaining term; (xix) which, except as permitted pursuant to Section 5.03(b) hereof, has not been compromised, adjusted or similarly modified and is not subject to any Obligor Claims whatsoever and which did not arise pursuant to Loan Documents giving the Obligor an explicit right of offset; (xx) which was made under the existing Loan Documents, which Loan Documents (other than with respect to a Rehabilitated Loan or as permitted pursuant to Section 5.03(b) hereof) have not been modified for negative credit reasons (including, without limitation, rescheduling of installment payments); (xxi) the proceeds of which have been fully disbursed, having no obligation on the part of the Originator to make future advances under the related Loan Documents; 6 11 (xxii) the Collateral with respect to which is insured for in accordance with the Credit and Collection Policy; (xxiii) with respect to which the Loan Documents are complete in accordance with the Credit and Collection Policy; (xxiv) which was classified by the Originator as "Grade 1, 2, 3 or 4" under the Credit and Collection Policy at the time of Purchase by the Buyer; (xxv) the Obligor of which has been notified of the transfer pursuant to this Agreement and the pledge under the Indenture and directed to remit payments therefor to a Lock-Box Account; (xxvi) the Obligor of which is not in the gaming, nuclear waste, bio-tech, oil and gas or real estate industries; and (xxvii) the Obligor of which is a legal operating entity, duly organized and validly existing under the laws of its jurisdiction of organization; and (xxviii) the Obligor of which, as of the end of the most recent Collection Period, was not the subject of any voluntary or involuntary bankruptcy proceedings. "ERISA" means the U.S. Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" means, as to any Person, any partnership, trade or business (whether or not incorporated) which, together with such Person, is treated as a single employer within the meaning of Section 414(b), (c), (m) or (o) of the IRC. "Facility Documents" means collectively, this Agreement, the Indenture and the liquidity support, credit enhancement and other agreements and instruments executed in connection with the Indenture or any Series. "Governmental Authority" means any country or nation, any political subdivision, state or municipality of such country or nation, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government of any country or nation or political subdivision thereof. "HLS" means Holland Limited Securitization, Inc. and its permitted successors and assigns. 7 12 "Indenture" means, that certain Master Trust Indenture and Security Agreement of even date herewith among the Buyer as the "Issuer", the Servicer and the Trustee, as the same may from time to time be amended, modified or otherwise supplemented, including, with respect to any Series or Class, the related Supplement. "Insolvency Event" means, with respect to a specified Person, (i) failure by such Person generally to pay its debts as such debts become due, or the admission by such Person in writing of its inability to pay its debts generally, or the making by such Person of a general assignment for the benefit of creditors; or (ii) institution by or against such Person of any proceeding seeking to adjudicate such Person a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property; or (iii) the taking of any corporate action by such Person to authorize any of the actions by such Person set forth in clauses (i) or (ii) above in this definition of Insolvency Event. "Investment Company Act" shall mean the Investment Company Act of 1940, as amended from time to time. "IRC" means the Internal Revenue Code of 1986, as amended from time to time, and any successor statute. "Lien" means any ownership interest or any security interest, mortgage, deed of trust, pledge, hypothecation, assignment, encumbrance, lien (statutory or other and including a Lien created by the PBGC), preference, participation interest, priority or other security agreement or preferential arrangement of any kind or nature whatsoever resulting in an encumbrance against real or personal property of a Person, including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing and the filing of any financing statement under the UCC or comparable law of any jurisdiction to evidence any of the foregoing. "Loan" shall mean a non-revolving small business loan receivable shown on the records of the Originator as of the Closing Date, and from time to time thereafter (including any Add-On Loan), arising from the extension of credit to an Obligor by the Originator in the ordinary course of its business to such Obligor, and shall include, without limitation, all monies due or owing and all Collections and other amounts received from time to 8 13 time with respect to such loan receivable and all proceeds (including, without limitation, "proceeds" as defined in the UCC of the jurisdiction the law of which governs the perfection of the interest on the Loans subject to this Agreement) thereof. "Loan Document" means, with respect to any Loan, the related Note and any related loan agreement, security agreement, mortgage, assignment of leases and other documents, instruments, certificates or assignments (including amendments or modifications thereof) executed by the Obligor thereof or by another Person on the Obligor's behalf in respect of such Loan and related Note, including, without limitation, general or limited guaranties. "Lock-Box Account" means an account maintained at a Lock-Box Bank for the purpose of receiving Collections. "Lock-Box Agreement" means an agreement with respect to a Lock-Box Account at a Lock-Box Bank, in substantially the form of Exhibit B or such other form as may be acceptable to the Buyer, among, as appropriate, such Lock-Box Bank, the Servicer, the Buyer, the Originator, the Program Agent and the Trustee, as amended, supplemented or otherwise modified from time to time. "Lock-Box Bank" means any of the banks holding one or more lock-box accounts for receiving Collections from Purchased Loans. "Monthly Payment Date" means, with respect to any Collection Period, the 5th Business Day of the calendar month immediately following the end of such Collection Period. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which the Originator or an ERISA Affiliate thereof is making, is obligated to make or has within the last six years made or been obligated to make contributions on behalf of participants who are or were employed by any such entity. "Note" means any promissory note evidencing the indebtedness of an Obligor under a Loan, together with any modifications thereto. "Note Purchase Agreement" shall mean that certain Note Purchase Agreement relating to the Revolving Note, Series 1996-1, dated as of December 31, 1996 among the Buyer, the Servicer, the parties thereto as "Noteholders" and the Program Agent, as the same may be amended, restated, supplemented or otherwise modified from time to time in accordance with terms thereof. 9 14 "Obligor" means each Person who is obligated to pay for an extension of credit by the Originator which gave rise to a Loan, including any guarantor of such Person's obligations. "Obligor Claim" means any dispute, claim, offset or defense of the Obligor of a Loan, including, without limitation, the defense of usury, or any other claim of such Obligor against or adjustment to such Loan resulting from the transaction out of which such Loan arose or any related or unrelated transaction. "Originator" has the meaning assigned to that term in the preamble hereto. "Outstanding Loan Balance" means with respect to any Loan, as of any date of determination, the then outstanding principal balance thereof. "PBGC" means the Pension Benefit Guaranty Corporation, or any other Governmental Authority succeeding to the functions thereof. "Person" means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture, government (or any agency or political subdivision thereof) or other entity. "Program Agent" shall mean ING Baring (U.S.) Capital Markets, Inc., in its capacity as agent for HLS and its permitted successors and assigns, in respect of the Note Purchase Agreement. "Purchase" means a purchase by the Buyer of a Loan, the Related Security and Collections with respect to the foregoing from the Originator pursuant to Article II. "Purchase Notice" has the meaning assigned to that term in Section 2.02(a). "Purchase Price" has the meaning assigned to that term in Section 2.02(b). "Purchased Assets" means the Originator's right, title and interest in, to and under (i) all then outstanding Purchased Loans, (ii) all Related Security relating to such Purchased Loans and (iii) all Collections with respect to, and other proceeds of, such Purchased Loans and (iv) all monies from time to time on deposit in, and all securities, instruments and other investments purchased from time to time with monies on deposit in, any Lock-Box Account or the Concentration Account (whether or not allocated to any sub-account thereof); provided that "Purchased 10 15 Assets" shall exclude the right under the related Loan Documents to make any Add-On Loan, which right and related an interest in such Loan Documents shall be retained by the Originator. "Purchased Loan" means any Loan which appears on any list of Loans at any time hereafter submitted to and accepted by the Buyer in connection with a purchase pursuant to Section 2.02. Once a Loan appears on any such list it shall remain a Purchased Loan; provided that "Purchased Loan" shall exclude the right under the related Loan Documents to make any Add-On Loan, which right and related interest in such Loan Documents shall be retained by the Originator; provided, however, that "Purchased Loan" shall include any Loan which is substituted pursuant to Section 8.02 for any existing Purchased Loan; provided, further, that with respect to any Purchased Loan that is sold back to the Originator pursuant to Section 8.02, following the Buyer's receipt of the repurchase price for such Loan, "Purchased Loans" shall not include the Loan so repurchased by the Originator. "Real Estate Secured Loan" means any Loan that is secured by interests in real estate and that, without taking account of the collateral value of such real estate security, would not satisfy the collateral coverage requirements of the Credit and Collection Policy. "Records" means all Loan Documents and other documents, books, credit files, records and other information (including, without limitation, computer programs, tapes, discs, punch cards, data processing software and related property and rights) maintained with respect to Loans and the related Obligors. "Rehabilitated Loan" means any Loan which, (i) was a Defaulted Loan otherwise not an Eligible Loan, (ii) has been modified or restructured by the Originator in accordance with the Credit and Collection Policy (either before or after such Loan became a Purchased Loan), (iii) has been paying as modified or restructured pursuant to clause (i) hereof for at least twelve (12) months since the effective date of such modification or restructuring, (iv) which otherwise satisfies the criteria of an "Eligible Loan") and (v) has otherwise been approved by the Program Agent in writing. "Related Security" means with respect to any Loan: (i) all of the Originator's rights under each of the related Loan Documents, including, without limitation, all monies due and to become due to the Originator under or in connection with such related Loan Documents, and all rights, remedies, powers, privileges, benefits and claims of the Originator under or with respect to such related Loan Documents (whether arising pursuant to the terms of such 11 16 related Loan Documents or otherwise available at law or in equity); (ii) all security interests, or liens and property (whether real or personal, tangible or intangible), subject thereto from time to time purporting to secure payment of such Loan, together with all mortgages, assignments and financing statements signed by an Obligor describing any other collateral securing such Loan; (iii) all guarantees, indemnities and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Loan; (iv) all Records; (v) all Contingent Compensation; and (vi) all substitutions for and proceeds of any of the foregoing. "Reportable Event" means any of the reportable events set forth in Section 4043(b) of ERISA and the regulations issued from time to time thereunder (other than a reportable event not subject to the provisions for 30-day notice to the PBGC under such regulations). "Responsible Officer" means, with respect to the Originator, the officers set forth on Exhibit F. "SBA" means the Small Business Administration, or any successor agency. "SBIC Regulations" means the Small Business Investment Company Act of 1958, as amended, and the regulations issued by the SBA thereunder. "Servicer" has the meaning assigned to that term in the preamble hereto. "Sub-Servicer" means at any time a Person then authorized by the Servicer in accordance with the terms of the Indenture to service, administer and collect Loans on behalf of the Servicer. "Subsidiary" means, as to any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the Board of Directors or other Persons performing similar functions are at the time directly or indirectly owned by such Person. 12 17 "Termination Date" means the earliest of (i) the fifth anniversary of the Closing Date, (ii) the date of the declaration or automatic occurrence of the Termination Date pursuant to Section 7.01 and (iii) the date specified by the Originator or the Buyer in a written notice to the other party given at least 30 days prior to such specified date. "Termination Event" has the meaning assigned to that term in Section 7.01. "Trustee" means First Trust National Association, or such successor trustee under the Indenture. "UCC" means the Uniform Commercial Code as from time to time in effect in the specified jurisdiction. SECTION 1.02. Other Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles. All terms used in Article 9 of the UCC in the State of New York, and not specifically defined herein, are used herein as defined in such Article 9. SECTION 1.03. Computation of Time Periods. Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding." ARTICLE II AMOUNTS AND TERMS OF THE PURCHASES SECTION 2.01. Purchase Facility. (a) On the terms and conditions hereinafter set forth, the Buyer may in its sole discretion, purchase Loans, Related Security with respect to such Loans and Collections with respect thereto from the Originator from time to time during the period from the date the condition precedent to the initial Purchase in Section 3.01 is satisfied to the Termination Date. Nothing in this Agreement shall be deemed to be or construed as a commitment by the Buyer to purchase any Loans at any time. (b) It is the intention of the parties hereto that each Purchase of Loans, Related Security and Collections made hereunder shall constitute a sale of such assets, which sale is absolute and irrevocable and provides the Buyer with the full benefits of ownership of the Purchased Loans and the related Purchased Assets. Neither the Originator nor the Buyer intends the transactions contemplated hereunder to be, or for any purpose 13 18 to be characterized as, loans from the Buyer to the Originator secured by such assets. However, in the event that, notwithstanding the intent of the parties, the Purchased Assets are held to be the property of the Originator, or if for any other reason this Agreement is held or deemed to create a security interest in the Purchased Assets, then this Agreement shall be deemed to be a security agreement, the conveyance provided for in Section 2.01 shall be deemed to be a grant by the Originator to the Buyer of a security interest in all of the Originator's right, title and interest in, to and under (i) each Purchased Loan; (ii) all Related Security in respect of each Purchased Loan; (iii) the Lock-Box Agreements and all of the Originator's rights and remedies thereunder; (iv) all of the following property and interests in property which in any way relates to, secures or is received in payment of or on account of any Purchased Loan or Related Security in respect of any Purchased Loan: (A) cash, accounts, accounts receivable, participations, interests in participations, inventory, equipment, fixtures, vehicles, supplies, materials, returned and repossessed property acquired by foreclosure, the exercise by the Originator or the Servicer of other remedies or otherwise, goods, guaranties, options, warranties, choses in action, causes of action, claims, contract rights, chattel paper, notes (including, without limitation, notes receivable arising from Purchased Loans), acceptances, instruments, documents, rights to payments, surety bonds, rights in warehouse receipts or documents of any kind in respect of any of the foregoing, general intangibles (including without limitation, rights, interests, goodwill, inventions, designs, secrets, service marks, trademarks, trademark applications, trade names, fictitious names, trade secrets, patents, patent applications, registrations, technology, proprietary information, copyrights, permits, licenses, franchises, customer lists, tax refunds, tax refund claims and reversionary interests in pension and profit sharing plans), (B) all of the Originator's right, title and interest under leases, subleases, licenses and concessions and other agreements relating to real or personal property (including, without limitation, all rents, issues and profits related thereto), rights and claims against third parties (including carriers and shippers), rights to indemnification and security interests or other security held by or granted to the Originator to secure payment of the Purchased Loans, (C) the Loan Documents, computer programs, printouts and other computer materials and records relating to the Purchased Loans; (iv) all funds from time to time on deposit in the Concentration Account and all funds from time to time on deposit in each of the Lock-Box Accounts representing Collections on, or other proceeds of, the foregoing and, in each case, all certificates and instruments, if any, from time to time evidencing such funds, all investments made with such funds, all claims thereunder or in connection therewith and all interest, dividends, monies, instruments, securities and other property 14 19 from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the foregoing; and (v) all moneys due or to become due and all amounts received or receivable with respect to the foregoing and all products and proceeds of the foregoing. The possession by the Originator or its transferee of Notes, other Loan Documents, and such other goods, letters of credit, advices of credit, instruments, money, documents, chattel paper or certificated securities shall be deemed to be "possession by the secured party," for purposes of perfecting the security interest pursuant to the UCC (including, without limitation, Section 9-305 thereof) as in force in the relevant jurisdiction. Notifications to persons holding such property, and acknowledgments, receipts or confirmations from persons holding such property, shall be deemed to be notifications to, or acknowledgments, receipts or confirmations from bailees or agents (as applicable) or the Originator or its transferee for the purpose of perfecting such security interest under applicable law. In view of the intention of the parties hereto that the Purchases of Loans made hereunder shall constitute sales of such Loans rather than a loan secured by such Loans, the Originator agrees to note on its financial statements that the Purchased Loans and the related Purchase Assets have been sold to the Buyer. SECTION 2.02. Purchases from the Originator. (a) The initial Purchase shall be made on the Closing Date or on such later date mutually agreeable to the parties hereto, provided that a notice (a "Purchase Notice") requesting such Purchase (such Purchase Notice to be in substantially the form of Exhibit E hereto) is received by the Buyer at least five Business Days before the date of such initial Purchase. Each subsequent Purchase shall be made on any Business Day prior to the Termination Date; provided, that a Purchase Notice requesting such Purchase is received by the Buyer at least two Business Days before such Purchase (the date set forth in each Purchase Notice as the date of the initial Purchase and each subsequent Purchase being hereinafter referred as a "Purchase Date"). Schedule I hereto shall be deemed to have been updated by the addition of any applicable information reflected in any such Purchase Notice, but only to the extent that the applicable Loans are purchased hereunder. The Buyer shall promptly after the receipt of such notice notify the Originator whether the Buyer has determined to make such Purchase. (b) The purchase price (the "Purchase Price") for new Loans (together with the related Purchased Assets) payable on the date of the initial Purchase shall be the Outstanding Loan Balance of such Loans on the Purchase Date therefor (after giving effect to the scheduled payments due (whether or not received) on such Loans on or before such Purchase Date, except that the Buyer 15 20 may, with respect to any Purchase, offset against such Purchase Price any unpaid amounts owing hereunder from the Originator to the Buyer and the Originator may treat a portion of the Outstanding Loan Balance of new Loans as a contribution to the capital of the Buyer in accordance with Section 2.02(d), in which case the Purchase Price with respect to the Loans sold to the Buyer on the applicable Monthly Payment Date will be reduced as contemplated in Section 2.02(d). (c) The Buyer shall pay the Purchase Price for the Loans (together with the related Purchased Assets) sold by the Originator under this Agreement on the Purchase Date specified in each Purchase Notice. On each Purchase Date, the Buyer shall, upon satisfaction of the applicable conditions set forth in Article III, make available to the Originator the Purchase Price, in cash in same day funds. (d) Notwithstanding any provision herein to the contrary, the Originator may, on the Purchase Date of the initial purchase hereunder and on any Purchase Date, elect to designate all or a portion of the Eligible Loans proposed to be transferred to the Buyer on such date as a capital contribution to the Buyer. In such event, the Purchase Price payable with respect to such Purchase shall be reduced by the aggregate principal balance of the contributed Loans; provided, however, that Loans contributed to the Buyer as capital shall otherwise constitute Purchased Loans for purposes of this Agreement. SECTION 2.03. Purchases of Loans. Although the Buyer shall purchase the Loans that constitute Purchased Loans, the Originator shall remain obligated (i) to perform, or cause to be performed, all of the obligations of the originator under the Loans (and the exercise by the Buyer of any of its rights thereunder or hereunder shall not relieve the Originator of such obligations) and (ii) to pay or cause to be paid, when due any taxes, including without limitation, sales, excise and personal property taxes payable in connection with the Loans, unless the payment of such taxes in being contested in good faith and by appropriate proceedings; provided, that, the Buyer shall have the right to exercise any of the rights of the Originator under any such Loan. SECTION 2.04. Collections. Any Collections of Purchased Loans received (or deemed to have been received) by the Originator shall be remitted directly to the Buyer by depositing such Collections in the Lock-Box Account within one Business Day of the Originator's receipt. 16 21 ARTICLE III CONDITIONS OF PURCHASES SECTION 3.01. Conditions Precedent to Initial Purchase. The initial Purchase hereunder is subject to the condition precedent that the Buyer shall have received on or before the date of such Purchase the following, each (unless otherwise indicated) dated such date, in form and substance satisfactory to the Buyer: (a) a copy of the resolutions of the Board of Directors of the Originator approving this Agreement and the other Facility Documents to be delivered by it hereunder and the transactions contemplated hereby, certified by its Secretary or Assistant Secretary; (b) a certificate of the Secretary or Assistant Secretary of the Originator certifying (i) the names and true signatures of the officers authorized on its behalf to sign this Agreement and the other documents to be delivered by it hereunder (on which certificate the Buyer may conclusively rely until such time as the Buyer shall receive from the Originator a revised certificate meeting the requirements of this subsection (b)), (ii) a copy of the certificate of incorporation of the Originator and (iii) a copy of the Originator's by-laws; (c) duly executed financing statements (Form UCC-1), in proper form for filing, naming the Originator as the debtor/seller of the Purchased Assets and the Buyer as secured party/purchaser or other documents, as may be necessary or, in the opinion of the Buyer, desirable under the UCC of all appropriate jurisdictions or any comparable law to perfect the Buyer's interests in the Purchased Assets; (d) receipt-stamped copies of proper financing statements (Form UCC-3), if any, necessary to release all security interests and other rights of any Person in the Purchased Assets previously granted by the Originator; (e) certified copies of requests for information or copies (Form UCC-11) (or a similar search report certified by a party acceptable to the Buyer), dated a date reasonably near to the date of the initial Purchase, listing all effective financing statements which name the Originator (under its present name and any previous name) as debtor and which are filed in the jurisdictions in which filings were made pursuant to subsection (d) above, together with copies of such financing statements (none of which shall cover any Purchased Loans, related Loan Documents, Related Security and/or Collections, except as otherwise agreed by the Buyer; 17 22 (f) the Lock-Box Agreements with the Lock-Box Banks, each executed by the Originator and acknowledged and agreed to by the applicable Lock-Box Bank and the other parties thereto; (g) copies of all written agreements, if any, between each Lock-Box Bank and Originator with respect to the opening or operation of the Lock-Box Accounts; (h) an opinion of Bass Berry & Sims PLC, counsel to the Originator as to such other matters as the Buyer may reasonably request; and (i) an Officer's Certificate in form and substance satisfactory to the Buyer. SECTION 3.02. Conditions Precedent to All Purchases. Each Purchase (including the initial Purchase) from the Originator by the Buyer shall be subject to the further conditions precedent that: (a) with respect to any such Purchase, the Originator shall have delivered to the Buyer a Purchase Notice pursuant to the terms of Section 2.02(a); (b) on the date of such Purchase the following statements shall be true and the Originator by accepting the amount of such Purchase shall be deemed to have certified that: (i) the representations and warranties contained in Section 4.01 are correct on and as of such day as though made on and as of such date; (ii) no event has occurred and is continuing, or would result from such Purchase, which constitutes a Termination Event or would constitute a Termination Event but for the requirement that notice be given or time elapse or both; (c) the Buyer shall have received confirmation from the Custodian, pursuant to the terms of the Custodial Agreement, that it has received (i) the original Notes related to the Purchased Loans included in such Purchase, endorsed by the Originator (directly on such Note or by means of an allonge to such Note) as follows: "Pay to the order of Sirrom Funding Corporation without recourse" and signed by a Responsible Officer of the Originator, with all prior and intervening endorsements showing a complete chain of endorsement to the Originator, (ii)(A) executed originals of all other instruments included in the Loan Documents and (B) executed originals or copies of the other Loan Documents related to the Purchased Loans included in such Purchase and (iii) all Records related to such Purchased Loans; 18 23 (d) with respect to such Purchased Loans that are Real Estate Secured Loans, Buyer shall have received confirmation from the Custodian, pursuant to the terms of the Custodial Agreement, that it has received (i) either: (A) the original mortgage, with evidence of recording thereon, (B) a copy of the mortgage certified as a true copy by a Responsible Officer of the Originator where the original has been transmitted for recording until such time as the original is returned by the public recording officer or duly licensed title or escrow officer or (C) a copy of the mortgage certified by the public recording office in those instances where the original recorded mortgage has been lost; (ii) either: (A) the original assignment of mortgage from Originator endorsed as follows: "Sirrom Funding Corporation," with evidence of recording thereon (provided, however, that where permitted under the laws of the jurisdiction wherein the mortgaged property is located, the assignment of mortgage may be effected by one or more blanket assignments for Loans secured by mortgaged properties located in the same county), or (B) a copy of such assignment of mortgage certified as a true copy by a Responsible Officer of the Originator where the original has been transmitted for recording (provided, however, that where the original assignment or mortgage is not being delivered to the Buyer, each such Responsible Officer may complete one or more blanket certificates attaching copies of one or more assignments of mortgage relating to the mortgages originated by the Originator); and (iii) either: (A) originals of all intervening assignments, if any, showing a complete chain of title from the originator to the Originator, including warehousing assignments, with evidence of recording thereon if such assignments were recorded, (B) copies of any assignments certified as true copies by a Responsible Officer of the Originator where the originals have been submitted for recording until such time as the originals are returned by the public recording officer, or (C) copies of any assignments certified by the public recording office in any instances where the original recorded assignments have been lost; and (iv) copies of appraisals, environmental surveys and questionnaires and originals of all title insurance policies related to the mortgaged property in accordance with the Credit and Collection Policy; (e) upon the request of the Buyer, the Buyer shall have received documents evidencing or related to any insurance policies and copies of executed original counterparts of the Loan Documents, together with copies of the executed originals of all modifications or amendments thereof; and (f) the Buyer shall have received such other approvals, opinions or documents as it may reasonably request. 19 24 ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Originator. The Originator represents and warrants as follows as of the Closing Date and the date of each Purchase: (a) Organization and Good Standing. The Originator is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Tennessee and is duly qualified to do business and is in good standing as a foreign corporation, and has obtained all necessary licenses and approvals, in every jurisdiction in which failure to so qualify or to obtain such licenses and approvals could have a material adverse effect on (i) the interests of the Buyer hereunder or in the Purchased Assets, (ii) the collectibility of any Purchased Loan or (iii) the ability of the Originator to perform its obligations hereunder or under any other Facility Document. (b) Due Authorization and No Conflict. The execution, delivery and performance by the Originator of this Agreement and all other instruments and documents to be delivered hereunder and thereunder, and the transactions contemplated hereby and thereby, are within the Originator's corporate powers and have been duly authorized by all necessary corporate action of the Originator and do not contravene, conflict with, result in any breach of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, or require consent under, (i) the charter or by-laws of the Originator, (ii) any applicable law, rule or regulation applicable to the Originator or its property (including, without limitation, the SBIC Regulations or the Investment Company Act), (iii) any contractual restriction contained in any indenture, loan or credit agreement, lease, mortgage, security agreement, bond, note, or other agreement or instrument binding on or affecting the Originator or its property or (iv) any order, writ, judgment, award, injunction or decree binding on or affecting the Originator or its property, and do not result in or require the creation of any Lien upon or with respect to any of its properties (other than in favor of the Buyer with respect to the Purchased Assets); and no transaction contemplated hereby requires compliance with any bulk sales act or similar law. This Agreement has been duly executed and delivered on behalf of the Originator. (c) No Consents. No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or regulatory body (including, without limitation, the SBA) is required for the due execution, delivery and performance by the Originator of this Agreement or any other document or instrument to be delivered hereunder or thereunder 20 25 except for the filing of the financing statements and mortgage assignments referred to in Article III, all of which, at the time required in Article III, shall have been duly made and shall be in full force and effect. (d) Enforceability. This Agreement and the other Facility Documents to which the Originator is a party constitute the legal, valid and binding obligations of the Originator enforceable against the Originator in accordance with their respective terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium and similar laws, now or hereafter in effect, affecting the enforcement of creditors' rights generally and except as such enforceability may be limited by general provisions of equity. This Agreement is in full force and effect, and is not subject to any dispute, offset, counterclaim or defense and no party thereto is in default thereunder. (e) No Proceedings. There are no actions, investigations, suits or proceedings pending, or to the knowledge of the Originator, threatened, against or affecting the Originator, or the property of the Originator, in any court, or before any arbitrator of any kind, or before or by any governmental body (i) asserting the illegality, invalidity or unenforceability, or seeking any determination or ruling that would affect the legality, binding effect, validity or enforceability, of any of the Facility Documents, (ii) seeking to prevent the consummation of any of the transactions contemplated by any of the Facility Documents or (iii) seeking any determination or ruling that is reasonably likely to materially and adversely affect the financial condition or operations of the Originator or the performance by the Originator of its obligations under any of the Facility Documents. The Originator is not in default with respect to any order of any court, arbitrator or governmental body. (f) Investment Company Act. The Originator is registered under the Investment Company Act as an investment company, and is in compliance in all material respects with the applicable provisions of the Investment Company Act and the rules and regulations promulgated thereunder. (g) Use of Proceeds. No use of any funds obtained by the Originator under this Agreement will conflict with or contravene any of Regulations G, T, U and X promulgated by the Federal Reserve Board from time to time. (h) Valid Transfer. This Agreement constitutes a valid sale, transfer and assignment to the Buyer of all right, title and interest of the Originator in and to the Purchased Loans and other Purchased Assets, which is enforceable against 21 26 creditors of and purchasers from the Originator, free and clear of any Lien. Each Purchased Loan (prior to Purchase by the Buyer), together with the related Purchased Assets, is owned by the Originator free and clear of any Lien and the Buyer shall acquire a valid perfected first priority ownership or security interest in each Purchased Loan and in the other Purchased Assets with respect thereto, free and clear of any Lien except as provided herein and the other Facility Documents; and no effective financing statement or other instrument similar in effect covering any Purchased Loan or the other Purchased Assets with respect thereto shall at any time be on file in any recording office except such as may be filed in accordance with this Agreement and the other Facility Documents. (i) Information. No information, exhibit, financial statement, document, book, record or report furnished or to be furnished by the Originator or any of its Affiliates to the Buyer or the Servicer in connection with this Agreement or any of the other Facility Documents is or shall be inaccurate in any material respect as of the date it is or shall be dated or (except as otherwise disclosed to the Buyer at such time) as of the date so furnished, or contains or shall contain any material misstatement of fact or omits or shall omit to state a material fact or any fact necessary to make the statements contained therein not materially misleading. (j) Locations. The chief executive office of the Originator is located at the address of the Originator referred to in Section 9.02 hereof and the locations of the offices where the Originator keeps all the Records are listed on Exhibit D (or at such other locations, notified to the Buyer in accordance with Section 5.01(e), in jurisdictions where all action required by Section 6.04 has been taken and completed); the federal tax identification number of the Originator is set forth on Exhibit D hereto and, except as disclosed to Buyer, there has been no change in any such tax identification number during the five-year period prior to the date hereof. (k) Tradenames. The legal name of the Originator is as set forth on the signature page of this Agreement, the Originator has no tradenames, fictitious names, assumed names or "doing business as" names, and since its incorporation, the Originator (i) has not been the subject of any merger or other corporate reorganization that resulted in a change of name, identity or corporate structure or (ii) had any other name. (l) Lock-Box Accounts. Each Obligor of a Purchased Loan has been instructed to remit payment on the Purchased Loan to the Lock-Box Accounts. From and after the date of the initial Purchase hereunder, the Originator will have no right, title and/or interest to any of the Lock-Box Accounts and will 22 27 maintain no lock-box accounts in its own name for the collection of such Purchased Loans. The account numbers of all Lock-Box Accounts, together with the names and addresses of all the Lock-Box Banks maintaining such Lock-Box Accounts, are specified in Exhibit C. (m) Separate Corporate Existence. The Originator is entering into the transactions contemplated by this Agreement in reliance on the Buyer's identity as a separate legal entity from the Originator and each of its Affiliates other than the Buyer, and acknowledges that the Buyer and the other parties to the Facility Documents are similarly entering into the transactions contemplated by the other Facility Documents in reliance on the Buyer's identity as a separate legal entity from the Originator and each such other Affiliate. (n) ERISA. No Benefit Plan maintained by the Originator or any of its ERISA Affiliates has any accumulated funding deficiency (within the meaning of Section 302 of ERISA or Section 412 of the Internal Revenue Code), whether or not waived. Each of the Originator and each ERISA Affiliate of the Originator has timely made all contributions required by it to be made by it to any Benefit Plan and Multiemployer Plan to which contributions are or have been required to be made during the preceding five years by the Originator or such ERISA Affiliate, and no Reportable Event has occurred and is continuing or could reasonably be expected to occur with respect to any such Benefit Plan, in any case, that could reasonably be expected to result, directly or indirectly, in any lien being imposed on the property of the Originator or the payment of any material amount to avoid such lien. No Benefit Plan Event with respect to the Originator or any of its ERISA Affiliates has occurred or could reasonably be expected to occur that could reasonably be expected to result, directly or indirectly, in any lien being imposed on the property of the Originator or the payment of any material amount to avoid such lien. Each Benefit Plan sponsored or participated in by the Originator or any of its ERISA Affiliates or under or to which the Originator or any of its ERISA Affiliates has any present or future liability or obligations is in compliance in all material respects with all applicable law, and each such Benefit Plan that is intended to qualify for special tax treatment under Sections 401(a) or 403(a) of the IRC is in compliance with the applicable requirements of the IRC for such qualifications. (o) Eligibility of Loans. Each Loan transferred by the Originator to the Buyer hereunder will satisfy the requirements of eligibility contained in the definition of "Eligible Loan" on the date of the applicable transfer. (p) Solvency. Both before and after giving effect to any of the transactions contemplated by this Agreement: (i) the 23 28 fair value and present fair saleable value of the Originator's assets exceeds the stated value of the Originator's liabilities (including all contingent liabilities), (ii) the present fair saleable value of the Originator's assets will exceed the probable liability on its debts, including contingent liabilities, as such debts become absolute and matured, (iii) the Originator will not have an unreasonably small amount of capital for the operation of the business in which it is engaged and is proposed to be engaged, and (iv) the Originator reasonably expects to be able to pay its debts, including contingent liabilities, as such debts mature. (q) Facility Documents. The Originator has delivered to the Buyer true and correct copies of all material agreements between each Obligor, on the one hand, and the Originator on the other. Neither the Originator nor any Affiliate party thereto is in default of any of its obligations under any Facility Document in any material respect. Upon the origination of each Loan, the Originator shall be the lawful owner of, and have good title to, such Loan and the Related Security, free and clear of any Liens (except for Liens created hereunder). All such Loans and Related Security are transferred without recourse to the Originator except as described herein. (r) Taxes. The Originator has filed or caused to be filed all Federal, state and local tax returns which are required to be filed by it, and has paid or caused to be paid all taxes shown to be due and payable on such returns or on any assessments received by it, other than any taxes or assessments, the validity of which are being contested in good faith by appropriate proceedings and with respect to which the Originator has set aside adequate reserves on its books in accordance with generally accepted accounting principles and which have not given rise to any Liens. (s) Software. The Originator and the Servicer, as assignee of the Buyer, has (or will have, concurrently with the effectiveness hereof) an enforceable right (whether by license, sublicense or assignment) to use all of the computer software used to account for the Purchased Loans to the extent necessary to administer the Purchased Loans. (t) Loan Documents. The Originator has heretofore caused all original copies of all Notes and other Loan Documents related to the Purchased Loans to be delivered to the Buyer. (u) Loans Secured by Real Property. (i) All Loans specified on Schedule I (as the same may be supplemented upon each subsequent Purchase) are Real 24 29 Estate Secured Loans and are secured by interests in real estate more particularly described on Schedule I; (ii) With respect to any Real Estate Secured Loan secured by a mortgage, (A) each such mortgage is a valid and subsisting lien of record on the mortgaged property subject only to a first mortgage lien on such mortgaged property previously disclosed to Buyer and subject in all cases to such exceptions that are generally acceptable to prudent and experienced lenders in connection with their regular commercial lending activities, and such other exceptions to which similar properties are commonly subject and which do not individually, or in the aggregate, materially and adversely affect the benefits of the security intended to be provided by such mortgage, (B) each original mortgage was recorded, and all subsequent assignments of the original mortgage have been recorded in the appropriate jurisdictions wherein such recordation is necessary to perfect the lien thereof as against creditors of Originator, (C) any related mortgage contains customary and enforceable provisions which render the rights and remedies of the holder thereof adequate for the realization against the mortgaged property of the benefits of the security, including (1) in the case of a mortgage designated as a deed of trust, by trustee's sale, and (2) otherwise by judicial foreclosure, and (D) (1) there are no material defaults in complying with the terms of any applicable mortgage, and all taxes, governmental assessments, insurance premiums, water, sewer and municipal charges, leasehold payments or ground rents which previously became due and owing have been paid, or an escrow of funds has been established in an amount sufficient to pay for every such item which remains unpaid and which has been assessed but is not yet due and payable; (2) there is no proceeding pending or, to the Originator's knowledge, threatened for the total or partial condemnation of any related mortgaged property, nor is such a proceeding currently occurring, and such property is undamaged by waste, fire, earthquake or earth movement, windstorm, flood, tornado or other casualty, so as to affect adversely the value of such mortgaged property as security for the Loan or the use for which the premises were intended; and (3) at the 25 30 time of origination of the applicable Loan, and to the best of the Originator's knowledge, and based primarily on the related Phase I environmental survey or environmental questionnaire, as the case may be, the related mortgaged property is, as of the applicable date of purchase, free of contamination from toxic substances or hazardous wastes. (v) Reasonably Equivalent Value. The Purchase Price constitutes reasonably equivalent value in consideration for the transfer to the Buyer of the Loans and Related Security from the Originator and no such transfer shall have been made for or on account of an antecedent debt owed by any Originator to the Buyer and no such transfer is or may be voidable under any Section of the Bankruptcy Reform Act of 1978 (11 U.S.C. Section 101 et seq.), as amended. (w) Ownership of the Buyer. The Originator directly owns one hundred percent (100%) of the outstanding capital stock of the Buyer and has not granted or issued any options, warrants or other rights to acquire any such capital stock. (x) Small Business Investment Company. The Originator is a duly licensed small business investment company authorized by the SBA under the SBIC Regulations. The Originator is in good standing with the SBA and is not subject to any restriction, letter agreement, probation or other special condition respecting the Originator's ability, qualification or operation as a small business investment company. ARTICLE V GENERAL COVENANTS OF THE ORIGINATOR SECTION 5.01. Affirmative Covenants of the Originator. From the date hereof until the later of the Termination Date or the Collection Date, the Originator will, unless the Buyer shall otherwise consent in writing: (a) Compliance with Laws, Etc. Comply in all material respects with all applicable laws, rules, regulations and orders with respect to its business and properties or the Purchased Loans (including, without limitation, the SBIC Regulations and the Investment Company Act). (b) Preservation of Corporate Existence. Observe all corporate procedures required by its charter and By-Laws and preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified in good standing in each 26 31 jurisdiction in which failure to so qualify or to obtain such licenses and approvals could have a material adverse effect on (i) the interests of the Buyer hereunder or in the Purchased Assets, (ii) the collectibility of any Purchased Loan or (iii) the ability of the Originator to perform its obligations hereunder or under any other Facility Document. (c) Audits. At any time and from time to time upon reasonable notice to the Originator and during regular business hours, permit the Buyer, or its agents or representatives, (i) to examine and make copies of and abstracts from all Records and (ii) to visit the offices and properties of the Originator for the purpose of examining such Records, and (iii) to discuss matters relating to the affairs and finances of the Originator, the Purchased Loans or to the Originator's performance hereunder, in each case with any of the officers or employees of the Originator having knowledge of such matters. (d) Keeping of Records and Books of Account. Itself or through its agents, maintain and implement administrative and operating procedures (including, without limitation, a complete disaster recovery plan that enables the Originator to recreate records evidencing the Purchased Loans in the event of the destruction of the originals thereof) and keep and maintain all documents, books, records and other information reasonably necessary or advisable for the collection of all Purchased Loans (including, without limitation, records adequate to permit the daily identification of all Collections of and adjustments to existing Purchased Loan). (e) Location of Records. Keep its chief executive office, and the offices where it keeps the Records, at the address(es) referred to in Section 4.01(j), or, in any such case, upon 30 days' prior written notice to the Buyer, at such other locations within the United States where all action required by Section 6.04 shall have been taken and completed. (f) Credit and Collection Policies. Comply in all material respects with the Credit and Collection Policy in regard to each Purchased Loan and the related Purchased Assets. (g) Collections. Instruct all Obligors to cause all Collections to be deposited directly with a Lock-Box Bank in accordance with the terms of this Agreement and if the Originator shall receive any Collections, the Originator shall hold such Collections in trust for the benefit of the Buyer and remit such Collections to the Buyer by depositing such Collections into the Lock-Box Account within one Business Day following Originator's receipt thereof. 27 32 (h) Segregation of Collections. Take all necessary actions to prevent the deposit of any funds other than Collections in respect of Purchased Loans and the proceeds of permitted investments of such Collections into any of the Lock-Box Accounts and, to the extent that the Originator has actual knowledge that any such funds are nevertheless deposited into any of such Lock-Box Accounts, promptly identify any such funds to the Buyer for segregation and remittance to the owner thereof. (i) Computer Services. The Originator shall take such action as may be necessary (including, without limitation, obtaining any necessary consents from licensors or other Persons) to provide the Buyer with such licenses, sublicenses and/or assignments of contracts as the Buyer shall from time to time require with regard to all services and computer hardware or software that relate to the servicing of the Purchased Loans or the other Purchased Assets. (j) Separate Corporate Existence. Take all actions required to maintain the Buyer's status as a separate legal entity, including, without limitation, (i) not holding the Buyer out to third parties as other than an entity with assets and liabilities distinct from the Originator and the Originator's other Subsidiaries; (ii) not holding itself out to be responsible for the debts of the Buyer or, other than by reason of owning capital stock of the Buyer, for any decisions or actions relating to the business and affairs of the Buyer; (iii) causing any financial statements consolidated with those of the Buyer to state that the Buyer is a separate corporate entity with its own separate creditors who, in any liquidation of the Buyer, will be entitled to be satisfied out of the Buyer's assets prior to any value in the Buyer becoming available to the Buyer's equity holders; (iv) taking such other actions as are necessary on its part to ensure that all corporate procedures required by its charter and the Buyer's certificate of incorporation and by-laws are duly and validly taken; (v) keeping, with respect to the Originator, correct and complete records and books of account and corporate minutes; (vi) not acting in any other matter that could foreseeably mislead others with respect to the Buyer's separate identity; and (vii) taking such other actions as may be necessary on its part to ensure that the Buyer is in compliance at all times with Sections 2.05(a), 2.05(e), 2.06(i), 2.06(j) and 2.06(k) of the Indenture. SECTION 5.02. Reporting Requirements of the Originator. From the date hereof until the later of the Termination Date or the Collection Date, the Originator will, unless the Buyer shall otherwise consent in writing, furnish to the Buyer: 28 33 (a) Quarterly Financial Statements. As soon as available and in any event within 50 days after the end of each of the first three quarters of each fiscal year of the Originator, balance sheets of the Originator as of the end of such quarter, and the related statements of income and retained earnings and statements of changes in financial position of the Originator, each for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, certified by the chief financial officer or chief accounting officer of the Originator. (b) Annual Financial Statements. As soon as available and in any event within 95 days after the end of each fiscal year of the Originator, an audit report, including the balance sheets of the Originator as of the end of such year and the related statements of income and retained earnings and statements of changes in financial position of the Originator for such year, certified without qualification by nationally recognized independent public accountants. (c) Shareholder Reports. Promptly after the sending or filing thereof, copies of all reports, if any, which the Originator sends to any of its shareholders. (d) Notice of Termination Events. Except as otherwise provided in the succeeding clause (e) as soon as possible and in any event within two Business Days after the Originator's becoming aware of the occurrence of each Termination Event or each event which, with the giving of notice or lapse of time or both, would constitute a Termination Event, the statement of the chief financial officer or chief accounting officer of the Originator setting forth details of such or event and the action which the Originator proposes to take with respect thereto. (e) Notice of Insolvency Event. Within one day after the occurrence of an Insolvency Event with respect to the Originator, the statement of the chief financial or chief accounting officer of the Originator setting forth the details of such event or circumstance. (f) Other Information. (i) Promptly upon receipt thereof, copies of all SBA audit reports and all other material correspondence and reports to, from or regarding the SBA. (ii) Promptly, but in any event within ten (10) Business Days after the filing thereof, a copy of (a) each report or other filing made by the Originator or any Subsidiary with the Securities and Exchange Commission (the "SEC") and required by the SEC to be delivered to the 29 34 shareholders of the Originator or any such Subsidiary, and (b) each report and final registration statement of the Originator or any Subsidiary filed with the SEC. (iii) Promptly, from time to time, such other information, documents, records or reports respecting the Purchased Loans or the conditions or operations, financial or otherwise, of the Originator (including, without limitation, reports and notices relating to the Originator's actions under and compliance with ERISA, the SBIC Regulations and the Investment Company Act) as the Buyer or the Servicer may from time to time request in order to perform its obligations hereunder or under any other Facility Document or to protect the interests of the Buyer under or as contemplated by this Agreement and the other Facility Documents. SECTION 5.03. Negative Covenants of the Originator. From the date hereof until the later of the Termination Date or the Collection Date, the Originator will not without the written consent of the Buyer: (a) Sales, Liens, Etc. Except as otherwise provided herein or any other Facility Document, sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist, any Lien upon or with respect to, any Purchased Loan, or the Related Security or Collections with respect thereto, or any related Loan Document, or upon or with respect to any Lock-Box Account to which any Collections of any Purchased Loan are sent, or assign any right to receive income in respect thereof. (b) Extension or Amendment of Loans. Except as provided in the Credit and Collection Policy, or as otherwise approved in writing by the Buyer, (i) extend, amend or otherwise modify (or consent or fail to object to any such extension, amendment or modification by the Servicer) the terms of any Purchased Loan, or amend, modify or waive (or consent or fail to object to any such amendment, modification or waiver by the Servicer) any term or condition of any Loan Document related thereto or (ii) release any Collateral or guaranty supporting any Obligor's obligations under a Note or Loan Document, if the effect of such amendment, modification or waiver or release of Collateral could reasonably be expected to impair the collectibility or delay the payment of any Purchased Loan; provided, however, that unless any such Purchased Loan is a "Defaulted Loan" (under and as defined in the Indenture) and no "Servicer Default" (under and as defined in the Indenture) has occurred and is continuing, the prior written consent of the Buyer shall be required for any extension, amendment, modification or waiver of any term or condition of any Loan 30 35 Document or any release that would (x) decrease the amount of principal of, or the rate at which interest is payable on, the related Loan, (y) extend any date fixed for the payment of principal of, or interest on, the related Loan or (z) release any guaranty of the related Loan or all or substantially all of the Collateral for the related Loan. The Originator will not rescind or cancel, or permit the rescission or cancellation of, any Purchased Loan except as ordered by a court of competent jurisdiction or other Governmental Authority. (c) Change in Payment Instructions to Obligors. Terminate any bank as a Lock-Box Bank from those listed in Exhibit D, or terminate any Lock-Box Account, unless (i) the payments of Collections that had been received by such terminated Lock-Box Bank or that had been directed to such terminated Lock-Box Account, as the case may be, are redirected to one or more non-terminated Lock-Box Accounts, as the case may be and (ii) the Buyer shall have received ten Business Days' prior notice of such termination and redirection; or add any bank as a Lock-Box Bank or any Lock-Box Account as a Lock-Box Account other than those listed in Exhibit C, or make, any change in its instructions to Obligors regarding payments to be made to the Originator or pay ments to be made to any Lock-Box Account, unless the Buyer shall have received on or before the effective date of such addition or change, (x) fully executed copies of Lock-Box Agreements with respect to each new Lock-Box Account and (y) fully executed copies of all other agreements and documents related to any new Lock-Box Account. (d) Stock, Merger, Consolidation, Etc. Consolidate with or merge into or with any other corporation, or purchase or otherwise acquire all or substantially all of the assets or capital stock, or other ownership interest of, any Person or sell, transfer, lease or otherwise dispose of all or substantially all of its assets to any Person, or permit any Subsidiary of the Originator to do so, except that (i) any Subsidiary of the Originator may merge or consolidate with or transfer assets to or acquire assets from any other Subsidiary of the Originator, (ii) any Subsidiary of the Originator may merge into or transfer assets to the Originator and (iii) the Originator or any Subsidiary of the Originator may acquire the capital stock or assets of any other Person, provided that, (A) immediately after giving effect to any proposed transaction pursuant to the foregoing clause (i), (ii) or (iii), no Termination Event or event which, with the giving of notice or lapse of time, or both, would constitute a Termination Event, would exist; (B) in the case of any merger to which the Originator is a party, the Originator is the surviving corporation and (C) an acquisition by the Originator of the capital stock or assets of any other Person shall not, in and of 31 36 itself, constitute a breach of a covenant or agreement for purposes of Section 7.01(d). (e) Change in Corporate Names. Make any change to its corporate name or use any tradenames, fictitious names, assumed names or "doing business as" names, unless prior to the effective date of any such name change or use, the Originator delivers to the Buyer such Financing Statements (Form UCC-1 and UCC-3) executed by the Originator which the Buyer may request to reflect such name change or use, together with such other documents and instruments that the Buyer may request in connection therewith. (f) Accounting of Purchases. Prepare any financial statements or other statements which shall account for the transactions contemplated hereby in any manner other than the sale of the Loans by the Originator to the Buyer. (g) ERISA. Allow any Benefit Plan maintained by the Originator or any of its ERISA Affiliates to incur any "accumulated funding deficiency" (within the meaning of Section 302 of ERISA or Section 412 of the IRC), whether or not waived. Each of the Originator and each ERISA Affiliate of the Originator shall timely make all contributions required by it to be made by it to any Benefit Plan and Multiemployer Plan to which contributions are or shall be required to be made by the Originator or such ERISA Affiliate, and no event requiring notice to the PBGC under Section 302(f) of ERISA shall occur with respect to any such Benefit Plan, in any case, that could reasonably be expected to result, directly or indirectly, in any lien being imposed on the property of the Originator or the payment of any material amount to avoid such lien. No Benefit Plan Event with respect to the Originator or any of its ERISA Affiliates shall occur that could reasonably be expected to result, directly or indirectly, in any lien being imposed on the property of the Originator or the payment of any material amount to avoid such lien. ARTICLE VI ADMINISTRATION AND COLLECTION SECTION 6.01. Designation of Sub-Servicer. Consistent with the Buyer's ownership of the Purchased Loans and the other Purchased Assets, the Originator agrees that the Buyer shall have the sole right to service, administer and collect the Purchased Loans, to assign such right and to delegate such right to any other Person. The Originator hereby acknowledges that the Buyer has appointed Sirrom Capital Corporation to be the Servicer with respect to the Purchased Loans and Sirrom Capital Corporation has accepted such appointment. In addition, the Buyer has authorized 32 37 the Servicer to appoint Sub-Servicers to perform its servicing obligations with respect to the Purchased Loans. The Originator shall deliver all Records to the Servicer, as agent for the Buyer, and the Servicer shall hold all such Records in trust for the Buyer in accordance with its interests. SECTION 6.02. Rights of the Buyer. (a) At any time: (i) the Buyer may notify the Obligors of Purchased Loans, or any of them, of the Buyer's ownership interest in Purchased Loans and direct such Obligors, or any of them, that payment of all amounts payable under any Purchased Loans be made directly to the Lock-Box Bank, or if so directed by the Buyer, to the Buyer or its designee (including, without limitation, the Program Agent); (ii) the Originator shall, at the Servicer's or Buyer's request and at the Originator's expense, give notice of the Buyer's interest in Purchased Loans to each Obligor and direct that payments be made directly to the Lock-Box Bank, or if so directed by the Buyer, to the Buyer or its designee (including, without limitation, the Program Agent); and (iii) the Originator shall, at the Buyer's request, assemble all Records which the Buyer reasonably believes are necessary or appropriate for the administration and enforcement of the Purchased Loans, and shall make the same available to the Buyer at a place selected by the Buyer or its designee. (b) The Originator hereby authorizes the Buyer and the Servicer at any time to take any and all steps in the Originator's name and on behalf of the Originator necessary or desirable, in the determination of the Buyer and/or the Servicer, to collect all amounts due under any and all Purchased Loans, including, without limitation, endorsing the Originator's name on checks and other instruments representing Collections and enforcing such Loans. SECTION 6.03. Responsibilities of the Originator. Anything herein to the contrary notwithstanding: (a) The Originator shall perform all of its obligations under the Loan Documents related to the Purchased Loans to the same extent as if they had not been sold hereunder and the exercise by the Buyer of its rights hereunder shall not relieve the Originator from such obligations; and 33 38 (b) The Buyer shall not have any obligation or liability with respect to any Purchased Loans or any related Loan Documents, nor shall the Buyer be obligated to perform any of the obligations of the Originator thereunder. SECTION 6.04. Lock-Box Accounts; Maintenance of Perfection. (a) The Originator hereby transfers to the Buyer the exclusive ownership and control of the Lock-Box Accounts to which the Obligors of Purchased Loans shall make payments, and the Originator hereby agrees to take any further action necessary that the Buyer may reasonably request to effect such transfer. The Servicer shall be responsible for maintaining the Lock-Box Accounts, for causing the Obligors of Purchased Loans to make payments to the Lock-Box Accounts; provided, that, the Buyer is hereby authorized at any time to notify any or all of the Lock-Box Banks to remit all amounts deposited in the applicable Lock-Box Accounts directly to the Buyer or its designee. (b) The Originator agrees to take all actions, including conducting lien searches and filing UCC continuation statements, necessary or desirable to ensure that the Liens arising pursuant to the Loan Documents and securing repayment of any Obligor's indebtedness evidenced by a Note will be maintained as continuously perfected (with the same level of priority as sold and assigned hereunder) security interests (except as otherwise approved by Buyer) in all applicable jurisdictions to the extent required by the Credit and Collection Policy. To the extent that any Note or Loan Document related to a Purchased Loan comes into the possession of the Originator, the Originator agrees that it will promptly deliver such item to the Buyer, with all necessary endorsements. The Originator agrees from time to time, at the Originator's expense, promptly to execute and deliver, or cause to be executed and delivered, all further instruments and documents, and take all further action (including the making, or causing to be made, of notations on the records of the Originator or the Servicer) necessary or desirable or that the Buyer may reasonably request in order to perfect (to the extent required by the Credit and Collection Policy), maintain perfected, protect or more fully evidence the Purchase of Loans by the Buyer hereunder, or to enable the Buyer or the Program Agent to exercise or enforce any of their respective rights hereunder or under any other Facility Document. To the fullest extent permitted by applicable law, the Originator hereby grants to the Servicer and the Buyer, an irrevocable power of attorney, with full power of substitution, coupled with an interest, to sign and file in the name of the Originator, or in its own name, such financing statements and continuation statements and amendments thereto or assignments thereof as the Buyer deems necessary to protect or perfect the Buyer's rights in the Purchased Assets to the extent required by the Credit and Collection Policy. Without limiting the generality of the 34 39 foregoing, the Originator will upon the request of the Servicer or Buyer: (i) execute and file such financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices, as may be necessary or appropriate or as the Servicer or the Buyer may request and (ii) mark its master data processing records evidencing such Purchased Loans and related Loan Documents, as the Servicer or the Buyer may request. The Originator hereby authorizes the Servicer or the Buyer to file one or more financing or continuation statements, and amendments thereto and assignments thereof, relative to all or any of the Purchased Loans and the Related Security now existing or hereafter arising without the signature of the Originator where permitted by law. A carbon, photographic or other reproduction of this Agreement or of any financing statement covering the Purchased Loans or any part thereof, shall be sufficient as a financing statement. If the Originator fails to perform any of its agreements or obligations under this Agreement, the Buyer or the Servicer may (but shall not be required to) itself perform, or cause performance of, such agreement or obligation, and the expenses of the Buyer or the Servicer incurred in connection therewith shall be payable by the Originator upon the Buyer's demand therefor. ARTICLE VII TERMINATION EVENTS SECTION 7.01. Termination Events. If any of the following events (each, a "Termination Event") shall occur: (a) Any failure by the Originator or the Servicer to make any payment, transfer or deposit required to be paid by it under the terms of this Agreement; or (b) Any representation or warranty made or deemed to be made by the Originator (or any of its officers) under or in connection with this Agreement or other information or report delivered pursuant to this Agreement or any other Facility Document shall prove to have been false or incorrect in any material respect when made; or (c) The Originator or the Servicer shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed and any such failure shall remain unremedied for up to two Business Days following the earlier of notice or such time as the Originator knows or should have known thereof; or (d) The Originator shall fail to pay any principal of or interest on any Debt having a principal amount of $1,000,000 or greater, when the same becomes due and payable (whether by 35 40 scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other default under any agreement or instrument relating to any such Debt of the Originator or any other event, shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument if the effect of such default or event is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled required prepayment) prior to the stated maturity thereof; or (e) Any Purchase or acquisition by the Buyer of Purchased Assets shall for any reason, except to the extent permitted by the terms hereof, cease to create a valid and perfected first priority ownership or security interest in each Purchased Loan, the Related Security and Collections with respect thereto or shall for any reason cease to evidence the transfer to the Buyer of a valid and perfected first priority ownership or security interest in Purchased Loans, the Related Security and Collections; provided, however, if any such failure relates to a Loan which is retransferred to the Originator pursuant to Section 8.02 hereof, then such failure shall not give rise to an Event of Termination under this subsection (e); or (f) An Insolvency Event shall occur with respect to the Originator or any of its Subsidiaries; (g) There shall have been any material adverse change in the financial condition or operations of the Originator or the Originator and its Subsidiaries on a consolidated basis or there shall have occurred any event which materially adversely affects the collectibility of the Purchased Loans or there shall have occurred any other event which materially adversely affects the ability of the Originator to collect Purchased Loans or the ability of the Originator or Servicer to perform their respective obligations hereunder; or (h) Any "Event of Default" or "Servicer Event of Default" shall have occurred and be declared pursuant to the Indenture, then, and in any such event, the Buyer may, by notice to the Originator declare the Termination Date to have occurred, except that, in the case of any event described in clauses (i) or (ii) of the definition of Insolvency Event with respect to the Originator or any of its Subsidiaries, the Termination Date shall be deemed to have occurred automatically upon the occurrence of such event; provided that in the case of any proceeding described in clause (ii) of the definition of Insolvency Event against the 36 41 Originator or any of its Subsidiaries (but not instituted by any such Person that is the subject of such proceeding), either such proceeding has remained undismissed or unstayed for a period of 60 days, or any order, judgment, decree or action sought in such proceeding has been made or entered or has occurred. Upon any such declaration or automatic occurrence, the Buyer shall have, in addition to all other rights and remedies under this Agreement or otherwise, all other rights and remedies provided under the UCC of all applicable jurisdictions and other applicable laws, which rights shall be cumulative. ARTICLE VIII INDEMNIFICATION SECTION 8.01. Indemnities by the Originator. Without limiting any other rights which the Buyer may have hereunder or under applicable law, the Originator hereby agrees to indemnify the Buyer from and against any and all damages, losses, claims, liabilities and related costs and expenses, including reasonable attorneys' fees and disbursements (all of the foregoing being collectively referred to as "Indemnified Amounts") awarded against or incurred by the Buyer arising out of or as a result of this Agreement or the ownership of Purchased Loans or in respect of any Loan or any Loan Document, excluding, however, (i) Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of the Buyer or (ii) recourse (except as otherwise specifically provided in this Agreement) for uncollectible Purchased Loans. Without limiting the foregoing the Originator shall indemnify the Buyer for Indemnified Amounts arising or resulting from: (i) reliance on any representation or warranty made or deemed made by the Originator (or any of its officers) under or in connection with this Agreement or any other Facility Document or any other information or report delivered by the Originator pursuant to this Agreement or any other Facility Document (including, without limitation, any representation with respect to a Loan's classification as an Eligible Loan), which shall have been false or incorrect in any material respect when made or deemed made or delivered; (ii) the failure by the Originator to comply with any term, provision or covenant contained in this Agreement, or with any applicable law, rule or regulation with respect to any Purchased Loan, the related Loan Documents or the Related Security, or the nonconformity of any Purchased Loan, the related Loan Documents or the Related Security with any such applicable law, rule or regulation; 37 42 (iii) the failure to vest and maintain vested in the Buyer or to transfer to the Buyer, legal and equitable title to and ownership of, or security interest in, the Loans which are, or are intended to be, Purchased Loans, together with all Collections and Related Security, free and clear of any Lien (except as permitted hereunder) whether existing at the time of the Purchase of such Loan or at any time thereafter; (iv) the failure by the Originator to file, or any delay in filing, financing statements or other similar instruments or documents under the UCC of all applicable jurisdictions or other applicable laws or the failure to make other filings with respect to Collateral with respect to any Loans which are, or are intended to be, Purchased Loans, to the extent required by the Credit and Collection Policy and whether at the time of any Purchase or at any subsequent time; (v) any Obligor Claim or other dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Loan which is, or is intended to be, a Purchased Loan (including, without limitation, a defense based on such Loan or the related Loan Documents not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms); (vi) any lender liability claim or other similar or related claim or action of whatever sort arising out of or in connection with any Loan which is, or is intended to be a Purchased Loan, or the related Loan Documents; (vii) the failure to pay when due any taxes, including without limitation, sales, excise or personal property taxes payable in connection with the Loans; (viii) the failure of the Originator or any of its agents and representatives to remit to the Buyer, Collections of Purchased Loans remitted to the Originator or such agent or representative; (ix) the failure by the Originator to be duly qualified to do business, to be in good standing or to have filed appropriate fictitious or assumed name registration documents in any jurisdiction, where such qualification may be required by applicable law; (x) the commingling of Collections of Purchased Loans at any time with other funds; 38 43 (xi) any repayment by the Buyer which is required by law, or which the Buyer believes in good faith is required by law (as a preference or otherwise, and to the Originator, an Obligor, a trustee for the Originator or any Obligor, a court or any other Person) of an amount that previously caused a reduction in the cash portion of the Purchase Price paid by the Buyer, and any interest thereon required (or believed in good faith by the Buyer to be required); and (xiii) the failure by the Originator to cause the Collateral for a Purchased Loan to be insured in accordance with the Credit and Collection Policy. The Buyer shall promptly notify the Originator of any claim as to which it seeks indemnification. If any suit, action, claim or proceeding which might result in indemnification under this Section 8.01 is brought against the Buyer, the Buyer shall, if a claim in respect thereof is to be made against the Originator hereunder, notify the Originator in writing of the commencement thereof. The Originator may participate in and assume the defense of any such suit, action, claim, proceeding or investigation at its expense, and no settlement thereof shall be made without the approval of the Originator and the Buyer. The approval of the Originator and the Buyer will not be unreasonably withheld or delayed; provided, however, that (i) the Originator shall agree that any judgment, settlement or other amounts payable as a result of such suit, action, claim, or proceeding shall be subject to indemnification by the Originator pursuant to this Section 8.01; (ii) the Originator must keep the Buyer apprised of the progress of any such suit, action, claim or proceeding; and (iii) if the Buyer reasonably believes that its failure to participate will adversely affect its interests or that there is a conflict of interest which makes it inadvisable for the Originator's attorney to represent such party, it shall notify the Originator of such conclusion in writing and may, at its election, participate in such suit, action, claim or proceeding (the legal fees incurred by the Buyer as a result of such anticipation to be reimbursed by the Originator). Any amounts subject to the indemnification provisions of this Section 8.01 shall be paid by the Originator to the Buyer within two Business Days following the Buyer's demand. SECTION 8.02. Substitution and Retransfer of Loans. The following rights are in addition to and not in limitation of any other rights or remedies that the Buyer may have hereunder. (a) If, with respect to any Purchased Loan, (i) such Loan did not constitute an Eligible Loan on the date such Loan became a Purchased Loan or (ii) the Originator shall have breached any of the representations and warranties contained in Section 4.01(h) (a Purchased Loan described in either of clauses 39 44 (i) or (ii) above being referred to as an "Ineligible Purchased Loan"), then the Originator shall on the next succeeding Business Day, upon the Buyer's demand, at the Originator's option either substitute for such Ineligible Purchased Loan a new Loan in the manner specified in subsection (b) of this Section 8.02 or accept a retransfer of such Ineligible Purchased Loan for the retransfer price specified in subsection (c) of this Section 8.02; provided, however, that following the Termination Date, the Originator shall not have the option to substitute for Ineligible Purchased Loans, but must accept retransfers of such Ineligible Purchased Loans. (b) If the Originator substitutes a new Loan for a Purchased Loan pursuant to this Section 8.02, such new Loan shall (i) on the date of substitution, be an Eligible Loan, and shall be certified as such by the Originator, (ii) have an Outstanding Loan Balance at least equal to the Outstanding Loan Balance of the Purchased Loan for which it is being substituted, (iii) have a remaining term that is no longer than the remaining term of the Purchased Loan for which it is being substituted and (iv) be of credit quality equal to or better than the Purchased Loan for which it is being substituted. On the date of such substitution, such new Eligible Loan shall become a Purchased Loan and the Loan so replaced shall cease to be a Purchased Loan. (c) In the case of a retransfer by the Buyer to the Originator of a Purchased Loan pursuant to this Section 8.02, the Originator shall, on the day of such retransfer pay to the Buyer an amount equal to the Outstanding Loan Balance of such Purchased Loan as of such Monthly Payment Date. The proceeds of any such retransfer or purchase shall be deemed to be Collections of such Loan received by the Originator. Any such retransfer shall be made without recourse or warranty, express or implied. ARTICLE IX MISCELLANEOUS SECTION 9.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement nor consent to any departure by the Originator therefrom, shall in any event be effective unless the same shall be in writing and signed by the parties hereto, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. The Buyer shall promptly send written notice to each of Standard & Poor's Corporation and Fitch Investors Service, L.P. of any amendment, waiver or consent which occurs under this Section 9.01. This Agreement contains a final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire agreement among the parties hereto with respect to the 40 45 subject matter hereof, superseding all prior oral or written understandings. SECTION 9.02. Notices, Etc. All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including facsimile communication) and mailed, transmitted or delivered, as to each party hereto, at its address set forth under its name below or at such other address as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall be effective, upon receipt, or in the case of delivery by mail, five days after being deposited in the mails, postage prepaid, or in the case of notice by facsimile copy, when verbal confirmation of receipt is obtained, in each case addressed as aforesaid, except that notices and communications pursuant to Article II shall not be effective until received. The Buyer: 500 Church Street, Suite 200 Nashville, Tennessee 37219 Telephone: 615-244-1567 Facsimile: 615-726-1208 Attention: Chief Financial Officer The Originator: 500 Church Street, Suite 200 Nashville, Tennessee 37219 Telephone: 615-256-0701 Facsimile: 615-726-1208 Attention: Chief Financial Officer The Servicer: 500 Church Street, Suite 200 Nashville, Tennessee 37219 Telephone: 615-256-0701 Facsimile: 615-726-1208 Attention: Chief Financial Officer SECTION 9.03. No Waiver; Remedies. No failure on the part of the Buyer to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. 41 46 SECTION 9.04. Binding Effect; Assignability. (a) This Agreement shall be binding upon the Originator, the Buyer and their respective successors and permitted assigns and shall inure to the benefit of the Originator, the Buyer, and their respective successors and permitted assigns. Except as provided in Section 9.04(b) neither the Originator nor the Buyer (nor the Servicer (except as expressly permitted pursuant to Section 6.01)) may assign any of its rights and obligations hereunder or any interest herein without the prior written consent of the other party hereto. The Originator further agrees to send to the Program Agent copies of all notices and reports required to be delivered to the Buyer hereunder. This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until such time, after the Termination Date until the Collection Date; provided, however, that the rights and remedies with respect to any breach of any representation and warranty made by the Originator pursuant to Article IV and the indemnification and payment provisions of Article VIII and Section 9.06 shall be continuing and shall survive any termination of this Agreement. (b) The Originator acknowledges that the Buyer will assign to the Trustee, for the benefit of the holders of the debt issued thereunder (pursuant to the Indenture), all of its rights, remedies, powers and privileges hereunder and that Trustee may further assign such rights, remedies, powers and privileges to the extent permitted in the Indenture and the other Facility Documents. The Originator agrees that the Trustee, as the assignee of the Buyer, shall, subject to the terms of the Indenture and the other Facility Documents, have the right to enforce this Agreement and to exercise directly all of the Buyer's rights and remedies under this Agreement, and the Originator agrees to cooperate fully with the Trustee and the Servicer in the exercise of such rights and remedies. SECTION 9.05. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE INTERESTS OF THE BUYER IN THE PURCHASED LOANS, OR REMEDIES HEREUNDER, IN RESPECT THEREOF, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. SECTION 9.06. Costs, Expenses and Taxes. (a) In addition to the rights of indemnification granted to the Buyer under Article VIII hereof, the Originator agrees to pay on demand (i) all reasonable costs and expenses in connection with the preparation, execution, delivery and administration (including periodic auditing by the Buyer or its agents or representatives) of this Agreement, the Indenture and the other Facility 42 47 Documents, including, without limitation, the reasonable fees and reasonable out-of-pocket expenses of counsel for the Buyer (and the Trustee and the Program Agent) with respect thereto and with respect to advising the Buyer (and the Trustee and the Program Agent) as to its rights and remedies under this Agreement, and the other agreements executed pursuant hereto, and (ii) all costs and expenses, if any (including reasonable counsel fees and expenses), in connection with the enforcement of this Agreement and the other Facility Documents. (b) In addition, the Originator shall pay any and all stamp, sales, excise and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of this Agreement, the Loans or the other agreements and documents to be delivered hereunder. SECTION 9.07. CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL. THE ORIGINATOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE OR FEDERAL COURT SITTING IN THE CITY OF NEW YORK OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE OR FEDERAL COURT. THE ORIGINATOR IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS TO THE ORIGINATOR AT ITS ADDRESS SPECIFIED IN SECTION 9.02. THE ORIGINATOR AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. TO THE EXTENT ENFORCEABLE UNDER APPLICABLE LAW, THE ORIGINATOR HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE BETWEEN THE ORIGINATOR AND THE BUYER ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT OR THE DOCUMENTS RELATED HERETO. INSTEAD, ANY DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY. SECTION 9.08. Execution in Counterparts; Severability. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 43 48 SECTION 9.09. No Proceedings. The Originator and the Servicer each hereby agrees that it will not institute any proceeding of the type referred to in clause (ii) of definition of Insolvency Event (a) against HLS so long as any commercial paper issued by HLS shall be outstanding or there shall not have elapsed one year plus one day since the last day on which any such commercial paper shall have been outstanding or (b) against the Buyer so long as any rated indebtedness issued by the Buyer shall be outstanding or there shall not have elapsed one year plus one day after the last day on which any such rated indebtedness of the Buyer shall have been outstanding. 44 49 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. ORIGINATOR: SIRROM CAPITAL CORPORATION By: ----------------------------- Name: Title: BUYER: SIRROM FUNDING CORPORATION By: ----------------------------- Name: Title: SERVICER: SIRROM CAPITAL CORPORATION By: ----------------------------- Name: Title: 45 EX-99.F.15 5 CUSTODIAL AGREEMENT 1 Exhibit f.15 EXECUTION COPY CUSTODIAL AGREEMENT THIS CUSTODIAL AGREEMENT (the "Agreement") dated as of December 31, 1996, is entered into among SIRROM FUNDING CORPORATION ("SFC"), SIRROM CAPITAL CORPORATION ("Sirrom"), FIRST TRUST NATIONAL ASSOCIATION ("First Trust") in its capacity as the "Custodian" and ING BARING (U.S.) CAPITAL MARKETS, INC., as agent for certain Holders of Notes issued under the Indenture referred to below (the "Program Agent"). Capitalized terms used herein which are not otherwise defined herein shall have the meanings assigned to such terms in the Indenture. PRELIMINARY STATEMENT WHEREAS, SFC and Sirrom are parties to that certain Loan Sale and Contribution Agreement of even date herewith (as amended, modified or supplemented from time to time, the "Loan Purchase Agreement") pursuant to SFC may from time to time purchase loans (the "Issuer Loans") from Sirrom. WHEREAS, SFC as the Issuer, Sirrom as the initial Servicer and First Trust as Trustee, are parties to that certain Master Trust Indenture and Security Agreement of even date herewith (as amended, modified or supplemented from time to time, together with any "Supplements" thereto, the "Indenture") pursuant to which SFC has pledged, among other things, the Issuer Loans to the Trustee, for the benefit of the Noteholders. WHEREAS, SFC has requested that First Trust act as custodian (the "Custodian") for the purposes of (i) receiving and holding all Loan Documents relating to all Issuer Loans purchased by SFC from Sirrom from time to time and (ii) to act as the agent of the Noteholders for the purpose of perfection under Article 9 of the UCC. WHEREAS, First Trust is willing to act in such capacity as Custodian. NOW, THEREFORE, the parties agree as follows: 1 2 ARTICLE I DEFINITIONS SECTION 1.01. Definitions. As used herein, the following terms shall have the meanings assigned thereto below: "Authorized Employee" means any of the employees of the Program Agent listed on Schedule I hereto and any other employee of the Program Agent who is hereafter authorized in writing by an existing Authorized Employee (which authorization must be delivered to SFC and to the Custodian) to act as an Authorized Employee of the Program Agent hereunder, provided, however, that any Authorized Employee may send a notice to SFC and the Custodian informing them of any other Authorized Employee who ceases to be an Authorized Employee. "Report" has the meaning ascribed to such term in Section 2.08. "Report Effective Date" has the meaning ascribed to such term in Section 2.08. "Responsible Officer" means, with respect to SFC, the officers set forth on Exhibit E. "Termination Date" means that date when the Trustee notifies the Custodian in writing that the satisfaction and discharge of the obligations of the Issuer under the Indenture shall have occurred. ARTICLE II CUSTODIAN SECTION 2.01. Designation and Appointment of First Trust as Custodian. First Trust is hereby designated as, and hereby agrees to perform the duties and obligations of, the Custodian under and as set forth in this Agreement. First Trust shall serve as Custodian from the date hereof until the Termination Date, subject to resignation or removal pursuant to Section 4.05 hereof. SECTION 2.02. Duties of the Custodian. (a) At all times that First Trust shall be the Custodian, it shall duly discharge its duties of receiving and holding the Loan Documents in accordance with this Agreement. As to any matters not expressly provided for by this Agreement, the Custodian shall be 2 3 required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the written instructions of the Program Agent (executed by an Authorized Employee); provided, however, that the Custodian shall not be required to take any action which is contrary to this Agreement or applicable law, or which is not reasonably incidental to its duties and responsibilities under this Agreement or is of a type unrelated to its business. (b) First Trust is hereby authorized and empowered, with the prior written consent of the Program Agent, SFC, Sirrom and the Trustee, to subcontract with or delegate to any other Person (at the Custodian's expense) for performance of its duties and obligations as Custodian described in this Agreement; provided that such other Person shall not become the Custodian hereunder and the First Trust shall remain liable for the performance of its duties and obligations as the Custodian pursuant to the terms hereof. The Program Agent, SFC, Sirrom and the Trustee hereby consent to the appointment by First Trust of SunTrust Bank, Nashville, N.A. as its subcontractor for the performance of its duties described herein. Each subcontracting agreement will be upon such terms and conditions as are not inconsistent with this Agreement. All compensation payable to a subcontractor under any subcontracting agreement shall be payable by the Custodian from the fee received by it pursuant to Section 4.01 hereof or otherwise from its own funds, and neither the Trustee, Sirrom, SFC nor the Program Agent shall have any obligations, duties or liabilities of any kind whatsoever under any such subcontracting agreements. SECTION 2.03. Loan Documents; Agent for Perfection. (a) From time to time as provided in the Loan Purchase Agreement, the Loan Documents related to the Issuer Loans shall be delivered by Sirrom to the Custodian. All such Loan Documents shall be held by the Custodian pursuant to the terms hereof. The Loan Documents for each Issuer Loan delivered to you must include, among other things, (i) the original executed promissory note (the "Loan Note") related to such Issuer Loan, endorsed by SFC (directly on such Loan Note or by means of an allonge to such Loan Note) as follows: "Pay to the order of First Trust National Association, as Trustee without recourse" and signed by a Responsible Officer of SFC, with all prior and intervening endorsements showing a complete chain of endorsement to SFC, (ii)(A) executed originals of all other instruments included in the Loan Documents as described on the applicable Loan Document Transmittal Sheet and (B) executed originals or copies of the loan agreement and security agreement (which may be in the form 3 4 of a loan and security agreement) and all other Loan Documents described on the applicable Loan Document Transmittal Sheet. With each delivery of Loan Documents to the Custodian, Sirrom shall provide the Custodian with a summary of specific information with respect to each Issuer Loan (a "Loan Document Transmittal Sheet")(with simultaneous delivery thereof by facsimile to the Trustee and the Program Agent) substantially in the form of Exhibit A hereto. No later than the Business Day after receipt thereof, the Custodian shall (i) confirm the information set forth on each Loan Document Transmittal Sheet, noting thereon all discrepancies between the information contained thereon and the Loan Documents related thereto (if any), and (ii) deliver such Loan Document Transmittal Sheet by facsimile to the Trustee, the Program Agent, SFC and Sirrom. (b) In order to perfect the interests of the Noteholders in the Loan Notes related to Issuer Loans subject to the security interest granted in the Indenture, the Custodian, acting directly or through its agents, shall hold the Loan Notes, as agent hereunder for the Noteholders on the terms and conditions hereinafter set forth. SECTION 2.04. Removal of Loan Documents. (a) The Program Agent shall have the unlimited right, upon written notice (by facsimile or otherwise), which notice shall include a statement explicitly requesting the delivery of all or any portion of the Loan Documents relating to one or more Issuer Loans, executed by an Authorized Employee and delivered to the Custodian, with a copy sent to SFC, Sirrom and the Trustee, to remove all or any portion of the Loan Documents relating to one or more Issuer Loans from the Custodian. (b) From time to time, with not less than three Business Days prior written notice (substantially in the form of Exhibit B-1 hereto) delivered to the Custodian (with simultaneous delivery thereof by facsimile to the Trustee and the Program Agent), SFC may request the Custodian to release certain Loan Documents held by the Custodian to the Servicer; provided, that the Custodian shall release such Loan Documents only if (i) the Program Agent shall have notified the Custodian in writing (with simultaneous delivery thereof by facsimile to the Trustee and SFC) to release such Loan Documents, and (ii) SFC and Sirrom shall have certified that either (1)(A) the applicable Issuer Loan is an Ineligible Purchased Loan (as such term is defined in the Loan Purchase Agreement) and (B) Sirrom has, pursuant to Section 8.02 of the Loan Purchase Agreement, either (x) substituted a new Eligible Loan therefor and delivered the Loan 4 5 Documents related thereto to the Custodian or (y) repurchased such Ineligible Purchased Loan by depositing repurchase price thereof to the Collection Account, or (2) the release is being requested pursuant to Section 2.06(a) of the Indenture and all of the conditions precedent to such release have been satisfied. The right of SFC to request the release of Loan Documents under this Section 2.04(b) may be withdrawn by the Program Agent at any time by written notice to the Custodian from an Authorized Employee. Promptly upon the satisfaction of the conditions precedent to any release of Loan Documents held by the Custodian (including, without limitation, the receipt by the Program Agent of the certification described in clause (ii) of the immediately preceding sentence) the Program Agent shall direct the Custodian to release such Loan Documents. (c) From time to time, with not less than three Business Days prior written notice (substantially in the form of Exhibit B-2 hereto) delivered to the Custodian (with simultaneous delivery thereof by facsimile to the Trustee and the Program Agent), the Servicer may request the Custodian to release certain Loan Documents held by the Custodian to the Servicer; provided, that the Custodian shall release such Loan Documents only if (i) the Program Agent shall have notified the Custodian in writing (with simultaneous delivery thereof by facsimile to the Trustee and the Servicer) to release such Loan Documents, and (ii) the Servicer shall have certified that either (1)(A) the applicable Issuer Loan has been paid in full and (B) that all amounts received or to be received in connection with such payment which are required to be transferred to the Collection Account in accordance with the terms of the Indenture have been so transferred or (2) the Servicer has reasonably determined that it is necessary to take possession of the Loan Documents with respect to such Issuer Loan for the purpose of foreclosure thereon or further servicing thereof. The right of the Servicer to request the release of Loan Documents under this Section 2.04(c) may be withdrawn by the Program Agent at any time by written notice to the Custodian from an Authorized Employee. (d) Notwithstanding the requirement for three Business Days prior written notice to the Custodian in respect to any request for the release of certain Loan Documents as set forth in clauses (b) and (c) of this Section 2.04, the Custodian agrees to use its reasonable best efforts to accommodate requests on shorter notice so long as (i) all other conditions precedent to any such requested release are satisfied prior to such release and (ii) such requests have not, in the Custodian's sole determination, become regular. 5 6 (e) Other than as described in the this Section 2.04 and as otherwise required by law, the Custodian shall have no authority to release any Loan Documents to any Person, including, without limitation, SFC and Sirrom. SECTION 2.05. Documents held by the Custodian. All Loan Documents coming into the possession of the Custodian, (a) shall be held by it in trust for the benefit of the Trustee, on behalf of the Noteholders, and shall be segregated from all other documents held by the Custodian and placed for safekeeping in a fireproof vault (or similar safekeeping device) located on its premises, (b) shall be held by it as agent and bailee on behalf of the Trustee for the purposes of perfecting the security interest therein of the Trustee, (c) shall be made available to the Trustee and the Program Agent upon reasonable prior notification on any Business Day, for inspection or otherwise, upon the Trustee's or Program Agent's request therefor, and (d) shall be held in a manner which allows such Loan Documents to be released within two Business Days following the Custodian's receipt of notice pursuant to the terms set forth in Section 2.04 above. SECTION 2.06 No Liens or Encumbrances. The Custodian hereby agrees not to assert any statutory or possessory liens or encumbrances of any kind with respect to the Loan Documents held by it, and hereby waives all such liens and encumbrances. SECTION 2.07. Maintenance of Records. The Custodian shall implement and maintain administrative and operating procedures pursuant to which it shall keep and maintain all records and information necessary to permit the regular identification of all Loan Documents held or released by it. SECTION 2.08. Reports; Visitation Rights; Other Information. (a) The Custodian shall furnish to the Trustee and the Program Agent, not later than the Monthly Payment Date for each Collection Period, a report substantially in the form of Exhibit C hereto (each, a "Report"), setting forth, as of the last day of such Collection Period (with respect to each Report, the "Report Effective Date"), (i) the Loan Documents held by the Custodian as of such Report Effective Date and as of the Report Effective Date for the immediately preceding Report, (ii) the Loan Documents delivered to the Custodian since the Report Effective Date for the immediately preceding Report, and (iii) the Loan Documents released by the Custodian since the Report Effective Date for the immediately preceding Report. For purposes of clauses (ii) and (iii) above with respect to the 6 7 first Report delivered by the Custodian hereunder, "the Report Effective Date for the immediately preceding Report" shall be deemed to mean the date on which the Loan Documents are initially delivered to the Custodian hereunder. Each Report shall identify the applicable Loan Documents by loan number. (b) On the date any Loan Documents are initially delivered to the Custodian hereunder, (i) SFC shall deliver a notice to the Trustee and the Program Agent indicating such Loan Documents as shall have been added on such date, identified by loan number and (ii) the Custodian shall deliver to the Trustee (with a copy to the Program Agent and SFC) a Receipt substantially in the form of Exhibit D attached hereto identifying the Loan Documents that it has received and confirming that it holds such Loan Documents on the Trustee's behalf. (c) From time to time upon reasonable prior notification, during normal business hours, the Program Agent and the Trustee, and any of their respective authorized agents, employees or representatives, shall have the right (i) to visit the office of the Custodian (or its subcontractor) where the Loan Documents are kept, (ii) to examine the facilities for the storage and safekeeping thereof, (iii) to review the procedures with which such documents are stored and catalogued, (iv) to examine and make copies of and abstracts from such documents, and (v) to discuss matters relating to the Loan Documents and the Custodian's performance hereunder with any officer of the Custodian having knowledge of such matters. (d) The Custodian shall provide to the Trustee and the Program Agent such other information as either may from time to time reasonably request, concerning the Loan Documents which are in the possession of the Custodian. SECTION 2.09. Custodian's Liability. The Custodian shall have no liability whatsoever by reason of any error of judgment for any act done or step taken or omitted by it, or for any mistake of fact or law for anything which it may do or refrain from doing in connection herewith, unless caused by or arising out of its own gross negligence or willful misconduct. Furthermore, the Program Agent, SFC and Sirrom each agree to hold the Custodian harmless from any and all losses, expenses, damages and costs (including, without limitation, attorneys fees) incurred by either as a result of their execution of, or performance of their respective obligations under, this Agreement, unless however, such losses, expenses, damages and 7 8 costs are caused by or arise out of the Custodian's gross negligence or willful misconduct. The provisions of this Section 2.09 shall be continuing and shall survive the termination of this Agreement. ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS SECTION 3.01. Representations and Warranties of the Custodian. The Custodian hereby represents and warrants to SFC, the Program Agent and the Trustee, on behalf of itself and the Noteholders, as follows: (i) The Custodian is a national banking association duly incorporated, validly existing and in good standing under the laws of the United States of America and has all required corporate power and authority to enter into and perform its obligations under this Agreement. (ii) The execution, delivery and performance by the Custodian of this Agreement has been duly authorized by all necessary corporate action on the part of the Custodian. (iii) The Custodian has, and has created, no liens against any Loan Document. (iv) There are no actions or proceedings pending or, to the actual knowledge of any officers of the Custodian, threatened against it before any court or other governmental authority (A) which question the validity or enforceability of this Agreement; or (B) which relate to the trust powers of the Custodian and which, if determined adversely to the position of the Custodian, would materially and adversely affect the ability of the Custodian to perform its obligations as Custodian under this Agreement. (v) This Agreement has been duly executed and delivered by the Custodian. 8 9 ARTICLE IV MISCELLANEOUS SECTION 4.01. Fees and Expenses of the Custodian. SFC agrees to pay the Custodian such fees (the "Custodian Fees") and expenses as set forth in the fee letter of even date herewith between SFC and the Custodian. SECTION 4.02. Amendments, Etc. No amendment or waiver of any provision of this Agreement nor consent to any departure therefrom, shall in any event be effective unless the same shall be in writing and signed by each party hereto, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 4.03. Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including telex communication and communication by facsimile copy) and mailed, telexed, transmitted or delivered, as to each party hereto, at its address set forth under its name on the signature pages hereof or at such other address as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall be effective, upon receipt, or in the case of delivery by facsimile copy, when verbal communication of receipt is obtained, in each case addressed as aforesaid. SECTION 4.04. Binding Effect; Assignability; Term. This Agreement shall be binding upon and inure to the benefit of the Trustee, the Program Agent, SFC, Sirrom and the Custodian and their respective successors and permitted assigns. The Program Agent may assign at any time its rights and obligations hereunder and interests herein without the consent of the SFC, Sirrom or the Custodian. This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until the Termination Date, provided, however, that the provisions of Section 2.09 shall be continuing and shall survive the termination of this Agreement. The Custodian may not assign any of its rights, duties and obligations hereunder or any interest herein without the prior written consent, executed by an Authorized Employee, of the Program Agent. SECTION 4.05. Resignation and Removal. The Custodian may resign at any time by giving written notice thereof to the Program Agent not less than 120 days' prior to the effective date of such resignation. The Custodian may be removed by the Trustee 9 10 or the Program Agent at any time, with or without cause, by the Trustee or the Program Agent, as the case may be, giving written notice thereof to the Custodian not less than ten (10) days prior to the effective date of such removal. Upon any such resignation or removal, the Program Agent shall have the right to appoint a successor Custodian. Any such successor shall, upon its acceptance thereof, succeed to and become vested with all the rights, powers, privileges and duties of the retiring Custodian, and the retiring Custodian shall be discharged from its duties and obligations as Custodian under this Agreement. SECTION 4.06. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws and decisions of the State of New York. SECTION 4.07. Execution in Counterparts; Severability. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 10 11 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. SIRROM FUNDING CORPORATION By: ------------------------------ Name: Title: Notice Address: c/o Sirrom Capital Corporation 500 Church Street, Suite 200 Nashville, Tennessee 37219 Attention: Chief Financial Officer Telecopier: (615) 726-1208 SIRROM CAPITAL CORPORATION, individually and as Servicer By: ------------------------------ Name: Title: Notice Address: 500 Church Street, Suite 200 Nashville, Tennessee 37219 Attention: Chief Financial Officer Telecopier: (615) 726-1208 11 12 FIRST TRUST NATIONAL ASSOCIATION, as Custodian By: ------------------------------- Name: Title: Notice Address: 180 East Fifth Street, SPFTMZ04 St. Paul, Minnesota 55101 Attention: DCS - Client Services Telecopier: (612) 244-0010 ING BARING (U.S.) CAPITAL MARKETS, INC., as Program Agent By: ------------------------------ Name: Title: Notice Address: 135 East 57th Street New York, New York 10022-2101 Attention: Laurel S. Choate Telecopier: (212) 593-3362 Acknowledged and agreed to this ____ day of December, 1996 FIRST TRUST NATIONAL ASSOCIATION, as Trustee By: ------------------------------ Name: Title: Notice Address: 180 East Fifth Street, SPFT0210 St. Paul, Minnesota 55101 Attention: Structured Finance Administration Telecopier: (612) 244-0089 12 13 EXHIBIT A Form of Loan Document Transmittal Sheet Loans transferred from Sirrom Funding Corporation to Sirrom Capital Corporation as of _______ (date)
Sirrom Custodial Confirmation (Note any discrepancies) - --------------------------------------------------------------------------------------------------------------------------- Borrower Name - --------------------------------------------------------------------------------------------------------------------------- Loan Amount - --------------------------------------------------------------------------------------------------------------------------- Interest Rate - --------------------------------------------------------------------------------------------------------------------------- Maturity Date - --------------------------------------------------------------------------------------------------------------------------- Original Note properly endorsed - --------------------------------------------------------------------------------------------------------------------------- Original or Copy of Loan Agreement - --------------------------------------------------------------------------------------------------------------------------- Original or Copy of Security Agreement - --------------------------------------------------------------------------------------------------------------------------- Original Stock Warrant Agreement - --------------------------------------------------------------------------------------------------------------------------- Original Real Estate Related documents (if applicable) 1. Original mortgage (A certified copy if the original has been lost or a copy with the signature of a responsible officer stating that the mortgage is at the recording office) 2. An original endorsed assignment of the mortgage (or copy in the case of the circumstances discussed in (1) above) 3. Originals of all intervening documents (or copy in the case of the circumstances discussed in (1) above) 4. Copies of appraisals, environmental surveys and questionnaires, title insurance policies, etc. - --------------------------------------------------------------------------------------------------------------------------- List of any other documents - ---------------------------------------------------------------------------------------------------------------------------
* Upon completion, please fax immediately to the Program Agent, the Trustee, Sirrom Funding Corporation and Sirrom Capital Corporation. 13 14 EXHIBIT B-1 __________ __, 199__ First Trust National Association, as Custodian 180 East Fifth Street, SPFTMZ04 St. Paul, Minnesota 55101 Attention: DCS - Client Services First Trust National Association, as Trustee 180 East Fifth Street, SPFT0210 St. Paul, Minnesota 55101 Attention: Structured Finance Administration ING Baring (U.S.) Capital Markets, Inc., as Program Agent 135 East 57th Street New York, New York 10022 Attention: Joseph S. Weingarten Re: Sirrom Funding Corporation - Removal of Loan Documents Ladies and Gentlemen: Pursuant to Section 2.04(b) of that certain Custodian Agreement dated as of [_________], 1996 (the "Custodian Agreement"; capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed thereto in the Custodian Agreement) among Sirrom Funding Corporation ("SFC"), Sirrom Capital Corporation, First Trust National Association, as Custodian and ING Baring (U.S.) Capital Markets, Inc., as Program Agent, the undersigned hereby requests that the following Loan Documents be delivered into our possession: [Identify Loan Documents to be released, including loan numbers and other requested information] In connection with the foregoing, the undersigned hereby represents and warrants as follows: (a) A copy of this notice has been delivered to the Trustee and the Program Agent simultaneously with delivery to the Custodian. 15 (b) With respect to each of the foregoing Loan Documents, either (1)(A) the applicable Issuer Loan is an Ineligible Purchased Loan (as such term is defined in the Loan Purchase Agreement) and (B) Sirrom has, pursuant to Section 8.02 of the Loan Purchase Agreement, either (x) substituted a new Eligible Loan therefor and delivered the Loan Documents related thereto to the Custodian or (y) repurchased such Ineligible Purchased Loan by depositing repurchase price thereof to the Collection Account, or (2) the applicable Issuer Loan has been transferred pursuant to Section 2.06(a) of the Indenture and all of the conditions precedent to such transfer have been satisfied. (c) No Set-Aside Period shall have occurred and be continuing, no Event of Default, "Event of Default" under any Supplement or Servicer Default shall have occurred or be continuing, nor shall any event exist which but for notice, or the lapse of time, or both, would constitute an Event of Default, an "Event of Default" under any Supplement or a Servicer Default. Very truly yours, SIRROM FUNDING CORPORATION By: ------------------------ [Title] 2 16 EXHIBIT B-2 __________ __, 199__ First Trust National Association, as Custodian 180 East Fifth Street, SPFTMZ04 St. Paul, Minnesota 55101 Attention: DCS - Client Services First Trust National Association, as Trustee 180 East Fifth Street, SPFT0210 St. Paul, Minnesota 55101 Attention: Structured Finance Administration ING Baring (U.S.) Capital Markets, Inc., as Program Agent 135 East 57th Street New York, New York 10022 Attention: Joseph S. Weingarten Re: Sirrom Funding Corporation - Removal of Loan Documents Ladies and Gentlemen: Pursuant to Section 2.04(c) of that certain Custodian Agreement dated as of [_________], 1996 (the "Custodian Agreement"; capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed thereto in the Custodian Agreement) among Sirrom Funding Corporation ("SFC"), Sirrom Capital Corporation, First Trust National Association, as Custodian and ING Baring (U.S.) Capital Markets, Inc., as Program Agent, the undersigned hereby requests that the following Loan Documents be delivered into our possession: [Identify Loan Documents to be released, including loan numbers and other requested information] In connection with the foregoing, the undersigned hereby represents and warrants as follows: (a) A copy of this notice has been delivered to the Trustee and the Program Agent simultaneously with delivery to the Custodian. 17 (b) With respect to each of the foregoing Loan Documents, either (1)(A) the applicable Issuer Loan has been paid in full and (B) that all amounts received or to be received in connection with such payment which are required to be transferred to the Collection Account in accordance with the terms of the Indenture have been so transferred or (2) the Servicer has reasonably determined that it is necessary to take possession of the Loan Documents with respect to such Issuer Loan for the purpose of foreclosure thereon or further servicing thereof. (c) No Set-Aside Period shall have occurred and be continuing, no Event of Default, "Event of Default" under any Supplement or Servicer Default shall have occurred or be continuing, nor shall any event exist which but for notice, or the lapse of time, or both, would constitute an Event of Default, an "Event of Default" under any Supplement or a Servicer Default. Very truly yours, SIRROM CAPITAL CORPORATION By: ---------------------- [Title] 2 18 EXHIBIT C __________ __, 199__ First Trust National Association, as Trustee 180 East Fifth Street, SPFT0210 St. Paul, Minnesota 55101 Attention: Structured Finance Administration ING Baring (U.S.) Capital Markets, Inc., as Program Agent 135 East 57th Street New York, New York 10022 Attention: Joseph S. Weingarten Re: Sirrom Funding Corporation - Report Ladies and Gentlemen: We are sending this letter to you pursuant to Section 2.08(a) of that certain Custodian Agreement dated as of [_________], 1996 (the "Custodian Agreement") among Sirrom Funding Corporation ("SFC"), Sirrom Capital Corporation, First Trust National Association, as Custodian and ING Baring (U.S.) Capital Markets, Inc., as Program Agent. Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed thereto in the Custodian Agreement). This letter constitutes the Report for the period (the "Report Period") from ________________ to _________________ (the "Report Effective Date"). As of such Report Effective Date: 1. Loan Documents Held During Entire Report Period [List applicable Loan Documents by loan number, and include other requested information] 2. Loan Documents Delivered During Report Period [List applicable Loan Documents by loan number, and include other requested information] 19 3. Loan Documents Released During Report Period [List applicable Loan Documents by loan number, and include other requested information] Very truly yours, FIRST TRUST NATIONAL ASSOCIATION, as Custodian By: --------------------- [Title] 2 20 EXHIBIT D __________ __, 199__ First Trust National Association, as Trustee 180 East Fifth Street, SPFT0210 St. Paul, Minnesota 55101 Attention: Structured Finance Administration ING Baring (U.S.) Capital Markets, Inc., as Program Agent 135 East 57th Street New York, New York 10022 Attention: Joseph S. Weingarten Re: Sirrom Funding Corporation - Report Ladies and Gentlemen: We are sending this letter to you pursuant to Section 2.08(b) of that certain Custodian Agreement dated as of [_________], 1996 (the "Custodian Agreement") among Sirrom Funding Corporation ("SFC"), Sirrom Capital Corporation, First Trust National Association, as Custodian and ING Baring (U.S.) Capital Markets, Inc., as Program Agent. Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed thereto in the Custodian Agreement). The undersigned hereby confirms to you its receipt of the following Loan Documents: [List applicable Loan Documents by loan number, and include other requested information] The undersigned hereby confirms that all of the above-listed Loan Documents shall be held in trust for the benefit of the Trustee, on behalf of the Noteholders, and shall be held at all times hereafter in accordance with the terms of the Custodial Agreement. Very truly yours, FIRST TRUST NATIONAL ASSOCIATION, as Custodian By: ----------------------- [Title] 21 EXHIBIT E RESPONSIBLE OFFICERS Name Title ---- ----- George M. Miller, II President David M. Resha Chief Operating Officer Carl W. Stratton Chief Financial Officer Kimberly Stringfield Controller/Treasurer 2 22 SCHEDULE I Authorized Employees Joseph S. Weingarten Evan E. Binder Laurel S. Choate Kenneth W. Bradt Daniel M. Berger Jennifer A. Wickoff EX-99.F.16 6 BACKUP SERVICING AGREEMENT 1 Exhibit f.16 EXECUTION COPY BACKUP SERVICING AGREEMENT THIS BACKUP SERVICING AGREEMENT (the "Agreement") dated as of December 31, 1996, is entered into among FIRST TRUST NATIONAL ASSOCIATION, a national banking association ("First Trust"), as backup servicer (the "Backup Servicer"), SIRROM CAPITAL CORPORATION, a Tennessee corporation ("Sirrom")(in its capacity as initial Servicer under the Indenture referred to below, the "Servicer"), and ING BARING (U.S.) CAPITAL MARKETS, INC., as agent for certain Holders of Notes issued under the Indenture (the "Program Agent"). Capitalized terms used herein which are not otherwise defined herein shall have the meanings assigned to such terms in the Indenture. PRELIMINARY STATEMENT WHEREAS, Sirrom is the initial Servicer under that certain Master Trust Indenture and Security Agreement of even date herewith (as the same may be amended, restated, supplemented or otherwise modified from time to time, and together with any Supplement thereto, the "Indenture"), with Sirrom Funding Corporation, a Delaware corporation, as the Issuer and First Trust as the Trustee; and WHEREAS, the parties hereto desire to set forth certain agreements with respect to (i) the performance by the Backup Servicer of certain services which relate to the servicing by Sirrom of the Issuer Loans pledged to the Trustee under the Indenture (the "Pledged Loans") and (ii) the assumption of certain responsibilities as Servicer under the Indenture under certain circumstances; NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. Reconciliation Procedures. So long as the Backup Servicer has not been appointed the "Servicer" pursuant to Section 2 hereof and Section 10.02 of the Indenture: (a) On or prior to the Determination Date with respect to each Monthly Payment Date, the Servicer shall prepare and deliver to the Backup Servicer, by overnight courier of national standing, a copy of the Settlement Statement prepared by the Servicer pursuant to Section 3.05(b) of the Indenture for the 2 immediately preceding Collection Period and a computer tape or diskette, in a format acceptable to the Program Agent and the Backup Servicer, containing all information with respect to the Pledged Loans necessary to prepare the Settlement Statement. (b) On or before the Business Day preceding each Monthly Payment Date in respect of the immediately preceding Collection Period, the Backup Servicer shall (i) use the data received pursuant to subparagraph (a) above to verify the amount of Principal Collections and Interest Collections received with respect to the Pledged Loans during such Collection Period as set forth in the applicable Settlement Statement and (ii) report to the Servicer the nature and amount of any discrepancies identified as a result of such verification process. The Servicer and the Backup Servicer shall use their best efforts to reconcile any discrepancies identified to the Servicer pursuant to the immediately preceding sentence prior to the related Monthly Payment Date; provided that if the Servicer and the Backup Servicer are unable to reconcile such discrepancies within two (2) Business Days after the such Monthly Payment Date, the Servicer shall cause a firm of independent accountants to audit such Settlement Statement and, prior to the seventh Business Day after such Monthly Payment Date, reconcile such discrepancies. The effect, if any, of such reconciliation shall be reflected in the next Daily Report delivered by the Servicer to Trustee pursuant to the terms of the Indenture and the next Settlement Statement for the immediately succeeding Monthly Payment Date. (c) First Trust is hereby authorized and empowered, with the prior written consent of the Program Agent, Sirrom and the Trustee, to subcontract with or delegate to any other Person (at the Backup Servicer's expense) for performance of its duties and obligations as Backup Servicer described in this Agreement; provided that such other Person shall not become the Backup Servicer hereunder and First Trust shall remain liable for the performance of its duties and obligations as the Backup Servicer pursuant to the terms hereof. The Program Agent, Sirrom and the Trustee hereby consent to the appointment by First Trust of American Network Leasing Corporation as its subcontractor for the performance of its duties described herein. Each subcontracting agreement will be upon such terms and conditions as are not inconsistent with this Agreement. All compensation payable to a subcontractor under any subcontracting agreement shall be payable by the Backup Servicer from the fee received by it pursuant to Section 4 hereof or otherwise from its own funds, and neither the Trustee, Sirrom nor the Program Agent shall have any obligations, duties or liabilities of any kind whatsoever under any such subcontracting agreements. 2 3 (d) The Backup Servicer shall have no obligations under this Agreement other than those specifically set forth in this Section 1, and shall not otherwise be obligated to supervise, verify, monitor or administer the performance of the Servicer. The Backup Servicer shall have no liability for any action or omission on the part of the Servicer. SECTION 2. Assumption of Obligations. (a) The Backup Servicer hereby agrees, on the date (the "Assumption Date") specified in the written notice from the Backup Servicer to the Trustee pursuant to Section 10.02(a) of the Indenture, and without any further notice, to assume the obligations of Servicer, other than (i) the obligation, if any, of Sirrom to advance funds pursuant to the Indenture, (ii) any obligation of the Servicer to make payments with respect to any losses on investments made by or at the direction of the Servicer, and (iii) any obligation of the Servicer to take any legal action which the Backup Servicer in its reasonable opinion believes may subject it to any liability in connection with such legal action. From and after the Assumption Date, the Backup Servicer shall be entitled to all of the rights granted to the Servicer by the terms and provisions of the Indenture. The Backup Servicer shall not be obligated to assume the duties of the Servicer in the event the Backup Servicer is determined to be incapable of performing such duties as a matter of law in accordance with the provisions of Section 10.02 of the Indenture. (b) Notwithstanding the Backup Servicer's assumption of, and its agreement to perform and observe, all duties, responsibilities and obligations of the Servicer under the Indenture arising on and after the Assumption Date, the Backup Servicer shall not be deemed to have assumed or to become liable for, or otherwise have any liability for, any duties, responsibilities, obligations or liabilities of Sirrom or any predecessor Servicer arising on the terms of the Indenture, arising by operation of law or otherwise, including, without limitation, any liability for, any duties, responsibilities, obligations or liabilities of Sirrom or any predecessor Servicer arising on or before the Assumption Date under Article III of the Indenture, regardless of when the liability, duty, responsibility or obligation of Sirrom or any predecessor Servicer therefor arose, whether provided by the terms of the Indenture, arising by operation of law or otherwise and in no case will the Backup Servicer have any liability for any failure to perform its duties as Servicer, or any loss or damages arising from such failure, that results from the actions (or inaction) of any predecessor Servicer on or before the Assumption Date. 3 4 SECTION 3. Indemnity. Sirrom shall indemnify, defend, and hold harmless the Backup Servicer from and against any and all costs, expenses, losses, claims, damages, and liabilities to the extent that such cost, expense, loss, claim, damage, or liability arose out of, or was imposed upon the Backup Servicer through, the negligence, willful misfeasance, or bad faith of Sirrom in the performance of its duties under this Agreement or the Indenture or by reason of reckless disregard of its obligations and duties under this Agreement or the Indenture. SECTION 4. Fees. The Backup Servicer shall be entitled to such fees as are set forth in the fee agreement executed in connection herewith between the Program Agent and the Backup Servicer. SECTION 5. Further Assurances. The Backup Servicer agrees to execute, acknowledge and deliver from time to time all such further instruments and documents and to take all reasonable actions as the Program Agent may from time to time reasonably request to preserve the rights and obligations created hereunder; provided, however, that the Backup Servicer shall not be required to take any action which is contrary to this Agreement or applicable law, or which is not reasonably incidental to its duties and responsibilities under this Agreement or is of a type unrelated to its business. SECTION 6. Termination. This Agreement shall continue in full force and effect until the earliest of the date (i) that the Backup Servicer has assumed the obligations and responsibilities of the Servicer under the Indenture pursuant to this Agreement, (ii) the satisfaction and discharge of the obligations of the Issuer under the Indenture shall have occurred, (iii) that the Backup Servicer resigns (which resignation may be made at any time by not less than 120 days' prior written notice to the Servicer and the Program Agent) and (iv) that the Backup Servicer is to be removed (which removal may be made at any time without cause by the Program Agent by not less than 60 days' notice then given in writing to the Backup Servicer and the Servicer). Notwithstanding the foregoing, the provisions of Sections 2 and 3 of this Agreement shall be continuing and shall survive the termination of this Agreement. SECTION 7. Notice. All demands, notices and communications under this Agreement shall be in writing, and delivered (a) personally, (b) by certified mail, return receipt requested, (c) by Federal Express or similar overnight carrier service or (d) by telecopy and shall be deemed to have been duly given upon receipt, (i) in the case of the Backup Servicer, to First Trust National Association, 180 East Fifth Street, 4 5 SPFT0210, St. Paul, Minnesota 55101, Attention: Structured Finance Administration, (Telecopy: (612) 244-0089) with a copy to American Network Leasing Corporation, 5400 Legacy Drive, Plano, Texas 75024, Attention: William H. Skelton (Telecopy: 972-605- 3140), (ii) in the case of Sirrom, to Sirrom Capital Corporation, 500 Church Street, Suite 200 Nashville, Tennessee 37219, Attention: Chief Financial Officer (Telecopy: 615-726-1208) and (iii) in the case of the Program Agent, to ING Baring (U.S.) Capital Markets, Inc., 135 East 57th Street, New York, New York 10022-2101, Attention: Laurel S. Choate (Telecopy: 212-593-3362). SECTION 9. Miscellaneous. This Agreement may not be assigned by the Backup Servicer or Sirrom. This Agreement may be assigned by the Program Agent only to a successor Program Agent appointed pursuant to the Indenture. This Agreement shall be construed in accordance with the laws of the State of New York and the obligations, rights, and remedies of the parties under this Agreement shall be determined in accordance with such laws. This Agreement may be executed in counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument. SECTION 10. Conflict. The parties hereto acknowledge and agree that to the extent the provisions of this Agreement conflict with the provisions of the Indenture insofar as they relate to the Backup Servicer, the provisions of this Agreement shall control. 5 6 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective officers as of the day and year first above written. FIRST TRUST NATIONAL ASSOCIATION, as Backup Servicer By: -------------------------- Name: Title: SIRROM CAPITAL CORPORATION By: -------------------------- Name: Title: ING BARING (U.S.) CAPITAL MARKETS, INC., as Program Agent By: -------------------------- Name: Title: 6 EX-99.F.17 7 FEE AGREEMENT 1 Exhibit f.17 EXECUTION COPY FEE AGREEMENT THIS FEE AGREEMENT (the "Agreement") is dated as of December 31, 1996 among SIRROM CAPITAL CORPORATION ("Sirrom"), SIRROM FUNDING CORPORATION (the "Issuer), a Delaware corporation, HOLLAND LIMITED SECURITIZATION, INC. ("HLS") and ING BARING (U.S.) CAPITAL MARKETS, INC. ("ING Capital"), in its capacity as agent for HLS in respect of the "Notes" referred to below (in such capacity, the "Program Agent"). Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the "Indenture" referred to below. PRELIMINARY STATEMENT A. The Issuer, Sirrom, as Servicer (in such capacity, the "Servicer") and First Trust National Association, as Trustee are parties to that certain Master Trust Indenture and Security Agreement of even date herewith (together with all "Supplements" thereto, as each may be amended, restated, supplemented or otherwise modified from time to time, the "Indenture"), pursuant to which the Issuer may from time to time authorize the issuance of Series of Notes. B. The Issuer, the Servicer, HLS and the Program Agent are parties to that certain Note Purchase Agreement of even date herewith (as the same may be amended, restated, supplemented or otherwise modified from time to time, the "Note Purchase Agreement"), pursuant to which HLS has agreed to purchase and the Issuer has agreed to sell all of the Revolving Notes, Series 1996-1 (the "Revolving Notes") issued under the Indenture. C. To induce HLS to enter into the Note Purchase Agreement, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. Fees. Sirrom and the Issuer hereby agree to pay to HLS certain fees as follows: (a) Facility Increase Fee. After the Closing Date of the Note Purchase Agreement, on the effective date of each increase in the Stated Amount (as defined in the Indenture) of the Revolving Notes, Sirrom shall pay to HLS a Facility Increase Fee in an amount equal to the product of (i) 0.75% and (ii) the 1 2 amount of such increase in the Stated Amount of the Revolving Notes. (b) Program Fees. After the Effective Date of the Note Purchase Agreement, the Issuer shall pay to the Program Agent each of the following fees (collectively for each Computation Period, the "Program Fees"), payable in arrears on each Monthly Payment Date (as defined in the Indenture), commencing with the Monthly Payment Date immediately succeeding the Effective Date and on the last day of the Revolving Period (as defined in the Indenture): (i) a program fee, for the account of HLS, in an amount equal to the product of (i) a per annum rate of 2.25% and (ii) the Fee Basis (as defined below) during the immediately preceding Computation Period (as defined below); and (ii) an unused facility fee, for the account of HLS, in an amount equal to the product of (i) a per annum rate of 0.50% and (ii) an amount equal to the excess of the average Stated Amount of the Revolving Notes owned by HLS, ING Capital and/or their respective Affiliates during the immediately preceding Computation Period and the Fee Basis during the immediately preceding Computation Period. For the purposes of this Agreement "Effective Date" shall mean the date on which HLS shall have received written confirmation from Sirrom on behalf of the Issuer, in form and substance satisfactory to HLS, that all consents and approvals necessary for the consummation of the transactions contemplated by the Note Purchase Agreement, the Indenture and the Series 1996-1 Supplement (including, without limitation, approval of the Securities and Exchange Commission pursuant to the Investment Company Act of 1940) have been obtained. For the purposes of this Agreement "Fee Basis" shall mean the average Outstanding Principal Balance (as defined in the Series 1996-1 Supplement) of Revolving Notes during the Computation Period, calculated on the basis of a 360-day year and the number of actual days elapsed. For the purposes of this Agreement "Computation Period" shall mean (i) with respect to any Monthly Payment Date, the calendar month (or, in the case of the calendar month in which the Effective Date occurs, the portion of such calendar month following the Effective Date) immediately preceding the calendar month in which such Monthly Payment Date occurs, and (ii) with respect to any payment due on the last day of the Revolving Period, the period commencing on the first day of the calendar month in which the Revolving Period ends and ending on the last day of the Revolving Period. 2 3 In the event that the day upon which the Program Fee would otherwise be due and payable occurs on a day which is not a Business Day, then such payment shall be deemed to be due and payable on the Business Day immediately succeeding such day. SECTION 2. Restriction on Certain Indebtedness. (a) Sirrom agrees that, prior to the Scheduled Pay-Out Commencement Date (as defined in the Supplement for the Revolving Notes), so long as both (x) HLS, ING Capital and/or their respective Affiliates (collectively, the "Purchasers") have not denied a request by Sirrom or the Issuer to increase the Stated Amount of any Revolving Note owned by the Purchasers such that after giving effect to such increase the aggregate Outstanding Principal Balance of the Revolving Notes and Fixed Principal Notes (collectively, the "Notes") owned by the Purchasers would be in an amount in excess of $100,000,000, but less than or equal to $200,000,000, and (y) the aggregate Outstanding Principal Balance of the Notes owned by the Purchasers is less than $180,000,000, are true, it will not incur, nor will it allow any of its Subsidiaries (as hereinafter defined) to incur, without the prior written consent of ING Capital, any Indebtedness (as hereinafter defined) other than Permitted Indebtedness (as hereinafter defined). For the purposes of this Agreement "Subsidiary " shall mean any corporation, partnership or other entity of which more than fifty percent (50%) of the outstanding capital stock or other interests having ordinary voting power to elect a majority of the board of directors (if a corporation) or to appoint the general partner (if a partnership) or otherwise direct the management of such corporation, partnership or other entity (irrespective of whether at the time stock or other interests of any other class or classes of such corporation, partnership or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned by Sirrom. For the purposes of this Agreement "Indebtedness" of any Person shall mean: (i) indebtedness of such Person for borrowed money other than intercompany loans, (ii) obligations of such Person evidenced by bonds, debentures, Notes or other similar instruments, 3 4 (iii) any other financing, whether or not treated as indebtedness for generally accepted accounting principles, including the sale or other transfer of Eligible Loans in a securitization transaction. For purposes of this Agreement "Permitted Indebtedness" shall mean: (i) any Indebtedness under the Notes owned by Purchasers, (ii) any Indebtedness incurred by Sirrom Investments, Inc. or its successors guaranteed by the U.S. Small Business Administration and any Indebtedness incurred under the Fourth Amended and Restated Loan Agreement dated as of August 16, 1996 by and among First Union National Bank of Tennessee, Sirrom Investments, Inc. and the other Lenders named therein (including any Add-On Loans thereunder) (as such term is defined in the Loan Purchase Agreement), as it may be amended (or replaced in whole or in part with a similar facility) or increased from time to time hereafter, so long as each such increase is approved by the U.S. Small Business Administration, (iii) any Indebtedness incurred by any Subsidiary of Sirrom guaranteed by the Federal Home Loan Bank and any Indebtedness incurred under a loan agreement with a third party lender in connection with Indebtedness guaranteed by the Federal Home Loan Bank, (iv) any Indebtedness that is used to finance and/or is secured by Loans that are not Eligible Loans, (v) any Indebtedness that is used to finance and/or is secured by convertible debt instruments, (vi) any Indebtedness that is used to finance and/or is secured by any other investments that are not Eligible Loans, (vii) any convertible debt financing, (viii) any Indebtedness incurred while the Outstanding Principal Balance of the Notes owned by Purchasers is greater than or equal to (x) $180,000,000, or (y) after a denial of a Requested Increase, 90% of the Stated Amount of the Notes on the date of such denial, (ix) any Indebtedness incurred while the Outstanding Principal Balance of the Notes owned by Purchasers is less 4 5 than $180,000,000 (or after a denial of a Requested Increase, 90% of the Stated Amount of the Notes on the date of such denial), but was greater than $180,000,000 (or after a denial of a Requested Increase, 90% of the Stated Amount of the Notes on the date of such denial) during the immediately preceding 15 days, (x) High Cost Indebtedness (as defined below). For purposes of this Agreement "High Cost Indebtedness" shall mean any Indebtedness other than the types described in clauses (i) through (ix) of the defined term "Permitted Indebtedness" which is incurred by Sirrom or any of its Subsidiaries after the Amortization Date having a Comparison Percentage (as defined below) in excess of 2.50%. For the purposes of this Agreement "Comparison Percentage" shall mean, with respect to any Indebtedness, the spread (expressed as a percentage) charged by the lender thereof, in excess of such lenders cost of funds (expressed as a percentage), multiplied by a fraction, the numerator of which is 70%, and the denominator of which is the advance (expressed as a percentage) against Eligible Loans offered to Sirrom, or such Subsidiary, with respect to such Indebtedness. (b) Upon the occurrence of any breach of the covenant described in clause (a) above, Sirrom shall pay to the Program Agent on each Monthly Payment Date, for the account of HLS, an amount equal to the product of (x) the per annum rate of 2.25% and (y) the weighted average amount of the Indebtedness that does not constitute Permitted Indebtedness during the Collection Period for such Monthly Payment Date (the "Incremental Fee Amount"), such product to be calculated until the earlier to occur of the Scheduled Pay-Out Commencement Date for the Revolving Notes (as defined in the Supplement in respect of the Revolving Notes) owned by the Purchasers or the Take Out Date (as defined below). For the purposes of this Agreement "Take Out Date" shall mean the date following the Amortization Date when both (i) Holders of the Revolving Notes have been paid in full and (ii) Sirrom shall have paid the Make Whole Fee to the Program Agent (as defined below). (c) Notwithstanding anything to the contrary set forth in this Section 2, (i) in the event that Sirrom shall request in writing an increase (the "Requested Increase") in the Stated Amount of the Revolving Notes issued under the Indenture in an amount such that after giving effect to such increase, the sum of the Stated Amount thereof, plus the aggregate Outstanding Principal Balance of any Fixed Principal Notes issued under the indenture would not exceed $200,000,000 in the aggregate, and the 5 6 Purchasers shall fail to increase such Stated Amount on the same terms and conditions as set forth in the Indenture and the Series 1996-1 Supplement, the amount in clause (y) in subsection (b) above shall be reduced to an amount equal to 90% of the Stated Amount of the Notes then owned by the Purchasers, and (ii) Sirrom and its Subsidiaries may issue common stock, preferred stock or other Equity Securities or securities convertible into or representing the right to acquire Equity Securities and utilize the net proceeds without restriction, including using the net proceeds to fund Eligible Loans and loans that are not Eligible Loans, to make any other investments, to engage in other activities and to pay down any amounts owing on the Revolving Notes. (d) The parties hereto agree that for the purposes of this Agreement, neither Sirrom nor any of its Subsidiaries shall be deemed to have incurred any Indebtedness solely upon entering into an agreement containing a commitment or other agreement to extend Indebtedness to such Person, but rather Indebtedness shall occur on the date and in the amount of any advance, draw or other extension of credit with respect to any such agreement. (e) Notwithstanding any provisions hereof to the contrary, the Incremental Fee Amount shall be waived by the Program Agent upon the merger of or sale of all or substantially all of the assets or equity of Sirrom to any Person that is not an affiliate of Sirrom (the date of such event being hereinafter referred to as the "Acquisition Date"); provided that Sirrom shall have paid the Make Whole Fee (as defined below) to the Program Agent. For the purposes of this Agreement, "Make Whole Fee" as of any date of determination, shall mean an amount equal to the product of (a) the sum of (i) the Fee Basis as of the end of the most recently ended Computation Period plus (ii) the amount of Indebtedness that does not constitute Permitted Indebtedness as of the end of such Computation Period, (b) 1.125% and (c) a fraction, the numerator of which is the number of months (rounded to the nearest whole number) remaining from the such date of determination to the Scheduled Pay-Out Commencement Date, and the denominator of which is 12. SECTION 3. Representations and Warranties of Sirrom. Sirrom hereby represents and warrants to HLS and the Program Agent as follows: (i) Sirrom is a corporation duly organized, validly existing and in good standing under the applicable laws of its jurisdiction of organization or 6 7 incorporation and has, in all material respects, full corporate power and authority to own its properties and conduct its business as such properties are presently owned and as such business is presently conducted, and to execute, deliver and perform its obligations under this Agreement. (ii) The execution and delivery of this Agreement by Sirrom and the performance by Sirrom of this Agreement has been duly authorized by all necessary corporate action on the part of the Sirrom. (iii) This Agreement has been duly and validly executed and delivered by Sirrom and constitutes a legal, valid and binding obligation of Sirrom enforceable against it in accordance with its terms except as such enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium or other similar laws now and hereafter in effect affecting creditors' rights generally, and except as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity). (iv) Sirrom's execution and delivery of this Agreement, performance of the transactions contemplated by this Agreement, and fulfillment of the terms hereof, do not conflict with or violate in any material respects any material requirements of law applicable to Sirrom, or conflict with, result in any breach of any of the material terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, any material indenture, contract, agreement, mortgage, deed of trust or other instrument to which Sirrom is a party or by which it or its properties are bound in any manner which is likely to have a material adverse effect on Sirrom's ability to perform its obligations hereunder. (v) No authorization, consent, license, order or approval of or registration or declaration with any Governmental Authority is required to be obtained, effected or given by Sirrom in connection with the execution and delivery of this Agreement or the performance of its obligations hereunder. SECTION 4. Amendments, Etc. No amendment or waiver of any provision of this Agreement nor consent to any departure therefrom, shall in any event be effective unless the same shall 7 8 be in writing and signed by each party hereto, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 5. Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including telex communication and communication by facsimile copy) and shall be delivered in accordance with the terms of the Note Purchase Agreement. SECTION 6. Binding Effect; Assignability; Term. This Agreement shall be binding upon and inure to the benefit of Sirrom, HLS and the Program Agent and their respective successors and permitted assigns. This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until the Scheduled Pay-Out Commencement Date (as defined in the Supplement in respect of the Revolving Notes); provided, however, that the provisions of Section 2 shall be continuing and shall survive the termination of the Indenture and the repayment in full of the Notes. SECTION 7. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws and decisions of the State of New York. SECTION 8. Execution in Counterparts; Severability. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 8 9 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. SIRROM CAPITAL CORPORATION By: ------------------------------ Name: Title: SIRROM FUNDING CORPORATION By: ------------------------------ Name: Title: HOLLAND LIMITED SECURITIZATION, INC. By: ING Baring (U.S.) Capital Markets, Inc., as its attorney-in-fact By: ------------------------------ Name: Title: ING BARING (U.S.) CAPITAL MARKETS, INC., as Program Agent By: ------------------------------ Name: Title: 9 EX-99.F.18 8 ISDA MASTER AGREEMENT 1 Exhibit f.18 (MULTICURRENCY-CROSS BORDER) ISDA(R) International Swap Dealers Association, Inc. MASTER AGREEMENT dated as of November 26, 1996 NationsBank, N.A. and Sirrom Capital Corporation have entered and/or anticipate entering into one or more transactions (each a "Transaction") that are or will be governed by this Master Agreement, which includes the schedule (the "Schedule"), and the documents and other confirming evidence (each a "Confirmation") exchanged between the parties confirming those Transactions. Accordingly, the parties agree as follows:-- 1. INTERPRETATION (a) DEFINITIONS. The terms defined in Section 14 and in the Schedule will have the meanings therein specified for the purpose of this Master Agreement. (b) INCONSISTENCY. In the event of any inconsistency between the provisions of the Schedule and the other provisions of this Master Agreement, the Schedule will prevail. In the event of any inconsistency between the provisions of any Confirmation and this Master Agreement (including the Schedule), such Confirmation will prevail for the purpose of the relevant Transaction. (c) SINGLE AGREEMENT. All Transactions are entered into in reliance on the fact that this Master Agreement and all Confirmations form a single agreement between the parties (collectively referred to as this "Agreement"), and the parties would not otherwise enter into any Transactions. 2. OBLIGATIONS (a) GENERAL CONDITIONS. (i) Each party will make each payment or delivery specified in each Confirmation to be made by it, subject to the other provisions of this Agreement. (ii) Payments under this Agreement will be made on the due date for value on that date in the place of the account specified in the relevant Confirmation or otherwise pursuant to this Agreement, in freely transferable funds and in the manner customary for payments in the required currency. Where settlement is by delivery (that is, other than by payment), such delivery will be made for receipt on the due date in the manner customary for the relevant obligation unless otherwise specified in the relevant Confirmation or elsewhere in this Agreement. (iii) Each obligation of each party under Section 2(a)(i) is subject to (1) the condition precedent that no Event of Default or Potential Event of Default with respect to the other party has occurred and is continuing, (2) the condition precedent that no Early Termination Date in respect of the relevant Transaction has occurred or been effectively designated and (3) each other applicable condition precedent specified in this Agreement. Copyright (c) 1992 by International Swap Dealers Association, Inc. 2 (b) CHANGE OF ACCOUNT. Either party may change its account for receiving a payment or delivery by giving notice to the other party at least five Local Business Days prior to the scheduled date for the payment or delivery to which such change applies unless such other party gives timely notice of a reasonable objection to such change. (c) NETTING. If on any date amounts would otherwise be payable:-- (i) in the same currency; and (ii) in respect of the same Transaction. by each party to the other, then, on such date, each party's obligation to make payment of any such amount will be automatically satisfied and discharged and, if the aggregate amount that would otherwise have been payable by one party exceeds the aggregate amount that would otherwise have been payable by the other party, replaced by an obligation upon the party by whom the larger aggregate amount would have been payable to pay to the other party the excess of the larger aggregate amount over the smaller aggregate amount. The parties may elect in respect of two or more Transactions that a net amount will be determined in respect of all amounts payable on the same date in the same currency in respect of such Transactions, regardless of whether such amounts are payable in respect of the same Transaction. The election may be made in the Schedule or a Confirmation by specifying that subparagraph (ii) above will not apply to the Transactions identified as being subject to the election, together with the starting date (in which case subparagraph (ii) above will not, or will cease to, apply to such Transactions from such date). This election may be made separately for different groups of Transactions and will apply separately to each pairing of Offices through which the parties make and receive payments or deliveries. (d) DEDUCTION OR WITHHOLDING FOR TAX. (i) GROSS-UP. All payments under this Agreement will be made without any deduction or withholding for or on account of any Tax unless such deduction or withholding is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, then in effect. If a party is so required to deduct or withhold, then that party ("X") will:-- (1) promptly notify the other party ("Y") of such requirement; (2) pay to the relevant authorities the full amount required to be deducted or withheld (including the full amount required to be deducted or withheld from any additional amount paid by X to Y under this Section 2(d)) promptly upon the earlier of determining that such deduction or withholding is required or receiving notice that such amount has been assessed against Y; (3) promptly forward to Y an official receipt (or a certified copy), or other documentation reasonably acceptable to Y, evidencing such payment to such authorities; and (4) if such Tax is an Indemnifiable Tax, pay to Y, in addition to the payment to which Y is otherwise entitled under this Agreement, such additional amount as is necessary to ensure that the net amount actually received by Y (free and clear of Indemnifiable Taxes, whether assessed against X or Y) will equal the full amount Y would have received had no such deduction or withholding been required. However, X will not be required to pay any additional amount to Y to the extent that it would not be required to be paid but for:-- (A) the failure by Y to comply with or perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d); or (B) the failure of a representation made by Y pursuant to Section 3(f) to be accurate and true unless such failure would not have occurred but for (I) any action taken by a taxing authority, or brought in a court of competent jurisdiction, on or after the date on which a Transaction is entered into (regardless of whether such action is taken or brought with respect to a party to this Agreement) or (II) a Change in Tax Law. 2 3 (ii) LIABILITY. If:-- (1) X is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, to make any deduction or withholding in respect of which X would not be required to pay an additional amount to Y under Section 2(d)(i)(4); (2) X does not so deduct or withhold; and (3) a liability resulting from such Tax is assessed directly against X, then, except to the extent Y has satisfied or then satisfies the liability resulting from such Tax, Y will promptly pay to X the amount of such liability (including any related liability for interest, but including any related liability for penalties only if Y has failed to comply with or perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d)). (e) DEFAULT INTEREST; OTHER AMOUNTS. Prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party that defaults in the performance of any payment obligation will, to the extent permitted by law and subject to Section 6(c), be required to pay interest (before as well as after judgment) on the overdue amount to the other party on demand in the same currency as such overdue amount, for the period from (and including) the original due date for payment to (but excluding) the date of actual payment, at the Default Rate. Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed. If, prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party defaults in the performance of any obligation required to be settled by delivery, it will compensate the other party on demand if and to the extent provided for in the relevant Confirmation or elsewhere in this Agreement. 3. REPRESENTATIONS Each party represents to the other party (which representations will be deemed to be repeated by each party on each date on which a Transaction is entered into and, in the case of the representations in Section 3(f), at all times until the termination of this Agreement) that:-- (a) BASIC REPRESENTATIONS. (i) STATUS. It is duly organized and validly existing under the laws of the jurisdiction of its organization or incorporation and, if relevant under such laws, in good standing; (ii) POWERS. It has the power to execute this Agreement and any other documentation relating to this Agreement to which it is a party, to deliver this Agreement and any other documentation relating to this Agreement that it is required by this Agreement to deliver and to perform its obligations under this Agreement and any obligations it has under any Credit Support Document to which it is a party and has taken all necessary action to authorize such execution, delivery and performance; (iii) NO VIOLATION OR CONFLICT. Such execution, delivery and performance do not violate or conflict with any law applicable to it, any provision of its constitutional documents, any order or judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets; (iv) CONSENTS. All governmental and other consents that are required to have been obtained by it with respect to this Agreement or any Credit Support Document to which it is a party have been obtained and are in full force and effect and all conditions of any such consents have been complied with; and (v) OBLIGATIONS BINDING. Its obligations under this Agreement and any Credit Support Document to which it is a party constitute its legal, valid and binding obligations, enforceable in accordance with their respective terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)). 3 4 (b) ABSENCE OF CERTAIN EVENTS. No Event of Default or Potential Event of Default or, to its knowledge, Termination Event with respect to it has occurred and is continuing and no such event or circumstance would occur as a result of its entering into or performing its obligations under this Agreement or any Credit Support Document to which it is a party. (c) ABSENCE OF LITIGATION. There is not pending or, to its knowledge, threatened against it or any of its Affiliates any action, suit or proceeding at law or in equity or before any court, tribunal, governmental body, agency or official or any arbitrator that is likely to affect the legality, validity or enforceability against it of this Agreement or any Credit Support Document to which it is a party or its ability to perform obligations under this Agreement or such Credit Support Document. (d) ACCURACY OF SPECIFIED INFORMATION. All applicable information that is furnished in writing by or on behalf of it to the other party and is identified for the purpose of this Section 3(d) in the Schedule is, as of the date of the information, true, accurate and complete in every material respect. (e) PAYER TAX REPRESENTATION. Each representation specified in the Schedule as being made by it for the purpose of this Section 3(e) is accurate and true. (f) PAYEE TAX REPRESENTATIONS. Each representation specified in the Schedule as being made by it for the purpose of this Section 3(f) is accurate and true. 4. AGREEMENTS Each party agrees with the other that, so long as either party has or may have any obligation under this Agreement or under any Credit Support Document to which it is a party:-- (a) FURNISH SPECIFIED INFORMATION. It will deliver to the other party or, in certain cases under subparagraph (iii) below, to such government or taxing authority as the other party reasonably directs:-- (i) any forms, documents or certificates relating to taxation specified in the Schedule or any Confirmation; (i) any other documents specified in the Schedule or any Confirmation; and (iii) upon reasonable demand by such other party, any form or document that may be required or reasonably requested in writing in order to allow such other party or its Credit Support Provider to make a payment under this Agreement or any applicable Credit Support Document without any deduction or withholding for or on account of any Tax or with such deduction or withholding at a reduced rate (so long as the completion, execution or submission of such form or document would not materially prejudice the legal or commercial position of the party in receipt of such demand), with any such form or document to be accurate and completed in a manner reasonably satisfactory to such other party and to be executed and to be delivered with any reasonably required certification, in each case the date specified in the Schedule or such Confirmation or, if none is specified, as soon as reasonably practicable. (b) MAINTAIN AUTHORIZATIONS. It will use all reasonable efforts to maintain in full force and effect all consents of any governmental or other authority that are required to be obtained by it with respect to this Agreement or any Credit Support Document to which it is a party and will use all reasonable efforts to obtain any that may become necessary in the future. (c) COMPLY WITH LAWS. It will comply in all material respects with all applicable laws and orders to which it may be subject if failure so to comply would materially impair its ability to perform its obligations under this Agreement or any Credit Support Document to which it is a party. (d) TAX AGREEMENT. It will give notice of any failure of a representation made by it under Section 3(f) to be accurate and true promptly upon learning of such failure. (e) PAYMENT OF STAMP TAX. Subject to Section 11, it will pay any Stamp Tax levied or imposed upon it or in respect of its execution or performance of this Agreement by a jurisdiction in which it is incorporated, 4 5 organized, managed and controlled, or considered to have its seat, or in which a branch or office through which it is acting for the purpose of this Agreement is located ("Stamp Tax Jurisdiction") and will indemnify the other party against any Stamp Tax levied or imposed upon the other party or in respect of the other party's execution or performance of this Agreement by any such Stamp Tax Jurisdiction which is not also a Stamp Tax Jurisdiction with respect to the other party. 5. EVENTS OF DEFAULT AND TERMINATION EVENTS (a) EVENTS OF DEFAULT. The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of any of the following events constitutes an event of default (an "Event of Default") with respect to such party; (i) FAILURE TO PAY OR DELIVER. Failure by the party to make, when due, any payment under this Agreement or delivery under Section 2(a)(i) or 2(e) required to be made by it if such failure is not remedied on or before the third Local Business Day after notice of such failure is given to the party; (ii) BREACH OF AGREEMENT. Failure by the party to comply with or perform any agreement or obligation (other than an obligation to make any payment under this Agreement or delivery under Section 2(a)(i) or 2(e) or to give notice of a Termination Event or any agreement or obligation under Section 4(a)(i), 4(a)(iii) or 4(d)) to be complied with or performed by the party in accordance with this Agreement if such failure is not remedied on or before the thirtieth day after notice of such failure is given to the party; (iii) CREDIT SUPPORT DEFAULT. (1) Failure by the party or any Credit Support Provider of such party to comply with or perform any agreement or obligation to be complied with or performed by it in accordance with any Credit Support Document if such failure is continuing after any applicable grace period has elapsed; (2) the expiration or termination of such Credit Support Document or the failing or ceasing of such Credit Support Document to be in full force and effect for the purpose of this Agreement (in either case other than in accordance with its terms) prior to the satisfaction of all obligations of such party under each Transaction to which such Credit Support Document relates without the written consent of the other party; or (3) the party or such Credit Support Provider disaffirms, disclaims, repudiates or rejects, in whole or in part, or challenges the validity of, such Credit Support Document; (iv) MISREPRESENTATION. A representation (other than a representation under Section 3(e) or (f)) made or repeated or deemed to have been made or repeated by the party or any Credit Support Provider of such party in this Agreement or any Credit Support Document proves to have been incorrect or misleading in any material respect when made or repeated or deemed to have been made or repeated; (v) DEFAULT UNDER SPECIFIED TRANSACTION. The party, any Credit Support Provider of such party or any applicable Specified Entity of such party (1) defaults under a Specified Transaction and, after giving effect to any applicable notice requirement or grace period, there occurs a liquidation of, an acceleration of obligations under, or an early termination of, that Specified Transaction, (2) defaults, after giving effect to any applicable notice requirement or grace period, in making any payment or delivery due on the last payment. delivery or exchange date of, or any payment on early termination of, a Specified Transaction (or such default continues for at least three Local Business Days if there is no applicable notice requirement or grace period) or (3) disaffirms, disclaims, repudiates or rejects, in whole or in part, a Specified Transaction (or such action is taken by any person or entity appointed or empowered to operate it or act on its behalf); (vi) CROSS DEFAULT. If "Cross Default" is specified in the Schedule as applying to the party, the occurrence or existence of (1) a default, event of default or other similar condition or event (however 5 6 described) in respect of such party, any Credit Support Provider of such party or any applicable Specified Entity of such party under one or more agreements or instruments relating to Specified Indebtedness of any of them (individually or collectively) in an aggregate amount of not less than the applicable Threshold Amount (as specified in the Schedule) which has resulted in such Specified Indebtedness becoming, or becoming capable at such time of being declared, due and payable under such agreements or instruments, before it would otherwise have been due and payable or 2) a default by such party, such Credit Support Provider or such Specified Entity (individually or collectively) in making one or more payments on the due date thereof in an aggregate amount of not less than the applicable Threshold Amount under such agreements or instruments (after giving effect to any applicable notice requirement or grace period); (vii) BANKRUPTCY. The party, any Credit Support Provider of such party or any applicable Specified Entity of such party:- (1) is dissolved (other than pursuant to a consolidation, amalgamation or merger); (2) becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due; (3) makes a general assignment, arrangement or composition with or for the benefit of its creditors; (4) institutes or has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors' rights, or a petition is presented for its winding-up or liquidation, and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition (A) results in a judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an order for its winding-up or liquidation or (B) is not dismissed, discharged, stayed or restrained in each case within 30 days of the institution or presentation thereof; (5) has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger); (6) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets; (7) has a secured party take possession of all or substantially all its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within 30 days thereafter; (8) causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (1) to (7) (inclusive); or (9) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts; or (viii) MERGER WITHOUT ASSUMPTION. The party or any Credit Support Provider of such party consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity and, at the time of such consolidation, amalgamation, merger or transfer:-- (1) the resulting,surviving or transferee entity fails to assume all the obligations of such party or such Credit Support Provider under this Agreement or any Credit Support Document to which it or its predecessor was a party by operation of law or pursuant to an agreement reasonably satisfactory to the other party to this Agreement; or (2) the benefits of any Credit Support Document fail to extend (without the consent of the other party) to the performance by such resulting, surviving or transferee entity of its obligations under this Agreement. (b) TERMINATION EVENTS. The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of any event specified below constitutes an Illegality if the event is specified in (i) below, a Tax Event if the event is specified in (ii) below or a Tax Event Upon Merger if the event is specified in (iii) below, and, if specified to be applicable, a Credit Event 6 7 Upon Merger if the event is specified pursuant to (iv) below or an Additional Termination Event if the event is specified pursuant to (v) below:-- (i) ILLEGALITY. Due to the adoption of, or any change in, any applicable law after the date on which a Transaction is entered into, or due to the promulgation of, or any change in, the interpretation by any court, tribunal or regulatory authority with competent jurisdiction of any applicable law after such date, it becomes unlawful (other than as a result of a breach by the party of Section 4(b)) for such party (which will be the Affected Party):-- (1) to perform any absolute or contingent obligation to make a payment or delivery or to receive a payment or delivery in respect of such Transaction or to comply with any other material provision of this Agreement relating to such Transaction; or (2) to perform, or for any Credit Support Provider of such party to perform, any contingent or other obligation which the party (or such Credit Support Provider) has under any Credit Support Document relating to such Transaction; (ii) TAX EVENT. Due to (x) any action taken by a taxing authority, or brought in a court of competent jurisdiction, on or after the date on which a Transaction is entered into (regardless of whether such action is taken or brought with respect to a party to this Agreement) or (y) a Change in Tax Law, the party (which will be the Affected Party) will, or there is a substantial likelihood that it will, on the next succeeding Scheduled Payment Date (1) be required to pay to the other party an additional amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a payment from which an amount is required to be deducted or withheld for or on account of a Tax (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) and no additional amount is required to be paid in respect of such Tax under Section 2(d)(i)(4) (other than by reason of Section 2(d)(i)(4)(A) or (B)); (iii) TAX EVENT UPON MERGER. The party (the "Burdened Party") on the next succeeding Scheduled Payment Date will either (1) be required to pay an additional amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a payment from which an amount has been deducted or withheld for or on account of any Indemnifiable Tax in respect of which the other party is not required to pay an additional amount (other than by reason of Section 2(d)(i)(4)(A) or (B), in either case as a result of a party consolidating or amalgamating with, or merging with or into, or transferring all or substantially all its assets to, another entity (which will be the Affected Party) where such action does not constitute an event described in Section 5(a)(viii); (iv) CREDIT EVENT UPON MERGER. If "Credit Event Upon Merger" is specified in the Schedule as applying to the party, such party ("X"), any Credit Support Provider of X or any applicable Specified Entity of X consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity and such action does not constitute an event described in Section 5(a)(viii) but the creditworthiness of the resulting, surviving or transferee entity is materially weaker than that of X, such Credit Support Provider or such Specified Entity, as the case may be, immediately prior to such action (and, in such event, X or its successor or transferee, as appropriate, will be the Affected Party); or (v) ADDITIONAL TERMINATION EVENT. If any "Additional Termination Event" is specified in the Schedule or any Confirmation as applying, the occurrence of such event (and, in such event, the Affected Party or Affected Parties shall be as specified for such Additional Termination Event in the Schedule or such Confirmation). (c) EVENT OF DEFAULT AND ILLEGALITY. If an event or circumstance which would otherwise constitute or give rise to an Event of Default also constitutes an Illegality, it will be treated as an Illegality and will not constitute an Event of Default. 7 8 6. EARLY TERMINATION (a) RIGHT TO TERMINATE FOLLOWING EVENT OF DEFAULT. If at any time an Event of Default with respect to a party (the "Defaulting Party") has occurred and is then continuing, the other party (the "Non-defaulting Party") may, by not more than 20 days notice to the Defaulting Party specifying the relevant Event of Default, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all outstanding Transactions. If, however, "Automatic Early Termination" is specified in the Schedule as applying to a party, then an Early Termination Date in respect of all outstanding Transactions will occur immediately upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the extent analogous thereto, (8), and as of the time immediately preceding the institution of the relevant proceeding or the presentation of the relevant petition upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8). (b) RIGHT TO TERMINATE FOLLOWING TERMINATION EVENT. (i) NOTICE. If a Termination Event occurs, an Affected Party will, promptly upon becoming aware of it, notify the other party, specifying the nature of that Termination Event and each Affected Transaction and will also give such other information about that Termination Event as the other party may reasonably require. (ii) TRANSFER TO AVOID TERMINATION EVENT. If either an Illegality under Section 5(b)(i)(1) or a Tax Event occurs and there is only one Affected Party, or if a Tax Event Upon Merger occurs and the Burdened Party is the Affected Party, the Affected Party will, as a condition to its right to designate an Early Termination Date under Section 6(b)(iv), use all reasonable efforts (which will not require such party to incur a loss, excluding immaterial, incidental expenses) to transfer within 20 days after it gives notice under Section 6(b)(i) all its rights and obligations under this Agreement in respect of the Affected Transactions to another of its Offices or Affiliates so that such Termination Event ceases to exist. If the Affected Party is not able to make such a transfer it will give notice to the other party to that effect within such 20 day period, whereupon the other party may effect such a transfer within 30 days after the notice is given under Section 6(b)(i). Any such transfer by a party under this Section 6(b)(ii) will be subject to and conditional upon the prior written consent of the other party, which consent will not be withheld if such other party's policies in effect at such time would permit it to enter into transactions with the transferee on the terms proposed. (iii) TWO AFFECTED PARTIES. If an Illegality under Section 5(b)(i)(1) or a Tax Event occurs and there are two Affected Parties, each party will use all reasonable efforts to reach agreement within 30 days after notice thereof is given under Section 6(b)(i) on action to avoid that Termination Event. (iv) RIGHT TO TERMINATE. If:-- (1) a transfer under Section 6(b)(ii) or an agreement under Section 6(b)(iii), as the case may be, has not been effected with respect to all Affected Transactions within 30 days after an Affected Party gives notice under Section 6(b)(i); or (2) an Illegality under Section 5(b)(i)(2), a Credit Event Upon Merger or an Additional Termination Event occurs, or a Tax Event Upon Merger occurs and the Burdened Party is not the Affected Party, either party in the case of an Illegality, the Burdened Party in the case of a Tax Event Upon Merger, any Affected Party in the case of a Tax Event or an Additional Termination Event if there is more than one Affected Party, or the party which is not the Affected Party in the case of a Credit Event Upon Merger or an Additional Termination Event if there is only one Affected Party may, by not more than 20 days notice to the other party and provided that the relevant Termination Event is then 8 9 continuing, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all Affected Transactions. (c) EFFECT OF DESIGNATION. (i) If notice designating an Early Termination Date is given under Section 6(a) or (b), the Early Termination Date will occur on the date so designated, whether or not the relevant Event of Default or Termination Event is then continuing. (ii) Upon the occurrence or effective designation of an Early Termination Date, no further payments or deliveries under Section 2(a)(i) or 2(e) in respect of the Terminated Transactions will be required to be made, but without prejudice to the other provisions of this Agreement. The amount, if any, payable in respect of an Early Termination Date shall be determined pursuant to Section 6(e). (d) CALCULATIONS. (i) STATEMENT. On or as soon as reasonably practicable following the occurrence of an Early Termination Date, each party will make the calculations on its part, if any, contemplated by Section 6((e) and will provide to the other party a statement (1) showing, in reasonable detail, such calculations (including all relevant quotations and specifying any amount payable under Section 6(e)) and (2) giving details of the relevant account to which any amount payable to it is to be paid. In the absence of written confirmation from the source of a quotation obtained in determining a Market Quotation, the records of the party obtaining such quotation will be conclusive evidence of the existence and accuracy of such quotation. (ii) PAYMENT DATE. An amount calculated as being due in respect of any Early Termination Date under Section 6(e) will be payable on the day that notice of the amount payable is effective (in the case of an Early Termination Date which is designated or occurs as a result of an Event of Default) and on the day which is two Local Business Days after the day on which notice of the amount payable is effective (in the case of an Early Termination Date which is designated as a result of a Termination Event). Such amount will be paid together with (to the extent permitted under applicable law) interest thereon (before as well as after judgment) in the Termination Currency, from (and including) the relevant Early Termination Date to (but excluding) the date such amount is paid, at the Applicable Rate. Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed. (e) PAYMENTS ON EARLY TERMINATION. If an Early Termination Date occurs, the following provisions shall apply based on the parties' election in the Schedule of a payment measure, either "Market Quotation" or "Loss", and a payment method, either the "First Method" or the "Second Method". If the parties fail to designate a payment measure or payment method in the Schedule, it will be deemed that "Market Quotation" or the "Second Method", as the case may be, shall apply. The amount, if any, payable in respect of an Early Termination Date and determined pursuant to this Section will be subject to any Set-off. (i) EVENTS OF DEFAULT. If the Early Termination Date results from an Event of Default:- (1) First Method and Market Quotation. If the First Method and Market Quotation apply, the Defaulting Party will pay to the Non-defaulting Party the excess, if a positive number, of (A) the sum of the Settlement Amount (determined by the Non-defaulting Party) in respect of the Terminated Transactions and the Termination Currency Equivalent of the Unpaid Amounts owing to the Non-defaulting Party over (B) the Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party. (2) First Method and Loss. If the First Method and Loss apply, the Defaulting Party will pay to the Non-defaulting Party, if a positive number, the Non-defaulting Party's Loss in respect of this Agreement. (3) Second Method and Market Quotation. If the Second Method and Market Quotation apply, an amount will be payable equal to (A) the sum of the Settlement Amount (determined by the 9 10 Non-defaulting Party) in respect of the Terminated Transactions and the Termination Currency Equivalent of the Unpaid Amounts owing to the Non-defaulting Party less (B) the Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party. If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party. (4) Second Method and Loss. If the Second Method and Loss apply, an amount will be payable equal to the Non-defaulting Party's Loss in respect of this Agreement. If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party. (ii) TERMINATION EVENTS. If the Early Termination Date results from a Termination Event:- (1) One Affected Party. If there is one Affected Party, the amount payable will be determined in accordance with Section 6(e)(i)(3), if Market Quotation applies, or Section 6(e)(i)(4), if Loss applies, except that, in either case, references to the Defaulting Party and to the Non-defaulting Party will be deemed to be references to the Affected Party and the party which is not the Affected Party, respectively, and, if Loss applies and fewer than all the Transactions are being terminated, Loss shall be calculated in respect of all Terminated Transactions. (2) Two Affected Parties. If there are two Affected Parties:- (A) if Market Quotation applies, each party will determine a Settlement Amount in respect of the Terminated Transactions, and an amount will be payable equal to (1) the sum of (a) one-half of the difference between the Settlement Amount of the party with the higher Settlement Amount ("X") and the Settlement Amount of the party with the lower Settlement Amount ("Y") and (b) the Termination Currency Equivalent of the Unpaid Amounts owing to X less (II) the Termination Currency Equivalent of the Unpaid Amounts owing to Y; and (B) if Loss applies, each party will determine its Loss in respect of this Agreement (or, if fewer than all the Transactions are being terminated, in respect of all Terminated Transactions) and an amount will be payable equal to one-half of the difference between the Loss of the party with the higher Loss ("X") and the Loss of the party with the lower Loss ("Y"). If the amount payable is a positive number, Y will pay it to X; if it is a negative number, X will pay the absolute value of that amount to Y. (iii) ADJUSTMENT FOR BANKRUPTCY. In circumstances where an Early Termination Date occurs because "Automatic Early Termination" applies in respect of a party, the amount determined under this Section 6(e) will be subject to such adjustments as are appropriate and permitted by law to reflect any payments or deliveries made by one party to the other under this Agreement (and retained by such other party) during the period from the relevant Early Termination Date to the date for payment determined under Section 6(d)(ii). (iv) PRE-ESTIMATE. The parties agree that if Market Quotation applies an amount recoverable under this Section 6(e) is a reasonable pre-estimate of loss and not a penalty. Such amount is payable for the loss of bargain and the loss of protection against future risks and except as otherwise provided in this Agreement neither party will be entitled to recover any additional damages as a consequence of such losses. 10 11 7. TRANSFER Subject to Section 6(b)(ii), neither this Agreement nor any interest or obligation in or under this Agreement may be transferred (whether by way of security or otherwise) by either party without the prior written consent of the other party, except that:- (a) a party may make such a transfer of this Agreement pursuant to a consolidation or amalgamation with, or merger with or into, or transfer of all or substantially all its assets to, another entity (but without prejudice to any other right or remedy under this Agreement); and (b) a party may make such a transfer of all or any part of its interest in any amount payable to it from a Defaulting Party under Section 6(e). Any purported transfer that is not in compliance with this Section will be void. 8. CONTRACTUAL CURRENCY (a) PAYMENT IN THE CONTRACTUAL CURRENCY. Each payment under this Agreement will be made in the relevant currency specified in this Agreement for that payment (the "Contractual Currency"). To the extent permitted by applicable law, any obligation to make payments under this Agreement in the Contractual Currency will not be discharged or satisfied by any tender in any currency other than the Contractual Currency, except to the extent such tender results in the actual receipt by the party to which payment is owed, acting in a reasonable manner and in good faith in converting the currency so tendered into the Contractual Currency, of the full amount in the Contractual Currency of all amounts payable in respect of this Agreement. If for any reason the amount in the Contractual Currency so received falls short of the amount in the Contractual Currency payable in respect of this Agreement, the party required to make the payment will, to the extent permitted by applicable law, immediately pay such additional amount in the Contractual Currency as may be necessary to compensate for the shortfall. If for any reason the amount in the Contractual Currency so received exceeds the amount in the Contractual Currency payable in respect of this Agreement, the party receiving the payment will refund promptly the amount of such excess. (b) JUDGMENTS. To the extent permitted by applicable law, if any judgment or order expressed in a currency other than the Contractual Currency is rendered (i) for the payment of any amount owing in respect of this Agreement, (ii) for the payment of any amount relating to any early termination in respect of this Agreement or (iii) in respect of a judgment or order of another court for the payment of any amount described in (i) or (ii) above, the party seeking recovery, after recovery in full of the aggregate amount to which such party is entitled pursuant to the judgment or order, will be entitled to receive immediately from the other party the amount of any shortfall of the Contractual Currency received by such party as a consequence of sums paid in such other currency and will refund promptly to the other party any excess of the Contractual Currency received by such party as a consequence of sums paid in such other currency if such shortfall or such excess arises or results from any variation between the rate of exchange at which the Contractual Currency is converted into the currency of the judgment or order for the purposes of such judgment or order and the rate of exchange at which such party is able, acting in a reasonable manner and in good faith in converting the currency received into the Contractual Currency, to purchase the Contractual Currency with the amount of the currency of the judgment or order actually received by such party. The term "rate of exchange" includes, without limitation, any premiums and costs of exchange payable in connection with the purchase of or conversion into the Contractual Currency. (c) SEPARATE INDEMNITIES. To the extent permitted by applicable law, these indemnities constitute separate and independent obligations from the other obligations in this Agreement, will be enforceable as separate and independent causes of action, will apply notwithstanding any indulgence granted by the party to which any payment is owed and will not be affected by judgment being obtained or claim or proof being made for any other sums payable in respect of this Agreement. (d) EVIDENCE OF LOSS. For the purpose of this Section 8, it will be sufficient for a party to demonstrate that it would have suffered a loss had an actual exchange or purchase been made. 11 12 9. MISCELLANEOUS (a) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and understanding of the parties with respect to its subject matter and supersedes all oral communication and prior writings with respect thereto. (b) AMENDMENTS. No amendment, modification or waiver in respect of this Agreement will be effective unless in writing (including a writing evidenced by a facsimile transmission) and executed by each of the parties or confirmed by an exchange of telexes or electronic messages on an electronic messaging system. (c) SURVIVAL OF OBLIGATIONS. Without prejudice to Sections 2(a)(iii) and 6(c)(ii), the obligations of the parties under this Agreement will survive the termination of any Transaction. (d) REMEDIES CUMULATIVE. Except as provided in this Agreement, the rights, powers, remedies and privileges provided in this Agreement are cumulative and not exclusive of any rights, powers, remedies and privileges provided by law. (e) COUNTERPARTS AND CONFIRMATIONS. (i) This Agreement (and each amendment, modification and waiver in respect of it) may be executed and delivered in counterparts (including by facsimile transmission), each of which will be deemed an original. (ii) The parties intend that they are legally bound by the terms of each Transaction from the moment they agree to those terms (whether orally or otherwise). A Confirmation shall be entered into as soon as practicable and may be executed and delivered in counterparts (including by facsimile transmission) or be created by an exchange of telexes or by an exchange of electronic messages on an electronic messaging system, which in each case will be sufficient for all purposes to evidence a binding supplement to this Agreement. The parties will specify therein or through another effective means that and such counterpart, telex or electronic message constitutes a Confirmation. (f) NO WAIVER OF RIGHTS. A failure or delay in exercising any right, power or privilege in respect of this Agreement will not be presumed to operate as a waiver, and a single or partial exercise of any right, power or privilege will not be presumed to preclude any subsequent or further exercise, of that right, power or privilege or the exercise of any other right, power or privilege. (g) HEADINGS. The headings used in this Agreement are for convenience of reference only and are not to affect the construction of or to be taken into consideration in interpreting this Agreement. 10. OFFICES; MULTIBRANCH PARTIES (a) If Section 10(a) is specified in the Schedule as applying, each party that enters into a Transaction through an Office other than its head or home office represents to the other party that, notwithstanding the place of booking office or jurisdiction of incorporation or organization of such party, the obligations of such party are the same as if it had entered into the Transaction through its head or home office. This representation will be deemed to be repeated by such party on each date on which a Transaction is entered into. (b) Neither party may change the Office through which it makes and receives payments or deliveries for the purpose of a Transaction without the prior written consent of the other party. (c) If a party is specified as a Multibranch Party in the Schedule, such Multibranch Party may make and receive payments or deliveries under any Transaction through any Office listed in the Schedule, and the Office through which it makes and receives payments or deliveries with respect to a Transaction will be specified in the relevant Confirmation. 11. EXPENSES A Defaulting Party will, on demand, indemnify and hold harmless the other party for and against all reasonable out-of-pocket expenses, including legal fees and Stamp Tax, incurred by such other party by reason of the enforcement and protection of its rights under this Agreement or any Credit Support Document 12 13 to which the Defaulting Party is a party or by reason of the early termination of any Transaction, including, but not limited to, costs of collection. 12. NOTICES (a) EFFECTIVENESS. Any notice or other communication in respect of this Agreement may be given in any manner set forth below (except that a notice or other communication under Section 5 or 6 may not be given by facsimile transmission or electronic messaging system) to the address or number or in accordance with the electronic messaging system details provided (see the Schedule) and will be deemed effective as indicated:- (i) if in writing and delivered in person or by courier, on the date it is delivered; (ii) if sent by telex, on the date the recipient's answerback is received; (iii) if sent by facsimile transmission, on the date that transmission is received by a responsible employee of the recipient in legible form (it being agreed that the burden of proving receipt will be on the sender and will not be met by a transmission report generated by the sender's facsimile machine); (iv) if sent by certified or registered mail (airmail, if overseas) or the equivalent (return receipt requested), on the date that mail is delivered or its delivery is attempted; or (v) if sent by electronic messaging system, on the date that electronic message is received, unless the date of that delivery (or attempted delivery) or that receipt, as applicable, is not a Local Business Day or that communication is delivered (or attempted) or received, as applicable, after the close of business on a Local Business Day, in which case that communication shall be deemed given and effective on the first following day that is a Local Business Day. (b) CHANGE OF ADDRESSES. Either party may by notice to the other change the address, telex or facsimile number or electronic messaging system details at which notices or other communications are to be given to it. 13. GOVERNING LAW AND JURISDICTION (a) GOVERNING LAW. This Agreement will be governed by and construed in accordance with the law specified in the Schedule. (b) JURISDICTION. With respect to any suit, action or proceedings relating to this Agreement ("Proceedings"), each party irrevocably:- (i) submits to the jurisdiction of the English courts, if this Agreement is expressed to be governed by English law, or to the non-exclusive jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City, if this Agreement is expressed to be governed by the laws of the State of New York; and (ii) waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have any jurisdiction over such party. Nothing in this Agreement precludes either party from bringing Proceedings in any other jurisdiction (outside, if this Agreement is expressed to be governed by English law, the Contracting States, as defined in Section 1(3) of the Civil Jurisdiction and Judgments Act 1982 or any modification, extension or re-enactment thereof for the time being in force) nor will the bringing of Proceedings in any one or more jurisdictions preclude the bringing of Proceedings in any other jurisdiction. (c) SERVICE OF PROCESS. Each party irrevocably appoints the Process Agent (if any) specified opposite its name in the Schedule to receive, for it and on its behalf, service of process in any Proceedings. If for any 13 14 reason any party's Process Agent is unable to act as such, such party will promptly notify the other party and within 30 days appoint a substitute process agent acceptable to the other party. The parties irrevocably consent to service of process given in the manner provided for notices in Section 12. Nothing in this Agreement will affect the right of either party to serve process in any other manner permitted by law. (d) WAIVER OF IMMUNITIES. Each party irrevocably waives, to the fullest extent permitted by applicable law, with respect to itself and its revenues and assets (irrespective of their use or intended use), all immunity on the grounds of sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any court, (iii) relief by way of injunction, order for specific performance or for recovery of property, (iv) attachment of its assets (whether before or after judgment) and (v) execution or enforcement of any judgment to which it or its revenues or assets might otherwise be entitled in any Proceedings in the courts of any jurisdiction and irrevocably agrees, to the extent permitted by applicable law, that it will not claim any such immunity in any Proceedings. 14. DEFINITIONS As used in this Agreement:- "ADDITIONAL TERMINATION EVENT" has the meaning specified in Section 5(b). "AFFECTED PARTY" has the meaning specified in Section 5(b). "AFFECTED TRANSACTIONS" means (a) with respect to any Termination Event consisting of an Illegality, Tax Event or Tax Event Upon Merger, all Transactions affected by the occurrence of such Termination Event and (b) with respect to any other Termination Event, all Transactions. "AFFILIATE" means, subject to the Schedule, in relation to any person, any entity controlled, directly or indirectly, by the person, any entity that controls, directly or indirectly, the person or any entity directly or indirectly under common control with the person. For this purpose, "control" of any entity or person means ownership of a majority of the voting power of the entity or person. "APPLICABLE RATE" means:- (a) in respect of obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate; (b) in respect of an obligation to pay an amount under Section 6(e) of either party from and after the date (determined in accordance with Section 6(d)(ii)) on which that amount is payable, the Default Rate; (c) in respect of all other obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-default Rate; and (d) in all other cases, the Termination Rate. "BURDENED PARTY" has the meaning specified in Section 5(b). "CHANGE IN TAX LAW" means the enactment, promulgation, execution or ratification of, or any change in or amendment to, any law (or in the application or official interpretation of any law) that occurs on or after the date on which the relevant Transaction is entered into. "CONSENT" includes a consent, approval, action, authorization, exemption, notice, filing, registration or exchange control consent. "CREDIT EVENT UPON MERGER" has the meaning specified in Section 5(b). "CREDIT SUPPORT DOCUMENT" means any agreement or instrument that is specified as such in this Agreement. "CREDIT SUPPORT PROVIDER" has the meaning specified in the Schedule. "DEFAULT RATE" means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the relevant payee (as certified by it) if it were to fund or of funding the relevant amount plus 1% per annum. 14 15 "DEFAULTING PARTY" has the meaning specified in Section 6(a). "EARLY TERMINATION DATE" means the date determined in accordance with Section 6(a) or 6(b)(iv). "EVENT OF DEFAULT" has the meaning specified in Section 5(a) and, if applicable, in the Schedule. "ILLEGALITY" has the meaning specified in Section 5(b). "INDEMNIFIABLE TAX" means any Tax other than a Tax that would not be imposed in respect of a payment under this Agreement but for a present or former connection between the jurisdiction of the government or taxation authority imposing such Tax and the recipient of such payment or a person related to such recipient (including, without limitation, a connection arising from such recipient or related person being or having been a citizen or resident of such jurisdiction, or being or having been organized, present or engaged in a trade or business in such jurisdiction, or having or having had a permanent establishment or fixed place of business in such jurisdiction, but excluding a connection arising solely from such recipient or related person having executed, delivered, performed its obligations or received a payment, under or enforced this Agreement or a Credit Support Document). "LAW" includes any treaty, law, rule or regulation (as modified, in the case of tax matters, by the practice of any relevant governmental revenue authority) and "LAWFUL" and "UNLAWFUL" will be construed accordingly. "LOCAL BUSINESS DAY" means, subject to the Schedule, a day on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) (a) in relation to any obligation under Section 2(a)(i), in the place(s) specified in the relevant Confirmation or, if not so specified. as otherwise agreed by the parties in writing or determined pursuant to provisions contained, or incorporated by reference, in this Agreement, (b) in relation to any other payment, in the place where the relevant account is located and, if different, in the principal financial centre, if any, of the currency of such payment, (c) in relation to any notice or other communication, including notice contemplated under Section 5(a)(i), in the city specified in the address for notice provided by the recipient and, in the case of a notice contemplated by Section 2(b), in the place where the relevant new account is to be located and (d) in relation to Section 5(a)(v)(2), in the relevant locations for performance with respect to such Specified Transaction. "LOSS" means, with respect to this Agreement or one or more Terminated Transactions, as the case may be, and a party, the Termination Currency Equivalent of an amount that parry reasonably determines in good faith to be its total losses and costs (or gain, in which case expressed as a negative number) in connection with this Agreement or that Terminated Transaction or group of Terminated Transactions, as the case may be, including any loss of bargain, cost of funding or, at the election of such party but without duplication, loss or cost incurred as a result of its terminating, liquidating, obtaining or reestablishing any hedge or related trading position (or any gain resulting from any of them). Loss includes losses and costs (or gains) in respect of any payment or delivery required to have been made (assuming satisfaction of each applicable condition precedent) on or before the relevant Early Termination Date and not made, except, so as to avoid duplication, if Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A) applies. Loss does not include a party's legal fees and out-of-pocket expenses referred to under Section 11. A party will determine its Loss as of the relevant Early Termination Date, or, if that is not reasonably practicable, as of the earliest date thereafter as is reasonably practicable. A party may (but need not) determine its Loss by reference to quotations of relevant rates or prices from one or more leading dealers in the relevant markets. "MARKET QUOTATION" means, with respect to one or more Terminated Transactions and a party making the determination, an amount determined on the basis of quotations from Reference Market-makers. Each quotation will be for an amount, if any, that would be paid to such party (expressed as a negative number) or by such party (expressed as a positive number) in consideration of an agreement between such party (taking into account any existing Credit Support Document with respect to the obligations of such party) and the quoting Reference Market-maker to enter into a transaction (the "Replacement Transaction") that would have the effect of preserving for such party the economic equivalent of any payment or delivery (whether the underlying obligation was absolute or contingent and assuming the satisfaction of each applicable condition precedent) by the parties under Section 2(a)(i) in respect of such Terminated Transaction or group of Terminated Transactions that would, but for the occurrence of the relevant Early Termination Date, have 15 16 been required after that date. For this purpose, Unpaid Amounts in respect of the Terminated Transaction or group of Terminated Transactions are to be excluded but without limitation, any payment or delivery that would, but for the relevant Early Termination Date, have been required (assuming satisfaction of each applicable condition precedent) after that Early Termination Date is to be included. The Replacement Transaction would be subject to such documentation as such party and the Reference Market-maker may, in good faith, agree. The party making the determination (or its agent) will request each Reference Market-maker to provide its quotation to the extent reasonably practicable as of the same day and time (without regard to different time zones) on or as soon as reasonably practicable after the relevant Early Termination Date. The day and time as of which those quotations are to be obtained will be selected in good faith by the party obliged to make a determination under Section 6(e), and, if each party is so obliged, after consultation with the other. If more than three quotations are provided, the Market Quotation will be the arithmetic mean of the quotations, without regard to the quotations having the highest and lowest values. If exactly three such quotations are provided, the Market Quotation will be the quotation remaining after disregarding the highest and lowest quotations. For this purpose, if more than one quotation has the same highest value or lowest value, then one of such quotations shall be disregarded. If fewer than three quotations are provided, it will be deemed that the Market Quotation in respect of such Terminated Transaction or group of Terminated Transactions cannot be determined. "NON-DEFAULT RATE" means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the Non-defaulting Party (as certified by it) if it were to fund the relevant amount. "NON-DEFAULTING PARTY" has the meaning specified in Section 6(a). "OFFICE" means a branch or office of a party, which may be such party's head or home office. "POTENTIAL EVENT OF DEFAULT" means any event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default. "REFERENCE MARKET-MAKERS" means four leading dealers in the relevant market selected by the party determining a Market Quotation in good faith (a) from among dealers of the highest credit standing which satisfy all the criteria that such party applies generally at the time in deciding whether to offer or to make an extension of credit and (b) to the extent practicable, from among such dealers having an office in the same city. "RELEVANT JURISDICTION" means, with respect to a party, the jurisdictions (a) in which the party is incorporated, organized, managed and controlled or considered to have its seat, (b) where an Office through which the party is acting for purposes of this Agreement is located, (c) in which the party executes this Agreement and (d) in relation to any payment, from or through which such payment is made. "SCHEDULED PAYMENT DATE" means a date on which a payment or delivery is to be made under Section 2(a)(i) with respect to a Transaction. "SET-OFF" means set-off, offset, combination of accounts, right of retention or withholding or similar right or requirement to which the payer of an amount under Section 6 is entitled or subject (whether arising under this Agreement, another contract, applicable law or otherwise) that is exercised by, or imposed on, such payer. "SETTLEMENT AMOUNT" means, with respect to a party and any Early Termination Date, the sum of:- (a) the Termination Currency Equivalent of the Market Quotations (whether positive or negative) for each Terminated Transaction or group of Terminated Transactions for which a Market Quotation is determined; and (b) such party's Loss (whether positive or negative and without reference to any Unpaid Amounts) for each Terminated Transaction or group of Terminated Transactions for which a Market Quotation cannot be determined or would not (in the reasonable belief of the party making the determination) produce a commercially reasonable result. "SPECIFIED ENTITY" has the meaning specified in the Schedule. 16 17 "SPECIFIED INDEBTEDNESS" means, subject to the Schedule, any obligation (whether present or future, contingent or otherwise, as principal or surety or otherwise) in respect of borrowed money. "SPECIFIED TRANSACTION" means, subject to the Schedule, (a) any transaction (including an agreement with respect thereto) now existing or hereafter entered into between one party to this Agreement (or any Credit Support Provider of such party or any applicable Specified Entity of such party) and the other party to this Agreement (or any Credit Support Provider of such other party or any applicable Specified Entity of such other party) which is a rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of these transactions), (b) any combination of these transactions and (c) any other transaction identified as a Specified Transaction in this Agreement or the relevant confirmation. "STAMP TAX" means any stamp, registration, documentation or similar tax. "TAX" means any present or future tax, levy, impost, duty, charge, assessment or fee of any nature (including interest, penalties and additions thereto) that is imposed by any government or other taxing authority in respect of any payment under this Agreement other than a stamp, registration, documentation or similar tax. "TAX EVENT" has the meaning specified in Section 5(b). "TAX EVENT UPON MERGER" has the meaning specified in Section 5(b). "TERMINATED TRANSACTIONS" means with respect to any Early Termination Date (a) if resulting from a Termination Event, all Affected Transactions and (b) if resulting from an Event of Default, all Transactions (in either case) in effect immediately before the effectiveness of the notice designating that Early Termination Date (or, if "Automatic Early Termination" applies, immediately before that Early Termination Date). "TERMINATION CURRENCY" has the meaning specified in the Schedule. "TERMINATION CURRENCY EQUIVALENT" means, in respect of any amount denominated in the Termination Currency, such Termination Currency amount and, in respect of any amount denominated in a currency other than the Termination Currency (the "Other Currency"), the amount in the Termination Currency determined by the party making the relevant determination as being required to purchase such amount of such Other Currency as at the relevant Early Termination Date, or, if the relevant Market Quotation or Loss (as the case may be), is determined as of a later date, that later date, with the Termination Currency at the rate equal to the spot exchange rate of the foreign exchange agent (selected as provided below) for the purchase of such Other Currency with the Termination Currency at or about 11:00 a.m. (in the city in which such foreign exchange agent is located) on such date as would be customary for the determination of such a rate for the purchase of such Other Currency for value on the relevant Early Termination Date or that later date. The foreign exchange agent will, if only one party is obliged to make a determination under Section 6(e), be selected in good faith by that party and otherwise will be agreed by the parties. "TERMINATION EVENT" means an Illegality, a Tax Event or a Tax Event Upon Merger or, if specified to be applicable, a Credit Event Upon Merger or an Additional Termination Event. "TERMINATION RATE" means a rate per annum equal to the arithmetic mean of the cost (without proof or evidence of any actual cost) to each party (as certified by such party) if it were to fund or of funding such amounts. "UNPAID AMOUNTS" owing to any party means, with respect to an Early Termination Date, the aggregate of (a) in respect of all Terminated Transactions, the amounts that became payable (or that would have become payable but for Section 2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early Termination Date and which remain unpaid as at such Early Termination Date and (b) in respect of each Terminated Transaction, for each obligation under Section 2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be settled by delivery to such party on or prior to such Early Termination Date and which has not been so settled as at such Early Termination Date, an amount equal to the fair market 17 18 value of that which was (or would have been) required to be delivered as of the originally scheduled date for delivery, in each case together with (to the extent permitted under applicable law) interest, in the currency of such amounts, from (and including) the date such amounts or obligations were or would have been required to have been paid or performed to (but excluding) such Early Termination Date, at the Applicable Rate. Such amounts of interest will be calculated on the basis of daily compounding and the actual number of days elapsed. The fair market value of any obligation referred to in clause (b) above shall be reasonably determined by the party obliged to make the determination under Section 6(e) or, if each party is so obliged, it shall be the average of the Termination Currency Equivalents of the fair market values reasonably determined by both parties. IN WITNESS WHEREOF the parties have executed this document on the respective dates specified below with effect from the date specified on the first page of this document. NationsBank N.A. Sirrom Capital Corporation - ------------------------- --------------------------------- (Name of Party) (Name of Party) By: By: /s/ ---------------------- --------------------------- Name: Name: Carl W. Stratton Title: Title: C.F.O Date: Date: 12/6/96 19 SCHEDULE TO THE MASTER AGREEMENT DATED AS OF NOVEMBER 26, 1996 BETWEEN NATIONSBANK, N.A. ("PARTY A") AND SIRROM CAPITAL CORPORATION ("PARTY B") PART 1: TERMINATION PROVISIONS AND CERTAIN OTHER MATTERS (a) "SPECIFIED ENTITY" means in relation to Party A for the purpose of:- Section 5(a)(v), none; Section 5(a)(vi), none; Section 5(a)(vii), none; and Section 5(b)(iv), none; in relation to Party B for the purpose of:- Section 5(a)(v), none; Section 5(a)(vi), none; Section 5(a)(vii), none; and Section 5(b)(iv), none. (b) "SPECIFIED TRANSACTION" will have the meaning specified in Section 14. (c) The "CROSS-DEFAULT" provisions of Section 5(a)(vi) will apply to Party A and Party B. In connection therewith, "SPECIFIED INDEBTEDNESS" will have the meaning specified in Section 14, except that such term shall not include obligations in respect of deposits received in the ordinary course of a party's banking business, and "THRESHOLD AMOUNT" means an amount equal to three percent of a party's shareholders' equity, determined in accordance with generally accepted accounting principles in such party's jurisdiction of incorporation or organization, consistently applied, as at the end of such party's most recently completed fiscal year. (d) The "CREDIT EVENT UPON MERGER" provisions of Section 5(b)(iv) will apply to Party A and Party B. (e) The "AUTOMATIC EARLY TERMINATION" provision of Section 6(a) will not apply to Party A or Party B. (f) PAYMENTS ON EARLY TERMINATION. For the purpose of Section 6(e):- (i) Market Quotation will apply. (ii) The Second Method will apply. (g) "TERMINATION CURRENCY" means United States Dollars. (h) ADDITIONAL TERMINATION EVENT. Additional Termination Event will not apply. PART 2: TAX REPRESENTATIONS Not applicable. 1 20 PART 3: AGREEMENT TO DELIVER DOCUMENT For the purpose of Section 4(a)(i) and (ii) of this Agreement, each party agrees to deliver the following documents: (a) Tax forms, documents or certificates to be delivered are: none. (b) Other documents to be delivered are:-
Party required Form/ Date by Covered by to deliver Document/ which to be Section 3(d) document Certificate delivered Representation - -------------- ------------------------------------------- ------------------------------ -------------- Party B Annual Report of Party B As soon as available and Yes containing consolidated financial in any event within 120 days statements certified by independent after the end of of each certified public accountants and prepared fiscal year of Party B in accordance with generally accepted accounting principles in the country in which Party B is organized. Party B Unaudited consolidated financial statements of As soon as available and in any Yes Party B for a fiscal quarter prepared in event within 60 days after the accordance with generally accepted end of each fiscal quarter of accounting principles in the country in Party B which Party B (or such entity) is organized and on a basis consistent with that of the annual financial statements of Party B (or such entity) Party B Credit Support Document Upon execution and Yes delivery of this Agreement Party A and Certified copies of all Upon execution and Yes Party B corporate authorizations and delivery of this any other documents with respect Agreement to the execution, delivery and performance of this Agreement
2 21 Party A and Certificate of authority and Upon execution and Yes Party B specimen signatures of delivery of this individuals executing this Agreement and thereafter Agreement and upon request of the other Confirmations. party
PART 4: MISCELLANEOUS (a) ADDRESS FOR NOTICES. For the purpose of Section 12(a) of this Agreement:- Address for notice or communications to Party A: NationsBank, N.A. 100 N. Tryon St., NCl-007-13-01 Charlotte, North Carolina 28255 Attention: Derivatives Documentation Unit (Telex No: 669959; Answerback: NATIONSBK CHA) Telecopy No.: 704-386-4113 Address for notice or communications to Party B: Attention: Carl Stratton Sirrom Capital Corporation 500 Church Street Suite 200 Nashville, TN 37219 Telephone No.: 615-726-0701 Telecopy No.: 615-726-1208 with a copy to Attention: Joe Weingarten ING (U.S.) Capital Corporation 135 East 57th Street New York, NY 10022 Telephone No.: 212-409-0966 Telecopy No.: 212-593-3362 (b) PROCESS AGENT. For the purpose of Section 13(c): Party A appoints as its Process Agent: Not applicable. Party B appoints as its Process Agent: Not applicable. (c) OFFICES. The provisions of Section 10(a) will apply to this Agreement. (d) MULTIBRANCH PARTY. For the purpose of Section 10(c) of this Agreement:- Party A is not a Multibranch Party. Party B is not a Multibranch Party. (e) CALCULATION AGENT. The Calculation Agent is Party A, unless otherwise specified in a Confirmation in relation to the relevant Transaction. (f) CREDIT SUPPORT DOCUMENT. Details of any Credit Support Document:- 3 22 The obligations of Party A hereunder shall be subject to the condition precedent that Party B shall deliver or cause to be delivered to Party A the ISDA Credit Support Annex between Party A and Party B dated as of the date hereof. (g) CREDIT SUPPORT PROVIDER. Credit Support Provider means in relation to Party A, Not applicable. Credit Support Provider means in relation to Party B, Not applicable. (h) GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws of the State of New York (without reference to that jurisdiction's choice of law doctrine). (i) NETTING OF PAYMENTS. Subparagraph (ii) of Section 2(c) will not apply to any Transaction unless specified in the relevant Confirmation. (j) "AFFILIATE" will have the meaning specified in Section 14 of this Agreement. PART 5: OTHER PROVISIONS (a) SET-OFF. Nothing in this Agreement shall be treated as restricting or negating any right of set-off, lien, counterclaim or other right or remedy which might otherwise be available to either party. (b) PAYMENTS. Notwithstanding the provisions of any Swap Transaction, in the event an Event of Default or an event that with the giving of notice or lapse of time (or both) would become an Event of Default shall have occurred and be continuing with respect to a party ("Party X"), or material adverse change in the business, operations, assets or financial or other condition of Party X shall have occurred, then, upon written notice being given to Party X by the other party ("Party Y") (or automatically, without any requirement for the giving of notice, in the case of an Event of Default or Potential Event of Default described in Section 5(a)(vii)), the following modifications shall be made, effective as of the date such notice is given or deemed to be given, to each Swap Transaction where the originally-scheduled Payment Dates for Party Y occur more frequently than the Payment Dates for Party X: (i) Compounding shall apply; (ii) Party Y's Payment Dates shall be changed to coincide with Party X's Payment Dates; (iii) the Compounding Dates shall be the same dates as Party Y's originally-scheduled Payment Dates; and (iv) for purposes of calculating the amount of the payment to be made by Party Y on the Payment Date for Party Y (as modified hereby) next succeeding the effective date of the modifications provided for in this paragraph, the Calculation Period in respect of which such payment is being made will be deemed to have commenced on the date of the most recent payment made by Party Y. (c) EXCHANGE OF CONFIRMATIONS. For each Swap Transaction entered into hereunder, Party A shall promptly send to Party B a Confirmation, via telex or facsimile transmission. Party B agrees to respond to such Confirmation within three (3) Business Days, either confirming agreement thereto or requesting a correction of any error(s) contained therein. Failure by Party B to respond within such period shall not affect the validity or enforceability of such Swap Transaction and shall be deemed to be an affirmation of the terms contained in such Confirmation, absent manifest error. The parties agree that any such exchange of telexes or facsimile transmissions shall constitute a Confirmation for all purposes hereunder. 4 23 (d) NOTICE BY FACSIMILE TRANSMISSION. Section 12(a) is hereby amended by inserting the words "or 13(c)" between the number "6" and the word "may" in the second line thereof. (e) WAIVER OF RIGHT TO TRIAL BY JURY. Each party hereby irrevocably waives any and all rights to trial by jury with respect to any legal proceeding arising out of or relating to this Agreement or any Transaction contemplated hereby. (f) RECORDING OF CONVERSATIONS. Each party to this Agreement acknowledges and agrees to the tape or electronic recording of conversations between the parties to this Agreement whether by one or other or both of the parties, and that any such recordings may be submitted in evidence in any action or proceeding relating to the Agreement or any Transaction. (g) ELIGIBLE SWAP PARTICIPANT. Each party represents to the other that it is an "eligible swap participant" as defined under the regulations of the Commodity Futures Trading Commission, currently at 17 C.F.R. Section 35.1(b)(2). (h) TRANSFER. A new subsection (c) shall be added to Section 7 of this Agreement: "(c) a party may make such a transfer of this Agreement and all, but not less than all, Transactions hereunder to such party's Affiliate upon 10 days' prior written notice to the other party, provided that such Affiliate has attained a rating of at least AA (or its equivalent) from a nationally recognized U.S. rating agency on the date that the intended transfer shall take effect." (i) RELATIONSHIP BETWEEN PARTIES. Each party represents to the other party and will be deemed to represent to the other party on the date on which it enters into a Transaction that (absent a written agreement between the parties that expressly imposes affirmative obligations to the contrary for that Transaction):- (i) NON-RELIANCE. It is acting for its own account, and it has made its own independent decisions to enter into that Transaction and as to whether that Transaction is appropriate or proper for it based upon its own judgment and upon advice from such advisors as it has deemed necessary. It is not relying on any communication (written or oral) of the other party as investment advice or as a recommendation to enter into that Transaction; it being understood that information and explanations related to the terms and conditions of a Transaction shall not be considered investment advice or a recommendation to enter into that Transaction. Further, such party has not received from the other party any assurance or guarantee as to the expected results of that Transaction. (ii) EVALUATION AND UNDERSTANDING. It is capable of evaluating and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of that Transaction. It is also capable of assuming, and assumes, the financial and other risks of that Transaction. (iii) STATUS OF PARTIES. The other party is not acting as an agent, fiduciary or advisor for it in respect of that Transaction. (J) EVENT OF DEFAULT WITH RESPECT TO PARTY B. Party A hereby agrees that it will promptly give ING (U.S.) Capital Corporation ("ING") a copy of any written notices delivered to Party B pursuant to Section 5 of the Agreement. In the event that Party B, a Credit Support Provider or a Specified Entity (as the case may be) fails to take such actions to avoid an Event of Default pursuant to Section 5(a)(i), (ii),(iii) or (v), which is the subject of the aforementioned notice, ING shall have the right to take such actions as would be necessary or appropriate to avoid such Event of Default. ING shall promptly deliver written notice of its intention to take such action to Party A, Party B, and such other party as may be appropriate under the circumstances. Notwithstanding 5 24 anything herein to the contrary, this Section shall not be deemed to provide Party B, ING or any other party additional time to cure any Events of Default. ACCEPTED AND AGREED: NATIONSBANK, N.A. SIRROM CAPITAL CORPORATION /s/ Carl W. Stratton - --------------------------- ------------------------------------ Name: Name: Carl W. Stratton Title: Title: C.F.O. 6 25 (BILATERAL FORM) (ISDA AGREEMENTS SUBJECT TO NEW YORK LAW ONLY) ISDA(TM) INTERNATIONAL SWAPS AND DERIVATIVES ASSOCIATION INC. CREDIT SUPPORT ANNEX to the Schedule to the ISDA MASTER AGREEMENT dated as of November 26, 1996 between NATIONSBANK,. N.A. SIRROM CAPITAL CORPORATION - ------------------------------ and -------------------------------- ("PARTY A") . ("PARTY B") This Annex supplements, forms part, of, and is subject to, the above-referenced Agreement, is part of its Schedule and is a Credit Support Document under this Agreement with respect to each party, Accordingly, the parties agree as follows:- PARAGRAPH 1. INTERPRETATION (a) DEFINITIONS AND INCONSISTENCY. Capitalized terms not otherwise defined herein or elsewhere in this Agreement have the meanings specified pursuant to Paragraph 12, and all references in this Annex to Paragraphs are to Paragraphs of this Annex. In the event of any inconsistency between this Annex and the other provisions of this Schedule, this Annex will prevail, and in the event of any inconsistency between Paragraph 13 and the other provisions of this Annex, Paragraph 13 will prevail. (b) SECURED PARTY AND PLEDGOR. All references in this Annex to the "Secured Party" will be to either party when acting in that capacity and all corresponding references to the "Pledgor" will be to the other party when acting in that capacity; provided, however, that if Other Posted Support is held by a party to this Annex, all references herein to that party as the Secured Party with respect to that Other Posted Support will be to that party as the beneficiary thereof and will not subject that support or that party as the beneficiary thereof to provisions of law generally relating to security interests and secured parties. PARAGRAPH 2. SECURITY INTEREST Each party, as the Pledgor, hereby pledges to the other party, as the Secured Party, as security for its Obligations, and grants to the Secured Party a first priority continuing security interest in, lien on and right of Set-off against all Posted Collateral Transferred to or received by the Secured Party hereunder. Upon the Transfer by the Secured Party to the Pledgor of Posted Collateral, the security interest and lien granted hereunder on that Posted Collateral will be released immediately and, to the extent possible, without any further action by either party. 26 PARAGRAPH 3. CREDIT SUPPORT OBLIGATIONS (a) DELIVERY AMOUNT. Subject to Paragraphs 4 and 5, upon a demand made by the Secured Party on or promptly following a Valuation Date, if the Delivery Amount for that Valuation Date equals or exceeds the Pledgor's Minimum Transfer Amount, then the Pledgor will Transfer to the Secured Party Eligible Credit Support having a Value as of the date of Transfer at least equal to the applicable Delivery Amount (rounded pursuant to Paragraph 13). Unless otherwise specified in Paragraph 13, the "DELIVERY AMOUNT" applicable to the Pledgor for any Valuation Date will equal the amount by which: (i) the Credit Support Amount exceeds (ii) the Value as of that Valuation Date of all Posted Credit Support held by the Secured Party. (b) RETURN AMOUNT. Subject to Paragraphs 4 and 5, upon a demand made by the Pledgor on or promptly following a Valuation Date, if the Return Amount for that Valuation Date equals or exceeds the Secured Party's Minimum Transfer Amount, then the Secured Party will Transfer to the Pledgor Posted Credit Support specified by the Pledgor in that demand having a Value as of the date of Transfer as close as practicable to the applicable Return Amount (rounded pursuant to Paragraph 13). Unless otherwise specified in Paragraph 13, the "RETURN AMOUNT" applicable to the Secured Party for any Valuation Date will equal the amount by which: (i) the Value as of that Valuation Date of all Posted Credit Support held by the Secured Party exceeds (ii) the Credit Support Amount. "CREDIT SUPPORT AMOUNT" means, unless otherwise specified in Paragraph 13, for any Valuation Date (i) the Secured Party's Exposure for that Valuation Date plus (ii) the aggregate of all Independent Amounts applicable to the Pledgor, if any, minus (iii) all Independent Amounts applicable to the Secured Party, if any, minus (iv) the Pledgor's Threshold; provided, however, that the Credit Support Amount will be deemed to be zero whenever the calculation of Credit Support Amount yields a number less than zero. PARAGRAPH 4. CONDITIONS PRECEDENT, TRANSFER TIMING, CALCULATIONS AND SUBSTITUTIONS (a) CONDITIONS PRECEDENT. Each Transfer obligation of the Pledgor under Paragraphs 3 and 5 and of the Secured Party under Paragraphs 3, 4(d)(ii), 5 and 6(d) is subject to the conditions precedent that: (i) no Event of Default, Potential Event of Default or Specified Condition has occurred and is continuing with respect to the other party; and (ii) no Early Termination Date for which any unsatisfied payment obligations exist has occurred or been designated as the result of an Event of Default or Specified Condition with respect to the other party. (b) TRANSFER TIMING. Subject to Paragraphs 4(a) and 5 and unless otherwise specified, if a demand for the Transfer of Eligible Credit Support or Posted Credit Support is made by the Notification Time, then the relevant Transfer will be made not later than the close of business on the next Local Business Day; if a demand is made after the Notification Time, then the relevant Transfer will be made not later than the close of business on the second Local Business Day thereafter. (c) CALCULATIONS. All calculations of Value and Exposure for purposes of Paragraphs 3 and 6(d) will be made by the Valuation Agent as of the Valuation Time. The Valuation Agent will notify each party (or the other party, if the Valuation Agent is a party) of its calculations not later than the Notification Time on the Local Business Day following the applicable Valuation Date (or in the case of Paragraph 6(d), following the date of calculation). 2 27 (d) SUBSTITUTIONS. (i) Unless otherwise specified in Paragraph 13, upon notice to the Secured Party specifying the items of Posted Credit Support to be exchanged, the Pledgor may, on any Local Business Day, Transfer to the Secured Party substitute Eligible Credit Support (the "Substitute Credit Support"); and (ii) subject to Paragraph 4(a), the Secured Party will Transfer to the Pledgor the items of Posted Credit Support specified by the Pledgor in its notice not later than the Local Business Day following the date on which the Secured Party receives the Substitute Credit Support, unless otherwise specified in Paragraph 13 (the "Substitution Date"); provided that the Secured Party will only be obligated to Transfer Posted Credit Support with a Value as of the date of Transfer of that Posted Credit Support equal to the Value as of that date of the Substitute Credit Support. PARAGRAPH 5. DISPUTE RESOLUTION If a party (a "Disputing Party") disputes (I) the Valuation Agent's calculation of a Delivery Amount or a Return Amount or (II) the Value of any Transfer of Eligible Credit Support or Posted Credit Support, then (1) the Disputing Party will notify the other party and the Valuation Agent (if the Valuation Agent is not the other party) not later than the close of business on the Local Business Day following (X) the date that the demand is made under Paragraph 3 in the case of (I) above or (Y) the date of Transfer in the case of (II) above, (2) subject to Paragraph 4(a), the appropriate party will Transfer the undisputed amount to the other party not later than the close of business on the Local Business Day following (X) the date that the demand is made under Paragraph 3 in the case of (I) above or (Y) the date of Transfer in the case of (II) above, (3) the parties will consult with each other in an attempt to resolve the dispute and (4) if they fail to resolve the dispute by the Resolution Time, then: (i) In the case of a dispute involving a Delivery Amount or Return Amount, unless otherwise specified in Paragraph 13, the Valuation Agent will recalculate the Exposure and the Value as of the Recalculation Date by: (A) utilizing any calculations of Exposure for the Transactions (or Swap Transactions) that the parties have agreed are not in dispute; (B) calculating the Exposure for the Transactions (or Swap Transactions) in dispute by seeking four actual quotations at mid-market from Reference Market-makers for purposes of calculating Market Quotation, and taking the arithmetic average of those obtained; provided that if four quotations are not available for a particular Transaction (or Swap Transaction), then fewer than four quotations may be used for that Transaction (or Swap Transaction); and if no quotations are available for a particular Transaction (or Swap Transaction), then the Valuation Agent's original calculations will be used for that Transaction (or Swap Transaction); and (C) utilizing the procedures specified in Paragraph 13 for calculating the Value, if disputed, of Posted Credit Support. (ii) In the case of a dispute involving the Value of any Transfer of Eligible Credit Support or Posted Credit Support, the Valuation Agent will recalculate the Value as of the date of Transfer pursuant to Paragraph 13. Following a recalculation pursuant to this Paragraph, the Valuation Agent will notify each party (or the other party, if the Valuation Agent is a party) not later than the Notification Time on the Local Business Day following the Resolution Time. The appropriate party will, upon demand following that notice by the Valuation Agent or a resolution pursuant to (3) above and subject to Paragraphs 4(a) and 4(b), make the appropriate Transfer. 3 28 PARAGRAPH 6. HOLDING AND USING POSTED COLLATERAL (a) CARE OF POSTED COLLATERAL. Without limiting the Secured Party's rights under Paragraph 6(c), the Secured Party will exercise reasonable care to assure the safe custody of all Posted Collateral to the extent required by applicable law, and in any event the Secured Party will be deemed to have exercised reasonable care if it exercises at least the same degree of care as it would exercise with respect to its own property. Except as specified in the preceding sentence, the Secured Party will have no duty with respect to Posted Collateral, including, without limitation, any duty to collect any Distributions, or enforce or preserve any rights pertaining thereto. (b) ELIGIBILITY TO HOLD POSTED COLLATERAL; CUSTODIANS. (i) GENERAL. Subject to the satisfaction of any conditions specified in Paragraph 13 for holding Posted Collateral, the Secured Party will be entitled to hold Posted Collateral or to appoint an agent (a "Custodian") to hold Posted Collateral for the Secured Party. Upon notice by the Secured Party to the Pledgor of the appointment of a Custodian, the Pledgor's obligations to make any Transfer will be discharged by making the Transfer to that Custodian. The holding of Posted Collateral by a Custodian will be deemed to be the holding of that Posted Collateral by the Secured Party for which the Custodian is acting. (ii) FAILURE TO SATISFY CONDITIONS. If the Secured Party or its Custodian fails to satisfy any conditions for holding Posted Collateral, then upon a demand made by the Pledgor, the Secured Party will, not later than five Local Business Days after the demand, Transfer or cause its Custodian to Transfer all Posted Collateral held by it to a Custodian that satisfies those conditions or to the Secured Party if it satisfies those conditions. (iii) LIABILITY. The Secured Party will be liable for the acts or omissions of its Custodian to the same extent that the Secured Party would be liable hereunder for its own acts or omissions. (c) USE OF POSTED COLLATERAL. Unless otherwise specified in Paragraph 13 and without limiting the rights and obligations of the parties under Paragraphs 3, 4(d)(ii), 5, 6(d) and 8, if the Secured Party is not a Defaulting Party or an Affected Party with respect to a Specified Condition and no Early Termination Date has occurred or been designated as the result of an Event of Default or Specified Condition with respect to the Secured Party, then the Secured Party will, notwithstanding Section 9-207 of the New York Uniform Commercial Code, have the right to: (i) sell, pledge, rehypothecate, assign, invest, use, commingle or otherwise dispose of, or otherwise use in its business any Posted Collateral it holds, free from any claim or right of any nature whatsoever of the Pledgor; including any equity or right of redemption by the Pledgor; and (ii) register any Posted Collateral in the name of the Secured Party, its Custodian or a nominee for either. For purposes of the obligation to Transfer Eligible Credit Support or Posted Credit Support pursuant to Paragraphs 3 and 5 and any rights or remedies authorized under this Agreement, the Secured Party will be deemed to continue to hold all Posted Collateral and to receive Distributions made thereon, regardless of whether the Secured Party has exercised any rights with respect to any Posted Collateral pursuant to (i) or (ii) above. (d) DISTRIBUTIONS AND INTEREST AMOUNT. (i) DISTRIBUTIONS. Subject to Paragraph 4(a), if the Secured Party receives or is deemed to receive Distributions on a Local Business Day, it will Transfer to the Pledgor not later than the following Local Business Day any Distributions it receives or is deemed to receive to the extent that a Delivery Amount would not be created or increased by that Transfer, as calculated by the Valuation Agent (and the date of calculation will be deemed to be a Valuation Date for this purpose). 4 29 (ii) INTEREST AMOUNT. Unless otherwise specified in Paragraph 13 and subject to Paragraph 4(a), in lieu of any interest, dividends or other amounts paid or deemed to have been paid with respect to Posted Collateral in the form of Cash (all of which may be retained by the Secured Party), the Secured Party will Transfer to the Pledgor at the times specified in Paragraph 13 the Interest Amount to the extent that a Delivery Amount would not be created or increased by that Transfer, as calculated by the Valuation Agent (and the date of calculation will be deemed to be a Valuation Date for this purpose). The Interest Amount or portion thereof not Transferred pursuant to this Paragraph will constitute Posted Collateral in the form of Cash and will be subject to the security interest granted under Paragraph 2. PARAGRAPH 7. EVENTS OF DEFAULT For purposes of Section 5(a)(iii)(1) of this Agreement, an Event of Default will exist with respect to a party if: (i) that party fails (or fails to cause its Custodian) to make, when due, any Transfer of Eligible Collateral, Posted Collateral or the Interest Amount, as applicable, required to be made by it and that failure continues for two Local Business Days after notice of that failure is given to that party; (ii) that party fails to comply with any restriction or prohibition specified in this Annex with respect to any of the rights specified in Paragraph 6(c) and that failure continues for five Local Business Days after notice of that failure is given to that party; or (iii) that party fails to comply with or perform any agreement or obligation other than those specified in Paragraphs 7(i) and 7(ii) and that failure continues for 30 days after notice of that failure is given to that parry. PARAGRAPH 8. CERTAIN RIGHTS AND REMEDIES (a) SECURED PARTY'S RIGHTS AND REMEDIES. If at any time (1) an Event of Default or Specified Condition with respect to the Pledgor has occurred and is continuing or (2) an Early Termination Date has occurred or been designated as the result of an Event of Default or Specified Condition with respect to the Pledgor, then, unless the Pledgor has paid in full all of its Obligations that are then due, the Secured Party may exercise one or more of the following rights and remedies: (i) all rights and remedies available to a secured party under applicable law with respect to Posted Collateral held by the Secured Party; (ii) any other rights and remedies available to the Secured Party under the terms of Other Posted Support, if any; (iii) the right to Set-off any amounts payable by the Pledgor with respect to any Obligations against any Posted Collateral or the Cash equivalent of any Posted Collateral held by the Secured Party (or any obligation of the Secured Party to Transfer that Posted Collateral); and (iv) the right to liquidate any Posted Collateral held by the Secured Party through one or more public or private sales or other dispositions with such notice, if any, as may be required under applicable law, free from any claim or right of any nature whatsoever of the Pledgor, including any equity or right of redemption by the Pledgor (with the Secured Party having the right to purchase any or all of the Posted Collateral to be sold) and to apply the proceeds (or the Cash equivalent thereof) from the liquidation of the Posted Collateral to any amounts payable by the Pledgor with respect to any Obligations in that order as the Secured Party may elect. Each party acknowledges and agrees that Posted Collateral in the form of securities may decline speedily in value and is of a type customarily sold on a recognized market, and, accordingly, the Pledgor is not entitled to prior notice of any sale of that Posted Collateral by the Secured Party, except any notice that is required under applicable law and cannot be waived. 5 30 (b) PLEDGOR'S RIGHTS AND REMEDIES. If at any time an Early Termination Date has occurred or been designated as the result of an Event of Default or Specified Condition with respect to the Secured Party, then (except in the case of an Early Termination Date relating to less than all Transactions (or Swap Transactions) where the Secured Party has paid in full all of its obligations that are then due under Section 6(e) of this Agreement): (i) the Pledgor may exercise all rights and remedies available to a pledgor under applicable law with respect to Posted Collateral held by the Secured Party; (ii) the Pledgor may exercise any other rights and remedies available to the Pledgor under the terms of Other Posted Support, if any; (iii) the Secured Party will be obligated immediately to Transfer all Posted Collateral and the Interest Amount to the Pledgor; and (iv) to the extent that Posted Collateral or the Interest Amount is not so Transferred pursuant to (iii) above, the Pledgor may: (A) Set-off any amounts payable by the Pledgor with respect to any Obligations against any Posted Collateral or the Cash equivalent of any Posted Collateral held by the Secured Party (or any obligation of the Secured Party to Transfer that Posted Collateral); and (B) to the extent that the Pledgor does not Set-off under (iv)(A) above, withhold payment of any remaining amounts payable by the Pledgor with respect to any Obligations, up to the Value of any remaining Posted Collateral held by the Secured Party, until that Posted Collateral is Transferred to the Pledgor. (c) DEFICIENCIES AND EXCESS PROCEEDS. The Secured Party will Transfer to the Pledgor any proceeds and Posted Credit Support remaining after liquidation, Set-off and/or application under Paragraphs 8(a) and 8(b) after satisfaction in full of all amounts payable by the Pledgor with respect to any Obligations; the Pledgor in all events will remain liable for any amounts remaining unpaid after any liquidation, Set-off and/or application under Paragraphs 8(a) and 8(b). (d) FINAL RETURNS. When no amounts are or thereafter may become payable by the Pledgor with respect to any Obligations (except for any potential liability under Section 2(d) of this Agreement), the Secured Party will Transfer to the Pledgor all Posted Credit Support and the Interest Amount, if any. PARAGRAPH 9. REPRESENTATIONS Each party represents to the other party (which representations will be deemed to be repeated as of each date on which it, as the Pledgor, Transfers Eligible Collateral) that: (i) it has the power to grant a security interest in and lien on any Eligible Collateral it Transfers as the Pledgor and has taken all necessary actions to authorize the granting of that security interest and lien; (ii) it is the sole owner of or otherwise has the right to Transfer all Eligible Collateral it Transfers to the Secured Party hereunder, free and clear of any security interest, lien, encumbrance or other restrictions other than the security interest and lien granted under Paragraph 2; (iii) upon the Transfer of any Eligible Collateral to the Secured Party under the terms of this Annex, the Secured Party will have a valid and perfected first priority security interest therein (assuming that any central clearing corporation or any third-party financial intermediary or other entity not within the control of the Pledgor involved in the Transfer of that Eligible Collateral gives the notices and takes the action required of it under applicable law for perfection of that interest); and (iv) the performance by it of its obligations under this Annex will not result in the creation of any security interest, lien or other encumbrance on any Posted Collateral other than the security interest and lien granted under Paragraph 2. 6 31 PARAGRAPH 10. EXPENSES (a) GENERAL. Except as otherwise provided in Paragraphs 10(b) and 10(c), each party will pay its own costs and expenses in connection with performing its obligations under this Annex and neither party will be liable for any costs and expenses incurred by the other party in connection herewith. (b) POSTED CREDIT SUPPORT. The Pledgor will promptly pay when due all taxes, assessments or charges of any nature that are imposed with respect to Posted Credit Support held by the Secured Party upon becoming aware of the same, regardless of whether any portion of that Posted Credit Support is subsequently disposed of under Paragraph 6(c), except for those taxes, assessments and charges that result from the exercise of the Secured Party's rights under Paragraph 6(c). (c) LIQUIDATION/APPLICATION OF POSTED CREDIT SUPPORT. All reasonable costs and expenses incurred by or on behalf of the Secured Party or the Pledgor in connection with the liquidation and/or application of any Posted Credit Support under Paragraph 8 will be payable, on demand and pursuant to the Expenses Section of this Agreement, by the Defaulting Party or, if there is no Defaulting Party, equally by the parties. PARAGRAPH 11. MISCELLANEOUS (a) DEFAULT INTEREST. A Secured Party that fails to make, when due, any Transfer of Posted Collateral or the Interest Amount will be obligated to pay the Pledgor (to the extent permitted under applicable law) an amount equal to interest at the Default Rate multiplied by the Value of the items of property that were required to be Transferred, from (and including) the date that Posted Collateral or Interest Amount was required to be Transferred to (but excluding) the date of Transfer of that Posted Collateral or Interest Amount. This interest will be calculated on the basis of daily compounding and the actual number of days elapsed. (b) FURTHER ASSURANCES. Promptly following a demand made by a party, the other party will execute, deliver, file and record any financing statement, specific assignment or other document and take any other action that may be necessary or desirable and reasonably requested by that party to create, preserve, perfect or validate any security interest or lien granted under Paragraph 2, to enable that party to exercise or enforce its rights under this Annex with respect to Posted Credit Support or an Interest Amount or to effect or document a release of a security interest on Posted Collateral or an Interest Amount. (c) FURTHER PROTECTION. The Pledgor will promptly give notice to the Secured Party of, and defend against, any suit, action, proceeding or lien that involves Posted Credit Support Transferred by the Pledgor or that could adversely affect the security interest and lien granted by it under Paragraph 2, unless that suit, action, proceeding or lien results from the exercise of the Secured Party's rights under Paragraph 6(c). (d) GOOD FAITH AND COMMERCIALLY REASONABLE MANNER. Performance of all obligations under this Annex, including, but not limited to, all calculations, valuations and determinations made by either party, will be made in good faith and in a commercially reasonable manner. (e) DEMANDS AND NOTICES. All demands and notices made by a party under this Annex will be made as specified in the Notices Section of this Agreement, except as otherwise provided in Paragraph 13. (f) SPECIFICATIONS OF CERTAIN MATTERS. Anything referred to in this Annex as being specified in Paragraph 13 also may be specified in one or more Confirmations or other documents and this Annex will be construed accordingly. 7 32 PARAGRAPH 12. DEFINITIONS As used in this Annex:-- "CASH" means the lawful currency of the United States of America. "CREDIT SUPPORT AMOUNT" has the meaning specified in Paragraph 3. "CUSTODIAN" has the meaning specified in Paragraphs 6(b)(i) and 13. "DELIVERY AMOUNT" has the meaning specified in Paragraph 3(a). "DISPUTING PARTY" has the meaning specified in Paragraph 5. "DISTRIBUTIONS" means with respect to Posted Collateral other than Cash, all principal, interest and other payments and distributions of cash or other property with respect thereto, regardless of whether the Secured Party has disposed of that Posted Collateral under Paragraph 6(c). Distributions will not include any item of property acquired by the Secured Party upon any disposition or liquidation of Posted Collateral or, with respect to any Posted Collateral in the form of Cash, any distributions on that collateral, unless otherwise specified herein. "ELIGIBLE COLLATERAL" means, with respect to a party, the items, if any, specified as such for that party in Paragraph 13. "ELIGIBLE CREDIT SUPPORT" means Eligible Collateral and Other Eligible Support. "EXPOSURE" means for any Valuation Date or other date for which Exposure is calculated and subject to Paragraph 5 in the case of a dispute, the amount, if any, that would be payable to a party that is the Secured Party by the other party (expressed as a positive number) or by a party that is the Secured Party to the other party (expressed as a negative number) pursuant to Section 6(e)(ii)(2)(A) of this Agreement as if all Transactions (or Swap Transactions) were being terminated as of the relevant Valuation Time; provided that Market Quotation will be determined by the Valuation Agent using its estimates at mid-market of the amounts that would be paid for Replacement Transactions (as that term is defined in the definition of "Market Quotation"). "INDEPENDENT AMOUNT" means, with respect to a party, the amount specified as such for that party in Paragraph 13; if no amount is specified, zero. "INTEREST AMOUNT" means, with respect to an Interest Period, the aggregate sum of the amounts of interest calculated for each day in that Interest Period on the principal amount of Posted Collateral in the form of Cash held by the Secured Party on that day, determined by the Secured Party for each such day as follows: (x) the amount of that Cash on that day; multiplied by (y) the Interest Rate in effect for that day; divided by (z) 360. "INTEREST PERIOD" means the period from (and including) the last Local Business Day on which an Interest Amount was Transferred (or, if no interest Amount has yet been Transferred, the Local Business Day on which Posted Collateral in the form of Cash was Transferred to or received by the Secured Party) to (but excluding) the Local Business Day on which the current Interest Amount is to be Transferred. "INTEREST RATE" means the rate specified in Paragraph 13. "LOCAL BUSINESS DAY", unless otherwise specified in Paragraph 13, has the meaning specified in the Definitions Section of this Agreement, except that references to a payment in clause (b) thereof will be deemed to include a Transfer under this Annex. 8 33 "MINIMUM TRANSFER AMOUNT" means, with respect to a party, the amount specified as such for that party in Paragraph 13; if no amount is specified, zero. "NOTIFICATION TIME" has the meaning specified in Paragraph 13. "OBLIGATIONS" means, with respect to a party, all present and future obligations of that party under this Agreement and any additional obligations specified for that party in Paragraph 13. "OTHER ELIGIBLE SUPPORT" means, with respect to a party, the items, if any, specified as such for that party in Paragraph 13. "OTHER POSTED SUPPORT" means all Other Eligible Support Transferred to the Secured Party that remains in effect for the benefit of that Secured Party. "PLEDGOR" means either party, when that party (i) receives a demand for or is required to, Transfer Eligible Credit Support under Paragraph 3(a) or (ii) has Transferred Eligible Credit Support under Paragraph 3(a). "POSTED COLLATERAL" means all Eligible Collateral, other property, Distributions, and all proceeds thereof that have been Transferred to or received by the Secured Party under this Annex and not Transferred to the Pledgor pursuant to Paragraph 3(b), 4(d)(ii) or 6(d)(i) or released by the Secured Party under Paragraph 8. Any Interest Amount or portion thereof not Transferred pursuant to Paragraph 6(d)(ii) will constitute Posted Collateral in the form of Cash. "POSTED CREDIT SUPPORT" means Posted Collateral and Other Posted Support. "RECALCULATION DATE" means the Valuation Date that gives rise to the dispute under Paragraph 5; provided, however, that if a subsequent Valuation Date occurs under Paragraph 3 prior to the resolution of the dispute, then the "RECALCULATION DATE" means the most recent Valuation Date under Paragraph 3. "RESOLUTION TIME" has the meaning specified in Paragraph 13. "RETURN AMOUNT" has the meaning specified in Paragraph 3(b). "SECURED PARTY" means either party, when that party (i) makes a demand for or is entitled to receive Eligible Credit Support under Paragraph 3(a) or (ii) holds or is deemed to hold Posted Credit Support. "SPECIFIED CONDITION" means, with respect to a party, any event specified as such for that party in Paragraph 13. "SUBSTITUTE CREDIT SUPPORT" has the meaning specified in Paragraph 4(d)(i). "SUBSTITUTION DATE" has the meaning specified in Paragraph 4(d)(ii). "THRESHOLD" means, with respect to a party, the amount specified as such for that party in Paragraph 13; if no amount is specified, zero. "TRANSFER" means, with respect to any Eligible Credit Support, Posted Credit Support or Interest Amount, and in accordance with the instructions of the Secured Party, Pledgor or Custodian, as applicable: (i) in the case of Cash, payment or delivery by wire transfer into one or more bank accounts specified by the recipient; (ii) in the case of certificated securities that cannot be paid or delivered by book-entry, payment or delivery in appropriate physical form to the recipient or its account accompanied by any duly executed instruments of transfer, assignments in blank, transfer tax stamps and any other documents necessary to constitute a legally valid transfer to the recipient; (iii) in the case of securities that can be paid or delivered by book-entry, the giving of written instructions to the relevant depository institution or other entity specified by the recipient, together with a written copy thereof to the recipient, sufficient if complied with to result in a legally effective transfer of the relevant interest to the recipient; and (iv) in the case of Other Eligible Support or Other Posted Support, as specified in Paragraph 13. 9 34 "VALUATION AGENT" has the meaning specified in Paragraph 13. "VALUATION DATE" means each date specified in or otherwise determined pursuant to Paragraph 13. "VALUATION PERCENTAGE" means, for any item of Eligible Collateral, the percentage specified in Paragraph 13. "VALUATION TIME" has the meaning specified in Paragraph 13. "VALUE" means for any Valuation Date or other date for which Value is calculated and subject to Paragraph 5 in the case of a dispute, with respect to: (i) Eligible Collateral or Posted Collateral that is: (A) Cash, the amount thereof; and (B) a security, the bid price obtained by the Valuation Agent multiplied by the applicable Valuation Percentage, if any; (ii) Posted Collateral that consists of items that are not specified as Eligible Collateral, zero; and (iii) Other Eligible Support and Other Posted Support, as specified in Paragraph 13. 10 35 PARAGRAPH 13. ELECTIONS AND VARIABLES (a) SECURITY INTEREST FOR "OBLIGATIONS" The term "Obligations" as used in this Annex includes no additional obligations with respect to Party A or Party B. (b) CREDIT SUPPORT OBLIGATIONS. (i) "DELIVERY AMOUNT", "RETURN AMOUNT" AND "CREDIT SUPPORT AMOUNT" will have the meanings specified in Paragraphs 3(a), 3(b) and 3, respectively. (ii) The following items will qualify as "ELIGIBLE COLLATERAL" for Party A and Party B:
VALUATION PERCENTAGE -------------------- (A) Cash (U.S. Dollars) 100% (B) Negotiable debt obligations issued by the 95% U.S. Treasury Department with remaining maturity of less than or equal to 5 years (C) Negotiable debt obligations issued by the 90% U.S. Treasury Department with remaining maturity greater than 5 years
(iii) The following items will qualify as "OTHER ELIGIBLE SUPPORT" for Party A or Party B:
VALUATION PERCENTAGE ------------------- Letters of Credit, which shall mean an 100% irrevocable, transferable standby letter of credit, from a major U.S. commercial bank acceptable to the party in whose favor the Letter of Credit is issued, utilizing a form satisfactory to both parties, with such changes to the terms in that form as the issuing bank may require and as may be reasonably acceptable to the party in whose favor the letter of credit is issued.
(iv) THRESHOLDS. (A) "INDEPENDENT AMOUNT" means:- Not applicable with respect to Party A; $950,000 with respect to Party B. (B) "THRESHOLD" means $1,000,000, with respect to Party A, and means $250,000 with respect to Party B, provided that the Threshold shall be zero for any party for so long as an Event of Default is continuing with respect to such party. (C) "MINIMUM TRANSFER AMOUNT" means:- Not applicable. (D) ROUNDING. The Delivery Amount will be rounded up and the Return Amount will be rounded down to the nearest integral multiple of $100,000, respectively. (c) VALUATION AND TIMING. (i) "VALUATION AGENT" means, for the purposes of Paragraphs 3 and 5, the party making the demand under Paragraph 3, and, for the purposes of Paragraph 6(d), the Secured Party receiving or deemed to receive the Distributions or the Interest Amount, as applicable. (ii) "VALUATION DATE" means any Local Business Day. 11 36 (iii) "VALUATION TIME" means the close of the Local Business Day before the Valuation Date or date of calculation as applicable; provided that the calculations of Value and Exposure will be made as of approximately the same time on the same date. (iv) "NOTIFICATION TIME" means 1:00 p.m., New York time, on a Local Business Day. (d) CONDITIONS PRECEDENT AND SECURED PARTY'S RIGHTS AND REMEDIES. The following Termination Event(s) will be a "SPECIFIED CONDITION" for each party (that party being the Affected Party if the Termination Event occurs with respect to that party) for the purposes of the Paragraphs specified below:
PARAGRAPH 4(a) PARAGRAPH 8(a) AND (b) -------------- ---------------------- Illegality [x] [ ] Tax Event [x] [ ] Tax Event Upon Merger [x] [ ] Credit Event Upon Merger [x] [x]
(e) SUBSTITUTION. (i) "SUBSTITUTION DATE" has the meaning specified in Paragraph 4(d)(ii). (ii) CONSENT. The Pledgor is not required to obtain the Secured Party's consent for any substitution pursuant to Paragraph 4(d). (f) DISPUTE RESOLUTION. (i) "RESOLUTION TIME" means 1:00 p.m., New York time, on the second Local Business Day following the date on which a notice is given regarding a dispute under Paragraph 5. (ii) VALUE. For the purpose of Paragraphs 5(i)(C) and 5(ii), the Value of Posted Credit Support will be calculated as follows: For each item of Eligible Collateral (except for Cash), an amount in U.S. dollars equal to the product of (i) either (A) the bid price for such security quoted on such day by a principal market-maker for such security selected in good faith by the Secured Party or (B) the most recent publicly available bid price for such security as reported by a quotation service or in a medium selected in good faith and in a commercially reasonable manner by Secured Party, multiplied by (ii) the percentage figure listed in section (b)(ii) hereof with respect to such security: and (c) with respect to any other Eligible Collateral, an amount agreed to by the parties and specified on a supplement to this Annex. (iii) ALTERNATIVE. The provisions of Paragraph 5 will apply. (g) HOLDING AND USING POSTED COLLATERAL. (i) ELIGIBILITY TO HOLD POSTED COLLATERAL; CUSTODIANS. Party A and its Custodian, and Party B and its Custodian, will be entitled to hold Posted Collateral, as applicable, pursuant to Paragraph 6(b); provided that the following conditions applicable to each party are satisfied: (A) Party A, as the Secured Party, is not a Defaulting Party. (B) Party B, as the Secured Party, is not a Defaulting Party. (C) Each party hereby covenants and agrees that it will cause all Posted Collateral received from the other party to be entered in one or more accounts (each, a "Collateral Account") with a domestic office of a commercial bank, trust company or financial institution organized under the laws of the United States (or any state or a political subdivision thereof) having assets of at least $10 Billion and a long term debt or deposit rating of at least (i) Baa2 from Moody's Investors Services, Inc. ("Moody's") and (ii) BBB from Standard and Poor's Corporation ("S&P") (a "Qualified Institution"), each of which accounts may include property of other parties but will bear a title indicating the 12 37 Secured Party's interest in said account and the Posted Collateral in such account. In addition the Secured Party may direct the Pledgor to transfer or deliver Eligible Collateral directly into the Secured Party's Collateral Account(s). If otherwise qualified, the Secured Party may act as such Qualified Institution and the Secured Party may move the Collateral Accounts from one Qualified Institution to another upon reasonable notice to the Pledgor. The Secured Party shall cause statements concerning the Posted Collateral transferred or delivered by the Pledgor to be sent to the Pledgor on request, which may not be made more frequently than once in each calendar month. Initially the Custodian, for Party A and Party B is:- Not applicable. (ii) USE OF POSTED COLLATERAL. The provisions of Paragraph 6(c) will apply to Party A and Party B. (h) DISTRIBUTIONS AND INTEREST AMOUNT. (i) The "INTEREST RATE", with respect to cash Collateral, will be the Federal Funds Rate which means, for any day, the simple interest rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Local Business Day next succeeding such day, provided that (a) if such day is not a Local Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Local Business Day, and (b) if no such rate is so published on such next succeeding Local Business Day, the Federal Funds Rate for such day shall be the arithmetic mean of the rates for the last transaction in overnight Federal funds arranged by three leading brokers of Federal funds transactions in New York City selected by NationsBank in good faith on such day. (ii) The "TRANSFER OF INTEREST AMOUNT" will be made on the last Local Business Day of each calendar month and on any Local Business Day that Posted Collateral in the form of Cash is transferred to the Pledgor pursuant to Paragraph 3(b). (iii) ALTERNATIVE INTEREST AMOUNT. The provisions of Paragraph 6(d) (ii) will apply. (i) ADDITIONAL REPRESENTATIONS. None. (j) OTHER ELIGIBLE SUPPORT AND OTHER POSTED SUPPORT. Other Eligible Support in the form of a Letter of Credit shall be subject to the following provisions: (i) "Letter of Credit Default" shall mean with respect to an outstanding Letter of Credit, the occurrence of any of the following events: (1) the issuer of such Letter of Credit shall fail to maintain a credit rating of at least BBB+ by S&P or Baa2 by Moody's; (2) the issuer of the Letter of Credit shall fail to comply with or perform its obligations under such Letter of Credit if such failure shall be continuing after the lapse of any applicable grace period; (3) the issuer of such Letter of Credit shall disaffirm, disclaim, repudiate or reject, in whole or in part, or challenge the validity of, such Letter of Credit; (4) such Letter of Credit shall expire or terminate, or shall fail or cease to be in full force and effect at any time during a period in which Posted Collateral is required, (5) cause the renewal or replacement Letter of Credit to the Secured Party at the address specified in the Agreement at least 90 days prior to the expiration of such Letter Of Credit. (ii) Upon the occurrence of a Letter of Credit Default, the Pledgor agrees to deliver a substitute Letter of Credit to the Secured Party on or before the second Business Day after written demand by the Secured Party. The failure to so deliver a substitute Letter of Credit 13 38 233 South Wacker Drive, Suite 2800 Chicago, Illinois 60606 Tel 312 234-2934 Fax 312 234-3160 NationsBank CONFIRMATION FOR U.S. DOLLAR CAP TO BE SUBJECT TO MASTER AGREEMENT TO: SIRROM CAPITAL CORPORATION 500 CHURCH STREET, SUITE 200 NASHVILLE, TN 37219 ATTN: CARL STRATTON, CFO TEL: 615-256-0701 FAX: 615-726-1208 FROM: NationsBank, N.A. 233 5. Wacker Drive Chicago, Illinois 60606 MICHAEL SHARP / STUART ADAMS DATE: 27NOV96 SUBJECT: Transaction Ref# 565300 The purpose of this letter agreement is to confirm the terms and conditions of the Rate Cap Transaction entered into between us on the Trade Date specified below (the "Cap Transaction"). This letter agreement constitutes a "Confirmation" as referred to in the Master Agreement specified below. The definitions and provisions contained in the 1991 ISDA Definitions (as published by the International Swaps and Derivatives Association, Inc.), (the "Definitions") are incorporated into this Confirmation. In the event of any inconsistency between the Definitions and this Confirmation, this Confirmation will govern. 1. This Confirmation supplements, forms part of, and is subject to, the Master Agreement dated as of 26NOV96, as amended and supplemented from time to time (the "Agreement"), between you and us. All provisions contained in the Agreement shall govern this Confirmation except as expressly modified below. 2. The terms of the Rate Cap Transaction to which this Confirmation relates are as follows: SELLER: NATIONSBANK, N.A. BUYER: SIRROM CAPITAL CORPORATION Notional Amount: USD- SEE SCHEDULE A Accretion: APPLICABLE 39 and conditions of our agreement by responding within three (3) Business Days by returning via telecopier an executed copy of this Confirmation to the attention of the Swaps Documentation Unit at Fax (312) 234-3160. Failure to respond within such period shall not affect the validity or enforceability of this Cap Transaction, and shall be deemed to be an affirmation of the terms and conditions contained herein, absent manifest error. Yours Sincerely, NATIONSBANK, N.A. By: /s/ --------------------- VICE PRESIDENT SIRROM CAPITAL CORPORATION BY: /s/ Carl W. Stratton, CFO -------------------------- AUTHORIZED SIGNATORY 3 40 SCHEDULE A TO CONFIRMATION ACCRETION SCHEDULE
PERIOD COVERED NOTIONAL 02JAN97 03FEB97 8,333,333.00 03FEB97 03MAR97 16,666,667.00 03MAR97 02APR97 25,000,000.00 02APR97 02MAY97 33,333,333.00 02MAY97 02JUN97 41,666,667.00 02JUN97 02JUL97 50,000,000.00 02JUL97 04AUG97 58,333,333.00 04AUG97 02SEP97 66,666,667.00 02SEP97 02OCT97 75,000,000.00 02OCT97 03NOV97 83,333,333.00 03NOV97 02DEC97 91,666,667.00 02DEC97 02JAN98 100,000,000.00
NATIONSBANK, N.A. By: /s/ ---------------------- VICE PRESIDENT SIRROM CAPITAL CORPORATION BY: /s/Carl W. Stratton, CFO ------------------------- AUTHORIZED SIGNATORY 4 41 233 South Wacker Drive, Suite 2800 Chicago, Illinois 60606 Tel 312 234-2934 Fax 312 234-3160 NATIONSBANK CONFIRMATION FOR U.S. DOLLAR CAP SUBJECT TO EXISTING 1992 MASTER TO: SIRROM CAPITAL CORPORATION 500 CHURCH STREET, SUITE 200 NASHVILLE, TN 37219 ATTN: CARL STRATTON, CFO TEL: 615-256-0701 FAX: 615-726-1208 FROM: NationsBank, N.A. 233 S. Wacker Drive Chicago, Illinois 60606 MICHAEL SHARP / SEAN DOYLE DATE: 27NOV96 SUBJECT: Transaction Ref# 565310 The purpose of this letter agreement is to confirm the terms and conditions of the Rate Cap Transaction entered into between us on the Trade Date specified below (the "Cap Transaction"). This letter agreement constitutes a "Confirmation" as referred to in the Master Agreement specified below. The definitions and provisions contained in the 1991 ISDA Definitions (as published by the International Swaps and Derivatives Association, Inc.), (the "Definitions") are incorporated into this Confirmation. In the event of any inconsistency between the Definitions and this Confirmation, this Confirmation will govern. 1. This Confirmation supplements, forms part of, and is subject to, the Master Agreement dated as of 26NOV96, as amended and supplemented from time to time (the "Agreement"), between you and us. All provisions contained in the Agreement shall govern this Confirmation except as expressly modified below. 2. The terms of the Rate Cap Transaction to which this Confirmation relates are as follows: Notional Amount: USD 100,000,000.00 Trade Date: 27NOV96 Effective Date: 02JAN98 Termination Date: 03JAN00 42 SELLER: NATIONSBANK, N.A. BUYER: SIRROM CAPITAL CORPORATION Cap Rate: 6.00% Payment Dates: THE 2ND OF EACH MONTH COMMENCING FEBRUARY 2, 1998 AND ENDING JANUARY 3, 2000, SUBJECT TO ADJUSTMENT IN ACCORDANCE WITH THE MODIFIED FOLLOWING BUSINESS DAY CONVENTION. First Calculation Period: The First Calculation Period for this Rate Cap Transaction shall commence 02JAN98. Spread: NONE Reset Dates: Each Business day during the Calculation Period Floating Rate Reference: USD-CP-H.15 Designated Maturity: 1 Month Business Day Centers: NEW YORK Day Count Fraction: ACTUAL/360 Averaging: DAILY UNWEIGHTED Premium Amount: INAPPLICABLE Calculation Agent: NationsBank, N.A. Legal and Out-of-Pocket Expenses: For each party's own account. Recording of Conversations: Each party to this Agreement acknowledges and agrees to the tape or electronic recording of conversations between the parties to this Agreement whether by one or other or both of the parties, and that any such recordings may be submitted in evidence in any action or proceeding relating to the Agreement or any Transaction. INSTRUCTIONS FOR PAYMENT: Payment to NationsBank: Payment to SIRROM CAPITAL CORPORATION: NATIONSBANK, N.A. - CHARLOTTE PLEASE ADVISE ABA 053000196 ACCT: 10852016511 ATTN: DERIVATIVE OPERATIONS
Please confirm that the foregoing correctly sets forth the terms and conditions of our agreement by responding within three (3) Business Days by returning via telecopier an executed copy 2 43 of this Confirmation to the Swaps Documentation Group at Fax No. (312) 234-2543. Failure to respond within such period shall not affect the validity or enforceability of this Cap Transaction, and shall be deemed to be an affirmation of the terms and conditions contained herein, absent manifest error. Yours Sincerely, NATIONSBANK, N.A. BY: /s/ -------------------------------- VICE PRESIDENT Confirmed as of the day first written above: SIRROM CAPITAL CORPORATION BY: /s/ Carl W. Stratton, C.F.O. ------------------------------- AUTHORIZED SIGNATORY 3 44 233 South Wacker Drive, Suite 2800 Chicago, Illinois 60606 Tel 312 234-2934 Fax 312 234-3160 NATIONSBANK CONFIRMATION FOR U.S. DOLLAR CAP TO BE SUBJECT TO MASTER AGREEMENT TO: SIRROM CAPITAL CORPORATION 500 CHURCH STREET, SUITE 200 NASHVILLE, TN 37219 ATTN: CARL STRATTON, CFO TEL: 615-256-0701 FAX: 615-726-1208 FROM: NationsBank, N.A. 233 S. Wacker Drive Chicago, Illinois 60606 MICHAEL SHARP / STUART ADAMS DATE: 27NOV96 SUBJECT: Transaction Ref# 565140 The purpose of this letter agreement is to confirm the terms and conditions of the Rate Cap Transaction entered into between us on the Trade Date specified below (the "Cap Transaction"). This letter agreement constitutes a "Confirmation" as referred to in the Master Agreement specified below. The definitions and provisions contained in the 1991 ISDA Definitions (as published by the International Swaps and Derivatives Association, Inc.), (the "Definitions") are incorporated into this Confirmation. In the event of any inconsistency between the Definitions and this Confirmation, this Confirmation will govern. 1. This Confirmation supplements, forms part of, and is subject to, the Master Agreement dated as of 26NOV96, as amended and supplemented from time to time (the "Agreement"), between you and us. All provisions contained in the Agreement shall govern this Confirmation except as expressly modified below. 2. The terms of the Rate Cap Transaction to which this Confirmation relates are as follows: SELLER: NATIONSBANK, N.A. BUYER: SIRROM CAPITAL CORPORATION Notional Amount: USD- 100,000,000.00 Trade Date: 27NOV96 Effective Date: 03JAN00 Termination Date: 02JAN02 45 Cap Rate: 6.95% Reset Date: Each Business Day of the Calculation Period Payment Date: THE 2ND OF EACH MONTH COMMENCING FEBRUARY 2, 2000 AND ENDING JANUARY 2, 2002, SUBJECT TO ADJUSTMENT IN ACCORDANCE WITH THE MODIFIED FOLLOWING BUSINESS DAY CONVENTION. Floating Rate Reference: USD-CP-H.15 Designated Maturity: 1 Month Spread: NONE Business Days: NEW YORK Day Count Fraction: ACTUAL/360 Averaging: DAILY UNWEIGHTED Calculation Agent: NationsBank, N.A. Premium: INAPPLICABLE Rounding Factor: One Hundred Thousandth of One Percent Assignment: This Cap Transaction may be assigned only with prior written consent. Legal and Out-of-Pocket Expenses: For Each Party's Own Account. Governing Law: The Laws of the State of New York. Recording of Conversations: Each party to this Agreement acknowledges and agrees to the tape or electronic recording of conversations between the parties to this Agreement whether by one or other or both of the parties, and that any such recordings may be submitted in evidence in any action or proceeding relating to the Agreement or any Transaction. INSTRUCTIONS FOR PAYMENT: Payment to NationsBank: Payment to SIRROM CAPITAL CORPORATION: NATIONSBANK, N.A. - CHARLOTTE FIRST UNION NATIONAL BANK ABA 053000196 ABA 064000059 ACCT: 10852016511 ACCT: 202-0000-151-160 ATTN: DERIVATIVE OPERATIONS ATTN: KIM STRINGFIELD
Please confirm that the foregoing correctly sets forth the terms and conditions of our agreement by responding within three (3) Business Days by returning via telecopier an executed copy of this Confirmation to the attention of the Swaps Documentation Unit at Fax 2 46 (312) 234-3160. Failure to respond within such period shall not affect the validity or enforceability of this Cap Transaction, and shall be deemed to be an affirmation of the terms and conditions contained herein, absent manifest error. Yours Sincerely, NATIONSBANK, N.A. BY: /s/ ---------------------------- VICE PRESIDENT SIRROM CAPITAL CORPORATION BY: /s/ Carl W. Stratton, C.F.O. ----------------------------- AUTHORIZED SIGNATORY 3 47 233 South Wacker Drive, Suite 2800 Chicago, Illinois 60606 Tel 312 234-2934 FAX 312 234-3160 NATIONSBANK CONFIRMATION FOR U.S. DOLLAR FLOOR TO BE SUBJECT TO MASTER AGREEMENT TO: SIRROM CAPITAL CORPORATION 500 CHURCH STREET, SUITE 200 NASHVILLE, TN 37219 ATTN: CARL STRATTON, CFO TEL: 615-256-0701 FAX: 615-726-1208 FROM: NationsBank, N.A. 233 S. Wacker Drive Chicago, Illinois 60606 MICHAEL SHARP / STUART ADAMS DATE: 27NOV96 SUBJECT: Transaction Ref# 565290 The purpose of this letter agreement is to confirm the terms and conditions of the Rate Floor Transaction entered into between us on the Trade Date specified below (the "Floor Transaction"). This letter agreement constitutes a "Confirmation" as referred to in the Master Agreement specified below. The definitions and provisions contained in the 1991 ISDA Definitions (as published by the International Swaps and Derivatives Association, Inc.), (the "Definitions") are incorporated into this Confirmation. In the event of any inconsistency between the Definitions and this Confirmation, this Confirmation will govern. 1. This Confirmation supplements, forms part of, and is subject to, the Master Agreement dated as of 26NOV96, as amended and supplemented from time to time (the "Agreement"), between you and us. All provisions contained in the Agreement shall govern this Confirmation except as expressly modified below. 2. The terms of the Rate Floor Transaction to which this Confirmation relates are as follows: BUYER: NATIONSBANK, N.A. SELLER: SIRROM CAPITAL CORPORATION 48 INSTRUCTIONS FOR PAYMENT: Payment to NationsBank: Payment to SIRROM CAPITAL CORPORATION: NATIONSBANK, N.A. - CHARLOTTE FIRST UNION NATIONAL BANK ABA 053000196 ABA 064000059 ACCT: 10852016511 ACCT: 202-0000-151-160 ATTN: DERIVATIVE OPERATIONS ATTN: KIM STRINGFIELD
Please confirm that the foregoing correctly sets forth the terms and conditions of our agreement by responding within three (3) Business Days by returning via telecopier an executed copy of this Confirmation to the attention of the Swaps Documentation Unit at Fax (312) 234-3160. Failure to respond within such period shall not affect the validity or enforceability of this Floor Transaction, and shall be deemed to be an affirmation of the terms and conditions contained herein, absent manifest error. Yours Sincerely, NATIONSBANK, N.A. BY: /s/ --------------------------- Confirmed as of the date first written above: SIRROM CAPITAL CORPORATION BY: /s/ Carl W. Stratton, CFO -------------------------- AUTHORIZED SIGNATORY 3 49 SCHEDULE A TO CONFIRMATION ACCRETION SCHEDULE
PERIOD COVERED NOTIONAL 02JAN97 03FEB97 8,333,333.00 03FEB97 03MAR97 16,666,667.00 03MAR97 02APR97 25,000,000.00 02APR97 02MAY97 33,333,333.00 02MAY97 02JUN97 41,666,667.00 02JUN97 02JUL97 50,000,000.00 02JUL97 04AUG97 58,333,333.00 04AUG97 02SEP97 66,666,667.00 02SEP97 02OCT97 75,000,000.00 02OCT97 03NOV97 83,333,333.00 03NOV97 02DEC97 91,666,667.00 02DEC97 02JAN98 100,000,000.00
Yours Sincerely, NATIONSBANK, N.A. BY: /s/ -------------------------- SIRROM CAPITAL CORPORATION BY: /s/ Carl W. Stratton, CFO -------------------------- AUTHORIZED SIGNATORY 4 50 233 South Wacker Drive, Suite 2800 Chicago, Illinois 60606 Tel 312 234-2934 Fax 312 234-3160 NATIONSBANK CONFIRMATION FOR U.S. DOLLAR FLOOR SUBJECT TO EXISTING 1992 MASTER TO: SIRROM CAPITAL CORPORATION 500 CHURCH STREET, SUITE 200 NASHVILLE, TN 37219 ATTN: CARL STRATTON, CFO TEL: 615-256-0701 FAX: 615-726-1208 FROM: NationsBank, N.A. 233 S. Wacker Drive Chicago, Illinois 60606 MICHAEL SHARP / SEAN DOYLE DATE: 27NOV96 SUBJECT: Transaction Ref# 565260 The purpose of this letter agreement is to confirm the terms and conditions of the Rate Floor Transaction entered into between us on the Trade Date specified below (the "Floor Transaction"). This letter agreement constitutes a "Confirmation" as referred to in the Master Agreement specified below. The definitions and provisions contained in the 1991 ISDA Definitions (as published by the International Swaps and Derivatives Association, Inc.), (the "Definitions") are incorporated into this Confirmation. In the event of any inconsistency between the Definitions and this Confirmation, this Confirmation will govern. 1. This Confirmation supplements, forms part of, and is subject to, the Master Agreement dated as of 26NOV96, as amended and supplemented from time to time (the "Agreement"), between you and us. All provisions contained in the Agreement shall govern this Confirmation except as expressly modified below. 2. The terms of the Rate Floor Transaction to which this Confirmation relates are as follows: BUYER: NATIONSBANK, N.A. SELLER: SIRROM CAPITAL CORPORATION Notional Amount: USD 100,000,000.00 Trade Date: 27NOV96 Effective Date: 02JAN98 Termination Date: 03JAN00
51 Floor Rate: 6.00% Floating Rate Payment Dates: THE 2ND OF EACH MONTH COMMENCING FEBRUARY 2, 1998 AND ENDING JANUARY 3, 2000, SUBJECT TO ADJUSTMENT IN ACCORDANCE WITH THE MODIFIED FOLLOWING BUSINESS DAY CONVENTION. First Calculation Period: The First Calculation Period for this Rate Floor Transaction shall commence 02JAN98. Spread: NONE Reset Dates: Each Business Day of the Calculation Period Floating Rate Reference: USD-CP-H.15 Designated Maturity: 1 Month Business Day Centers: NEW YORK Day Count Fraction: ACTUAL/360 Averaging: DAILY UNWEIGHTED Premium Amount: Inapplicable Calculation Agent: NationsBank, N.A. Legal and Out-of-Pocket Expenses: For each party's own account. Recording of Conversations: Each party to this Agreement acknowledges and agrees to the tape or electronic recording of conversations between the parties to this Agreement whether by one or other or both of the parties, and that any such recordings may be submitted in evidence in any action or proceeding relating to the Agreement or any Transaction. INSTRUCTIONS FOR PAYMENT: Payment to NationsBank: Payment to SIRROM CAPITAL CORPORATION: NATIONSBANK, N.A. - CHARLOTTE FIRST UNION NATIONAL BANK ABA 053000196 ABA 064000059 ACCT: 10852016511 ACCT: 202-0000-151-160 ATTN: DERIVATIVE OPERATIONS ATTN: KIM STRINGFIELD
Please confirm that the foregoing correctly sets forth the terms and conditions of our agreement by responding within three (3) Business Days by returning via telecopier an executed copy of this Confirmation to the Swaps Documentation Group at Fax No. (312) 234-2543. Failure to respond within such period shall not affect the validity or enforceability of this Floor Transaction, and shall be 2 52 deemed to be an affirmation of the terms and conditions contained herein, absent manifest error. Yours Sincerely, NATIONSBANK, N.A. BY: /s/ ------------------------------ VICE PRESIDENT Confirmed as of the date first written above: SIRROM CAPITAL CORPORATION BY: /s/ Carl W. Stratton, CFO ------------------------------ AUTHORIZED SIGNATORY 3 53 233 South Wacker Drive, Suite 2800 Chicago, Illinois 60606 Tel 312 234-2934 Fax: 312 234-3160 NATIONSBANK CONFIRMATION FOR U.S. DOLLAR FLOOR TO BE SUBJECT TO MASTER AGREEMENT TO: SIRROM CAPITAL CORPORATION 500 CHURCH STREET, SUITE 200 NASHVILLE, TN 37219 ATTN: CARL STRATTON, CFO TEL: 615-256-0701 FAX: 615-726-1208 FROM: NationsBank, N.A. 233 S. Wacker Drive Chicago, Illinois 60606 MICHAEL SHARP / STUART ADAMS DATE: 27NOV96 SUBJECT: Transaction Ref# 565170 The purpose of this letter agreement is to confirm the terms and conditions of the Rate Floor Transaction entered into between us on the Trade Date specified below (the "Floor Transaction"). This letter agreement constitutes a "Confirmation" as referred to in the Master Agreement specified below. The definitions and provisions contained in the 1991 ISDA Definitions (as published by the International Swaps and Derivatives Association, Inc.), (the "Definitions") are incorporated into this Confirmation. In the event of any inconsistency between the Definitions and this Confirmation, this Confirmation will govern. 1. This Confirmation supplements, forms part of, and is subject to, the Master Agreement dated as of 26NOV96, as amended and supplemented from time to time (the "Agreement"), between you and us. All provisions contained in the Agreement shall govern this Confirmation except as expressly modified below. 2. The terms of the Rate Floor Transaction to which this Confirmation relates are as follows: BUYER: NATIONSBANK, N.A. SELLER: SIRROM CAPITAL CORPORATION Notional Amount: USD 100,000,000.00 Trade Date: 27NOV96 Effective Date: 03JAN00 Termination Date: 02JAN02 EX-99.N.1 9 CONSENT OF ARTHUR ANDERSEN, L.L.P. 1 EXHIBIT N.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports on Sirrom Capital Corporation (and to all references to our Firm) included in or made a part of this Registration Statement on Form N-2. ARTHUR ANDERSEN LLP Nashville, Tennessee January 9, 1997 EX-27.R 10 FINANCIAL DATA SCHEDULE
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF SIRROM CAPITAL, CORPORATION FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 247,958,383 260,715,637 2,455,789 24,090,270 0 287,261,696 0 125,071,000 5,651,639 130,722,639 132,407,465 0 12,328,567 9,195,116 8,002,404 0 5,061,800 0 12,607,245 156,539,057 0 16,837,156 5,033,632 10,015,756 11,855,033 7,206,489 2,793,944 19,090,506 0 7,028,049 577,200 0 3,198,451 65,000 0 0 5,972,873 620,271 0 0 0 5,979,355 10,015,756 122,442,335 9.61 .96 3.09 .96 .0 .0 12.70 .082 105,765,500 8.58
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