-----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, AIjua0kW8KgeX8RWgnpmZn5cglTPzlCyQkZWwXLcERa9z+dFW0r7zJvsTHfO5iPo A46Q5zOPeG4/oUDHh/kqRg== 0000950144-98-012938.txt : 19981118 0000950144-98-012938.hdr.sgml : 19981118 ACCESSION NUMBER: 0000950144-98-012938 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 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: 10-Q SEC ACT: SEC FILE NUMBER: 814-00154 FILM NUMBER: 98751740 BUSINESS ADDRESS: STREET 1: 500 CHURCH STREET STREET 2: STE 200 CITY: NASHVILLE STATE: TN ZIP: 37219 BUSINESS PHONE: 6152560701 10-Q 1 SIRROM CAPTIAL CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO _____________ COMMISSION FILE NUMBER: 0-25174 SIRROM CAPITAL CORPORATION (Exact Name of Registrant as Specified in its Charter) TENNESSEE 62-1583116 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 500 CHURCH STREET, SUITE 200 NASHVILLE, TENNESSEE 37219 (Address of Principal (Zip Code) Executive Offices) (615) 256-0701 (Registrant's Telephone Number, Including Area Code) NOT APPLICABLE (Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. The number of shares of common stock, no par value per share, outstanding on October 30, 1998 was 37,229,196. 2 TABLE OF CONTENTS
Page Number ----------- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets as of December 31, 1997 and September 30, 1998 3 Consolidated Statements of Operations for the Three Months Ended September 30, 1997 and 1998 and for the Nine Months Ended September 30, 1997 and 1998 4 Consolidated Statements of Cash Flows for the Three Months Ended September 30, 1997 and 1998 and for the Nine Months Ended September 30, 1997 and 1998 5 Notes to Consolidated Financial Statements 6 Consolidated Portfolio of Investments as of December 31, 1997 16 Consolidated Portfolio of Investments as of September 30, 1998 29 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 43 General 43 Results of Operations 43 Financial Condition, Liquidity and Capital Resources 51 Portfolio Turnover and Credit Quality 52 Year 2000 Compliance 53 Impact of Inflation 55 Risks 55 PART II. OTHER INFORMATION 56 ITEM 1. LEGAL PROCEEDINGS 56 ITEM 2. CHANGES IN SECURITIES 56 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 56 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 56 ITEM 5. OTHER INFORMATION 56 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 56 SIGNATURES 58
2 3 SIRROM CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, September 30, 1997 1998 ------------- ------------- (audited) (unaudited) ASSETS Investments, at fair value: Loans $ 412,005,353 $ 534,541,002 Equity interests 55,210,669 47,656,538 Warrants 24,543,035 42,617,225 Other 2,440,503 454,427 ------------- ------------- Total investments (cost of $483,417,884 and $654,421,476, respectively) 494,199,560 625,269,192 Investment in unconsolidated subsidiary 924,959 3,540,140 Cash and cash equivalents 3,024,608 1,209,659 Interest receivable 4,483,640 5,995,072 Receivable from sale of investment 1,498,240 0 Debt financing costs (less accumulated amortization of $1,776,700 and $2,652,165, respectively) 3,989,904 4,999,515 Furniture and equipment (less accumulated depreciation of $198,248 and $425,845, respectively) 918,253 1,294,957 Other assets 197,235 410,669 ------------- ------------- Total assets $ 509,236,399 $ 642,719,204 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Debentures payable to Small Business Administration $ 90,000,000 $ 101,000,000 Revolving credit facilities 124,250,000 141,277,000 Interest payable 1,576,600 2,069,558 Accounts payable, accrued expenses and other liabilities 5,435,621 8,375,045 Dividend payable 5,405,267 0 Accrued taxes payable 600,000 404,545 ------------- ------------- Total liabilities 227,267,488 253,126,148 ------------- ------------- Commitments and contingencies Shareholders' equity: Common stock, no par value 251,056,925 397,274,134 Notes receivable from employees (648,442) (499,812) Undistributed net realized earnings 20,778,752 21,971,018 Unrealized appreciation (depreciation) of investments 10,781,676 (29,152,284) ------------- ------------- Total shareholders' equity 281,968,911 389,593,056 ------------- ------------- Total liabilities and shareholders' equity $ 509,236,399 $ 642,719,204 ============= =============
The accompanying notes are an integral part of these statements. 3 4 SIRROM CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three Months Three Months Nine Months Nine Months Ended Ended Ended Ended September 30, September 30, September 30, September 30, 1997 1998 1997 1998 ------------ ------------ ------------ ------------ Operating Income: Interest on investments $ 10,977,893 $ 17,046,709 $ 28,629,681 $ 46,548,244 Loan processing and other fees 1,944,812 1,452,693 4,901,592 5,978,414 Other income 15,054 11,850 44,879 34,110 ------------ ------------ ------------ ------------ Total Operating Income 12,937,759 18,511,252 33,576,152 52,560,768 ------------ ------------ ------------ ------------ Operating Expenses: Interest expense 2,431,058 4,593,370 6,391,182 12,011,366 Salaries and benefits 1,315,103 2,138,742 3,193,913 5,498,095 Other operating expenses 850,727 1,308,272 2,276,639 3,925,300 Amortization expense 204,225 328,572 637,179 872,624 ------------ ------------ ------------ ------------ Total Operating Expenses 4,801,113 8,368,956 12,498,913 22,307,385 ------------ ------------ ------------ ------------ Pre-tax income of unconsolidated subsidiary (before taxes (benefit) of $228,842, $(22,292) $444,197 and $1,243,454) 915,371 194,269 2,176,802 3,858,635 ------------ ------------ ------------ ------------ Net Operating Income 9,052,017 10,336,565 23,254,041 34,112,018 ------------ ------------ ------------ ------------ Realized gain (loss) on investments 2,238,614 202,946 9,682,823 (4,352,547) Change in unrealized appreciation (depreciation) of investments 1,079,036 (34,525,526) (2,115,387) (39,933,960) Provision for income taxes (4,290,807) (22,292) 357,681 1,243,454 ------------ ------------ ------------ ------------ Net increase in shareholders' equity resulting from operations $ 16,660,474 $(23,963,723) $ 30,463,796 $(11,417,943) ============ ============ ============ ============ Net increase in shareholders' equity resulting from operations per share: Basic .54 (.64) 1.02 (.32) Diluted .51 (.64) .98 (.30) Weighted average shares outstanding: Basic 30,968 37.229 29,922 35,644 Diluted 32,442 37,565 31,145 37,448
4 5 SIRROM CAPITAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Three Months Three Months Nine Months Nine Months Ended Ended Ended Ended September 30, September 30, September 30, September 30, 1997 1998 1997 1998 ------------- ------------ ------------- ------------- OPERATING ACTIVITIES: Net increase (decrease) in shareholders' equity resulting from operations $ 16,660,474 $(23,963,723) $ 30,463,796 $ (11,417,943) Adjustments to reconcile net increase (decrease) to net cash provided by operating activities: Net unrealized (appreciation) depreciation of investments (1,079,036) 34,525,527 2,115,387 39,933,961 Realized (gain) loss on investments (2,238,614) (202,946) (9,682,823) 4,352,547 Increase in equity of unconsolidated subsidiary (686,529) (216,561) (1,732,593) (2,615,181) Amortization of debenture costs 167,193 327,708 426,795 870,032 Increase in interest receivable (318,267) (454,676) (1,194,794) (1,511,432) Increase in accounts payable and accrued expenses 3,012,536 1,736,714 3,636,299 3,449,256 Amortization of organization costs 2,364 864 6,228 2,592 Depreciation of fixed assets 49,101 79,137 91,098 227,597 Increase (decrease) in other assets 105,459 89,632 (21,507) 83,923 Increase (decrease) in accrued taxes payable (4,525,857) 4,545 (3,833,144) (195,455) Increase in interest payable 357,817 265,141 315,557 492,958 ------------- ------------ ------------- ------------- Net cash provided by operating activities 11,506,641 12,191,362 20,590,299 33,672,855 ------------- ------------ ------------- ------------- INVESTING ACTIVITIES: Loan principal repayments 15,740,074 26,193,553 46,675,093 74,757,981 Proceeds from sale of equities, warrants and other investments 8,644,929 8,301,008 21,513,426 21,491,658 Investments originated or acquired (79,013,119) (65,800,441) (214,611,318) (270,917,333) Purchase of fixed assets (443,089) (95,112) (590,824) (604,301) ------------- ------------ ------------- ------------- Net cash used in investing activities (55,071,205) (31,400,992) (147,013,623) (175,271,995) ------------- ------------ ------------- ------------- FINANCING ACTIVITIES: Proceeds from debentures payable to Small Business Administration 0 0 0 11,000,000 Proceeds from revolving credit facilities 119,940,000 77,294,000 156,001,132 295,838,000 Repayment of revolving credit facilities (68,477,000) (47,186,000) (125,908,345) (278,811,000) (Increase) decrease in debenture costs (172,024) 50,737 (480,293) (1,879,643) Issuance of common stock 0 0 109,953,785 144,722,636 Employee shares repurchased 0 0 (102,614) 0 Repayment of employee notes 28,789 0 891,416 148,630 Stock options exercised 54,271 0 268,921 1,494,573 Payment of dividends (6,503,117) (10,051,883) (16,260,614) (32,729,007) Distribution of capital gains 0 0 (716,760) 0 ------------- ------------ ------------- ------------- Net cash provided by financing activities 44,870,919 20,106,854 123,646,628 139,784,189 ------------- ------------ ------------- ------------- Increase (decrease) in cash and cash equivalents 1,306,355 897,224 (2,776,696) (1,814,951) Cash and cash equivalents, beginning of period 528,481 3,308,146 4,611,532 3,024,608 ------------- ------------ ------------- ------------- Cash and cash equivalents, end of period $ 1,834,836 $ 4,205,370 $ 1,834,836 $ 1,209,657 ============= ============ ============= ============= Supplemental disclosures of cash flow information: Interest paid $ 1,585,195 $ 4,556,325 $ 5,495,818 $ 11,779,904 ============= ============ ============= ============= Taxes paid $ 0 $ 0 $ 3,738,278 $ 927,000 ============= ============ ============= ============= Loans transferred to (from) other investments $ 0 $ (1,750,000) $ 486,777 $ 200,000 ============= ============ ============= ============= Loans transferred to equity interests $ 690,000 $ 283,000 $ 1,924,469 $ 7,176,712 ============= ============ ============= =============
5 6 SIRROM CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION Sirrom Capital Corporation (the "Company"), a Tennessee corporation, was formed in November 1994, and Sirrom Capital, L.P. (the "Partnership") became a partnership under the laws of the State of Tennessee in November 1991. Effective February 1, 1995, the partners of the Partnership transferred, in a tax free conversion, their partnership interests to the Company in exchange for the issuance of 10,100,232 shares of common stock of the Company. The common stock was received by each partner in proportion to the partner's percentage interest in the Partnership. As a result of this exchange, the Partnership was dissolved and liquidated, with all of the assets and liabilities of the Partnership (including the SBIC license which was obtained by the Partnership in May 1992) being thereby assigned and transferred to the Company. This transaction was accounted for as a reorganization of entities under common control, in a manner similar to a pooling of interests. The accompanying financial statements have been prepared on a basis appropriate for investment companies as enumerated in the American Institute of Certified Public Accountants' Audit and Accounting Guide on Audits of Investment Companies. The Company is a specialty finance company that is primarily engaged in making loans to small businesses. The Company's objectives are to achieve both a high level of current income from interest on loans and fees and long-term growth in the value of its shareholders' equity through the appreciation in value of the equity interests in its portfolio companies that are primarily small, privately owned companies. The Company targets small businesses that the Company believes have certain characteristics, including a viable exit strategy, adequate enterprise value, experienced management teams, adequate liquidity and/or sophisticated outside equity investors and profitable operations. In addition to making loans to small businesses, the Company makes investments in micro-cap public companies that are marketed under the name Tandem Capital, Inc. ("Tandem") and provides merger and acquisition advisory services through its wholly-owned subsidiary, Harris Williams & Co. ("Harris Williams"). The Company is a non-diversified, closed-end investment company, that has elected to be treated as a business development company under the Investment Company Act of 1940, as amended (the "1940 Act"). Prior to August 1996, the Company was also a small business investment company ("SBIC") licensed under the Small Business Investment Act of 1958, as amended (the "1958 Act"). The Company was licensed by the U.S. Small Business Administration (the "SBA") on May 14, 1992. In August 1996, the Company transferred its SBIC operations, including its SBIC license, and the majority of its assets and liabilities, to its wholly-owned subsidiary, Sirrom Investments, Inc. ("SII"), a Tennessee corporation. Under applicable SBA regulations, SII is restricted to investing only in qualified small business concerns in the manner contemplated by the 1958 Act. In December 1996, the Company formed Sirrom Funding Corporation ("SFC"), a closed-end, non-diversified investment company. SFC is a bankruptcy remote subsidiary that purchases loans and warrants from the Company on a true-sale basis and holds them as collateral for a $200.0 million revolving credit facility. The Company, SII and SFC have each elected to be taxed as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). 6 7 In August 1996, the Company acquired the ownership interests of Harris Williams & Co., L.P. ("Harris Williams") for 1,796,908 shares of common stock of the Company. After the acquisition, Harris Williams began operating as a "C" corporation. Harris Williams is a merger and acquisition advisory services firm located in Richmond, Virginia, that is being operated as a wholly-owned subsidiary of the Company. The acquisition of Harris Williams has been accounted for as a pooling of interests. The consolidated balance sheets as of December 31, 1997 and September 30, 1998 and the consolidated statements of operations and cash flows for the quarter ended September 30, 1997 and 1998 reflect the operations of Harris Williams as an unconsolidated subsidiary accounted for by the equity method of accounting in conformity with the requirements of the 1940 Act. The Company has a 40% ownership interest in a Canadian company, SCC Canada Inc., that provides loan origination and processing services for loans to Canadian companies. The Company's ownership interest in SCC Canada Inc. is immaterial to its financial position and is accounted for under the equity method of accounting. 2. INTERIM FINANCIAL STATEMENTS Certain notes and other information have been omitted from the interim consolidated financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's 1997 Annual Report on Form 10-K and the Quarterly Report on Form 10-Q for the period ended June 30, 1998. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of the Company, SII and SFC. All intercompany accounts and transactions have been eliminated in the consolidation. Valuation of Investments Portfolio investments are stated at fair value as determined by the Board of Directors. Under the Company's valuation policy, the fair values of loans to small business concerns are based on the Board of Directors' evaluation of the financial condition of the borrowers and/or the underlying collateral. The values assigned are considered to be amounts which could be realized in the normal course of business, assuming the Company holds the loan to maturity and realizes the face value of the loan. Fair value normally corresponds to cost unless the borrower's condition or external factors lead to a determination of fair value at a higher or a lower amount. Equity interests and warrants for which there is not a public market are valued based on factors such as significant equity financing by sophisticated, unrelated new investors, history of positive cash flow from operations, the market value of comparable publicly traded companies (discounted for illiquidity) and other pertinent factors. The Board of Directors also considers recent offers to purchase a portfolio company's securities and the filings of registration statements in connection with a portfolio company's initial public offering when valuing warrants. Shares of stock and warrants of public companies that the Company is not permitted to sell in the public market as a result of securities law restrictions, lock-up agreements and other similar restrictions were typically valued at 80% of market value at September 30, 1998 and 70% of market value at December 31, 1997. The change in 1998 was a result of the 7 8 reduction in the holding period for restricted stock by the Securities and Exchange Commission from two years to one year. All other publicly traded stocks were typically valued at 95% of market value at the balance sheet date at September 30, 1998 and 90% of market value at December 31, 1997. The change in 1998 was the result of an analysis by the Company of sales of public company stocks in 1996 and 1997 that evidenced an average valuation in excess of 95% of market price. At September 30, 1998 and December 31, 1997, the investment portfolio included investments totaling $617,936,000 and $482,652,000, respectively, whose values had been estimated by the Board of Directors in the absence of readily ascertainable market values. Because of the inherent uncertainty of the valuations, the estimated fair values may differ significantly from the values that would have been used had a ready market for the securities existed, and the differences could be material. Realized and Unrealized Gain or Loss on Investments Realized gains are recorded upon disposition of investments and are calculated based upon the difference between the proceeds and the cost basis determined using the specific identification method. Realized losses are recorded upon the final disposition of the cost basis of investments according to federal income tax guidelines and are calculated in the same manner. All other changes in the valuation of portfolio investments, as determined by the Board of Directors, are included as changes in the unrealized appreciation or depreciation of investments in the statement of operations. Description of Loans Terms The loans to small business concerns included in investments bear interest at rates ranging from 6.0% to 16.5%. Typically, interest is payable in monthly or quarterly installments over five years with the entire principal amount typically due at maturity. These loans are generally collateralized by liens on the assets of the borrower and/or guarantees. Certain of these liens may be subject to prior liens. Interest on Investments Interest income is recorded on the accrual basis. The accrual of income is typically suspended when the interest on the related loan becomes 60 days past due unless management anticipates that accrued amounts will be collected. Loan Processing Fees The Company recognizes loan processing fees as income when the related loan closes. Cash and Cash Equivalents The Company defines cash and cash equivalents as cash on hand, cash in interest bearing and non-interest bearing operating bank accounts and highly liquid investments such as time deposits with an original maturity of three months or less. Debt Financing Costs SBA debenture costs are amortized over ten years, which represents the term of the fourteen SBA debentures (See Note 5). Financing costs related to the revolving credit facilities are amortized over the term of the credit agreements. 8 9 Income Taxes Beginning in February 1995, the Company elected to be taxed as a RIC under Subchapter M of the Code. If the Company, as a RIC, satisfies certain requirements relating to the source of its income, the diversification of its assets and the distribution of its net income, the Company is generally taxed as a pass through entity that acts as a partial conduit of income to its shareholders. In order to maintain its RIC status, the Company must, in general, (i) derive at least 90% of its gross income from dividends, interest and gains from the sale or disposition of securities, (ii) meet investment diversification requirements defined by the Code and (iii) distribute to shareholders at least 90% of its net income (other than long-term capital gains). Shareholders' Equity During November 1994, six employees were granted ownership interests in the Partnership at a purchase price equal to the approximate fair value of each ownership interest. In connection therewith, each employee executed a promissory note for the purchase price of such interest. The promissory notes bear interest at 7.25% per annum with interest payable annually. All notes mature on November 1, 2001. As discussed in Note 1, the interests in the Partnership were subsequently exchanged for the Company's common stock. The stock must be resold to the Company if the employee is no longer employed by the Company three years from the date of purchase. During 1997, 32,080 shares were repurchased by the Company for $102,615 following the termination of the employment of an employee. These shares were reissued by the Company in the February 1997 offering. In addition, during 1998 and 1997 notes receivable was reduced to $499,812 and $648,442, respectively, as a result of repayments. Derivative Financial Instruments The Company uses interest rate swaps to hedge interest costs on its floating rate revolving credit facilities. Any amounts paid or received on interest rate swap agreements are recognized as an adjustment to interest expense. Gains and losses on terminated swaps are recognized over the remaining life of the underlying obligation as an adjustment to investment income or interest expense. The fair value of the swap agreements is not recognized in the consolidated financial statements as they are accounted for as hedges. The Company does not hold derivative financial instruments for trading or speculative purposes. The counterparties to the interest rate swap agreements are major commercial banks. Management believes that losses related to credit risk are remote. In July 1998, the Company entered into a foreign currency swap with a major commercial bank to hedge a portion of its loan portfolio denominated in Canadian dollars. Under the terms of the agreement the Company will swap an initial C$11,856,031.20 for U.S.$8,416,172.98, with the amounts declining by C$1,185,600.00 and U.S.$841,617.30, respectively, every six months through July 2003. In addition, the agreement provides for the Company to make monthly interest payments in Canadian dollars at 13.15%, while receiving monthly interest payments in U.S. dollars at 11.43%. Net Increase In Shareholders' Equity Resulting From Operations Per Share Net increase in shareholders' equity resulting from operations per share is calculated in accordance with the requirements of Statement of Financial Accounting Standards ("SFAS") No. 128. Under the standards established by SFAS No. 128, per share information is measured at two levels: basic and diluted. See Note 10 for the Company's computation of this amount. New Accounting Pronouncement Effective January 1, 1998, the Company adopted two recently issued Statement of Financial Accounting Standards (SFAS) as follows: 9 10 SFAS No. 130, "Reporting Comprehensive Income," establishes standards for reporting and display of comprehensive, or all inclusive income. This Statement has no effect on the net income of the Company. SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," establishes standards for the way that public business enterprises report information about operating segments in annual financial statements. Because this Statement addresses how supplemental financial information is disclosed in annual and interim reports, the adoption will have no material impact on the financial statements. SFAS No. 131 is effective for annual financial statements for fiscal years beginning after December 15, 1997, and interim comparative financial statements for fiscal years beginning after December 15, 1998, with early adoption encouraged. During the second quarter, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which will be effective for the Company's fiscal year 2000. This statement establishes accounting and reporting standards requiring that every derivative instrument, including certain derivative instruments imbedded in other contracts, be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement also requires that changes in the derivative's fair value be recognized in earnings unless specific hedge accounting criteria are met. The Company is currently assessing the impact of this new Statement on its consolidated financial position, liquidity, and results of operations. Reclassifications Certain prior period amounts have been reclassified to conform to current year presentation. Management Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. 4. INVESTMENTS Investments consist primarily of loans made to and warrants obtained from borrowers. Investments are recorded at fair value as determined by the Board of Directors or by current market prices, if available, in accordance with the Company's valuation policy (See Note 3). While the Company markets to borrowers throughout the United States, approximately 53.7% of the investment portfolio consists of loans and equity investments in companies that are headquartered in the southeastern United States and Texas. The aggregate cost basis of loans on non-accrual status, less realized losses, totaled $27,717,592 and $76,517,936 at December 31, 1997 and September 30, 1998, respectively. The aggregate fair values of these loans as determined by the Company's Board of Directors totaled $17,052,737 and $29,128,319 at December 31, 1997 and September 30, 1998, respectively. Included in the investment portfolio at December 31, 1997 are other investments which consist of rights to royalty payments, a right to receive payment from a potential arbitration settlement and certain tangible assets. Included in the investment portfolio at September 30, 1998 are assets which consist of rights to royalty payments and certain tangible and intangible assets. The aggregate cost of other investments 10 11 at December 31, 1997 and September 30, 1998 was $4,240,503 and $3,694,427, respectively, which represents the cost basis of the original loans plus capitalized workout expenses. The Company's Board of Directors has estimated the fair value of these investments to be $2,440,503 and $454,427 at December 31, 1997 and September 30, 1998, respectively. 5. DEBENTURES PAYABLE TO SMALL BUSINESS ADMINISTRATION As of September 30, 1998, SII had fourteen debentures totaling $101.0 million payable to the SBA with semiannual interest only payments based upon rates ranging from 6.12% to 8.20% per annum, with scheduled maturity dates as follows:
DATE AMOUNT ---- ------------ 2002 $ 10,000,000 2003 24,000,000 2004 17,000,000 2005 22,260,000 2006 16,740,000 2008 11,000,000 ------------ $101,000,000 ============
The debentures are subject to a prepayment penalty if paid prior to five years from maturity. Interest expense related to these debentures for the quarters ended September 30, 1997 and 1998 totaled $4,726,052 and $5,089,202, respectively. The SBA debentures and revolving credit facility issued by a syndicate of banks led by First Union National Bank (the "First Union Credit Facility") are secured on a pari passu basis by the assets of SII. The debentures are also guaranteed by the Company. 6. REVOLVING CREDIT FACILITIES Revolving credit facilities consist of the following at December 31, 1997 and September 30, 1998:
DECEMBER 31, SEPTEMBER 30, 1997 1998 ------------ ------------ First Union Credit Facility $ 61,500,000 $ 21,077,000 ING Credit Facility 62,750,000 120,200,000 ------------ ------------ Total revolving credit facilities $124,250,000 $141,277,000 ============ ============
The availability under the First Union Credit Facility was reduced from $125.0 million to $50.0 million in October 1998 at the Company's request. The First Union Credit Facility is payable by SII to a syndicate of lenders. The facility consists of a swingline totaling $15.0 million which bears interest at prime minus 0.5%, and the balance of the facility bears interest at either LIBOR plus 1.75% or prime plus 0.5% at SII's discretion. Borrowing under the facility is based on the principal amount of eligible loans and public securities in SII's portfolio. The revolving credit agreement imposes certain operating restrictions on the Company and SII such as requiring lender approval of certain mergers and acquisitions, changes in management, payment of dividends in excess of those required to maintain RIC status, and use of net proceeds of any non-core asset sales for other than repayment of the facility. The agreement contains financial covenants that require SII to maintain a certain level of tangible net worth and meet ratios related to interest coverage, leverage, non-accrual/delinquent loans and loan losses. As of September 30, 1998, the Company and SII were in compliance with these covenants. The First Union Credit Facility and the SBA debt are secured by all assets of SII on a pari passu basis and the First Union Credit Facility is guaranteed by the Company. The facility expires on May 31, 2000. 11 12 As of September 30, 1998, the Company had entered into an interest rate swap agreement under the First Union Credit Facility. In the agreement, the Company swapped the variable rate on $45.0 million in borrowings to a fixed rate of 8.12%. This swap expires in May 2000. Interest expense on the First Union Credit Facility, including the interest rate swaps and a quarterly fee of .25% per annum on the total credit facility, for the quarters ended September 30, 1997 and September 30, 1998 was $382,166 and $663,900, respectively. At December 31, 1996, SFC entered into a $100.0 million revolving credit facility with a financial institution (the "ING Credit Facility"). This credit facility was increased to $200.0 million in March 1998. SFC purchases loans and the related warrants originated by the Company, and funds substantially all such purchases with borrowings under the credit facility. The ING Credit Facility is funded by commercial paper sold by the financial institution, and bears interest at the stated rate on the commercial paper sold plus 2.25%. SFC is generally able to borrow up to 70% of the principal amount of conforming loans that are pledged to secure the credit facility. At September 30, 1998, investments with a cost and fair value of approximately $211,634,846 and $219,048,924, respectively, had been contributed or sold to SFC by the Company and were pledged as collateral under the ING Credit Facility. The ING Credit Facility agreement contains operational restrictions such as requiring lender approval of certain mergers and acquisitions and changes in management. The facility agreement also contains financial covenants related to tangible net worth, loan delinquency and loan defaults. As of September 30, 1998, the Company and SFC were in compliance with those covenants. The Company may borrow under the ING Credit Facility until December 31, 2001, and the facility expires on January 5, 2007. To hedge its exposure under the ING Credit Facility, in 1996 the Company entered into several interest rate swap agreements which were modified in March 1998. In May 1998, the Company further modified these previous swap agreements ("First Swap Agreements") and entered into several new agreements ("Second Swap Agreements"). Under the terms of the First Swap Agreements, the Company has exchanged variable commercial paper rates on $100.0 million notional amount. During the period from July 1998 through December 1999, the Company has swapped the variable commercial paper rate to a fixed rate of 6.0%. During the period from January 2000 through January 2002, the Company has put in place a collar that caps the variable commercial paper rate at 6.35% in exchange for a floor at 6.00%. Under the terms of the Second Swap Agreements, the Company has exchanged variable commercial paper rates on $20.0 million notional amount beginning in September 1998, increasing by $20.0 million per month to a total notional amount of $100.0 million in January 2002. During the period from September 1998 through January 2002, the Company has swapped the variable commercial paper rate to a fixed rate of 6.0%. The rates under both the First Swap Agreements and Second Swap Agreements do not include the 2.25% fee charged by the financial institution on amounts borrowed under the ING Credit Facility. Interest expense on the $200.0 million credit facility including the swaps and a monthly fee of .50% per annum on the unused portion of the facility totaled $456,245 and $2,026,411 for the quarters ended September 30, 1997 and September 30, 1998, respectively. 7. INCOME TAXES For the quarters ended September 30, 1997 and 1998 the Company provided for federal income tax at a 35.0% rate on undistributed realized long-term capital gains, excise taxes at a 4.0% rate on undistributed taxable net investment income as defined by the Code and undistributed realized long-term capital gains and federal and state income taxes on Harris Williams' pre-tax income (See Note 13). For the quarters ended September 30, 1997 and September 30, 1998, the provision for income taxes totaled $(4,290,807) and $(22,292), respectively. 8. STOCK OPTION PLANS Employee Stock Option Plans. The Company's two employee stock option plans, the Amended and Restated 1994 Employee Stock Option Plan (the "1994 Plan"), and the 1996 Employee Stock Incentive Plan (the "1996 Plan") provide for the granting 12 13 of options for 1,000,000 and 5,707,098 shares, respectively, of common stock to selected employees at an exercise price not less than the fair market value of the common stock on the date of the grant. The terms of each award are determined by the Board of Directors. The options vest over a five-year period from the date of grant and expire ten years from the date of grant. A summary of stock option activity related to the plans through September 30, 1998 is as follows:
PRICE RANGE PER SHARE SHARES ---------------- --------- Outstanding, December 31, 1995 933,932 Granted $ 9.33 - 17.785 1,535,162 Exercised $ 6.750 - 8.938 30,000 Forfeited $ 9.25 - 13.167 50,000 ---------- Outstanding, December 31, 1996 2,389,094 Granted $13.969 - 23.875 3,118,004 Exercised $ 5.50 - 13.969 134,000 Forfeited $ 9.25 - 17.50 42,000 ---------- Outstanding, December 31, 1997 5,331,098 Granted $ 3.563 - 28.75 1,169,500 Exercised $ 6.75 - 17.375 109,500 Forfeited $ 12.75 - 28.75 419,000 ---------- Outstanding, September 30, 1998 5,972,098 ==========
Directors Stock Option Plan. During 1995, the Company adopted the 1995 Stock Option Plan for Non-Employee Directors which permits the issuance of options to purchase the Company's stock to non-employee directors. This plan was amended in April 1998, subject to the approval of the Securities and Exchange Commission which was received in June 1998. The plan reserves 246,000 shares of common stock for automatic grant. Directors elected prior to December 1, 1994 received options to purchase 36,000 shares and directors elected after December 1, 1994 received options to purchase 24,000 shares. Upon the initial election of a future non-employee director, an option to acquire 12,000 shares of common stock will be issued to the director. In addition, upon reelection each director will receive an option to purchase 4,000 shares beginning with the 1997 reelections. Under the terms of the Plan, the options' exercise price may not be less than the fair market value of a share of common stock on date of grant. No options were granted in 1995. In 1996, 168,000 options were granted at an exercise price of $12.125 which were outstanding at December 31, 1996. In 1997, 12,000 options were granted at an exercise price of $13.968. In 1998, 52,000 shares were granted at an exercise price of $23.625. No shares were exercised prior to 1997, 11,600 shares were exercised during 1997 and 20,000 shares have been exercised in 1998. No shares have been forfeited to date. 9. SECONDARY OFFERING In March 1998, the Company completed a public offering of 6,000,000 shares of common stock at a price of $25.50 per share. The net proceeds to the Company of the offering, after underwriting commissions and expenses were approximately $144,560,000. 10. NET INCREASE IN SHAREHOLDERS' EQUITY RESULTING FROM OPERATIONS PER SHARE The Company computes net increase in shareholders' equity resulting from operations per common share-basic by dividing the income amount by the weighted average number of common shares outstanding during the quarter, which was 30,968,030 and 37,229,196 for the quarters ended September 30, 1997 and 1998, respectively. For the calculation of net increase in shareholders' equity resulting from operations per common share-diluted, the Company increases the weighted average number of shares for the potential dilutive effect of outstanding stock options. The weighted average shares outstanding considering 13 14 the effect of the stock options outstanding was 33,170,784 and 37,564,996 for the quarters ended September 30, 1997 and 1998, respectively. In December 1997, the Company declared a dividend derived from capital gains totaling $5,405,267 payable in January 1998. On March 20, 1998, the Company paid a dividend of $7,929,151 from net investment income to shareholders of record as of February 27, 1998. On June 16, 1998, the Company paid a dividend of $9,306,660 to shareholders of record as of May 29, 1998. On September 15, 1998, the Company paid a dividend of $10,051,883 to shareholders of record as of August 28, 1998. 11. STOCK SPLIT On January 5, 1998, the Board of Directors declared a two-for-one stock split on the Company's common stock. One additional share was issued for each share of common stock held by shareholders of record as of the close of business on January 16, 1998. The new shares were distributed on January 30, 1998. All references to the number of common shares and per share amounts have been restated as appropriate to reflect the effect of the split for all periods presented. 12. COMMITMENTS AND CONTINGENCIES As of September 30, 1998, the Company had outstanding loan commitments totaling $17.25 million, of which $12.25 million are contingent upon the borrower meeting certain future financial conditions. These commitments were made in the ordinary course of the Company's business and are generally on the same terms as loans to existing borrowers. As of September 30, 1998, the Company had contingent liabilities totaling $8.4 million relating to guarantees of letters of credit, credit facilities, performance bonds and operating costs of four portfolio companies. These liabilities expire at various dates through March 2001. The Company has made a commitment under a joint venture agreement with a Canadian bank to fund up to $100.0 million (in Canadian dollars) in loans to Canadian companies of which approximately $30.3 million has been funded. 13. INVESTMENT IN UNCONSOLIDATED SUBSIDIARY As discussed in Note 1, Harris Williams is accounted for by the equity method of accounting. The balance sheets for Harris Williams as of December 31, 1997 and September 30, 1998 and statements of income for the quarters ended September 30, 1997 and 1998 and for the nine month periods ended September 30, 1997 and 1998 are as follows: BALANCE SHEETS
December 31, September 30, 1997 1998 ---------- ---------- ASSETS Cash and cash equivalents $ 282,913 $1,044,964 Accounts receivable 674,256 4,483,174 Other assets, net 1,645,857 1,104,523 ---------- ---------- Total Assets $2,603,026 $6,632,661 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities $1,678,067 $3,092,520 Shareholders' equity 924,959 3,540,141 ---------- ---------- Total liabilities and shareholders' equity $2,603,026 $6,632,661 ========== ==========
14 15
Three Months Nine Months Ended September 30, Ended September 30, -------------------------- -------------------------- 1997 1998 1997 1998 ----------- ----------- ----------- ----------- REVENUES: Fee income $ 1,831,457 $ 2,081,145 $ 5,312,229 $ 9,362,893 Expense reimbursements and other 171,137 174,328 412,238 650,158 ----------- ----------- ----------- ----------- Total revenues 2,002,594 2,255,473 5,724,467 10,013,051 EXPENSES: Salaries and benefits 657,705 1,431,344 2,449,534 4,175,123 Operating expenses 429,528 629,860 1,098,142 1,979,293 ----------- ----------- ----------- ----------- Total expenses 1,087,233 2,061,204 3,547,676 6,154,416 ----------- ----------- ----------- ----------- Operating income before taxes 915,361 194,269 2,176,791 3,858,635 Provision for income taxes 228,842 (22,292) 444,197 1,243,454 ----------- ----------- ----------- ----------- Net income $ 686,519 $ 216,561 $ 1,732,594 $ 2,615,181 =========== =========== =========== ===========
Advisory services are typically provided by Harris Williams in accordance with engagement contracts that stipulate a monthly retainer, reimbursement of direct expenses and success fees. Retainer fees are recognized ratably over the retainer period, expense reimbursements are recognized monthly as billed, and success fees are recognized at the time of closing. Subsequent to the acquisition in August 1996, Harris Williams began operating as a "C" corporation. Accordingly for the quarters ended September 30, 1997 and 1998, Harris Williams has provided federal income taxes of $228,842 and $(22,292), respectively, which are included in provision for income taxes in the accompanying consolidated statements of operations. Harris Williams reimburses the Company for certain expenses which totaled $127,899 and $112,197 for the quarters ended September 30, 1997 and 1998, respectively. Expense reimbursements are reflected as a reduction in operating expenses in the Company's consolidated statements of operations. Harris Williams has a receivable from the Company as of September 30, 1998 totaling $4,096,777, which is included in accounts payable in the Company's consolidated balance sheet. 15 16 SIRROM CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS AS OF DECEMBER 31, 1997
COUPON INTEREST LOANS MATURITY COST RATE FAIR VALUE - ----- -------- ------------ -------- ------------ Action Sports Group, LLC......................... 8/19/02 $ 1,750,000 13.00% $ 1,750,000 Aero Products Corporation........................ 6/9/02 2,500,000 13.00 2,500,000 Aero Products Corporation........................ 12/19/99 1,250,000 14.00 1,250,000 Affinity Fund, Inc. ............................. 6/29/98 1,485,000 12.50 1,500,000 Affinity Fund, Inc. ............................. 3/10/00 1,000,000 14.00 1,000,000 Affinity Fund, Inc. ............................. 12/28/98 495,000 12.50 497,075 Alignis, Inc. ................................... 2/28/02 2,500,000 13.00 2,500,000 American Consolidated Laboratories, Inc.......... 4/25/02 1,458,450 13.50 1,223,990 American Consolidated Laboratories, Inc.......... 12/18/01 520,000 13.00 520,000 American Consolidated Laboratories, Inc.......... 4/25/02 529,238 13.50 534,126 American Corporate Literature, Inc. ............. 9/29/01 1,683,000 14.00 1,687,528 American Corporate Literature, Inc. ............. 1/1/98 500,000 14.00 500,000 American Network Exchange, Inc................... 11/30/98 990,000 13.00 998,350 American Network Exchange, Inc................... 1/18/99 990,000 13.00 998,016 Amscot Holdings, Inc. ........................... 5/26/00 800,000 14.00 800,000 Amscot Holdings, Inc. ........................... 9/20/00 200,000 14.00 200,000 Amscot Holdings, Inc. ........................... 6/28/01 500,000 14.00 500,000 Amscot Holdings, Inc. ........................... 12/27/01 250,000 14.00 250,000 Amscot Holdings, Inc. ........................... 7/30/02 1,000,000 14.00 1,000,000 Anton Airfoods, Inc. ............................ 5/21/02 5,000,000 13.50 5,000,000 ARAC Holding Co., Inc. .......................... 9/27/01 3,000,000 13.50 3,000,000 Ashe Industries, Inc. ........................... 5/18/99 535,546 12.50 185,546 Associated Response Services, Inc. .............. 6/20/99 1,386,000 12.50 1,396,019 Associated Response Services, Inc. .............. 2/15/00 335,000 12.50 335,000 Associated Response Services, Inc. .............. 1/6/00 300,000 12.50 300,000 Associated Response Services, Inc. .............. 11/8/01 500,000 12.50 500,000 Associated Response Services, Inc. .............. 3/27/02 3,000,000 12.50 3,000,000 Assured Power, Inc. ............................. 10/1/00 200,000 13.50 50,000 Atlantic Security Systems, Inc. and affiliates... 1/29/02 2,250,000 13.25 2,250,000 Auburn International, Inc. ...................... 12/31/02 2,850,000 13.50 2,852,500 Austin Innovations, Inc. ........................ 7/1/02 1,950,000 13.75 1,953,448 Avionics Systems, Inc. .......................... 7/19/01 3,000,000 13.50 3,000,000 B & N Company, Inc. ............................. 8/8/00 2,970,000 12.50 2,583,500 B & N Company, Inc. ............................. 3/28/01 990,000 13.00 993,507 BankCard Services Corporation.................... 1/21/98 273,731 13.00 126,631 BiTec Southeast, Inc. ........................... 7/1/99 2,600,321 12.70 2,192,671 BiTec Southeast, Inc. ........................... 8/9/01 950,000 14.00 950,000 BiTec Southeast, Inc. ........................... 4/30/97 350,000 14.00 350,000 BiTec Southeast, Inc. ........................... demand 228,000 14.00 228,000 Bohdan Automation, Inc. ......................... 7/1/02 1,500,000 13.50 1,500,000 Bravo Corporation, Inc. ......................... 3/31/03 3,250,000 12.00 3,250,000 BroadNet, Inc. .................................. 6/9/02 2,500,000 14.00 2,500,000 BUCA, Inc........................................ 10/31/02 1,565,003 13.50 1,572,253 Bug.Z., Inc. .................................... 9/23/02 2,500,000 15.00 2,500,000 C.J. Spirits, Inc. .............................. 6/1/97 750,171 13.50 105,796 Caldwell/VSR Inc. ............................... 2/28/01 1,500,000 12.00 1,500,000
16 17 SIRROM CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF DECEMBER 31, 1997
COUPON INTEREST LOANS MATURITY COST RATE FAIR VALUE - ----- -------- ------------ -------- ------------ Caldwell/VSR Inc. ............................... 9/27/01 $ 22,262 14.00% $ 22,262 Cardiac Control Systems, Inc. ................... 3/31/00 1,500,000 13.50 1,500,000 Cartech Holdings, Inc. .......................... 4/29/01 1,500,000 13.00 1,500,000 Carter Kaplan Holdings, LLC...................... 6/22/00 594,000 14.00 44,800 Catalina Food Ingredients, Inc. ................. 3/30/02 3,500,000 13.00 3,500,000 Cedaron Medical, Inc. ........................... 6/28/01 1,500,000 13.50 1,500,000 Cell Call, Inc. ................................. 3/1/98 990,000 12.75 1,000,000 CF Data Corp. ................................... 3/16/00 1,732,500 13.75 1,742,428 Champion Glove Manufacturing Co., Inc. .......... 7/27/00 1,250,000 13.50 50,000 Check Into Cash, Inc. ........................... 11/7/01 3,039,000 14.00 3,138,879 CMHC Systems, Inc. .............................. 7/1/02 1,400,000 13.50 1,400,000 CMP Enterprises, LLC............................. 12/10/02 3,500,000 13.00 3,500,000 Colonial Investments, Inc. ...................... 10/16/00 800,000 13.75 800,000 Colonial Investments, Inc. ...................... 4/1/98 300,000 13.75 300,000 Colonial Investments, Inc. ...................... 4/1/98 60,933 13.75 60,933 Columbus Medical Holdings, LLC................... 1/31/02 4,000,000 13.75 4,000,000 Compression, Inc. ............................... 12/17/02 3,700,000 13.50 3,700,000 Consumat Systems, Inc. .......................... 11/1/00 500,000 14.00 500,000 Consumat Systems, Inc. .......................... 1/1/01 500,000 14.00 500,000 Consumat Systems, Inc. .......................... 3/11/01 500,000 14.00 500,000 Consumat Systems, Inc. .......................... 3/26/02 500,000 14.00 500,000 Consumat Systems, Inc. .......................... 7/15/98 500,000 14.00 500,000 Continental Diamond Cutting Co. ................. 10/28/99 500,000 13.00 500,000 Continental Diamond Cutting Co. ................. 11/16/99 200,000 13.00 200,000 Corporate Link, Inc. ............................ 12/13/01 600,000 14.00 600,000 Corporate Link, Inc. ............................ 1/13/98 300,000 14.00 300,000 Cort Investment Group, Inc. (d/b/a Contract Network)....................................... 8/27/02 3,320,000 13.50 3,335,000 Creighton Shirtmakers, Inc. and affiliates....... demand 1,969,000 14.00 1,969,000 CSM, Inc. ....................................... 12/31/01 1,400,000 14.00 1,400,000 Cybo Robotics, Inc. ............................. 9/18/02 1,050,000 13.25 1,050,000 Dalts, Inc. ..................................... 4/28/01 2,000,000 13.50 2,000,000 Dartek Industries, Inc........................... 11/20/01 3,800,000 13.50 3,800,000 Dartek Industries, Inc........................... 6/1/99 688,915 13.50 688,915 Data National Corporation........................ 12/10/02 1,050,000 13.75 1,057,500 DentalCare Partners, Inc. ....................... 1/11/01 2,206,023 12.50 2,213,037 DFI/Aeronomics, Inc. ............................ 12/30/02 3,000,000 13.50 3,000,000 Dyad Corporation................................. 12/31/02 2,900,000 14.00 2,910,000 DynaGen, Inc. ................................... 6/17/02 1,733,300 13.50 1,764,415 Dyntec, Inc. .................................... 7/7/02 2,500,000 14.00 2,500,000 Electronic Accessory Specialists Int'l, Inc. .... 6/23/02 1,600,000 13.50 1,600,000 Encor Technologies, Inc. ........................ 3/30/02 1,444,000 13.13 1,444,000 Endeavor Technologies, Inc. ..................... 9/2/02 4,000,000 13.50 4,000,000 Entek Scientific Corporation..................... 5/22/02 1,090,000 13.00 1,108,984 Entek Scientific Corporation..................... 6/28/01 2,500,000 13.00 2,500,000 Express Shipping Centers, Inc. .................. 9/22/00 1,697,598 13.25 1,955,394
17 18 SIRROM CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF DECEMBER 31, 1997
COUPON INTEREST LOANS MATURITY COST RATE FAIR VALUE - ----- -------- ------------ -------- ------------ Express Shipping Centers, Inc. .................. 5/1/02 $ 250,000 13.25% $ 250,000 Express Shipping Centers, Inc. .................. 7/14/98 150,000 15.00 150,000 Faxnet Corporation............................... 6/17/02 1,900,000 13.00 1,911,669 FDL, Inc. ....................................... 1/30/02 1,750,000 13.50 1,800,004 Film Technologies International, Inc. ........... 2/27/02 1,500,000 14.00 1,500,000 FoodNet Holdings, LLC............................ 7/22/01 1,500,000 13.50 1,500,000 Fortrend Engineering Corp. ...................... 8/30/01 1,500,000 12.99 1,500,000 Fypro, Inc. ..................................... 12/17/01 1,166,000 8.00 1,016,000 Gardner Wallcovering, Inc. ...................... 3/28/01 235,000 13.50 240,250 General Materials Management, Inc. .............. 7/29/01 2,500,000 13.50 2,250,000 Generation 2 Worldwide LLC....................... 10/31/00 2,000,000 14.00 2,000,000 Global Marine Electronics, Inc. ................. 5/1/01 1,350,000 13.00 1,350,000 Gloves Inc. ..................................... 5/1/02 1,500,000 13.00 1,500,000 Good Food Fast Companies, The.................... 12/10/01 2,500,000 13.50 2,500,000 Gulfstream International Airlines Inc. .......... 7/29/99 1,490,000 13.00 1,498,517 Gulfstream International Airlines Inc. .......... 9/25/00 1,000,000 14.00 1,000,000 Gulfstream International Airlines Inc. .......... 3/19/02 1,500,000 14.00 1,500,000 Gulfstream International Airlines Inc. .......... 12/1/99 2,200,000 14.00 2,200,000 H & H Acq. Corp. ................................ 8/30/01 1,500,000 14.00 1,500,000 Home Link Services, Inc. ........................ 12/30/01 300,000 14.00 300,000 Hunt Assisted Living, LLC........................ 10/17/02 2,999,900 12.00 2,999,904 Hunt Incorporated................................ 3/31/00 3,000,000 14.00 3,000,000 Hydrofuser Industries, Inc. and affiliates....... 7/30/02 885,039 13.00 932,006 I.Schneid Acquisition, LLC....................... 4/1/01 2,000,000 14.00 2,000,000 IJL Holdings, Inc. .............................. 9/12/02 1,250,000 13.50 1,250,000 ILD Communications, Inc.......................... 5/10/01 1,500,000 13.50 1,500,000 In-Store Services, Inc. ......................... 4/19/00 1,188,000 14.00 1,194,600 Johnston County Cable, L.P. ..................... 8/31/00 1,990,000 14.00 1,994,676 Karawia Industries, Inc. ........................ 3/27/02 2,500,000 14.00 2,500,000 KWC Management Co., LLC.......................... 4/25/01 500,000 14.00 50,000 Lane Acquisition Corporation..................... 11/21/01 4,000,000 13.75 4,000,000 Leisure Clubs International, Inc. ............... 4/1/01 1,485,000 14.00 1,490,250 Leisure Clubs International, Inc. ............... 3/27/02 125,000 14.00 125,000 M & M Industries, Inc. .......................... 2/26/02 2,250,000 14.00 2,250,000 Master Graphics, Inc. ........................... 5/31/02 4,300,000 13.25 4,300,000 Mayo Hawaiian Corp. ............................. 6/27/01 2,200,000 14.00 2,200,000 MBA Marketing Corporation........................ 2/4/99 1,782,000 12.50 1,796,100 McAuley's Incorporated........................... 7/31/01 3,000,000 13.00 3,000,000 MCG, Inc. ....................................... 12/23/02 1,500,000 13.50 1,500,000 Mead-Higgs Company, Inc. ........................ 5/19/02 1,400,000 14.00 1,400,000 Merge Technologies, Inc. ........................ 6/30/02 2,000,000 13.50 2,000,000 Mesa International, Inc. ........................ 1/23/02 3,800,000 14.00 3,800,000 Metals Recycling Technologies Corp. ............. 10/31/01 2,000,000 14.00 2,000,000 MetroLease, Inc. ................................ 7/29/02 2,495,000 13.50 2,495,498 Money Transfer Systems, Inc. .................... 7/24/00 247,500 14.00 248,760 Money Transfer Systems, Inc. .................... 12/20/00 148,500 14.00 149,125
18 19 SIRROM CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF DECEMBER 31, 1997
COUPON INTEREST LOANS MATURITY COST RATE FAIR VALUE - ----- -------- ------------ -------- ------------ Money Transfer Systems, Inc. .................... 3/1/01 $ 148,500 14.00% $ 149,050 Money Transfer Systems, Inc. .................... 5/2/01 148,500 14.00 148,950 Money Transfer Systems, Inc. .................... 7/8/01 148,500 14.00 148,950 Money Transfer Systems, Inc. .................... 10/1/01 148,500 14.00 148,875 Money Transfer Systems, Inc. .................... 1/5/02 245,000 14.00 245,996 Money Transfer Systems, Inc. .................... 3/6/02 250,000 14.00 250,000 Money Transfer Systems, Inc. .................... 7/15/02 250,000 14.00 250,000 Moore Diversified Products, Inc. ................ 6/16/00 800,000 13.50 800,000 Moore Diversified Products, Inc. ................ 3/27/02 1,000,000 13.50 1,000,000 Multicom Publishing, Inc. ....................... 3/29/01 1,025,000 13.00 1,068,328 Multicom Publishing, Inc. ....................... demand 51,556 14.00 51,556 Multicom Publishing, Inc. ....................... demand 650,000 14.00 650,000 Multicom Publishing, Inc. ....................... demand 70,000 14.00 70,000 Multicom Publishing, Inc. ....................... demand 160,000 14.00 160,000 Multimedia Learning, Inc. ....................... 5/8/00 1,500,000 14.00 1,500,000 Multimedia Learning, Inc. ....................... 4/18/01 500,000 13.50 500,000 Multimedia Learning, Inc. ....................... 9/12/01 750,000 13.50 750,000 Mytech Corporation............................... 9/25/02 1,400,000 13.50 1,400,000 NASC, Inc. ...................................... 6/26/01 1,500,000 13.50 1,500,000 NASC, Inc. ...................................... 12/13/98 500,000 13.50 500,000 National Health Systems, Inc. ................... 10/1/99 420,000 12.50 127,000 Nationwide Engine Supply, Inc. .................. 1/12/99 2,475,000 12.00 2,495,016 Nationwide Engine Supply, Inc. .................. 9/26/01 1,000,000 13.50 1,000,000 NetForce, Inc. .................................. 11/27/02 2,000,000 14.00 2,000,000 NRI Service and Supply L.P. ..................... 2/13/00 2,225,000 14.00 2,239,595 Omni Home Medical, Inc. ......................... 3/30/02 2,000,000 14.00 2,000,000 One Call Comprehensive Care, Inc. ............... 12/19/01 1,500,000 14.00 1,500,000 One Call Comprehensive Care, Inc. ............... 3/31/02 500,000 14.00 500,000 One Call Comprehensive Care, Inc. ............... 1/31/98 300,000 14.00 300,000 One Call Comprehensive Care, Inc. ............... 1/31/98 175,000 14.00 175,000 One Coast Network Corporation.................... 11/17/02 5,000,000 14.00 5,000,000 Orchid Manufacturing Group, Inc. ................ 9/14/00 2,960,000 13.00 2,976,675 Orchid Manufacturing Group, Inc. ................ 12/28/00 1,000,000 13.50 1,000,000 Outdoor Promotions LLC........................... 11/26/02 850,000 13.75 850,000 Pacific Linen, Inc. ............................. 12/3/02 2,951,976 13.50 2,961,110 Palco Telecom Service, Inc. ..................... 11/22/99 1,300,000 12.00 1,300,000 Paradigm Valve Services, Inc. ................... 11/12/01 1,600,000 13.50 1,600,000 Pathology Consultants of America, Inc............ 12/23/02 1,702,368 13.13 1,703,161 Patton Management Corporation.................... 5/26/00 1,900,000 13.50 1,900,000 PaySys International, Inc. ...................... 9/26/02 3,725,158 13.50 3,743,482 Pik:Nik Media, Inc. ............................. 6/23/00 1,000,000 12.00 1,000,000 Pipeliner Systems, Inc. ......................... 9/30/98 980,000 10.00 896,984 Plymouth, Inc. .................................. 9/28/00 1,000,000 13.00 1,000,000 Potomac Group, Inc. ............................. 11/20/01 1,997,409 14.00 1,997,409 PRA International, Inc. ......................... 8/10/00 1,980,000 13.50 1,989,657 Precision Panel Products, Inc. .................. 1/11/02 2,022,781 12.75 2,031,781
19 20 SIRROM CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF DECEMBER 31, 1997
COUPON INTEREST LOANS MATURITY COST RATE FAIR VALUE - ----- -------- ------------ -------- ------------ Precision Panel Products, Inc. .................. 1/11/02 $ 2,348,026 14.00% $ 2,348,026 Pritchard Paint & Glass Co. ..................... 2/14/01 767,431 14.00 767,431 Pritchard Paint & Glass Co. ..................... 2/10/01 200,000 14.00 200,000 Proamics Corporation............................. 7/31/02 1,000,000 13.00 1,000,000 Professional Training Services, Inc. ............ 9/30/02 3,400,000 13.25 3,400,000 Protect America, Inc. ........................... 1/30/02 3,905,000 13.50 3,923,996 R & R International, Inc. ....................... 6/30/02 2,000,000 13.25 2,000,000 Ready Personnel, Inc. ........................... 12/3/02 3,000,000 13.25 3,000,000 Recompute Corporation............................ 2/21/02 2,300,000 13.50 2,355,000 Reef Chemical Company, Inc. ..................... 9/23/02 2,700,000 13.75 2,720,000 Relax the Back Corporation....................... 10/1/02 2,500,000 13.00 2,500,000 Rocky Mountain Radio Company LLC................. 11/10/01 3,000,000 13.50 3,000,000 Rynel Ltd., Inc. ................................ 10/1/01 1,250,000 14.00 1,250,000 Saraventures Fixtures Inc. ...................... 5/23/02 8,307,376 14.00 4,807,376 Sheet Metal Specialties, Inc. ................... 6/20/01 250,000 14.00 250,000 Sheet Metal Specialties, Inc. ................... 12/4/01 211,750 12.00 211,750 Sheet Metal Specialties, Inc. ................... 1/24/02 38,250 12.00 38,250 SkillMaster, Inc. ............................... 3/30/02 2,475,000 13.75 2,479,170 SkillSearch Corporation.......................... 2/5/98 496,000 13.00 500,153 Solutioneering, Inc. ............................ 3/31/02 2,000,000 13.75 2,000,000 Southern Specialty Brands, Inc. ................. 6/30/02 1,732,500 14.00 1,739,508 Southern Therapy, Inc. .......................... 4/22/02 1,000,000 13.50 1,000,000 Southern Therapy, Inc. .......................... 7/28/02 500,000 13.50 500,000 Stealth Engineering, Inc. ....................... 12/31/02 1,500,000 13.50 1,500,000 Stratford Safety Products, Inc. ................. 3/1/02 2,125,000 13.50 2,138,750 Sub 1 Corporation (d/b/a Risk Management)........ 10/8/02 750,000 14.00 750,000 Summit Publishing Group, Ltd. ................... 3/17/99 1,485,000 12.00 1,496,500 Summit Publishing Group, Ltd. ................... 7/26/01 625,000 14.00 625,000 Summit Publishing Group, Ltd. ................... 1/16/98 250,000 14.00 250,000 Suncoast Medical Group, Inc. .................... 9/14/99 485,000 13.50 91,998 Suncoast Medical Group, Inc. .................... 6/7/00 495,000 14.00 420,913 Suncoast Medical Group, Inc. .................... 2/23/01 522,000 14.00 447,747 Suncoast Medical Group, Inc. .................... 2/23/01 71,700 14.00 21,700 Suncoast Medical Group, Inc. .................... 12/31/98 625,000 13.50 -- TAC Systems, Inc. ............................... 3/27/02 1,012,000 14.00 1,012,000 TAC Systems, Inc. ............................... 1/31/98 500,000 14.00 500,000 TCOM Systems, Inc. .............................. 3/30/04 397,740 0.00 397,740 TeleCommunication Systems, Inc. ................. 9/20/02 3,000,000 14.00 3,000,000 Telecontrol Systems, Inc. ....................... 9/30/02 2,500,000 14.00 2,500,000 Temps & Co., Inc. ............................... 5/12/02 3,000,000 13.25 3,000,000 The Moorings, LLC................................ 12/31/01 1,655,500 13.00 1,799,050 The Moorings, LLC................................ 11/17/02 2,500,000 13.00 2,500,000 Thomas Holding Company (d/b/a Sports & Social Clubs of the U.S.)............................. 5/21/02 1,500,000 13.50 1,500,000 Tie and Track Systems, Inc....................... 10/31/02 1,500,000 13.50 1,500,000 Towne Services, Inc. ............................ 12/18/02 1,500,000 14.00 1,500,000
20 21 SIRROM CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF DECEMBER 31, 1997
COUPON INTEREST LOANS MATURITY COST RATE FAIR VALUE - ----- -------- ------------ -------- ------------ Trade Am International, Inc. .................... 9/30/00 $ 4,000,000 12.75% $ 4,000,000 TRC Acquisition Corporation...................... 10/21/01 2,000,000 13.50 2,000,000 UltraFab, Inc. .................................. 6/27/01 1,500,000 14.00 1,500,000 Umbrellas Unlimited, LLC......................... 8/21/02 314,691 14.00 264,691 Unicoil, Inc. ................................... 9/28/02 2,000,000 13.50 2,000,000 Unique Electronics, Inc. ........................ 11/30/99 600,000 10.67 600,000 Unique Electronics, Inc. ........................ 10/10/02 300,000 13.00 300,000 UOL Publishing, Inc. ............................ 10/31/99 32,353 6.00 32,348 Valdawn Watch Company............................ 4/13/00 2,160,000 14.00 1,525,000 Valdawn Watch Company............................ 8/21/02 1,000,000 14.00 1,000,000 Valdawn Watch Company............................ 1/30/98 100,000 14.00 100,000 VDW Farms, Ltd. ................................. 11/25/02 1,500,000 14.00 1,500,000 Watts-Finnis Holdings, Inc. ..................... 11/30/02 2,500,000 13.25 2,500,000 Wearever Health Products, LLC.................... 3/31/02 1,500,000 13.50 1,500,000 Wearever Health Products, LLC.................... 12/11/02 450,000 13.50 450,000 Wolfgang Puck Food Company, Inc.................. 5/20/02 5,000,000 12.50 5,000,000 Zahren Alternative Power Corp. .................. 1/30/00 495,000 13.00 497,071 Zahren Alternative Power Corp. .................. 11/27/99 1,980,000 13.00 1,993,619 ------------ ------------ Subtotals.............................. 375,031,495 365,465,224 ------------ ------------ TANDEM CAPITAL LOANS TO PUBLICLY TRADED COMPANIES Altris Software, Inc. ........................... 6/27/02 $ 2,415,000 11.50% $ 2,454,000 Berger Holdings, Inc. ........................... 1/2/03 1,796,000 12.25 1,799,400 Bikers Dream, Inc. .............................. 11/17/98 2,390,625 12.00 2,392,448 Cover-All Technologies, Inc. (convertible at $1.25/sh.)..................................... 3/31/02 3,000,000 12.50 5,150,000 Digital Transmission Systems, Inc. (convertible at $10.25/sh.)................................. 9/25/02 4,000,000 11.50 4,000,000 Environmental Tectonics Corporation.............. 3/27/04 3,500,770 12.00 3,534,054 Smartchoice Automotive Group (convertible at $6/sh.)........................................ 3/12/99 3,500,000 12.00 3,500,000 Smartchoice Automotive Group (convertible at $6/sh.)........................................ 5/13/02 4,000,000 12.00 4,000,000 Teltronics, Inc. (convertible at $4/sh.)......... 2/13/02 4,250,000 11.00 4,250,000 Universal Automotive Industries, Inc. ........... 7/11/02 4,500,000 12.25 4,500,000 ------------ ------------ Subtotals.............................. 33,352,395 35,579,902 ------------ ------------ CANADIAN LOANS Century Pacific Greenhouses Ltd.*................ 4/14/02 $ 1,002,794 13.00% $ 1,002,794 Copperhead Chemical Company, Inc. ............... 10/23/02 500,000 12.50 500,000 Daxxes Corporation*.............................. 12/1/02 847,997 13.00 847,997 Eagle Quest Golf Center Inc. .................... 6/20/02 1,600,000 13.50 1,600,000 Executrain (3199673 Canada Inc.)*................ 10/1/02 292,105 13.00 292,105 Executrain (3199673 Canada Inc.)*................ 12/24/02 559,910 13.00 559,910 Glen Oak Inc.*................................... 12/17/02 1,268,678 12.50 1,268,678 Graphic Workshop (1246568 Ontario Inc.)*......... 9/30/02 360,787 12.50 360,787 Newfoundland Career Academy Ltd.*................ 8/8/02 860,172 13.50 860,172 Quadravision Communications Ltd.*................ 4/11/02 437,956 13.00 437,956 Race Face Components, Inc.*...................... 11/1/02 433,463 12.00 433,463 SFG Technologies Inc.*........................... 7/30/02 724,218 13.00 724,218
21 22 SIRROM CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF DECEMBER 31, 1997
COUPON INTEREST LOANS MATURITY COST RATE FAIR VALUE - ----- -------- ------------ -------- ------------ Sirvys Systems (3404447 Canada Inc.)*............ 12/30/02 $ 704,037 14.00% $ 704,037 Street Level (1216069 Ontario Ltd.)*............. 12/29/02 348,651 13.00 348,651 Supplements Plus Natural Vitamins & Cosmetics, Ltd.*.......................................... 10/3/03 144,823 16.50 144,823 Systech Group, Inc.*............................. 3/31/02 874,636 13.00 874,636 ------------ ------------ Subtotals.............................. $ 10,960,227 $ 10,960,227 ------------ ------------ Total Loans............................ $419,344,117 $412,005,353 ============ ============
- --------------- * Loan cost and fair value are stated in US dollars. Loan principal is denominated in Canadian dollars.
COST OR NUMBER OF PERCENTAGE CONTRIBUTED EQUITY INTERESTS SHARES OWNERSHIP VALUE FAIR VALUE - ---------------- ---------- ---------- ------------ ------------ PUBLICLY TRADED INVESTMENTS American Consolidated Laboratories, Inc. Common Stock............................... 1,000,000 9.20% $ 1,000,000 $ 175,000 American Network Exchange, Inc. Common Stock...................................... 76,222 0.10 21,879 65,741 American Network Exchange, Inc. Common Stock...................................... 63,429 0.00 0 0 Cardiac Control Systems, Inc. Common Stock... 50,000 2.20 250,000 25,313 Compass Plastics & Technologies Inc. Common Stock...................................... 447,144 7.70 2,000 2,373,589 Medical Resources Inc. Common Stock.......... 55,549 .30 1,000,000 358,060 Moovies, Inc. Common Stock................... 156,110 1.60 1,561 149,280 Multicom Publishing, Inc. Common Stock....... 844,354 12.50 8,444 41,477 National Vision Associates, Ltd. Common Stock...................................... 208,698 1.00 1,771,149 1,087,838 Network Event Theaters, Inc. Common Stock.... 412,397 4.20 2,114,772 1,335,135 Premiere Technologies, Inc. Common Stock..... 25,000 .10 0 603,750 QuadraMed Corporation Common Stock........... 11,422 .20 0 209,546 UOL Publishing, Inc. Common Stock............ 32,728 .90 8,494 362,735 Vista Information Solutions, Inc. Common Stock...................................... 1,015,000 3.20 0 3,387,563 Vista Information Solutions, Inc. Common Stock...................................... 143,032 0.40 0 371,287 NON-TRADED EQUITY INVESTMENTS IN PUBLIC COMPANIES Altris Software, Inc. Preferred Stock -- convertible at $6.00/sh........... 3,000 -- 3,000,000 3,000,000 American Consolidated Laboratories, Inc. Preferred Stock -- Series A................ 2,720,141 -- 2,720,141 2,375,000 Berger Holdings, Ltd. Preferred Stock -- Series A; convertible at $4.25/sh.................... 25,000 -- 2,500,000 2,500,000 Clinicor, Inc. Preferred Stock -- Series B... 50,000 -- 5,000,000 5,000,000 Environmental Tectonics Corporation Preferred Stock -- Series A; convertible at $7.50/sh................................... 25,000 -- 2,500,000 2,500,000
22 23 SIRROM CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF DECEMBER 31, 1997
COST OR NUMBER OF PERCENTAGE CONTRIBUTED EQUITY INTERESTS SHARES OWNERSHIP VALUE FAIR VALUE - ---------------- ---------- ---------- ------------ ------------ Multicom Publishing, Inc. Preferred Stock -- Series A................................... 235,000 -- $ 1,175,000 $ 0 Vista Information Solutions, Inc. Preferred Stock -- Series E; convertible at $2.75/sh................................... 2,500 -- 2,500,000 2,800,000 Vista Information Solutions, Inc. Preferred Stock -- Series E; convertible at a price to be determined in June 1998.............. 2,500 -- 2,500,000 2,500,000 EQUITY INVESTMENTS IN PRIVATE COMPANIES Bravo Corporation Common Stock............... 69,391 1.20% 106,950 350,000 Caldwell/VSR Inc. Preferred Stock............ 890 -- 890,000 890,000 CellCall, Inc. Common Stock.................. 358 1.40 10,465 100,000 Clearidge, Inc. Preferred Stock -- Series A.......................................... 10,800,000 -- 2,700,000 2,700,000 Clearidge, Inc. Common Stock................. 4,000,000 17.70 1,000,000 1,000,000 Corporate Flight Management, Inc. Common Stock...................................... 66,315 6.60 663 663 CSM, Inc. Class A Common Stock............... 99,673 10.00 100,000 100,000 Dentalcare Partners, Inc. Preferred Stock -- Series E................................... 510,617 -- 819,639 300,000 Front Royal, Inc. Common Stock............... 110,000 0.80 275,000 400,000 Fypro, Inc. Preferred Stock -- Series A...... 4,659,480 -- 4,659,480 4,048,480 Gulfstream International Airlines, Inc. Preferred Stock --Series A................. 216 -- 3,000,000 3,000,000 Home Link, Inc. Preferred Stock.............. 1,000,000 -- 1,000,000 750,000 Kentucky Kingdom, Inc. Common Stock.......... 24,142 5.60 238,316 500,000 Palco Telecom Service Common Stock........... 157,895 5.00 1,579 100,000 Paysys International, Inc. Common Stock...... 150,000 15.90 300 600,000 Pipeliner Systems, Inc. Preferred Stock -- Series D.......................... 5,000 -- 1,000,000 800,000 Potomac Group, Inc. Preferred Stock -- Series A.......................................... 800,000 -- 1,000,000 2,000,000 Potomac Group, Inc. Common Stock............. 1,437,681 9.40 292,370 1,799,038 PRA International, Inc. Common Stock......... 148,577 4.20 211,174 2,046,174 Recompute Corporation Common Stock........... 125,000 1.60 250,000 125,000 Relevant Knowledge, Inc. Preferred Stock -- Series B................................... 312,500 -- 500,000 500,000 Relevant Knowledge, Inc. Common Stock........ 75,000 3.30 120,000 120,000 Saraventures Fixtures, Inc. Preferred Stock...................................... 3,510 -- 1,659,469 0 Skillsearch Corporation Common Stock......... 5,998 19.10 554,035 125,000 Teltrust, Inc. Common Stock.................. 175,677 1.75 0 525,000 Unique Electronics, Inc. Preferred Stock -- Series A................................... 1,000,000 -- 1,000,000 675,000 Valdawn Watch Co. Preferred Stock............ 240 -- 240,000 0 Voice FX Corporation Common Stock............ 24,078 0.80 110,001 25,000 Zahren Alternative Power Corporation Common Stock...................................... 700 3.90 210,000 210,000 Zahren Alternative Power Corporation Preferred Stock............................ 200 -- 200,000 200,000 ------------ ------------ Total Equity Interests............. $ 50,222,881 $ 55,210,669 ============ ============
23 24 SIRROM CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF DECEMBER 31, 1997
COST OR NUMBER OF PERCENTAGE CONTRIBUTED STOCK WARRANTS SHARES OWNERSHIP VALUE FAIR VALUE -------------- --------------- ---------- ------------ ------------ PUBLICLY TRADED COMPANIES American Consolidated Laboratories, Inc.................................... 1,050,563 9.69% $ 214,312 $ 183,849 American Network Exchange, Inc........... 13,988 0.00 0 0 Cardiac Control Systems, Inc. ........... 150,000 4.35 0 50,625 Cardiac Control Systems, Inc. ........... 50,000 2.15 0 0 Consumat Systems, Inc. .................. 250,000 20.00 0 84,375 Consumat Systems, Inc. .................. 66,379 5.00 0 0 DynaGen, Inc. ........................... 266,700 0.01 266,700 23,336 Encore Medical Corporation............... 69,841 0.01 0 0 HydroFuser Industries, Inc. ............. 662,245 5.00 469,684 463,572 Moovies, Inc. ........................... 20,000 0.20 0 0 Multicom Publishing, Inc. ............... 163,791 2.40 800,000 10,265 Vista Information Solutions, Inc. ....... 47,582 0.20 0 158,805 Vista Information Solutions, Inc. ....... 10,000 0.05 0 25,958 TANDEM CAPITAL WARRANTS IN PUBLICLY TRADED COMPANIES Altris Software, Inc. (exercise price $6/sh.)................................ 300,000 3.00 585,000 450,000 Berger Holdings, Ltd. (exercise price $4.25/sh.)............................. 240,000 4.60 204,000 204,000 Bikers Dream, Inc. (exercise price $1/sh.)................................ 437,500 1.55 109,375 109,375 Environmental Tectonics Corp. (exercise price $1/sh.).......................... 166,410 5.00 499,230 700,000 Smartchoice Automotive Group, Inc. (exercise price $3/sh.)................ 300,000 2.50 0 200,000 Universal Automotive Industries, Inc. (exercise price will be 80% of average closing bid price for the 20 days prior to 7/11/98)............................ 450,000 6.00 0 175,000 PRIVATE COMPANIES Action Sports Group, LLC................. 3,350 10.00 0 0 Aero Products Corporation................ 30.61 25.00 0 0 Affinity Corporation..................... 550 9.67 20,000 20,000 Alignis, Inc. ........................... 111,684 4.00 0 0 American Corporate Literature, Inc....... 344,392 28.18 17,000 17,000 American Rockwool Acquisition Corp....... 1,100,000 11.00 0 400,000 Amscot Holdings, Inc. ................... 2,421 32.94 0 0 Anton Airfoods, Inc...................... 124 11.00 0 225,000 Associated Response Services, Inc. ...... 559 36.35 14,000 1,000,000 Assured Power, Inc. ..................... 280 12.00 0 0 Atlantic Security Systems, Inc. ......... 99 9.00 0 0 Auburn International, Inc. .............. 175,214 5.50 150,000 150,000 Austin Innovations, Inc. ................ 35,146 3.00 50,000 50,000 Auto Rental Systems, Inc. ............... 144,869 8.00 0 0 Aviation Holdings Ltd. (Newfoundland affiliate)............................. 1,570 3.60 0 0 Avionics Systems, Inc. .................. 15% of Co. 15.00 0 0
24 25 SIRROM CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF DECEMBER 31, 1997
COST OR NUMBER OF PERCENTAGE CONTRIBUTED STOCK WARRANTS SHARES OWNERSHIP VALUE FAIR VALUE -------------- --------------- ---------- ------------ ------------ B & N Company, Inc. ..................... 81 4.00% $ 40,000 $ 0 BankCard Services Corporation............ 149,261 32.00 3,000 0 BiTec Southeast, Inc. ................... 1,480 15.00 21,000 0 Bohdan Automation, Inc. ................. 404,564 3.00 0 0 BroadNet, Inc. .......................... 265,568 15.00 0 0 BUCA, Inc................................ 96,666 1.27 434,997 434,997 Bug.Z, Inc. and Subsidiaries............. 821,121 12.50 0 0 C.J. Spirits, Inc. ...................... 180,000 10.00 7,500 0 Caldwell/VSR Inc. ....................... 159 15.93 0 0 Cartech Holdings, Inc.................... 280,702 25.00 0 0 Carter Kaplan Holdings, LLC.............. 24% of LLC 24.00 6,100 0 Catalina Food Ingredients, Inc. ......... 10.2 9.25 0 0 Cedaron Medical, Inc. ................... 173,981 4.25 0 0 Century Pacific Greenhouses LTD.......... 177,418 6.30 0 0 CF Data Corp............................. 257 20.50 17,500 150,000 Champion Glove Manufacturing Co., Inc.... 538,614 6.88 0 0 Check Into Cash, Inc. ................... 63,789 5.00 461,000 461,000 Clearidge, Inc. ......................... 442,164 1.30 0 0 CLS Corporation.......................... 126,997 4.22 0 0 CMHC Systems, Inc. ...................... 3,231 4.20 0 0 CMP Enterprises, LLC..................... 15.17% of LLC 15.17 0 0 Colonial Investments, Inc. .............. 360 32.00 0 0 Columbus Medical Holdings, LLC........... 17,455 12.00 0 0 Continental Diamond Cutting Company...... 112 10.00 0 0 Copperhead Chemical Company, Inc. ....... 93 4.20 0 0 Corporate Link, Inc. .................... 190 16.00 0 0 Cort Investment Group, Inc. (d/b/a Contract Network)...................... 90,000 9.00 180,000 180,000 Creighton Shirtmakers, Inc. ............. 30,250 30.25 0 0 CSM, Inc. ............................... 130,000 13.00 0 0 Cybo Robotics, Inc. ..................... 1,700,000 8.68 0 0 Dalt's, Inc. ............................ 140 28.00 0 0 Data National Corporation................ 275,682 13.00 450,000 450,000 Daxxes Corporation....................... 61,766 2.94 0 0 Delaware Publishing Group, Inc. ......... 8,534 47.67 15,000 0 Dentalcare Partners, Inc. ............... 666,022 4.98 10,000 10,000 DFI/Aeronomics Incorporated.............. 94,525 0.50 0 0 Dyad Corporation......................... 615 5.00 600,000 600,000 Dyntec, Inc. ............................ 126,667 15.00 0 0 Eagle Quest Golf Centers, Inc. .......... 407,135 1.40 0 250,000 Electronic Accessory Specialists Int'l, Inc.................................... 3,694 3.00 0 250,000 Encor Technologies, Inc. ................ 7.46 6.84 0 0 Endeavor Technologies, Inc. ............. 557,490 5.00 0 550,000 Entek Scientific Corporation............. 260,710 5.75 160,000 850,000 Executrain (3199673 Canada Inc.)......... 18.0012 12.60 0 0 Express Shipping Centers, Inc. .......... 91,352 6.25 552,402 262,622
25 26 SIRROM CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF DECEMBER 31, 1997
COST OR NUMBER OF PERCENTAGE CONTRIBUTED STOCK WARRANTS SHARES OWNERSHIP VALUE FAIR VALUE -------------- --------------- ---------- ------------ ------------ FaxNet Corporation....................... 190,321 2.50% $ 100,000 $ 100,000 FDL, Inc. ............................... 548 16.00 250,000 250,000 Film Technologies International, Inc. ... 8 7.50 0 0 Foodnet Holdings, LLC.................... 12% of LLC 12.00 0 0 Fortrend Engineering Corp................ 437,552 3.25 0 0 Front Royal, Inc. ....................... 240,458 1.85 0 875,000 Fypro, Inc. ............................. 255,882 15.00 0 0 Gardner Wallcovering, Inc. .............. 2 2.00 15,000 15,000 General Materials Management Inc. ....... 600,000 10.00 0 0 Generation 2 Worldwide LLC............... 28% of LLC 28.00 0 0 Glen Oak Inc. ........................... 93 7.50 0 0 Global Marine Electronics, Inc........... 5,137 18.00 0 0 Gloves Inc. ............................. 5,000 5.00 0 0 Good Food Fast Companies, The............ 174,779 17.00 0 0 Graphic Workshop (1246568 Ontario Inc.).................................. 462 4.62 0 0 Gulfstream International Airlines, Inc. .................................. 271 39.00 10,000 140,000 H & H Acqu. Corp......................... 3,600 22.50 0 160,000 Home Link Services, Inc. ................ 166,667 20.00 0 0 Hoveround Corporation.................... 850 10.00 0 3,750,000 HPC America, Inc. ....................... 5 2.75 0 0 Hunt Assisted Living, LLC................ 7.2% of Class A 7.20 0 0 Hunt Assisted Living, LLC................ 4.8% of Class B 4.80 100 100 Hunt Incorporated........................ 49 11.00 0 125,000 Hunt Leasing & Rental Corporation........ 295 11.00 0 125,000 I. Schneid Holdings LLC.................. 21% of LLC 21.00 0 0 IJL Holdings, Inc. ...................... 99 9.00 0 0 ILD Communications, Inc.................. 5,429 3.20 0 750,000 In Store Services, Inc. ................. 429 12.50 12,000 12,000 Isthmus, Inc............................. 38.25 3.50 0 0 Johnston County Cable L.P................ 31.94% of LP 31.94 110,000 600,000 K.W.C. Management Corp................... 794 24.40 0 0 Karawia Industries, Inc. ................ 1,391 12.00 0 0 Lane Acquisition Corporation............. 11,667 10.00 0 0 Leisure Clubs International, Inc. ....... 433 25.00 15,000 0 Lovett's Buffet, Inc. ................... 540,424 8.00 0 400,000 M & M Industries, Inc. .................. 1,659,113 15.00 0 0 Master Graphics, Inc. ................... 5 6.00 0 950,000 Mayo Hawaiian Corp....................... 105 9.50 0 0 MBA Marketing Corporation................ 11,785 4.50 18,000 18,000 McAuley's Incorporated................... 64 6.00 0 0 MCG, Inc. ............................... 121,518 4.50 0 0 Mead-Higgs, Inc. ........................ 2,500 10.00 0 0 Merge Technologies, Inc. ................ 21,449 3.25 0 500,000 Mesa International, Inc. ................ 18.51 16.00 0 750,000 Metals Recycling Technologies Corp....... 257,801 5.00 0 0 MetroLease, Inc. ........................ 26,471 20.00 5,000 5,000
26 27 SIRROM CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF DECEMBER 31, 1997
COST OR NUMBER OF PERCENTAGE CONTRIBUTED STOCK WARRANTS SHARES OWNERSHIP VALUE FAIR VALUE -------------- --------------- ---------- ------------ ------------ Money Transfer Systems, Inc. ............ 137 12.00% $ 15,000 $ 500,000 Moore Diversified Products, Inc. ........ 17.04 15.00 0 0 Multimedia Learning, Inc. ............... 183,968 10.82 0 650,000 Mytech Corporation....................... 172,098 3.50 0 0 NASC, Inc. .............................. 2,652 23.00 0 0 Nationwide Engine Supply, Inc. .......... 1,337,379 21.34 25,000 25,000 NetForce, Inc. .......................... 67 6.25 0 0 Newfoundland Career Academy Ltd.......... 6,278 3.60 0 0 NRI Service and Supply, L.P.............. 27.5% of LP 27.50 25,000 25,000 Omni Home Medical, Inc. ................. 2,672 15.00 0 0 One Call Comprehensive Care, Inc. ....... 279,481 21.00 0 0 One Coast Network Corporation............ 763,666 15.63 0 0 Orchid Manufacturing, Inc. .............. 1,219,047 2.61 40,000 600,000 Outdoor Promotions LLC................... 5% of LLC 5.00 0 0 P.A. Plymouth, Inc. ..................... 92,647 15.00 0 475,000 Pacific Linen, Inc. ..................... 365,349 7.81 548,024 548,024 Paradigm Valve Services, Inc. ........... 30,000 12.00 0 0 Pathology Consultants, Inc. ............. 317,553 6.00 47,633 47,632 Patton Management Corporation............ 511 12.00 0 185,000 PaySys International, Inc. .............. 37,660 0.40 274,826 150,000 Pipeliner Systems, Inc. ................. 2,400,000 23.34 20,000 0 Precision Panel Products, Inc. .......... 122 8.25 15,000 0 Pritchard Glass, Inc. ................... 12,500 25.00 0 0 Proamics Corporation..................... 382,299 3.50 0 0 Professional Training Services, Inc...... 255,600 2.40 0 0 Protect America, Inc. ................... 12,200 10.00 95,000 95,000 Quadravision Communications Limited...... 10 1.00 0 0 R & R International, Inc. ............... 67,021 6.00 0 0 Race Face Components. Inc. .............. 3,465 11.55 0 0 Ready Personnel, Inc. ................... 101,565 12.50 0 0 Recompute Corporation.................... 611,144 8.00 300,000 600,000 Reef Chemical Company, Inc. ............. 183,215 3.00 300,000 300,000 Relax the Back Corporation............... 1,156,042 10.00 0 0 Rynel Ltd., Inc. ........................ 390,517 15.00 0 0 Saraventures Fixtures, Inc. ............. 25 20.00 0 0 Scandia Technologies, Inc. .............. 327 25.50 0 0 SFG Technologies Inc. ................... 29,814 1.38 0 0 Sheet Metal Specialties, Inc. ........... 587 37.00 0 0 Sirvys Systems (3404447 Canada Inc.)..... 134,400 3.36 0 0 SkillMaster, Inc. ....................... 117 5.51 25,000 25,000 SkillSearch Corporation.................. 2,381 7.59 250,000 50,000 Solutioneering, Inc. .................... 13,135 7.50 0 0 Southern Specialty Brands, Inc. ......... 10,000 10.00 17,500 17,500 Southern Therapy, Inc.................... 333 10.00 0 400,000 Stealth Engineering, Inc. ............... 228,820 14.00 0 0
27 28 SIRROM CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF DECEMBER 31, 1997
COST OR NUMBER OF PERCENTAGE CONTRIBUTED STOCK WARRANTS SHARES OWNERSHIP VALUE FAIR VALUE -------------- --------------- ---------- ------------ ------------ Stratford Safety Products, Inc. ......... 114.21 10.25% $ 75,000 $ 75,000 Street Level (1216069 Ontario Ltd.)...... 68,373 5.88 0 0 Sub 1 Corporation (d/b/a Risk Management)............................ 15 13.00 0 0 Suncoast Medical Group, Inc. ............ 580,159 24.00 25,000 0 Superior Pharmaceutical Co............... 10% of Co. 10.00 0 0 Supplements Plus Natural Vitamins & Cosmetics, Ltd......................... 1.3125 1.68 0 0 Systech Group, Inc. ..................... 34,330 2.10 0 0 TAC Systems, Inc. ....................... 315,838 3.60 0 0 TeleCommunication Systems, Inc. ......... 96,774 6.00 0 0 Telecontrol Systems, Inc. ............... 530,303 17.50 0 0 Temps & Co., Inc......................... 53 5.00 0 0 The Moorings, LLC........................ 9,493 14.50 344,500 200,000 Thomas Holding Company (d/b/a Sports & Social Clubs).......................... 11 10.00 0 0 Tie and Track Systems, Inc............... 1,645 14.00 0 0 Towne Services, Inc. .................... 308,982 2.00 0 0 Trade Am International, Inc. ............ 335,106 6.00 0 0 TRC Acquisition Corporation.............. 375,000 12.50 0 0 UltraFab, Inc. .......................... 120,000 12.00 0 0 UltraFab Vessels, Inc. .................. 120,000 12.00 0 0 Unicoil, Inc. ........................... 86,239 8.50 0 0 Unique Electronics, Inc. ................ 30% of Co. 30.00 0 0 Valdawn Watch Co......................... 400 80.00 0 0 VanGard Communications Co., LLC.......... 14.4% of LLC 14.40 0 0 VDW Farms, Ltd........................... 10% of Co. 10.00 0 0 Voice FX Corporation..................... 233,112 8.00 0 250,000 Watts-Finniss Holdings, Inc. ............ 7,146 10.94 0 0 Wearever Healthcare Products, LLC........ 416,359 16.14 250,000 250,000 WJ Holdings, Inc. ....................... 250,000 25.00 0 0 Wolfgang Puck Food Company, Inc.......... 80,065 1.35 0 0 Zahren Alternative Power Corporation..... 1,168 6.54 25,000 400,000 ------------ ------------ Total Warrants................. $ 9,610,383 $ 24,543,035 ============ ============ OTHER INVESTMENTS (SEE NOTE 4) SWS3, Inc. -- Expected proceeds from sale of mfg. plant.......................... -- -- $ 521,926 $ 371,926 Hancock Company -- Royalty stream to be collected from sale of Gitman brand name................................... -- -- 1,700,000 300,000 HSA International, Inc. -- Anticipated proceeds from litigation............... -- -- 1,150,000 1,000,000 Capitalized workout expenses............. -- -- 868,577 768,577 ------------ ------------ Total Other Investments........ $ 4,240,503 $ 2,440,503 ------------ ------------ Total Investments.............. $483,417,884 $494,199,560 ============ ============
28 29 SIRROM CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS AS OF SEPTEMBER 30, 1998
LOANS Maturity Cost Coupon Fair Value ----- -------- ---------- ------ ---------- 2021. Interactive, LLC 4/6/03 $2,500,000 13.50% $2,500,000 ACT Teleconferencing, Inc. 3/31/03 1,242,294 13.50 1,279,062 Action Sports Group, LLC 8/19/02 1,750,000 13.00 1,750,000 Adavest Holdings, LLC 5/15/03 3,500,000 13.75 3,500,000 Advanced Wireless Technologies 8/24/03 1,250,000 13.25 1,250,000 Aero Products Corporation 12/19/99 1,250,000 14.00 600,000 Aero Products Corporation 6/9/02 2,500,000 13.00 2,500,000 Affinity Fund, Inc. 10/28/98 1,485,000 12.50 1,500,000 Affinity Fund, Inc. 10/28/98 495,000 12.50 497,814 Affinity Fund, Inc. 3/10/00 1,000,000 14.00 1,000,000 Air Age Services of San Antonio, Inc. 4/30/03 3,500,000 13.50 3,500,000 Alignis, Inc. 2/28/02 2,500,000 13.00 2,500,000 Alliance Media Group, Inc. 9/29/03 4,000,000 13.50 4,000,000 American Network Exchange, Inc. 11/30/98 990,000 13.00 999,853 American Network Exchange, Inc. 1/18/99 990,000 13.00 999,519 Amscot Holdings, Inc. 5/26/00 800,000 14.00 800,000 Amscot Holdings, Inc. 9/20/00 200,000 14.00 200,000 Amscot Holdings, Inc. 6/28/01 500,000 14.00 500,000 Amscot Holdings, Inc. 12/27/01 250,000 14.00 250,000 Amscot Holdings, Inc. 7/30/02 1,000,000 14.00 1,000,000 Amscot Holdings, Inc. demand 700,000 14.00 700,000 Anton Airfoods, Inc. 5/21/02 5,000,000 13.50 5,000,000 Ashe Industries, Inc. 5/18/99 550,000 9.00 200,000 Associated Response Services, Inc. 6/20/99 1,386,000 12.50 1,398,116 Associated Response Services, Inc. 8/1/99 750,000 13.50 750,000 Associated Response Services, Inc. 1/6/00 300,000 12.50 300,000 Associated Response Services, Inc. 2/15/00 335,000 12.50 335,000 Associated Response Services, Inc. 11/8/01 500,000 12.50 500,000 Associated Response Services, Inc. 3/27/02 3,000,000 12.50 3,000,000 Auburn International, Inc. 12/31/02 2,850,000 13.50 2,875,000 Austin Innovations, Inc. 7/1/02 1,950,000 13.75 1,961,206 Avionics Systems, Inc. 7/19/01 3,000,000 13.50 3,000,000 B & N Company, Inc. 8/8/00 2,970,000 12.50 2,183,500 B & N Company, Inc. 3/28/01 990,000 13.00 993,841 BroadNet, Inc. 6/9/02 2,500,000 14.00 2,500,000 BUCA, Inc. 10/31/02 1,565,003 13.50 1,637,503 BUCA, Inc. 5/30/03 1,673,750 13.50 1,700,940 Bug.Z., Inc. 9/23/02 2,500,000 15.00 2,500,000 Bug.Z., Inc. 9/23/02 600,000 15.00 600,000 Caldwell/VSR Inc. 2/28/01 1,500,000 12.00 1,500,000 Caldwell/VSR Inc. 5/31/02 99,000 8.00 99,000 Caldwell/VSR Inc. 5/31/03 1,050,000 8.00 925,000 Caldwell/VSR Inc. 6/23/03 500,000 13.50 500,000 Campbell Software, Inc. 2/11/03 2,000,000 13.50 2,000,000 Capital Sigma Investments, Inc. 4/30/03 2,250,000 13.50 2,250,000 Cardiac Control Systems, Inc. 3/31/00 1,500,000 13.50 1,500,000 Caribou Coffee Company, Inc. 12/31/02 4,153,528 12.50 4,266,392 Cartech Holdings, Inc. 4/29/01 1,500,000 13.00 1,500,000 CarStar A&B, Inc. 6/29/03 2,500,000 13.00 2,500,000 Catalina Food Ingredients, Inc. 3/30/02 3,500,000 13.00 3,500,000 Cedaron Medical, Inc. 6/28/01 1,500,000 13.50 1,500,000 CF Data Corp. 3/16/00 1,732,500 13.75 1,745,056 Check Into Cash, Inc. 11/7/01 3,039,000 14.00 3,208,026 Check Into Cash, Inc. 11/7/01 3,250,000 14.00 3,250,000
29 30 SIRROM CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF SEPTEMBER 30, 1998
LOANS Maturity Cost Coupon Fair Value ----- -------- ---------- ------ ---------- Chinese Media Group, LLC 3/27/03 $2,100,000 13.50% $2,100,000 Clearidge, Inc. 3/30/03 2,000,000 14.00 2,000,000 CMHC Systems, Inc. 7/1/02 1,400,000 13.50 1,400,000 CMP Enterprises, LLC 12/10/02 3,500,000 13.00 3,500,000 Cold Jet, Inc. 6/30/03 1,000,000 14.00 1,000,000 Colonial Investments, Inc. 10/16/00 800,000 13.75 800,000 Columbus Medical Holdings, LLC 1/31/02 4,000,000 13.75 4,000,000 Co-Mack Technologies, Inc. 6/26/03 1,600,000 14.00 1,600,000 Compression, Inc. 12/17/02 3,700,000 13.50 3,700,000 Compression, Inc. 4/30/03 2,073,000 13.50 2,073,000 Consumat Systems, Inc. 11/15/98 250,000 14.00 250,000 Consumat Systems, Inc. 11/1/00 500,000 14.00 500,000 Consumat Systems, Inc. 1/1/01 500,000 14.00 500,000 Consumat Systems, Inc. 3/11/01 500,000 14.00 500,000 Consumat Systems, Inc. 3/26/02 500,000 14.00 500,000 Continental Diamond Cutting Co. 10/28/99 375,000 13.00 375,000 Continental Diamond Cutting Co. 11/16/99 200,000 13.00 200,000 Corporate Link, Inc. 6/13/00 186,740 14.00 186,740 Corporate Link, Inc. 12/13/01 600,000 14.00 600,000 Cort Investment Group, Inc. (d/b/a Contract Network) 8/27/02 3,320,000 13.50 3,362,000 Counsel Press LLC 6/3/03 2,556,300 13.50 2,585,880 CPI Qualified Plan Consultants, Inc. 8/24/03 2,500,000 13.50 2,500,000 Creighton Shirtmakers, Inc. and affiliates demand 1,969,000 14.00 1,969,000 Creighton Shirtmakers, Inc. and affiliates demand 100,000 14.00 100,000 CSM, Inc. 12/31/01 1,400,000 14.00 1,400,000 Cybo Robotics, Inc. 9/29/02 1,050,000 13.25 1,050,000 Cybo Robotics, Inc. 9/29/02 700,000 13.25 700,000 Cybo Robotics, Inc. 9/29/02 1,000,000 13.25 1,000,000 Dalts, Inc. 4/28/01 2,000,000 13.50 1,500,000 Data National Corporation 12/10/02 1,050,000 13.75 1,125,000 Data Net Corporation 8/28/03 1,250,000 13.00 1,250,000 Distinction Software, Inc. 6/9/03 1,000,000 14.00 1,000,000 Dyad Corporation 12/31/02 2,900,000 14.00 3,000,000 DynaGen, Inc. 6/17/02 1,733,300 13.50 1,804,420 Dyntec, Inc. 7/7/02 2,500,000 14.00 2,500,000 Encor Technologies, Inc. 3/30/02 1,444,000 13.13 1,444,000 Entek Scientific Corporation 6/28/01 2,500,000 13.00 2,500,000 Entek Scientific Corporation 5/22/02 1,090,000 13.00 1,133,392 ERDA, Inc. 5/1/03 2,500,000 13.50 2,500,000 Exhibit Emporium Acquisition Company, LLC 9/1/03 3,600,000 14.00 3,600,000 Express Shipping Centers, Inc. 11/15/98 150,000 15.00 150,000 Express Shipping Centers, Inc. 9/22/00 1,697,598 13.25 983,015 Express Shipping Centers, Inc. 5/1/02 250,000 13.25 250,000 Faxnet Corporation 6/17/02 1,900,000 13.00 1,926,672 FDL, Inc. 1/30/02 1,750,000 13.50 1,837,507 Film Technologies International, Inc. 2/27/02 1,500,000 14.00 1,500,000 FoodNet Holdings, LLC 7/22/01 1,500,000 13.50 1,500,000 Fortrend Engineering Corp. 8/30/01 1,500,000 12.99 1,500,000 Fypro, Inc. 12/17/01 198,793 8.00 173,793 Gateway Communications, Inc. 6/16/03 1,732,720 13.00 1,733,872 GC Management, Inc. 7/29/01 2,500,000 13.50 1,250,000 Generation 2 Worldwide LLC 10/31/00 2,000,000 14.00 2,000,000 GerAssist, Inc. 6/26/03 3,000,000 13.50 3,000,000 Gloves Inc. 5/1/02 1,500,000 13.00 1,500,000
30 31 SIRROM CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF SEPTEMBER 30, 1998
LOANS Maturity Cost Coupon Fair Value - ----- -------- ---------- ------ ---------- Good Food Fast Companies, The 12/10/01 $2,500,000 13.50% $1,850,000 Good Food Fast Companies, The demand 553,000 13.50 553,000 Graphic Systems Group, Inc. 6/24/03 1,000,000 13.50 1,000,000 Green Tree Technologies, Inc 9/17/03 3,000,000 13.00 3,000,000 Gulfstream International Airlines Inc. 7/29/99 1,490,000 13.00 1,500,000 Gulfstream International Airlines Inc. 12/1/99 2,200,000 14.00 2,200,000 Gulfstream International Airlines Inc. 4/30/00 2,500,000 13.80 2,500,000 H & H Acq. Corp. 8/30/01 1,500,000 14.00 1,500,000 Home Link Services, Inc. 12/30/01 300,000 14.00 0 Hunt Assisted Living, LLC 10/17/02 2,999,900 12.00 2,999,922 Hydrofuser Industries, Inc. and affiliates 7/30/02 825,031 13.00 378,309 I.Schneid Acquisition, LLC 4/1/01 2,000,000 14.00 2,000,000 IJL Holdings, Inc. 9/12/02 1,250,000 13.50 50,000 IJL Holdings, Inc. 9/12/02 350,000 13.50 50,000 ILD Communications 5/10/01 1,500,000 13.50 1,500,000 Imtek Office Solutions, Inc. 5/28/03 6,000,000 14.00 6,000,000 In-Store Services, Inc. 1/1/99 350,000 14.00 350,000 In-Store Services, Inc. 4/19/00 1,188,000 14.00 1,196,400 J. Fegely & Son Hardware Co., Inc. 6/30/03 1,000,000 13.00 1,000,000 Jim Bridges Acquisition Company 3/31/03 1,500,000 14.00 1,500,000 Johnston County Cable, L.P. 8/31/00 1,990,000 14.00 1,996,179 JRB Enterprises, Inc. (d/b/a/ Silk, Silk, Silk) 9/8/03 1,000,000 14.00 1,000,000 Karawia Industries, Inc. 3/27/02 2,500,000 14.00 2,500,000 KWC Management Co., LLC 4/25/01 500,000 14.00 50,000 Lane Acquisition Corporation 11/21/01 4,000,000 13.75 4,000,000 Leisure Clubs International, Inc. 4/1/01 1,485,000 14.00 1,492,500 Leisure Clubs International, Inc. 3/27/02 125,000 14.00 125,000 Lightfoot Software Company 10/1/03 1,800,000 13.50 1,800,000 M & M Industries, Inc. 2/26/02 2,250,000 14.00 2,250,000 M.A.P.A., Inc. 9/3/03 3,000,000 13.75 3,000,000 Marmot Mountain, Ltd. 3/27/03 2,750,000 13.00 2,779,169 Mayo Hawaiian Corp. 6/27/01 2,200,000 14.00 2,200,000 MBA Marketing Corporation 2/4/99 1,782,000 12.50 1,798,800 McAuley's Incorporated 7/31/01 3,750,000 13.00 3,750,000 MCG, Inc. 12/23/02 1,500,000 13.50 1,500,000 Mead-Higgs Company, Inc. 5/19/02 1,400,000 14.00 1,400,000 MegaMarketing Corporation 3/5/03 2,800,000 14.00 2,823,331 Mesa International, Inc. demand 5,289,125 14.00 189,125 Mesa International, Inc. 8/31/98 180,000 14.00 180,000 Mesa International, Inc. 8/31/98 29,026 14.00 29,026 Mesa International, Inc. demand 250,000 14.00 0 MetroLease, Inc. 7/29/02 2,495,000 13.50 2,496,245 MetroLease, Inc. 7/29/02 1,250,000 13.50 1,250,000 MLG-LoBue LLC 8/27/03 5,400,000 14.00 5,400,000 MMS Incentives, LLC 4/15/03 2,250,000 13.00 2,250,000 Mobility Electronics, Inc. 6/23/02 1,600,000 13.50 1,600,000 Mobility Electronics, Inc. 6/23/02 1,750,000 13.50 1,750,000 Moore Diversified Products, Inc. 6/16/00 800,000 13.50 800,000 Moore Diversified Products, Inc. 3/27/02 1,000,000 13.50 1,000,000 Multimedia 2000, Inc. 3/29/01 2,857,455 14.00 1,357,454 Multimedia 2000, Inc. demand 1,769,586 10.50 1,769,586 Mytech Corporation 9/25/02 1,200,000 13.50 1,200,000 NASC, Inc. 12/13/98 500,000 13.50 500,000 NASC, Inc. 6/26/01 1,500,000 13.50 1,500,000
31 32 SIRROM CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF SEPTEMBER 30, 1998
LOANS Maturity Cost Coupon Fair Value - ----- -------- ---------- ------ ---------- N&R Printing, Inc. 6/1/03 $2,000,000 14.00% $2,000,000 Nationwide Engine Supply, Inc. 1/12/99 2,475,000 12.00 196,684 Nationwide Engine Supply, Inc. 9/26/01 315,643 13.50 315,643 NetForce, Inc. 11/27/02 2,000,000 14.00 2,000,000 NRI Service and Supply L.P. 2/13/00 2,225,000 14.00 792,097 Nunn Acquisition Corporation 5/12/03 4,000,000 14.00 4,000,000 NWES, Inc. and Dean McAdoo 8/31/00 825,000 11.25 825,000 Omni Home Medical, Inc. 3/30/02 2,000,000 14.00 2,000,000 Omni Home Medical, Inc. 9/10/99 440,000 14.00 440,000 Omni Products of Palm Beach, Inc. 2/19/03 2,900,000 14.00 2,913,336 One Call Comprehensive Care, Inc. 12/1/98 3,005,369 14.00 1,530,369 One Coast Network Corporation 11/17/02 5,000,000 14.00 5,000,000 Online Resources & Communications Corp. 3/30/03 6,000,000 12.75 6,000,000 Online Resources & Communications Corp. 3/30/03 2,000,000 12.75 2,000,000 OpenConnect Systems Incorporated 7/30/03 5,000,000 13.00 5,000,000 Orchid Manufacturing Group, Inc. 9/14/00 2,960,000 13.00 2,982,678 Orchid Manufacturing Group, Inc. 12/28/00 1,000,000 13.50 1,000,000 Pacific Linen, Inc. 12/3/02 2,951,976 13.50 3,043,316 Pacific Plus, Inc. 5/1/03 2,325,000 13.50 2,339,585 Palco Telecom Service, Inc. 11/22/99 650,000 12.00 650,000 Palouse Holdings, LLC 9/1/03 3,150,000 13.25 3,150,000 Paradigm Valve Services, Inc. 11/12/01 1,600,000 13.50 1,600,000 PaySys International, Inc. 3/31/01 3,725,158 13.50 3,784,711 Pharmed Group Holdings, Inc. 6/25/03 4,500,000 13.00 4,500,000 Physicians Surgical Care, Inc. 5/29/03 1,857,000 13.50 1,868,915 Piedmont Hardwood Flooring, LLC 6/8/03 2,500,000 13.00 2,500,000 Pik:Nik Media, Inc. 6/23/00 1,000,000 12.00 1,000,000 Plymouth, Inc. 9/28/00 750,000 13.00 750,000 PRA International, Inc. 8/10/00 1,980,000 13.50 1,992,654 Precision Panel Products, Inc. 1/11/02 2,022,781 12.75 0 Precision Panel Products, Inc. 1/11/02 3,869,683 12.75 0 Precision Panel Products, Inc. demand 92,524 14.00 0 Precision Panel Products, Inc. demand 150,000 12.75 0 Precision Panel Products, Inc. demand 500,000 12.75 0 Precision Panel Products, Inc. demand 356,000 12.75 0 Precision Panel Products, Inc. demand 125,000 12.75 0 Precision Panel Products, Inc. demand 227,000 12.75 0 Precision Panel Products, Inc. demand 300,000 12.75 0 Precision Panel Products, Inc. demand 1,183,665 12.75 0 Precision Panel Products, Inc. demand 150,000 12.75 0 Precision Panel Products, Inc. demand 0 12.75 0 Precision Panel Products, Inc. demand 0 12.75 0 Price Systems, LLC 6/1/03 1,000,000 13.50 1,000,000 Pritchard Paint & Glass Co. 2/10/01 200,000 14.00 200,000 Pritchard Paint & Glass Co. 2/14/01 767,431 14.00 767,431 Proamics Corporation 7/31/02 1,000,000 13.00 1,000,000 Professional Training Services, Inc. 9/30/02 3,400,000 13.25 3,400,000 Pro-Style Acquisition Corporation 2/26/03 6,000,000 13.59 6,000,000 Protect America, Inc. 8/27/03 1,000,000 13.50 1,000,000 QSS Acquisition, Inc. 6/25/03 3,750,000 14.00 3,750,000 R & R International, Inc. 6/30/02 2,000,000 13.25 2,000,000 Ready Personnel, Inc. 12/3/02 5,000,000 13.25 5,000,000 Recompute Corporation 2/21/02 2,300,000 13.50 2,400,000 Recycling Technologies Inc. 8/11/99 1,750,000 11.00 1,400,000
32 33 SIRROM CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF SEPTEMBER 30, 1998
LOANS Maturity Cost Coupon Fair Value - ----- -------- ---------- ------ ---------- Reef Chemical Company, Inc. 9/23/02 $2,700,000 13.75% $2,765,000 Relax the Back Corporation 10/1/02 5,000,000 13.00 5,000,000 Rocky Mountain Radio Company LLC 11/10/01 2,500,000 13.50 2,500,000 Rocky Mountain Radio Company LLC 11/10/01 500,000 13.50 500,000 Rynel Ltd., Inc. 10/1/01 1,250,000 14.00 1,100,000 Rynel Ltd., Inc. 10/1/01 307,500 14.00 307,500 Saraventures Fixtures Inc. 5/23/02 1,645,926 14.00 0 Saraventures Fixtures Inc. demand 108,825 14.00 0 SBX Holding Company 3/26/03 4,100,000 13.13 4,100,000 Sheet Metal Specialties, Inc. 6/20/01 250,000 14.00 250,000 Sheet Metal Specialties, Inc. 12/4/01 211,750 12.00 211,750 Sheet Metal Specialties, Inc. 1/24/02 38,250 12.00 38,250 Sheet Metal Specialties, Inc. 11/10/98 75,000 14.00 75,000 SkillSearch Corporation 3/31/99 496,000 13.00 500,000 Solutioneering, Inc. 3/31/02 2,000,000 13.75 2,000,000 Southern Specialty Brands, Inc. 6/30/02 1,732,500 14.00 1,742,136 Southern Therapy, Inc. 4/24/02 1,000,000 13.50 1,000,000 Southern Therapy, Inc. 4/24/02 500,000 13.50 500,000 Southern Therapy, Inc. 4/24/02 500,000 13.50 500,000 Southern Therapy, Inc. 4/24/02 1,000,000 13.50 1,000,000 Stealth Engineering, Inc. 12/31/02 1,500,000 13.50 1,500,000 Stratford Safety Products, Inc. 3/1/02 2,125,000 13.50 2,150,000 Sub 1 Corporation (d/b/a Risk Management) 10/8/02 750,000 14.00 750,000 Summit Publishing Group, Ltd. 1/16/98 250,000 14.00 0 Summit Publishing Group, Ltd. 3/17/99 1,485,000 12.00 0 Summit Publishing Group, Ltd. 7/26/01 625,000 14.00 0 SWS6, Inc. 12/31/98 1,950,000 12.70 1,000,000 SWS6, Inc. demand 837,349 14.00 837,349 Synaxis Group, Inc. 3/31/03 2,500,000 13.00 2,500,000 TAC Systems, Inc. 1/1/00 850,000 14.00 850,000 TAC Systems, Inc. 3/27/02 1,012,000 14.00 1,012,000 Talent Metal Products, Inc. 5/19/03 2,300,000 14.00 0 TCOM Systems, Inc. 3/30/04 346,165 0.00 96,165 TeleCommunication Systems, Inc. 9/20/02 3,000,000 14.00 3,000,000 Telecontrol Systems, Inc. 9/30/02 2,500,000 14.00 2,500,000 Telemate Software, Inc. 3/27/03 1,000,000 14.00 1,000,000 Telequestion, Inc. 6/30/03 4,500,000 13.75 4,500,000 Temps & Co., Inc. 5/12/02 3,000,000 13.25 3,000,000 The Moorings, LLC 12/31/01 1,655,500 13.00 1,850,728 The Moorings, LLC 11/17/02 2,500,000 13.00 2,500,000 Therapeutic Services of America, Inc. 1/4/03 2,750,000 13.25 2,750,000 Thomas Holding Company (d/b/a Sports & Social Clubs) 5/21/02 1,500,000 13.50 1,500,000 Tie and Track Systems, Inc. 10/31/02 1,500,000 13.50 1,500,000 Toccoa Associates, LLC 2/18/03 2,110,000 13.50 1,785,000 Trade Am International, Inc. 9/30/00 4,000,000 12.75 4,000,000 TRC Acquisition Corporation 10/21/01 2,000,000 13.50 2,000,000 Tulsa Industries, Inc. 2/26/03 6,000,000 13.00 6,000,000 UltraFab, Inc. 6/27/01 1,500,000 14.00 1,500,000 Umbrellas Unlimited, LLC 8/21/02 264,691 14.00 114,691 Unicoil, Inc. 9/28/02 1,300,000 13.50 1,300,000 Unicoil, Inc. 9/28/02 700,000 13.50 700,000 Unicoil, Inc. 6/1/99 200,000 13.50 200,000 Unique Electronics, Inc. 11/30/99 600,000 10.67 600,000 Unique Electronics, Inc. 10/10/02 300,000 13.00 300,000
33 34 SIRROM CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF SEPTEMBER 30, 1998
LOANS Maturity Cost Coupon Fair Value ----- -------- ---------- ------ ---------- UOL Publishing, Inc. 10/31/99 $ 32,352 6.00% $ 32,352 U.S. Ringbinder, L.P. 7/1/03 4,415,000 13.00 4,419,251 Valdawn Watch Company 12/31/98 100,000 14.00 0 Valdawn Watch Company 2/14/00 450,000 14.00 450,000 Valdawn Watch Company 8/21/02 2,160,000 14.00 0 Valdawn Watch Company 8/21/02 1,000,000 14.00 50,000 VDW Farms, Ltd. 11/25/02 1,500,000 14.00 1,500,000 Vision 2000, Inc. 4/25/02 2,398,066 13.50 73,066 Vision Software, Inc. 2/26/03 5,000,000 12.75 5,000,000 Watts-Finnis Holdings, Inc. 11/30/02 2,500,000 13.25 2,500,000 Wearever Health Products, LLC 3/31/02 1,500,000 13.50 425,000 Wearever Health Products, LLC 12/11/02 650,000 14.00 75,000 Westcorp Software Systems, Inc. 3/6/03 2,000,000 14.00 2,000,000 Wolfgang Puck Food Company, Inc. 5/20/02 5,000,000 12.50 5,000,000 Zahren Alternative Power Corp. 11/27/99 1,980,000 13.00 1,996,616 Zahren Alternative Power Corp. 1/30/00 495,000 13.00 497,818 ------------ ------------ Subtotals 503,766,752 460,979,253 ------------ ------------ TANDEM CAPITAL LOANS TO PUBLICLY TRADED COMPANIES* Altris Software, Inc. (Gross principal of $3,000,000) 6/27/02 2,415,000 11.50 2,541,750 Aqua Care Systems, Inc. (Gross principal of $1,500,000) 6/30/03 1,447,000 12.00 1,449,649 Berger Holdings, Inc. (Gross principal of $2,000,000) 1/2/03 1,796,000 12.25 1,830,000 Bikers Dream, Inc. (Gross principal of $4,500,000) 6/22/01 4,390,625 12.00 4,474,483 Compass Plastics & Technologies, Inc. (Gross principal of $7,000,000) 2/27/03 6,615,205 12.25 5,166,509 Cover-All Technologies, Inc.(Convertible at $1.25/sh) 3/31/02 3,000,000 12.50 3,300,000 Digital Transmission Systems, Inc.(Convertible at $10.25/sh) 9/25/02 4,000,000 11.50 2,000,000 Diplomat Direct Marketing Corporation (Gross principal of $5,000,000) 6/29/03 4,947,925 12.00 4,951,397 Environmental Tectonics Corporation (Gross principal of $4,000,000) 3/27/04 3,500,770 12.00 3,608,943 Ergobilt, Inc. (Gross principal of $4,000,000) 1/15/03 3,818,400 11.50 3,434,055 Great Train Store Company (Gross principal of $3,000,000) 6/30/03 2,840,618 12.00 2,843,414 Smartchoice Automotive Group(Convertible at $6.00/sh) 6/30/00 3,500,000 12.00 3,100,000 Smartchoice Automotive Group(Convertible at $3.67/sh) 5/13/02 4,000,000 12.00 3,750,000 Tava Technologies, Inc. (Gross principal of $4,000,000) 1/31/01 3,685,350 11.50 3,734,294 Teltronics, Inc. (Gross principal of $1,750,000) 2/13/02 1,571,500 12.00 1,601,252 Teltronics, Inc. (Gross principal of $1,000,000) 2/25/99 875,900 12.00 958,636 Teltronics, Inc. 10/1/00 246,547 12.00 246,547 Universal Automotive Industries, Inc. 7/11/02 4,500,000 12.25 4,500,000 ----------- ----------- Subtotals 57,150,840 53,490,929 ----------- ----------- - ---------- * For Tandem Capital loans, if the loan is convertible into Common Stock, the conversion price is shown in parentheses. If the gross principal amount owed under the loan is higher than its cost basis, the gross principal is shown in parentheses. CANADIAN LOANS Business Press Group Inc. 6/4/03 300,000 13.00 300,000 Century Pacific Greenhouses Ltd.* 4/14/02 1,002,794 13.00 1,002,794 Copperhead Chemical Company, Inc. 10/23/02 500,000 12.50 500,000 DEC Interactive Inc.* 3/8/03 75,000 11.00 75,000 DEC Interactive Inc.* 5/12/03 75,000 11.00 75,000 DEC Interactive Inc.* 6/6/03 69,784 11.00 69,784 DEC Interactive Inc.* 9/5/03 202,525 11.00 202,525
34 35 SIRROM CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF SEPTEMBER 30, 1998
LOANS Maturity Cost Coupon Fair Value - ----- -------- ----------- ------ ---------- EHN Inc.* 10/3/03 $ 144,823 16.50% $ 144,823 Executrain (3199673 Canada Inc.)* 10/1/02 292,105 13.00 292,105 Executrain (3199673 Canada Inc.)* 12/24/02 559,910 13.00 559,910 Executrain (3199673 Canada Inc.)* 1/31/99 21,511 13.00 21,511 Executrain (3199673 Canada Inc.)* 1/31/99 13,027 13.00 13,027 Executrain (3199673 Canada Inc.)* 8/31/99 125,572 13.00 125,572 FEI Refrigerated Services LLC 1/14/03 2,000,000 12.50 2,000,000 G/Comm Marketing Inc.* 9/30/02 360,787 12.50 360,787 Gavel & Gown Software Inc.* 6/30/03 326,820 14.00 326,820 Glen Oak Inc. 12/17/02 1,268,678 12.50 1,268,678 Helix Hearing Care of America Corp. 8/9/03 1,200,000 13.00 1,200,000 Helix Hearing Care of America Corp. 8/9/03 800,000 13.00 800,000 Hunt Industries 2/1/03 1,000,000 15.00 900,000 Just Vacations, Inc.* 5/11/03 837,404 14.00 837,404 Kos Corp. Industries 8/6/03 2,000,000 14.00 2,000,000 Race Face Components, Inc.* 11/1/02 433,463 12.00 433,463 SFG Technologies Inc.* 7/30/02 738,204 5.00 613,204 SFG Technologies Inc.* 7/30/02 60,000 5.00 60,000 Sirvys Systems (3404447 Canada Inc.)* 12/30/02 704,037 14.00 354,037 Solitudes Holdings, Inc. 8/21/03 1,000,000 17.00 1,000,000 Street Level (1216069 Ontario Ltd.)* 12/29/02 348,651 13.00 348,651 Systech Group, Inc.* 3/31/02 874,636 13.00 874,636 Trademart Group, Inc.* 7/18/03 867,150 13.00 867,150 Traf-O-Data Investment Corporation* 7/14/98 180,000 14.00 180,000 Traf-O-Data Investment Corporation* 10/5/98 164,688 14.00 164,688 Troy Holdings International, Inc. 10/6/03 1,400,000 12.50 1,400,000 West Sun International, Inc.* 1/14/03 699,252 13.00 699,252 ------------ ------------ Subtotals 20,645,820 20,070,820 ------------ ------------ Total Loans $581,563,412 $534,541,002 ============ ============
- ---------- * Loan cost and fair value are stated in U.S. dollars. Loan principal is denominated in Canadian dollars. Note: Total gross principal owed under all loans outstanding at September 30, 1998 was $594,098,776. 35 36 SIRROM CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF SEPTEMBER 30, 1998
Cost or Number of Contributed EQUITY INTERESTS Shares Value Fair Value ---------------- ------ ---------- ----------- Publicly Traded Investments (a) American Network Exchange , Inc. Common Stock 76,222 $ 21,879 $ 0 American Network Exchange , Inc. Common Stock 63,429 0 0 Cardiac Control Systems, Inc. Common Stock 50,000 250,000 16,625 Compass Plastics & Technologies Inc. Common Stock 447,144 2,000 327,440 Consumat Systems, Inc. Common Stock 100,000 600,100 23,750 Family Golf Centers, Inc. Common Stock 18,238 0 257,156 Master Graphics, Inc. Common Stock 66,664 0 266,656 Medical Resources Inc. Common Stock 55,549 1,000,000 140,724 Merge Technologies, Inc. Common Stock 108,942 214 144,676 National Vision Associates, Ltd. Common Stock 208,698 1,771,149 875,662 Network Event Theaters, Inc. Common Stock 412,397 2,114,772 1,072,232 NOVA Corporation Common Stock 42,793 1 1,062,687 Premiere Technologies, Inc. Common Stock 25,000 0 108,112 Recompute Corporation Common Stock 125,000 250,000 202,083 Towne Services, Inc. Common Stock 158,595 0 724,250 UOL Publishing, Inc. Common Stock 32,728 8,494 159,344 Video Update Inc. Common Stock 85,000 1,561 85,796 Vista Information Solutions, Inc. Common Stock 96,660 0 714,529 Non-traded Equity Investments in Public Companies Altris Software, Inc. Preferred Stock - convertible at $6.00 3,000 3,000,000 600,000 Berger Holdings, Ltd. Preferred Stock - Series A; convertible at $4.25 25,000 2,500,000 2,400,000 Clinicor, Inc. Preferred Stock - Series B; convertible at $3.00 50,000 5,000,000 4,625,000 Environmental Tectonics Corporation Preferred Stock - Series A; convertible at $7.50 25,000 2,500,000 2,525,000 Smart Choice Automotive Group, Inc. Preferred Stock - Series D; convertible at $6.00 100 1,000,000 925,000 Teltronic, Inc. Preferred Stock - Series B; convertible at $2.75 25,000 2,500,000 2,500,000 Vista Information Solutions, Inc. Preferred Stock - Series E; convertible at $4.00 2,500 2,500,000 3,250,000 Vista Information Solutions, Inc. Preferred Stock - Series F; convertible at $6.37 2,500 2,500,000 2,650,000 Equity Investments in Private Companies Affinity Fund, Inc. Common Stock 1,738 15,000 15,000 Associated Response Services, Inc. Common Stock 96 500,000 500,000 Bravo Corporation Common Stock 69,391 106,950 0 Clearidge, Inc. Preferred Stock - Series A 1,189,480 2,700,000 2,700,000 Clearidge, Inc. Common Stock 400,000 1,000,000 1,000,000 Corporate Flight Management, Inc. Common Stock 66,315 663 663 CSM, Inc. Class A Common Stock 99,673 100,000 100,000 Dentalcare Partners, Inc. Common Stock 1,513,683 819,639 0 Front Royal, Inc. Common Stock 110,000 275,000 550,000 Fypro, Inc. Preferred Stock - Series A 4,659,480 4,659,480 250,000 Gulfstream International Airlines, Inc. Preferred Stock - Series A 216 3,000,000 3,000,000 Home Link, Inc. Preferred Stock 1,000,000 1,000,000 0 HPC America, Inc. Common Stock 5 0 0 Kentucky Kingdom, Inc. Common Stock 24,142 238,316 475,000 Micro Optics Design Corporation Common Stock 166,667 33 33 Micro Optics Design Corporation Preferred Stock - Series IV 166,667 299,967 299,967 Multimedia 2000, Inc. Common Stock 900 8,444 0 Multimedia 2000, Inc. Preferred Stock - Series A 2,609,988 2,274,556 0 Palco Telecom Service, Inc. Common Stock 157,895 1,579 100,000 Paysys International, Inc. Common Stock 150,000 300 425,000 Potomac Group, Inc. Common Stock 1,279,115 1,289,779 3,820,000 Potomac Group, Inc. Common Stock 958,566 2,591 2,880,000
36 37 SIRROM CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF SEPTEMBER 30, 1998
Cost or Number of Contributed EQUITY INTERESTS Shares Value Fair Value ---------------- ------ ---------- ----------- PRA International, Inc. Common Stock 292,696 $ 211,166 $ 2,046,166 Relevant Knowledge, Inc. Preferred Stock - Series B 312,500 500,000 500,000 Relevant Knowledge, Inc. Common Stock 75,000 120,000 120,000 Relevant Knowledge, Inc. Common Stock 114,458 286,145 286,145 Skillsearch Corporation Common Stock 13,350 1,060,875 431,840 SWS6, Inc. Preferred Stock 2,449,321 2,449,321 0 Teltrust , Inc. Common Stock 175,677 0 1,350,000 Unique Electronics, Inc. Preferred Stock - Series A 1,000,000 1,000,000 675,000 Valdawn Watch Co. Preferred Stock 240 240,000 0 Vision 2000, Inc. Common Stock 1,000,000 1,000,000 0 Vision 2000, Inc. Preferred Stock - Series A 2,720,141 2,720,141 0 Vision 2000, Inc. Preferred Stock - Series B 520,000 527,136 0 Zahren Alternative Power Corporation Common Stock 700 210,000 375,000 Zahren Alternative Power Corporation Preferred Stock 200 200,000 100,000 ----------- ----------- TOTAL EQUITY INTERESTS $56,337,253 $47,656,538 =========== ===========
37 38 SIRROM CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF SEPTEMBER 30, 1998
Cost or Number of Percentage Contributed STOCK WARRANTS Shares Ownership Value Fair Value -------------- --------- ---------- ------------ ---------- PUBLICLY TRADED COMPANIES ACT Teleconferencing, Inc. (exercise price $7/sh.) 183,853 3.33% $367,706 $ 0 Cardiac Control Systems, Inc. 250,000 4.35 0 83,125 Cardiac Control Systems, Inc. (exercise price $5/sh.) 50,000 2.15 0 0 Consumat Systems, Inc. 250,000 27.80 0 59,375 Consumat Systems, Inc. (exercise price $2.25/sh.) 66,379 5.00 0 0 DynaGen, Inc. 26,670 0.01 266,700 4,334 Encore Medical Corporation (exercise price $7/sh.) 69,841 0.01 0 0 HydroFuser Industries, Inc. 662,245 5.00 469,684 16,556 Recompute Corporation 611,144 8.00 300,000 988,016 Video Update Inc. (exercise price $10.80/sh.) 20,000 0.20 0 0 TANDEM CAPITAL WARRANTS AND OPTIONS IN PUBLICLY TRADED COMPANIES Altris Software, Inc. (exercise price $6/sh) 300,000 3.00 585,000 0 Aqua Care Systems, Inc. (exercise price $2.60/sh.) 115,500 4.14 53,000 25,000 Berger Holdings, Ltd. (exercise price $4.25/sh) 240,000 4.60 204,000 204,000 Bikers Dream, Inc. (exercise price $5/sh) 87,500 1.55 109,375 150,000 Bikers Dream, Inc. (exercise price $4.07/sh) 370,000 6.77 0 0 Compass Plastics & Technologies, Inc. (exercise price $6.75/sh) 420,000 7.92 384,795 0 Diplomat Direct Marketing Corporation(exercise price $2.35) 208,300 1.85 52,075 100,000 Environmental Tectonics Corp. (exercise price $1/sh) 166,410 5.00 499,230 575,000 Ergobilt, Inc. (exercise price $10/sh) 100,000 1.67 181,600 0 Great Train Store Company (exercise price $3.75/sh) 175,000 3.50 159,382 75,000 Smartchoice Automotive Group, Inc. (exercise price 300,000 2.50 0 100,000 Tava Technologies, Inc. (exercise price $4.91/sh) 155,000 1.00 314,650 250,000 Teltronics, Inc. (exercise price $2.75/sh) 890,000 16.90 302,600 400,000 Universal Automotive Industries, Inc. (exercise price $.92/sh) 450,000 6.00 0 100,000 PRIVATE COMPANIES 2021. Interactive, LLC 10.25 of LLC 10.25 0 0 Action Sports Group, LLC 3,350 10.00 0 0 Adavest Holdings, LLC 18.75 of LLC 18.75 0 0 Advanced Wireless Technologies 2,034,366 8.75 Aero Products Corporation 31 25.00 0 0 Affinity Corporation 1,402 6.79 5,000 5,000 Air Age Services of San Antonio, Inc. 149 13.00 0 0 Alignis, Inc. 111,685 4.00 0 0 Alliance Media Group, Inc. 1,172,289 12.50 0 0 American Rockwool Acquisition Corp. 1,100,000 11.00 0 1,075,000 Amscot Holdings, Inc. 4,804 49.00 0 0 Anton Airfoods, Inc. 124 11.00 0 575,000 Associated Response Services, Inc. 611 39.73 14,000 1,000,000 Assured Power, Inc. 280 12.00 0 0 Atlantic Security Systems, Inc. 1 1.00 0 0 Auburn International, Inc. 175,214 5.50 150,000 150,000 Austin Innovations, Inc. 35,146 3.00 50,000 50,000 Aviation Holdings Ltd. (Newfoundland affiliate) 4,713 9.69 0 0 Avionics Systems, Inc. 16.5 of Co. 16.50 0 0 B & N Company, Inc. 91 10.63 40,000 0 Bohdan Automation, Inc. 571,048 4.25 0 475,000 BroadNet, Inc. 265,568 15.00 0 0 BUCA, Inc. 193,332 2.04 761,247 761,247
38 39 SIRROM CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF SEPTEMBER 30, 1998
Cost or Number of Percentage Contributed STOCK WARRANTS Shares Ownership Value Fair Value -------------- --------- ---------- ----------- ---------- Bug.Z, Inc. and Subsidiaries 994,971 14.90% $ 0 $ 0 Business Press Group, Inc. 4,573 4.20 0 0 C.J. Spirits, Inc. 180,000 10.00 0 0 Caldwell/VSR Inc. 69 6.93 0 0 Campbell Software, Inc. 748,942 1.50 0 0 Capital Sigma Investments, Inc. 331,825 22.00 0 0 Caribou Coffee Company, Inc. 125,418 1.70 846,472 846,472 CarStar A&B, Inc. 200 20.00 0 0 CarStar Automotive, Inc. 492,136 5.00 0 0 Cartech Holdings, Inc. 280,702 25.00 0 0 Catalina Food Ingredients, Inc. 14 12.25 0 0 Cedaron Medical, Inc. 185,168 4.50 0 0 Century Pacific Greenhouses LTD 177,418 6.30 0 0 CF Data Corp. 257 20.50 17,500 150,000 Champion Glove Manufacturing Co., Inc. 538,614 6.88 0 0 Check Into Cash, Inc. 64,512 5.05 461,000 4,300,000 Chinese Media Group, LLC 17.5% of LLC 17.50 0 0 Clearidge, Inc. 44,217 1.07 0 0 CLS Corporation 126,997 4.22 0 0 CMHC Systems, Inc. 2,385 3.15 0 200,000 CMP Enterprises, LLC 15.17% of LLC 15.17 0 0 Cold Jet, Inc. 820 3.00 0 0 Colonial Investments, Inc. 369 32.50 0 0 Columbus Medical Holdings, LLC 17,455 12.00 0 300,000 Co0Mack Technologies, Inc. 245,217 11.75 400,000 400,000 Compression, Inc. 422,498 4.60 0 0 Continental Diamond Cutting Company 112 10.00 0 0 Copperhead Chemical Company, Inc. 93 4.20 0 0 Corporate Link, Inc. 190 16.00 0 0 Cort Investment Group, Inc.(d/b/a Contract Network) 90,000 9.00 180,000 180,000 Counsel Press LLC 678,146 8.33 443,700 443,700 CPI Qualified Plan Consultants, Inc. 3,379 8.00 0 0 Creighton Shirmakers, Inc. 30,250 30.25 0 0 CSM, Inc. 130,000 13.00 0 150,000 Cybo Robotics, Inc. 2,835,960 13.68 0 0 Dalt's, Inc. 161 31.00 0 0 Data National Corporation 275,682 18.00 450,000 450,000 Data Net Corporation 523,476 9.00 0 0 Daxxes Corporation 61,766 2.94 0 0 DEC Interactive, Inc. 35,409 2.68 0 0 Delaware Publishing Group, Inc. 5,817 32.49 15,000 0 Distinction Software, Inc. 17,746 1.50 0 0 Dyad Corporation 615 5.00 600,000 600,000 Dyntec, Inc. 126,667 15.00 0 350,000 Encor Technologies, Inc. 7 6.84 0 0 Entek Scientific Corporation 260,710 5.25 160,000 850,000 ERDA, Inc. 433,130 7.00 0 0 Executrain (3199673 Canada Inc.) 18 12.60 0 0 Exhibit Emporium Acquisition Company, LLC 200 16.00 0 0 Express Shipping Centers, Inc. 113,352 7.76 552,402 0 FaxNet Corporation 190,321 2.50 100,000 425,000 FDL, Inc. 548 16.00 250,000 250,000 FEI Refrigerated Services, LLC 4.37% of LLC 4.37 0 0 Film Technologies International, Inc. 8 7.50 0 0 Foodnet Holdings, LLC 12% of LLC 12.00 0 0 Fortrend Engineering Corp. 437,552 3.25 0 0 Front Royal, Inc. 240,458 1.85 0 1,225,000
39 40 SIRROM CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF SEPTEMBER 30, 1998
Cost or Number of Percentage Contributed STOCK WARRANTS Shares Ownership Value Fair Value -------------- --------- ---------- ----------- ---------- Fulcrum Direct, Inc. 1,600,831 5.00% $ 0 $ 0 Fypro, Inc. 255,882 15.00 0 0 G/Comm Marketing Inc. 462 4.62 0 0 Gardner Wallcovering, Inc. 2 2.00 0 0 Gateway Communications, Inc. 8 7.75 17,280 17,280 Gavel & Gown Software Inc. 3,285 1.68 0 0 GC Management, Inc. 600,000 10.00 0 0 Generation 2 Worldwide LLC 28% of LLC 28.00 0 0 GerAssist, Inc. 334,021 2.30 0 225,000 Glen Oak Inc. 93 7.50 0 0 Global Marine Electronics, Inc. 5,137 18.00 0 0 Gloves Inc. 5,000 5.00 0 0 Good Food Fast Companies, The 174,779 17.00 0 0 Graphic Systems Group, Inc. 4 3.50 0 0 Green Tree Technologies, Inc. 307,580 13.00 0 0 Gulfstream International Airlines, Inc. 271 39.00 10,000 10,000 H & H Acquisition Corp. 3,600 22.50 0 160,000 Helix Hearing Care of America Corp 1,060,871 3.34 0 0 Home Link Services, Inc. 166,667 20.00 0 0 Hunt Assisted Living, LLC 7.2% of Class A 7.20 0 0 Hunt Assisted Living, LLC 4.8% of Class B 4.80 100 100 Hunt Holdings 1,612 6.30 0 0 I. Schneid Holdings LLC 21% of LLC 21.00 0 150,000 IJL Holdings, Inc. 139 12.50 0 0 ILD Communications, Inc. 5,429 2.09 0 1,250,000 Imtek Office Solutions, Inc. 119,891 1.50 0 0 In Store Services, Inc. 429 12.50 12,000 12,000 Isthmus, Inc. (Proamics affiliate) 38 3.50 0 0 J. Fegely & Son Hardware Co., Inc. 180 7.00 0 0 Jim Bridges Acquisition Company 10,728 15.00 0 0 Johnston County Cable L.P. 31.94% of LP 31.94 110,000 600,000 JRB Enterprises, Inc.(d/b/a Silk, Silk, Silk) 4,617 16.00 0 0 Just Vacations, Inc. 89,508 6.83 0 0 K.W.C. Management Corp. 794 24.40 0 0 Karawia Industries, Inc. 1,391 12.00 0 0 Kos Corp. Industries 265,263 2.10 0 0 Lane Acquisition Corporation 11,667 10.00 0 0 Leisure Clubs International, Inc. 525 29.50 15,000 0 Lightfoot Software Company 25 20.00 0 0 Lovett's Buffet, Inc. 743,083 11.00 0 725,000 M & M Industries, Inc. 1,659,113 15.00 0 0 M.A.P.A., Inc. 205 16.00 0 0 Marmot Mountain, Ltd. 64,840 2.25 250,000 250,000 Mayo Hawaiian Corp. 130 11.50 0 0 MBA Marketing Corporation 15,147 4.62 18,000 18,000 McAuley's Incorporated 87 8.00 0 0 MCG, Inc. 121,518 4.50 0 0 Mead0Higgs, Inc. 2,500 10.00 0 525,000 MegaMarketing Corporation 260,192 4.00 200,000 200,000 Mesa International, Inc. 23 32.00 0 0 Metals Recycling Technologies Corp. 257,801 5.00 0 0 MetroLease, Inc. 35,447 26.50 5,000 475,000 MLG0LoBue LLC 33% of LLC 33.00 0 0 MMS Incentives, LLC 281,687 10.00 0 0 Mobility Electronics, Inc. 264,172 2.32 0 1,850,000 Moore Diversified Products, Inc. 17 15.00 0 200,000 Moorings, LLC 9,493 14.50 344,500 200,000
40 41 SIRROM CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF SEPTEMBER 30, 1998
Cost or Number of Percentage Contributed STOCK WARRANTS Shares Ownership Value Fair Value -------------- --------- ---------- ----------- ---------- Multimedia Learning, Inc. $ 0 $ 200,000 Mytech Corporation 172,098 3.50% 0 175,000 N&R Printing, Inc. 25 23.00 0 0 NASC, Inc. 2,652 23.00 0 250,000 Nationwide Engine Supply, Inc. 1,410,844 22.52 25,000 0 NetForce, Inc. 67 6.25 0 0 Newfoundland Career Academy Ltd. 19,159 9.87 0 0 NRI Service and Supply, L.P. 28.5% of LP 28.50 25,000 0 Nunn Acquisition Corporation 16,280 14.00 0 0 Omni Home Medical, Inc. 3,778 20.50 0 0 Omni Products of Palm Beach, Inc. 149,925 16.00 0 0 Omni Products of Palm Beach, Inc. for preferred stock 19,048 16.00 100,000 100,000 One Call Comprehensive Care, Inc. 326,974 30.00 0 0 One Coast Network Corporation 763,666 15.63 0 1,700,000 Online Resources & Communications Corp. 350,000 1.26 0 0 OpenConnect Systems Incorporated 280,862 3.00 0 0 Orchid Manufacturing, Inc. 1,219,047 2.61 40,000 600,000 Outdoor Promotions, LLC 16.5% of LLC 16.50 0 100,000 P.A. Plymouth, Inc. 92,647 15.00 0 475,000 Pacific Linen, Inc. 365,349 7.81 548,020 548,020 Pacific Plus, Inc. 3,087 9.25 175,000 175,000 Palouse Holdings, LLC 14% of LLC 14.00 0 0 Paradigm Valve Services, Inc. 30,000 12.00 0 0 Pathology Consultants, Inc. 317,553 6.00 0 500,000 PaySys International, Inc. 66,100 1.80 274,842 175,000 Pharmed Group Holdings, Inc. 930,286 12.50 0 0 Physicians Surgical Care, Inc. 286,000 4.86 143,000 550,000 Piedmont Hardwood Flooring, LLC 8% of LLC 8.00 0 0 Precision Panel Products, Inc. 137 9.25 15,000 0 PRICE Systems, LLC 8% of LLC 8.00 0 0 Pritchard Paint & Glass Co. 12,500 25.00 0 425,000 Proamics Corporation 382,299 3.50 0 0 Professional Training Services, Inc. 369,493 3.65 0 0 Protect America, Inc. 6,702 6.00 0 0 Pro-Style Acquisition Corporation 121,993 10.00 0 0 QSS Acquisition, Inc. 156,503 14.63 0 0 R & R International, Inc. 49,646 4.00 0 325,000 Race Face Components. Inc. 3,465 11.55 0 0 Ready Personnel, Inc. 101,510 12.50 0 1,100,000 Reef Chemical Company, Inc. 183,215 3.00 300,000 300,000 Relax the Back Corporation 1,156,042 6.69 0 1,350,000 Relevant Knowledge, Inc. 121,283 1.09 0 150,000 Rynel Ltd., Inc. 916,523 22.50 0 0 Saraventures Fixtures, Inc. 25 20.00 0 0 SBX Holding Company 101,928 9.25 0 0 SFG Technologies Inc. 31,304 1.38 0 0 Sheet Metal Specialties, Inc. 587 37.00 0 0 Sirvys Systems (3404447 Canada Inc.) 134,400 3.36 0 0 Solitudes Holdings Inc 0.2118 0.21 0 0 Solutioneering, Inc. 131,350 7.50 0 0 Southern Specialty Brands, Inc. 10,000 10.00 17,500 125,000 Southern Therapy, Inc. 333 10.00 0 400,000 Stealth Engineering, Inc. 228,820 14.00 0 0 Stratford Safety Products, Inc. 114 10.25 75,000 250,000 Street Level (1216069 Ontario Ltd.) 68,373 5.88 0 0 Sub 1 Corporation (d/b/a Risk Management) 13 13.00 0 0 Superior Pharmaceutical Co.(Dynagen affiliate) 10% of Co. 10.00 0 0
41 42 SIRROM CAPITAL CORPORATION & SUBSIDIARIES CONSOLIDATED PORTFOLIO OF INVESTMENTS -- (CONTINUED) AS OF SEPTEMBER 30, 1998
Cost or Number of Percentage Contributed STOCK WARRANTS Shares Ownership Value Fair Value -------------- --------- ---------- ------------ ---------- EHN Inc. 1 1.68% $ 0 $ 0 Synaxis Group, Inc. 331,819 5.50 0 0 Systech Group, Inc. 41,418 2.52 0 350,000 TAC Systems, Inc. 522,902 5.47 0 0 Talent Metal Products, Inc. 227 18.50 0 0 Talus Solutions, Inc. 94,525 0.34 0 200,000 TeleCommunication Systems, Inc. 290,322 6.00 0 300,000 Telecontrol Systems, Inc. 530,303 17.50 0 0 Telemate Software, Inc. 20,202 1.00 0 0 Telequestion, Inc. 2,995,975 25.00 0 0 Temps & Co., Inc. 53 5.00 0 0 Therapeutic Services of America, Inc. 20,000 14.00 0 0 Thomas Holding Company (d/b/a Sports & Social Clubs) 11 10.00 0 0 Tie and Track Systems, Inc. 1,645 14.00 0 0 Toccoa Associates, LLC 99 15.47 0 0 Trade Am International, Inc. 335,106 6.00 0 0 Trademart Group, Inc. 1,636 1.68 0 0 TRC Acquisition Corporation 375,000 12.50 0 175,000 Troy Holdings (SCCC) 294,000 0 0 Tulsa Industries, Inc. 2,564 2.50 0 0 UltraFab Vessels, Inc. 131,494 13.00 0 0 UltraFab, Inc. 131,494 13.00 0 0 Unicoil, Inc. 93,292 9.25 0 0 Unique Electronics, Inc. 30% of Co. 30.00 0 0 U.S. Ring Binder, L.P. 14.5% of L.P. 14.50 85,000 85,000 Valdawn Watch Co. 400 80.00 0 0 VanGard Communications Co., LLC 12% of LLC 12.00 0 0 VDW Farms, Ltd. 10.1% of Co. 10.10 0 0 Vision Software, Inc. 36,740 2.08 0 0 Watts0Finniss Holdings, Inc. 7,146 10.94 0 0 Wearever Healthcare Products, LLC 501,274 17.33 250,000 0 WebMD, Inc. 557,490 3.50 0 5,575,000 West Sun International, Inc. 224 1.26 0 0 Westcorp Software Systems, Inc. 887,066 4.00 0 0 WJ Holdings, Inc. 250,000 25.00 0 0 Wolfgang Puck Food Company 115,452 1.99 0 0 Zahren Alternative Power Corporation 1,366 5.00 25,000 750,000 ------------ ------------ Total Warrants $ 12,826,360 $ 42,617,225 OTHER INVESTMENTS SWS3, Inc. (balance of proceeds from sale of mfg. plant) $ 524,926 $ 124,926 Hancock Company (royalty stream to be collected from sale of Gitman brand name) 1,675,097 125,097 Capitalized workout expenses - SCC 1,494,404 204,404 ------------ ------------ Total Other Investments $ 3,694,427 $ 454,427 ------------ ------------ Total Investments $654,421,452 $625,269,192 ============ ============
42 43 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company's principal investment objectives are to achieve a high level of income from the collection of interest and processing and financial advisory fees and long-term growth in its shareholders' equity through the appreciation in value of equity interests in its portfolio companies. The Company's and SII's loans are typically in the form of secured debt with relatively high fixed interest rates accompanied by warrants to purchase equity securities of the borrower. In addition to interest on investments, the Company and SII also typically collect an up-front processing fee on each loan they originate. Harris Williams typically obtains a monthly retainer fee for each merger and acquisition transaction for which it is retained and, in addition, a success fee when the transaction is consummated. RESULTS OF OPERATIONS The Company's financial performance in the Statements of Operations is comprised of four primary elements. The first is "net operating income," which is the difference between the Company's income from interest, dividends, fees and Harris Williams' pretax income, and its total operating expenses, including interest expense. The second element is "realized gain (loss) on investments," which is the difference between the proceeds received from the disposition of portfolio assets and their stated costs at the beginning of the period. The third element is the "change in unrealized appreciation (depreciation) of investments," which is the net change in the fair values of the Company's portfolio assets compared with their fair values at the beginning of the period or their stated costs, as appropriate. Generally, "realized gain (loss) on investments"and "change in unrealized appreciation (depreciation) of investments" are inversely related in that when an appreciated asset is sold to realize a gain, a decrease in unrealized appreciation occurs since the gain associated with the asset is transferred from the "unrealized" category to the "realized" category. Conversely, when a loss is realized on a depreciated portfolio asset, the reclassification of the loss from "unrealized" to "realized" causes an increase in unrealized appreciation and an increase in realized loss. The fourth element is "provision for income taxes," which primarily consists of taxes on the pre-tax income of Harris Williams. Net Operating Income. During the quarter ended September 30, 1998, the Company earned interest on investments of $17.0 million, a 55% increase over the $11.0 million earned in the same quarter of 1997. For the nine month period ended September 30, 1998, interest on investments was $46.5 million, a 63% increase over the $28.6 million earned in the same period of 1997. In addition to interest on investments, the Company also collects an up-front processing fee for each loan it originates. During the third quarter of 1998, the Company earned $1.5 million in processing fees, a 21% decrease versus the $1.9 million earned in the third quarter of 1997. The increases in interest income are a result of increases in the dollar amount of loans outstanding during the applicable periods. The decrease in processing fees for the third quarter of 1998 versus 1997 was the result of a 14% decrease in loan originations from $73.6 million in the third quarter of 1997 to $64.4 million in the third quarter of 1998 that was a combined result of the diversion in loan officer and management focus created by the events that transpired during the third quarter, the intentional tightening of the Company's underwriting parameters, management's decision to slow loan production, and increased competition early in the third quarter that has since subsided. During the nine months of 1998, the Company earned $6.0 million in processing fees, a 22% increase over the $4.9 million earned in the nine months of 1997. This increase was attributable to the fact that the $266.1 million of loans originated in the nine months of 1998 was a 32% increase over the $202.3 million of loans originated in the nine months of 1997. The Company's loan portfolio increased to $534.5 million at September 30, 1998, an increase of 47% over the $363.4 million loan portfolio balance at September, 1997. The weighted average interest rate charged on the loan portfolio at September 30, 1998 and 1997 was 13.25% and 13.25%, respectively. 43 44 The Company's interest expense increased to $4.6 million in the third quarter of 1998, a 92% increase from the $2.4 million expensed in the third quarter of 1997. Interest expense was $12.0 million in the nine months of 1998, an 88% increase over the $6.4 million expensed in the nine months of 1997. The increase in interest expense periods resulted from increased amounts borrowed under the Company's two revolving credit facilities and from the SBA. The Company's total borrowings were $242.3 million on September 30, 1998 and $151.0 million on September 30, 1997. Overhead and amortization of borrowing costs totaled $3.8 million in the third quarter of 1998, a 58% increase over the $2.4 million of such expenses in the third quarter of 1997 and $10.3 million in the nine months of 1998, a 69% increase over the $6.1 million of such expenses in the nine months of 1997. These increases can be largely attributed to the increase in the number of employees to 61 in September 1998 from 41 in September 1997 (excluding Harris Williams employees), the operation of additional offices and the increase in the Company's loan portfolio. During the third quarter of 1998, Harris Williams had revenues of $2.3 million, a 15% increase from $2.0 million in the third quarter of 1997. For the nine months of 1998, Harris Williams had revenues of $10.0 million, a 75% increase over the $5.7 million for the nine months of 1997. During the third quarter of 1998, Harris Williams had pre-tax income of $194,000, a 79% decrease from $915,000 in pre-tax income in the third quarter of 1997 and during the nine months of 1998, had pre-tax income of $3.9 million, a 77% increase over the $2.2 million in pre-tax income for the nine months of 1997. The increases in revenues and pre-tax income for the nine months of 1998 over the same period of 1997 were due to an increase in the number and size of transactions on which Harris Williams provided advisory services. The decrease in pre-tax income for the third quarter of 1998 versus 1997 was due to higher expenses in 1998 resulting from an increase in the number of employees and the timing of bonus accruals. Since a significant percentage of Harris Williams' fees are paid at the closing of advised transactions, the timing of such closings may cause significant variations in its revenues and pre-tax income from quarter to quarter. Income taxes of $(22,292) and $228,842 were accrued on Harris Williams' pre-tax income in the third quarter of 1998 and 1997, respectively. Realized Gain (Loss) on Investments. The Company's net realized gain on investments was $203,000 during the third quarter of 1998 and its net realized loss was $4.4 million during the nine months of 1998, as compared to net realized gains of $2.2 million and $9.7 million for the third quarter and the nine months of 1997, respectively. The net realized loss for the nine months of 1998 is primarily attributable to loans made to Saraventures Fixtures, Inc., whose manufacturing operations were consolidated with Precision Panel Products, Inc., during 1998 as part of a restructuring strategy that the Company no longer believes is likely to result in repayment of the outstanding loans to those borrowers. The following table sets forth the details of realized gains and losses that occurred during the third quarter and the nine months of 1998 and 1997. 44 45 Schedule of realized gains(losses) for the three month period and nine month period ending September 30, 1997 and September 30, 1998.
Three Months Nine Months Ended September 30, Ended September 30, --------------------------- ------------------------------- 1997 1998 1997 1998 ---- ---- ---- ---- (in thousands) (in thousands) Argenbright Holdings Ltd. Warrant $ 0 $ 750 Ashe Industries, Inc. Loan (1) (2,609) Assured Power, Inc. Loan $ (200) Atlantic Security Systems, Inc. Warrants 434 BankCard Services, Inc. Loan (277) Bohdan Automation, Inc. Warrants $ 477 477 CellCall, Inc. Common Stock 228 Champion Glove Manufacturing, Inc. Loan (1,250) C.J. Spirits, Inc. Loan (758) (758) Compass Plastics and Technologies, Inc. Stock 1,948 1,948 Daxxes Corporation Loan (848) (848) Eastern Food Group LLC Loan (1,265) Educational Medical Inc. Stock 560 560 Encore Medical Corporation Stock 947 947 Factory Card Outlet Corporation Stock 534 534 Fulcrum Direct, Inc. Loan (5,000) (5,000) Global Finance & Leasing, Inc. Warrant 409 Global Marine Electronics, Inc. Warrants 200 Gold Medal Products, Inc. Loan (835) Golf Corporation of America, Inc. Loan (1,240) (1,240) Golf Video, Inc. Loan (500) Horizon Medical Products, Inc. Warrant 400 400 Hoveround Corporation Warrants 4,100 4,100 H.S.A. International Other Investment (441) Hunt Leasing & Rental Corporation Warrants 598 Innotech, Inc. Common Stock 901 IOL 2000/Suncoast Medical Group Loan (1,517) Master Graphics, Inc. Common Stock 1,860 Merge Technologies, Inc. Common Stock 196 Miscellaneous 21 (4) 5 (15) Monogram Products, Inc. Warrant 200 200 Multimedia Learning, Inc. Warrant 245 1,170 National Health Systems, Inc. Loan (420) Newfoundland Career Academy, Ltd. Loan (1,160) (1,160) Outdoor Promotions, LLC Warrants 89 89 Patton Management Corporation Warrants 303 PMTS Services, Inc. Warrants 469 469 Precision Panel, Inc. Loan (7,223) Premier Technologies, Inc. Common Stock 7,170 Protect America, Inc. Warrants 185 185 QuadraMed Corporation Common Stock 357 Quadravision Communications Limited Warrant 156 Radiant Systems, Inc. Common Stock 1,544 2,260 Radio Systems Corporation Warrant 1,800 Saraventures Fixtures, Inc. Preferred Stock (1,659) Skillmaster, Inc. Warrant 200 Sqwincher Corporation Warrant 320 SWS3 (f/k/a Urethane Technologies) Other Investments (700) (700) Tower Environmental, Inc. Loan (2,609) (2,609) Towne Services, Inc. Common Stock 1,116 1,116 Union Planters, Inc. Common Stock 170 Video Update Common Stock 99 Virginia Gas Company Stock 475 475 Virginia Gas Company Warrant 160 160 Virtual Resources, Inc. Warrant 432 Vista Information Solutions, Inc. Common Stock 1,246 3,933 Voice FX Corporation Common Stock 46 245 ------- -------- -------- -------- $ 2,239 $ 203 $ 9,683 $ (4,353) ======= ======== ======== ========
45 46 Change in Unrealized Appreciation (Depreciation) of Investments. For the quarter ended September 30, 1998, the Company recorded change in unrealized depreciation of investments of $34.5 million and for the quarter ended September 30, 1997, the Company recorded change in unrealized appreciation of investments of $1.1 million. For the nine month periods ended September 30, 1998 and 1997, the Company recorded a change in unrealized depreciation of investments of $39.9 million and $2.1 million, respectively. The significant change in unrealized depreciation during 1998 is primarily attributable to additional net unrealized depreciation taken against the loans made to the two borrowers described in the "Realized Gain (Loss) on Investments" section above, unrealized depreciation recorded against new loans added to the Company's Credit Watch Portfolio during 1998 and the recent significant decline in the value of publicly traded small and micro-cap stocks that comprise part of the Company's portfolio. The following table sets forth information regarding significant changes in unrealized appreciation (depreciation) of assets in the Company's portfolio made during the third quarter of 1998 and 1997 and the nine months of 1998 and 1997. 46 47 Schedule of significant unrealized appreciation (depreciation) for the three month period and nine month period ending September 30, 1997 and September 30, 1998.
Three Months Nine Months Ended September 30, Ended September 30, -------------------- ------------------------ 1997 1998 1997 1998 ---- ---- ---- ---- (in thousands) (in thousands) LOANS: Aero Products Corporation $ (275) $ (650) Argenbright Holdings, Ltd. $ (750) Ashe Industries, Inc. 2,300 Assured Power, Inc. $ (625) (625) B&N Company, Inc. (400) (400) (400) C. J. Spirits, Inc. 50 700 (350) 650 Carter Kaplan Holdings LLC (25) 549 Champion Glove Manufacturing Co., Inc. (200) (1,200) 1,200 Compass Plastics & Technologies, Inc. (1,500) (1,500) Coverall Technologies, Inc. (1,275) (1,850) Dalts, Inc. (500) Daxxes Corporation 848 Digital Transmission Systems, Inc. (1,600) (2,000) Eastern Food Group LLC 1,265 Ergobilt, Inc. (400) Express Shipping Centers, Inc. (500) (1,000) Fulcrum Direct, Inc. 500 Fypro, Inc. (225) (225) GC Management, Inc. (750) (750) Golf Corporation of America 1,100 475 Golf Video, Inc. 450 Good Food Fast Companies, The (400) (400) Home Link Services, Inc. (25) (300) Hydrofuser Industries, Inc. (400) (400) IJL Holdings, Inc. (1,500) (1,500) International Displays Inc. (750) (750) IOL 2000, Inc. 1,225 Mesa International, Inc. (4,850) (5,350) Metals Recycling Technologies Corp. 350 Multimedia 2000, Inc. (1,150) (1,150) National Health Systems, Inc. (50) (50) 300 Nationwide Engine Supply, Inc. (300) (2,300) Nozzle Rebuilders (1,225) (1,225) One Call Comprehensive Care, Inc. (1,175) (1,475) Precision Panel, Inc. (2,477) (8,977) Recycling Technologies, Inc. (350) (350) Saraventures Fixtures, Inc. 1,745 Sirvys, Inc. (350) (350) Scandia Technologies, Inc. (425) (425) Smartchoice Automotive Group, Inc. (1,100) (650) Studley Products Corp. (525) (525) Summit Publishing Group, Ltd. (397) (2,372) Suncoast Medical Group, Inc. (925) (925) SWS3, Inc. 200 (150) (250) SWS6, Inc. (200) (700) (200) (525) Talent Metal Products (2,300) (2,300) Toccoa Associates, LLC (325) (325) Tower Environmental, Inc. 2,560 850 Valdawn Watch Company (60) (100) (460) (2,575) Vision 2000, Inc. (650) (2,075) Wearever Health Products, LLC (1,075) (1,650) PRIVATE COMPANY WARRANTS AND EQUITY SECURITIES: AB Plastics Holding Corporation 2,875 Affinity Corporation (365) American Rockwool Acquisition Corp. 400 400 675 Anton Airfoods, Inc. 350 350 Argenbright Holdings Ltd. 375 Bohdan Automation, Inc. 475
47 48 Schedule of significant unrealized appreciation (depreciation) for the three month period and nine month period ending September 30, 1997 and September 30, 1998 -- (continued).
Three Months Nine Months Ended September 30, Ended September 30, -------------------- ------------------------ 1997 1998 1997 1998 ---- ---- ---- ---- (in thousands) (in thousands) Bravo Corporation $ (350) $ (350) CF Data Corp. $ 133 $ 133 Check into Cash, Inc. 3,839 CMHC Systems, Inc. 200 200 Columbus Medical Holdings, LLC 300 DentalCare Partners, Inc. (290) (280) (300) Dyntec, Inc. 350 Electronic Accessory Specialists Inc. 250 250 Endeavor Technologies, Inc. 5,025 Express Shipping Centers, Inc. (290) (262) FaxNet Corporation 325 Front Royal Inc. 520 520 350 Fulcrum Direct, Inc. 500 Fypro, Inc. (125) (3,798) GerAssist, Inc. 225 225 Home Link, Inc. (250) (750) Horizon Medical Products, Inc. (200) Hoveround Corporation (4,050) (3,750) HTR, Inc. 475 475 Hunt Leasing & Rental Corporation (250) H & H Acquistion Corp. 160 160 ILD Communications, Inc. 300 300 500 International Displays, Inc. (159) Johnston County Cable, L.P. 230 220 Kentucky Kingdom, Inc. (810) (25) (810) (25) Lovetts Buffet, Inc. 325 Master Graphics, Inc. 1,050 Mead-Higgs, Inc. 525 Mesa International, Inc. 750 750 (750) Metrolease, Inc. 470 Mobility Electronics, Inc. 1,600 Monogram Products, Inc. (116) Multicom Publishing, Inc. (non-traded) (950) (1,175) Multimedia 2000, Inc. (225) (351) Multimedia Data Systems, Inc. 497 497 Multimedia Learning, Inc. (150) (450) One Coast Network Corporation 1,700 Pathology Consultants of America, Inc. 500 Patton Management Corporation (185) Paysys International Inc. 475 475 Physicians Surgical Care 407 407 Potomac Group, Inc. common stock 1,596 2,296 Potomac Group, Inc. preferred stock 1,205 605 PRA International, Inc. 1,170 Pritchard Glass, Inc. 425 Protect America, Inc. (180) (180) R&R International, Inc. 325 Radio Systems Corporation (1,000) Ready Personnel, Inc. 1,100 Recompute Corporation 175 175 Relax the Back Corporation 1,350 Saraventures Fixtures, Inc. 1,659 Southern Specialties, Inc. 108 108 Systech Group, Inc. 350 350 SWS6, Inc. (800) (2,428) Talus Solutions, Inc. (100) 200 Telecommunication Systems, Inc. 300 Teltrust, Inc. 825 The Moorings, LLC (145) (145) Towne Services, Inc. 1,500 TRC Acquisitions, Inc. 175 175
48 49 Schedule of significant unrealized appreciation (depreciation) for the three month period and nine month period ending September 30, 1997 and September 30, 1998 -- (continued).
Three Months Nine Months Ended September 30, Ended September 30, -------------------- ------------------------ 1997 1998 1997 1998 ---- ---- ---- ---- (in thousands) (in thousands) Unique Electronics, Inc. $ (250) $ (250) Valdawn Watch Co., Inc. (240) (240) Virtual Resources, Inc. (250) Vision 2000, Inc. (442) $(3,047) Wolfgang Puck Food Company, Inc. $ (350) Zahren Alternative Power Corp. common stock 515 515 Zahren Alternative Power Corp. preferred stock (100) (100) PUBLIC COMPANY WARRANTS AND EQUITY SECURITIES: ACT Teleconferencing warrant (369) (369) Altris Software, Inc. common stock (1,350) (1,950) Altris Software, Inc. preferred stock (900) American Consolidated Laboratories, Inc. common stock and warrant (602) (1,044) AquaCare Systems, Inc. warrant (28) (28) Clinicor, Inc. preferred stock (100) (375) Compass Plastics & Technologies, Inc. common stock (537) (537) Compass Plastics & Technologies, Inc. warrant 419 (150) 419 (1,894) Consumat Systems, Inc. common stock (146) (12) 131 (570) Educational Medical, Inc. common stock (557) (575) Encore Medical, Inc. common stock (926) 191 Environmental Tectonics Corporation preferred stock (399) (375) 401 25 Environmental Tectonics Corporation warrants (275) (275) Ergobilt, Inc. warrant (182) Factory Card Outlet of America common stock (306) (408) Family Golf Centers common stock (112) (112) Great Train Store Company warrants (84) (84) Hydrofuser Industries, Inc. warrant 805 (116) 805 (447) Innotech, Inc. common stock (454) Integrated Health Services, Inc. common stock 165 165 Master Graphics Inc. common stock (222) (1,733) Medical Resources Inc. common stock (152) (21) (152) (21) Merge Technologies Inc. common stock (184) (184) Moovies, Inc warrant (471) (291) National Vision Associates, Ltd. common stock 43 (444) 145 (444) Network Event Theatres Inc. common stock (340) (340) NOVA Corp. common stock (134) (134) PMT Services, Inc. common stock (487) 609 Premiere Technologies, Inc. common stock 341 (6,222) (408) QuadraMed Corporation common stock 218 159 Radiant Systems, Inc. warrant (1,056) (351) Recompute Corp. warrant 388 388 Smart Choice Automotive Group, Inc. warrant 300 (525) 300 (100) Tava Technologies, Inc. warrant (300) (300) Teltronics, Inc. preferred stock (300) Teltronics, Inc. warrant (450) 97 Towne Services, Inc. common stock (776) (776) Universal Automotive warrant 225 225 Virginia Gas Company common stock (541) (278) Vista Information Solutions, Inc. common stock 2,313 (1,316) 3,629 (3,229) Vista Information Solutions, Inc. preferred stock 600
49 50 Provision for Income Taxes. Beginning in February 1995, the Company elected to be taxed as a regulated investment company (a "RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). If the Company, as a RIC, satisfies certain requirements relating to the source of its income, the diversification of its assets and the distribution of its net income, the Company is generally taxed as a pass through entity that acts as a partial conduit of income to its shareholders. In order to maintain its RIC status, the Company must, in general, derive at least 90% of its gross income from dividends, interest and gains from the sale or disposition of securities; meet investment diversification requirements defined by the Code; and distribute to shareholders 90% of its net investment income. The Company presently intends to meet the RIC qualifications in 1998. However, the Company's Board of Directors is giving serious consideration to giving up the Company's RIC status in 1999. During the third quarter of 1998, the Company paid dividends of $10.1 million compared to the $6.5 million paid in the third quarter of 1997 from net investment income. As of September 30, 1998, the Company had recorded approximately $60.0 million in unrealized depreciation against loans on Credit Watch and related equity interests. Based on trends and information currently available, the Company currently expects to recognize realized losses in the fourth quarter of 1998 with respect to a significant portion of these depreciated assets. As a result of these losses, the Company anticipates that there will be no further distributions to shareholders required to be made under RIC rules for 1998, and therefore, none will be made. For the quarters ended September 30, 1998 and 1997, the Company provided for federal income tax at a 35% rate on undistributed realized long-term capital gains, excise taxes at a 4% rate on undistributed taxable net investment income as defined by the Code and undistributed realized long-term capital gains and federal and state income taxes on Harris Williams' pre-tax income (See Note 13). For the quarters ended September 30, 1997 and 1998, the provision for income taxes totaled $(4.3) million and $(22,292), respectively. 50 51 FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES At September 30, 1998, the Company had $1.2 million in cash and cash equivalents. At September 30, 1998, the Company's investment portfolio included investments in stocks and warrants of publicly-traded companies that had an ascertainable market value and were being carried at a fair value of approximately $7.3 million and represent an additional source of liquidity. However, the Company's ability to realize such values on a short-term basis is limited by market conditions and various securities law restrictions. Traditionally, the Company's principal sources of capital to fund its portfolio growth have been borrowings through the SBA-sponsored SBIC debenture program, sales of the Company's equity securities, both privately and publicly, and funds borrowed from banking institutions. In February 1995, the Company consummated an initial public offering and has completed four additional public offerings since that time, including the public offering of 6,000,000 shares completed in March 1998, that have generated net proceeds of $361.5 million in the aggregate. The Company has used the proceeds of these offerings to temporarily repay debt and to originate new loans. At September 30, 1998, total SBA borrowings were $101.0 million, the maximum amount of SBA loans available to an SBIC. Each borrowing from the SBA has a term of ten years, is secured by the assets of SII, is guaranteed by the Company and can be prepaid without penalty after five years. The average interest rate on these borrowings was 6.9% as of September 30, 1998, and none of these borrowings mature prior to 2002. As of September 30, 1998, SII had $21.1 million outstanding under its First Union Credit Facility. The First Union Credit Facility was reduced from $125.0 million to $50.0 million at the election of the Company in October 1998 in keeping with its plan to moderate loan originations in the future. The First Union Credit Facility is secured by a lien on all of SII's assets and a pledge of SII's stock and guaranteed by the Company. In order to manage the interest rate risk associated with the variable interest rate provided for under the First Union Credit Facility, SII has entered into various hedging arrangements. The First Union Credit Facility matures on May 31, 2000. The First Union Credit Facility requires that SII obtain the lenders' consent prior to, among other things, encumbering its assets, merging or consolidating with another entity, making investments other than those permitted by the SBA, and using the net proceeds of any sale of non-core assets for a purpose other than repayment of the First Union Credit Facility. In addition, the First Union Credit Facility provides that the repayment of any amounts outstanding can be accelerated if either George M. Miller, II or David M. Resha ceases to be employed by the Company. The Company has also established the $200.0 million ING Credit Facility with Holland Limited Securitization, Inc., a multi-seller commercial paper conduit sponsored by ING Baring (U.S.) Capital Markets, Inc. (individually and collectively, "ING"). SFC, a wholly-owned, special purpose, bankruptcy remote subsidiary of the Company, is the borrower under the ING Credit Facility. SFC purchases loans originated by the Company and the related warrants and uses these loans and warrants as collateral to secure borrowings from ING. SFC is generally able to borrow up to 70% of the principal amount of conforming loans collateralizing the ING Credit Facility. As of January 3, 1997, the Company made an initial capital contribution to SFC of approximately $25.0 million of loans, which served as initial collateral for the ING Credit Facility. At September 30, 1998, $120.2 million was outstanding under the ING Credit Facility and $211.6 million and $219.0 million of loans and warrants at cost and fair value, respectively, had been contributed or sold to SFC by the Company and were collateralizing the ING Credit Facility. In order to manage interest rate risk associated with the variable interest rate provided for under the ING Credit Facility, the Company has entered into various hedging arrangements. The Company may borrow under the ING Credit Facility until December 31, 2001, and it expires on January 5, 2007. The ING Credit Facility is not guaranteed by the Company. However, certain actions by the Company can trigger 51 52 an event of default under the ING Credit Facility, which will result in termination of further funding thereunder and the application of the collateral pledged for repayment of the amounts outstanding thereunder. In addition, the ING Credit Facility provides that an event of default is triggered if any two of George M. Miller, II, David M. Resha and Carl W. Stratton are no longer employed by the Company. The Company believes that anticipated borrowings under the First Union Credit Facility and the ING Credit Facility, together with cash on hand, loan repayments and cash flow from operations plus realized gains on investments, will be adequate to fund the continuing growth of the Company's investment portfolio through the first or second quarter of 1999. In order to provide the funds necessary for the Company to continue its growth strategy beyond that period, the Company expects to incur, from time to time, additional short and long-term borrowings from other sources, and to issue, in public or private transactions, its equity and debt securities. In addition, the Company is considering the sale of certain non-core business assets. The availability and terms of any such borrowing, securities issuance or sale of assets will depend upon market conditions, the interest rate environment and various other conditions. There can be no assurances that such additional funding will be available on terms acceptable to the Company. PORTFOLIO TURNOVER AND CREDIT QUALITY During the quarter ended September 30, 1998, the Company made loans to 43 companies totaling approximately $64.5 million and received repayments (either partial or full) from 16 companies aggregating $26.2 million. During the quarter ended September 30, 1997, the Company made loans to 60 companies totaling approximately $73.6 million and received repayments (either partial or full) from 17 companies aggregating $15.7 million. Since inception, the Company has originated $865.5 million in total loans and $200.0 million, or 23%, have been repaid. The Company cannot control prepayments of loans in its portfolio, as borrowers have the right to prepay loans made by the Company without penalty. The Company has implemented a system by which it grades all loans on a scale of 1 to 6. The system was intended to reflect the performance of the borrower's business, as well as the collateral coverage of the loans and other factors considered relevant. To monitor and manage the risk in the overall portfolio, management tracks, among other things, the weighted average portfolio grade. The weighted average grade was 3.26 and 3.09 at September 30, 1998 and 1997, respectively. The Company believes that weighted average grades between 2.75 and 3.25 represent the current normal range for the portfolio. Loans graded 4 typically involve a borrower that the Company believes is performing marginally below the Company's expectations and that the Company believes has short-term negative trends or negative events that have created some concern. The Company believes loans in this category require a proactive action plan to be executed by the borrower's management and monitored by the responsible Company officer. A grade 4 is a temporary rating that the Company expects would be followed by an upgrade or downgrade, typically within six months, as the borrower's business improves or declines. Loans graded 5 and 6 are placed on the Company's Credit Watch List and are serviced by a member of the Company's workout group. Loans with a grade 5 are generally in default and interest is generally not being accrued, but the Company's management believes the borrower's management is capable of executing a plan to return the borrower to an acceptable risk level. Loans with a grade 6 involve an unacceptable level of risk with substantial probability of loss. These loans are on non-accrual and the Company has charged off or expects to charge off some part of the loan. As of September 30, 1998 and 1997, the Company's portfolio consisted of 18 and 21 loans, respectively, graded 4. The aggregate principal balance of loans graded 4 at September 30, 1998 and 1997, was $44.3 million and $49.0 million, respectively, which represented 7.5% and 13.0%, respectively, of the total portfolio balance at such dates. At September 30, 1998 and 1997, the Company had loans to 31 companies with an aggregate principal balance of $76.5 million, and 16 companies with an aggregate principal balance of $19.2 million, respectively, that were graded a 5 or 6, which represented 12.9% and 5.1%, respectively, of the 52 53 total loan portfolio balance. At September 30, 1998, the aggregate principal balance of loans graded 4,5 or 6 as a percentage of the total loan portfolio was 20.3%, up from 18.1% at September 30, 1997. Since late 1995 when the Company redefined the loan grading system to reflect management's additional experience in monitoring its growing portfolio, the percentage of the principal balance of loans graded 4 to the total portfolio balance has typically ranged between 10% and 15%, with an occasional decrease below that range, and the percentage of the principal balance of loans graded 5 and 6 to the total portfolio balance has typically ranged between 6% and 10% also, with an occasional decrease below that range. Given the nature of the Company's business, making loans to small businesses, and the risks associated therewith, the Company expects significant variability in the absolute dollar amount of and the ratio of grade 4, 5 and 6 loans to the total portfolio, individually and in the aggregate, on a quarter to quarter basis. The Company believes the current percentage of grade 4 loans to be below the current normal range of variability. The Company also believes that the percentage of grade 5 and 6 loans to be above the current normal range of variability as a result of a combination of factors, including the following. The tremendous growth in the portfolio over the last two years coupled with the concept that non-performance on new loans typically come early in the life cycle of the loan has played a major part in the percentage increase. In addition, in the current credit environment, the senior lenders to certain of the Company's portfolio companies have instituted interest payment blockages to subordinated lenders such as the Company that has caused such loans to be put on the Credit Watch List when they otherwise would not have been. The Company continues to closely monitor the recent upward trend in this ratio and continues to redefine its operating model to produce higher asset quality in the future. However, no assurance can be given that the trends in total loans classified in the lower three loan categories will not continue, or that the total loans classified 5 and 6 will not continue to exceed the normal range for such loans, particularly if overall economic conditions nationally, internationally or in the Southeastern United States were to continue to deteriorate. YEAR 2000 COMPLIANCE The Year 2000 issue, in general terms, is that many existing computer systems and microprocessors with date-based functions (including those in non-information technology equipment and systems) use only two digits to identify a year with the assumption that the first two digits of the year are always "19". Consequently, on January 1, 2000, computers that are not Year 2000 compliant may read the year as 1900. The concern is that systems that calculate, compare or sort using the incorrect date may malfunction, and, if such malfunction is not corrected, it could cause a disruption in business operations. In an attempt to prevent such a situation, the Company has begun implementation of a Year 2000 compliance program. The Company created a Year 2000 Compliance Committee that is focusing on three primary areas of concern: the Company's information technology ("IT") and other systems, third parties and portfolio companies. A majority of the software used in the Company's IT systems is provided by outside vendors. The Company utilizes two primary software programs, one of which tracks its investment portfolio and one of which provides accounting functions. These programs have either been designated as Year 2000 compliant by the vendor or the Company is being provided with the appropriate upgrades to provide for Year 2000 compliance. Additionally, the Company shall either conduct its own tests for compliance or utilize third party test results. Approximately 80% of the Company's remaining vendors have provided software or software upgrades that have been designated by the software vendor as Year 2000 compliant. In addition, the Company has developed a Year 2000 contingency plan to address vendor-supplied software which does not meet the Company's Year 2000 compliance deadlines. 53 54 The Company's non-IT systems used to conduct business at its facilities consist primarily of office equipment (other than computer and communications equipment). The Company has inventoried its non-IT systems and has contacted its office equipment vendors and landlords to determine the status of their Year 2000 readiness. The Company does not currently believe that it faces material adverse issues with respect to its non-IT systems. In addition, the Company has been actively communicating with third parties concerning the status of their Year 2000 readiness. These third parties include the Company's banks, vendors, landlords and suppliers of telecommunication services and other utilities. As part of the process of evaluating its options and attempting to mitigate third party risks, the Company is collecting and analyzing information from third parties. The Company is also investigating the impact of the Year 2000 issue on its portfolio companies. Beginning in February 1998, the Company submitted a series of questionnaires to its portfolio companies as of December 31, 1997 to determine their potential exposure to Year 2000 problems and the adequacy of their plans to address any exposure. Additionally, since January 1998, the Company has performed due diligence regarding the Year 2000 issue for all new borrowers. The Company plans to complete its evaluation of its portfolio companies by December 31, 1998. The Company will then complete any necessary follow up with those portfolio companies whom the Company believes have material exposure and inadequate contingency plans by March 31, 1999. Based upon the disclosure which has been received from the responding companies, the Company believes that companies whose loans represent approximately 90% of the portfolio have either no material exposure to Year 2000 or are finalizing their contingency plans to address such exposure. For the remainder of 1998 and through March 31, 1999, the Company will continue with the testing and remediation of its IT and non-IT systems and the evaluation of its third party and portfolio company Year 2000 risks, and will take further steps designed to reduce its exposure to these risks. The Company will also further develop its contingency plan for business continuation in the event of a Year 2000 systems failure. This contingency plan is based upon the Company's existing disaster recovery plan with modifications for Year 2000 risks. Because the Company has maintenance contracts with nearly all of its software vendors, the Company has not been required to purchase most of the software upgrades necessary to insure Year 2000 compliance. As a result, the cost of the Company's Year 2000 project is expected to be relatively minor, not exceeding $200,000. This amount includes the costs of (i) additional software, (ii) the Company's systems professionals dedicated to achieving 54 55 Year 2000 compliance for the Company's IT systems, (iii) the costs of analyzing the Year 2000 readiness of the portfolio companies and (iv) other employee and management costs. The Company has included the cost of the Year 2000 project in its annual budgets for information technology. The Company has postponed some minor non-Year 2000 IT expenditures and initiatives until after 2000 in order to concentrate resources on the Year 2000 issue. The Company does not expect that this postponement will have a material effect on the Company's financial condition and results of operations. It is difficult to predict the effect of Year 2000 non-readiness on the business of the Company. Significant Year 2000 failures in the Company's systems or in the systems of third parties (or third parties upon whom they depend) could have a material adverse effect on the Company's financial condition and results of operations. Given the size and age of its portfolio companies and the service-based industries in which they primarily operate, the Company anticipates that few of its portfolio companies will face any material issues regarding the Year 2000. However, no assurance can be given that certain of the Company's portfolio companies will not suffer material adverse effects from Year 2000 issues, and if such adverse effects impact such companies ability to repay their loans, the Company's operating results and financial condition could be adversely effected. The Company believes that its reasonably likely worst case Year 2000 scenario is (i) a material increase in the Company's credit losses due to Year 2000 problems for the Company's portfolio and (ii) disruption in financial markets causing liquidity stress to the Company. The magnitude of these potential credit losses or disruption cannot be determined at this time. IMPACT OF INFLATION The Company does not believe that its business is materially affected by inflation, other than the impact which inflation may have on the securities markets, the valuations of business enterprises and the relationship of such valuations to underlying earnings, all of which could influence the value of the Company's investments. RISKS The significant risks inherent in the Company's business, which primarily consists of making loans to small businesses, are set forth in the Company's most recent Registration Statement on Form N-2 (Registration No. 333-46051) and should be kept in mind when evaluating the Company's financial performance. 55 56 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On July 13, 1998, a purported class action was filed in U.S. District Court for the Middle District of Tennessee against the Company and certain officers, directors and affiliates (Trinity Holdings Corporation v. Sirrom Capital Corporation, John A. Morris, Jr., George M. Miller, II, Carl W. Stratton, H. Hiter Harris, III and Christopher H. Williams, Case No. 3-98-0643, United States District Court for the Middle District of Tennessee, Nashville (the "Trinity Holdings Lawsuit")) alleging violations of federal securities laws related to a secondary offering of securities that was made pursuant to a Registration Statement that was declared effective on March 5, 1998, certain press releases and oral communications with analysts. The plaintiff purports to sue on its own behalf and on behalf of all persons who purchased or otherwise acquired common stock of the Company between March 5, 1998 and July 9, 1998, including all persons who purchased common stock in connection with the March 5, 1998 secondary offering. The plaintiff seeks unspecified monetary damages as well as reasonable costs and expenses. On September 4, 1998 and September 9, 1998, two additional purported class actions were filed in the U.S. District Court for the Middle District of Tennessee against the Company and certain officers, directors and affiliates (respectively, John Brown v. Sirrom Capital Corporation, David Resha, Christopher H. Williams, H. Hiter Harris, III, John A. Morris, Jr., George M. Miller II, and Sirrom Partners, L.P., Case No. 3-98-0826, United States District Court for the Middle District of Tennessee, Nashville (the "Brown Lawsuit") and James Hirsch v. Sirrom Capital Corporation, John A. Morris, Jr., George M. Miller, II, Carl W. Stratton, H. Hiter Harris, III, and Christopher H. Williams, Case No. 3-98-0833, United States District Court for the Middle District of Tennessee, Nashville (the "Hirsch Lawsuit")). The allegations made in the Brown Lawsuit and the Hirsch Lawsuit are substantially similar to those made in the prior pending Trinity Holdings Lawsuit, with the exception that the plaintiff in the Brown Lawsuit purports to sue on behalf of all persons who purchased or otherwise acquired the Company's common stock between January 20, 1998 and July 10, 1998. The District Court has ordered that the Trinity Holdings Lawsuit, the Brown Lawsuit and the Hirsch Lawsuit be consolidated and proceed as one case. Prior to that order, the Company and the individual defendants had moved to dismiss the Trinity Holdings Lawsuit for, among other reasons, the plaintiff's failure to state a claim. Pursuant to the Court's orders, however, the plaintiffs will file one single consolidated amended class action complaint by November 30, 1998. Once that complaint is filed, the Company will respond appropriately. A separate purported class action was filed on the same date as the Trinity Holdings Lawsuit by Scott Orrock in the Chancery Court for Davidson County, Tennessee against Sirrom Capital Corporation and certain officers, directors and affiliates (Scott Orrock v. Sirrom Capital Corporation, David Resha, Christopher H. Williams, H. Hiter Harris, III, John A. Morris, Jr., George M. Miller, II and Sirrom Partners, L.P., Docket No. 98-2103-111, Chancery Court, Davidson County, Tennessee (the "Orrock Lawsuit")), alleging violations of state securities laws in connection with the March 5, 1998 secondary offering, certain periodic reports filed with the Securities and Exchange Commission, certain press releases and oral communications with analysts. The plaintiff purports to sue on his own behalf and on behalf of all persons who purchased common stock of the Company between January 20, 1998 and July 10, 1998. The plaintiff, who has been joined by another intervening plaintiff, seeks unspecified monetary damages with interest, reasonable costs and expenses, and equitable relief. The Company and the individual defendants have filed a motion to dismiss the Orrock Lawsuit. That motion has not yet been set for hearing before the Chancellor. The Company believes that these actions are without merit and it will continue to vigorously defend the claims brought against it and the individual defendants. The Company is unable, however, to predict the outcome of these lawsuits or the costs to be incurred in connection with their defense. The Company does not believe that these actions will have a material adverse effect on the operations of the Company. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. Exhibit 3.1 Amended and Restated Charter of the Company (incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-8, filed with the Commission on April 30, 1998) 56 57 Exhibit 3.2 Bylaws of the Company (incorporated by reference to exhibit b. contained in the Registrant's Registration Statement on Form N-2, as amended (File No. 33-86680), filed with the Commission on November 23, 1994) Exhibit 4.1 Instruments defining rights of holders of securities: See Paragraph 6 of the Company's Amended and Restated Charter (incorporated by reference to Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the period ending September 30, 1996, filed with the Commission on November 14, 1996) Exhibit 10.1 Fifth Amendment to Fourth Amended and Restated Loan Agreement dated as of October 8, 1998 by and among SII, the Company, the lenders to the First Union Credit Facility and First Union National Bank. Exhibit 27 Financial Data Schedule (for SEC use only) (b) Reports on Form 8-K. None. 57 58 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SIRROM CAPITAL CORPORATION Date: November 13, 1998 By: /s/ Carl W. Stratton ----------------------------- Carl W. Stratton Chief Financial Officer 58 59 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ----------- ----------- Exhibit 3.1 Amended and Restated Charter of the Company (incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-8, filed with the Commission on April 30, 1998) Exhibit 3.2 Bylaws of the Company (incorporated by reference to exhibit b. contained in the Registrant's Registration Statement on Form N-2, as amended (File No. 33-86680), filed with the Commission on November 23, 1994) Exhibit 4.1 Instruments defining rights of holders of securities: See Paragraph 6 of the Company's Amended and Restated Charter (incorporated by reference to Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the period ending September 30, 1996, filed with the Commission on November 14, 1996) Exhibit 10.1 Fifth Amendment to Fourth Amended and Restated Loan Agreement dated as of October 8, 1998 by and among SII, the Company, the lenders to the First Union Credit Facility and First Union National Bank. Exhibit 27 Financial Data Schedule (for SEC use only)
EX-10.1 2 AMENDED AND RESTATED LOAN AGREEMENT DATED 10-09-98 1 Exhibit 10.1 FIFTH AMENDMENT TO FOURTH AMENDED AND RESTATED LOAN AGREEMENT FIFTH AMENDMENT, dated as of October 8, 1998 (this "Amendment"), by and among SIRROM INVESTMENTS, INC., a Tennessee corporation (the "Borrower"), SIRROM CAPITAL CORPORATION, a Tennessee corporation (the "Guarantor"), the lenders party to the Existing Loan Agreement (as defined below) (the "Lenders"), and FIRST UNION NATIONAL BANK (f/k/a FIRST UNION NATIONAL BANK OF TENNESSEE), as agent for the Lenders thereunder (in such capacity, the "Agent"), to the Existing Loan Agreement. Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Existing Loan Agreement. STATEMENT OF PURPOSE The Borrower, the Guarantor, the Lenders and the Agent are parties to that certain Fourth Amended and Restated Loan Agreement, dated as of August 16, 1996 (as heretofore amended, supplemented or otherwise modified, the "Existing Loan Agreement"; as amended by this Amendment, the "Loan Agreement"). The Borrower and the Guarantor have requested that the Existing Loan Agreement be amended to reduce the aggregate Commitments to Fifty Million Dollars ($50,000,000), and to make certain other modifications in the Loan Agreement as more fully set forth herein, and the Agent and the Lenders parties hereto are willing to agree to such amendments on the terms, and subject to the conditions, set forth herein. Accordingly, the Borrower, the Guarantor, the Required Lenders and the Agent hereby agree that the Existing Loan Agreement is hereby amended as follows: SECTION 1. Amendments to Loan Agreement. (a) Section 1.1 of the Existing Loan Agreement is hereby amended by (i) deleting the definition of "Aggregate Commitment" set forth therein and substituting in lieu thereof the following new definition in the appropriate alphabetical order: ""Aggregate Commitment" means the aggregate amount of the Lenders' Commitments hereunder, as such amount may be reduced at any time or from time to time pursuant to the terms hereof. As of the Fifth Amendment Effective Date, the Aggregate Commitment shall be Fifty Million Dollars ($50,000,000)."; and (ii) adding the following new definitions in the appropriate alphabetical order: "Fifth Amendment" means the Fifth Amendment, dated as of October 8, 1998, to this Agreement. 2 "Fifth Amendment Effective Date" means the "Amendment Effective Date", as defined in Section 4 of the Fifth Amendment. ""Identified Assets" means, collectively, all of the business, assets and property (including, without limitation, intangible assets and goodwill) of the Guarantor and the Borrower primarily utilized in the businesses known as (a) Harris Williams & Co. and similar investment banking businesses, (b) the "Tandem" division of the Guarantor, and (c) the Canadian business currently operated as a joint venture between the Guarantor and Toronto Dominion Bank." ""Net Proceeds" means (i) the aggregate cash consideration received by the Guarantor, the Borrower or a Subsidiary thereof in connection with any transaction referred to in Section 2.4(e) less (ii) the expenses (including out-of-pocket expenses) incurred by the Guarantor, the Borrower or such Subsidiary in connection with such transaction (including, in the case of any issuance of debt or equity securities, underwriters' commissions and fees) and the amount of any federal and state taxes incurred in connection with such transaction, in each case as certified by an executive officer of the Borrower to the Agent at the time of such transaction." (b) Section 2.4 of the Existing Loan Agreement is hereby amended by adding at the end thereof the following new clause (e): "(e) Unless the Required Lenders otherwise agree, the Borrower shall prepay the Loans, and the Commitments shall be automatically and permanently reduced, in an amount equal to (i) 100% of the Net Proceeds of any sale, lease, assignment, exchange or other disposition for cash of, or of any pledge, mortgage, hypothecation or other financing secured by, any Identified Assets or portion thereof (including, without limitation, insurance proceeds paid as a result of any destruction, casualty or taking of any Identified Asset or portion thereof), and (ii) 100% of the Net Proceeds of any sale or issuance of debt securities, or equity securities, in either case by the Guarantor or the Borrower or any Subsidiary thereof, whether in a public offering, a private placement or otherwise. Nothing in this Section 2.4(e) shall be construed to derogate any restriction or limitation contained in any Loan Document imposed on any transaction of the types described in this Section 2.4(e), including without limitation the restrictions set forth in Sections 9.6 and 9.8 hereof." (c) Section 6.1 of the Existing Loan Agreement is hereby mended by adding at the end thereof the following new clause (d) to read in its entirety as follows: "(d) As soon as practicable but in any event within five (5) Business Days following the Fifth Amendment Effective Date, and on the first Business Day of each month thereafter, the Credit Parties shall furnish to the Agent and each Lender the following: -2- 3 (i) Cash flow projections (including a summary of sources and uses of cash) for each of the Borrower, and of the Guarantor and its consolidated Subsidiaries, in each case on a month by month basis for the period of three months following the Fifth Amendment Effective Date and each later date such projections are provided, showing in reasonable detail the Credit Parties' projected funding requirements for such periods (including loan repayments), and otherwise in form and substance reasonably satisfactory to the Agent; (ii) A schedule of the loan proposals with respect to which the Borrower has committed or proposed to make loans, setting forth the Person or Persons which would be the borrower or obligor on such anticipated loan, the amount of such anticipated loan and the expected funding date of such anticipated loan, together with, if requested, copies of the offer letters, term sheets or other similar instruments relating to such anticipated loans; and (iii) A schedule of existing loan facilities made available by the Borrower with respect to which there are unfunded lending commitments, setting forth the borrower or obligor on such loan facilities, the amount of such loan facilities and the unfunded portion thereof, and the expected funding date of such unfunded portion." (d) Section 6.4 of the Existing Loan Agreement is hereby amended by deleting the word "and" at the end of clause (d), and by adding immediately after clause (d) thereof the following new clauses (e) and (f) to read in their entirety as follows: "(e) Promptly after the funding of any loans by the Borrower after the Fifth Amendment Effective Date, a copy of (i) the commitment letter, term sheet or similar instrument with respect to such loan, and (ii) the Borrower's underwriting memorandum ("sideways sheet") with respect to such loan; and (f) Promptly after any transfer of any portfolio loans or securities of the Borrower or any Subsidiary to any other Person, written notice of such transfer, setting forth the identification of such loan or security, the principal amount and market value thereof, and the terms of such transfer (including the sale price or other consideration received in connection with such transfer), it being understood that nothing in this Section 6.4(f) shall be construed to derogate any restriction or limitation contained in any Loan Document imposed on any transfer of any portfolio loans or securities of the Borrower or any Subsidiary, including without limitation the restrictions set forth in Section 9.6 hereof; and"; and by redesignating clause (e) as clause (g) thereof. (e) Schedule 1 to the Existing Agreement is hereby amended by deleting such Schedule 1 in its entirety and substituting in lieu thereof Schedule 1 to this Amendment. -3- 4 SECTION 2. Reservation of Rights. Upon the effectiveness of this Amendment, the letter from the Agent to the Borrower, dated September 29, 1998, shall be automatically rescinded and be of no further force or effect. The Agent and the Lenders parties hereto hereby advise the Borrower that the Agent and the Lenders do not waive any Events of Default which may exist, and that the current non-exercise of rights, remedies, powers and privileges by the Agent and the Lenders under the Loan Documents and applicable law with respect to such Events of Default, if any, shall not be, and shall not be construed as, a waiver thereof, and the Agent and the Lenders reserve their rights (i) fully to invoke any and all such rights, remedies, powers and privileges under the Loan Documents and applicable law at any time any of them deems appropriate in such respect of any Events of Default that may exist, (ii) to refuse to make available any further extensions of credit except in strict accordance with the terms of the Loan Documents (including Section 4.3(a) of the Loan Agreement) and (iii) to require that all Loans bear interest at the rates specified in the Credit Agreement (including Section 3.1(c) of the Loan Agreement). Nothing in this Amendment, and no extension of credit made by the Lenders on or after September 30, 1998, shall be construed as an acknowledgment or determination by the Agent or any Lender that, since December 31, 1995, there has been no material adverse change in the properties, business, operations, prospects, or condition (financial or otherwise) of the Credit Parties and their Subsidiaries and no event has occurred or condition arisen that could reasonably be expected to have a Material Adverse Effect. SECTION 3. Reaffirmation of the Guaranty and Parent Pledge Agreement. The Guarantor, as guarantor under the Loan Agreement and as pledgor under the Parent Pledge Agreement, (a) agrees to the terms of this Amendment and all other documents, instruments, and agreements executed, delivered, or otherwise provided in connection with this Amendment, (b) expressly ratifies and reaffirms (i) its guaranty of the Obligations and (ii) its pledge made pursuant to the terms and provisions of the Parent Pledge Agreement, and (c) agrees that its obligations hereunder and under the Loan Documents, as amended by this Amendment, are absolute, without right of setoff, and shall in no way be affected or impaired for any reason, including, without limitation, the execution and delivery of this Amendment. SECTION 4. Conditions to Effectiveness of Amendment. This Amendment shall become effective on the date (the "Amendment Effective Date") on which the Agent shall have received this Amendment, executed and delivered by a duly authorized officer of the Borrower, the Guarantor, the Required Lenders, and the Agent. SECTION 5. Delivery of Amendment to SBA. Pursuant to the terms and provisions of the Intercreditor Agreement, the Agent shall deliver an executed copy of this Amendment to the SBA following the Amendment Effective Date. SECTION 6. Certain Fees and Expenses. The Credit Parties hereby agree, notwithstanding anything to the contrary set forth in the Loan Documents (including, without limitation, Section 7.11(b) of the Loan Agreement), to pay the reasonable fees and expenses (not to exceed $20,000) of portfolio and process auditors retained by the Agent and the -4- 5 Lenders from and after the date hereof in connection with a review of the portfolios of the Credit Parties and the businesses conducted by them, to be undertaken reasonably promptly following the date hereof. SECTION 7. Limited Effect. Except as expressly amended and modified by this Amendment, the Existing Loan Agreement shall continue to be, and shall remain, in full force and effect in accordance with its terms. SECTION 8. Counterparts. This Amendment may be executed by the parties hereto on any number of separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument. SECTION 9. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NORTH CAROLINA, WITHOUT REFERENCE TO THE CONFLICTS OR CHOICE OF LAW PRINCIPLES THEREOF. [SIGNATURE PAGES FOLLOW] -5- 6 IN WITNESS WHEREOF, the Borrower, the Guarantor, the Lenders and the Agent have caused this Fifth Amendment to be duly executed and delivered by their duly authorized officers, all as of the day and year first above written. Borrower: SIRROM INVESTMENTS, INC. By /s/ Carl W. Stratton ----------------------------------- Name: Carl W. Stratton Title: Chief Financial Officer Guarantor: SIRROM CAPITAL CORPORATION By /s/ Carl W. Stratton ------------------------------------ Name: Carl W. Stratton Title: Chief Financial Officer Fifth Amendment Signature Pages 7 Agent: FIRST UNION NATIONAL BANK, AS AGENT By /s/ Jane W. Workman ------------------------------------ Name: Jane W. Workman Title: Senior Vice President Lenders: FIRST UNION NATIONAL BANK, AS LENDER By /s/ Jane W. Workman ------------------------------------ Name: Jane W. Workman Title: Senior Vice President FIRST AMERICAN NATIONAL BANK By /s/ Samuel Ballesteros ------------------------------------ Name: Title: AMSOUTH BANK By /s/ Scott Corrigan ------------------------------------ Name: Scott Corrigan Title: Senior Vice President FIRST TENNESSEE BANK NATIONAL ASSOCIATION By /s/ J. Todd Carter ------------------------------------ Name: J. Todd Carter Title: Vice President Fifth Amendment Signature Pages 8 BANK OF AMERICA, FSB By /s/ Nancy Halwig ------------------------------------ Name: Title: BANK ONE KENTUCKY, N.A. By /s/ Robert J. Izzo ------------------------------------ Name: Robert J. Izzo Title: First Vice President CHASE BANK OF TEXAS By /s/ John Dean ------------------------------------ Name: John Dean Title: Senior Vice President THE FIRST NATIONAL BANK OF CHICAGO By /s/ Thomas T. Bower ------------------------------------ Name: Thomas T. Bower Title: First Vice President Fifth Amendment Signature Pages 9 FLEET BANK, N.A. By /s/ Edward J. Walsh ------------------------------------ Name: Edward J. Walsh Title: Senior Vice President UNION BANK OF CALIFORNIA, N.A. By /s/ Robert C. Nagel ------------------------------------ Name: Robert C. Nagel Title: Vice President Fifth Amendment Signature Pages 10 ACKNOWLEDGED, ACCEPTED AND CONSENTED TO: THE SMALL BUSINESS ADMINISTRATION By: --------------------------------- Name: Title: Fifth Amendment Signature Pages 11 SCHEDULE 1 TO FIFTH AMENDMENT Schedule 1 to the Loan Agreement LENDERS AND COMMITMENTS AND ADDRESSES FOR NOTICE
- --------------------------------------------------------------------------------------- LENDER COMMITMENT AND COMMITMENT PERCENTAGE - --------------------------------------------------------------------------------------- Commitment Commitment Percentage - --------------------------------------------------------------------------------------- First Union National Bank $14,000,000 28% - --------------------------------------------------------------------------------------- First American National Bank $3,000,000 6% - --------------------------------------------------------------------------------------- AmSouth Bank of Tennessee $6,000,000 12% - --------------------------------------------------------------------------------------- First Tennessee Bank National Association $3,000,000 6% - --------------------------------------------------------------------------------------- Bank of America, FSB $4,000,000 8% - --------------------------------------------------------------------------------------- Bank One Kentucky, N.A. $4,000,000 8% - --------------------------------------------------------------------------------------- Chase Bank of Texas $4,000,000 8% - --------------------------------------------------------------------------------------- The First National Bank of Chicago $4,000,000 8% - --------------------------------------------------------------------------------------- Fleet Bank, N.A. $4,000,000 8% - --------------------------------------------------------------------------------------- Union Bank of California, N.A. $4,000,000 8% - --------------------------------------------------------------------------------------- Total: $50,000,000 100% - ---------------------------------------------------------------------------------------
-1- 12
- ------------------------------------------------------------------------------------------ LENDER ADDRESS - ------------------------------------------------------------------------------------------ First Union National Bank 301 South College Street Charlotte, North Carolina 28288-0735 Attention: Telephone: Telecopy: - ------------------------------------------------------------------------------------------ First American National Bank First American Center, 10th Floor Nashville, TN 37237-1051 Attention: Samuel M. Ballesteros Telephone: (615) 736-6246 Telecopy: (615) 736-6633 - ------------------------------------------------------------------------------------------ AmSouth Bank 333 Union Street, Suite 200 Nashville, TN 37201 Attention: Andy Grisham Telephone: 615-291-5298 Telecopy: 615-291-5257 copy to: 1900 5th Ave. North, 6th Floor Birmingham, AL 35203 Attention: Scott J. Corrigan Telephone: 205-801-0121 Telecopy: 205-801-0745 - ------------------------------------------------------------------------------------------ First Tennessee Bank National Association Post Office Box 28100 Nashville, TN 37202 Attention: J. Todd Carter Telephone: (615) 734-6191 Telecopy: (615) 734-6148 - ------------------------------------------------------------------------------------------ Bank of America, FSB 1230 Peachtree Street, Suite 3600 Atlanta, GA 30309 Attention: Nancy Halwig/John Yankauskas Telephone: (404) 815-5427/(404) 815-5428 Telecopy: (404) 815-5919 - ------------------------------------------------------------------------------------------
-2- 13 - ------------------------------------------------------------------------------------------ Bank One Kentucky, N.A. One First National Plaza, Suite 0631 Chicago, IL 60670 Attention: Thomas T. Bower Telephone: (312) 732-6904 Telecopy: (312) 732-1775 and One First National Plaza, Suite 0286 Chicago, IL 60670 Attention: Christy S. Chapman Telephone: (312) 732-5413 Telecopy: (312) 732-3596 - ------------------------------------------------------------------------------------------ Chase Bank of Texas [Address] [Address] Attention: Telephone: Telecopy: - ------------------------------------------------------------------------------------------ The First National Bank of Chicago One First National Plaza, Suite 0631 Chicago, IL 60670 Attention: Thomas T. Bower Telephone: (312) 732-6904 Telecopy: (312) 732-1775 and One First National Plaza, Suite 0286 Chicago, IL 60670 Attention: Christy S. Chapman Telephone: (312) 732-5413 Telecopy: (312) 732-3596 - ------------------------------------------------------------------------------------------ Fleet Bank, N.A. 777 Main Street C7M0H21 Hartford, CT 06115 Attention: Edward J. Walsh/Donald Nicholson Telephone: (860) 986-3784 or 6933 Telecopy: (860) 986-7624 - ------------------------------------------------------------------------------------------ Union Bank of California, N.A. 350 California Street H-603 San Francisco, CA 94104-1402 Attention: Robert C. Nagel Telephone: (415) 705-7189 Telecopy: (415) 705-5093 - ------------------------------------------------------------------------------------------
-3- EX-27 3 FINANCIAL DATA SCHEDULE
6 9-MOS DEC-31-1998 DEC-31-1997 SEP-30-1998 654,421,452 625,269,192 5,995,072 11,454,938 0 642,719,204 0 242,277,000 10,849,148 253,126,148 397,274,134 0 37,229,196 37,229,196 10,336,565 0 225,238 0 (29,152,284) 389,593,056 0 17,046,709 1,658,812 8,368,956 10,336,565 202,946 (34,525,526) (23,963,723) 0 10,051,883 0 0 0 0 0 (1,901,206) 12,949,064 (6,324,308) 0 0 0 4,593,370 8,368,956 409,354,745 11.38 .28 (.92) (.27) 0 0 10.47 0 225,539,000 6.06
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