[Federal Register Volume 61, Number 143 (Wednesday, July 24, 1996)]
[Notices]
[Pages 38483-38485]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-18801]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22081; 812-10206]


Sirrom Capital Corporation, et al.; Notice of Application

July 17, 1996.
Agency: Securities and Exchange Commission (``SEC'').

Action: Notice of Application under the Investment Company Act of 1940 
(the ``Act'').

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Applicant: Sirrom Capital Corporation (``Sirrom'').

Relevant Act Sections: Order requested under section 57(c) of the Act 
for an

[[Page 38484]]

exemption from section 57(a)(1) of the Act.

Summary of Application: The order would permit Sirrom to purchase a 
limited partnership interest in Harris Williams & Co., L.P. (``Harris 
Williams'') from Sirrom Ltd., an affiliated person of an affiliated 
person of Sirrom.

Filing Date: The application was filed on June 13, 1996 and amended on 
July 17, 1996.

Hearing or Notification of Hearing: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on August 12, 1996 
and should be accompanied by proof of service on the applicants, in the 
form of an affidavit or, for lawyers, a certificate of service. Hearing 
requests should state the nature of the writer's interest, the reason 
for the request, and the issues contested. Persons may request 
notification of a hearing by writing to the SEC's Secretary.

Addresses: Secretary, SEC, 450 5th Street, N.W., Washington, D.C. 
20549. Applicant, 500 Church Street, Suite 200, Nashville, Tennessee 
37219.

For Further Information Contact: Sarah A. Buescher, Staff Attorney, at 
(202) 942-0573, or Robert A. Robertson, Branch Chief, at (202) 942-0564 
(Division of Investment Management, Office of Investment Company 
Regulation).

Supplementary Information: The following is a summary of the 
application. The complete application may be obtained for a fee from 
the SEC's Public Reference Branch.

Applicant's Representations

    1. Sirrom is a business development company (``BDC'') within the 
meaning of section 2(a)(48) of the Act.\1\ Sirrom's strategic objective 
is to provide financial services to small and medium sized growth 
businesses. Its shares of common stock are traded on The Nasdaq 
Market's National Market. Sirrom Capital Acquisition Corporation 
(``Sirrom Sub'') is a wholly-owned subsidiary of Sirrom. Harris 
Williams is a merger and acquisition advisory firm that provides 
advisory services with respect to small and medium sized companies that 
are similar in size to Sirrom's portfolio companies. Harris Williams & 
Co. (``HW Corp.'') is general partner of Harris Williams and holds an 
80 percent partnership interest in Harris Williams. Sirrom Ltd., a 
family-owned investment partnership, owns a 20 percent limited 
partnership interest in Harris Williams (``Minority Interest'') and is 
Harris Williams' sole limited partner. Dr. Morris, a director and 
chairman of the board of Sirrom, owns half of the general partner of 
Sirrom Ltd., and he and his immediate family beneficially own 55 
percent of Sirrom Ltd.
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    \1\ Section 2(a)(48) defines a BDC to be any closed-end 
investment company that operates for the purpose of making 
investments in securities described in sections 55(a)(1) through 
55(a)(3) of the Act and makes available significant managerial 
assistance with respect to the issuers of such securities. Such 
issuers are small, nascent companies whose securities typically are 
illiquid.
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    2. Sirrom proposes to acquire all of the outstanding partnership 
interests of Harris Williams through (i) the purchase of the Minority 
Interest owned by Sirrom Ltd., and (ii) a merger of Sirrom Sub with and 
into HW Corp. in exchange for shares of Sirrom. Applicants request an 
order pursuant to section 57(c) of the Act exempting Sirrom's purchase 
of the Minority Interest from Sirrom Ltd. from section 57(a)(1) of the 
Act.
    3. On April 15, 1996, Sirrom and Harris Williams entered into a 
letter of intent concerning the proposed acquisition. The terms of the 
letter were the result of arm's length negotiations between Mr. Miller, 
president and chief executive officer of Sirrom, and Messrs. Harris and 
Williams, acting on behalf of Harris Williams. The letter was approved 
by Sirrom's board of directors on April 18, 1996, with Dr. Morris 
abstaining from the discussion and vote. The parties then conducted due 
diligence and negotiated the terms of a definitive agreement 
(``Acquisition Agreement''), which included as conditions to the 
transaction that Sirrom's shareholders approve the transaction and that 
prior to the solicitation of approval from shareholders, Sirrom's board 
receive an opinion from an investment banking firm that the transaction 
was fair from a financial point of view to Sirrom. The Acquisition 
Agreement was approved by written consent of Sirrom's board on May 14, 
1996, with Dr. Morris abstaining. On June 5, 1996, NatWest Markets 
submitted its opinion to Sirrom's board that the transaction was fair, 
from a financial point of view, to Sirrom. NatWest Markets is not 
affiliated with Sirrom, Harris Williams, or HW Corp. On June 6, 1996, 
Sirrom's board recommended approval of the proposed purchase and merger 
by Sirrom's shareholders. No member of Sirrom's board, except Dr. 
Morris, is an affiliated person of Harris Williams or HW Corp.
    4. Pursuant to the terms of the Acquisition Agreement, Sirrom will 
purchase the Minority Interest in Harris Williams held by Sirrom Ltd. 
in exchange for 180,500 shares of Sirrom common stock (subject to 
adjustment in the event the average Sirrom stock price is below $21 or 
above $26), or aggregate consideration of between $3,790,500 and 
$4,693,000. The shares will be ``restricted securities'' under rule 144 
of the Securities Act of 1933 and will not be transferable except under 
limited circumstances for up to a three-year period by Sirrom Ltd.
    5. In the merger, Sirrom Sub will merge with and into HW Corp. 
pursuant to which each outstanding share of HW Corp. common stock, 
other than shares held by HW Corp. shareholders who have exercised and 
perfected dissenter's rights of appraisal under the Virginia Stock 
Corporation Act, will be canceled and converted into the right to 
receive 7,079.442 shares of Sirrom common stock. Because there are 
108.695 shares of HW Corp. common stock outstanding, HW Corp. 
shareholders will receive an aggregate of 769,500 shares of Sirrom 
common stock (subject to adjustment in the event the average Sirrom 
stock price is below $21 or above $26). Each issued and outstanding 
share of common stock of Sirrom Sub, no par value per share, shall 
remain outstanding and unchanged as shares of common stock of the 
surviving corporation, and the surviving corporation shall be a 
subsidiary of Sirrom.

Applicant's Legal Analysis

    1. Section 57(a) of the Act provides that it is unlawful for any 
person who is related to a BDC in a manner described in section 57(b), 
acting as principal, knowingly to sell any security or other property 
to the BDC or to any company controlled by the BDC except securities of 
which the buyer is the issuer or of which the seller is the issuer and 
which are part of a general offering to holders of a class of its 
securities. Section 57(b) provides that section 57(a) applies to any 
director, officer, employee of a BDC or any person who is an affiliated 
person of any such person within the meaning of section 2(a)(3)(C) of 
the Act. Section 2(a)(3)(C) defines an ``affiliated person'' to include 
any person directly or indirectly controlling, controlled by, or under 
common control with such other person. Section 2(a)(9) of the Act 
provides that any person owning more than 25 percent of the outstanding 
voting securities of a company is presumed to control the company.
    2. Dr. John Morris is chairman of the board and a director of 
Sirrom and is

[[Page 38485]]

therefore an affiliated person of Sirrom. Because Dr. Morris also owns 
half of the general partner of Sirrom Ltd., and he and his family 
beneficially own approximately 55% of Sirrom Ltd., Sirrom Ltd. is 
deemed an affiliated person of an affiliated person of Sirrom and as 
such is subject to section 57(a). The purchase by Sirrom of the 
Minority Interest from Sirrom Ltd. is therefore prohibited by section 
57(a).
    3. Section 57(c) of the Act provides that the SEC may exempt a 
proposed transaction from section 57(a) if evidence establishes that 
(i) the terms of the proposed transaction, including the consideration 
to be paid or received, are reasonable, fair, and do not involve 
overreaching of the BDC or its shareholders on the part of any person 
concerned; (ii) the proposed transaction is consistent with the policy 
of the BDC, as recited in its filings with the SEC, its registration 
statement, and its reports to shareholders; and (iii) the proposed 
transaction is consistent with the general purposes of the Act.
    4. Applicant represents that the proposed acquisition serves a 
valid business purpose. After its review of the transaction, 
applicant's board determined that (a) the acquisition of Harris 
Williams was accretive to pro forma combined operating earnings for the 
first quarter of 1996 and was anticipated to be accretive to Sirrom's 
earnings for the full 1996 year; (b) Harris Williams' small-business 
merger and acquisition advisory services are strategically 
complementary to Sirrom's overall small business lending business, 
providing significant opportunities for cross-selling both to customers 
and referral sources, as well as enhancing Sirrom's overall ability to 
realize a liquidity event on its portfolio investments; and (c) Harris 
Williams provides a source for significant additional fee income to 
Sirrom without the funding and capital requirements associated with 
Sirrom's lending business, providing diversification in income and 
growth potential.
    5. Applicant represents that the terms of the Acquisition are the 
result of arm's length negotiations and special procedures to assure 
fairness. Sirrom's board and management realized that any proposed sale 
of Harris Williams to Sirrom would involve a potential conflict of 
interest. Therefore, Dr. Morris recused himself from all discussions 
and negotiations relating to the transactions. Sirrom's board also 
conditioned the consummation of the transaction on the receipt, prior 
to the solicitation of Sirrom's shareholders, of an opinion from an 
investment banking firm that the transaction was fair, from a financial 
point of view, to Sirrom. For these reasons, applicants represent that 
the transaction satisfies the requirements of section 57(c).

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-18801 Filed 7-23-96; 8:45 am]
BILLING CODE 8010-01-M