[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] ----------------------------------------------------------------------- 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''). ----------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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