[Federal Register Volume 60, Number 243 (Tuesday, December 19, 1995)]
[Notices]
[Pages 65367-65369]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30764]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21594; 812-9712]


Sirrom Capital Corporation; Notice of Application

December 13, 1995.
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.

Relevant Act Section: Section 61(a)(3)(B).

Summary of Application: Applicant requests an order approving 
applicant's 1995 Stock Option Plan for Non-Employee Directors (the 
``Plan'') and the grant of certain stock options thereunder.

Filing Dates: The application was filed on August 7, 1995 and amended 
on October 30, 1995.

Hearing or Notification of Hearing: An order granting the application 
will be 

[[Page 65368]]
issued unless the SEC orders a hearing. Interested persons may request 
a hearing by writing to the SEC's Secretary and serving applicant with 
a copy of the request, personally or by mail. Hearing requests should 
be received by the SEC by 5:30 p.m. on January 8, 1996 and should be 
accompanied by proof of service on the applicant, 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 
requests, 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, 511 Union Street, Nashville City Center, Suite 2310, 
Nashville, Tennessee 37219.

For Further Information Contact: Sarah A. Buescher, Staff Attorney, at 
(202) 942-0573, or Alison E. Baur, 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. Applicant is a business development company (``BDC'') within the 
meaning of section 2(a)(48) of the Act.\1\ Applicant requests an order 
pursuant to section 61(a)(3)(B) of the Act approving the Plan and 
pursuant to the Plan, the automatic grant of options to purchase shares 
of applicant's common stock to each director who is neither an officer 
nor an employee of applicant (``non-employee director'') and to each 
new non-employee director of applicant who may be elected or appointed 
in the future to applicant's board of directors. Applicant will submit 
the Plan to applicant's shareholders for their approval at the next 
meeting for shareholders to be held in the Spring of 1996. Applicant 
will implement the Plan subsequent to receiving approval by applicant's 
shareholders and an order of the SEC (``Approval Date'').

    \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. Applicant states that its primary investment objectives are to 
achieve a high level of current income and long-term growth in the 
value of its assets. Applicant is primarily engaged in the business of 
making loans to small, privately owned companies whose securities have 
no established public market. Applicant's investment decisions are made 
by a loan approval committee comprised of senior management of 
applicant in accordance with policies approved by applicant's board of 
directors. Applicant makes available to its investee companies 
significant managerial assistance, and helps its investee companies 
establish boards of directors. In addition, applicant assists its 
investee companies in obtaining necessary financing and increasing the 
value of the investee companies. Applicant does not have an external 
``investment adviser'' within the meaning of the Act.
    3. Each non-employee director of applicant receives $1,000 for each 
board and committee meeting attended and reimbursement for expenses 
incurred in attending meetings. Non-employee directors receive no other 
compensation for their services to applicant.
    4. Grants of options under the Plan would be limited to (a) 18,000 
shares of applicant's common stock for non-employee directors elected 
prior to December 1, 1994, (b) 12,000 shares of applicant's common 
stock for non-employee directors elected between December 1, 1994 and 
the Approval Date, and (c) 6,000 shares of applicant's common stock for 
non-employee directors elected or appointed after the Approval Date. On 
the Approval Date, the aggregate amount of applicant's voting 
securities that would result from the exercise of all options issued or 
issuable under the Plan and applicant's existing employee stock option 
plan would be 614,000 shares, or approximately 6.7% of the 9,195,116 
shares of applicant's common stock outstanding as of September 30, 
1995. Applicant has no warrants, options, or rights to purchase its 
voting securities outstanding, other than those granted or to be 
granted as of the Approval Date to its directors, officers, and 
employees pursuant to the executive compensation plans described in the 
application.
    5. Pursuant to the terms of the Plan, the options would vest and 
become exercisable on the first anniversary of the date of grant. 
Options would be exercisable at any time after they become exercisable 
until the tenth anniversary of the date of the grant. The exercise 
price of the options would be 100% of the current market value of 
applicant's common stock on the date of issuance.
    6. In the event of a non-employee director's death or disability 
during the director's service, all of the director's unexercised 
options would immediately become exercisable for a period of three 
years following the date of death or one year following the date of 
disability, but in no event after the expiration dates of the options. 
In the event of the termination of a non-employee director for cause, 
any options held by the director not exercised shall terminate 
immediately upon termination of service and may not be exercised 
thereafter. If a non-employee director's service is terminated for any 
reason other than by death, disability, or by applicant for cause, his 
or her options may be exercised within one year following the date of 
termination, but in no event after the expiration date of the options.

Applicant's Legal Analysis

    1. Section 63(3) of the Act permits a BDC to sell its common stock 
at a price below current net asset value upon the exercise of any 
option issued in accordance with section 61(a)(3) of the Act.
    2. Section 61(a)(3)(B) of the Act provides, in pertinent part, that 
a BDC may issue to its non-employee directors options to purchase its 
voting securities pursuant to an executive compensation plan, provided 
that: (a) the options expire by their terms within ten years; (b) the 
exercise price of the options is not less than the current market value 
of the underlying securities at the date of the issuance of the 
options, or if no such market exists, the then current net asset value 
of the underlying securities; (c) the proposal to issue such options is 
authorized by the BDC's shareholders, and is approved by order of the 
Commission upon application; (d) the options are not transferable 
except for disposition by gift, will, or intestacy; (e) no investment 
adviser of the BDC receives any compensation described in section 
205(1) of the Investment Advisers Act of 1940, except to the extent 
permitted by clause (A) or (B) of that section; and (f) the BDC does 
not have a profit-sharing plan as described in section 57(n) of the 
Act.
    3. In addition, section 61(a)(3)(B) of the Act provides that the 
amount of the BDC's voting securities that would result from the 
exercise of all outstanding warrants, options, and rights at the time 
of issuance may not exceed 25% of the BDC's outstanding voting 
securities, except that if the amount of voting securities that would 
result from the exercise of all outstanding warrants, options, and 
rights issued to the BDC's directors, 

[[Page 65369]]
officers, and employees pursuant to an executive compensation plan 
would exceed 15% of the BDC's outstanding voting securities, then the 
total amount of voting securities that would result from the exercise 
of all outstanding warrants, options, and rights at the time of 
issuance shall not exceed 20% of the outstanding voting securities of 
the BDC.
    4. Applicant represents that the Plan, the stock options to be 
granted automatically to applicant's non-employee directors, and the 
stock options to be granted automatically to applicant's future non-
employee directors pursuant to the Plan would meet the requirements of 
section 61(a): (a) the options would expire within ten years from the 
date of grant; (b) the exercise price of the options would be the 
current market value of applicant's common stock on the date of 
issuance; (c) the proposal to issue the options would be authorized by 
applicant's shareholders; (d) the options would not be transferable 
except for disposition by gift, will, or intestacy; (e) applicant does 
not have an investment adviser; and (f) applicant does not have a 
profit-sharing plan as described in section 57(n) of the Act. In 
addition, the total amount of voting securities that would result from 
the exercise of all outstanding warrants, options, and rights at the 
time of issuance would not exceed 20% of the outstanding voting 
securities of applicant.
    5. Applicant represents that its directors are actively involved in 
the oversight of applicant's affairs, and that applicant relies on the 
judgment and experience of its directors. Applicant's directors have 
experience in many of the industries in which applicant's investee 
companies operate. The directors' backgrounds enhance applicant's 
ability to review and evaluate its investee companies and their 
performance. Applicant states that in order to attract and retain 
qualified personnel, it must provide non-employee directors with 
incentives in the form of an executive compensation program, as 
contemplated by section 61(a) of the Act.
    6. Applicant submits that the terms of the Plan and the stock 
options to be granted automatically to applicant's non-employee 
directors are fair and reasonable and do not involve any overreaching 
of applicant or its shareholders. Options granted to purchase 6,000, 
12,000, or 18,000 shares of applicant's common stock would currently 
represent only .07%, .13%, and .20%, respectively, of applicant's 
outstanding common stock. Given these relatively small amounts of 
stock, applicant submits that the exercise of the options would not, 
absent extraordinary circumstances, have a substantial dilutive effect 
on the net asset value of applicant's common stock.
    7. Applicant asserts that because the stock options granted to a 
non-employee director would not vest until after the first anniversary 
of the date of grant, the Plan would provide non-employee directors 
with incentives to remain directors of applicant. In addition, 
applicant contends that because the options granted pursuant to the 
Plan have no value unless the price of applicant's common stock exceeds 
the exercise price of the option, the options provide significant 
incentives for its non-employee directors to devote their best efforts 
to the success of applicant's business. Applicant also represents that 
the options provide a means for the directors to increase their 
ownership interests in applicant, thereby helping to ensure close 
identification of their interests with those of applicant and its 
shareholders. Applicant contends that incentives in the form of stock 
options enable it to maintain continuity in the membership of its board 
of directors and to attract and retain as directors the highly 
experienced, successful, and dedicated business and professional people 
that are critical to applicant's success as a BDC and to the success of 
its investee companies.


    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-30764 Filed 12-18-95; 8:45 am]
BILLING CODE 8010-01-M