Filed Pursuant to Rule 424(b)(2)
Registration No. 333-231089
This preliminary prospectus supplement relates to an effective registration statement under the Securities Act of 1933, as amended, but is not complete and may be changed. This preliminary prospectus supplement is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED SEPTEMBER 13, 2021
PRELIMINARY PROSPECTUS SUPPLEMENT
(To prospectus dated April 29, 2019)
$
% Notes due
We are an internally-managed, non-diversified, closed-end investment company that has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended, or the 1940 Act. Our investment objective is to maximize our portfolio’s total return by generating current income from our debt investments and capital appreciation from our warrant and equity-related investments.
We are offering $ in aggregate principal amount of % notes due , or the “Notes.” The Notes will mature on . We will pay interest on the Notes on and of each year, beginning on , 2022. We may redeem the Notes in whole or in part at any time or from time to time, at the redemption price set forth under “Description of Notes and the Offering—Optional Redemption” in this prospectus supplement. In addition, holders of the Notes can require us to repurchase the Notes at 100% of their principal amount upon the occurrence of a Change of Control Repurchase Event (as defined herein). The Notes will be issued in minimum denominations of $2,000 and integral multiples of $1,000 in excess thereof.
The Notes will be our unsecured obligations and rank pari passu, or equally in right of payment, with all outstanding and future unsecured unsubordinated indebtedness issued by Hercules Capital, Inc.
An investment in the Notes involves risks that are described in the “Supplementary Risk Factors” section beginning on page S-14 in this prospectus supplement, the “Risk Factors” section beginning on page 8 of the accompanying prospectus and in our most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q, as well as any of our subsequent filings with the Securities and Exchange Commission, or SEC.
This prospectus supplement, the accompanying prospectus, any free writing prospectus related to the offering of the Notes and the documents incorporated by reference herein and therein contain important information you should know before investing in the Notes, including information about the risks related thereto. Please read these documents before investing and retain them for future reference. Additional information about us, including our annual, quarterly and current reports and proxy statements, has been filed with the SEC, and can be accessed free of charge at its website at www.sec.gov. This information is also available free of charge by contacting us at 400 Hamilton Avenue, Suite 310, Palo Alto, California 94301, or by telephone by calling collect at (650) 289-3060 or on our website at www.htgc.com. The information on the websites referred to herein is not incorporated by reference into this prospectus supplement or the accompanying prospectus.
| Per Note | Total | |||||||
Public offering price(1) | % | $ | ||||||
Sales load (underwriting discounts and commissions) | % | $ | ||||||
Proceeds to us (before expenses)(2) | % | $ | ||||||
| (1) | The public offering price set forth above does not include accrued interest, if any. Interest on the Notes will accrue from September , 2021 and must be paid by the purchaser if the Notes are delivered after September , 2021. |
| (2) | Before deducting expenses payable by us related to this offering, estimated at $ . See “Underwriting” in this prospectus supplement for complete details of underwriters’ compensation. |
THE NOTES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
Neither the SEC nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Delivery of the Notes in book-entry form only through The Depository Trust Company will be made on or about September , 2021.
Joint Book-Running Managers
| Goldman Sachs & Co. LLC | SMBC Nikko | |
| MUFG | RBC Capital Markets |
The date of this prospectus supplement is September , 2021.
You should rely only on the information contained in this prospectus supplement, the accompanying prospectus, any free writing prospectus related to the offering of the Notes, the documents incorporated by reference herein and therein, or any other information to which we have referred you. We have not, and the underwriters have not, authorized any other person to provide you with different information from that contained in this prospectus supplement, the accompanying prospectus and in any free writing prospectus related to the offering of the Notes. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus supplement, the accompanying prospectus, and any free writing prospectus related to the offering of the Notes do not constitute an offer to sell, or a solicitation of an offer to buy, any of our securities by any person in any jurisdiction where it is unlawful for that person to make such an offer or solicitation or to any person in any jurisdiction to whom it is unlawful to make such an offer or solicitation. The information contained in this prospectus supplement, the accompanying prospectus, and any free writing prospectus related to the offering of the Notes is complete and accurate only as of their respective dates, regardless of the time of their delivery or sale of our securities. Our business, financial condition, results of operations and prospects may have changed since that date.
This document is in two parts. The first part is this prospectus supplement, which describes the terms of this offering and also adds to and updates information contained in the accompanying prospectus. The second part is the accompanying prospectus, which gives more general information and disclosure. To the extent the information contained in this prospectus supplement differs from the information contained in the accompanying prospectus, the information in this prospectus supplement shall control. You should read this prospectus supplement and the accompanying prospectus together with the additional information described under the heading, “Available Information” before investing in our Notes.
Prospectus Supplement
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The following summary highlights some of the information included elsewhere, or incorporated by reference, in this prospectus supplement or the accompanying prospectus. It is not complete and may not contain all of the information that you may want to consider before making any investment decision regarding the Notes offered hereby. To understand the Notes offered hereby before making any such investment decision, you should carefully read this entire prospectus supplement and the accompanying prospectus, including the documents incorporated by reference herein or therein, and any free writing prospectus related to the offering of the Notes, including the sections entitled “Supplementary Risk Factors,” “Risk Factors,” “Available Information,” “Incorporation by Reference,” and “Use of Proceeds,” and the financial statements contained elsewhere or incorporated by reference in this prospectus supplement and the accompanying prospectus. Together, these documents describe the specific terms of the Notes. In this prospectus supplement and the accompanying prospectus, unless the context otherwise requires, the “Company,” “Hercules Capital,” “Hercules,” “we,” “us” and “our” refer to Hercules Capital, Inc. and our wholly owned subsidiaries.
Our Company
We are a specialty finance company focused on providing senior secured loans to high-growth, innovative venture capital-backed companies in a variety of technology, life sciences and sustainable and renewable technology industries. Our investment objective is to maximize our portfolio’s total return by generating current income from our debt investments and capital appreciation from our warrant and equity-related investments. We are an internally-managed, non-diversified closed-end investment company that has elected to be regulated as a business development company, or BDC, under the 1940 Act. Effective January 1, 2006, we elected to be treated for tax purposes as a regulated investment company, or RIC, under the Internal Revenue Code of 1986, as amended, or the Code.
As of June 30, 2021, our total assets were approximately $2.6 billion, of which our investments comprised $2.5 billion at fair value and $2.4 billion at cost. Since inception through June 30, 2021, we have made debt commitments of approximately $12.0 billion to our portfolio companies.
We also make investments in qualifying small businesses through our wholly owned small business investment company, or SBIC. Our SBIC subsidiary, Hercules Capital IV, L.P., or HC IV, holds approximately $92.7 million in assets, and accounted for approximately 3.6% of our total assets, prior to consolidation at June 30, 2021. At June 30, 2021, we have issued $53.7 million in SBA-guaranteed debentures in our SBIC subsidiary. See “Regulation—Small Business Administration Regulations” in the accompanying prospectus and the documents incorporated by reference herein for additional information regarding our SBIC subsidiary.
As of June 30, 2021, our investment professionals, including Scott Bluestein, our President, Chief Executive Officer and Chief Investment Officer, are currently comprised of 44 professionals. Managing Directors and Principals have, on average, more than 10 years of experience in venture capital, structured finance, commercial lending or acquisition finance with the types of technology-related companies that we are targeting. We believe that we can leverage the experience and relationships of our management team to successfully identify attractive investment opportunities, underwrite prospective portfolio companies and structure customized financing solutions.
In May 2020, Hercules Adviser LLC (the “Adviser Subsidiary”) was formed as a wholly owned Delaware limited liability subsidiary of the Company to provide investment advisory and related services to investment vehicles (“External Funds”) owned by one or more unrelated third-party investors. The Adviser Subsidiary will receive fee income for the services provided to External Funds. The Company was granted no-action relief by the staff of the SEC to allow the Adviser Subsidiary to register as a registered investment adviser under the Investment Advisers Act of 1940, as amended.
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Organizational Structure
The following chart summarizes our organizational structure as of June 30, 2021. This chart is provided for illustrative purposes only.
Our Market Opportunity
We believe that technology-related companies compete in one of the largest and most rapidly growing sectors of the U.S. economy and that continued growth is supported by ongoing innovation and performance improvements in technology products as well as the adoption of technology across virtually all industries in response to competitive pressures. We believe that an attractive market opportunity exists for a specialty finance company focused primarily on investments in structured debt with warrants in technology-related companies for the following reasons:
| • | Technology-related companies have generally been underserved by traditional lending sources; |
| • | Unfulfilled demand exists for structured debt financing to technology-related companies due to the complexity of evaluating risk in these investments; and |
| • | Structured debt with warrants products are less dilutive and complement equity financing from venture capital and private equity funds. |
Technology-Related Companies are Underserved by Traditional Lenders. We believe many viable technology-related companies backed by financial sponsors have been unable to obtain sufficient growth financing from traditional lenders, including financial services companies such as commercial banks and finance companies because traditional lenders have continued to consolidate and have adopted a more risk-averse approach to lending. More importantly, we believe traditional lenders are typically unable to underwrite the risk associated with these companies effectively.
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The unique cash flow characteristics of many technology-related companies typically include significant research and development expenditures and high projected revenue growth thus often making such companies difficult to evaluate from a credit perspective. In addition, the balance sheets of these companies often include a disproportionately large amount of intellectual property assets, which can be difficult to value. Finally, the speed of innovation in technology and rapid shifts in consumer demand and market share add to the difficulty in evaluating technology-related companies.
Due to the difficulties described above, we believe traditional lenders generally refrain from entering the structured debt financing marketplace, instead preferring the risk-reward profile of asset-based lending. Traditional lenders generally do not have flexible product offerings that meet the needs of technology-related companies. The financing products offered by traditional lenders typically impose on borrowers many restrictive covenants and conditions, including limiting cash outflows and requiring a significant depository relationship to facilitate rapid liquidation.
Unfulfilled Demand for Structured Debt Financing to Technology-Related Companies. Private debt capital in the form of structured debt financing from specialty finance companies continues to be an important source of funding for technology-related companies. We believe that the level of demand for structured debt financing is a function of the level of annual venture equity investment activity.
We believe that demand for structured debt financing is currently underserved. The venture capital market for the technology-related companies in which we invest has been active. Therefore, to the extent we have capital available, we believe this is an opportune time to be active in the structured lending market for technology-related companies.
Structured Debt with Warrants Products Complement Equity Financing from Venture Capital and Private Equity Funds. We believe that technology-related companies and their financial sponsors will continue to view structured debt securities as an attractive source of capital because it augments the capital provided by venture capital and private equity funds. We believe that our structured debt with warrants products provide access to growth capital that otherwise may only be available through incremental investments by existing equity investors. As such, we provide portfolio companies and their financial sponsors with an opportunity to diversify their capital sources. Generally, we believe many technology-related companies at all stages of development target a portion of their capital to be debt in an attempt to achieve a higher valuation through internal growth. In addition, because financial sponsor-backed companies have reached a more mature stage prior to reaching a liquidity event, we believe our investments could provide the debt capital needed to grow or recapitalize during the extended period sometimes required prior to liquidity events.
Our Business Strategy
Our strategy to achieve our investment objective includes the following key elements:
Leverage the Experience and Industry Relationships of Our Management Team and Investment Professionals. We have assembled a team of experienced investment professionals with extensive experience as venture capitalists, commercial lenders, and originators of structured debt and equity investments in technology-related companies. Our investment professionals have, on average, more than 10 years of experience as equity investors in, and/or lenders to, technology-related companies. In addition, our team members have originated structured debt, debt with warrants and equity investments in over 530 technology-related companies, representing more than $12.0 billion in commitments from inception to June 30, 2021, and have developed a network of industry contacts with investors and other participants within the venture capital and private equity communities. In addition, members of our management team also have operational, research and development and finance experience with technology-related companies. We have established contacts with leading venture capital and private equity fund sponsors, public and private companies, research institutions and other industry participants, which we believe will enable us to identify and attract well-positioned prospective portfolio companies.
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We focus our investing activities generally in industries in which our investment professionals have investment experience. We believe that our focus on financing technology-related companies will enable us to leverage our expertise in structuring prospective investments, to assess the value of both tangible and intangible assets, to evaluate the business prospects and operating characteristics of technology-related companies and to identify and originate potentially attractive investments with these types of companies.
Mitigate Risk of Principal Loss and Build a Portfolio of Equity-Related Securities. We expect that our investments have the potential to produce attractive risk-adjusted returns through current income, in the form of interest and fee income, as well as capital appreciation from warrant and equity-related securities. We believe that we can mitigate the risk of loss on our debt investments through the combination of loan principal amortization after an initial interest only period, cash interest payments, relatively short maturities (typically between 36 – 48 months), security interests in the assets of our portfolio companies, and on select investment covenants requiring prospective portfolio companies to have certain amounts of available cash at the time of our investment and the continued support from a venture capital or private equity firm at the time we make our investment. Although we do not currently engage in hedging transactions, we may engage in hedging transactions in the future utilizing instruments such as forward contracts, currency options and interest rate swaps, caps, collars, and floors.
Historically our structured debt investments to technology-related companies typically include warrants or other equity interests, giving us the potential to realize equity-like returns on a portion of our investment. In addition, in some cases, we receive the right to make additional equity investments in our portfolio companies, including the right to convert some portion of our debt into equity, in connection with future equity financing rounds. We believe these equity interests will create the potential for meaningful long-term capital gains in connection with the future liquidity events of these technology-related companies.
Provide Customized Financing Complementary to Financial Sponsors’ Capital. We offer a broad range of investment structures and possess expertise and experience to effectively structure and price investments in technology-related companies. Unlike many of our competitors that only invest in companies that fit a specific set of investment parameters, we have the flexibility to structure our investments to suit the particular needs of our portfolio companies. We offer customized financing solutions ranging from senior debt, including below-investment grade debt instruments, also known as “junk bonds”, to equity capital, with a focus on structured debt with warrants.
We use our relationships in the financial sponsor community to originate investment opportunities. Because venture capital and private equity funds typically invest solely in the equity securities of their portfolio companies, we believe that our debt investments will be viewed as an attractive and complimentary source of capital, both by the portfolio company and by the portfolio company’s financial sponsor. In addition, we believe that many venture capital and private equity fund sponsors encourage their portfolio companies to use debt financing for a portion of their capital needs as a means of potentially enhancing equity returns, minimizing equity dilution and increasing valuations prior to a subsequent equity financing round or a liquidity event.
Invest at Various Stages of Development. We provide growth capital to technology-related companies at all stages of development, including select publicly listed companies and select later stage sponsor-backed companies that require additional capital to fund acquisitions, recapitalizations and refinancings and established-stage companies. We believe that this provides us with a broader range of potential investment opportunities than those available to many of our competitors, who generally focus their investments on a particular stage in a company’s development. Because of the flexible structure of our investments and the extensive experience of our investment professionals, we believe we are well positioned to take advantage of these investment opportunities at all stages of prospective portfolio companies’ development.
Benefit from Our Efficient Organizational Structure. We believe that the perpetual nature of our corporate structure enables us to be a long-term partner for our portfolio companies in contrast to traditional investment
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funds, which typically have a limited life. In addition, because of our access to the equity markets, we believe that we may benefit from a lower cost of capital than that available to private investment funds. We are not subject to requirements to return invested capital to investors, nor do we have a finite investment horizon. Capital providers that are subject to such limitations are often required to seek a liquidity event more quickly than they otherwise might, which can result in a lower overall return on an investment.
Deal Sourcing Through Our Proprietary Database. We have developed a proprietary and comprehensive structured query language-based, or SQL, database system to track various aspects of our investment process including sourcing, originations, transaction monitoring and post-investment performance. As of June 30, 2021, our proprietary SQL-based database system included over 70,000 technology-related companies and over 12,500 venture capital firms, private equity sponsors or investors, as well as various other industry contacts. This proprietary SQL system allows us to maintain, cultivate and grow our industry relationships while providing us with comprehensive details on companies in the technology-related industries and their financial sponsors.
Recent Developments
Closed and Pending Commitments
Since the close of our second fiscal quarter of 2021 and as of August 31, 2021, we and the Adviser Subsidiary Funds have closed new debt and equity commitments of $186.9 million and funded $107.1 million. We and the Adviser Subsidiary Funds have pending debt and equity commitments of $553.8 million in signed non-binding term sheets outstanding as of August 31, 2021. Excluding the commitments and fundings assigned and / or directly originated or funded by the Adviser Subsidiary Funds, during the same period, we have closed net debt and equity commitments of $142.0 million and funded $83.3 million.
Signed non-binding term sheets are subject to satisfactory completion of our due diligence and final investment committee approval process as well as negotiations of definitive documentation with the prospective portfolio companies. These non-binding term sheets generally convert to contractual commitments in approximately 90 days from signing and some portion has been and may be assigned or allocated to private funds managed by the Adviser Subsidiary prior to or after closing. It is important to note that not all signed non-binding term sheets are expected to close and they do not necessarily represent future cash requirements or investments.
General Information
Our principal executive offices are located at 400 Hamilton Avenue, Suite 310, Palo Alto, California 94301, and our telephone number is (650) 289-3060. We also have offices in Boston, MA, New York, NY, Bethesda, MD, Westport, CT, Chicago, IL, and San Diego, CA.
Available Information
We file with or submit to the SEC periodic and current reports, proxy statements and other information meeting the informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We maintain a website on the Internet at www.htgc.com. We make available on our website, free of charge, our proxy statements, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, any amendments to those reports and other publicly filed information available as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. In addition, the SEC maintains an Internet website, at www.sec.gov, that contains reports, proxy and information statements, and other information regarding issuers, including us, who file documents electronically with the SEC. The information on the websites referred to herein is not incorporated by reference into this prospectus supplement or the accompanying prospectus.
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The Offering
This prospectus supplement sets forth certain terms of the Notes that we are offering pursuant to this prospectus supplement and supplements the accompanying prospectus that is attached to the back of this prospectus supplement. This section outlines the specific legal and financial terms of the Notes. You should read this section together with the section entitled “Description of Notes” in this prospectus supplement and the more general description of our debt securities in the accompanying prospectus under the heading “Description of Our Debt Securities” before investing in the Notes.
Issuer | Hercules Capital, Inc. |
Title of the securities | % Notes due |
Aggregate principal amount being offered | $ |
Initial public offering price | % of the aggregate principal amount. |
Interest Rate | % |
Yield to Maturity | % |
Trade Date | September , 2021 |
Issue Date | September , 2021 |
Stated Maturity Date | , |
Day Count Basis | 360-day year of twelve 30-day months |
Interest payment dates for the Notes | Each and commencing , 2022. If an interest payment date falls on a non-business day, the applicable interest payment will be made on the next business day and no additional interest will accrue as a result of such delayed payment. |
Regular Record Dates for Interest | Each and . |
Specified Currency | U.S. Dollars |
Place of Payment | New York City or such other office designated by the Trustee |
Ranking of Notes | The Notes will be our unsecured obligations that rank senior in right of payment to all of our existing and future indebtedness that is expressly subordinated, or junior, in right of payment to the Notes. The Notes will not be guaranteed by any of our current or future subsidiaries. The Notes will rank pari passu, or equally, in right of payment with all of our existing and future liabilities that are not so subordinated, or junior. The Notes will effectively rank subordinated, or junior, to any of our secured indebtedness (including unsecured indebtedness that we later secure) to the extent of the value of the |
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assets securing such indebtedness. The Notes will rank structurally subordinated, or junior, to all existing and future indebtedness (including trade payables) incurred by our subsidiaries, financing vehicles or similar facilities. |
| As of June 30, 2021, our total consolidated indebtedness was approximately $1.2 billion, which included: |
| • | approximately $150.0 million in aggregate principal amount of 4.625% notes due 2022 (the “2022 Notes”); approximately $105.0 million in aggregate principal amount of 4.77% notes due 2024 (the “July 2024 Notes”); approximately $50.0 million in aggregate principal amount of 4.28% notes due February 2025 (the “February 2025 Notes”); approximately $75.0 million in aggregate principal amount of 5.25% notes due April 2025 (the “April 2025 Notes”); approximately $70.0 million in aggregate principal amount of 4.31% notes due June 2025 (the “June 2025 Notes”); approximately $50.0 million in aggregate principal amount of 4.50% notes due March 2026 (the “March 2026 A Notes”); approximately $50.0 million in aggregate principal amount of 4.55% notes due March 2026 (the “March 2026 B Notes”); approximately $40.0 million in aggregate principal amount of 6.25% notes due 2033 (the “2033 Notes”); and approximately $230.0 million of 4.375% convertible notes due 2022 (the “2022 Convertible Notes”). |
| • | indebtedness and other obligations of any of our subsidiaries, including, without limitation, $53.7 million in principal outstanding under the SBA Debentures, borrowings under the $75.0 million revolving senior secured credit facility with Wells Fargo Capital Finance, LLC, (the “Wells Facility”), borrowings under the $400.0 million revolving senior secured credit facility with MUFG Union Bank, N. A. (the “Union Bank Facility,” and together with the Wells Facility, the “Credit Facilities”), the approximately $117.9 million in aggregate principal amount of 4.605% asset-backed notes due 2027 (the “2027 Asset-Backed Notes”) and the approximately $196.5 million in aggregate principal amount of 4.703% asset-backed notes due 2028 (the “2028 Asset-Backed Notes” and, together with the 2027 Asset-Backed Notes, the “Asset-Backed Notes”), each as of June 30, 2021. As of June 30, 2021, there was no outstanding borrowings under the Wells Facility and $1.7 million in outstanding borrowings under the Union Bank Facility. |
We expect to use the proceeds of this offering to repurchase or redeem all or a portion of the Asset-Backed Notes, see “Use of Proceeds.” After giving effect to the issuance of the Notes and assuming the proceeds therefrom are used to repurchase or redeem all or a portion of the Asset-Backed Notes, our total consolidated indebtedness would have been approximately |
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$1.2 billion aggregate principal amount outstanding as of June 30, 2021. See “Capitalization.” |
Denominations | We will issue the Notes in denominations of $2,000 and integral multiples of $1,000 in excess thereof. |
Business Day | Each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in New York City, or in such other place of payment designated by the Trustee, are authorized or required by law or executive order to close. |
Optional Redemption | We may redeem some or all of the Notes at any time, or from time to time, at a redemption price equal to the greater of (1) 100% of the principal amount of the Notes to be redeemed or (2) the sum of the present values of the remaining scheduled payments of principal and interest (exclusive of accrued and unpaid interest to the date of redemption) on the Notes to be redeemed, discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) using the applicable Treasury Rate plus basis points, plus, in each case, accrued and unpaid interest to the redemption date; provided, however, that if we redeem any Notes on or after , (the date falling prior to the maturity date of the Notes), the redemption price for the Notes will be equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption. |
| You may be prevented from exchanging or transferring the Notes when they are subject to redemption. |
| If we are redeeming less than all of the Notes, the particular Notes to be redeemed will be selected in accordance with the applicable procedures of the Trustee and, so long as the Notes are registered to The Depository Trust Company or its nominee, DTC; provided, however, that no such partial redemption shall reduce the portion of the principal amount of a Note not redeemed to less than $2,000. Unless we default in payment of the redemption price, on and after the date of redemption, interest will cease to accrue on the Notes or portions of the Notes called for redemption. |
Sinking Fund | The Notes will not be subject to any sinking fund. A sinking fund is a reserve fund accumulated over a period of time for the retirement of debt. |
Offer to Purchase upon a Change of Control Repurchase Event | If a Change of Control Repurchase Event occurs prior to maturity, holders will have the right, at their option, to require us to repurchase for cash some or all of the Notes at a repurchase price equal to 100% of the principal amount of the Notes being repurchased, plus accrued and unpaid interest to, but not including, the repurchase date. |
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Defeasance and Covenant Defeasance | The Notes are subject to defeasance by us, which means that, subject to the satisfaction of certain conditions, including, but not limited to, (i) depositing in trust for the benefit of the holders of the Notes a combination of money and/or U.S. government or U.S. government agency notes or bonds that will generate enough cash to make interest, principal and any other payments on the Notes on their various due dates and (ii) delivering to the Trustee an opinion of counsel as described herein under “Description of Notes—Satisfaction and Discharge; Defeasance,” we can legally release ourselves from all payment and other obligations on the Notes. |
| The Notes are subject to covenant defeasance by us, which means that, subject to the satisfaction of certain conditions, including, but not limited to, (i) depositing in trust for the benefit of the holders of the Notes a combination of money and/or U.S. government or U.S. government agency notes or bonds that will generate enough cash to make interest, principal and any other payments on the Notes on their various due dates and (ii) delivering to the Trustee an opinion of counsel as described herein under “Description of Notes— Satisfaction and Discharge; Defeasance,” we will be released from some of the restrictive covenants in the indenture. |
Form of Notes | The Notes will be represented by global securities that will be deposited and registered in the name of DTC or its nominee. Except in limited circumstances, you will not receive certificates for the Notes. Beneficial interests in the Notes will be represented through book-entry accounts of financial institutions acting on behalf of beneficial owners as direct and indirect participants in DTC. Investors may elect to hold interests in the Notes through either DTC, if they are a participant, or indirectly through organizations which are participants in DTC. |
Trustee, Paying Agent and Security Registrar | U.S. Bank National Association |
Other Covenants | In addition to the covenants described in the prospectus attached to this prospectus supplement, the following covenants shall apply to the Notes: |
| • | We agree that for the period of time during which the Notes are outstanding, we will not violate, whether or not we are subject to, Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act or any successor provisions, giving effect to any exemptive relief granted to us by the SEC (even if we are no longer subject to the 1940 Act). Currently, these provisions generally prohibit us from making additional borrowings, including through the issuance of additional debt or the sale of additional debt securities, unless our asset coverage, as defined in the 1940 Act, equals at least 150% after such borrowings. See “Risk Factors—Risks Related to our Business Structure— |
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Recently passed legislation allows us to incur additional leverage, which may increase the risk of investing with us,” in our most recent Annual Report on Form 10-K. |
| • | If, at any time, we are not subject to the reporting requirements of Sections 13 or 15(d) of the Exchange Act to file any periodic reports with the SEC, we agree to furnish to holders of the Notes and the Trustee, for the period of time during which the Notes are outstanding, our audited annual consolidated financial statements, within 90 days of our fiscal year end, and unaudited interim consolidated financial statements, within 45 days of our fiscal quarter end (other than our fourth fiscal quarter). All such financial statements will be prepared, in all material respects, in accordance with applicable United States generally accepted accounting principles (“GAAP”), as applicable. |
Events of Default | If an event of default (as described herein under “Description of Notes”) on the Notes occurs, the principal amount of the Notes, plus accrued and unpaid interest, may be declared immediately due and payable, subject to conditions set forth in the indenture. These amounts automatically become due and payable in the case of certain types of bankruptcy or insolvency events involving us. |
No Established Trading Market | The Notes are a new issue of securities with no established trading market. The Notes will not be listed on any securities exchange or quoted on any automated dealer quotation system. Although certain of the underwriters have informed us that they intend to make a market in the Notes, as permitted by applicable laws and regulations, they are not obligated to do so and may discontinue any such market making activities at any time without notice. See “Underwriting.” Accordingly, we cannot assure you that a liquid market for the Notes will develop or be maintained. |
Global Clearance and Settlement Procedures | Interests in the Notes will trade in DTC’s Same Day Funds Settlement System, and any permitted secondary market trading activity in such Notes will, therefore, be required by DTC to be settled in immediately available funds. None of the issuer, the Trustee or the paying agent will have any responsibility for the performance by DTC or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations. |
Further Issuances | We have the ability to issue additional debt securities under the indenture with terms different from the Notes and, without the consent of the holders thereof, to reopen the Notes and issue additional Notes. |
Use of Proceeds | We estimate that the net proceeds we receive from the sale of the $ million aggregate principal amount of Notes in this offering will be approximately $ million after deducting the |
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underwriting discount of approximately $ million payable by us and estimated offering expenses of approximately $ payable by us. We expect to use the net proceeds from this offering (i) to repurchase or redeem all or a portion of the Asset-Backed Notes, (ii) to fund investments in debt and equity securities in accordance with our investment objective, and (iii) for other general corporate purposes. |
Governing Law | The Notes and the indenture will be governed by and construed in accordance with the laws of the State of New York. |
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The matters discussed in this prospectus supplement and the accompanying prospectus, including the documents that we incorporate by reference herein and therein, and any applicable free writing prospectus, including the documents that we incorporate by reference therein, as well as in future oral and written statements by management of Hercules Capital, Inc., that are forward-looking statements are based on current management expectations that involve substantial risks and uncertainties which could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Important assumptions include our ability to originate new investments, achieve certain margins and levels of profitability, the availability of additional capital, and the ability to maintain certain debt to asset ratios. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this prospectus should not be regarded as a representation by us that our plans or objectives will be achieved. The forward-looking statements included or incorporated by reference in this prospectus supplement, the accompanying prospectus, and in any free writing prospectus related to the offering of the Notes involve risks and uncertainties, including statements as to:
| • | our current and future management structure; |
| • | our future operating results; |
| • | our business prospects and the prospects of our prospective portfolio companies; |
| • | the impact of investments that we expect to make; |
| • | our informal relationships with third parties including in the venture capital industry; |
| • | the expected market for venture capital investments and our addressable market; |
| • | the dependence of our future success on the general economy and its impact on the industries in which we invest; |
| • | our ability to access debt markets and equity markets; |
| • | the current and future effects of the COVID-19 pandemic on us and our portfolio companies; |
| • | the ability of our portfolio companies to achieve their objectives; |
| • | our expected financings and investments; |
| • | our regulatory structure and tax status; |
| • | our ability to operate as a BDC, a SBIC and a RIC; |
| • | the adequacy of our cash resources and working capital; |
| • | the timing of cash flows, if any, from the operations of our portfolio companies; |
| • | the timing, form and amount of any distributions; |
| • | the impact of fluctuations in interest rates on our business; |
| • | the valuation of any investments in portfolio companies, particularly those having no liquid trading market; and |
| • | our ability to recover unrealized losses. |
For a discussion of factors that could cause our actual results to differ from forward-looking statements contained in this prospectus supplement and the accompanying prospectus, please see the discussion under
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“Supplementary Risk Factors” in this prospectus supplement and “Risk Factors” in the accompanying prospectus. You should not place undue reliance on these forward-looking statements because the matters they describe are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond our control. In addition to other information included or incorporated by reference in this prospectus supplement, please read carefully the sections titled “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, as well as the section entitled “Forward-Looking Statements” in the accompanying prospectus, before making any investment in the Notes. The forward-looking statements made in this prospectus supplement, the accompanying prospectus, and any free writing prospectus related to the offering of the Notes, and the documents incorporated herein and therein, relate only to events as of the date on which the statements are made and are excluded from the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, or the Securities Act. We undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this prospectus supplement but advise you to consult any additional disclosures that we may make directly to you or through reports that we may file in the future with the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
Industry and Market Data
We have compiled certain industry estimates presented in this prospectus supplement and the accompanying prospectus from internally generated information and data. While we believe our estimates are reliable, they have not been verified by any independent sources. The estimates are based on a number of assumptions, including increasing investment in venture capital and private equity-backed companies. Actual results may differ from projections and estimates, and this market may not grow at the rates projected, or at all. If this market fails to grow at projected rates, our business and the market price of our securities, including the Notes, could be materially adversely affected.
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Investing in our securities involves a number of significant risks. Before you invest in our securities, you should be aware of various risks, including those described below and those set forth in the accompanying prospectus, our most recent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, and any subsequent filings with the SEC, which are incorporated by reference into this prospectus supplement and the accompanying prospectus in their entirety. You should carefully consider these risk factors, together with all of the other information included or incorporated by reference in this prospectus supplement, the accompanying prospectus and any free writing prospectus related to the offering of the Notes, before you decide whether to make an investment in our securities. The risks set out below and in the documents referenced above are not the only risks we face. Additional risks and uncertainties not presently known to us or not presently deemed material by us may also impair our operations and performance. If any of the following events occur, our business, financial condition, results of operations and cash flows could be materially and adversely affected which could materially adversely affect our ability to repay principal and interest on the Notes. In addition, the market price of the Notes and our net asset value could decline, and you may lose all or part of your investment. Please also read carefully the section titled “Forward-Looking Statements” in this prospectus supplement.
Risks Related to the Notes
The Notes will be unsecured and therefore will be effectively subordinated to any secured indebtedness we have currently incurred or may incur in the future.
The Notes will not be secured by any of our assets or any of the assets of our subsidiaries. As a result, the Notes are effectively subordinated to any secured indebtedness we or our subsidiaries have currently incurred and may incur in the future (or any indebtedness that is initially unsecured to which we subsequently grant security) to the extent of the value of the assets securing such indebtedness. In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our existing or future secured indebtedness and the secured indebtedness of our subsidiaries may assert rights against the assets pledged to secure that indebtedness in order to receive full payment of their indebtedness before the assets may be used to pay other creditors, including the holders of the Notes. As of June 30, 2021, we had $1.7 million in outstanding borrowings under our Union Bank Facility, which is secured by all of the assets of Hercules Funding IV, a special purpose wholly owned subsidiary, no outstanding borrowings under our Wells Facility, which is secured by all of the assets of Hercules Funding II, a special purpose wholly owned subsidiary, $53.7 million in outstanding borrowings under the SBA Debentures, which are secured by all of the assets of HC IV, a special purpose wholly owned subsidiary, $117.9 million in outstanding borrowings under our 2027 Asset-Backed Notes, which are secured by certain assets of certain of our portfolio companies and $196.5 million in outstanding borrowings under our 2028 Asset-Backed Notes, which are secured by certain assets of certain of our portfolio companies.
The Notes will be structurally subordinated to the indebtedness and other liabilities of our subsidiaries.
The Notes are obligations exclusively of Hercules Capital, Inc. and not of any of our subsidiaries. None of our subsidiaries is a guarantor of the Notes and the Notes are not required to be guaranteed by any subsidiaries we may acquire or create in the future. A significant portion of the indebtedness required to be consolidated on our balance sheet is held through our SBIC subsidiary. For example, at June 30, 2021, we have issued $53.7 million in SBA-guaranteed debentures in our SBIC subsidiary. The assets of such subsidiaries are not directly available to satisfy the claims of our creditors, including holders of the Notes. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition, Liquidity and Capital Resources” in our most recent Annual Report on Form 10-K and our most recent Quarterly Report on Form 10-Q for more detail on the SBA-guaranteed debentures.
Except to the extent we are a creditor with recognized claims against our subsidiaries, all claims of creditors (including trade creditors), if any, of our subsidiaries will have priority over our equity interests in such
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subsidiaries (and therefore the claims of our creditors, including holders of the Notes) with respect to the assets of such subsidiaries. Even if we are recognized as a creditor of one or more of our subsidiaries, our claims would still be effectively subordinated to any security interests in the assets of any such subsidiary and to any indebtedness or other liabilities of any such subsidiary senior to our claims. Consequently, the Notes will be structurally subordinated to all indebtedness and other liabilities (including trade payables) of any of our subsidiaries and any subsidiaries that we may in the future acquire or establish as financing vehicles or otherwise.
As of June 30, 2021, we had no outstanding borrowings under our Wells Facility, $1.7 million in outstanding borrowings under our Union Bank Facility, $117.9 million outstanding under the 2027 Asset-Backed Notes and $196.5 million outstanding under the 2028 Asset-Backed Notes and approximately $53.7 million of indebtedness outstanding incurred by our SBIC subsidiary, HC IV. All of such indebtedness would be structurally senior to the Notes. In addition, our subsidiaries may incur substantial additional indebtedness in the future, all of which would be structurally senior to the Notes.
The indenture under which the Notes will be issued will contain limited protection for holders of the Notes.
The indenture under which the Notes will be issued offers limited protection to holders of the Notes. The terms of the indenture and the Notes do not restrict our or any of our subsidiaries’ ability to engage in, or otherwise be a party to, a variety of corporate transactions, circumstances or events that could have an adverse impact on your investment in the Notes. In particular, the terms of the indenture and the Notes will not place any restrictions on our or our subsidiaries’ ability to:
| • | issue securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or other obligations that would be equal in right of payment to the Notes, (2) any indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to the Notes to the extent of the values of the assets securing such debt, (3) indebtedness of ours that is guaranteed by one or more of our subsidiaries and which therefore is structurally senior to the Notes and (4) securities, indebtedness or obligations issued or incurred by our subsidiaries that would be senior to our equity interests in our subsidiaries and therefore rank structurally senior to the Notes with respect to the assets of our subsidiaries, in each case other than an incurrence of indebtedness or other obligation that would cause a violation of Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act or any successor provisions, whether or not we continue to be subject to such provisions of the 1940 Act, but giving effect to any exemptive relief granted to us by the SEC (currently, these provisions generally prohibit us from making additional borrowings, including through the issuance of additional debt or the sale of additional debt securities, unless our asset coverage, as defined in the 1940 Act, equals at least 150% after such borrowings); |
| • | pay distributions on, or purchase or redeem or make any payments in respect of, capital stock or other securities ranking junior in right of payment to the Notes; |
| • | sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our assets); |
| • | enter into transactions with affiliates; |
| • | create liens (including liens on the shares of our subsidiaries) or enter into sale and leaseback transactions; |
| • | make investments; or |
| • | create restrictions on the payment of distributions or other amounts to us from our subsidiaries. |
Furthermore, the terms of the indenture and the Notes do not protect holders of the Notes in the event that we experience changes (including significant adverse changes) in our financial condition, results of operations or credit ratings, as they do not require that we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow, or liquidity.
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Our ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the terms of the Notes may have important consequences for you as a holder of the Notes, including making it more difficult for us to satisfy our obligations with respect to the Notes or negatively affecting the trading value of the Notes.
Certain of our current debt instruments include more protections for their holders than the indenture and the Notes. See “Risk Factors—In addition to regulatory requirements that restrict our ability to raise capital, our 2022 Notes, July 2024 Notes, February 2025 Notes, April 2025 Notes, June 2025 Notes, March 2026 A Notes, 2033 Notes, 2022 Convertible Notes, and Credit Facilities contain various covenants which, if not complied with, could require accelerated repayment under the facility or require us to repurchase the 2022 Notes, July 2024 Notes, February 2025 Notes, April 2025 Notes, June 2025 Notes, March 2026 A Notes, 2033 Notes, or 2022 Convertible Notes thereby materially and adversely affecting our liquidity, financial condition, results of operations and ability to pay distributions” in our most recent Annual Report on Form 10-K. In addition, other debt, including the March 2026 B Notes, and other debt we issue or incur in the future could contain more protections for its holders than the indenture and the Notes, including additional covenants and events of default. The issuance or incurrence of any such debt with incremental protections could affect the market for, and trading levels and prices of, the Notes.
An increase in market interest rates could result in a decrease in the market value of the Notes.
The condition of the financial markets and prevailing interest rates have fluctuated in the past and are likely to fluctuate in the future, which could have an adverse effect on the market prices of the Notes. In general, as market interest rates rise, debt securities bearing interest at fixed rates of interest decline in value. Consequently, if you purchase Notes bearing interest at fixed rates and market interest rates increase, the market values of those Notes may decline. We cannot predict the future level of market interest rates.
The optional redemption provision may materially adversely affect your return on the Notes.
The Notes are redeemable in whole or in part upon certain conditions at any time or from time to time at our option. We may choose to redeem the Notes at times when prevailing interest rates are lower than the interest rate paid on the Notes. In this circumstance, you may not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as the Notes being redeemed.
Our amount of debt outstanding may increase as a result of this offering. Our current indebtedness could adversely affect our business, financial condition and results of operations and our ability to meet our payment obligations under the Notes and our other debt.
The use of debt could have significant consequences on our future operations, including:
| • | making it more difficult for us to meet our payment and other obligations under the Notes and our other outstanding debt; |
| • | resulting in an event of default if we fail to comply with the financial and other restrictive covenants contained in our financing arrangements, which event of default could result in substantially all of our debt becoming immediately due and payable; |
| • | reducing the availability of our cash flow to fund investments, acquisitions and other general corporate purposes, and limiting our ability to obtain additional financing for these purposes; |
| • | subjecting us to the risk of increased sensitivity to interest rate increases on our indebtedness with variable interest rates, including borrowings under our financing arrangements; and |
| • | limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industry in which we operate and the general economy. |
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Any of the above-listed factors could have an adverse effect on our business, financial condition and results of operations and our ability to meet our payment obligations under the Notes and our other debt.
Our ability to meet our payment and other obligations under our financing arrangements depends on our ability to generate significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors as well as other factors that are beyond our control. We cannot assure you that our business will generate cash flow from operations, or that future borrowings will be available to us under our financing arrangements or otherwise, in an amount sufficient to enable us to meet our payment obligations under the Notes and our other debt and to fund other liquidity needs. If we are not able to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure our debt, including the Notes, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we are unable to implement one or more of these alternatives, we may not be able to meet our payment obligations under the Notes and our other debt.
We may not be able to repurchase the Notes upon a Change of Control Repurchase Event.
Upon the occurrence of a Change of Control Repurchase Event, as defined in the indenture, as supplemented, subject to certain conditions, we will be required to offer to repurchase all outstanding Notes at 100% of their principal amount, plus accrued and unpaid interest. The source of funds for that purchase of Notes will be our available cash or cash generated from our operations or other potential sources, including borrowings, investment repayments, sales of assets or sales of equity. We cannot assure you that sufficient funds from such sources will be available at the time of any Change of Control Repurchase Event to make required repurchases of Notes tendered. The terms of certain of our and our subsidiaries’ financing arrangements provide that certain change of control events will constitute an event of default thereunder entitling the lenders to accelerate any indebtedness outstanding under our and our subsidiaries’ financing arrangements at that time and to terminate the financing arrangements. In addition, the indenture governing our 2022 Convertible Notes contains a provision that would require us to offer to purchase the 2022 Convertible Notes upon the occurrence of a fundamental change. A failure to purchase any tendered 2022 Convertible Notes would constitute an event of default under the indenture for the 2022 Convertible Notes, which would, in turn, constitute a default under the Credit Facilities and the indenture. Our and our subsidiaries’ future debt instruments may also contain similar restrictions and provisions. If the holders of the Notes exercise their right to require us to repurchase Notes upon a Change of Control Repurchase Event, the financial effect of this repurchase could cause a default under our and our subsidiaries’ future debt instruments, even if the Change of Control Repurchase Event itself would not cause a default. It is possible that we will not have sufficient funds at the time of the Change of Control Repurchase Event to make the required repurchase of the Notes and/or our other debt. See “Description of Notes—Offer to Repurchase Upon a Change of Control Repurchase Event.”
An active trading market for the Notes may not develop or be maintained, which could limit the market price of the Notes or your ability to sell them.
The Notes are a new issue of debt securities for which there currently is no trading market. We do not intend to apply for listing of the Notes on any securities exchange or for quotation of the Notes on any automated dealer quotation system. If no active trading market develops, you may not be able to resell your Notes at their fair market value or at all. If the Notes are traded after their initial issuance, they may trade at a discount from their initial offering price depending on prevailing interest rates, the market for similar securities, our credit ratings, general economic conditions, our financial condition, performance and prospects and other factors. Certain of the underwriters have advised us that they intend to make a market in the Notes, but they are not obligated to do so. Such underwriters may discontinue any market-making in the Notes at any time at their sole discretion. Accordingly, we cannot assure you that a liquid trading market will develop or be maintained for the Notes, that you will be able to sell your Notes at a particular time or that the price you receive when you sell will be favorable. To the extent an active trading market does not develop or is not maintained, the liquidity and trading price for the Notes may be harmed. Accordingly, you may be required to bear the financial risk of an investment in the Notes for an indefinite period of time.
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A downgrade, suspension or withdrawal of a credit rating assigned by a rating agency to us or our unsecured debt, if any, or change in the debt markets could cause the liquidity or market value of the Notes to decline significantly.
Our credit ratings are an assessment by rating agencies of our ability to pay our debts when due. Consequently, real or anticipated changes in our credit ratings will generally affect the market value of the Notes. These credit ratings may not reflect the potential impact of risks relating to the structure or marketing of the Notes. Credit ratings are not a recommendation to buy, sell or hold any security, and may be revised or withdrawn at any time by the issuing organization in its sole discretion. Neither we nor any underwriter undertakes any obligation to maintain our credit ratings or to advise holders of Notes of any changes in our credit ratings. There can be no assurance that our credit ratings will remain for any given period of time or that such credit ratings will not be lowered or withdrawn entirely by the rating agencies if in their judgment future circumstances relating to the basis of the credit ratings, such as adverse changes in our company, so warrant. The conditions of the financial markets and prevailing interest rates have fluctuated in the past and are likely to fluctuate in the future, which could have an adverse effect on the market prices of the Notes.
Our credit ratings may not reflect all risks of an investment in the Notes.
Our credit ratings are an assessment by third parties of our ability to pay our obligations. Consequently, real or anticipated changes in our credit ratings will generally affect the market value of the Notes. Our credit ratings, however, may not reflect the potential impact of risks related to market conditions generally or other factors discussed above on the market value of or trading market for the Notes.
If we Default on our obligations to pay our other indebtedness, we may not be able to make payments on the Notes.
Any default under the agreements governing our indebtedness, including a default under the Wells Facility, the Union Bank Facility, the SBA Debentures, the 2022 Notes, the July 2024 Notes, the February 2025 Notes, the April 2025 Notes, the June 2025 Notes, the March 2026 A Notes, the March 2026 B Notes, the 2033 Notes, the Asset-Backed Notes, and the 2022 Convertible Notes (together, our “Indebtedness”) or other indebtedness to which we may be a party, that is not waived by the required lenders or holders, and the remedies sought by the holders of such indebtedness, could make us unable to pay principal, premium, if any, and interest on the Notes and substantially decrease the market value of the Notes. If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants, including financial and operating covenants, in the instruments governing our indebtedness, we could be in default under the terms of the agreements governing such indebtedness. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, the lenders under the Wells Facility and the Union Bank Facility or other debt we may incur in the future could elect to terminate their commitments, cease making further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. If our operating performance declines, we may in the future need to seek to obtain waivers from the required lenders or the required holders (as applicable) under our Indebtedness or other debt that we may incur in the future to avoid being in default. If we breach our covenants under our Indebtedness or other debt and seek a waiver, we may not be able to obtain a waiver from the required lenders or holders. If this occurs, we would be in default under our Indebtedness or other debt and, as applicable, the lenders or holders could exercise their rights as described above, and we could be forced into bankruptcy or liquidation. If we are unable to repay debt, lenders having secured obligations, including the lenders under the Wells Facility and the Union Bank Facility, could proceed against the collateral securing the debt. Because the Wells Facility and the Union Bank Facility have, and any future credit facilities will likely have, customary cross-default provisions, if the indebtedness under the Notes, our Indebtedness or under any future credit facility is accelerated, we may be unable to repay or finance the amounts due. See “Specific Terms of the Notes and the Offering” in this prospectus supplement.
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We estimate that the net proceeds we will receive from the sale of the $ million aggregate principal amount of Notes in this offering will be approximately $ , based on a public offering of % of par, after deducting the underwriting discount of approximately $ million payable by us and estimated offering expenses of approximately $ payable by us.
We expect to use the net proceeds from this offering (i) to repurchase or redeem all or a portion of the Asset-Backed Notes, (ii) to fund investments in debt and equity securities in accordance with our investment objective, and (iii) for other general corporate purposes.
As of June 30, 2021, the aggregate principal balance of the 2027 Asset-Backed Notes was approximately $117.9 million. The 2027 Asset-Backed Notes bear interest at a rate of 4.605% per year, payable quarterly and mature, unless earlier repurchased or redeemed, on November 22, 2027. As of June 30, 2021, the aggregate principal balance of the 2028 Asset-Backed Notes was approximately $196.5 million. The 2028 Asset-Backed Notes bear interest at a rate of 4.703% per year, payable quarterly and mature, unless earlier repurchased or redeemed, on February 22, 2028.
We intend to seek to invest the net proceeds received in this offering as promptly as practicable after receipt thereof consistent with our investment objective. Pending such uses and investments, we will invest a portion of the net proceeds of this offering primarily in cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment. Our ability to achieve our investment objectives may be limited to the extent that the net proceeds of this offering, pending full investment, are held in lower yielding short-term instruments.
The amount of net proceeds may be more or less than the amount described in this preliminary prospectus supplement depending on the amount of Notes we sell in the offering, which will be determined at pricing. To the extent that we receive more than the amount described in this preliminary prospectus supplement, we intend to use the net proceeds for investment in portfolio companies in accordance with our investment objective and strategies and for working capital and general corporate purposes. To the extent we receive less, the amount we have available for such purposes will be reduced.
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The following table sets forth (i) our actual capitalization as of June 30, 2021, and (ii) our capitalization as adjusted to give effect to the sale of $ aggregate principal amount of Notes in this offering, after deducting the underwriting discounts and commissions of approximately $ million payable by us and estimated offering expenses of approximately $ payable by us and the application of the net proceeds therefrom as described under “Use of Proceeds.” You should read this table together with the “Use of Proceeds” section included in this prospectus supplement and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our most recent consolidated financial statements and notes thereto incorporated by reference into this prospectus supplement and the accompanying prospectus.
| As of June 30, 2021 | ||||||||
| Actual | As Adjusted | |||||||
| (in thousands) | ||||||||
Investments at fair value | $ | 2,521,090 | $ | |||||
Cash and cash equivalents | $ | 18,447 | $ | |||||
Liabilities(1): | ||||||||
Accounts payable and accrued liabilities | $ | 36,886 | $ | |||||
Operating lease liability | 7,813 | |||||||
Long-term SBA debentures | 51,889 | |||||||
2022 Notes | 149,301 | |||||||
July 2024 Notes | 104,090 | |||||||
February 2025 Notes | 49,579 | |||||||
April 2025 Notes | 73,541 | |||||||
June 2025 Notes | 69,353 | |||||||
March 2026 A Notes | 49,558 | |||||||
March 2026 B Notes | 49,518 | |||||||
2033 Notes | 38,663 | |||||||
2027 Asset-Backed Notes | 116,571 | |||||||
2028 Asset-Backed Notes | 194,749 | |||||||
2022 Convertible Notes | 228,958 | |||||||
Credit Facilities | 1,745 | |||||||
Notes offered herein | — | |||||||
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Total liabilities | $ | 1,222,214 | $ | |||||
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Net assets: | ||||||||
Common stock, par value $0.001 per share; 200,000,000 shares authorized; 115,866,665 shares issued and outstanding | $ | 116 | $ | |||||
Capital in excess of par value | 1,163,910 | |||||||
Total distributable earnings | 192,332 | |||||||
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Total net assets | $ | 1,356,358 | $ | |||||
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Total capitalization | $ | 2,578,572 | $ | |||||
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| (1) | The above table reflects the carrying value of indebtedness outstanding as of June 30, 2021. As of August 31, 2021, indebtedness under the Long-term SBA debentures, 2022 Notes, July 2024 Notes, February 2025 Notes, June 2025 Notes, March 2026 A Notes, March 2026 B Notes, 2033 Notes, 2027 Asset-Backed Notes, 2028 Asset-Backed Notes, 2022 Convertible Notes, the Wells Facility and the Union Bank Credit Facility were $64.5 million, $150.0 million, $105.0 million, $50.0 million, $70.0 million, $50.0 million, $50.0 million, $40.0 million, $115.4 million, $184.4 million, $230.0 million, $0.0 million, and $66.0 million, respectively. The net proceeds from the sale of the Notes are expected to be used to repurchase or redeem the Asset-Backed Notes, fund investments in debt and equity securities in accordance with our investment objective, and for other general corporate purposes. See “Use of Proceeds.” |
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Information about our senior securities is shown in the following table as of June 30, 2021 and December 31, 2020, 2019, 2018, 2017, 2016, 2015, 2014, 2013, 2012 and 2011. The annual information is derived from our audited financial statements for these periods, which have been audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm. The “N/A” indicates information that the SEC expressly does not require to be disclosed for certain types of senior securities.
Class and Year | Total Amount Outstanding Exclusive of Treasury Securities(1) | Asset Coverage per Unit(2) | Average Market Value per Unit(3) | |||||||||
Securitized Credit Facility with Wells Fargo Capital Finance | ||||||||||||
December 31, 2011 | $ | 10,186,830 | $ | 73,369 | N/A | |||||||
December 31, 2012(6) | — | — | N/A | |||||||||
December 31, 2013(6) | — | — | N/A | |||||||||
December 31, 2014(6) | — | — | N/A | |||||||||
December 31, 2015 | $ | 50,000,000 | $ | 26,352 | N/A | |||||||
December 31, 2016 | $ | 5,015,620 | $ | 290,234 | N/A | |||||||
December 31, 2017(6) | — | — | N/A | |||||||||
December 31, 2018 | $ | 13,106,582 | $ | 147,497 | N/A | |||||||
December 31, 2019(6) | — | — | N/A | |||||||||
December 31, 2020(6) | — | — | N/A | |||||||||
June 30, 2021 (unaudited)(6) | — | — | N/A | |||||||||
Securitized Credit Facility with Union Bank, NA | ||||||||||||
December 31, 2011(6) | — | — | N/A | |||||||||
December 31, 2012(6) | — | — | N/A | |||||||||
December 31, 2013(6) | — | — | N/A | |||||||||
December 31, 2014(6) | — | — | N/A | |||||||||
December 31, 2015(6) | — | — | N/A | |||||||||
December 31, 2016(6) | — | — | N/A | |||||||||
December 31, 2017(6) | — | — | N/A | |||||||||
December 31, 2018 | $ | 39,849,010 | $ | 48,513 | N/A | |||||||
December 31, 2019 | $ | 103,918,736 | $ | 23,423 | N/A | |||||||
December 31, 2020(6) | — | — | N/A | |||||||||
June 30, 2021 (unaudited) | $ | 1,744,604 | $ | 1,459,061 | N/A | |||||||
Small Business Administration Debentures (HT II)(4) | ||||||||||||
December 31, 2011 | $ | 125,000,000 | $ | 5,979 | N/A | |||||||
December 31, 2012 | $ | 76,000,000 | $ | 14,786 | N/A | |||||||
December 31, 2013 | $ | 76,000,000 | $ | 16,075 | N/A | |||||||
December 31, 2014 | $ | 41,200,000 | $ | 31,535 | N/A | |||||||
December 31, 2015 | $ | 41,200,000 | $ | 31,981 | N/A | |||||||
December 31, 2016 | $ | 41,200,000 | $ | 35,333 | N/A | |||||||
December 31, 2017 | $ | 41,200,000 | $ | 39,814 | N/A | |||||||
December 31, 2018 | — | — | N/A | |||||||||
Small Business Administration Debentures (HT III)(5) | ||||||||||||
December 31, 2011 | $ | 100,000,000 | $ | 7,474 | N/A | |||||||
December 31, 2012 | $ | 149,000,000 | $ | 7,542 | N/A | |||||||
December 31, 2013 | $ | 149,000,000 | $ | 8,199 | N/A | |||||||
December 31, 2014 | $ | 149,000,000 | $ | 8,720 | N/A | |||||||
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Class and Year | Total Amount Outstanding Exclusive of Treasury Securities(1) | Asset Coverage per Unit(2) | Average Market Value per Unit(3) | |||||||||
December 31, 2015 | $ | 149,000,000 | $ | 8,843 | N/A | |||||||
December 31, 2016 | $ | 149,000,000 | $ | 9,770 | N/A | |||||||
December 31, 2017 | $ | 149,000,000 | $ | 11,009 | N/A | |||||||
December 31, 2018 | $ | 149,000,000 | $ | 12,974 | N/A | |||||||
December 31, 2019 | $ | 149,000,000 | $ | 16,336 | N/A | |||||||
December 31, 2020 | $ | 99,000,000 | $ | 26,168 | N/A | |||||||
June 30, 2021 (unaudited) | — | — | N/A | |||||||||
Small Business Administration Debentures (HC IV)(8) | ||||||||||||
June 30, 2021 (unaudited) | $ | 53,700,000 | $ | 47,402 | N/A | |||||||
2016 Convertible Notes | ||||||||||||
December 31, 2011 | $ | 75,000,000 | $ | 10,623 | $ | 885 | ||||||
December 31, 2012 | $ | 75,000,000 | $ | 15,731 | $ | 1,038 | ||||||
December 31, 2013 | $ | 75,000,000 | $ | 16,847 | $ | 1,403 | ||||||
December 31, 2014 | $ | 17,674,000 | $ | 74,905 | $ | 1,290 | ||||||
December 31, 2015 | $ | 17,604,000 | $ | 74,847 | $ | 1,110 | ||||||
December 31, 2016 | — | — | N/A | |||||||||
April 2019 Notes | ||||||||||||
December 31, 2012 | $ | 84,489,500 | $ | 13,300 | $ | 986 | ||||||
December 31, 2013 | $ | 84,489,500 | $ | 14,460 | $ | 1,021 | ||||||
December 31, 2014 | $ | 84,489,500 | $ | 15,377 | $ | 1,023 | ||||||
December 31, 2015 | $ | 64,489,500 | $ | 20,431 | $ | 1,017 | ||||||
December 31, 2016 | $ | 64,489,500 | $ | 22,573 | $ | 1,022 | ||||||
December 31, 2017 | — | — | N/A | |||||||||
September 2019 Notes | ||||||||||||
December 31, 2012 | $ | 85,875,000 | $ | 13,086 | $ | 1,003 | ||||||
December 31, 2013 | $ | 85,875,000 | $ | 14,227 | $ | 1,016 | ||||||
December 31, 2014 | $ | 85,875,000 | $ | 15,129 | $ | 1,026 | ||||||
December 31, 2015 | $ | 45,875,000 | $ | 28,722 | $ | 1,009 | ||||||
December 31, 2016 | $ | 45,875,000 | $ | 31,732 | $ | 1,023 | ||||||
December 31, 2017 | — | — | N/A | |||||||||
2022 Notes | ||||||||||||
December 31, 2017 | $ | 150,000,000 | $ | 10,935 | $ | 1,014 | ||||||
December 31, 2018 | $ | 150,000,000 | $ | 12,888 | $ | 976 | ||||||
December 31, 2019 | $ | 150,000,000 | $ | 16,227 | $ | 1,008 | ||||||
December 31, 2020 | $ | 150,000,000 | $ | 17,271 | $ | 1,017 | ||||||
June 30, 2021 (unaudited) | $ | 150,000,000 | $ | 16,970 | $ | 1,016 | ||||||
2024 Notes | ||||||||||||
December 31, 2014 | $ | 103,000,000 | $ | 12,614 | $ | 1,010 | ||||||
December 31, 2015 | $ | 103,000,000 | $ | 12,792 | $ | 1,014 | ||||||
December 31, 2016 | $ | 252,873,175 | $ | 5,757 | $ | 1,016 | ||||||
December 31, 2017 | $ | 183,509,600 | $ | 8,939 | $ | 1,025 | ||||||
December 31, 2018 | $ | 83,509,600 | $ | 23,149 | $ | 1,011 | ||||||
December 31, 2019 | — | — | N/A | |||||||||
2025 Notes | ||||||||||||
December 31, 2018 | $ | 75,000,000 | $ | 25,776 | $ | 962 | ||||||
December 31, 2019 | $ | 75,000,000 | $ | 32,454 | $ | 1,032 | ||||||
December 31, 2020 | $ | 75,000,000 | $ | 34,541 | $ | 1,020 | ||||||
June 30, 2021 (unaudited) | $ | 75,000,000 | $ | 33,940 | $ | 1,008 | ||||||
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Class and Year | Total Amount Outstanding Exclusive of Treasury Securities(1) | Asset Coverage per Unit(2) | Average Market Value per Unit(3) | |||||||||
2033 Notes | ||||||||||||
December 31, 2018 | $ | 40,000,000 | $ | 48,330 | $ | 934 | ||||||
December 31, 2019 | $ | 40,000,000 | $ | 60,851 | $ | 1,054 | ||||||
December 31, 2020 | $ | 40,000,000 | $ | 64,765 | $ | 1,072 | ||||||
June 30, 2021 (unaudited) | $ | 40,000,000 | $ | 63,637 | $ | 1,073 | ||||||
July 2024 Notes | ||||||||||||
December 31, 2019 | $ | 105,000,000 | $ | 23,181 | N/A | |||||||
December 31, 2020 | $ | 105,000,000 | $ | 24,672 | N/A | |||||||
June 30, 2021 (unaudited) | $ | 105,000,000 | $ | 24,243 | N/A | |||||||
February 2025 Notes | ||||||||||||
December 31, 2020 | $ | 50,000,000 | $ | 51,812 | N/A | |||||||
June 30, 2021 (unaudited) | $ | 50,000,000 | $ | 50,910 | N/A | |||||||
June 2025 Notes | ||||||||||||
December 31, 2020 | $ | 70,000,000 | $ | 37,009 | N/A | |||||||
June 30, 2021 (unaudited) | $ | 70,000,000 | $ | 36,364 | N/A | |||||||
March 2026 A Notes | ||||||||||||
December 31, 2020 | $ | 50,000,000 | $ | 51,812 | N/A | |||||||
June 30, 2021 (unaudited) | $ | 50,000,000 | $ | 50,910 | N/A | |||||||
March 2026 B Notes | ||||||||||||
June 30, 2021 (unaudited) | $ | 50,000,000 | $ | 50,910 | N/A | |||||||
2017 Asset-Backed Notes | ||||||||||||
December 31, 2012 | $ | 129,300,000 | $ | 8,691 | $ | 1,000 | ||||||
December 31, 2013 | $ | 89,556,972 | $ | 13,642 | $ | 1,004 | ||||||
December 31, 2014 | $ | 16,049,144 | $ | 80,953 | $ | 1,375 | ||||||
December 31, 2015 | — | — | N/A | |||||||||
2021 Asset-Backed Notes | ||||||||||||
December 31, 2014 | $ | 129,300,000 | $ | 10,048 | $ | 1,000 | ||||||
December 31, 2015 | $ | 129,300,000 | $ | 10,190 | $ | 996 | ||||||
December 31, 2016 | $ | 109,205,263 | $ | 13,330 | $ | 1,002 | ||||||
December 31, 2017 | $ | 49,152,504 | $ | 33,372 | $ | 1,001 | ||||||
December 31, 2018 | — | — | N/A | |||||||||
2027 Asset-Backed Notes | ||||||||||||
December 31, 2018 | $ | 200,000,000 | $ | 9,666 | $ | 1,006 | ||||||
December 31, 2019 | $ | 200,000,000 | $ | 12,170 | $ | 1,004 | ||||||
December 31, 2020 | $ | 180,988,022 | $ | 14,314 | $ | 1,001 | ||||||
June 30, 2021 (unaudited) | $ | 117,896,476 | $ | 21,591 | $ | 1,000 | ||||||
2028 Asset-Backed Notes | ||||||||||||
December 31, 2019 | $ | 250,000,000 | $ | 9,736 | $ | 1,004 | ||||||
December31, 2020 | $ | 250,000,000 | $ | 10,362 | $ | 1,002 | ||||||
June 30, 2021 (unaudited) | $ | 196,485,411 | $ | 12,955 | $ | 1,001 | ||||||
2022 Convertible Notes | ||||||||||||
December 31, 2017 | $ | 230,000,000 | $ | 7,132 | $ | 1,028 | ||||||
December 31, 2018 | $ | 230,000,000 | $ | 8,405 | $ | 946 | ||||||
December 31, 2019 | $ | 230,000,000 | $ | 10,583 | $ | 1,021 | ||||||
December 31, 2020 | $ | 230,000,000 | $ | 11,264 | $ | 1,027 | ||||||
June 30, 2021 (unaudited) | $ | 230,000,000 | $ | 11,067 | $ | 1,059 | ||||||
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Class and Year | Total Amount Outstanding Exclusive of Treasury Securities(1) | Asset Coverage per Unit(2) | Average Market Value per Unit(3) | |||||||||
Total Senior Securities(7) | ||||||||||||
December 31, 2011 | $ | 310,186,830 | $ | 2,409 | N/A | |||||||
December 31, 2012 | $ | 599,664,500 | $ | 1,874 | N/A | |||||||
December 31, 2013 | $ | 559,921,472 | $ | 2,182 | N/A | |||||||
December 31, 2014 | $ | 626,587,644 | $ | 2,073 | N/A | |||||||
December 31, 2015 | $ | 600,468,500 | $ | 2,194 | N/A | |||||||
December 31, 2016 | $ | 667,658,558 | $ | 2,180 | N/A | |||||||
December 31, 2017 | $ | 802,862,104 | $ | 2,043 | N/A | |||||||
December 31, 2018 | $ | 980,465,192 | $ | 1,972 | N/A | |||||||
December 31, 2019 | $ | 1,302,918,736 | $ | 1,868 | N/A | |||||||
December 31, 2020 | $ | 1,299,988,022 | $ | 1,993 | N/A | |||||||
June 30, 2021 (unaudited) | $ | 1,189,826,491 | $ | 2,139 | N/A | |||||||
| (1) | Total amount of each class of senior securities outstanding at the end of the period presented. |
| (2) | The asset coverage ratio for a class of senior securities representing indebtedness is calculated as our consolidated total assets, less all liabilities and indebtedness not represented by senior securities, including senior securities not subject to asset coverage requirements under the 1940 Act due to exemptive relief from the SEC, divided by senior securities representing indebtedness. This asset coverage ratio is multiplied by $1,000 to determine the Asset Coverage per Unit. |
| (3) | Not applicable because senior securities are not registered for public trading. |
| (4) | Issued by Hercules Technology II, L.P., or HT II, one of our prior SBIC subsidiaries, to the Small Business Association, or SBA. On July 13, 2018, we completed repayment of the remaining outstanding HT II debentures and subsequently surrendered the SBA license with respect to HT II. These categories of senior securities were not subject to the asset coverage requirements of the 1940 Act as a result of exemptive relief granted to us by the SEC. |
| (5) | Issued by HT III, one of our prior SBIC subsidiaries, to the SBA. On May 5, 2021, we completed repayment of the remaining outstanding HT III debentures and subsequently surrendered the SBA license with respect to HT III. These categories of senior securities were not subject to the asset coverage requirements of the 1940 Act as a result of exemptive relief granted to us by the SEC. |
| (6) | The Company’s Wells Facility and Union Bank Facility had no borrowings outstanding during the periods noted above. |
| (7) | The total senior securities and Asset Coverage per Unit shown for those securities do not represent the asset coverage ratio requirement under the 1940 Act, because the presentation includes senior securities not subject to the asset coverage requirements of the 1940 Act as a result of exemptive relief granted to us by the SEC. As of June 30, 2021 and December 31, 2020, our asset coverage ratio under our regulatory requirements as a business development company was 219.3% and 207.5%, respectively, excluding our SBA debentures as a result of our exemptive order from the SEC which allows us to exclude all SBA leverage from our asset coverage ratio. |
| (8) | Issued by Hercules Capital IV, L.P. or HC IV, a SBIC subsidiary, to the SBA. These categories of senior securities were not subject to the asset coverage requirements of the 1940 Act as a result of exemptive relief granted to us by the SEC. |
S-24
The following description of the particular terms of the % Notes due 20 supplements and, to the extent inconsistent with, replaces the description of the general terms and provisions of the debt securities set forth in the accompanying prospectus.
We will issue the Notes under a base indenture dated as of March 6, 2012, between us and U.S. Bank National Association, as trustee (the “trustee”), as supplemented by a separate supplemental indenture to be dated as of the settlement date for the Notes. As used in this section, all references to the “indenture” mean the base indenture as supplemented by the supplemental indenture. The terms of the Notes include those expressly set forth in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939, as amended, or the TIA.
The following description is a summary of the material provisions of the Notes and the indenture and does not purport to be complete. This summary is subject to and is qualified by reference to all the provisions of the Notes and the indenture, including the definitions of certain terms used in the indenture. We urge you to read these documents because they, and not this description, define your rights as a holder of the Notes.
For purposes of this description, references to “we,” “our” and “us” refer only to Hercules Capital, Inc. and not to any of its current or future subsidiaries and references to “subsidiaries” refer only to our consolidated subsidiaries and exclude any investments held by Hercules Capital in the ordinary course of business which are not, under GAAP, consolidated on the financial statements of Hercules Capital and its subsidiaries.
General
The Notes:
| • | will be our general unsecured, senior obligations; |
| • | will initially be issued in an aggregate principal amount of $ million; |
| • | will mature on , unless earlier redeemed or repurchased, as discussed below; |
| • | will bear cash interest from , 2021 at an annual rate of % payable semi-annually on and of each year, beginning on , 2022; |
| • | will not be subject to any sinking fund; |
| • | will be subject to redemption at our option as described under “—Optional Redemption;” |
| • | will be subject to repurchase by us at the option of the holders following a Change of Control Repurchase Event (as defined below under “—Offer to Repurchase Upon a Change of Control Repurchase Event”), at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the date of repurchase; |
| • | will be issued in denominations of $2,000 and integral multiples of $1,000 thereof; and |
| • | will be represented by one or more registered Notes in global form, but in certain limited circumstances may be represented by Notes in definitive form. See “—Book-Entry, Settlement and Clearance.” |
The indenture does not limit the amount of debt that may be issued by us or our subsidiaries under the indenture or otherwise. The indenture does not contain any financial covenants and does not restrict us from paying distributions or issuing or repurchasing our other securities. Other than restrictions described under “—Offer to Repurchase Upon a Change of Control Repurchase Event” and “—Merger, Consolidation or Sale of Assets” below, the indenture does not contain any covenants or other provisions designed to afford holders of the Notes protection in the event of a highly leveraged transaction involving us or in the event of a decline in our credit rating as the result of a takeover, recapitalization, highly leveraged transaction or similar restructuring involving us that could adversely affect such holders.
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We may, without the consent of the holders, issue additional Notes under the indenture with the same terms (except for the issue date, public offering price and, if applicable, the initial interest payment date) and with the same CUSIP numbers as the Notes offered hereby in an unlimited aggregate principal amount; provided that if such additional Notes are not fungible with the Notes offered hereby (or any other tranche of additional Notes) for U.S. federal income tax purposes, then such additional Notes will have different CUSIP numbers from the Notes offered hereby (and any such other tranche of additional Notes).
We do not intend to apply to list the Notes on any securities exchange or any automated dealer quotation system.
Payments on the Notes; Paying Agent and Registrar; Transfer and Exchange
We will pay the principal of, and interest on, Notes in global form registered in the name of or held by DTC or its nominee in immediately available funds to DTC or its nominee, as the case may be, as the registered holder of such Global Note (as defined below).
Payment of principal of (and premium, if any) and any such interest on the Notes will be made at the corporate trust office of the trustee in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at our option payment of interest may be made by check mailed to the address of the person entitled thereto as such address shall appear in the security register.
A holder of Notes may transfer or exchange Notes at the office of the registrar in accordance with the indenture. The registrar and the trustee may require a holder, among other things, to furnish appropriate endorsements and transfer documents. No service charge will be imposed by us, the trustee or the registrar for any registration of transfer or exchange of Notes, but we may require a holder to pay a sum sufficient to cover any transfer tax or other similar governmental charge required by law or permitted by the indenture.
The registered holder of a Note will be treated as its owner for all purposes.
Interest
The Notes will bear cash interest at a rate of % per year until maturity. Interest on the Notes will accrue from , 2021 or from the most recent date on which interest has been paid or duly provided for. Interest will be payable semiannually in arrears on and of each year, beginning on , 2022.
Interest will be paid to the person in whose name a Note is registered at 5:00 p.m. New York City time (the “close of business”) on or , as the case may be, immediately preceding the relevant interest payment date. Interest on the Notes will be computed on the basis of a 360-day year composed of twelve 30-day months.
If any interest payment date, redemption date, the maturity date or any earlier required repurchase date upon a Change of Control Repurchase Event (defined below) of a Note falls on a day that is not a business day, the required payment will be made on the next succeeding business day and no interest on such payment will accrue in respect of the delay. The term “business day” means, with respect to any Note, any day other than a Saturday, a Sunday or a day on which banking institutions in New York are authorized or obligated by law or executive order to close.
Ranking
The Notes will be our unsecured obligations that rank senior in right of payment to all of our existing and future indebtedness that is expressly subordinated, or junior, in right of payment to the Notes. The Notes will not
S-26
be guaranteed by any of our current or future subsidiaries. The Notes will rank pari passu, or equally, in right of payment with all of our existing and future liabilities that are not so subordinated, or junior. The Notes will effectively rank subordinated, or junior, to any of our secured indebtedness (including unsecured indebtedness that we later secure) to the extent of the value of the assets securing such indebtedness. The Notes will rank structurally subordinated, or junior, to all existing and future indebtedness (including trade payables) incurred by our subsidiaries, financing vehicles or similar facilities. In the event of our bankruptcy, liquidation, reorganization or other winding up, our assets that secure secured debt will be available to pay obligations on the Notes only after all indebtedness under such secured debt has been repaid in full from such assets. We advise you that there may not be sufficient assets remaining to pay amounts due on any or all the Notes then outstanding.
As of June 30, 2021, our total consolidated indebtedness was approximately $1.2 billion aggregate principal amount outstanding, of which approximately $369.8 million was secured indebtedness. After giving effect to the issuance of the Notes, our total consolidated indebtedness would have been approximately $ million aggregate principal amount outstanding as of June 30, 2021. See “Capitalization.”
Optional Redemption
We may redeem some or all of the Notes at any time, or from time to time. If we choose to redeem any Notes prior to maturity, we will pay a redemption price equal to the greater of the following amounts, plus, in each case, accrued and unpaid interest to the redemption date:
| • | 100% of the principal amount of the Notes to be redeemed, or |
| • | the sum of the present values of the remaining scheduled payments of principal and interest (exclusive of accrued and unpaid interest to the date of redemption) on the Notes to be redeemed, discounted to the redemption date on a semi- annual basis (assuming a 360-day year consisting of twelve 30- day months) using the applicable Treasury Rate plus basis points; |
provided, however, that if we redeem any Notes on or after (the date falling one month prior to the maturity date of the Notes), the redemption price for the Notes will be equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption.
If we choose to redeem any Notes, we will deliver a notice of redemption to holders of Notes not less than 30 nor more than 60 days before the redemption date. If we are redeeming less than all of the Notes, the particular Notes to be redeemed will be selected in accordance with the applicable procedures of the trustee and, so long as the Notes are registered to DTC or its nominee, DTC; provided, however, that no such partial redemption shall reduce the portion of the principal amount of a Note not redeemed to less than $2,000. Unless we default in payment of the redemption price, on and after the redemption date, interest will cease to accrue on the Notes or portions of the Notes called for redemption.
For purposes of calculating the redemption price in connection with the redemption of the Notes, on any redemption date, the following terms have the meanings set forth below:
“Treasury Rate” means, with respect to any redemption date, the rate per annum equal to the semi-annual equivalent yield-to-maturity of the Comparable Treasury Issue (computed as of the third business day immediately preceding the redemption), assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date. The redemption price and the Treasury Rate will be determined by us.
“Comparable Treasury Issue” means the United States Treasury security selected by the Reference Treasury Dealer as having a maturity comparable to the remaining term of the Notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financing practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Notes being redeemed.
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“Comparable Treasury Price” means (1) the average of the remaining Reference Treasury Dealer Quotations for the redemption date, after excluding the highest and lowest Reference Treasury Dealer Quotations, or (2) if the Quotation Agent obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such quotations.
“Quotation Agent” means a Reference Treasury Dealer selected by us.
“Reference Treasury Dealer” means each of (1) Goldman Sachs & Co. LLC or (2) a primary U.S. government securities dealer selected by SMBC Nikko Securities America, Inc., or their respective affiliates which are primary U.S. government securities dealers and their respective successors; provided, however, that if any of the foregoing or their affiliates shall cease to be a primary U.S. government securities dealer in the United States (a “Primary Treasury Dealer”), we shall select another Primary Treasury Dealer.
“Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Quotation Agent, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Quotation Agent by such Reference Treasury Dealer at 3:30 p.m. New York time on the third business day preceding such redemption date.
All determinations made by any Reference Treasury Dealer, including the Quotation Agent, with respect to determining the redemption price will be final and binding absent manifest error.
Offer to Repurchase Upon a Change of Control Repurchase Event
If a Change of Control Repurchase Event occurs, unless we have exercised our right to redeem the Notes in full, we will make an offer to each holder of Notes to repurchase all or any part (in minimum denominations of $2,000 and integral multiples of $1,000 principal amount) of that holder’s Notes at a repurchase price in cash equal to 100% of the aggregate principal amount of Notes repurchased plus any accrued and unpaid interest on the Notes repurchased to, but not including, the date of purchase. Within 30 days following any Change of Control Repurchase Event or, at our option, prior to any Change of Control, but after the public announcement of the Change of Control, we will mail a notice to each holder describing the transaction or transactions that constitute or may constitute the Change of Control Repurchase Event and offering to repurchase Notes on the payment date specified in the notice, which date will be no earlier than 30 days and no later than 60 days from the date such notice is mailed. The notice shall, if mailed prior to the date of consummation of the Change of Control, state that the offer to purchase is conditioned on the Change of Control Repurchase Event occurring on or prior to the payment date specified in the notice. We will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control Repurchase Event. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control Repurchase Event provisions of the Notes, we will comply with the applicable securities laws and regulations and will not be deemed to have breached our obligations under the Change of Control Repurchase Event provisions of the Notes by virtue of such conflict.
On the Change of Control Repurchase Event payment date, subject to extension if necessary to comply with the provisions of the 1940 Act, we will, to the extent lawful:
| (1) | accept for payment all Notes or portions of Notes properly tendered pursuant to our offer; |
| (2) | deposit with the paying agent an amount equal to the aggregate purchase price in respect of all Notes or portions of Notes properly tendered; and |
| (3) | deliver or cause to be delivered to the trustee the Notes properly accepted, together with an officers’ certificate stating the aggregate principal amount of Notes being purchased by us. |
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The paying agent will promptly remit to each holder of Notes properly tendered the purchase price for the Notes, and the trustee will promptly authenticate and mail (or cause to be transferred by book-entry) to each holder a new Note equal in principal amount to any unpurchased portion of any Notes surrendered; provided that each new Note will be in a minimum principal amount of $2,000 or an integral multiple of $1,000 in excess thereof.
We will not be required to make an offer to repurchase the Notes upon a Change of Control Repurchase Event if a third party makes an offer in the manner, at the times and otherwise in compliance with the requirements for an offer made by us and such third party purchases all Notes properly tendered and not withdrawn under its offer.
The source of funds that will be required to repurchase Notes in the event of a Change of Control Repurchase Event will be our available cash or cash generated from our operations or other potential sources, including funds provided by a purchaser in the Change of Control transaction, borrowings, sales of assets or sales of equity. We cannot assure you that sufficient funds from such sources will be available at the time of any Change of Control Repurchase Event to make required repurchases of Notes tendered. The terms of certain of our and our subsidiaries’ financing arrangements provide that certain change of control events will constitute an event of default thereunder entitling the lenders to accelerate any indebtedness outstanding under our and our subsidiaries’ financing arrangements at that time and to terminate the financing arrangements. In addition, the indenture governing our 2022 Convertible Notes contains a provision that would require us to offer to purchase the 2022 Convertible Notes upon the occurrence of a fundamental change. A failure to purchase any tendered 2022 Convertible Notes would constitute an event of default under the indenture for the 2022 Convertible Notes, which would, in turn, constitute a default under the Credit Facilities and the indenture. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition, Liquidity and Capital Resources” in our most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q for a general discussion of our indebtedness. Our and our subsidiaries’ future debt instruments may contain similar restrictions and provisions. If the holders of the Notes exercise their right to require us to repurchase Notes upon a Change of Control Repurchase Event, the financial effect of this repurchase could cause a default under our and our subsidiaries’ future debt instruments, even if the Change of Control Repurchase Event itself would not cause a default. It is possible that we will not have sufficient funds at the time of the Change of Control Repurchase Event to make the required repurchase of the Notes and/or our other debt. See “Supplementary Risk Factors—Risks Relating to the Notes—We may not be able to repurchase the Notes upon a Change of Control Repurchase Event.”
The definition of “Change of Control” includes a phrase relating to the direct or indirect sale, transfer, conveyance or other disposition of “all or substantially all” of our properties or assets and those of our subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase “substantially all,” there is no precise, established definition of the phrase under applicable law. Accordingly, the ability of a holder of Notes to require us to repurchase the Notes as a result of a sale, transfer, conveyance or other disposition of less than all of our assets and the assets of our subsidiaries taken as a whole to another person or group may be uncertain.
For purposes of the Notes:
“Below Investment Grade Rating Event” means the Notes are downgraded below Investment Grade by (i) one Rating Agency if the Notes are rated by less than two Rating Agencies, (ii) both Rating Agencies if the Notes are rated by two Rating Agencies or (iii) at least a majority of such Rating Agencies if the Notes are rated by three or more Rating Agencies on any date from the date of the public notice of an arrangement that results in a Change of Control until the end of the 60-day period following public notice of the occurrence of a Change of Control (which period shall be extended so long as the rating of the Notes is under publicly announced consideration for possible downgrade by any of the Rating Agencies); provided that a Below Investment Grade Rating Event otherwise arising by virtue of a particular reduction in rating shall not be deemed to have occurred
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in respect of a particular Change of Control (and thus shall not be deemed a Below Investment Grade Rating Event for purposes of the definition of Change of Control Repurchase Event hereunder) if the Rating Agencies making the reduction in rating to which this definition would otherwise apply do not announce or publicly confirm or inform the trustee in writing at its request that the reduction was the result, in whole or in part, of any event or circumstance comprised of or arising as a result of, or in respect of, the applicable Change of Control (whether or not the applicable Change of Control shall have occurred at the time of the Below Investment Grade Rating Event).
“Change of Control” means the occurrence of any of the following:
| (1) | the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation) in one or a series of related transactions, of all or substantially all of the assets of Hercules Capital and its Controlled Subsidiaries taken as a whole to any “person” or “group” (as those terms are used in Section 13(d)(3) of the Exchange Act), other than to any Permitted Holders; provided that, for the avoidance of doubt, a pledge of assets pursuant to any secured debt instrument of Hercules Capital or its Controlled Subsidiaries shall not be deemed to be any such sale, lease, transfer, conveyance or disposition; |
| (2) | the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any “person” or “group” (as those terms are used in Section 13(d)(3) of the Exchange Act) (other than any Permitted Holders) becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of the outstanding Voting Stock of Hercules Capital, measured by voting power rather than number of shares; or |
| (3) | the approval by Hercules Capital’s stockholders of any plan or proposal relating to the liquidation or dissolution of Hercules Capital. |
“Change of Control Repurchase Event” means the occurrence of a Change of Control and a Below Investment Grade Rating Event.
“Controlled Subsidiary” means any subsidiary of Hercules Capital, 50% or more of the outstanding equity interests of which are owned by Hercules Capital and its direct or indirect subsidiaries and of which Hercules Capital possesses, directly or indirectly, the power to direct or cause the direction of the management or policies, whether through the ownership of voting equity interests, by agreement or otherwise.
“Fitch” means Fitch, Inc. or any successor thereto.
“Investment Grade” means a rating of Baa3 or better by Moody’s or a rating of BBB– or better by KBRA (or the equivalent rating under any successor rating categories of Moody’s or KBRA) or the equivalent of any other Rating Agency, as applicable, or in each case, the equivalent under any successor category of such Rating Agency.
“KBRA” means Kroll Bond Rating Agency, LLC or any successor thereto.
“Moody’s” means Moody’s Investors Services, Inc. or any successor thereto.
“Permitted Holders” means (i) us and (ii) one or more of our Controlled Subsidiaries.
“Rating Agency” means:
| (1) | Moody’s; |
| (2) | KBRA; and |
| (2) | Fitch or S&P if either of them rates the Notes. |
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“S&P” means Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business, or any successor thereto.
“Voting Stock” as applied to stock of any person, means shares, interests, participations or other equivalents in the equity interest (however designated) in such person having ordinary voting power for the election of a majority of the directors (or the equivalent) of such person, other than shares, interests, participations or other equivalents having such power only by reason of the occurrence of a contingency.
Covenants
In addition to the covenants described in the base indenture, the following covenants shall apply to the Notes. To the extent of any conflict or inconsistency between the base indenture and the following covenants, the following covenants shall govern:
Merger, Consolidation or Sale of Assets
The indenture will provide that we will not merge or consolidate with or into any other person (other than a merger of a wholly owned subsidiary into us), or sell, transfer, lease, convey or otherwise dispose of all or substantially all our property (provided that, for the avoidance of doubt, a pledge of assets pursuant to any secured debt instrument of Hercules Capital or its Controlled Subsidiaries shall not be deemed to be any such sale, transfer, lease, conveyance or disposition) in any one transaction or series of related transactions unless:
| • | we are the surviving person (the “Surviving Person”) or the Surviving Person (if other than us) formed by such merger or consolidation or to which such sale, transfer, lease, conveyance or disposition is made shall be a corporation or limited liability company organized and existing under the laws of the United States of America or any state or territory thereof; |
| • | the Surviving Person (if other than us) expressly assumes, by supplemental indenture in form reasonably satisfactory to the trustee, executed and delivered to the trustee by such Surviving Person, the due and punctual payment of the principal of, and premium, if any, and interest on, all the Notes outstanding, and the due and punctual performance and observance of all the covenants and conditions of the indenture to be performed by us; |
| • | immediately before and immediately after giving effect to such transaction or series of related transactions, no default or event of default shall have occurred and be continuing; and |
| • | we shall deliver, or cause to be delivered, to the trustee, an officers’ certificate and an opinion of counsel, each stating that such transaction and the supplemental indenture, if any, in respect thereto, comply with this covenant and that all conditions precedent in the indenture relating to such transaction have been complied with. |
For the purposes of this covenant, the sale, transfer, lease, conveyance or other disposition of all the property of one or more of our subsidiaries, which property, if held by us instead of such subsidiaries, would constitute all or substantially all of our property on a consolidated basis, shall be deemed to be the transfer of all or substantially all of our property.
Although there is a limited body of case law interpreting the phrase “substantially all,” there is no precise established definition of the phrase under applicable law. Accordingly, in certain circumstances there may be a degree of uncertainty as to whether a particular transaction would involve “all or substantially all” of the properties or assets of a person. As a result, it may be unclear as to whether the merger, consolidation or sale of assets covenant would apply to a particular transaction as described above absent a decision by a court of competent jurisdiction. Although these types of transactions are permitted under the indenture, certain of the foregoing transactions could constitute a Change of Control that results in a Change of Control Repurchase Event permitting each holder to require us to repurchase the Notes of such holder as described above.
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An assumption by any person of obligations under the Notes and the indenture might be deemed for U.S. federal income tax purposes to be an exchange of the Notes for new Notes by the holders thereof, resulting in recognition of gain or loss for such purposes and possibly other adverse tax consequences to the holders. Holders should consult their own tax advisors regarding the tax consequences of such an assumption.
Other Covenants
| • | We agree that for the period of time during which the Notes are outstanding, we will not violate, whether or not we are subject to, Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act or any successor provisions, giving effect to any exemptive relief granted to us by the SEC (even if we are no longer subject to the 1940 Act). |
| • | If, at any time, we are not subject to the reporting requirements of Sections 13 or 15(d) of the Exchange Act to file any periodic reports with the SEC, we agree to furnish to holders of the Notes and the trustee, for the period of time during which the Notes are outstanding, our audited annual consolidated financial statements, within 90 days of our fiscal year end, and unaudited interim consolidated financial statements, within 45 days of our fiscal quarter end (other than our fourth fiscal quarter). All such financial statements will be prepared, in all material respects, in accordance with GAAP, as applicable. |
Events of Default
Each of the following is an event of default:
| (1) | default in the payment of any interest upon any Note when due and payable and the default continues for a period of 30 days; |
| (2) | default in the payment of the principal of (or premium, if any, on) any Note when it becomes due and payable at its maturity including upon any redemption date or required repurchase date; |
| (3) | our failure for 60 consecutive days after written notice from the trustee or the holders of at least 25% in principal amount of the Notes then outstanding has been received to comply with any of our other agreements contained in the Notes or indenture; |
| (4) | default by us or any of our significant subsidiaries, as defined in Article 1, Rule 1-02 of Regulation S-X under the Exchange Act (but excluding any subsidiary which is (a) a non-recourse or limited recourse subsidiary, (b) a bankruptcy remote special purpose vehicle or (c) is not consolidated with Hercules Capital for purposes of GAAP), with respect to any mortgage, agreement or other instrument under which there may be outstanding, or by which there may be secured or evidenced, any indebtedness for money borrowed in excess of $50 million in the aggregate of us and/or any such subsidiary, whether such indebtedness now exists or shall hereafter be created (i) resulting in such indebtedness becoming or being declared due and payable or (ii) constituting a failure to pay the principal or interest of any such debt when due and payable at its stated maturity, upon required repurchase, upon declaration of acceleration or otherwise, unless, in either case, such indebtedness is discharged, or such acceleration is rescinded, stayed or annulled, within a period of 30 calendar days after written notice of such failure is given to us by the trustee or to us and the trustee by the holders of at least 25% in aggregate principal amount of the Notes then outstanding; |
| (5) | Pursuant to Section 18(a)(1)(C)(ii) and Section 61 of the 1940 Act, on the last business day of each of 24 consecutive calendar months, any class of securities shall have an asset coverage (as such term is used in the 1940 Act) of less than 100% giving effect to any exemptive relief granted to us by the SEC; or |
| (6) | certain events of bankruptcy, insolvency, or reorganization involving us occur and remain undischarged or unstayed for a period of 60 days. |
If an event of default occurs and is continuing, then and in every such case (other than an event of default specified in item (6) above) the trustee or the holders of at least 25% in principal amount of the outstanding
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Notes may declare the entire principal amount of Notes to be due and immediately payable, by a notice in writing to us (and to the trustee if given by the holders), and upon any such declaration such principal or specified portion thereof shall become immediately due and payable. Notwithstanding the foregoing, in the case of the events of bankruptcy, insolvency or reorganization described in item (6) above, 100% of the principal of and accrued and unpaid interest on the Notes will automatically become due and payable.
At any time after a declaration of acceleration with respect to the Notes has been made and before a judgment or decree for payment of the money due has been obtained by the trustee, the holders of a majority in principal amount of the outstanding Notes, by written notice to us and the trustee, may rescind and annul such declaration and its consequences if (i) we have paid or deposited with the trustee a sum sufficient to pay all overdue installments of interest, if any, on all outstanding Notes, the principal of (and premium, if any, on) all outstanding Notes that have become due otherwise than by such declaration of acceleration and interest thereon at the rate or rates borne by or provided for in such Notes, to the extent that payment of such interest is lawful interest upon overdue installments of interest at the rate or rates borne by or provided for in such Notes, and all sums paid or advanced by the trustee and the reasonable compensation, expenses, disbursements and advances of the trustee, its agents and counsel, and (ii) all events of default with respect to the Notes, other than the nonpayment of the principal of (or premium, if any, on) or interest on such Notes that have become due solely by such declaration of acceleration, have been cured or waived. No such rescission will affect any subsequent default or impair any right consequent thereon.
No holder of Notes will have any right to institute any proceeding, judicial or otherwise, with respect to the indenture, or for the appointment of a receiver or trustee, or for any other remedy under the indenture, unless
| (i) | such holder has previously given written notice to the trustee of a continuing event of default with respect to the Notes, |
| (ii) | the holders of not less than 25% in principal amount of the outstanding Notes shall have made written request to the trustee to institute proceedings in respect of such event of default; |
| (iii) | such holder or holders have offered to the trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; |
| (iv) | the trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and |
| (v) | no direction inconsistent with such written request has been given to the trustee during such 60-day period by the holders of a majority in principal amount of the outstanding Notes. |
Notwithstanding any other provision in the indenture, the holder of any Note shall have the right, which is absolute and unconditional, to receive payment of the principal of (and premium, if any, on) and interest, if any, on such Note on the stated maturity or maturity expressed in such Note (or, in the case of redemption, on the redemption date or, in the case of repayment at the option of the holders, on the repayment date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such holder.
The trustee shall be under no obligation to exercise any of the rights or powers vested in it by the indenture at the request or direction of any of the holders of the Notes unless such holders shall have offered to the trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. Subject to the foregoing, the holders of a majority in principal amount of the outstanding Notes shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the trustee or exercising any trust or power conferred on the trustee with respect to the Notes, provided that (i) such direction shall not be in conflict with any rule of law or with this indenture, (ii) the trustee may take any other action deemed proper by the trustee that is not inconsistent with such direction and (iii) the trustee need not take any action that it determines in good faith may involve it in personal liability or be unjustly prejudicial to the holders of Notes not consenting.
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The holders of not less than a majority in principal amount of the outstanding Notes may on behalf of the holders of all of the Notes waive any past default under the indenture with respect to the Notes and its consequences, except a default (i) in the payment of (or premium, if any, on) or interest, if any, on any Note, or (ii) in respect of a covenant or provision of the indenture which cannot be modified or amended without the consent of the holder of each outstanding Note affected. Upon any such waiver, such default shall cease to exist, and any event of default arising therefrom shall be deemed to have been cured, for every purpose, but no such waiver shall extend to any subsequent or other default or event of default or impair any right consequent thereto.
We are required to deliver to the trustee, within 120 days after the end of each fiscal year, an officers’ certificate stating that to the knowledge of the signers whether we are in default in the performance of any of the terms, provisions or conditions of the indenture.
Within 90 days after the occurrence of any default under the indenture with respect to the Notes, the trustee shall transmit notice of such default known to the trustee, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal of (or premium, if any, on) or interest, if any, on any Note, the trustee shall be protected in withholding such notice if and so long as the Board of Directors, the executive committee or a trust committee of directors of the trustee in good faith determines that withholding of such notice is in the interest of the holders of the Notes.
Satisfaction and Discharge; Defeasance
We may satisfy and discharge our obligations under the indenture by delivering to the securities registrar for cancellation all outstanding Notes or by depositing with the trustee or delivering to the holders, as applicable, after the Notes have become due and payable, or otherwise, moneys sufficient to pay all of the outstanding Notes and paying all other sums payable under the indenture by us. Such discharge is subject to terms contained in the indenture.
In addition, the Notes are subject to defeasance and covenant defeasance, in each case, in accordance with the terms of the indenture. Defeasance means that, subject to the satisfaction of certain conditions, including, but not limited to, (i) depositing in trust for the benefit of the holders of the Notes a combination of money and/or U.S. government or U.S. government agency notes or bonds that will generate enough cash to make interest, principal and any other payments on the Notes on their various due date and (ii) delivering to the Trustee an opinion of counsel stating that (a) we have received from, or there has been published by, the Internal Revenue Service (the “IRS”) a ruling, or (b) since the date of execution of the indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon, the holders and beneficial owners of the Notes and any coupons appertaining thereto will not recognize income, gain or loss for federal income tax purposes as a result of such defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred, we can legally release ourselves from all payment and other obligations on the Notes. Covenant defeasance means that, subject to the satisfaction of certain conditions, including, but not limited to, (i) depositing in trust for the benefit of the holders of the Notes a combination of money and/or U.S. government or U.S. government agency notes or bonds that will generate enough cash to make interest, principal and any other payments on the Notes on their various due dates and (ii) delivering to the Trustee an opinion of counsel to the effect that the holders and beneficial owners of the Notes and any coupons appertaining thereto will not recognize income, gain or loss for federal income tax purposes as a result of such covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred, we will be released from some of the restrictive covenants in the indenture.
Trustee
U.S. Bank National Association is the trustee, security registrar and paying agent. U.S. Bank National Association, in each of its capacities, including without limitation as trustee, security registrar and paying agent,
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assumes no responsibility for the accuracy or completeness of the information concerning us or our affiliates or any other party contained in this document or the related documents or for any failure by us or any other party to disclose events that may have occurred and may affect the significance or accuracy of such information, or for any information provided to it by us, including but not limited to settlement amounts and any other information.
We may maintain banking relationships in the ordinary course of business with the trustee and its affiliates.
Governing Law
The indenture provides that it and the Notes shall be governed by and construed in accordance with the laws of the State of New York, without regard to principles of conflicts of laws that would cause the application of laws of another jurisdiction.
Book-Entry, Settlement and Clearance
Global Notes
The Notes will be initially issued in the form of one or more registered Notes in global form, without interest coupons (the “Global Notes”). Upon issuance, each of the Global Notes will be deposited with the trustee as custodian for DTC and registered in the name of Cede & Co., as nominee of DTC.
Ownership of beneficial interests in a Global Note will be limited to persons who have accounts with DTC (“DTC participants”) or persons who hold interests through DTC participants. We expect that under procedures established by DTC:
| • | upon deposit of a Global Note with DTC’s custodian, DTC will credit portions of the principal amount of the Global Note to the accounts of the DTC participants designated by the underwriters; and |
| • | ownership of beneficial interests in a Global Note will be shown on, and transfer of ownership of those interests will be effected only through, records maintained by DTC (with respect to interests of DTC participants) and the records of DTC participants (with respect to other owners of beneficial interests in the Global Note). |
Beneficial interests in Global Notes may not be exchanged for Notes in physical, certificated form except in the limited circumstances described below.
Book-Entry Procedures for Global Notes
All interests in the Global Notes will be subject to the operations and procedures of DTC. We provide the following summary of those operations and procedures solely for the convenience of investors. The operations and procedures of DTC are controlled by that settlement system and may be changed at any time. Neither we nor the underwriters are responsible for those operations or procedures.
DTC has advised us that it is:
| • | a limited purpose trust company organized under the laws of the State of New York; |
| • | a “banking organization” within the meaning of the New York State Banking Law; |
| • | a member of the Federal Reserve System; |
| • | a “clearing corporation” within the meaning of the Uniform Commercial Code; and |
| • | a “clearing agency” registered under Section 17A of the Exchange Act. |
DTC was created to hold securities for its participants and to facilitate the clearance and settlement of securities transactions between its participants through electronic book-entry changes to the accounts of its
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participants. DTC’s participants include securities brokers and dealers, including the underwriters; banks and trust companies; clearing corporations and other organizations. Indirect access to DTC’s system is also available to others such as banks, brokers, dealers and trust companies; these indirect participants clear through or maintain a custodial relationship with a DTC participant, either directly or indirectly. Investors who are not DTC participants may beneficially own securities held by or on behalf of DTC only through DTC participants or indirect participants in DTC.
So long as DTC’s nominee is the registered owner of a Global Note, that nominee will be considered the sole owner or holder of the Notes represented by that Global Note for all purposes under the indenture. Except as provided below, owners of beneficial interests in a Global Note:
| • | will not be entitled to have Notes represented by the Global Note registered in their names; |
| • | will not receive or be entitled to receive physical, certificated Notes; and |
| • | will not be considered the owners or holders of the Notes under the indenture for any purpose, including with respect to the giving of any direction, instruction or approval to the trustee under the indenture. |
As a result, each investor who owns a beneficial interest in a Global Note must rely on the procedures of DTC to exercise any rights of a holder of Notes under the indenture (and, if the investor is not a participant or an indirect participant in DTC, on the procedures of the DTC participant through which the investor owns its interest).
Payments of principal and interest with respect to the Notes represented by a Global Note will be made by the trustee to DTC’s nominee as the registered holder of the Global Note. Neither we nor the Trustee will have any responsibility or liability for the payment of amounts to owners of beneficial interests in a Global Note, for any aspect of the records relating to or payments made on account of those interests by DTC, or for maintaining, supervising or reviewing any records of DTC relating to those interests.
Payments by participants and indirect participants in DTC to the owners of beneficial interests in a Global Note will be governed by standing instructions and customary industry practice and will be the responsibility of those participants or indirect participants and DTC.
Transfers between participants in DTC will be effected under DTC’s procedures and will be settled in same-day funds.
Certificated Notes
Notes in physical, certificated form will be issued and delivered to each person that DTC identifies as a beneficial owner of the related Notes only if:
| • | DTC notifies us at any time that it is unwilling or unable to continue as depositary for the Global Notes and a successor depositary is not appointed within 90 days; |
| • | DTC ceases to be registered as a clearing agency under the Exchange Act and a successor depositary is not appointed within 90 days; or |
| • | an event of default with respect to the Notes has occurred and is continuing and such beneficial owner requests that its Notes be issued in physical, certificated form. |
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We are offering the Notes described in this prospectus supplement and the accompanying prospectus through a number of underwriters. Goldman Sachs & Co. LLC and SMBC Nikko Securities America, Inc. are acting as representatives of the underwriters. We have entered into an underwriting agreement with the underwriters. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriters, and each underwriter has severally and not jointly agreed to purchase from us, the aggregate principal amount of Notes listed next to its name in the following table:
Underwriter | Principal Amount | |||
Goldman Sachs & Co. LLC | $ | |||
SMBC Nikko Securities America, Inc. | ||||
MUFG Securities Americas Inc. | ||||
RBC Capital Markets, LLC | $ | |||
|
| |||
Total | $ | |||
|
| |||
Subject to the terms and conditions set forth in the underwriting agreement, the underwriters have agreed, severally and not jointly, to purchase all of the Notes sold under the underwriting agreement if any of these Notes are purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the non-defaulting underwriters may be increased or the underwriting agreement may be terminated.
We have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of those liabilities.
The underwriters are offering the Notes, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officer’s certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
Commissions and Discounts
The following table shows the total underwriting discounts and commissions that we are to pay to the underwriters in connection with this offering.
| Per Note | Total | |||||||
Public offering price | % | $ | ||||||
Underwriting discount | % | $ | ||||||
Proceeds, before expenses, to us | % | $ | ||||||
The underwriters propose to offer some of the Notes to the public at the public offering price set forth on the cover page of this prospectus supplement and some of the Notes to certain other Financial Industry Regulatory Authority, Inc. (FINRA) members at the public offering price less a concession not in excess of % of the aggregate principal amount of the Notes. The underwriters may allow, and the dealers may reallow, a discount not in excess of % of the aggregate principal amount of the Notes. After the initial offering of the Notes to the public, the public offering price and such concessions may be changed. No such change shall change the amount of proceeds to be received by us as set forth on the cover page of this prospectus supplement.
The expenses of the offering, including up to $ in reimbursement of underwriters’ counsel fee, but not including the underwriting discount, are estimated at $ and are payable by us.
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No Sales of Similar Securities
We have agreed not to directly or indirectly sell, offer to sell, enter into any agreement to sell, or otherwise dispose of, any debt securities issued by the Company which are substantially similar to the Notes or securities convertible into such debt securities which are substantially similar to the Notes during the period beginning on and including the date of this prospectus supplement through and including the settlement date of this offering without first obtaining the written consent of the representatives. This consent may be given at any time without public notice.
Listing
The Notes are a new issue of securities with no established trading market. The Notes will not be listed on any securities exchange or quoted on any automated dealer quotation system.
We have been advised by certain of the underwriters that certain of the underwriters presently intend to make a market in the Notes after completion of this offering as permitted by applicable laws and regulations. Such underwriters are not obligated, however, to make a market in the Notes and any such market-making may be discontinued at any time in the sole discretion of such underwriters without any notice. Accordingly, no assurance can be given that an active and liquid public trading market for the Notes will develop or be maintained. If an active public trading market for the Notes does not develop, the market price and liquidity of the Notes may be adversely affected.
Price Stabilization, Short Positions
In connection with the offering, the underwriters may purchase and sell Notes in the open market. These transactions may include covering transactions and stabilizing transactions. Short sales involve sales of securities by the underwriters in excess of the aggregate principal amount of securities to be purchased by the underwriters in the offering, which creates a short position for the underwriters. Covering transactions involve purchases of the securities in the open market after the distribution has been completed in order to cover short positions. Stabilizing transactions consist of certain bids or purchases of securities made for the purpose of preventing or retarding a decline in the market price of the securities while the offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased Notes sold by or for the account of such underwriter in stabilizing or short covering transactions.
Any of these activities may cause the price of the Notes to be higher than the price that otherwise would exist in the open market in the absence of such transactions. These transactions may be affected in the over-the-counter market or otherwise and, if commenced, may be discontinued at any time without any notice relating thereto.
Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Notes. In addition, neither we nor any of the underwriters make any representation that the representatives will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.
Electronic Offer, Sale and Distribution of Notes
The underwriters may make prospectuses available in electronic (PDF) format. A prospectus in electronic (PDF) format may be made available on a web site maintained by the underwriters, and the underwriters may distribute such prospectuses electronically. The underwriters may allocate a limited principal amount of the Notes for sale to their online brokerage customers.
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Other Relationships
The underwriters and their affiliates have provided in the past and may provide from time to time in the future in the ordinary course of their business certain commercial banking, financial advisory, investment banking and other services to Hercules or our portfolio companies for which they have received or will be entitled to receive separate fees. In particular, the underwriters or their affiliates may execute transactions with Hercules or on behalf of Hercules or any of our portfolio companies.
The underwriters or their affiliates may also trade in our securities, securities of our portfolio companies or other financial instruments related thereto for their own accounts or for the account of others and may extend loans or financing directly or through derivative transactions to us or any of our portfolio companies.
We may purchase securities of third parties from the underwriters or their affiliates after the offering. However, we have not entered into any agreement or arrangement regarding the acquisition of any such securities, and we may not purchase any such securities. We would only purchase any such securities if—among other things—we identified securities that satisfied our investment needs and completed our due diligence review of such securities.
After the date of this prospectus supplement, the underwriters and their affiliates may from time to time obtain information regarding specific portfolio companies or us that may not be available to the general public. Any such information is obtained by the underwriters and their affiliates in the ordinary course of its business and not in connection with the offering of the Notes. In addition, after the offering period for the sale of the Notes, the underwriters or their affiliates may develop analyses or opinions related to Hercules or our portfolio companies and buy or sell interests in one or more of our portfolio companies on behalf of their proprietary or client accounts and may engage in competitive activities. There is no obligation on behalf of these parties to disclose their respective analyses, opinions or purchase and sale activities regarding any portfolio company or regarding us to our noteholders or any other persons.
In the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. Certain of the underwriters and their affiliates that have a lending relationship with us routinely hedge their credit exposure to us consistent with their customary risk management policies. Typically, such underwriters and their affiliates would hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in our securities, including potentially the Notes offered hereby. Any such short positions could adversely affect future trading prices of the Notes offered hereby. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
The principal business address of Goldman Sachs & Co. LLC is 200 West Street, , New York, New York 10282. The principal business address of SMBC Nikko Securities America, Inc. is 277 Park Avenue, New York, New York 10172.
European Economic Area and United Kingdom
The notes are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in any Member State of the European Economic Area or the United Kingdom (each, a “Relevant State”). For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU (as amended, “MiFID II”); (ii) a customer within the meaning of Directive 2016/97/EU (as amended), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MIFID II; or (iii) not a qualified
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investor as defined in Regulation 2017/1129 (EU) (as amended or superseded, the “Prospectus Regulation”). Consequently, no key information document required by Regulation (EU) No 1286/2014 (as amended, the “PRIIPs Regulation”) for offering or selling the notes or otherwise making them available to retail investors in a Relevant State has been prepared and therefore offering or selling the notes or otherwise making them available to any retail investor in a Relevant State may be unlawful under the PRIIPs Regulation. This prospectus supplement has been prepared on the basis that any offer of notes in any Relevant State will be made pursuant to an exemption under the Prospectus Regulation from the requirement to publish a prospectus for offers of notes. This prospectus supplement is not a prospectus for the purposes of the Prospectus Regulation.
United Kingdom
Each Underwriter has represented and agreed that:
| (a) | it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (as amended, the “FSMA”)) received by it in connection with the issue or sale of the notes in circumstances in which Section 21(1) of the FSMA does not apply to the company; and |
| (b) | it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the notes in, from or otherwise involving the United Kingdom. |
Hong Kong
The notes may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Laws of Hong Kong) (“Companies (Winding Up and Miscellaneous Provisions) Ordinance”) or which do not constitute an invitation to the public within the meaning of the Securities and Futures Ordinance Ordinance (Cap. 571 of the Laws of Hong Kong) (“Securities and Futures Ordinance”), or (ii) to “professional investors” as defined in the Securities and Futures Ordinance and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance, and no advertisement, invitation or document relating to the notes may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to notes which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” in Hong Kong as defined in the Securities and Futures Ordinance and any rules made thereunder.
Singapore
This offering circular has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this offering circular and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the notes may not be circulated or distributed, nor may the notes be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor (as defined in Section 4A of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”)) under Section 274 of the SFA, (ii) to a relevant person (as defined in Section 275(2) of the SFA ) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to conditions set forth in the SFA.
Where the notes are subscribed or purchased under Section 275 of the SFA by a relevant person which is a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of
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which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor, the securities (as defined in Section 239(1) of the SFA) of that corporation shall not be transferable for 6 months after that corporation has acquired the notes under Section 275 of the SFA except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person (as defined in Section 275(2) of the SFA), (2) where such transfer arises from an offer in that corporation’s securities pursuant to Section 275(1A) of the SFA, (3) where no consideration is or will be given for the transfer, (4) where the transfer is by operation of law, (5) as specified in Section 276(7) of the SFA, or (6) as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore (“Regulation 32”).
Where the notes are subscribed or purchased under Section 275 of the SFA by a relevant person which is a trust (where the trustee is not an accredited investor (as defined in Section 4A of the SFA)) whose sole purpose is to hold investments and each beneficiary of the trust is an accredited investor, the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferable for 6 months after that trust has acquired the notes under Section 275 of the SFA except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person (as defined in Section 275(2) of the SFA), (2) where such transfer arises from an offer that is made on terms that such rights or interest are acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each transaction (whether such amount is to be paid for in cash or by exchange of securities or other assets), (3) where no consideration is or will be given for the transfer, (4) where the transfer is by operation of law, (5) as specified in Section 276(7) of the SFA, or (6) as specified in Regulation 32.
Israel
No action has been, or will be, taken in Israel that would permit an offering of the Notes or a distribution of this prospectus supplement and the accompanying prospectus to the public in Israel. In particular, neither the prospectus supplement nor the accompanying prospectus has been reviewed or approved by the Israel Securities Authority. The Notes are being offered to a limited number of qualified investors listed on the first addendum of the Securities Law (a “Qualified Investor”), in all cases under the circumstances that will fall within the private placement exemption of the Israeli Securities Law of 1968 (“Securities Law”). This prospectus supplement and the accompanying prospectus may not be reproduced or used for any other purpose, nor be furnished to any other person other than those to whom copies have been sent. Any investor in the Notes shall be required to declare in writing prior to such purchase that it qualifies as a Qualified Investor, agrees to be deemed a Qualified Investor, and is aware of the consequences of being classified as a Qualified Investor, that it will comply with the guidelines of the Israel Securities Authority with respect to the sale or offer of securities to Qualified Investors (including those published on September 21, 2014), and that it is purchasing the Notes for its own benefit and on its own account and not with the aim or intention of distributing or offering the Notes to other parties. Nothing in this prospectus supplement or the accompanying prospectus should be considered ‘investment advice’, or ‘investment marketing’ as defined in the Regulation of Investment Advice, Investment Marketing and Portfolio Management Law of 1995. Any investor who purchases the Notes shall be required to declare in writing that it has the knowledge, expertise and experience in financial and business matters so as to be capable of evaluating the risks and merits of an investment in the Notes, without relying on any of the materials provided.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a general summary of the material U.S. federal income tax considerations (and, in the case of a non-U.S. holder (as defined below), the material U.S. federal estate tax consequences) applicable to an investment in the Notes. This summary deals only with Notes that are purchased for cash in this offering for a price equal to the “issue price” of the Notes (i.e., the first price at which a substantial amount of the Notes is sold for money to investors, other than to bond houses, brokers or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). This summary does not purport to be a complete description of the income and estate tax considerations applicable to such an investment. The discussion is based upon the Code, Treasury Regulations, and administrative and judicial interpretations, each as of the date of this prospectus supplement and all of which are subject to change, potentially with retroactive effect. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax aspects set forth below. You should consult your own tax advisor with respect to tax considerations that pertain to your acquisition, ownership and disposition of our Notes. For a summary of the U.S. federal income tax considerations applicable to us regarding our election to be treated as a RIC, please refer to “Certain United States Federal Income Tax Considerations—Election to be Taxed as a RIC” and “Taxation as a Regulated Investment Company” in the accompanying prospectus.
This discussion deals only with Notes held as capital assets within the meaning of Section 1221 of the Code (generally, property held for investment purposes) and does not purport to deal with persons in special tax situations, such as financial institutions, insurance companies, regulated investment companies, dealers in securities or currencies, traders in securities, former citizens of the United States, persons holding the Notes as a hedge against currency risks or as a position in a “straddle,” “hedge,” “constructive sale transaction” or “conversion transaction” for tax purposes, entities that are tax-exempt for U.S. federal income tax purposes, retirement plans, individual retirement accounts, tax-deferred accounts, persons subject to the alternative minimum tax, pass-through entities (including partnerships and entities and arrangements classified as partnerships for U.S. federal income tax purposes) and beneficial owners of pass-through entities, accrual method taxpayers for U.S. federal income tax purposes required to accelerate the recognition of any item of gross income with respect to the Notes as a result of such income being recognized on an applicable financial statement, or U.S. holders (as defined below) whose functional currency (as defined in Section 985 of the Code) is not the U.S. dollar. In addition, this discussion does not deal with any tax consequences other than U.S. federal income tax consequences (and, in the case of a non-U.S. holder, U.S. federal estate tax consequences). If you are considering acquiring the Notes, you should consult your own tax advisor concerning the application of the U.S. federal income and estate tax laws to you in light of your particular situation, as well as any consequences to you of purchasing, owning and disposing of the Notes under the laws of any other taxing jurisdiction.
For purposes of this discussion, the term “U.S. holder” means a beneficial owner of a Note that is, for U.S. federal income tax purposes, (i) an individual citizen or resident of the United States, (ii) a corporation or other entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States or of any state thereof or the District of Columbia, (iii) a trust (a) subject to the control of one or more U.S. persons and the primary supervision of a court in the United States, or (b) that existed on August 20, 1996 and has made a valid election (under applicable Treasury Regulations) to be treated as a domestic trust, or (iv) an estate the income of which is subject to U.S. federal income taxation regardless of its source.
The term “non-U.S. holder” means a beneficial owner of a Note that is neither a U.S. holder nor a partnership (including an entity or arrangement treated as a partnership for U.S. federal income tax purposes). An individual may, subject to certain exceptions, be subject to treatment as a resident alien, as opposed to a non-resident alien, for U.S. federal income tax purposes by, among other ways, being physically present in the U.S. (i) on at least 31 days during a calendar year, and (ii) for an aggregate period of at least 183 days during a three-year period ending in the current calendar year, counting for such purposes all of the days present in the current calendar year, one-third of the days present in the immediate preceding year, and one-sixth of the days present in the second preceding year. Resident aliens are subject to U.S. federal income tax as if they were U.S. citizens.
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If a partnership (including an entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds any Notes, the U.S. federal income tax treatment of a partner of the partnership generally will depend upon the status of the partner, the activities of the partnership and certain determinations made at the partner level. Partnerships holding Notes, and the persons holding interests in such partnerships, should consult their own tax advisors as to the consequences of investing in the Notes in their individual circumstances.
Taxation of Note Holders
Taxation of U.S. Holders.
Payments or accruals of interest on a Note generally will be taxable to a U.S. holder as ordinary interest income at the time they are received (actually or constructively) or accrued, in accordance with the U.S. holder’s regular method of tax accounting.
Upon the sale, exchange, redemption, retirement or other taxable disposition of a Note, a U.S. holder generally will recognize capital gain or loss equal to the difference between the amount realized on the sale, exchange, redemption, retirement or other taxable disposition (excluding amounts representing accrued and unpaid interest, which are treated as ordinary income to the extent not previously included in income) and the U.S. holder’s adjusted tax basis in the Note. A U.S. holder’s adjusted tax basis in a Note generally will equal the U.S. holder’s initial investment in the Note. Capital gain or loss generally will be long-term capital gain or loss if the U.S. holder’s holding period in the Note was more than one year. Long-term capital gains generally are taxed at reduced rates for individuals and certain other non-corporate U.S. holders. The distinction between capital gain and loss and ordinary income and loss also is important for purposes of, among other things, the limitations imposed on a U.S. holder’s ability to offset capital losses against ordinary income.
A tax of 3.8% will be imposed on certain “net investment income” (or “undistributed net investment income,” in the case of estates and trusts) received by U.S. holders with modified adjusted gross income above certain threshold amounts. “Net investment income” as defined for U.S. federal Medicare contribution purposes generally includes interest payments on and gain recognized from the sale, redemption, retirement or other taxable disposition of the Notes. U.S. holders should consult their own tax advisors regarding the effect, if any, of this tax on their ownership and disposition of the Notes.
Under applicable Treasury Regulations, if a U.S. holder recognizes a loss with respect to the Notes or shares of our common stock of $2 million or more for a non-corporate U.S. holder or $10 million or more for a corporate U.S. holder in any single taxable year (or a greater loss over a combination of taxable years), the U.S. holder may be required to file with the IRS a disclosure statement on IRS Form 8886. Direct U.S. holders of portfolio securities are in many cases excepted from this reporting requirement, but, under current guidance, U.S. holders of a RIC are not excepted. Future guidance may extend the current exception from this reporting requirement to U.S. holders of most or all RICs. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer’s treatment of the loss is proper. Significant monetary penalties apply to a failure to comply with this reporting requirement. States may also have a similar reporting requirement. U.S. holders of the Notes or our common stock should consult their own tax advisors to determine the applicability of these Treasury Regulations in light of their individual circumstances.
Taxation of Non-U.S. Holders. Except as provided below under “Information Reporting and Backup Withholding” and “FATCA,” a non-U.S. holder generally will not be subject to U.S. federal income or withholding taxes on payments of principal or interest on a Note provided that (i) income on the Note is not effectively connected with the conduct by the non-U.S. holder of a trade or business within the United States, (ii) the non-U.S. holder is not a controlled foreign corporation related to the Company through stock ownership, (iii) the non-U.S. holder is not a bank receiving interest described in Section 881(c)(3)(A) of the Code, (iv) the non-U.S. holder does not own (directly or indirectly, actually or constructively) 10% or more of the total combined voting power of all classes of stock of the Company, and (v)(A) the non-U.S. holder provides the applicable withholding agent with a valid certification on an IRS Form W-8BEN, Form W-8BEN-E, or other
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applicable U.S. nonresident withholding tax certification form, certifying its non-U.S. holder status, or (B) a securities clearing organization, bank, or other financial institution that holds customer securities in the ordinary course of its trade or business (i.e., a “financial institution”) and holds a Note on a non-U.S. holder’s behalf certifies to the applicable withhold agent under penalties of perjury that either it or another financial institution has received the required statement from the non-U.S. holder certifying that it is a non-U.S. person and furnishes the applicable withhold agent with a copy of the statement.
A non-U.S. holder that is not exempt from tax under these rules generally will be subject to U.S. federal income tax withholding on payments of interest on the Notes at a rate of 30% unless (i) the income is effectively connected with the conduct of a U.S. trade or business, so long as the non-U.S. holder has provided the applicable withhold agent with an IRS Form W-8ECI or substantially similar substitute U.S. nonresident withholding tax certification form stating that the interest on the Notes is effectively connected with the non-U.S. holder’s conduct of a trade or business in the U.S. in which case the interest will be subject to U.S. federal income tax on a net income basis as applicable to U.S. holders generally (unless an applicable income tax treaty provides otherwise), or (ii) an applicable income tax treaty or provision in the Code provides for a lower rate of, or exemption from, withholding tax, so long as the non-U.S. holder has provided the applicable withhold agent with an IRS Form W-8BEN or Form W-8BEN-E (or other applicable U.S. nonresident withholding tax certification form) signed under penalties of perjury, claiming such lower rate of, or exemption from, withholding tax under such income tax treaty.
To claim the benefit of an income tax treaty or to claim exemption from withholding because income is effectively connected with a U.S. trade or business, the non-U.S. holder must timely provide the appropriate, properly executed IRS U.S. nonresident withholding tax certification form, signed under penalties of perjury, to the applicable withholding agent. These forms may be required to be updated periodically. Additionally, a non-U.S. holder who is claiming the benefits of an income tax treaty may be required to obtain a U.S. taxpayer identification number and provide certain documentary evidence issued by a non-U.S. governmental authority in order to prove residence in a foreign country.
In the case of a non-U.S. holder that is a corporation and that receives income that is effectively connected with the conduct of a U.S. trade or business, such income may also be subject to a branch profits tax (which is generally imposed on a non-U.S. corporation on the actual or deemed repatriation from the United States of earnings and profits attributable to a U.S. trade or business) at a 30% rate. The branch profits tax may not apply (or may apply at a reduced rate) if the non-U.S. holder is a qualified resident of a country with which the United States has an income tax treaty and provides the applicable withhold agent with an IRS Form W-8BEN or Form W-8BEN-E claiming exemption from, or entitlement to a lower rate of, branch profits tax under such treaty.
Generally, a non-U.S. holder will not be subject to U.S. federal income or withholding taxes on any amount that constitutes capital gain upon the sale, exchange, redemption, retirement or other taxable disposition of a Note, provided that the gain is not effectively connected with the conduct of a trade or business in the United States by the non-U.S. holder (and, if required by an applicable income tax treaty, is not attributable to a United States “permanent establishment” maintained by the non-U.S. holder). Non-U.S. holders should consult their own tax advisors with regard to whether taxes will be imposed on capital gain in their individual circumstances.
A Note that is held by an individual who, at the time of death, is not a citizen or resident of the United States (as specially defined for U.S. federal estate tax purposes) generally will not be subject to the U.S. federal estate tax, unless, at the time of death, (i) such individual directly or indirectly, actually or constructively, owns ten percent or more of the total combined voting power of all classes of our stock entitled to vote within the meaning of Section 871(h)(3) of the Code and the Treasury Regulations thereunder or (ii) such individual’s interest in the Notes is effectively connected with the individual’s conduct of a U.S. trade or business.
Information Reporting and Backup Withholding. A U.S. holder (other than an “exempt recipient,” including a corporation and certain other persons who, when required, demonstrate their exempt status) may be subject to backup withholding at a rate of 28% on, and to information reporting requirements with respect to,
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payments of principal and interest on, and proceeds from the sale, exchange, redemption or retirement of, the Notes. In general, if a non-corporate U.S. holder subject to information reporting fails to furnish a correct taxpayer identification number or otherwise fails to comply with applicable backup withholding requirements, backup withholding at the applicable rate may apply.
If you are a non-U.S. holder, generally, the applicable withholding agent must report to the IRS and to you payments of interest on the Notes and the amount of tax, if any, withheld with respect to those payments. Copies of the information returns reporting such interest payments and any withholding may also be made available to the tax authorities in the country in which you reside under the provisions of a treaty or agreement. In general, backup withholding will apply to payments of interest on your Notes, unless you have provided to the applicable withholding agent the required certification that you are not a U.S. person or you otherwise establish an exemption, and the applicable withholding agent does not have actual knowledge or reason to know that you are a U.S. person. Information reporting and, depending on the circumstances, backup withholding will apply to payment to you of the proceeds of a sale or other disposition (including a retirement or redemption) of the Notes within the U.S. or conducted through certain U.S.-related financial intermediaries, unless you certify under penalties of perjury that you are not a U.S. person or you otherwise establish an exemption, and the applicable withholding agent does not have actual knowledge or reason to know that you are a U.S. person.
You should consult your tax advisor regarding the qualification for an exemption from backup withholding and information reporting and the procedures for obtaining such an exemption, if applicable. Any amounts withheld under the backup withholding rules from a payment to a beneficial owner generally would be allowed as a refund or a credit against such beneficial owner’s U.S. federal income tax provided the required information is timely furnished to the IRS.
FATCA. Certain provisions of the Code, commonly known as FATCA, generally impose a withholding tax of 30% on certain payments to certain foreign entities (including financial intermediaries) unless various U.S. information reporting and diligence requirements (that are in addition to the requirement to deliver an applicable U.S. nonresident withholding tax certification form (e.g., IRS Form W-8BEN), as discussed above) and certain other requirements have been satisfied. FATCA withholding generally applies to payments of interest (“withholdable payments”), including interest on the notes, to certain non-U.S. entities (including, in some circumstances, where such an entity is acting as an intermediary) that fail to comply with certain certification, identification, withholding and information reporting requirements imposed by FATCA. FATCA withholding taxes generally apply to all withholdable payments without regard to whether the beneficial owner of the payment would otherwise be entitled to an exemption from withholding taxes pursuant to an applicable income tax treaty with the U.S. or under U.S. domestic law. If FATCA withholding taxes are imposed with respect to any payments of interest or proceeds made under the Notes, holders that are otherwise eligible for an exemption from, or reduction of, U.S. federal withholding taxes with respect to such interest or proceeds will be required to seek a credit or refund from the IRS in order to obtain the benefit of such exemption or reduction, if any. Holders of or prospective holders of the Notes may be required to provide additional information to enable the applicable withholding agent to determine whether withholding is required. Persons located in jurisdictions that have entered into an intergovernmental agreement with the U.S. to implement FATCA may be subject to different rules. FATCA withholding would have applied to payments of gross proceeds from a sale or other disposition (including a retirement or redemption) of the Notes; however, under proposed Treasury Regulations that may be relied upon pending finalization, the withholding tax on gross proceeds would be eliminated and, consequently, FATCA withholding on gross proceeds is not expected to apply. Non-U.S. holders, and U.S. holders that expect to hold the Notes through non-U.S. entities, should consult their own tax advisors regarding the effect, if any, of these withholding and reporting provisions.
The preceding discussion of material U.S. federal income tax considerations is for general information only and is not tax advice. We urge you to consult your own tax advisor with respect to the particular tax consequences to you of an investment in the Notes, including the possible effect of any pending legislation or proposed regulations.
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Certain legal matters in connection with the securities offered hereby will be passed upon for us by Dechert LLP. Certain legal matters in connection with the securities offered hereby will be passed upon for the underwriters by Fried, Frank, Harris, Shriver & Jacobson LLP.
The financial statements and management’s assessment of the effectiveness of internal control over financial reporting (which is included in Management’s Annual Report on Internal Control over Financial Reporting) incorporated in this prospectus supplement by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
We have filed with the SEC a universal shelf registration statement, of which this prospectus supplement forms a part, on Form N-2, together with all amendments and related exhibits, under the Securities Act, with respect to the Notes offered by this prospectus supplement and the accompanying prospectus. The registration statement contains additional information about us and the securities being offered by this prospectus supplement and the accompanying prospectus.
We file with or submit to the SEC annual, quarterly and current periodic reports, proxy statements and other information meeting the informational requirements of the Exchange Act. The SEC maintains a website that contains reports, proxy and information statements and other information filed electronically by us with the SEC at www.sec.gov. Copies of these reports, proxy and information statements and other information may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov. This information is also available free of charge by contacting us at 400 Hamilton Avenue, Suite 310, Palo Alto, California 94301, or by telephone by calling collect at (650) 289-3060 or on our website at www.htgc.com. Information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus supplement or the accompanying prospectus, and you should not consider such information to be part of this prospectus supplement or the accompanying prospectus.
We incorporate by reference in this prospectus supplement the documents listed below and any future reports and other documents we file with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, until all of the securities offered by this prospectus supplement have been sold or we otherwise terminate the offering of these securities (such reports and other documents deemed to be incorporated by reference into this prospectus supplement and to be part hereof from the date of filing of such reports and other documents); provided, however, that information “furnished” under Item 2.02 or Item 7.01 of Form 8-K, or other information “furnished” to the SEC pursuant to the Exchange Act will not be incorporated by reference into this prospectus supplement:
| • | our Annual Report on Form 10-K for fiscal year ended December 31, 2020, filed with the SEC on February 23, 2021; |
| • | our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021, filed with the SEC on July 29, 2021, and our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021, filed with the SEC on April 29, 2021; and |
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| • | our Current Reports on Form 8-K, filed with the SEC on February 23, 2021, March 4, 2021, March 8, 2021, April 29, 2021, May 28, 2021, June 25, 2021, July 13, 2021 and July 29, 2021. |
Any reports filed by us with the SEC before the date that any offering of any securities by means of this prospectus supplement and the accompanying prospectus is terminated will automatically update and, where applicable, supersede any information contained in this prospectus supplement and the accompanying prospectus or incorporated by reference into this prospectus supplement and the accompanying prospectus.
To obtain copies of these filings, see “Available Information” in this prospectus supplement.
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PROSPECTUS
$850,000,000
Common Stock
Preferred Stock
Warrants
Subscription Rights
Debt Securities
This prospectus relates to the offer, from time to time, in one or more offerings or series, up to $850,000,000 of shares of our common stock, par value $0.001 per share, preferred stock, par value $0.001 per share, warrants representing rights to purchase shares of our common stock, preferred stock or debt securities, subscription rights or debt securities, which we refer to, collectively, as the “securities.” The preferred stock, debt securities, subscription rights and warrants offered hereby may be convertible or exchangeable into shares of our common stock. We may sell our securities through underwriters or dealers, “at-the-market” to or through a market maker into an existing trading market or otherwise directly to one or more purchasers, including existing stockholders in a rights offering, or through agents or through a combination of methods of sale, including auctions. The identities of such underwriters, dealers, market makers or agents, as the case may be, will be described in one or more supplements to this prospectus. The securities may be offered at prices and on terms to be described in one or more supplements to this prospectus.
In the event we offer common stock, the offering price per share will not be less than the net asset value per share of our common stock at the time we make the offering except (1) in connection with a rights offering to our existing stockholders, (2) with the consent of the holders of the majority of our voting securities and approval of our Board of Directors, or (3) under such circumstances as the Securities and Exchange Commission may permit. See “Risk Factors” for more information.
We are a specialty finance company focused on providing senior secured loans to high-growth, innovative venture capital-backed companies in a variety of technology, life sciences and sustainable and renewable technology industries. We primarily finance privately-held companies backed by leading venture capital and private equity firms and publicly-traded companies that lack access to public capital or are sensitive to equity ownership dilution. We source our investments through our principal office located in Palo Alto, CA, as well as through additional offices in Boston, MA, New York, NY, Washington, DC, Hartford, CT, Westport, CT, Chicago, IL, and San Diego, CA. Our goal is to be the leading structured debt financing provider for venture capital-backed companies in technology-related industries requiring sophisticated and customized financing solutions. We invest primarily in structured debt with warrants and, to a lesser extent, in senior debt and equity investments. We use the term “structured debt with warrants” to refer to any debt investment, such as a senior or subordinated secured loan, that is coupled with an equity component, including warrants, options or other rights to purchase common or preferred stock. Our structured debt with warrants investments typically are secured by some or all of the assets of the portfolio company. We invest primarily in private companies but also have investments in public companies.
Our investment objective is to maximize our portfolio total return by generating current income from our debt investments and capital appreciation from our warrant and equity-related investments. We are an internally-managed, non-diversified closed-end investment company that has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended.
Our common stock is traded on the New York Stock Exchange, or NYSE, under the symbol “HTGC.” On April 23, 2019, the last reported sale price of a share of our common stock on the NYSE, was $12.83. The net asset value per share of our common stock at December 31, 2018 (the last date prior to the date of this prospectus on which we determined net asset value) was $9.90.
An investment in our securities may be speculative and involves risks including a heightened risk of total loss of investment. In addition, the companies in which we invest are subject to special risks. See “ Risk Factors ” on page 5 of this prospectus, in our most recent Annual Report on Form 10-K, in any of our other filings with the Securities and Exchange Commission , and in any applicable prospectus supplement and in any free writing prospectus to read about risks that you should consider before investing in our securities, including the risk of leverage.
Please read this prospectus and any free writing prospectus before investing and keep it for future reference. It contains important information about us that a prospective investor ought to know before investing in our securities. We file annual, quarterly and current reports, proxy statements and other information about us with the Securities and Exchange Commission. The information is available free of charge by contacting us at 400 Hamilton Avenue, Suite 310, Palo Alto, California 94301 or by telephone calling collect at (650) 289-3060 or on our website at www.htgc.com. The Securities and Exchange Commission also maintains a website at www.sec.gov that contains such information.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
This prospectus may not be used to consummate sales of any securities unless accompanied by a prospectus supplement.
The date of this prospect us is April 29 , 2019
You should rely only on the information contained in this prospectus , any applicable prospectus supplement, any free writing prospectus, the documents incorporated by reference in this prospectus and any applicable prospectus supplement, or any other information which we have referred you . We have not authorized any dealer, salesperson or other person to provide you with different information or to make representations as to matters not stated in this prospectus or in any free writing prospectus . If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus , any applicable prospectus supplement, and any free writing prospectus do not constitute an offer to sell, or a solicitation of an offer to buy, any securities by any person in any jurisdiction where it is unlawful for that person to make such an offer or solicitation or to any person in any jurisdiction to whom it is unlawful to make such an offer or solicitation. The information in this prospectus , any applicable prospectus supplement, and any free writing prospectus is accurate only as of its date, and under no circumstances should the delivery of this prospectus , any applicable prospectus supplement, or any free writing prospectus or the sale of any securities imply that the information in this prospectus , any applicable prospectus supplement, or any free writing prospectus is accurate as of any later date or that the affairs of Hercules Capital, Inc. have not changed since the date hereof. This prospectus will be updated to reflect material changes.
TABLE OF CONTENTS
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Hercules Capital, Inc., our logo and other trademarks of Hercules Capital, Inc. mentioned in this prospectus are the property of Hercules Capital, Inc. All other trademarks or trade names referred to in this prospectus are the property of their respective owners.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we have filed with the Securities and Exchange Commission using the “shelf” registration process as a “well-known seasoned issuer,” as defined in Rule 405 under the Securities Act of 1933, as amended, or the Securities Act. Under the shelf registration process, which constitutes a delayed offering in reliance on Rule 415 under the Securities Act, we may offer, from time to time, up to $850,000,000 of our common stock, preferred stock, warrants representing rights to purchase shares of our common stock, preferred stock or debt securities, subscription rights or debt securities on the terms to be determined at the time of the offering. We may sell our securities through underwriters or dealers, “at-the-market” to or through a market maker, into an existing trading market or otherwise directly to one or more purchasers, including existing stockholders in a rights offering, or through agents or through a combination of methods of sale. The identities of such underwriters, dealers, market makers or agents, as the case may be, will be described in one or more supplements to this prospectus. The securities may be offered at prices and on terms described in one or more supplements to this prospectus. This prospectus provides you with a general description of the securities that we may offer. Each time we use this prospectus to offer securities, we will provide a prospectus supplement that will contain specific information about the terms of that offering. Please carefully read this prospectus and any such supplements together with the additional information described under “Incorporation by Reference” and “Available Information” sections before you make an investment decision.
A prospectus supplement may also add to, update or change information contained in this prospectus.
In this prospectus, unless the context otherwise requires, the “Company,” “Hercules,” “HTGC,” “we,” “us” and “our” refer to Hercules Capital, Inc. and its wholly owned subsidiaries and its affiliated securitization trusts.
Business Overview
We are a specialty finance company focused on providing senior secured loans to high-growth, innovative venture capital-backed companies in a variety of technology, life sciences and sustainable and renewable technology industries. We source our investments through our principal office located in Palo Alto, CA, as well as through our additional offices in Boston, MA, New York, NY, Washington, DC, Hartford, CT, Westport, CT, Chicago, IL, and San Diego, CA.
Our goal is to be the leading structured debt financing provider for venture capital-backed companies in technology-related industries requiring sophisticated and customized financing solutions. Our strategy is to evaluate and invest in a broad range of technology-related industries including technology, drug discovery and development, biotechnology, life sciences, healthcare, and sustainable and renewable technology and to offer a full suite of growth capital products. We focus our investments in companies active in the technology industry sub-sectors characterized by products or services that require advanced technologies, including, but not limited to, computer software and hardware, networking systems, semiconductors, semiconductor capital equipment, information technology infrastructure or services, internet consumer and business services, telecommunications, telecommunications equipment, renewable or alternative energy, media and life sciences. Within the life sciences sub-sector, we generally focus on medical devices, bio-pharmaceutical, drug discovery, drug delivery, health care services and information systems companies. Within the sustainable and renewable technology sub-sector, we focus on sustainable and renewable energy technologies and energy efficiency and monitoring technologies. We refer to all of these companies as “technology-related” companies and intend, under normal circumstances, to invest at least 80% of the value of our total assets in such businesses.
We invest primarily in structured debt with warrants and, to a lesser extent, in senior debt and equity investments. We invest primarily in private companies but also have investments in public companies. We use the term “structured debt with warrants” to refer to any debt investment, such as a senior or subordinated secured loan, that is coupled with an equity component, including warrants, options or other rights to purchase common or preferred stock. Our structured debt with warrants investments typically are secured by some or all of the assets of the portfolio company. We also provide “unitranche” loans, which are loans that combine both senior and mezzanine debt, generally in a first lien position.
Our investment objective is to maximize our portfolio total return by generating current income from our debt investments and capital appreciation from our warrant and equity-related investments. Our primary business objectives are to increase our net income, net operating income and net asset value, or NAV, by investing in structured debt with warrants and equity of venture capital-backed companies in technology-related industries with attractive current yields and the potential for equity appreciation and realized gains. Our equity ownership in our portfolio companies may exceed 25% of the voting securities of such companies, which represents a controlling interest under the Investment Company Act of 1940, as amended, or the 1940 Act. In some cases, we receive the right to make additional equity investments in our portfolio companies in connection with future equity financing rounds. Capital that we provide directly to venture capital-backed companies in technology-related industries is generally used for growth and general working capital purposes as well as in select cases for acquisitions or recapitalizations.
Corporate Information
We are an internally-managed, non-diversified, closed-end investment company that has elected to be regulated as a business development company, or a BDC, under the 1940 Act. Effective January 1, 2006, we elected to be treated for tax purposes as a regulated investment company, or RIC, under the Internal Revenue Code of 1986, as amended, or the Code.
1
We are a Maryland corporation formed in December 2003 that began investment operations in September 2004. On February 25, 2016, we changed our name from “Hercules Technology Growth Capital, Inc.” to “Hercules Capital, Inc.”
Our principal executive offices are located at 400 Hamilton Avenue, Suite 310, Palo Alto, California 94301, and our telephone number is (650) 289-3060.
2
The following table is intended to assist you in understanding the various costs and expenses that an investor in our common stock will bear directly or indirectly. However, we caution you that some of the percentages indicated in the table below are estimates and may vary. The footnotes to the fee table state which items are estimates. Except where the context suggests otherwise, whenever this prospectus contains a reference to fees or expenses paid by “you” or “us” or that “we” will pay fees or expenses, stockholders will indirectly bear such fees or expenses as investors in Hercules Capital, Inc.
Stockholder Transaction Expenses (as a percentage of the public offering price): | ||||
Sales load (as a percentage of offering price)(1) | — | % | ||
Offering expenses | — | %(2) | ||
Dividend reinvestment plan fees | | — | %(3) | |
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Total stockholder transaction expenses (as a percentage of the public offering price) | | — | %(4) | |
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Annual Expenses (as a percentage of net assets attributable to common stock):(5) | ||||
Operating expenses | 5.67 | %(6)(7) | ||
Interest and fees paid in connection with borrowed funds | 5.06 | %(8) | ||
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Total annual expenses | 10.73 | %(9) | ||
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| (1) | In the event that our securities are sold to or through underwriters, a corresponding prospectus supplement to this prospectus will disclose the applicable sales load. |
| (2) | In the event that we conduct an offering of our securities, a corresponding prospectus supplement to this prospectus will disclose the estimated offering expenses. |
| (3) | The expenses associated with the administration of our dividend reinvestment plan are included in “Operating expenses.” We pay all brokerage commissions incurred with respect to open market purchases, if any, made by the administrator under the plan. For more details about the plan, see “Dividend Reinvestment Plan.” |
| (4) | Total stockholder transaction expenses may include sales load and will be disclosed in a future prospectus supplement, if any. |
| (5) | “Net assets attributable to common stock” equals the weighted average net assets for the year ended December 31, 2018, which is approximately $923.1 million. |
| (6) | “Operating expenses” represents our actual operating expenses incurred for the year ended December 31, 2018, including all fees and expenses of our consolidated subsidiaries and excluding interests and fees on indebtedness. |
| (7) | We do not have an investment adviser and are internally managed by our executive officers under the supervision of our Board of Directors. As a result, we do not pay investment advisory fees, but instead we pay the operating costs associated with employing investment management professionals. |
| (8) | “Interest and fees paid in connection with borrowed funds” represents our estimated interest, fees and credit facility expenses by annualizing our actual interest, fees and credit facility expenses incurred for the year ended December 31, 2018, including our then $75.0 million revolving senior secured credit facility with Wells Fargo Capital Finance, LLC, or the Wells Facility, then $100.0 million revolving senior secured credit facility with MUFG Union Bank, N.A., or the Union Bank Facility, and, together with the Wells Facility, the Credit Facilities, 4.625% notes due 2022, or the 2022 Notes, 6.25% notes due 2024, or the 2024 Notes, 5.25% notes due 2025, or the 2025 Notes, 6.25% notes due 2033, or the 2033 Notes, 4.375% convertible notes due 2022, or the 2022 Convertible Notes, fixed rate asset-backed notes due 2021, or the 2021 |
3
| Asset-Backed Notes, fixed rate asset-backed notes due 2027, or the 2027 Asset-Backed Notes, and the Small Business Administration, or SBA, debentures. |
| (9) | “Total annual expenses” is the sum of “operating expenses,” and “interest and fees paid in connection with borrowed funds.” “Total annual expenses” is presented as a percentage of weighted average net assets attributable to common stockholders because the holders of shares of our common stock (and not the holders of our debt securities or preferred stock, if any) bear all of our fees and expenses, including the fees and expenses of our wholly-owned consolidated subsidiaries, all of which are included in this fee table presentation. |
Example
The following example demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in our common stock. These amounts are based upon our payment of annual operating expenses at the levels set forth in the table above and assume no additional leverage.
| 1 Year | 3 Years | 5 Years | 10 Years | |||||||||||||
You would pay the following expenses on a $1,000 common stock investment, assuming a 5% annual return | $ | 130 | $ | 316 | $ | 482 | $ | 822 | ||||||||
The example and the expenses in the tables above should not be considered a representation of our future expenses, and actual expenses may be greater or lesser than those shown. Moreover, while the example assumes, as required by the applicable rules of the SEC, a 5% annual return, our performance will vary and may result in a return greater or lesser than 5%. In addition, while the example assumes reinvestment of all distributions at NAV, participants in our dividend reinvestment plan may receive shares valued at the market price in effect at that time. This price may be at, above or below NAV. See “Dividend Reinvestment Plan” for additional information regarding our dividend reinvestment plan.
4
Investing in our securities may be speculative and involves a high degree of risk. You should carefully consider the risk factors incorporated by reference from our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (File No. 814-00702) and any subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K we file after the date of this prospectus and before the termination of the offering of securities under this prospectus, and all other information contained or incorporated by reference into this prospectus and any free writing prospectus, as updated by our subsequent filings under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the risk factors and other information contained in any prospectus supplement and any free writing prospectus before acquiring any of such securities. Additional risks and uncertainties not presently known to us or not presently deemed material by us may also impair our operations and performance. Each of the risk factors could materially adversely affect our business, financial condition and results of operations. In such case, our NAV and the trading price of our securities could decline, and you may lose all or part of your investment.
5
The matters discussed in this prospectus, including the documents that we incorporate by reference herein, and any applicable prospectus supplement or free writing prospectus, including the documents we incorporate by reference therein, as well as in future oral and written statements by management of Hercules Capital, Inc., that are forward-looking statements are based on current management expectations that involve substantial risks and uncertainties which could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Important assumptions include our ability to originate new investments, achieve certain margins and levels of profitability, the availability of additional capital, and the ability to maintain certain debt to asset ratios. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this prospectus should not be regarded as a representation by us that our plans or objectives will be achieved. The forward-looking statements contained in this prospectus and any applicable prospectus supplement or free writing prospectus include statements as to:
| • | our current and future management structure; |
| • | our future operating results; |
| • | our business prospects and the prospects of our prospective portfolio companies; |
| • | the impact of investments that we expect to make; |
| • | our informal relationships with third parties including in the venture capital industry; |
| • | the expected market for venture capital investments and our addressable market; |
| • | the dependence of our future success on the general economy and its impact on the industries in which we invest; |
| • | our ability to access debt markets and equity markets; |
| • | the ability of our portfolio companies to achieve their objectives; |
| • | our expected financings and investments; |
| • | our regulatory structure and tax status; |
| • | our ability to operate as a BDC, a small business investment company, or SBIC, and a RIC; |
| • | the adequacy of our cash resources and working capital; |
| • | the timing of cash flows, if any, from the operations of our portfolio companies; |
| • | the timing, form and amount of any distributions; |
| • | the impact of fluctuations in interest rates on our business; |
| • | the valuation of any investments in portfolio companies, particularly those having no liquid trading market; and |
| • | our ability to recover unrealized losses. |
You should not place undue reliance on these forward-looking statements. The forward-looking statements made in this prospectus, any free writing prospectus, and the documents incorporated by reference into this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this prospectus.
6
We intend to use the net proceeds from selling our securities to fund investments in debt and equity securities in accordance with our investment objectives, to make acquisitions, to retire certain debt obligations and for other general corporate purposes. The supplement to this prospectus or any free writing prospectus relating to an offering will more fully identify the use of proceeds from such offering.
We anticipate that substantially all of the net proceeds from any offering of our securities will be used as described above within twelve months, but in no event longer than two years. Pending such uses and investments, we will invest the net proceeds primarily in cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment. Our ability to achieve our investment objective may be limited to the extent that the net proceeds of any offering, pending full investment, are held in lower yielding short-term instruments.
7
PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS
Our common stock is traded on the NYSE under the symbol “HTGC.”
The following table sets forth the range of high and low sales prices of our common stock, the sales price as a percentage of NAV and the distributions declared by us for each fiscal quarter. The stock quotations are interdealer quotations and do not include markups, markdowns or commissions.
| NAV(1) | Price Range | Premium/ Discount of High Sales Price to NAV | Premium/ Discount of Low Sales Price to NAV | Cash Distribution per Share | ||||||||||||||||||||
| High | Low | |||||||||||||||||||||||
2017 | ||||||||||||||||||||||||
First quarter | $ | 9.76 | $ | 15.43 | $ | 14.12 | 58.1 | % | 44.7 | % | $ | 0.310 | ||||||||||||
Second quarter | $ | 9.87 | $ | 15.56 | $ | 12.66 | 57.6 | % | 28.3 | % | $ | 0.310 | ||||||||||||
Third quarter | $ | 10.00 | $ | 13.50 | $ | 12.04 | 35.0 | % | 20.4 | % | $ | 0.310 | ||||||||||||
Fourth quarter | $ | 9.96 | $ | 13.94 | $ | 12.44 | 39.9 | % | 24.9 | % | $ | 0.310 | ||||||||||||
2018 | ||||||||||||||||||||||||
First quarter | $ | 9.72 | $ | 13.25 | $ | 11.89 | 36.3 | % | 22.3 | % | $ | 0.310 | ||||||||||||
Second quarter | $ | 10.22 | $ | 12.97 | $ | 11.99 | 26.9 | % | 17.3 | % | $ | 0.310 | ||||||||||||
Third quarter | $ | 10.38 | $ | 13.64 | $ | 12.71 | 31.4 | % | 22.4 | % | $ | 0.330 | (2) | |||||||||||
Fourth quarter | $ | 9.90 | $ | 13.28 | $ | 10.63 | 34.1 | % | 7.4 | % | $ | 0.310 | ||||||||||||
2019 | ||||||||||||||||||||||||
First quarter | * | $ | 14.04 | $ | 11.23 | * | * | * | * | |||||||||||||||
Second quarter (through April 23, 2019) | * | $ | 12.83 | $ | 12.57 | * | * | * | * | |||||||||||||||
| (1) | NAV per share is generally determined as of the last day in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low sales prices. The NAVs shown are based on outstanding shares at the end of each period. |
| (2) | Includes a supplemental distribution of $0.02 per share. |
| * | NAV has not yet been calculated for this period. |
| ** | Cash distribution per share has not yet been determined for this period. |
The last reported price for our common stock on April 23, 2019 was $12.83 per share.
Shares of BDCs may trade at a market price that is less than the value of the net assets attributable to those shares. The possibility that our shares of common stock will trade at a discount from NAV or at premiums that are unsustainable over the long term are separate and distinct from the risk that our NAV will decrease. At times, our shares of common stock have traded at a premium to NAV and at times our shares of common stock have traded at a discount to the net assets attributable to those shares. It is not possible to predict whether the shares offered hereby will trade at, above, or below NAV.
8
(dollars in thousands)
The following tables set forth certain information as of December 31, 2018 regarding each portfolio company in which we had a debt or equity investment. Other than these investments, our only formal relationship with our portfolio companies is the offer to make available significant managerial assistance. In addition, we may receive rights to observe the Board of Directors’ meetings of our portfolio companies. Amounts are presented in thousands.
(dollars in thousands)
Portfolio Company | Sub-Industry | Type of | Maturity | Interest Rate and | Principal Amount | Cost(3) | Value(4) | |||||||||||||
Debt Investments | ||||||||||||||||||||
Biotechnology Tools | ||||||||||||||||||||
Under 1 Year Maturity | ||||||||||||||||||||
Exicure, Inc.(11) | Biotechnology Tools | Senior Secured | September 2019 | Interest rate PRIME + 6.45% or Floor rate of 9.95%, 3.85% Exit Fee | $ | 4,999 | $ | 5,165 | $ | 5,165 | ||||||||||
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Subtotal: Under 1 Year Maturity | 5,165 | 5,165 | ||||||||||||||||||
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Subtotal: Biotechnology Tools (0.54%)* | 5,165 | 5,165 | ||||||||||||||||||
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Consumer & Business Products | ||||||||||||||||||||
1-5 Years Maturity | ||||||||||||||||||||
WHOOP, INC.(12) | Consumer & Business Products | Senior Secured | July 2021 | Interest rate PRIME + 3.75% or Floor rate of 8.50%, 6.95% Exit Fee | $ | 6,000 | 6,026 | 5,983 | ||||||||||||
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Subtotal: 1-5 Years Maturity | 6,026 | 5,983 | ||||||||||||||||||
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Subtotal: Consumer & Business Products (0.63%)* | 6,026 | 5,983 | ||||||||||||||||||
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Diversified Financial Services | ||||||||||||||||||||
1-5 Years Maturity | ||||||||||||||||||||
Gibraltar Business Capital, | Diversified Financial Services | Unsecured | March 2023 | Interest rate FIXED 14.50% | $ | 15,000 | 14,729 | 14,401 | ||||||||||||
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| |||||||||||||||||
Subtotal: 1-5 Years Maturity | 14,729 | 14,401 | ||||||||||||||||||
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Subtotal: Diversified Financial Services (1.51%)* | 14,729 | 14,401 | ||||||||||||||||||
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Drug Delivery | ||||||||||||||||||||
1-5 Years Maturity | ||||||||||||||||||||
AcelRx Pharmaceuticals, Inc.(11) | Drug Delivery | Senior Secured | March 2020 | Interest rate PRIME + 6.05% or Floor rate of 9.55%, 11.69% Exit Fee | $ | 10,936 | 11,926 | 11,842 | ||||||||||||
9
Portfolio Company | Sub-Industry | Type of | Maturity | Interest Rate and | Principal Amount | Cost(3) | Value(4) | |||||||||||||
Antares Pharma Inc.(10)(11)(15) | Drug Delivery | Senior Secured | July 2022 | Interest rate PRIME + 4.50% or Floor rate of 9.25%, 4.25% Exit Fee | $ | 25,000 | 25,313 | 25,081 | ||||||||||||
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| |||||||||||||||||
Subtotal: 1-5 Years Maturity | 37,239 | 36,923 | ||||||||||||||||||
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| |||||||||||||||||
Subtotal: Drug Delivery (3.86%)* | 37,239 | 36,923 | ||||||||||||||||||
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Drug Discovery & Development | ||||||||||||||||||||
Under 1 Year Maturity | ||||||||||||||||||||
Auris Medical Holding, AG(5)(10) | Drug Discovery & Development | Senior Secured | February 2019 | Interest rate PRIME + 6.05% or Floor rate of 9.55%, 5.75% Exit Fee | $ | 757 | $ | 1,471 | $ | 1,471 | ||||||||||
Brickell Biotech, Inc.(12) | Drug Discovery & Development | Senior Secured | September 2019 | Interest rate PRIME + 5.70% or Floor rate of 9.20%, 7.82% Exit Fee | $ | 4,808 | 5,281 | 5,281 | ||||||||||||
Epirus Biopharmaceuticals, Inc.(8) | Drug Discovery & Development | Senior Secured | June 2019 | Interest rate PRIME + 4.70% or Floor rate of 7.95%, 3.00% Exit Fee | $ | 2,203 | 2,487 |
| — |
| ||||||||||
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|
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| |||||||||||||||||
Subtotal: Under 1 Year Maturity | 9,239 | 6,752 | ||||||||||||||||||
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| |||||||||||||||||
1-5 Years Maturity | ||||||||||||||||||||
Acacia Pharma Inc.(10)(11) | Drug Discovery & Development | Senior Secured | January 2022 | Interest rate PRIME + 4.50% or Floor rate of 9.25%, 3.95% Exit Fee | $ | 10,000 | 9,871 | 9,819 | ||||||||||||
Aveo Pharmaceuticals, Inc.(11) | Drug Discovery & Development | Senior Secured | July 2021 | Interest rate PRIME + 4.70% or Floor rate of 9.45%, 5.40% Exit Fee | $ | 10,000 | 10,111 | 10,042 | ||||||||||||
| Drug Discovery & Development | Senior Secured | July 2021 | Interest rate PRIME + 4.70% or Floor rate of 9.45%, 3.00% Exit Fee | $ | 10,000 | 10,220 | 10,157 | |||||||||||||
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Total Aveo Pharmaceuticals, Inc. | �� | $ | 20,000 | 20,331 | 20,199 | |||||||||||||||
Axovant Sciences Ltd.(5)(10)(11)(16) | Drug Discovery & Development | Senior Secured | March 2021 | Interest rate PRIME + 6.80% or Floor rate of 10.55% | $ | 50,219 | 49,485 | 49,286 | ||||||||||||
BridgeBio Pharma LLC(13)(16) | Drug Discovery & Development | Senior Secured | July 2022 | Interest rate PRIME + 4.35% or Floor rate of 9.35%, 6.35% Exit Fee | $ | 35,000 | 35,054 | 35,263 | ||||||||||||
| Drug Discovery & Development | Senior Secured | July 2022 | Interest rate PRIME + 3.35% or Floor rate of 9.10%, 5.75% Exit Fee | $ | 20,000 | 19,904 | 19,904 | |||||||||||||
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Total BridgeBio Pharma LLC | $ | 55,000 | 54,958 | 55,167 | ||||||||||||||||
Chemocentryx, Inc.(10)(15) | Drug Discovery & Development | Senior Secured | December 2022 | Interest rate PRIME + 3.30% or Floor rate of 8.05%, 6.25% Exit Fee | $ | 20,000 | 19,957 | 20,104 | ||||||||||||
Genocea Biosciences, Inc.(11) | Drug Discovery & Development | Senior Secured | May 2021 | Interest rate PRIME + 2.75% or Floor rate of 7.75%, 10.12% Exit Fee | $ | 14,000 | 14,937 | 14,788 | ||||||||||||
10
Portfolio Company | Sub-Industry | Type of | Maturity | Interest Rate and | Principal Amount | Cost(3) | Value(4) | |||||||||||||
Merrimack Pharmaceuticals, Inc.(12) | Drug Discovery & Development | Senior Secured | August 2021 | Interest rate PRIME + 4.00% or Floor rate of 9.25%, 5.55% Exit Fee | $ | 15,000 | 15,024 | 15,024 | ||||||||||||
Mesoblast(5)(10)(11) | Drug Discovery & Development | Senior Secured | March 2022 | Interest rate PRIME + 4.95% or Floor rate of 9.45%, 6.95% Exit Fee | $ | 35,000 | 35,346 | 35,190 | ||||||||||||
Metuchen Pharmaceuticals LLC(14) | Drug Discovery & Development | Senior Secured | October 2020 | Interest rate PRIME + 7.25% or Floor rate of 10.75%, PIK Interest 1.35%, 2.25% Exit Fee | $ | 18,569 | 19,256 | 19,122 | ||||||||||||
Motif BioSciences Inc.(5)(10)(11)(15) | Drug Discovery & Development | Senior Secured | September 2021 | Interest rate PRIME + 5.50% or Floor rate of 10.00%, 2.15% Exit Fee | $ | 15,000 | 14,907 | 14,786 | ||||||||||||
Myovant Sciences, Ltd.(5)(10)(11) | Drug Discovery & Development | Senior Secured | November 2021 | Interest rate PRIME + 4.00% or Floor rate of 8.25%, 6.55% Exit Fee | $ | 40,000 | 40,320 | 40,151 | ||||||||||||
Nabriva Therapeutics(5)(10) | Drug Discovery & Development | Senior Secured | June 2023 | Interest rate PRIME + 4.30% or Floor rate of 9.80%, 6.95% Exit Fee | $ | 25,000 | 24,750 | 24,750 | ||||||||||||
Paratek Pharmaceuticals, Inc. (p.k.a. Transcept Pharmaceuticals, | Drug Discovery & Development | Senior Secured | September 2020 | Interest rate PRIME + 2.75% or Floor rate of 8.50%, 4.50% Exit Fee | $ | 40,000 | 40,882 | 40,472 | ||||||||||||
| Drug Discovery & Development | Senior Secured | September 2021 | Interest rate PRIME + 2.75% or Floor rate of 8.50%, 4.50% Exit Fee | $ | 10,000 | 10,240 | 10,137 | |||||||||||||
| Drug Discovery & Development | Senior Secured | September 2021 | Interest rate PRIME + 2.75% or Floor rate of 8.50%, 2.25% Exit Fee | $ | 10,000 | 10,084 | 9,925 | |||||||||||||
| Drug Discovery & Development | Senior Secured | August 2022 | Interest rate PRIME + 2.10% or Floor rate of 7.85%, 6.95% Exit Fee | $ | 10,000 | 10,014 | 10,014 | |||||||||||||
|
|
|
|
|
| |||||||||||||||
Total Paratek Pharmaceuticals, Inc. (p.k.a. Transcept Pharmaceuticals, Inc.) | $ | 70,000 | 71,220 | 70,548 | ||||||||||||||||
Stealth Bio Therapeutics Corp.(5)(10)(11) | Drug Discovery & Development | Senior Secured | January 2021 | Interest rate PRIME + 5.50% or Floor rate of 9.50%, 6.25% Exit Fee | $ | 19,313 | 19,740 | 19,597 | ||||||||||||
Tricida, Inc.(11)(15) | Drug Discovery & Development | Senior Secured | March 2022 | Interest rate PRIME + 3.35% or Floor rate of 8.85%, 8.19% Exit Fee | $ | 40,000 | 39,622 | 39,794 | ||||||||||||
uniQure B.V.(5)(10)(11) | Drug Discovery & Development | Senior Secured | June 2023 | Interest rate PRIME + 3.35% or Floor rate of 8.85%, 7.72% Exit Fee | $ | 35,000 | 35,538 | 35,386 | ||||||||||||
11
Portfolio Company | Sub-Industry | Type of | Maturity | Interest Rate and | Principal Amount | Cost(3) | Value(4) | |||||||||||||
Verastem, Inc.(11) | Drug Discovery & Development | Senior Secured | December 2020 | Interest rate PRIME + 6.00% or Floor rate of 10.50%, 4.50% Exit Fee | $ | 5,000 | 5,058 | 5,059 | ||||||||||||
| Drug Discovery & Development | Senior Secured | December 2020 | Interest rate PRIME + 6.00% or Floor rate of 10.50%, 4.50% Exit Fee | $ | 5,000 | 5,082 | 5,083 | |||||||||||||
| Drug Discovery & Development | Senior Secured | December 2020 | Interest rate PRIME + 6.00% or Floor rate of 10.50%, 4.50% Exit Fee | $ | 5,000 | 5,057 | 5,057 | |||||||||||||
| Drug Discovery & Development | Senior Secured | December 2020 | Interest rate PRIME + 6.00% or Floor rate of 10.50%, 4.50% Exit Fee | $ | 10,000 | 10,033 | 9,976 | |||||||||||||
|
|
|
|
|
| |||||||||||||||
Total Verastem, Inc. | $ | 25,000 | 25,230 | 25,175 | ||||||||||||||||
X4 Pharmaceuticals Inc. | Drug Discovery & Development | Senior Secured | November 2021 | Interest rate PRIME + 4.25% or Floor rate of 9.50%, 7.95% Exit Fee | $ | 10,000 | 9,746 | 9,746 | ||||||||||||
|
|
|
| |||||||||||||||||
Subtotal: 1-5 Years Maturity | 520,238 | 518,632 | ||||||||||||||||||
|
|
|
| |||||||||||||||||
Subtotal: Drug Discovery & Development (54.99%)* | 529,477 | 525,384 | ||||||||||||||||||
|
|
|
| |||||||||||||||||
Electronics & Computer Hardware | ||||||||||||||||||||
1-5 Years Maturity | ||||||||||||||||||||
908 DEVICES INC.(15) | Electronics & Computer Hardware | Senior Secured | September 2020 | Interest rate PRIME + 4.00% or Floor rate of 8.25%, 4.25% Exit Fee | $ | 10,000 | $ | 10,145 | $ | 10,155 | ||||||||||
Glo AB(5)(10)(13)(14) | Electronics & Computer Hardware | Senior Secured | February 2021 | Interest rate PRIME + 6.20% or Floor rate of 10.45%, PIK Interest 1.75%, 2.95% Exit Fee | $ | 12,192 | 12,265 | 5,556 | ||||||||||||
|
|
|
| |||||||||||||||||
Subtotal: 1-5 Years Maturity | 22,410 | 15,711 | ||||||||||||||||||
|
|
|
| |||||||||||||||||
Subtotal: Electronics & Computer Hardware (1.64%)* | 22,410 | 15,711 | ||||||||||||||||||
|
|
|
| |||||||||||||||||
Healthcare Services, Other | ||||||||||||||||||||
1-5 Years Maturity | �� | |||||||||||||||||||
Oak Street Health(12) | Healthcare Services, Other | Senior Secured | September 2021 | Interest rate PRIME + 5.00% or Floor rate of 9.75%, 5.95% Exit Fee | $ | 30,000 | 30,486 | 30,338 | ||||||||||||
PH Group Holdings(13)(17) | Healthcare Services, Other | Senior Secured | September 2020 | Interest rate PRIME + 7.45% or Floor rate of 10.95% | $ | 20,000 | 19,889 | 19,806 | ||||||||||||
| Healthcare Services, Other | Senior Secured | September 2020 | Interest rate PRIME + 7.45% or Floor rate of 10.95% | $ | 10,000 | 9,938 | 9,896 | |||||||||||||
|
|
|
|
|
| |||||||||||||||
Total PH Group Holdings | $ | 30,000 | 29,827 | 29,702 | ||||||||||||||||
|
|
|
| |||||||||||||||||
Subtotal: 1-5 Years Maturity | 60,313 | 60,040 | ||||||||||||||||||
|
|
|
| |||||||||||||||||
Subtotal: Healthcare Services, Other (6.28%)* | 60,313 | 60,040 | ||||||||||||||||||
|
|
|
| |||||||||||||||||
12
Portfolio Company | Sub-Industry | Type of | Maturity | Interest Rate and | Principal Amount | Cost(3) | Value(4) | |||||||||||||
Information Services | ||||||||||||||||||||
1-5 Years Maturity | ||||||||||||||||||||
MDX Medical, Inc.(14)(15)(19) | Information Services | Senior Secured | December 2020 | Interest rate PRIME + 4.00% or Floor rate of 8.25%, PIK Interest 1.70% | $ | 15,288 | 15,037 | 14,987 | ||||||||||||
|
|
|
| |||||||||||||||||
Subtotal: 1-5 Years Maturity | 15,037 | 14,987 | ||||||||||||||||||
|
|
|
| |||||||||||||||||
Subtotal: Information Services (1.57%)* | 15,037 | 14,987 | ||||||||||||||||||
|
|
|
| |||||||||||||||||
Internet Consumer & Business Services | ||||||||||||||||||||
Under 1 Year Maturity | ||||||||||||||||||||
LogicSource | Internet Consumer & Business Services | Senior Secured | October 2019 | Interest rate PRIME + 6.25% or Floor rate of 9.75%, 5.00% Exit Fee | $ | 3,099 | $ | 3,486 | $ | 3,486 | ||||||||||
The Faction Group LLC(11) | Internet Consumer & Business Services | Senior Secured | January 2019 | Interest rate PRIME + 4.75% or Floor rate of 8.25% | $ | 2,000 | 2,000 | 2,000 | ||||||||||||
|
|
|
| |||||||||||||||||
Subtotal: Under 1 Year Maturity | 5,486 | 5,486 | ||||||||||||||||||
|
|
|
| |||||||||||||||||
1-5 Years Maturity | ||||||||||||||||||||
AppDirect, Inc.(11)(19) | Internet Consumer & Business Services | Senior Secured | January 2022 | Interest rate PRIME + 5.70% or Floor rate of 9.95%, 3.45% Exit Fee | $ | 20,000 | 20,006 | 19,941 | ||||||||||||
Art.com, Inc.(12)(14)(15) | Internet Consumer & Business Services | Senior Secured | April 2021 | Interest rate PRIME + 5.40% or Floor rate of 10.15%, PIK Interest 1.70%, 1.50% Exit Fee | $ | 10,117 | 10,020 | 10,028 | ||||||||||||
Cloudpay, Inc.(5)(10) | Internet Consumer & Business Services | Senior Secured | April 2022 | Interest rate PRIME + 4.05% or Floor rate of 8.55%, 6.95% Exit Fee | $ | 11,000 | 11,017 | 11,020 | ||||||||||||
Contentful, Inc.(5)(10)(14) | Internet Consumer & Business Services | Senior Secured | July 2022 | Interest rate PRIME + 2.95% or Floor rate of 7.95%, PIK Interest 1.25% | $ | 3,750 | 3,692 | 3,692 | ||||||||||||
Convercent, Inc.(14)(15)(17) | Internet Consumer & Business Services | Senior Secured | July 2022 | Interest rate PRIME + 2.55% or Floor rate of 7.80%, PIK Interest 2.95%, 1.00% Exit Fee | $ | 7,500 | 7,419 | 7,419 | ||||||||||||
EverFi, Inc.(11)(14)(16) | Internet Consumer & Business Services | Senior Secured | May 2022 | Interest rate PRIME + 3.90% or Floor rate of 8.65%, PIK Interest 2.30% | $ | 60,729 | 60,687 | 60,408 | ||||||||||||
Fastly, Inc.(17)(19) | Internet Consumer & Business Services | Senior Secured | December 2021 | Interest rate PRIME + 4.25%, 1.50% Exit Fee | $ | 6,667 | 6,563 | 6,563 | ||||||||||||
13
Portfolio Company | Sub-Industry | Type of | Maturity | Interest Rate and | Principal Amount | Cost(3) | Value(4) | |||||||||||||
First Insight, Inc.(15) | Internet Consumer & Business Services | Senior Secured | November 2021 | Interest rate PRIME + 6.25% or Floor rate of 11.25% | $ | 7,500 | 7,368 | 7,375 | ||||||||||||
Greenphire, Inc.(17) | Internet Consumer & Business Services | Senior Secured | January 2021 | Interest rate 3-month LIBOR + 8.00% or Floor rate of 9.00% | $ | 2,776 | 2,776 | 2,785 | ||||||||||||
| Internet Consumer & Business Services | Senior Secured | January 2021 | Interest rate PRIME + 3.75% or Floor rate of 7.00% | $ | 1,500 | 1,500 | 1,498 | |||||||||||||
|
|
|
|
|
| |||||||||||||||
Total Greenphire, Inc. | $ | 4,276 | 4,276 | 4,283 | ||||||||||||||||
Intent Media, Inc.(12)(17) | Internet Consumer & Business Services | Senior Secured | September 2021 | Interest rate PRIME + 5.13% or Floor rate of 10.125%, 2.00% Exit Fee | $ | 12,200 | 12,210 | 12,147 | ||||||||||||
Interactions Corporation(11)(19) 31 Hayward Street., Suite E | Internet Consumer & Business Services | Senior Secured | March 2021 | Interest rate 3-month LIBOR + 8.60% or Floor rate of 9.85%, 1.75% Exit Fee | $ | 25,000 | 25,092 | 24,987 | ||||||||||||
Postmates, Inc.(17)(19) | Internet Consumer & Business Services | Senior Secured | September 2022 | Interest rate PRIME + 3.85% or Floor rate of 8.85%, 8.05% Exit Fee | $ | 20,000 | 19,666 | 19,666 | ||||||||||||
RumbleON, Inc. | Internet Consumer & Business Services | Senior Secured | May 2021 | Interest rate PRIME + 5.75% or Floor rate of 10.25%, 4.55% Exit Fee | $ | 5,000 | 5,018 | 4,984 | ||||||||||||
| Internet Consumer & Business Services | Senior Secured | October 2021 | Interest rate PRIME + 5.75% or Floor rate of 10.25%, 2.95% Exit Fee | $ | 5,000 | 4,941 | 4,941 | |||||||||||||
|
|
|
|
|
| |||||||||||||||
Total RumbleON, Inc. | $ | 10,000 | 9,959 | 9,925 | ||||||||||||||||
Snagajob.com, Inc.(13)(14) 1919 N Lynn Street, 7th Floor Arlington, VA 22209 | Internet Consumer & Business Services | Senior Secured | July 2020 | Interest rate PRIME + 5.15% or Floor rate of 9.15%, PIK Interest 1.95%, 2.55% Exit Fee | $ | 41,841 | 42,139 | 42,075 | ||||||||||||
| Internet Consumer & Business Services | Senior Secured | July 2020 | Interest rate PRIME + 5.65% or Floor rate of 10.65%, PIK Interest 1.95%, 2.55% Exit Fee | $ | 5,033 | 4,867 | 4,867 | |||||||||||||
|
|
|
|
|
| |||||||||||||||
Total Snagajob.com, Inc. | $ | 46,874 | 47,006 | 46,942 | ||||||||||||||||
Tectura Corporation(7)(8)(9)(14) | Internet Consumer & Business Services | Senior Secured | June 2021 | Interest rate FIXED 6.00%, PIK Interest 3.00% | $ | 20,924 | 20,924 | 18,128 | ||||||||||||
| Internet Consumer & Business Services | Senior Secured | June 2021 | PIK Interest 8.00% | $ | 10,680 | 240 | — | |||||||||||||
|
|
|
|
|
| |||||||||||||||
Total Tectura Corporation | $ | 31,604 | 21,164 | 18,128 | ||||||||||||||||
The Faction Group LLC(11) | Internet Consumer & Business Services | Senior Secured | January 2021 | Interest rate 3-month LIBOR + 9.25% or Floor rate of 10.25% | $ | 6,667 | 6,667 | 6,653 | ||||||||||||
Wheels Up Partners LLC(11) | Internet Consumer & Business Services | Senior Secured | July 2022 | Interest rate 3-month LIBOR + 8.55% or Floor rate of 9.55% | $ | 20,241 | 20,076 | 19,921 | ||||||||||||
14
Portfolio Company | Sub-Industry | Type of | Maturity | Interest Rate and | Principal Amount | Cost(3) | Value(4) | |||||||||||||
Xometry, Inc.(13)(17)(19) | Internet Consumer & Business Services | Senior Secured | November 2021 | Interest rate PRIME + 3.95% or Floor rate of 8.45%, 7.09% Exit Fee | $ | 11,000 | 10,997 | 10,995 | ||||||||||||
|
|
|
| |||||||||||||||||
Subtotal: 1-5 Years Maturity | 303,885 | 300,093 | ||||||||||||||||||
|
|
|
| |||||||||||||||||
Subtotal: Internet Consumer & Business Services (31.98%)* | 309,371 | 305,579 | ||||||||||||||||||
|
|
|
| |||||||||||||||||
Media/Content/Info | ||||||||||||||||||||
1-5 Years Maturity | ||||||||||||||||||||
Bustle(14)(15) | Media/Content/Info | Senior Secured | June 2021 | Interest rate PRIME + 4.10% or Floor rate of 8.35%, PIK Interest 1.95%, 3.12% Exit Fee | $ | 15,315 | $ | 15,336 | $ | 15,453 | ||||||||||
|
|
|
| |||||||||||||||||
Subtotal: 1-5 Years Maturity | 15,336 | 15,453 | ||||||||||||||||||
|
|
|
| |||||||||||||||||
Subtotal: Media/Content/Info (1.62%)* | 15,336 | 15,453 | ||||||||||||||||||
|
|
|
| |||||||||||||||||
Medical Devices & Equipment | ||||||||||||||||||||
Under 1 Year Maturity | ||||||||||||||||||||
Micell Technologies, Inc.(11) | Medical Devices & Equipment | Senior Secured | August 2019 | Interest rate PRIME + 7.25% or Floor rate of 10.50%, 5.00% Exit Fee | $ | 2,323 | 2,724 | 2,405 | ||||||||||||
|
|
|
| |||||||||||||||||
Subtotal: Under 1 Year Maturity | 2,724 | 2,405 | ||||||||||||||||||
|
|
|
| |||||||||||||||||
1-5 Years Maturity | ||||||||||||||||||||
Flowonix Medical, Inc.(11)(14) | Medical Devices & Equipment | Senior Secured | October 2021 | Interest rate PRIME + 4.00% or Floor rate of 9.00%, PIK Interest 0.5%, 7.95% Exit Fee | $ | 15,007 | 14,673 | 14,673 | ||||||||||||
Intuity Medical, Inc.(11)(15) | Medical Devices & Equipment | Senior Secured | June 2021 | Interest rate PRIME + 5.00% or Floor rate of 9.25%, 5.95% Exit Fee | $ | 17,500 | 17,504 | 17,417 | ||||||||||||
Quanta Dialysis Technologies(5)(10) | Medical Devices & Equipment | Senior Secured | April 2020 | Interest rate PRIME + 8.05% or Floor rate of 11.55%, 5.00% Exit Fee | $ | 5,806 | 6,324 | 6,344 | ||||||||||||
Quanterix Corporation(11) | Medical Devices & Equipment | Senior Secured | March 2020 | Interest rate PRIME + 2.75% or Floor rate of 8.00%, 0.58% Exit Fee | $ | 7,688 | 7,656 | 7,577 | ||||||||||||
Rapid Micro Biosystems, Inc.(11)(15) | Medical Devices & Equipment | Senior Secured | April 2022 | Interest rate PRIME + 5.15% or Floor rate of 9.65%, 7.25% Exit Fee | $ | 18,000 | 18,143 | 18,013 | ||||||||||||
Sebacia, Inc.(11)(15) | Medical Devices & Equipment | Senior Secured | January 2021 | Interest rate PRIME + 4.35% or Floor rate of 8.85%, 6.05% Exit Fee | $ | 11,000 | 11,151 | 11,071 | ||||||||||||
Transenterix, Inc.(10)(11) | Medical Devices & Equipment | Senior Secured | June 2022 | Interest rate PRIME + 4.55% or Floor rate of 9.55%, 6.95% Exit Fee | $ | 30,000 | 29,972 | 29,852 | ||||||||||||
|
|
|
| |||||||||||||||||
Subtotal: 1-5 Years Maturity | 105,423 | 104,947 | ||||||||||||||||||
|
|
|
| |||||||||||||||||
Subtotal: Medical Devices & Equipment (11.24%)* | 108,147 | 107,352 | ||||||||||||||||||
|
|
|
| |||||||||||||||||
15
Portfolio Company | Sub-Industry | Type of | Maturity | Interest Rate and | Principal Amount | Cost(3) | Value(4) | |||||||||||||
Software | ||||||||||||||||||||
Under 1 Year Maturity | ||||||||||||||||||||
Pollen, Inc.(15) | Software | Senior Secured | April 2019 | Interest rate PRIME + 4.25% or Floor rate of 8.50%, 4.00% Exit Fee | $ | 7,000 | 7,214 | 7,214 | ||||||||||||
|
|
|
| |||||||||||||||||
Subtotal: Under 1 Year Maturity | 7,214 | 7,214 | ||||||||||||||||||
|
|
|
| |||||||||||||||||
1-5 Years Maturity | ||||||||||||||||||||
Abrigo (p.k.a. Banker’s Toolbox, Inc.)(13)(18) | Software | Senior Secured | March 2023 | Interest rate 3-month LIBOR + 7.88% or Floor rate of 7.88% | $ | 39,701 | $ | 38,871 | $ | 38,617 | ||||||||||
Businessolver.com, Inc.(16)(17) | Software | Senior Secured | May 2023 | Interest rate 3-month LIBOR + 7.50% or Floor rate of 7.50% | $ | 52,913 | 51,958 | 51,417 | ||||||||||||
| Software | Senior Secured | May 2023 | Interest rate 3-month LIBOR + 7.50% or Floor rate of 7.50% | $ | 2,550 | 2,551 | 2,550 | |||||||||||||
|
|
|
|
|
| |||||||||||||||
Total Businessolver.com, Inc. | $ | 55,463 | 54,509 | 53,967 | ||||||||||||||||
Clarabridge, Inc.(12)(14)(17) | Software | Senior Secured | April 2022 | Interest rate PRIME + 4.80% or Floor rate of 8.55%, PIK Interest 2.25% | $ | 42,300 | 41,843 | 41,921 | ||||||||||||
Cloudian, Inc. | Software | Senior Secured | November 2022 | Interest rate PRIME + 3.25% or Floor rate of 8.25%, 9.75% Exit Fee | $ | 15,000 | 14,814 | 14,814 | ||||||||||||
Couchbase, Inc.(15)(17)(19) | Software | Senior Secured | September 2021 | Interest rate PRIME + 5.25% or Floor rate of 10.75% | $ | 15,000 | 14,921 | 14,921 | ||||||||||||
Credible Behavioral Health, Inc.(14)(17) | Software | Senior Secured | September 2021 | Interest rate PRIME + 3.20% or Floor rate of 7.95%, PIK Interest 3.30% | $ | 7,573 | 7,493 | 7,493 | ||||||||||||
Dashlane, Inc.(14)(19) | Software | Senior Secured | April 2022 | Interest rate PRIME + 4.05% or Floor rate of 8.55%, PIK Interest 1.10%, 9.25% Exit Fee | $ | 10,067 | 10,107 | 10,137 | ||||||||||||
DocuTAP, Inc.(17) | Software | Senior Secured | October 2023 | Interest rate 3-month LIBOR + 8.00% or Floor rate of 8.00% | $ | 14,000 | 13,609 | 13,609 | ||||||||||||
Emma, Inc.(17)(18) | Software | Senior Secured | September 2022 | Interest rate 3-month LIBOR + 8.39% or Floor rate of 8.39% | $ | 37,037 | 35,858 | 35,251 | ||||||||||||
| Software | Senior Secured | September 2022 | Interest rate 3-month LIBOR + 8.18% or Floor rate of 8.18% | $ | 6,000 | 5,827 | 5,826 | |||||||||||||
|
|
|
|
|
| |||||||||||||||
Total Emma, Inc. | $ | 43,037 | 41,685 | 41,077 | ||||||||||||||||
16
Portfolio Company | Sub-Industry | Type of | Maturity | Interest Rate and | Principal Amount | Cost(3) | Value(4) | |||||||||||||
Evernote Corporation(14)(15)(17)(19) | Software | Senior Secured | October 2020 | Interest rate PRIME + 5.45% or Floor rate of 8.95% | $ | 5,549 | 5,537 | 5,592 | ||||||||||||
| Software | Senior Secured | July 2021 | Interest rate PRIME + 6.00% or Floor rate of 9.50%, PIK Interest 1.25% | $ | 4,074 | 4,058 | 4,074 | |||||||||||||
| Software | Senior Secured | July 2022 | Interest rate PRIME + 6.00% or Floor rate of 9.50%, PIK Interest 1.25% | $ | 5,015 | 4,982 | 4,993 | |||||||||||||
|
|
|
|
|
| |||||||||||||||
Total Evernote Corporation | $ | 14,638 | 14,577 | 14,659 | ||||||||||||||||
Fuze, Inc.(13)(14)(15)(16)(19) | Software | Senior Secured | July 2021 | Interest rate PRIME + 3.70% or Floor rate of 7.95%, PIK Interest 1.55%, 3.55% Exit Fee | $ | 51,129 | 51,284 | 51,943 | ||||||||||||
Impact Radius Holdings, Inc.(11)(14) | Software | Senior Secured | December 2020 | Interest rate PRIME + 4.25% or Floor rate of 8.75%, PIK Interest 1.55%, 1.75% Exit Fee | $ | 10,191 | 10,271 | 10,237 | ||||||||||||
| Software | Senior Secured | December 2020 | Interest rate PRIME + 4.25% or Floor rate of 8.75%, PIK Interest 1.55% | $ | 2,014 | 2,014 | 2,008 | |||||||||||||
|
|
|
|
|
| |||||||||||||||
Total Impact Radius Holdings, Inc. | $ | 12,205 | 12,285 | 12,245 | ||||||||||||||||
Insurance Technologies Corporation(17)(18) | Software | Senior Secured | March 2023 | Interest rate 3-month LIBOR + 7.82% or Floor rate of 8.75% | $ | 12,500 | 12,258 | 12,071 | ||||||||||||
Lightbend, Inc.(14)(15) | Software | Senior Secured | February 2022 | Interest rate PRIME + 4.25% or Floor rate of 8.50%, PIK Interest 2.00% | $ | 16,179 | 15,850 | 15,741 | ||||||||||||
Lithium Technologies, Inc.(11)(16)(17) | Software | Senior Secured | October 2022 | Interest rate 1-month LIBOR + 8.00% or Floor rate of 9.00% | $ | 12,000 | 11,785 | 11,659 | ||||||||||||
| Software | Senior Secured | October 2022 | Interest rate 1-month LIBOR + 8.00% or Floor rate of 9.00% | $ | 43,000 | 42,047 | 42,047 | |||||||||||||
|
|
|
|
|
| |||||||||||||||
Total Lithium Technologies, Inc. | $ | 55,000 | 53,832 | 53,706 | ||||||||||||||||
Microsystems Holding Company, LLC(13)(19) | Software | Senior Secured | July 2022 | Interest rate 3-month LIBOR + 8.25% or Floor rate of 9.25% | $ | 12,000 | 11,854 | 11,842 | ||||||||||||
Quid, Inc.(14)(15) | Software | Senior Secured | February 2021 | Interest rate PRIME + 4.75% or Floor rate of 8.25%, PIK Interest 2.25%, 3.00% Exit Fee | $ | 8,494 | 8,632 | 8,619 | ||||||||||||
RapidMiner, Inc.(12)(14) | Software | Senior Secured | December 2020 | Interest rate PRIME + 5.50% or Floor rate of 9.75%, PIK Interest 1.65% | $ | 7,119 | $ | 7,018 | $ | 6,965 | ||||||||||
17
Portfolio Company | Sub-Industry | Type of | Maturity | Interest Rate and | Principal Amount | Cost(3) | Value(4) | |||||||||||||
Regent Education(14) | Software | Senior Secured | January 2021 | Interest rate FIXED 10.00%, PIK Interest 2.00%, 6.35% Exit Fee | $ | 3,092 | 3,115 | 1,579 | ||||||||||||
Salsa Labs, Inc.(11)(17) | Software | Senior Secured | April 2023 | Interest rate 3-month LIBOR + 8.15% or Floor rate of 9.15% | $ | 6,000 | 5,894 | 5,823 | ||||||||||||
Signpost, Inc.(11)(14) | Software | Senior Secured | February 2020 | Interest rate PRIME + 4.15% or Floor rate of 8.15%, PIK Interest 1.75%, 5.75% Exit Fee | $ | 15,787 | 16,293 | 16,267 | ||||||||||||
ThreatConnect, Inc.(14)(15)(19) | Software | Senior Secured | October 2022 | Interest rate PRIME + 4.95% or Floor rate of 9.95%, PIK Interest 1.05%, 2.20% Exit Fee | $ | 7,519 | 7,443 | 7,443 | ||||||||||||
Vela Trading Technologies(11)(18) | Software | Senior Secured | July 2022 | Interest rate 3-month LIBOR + 9.50% or Floor rate of 10.50% | $ | 19,750 | 19,345 | 19,309 | ||||||||||||
YouEarnedIt, Inc.(18) | Software | Senior Secured | July 2023 | Interest rate 1-month LIBOR + 8.66% | $ | 8,978 | 8,735 | 8,735 | ||||||||||||
ZocDoc(11)(19) | Software | Senior Secured | August 2021 | Interest rate PRIME + 6.20% or Floor rate of 10.95%, 2.00% Exit Fee | $ | 30,000 | 30,003 | 29,875 | ||||||||||||
|
|
|
| |||||||||||||||||
Subtotal: 1-5 Years Maturity | 516,270 | 513,378 | ||||||||||||||||||
|
|
|
| |||||||||||||||||
Subtotal: Software (54.49%)* | 523,484 | 520,592 | ||||||||||||||||||
|
|
|
| |||||||||||||||||
Sustainable and Renewable Technology | ||||||||||||||||||||
Under 1 Year Maturity | ||||||||||||||||||||
Solar Spectrum Holdings LLC (p.k.a. Sungevity, | Sustainable and Renewable Technology | Senior Secured | August 2019 | Interest rate PRIME + 8.70% or Floor rate of 12.95%, 5.00% Exit Fee | $ | 10,000 | 10,151 | 10,151 | ||||||||||||
| Sustainable and Renewable Technology | Senior Secured | February 2019 | PIK Interest 10.00% | $ | 649 | 650 | 650 | |||||||||||||
| Sustainable and Renewable Technology | Senior Secured | February 2019 | Interest rate PRIME + 10.70% or Floor rate of 15.70%, PIK Interest 2.00% | $ | 603 | 603 | 603 | |||||||||||||
|
|
|
|
|
| |||||||||||||||
Total Solar Spectrum LLC | $ | 11,252 | $ | 11,404 | $ | 11,404 | ||||||||||||||
Subtotal: Under 1 Year Maturity | 11,404 | 11,404 | ||||||||||||||||||
|
|
|
| |||||||||||||||||
1-5 Years Maturity | ||||||||||||||||||||
FuelCell Energy, Inc.(12) | Sustainable and Renewable Technology | Senior Secured | April 2020 | Interest rate PRIME + 5.40% or Floor rate of 9.90%, 6.68% Exit Fee | $ | 13,091 | 13,362 | 13,330 | ||||||||||||
| Sustainable and Renewable Technology | Senior Secured | April 2020 | Interest rate PRIME + 5.40% or Floor rate of 9.90%, 8.50% Exit Fee | $ | 11,909 | 11,908 | 11,874 | |||||||||||||
|
|
|
|
|
| |||||||||||||||
Total FuelCell Energy, Inc. | $ | 25,000 | $ | 25,270 | $ | 25,204 | ||||||||||||||
18
Portfolio Company | Sub-Industry | Type of | Maturity | Interest Rate and | Principal Amount | Cost(3) | Value(4) | |||||||||||||
Impossible Foods, Inc.(12)(17) | Sustainable and Renewable Technology | Senior Secured | January 2022 | Interest rate PRIME + 3.95% or Floor rate of 8.95%, 9.00% Exit Fee | $ | 30,000 | 29,981 | 29,680 | ||||||||||||
Metalysis Limited(5)(10)(11) | Sustainable and Renewable Technology | Senior Secured | March 2021 | Interest rate PRIME + 5.00% or Floor rate of 9.25%, 6.95% Exit Fee | $ | 7,254 | 7,400 | 7,360 | ||||||||||||
Proterra, Inc.(11)(14) | Sustainable and Renewable Technology | Senior Secured | November 2020 | Interest rate PRIME + 3.70% or Floor rate of 7.95%, PIK Interest 1.75%, 5.95% Exit Fee | $ | 25,484 | 26,775 | 26,888 | ||||||||||||
| Sustainable and Renewable Technology | Senior Secured | November 2020 | Interest rate PRIME + 3.70% or Floor rate of 7.95%, PIK Interest 1.75%, 7.00% Exit Fee | $ | 5,097 | 5,381 | 5,386 | |||||||||||||
|
|
|
|
|
| |||||||||||||||
Total Proterra, Inc. | $ | 30,581 | 32,156 | 32,274 | ||||||||||||||||
|
|
|
| |||||||||||||||||
Subtotal: 1-5 Years Maturity | 94,807 | 94,518 | ||||||||||||||||||
|
|
|
| |||||||||||||||||
Subtotal: Sustainable and Renewable Technology (11.09%)* | 106,211 | 105,922 | ||||||||||||||||||
|
|
|
| |||||||||||||||||
Total: Debt Investments (181.43%)* | 1,752,945 | 1,733,492 | ||||||||||||||||||
|
|
|
| |||||||||||||||||
(dollars in thousands)
Portfolio Company | Sub-Industry | Type of Investment(1) | Percentage Ownership | Series | Shares | Cost(3) | Value(4) | |||||||||||||||||
Equity Investments | ||||||||||||||||||||||||
GlowPoint, Inc.(4) | Communications & Networking | Equity | 0.23 | % | Common Stock | 114,192 | $ | 102 | $ | 14 | ||||||||||||||
Peerless Network Holdings, Inc. | Communications & Networking | Equity | 3.41 | % | Preferred Series A | 1,135,000 | 1,229 | 4,847 | ||||||||||||||||
|
|
|
| |||||||||||||||||||||
Subtotal: Communications & Networking (0.51%)* | 1,331 | 4,861 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Diagnostic | ||||||||||||||||||||||||
Singulex, Inc. | Diagnostic | Equity | 0.36 | % | Common Stock | 937,998 | 750 | 348 | ||||||||||||||||
|
|
|
| |||||||||||||||||||||
Subtotal: Diagnostic (0.04%)* | 750 | 348 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Diversified Financial Services | ||||||||||||||||||||||||
Gibraltar Business Capital, LLC.(7) | Diversified Financial Services | Equity | 7.26 | % | Common Stock | 830,000 | 1,884 | 1,688 | ||||||||||||||||
| Diversified Financial Services | Equity | 92.74 | % | Preferred Series A | 10,602,752 | 26,122 | 23,402 | |||||||||||||||||
|
|
|
| |||||||||||||||||||||
Total Gibraltar Business Capital, LLC | 11,432,752 | 28,006 | 25,090 | |||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Subtotal: Diversified Financial Services (2.63%)* | 28,006 | 25,090 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
19
Portfolio Company | Sub-Industry | Type of Investment(1) | Percentage Ownership | Series | Shares | Cost(3) | Value(4) | |||||||||||||||||
Drug Delivery | ||||||||||||||||||||||||
AcelRx Pharmaceuticals, Inc.(4) | Drug Delivery | Equity | 0.22 | % | Common Stock | 176,730 | 1,329 | 318 | ||||||||||||||||
BioQ Pharma Incorporated(15) | Drug Delivery | Equity | 0.47 | % | Preferred Series D | 165,000 | 500 | 599 | ||||||||||||||||
Edge Therapeutics, Inc.(4) | Drug Delivery | Equity | 0.16 | % | Common Stock | 49,965 | 309 | 16 | ||||||||||||||||
Neos Therapeutics, Inc.(4)(15) | Drug Delivery | Equity | 0.42 | % | Common Stock | 125,000 | 1,500 | 206 | ||||||||||||||||
|
|
|
| |||||||||||||||||||||
Subtotal: Drug Delivery (0.12%)* | 3,638 | 1,139 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Drug Discovery & Development | ||||||||||||||||||||||||
Aveo Pharmaceuticals, Inc.(4)(15) | Drug Discovery & Development | Equity | 1.52 | % | Common Stock | 1,901,791 | 1,715 | 3,112 | ||||||||||||||||
Axovant Sciences Ltd.(4)(5)(10)(16) | Drug Discovery & Development | Equity | 0.08 | % | Common Stock | 129,827 | 1,269 | 129 | ||||||||||||||||
BridgeBio Pharma LLC(16) | Drug Discovery & Development | Equity | 0.20 | % | Preferred Series D | 1,008,929 | 2,000 | 1,819 | ||||||||||||||||
Cerecor, Inc.(4) | Drug Discovery & Development | Equity | 0.29 | % | Common Stock | 119,087 | 1,000 | 385 | ||||||||||||||||
Dare Biosciences, Inc. (p.k.a. Cerulean Pharma, Inc.)(4) | Drug Discovery & Development | Equity | 0.12 | % | Common Stock | 13,550 | 1,000 | 10 | ||||||||||||||||
Dicerna Pharmaceuticals, Inc.(4) | Drug Discovery & Development | Equity | 0.23 | % | Common Stock | 142,858 | 1,000 | 1,527 | ||||||||||||||||
Dynavax Technologies(4)(10) | Drug Discovery & Development | Equity | 0.03 | % | Common Stock | 20,000 | 550 | 183 | ||||||||||||||||
Eidos Therapeutics, Inc.(4)(10) | Drug Discovery & Development | Equity | 0.04 | % | Common Stock | 15,000 | 255 | 206 | ||||||||||||||||
Genocea Biosciences, Inc.(4) | Drug Discovery & Development | Equity | 0.26 | % | Common Stock | 223,463 | 2,000 | 64 | ||||||||||||||||
Insmed, Incorporated(4) | Drug Discovery & Development | Equity | 0.09 | % | Common Stock | 70,771 | 1,000 | 929 | ||||||||||||||||
Melinta Therapeutics, Inc.(4) | Drug Discovery & Development | Equity | 0.46 | % | Common Stock | 51,821 | 2,000 | 42 | ||||||||||||||||
Paratek Pharmaceuticals, Inc. (p.k.a. Transcept Pharmaceuticals, Inc.)(4)(10)(16) | Drug Discovery & Development | Equity | 0.24 | % | Common Stock | 76,362 | 2,744 | 392 | ||||||||||||||||
20
Portfolio Company | Sub-Industry | Type of Investment(1) | Percentage Ownership | Series | Shares | Cost(3) | Value(4) | |||||||||||||||||
Rocket Pharmaceuticals, Ltd (p.k.a. Inotek Pharmaceuticals Corporation)(4) | Drug Discovery & Development | Equity | 0.00 | % | Common Stock | 944 | 1,500 | 14 | ||||||||||||||||
Tricida, Inc.(4) | Drug Discovery & Development | Equity | 0.25 | % | Common Stock | 105,260 | 2,000 | 2,481 | ||||||||||||||||
|
|
|
| |||||||||||||||||||||
Subtotal: Drug Discovery & Development (1.18%)* | 20,033 | 11,293 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Electronics & Computer Hardware | ||||||||||||||||||||||||
Identiv, Inc.(4) | Electronics & Computer Hardware | Equity | 0.04 | % | Common Stock | 6,700 | 34 | 24 | ||||||||||||||||
|
|
|
| |||||||||||||||||||||
Subtotal: Electronics & Computer Hardware (0.00%)* | 34 | 24 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Information Services | ||||||||||||||||||||||||
DocuSign, Inc.(4) | Information Services | Equity | 0.23 | % | Common Stock | 385,000 | 6,081 | 15,431 | ||||||||||||||||
|
|
|
| |||||||||||||||||||||
Subtotal: Information Services (1.62%)* | 6,081 | 15,431 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Internet Consumer & Business Services | ||||||||||||||||||||||||
Blurb, Inc. | Internet Consumer & Business Services | Equity | 0.36 | % | Preferred Series B | 220,653 | $ | 175 | $ | 44 | ||||||||||||||
Brigade Group, Inc. (p.k.a. Philotic, Inc.) | Internet Consumer & Business Services | Equity | 0.05 | % | Common Stock | 9,023 | 93 | — | ||||||||||||||||
Contentful, Inc.(5)(10) | Internet Consumer & Business Services | Equity | 0.16 | % | Preferred Series D | 217 | 500 | 504 | ||||||||||||||||
DoorDash, Inc. | Internet Consumer & Business Services | Equity | 0.30 | % | Common Stock | 105,000 | 6,051 | 6,051 | ||||||||||||||||
Lightspeed POS, Inc.(5)(10) | Internet Consumer & Business Services | Equity | 0.08 | % | Preferred Series C | 230,030 | 250 | 363 | ||||||||||||||||
| Internet Consumer & Business Services | Equity | 0.07 | % | Preferred Series D | 198,677 | 250 | 326 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total Lightspeed POS, Inc. | 428,707 | 500 | 689 | |||||||||||||||||||||
Lyft, Inc. | Internet Consumer & Business Services | Equity | 0.03 | % | Preferred Series F | 91,648 | 4,819 | 4,819 | ||||||||||||||||
Nextdoor.com, Inc. | Internet Consumer & Business Services | Equity | 0.61 | % | Common Stock | 328,190 | 4,854 | 4,854 | ||||||||||||||||
OfferUp, Inc. | Internet Consumer & Business Services | Equity | 0.21 | % | Preferred Series A | 286,080 | 1,663 | 1,565 | ||||||||||||||||
| Internet Consumer & Business Services | Equity | 0.08 | % | Preferred Series A-1 | 108,710 | 632 | 595 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total OfferUp, Inc. | 394,790 | 2,295 | 2,160 | |||||||||||||||||||||
21
Portfolio Company | Sub-Industry | Type of Investment(1) | Percentage Ownership | Series | Shares | Cost(3) | Value(4) | |||||||||||||||||
Oportun (p.k.a. Progress Financial) | Internet Consumer & Business Services | Equity | 0.08 | % | Preferred Series G | 218,351 | 250 | 537 | ||||||||||||||||
| Internet Consumer & Business Services | Equity | 0.03 | % | Preferred Series H | 87,802 | 250 | 279 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total Oportun (p.k.a. Progress Financial) | 306,153 | 500 | 816 | |||||||||||||||||||||
Tectura Corporation(7) | Internet Consumer & Business Services | Equity | 49.39 | % | Common Stock | 414,994,863 | 900 | — | ||||||||||||||||
| Internet Consumer & Business Services | Equity | 0.12 | % | Preferred Series BB | 1,000,000 | — | — | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total Tectura Corporation | 415,994,863 | 900 | — | |||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Subtotal: Internet Consumer & Business Services (2.09%)* | 20,687 | 19,937 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Media/Content/Info | ||||||||||||||||||||||||
Pinterest, Inc. | Media/Content/Info | Equity | 0.05 | % | Preferred Series Seed | 620,000 | 4,085 | 3,787 | ||||||||||||||||
|
|
|
| |||||||||||||||||||||
Subtotal: Media/Content/Info (0.40%)* | 4,085 | 3,787 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Medical Devices & Equipment | ||||||||||||||||||||||||
AtriCure, Inc.(4)(15) | Medical Devices & Equipment | Equity | 0.03 | % | Common Stock | 10,119 | 266 | 310 | ||||||||||||||||
Flowonix Medical, Inc. | Medical Devices & Equipment | Equity | 0.07 | % | Preferred Series AA | 221,893 | 1,500 | 27 | ||||||||||||||||
Gelesis, Inc. | Medical Devices & Equipment | Equity | 1.03 | % | Common Stock | 198,202 | — | 677 | ||||||||||||||||
| Medical Devices & Equipment | Equity | 0.99 | % | Preferred Series A-1 | 191,210 | 425 | 729 | |||||||||||||||||
| Medical Devices & Equipment | Equity | 0.99 | % | Preferred Series A-2 | 191,626 | 500 | 691 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total Gelesis, Inc. | 581,038 | 925 | 2,097 | |||||||||||||||||||||
Medrobotics Corporation(15) | Medical Devices & Equipment | Equity | 0.12 | % | Preferred Series E | 136,798 | 250 | 24 | ||||||||||||||||
| Medical Devices & Equipment | Equity | 0.07 | % | Preferred Series F | 73,971 | 155 | 26 | |||||||||||||||||
| Medical Devices & Equipment | Equity | 0.14 | % | Preferred Series G | 163,934 | 500 | 87 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total Medrobotics Corporation | 374,703 | 905 | 137 | |||||||||||||||||||||
Optiscan Biomedical, Corp.(6) | Medical Devices & Equipment | Equity | 0.34 | % | Preferred Series B | 61,855 | 3,000 | 393 | ||||||||||||||||
| Medical Devices & Equipment | Equity | 0.11 | % | Preferred Series C | 19,273 | 655 | 111 | |||||||||||||||||
22
Portfolio Company | Sub-Industry | Type of Investment(1) | Percentage Ownership | Series | Shares | Cost(3) | Value(4) | |||||||||||||||||
| Medical Devices & Equipment | Equity | 3.05 | % | Preferred Series D | 551,038 | 5,257 | 3,524 | |||||||||||||||||
| Medical Devices & Equipment | Equity | 1.72 | % | Preferred Series E | 311,989 | 2,609 | 2,771 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total Optiscan Biomedical, Corp. | 944,155 | 11,521 | 6,799 | |||||||||||||||||||||
Outset Medical, Inc. (p.k.a. Home Dialysis Plus, Inc.) | Medical Devices & Equipment | Equity | 0.12 | % | Preferred Series B | 232,061 | 527 | 473 | ||||||||||||||||
Quanterix Corporation(4) | Medical Devices & Equipment | Equity | 0.38 | % | Common Stock | 84,778 | 1,000 | 1,553 | ||||||||||||||||
|
|
|
| |||||||||||||||||||||
Subtotal: Medical Devices & Equipment (1.19%)* | 16,644 | 11,396 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Software | ||||||||||||||||||||||||
CapLinked, Inc. | Software | Equity | 0.33 | % | Preferred Series A-3 | 53,614 | 51 | 87 | ||||||||||||||||
Docker, Inc. | Software | Equity | 0.63 | % | Common Stock | 200,000 | 4,284 | 4,284 | ||||||||||||||||
Druva, Inc. | Software | Equity | 0.29 | % | Preferred Series 2 | 458,841 | 1,000 | 1,972 | ||||||||||||||||
| Software | Equity | 0.06 | % | Preferred Series 3 | 93,620 | 300 | 433 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total Druva, Inc. | 552,461 | 1,300 | 2,405 | |||||||||||||||||||||
HighRoads, Inc. | Software | Equity | 0.00 | % | Common Stock | 190 | 307 | — | ||||||||||||||||
Palantir Technologies | Software | Equity | 0.00 | % | Preferred Series D | 9,535 | 47 | 47 | ||||||||||||||||
| Software | Equity | 0.19 | % | Preferred Series E | 1,749,089 | 10,489 | 8,662 | |||||||||||||||||
| Software | Equity | 0.04 | % | Preferred Series G | 326,797 | 2,211 | 1,618 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total Palantir Technologies | 2,085,421 | 12,747 | 10,327 | |||||||||||||||||||||
Sprinklr, Inc. | Software | Equity | 0.68 | % | Common Stock | 700,000 | 3,749 | 3,226 | ||||||||||||||||
WildTangent, Inc. | Software | Equity | 0.16 | % | Preferred Series 3 | 100,000 | 402 | 176 | ||||||||||||||||
|
|
|
| |||||||||||||||||||||
Subtotal: Software (2.15%)* | 22,840 | 20,505 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
23
Portfolio Company | Sub-Industry | Type of Investment(1) | Percentage Ownership | Series | Shares | Cost(3) | Value(4) | |||||||||||||||||
Surgical Devices | ||||||||||||||||||||||||
Gynesonics, Inc.(15) | Surgical Devices | Equity | 0.01 | % | Preferred Series B | 219,298 | $ | 250 | $ | 8 | ||||||||||||||
| Surgical Devices | Equity | 0.04 | % | Preferred Series C | 656,538 | 282 | 25 | |||||||||||||||||
| Surgical Devices | Equity | 0.12 | % | Preferred Series D | 1,991,157 | 712 | 79 | |||||||||||||||||
| Surgical Devices | Equity | 0.16 | % | Preferred Series E | 2,786,367 | 429 | 125 | |||||||||||||||||
| Surgical Devices | Equity | 0.09 | % | Preferred Series F | 1,523,693 | 118 | 117 | |||||||||||||||||
| Surgical Devices | Equity | 0.14 | % | Preferred Series F-1 | 2,418,125 | 150 | 167 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total Gynesonics, Inc. | 9,595,178 | 1,941 | 521 | |||||||||||||||||||||
Transmedics, Inc. | Surgical Devices | Equity | 0.16 | % | Preferred Series B | 88,961 | 1,100 | 356 | ||||||||||||||||
| Surgical Devices | Equity | 0.21 | % | Preferred Series C | 119,999 | 300 | 479 | |||||||||||||||||
| Surgical Devices | Equity | 0.46 | % | Preferred Series D | 260,000 | 650 | 1,040 | |||||||||||||||||
| Surgical Devices | Equity | 0.18 | % | Preferred Series F | 100,200 | 500 | 401 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total Transmedics, Inc. | 569,160 | 2,550 | 2,276 | |||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Subtotal: Surgical Devices (0.29%)* | 4,491 | 2,797 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Sustainable and Renewable Technology | ||||||||||||||||||||||||
Flywheel Building Intelligence, Inc. (p.k.a. SCIEnergy, Inc.) | Sustainable and Renewable Technology | Equity | 0.00 | % | Common Stock | 192 | 761 | — | ||||||||||||||||
Modumetal, Inc. | Sustainable and Renewable Technology | Equity | 0.72 | % | Preferred Series C | 3,107,520 | 500 | 40 | ||||||||||||||||
Proterra, Inc. | Sustainable and Renewable Technology | Equity | 0.07 | % | Preferred Series 5 | 99,280 | 500 | 449 | ||||||||||||||||
Solar Spectrum Holdings LLC (p.k.a. Sungevity, Inc.)(6) | Sustainable and Renewable Technology | Equity | 22.77 | % | Common Stock | 380 | 61,502 | 3,115 | ||||||||||||||||
|
|
|
| |||||||||||||||||||||
Subtotal: Sustainable and Renewable Technology (0.38%)* | 63,263 | 3,604 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Total: Equity Investments (12.58%)* | $ | 191,883 | $ | 120,212 | ||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Warrant Investments | ||||||||||||||||||||||||
Biotechnology Tools | ||||||||||||||||||||||||
Labcyte, Inc. | Biotechnology Tools | Warrant | 0.84 | % | Preferred Series C | 1,127,624 | $ | 323 | $ | 1,114 | ||||||||||||||
|
|
|
| |||||||||||||||||||||
Subtotal: Biotechnology Tools (0.12%)* | 323 | 1,114 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
24
Portfolio Company | Sub-Industry | Type of Investment(1) | Percentage Ownership | Series | Shares | Cost(3) | Value(4) | |||||||||||||||||
Communications & Networking | ||||||||||||||||||||||||
Peerless Network Holdings, Inc. | Communications & Networking | Warrant | 0.01 | % | Common Stock | 3,328 | — | 10 | ||||||||||||||||
Spring Mobile Solutions, Inc. | Communications & Networking | Warrant | 0.62 | % | Common Stock | 2,834,375 | 418 | — | ||||||||||||||||
|
|
|
| |||||||||||||||||||||
Subtotal: Communications & Networking (0.00%)* | 418 | 10 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Consumer & Business Products | ||||||||||||||||||||||||
Gadget Guard (p.k.a Antenna79)(15) | Consumer & Business Products | Warrant | 0.46 | % | Common Stock | 1,662,441 | 228 | — | ||||||||||||||||
Intelligent Beauty, Inc. | Consumer & Business Products | Warrant | 0.35 | % | Preferred Series B | 190,234 | 230 | 191 | ||||||||||||||||
The Neat Company | Consumer & Business Products | Warrant | 0.01 | % | Preferred Series C-1 | 540,540 | 365 | — | ||||||||||||||||
WHOOP, INC. | Consumer & Business Products | Warrant | 0.17 | % | Preferred Series C | 68,627 | 18 | 5 | ||||||||||||||||
|
|
|
| |||||||||||||||||||||
Subtotal: Consumer & Business Products (0.02%)* | 841 | 196 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Drug Delivery | ||||||||||||||||||||||||
Agile Therapeutics, Inc.(4) | Drug Delivery | Warrant | 0.52 | % | Common Stock | 180,274 | 730 | 6 | ||||||||||||||||
BioQ Pharma Incorporated | Drug Delivery | Warrant | 1.30 | % | Common Stock | 459,183 | 1 | 525 | ||||||||||||||||
Dance Biopharm, Inc.(15) | Drug Delivery | Warrant | 0.40 | % | Common Stock | 110,882 | 74 | — | ||||||||||||||||
Edge Therapeutics, Inc.(4) | Drug Delivery | Warrant | 0.25 | % | Common Stock | 78,595 | 390 | 3 | ||||||||||||||||
Kaleo, Inc. (p.k.a. Intelliject, Inc.) | Drug Delivery | Warrant | 0.46 | % | Preferred Series B | 82,500 | 593 | 1,923 | ||||||||||||||||
Neos Therapeutics, Inc.(4)(15) | Drug Delivery | Warrant | 0.24 | % | Common Stock | 70,833 | 285 | — | ||||||||||||||||
25
Portfolio Company | Sub-Industry | Type of Investment(1) | Percentage Ownership | Series | Shares | Cost(3) | Value(4) | |||||||||||||||||
Pulmatrix Inc.(4) | Drug Delivery | Warrant | 0.51 | % | Common Stock | 25,150 | 116 | — | ||||||||||||||||
ZP Opco, Inc. (p.k.a. Zosano Pharma)(4) | Drug Delivery | Warrant | 0.03 | % | Common Stock | 3,618 | 266 | — | ||||||||||||||||
|
|
|
| |||||||||||||||||||||
Subtotal: Drug Delivery (0.26%)* | 2,455 | 2,457 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Drug Discovery & Development | ||||||||||||||||||||||||
Acacia Pharma Inc.(4)(10) | Drug Discovery & Development | Warrant | 0.38 | % | Common Stock | 201,330 | $ | 304 | $ | 52 | ||||||||||||||
ADMA Biologics, Inc.(4) | Drug Discovery & Development | Warrant | 0.19 | % | Common Stock | 89,750 | 295 | 5 | ||||||||||||||||
Auris Medical Holding, AG(4)(5)(10) | Drug Discovery & Development | Warrant | 0.05 | % | Common Stock | 15,672 | 249 | — | ||||||||||||||||
Brickell Biotech, Inc. | Drug Discovery & Development | Warrant | 0.38 | % | Preferred Series C | 26,086 | 119 | 48 | ||||||||||||||||
Cerecor, Inc.(4) | Drug Discovery & Development | Warrant | 0.05 | % | Common Stock | 22,328 | 70 | 8 | ||||||||||||||||
Chroma Therapeutics, Ltd.(5)(10) | Drug Discovery & Development | Warrant | 0.61 | % | Preferred Series D | 325,261 | 490 | — | ||||||||||||||||
Concert Pharmaceuticals, Inc.(4)(10)(15) | Drug Discovery & Development | Warrant | 0.56 | % | Common Stock | 132,069 | 545 | 289 | ||||||||||||||||
CTI BioPharma Corp. (p.k.a. Cell Therapeutics, | Drug Discovery & Development | Warrant | 0.05 | % | Common Stock | 29,239 | 165 | — | ||||||||||||||||
CytRx Corporation(4)(15) | Drug Discovery & Development | Warrant | 0.31 | % | Common Stock | 105,694 | 160 | — | ||||||||||||||||
Dare Biosciences, Inc. (p.k.a. Cerulean Pharma, | Drug Discovery & Development | Warrant | 0.15 | % | Common Stock | 17,190 | 369 | — | ||||||||||||||||
Dicerna Pharmaceuticals, Inc.(4) | Drug Discovery & Development | Warrant | 0.00 | % | Common Stock | 200 | 28 | — | ||||||||||||||||
26
Portfolio Company | Sub-Industry | Type of Investment(1) | Percentage Ownership | Series | Shares | Cost(3) | Value(4) | |||||||||||||||||
Evofem Biosciences, Inc. (p.k.a Neothetics, Inc.)(4)(15) | Drug Discovery & Development | Warrant | 0.03 | % | Common Stock | 7,806 | 266 | 15 | ||||||||||||||||
Fortress Biotech, Inc. (p.k.a. Coronado Biosciences, Inc.)(4) | Drug Discovery & Development | Warrant | 0.13 | % | Common Stock | 73,009 | 142 | — | ||||||||||||||||
Genocea Biosciences, Inc.(4) | Drug Discovery & Development | Warrant | 0.46 | % | Common Stock | 403,136 | 431 | 40 | ||||||||||||||||
Immune Pharmaceuticals Inc.(4) | Drug Discovery & Development | Warrant | 0.02 | % | Common Stock | 10,742 | 164 | — | ||||||||||||||||
Melinta Therapeutics, Inc.(4) | Drug Discovery & Development | Warrant | 0.36 | % | Common Stock | 40,545 | 626 | — | ||||||||||||||||
Motif BioSciences Inc.(4)(5)(10)(15) | Drug Discovery & Development | Warrant | 0.02 | % | Common Stock | 73,452 | 282 | 78 | ||||||||||||||||
Myovant Sciences, Ltd.(4)(5)(10) | Drug Discovery & Development | Warrant | �� | 0.10 | % | Common Stock | 73,710 | 460 | 502 | |||||||||||||||
Neuralstem, Inc.(4)(15) | Drug Discovery & Development | Warrant | 0.03 | % | Common Stock | 5,783 | 77 | — | ||||||||||||||||
Ology Bioservices, Inc. (p.k.a. Nanotherapeutics, Inc.)(15) | Drug Discovery & Development | Warrant | 2.67 | % | Common Stock | 171,389 | 838 | — | ||||||||||||||||
Paratek Pharmaceuticals, Inc. (p.k.a. Transcept Pharmaceuticals, Inc.)(4)(10)(15)(16) | Drug Discovery & Development | Warrant | 0.29 | % | Common Stock | 94,841 | 204 | 20 | ||||||||||||||||
Savara Inc. (p.k.a. Mast Therapeutics, Inc.)(4)(15) | Drug Discovery & Development | Warrant | 0.09 | % | Common Stock | 32,467 | 203 | 52 | ||||||||||||||||
Sorrento Therapeutics, Inc.(4)(10) | Drug Discovery & Development | Warrant | 0.28 | % | Common Stock | 306,748 | 889 | 192 | ||||||||||||||||
Stealth Bio Therapeutics Corp.(5)(10) | Drug Discovery & Development | Warrant | 0.03 | % | Preferred Series A | 216,666 | 158 | 55 | ||||||||||||||||
27
Portfolio Company | Sub-Industry | Type of Investment(1) | Percentage Ownership | Series | Shares | Cost(3) | Value(4) | |||||||||||||||||
Tricida, Inc.(4)(15) | Drug Discovery & Development | Warrant | 0.25 | % | Common Stock | 106,916 | 863 | 1,268 | ||||||||||||||||
uniQure B.V.(4)(5)(10) | Drug Discovery & Development | Warrant | 0.10 | % | Common Stock | 37,174 | 218 | 468 | ||||||||||||||||
X4 Pharmaceuticals, Inc. | Drug Discovery & Development | Warrant | 0.35 | % | Preferred Series B | 210,638 | 270 | 206 | ||||||||||||||||
XOMA Corporation(4)(10)(15) | Drug Discovery & Development | Warrant | 0.10 | % | Common Stock | 9,063 | 279 | 2 | ||||||||||||||||
|
|
|
| |||||||||||||||||||||
Subtotal: Drug Discovery & Development (0.35%)* | 9,164 | 3,300 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Electronics & Computer Hardware | ||||||||||||||||||||||||
908 DEVICES INC.(15) | Electronics & Computer Hardware | Warrant | 0.24 | % | Preferred Series D | 79,856 | 101 | 28 | ||||||||||||||||
|
|
|
| |||||||||||||||||||||
Subtotal: Electronics & Computer Hardware (0.00%)* | 101 | 28 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Healthcare Services, Other | ||||||||||||||||||||||||
Chromadex Corporation(4) | Healthcare Services, Other | Warrant | 0.25 | % | Common Stock | 139,673 | 157 | 102 | ||||||||||||||||
|
|
|
| |||||||||||||||||||||
Subtotal: Healthcare Services, Other (0.01%)* | 157 | 102 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Information Services | ||||||||||||||||||||||||
INMOBI Inc.(5)(10) | Information Services | Warrant | 0.16 | % | Common Stock | 65,587 | 82 | — | ||||||||||||||||
MDX Medical, Inc.(15) | Information Services | Warrant | 0.87 | % | Common Stock | 2,812,500 | 283 | 144 | ||||||||||||||||
Netbase Solutions, Inc. | Information Services | Warrant | 0.02 | % | Preferred Series 1 | 60,000 | 356 | 378 | ||||||||||||||||
RichRelevance, Inc. | Information Services | Warrant | 0.13 | % | Preferred Series E | 112,612 | 98 | — | ||||||||||||||||
|
|
|
| |||||||||||||||||||||
Subtotal: Information Services (0.05%)* | 819 | 522 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
28
Portfolio Company | Sub-Industry | Type of Investment(1) | Percentage Ownership | Series | Shares | Cost(3) | Value(4) | |||||||||||||||||
Internet Consumer & Business Services | ||||||||||||||||||||||||
Aria Systems, Inc. | Internet Consumer & Business Services | Warrant | 0.09 | % | Preferred Series G | 231,535 | $ | 73 | $ | — | ||||||||||||||
Art.com, Inc.(15) | Internet Consumer & Business Services | Warrant | 0.24 | % | Preferred Series B | 311,005 | 66 | — | ||||||||||||||||
Blurb, Inc.(15) | Internet Consumer & Business Services | Warrant | 0.39 | % | Preferred Series C | 234,280 | 636 | 13 | ||||||||||||||||
ClearObject, Inc. (p.k.a. CloudOne, Inc.) | Internet Consumer & Business Services | Warrant | 0.59 | % | Preferred Series E | 968,992 | 19 | 27 | ||||||||||||||||
Cloudpay, Inc.(5)(10) | Internet Consumer & Business Services | Warrant | 0.36 | % | Preferred Series B | 4,960 | 45 | 11 | ||||||||||||||||
Contentful, Inc.(5)(10) | Internet Consumer & Business Services | Warrant | 0.06 | % | Preferred Series C | 82 | 1 | 41 | ||||||||||||||||
Fastly, Inc. | Internet Consumer & Business Services | Warrant | 0.08 | % | Preferred Series F | 152,195 | 71 | 72 | ||||||||||||||||
First Insight, Inc.(15) | Internet Consumer & Business Services | Warrant | 0.27 | % | Preferred Series B | 56,938 | 70 | 55 | ||||||||||||||||
Intent Media, Inc. | Internet Consumer & Business Services | Warrant | 0.46 | % | Common Stock | 140,077 | 168 | 168 | ||||||||||||||||
Interactions Corporation | Internet Consumer & Business Services | Warrant | 0.07 | % | Preferred Series G-3 | 68,187 | 204 | 401 | ||||||||||||||||
Just Fabulous, Inc. | Internet Consumer & Business Services | Warrant | 0.35 | % | Preferred Series B | 206,184 | 1,101 | 1,877 | ||||||||||||||||
Lightspeed POS, Inc.(5)(10) | Internet Consumer & Business Services | Warrant | 0.08 | % | Preferred Series C | 245,610 | 20 | 165 | ||||||||||||||||
LogicSource | Internet Consumer & Business Services | Warrant | 0.39 | % | Preferred Series C | 79,625 | 30 | 26 | ||||||||||||||||
29
Portfolio Company | Sub-Industry | Type of Investment(1) | Percentage Ownership | Series | Shares | Cost(3) | Value(4) | |||||||||||||||||
Oportun (p.k.a. Progress Financial) | Internet Consumer & Business Services | Warrant | 0.06 | % | Preferred Series G | 174,562 | 78 | 247 | ||||||||||||||||
Postmates, Inc. | Internet Consumer & Business Services | Warrant | 0.08 | % | Common Stock | 189,865 | 317 | 239 | ||||||||||||||||
RumbleON, Inc.(4) | Internet Consumer & Business Services | Warrant | 0.56 | % | Common Stock | 102,768 | 87 | 89 | ||||||||||||||||
ShareThis, Inc. | Internet Consumer & Business Services | Warrant | 0.91 | % | Preferred Series C | 493,502 | 547 | — | ||||||||||||||||
Snagajob.com, Inc. | Internet Consumer & Business Services | Warrant | 0.83 | % | Preferred Series A | 1,800,000 | 782 | 121 | ||||||||||||||||
| Internet Consumer & Business Services | Warrant | 0.08 | % | Preferred Series B | 173,076 | 8 | 7 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
TotalSnagajob.com, Inc. | 1,973,076 | 790 | 128 | |||||||||||||||||||||
Tapjoy, Inc. | Internet Consumer & Business Services | Warrant | 0.34 | % | Preferred Series D | 748,670 | 316 | 12 | ||||||||||||||||
The Faction Group LLC | Internet Consumer & Business Services | Warrant | 1.85 | % | Preferred Series A | 8,703 | 234 | 260 | ||||||||||||||||
Thumbtack, Inc. | Internet Consumer & Business Services | Warrant | 0.06 | % | Common Stock | 102,821 | 124 | 102 | ||||||||||||||||
Xometry, Inc. | Internet Consumer & Business Services | Warrant | 0.30 | % | Preferred Series B | 87,784 | 47 | 63 | ||||||||||||||||
|
|
|
| |||||||||||||||||||||
Subtotal: Internet Consumer & Business Services (0.42%)* | 5,044 | 3,996 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Media/Content/Info | ||||||||||||||||||||||||
Machine Zone, Inc. | Media/Content/Info | Warrant | 0.12 | % | Common Stock | 1,552,710 | 1,960 | 2,361 | ||||||||||||||||
Napster (p.k.a. Rhapsody International, Inc.) | Media/Content/Info | Warrant | 0.44 | % | Common Stock | 715,755 | 383 | 38 | ||||||||||||||||
WP Technology, Inc. (Wattpad, Inc.)(5)(10) | Media/Content/Info | Warrant | 0.10 | % | Common Stock | 255,818 | 4 | 5 | ||||||||||||||||
Zoom Media Group, Inc. | Media/Content/Info | Warrant | 0.44 | % | Preferred Series A | 1,204 | 348 | 22 | ||||||||||||||||
|
|
|
| |||||||||||||||||||||
Subtotal: Media/Content/Info (0.25%)* | 2,695 | 2,426 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
30
Portfolio Company | Sub-Industry | Type of Investment(1) | Percentage Ownership | Series | Shares | Cost(3) | Value(4) | |||||||||||||||||
Medical Devices & Equipment | ||||||||||||||||||||||||
SINTX Technologies, Inc. (p.k.a. Amedica | Medical Devices & Equipment | Warrant | 0.04 | % | Common Stock | 8,603 | 459 | — | ||||||||||||||||
Aspire Bariatrics, Inc.(15) | Medical Devices & Equipment | Warrant | 1.03 | % | Preferred Series B-1 | 112,858 | 455 | — | ||||||||||||||||
Avedro, Inc.(15) | Medical Devices & Equipment | Warrant | 0.48 | % | Preferred Series AA | 300,000 | 401 | 367 | ||||||||||||||||
Flowonix Medical, Inc. | Medical Devices & Equipment | Warrant | 0.05 | % | Preferred Series AA | 155,325 | 362 | — | ||||||||||||||||
| Medical Devices & Equipment | Warrant | 0.23 | % | Preferred Series BB | 725,806 | 351 | 351 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total Flowonix Medical Incorporated | 881,131 | 713 | 351 | |||||||||||||||||||||
Gelesis, Inc. | Medical Devices & Equipment | Warrant | 0.39 | % | Preferred Series A-1 | 74,784 | 78 | 158 | ||||||||||||||||
InspireMD, Inc.(4)(5)(10) | Medical Devices & Equipment | Warrant | 0.00 | % | Common Stock | 1,105 | — | — | ||||||||||||||||
Intuity Medical, Inc.(15) | Medical Devices & Equipment | Warrant | 0.73 | % | Preferred Series 4 | 1,819,078 | 294 | 508 | ||||||||||||||||
Medrobotics Corporation(15) | Medical Devices & Equipment | Warrant | 0.40 | % | Preferred Series E | 455,539 | 370 | 25 | ||||||||||||||||
Micell Technologies, Inc. | Medical Devices & Equipment | Warrant | 0.19 | % | Preferred Series D-2 | 84,955 | 262 | — | ||||||||||||||||
NinePoint Medical, Inc. | Medical Devices & Equipment | Warrant | 0.30 | % | Preferred Series A-1 | 587,840 | 170 | 90 | ||||||||||||||||
Optiscan Biomedical, Corp.(6) | Medical Devices & Equipment | Warrant | 0.41 | % | Preferred Series E | 74,424 | 573 | 178 | ||||||||||||||||
Outset Medical, Inc. (p.k.a. Home Dialysis Plus, Inc.) | Medical Devices & Equipment | Warrant | 0.26 | % | Preferred Series A | 500,000 | 402 | 184 | ||||||||||||||||
Quanterix Corporation(4) | Medical Devices & Equipment | Warrant | 0.30 | % | Common Stock | 66,039 | 204 | 394 | ||||||||||||||||
Sebacia, Inc. | Medical Devices & Equipment | Warrant | 0.45 | % | Preferred Series D | 778,301 | 133 | 186 | ||||||||||||||||
31
Portfolio Company | Sub-Industry | Type of Investment(1) | Percentage Ownership | Series | Shares | Cost(3) | Value(4) | |||||||||||||||||
SonaCare Medical, LLC (p.k.a. US HIFU, LLC) | Medical Devices & Equipment | Warrant | 0.02 | % | Preferred Series A | 6,464 | 188 | — | ||||||||||||||||
Tela Bio, Inc. | Medical Devices & Equipment | Warrant | 0.37 | % | Preferred Series B | 387,930 | 61 | 55 | ||||||||||||||||
ViewRay, Inc.(4)(15) | Medical Devices & Equipment | Warrant | 0.13 | % | Common Stock | 128,231 | 333 | 176 | ||||||||||||||||
|
|
|
| |||||||||||||||||||||
Subtotal: Medical Devices & Equipment (0.28%)* | 5,096 | 2,672 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Semiconductors | ||||||||||||||||||||||||
Achronix Semiconductor Corporation | Semiconductors | Warrant | 0.11 | % | Preferred Series C | 360,000 | 160 | 354 | ||||||||||||||||
| Semiconductors | Warrant | 0.23 | % | Preferred Series D-2 | 750,000 | 99 | 543 | |||||||||||||||||
Total Achronix Semiconductor Corporation | 1,110,000 | 259 | 897 | |||||||||||||||||||||
Aquantia Corp.(4) | Semiconductors | Warrant | 0.06 | % | Common Stock | 19,683 | 4 | 2 | ||||||||||||||||
|
|
|
| |||||||||||||||||||||
Subtotal: Semiconductors (0.09%)* | 263 | 899 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Software | ||||||||||||||||||||||||
Actifio, Inc. | Software | Warrant | 0.08 | % | Common Stock | 73,584 | $ | 249 | $ | 77 | ||||||||||||||
| Software | Warrant | 0.03 | % | Preferred Series F | 31,673 | 343 | 90 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total Actifio, Inc. | 105,257 | 592 | 167 | |||||||||||||||||||||
CareCloud Corporation(15) | Software | Warrant | 0.42 | % | Preferred Series B | 413,433 | 257 | 25 | ||||||||||||||||
Clickfox, Inc.(15) | Software | Warrant | 0.40 | % | Preferred Series B | 539,818 | 167 | 5 | ||||||||||||||||
| Software | Warrant | 0.44 | % | Preferred Series C | 592,019 | 730 | 9 | |||||||||||||||||
| Software | Warrant | 1.65 | % | Preferred Series C-A | 2,218,214 | 231 | 133 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total Clickfox, Inc. | 3,350,051 | 1,128 | 147 | |||||||||||||||||||||
Cloudian, Inc. | Software | Warrant | 0.17 | % | Common Stock | 477,454 | 72 | 57 | ||||||||||||||||
32
Portfolio Company | Sub-Industry | Type of Investment(1) | Percentage Ownership | Series | Shares | Cost(3) | Value(4) | |||||||||||||||||
DNAnexus, Inc. | Software | Warrant | 0.22 | % | Preferred Series C | 909,091 | 97 | 126 | ||||||||||||||||
Evernote Corporation | Software | Warrant | 0.05 | % | Common Stock | 62,500 | 106 | 100 | ||||||||||||||||
Fuze, Inc.(15)(16) | Software | Warrant | 0.10 | % | Preferred Series F | 256,158 | 89 | — | ||||||||||||||||
Lightbend, Inc.(15) | Software | Warrant | 0.43 | % | Preferred Series C-1 | 712,323 | 109 | 49 | ||||||||||||||||
Message Systems, Inc.(15) | Software | Warrant | 0.97 | % | Preferred Series C | 503,718 | 334 | 499 | ||||||||||||||||
Neos, Inc. | Software | Warrant | 0.10 | % | Common Stock | 221,150 | 22 | — | ||||||||||||||||
OneLogin, Inc.(15) | Software | Warrant | 0.55 | % | Common Stock | 381,620 | 304 | 401 | ||||||||||||||||
Poplicus, Inc. | Software | Warrant | 0.56 | % | Common Stock | 132,168 | — | — | ||||||||||||||||
Quid, Inc.(15) | Software | Warrant | 0.06 | % | Preferred Series D | 71,576 | 1 | 3 | ||||||||||||||||
RapidMiner, Inc. | Software | Warrant | 0.31 | % | Preferred Series C-1 | 4,982 | 24 | 17 | ||||||||||||||||
RedSeal Inc.(15) | Software | Warrant | 0.13 | % | Preferred Series C-Prime | 640,603 | 66 | 28 | ||||||||||||||||
Signpost, Inc. | Software | Warrant | 0.78 | % | Preferred Series C | 324,005 | 314 | 187 | ||||||||||||||||
ThreatConnect, Inc.(15) | Software | Warrant | 0.11 | % | Preferred Series B | 134,086 | 26 | 25 | ||||||||||||||||
Wrike, Inc. | Software | Warrant | 0.90 | % | Common Stock | 698,760 | 461 | 6,024 | ||||||||||||||||
|
|
|
| |||||||||||||||||||||
Subtotal: Software (0.82%)* | 4,002 | 7,855 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Specialty Pharmaceuticals | ||||||||||||||||||||||||
Alimera Sciences, Inc.(4) | Specialty Pharmaceuticals | Warrant | 2.45 | % | Common Stock | 1,717,709 | 861 | 24 | ||||||||||||||||
|
|
|
| |||||||||||||||||||||
Subtotal: Specialty Pharmaceuticals (0.00%)* | 861 | 24 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
33
Portfolio Company | Sub-Industry | Type of Investment(1) | Percentage Ownership | Series | Shares | Cost(3) | Value(4) | |||||||||||||||||
Surgical Devices | ||||||||||||||||||||||||
Gynesonics, Inc.(15) | Surgical Devices | Warrant | 0.01 | % | Preferred Series C | 180,480 | 74 | 4 | ||||||||||||||||
| Surgical Devices | Warrant | 0.09 | % | Preferred Series D | 1,575,965 | 321 | 24 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total Gynesonics, Inc. | 1,756,445 | 395 | 28 | |||||||||||||||||||||
Transmedics, Inc. | Surgical Devices | Warrant | 0.31 | % | Preferred Series D | 175,000 | 100 | 263 | ||||||||||||||||
| Surgical Devices | Warrant | 0.09 | % | Preferred Series F | 50,544 | 38 | — | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total Transmedics, Inc. | 225,544 | 138 | 263 | |||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Subtotal: Surgical Devices (0.03%)* | 533 | 291 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Sustainable and Renewable Technology | ||||||||||||||||||||||||
Agrivida, Inc. | Sustainable and Renewable Technology | Warrant | 0.41 | % | Preferred Series D | 471,327 | $ | 120 | $ | — | ||||||||||||||
American Superconductor Corporation(4) | Sustainable and Renewable Technology | Warrant | 0.28 | % | Common Stock | 58,823 | 39 | 208 | ||||||||||||||||
Calera, Inc. | Sustainable and Renewable Technology | Warrant | 0.17 | % | Preferred Series C | 44,529 | 513 | — | ||||||||||||||||
Fluidic, Inc. | Sustainable and Renewable Technology | Warrant | 0.11 | % | Preferred Series D | 61,804 | 102 | — | ||||||||||||||||
Flywheel Building Intelligence, Inc. (p.k.a. SCIEnergy, Inc.) | Sustainable and Renewable Technology | Warrant | 0.00 | % | Common Stock | 5,310 | 181 | — | ||||||||||||||||
| Sustainable and Renewable Technology | Warrant | 0.00 | % | Preferred Series 2-A | 63 | 50 | — | |||||||||||||||||
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Total Flywheel Building Intelligence, Inc. (p.k.a. SCIEnergy, Inc.) | 5,373 | 231 | — | |||||||||||||||||||||
Fulcrum Bioenergy, Inc. | Sustainable and Renewable Technology | Warrant | 0.19 | % | Preferred Series C-1 | 280,897 | 274 | 365 | ||||||||||||||||
GreatPoint Energy, Inc.(15) | Sustainable and Renewable Technology | Warrant | 0.12 | % | Preferred Series D-1 | 393,212 | 547 | — | ||||||||||||||||
Kinestral Technologies, Inc. | Sustainable and Renewable Technology | Warrant | 0.26 | % | Preferred Series A | 325,000 | 155 | 45 | ||||||||||||||||
| Sustainable and Renewable Technology | Warrant | 0.10 | % | Preferred Series B | 131,883 | 63 | 13 | |||||||||||||||||
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Total Kinestral Technologies, Inc. | 456,883 | 218 | 58 | |||||||||||||||||||||
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Portfolio Company | Sub-Industry | Type of Investment(1) | Percentage Ownership | Series | Shares | Cost(3) | Value(4) | |||||||||||||||||
Polyera Corporation(15) | Sustainable and Renewable Technology | Warrant | 0.97 | % | Preferred Series C | 311,609 | 338 | — | ||||||||||||||||
Proterra, Inc. | Sustainable and Renewable Technology | Warrant | 0.33 | % | Preferred Series 4 | 477,517 | 41 | 138 | ||||||||||||||||
Rive Technology, Inc.(15) | Sustainable and Renewable Technology | Warrant | 0.34 | % | Preferred Series E | 234,477 | 13 | 8 | ||||||||||||||||
Solar Spectrum Holdings LLC (p.k.a. Sungevity, | Sustainable and Renewable Technology | Warrant | 0.04 | % | Class A Units | 0.69 | — | — | ||||||||||||||||
TAS Energy, Inc. | Sustainable and Renewable Technology | Warrant | 0.10 | % | Preferred Series AA | 428,571 | 299 | — | ||||||||||||||||
Tendril Networks | Sustainable and Renewable Technology | Warrant | 0.46 | % | Preferred Series 3-A | 1,019,793 | 189 | — | ||||||||||||||||
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Subtotal: Sustainable and Renewable Technology (0.08%)* | 2,924 | 777 | ||||||||||||||||||||||
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Total: Warrant Investments (2.79%)* | 35,696 | 26,669 | ||||||||||||||||||||||
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Total Investments in Securities (196.81%)* | $ | 1,980,524 | $ | 1,880,373 | ||||||||||||||||||||
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Information about our senior securities is shown in the following table for the periods as of December 31, 2018, 2017, 2016, 2015, 2014, 2013, 2012, 2011, 2010, and 2009. The information as of December 31, 2018, 2017, 2016, 2015, 2014, 2013, 2012, 2011 and 2010 has been derived from our audited financial statements for these periods, which have been audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm. The report of PricewaterhouseCoopers LLP on the senior securities table as of December 31, 2018 is attached as an exhibit to the registration statement of which this prospectus is a part. The “N/A” indicates information that the SEC expressly does not require to be disclosed for certain types of senior securities.
Class and Year | Total Amount Outstanding Exclusive of Treasury Securities(1) | Asset Coverage per Unit(2) | Average Market Value per Unit(3) | |||||||||
Securitized Credit Facility with Wells Fargo Capital Finance | ||||||||||||
December 31, 2009(6) | — | — | N/A | |||||||||
December 31, 2010(6) | — | — | N/A | |||||||||
December 31, 2011 | $ | 10,186,830 | $ | 73,369 | N/A | |||||||
December 31, 2012(6) | — | — | N/A | |||||||||
December 31, 2013(6) | — | — | N/A | |||||||||
December 31, 2014(6) | — | — | N/A | |||||||||
December 31, 2015 | $ | 50,000,000 | $ | 26,352 | N/A | |||||||
December 31, 2016 | $ | 5,015,620 | $ | 290,234 | N/A | |||||||
December 31, 2017(6) | — | — | N/A | |||||||||
December 31, 2018 | $ | 13,106,582 | $ | 147,497 | N/A | |||||||
Securitized Credit Facility with Union Bank, NA | ||||||||||||
December 31, 2009(6) | — | — | N/A | |||||||||
December 31, 2010(6) | — | — | N/A | |||||||||
December 31, 2011(6) | — | — | N/A | |||||||||
December 31, 2012(6) | — | — | N/A | |||||||||
December 31, 2013(6) | — | — | N/A | |||||||||
December 31, 2014(6) | — | — | N/A | |||||||||
December 31, 2015(6) | — | — | N/A | |||||||||
December 31, 2016(6) | — | — | N/A | |||||||||
December 31, 2017(6) | — | — | N/A | |||||||||
December 31, 2018 | $ | 39,849,010 | $ | 48,513 | N/A | |||||||
Small Business Administration Debentures (HT II)(4) | ||||||||||||
December 31, 2009 | $ | 130,600,000 | $ | 3,806 | N/A | |||||||
December 31, 2010 | $ | 150,000,000 | $ | 3,942 | N/A | |||||||
December 31, 2011 | $ | 125,000,000 | $ | 5,979 | N/A | |||||||
December 31, 2012 | $ | 76,000,000 | $ | 14,786 | N/A | |||||||
December 31, 2013 | $ | 76,000,000 | $ | 16,075 | N/A | |||||||
December 31, 2014 | $ | 41,200,000 | $ | 31,535 | N/A | |||||||
December 31, 2015 | $ | 41,200,000 | $ | 31,981 | N/A | |||||||
December 31, 2016 | $ | 41,200,000 | $ | 35,333 | N/A | |||||||
December 31, 2017 | $ | 41,200,000 | $ | 39,814 | N/A | |||||||
December 31, 2018 | — | — | N/A | |||||||||
Small Business Administration Debentures (HT III)(5) | ||||||||||||
December 31, 2010 | $ | 20,000,000 | $ | 29,564 | N/A | |||||||
December 31, 2011 | $ | 100,000,000 | $ | 7,474 | N/A | |||||||
December 31, 2012 | $ | 149,000,000 | $ | 7,542 | N/A | |||||||
December 31, 2013 | $ | 149,000,000 | $ | 8,199 | N/A | |||||||
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Class and Year | Total Amount Outstanding Exclusive of Treasury Securities(1) | Asset Coverage per Unit(2) | Average Market Value per Unit(3) | |||||||||
December 31, 2014 | $ | 149,000,000 | $ | 8,720 | N/A | |||||||
December 31, 2015 | $ | 149,000,000 | $ | 8,843 | N/A | |||||||
December 31, 2016 | $ | 149,000,000 | $ | 9,770 | N/A | |||||||
December 31, 2017 | $ | 149,000,000 | $ | 11,009 | N/A | |||||||
December 31, 2018 | $ | 149,000,000 | $ | 12,974 | N/A | |||||||
2016 Convertible Notes | ||||||||||||
December 31, 2011 | $ | 75,000,000 | $ | 10,623 | $ | 885 | ||||||
December 31, 2012 | $ | 75,000,000 | $ | 15,731 | $ | 1,038 | ||||||
December 31, 2013 | $ | 75,000,000 | $ | 16,847 | $ | 1,403 | ||||||
December 31, 2014 | $ | 17,674,000 | $ | 74,905 | $ | 1,290 | ||||||
December 31, 2015 | $ | 17,604,000 | $ | 74,847 | $ | 1,110 | ||||||
December 31, 2016 | — | — | — | |||||||||
April 2019 Notes | ||||||||||||
December 31, 2012 | $ | 84,489,500 | $ | 13,300 | $ | 986 | ||||||
December 31, 2013 | $ | 84,489,500 | $ | 14,460 | $ | 1,021 | ||||||
December 31, 2014 | $ | 84,489,500 | $ | 15,377 | $ | 1,023 | ||||||
December 31, 2015 | $ | 64,489,500 | $ | 20,431 | $ | 1,017 | ||||||
December 31, 2016 | $ | 64,489,500 | $ | 22,573 | $ | 1,022 | ||||||
December 31, 2017 | — | — | — | |||||||||
September 2019 Notes | ||||||||||||
December 31, 2012 | $ | 85,875,000 | $ | 13,086 | $ | 1,003 | ||||||
December 31, 2013 | $ | 85,875,000 | $ | 14,227 | $ | 1,016 | ||||||
December 31, 2014 | $ | 85,875,000 | $ | 15,129 | $ | 1,026 | ||||||
December 31, 2015 | $ | 45,875,000 | $ | 28,722 | $ | 1,009 | ||||||
December 31, 2016 | $ | 45,875,000 | $ | 31,732 | $ | 1,023 | ||||||
December 31, 2017 | — | — | — | |||||||||
2022 Notes | ||||||||||||
December 31, 2017 | $ | 150,000,000 | $ | 10,935 | $ | 1,014 | ||||||
December 31, 2018 | $ | 150,000,000 | $ | 12,888 | $ | 976 | ||||||
2024 Notes | ||||||||||||
December 31, 2014 | $ | 103,000,000 | $ | 12,614 | $ | 1,010 | ||||||
December 31, 2015 | $ | 103,000,000 | $ | 12,792 | $ | 1,014 | ||||||
December 31, 2016 | $ | 252,873,175 | $ | 5,757 | $ | 1,016 | ||||||
December 31, 2017 | $ | 183,509,600 | $ | 8,939 | $ | 1,025 | ||||||
December 31, 2018 | $ | 83,509,600 | $ | 23,149 | $ | 1,011 | ||||||
2025 Notes | ||||||||||||
December 31, 2018 | $ | 75,000,000 | $ | 25,776 | $ | 962 | ||||||
2033 Notes | ||||||||||||
December 31, 2018 | $ | 40,000,000 | $ | 48,330 | $ | 934 | ||||||
2017 Asset-Backed Notes | ||||||||||||
December 31, 2012 | $ | 129,300,000 | $ | 8,691 | $ | 1,000 | ||||||
December 31, 2013 | $ | 89,556,972 | $ | 13,642 | $ | 1,004 | ||||||
December 31, 2014 | $ | 16,049,144 | $ | 80,953 | $ | 1,375 | ||||||
December 31, 2015 | — | — | — | |||||||||
2021 Asset-Backed Notes | ||||||||||||
December 31, 2014 | $ | 129,300,000 | $ | 10,048 | $ | 1,000 | ||||||
December 31, 2015 | $ | 129,300,000 | $ | 10,190 | $ | 996 | ||||||
December 31, 2016 | $ | 109,205,263 | $ | 13,330 | $ | 1,002 | ||||||
December 31, 2017 | $ | 49,152,504 | $ | 33,372 | $ | 1,001 | ||||||
December 31, 2018 | — | — | — | |||||||||
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Class and Year | Total Amount Outstanding Exclusive of Treasury Securities(1) | Asset Coverage per Unit(2) | Average Market Value per Unit(3) | |||||||||
2027 Asset-Backed Notes | ||||||||||||
December 31, 2018 | $ | 200,000,000 | $ | 9,666 | $ | 1,006 | ||||||
2022 Convertible Notes | ||||||||||||
December 31, 2017 | $ | 230,000,000 | $ | 7,132 | $ | 1,028 | ||||||
December 31, 2018 | $ | 230,000,000 | $ | 8,405 | $ | 946 | ||||||
Total Senior Securities(7) | ||||||||||||
December 31, 2009 | $ | 130,600,000 | $ | 3,806 | N/A | |||||||
December 31, 2010 | $ | 170,000,000 | $ | 3,478 | N/A | |||||||
December 31, 2011 | $ | 310,186,830 | $ | 2,409 | N/A | |||||||
December 31, 2012 | $ | 599,664,500 | $ | 1,874 | N/A | |||||||
December 31, 2013 | $ | 559,921,472 | $ | 2,182 | N/A | |||||||
December 31, 2014 | $ | 626,587,644 | $ | 2,073 | N/A | |||||||
December 31, 2015 | $ | 600,468,500 | $ | 2,194 | N/A | |||||||
December 31, 2016 | $ | 667,658,558 | $ | 2,180 | N/A | |||||||
December 31, 2017 | $ | 802,862,104 | $ | 2,043 | N/A | |||||||
December 31, 2018 | $ | 980,465,192 | $ | 1,972 | N/A | |||||||
| (1) | Total amount of each class of senior securities outstanding at the end of the period presented. |
| (2) | The asset coverage ratio for a class of senior securities representing indebtedness is calculated as our consolidated total assets, less all liabilities and indebtedness not represented by senior securities, including senior securities not subject to asset coverage requirements under the 1940 Act due to exemptive relief from the SEC, divided by senior securities representing indebtedness. This asset coverage ratio is multiplied by $1,000 to determine the Asset Coverage per Unit. |
| (3) | Not applicable because senior securities are not registered for public trading. |
| (4) | Issued by Hercules Technology II, L.P., or HT II, one of our prior SBIC subsidiaries, to the SBA. On July 13, 2018, we completed repayment of the remaining outstanding HT II debentures and subsequently surrendered the SBA license with respect to HT II. These categories of senior securities were not subject to the asset coverage requirements of the 1940 Act as a result of exemptive relief granted to us by the SEC. |
| (5) | Issued by Hercules Technology III, L.P., or HT III, our SBIC subsidiary, to the SBA. These categories of senior securities were not subject to the asset coverage requirements of the 1940 Act as a result of exemptive relief granted to us by the SEC. |
| (6) | The Company’s Wells Facility and Union Bank Facility had no borrowings outstanding during the periods noted above. |
| (7) | The total senior securities and Asset Coverage per Unit shown for those securities do not represent the asset coverage ratio requirement under the 1940 Act because the presentation includes senior securities not subject to the asset coverage requirements of the 1940 Act as a result of exemptive relief granted to us by the SEC. As of December 31, 2018, our asset coverage ratio under our regulatory requirements as a BDC was 214.6% excluding our SBA debentures as a result of our exemptive order from the SEC which allows us to exclude all SBA leverage from our asset coverage ratio. |
38
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a general summary of certain material U.S. federal income tax considerations relating to our qualification and taxation as a RIC and the acquisition, ownership and disposition of our preferred stock or common stock, but does not purport to be a complete description of the income tax considerations relating thereto. Except as otherwise noted, this discussion assumes you are a taxable U.S. person (as defined for U.S. federal income tax purposes) and that you hold your shares of our stock as capital assets for U.S. federal income tax purposes (generally, assets held for investment). This discussion is based upon current provisions of the Code, the regulations promulgated thereunder and judicial and administrative authorities, all of which are subject to change or differing interpretations by the courts or the Internal Revenue Services, or the IRS, possibly with retroactive effect. No attempt is made to present a detailed explanation of all U.S. federal income tax concerns affecting us and our shareholders (including shareholders subject to special rules under U.S. federal income tax law).
The discussions set forth herein do not constitute tax advice. We have not sought and will not seek any ruling from the IRS regarding any matters discussed herein. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to those set forth below. This summary does not discuss any aspects of foreign, state or local tax. Prospective investors must consult their own tax advisers as to the U.S. federal income tax consequences (including the alternative minimum tax consequences) of acquiring, holding and disposing of shares of our stock, as well as the effects of state, local and non-U.S. tax laws.
Election to be Subject to Tax as a RIC
Through December 31, 2005, we were subject to U.S. federal income tax as an ordinary corporation under Subchapter C of the Code. Effective beginning on January 1, 2006 we met the criteria specified below to qualify as a RIC, and elected to be treated as a RIC under Subchapter M of the Code with the filing of our U.S. federal income tax return for 2006. To qualify for treatment as a RIC we must, among other things, meet certain source of income and asset diversification requirements (as described below). In addition, we must distribute to our stockholders, in respect of each taxable year, dividends for U.S. federal income tax purposes of an amount generally at least equal to 90% of our “investment company taxable income,” which is generally equal to the sum of our net ordinary income plus the excess of our realized net short-term capital gains over our realized net long-term capital losses, determined without regard to any deduction for distributions paid, or the Annual Distribution Requirement. Upon satisfying these requirements in respect of a taxable year, we generally will not be subject to corporate taxes on any income we distribute to our stockholders as dividends for U.S. federal income tax purposes, which will allow us to reduce or eliminate our liability for corporate-level income tax.
On December 31, 2005, immediately before the effective date of our RIC election, we held assets with “built-in gains,” which are assets whose fair market value as of the effective date of the election exceeded their tax basis as of such date. We elected to recognize all of our net built-in gains on such assets at the time of the conversion and paid tax on the built-in gain with the filing of our 2005 U.S. federal income tax return. In making this election, we marked our portfolio investments and other assets to market at the time of our RIC election and paid approximately $294,000 in income tax on the resulting gains.
Taxation as a Regulated Investment Company
For any taxable year in which we:
| • | qualify as a RIC; and |
| • | distribute dividends for U.S. federal income tax purposes to our shareholders of an amount at least equal to the Annual Distribution Requirement; |
39
We generally will not be subject to U.S. federal income tax on the portion of our investment company taxable income and net capital gain (i.e., net realized long-term capital gains in excess of net realized short-term capital losses) we distribute (or are deemed to distribute) as dividends for U.S. federal income tax purposes to stockholders with respect to that taxable year.
As described above, we made the election to recognize built-in gains as of the effective date of our election to be treated as a RIC and therefore were not subject to built-in gains tax when we sold those assets. However, if we subsequently acquire built-in gain assets from a C corporation in a carryover basis transaction, then we may be subject to tax on the gains recognized by us on dispositions of such assets unless we make a special election to pay corporate-level tax on such built-in gain at the time the assets are acquired. We will be subject to U.S. federal income tax at the regular corporate rates on any income or capital gains not distributed (or deemed distributed) as dividends for U.S. federal income tax purposes to our stockholders.
In order to qualify as a RIC for U.S. federal income tax purposes and obtain the tax benefits of RIC status, in addition to satisfying the Annual Distribution Requirement, we must, among other things:
| • | have in effect at all times during each taxable year an election to be regulated as a BDC under the 1940 Act; |
| • | derive in each taxable year at least 90% of our gross income from (a) dividends, interest, payments with respect to certain securities loans, gains from the sale of stock or other securities, or other income derived with respect to our business of investing in such stock or securities and (b) net income derived from an interest in a “qualified publicly-traded partnership”, or the 90% Income Test; |
| • | diversify our holdings so that at the end of each quarter of the taxable year: |
| • | at the close of each quarter of each taxable year, at least 50% of the value of our assets consists of cash, cash equivalents, U.S. government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of such issuer; and |
| • | at the close of each quarter of each taxable year, no more than 25% of the value of our assets is invested in (i) securities (other than U.S. government securities or securities of other RICs) of one issuer, (ii) securities of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same or similar or related trades or businesses or (iii) securities of one or more “qualified publicly-traded partnerships”, or the Diversification Tests. |
We may invest in partnerships which may result in our being subject to state, local or foreign income, franchise or other tax liabilities. In addition, some of the income and fees that we may recognize will not be qualifying income under the 90% Income Test. In order to mitigate the risk that such income and fees would disqualify us as a RIC as a result of a failure to satisfy the 90% Income Test, we may be required to recognize such income and fees indirectly through one or more entities classified as corporations for U.S. federal income tax purposes. Such corporations generally will be subject to corporate income taxes on their earnings, which ultimately will reduce our return on such income and fees.
As a RIC, we will be subject to a 4% nondeductible U.S. federal excise tax on certain undistributed income and gains unless we make distributions treated as dividends for U.S. federal income tax purposes in a timely manner to our stockholders in respect of each calendar year of an amount at least equal to the sum of (1) 98% of our ordinary income (taking into account deferrals and elections) for each calendar year, (2) 98.2% of our capital gain net income (adjusted for certain ordinary losses) for the 1-year period ending October 31 of each such calendar year and (3) any ordinary income and capital gain net income realized, but not distributed, in preceding calendar years, or the Excise Tax Avoidance Requirement. We are not subject to this excise tax on any amount on which we incurred U.S. federal corporate income tax (such as the tax imposed on a RIC’s retained net capital gains).
40
Depending on the level of taxable income earned in a taxable year, we may choose to carry over taxable income in excess of current taxable year distributions treated as dividends for U.S. federal income tax purposes from such taxable income into the next taxable year and incur a 4% excise tax on such taxable income, as required. The maximum amount of excess taxable income that may be carried over for distribution in the next taxable year under the Code is the total amount of distributions treated as dividends for U.S. federal income tax purposes paid in the following taxable year, subject to certain declaration and payment guidelines. To the extent we choose to carry over taxable income into the next taxable year, distributions declared and paid by us in a taxable year may differ from our taxable income for that taxable year as such distributions may include the distribution of current taxable year taxable income, the distribution of prior taxable year taxable income carried over into and distributed in the current taxable year, or returns of capital.
Under applicable Treasury regulations and other administrative guidance issued by the IRS, we are permitted to treat certain distributions payable in our stock as taxable distributions that will satisfy the Annual Distribution Requirement as well as the Excise Tax Avoidance Requirement provided that shareholders have the opportunity to elect to receive the distribution in cash. Taxable stockholders receiving such distributions will be required to include the full amount of such distributions as ordinary income (or as long-term capital gain to the extent such distribution is properly reported as a capital gain dividend) to the extent of our current and accumulated earnings and profits for U.S. federal income tax purposes. As a result, a U.S. stockholder may be subject to tax with respect to such distributions in excess of any cash received. If a U.S. stockholder sells the stock it receives as a distribution in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the distribution, depending on the market price of our stock at the time of the sale. Furthermore, with respect to non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such distributions, including in respect of all or a portion of such distribution that is payable in stock. In addition, if a significant number of our stockholders determine to sell shares of our stock in order to pay taxes owed on distributions, then such sales may put downward pressure on the trading price of our stock. We may in the future determine to make taxable distributions that are payable in part in our common stock.
We may be required to recognize taxable income in circumstances in which we do not receive a corresponding payment in cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount, or OID, (such as debt instruments with payment-in-kind, or PIK, interest provisions or, in certain cases, increasing interest rates or debt instruments that were issued with warrants), we must include in income each taxable year a portion of the OID that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. Because any OID accrued is generally required to be included in our investment company taxable income for the taxable year of accrual, we may be required to make a distribution to our stockholders in order to satisfy the Annual Distribution Requirement and the Excise Tax Avoidance Requirement, even though we will not have received any corresponding cash amount.
Gain or loss realized by us from the sale or exchange of warrants acquired by us as well as any loss attributable to the lapse of such warrants generally will be treated as capital gain or loss. Such gain or loss generally will be long-term or short-term, depending on how long we held a particular warrant.
We are authorized to borrow funds and to sell assets in order to satisfy the Annual Distribution Requirement and the Excise Tax Avoidance Requirement, or collectively, the Distribution Requirements. However, under the 1940 Act, we are not permitted to make distributions to our stockholders while our debt obligations and other senior securities are outstanding unless certain “asset coverage” tests are met. We may be restricted from making distributions under the terms of our debt obligations themselves unless certain conditions are satisfied. Moreover, our ability to dispose of assets to meet the Distribution Requirements may be limited by (1) the illiquid nature of our portfolio, or (2) other requirements relating to our status as a RIC, including the Diversification Tests. If we dispose of assets in order to meet the Distribution Requirements, we may make such dispositions at times that, from an investment standpoint, are not advantageous. If we are prohibited from making distributions or are unable to obtain cash from other sources to make the distributions, we may fail to be subject to tax as a RIC, which would result in us becoming subject to corporate-level income taxes.
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In addition, we will be partially dependent on our SBIC subsidiaries for cash distributions to enable us to meet the RIC Distribution Requirements. Our SBIC subsidiaries may be limited by the Small Business Investment Act of 1958, as amended, and SBA regulations governing SBICs, from making certain distributions to us that may be necessary to maintain our status as a RIC. We may have to request a waiver of the SBA’s restrictions for our SBIC subsidiaries to make certain distributions to maintain our RIC status. We cannot assure you that the SBA will grant such waiver. If our SBIC subsidiaries are unable to obtain a waiver, compliance with the SBA regulations may cause us to fail to be subject to tax as a RIC, which would result in us becoming subject to corporate-level income taxes.
Certain of our investment practices are subject to special and complex U.S. federal income tax provisions that may, among other things, (i) convert distributions that would otherwise constitute qualified dividend income into ordinary income, (ii) treat distributions that would otherwise be eligible for deductions available to certain U.S. corporations under the Code as ineligible for such treatment, (iii) disallow, suspend or otherwise limit the allowance of certain losses or deductions, (iv) convert long-term capital gains into short-term capital gains or ordinary income, (v) convert short-term capital losses into long-term capital losses, (vi) convert an ordinary loss or deduction into a capital loss (the deductibility of which is more limited), (vii) cause us to recognize income or gain without a corresponding receipt of cash, (viii) adversely alter the characterization of certain complex financial transactions, and (ix) produce gross income that will not constitute qualifying gross income for purposes of the 90% Income Test. These rules also could affect the amount, timing and character of distributions to stockholders.
A RIC is limited in its ability to deduct expenses in excess of its “investment company taxable income.” If our otherwise deductible expenses in a given taxable year exceed our ordinary taxable gross income (e.g., as the result of large amounts of equity-based compensation), we would incur a net operating loss for that taxable year. However, a RIC is not permitted to carry back or carry forward net operating losses, respectively, to prior and subsequent taxable years, and such net operating losses do not pass through to the RIC’s stockholders. In addition, deductible expenses can be used only to offset investment company taxable income, not net capital gain. A RIC may not use any net capital losses (that is, realized capital losses in excess of realized capital gains) to offset the RIC’s investment company taxable income, but may carry forward such net capital losses, and generally use them to offset capital gains indefinitely. Due to these limits on the deductibility of expenses and net capital losses, we may for tax purposes have aggregate taxable income for several taxable years that we are required to distribute and that is taxable to our stockholders even if such taxable income is greater than the aggregate net income we actually earned during those taxable years. Such required distributions may be made from our cash assets or by liquidation of investments, if necessary. We may realize gains or losses from such liquidations. In the event we realize net capital gains from such transactions, you may receive a larger capital gain distribution than you would have received in the absence of such transactions.
Investment income received from sources within foreign countries, or capital gains earned by investing in securities of foreign issuers, may be subject to foreign income taxes withheld at the source. In this regard, withholding tax rates in countries with which the United States does not have a tax treaty are often as high as 35% or more. The United States has entered into tax treaties with many foreign countries that may entitle us to a reduced rate of tax or exemption from tax on this related income and gains. The effective rate of foreign tax cannot be determined at this time since the amount of our assets to be invested within various countries is not now known. We do not anticipate being eligible for the special election that allows a RIC to treat foreign income taxes paid by such RIC as having been paid by its shareholders.
If we acquire the equity securities of certain foreign corporations that earn at least 75% of their annual gross income from passive sources (such as interest, dividends, rents, royalties or capital gain) or hold at least 50% of their total assets in investments producing such passive income (“passive foreign investment companies” or “PFICs”), we could be subject to U.S. federal income tax and additional interest charges on “excess distributions” received from such companies or gain from the sale of stock in such companies, even if all income or gain actually received by us is timely distributed to our shareholders to the extent that such income or gain is
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attributable to our ownership of PFIC stock in a prior taxable year. We would not be able to pass through to our shareholders any credit or deduction for such a tax. Certain elections may, if available, ameliorate these adverse tax consequences, but any such election could require us to recognize taxable income or gain without the concurrent receipt of cash. We intend to limit and/or manage our holdings in PFICs to minimize our liability for any such taxes and related interest charges.
If we hold greater than 10% of the interests treated as equity for U.S. federal income tax purposes in a foreign corporation that is treated as a controlled foreign corporation, or CFC, we may be treated as receiving a deemed distribution (taxable as ordinary income) each taxable year from such foreign corporation in an amount equal to our pro rata share of the corporation’s income for such taxable year (including both ordinary earnings and capital gains), whether or not the corporation makes an actual distribution during such taxable year. We would be required to include the amount of a deemed distribution from a CFC when computing our investment company taxable income as well as in determining whether we satisfy the distribution requirements applicable to RICs, even to the extent the amount of our income deemed recognized from the CFC exceeds the amount of any actual distributions from the CFC and our proceeds from any sales or other dispositions of CFC stock during a taxable year. In general, a foreign corporation will be considered a CFC if greater than 50% of the shares of the corporation, measured by reference to combined voting power or value, is owned (directly, indirectly or by attribution) by U.S. Shareholders. A “U.S. Shareholder,” for this purpose, is any U.S. person that possesses (actually or constructively) 10% or more of the combined voting power or value of all classes of shares of a foreign corporation. Furthermore, under recent Treasury Regulations, certain income derived by us from a CFC would generally constitute qualifying income for purposes of determining our ability to be subject to tax as a RIC if the CFC makes distributions of that income to us in the same year of the CFC in which we are treated as having received a deemed distribution of such income or if the deemed income was related to our business of investing in stock or securities. As such, we may limit and/or manage our holdings in issuers that could be treated as CFCs in order to limit our tax liability or maximize our after-tax return from these investments.
Our functional currency, for U.S. federal income tax purposes, is the U.S. dollar. Under the Code, foreign exchange gains and losses realized by us in connection with certain transactions involving foreign currencies, or payables or receivables denominated in a foreign currency, as well as certain non-U.S. dollar denominated debt securities, certain foreign currency futures contracts, foreign currency option contracts, foreign currency forward contracts, and similar financial instruments are subject to Code provisions that generally treat such gains and losses as ordinary income and losses and may affect the amount, timing and character of distributions to our stockholders. Any such transactions that are not directly related to our investment in securities (possibly including speculative currency positions or currency derivatives not used for hedging purposes) also could, under future Treasury regulations, produce income not among the types of “qualifying income” from which a RIC must derive at least 90% of its annual gross income.
Taxation of U.S. Stockholders
A “U.S. stockholder” generally is a beneficial owner of shares of our common stock who is for U.S. federal income tax purposes:
| • | a citizen or individual resident of the United States including an alien individual who is a lawful permanent resident of the United States or meets the “substantial presence” test under Section 7701(b) of the Code; |
| • | a corporation or other entity taxable as a corporation, for U.S. federal income tax purposes, created or organized in or under the laws of the United States or any political subdivision thereof; |
| • | a trust if (1) a court in the United States has primary supervision over its administration and one or more U.S. persons has the authority to control all substantial decisions of such trust or (2) if such trust validly elects to be treated as a U.S. person for U.S. federal income tax purposes; or |
| • | an estate, the income of which is subject to U.S. federal income taxation regardless of its source. |
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For U.S. federal income tax purposes, distributions by us generally are taxable to U.S. stockholders as ordinary income or capital gains. Distributions of our “investment company taxable income” (which is, generally, our ordinary income plus net realized short-term capital gains in excess of net realized long-term capital losses) will be taxable as ordinary income to U.S. stockholders to the extent of our current or accumulated earnings and profits, whether paid in cash or reinvested in additional common stock. To the extent such distributions are attributable to dividends from certain U.S. corporations and certain qualified foreign corporations, such distributions may be reported by us as “qualified dividend income” eligible to be taxed in the hands of U.S. non-corporate stockholders (including individuals) at the rates applicable to long-term capital gains, provided certain holding period and other requirements are met at both the stockholder and corporate levels. In this regard, it is anticipated that distributions paid by us generally will not be attributable to dividends and, therefore, generally will not be qualified dividend income. Distributions of our net capital gains (which is generally our realized net long-term capital gains in excess of realized net short-term capital losses) properly reported by us as “capital gain dividends” will be taxable to a U.S. stockholder as long-term capital gains (currently at a maximum rate of 20%, in the case of individuals, trusts or estates), regardless of the U.S. stockholder’s holding period for his, her or its common stock and regardless of whether paid in cash or reinvested in additional common stock. Provided that certain holding period and other requirements are met, ordinary income dividends (if properly reported by us) may qualify (i) for the dividends received deduction available to certain corporations, but only to the extent that our income consists of certain qualifying dividend income from U.S. corporations and (ii) in the case of U.S. noncorporate stockholders, as qualified dividend income eligible to be taxed at long-term capital gain rates to the extent that we earn qualified dividend income (generally, dividend income from taxable U.S. resident corporations and certain qualified foreign corporations). There can be no assurance as to what portion of our distributions will be eligible for the corporate dividends received deduction or for the reduced rates applicable to qualified dividend income. Distributions in excess of our current and accumulated earnings and profits first will reduce a U.S. stockholder’s adjusted tax basis in such stockholder’s common stock and, after the adjusted basis is reduced to zero, will constitute capital gains to such U.S. stockholder.
We currently intend to retain some or all of our realized net long-term capital gains in excess of realized net short-term capital losses. In that case, among other consequences, we will pay tax on the retained amount, each U.S. stockholder will be required to include his, her or its share of the deemed distribution in income as if it had been actually distributed to the U.S. stockholder, and the U.S. stockholder will be entitled to claim a tax credit equal to his, her or its allocable share of the tax paid thereon by us. Since we expect to pay tax on any retained net capital gains at our regular corporate tax rate, and since that rate is in excess of the maximum rate currently payable by non-corporate stockholders on long-term capital gains, the amount of tax that non-corporate stockholders will be treated as having paid and for which they will receive a credit will exceed the tax they owe on the retained net capital gain. Such excess generally may be claimed as a credit against the U.S. stockholder’s other U.S. federal income tax obligations or may be refunded to the extent it exceeds a stockholder’s liability for U.S. federal income tax. A stockholder that is not subject to U.S. federal income tax or otherwise required to file a U.S. federal income tax return would be required to file a U.S. federal income tax return on the appropriate form in order to claim a refund for the taxes we paid. For U.S. federal income tax purposes, the tax basis of shares owned by a U.S. stockholder will be increased by an amount equal under current law to the difference between the amount of undistributed capital gains included in the U.S. stockholder’s gross income and the tax deemed paid by the U.S. stockholder as described in this paragraph. In order to utilize the deemed distribution approach, we must provide written notice to our stockholders prior to the expiration of 60 days after the close of the relevant taxable year. We cannot treat any of our investment company taxable income as a “deemed distribution.”
Under applicable Treasury regulations and certain administrative guidance issued by the IRS, RICs are permitted to treat certain distributions payable in part in shares of their stock, as taxable dividends that will satisfy their Distribution Requirements provided that shareholders have the opportunity to elect to receive the distribution in cash. Taxable stockholders receiving such dividends will be required to include the full amount of the dividend as ordinary income (or as long-term capital gain to the extent such distribution is properly reported
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as a capital gain dividend) to the extent of our current and accumulated earnings and profits for U.S. federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to such dividends in excess of any cash received. If a U.S. stockholder sells the stock it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale. Furthermore, with respect to non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. In addition, if a significant number of our stockholders determine to sell shares of our stock in order to pay taxes owed on dividends, then such sales may put downward pressure on the trading price of our stock. We previously determined to pay a portion of our first quarter 2009 dividend in shares of newly issued common stock, and we may in the future determine to distribute taxable dividends that are payable in part in our common stock.
For purposes of determining (1) whether the Annual Distribution Requirement is satisfied for any taxable year and (2) the amount of the deduction for ordinary income and capital gain dividends paid for that taxable year, we may, under certain circumstances, elect to treat a dividend that is paid during the following taxable year as if it had been paid during the taxable year in question. If we make such an election, the U.S. stockholder will still be treated as receiving the dividend in the taxable year in which the distribution is made. However, any dividend declared by us in October, November or December of any calendar year, payable to stockholders of record on a specified date in such a month and actually paid during January of the following calendar year, will be treated as if it had been received by our U.S. stockholders on December 31 of the calendar year in which the dividend was declared.
If an investor acquires shares of our common stock shortly before the record date of a distribution, the price of the shares will include the value of the distribution and the investor will be subject to tax on the distribution even though economically it may represent a return of his, her or its investment.
A U.S. stockholder generally will recognize taxable gain or loss if the U.S. stockholder sells or otherwise disposes of his, her or its shares of our common stock. Any gain arising from such sale or disposition generally will be treated as long-term capital gain or loss if the U.S. stockholder has held his, her or its shares for more than one year. Otherwise, it will be classified as short-term capital gain or loss. However, any capital loss arising from the sale or disposition of shares of our common stock held for six months or less will be treated as long-term capital loss to the extent of the amount of capital gain dividends received, or undistributed capital gain deemed received, with respect to such shares. In addition, all or a portion of any loss recognized upon a disposition of shares of our common stock may be disallowed if other shares of our common stock are purchased (whether through reinvestment of distributions or otherwise) within 30 days before or after the disposition. In such a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss. Reporting of adjusted cost basis information is required for covered securities, which generally include shares of a RIC acquired after January 1, 2012, to the IRS and to taxpayers. Stockholders should contact their intermediaries with respect to reporting of cost basis and available elections for their accounts.
If a Stockholder recognizes losses with respect to Shares of $2 million or more for an individual Stockholder or $10 million or more for a corporate Stockholder, the Treasury Regulations require the Stockholder to file a disclosure statement with the IRS on IRS Form 8886. Direct Stockholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, stockholders of a RIC are not excepted. Future guidance may extend the current exception from this reporting requirement to stockholders of most or all RICs. The fact that a loss is reportable under these Treasury Regulations does not affect the legal determination of whether the taxpayer’s treatment of the loss is proper. Stockholders should consult their tax advisors to determine the applicability of these regulations in light of their individual circumstances.
In general, individual U.S. stockholders currently are subject to a reduced maximum U.S. federal income tax rate of 20% on their net capital gain (i.e., the excess of realized net long-term capital gain over realized net short-
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term capital loss for a taxable year) including any long-term capital gain derived from an investment in our shares. Such rate is lower than the maximum rate on ordinary income currently payable by individuals. In addition, individuals with income in excess of certain threshold amounts and certain estates and trusts are subject to an additional 3.8% tax on their “net investment income,” which generally includes net income from interest, dividends, annuities, royalties, and rents, and net capital gains (other than certain amounts earned from trades or businesses). Corporate U.S. stockholders currently are subject to U.S. federal income tax on net capital gain at the maximum 21% rate also applied to ordinary income. Non-corporate U.S. stockholders with net capital losses for a taxable year (i.e., capital losses in excess of capital gains) generally may deduct up to $3,000 of such losses against their ordinary income each taxable year; any net capital losses of a non-corporate stockholder in excess of $3,000 generally may be carried forward and used in subsequent taxable years as provided in the Code. Corporate U.S. stockholders generally may not deduct any net capital losses for a taxable year, but may carry back such losses for three taxable years or carry forward such losses for five taxable years.
We or the applicable withholding agent will send to each of our U.S. stockholders, as promptly as possible after the end of each calendar year, a notice reporting the amounts includible in such U.S. stockholder’s taxable income for such calendar year as ordinary income and as long-term capital gain. In addition, the U.S. federal tax status of each calendar year’s distributions generally will be reported to the IRS (including the amount of dividends, if any, eligible for the 20% “qualified dividend income” rate). Distributions may also be subject to additional state, local, and foreign taxes depending on a U.S. stockholder’s particular situation. Dividends distributed by us generally will not be eligible for the corporate dividends-received deduction or the preferential rate applicable to “qualified dividend income.” The Code requires reporting of adjusted cost basis information for covered securities, which generally include shares of our stock, acquired after January 1, 2012, to the IRS and to taxpayers. U.S. stockholders should contact their financial intermediaries with respect to reporting of cost basis and available elections for their accounts.
We or the applicable withholding agent may be required to withhold U.S. federal income tax (“backup withholding”) from all distributions to any non-corporate U.S. stockholder (1) who fails to furnish us with a correct taxpayer identification number or a certificate that such stockholder is exempt from backup withholding, or (2) with respect to whom the IRS notifies us or the applicable withholding agent that such stockholder has failed to properly report certain interest and dividend income to the IRS and to respond to notices to that effect. An individual’s taxpayer identification number is his or her social security number. Any amount withheld under backup withholding is allowed as a credit against the U.S. stockholder’s U.S. federal income tax liability, provided that proper information is timely provided to the IRS. The backup withholding rate is currently 24%.
Dividend Reinvestment Plan We have adopted a dividend reinvestment plan through which all distributions are paid to our common stockholders in the form of additional shares of our common stock, unless a stockholder elects to receive cash in accordance with the terms of the plan. See “Dividend Reinvestment Plan.” Any distributions made to a U.S. stockholder that are reinvested under the plan will nevertheless remain generally taxable to the U.S. stockholder. The U.S. stockholder will have an adjusted tax basis in the additional shares of our common stock purchased through the plan equal to the amount of the reinvested distribution. The additional shares will have a new holding period commencing on the day following the day on which the shares are credited to the U.S. stockholder’s account.
Taxation of Non-U.S. Stockholders
A “Non-U.S. stockholder” is a beneficial owner of shares of our common stock that is not a U.S. stockholder or a partnership (including an entity treated as a partnership) for U.S. federal income tax purposes.
Whether an investment in our shares is appropriate for a Non-U.S. stockholder will depend upon that person’s particular circumstances. An investment in the shares by a Non-U.S. stockholder may have adverse tax consequences. Non-U.S. stockholders should consult their tax advisors before investing in our common stock.
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Distributions (other than certain distributions derived from net long-term capital gains) paid by us to a Non-U.S. stockholder are generally subject to U.S. federal withholding tax at a rate of 30% (or lower applicable treaty rate) even if they are funded by income or gains (such as portfolio interest, short-term capital gains, or foreign-source dividend and interest income) that, if paid to a Non-U.S. stockholder directly, would not be subject to withholding. If the distributions are effectively connected with a U.S. trade or business of the Non-U.S. stockholder (and, if an income tax treaty applies, attributable to a permanent establishment maintained by the Non-U.S. stockholder in the United States), we will not be required to withhold tax if the Non-U.S. stockholder complies with applicable certification and disclosure requirements, although the distributions will be subject to U.S. federal income tax at the rates applicable to U.S. stockholders. (Special certification requirements apply to a Non-U.S. stockholder that is a foreign partnership or a foreign trust, and such entities are urged to consult their own tax advisors.)
However, no withholding is required with respect to certain distributions if (i) the distributions are properly reported to our stockholders as “interest-related dividends” or “short-term capital gain dividends” in written statements to our stockholders, (ii) the distributions are derived from sources specified in the Code for such dividends and (iii) certain other requirements are satisfied. No assurance can be given as to whether any of our distributions will be eligible for this exemption from withholding of U.S. federal income tax or, if eligible, will be reported as such by us. In particular, this exemption will not apply to our distributions paid in respect of our non-U.S. source interest income or our dividend income (or any other type of income other than generally our non-contingent U.S.-source interest income received from unrelated obligors and our qualified short-term capital gains). In the case of shares of our stock held through an intermediary, the intermediary may withhold even if we report all or a portion of any of our distributions as “interest-related dividends” or “short-term capital gain dividends.” Non-U.S. stockholders should contact their intermediaries with respect to the application of these rules to their accounts. No assurance can be provided as to whether any amount of our distributions will be eligible for this exemption from withholding or if eligible, will be reported as such by us.
Actual or deemed distributions of our net capital gains to a Non-U.S. stockholder, and gains realized by a Non-U.S. stockholder upon the sale of our common stock, will not be subject to U.S. federal withholding tax and generally will not be subject to U.S. federal income tax unless the distributions or gains, as the case may be, are effectively connected with a U.S. trade or business of the Non-U.S. stockholder (and, if an income tax treaty applies, are attributable to a permanent establishment maintained by the Non-U.S. stockholder in the United States), or in the case of an individual stockholder, the stockholder is present in the United States for a period or periods aggregating 183 days or more during the year of the sale or capital gain dividend and certain other conditions are met.
If we distribute our net capital gains in the form of deemed rather than actual distributions, a Non-U.S. stockholder will be entitled to a federal income tax credit or tax refund equal to the stockholder’s allocable share of the tax we pay on the capital gains deemed to have been distributed. In order to obtain the refund, the Non-U.S. stockholder must obtain a U.S. taxpayer identification number and file a U.S. federal income tax return even if the Non-U.S. stockholder would not otherwise be required to obtain a U.S. taxpayer identification number or file a U.S. federal income tax return. For a corporate Non-U.S. stockholder, distributions (both actual and deemed), and gains realized upon the sale of our common stock that are effectively connected to a U.S. trade or business may, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate (or at a lower rate if provided for by an applicable treaty). Accordingly, investment in the shares may not be appropriate for a Non-U.S. stockholder.
A Non-U.S. stockholder who is a non-resident alien individual, and who is not otherwise subject to withholding of U.S. federal income tax, may be subject to information reporting and backup withholding of U.S. federal income tax on dividends unless the Non-U.S. stockholder provides us or the dividend paying agent with an IRS Form W-8BEN or IRS Form W-8BEN-E, (or an acceptable substitute or successor form) or otherwise meets documentary evidence requirements for establishing that it is a Non-U.S. stockholder or otherwise establishes an exemption from backup withholding.
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The “Foreign Account Tax Compliance Act,” or “FATCA,” provisions of the Code, generally imposes a 30% withholding tax on payments of certain types of income to foreign financial institutions that fail to enter into an agreement with the U.S. Treasury to report certain required information with respect to accounts held by U.S. persons (or held by foreign entities that have U.S. persons as substantial owners). The types of income subject to the tax include U.S. source interest and dividends and the gross proceeds from the sale of any property that could produce U.S.-source interest or dividends paid after December 31, 2018. The information required to be reported includes the identity and taxpayer identification number of each account holder that is a U.S. person and transaction activity within the holder’s account. In addition, subject to certain exceptions, this legislation also imposes a 30% withholding on payments to foreign entities that are not financial institutions unless the foreign entity certifies that it does not have a greater than 10% U.S. owner or provides the withholding agent with identifying information on each greater than 10% U.S. owner. Depending on the status of a Non-U.S. Holder and the status of the intermediaries through which they hold their shares, Non-U.S. Holders could be subject to this 30% withholding tax with respect to distributions on their shares and proceeds from the sale of their shares. Under certain circumstances, a Non-U.S. Holders might be eligible for refunds or credits of such taxes.
Non-U.S. persons should consult their own tax advisors with respect to the U.S. federal income tax and withholding tax, and state, local and foreign tax consequences of an investment in the shares.
Failure to Qualify as a Regulated Investment Company
If we fail to satisfy the 90% Income Test or the Diversification Tests for any taxable year, we may nevertheless continue to qualify as a RIC for such taxable year if certain relief provisions are applicable (which may, among other things, require us to pay certain corporate-level federal taxes or to dispose of certain assets).
If we were unable to qualify for treatment as a RIC and the foregoing relief provisions are not applicable, we would be subject to tax on all of our taxable income at regular corporate rates. We would not be able to deduct distributions to stockholders, nor would they be required to be made. Such distributions would be taxable to our stockholders and provided certain holding period and other requirements were met, could qualify for treatment as “qualified dividend income” eligible for the 20% maximum U.S. federal income tax rate if earned by certain U.S. resident non-corporate stockholders to the extent of our current and accumulated earnings and profits. Subject to certain limitations under the Code, corporate distributions generally would be eligible for the dividends-received deduction with respect to distributions current and accumulated earnings and profits if earned by certain U.S. resident corporate stockholders. Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of the stockholder’s tax basis, and any remaining distributions would be treated as a capital gain. To requalify as a RIC in a subsequent taxable year, we would be required to satisfy the RIC qualification requirements for that taxable year and dispose of any earnings and profits from any taxable year in which we failed to qualify as a RIC. Subject to a limited exception applicable to a corporation that qualified as a RIC under Subchapter M of the Code for at least one taxable year prior to disqualification and that requalify as a RIC no later than the second taxable year following the nonqualifying taxable year, we also could be subject to tax on any unrealized net built-in gains in the assets held by us during the period in which we failed to qualify as a RIC that are recognized within the subsequent five taxable years, unless we made a special election to incur a corporate-level income tax on such built-in gain at the time of our requalification as a RIC.
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SALES OF COMMON STOCK BELOW NET ASSET VALUE
We are not generally able to issue and sell our common stock at a price below NAV per share. We may, however, sell our common stock, at a price below the current NAV of the common stock, or sell warrants, options or other rights to acquire such common stock, at a price below the current NAV of the common stock if our Board of Directors determines that such sale is in our best interests and the best interests of our stockholders and our stockholders have approved the practice of making such sales. In connection with the receipt of such stockholder approval, we will agree to limit the number of shares that we issue at a price below NAV pursuant to this authorization so that the aggregate dilutive effect on our then outstanding shares will not exceed 20%. Our Board of Directors, subject to its fiduciary duties and regulatory requirements, has the discretion to determine the amount of the discount, and as a result, the discount could be up to 100% of NAV per share.
In order to sell shares pursuant to this authorization:
| • | a majority of our independent directors who have no financial interest in the sale must have approved the sale; and |
| • | a majority of such directors, who are not interested persons of the Company, in consultation with the underwriter or underwriters of the offering if it is to be underwritten, must have determined in good faith, and as of a time immediately prior to the first solicitation by us or on our behalf of firm commitments to purchase such shares or immediately prior to the issuance of such shares, that the price at which such shares are to be sold is not less than a price which closely approximates the market value of those shares, less any underwriting commission or discount; and |
Any offering of common stock below NAV per share will be designed to raise capital for investment in accordance with our investment objectives and business strategies.
In making a determination that an offering below NAV per share is in our and our stockholders’ best interests, our Board of Directors would consider a variety of factors including:
| • | The effect that an offering below NAV per share would have on our stockholders, including the potential dilution they would experience as a result of the offering; |
| • | The amount per share by which the offering price per share and the net proceeds per share are less than the most recently determined NAV per share; |
| • | The relationship of recent market prices of our common stock to NAV per share and the potential impact of the offering on the market price per share of our common stock; |
| • | Whether the proposed offering price would closely approximate the market value of our shares; |
| • | The potential market impact of being able to raise capital during the current financial market difficulties; |
| • | The nature of any new investors anticipated to acquire shares in the offering; |
| • | The anticipated rate of return on and quality, type and availability of investments to be funded with the proceeds from the offering, if any; and |
| • | The leverage available to us, both before and after any offering, and the terms thereof. |
Sales by us of our common stock at a discount from NAV pose potential risks for our existing stockholders whether or not they participate in the offering, as well as for new investors who participate in the offering.
The following three headings and accompanying tables will explain and provide hypothetical examples on the impact of an offering at a price less than NAV per share on three different sets of investors:
| • | existing stockholders who do not purchase any shares in the offering; |
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| • | existing stockholders who purchase a relatively small amount of shares in the offering or a relatively large amount of shares in the offering; and |
| • | new investors who become stockholders by purchasing shares in the offering. |
Impact on Existing Stockholders not Participating in the Offering
Our existing stockholders who do not participate in an offering below NAV per share or who do not buy additional shares in the secondary market at the same or lower price we obtain in the offering (after expenses and commissions) face the greatest potential risks. All stockholders will experience an immediate decrease (often called dilution) in the NAV of the shares they hold. Stockholders who do not participate in the offering will also experience a disproportionately greater decrease in their participation in our earnings and assets and their voting power than stockholders who do participate in the offering. All stockholders may also experience a decline in the market price of their shares, which often reflects to some degree announced or potential decreases in NAV per share. This decrease could be more pronounced as the size of the offering and level of discount to NAV increases.
The following table illustrates the level of NAV dilution that would be experienced by a nonparticipating stockholder in different hypothetical offerings of different sizes and levels of discount from NAV per share. Actual sales prices and discounts may differ from the presentation below.
The examples assume that Company XYZ has 3,000,000 common shares outstanding, $40,000,000 in total assets and $10,000,000 in total liabilities. The current NAV and NAV per share are thus $30,000,000 and $10.00, respectively. The table illustrates the dilutive effect on nonparticipating Stockholder A of (1) an offering of 300,000 shares (10% of the outstanding shares) with proceeds to the Company XYZ at $9.00 per share after offering expenses and commissions, and (2) an offering of 600,000 shares (20% of the outstanding shares) with proceeds to the Company at $0.001 per share after offering expenses and commissions (a 100% discount from NAV).
| Prior to Sale Below NAV | Example 1 10% Offering at 10% Discount | Example 2 20% Offering at 100% Discount | ||||||||||||||||||
| Following Sale | % Change | Following Sale | % Change | |||||||||||||||||
Offering Price | ||||||||||||||||||||
Price per Share to Public(1) | — | $ | 9.47 | — | $ | 0.001 | — | |||||||||||||
Net Proceeds per Share to Issuer | — | $ | 9.00 | — | $ | 0.001 | — | |||||||||||||
Decrease to NAV | ||||||||||||||||||||
Total Shares Outstanding | 3,000,000 | 3,300,000 | 10.00 | % | 3,600,000 | 20.00 | % | |||||||||||||
NAV per Share | $ | 10.00 | $ | 9.91 | (0.90 | )% | $ | 8.33 | (16.67 | )% | ||||||||||
Share Dilution to Stockholder | ||||||||||||||||||||
Shares Held by Stockholder A | 30,000 | 30,000 | — | 30,000 | — | |||||||||||||||
Percentage of Shares Held by Stockholder A | 1.00 | % | 0.91 | % | (9.09 | )% | 0.83 | % | (16.67 | )% | ||||||||||
Total Asset Values | ||||||||||||||||||||
Total NAV Held by Stockholder A | $ | 300,000 | $ | 297,273 | (0.90 | )% | $ | 250,005 | (16.67 | )% | ||||||||||
Total Investment by Stockholder A (Assumed to Be $10.00 per Share) | $ | 300,000 | $ | 300,000 | — | $ | 300,000 | — | ||||||||||||
Total Dilution to Stockholder A (Change in Total NAV Held By Stockholder) | — | $ | (2,727 | ) | — | $ | (49,995 | ) | — | |||||||||||
Per Share Amounts | ||||||||||||||||||||
NAV per Share Held by Stockholder A | — | $ | 9.91 | — | $ | 8.33 | — | |||||||||||||
Investment per Share Held by Stockholder A (Assumed to be $10.00 per Share on Shares Held Prior to Sale) | $ | 10.00 | $ | 10.00 | — | $ | 10.00 | — | ||||||||||||
Dilution per Share Held by Stockholder A | — | $ | (0.09 | ) | — | $ | (1.67 | ) | — | |||||||||||
Percentage Dilution per Share Held by Stockholder A | — | — | (0.90 | )% | — | (16.67 | )% | |||||||||||||
| (1) | Assumes 5% in selling compensation and expenses paid by Company XYZ. |
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Impact on Existing Stockholders who do Participate in the Offering
Our existing stockholders who participate in an offering below NAV per share or who buy additional shares in the secondary market at the same or lower price as we obtain in the offering (after expenses and commissions) will experience the same types of NAV dilution as the nonparticipating stockholders, albeit at a lower level, to the extent they purchase less than the same percentage of the discounted offering as their interest in our shares immediately prior to the offering. The level of NAV dilution on an aggregate basis will decrease as the number of shares such stockholders purchase increases. Existing stockholders who buy more than their proportionate percentage will experience NAV dilution but will, in contrast to existing stockholders who purchase less than their proportionate share of the offering, experience an increase (often called accretion) in NAV per share over their investment per share and will also experience a disproportionately greater increase in their participation in our earnings and assets and their voting power than our increase in assets, potential earning power and voting interests due to the offering. The level of accretion will increase as the excess number of shares purchased by such stockholder increases. Even a stockholder who over-participates will, however, be subject to the risk that we may make additional discounted offerings in which such stockholder does not participate, in which case such a stockholder will experience NAV dilution as described above in such subsequent offerings. These stockholders may also experience a decline in the market price of their shares, which often reflects to some degree announced or potential decreases in NAV per share. This decrease could be more pronounced as the size of the offering and the level of discount to NAV increases.
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The following chart illustrates the level of dilution and accretion in the hypothetical 20% discount offering from the prior chart (Example 3) for a stockholder that acquires shares equal to (1) 50% of its proportionate share of the offering (i.e., 3,000 shares, which is 0.5% of an offering of 600,000 shares rather than its 1.0% proportionate share) and (2) 150% of such percentage (i.e., 9,000 shares, which is 1.5% of an offering of 600,000 shares rather than its 1.0% proportionate share). The prospectus supplement pursuant to which any discounted offering is made will include a chart for this example based on the actual number of shares in such offering and the actual discount from the most recently determined NAV per share.
| Prior to Sale Below NAV | 50% Participation | 150% Participation | ||||||||||||||||||
| Following Sale | % Change | Following Sale | % Change | |||||||||||||||||
Offering Price | ||||||||||||||||||||
Price per Share to Public(1) | — | $ | 8.42 | — | $ | 8.42 | — | |||||||||||||
Net Proceeds per Share to Issuer | — | $ | 8.00 | — | $ | 8.00 | — | |||||||||||||
Increase in Shares and Decrease to NAV | ||||||||||||||||||||
Total Shares Outstanding | 3,000,000 | 3,600,000 | 20.00 | % | 3,600,000 | 20.00 | % | |||||||||||||
NAV per Share | $ | 10.00 | $ | 9.67 | (3.33 | )% | $ | 9.67 | (3.33 | )% | ||||||||||
Dilution/Accretion to Participating Stockholder A | ||||||||||||||||||||
Share Dilution/Accretion | ||||||||||||||||||||
Shares Held by Stockholder A | 30,000 | 33,000 | 10.00 | % | 39,000 | 30.00 | % | |||||||||||||
Percentage Outstanding Held by Stockholder A | 1.00 | % | 0.92 | % | (8.33 | )% | 1.08 | % | 8.33 | % | ||||||||||
NAV Dilution/Accretion | ||||||||||||||||||||
Total NAV Held by Stockholder A | $ | 300,000 | $ | 319,110 | 6.33 | % | $ | 377,130 | 25.67 | % | ||||||||||
Total Investment by Stockholder A (Assumed to be $10.00 per Share on Shares Held Prior to Sale) | — | $ | 325,260 | — | $ | 375,780 | — | |||||||||||||
Total Dilution/Accretion to Stockholder A (Total NAV Less Total Investment) | — | $ | (6,150 | ) | — | $ | 1,350 | — | ||||||||||||
NAV Dilution/Accretion per Share | ||||||||||||||||||||
NAV per Share Held by Stockholder A | — | $ | 9.67 | — | $ | 9.67 | — | |||||||||||||
Investment per Share Held by Stockholder A (Assumed to be $10.00 per Share on Shares Held Prior to Sale) | $ | 10.00 | $ | 9.86 | (1.44 | )% | $ | 9.64 | (3.65 | )% | ||||||||||
NAV Dilution/Accretion per Share Experienced by Stockholder A (NAV per Share Less Investment per Share) | — | $ | (0.19 | ) | — | $ | 0.03 | — | ||||||||||||
Percentage NAV Dilution/Accretion Experienced by Stockholder A (NAV Dilution/Accretion per Share Divided by Investment per Share) | — | — | (1.93 | )% | — | 0.31 | % | |||||||||||||
| (1) | Assumes 5% in selling compensation and expenses paid by Company XYZ. |
Impact on New Investors
Investors who are not currently stockholders, but who participate in an offering below NAV and whose investment per share is greater than the resulting NAV per share (due to selling compensation and expenses paid by us) will experience an immediate decrease, albeit small, in the NAV of their shares and their NAV per share compared to the price they pay for their shares. Investors who are not currently stockholders and who participate in an offering below NAV per share and whose investment per share is also less than the resulting NAV per share will experience an immediate increase in the NAV of their shares and their NAV per share compared to the price they pay for their shares. All these investors will experience a disproportionately greater participation in our earnings and assets and their voting power than our increase in assets, potential earning power and voting interests. These investors will, however, be subject to the risk that we may make additional discounted offerings
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in which such new stockholder does not participate, in which case such new stockholder will experience dilution as described above in such subsequent offerings. These investors may also experience a decline in the market price of their shares, which often reflects to some degree announced or potential decreases in NAV per share. This decrease could be more pronounced as the size of the offering and level of discount to NAV increases.
The following chart illustrates the level of dilution or accretion for new investors that would be experienced by a new investor in the same hypothetical 10% and 100% discounted offerings as described in the first chart above. The illustration is for a new investor who purchases the same percentage (1.00%) of the shares in the offering as Stockholder A in the prior examples held immediately prior to the offering. The prospectus supplement pursuant to which any discounted offering is made will include a chart for these examples based on the actual number of shares in such offering and the actual discount from the most recently determined NAV per share.
| Prior to Sale Below NAV | Example 1 10% Offering at 10% Discount | Example 2 20% Offering at 100% Discount | ||||||||||||||||||
| Following Sale | % Change | Following Sale | % Change | |||||||||||||||||
Offering Price | ||||||||||||||||||||
Price per Share to Public(1) | — | $ | 9.47 | — | $ | 0.001 | — | |||||||||||||
Net Proceeds per Share to Issuer | — | $ | 9.00 | — | $ | 0.001 | — | |||||||||||||
Increase in Shares and Decrease to NAV | ||||||||||||||||||||
Total Shares Outstanding | 3,000,000 | 3,300,000 | 10.00 | % | 3,600,000 | 20.00 | % | |||||||||||||
NAV per Share | $ | 10.00 | $ | 9.91 | (0.90 | )% | $ | 8.33 | (16.67 | )% | ||||||||||
Dilution/Accretion to New Investor A | ||||||||||||||||||||
Share Dilution | ||||||||||||||||||||
Shares Held by Investor A | — | 3,000 | — | 6,000 | — | |||||||||||||||
Percentage Outstanding Held by Investor A | 0.00 | % | 0.09 | % | — | 0.17 | % | — | ||||||||||||
NAV Dilution | ||||||||||||||||||||
Total NAV Held by Investor A | — | $ | 29,730 | — | $ | 50,001 | — | |||||||||||||
Total Investment by Investor A (At Price to Public) | — | $ | 28,410 | — | $ | 6 | — | |||||||||||||
Total Dilution/Accretion to Investor A (Total NAV Less Total Investment) | — | $ | 1,320 | — | $ | 49,995 | — | |||||||||||||
NAV Dilution per Share | ||||||||||||||||||||
NAV per Share Held by Investor A | $ | 9.91 | — | $ | 8.33 | — | ||||||||||||||
Investment per Share Held by Investor A | — | $ | 9.47 | — | $ | 0.001 | — | |||||||||||||
NAV Dilution/Accretion per Share Experienced by Investor A (NAV per Share Less Investment per Share) | — | $ | 0.44 | — | $ | 8.33 | — | |||||||||||||
Percentage NAV Dilution/Accretion Experienced by Investor A (NAV Dilution/Accretion per Share Divided by Investment per Share) | — | — | 4.65 | % | — | 99.99 | % | |||||||||||||
| (1) | Assumes 5% in selling compensation and expenses paid by Company XYZ. |
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We have adopted a dividend reinvestment plan (the “DRP”), through which all distributions are paid to our stockholders in the form of additional shares of our common stock, unless a stockholder elects to receive cash as provided below. In this way, a stockholder can maintain an undiluted investment in our common stock and still allow us to pay out the required distributable income.
No action is required on the part of a registered stockholder to receive a distribution in shares of our common stock. A registered stockholder may elect to receive an entire distribution in cash by notifying American Stock Transfer & Trust Company, the plan administrator and our transfer agent and registrar, so that such notice is received by the plan administrator no later than three days prior to the payment date for distributions to stockholders. The plan administrator will set up an account for shares acquired through the DRP for each stockholder who has not elected to receive distributions in cash (each a “Participant”) and hold such shares in non-certificated form. Upon request by a Participant, received not less than three days prior to the payment date, the plan administrator will, instead of crediting shares to the Participant’s account, issue a certificate registered in the Participant’s name for the number of whole shares of our common stock and a check for any fractional share.
Those stockholders whose shares are held by a broker or other financial intermediary may receive distributions in cash by notifying their broker or other financial intermediary of their election.
We expect to use primarily newly-issued shares to implement the DRP, whether our shares are trading at a premium or at a discount to NAV, although we have the option under the DRP to purchase shares in the market to fulfill DRP requirements. The number of shares to be issued to a stockholder is determined by dividing the total dollar amount of the distribution payable to such stockholder by the market price per share of our common stock at the close of regular trading on the NYSE on the valuation date for such distribution. Market price per share on that date will be the closing price for such shares on the NYSE or, if no sale is reported for such day, at the average of their electronically-reported bid and asked prices. The number of shares of our common stock to be outstanding after giving effect to payment of the distribution cannot be established until the value per share at which additional shares will be issued has been determined and elections of our stockholders have been tabulated.
There is no charge to our stockholders for receiving their distributions in the form of additional shares of our common stock. The plan administrator’s fees for handling distributions in stock are paid by us. There are no brokerage charges with respect to shares we have issued directly as a result of distributions payable in stock. If a Participant elects by internet or by written or telephonic notice to the plan administrator to have the plan administrator sell part or all of the shares held by the plan administrator in the Participant’s account and remit the proceeds to the Participant, the plan administrator is authorized to deduct a $15.00 transaction fee plus brokerage commissions from the proceeds.
Any shares issued in connection with a stock split or stock dividend will be added to a Participant’s account with the Plan Administrator. The Plan Administrator may curtail or suspend transaction processing until the completion of such stock split or payment of such stock dividend.
Stockholders who receive distributions in the form of stock generally are subject to the same federal, state and local tax consequences as are stockholders who elect to receive their distributions in cash. A stockholder’s basis for determining gain or loss upon the sale of stock received in a distribution from us will be equal to the total dollar amount of the distribution payable to the stockholder.
The DRP may be terminated by us upon notice in writing mailed to each Participant at least 30 days prior to any record date for the payment of any distribution by us. All correspondence concerning the DRP, including requests for additional information, should be directed to the plan administrator by mail at American Stock Transfer & Trust Company, Attn: Dividend Reinvestment Department, P.O. Box 922, Wall Street Station, New York, NY 10269-0560 or by phone at 1-866-669-9888.
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The following description is based on relevant portions of the Maryland General Corporation Law and on our charter and bylaws. This summary may not contain all of the information that is important to you, and we refer you to the Maryland General Corporation Law and our charter and bylaws for a more detailed description of the provisions summarized below. We urge you to read the applicable prospectus supplement and any related free writing prospectus that we may authorize to be provided to you related to any shares of our capital stock being offered.
Under the terms of our charter, our authorized capital stock consists of 200,000,000 shares of common stock, par value $0.001 per share, of which 97,208,899 shares are outstanding as of April 23, 2019. Under our charter, our Board of Directors is authorized to classify and reclassify any unissued shares of stock into other classes or series of stock, and to cause the issuance of such shares, without obtaining stockholder approval. In addition, as permitted by the Maryland General Corporation Law, but subject to the 1940 Act, our charter provides that the Board of Directors, without any action by our stockholders, may amend the charter from time to time to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we have authority to issue. Under Maryland law, our stockholders generally are not personally liable for our debts or obligations.
Common Stock
All shares of our common stock have equal rights as to earnings, assets, distributions and voting privileges, except as described below and, when they are issued, will be duly authorized, validly issued, fully paid and nonassessable.
Distributions may be paid to the holders of our common stock if, as and when authorized by our Board of Directors and declared by us out of assets legally available therefor. Shares of our common stock have no conversion, exchange, preemptive or redemption rights. In the event of a liquidation, dissolution or winding up of Hercules each share of our common stock would be entitled to share ratably in all of our assets that are legally available for distribution after we pay all debts and other liabilities and subject to any preferential rights of holders of our preferred stock, if any preferred stock is outstanding at such time. Each share of our common stock is entitled to one vote on all matters submitted to a vote of stockholders, including the election of directors. Except as provided with respect to any other class or series of stock, the holders of our common stock will possess exclusive voting power. There is no cumulative voting in the election of directors, which means that holders of a majority of the outstanding shares of common stock will elect all of our directors, and holders of less than a majority of such shares will be unable to elect any director.
Title of Class | Amount Authorized | Amount Held by Company for its Account | Amount Outstanding | |||||||||
Common Stock, $0.001 par value per share | 200,000,000 | — | 97,208,899 | |||||||||
Preferred Stock
Our charter authorizes our Board of Directors to classify and reclassify any unissued shares of stock into other classes or series of stock, including preferred stock. Prior to issuance of shares of each class or series, the Board of Directors is required by Maryland law and by our charter to set the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series. Thus, the Board of Directors could authorize the issuance of shares of preferred stock with terms and conditions which could have the effect of delaying, deferring
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or preventing a transaction or a change in control that might involve a premium price for holders of our common stock or otherwise be in their best interest. You should note, however, that any issuance of preferred stock must comply with the requirements of the 1940 Act. The 1940 Act requires, among other things, that (1) immediately after issuance and before any dividend or other distribution is made with respect to our common stock and before any purchase of common stock is made, such preferred stock together with all other senior securities must not exceed an amount equal to 50% of our total assets after deducting the amount of such dividend, distribution or purchase price, as the case may be, and (2) the holders of shares of preferred stock, if any are issued, must be entitled as a class to elect two directors at all times and to elect a majority of the directors if distributions on such preferred stock are in arrears by two years or more. Certain matters under the 1940 Act require the separate vote of the holders of any issued and outstanding preferred stock. We believe that the availability for issuance of preferred stock will provide us with increased flexibility in structuring future financings and acquisitions.
Limitation on Liability of Directors and Officers; Indemnification and Advance of Expenses
Maryland law permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and officers to the corporation and its stockholders for money damages except for liability resulting from (a) actual receipt of an improper benefit or profit in money, property or services or (b) active and deliberate dishonesty established by a final judgment as being material to the cause of action. Our charter contains such a provision which eliminates directors’ and officers’ liability to the maximum extent permitted by Maryland law, subject to the requirements of the 1940 Act.
Our charter authorizes us, to the maximum extent permitted by Maryland law and subject to the requirements of the 1940 Act, to indemnify any present or former director or officer or any individual who, while a director or officer and at our request, serves or has served another corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan or other enterprise as a director, officer, partner or trustee, from and against any claim or liability to which such person may become subject or which such person may incur by reason of his or her service in any such capacity, except with respect to any matter as to which such person shall have been finally adjudicated in any proceeding not to have acted in good faith in the reasonable belief that their action was in our best interest or to be liable to us or our stockholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office. Our charter also provides that, to the maximum extent permitted by Maryland law, with the approval of our Board of Directors and provided that certain conditions described in our charter are met, we may pay certain expenses incurred by any such indemnified person in advance of the final disposition of a proceeding upon receipt of an undertaking by or on behalf of such indemnified person to repay amounts we have so paid if it is ultimately determined that indemnification of such expenses is not authorized under our charter. Our bylaws obligate us, to the maximum extent permitted by Maryland law and subject to the requirements of the 1940 Act, to indemnify any present or former director or officer or any individual who, while a director or officer and at our request, serves or has served another corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan or other enterprise as a director, officer, partner or trustee and who is made, or threatened to be made, a party to the proceeding by reason of his or her service in any such capacity from and against any claim or liability to which that person may become subject or which that person may incur by reason of his or her service in any such capacity, except with respect to any matter as to which such person shall have been finally adjudicated in any proceeding not to have acted in good faith in the reasonable belief that their action was in our best interest or to be liable to us or our stockholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office. Our bylaws also provide that, to the maximum extent permitted by Maryland law, with the approval of our Board of Directors and provided that certain conditions described in our bylaws are met, we may pay certain expenses incurred by any such indemnified person in advance of the final disposition of a proceeding upon receipt of an undertaking by or on behalf of such indemnified person to repay amounts we have so paid if it is ultimately determined that indemnification of such expenses is not authorized under our bylaws.
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Maryland law requires a corporation (unless its charter provides otherwise, which our charter does not) to indemnify a director or officer who has been successful in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service in that capacity. Maryland law permits a corporation to indemnify its present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made, or threatened to be made, a party by reason of their service in those or other capacities unless it is established that (a) the act or omission of the director or officer was material to the matter giving rise to the proceeding and (1) was committed in bad faith or (2) was the result of active and deliberate dishonesty, (b) the director or officer actually received an improper personal benefit in money, property or services or (c) in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. However, under Maryland law, a Maryland corporation may not indemnify for an adverse judgment in a suit by or in the right of the corporation or for a judgment of liability on the basis that a personal benefit was improperly received, unless in either case a court orders indemnification, and then only for expenses. In addition, Maryland law permits a corporation to advance reasonable expenses to a director or officer upon the corporation’s receipt of (a) a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification by the corporation and (b) a written undertaking by him or her or on his or her behalf to repay the amount paid or reimbursed by the corporation if it is ultimately determined that the standard of conduct was not met.
We currently have in effect a directors’ and officers’ insurance policy covering our directors and officers and us for any acts and omissions committed, attempted or allegedly committed by any director or officer during the policy period. The policy is subject to customary exclusions.
Provisions of the Maryland General Corporation Law and Our Charter and Bylaws
The Maryland General Corporation Law and our charter and bylaws contain provisions that could make it more difficult for a potential acquiror to acquire us by means of a tender offer, proxy contest or otherwise. These provisions are expected to discourage certain coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of us to negotiate first with our Board of Directors. We believe that the benefits of these provisions outweigh the potential disadvantages of discouraging any such acquisition proposals because, among other things, the negotiation of such proposals may improve their terms.
Classified Board of Directors
Our Board of Directors is divided into three classes of directors serving staggered three-year terms. The terms of the first, second and third classes will expire in 2020, 2021 and 2019, respectively. Upon expiration of their current terms, directors of each class are eligible to serve for three-year terms or until their successors are duly elected and qualify. Each year one class of directors will be elected by the stockholders. A classified board may render a change in control or removal of our incumbent management more difficult. We believe, however, that the longer time required to elect a majority of a classified Board of Directors will help to ensure the continuity and stability of our management and policies.
Election of Directors
Our charter provides that, except as otherwise provided in the bylaws, the affirmative vote of the holders of a majority of the outstanding shares of stock entitled to vote in the election of directors will be required to elect each director. Our bylaws currently provide that directors are elected by a plurality of the votes cast in the election of directors. Pursuant to our charter and bylaws, our Board of Directors may amend the bylaws to alter the vote required to elect directors.
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Number of Directors; Vacancies; Removal
Our charter provides that the number of directors will be set only by the Board of Directors in accordance with our bylaws. Our bylaws provide that a majority of our entire Board of Directors may at any time increase or decrease the number of directors. However, unless the bylaws are amended, the number of directors may never be less than one nor more than 12. We have elected to be subject to the provision of Subtitle 8 of Title 3 of the Maryland General Corporation Law, as amended (the “Maryland General Corporation Law”), regarding the filling of vacancies on the Board of Directors. Accordingly, at such time, except as may be provided by the Board of Directors in setting the terms of any class or series of preferred stock, any and all vacancies on the Board of Directors may be filled only by the affirmative vote of a majority of the remaining directors in office, even if the remaining directors do not constitute a quorum, and any director elected to fill a vacancy shall serve for the remainder of the full term of the directorship in which the vacancy occurred and until a successor is elected and qualifies, subject to any applicable requirements of the 1940 Act.
Our charter provides that a director may be removed only for cause, as defined in the charter, and then only by the affirmative vote of at least two-thirds of the votes entitled to be cast in the election of directors.
Action by Stockholders
Under the Maryland General Corporation Law, stockholder action may be taken only at an annual or special meeting of stockholders or by unanimous consent in lieu of a meeting (unless the charter provides for stockholder action by less than unanimous written consent, which our charter does not). These provisions, combined with the requirements of our bylaws regarding the calling of a stockholder-requested special meeting of stockholders discussed below, may have the effect of delaying consideration of a stockholder proposal until the next annual meeting.
Advance Notice Provisions for Stockholder Nominations and Stockholder Proposals
Our bylaws provide that with respect to an annual meeting of stockholders, nominations of persons for election to the Board of Directors and the proposal of business to be considered by stockholders may be made only (1) pursuant to our notice of the meeting, (2) by the Board of Directors or (3) by a stockholder who is entitled to vote at the meeting and who has complied with the advance notice procedures of the bylaws. With respect to special meetings of stockholders, only the business specified in our notice of the meeting may be brought before the meeting. Nominations of persons for election to the Board of Directors at a special meeting may be made only (1) pursuant to our notice of the meeting, (2) by the Board of Directors or (3) provided that the Board of Directors has determined that directors will be elected at the meeting, by a stockholder who is entitled to vote at the meeting and who has complied with the advance notice provisions of the bylaws.
The purpose of requiring stockholders to give us advance notice of nominations and other business is to afford our Board of Directors a meaningful opportunity to consider the qualifications of the proposed nominees and the advisability of any other proposed business and, to the extent deemed necessary or desirable by our Board of Directors, to inform stockholders and make recommendations about such qualifications or business, as well as to provide a more orderly procedure for conducting meetings of stockholders. Although our bylaws do not give our Board of Directors any power to disapprove stockholder nominations for the election of directors or proposals recommending certain action, they may have the effect of precluding a contest for the election of directors or the consideration of stockholder proposals if proper procedures are not followed and of discouraging or deterring a third party from conducting a solicitation of proxies to elect its own slate of directors or to approve its own proposal without regard to whether consideration of such nominees or proposals might be harmful or beneficial to us and our stockholders.
Calling of Special Meeting of Stockholders
Our bylaws provide that special meetings of stockholders may be called by our Board of Directors and certain of our officers. Additionally, our bylaws provide that, subject to the satisfaction of certain procedural and
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informational requirements by the stockholders requesting the meeting, a special meeting of stockholders shall be called by our secretary upon the written request of stockholders entitled to cast not less than a majority of all of the votes entitled to be cast at such meeting.
Approval of Extraordinary Corporate Action; Amendment of Charter and Bylaws
Under Maryland law, a Maryland corporation generally cannot dissolve, amend its charter, merge, sell all or substantially all of its assets, engage in a share exchange or engage in similar transactions outside the ordinary course of business, unless approved by the affirmative vote of stockholders entitled to cast at least two-thirds of the votes entitled to be cast on the matter. However, a Maryland corporation may provide in its charter for approval of these matters by a lesser percentage, but not less than a majority of all of the votes entitled to be cast on the matter. Our charter generally provides for approval of charter amendments and extraordinary transactions by the stockholders entitled to cast at least a majority of the votes entitled to be cast on the matter. Our charter also provides that certain charter amendments and any proposal for our conversion, whether by merger or otherwise, from a closed-end company to an open-end company or any proposal for our liquidation or dissolution requires the approval of the stockholders entitled to cast at least 75% of the votes entitled to be cast on such matter. However, if such amendment or proposal is approved by at least 75% of our continuing directors (in addition to approval by our Board of Directors), such amendment or proposal may be approved by the stockholders entitled to cast a majority of the votes entitled to be cast on such a matter. The “continuing directors” are defined in our charter as our current directors, as well as those directors whose nomination for election by the stockholders or whose election by the directors to fill vacancies is approved by a majority of the continuing directors then on the Board of Directors.
Our charter and bylaws provide that the Board of Directors will have the exclusive power to make, alter, amend or repeal any provision of our bylaws.
No Appraisal Rights
Except with respect to appraisal rights arising in connection with the Control Share Act discussed below, as permitted by the Maryland General Corporation Law, our charter provides that stockholders will not be entitled to exercise appraisal rights.
Control Share Acquisitions
The Maryland Control Share Acquisition Act (the “Control Share Act”) provides that control shares of a Maryland corporation acquired in a control share acquisition have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter. Shares owned by the acquiror, by officers or by directors who are employees of the corporation are excluded from shares entitled to vote on the matter. Control shares are voting shares of stock which, if aggregated with all other shares of stock owned by the acquiror or in respect of which the acquiror is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquiror to exercise voting power in electing directors within one of the following ranges of voting power:
| • | one-tenth or more but less than one-third; |
| • | one-third or more but less than a majority; or |
| • | a majority or more of all voting power. |
The requisite stockholder approval must be obtained each time an acquiror crosses one of the thresholds of voting power set forth above. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A control share acquisition means the acquisition of control shares, subject to certain exceptions.
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A person who has made or proposes to make a control share acquisition may compel the Board of Directors of the corporation to call a special meeting of stockholders to be held within 50 days of demand to consider the voting rights of the shares. The right to compel the calling of a special meeting is subject to the satisfaction of certain conditions, including an undertaking to pay the expenses of the meeting. If no request for a meeting is made, the corporation may itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then the corporation may repurchase for fair value any or all of the control shares, except those for which voting rights have previously been approved. The right of the corporation to repurchase control shares is subject to certain conditions and limitations. Fair value is determined, without regard to the absence of voting rights for the control shares, as of the date of the last control share acquisition by the acquiror or of any meeting of stockholders at which the voting rights of the shares are considered and not approved. If voting rights for control shares are approved at a stockholders meeting and the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of appraisal rights may not be less than the highest price per share paid by the acquiror in the control share acquisition.
The Control Share Act does not apply (a) to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction or (b) to acquisitions approved or exempted by the charter or bylaws of the corporation.
Our bylaws contain a provision exempting from the Control Share Act any and all acquisitions by any person of our shares of stock.
Business Combinations
Under the Maryland Business Combination Act (the “Business Combination Act”), “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as:
| • | any person who beneficially owns 10% or more of the voting power of the corporation’s shares; or |
| • | an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding voting stock of the corporation. |
A person is not an interested stockholder under this statute if the Board of Directors approved in advance the transaction by which such stockholder otherwise would have become an interested stockholder. However, in approving a transaction, the Board of Directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board.
After the 5-year prohibition, any business combination between the Maryland corporation and an interested stockholder generally must be recommended by the Board of Directors of the corporation and approved by the affirmative vote of at least:
| • | 80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and |
| • | two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder. |
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These super-majority vote requirements do not apply if the corporation’s common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares.
The statute permits various exemptions from its provisions, including business combinations that are exempted by the Board of Directors before the time that the interested stockholder becomes an interested stockholder. Our Board of Directors has adopted a resolution exempting any business combination between us and any other person from the provisions of the Business Combination Act, provided that the business combination is first approved by the Board of Directors, including a majority of the directors who are not interested persons as defined in the 1940 Act.
Conflict with 1940 Act
Our bylaws provide that, if and to the extent that any provision of the Maryland General Corporation Law, or any provision of our charter or bylaws conflicts with any provision of the 1940 Act, the applicable provision of the 1940 Act will control.
Regulatory Restrictions
Our wholly-owned subsidiary, HT III, has obtained a SBIC license. The SBA prohibits, without prior SBA approval, a “change of control” or transfers which would result in any person (or group of persons acting in concert) owning 10% or more of any class of capital stock of a SBIC. A “change of control” is any event which would result in a transfer of the power, direct or indirect, to direct the management and policies of a SBIC, whether through ownership, contractual arrangements or otherwise.
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DESCRIPTION OF OUR PREFERRED STOCK
In addition to shares of common stock, our charter authorizes the issuance of preferred stock. We may issue preferred stock from time to time in one or more classes or series, without stockholder approval. If we offer preferred stock under this prospectus we will issue an appropriate prospectus supplement. Prior to issuance of shares of each class or series, our Board of Directors is required by Maryland law and by our charter to set the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series. Thus, the Board of Directors could authorize the issuance of shares of preferred stock with terms and conditions that could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for holders of our common stock or otherwise be in their best interest. You should note, however, that any such an issuance must adhere to the requirements of the 1940 Act, Maryland law and any other limitations imposed by law.
The following is a general description of the terms of the preferred stock we may issue from time to time. Particular terms of any preferred stock we offer will be described in the prospectus supplement accompanying each preferred share offering.
The 1940 Act requires, among other things, that (i) immediately after issuance and before any dividend or other distribution is made with respect to our common stock and before any purchase of common stock is made, such preferred stock together with all other senior securities must not exceed an amount equal to 50% of our total assets after deducting the amount of such dividend, distribution or purchase price, as the case may be, (ii) the holders of shares of preferred stock, if any are issued, must be entitled as a class to elect two directors at all times and to elect a majority of the directors if dividends or other distribution on the preferred stock are in arrears by two years or more, and (iii) such shares be cumulative as to distributions and have a complete preference over our common stock to payment of their liquidation in event of dissolution. Some matters under the 1940 Act require the separate vote of the holders of any issued and outstanding preferred stock. For example, holders of preferred stock would vote separately from the holders of common stock on a proposal to cease operations as a BDC. We believe that the availability for issuance of preferred stock will provide us with increased flexibility in structuring future financings and acquisitions.
For any series of preferred stock that we may issue, our Board of Directors will determine and the articles supplementary and the prospectus supplement relating to such series will describe:
| • | the designation and number of shares of such series; |
| • | the rate and time at which, and the preferences and conditions under which, any dividends or other distributions will be paid on shares of such series, as well as whether such dividends or other distributions are participating or non-participating; |
| • | any provisions relating to convertibility or exchangeability of the shares of such series, including adjustments to the conversion price of such series; |
| • | the rights and preferences, if any, of holders of shares of such series upon our liquidation, dissolution or winding up of our affairs; |
| • | the voting powers, if any, of the holders of shares of such series; |
| • | any provisions relating to the redemption of the shares of such series; |
| • | any limitations on our ability to pay dividends or make distributions on, or acquire or redeem, other securities while shares of such series are outstanding; |
| • | any conditions or restrictions on our ability to issue additional shares of such series or other securities; |
| • | if applicable, a discussion of certain U.S. federal income tax considerations; and |
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| • | any other relative powers, preferences and participating, optional or special rights of shares of such series, and the qualifications, limitations or restrictions thereof. |
All shares of preferred stock that we may issue will be identical and of equal rank except as to the particular terms thereof that may be fixed by our Board of Directors, and all shares of each series of preferred stock will be identical and of equal rank except as to the dates from which dividends or other distributions, if any, thereon will be cumulative. To the extent we issue preferred stock, the payment of distributions to holders of our preferred stock will take priority over payment of distributions to our common stockholders. We urge you to read the applicable prospectus supplement and any free writing prospectus that we may authorize to be provided to you related to any preferred stock being offered, as well as the complete articles supplementary that contain the terms of the applicable series of preferred stock.
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DESCRIPTION OF OUR SUBSCRIPTION RIGHTS
The following is a general description of the terms of the subscription rights we may issue from time to time. Particular terms of any subscription rights we offer will be described in the prospectus supplement relating to such subscription rights.
We may issue subscription rights to our stockholders to purchase common stock. Subscription rights may be issued independently or together with any other offered security and may or may not be transferable by the person purchasing or receiving the subscription rights. In connection with a subscription rights offering to our stockholders, we would distribute certificates evidencing the subscription rights and a prospectus supplement to our stockholders on the record date that we set for receiving subscription rights in such subscription rights offering.
Our stockholders will indirectly bear all of the expenses of the subscription rights offering, regardless of whether our stockholders exercise any subscription rights.
A prospectus supplement will describe the particular terms of any subscription rights we may issue, including the following:
| • | the period of time the offering would remain open (which shall be open a minimum number of days such that all record holders would be eligible to participate in the offering and shall not be open longer than 120 days); |
| • | the title and aggregate number of such subscription rights; |
| • | the exercise price for such subscription rights (or method of calculation thereof); |
| • | the currency or currencies, including composite currencies, in which the price of such subscription rights may be payable; |
| • | if applicable, the designation and terms of the securities with which the subscription rights are issued and the number of subscription rights issued with each such security or each principal amount of such security; |
| • | the ratio of the offering (which, in the case of transferable rights, will require a minimum of three shares to be held of record before a person is entitled to purchase an additional share); |
| • | the number of such subscription rights issued to each stockholder; |
| • | the extent to which such subscription rights are transferable and the market on which they may be traded if they are transferable; |
| • | the date on which the right to exercise such subscription rights shall commence, and the date on which such right shall expire (subject to any extension); |
| • | if applicable, the minimum or maximum number of subscription rights that may be exercised at one time; |
| • | the extent to which such subscription rights include an over-subscription privilege with respect to unsubscribed securities and the terms of such over-subscription privilege; |
| • | any termination right we may have in connection with such subscription rights offering; |
| • | the terms of any rights to redeem, or call such subscription rights; |
| • | information with respect to book-entry procedures, if any; |
| • | the terms of the securities issuable upon exercise of the subscription rights; |
| • | the material terms of any standby underwriting, backstop or other purchase arrangement that we may enter into in connection with the subscription rights offering; |
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| • | if applicable, a discussion of certain U.S. federal income tax considerations applicable to the issuance or exercise of such subscription rights; and |
| • | any other terms of such subscription rights, including exercise, settlement and other procedures and limitations relating to the transfer and exercise of such subscription rights. |
Each subscription right will entitle the holder of the subscription right to purchase for cash or other consideration such amount of shares of common stock at such subscription price as shall in each case be set forth in, or be determinable as set forth in, the prospectus supplement relating to the subscription rights offered thereby. Subscription rights may be exercised as set forth in the prospectus supplement beginning on the date specified therein and continuing until the close of business on the expiration date for such subscription rights set forth in the prospectus supplement. After the close of business on the expiration date, all unexercised subscription rights will become void.
Upon receipt of payment and the subscription rights certificate properly completed and duly executed at the corporate trust office of the subscription rights agent or any other office indicated in the prospectus supplement we will forward, as soon as practicable, the shares of common stock purchasable upon such exercise. If less than all of the rights represented by such subscription rights certificate are exercised, a new subscription certificate will be issued for the remaining rights. Prior to exercising their subscription rights, holders of subscription rights will not have any of the rights of holders of the securities purchasable upon such exercise. To the extent permissible under applicable law, we may determine to offer any unsubscribed offered securities directly to persons other than stockholders, to or through agents, underwriters or dealers or through a combination of such methods, as set forth in the applicable prospectus supplement.
Under the 1940 Act, we may generally only offer subscription rights (other than rights to subscribe expiring not later than 120 days after their issuance and issued exclusively and ratably to a class or classes of our security holders) on the condition that (1) the subscription rights expire by their terms within ten years; (2) the exercise price is not less than the current market value at the date of issuance; (3) our stockholders authorize the proposal to issue such subscription rights, and a “required” majority of our Board of Directors approves of such issuance on the basis that the issuance is in the best interests of the Company and our stockholders; and (4) if the subscription rights are accompanied by other securities, the subscription rights are not separately transferable unless no class of such subscription rights and the securities accompanying them has been publicly distributed. A “required” majority of our Board of Directors is a vote of both a majority of our directors who have no financial interest in the transaction and a majority of the directors who are not interested persons of the company. The 1940 Act also provides that the amount of our voting securities that would result from the exercise of all outstanding warrants, options and subscription rights at the time of issuance may not exceed 25% of our outstanding voting securities.
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The following is a general description of the terms of the warrants we may issue from time to time. Particular terms of any warrants we offer will be described in the prospectus supplement relating to such warrants and will be subject to compliance with the 1940 Act.
We may issue warrants to purchase shares of our common stock, preferred stock or debt securities. Such warrants may be issued independently or together with shares of common stock, preferred stock or debt securities and may be attached or separate from such securities. We will issue each series of warrants under a separate warrant agreement to be entered into between us and a warrant agent. The warrant agent will act solely as our agent and will not assume any obligation or relationship of agency for or with holders or beneficial owners of warrants.
A prospectus supplement will describe the particular terms of any series of warrants we may issue, including the following:
| • | the title and aggregate number of such warrants; |
| • | the price or prices at which such warrants will be issued; |
| • | the currency or currencies, including composite currencies, in which the price of such warrants may be payable; |
| • | if applicable, the designation and terms of the securities with which the warrants are issued and the number of warrants issued with each such security or each principal amount of such security; |
| • | in the case of warrants to purchase debt securities, the principal amount of debt securities purchasable upon exercise of one warrant and the price at which and the currency or currencies, including composite currencies, in which this principal amount of debt securities may be purchased upon such exercise; |
| • | in the case of warrants to purchase common stock or preferred stock, the number of shares of common stock or preferred stock, as the case may be, purchasable upon exercise of one warrant and the price at which and the currency or currencies, including composite currencies, in which these shares may be purchased upon such exercise; |
| • | the date on which the right to exercise such warrants shall commence and the date on which such right will expire (subject to any extension); |
| • | whether such warrants will be issued in registered form or bearer form; |
| • | if applicable, the minimum or maximum amount of such warrants that may be exercised at any one time; |
| • | if applicable, the date on and after which such warrants and the related securities will be separately transferable; |
| • | the terms of any rights to redeem, or call such warrants; |
| • | information with respect to book-entry procedures, if any; |
| • | the terms of the securities issuable upon exercise of the warrants; |
| • | if applicable, a discussion of certain U.S. federal income tax considerations; and |
| • | any other terms of such warrants, including terms, procedures and limitations relating to the exchange and exercise of such warrants. |
We and the warrant agent may amend or supplement the warrant agreement for a series of warrants without the consent of the holders of the warrants issued thereunder to effect changes that are not inconsistent with the provisions of the warrants and that do not materially and adversely affect the interests of the holders of the warrants.
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Each warrant will entitle the holder to purchase for cash such common stock or preferred stock at the exercise price or such principal amount of debt securities as shall in each case be set forth in, or be determinable as set forth in, the prospectus supplement relating to the warrants offered thereby. Warrants may be exercised as set forth in the prospectus supplement beginning on the date specified therein and continuing until the close of business on the expiration date set forth in the prospectus supplement. After the close of business on the expiration date, unexercised warrants will become void.
Upon receipt of payment and a warrant certificate properly completed and duly executed at the corporate trust office of the warrant agent or any other office indicated in the prospectus supplement, we will, as soon as practicable, forward the securities purchasable upon such exercise. If less than all of the warrants represented by such warrant certificate are exercised, a new warrant certificate will be issued for the remaining warrants. If we so indicate in the applicable prospectus supplement, holders of the warrants may surrender securities as all or part of the exercise price for warrants.
Prior to exercising their warrants, holders of warrants will not have any of the rights of holders of the securities purchasable upon such exercise, including, in the case of warrants to purchase debt securities, the right to receive principal, premium, if any, or interest payments, on the debt securities purchasable upon exercise or to enforce covenants in the applicable indenture or, in the case of warrants to purchase common stock or preferred stock, the right to receive dividends or other distributions, if any, or payments upon our liquidation, dissolution or winding up or to exercise any voting rights.
Under the 1940 Act, we may generally only offer warrants provided that (i) the warrants expire by their terms within ten years, (ii) the exercise or conversion price is not less than the current market value at the date of issuance, (iii) our stockholders authorize the proposal to issue such warrants, and our Board of Directors approves such issuance on the basis that the issuance is in the best interests of the Company and its stockholders and (iv) if the warrants are accompanied by other securities, the warrants are not separately transferable unless no class of such warrants and the securities accompanying them has been publicly distributed. The 1940 Act also provides that the amount of our voting securities that would result from the exercise of all outstanding warrants, as well as options and rights, at the time of issuance may not exceed 25% of our outstanding voting securities.
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DESCRIPTION OF OUR DEBT SECURITIES
We may issue debt securities in one or more series. The specific terms of each series of debt securities will be described in this prospectus and in the particular prospectus supplement relating to that series. The prospectus supplement may or may not modify the general terms found in this prospectus and will be filed with the SEC. For a complete description of the terms of a particular series of debt securities, including any supplemental indenture, you should read both this prospectus and the prospectus supplement and any free writing prospectus relating to that particular series.
As required by federal law for all bonds and notes of companies that are publicly offered, the debt securities are governed by a document called an “indenture.” An indenture is a contract between us and U.S. Bank National Association, a financial institution acting as trustee on your behalf, and is subject to and governed by the Trust Indenture Act of 1939, as amended. The trustee has two main roles. First, the trustee can enforce your rights against us if we default. There are some limitations on the extent to which the trustee acts on your behalf, described in the second paragraph under “Events of Default—Remedies if an Event of Default Occurs.” Second, the trustee performs certain administrative duties for us.
Because this section is a summary, it does not describe every aspect of the debt securities and the indenture. The following description summarizes the material provisions of the indenture. We urge you to read the indenture because it, and not this description, defines your rights as a holder of debt securities. For example, in this section, we use capitalized words to signify terms that are specifically defined in the indenture. We have filed the form of the indenture with the SEC. See “Available Information” for information on how to obtain a copy of the indenture.
A prospectus supplement, which will accompany this prospectus, will describe the particular terms of any series of debt securities being offered, including the following:
| • | the designation or title of the series of debt securities; |
| • | the total principal amount of the series of debt securities; |
| • | the percentage of the principal amount at which the series of debt securities will be offered; |
| • | the date or dates on which principal will be payable; |
| • | the rate or rates (which may be either fixed or variable) and/or the method of determining such rate or rates of interest, if any; |
| • | the date or dates from which any interest will accrue, or the method of determining such date or dates, and the date or dates on which any interest will be payable; |
| • | the terms for redemption, extension or early repayment, if any; |
| • | the currencies in which the series of debt securities are issued and payable; |
| • | whether the amount of payments of principal, premium or interest, if any, on a series of debt securities will be determined with reference to an index, formula or other method (which could be based on one or more currencies, commodities, equity indices or other indices) and how these amounts will be determined; |
| • | the place or places, if any, other than or in addition to the City of New York, of payment, transfer, conversion and/or exchange of the debt securities; |
| • | the denominations in which the offered debt securities will be issued; |
| • | the provision for any sinking fund; |
| • | any restrictive covenants; |
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| • | any Events of Default; |
| • | whether the series of debt securities are issuable in certificated form; |
| • | any provisions for defeasance or covenant defeasance; |
| • | if applicable, U.S. federal income tax considerations relating to OID; |
| • | whether and under what circumstances we will pay additional amounts in respect of any tax, assessment or governmental charge and, if so, whether we will have the option to redeem the debt securities rather than pay the additional amounts (and the terms of this option); |
| • | any provisions for convertibility or exchangeability of the debt securities into or for any other securities; |
| • | whether the debt securities are subject to subordination and the terms of such subordination; |
| • | the listing, if any, on a securities exchange; and |
| • | any other terms. |
The debt securities may be secured or unsecured obligations. Unless the prospectus supplement states otherwise, principal (and premium, if any) and interest, if any, will be paid by us in immediately available funds.
We are permitted, under specified conditions, to issue multiple classes of indebtedness if our asset coverage, as defined in the 1940 Act, is at least equal to 150%, subject to certain disclosure requirements, immediately after each such issuance. In addition, while any indebtedness and other senior securities remain outstanding, we must make provisions to prohibit any distribution to our stockholders or the repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes without regard to asset coverage.
General
The indenture provides that any debt securities proposed to be sold under this prospectus and the attached prospectus supplement (“offered debt securities”) and any debt securities issuable upon the exercise of warrants or upon conversion or exchange of other offered securities (“underlying debt securities”), may be issued under the indenture in one or more series.
For purposes of this prospectus, any reference to the payment of principal of or premium or interest, if any, on debt securities will include additional amounts if required by the terms of the debt securities.
The indenture does not limit the amount of debt securities that may be issued thereunder from time to time. Debt securities issued under the indenture, when a single trustee is acting for all debt securities issued under the indenture, are called the “indenture securities.” The indenture also provides that there may be more than one trustee thereunder, each with respect to one or more different series of indenture securities. See “Resignation of Trustee” section below. At a time when two or more trustees are acting under the indenture, each with respect to only certain series, the term “indenture securities” means the one or more series of debt securities with respect to which each respective trustee is acting. In the event that there is more than one trustee under the indenture, the powers and trust obligations of each trustee described in this prospectus will extend only to the one or more series of indenture securities for which it is trustee. If two or more trustees are acting under the indenture, then the indenture securities for which each trustee is acting would be treated as if issued under separate indentures.
We refer you to the prospectus supplement for information with respect to any deletions from, modifications of or additions to the Events of Default or our covenants that are described below, including any addition of a covenant or other provision providing event risk or similar protection.
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We have the ability to issue indenture securities with terms different from those of indenture securities previously issued and, without the consent of the holders thereof, to reopen a previous issue of a series of indenture securities and issue additional indenture securities of that series unless the reopening was restricted when that series was created.
Conversion and Exchange
If any debt securities are convertible into or exchangeable for other securities, the prospectus supplement will explain the terms and conditions of the conversion or exchange, including the conversion price or exchange ratio (or the calculation method), the conversion or exchange period (or how the period will be determined), if conversion or exchange will be mandatory or at the option of the holder or us, provisions for adjusting the conversion price or the exchange ratio and provisions affecting conversion or exchange in the event of the redemption of the underlying debt securities. These terms may also include provisions under which the number or amount of other securities to be received by the holders of the debt securities upon conversion or exchange would be calculated according to the market price of the other securities as of a time stated in the prospectus supplement.
Issuance of Securities in Registered Form
We may issue the debt securities in registered form, in which case we may issue them either in book-entry form only or in “certificated” form. Debt securities issued in book-entry form will be represented by global securities. We expect that we will usually issue debt securities in book-entry only form represented by global securities.
Book-Entry Holders
We will issue registered debt securities in book-entry form only, unless we specify otherwise in the applicable prospectus supplement. This means debt securities will be represented by one or more global securities registered in the name of a depositary that will hold them on behalf of financial institutions that participate in the depositary’s book-entry system. These participating institutions, in turn, hold beneficial interests in the debt securities held by the depositary or its nominee. These institutions may hold these interests on behalf of themselves or customers.
Under the indenture, only the person in whose name a debt security is registered is recognized as the holder of that debt security. Consequently, for debt securities issued in book-entry form, we will recognize only the depositary as the holder of the debt securities and we will make all payments on the debt securities to the depositary. The depositary will then pass along the payments it receives to its participants, which in turn will pass the payments along to their customers who are the beneficial owners. The depositary and its participants do so under agreements they have made with one another or with their customers; they are not obligated to do so under the terms of the debt securities.
As a result, investors will not own debt securities directly. Instead, they will own beneficial interests in a global security, through a bank, broker or other financial institution that participates in the depositary’s book-entry system or holds an interest through a participant. As long as the debt securities are represented by one or more global securities, investors will be indirect holders, and not holders, of the debt securities.
Street Name Holders
In the future, we may issue debt securities in certificated form or terminate a global security. In these cases, investors may choose to hold their debt securities in their own names or in “street name.” Debt securities held in street name are registered in the name of a bank, broker or other financial institution chosen by the investor, and the investor would hold a beneficial interest in those debt securities through the account he or she maintains at that institution.
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For debt securities held in street name, we will recognize only the intermediary banks, brokers and other financial institutions in whose names the debt securities are registered as the holders of those debt securities and we will make all payments on those debt securities to them. These institutions will pass along the payments they receive to their customers who are the beneficial owners, but only because they agree to do so in their customer agreements or because they are legally required to do so. Investors who hold debt securities in street name will be indirect holders, and not holders, of the debt securities.
Legal Holders
Our obligations, as well as the obligations of the applicable trustee and those of any third parties employed by us or the applicable trustee, run only to the legal holders of the debt securities. We do not have obligations to investors who hold beneficial interests in global securities, in street name or by any other indirect means. This will be the case whether an investor chooses to be an indirect holder of a debt security or has no choice because we are issuing the debt securities only in book-entry form.
For example, once we make a payment or give a notice to the holder, we have no further responsibility for the payment or notice even if that holder is required, under agreements with depositary participants or customers or by law, to pass it along to the indirect holders but does not do so. Similarly, if we want to obtain the approval of the holders for any purpose (for example, to amend an indenture or to relieve us of the consequences of a default or of our obligation to comply with a particular provision of an indenture), we would seek the approval only from the holders, and not the indirect holders, of the debt securities. Whether and how the holders contact the indirect holders is up to the holders.
When we refer to you, we mean those who invest in the debt securities being offered by this prospectus, whether they are the holders or only indirect holders of those debt securities. When we refer to your debt securities, we mean the debt securities in which you hold a direct or indirect interest.
Special Considerations for Indirect Holders
If you hold debt securities through a bank, broker or other financial institution, either in book-entry form or in street name, we urge you to check with that institution to find out:
| • | how it handles securities payments and notices, |
| • | whether it imposes fees or charges, |
| • | how it would handle a request for the holders’ consent, if ever required, |
| • | whether and how you can instruct it to send you debt securities registered in your own name so you can be a holder, if that is permitted in the future for a particular series of debt securities, |
| • | how it would exercise rights under the debt securities if there were a default or other event triggering the need for holders to act to protect their interests, and |
| • | if the debt securities are in book-entry form, how the depositary’s rules and procedures will affect these matters. |
Global Securities
As noted above, we usually will issue debt securities as registered securities in book-entry form only. A global security represents one or any other number of individual debt securities. Generally, all debt securities represented by the same global securities will have the same terms.
Each debt security issued in book-entry form will be represented by a global security that we deposit with and register in the name of a financial institution or its nominee that we select. The financial institution that we
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select for this purpose is called the depositary. Unless we specify otherwise in the applicable prospectus supplement, The Depository Trust Company, New York, New York, known as DTC, will be the depositary for all debt securities issued in book-entry form.
A global security may not be transferred to or registered in the name of anyone other than the depositary or its nominee, unless special termination situations arise. We describe those situations below under “Special Situations when a Global Security Will Be Terminated.” As a result of these arrangements, the depositary, or its nominee, will be the sole registered owner and holder of all debt securities represented by a global security, and investors will be permitted to own only beneficial interests in a global security. Beneficial interests must be held by means of an account with a broker, bank or other financial institution that in turn has an account with the depositary or with another institution that has an account with the depositary. Thus, an investor whose security is represented by a global security will not be a holder of the debt security, but only an indirect holder of a beneficial interest in the global security.
Special Considerations for Global Securities
As an indirect holder, an investor’s rights relating to a global security will be governed by the account rules of the investor’s financial institution and of the depositary, as well as general laws relating to securities transfers. The depositary that holds the global security will be considered the holder of the debt securities represented by the global security.
If debt securities are issued only in the form of a global security, an investor should be aware of the following:
| • | An investor cannot cause the debt securities to be registered in his or her name, and cannot obtain certificates for his or her interest in the debt securities, except in the special situations we describe below. |
| • | An investor will be an indirect holder and must look to his or her own bank or broker for payments on the debt securities and protection of his or her legal rights relating to the debt securities, as we describe under “Issuance of Securities in Registered Form” above. |
| • | An investor may not be able to sell interests in the debt securities to some insurance companies and other institutions that are required by law to own their securities in non-book-entry form. |
| • | An investor may not be able to pledge his or her interest in a global security in circumstances where certificates representing the debt securities must be delivered to the lender or other beneficiary of the pledge in order for the pledge to be effective. |
| • | The depositary’s policies, which may change from time to time, will govern payments, transfers, exchanges and other matters relating to an investor’s interest in a global security. We and the trustee have no responsibility for any aspect of the depositary’s actions or for its records of ownership interests in a global security. We and the trustee also do not supervise the depositary in any way. |
| • | If we redeem less than all the debt securities of a particular series being redeemed, DTC’s practice is to determine by lot the amount to be redeemed from each of its participants holding that series. |
| • | An investor is required to give notice of exercise of any option to elect repayment of its debt securities, through its participant, to the applicable trustee and to deliver the related debt securities by causing its participant to transfer its interest in those debt securities, on DTC’s records, to the applicable trustee. |
| • | DTC requires that those who purchase and sell interests in a global security deposited in its book-entry system use immediately available funds. Your broker or bank may also require you to use immediately available funds when purchasing or selling interests in a global security. |
| • | Financial institutions that participate in the depositary’s book-entry system, and through which an investor holds its interest in a global security, may also have their own policies affecting payments, |
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notices and other matters relating to the debt securities. There may be more than one financial intermediary in the chain of ownership for an investor. We do not monitor and are not responsible for the actions of any of those intermediaries. |
Special Situations when a Global Security will be Terminated
In a few special situations described below, a global security will be terminated and interests in it will be exchanged for certificates in non-book-entry form (certificated securities). After that exchange, the choice of whether to hold the certificated debt securities directly or in street name will be up to the investor. Investors must consult their own banks or brokers to find out how to have their interests in a global security transferred on termination to their own names, so that they will be holders. We have described the rights of legal holders and street name investors under “Issuance of Securities in Registered Form” above.
The prospectus supplement may list situations for terminating a global security that would apply only to the particular series of debt securities covered by the prospectus supplement. If a global security is terminated, only the depositary, and not we or the applicable trustee, is responsible for deciding the names of the institutions in whose names the debt securities represented by the global security will be registered and, therefore, who will be the holders of those debt securities.
Payment and Paying Agents
We will pay interest to the person listed in the applicable trustee’s records as the owner of the debt security at the close of business on a particular day in advance of each due date for interest, even if that person no longer owns the debt security on the interest due date. That day, often approximately two weeks in advance of the interest due date, is called the “record date.” Because we will pay all the interest for an interest period to the holders on the record date, holders buying and selling debt securities must work out between themselves the appropriate purchase price. The most common manner is to adjust the sales price of the debt securities to prorate interest fairly between buyer and seller based on their respective ownership periods within the particular interest period. This prorated interest amount is called “accrued interest.”
Payments on Global Securities
We will make payments on a global security in accordance with the applicable policies of the depositary as in effect from time to time. Under those policies, we will make payments directly to the depositary, or its nominee, and not to any indirect holders who own beneficial interests in the global security. An indirect holder’s right to those payments will be governed by the rules and practices of the depositary and its participants.
Payments on Certificated Securities
We will make payments on a certificated debt security as follows. We will pay interest that is due on an interest payment date by check mailed on the interest payment date to the holder at his or her address shown on the trustee’s records as of the close of business on the regular record date. We will make all payments of principal and premium, if any, by check at the office of the applicable trustee in New York, New York and/or at other offices that may be specified in the prospectus supplement or in a notice to holders against surrender of the debt security.
Alternatively, if the holder asks us to do so, we will pay any amount that becomes due on the debt security by wire transfer of immediately available funds to an account at a bank in New York City, on the due date. To request payment by wire, the holder must give the applicable trustee or other paying agent appropriate transfer instructions at least 15 business days before the requested wire payment is due. In the case of any interest payment due on an interest payment date, the instructions must be given by the person who is the holder on the relevant regular record date. Any wire instructions, once properly given, will remain in effect unless and until new instructions are given in the manner described above.
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Payment when Offices are Closed
If any payment is due on a debt security on a day that is not a business day, we will make the payment on the next day that is a business day. Payments made on the next business day in this situation will be treated under the indenture as if they were made on the original due date, except as otherwise indicated in the attached prospectus supplement. Such payment will not result in a default under any debt security or the indenture, and no interest will accrue on the payment amount from the original due date to the next day that is a business day.
Book-entry and other indirect holders should consult their banks or brokers for information on how they will receive payments on their debt securities.
Events of Default
You will have rights if an Event of Default occurs in respect of the debt securities of your series and is not cured, as described later in this subsection.
The term “Event of Default” in respect of the debt securities of your series means any of the following (unless the prospectus supplement relating to such debt securities states otherwise):
| • | we do not pay the principal of, or any premium on, a debt security of the series on its due date, and do not cure this default within five days; |
| • | we do not pay interest on a debt security of the series when due, and such default is not cured within 30 days; |
| • | we do not deposit any sinking fund payment in respect of debt securities of the series on its due date, and do not cure this default within five days; |
| • | we remain in breach of a covenant in respect of debt securities of the series for 60 days after we receive a written notice of default stating we are in breach. The notice must be sent by either the trustee or holders of at least 25% of the principal amount of debt securities of the series; |
| • | we file for bankruptcy or certain other events of bankruptcy, insolvency or reorganization occur and remain undischarged or unstayed for a period of 60 days; |
| • | on the last business day of each of 24 consecutive calendar months, we have an asset coverage of less than 100%; and |
| • | any other Event of Default in respect of debt securities of the series described in the applicable prospectus supplement occurs. |
An Event of Default for a particular series of debt securities does not necessarily constitute an Event of Default for any other series of debt securities issued under the same or any other indenture. The trustee may withhold notice to the holders of debt securities of any default, except in the payment of principal, premium or interest, if it considers the withholding of notice to be in the best interests of the holders.
Remedies if an Event of Default Occurs
If an Event of Default has occurred and has not been cured, the trustee or the holders of at least 25% in principal amount of the debt securities of the affected series may declare the entire principal amount of all the debt securities of that series to be due and immediately payable. This is called a declaration of acceleration of maturity. In certain circumstances, a declaration of acceleration of maturity may be canceled by the holders of a majority in principal amount of the debt securities of the affected series.
The trustee is not required to take any action under the indenture at the request of any holders unless the holders offer the trustee reasonable protection from expenses and liability (called an “indemnity”). If reasonable
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indemnity is provided, the holders of a majority in principal amount of the outstanding debt securities of the relevant series may direct the time, method and place of conducting any lawsuit or other formal legal action seeking any remedy available to the trustee. The trustee may refuse to follow those directions in certain circumstances. No delay or omission in exercising any right or remedy will be treated as a waiver of that right, remedy or Event of Default.
Before you are allowed to bypass your trustee and bring your own lawsuit or other formal legal action or take other steps to enforce your rights or protect your interests relating to the debt securities, the following must occur:
| • | the holder must give your trustee written notice that an Event of Default has occurred and remains uncured; |
| • | the holders of at least 25% in principal amount of all outstanding debt securities of the relevant series must make a written request that the trustee take action because of the default and must offer reasonable indemnity to the trustee against the cost and other liabilities of taking that action; |
| • | the trustee must not have taken action for 60 days after receipt of the above notice and offer of indemnity; and |
| • | the holders of a majority in principal amount of the debt securities must not have given the trustee a direction inconsistent with the above notice during that 60 day period. |
However, you are entitled at any time to bring a lawsuit for the payment of money due on your debt securities on or after the due date.
Holders of a majority in principal amount of the debt securities of the affected series may waive any past defaults other than:
| • | the payment of principal, any premium or interest; or |
| • | in respect of a covenant that cannot be modified or amended without the consent of each holder. |
Book-entry and other indirect holders should consult their banks or brokers for information on how to give notice or direction to or make a request of the trustee and how to declare or cancel an acceleration of maturity.
Each year, we will furnish to each trustee a written statement of certain of our officers certifying that to their knowledge we are in compliance with the indenture and the debt securities, or else specifying any default.
Merger or Consolidation
Under the terms of the indenture, we are generally permitted to consolidate or merge with another entity. We may also be permitted to sell all or substantially all of our assets to another entity. However, unless the prospectus supplement relating to certain debt securities states otherwise, we may not take any of these actions unless all the following conditions are met:
| • | where we merge out of existence or sell our assets, the resulting entity must agree to be legally responsible for our obligations under the debt securities; |
| • | immediately after giving effect to such transaction, no Default or Event of Default shall have happened and be continuing; |
| • | under the indenture, no merger or sale of assets may be made if as a result any of our property or assets or any property or assets of one of our subsidiaries, if any, would become subject to any mortgage, lien or other encumbrance unless either (a) the mortgage, lien or other encumbrance could be created; |
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| • | pursuant to the limitation on liens covenant in the indenture without equally and ratably securing the indenture securities or (b) the indenture securities are secured equally and ratably with or prior to the debt secured by the mortgage, lien or other encumbrance; |
| • | we must deliver certain certificates and documents to the trustee; and |
| • | we must satisfy any other requirements specified in the prospectus supplement relating to a particular series of debt securities. |
Modification or Waiver
There are three types of changes we can make to the indenture and the debt securities issued thereunder.
Changes Requiring Approval
First, there are changes that we cannot make to debt securities without specific approval of all of the holders. The following is a list of those types of changes:
| • | change the stated maturity of the principal of or interest on a debt security; |
| • | reduce any amounts due on a debt security; |
| • | reduce the amount of principal payable upon acceleration of the maturity of a security following a default; |
| • | adversely affect any right of repayment at the holder’s option; |
| • | change the place (except as otherwise described in the prospectus or prospectus supplement) or currency of payment on a debt security; |
| • | impair your right to sue for payment; |
| • | adversely affect any right to convert or exchange a debt security in accordance with its terms; |
| • | modify the subordination provisions in the indenture in a manner that is adverse to holders of the debt securities; |
| • | reduce the percentage of holders of debt securities whose consent is needed to modify or amend the indenture; |
| • | reduce the percentage of holders of debt securities whose consent is needed to waive compliance with certain provisions of the indenture or to waive certain defaults; |
| • | modify any other aspect of the provisions of the indenture dealing with supplemental indentures, modification and waiver of past defaults, changes to the quorum or voting requirements or the waiver of certain covenants; and |
| • | change any obligation we have to pay additional amounts. |
Changes Not Requiring Approval
The second type of change does not require any vote by the holders of the debt securities. This type is limited to clarifications and certain other changes that would not adversely affect holders of the outstanding debt securities in any material respect. We also do not need any approval to make any change that affects only debt securities to be issued under the indenture after the change takes effect.
Changes Requiring Majority Approval
Any other change to the indenture and the debt securities would require the following approval:
| • | if the change affects only one series of debt securities, it must be approved by the holders of a majority in principal amount of that series; and |
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| • | if the change affects more than one series of debt securities issued under the same indenture, it must be approved by the holders of a majority in principal amount of all of the series affected by the change, with all affected series voting together as one class for this purpose. |
The holders of a majority in principal amount of all of the series of debt securities issued under an indenture, voting together as one class for this purpose, may waive our compliance with some of our covenants in that indenture. However, we cannot obtain a waiver of a payment default or of any of the matters covered by the bullet points included above under “—Changes Requiring Approval.”
Further Details Concerning Voting
When taking a vote, we will use the following rules to decide how much principal to attribute to a debt security:
| • | for OID securities, we will use the principal amount that would be due and payable on the voting date if the maturity of these debt securities were accelerated to that date because of a default; |
| • | for debt securities whose principal amount is not known (for example, because it is based on an index), we will use a special rule for that debt security described in the prospectus supplement; and |
| • | for debt securities denominated in one or more foreign currencies, we will use the U.S. dollar equivalent. |
Debt securities will not be considered outstanding, and therefore not eligible to vote, if we have deposited or set aside in trust money for their payment or redemption. Debt securities will also not be eligible to vote if they have been fully defeased as described later under “Defeasance—Full Defeasance.”
We will generally be entitled to set any day as a record date for the purpose of determining the holders of outstanding indenture securities that are entitled to vote or take other action under the indenture. If we set a record date for a vote or other action to be taken by holders of one or more series, that vote or action may be taken only by persons who are holders of outstanding indenture securities of those series on the record date and must be taken within eleven months following the record date.
Book-entry and other indirect holders should consult their banks or brokers for information on how approval may be granted or denied if we seek to change the indenture or the debt securities or request a waiver.
Defeasance
The following provisions will be applicable to each series of debt securities unless we state in the applicable prospectus supplement that the provisions of covenant defeasance and full defeasance will not be applicable to that series.
Covenant Defeasance
Under current U.S. federal tax law, we can make the deposit described below and be released from some of the restrictive covenants in the indenture under which the particular series was issued. This is called “covenant defeasance.” In that event, you would lose the protection of those restrictive covenants but would gain the protection of having money and government securities set aside in trust to repay your debt securities. If applicable, you also would be released from the subordination provisions as described under the “Indenture Provisions—Subordination” section below. In order to achieve covenant defeasance, we must do the following:
| • | if the debt securities of the particular series are denominated in U.S. dollars, we must deposit in trust for the benefit of all holders of such debt securities a combination of money and U.S. government or U.S. government agency notes or bonds that will generate enough cash to make interest, principal and any other payments on the debt securities on their various due dates; |
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| • | we must deliver to the trustee a legal opinion of our counsel confirming that, under current U.S. federal income tax law, we may make the above deposit without causing you to be taxed on the debt securities any differently than if we did not make the deposit and just repaid the debt securities ourselves at maturity; and |
| • | we must deliver to the trustee a legal opinion of our counsel stating that the above deposit does not require registration by us under the 1940 Act, as amended, and a legal opinion and officers’ certificate stating that all conditions precedent to covenant defeasance have been complied with. |
If we accomplish covenant defeasance, you can still look to us for repayment of the debt securities if there were a shortfall in the trust deposit or the trustee is prevented from making payment. For example, if one of the remaining Events of Default occurred (such as our bankruptcy) and the debt securities became immediately due and payable, there might be a shortfall. Depending on the event causing the default, you may not be able to obtain payment of the shortfall.
Full Defeasance
If there is a change in U.S. federal tax law, as described below, we can legally release ourselves from all payment and other obligations on the debt securities of a particular series (called “full defeasance”) if we put in place the following other arrangements for you to be repaid:
| • | if the debt securities of the particular series are denominated in U.S. dollars, we must deposit in trust for the benefit of all holders of such debt securities a combination of money and United States government or United States government agency notes or bonds that will generate enough cash to make interest, principal and any other payments on the debt securities on their various due dates. |
| • | we must deliver to the trustee a legal opinion confirming that there has been a change in current U.S. federal tax law or an IRS ruling that allows us to make the above deposit without causing you to be taxed on the debt securities any differently than if we did not make the deposit and just repaid the debt securities ourselves at maturity. Under current U.S. federal tax law, the deposit and our legal release from the debt securities would be treated as though we paid you your share of the cash and notes or bonds at the time the cash and notes or bonds were deposited in trust in exchange for your debt securities and you would recognize gain or loss on the debt securities at the time of the deposit; |
| • | we must deliver to the trustee a legal opinion of our counsel stating that the above deposit does not require registration by us under the 1940 Act, as amended, and a legal opinion and officers’ certificate stating that all conditions precedent to defeasance have been complied with; |
| • | Defeasance must not result in a breach of the indenture or any other material agreements; and |
| • | Satisfy the conditions for covenant defeasance contained in any supplemental indentures. |
If we ever did accomplish full defeasance, as described above, you would have to rely solely on the trust deposit for repayment of the debt securities. You could not look to us for repayment in the unlikely event of any shortfall. Conversely, the trust deposit would most likely be protected from claims of our lenders and other creditors if we ever became bankrupt or insolvent. If applicable, you would also be released from the subordination provisions described later under “Indenture Provisions—Subordination.”
Form, Exchange and Transfer of Certificated Registered Securities
Holders may exchange their certificated securities, if any, for debt securities of smaller denominations or combined into fewer debt securities of larger denominations, as long as the total principal amount is not changed.
Holders may exchange or transfer their certificated securities, if any, at the office of their trustee. We have appointed the trustee to act as our agent for registering debt securities in the names of holders transferring debt securities. We may appoint another entity to perform these functions or perform them ourselves.
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Holders will not be required to pay a service charge to transfer or exchange their certificated securities, if any, but they may be required to pay any tax or other governmental charge associated with the transfer or exchange. The transfer or exchange will be made only if our transfer agent is satisfied with the holder’s proof of legal ownership.
If we have designated additional transfer agents for your debt security, they will be named in your prospectus supplement. We may appoint additional transfer agents or cancel the appointment of any particular transfer agent. We may also approve a change in the office through which any transfer agent acts.
If any certificated securities of a particular series are redeemable and we redeem less than all the debt securities of that series, we may block the transfer or exchange of those debt securities during the period beginning 15 days before the day we mail the notice of redemption and ending on the day of that mailing, in order to freeze the list of holders to prepare the mailing. We may also refuse to register transfers or exchanges of any certificated securities selected for redemption, except that we will continue to permit transfers and exchanges of the unredeemed portion of any debt security that will be partially redeemed.
Resignation of Trustee
Each trustee may resign or be removed with respect to one or more series of indenture securities provided that a successor trustee is appointed to act with respect to these series. In the event that two or more persons are acting as trustee with respect to different series of indenture securities under the indenture, each of the trustees will be a trustee of a trust separate and apart from the trust administered by any other trustee.
Indenture Provisions—Subordination
Upon any distribution of our assets upon our dissolution, winding up, liquidation or reorganization, the payment of the principal of (and premium, if any) and interest, if any, on any indenture securities denominated as subordinated debt securities is to be subordinated to the extent provided in the indenture in right of payment to the prior payment in full of all senior indebtedness (as defined below), but our obligation to you to make payment of the principal of (and premium, if any) and interest, if any, on such subordinated debt securities will not otherwise be affected. In addition, no payment on account of principal (or premium, if any), sinking fund or interest, if any, may be made on such subordinated debt securities at any time unless full payment of all amounts due in respect of the principal (and premium, if any), sinking fund and interest on senior indebtedness has been made or duly provided for in money or money’s worth.
In the event that, notwithstanding the foregoing, any payment by us is received by the trustee in respect of subordinated debt securities or by the holders of any of such subordinated debt securities before all senior indebtedness is paid in full, the payment or distribution must be paid over to the holders of the senior indebtedness or on their behalf for application to the payment of all the senior indebtedness remaining unpaid until all the senior indebtedness has been paid in full, after giving effect to any concurrent payment or distribution to the holders of the senior indebtedness. Subject to the payment in full of all senior indebtedness upon this distribution by us, the holders of such subordinated debt securities will be subrogated to the rights of the holders of the senior indebtedness to the extent of payments made to the holders of the senior indebtedness out of the distributive share of such subordinated debt securities.
By reason of this subordination, in the event of a distribution of our assets upon our insolvency, certain of our senior creditors may recover more, ratably, than holders of any subordinated debt securities. The indenture provides that these subordination provisions will not apply to money and securities held in trust under the defeasance provisions of the indenture.
Senior indebtedness is defined in the indenture as the principal of (and premium, if any) and unpaid interest on:
| • | our indebtedness (including indebtedness of others guaranteed by us), whenever created, incurred, assumed or guaranteed, for money borrowed (other than indenture securities issued under the indenture |
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and denominated as subordinated debt securities), unless in the instrument creating or evidencing the same or under which the same is outstanding it is provided that this indebtedness is not senior or prior in right of payment to the subordinated debt securities; and |
| • | renewals, extensions, modifications and refinancings of any of this indebtedness. |
If this prospectus is being delivered in connection with the offering of a series of indenture securities denominated as subordinated debt securities, the accompanying prospectus supplement to this prospectus will set forth the approximate amount of our senior indebtedness outstanding as of a recent date.
Secured Indebtedness
Certain of our indebtedness, including certain series of indenture securities, may be secured. The prospectus supplement for each series of indenture securities will describe the terms of any security interest for such series and will indicate the approximate amount of our secured indebtedness as of a recent date. In the event of a distribution of our assets upon our insolvency, the holders of unsecured indenture securities may recover less, ratably, than holders of any of our secured indebtedness.
The Trustee under the Indenture
U.S. Bank National Association will serve as the trustee under the indenture.
Certain Considerations Relating to Foreign Currencies
Debt securities denominated or payable in foreign currencies may entail significant risks. These risks include the possibility of significant fluctuations in the foreign currency markets, the imposition or modification of foreign exchange controls and potential illiquidity in the secondary market. These risks will vary depending upon the currency or currencies involved and will be more fully described in the applicable prospectus supplement.
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We may offer, from time to time, in one or more offerings or series, up to $850,000,000 of our common stock, preferred stock, debt securities, subscription rights to purchase shares of our common stock or warrants representing rights to purchase shares of our common stock, preferred stock or debt securities, in one or more underwritten public offerings, at-the-market offerings to or through a market maker or into an existing trading market for the securities, on an exchange, or otherwise, negotiated transactions, block trades, best efforts, auctions or a combination of these methods. The holders of our common stock will indirectly bear any fees and expenses in connection with any such offerings. We may sell the securities through underwriters or dealers, directly to one or more purchasers, including existing stockholders in a rights offering, through agents or through a combination of any such methods of sale. Any underwriter or agent involved in the offer and sale of the securities will be named in the applicable prospectus supplement. A prospectus supplement or supplements will also describe the terms of the offering of the securities, including: the purchase price of the securities and the proceeds we will receive from the sale; any over-allotment options under which underwriters may purchase additional securities from us; any agency fees or underwriting discounts and other items constituting agents’ or underwriters’ compensation; any expenses we incur in connection with the sale of such securities; the public offering price; any discounts or concessions allowed or re-allowed or paid to dealers; and any securities exchange or market on which the securities may be listed. Only underwriters named in the applicable prospectus supplement will be underwriters of the securities offered by the applicable prospectus supplement.
The distribution of the securities may be effected from time to time in one or more transactions at a fixed price or prices, which may be changed, at prevailing market prices at the time of sale, at prices related to such prevailing market prices, at negotiated prices, or at prices determined by an auction process, provided, however, that the offering price per share of our common stock, less any underwriting commissions or discounts, must equal or exceed the NAV per share of our common stock at the time of the offering except (1) in connection with a rights offering to our existing stockholders, (2) with the consent of the majority of our voting securities or (3) under such circumstances as the SEC may permit. The price at which securities may be distributed may represent a discount from prevailing market prices. Although we are not currently authorized to issue shares of our common stock at a price below our NAV per share, we may seek stockholder approval of this proposal again at a special meeting of stockholders or our next annual meeting of stockholders. Our Board of Directors, subject to its fiduciary duties and regulatory requirements, has the discretion to determine the amount of the discount, and as a result, the discount could be up to 100% of NAV per share.
In connection with the sale of our securities, underwriters or agents may receive compensation from us or from purchasers of our securities, for whom they may act as agents, in the form of discounts, concessions or commissions. Underwriters may sell our securities to or through dealers and such dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters and/or commissions from the purchasers for whom they may act as agents. Underwriters, dealers and agents that participate in the distribution of our securities may be deemed to be underwriters under the Securities Act, and any discounts and commissions they receive from us and any profit realized by them on the resale of our securities may be deemed to be underwriting discounts and commissions under the Securities Act. Any such underwriter or agent will be identified and any such compensation received from us will be described in the applicable prospectus supplement.
Any underwriter may engage in over-allotment, stabilizing transactions, short-covering transactions and penalty bids in accordance with Regulation M under the Exchange Act. Over-allotment involves sales in excess of the offering size, which create a short position. Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum price. Syndicate-covering or other short-covering transactions involve purchases of the securities, either through exercise of the over-allotment option or in the open market after the distribution is completed, to cover short positions. Penalty bids permit the underwriters to reclaim a selling concession from a dealer when the securities originally sold by the dealer are purchased in a stabilizing or covering transaction to cover short positions. Those activities may cause the price of
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the securities to be higher than it would otherwise be. If commenced, the underwriters may discontinue any of the activities at any time.
Any underwriters that are qualified market makers on the NYSE may engage in passive market making transactions in our common stock on the NYSE in accordance with Regulation M under the Exchange Act, during the business day prior to the pricing of the offering, before the commencement of offers or sales of our common stock. Passive market makers must comply with applicable volume and price limitations and must be identified as passive market makers. In general, a passive market maker must display its bid at a price not in excess of the highest independent bid for such security; if all independent bids are lowered below the passive market maker’s bid, however, the passive market maker’s bid must then be lowered when certain purchase limits are exceeded. Passive market making may stabilize the market price of the securities at a level above that which might otherwise prevail in the open market and, if commenced, may be discontinued at any time.
We may sell securities directly or through agents we designate from time to time. We will name any agent involved in the offering and sale of securities and we will describe any commissions we will pay the agent in the applicable prospectus supplement. Unless the applicable prospectus supplement states otherwise, our agent will act on a best-efforts basis for the period of its appointment.
Unless otherwise specified in the applicable prospectus supplement, each class or series of securities will be a new issue with no trading market, other than our common stock, which is traded on the NYSE. We may elect to list any other class or series of securities on any exchanges, but we are not obligated to do so. We cannot guarantee the liquidity of the trading markets for any securities.
Under agreements that we may enter, underwriters, dealers and agents who participate in the distribution of our securities may be entitled to indemnification by us against certain liabilities, including liabilities under the Securities Act, or contribution with respect to payments that the agents or underwriters may make with respect to these liabilities. Underwriters, dealers and agents may engage in transactions with, or perform services for, us in the ordinary course of business.
If so indicated in the applicable prospectus supplement, we will authorize underwriters or other persons acting as our agents to solicit offers by certain institutions to purchase our securities from us pursuant to contracts providing for payment and delivery on a future date. Institutions with which such contracts may be made include commercial and savings banks, insurance companies, pension funds, investment companies, educational and charitable institutions and others, but in all cases such institutions must be approved by us. The obligations of any purchaser under any such contract will be subject to the condition that the purchase of our securities shall not at the time of delivery be prohibited under the laws of the jurisdiction to which such purchaser is subject. The underwriters and such other agents will not have any responsibility in respect of the validity or performance of such contracts. Such contracts will be subject only to those conditions set forth in the applicable prospectus supplement, and the applicable prospectus supplement will set forth the commission payable for solicitation of such contracts.
We may enter into derivative transactions with third parties, or sell securities not covered by this prospectus to third parties in privately negotiated transactions. If the applicable prospectus supplement indicates, in connection with those derivatives, the third parties may sell securities covered by this prospectus and the applicable prospectus supplement, including in short sale transactions. If so, the third party may use securities pledged by us or borrowed from us or others to settle those sales or to close out any related open borrowings of stock, and may use securities received from us in settlement of those derivatives to close out any related open borrowings of stock. The third parties in such sale transactions will be underwriters and, if not identified in this prospectus, will be identified in the applicable prospectus supplement.
In compliance with the guidelines of the Financial Industry Regulatory Authority, the maximum compensation to the underwriters or dealers in connection with the sale of our securities pursuant to this
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prospectus and the applicable prospectus supplement may not exceed 8% of the aggregate offering price of the securities as set forth on the cover page of the applicable prospectus supplement.
In order to comply with the securities laws of certain states, if applicable, our securities offered hereby will be sold in such jurisdictions only through registered or licensed brokers or dealers.
CUSTODIAN, TRANSFER AND DIVIDEND PAYING AGENT AND REGISTRAR
Securities we hold in connection with our investments are held under a custody agreement with Union Bank of California. The address of the custodian is 475 Sansome Street, 15th Floor, San Francisco, California 94111. We have also entered into a custody agreement with U.S. Bank National Association, which is located at One Federal Street, Third Floor, Boston, Massachusetts 02110. The transfer agent and registrar for our common stock, American Stock Transfer & Trust Company, will act as our transfer agent, dividend paying and reinvestment agent and registrar. The principal business address of the transfer agent is 6201 15th Avenue, Brooklyn, New York 11219.
Certain legal matters regarding the securities offered by this prospectus will be passed upon for us by Dechert LLP, New York, NY. Certain legal matters will be passed upon for underwriters, if any, by the counsel named in the prospectus supplement.
The consolidated financial statements and management’s assessment of the effectiveness of internal control over financial reporting (which is included in Management’s Report on Internal Control over Financial Reporting) incorporated in this prospectus by reference to the Annual Report on Form 10-K for the year ended December 31, 2018 have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, located at Three Embarcadero Center, San Francisco, California 9411, given on the authority of said firm as experts in auditing and accounting.
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This prospectus is part of a registration statement that we have filed with the SEC. Pursuant to the SBCAA, we are allowed to “incorporate by reference” the information that we file with the SEC, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus, and later information that we file with the SEC will automatically update and supersede this information.
We incorporate by reference the documents listed below and any future filings (including those made after the date of the filing of the registration statement of which this prospectus is a part) we will make with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act until the termination of the offering of the securities covered by this prospectus; provided, however, that information “furnished” under Item 2.02 or Item 7.01 of Form 8-K or other information “furnished” to the SEC which is not deemed filed is not incorporated by reference:
| • | our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on February 21, 2019; |
| • | our Definitive Proxy Statement on Schedule 14A, filed with the SEC on April 24, 2019; |
| • | our Current Reports on Form 8-K (other than information furnished rather than filed) filed with the SEC on January 7, 2019, January 15, 2019, January 17, 2019, January 22, 2019, January 31, 2019, February 5, 2019, February 12, 2019, and March 14, 2019; and |
| • | The description of our Common Stock referenced in our Registration Statement on Form 8-A (No. 001-35515), as filed with the SEC on April 17, 2012, including any amendment or report filed for the purpose of updating such description prior to the termination of the offering of the common stock registered hereby; |
These documents may also be accessed on our website at www.htgc.com . Information contained in, or accessible through, our website is not a part of this prospectus.
You may request a copy of these filings (other than exhibits, unless the exhibits are specifically incorporated by reference into these documents) at no cost by writing or calling Investor Relations at the following address and telephone number:
Hercules Capital, Inc.
400 Hamilton Avenue, Suite 310
Palo Alto, California 94301
(650) 433-5578
We file annual, quarterly and current periodic reports, proxy statements and other information with the SEC under the Exchange Act. The SEC maintains an Internet website that contains reports, proxy and information statements and other information filed electronically by us with the SEC which are available on the SEC’s Internet website at http://www.sec.gov . Copies of these reports, proxy and information statements and other information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov.
We maintain a website on the Internet at www.htgc.com . Except for the documents incorporated by reference into this prospectus, the information on our website is not part of this prospectus. We make available, free of charge, on our website our proxy statement, annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
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$
% Notes due
PROSPECTUS SUPPLEMENT
Joint Book-Running Managers
Goldman Sachs & Co. LLC SMBC Nikko
MUFG RBC Capital Markets
The date of this prospectus supplement is September , 2021.
