As filed with the Securities and Exchange Commission on May 3, 2019
Securities Act Registration No. 333-225698
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form N-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
oPre-Effective Amendment No.
xPost-Effective Amendment No. 2
Horizon Technology Finance Corporation
(Exact name of Registrant as specified in its charter)
312 Farmington Avenue
Farmington, Connecticut 06032
(Address of Principal Executive Offices)
(860) 676-8654
(Registrant’s Telephone Number, Including Area Code)
Robert D. Pomeroy, Jr.
Chief Executive Officer
Horizon Technology Finance Corporation
312 Farmington Avenue
Farmington, Connecticut 06032
(Name and Address of Agent for Service)
Copies to:
Thomas Friedmann
David Harris
Dechert LLP
One International Place
100 Oliver Street
Boston, MA 02110
(617) 728-7120
(617) 275-8389 Facsimile
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
From time to time after the effective date of this Registration Statement.
If any securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, other than securities offered in connection with a dividend reinvestment plan, check the following box.þ
It is proposed that this filing will become effective (check the appropriate box)
x When declared effective pursuant to section 8(c)
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS Subject to completion, dated May 3, 2019
$250,000,000
Horizon Technology Finance Corporation
Common Stock
Preferred Stock
Subscription Rights
Debt Securities
Warrants
We are a non-diversified closed-end management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). We are externally managed by Horizon Technology Finance Management LLC, a registered investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). Our investment objective is to maximize our investment portfolio’s total return by generating current income from the debt investments we make and capital appreciation from the warrants we receive when making such debt investments. We make secured debt investments to development-stage companies in the technology, life science, healthcare information and services and cleantech industries.
We may offer, from time to time, in one or more offerings or series, together or separately, up to $250,000,000 of our common stock, preferred stock, subscription rights, debt securities or warrants representing rights to purchase shares of our common stock, preferred stock or debt securities, which we refer to, collectively, as the “securities.”
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 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 to be described in one or more supplements to this prospectus. In the event we offer common stock or warrants or rights to acquire such common stock hereunder, the offering price per share of our common stock less any underwriting commissions or discounts 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 the exercise of certain warrants, options or rights whose issuance has been approved by our stockholders at an exercise or conversion price not less than the market value of our common stock at the date of issuance (or, if no such market value exists, the net asset value per share of our common stock as of such date); (2) to the extent such an offer or sale is approved by our stockholders and by our board of directors (our “Board”); or (3) under such other circumstances as may be permitted under the 1940 Act or by the Securities and Exchange Commission (the “SEC”).
Our common stock is listed on The Nasdaq Global Select Market (“Nasdaq”) under the symbol “HRZN”. In addition, our 6.25% Notes due 2022 trade on the New York Stock Exchange under the ticker symbol “HTFA”. On May 2, 2019, the last reported sale price of a share of our common stock on Nasdaq was $11.69. The net asset value per share of our common stock at March 31, 2019 (the last date prior to the date of this prospectus on which we determined net asset value) was $11.55.
Shares of closed-end investment companies, including BDCs, frequently trade at a discount to their net asset value. If our shares trade at a discount to net asset value, it may increase the risk of loss for purchasers in this public offering.
This prospectus describes some of the general terms that may apply an offering of our securities. We will provide the specific terms of these offerings and securities in one or more supplements to this prospectus. We may also authorize one or more free writing prospectuses to be provided to you in connection with these offerings. The prospectus supplement and any related free writing prospectus may also add, update, or change information contained in this prospectus. You should carefully read this prospectus, the applicable prospectus supplement, and any related free writing prospectus, and the documents incorporated by reference, before buying any of the securities being offered. We file annual, quarterly and current reports, proxy statements and other information about us with the SEC. We maintain a website at www.horizontechfinance.com and intend to make all of the foregoing information available, free of charge, on or through our website. You may also obtain such information by contacting us at 312 Farmington Avenue, Farmington, Connecticut 06032, or by calling us collect at (860) 676-8654. The SEC maintains a website at www.sec.gov where such information is available without charge. Information contained on our website is not incorporated by reference into this prospectus or any supplement to this prospectus, and you should not consider information contained on our website to be part of this prospectus or any supplement hereto.
Investing in our common stock involves a high degree of risk. You should review carefully the risks and uncertainties, including the risk of leverage and dilution, described in the section titled “Risk Factors” included in, or incorporated by reference into, the applicable prospectus supplement and in any free writing prospectuses we have authorized for use in connection with a specific offering, and under similar headings in the other documents that are incorporated by reference into this prospectus before investing in our securities.
Neither the SEC 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 securities unless accompanied by a prospectus supplement.
The date of this prospectus is , 2019
You should rely only on the information contained in this prospectus or any accompanying supplement to this prospectus. We have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. This prospectus and any accompanying prospectus supplement do not constitute an offer to sell or a solicitation of any offer to buy any security other than the registered securities to which they relate. You should assume that the information in this prospectus is accurate only as of the date of this prospectus. Our business, financial condition and prospects may have changed since that date. We will update this prospectus to reflect material changes to the information contained herein.
TABLE OF CONTENTS
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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. Under this shelf registration process, we may offer, from time to time, up to $250,000,000 of our common stock, preferred stock, subscription rights, debt securities or warrants representing rights to purchase shares of our common stock, preferred stock or debt securities on terms to be determined at the time of the offering. 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. The prospectus supplement may also add, update or change information contained in 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. We may also authorize one or more free writing prospectuses to be provided to you that may contain material information relating to these offerings. In a prospectus supplement or free writing prospectus, we may also add, update, or change any of the information contained in this prospectus. or in the documents we have incorporated by reference into this prospectus. This prospectus, together with the applicable prospectus supplement, any related free writing prospectus, and the documents incorporated by reference into this prospectus and the applicable prospectus supplement, will include all material information relating to the applicable offering. Before buying any of the securities being offered, you should carefully read both this prospectus and the applicable prospectus supplement and any related free writing prospectus, together with the additional information described in the section titled “Available Information.”
This prospectus may contain estimates and information concerning our industry, including market size and growth rates of the markets in which we participate, that are based on industry publications and reports. This information involves many assumptions and limitations, and you are cautioned not to give undue weight to these estimates. We have not independently verified the accuracy or completeness of the data contained in these industry publications and reports. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors,” that could cause results to differ materially from those expressed in these publications and reports.
This prospectus includes summaries of certain provisions contained in some of the documents described in this prospectus, but reference is made to the actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Copies of some of the documents referred to herein have been filed, will be filed, or will be incorporated by reference as exhibits to the registration statement of which this prospectus is a part, and you may obtain copies of those documents as described in the section titled “Available Information.”
You should rely only on the information included or incorporated by reference in this prospectus, any prospectus supplement or in any free writing prospectus prepared by or on behalf of us or to 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 prepared by or on behalf of us or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. 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 prepared by or on behalf of us or to which we have referred you 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. You should not assume that the information included or incorporated by reference in this prospectus or any prospectus supplement or in any such free writing prospectus is accurate as of any date other than their respective dates.
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PROSPECTUS SUMMARY
This summary highlights information included elsewhere in this prospectus or incorporated by reference. It is not complete and may not contain all of the information that you should consider before making your investment decision. You should carefully read the entire prospectus, the applicable prospectus supplement, and any related free writing prospectus, including the risks of investing in our securities discussed in the section titled “Risk Factors” in the applicable prospectus supplement and any related free writing prospectus, and under similar headings in the other documents that are incorporated by reference into this prospectus. Before making your investment decision, you should also carefully read the information incorporated by reference into this prospectus, including our financial statements and related notes, and the exhibits to the registration statement of which this prospectus is a part.
Except where the context suggests otherwise, the terms “we,” “us,” “our” and “Company” refer to our predecessor Compass Horizon Funding Company, LLC and its consolidated subsidiary prior to our initial public offering, or IPO, and to Horizon Technology Finance Corporation and its consolidated subsidiaries after the IPO. The terms our “Advisor” and our “Administrator” refer to Horizon Technology Finance Management, LLC, a Delaware limited liability company, and, where the context requires, Horizon Technology Finance, LLC, or “HTF”, our Advisor’s predecessor.
Our company
We are a specialty finance company that lends to and invests in development-stage companies in the technology, life science, healthcare information and services and cleantech industries, which we refer to collectively as our “Target Industries.” Our investment objective is to maximize our investment portfolio’s total return by generating current income from the debt investments we make and capital appreciation from the warrants we receive when making such debt investments. We are focused on making secured debt investments, which we refer to as “Venture Loans,” to venture capital backed companies in our Target Industries, which we refer to as “Venture Lending.” We also selectively provide Venture Loans to publicly traded companies in our Target Industries. Our debt investments are typically secured by first liens or first liens behind a secured revolving line of credit, or “Senior Term Loans.” Venture Lending is typically characterized by (1) the making of a secured debt investment after a venture capital or equity investment in the portfolio company has been made, which investment provides a source of cash to fund the portfolio company’s debt service obligations under the Venture Loan, (2) the senior priority of the Venture Loan which requires repayment of the Venture Loan prior to the equity investors realizing a return on their capital, (3) the relatively rapid amortization of the Venture Loan and (4) the lender’s receipt of warrants or other success fees with the making of the Venture Loan.
We are an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a BDC under the 1940 Act. In addition, for U.S. federal income tax purposes, we have elected to be treated as a regulated investment company, or RIC, under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code. As a BDC, we are required to comply with regulatory requirements, including limitations on our use of debt. We are permitted to, and expect to, finance a portion of our investments through borrowings. On March 23, 2018, the Small Business Credit Availability Act, or SBCAA, amended Section 61(a) of the 1940 Act to add Section 61(a)(2) which enables BDCs to reduce their asset coverage requirements from 200% to 150%. This provision permits a BDC to double the maximum amount of leverage that it is permitted to incur, so long as the BDC meets certain disclosure requirements and obtains certain approvals. As defined in the 1940 Act, asset coverage of 150% means that for every $100 of net assets a BDC holds, it may raise up to $200 from borrowing and issuing senior securities. We received approval from our stockholders to reduce our asset coverage requirement from 200% to 150% on October 30, 2018. The amount of leverage that we may employ will depend on our assessment of market conditions and other factors at the time of any proposed borrowing. As a RIC, we generally do not have to pay corporate-level federal income taxes on our investment company taxable income and our net capital gain that we distribute to our stockholders as long as we meet certain source-of-income, distribution, asset diversification and other requirements.
We are externally managed and advised by our Advisor. Our Advisor manages our day-to-day operations and also provides all administrative services necessary for us to operate.
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Our advisor
Our investment activities are managed by our Advisor, and we expect to continue to benefit from our Advisor’s ability to identify attractive investment opportunities, conduct diligence on and value prospective investments, negotiate investments and manage our portfolio of investments. In addition to the experience gained from the years that they have worked together both at our Advisor and prior to the formation of our Advisor, the members of our investment team have broad lending backgrounds, with substantial experience at a variety of commercial finance companies, technology banks and private debt funds, and have developed a broad network of contacts within the venture capital and private equity community. This network of contacts provides a principal source of investment opportunities.
Our Advisor is led by five senior managers including Robert D. Pomeroy, Jr., our Chief Executive Officer, Gerald A. Michaud, our President, Daniel R. Trolio, our Senior Vice President and Chief Financial Officer, John C. Bombara, our Senior Vice President, General Counsel and Chief Compliance Officer, and Daniel S. Devorsetz, our Senior Vice President and Chief Investment Officer.
Our strategy
Our investment objective is to maximize our investment portfolio’s total return by generating current income from the loans we make and capital appreciation from the warrants we receive when making such loans. To further implement our business strategy, we expect our Advisor to continue to employ the following core strategies:
| • | Structured investments in the venture capital and private and public equity markets. We make loans to development-stage companies within our Target Industries typically in the form of secured loans. The secured debt structure provides a lower risk strategy, as compared to equity or unsecured debt investments, to participate in the emerging technology markets because the debt structures we typically utilize provide collateral against the downside risk of loss, provide return of capital in a much shorter timeframe through current-pay interest and amortization of principal and have a senior position to equity in the borrower’s capital structure in the case of insolvency, wind down or bankruptcy. Unlike venture capital and private equity investments, our investment returns and return of our capital do not require equity investment exits such as mergers and acquisitions or IPOs. Instead, we receive returns on our debt investments primarily through regularly scheduled payments of principal and interest and, if necessary, liquidation of the collateral supporting the debt investment upon a default. Only the potential gains from warrants depend upon equity investment exits. |
| • | “Enterprise value” lending. We and our Advisor take an enterprise value approach to structuring and underwriting loans. Enterprise value includes the implied valuation based upon recent equity capital invested as well as the intrinsic value of the applicable portfolio company’s particular technology, service or customer base. We secure our lien position against the enterprise value of each portfolio company. |
| • | Creative products with attractive risk-adjusted pricing. Each of our existing and prospective portfolio companies has its own unique funding needs for the capital provided from the proceeds of our Venture Loans. These funding needs include funds for additional development “runways”, funds to hire or retain sales staff or funds to invest in research and development in order to reach important technical milestones in advance of raising additional equity. Our loans include current-pay interest, commitment fees, end-of-term payments, or ETPs, pre-payment fees, success fees and non-utilization fees. We believe we have developed pricing tools, structuring techniques and valuation metrics that satisfy our portfolio companies’ financing requirements while mitigating risk and maximizing returns on our investments. |
| • | Opportunity for enhanced returns. To enhance our debt investment portfolio returns, in addition to interest and fees, we frequently obtain warrants to purchase the equity of our portfolio companies as additional consideration for making debt investments. The warrants we obtain generally include a “cashless exercise” provision to allow us to exercise these rights without requiring us to make any |
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| additional cash investment. Obtaining warrants in our portfolio companies has allowed us to participate in the equity appreciation of our portfolio companies, which we expect will enable us to generate higher returns for our investors. |
| • | Direct origination. We originate transactions directly with technology, life science, healthcare information and services and cleantech companies. These transactions are referred to our Advisor from a number of sources, including referrals from, or direct solicitation of, venture capital and private equity firms, portfolio company management teams, legal firms, accounting firms, investment banks and other lenders that represent companies within our Target Industries. Our Advisor has been the sole or lead originator in substantially all transactions in which the funds it manages have invested. |
| • | Disciplined and balanced underwriting and portfolio management. We use a disciplined underwriting process that includes obtaining information validation from multiple sources, extensive knowledge of our Target Industries, comparable industry valuation metrics and sophisticated financial analysis related to development-stage companies. Our Advisor’s due diligence on investment prospects includes obtaining and evaluating information on the prospective portfolio company’s technology, market opportunity, management team, fund raising history, investor support, valuation considerations, financial condition and projections. We seek to balance our investment portfolio to reduce the risk of down market cycles associated with any particular industry or sector, development-stage or geographic area by quarterly reviewing each criteria and, in the event there is an overconcentration, seeking investment opportunities to reduce such overconcentration. Our Advisor employs a “hands on” approach to portfolio management requiring private portfolio companies to provide monthly financial information and to participate in regular updates on performance and future plans. For public companies, our Advisor typically relies on publicly reported quarterly financials. |
| • | Use of leverage. We use leverage to increase returns on equity through our revolving credit facility, or the Key Facility, provided by KeyBank National Association, or Key, and through our unsecured 6.25% notes due 2022, or the 2022 Notes. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and capital resources” in our most recently filed Annual Report on Form 10-K for additional information about our use of leverage. In addition, we may issue additional debt securities or preferred stock in one or more series in the future, the specific terms of which will be described in the particular prospectus supplement relating to that series. See “Description of Debt Securities That We May Issue” and “Description of Preferred Stock That We May Issue” for additional information about the debt securities or preferred stock we may issue. |
Market opportunity
We focus our investments primarily in four key industries of the emerging technology market: technology, life science, healthcare information and services and cleantech. The technology sectors we focus on include communications, networking, data storage, software, cloud computing, semiconductor, internet and media and consumer-related technologies. The life science sectors we focus on include biotechnology, drug discovery, drug delivery, bioinformatics and medical devices. The healthcare information and services sectors we focus on include diagnostics, electronic medical record services and software and other healthcare related services and technologies that improve efficiency and quality of administered healthcare. The cleantech sectors we focus on include alternative energy, power management, energy efficiency, green building materials and waste recycling. We refer to all of these companies as “technology-related” companies because the companies are developing or offering goods and services to businesses and consumers which utilize scientific knowledge, including techniques, skills, methods, devices and processes, to solve problems. We intend, under normal market conditions, to invest at least 80% of the value of our total assets in such companies.
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We believe that Venture Lending has the potential to achieve enhanced returns that are attractive notwithstanding the high degree of risk associated with lending to development-stage companies. Potential benefits include:
| • | interest rates that typically exceed rates that would be available to portfolio companies if they could borrow in traditional commercial financing transactions; |
| • | the debt investment support provided by cash proceeds from equity capital invested by venture capital and private equity firms or access to public equity markets to access capital; |
| • | relatively rapid amortization of principal; |
| • | senior ranking to equity and collateralization of debt investments to minimize potential loss of capital; and |
| • | potential equity appreciation through warrants. |
We believe that Venture Lending also provides an attractive financing source for portfolio companies, their management teams and their equity capital investors, as it:
| • | is typically less dilutive to the equity holders than additional equity financing; |
| • | extends the time period during which a portfolio company can operate before seeking additional equity capital or pursuing a sale transaction or other liquidity event; and |
| • | allows portfolio companies to better match cash sources with uses. |
Competitive strengths
We believe that we, together with our Advisor, possess significant competitive strengths, which include the following:
| • | Consistently execute commitments and close transactions. Our Advisor and its senior management and investment professionals have an extensive track record of originating, underwriting and managing Venture Loans. Our Advisor and its predecessor have directly originated, underwritten and managed Venture Loans with an aggregate original principal amount over $1.5 billion to more than 235 companies since operations commenced in 2004. |
| • | Robust direct origination capabilities. Our Advisor has significant experience originating Venture Loans in our Target Industries. This experience has given our Advisor a deep knowledge of our Target Industries and an extensive base of transaction sources and references. |
| • | Highly experienced and cohesive management team. Our Advisor’s senior management team of experienced professionals has been together since our inception. This consistency allows companies, their management teams and their investors to rely on consistent and predictable service, loan products and terms and underwriting standards. |
| • | Relationships with venture capital and private equity investors. Our Advisor has developed strong relationships with venture capital and private equity firms and their partners. |
| • | Well-known brand name. Our Advisor has originated Venture Loans to more than 235 companies in our Target Industries under the “Horizon Technology Finance” brand. |
Our portfolio
From the commencement of operations of Compass Horizon on March 4, 2008 through March 31, 2019, we funded 171 portfolio companies and invested $1.1 billion in debt investments. As of March 31, 2019, our debt investment portfolio consisted of 35 debt investments with an aggregate fair value of $235.3 million. As of March 31, 2019, 100.0%, or $235.3 million, of our debt investment portfolio at fair value consisted of Senior Term Loans. As of March 31, 2019, our net assets were $156.4 million, and all of our debt investments were secured by all or a portion of the tangible and intangible assets of the applicable portfolio company. The debt investments in our portfolio are generally not rated by any rating agency. If the individual debt investments in our portfolio were rated, they would be rated below “investment grade”. Debt investments that are unrated or rated below investment grade are sometimes referred to as “junk bonds” and have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal.
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For the three months ended March 31, 2019, our dollar-weighted annualized yield on average debt investments (excluding any yield from warrants, equity, other investments and Horizon Secured Loan Fund I LLC, or HSLFI, a joint venture formed with Arena Sunset SPV, LLC, or Arena) was 14.4%. We calculate the dollar-weighted yield on average debt investments for any period as (1) total investment income (excluding income from HSLFI) during the period divided by (2) the average of the fair value of debt investments outstanding on (a) the last day of the calendar month immediately preceding the first day of the period and (b) the last day of each calendar month during the period. The dollar-weighted annualized yield on average debt investments is higher than what investors will realize because it does not reflect our expenses or any sales load paid by investors.
For the three months ended March 31, 2019, our investment portfolio (including any yield from warrants, equity, other investments and HSLFI) had an overall total yield of 13.1%. We calculate the dollar-weighted yield on average investments for any period as (1) total investment income during the period divided by (2) the average of the fair value of investments outstanding on (a) the last day of the calendar month immediately preceding the first day of the period and (b) the last day of each calendar month during the period. The dollar-weighted annualized yield on average investments is higher than what investors will realize because it does not reflect our expenses or any sales load paid by investors.
As of March 31, 2019, our debt investments had a dollar-weighted average term of 47 months from inception and a dollar-weighted average remaining term of 35 months. As of March 31, 2019, substantially all of our debt investments had an original committed principal amount of between $3 million and $20 million, repayment terms of between 10 and 60 months and bore current pay interest at annual interest rates of between 9% and 15%.
For the three months ended March 31, 2019, our total return based on market value was 7.5%. Total return based on market value is calculated as (x) the sum of (i) the closing sales price of our common stock on the last day of the period plus (ii) the aggregate amount of distributions paid per share during the period, less (iii) the closing sales price of our common stock on the first day of the period, divided by (y) the closing sales price of our common stock on the first day of the period.
In addition to our debt investments, as of March 31, 2019, we held warrants to purchase stock, predominantly preferred stock, in 68 portfolio companies, equity positions in eight portfolio companies and success fee arrangements in nine portfolio companies.
On June, 1 2018, we and Arena formed a joint venture, HSLFI, to make investments, either directly or indirectly through subsidiaries, primarily in the form of secured loans to development-stage companies in our Target Industries. HSLFI was formed as a Delaware limited liability company and is not consolidated by either us or Arena for financial reporting purposes. Investments held by HSLFI are measured at fair value. As of March 31, 2019, HSLFI had total assets of $30.9 million. HSLFI’s portfolio consisted of debt investments in four portfolio companies as of March 31, 2019. As of March 31, 2019, the largest investment in a single portfolio company in the HSLFI’s portfolio in aggregate principal amount was $11.3 million and the four largest investments in portfolio companies in HSLFI’s portfolio totaled $29.2 million. As of March 31, 2019, HSLFI had no investments on non-accrual status. HSLFI invests in portfolio companies in the same industries in which we may directly invest.
We invest cash or securities in portfolio companies in HSLFI in exchange for limited liability company equity interests in HSLFI. As of March 31, 2019, we and Arena each owned 50.0% of the equity interests of HSLFI. We had an original commitment to fund $25.0 million of equity interests in HSLFI. As of March 31, 2019, $11.7 million was unfunded. Our investment in HSLFI consisted of an equity contribution of $13.3 million as of March 31, 2019.
Company information
Our administrative and executive offices and those of our Advisor are located at 312 Farmington Avenue, Farmington, Connecticut 06032, and our telephone number is (860) 676-8654. Our corporate website is located at www.horizontechfinance.com. Information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider information contained on our website to be part of this prospectus.
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OFFERINGS
We may offer, from time to time, up to $250,000,000 of our common stock, preferred stock, subscription rights, debt securities and/or warrants representing rights to purchase shares of our common stock, preferred stock or debt securities on terms to be determined at the time of the offering. Any debt securities, preferred stock, warrants and subscription rights offered by means of this prospectus may be convertible or exchangeable into shares of our common stock, on terms to be determined at the time of the offering. We will offer our securities at prices and on terms to be set forth in one or more supplements to this prospectus.
We may offer our securities directly to one or more purchasers, including existing stockholders in a rights offering, through agents that we designate from time to time or to or through underwriters or dealers. The prospectus supplement relating to each offering will identify any agents or underwriters involved in the sale of our securities and will set forth any applicable purchase price, fee, commission or discount arrangement between us and our agents or underwriters or among our underwriters or the basis upon which such amount may be calculated. See “Plan of Distribution.” We may not sell any of our securities through agents, underwriters or dealers without delivery of a prospectus supplement describing the method and terms of the offering of our securities.
Set forth below is additional information regarding offerings of our securities:
| Use of proceeds |
| We intend to use the net proceeds from selling our securities to make new investments in portfolio companies in accordance with our investment objective and strategies as described in this prospectus and for working capital and general corporate purposes. |
| Listing |
| Our common stock is traded on Nasdaq under the symbol “HRZN.” Our 2022 Notes trade on the New York Stock Exchange, or NYSE, under the ticker symbol “HTFA.” |
| Distributions |
| We intend to continue to pay monthly distributions to our stockholders out of assets legally available for distribution. Our distributions, if any, will be determined by our Board. Our ability to declare distributions depends on our earnings, our overall financial condition (including our liquidity position), maintenance of RIC status and such other factors as our Board may deem relevant from time to time. |
| To the extent our taxable earnings fall below the total amount of our distributions for any given fiscal year, a portion of those distributions may be deemed to be a return of capital to our common stockholders for U.S. federal income tax purposes. Thus, the source of a distribution to our stockholders may be the original capital invested by the stockholder rather than our income or gains. Stockholders should read any written disclosure accompanying a distribution payment carefully and should not assume that the source of any distribution is our ordinary income or gains. |
| Taxation |
| We have elected to be treated as a RIC. Accordingly, we generally will not incur corporate-level income taxes on any investment company taxable income determined without regard to any deductions for dividends paid and net capital gains that we distribute as dividends for U.S. federal income tax purposes to our stockholders. To maintain RIC tax treatment, we must meet specified source-of-income and asset diversification requirements and distribute annually an amount generally equal |
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| to at least 90% of our investment company taxable income, determined without regard to any deduction for dividends paid. |
| Leverage |
| We borrow funds to make additional investments. We use this practice, which is known as “leverage,” to attempt to increase returns to our stockholders, but it involves significant risks. See “Risk Factors” in our annual, quarterly and other reports filed with the SEC from time to time. With certain limited exceptions, we are only allowed to borrow amounts such that our asset coverage, as defined in the 1940 Act, after such borrowing equals at least 150%, subject to certain disclosure requirements. |
| Trading at a discount |
| Shares of closed-end investment companies, including BDCs, frequently trade at a discount to their net asset value. This risk is separate and distinct from the risk that our net asset value per share may decline. We cannot predict whether our common stock will trade above, at or below net asset value. |
| Dividend Reinvestment Plan |
| We have adopted a DRIP for our stockholders. The dividend reinvestment plan is an “opt out” DRIP. As a result, distributions to our stockholders are automatically reinvested in additional shares of our common stock, unless a stockholder specifically “opts out” of the DRIP so as to receive cash distributions. Stockholders who receive distributions in the form of stock will generally be subject to the same federal, state and local tax consequences as stockholders who elect to receive their distributions in cash. See “Dividend Reinvestment Plan.” |
| Sales of common stock below net asset value |
| In the event we offer common stock or warrants or rights to acquire such common stock, the offering price per share of our common stock less any underwriting commissions or discounts 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 the exercise of certain warrants, options or rights whose issuance has been approved by our stockholders at an exercise or conversion price not less than the market value of our common stock at the date of issuance (or, if no such market value exists, the net asset value per share of our common stock as of such date); (2) to the extent such an offer or sale is approved by stockholders holding a majority of our outstanding securities and our Board; or (3) under such other circumstances as may be permitted under the 1940 Act or by the SEC. For purposes of (2) above, a “majority” of outstanding securities is defined in the 1940 Act as (i) 67% or more of the voting securities present at a stockholders’ meeting if the holders of more than 50% of our outstanding voting securities are present or represented by proxy; or (ii) 50% of our outstanding voting securities, whichever is less. |
| Certain anti-takeover provisions |
| Our certificate of incorporation and bylaws, as well as certain statutory and regulatory requirements, contain certain provisions that may have the effect of discouraging a third party from making an acquisition proposal for us. These anti-takeover provisions may inhibit a change in control in circumstances that |
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| could give the holders of our common stock the opportunity to realize a premium over the market price for our common stock. See “Description of Common Stock That We May Issue.” |
| Investment Management Agreement |
| Under an amended and restated investment management agreement, or the Investment Management Agreement, subject to the overall supervision of our Board, our Advisor manages our day-to-day operations and provides investment advisory services to us. For providing these services, our Advisor receives a base management fee from us, paid monthly in arrears, at an annual rate of 2.00% of (i) our gross assets, including any assets acquired with the proceeds of leverage less (ii) assets consisting of cash and cash equivalents. From and after October 31, 2018, the first date on which the reduced asset coverage requirements in Section 61(a)(2) of the 1940 Act applied to the Company, the base management fee is calculated at an annual rate of 2.00% of the Company’s gross assets (less cash and cash equivalents) including any assets acquired with the proceeds of leverage; provided, that, to the extent the Company’s gross assets (less cash and cash equivalents) exceed $250 million, the base management fee on the amount of such excess over $250 million is calculated at an annual rate of 1.60% of the Company’s gross assets (less cash and cash equivalents) including any assets acquired with the proceeds of leverage. |
| The Investment Management Agreement also provides that our Advisor may be entitled to an incentive fee under certain circumstances. The incentive fee has two parts, which are independent of each other, with the result that one part may be payable even if the other is not. Under the first part, subject to a “Fee Cap and Deferral Mechanism”, we pay our Advisor quarterly in arrears 20.00% of Pre-Incentive Fee Net Investment Income (as defined below) which exceeds 1.75% (7.00% annualized) of our net assets at the end of the immediately preceding calendar quarter, subject to a “catch-up” feature. |
| For this purpose, “Pre-Incentive Fee Net Investment Income” means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees received from portfolio companies) accrued during the calendar quarter, minus operating expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement (as defined below), and any interest expense and any dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). |
| The incentive fee on Pre-Incentive Fee Net Investment Income is subject to a fee cap and deferral mechanism which is determined based upon a look-back period of up to three years and is expensed when incurred. For this purpose, the look-back period for the incentive fee based on Pre-Incentive Fee Net Investment Income, or the Incentive Fee Look-back Period, |
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| includes the relevant calendar quarter and the 11 preceding full calendar quarters. Each quarterly incentive fee payable on Pre-Incentive Fee Net Investment Income is subject to a cap, or the Incentive Fee Cap, and a deferral mechanism through which the Advisor may recoup a portion of such deferred incentive fees, or collectively, the Incentive Fee Cap and Deferral Mechanism. The Incentive Fee Cap is equal to (a) 20.00% of Cumulative Pre-Incentive Fee Net Return (as defined below) during the Incentive Fee Look-back Period less (b) cumulative incentive fees of any kind paid to the Advisor during the Incentive Fee Look-back Period. To the extent the Incentive Fee Cap is zero or a negative value in any calendar quarter, the Company will not pay an incentive fee on Pre-Incentive Fee Net Investment Income to the Advisor in that quarter. To the extent that the payment of incentive fees on Pre-Incentive Fee Net Investment Income is limited by the Incentive Fee Cap, the payment of such fees will be deferred and paid in subsequent calendar quarters up to three years after their date of deferment, subject to certain limitations, which are set forth in the Investment Management Agreement. We only pay incentive fees on Pre-Incentive Fee Net Investment Income to the extent allowed by the Incentive Fee Cap and Deferral Mechanism. Cumulative Pre-Incentive Fee Net Return during any Incentive Fee Look-back Period means the sum of (a) Pre-Incentive Fee Net Investment Income and the base management fee for each calendar quarter during the Incentive Fee Look-back Period and (b) the sum of cumulative realized capital gains and losses, cumulative unrealized capital appreciation and cumulative unrealized capital depreciation during the applicable Incentive Fee Look-back Period. |
| Under the second part of the incentive fee, we pay our Advisor at the end of each calendar year 20.00% of our realized capital gains, if any, from October 28, 2010 through the end of that calendar year, computed net of all realized capital losses and all unrealized capital depreciation on a cumulative basis through the end of such year, less all previous amounts paid in respect of the capital gain incentive fee. The second part of the incentive fee is not subject to any minimum return to stockholders. The Investment Management Agreement may be terminated by either party without penalty by delivering written notice to the other party upon not more than 60 days’ written notice. See “Business — Investment Management Agreement” in our most recently filed Annual Report on Form 10-K. |
| Administration Agreement |
| We reimburse our Administrator for the allocable portion of overhead and other expenses incurred by our Administrator in performing its obligations under an administration agreement, or the Administration Agreement, including furnishing rent, the fees and expenses associated with performing compliance functions and our allocable portion of the costs of compensation and related expenses of our Chief Financial Officer and Chief Compliance Officer and their respective staffs. See “Business — Administration Agreement” in our most recently filed Annual Report on Form 10-K. |
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| Available information |
| We are required to file periodic reports, current reports, proxy statements and other information with the SEC. This information is available on the SEC’s website at www.sec.gov. You may also obtain such information by contacting us at 312 Farmington Avenue, Farmington, Connecticut 06032 or by calling us at (860) 676-8654. We intend to provide much of the same information on our website at www.horizontechfinance.com. Information contained on our website is not part of this prospectus or any prospectus supplement and should not be relied upon as such. |
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FEES AND EXPENSES
The following table is intended to assist you in understanding the costs and expenses that an investor 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 following table and example should not be considered a representation of our future expenses. Actual expenses may be greater or less than shown. 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 the Company.
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| Stockholder Transaction Expenses |
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| Sales Load (as a percentage of offering price) | %(1) | |||
| Offering Expenses (as a percentage of offering price) | %(2) | |||
| Dividend Reinvestment Plan Fees | None | (3) | ||
| Total Stockholder Transaction Expenses (as a percentage of offering price) | % | |||
| Annual Expenses (as a Percentage of Net Assets Attributable to Common Stock)(4) |
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| Base Management Fee | 3.97 | %(5) | ||
| Incentive Fee Payable Under the Investment Management Agreement | 2.23 | %(6) | ||
| Interest Payments on Borrowed Funds | 5.62 | %(7) | ||
| Other Expenses (estimated for the current fiscal year) | 1.88 | %(8) | ||
| Acquired Fund Fees and Expenses | 0.00 | %(9) | ||
| Total Annual Expenses (estimated) | 13.70 | %(5)(10) | ||
| (1) | In the event that securities to which this prospectus relates are sold to or through underwriters or agents, a corresponding prospectus supplement will disclose the applicable sales load. |
| (2) | In the event that we conduct an offering of any of our securities, a corresponding prospectus supplement will disclose the estimated offering expenses because they will be ultimately borne by the stockholders. |
| (3) | The expenses associated with the DRIP are included in “Other Expenses” in the table. See “Dividend Reinvestment Plan.” |
| (4) | Net Assets Attributable to Common Stock equal estimated average net assets for the next twelve months and is based on our net assets at March 31, 2019. |
| (5) | Our base management fee under the Investment Management Agreement is based on our gross assets, less cash and cash equivalents, which includes assets acquired using leverage, including any leverage incurred under this prospectus, and is payable monthly in arrears. The management fee referenced in the table above is based on our gross assets, less cash and cash equivalents, of $273 million as of March 31, 2019 and includes $13 million of assets estimated to be acquired over the next twelve months using leverage, which management estimates will be in the amount of $13 million. See “Business — Investment Management Agreement” in our most recently filed Annual Report on Form 10-K. |
| (6) | Our incentive fee payable under the Investment Management Agreement consists of two parts: |
The first part, which is payable quarterly in arrears, subject to a Fee Cap and Deferral Mechanism, equals 20.00% of the excess, if any, of our Pre-Incentive Fee Net Investment Income over a 1.75% quarterly (7.00% annualized) hurdle rate and a “catch-up” provision measured as of the end of each calendar quarter. Under this provision, in any calendar quarter, our Advisor receives no incentive fee until our net investment income equals the hurdle rate of 1.75% but then receives, as a “catch-up,” 100% of our Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle rate but is less than 2.1875% quarterly (8.75% annualized). The effect of this provision is that, if Pre-Incentive Fee Net Investment Income exceeds 2.1875% in any calendar quarter, our Advisor will receive 20.00% of our Pre-Incentive Fee Net Investment Income as if a hurdle rate did not apply. The first part of the incentive fee is computed and paid on income that may include interest that is accrued but not yet received in cash.
The second part of the incentive fee equals 20.00% of our Incentive Fee Capital Gains, if any. Incentive Fee Capital Gains are our realized capital gains on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees. The
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second part of the incentive fee is payable, in arrears, at the end of each calendar year (or upon termination of the Investment Management Agreement, as of the termination date). For a more detailed discussion of the calculation of this fee, see “Investment Management and Administration Agreements — Investment Management Agreement.”
The incentive payable to our Advisor represents our estimated annual expense incurred under the first part of the incentive fee payable under the Investment Management Agreement over the next twelve months. As of March 31, 2019, our cumulative realized capital gains and unrealized capital appreciation did not exceed our cumulative realized capital losses and unrealized capital depreciation. Given our strategy of investing primarily in Venture Loans, which are fixed-income assets, we believe it is unlikely that our cumulative realized capital gains and unrealized capital appreciation will exceed our cumulative realized capital losses and unrealized capital depreciation in the next twelve months. Consequently, we do not expect to incur any Incentive Fee Capital Gains during the next twelve months. As we cannot predict the occurrence of any capital gains from the portfolio, we have assumed no Incentive Fee Capital Gains.
| (7) | Interest payments on borrowed funds represent our estimated annual interest payments on borrowed funds based on current debt levels as adjusted for projected increases in debt levels over the next twelve months. We may issue additional debt securities pursuant to this registration statement. In the event we were to issue additional debt securities, our borrowing costs, and correspondingly our total annual expenses, including, in the case of such preferred stock, our base management fee as a percentage of our net assets attributable to common stock, would increase. |
| (8) | “Other Expenses” includes our overhead expenses, including payments under the Administration Agreement, based on our allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the Administration Agreement. See “Business — Administration Agreement” in our most recently filed Annual Report on Form 10-K. “Other Expenses” also includes the ongoing administrative expenses to the independent accountants and legal counsel of the Company and compensation of independent directors and are based on estimated amounts to be incurred during the current fiscal year. |
| (9) | Amount reflects our estimated expenses of the temporary investment of offering proceeds in money market funds pending our investment of such proceeds in portfolio companies in accordance with the investment objective and strategies described in this prospectus. |
| (10) | “Total Annual Expenses” as a percentage of consolidated net assets attributable to common stock are higher than the total annual expenses percentage would be for a company that is not leveraged. We borrow money to leverage our net assets and increase our total assets. The SEC requires that the “Total Annual Expenses” percentage be calculated as a percentage of net assets (defined as total assets less indebtedness and after taking into account any incentive fees payable during the period), rather than the total assets, including assets that have been funded with borrowed monies. |
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. This example and the expenses in the table above should not be considered a representation of our future expenses, and actual expenses (including the cost of debt, if any, and other expenses) may be greater or less than those shown. In calculating the following expense amounts, we have assumed that our annual operating expenses remain at the levels set forth in the table above. In the event that shares to which this prospectus relates are sold to or through underwriters or agents, a corresponding prospectus supplement will restate this example to reflect the applicable sales load and estimated offering expenses.
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| You would pay the following expenses on a $1,000 investment, assuming a 5% annual return (assumes no return from net realized capital gains or net unrealized capital appreciation) | $ | 131.04 | $ | 359.91 | $ | 550.69 | $ | 900.04 | ||||||||
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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.
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 less than 5%. The incentive fee under the Investment Management Agreement is unlikely to be significant assuming a 5% annual return and is not included in the example. This illustration assumes that we will not realize any capital gains (computed net of all realized capital losses and unrealized capital depreciation) in any of the indicated time periods. If we achieve sufficient returns on our investments, including through the realization of capital gains, to trigger an incentive fee of a material amount, our distributions to our common stockholders and our expenses would likely be higher.
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 assuming a 5% annual return derived entirely from capital gains.
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| 1 Year | 3 Years | 5 Years | 10 Years | |||||||||||||
| You would pay the following expenses on a $1,000 investment, assuming a 5% annual return (assumes return from only realized capital gains and thus subject to the capital gains incentive fee) | $ | 120.04 | $ | 333.90 | $ | 516.99 | $ | 867.66 | ||||||||
See “Business — Investment Management Agreement” in our most recently filed Annual Report on Form 10-K for additional information regarding the calculation of incentive fees.
In addition, while the examples assume reinvestment of all dividends and other distributions at net asset value, or NAV, participants in our DRIP receive a number of shares of our common stock determined by dividing the total dollar amount of the distribution payable to a participant by the market price per share of our common stock at the close of trading on the valuation date for the distribution. This price may be at, above or below NAV. See “Dividend Reinvestment Plan” for additional information regarding our DRIP.
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Risk Factors
Investing in our securities involves a high degree of risk. Before deciding whether to invest in our securities, you should carefully consider the risks and uncertainties described in the section titled “Risk Factors” in the applicable prospectus supplement and any related free writing prospectus, and discussed in the section titled “Risk Factors” in our most recent Annual Report on Form 10-K, as well as any amendments reflected in subsequent filings with the SEC, which are incorporated by reference into this prospectus in their entirety, together with other information in this prospectus, the documents incorporated by reference, and any free writing prospectus that we may authorize for use in connection with this offering. The risks described in these documents are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. Past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. If any of these risks actually occurs, our business, reputation, financial condition, results of operations, revenue, and future prospects could be seriously harmed. This could cause our net asset value and trading price of our securities to decline, resulting in a loss of all or part of your investment. Please also read carefully the section titled “Cautionary Statement Regarding Forward-Looking Statements.”
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the documents that we incorporate by reference herein, contains, and any applicable prospectus supplement or free writing prospectus, including the documents we incorporate by reference therein, may contain forward-looking statements, including statements regarding our future financial condition, business strategy, and plans and objectives of management for future operations. All statements other than statements of historical facts, including statements regarding our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations, are forward-looking statements. The forward-looking statements contained or incorporated by reference in this prospectus and any applicable prospectus supplement or free writing prospectus may include statements as to:
| • | our future operating results, including the performance of our existing debt investments, warrants and other investments; |
| • | the introduction, withdrawal, success and timing of business initiatives and strategies; |
| • | changes in political, economic or industry conditions, the interest rate environment or financial and capital markets, which could result in changes in the value of our assets; |
| • | the relative and absolute investment performance and operations of our Advisor; |
| • | the impact of increased competition; |
| • | the impact of investments we intend to make and future acquisitions and divestitures; |
| • | the unfavorable resolution of legal proceedings; |
| • | our business prospects and the prospects of our portfolio companies; |
| • | the impact, extent and timing of technological changes and the adequacy of intellectual property protection; |
| • | our regulatory structure and tax status; |
| • | our ability to qualify and maintain qualification as a RIC and as a BDC; |
| • | the adequacy of our cash resources and working capital; |
| • | the timing of cash flows, if any, from the operations of our portfolio companies; |
| • | the impact of interest rate volatility on our results, particularly if we use leverage as part of our investment strategy; |
| • | the ability of our portfolio companies to achieve their objective; |
| • | the impact of legislative and regulatory actions and reforms and regulatory supervisory or enforcement actions of government agencies relating to us or our Advisor; |
| • | the impact of the SBCAA on our operations and the BDC industry; |
| • | our contractual arrangements and relationships with third parties; |
| • | our ability to access capital and any future financings by us; |
| • | the ability of our Advisor to attract and retain highly talented professionals; |
| • | the impact of changes to tax legislation and, generally, our tax position; and |
| • | our ability to fund unfunded commitments, including revolver commitments. |
In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would” or the negative of these words or other similar terms or expressions, although not all forward-looking statements include these words or expressions. The forward-looking statements contained or incorporated by reference in this prospectus and any applicable prospectus supplement or free writing prospectus involve risks and uncertainties. These
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statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:
| • | an economic downturn could impair our portfolio companies’ ability to continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies; |
| • | a contraction of available credit and/or an inability to access the equity markets could impair our lending and investment activities; |
| • | interest rate volatility could adversely affect our results, particularly given that we use leverage as part of our investment strategy; |
| • | currency fluctuations could adversely affect the results of our investments in foreign companies, particularly to the extent that we receive payments denominated in foreign currency rather than U.S. dollars; and |
| • | the risks, uncertainties and other factors we identify in “Risk Factors” in our most recent Annual Report on Form 10-K and elsewhere contained or incorporated by reference in this prospectus and any applicable prospectus supplement or free writing prospectus. |
Discussions containing these forward-looking statements may be found in the sections titled “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” incorporated by reference from our most recent Annual Report on Form 10-K, as well as any amendments filed with the SEC. We discuss in greater detail, and incorporate by reference into this prospectus in their entirety, many of these risks and uncertainties in the sections titled “Risk Factors” in the applicable prospectus supplement, in any free writing prospectus we may authorize for use in connection with a specific offering and in our most recent Annual Report on Form 10-K, as well as any amendments reflected in subsequent filings with the SEC. In addition, statements that we “believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the applicable date of this prospectus, free writing prospectus and documents incorporated by reference into this prospectus and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely on these statements.
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USE OF PROCEEDS
Unless otherwise specified in any applicable prospectus supplement or in any free writing prospectus we have authorized for use in connection with a specific offering, we intend to use the net proceeds from the sale of our securities for investment in portfolio companies in accordance with our investment objective and strategies and for working capital and general corporate purposes. We may also use a portion of the net proceeds from the sale of our securities to repay amounts outstanding under the Key Facility, which bore an annual interest rate of 5.74% (i.e., one-month LIBOR plus 3.25% per annum, with a LIBOR floor of 0.75%) as of March 31, 2019. We may request advances under the Key Facility until April 6, 2021 and all outstanding advances are due and payable on April 6, 2023. We may also use a portion of the net proceeds to redeem the 2022 Notes after they are subject to optional redemption in September 2019. The 2022 Notes bear interest at an annual rate of 6.25% and otherwise mature on September 15, 2022. We estimate that it will take up to six months for us to substantially invest the net proceeds of any offering made pursuant to this prospectus, depending on the availability of attractive opportunities and market conditions. However, we can offer no assurances that we will be able to achieve this goal.
Pending such use, we will invest the remaining net proceeds of this offering primarily in cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less from the date of investment. These temporary investments may have lower yields than our other investments and, accordingly, may result in lower distributions, if any, during such period. See “Business — Regulation — Temporary Investments” in our most recently filed Annual Report on Form 10-K for additional information about temporary investments we may make while waiting to make longer-term investments in pursuit of our investment objective.
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COMMON STOCK AND DISTRIBUTIONS
Our common stock is traded on Nasdaq, under the symbol “HRZN.” The last reported price for our common stock on May 2, 2019 was $11.69 per share. which represented a 1% premium to NAV per share. As of May 2, 2019 we had 16 stockholders of record, which did not include stockholders for whom shares are held in nominee or “street” name.
Shares of BDCs may trade at a market price that is less than the NAV that is attributable to those shares. The possibility that our shares of common stock will trade at a discount from NAV or at a premium that is unsustainable over the long term is separate and distinct from the risk that our NAV will decrease. It is not possible to predict whether our shares will trade at, above or below NAV in the future.
Issuer Purchases of Equity Securities
On April 26, 2019, our Board extended a previously authorized stock repurchase plan which allows us to repurchase up to $5.0 million of our outstanding common stock. Unless extended by our Board, the repurchase program will expire on the earlier of June 30, 2020 and the repurchase of $5.0 million of common stock. During the quarter ended December 31, 2018, we did not repurchase any shares of our common stock. During the three months ended March 31, 2019, we did not repurchase any shares of our common stock. From the inception of the stock repurchase program through March 31, 2019, we repurchased 167,465 shares of our common stock at an average price of $11.22 on the open market at a total cost of $1.9 million.
Any shares repurchased by us may have the effect of maintaining the market price of our common stock or retarding a decline in the market price of the common stock, and, as a result, the price of our common stock may be higher than the price that otherwise might exist in the open market. In addition, as any shares repurchased pursuant to the stock repurchase plan will be purchased at a price below the NAV per share as reported in our most recent financial statements, share repurchases may have the effect of increasing our NAV per share.
Distributions
We intend to continue making monthly distributions to our stockholders. The timing and amount of our monthly distributions, if any, is determined by our Board. Any distributions to our stockholders are declared out of assets legally available for distribution. We monitor available net investment income to determine if a tax return of capital may occur for the fiscal year. To the extent our taxable earnings fall below the total amount of our distributions for any given fiscal year, a portion of those distributions may be considered a return of capital to our common stockholders for U.S. federal income tax purposes. Thus, the source of distribution to our stockholders may be the original capital invested by the stockholder rather than our income or gains. Stockholders should read any written disclosure accompanying a distribution payment carefully and should not assume that the source of any distribution is our ordinary income or gains.
In order to qualify to be subject to tax as a RIC, we must meet certain source-of-income, asset diversification and annual distribution requirements. Generally, in order to qualify as a RIC, we must derive at least 90% of our gross income during each tax year from dividends, interest, payments with respect to certain securities, loans, gains from the sale or other disposition of stock, securities or foreign currencies, or other income derived with respect to our business of investing in stock or other securities. We must also meet certain asset diversification requirements at the end of each quarter of each tax year. Failure to meet these diversification requirements on the last day of a quarter may result in us having to dispose of certain investments quickly in order to prevent the loss of RIC status. Any such dispositions could be made at disadvantageous prices or times, and may cause us to incur substantial losses.
In addition, in order to be eligible for the special tax treatment accorded to RICs and to avoid the imposition of corporate level tax on the income and gains we distribute to our stockholders, each tax year we are required under the Code to distribute as dividends of an amount generally at least 90% of our investment company taxable income, determined without regard to any deduction for dividends paid to our stockholders. We refer to such amount as the Annual Distribution Requirement. Additionally, we must distribute, in respect of each calendar year, dividends of an amount generally at least equal to the sum of 98% of our calendar year net ordinary income (taking into account certain deferrals and elections); 98.2% of our capital gain net income (adjusted for certain ordinary losses) for the one year period ending on October 31 of such calendar year; and
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any net ordinary income or capital gain net income for preceding years that was not distributed during such years and on which we previously did not incur any U.S. federal income tax in order to avoid the imposition of a 4% U.S. federal excise tax. If we fail to qualify as a RIC for any reason and become subject to corporate income tax, the resulting corporate income taxes could substantially reduce our net assets, the amount of income available for distribution and the amount of our distributions. Such a failure would have a material adverse effect on us and our stockholders. In addition, we could be required to recognize unrealized gains, incur substantial taxes and interest and make substantial distributions in order to re-qualify as a RIC. We cannot assure stockholders that they will receive any distributions.
Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year distributions into the next tax year and pay a 4% U.S. federal excise tax on such undistributed income. Distributions of any such carryover taxable income must be made through a distribution declared as of the earlier of the filing date of the corporate income tax return related to the tax year in which such taxable income was generated or the 15th day of the ninth month following the end of such tax year, in order to count towards the satisfaction of the Annual Distribution Requirement for the tax year in which such taxable income was generated. We can offer no assurance that we will achieve results that will permit the payment of any cash distributions and, if we issue senior securities, we may be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings. See “Material U.S. Federal Income Tax Considerations.”
We have adopted an “opt out” DRIP for our common stockholders. As a result, if we make a distribution, then stockholders’ cash distributions are automatically reinvested in additional shares of our common stock, unless they specifically opt out of the DRIP. If a stockholder opts out, that stockholder receives cash distributions. Although distributions paid in the form of additional shares of common stock are generally subject to U.S. federal, state and local taxes, stockholders participating in our DRIP do not receive any corresponding cash distributions with which to pay any such applicable taxes. We may use newly issued shares to implement the DRIP, or we may purchase shares in the open market in connection with our obligations under the DRIP.
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RATIO OF EARNINGS TO FIXED CHARGES
For the three months ended March 31, 2019 and the years ended December 31, 2018, 2017, 2016, 2015 and 2014, our ratios of earnings to fixed charges, computed as set forth below, were as follows:
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| 2019 | 2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||||||
| Earnings to Fixed Charges(1) | 2.5 | 3.1 | 2.9 | 0.1 | 3.1 | 2.8 | ||||||||||||||||||
For purposes of computing the ratios of earnings to fixed charges, earnings represent net increase in net assets resulting from operations plus (or minus) income tax expense (benefit) including excise tax expense and fixed charges. Fixed charges include interest expense, which includes amortization of debt issuance costs and non-use fees.
| (1) | Earnings include net realized and unrealized gains or losses. Net realized and unrealized gains or losses can vary substantially from period to period. |
Excluding the net unrealized gains or losses, the earnings to fixed charges ratio would be 3.1 for the three months ended March 31, 2019, 3.3 for the year ended December 31, 2018, (0.7) for the year ended December 31, 2017, 2.6 for the year ended December 31, 2016, 3.1 for the year ended December 31, 2015 and 1.8 for the year ended December 31, 2014.
Excluding the net realized and unrealized gains or losses, the earnings to fixed charges ratio would be 2.6 for the three months ended March 31, 2019, 3.2 for the year ended December 31, 2018, 3.4 for the year ended December 31, 2017, 3.9 for the year ended December 31, 2016, 3.4 for the year ended December 31, 2015 and 2.2 for the year ended December 31, 2014.
20
SENIOR SECURITIES
Information about our senior securities is shown in the following table as of March 31, 2019 and December 31, 2018, 2017, 2016, 2015, 2014, 2013, 2012, 2011 and 2010. The information as of December 31, 2018, 2017, 2016, 2015 and 2014 was included in or derived from our consolidated financial statements for the year ended December 31, 2018, which were audited by RSM US LLP, our independent registered public accounting firm. This information about our senior securities should be read in conjunction with our audited consolidated financial statements and related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
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| Class and Year | Total Amount Outstanding Exclusive of Treasury Securities(1) |
Asset Coverage per Unit(2) |
Involuntary Liquidation Preference per Unit(3) |
Average Market Value per Unit(4) |
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| (in thousands, except unit data) | ||||||||||||||||
| Credit facilities |
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| 2019 (as of March 31) | $ | 95,500 | $ | 3,029 | — | N/A | ||||||||||
| 2018 | $ | 90,500 | $ | 2,896 | — | N/A | ||||||||||
| 2017 | $ | 58,000 | $ | 3,973 | — | N/A | ||||||||||
| 2016 | $ | 63,000 | $ | 3,733 | — | N/A | ||||||||||
| 2015 | $ | 68,000 | $ | 4,048 | — | N/A | ||||||||||
| 2014 | $ | 10,000 | $ | 22,000 | — | N/A | ||||||||||
| 2013 | $ | 10,000 | $ | 25,818 | — | N/A | ||||||||||
| 2012 | $ | 56,020 | $ | 4,177 | — | N/A | ||||||||||
| 2011 | $ | 64,571 | $ | 3,012 | — | N/A | ||||||||||
| 2010 | $ | 87,425 | $ | 2,455 | — | N/A | ||||||||||
| 2022 Notes |
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| 2019 (as of March 31) | $ | 37,375 | $ | 7,740 | — | $ | 25.52 | |||||||||
| 2018 | $ | 37,375 | $ | 7,014 | — | $ | 25.52 | |||||||||
| 2017 | $ | 37,375 | $ | 6,166 | — | $ | 25.66 | |||||||||
| 2019 Notes |
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| 2019 (as of March 31) | — | — | — | — | ||||||||||||
| 2018 | — | — | — | — | ||||||||||||
| 2017 | — | — | — | — | ||||||||||||
| 2016 | $ | 33,000 | $ | 7,127 | — | $ | 25.42 | |||||||||
| 2015 | $ | 33,000 | $ | 8,342 | — | $ | 25.26 | |||||||||
| 2014 | $ | 33,000 | $ | 6,667 | — | $ | 25.64 | |||||||||
| 2013 | $ | 33,000 | $ | 7,824 | — | $ | 25.70 | |||||||||
| 2012 | $ | 33,000 | $ | 7,091 | — | $ | 25.38 | |||||||||
| 2013 – 1 Securitization |
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| 2019 (as of March 31) | — | — | — | N/A | ||||||||||||
| 2018 | — | — | — | N/A | ||||||||||||
| 2017 | — | — | — | N/A | ||||||||||||
| 2016 | — | — | — | N/A | ||||||||||||
| 2015 | $ | 14,546 | $ | 18,926 | — | N/A | ||||||||||
| 2014 | $ | 38,753 | $ | 5,677 | — | N/A | ||||||||||
| 2013 | $ | 79,343 | $ | 3,254 | — | N/A | ||||||||||
21
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| Class and Year | Total Amount Outstanding Exclusive of Treasury Securities(1) |
Asset Coverage per Unit(2) |
Involuntary Liquidation Preference per Unit(3) |
Average Market Value per Unit(4) |
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| (in thousands, except unit data) | ||||||||||||||||
| Total senior securities |
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| 2019 (as of March 31) | $ | 132,875 | $ | 2,177 | — | N/A | ||||||||||
| 2018 | $ | 127,375 | $ | 2,050 | — | N/A | ||||||||||
| 2017 | $ | 95,375 | $ | 2,416 | — | N/A | ||||||||||
| 2016 | $ | 96,000 | $ | 2,450 | — | N/A | ||||||||||
| 2015 | $ | 115,546 | $ | 2,383 | — | N/A | ||||||||||
| 2014 | $ | 81,753 | $ | 2,691 | — | N/A | ||||||||||
| 2013 | $ | 122,343 | $ | 2,110 | — | N/A | ||||||||||
| 2012 | $ | 89,020 | $ | 2,629 | — | N/A | ||||||||||
| 2011 | $ | 64,571 | $ | 3,012 | — | N/A | ||||||||||
| 2010 | $ | 87,425 | $ | 2,455 | — | N/A | ||||||||||
| (1) | Total amount of senior securities outstanding at the end of the period presented. |
| (2) | Asset coverage per unit is the ratio of the original cost less accumulated depreciation, amortization or impairment of the Company’s total consolidated assets, less all liabilities and indebtedness not represented by senior securities, to the aggregate amount of senior securities representing indebtedness. Asset coverage per unit is expressed in terms of dollar amounts per $1,000 of indebtedness. |
| (3) | The amount which the holder of such class of senior security would be entitled upon the voluntary liquidation of the applicable issuer in preference to any security junior to it. The “—” in this column indicates that the SEC expressly does not require this information to be disclosed for certain types of securities. |
| (4) | Not applicable to the Company’s credit facilities and $189.3 million securitization of secured loans we completed on June 28, 2013, or the 2013-1 Securitization, because such securities are not registered for public trading. |
22
PORTFOLIO COMPANIES
The following table sets forth certain information as of March 31, 2019 for each portfolio company in which we had a debt, equity or other investment. Other than these investments, our only relationships with our portfolio companies involve the managerial assistance we may separately provide to our portfolio companies, such services being ancillary to our investments, and the board observer or participation rights we may receive in connection with our investment. We do not “control” any of our portfolio companies, each as defined in the 1940 Act. In general, under the 1940 Act, we would “control” a portfolio company if we owned more than 25% of its voting securities.
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| Name and Address of Portfolio Company(1)(3) |
Sector | Type of Investment(4)(7)(8)(9) | Principal Amount | Cost of Investments(6) | Fair Value | |||||||||||||||
| Non-Affiliate Investments |
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| Non-Affiliate Debt Investments |
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| Non-Affiliate Debt Investments — Life Science | ||||||||||||||||||||
| Celsion Corporation(2)(5)(11) 997 Lenox Drive, Suite 100 Lawrenceville, NJ 08648 |
Biotechnology | Term Loan (10.12% cash (Libor + 7.63%; Floor 9.63%), 4.00% ETP, Due 7/1/22) | $ | 2,500 | $ | 2,453 | $ | 2,453 | ||||||||||||
| Term Loan (10.12% cash (Libor + 7.63%; Floor 9.63%), 4.00% ETP, Due 7/1/22) | 2,500 | 2,453 | 2,453 | |||||||||||||||||
| Espero BioPharma, Inc.(2)(11) 14286-19 Beach Boulevard, #270 Jacksonville, FL 32250 |
Biotechnology | Term Loan (12.39% cash (Libor + 9.9%; Floor 12.00%), 4.00% ETP, Due 6/30/19) | 5,000 | 4,830 | 4,830 | |||||||||||||||
| Mustang Bio, Inc.(2)(5)(11) 377 Plantation Street Worcester, MA 01605 |
Biotechnology | Term Loan (9.00% cash (Libor + 6.5%; Floor 9.00%), 5.00% ETP, Due 10/1/22) | 5,000 | 4,807 | 4,807 | |||||||||||||||
| Term Loan (9.00% cash (Libor + 6.5%; Floor 9.00%), 5.00% ETP, Due 10/1/22) | 5,000 | 4,903 | 4,903 | |||||||||||||||||
| Term Loan (9.00% cash (Libor + 6.5%; Floor 9.00%), 5.00% ETP, Due 10/1/22) | 5,000 | 4,903 | 4,903 | |||||||||||||||||
| Palatin Technologies, Inc.(2)(5)(11) 4-B Cedar Brook Drive Cranbury, NJ 08512 |
Biotechnology | Term Loan (10.99% cash (Libor + 8.50%; Floor 9.00%), 5.00% ETP, Due 8/1/19) | 667 | 661 | 661 | |||||||||||||||
| Term Loan (10.99% cash (Libor + 8.50%; Floor 9.00%), 3.27% ETP, Due 8/1/19) | 667 | 667 | 667 | |||||||||||||||||
| vTv Therapeutics Inc.(2)(5)(11) 4170 Mendenhall Oaks Parkway High Point, NC 27265 |
Biotechnology | Term Loan (12.49% cash (Libor + 10.00%; Floor 10.50%), 6.00% ETP, Due 5/1/20) | 3,385 | 3,361 | 3,361 | |||||||||||||||
| Term Loan (12.49% cash (Libor + 10.00%; Floor 10.50%), 6.00% ETP, Due 10/1/20) | 2,813 | 2,785 | 2,785 | |||||||||||||||||
| Titan Pharmaceuticals, Inc.(2)(5)(11) 400 Oyster Point Boulevard, Suite 505 South San Francisco, CA 94080 |
Drug Delivery | Term Loan (10.89% cash (Libor + 8.40%; Floor 9.50%), 5.00% ETP, Due 6/1/21) | 1,600 | 1,506 | 1,506 | |||||||||||||||
| Aerin Medical, Inc.(2)(11) 232 E. Caribbean Drive Sunnyvale, CA 94089 |
Medical Device | Term Loan (9.94% cash (Libor + 7.45%; Floor 8.75%), 4.00% ETP, Due 1/1/22) | 4,000 | 3,895 | 3,895 | |||||||||||||||
| Term Loan (9.94% cash (Libor + 7.45%; Floor 8.75%), 4.00% ETP, Due 1/1/22) | 3,000 | 2,969 | 2,969 | |||||||||||||||||
| Term Loan (9.94% cash (Libor + 7.45%; Floor 8.75%), 4.00% ETP, Due 1/1/22) | 3,000 | 2,969 | 2,969 | |||||||||||||||||
| Conventus Orthopaedics, Inc.(2)(11) 10200 73rd Avenue North, Suite 122 Maple Grove, MN 55369 |
Medical Device | Revolving Loan (10.49% cash (Libor + 8.00%; Floor 9.25%), 6.00% ETP, Due 6/1/21) | 4,000 | 3,955 | 3,955 | |||||||||||||||
| Revolving Loan (10.49% cash (Libor + 8.00%; Floor 9.25%), 6.00% ETP, Due 6/1/21) | 4,000 | 3,955 | 3,955 | |||||||||||||||||
| Revolving Loan (10.49% cash (Libor + 8.00%; Floor 9.25%), 6.00% ETP, Due 6/1/21) | 4,000 | 3,955 | 3,955 | |||||||||||||||||
| CSA Medical, Inc.(2)(11) 91 Hartwell Avenue Lexington, MA 02421 |
Medical Device | Term Loan (10.42% cash (Libor + 7.93%; Floor 10.00%), 5.00% ETP, Due 10/1/22) | 6,000 | 5,775 | 5,775 | |||||||||||||||
| Lantos Technologies, Inc.(2)(11) 155A New Boston Street Woburn, MA 01801 |
Medical Device | Term Loan (10.92% cash (Libor + 8.43%; Floor 10.00%), 10.00% ETP, Due 9/1/21) | 4,000 | 3,604 | 3,604 | |||||||||||||||
| MacuLogix, Inc.(2)(11) 1801 Oberlin Road, Suite 301 Middletown, PA 17057 |
Medical Device | Term Loan (10.17% cash (Libor + 7.68%; Floor 9.50%), 4.00% ETP, Due 8/1/22) | 3,750 | 3,632 | 3,632 | |||||||||||||||
| Term Loan (10.17% cash (Libor + 7.68%; Floor 9.50%), 4.00% ETP, Due 8/1/22) | 3,750 | 3,646 | 3,646 | |||||||||||||||||
| VERO Biotech LLC(2)(11) 2941 Oxbow Circle Cocoa, FL 32926 |
Medical Device | Term Loan (10.49% cash (Libor + 8.00%; Floor 9.25%), 5.00% ETP, Due 1/1/22) | 4,000 | 3,954 | 3,954 | |||||||||||||||
| Term Loan (10.49% cash (Libor + 8.00%; Floor 9.25%), 5.00% ETP, Due 1/1/22) | 4,000 | 3,954 | 3,954 | |||||||||||||||||
| Total Non-Affiliate Debt Investments — Life Science | 79,592 | 79,592 | ||||||||||||||||||
23
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| Name and Address of Portfolio Company(1)(3) |
Sector | Type of Investment(4)(7)(8)(9) | Principal Amount | Cost of Investments(6) | Fair Value | |||||||||||||||
| Non-Affiliate Debt Investments — Technology |
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| Audacy Corporation(2)(11) 340 S. Lemon Ave. Suite 8787 Walnut, CA 91789 |
Communications | Term Loan (10.39% cash (Libor + 7.90%; Floor 9.50%), 5.00% ETP, Due 7/1/22) | 3,143 | 3,092 | 2,492 | |||||||||||||||
| Intelepeer Holdings, Inc.(2)(11) 177 Bovet Road, Suite 400 San Mateo, CA 94402 |
Communications | Term Loan (12.44% cash (Libor + 9.95%; Floor 11.25%), 3.30% ETP, Due 1/1/22) | 4,000 | 3,929 | 3,929 | |||||||||||||||
| Term Loan (12.44% cash (Libor + 9.95%; Floor 11.25%), 2.50% ETP, Due 2/1/22) | 3,000 | 2,941 | 2,941 | |||||||||||||||||
| Term Loan (12.45% cash (Libor + 9.95%; Floor 12.45%), 2.50% ETP, Due 10/1/22) | 1,073 | 1,053 | 1,053 | |||||||||||||||||
| Betabrand Corporation(2)(11) 780 Valencia Street San Francisco, CA 94110 |
Consumer-related Technologies | Term Loan (10.05% cash (Libor + 7.50%; Floor 10.05%), 4.50% ETP, Due 9/1/23) | 4,250 | 4,102 | 4,102 | |||||||||||||||
| Term Loan (10.05% cash (Libor + 7.50%; Floor 10.05%), 4.50% ETP, Due 9/1/23) | 4,250 | 4,168 | 4,168 | |||||||||||||||||
| Food52, Inc.(2)(11) 122 West 26th Street, 8th Floor New York, NY 10001 |
Consumer-related Technologies | Term Loan (10.90% cash (Libor + 8.40%; Floor 10.90%), 3.00% ETP, Due 1/1/23) | 3,000 | 2,923 | 2,923 | |||||||||||||||
| Term Loan (10.90% cash (Libor + 8.40%; Floor 10.90%), 3.00% ETP, Due 1/1/23) | 3,000 | 2,923 | 2,923 | |||||||||||||||||
| Mohawk Group Holdings, Inc.(2)(11) 37 East 18th Street, 7th Floor New York, NY 10003 |
Consumer-related Technologies | Term Loan (9.90% cash (Libor + 7.40%; Floor 9.90%), 4.00% ETP, Due 1/1/23) | 5,000 | 4,892 | 4,892 | |||||||||||||||
| Term Loan (9.90% cash (Libor + 7.40%; Floor 9.90%), 4.00% ETP, Due 1/1/23) | 5,000 | 4,892 | 4,892 | |||||||||||||||||
| Term Loan (9.90% cash (Libor + 7.40%; Floor 9.90%), 4.00% ETP, Due 1/1/23) | 5,000 | 4,892 | 4,892 | |||||||||||||||||
| Canara, Inc.(2)(11) 2077 Convention Center Concourse Suite 425 Atlanta, GA 30337 |
Data Storage | Term Loan (11.09% cash (Libor + 8.60%; Floor 11.00%), 1.00% ETP, Due 2/1/23) | 5,000 | 4,836 | 4,836 | |||||||||||||||
| Term Loan (11.09% cash (Libor + 8.60%; Floor 11.00%), 1.00% ETP, Due 2/1/23) | 5,000 | 4,836 | 4,836 | |||||||||||||||||
| Kaminario, Inc.(2)(11) 75 Second Avenue, Suite 620 Needham, MA 02494 |
Data Storage | Term Loan (10.89% cash (Libor + 8.40%; Floor 10.65%), 3.00% ETP, Due 1/1/23) | 5,000 | 4,923 | 4,923 | |||||||||||||||
| Term Loan (10.89% cash (Libor + 8.40%; Floor 10.65%), 3.00% ETP, Due 1/1/23) | 5,000 | 4,923 | 4,923 | |||||||||||||||||
| IgnitionOne, Inc.(2)(11) 1675 Broadway, 7th Floor New York, NY 10019 |
Internet and Media | Term Loan (12.72% cash (Libor + 10.23%; Floor 10.23%), 2.00% ETP, Due 4/1/22) | 3,000 | 2,881 | 2,881 | |||||||||||||||
| Term Loan (12.72% cash (Libor + 10.23%; Floor 10.23%), 2.00% ETP, Due 4/1/22) | 3,000 | 2,881 | 2,881 | |||||||||||||||||
| Term Loan (12.72% cash (Libor + 10.23%; Floor 10.23%), 2.00% ETP, Due 4/1/22) | 3,000 | 2,881 | 2,881 | |||||||||||||||||
| Term Loan (12.72% cash (Libor + 10.23%; Floor 10.23%), 2.00% ETP, Due 4/1/22) | 3,000 | 2,881 | 2,881 | |||||||||||||||||
| Jump Ramp Games, Inc.(2)(11) 307 West 38th Street, Suite 1101 New York, NY 10018 |
Internet and Media | Term Loan (12.22% cash (Libor + 9.73%), 3.00% ETP, Due 4/1/21) |
4,000 | 3,964 | 3,964 | |||||||||||||||
| Kixeye, Inc.(2)(11) 333 Bush Street, 19th Floor San Francisco, CA 94104 |
Internet and Media | Term Loan (12.09% cash (Libor + 9.60%; Floor 10.75%), 4.00% ETP, Due 5/1/21) | 2,550 | 2,476 | 2,476 | |||||||||||||||
| Term Loan (12.09% cash (Libor + 9.60%; Floor 10.75%), 4.00% ETP, Due 5/1/21) | 2,550 | 2,516 | 2,516 | |||||||||||||||||
| Verve Wireless, Inc.(2)(11) 5600 Avenida Encinas, Suite 120 Carlsbad, CA 92008 |
Internet and Media | Term Loan (11.29% cash (Libor + 8.80%; Floor 10.80%), 3.33% ETP, Due 9/1/21) | 3,000 | 2,884 | 2,884 | |||||||||||||||
| Zinio Holdings, LLC(2)(11) 575 Lexington Avenue, Floor 17 New York, NY 10022 |
Internet and Media | Term Loan (13.74% cash (Libor + 11.25%; Floor 11.75%), 8.50% ETP, Due 2/1/20) | 2,800 | 2,791 | 2,791 | |||||||||||||||
| The NanoSteel Company, Inc.(2)(11) 272 West Exchange, Suite 300 Providence, RI 02903 |
Materials | Term Loan (11.00% cash (Libor + 8.50%; Floor 11.00%), 4.0% ETP, Due 6/1/22) | 4,250 | 4,190 | 4,190 | |||||||||||||||
| Term Loan (11.00% cash (Libor + 8.50%; Floor 11.00%), 4.0% ETP, Due 6/1/22) | 4,250 | 4,190 | 4,190 | |||||||||||||||||
| Powerhouse Dynamics, Inc.(2)(11) 3 Bridge St. Newton, MA 02458 |
Power Management | Term Loan (13.19% cash (Libor + 10.70%; Floor 11.20%), 3.32% ETP, Due 9/1/19) | 408 | 400 | 400 | |||||||||||||||
| Bridge2 Solutions, LLC.(2)(11) 5900 Windward Parkway, Suite 450 Alpharetta, GA 30005 |
Software | Term Loan (11.74% cash (Libor + 9.25%; Floor 10.50%), 2.00% ETP, Due 11/1/21) | 5,000 | 4,850 | 4,850 | |||||||||||||||
| Term Loan (11.74% cash (Libor + 9.25%; Floor 10.50%), 2.00% ETP, Due 11/1/21) | 5,000 | 4,850 | 4,850 | |||||||||||||||||
| Education Elements, Inc.(2)(11) 999 Skyway Road San Carlos, CA 94070 |
Software | Term Loan (12.49% cash (Libor + 10.00%; Floor 10.50%), 4.00% ETP, Due 8/1/19) | 200 | 197 | 197 | |||||||||||||||
24
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| Name and Address of Portfolio Company(1)(3) |
Sector | Type of Investment(4)(7)(8)(9) | Principal Amount | Cost of Investments(6) | Fair Value | |||||||||||||||
| New Signature US, Inc.(2)(11)(12) 901 K Street, NW, Suite 450 Washington, DC 20001 |
Software | Term Loan (10.99% cash (Libor + 8.50%; Floor 10.50%), 3.50% ETP, Due 7/1/22) | 2,750 | 2,712 | 2,712 | |||||||||||||||
| Term Loan (10.99% cash (Libor + 8.50%; Floor 10.50%), 3.50% ETP, Due 2/1/23) | 1,000 | 984 | 984 | |||||||||||||||||
| SIGNiX, Inc.(11) 1203 Carter Street Chattanooga, TN 37402 |
Software | Term Loan (13.49% cash (Libor + 11.00%; Floor 11.50%), 8.67% ETP, Due 2/1/20) | 1,645 | 1,602 | 1,500 | |||||||||||||||
| xAd, Inc.(2)(11) One World Trade Center, 60th Floor New York, NY 10007 |
Software | Term Loan (11.19% cash (Libor + 8.70%; Floor 10.00%), 4.75% ETP, Due 11/1/21) | 5,000 | 4,930 | 4,930 | |||||||||||||||
| Term Loan (11.19% cash (Libor + 8.70%; Floor 10.00%), 4.75% ETP, Due 11/1/21) | 5,000 | 4,930 | 4,930 | |||||||||||||||||
| Term Loan (11.19% cash (Libor + 8.70%; Floor 10.00%), 4.75% ETP, Due 11/1/21) | 3,000 | 2,958 | 2,958 | |||||||||||||||||
| Term Loan (11.19% cash (Libor + 8.70%; Floor 10.00%), 4.75% ETP, Due 11/1/21) | 2,000 | 1,972 | 1,972 | |||||||||||||||||
| Total Non-Affiliate Debt Investments — Technology | 124,245 | 123,543 | ||||||||||||||||||
| Non-Affiliate Debt Investments — Healthcare information and services |
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| Catasys, Inc.(2)(5)(11) 11601 Wilshire Blvd., Suite 1100 Los Angeles, CA 90025 |
Software | Term Loan (10.24% cash (Libor + 7.75%; Floor 9.75%), 6.00% ETP, Due 3/1/22) | 2,500 | 2,480 | 2,480 | |||||||||||||||
| Term Loan (10.24% cash (Libor + 7.75%; Floor 9.75%), 6.00% ETP, Due 3/1/22) | 2,500 | 2,480 | 2,480 | |||||||||||||||||
| Term Loan (10.24% cash (Libor + 7.75%; Floor 9.75%), 6.00% ETP, Due 3/1/22) | 2,500 | 2,479 | 2,479 | |||||||||||||||||
| Revolving Loan (10.23% cash (Libor + 7.75%; Floor 9.75%), 6.00% ETP, Due 8/31/22) | 2,500 | 2,276 | 2,276 | |||||||||||||||||
| HealthEdge Software, Inc.(2)(11) 30 Corporate Drive Burlington, MA 01803 |
Software | Term Loan (10.74% cash (Libor + 8.25%; Floor 9.25%), 3.00% ETP, Due 7/1/22) | 4,643 | 4,593 | 4,593 | |||||||||||||||
| Term Loan (10.74% cash (Libor + 8.25%; Floor 9.25%), 3.00% ETP, Due 1/1/23) | 3,750 | 3,707 | 3,707 | |||||||||||||||||
| Term Loan (10.74% cash (Libor + 8.25%; Floor 9.25%), 3.00% ETP, Due 4/1/23) | 3,750 | 3,704 | 3,704 | |||||||||||||||||
| Term Loan (10.74% cash (Libor + 8.25%; Floor 9.25%), 3.00% ETP, Due 1/1/24) | 3,750 | 3,699 | 3,699 | |||||||||||||||||
| Total Non-Affiliate Debt Investments — Healthcare information and services | 25,418 | 25,418 | ||||||||||||||||||
| Total Non-Affiliate Debt Investments | 229,255 | 228,553 | ||||||||||||||||||
| Non-Affiliate Warrant Investments |
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| Non-Affiliate Warrants — Life Science |
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| ACT Biotech Corporation NGN Capital 369 Lexington Avenue, 17th Floor New York, NY 10017 |
Biotechnology | 130,872 Preferred Stock Warrants | 12 | — | ||||||||||||||||
| Alpine Immune Sciences, Inc.(5)(11) 3122 Sterling Circle, Suite 200 Boulder, CO 80301 |
Biotechnology | 4,634 Common Stock Warrants | 122 | — | ||||||||||||||||
| Celsion Corporation(2)(5)(11) 997 Lenox Drive, Suite 100 Lawrenceville, NJ 08648 |
Biotechnology | 95,465 Common Stock Warrants | 79 | 11 | ||||||||||||||||
| Espero BioPharma, Inc.(2)(5)(11) 14286-19 Beach Boulevard, #270 Jacksonville, FL 32250 |
Biotechnology | 1,506,937 Common Stock Warrants | 185 | 182 | ||||||||||||||||
| Mustang Bio, Inc.(2)(5)(11) 377 Plantation Street Worcester, MA 01605 |
Biotechnology | 288,184 Common Stock Warrants | 187 | 187 | ||||||||||||||||
| Rocket Pharmaceuticals Corporation(5)(11) 131 Hartwell Avenue, Suite 105 Lexington, MA 02421 |
Biotechnology | 7,051 Common Stock Warrants | 17 | 3 | ||||||||||||||||
| Palatin Technologies, Inc.(2)(5)(11) 4-B Cedar Brook Drive Cranbury, NJ 08512 |
Biotechnology | 608,058 Common Stock Warrants | 51 | 139 | ||||||||||||||||
| Revance Therapeutics, Inc.(5)(11) 7555 Gateway Blvd. Newark, CA 94560 |
Biotechnology | 34,113 Common Stock Warrants | 68 | 86 | ||||||||||||||||
| Sample6, Inc.(2)(11) 840 Memorial Drive, 4th Floor Cambridge, MA 02139 |
Biotechnology | 661,956 Preferred Stock Warrants | 53 | 25 | ||||||||||||||||
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| Name and Address of Portfolio Company(1)(3) |
Sector | Type of Investment(4)(7)(8)(9) | Principal Amount | Cost of Investments(6) | Fair Value | |||||||||||||||
| Strongbridge U.S. Inc.(2)(5)(11) 900 Northbrook Drive, Suite 200 Trevose, PA 19053 |
Biotechnology | 160,714 Common Stock Warrants | 72 | 433 | ||||||||||||||||
| Sunesis Pharmaceuticals, Inc.(5)(11) 395 Oyster Point Blvd., Suite 400 South San Francisco, CA 94080 |
Biotechnology | 2,050 Common Stock Warrants | 5 | — | ||||||||||||||||
| vTv Therapeutics Inc.(2)(5)(11) 4170 Mendenhall Oaks Parkway High Point, NC 27265 |
Biotechnology | 95,293 Common Stock Warrants | 44 | — | ||||||||||||||||
| Titan Pharmaceuticals, Inc.(2)(5)(11) 400 Oyster Point Boulevard, Suite 505 South San Francisco, CA 94080 |
Drug Delivery | 373,333 Common Stock Warrants | 95 | 201 | ||||||||||||||||
| AccuVein Inc.(2)(11) 40 Goose Hill Road Cold Spring Harbor, NY 11724 |
Medical Device | 1,174,881 Preferred Stock Warrants | 24 | 27 | ||||||||||||||||
| Aerin Medical, Inc.(2)(11) 232 E. Caribbean Drive Sunnyvale, CA 94089 |
Medical Device | 1,818,182 Preferred Stock Warrants | 66 | 66 | ||||||||||||||||
| Conventus Orthopaedics, Inc.(2)(11) 10200 73rd Avenue North, Suite 122 Maple Grove, MN 55369 |
Medical Device | 720,000 Preferred Stock Warrants | 95 | 97 | ||||||||||||||||
| CSA Medical, Inc.(11) 91 Hartwell Avenue Lexington, MA 02421 |
Medical Device | 745,562 Preferred Stock Warrants | 89 | 84 | ||||||||||||||||
| Lantos Technologies, Inc.(2)(11) 155A New Boston Street Woburn, MA 01801 |
Medical Device | 1,715,926 Common Stock Warrants | 253 | 285 | ||||||||||||||||
| MacuLogix, Inc.(2)(11) 1801 Oberlin Road, Suite 301 Middletown, PA 17057 |
Medical Device | 234,742 Preferred Stock Warrants | 179 | 88 | ||||||||||||||||
| NinePoint Medical, Inc.(2)(11) One Kendall Square, Ste. B7501 Cambridge, MA 02139 |
Medical Device | 29,102 Preferred Stock Warrants | 33 | 6 | ||||||||||||||||
| ReShape Lifesciences Inc.(5)(11) 2800 Patton Road Saint Paul, MN 55113 |
Medical Device | 121 Common Stock Warrants | 341 | — | ||||||||||||||||
| Tryton Medical, Inc.(2)(11) 1000 Park Forty Plaza, Suite 325 Durham, NC 27713 |
Medical Device | 122,362 Preferred Stock Warrants | 15 | 13 | ||||||||||||||||
| VERO Biotech LLC(2)(11) 2941 Oxbow Circle Cocoa, FL 32926 |
Medical Device | 800 Common Stock Warrants | 53 | 329 | ||||||||||||||||
| Total Non-Affiliate Warrants — Life Science | 2,138 | 2,262 | ||||||||||||||||||
| Non-Affiliate Warrants — Technology |
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| Audacy Corporation(2)(11) 340 S. Lemon Ave., Suite 8787 Walnut, CA 91789 |
Communications | 1,545,575 Preferred Stock Warrants | 194 | — | ||||||||||||||||
| Intelepeer Holdings, Inc.(2)(11) 177 Bovet Road, Suite 400 San Mateo, CA 94402 |
Communications | 1,702,617 Preferred Stock Warrants | 122 | 83 | ||||||||||||||||
| PebblePost, Inc.(2)(11) 36 Cooper Square, 4th Floor New York, NY 10003 |
Communications | 598,850 Preferred Stock Warrants | 92 | 156 | ||||||||||||||||
| Betabrand Corporation(2)(11) 780 Valencia St. San Francisco, CA 94110 |
Consumer-related Technologies | 248,211 Preferred Stock Warrants | 101 | 101 | ||||||||||||||||
| Food52, Inc.(2)(11) 122 West 26th Street, 8th Floor New York, NY 10001 |
Consumer-related Technologies | 102,941 Preferred Stock Warrants | 104 | 102 | ||||||||||||||||
| Gwynnie Bee, Inc.(2)(11) 43-01 22nd Street Long Island City, NY 11101 |
Consumer-related Technologies | 268,591 Preferred Stock Warrants | 68 | 837 | ||||||||||||||||
| Le Tote, Inc.(2)(11) 3130 20th Street, Suite 225 San Francisco, CA 94110 |
Consumer-related Technologies | 202,974 Preferred Stock Warrants | 63 | 366 | ||||||||||||||||
| Mohawk Group Holdings, Inc.(2)(11) 37 East 18th Street, 7th Floor New York, NY 10003 |
Consumer-related Technologies | 300,000 Common Stock Warrants | 195 | 190 | ||||||||||||||||
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| Name and Address of Portfolio Company(1)(3) |
Sector | Type of Investment(4)(7)(8)(9) | Principal Amount | Cost of Investments(6) | Fair Value | |||||||||||||||
| Rhapsody International Inc.(2)(11) 701 5th Avenue, Suite 3100 Seattle, WA 98104 |
Consumer-related Technologies | 852,273 Common Stock Warrants | 164 | — | ||||||||||||||||
| Canara, Inc.(2)(11) 2077 Convention Center Concourse Suite 425 Atlanta, GA 30337 |
Data Storage | 500,000 Preferred Stock Warrants | 242 | 242 | ||||||||||||||||
| Kaminario, Inc.(2)(11) 75 Second Avenue, Suite 620 Needham, MA 02494 |
Data Storage | 9,981,346 Preferred Stock Warrants | 124 | 159 | ||||||||||||||||
| IgnitionOne, Inc.(2)(11) 1675 Broadway, 7th Floor New York, NY 10019 |
Internet and Media | 262,910 Preferred Stock Warrants | 672 | 697 | ||||||||||||||||
| Jump Ramp Games, Inc.(2)(11) 307 West 38th Street, Suite 1101 New York, NY 10018 |
Internet and Media | 159,766 Preferred Stock Warrants | 32 | 1 | ||||||||||||||||
| Kixeye, Inc.(2)(11) 333 Bush Street, 19th Floor San Francisco, CA 94104 |
Internet and Media | 791,251 Preferred Stock Warrants | 75 | 60 | ||||||||||||||||
| Rocket Lawyer Incorporated(2)(11) 182 Howard Street, Suite #830 San Francisco, CA 94105 |
Internet and Media | 261,721 Preferred Stock Warrants | 92 | 75 | ||||||||||||||||
| Verve Wireless, Inc.(2)(11) 5600 Avenida Encinas, Suite 120 Carlsbad, CA 92008 |
Internet and Media | 112,805 Common Stock Warrants | 120 | 119 | ||||||||||||||||
| The NanoSteel Company, Inc.(2)(11) 272 West Exchange, Suite 300 Providence, RI 02903 |
Materials | 467,277 Preferred Stock Warrants | 233 | 561 | ||||||||||||||||
| Powerhouse Dynamics, Inc.(2)(11) 3 Bridge Street Newton, MA 02458 |
Power Management | 348,838 Preferred Stock Warrants | 33 | 50 | ||||||||||||||||
| Avalanche Technology, Inc.(2)(11) 43871 Fremont Boulevard, Suite 101 Fremont, CA 94538 |
Semiconductors | 202,602 Preferred Stock Warrants | 101 | 53 | ||||||||||||||||
| Soraa, Inc.(2)(11) 6500 Kaiser Drive Fremont, CA 94555 |
Semiconductors | 203,616 Preferred Stock Warrants | 80 | 423 | ||||||||||||||||
| Bridge2 Solutions, Inc.(2)(11) 5900 Windward Parkway, Suite 450 Alpharetta, GA 30005 |
Software | 125,458 Common Stock Warrants | 432 | 755 | ||||||||||||||||
| BSI Platform Holdings, LLC(2)(11)(12) 901 K Street, NW, Suite 450 Washington, DC 20001 |
Software | 187,500 Preferred Stock Warrants | 26 | 25 | ||||||||||||||||
| Clarabridge, Inc.(11) 11400 Commerce Park Drive, Suite 500 Reston, VA 20191 |
Software | 53,486 Preferred Stock Warrants | 14 | 105 | ||||||||||||||||
| Education Elements, Inc.(2)(11) 999 Skyway Road San Carlos, CA 94070 |
Software | 238,121 Preferred Stock Warrants | 28 | 23 | ||||||||||||||||
| Lotame Solutions, Inc.(2)(11) 8850 Stanford Blvd, Suite 2000 Columbus, MD 21045 |
Software | 288,115 Preferred Stock Warrants | 22 | 284 | ||||||||||||||||
| Metricly, Inc.(11) 12700 Sunrise Valley Drive Reston, VA 20191 |
Software | 41,569 Common Stock Warrants | 48 | — | ||||||||||||||||
| Riv Data Corp.(2)(11) 735 State Street, Suite 600 Santa Barbara, CA 93101 |
Software | 321,428 Preferred Stock Warrants | 12 | 254 | ||||||||||||||||
| ShopKeep.com, Inc.(2)(11) 450-460 Park Avenue South New York, NY 10016 |
Software | 193,962 Preferred Stock Warrants | 118 | 113 | ||||||||||||||||
| SIGNiX, Inc.(11) 1203 Carter St. Chattanooga, TN 37402 |
Software | 133,560 Preferred Stock Warrants | 225 | 35 | ||||||||||||||||
| Skyword, Inc.(11) 38 Chauncy Street Boston, MA 02111 |
Software | 301,056 Preferred Stock Warrants | 48 | 3 | ||||||||||||||||
| Sys-Tech Solutions, Inc.(2)(11) 2540 U.S. Highway 130 Cranbury, NJ 08512 |
Software | 375,000 Preferred Stock Warrants | 242 | 429 | ||||||||||||||||
27
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| Name and Address of Portfolio Company(1)(3) |
Sector | Type of Investment(4)(7)(8)(9) | Principal Amount | Cost of Investments(6) | Fair Value | |||||||||||||||
| Weblinc Corporation(2)(11) 22 South 3rd Street Philadelphia, PA 19106 |
Software | 195,122 Preferred Stock Warrants | 42 | — | ||||||||||||||||
| xAd, Inc.(2)(11) One World Trade Center, 60th Floor New York, NY 10007 |
Software | 4,343,350 Preferred Stock Warrants | 177 | 248 | ||||||||||||||||
| Total Non-Affiliate Warrants — Technology | 4,341 | 6,549 | ||||||||||||||||||
| Non-Affiliate Warrants — Cleantech |
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| Renmatix, Inc.(2)(11) 600 Allendale Road King of Prussia, PA 19406 |
Alternative Energy | 53,022 Preferred Stock Warrants | 68 | — | ||||||||||||||||
| Tigo Energy, Inc.(2)(11) 420 Blossom Hill Road Los Gatos, CA 95032 |
Energy Efficiency | 804,604 Preferred Stock Warrants | 100 | 111 | ||||||||||||||||
| Total Non-Affiliate Warrants — Cleantech | 168 | 111 | ||||||||||||||||||
| Non-Affiliate Warrants — Healthcare information and services |
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| LifePrint Group, Inc.(2)(11) 175 Varick Street New York, NY 10014 |
Diagnostics | 49,000 Preferred Stock Warrants | 29 | 2 | ||||||||||||||||
| ProterixBio, Inc.(2)(11) 75 Sidney Street Cambridge, MA 02139 |
Diagnostics | 2,676 Common Stock Warrants | 42 | — | ||||||||||||||||
| Singulex, Inc.(11) 1650 Harbor Bay Pkwy, Suite 200 Alameda, CA 94502 |
Other Healthcare | 294,231 Preferred Stock Warrants | 44 | 45 | ||||||||||||||||
| Verity Solutions Group, Inc.(11) 11335 NE 122nd Way, Suite 200 Kirkland, WA 98034 |
Other Healthcare | 300,360 Preferred Stock Warrants | 100 | 64 | ||||||||||||||||
| Watermark Medical, Inc.(2)(11) 1641 Worthington Road, Suite 320 West Palm Beach, FL 33409 |
Other Healthcare | 27,373 Preferred Stock Warrants | 74 | 61 | ||||||||||||||||
| Catasys, Inc.(2)(5)(11) 11601 Wilshire Blvd., Suite 1100 Los Angeles, CA 90025 |
Software | 40,282 Common Stock Warrants | 149 | 149 | ||||||||||||||||
| HealthEdge Software, Inc.(2)(11) 30 Corporate Drive Burlington, MA 01803 |
Software | 205,481 Preferred Stock Warrants | 83 | 69 | ||||||||||||||||
| Medsphere Systems Corporation(2)(11) 1903 Wright Place, Suite 120 Carlsbad, CA 92008 |
Software | 7,097,792 Preferred Stock Warrants | 60 | 210 | ||||||||||||||||
| Recondo Technology, Inc.(2)(11) 6312 South Fiddlers Green Circle, Suite 600 East Greenwood Village, CO 80111 |
Software | 556,796 Preferred Stock Warrants | 95 | 211 | ||||||||||||||||
| Total Non-Affiliate Warrants — Healthcare information and services | 676 | 811 | ||||||||||||||||||
| Total Non-Affiliate Warrants | 7,323 | 9,733 | ||||||||||||||||||
| Non-Affiliate Other Investments |
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| Espero Pharmaceuticals, Inc.(11) 14286-19 Beach Boulevard, #270 Jacksonville, FL 32250 |
Biotechnology | Royalty Agreement | 5,300 | 4,700 | ||||||||||||||||
| ZetrOZ, Inc.(11) 56 Quarry Road Trumbull, CT 06611 |
Medical Device | Royalty Agreement | 142 | 700 | ||||||||||||||||
| Vette Technology, LLC(11) 14 Manchester Square, Suite 210 Portsmouth, NH 03801 |
Data Storage | Royalty Agreement Due 4/18/2019 | 4,166 | 20 | ||||||||||||||||
| Triple Double Holdings, LLC(11) 75 Gerber Road East South Windsor, CT 06074 |
Software | License Agreement | 2,200 | 1,000 | ||||||||||||||||
| Total Non-Affiliate Other Investments | 11,808 | 6,420 | ||||||||||||||||||
| Non-Affiliate Equity |
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| Revance Therapeutics, Inc.(5) 7555 Gateway Blvd. Newark, CA 94560 |
Biotechnology | 5,125 Common Stock | 72 | 81 | ||||||||||||||||
| Sunesis Pharmaceuticals, Inc.(5) 395 Oyster Point Blvd, Suite 400 South San Francisco, CA 94080 |
Biotechnology | 13,082 Common Stock | 83 | 16 | ||||||||||||||||
28
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| Name and Address of Portfolio Company(1)(3) |
Sector | Type of Investment(4)(7)(8)(9) | Principal Amount | Cost of Investments(6) | Fair Value | |||||||||||||||
| SnagAJob.com, Inc.(11) 4851 Lake Brook Drive Glen Allen, VA 23060 |
Consumer-related Technologies | 82,974 Common Stock | 9 | 83 | ||||||||||||||||
| Verve Wireless, Inc.(2)(11) 5600 Avenida Encinas, Suite 120 Carlsbad, CA 92008 |
Internet and Media | 100,598 Preferred Stock | 225 | 225 | ||||||||||||||||
| Formetrix, Inc.(2)(11) 171 Forbes Boulevard, Suite 2000 Mansfield, MA 02048 |
Materials | 74,286 Common Stock | 74 | 74 | ||||||||||||||||
| TruSignal, Inc.(11) 25 6th Avenue North Saint Cloud, MN 56303 |
Software | 32,637 Common Stock | 41 | 41 | ||||||||||||||||
| Total Non-Affiliate Equity | 504 | 520 | ||||||||||||||||||
| Total Non-Affiliate Portfolio Investment Assets | $ | 248,890 | $ | 245,226 | ||||||||||||||||
| Non-controlled Affiliate Investments |
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| Non-controlled Affiliate Debt Investments — Technology |
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| Decisyon, Inc.(11) 1266 East Main Street Stamford, CT 06902 |
Software | Term Loan (14.798% cash (Libor + 12.308%; Floor 12.50%), 8.00% ETP, Due 12/1/20) | $ | 1,426 | $ | 1,425 | $ | 1,423 | ||||||||||||
| Term Loan (14.798% cash (Libor + 12.308%; Floor 12.50%), 8.00% ETP, Due 12/1/20) | 780 | 747 | 746 | |||||||||||||||||
| Term Loan (12.02% cash, Due 12/31/19) | 250 | 250 | 250 | |||||||||||||||||
| Term Loan (12.03% cash, Due 12/31/19) | 250 | 250 | 250 | |||||||||||||||||
| Term Loan (12.24% cash, Due 12/31/19) | 750 | 750 | 748 | |||||||||||||||||
| Term Loan (13.08% cash, Due 12/31/19) | 300 | 300 | 300 | |||||||||||||||||
| Term Loan (13.10% cash, Due 12/31/19) | 200 | 200 | 200 | |||||||||||||||||
| StereoVision Imaging, Inc.(11) Gateway Metro Center 3452 East Foothill Boulevard, Suite 1125 Pasadena, CA 91107 |
Software | Term Loan (9.52% Cash (Libor + 7.03%; Floor 8.50%), 8.50% ETP, Due 9/1/21)(10) |
3,200 | 2,798 | 2,798 | |||||||||||||||
| Total Non-controlled Affiliate Debt Investments — Technology |
6,720 | 6,715 | ||||||||||||||||||
| Non-controlled Affiliate Warrants — Technology |
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| Decisyon, Inc.(11) 1266 East Main Street Stamford, CT 06902 |
Software | 82,967 Common Stock Warrants | 46 | — | ||||||||||||||||
| Total Non-controlled Affiliate Warrants — Technology | 46 | — | ||||||||||||||||||
| Non-controlled Affiliate Equity — Technology |
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| Decisyon, Inc.(11) 1266 East Main Street Stamford, CT 06902 |
Software | 45,365,936 Common Stock | 185 | 75 | ||||||||||||||||
| StereoVision Imaging, Inc.(11) Gateway Metro Center 3452 East Foothill Boulevard, Suite 1125 Pasadena, CA 91107 |
Software | 1,943,572 Common Stock | 791 | 791 | ||||||||||||||||
| Total Non-controlled Affiliate Equity | 976 | 866 | ||||||||||||||||||
| Total Non-controlled Affiliate Portfolio Investment Assets | $ | 7,742 | $ | 7,581 | ||||||||||||||||
| Controlled Affiliate Investments |
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| Controlled Affiliate Equity — Financial | ||||||||||||||||||||
| Horizon Secured Loan Fund I LLC(11)(13) 312 Farmington Avenue Farmington, CT 06032 |
Investment funds | $ | 13,360 | $ | 13,345 | |||||||||||||||
| Total Controlled Affiliate Equity | 13,360 | 13,345 | ||||||||||||||||||
| Total Controlled Affiliate Portfolio Investment Assets | $ | 13,360 | $ | 13,345 | ||||||||||||||||
| Total Portfolio Investment Assets | $ | 269,992 | $ | 266,152 | ||||||||||||||||
| (1) | All investments of the Company are in entities which are organized under the laws of the United States and have a principal place of business in the United States. |
| (2) | Has been pledged as collateral under the revolving credit facility with KeyBank National Association (the “Key Facility”). |
29
| (3) | All non-affiliate investments are investments in which the Company owns less than 5% of the voting securities of the portfolio company. All non-controlled affiliate investments are investments in which the Company owns 5% or more of the voting securities of the portfolio company but not more than 25% of the voting securities of the portfolio company. All controlled affiliate investments are investments in which the Company owns more than 25% of the portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfolio company (including through a management agreement). |
| (4) | All interest is payable in cash due monthly in arrears, unless otherwise indicated, and applies only to the Company’s debt investments. Interest rate is the annual interest rate on the debt investment and does not include end-of-term payments (“ETPs”), and any additional fees related to the investments, such as deferred interest, commitment fees or prepayment fees. Debt investments are at variable rates for the term of the debt investment, unless otherwise indicated. All debt investments based on the London InterBank Offered Rate (“LIBOR”) are based on one-month LIBOR. For each debt investment, the current interest rate in effect as of March 31, 2019 is provided. |
| (5) | Portfolio company is a public company. |
| (6) | For debt investments, represents principal balance less unearned income. |
| (7) | Warrants, Equity and Other Investments are non-income producing. |
| (8) | As of March 31, 2019, 4.5% of the Company’s total assets on a cost and fair value basis are in non-qualifying assets. Under the Investment Company Act of 1940, as amended (the “1940 Act”), the Company may not acquire any non-qualifying assets unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company’s total assets. |
| (9) | ETPs are contractual fixed-interest payments due in cash at the maturity date of the applicable debt investment, including upon any prepayment, and are a fixed percentage of the original principal balance of the debt investments unless otherwise noted. Interest will accrue during the life of the debt investment on each ETP and will be recognized as non-cash income until it is actually paid. Therefore, a portion of the incentive fee the Company may pay its Advisor will be based on income that the Company has not yet received in cash. |
| (10) | Debt investment has a payment-in-kind (“PIK”) feature. |
| (11) | The fair value of the investment was valued using significant unobservable inputs. |
| (12) | New Signature US, Inc. is a subsidiary of BSI Platform Holdings, LLC. |
| (13) | On June 1, 2018, the Company entered into an agreement with Arena Sunset SPV, LLC (“Arena”) to co-invest through Horizon Secured Loan Fund I (“HSLFI”), a joint venture, which is expected to make investments, either directly or indirectly through subsidiaries, primarily in the form of secured loans to development-stage companies in the technology, life science, healthcare information and services and cleantech industries. All HSLFI investment decisions require unanimous approval of a quorum of HSLFI’s board of managers. Although the Company owns more than 25% of the voting securities of HSLFI, the Company does not have sole control over significant actions of HSLFI for purposes of the 1940 Act or otherwise. |
30
PORTFOLIO MANAGEMENT
Our Advisor is located at 312 Farmington Avenue, Farmington, Connecticut 06032 and serves as our investment adviser pursuant to the Investment Management Agreement. Our Advisor is registered as an investment adviser under the Advisers Act. Subject to the overall supervision of our Board, our Advisor manages the day-to-day operations of, and provides investment advisory and management services to, us.
Portfolio management
The management of our investment portfolio is the responsibility of our Advisor’s executive officers and its investment committee. The investment committee currently consists of Robert D. Pomeroy, Jr., Chief Executive Officer of our Advisor, Gerald A. Michaud, President of our Advisor, Daniel S. Devorsetz, Senior Vice President and Chief Investment Officer of our Advisor, Daniel R. Trolio, Senior Vice President and Chief Financial Officer of our Advisor, and Gary P. Moro, Vice President — Credit of our Advisor. For more information regarding the business experiences of Messrs. Pomeroy, Michaud, Devorsetz and Trolio see “Directors, Executive Officers and Corporate Governance” in our most recently filed Annual Report on Form 10-K.
Below is the biography for the portfolio manager whose biography has not been included elsewhere in this prospectus.
Gary P. Moro, Vice President — Credit. Mr. Moro is responsible for underwriting and portfolio management. Mr. Moro has 25 years of risk management and underwriting experience. Mr. Moro previously served as Senior Vice President, Risk Policy Senior Manager, at Citicorp Credit Services, where he led the risk management of private label credit card partnerships. Mr. Moro also served as Chief Credit Officer with both GATX Ventures, Inc., the venture lending subsidiary of GATX Corporation, and Transamerica Technology Finance, the venture lending division of Transamerica Business Credit and served as a Director of Credit with Financing for Science International, Inc., a publicly traded venture financing and healthcare leasing company. Mr. Moro earned a Bachelor of Business Administration and a Master of Business Administration degree from Iona College.
The compensation of the members of the investment committee of our Advisor are paid by our Advisor and includes an annual base salary and in certain cases an annual bonus based on an assessment of short-term and long-term performance and/or a portion of the incentive fee, if any, paid to our Advisor. In addition, Mr. Pomeroy and Mr. Michaud have equity interests in our Advisor and may receive distributions of profits in respect of those interests. See “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” in our most recently filed Annual Report on Form 10-K for information on ownership by portfolio managers of our securities.
31
DIVIDEND REINVESTMENT PLAN
We have adopted a DRIP that provides for reinvestment of our cash distributions and other distributions on behalf of our stockholders, unless a stockholder elects to receive cash as provided below. As a result, if our Board declares a cash distribution, then our stockholders who have not “opted out” of our DRIP have their cash distribution automatically reinvested in additional shares of our common stock, rather than receiving the cash distribution.
No action is required on the part of a registered stockholder to have their cash distribution reinvested in shares of our common stock. A registered stockholder may elect to receive an entire distribution in cash by notifying Computershare Shareowner Services, the plan administrator and our transfer agent and registrar, in writing so that such notice is received by the plan administrator no later than 10 days prior to the record date for distributions to stockholders. The plan administrator sets up an account for shares acquired through the plan for each stockholder who has not elected to receive dividends or other distributions in cash and holds such shares in non-certificated form. Upon request by a stockholder participating in the plan, received in writing not less than 10 days prior to the record 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 intend to use primarily newly issued shares to implement the plan, whether our shares are trading at a premium or at a discount to net asset value. However, we reserve the right to purchase shares in the open market in connection with our implementation of the plan. 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 Nasdaq on the valuation date, which date shall be as close as practicable to the payment date for such distribution. Market price per share on that date will be the closing price for such shares on Nasdaq or, if no sale is reported for such day, at the average of their 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. Stockholders who do not elect to receive distributions in shares of common stock may experience accretion to the net asset value of their shares if our shares are trading at a premium at the time we issue new shares under the plan and dilution if our shares are trading at a discount. The level of accretion or discount would depend on various factors, including the proportion of our stockholders who participate in the plan, the level of premium or discount at which our shares are trading and the amount of the distribution payable to a stockholder.
There are no brokerage charges or other charges to stockholders who participate in the plan. The plan administrator’s fees under the plan are paid by us. If a participant elects by written 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 a $0.10 per share trading fee from the proceeds.
Stockholders who receive distributions in the form of stock are generally subject to the same federal, state and local tax consequences as are stockholders who elect to receive their distributions in cash. Any stock received in a dividend has a new holding period for tax purposes commencing on the day following the day on which the shares are credited to the U.S. stockholder’s account. See “Material U.S. Federal Income Tax Considerations.”
Participants may terminate their accounts under the plan by notifying the plan agent via its website at www.computershare.com/investor, by filling out the transaction request form located at bottom of their statement and sending it to the plan agent at c/o Computershare Shareowner Services LLC, P.O. Box 505000, Louisville, Kentucky 40233 or by calling the plan administrator at 877-373-6374.
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The plan may be terminated by us upon notice in writing mailed to each participant. All correspondence concerning the plan should be directed to the plan administrator by mail at Plan Administrator c/o Computershare Shareowner Services LLC, P.O. Box 505000, Louisville, Kentucky 40233.
If you withdraw or the plan is terminated, the plan administrator will continue to hold your shares in book-entry form unless you request that such shares be sold or issued. Upon receipt of your instructions, a certificate for each whole share in your account under the plan will be issued and you will receive a cash payment for any fraction of a share in your account.
If you hold your common stock with a brokerage firm that does not participate in the plan, you are not able to participate in the plan and any dividend reinvestment may be effected on different terms than those described above. Consult your financial advisor for more information.
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DESCRIPTION OF OUR SECURITIES
This prospectus contains a summary of our common stock, preferred stock, subscription rights, debt securities and warrants. These summaries are not meant to be a complete description of each security. However, this prospectus and the accompanying prospectus supplement will contain the material terms and conditions for each security.
Set forth below is a chart describing our securities authorized and outstanding as of May 2, 2019:
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| Title of Class | Amount Authorized | Amount Held by Us or for Our Account | Amount Outstanding Exclusive of Amount Held by Us or for Our Account | |||||||||
| Common Stock | 100,000,000 shares | 167,465 | 13,539,680 | |||||||||
| Preferred Stock | 1,000,000 shares | — | — | |||||||||
| 2022 Notes | $ | 37,375,000 | — | $ | 37,375,000 | |||||||
In addition to shares of our common stock, which are described under the heading “Description of Our Common Stock”, we have approximately $37.4 million aggregate principal amount of 2022 Notes outstanding. On September 29, 2017, we issued and sold an aggregate principal amount of $32.5 million of the 2022 Notes and on October 11, 2017, pursuant to the underwriters’ 30 day option to purchase additional notes, we sold approximately an additional $4.9 million of the 2022 Notes. The 2022 Notes have a stated maturity of September 15, 2022 and may be redeemed in whole or in part at our option at any time or from time to time on or after September 15, 2019 at a redemption price of $25 per security plus accrued and unpaid interest. The 2022 Notes bear interest at a rate of 6.25% per year, payable quarterly on March 15, June 15, September 15 and December 15 of each year. The 2022 Notes are our direct unsecured obligations and (i) rank equally in right of payment with our current and future unsecured indebtedness; (ii) are senior in right of payment to any of our future indebtedness that expressly provides it is subordinated to the 2022 Notes; (iii) are effectively subordinated to all of our existing and future secured indebtedness (including indebtedness that is initially unsecured to which we subsequently grants security), to the extent of the value of the assets securing such indebtedness, and (iv) are structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries. As of May 2, 2018, we were in material compliance with the terms of the 2022 Notes. The 2022 Notes are listed on the New York Stock Exchange under the symbol “HTFA”. U.S. Bank National Association serves as trustee under the indenture governing the 2022 Notes. U.S. Bank National Association also serves as collateral custodian under the Key Facility. See “Risk Factors — Risks related to our business and structure — The indenture governing our debt securities contains limited protection for holders of our debt securities” in our most recently filed Annual Report on Form 10-K for information regarding restrictions on our ability to incur additional debt and to pay dividends under the indenture governing the 2022 Notes. See “Description of Debt Securities that we may Issue — Events of default” for information regarding the circumstances in which the trustee will take action, and “— Modification or waiver” for information on how the terms of the 2022 Notes may be modified.
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DESCRIPTION OF COMMON STOCK THAT WE MAY ISSUE
General
The following description does not purport to be complete and is subject to the provisions of our certificate of incorporation and bylaws, each of which are filed as exhibits to this registration statement. The description is qualified in its entirety by reference to our certificate of incorporation and bylaws and to applicable law. 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 certificate of incorporation, our authorized common stock consists solely of 100,000,000 shares, par value $0.001 per share, of which 13,539,680 shares were outstanding as of May 2, 2019. Our common stock is traded on Nasdaq under the symbol “HRZN”. There are no outstanding options or warrants to purchase our stock. No stock has been authorized for issuance under any equity compensation plans. Under the DGCL, our stockholders generally are not personally liable for our debts or obligations.
Under the terms of our certificate of incorporation, all shares of our common stock have equal rights as to earnings, assets, distributions and voting. When they are issued, shares of our common stock will be duly authorized, validly issued, fully paid and non-assessable. Distributions may be paid to the holders of our common stock if, as and when declared by our Board out of assets legally available therefor, subject to any preferential dividend rights of outstanding preferred stock. Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders, including the election of directors, and do not have cumulative voting rights. Accordingly, holders of a majority of the shares of common stock entitled to vote in any election of directors may elect all of the directors standing for election. Upon our liquidation, dissolution or winding up, the holders of common stock are entitled to receive ratably our net assets available after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of common stock are subject to the rights of the holders of any series of preferred stock which we may designate and issue in the future. In addition, holders of our common stock may participate in our DRIP.
Anti-takeover effects of provisions of our certificate of incorporation, bylaws, the DGCL and other arrangements
Certain provisions of our certificate of incorporation and bylaws, applicable provisions of the DGCL and certain other agreements to which we are a party may make it more difficult for or prevent an unsolicited third party from acquiring control of us or changing our Board and management. These provisions may have the effect of deterring hostile takeovers or delaying changes in our control or in our management. These provisions are intended to enhance the likelihood of continued stability in the composition of our Board and in the policies furnished by them and to discourage certain types of transactions that may involve an actual or threatened change in our control. The provisions also are intended to discourage certain tactics that may be used in proxy fights. These provisions, however, could have the effect of discouraging others from making tender offers for our shares and, as a consequence, they also may inhibit fluctuations in the market price of our shares that could result from actual or rumored takeover attempts.
Election of directors. Our certificate of incorporation and bylaws provide that the affirmative vote of a plurality of all votes cast at a meeting of stockholders duly called at which a quorum is present shall be sufficient to elect a director. Under our certificate of incorporation, our Board may amend the bylaws to alter the vote required to elect directors.
Classified board of directors. The classification of our Board and the limitations on removal of directors and filling of vacancies could have the effect of making it more difficult for a third party to acquire us, or of discouraging a third party from acquiring us. Our Board is divided into three classes, with the term of one class expiring at each annual meeting of stockholders. At each annual meeting, one class of directors is elected to a three-year term. This provision could delay for up to two years the replacement of a majority of our Board.
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Number of directors; vacancies; removal. Our certificate of incorporation provides that, by amendment to our bylaws, our Board is authorized to change the number of directors without the consent of stockholders to any number between three and nine.
Our certificate of incorporation provides that, subject to the rights of any holders of preferred stock, any vacancy on our Board, however the vacancy occurs, including a vacancy due to an enlargement of our Board, may only be filled by vote of a majority of the directors then in office.
Subject to the rights of any holders of preferred stock, a director may be removed at any time at a meeting called for that purpose, but only for cause and only by the affirmative vote of the holders of at least 75% of the shares then entitled to vote for the election of the respective director.
The limitations on the ability of our stockholders to remove directors and fill vacancies could make it more difficult for a third party to acquire, or discourage a third party from seeking to acquire, control of us.
Action by stockholders. Under our certificate of incorporation and bylaws, stockholder action can only be taken at an annual meeting or special meeting and not by written action in lieu of a meeting. This may have the effect of delaying consideration of a stockholder proposal until the next annual meeting.
Advance notice requirements for stockholder proposals and director nominations. Our bylaws provide that with respect to an annual meeting of stockholders, nominations of persons for election to our Board and the proposal of business to be considered by stockholders may be made only (1) by or at the direction of our Board, (2) pursuant to our notice of meeting 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. Nominations of persons for election to our Board at a special meeting may be made only (1) by or at the direction of our Board, or (2) provided that our Board 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 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, to inform our 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 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.
Amendments to certificate of incorporation and bylaws. The DGCL provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation’s certificate of incorporation or bylaws, unless a corporation’s certificate of incorporation or bylaws requires a greater percentage. Our certificate of incorporation provides that the affirmative vote of 75% of the then outstanding shares entitled to vote generally in the election of directors voting together as a single class is required to amend provisions of our certificate of incorporation relating to the classification, size and vacancies of our Board, as well as the removal of directors. However, if 66 2/3% of the continuing directors have approved such amendment or repeal, the affirmative vote for such amendment or repeal shall be a majority of such shares. The affirmative vote of 75% of the then outstanding shares voting together as a single class is required to amend provisions of our certificate of incorporation relating to the calling of a special meeting of stockholders or the ability to amend or repeal the bylaws. Our certificate of incorporation permits our Board to amend or repeal our bylaws, provided that any amendment or repeal shall require the approval of at least 66 2/3% of the continuing directors. The stockholders do not have the right to adopt or repeal the bylaws.
Stockholder meetings. Our certificate of incorporation and bylaws provide that any action required or permitted to be taken by stockholders at an annual meeting may only be taken if it is properly brought before such meeting. For business to be properly brought before an annual meeting by a stockholder, the stockholder
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must provide timely notice to our Secretary. Notice is timely if it is delivered by a nationally recognized courier service or mailed by first class United States mail and received not earlier than 90 days nor more than 120 days in advance of the anniversary of the date our proxy statement was released to stockholders in connection with the previous year’s annual meeting. Action taken at a special meeting of stockholders is limited to the purposes stated in the properly provided notice of meeting. These provisions could have the effect of delaying until the next stockholder meeting actions that are favored by the holders of a majority of our outstanding voting securities.
Calling of special meetings by stockholders. Our certificate of incorporation and bylaws provide that special meetings of the stockholders may only be called by our Board, Chairman, Chief Executive Officer or President.
Section 203 of the DGCL. We are subject to the provisions of Section 203 of the DGCL. In general, these provisions prohibit a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder, unless:
| • | prior to such time, the board of directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; |
| • | upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced; or |
| • | on or after the date the business combination is approved by the board of directors and authorized at a meeting of stockholders, by at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder. |
Section 203 defines “business combination” to include the following:
| • | any merger or consolidation involving the corporation and the interested stockholder; |
| • | any sale, transfer, pledge or other disposition (in one transaction or a series of transactions) of 10% or more of either the aggregate market value of all the assets of the corporation or the aggregate market value of all the outstanding stock of the corporation involving the interested stockholder; |
| • | subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; |
| • | any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation owned by the interested stockholder; or |
| • | the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. |
In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by any of these entities or persons.
The statute could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire us.
Conflict with 1940 Act. Our bylaws provide that, if and to the extent that any provision of the DGCL or our bylaws conflict with any provision of the 1940 Act, the applicable provision of the 1940 Act will control.
Approval of certain transactions. To convert us to an open-end investment company, to merge or consolidate us with any entity in a transaction as a result of which the governing documents of the surviving entity do not contain substantially the same anti-takeover provisions as are provided in our certificate of incorporation, to liquidate and dissolve us, or to amend any of the anti-takeover provisions discussed herein, our certificate of incorporation requires the affirmative vote of a majority of our continuing directors followed by the favorable vote of the holders of at least 75% of each affected class or series of our shares, voting
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separately as a class or series, unless such amendment has been approved by the holders of at least 80% of the then outstanding shares of our capital stock, voting together as a single class. If approved in the foregoing manner, our conversion to an open-end investment company could not occur until 90 days after the stockholders meeting at which such conversion was approved and would also require at least 30 days’ prior notice to all stockholders. As part of any such conversion to an open-end investment company, substantially all of our investment policies and strategies and portfolio would have to be modified to assure the degree of portfolio liquidity required for open-end investment companies. In the event of conversion, the common shares would cease to be listed on any national securities exchange or market system. Stockholders of an open-end investment company may require the company to redeem their shares at any time, except in certain circumstances as authorized by or under the 1940 Act, at their net asset value, less such redemption charge, if any, as might be in effect at the time of a redemption. You should assume that it is not likely that our Board would vote to convert us to an open-end fund.
The 1940 Act defines “a majority of the outstanding voting securities” as the lesser of a majority of the outstanding shares and 67% of a quorum of a majority of the outstanding shares. For the purposes of calculating “a majority of the outstanding voting securities” under our certificate of incorporation, each class and series of our shares vote together as a single class, except to the extent required by the 1940 Act or our certificate of incorporation, with respect to any class or series of shares. If a separate class vote is required, the applicable proportion of shares of the class or series, voting as a separate class or series, also will be required.
Our Board has determined that provisions with respect to our Board and the stockholder voting requirements described above, which voting requirements are greater than the minimum requirements under the DGCL or the 1940 Act, are in the best interest of stockholders generally.
It is a default under our Key Facility if (i) a person or group of persons (within the meaning of the Exchange Act) acquires beneficial ownership of 20% or more of our issued and outstanding stock or (ii) during any twelve month period individuals who at the beginning of such period constituted our Board cease for any reason, other than death or disability, to constitute a majority of the directors in office. If either event were to occur, Key could accelerate our repayment obligations under, and/or terminate, our Key Facility. 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 the common stock.
Limitations of liability and indemnification
The indemnification of our officers and directors is governed by Section 145 of the DGCL, and our certificate of incorporation and bylaws. Subsection (a) of Section 145 of the DGCL empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding if (1) such person acted in good faith, (2) in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation and (3) with respect to any criminal action or proceeding, such person had no reasonable cause to believe the person’s conduct was unlawful.
Subsection (b) of Section 145 of the DGCL empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner the person reasonably believed to be in, or not opposed to, the best interests of the corporation, and except that no indemnification may be made in respect of any claim, issue or matter as to which such person has been
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adjudged to be liable to the corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought determines upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court deems proper.
Section 145 of the DGCL further provides that to the extent that a present or former director or officer is successful, on the merits or otherwise, in the defense of any action, suit or proceeding referred to in subsections (a) and (b) of Section 145 of the DGCL, or in defense of any claim, issue or matter therein, such person will be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with such action, suit or proceeding. In all cases in which indemnification is permitted under subsections (a) and (b) of Section 145 of the DGCL (unless ordered by a court), it will be made by the corporation only as authorized in the specific case upon a determination that indemnification of the present or former director, officer, employee or agent is proper in the circumstances because the applicable standard of conduct has been met by the party to be indemnified. Such determination must be made, with respect to a person who is a director or officer at the time of such determination, (1) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, (2) by a committee of such directors designated by majority vote of such directors, even though less than a quorum, (3) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion or (4) by the stockholders. The statute authorizes the corporation to pay expenses incurred by an officer or director in advance of the final disposition of a proceeding upon receipt of an undertaking by or on behalf of the person to whom the advance will be made, to repay the advances if it is ultimately determined that he or she was not entitled to indemnification. Section 145 of the DGCL also provides that indemnification and advancement of expenses permitted under such Section are not to be exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors, or otherwise. Section 145 of the DGCL also authorizes the corporation to purchase and maintain liability insurance on behalf of its directors, officers, employees and agents regardless of whether the corporation would have the statutory power to indemnify such persons against the liabilities insured.
Our certificate of incorporation provides that our directors will not be liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director to the fullest extent permitted by the DGCL. Section 102(b)(7) of the DGCL provides that the personal liability of a director to a corporation or its stockholders for breach of fiduciary duty as a director may be eliminated except for liability (1) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) under Section 174 of the DGCL, relating to unlawful payment of distributions or unlawful stock purchases or redemption of stock or (4) for any transaction from which the director derives an improper personal benefit.
Under our certificate of incorporation, we fully indemnify any person who was or is involved in any actual or threatened action, suit or proceeding by reason of the fact that such person is or was one of our directors or officers. So long as we are regulated under the 1940 Act, the above indemnification and limitation of liability is limited by the 1940 Act or by any valid rule, regulation or order of the SEC thereunder. The 1940 Act provides, among other things, that a company may not indemnify any director or officer against liability to it or its security holders to which he or she might otherwise be subject by reason of his or her willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office unless a determination is made by final decision of a court, by vote of a majority of a quorum of directors who are disinterested, non-party directors or by independent legal counsel that the liability for which indemnification is sought did not arise out of the foregoing conduct.
We have obtained liability insurance for our directors and officers. In addition, we have entered into indemnification agreements with each of our directors and officers in order to effect the foregoing except to the extent that such indemnification would exceed the limitations on indemnification under Section 17(h) of the 1940 Act.
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DESCRIPTION OF PREFERRED STOCK THAT WE MAY ISSUE
Under the terms of our certificate of incorporation, our authorized preferred stock consists of 1,000,000 shares, par value $0.001 per share, of which no shares were outstanding as of May 2, 2019, and our Board is authorized to issue shares of preferred stock in one or more series without stockholder approval. Particular terms of any preferred stock we offer will be described in the prospectus supplement relating to such preferred stock shares.
Our Board has discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences of each series of preferred stock. Every issuance of preferred stock will be required to comply with the requirements of the 1940 Act. The 1940 Act limits our flexibility as to certain rights and preferences of the preferred stock that our certificate of incorporation may provide and requires, among other things, that (1) immediately after issuance and before any 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 (or 66 2/3% if certain approval and disclosure requirements are met) after deducting the amount of such dividend, distribution or purchase price, as the case may be, (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 and for so long as distributions on the preferred stock are in arrears by two years or more and (3) such shares be cumulative as to distributions and have a complete preference over our common stock to payment of their liquidation preference in the event of a dissolution. Certain 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. The features of the preferred stock will be further limited by the requirements applicable to RICs under the Code. The purpose of authorizing our Board to issue preferred stock and determine its rights and preferences is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of preferred stock, while providing desirable flexibility in connection with providing leverage for our investment program, possible acquisitions and other corporate purposes, could make it more difficult for a third party to acquire, or could discourage a third party from acquiring, a majority of our outstanding voting stock.
For any series of preferred stock that we may issue, our Board will determine, 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 distributions will be paid on shares of such series, as well as whether such distributions are participating or non-participating; |
| • | any provisions relating to convertibility or exchangeability of the shares 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 |
| • | any other relative power, preferences and participating, optional or special rights of shares of such series, and the qualifications, limitations or restrictions thereof. |
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The preferred stock may be either fixed rate preferred stock or variable rate preferred stock, which is sometimes referred to as “auction rate” preferred stock. 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, and all shares of each series