DEF 14A: Hercules Capital Seeks Stockholder Approval for Below-NAV Share Issuance at Annual Meeting

Hercules Capital is asking stockholders to approve the authorization to sell or issue shares of its common stock at a price below its net asset value (NAV) per share, subject to certain conditions, at the upcoming annual meeting on June 20, 2024.

Summary

• Hercules Capital is holding its annual meeting on June 20, 2024, and is seeking stockholder approval on several key proposals.
• The proposals include the election of three independent directors, an advisory vote on executive compensation, authorization to sell shares below NAV, and ratification of the selection of the independent public accountant.
• A key proposal is the authorization for the company to sell or issue shares below its NAV, with a limit of 25% of outstanding shares and a maximum discount of 25% below NAV.
• The company argues that this flexibility is needed to take advantage of investment opportunities during volatile market conditions, maintain RIC status, manage debt-to-equity ratios, and avoid less favorable capital-raising methods.
• Stockholders are advised to consider the potential dilutive effect of below-NAV sales.
• The Board recommends voting for all proposals.

Sentiment

Score: 7

Explanation: The document presents a balanced view, highlighting both the potential benefits and risks of the proposed actions. The company's strong performance and commitment to stockholder returns contribute to a positive outlook, but the potential for dilution tempers the sentiment.

Positives

• The company emphasizes its commitment to maximizing total stockholder returns.
• The Board highlights the importance of having the flexibility to conduct below-NAV sales to protect stockholders during extreme market conditions and seize short-term opportunities.
• The company has a clawback policy for incentive awards.
• The company has stock ownership guidelines for executive officers and directors.
• The company has anti-hedging and anti-pledging policies.

Negatives

• Below-NAV sales can dilute existing stockholders' ownership if they do not participate in the offering.
• The company acknowledges that non-participating stockholders face the greatest potential risks from below-NAV sales.
• The company is seeking authorization to sell shares below NAV, up to 25% of outstanding shares, with a maximum discount of 25%.

Risks

• Market volatility could cause the valuation of a portfolio company to decline, the Company to sustain unrealized losses with respect to that portfolio company and stockholder equity to decrease in proportion to the Company's outstanding debt.
• The company acknowledges that non-participating stockholders face the greatest potential risks from below-NAV sales.
• The company is seeking authorization to sell shares below NAV, up to 25% of outstanding shares, with a maximum discount of 25%.

Future Outlook

The Board and the entire Hercules team remain steadfast in their efforts to maximize total stockholder returns and expand platform capabilities for the benefit of clients.

Management Comments

• Scott Bluestein, CEO, emphasizes the company's commitment to protecting stockholder investments and maximizing total stockholder returns.
• Scott Bluestein, CEO, notes that the approval to sell shares below NAV is protective to stockholders during times of extreme market conditions.

Industry Context

The document references the performance of Hercules Capital compared to a peer group of BDCs, financial services companies, and REITs, highlighting its strong performance relative to its peers.

Comparison to Industry Standards

• The Compensation Committee analyzes a peer group of internally managed BDCs, financial services companies and real estate investments trusts, or REITs.
• The Peer Group analyzed in connection with 2023 compensation determinations is set forth below.
• The Compensation Committee believes the Peer Group reflects the labor market for our officer and employee talent, has a similar investor base, and, like the Company, the BDCs and REITs are pass-through entities with the majority of earnings required to be distributed to stockholders as a dividend.
• As of December 31, 2023, the Company generally outperformed most of its Peer Group over the one-, threeand five-years as follows: Return on Average Assets(ROAA) (excl. cash) Return on Equity (ROE) Return on Invested Capital(ROIC) Average AnnualShareholder Return (AASR).
• The Compensation Committee believes that compensation paid to our NEOs for 2023 was commensurate with the Company's overall absolute performance as well as our performance relative to the Peer Group during the relevant performance periods.

Stakeholder Impact

• Stockholders may experience dilution if they do not participate in below-NAV sales.
• Employees are impacted by the executive compensation program.
• The company's investments impact technology and life sciences companies.

Next Steps

• Stockholders are encouraged to vote on the proposals before the annual meeting on June 20, 2024.
• The company will announce preliminary voting results at the annual meeting and file final results with the SEC.

Key Dates

Keywords

proxy statement, annual meeting, below-NAV sales, stockholder vote, executive compensation, independent directors, Hercules Capital, NAV, shares, directors