DEF: Hercules Capital Seeks Stockholder Approval for Below-NAV Share Issuance, Executive Compensation and Director Elections on the Agenda

Hercules Capital is asking stockholders to vote on key proposals at its annual meeting, including the election of directors, executive compensation, and authorization to sell shares below net asset value (NAV).

Summary

• Hercules Capital is holding its annual meeting of stockholders on June 18, 2025.
• Stockholders are being asked to vote on four proposals: the election of three directors, an advisory vote on executive compensation, authorization to sell shares below NAV, and ratification of the selection of the independent public accountant.
• The board recommends voting FOR all proposals.
• The company is seeking authorization to sell shares below NAV under certain conditions, including a limit of 25% of outstanding shares and a price no more than 25% below NAV.
• The company believes this flexibility is important to access capital markets, improve financial resources, and take advantage of investment opportunities.
• The board emphasizes that this authorization does not obligate the company to conduct any below-NAV sales.
• The proxy statement also includes information on executive compensation, director qualifications, corporate governance practices, and other important matters.

Sentiment

Score: 7

Explanation: The document is generally positive, highlighting strong performance and strategic initiatives. However, it also acknowledges the risk of dilution and regulatory limitations.

Positives

• The company's investment platform has reached and surpassed $20 billion in cumulative debt commitments since inception.
• The advisory vote on executive compensation received 90.3% stockholder approval in 2024.
• The company's performance relative to its peer group was generally at or above the 90th percentile, and in most cases at the 100th percentile, measured using ROAA, ROE and AASR.
• The company has a clawback policy for Section 16 officers.
• The company maintains stock ownership guidelines for executive officers and directors.

Negatives

• Stockholders face the risk of dilution if the company sells shares below NAV and they do not participate in the offering.
• The company is subject to regulatory limitations on compensation due to its status as a BDC.

Risks

• Stockholders face the risk of dilution if the company sells shares below NAV and they do not participate in the offering.
• The company is subject to regulatory limitations on compensation due to its status as a BDC.
• 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.

Future Outlook

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

Management Comments

• We are grateful to continue to serve our stockholders by successfully supporting innovative technology and life sciences companies.
• Serving our stockholders means protecting their investment.
• The Board of Directors and I continue to believe strongly that having this approval is protective to stockholders during times of market volatility.
• We will continue to be guided by our unwavering commitment to venture and growthstage companies and doing what we believe is in the best interests of our stockholders just as we have done for more than 20 years.

Industry Context

The company operates in the specialty finance industry, providing senior secured loans to high-growth, innovative venture capital-backed and institutional-backed companies in technology and life sciences.

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.
• As of December 31, 2024, the Company generally outperformed most of its Peer Group over the one-, threeand five-years as follows: Return on Average Assets (ROAA), Return on Equity (ROE) and Average Annual Shareholder Return (AASR).
• Peer Group includes: Capital Southwest, Main Street Capital, Trinity Capital, AllianceBernstein, Artisan Partners, Cohen & Steers, HA Sustainable, Moelis & Company, Victory Capital, WisdomTree, Arbor Realty, Chimera Investment, EPR Properties, Essential Properties, Ladder Capital, LXP Industrial, MFA Financial, New York Mortgage, Redwood Trust, Sabra Health Care and Two Harbors.

Stakeholder Impact

• Stockholders are impacted by the proposals, particularly the potential for dilution from below-NAV sales.
• Employees are impacted by the executive compensation program and the company's overall performance.
• The company's portfolio companies benefit from the company's ability to access capital and provide financing.

Next Steps

• Stockholders are encouraged to vote on the proposals before the annual meeting on June 18, 2025.
• The company will announce preliminary voting results at the annual meeting and file final results with the SEC.

Key Dates

Keywords

below NAV, executive compensation, director elections, proxy statement, annual meeting, stockholder vote, Hercules Capital, BDC