UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant ☒ | | | Filed by a Party other than the Registrant |
Check the appropriate box:
☐ | | | Preliminary Proxy Statement |
☐ | | | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
☒ | | | Definitive Proxy Statement |
☐ | | | Definitive Additional Materials |
☐ | | | Soliciting Material Pursuant to §240.14a-12 |
Hercules Capital, Inc.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box)all boxes that apply):
☒ | | | No fee |
☐ | | | Fee paid previously with preliminary materials |
☐ | | | Fee computed on table |
April 29, 2022
Dear Stockholder:
You are cordially invited to attend the 2022 Annual Meeting of Stockholders of Hercules Capital, Inc., which will be held virtually on Thursday, June 23, 2022 at 9:00 a.m. (Pacific Time). The annual meeting can be accessed by visiting www.virtualshareholdermeeting.com/HTGC2022, where you will be able to listen to the meeting live, submit questions, and vote online.
Details regarding the business to be conducted at the annual meeting are more fully described in the accompanying notice of annual meeting and proxy statement.
Your vote is very important. Whether or not you plan to attend the virtual meeting, please cast your vote as soon as possible by Internet, by QR Code, by telephone, or by completing and returning the enclosed proxy card in the postage-prepaid envelope to ensure that your shares will be represented. For shares held in “street name,” please follow the relevant instructions for telephone and Internet voting provided by your broker, bank or other nominee. Returning the proxy does not deprive you of your right to attend the virtual meeting and to vote your shares at the virtual meeting.
Your continuing support of Hercules is very much appreciated.
| | Sincerely, | |
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Scott Bluestein Chief Executive Officer Chief Investment Officer |
400 Hamilton Avenue, Suite 310
Palo Alto, California 94301
(650) 289-3060
NOTICE OF 20172022 ANNUAL MEETING OF STOCKHOLDERS
HERCULES CAPITAL, INC.
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Time | | | 9:00 a.m., Pacific Time | |||
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Date | | | June 23, 2022 | |||
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Place | | | Virtually at www.virtualshareholdermeeting.com/HTGC2022 | |||
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| | Please have your 16-Digit Control Number to join the annual meeting. Instructions on how to attend and participate via the Internet, including how to demonstrate proof of stock ownership, are posted on www.proxyvote.com. | ||||
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Purpose | | | 1. | | | Elect two directors who will serve for the term specified in the Proxy Statement. |
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| | 2. | | | Approve, on an advisory basis, the compensation of the Company’s named executive officers. | |
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| | Ratify the selection of PricewaterhouseCoopers LLP to serve as our independent public accounting firm for the year ending December 31, | ||||
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| | 4. | | | Transact such other business as may properly come before the meeting or any postponement or adjournment thereof. | |
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Record Date | | | You have the right to receive notice of and to vote at the annual meeting if you were a stockholder of record at the close of business on | |||
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Voting by Proxy | | | Please submit a proxy card or, for shares held in “street name,” voting instruction form as soon as possible so your shares can be voted at the virtual meeting. You may submit your proxy card or voting instruction form by mail. If you are a registered stockholder, you may also vote electronically by telephone or over the Internet by following the instructions included with your proxy card. If your shares are held in “street name,” you will receive instructions for voting of shares from your broker, bank or other nominee, which may permit telephone or Internet voting. Follow the instructions on the voting instruction form that you receive from your broker, bank or other nominee to ensure that your shares are properly voted at the annual meeting. | |||
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| | The enclosed Proxy Statement is also available at |
| | By Order of the Board, | |
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| | Kiersten Zaza Botelho General Counsel, Chief Compliance Officer |
PROXY STATEMENT—TABLE OF CONTENTS
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Security Ownership of Certain Beneficial Owners and Management | | | 5 |
Board of Directors and Corporate Governance | | | |
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Executive Officers and Director Compensation | | | |
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OTHER PROXY PROPOSALS | | | |
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MEETING AND OTHER INFORMATION | | | |
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SUMMARY INFORMATION
This summary provides highlights about Hercules Capital, Inc., and information contained elsewhere in this Proxy Statement. This summary does not contain all of the information that you should consider when deciding how to vote your shares. The “Company,” “Hercules,” “HTGC,” “we,” “us” and “our” refer to Hercules Capital, Inc. and its wholly owned subsidiaries and its affiliated securitization trusts on or after February 25, 2016 and “Hercules Technology Growth Capital, Inc.” and its wholly owned subsidiaries and its affiliated securitization trusts prior to February 25, 2016 unless the context otherwise requires.trusts.
About Hercules and 2016 Financial HighlightsABOUT HERCULES AND 2021 FINANCIAL HIGHLIGHTS
We are a specialty finance company focused on providing senior secured venture growth loans to high-growth, innovative venture capital-backed and institutional-backed companies in a variety of technology, life sciences and sustainable and renewable technology industries.
2016 Company Highlights
The Company had an exceptional year in 2016 in key financial and non-financial areas. Our select financial performance achievements are below, which also highlights the growth and success of our Company. Our 2016 financial and non-financial highlights are as follows:
Key Performance Highlights
Total Shareholder Return % (TSR)(b) vs. BDCs & INDEXES
Delivering Strong Shareholder Returns
DELIVERING STRONG AND CONSISTENT FINANCIAL PERFORMANCE
MAINTAINING A PREMIUM TO NAV
PORTFOLIO GROWTH WITH UNDERWRITING DISCIPLINE
HERCULES’ INVESTMENT PORTFOLIO: Year-End 2016
2016 Peer Group Analysis2021 PEER GROUP ANALYSIS
As of OctoberDecember 31, 2016,2021, the Company generally outperformed most of its Peer Group (defined on page 34)32) over thea one-, three- and five-year period in both financial efficiencies measured using Return on Average Assets (“ROAA”), Return on Equity (“ROE”), Return on Investment Capital (“ROIC”), as follows:well as using the market measure Average Annual Shareholder Return (“AASR”):
Return on Average Assets (excl. cash) | Return on Equity | Return on Invested Capital | Total Shareholder Returns | |||||
Performance Period | HTGC | % Rank of Peer Group | HTGC | % Rank of Peer Group | HTGC | % Rank of Peer Group | HTGC | % Rank of Peer Group |
1-year | 6.1% | 100% | 10.5% | 93% | 6.2% | 93% | 36.2% | 100% |
3-year | 6.2% | 99% | 10.2% | 89% | 6.3% | 89% | 5.3% | 64% |
5-year | 6.3% | 96% | 10.3% | 86% | 6.4% | 87% | 17.2% | 88% |
* Data source:
| Performance Period | | | Return on Average Assets (excl. cash) | | | Return on Equity | | | Return on Invested Capital | | | Average Annual Shareholder Return (“AASR”) | ||||||||||||
| HTGC | | | % Rank of Peer Group | | | HTGC | | | % Rank of Peer Group | | | HTGC | | | % Rank of Peer Group | | | HTGC | | | % Rank of Peer Group | |||
| 1-year | | | 5.4% | | | 100% | | | 10.2% | | | 91% | | | 5.6% | | | 100% | | | 26.0% | | | 35% |
| 3-year | | | 5.7% | | | 100% | | | 11.4% | | | 100% | | | 5.8% | | | 100% | | | 26.6% | | | 60% |
| 5-year | | | 5.7% | | | 100% | | | 11.2% | | | 100% | | | 5.8% | | | 100% | | | 14.0% | | | 65% |
−1-, 3- and 5-year calculations of performance are based on data as of December 31, 2021.
−Companies with less than three and/or less than five full years of historical financial and AASR performance are excluded.
−Financial Services peers are excluded from analysis of capital allocation because services companies are not as capital intensive as REITs and BDCs, which are primarily engaged in direct investment of firm capital.
−The data is from S&P Capital IQ and reflectsis not adjusted by FW Cook, which means the most recent four quarters and TSR available as of 10/31/16.data may not reflect internal adjustments regularly made by Hercules or by the peer companies when assessing their performance.
Voting Matters and RecommendationsVOTING MATTERS AND RECOMMENDATIONS
Agenda Items | Board Vote Recommendation | Page Reference (for more detail) | |
1. | To elect two directors who will serve for the term specified in the Proxy Statement. | FOR | |
2. | To approve, on an advisory basis, the compensation of Hercules’ named executive officer (“NEOs”), as described in the Proxy Statement. | FOR | |
3. | To approve, on an advisory basis, the frequency of the executive compensation advisory vote. | ONE YEAR | |
4. | To ratify the selection of PricewaterhouseCoopers LLP (“PwC”) to serve as our independent public accounting firm for the fiscal year ending December 31, 2017. | FOR |
Board Nominees
Name | Age | Director Since | Independent(1) | Board Committee Members | ||
AC | CC | NCGC | ||||
Robert P. Badavas | 64 | 2006 | X | C | — | — |
Jorge Titinger(2) | 56 | — | X | — | — | — |
Agenda Items | | | Board Vote Recommendation | | | Page Reference (for more detail) | |||
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1. | | | To elect two directors who will serve for the term specified in the Proxy Statement. | | | FOR | | | 7 |
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2. | | | Approve, on an advisory basis, the compensation of the Company’s named executive officers. | | | FOR | | | 48 |
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3. | | | To ratify the selection of PricewaterhouseCoopers LLP (“PwC”) to serve as our independent public accounting firm for the fiscal year ending December 31, 2022. | | | FOR | | | 50 |
SUMMARY INFORMATION | 1 |
BOARD NOMINEES
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| Board Committee Members | ||||
Name |
| Age |
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| Independent(1) |
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Scott Bluestein |
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| 2019 |
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Wade Loo |
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| 2021 |
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AC = Audit Committee CC = Compensation Committee NGCGNCGC = Nominating and Corporate Governance Committee
M = Member C = Committee Chairman
(1) Under the rules and regulations of the SEC and the listing standards of New York Stock Exchange (“NYSE”).
(2) If elected, Mr. Titinger will serve as chairpersonCORPORATE GOVERNANCE HIGHLIGHTS
Corporate Governance Highlights
Executive CompensationEXECUTIVE COMPENSATION (Say-on-Pay)
Consistent with our Board’s recommendation and our stockholders’ preference, we submit an advisory vote to approve our executive compensation (otherwise known as “say-on-pay”) on an annual basis. Accordingly, we are seeking your approval, on an advisory basis, of the compensation for our NEOs, as further described in the “Compensation Discussion and Analysis” section of this Proxy Statement. In addition, we are also seeking a vote, on an advisory basis, as to whether an advisory vote should occur every one, two or three years. We are required by applicable law to seek shareholder input on “say on pay” frequency this year.2021, stockholders voted 89.23% in favor of Say-on-Pay.
2016 Executive Compensation Highlights2021 EXECUTIVE COMPENSATION HIGHLIGHTS
For a summary of our 20162021 executive compensation and key features of our executive compensation programs, please refer to the Executive Summary of the “Compensation Discussion and Analysis” section of this Proxy Statement on page 30.28.
Auditor MattersAUDITOR MATTERS
We are seeking your ratification of PwC as our independent public accounting firm for the 20172022 fiscal year. The following table summarizes the fees billed, or expected to be billed by PwC for the fiscal year ending December 31, 2016,2021 (please refer to the proposal on page 56)50):
2016 (in millions) | |||
Audit Fees | $ | 1.4 | |
Audit-Related Fees | — | ||
Tax Fees | $ | 0.1 | |
All Other Fees | — | ||
Total | $ | 1.5 |
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| 2021 |
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Audit Fees |
| $ | 1.2 |
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Audit-Related Fees |
| $ | — |
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Tax Fees |
| $ | 0.1 |
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All Other Fee |
| $ | 0.1 |
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Total |
| $ | 1.4 |
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For 2016, 93.3%2021, 86% of the 20162021 fees represented audit and audit-related fees.
SUMMARY INFORMATION | 2 |
General Information
HERCULES CAPITAL DELIVERED RECORD
ORIGINATIONS PERFORMANCE FOR 2021
Our success is a testament to the strength of our team's capabilities, our
discipline credit selection, robust liquidity, and the scale and strength of our
platform and brand recognition as the largest BDC venture lender.
$2.64B Record Total Gross Debt and Equity Commitments | $1.57B Record Total Gross Fundings |
UP 122.1% | UP 106.0% |
$2.60B Total Assets | $2.39B Total Investments at Cost |
$281.0M Total Investment Income | $150.0M Net Investment Income |
12.4% Return on Average Equity Q4 2021 | 6.2% Return on Average Assets Q4 2021 |
$1. Record Declared Cash UP 2 | 66 Distributions per Share 3.0% |
SUMMARY INFORMATION | 3 |
GENERAL INFORMATION
For general information regarding our Proxy Statement, please review the questions and answers at the end of our Proxy Statement. For questions in which you require additional information, please call us at (650) 600-5405(617) 314-9973 or send an e-mail to Melanie Grace,Kiersten Zaza Botelho, Secretary, at mgrace@htgc.com.kbotelho@htgc.com.
You may authorize a proxy to cast your vote in any of the following ways:
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| Internet Visit www.proxyvote.com. You will need the 16-digit control number included in the proxy card, voter instruction card or notice. | | | QR Code You can scan the QR Code on your proxy card to vote with your mobile phone. | | | Phone Call 1-800-690-6903 or the number on your voter instruction form. You will need the control number included in your proxy card. | | | Mail Send your completed and signed proxy card or voter instruction form to the address on your proxy card or voter instruction form. | | | In Person Attend the virtual meeting in person. Please have your 16-Digit Control Number to join the annual meeting. Instructions on how to attend and participate via the Internet, including how to demonstrate proof of stock ownership, are posted on www.proxyvote.com | |
GENERAL INFORMATION | 4 |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of October 30, 2017,April 25, 2022 (except as noted below), the beneficial ownership of each current director, each nominee for director, our NEOs, each person known to us to beneficially own 5% or more of the outstanding shares of our common stock, and our executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the SEC. Common stock subject to options or warrants that are currently exercisable or exercisable within 60 days of October 30, 2017April 25, 2022 are deemed to be outstanding and beneficially owned by the person holding such options or warrants. Such shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person. Percentage of ownership is based on 84,162,661123,880,353 shares of common stock outstanding as of October 30, 2017.April 25, 2022.
Unless otherwise indicated, to our knowledge, each stockholder listed below has sole voting and investment power with respect to the shares beneficially owned by the stockholder, except to the extent authority is shared by their spouses under applicable law. Unless otherwise indicated, the address of all executive officers and directors is c/o Hercules Capital, Inc., 400 Hamilton Avenue, Suite 310, Palo Alto, California 94301.
Our directors are divided into two groups—interested directors and independent directors. Interested directors are “interested persons” as defined in Section 2(a)(19) of the Investment Company Act of 1940, Act,as amended (the “1940 Act”), and independent directors are all other directors.
Name and Address of Beneficial Owner | Type of Ownership | Number of Shares Owned Beneficially(1) | Percentage of Class | ||||||
Interested Director | |||||||||
Manuel A. Henriquez(2) | Record/Beneficial | 1,869,663 | 2.2 | % | |||||
Independent Directors | |||||||||
Robert P. Badavas(3) | Record/Beneficial | 148,565 | * | ||||||
Jorge Titinger | N/A | — | — | ||||||
Thomas J. Fallon(4) | Record/Beneficial | 51,836 | * | ||||||
Brad Koenig | N/A | — | — | ||||||
Allyn C. Woodward, Jr.(5) | Record/Beneficial | 277,105 | * | ||||||
Joseph F. Hoffman(6) | Record/Beneficial | 35,478 | * | ||||||
Doreen Woo Ho(7) | Record/Beneficial | 12,236 | * | ||||||
Susanne D. Lyons(8) | Record/Beneficial | 21,575 | * | ||||||
Other Named Executive Officers | |||||||||
Mark R. Harris(9) | Record/Beneficial | 52,568 | * | ||||||
Scott Bluestein(10) | Record/Beneficial | 209,339 | * | ||||||
Melanie Grace(11) | Record/Beneficial | 14,662 | * | ||||||
Executive officers and directors as a group(12 persons)(12) | 3.2 | % |
Name and Address of Beneficial | Type of | Number of | Percentage | |||||||
Interested Director | ||||||||||
Scott Bluestein(2) | Record/Beneficial | 1,087,787 | * | |||||||
Independent Directors | ||||||||||
Robert P. Badavas(3) | Record/Beneficial | 122,452 | * | |||||||
Gayle Crowell(4) | Record/Beneficial | 23,586 | * | |||||||
Thomas J. Fallon(5) | Record/Beneficial | 58,835 | * | |||||||
Joseph F. Hoffman(6) | Record/Beneficial | 42,862 | * | |||||||
Brad Koenig(7) | Record/Beneficial | 28,379 | * | |||||||
Wade Loo(8) | Record/Beneficial | 1,176 | * | |||||||
Pam Randhawa(9) | Record | 1,971 | * | |||||||
Doreen Woo Ho(10) | Record/Beneficial | 27,201 | * | |||||||
Other Named Executive Officers | ||||||||||
Seth H. Meyer(11) | Record/Beneficial | 214,075 | * | |||||||
Melanie Grace(12) | Beneficial | 52,071 | * | |||||||
Executive officers and directors as | | 1.4 | % |
SECURITY OWNERSHIP INFORMATION | 5 |
* Less than 1%.
The following table sets forth as of October 30, 2017,April 25, 2022 (except as noted below), the dollar range of our securities owned by our directors and executive officers.
Name | Dollar Range of | ||
Interested Director | |||
Scott Bluestein | Over $100,000 | ||
Independent Directors | |||
Robert P. Badavas | Over $100,000 | ||
Gayle Crowell | Over $100,000 | ||
Thomas J. Fallon | Over $100,000 | ||
Joseph F. Hoffman | Over $100,000 | ||
Brad Koenig | Over $100,000 | ||
Wade Loo | $0-$50,000 | ||
Pam Randhawa | $0-$50,000 | ||
Doreen Woo Ho | Over $100,000 | ||
Other Executive Officers | |||
Seth H. Meyer | Over $100,000 | ||
Kiersten Zaza Botelho | Over $100,000 | ||
Christian Follmann | Over $100,000 | ||
Melanie | Over $100,000 |
* As of September 23, 2021. On September 24, 2021, Ms. Grace resigned from her position as Chief Compliance Officer, General Counsel and Secretary.
SECURITY OWNERSHIP INFORMATION | 6 |
PROPOSAL 1: ELECTION OF DIRECTORS
The Board unanimously recommends that you vote FOR the nominees for director
(Item 1 on your proxy card)
General
TheAs of the date of this proxy statement, the Board currently consists of nine directors, eight of which are not "interested persons" of Hercules, as such term is defined under the 1940 Act. Two directors, Mr. Hoffman and Ms. Woo Ho, will retire from the Board following the expiration of their current terms at the 2022 annual meeting.
The Board is divided into three classes. Each class ofdirector serves until the Board serves a staggered three-year term.third annual meeting following his or her election and until his or her successor is duly elected and qualifies. Our Class IIII directors, whose terms expire at the annual meeting, are Robert P. BadavasScott Bluestein and Susanne D. Lyons.
There are two nominees to Class I of the Board this year — Messrs. Badavas and Titinger. Ms. Lyons has decided not to stand for re-election in 2017.Wade Loo. The nomination of Messrs. BadavasBluestein and TitingerLoo to stand for election at the annual meeting has been recommended by the NCGGovernance Committee and has been approved by the Board. Messrs. BadavasBluestein and Titinger,Loo, if elected, each will serve for a three-year term expiring at the 20202025 Annual Meeting of Stockholders, orand until their successor is duly elected and qualified,qualifies, or until their earlier death, resignation or removal from the Board.
Neither Messrs. Badavas and TitingerBluestein nor Loo are not being nominated as a director for election pursuant to any agreement or understanding between such personpersons and Hercules. Messrs. BadavasBluestein and TitingerLoo have indicated their willingness to continue to serve if elected and have consented to be named as nominees. Messrs. Badavas and Titinger areMr. Loo is not an “interested person” of Hercules, as such term is defined under the 1940 Act.
The Board recognizes that it is important to assemble a body of directors that, taken together, has the skills, qualifications, experience and attributes appropriate for functioning as a Board, and working with management, effectively. The NCGGovernance Committee is responsible for maintaining a well-rounded and diverse Board that has the requisite range of skills and qualifications to oversee the Company effectively. The NCG Committee has not established a minimum qualification for director candidates. Our Board does not havebelieves in the value of diversity and seeks to ensure that its composition reflects a specific diversity policy, but considers diversitymix of race, religion, national origin, gender, sexual orientation, disability, cultural background andmembers representing various backgrounds, industries, skills, professional experiences, in evaluating candidates forgenders, races, and ethnicities. The Board membership.complies with all rules and regulations while striving to always do what it believes is right. The diversity of background and experience includes ensuring that the Board includesmust also comprise individuals with experience or skills sufficient to meet the requirements of the various rules and regulations of the NYSE and the SEC, such as the requirements to have a majority of independent directors and an Audit Committee Financial Expert. However, inIn light of our business, the primary areas of experience and qualifications sought by the NCGGovernance Committee in incumbent and director candidates include, but are not limited to, the following:
For each director, we have highlighted certain key areas of experience that qualify him or her to serve on the Board in each of their respective biographies below beginning on page 14.9.
A stockholder can vote for or withhold his, her or its vote for the nominees. In the absence of instructions to the contrary, it is the intention of the persons named as proxies to vote such proxy FOR the election of each of the nominees
PROPOPOSAL 1 | 7 |
named in this Proxy Statement. If the nomineesany nominee should decline or be unable to serve as a director, it is intended that the proxy will be voted for the election of the person nominated by our Board as a replacement. Our Board has no reason to believe that the nominees will be unable or unwilling to serve.
Required Vote
This proposal requires the affirmative vote of the holders of a plurality of the shares of stock outstanding and entitled to vote thereon. Stockholders may not cumulate their votes. If you vote “withhold authority” with respect to a nominee, your sharesSince this is an uncontested election, directors will not be voted with respect to the person indicated. Because directors are elected by a pluralitymajority of the votes an abstentioncast at the annual meeting, in person virtually or by proxy, such that a nominee for director will be elected to the Board if the votes cast FOR the nominee’s election exceed the votes cast AGAINST such nominee's election. Abstentions and broker non-votes are not counted as votes cast for purposes of the election of directors and, therefore, will have no effect on the outcome of the vote and, therefore,such election. Stockholders may not cumulate their votes. Even if a director is not offeredre-elected, he or she will remain in office as a voting option for this proposal.director until the earlier of the acceptance by the Board of his or her resignation or his or her removal. If a director is not re-elected, the director is required to offer to resign from the Board. In that event, the Governance Committee will consider such offer to resign and make a recommendation to the Board who will then vote whether to accept the director’s resignation in accordance with the procedures listed in our Corporate Governance Guidelines.
Broker Non-Votes
Broker non-votes are votesA broker non-vote is a vote that is not cast for shares heldon a non-routine matter by a broker that is present (in person or other nominee for whichby proxy) at the nomineemeeting because the shares entitled to cast the vote are held in street name, the broker lacks discretionary authority to vote the shares and the broker has not received voting instructions from the beneficial owner and does not have discretionary authority to vote the shares on non-routine proposals.beneficial owner. Proposal 1 is a non-routine matter. As a result, if you hold shares in “street name” through a broker, bank or other nominee, your broker, bank or nominee will not be permitted to exercise voting discretion with respect to Proposal 1, the election of directors. Therefore, ifIf you do not vote and you do not give your broker or other nominee specific instructions on how to vote for you, then your shares will have no effect on Proposal 1.
PROPOPOSAL 1 | 8 |
Information about the Directors and Executive Officers
Mr. Hoffman and Ms. Woo Ho will retire from the Board following the expiration of their current terms at the 2022 annual meeting. For each director who will, or is nominated to, continue to serve on the Board following the 2022 annual meeting, we have highlighted certain key areas of experience that qualify him or her to serve on the Board in each of their respective biographies below.
PROPOPOSAL 1 | 9 |
Name, Address, and Age(1) | | | Position(s) | | | Term of Office and Length of Time Served | | | Principal Occupation(s) During Past 5 Years | | | Other Directorships Held by Director or Nominee for Director During the past 5 years(2) |
Independent Directors | | | | | | | | | ||||
Robert P. Badavas | | | Director | | | Class I Director since 2006 | | | Retired. Chairman and Chief Executive Officer of PlumChoice, provider of | | | Constant |
Pam Randhawa (53) | Director | Class I Director | CEO and Founder of | None. | ||||||||
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Gayle Crowell (71) | | | Director | | | Class II Director since 2019 | | | Former Senior Operating Consultant at Warburg Pincus, a global private equity firm focused on growth investing 2002-2019. | | | Envestnet, a provider of integrated portfolio, practice management, and reporting solutions to financial advisors and institutions since 2016. Pliant Therapeutics, a clinical stage biopharmaceutical company that discovers, develops and commercializes novel therapies for the treatment of fibrosis since 2019. |
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Thomas J. Fallon | | | Director | | | Class II Director since 2014 | | | Executive Vice President - Business Development, Sanmina Corporation (2022-present). Former Chief Executive Officer of Infinera Corporation, manufacturer of high capacity optical transmission equipment, | | | Infinera Corporation since |
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Brad Koenig | | | Director | | | Class II Director since 2017 | | | Adviser to the board of directors of AvePoint, Inc. since 2021. Former Co-Chief Executive Officer of Apex Tech Acquisition, a blank check acquisition company or SPAC from 2019-2021. Former Founder and Chief Executive Officer of FoodyDirect.com, an online marketplace that features foods from the top restaurants, bakeries and artisan purveyors around the country | | | SuRo Capital Corp. (f/k/a GSV Capital |
Wade Loo (61) | Director Nominee | |||||||||||
Class III Director since | Retired. | Guidance Software from 2016 to 2017. | ||||||||||
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Interested Director | | |
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Scott Bluestein (43) | | | ||||||||
Director | | | Class III Director Since 2019 | | | Chief Investment Officer of Hercules since | | | None. |
PROPOPOSAL 1 | 10 |
Director NomineesNominees Biographies
The biographical information for the director nominees areis as follows:
Scott Bluestein | | | Board Committee: | | | Independent |
| | N/A | | | No |
Mr. Bluestein, 43, joined us in 2010 as Chief Credit Officer. He was promoted to Chief Investment Officer in 2014. In addition to Chief Investment Officer, he was elected Interim Chief Executive Officer in March 2019. In July 2019, he was elected Chief Executive Officer and President. He has served as a director on our Board since July 2019 and his term expires in 2022.
Business Experience | | | • | | | Founder and Partner, Century Tree Capital Management (2009-2010) |
| • | | | Managing Director, Laurus-Valens Capital Management, an investment firm specializing in financing small and microcap growth-oriented businesses through debt and equity securities (2003-2009) | ||
| • | | | Member of Financial Institutions Coverage Group focused on Financial Technology, UBS Investment Bank (2000-2003) | ||
| | | | |||
Education/ Other: | | | • | | | Bachelor’s in Business Administration from Emory University |
PROPOPOSAL 1 | 11 |
Wade Loo | | | Board Committee: | | Independent: |
| | • Audit | | Yes | |
| | • Compensation | |
Mr. Loo, 61, is retired from KPMG LLP after 30 years of service with the firm. Since retiring from KPMG LLP, he has been serving on both public and non-public boards and investment committees. He has served as a director on our Board since June 2021 and his term expires in 2022.
Business Experience: | | | • | | | Audit partner for multinationals and venture-backed entities, with experience working with companies in the areas of technology, financial and life sciences |
| • | | | Partner in Charge of KPMG LLP's Northern California Audit Business Unit, whose territory includes the Silicon Valley and San Francisco offices | ||
| • | | | Certified Public Accountant (California) | ||
| | | | |||
Prior Public Company Directorships: | | | • | | | Guidance Software - Board Member and Audit Committee Chair (2016-2017) |
| • | | | Kofax Ltd. - Board Member and Audit Committee Chair (2011-2015) | ||
| | | | |||
Private and Non-Profit | | | • | | | Investment Committee Member at Mapletree Europe Income Trust and Mapletree US Income Commercial Trust, both Private Real Estate Investment Trusts (2021-present) |
Directorships: | | | • | | | Board Member (2015-present), Audit Committee Chair (2015-2019) and Board Chair (2021-present) at the Silicon Valley Community Foundation |
• | Executive Advisory Board Member at the University of Denver - Daniels College of Business (2015-present) and Board Chair (2018-2021) | |||||
• | JobTrain - Board Member (2006-2018), Audit Committee Chair (2006-2010) and Board Chair (2011-2017) | |||||
Other Experience: | | | • | | | Let KPMG's Audit Committee Institute activities in Silicon Valley, which provides audit committee and governance best practices to audit committee chairs |
| | | | |||
Education: | | | • | | | Bachelor's in Accounting from the University of Denver |
PROPOPOSAL 1 | 12 |
Skills/ Qualifications: | | | Mr. Loo’s key areas of skill/qualifications include, but are not limited to: | |||
| | • | | | Client Industries—Experience with venture capital-backed companies in general, and our specific portfolio company industries: technology, life sciences and middle market | |
| | • | | | Banking/Financial Services—Experience with banking, mutual fund or other financial services industries, including regulatory experience and specific knowledge of the Securities Act | |
| | • | | | Leadership/Strategy—Both as Partner at KPMG and Board Chair, responsible for leading large teams and establishing and executing successful business strategies | |
| | • | | | Finance, IT and Other Business Processes—Significant experience as an audit partner and audit committee chair related to finance, accounting and internal controls, IT and other key business processes | |
| | • | | | Enterprise Risk Management—Experience with enterprise risk management processes and functions, including compliance and operational | |
| | • | | | Governance—Experience with corporate governance issues, particularly in publicly-traded companies | |
• | Strategic Planning—Experience with senior executive-level strategic planning for publicly-traded companies, private companies and non-profit companies | |||||
• | Mergers and Acquisitions—Experience with public and/or private company M&A, both in identifying targets and evaluating potential targets, as well as post-acquisition integration activities | |||||
PROPOPOSAL 1 | 13 |
Independent Director Biographies
As noted above, Mr. Hoffman and Ms. Woo Ho will retire from the Board following the expiration of their current terms at the 2022 annual meeting. The biographical information for each of the independent directors who will continue on the Board following the 2022 annual meeting is as follows:
Robert P. Badavas | | | Board Committee: | | | Independent: |
| | • Audit | | | Yes (Board Chair) |
Mr. Badavas, 64,69, retired in August 2016 as Chairman and Chief Executive Officer of PlumChoice, a venture-backed technology, software and services company (since December 2011). He was appointed Interim Chairman of the Board in March 2019 and Chairman in July 2019. He has served as a director on our Board since March 2006 and his2006. His term expires in 2017.2023.
Business Experience: | | | • | | | President, Petros Ventures, Inc., a management and advisory services firm (2009-2011 and |
| • | | | President and Chief Executive Officer | ||
| • | | | Executive Vice President and Chief Financial Officer, TAC Worldwide (2003-2005) | ||
| • | | | Senior Partner and Chief Operating Officer, Atlas Venture, an international venture capital firm (2001-2003) | ||
| • | | | Chief Executive Officer at Cerulean Technology, Inc., | ||
| • | | | Certified Public Accountant, PwC (1974-1983) | ||
| | | | |||
Public | | | • | | | Constant Contact, Inc., including chairman of the audit committee, a provider of email and other engagement marketing products and services for small and medium sized organizations, acquired by Endurance International Group Holdings, Inc. |
| | | | |||
Private Directorships: | | | • | | | Polyvinyl Films, Inc., director, a leading manufacturer and distributer of food-grade film products for consumer, retail, and food-service markets worldwide (since 2019) |
| | | | |||
Prior Directorships: | | | • | | | PlumChoice, a venture-backed technology, software and services company |
| • | | | Arivana, | ||
| ||||||
• | | | On | |||
| • | | | Renaissance Worldwide; an IT services and solutions company—publicly traded until its acquisition by Aquent | ||
| | | | |||
Other | | | • | | | Trustee Emeritus, Bentley University |
| • | | | Board of Trustees Executive Committee and Corporate Treasurer, Hellenic College/Holy Cross School of Theology | ||
| • | | | Trustee Emeritus, The Learning Center for the | ||
| • | | | Master Professional Director Certification, American College of Corporate Directors | ||
| • | | | National Association of Corporate Directors | ||
| • | | | Annunciation Greek Orthodox Cathedral of New England, Parish Council President (since 2016) | ||
| | | | |||
Education: | | | • | | | Bachelor’s degree in Accounting and Finance from Bentley University |
PROPOPOSAL 1 | 14 |
Skills/ Qualifications: | | | Mr. Badavas’ key areas of skill/qualifications include, but are not limited to: | |||
| | • | | | Client Industries—extensive experience in software, business and technology enabled services and venture capital | |
| | • | | | Leadership/Strategy—significant experience as a senior corporate executive in private and public companies, including tenure as chief executive officer, chief financial officer and chief operating officer | |
| | • | | | Finance, IT and Other Business Strategy and Enterprise Risk Management—prior experience as a CEO directing business strategy and as a CFO directing IT, financing and accounting, strategic alliances and human resources and evaluation of enterprise risk in such areas | |
| | • | | | Enterprise Risk Management—experience in managing enterprise risk as CEO | |
| | • | | | Governance—extensive experience as an executive and director of private and public companies with governance matters | |
|
| • | | |
Strategic Planning—experience with senior executive level strategic planning for publicly-traded companies, private companies and/or non-profit companies
| | • | | | Mergers and Acquisitions—experience with public and/or private company M&A both in identifying targets and evaluating potential targets, as well as post-acquisition integration activities |
Mr. Titinger, 56,
PROPOPOSAL 1 | 15 |
Pam Randhawa | | | Board Committee: | | | Independent: |
| | • Governance | | | Yes |
Ms. Randhawa, 53, currently serves as Principalthe CEO and Founder of Titinger Consulting (since 2016),Emipiriko Corporation since 2010. She has served as a private consultingdirector on our Board since November 2021 and advisory service provider focusing on strategy development and execution, board governance, operational transformations, and culture changes.her term expires in 2023.
Business Experience: | | | • | | | CEO and | |||
| • | | | Co-Founder, AgroGreen Biofuels, renewable energy startup (2010-2012) | |||||
| • | | | Vice President, | |||||
| • | | | Vice President, | |||||
| | | | | | ||||
Other Business Experience: | | | • | | | Director of | |||
| • | | | Chair and Director of | |||||
| | | | ||||||
Non-Profit/ Government Leadership: | | | • | | | Member, The World Economic Forum’s Global Future Council on Biotechnology (2018-2020) | |||
| • | | | Chair, National Science Foundation and National Institution of Justice, Industrial Advisory Board of Center for Advanced Research in Forensic Science (2019-2020) | |||||
• | Member, the Economic Development Planning Council for the State of | ||||||||
• | Member, Boston Women’s Workforce Council, a | ||||||||
| | | | ||||||
Education: | | | • | | | BA in Economics from University of Rajasthan | |||
| • | | | MPM from Carnegie Mellon University |
Skills/ Qualifications: | | |||||
| ||||||
Ms. Randhawa’s key areas of skill/qualifications include, but are not limited to: | ||||||
| | • | | | Client Industries—Experience with venture capital-backed companies in general, and our specific portfolio company industries – technology, life sciences, middle market, and sustainable and renewable technology | |
| | • | | | Leadership/Strategy—Experience as a CEO, President, entrepreneur and senior executive leading teams and establishing and executing successful business strategies | |
| | • | | | Finance, IT and Other Business Processes—Experience related to finance, IT, sales, business development, marketing, or other key business processes | |
| | • | | | Enterprise Risk Management—Experience with enterprise risk management processes and functions, including compliance and operational | |
| | • | | | Governance—Experience with corporate governance issues | |
| | • | | | Strategic Planning—Experience with senior executive-level strategic planning for publicly-traded companies, private companies, non-profit and government | |
| | • | | | Mergers and Acquisitions—Experience with public and/or private company M&A both in identifying targets and evaluating potential targets, as well as post-acquisition integration activities | |
Gayle Crowell | | | Board Committee: | | Independent: |
| | • Compensation (Chair) • Governance | | Yes |
Ms. Crowell, 71, formerly served as Senior Operating Consultant at Warburg Pincus, a global private equity firm focused on growth investing from 2002 to 2019. She has served as a director on our Board since February 2019 and her term expires in 2024.
PROPOPOSAL 1 | 16 |
Business Experience: | | | • | | | President and CEO, RightPoint Software (acquired by E.piphany), developed customer relationship management software (1998-2000) |
| • | | | Senior Vice President and General Manager, ViewStar (acquired by Mosaix), a network based process automation software encompassing workflow automation, document image processing and information management company (1994-1998) | ||
| • | | | Group Director, Oracle Corporation, a computer technology corporation (1990-1992) | ||
| • | | | Vice President of Sales, DSC, a networking company (1989-1990) | ||
| • | | | Vice President of Sales, Cubix Corporation, a company that designs, engineers and manufactures computer hardware systems (1985-1989) | ||
| | | | |||
Public Directorships: | | | • | | | Envestnet (member of audit committee and nominating and governance committee), a leading provider of integrated portfolio, practice management, and reporting solutions to financial advisors and institutions (since 2016) |
| • | | | Pliant Therapeutics (chair of information security and compliance committee, member of compensation committee and nominating and governance committee), a clinical stage biopharmaceutical company that discovers, develops and commercializes novel therapies for the treatment of fibrosis (since 2019) | ||
| | | | |||
Private Directorships: | | | • | | | Lead Director, GTreasury, an integrated digital treasury management platform that allows companies to manage liquidity risk, market risk, counter party and credit risk (since 2021) |
• | Executive Chair, Instinct Science, a provider of cloud-based, electronic medical records and practice management systems for the modern veterinary office and hospital (since 2022) | |||||
| | | | |||
Prior Directorships: | | | • | | | Dude Solutions, the leading provider of cloud-based operations management software to optimize facilities, assets and workflow (since 2014) |
• | Resman, a property management platform of owners, operators and investors across the multifamily, affordable and commercial real estate marketplaces (2020-2021) | |||||
| • | | | MercuryGate, a developer of a transportation management system and offers a software that enables shippers, carriers, brokers, freight forwarders and third party logistics providers to plan, monitor and track shipments (2014-2018) | ||
| • | | | Yodlee, the leading data aggregation and data analytics platform, helps consumers live better financial lives through innovative products and services delivered through financial institutions and FinTech companies (2002-2015) | ||
| • | | | Coyote Logistics, a third-party logistics provider that combines a centralized marketplace with freight and transportation solutions to empower your business (2011-2015) | ||
| • | | | SRS (2004-2013) | ||
| • | | | TradeCard, a SaaS collaboration product that was designed to allow companies to manage their extended supply chains including tracking movement of goods and payments (2009-2013) | ||
Other | • | Member, National Association of Corporate Directors (NACD) | ||||
Experience: | • | Member, Women Corporate Directors (WCD) | ||||
| | | | |||
Education: | | | • | | | Bachelor of Science from University of Nevada Reno |
PROPOPOSAL 1 | 17 |
Skills/ Qualifications: | | | Ms. Crowell’s key areas of skill/qualifications include, but are not limited to: | |||
| | • | | | Client Industries—significant experience in venture capital and technology | |
| | • | | | Banking/Financial Services—held a variety of key executive and management positions at large global financial institutions | |
| | • | | | Leadership/Strategy—extensive experience as a director and executive with broad operational experience in | |
| | • | | | Finance, IT and | |
| | • | | | Enterprise Risk Management—experience in managing enterprise risk as CEO | |
| | • | | | Governance—experienced in both corporate governance and executive compensation for both public and private companies | |
| | • | | | Strategic Planning—experience with senior executive level strategic planning for publicly-traded companies, private companies and/or non-profit companies | |
| | • | | | Mergers and Acquisitions—experience with public and/or private company M&A both in identifying targets and evaluating potential targets, as well as post-acquisition integration activities | |
PROPOPOSAL 1 | 18 |
Independent Director Biographies
The biographical information for each of the independent directors is as follows:
Thomas J. Fallon | | | Board Committee: | | | Independent: |
| | • • Compensation | | | Yes |
Mr. Fallon, 56, currently serves60, has been the Executive Vice President - Business Development of Sanmina Corporation, an American electronics manufacturing services provider, since 2022. He formally served as Chief Executive Officer of Infinera Corporation, (since 2010) and a memberglobal supplier of Infinera’s board of directors (since 2009)innovative networking solutions, from 2010 to 2020). He has served as a director on our Board since July 2014 and his term expires in 2018.2024.
Business Experience: | | | • | | | Executive Vice President |
• | Chief Executive Officer, Infinera Corporation | |||||
| • | | | Chief Operating Officer, Infinera Corporation (2006-2009) | ||
| • | | | Vice President of Engineering and Operations, Infinera Corporation (2004-2006) | ||
| | | | |||
Other Business | | | • | | | Vice President, Corporate Quality and Development Operations of Cisco Systems, Inc. (2003-2004) |
| • | | | General Manager of Cisco Systems’ Optical Transport Business Unit, VP Operations, VP Supply, various executive positions (1991-2003) | ||
| | | | |||
Public Directorships: | | | • | | | Infinera Corporation, a global supplier of innovative networking solutions (since 2009) |
| | | | |||
Prior Directorships: | | | • | | | Piccaro, a leading provider of solutions to measure greenhouse gas concentrations, trace gases and stable isotopes (2010-2016) |
| | | | |||
Other | | | • | | | Member, Engineering Advisory Board of the University of Texas at Austin |
| • | | | Member, President’s Development Board University of Texas | ||
• | Member, Technical Advisory Board Quantumscape | |||||
| | | | |||
Education: | | | • | | | Bachelor’s degree in Mechanical Engineering from the University of Texas at Austin |
| • | | | Master’s degree in Business Administration from the University of Texas at Austin |
Skills/ Qualifications: | | | Mr. Fallon’s key areas of skill/qualifications include, but are not limited to: | |||
| | • | | | Client Industries—significant experience in venture capital and technology | |
| | • | | | Leadership/Strategy—extensive experience as a director and executive with broad operational experience in | |
| | • | | | Finance, IT and | |
| | • | | | Enterprise Risk Management—experience in managing enterprise risk as CEO | |
| | • | | | Governance—experienced in both corporate governance and executive compensation for both public and private companies | |
|
• | | |
Strategic Planning—experience with senior executive level strategic planning for publicly-traded companies, private companies and/or non-profit companies
| | • | | | Mergers and Acquisitions—experience with public and/or private company M&A both in identifying targets and evaluating potential targets, as well as post-acquisition integration activities | |
PROPOPOSAL 1 | 19 |
Brad Koenig | | | Board Committee: | | | Independent: |
| | • Audit | | | Yes | |
| | • | | |
Mr. Koenig, 59, currently serves63, has served as Founder and CEOan adviser to the board of FoodyDirect.com, (since 2011)directors of AvePoint, Inc., an online marketplace that features foods from the top restaurants, bakeries and artisan purveyors around the country.a provider of managed IT services since 2021. He has served as a director on our Board since October 2017.2017 and his term expires in 2024.
Business Experience: | | | • | | | Chief Executive Officer of FoodyDirect.com, an online marketplace that features foods from the top restaurants, bakeries and artisan purveyors around the country when the company was acquired by Goldbelly, Inc. (2011-2018) |
| • | | | Head of Global Technology Investment Banking at Goldman Sachs, a leading global investment banking, securities and investment management firm (1990-2005) | ||
| • | | | Co-Head of Global Technology, Media and Telecommunications at Goldman Sachs (2002-2005) | ||
| | | | |||
Private | | | • | | | Theragenics Corporation, medical device company serving the surgical products and prostate cancer treatment markets (since 2013) |
| | | | |||
Prior | • | Apex Tech Acquisition Corp, a blank check acquisition company or SPAC (2019-2021) | ||||
Directorships: | | | • | | | SuRo Capital Corp. (f/k/a GSV Capital Corporation), identifies and invests in rapidly growing late stage vesture capital-backed private companies (2015-2017) |
| • | | | EveryAction Software, the leading technology provider to Democratic and progressive campaigns and organizations, offering clients an integrated platform of the best fundraising, compliance, field, organizing, digital and social networking products (2009-2018) | ||
| | | | |||
Other Experience: | | |||||
| • | |||||
| | Adviser to Oak Hill Capital Management, a private equity firm | ||||
| | | | |||
Education: | | |||||
| • | | | Bachelor’s degree in Economics from Dartmouth College | ||
| • | | | Master’s degree in Business Administration from Harvard Business School |
Skills/ Qualifications: | | | Mr. Koenig’s key areas of skill/qualifications include, but are not limited to: | |||
| | • | | | Client Industries—significant experience in venture capital and technology | |
| ||||||
| • | |||||
| | |||||
Mr. Woodward, 76, has extensive experience and qualifications in banking and financial services. He has served as a director on our Board since February 2004 and his term expires in 2018.
Banking/Financial | ||
Mr. Hoffman, 68, is retired from KPMG LLP after 26 years as a partner and senior executive with that firm. He has served as a director on our Board since April 2015 and his term expires in 2019.
|
• | | |
Ms. Woo Ho, 70, is a retired senior executive who has held top management roles at some of the largest commercial banks in America, including Wells Fargo Bank, Citibank and United Commercial Bank. She has served as a director on our Board since October 2016 and her term expires in 2019.
Leadership/ | ||||||
| | • | | | Governance—experience as the chairman of the governance committee with corporate governance issues, particularly in a publicly-traded company | |
| | • | | | Strategic Planning—experience with senior executive level strategic planning for publicly-traded companies, private companies and/or non-profit companies | |
| | • | | | Mergers and | |
PROPOPOSAL 1 | ||
20 |
Interested Director Biographies
The biographical information for the interested director is as follows:
Mr. Henriquez, 54, is a co-founder of Hercules and has been our Chairman and Chief Executive Officer since 2004 and our President (since 2005) and his term expires in 2019.
CORPORATE GOVERNANCE
Our business, property and affairs are managed under the direction of our Board. Members of our Board are kept informed of our business through discussions with our chairman and chief executive officer, our chief financial officer, our chief investment officer, our general counsel, and our other officers and employees, and by reviewing materials provided to them and participating in meetings of our Board and its committees.
Because our Board is committed to strong and effective corporate governance, it regularly monitors our corporate governance policies and practices to ensure we meet or exceed the requirements of applicable laws, regulations and rules, and the NYSE’s listing standards. The Board has adopted a number of policies to support our values and good corporate governance, including corporate governance guidelines, Board committee charters, insider trading policy, code of ethics, code of business conduct and ethics, and related person transaction approval policy. The Board has approved corporate governance guidelines that provide a framework for the operation of the Board and address key governance practices. Examples of our corporate governance practices include:
Our Board will continue to review and update the corporate governance guidelines, corporate governance practices, and our corporate governance framework, including the potential expansionframework.
Board Leadership Structure
As of the sizedate of this proxy statement, our Board.
Chairmanis comprised of eight independent directors and Chief Executive Officer
Our Board currently combines the role ofone interested director, our CEO, including an independent chairman of the Board. In addition, each member of our Audit Committee, Compensation Committee, and Governance Committee is an independent director. Mr. Hoffman and Ms. Woo Ho, independent directors who chair the Audit and Governance Committees, respectively, will retire from the Board following the expiration of their current terms at the 2022 annual meeting. The Audit and Governance Committee chair positions will be filled by two other independent directors following Mr. Hoffman's and Ms. Woo Ho's retirement. Our Board and its committees remain in close contact with the roleHercules’ management and receive reports on various aspects of chief executive officer, coupled with a leadHercules’ management and enterprise risk directly from our senior management and independent director position to further strengthen our governance structure.auditors. Our Board believes this provides an efficient and effective leadership model for our company. Combining the chairman and chief executive officer roles fosters clear accountability, effective decision-making, and alignment on corporate strategy. Since 2004, Mr. Henriquez has served as both chairman of the Board and as our chief executive officer. Mr. Henriquez is an interested director.Company.
No single leadership model is right for all companies at all times. Our Board recognizes that depending on the circumstances, other leadership models, such as a separate independent chairman of the Board, might be appropriate. Accordingly, our Board periodically reviews its leadership structure.
Moreover, our Board believes that its governance practices provide adequate safeguards against any potential risks that might be associated with having a combined chairman and chief executive officer. Specifically:
Lead Independent Director
Our Board has instituted the lead independent director position to provide an additional measure of balance, ensure our Board’s independence, and enhance its ability to fulfill its management oversight responsibilities. Allyn C. Woodward, Jr. currently serves as our lead independent director. The lead independent director:
Having a combined chairman and chief executive officer, coupled with a substantial majority of independent, experienced directors, including a lead independent director with specified responsibilities on behalf of the independent directors, provides the right leadership structure for our company and is best for us and our stockholders at this time.
While day-to-day risk management is primarily the responsibility of our management team, our Board, as a whole and through its committees, is responsible for oversight of the risk management processes.
Our Audit Committee has oversight responsibility not only for financial reporting with respect to our major financial exposures and the steps management has taken to monitor and control such exposures, but also for the effectiveness of management’s enterprise risk management process that monitors and manages key business risks facing our company. In
CORPORATE GOVERNANCE | 21 |
addition to our Audit Committee, the other committees of our Board consider the risks within their areas of responsibility. For example, our Compensation Committee considers the risks that may be posed by our executive compensation program.
Management provides regular updates throughout the year to our Board regarding the management of the risks they oversee at each regular meeting of our Board. Also, our Board receives presentations throughout the year from various department and business group heads that include discussion of significant risks as necessary. Additionally, our full Board reviews our short and long-term strategies, including consideration of significant risks facing our business and their potential impact.
During 2016,2021, in addition to unanimous written consents, the Board held the following meetings:
| Type of Meeting | | | Number | | |||
| | | Regular Meetings to address regular, quarterly business matters | | | 4 | | |
| | | Other Meetings to address business matters that arise between quarters, such as fair valuing the portfolio investments, quarterly audit committee presentations and review and approval of earnings reports, among other matters | | | 0 | |
Each director makes a diligent effort to attend all Board and committee meetings, as well as our annual meeting of stockholders. All directors attended at least 75%93% of the aggregate number of meetings of the Board and of the respective committees on which they served. Each of our then-serving directors attended our 20162021 annual meeting of stockholders in person.stockholders.
Our Board has established an Audit Committee, a Compensation Committee, and a NCGGovernance Committee. A brief description of each committee is included in this Proxy Statement and the charters of the Audit, Compensation, and NCGGovernance Committees are available on the Investor Relations sectionpage of our website at http:https://investor.htgc.com/corporate-governance.cfm.corporate-governance/governance-documents.
As of the date of this Proxy Statement, the members of each of our Board Committees are as follows (the names of the respective committee chairperson are bolded and noted with a “C”.):follows:
Audit | Compensation | Nominating and Governance | ||||||
Joseph F. Hoffman* (Chair) Robert P. Badavas Brad Koenig Wade Loo | Gayle Crowell (Chair) Thomas J. Fallon Brad Koenig Wade Loo | Doreen Woo Ho* (Chair) Gayle Crowell Thomas J. Fallon Joseph F. Hoffman | Pam Randhawa |
* Mr. Hoffman and Ms. Woo Ho, independent directors who chair the Audit and Governance Committees, respectively, will retire from the Board following the expiration of their current terms at the 2022 annual meeting. The Audit and Governance Committee chair positions will be filled by two other independent directors following Mr. Hoffman's and Ms. Woo Ho's retirement.
Each of our directors who sits on a committee satisfies the independence requirements for purposes of the rules promulgated by the NYSE and the requirements to be a non-interested director as defined in Section 2(a)(19) of the 1940 Act. Mr. Badavas,Hoffman, Chairman of the Audit Committee and Messrs. HoffmanBadavas, Koenig and Koenig,Loo, members of the Audit Committee, are each an “audit committee financial expert” as defined by applicable SEC rules.
Committee Governance
Each committee is governed by a charter that is approved by the Board, which sets forth each committee’s purpose and responsibilities. The Board reviews the committees’ charters, and each committee reviews its own charter, on at least an annual basis, to assess the charters’ content and sufficiency, with final approval of any proposed changes required by the full Board.
CORPORATE GOVERNANCE | 22 |
Committee Responsibilities and Meetings
The key oversight responsibilities of the Board’s committees, and the number of meetings held by each committee during 2016,2021, are as follows:
Audit Committee | | | Number of meetings held in |
Compensation Committee | | | Number of meetings held in |
Nominating and Corporate Governance Committee | | | Number of meetings held in |
The NYSE’s listing standards and Section 2(a)(19) of the 1940 Act require that a majority of our Board and every member of our Audit, Compensation, and NCGGovernance Committees are “independent.” Under the NYSE’s listing standards and our corporate governance guidelines, no director will be considered to be independent unless and until our Board affirmatively determines that such director has no direct or indirect material relationship with our company or our management. Our Board reviews the independence of its members annually.
In determining that Ms.Mss. Woo Ho, Randhawa and Crowell and Messrs. Badavas, Woodward, Fallon, Hoffman, Koenig and TitingerLoo are independent, our Board, through the NCGGovernance Committee, considered the financial services, commercial, family and other relationships between each director and his or her immediate family members or affiliated entities, on the one hand, and Hercules and its subsidiaries, on the other hand.
CORPORATE GOVERNANCE | 23 |
Communication with the Board
We believe that communications between our Board, our stockholders and other interested parties are an important part of our corporate governance process. Stockholders with questions about Hercules are encouraged to contact Michael Hara, Investor Relations at (650) 433-5578. However, if stockholders believe that their questions have not been addressed, they may communicate with our Board by sending their communications to Hercules Capital, Inc., c/o Melanie Grace,Kiersten Zaza Botelho, Secretary, 400 Hamilton Avenue, Suite 310, Palo Alto, California 94301. All stockholder communications received in this manner will be delivered to one or more members of our Board.
Mr. WoodwardBadavas currently serves as the lead independent director,chairman of our Board, and he presides over executive sessions of the independent directors. Parties may communicate directly with Mr. WoodwardBadavas by sending their communications to Hercules Capital, Inc., c/o Melanie Grace,Kiersten Zaza Botelho, Secretary at the above address. All communications received in this manner will be delivered to Mr. Woodward.Badavas.
All communications involving accounting, internal accounting controls and auditing matters, possible violations of, or non-compliance with, applicable legal and regulatory requirements or our code of ethics, or retaliatory acts against anyone who makes such a complaint or assists in the investigation of such a complaint, will be referred to Melanie Grace,Kiersten Zaza Botelho, Secretary. The communication will be forwarded to the chair of our Audit Committee if our secretary determines that the matter has been submitted in conformity with our whistleblower procedures or otherwise determines that the communication should be so directed.
The acceptance and forwarding of a communication to any director does not imply that the director owes or assumes any fiduciary duty to the person submitting the communication, all such duties being only as prescribed by applicable law.
Code of Business Conduct and Ethics
Our code of business conduct and ethics requires that our directors and executive officers avoid any conflict, or the appearance of a conflict, between an individual’s personal interests and the interests of Hercules. Pursuant to our code of business conduct and ethics, which is available on the Governance Documents page of our website at http:https://investor.htgc.com/corporate-governance.cfmcorporate-governance/governance-documents, each director and executive officer must disclose any conflicts of interest, or actions or relationships that might give rise to a conflict, to our Audit Committee. Certain actions or relationships that might give rise to a conflict of interest are reviewed and approved by our Board.
Availability of Corporate Governance Documents
To learn more about our corporate governance and to view our corporate governance guidelines, code of business conduct and ethics, and the charters of our Audit Committee, Compensation Committee, and NCGGovernance Committee, please visit the Investor Relations page of our website at http:https://investor.htgc.com/corporate-governance.cfm, corporate-governance/governance-documents under “Corporate Governance.“Governance Documents.” Copies of these documents are also available in print and free of charge by writing to Hercules Capital, Inc., c/o Melanie Grace,Kiersten Zaza Botelho, Secretary, 400 Hamilton Avenue, Suite 310, Palo Alto, California 94301.
Compensation Committee Interlocks and Insider Participation
All members of our Compensation Committee are independent directors and none of the members are present or past employees of the Company. No member of our Compensation Committee: (i) has had any relationship with the Company requiring disclosure under Item 404 of Regulation S-K under the Securities Exchange Act of 1934, as amended, referred to as the Exchange Act; or (ii) is an executive officer of another entity at which one of our executive officers serves on the Board.
Certain Relationships and Related Transactions
We have established a written policy to govern the review, approval and monitoring of transactions involving the Company and certain persons related to Hercules. As a BDC, the 1940 Act restricts us from participating in transactions with any persons affiliated with Hercules, including our officers, directors, and employees and any person controlling or under common control with us.
In order to ensure that we do not engage in any prohibited transactions with any persons affiliated with Hercules, our officers screen each of our transactions for any possible affiliations, close or remote, between the proposed portfolio investment, Hercules, companies controlled by us and our employees and directors. We will not enter into any agreements unless and until we are satisfied that no affiliations prohibited by the 1940 Act exist or, if such affiliations exist, we have taken appropriate actions to seek Board review and approval or exemptive relief from the SEC for such transaction.
CORPORATE GOVERNANCE | 24 |
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Anti-Hedging and Anti-Pledging Policy
Our Corporate Governance Guidelines prohibit directors, executive officers and employees from holding their shares of Hercules stock in a margin account or otherwise pledge such shares as collateral for a loan. Directors, officers and employees are also prohibited from engaging in hedging or monetization transactions in respect of Hercules stock, including through the use of financial instruments such as prepaid variable forward, equity swaps, collars and exchange funds.
Corporate Responsibility and Sustainability
We believe basedthat environmental, social and governance factors are an important driver of long-term stockholder returns from both an opportunity and risk-mitigation perspective. Our investment strategy is centered around financing growth-oriented companies in both technology and life sciences. Many of these companies are on the cutting edge of developing new and innovative technologies or are advancing novel drug candidates that have the possibility of providing significant benefits to patients in a reviewvariety of Forms 3, 4areas, including those with unmet needs. Several of these companies are focused on sustainable and 5responsible products and any amendments thereto filedservices, and we are proud to support their efforts. We believe the inclusion of factors related to sustainable and responsible investments provides meaningful value to our employees, portfolio companies, stockholders and community.
Our mission is to provide our stockholders with an investment strategy that delivers strong risk-adjusted, long-term performance. We employ a disciplined investment process that seeks to both uncover opportunities and evaluate potential risks while striving for the SECbest possible return. Consistent with these objectives, we take a comprehensive approach to integrating environmental, social and governance (ESG) criteria into our investment process.
Our workforce consists of diverse professionals, including over 60% that are women or people of diverse ethnic background as of March 31, 2022. Over 50% of our senior leaders, which includes our Managing Directors on the investment team and senior executives, are women or people of diverse ethnic backgrounds. We are committed to recruiting, motivating, and developing a diversity of talent. We strive to continue to create a welcoming and inclusive work environment for all employees. We hire and develop individuals, we take succession planning into account have complied with all Section 16(a) filing requirementssuccession plans in a timely manner.place for each of our senior leaders.
CORPORATE GOVERNANCE | 25 |
INFORMATION ABOUT EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Our executive officers perform policy-making functions for us within the meaning of applicable SEC rules. They may also serve as officers of our other subsidiaries. There are no family relationships among our directors or executive officers.
The following information outlines the name and age of our executive officers (as of the date of this Proxy Statement) and his or her principal occupation with the Company, followed by the biographical information of each of such executive officer:
Name | | | Age | | | Principal Occupation |
Scott Bluestein | | | 43 | | | Chief Executive Officer and Chief Investment Officer |
Seth H. Meyer | | | 53 | | | Chief Financial Officer |
Kiersten Zaza Botelho | | |||||
| 36 | | | General Counsel, Chief Compliance Officer and Secretary | ||
Christian Follmann | 39 | Chief |
Executive Biographies
Mr. Manuel A. Henriquez’Bluestein’s biography can be found under “Interested Director” biographies"Director Nominees Biographies" on Page 21.page 11.
David Lund Seth H. Meyerjoined us in 20172019 as Interim Chief Financial Officer. Mr. Lund has over 30 years of experience in finance and accounting serving companies in the technology sector. Mr. LundMeyer oversees the financial and accounting functions of the Company.Company and serves as an officer of select subsidiaries.
Business Experience | | | • | | | Chief Financial Officer, |
| • | | | Managing Director, Swiss Re, serving as Group Tax Director, Finance Division Operating Officer | ||
| • | | | Senior Tax Manager, PricewaterhouseCoopers LLP (1997-2000) | ||
| • | | | Tax Manager, Jackson National Life Insurance Company (1994-1997) | ||
| • | | | Senior Tax Accountant, KPMG Peat Marwick (1992-1994) | ||
| • | | | Tax/Audit Assistant, Burke & Stegman CPAs (1990-1992) | ||
| | | | |||
Education/Other: | | | • | | | Bachelor’s in Accounting from Michigan State University |
| • | |||||
| | |||||
Master’s in Business Administration | ||||||
Scott Bluestein
Kiersten Zaza Botelho joined us in 2010 as Chief Credit Officer. He was promoted to Chief Investment Officer in 2014. Mr. Bluestein is responsible for managing the investment teams and investments made by the Company.
Melanie Grace joined us in 20152022 as General Counsel, Chief Compliance Officer and Secretary. She has over 17 years of experience representing public and private companies in securities, compliance and transactional matters. Ms. GraceBotelho oversees the legal and compliance function for the Company and serves as secretary for the Company and an officer of select subsidiaries.
Business Experience | | | • | | | Associate General Counsel, Bain Capital Credit, LP (2019-2021) | |||
| • | | | Vice President, BlackRock, Inc. | |||||
| • | | | Associate, Skadden, Arps, Slate, Meagher & Flom LLP (2013-2017) | |||||
| | | | | | ||||
Education/Other: | | | • | | | Bachelor’s in International Relations from Boston University | |||
| • | ||||||||
| | Juris Doctor from Boston University School of Law | |||||||
| • | | | Member, State Bar of |
EXECUTIVE OFFICERS | ||
26 |
Gerard R. Waldt, Jr.
Christian Follmann first joined us in 2016 as Assistant Controller2006 and was promoted to Chief Operating Officer in 2017 became Corporate Controller and Interim Chief Accounting Officer. He is responsible2022. Mr. Follmann oversees the operations function for the financialCompany and regulatory reporting, financial planning and analysis, and financial systems design and implementation.serves as an officer of select subsidiaries.
Business Experience | | | • | | | Senior Director of Operations and Strategic Projects, Hercules, Inc. (2016-2022) | |||
| • | | | Director of | |||||
| • | | | Associate, Hercules, Inc. (2009-2011) | |||||
Analyst, Hercules, Inc. (2006-2009) | |||||||||
| | | | | | ||||
Education/Other: | | | • | | | Bachelor’s in | |||
| • | | | Bachelor's in International Business from Reutlingen University |
EXECUTIVE OFFICERS | 27 |
Compensation Discussion and Analysis
The Compensation Discussion and Analysis discusses our 20162021 executive compensation program as it relates to the following current and former executive officers:officers who served during the fiscal year ended December 31, 2021:
Scott Bluestein | | | Chief Executive Officer (“CEO”) and Chief Investment Officer |
Seth H. Meyer | | | Chief Financial Officer (“CFO”) |
Melanie Grace | | | Former General Counsel, Chief Compliance Officer and Secretary |
We
For purposes of this "Executive Compensation" section, we refer to Messrs. Henriquez, Harris, Bluestein and OlsonMeyer, and Ms. Grace as our “named executive officers,” or “NEOs”. Ms. Grace served as General Counsel, Chief Compliance Officer and Secretary of the Company until September 24, 2021. We had no other executive officers serving as executive officers on December 31, 2021 other than Messrs. Bluestein and Meyer. For information about our current NEOs, see "Information About Executive Officers Who Are Not Directors" beginning on page 26.
Executive Summary
Under the oversight of our Compensation Committee, the Company’s executive compensation program is designed to attract, incent and retain talented individuals who are critical to our continued success and our corporate growth and who will deliver sustained strong performance over the longerlong term. Our executive compensation program is designed to motivate the Company’s executive officers to maintain the financial strength of the Company while avoiding any inappropriate focus on short-term profits that would impede the Company’s long-term growth and encourage excessive risk-taking.
In 2016,2021, the Company continued to review and enhance our compensation practices in accordance with our executive compensation philosophy. The review considered both compensation levels and company performance over a one-, three-, and five-year period from 20122017 to 20162021 (the “Performance Periods”). (See “Compensation Philosophy and Objectives” below). The Company believes that compensation paid to our NEOs for 2016 was commensurate with the Company’s overall absolute performance as well as our performance relative to peers during the relevant Performance Periods. The 20162021 compensation decisions made by the Compensation Committee considered the fact that our performance relative to a peer group of companies was generally above the median, and in most cases above the 7590th percentile, measured using:
The Company’s incentive compensation practices are significantly limited by the requirements imposed on us as an internally managed Business Development Companybusiness development company (“BDC”) pursuant to the 1940 Act. (See “Limitations Imposed by the 1940Investment Company Act Relating to Implementation of Non-Equity Incentive Plans”1940” below). These are regulatory limitations related to our corporate structure that are relatively unique and do not apply to most other publicly-tradedpublicly traded companies. As discussed further below, our NEOs were compensated to reflect their individual performance goals and the Company’s performance during the relevant Performance Periods (See “Performance Highlights and Assessment of Company Performance” below) as well as individual performance.Periods.
In addition to key factors involved in the 20162021 decisions made by the Compensation Committee, we continue to maintain the enhancements to our executive officer compensation program that we adopted in 2016, such as our clawback policy for all Section 16 officers and consideration of a mix of corporate and individual performance factors for our NEOs. In addition,NEOs and our clawback policy for all Section 16 officers. We also increased the CEO equity ownership in 2019 from 2x ownership to 5x ownership. Other NEOs must own at least 2x their salary.
2021 Advisory Vote on Executive Compensation
At our 2021 annual meeting of stockholders, our advisory say-on-pay vote received 89.23% support from our stockholders who voted on the proposal. Our Compensation Committee believes this affirms our stockholders' support of our approach to executive compensation, and, as a result, the Compensation Committee did not grant restricted stock awards in 2017. Rather, themake any significant changes to our executive compensation program for 2021. The Compensation Committee granted restricted stock units with an additional one-year deferral period followingwill continue to consider the last vesting date. We believe these restricted stock unit awards assist the Company in retaining NEOs. In 2017, the Company entered into retention awards with Messrs. Henriquez, Harris and Bluestein which provideoutcome of our say-on-pay votes when making future compensation decisions for certain benefits upon certain terminations of employment.our named executive officers.
Compensation Philosophy and Objectives
The primary principle of our compensation program is to engage and align a substantial portion of executive compensation to the financial strength, long-term profitability, and risk management of the Company and to the creation of long-term stockholder value.
EXECUTIVE COMPENSATION | 28 |
As an internally managed BDC, the Company’s compensation program is designed to encourage theour NEOs to think and act like stockholders. The structure of the NEOs’ compensation program is designed to encourage and reward the following factors, among other things:
We believe that our continued success during 2016,2021, despite strong competition for top-quality executive talent in the commercial and venture lending industry, was attributable to our ability to attract, motivate and retain the Company’s outstanding executive team using both short- and long-term incentive compensation programs. In addition, Mr. Bluestein’s effective performance of the CEO role was key to the Company’s continued success in 2021.
The Company’s NEO compensation objectives are achieved through its executive compensation program, which for 2016at the end of 2021 consisted of the following:
| ELEMENTS OF EXECUTIVE COMPENSATION | | ||||||
| Compensation Element | | | Form of Compensation | | | Principal Compensation Objective | |
| Annual Base Salary | | | Cash paid on a regular basis throughout the year | | | Provide a level of fixed income that is market competitive to allow the Company to retain and attract executive talent | |
| Annual Discretionary Cash Bonus Awards | | | Discretionary cash awards paid on an annual basis following year-end (not formulaic, but subject to Committee discretion, due to regulatory requirements that do not allow formulaic incentive plans as explained in more detail later in this CD&A in the section titled “Our Regulatory Status and Limitations Imposed by the Investment Company Act of 1940”) | | | Reward NEOs who contribute to our financial performance and strategic success during the year, and reward individual achievements | |
| Long-Term Equity Incentive Awards | | | Equity incentive awards vest 1/3 on a one-year cliff with remaining 2/3 vesting quarterly over two years based on continued employment with the Company (other than the one-time Retention PSUs, which generally vest based on the Company’s Total Shareholder Return relative to certain publicly traded BDCs over the 4-year performance period) | | | Reward NEOs who contribute to our success through the alignment with and creation of | |
EXECUTIVE COMPENSATION | 29 |
The compensation program is designed to reflect best practices in executive compensation:
| 2021 GOVERNANCE “BEST PRACTICES” HIGHLIGHTS OF EXECUTIVE COMPENSATION | | |||
| No employment agreements for NEOs. | | | Maintain stock ownership guidelines for | |
| No guaranteed retirement | | | No executive perquisite allowances beyond the benefit programs offered to all employees. | |
| No tax gross ups for NEOs. | | | No repricing of stock options without stockholder approval, as required under applicable NYSE rules (and subject to other requirements under the 1940 Act). | |
| Clawback policy for all Section 16 officers. | | | Compensation Committee routinely engages an independent compensation consultant to review NEO compensation. | |
|
Executive Compensation Governance
The Company’s executive compensation program is supported by strong corporate governance and Board-level oversight. The Compensation Committee provides primary oversight of our compensation programs, including the design and administration of executive compensation plans, assessment and setting of corporate performance goals, as well as individual performance metrics, and the approval of executive compensation. In addition, the Compensation Committee retains an independent compensation consultant, and where appropriate, discusses compensation-related matters with our CEO, as it relates to the other NEOs. The Compensation Committee developed our 20162021 compensation program, and the compensation paid to our NEOs during and in respect of 20162021 was approved by the Compensation Committee as well as all of our independent directors.
The Compensation Committee operates pursuant to a charter that sets forth its mission, specific goals and responsibilities. A key component of the Compensation Committee’s goals and responsibilities is to evaluate, approve and/or make recommendations to our Board regarding the compensation of our NEOs, and to review their performance relative to their compensation to assure that they are compensated in a manner consistent with the compensation philosophy discussed above.
The Compensation Committee has not established a policy or target for the allocation between cash and non-cash or short-term and long-term compensation. Rather, the Compensation Committee undertakes a subjective analysis in light of the principles described herein and, in connection with its analysis, reviews and considers information provided by its independent compensation consultantsconsultant, Frederic W. Cook & Co., Inc., or FW Cook, and compensation surveys to which the Company subscribes to determine the appropriate level and mix of base compensation, performance-based pay, and other elements of compensation.
In addition, the Compensation Committee evaluates and makes recommendations to our Board regarding the compensation of the directors for their services. Annually, the Compensation Committee:
EXECUTIVE COMPENSATION | 30 |
The Compensation Committee periodically reviews our compensation programs and equity incentive plans to ensure that such programs and plans are consistent with our corporate objectives and appropriately align our NEOs’ interests with those of our stockholders. The Compensation Committee also administers our stockequity incentive program. The Compensation Committee may not delegate its responsibilities discussed above.responsibilities.
Subsequently, the Compensation Committee engaged Fredericand provide advice on incorporating a variety of compensation matters relating to CEO and NEOs compensation, peer group selection, compensation program design best practices, market and industry compensation trends, improved program designs, market competitive director compensation levels and regulatory developments. FW Cook was hired by and reports directly to the Compensation Committee. F. W. Cook & Co.does not provide any other services to the Company. The Compensation Committee has assessed the independence of FW Cook pursuant to the NYSE rules, and it has been concluded that F. W. Cook’s work for the Compensation Committee does not raise any conflict of interest.
The Compensation Committee has engaged FW Cook to provide the following services to the Committee:
The Compensation Committee'sCommittee’s executive compensation determinations are subjective and the result of the Compensation Committee'sCommittee’s business judgment. Its determinations are informed by the experiences of its members and the peer group pay and performance data provided by its independent compensation consultant. Accordingly, the Compensation Committee does not target a percentile within its peer group.group when determining levels of compensation. Instead, it uses the data as a reference point inwhen determining the types and amounts of compensation provided by the Company.
EXECUTIVE COMPENSATION | 31 |
Competitive Benchmarking Against Peers
Peer Data
To determine the competitiveness of executive compensation levels, the Compensation Committee analyzes a group of internally managed BDCs, financial services companies and real estate investment trusts (“REITs”) as set forth below (the “Peer Group”). The Peer Group is viewed as reflecting 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 shareholdersstockholders as a dividend. The Compensation Committee does not specifically benchmark the compensation of our NEOs against that paid by other companies. During 2016, the Compensation Committee, based on the advice of F.W. Cook, reviewed the peer group used in connection with prior compensation decisions. Based on this review, and the advice of F.W. Cook, the Compensation Committee updated our Peer Group to better align it to our business. Our Peer Group was used as a factor in determining the annual cash bonus awards made with respect to 20162020 (but paid in 2017), along with the various performance metrics outlined below under “Performance Highlights and Assessment of Company Performance,”2021) as well as the further considerations furthermore fully described below under “Annual“Annual Cash Bonus Awards”Awards”. The Peer Group data used in such determination was for the period January 1, 2016 through October 31, 2016 and the other performance metrics referred to below are presented as of the fiscal year ended 2016.
| HTGC Peer Group | | ||||||
| BDCs | | | Financial Services | | | Real Estate Investment Trusts | |
| Main Street Capital | | | Alliance Bernstein Cohen & Steers Cowen Greenhill & Co. Moelis & Company PJT Partners Sculptor Capital WisdomTree Investment | | | Columbia Property Equity Commonwealth Hannon Armstrong Ladder Capital MFA Financial Redwood Trust Sabra Health Care Seritage Growth Spirit Realty Capital | |
As of OctoberDecember 31, 2016, which is2021, the period the Compensation Committee reviewed our Peer Group, the Company generally outperformed most of its Peer Group over the one-, three- and five-years (“Peer Group Performance”) as follows:
Return on Average Assets (excl. cash) | Return on Equity | Return on Invested Capital | Total Shareholder Returns | |||||||||||||||||||||
Performance Period | HTGC | % Rank of Peer Group | HTGC | % Rank of Peer Group | HTGC | % Rank of Peer Group | HTGC | % Rank of Peer Group | ||||||||||||||||
1-year | 6.1 | % | 100 | % | 10.5 | % | 93 | % | 6.2 | % | 93 | % | 36.2 | % | 100 | % | ||||||||
3-year | 6.2 | % | 99 | % | 10.2 | % | 89 | % | 6.3 | % | 89 | % | 5.3 | % | 64 | % | ||||||||
5-year | 6.3 | % | 96 | % | 10.3 | % | 86 | % | 6.4 | % | 87 | % | 17.2 | % | 88 | % |
* Data source:
|
| | | Return on Average Assets (excl. cash) | | | Return on Equity | | | Return on Invested Capital | | | Average Annual Shareholder Return (“AASR”) | | ||||||||||||
| Performance Period | | | HTGC | | | % Rank of Peer Group | | | HTGC | | | % Rank of Peer Group | | | HTGC | | | % Rank of Peer Group | | | HTGC | | | % Rank of Peer Group | |
| 1-year | | | 5.4% | | | 100% | | | 10.2% | | | 100% | | | 5.6% | | | 100% | | | 26.0% | | | 35% | |
| 3-year | | | 5.7% | | | 100% | | | 11.4% | | | 100% | | | 5.8% | | | 100% | | | 26.6% | | | 60% | |
| 5-year | | | 5.7% | | | 100% | | | 11.2% | | | 100% | | | 5.8% | | | 100% | | | 14.0% | | | 65% | |
−1-, 3- and 5-year calculations of performance are based on data as of December 31, 2021.
−Companies with less than three and/or less than five full years of historical financial and AASR performance are excluded.
−Financial Services peers are excluded from analysis of capital allocation because services companies are not as capital intensive as REITs and BDCs, which are primarily engaged in direct investment of firm capital.
−The data is from S&P Capital IQ and reflectsis not adjusted by FW Cook, which means the most recent four quarters and TSR available as of 10/31/16.data may not reflect internal adjustments regularly made by Hercules or by the peer companies when assessing their performance.
The Company believes that compensation paid to our NEOs for 20162021 was commensurate with the Company’s overall absolute performance as well as our performance relative to the Peer Group during the relevant Performance Periods. The 20162021 compensation decisions made by the Compensation Committee considered the fact that our performance relative to the Peer Group was substantially above the median, and in most cases above the 75th90th percentile measured using Return on Average Assets, Return on Equity, Return on Investment Capital and TotalAverage Annual Shareholder Return during the trailing one-, three-, and five-years as indicated in the chart above. The same was also true for 2020 performance when
EXECUTIVE COMPENSATION | 32 |
2021 decisions were made for salary and 2021 equity awards. In addition, in 2021, the Compensation Committee recognized that the Company achieved numerous records with respect to operating performance including but not limited to:
Our Regulatory Status and Limitations Imposed by the Investment Company Act of 1940
We are an internally-managed,internally managed, non-diversified, closed-end investment company that has elected to be regulated as a business development company referred to as a BDC, under the Investment Company Act of 1940, as amended, referred to as the 1940 Act. As a BDC, we are required to comply with certain regulatory requirements, including the 1940 Act, rules promulgated under the 1940 Act, and exemptive orders issued to us by the Securities and Exchange Commission, or the SEC. We refer to these requirements, rules and exemptive orders as the 1940 Act Requirements. Among other things, thesethings:
Why is this important to the Company’s executive compensation? The 1940 Act Requirements that restrict the Company to sponsoring either an equity incentive plan or a “profit sharing plan” limit the Company’s use of formulas or non-discretionary objective performance goals or criteria in its incentive plans. This means that the Compensation Committee is not permitted to use a nondiscretionary formulaic application of any performance criteria for corporate and individual goals to determine compensation. Rather, the Compensation Committee must take into consideration all factors and use its discretion to determine the appropriate amount of compensation for our NEOs. The Compensation Committee’s objective is to work within this regulatory framework to maintain and motivate pay-for-performance alignment, to establish appropriate compensation levels relative to our Peer Group and to implement compensation best practices.
2016 Advisory Vote on Executive Compensation
At our 2016 annual meeting of stockholders, our advisory vote on say-on-pay received support from our stockholders (89.4% of votes cast). The Company believes that the continuing dialogue Annual cash bonus decisions are in all cases discretionary with no minimum or required payments and are not made pursuant to a formulaic cash bonus plan in order to comply with our stockholders on company performance, compensation and other governance matters is important. In advance of our 2016 annual meeting of stockholders, management engaged in numerous direct dialogues with our largest institutional shareholders, as well as a number of other institutional shareholders, to gain broad-based and/or specific insights intoobligations under the Company’s overall performance, operating expenses, including executive compensation and corporate governance practices. In addition, we invited each of our institutional stockholders holding more than 1% of the Company’s stock to speak directly with management specifically on executive compensation and corporate governance practices.1940 Act.
The Company anticipates continuing our stockholder engagement efforts following the 2017 annual meeting and in advance of our future annual meetings.
Peformance Highlights and Assessment of Company Performance
In determining the compensation for our NEOs, the Compensation Committee evaluates our performance relative to our Peer Group (See “Competitive Benchmarking Against Peers” above), as well as Company-specific absolute performance factors over the relevant Performance Periods. In 2016, relative and company-specific factors included:
Key Performance Indicators | Metric | Performance Period Outcomes | ||||
2016 | 2015 | 2014 | 2013 | 2012 | ||
Total of New Fundings (in $ millions) | 680.7 | 712.3 | 621.3 | 500.7 | 554.9 | |
Total Investments at Cost (in $ millions) | 1,511.5 | 1,252.3 | 1,035.3 | 906.3 | 914.3 | |
Net Interest Margin (in $ million) | 138.0 | 120.2 | 108.1 | 104.6 | 73.8 |
Execution Across Performance Metrics | Metric | Performance Period Outcomes | ||||
2016 | 2015 | 2014 | 2013 | 2012 | ||
Liquidity Levels (in $ millions) | 203.0 | 195.2 | 377.1 | 373.4 | 288.0 | |
Available Unfunded Commitments (in $ millions) | 59.7 | 75.4 | 147.7 | 69.1 | 19.3 | |
Cumulative Net Realized Losses (in $ millions) | 2.3 | 6.9 | 12.0 | 32.1 | 47.0 | |
Dividend Yield (%)(1) | 8.8 | 10.2 | 8.3 | 6.8 | 8.5 |
Assessment of Company Performance
In determining annual compensation for our NEOs, the Compensation Committee analyzes and evaluates the individual achievements and performance of our NEOs as well as the overall relative and absolute operating performance and achievements of the Company. We believe that the alignment of (i) our businessoperating plan, (ii) stockholder expectations and (iii) our employee compensation is essential to long-term business success and the interests of our stockholders and employees and to our ability to attract and retain executive talent, especially in athe competitive environment for top-quality executive talentexecutives in the venture debt industry.
Our businessoperating plan involves taking on credit risk over an extended period of time, and a premium is placed on our ability to maintain stability and growth of net asset values as well as continuity of earnings growth to pass through to stockholders in the form of recurring dividends over the long term. Our strategy is to generate income and capital gains from our
investments in the debt with warrant securities, and to a lesser extent direct equity, of our portfolio companies. This income supports the anticipated payment of dividends to our stockholders. Therefore, a key element of our return to stockholders is current income through the payment of dividends. This recurring payout requires a methodical asset acquisition analyses as well as highly
EXECUTIVE COMPENSATION | 33 |
active monitoring and management of our investment portfolio over time. To accomplish these functions, our business requires implementation and oversight by management and key employees with highly specialized skills and experience in the venture debt industry. A substantial part of our employee base is dedicated to the generation of new investment opportunities to allow us to sustain dividends and to the maintenance of asset values in our portfolio. In addition to the performance factors above, the Company considered the following Company-specific performance factors over the relevant Performance Periods: overall credit performance, performance against annual gross funding goals, overall yields, efficiency ratios, total and net investment income and realized and unrealized gains and losses.
Elements of Executive Compensation and 20162021 Compensation Determinations
Base Salary
We believe that base salaries are a fundamental element of our compensation program. The Compensation Committee establishes base salaries for each NEO to reflect (i) the scope of the NEO’s industry experience, knowledge and qualifications, (ii) the NEO’s position and responsibilities and contributions to our business growth and (iii) salary levels and pay practices of those companies with whom we compete for executive talent.
The Compensation Committee considers base salary levels at least annually as part of its review of the performance of NEOs and from time to time upon a promotion or other change in job responsibilities. During its review of base salaries for our executives, the Compensation Committee primarily considers:considers individual performance of the executive, including leadership and execution of strategic initiatives and the accomplishment of business results for our company; market data provided by our compensation consultant; our NEOsNEOs’ total compensation, both individually and relative to our other NEOs; and for NEOs other than the CEO, the base salary recommendations of our CEO.
NEO | 2016 Base Salary | ||
Manuel Henriquez | $ | 803,154 | |
Mark Harris(1) | $ | 412,000 | |
Scott Bluestein | $ | 432,600 | |
Melanie Grace | $ | 283,250 | |
Andrew Olson(2) | $ | 211,150 |
NEO |
| 2021 Base | |||
Scott Bluestein |
| $ | 650,000 |
|
|
Seth H. Meyer |
| $ | 550,000 |
|
|
Melanie Grace |
| $ | 366,011 |
| (1) |
Annual Cash Bonus Awards
The Compensation Committee, together with input from our CEO, developed a specific bonus pool for the 2016 operating year to be available for our annual cash bonus program. The amount determined to be available for our annual cash program was dependent upon many factors, including those outlined previously under “Performance Highlights and Assessment of Company Performance.”
The Compensation Committee designs our annual cash bonuses to motivate our NEOs to achieve financial and non-financial objectives consistent with our operating plan. The Compensation Committee generally targets cash bonuses to 50% to 100% of an NEO’s base salary; however, such bonus amounts may exceed these targets in the event of exceptional company and individual performance.
Bonuses are discretionary and not formulaic in order to comply with the 1940 Act regulationsRequirements that govern our business as an internally managed BDC and havethat place restrictions on setting compensation to specific financial measurements. As a result, the Compensation Committee considers overall business performance factors and individual factors, including CEO feedback, when determining the size of individual NEO bonuses. Accordingly, should actual companyCompany and NEO performance exceed
expectations, the Compensation Committee may adjust individual cash bonuses to take such superior performance into account. Conversely, if company and NEO performance is below expectations, the Compensation Committee will consider such performance in determining the NEO’s actual cash bonus.
The Compensation Committee, together with input from our CEO, developed a specific bonus pool for the 2021 operating year to be available for our annual cash bonus program. The amount determined to be available for our annual cash program was dependent upon many factors that are not formulaic due to the requirements under the 1940 Act.
The Compensation Committee designs our annual cash bonuses to motivate our NEOs to achieve financial and non-financial objectives consistent with our operating plan.
In evaluating the performance of our NEOs to arrive at their 20162021 cash bonus awards, the Compensation Committee considered the performance factor achievements discussed above under “Performance Highlights and Assessment of Company Performance,” and the Compensation Committee specifically compared our performance and the returns of our stockholders against the performance and shareholderstockholder returns of other BDCs. In particular, the Committee considered our high relative total shareholder return on invested capital, return on equity and return on invested capitalassets and average annual shareholder return relative to peer group benchmarks, which was aboveamong the 75th percentilehighest in the compensation peer group over the last year, as this showsdemonstrates the success for shareholders and of theour core business mission of allocating equity and debt capital efficiently for a high risk-adjusted return.return and the related creation of stockholder wealth.
When sizing our cash bonus pool and allocating bonus awards, the total compensation paid to our NEOs and other employees is also evaluated against the expense ratios of other BDCs. With respect to 2016,2021, company-wide compensation expense as a percentage of average assets among the peers in the Peer Group was considered. For the fiscal year ended December 31, 2016,2021, the ratio of our compensation expense divided by total revenue was below the median of the our Peer Group.
EXECUTIVE COMPENSATION | 34 |
Based on the foregoing considerations and analysis, and after due deliberation, the Compensation Committee awarded our current NEOs the following annual cash bonuses with respect to 2016.2021.
NEO | 2016 Cash Bonus Award | ||
Manuel Henriquez | $ | 1,200,000 | |
Mark Harris(1) | $ | 400,000 | |
Scott Bluestein | $ | 650,000 | |
Melanie Grace | $ | 145,000 | |
Andrew Olson(2) | $ | 150,000 |
NEO |
| 2021 Cash |
| |
Scott Bluestein |
| $ | 2,350,000 |
|
Seth H. Meyer |
| $ | 770,000 |
|
Melanie Grace |
| $ | — |
|
Long-Term Equity Incentive Compensation
2004 Equity Incentive Plan Awards
Our long-term equity incentive compensation is designed to develop a strong linkage between pay and our strategic goals and performance, as well as to align the interests of our NEOs, and other executives and key employees, with those of our stockholders by awardingstockholders. Accordingly, we make long-term equity incentives in the form of stock options, restricted stock and/or restricted stock units. Theseincentive awards are madeto our NEOs pursuant to our Equity Plan, which permits awards of stock options, restricted stock and restricted stock unit awards.units. These grants typically vest over three years.
We believe that annual equity grants in the form of restricted stock awards or restricted stock units, to our NEOs are a critical part of our compensation program as they allow us to:
We believe strongly that annual equity grants motivate executive performance that is aligned with equity-based compensation,
We believe that these annual equity grants motivate performance that is more consistent with the type of return expectations that we have established for our stockholders. Accordingly, the Company awards restricted stock award grants to our NEOs. These grants typically vest over three years.
Grant Practices for Executive Officers
Annual equity compensation grants to executive officers have typically been granted in the first quarter of the year. TheIn 2022, the Company does not grant stock options to executive officers. As a result, there were no option grants to our NEOs in 2016.
Restricted Stock Units
In 2017, the Compensation Committee did not grantgranted restricted stock awards to NEOs. Rather,following 2021 performance. January 2022 restricted stock awards reflected the strong financial performance in 2021, with the highest ROAA, ROE, and ROIC of the peer group companies.
Restricted Stock Awards
In January 2017,2022, the Compensation Committee granted restricted stock unitsawards to the NEOs.Messrs. Bluestein and Meyer. With respect to determining the amount of the restricted stock units,awards, the Compensation Committee assessed each currentthen-current NEO’s individual performance for 2016,2021, our overall company performance in 2016 (including the performance factors detailed above under “Performance Highlights and Assessment of Company Performance” and “Annual Cash Bonus Awards”)2021 and the levels of equity compensation paid by other companies with whom we compete for executive talent. Based on this assessment, the Compensation Committee determined that the following restricted stock unitsawards be granted to our currentthe then-current NEOs with respect to 2016,2021, in the amounts and on the dates set forth below to reward them for services performed in 2016.2021. These restricted stock units vestawards will become vested as to one-third of the shares underlying the awards on the first anniversary of the grant date, and they vestwill become vested as to the remaining shares in equal quarterly installments over the next two years. Settlement of the restricted stock units is deferred following vesting and the restricted stock units will not be settled until the earliest to occur of (1) January 24, 2021, (2) the death or disability of the NEO, (3) the separation from service of the NEO, or (4) a change in control of the Company. Each restricted stock unit will entitle the holder to dividend equivalents in the form of the Company’s common stock, which dividend equivalent payments will be settled on the date the related restricted stock unit is settled. We believe these restricted stock unit awards assist the Company in retaining the NEOs.
NEO | Grant Date | Restricted Stock Units | Fair Value of Restricted Stock Awards(1) | ||||||
Manuel Henriquez | 1/24/2017 | 351,865 | $ | 5,000,000 | |||||
Scott Bluestein | 1/24/2017 | 123,153 | $ | 1,750,000 | |||||
Mark Harris(2) | 1/24/2017 | 35,187 | $ | 500,000 | |||||
Melanie Grace | 1/24/2017 | 21,112 | $ | 300,000 | |||||
Andrew Olson(3) | 1/24/2017 | 17,593 | $ | 250,000 |
2021 Restricted Stock Awards
NEO |
| Grant |
| Restricted Stock |
|
| Fair Value of |
|
| ||
Scott Bluestein |
| 1/11/2022 |
|
| 211,429 |
|
| $ | 3,700,008 |
| (1) |
Seth H. Meyer |
| 1/11/2022 |
|
| 72,857 |
|
| $ | 1,274,998 |
| (1) |
Restricted Stock Units
The Compensation Committee did not grant restricted stock units to NEOs for 2021 performance.
Stock Options
The Compensation Committee did not grant stock option awards to NEOs for 2021 performance.
EXECUTIVE COMPENSATION | 35 |
Other Elements of Compensation
Retention Agreements
In October 2017, Messrs. Henriquez, Harris•
In November 2017, Mr. Harris and the Company mutually agreed to enter into a separation agreement, which provides that the Company will pay Mr. Harris a monetary sum equivalent to six months gross base salary plus up to an additional six months subject to Mr. Harris certifying he is not employed and is actively seeking employment during such time. In addition, the Company will reimburse Mr. Harris for health insurance premiums for him and his eligible dependents under COBRA for a period of up to twelve months subject to the same qualifications applicable to payments based on his gross base salary. The separation agreement also contains certain additional provisions that are customary for agreements of this type, including confidentiality, non-solicitation, and non-disparagement covenants, as well as a general release of the Company against certain claims. The separation agreement supersedes the terms of Mr. Harris’ retention agreement, under which he would have received (a) a lump sum payment in an amount equal to 1.5 times the sum of (i) annual base salary and (ii) an amount equal to the three-year average annual bonus actually earned by and paid to Mr. Harris for the three full performance periods immediately prior to the termination date; (b) any unpaid annual bonus earned with respect to a prior performance period and not yet paid as the date of termination; (c) a pro rata annual bonus with respect to the performance period in which termination of employment occurs, (d) (x) continued vesting of outstanding equity awards for 1.5 years in the case of a termination not in connection with a change in control of the Company or (y) full vesting of outstanding equity awards in the case of a termination in connection with a change in control of the Company and (e) reimbursement of the full amount of COBRA premiums for Mr. Harris and his eligible dependents for 18 months following termination of employment.
Corporate Goals
For 2016,2021, the Compensation Committee determined incentive compensation for each NEO based in part on the Company’s achievement of corporate performance goals developed corporate goals that were required to be achieved for executive officers to receive up to 50% of their incentive compensation.by the Compensation Committee. These goals included operational performance as well as performance relative to the Peer Group. While the criteria may not be weighted, the Compensation Committee took into consideration each of these factors to determine whether the executive officers are eligible for up to 50% of the proposed incentive compensation. The Compensation Committee believes that the corporate goals applicable to all executive officersNEOs create an alignment not only with shareholdersstockholders but also to the Company’s business strategy and performance goals.
Defined Individual Goals
For 2016,2021, the Compensation Committee developed individual goals for the CEO. In addition, the CEO and each NEO developed individual goals for the NEOs and such goals were approved by the Compensation Committee. Each set of individual goals are unique to the applicable executive officer’s responsibilities and position within the Company. While each of the factors may not be weighted, the Compensation Committee took into consideration each of these factors to determine whether the executive officers are eligible for up to 50% of theeach executive officer’s incentive compensation.
Pay-for-Performance Alignment
The Company believes that there exists an alignment between the compensation of our NEOs and our performance over the relevant Performance Periods. As noted above, a broad range of individual performance factors and companyCompany performance factors are analyzed each year, including total shareholder return relative to our Peer Group, and, in 2016,2021, analysis of relative ROAA, ROE, ROIC and ROICAASR versus the compensation peers over one-, three-, and five-years to measure short-, medium-, and long-term performance. The objective in analyzing these key performance factors is to align NEO compensation to our performance relative to our Peer Group and our absolute corporate performance.
The Company’s annual bonus and equity awards constitute an effective mix of short- and long-term compensation components and reflect key measures of our performance and the returns enjoyed by our stockholders. Consistent with our pay-for-performance philosophy, the Compensation Committee will make future compensation decisions taking into account our absolute and relative performance, and, if our future performance were to fall significantly below our peers, the Compensation Committee would consider adjusting NEO compensation prospectively.
Total Compensation Expense Relative to other Internally Managed BDCs
In determining annual bonus awards, the total compensation paid to our NEOs and other employees against the expense ratios of other internally managed BDCs, as well as a comparison to total SG&A for select externally managed BDCs, was considered.
Internal Pay Equity Analysis
Our compensation program is designed with the goal of providing compensation to our NEOs that is fair, reasonable, and competitive. To achieve this goal, the Company believes it is important to compare compensation paid to each NEO not only with compensation in our Peer Group, as discussed above, but also with compensation paid to each of our other NEOs. Such an internal comparison is important to ensure that compensation is equitable among our NEOs.
As part of the Compensation Committee’s review, we made a comparison of our CEO’s total compensation paid for the period ending OctoberDecember 31, 20162021 against that paid to our other NEOs during the same year. Upon review, the Compensation Committee determined that our CEO’s compensation relative to that of our other NEOs was appropriate because of his level and scope of responsibilities, expertise and performance history, and other factors deemed relevant by the Compensation Committee. The Compensation Committee also reviewed the mix of the individual elements of compensation paid to our NEOs for this period, the individual performance of each NEO and any changes in responsibilities of the NEO.
Stock Ownership Guidelines
The Company maintains stock ownership guidelines, which are outlined in our corporate governance guidelines, because we believe that material stock ownership by our executives plays a role in effectively aligning the interests of these employeesour executives with those of our stockholders and strongly motivates our executives to build long-term shareholderstockholder value. Pursuant to our stock ownership guidelines, each member of senior managementour CEO is required to beneficially own at least two times5x of his annual salary in Company common stock, based on market value, within five years of joining the individual’sCompany. In 2020, the Company increased the CEO’s ownership guideline from 2x salary to 5x salary. The other NEOs are required to own at least 2x their annual salary in Company common stock, based on market value, within three years of joining the Company. Our Board may make exceptions to this requirement based on particular circumstances; however, no exceptions have been made for our current NEOs. Messrs. Henriquez, Bluestein and Harris(1)Meyer have met their minimum guidelines. Ms. Grace met her minimum guidelines prior to her departure in 2021.
EXECUTIVE COMPENSATION | 36 |
The Compensation Committee’s review of the CEO’sthen-current NEO’s stock ownership in the fourth quarteras of 2016December 31, 2021 showed thatthat:
Tax and Accounting Matters
Stock-Based Compensation. We account for stock-based compensation, including options and shares of restricted stock granted pursuant to our Equity Plan and 2006 Non-Employee Director Plan in accordance with the requirements of Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 718. Under the FASB ASC Topic 718, we estimate the fair value of our option awards at the date of grant using the Black-Scholes-Merton option-pricing model, which requires the use of certain subjective assumptions. The most significant of these assumptions are our estimates on the expected term, volatility and forfeiture rates of the awards. Forfeitures are not estimated due to our limited history but are reversed in the period in which forfeiture occurs. As required under the accounting rules, we review our valuation assumptions at each grant date and, as a result, are likely to change our valuation assumptions used to value stock-based awards granted in future periods. We estimate the fair value of our restricted stock awards based on the grant date market closing price.
Deductibility of Executive Compensation. When analyzing both total compensation and individual elements of compensation paid to our NEOs, the Company considers the income tax consequences to the Company of its compensation policies and procedures. In particular, the Company considers Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), which, for tax years beginning on or prior to December 31, 2017, limits the deductibility of non-performance-based compensation paid to certain of the NEOs to $1,000,000 per affected NEO.
Section 162(m) of the Code was amended and expanded by the Tax Cuts and Jobs Act at the end of 2017. Effective for tax years beginning on or after January 1, 2018, the deductibility limit of Section 162(m) of the Code applies to an expanded group of current and former executive officers with limited exceptions. In addition, the exception for performance-based compensation is no longer available starting in 2018. Therefore, to the extent compensation paid to certain executive officers exceeds $1,000,000 for any year after 2017, the Company generally cannot deduct such excess compensation for U.S. federal income tax purposes. A transition rule applies to “qualifying performance-based compensation” granted pursuant to a written binding contract prior to November 2, 2017, which has not been materially modified since that date.
The Compensation Committee intends to balance its objective of providing compensation to our NEOs that is fair, reasonable, and competitive with the Company’s ability to claim compensation expense deductions. Our Board believes that the best interests of the Company and our stockholders are served by executive compensation programs that encourage and promote our principal compensation philosophy, enhancement of shareholderstockholder value, and permit the Compensation Committee to exercise discretion in the design and implementation of compensation packages. Accordingly, we may from time to time pay compensation to our NEOs that may not be fully tax deductible, (including by reason of Section 162(m) of the Code), including certain bonuses and restricted stock. Stock options granted under our stock plan are intended to qualify as performance-based compensation under Section 162(m) of the Code. The Company will continue to review its executive compensation plans periodically to determine what changes, if any, should be made as a result of any deduction limitations.
Clawback Policy for Section 16 Officers
In 2016, theThe Board has adopted a clawback policy for all Section 16 officers. This was an enhancement to the Company’s then-existing clawback policy for the CEO and CFO pursuant to Section 304 of the Sarbanes-Oxley Act of 2002. With respect to the Company’s clawback policy, the Company has
Pursuant to our clawback policy, for payments that are predicated on financial results augmented by fraud, embezzlement, gross negligence or deliberate disregard of applicable rules resulting in significant monetary loss, damage or injury to the Company (“Excess Compensation”), the Compensation Committee has the authority to seek repayment of any Excess Compensation, including (1) cancellation of unvested, unexercised or unreleased equity incentive awards; and (2) repayment of any compensation earned on previously exercised or released equity incentive awards whether or not such activity resulted in a financial restatement.
The Compensation Committee will havehas sole discretion under this policy, consistent with any applicable statutory requirements, to seek reimbursement of any Excess Compensation paid or received by the Section 16 officer for up to a 12-month period prior to the date of the Compensation Committee action to require reimbursement of the Excess Compensation. Any clawback of Excess Compensation must be based upon fraud adjudicated by a court of competent jurisdiction or a financial restatement. Further, following a restatement of our financial statements, we will recover any compensation received by the CEO and CFO that is required to be recovered by Section 304 of the Sarbanes-Oxley.Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”).
For purposes of this policy, Excess Compensation will be measured asequals the positive difference, if any, between the compensation earned by a Section 16 officer and the compensation that would have been earned by the Section 16 officer had the fraud, embezzlement, gross negligence or deliberate disregard of applicable rules resulting fromin significant monetary loss, damage or injury to the Company not occurred.
Risk Assessment of the Compensation Programs
Our Board believebelieves that risks arising from our compensation policies and practices for our employees are not reasonably likely to have a material adverse effect on the Company. The Company has designed our compensation programs, including our incentive compensation plans, with specific features to address potential risks while rewarding employees for achieving long-term financial and strategic objectives through prudent business judgment and appropriate risk taking. We use common
EXECUTIVE COMPENSATION | 37 |
variable compensation designs, with a significant focus on individual contributions to our performance and the achievement of absolute and relative corporate objectives, as generally described in this Compensation Discussion and Analysis.
The Compensation Committee and the Board reviewed our compensation programs to assess whether any aspect of the programs would encourage any of our employees to take any unnecessary or inappropriate risks that could threaten the value of the Company. The Company has designed our compensation programs to reward our employees for achieving annual profitability and long-term increase shareholderincreases in stockholder return and/or value.
Our Board recognizes that the pursuit of corporate objectives possibly leads to behaviors that could weaken the link between pay and performance, and, therefore, the correlation between the compensation delivered to employees and the long-term return realized by stockholders. Accordingly, our executive compensation program is designed to mitigate these possibilities and to ensure that our compensation practices are consistent with our risk profile. These features include the following:
Additionally, the Company performed an assessment of compensation-related risks for all of our employees. Based on this assessment, we concluded that our compensation programs do not create risks that are reasonably likely to have a material adverse effect on the Company. In making this evaluation, the Company reviewed the key design elements of our compensation programs in relation to industry “best practices,” as well as the means by which any potential risks may be mitigated. In addition, management completed an inventory of incentive programs below the executive level and reviewed the design of these incentives and concluded that such incentive programs do not encourage excessive risk-taking.
Chief Executive Officer Pay Ratio
For 2021, the median of the annual total compensation of all of our employees (other than Mr. Bluestein) was $235,683. Mr. Bluestein’s 2021 total compensation was $7,410,986. Based on this information, our CEO’s 2021 annual total compensation was approximately 31.44 times that of the median of the 2021 annual total compensation of all our employees.
We do not believe that in 2021 there was a change in our employee population or employee compensation arrangements that would significantly impact our pay ratio disclosure and, therefore, in accordance with SEC regulations, we have elected to use the same median employee that we identified for 2020.
EXECUTIVE COMPENSATION | 38 |
Compensation Committee Report
We have reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on our review and discussions with management, we recommend to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement for the 20162022 annual meeting of Hercules Capital, Inc.
COMPENSATION COMMITTEE MEMBERSSusanne D. Lyons,
Gayle Crowell, ChairAllyn C. Woodward, Jr.Doreen Woo Ho
Thomas J. Fallon
Brad Koenig
Wade Loo
The information contained in the report above shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act except to the extent specifically incorporated by reference therein.
EXECUTIVE COMPENSATION | 39 |
Summary Compensation Table
Name and Principal Position | Year | Salary ($)(1) | Bonus ($)(2) | Stock Awards ($)(3) | Option Awards ($)(3) | All Other Compensation ($)(4) | Total ($) | ||||||||||||||
Manuel Henriquez Chairman & Chief Executive Officer | 2016 | $ | 803,154 | $ | 1,200,000 | $ | 4,005,335 | — | $ | 771,425 | $ | 6,779,914 | |||||||||
2015 | $ | 779,762 | $ | 1,000,000 | $ | 4,472,142 | $ | 1,635,353 | $ | 7,887,257 | |||||||||||
2014 | $ | 779,762 | $ | 692,500 | $ | 5,992,250 | — | $ | 804,675 | $ | 8,269,187 | ||||||||||
Mark R. Harris(5) Chief Financial Officer | 2016 | $ | 412,000 | $ | 400,000 | $ | 396,330 | — | $ | 95,624 | $ | 1,303,954 | |||||||||
2015 | $ | 166,667 | $ | 200,000 | $ | 400,001 | — | $ | 26,404 | $ | 793,072 | ||||||||||
Scott Bluestein Chief Investment Officer | 2016 | $ | 432,600 | $ | 650,000 | $ | 1,249,040 | $ | 200,555 | $ | 2,532,195 | ||||||||||
2015 | $ | 420,000 | $ | 525,000 | $ | 670,212 | $ | 193,370 | $ | 1,808,582 | |||||||||||
2014 | $ | 420,000 | $ | 233,750 | $ | 967,100 | — | $ | 144,396 | $ | 1,765,246 | ||||||||||
Melanie Grace General Counsel, Chief Compliance Officer and Secretary | 2016 | $ | 283,250 | $ | 145,000 | $ | 112,894 | $ | 40,726 | $ | 581,870 | ||||||||||
2015 | $ | 79,167 | $ | 50,000 | $ | 112,500 | — | $ | 36,466 | $ | 278,133 | ||||||||||
Andrew Olson(6) Vice President of Finance and Senior Controller | 2016 | $ | 211,150 | $ | 150,000 | $ | 72,060 | $ | 28,684 | $ | 461,894 | ||||||||||
2015 | $ | 186,250 | $ | 195,000 | $ | 53,332 | — | $ | 22,717 | $ | 457,299 |
Name and Principal Position |
| Year |
| Salary |
|
| Bonus |
|
| Stock |
|
| Option |
| All Other |
|
| Total |
| |||||
Scott Bluestein |
| 2021 |
| $ | 650,000 |
|
| $ | 2,350,000 |
|
| $ | 3,449,995 |
|
| — |
| $ | 960,991 |
|
| $ | 7,410,986 |
|
Chief Executive Officer and |
| 2020 |
| $ | 650,000 |
|
| $ | 2,100,000 |
|
| $ | 3,989,493 |
|
| — |
| $ | 1,131,911 |
|
| $ | 7,871,404 |
|
Chief Investment Officer |
| 2019 |
| $ | 594,028 |
|
| $ | 1,915,000 |
|
| $ | 4,249,994 |
|
| — |
| $ | 825,179 |
|
| $ | 7,584,201 |
|
Seth H. Meyer |
| 2021 |
| $ | 550,000 |
|
| $ | 770,000 |
|
| $ | 1,088,502 |
|
| — |
| $ | 222,937 |
|
| $ | 2,631,439 |
|
Chief Financial Officer |
| 2020 |
| $ | 550,000 |
|
| $ | 700,000 |
|
| $ | 1,069,995 |
|
| — |
| $ | 169,498 |
|
| $ | 2,489,493 |
|
|
| 2019 |
| $ | 456,250 |
|
| $ | 625,000 |
|
| $ | 499,998 |
|
| — |
| $ | 66,162 |
|
| $ | 1,647,410 |
|
Melanie Grace |
| 2021 |
| $ | 268,963 |
|
| $ | — |
|
| $ | 135,001 |
|
| — |
| $ | 61,215 |
|
| $ | 465,179 |
|
Former General Counsel, Chief |
| 2020 |
| $ | 366,011 |
|
| $ | 135,000 |
|
| $ | 135,005 |
|
| — |
| $ | 117,585 |
|
| $ | 753,601 |
|
Compliance Officer & Secretary |
| 2019 |
| $ | 365,567 |
|
| $ | 115,000 |
|
| $ | 184,197 |
|
| — |
| $ | 108,247 |
|
| $ | 773,011 |
|
EXECUTIVE COMPENSATION | 40 |
Grants of Plan Based Awards in 20162021
NEO | Grant Date | All Other Stock Awards: Number of Shares of Stock or Units(1) | All Other Option Awards: Number of Securities Underlying Options(1) | Grant Date Fair Value of Stock and Option Awards(2) | ||||||
Manuel Henriquez | 01/10/2016 | 333,500 | — | $ | 4,005,335 | |||||
Mark Harris(3) | 01/10/2016 | 33,000 | — | $ | 396,330 | |||||
Scott Bluestein | 01/10/2016 | 104,000 | — | $ | 1,249,040 | |||||
Andrew Olson(4) | 01/10/2016 | 6,000 | — | $ | 72,060 | |||||
Melanie Grace | 01/10/2016 | 9,400 | — | $ | 112,894 |
Name |
| Grant Date |
| All Other Stock |
| Grant Date |
| |
Scott Bluestein |
| 1/12/2021 |
| 236,463(2) |
| $ | 3,449,995 |
|
Seth H. Meyer |
| 1/12/2021 |
| 74,606(2) |
| $ | 1,088,502 |
|
Melanie Grace |
| 1/12/2021 |
| 9,253(2) |
| $ | 135,001 |
|
EXECUTIVE COMPENSATION | 41 |
Outstanding Equity Awards at Fiscal Year End, December 31, 20162021
Option Awards | Stock Awards | |||||||||||||||||
Name and Principal Position | Number of Securities Underlying Unexercised Options Exercisable | Number of Securities Underlying Unexercised Options Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock That Have Not Vested(1) | ||||||||||||
Manuel Henriquez | — | — | — | — | 12,284 | (2) | $ | 173,327 | ||||||||||
— | — | — | — | 132,917 | (3) | $ | 1,875,459 | |||||||||||
— | — | — | — | 333,500 | (6) | $ | 4,705,685 | |||||||||||
Mark Harris(8) | — | — | — | — | 21,252 | (4) | $ | 299,866 | ||||||||||
— | — | — | — | 33,000 | (6) | $ | 465,630 | |||||||||||
Scott Bluestein | — | — | — | — | 2,457 | (2) | $ | 34,668 | ||||||||||
— | — | — | — | 19,920 | (3) | $ | 281,071 | |||||||||||
— | — | — | — | 104,000 | (6) | $ | 1,467,440 | |||||||||||
Melanie Grace | — | — | — | — | 5,834 | (5) | $ | 82,318 | ||||||||||
— | — | — | — | 9,400 | (6) | $ | 132,634 | |||||||||||
Andrew Olson(9) | 13,332 | (7) | 6,668 | $ | 15.12 | 12/03/2021 | 1,586 | (3) | $ | 22,378 | ||||||||
— | — | — | — | 6,000 | (6) | $ | 84,660 |
Name |
| Number of |
|
| Market value of |
|
| Equity incentive |
|
| Equity incentive |
| ||||
Scott Bluestein |
| 0(2) |
|
| $ | — |
|
|
| — |
|
|
| — |
| |
|
| 24,683(3) |
|
| $ | 409,491 |
|
|
| — |
|
|
| — |
| |
|
| 19,231(4) |
|
| $ | 319,042 |
|
|
| — |
|
|
| — |
| |
|
| 117,477(5) |
|
| $ | 1,948,943 |
|
|
| — |
|
|
| — |
| |
|
| 236,463(6) |
|
| $ | 3,922,921 |
|
|
| — |
|
|
| — |
| |
|
|
| — |
|
|
| — |
|
| 974,818(8) |
|
| $ | 16,172,231 |
| |
Seth H. Meyer |
| 3,363(7) |
|
| $ | 55,792 |
|
|
| — |
|
|
| — |
| |
|
| 31,508(5) |
|
| $ | 522,718 |
|
|
| — |
|
|
| — |
| |
|
| 74,606(6) |
|
| $ | 1,237,714 |
|
|
| — |
|
|
| — |
| |
Melanie Grace |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
EXECUTIVE COMPENSATION | 42 |
Options Exercised and Stock Vested in 20162021
Option Awards | Stock Awards | |||||||||||
Name and Principal Position | Number of Shares Acquired on Exercise | Value Realized on Exercise | Number of Shares Acquired on Vesting | Value Realized on Vesting | ||||||||
Manuel Henriquez | — | — | 359,264 | $ | 4,347,348 | |||||||
Mark Harris(1) | — | — | 15,178 | $ | 205,146 | |||||||
Scott Bluestein | — | — | 57,399 | $ | 692,290 | |||||||
Melanie Grace | — | — | 4,166 | $ | 55,499 | |||||||
Andrew Olson(2) | — | — | 2,218 | $ | 26,908 |
|
| Stock Awards |
| |||||
Name |
| Number of Shares |
|
| Value Realized |
| ||
Scott Bluestein |
|
| 483,669 |
|
| $ | 7,644,034 |
|
Seth H. Meyer |
|
| 57,562 |
|
| $ | 916,992 |
|
Melanie Grace |
|
| 60,463 |
|
| $ | 955,088 |
|
Nonqualified Deferred Compensation in 2021
Restricted Stock Units Awarded in 2017 and 2018
In each of 2017 and 2018, the Company granted restricted stock units to Mr. Bluestein and Ms. Grace with a deferred settlement feature. These restricted stock units vest as to one-third of the shares underlying the awards on the first anniversary of the grant date, and they vest as to the remaining shares in equal quarterly installments over the next two years. Settlement of the restricted stock units is deferred following vesting and the restricted stock units will not be settled until the earliest to occur of (1) fourth anniversary of the grant date, (2) the death or disability of the NEO, (3) the separation from service of the NEO, or (4) a change in control of the Company. Each restricted stock unit will entitle the holder to dividend equivalents in the form of the Company’s common stock, which dividend equivalent payments will be settled on the date the related restricted stock unit is settled. The following table provides the amounts deferred with respect to these restricted stock units granted in 2017 and 2018.
Name |
| Executive |
|
| Aggregate |
|
| Aggregate |
|
| Aggregate balance |
| ||||
Scott Bluestein |
| $ | 127,223 |
|
| $ | 496,498 |
|
|
| 2,652,594 |
|
| $ | 2,281,810 |
|
Melanie Grace |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
EXECUTIVE COMPENSATION | 43 |
Potential Payments Upon Termination or Change in Control
Retention Agreement
In October 2017, Mr. Bluestein entered into a retention agreement with the Company. Pursuant to such retention agreement, if (1) his employment is terminated by the Company without cause or by him for good reason, or (2) the Company becomes an externally managed BDC and the new external advisor does not make a written offer of employment to Mr. Bluestein or makes a written offer of employment to him that is not on similar terms to his current employment with the Company (including, without limitation, authority, responsibilities, base salary, annual bonus opportunity, long term incentive opportunity and retention benefits) and he does not accept such offer then, subject to the his execution of a release of claims in favor of the Company, Mr. Bluestein shall be entitled to receive the following benefits: (a) a lump sum payment in an amount equal to 1.75 times the sum of (i) annual base salary and (ii) an amount equal to the three-year average annual bonus actually earned by and paid to Mr. Bluestein for the three full performance periods immediately prior to the termination date; (b) any unpaid annual bonus earned with respect to a prior performance period and not yet paid as the date of termination; (c) a pro rata annual bonus with respect to the performance period in which termination of employment occurs; (d) (x) continued vesting of outstanding equity awards for 1.75 years in the case of a termination not in connection with a change in control of the Company or (y) full vesting of outstanding equity awards in the case of a termination in connection with a change in control of the Company; and (e) reimbursement of the full amount of COBRA premiums for Mr. Bluestein and his eligible dependents for 18 months following termination of employment.
Accelerated Vesting of Equity Awards
Subject to continued vesting or full vesting acceleration under the retention agreement with Mr. Bluestein described above, no unvested awards of restricted stock or restricted stock units will vest if an NEO terminates employment prior to the applicable vesting date. In the event of the death or disability of an NEO or a change in control of the Company, all unvested restricted stock units and all unvested shares of restricted stock granted in 2019, 2020 and 2021 will vest in full and, in the case of restricted stock units, will be settled as soon as reasonably practicable following such death, disability or change in control. With respect to the Retention PSUs held by Mr. Bluestein, in the event of death or disability occurring prior to the fourth anniversary of the date of grant, Retention PSUs will vest, along with any accrued dividend equivalents, on the date of such death or disability, with the relative TSR used to calculate such vesting to be the greater of (a) 50% and (b) the actual relative TSR as of the date of such death or disability. In the event of a voluntary termination prior to the fourth anniversary, all Retention PSUs, and accrued dividend equivalents, will be forfeited. In the event of an involuntary termination without cause prior to the fourth anniversary of the date of grant, the Retention PSUs will be pro-rated based on service through the date of termination and such pro-rated Retention PSUs will vest based on the actual relative TSR performance over the four-year TSR performance period. In the event of a termination for cause occurring at any time prior to delivery of the shares underlying the Retention PSUs, all Retention PSUs and accrued dividend equivalents will be forfeited. In the event of a change in control of the Company, the Retention PSUs will vest and be paid on a non-pro-rated basis based on the actual relative TSR performance through the date of the change in control utilizing the transaction price for the Company and the peer group TSR through the date of the change in control. Settlement of the Retention PSUs is deferred following vesting until the fifth anniversary of the grant date. Notwithstanding the foregoing, in the event of (1) the death or disability of Mr. Bluestein or (2) a change in control of the Company, the vested portion of the award will become payable on the date of such death, disability or change in control.
EXECUTIVE COMPENSATION | 44 |
The following table provides estimates of the potential payments and benefits each NEO would receive assuming his or her employment was terminated on December 31, 2021. In the event an NEO was terminated on such date for cause, no payments and benefits under the retention agreement would become payable and the Retention PSUs would be forfeited.
Name |
| Benefit |
| Upon death or |
|
| Upon a |
|
| Termination |
|
| Resignation |
|
| Termination |
| |||||
Scott Bluestein |
| Salary |
|
| — |
|
|
| — |
|
| $ | 1,137,500 |
|
| $ | 1,137,500 |
|
| $ | 1,137,500 |
|
|
| Bonus |
|
| — |
|
|
| — |
|
| $ | 4,436,667 |
|
| $ | 4,436,667 |
|
| $ | 4,436,667 |
|
|
| Other(3) |
|
| — |
|
|
| — |
|
| $ | 79,287 |
|
| $ | 79,287 |
|
| $ | 79,287 |
|
|
| Accelerated equity |
| $ | 24,804,207 |
|
| $ | 24,804,207 |
|
| $ | 22,633,405 |
|
| $ | 5,946,586 |
|
| $ | 24,804,207 |
|
|
| Total |
| $ | 24,804,207 |
|
| $ | 24,804,207 |
|
| $ | 28,286,859 |
|
| $ | 11,600,040 |
|
| $ | 30,457,661 |
|
Seth H. Meyer |
| Accelerated equity |
| $ | 1,816,223 |
|
| $ | 1,816,223 |
|
|
| — |
|
|
| — |
|
| $ | 1,816,223 |
|
|
| Total |
| $ | 1,816,223 |
|
| $ | 1,816,223 |
|
|
| — |
|
|
| — |
|
| $ | 1,816,223 |
|
Melanie Grace |
| Accelerated equity |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| Total |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
EXECUTIVE COMPENSATION | 45 |
Our Compensation Committee has the authority from our Board for the appointment, compensation and oversight of our outside compensation consultant. Our Compensation Committee generally engages a compensation consultant every other year to assist it with its responsibilities related to our director compensation program.
The following table discloses the cash, equity awards and other compensation earned, paid or awarded, as the case may be, to each of our current directors during the fiscal year ended December 31, 2016. We provide further information relating2021.
Name |
| Fees Earned or |
|
| Stock |
|
| Option |
|
| All Other |
|
| Total |
| |||||
Robert P. Badavas |
| $ | 270,000 |
|
| — |
|
|
| — |
|
| $ | 7,075 |
|
| $ | 277,075 |
| |
Gayle Crowell |
| $ | 226,250 |
|
| $ | 59,996 |
|
|
| — |
|
| $ | 3,837 |
|
| $ | 290,083 |
|
Thomas J. Fallon |
| $ | 195,000 |
|
| $ | 59,996 |
|
|
| — |
|
| $ | 2,743 |
|
| $ | 257,739 |
|
Carol L. Foster |
| $ | 145,000 |
|
| — |
|
|
| — |
|
| $ | 4,179 |
|
| $ | 149,179 |
| |
Joseph F. Hoffman |
| $ | 226,250 |
|
| — |
|
|
| — |
|
| $ | 3,546 |
|
| $ | 229,796 |
| |
Brad Koenig |
| $ | 195,000 |
|
| $ | 59,996 |
|
|
| — |
|
| $ | 2,743 |
|
| $ | 257,739 |
|
Wade Loo |
| $ | 50,000 |
|
| $ | 18,732 |
|
|
| — |
|
| $ | 716 |
|
| $ | 69,449 |
|
Pam Randhawa |
| $ | 16,667 |
|
| $ | 35,616 |
|
|
| — |
|
| $ | 788 |
|
| $ | 53,071 |
|
Doreen Woo Ho |
| $ | 213,750 |
|
| — |
|
|
| — |
|
| $ | 3,546 |
|
| $ | 217,296 |
| |
Scott Bluestein(4) |
| — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Name | Fees Earned or Paid in Cash ($)(1) | Stock Awards ($)(2) | Option Awards ($)(3) | All Other Compensation ($)(4) | Total ($) | ||||||||||
Robert P. Badavas | $ | 175,000 | — | — | $ | 3,099 | $ | 178,099 | |||||||
Thomas J. Fallon | $ | 150,000 | $ | — | $ | — | $ | 6,199 | $ | 156,199 | |||||
Joseph F. Hoffman | $ | 165,000 | $ | 62,350 | $ | 8,499 | $ | 5,683 | $ | 241,532 | |||||
Susanne D. Lyons | $ | 175,000 | $ | — | $ | — | $ | 2,066 | $ | 177,066 | |||||
Allyn C. Woodward, Jr. | $ | 175,000 | $ | — | $ | — | $ | 5,166 | $ | 180,166 | |||||
Doreen Woo Ho | $ | — | $ | 45,362 | $ | 6,415 | $ | 1,033 | $ | 52,810 | |||||
Manuel A. Henriquez(5) | — | — | — | — | — |
As of December 31, 2016,2021, Messrs. Badavas Fallon, Hoffman and Woodward and Ms. Lyons and Ms. Woo Ho had outstanding options in the amount of 20,000, 25,000, 25,000, 25,000, 10,000 and 10,000, respectively.15,000 options. As of December 31, 2016, Messrs.2021, Mr. Badavas, Fallon, Hoffman, Koenig, Loo and WoodwardMss. Crowell, Randhawa and Ms. Lyons and Ms. Woo Ho held unvested shares of restricted stock in the amount of 1,666, 3,333, 6,666, 3,333, 1,6663,666, 3,472, 1,535, 3,472, 727, 3,472, 1,971 and 3,333,1,535, respectively.
Upon her appointment to our Board in October 2016, Ms. Woo Ho received a restricted stock award with respect to 3,333 shares of our common stock and a stock option to purchase 10,000 shares of our common stock.
During 2016,2021, the compensationfees for serving on our Board as an independent director included the following:
Annual Director Retainer Fee |
| $ | 100,000 |
| ||
Annual Chairperson Fee |
| $25,000, Audit Committee |
| |||
|
| $25,000, Compensation Committee |
| |||
|
| $15,000, Governance Committee |
| |||
Annual Chairman of the Board Fee |
| $ | 60,000 |
|
In 2016,addition, pursuant to Board approval, each year we granted each independent directortypically provide our directors an additional retainer fee of $50,000, which was distributed aseither $70,000 in cash or shares of our common stock, as elected by each individual director. In 2021, Messrs. Fallon and Koenig and Mss. Crowell and Woo Ho elected to receive 4,013 shares of our common stock in lieu of cash. In addition, upon re-election tocash with a total value of $70,000, as discussed above in Footnote 1 of the Board, each independent director was granted an option to purchase 15,000 shares and an additional awardCompensation of 5,000 shares of restricted stock. Directors table.
Employee directors do not receive compensation for serving on our Board. In addition, we reimburse our directors for their reasonable out-of-pocket expenses incurred in attending Board meetings.
EXECUTIVE COMPENSATION | 46 |
EQUITY COMPENSATION PLAN INFORMATION
Plan Category |
| (a) |
|
| (b) |
|
| (c) |
| |||
Equity compensation plans approved by stockholders: |
|
|
|
|
|
|
|
|
| |||
2018 Equity Incentive Plan |
| 1,889,413(1) |
|
| $ | 13.98 |
|
|
| 6,595,401 |
| |
2006 Non-Employee Director Plan(2) |
| 15,000(3) |
|
| $ | 16.34 |
|
|
| — |
| |
2018 Non-Employee Director Plan(4) |
|
| — |
|
|
| — |
|
|
| 271,429 |
|
Equity compensation plans not approved by stockholders: |
|
| — |
|
|
| — |
|
|
| — |
|
Total |
|
| 1,629,155 |
|
|
|
|
|
| 6,866,830 |
|
Under current SEC rules and regulations applicable to BDCs, a BDC may not grant options or restricted stock to non-employee directors unless it receives exemptive relief from the SEC. We filed an exemptive relief request with the SEC to allow options and restricted stock to be issued to our non-employee directors, which was approved on October 10, 2007. On June 22, 2010, we received approval from the SEC regarding our exemptive relief request permitting its employees to exercise their stock options and restricted stock and pay any related income taxes using a cashless exercise program.
On June 21, 2007, our stockholders approved amendments to the Equity Plan and the 2006 Non-Employee Director Plan allowing for the grant of restricted stock. The Equity Plan limits the combined maximum amount of restricted stock that may be issued under the Equity Plan to 10% of the outstanding shares of our common stock on the effective date of the Equity Plan plus 10% of(1)
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information as of December 31, 2016, with respect to compensation plans under which the Company’s equity securities are authorized for issuance:
Plan Category | (a) Number of Securities to be issued upon exercise of outstanding options, restricted stock and warrants | (b) Weighted-average exercise price of outstanding options, restricted stock and warrants | (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | ||||||
Equity compensation plans approved by stockholders: | |||||||||
2004 Equity Incentive Plan | 553,171 | $ | 13.85 | 3,772,736 | |||||
2006 Non-Employee Director Plan | 115,000 | $ | 13.18 | 713,333 | |||||
Equity compensation plans not approved by stockholders: | — | — | — | ||||||
Total | 668,171 | $ | 13.52 | 4,486,069 |
20042018 Equity Incentive Plan
Our board and our stockholders have approved our Equity Plan to align our employees’ interest with the performance of our Company and to attract and retain the services of executive officers and other key employees. Under our Equity Plan our Compensation Committee may award incentive stock options, referred to as ISOs, within the meaning of Section 422 of the Code, and non-qualified stock options to employees and employee directors.Plan. The following is a summary of the material features of our Equity Plan.
Under our Equity Plan, we had 3,262,862 shares of common stock available for issuance as of October 30, 2017. Participants in our Equity Plan may receive awards of options to purchase our common stock and/or restricted shares, as determined by our Compensation Committee. Options granted under our Equity Plan generally may be exercised for a period of no more than ten years from the date of grant unless the option agreement provides for an earlier expiration. Unless sooner terminated by our Board, our Equity Plan will terminate on the tenth anniversary of the date it was last approved by our stockholders. Such approval was last given by our stockholders on July 7, 2015. Our Equity Plan provides that all awards granted under the plan are subject to modification as required to ensure that such awards do not conflict with the requirements of the 1940 Act applicable to us.
Options granted under our Equity Plan will entitle the optionee, upon exercise, to purchase shares of common stock from us at a specified exercise price per share. ISOs must have a per share exercise price of no less than the fair market value of a share of stock on the date of the grant or, if the optionee owns or is treated as owning (under Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of our stock, 110% of the fair market value of a share of stock on the date of the grant. Nonstatutory stock options granted under our Equity Plan must have a per share exercise price of no less than the fair market value of a share of stock on the date of the grant. Options will not be transferable other than by laws of descent and distribution, or in the case of nonstatutory stock options, by gift, and will generally be exercisable during an optionee’s lifetime only by the optionee.
Under our Equity Plan, we are permitted to issue shares of restricted stock to all key employees of the Company and its affiliates consistent with such terms and conditions as the Board shall deem appropriate. Our Board determines the time or times at which such shares of restricted stock will become exercisable and the terms on which such shares will remain exercisable. Any shares of restricted stock for which forfeiture restrictions have not vested at the point at which the participant terminates his employment will terminate immediately and such shares will be returned to Hercules and will be available for future awards under this plan.
Our Board administers our Equity Plan and has the authority, subject to the provisions of the Equity Plan, to determine who will receive awards under the Equity Plan and the terms of such awards. Our Board has the authority to adjust the number of shares available for awards,related to unsettled PSUs, RSUs and dividend equivalent units are not included in the number of shares subject to outstanding awards and theweighted-average exercise price for awards following the occurrence of events such as stock splits, dividends, distributions and recapitalizations. The exercise price of an option may be paid in the form of shares of stock that are already owned by such option holder.
(2) |
Upon specified covered transactions (as defined in the Equity Plan), all outstanding awards under our Equity Plan may either be assumed or substituted for by the surviving entity. If the surviving entity does not assume or substitute similar awards, the awards held by the participants will be accelerated in full and then terminated to the extent not exercised prior to the covered transaction.
2006 Non-Employee Director Plan
Our Board and our stockholders approved our 2006 Non-Employee Director Plan. Under current SEC rules and regulations applicable to BDCs, absent exemptive relief, a BDC may not grant options or shares of restricted stock to non-employee directors. On February 15, 2007, we received exemptive relief from the SEC to permit us to grant options to non-employee directors as a portion of their compensation for service on our Board. Our 2006 Non-Employee Director Plan terminated on June 21, 2017 and no additional awards may be made under our 2006 Non-Employee Director Plan. On May 23, 2007, we received exemptive relief from
We instituted our 2006 Non-Employee Director Plan for the purpose of advancing our interests by providing for the grant of awards under our 2006 Non-Employee Director Plan to eligible non-employee directors. Under our 2006 Non-Employee Director Plan, we have authorized for issuance up to 1,000,000 shares of common stock.
Under our 2006 Non-Employee Director Plan, non-employee directors each received an initial grant of an option to purchase 10,000 shares of stock upon initial election to such position. The options granted will vest over two years, in equal installments on each of the first two anniversaries of the date of grant, provided that the non-employee director remains in service on such dates. In addition, each non-employee director was automatically granted an option to purchase 15,000 shares of stock on the date of such non-employee director’s re-election to our Board and such grant vests over three years, in equal installments on each of the first three anniversaries of the date of grant, provided that the non-employee director remains in service on such dates. Our Compensation Committee had, subject to SEC approval, the authority to determine from time to time which of the persons eligible under our 20062018 Non-Employee Director Plan was granted awards; when and how each award was granted, including the time or times when a person was permitted to exercise an award; and the number of shares of stock with respect to which an award was granted to such person. The exercise price of options granted under our 2006 Non-Employee Director Plan was set at the closing price of our common stockapproved on the NYSE as of the date of grant and was not adjusted unless we receive an exemptive order from the SEC or written confirmation from the staff of the SEC that we may do so (except for adjustments resulting from changes in our capital structure, such as stock dividends, stock splits and reverse stock splits).
Our 2006 Non-Employee Director Plan provided that all awards granted under our 2006 Non-Employee Director Plan were subject to modification as required to ensure that such awards do not conflict with the requirements of the 1940 Act. Our Compensation Committee determined the period during which any options granted under our 2006 Non-Employee Director Plan shall remain exercisable, provided that no option will be exercisable after the expiration of ten years from the date on which it was granted. Options granted under our 2006 Non-Employee Director Plan were not transferable other than by will or the laws of descent and distribution, or by gift, and will generally be exercisable during a non-employee director’s lifetime only by such non-employee director. In general, any portion of any options that are not then exercisable will terminate upon the termination of the non-employee director’s services to Hercules. Generally, any portion of any options that were exercisable at the time of the termination of the non-employee director’s services to Hercules remain exercisable for the lesser of (i) a period of three months (or one year if the non-employee director’s services to Hercules terminated by reason of the non-employee director’s death) or (ii) the period ending on the latest date on which such options could have been exercised had the non-employee director’s services to Hercules not terminated. In addition, if our Board determines that a non-employee director’s service to Hercules terminated for reasons that cast such discredit on the non-employee director as to justify immediate termination of the non-employee director’s options, then all options then held by the non-employee director will immediately terminate.
EXECUTIVE COMPENSATION | 47 |
Under our 2006 Non-Employee Director Plan, we were permitted to issue shares of restricted stock to our non-employee directors. Upon initial election to such position, non-employee directors were automatically granted 3,333 shares of restricted stock. The forfeiture restrictions for such initial shares of restricted stock vest as to one-half of such shares on the first anniversary of the date of grant and as to an additional one-half of the restricted stock on the second anniversary of the date of grant. In addition, each non-employee director was automatically granted 5,000 shares of restricted stock on the date of such non-employee director’s re-election to our Board and the forfeiture restrictions on such shares vest as to one-third of such shares on the anniversary of such grant over three years, provided that the non-employee director remains in service on such dates.
Our Compensation Committee administers our 2006 Non-Employee Director Plan. If there is a change in our capital structure by reason of a stock dividend, stock split or combination of shares (including a reverse stock split), recapitalization or other change in our capital structure, our Board would make appropriate adjustments to the number and class of shares of stock subject to our 2006 Non-Employee Director Plan and each option outstanding under it. In the event of a consolidation, merger, stock sale, a sale of all or substantially all of our assets, our dissolution or liquidation or other similar events, referred to as a Covered Transaction, our Board would provide for the assumption of some or all outstanding options or for the grant of new substitute options by the acquirer or survivor. If no such assumption or substitution occurs, all outstanding options will become exercisable prior to the Covered Transaction and will terminate upon consummation of the Covered Transaction.
PROPOSAL 2: ADVISORY VOTE TO APPROVE THE COMPANY’S NAMED
EXECUTIVE OFFICER COMPENSATION
The Board of Directors unanimously recommends that you vote FOR this proposal
(Item 2 on your proxy card)
Introduction to Advisory Vote on Say-on-Pay; Frequency of Advisory VoteSay-on-Pay
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 gives stockholders the opportunity to cast an advisory vote on the compensation of our NEOs, as disclosed in this Proxy Statement. Our Board recommends that stockholders approve the advisory vote on executive compensation set forth below.
Prior2021 Advisory Vote on Executive Compensation; Continuing Stockholder EngagementCompensation
In 2016, we received approximately 89.41% "say on pay" approval vote evidencing thatAt our stockholders agree with our compensation principles and process. We provide our stockholders the ability to annually cast their advisory vote on the compensation of our NEOs.
Our Compensation Committee views as important the continuing dialogue with our stockholders on compensation and other governance matters. In advance of our 20162021 annual meeting of stockholders, we engaged in direct dialogue with our largest institutionaladvisory say-on-pay vote received 89.23% support from our stockholders of the votes cast. Our Compensation Committee believes this affirms our stockholders' support of our approach to gain broad-based insights onexecutive compensation, and, as a result, the Compensation Committee did not make any significant changes to our executive compensation and corporate governance practices. In connection with our 2017 annual meeting, we again solicited opportunitiesprogram for feedback from each2021. The Compensation Committee will continue to consider the outcome of our institutional stockholders, and we completed meetings with a number ofsay-on-pay votes when making future compensation decisions for our institutional stockholders, including our largest institutional stockholder. Givennamed executive officers.
We have taken the benefits of stockholder engagement, we anticipate continuing our stockholder engagement efforts following the 2017 annual meeting and in advance of our future annual meetings.
During our stockholder outreachactions over the pastlast several years we spoke to a number of our stockholders and took the following actions to make sure our executive compensation more closely aligns Company performance to stockholder interests:
The above enhancements to our compensation program demonstrate our commitment to ensuring that our executive compensation program aligns our executives’ compensation with the Company’s short-term and long-term performance and stockholder interests and, at the same time, provides the compensation and incentives needed to attract, reward, motivate, and retain key executives.
20162021 NEO Compensation
Please read the “Executive Compensation—Compensation Discussion and Analysis”Analysis” and “EXECUTIVE “EXECUTIVE COMPENSATION TABLES” for additional details about our executive compensation programsprograms.
We believe, in light of the compensation paid by us to our NEOs in 20162021 and our financial performance during the relevant periods, that our executive compensation programs are designed with the goal of providing compensation that is fair, reasonable and competitive, and our programs are intended to help us align the compensation paid to our NEOs with corporate and executive performance goals that have been established to achieve both our short-term and long-term objectives. Our Compensation Committee will continue to review the compensation programs for our NEOs to ensure our programs achieve the desired goals of aligning our executive compensation structure with our stockholders’ interests and current market practices.
PROPOPOSAL 2 | 48 |
Broker Non-Votes
Broker non-votes are votes cast for shares held by a broker or other nominee for which the nominee has not received voting instructions from the beneficial owner and does not have discretionary authority to vote the shares on non-routine proposals. Proposal 2 is a non-routine matter. As a result, if you hold shares in “street name” through a broker, bank or other nominee, your broker, bank or nominee will not be permitted to exercise voting discretion with respect to Proposal 2, the advisory vote on executive compensation. Therefore, if you do not vote and you do not give your broker or other nominee specific instructions on how to vote for you, then your shares will have no effect on Proposal 2.
20172022 Advisory Vote on Say-on-Pay
Our Compensation Committee believes that our executive compensation programs, executive officer pay levels and individual pay actions approved for our executive officers, including our NEOs, are directly aligned with our executive compensation philosophy, fully support our business goals and our operating plan and provide an appropriate balance between risk and incentives. We are asking our stockholders to indicate their support for our NEO compensation as described in this Proxy Statement. Accordingly, we ask our stockholders to vote “FOR” the following resolution at the 20172022 annual meeting:
“RESOLVED,, that the Company’s stockholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 20172022 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the 20162021 Summary Compensation Table and the other related tables and narrative discussion contained in this Proxy Statement.”
The say-on-pay vote is advisory, and therefore not binding on the Company, our Compensation Committee or our Board. Our Board and our Compensation Committee value the opinions of our stockholders. To the extent there is any significant vote against the NEO compensation as disclosed in this Proxy Statement, we will consider our stockholders’ concerns and our Compensation Committee will evaluate whether any actions are necessary to address those concerns.
Required Vote
This proposal requires an affirmative vote of the majority of the votes cast at the 2022 annual meeting of stockholders in person virtually or by proxy. Abstentions and broker non-votes will not be counted as votes cast and will have no effect on the result of the vote. The persons named in the accompanying proxy intend to vote proxies received by them in favor of this proposal unless a choice of “Against” or “Abstain” is specified.
Broker Non-Votes
A broker non-vote is a vote that is not cast on a non-routine matter by a broker that is present (in person or by proxy) at the meeting because the shares entitled to cast the vote are held in street name, the broker lacks discretionary authority to vote the shares and the broker has not received voting instructions from the beneficial owner. Proposal 2 is a non-routine matter. As a result, if you hold shares in “street name” through a broker, bank or other nominee, your broker, bank or nominee will not be permitted to exercise voting discretion with respect to Proposal 2, the advisory vote on executive compensation. Therefore, if you do not vote and you do not give your broker or other nominee specific instructions on how to vote for you, then your shares will have no effect on Proposal 2.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR”
THE PROPOSAL TO APPROVE, ON AN ADVISORY BASIS, THE COMPANY’S
NAMED EXECUTIVE OFFICER COMPENSATION.
PROPOPOSAL 2 | 49 |
PROPOSAL 3: ADVISORY VOTE ONRATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANT
FOR THE FREQUENCY OF AN ADVISORY VOTE ON EXECUTIVE COMPENSATIONFISCAL YEAR ENDING DECEMBER 31, 2021
The Board of Directors unanimously recommends that you vote FOR this proposal
(Item 3 on your proxy card)
The Dodd-Frank Act requires our stockholders to indicate how frequently we should seek an advisory vote on the compensation of our named executive officers, as disclosed pursuant to the SEC’s compensation disclosure rules. We last sought an advisory vote on Say on Frequency in 2011. By voting on this Proposal 3, stockholders may indicate whether they would prefer an advisory vote on NEO compensation once every one, two, or three years or abstain from voting on this proposal. For the reasons described below, we recommend that our stockholders select a frequency of every year, or an annual vote.
After careful consideration of this Proposal, our Board has determined that an advisory vote on executive compensation that occurs every year is the most appropriate alternative for the Company, and therefore our Board recommends that you vote for an annual interval for the advisory vote on executive compensation.
In formulating its recommendation, our Board considered that an annual advisory vote on executive compensation will allow our stockholders to provide us with their direct input on our compensation philosophy, policies and practices as disclosed in the proxy statement every year. Additionally, an annual advisory vote on executive compensation is consistent with our policy of seeking input from, and engaging in discussions with, our stockholders on corporate governance matters and our executive compensation philosophy, policies and practices. We understand that our stockholders may have different views as to what is the best approach for the Company, and we look forward to hearing from our stockholders on this Proposal.
You may cast your vote on your preferred voting frequency by choosing the option of one year, two years, three years or abstain from voting when you vote in response to the resolution set forth below.
The option of one year, two years or three years that receives the highest number of votes cast by stockholders will be the frequency for the advisory vote on executive compensation that has been selected by stockholders. However, because this vote is advisory and not binding on the Board or the Company in any way, the Board may decide that it is in the best interests of our stockholders and the Company to hold an advisory vote on executive compensation more or less frequently than the option approved by our stockholders.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE SELECTION OF ONCE EVERY YEAR AS THE FREQUENCY WITH WHICH STOCKHOLDERS ARE PROVIDED AN ADVISORY VOTE ON EXECUTIVE COMPENSATION.
PROPOSAL 4: RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANT FOR THE FISCAL YEAR ENDING DECEMBER 31, 2017
The Board of Directors unanimously recommends that you vote FOR this proposal(Item 4 on your proxy card)
Our Audit Committee and our non-interested directors have selected PwC to serve as our independent public accountant for the fiscal year ending December 31, 2017.2022. This selection is subject to the ratification or rejection by our stockholders.
During the two most recent fiscal years, neither Hercules or any person on its behalf has consulted with PwC with respect to either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements or (ii) any matter that was either the subject of a “disagreement” or a “reportable event” as such terms are described in Items 304(a)(1)(iv) or 304(a)(1)(v), respectively, of Regulation S-K under the Exchange Act.
PwC has advised us that neither the firm nor any present member or associate of it has any material financial interest, direct or indirect, in Hercules or its affiliates. It is expected that a representative of PwC will be present at the 20172022 annual meeting of stockholders and will have an opportunity to make a statement if he or she chooses and will be available to answer other questions.
Required Vote
This proposal requires the affirmative vote of the majority of the votes cast at the 20172022 annual meeting of stockholders in person virtually or by proxy. Abstentions will not be counted as votes cast and will have no effect on the result of the vote. The persons named in the accompanying proxy intend to vote proxies received by them in favor of this proposal unless a choice of “Against” or “Abstain” is specified.
Broker Non-Votes
Broker non-votes are votesA broker non-vote is a vote that is not cast for shares heldon a non-routine matter by a broker that is present (in person or other nominee for whichby proxy) at the nomineemeeting because the shares entitled to cast the vote are held in street name, the broker lacks discretionary authority to vote the shares and the broker has not received voting instructions from the beneficial owner and does not have discretionary authority to vote the shares on non-routine proposals.beneficial owner. Proposal 4,3, the ratification of the selection of PwC to serve as our independent registered public accounting firm, is a routine matter. As a result, if you beneficially own your shares and you do not provide your broker or nominee with voting instructions, then your broker, bank or nominee will be able to vote your shares for you on Proposal 4.3.
Principal Accountant Fees and Services
The following aggregate fees by PwC, our independent public accounting firm, were billed to us for work attributable to 20162021 and 20152020 audit, tax and other services.
Fiscal Year Ended (in millions) | ||||||
2016 | 2015 | |||||
Audit Fees | $ | 1.4 | $ | 1.2 | ||
Audit-Related Fees | — | — | ||||
Tax Fees | $ | 0.1 | $ | 0.1 | ||
All Other Fees | — | — | ||||
Total Fees: | $ | 1.5 | $ | 1.3 |
|
| Fiscal Year Ended |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Audit Fees |
| $ | 1.2 |
|
| $ | 1.1 |
|
Audit-Related Fees |
|
| — |
|
|
| — |
|
Tax Fees |
|
| 0.1 |
|
|
| 0.1 |
|
All Other Fees |
|
| 0.1 |
|
|
| 0.2 |
|
Total Fees: |
| $ | 1.4 |
|
| $ | 1.4 |
|
Audit Fees.Audit fees include fees for services that normally would be provided by the accountant in connection with statutory and regulatory filings or engagements and that generally only the independent accountant can provide. In addition to fees for the audit of our annual financial statements, the audit of the effectiveness of our internal control over financial reporting and the review of our quarterly financial statements in accordance with generally accepted auditing standards, this category contains fees for comfort letters, statutory audits, consents, and assistance with and review of documents filed with the SEC.
Audit-Related Fees. Audit related fees are assurance related services that traditionally are performed by the independent accountant, such as attest services that are not required by statute or regulation.
Tax Fees. Tax fees in fiscal years 20162021 and 20152020 include professional fees for tax compliance and tax advice.
PROPOPOSAL 3 | 50 |
All Other Fees.Fees. Fees for other services would include fees for products and services other than the services reported above. Other fees billed in fiscal years 2016 and 2015 relate to on-line technical accounting software service. Our Audit Committee has considered the compatibility of non-audit services with the auditor’s independence.
Pre-Approval Policy
All services rendered by PwC were permissible under applicable laws and regulations, and were pre-approved by the Audit Committee for 20162021 and 2015,2020, as applicable, in accordance with its pre-approval policy. The Audit Committee has established a policy regarding the pre-approval of all audit and permissible non-audit services provided by our independent auditors. The policy requires the Audit Committee to approve each audit or non-audit engagement or accounting project involving the independent auditors and the related fees, prior to the commencement of the engagement or project to make certain that the provision of such services does not adversely affect the firm’s independence. Approval of such engagement is provided at regularly scheduled meetings of the Audit Committee. However, the Audit Committee may delegate pre-approval authority to the Audit Committee chairman or any of the Audit Committee members who is an independent director, so long as the estimated fee for the particular service for which pre-approval is sought does not exceed $100,000. Our Audit Committee does not delegate its responsibilities to pre-approve services performed by the independent public accounting firm to management.
AUDIT COMMITTEE REPORT
Management is responsible for our internal controls and the financial reporting process. The independent auditors are responsible for performing an independent audit of our financial statements in accordance with auditing standards generally accepted in the United States and expressing an opinion on the conformity of those audited financial statements in accordance with accounting principles generally accepted in the United States. Our Audit Committee’s responsibility is to monitor and oversee these processes. Our Audit Committee is also directly responsible for the appointment, compensation and oversight of our independent registered public accounting firm.
Review of Management
Our Audit Committee hasWe have reviewed the audited financial statements and met and held discussionsdiscussed with management regarding theand PricewaterhouseCoopers LLP (“PwC”) our audited financial statements. Management has represented to our Audit Committee that our financial statements were prepared in accordance with accounting principles generally accepted in the United States.
Review and Discussion with Independent Registered Public Accounting Firm
Our Audit Committee hasWe discussed with PwC our independent registered accounting firm, PwC’s judgements about the quality, as well asoverall scope and plan for their audit. We met with PwC with and without management present, to discuss the acceptability,results of its examination, its evaluation of the Company’s accounting principles as applied in itsinternal controls, and the overall quality of our financial reporting asreporting.
We have reviewed and discussed with PwC matters required to be discussed by Statementpursuant to the PACOB Auditing Standard 1301 “Communications with Audit Committees” and Rule 2-07 of Auditing Standards No. 16.
OurRegulation S-X, “Communications with Audit CommitteeCommittees.” We have received and reviewedfrom PwC the written disclosures and the letter from the independent registered public accounting firm required by the applicable Public Company Accounting Oversight Board rulerequirements of the PCAOB regarding the independent accountant’sPwC’s communications with the Audit CommitteesCommittee concerning independence and hasindependence. We have discussed with the auditors the auditors’ independence. Our Audit Committee has alsoPwC matters relating to its independence, including a review of both audit and non-audit fees, and considered the compatibility of non-audit services with the auditors’PwC’s independence.
During 2016, our Audit Committee met with members of senior management and the independent registered public accounting firm to review the certifications provided by our chief executive officer and our chief financial officer under Sarbanes-Oxley, the rules and regulations of the SEC and the overall certification process. At these meeting, our officers reviewed each of the Sarbanes-Oxley certification requirements concerning internal control over financial reporting and any fraud, whether or not material, involving management or other employees with a significant role in the internal control over financial reporting.
Conclusion
Based on our Audit Committee’s review and discussions referred to above, our Audit Committee recommended that our Board include the audited financial statements in our annual report on Form 10-K for the year ended December 31, 20162021 for filing with the SEC.
AUDIT COMMITTEE MEMBERS
Joseph F. Hoffman, Chair
Robert P. Badavas
Brad Koenig
Wade Loo
The Audit Committee Report does not constitute soliciting material and shall not be deemed to be filed or incorporated by reference into any other Company filing under the Securities Act or the Exchange Act except to the extent that the Company specifically incorporates the Audit Committee Report by reference therein.
PROPOPOSAL 3 | 51 |
STOCKHOLDER PROPOSALS
A stockholder who intends to present a proposal at our 20182023 annual meeting of stockholders pursuant to the SEC’s Rule 14a-8 must submit the proposal in writing to Hercules at our address in Palo Alto, California, and we must receive the proposal on or before July 12, 2018,December 30, 2022, in order for the proposal to be considered for inclusion in our Proxy Statement for that meeting. The submission of a proposal does not guarantee its inclusion in our Proxy Statement or presentation at the 20182023 annual meeting of stockholders.
Under our current Bylaws, nominations for directors and proposals of business, other than those to be included in our proxy materials following the procedures described in Rule 14a-8, may be made by stockholders entitled to vote at the meeting if notice is timely given and if the notice contains the information required in our Bylaws. Except as noted below, to be timely, proposals and nominations with respect to the 20182023 annual meeting of stockholders must be delivered to our secretary no earlier than the 150th day prior to the first anniversary of the date of mailing of the notice for the preceding year’s annual meeting and not later than 5:00 p.m., Eastern Time, on the 120th day prior to the first anniversary of the date of the mailing of the notice for the preceding year’s annual meeting. For the 20182023 annual meeting of stockholders, we must receive such proposals and nominations no earlier than June 12, 2018December 3, 2022 and no later than July 12, 2018.January 2, 2023. If the date of the annual meeting has been changed by more than thirty calendar days from the first anniversary of the date of the preceding year’s annual meeting, stockholder proposals or director nominations must be so received no earlier than the 150th day prior to the date of such annual meeting and not later than 5:00 p.m., Eastern Time, on the later of the 120thday prior to the date of such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made. The public announcement of a postponement or adjournment of an annual meeting shall not commence a new time period for the giving of a stockholder’s notice as described above. Proposals must comply with the other requirements contained in our Bylaws, including supporting documentation and other information. Proxies solicited by us will confer discretionary voting authority with respect to these proposals, subject to SEC rules governing the exercise of this authority.
Notices of intention to present proposals at the 20182023 annual meeting of stockholders should be addressed to Melanie Grace,Kiersten Zaza Botelho, Secretary, Hercules Capital, Inc., 400 Hamilton Avenue, Suite 310, Palo Alto, California 94301. We reserve the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements.
Please note that only one copy of the Proxy Statement may be delivered to two or more stockholders who share an address unless we have received contrary instructions from one or more of the stockholders. We will deliver promptly, upon request, a separate copy of any of these documents to stockholders at a shared address to which a single copy of such document(s) was delivered. Stockholders who wish to receive a separate copy of any of these documents, or to receive a single copy of such documents if multiple copies were delivered, now or in the future, should submit their request by writing to us or by calling us at (650) 289-3060. Please direct your written requests to Melanie Grace,Kiersten Zaza Botelho, Secretary, Hercules Capital, Inc., 400 Hamilton Avenue, Suite 310, Palo Alto, CA 94301.
WE WILL FURNISH, WITHOUT CHARGE, A COPY OF OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2016,2021, INCLUDING CONSOLIDATED FINANCIAL STATEMENTS, BUT NOT INCLUDING EXHIBITS, TO EACH OF OUR STOCKHOLDERS OF RECORD ON OCTOBER 30, 2017,APRIL 25, 2022, AND TO EACH BENEFICIAL STOCKHOLDER ON THAT DATE UPON WRITTEN REQUEST MADE TO MELANIE GRACE,KIERSTEN ZAZA BOTELHO, SECRETARY, HERCULES CAPITAL, INC., 400 HAMILTON AVENUE, SUITE 310, PALO ALTO, CA 94301. A REASONABLE FEE WILL BE CHARGED FOR COPIES OF REQUESTED EXHIBITS.
You are cordially invited to attend the 20172022 annual meeting of stockholders in person.to be held virtually at www.virtualshareholdermeeting.com/HTGC2022. Whether or not you plan to attend the 2017virtual 2022 annual meeting, you are requested to complete, date, sign and promptly return the accompanying proxy card in the enclosed postage-paid envelope.
| | By Order of the Board | |
| |
| |
| | Kiersten Zaza Botelho General Counsel, Chief Compliance Officer and Secretary |
STOCKHOLDER PROPOSALS | 52 |
QUESTION AND ANSWER
PROXY STATEMENT GENERAL INFORMATION
Q: | Why did you send me this Proxy Statement? |
A: | We have sent you this Proxy Statement and the enclosed proxy card because our Board is soliciting your proxy to vote at our |
This Proxy Statement summarizes the information regarding the matters to be voted upon at the annual meeting. However, you do not need to attend the annual meeting to vote your shares. You may simply complete, sign and return the enclosed proxy card or vote your shares by telephone or over the Internet in accordance with the instructions contained on the proxy card. If your shares are held in “street name,” you will receive instructions for the voting of your shares from your broker, bank or other nominee, which may permit telephone or Internet voting. Follow the instructions on the voting instruction form that you receive from your broker, bank or other nominee to ensure that your shares are properly voted at the annual meeting. Further information on voting your shares is provided below under “How do I vote?”
We plan to begin mailing this Proxy Statement on or about November 9, 2017
We plan to begin mailing this Proxy Statement on or about May 4, 2022 to all stockholders entitled to vote their shares at our annual meeting.
Q: | Who can vote, and how many votes do I have? |
A: | If you owned shares of our common stock at the close of business on |
Each share of our common stock that you owned on the record date entitles you to one vote on each matter that it is
Each share of our common stock that you owned on the record date entitles you to one vote on each matter to be voted on at the annual meeting.
Q: | How do I vote? |
A: | If your shares are registered in your name, you may vote |
If your shares are held in “street name” by a broker, bank or other nominee, that person, as the record holder of your shares, is required to vote your shares according to your instructions. Your bank, broker or other nominee will send you directions on how to vote those shares, which may include the ability to instruct the voting of your shares by telephone or over the Internet. |
If your shares are held in “street name” by a broker, bank or other nominee, that person, as the record holder of your shares, is required to vote your shares according to your instructions. Your bank, broker or other nominee will send you directions on how to vote those shares, which may include the ability to instruct the voting of your shares by telephone or over the Internet.
If you plan to attend the annual meeting and vote in person, we will give you a proxy card when you arrive. If your shares are held in the name of your broker, bank, or other nominee, you must bring an account statement or letter from that broker, bank or other nominee. The account statement or letter must show that you were the direct or indirect beneficial owner of the shares on October 30, 2017, the record date for voting. Alternatively, you may contact the person in whose name your shares are registered and obtain a proxy from that person and bring it to the annual meeting.
Q: | What is the quorum requirement for the annual meeting? |
A: | A quorum of stockholders must be present for any business to be conducted at the annual meeting. The quorum requirement for holding the annual meeting and transacting business is the presence in person or by proxy of a majority of our outstanding shares entitled to be voted. Abstentions and broker non-votes will be treated as shares present for determining whether a quorum is established. If there are not sufficient votes for a quorum to be established, the chairman of the annual meeting may adjourn the meeting to permit further solicitation of proxies by the company. |
Q: | What does it mean if I receive more than one proxy card? |
A: | If you receive more than one proxy card, your shares are registered in more than one name or are registered in different accounts. Please complete, sign and return each proxy card to ensure that all of your shares are voted. |
QUESTION AND ANSWER | 53 |
Q: | What is householding? |
A: | Some banks, brokers and other nominee record holders may be “householding” our Proxy Statements, annual reports and related materials. “Householding” means that only one copy of these documents may have been sent to multiple stockholders in one household. If you would like to receive your own set of Hercules’ Proxy Statements, annual reports and related materials, or if you share an address with another Hercules stockholder and together both of you would like to receive only a single set of these documents, please contact your bank, broker or other nominee. |
Q: | May I change my vote or revoke my proxy? |
A: | If you are a registered stockholder, you may revoke or change your proxy at any time before it is voted by notifying the secretary of Hercules in writing, by returning a signed proxy with a later date or submitting an electronic proxy as of a later date or by virtually attending the meeting and voting at the meeting. Attendance at the Annual Meeting, in |
Q: | What if I do not |
A: | If you are the stockholder of record of your shares and you do not authorize a proxy to vote your shares by proxy card, by telephone or via the Internet or |
If you hold your shares in “street name,” your bank, broker or other nominee may vote your shares only on those proposals on which it has discretion to vote. Under the rules of the NYSE, your bank, broker or other nominee does not have discretion to vote your shares on non-routine matters. Proposal 1 and Proposal 2 are non-routine matters. As a result, if you hold shares in “street name” through a broker, bank or other nominee, your broker, bank or nominee will not be permitted to exercise voting discretion with respect to Proposal 1, the election of directors or Proposal 2, the advisory vote on executive compensation. Proposal 3, the ratification of the selection of PwC to serve as our independent registered public accounting firm, is a routine matter. As a result, if you beneficially own your shares and you do not provide your broker or nominee with voting instructions, then your broker, bank or nominee will be able to vote your shares for you on Proposal 3. |
If you hold your shares in “street name,” your bank, broker or other nominee may vote your shares only on those proposals on which it has discretion to vote. Under the rules of the NYSE, your bank, broker or other nominee does not have discretion to vote your shares on non-routine matters. Proposal 1, Proposal 2 and Proposal 3 are non-routine matters. As a result, if you hold shares in “street name” through a broker, bank or other nominee, your broker, bank or nominee will not be permitted to exercise voting discretion with respect to Proposal 1, the election of directors, Proposal 2, the advisory vote on executive compensation and Proposal 3, the advisory vote on the frequency of the advisory vote on executive compensation. Therefore, if you do not vote and you do not give your broker or other nominee specific instructions on how to vote for you, then your shares will have no effect on Proposal 1, Proposal 2 or Proposal 3. Proposal 4, the ratification of the selection of PwC to serve as our independent registered public accounting firm, is a routine matter. As a result, if you beneficially own your shares and you do not provide your broker or nominee with voting instructions, then your broker, bank or nominee will be able to vote your shares for you on Proposal 4.
Q: | What are the Board’s recommendations on how to vote my shares? |
A: | Our Board |
• | Proposal 1—FOR the election of the nominees named herein as a director |
• | Proposal 2—FOR the approval of the advisory proposal on named executive officer compensation |
• | Proposal 3—FOR |
In addition, if other matters are presented at the annual meeting, the persons named in the proxy card as proxy holders are authorized to vote on the additional matters as they determine.
QUESTION AND ANSWER | 54 |
Q: | What if I do not specify how my shares are to be voted? |
A: | If you are a stockholder of record and you submit a proxy, but you do not provide voting instructions, your shares will be voted: |
• | Proposal 1—FOR the election of the |
• | Proposal 2—FOR the approval of the advisory proposal on named executive officer compensation |
• | Proposal 3—FOR |
• | In the discretion of the named proxies regarding any other matters properly presented for a vote at the annual meeting | |
If you are a beneficial owner and you do not provide the broker or other nominee that holds your shares with voting instructions, your bank, broker or other nominee will determine if it has the discretionary authority to vote on the particular matter. Under the NYSE’s rules, banks, brokers and other nominees do not have discretion to vote on non-routine matters. Proposal 1 and Proposal 2 are non-routine matters. As a result, if you hold shares in “street name” through a broker, bank or other nominee, your broker, bank or nominee will not be permitted to exercise voting discretion with respect to Proposal 1, the election of directors or Proposal 2, the advisory vote on executive compensation. Therefore, if you do not vote and you do not give your broker or other nominee specific instructions on how to vote for you, then your shares will have no effect on Proposal 1 or Proposal 2. Proposal 3, the ratification of the selection of PwC to serve as our independent registered public accounting firm, is a routine matter. As a result, if you beneficially own your shares and you do not provide your broker or nominee with voting instructions, then your broker, bank or nominee will be able to vote your shares for you on Proposal 3. |
If you are a beneficial owner and you do not provide the broker or other nominee that holds your shares with voting instructions, your bank, broker or other nominee will determine if it has the discretionary authority to vote on the particular matter. Under the NYSE’s rules, banks, brokers and other nominees do not have discretion to vote on non-routine matters. Proposal 1, Proposal 2 and Proposal 3 are non-routine matters. As a result, if you hold shares in “street name” through a broker, bank or other nominee, your broker, bank or nominee will not be permitted to exercise voting discretion with respect to Proposal 1, the election of directors, Proposal 2, the advisory vote on executive compensation and Proposal 3, the advisory vote on the frequency of the advisory vote on executive compensation. Therefore, if you do not vote and you do not give your broker or other nominee specific instructions on how to vote for you, then your shares will have no effect on Proposal 1, Proposal 2 or Proposal 3. Proposal 4, the ratification of the selection of PwC to serve as our independent registered public accounting firm, is a routine matter. As a result, if you beneficially own your shares and you do not provide your broker or nominee with voting instructions, then your broker, bank or nominee will be able to vote your shares for you on Proposal 4.
Q: | What is the vote required for each proposal? |
A: | | | Proposal | | | Vote Required | | | Broker Discretionary | | | Effect of Abstentions and |
| | Proposal | | | Affirmative vote of | | | No | | | Because directors are elected by a | |
| | | | | | | ||||||
| | Proposal | | | Affirmative vote of a majority of the votes cast at the annual meeting in person or by proxy | | | No | | | Abstentions and broker non-votes will not be counted as votes cast and will have no effect on the result of the vote | |
| | | | | | | ||||||
| | Proposal | ||||||||||
| | Affirmative vote of a majority of the votes cast at the annual meeting in person or by proxy | | | Yes | | | Abstentions |
QUESTION AND ANSWER | 55 |
Q: | What are abstentions and “broker non-votes”? |
A: | An abstention represents action by a stockholder to refrain from voting “for” or “against” a proposal. “Broker non-votes” represent votes that |
Q: | Who is paying for the costs of soliciting these proxies? |
A: | Hercules will pay all the costs of soliciting these proxies, including the preparation, assembly, printing and mailing of this Proxy Statement, the proxy card and any additional information furnished to stockholders. In addition to the solicitation of proxies by mail, our officers and employees also may solicit proxies by telephone, fax or other electronic means of communication, or in person. We have has also retained |
Q: | How do I find out the results of the voting at the annual meeting? |
A: | Preliminary voting results will be announced at the annual meeting. Final voting results will be published on Form 8-K within four (4) business days from the date of the annual meeting. |
Q: | Who should I call if I have any questions? |
A: | If you have any questions about the annual meeting, voting or your ownership of our common stock, please call |
QUESTION AND ANSWER | 56 |
HERCULES CAPITAL, INC. 400 HAMILTON AVENUE SUITE 310 PALO ALTO, CA 94301 ATTN: KIERSTEN ZAZA BOTELHO SCAN TO VIEW MATERIALS & VOTE VOTE BY INTERNET - www.proxyvote.com or scan the QR Barcode above Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. During The Meeting - Go to www.virtualshareholdermeeting.com/HTGC2022 You may attend the meeting via the Internet and vote during the meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717 TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY For Withhold For All All All Except The Board of Directors recommends you vote FOR the following: 1. Election of Directors Nominees 01) Scott Bluestein 02) Wade Loo To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. The Board of Directors recommends you vote FOR the following proposals: For Against Abstain 2. Approve, on an advisory basis, the compensation of the Company's named executive officers. 3. Ratify the selection of PricewaterhouseCoopers LLP to serve as our independent public accounting firm for the year ending December 31, 2022. NOTE: All such other business as may properly come before the meeting will be transacted or any adjournment thereof. Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date 0000559557_1 R1.0.0.24
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice and Proxy Statement and Form 10-K are available at www.proxyvote.comHERCULES CAPITAL, INC. Virtual Annual Meeting of Stockholders June 23, 2022 This proxy is solicited by the Board of Directors. The stockholder(s) hereby appoint(s) Scott Bluestein and Kiersten Zaza Botelho, or either of them, as proxies, each with the power to appoint his or her substitute, and hereby authorize(s) them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of common stock of HERCULES CAPITAL, INC. that the stockholder(s) is/are entitled to vote at the Virtual Annual Meeting of Stockholders to be held at 9:00 a.m., PT on June 23, 2022, at www.virtualshareholdermeeting.com/HTGC2022, and any adjournment or postponement thereof. This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors' recommendations. Continued and to be signed on reverse side 0000559557_2 R1.0.0.24