

[Federal Register: September 19, 2007 (Volume 72, Number 181)]
[Notices]               
[Page 53610-53612]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19se07-128]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 27968; 812-13388]

 
Hercules Technology Growth Capital, Inc.; Notice of Application

September 12, 2007.
AGENCY: Securities and Exchange Commission (The ``Commission'').

ACTION: Notice of an application for an order under section 61(a)(3)(B) 
of the Investment Company Act of 1940 (the ``Act'').

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SUMMARY OF APPLICATION: Applicant, Hercules Technology Growth Capital, 
Inc. (``HTGC''), requests an order that would approve the proposal to 
issue stock options to directors who are not officers or employees of 
HTGC (``Non-employee Directors'') under HTGC's amended and restated 
2006 Non-employee Director Plan (the ``Amended and Restated 2006 
Plan''). The requested order would supersede a prior order issued to 
HTGC under section 61(a)(3)(B) of the Act (the ``HTGC Options 
Order'').\1\
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    \1\ Hercules Technology Growth Capital, Inc., Investment Company 
Act release Nos. 27668 (Jan. 19, 2007) (notice) and 27699 (Feb. 15, 
2007) (order).

FILING DATES: The application was filed on May 24, 2007 and amended on 
September 10, 2007. HTGC has agreed to file an amendment during the 
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notice period, the substance of which is reflected in this notice.

Hearing or Notification of Hearing:  An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicant with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on October 9, 2007, and should be accompanied by proof of service 
on applicant, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F. 
Street, NE., Washington, DC 20549-1090. HTGC, c/o Manuel A. Henriquez, 
Chairman of the Board, President and Chief Executive Officer, 400 
Hamilton Avenue, Suite 310, Palo Alto, California 94301.

FOR FURTHER INFORMATION CONTACT: Laura J. Riegel, Senior Counsel, at 
(202) 551-6873, or Nadya B. Roytblat, Assistant Director, at (202) 551-
6821 (Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application is available for a fee at the 
Commission's Public Reference Branch, 100 F Street, NE., Washington, DC 
20549-0102 (tel. 202-551-5850).

Applicant's Representations

    1. HTGC, a Maryland corporation, is a business development company 
(``BDC'') within the meaning of section 2(a)(48) of the Act.\2\ HTGC is 
a specialty finance company that provides debt and equity growth 
capital to technology-related and life-science companies at all stages 
of development. HTGC's business and affairs are managed under the 
direction of its board of directors (``Board''). HTGC does not have an 
external investment adviser within the meaning of section 2(a)(20) of 
the Act.
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    \2\ Section 2(a)(48) generally defines a BDC to be any closed-
end investment company that operates for the purpose of making 
investments in securities described in sections 55(a)(1) through 
55(a)(3) of the Act and makes available significant managerial 
assistance with respect to the issuers of such securities.
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    2. HTGC requests an order under section 61(a)(3)(B) of the Act that 
would approve the proposal under the Amended and Restated 2006 Plan to

[[Page 53611]]

issue stock options to Non-employee Directors to purchase shares of 
HTGC's common stock, $.001 par value per share (``Common Stock''). The 
requested order would supersede the HTGC Options Order approving the 
issuance of stock options to Non-employee Directors to purchase Common 
Stock under HTGC's 2006 Non-employee Director Plan (the ``Original 2006 
Plan'').\3\
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    \3\ HTGC has not issued any options to Non-employee Directors 
under the Original 2006 Plan. At a meeting held on May 17, 2007, the 
Board voted to approve the suspension of the Original 2006 Plan and 
the grant of any options under the Original 2006 Plan.
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    3. HTGC currently has a four member Board, one of whom is 
considered to be an ``interested person'' of HTGC within the meaning of 
section 2(a)(19) of the Act and three of whom are not interested 
persons (``Non-interested Directors''). HTGC currently has three Non-
employee Directors.\4\ The Non-employee Directors are all Non-
interested Directors, but it is possible that HTGC may have Non-
employee Directors in the future who are interested persons of HTGC.\5\
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    \4\ Because HTGC has a staggered Board, each director on the 
Board is elected to a three year term subject to reelection only 
every three years.
    \5\ Each Non-employee Director receives an annual fee of 
$50,000, $1,500 for each committee meeting attended, and 
reimbursement of reasonable out-of-pocket expenses incurred in 
attending Board meetings. Each Non-employee Director who serves as 
chairperson of a Board committee receives an additional $15,000 per 
year.
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    4. The Board approved the Amended and Restated 2006 Plan on March 
7, 2007 and amendments to the Amended and Restated 2006 Plan by 
unanimous written consent on July 20, 2007.\6\ At the annual meeting of 
stockholders of HTGC held on June 21, 2007, stockholders approved the 
Amended and Restated 2006 Plan and the separate 2007 amendment and 
restatement of HTGC's amended and restated 2004 Equity Incentive Plan 
(such plan, before both amendments and restatements, the ``Original 
2004 Plan''; as first amended and restated, the ``First Amended and 
Restated 2004 Plan''; and as further amended and restated in 2007, the 
``Second Amended and Restated 2004 Plan''). Participants under the 
Second Amended and Restated 2004 Plan are limited to employees of HTGC 
and do not include Non-employee Directors.
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    \6\ The Board determined that its amendments to the Amended and 
Restated 2006 Plan complied with that section of the Amended and 
Restated 2006 Plan authorizing plan amendments and did not 
necessitate a stockholder vote pursuant to the provisions of the Act 
and the rules promulgated thereunder.
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    5. A Commission order permits HTGC to issue shares of Common Stock 
that, at the time of issuance, are subject to certain forfeiture 
restrictions, and thus are restricted as to their transferability until 
such forfeiture restrictions have lapsed (the ``Restricted Stock'') to 
Non-employee Directors under the Amended and Restated 2006 Plan and 
employees of HTGC and employees of its wholly-owned consolidated 
subsidiaries under the Second Amended and Restated 2004 Plan (``HTGC 
Restricted Stock Order'').\7\ In light of the HTGC Restricted Stock 
Order, HTGC believes that it will no longer need to issue options to 
purchase as many shares of Common Stock as it did under the Original 
2006 Plan to adequately compensate Non-employee Directors. As compared 
to the Original 2006 Plan, the Amended and Restated 2006 Plan would 
reduce the number of options granted to Non-employee Directors, change 
the timeframe within which such options are granted, and change the 
vesting provisions of such options.
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    \7\ Hercules Technology Growth Capital, Inc., Investment Company 
Act Release Nos. 27815 (May 2, 2007) (notice) and 27838 (May 23, 
2007) (order).
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    6. Under the Amended and Restated 2006 Plan, a maximum of 1,000,000 
shares of Common Stock, in the aggregate, may be issued to Non-employee 
Directors and 40,000 shares of Common Stock may be issued to any Non-
employee Director in any calendar year. Each individual initially 
elected to the Board as a Non-employee Director after the date on which 
the Commission issues an order on the application (the ``Order Date'') 
will automatically be granted options to purchase 10,000 shares of 
Common Stock (the ``Initial Grants''). The options issued under the 
Initial Grants will vest as to one-half of the 10,000 shares of Common 
Stock on each of the first two anniversaries of the date of grant. Each 
Non-employee Director automatically will be granted options to purchase 
15,000 shares of Common Stock on the date of such Non-employee 
Director's reelection to the Board (the ``Periodic Grants''). The 
options issued under the Periodic Grants will vest as to one-third of 
the 15,000 shares of Common Stock on each of the three anniversaries of 
the date of grant. Non-employee Directors who hold office on the Order 
Date will be granted options for a number of shares of Common Stock 
equal to the product of (x) the number of years remaining in their 
then-current term divided by three and (y) 15,000. These options will 
vest as to 5,000 shares of Common Stock on each anniversary of the date 
of grant over the remainder of such Non-employee Director's term in 
office.
    7. Under the terms of the Amended and Restated 2006 Plan, the 
exercise price of an option will not be less than the current market 
value of, or if no such market value exists, the current net asset 
value per share of, Common Stock on the date of the issuance of the 
option.\8\ Options granted under the Amended and Restated 2006 Plan 
will expire ten years from the date of grant and may not be transferred 
except for disposition by gift, will or intestacy.
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    \8\ Under the Amended and Restated 2006 Plan, ``current market 
value'' is the closing price of the Common Stock on the NASDAQ 
Global Market (or if different, on the exchange where the Common 
Stock is traded) on the date the option is granted.
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    8. As of July 31, 2007, HTGC had issued 6,668 shares of Restricted 
Stock to Non-employee Directors under the Amended and Restated 2006 
Plan, had outstanding options to purchase 2,782,513 shares of Common 
Stock and had outstanding warrants to purchase 382,629 shares of Common 
Stock. As of that date, all outstanding options to purchase Common 
Stock consisted entirely of options issued to directors, officers, and 
employees of HTGC under the Original 2004 Plan and the First Amended 
and Restated 2004 Plan.\9\ As of July 31, 2007, of the outstanding 
warrants to purchase 382,629 shares of Common Stock, warrants issued to 
officers and employees of HTGC under the Original 2004 Plan to purchase 
10,693 shares of Common Stock were outstanding. The other warrants 
outstanding as of that date were issued to directors, officers, and 
employees of HTGC under a warrant agreement dated June 22, 2004 by and 
between HTGC and American Stock Transfer & Trust Company, as warrant 
agent (the ``Warrant Agreement''). HTGC has no outstanding warrants and 
options to purchase its voting securities, other than the warrants and 
options issued under the Original 2004 Plan, the Warrant Agreement, and 
the First Amended and Restated 2004 Plan.
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    \9\ As of July 31, 2007, HTGC had outstanding options issued to 
directors, officers, and employees of HTGC under the Original 2004 
Plan and the First Amended and Restated 2004 Plan to purchase 
1,221,013 shares of Common Stock and 1,561,500 shares of Common 
Stock, respectively.
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    9. As of July 31, 2007, HTGC had outstanding 32,414,178 shares of 
Common Stock.\10\ As of that date, the amount of voting securities 
issued as Restricted Stock under the Amended and Restated 2006 Plan and 
that would result from the exercise of all outstanding warrants and 
options would be 3,171,180 shares of Common Stock,

[[Page 53612]]

or approximately 9.78% of HTGC's outstanding voting securities. As of 
July 31, 2007, the amount of voting securities issued as Restricted 
Stock under the Amended and Restated 2006 Plan and that would result 
from the exercise of all outstanding warrants and options issued to 
directors, officers, and employees of HTGC under the Original 2004 Plan 
and the First Amended and Restated 2004 Plan would be 2,799,874 shares 
of Common Stock, or approximately 8.66% of HTGC's outstanding voting 
securities.
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    \10\ The outstanding 32,414,178 shares of Common Stock, as of 
July 31, 2007, include the 6,668 shares of Restricted Stock issued 
under the Amended and Restated 2006 Plan. The Common Stock, of which 
the Restricted Stock is a particular type, constitutes the only 
voting security of HTGC currently outstanding.
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Applicant's Legal Analysis

    1. Section 63(3) of the Act permits a BDC to sell its common stock 
at a price below current net asset value upon the exercise of any 
option issued in accordance with section 61(a)(3) of the Act. Section 
61(a)(3)(B) of the Act provides, in pertinent part, that a BDC may 
issue to its non-employee directors options to purchase its voting 
securities pursuant to an executive compensation plan, provided that: 
(a) The options expire by their terms within ten years; (b) the 
exercise price of the options is not less than the current market value 
of the underlying securities at the date of the issuance of the 
options, or if no market exists, the current net asset value of the 
voting securities; (c) the proposal to issue the options is authorized 
by the BDC's shareholders, and is approved by order of the Commission 
upon application; (d) the options are not transferable except for 
disposition by gift, will or intestacy; (e) no investment adviser of 
the BDC receives any compensation described in section 205(a)(1) of the 
Investment Advisers Act of 1940, except to the extent permitted by 
clause (b)(1) or (b)(2) of that section; and (f) the BDC does not have 
a profit-sharing plan as described in section 57(n) of the Act.
    2. In addition, section 61(a)(3) of the Act provides that the 
amount of the BDC's voting securities that would result from the 
exercise of all outstanding warrants, options, and rights at the time 
of issuance may not exceed 25% of the BDC's outstanding voting 
securities, except that if the amount of voting securities that would 
result from the exercise of all outstanding warrants, options, and 
rights issued to the BDC's directors, officers, and employees pursuant 
to an executive compensation plan would exceed 15% of the BDC's 
outstanding voting securities, then the total amount of voting 
securities that would result from the exercise of all outstanding 
warrants, options, and rights at the time of issuance will not exceed 
20% of the outstanding voting securities of the BDC.
    3. HTGC represents that the proposal to issue options to Non-
employee Directors under the Amended and Restated 2006 Plan meets all 
of the requirements of section 61(a)(3) of the Act. HTGC states that 
the Board, including the Non-employee Directors, actively oversees 
HTGC's affairs and HTGC relies on the judgment and experience of the 
Board. HTGC states that the Non-employee Directors provide advice on 
financial and operational issues, credit and underwriting policies, 
asset valuation, strategic direction, as well as serve on various 
committees. HTGC states that the professional experiences and expertise 
of the Non-employee Directors make them valuable resources for 
management. HTGC states that the options that will be granted to the 
Non-employee Directors under the Amended and Restated 2006 Plan will 
provide significant incentives to the Non-employee Directors to remain 
on the Board and to devote their best efforts to the success of HTGC's 
business and the enhancement of stockholder value. HTGC states that the 
options granted under the Amended and Restated 2006 Plan will provide a 
means for the Non-employee Directors to increase their ownership 
interests in HTGC, thereby ensuring close identification of their 
interests with those of HTGC and its stockholders. HTGC asserts that by 
providing incentives in the form of options under the Amended and 
Restated 2006 Plan, HTGC would be better able to retain and attract 
qualified persons to serve as Non-employee Directors.
    4. HTGC submits that the proposal to issue options to Non-employee 
Directors to purchase Common Stock under the Amended and Restated 2006 
Plan is fair and reasonable and does not involve overreaching of HTGC 
or its stockholders. HTGC states that the amount of voting securities 
issued as Restricted Stock under the Amended and Restated 2006 Plan and 
that would result from the exercise of all outstanding options and 
warrants issued to directors, officers and employees of HTGC under the 
Original 2004 Plan and the First Amended and Restated 2004 Plan would 
be 2,799,874 shares of Common Stock, or approximately 8.66% of HTGC's 
outstanding voting securities as of July 31, 2007, which is below the 
percentage limitations in the Act. In light of the above, HTGC asserts 
that the granting of options pursuant to the Amended and Restated 2006 
Plan will not have a substantial dilutive effect on the net asset value 
of Common Stock.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-18388 Filed 9-18-07; 8:45 am]

BILLING CODE 8010-01-P
